– Reported revenue of $2.7 billion – Expanded GAAP operating
margin to 14.2%; non-GAAP operating margin to 15.7% – Delivered
GAAP diluted earnings per share (EPS) of $1.20; non-GAAP diluted
EPS of $1.35 – Returned $315 million to shareholders; declared cash
dividend of $0.65 per share
Seagate Technology plc (NASDAQ: STX) (the “Company” or
“Seagate”) today reported financial results for its fiscal second
quarter ended January 3, 2020.
“In the December quarter, Seagate expanded non-GAAP operating
margin by nearly 300 basis points and delivered non-GAAP EPS growth
of more than 30% quarter-over-quarter while driving strong
operational cash flow in an improving demand environment,” said
Dave Mosley, Seagate’s chief executive officer.
“We executed the company's fastest ever product ramp with our
industry capacity leading 16-terabyte drives, which contributed to
both sequential revenue growth and record exabyte shipments in the
December quarter. We are poised to benefit from ongoing demand for
mass capacity storage which we expect to offset typical seasonal
declines in the legacy markets in the first half of the calendar
year.”
Quarterly Financial Results
GAAP
Non-GAAP
FQ2 2020
FQ2 2019
FQ2 2020
FQ2 2019
Revenue ($M)
$
2,696
$
2,715
$
2,696
$
2,715
Gross Margin
28.1
%
29.2
%
28.7
%
29.9
%
Operating Margin
14.2
%
15.3
%
15.7
%
17.2
%
Net Income ($M)
$
318
$
384
$
359
$
432
Diluted Earnings Per Share
$
1.20
$
1.34
$
1.35
$
1.51
The Company generated $480 million in cash flow from operations
and $286 million in free cash flow during the fiscal second quarter
2020. Seagate maintained a healthy balance sheet and during the
fiscal second quarter 2020, the Company paid cash dividends of $165
million and repurchased 2.5 million ordinary shares for $150
million. Cash and cash equivalents totaled $1.7 billion at the end
of the quarter. There were 261 million ordinary shares issued and
outstanding as of the end of the quarter.
All periods presented exclude share-based compensation from
non-GAAP results. For a detailed reconciliation of GAAP to non-GAAP
results, see accompanying financial tables.
Seagate has issued a Supplemental Financial Information
document, which is available on Seagate’s Investor Relations
website at investors.seagate.com.
Quarterly Cash Dividend
The Board of Directors of the Company (the “Board”) declared a
quarterly cash dividend of $0.65 per share, which will be payable
on April 8, 2020 to shareholders of record as of the close of
business on March 25, 2020. The payment of any future quarterly
dividends will be at the discretion of the Board and will be
dependent upon Seagate’s financial position, results of operations,
available cash, cash flow, capital requirements and other factors
deemed relevant by the Board.
Business Outlook
The business outlook for the fiscal third quarter 2020 is based
on our current assumptions and expectations; actual results may
differ materially, as a result of, among other things, the
important factors discussed in the Cautionary Note Regarding
Forward-Looking Statements section of this release.
The Company is providing the following guidance for its fiscal
third quarter 2020:
- Revenue of $2.7 billion, plus or minus 7%
- Non-GAAP diluted EPS of $1.35, plus or minus 7%
Guidance regarding non-GAAP diluted EPS excludes known charges
related to amortization of acquired intangible assets and estimated
share-based compensation expenses of $0.05 per share and $0.11 per
share, respectively.
We have not reconciled our non-GAAP diluted EPS to the most
directly comparable GAAP measure because material items that may
impact these measures are out of our control and/or cannot be
reasonably predicted including, but not limited to, accelerated
depreciation, impairment, and other charges related to cost saving
efforts, restructuring charges, strategic investment losses or
impairment recognized, income tax adjustments on these measures,
and other charges or benefits that may arise. The amounts of these
measures are not currently available, but may be material to future
results. A reconciliation of the non-GAAP diluted EPS to the
corresponding GAAP measures is not available without unreasonable
effort. A reconciliation of our historical non-GAAP financial
measures to their nearest GAAP equivalent is contained in this
release.
Investor Communications
Seagate management will hold a public webcast today at 2:00 p.m.
Pacific / 5:00 p.m. Eastern that can be accessed on its Investor
Relations website at investors.seagate.com.
An archived audio webcast of this event will be available on
Seagate’s Investor Relations website at investors.seagate.com
shortly following the event conclusion.
About Seagate
Seagate crafts the datasphere, helping to maximize humanity’s
potential by innovating world-class, precision-engineered data
management solutions with a focus on sustainable partnerships.
Learn more about Seagate by visiting www.seagate.com or following
us on Twitter, Facebook, LinkedIn, YouTube, and subscribing to our
blog.
© 2020 Seagate Technology LLC. All rights reserved. Seagate,
Seagate Technology, and the Spiral logo are registered trademarks
of Seagate Technology LLC in the United States and/or other
countries.
Cautionary Note Regarding
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements provide current expectations of
future events based on certain assumptions and include any
statement that does not directly relate to any historical fact.
Forward-looking statements include, among other things, statements
about the Company’s plans, strategies and prospects, financial
outlook for future periods, including the fiscal third quarter
2020, expectations regarding the Company’s products, our ability to
ramp production, storage industry trends and market demand, shifts
in technology, the Company’s ability to meet market and industry
expectations, and the effects of these future trends and
expectations on the Company’s business as well as dividend issuance
plans for the fiscal quarter ending April 3, 2020 and beyond.
Forward-looking statements generally can be identified by words
such as “expects,” “intends,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “projects,” “should,” “may,” “will,” "will
continue," "can," "could" or the negative of these words,
variations of these words and comparable terminology. Information
concerning risks, uncertainties and other factors that could cause
results to differ materially from the expectations described in
this press release include, among others, those risks and
uncertainties included under the captions “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in the Company’s Annual Report on Form 10-K
filed with the U.S. Securities and Exchange Commission (“SEC”) on
August 2, 2019, which is available on our investor relations
website at investors.seagate.com. Additional information will also
be set forth in our Quarterly Report on Form 10-Q for the quarter
ended January 3, 2020. Undue reliance should not be placed on the
forward-looking statements in this press release, which are based
on information available to us on, and which speak only as of, the
date hereof. The Company undertakes no obligation to update
forward-looking statements to reflect events or circumstances after
the date they were made, unless required by applicable law.
The inclusion of Seagate’s website addresses in this press
release are intended to be inactive textual references only and not
active hyperlinks. The information contained in, or that can be
accessed through, Seagate’s websites and social media channels are
not part of this press release.
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In millions)
January 3, 2020
June 28, 2019
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
1,744
$
2,220
Accounts receivable, net
1,112
989
Inventories
1,148
970
Other current assets
148
184
Total current assets
4,152
4,363
Property, equipment and leasehold
improvements, net
2,049
1,869
Goodwill
1,237
1,237
Other intangible assets, net
83
111
Deferred income taxes
1,119
1,114
Other assets, net
292
191
Total Assets
$
8,932
$
8,885
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
1,870
$
1,420
Accrued employee compensation
191
169
Accrued warranty
80
91
Current portion of long-term debt
6
—
Accrued expenses
553
552
Total current liabilities
2,700
2,232
Long-term accrued warranty
89
104
Long-term accrued income taxes
3
4
Other non-current liabilities
175
130
Long-term debt
4,135
4,253
Total Liabilities
7,102
6,723
Total Equity
1,830
2,162
Total Liabilities and Equity
$
8,932
$
8,885
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In millions, except per share
data)
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
January 3, 2020
October 4, 2019
December 28,
2018
January 3, 2020
December 28,
2018
Revenue
$
2,696
$
2,578
$
2,715
$
5,274
$
5,706
Cost of revenue
1,938
1,907
1,921
3,845
3,999
Product development
250
255
246
505
512
Marketing and administrative
120
122
120
242
235
Amortization of intangibles
4
4
5
8
11
Restructuring and other, net
—
17
7
17
30
Total operating expenses
2,312
2,305
2,299
4,617
4,787
Income from operations
384
273
416
657
919
Interest income
4
11
22
15
46
Interest expense
(48
)
(55
)
(56
)
(103
)
(114
)
Other, net
(4
)
(31
)
16
(35
)
15
Other expense, net
(48
)
(75
)
(18
)
(123
)
(53
)
Income before income taxes
336
198
398
534
866
Provision (benefit) for income taxes
18
(2
)
14
16
32
Net income
$
318
$
200
$
384
$
518
$
834
Net income per share:
Basic
$
1.21
$
0.75
$
1.35
$
1.96
$
2.92
Diluted
1.20
0.74
1.34
1.93
2.88
Number of shares used in per share
calculations:
Basic
262
266
285
264
286
Diluted
265
270
287
268
290
Cash dividends declared per ordinary
share
$
0.65
$
0.63
$
0.63
$
1.28
$
1.26
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
For the Six Months
Ended
January 3, 2020
December 28,
2018
OPERATING ACTIVITIES
Net income
$
518
$
834
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
185
272
Share-based compensation
53
45
Deferred income taxes
(4
)
1
Other non-cash operating activities,
net
47
(44
)
Changes in operating assets and
liabilities:
Accounts receivable, net
(124
)
135
Inventories
(172
)
(47
)
Accounts payable
458
(240
)
Accrued employee compensation
22
(89
)
Accrued expenses, income taxes and
warranty
(38
)
(16
)
Other assets and liabilities
(9
)
24
Net cash provided by operating
activities
936
875
INVESTING ACTIVITIES
Acquisition of property, equipment and
leasehold improvements
(341
)
(304
)
Proceeds from settlement of foreign
currency forward exchange contracts
—
66
Proceeds from sale of strategic
investments
—
10
Proceeds from the sale of assets
1
6
Purchases of investments
(45
)
(8
)
Net cash used in investing activities
(385
)
(230
)
FINANCING ACTIVITIES
Redemption and repurchase of debt
(645
)
(499
)
Dividends to shareholders
(335
)
(361
)
Repurchases of ordinary shares
(600
)
(286
)
Taxes paid related to net share settlement
of equity awards
(39
)
(30
)
Net proceeds from issuance of long-term
debt
498
—
Proceeds from issuance of ordinary shares
under employee stock plans
69
35
Other financing activities, net
(2
)
—
Net cash used in financing activities
(1,054
)
(1,141
)
Effect of foreign currency exchange rate
changes on cash, cash equivalents and restricted cash
(2
)
(1
)
Decrease in cash, cash equivalents and
restricted cash
(505
)
(497
)
Cash, cash equivalents and restricted cash
at the beginning of the period
2,251
1,857
Cash, cash equivalents and restricted cash
at the end of the period
$
1,746
$
1,360
Use of non-GAAP financial information
The Company uses non-GAAP measures of adjusted revenue, gross
margin, gross margin as a percentage of revenue, operating
expenses, income from operations, operating margin as a percentage
of revenue, net income, diluted EPS, and free cash flow, which are
adjusted from results based on GAAP to exclude certain benefits,
expenses, gains and losses. These non-GAAP financial measures may
be provided to enhance the user’s overall understanding of the
Company’s current financial performance and its prospects for the
future. Specifically, the Company believes non-GAAP results provide
useful information to both management and investors as these
non-GAAP results exclude certain benefits, expenses, gains and
losses that it believes are not indicative of its core operating
results and because it is similar to the approach used in
connection with the financial models and estimates published by
financial analysts who follow the Company. Free cash flow does not
reflect all of the Company's expenses and non-cash items, and does
not reflect the Company's uses of cash in financing and investing
activities.
These non-GAAP results are some of the measurements management
uses to assess the Company’s performance, allocate resources and
plan for future periods. Reported non-GAAP results should only be
considered as supplemental to results prepared in accordance with
GAAP, and not considered as a substitute or replacement for, or
superior to, GAAP results. These non-GAAP measures may differ from
the non-GAAP measures reported by other companies in its
industry.
SEAGATE TECHNOLOGY PLC
RECONCILIATIONS OF GAAP TO
NON-GAAP MEASURES
(In millions, except per share
amounts and gross margin)
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
January 3, 2020
October 4, 2019
December 28, 2018 (a)
January 3, 2020
December 28, 2018 (a)
GAAP Revenue
$
2,696
$
2,578
$
2,715
$
5,274
$
5,706
Adjustment to discontinued products
—
—
—
—
1
Non-GAAP Revenue
$
2,696
$
2,578
$
2,715
$
5,274
$
5,707
GAAP Gross Margin
$
758
$
671
$
794
$
1,429
$
1,707
Adjustment to discontinued products
—
—
—
—
1
Amortization of acquired intangible
assets
10
10
13
20
26
Share-based compensation
6
7
6
13
11
Restructuring and other, net
—
—
(1
)
—
(1
)
Non-GAAP Gross Margin
$
774
$
688
$
812
$
1,462
$
1,744
GAAP Gross Margin
28.1
%
26.0
%
29.2
%
27.1
%
29.9
%
Non-GAAP Gross Margin
28.7
%
26.7
%
29.9
%
27.7
%
30.6
%
GAAP Operating Expenses
$
374
$
398
$
378
$
772
$
788
Accelerated depreciation, impairment and
other charges related to cost saving efforts
—
—
(1
)
—
(2
)
Amortization of acquired intangible
assets
(3
)
(3
)
(5
)
(6
)
(9
)
Restructuring and other, net
—
(17
)
(7
)
(17
)
(30
)
Share-based compensation
(21
)
(19
)
(21
)
(40
)
(34
)
Non-GAAP Operating Expenses
$
350
$
359
$
344
$
709
$
713
GAAP Income From Operations
$
384
$
273
$
416
$
657
$
919
Adjustment to discontinued products
—
—
—
—
1
Accelerated depreciation, impairment and
other charges related to cost saving efforts
—
—
1
—
2
Amortization of acquired intangible
assets
13
13
18
26
35
Restructuring and other, net
—
17
7
17
30
Share-based compensation
27
26
27
53
45
Other charges
—
—
(1
)
—
(1
)
Non-GAAP Income From Operations
$
424
$
329
$
468
$
753
$
1,031
GAAP Operating Margin
14.2
%
10.6
%
15.3
%
12.5
%
16.1
%
Non-GAAP Operating Margin
15.7
%
12.8
%
17.2
%
14.3
%
18.1
%
SEAGATE TECHNOLOGY PLC
RECONCILIATIONS OF GAAP TO
NON-GAAP MEASURES
(In millions, except per share
amounts and gross margin)
(Unaudited)
For the Three Months
Ended
For the Six Months
Ended
January 3, 2020
October 4, 2019
December 28, 2018 (a)
January 3, 2020
December 28, 2018 (a)
GAAP Net Income
$
318
$
200
$
384
$
518
$
834
Adjustment to discontinued products
—
—
—
—
1
Accelerated depreciation, impairment and
other charges related to cost saving efforts
—
—
1
—
2
Amortization of acquired intangible
assets
13
13
18
26
35
Restructuring and other, net
—
17
7
17
30
Losses recognized on the early redemption
and repurchase of debt
—
30
—
30
—
Strategic investment losses (gains) or
impairment recognized
1
—
(2
)
1
2
Share-based compensation
27
26
27
53
45
Other charges
—
—
(1
)
—
(1
)
Income tax adjustments
—
(8
)
(2
)
(8
)
(2
)
Non-GAAP Net Income
$
359
$
278
$
432
$
637
$
946
Shares used in diluted net income per
share calculation
265
270
287
268
290
GAAP Diluted Net Income Per
Share
$
1.20
$
0.74
$
1.34
$
1.93
$
2.88
Non-GAAP Diluted Net Income Per
Share
1.35
1.03
1.51
2.38
3.26
GAAP Net Cash Provided by Operating
Activities
$
480
$
456
$
288
$
936
$
875
Acquisition of property, equipment and
leasehold improvements
194
147
127
341
304
Free Cash Flow
$
286
$
309
$
161
$
595
$
571
(a) In the fiscal first quarter of 2020, the Company began
excluding share-based compensation from non-GAAP results. To
provide improved visibility and comparability, the Company has
reflected this change to its non-GAAP results retrospectively to
the earliest date presented.
The Company’s Non-GAAP measures are adjusted for the
following items:
Adjustment to discontinued products These adjustments
relate to sales of certain discontinued products or changes in
sales provision for discontinued products. These adjustments are
inconsistent in amount and frequency and are excluded in the
non-GAAP measures as these adjustments are not indicative of the
underlying ongoing operating performance.
Accelerated depreciation, impairment and other charges
related to cost saving efforts These expenses are excluded in
the non-GAAP measures due to the inconsistency in amount and
frequency and are excluded to facilitate a more meaningful
evaluation of the Company’s current operating performance and
comparison to its past periods’ operating performance.
Amortization of acquired intangible assets The Company
records expense from amortization of intangible assets that were
acquired in connection with its business combinations over their
estimated useful lives. Such charges are inconsistent in size and
are significantly impacted by the timing and magnitude of the
Company’s acquisitions. Consequently, these expenses are excluded
in the non-GAAP measures to facilitate a more meaningful evaluation
of its current operating performance and comparison to its past
periods’ operating performance.
Share-based compensation As disclosed in the Company’s
fiscal fourth quarter 2019 earnings release, share-based
compensation expense is excluded from its non-GAAP results. These
expenses consist primarily of expenses for employee share-based
compensation. Given the variety of equity awards used by companies,
the varying methodologies for determining share-based compensation
expense, the subjective assumptions involved in those
determinations, and the volatility in valuations that can be driven
by market conditions outside the Company’s control, the Company
believes excluding share-based compensation expense enhances the
ability of management and investors to understand and assess the
underlying performance of its business over time and compare it
against the Company’s peers, a majority of whom also exclude
share-based compensation expense from their non-GAAP results.
Other charges The other charges primarily include
write-offs of certain discontinued inventory and expense related to
disposed business. These charges are inconsistent in amount and
frequency and are excluded in the non-GAAP measures to facilitate a
more meaningful evaluation of its current operating performance and
comparison to its past periods’ operating performance.
Restructuring and other, net Restructuring and other, net
are costs associated with restructuring plans that are primarily
related to costs associated with reduction in the Company’s
workforce, exiting certain facilities and other related costs.
These also exclude charges or gains from sale of properties. These
costs or benefits do not reflect the Company’s ongoing operating
performance and consequently are excluded from the non-GAAP
measures to facilitate a more meaningful evaluation of its current
operating performance and comparison to its past periods’ operating
performance.
Losses recognized on the early redemption and repurchase of
debt From time to time, the Company incurs losses from the
early redemption and repurchase of certain long-term debt
instruments. These losses represent the difference between the
reacquisition costs and the par value of the debt extinguished and
include the write off of any related unamortized debt issuance
costs. The amount of these charges may be inconsistent in size and
varies depending on the timing of the repurchase of debt.
Strategic investment losses (gains) or impairment
recognized From time to time, the Company incurs losses or
gains from strategic investments accounted for under the equity
method of accounting or records impairment charges which are not
considered as part of its ongoing operating performance. The
resulting expense or gain is inconsistent in amount and frequency
and consequently is excluded from the non-GAAP measures to
facilitate a more meaningful evaluation of its current operating
performance and comparison to its past periods’ operating
performance.
Income tax adjustments Provision or benefit for income
taxes represents the tax effects of non-GAAP adjustments determined
using a hybrid with and without method and effective tax rate for
the applicable adjustment and jurisdiction.
Free cash flow Free cash flow is a non-GAAP measure
defined as net cash provided by operating activities less
acquisition of property, equipment and leasehold improvements. This
non-GAAP financial measure is used by management to assess the
Company's sources of liquidity, capital structure and operating
performance.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200204005374/en/
Investor Relations Contact: Shanye Hudson, (408) 658-1863
shanye.hudson@seagate.com
Media Contact: Gregory Belloni, (408) 658-1018
gregory.belloni@seagate.com
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