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Seagate Technology Reports Fiscal Second Quarter 2020 Financial Results

– 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

 

$