STX Seagate Technology Holdings PLC

Cash Flow from Operations $656 million, up 72% year-over-year

• Diluted Earnings per Share up 82% year-over-year
• Net Income up 80% year-over-year
• Gross Margin expansion 600 basis points year-over-year
• Average Capacity per Drive up 30% year-over-year

Seagate Technology plc (NASDAQ: STX) (the “Company” or “Seagate”) today reported financial results for the second quarter of fiscal year 2017 ended December 30, 2016. For the second quarter, the Company reported revenue of $2.9 billion, gross margin of 30.8%, net income of $297 million and diluted earnings per share of $1.00. On a non-GAAP basis, which excludes the net impact of certain items, Seagate reported gross margin of 31.8%, net income of $412 million and diluted earnings per share of $1.38.

During the second quarter, the Company generated $656 million in cash flow from operations, paid cash dividends of $188 million, and repurchased 4.1 million ordinary shares for $147 million. Cash, cash equivalents, and short-term investments totaled approximately $1.7 billion at the end of the quarter. There were 295 million ordinary shares issued and outstanding as of the end of the quarter.

“The Company’s product execution, operational performance, and financial results improved every quarter throughout 2016. In the December quarter we achieved near record results in gross margin, cash flow, and profitability. Seagate’s employees are to be congratulated for their incredible effort,” said Steve Luczo, Seagate’s chairman and chief executive officer. “Looking ahead, we are optimistic about the long-term opportunities for Seagate’s business as enterprises and consumers embrace and benefit from the shift of storage to cloud and mobile applications. Seagate is well positioned to work with the leaders in this digital transformation with a broad market-leading storage solution portfolio.”

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 Investors website at www.seagate.com/investors.

Quarterly Cash Dividend

The Board of Directors of the Company (the “Board”) has approved a quarterly cash dividend of $0.63 per share, which will be payable on April 5, 2017 to shareholders of record as of the close of business on March 22, 2017. 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.

Investor Communications

Seagate management will hold a public webcast today at 2:00 p.m. Pacific Time that can be accessed on its Investor Relations website at www.seagate.com/investors. During today’s webcast, the Company will provide an outlook for its third fiscal quarter of 2017, including key underlying assumptions.

An archived audio webcast of this event will be available on Seagate’s Investors website at www.seagate.com/investors shortly following the event conclusion.

About Seagate

To learn more about the Company’s products and services, visit www.seagate.com and follow us on Twitter, Facebook, LinkedIn, Spiceworks, YouTube and subscribe to our blog. The contents of our website and social media channels are not a part of this release.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about the Company’s plans, strategies and prospects, estimates of industry growth, and dividend and share repurchase plans for the fiscal quarter ending March 31, 2017 and beyond. These statements identify prospective information and may include words such as “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “should,” “may,” “will,” or the negative of these words, variations of these words and comparable terminology. These forward-looking statements are based on information available to the Company as of the date of this report and are based on management’s current views and assumptions. These forward-looking statements are conditioned upon and also involve a number of known and unknown risks, uncertainties, and other factors that could cause actual results, performance or events to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties, and other factors may be beyond the Company’s control and may pose a risk to the Company’s operating and financial condition. Such risks and uncertainties include, but are not limited to: items that may be identified during its financial statement closing process that cause adjustments to the estimates included in this report; the uncertainty in global economic conditions; the impact of the variable demand and adverse pricing environment for disk drives, particularly in view of current business and economic conditions; the Company’s ability to successfully qualify, manufacture and sell its disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly the new disk drive products with lower cost structures; the impact of competitive product announcements; the Company’s ability to achieve projected cost savings in connection with restructuring plans; possible excess industry supply with respect to particular disk drive products; disruptions to its supply chain or production capabilities; unexpected advances in competing technologies or changes in market trends; the development and introduction of products based on new technologies and expansion into new data storage markets; our ability to comply with certain covenants in our credit facilities with respect to financial ratios and financial condition tests; currency fluctuations that may impact the Company’s margins and international sales; cyber-attacks or other data breaches that disrupt our operations or results in the dissemination of proprietary or confidential information and cause reputational harm; and fluctuations in interest rates. Information concerning risks, uncertainties and other factors that could cause results to differ materially from the expectations described in this press release is contained in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on August 5, 2016, the “Risk Factors” section of which is incorporated into this press release by reference, and other documents filed with or furnished to the Securities and Exchange Commission. These forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date and the Company undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

The inclusion of Seagate’s website address in this press release is intended to be an inactive textual reference only and not an active hyperlink. The information contained in, or that can be accessed through, Seagate’s website and social media channels are not part of this press release.

   

SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

  December 30, 2016 July 1,2016 (a) ASSETS Current assets: Cash and cash equivalents $ 1,716 $ 1,125 Short-term investments — 6 Accounts receivable, net 1,211 1,318 Inventories 1,008 868 Other current assets 205   216 Total current assets 4,140 3,533 Property, equipment and leasehold improvements, net 2,012 2,160 Goodwill 1,237 1,237 Other intangible assets, net 364 448 Deferred income taxes 614 616 Other assets, net 194   219 Total Assets $ 8,561   $ 8,213 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 1,631 $ 1,517 Accrued employee compensation 254 184 Accrued warranty 114 104 Accrued expenses 682   444 Total current liabilities 2,681 2,249 Long-term accrued warranty 108 102 Long-term accrued income taxes 13 14 Other non-current liabilities 143 164 Long-term debt 4,093   4,091 Total Liabilities 7,038 6,620   Equity: Total Equity 1,523   1,593 Total Liabilities and Equity $ 8,561   $ 8,213

(a) The information in this column was derived from the Company’s audited Consolidated Balance Sheet as of July 1, 2016.

   

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 December 30, 2016   January 1, 2016 December 30, 2016   January 1, 2016 Revenue $ 2,894 $ 2,986 $ 5,691 $ 5,911   Cost of revenue 2,003 2,245 3,999 4,482 Product development 305 304 620 632 Marketing and administrative 155 160 308 341 Amortization of intangibles 28 31 57 65 Restructuring and other, net 33   17   115   76   Total operating expenses 2,524   2,757   5,099   5,596     Income from operations 370 229 592 315   Interest income 1 1 2 2 Interest expense (50 ) (48 ) (100 ) (95 ) Other, net (11 ) (2 ) (11 ) (11 ) Other expense, net (60 ) (49 ) (109 ) (104 )   Income before income taxes 310 180 483 211 Provision for income taxes 13   15   19   13   Net income $ 297   $ 165   $ 464   $ 198     Net income per share: Basic $ 1.00 $ 0.55 $ 1.56 $ 0.66 Diluted 1.00 0.55 1.55 0.65 Number of shares used in per share calculations: Basic 296 299 297 301 Diluted 298 301 299 304   Cash dividends declared per ordinary share $ 0.63 $ 0.63 $ 1.26 $ 1.17    

SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

  For the Six Months Ended December 30, 2016   January 1, 2016 OPERATING ACTIVITIES Net income $ 464 $ 198 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 391 417 Share-based compensation 73 65 Impairment of long-lived assets 9 — Deferred income taxes 3 — Other non-cash operating activities, net 18 11 Changes in operating assets and liabilities:

 

Accounts receivable, net 110 384 Inventories (140 ) (32 ) Accounts payable 170 257 Accrued employee compensation 70 (87 ) Accrued expenses, income taxes and warranty 69 (5 ) Other assets and liabilities 10   (2 ) Net cash provided by operating activities 1,247   1,206   INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements (235 ) (346 ) Proceeds from the sale of property and equipment (1 ) — Maturities of short-term investments 6 — Cash used in acquisition of business, net of cash acquired — (634 ) Other investing activities, net (4 ) —   Net cash used in investing activities (234 ) (980 ) FINANCING ACTIVITIES Redemption and repurchase of debt — (15 ) Taxes paid related to net share settlement of equity awards (24 ) (54 ) Repurchases of ordinary shares (248 ) (1,061 ) Dividends to shareholders (188 ) (351 ) Proceeds from issuance of ordinary shares under employee stock plans 47 41 Other financing activities, net —   (4 ) Net cash used in financing activities (413 ) (1,444 ) Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash (12 ) (3 ) Increase (decrease) in cash, cash equivalents, and restricted cash 588 (1,221 ) Cash, cash equivalents, and restricted cash at the beginning of the period 1,132   2,486   Cash, cash equivalents, and restricted cash at the end of the period $ 1,720   $ 1,265    

Use of non-GAAP financial information

The Company uses non-GAAP measures of gross margin, net income and diluted earnings per share, which are adjusted from results based on GAAP to exclude certain 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 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.

These non-GAAP results are some of the primary 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 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

ADJUSTMENTS TO GAAP NET INCOME AND DILUTED NET INCOME PER SHARE

(In millions, except per share amounts)

(Unaudited)

 

For the Three MonthsEnded December 30, 2016

For the Six MonthsEnded December 30, 2016

Reconciliation of GAAP Net Income: GAAP Net Income $ 297 $ 464 Non-GAAP adjustments: Revenue A (1 ) (1 ) Cost of revenue B 29 54 Product development C 2 2 Marketing and administrative D 1 — Amortization of intangibles E 27 54 Restructuring and other, net F 33 115 Other expense, net G 24   23   Non-GAAP net income $ 412   $ 711     Reconciliation of GAAP Diluted Net Income Per Share: GAAP $ 1.00 $ 1.55 Non-GAAP $ 1.38 $ 2.38 Shares used in diluted net income per share calculation 298 299

A

  For the three and six months ended December 30, 2016, Revenue has been adjusted on a non-GAAP basis to exclude revenue on certain discontinued products that had previously recognized a sales return provision.  

B

For the three and six months ended December 30, 2016, Cost of revenue has been adjusted on a non-GAAP basis to exclude amortization of intangibles associated with acquisitions and accelerated depreciation and write off of certain fixed assets related to restructuring.  

C

For the three and six months ended December 30, 2016, Product development expenses have been adjusted on a non-GAAP basis to exclude accelerated depreciation and write off of certain fixed assets related to restructuring and other charges.  

D

For the three months ended December 30, 2016, Marketing and administrative expenses have been adjusted on a non-GAAP basis primarily to reflect the impact of certain strategic development costs.  

E

For the three and six months ended December 30, 2016, Amortization of intangibles primarily related to our acquisitions has been excluded on a non-GAAP basis.  

F

For the three and six months ended December 30, 2016, Restructuring and other net, has been adjusted on a non-GAAP basis primarily related to reductions in our workforce as a result of our ongoing focus on cost efficiencies in all areas of our business.  

G

For the three and six months ended December 30, 2016, Other expense, net has been adjusted on a non-GAAP basis to exclude the impairment of a certain strategic investment.

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Seagate Technology plcEric DeRitis, 408-658-1561eric.deritis@seagate.com