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
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The contents of our website and social media channels are not a part of
this release.
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 Months Ended December 30, 2016
For the Six Months Ended 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.
