Market Overview

Seagate Technology Reports Fiscal Fourth Quarter and Fiscal Year 2018 Financial Results

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Fiscal year 2018:

  • Revenues up 4% year-over-year
  • Diluted Earnings per Share up 57% year-over-year
  • Cash Flow from Operations up 10% year-over-year
  • Exabyte shipments up 29% year-over-year

Seagate Technology plc (NASDAQ:STX) (the "Company" or "Seagate") today
reported financial results for the quarter and fiscal year ended June
29, 2018. For the fourth quarter, the Company reported revenue of $2.8
billion, gross margin of 31.9%, net income of $461 million and diluted
earnings per share of $1.57. On a non-GAAP basis, which excludes the net
impact of certain items, Seagate reported gross margin of 32.4%, net
income of $475 million and diluted earnings per share of $1.62.

During the fourth quarter, the Company generated $468 million in cash
flow from operations and $372 million in free cash flow.

For the fiscal year ended June 29, 2018, the Company reported revenue of
$11.2 billion, gross margin of 30.1%, net income of $1.2 billion and
diluted earnings per share of $4.05. On a non-GAAP basis, Seagate
reported gross margin of 30.7%, net income of $1.6 billion and diluted
earnings per share of $5.51.

In fiscal year 2018, the Company generated approximately $2.1 billion in
cash flow from operations and $1.7 billion in free cash flow, paid cash
dividends of $726 million and repurchased 10 million ordinary shares for
$361 million. Seagate's balance sheet remains healthy and during the
fiscal year the Company repurchased $214 million of outstanding debt and
invested approximately $1.3 billion, as part of a consortium led by Bain
Capital Private Equity, in the acquisition of Toshiba Memory
Corporation. Cash and cash equivalents totaled approximately $1.9
billion at the end of the fiscal year. There were 287 million ordinary
shares issued and outstanding as of the end of the fiscal year.

"We achieved our third consecutive quarter of year-over-year revenue
growth and exceeded our financial performance expectations for both the
June quarter and this fiscal year. Seagate's year-over-year revenue and
profitability growth results for fiscal year 2018 reflect solid
execution and strong demand for our mass storage products. Looking
ahead, we are confident that storage infrastructure demand will continue
to grow with the Data Age digital transformations being fueled by new
technologies, emerging industries and growing businesses. We believe
Seagate has expanding opportunities to support the marketplace in these
transformations and that we have the vision, products, technology and
operational experience to ensure our long-term success and grow
shareholder value," said Dave Mosley, Seagate's chief executive officer.

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 Relations 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
October 3, 2018 to shareholders of record as of the close of business on
September 19, 2018. 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 6:00 a.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
first fiscal quarter of 2019, including key underlying assumptions.

An archived audio webcast of this event will be available on Seagate's
Investors Relations 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,
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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, financial projections, expectations regarding market demand
and the Company's products, 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 and shareholder value
and dividend issuance plans for the fiscal quarter ending September 28,
2018 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; 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; 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; the Company's ability to comply with certain covenants in its
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 the Company's operations or result 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 ("SEC") on August 4, 2017, the
"Risk Factors" section of which is incorporated into this press release
by reference, and other documents filed with or furnished to the SEC and
the risks described in the Company's Annual Report on Form 10-K, which
will be filed with the SEC following the issuance of this press release
within the time period required by the SEC rules and form. 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, except as required by
applicable law.

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)

 
      June 29,     June 30,
2018 2017 (a)
ASSETS
Current assets:
Cash and cash equivalents $ 1,853 $ 2,539
Accounts receivable, net 1,184 1,199
Inventories 1,053 982
Other current assets 220   321
Total current assets 4,310 5,041
Property, equipment and leasehold improvements, net 1,792 1,875
Investment in debt security 1,275
Goodwill 1,237 1,238
Other intangible assets, net 188 281
Deferred income taxes 417 609
Other assets, net 191   224
Total Assets $ 9,410   $ 9,268
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 1,728 $ 1,626
Accrued employee compensation 253 237
Accrued warranty 112 113
Current portion of long-term debt 499
Accrued expenses 598   650
Total current liabilities 3,190 2,626
Long-term accrued warranty 125 120
Long-term accrued income taxes 10 15
Other non-current liabilities 100 122
Long-term debt, less current portion 4,320   5,021
Total Liabilities 7,745 7,904
 
Total Equity 1,665   1,364
Total Liabilities and Equity $ 9,410   $ 9,268

(a) The information in this column was derived from the Company's
audited Consolidated Balance Sheet as of June 30, 2017

 

SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)

 
    For the Three Months Ended     For the Fiscal Years Ended
June 29,   June 30, June 29,   June 30,
2018 2017 2018 2017 (a)
Revenue $ 2,835 $ 2,406 $ 11,184 $ 10,771
 
Cost of revenue 1,931 1,740 7,820 7,597
Product development 259 288 1,026 1,232
Marketing and administrative 140 149 562 606
Amortization of intangibles 6 19 53 104
Restructuring and other, net (6 ) 14   89   178  
Total operating expenses 2,330   2,210   9,550   9,717  
 
Income from operations 505 196 1,634 1,054
 
Interest income 15 5 38 12
Interest expense (54 ) (62 ) (236 ) (222 )
Other, net   (19 ) (18 ) (29 )
Other expense, net (39 ) (76 ) (216 ) (239 )
 
Income before income taxes 466 120 1,418 815
Provision for income taxes 5   6   236   43  
Net income $ 461   $ 114   $ 1,182   $ 772  
 
Net income per share:
Basic $ 1.61 $ 0.39 $ 4.10 $ 2.61
Diluted 1.57 0.38 4.05 2.58
Number of shares used in per share calculations:
Basic 287 294 288 296
Diluted 293 297 292 299
 
Cash dividends declared per ordinary share $ 0.63 $ 0.63 $ 2.52 $ 2.52

(a) The information in this column was derived from the Company's
audited Consolidated Statement of Operations for the year ended June 30,
2017.

 

SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 
      For the Fiscal Years Ended
June 29,   June 30,
2018 2017 (a)

OPERATING ACTIVITIES

Net income $ 1,182 $ 772
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 598 749
Share-based compensation 112 137
Impairment of long-lived assets 42
Deferred income taxes 193 3
Other non-cash operating activities, net (11 ) 27
Changes in operating assets and liabilities:
Accounts receivable, net 16 122
Vendor receivables 71 (31 )
Inventories (71 ) (114 )
Accounts payable 65 121
Accrued employee compensation 16 53
Accrued expenses, income taxes and warranty (46 ) 47
Other assets and liabilities (12 ) (12 )
Net cash provided by operating activities 2,113   1,916  
INVESTING ACTIVITIES
Acquisition of property, equipment and leasehold improvements (366 ) (434 )
Proceeds from the sale of fixed assets 2
Proceeds from sale of properties previously classified as held for
sale
69
Purchase of debt security (1,279 )
Purchases of strategic investments (37 )
Maturities of short-term investments 6
Other investing activities, net (14 ) 6  
Net cash used in investing activities (1,588 ) (459 )
FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 1,232
Redemption and repurchase of debt (214 ) (316 )
Dividends to shareholders (726 ) (561 )
Repurchases of ordinary shares (361 ) (460 )
Proceeds from issuance of ordinary shares under employee stock plans 113 86
Taxes paid related to net share settlement of equity awards (23 ) (27 )
Net cash used in financing activities (1,211 ) (46 )
Effect of foreign currency exchange rate changes on cash, cash
equivalents and restricted cash
   
(Decrease) increase in cash, cash equivalents and restricted cash (686 ) 1,411
Cash, cash equivalents and restricted cash at the beginning of the
year
2,543   1,132  
Cash, cash equivalents and restricted cash at the end of the year $ 1,857   $ 2,543  

(a) The information in this column was derived from the Company's
audited Consolidated Statement of Cash Flows for the year ended June 30,
2017.

Use of non-GAAP financial information

The Company uses non-GAAP measures of adjusted revenue, gross margin,
net income, diluted earnings per share and operating expenses 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

June 29, 2018

    For the Fiscal

Year Ended

June 29, 2018

Reconciliation of GAAP Net Income:
GAAP Net Income $ 461 $ 1,182
Non-GAAP adjustments:
Revenue A (6 )
Cost of revenue B 14 70
Product development C 1 9
Marketing and administrative D 2
Amortization of intangibles E 5 48
Restructuring and other, net F (6 ) 89
Other expense, net G 8 15
Provision for income taxes H (8 ) 200  
Non-GAAP net income $ 475   $ 1,609  
 
Reconciliation of GAAP Diluted Net Income Per Share:
GAAP $ 1.57 $ 4.05
Non-GAAP $ 1.62 $ 5.51
Shares used in diluted net income per share calculation 293 292
 

A

     

For the fiscal year ended June 29, 2018, Revenue has been adjusted
on a non-GAAP basis to exclude the favorable adjustments for sales
of certain discontinued products.

 

B

For the three months and fiscal year ended June 29, 2018, Cost of
revenue has been adjusted on a non-GAAP basis to exclude
amortization of intangibles associated with acquisitions, write off
of certain inventory and other charges related to restructuring.
 

C

For the three months and fiscal year ended June 29, 2018, Product
development expenses have been adjusted on a non-GAAP basis to
exclude the impact of write off of certain fixed assets and other
charges related to restructuring.
 

D

For the fiscal year ended June 29, 2018, Marketing and
administrative expenses have been adjusted on a non-GAAP basis to
exclude the write off of certain fixed assets related to
restructuring.
 

E

For the three months and fiscal year ended June 29, 2018,
Amortization of intangibles related to our acquisitions has been
excluded on a non-GAAP basis.
 

F

For the three months and fiscal year ended June 29, 2018,
Restructuring and other net, has been adjusted on a non-GAAP basis
primarily related to reductions in our workforce and other exit
costs, offset by gains from sale of certain properties classified as
assets held for sale as a result of our ongoing focus on cost
efficiencies in all areas of our business.
 

G

For the three months and fiscal year ended June 29, 2018, Other
expense, net has been adjusted on a non-GAAP basis to exclude the
impact of impairment of strategic investments, net impact of losses
recognized on the repurchase of debt and impact of our disposed data
service business.
 

H

For the three months and fiscal year ended June 29, 2018, Provision
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. A provisional
tax benefit of $8 million and provisional tax expense of $204
million, respectively, for the re-measurement of our U.S. deferred
tax assets at the lower 21% tax rate resulting from the U.S. Tax
Cuts and Jobs Act enacted on December 22, 2017.

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