Seagate Technology plc (NASDAQ:STX) (the “Company” or “Seagate”) today reported financial results for the quarter ended March 30, 2018. For the third quarter, the Company reported revenue of $2.8 billion, gross margin of 30.2%, net income of $381 million and diluted earnings per share of $1.31. On a non-GAAP basis, which excludes the net impact of certain items, Seagate reported gross margin of 30.8%, net income of $424 million and diluted earnings per share of $1.46.

During the third quarter, the Company generated $558 million in cash flow from operations and $489 million in free cash flow. Year to date, the Company has generated approximately $1.6 billion in cash flow from operations and approximately $1.4 billion in free cash flow. Cash and cash equivalents totaled approximately $2.9 billion at the end of the quarter. There were 287 million ordinary shares issued and outstanding as of the end of the quarter.

“Seagate achieved our second consecutive quarter of year-over-year revenue growth and exceeded our financial performance expectations for the March quarter, through solid execution and strong demand for our mass storage products. Looking ahead, the growing Data Age demand on storage, combined with consistent investment in our leading storage technology platforms and efficient operational capabilities, will continue to drive economic value for customers and returns for shareholders,” 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 July 5, 2018 to shareholders of record as of the close of business on June 20, 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 fourth fiscal quarter of 2018, 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, 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, financial projections, estimates of industry growth, market demand, shifts in technology, its supply-chain management capabilities, potential impact of trade barriers such as import/export duties and restrictions, tariffs and quotas, changes in the regulatory regime governing the flow of data across international borders and dividend issuance plans for the fiscal quarter ending June 29, 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 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 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)
 
    March 30,     June 30,
2018

2017(a)

ASSETS
Current assets:
Cash and cash equivalents $ 2,926 $ 2,539
Accounts receivable, net 1,076 1,199
Inventories 1,002 982
Other current assets 243   321
Total current assets 5,247 5,041
Property, equipment and leasehold improvements, net 1,720 1,875
Goodwill 1,238 1,238
Other intangible assets, net 204 281
Deferred income taxes 398 609
Other assets, net 205   224
Total Assets $ 9,012   $ 9,268
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 1,645 $ 1,626
Accrued employee compensation 188 237
Accrued warranty 110 113
Current portion of long-term debt 503 —
Accrued expenses 609   650
Total current liabilities 3,055 2,626
Long-term accrued warranty 125 120
Long-term accrued income taxes 10 15
Other non-current liabilities 139 122
Long-term debt, less current portion 4,319   5,021
Total Liabilities 7,648 7,904
 
Total Equity 1,364   1,364
Total Liabilities and Equity $ 9,012   $ 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 Nine Months Ended
March 30,     March 31, March 30,     March 31,
2018 2017 2018 2017
Revenue $ 2,803 $ 2,674 $ 8,349 $ 8,365
 
Cost of revenue 1,956 1,858 5,889 5,857
Product development 254 324 767 944
Marketing and administrative 135 150 422 457
Amortization of intangibles 6 28 47 85
Restructuring and other, net 11   48   95   164  
Total operating expenses 2,362   2,408   7,220   7,507  
 
Income from operations 441 266 1,129 858
 
Interest income 10 5 23 7
Interest expense (60 ) (60 ) (182 ) (160 )
Other, net 2   1   (18 ) (10 )
Other expense, net (48 ) (54 ) (177 ) (163 )
 
Income before income taxes 393 212 952 695
Provision for income taxes 12   18   231   37  
Net income $ 381   $ 194   $ 721   $ 658  
 
Net income per share:
Basic $ 1.33 $ 0.66 $ 2.50 $ 2.22
Diluted 1.31 0.65 2.48 2.20
Number of shares used in per share calculations:
Basic 286 296 288 297
Diluted 291 300 291 299
 
Cash dividends declared per ordinary share $ 0.63 $ 0.63 $ 1.89 $ 1.89
 
 
SEAGATE TECHNOLOGY PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
    For the Nine Months Ended
March 30,     March 31,
2018 2017
OPERATING ACTIVITIES
Net income $ 721 $ 658
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 461 573
Share-based compensation 85 110
Impairment of long-lived assets — 35
Deferred income taxes 209 12
Other non-cash operating activities, net 9 17
Changes in operating assets and liabilities:

 

Accounts receivable, net 124 165
Vendor receivables 54 32
Inventories (20 ) (170 )
Accounts payable 74 124
Accrued employee compensation (49 ) 61
Accrued expenses, income taxes and warranty (24 ) 69
Other assets and liabilities 1   (13 )
Net cash provided by operating activities 1,645   1,673  
INVESTING ACTIVITIES
Acquisition of property, equipment and leasehold improvements (270 ) (330 )
Proceeds from the sale of fixed assets 2 —
Proceeds from sale of properties previously classified as held for sale 43 —
Maturities of short-term investments — 6
Other investing activities, net (14 ) (13 )
Net cash used in investing activities (239 ) (337 )
FINANCING ACTIVITIES
Redemption and repurchase of debt (209 ) (97 )
Net proceeds from issuance of long-term debt — 1,232
Taxes paid related to net share settlement of equity awards (22 ) (25 )
Repurchases of ordinary shares (361 ) (248 )
Dividends to shareholders (545 ) (374 )
Proceeds from issuance of ordinary shares under employee stock plans 110   83  
Net cash (used in) provided by financing activities (1,027 ) 571  
Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash 8   (8 )
Increase in cash, cash equivalents, and restricted cash 387 1,899
Cash, cash equivalents, and restricted cash at the beginning of the period 2,543   1,132  
Cash, cash equivalents, and restricted cash at the end of the period $ 2,930   $ 3,031  
 

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

    

For the Nine Months

Ended March 30, 2018

Ended March 30, 2018

Reconciliation of GAAP Net Income:
GAAP Net income $ 381 $ 721
Non-GAAP adjustments:
Revenue A — (6 )
Cost of revenue B 16 56
Product development C 5 8
Marketing and administrative D 1 2
Amortization of intangibles E 4 43
Restructuring and other, net F 11 95
Other expense, net G 5 7
Provision for income taxes H 1   208  
Non-GAAP net income $ 424   $ 1,134  
 
Reconciliation of GAAP Diluted Net Income Per Share:
GAAP $ 1.31 $ 2.48
Non-GAAP $ 1.46 $ 3.90
Shares used in diluted net income per share calculation 291 291
 
   
A For the nine months ended March 30, 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 and nine months ended March 30, 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 and nine months ended March 30, 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 three and nine months ended March 30, 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 and nine months ended March 30, 2018, Amortization of intangibles related to our acquisitions has been excluded on a non-GAAP basis.
 
F For the three and nine months ended March 30, 2018, Restructuring and other net, has been adjusted on a non-GAAP basis primarily related to reductions in our workforce and other exit costs as a result of our ongoing focus on cost efficiencies in all areas of our business.
 
G For the three and nine months ended March 30, 2018, Other expense, net has been adjusted on a non-GAAP basis to exclude the impact of impairment of a strategic investment, net impact of losses recognized on the early redemption and repurchase of debt and impact of our disposed data service business.
 
H For the three and nine months ended March 30, 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 and a provisional tax expense of $4 million and $212 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.