10-QPeriod: Q2 FY2018

Seagate Technology Holdings plc Quarterly Report for Q2 Ended Dec 29, 2017

Filed January 29, 2018For Securities:STX

Summary

Seagate Technology Holdings plc's (STX) third quarter fiscal year 2018 filing shows a revenue of $2.914 billion, a notable increase from the prior quarter ($2.632 billion) driven by higher exabyte shipments and seasonal demand, although partially offset by price erosion. Gross margin improved to 30% from 28% in the previous quarter, benefiting from a favorable product mix and improved factory utilization due to cost savings from restructuring efforts. Operating expenses saw a reduction, particularly in product development and marketing/administrative functions, attributed to prior workforce reductions and operational efficiencies. The company's financial performance was significantly impacted by the Tax Cuts and Jobs Act enacted in December 2017, which resulted in a substantial provisional tax expense of approximately $197 million, significantly increasing the effective tax rate for the quarter. Despite this one-time tax impact, the company generated strong operating cash flow of $850 million and continued its capital return program, repurchasing shares for $195 million and paying $182 million in dividends. Seagate highlighted its commitment to liquidity, with $2.556 billion in cash and cash equivalents and an undrawn $700 million revolving credit facility.

Financial Highlights

53 data points
Beta

Revenue

$2.91B

30.1% Gross Margin

Net Income

$159.00M

5.5% Net Margin

EPS (Diluted)

$0.55

Total Assets

$8.75B

Cash & Equivalents

$2.56B

Free Cash Flow

$773.00M

Financial Statements
Beta
Revenue$2.91B
Cost of Revenue$2.04B
Gross Profit$877.00M
R&D Expenses$250.00M
SG&A Expenses$142.00M
Operating Expenses$2.48B
Operating Income$433.00M
Interest Expense$61.00M
Net Income$159.00M
EPS (Basic)$0.55
EPS (Diluted)$0.55
Shares Outstanding (Basic)288.00M
Shares Outstanding (Diluted)291.00M

Key Highlights

  • 1Revenue increased to $2.914 billion in Q3 FY18 from $2.632 billion in Q2 FY18, driven by a 25.7% increase in exabytes shipped (88 EB vs. 70 EB).
  • 2Gross margin improved sequentially to 30% from 28%, benefiting from a favorable product mix and higher factory utilization.
  • 3Operating expenses decreased across product development and marketing/administrative functions compared to prior periods, largely due to prior restructuring efforts and operational efficiencies.
  • 4A significant provisional tax expense of $197 million was recorded due to the U.S. Tax Cuts and Jobs Act, impacting the effective tax rate for the quarter.
  • 5Operating cash flow remained strong at $850 million for the quarter.
  • 6The company returned capital to shareholders through $195 million in share repurchases and $182 million in dividends during the quarter.
  • 7Seagate maintained a healthy liquidity position with $2.556 billion in cash and cash equivalents and an undrawn $700 million revolving credit facility.

Frequently Asked Questions

Revenue for the December 2017 quarter was $2.914 billion, up from $2.632 billion in the September 2017 quarter. Compared to the December 2016 quarter ($2.894 billion), revenue saw a modest increase. The sequential growth was primarily driven by an increase in exabytes shipped, attributed to higher seasonal demand and demand for high-capacity HDDs, partially offset by price erosion.

The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in a significant provisional tax expense of approximately $197 million for the quarter. This was primarily due to the revaluation of U.S. deferred tax assets at the newly enacted lower U.S. corporate tax rate of 21%. This significantly increased Seagate's effective tax rate for the period.

Seagate has been actively managing its operating expenses, with decreases noted in product development and marketing/administrative functions compared to prior periods. These reductions are largely a result of previous workforce restructurings and ongoing operational efficiencies. Restructuring and other net costs were $33 million in the December 2017 quarter, reflecting charges related to workforce reductions, which are part of a broader strategy to consolidate its global footprint.

Seagate maintains a strong liquidity position with $2.556 billion in cash and cash equivalents as of December 29, 2017, complemented by an undrawn $700 million senior revolving credit facility. The company is committed to returning capital to shareholders, evidenced by $195 million in share repurchases and $182 million in dividends paid during the quarter. Capital expenditures are expected to be less than 5% of revenue for fiscal year 2018.