10-QPeriod: Q3 FY2020

Seagate Technology Holdings plc Quarterly Report for Q3 Ended Apr 3, 2020

Filed April 30, 2020For Securities:STX

Summary

Seagate Technology Holdings plc (STX) reported revenues of $2.718 billion for the third quarter of fiscal year 2020, a notable increase from $2.313 billion in the same quarter of the prior year. This growth was primarily driven by a significant increase in mass capacity storage exabytes shipped, despite some price erosion. The company's net income for the quarter was $320 million, or $1.22 per diluted share, showing a strong recovery from $195 million in the prior year's quarter. This performance demonstrates resilience in its core markets and effective operational execution. Looking at the nine-month period, revenue stood at $7.992 billion, slightly down from $8.019 billion in the comparable period last year, reflecting overall market dynamics. Net income for the nine months was $838 million, or $3.15 per diluted share, compared to $1.029 billion in the prior year. The company continues to manage its capital effectively, repurchasing shares and paying dividends while maintaining a strong liquidity position, although the report notes potential ongoing impacts from the COVID-19 pandemic on supply chains and demand.

Key Highlights

  • 1Revenue for the three months ended April 3, 2020 increased by 17.5% year-over-year to $2.718 billion, driven by higher mass capacity storage shipments.
  • 2Net income for the quarter was $320 million, or $1.22 per diluted share, a significant increase from $195 million, or $0.69 per diluted share, in the prior year's quarter.
  • 3The company shipped 120 exabytes of HDD storage capacity in the March 2020 quarter, an increase from 77 exabytes in the prior year's quarter, primarily in the mass capacity segment.
  • 4Gross margin percentage improved to 27% in the March 2020 quarter from 26% in the prior year's quarter, despite increased logistics costs due to COVID-19.
  • 5Operating cash flow for the nine months ended April 3, 2020 was $1,326 million, demonstrating strong cash generation capabilities.
  • 6Seagate continued its capital return program, repurchasing approximately $195 million of ordinary shares and paying $170 million in dividends during the March 2020 quarter.
  • 7The company reported $1.612 billion in cash and cash equivalents as of April 3, 2020, maintaining a solid liquidity position.

Frequently Asked Questions

The primary driver for the revenue increase in the March 2020 quarter was a significant rise in the exabytes shipped for mass capacity storage solutions, which more than offset a decrease in legacy market exabytes and some price erosion.

Seagate is actively monitoring the effects of the COVID-19 pandemic. The company incurred supply chain and demand disruptions, factory under-utilization, and higher logistics costs. They are complying with governmental guidelines, working to lower costs, and drive operational efficiencies, though they acknowledge uncertainty about the full impact.

Seagate continues to return capital through a combination of quarterly cash dividends and share repurchases. In the March 2020 quarter, they paid $170 million in dividends and repurchased approximately $195 million of their ordinary shares.

As of April 3, 2020, Seagate had $4.091 billion in long-term debt. The company has a $1.5 billion senior unsecured revolving credit facility and a $500 million term loan. They confirmed compliance with their financial covenants (interest coverage ratio, total leverage ratio, and minimum liquidity) and expect to remain compliant for the next 12 months.