What drove the strong margin improvement this quarter?

Management credited durable data center demand and the ramp of HAMR-based Mozaic products, which are built on higher areal density. Revenue growth of 21.5% against a 3.8% increase in cost of revenue (on a GAAP basis, cost of revenue rose from $1,513M to $1,649M, about 9%) indicates operating leverage. The company did not break out pricing or product mix in this release, so the relative contribution of price versus volume is not disclosed.

How does the company's debt position look after the recent refinancing activity?

Long-term debt fell to $3.50B from $5.00B at fiscal year-end 2025, and $998M is now classified as current, meaning total debt is roughly $4.5B. The $500M of 2028 exchangeable notes were retired during the quarter, which generated a $66M loss on debt transactions. Interest expense fell to $72M from $84M in the prior-year quarter. Cash of $1.05B and six-month operating cash flow of $1.26B provide coverage, but the $998M current portion will need to be addressed within the next twelve months.

Why is there such a large gap between GAAP and non-GAAP EPS, and what does the Q3 guidance exclude?

The gap comes mainly from share-based compensation (about $0.23 per share in the quarter), the net loss on debt transactions ($0.29 per share), and the dilutive effect of the 2028 exchangeable notes, partly offset by income tax adjustments. The Q3 non-GAAP EPS guidance of $3.40 excludes estimated share-based compensation of $0.23 per share. Seagate has not provided a GAAP EPS forecast because items such as debt-transaction gains or losses and strategic investment impairments cannot be predicted.

Is the dividend sustainable at the current level?

The $0.74 quarterly dividend equals $2.96 annualized and was covered by quarterly free cash flow of $607M, versus dividends paid of $154M in the quarter. The board stated that future dividends remain at its discretion and depend on financial position, results, cash flow, and capital requirements. Seagate also has ongoing obligations, including quarterly payments under a settlement with the U.S. Department of Commerce's Bureau of Industry and Security, which the forward-looking statements flag as a risk to timely payment.

What are the main risks flagged for investors?

The release points to uncertainty from tariffs, trade restrictions, and evolving global trade policy, although management expects minimal near-term impact. Other risks include the timing of demand for new storage products such as HAMR-based Mozaic, the potential dilution from the 2028 exchangeable notes (about 8 million shares issuable on conversion, partly offset by capped call transactions), and the company's ability to service its debt. The release also notes that the company's outlook could differ materially from actual results. Investors should review the Risk Factors and MD&A sections of the Form 10-Q or 10-K for details.

STX 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed January 27, 2026. Cited figures are marked; the original filing is the authoritative source.

Seagate reported fiscal second-quarter 2026 results (quarter ended January 2, 2026) that exceeded management's expectations on both revenue and profitability.

Revenue rose 21.5% year over year to $2.83 billion^a, from $2.33 billion. GAAP gross margin expanded to 41.6% from 34.9%, and GAAP operating margin reached 29.8% versus 21.0% a year earlier. GAAP diluted EPS was $2.60, up from $1.55, and non-GAAP diluted EPS was $3.11, up from $2.03.

Management attributed the results to strong data center demand and the ramp of its HAMR-based Mozaic products. Cash generation was strong, with operating cash flow of $723 million^b and free cash flow of $607 million. Year-to-date free cash flow reached $1.03 billion, compared with $177 million in the prior-year period.

Balance sheet quality improved meaningfully. Seagate retired $500 million^c of its 2028 exchangeable senior notes, which produced a $66 million net loss from debt transactions in the quarter. Total shareholders' equity swung to a positive $459 million from a deficit of $(453) million at fiscal year-end 2025.

Cash and equivalents were $1.05 billion^d. Total debt stood at roughly $4.5 billion, including $998 million classified as current. The company paid $154 million in dividends during the quarter and declared a quarterly dividend of $0.74 per share, payable April 8, 2026.

For fiscal third quarter 2026, Seagate guided to revenue of $2.90 billion (plus or minus $100 million) and non-GAAP diluted EPS of $3.40 (plus or minus $0.20). The non-GAAP EPS guidance excludes estimated share-based compensation of $0.23 per share.

The guidance includes the estimated net dilutive impact of the 2028 exchangeable notes and assumes minimal impact from announced tariff policies. Investors should note that the company's GAAP and non-GAAP results diverge significantly because of share-based compensation, debt-transaction losses, and tax adjustments, and that the company has not reconciled its forward non-GAAP EPS guidance to GAAP.

02—Key points

Key Highlights

Revenue of $2.83B, up 21.5% year over year, with GAAP gross margin of 41.6% (up from 34.9%) and non-GAAP gross margin of 42.2% (up from 35.5%).
GAAP operating margin of 29.8% versus 21.0% a year ago; non-GAAP operating margin of 31.9%, both described by management as records.
GAAP net income of $593M (up 76% year over year); GAAP diluted EPS of $2.60 versus $1.55; non-GAAP diluted EPS of $3.11 versus $2.03.
Operating cash flow of $723M and free cash flow of $607M in the quarter; six-month free cash flow of $1.03B versus $177M in the prior year period.
Retired $500M of 2028 exchangeable senior notes, incurring a $66M net loss from debt transactions; shareholders' equity turned positive at $459M from a $(453)M deficit.
Quarterly dividend of $0.74 per share declared, payable April 8, 2026 to holders of record on March 25, 2026; $154M paid in dividends during the quarter.
Fiscal Q3 2026 guidance of $2.90B revenue (±$100M) and non-GAAP diluted EPS of $3.40 (±$0.20), excluding about $0.23 per share of share-based compensation.

03—Questions

Frequently Asked Questions

What drove the strong margin improvement this quarter?
Management credited durable data center demand and the ramp of HAMR-based Mozaic products, which are built on higher areal density. Revenue growth of 21.5% against a 3.8% increase in cost of revenue (on a GAAP basis, cost of revenue rose from $1,513M to $1,649M, about 9%) indicates operating leverage. The company did not break out pricing or product mix in this release, so the relative contribution of price versus volume is not disclosed.
How does the company's debt position look after the recent refinancing activity?
Long-term debt fell to $3.50B from $5.00B at fiscal year-end 2025, and $998M is now classified as current, meaning total debt is roughly $4.5B. The $500M of 2028 exchangeable notes were retired during the quarter, which generated a $66M loss on debt transactions. Interest expense fell to $72M from $84M in the prior-year quarter. Cash of $1.05B and six-month operating cash flow of $1.26B provide coverage, but the $998M current portion will need to be addressed within the next twelve months.
Why is there such a large gap between GAAP and non-GAAP EPS, and what does the Q3 guidance exclude?
The gap comes mainly from share-based compensation (about $0.23 per share in the quarter), the net loss on debt transactions ($0.29 per share), and the dilutive effect of the 2028 exchangeable notes, partly offset by income tax adjustments. The Q3 non-GAAP EPS guidance of $3.40 excludes estimated share-based compensation of $0.23 per share. Seagate has not provided a GAAP EPS forecast because items such as debt-transaction gains or losses and strategic investment impairments cannot be predicted.
Is the dividend sustainable at the current level?
The $0.74 quarterly dividend equals $2.96 annualized and was covered by quarterly free cash flow of $607M, versus dividends paid of $154M in the quarter. The board stated that future dividends remain at its discretion and depend on financial position, results, cash flow, and capital requirements. Seagate also has ongoing obligations, including quarterly payments under a settlement with the U.S. Department of Commerce's Bureau of Industry and Security, which the forward-looking statements flag as a risk to timely payment.
What are the main risks flagged for investors?
The release points to uncertainty from tariffs, trade restrictions, and evolving global trade policy, although management expects minimal near-term impact. Other risks include the timing of demand for new storage products such as HAMR-based Mozaic, the potential dilution from the 2028 exchangeable notes (about 8 million shares issuable on conversion, partly offset by capped call transactions), and the company's ability to service its debt. The release also notes that the company's outlook could differ materially from actual results. Investors should review the Risk Factors and MD&A sections of the Form 10-Q or 10-K for details.

04—Continue

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