Seagate Technology Reports Fiscal Third Quarter 2022 Financial Results

• Revenue of $2.8 billion
• GAAP diluted earnings per share (EPS) of $1.56; non-GAAP diluted EPS of $1.81
• Cash flow from operations of $460 million and free cash flow of $363 million
• Returned $571 million to shareholders through dividends and the repurchase of 4.2 million ordinary shares

FREMONT, Calif.--(BUSINESS WIRE)--Seagate Technology Holdings plc (NASDAQ: STX) (the “Company” or “Seagate”) today reported financial results for its fiscal third quarter ended April 1, 2022.

“Seagate's March quarter financial results were consistent with our revised outlook, with record nearline product revenue driven by cloud customers partially offsetting multiple macro related headwinds that impacted other end markets, particularly video and image applications, and pressured profitability,” said Dave Mosley, Seagate’s chief executive officer.

“Our focus is on mitigating these external challenges through ongoing expense discipline, new pricing strategies and operational efficiencies. We are also continuing to execute our strong product roadmap to address customer demand for cost-efficient, mass capacity solutions. In the March quarter, we began the volume ramp of our 20-plus terabyte products, which, combined with continued healthy cloud demand, support our outlook for double-digit fiscal year revenue growth.”

Quarterly Financial Results
	GAAP						Non-GAAP
	FQ3 2022			FQ3 2021			FQ3 2022			FQ3 2021
Revenue ($M)	$	2,802		$	2,731		$	2,802		$	2,731
Gross Margin	28.8		%	27.1		%	29.2		%	27.4		%
Operating Margin	15.3		%	14.1		%	16.8		%	15.4		%
Net Income ($M)	$	346		$	329		$	401		$	350
Diluted Earnings Per Share	$	1.56		$	1.39		$	1.81		$	1.48

The Company generated $460 million in cash flow from operations and $363 million in free cash flow during the fiscal third quarter 2022. Seagate’s balance sheet remains healthy, and during the fiscal third quarter the Company paid cash dividends of $154 million, repurchased 4.2 million ordinary shares for $417 million and repaid $220 million to retire the 2022 Senior Notes. Cash and cash equivalents totaled $1.1 billion. There were 216 million ordinary shares issued and outstanding as of the end of the quarter.

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 Investor Relations website at investors.seagate.com.

Quarterly Cash Dividend

The Board of Directors of the Company (the “Board”) declared a quarterly cash dividend of $0.70 per share, which will be payable on July 7, 2022 to shareholders of record as of the close of business on June 24, 2022. 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.

Business Outlook

The business outlook for the fiscal fourth quarter 2022 is based on our current assumptions and expectations; actual results may differ materially, as a result of, among other things, the important factors discussed in the Cautionary Note Regarding Forward-Looking Statements section of this release.

The Company is providing the following guidance for its fiscal fourth quarter 2022:

• Revenue of $2.8 billion, plus or minus $150 million
• Non-GAAP diluted EPS of $1.90, plus or minus $0.20

Guidance regarding non-GAAP diluted EPS excludes known charges related to amortization of acquired intangible assets of $0.02 per share and estimated share-based compensation expenses of $0.18 per share.

We have not reconciled our non-GAAP diluted EPS guidance for fiscal fourth quarter 2022 to the most directly comparable GAAP measure because material items that may impact these measures are out of our control and/or cannot be reasonably predicted, including, but not limited to, accelerated depreciation, impairment and other charges related to cost saving efforts, restructuring charges and other, net, losses and costs recognized on the modification or early redemption and repurchase of debt, strategic investment losses (gains) or impairment recognized, income tax adjustments on these measures, and other charges or benefits that may arise. The amounts of these measures are not currently available but may be material to future results. A reconciliation of the non-GAAP diluted EPS guidance for fiscal fourth quarter 2022 to the corresponding GAAP measures is not available without unreasonable effort. A reconciliation of our historical non-GAAP financial measures to their nearest GAAP equivalent is contained in this release.

Investor Communications

Seagate management will hold a public webcast today at 6:00 a.m. Pacific / 9:00 a.m. Eastern that can be accessed on its Investor Relations website at investors.seagate.com.

An archived audio webcast of this event will be available on Seagate’s Investor Relations website at investors.seagate.com shortly following the event conclusion.

About Seagate

Seagate Technology crafts the datasphere, helping to maximize humanity’s potential by innovating world-class, precision-engineered data storage and management solutions with a focus on sustainable partnerships. A global technology leader for more than 40 years, the company has shipped over three billion terabytes of data capacity. Learn more about Seagate by visiting www.seagate.com or following us on Twitter, Facebook, LinkedIn, YouTube, and subscribing to our blog.

© 2022 Seagate Technology LLC. All rights reserved. Seagate, Seagate Technology, and the Spiral logo are registered trademarks of Seagate Technology LLC in the United States and/or other countries.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical fact. Forward-looking statements include, among other things, statements about the Company’s plans, programs, strategies and prospects, financial outlook for future periods, including the fiscal fourth quarter 2022, expectations regarding the Company’s products, our ability to ramp production, storage industry trends and market demand, shifts in technology, the Company’s ability to meet market and industry expectations and the effects of these future trends, the possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic or other macro disruptions, including the likelihood or significance of continuing supply chain disruptions, and expectations on the Company’s business as well as dividend issuance plans for the fiscal quarter ending July 1, 2022 and beyond. Forward-looking statements generally can be identified by words such as “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “should,” “may,” “will,” "will continue," "can," "could" or the negative of these words, variations of these words and comparable terminology, in each case, intended to refer to future events or circumstances. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements are subject to various uncertainties and risks that could cause our actual results to differ materially from historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended July 2, 2021 filed with the U.S. Securities and Exchange Commission on August 6, 2021. Additional information will also be set forth in the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2022. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to us on, and which speak only as of, the date hereof. The Company undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, unless required by applicable law.

The inclusion of Seagate’s website addresses in this press release are provided for convenience only. The information contained in, or that can be accessed through, Seagate’s websites and social media channels are not part of this press release.

SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
	April 1, 2022		July 2, 2021
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,138	$	1,209
Accounts receivable, net		1,344		1,158
Inventories		1,479		1,204
Other current assets		298		208
Total current assets		4,259		3,779
Property, equipment and leasehold improvements, net		2,197		2,181
Goodwill		1,237		1,237
Other intangible assets, net		14		29
Deferred income taxes		1,121		1,117
Other assets, net		317		332
Total Assets	$	9,145	$	8,675
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,948	$	1,725
Accrued employee compensation		194		282
Accrued warranty		64		61
Current portion of long-term debt		30		245
Accrued expenses		645		608
Total current liabilities		2,881		2,921
Long-term accrued warranty		84		75
Other non-current liabilities		145		154
Long-term debt, less current portion		5,614		4,894
Total Liabilities		8,724		8,044
Total Equity		421		631
Total Liabilities and Equity	$	9,145	$	8,675

SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	April 1, 2022			April 2, 2021			April 1, 2022			April 2, 2021
Revenue	$	2,802		$	2,731		$	9,033		$	7,668
Cost of revenue		1,996			1,991			6,323			5,636
Product development		233			227			694			671
Marketing and administrative		141			126			410			366
Amortization of intangibles		3			3			9			9
Restructuring and other, net		—			(2	)		2			1
Total operating expenses		2,373			2,345			7,438			6,683
Income from operations		429			386			1,595			985
Interest income		—			1			1			2
Interest expense		(63	)		(59	)		(184	)		(161	)
Other, net		(15	)		11			(14	)		25
Other expense, net		(78	)		(47	)		(197	)		(134	)
Income before income taxes		351			339			1,398			851
Provision for income taxes		5			10			25			19
Net income	$	346		$	329		$	1,373		$	832
Net income per share:
Basic	$	1.59		$	1.41		$	6.18		$	3.38
Diluted		1.56			1.39			6.08			3.34
Number of shares used in per share calculations:
Basic		218			233			222			246
Diluted		222			237			226			249
Cash dividends declared per ordinary share	$	0.70		$	0.67		$	2.07		$	1.99

SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
	For the Nine Months Ended
	April 1, 2022			April 2, 2021
OPERATING ACTIVITIES
Net income	$	1,373		$	832
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		324			294
Share-based compensation		106			87
Deferred income taxes		2			(7	)
Other non-cash operating activities, net		46			(8	)
Changes in operating assets and liabilities:
Accounts receivable, net		(186	)		138
Inventories		(275	)		(141	)
Accounts payable		209			60
Accrued employee compensation		(88	)		(46	)
Accrued expenses, income taxes and warranty		19			—
Other assets and liabilities		(53	)		(61	)
Net cash provided by operating activities		1,477			1,148
INVESTING ACTIVITIES
Acquisition of property, equipment and leasehold improvements		(309	)		(374	)
Proceeds from sale of investments		34			11
Proceeds from the sale of assets		—			4
Purchases of investments		(18	)		(4	)
Maturities of short-term investments		—			3
Net cash used in investing activities		(293	)		(360	)
FINANCING ACTIVITIES
Redemption and repurchase of debt		(701	)		(27	)
Dividends to shareholders		(458	)		(495	)
Repurchases of ordinary shares		(1,313	)		(1,819	)
Taxes paid related to net share settlement of equity awards		(45	)		(33	)
Proceeds from issuance of long-term debt		1,200			1,000
Proceeds from issuance of ordinary shares under employee stock plans		68			95
Other financing activities, net		(6	)		(19	)
Net cash used in financing activities		(1,255	)		(1,298	)
Decrease in cash, cash equivalents and restricted cash		(71	)		(510	)
Cash, cash equivalents and restricted cash at the beginning of the period		1,211			1,724
Cash, cash equivalents and restricted cash at the end of the period	$	1,140		$	1,214

Use of non-GAAP financial information

The Company uses non-GAAP measures of gross profit, gross margin, operating expenses, income from operations, operating margin, net income, diluted EPS, and free cash flow, which are adjusted from results based on GAAP to exclude certain benefits, expenses, gains and losses. These non-GAAP financial measures are 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 benefits, 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 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 or replacement 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 HOLDINGS PLC
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts and gross margin)
(Unaudited)
	For the Three Months Ended						For the Nine Months Ended
	April 1, 2022			April 2, 2021			April 1, 2022			April 2, 2021
GAAP Gross Profit	$	806		$	740		$	2,710		$	2,032
Accelerated depreciation, impairment and other charges related to cost saving efforts		1			—			1			2
Amortization of acquired intangible assets		1			1			3			11
Share-based compensation		9			8			27			22
Non-GAAP Gross Profit	$	817		$	749		$	2,741		$	2,067
GAAP Gross Margin		28.8	%		27.1	%		30.0	%		26.5	%
Non-GAAP Gross Margin		29.2	%		27.4	%		30.3	%		27.0	%
GAAP Operating Expenses	$	377		$	354		$	1,115		$	1,047
Amortization of acquired intangible assets		(3	)		(3	)		(9	)		(9	)
Restructuring and other, net		—			2			(2	)		(1	)
Share-based compensation		(27	)		(21	)		(79	)		(65	)
Other charges		(2	)		(3	)		(4	)		(4	)
Non-GAAP Operating Expenses	$	345		$	329		$	1,021		$	968
GAAP Income From Operations	$	429		$	386		$	1,595		$	985
Accelerated depreciation, impairment and other charges related to cost saving efforts		1			—			1			2
Amortization of acquired intangible assets		4			4			12			20
Restructuring and other, net		—			(2	)		2			1
Share-based compensation		36			29			106			87
Other charges		2			3			4			4
Non-GAAP Income From Operations	$	472		$	420		$	1,720		$	1,099
GAAP Operating Margin		15.3	%		14.1	%		17.7	%		12.8	%
Non-GAAP Operating Margin		16.8	%		15.4	%		19.0	%		14.3	%
GAAP Net Income	$	346		$	329		$	1,373		$	832
Accelerated depreciation, impairment and other charges related to cost saving efforts		1			—			1			2
Amortization of acquired intangible assets		4			4			12			20
Restructuring and other, net		—			(2	)		2			1
Losses and costs recognized on the modification or early redemption and repurchase of debt		—			—			1			2
Strategic investment losses (gains) or impairment recognized		13			(13	)		6			(37	)
Share-based compensation		36			29			106			87
Other charges		2			3			4			18
Income tax adjustments		(1	)		—			(17	)		(10	)
Non-GAAP Net Income	$	401		$	350		$	1,488		$	915
Shares used in diluted net income per share calculation		222			237			226			249
GAAP Diluted Net Income Per Share	$	1.56		$	1.39		$	6.08		$	3.34
Non-GAAP Diluted Net Income Per Share		1.81			1.48			6.58			3.67
GAAP Net Cash Provided by Operating Activities	$	460		$	378		$	1,477		$	1,148
Acquisition of property, equipment and leasehold improvements		97			104			309			374
Free Cash Flow	$	363		$	274		$	1,168		$	774

The Company’s Non-GAAP measures are adjusted for the following items:

Accelerated depreciation, impairment and other charges related to cost saving efforts

These expenses are excluded in the non-GAAP measures due to the inconsistency in amount and frequency and are excluded to facilitate a more meaningful evaluation of the Company’s current operating performance and comparison to its past periods’ operating performance.

Amortization of acquired intangible assets

The Company records expense from amortization of intangible assets that were acquired in connection with its business combinations over their estimated useful lives. Such charges are inconsistent in size and are significantly impacted by the timing and magnitude of the Company’s acquisitions. Consequently, these expenses are excluded in the non-GAAP measures to facilitate a more meaningful evaluation of its current operating performance and comparison to its past periods’ operating performance.

Share-based compensation

These expenses consist primarily of expenses for employee share-based compensation. Given the variety of equity awards used by companies, the varying methodologies for determining share-based compensation expense, the subjective assumptions involved in those determinations, and the volatility in valuations that can be driven by market conditions outside the Company’s control, the Company believes excluding share-based compensation expense enhances the ability of management and investors to understand and assess the underlying performance of its business over time and compare it against the Company’s peers, a majority of whom also exclude share-based compensation expense from their non-GAAP results.

Restructuring and other, net

Restructuring and other, net are costs associated with restructuring plans that are primarily related to costs associated with reduction in the Company’s workforce, exiting certain facilities and other related costs. These also exclude charges or gains from sale of properties. These costs or benefits do not reflect the Company’s ongoing operating performance and consequently are excluded from the non-GAAP measures to facilitate a more meaningful evaluation of its current operating performance and comparison to its past periods’ operating performance.

Other charges

The other charges primarily include write-offs related to an internal reorganization and IT transformation costs. These charges are inconsistent in amount and frequency and are excluded in the non-GAAP measures to facilitate a more meaningful evaluation of its current operating performance and comparison to its past periods’ operating performance.

Losses and costs recognized on the modification or early redemption and repurchase of debt

From time to time, the Company incurs losses and fees from the early redemption and repurchase of certain long-term debt instruments. The losses represent the difference between the reacquisition costs and the par value of the debt extinguished. Other fees include any new fees associated with a modification and the write-off of any unamortized debt issuance costs associated with an extinguishment of debt. The amount of these charges may be inconsistent in size and varies depending on the timing of the repurchase of debt and consequently is excluded from the non-GAAP measures to facilitate a more meaningful evaluation of its current operating performance and comparison to its past periods’ operating performance.

Strategic investment losses (gains) or impairment recognized

From time to time, the Company incurs losses or gains from strategic investments accounted for under the equity method of accounting or as available-for-sale debt securities or records downward or upward adjustments to the carrying value of strategic investments accounted for under the measurement alternative if an impairment or observable price adjustment is recognized in the current period that are not considered as part of its ongoing operating performance. The resulting expense, gain or impairment loss is inconsistent in amount and frequency and consequently is excluded from the non-GAAP measures to facilitate a more meaningful evaluation of its current operating performance and comparison to its past periods’ operating performance.

Income tax adjustments

Provision or benefit 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.

Free cash flow

Free cash flow is a non-GAAP measure defined as net cash provided by operating activities less acquisition of property, equipment and leasehold improvements. Free cash flow does not reflect non-cash items, net cash used or provided by financing activities, and net cash used or provided by investing activities, other than acquisition of property, equipment and leasehold improvements. This non-GAAP financial measure is used by management to assess the Company's sources of liquidity, capital structure and operating performance.