Seagate Technology Holdings plc — Form 10-Q Summary
Reporting period: Fiscal second quarter ended December 31, 2021 (13 weeks); six-month results cover the period from July 2 through December 31, 2021. Comparisons are primarily with the quarter ended January 1, 2021 and, where noted, the September 2021 quarter. Amounts are U.S. dollars.
Business context and key financial metrics
Seagate supplies data storage products and solutions, principally hard disk drives (HDDs), including products for mass-capacity storage and legacy markets. Management reported shipping 163 exabytes of HDD capacity during the quarter.
| Metric | Three months ended Dec. 31, 2021 | Comparable prior-year period | Six months ended Dec. 31, 2021 | Comparable prior-year period |
|---|---|---|---|---|
| Revenue | $3.116 billion | $2.623 billion | $6.231 billion | $4.937 billion |
| Gross margin | 30% | 27% | 31% | 26% |
| Operating income | $580 million | $348 million | $1.166 billion | $599 million |
| Net income | $501 million | $280 million | $1.027 billion | $503 million |
| Diluted EPS | $2.23 | $1.12 | $4.50 | $1.97 |
| Operating cash flow | $521 million | The filing does not provide a clear quarterly comparable value | $1.017 billion | $770 million |
Quarterly revenue rose about 19% year over year, while net income rose about 79%. Revenue was nearly unchanged from the September 2021 quarter ($3.115 billion); gross margin declined from 31% to 30%, and net income declined from $526 million to $501 million. Mass-capacity revenue represented 66% of quarterly revenue, compared with 58% a year earlier. HDD price per terabyte was $17, versus $19 a year earlier and $18 in the preceding quarter.
Cash, debt and liquidity
- Cash and cash equivalents were $1.535 billion at December 31, 2021, up $326 million from July 2, 2021. Six-month operating cash flow was $1.017 billion; capital expenditures were $212 million.
- Long-term debt, net of issuance costs, was $5.861 billion, including $235 million classified as current. Approximate debt net of cash was $4.326 billion.
- Seagate borrowed $1.2 billion under two term loans and used part of the proceeds to repay the $475 million principal outstanding on its prior term loan. The $1.75 billion revolving credit facility was undrawn at quarter-end and matures in October 2026.
- The company paid $896 million for ordinary-share repurchases and $304 million in dividends during the six months. It had $3.3 billion remaining under its repurchase authorization.
- Management said cash, expected operating cash flow and available revolving credit were sufficient to meet needs for the next 12 months. The company reported compliance with its credit agreement covenants and expected continued compliance over that period.
Material changes, outlook and risks
- Year-over-year revenue growth was primarily driven by higher mass-capacity HDD shipments, partly offset by lower legacy-market shipments. Quarterly revenue was flat sequentially as higher demand for non-HDD products and mass-capacity shipments were offset by fewer legacy shipments and lower price per terabyte.
- Sequential gross-margin pressure reflected lower price per terabyte and higher component and logistics costs; favorable HDD product mix partly offset those factors. Management attributed year-over-year margin improvement mainly to improved product mix.
- COVID-related supply-chain disruption, component constraints, and higher logistics and operating costs continued. Management expected these pressures and demand variation across end markets to persist at least through the remainder of fiscal 2022.
- For fiscal 2022, management expected capital expenditures at the low end of its long-term target range of 4% to 6% of revenue. The filing provides no specific revenue or earnings guidance.
- Key disclosed risks include uncertain global demand and pricing, pandemic-related supply and customer disruptions, material shortages and production constraints, technology and competitive changes, currency and interest-rate exposure, debt and covenant management, and cyber incidents. Management reported no material changes to the risk factors in its prior Form 10-K.
- Unconditional long-term purchase obligations were approximately $495 million, primarily for minimum purchases of inventory components. A patent-infringement trial was scheduled to begin April 4, 2022; the company estimated the possible loss as immaterial, though the range remained uncertain. The filing also describes other proceedings and environmental exposures but does not expect them to have a material adverse effect based on current estimates.
- The board declared a $0.70-per-share quarterly dividend in January 2022, payable April 6, 2022.
Important facts for investors to verify
- Whether mass-capacity demand, shipment growth and product mix can offset HDD price-per-terabyte declines and ongoing component and logistics costs.
- Whether COVID-related supply-chain constraints and demand variability ease or persist beyond the period anticipated by management.
- Debt maturity and refinancing plans, interest costs on variable-rate borrowings, and continued compliance with credit facility covenants.
- Cash generation relative to capital expenditures, dividends, and the substantial share-repurchase program.
- Developments in the scheduled patent trial and any changes in the assessment of legal, environmental or other contingencies.