Seagate | 2 Q2FY25 Financial Results SUPPLEMENTAL FINANCIAL INFORMATION Q2FY25 JANUARY 21, 2025 Safe Harbor Statement and Use of Non-GAAP Financial Information This document and our other communications regarding our quarterly financial results contain 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 relat ...

Market Overview - The S&P 500 experienced its sixth consecutive day of gains, with no negative impact from economic data or earnings reports [1] - The Dow increased by 300 points (+0.75%), the S&P 500 rose by 32 points (+0.58%), and the Nasdaq grew by 95 points (+0.55%) [2] - Bond yields decreased, with the 10-year yield at 4.17% and the 2-year yield at 3.65% [2] Housing Market - The Case Shiller Home Price Index for February showed a headline increase of +3.9%, which is 20 basis points lower than the previous month [3] - The 10-City survey reported a +5.2% increase, down from +5.7%, while the 20-City index showed a +4.5% increase, down from +4.7% [3] - Notable cities for rising home prices included New York City (+7.7%), Chicago (+7.0%), and Cleveland (+6.6%) [3] Labor Market - The JOLTS report for March indicated job openings at 7.19 million, below the expected 7.5 million, with the previous month revised down to 7.5 million [5] - Job quits remained stable at 3.3 million, with a quits rate of +2.1% [6] - Layoffs in the retail sector decreased by 66,000, and federal government layoffs fell by 11,000 [6] Consumer Confidence - The Consumer Confidence Index (CCI) for April dropped to 86.0, below the expected 87.3 and down 7.9 points from the previous month [7] - The Expectations Index fell to 54.4, a decrease of -12.5 month over month, marking the lowest level since October 2011 [8] - 32.1% of consumers expect fewer jobs in the next six months, the highest rate since April 2009 [8] Company Earnings - Visa reported fiscal Q2 earnings of $2.76 per share, exceeding expectations of $2.68 and the previous year's $2.51, with revenues of $9.59 billion slightly above the anticipated $9.56 billion [10] - Starbucks missed both earnings and revenue expectations for fiscal Q2, reporting earnings of 41 cents per share and revenues of $8.76 billion, below the expected $8.79 billion [12] - Booking Holdings posted strong Q1 results with earnings of $24.81 per share and revenues of $4.76 billion, surpassing expectations [13] - Seagate Technologies exceeded estimates with fiscal Q3 earnings of $1.90 per share and revenues of $2.16 billion, raising guidance for the next quarter to $2.40 per share [14]

Group 1 - Seagate reported quarterly earnings of $1.90 per share, exceeding the Zacks Consensus Estimate of $1.76 per share, and showing a significant increase from $0.33 per share a year ago, representing an earnings surprise of 7.95% [1] - The company achieved revenues of $2.16 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 1.34%, and up from $1.66 billion year-over-year [2] - Seagate has consistently outperformed consensus EPS and revenue estimates over the last four quarters, indicating strong operational performance [2] Group 2 - The stock's immediate price movement will largely depend on management's commentary during the earnings call, as well as future earnings expectations [3][4] - Despite outperforming the market this year, the current estimate revisions trend for Seagate is unfavorable, resulting in a Zacks Rank 4 (Sell), suggesting potential underperformance in the near future [6] - The current consensus EPS estimate for the upcoming quarter is $2.28 on revenues of $2.4 billion, and for the current fiscal year, it is $7.60 on revenues of $9.02 billion [7] Group 3 - The Computer - Integrated Systems industry, to which Seagate belongs, is currently ranked in the bottom 31% of over 250 Zacks industries, which may negatively impact stock performance [8] - Another company in the same industry, IonQ, Inc., is expected to report a quarterly loss of $0.27 per share, reflecting a year-over-year decline of 42.1%, with revenues projected at $7.5 million, down 1.1% from the previous year [9]

Financial Data and Key Metrics Changes - Seagate reported a 31% year-on-year increase in revenue, reaching $2.16 billion, and an 81% growth in non-GAAP gross profit dollars [6][15] - Non-GAAP gross margin expanded by 70 basis points sequentially to 36.2%, and non-GAAP operating margin increased to 23.5% of revenue [15][18] - Non-GAAP EPS was $1.90, at the top end of the guidance range, with free cash flow generation increasing to $216 million compared to $150 million in the prior period [20][21] Business Line Data and Key Metrics Changes - Alt drive revenue was $2 billion, down 8% sequentially, while mass capacity revenue declined by $145 million to $1.7 billion, representing a 48% increase year-on-year [16] - Nearline represented roughly 90% of mass capacity volume, with shipments of 120 exabytes, down 5% sequentially but up 55% year-on-year [17] - Sales of legacy products totaled $254 million, down 8% sequentially, while revenue from other businesses remained flat at $157 million [17] Market Data and Key Metrics Changes - Cloud nearline revenue and exabytes were up nearly 10% sequentially, almost doubling year-over-year amid a tight supply environment [10] - Demand for mass capacity storage is aligned with the cloud CapEx investment cycle and ongoing data center infrastructure build-out to support AI transformations [10][11] - Nearline exabyte demand looks strong through calendar 2025, with visibility of demand extending into the first half of calendar 2026 [12] Company Strategy and Development Direction - Seagate is focusing on managing controllable factors while executing its aerial density-driven technology roadmap, which enhances customer value [9] - The company is ramping up shipments of high-capacity drives and expects significant increases in HAMR product shipments in the coming quarters [13][14] - Seagate's transformation towards a profit and cash generation-focused business model is expected to capitalize on the growing demand for mass capacity storage [25] Management's Comments on Operating Environment and Future Outlook - Management expects minimal impact from trade policy changes on fourth-quarter financial performance and is monitoring the situation closely [8] - The company anticipates continued robust demand for high-capacity nearline products, with revenue forecasted to be in the range of $2.4 billion for June [23] - Management remains optimistic about the long-term growth prospects driven by increasing data generation and the value of data [25] Other Important Information - Seagate's debt balance was $5.1 billion at the end of March, with a net leverage ratio of 2.1 times, and plans to continue reducing debt [22] - The company returned $152 million to shareholders through dividends and maintained ample liquidity of $2.1 billion [21] Q&A Session Summary Question: Can you help us understand how and where you got some of the upside in the quarter with the supply shortage? - Management indicated that the predictability built through the build-to-order process allowed them to guide the same revenue expectations a month ago, despite previous operational issues being resolved [29][30] Question: Where are you with HAMR qualifications and how much did it contribute to the March results? - Management confirmed that HAMR is growing well, with significant contributions expected as qualifications progress [34][36] Question: How has your visibility improved regarding new demand from neo clouds? - Management noted that build-to-order agreements provide better visibility into demand, and customers are making data center investments due to the importance of data infrastructure [40][41] Question: Why are margins not seeing more upside in June despite expected increases in nearline? - Management explained that while nearline and cloud demand is expected to be higher, pricing dynamics and contract negotiations will influence margin outcomes [43][45] Question: How do you see the impact of tariffs on your financial model? - Management stated that passing through tariff-related costs would be a last resort, and they are focused on maintaining margins through value-added negotiations [50][51] Question: What is the expected contribution of HAMR to your bits as you progress through calendar 2025? - Management expressed confidence in the increasing presence of HAMR drives as qualifications complete, contributing significantly to future growth [73] Question: How do you see the impact of emerging AI inference storage on your long-term TAM? - Management highlighted the potential for increased storage demand driven by AI applications, emphasizing the importance of data infrastructure [64][66]

Financial Data and Key Metrics Changes - Seagate reported a 31% year-on-year increase in revenue, reaching $2.16 billion, and an 81% growth in non-GAAP gross profit dollars [5][13] - Non-GAAP gross margin expanded by 70 basis points sequentially to 36.2%, and non-GAAP operating margin increased to 23.5% of revenue [13][16] - Non-GAAP EPS was $1.90, at the top end of the guidance range, with free cash flow generation increasing to $216 million compared to $150 million in the prior period [18][19] Business Line Data and Key Metrics Changes - Nearline revenue represented approximately 90% of mass capacity volume, with shipments of 120 exabytes, down 5% sequentially but up 55% year-on-year [15] - Mass capacity revenue declined sequentially by $145 million to $1.7 billion, but represented a 48% increase year-on-year [14] - Legacy product sales totaled $254 million, down 8% sequentially, reflecting expected seasonal trends [15] Market Data and Key Metrics Changes - Cloud nearline revenue and exabytes were up nearly 10% sequentially, almost doubling year-over-year amid a tight supply environment [8] - Demand for mass capacity storage aligns with the cloud CapEx investment cycle and ongoing data center infrastructure build-out to support AI transformations [8][10] - Nearline exabyte demand looks strong through calendar 2025, with visibility of demand extending into the first half of calendar 2026 [10] Company Strategy and Development Direction - The company is focused on managing controllable factors while executing its aerial density-driven technology roadmap [7] - Seagate's HAMR-based Mosaic drives are positioned as the industry's only three terabyte per disk products, with ramping volume to qualified customers [7][12] - The company aims to transform its business model to prioritize profits and cash generation, capitalizing on the growth in data generation and value [23] Management's Comments on Operating Environment and Future Outlook - Management expects minimal impact from trade policy changes on fourth-quarter financial performance and is monitoring the situation closely [6][20] - The company anticipates robust demand for high-capacity nearline products across the global cloud customer base, driving revenue and profits higher in the upcoming quarter [20] - Management expressed confidence in the long-term growth potential driven by increasing data generation and the need for mass capacity storage [23] Other Important Information - The company returned $152 million to shareholders through dividends and maintained liquidity of $2.1 billion at the end of March [19] - Seagate's debt balance was $5.1 billion, with a net leverage ratio of 2.1 times, and plans for further reduction in the coming quarters [19] Q&A Session Summary Question: How did Seagate manage upside in the quarter despite supply constraints? - Management indicated that the predictability built through the build-to-order process allowed them to guide revenue effectively, despite previous operational issues being resolved [29][30] Question: What is the status of HAMR qualifications and its contribution to results? - Management confirmed that HAMR is growing well, with several qualifications in progress, and that it contributed positively to the quarter's results [34][37] Question: How has visibility improved regarding customer demand? - Management noted that build-to-order models provide predictability, and there is a sense of urgency from customers for data center investments [41][42] Question: What is the impact of tariffs on financial models? - Management stated that passing through tariff-related costs would be a last resort, and they are focused on maintaining margins to reinvest in technology [50][52] Question: What is the outlook for revenue growth and gross margin in the back half of the year? - Management expressed confidence in sequential revenue growth and gross margin expansion, with strong demand visibility extending into early 2026 [55][58] Question: How does the company view the impact of emerging AI workloads on storage demand? - Management highlighted that AI workloads are expected to drive significant storage demand, particularly for video applications and large datasets [64][65]

[Fiscal Q3 2025 Financial Results](index=1&type=section&id=Fiscal%20Q3%202025%20Financial%20Results) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) Seagate reported strong fiscal third-quarter 2025 results, driven by structural business model enhancements and a healthy mass capacity storage market FQ3 2025 vs FQ3 2024 Financial Performance | Metric | GAAP FQ3 2025 | GAAP FQ3 2024 | Non-GAAP FQ3 2025 | Non-GAAP FQ3 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue ($M) | $2,160 | $1,655 | $2,160 | $1,655 | | Gross Margin | 35.2% | 25.7% | 36.2% | 26.1% | | Operating Margin | 20.0% | 8.6% | 23.5% | 11.1% | | Net Income ($M) | $340 | $25 | $407 | $71 | | Diluted EPS | $1.57 | $0.12 | $1.90 | $0.33 | - The company's strong performance is attributed to structural enhancements to its business model and a healthy supply/demand environment for mass capacity storage[2](index=2&type=chunk) - Seagate remains focused on executing its HAMR (Heat-Assisted Magnetic Recording) product ramp to support ongoing demand from cloud customers[3](index=3&type=chunk) [Capital Management](index=1&type=section&id=Capital%20Management) Seagate generated substantial cash flow, reduced debt, and returned capital to shareholders through dividends in the third fiscal quarter FQ3 2025 Cash Flow and Capital Return | Metric | Amount ($M) | | :--- | :--- | | Cash flow from operations | $259 | | Free cash flow | $216 | | Capital returned to shareholders (dividends) | $152 | | Debt reduction | $536 | - The Board of Directors declared a quarterly cash dividend of **$0.72 per share**, payable on July 8, 2025[8](index=8&type=chunk) - The company ended the quarter with **$814 million** in cash and cash equivalents and **212 million** ordinary shares issued and outstanding[5](index=5&type=chunk) [Business Outlook (FQ4 2025)](index=2&type=section&id=Business%20Outlook%20(FQ4%202025)) Seagate anticipates continued growth for fiscal fourth quarter 2025, with specific revenue and non-GAAP diluted EPS guidance provided Fiscal Fourth Quarter 2025 Guidance | Metric | Guidance | | :--- | :--- | | Revenue | $2.40 billion ± $150 million | | Non-GAAP diluted EPS | $2.40 ± $0.20 | - The guidance for non-GAAP diluted EPS excludes known pre-tax charges related to estimated share-based compensation expenses of **$0.22 per share**[9](index=9&type=chunk) - A reconciliation of the non-GAAP diluted EPS guidance to the corresponding GAAP measure is not available without unreasonable effort due to the unpredictability of material items[10](index=10&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Seagate's balance sheet as of March 28, 2025, shows a decrease in total assets and a significant reduction in total liabilities Balance Sheet Summary (in millions) | Account | March 28, 2025 | June 28, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $814 | $1,358 | | Total Assets | $7,564 | $7,739 | | Total Liabilities | $8,393 | $9,230 | | Total Shareholders' Deficit | $(829) | $(1,491) | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Seagate reported significant year-over-year improvements in revenue and net income for the third quarter ended March 28, 2025 Statement of Operations Summary - Three Months Ended (in millions) | Metric | March 28, 2025 | March 29, 2024 | | :--- | :--- | :--- | | Revenue | $2,160 | $1,655 | | Income from operations | $431 | $143 | | Net income | $340 | $25 | | Diluted EPS | $1.57 | $0.12 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased, while significant cash was used in financing activities for debt reduction and dividends Cash Flow Summary - Nine Months Ended (in millions) | Activity | March 28, 2025 | March 29, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $575 | $484 | | Net cash used in investing activities | $(146) | $(157) | | Net cash used in financing activities | $(973) | $(319) | [Reconciliation of GAAP to Non-GAAP Measures](index=7&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) [Reconciliation Tables](index=8&type=section&id=Reconciliation%20Tables) Detailed reconciliations of GAAP to non-GAAP financial results are provided, highlighting key adjustments for net income and free cash flow FQ3 2025 GAAP to Non-GAAP Net Income Reconciliation (in millions) | Description | Amount | | :--- | :--- | | **GAAP Net Income** | **$340** | | Share-based compensation | $54 | | Restructuring and other, net | $20 | | Other adjustments (net) | $(7) | | **Non-GAAP Net Income** | **$407** | FQ3 2025 Free Cash Flow Reconciliation (in millions) | Description | Amount | | :--- | :--- | | GAAP Net Cash Provided by Operating Activities | $259 | | Acquisition of property, equipment and leasehold improvements | $(43) | | **Free Cash Flow** | **$216** | [Explanation of Non-GAAP Adjustments](index=7&type=section&id=Explanation%20of%20Non-GAAP%20Adjustments) Seagate explains its use of non-GAAP measures to provide a clearer view of core financial performance by excluding non-recurring or non-operational items - Non-GAAP results are used by management to assess performance, allocate resources, and plan for future periods, and are intended to supplement, not replace, GAAP results[23](index=23&type=chunk)[24](index=24&type=chunk) - Key adjustments include restructuring costs, share-based compensation, acquisition-related charges, purchase order cancellation fees, and strategic investment gains/losses, which are excluded because they are not considered indicative of core operating performance[32](index=32&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - Free cash flow is defined as net cash from operating activities less capital expenditures and is used to assess liquidity. EBITDA and Adjusted EBITDA are used to evaluate the company's debt portfolio and comply with financial covenants[42](index=42&type=chunk)[43](index=43&type=chunk)

Core Viewpoint - Seagate Technology Holdings plc is set to report its third-quarter fiscal 2025 earnings, with expectations of revenue growth driven by mass capacity demand, particularly from cloud customers and AI applications [1][2][3]. Financial Estimates - The Zacks Consensus Estimate for earnings is $1.75 per share, unchanged over the past 30 days, compared to non-GAAP earnings of 33 cents per share in the same quarter last year [1]. - Management anticipates revenues of approximately $2.1 billion, with non-GAAP earnings expected to be $1.70 per share [2]. - Revenue estimates for the HDD segment are projected at $1.989 billion, reflecting a 34.7% increase year-over-year, while non-HDD segment revenues are expected to decline by 15.6% to $150.2 million [8]. Market Dynamics - Seagate expects continued improvements in mass capacity due to rising nearline demand from global cloud customers and enhancements in enterprise and OEM markets [2]. - The company has increased production of its 24-28 terabyte PMR drives, which are now its top-selling product line [4]. - The demand for HDDs is anticipated to rise as cloud service providers focus on AI application development and infrastructure [3]. Revenue and Margin Expectations - Mass capacity revenues are expected to increase by 50.1% year-over-year to $1.77 billion in the fiscal third quarter [7]. - Non-GAAP gross margin is projected to be 35.8%, up from 26.1% in the prior-year quarter, benefiting from strong demand for new nearline products and pricing actions [9]. Supply Chain and Operational Challenges - Supply chain issues are expected to impact revenues by approximately $200 million, although the company plans to meet build-to-order commitments [2]. - Non-GAAP operating expenses for the fiscal third quarter are estimated at $290 million [9]. Earnings Prediction - Current models do not predict an earnings beat for Seagate, with an Earnings ESP of -1.28% and a Zacks Rank of 5 (Strong Sell) [10].

Macro Data - In March, retail sales increased by 1.4% month-on-month, the largest increase in nearly 26 months, attributed to consumers stocking up on goods before price hikes due to tariffs [8][12] - The initial jobless claims for the second week of April were 215,000, better than the expected 225,000, indicating a stable job market [8][12] - New housing starts in March decreased by 11.4% to an annualized rate of 1.324 million units, below the expected 1.42 million units, impacted by rising material prices and high inventory levels [8][12] Market Sentiment - The Economic Policy Uncertainty Index (EPU) has a 7-day moving average of 579 points, slightly down from the previous week's high of 703, indicating high uncertainty regarding tariff policies [13][15] - The AAII survey shows that 56.9% of retail investors are bearish on the stock market, while only 25.4% are bullish, reflecting a continued spread of pessimism [13][16] - The Fear and Greed Index closed at 21 points, remaining in the 'extreme fear' zone for four consecutive weeks [17][18] Global Market Overview - Global equity markets rose by 0.3% last week, with emerging markets outperforming developed markets (2.1% vs. 0.1%) [19][21] - Gold prices continued to rise, increasing by 3.0% last week, while Bitcoin futures rose by 1.6% [21] - The S&P 500 index fell by 1.5%, entering a sideways consolidation phase, while the Hang Seng Index also experienced a decline of 0.5% [21][23] Industry Performance - Among 36 secondary industries in the US stock market, 21 saw gains, with transportation, real estate investment trusts, and oil and petrochemicals performing well [22][23] - The strongest sectors included pharmaceuticals, transportation, and oil and petrochemicals, with pharmaceuticals seeing an estimated daily fund intensity of approximately $20.7 billion [29][30] S&P 500 Valuation - As of last week, the S&P 500's trailing PE ratio was 24.1, slightly below the ten-year average of 24.5, indicating reasonable but not undervalued conditions [32][34] - The forward PE ratio decreased from 20.2 to 20.0, a decline of about 1.0%, while forward EPS slightly fell from $266 to $265, a decrease of about 0.5% [32][36] Earnings Performance - 12% of S&P 500 companies reported Q1 2025 earnings, with 71% exceeding expectations, though this is below the 5-year average of 77% [37][39] - In terms of revenue, 61% of companies reported actual revenues exceeding expectations by 0.5%, lower than the 5-year average of 69% [39][41] Q2 2025 Earnings Expectations - The highest expected year-on-year earnings growth for Q2 2025 is in the communication services sector at 28.8%, followed by information technology at 17.1% [42][43] - The energy sector is expected to see the highest decline in earnings at -18.1% for Q2 2025 [42][43]

Seagate (STX) is expected to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended March 2025. This widely-known consensus outlook gives a good sense of the company's earnings picture, but how the actual results compare to these estimates is a powerful factor that could impact its near-term stock price.The stock might move higher if these key numbers top expectations in the upcoming earnings report. On the other hand, if they miss, the stock may move ...

Seagate Technology Holdings plc (NASDAQ: STX ) is due to report earnings on the 22 nd of April, so I wanted to go through some numbers as well as what I am looking out for fromMSc in Finance. Long-term horizon investor mostly with 5-10 year horizon. I like to keep investing simple. I believe a portfolio should consist of a mix of growth, value, and dividend-paying stocks but usually end up looking for value more than anything. I also sell options from time to time.Analyst’s Disclosure: I/we have no stock, o ...