Seagate (STX) Q3 2025 Earnings Call April 29, 2025 09:59 PM ET Speaker0 Welcome to the Seagate Technology Fiscal Third Quarter twenty twenty five Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Shanee Hudson, Senior Vice President, Investor Relations. Please go ahead. Speaker1 Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer and Gianlu ...

Financial Data and Key Metrics Changes - Q1 sales were $191 million, slightly lower sequentially, primarily due to foreign exchange rate changes and seasonality in the portable electronics market [8][22] - Gross margin for Q1 was 29.9%, a decrease of 220 basis points from the previous quarter, attributed to utilization headwinds and unfavorable product mix [24] - Adjusted EPS decreased to $0.27 from $0.46 in Q4, reflecting lower gross margin [22] Business Line Data and Key Metrics Changes - Advanced Electronic Solutions (AES) revenue increased by 2% to $104 million, driven by higher ADAS and aerospace and defense sales [23] - Electronic Materials Solutions (EMS) revenue decreased by approximately 4% to $83 million, impacted by lower portable electronics, EVHEV, and aerospace and defense sales [23] - Sales in the ADAS and industrial markets increased, while EVHEV sales declined in both AES and EMS business units [11][12] Market Data and Key Metrics Changes - The company noted a meaningful increase in opportunities with Chinese OEMs in the ceramic power substrate market [9] - Portable electronics sales declined sequentially due to normal seasonality [14] - The company expects Q2 sales to range between $190 million and $205 million, indicating a 4% increase from Q1 [29] Company Strategy and Development Direction - The company is focused on securing new design wins and improving operational efficiency while navigating the challenges posed by tariffs [31] - A local for local strategy is being implemented to mitigate tariff impacts, with plans to manage inventories and source materials from other countries [16][31] - The company is also prioritizing capital return to shareholders and exploring synergistic M&A opportunities [27][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating current market challenges due to a strong balance sheet and global manufacturing footprint [7][31] - There is uncertainty regarding the impact of tariffs on sales in the second half of the year, but management remains optimistic about long-term growth in the EVHEV market [17][52] - Customer conversations have been constructive, with a focus on collaboration to mitigate potential tariff impacts [45][46] Other Important Information - The company has implemented significant cost improvements, expecting net savings of $25 million in 2025 [20] - Cash at the end of Q1 was $176 million, an increase of $16 million from Q4 [26] - The company plans to reduce capital expenditures to between $30 million and $40 million for the full year [27] Q&A Session Summary Question: How much of the $25 million cost savings is in the Q2 guidance? - Most savings in Q2 are associated with the reduction force and are expected to be around $3 million [36][38] Question: Expectations for Q3 performance? - Improvement in Q3 is anticipated, contingent on portable electronics ramping and inventory issues in the power module market abating [39][40] Question: Customer sentiment regarding tariffs? - Customers are feeling resilient and are open to collaboration to mitigate potential tariff impacts [45][46] Question: Update on the ceramic opportunity pipeline in China? - The company is making good progress with the Kramer facility and has several design wins in the pipeline [50][52] Question: Insights on gross margin expansion in Q2? - Gross margin expansion is expected due to improved mix and ongoing cost management efforts [53][56]

Financial Data and Key Metrics Changes - In Q1 2025, total revenue increased by 14% year over year to $1,363,000,000, with advertising revenue growing by 9% to $1,211,000,000 [23][5] - Adjusted EBITDA reached $108,000,000, up from $46,000,000 in Q1 of the prior year, reflecting improved revenue growth and expense discipline [27][28] - Free cash flow was $114,000,000 in Q1, contributing to a trailing twelve-month free cash flow of $295,000,000 [28][29] Business Line Data and Key Metrics Changes - Direct Response advertising revenue contributed 75% of total advertising revenue for the first time, indicating a shift towards performance-oriented solutions [24] - Other revenue, primarily from Snapchat Plus subscriptions, increased by 75% year over year to $152,000,000, with subscribers reaching nearly 15,000,000 [23][5] - Global impression volume grew approximately 17% year over year, driven by expanded advertising delivery within Spotlight and Creator Stories [25] Market Data and Key Metrics Changes - North America revenue growth accelerated to 12% year over year, up from 8% in the prior quarter, driven by direct response advertising revenue growth [23] - Europe revenue grew by 14% year over year, while Rest of World revenue increased by 20% year over year [23] - Daily Active Users (DAU) in North America was 99,000,000, unchanged from the prior quarter, while DAU in Europe remained at 99,000,000 [7] Company Strategy and Development Direction - The company is prioritizing innovation in enhancing core product value, investing in AI and ML models, and strengthening the creator ecosystem [9][14] - Continued focus on visual communication and augmented reality as strategic differentiators, with significant investments in AR capabilities [21][14] - The company aims to diversify revenue sources and improve advertising performance through ongoing enhancements to its ad platform [31][14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged headwinds in Q2 but emphasized a strong start to the year with solid Q1 results [43][44] - The company remains optimistic about long-term prospects due to progress in ad platform improvements and diversification of revenue sources [32][31] - Management is cautious about macroeconomic conditions impacting advertising demand and has opted not to provide formal financial guidance for Q2 [30][31] Other Important Information - The company repurchased 27,000,000 shares at a cost of $257,000,000 in Q1, contributing to a decline in total debt outstanding [29] - Adjusted gross margin improved to 53% in Q1, up from 52% in the prior year [27] - The company is testing a refined five-tab interface to enhance user experience and engagement [12] Q&A Session Summary Question: Improvement in North American revenue growth - Management noted strong growth in the small and medium customer segment and healthy contributions from Snapchat Plus [36] Question: Impact of macro conditions on advertising demand - Management acknowledged headwinds but emphasized ongoing growth and diversification efforts [44] Question: Future growth in direct response advertising - Management highlighted ongoing improvements in the ad platform and product roadmap as key to achieving higher growth rates [51] Question: Engagement trends in North America - Management expressed confidence in stabilizing DAU in North America and emphasized ongoing investments in content and user engagement [78] Question: Cost structure and headcount management - Management indicated a thoughtful approach to managing costs and balancing headcount growth with business needs [86]

Financial Data and Key Metrics Changes - The company reported total revenue of $746 million for Q1 2025, representing a 22% increase year over year and a 2% sequential increase [9][19] - Adjusted EPS increased by 56% year over year to $2.98 per diluted share [29] - The consolidated net charge-off ratio for the quarter declined to 8.6% from 8.9% in the previous quarter [11][21] Business Line Data and Key Metrics Changes - Small business revenue increased by 29% year over year to $305 million, while consumer revenue rose by 18% to $431 million [10][20] - First quarter originations increased by 26% year over year to $1.7 billion, with small business originations rising by 27% to $1.2 billion [8][19] - Combined loan and finance receivables increased by 20% year over year to a record $4.1 billion, with small business products representing 65% of the total portfolio [9][19] Market Data and Key Metrics Changes - The U.S. added 228,000 jobs in March, indicating a resilient labor market that supports consumer credit performance [12] - The company noted that its non-prime customers are stable, benefiting from a healthy job market and strong wage growth [6][11] Company Strategy and Development Direction - The company remains committed to its balanced approach, focusing on sustainable and profitable growth while helping customers access trustworthy credit [7][16] - The management emphasized the importance of a diversified product offering to mitigate risks associated with any single customer segment [7][15] - The company plans to continue investing in its business and share repurchases to drive long-term shareholder value [18][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate various operating environments despite potential impacts from government tariff policies [6][16] - The company expects revenue growth for the full year 2025 to be slightly faster than originations growth, with adjusted EPS growth of at least 25% [30] Other Important Information - The effective tax rate for Q1 2025 was 20%, down from 25% in the same quarter last year, due to tax benefits on stock compensation and favorable state rate changes [28] - The company ended Q1 2025 with $1.1 billion in liquidity, including $318 million in cash and marketable securities [27] Q&A Session Summary Question: Impact of tariffs and inflation on small business loan demand - Management indicated no significant changes in application volumes related to tariff discussions, suggesting demand follows typical seasonal patterns [33][35] Question: Payment frequency for consumer and SMB loans - Most loans are structured with weekly or biweekly payment frequencies, allowing for quick assessments of performance [36] Question: Outlook for second quarter interest expense - Management expects a slight decrease in funding costs but does not anticipate significant changes in interest expense as a percentage of revenue [38][39] Question: Fair value premiums and credit performance - Fair value premiums are sensitive to changes in lifetime credit performance, with expectations of stability in the current environment [44] Question: Expectations for small business credit performance - Historical data suggests small business credit performance may mirror consumer performance during recessions, with a diversified portfolio mitigating risks [52][54] Question: Competitive environment and new customer mix - The company has seen strong growth due to a favorable competitive environment and product enhancements, with plans for further improvements [60]

Financial Data and Key Metrics Changes - The company reported Q2 revenues of $499 million, an increase of 15% year-over-year [5][15] - GAAP net income for the quarter was $163 million, up 25% from the prior year, with GAAP earnings per share at $6.59, a 28% increase [6][20] - Non-GAAP net income was $193 million, also up 25%, with non-GAAP earnings per share at $7.81, a 27% increase [6][20] - Free cash flow for the quarter was $65 million, a 6% increase year-over-year, with total free cash flow over the last four quarters at $677 million, up 45% [6][21] Business Line Data and Key Metrics Changes - In the Scores segment, revenues were $297 million, up 25% year-over-year, with B2B revenues increasing by 31% primarily due to mortgage originations [7][15] - B2C revenues grew by 6%, driven by indirect channel partners [7][15] - Mortgage origination revenues surged by 48%, accounting for 54% of B2B revenue and 44% of total Scores revenue [7][8] - The Software segment reported revenues of $202 million, a 2% increase from the prior year, with on-premises and SaaS software revenue growing by 4% [11][15] Market Data and Key Metrics Changes - The Americas region contributed 86% of total company revenues, while EMEA and Asia Pacific regions generated 9% and 5% respectively [16] - Total software ARR was $715 million, a 3% increase year-over-year, with platform ARR growing by 17% [12][17] - The dollar-based net retention rate was 102%, with platform NRR at 110% and non-platform at 96% [12][18] Company Strategy and Development Direction - The company continues to focus on innovation, with new products like the FICO Score mortgage simulator and FICO Score 10T being highlighted [9][10] - Partnerships with companies like Fujitsu and Dakado aim to enhance digital transformation and precision in the life insurance industry [13] - The company is committed to expanding its indirect sales channels and enhancing its partner network [11][112] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the fiscal year guidance despite macroeconomic uncertainties [22] - The company noted that while there are headwinds in customer outreach programs, the overall business remains healthy [34][41] - Management emphasized the importance of customer education in maximizing the value of their offerings [115] Other Important Information - The company repurchased 112,000 shares in Q2 at an average price of $18.49 per share [22] - The effective tax rate for the quarter was 23.7%, with expectations of around 22% for the full year [20] Q&A Session Summary Question: How did results compare to expectations? - Management acknowledged the current environment's uncertainty and maintained a conservative approach to guidance [31] Question: What is the outlook for software reacceleration? - Management indicated that macroeconomic factors are influencing growth, but they remain optimistic about platform growth [32][34] Question: Any changes in credit origination volumes? - Management noted no significant changes in credit origination volumes but acknowledged the lag in data reporting [38][40] Question: Are there changes in customer behavior regarding platform sales cycles? - Management reported no significant changes in sales cycles, indicating that the platform remains a strategic purchase for customers [45][46] Question: What is the outlook for professional services revenue? - Management expects professional services revenue to increase in the second half of the year due to timing issues [117] Question: What are the strategic priorities moving forward? - Management highlighted upcoming innovations and the use of AI, with announcements expected at FICO World [121]

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Financial Data and Key Metrics Changes - In Q1 2025, the company generated revenue of $321 million, a decline of less than 1% compared to the previous year, with U.S. revenue down 0.3% and Canadian revenue down 2.5% in local currency [4][12] - Gross margin increased by 60 basis points year-over-year to 34.9%, and operating income improved by 4.6% [5][16] - Operating income from continuing operations was $18.2 million, with an operating margin of 5.7% [18] Business Line Data and Key Metrics Changes - The performance of the company's largest strategic accounts improved, contributing positively to revenue growth as the quarter progressed [4][7] - The Indof business continued to see growth in new order generation, indicating strong performance in project-based segments [24] Market Data and Key Metrics Changes - The company faced challenges due to tariffs enacted in April, which disrupted the supply chain and impacted price and demand dynamics [8][10] - Despite these challenges, the company maintained a strong inventory position, which provided flexibility in price cost management [14][31] Company Strategy and Development Direction - The company aims to broaden its customer base by expanding existing account relationships and accelerating growth initiatives [7] - There is a focus on enhancing performance through account-based marketing and improving the alignment of marketing and sales [7] - The company is actively diversifying its supply chain to mitigate risks associated with tariffs, particularly those affecting imports from China [15][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to manage through the current environment, emphasizing a customer-centric approach and strong balance sheet [10][19] - The future demand environment remains uncertain due to macroeconomic factors and tariffs, but management is focused on executing effectively [25][63] Other Important Information - The company declared a quarterly dividend of $0.26 per share, reflecting its strong financial position [20] - Capital expenditures for 2025 are expected to be in the range of $2 million to $3 million, primarily for maintenance-related investments [18] Q&A Session Summary Question: Impact of Indof on the quarter - Management noted that Indof saw broader growth across larger customer segments, with no significant pull forward demand observed [24] Question: SD and A expenses sustainability - Management indicated that SD and A expenses were controlled, with a focus on maintaining cost efficiency while allowing for revenue growth [26][27] Question: Future pricing and gross margins amid tariffs - Management acknowledged the fluid situation regarding tariffs and indicated that they are monitoring it closely while managing inventory effectively [28][30] Question: Sourcing shift from China - Management confirmed that the sourcing from China has decreased from previous levels, with ongoing efforts to diversify supply chains [39][40] Question: Growth in strategic accounts - The growth in strategic accounts was attributed to both bringing on new accounts and strong performance from existing ones [47] Question: Potential for acquisitions - Management stated that M&A remains a lever for growth, with the company actively looking for strategic opportunities [65]