Seagate Technology Holdings PLC

Good afternoon and welcome to the Seagate Technology fourth quarter and fiscal year 2020 financial results conference call. My name is Jason and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Shani Hudson, SVP, Investor Relations and Treasury. Please proceed, Shani.

Thank you. Good afternoon, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer, and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and detailed supplemental information for our June quarter and fiscal 2020 year end on the Investor section of our website. During today's call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and Form 8K that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. As a reminder, this call contains forward-looking statements, including our September quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic, and general market conditions. These statements are based on management's current views and assumptions, and information available to us as of today should not be relied upon as of any subsequent date. Actual results may vary materially from today's statements. Information concerning our risks, uncertainties, and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K and 10-Q filed with the SEC, our Form 8-K filed with the SEC today, and the supplemental information posted on the investor section of our website. As always, following our prepared remarks, we'll open the call up for questions. I'll now turn the call over to you, Dave.

Thanks, Shani. Good afternoon, everyone, and thanks for joining us. I'll begin the call by summarizing our June quarter performance, giving context for the current market environment, and then share some perspectives on the longer-term data trends. Before turning the call over to Gianluca, to discuss details of our June quarter results and provide our outlook for the September quarter. Following the prepared remarks, we will open the call for questions. Results for the June quarter came in within our guided range amidst a deteriorating demand environment across several key end markets, coinciding with COVID-19 related economic . We delivered June quarter revenue of $2.52 billion and non-GAAP EPS of $1.20. We increased free cash flow by 5% sequentially to $274 million, over 80% of which we returned to our shareholders through dividends and share repurchases, demonstrating our commitment to our capital return program. I'll address in a few moments why we see the impacts that developed in the June quarter continuing in the September quarter. I'll also discuss why we remain confident that the company will emerge stronger from this current crisis. It's only been a few months since COVID-19 was declared a pandemic. However, its impact on the macro economy and global society has been profound. Economists predict global GDP will sharply contract this year to levels we've not seen in six decades, which has wide-reaching effects on how businesses are planning and investing near term. Additionally, the restrictive measures and business closures have created emotional and financial hardships on people, communities, and businesses. I'm proud of how our team has adapted quickly to this tough environment to continue serving our customers and partners while also supporting our local communities and one another. As a team, we have donated equipment and supplies to hospitals and healthcare workers, provided funding and support for food banks, schools, and elderly care facilities. We've also leveraged our data science expertise to volunteer resources through our Data for Good program. and have granted free access to our patent portfolio in support of the Open COVID Pledge to aid research efforts to diagnose, treat, and ultimately prevent the virus. For Seagate, ensuring the protection and safety of our employees, customers, partners, and suppliers remains our highest priority and is vital to the continuity of our business. At this point, all of our manufacturing facilities are fully operational, and we've worked through a majority of the supply chain and logistics challenges that we had faced early on, although there are cost implications that I will touch on later. The impact on our customer base has been more varied across our end markets. The increase in remote work and education, as well as acceleration in streaming video, online gaming, and the rapid shift to public cloud drove ongoing data center investments by cloud service and content providers. These investments spurred strong demand for our Nearline products in the June quarter, and we expect these trends to ultimately accelerate the transition to mass capacity storage. Conversely, economic uncertainty and the extension of restrictive measures began playing out in other markets as the quarter progressed, causing smaller and mid-sized enterprise customers to scale back their IT budgets, municipalities to delay certain projects, and consumers to spend more selectively. These macroeconomic factors ultimately impacted sales of our video and image applications and led to a steeper than seasonal decline for our legacy products. Amidst this overall environment, we're anticipating a continuation of these demand trends to impact our legacy markets in the September quarter. We will also continue absorbing meaningful costs to navigate the disruptions to normal business operations. These are factored into our guidance for the September quarter. While there remains limited visibility near term, the underlying data demand trends have not changed. The rapid growth in data and race for businesses to extract value from that data is fueling the need for more compute and mass storage. Accordingly, we believe current demand patterns will shift favorably as enterprises adjust to the new normal. In the meantime, we are being cautious in carefully managing our cash and expenses to maintain our strong financial foundation. Seagate has a track record of being good stewards of cash and taking a disciplined approach to managing capital while maintaining the health of our supply chains. We are focused on continuing that track record while staying true to our legacy of returning excess cash flow to our shareholders. While we've been focused on navigating the tough near-term business conditions, we also made important strides in fiscal year 2020 to place the company in excellent position to capitalize on the world's burgeoning growth in data that is driving secular demand for mass capacity storage and data management solutions. I'll highlight three key examples. First, despite tough business conditions, we grew both revenue and exabyte shipments in fiscal year 2020, supported by strong demand for mass capacity storage. Revenue from the mass capacity markets increased 25% year-over-year, with exabyte shipments up 57%. Second, we continued to execute our technology roadmap. Our fiscal year performance underscores the success of our 16-terabyte nearline drives and launch of our common scalable platform. These drives are now used by the world's leading cloud and hyperscale names. We target achieving the same success with our 18-terabyte drives. This common platform approach helps to simplify the qualification process for our customers while allowing Seagate to improve operational efficiency. We began shipping 18 terabyte drives as part of our system solution in the March quarter, with shipments to select cloud customers and channel partners starting in the June quarter. We expect to begin ramping 18 terabyte drives later in the calendar year, which aligns well with market readiness. We remain on track to begin shipping our first commercially available Hammer drives in late 2020 on 20 terabyte capacities. Hammer technology will be the industry's path to achieving drive capacities of 30, 40, 50 terabytes, and even higher. We plan to offer 20 terabyte Hammer drives to customers on a limited basis and as part of our system solution to collect production and field data. Third, we announced Seagate LiveDrive. an integrated solution intended to help CIOs cost-effectively move data from endpoints to edge to core. And we launched Live Labs, an innovation center to work collaboratively with customers on solutions to their data management challenges. These three accomplishments demonstrate that Seagate is firmly pointed towards capturing market opportunities that are emerging in an ever-growing data world. Earlier this month, we launched the Rethink Data Report, which is based on a survey commissioned with IDC of 1,500 global enterprise business and IT leaders. The findings not only reinforce the massive growth in data, which the study predicts will grow at a compound rate of 42% over the next two years, but also reveals how data is being widely distributed across multiple data centers and cloud environments. We refer to this in the report as data sprawl. With massive data growth and data sprawl, it comes as no surprise that data management is a top concern among respondents. The emerging role of DataOps organizations are intended to address the challenges of collecting, moving, storing, and curating data securely across complex and disparate networks. Through Seagate's innovative technology roadmap and broad product portfolio, including our system solutions and evolving live platform, we believe Seagate is the ideal mass storage partner for DataOps organizations. With that, I'll turn the call over to Gianluca to go into more depth on our June quarter results and share our outlook for the September quarter.