Seagate Technology Holdings PLC

Good morning, and welcome to the Seagate Technology Fourth Quarter and Fiscal Year 2021 Financial Results Conference Call. My name is Tabitha, and I'll 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 only. At this time, I would like to turn the call over to Shanie Hudson, Senior Vice President, Investor Relations and Treasury. Please proceed, Shanie.

Thank you. Good afternoon, everyone, and welcome to today's call. Joining me are Dave Mosley, C8'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 year 2021 on the Investors 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 included in our 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 efforts. 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 Investors section of our website. As always, following our prepared remarks, we'll open the call for questions. I'll now turn the call over to you, Dave.

Thank you. Thank you, Shani, and a warm welcome to everyone joining us today. Seagate ended fiscal 2021 on a strong note, delivering outstanding June quarter performance and fiscal year revenue that exceeded expectations. These results reflect broad-based demand across the mass capacity end markets and incredible execution by our global team, which together led to faster-than-anticipated progress toward our long-term financial targets. In the June quarter, revenue topped the $3 billion mark for the first time in six years, and we delivered non-GAAP EPS of $2 per share, which was at the topmost end of the upwardly revised guidance range that we provided in early June. Additionally, we expanded non-GAAP gross margin to 29.6% and expect to be inside our long-term target range of 30% to 33% ahead of schedule. The demand strength and favorable mix has accelerated the timeframe to achieve better supply-demand equilibrium, which is supporting firmer pricing conditions. We are reporting these exceptional results at a time of optimism in parts of the world as vaccinations progress and economies begin to reopen. In fact, we are hosting today's call from Dublin for the first time in six quarters. While the pandemic remains a difficult reality for many parts of the world, and we remain vigilant and continue to manage the business through this period, it is clear at a macro level that recovery is underway in the markets that we serve. T-Gate is entering this recovery period in a very strong position, helped by the fact that we executed incredibly well throughout the crisis. For fiscal year 21, we generated nearly 2% year-over-year revenue growth, exceeding our expectations. We grew operating profits faster than sales and achieved operating margin of 15.4% for the year, showing the leverage in the business. And we returned a substantial amount of capital to shareholders, including $2.7 billion in dividends and share repurchases, retiring more than 13% of our outstanding shares in fiscal 2021. In addition to recording strong financial results, our innovation engine has not slowed down, We extended our HCD technology leadership as evidenced by Seagate being the first company to commercialize hammer technology and the first to deliver dual actuator performance drives, which are now shipping in high volume to support multiple customers. We leveraged our aerial density gains to streamline our product roadmap, making us better able to meet changing customer demand requirements while maintaining an attractive cost profile. We also leveraged the strength of our common mass capacity platform to execute our 18-terabyte RAM plans to meet customer demand. We expect to begin shipping 20-terabyte PMR drives in the second half of this calendar year. Finally, we expanded our product and service offerings with the launch of live edge-to-cloud platforms and remain on track with the build-out of our four live cloud metro edge locations by calendar year end. A year ago, when the business challenges posed by the pandemic were very acute, I made the statement that Seagate would emerge from the crisis stronger than ever. With the financial performance and innovations that I've just highlighted, I believe that our team has delivered on that claim and that Seagate is stronger than ever. We are continuing to focus on unlocking more value for our customers and shareholders. For example, last month, we introduced Corvault to our family of cost-efficient, high-density storage systems. CoreVault combines Seagate's internally designed storage systems basics with our intelligent self-healing software and data security technologies, which results in a high reliability storage solution at petabyte scale, ideal for private cloud and macro edge data centers. We are also working directly with customers to unlock value. Many of our hyperscale customers repair their large fleets of storage drives. We recently teamed with Google Cloud to take data intelligence one step further. Together, we developed models that help predict drive failures before they occur. These models promise to lower operational costs and prevent potential problems to their end users, a clear win-win. Let's turn now to the current market environment, starting with an area that has garnered significant interest in recent weeks. Storage-centric blockchains, such as those used by Filecoin for decentralized storage applications or Chia cryptocurrency, which is considered an environmentally friendly alternative to other blockchains that utilize energy-intensive computational power to validate transactions, have significant interest. During the June quarter, we saw a meaningful increase in HDD demand due in part to the initial build-out of the Chia NetSpace, which is comprised of both new and repurposed HDDs. By our estimation, new Chia demand represented at most a mid-single-digit percentage of total industry exabyte shipments during the quarter, primarily into the distribution channel. This incremental demand served to tighten HDD supply dynamics in an increasingly robust demand environment. While the future growth outlook in this space remains unclear, we are excited by the potential applications associated with innovations in decentralized file storage. For Seagate, strong growth in the traditional mass capacity market remains the primary driver of HDD demand. In the June quarter, mass capacity represented close to 70% of Seagate's HDD revenue, supported by broad-based demand for our near-line drives and the third consecutive quarter of sales growth into both cloud and enterprise customers. Cloud data center demand has remained healthy and steady for the last 18 months, and current indicators suggest that that trend will continue. While it's clear that the pandemic played a big role in accelerating digital transformation, hyperscale industry leaders expect the digital adoption curve to continue accelerating even as COVID recedes. At the same time, businesses are preparing for employees to return to the workplace, which is reinvigorating on-prem IT infrastructure investments and supporting ongoing recovery in the enterprise markets. We also experienced stronger than anticipated recovery in the FIA markets during the quarter due in part to tighter supply conditions. We currently foresee relatively stable demand through the second half of the calendar year. Looking ahead, secular demand for mass capacity data combined with signs of macro recovery represent significant opportunities for Seagate and set the stage for continued strong financial performance and cash flow generation. These factors, combined with our broad product portfolio underpin our forecast to grow revenue in the high single-digit percentage range or more in fiscal 2022, which is well above our long-term financial model range. I'll now hand the call over to Gianluca to cover the financial results. Thank you, Dave.