Seagate Technology Holdings PLC

Welcome to the Seagate Technology Fiscal Third Quarter 2022 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I'd now like to turn the conference over to Shanie Hudson, Senior Vice President of Investor Relations and Treasury. Please go ahead.

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 March quarter fiscal 2022 on the Investors section of our website. During today's call, we'll 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 on 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 of the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as the supplemental information, all of which may be found on the Investors section of our website. As always, following our prepared remarks, we'll open the call for questions. Let me turn the call over to Dave for opening remarks.

Thank you, Shanie, and a warm welcome to those of you joining us on today's call. Before I begin, I would like to recognize the growing humanitarian crisis taking place in Ukraine. Our thoughts are with the people impacted by the devastation as we continue to hope for a rapid end to this conflict. As this crisis unfolded, distribution channels across the region were understandably impacted, adding to an already strained global supply chain. Specific to our business, we see shipments into Russia and Belarus at the onset of the invasion, which typically represents one to two percentage points of revenue on a quarterly basis. We expect these impacts to persist at least through the fiscal year. Turning to Seagate's March quarter financial performance, revenue of $2.8 billion and non-GAAP EPS of $1.81 were within the ranges provided on our last earnings call. and consistent with the revised outlook we shared last month. We continue to see solid cloud demand, and that boosted revenue for our nearline products to a fifth consecutive quarterly record. The strong nearline performance was offset to a degree by demand disruptions in other end markets. These include non-HDD component shortages, as well as new COVID lockdown measures that intensified toward the end of March, sharply impacting the video and image applications or via market. Rising inflationary pressures were an additional burden on profitability for the quarter as we continue to operate amid an unusual mix of external challenges. Our team is executing at a high level in this environment, and that is best illustrated with a few key year-over-year comparisons. Relative to Q3 of fiscal 21, we grew total revenue 3% and near-line revenue 24%. We improved margins and demonstrated strong financial leverage with operating income growth of 12% significantly faster than revenue growth. And we generated free cash flow of $363 million, up 32% year over year. These achievements reflect the resiliency of our financial model and our focus on driving profitability and cash generation in an environment where we are poised to capitalize on strong secular growth for mass capacity storage. While the underlying storage demand trends remain intact, the industry-wide supply challenges, impacts from the ongoing conflict in Ukraine, and COVID restrictions are constraining growth over the near term, which we factored into the June quarter guidance we're providing today. Throughout the past couple of years, our strong supplier relationships combined with our vertically integrated business model have enabled us to navigate supply risks to support HDD customer demand. All the while, we've remained highly focused on protecting profitability. In addition to maintaining strong expense discipline, we've recently started to adjust pricing to help combat inflationary impacts in future quarters. Finally, we continue to strategically manage production and execute our product and technology roadmap. These actions are intended to reduce our cost per terabyte and realize operational efficiencies while delivering cost efficient, higher capacity solutions to our customers when they need them most. As we indicated on our last call, we leveraged the seasonal slowdown in the March quarter to begin staging our factories to support strong 20 terabyte demand. I'm delighted to report that we are shipping 20 plus terabyte products in high volume and expect unit shipments to more than triple quarter over quarter in FQ4 to well over 1 million units. This puts us on pace for the company to achieve crossover with 18 terabyte drives early in the new fiscal year. The ability to quickly ramp and yield higher capacity products is especially important considering the strong cloud data center demand for nearline drives. Recent CIO surveys confirmed that even in today's challenging macro environment, digital transformation, AI, and machine learning remain among the top handful of IT investment priorities. With current non-HDD supply shortages impacting new data center buildouts, many of our cloud customers, particularly in the U.S., are operating at or near record utilization levels and upgrading to higher capacity drives in an effort to keep pace with demand. Seagate is addressing these needs by being the first to high volume with the 20 plus terabyte products, which represents the highest capacity drives commercially available today. With more than half of our cloud business currently covered under long-term agreements, we have visibility to healthy cloud demand into the back half of the calendar year. In the March quarter, mass capacity revenue increased 18% year-over-year and decreased 6% sequentially off a record December quarter. Strong double-digit sequential growth in cloud nearline sales partially offset the impacts of demand constraints in the other mass capacity end markets. In the enterprise and OEM market, some customers continue to grapple with non-HDD supply shortages that have impacted their ability to get parts and address their own end demand. COVID lockdown measures are limiting near-term demand in the VIA markets. In the March quarter, new security surveillance and smart city infrastructure projects were delayed, due in large part to physical installations being hindered. This situation is similar to what the VIA market experienced in the early days of the pandemic. And based on input from our customers, we remain confident that these projects will resume once conditions improve, which we now expect to occur in the back half of the calendar year. At a high level, demand for video and image applications is on the rise. Increasing adoption of high-definition cameras, longer data retention rates, and the use of AI and analytics enable end users to identify patterns from months of captured data and extract value. Analysts predict that nearly two-thirds of network video cameras will have embedded AI deep learning analytics by 2025, compared with about 15% in 2020. Indicative of these demand trends, Seagate offers purpose-built VIA drives that support the heavier workloads and firmware to optimize video AI applications. Our strong customer relationships and breadth of knowledge in storage devices and systems and software and architectures have enabled us to develop product and technology solutions that address the evolving mass capacity storage and infrastructure needs. For example, Seagate's Live Cloud platform is aimed at meeting the growing need for a simple, predictable, and cost-efficient mass data storage as a service solution. To date, we've qualified nearly 30 ecosystem service providers offering capabilities such as backup and recovery that are interoperable with Live Cloud. We recently launched Live Cloud Singapore, our first platform in the Asia markets. We are continuing to responsibly build out our infrastructure and selectively work with new customer use cases. Overall, I'm really pleased with our progress and ongoing customer momentum. We look forward to sharing more in the year ahead. Looking ahead, Seagate remains well positioned to achieve our long-term financial and business goals. We're focused on driving profitability towards the upper half of our long-term margin ranges over the next few quarters. At the same time, We expect to extend our track record of strong cash flow generation while executing our product and technology roadmap that collectively puts us on the right path to capture mass capacity storage opportunities and enhance value for all of our key stakeholders. We are taking aggressive actions that span cost management, pricing strategy, and operational efficiencies that target margin expansion and further strengthen our competitive position. I'll now hand the call over to John Luca to cover the financial results.