NTAP - Earnings call transcript Q2 2018

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Operator

Good afternoon, ladies and gentlemen. Welcome to NetApp's Second Quarter Fiscal Year 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. I would now turn the call over to Kris Newton, Vice President, Corporate Communications and Investor Relations.

Kris Newton

us QX joining earnings year for call. you on fiscal our XXXX Thank are Kurian; CEO, Pasek. me our With today George and Ron CFO, This table, at live replay webcast tables and earnings call be historical financial non-GAAP is for supplemental to a available reconciliation. data release, and our on the along netapp.com, will website guidance, with and the our being GAAP

as conditions to capitalize the recent our on new strategy. XXXX position, from and our documents found allocation our specifically the refer of can reports margins, business all differ and with and time call, which flow from projections and our our profit also a to cash reminder, and will Form website. most make political execute year macroeconomic execution, our our uncertainty. such projections during be future and on gross variety maintain our models, and on to outlook offerings, financial of today's fiscal disclaim we for Please total guidance third including global and respect time expand current available our enhance product of shareholder a profitability, expectations the may which update ability to involve our As our projections. XX-K with capital and statements risk materially market returns, for all we to and full revenue, for year forward-looking quarter manage file our market, our statements obligation SEC, prospects, continue any statements reasons, our forward-looking regarding fiscal and future and We results Form XXXX X-K, Actual market

unless I'll financial call will be turn otherwise George. During the the measures presented call, indicated. all over to now non-GAAP,

George Kurian

joining guidance. I We I strong NetApp earnings our margin, range revenue environment above quarter you, of solutions. all today. continued all Kris. geographies solid very Thank interest margin, the report to profitable and deliver strong proud to per above demand operating afternoon, progress guidance transforming and am growth. us in am our saw share industry-leading gross a with pleased customer of another our you sustained and in in for midpoint Good everyone. Thank our

Our our their and value for clear to our strong growing strategy. customers' commitment Data performance reflects NetApp the and Fabric of preference

competition in edge approaches, market range organizations era we Unlike unify world complex linked cloud siloed Microsoft In and the launched positioned the new We industry's cloud, the NetApp in era and platforms. and data because by and embrace computing, success we not maximum customers' in innovative center, hybrid of are they strategy help data where first executing digital their service. Data realize for our our helping competitors' grew data clouds, areas. organizations winning across IoT a cloud fronts. and to the the and learning, undoubtedly Azure cloud leader uniquely our business data externally with are the digital new manage quarter, do and to heart is we to enabling are applications widest data expertise the leadership with our must open exciting out enable Azure in impact. all We the ecosystem the and which of meet through our by business at transformation our matches unleash new advantage. In pay customers competitive products and management, defined second company's been hybrid of full off relationship growing enterprise ubiquitous exponential are with our as transformation, for NFS and in particularly approach. in value data No see machine one data. IT, we liberate growth and expanded It's segments environments on-premises driven the its of digital and their the is on the

Our advantage of partner effectively. ability innovation, software-based the to and the focus strategic result decades of is

our giving IT imperatives, update mature continue ONTAP solutions. to want second in revenue Before plan, transition to you strategic the brief X% mature quarter, lessen. I with on give behind to In Consistent solutions tightly a the dynamics product update from customers' an for to on headwinds the us. X-mode of from that The aligned declined solutions our Clustered solutions year-over-year. are the mature is set

is provide growing, possibly additional opportunities. the on line focus business and Our abate for renewed add-on top and solutions a coming growth. could hardware In software have for some the mature and support OEM hardware quarters, could we headwinds

more As to the next-generation existing data on a resulted more a their build ways. power solutions tightly customers imperatives centers part the cloud, strategic IT customers' innovative to they storage of our solutions of market. aligned modernize has our in in This focused of infrastructure. areas the bring transformation, as and to we differentiated we portfolio continue growth harness have And

infrastructure revenue XX% we have transitioned business evident gaining lower centers from high-growth the momentum arrays the new installed and enormous ownership displace to solutions, is The business segments key arrays, to year-over-year. opportunity for as hyper-converged last cloud-integrated which all-flash quarter, they noted already build of total Customers cloud. hybrid shift with we converged of and speed data in all-flash the our continued competitors' are of centers modernize and I creates XX% as responsiveness success in base data As us strategic while direction greater applications. penetrate solution. cost our our existing from equipment and This strategic of next-generation moving all-flash and declining QX, data-driven to away were net up in segments product our our

SolidFire large about annualized of of all-flash and and rate business, We array the the substantially and small. and continue FAS, EF of products to market services, to net both year-over-year array billion. revenue competitors, outpace QX, grew In XX% all-flash our an All-Flash growth $X.X run inclusive

and infrastructure SAN success driving our in markets. in flash converged strength Our is also

installations. customers is gain share solutions to technological we and storage within clustered in competitors' products. structural This market, displace strengthen our SAN Converged SAN market year-over-year Tracker us acquisitions and as Quarterly the again customer XX% the share the legacy converged of SAN two number The competitive growth to in reported new existing position have in Our substantial FlexPod of and both in calendar enabling greater wallet QX all-flash helped over IDC's contributed in for infrastructure Systems FlexPod revenue to advantages XXXX.

offering. Fabric. end Element incorporated clouds. service innovations enterprise-scale These NetApp by and the new applications that of SPC-X infrastructure video and user-defined began earlier offers in EFXXX that Element providers full next-generation HCI for the versions, the array data demand surveillance, we customers The designed are array our able We benchmark limitations SPEC with and levels first-generation world-record and shipping acquired management array across NetApp's analytics, align Customers the further of and movement continue leadership SolidFire ultra-low-latency performance upon all-flash policies SFS systems technical the the more ONTAP of to for customers, are In and overcome HCI, market. offers leads compliance for performance-intensive against best-of-breed Data QX. is performance the are our version specifically increased We computing newest strategy. in helps OS business strengthened solution hyper-converged data enable price vendors new seeing first are which integration NetApp helps big to strand our systems applications. the set by stronger capacity win this quarter. all at delivered and enterprise on leadership products from as with performance further and supports excited delivering that first OS we not This are hybrid IT workloads performance of The of choosing SPC-X More both for service to evolving of inflexible all-flash quality NVMe position throttle partners over to QX, SnapMirror increase SolidFire all-flash are the service outpace performance expands the in of consolidate new latest benchmarks in solution. performance promises the The innovations capabilities. customers InfiniBand to cloud that simplify XX% support workloads. new to security such earlier we HCI over because to of resources, strong savings the companies XX% private we ONTAP goals stack rapidly and and

strategy. the reliability our get hybrid approach to performance collaborating continue leading has data joint and the recent with this and for NFS industry-first cloud. and in deploy will NetApp best-in-class the its is be strength and Our with powered in will announcement cloud the the the This Microsoft Azure Azure of enterprise clear by Users evidence by offered directly model unique access is in services. scale, through hyperscalers natively console to of helping Azure customers this defined service NetApp. service delivered NetApp's

NetApp this to monetize the enterprise in us the have us be use about hyperscalers, We more massive of business. which created expand opportunity allow enable share the our all value deliver their part excited through could infrastructures. cloud to partnerships market. and leading on-premises with cloud market not These to relationships I increase the our of customers' our possibilities by

We continued a on in building future. profitable remain generating the growth focused three today are positions us and on We foundation priorities. growth for solid that is

high-growth customers more We more market of are to areas the reaching the ways. aligning and in

capital And on to biggest are realign against focus to growth. long-term our We our our focus expand on returns for disciplined we approach in allocation, investment balancing maintaining with shareholder the innovation. resources our the are and continuing opportunities to productivity business

NetApp and our are results are that us our the enabling of excitement success partners At and relationships indicator to is strategic vision. Insight It's our thousands Fabric execution customers a build with direction long-term of for quarter Data companies remains strategy User deeper the their that recent customers. and strong strategic transformation shared and and clear accelerating track around more our strong second Our world. with Conference, on

improved our year. throughout to the expect momentum We continue

market for planning authority hybrid technologies cloud, data the create businesses, and the the to new are our expanding and available our shareholder value. We leveraging scale future, total creating for

for delivering transformation that the and commitment over it Ron, your I'd to together. are Ron? results turning team the exceptional to like focus, Before thank to NetApp we

Ronald J. Pasek

and George. joining Thanks, Good you for thank us. everyone, afternoon,

As referring today. numbers I'll be non-GAAP a to reminder,

Now robust get started. NetApp portfolio across underscoring customer delivered broad a the let's innovations. results P&L, operating of for again demand strong

tailwind X% the from innovation of QX consecutive increased year-over-year pivot $X.XX in range. X% Product revenues the maintenance results. hardware and sequentially. successful yielding marks fourth maintenance quarter revenues QX combination The positive and of $XXX revenue other guidance billion including services of demonstrating million revenue disciplined sharp increased X our growth, clearly market-leading declined X% we're product are Our areas $XXX execution software year-over-year. and of year-over-year to than midpoint net currency, of focus, and above grew growth and of million market. the point more year-over-year, our XX% of the

revenue services the in in headwind decreased As second year-over-year expected, the quarter.

don't generally return provide early I to next guidance, we Although and growth year. fiscal last headwind the on as services call, revenue we continue to from our expect said ultimately services revenue year-over-year lessen to

these are items making expectations points our and above We of the given of our year-over-year, guidance XX.X% in in from benefit Gross X.X currency. Product margin revenue strong are well confident improved execution. service XX.X% renewal range. the we gross sales increased discipline, growth product onetime was margin progress reflecting and some

Software year-over-year to maintenance maintenance increased currency. due and and about $XXX flat gross primarily hardware X% increased compensation services relatively was year-over-year. gross Operating year-over-year, points variable sequentially other expense X and of margin margin X% higher while million

ongoing reflecting gross net XX.X% represented improved was due As our year-over-year, expenses almost expected of and points efforts. a revenue, and Operating to transformation over operating better percentage margin our of X increased improvement higher year-over-year above revenue margin. XX% range than points guidance X leverage from of of

and cash above At average and Our gross This effective with margins. coming range due rate quarter were X, $XXX retired was XX% that and also We QX program the approximately $XXX fiscal in $XXX and services XXXX. bonds. was exceeded $X.X domestic again November guidance. our the our higher by million XXX $X.XX share the high X% next be in remaining of share of shares outstanding financed closed will QX, programs. to year-over-year we billion it and our was revenue through Since are million. in on we XX.X% reiterate, to of committed million paid our reflecting $XXX paid of tax improvement $X.XX After bonds shareholders $X increase additional over short-term dividends. million announced repurchased issued cash end share, repurchase showing investments May XXXX. early XXXX bonds had weighted and billion end diluted EPS In for by order we've the cash of September XX, million due per January XXXX. XXXX, from to guidance To which in the we with improved million dividend we Today, quarter-end, repurchase on temporary, in returned QX Deferred we we retire shares down in domestic $XX QX December. our in dividend the the held revenue entities. to of late unearned was February completing the we cash in $X.XX, announced

at cycle a improved XX-day days conversion XX days outstanding, by days two-day year-over-year. reflecting was days of negative cash days partially flat XX inventory Our increase XX in increase offset year-over-year, outstanding. DSO payable a in

and with SSD As deep I our said past, we in technical partnerships business continue the to exercise our suppliers.

increase cash an flow $XXX and XXX% of of XX% to which year-over-year. the supply operations of quarter, meet year-over-year. have well cash on an flow increase We next of $XXX QX strong fiscal generated into XX% was requirements represents revenues our and We million, year. free from net in of million hand SSDs is enough committed

Now the guidance.

expect For midpoint, billion X.X% year-over-year. implies we revenues a at increase to QX, which, range $X.XXX net the billion between and $X.XXX

expect XX.X%, a to product reflecting XX.X% We margins revenue of of approximately mix quarter-to-quarter. gross consolidated QX higher

quarter And $X.XX We XX%. for and share we margins third earnings $X.XX per operating approximately finally, share. range expect of between the per expect to

year-over-year year. in in to we the increasing we our to half second expect remain To rate the dollars our with continue fiscal the we expect quarter. confident patterns revenue typical reiterate, half seasonal we on accelerate the second each growth at we provided Looking our prior overachieved of in XXXX, Though QX, of guidance call.

XX% slightly the to high We margin margin to previously end or of expect at we've and committed be EPS XX% end and high to XX% XX% gross be to range the above the that year XX% operating delivering XX% growth low-double-digit for in Further, the flow we at of communicated of the the cash range revenue. to we to guided. free remain range

our are expenses to Analyst in operating As order low-single-digit I long-term during the April, for business outlined planning our in we Day revenue growth line. in keep

the revenue the QX as we results expect reasons should long-term through However, could our QX flowing operating Based articulated, We we margin. In revenue are straight we mid-single-digit of are growth guidance, results. closing, and first outperform to and plan. this on with there upside to many revenue I'll our half demonstrating year-over-year we our innovation business proud year year-over-year it growth market-leading XX% our to disciplined delivered we a sharp increase results. the Kris? our With drive call over X% continue in execution, hand and focus, clearly yielding model. for Kris EPS, sustained leverage Q&A. open in to that, With back

Kris Newton

open as and question Q&A. for many we your yourself one as Operator? of call your cooperation. you Thank for people peers Please to the so be to now We'll possible. limit can get respectful

Operator

you. Thank

comes question the Steve Milunovich first Our from of of UBS. line

Your line is open.

Steven Milunovich

last that on a changes, your XX% know sales of afternoon. product the But year there's and weren't your marketing, that, comment this Good degree and including George. fact you number growth which new do I to very that a Great. growth, were go-to-market you able impressive. factors go into implement are is able what to rate? year you impacting to sales plan obviously,

George Kurian

– very, business. think of are see extraordinarily different with our across all team. the We good very And the I segments pleased very different performance we're the saw all sales of of of we exceptional momentum. geographies the and execution very,

We differentiated product have a portfolio.

our distribution. in strength of of all We have different channels

business focus organization resonating our the Fabric us looking Data confidence gives is customers field Our the and strategy with extraordinary sharp forward. in of

Kris Newton

Steve. Thanks,

question? Next

Operator

you. Thank

question next JMP Securities. comes from of Suppiger Our Erik

open. Your line is

Erik L. Suppiger

kind platform, you're maybe seeing? of some Yes, thank around adoption and growth us metrics you. the Could what rate you HCI give

George Kurian

this in just October past month. platform We introduced the hyper-converged

our excited for are we've demand the has the that product. seen exceeded It at expectations. We

some also on and We this rest focused booked orders we're quarter. the our pipeline converting of

break we've really momentum. see to customer it And got good So we early interest. It's of a out. lot too

solution. a on We delivering have hyper-converged promise that an differentiated enterprise-grade with customers offering, gave the

Erik L. Suppiger

you. Thank Okay.

Kris Newton

you, Thank Erik.

Next question?

Operator

Wells of Rakers Aaron from comes question next The Fargo.

line Your open. is

Aaron Christopher Rakers

George, taking the has question. you've little a in and deeper talked lot a the into you've ability share wallet bit customers. continued the Thanks that very to which wanted flash to impressive. of about Yeah. dive gain for incremental kind been growth business, I your seen

back understand, few base momentum think much past existing look customer of of quarters. you. So it to you how all-flash out I wallet few and wins, versus, as in let's would installed that's over share how over is last coming be your helpful the your Thank quarters, say, new net the or changed maybe

George Kurian

good momentum to see We very, very competition gain continue wallet displacing to share.

of of One programs increases day. our displacements has per in competitive number continued the seen competitive

competitive the is we to SAN of EMC. our in room The quarter, from of the still flash new which substantially net per last up competitors than expense run. saw our the from at majority customers numbers reported legacy IBM arrays day, wallet HP, see quarter. This is more and like frame footprint two displacements share we We substantial

We are flash early still of adoption the in our customer in base. innings

We in have extraordinarily differentiated my comments. portfolio, I as mentioned an flash

deeply several differentiated to momentum we software benchmarks, world-record see have We strong a portfolio, and performance forward. going continue

Aaron Christopher Rakers

Thank you. Congratulations.

George Kurian

you. Thank

Kris Newton

Thank Aaron. you,

question? Next

Operator

question from Raymond James. of Leopold Next comes Simon

line is Your open.

Simon M. Leopold

you a the you it market. as said, very for approach. question. the taking HCI much early I But, Thank Great. understand in got differentiated you've have is

to we overall should place fiscal the take it expectations terms HCI over, how perspective calendar let's think into a longer-term of contribution in you. Thank XXXX about how say, to XXXX? So, how weave or business. the on your I in to want

George Kurian

not fiscal guidance for We're providing XXXX.

second remarks, half As the the we year. are guidance of Ron his prepared the mentioned raising for in

we I'll the we of offering momentum feel the hyper-converged. we of out up-leveling year, see in number. we digits, low-single we break about So, good have just say part And the and market business digits. from we're the very up said, I guide mid-single continued for full that the as to and, as won't the acceleration it's in seeing. would the

Simon M. Leopold

you. Thank

Kris Newton

Thanks, Simon.

Next question?

Operator

The of from question Mark next Barclays. comes Moskowitz

Your line is open.

Mark Moskowitz

to tenor and tone if us gets. the you. it can Or investors get Thank how calendar sense additive your to of out NFS be help we Trying think phenomenon? obviously, a keep to is want more here; Yes. because XXXX? as that Good something you And as expecting could question should probably model George, that good in afternoon. to one some it business the XXXX that a say guidance I otherwise. to suggest and about is Is enterprise this opportunity? we're

George Kurian

NFS expand to That's adoption a Azure more world's hyperscale generally next customers and reach of prospects service, in at It's our are available customer the next to for with new leading in very The ways the preview enterprise excited XXXX will phenomenon. very, be year. private provider. month and we fiscal cloud partnering service one

year, in materiality business. not we're this So, the counting that our of

you in additional be Analyst growth do will next give I think the it will driver But our more for We spring. in an company. color Day

data trends: I think it long-term we and converged are the criticality several the like I look secular and digital data of growth business; technological major cloud. infrastructure way in riding a storage, transitions at the solid-state

a strategy, Fabric replicate. for customers, the differentiated is for very strategy which Data very, We difficult to people have

five been for know, on we've you working years. As this

also execution strong. in software products. a the And build with have years that deliver us our has We compelling been it differentiated vastly really and differentiated Fabric to of innovation positions portfolio many innovation Data

heading we of the of continue it. to business, So see we headroom a year. feel and second we have half are take And down into the going momentum the on double to we strong to lot

Kris Newton

Thanks, Mark.

Next question?

Operator

Markets. BMO The Capital comes Tim Long of from question next

open. Your line is

Timothy Patrick Long

your you meant the revenues you margins comes bit more pricing what talk supply/demand into adequate Can it's how that Could about flash year next of about commodity as a parity? little talk – the mentioned the evolving little you see bit on you products Thank you. and impacts Thank the and you. and a to gross supply. over having

Ronald J. Pasek

both on adequate headwind Yeah. supply the right SSDs. more pricing, definitely and way. the of Definitely from DRAM moderated but do have that's SSDs everyone's DRAM, increases suffering We by for on now, a something

It the it free free it's supply should of half of will the see we up, a anticipated is we're before. first start beginning That what sometime in but little delayed what bit now year, thought like it's slipped next to think a looked widely calendar bit. up. from year now I little next seeing we

this and it at margins gross either So, our point, will don't revenue, hasn't that I it or our future. in the anticipate really affected

those done see pass we when is pass the to when increases. in we typically, decrease those commodities as As token, decrease, by we increases we've we've And the them same said well. gotten along price past, the what commodity price on customers,

Timothy Patrick Long

you. Thank Okay.

Kris Newton

you, Tim. Thank

Next question?

Operator

Cross The Research. next question comes from Steven of Fox

line Your is open.

Steven Fox

could be looks sales. the the conversion Good like was I it my Ron, the you've little margins By Can line. a profit tremendous to you if afternoon. numbers, gross pulled forward-looking Thanks. operating you about from bit bit seeing? you leverage little more wondering down on upside talk that? to margin, a did the conversion that then get continued Thanks. and why talk detail caused What gross And you've like could that what you just margins statement continue reference been occur. would

Ronald J. Pasek

had and where a put so So, think year than What that We we would good different of particularly margins overachieving a this typically last focused margin. mentioned on the seeing were a under-spending effort of on year lot continued from. have made come product we're that an into. go, gross we've was where have It's year. ways the area throughout on I is leverage company. that's and area to progress, OpEx were pretty I focus we work we're

what is we're think I told well, with you. line holding what seeing largely OpEx we As in you're

rates. and than dollar both have a variable held on revenue higher you essentially, for gross growing the on FX growth For employees. basis, the of OpEx little we But At increase margin of only beginning a a headwind the have OpEx below year, rate from this at compensation. those and increases being was of have year we you at merit point, had bit just

where the operating leverage. you're getting that's So

Steven Fox

you. Thank Great.

Kris Newton

Thanks, Steve.

question? Next

Operator

of comes Next question Drexel. from Brian White

open. is line Your

Brian J. White

down They delays had also if highlighted talk at saw big market you customers. federal you and a in the revenues could X% about George, the Cisco product the quarter just market large. enterprise year-over-year. call, Hi, in what are wondering I'm enterprise at

could you us. that if tease for out Thanks. maybe So

George Kurian

momentum know, the the business, market good unquestioned business market. of of in a the have reflects public you we spending sector market. the The saw because we sector It administration. as priorities broad-based book public the book of are We leader in

defense received. flush were we saw We they strong, in the reflecting we feel public and that – normal But the all So, intelligence that budget across of the budget share. year-end overall, different were we confident allocations gained segments sector.

enterprise in good. balanced was of very in of business also We across saw the book strength the of and in – very Our It Americas particular business strong was strength all geographies. Asia board. good the book Pacific, across but

Brian J. White

Great. you. Thank

Kris Newton

Thank Brian. you,

question? Next

Operator

Thank you.

question next from Our Citi. Jim comes of Suva

open. is line Your

Jim Suva

Suva And DRAM, have you of question you. do talking probably forward? portfolio, ability to in product I'm maybe My related price I and you pricing? you have has gross something as talking how get a pricing, Thank Thank you're that memory. about in the your It's then locked down like, that adjust supply how much or sure Was you changes, Were secure with and benefit, what should and we think margin Jim from and onetime Citi. but the it mentioned availability about, that. memory secure that? memory was about you'd it fluctuations – mentioned it to are and wrong you. then locked going a with about being I'm it's is down NAND it probably to understanding

Ronald J. Pasek

Yeah, Jim.

that – It's we out. we're price on in out, anything then And to we closer is but variances to as in to quarter. just supply. it just six months not quarter, It's agreeing start the supply. some not So manufacturing We get on relation far down price. agree the had locking do

Some other were variances were related it. saw. purchase we to That's memory, but price there

reoccurring. on those count can't You necessarily

Jim Suva

quantify you variances for quarter? can those this But

Ronald J. Pasek

a gross margin total a about X.X was point. roughly On it basis,

Jim Suva

great. execution. you congratulations team and Okay, you on their and your Thank to

Ronald J. Pasek

Thanks. Thank you.

Kris Newton

Thank you, Jim.

Next question?

Operator

The question Morgan comes Stanley. from Katy next of Huberty

open. is line Your

Kathryn Lynn Huberty

helped gross year-on-year, Thank some significantly nine on inventory cash down up payable were sequentially to as And pretty it in conversion swings or days eight the quarter. were Follow-up the the days. you. meaningful you balance sheet, mentioned, which cycle. as margins. There Congrats relates

that what if if any to you've gross you memory on had those sustainable? on drove some margins wondering of the swings balance Just relates Or to actions fight the and taken as that pricing the that see benefit sheet? Thanks. else

Ronald J. Pasek

Okay.

little think I to Katy, intimate So, is I quarter last was bit a high. inventory what tried

due and eight levels down, on turns of to we're SSDs. knew where we year worked we days was roughly We that. roughly back ago. the doing We're Some that were we were inventory that to

where be. efforts you So I they're quite equate that's any I actively don't working have The more of think is like margin of transformation and gross part been on think management. so we we and should the can to on, DPO working directly, worked something that disparate. around capital

So, you should continue. be to see that cycle. cash The zero goal to is roughly going forward conversion

Kathryn Lynn Huberty

you. Thank

Kris Newton

Katy. Thanks,

question? Next

Operator

The Nandury [Summit of Redstone]. next question (sic) Summit comes from Srini Gladstone

open. is line Your

Srini Nandury

return looks like is you that limited is and right. network be I'm and Can being being All over realized. at Thank given It use the my to cases comment efficiency storage storage please? to still you. not HCI SAN is for rage seems of all SAN, you note coming back back in is talk that coming about NVMe used about Thank taking George, question. Fabrics. people the Supercomputing Conference we currently attending, the

George Kurian

Yes.

got our deployed over have in EFXXX EF-Series, We NVMe Fabrics Series product.

that for ultra-low-latency types applications. NVMe product detection InfiniBand especially applications analysis or of have trading We use over in cases in in or financial real-time fraud

efficiency, low-latency consolidation We a people latency NVMe this point in get our of the products, management, And of of to shared support single see is and getting footprint exactly storage, while enables that benefits series the we have used of is trend of NVMe as low the benefits where cash. connectivity. FAS that the host

like enabler mature, NVMe it good that It will And become becomes over to more be will time, a big so a as mentioned. we you do see network enabler. storage

Kris Newton

Thank you, Srini.

Next question?

Operator

comes of Kelleher question Mark Davidson. next from A. D. Our

open. Your line is

Mark Kelleher

Great. you taking you FlexPod, hyper-converged. Thanks up XX% I wonder, I to said, talked strong, products. the year-over-year. talk question. was about about very converged up for want

see converged our partnership Your position been you couple you against that partnership Thanks. How always NetApp Fujitsu FlexPod plus Cisco product, with Cisco and A strong. ago, evolving? Networks. with has of you how product weeks Extreme do a do plus new announced

George Kurian

strong continues Cisco NetApp. partner be a of to really

and the from Our strength meaningful networking with capabilities FlexPod the growth UCS flash is in Cisco of the driving combined business. intent-based in

noticed, business other ahead is stack any As substantially the you in of vendor converged XX% full the infrastructure market. in

gone market. so solution a Fujitsu of simple And from had and market is a customers compute from of more where and as is it's have has as different we Fujitsu of flexible simple are than NetApp which who competitors we well looking solution combines XX factory-built engineering, built many our The more NetApp for EMEA what the customizable. with are at It Fujitsu from relationship infrastructure gaining a customer which parts together NFLEX converged places of both we loyalty. and relationships long-standing with And years in have targeted have is of and is share solution, much together. targeting Europe joint with companies. FlexPod, storage to than that preconfigured for

So as with didn't broadly it of world expands reach to our we in another that us opportunity provides address the before. it and compete successfully more parts

Mark Kelleher

Thanks. Great.

Kris Newton

Thank you, Mark.

question? Next

Operator

of comes question Amit next Daryanani RBC Capital Markets. from Our

open. is line Your

Amit Daryanani

else I'm think X% should basis, organic you about basis. on accelerate Jan you? HCI, you about, guys. Thanks. Jan, is revenues, much is could least driving in think midpoint growth mentioned I for at the And just but an if I guide almost and X% on for I driven I growth FX if how just from if what unpack growth a year-over-year at to curious organic talk guess, that in that I'm at wondering quarter versus you maybe the the acceleration organic look revenue that it suggests of

George Kurian

is of I correct. number First think all, the X%

the the it XX% strong momentum. and normal half of through solutions of first continued a reflects broad mature the As we've we growth. that to consistent mentioned reflective reflects business second this fact before, revenue half the of growth book XX% just our year-on-year year-on-year the the It of year, seeing, rate that we and had just the despite seasonality accelerate posted posted the is business, in growth; the a solutions see, growth, strategic we're

to going so see decline. continue to flat the continuing see accelerate. down Mature now mature for headwind broad is portfolio to is just We that year-on-year, X%, almost

continue SAN we see in to gains hyper-converged. have and We

FX, the our So execution we our feel very portfolio that. Ron on comment marketplace. With to have in good and I'll regard about

Ronald J. Pasek

than of Amit, bit going is a all. helping less actually into a next point, so quarter, it's at little FX little headwind X a not

Amit Daryanani

quarter, on Perfect. guys. the Thanks and congrats

George Kurian

Thank you.

Kris Newton

Amit. Thanks,

Next question?

Operator

of comes Maxim question Group. Nehal from next Chokshi Our

open. Your line is

Nehal Sushil Chokshi

Relative Thank it that revenue on midpoint be great driven. and congrats And it you. would XX% well. year-over-year, of that your whereas sounds as And strategic implied a the year-over-year. guidance about was X% product up like of great driver quarter my guidance, I that was to believe outperformance up the

of that you end we attribute much software think of data my So, within you cloud And to NetApp least now. okay, believe the presenting complete for opinion, that at uniquely can management it do how that, is portfolio customers? I'll pretty leave to hybrid in strategic, at just capabilities

George Kurian

impute the the I X% is aggregate think, versus first of all, product But revenue. X% out break of number We're revenue, not revenue. number to aggregate you not guide product that was going the services.

second regard new the because our net through logos to business deployments customer as of portfolio Data Fabric our we of well acceleration as both winning our of continued half see With this we are strategy. year. on-premises of innovation, So

the I think customers' spending which that and the investment start cloud priorities in can any is, customers, and offer data can us premises. aligned your vendor best that on is with with move you protection argument the on is marketplace it

with premises start want to on You take your and you with you us go. wherever to can seamlessly data

cloud. that hybrid as we've clearly So, spent the years customers overall developing resonating the value is proposition deploy

Fabric underpin SAN. continues individual both expand cloud portfolio to solutions compelling expanding infrastructure Data of hyperscalers. converged a and our portfolio We've hyper-converged. strong solutions the The also offering with strong. really the our hybrid with addition, for are Fujitsu the and is In got And that very

in So very double to about on the and our we position market good feel it. we're going down

Nehal Sushil Chokshi

Okay. Thank you.

Kris Newton

Thank you, Nehal.

Next question?

Operator

Next Jaffray. question Andrew Piper comes Nowinski from of

open. is line Your

Andrew James Nowinski

right. congrats quarter. All nice a on Thanks and

get still into margin; it your margin historically? think Just XXX product feel question and was points annual the your mid-XXs on where you expand. follow-up to can gross as quarter. about had And Do forward guidance? that we a should like continues gross QX It how going it up then you basis another product been relates it's this to

Ronald J. Pasek

year at discussion. Analyst part we're When year. give This But, talked for. the guide next we'll the target I that year – of could be this not point, very that's Day our question. So, Andy, this great this about Analyst was have seeing aiming – not we Day. I'm we that well at

Andrew James Nowinski

it. Got Thanks.

Kris Newton

Thanks, Andy.

Next question?

Operator

of Next Sherri Bank. Deutsche Scribner question comes from

Ronald J. Pasek

that? What's

Operator

line open. is Your

Sherri A. Scribner

you. thank Hi,

you're been up following the Maybe like Just seeing. on moderate comment is the on what historically. seems margin; product can environment pricing on more maybe you It gross some detail Thanks. pricing than the competitive competitive it's environment?

George Kurian

It's always Sherri. competitive,

every competitive. transaction think is I

field every on strategy, competitive. as I think to we But a a differentiated portfolio and have well do I right? discipline pricing allows to selectively that remains transaction want our congratulate need long-term discipline organization apply sales we software us where it, as

solutions, hybrid all-flash have flash customers the and We we increases in things some of and choosing hybrid have is flash the that one noticed solid-state. price both of a are portfolio since

competitive a well. that our software single gives we span can a And so both approach as where position unique architecture differentiated have us

we've disciplined the so And be been using marketplace. in that to

Sherri A. Scribner

you. Thank

Kris Newton

Sherri. you, Thank

Next question?

Operator

Thank you.

from Our Martinuzzi Eric comes Street. Lake next of question

is line open. Your

Eric Martinuzzi

A see – question – retired current $XXX the you anywhere. I count? quarter. on spent million What's repurchase in didn't know you the share the it I

Ronald J. Pasek

The was million. XXX diluted count for the quarter share

Eric Martinuzzi

a the just so million for looking X kind like But what, – I'm QX? use so? to or of Right. share right what's retired for the – count you

Ronald J. Pasek

that I guide million we – the but hold on second. about don't in Yeah, back X.X a typically shares bought quarter.

Eric Martinuzzi

Thanks. Okay.

Ronald J. Pasek

Sure.

Kris Newton

Thanks, Eric.

question? Next

Operator

Hosseini Mehdi from SIG. comes question of Next

is open. line Your

Mehdi Hosseini

want we opportunities base my quarters with to question. installed when I talking of about to taking for thanks go and were a the back couple ago Yes, associated it.

installed we be is we think accelerated that question we should this are And is to array my XX%. of I limited upgrading upgrade in and opportunity how all-flash determined? have base you context, think in the accounts range the in $XX billion a to – of or upgrade, or something is $XX assume the than billion that where base? as the in less And (XX:XX) HSI only to much upgrade, you should contribution currently characterized installed offering about

George Kurian

your thanks First of that for XX% about all, is question. just base is The solid-state percentage now. of on installed our

upgrade footprint solid-state base to to operating upgrade. so we seamless. our to as installed go the And system, know, base our with pretty a is you process And have long Clustered of

flash from mechanism. seamless a in move to disk can You

new solution more so our we customer acquisition, see continues net storage hyper-converged flash us or an primarily installed new to hyper-converged, have competitors, With direct-attached storage being the from base. so a become to of that's and as our we do workload I expense that And at opportunity capture additive affordable opportunity relative alternate and of think good and regard more for to ahead disk. to net

We hyper-converged that are in FlexPod, for they converged system opposed today are seeing to the cases use different. as like

So more that think as you we we market. into that's (XX:XX). more get the tell upside adding hyper-converged an We'll

Kris Newton

Thank Right. Mehdi. you,

Next question?

Operator

from of Yes, the Milunovich a we follow-up line question Steven UBS. have of

Mr. Your lift speaker Milunovich, is your isn't open. phone, line sure line muted, your your make please lift handset.

Kris Newton

sounds to let I'm it like and Well, we remarks a have some then we'll back Steve. right. don't little it going everyone to All George go for pass closing early.

George Kurian

results. thank Kris. of Thank profitable is you sustained deliver track NetApp everyone, on positive and you, transformation growth to yielding and The

clearly customers. Fabric resonating Data with is strategy Our

infrastructure. a I you upon harness innovating and the the than that out more to with continued next-generation next of am and industry-leading again modernize the look quarter, position. and leadership expand in second forward Thank are help and We future their growth position talking confident quarter. for power innovations we us our In competition executing we our existing number introduced centers ever you. out the build data as of cloud, companies

Operator

this gentlemen, Thank you a and day. and participation, wonderful for conference. today's concludes your Ladies have

NetApp (NTAP) 15 Nov 172018 Q2 Earnings call transcript