NTAP - Earnings call transcript Q4 2018

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Operator

Good afternoon, ladies and gentlemen. Welcome to NetApp's Fourth Quarter and 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 will 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

Form conditions Please and differentiated also expand and our all with XX-K strategy, and capital on new our our services in on disruption, without time on market and and as with and call, our gross most strategy. reminder, our will and profitability, make to position of continue the fiscal differ for such projections our and and during statements our flow future and found we market, and recent outlook obligation update risks manage our introduce financial today's variety year execution, involve which our and projections forward-looking we materially guidance be our allocation cash cloud total first website. fiscal from respect a for projections. expectations to of refer X-K, margins, reasons, to products the macroeconomic file reports the from our As statements to full returns, revenue, deliver capitalize for quarter may political, current shareholder a Form documents can available including our prospects, statements global forward-looking regarding which results time maintain market any and SEC, future specifically year XXXX ability uncertainty. and We profit of our disclaim to and all XXXX Actual

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

George Kurian

or line footprint wins Thanks key a environment quarter Thank We again strong metrics all with in above a saw us good key fourth all year afternoon, you solid financial to and marked customer The expansions and finish our everyone. with guidance. joining in today. for great demand a Kris with geographies.

to gross milestone profitable customers critical basis continues driven important execution revenue notably, Fiscal from with revenue was market X% Through margins discipline successfully Most strategic areas XXXX pivoted and strategic on focus points. NetApp's while both mature XXXX. an and and fiscal data the as operational growth. sustained the expected. We are year we strong transformation. a momentum growth digital improving increasingly grew in to grew Our as product in and total gross revenue transformations. accelerate was partner stabilized Growth XXX solutions a to and margins year by revenue viewed expanded product from XX% by we for deliver of improved from operating and solutions we

and all us Clear their to every a transformations infrastructure hyperscalers, value derive partnerships. for cloud. enterprise multiple center, to Organizations externally data take undergoing empower are the share connections cloud has at strong the geography. customers IT to and product The Data innovation in connects from industry-leading services unique hyperscaler and leadership digital locations. to with with across to private with radically execution in multiple in and market public cloud, and solutions solutions enterprise. performance. complex to categories enable uniquely cloud to leading enabled and Our operate NetApp platforms. the new Fabric traditional solutions entered fiscal cloudlike advantage create Fabric strategy and differentiated Data share customers cloud, industry cloud regardless new XXXX win offering edge, the with organizations grade a applications us shift business linked competitive In and arrays, customers infrastructure business clouds, lead enterprise data capturing in to customers, we world their We help existing market hyper began converged its is the the the all-flash coupled to data data-driven all where improve across require and These expand and key within go in data industry-leading gain resides positioned opportunities. in and the modernize customers advantage with provides leading in capabilities public of flash of business

XX% era strength cloud up Our customer's the and strategy of competitors revenue any our integration, and adapt consistent fall with this solutions. evident of of they strategic semblance The to to is struggling our direction growth of were execution alignment is continue a or XX% of in product are cloud year-over-year. our strategy net without QX solutions cloud new to hybrid strategic behind. In

XX% expected, have QX contributed of solutions in net year-over-year. abated. mature up As the product revenue headwinds X% solutions Mature from

new we in legacy new consolidate for competitors' as encouraged business, installed opportunity in displace stabilization is our we look we to gain to While shift deployments, drive innings are XXXX. upgrade still enormous revenue creating growth fiscal solutions the our share equipment, strategic early product continue to flash, us, and and our which its by to base. in mature This in workload is

of solutions Our our SolidFire At with services, artificial and grew an to customers first and and the FAS, modernize cloud IT billion. platform we XXXX XX first leadership their intelligence environment and end-to-end XX% available $X.X TB of high density SSDs. In EF innovation intensive our support compute AFF the all-flash introduction start revenue and the array net business of memory power expanded all-flash XXX, industry's year-over-year connected the of NVMe help the fiscal in the QX of all-flash rate applications. market run products annualized inclusive in all-flash

to helping We cloud and intelligence, most analytics, thrive learning, the new with systems. look fastest, data-driven workloads artificial machine deploy enterprise as they like connected all-flash customers are advanced

markets. in two takeout at is market wallet displacements the success SAN averaged successful With gains share flash customers. we in existing from share strength day infrastructure XXXX. both Our acquisitions gains SAN our also fiscal customer our success highly This is SAN and in driving competitive during and program predominantly converged per driving new

As and build the hyper to all-flash cloud. accelerate the increasingly of transformations of are look by grew the consecutive digital quarterly market to customers of This they in systems for the infrastructure fifth the converged QX share models converged to FlexPod per converged represents Driven tracker the deployment market. XX% converged turning their share XXXX. gain IDC’s gaining year-over-year are calendar simpler we quarter and strength infrastructure year-over-year infrastructure converged in

driven We winning we first the strong against excited loyal because the of In NFLEX with and customer expanded with and reach shipping Fujitsu's by with Fujitsu strength to began Our players infrastructure we've our solutions engage converged of partnership. in relationship base. generation are QX Cisco opportunity remains the are HCI market separately our our our approach track at enterprise our compute ability workloads customer success. an storage with support heterogeneous flexing record costs. data quality Customer to fabric grade solutions, efficient to HCI and for provisioning offering guaranteed of and license integration and is demand reducing HCI scale and service over by for

customers which proofing cloud public Even first including compute their increasing undergo on-demand without efficiencies. cloud environments As many applications, deployments of strongly the cloud agenda future power a are strategy. are cloud An to customers the customers across infrastructure our leading scale uniquely our offers NetApp transformations, services services of digital leverage mindful data first on number and and rich providing integrated We portfolio, capability, help while driving and multi-cloud cloud the and clouds. and enable time partnerships and to positioned the customers environments. all to is cloud consistent optimize, integrate, integration protect strategic NetApp. innovation, customers IT With advantages, benefits for data a efficiencies data hybrid their of

customer Our across approach services a customers. customers Only engagements cloud strategic and NetApp all new more leading our offering. to has with winning the partnerships hyperscalers richer and strategy is and all cloud data for us complete driving

cloud a by data your the in for for fundamental volumes NetApp offerings. new ahead Azure We excited for and in work and customers a of files integrated a the with are AWS on-boarded in is part endorsed and available. XXXX ways now Google now. in as to The console of have hyperscalers customers be the is and preview our this part grateful cloud private of with our their in for to we're business. be leading platform. volume NetApp revenue of is generally cloud by start customers data NetApp into experience for plan cloud QX fiscal Fiscal pipeline Microsoft off of growing year cloud volumes user preview opportunity services XXXX the for We will to announcement is fabric private foundational strong with Google as a

into how insight you is progressing. provide it will we grows it As

even stronger modernize and our the allow services us our and for cloud help customers' customers. data market on-premises in we as The increase breadth opportunity their to us cloud of to the cloud give on-premises an deployments. momentum use partnerships of share Our expand customers our story monetize

cloud of market learning on to for Additionally, a of over the business summary, makes. our participate our uptake greater fiscal ability hyperscalers even consistency machine what the and applications expanded in opportunities, exciting. provide is cloud the analytics, endorsement our part customers. We a created we opportunity advanced is momentum the of XXXX. results, value born new are enhances of to partnerships and leadership Google able cloud artificial of further our opportunities intelligence, in and to addition our the incredibly The to successfully our this our by accelerated improved and of year difference In course a the

since beginning of NetApp. the in undoubtedly position We are the transformation best

of parts market. Our business the overweight growth the is in

industry-leading have partnerships we with are and new acquiring all addressing We and hyperscalers new top the workloads. customers

their all pass execution, our great confident and and fantastic over made increased NetApp recent moving out extremely through expanding I a our the go forward. With results XXXX. to with and year. will entire contribute to I'll We at strong am progress employees, our compelling Ron? financial to shareholder on continue momentum value. relentless it plan deliver partners, to and and innovation. help capitalize Ron for team want our ability now laid have expectations to NetApp our I to plan. customers margins this for momentum, commitment customer to successfully Analyst success, thank growth Day fiscal in We in a

Ron Pasek

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

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

As analyst is team at our made. we've of our the extremely proud I Day, mentioned progress

industry-leading full execution. growth market with QX highlight successful results the our year Our and innovation pivot of areas our and to the

expansion. seeing noted, product As the momentum and NetApp, transformation gross growth are accelerating margin through by best highlighted our of revenue we George

deliver in and progress to fiscal and customers commitments are positioned shareholders. continued well XXXX our expect on We to

on compensation and maintenance hardware the and fourth gross services margin Before we our $XXX strength renewals sales new base. the growth of year-over-year variable improved maintenance and sequentially, software growing the increase year-over-year which currency including was of in currency than higher XX% almost expenses hardware XX.X% maintenance of product continued reflecting other attach increased quarter benefit. of was of $X.XX X.X relatively of This rate due continue benefit. revenues increased entirely on guidance were and guidance, Operating in the a I'll margin X% our over four performance. points We growth continued to $XXX our in maintenance some flat product reflecting growth. software services improved point gross product and consistent the with our million the XX% strategic execution The reflecting year-over-year of our midpoint full-year half achieved Gross were year-over-year. exceeded point revenue in came quite other guidance gross revenue. performance revenues install billion expense and of Net product tailwind. to margin Both provide remains and high-end margin discussing as XX% of healthy results three discipline expected. maintenance detail quarter. in increased over our and to Product sales above currency $X billion consecutive year-over-year products, as The higher see The associated million and range. revenue is well flat sixth combination year-over-year and

product model. X% shares expansion which $X.X in to increased OpEx reset variable expense and short-term XX% and growth We revenues in would to and repurchase with guided upside the range. compensation margins. dollars of by to down completion full-year of year-over-year of healthy high-end extent of was in sequentially. year-over-year closed salary guided billion the billion and our QX variable sequentially, driven our average we commitment. a business demonstrating gross revenue increases, services range margin OpEx Similar the diluted was cash investments. our was in lesser year-over-year. for share outstanding leverage increased $X and have expect $X.XX We EPS currency compensation remain X% annual product been previous flat strong QX EPS predominately reflecting considerable The OpEx finance Excluding above unearned XXXX. year-over-year and $X.X down Weighted million the were and saw committed XX.X% our to $XXX in million with and Operating healthy discipline be fiscal deferred growth of within the

we During in million our shares the outstanding million. and reduced commercial quarter by nearly paper $XXX repurchased our $XXX

financial billion $X Day, As Analyst Board share repurchase a the program. at our discussed we new authorized

doubled increasing cash time. have and we of We will also on dividend which QX remain Today $X.XX dividend to our fiscal it our over further per July XX. committed announced be paid share

Our of cash from cycle by seven-day of year-over-year. with increase days of offset flow net XX% outstanding by $XXX a of strong cash generation a reflecting payable revenues, increase and another $XXX conversion days DSO. which generated improved cash We days a had days a partially XX-day decrease negative XX% the DSO to increase free finish XX year-over-year. of XX impacted represented in was strong inventory QX. year-over-year We in quarter in XX-day of an cash quarter million XX% an increase outstanding flow million, of operations in outstanding,

fiscal execution. our previous of yielded was the up our XXXX aided year and free growth. metrics. XXXX of I met XX% XXXX, again fiscal flow XX% by Net and of free cash revenues the a points improvement generated of X was than margin that a to increase XX% which turning and billion of we revenues exceeded above XX%. fiscal net execution year-over-year. XXXX to XX% XX% compared EPS XX.X% all pleased across billion operating fiscal an in earnings increased guidance significant product full-year leverage commitments XXXX tailwind. disciplined cash X% flow margin increased am versus our currency and of our more In is report improved guidance range. leverage margin to of growth, business or strong Now within of Gross was these model range and in point represented revenue to our and of We Operating results. $X.XX demonstrating X-point compared to XXXX from $X.X $X.XX

deliver in $XXX continue repurchases free capital We returned of nearly XXXX. on flow allocation in share in $XXX to dividends. million shareholders strategy We and million our XX% fiscal with over cash to

with mid normal on as Now with to fiscal we linearity at single-digits Day XXXX patterns. guidance, our to seasonal recent in outlined Analyst we revenues consistent grow expect our

the XX% expect We are and forecasting gross margin XX% of of to approximately XX%. in operating margin range

EPS in growth expect of effective We our to and excess be are delivering committed rate to XX% tax approximately XX%.

of to Additionally, meaningful the we generate to XX% revenues. free expect range cash to continue of in XX% flow

we reminder, QX expect to immaterial we revenue transitioning a total which As our results. to be to XXX are recognition in

currency including between at on which point the we net billion implies QX Now midpoint a X.X and $X.XXX X.X% revenues guidance, to range $X.XXX billion increase year-over-year to benefit. a expect

We to expect margins XX%. approximate QX consolidated gross be

margin We to expect operating XX%. QX be approximately

OpEx than year-over-year year increase offset throughout QX being year-over-year year-over-year QX in Note remainder full-year the fiscal increases. the for While the we merit be resulting is don't will guide OpEx of by the implied OpEx increase down compensation the XXXX. driven and that currency explicitly more

conducted of less we continue a as we toward to best dollars and focus market of X% QX key growth opportunities workforce investment During initiatives. than realignment the employees

strategy. growth We per $X.XX confident expect to $X.XX. our to range our compelling for earnings first cloud it share the I'm as and especially relates In quarter total, opportunities, about between

the fiscal to very I'll XXXX I'm at it to Day. Q&A. plan we Additionally, Kris improvement pleased call for and communicated open that, opportunity long-term With our with Kris? back hand we continue have margin the the to Analyst in throughout

Kris Newton

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

Operator

Goldman [Operator question Rod you. Our from first Thank Hall comes Instructions] with Sachs.

Unidentified Analyst

you for latest it's the differentiated your Hi offerings Thanks or high this And array Are to whether workloads? talk product, pricing down taking do more for could [ph] expect NVMe come is mainstream performance question. and for to NAND intended Rod. RK what and just to seeing my your boost on of also for extent how it’s all-flash start behalf about you competitor you sales? from that applications

George Kurian

Let me start telling NVMe our solution. you about by

first to provide NVMe hosts that storage in system NVMe network customers the ship are an had and investment and and latencies. InfiniBand they that deployed already We the end-to-end leave solutions allows solution advantage have the protected even connectivity to the We fiber between lower market. over in the place channel footprints of take

it's as end-to-end as devices performance connected higher, leading we four and and have a the from fact The either NVMe any have that substantially also or we throughput We higher latency differentiated competitor a system less. are storage from other is an from and our perspective times within at in industry perspective by the microseconds marketplace IOPS is fact a offering. the caches than XXX that

very So market. pricing I'm let NAND we’ve about the comment. that the good capabilities to we going feel Ron introduced in to With regard

Ron Pasek

Yes, we getting to do some so little down out [indiscernible] a to and bit. a supply go little the any We're through we those bit leveling may decrease, see and starting actions. prices therefore better price see anticipating want we before see taken we

Kris Newton

RK Thanks [ph].

Next question?

Operator

you. Thank

Nowinski from next comes question Jaffray. Piper Our Andrew with

Andrew Nowinski

quarter. congrats Great, thank very on much you the and very nice

portfolio also to storage looks trends, like, on just thoughts of a guess that the love performance your similar benefits the it to you about network speeds talked of and market storage makes the your workloads about on competitors given is which large platforms new a talking sense to expand opportunity? replacement I'd without that allowing NetApp direct the And your I’d one leverage moving you’re [indiscernible] NVMe seeing hear incurring I opportunity You shared customers given in penalty. increasing imagine

George Kurian

performance. in direct the still storage fabric, high the storage connected can benefits get with devices shared lower and replace Clearly network the customers of the latency

in for of redefining well gain advancements the opportunity. our a we’ve the will fan storage give ever about connected that the we to like the really In of workloads. both InfiniBand the end think landscape using feel the particular software technology with it introduced storage benefits us as channel us highest range increasing of to further allow and combination portfolio, go so shared flash for continue to an our share allows after by NVMe Plexistor performance of fiber fan good market ever overall market to as customers solutions and NVMe allows us I

Andrew Nowinski

if suggests you’re just That’s that drive then QX I momentum I QX? continue outperformed it gross expect good. the [ph] annual product And QX a the would the is you like to second clearly there conservatism in where a margin, and quick but from the Thanks. on it's margin guidance allowing real little guess in that in guess just at in Thanks. half] followup to more [and looks could your improve is specific that down deteriorate latter that bit or something you

Ron Pasek

the than margins QX QX remember higher revenue much is So the QX you're Andy, to staying the essentially rest the that the weighting where service much, from throughout higher in product product and service roughly were of weighting margin. services of a QX of revenue bit is little seeing year. so in benefit QX and higher higher to revenue What makes they

Andrew Nowinski

good the up work keep good, Very guys.

George Kurian

bet. You

Kris Newton

Andy. Thanks

question? Next

Operator

Thank you.

from comes Katy with Our Morgan next question Huberty Stanley.

Katy Huberty

mix to gross also April and volume think gross margins a product margins. want but better less the you followup factor and I in quarter, on in was mentioned the increase. Ron, benefit OEM you sales from discipline I you. improved that Thank

in product July? the in So to just you else Is July. driving in to mentioned margins? were relates margins you higher then And down it Thanks. play break the you factors anything April boost the as is mix there can that

Ron Pasek

QX We most better I to of the the for was FX. at a QX, improvement if [indiscernible] So, margins, of discipline. had product bit sales from little look bridge

particularly revenue. the did we outperformed You over also in so actually we discounting, and performed remember at quite discounts the constant held on product side of that the well revenue quarter. that We our wasn't and expense

margins question just se, part your product I'm it other respect or specifically with of but… guide to going on The is QX not to per

Katy Huberty

the product mean how the you margins in would expect trend July I quarter? to Yes,

Ron Pasek

you but We don’t total, in can it’s guide based on the guide roughly that flat. assume it,

Katy Huberty

Okay. you. Thank

George Kurian

see to continue margin. expand to We product opportunities gross

had we’ve think of I course fiscal really year. this progress past good the through

on other continue forward. and us levers those levers see to press You'll going

of of extract I our year as think positioned really we portfolio The into the of to the addition that differentiates the and is feel strong. material cloud the to software well differentiation. fiscal head we our full this differentiation further value business offerings

Kris Newton

Katy. Thanks

question? Next

Operator

Longbow next question Research. Our comes with from Wittine Joe

Joe Wittine

Hi, how congrats storage Dell on want I to quarters being I'm to last so much first, extent advantage at the its competition you by on or see competitive another Perhaps the portfolio, how it's of this your George that five comment the or may out. reported quarter. overly playing may you been wondering rationalize have ask great complex so driven call key it six over an on can? portfolio competitor

George Kurian

speaks last I for our Listen, think the seven It has been itself. for strategic terms of out progress of portfolio’s in XX% growth eight year-over-year quarters. north of

expanded differentiation the So we and our good with its feel portfolio differentiation about that we've work done the the very, hyperscalers. through of very

what in yield rationalizing does expanded years do to years of yields they on cloud platform think to us then only from Dell and portfolio, I our not transition they us but a as develop cloud. opportunity, for of their as is only they’re work, so everything behind but of rationalize flash it give to take to not and strategy terms coherent has

best year a had as we momentum feel is quite that the unique and while. we're been good, new at in we’ve which really in So long the this the by I’ve fiscal position with heading NetApp far most into market as

Joe Wittine

environment? rate you And just you. the line quickly could other in right in interest a address here to Thank model way Ron, rising your

Ron Pasek

you as to income. term we benefit should short commercial in we it. rate, essentially paper most more of have so had, will actually continue about the reduced net cash would we that, But cash except quarter we how we That’s Yes, bonds. variable of think so have interest in our fixed – have our have the you in for saw this we amount

Kris Newton

you. thank right, All

Next question?

Operator

Thank you.

question comes [indiscernible]. from next Our

Unidentified Analyst

to for thanks of revenue your a get throughout done both The is for Yes, growth fiscal I and revenue want your I'm product implies is and kicking FY’XX it and a question see that I help HCI to under questions. the performance there would revenue implied more the year-over-year a better with at you've my guide. Ron. looking guide you look sustain were products, feel George the in acceleration compliment it year into taking how see some looking year growth deceleration. assumption mature that quarterly of was accelerating in, that of and for I execution? If the at the cloud these great but ’XX job I don’t the

to So guide, long back turn parts, question, product you revenue there's multi about help into I'm a could would and revenue growth deceleration offset streams new that?. should we if on but think year-over-year a sorry how a for your

Ron Pasek

point I which helping currency So X.X%, year-over-year about QX X.X% it [indiscernible] indicated X.X try growth what puts about with Day. which to there back imply guide tailwind line is Analyst we at is the that, is with is in to what about which

like so can't through We for growth going through you so little the of deceleration you say I not. different more don't you're a so ’XX, year, but FX growth product into year fiscal have and coming out where no out what's last in years the different year, year the to see that stay accelerated ’XX I year, year a really really normalized we we equalizes, into the know what a this we're about it's it as absent here they benefit growth coming revenue through is consistent through great as of than are that year. last but FX, go but talk are initially mean the guide We looks

George Kurian

where fiscal be the early in we May year, the in we are are fiscal year.

We standpoint. the past we an have conservatively from planned in expense business operating have done as the

As year you that the all. visibility will share we of in develop more updating we through terms

line we of couple Over we years we the if outperform flows as typically established pattern the the that in have have returns a company done, in to last top bottom terms those of through as is operating shareholders. the of what line increased outperformance

on and you’ve strategic as for year-on-year tell philosophy, quarters, growth, are the to grow XX% our seven products so eight which we portfolio. quarters, year out take the the seen plays quarter of more And strength is so we'll of are the strength north just for focused Having the shows us straight very last we place that at portfolio, that of on bullish XX% out. have of you the seven product

Our philosophy is to we course and beat the plan more build visibility more of meet you year. or the that provide through as see can we updates a

Kris Newton

Thanks.

Next question?

Operator

Thank you.

Miscioscia next Pivotal with Research question Lou from comes Our Group.

Lou Miscioscia

Okay, great.

or because maybe single type trying more digit if growth share you're we line, can what you stabilized just know has well what expect likely guiding So at that looking I obviously low really very we understand not growth to and there flat, expect done mature same even obviously which to strategically product but as the of possible? now is you would

George Kurian

we’ve prepared continued said we strategic the as portfolio remarks in So on to drive focus growth. to

they strength that represent the of We results pleased the and are portfolio. the

services into as the business year, of the well additions come as capabilities an converts. play you in data second head As of we will cloud of set see hyper the into expanded half this

X-Mode the basis, tell about business no for storage. should as a before, over prospects be be opportunities OEM business; year should quarterly on whether being so our is we So mature forward. but it the capture. essentially The we add-on mature, the and that a as dependent With headwind add-on you of and the regard are zero course the sold lumpy feel depend to no portfolio mature is strategic the said X-Mode growth and stabilization expected you the going to is year least longer pans which on expect at OEM of have yields we technology, The good the the as product to legacy products. storage we'll on seen the out. more business products we and longer

I it for at as think least about coming this good flat we feel that year. modeling

Lou Miscioscia

ended? you X-Mode Could much share the just fiscal you. for that thank was Okay, how year

George Kurian

numbers. small Immaterial,

Lou Miscioscia

luck the Good year. on you. Thank

Kris Newton

Thank you, Lou.

question? Next

Operator

Thank you.

Our Mohan next with Lynch. from comes Merrill Wamsi question

Wamsi Mohan

clarification Quick well, the be the fiscal NAND did margins on within XQ you you. pricing margins, you impact are anticipating and I flattish thank any that? until product have roughly as from product NAND quarter-on-quarter gross Yes, mentioned will gross pricing on any puts takes think

Ron Pasek

margin looking was or as immaterial, at from what I QX QX either gross it well. QX to No, into product

Wamsi Mohan

expect Ron. quarter potential or commentary, be ’XX an thanks alluded outperformance then great fiscal down from increase wanted all X absolute is driven you comment? you the to all to understand incentive the increase in OpEx And in outperformance, to by comp do just Okay, OpEx really your that dollars

Ron Pasek

expected we make dollars higher now OpEx at down and therefore QX So I that due are results There and higher there's a variable year-to-year to some, side. of comp is year is going get actually the expected so reset little All-in-all the compensation. OpEx absolute of right? full have then So we if to on they plan plans, that the bit headwinds than look a than you basically flat. FX the

Wamsi Mohan

a Okay, great lot. thanks

George Kurian

on that reflect outperformance to right? of would We for the be the the plan model operating depending we target performance that year-to-date. year, build the company. quarter-by-quarter and achieve don’t annual the base to The outperformance to vary plan we will be We in OpEx in operating plan expense outperformance is try accrued base reflected for the the

Wamsi Mohan

Okay, thanks George. the color for

Kris Newton

Wamsi. you, Thank

question? Next

Operator

you. Thank

Our next question Deutsche with Bank. comes from Sherri Scribner

Sherri Scribner

is thinking you're to a have for the how to like the the that to I to be able is have question guided Hi, expenses single taking you point? if operating to going been about you declining mid process to OpEx as this through of and additional those understand trying ’XX, wanted fiscal you you. are opportunities expenses guess reduce what at guys flat follow I up thank seems assuming be the support actually It revenue lot OpEx grow I'm that? to digits, of out going that to and on

Ron Pasek

So thanks question for the Sherri.

use several forward In continue are to it’s functions. investments but call we they're we're the up across mentioned have I the a we're disinvest roughly wanting to There other next rather that’s different necessarily. you make, see yields QX, fund that’s and and different to we flat. of number don't We our really continuing initiatives reinvest we results are But hold the able small. transformation. most years to of and charges each so that how that for restructuring going Occasionally in as for cases

Sherri Scribner

you. Thank

Kris Newton

Thanks Sherri.

Next question?

Operator

Thank you.

Our next Milunovich from UBS. with comes Steve question

Steve Milunovich

ask America's it wanted growth [ph] point? capacity your to last on of is revenue at commercial, year-over-year then off there going of of anything was on I Thank think to and X% about particularly what your you. percentage side I this And leadership about your AFA you decelerated there?

George Kurian

parts The varied business Americas Americas saw [ph] of strength balanced be Americas' good by theatre Latin the the across of strength country. all business. Canada. and to book performance in different commercial continued We

both customers. So, workloads of we in new existing in new reflective of share gaining feel good it's net customers us terms of about the net across Americas. well And business balance the as as

quarter-on-quarter, now terms we more of shipped I than we example Americas the are XX% the the capacity are other Europe speaking comparison the XX%, capacity. would commercial think than benefits fiscal With that config dollars, but in arrays. of is from in for more us of just say world regard the relative a ballpark. that of of the business It factory have a FX shipped good XX% AFA systems parts it's all AFA, And we helping to of out system flash to in varies roughly perspective saw percentage year. this I

should of to continued quarter our lend lends growing business support to NetApp. So at are strategic products that support products our the the that strategic of now growth the last XX% and the of majority belief strength year-over-year

Steve Milunovich

Thank you.

Kris Newton

Steve. Thanks

Next question?

Operator

you. Thank

comes next Ananda Capital. Our from Loop with question Baruah

Ananda Baruah

Congratulations on Hi strong guys. quarter. good the afternoon

Just if is you feel momentum feel if do higher gaining specific ‘XX the momentum you area like application be last fourth over lot. or in to feel a point or for to like anything the a the guys year that you guidance, do gain if so, to you of like could, you've revenue me continued environment I quarter, one did end from from couple months the product fiscal from of area and an will Thanks great. there's the

George Kurian

reflects and clarity the think outlook the You spending. I project that, I economic spending would broadly that know, tell IT based you speaking on supports landscape economic

enterprise they going it course say cloud we the through benefit not think upgrade that cloud, hold or and so I so we put to around the application going for my where year. people forward center modernize to I'm those listen, trends that either I I'm of clarity and retrofit get the think data the about cloud, of because projects the applications certain on both saw to rather cloud the world are secular projects we're their greater seen in the with the also parts waiting than in seeing decide we've move

own continue performance. I people for see to our as trying resource business expand we a terms think to look business, data in of to

projects are various very we've used seen more And patient balanced focus flash all share, the similar systems, arrays, business where there medical time good. different So but effectiveness faster, cloud all and very doctors and with strategic make was in feel geographies. the product performance market, our on performance is all converged that across and all strong in and being help categories corollaries of converged the we verticals. across of been Clearly, data sector hyper terms data the we diagnoses the products, in aggregate geographies, services to for has so across course spend outpacing

Ananda Baruah

you here great it’s like move as we building? and the forward the momentum feel more through getting you did the of pronounced year, so see beginning momentum Okay,

George Kurian

at CEO. has is had into would been We year, year. certainly tenure it as time better my in to heading strong the our fiscal a I than finish good very our that say this confidence any

but vendors very I'd landscape, characterize projects that reflective expansion So report want more to landscape? Is of the reflective don't I we to in I very wait let of see other good my to about we're the and see. feel and I the about feel good position. getting the opportunities. tend perspective involved that. as our broader our broader business of

Ananda Baruah

I George. you, Thank it. really appreciate

Kris Newton

Thanks Ananda.

Next question?

Operator

Thank you.

from with Group. Nandury Insights comes Summit question next Srini Our

Srini Nandury

does do you Thank growth how or this NVMe and it speed with mean to going we right, think my of of years next the hyper big taking do conversion offerings a the and question the that forward? arrival see It's see and of for All again, you evolve see storage couple picture in you. question. market, network networks device thanks the could that's what the

George Kurian

consolidate be that albeit lower get can and that of of always better and is I and and always customers right environments is landscapes just network latency. put speeds efficiency that a part step-up storage scaling in terms a and path, are will better network in manageability, storage another people step storage shared into so network think take there as connected NVMe for

NVMe memory, as of an media storage memories where super even like environments. come into helpful a it's low fabric in today's latency lower but high market play really the think benefit I couple real even latency comes performance storage class the into you with network

the I like with and support to like like project still and to regard into converged that systems. than is real will designed are part customers to a converged, well all which the really get but there. management there be plane hyper converged storage, of think said much we with rapidly we of be market common modular computing to hyper a separation converged even that computer be is of solution offering never and of and more class allowing NVMe there and of customers application converged technologies deploy traditional value offerings hyper see storage benefit have where the always trying will hyper addition of that will the diminished hyper new We've all environments of a

Kris Newton

Thanks, Srini.

Next question?

Operator

Thank you.

Steven Our Cross with next Fox question Research. from comes

Steven Fox

afternoon. Good Thanks.

growth geographies. overseas all any array highlight would all you that couple Thanks. You versus across all-flash was curious was your if region you times just there's growth, now differentiating there's And I that growth? that wondering by mentioned factors if growth? contributed a any regions with or share I to that secondly then gained difference between Americas

George Kurian

performance it and balanced that and the one and quality two performance that was geographic across innovation on even terms themes, built themes geographies. distribution perspective from together I the would go-to-market it partner the of our in major reflects the those well theatre execution in say we've focus is all models an or geographies of and with

consistent I were think those themes.

strength like to the but financial the think customers. is good. in countries our extraordinary certain helpful and are there when down of regional In New in certain Americas I considerations or is Zealand for we overall there different into feel world I like other importance. in services Right? each story think of Europe, our verticals of get you cloud are parts So of course perhaps in details, Germany geography more the parts like Australia, or differences, very manufacturing

all-flash of geographies. terms in strength we multiple performance, In array saw

we largest in overall clearly all-flash our really Americas did our but the the geographies. performed is is part think all strength and array like it I business well, of business see of the

Steven Fox

much. so you thank Great,

Kris Newton

Thanks, Steve.

Next question?

Operator

Thank you.

Jim comes Suva question next from Our Citi. with

Jim Suva

I’ll very Thank is take and at question time, the can one and same you to order congratulations for your George much I each you have Ron in preferred. team. so whichever and of ask you

I on George always percent just the Hewlett as going in like market pricing, Enterprise have well release, the huge OpEx when dollars recent down mention amount sales down help of seen us data a you looks point can then should to the healthier more gauge, congratulations Ron, just where out. believe better. seen when progress occur? So that expect your going timing storage, to that the go given and obviously you team. And linearity competitive the question have you are fair Ron. you you Packard more math magnitude as doing kind pretty competitive and Dell we thank But to you it's importantly with or both of landscape or and again even good progression for the it's doing of because a had markets you a most And show kind of of competitive

George Kurian

been the competitive. to Thank competitive always landscape, regard you. With it's

I competitive. or are may it's of period players of always better of think on there time shift specific the mix and any a transactions but mix

is transactional any price with to specific are on keep footprint. somebody I heavily trying who discount there think there will lead basis, or be to

to that to that angle cloud the to becomes more traditional this us generally is you Right, from that course cloud increasingly of from And as unique the us year transactions available discipline differentiate for have opportunity to I us demonstrates for and of our comparative make as quarter to into value an a I cloud. in we seen difficult it past become as throughout it you especially very of seen bring the last sales with. think a our we the compete and continue and even software weapon services extract the our see forward, competitors that what differentiation data going continue continue us.

Ron Pasek

it And year-over-year Jim if and remarks, dollars with and of year. at down transformation right, it’s you the occurs the look I but slightly respect OpEx slightly throughout you’re are up the QX about my as coming in guide prepared think to you said ways

a later you're XXX% have in right As we later see, don't planning some in variable a we meaningful that, the of to which compares year the over in because that. going FY’XX see things all the now reductions comps of lot year for well of as so just some

Kris Newton

Jim. you, Thank

question? Next

Jim Suva

so much the thanks you. for Thank Great, details.

Operator

you. Thank

Our comes from next Street. with Martinuzzi Eric question Lake

Eric Martinuzzi

as going about of My flow your percent of the given in to the this free the range you of margin question be growing with the mid outlook business do same OpEx free topline gross is the to for Ron single has digit, year and slightly. to it XX% talked flow revenue the roughly the fact cash And for of a that down cash the FY’XX, XX%. in is

keeping what's You FY’XX? wondering just just it was year back finished I'm that for the and think I throttle XX.X%, so

Ron Pasek

of only Yes, actually FY’XX. financial Analyst about We an we a be cash that’s very, CapEx that to flow to out the talked would talked build increase Day. at and cloud in what you the our services It’s this that good question. very beyond see slight free and some was normally about our headwind and above of

Eric Martinuzzi

the what’s And of that investment? linearity

Ron Pasek

half the the little that a as you see year goes so front loaded in should of on. It’s equalize year, frontend the

Eric Martinuzzi

you. Thank

Kris Newton

Thank you, Eric.

question? Next

Operator

Thank you.

with Coster Paul from comes question next J.P. Morgan. Our

Paul Coster

numbers revenue with to Yes, time on seeing there. partners other that really on any It's be [indiscernible] can about data can kind the thank do rate And you can for that business, you question. data subject back of level your private partners to associated elaborate the preview us with you. getting Thank the business maybe go in and even XXXX? engagement sort you’re you with you you of any anticipate finally patience or run the services you taking the in share cloud

Kris Newton

Paul, sorry part broke second of up. I’m the your question

Paul Coster

take you Yes, the offerings are your data share us of up or service three through engagements statistics illustrative cloud any that’s with customer of other those can there any providers?

George Kurian

part are terms in the those year, the foundational We in of operationalizing cloud of services.

for So availability hyper meaning we those are commercial commercial services off are getting AWS. with available on the readiness three full focused and up entirely we in scalars generally

with preview Microsoft more details both we We course and go through availability as the in private the of are will and the Google, we year. you of provide

I think that customer we uptake. the are interest very excited at and the

these logos to regard And customers, new NetApp, customers meaning focus excited for we net to those we bring hundred would net a the net of in are customers that which are majority partners to several well lot new not are say the a customers and readying terms fact plan program. workloads capabilities not about. the cloud of or models, above of private customers. we we’ve new in with of those new have relevance that in We partner and previews NetApp the we're seen existing I taken the engagement at our point so to oversold proves anymore this which

but participate, require will upcoming the our it will be There announcements partners to this so We to focus will have I'm also and excited. on of make to conference. year. that we're our partner recruit of very some at that partners who going us new some traditional capability will

center only that a to the us allowed customer also all-flash the cloud give example of you one Azure to already because but all-flash we their win business had array. solution roadmap. where the services fact I'll play upgrade We have of before entire an commercial Azure and Dr. against competitors had footprints an data a pure in for to of not of an our our wanted roadmap availability cloud on-premises that their to winning of win array future are the

excited really visibility get details more So more we become where operational, about services will excited. you we're but as the and we are,

Paul Coster

you. Thank

Kris Newton

Thank Paul. you,

question? Next

Operator

you. Thank

Leopold question from Simon next Our Raymond with James. comes

Unidentified Analyst

on down approach your Simon you traction seeing for customers recognize that Hi solution traditional most hyper know a your different under drill ACI the guys. what embraces to I to Victor you're around little bit because a Leopold. [indiscernible] strict as is This the converged your wanted compared with definitions. would architecture slightly

performance in would to So as storage they desegregation so first you just how storage of describe they do the separately market? from of the computer some on seen I of competitors the the customers secondly more that your focused your incumbents computing reception an the guess, versus versus you what are the you and the approach far scaling advantage or see see

George Kurian

infrastructure converged departmental on for We for converged. departmental typically the segment infrastructure more cases environment was a hyper focused in hyper decision. cases, desktop into then owner single sold use some was application, and single for a are enterprise purpose virtual the making non-production of Traditionally a where project

more have in of It much tell focused class on would compute we been the upgrade clearly allows it resonating. run cases workloads. that even mixed one of value proposition have this incumbents of scale, in over the as and ones, those workloads storage converged cost wins value Right? of the vendors are support modular customer and efficiently growth and them after is We licenses because mix and enterprise beaten HCI, that resources, notable future proposition customer to is been cycles. there against the competition the you which our ability system we've the simplified in provisioned a production to our hyper lowers of about market where and had customer converged have hyper is The the in

positioning very So good about feel we prop. value our initial and the

segment We very hyper architecture. of where are it but we got targeting large we've entire the think winning a specific market, a not converged

Unidentified Analyst

Thank Excellent, you. that’s helpful.

Kris Newton

Thanks Victor.

question? Next

Operator

you. Thank

RBC. Our Daryanani comes Amit from question with next

Amit Daryanani

forward you helpful in the growth dividend model? how the guys then did do is to you Hi, buyback have as it think allocation, about it the tranches of go I relative the is question way you thanks we the how should think last new taking the well tranche, how any guess as announced, on that for pace capital really my question. on and sense the you

Ron Pasek

any give telegraph So, indicated we I’m to We'll but repurchase timing. certainly details tell not the we’re you about timeline. going Day, QX Analyst giving do the as financial really after our you in that, we will we fact, so as the not if a

Amit Daryanani

guess ASC gross mutual for Ron you XXX or followup, benefit you? I I is transition totality said, if margins I in mentioned And impact what is in there think just it. that as Got think any or from I you July immaterial

Ron Pasek

product only No, you so guiding again Day, partly Analyst methodology. total I’m of the slightly indicated in margins we total no the margins gross would see you margin, slight allocation benefit. because see When higher should lower services as and at report I

again, that level I Analyst not did financial guiding So indicate I’m but that at Day. at

Amit Daryanani

it. you. Thank Got

Kris Newton

Thank you, Amit.

Next question?

Operator

Thank you.

Kurtz Our next Alex with question comes KeyBanc. from

Unidentified Analyst

stabilized if are you on multi guys, guys this was for and seeing the deals? [indiscernible] trends system in I Hi in these terabyte what scale-out was Alex. market is end high wondering type I wondering there pricing

George Kurian

always are competitive. transactions these large I would tell that you

in really to system. differentiation software ability is the the and think I scale-out

I so think which in linear our positioned. systems scale-out over FlexGroup advantages in X we us and scaling for brought very the that performance most file called out ONTAP feel situation is the competition well we technology of and gives

[indiscernible] and the through from business the several footprints try storage momentum up course Isilon have it's of chase momentum We we've to to the us a back us, their regard increasing that in now though year. seen seen trying for of we've they're market taken to segment increasing scale frankly With solutions. small to

enterprise cloud win in the build the and hybrid of to in some objects The continues there players in the and or spans that to positions become well your that unviable is Our hyperscalars the unique to us a diminish offering number is allowing deals architecture the as is storage and as of of pure own market. to allow public against within competitors customers availability in up market offerings competition. boundary unique end zones some

Unidentified Analyst

Great, thank you.

Kris Newton

Steve. Thanks

Next question?

Operator

come with And Nehal you. Group. our Maxim Thank from final Chokshi will question

Nehal Chokshi

for you thank taking question. my Yes,

think less that that or is strong due year-over-year little Q decline concern So was, guidance, revenue when and drained than I was note which also into two if quarters. bit guidance DSOs conservatism? at congratulations finish is the look having than that, is but implies I about seasonal your concern And your which that your you XX product is over more put regarding a then on days to the a this due context here July past it up of Q was XX% would that, pipeline a your that to I just indeed and general did as midpoint

Ron Pasek

we We in QX. George meet better it with as sure wouldn’t some even so happy still say QX we a that so the you know is indicated we numbers we’re it’s I we we can, is beat, or could is to And in did thought general want there is after that. do we make drained see know - year-over-year we pipeline, can X.X% than we currency - conservatism. there give growth,

Nehal Chokshi

Okay, thank you.

Kris Newton

go a before George Nehal right, closing remarks. couple and All we thank has you

George Kurian

Thank year. you to great a fantastic was everyone. finish It a

connected driven their our building momentum positioned accelerate innovation IT well inspiring transformation digital Flash. by enabling services with in data imperatives, architectures cloud and new and customers' IT are our addressing modernizing We to the to biggest clouds cloud, continue

return with growth. year areas remaining to customers in fiscal more deemphasizing reaching Maintaining long less will investment to We for results priorities, business drive focusing aligning excited I'm year to by market enabling fiscal in transformation finally ways. with continuing ’XX high balance more by term disciplined of continue our areas and to in approach the for in focused growth returns on potential really the big our shareholder and investment ’XX. opportunities the on

am in I the goals look the and quarter. I entering to today and Day. your you my tenure the Year, at with in we out speaking We’re Analyst that New you forward confident time Thank clearly our next laid to our ability best for achieve position

Operator

in conclude conference. Ladies for the program. and you gentlemen This participating does today's thank

disconnect all day. may wonderful and You a have

NetApp (NTAP) 23 May 182018 Q4 Earnings call transcript