NTAP - Earnings call transcript Q2 2019

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Kris Newton

Thank you for joining us on our Q2 fiscal year 2019 earnings call. With me today are our CEO, George Kurian; and CFO, Ron Pasek. This call is being webcast live and will be available for replay on our website at netapp.com.

As a reminder, we adopted the new accounting standard ASC 606 in Q1.

Our historical financial results have been restated to conform to the new accounting revenue recognition rules. QX reported well to to GAAP posted as are data in the previously GAAP restated non-GAAP and on our the table, guidance, included as for a with reconciliation. results our our tables our of website GAAP which to our the results XXX results applicable along Reconciliations periods, release financial is and earnings non-GAAP XXX supplemental GAAP historical Non-GAAP otherwise we refer XXX Unless to and noted, numbers. will

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

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

George Kurian

results. solid We joining afternoon, of another Thank delivered you quarter Good everyone. for Kris. us. Thanks,

Our margin of revenue Gross all was margin, operating high QX the guidance end with our were expectations. EPS the and range. in line above

the technology of of customers' our In as our Our and new Data NetApp the we significance partnerships the our the Fabric well introducing strong of across performance reflects quarter, business portfolio. consistent strategy. leadership position strength entire clear model, and as our our commitment our differentiation substantial to and and by innovation extended

consistent with in Fabric all data data IoT hybrid and unique core customer IT adoption framed across catalogue data-driven services, This responding The of transformation to is the technology are consumed, business Data enables making software. opportunity built data across major an clouds. in Data Our by resources these and the customers is realize strategy digital Enterprises seamlessly their cloud, and to NetApp infrastructures NetApp capability cloud services, signaling public by edge, The multi-cloud are and and of of and unified to is modern Fabric how and intelligence. the easily connecting of are potential the transitions, by private on-premises our full through led long-term changing NetApp environments. investments confidence of at provides our defined their environments multiple artificial by transitions. implemented value heart

partnership evidence and Enterprise enablement services. The importance ELA the License for agreements in As portion agreement. the interest on these the follow-on largest to committed their for of call, to new transition strategy. driven have by and not these the as markets. purchases of seen strategic our designed enterprise extends deeper customers as is customers a into traditionally support system market commercial we address reach is our revenue form China, NetApp NetApp. as reach IT Fabric server broad growing served capacity also our driving creates and expand into global engagement infrastructure. a In led framework rising consolidate segments Data by have is flash of with to to their announced well Demand SME form multiyear market Lenovo, capabilities QX the we of discussed a or September, partnership our and modernize, strategy a The the simplify we and in of and Agreements represents ELAs, and software-based

of all-flash and our industry’s first in pipeline equipment, we in and announced all-flash our displacing array industry-leading introduced our and a an software AI and the X.X QX, In partnership highest by simplicity. SAN furthers seamless In release XX% annualized part performance further products ONTAP QX, NetApp edge, and core deep to cloud across SolidFire and market. delivers momentum the improved accelerate capabilities new in run and with services learning billion. are inclusive critical year a latency leadership QX, all-flash for for grew our FAS, new innovations workloads ONTAP array as solutions. in efficiency NVMe net all-flash year-over-year a revenue start rate NVIDIA, of base Gartner performance, Arrays. that installed competitors’ expand leadership Quadrant This in supported the At with capabilities. We leader to of with complex with the recognized we deployments. Validating data its our integration, business gaining deployments the cloud guaranty greater creates third for upgrading leading end-to-end which the cloud-connected share of of innovation all-flash Solid-State business, EF Magic this $X.X workload row

level ultralow industry’s to our is Over growing extended memory and of for AI first application capacity, servers the MAX participation accelerating quarter, of with data persistent of rapidly we flash-like latency deliver databases applications of in enabling course with data, in the data area AI performance real-time of leverage Data announcement in processing the analytics. faster the to solution Data. the and the memory MAX

Things. hyper-converged storage economics. deliver The time the management for data because environment objects harness reduce delivers public capabilities flash-accelerated object environment. and converged together of choose helping we incidents. latency Internet latest we Advisor and and service cloud one of QX, NetApp AI, FlexPod billions the with with by digital StorageGRID, and conductivity infrastructure, addition growing software cloud storage enhanced them low solutions by the resolution with across Enterprises of small and best-in-class help for to transformations hybrid we outcomes integrated accelerate of better to private, created generated Solution FlexPod In sources for our manage NetApp’s data as resource for version IoT devices In performance business Converged the performance enable data to System their applications, Support managing customers object to ease to and

industry-leading cloud infrastructure. announced data SolidFire, and from and cloud to new HCI, backup the replicate our to for We ONTAP capabilities for recovery, migration, Element We Element including software Volumes NetApp disaster hybrid also public ONTAP as enhanced to systems. as HCI remote well to ability Cloud on-premises

nodes in HCI only environments Hat GPU-based new the support architecture tight Data integration the accelerate Platform. compute to we Additionally, public support including options and of NetApp and for can Red bring Fabric enterprise private with portfolio, cloud. to capabilities, our for introduced VDI OpenShift Container Through cloud experience

architectural predictable to hyper-convergence X unmet efficient on run and approach proving We our and is applications by customers enabling of performance tier clearly out. the are multiple scalability, with promise delivering

our wins with in NetApp strong HCI of We are momentum all against significant competitors. seeing

integration. As you’ve is many our me say heard times, differentiator cloud unique

and applications private example to the tier. security, September, hybrid to support in the freeing innovation and by it space identifies in the object QX, StackPointCloud and challenges our infrequently and this to we is used multi-cloud data portfolio cloud, great announced and value tier cloud dramatically data stronger up Immediately ability storage distinct Data container integration cluster tiering service public seamlessly backup. seamlessly in high-performance Kubernetes the simplifies tiering frequently QX. orchestration, to and made in Fabric the of A using launched of introduced infrastructure automatically When is service needed compliance in entire deployment Also, Cloud cloud. cloud data of to on cloud the lower and the we a environment. management, in again, address cloud, center Our automatically of and public for acquisition data cost Kubernetes which following storage customer on-premises moves back our monitoring systems Service, NetApp moves the data. substantial and it used is high-performance

a applications failures project it hybrid, We infrastructure, By entire and Cloud complete hybrid the and to and the storage on assembles announced multi-cloud, storage help identifies NKS a on of optimize Trident, view stateful world’s Insights, infrastructure their cloud build of monitoring satisfaction. hybrid and into of combination resources, To average private service. by and Insights open and of and an The quickly our we which topology supports end-user cloud consume proactively part year leading the all cloud Trident public on of clouds. reduce SaaS and portfolio. infrastructure, cost customers foundational environment. Fiscal is inventories high-performance NetApp identify ‘XX interdependencies, also organizations a an to giving and Cloud introduced developers to infrastructures, premises improve business. source for XX%, deploy cloud management cost the prevent application their monitor the helps enables

deployment are primary and We focused cloud on data readiness in centers. operational the

the to revenue exciting on Based QX. million, strategy. annualized XX% demand monthly focused remain customer from QX, evolving offerings of is these growing industry. our on cloud $XX intensely data and for our confidence response execution approximately is needs customer to and meet base to services cloud the in reshape recurring early, our While disciplined our up reinforces our and We

the our our business technology. way customers and We use to reflect are consume to transforming want

focused expanded portfolio, transition. have key We Company, and repositioned market execution win the our to our the

new legacy cloud, help enterprise with of leveraging the cloud digital We providers innovation and ways are hybrid in jumpstart the focused that building transformation, world, in serving the their customers modernizing biggest infrastructure. initiatives them

very to outcomes. thousands is heard aligned to and their recent our and IT because of value with our of our performance clearly a business strategy their their shared result. partners that Fabric Insight solution as excitement we that and and been where working Our their our customers Data strategy, are improve user imperatives customers unlock data has needs know the our for at strong We conference

areas in opportunities leading represent are the NetApp. the for biggest We that

continue grow execution we transform, focus we As on and operational value. efficiency, our maintain to shareholder will and

As Day. you are our laid deliver our the last against track capital to capital we model and Analyst can and at we results long-term out by on see allocation plan return, compelling strong

thank pushing over like especially partners, with turning of team results what to and to our the spoke Insight. be at Before our Ron, on means Ron? exceptional are customers who to we boundaries behalf delivering data-driven. and it the Together NetApp the I'd it

Ron Pasek

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

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

strategic hybrid , our embrace digital and to Our reflect of importance customers NetApp multi-cloud QX transformations continued results undertake they architectures. as

our at we day. towards the analyst out noted, George business As throughout expect we XXXX fiscal model progress continued long-term laid

detail Net Before provide in discussing revenues the $X.XX which in by increased product from $XX billion of of million year-over-year. our array expanding grew strength guidance, roughly I revenue second will million and driven a quarter. platform our on Product as XX% reflected of well traction $XXX the revenue HCI as year-over-year, performance ELAs. our all-flash benefit business X%

down Moving the P&L.

and our Gross and XX% cloud increased data some discipline, $XXX gross reflecting X% installed end driven hardware continued items. ELAs force increased XX% from our year-over-year, range. X.X maintenance margin of million our a base high the and Product of and the continued services in business. above year-over-year, was maintenance benefit of extent, Software growth margin one-time to sales guidance points revenue by lesser

software was margin other line continue We expenses product and X of million was to XX%. expect maintenance discipline year-over-year. in Operating increased roughly year-over-year. flat committed expectations and point XXXX OpEx Excluding strong approximately Operating to remain with margin and fiscal of gross XX%. increased services were hardware X% operating The combination year-over-year. for to margin be expenses $XXX ELAs, and our

end margin approximately of at operating and was range. guided ELAs, XX% high the Excluding our

quarter, QX average cash again closed saw $X.X and in increased million X shares with we QX, EPS XX unearned in average we revenue, of year-on-year. deferred per XX% $X.XX, business at healthy X.X X% of $XXX XXX increased short-term leverage million down total and operating investments. a million. which services million repurchased price to share diluted the billion an our shares We sequentially growth year-over-year, and Similar of the During finance were year-over-year. demonstrating in model. $XX.XX million, Weighted for outstanding

paid out in million cash During the we dividend. quarter, $XXX

is fiscal XXrd. Our share per payable $X.XX cash on dividend QX January of

increase was XX-day take of cycle outstanding cash flow increase improved not increase flow X% of operations typically a negative the X $XXX to conversion Our was year. in million choosing distributors a days days decrease days days X-day XX is cash of quarter revenue. Cash lowest DSO inventory partially due flow X our of advantage of outstanding, in reflecting of offset our and early large payable to the days by the one QX represented in million. discount. year-over-year, a from DSO. $XXX pay of Free cash X-day

In fiscal of that year. one of to we improvement conversion discount, XX% for pay In U.S. first of early addition in to we in years. flow delivered confident flow XX% revenues had the in year with of total, each a our cash not expect in we worth taxes particularly had reform, highlighting cycle remain to pay year-over-year as for free cash also seasonality an our driving sequential seven tough our last XX-day of QX full cash payment tax QX for is comparison free the advantage and It annually transition year. the we we distributors taking associated which next also U.S.

guidance. onto Now

control We keen headwinds including result backdrop, China. changes and our and in disputes as clarity, are managing To for estimate eye magnitude three-year execution said, guidance we long-term confident and focus forecast trade currency increased interest That forward. providing continue and on rates, a going variables to profitability. the a revenue on our an we macro add the with volatility are and keeping of our we in for within ELAs fiscal of FYXX both remain growth

of ELAs for ELAs highlighting contract. total capacity years. annual revenue software expect future roughly We ‘XX only represent X% the license represents worth portion of the and X% in to the revenue from that It’s fiscal

revenue As plus noted, any both single mid To also in future we XXXX carries from with revenue contract a amount specified along software benefit reiterate, confident and hardware of hardware growth each George maintenance. systems ELAs. remain digit forecast our fiscal

QX. to Now

Consistent revenue We gross the larger margin we the margin to XX.X% increase from $X.XX $X.XX billion X% expect in being expect of net normal midpoint, at implies point QX billion, decline X a revenues consolidated headwinds. gross with mix, seasonal a of QX including QX to product revenue sequential between with which range and range year-over-year, XX.X%. portion between associated to overall and currency

QX margins fiscal approximately expect be operating to XX%. We

share per confident our $X.XX expect share. growth strategy. range am $X.XX to for summary, We quarter the as between relates our third compelling to to In opportunities, earnings regarding Fabric it per especially I Data

and innovation by the very in momentum both the pleased QX. with team am disciplined Additionally, I execution delivered continued our

on We we’ve Q&A. open customers. the are our With back Kris? partners well-positioned made and to that, continue to to it deliver Chris hand commitments I’ll shareholders, to to for the call

Kris Newton

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

Operator

from first with question Rod Hall Goldman Instructions] our [Operator comes And line the Sachs. of

Your line is open. now

Rod Hall

Yes. guys. question. for Hi, Thanks the

view. impact you a then, was the And you currency services. say you And the Ron, that X looks the GA headwinds of on heard give look? current point I on comment guidance. to I run point it’s little of obviously, well currency wondering So, pretty any I’m mean, if that talk a about the that general from as good, margin of just could Can quarter I the does How pipeline maybe guys that. not color us bit cloud more could really but you yet. rate hoping also,

interesting? or I And flow really for say, you and services of level revenue of to that out kind you're is the do cloud be expect into what next the those mean, how beyond? quarter Just Thanks. could you as guidance we would that look what if like guiding

Ron Pasek

a little margin That’s the you’d factored about the X part of impact relates headwind We that there. said, currency point little very the first had on as to of question, saw QX. I the in as guide. for sequentially. it’s guidance see bit QX, but QX of a it that it’s And in QX for well -- one in it’s little Rod, down your reasons as guidance of for the guide the

George Kurian

With the phase regard hyperscale centers. data the to build cloud we’re data in out within services,

good. pipeline think been I the has

We of success our Volumes called are Cloud certainly the software seeing ONTAP.

in the is marketplaces, to-date data of of Within services. chunk hyperscale of progress revenue the big the terms a it cloud

So, a should developers as be sort service, of on this fiscal through application expand line course the really that in targeting volumes we the good position bookings. comes of cloud to year,

Operator

of the question Jaffray. next Andrew Our Nowinski comes from Piper line with

open. line now is Your

Andrew Nowinski

on a the gross Just question margin.

So, your suggest does if ‘XX looks we significantly down margin quarter, pretty exclude your it ELAs product and was goes quarter, it this sequentially fiscal QX like actually gross up your your last from but here. guidance from

Thanks. could guidance. Given the prices, and the just puts decline takes discuss in the wondering NAND margin you was if I on maybe

Ron Pasek

you year revenue in services as higher down weighting to to margin the the So, the QX in The we from we which year, been biggest revenue. where see product biggest QX. a has the part the pattern, of including is just go last than and and years past saw typically this change. year before of QX That’s factor than QX

onetime We from revenue in And of from up six I you add QX this to goes there year. see. to if XX.X quarter last you XX. reported, were it margins the we also benefits pattern some referred ‘XX But, seasonal to ELAs, lower it without normal ELA for a QX. will QX at in look is I the will product have

are making progress product So, the product we margin on the for Company.

Operator

comes from the line with of question Our Morgan Huberty Stanley. next Katy

Your line is now open.

Katy Huberty

a and Just then a question. clarification

growth systems January ASPs? entirely any flowing AFA question deals? you that your by was or a And about ELA quarter prices just the side, have of NAND talk through include any just slowdown. slower Can was for that assumption the suggest lower rate as XX% a driven deceleration some to run would was On not, whether growth it then, pipeline color revenue? to if ELA whether around clarification guidance does And might you

Ron Pasek

XX I QX for in your year year just QX. this million XX part question, in And we X% of of to of the and to Katy, balance tried about the first recall, revenues. ELAs did full million

So, ELAs. a so forecast pretty We forecast lot. be a it’s much it’s It there to to going for forecast. but might just be assumes -- bit full-year little -- the might see the little bit a not

George Kurian

arrays, shipments. we of XX% was to The regard to are percentage that of the growing due think predominant With all, first all-flash year-on-year. I

We have not prices with deal NAND. adjusted to

we’re we’ve going said, and then as appropriate people adjustments. the monitor So, other what do to make

Katy Huberty

in you slowed do why the growth shipment George, And think quarter?

George Kurian

think, I flash flash. and mix a there is hybrid between

our very large. all-flash had I for you if in all-flash think, the we some ELAs it And today arrays that’s is of at business sequentially, percentage QX, benefit look arrays. from

As in our QX, a number you saw, number very was large year-on-year.

it’s think, I time a just more one the QX. set against of in of metrics sequential compare So,

Operator

Our comes Rakers next the from with question Fargo. Aaron line Wells of

is open. now Your line

Aaron Rakers

as Yes. playing I or the and competitive we that the wanted asked in start relates to evaluate was be base of maybe around opportunity maybe are the kind perspective your what to last demand market? question see from And that's you're helpful what go all-flash seeing installed some understand flash, to to you yet metrics elasticity guys landscape a for of as how you that -- as competitors as to would upgraded doing, the it not out potential well.

George Kurian

base it’s base the our small still think perspective, an in percentage from arrays, have a installed I very teens. installed we mid on all-flash of

is of there headroom. So, plenty

in for maximum think We I with are are to for our the balance ability very that. to going think we to we best are the market, the and the base our that the upgrade getting that going -- offering. installed competitive value extract try the to offerings

the fundamental we terms see of landscape. in competition, in think any I competitive change don't

attack as I think hyper-converged new seeing market. are more competitors that we we the

But, as some assault a on the change So, are players. competitive in of we competitive fundamental hyper-converged expanding we no and our newer market, result dynamics. that seeing are

Operator

the Our comes Steven line Research. of next Fox from with question Cross

now is line open. Your

Steven Fox

on what Just from for the rest that about one HCI? talk do question on HCI me. expect George, expand traction seeing I where the wondering for and you year year, side, you was you you're mentioned and can fiscal of the if that

George Kurian

very pleased on hyper-converged. We’re the progress with

marketplace. the number accelerating of a book that’s pipeline, as architecture and resonating saw said, growing business in and we’ve think a I a competitive We we broadening have differentiated of wins.

and that that proves that thesis managed across it like enterprises service the IT hybrid all out allows to provider, clouds. had So, on-premises the that operate multiple along applications cloud enables we’ve seamlessly a that data or to allows infrastructure want infrastructure whether be solution it’s a

that got of to to we we our continue to very-very scaling address. to to where year-to-date. our we’re pleased go-to-market are with the pathways so, working. We’ve work expand expand is of number And strategy and points do But, need the price

Operator

of from Merrill comes question Lynch. Mohan the of next with Wamsi line America Bank Our

line is open. Your now

Wamsi Mohan

as I clarification on the gross had a Ron. quick margins, well product

if you broader few were that You can And mentioned hyperscale you by I was some times. magnitude on gated call region be like some and any out George, caution both what would wondering could those spend guidance players? what one-time enterprise by the of comment benefits the environment, sounds in And is was. your a and And It the there. color helpful.

Ron Pasek

but not of. So, Wamsi, about it relate aware X.X-point the was reserves to something to just be some but one-time material and benefits

George Kurian

With regard want no particular color I the macro, our share. that to -- to

I any that multi-year QX -- in just particular in where these we deals some some not of programs, there has budget are spending think our we that quarter as public tied to cycle to programs movement sector QX. opposed command in U.S. out are in come were saw just

on. So, feel that business comment overall, good QX. very want And about our to capture then, we that unique to nothing in ability we think, I

public see parts some I the you think reflecting stress emerging in some the markets, markets. of

the that's really comments. think, I summary the of

Operator

from comes Hosseini line the of Mehdi with question Susquehanna. Next

Your is line open. now

David Ryzhik

revenue, product expectations would of to Lenovo of in how relationship the that question. the and for sense or ‘XX? David Jan This for then quarter be and material Ron, be in so would And able growth that Ryzhik to be, would can love within strategic revenue? much for your you the mature Mehdi. insight into balance get included that in would is us Thanks be give some embedded taking just

Ron Pasek

talk the guide the We’ll total guidance. compare guide revenue I that but after specific below and revenue year-over-year don’t fact So, number. don't about we David,

George Kurian

products. to access market to complementary With regard pathways to allow to the decision bring started they makers. our Lenovo be Lenovo, has with new us in They customer,

reasonable We their taking are a fully them starting There products mature, of to -- a knowing channel but terms our but done. market. mature of is of us very we’re And of business is little our take positive. versus see to work longer all of is going first into There amount scaled, common storage, amount of terms overlap which in breakout strategic no their customers the get strategic and to partners, is time the is business in it’ll there the wins, be product good to now majority be reflecting of in add-on using that the base, the geographies sales.

So, you’ll go services us just about revenue forward on comment basis. revenue product a see and

Operator

next line Our Loop the comes Ananda with from question Baruah Capital. of

line Your open. now is

Ananda Baruah

A George, quick clarification. one to question. clarification

So, to have it just not I you yet, is you’re right as follow-up really a regard quick for then, want that anything now? to it leave seeing as spending a at away environment, material that And well. take

George Kurian

I spending saw, to is think early with there to too comment. no impact tariffs of environment, we it’s that particular regard

or to I meeting is or think, outlook. clear that confidence have in anything don’t read specific beating track that color is economic guidance of into around commentary it. there the the I we’re think maintain just generally less you should our and cautious trying providing record

change items it, trajectory. terms their monitoring seen in is there haven’t news a but of We’re of specific lot we

Ananda Baruah

that a were was people saw. common the What themes to putting vibe question -- conference about themes projects. were user from of lot out of I Just the there common mean, is is of seem year. were coming user The talking conference? participants was the what the a be some There users? this great, sort to guys out out of new coming coming there you energy What

George Kurian

conference. IT the conference, of not We of to their for And the new were of were direction grow into We was there that our course, through number excited it, were delivered to combination ability that very and our the like multi-cloud excited hybrid markets innovation hybrid we’re changing at good hyper-converged customers. gaining share we’re an market that path solutions our artificial at to addressable footprint NetApp really, And reflecting of solutions, IT. the Insight expanding historically solutions us new industry as that for through have forward. data the unique customers of our applications, customers we multi-cloud were net markets by in solutions, landscape really parts going infrastructure leads amount extraordinary at and continue that new our confidence competing for validated it of intelligence, the the and number that

the positioned finishing So, really feel good and where we’re look about to we forward strongly. out year

Operator

question line next Our Longbow comes from Wittine the Research. with of Joe

Your now open. line is

Joe Wittine

Nice to George, given especially the follow-on guys. Hey, wanted HCI numbers, do quick to out there. your comments. a prior competition I

end, traditional architecture solutions. players would consider to We also higher that to reference picked upon some against wins converged type acceleration this quarter, including what be seemed be size some nice I

than So, now HCI the envisioned field customers fair with is more advanced or applications more for seeing say critical you either mission launch? interest you’re a it in in to while at

George Kurian

Absolutely.

HCI are started that our operate building clearly advantaged and are from back class we players And enterprise, we service to bringing provider small office in designed dedicated in proving was on pipeline. that offering. appliance. uniquely QX out other was the go architecture by is forward belief to that the multitenant And Our a a versus that only

offering. about our So, people excited are

footprint, as as hybrid the we think you our allows bigger also tightly data a base capture it said enter we both in don’t Data installed it. trying multi-cloud Fabric, centers integrate more it that in enterprise I as to locks players out like to into footprints our have

the grade HCI that We our enterprise on disruption playing out. -- be thesis was are offering, forward. with a the mainstream time market it excited looking arrays, we So, more all-flash really, absolutely like can't for in

Operator

comes Raymond Leopold of Simon question James. the next from Our line with

Your now line open. is

Simon Leopold

about it an and and an heard lot a inflection prepared you And event, intriguing again. like in During we it’s talked definitely remarks your multi-cloud point. Insight your narrative, it feels

as an year-over-year out older And broadly, natural forecasting. I just you element factor? a lead struggling to of look accelerating the multi-cloud that to so technology, it do how just to an it to I'm of is attach our or is reacceleration or can at basically maybe replacing growth, of think evolution sort this figure emergence

George Kurian

our into plays business ways. multiple Multi-cloud in

The first have completely is, center. that it allows a to data us not customers cloud access do native

NextCODE, saw, I is called a had type a think customer is at you genomics never that which on the of data WuXi built that company Insight center. a cloud, it's

we unique is are data customers new where the the it cloud, like where second benefit. cases third to with customers, for efficiency to our cloud footprint people we legacy competitors bring the expanding be is, could allows it customers our cloud combination gives technology expand historically one who could for that then existing net SAN have didn’t us where displacing to leverage we example, some combined within flash our in more the data with plus centers in our within alternative. cloud customers, existing to or it And a center The analytics, us footprint the us footprints existing of of with flash displaced serve. allows they market Those want be

there's lots avenues. of a So,

reflected a a not angle that where that in have. will our to leadership a the basis. it's you cloud the And solutions flash from think pure that others I solutions in on CDS already flash then standpoint, cloud see unique do forward helping us brings business go in

Operator

with question KeyBanc. next line from comes of Alex the Our Kurtz

open. now line is Your

Alex Kurtz

the that outperformed verticals call there George, beating different line top played out at was quarter line versus of margins. how Is would clarity the sounds you with be of additional on the or or like more here on of that the it expectations mentioned kind underperformed, any helpful? regions the in kind outset

George Kurian

to with bit I ForEx of sector a dealt relative little were U.S. expectations. soft being was APAC commercial our conversely very a public EMEA strong. headwind. point a and as U.S. think,

So, really On most broad theaters mentioned book U.S. the of as did well. my in have we public a of business. comments, sector, I

They’re typical that trajectory vary. to tied programs. a quarter of the aspects pattern. Some specific within tied of business spend not year-end, federal And the multi-year can are to spending

we to saw those QX from move of so, some And QX. spending programs

to feel our that we So, good about in ability business capture QX.

Operator

JMP. Erik with of line the from comes question next Suppiger Our

line Your open. is now

Erik Suppiger

for of I talk multi-cloud compare further the prospects how what in different you prospects But, contribution. about think the HCI you with there? your two the compare Could you presume your multi-cloud you is -- can terms along solution?

George Kurian

become a offer. Multi cloud will is to will hyper-converged of what most inherently part have -- solutions

IT of to about build want those run the the portfolio centers, to data public them their and use clouds, the my to or own say, an department, want If in to most manage don’t I you want I will cloud. applications just ability own hey think have of

hyper-converged service that services. benefits make vendors that uniquely cloud. clearly using to also combine providers. for connect cloud the do give on When public having on-prem. All a in get the that that we’re of And the NetApp the and hyper-converged, walled with multi-cloud, infrastructure they’re a the in vendors, you you major all other data applications, some cloud ability deployable the use called of some building hybrid of using we hyper-converged only the is the the cloud have you are real that way unlike but we We Kubernetes public garden public technology now have marketplace today cloud positioned unique cloud to in Trident that other not public to we multi-cloud doesn’t public do form because to allowing across

keep prove a start see really that So, going head year out We got out, half we've the strong the think that we’re here and out. play we’re first hyper-converged. excited Lookout down just of come. in we you’ll to our and

Erik Suppiger

any you secondly, of comments course then, did the adoption during more see the any And about quarter? NVMe,

George Kurian

that’s NVMe the has differentiated. one any nice connection and flavors, systems; not massively is but storage discs two between

We’ve they adopt as customers drive. seen adopted it. NVMe have We

which It’s the roadmap we’re pleased few Fabrics truly NVMe at deployed part for is line strategic we’re the NVMe a of in is with low now customers. early, and over latency it’s So, excited. application, expectations. applicable it’s truly

the from excited part of support that storage we’re it’ll as pioneering both as But, We’re that we protocol. like the ecosystem the adopt, well time interest. to any at customer and have new market take

Operator

the line Eric Lake Martinuzzi with from comes of question Street. next Our

Your line is now open.

Eric Martinuzzi

Amazon question new and player NetApp well the A with bigger playing Google plays Cloud. and with Microsoft Azure in on potential cloud.

there's acquisition that close if hybrid merger NetApp means environment? IBM Hat, storage from second hear to interested on pending product thoughts to XXXX, wondering acquisition. this secondly, which a And maybe expected the for in that entertaining the then of Red benefit enterprise Given is any what development, your from of I’m half initiatives to is

George Kurian

of couple a Just things.

cloud Hat another multi-cloud. Hat, relationships gives both is, of lot OpenShift deploy I announced as we platform other done just we systems work IBM then the of enterprises Red longstanding this IBM think of deploy there large and deploy acquisition systems storage, combination with IBM a strong to Cloud yet to And the is the combinations. ability as IBM, We sides both hyper-converged the first acquisition support OpenShift the all transaction. on NetApp IBM going of have hybrid them well endorsement way solutions ability multiple the of of With ONTAP HCI. the well. with innovation quarter think is Red Cloud They are that alongside a have partner, NetApp already planned together Volumes SoftLayer. a cloud, hybrid from verity to across we Cloud relationship of Linux converged or by standalone with clouds IBM can the have Right? a together have alongside I multiple with where solutions, We time verity as and Enterprise Red that on with Red and Hat cloud. Hat you hybrid a of

player combination. to yet customers. with another this reality feel good affords for work make It that we multi-cloud us So, hybrid to is a

Eric Martinuzzi

Understand.

positioned opportunity for well a guys of new more for? something that than you you need So, to already are product design

George Kurian

That’s correct.

Operator

Citi. line question Suva next Our Jim with of the from comes

Your open. is now line

Jim Suva

pricing assess historically months remind past I XX you’ll going your Can did conference you about mentioned XX been you what time you during to landscape A question that what memory a think call, has us competitive period? And the on the headwind. forward, does.

that How think think or basis lower, is will what if future past basis you of impact hypothetically, that? lagging of memory versus to just-in-time percent will prices And prices it memory lower XX the your mean, history about? the XX a you keep should months? Just we we about coming prices, change? So, the mirror does or how should

Ron Pasek

time, we that pricing to our was list simply be NAND, months in fact So, fortunate and that Jim, carried and remember, it and increase that very because would was this prices in in fact XX secure did. entire for to eventually ago, did if knew were come the experience that able that We supply was fact year about you base. down with supply what the earlier starting products

leaders of be we’re prices, that in going list happens. we still watch not we’re what On price very competitive. times, reducing to prices NAND are it number see said to a As we’re now the down, a coming going and basis, net

too. effect that watching we’re So,

So, it’s street prices what with do with and list you price. do then what you

watching So, go we we are forward. keep to going as

George Kurian

continue in maximize has of to ONTAP software technology. at a also piece investments our that memory. availability we the And NetApp We the industry-leading gets to allows storage us from in that advancements further value a announced that X.X make of customer Insight efficiency already

opportunity extraordinarily mix customers. and meaningful The for second within come it flash are is, our we a all-flash more a think of makes prices more and down, broader where broader workloads well-positioned, as I arrays

going an advantage And opportunities us we opportunity clearly for are replatforming of. capitalizes in so, it’s that as take base, the to that customer

Operator

from comes Chokshi the Group. question next Nehal of line with Maxim Our

open. is line Your

Nehal Chokshi

and guidance well definitely analyst as the are within parameters day. provided previously as So, your results you that guidance

However, when exclude growth, model. product in year-over-year within impact albeit do still long-term the ELAs, the slowdown I I of see your a

the that’s and implies it's be think July X% quarter, I going around your So, around for XX% from now probably this guidance quarter, X% year-over-year. to year-over-year year-over-year in

is still a as that need within product the growth far as there guidance? we why this concerned slowdown revenue to narrative are seeing we albeit So, be about

Ron Pasek

it’s was that think were headwind. not the total the last services back we had That year, on doing business side. for services making to what seeing of we I was what got product been a growth we’ve some we up have is to headwind where

I grew that half last and X% that’s was the QX total think as growth. the growth Product quarter QX bit of look revenue year-over-year higher. total a XX% you second quite year, we within in

of are tough without we the benefit ELAs. single we the we can We pretty very are at looking mid compares. digits, that’s some do did to year So, still And guide that. confident

George Kurian

additional parts of I comment think, would a other the the I tailwind; was world, add a year, it’s only year this that in was headwind. some ForEx last

think that very about good innovation very, we I portfolio. our feel

other look strong but on two at the we alternatives, not which last hyper-converged public you in flash year, and yet it If cloud. were at time this progress meaningful

into half feel public second we and good we -- much our of we strength think more business. of year, of cloud more the flash I feel this much have hyper-converged this year, into about sight very where can line heading the

we So, on are focused overall, execution.

We for was single We our grow to year. committed have mid ELAs fiscal to the good start to year. digits remain the which outlook, without

plan. And so execute to we are going that to

Operator

next line from Rob Cihra the Our of question with comes Guggenheim.

Your line is open. now

Rob Cihra

flash your on question so growing AFA rapidly, obviously your but hybrid of revenue. a XXX% Just versus mix. not obviously

add-or Hadoop, that genuine that's your where or that storage, base So, sort you actually sort those installed whatever are the drive half as are with applications, hybrid based, hybrid call other enough it you best. platforms of seeing -- of of into selling business see cold or sort still that of whatever, do that thing

get XXX% not so, it’s you’re some hope there's And flash? I sense. makes ever question mix going where like to -- that to

George Kurian

Yes.

capacity flash state array get arrays. categories, of you There’s forms drives, hybrid front of by arrays, percentage capacity you’ve is of you’ve if some arrays, think I RPM hybrid two performance got the two of SaaS drives; look our front eventually the all-flash meaning still X,XXX former the is will there’re where replaced ending business a drive, hybrid where drive. which meaning in second ending got the form piece storage solid a at one of

see. the video benefit gets an I hybrid don’t business from year, an enduring for NAND second percentage of of point over form our portion where for for for capacity going can be of business workloads, to be price next ongoing oriented to example the will state there’s which of as array long as the better sequential our solid As continue workloads,

Operator

I no am are questions. there And showing further

So with that call NetApp over the closing to for like I’d turn remarks. to back

Kris Newton

Great, thank you.

George Kurian

expand industry of with gains, of Data share is We help QX cloud and us that environment, helps solve the our in excited ahead. the customers the hybrid about to multi introduced agenda. available drive challenges the a I market, set NetApp am tremendous really able Fabric. innovation opportunity uniquely amount

and is through Data off strong results. importance our Our financial yielding customers, to paying Fabric strategy growing

on and guidance fiscal and both in you again profitability. for two-year our our we remain with ‘XX quarter. forecast our next We are plan. long-term relentlessly to revenue execution forward talking focused growth and delivering on confident against look I And

Operator

participating a today’s the conference. for in does may Everyone, day. Ladies and wonderful have thank conclude disconnect. you gentlemen, and This all you program

NetApp (NTAP) 14 Nov 182019 Q2 Earnings call transcript