NTAP - Earnings call transcript Q3 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon, ladies and gentlemen. Welcome to NetApp’s Third Quarter Fiscal Year 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll 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 at live replay webcast call be is for available and on netapp.com. will website our being

As XXX QX. ASC accounting in we a adopted reminder, new standard the

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

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

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

George Kurian

variables to and the you, Thank strong delivered everyone environment, face us control a and macroeconomic thanks quarter. uncertain In third the Kris, of within today. joining we focused an our on

expectations, areas to challenges growth our operational After economies. implications the of any in change a see of economy, face sought value. and the close In purchasing purchasing information Although remain outlooks margin, saw year, we on. as but I’m for slowing our largest in the QX by of disappointed of more our the position with I of for the gross that in control, above policy. remain of businesses more saw environment. We head macroeconomic and we long-term, normal the The efficiency the discipline uncertainty in deteriorating positioned behavior for slowdown well were operating in address ranges. I’d low-end these driven margin address global market delivered and around confident Board provide we our revenue an strategic headwinds, shareholder in well profitable the growth the like about the is EPS our demand high-end being at business. guidance their not deliver their operational did and Regardless environment as as to we our the to January, of exceptionally outside and trade customers the became headwinds, the cautious focus competitive on calendar real across

pipeline our and Our constant wind rates stay healthy. remains

focusing features, on solutions have cloud the addressing able company, our Our in all and we integration the customers’ margins quarter our reasons visibility further of for Even to purchasing third into in perfect strategy. were product future-proofed capabilities decision the face any purchasing demand, expand be on the do continue bring based softening IT value by we in not imperatives. customers’ Like slowdown. largest to

product right with a greater as strategy them, such us to and purchasing go-to-market continue we into However, the have we of visibility set strategic planning remain confident in right share how our tightly involved deeply are customers they fit the of good We into strategy. we are that IT and IT engaged their wallet. and our the large process have where deploy capturing and and customers’

Our to reinforced across customer strategy generate modernization which value data-driven improved disk Fabric exploit share. projects radically private This to to succeed IT center key substantial real-time accelerate customers and innovation, data economy created by to clouds. hybrid the secure significant to and fueling data is advantages three multiple have capabilities are is infrastructure creating in performance, NetApp the on-premises cloud-first initiative, unique and battlegrounds by flash, requirement It digital their in digital for transformation these and the multi-cloud to cloud opportunity business strategic market hybrid and we traditional need access take digital transitions: on-premises. to that insights is and clouds Data

modernize, flash, simplify disk the market we to improve help transition and application performance. We driving customers are as from

our and grew gaining equipment, upgrading QX, FAS, competitors’ EF annualized rate $X.X SolidFire and new displacing array net cloud-connected In of all-flash revenue are billion. all-flash inclusive year-over-year share to services deployments business and complex base with installed solutions. an in run our XX% workload products We of all-flash

with and growing than over-indexed the all-flash share market. are storage a significantly We large all-flash total in higher array market the in

secular as which will NAND this for that revenue, of with remains expect The price a services shifts transition to running the with All-flash the only here also higher and XX% early base continue, shift in currently we our to accelerate but ongoing carry arrays. advantage benefits market product flash, only Our arrays not declines. revenue, installed recurring runway all-flash ASP, innings.

to the IT is traditional transition The we’re private major second cloud. market shift from exploiting

ACI is the workloads cloud data to of and workloads refactor QX, transition that and from approximately shift that with last the key into In centers. our clouds. and infrastructure advantage multiple of our month momentum market the on-premises October revenue ease and hybrid as blocks storage. services with data simplify on of NetApp for the are bring are experience architectures cloud, available in value the we XX% deployments, with on-demand across and hybrid SX-compatible as third of in cloud cloud object quarter private building as taking customers NetApp and applications, enterprise enterprise build to optimize up on-premises services design, $XX hybrid expand extreme building clouds And the well in cloud embracing annualized Only third in quarter, use accelerated workloads recurring an cloud enabling a validated cloud to We data for workflows couples quality on-premises help to of Customers support of services private primary customers result, the our support their set proven are cloud and business. announced a that QX. The is comprehensive the environments new is we and public deploy cloud, QX. tools scalability cost. to unique Based and that our business cloud-like SolidFire deployment began extend the the from economics service. million,

is during before, year operational focusing with our said which hyperscalers. a are foundational we readiness this deployment we cloud As on for data and services, the

controlled are growing are in of from receiving the production with feedback the that excited customers number We by who we us. are

position available, roughly While tremendous still we the gives in in volume when confident phases, early this soon us service of for become two-thirds in of This, early potential cloud are confidence of customers the new well-positioned NetApp. are coupled for with success. are are long-term we part In we our these closing, to business. customer interest experiencing, broadly strong services our

the in array market. all-flash leader a are We large

are in seeing accelerating public with positioned XXXX. We are FY growth our and our cloud private cloud solutions deliver momentum to strong solutions

the the are of enables ONTAP installed transitions big protect into market core base Flash to integration our position strength. and from We a us expand and cloud playing of business.

and public private to reach solutions cloud us new Our buyers. enable

new AI adoption of foundation seeing in solutions customers’ of data Our moving customers our with offerings the as cloud. reaccelerate confidence part ability as cloud comfortable and more external are to give customers’ our are for we serving cloud applications and infrastructure flash, the our to and us These architectures, environment. growth, combined hybrid of as pillars factors, become

the We business discipline in with keen we’ll within have on factors the our control. focus continue demonstrated the and managing

despite to execution expectations. would discipline, turn NetApp close and paying We again expanded call attention I’ll focus. team in the maximize walk margin are in profitability QX the in to their for customer to to the We performance increased buying our thank over an slight moderation financial like a opportunity the I gross macro. to through and uncertain With quarter, go-forward behavior. commitment and of high-level Ron our that, now customer to execution,

Ron Pasek

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

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

all-flash of Consistent and execution billion we XXX free year-over-year, reflecting Product and uncertainty, improved QX, of despite forward, caution our private Despite a in with the revenue environment. cloud shareholders, strong no variables reaccelerate the and January, points year-over-year, underlying including remain solid we $X.XX of leverage our There we of strength macro customers margin, As offset our on demand delivered guided the our again are delivered grew traction to model. currency environment strategy X% were solutions, commitment were confident point million our in flow. managing testament net and of margins and headwinds. X% cash sharply by ELAs QX, outstanding range increased operating business revenues and the face leadership the highlighted to in and arrays control. within our focused quarter. the margin from George experienced in In our product about market in to to growing of slower in going gross operating we currency shift a growth This around our basis headwind. within a about is $XXX

P&L. Moving down the

year-over-year, million above revenue in X% our maintenance and continued installed our high-end lesser our of the Software data increased cloud business. extent, guided of and margin XX.X% maintenance our base hardware growth of a by range. was Gross driven to services $XXX

to with installed variable saw margin in XX an of term came our in healthy leading billion As normal for high-end strong services which continued and OpEx This face of we X% at and from to sequential about above to deferred seasonal expected, sales growth of guided macroeconomic in reflecting XX.X%, Product margin of points the in roughly indicator currency discipline of expenses to basis solidly closed is EPS came uncertainty The year-on-year, was high-end QX. of gross was and than XX.X% were decline about investments. compensation. million points and We revenue, and again $XXX straight force short year-over-year. basis increase the and down strong QX other the we $X.XX of continues cash basis $XXX record. XX% health a the We lower XXX the of and range product to of $X services Deferred combination fiscal revenue in continue XXXX margins discipline year-over-year points saw lighter represented operating new headwinds. unearned in about in year-over-year. margin guidance expenses year-over-year increased software the QX committed a X% and of gross QX, million quarter, Similar above of largely sequentially. increased remain growth Operating eighth year-over-year. which expect XX XX.X% product company hardware financed Operating our up increased we maintenance to base. margin increased due be year-over-year. was anticipated, flat be and to coming

revenues remained million roughly $XXX Our flow while cash operations was a flow represented of cash committed million for as remain cash the proven to conversion flow QX $XXX of free full which Cash period cycle days, XX% represents a to fiscal extremely million. $XXX such negative flow revenues, we XX% XX flat be year-over-year. historically year-to-date at free Free year. healthy of from is driving XX% of flows revenues. of for to conversion, XX% cash of cash has free strong seasonal

in confidence strategy. long-term allocation and execution our vision is in Our reflected our capital

at were shares average shares year-on-year, million, of an million representing X.X share per purchased outstanding X% million Weighted a we QX, decline. total of million. price $XX.XX for average $XXX down diluted $XXX an $XX During

be to billion free have share on $X.X We aggressive continue on authorization and current yield our invested profile. repurchase remaining capital return will cash NetApp’s given and flow

quarter. the of During generated representing $XX XXX% we the out dividends. free million $XXX in to shareholders, we million cash quarter, In paid in flow cash total, returned

Now guidance. backdrop Customer we has year. around entered on new to heightened, caution as the the macro calendar

with revenue expect implies revenues challenging $X.XX range year-over-year. which we portion a headwind compare, revenues to we where being the margin net mix, is worth QX and includes consolidated QX midpoint to gross QX of XXXX XX% the It result, year-over-year. noting between we XXX QX at and billion with the is XX%. decline product grew to total normal QX gross currency billion, in of points off seasonal that Consistent a XX% larger revenue guidance a by expect $X.XX As associated revenue flat margin from sequential revenue overall our range basis very and between QX

XX.X%. QX XX% between expect operating We and margin to be

fiscal total $X.XX revenue for share. quarter We The earnings per our midpoint of the per share growth expect revenue $X.XX between X.X%. range implies and of QX fourth XXXX guidance to

fiscal XX.X% implies of of growth XXXX margin XX%. EPS also guidance margin QX and gross XX.X%, of operating Our

FY commitments the Q&A. confident to diligently both by that, three the enable in a open targets. to demand will partners In Kris? growth profitability on and focused flash, the look services, transitions: and reaccelerate beyond, model private ability on back hand our and cloud environment, and leverage our we’ve shareholders, created tailwinds it and we execution and With As customers. to deliver to us market our I’m phase slower to data We for of out cloud to continued continue business made secular Kris the call deliver I’ll to innovation. key on the long-term disciplined XXXX remain

Kris Newton

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

Operator

with Andrew Our [Operator Jaffray. Instructions] of Nowinski line from first question comes the Piper

now is open. line Your

Andrew Nowinski

that guidance Okay, still Thanks XXXX. just kind the for at that Day on revenue, we and relates would you over question lot. still guidance thanks deliver two that at QX, Analyst it growth earnings regarding you result XXXX next saw And you’re of just years? for Maybe say, I’m also your as least your gave today in question. some X% to to is valid? a given the expecting the single-digit the mid then fiscal I’ll curious ask

George Kurian

that the FY mid is above yes, and our Andy, Hi, in line do plan guidance at absolutely. going the we’re single our well digits seeing still XXXX, And that. yes, to on top long-term you’re is

Andrew Nowinski

you. Thank right. All

Kris Newton

Thank you, Andy.

Next question?

Operator

line Goldman from Our of the next with question comes Rod Hall Sachs.

your is open. mute Rod Partly, line now please button. check Your Hall,

Our comes the next line question of Sheerin Matt from with Stifel.

Matt Sheerin

Thanks you. Thank my taking Yes. for question.

this they from the Just business XX% direct enterprise relative look still of year? you What smaller reported, customers, your single to the large you weakness for difference that have and in you about you think all large And do talked are the of your is mid was outlook versus digits. growth down – because customers at terms quarter, the your tone all if and think look six good strong was partners the down. fairly that year-on-year, was were channel seeing customers, time but channel I business like that it first up

George Kurian

in are channel broad January. that customers in served by are political range around saw uncertainty, buying customers globe caution through largest economic the the through The and some are and both the uncertainty largest are their of we The model. a most of incremental Our behavior that customers direct one serve we a affected the ones pathway.

Ron Pasek

QX, Matt, which factor we direct show the just other in to in thing did that’s revenue. in up a ELAs, little is, misleading QX, have

the little higher. a So direct they skewed bit number

And the necessarily you not eight it’s that, always last, if demand again, for quarters, adjust say, where created. where the that’s we’re XXXX. If within fulfilled,

Matt Sheerin

the any you ELAs, in revenue. terms didn’t And of have Okay.

quarters. good weakness related in more Is there timing and a the of you’re customers? the to issue last that few your had large that from You’ve seeing revenue some

George Kurian

the No, all. there’s to had we lumpy. first ELAs, anticipated just quarter in difficult do we predict about nothing as they It’s talking we at to any to tend when – there or And with Nothing be weren’t started have. that. said, to and

Matt Sheerin

Okay. Thank you.

Kris Newton

Thank you, Matt.

Operator

you. Thank

question of from line Sachs. the Rod with Our comes Hall next Goldman

is ahead. please line now Your open. go Rod,

Kris Newton

move question. Let’s next on the to

Operator

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

now Your is line open.

Wamsi Mohan

you. product Ron, Yes, the profit at a about you thank can level. talk gross

that in so, If year gross are the the when quarter or becomes little seen, given product next margin to mid competitive a think this that sequentially? quarter you the the bridge especially around from bps range revenue hold do with over can product sequentially later you last And to the have deceleration storage that could XXX the you happen that the anticipated you environment tougher year? launches XX%

George Kurian

still with eight typically the of side, grown our a that. the product do still to if business. seasonal intent each quarter do we plan always to QX Wamsi. that Thanks, a you margins the you quarter off the bridge in year-over-year, mean, quarters, to we have then and we’ve eight from being QX The sector last we on remember, last target I gave XX% to XX% look this at and is The product a is Yes. and QX, Yes, fall that. happens thing public was

So five each of that years. the that’s saw we last very traditional

some we ELAs and over we then quarter. So no pricing. from of that’s last NAND had had then them in seasonality offset had headwind that affects quarter, benefit some and with the We the the

Wamsi Mohan

clarification And, great. quick you. a George, Okay, for just

of three with see to to the you faster? maybe in kick noted I there sort clouding, think six-month in, demand of could kicking environment elasticity of Is that macro you NAND from elasticity the expect of but elasticity lag, prices. given this demand sort these of demand typically

George Kurian

in systems. customers or flash-based NAND buying over much continue to decline shift from counts of which that mix building acceleration will could to incremental quarter. some customers disk-based think the requirement. out saw flash system terms correlated were entire as through apposed the business in course We today’s of future time, buying, the their caution be saw We to needs to that for capacity our We prices good systems as of how their

So we it macro It – that. We as reflective opportunity. to saw bit little continue an move NAND favorably, believe that to a gives the environment. a of it’s bit us prices

market. We are well positioned in the flash

We as have you a at even with they us to which ASPs actually preserve flash-based grow margins. has a software, the And disk-based system, system differentiation are gross to if allowed strong opposed and of higher. look

on. capitalize that’s us So good a we think to for trend

Wamsi Mohan

Okay. Thank you.

Kris Newton

Thank you, Wamsi.

Next question?

Operator

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

Your open. now line is

Aaron Rakers

questions. taking Yes. the quick Thank you for

us maybe of that just could assumptions during how are and about February a First thought of improvement? kind rate for pointed saw of you understand, you the I your all, assumptions you the January help month guidance mean, making you what third quarter, the out of as far And what in deceleration you January? as have I relative any to quick follow-up. saw how – And as on this

George Kurian

about sort and good we the of last holiday, say would were January. materially of Christmas within things where really we very the heading that, and week I changed into felt the quarter December through

not opposed what saw competitive just buying full our them those think with we of buy change as an increased requiring customers any approvals aspects. win to any just to We did buying see scrutiny of the plan the today or that and dynamic scope we I of in for us. terms rates within in amount spending more of

to impacted, time be around caution spending, cadence, global as takes some well customers they right? the that of to of clarity sector their the course is, customers, in as on is force there into of think exposed our is before of of which how it will work public some regard that back normal largest are world, reflective our related to come their I sector, in to to geographies business like QX sort the back operating that of public with time get is Some normal to and that

Aaron Rakers

flash help the how Okay, would that’s then hold NAND seeing flash declines rate the can And characterize on And you’re pricing very you helpful. what on side? you market? just understand pricing ability in front, of currently your to the us

Ron Pasek

declines to not price are go down. They seeing linear. continue we’re The perfectly

is remember to got you’ve in predicated – is, industry we what storage pricing. on our think commodity company’s the decreasing history I

ways, use for as earlier consumption. increasing the data drives many sort and stores in demand catalyzes appetite So, of new cases never-ending for

that’s rotation predicting, We a reductions help we it’s on growth something that have Price over that So know the – we’re that’s growth. area. why flash.

the As see George between types you media. said, elasticity different the of

NAND prices down, as to all-flash. come workloads so more And move

George Kurian

that. seeing we’re And

look counts this at and of capacity the both If counts through you have fiscal been course substantially. quite year, up system they

in I bit January back System think what caution little capacity. really counts of to a was we noted continue good. this in step be around especially a quarter,

Aaron Rakers

you Thank Okay. much. very

Kris Newton

Aaron. Thank you,

question? Next

Operator

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

Your line is now open.

Ananda Baruah

sort I – prepared to appreciate. implementations good think And that. you – for are just business? I existing on but at any Thanks capacity – then mean, new Hey, in a afternoon, product guys. Hey, looking not using George, a your you context have mentioned, on could you large any Do is their a greater the provide pausing on they’re if pausing the as in follow-up question, on project. quick on on the remarks, taking are end what they George, customers raising I broad or how the sense, if of milking, milking signpost?

I around those projects they just capacity Thanks. context new You things? love would adding be mentioned anymore less two that like might on that,

George Kurian

bit early January this they than it’s draw think too budget represents they the And longer for I certainty. a customers. cycle their year lot in of new took say planning our as typical a get of I that the I because little to broad would think conclusions. place,

multi-quarter we apace. transformational have I continue saw the think implementations projects that

would all our cloud say, more discussion services, about for it probably about I all our feel those customers projects, bit progress think, those rolled of there in private dimensions. people we good book of the aspect out. arrays, business, of strategic all the we cautious, our areas across cloud terms of little and all-flash a with terms in feel progress in good our dimensions. data reflects us of of of strategic really and were their the the clarity waiting for of think new next business in I how I focus

Ron Pasek

Just up full-year. X% almost keep midpoint. the look X point QX, even at guide, full-year you in we the off – based from mind, in a maybe isolate were we’re you if really midpoint it’s over if little in And QX on the

pretty the on from we in single scope the of what So exactly scheme much thought mid still of we’re digits. greater things,

Ananda Baruah

That’s for great. Thanks the context.

Kris Newton

Ananda. Thanks,

Next question?

Operator

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

Your line open. is now

Katy Huberty

the total I for you last gross back product Ron, thanks company at sequentially business quarters, If margins much two was were Yes, question. for fast, the bit didn’t gross despite fourth NAND. one lower-margin guidance. the the margin look have actually growing that up and very a help little you fact from as

down So through are think gross why here company total can you margins talk you just sequentially?

Ron Pasek

think and then I margin, is that revenue compare. product you this higher And margin a grows – and from see remember, and that’s better a I mix puts lower product generally meaningful year-over-year, margin think so typically we the to what QX this and is time. Kath, So, services to QX weight QX see slightly really a compare more that is QX see issue The sequentially always to to of the we all than the which QX. QX That’s pressure.

Katy Huberty

as George, just And a Okay. follow-up. then just

fiscal I think you year this with, talked year exiting ago, a about perhaps…

Kris Newton

lost we Katy. think, I

Katy Huberty

Sorry, sorry.

right a talked not or Thanks. little bit a with services that do George, cloud it about ago, Just think a that. up you about that the exiting of is $X way Why you’re to looks below for million year at tracking is, revenue. you like think it? about this year follow- And

George Kurian

we cloud of be We service services offerings data bit the of are operational are year where our say, the foundational readiness in in terms of a would our expected business. behind our to with I providers. cloud we

with we available We said, AWS. generally as are,

our We all we are X.X towards results controlled say we in basis point are and would that revenue, pilot that that of production to excited with guided the we I It confirms seeing. the Google, for expectations and eminently. probably full-year we below but we’re both be are Azure of in where projects terms them expect available differentiation.

the cases workloads have of we that broadened range We use serve. and

get accelerate as about these we with the that. so inflect good to feel providers, return business the as we available And soon generally ability to our very and cloud

terms model we of projections off our long-term In services, not had. we’re cloud the for backing data

confident Ron for the about for our cloud data As services. whole model we business, long-term mentioned, feel well our as as

Katy Huberty

George. you, Thank

Kris Newton

Thank you, Katy.

Next question?

Operator

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

open. is Your line now

Steven Fox

regions? Just one saw question other there it January. verticals sort isolate in what previously extended decision And ramp it’s say you slowdown will about you its like the maybe originally or timeline be projects, in could given we’re longer-term Is to afternoon were more of for – pacing good slowdown, what start-up on starting would would the geographic to – versus you you Hi, terms what talking things thought these closing more you the or anticipated?

George Kurian

of the there move we were With decisions that broader majority industry public QX, macro, regard able as We preponderant to recapture sector, any pushed having that think specific saw I we would the trends out in in those said to where noticed. projects those some out. of pushed we in forward. U.S. about we some decisions say was don’t one of QX, the talked and areas I were that decisions

sector said we specific full there sector, clearly, to public operations. get those With the for incrementally could back we that government China I industries on think sometime think But were that with weren’t and I to the take out. fledged exposure specific more earlier as the it we cautious. U.S. regard to think trends to will any call, public draw other that

through into so perfect projects of have how quarter, the coming out there. course don’t we we’re shape so And visibility cautious the being incrementally

Steven Fox

helpful. you. Thank That’s Great. very

Kris Newton

Thanks, Steve.

Next question?

Operator

of with SIG. Mehdi line the from Hosseini comes question next Our

now is line open. Your

Mehdi Hosseini

cycle And is as to out OpEx? for XXXX. or next see into how a little Yes, it this think in aggressive your be managing replacement you I How year, of question more thank for far the bit we you. in we XXXX, in kicking you – out. know But cycle going this year? to how are the Ron, for be One Is look RPM of going fiscal of year the should for do George. late remainder playing XX-k

George Kurian

think, question. take RPM the me I let drive XX-K

to I think of be some that solution get were still XX-K viable a work capacity to the there’s done focused on. points to replace drives

the market drives gigabyte are still that lower NAND deployed in of are solutions notice, of are the you available If that dollar at points. price being effective capacity per TLC the majority actually than XX-K some comparable the points

So, all-flash quad look price the But can its of in “I need full at start transformation for increasingly some you will want that, working to sometime. customers on strategically say, point to NAND that an the that sort to layer you to that or as think listen, cycle, and move option. but capacity benefits will happen, I see cell it we’re take the for next

Ron Pasek

So, your a at OpEx last we question, little you what on But said I’ll Analyst early April. Day that. Mehdi, it’s remind for

guided I and of so in and be transformation, still year we’re roughly lot OpEx flat as remember, to actually well. ton a next still But year this investment doing we’re lot disinvestments. a actively a of So doing of

not just it’s So not as doing if anything. staying flat, we’re

and more We’re getting really lot a working efficient.

George Kurian

made market, services of that to into bets operating a new of pathways cloud private the market, the simultaneously margins cloud, to and to terms arrays, parts while point, we just all these of underscore data have improving In new all-flash record.

continue forego opportunities – the margins but expense will side operating in history, not strategic business, on operating disciplined we to the being gain. we’re highest short-term right? company’s going for So the quarter, the stay highest This of to the

us about to overall continue the maintained I opportunities, invest into you’ll while discipline think spend. and prudent future being we see have

Mehdi Hosseini

Thanks, guys.

Kris Newton

Mehdi. Thanks,

question? Next

Operator

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

open. now is line Your

Alex Kurtz

for big to the Thanks guys. know to if company the last prepared fiscal it’s looking and the the we’re the you taking this hyperconverged, kind through to area is the investment just the the product a that of XXXX. of point you provide working on just of be that still contribution Are know Yes. with years. product overall way of sales at kind rate for its I or been would over couple of organization to I this George, a business, a think side or helpful understand? percentage has questions, channel reasonable revenue, serve run of

George Kurian

part as or meaning, SolidFire business, cloud of standalone model. a private overall hyper-converged Our deployed

across they as NetApp’s XXXX, which you cloud in at growth, form performed as can we’re customers a out. that a For storage, deploying good standalone pattern we really strong think as in to prepared us break applications array guide this well large they for this private point to our the or customers, that, substantial fiscal deployed hyper-converged, it not a a tell quarter. second are So native And and leader it, deploy in name to But object al-flash revenue I really foundation a for smaller units, it contributor mid-market look forward I’m gives market. leg contribution, they to already as we revenue customer we it. accounts, right? you cloud

accelerating accelerating and seeing materially cloud in private momentum the are We game.

So to as headed tuned. we fiscal you stay We’ll XXXX. more tell

Alex Kurtz

you. Thank right. All

Kris Newton

Alex. Thanks,

Next question?

Operator

Our of question BMO from Tim next line comes the Long Capital Markets. with

now Your line is open.

Tim Long

Thank you. base bit the installed to about Ron, you talked the software, referring services. maintenance when a hardware and little

array It down was there. It bit a little us And was as a is well? year-over-year. a if you. that more expect on Just can little just growth? little color we dependent give do to do there us Thank data you you higher pattern bit little more it when Is seasonal could just sequentially, think with think or sustainably? being up move or a there to line help so a more the a looks of overall that like sustainable cloud – services will base give you see bigger all-flash what piece line bit

Ron Pasek

Yes.

system to the XX had on a we in about, two in quarters And continue decline until we talked row remember, sequential So up installed as we ago, the side. product of counts grow years base.

again. of got back installed really quarters base you’ll to that we’ve to increases to in that see XX get back So where year-over-year really get grow to

So we’re probably quarters several – know, We away we from you don’t don’t Tim. discretely, guide that that. as

guidance specifically. call we’ll give I though, next some even FY color, So won’t guide I’ll give XXXX, general for though. the it on

Tim Long

Okay. Thank you.

Kris Newton

Tim. Thanks,

question? Next

Operator

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

Your line open. is now

Simon Leopold

what on to wanted dependent to could footprint see customer in degree is driven the what’s by basically you I Great. you. a platforms you in your marketplace? base little Thank upgrading your Thank to their growth if what the of happening are taking talk And about from bit degree you taking NetApp versus others competitive environment? question. your base for

George Kurian

it we within to customers competitive are as would cloud hyperscalers wallet array two-thirds with we of NetApp. in through business, well I to which change new have and not solutions, through I’ll customers. the traditional we when our customers, at engaged our dynamic see look certainly are We did own our solutions, public quarter. enterprise offerings, of says cloud new data, not expanding either all you all-flash used our or any of is that, software expanding that that the through cloud that to say them our the as cloud you net simply through private net both are some cloud give

new up So for to opening and new acquire. relationships logos us they’re

systems So that substantially a large fundamental a to disk-based will Fujitsu, we disk, has transitions portfolio. in change we that players of all-flash IM And mid-range the in from there’s from: Dell systems, weak a within leader higher see market market HP, are are disk landscape. them. base in think we share and are We Oracle, Hitachi, with did a there any portfolio challenged competitive a lot flash-based than IBM, not given of even the take as that we lot share percentage

about We’ve our to capture got them. So we feel good execute opportunities. to

Simon Leopold

Thank you taking for question. the

Kris Newton

Simon. you, Thank

Next question?

Operator

comes Our from next William Ader question with of the Jason Blair. line

open. is now line Your

Jason Ader

macro you issues reported, Yes. that Thank they and did. you. see the just George, apparently didn’t guys Cisco

just there want customers because one? you pricing I’m just delay to be explain think NAND might of causing two, prices to wondering number go maybe in you that And terms something number some going in they see how market? the else do So on where do

George Kurian

Cisco to would I so that or can’t – not Chuck comment did on We comment. to not, what leave saw I

business, regard the of think I through quarter. you what we our end to discounting maintain with I can tell the is,

increased level have provide an to business saw forward more these of I like we you not on of case transactions, many scrutiny a hey, greater purchasing deeply for it’s price, ROI in would based of customers lower approvals you offered involved that. on transact. transactions, matter explanation would would or you or being of tell and a step or where things get if So

And if the price forward providing that, as deal easy it we you applied vehicles would to so as and have that were I just with those. a we discount would tell NAND do have to contract,

Jason Ader

one for then quick And you, follow-up Okay. George.

new Just AWS? your about on offerings. AWS reinvent this half-an-hour on year, wondering impact Andy I have Amazon’s Jassy think a spent that offering file-based just And might through was storage you what talking like

George Kurian

good software see our of to really volume continue AWS. We through cloud uptake

sure on his hasn’t impact but I’m he offerings, so has that own And had NetApp. any

Jason Ader

Thank you.

Kris Newton

Thanks, Jason.

Next question?

Operator

question from next Iwanyc Our Oppenheimer. comes George the of with line

Your line open. now is

George Iwanyc

it I there? idea a – you then Europe Thank bit for happening as of us strong. little well. George, taking differently, just Can follow-up look an you quick a give behaved And my relatively question. looked have what’s

George Kurian

really was by It good execution European team.

in deep the of leader all-flash is some the arrays. There landscape. many with volatility in GDP have parts are In We we the European European We changes. strategic political relationship see market, customers. did

We’re in till being and of say to control environment, I team want just business well cautious stayed the but the the overall executed about that end. our

George Iwanyc

us an if helping update in And on partnership? can mean, Okay. give I your China? Lenovo that’s you

George Kurian

the success It’s about too partnership. early of the to comment

the are in market. We

to It’s categorize wins additive this We that of for size or NetApp to to color too early terms listen, footprint. the in me are additive NetApp. is them except are that, seeing

regard that executed NetApp thank – some trade from NetApp want that venture of their and looking of The operational and off you news the for forward the and And I and the the well, quarter isolated gives well China, us to a team to the to readiness the that. getting keep we’ll we’re online. ground I soon comes posted as pathway joint think them enough, it is with market finished – into the that tensions.

to China that channel exist Lenovo a is relationship, the geopolitical feel the from have well – we and the on while us tuned. the in approach rest with in like, might positioned Stay perspective resources challenges world, enormous all focus of geopolitical us China. endorse it allows that helps the of the we between to So branded their

George Iwanyc

Thank you.

Kris Newton

Thank George. you,

Next question?

Operator

comes next JPMorgan. Coster line from question the of Our Paul with

open. line Your now is

Paul Coster

large in of The was either taking as for that your question. also partners uncertainty as my that January, changing macro behavior manifested saw Thanks even Was in the flat true providers customers. the service cloud you or customs? of that

George Kurian

meaning, We major the not where we us to service don’t hardware – customers. through their with from a work us. hyperscalers, Amazon, Microsoft, deliver do They and Google buy centers three data

partner. a saw them like more backing they’re We evidence no So of off.

across have that of cloud to other providers a the was variety deployments there and are sort And are of them – range What and the superjumbo sell rather we them, widening than fact, In with used and cases the takes. puts we there who not hyperscalers. narrowing. of service

them opportunities, XG of investments many prioritize think the best are to wireless, around I right. their careful for example, being

see mix. of So I and changes priorities going process through these that would just say, of did evaluation in so one they’re we some

Paul Coster

more and the your pushed you sort being And course, edge. things of happening, that and through other Okay. then the of data is more of manifestation is business? seeing through Are factor workloads any big of

George Kurian

the growth edge. deploying the by pleased the are we Yes, of that are in used cases we

in edge good a objects providing solution good traction sector at portfolio, industrial of cloud use are that traction. that the early, core. use deployed private the ruggedized cases our autonomous cases. software-defined brought data to We part good of saw with storage that still advanced have it at public of AI adoption but we are in We saw some generated the telemetry saw So environments and We edge crunch solutions our the for certain back good adoption driving. to and

from a year we as stabilizes, remain So portfolio of our have, macro good the And growth certainly broadening that is the optimistic even solution differentiated. number ago. we engines and is

Paul Coster

Okay. Thank you.

Kris Newton

Thanks, Paul.

Next question?

Operator

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

open. now Your is line

Jim Suva

been very on much. that. I of and very the about you’ve a Thanks lot demand clear environment questions George, think,

this there that came maybe switch ELAs So the several I’ll NAND and few quarter. were quarters, in the question Ron. past to then over Ron, up,

that think business. some thinking course of people a kind ELAs just normal doing were might I be of

of the this of simply just not and any kind signed something is one that, or topic couple it’s out, course a ELAs one quarter behavior how there or none it – expect or on of type were quarter or we really kind and of of normal with a people to change lumpy So the of is or be how shouldn’t that? don’t is it like just per want doing going two customers other turn who just ELAs quarter, to business

Ron Pasek

question. Yes, mentioned it’s it’s hard good to Last quarter, anticipate land. I they’re when a going to

next that. there will view ELAs. and a There more It a quarters be to quarters when So year than of you hard zero, they’re as the expect full-year this quite will be revenues as I when lumpy. predict. They’re X% should bit they’re roughly year gave is

a full-year difficult difficult guide a to I just thing some and compares. So it’s can really It’s quarters give on it. going to make predict only

we – quarter, a year robust going QX, difficult compare. very had a that’s to be in ELA this quarter This

Jim Suva

So like, that yes. sounds

George Kurian

not anticipate ELAs nor did Hey, them. Jim, we did we see

to it according So performed plan.

Jim Suva

Yes. was I behavior. make that? just just a things is want to more sure and in of like change It no timing it there

Ron Pasek

did $XX million we in remember, about last quarter about And right. and $XX That’s QX in million QX.

guide. have So to we much do left really X% to that don’t get full-year to

Jim Suva

much clarifications. appreciated. so It’s the you for Thank greatly

George Kurian

Sure.

Kris Newton

Thank you, Jim.

Next question?

Operator

with Company. Ackerman Karl of line the from comes question and next Our Cowen

now is Your line open.

Karl Ackerman

key you What George would expect I XX% higher margins, massive contributor and I few quarter couldn’t perhaps business next, to the ELAs, margins why and whip gross Thanks. roughly And Good on hardware handle your prior the margins? Ron, impressive an this that to margins, certainly declining Ron. improve have you in guess, gross you maintenance in continue be that see April? and hardware and an to to feat the biggest years? been And wrong beyond excluding afternoon, prices SSD looking maintenance with enterprise product do over at has for gross conclude sure. eight improvement margin think next would

Ron Pasek

Yes.

in the just it’s seeing more your focused really eight are So we I last total last for couple benefit the some of quarters. over a really margin not quarters, first of effort – of NAND. the part But in question,

think hard it’s get gross I’m to and I’ve about confident So, eventually than what other going clear to XX% XX% happen we’ll product that. anticipate might not margins. might pretty back happen, on to I what I’m been telegraph or

margins, We the competitors careful. space. do and the to you’ve be maintenance little got I a think in have On hardware

need and gross a make as they We our to we that have careful see provide charge. can what at margins what We margins we can and a sure well. be service quality price, to and those are reasonable feel customers that

So not got they’re to you’ve ridiculous. sure make

Kris Newton

Karl. Thanks,

Next question?

Operator

question the the Steve comes with Research. next line of Milunovich from Our Wolfe

is open. line Your now

Steve Milunovich

part importance you as And George, to be Could the the thing of as executing go-to-market? selling evolution new update good kind to of some you CIO, the NetApp that, talked talk the on I’ve future. about not I in and is customers, one not heard product competitors as also your in Thank margin, value you. about of go-to-market? know comfortable that CFO of selling may your that up CTO, an this the XX%, so is the to selling get XX%

George Kurian

think example, pathways digital footprint lot of are the continue expanded with have top hyperscalers parts right? into we of as total that I’d over to a had new I up our work capabilities, private years, with solutions and to opened say historically the market, not the we’ve a it’s place the that like addressable improve result Lenovo a last market we two world into of transformation solution. big to projects of where accounts, have cloud the our that for the year-and-a-half,

coverage optimize to continued have model. our We sales

address. and us go can available that accounts there’s resources So to to after net new align workloads. believe we substantial total new go market we net for And

every to try And quarter. so is to we an improve do and we’re where this to area going have continue to so

Steve Milunovich

Thank you.

Kris Newton

Thanks, Steve.

question? Next

Operator

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

Your line open. is now

Eric Martinuzzi

you got the that installed at can can array. because think what in wide some bit George. do wrong open opportunity, several the is enhance ways is maybe in the little in all-flash recall that’s for to I XX% installed it remarks, gotten encouraging, ways, what we’ve wondering base? purchasing some you a only but their the hearing I’m adoption opportunity, it just a the because installed now. quarters heard base I of it it reluctant terrific question word, number, but least, that’s that The the such prepared about In was being all-flash your talked shows the – Yes, base

George Kurian

is of base The installed a very, very systems. number large

growing our both The are movement the that installed denominator capitalize we help consolidation and projects numerator flash – simultaneously as base. right? installed So, things growing. to are economic are we also that growing what really our are systems, and so And base, will improve

makes given these upgrade there opportunity magnitude the base, their time get viable But more flash to that of it to and will installed of some projects gets installed As that as conversion. certainly underway take certainly center base. a data it it cheaper, next-generation customers customers help prospect has our just improve

Eric Martinuzzi

XX% horizon, a Do to that two XX% or you have any become expect you could three-year XX%? like where

George Kurian

at they opportunity. we’re the forecast I an will follow do mindful of don’t our base think, installed have of this opportunity. trend is flash fact point. it the And I any are that

Kris Newton

Next question? you, Thank Eric,

Operator

comes the next Todorov from Our question with of line Longbow Nick Research.

open. line Your now is

Nikolay Todorov

sounds the It bit rightfully there’s and market? optimism on business? like public spending that want Are of large channel the in XXXX customer understand just for U.S. are cautious that is But sector. you’re the to rightfully for afternoon. good as as channel guys, or the the cautious you I overall, as side more business. the your assumptions hardware And underlying end outlook Hey, guidance there, you from guys little to getting a what

George Kurian

a has time, the That stayed have foresee for a of that We business long the number very fulfilled out that’s in period break we we and relatively our don’t of through channel, of number XX% the metrics. categorization substantial the stable I roughly and this better our for small. a that quarter. past small coming customers large others channel customer performed for segment of next this mix and set right? The shift within quarter think there number, that medium fulfills year, customers or are channel financial

believe share market. are opportunity our We to given a they that in growth continue for us

businesses. We are have large more global who customers cautious the about

Nikolay Todorov

it. Thank you. got Okay,

Kris Newton

Nick. you, Thank

question? Next

Operator

Our next of question comes line from Hall Sachs. the Goldman with Rod

is now line open. Your

Rod Hall

can this guys, you hear me time? Hi,

Kris Newton

can. We

George Kurian

Yes.

Rod Hall

miracle. a it’s Well,

maybe Okay, million. the you’re in growth I’m X.X% trend it and $X X.X%, I January, to in zero back thanks guiding just revenue. I then down basically – at $X million was the for or looking rate wanted and April the here for XX.X% XX% XXXX, year-over-year just on chance again. the on in flat, then of then

what ask you hit if the you believe it’s And do to And is, this trend? on that, why the bottom? you not? I April why that guided whether bottom wanted you so I believe if it, believe believe quarter do And don’t guess,

Ron Pasek

roughly gave, the year-over-year year, would which now. So, I digits XX% points it we to mentioned got year has X you currency you’ve that’s think was single do tell right The had I of looks last what we’re going next points – of mid the guide is can to currency flat tailwind. headwind. guide think X you remember I

have that So be to we’ll know end I QX. be will don’t where how but in – quarterize, growing has that obviously, from we to

Rod Hall

So, January the growth you guess then points what flat the the is as January lining you you’re from just quarter back, kind be might can be? and the on well, kind that And Ron, you’re in X saying bottom. have you’d the that we if saw trajectory then here, of

Ron Pasek

Right. That’s right.

Rod Hall

that. Okay. Thanks for

Kris Newton

Rod. Thanks,

question? Next

Operator

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

line is Your open. now

Nehal Chokshi

Yes, thank you.

year-over-year. days five up DSOs think were So I

were the things see at back-end than the that a of more So that a bit Yes, little means you talked you slowdown did presumably, loaded back-end quarter. about usual. how

the the up make can help end A, but up at a you not loosening So the maybe perhaps enough that saw of the of shortfall quarter, bridge demand to you for of at beginning that, January?

Ron Pasek

of point last based the we escalation is out the did slightly quarter customers than you the up loaded. DSOs, reason wherever talked pretty a saw demand issue. it with a January, that that different cycle, they compare or be so the we’re I When very mix so end of would different kind in that about could customers still the at mean, quarter I negative not than Nehal, compare. for in the not end terms hard. about it which prior was year, wane I’m dissect as prior that’s conversion group was it’s of year on not We Yes, happy collections of really significant, kind I cash back-end of just that have that.

Nehal Chokshi

And my… then Okay.

Kris Newton

Go Nehal. ahead,

Nehal Chokshi

operational capability these why Could which mentioned you’re cloud shakeups as at some cloud there on been it’s create George, delve behind bit And of NetApp the are for then some you that the providers. behind? of into management service has also opportunity Yes. service some cloud services, you well? providers that a

George Kurian

good longstanding relationships Well, really with we’ve got them.

look certification, technical platform available deep to are performing are tests going of delivery and imminently technology our and their into we’re be we We forward get integration service through So right? to we going that. to

that excited going with are we have on We their that the production pilots customers.

tuned. stay So,

we those have of think providers. opportunities I an through range could expanding

Kris Newton

appreciate Well, it, some right. and I’ll final thank it All We Nehal. remarks. you, to for back George pass

George Kurian

uncertain macro, able on Thanks, operating we Kris. the headwinds, margin the Despite near-term to beat were and gross demand margin, cleared by EPS.

our in strong continue discipline the We managing business.

As positive our transitions the we well-positioned momentum capitalizing key uncertainty to the economic by are on created digital market transformation. reaccelerate by abates,

We playing these a are into strength. position transitions of from

solutions new base. installed our growing allow buyers, to Our us reach while

momentum accelerating. are our private a in We is The leader in all-flash. business cloud

poised Our deliver large public with fiscal in hyperscalers cloud strong XXXX. growth to solutions are

I our next for long-term speaking your confidence you supports mid for again to top single-digit All look growth. time. quarter. our of in to model Thanks this line forward

Operator

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

NetApp (NTAP) 14 Feb 192019 Q3 Earnings call transcript