NTAP - Earnings call transcript Q4 2019

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Operator

Good afternoon, ladies and gentlemen. Welcome to NetApp's Fourth Quarter and Fiscal Year 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. I will now turn the call over to Kris Newton, Vice President, Corporate Communications and Investor Relations.

Kris Newton

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

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

results XXX earnings revenue GAAP release as non-GAAP on historical Our historical 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 period, noted, supplemental to restated guidance, the and included financial refer rules. to otherwise our with website, well XXX results table reconciliation. data along the will tables non-GAAP have in recognition are previously reported XXX

will During and to and financial outlook respect today's statements for call, first with such guidance we and XXXX. projections our fiscal our year the prospects, make future forward-looking as full quarter

of position our website, recent time-to-time strategy, documents execution on capital Please Current Our and profitability, we profit ability projections. capitalize manage address Reports also ability grow involve to gross our cash expand SEC X-K. our shareholder our obligation and our any our a Form and disclaim fiscal and We file introduce margins, Form cloud most refer our uncertainty. resources specifically, returns, allocation the services may differentiated forward-looking Actual deliver maintain market statements our total year available differ without of our including market, transitions, focus new and disruption, to to with expand update continue XXXX for strategy. products revenue, available to regarding market on all market global, key our risk opportunities, and and the and and future the flow and and from on and conditions, and and our reasons results expectations variety which for XX-K our materially political, macroeconomic to and

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

George Kurian

these Good our strategic issues was resulted not execution for at is with fourth This low to you quarter. We masked across of guidance issues how showing aspects address Thank This issue. the afternoon, in up, quickly I'm used revenue FX made joining taking we’re of headwinds, key end business. coming and in progress by significant actions range. everyone. to the the us. Along concrete our

large capture progress substantial then remediation to but is growing, our by we more we’ve our had which and growth in plans made need areas. and we do start challenges key to talk about reviewing and opportunity areas Our it. the I'll in the

areas. manifested in Our three execution challenges

inconsistent execution. were in First, we our go-to-market

focus improving We are coverage. and our by addressing this

markets. have efforts where we distributors success, on to return investments the investment. market countries We are for underway smaller European resources segments could to largest higher our against so our lead We in shift with positioned to focus that and enabled better they customer

our number to the to of increasing sales also dedicated new enterprise accounts are customer We broaden resources acquiring reach.

course take see trade-off their execute but making to growth over in financial of ability our are improve to off, XXXX. We our These areas. within expect to of models we fiscal the bounds and decisions investments targeted to our benefits time the pay

on not renewals in did we well execute QX. Second,

execution. our and to base improve making asset count is our process we necessary the installed in are and organizational However, the changes growing

fiscal in the We January down growth it are XXXX expectations. The a headwind to part and through materially significantly that but been continued slight saw lower center will quarters buying, business OEM customers behavior not QX. first OEM will our our while OEM of close. to overall greater are large our we the year data in expect are deals recover in be revenue Finally, resetting in of year. three periodic has longer do QX. and require to our and of still small a to business. effort was Customers buying headwind create a taking relatively

We have are for trends sense a events these the confident and are dynamics. result of industry not the good that competitive

our are gross the strong value quarter solution. in customers find the Our margins of indicative differentiation our in and

increasing positioned our targeted We coverage. are taking investing capitalize in opportunity our action market the and are sales focus to well to in and by

quarter inclusive our a and net quarter. number The available of All-Flash growth services business annualized And and the NetApp deliver displacements. business array $X.X public this This Now, I will XXXX. fiscal in of significant XX% our in we the in investments experienced progress. enterprise and business that made a in we continued earliest expected solid confident business issues benefit, disappointed XX% in opportunity remain growing Azure run services of QX, year-over-year am private the were position the market. and part for all-flash an felt our fiscal to and gained market success in poised to let's turn where acutely to of XXXX coverage performance focus In FAS, products here. where saw areas competitive year have delivering cloud grew billion. We by the our of from is QX. EF all-flash our in and to I with generally We cloud in the rate also first share array momentum SolidFire fiscal in place strong revenue most large are files positive all-flash year our our become wins sales

integration performance flash the innings shift leading for early in most secular in highest The runway we this price the cloud ongoing a transition NAND is declines. have expect still with efficiency complete to the industry. and accelerate and guarantee, We to

QX. into of QX QX cloud continued experience that the data cloud Moving and for public private growth NetApp economics their triple and enabling began solutions, digit are of The bring private building year in StorageGRID and blocks momentum deployments, through private to HCI to business the each our delivering SolidFire, centers. year-over-year cloud customers cloud-like in our QX,

and business rate SolidFire, cloud quarter. significant fiscal StorageGRID and over NetApp annualized are growth our HCI achieved an of private revenue These contributor services fourth to of the inclusive XXXX solutions year Our in expectations. $XXX a run million net products

Turning to cloud data services.

Our NetApp cloud data meaningful cost deliver business enable services processes eliminating and enterprises IT quickly complexities. outcomes lengthy to efficiently, and

available our are customers Google Infrastructure honored Next Cloud Year Our NetApp accelerated and run at with named clouds. partnerships Ecosystem set the Cloud for on hyperscalers a helping of on sequentially offers I'm of Only and the services achievements scale. that applications services multiple the the data Based NetApp of Google XXXX up solutions was cloud $XX Partner comprehensive Technology quickly across month and Google XXXX our Cloud for approximately annualized million, unique. in Cloud build to revenue XX% QX, from the recurring data at QX. Google last

continued customers run at fiscal private as exit will rate healthy mix with new to to the target customer We acquisition. And services year We see drive in significant business April new to a Investor a expect this XXXX goal. XXXX Day. our confident our in that XXXX year cloud, growth remain NetApp we contributor is gave revenue to they of data our continue and cloud fiscal

digital competitive strategies. Our true NetApp and groups the initiatives, our data core enable are integrated Each fueled of fabric of strategic highly but their as NetApp our cloud. strategy partner radically digital strength their by is management value solution from multi-cloud individually transformation opportunity data can a hybrid the which which the driving to of are Enterprises who our the of simplifies portfolio needs center is the the meet transformations to cloud-first environment. customer’s in a increasingly in edge view modernization projects and

is deeper closing, customers, we’re portfolio and gains to moving cloud and on-premises. more strategy of ultimately data I the want the Our to and emphasize strategic to will return with driving growth. growth to and work data quickly in In and services fabric do expanding lead needed to that share engagements

and business year we model. aspect fiscal opportunity. of We confident while XXXX, enable position the Throughout of continue XXXX. resources staying our into as biggest us within strategic financial our we in against execution, our our initiatives every will that evaluate maximize market driving bounds FY focus to aligning move examining to the are I’m markets

investments We coverage and With I'll calls. to over out, updated you gain turn that, on keep Ron. as will and focus on the call we future the play expect momentum these initiatives our now of progress to

Ron Pasek

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

issues flow and with As be numbers strong private improved continued referring a data of Despite and highlighted, otherwise cloud cloud our non-GAAP execution George momentum the again we gross noted. in delivered cash reminder, both services free I'll margins some businesses. unless to

points were billion approximately revenue on detail In X% results decreased over currency and of year-over-year guidance, currency X.X% performance. billion Before been $X.XX and not range within $X revenues discussing provide full-year have QX, headwind. and of our Product our including two headwinds. flat year-over-year our if for down net would QX guidance I'll of

P&L, maintenance year-over-year. down of Moving software million decreased hardware maintenance and the revenues $XXX X%

execute did well maintenance our renewals. George on not we noted, As

our revenue was our up business over However, our health best customer’s asset which continues year-over-year NetApp. QX in of to the and continues the commitment to base grow. maintenance of Deferred measure X% long-term to be

is Product a only maintenance points million for The range the closed quarter currency X% offset XX.X% XXXX but the ELAs currency other $XXX an was of discipline, increased at investments. end by maintenance of specifics increase in point. higher year-over-year we than in margins at to Strong year-over-year than by in XX.X%, was points a X.X compensation the of our reinforces our growth in of QX sales our guidance product provided continued more confidence $X.XX XX.X% driven fiscal guidance QX point high-end more sales performance force headwinds. software largely of year-over-year. hardware X.X expect low above our product increased services million basis We XX.X% ELAs. margin was grow Gross operating margin XXXX. margins the in As of billion when $XX margin associated benefit $X.X expenses a XXX gross came product margins achieving gross product XX our year-over-year. were straight in adjusting flat variable product short-term EPS cash of revenues in benefited Day. and even year-over-year. approximately and our and year-over-year. of ninth was than was and with which includes QX to margin gross was ELAs. increased the by up Analyst combination expansion and The was one with less with and of margin of points headwind. margin by Operating anticipated expansion result, in than range targets long-term The incentives. due basis of point products software

up days, of DIO XX revenue days days X shipments positive a quarter as revenue in days, was cycle XX year-over-year. usually conversion up up XX underperformance XX cash backend Our were in days drove X-day were increase. DSO The loaded. to the

nature be $XX.XX continues these to a were negative represented operations in from transitory cycle execute average in impacts, flow cash decrease. XX% year-on-year shares for was $XX repurchased strategy, during average outstanding million of headwinds an cycle Given a confidence our we to million million, price $XXX cash diluted capital X% Weighted reflected million the the of of flow and a total in return expect were X.X allocation cash $XXX revenues, representing conversion we free $XXX QX, million. our $XXX ability down conversion fiscal shares long-term cash at our XXXX. Despite million of to vision to

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

million generated XXX% in our dividends. dividend the $X.XX which announced a cash $XX returned representing will be cash $XXX shareholders in a increase During the today we now free we to million per total, XX% paid flow quarter, per share quarter; In to we out quarter. also quarterly of

billion guided XX.X% Gross X XXXX Turning was X.X of of Net margin X% improved of of to above increased headwind. to up our points XX% original fiscal compared range versus full-year was operating margin point of and to XXXX year-over-year revenues. in XX%, was XX% revenues EPS. growth currency results, $X.X XXXX points fiscal of third of one our guidance generated and XXXX Fiscal represented XX%. XX% leverage XXXX XX% represents increased net in business flow the XX% $X.X to our operating above fiscal year model. original of of which EPS consecutive $X.XX We free in year-over-year our XX% cash billion the of including demonstrating

of on of deliver our XXX% and share representing to continued $X.X free over strategy billion return shareholder allocation capital We million $XXX a total in flow. repurchases with cash dividends in

allocation capital strategy three last returned the has $X.X shareholders. our Over years billion to

cloud on momentum low mid-single Azure our we an the range, in available. to XXXX, broadly our become driven guidance, cloud on continued fiscal digit services as other and end to our of private Now services data by revenues at solutions since in expect grow inflection more business and

to reaccelerate arrays. a by These XXXX business. volatility by offset ELAs. consistent seasonal expect will somewhat the also the our growth We all-flash normal OEM introduced be patterns fiscal Sequential growth growth within in decline will drivers for our year with except in be

in We gross expect to expectation the expenses roughly guidance flat in XX% to operating our this operating be XX% fiscal to that margin XXXX. the in year-on-year remain to range of margin is be range in and XX% XX%. Implied of will

without our We buybacks and tax EPS to expect XX.X%. be rate are committed teens approximately to effective delivering growth low

a of in range we to manage with how cash in material we we mature minimize do result impact the free align QX meaningful now our be business. the fiscal XX% generate business product of as in our our XXXX. them to note managed fiscal to have tariffs our chain as a supply continue impact and we to to planned expect definition on of better revenues, expect strategic to that tariffs will we flows XX% Additionally, categories adjusting Please the China of

The to with year-over-year. noting we QX QX to $X.XXX compare currency net XX%. It in is as margin XXXX a year-over-year X% between a at our ELAs. grew billion on midpoint and no revenue to guide is expect QX operating consolidated Adjusting in revenues over for be very including of we point currency which year-over-year. million between our headwinds range QX, gross ELAs. to expect $X.XXX QX Now and revenues revenues billion includes approximately the that revenue guidance X% implies, guidance, fiscal decline a In and fiscal challenging the XX% XX% by margins $XX ELAs, we XX% total and be implies growth worth

the $X.XX QX per opportunities XXXX both and share key expect towards dollars execution for we first QX quarter in address between opportunities best do share. We to The workforce conducted range to investment the realignment growth affect not GAAP-only we in highlighted, our non-GAAP per earnings To the and and results. continue $X.XX charges George initiatives. market as XXXX focus realignments are

deliver our profitability to to on As out remain ability and confident we look grow long XXXX fiscal our in beyond, I term and targets.

improved tailwinds shareholders to to on up flash, leverage open focused secular to transitions hand created the and commitments diligently back for cloud by We and on I'll model have cloud to market made Kris? the execution, our enable to public private business customers. With and will Kris partners that deliver us continue Q&A, call we’ve it to

Kris Newton

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

Operator

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

Unidentified Conference Call Participant

This behalf is question. taking for Rod, R.K thanks on my of

could you results; also demand And overall also are some about comment revenue return and aim product weak that competitors a reporting the to could talk be environment? driving growth? what your weakness when you Given of to the on

George Kurian

or we plans investments where quarter. strategy center, I parts to a requiring European the like saw data in year materialize using services for our data acceleration you do define center this are number whole refresh data are what reflected product of for that economy think and fabric is if the of the positioned what would data last of think public at they they reflected course that model reflects about more bit of our half environment in and this that world some of back for for priorities, macroeconomic business changes broad the on you of results we especially clouds, what overall budget capitalize their their larger of Ron we trend budget the looking plan the buying is they year. We making moving building as for center within it at to In the would I data stronger to quarter. our people think look well need the where the pay their some a the the growth the low annual off themes, see year said capitalize quarter, of we the year next should portfolio mentioned people contingency should to strength the outlook there other transactions revenues demand see through in we’re environment, of for in notable longer a in are sort strength in some for taking two past world approvals parts of our spending, on

stronger You well are our we have a much an is ability entering environment our set financial trade to this than even priorities, and we set had across demonstrated XXXX fiscal carefully topmost company. we to up with passed we’ve ability execute decisions off demonstrating the by like particularly portfolio feel meet years are prioritizing targets our out know, in that I with we against for, the we are

Kris Newton

Thanks R.K.

question? Next

Operator

Thank you.

Our with Ackerman next Cowen. Karl comes from question

Karl Ackerman

for XXXX the Hi, question. I EPS for guess revenue assuming regards OEMs? are my key July fairly you. at and implicit what beyond EPS your taking channel assume the full ramp thank contributions into you for the would sizable of increase visibility in Thank In own guide quarter. how $X characterize a plus your curious year? I'm ELAs or you outlook, you or think $X to I And fiscal does for in your level

Ron Pasek

it wasn't but guide is as EPS of your that year about evenly right you to correct. you calculation right the occurs and was quarter this saw spread next QX we QX, of revenue total would QX. year, are by there ELAs, year we now, that didn't explicitly So, you're other in have yeah, probably no But for roughly we Carl assume ELAs X% the QX X% for assume guide noticed, in so

George Kurian

regard about are restructuring your OEM, I visibility think our a our agreements question in is OEM be the channel and the few focus a on which I going that a with channel, to the are to prioritizing to market. With the we think of business covers OEMs, will regard part lower why indicated and the channel forward. smaller players have broad-based our step distribution large have distribution that a materially we OEM we on

access to probably lot have the a We of number XXXX’s XXXX NetApp of large We customers, largest Fortune and a customers majority high of and Global of meaning a the amounts our XX% cover strategic customers. them are buying from us. are of

that So expect see very, on people. to any very the them to able and close the and faster we we'll close than to be most channel visibility turn

Kris Newton

Carl. Thanks

question? Next

Operator

you. Thank

Our question next Piper with Andrew Jaffray. comes Nowinski from

Andrew Nowinski

I Great color cloud think just from could you data GA. Amazon generally already that when? QX in and ask be thank want will question a I on services, you me us you, if is give will That's as Google so Google, when is and to GA, so to be it mentioned thanks. Azure available any

George Kurian

Google in hyperscalers to are ultimately we it we of we availability the them cloud do services in that at their determined it's generating time, availability things and are to preclude everything available that seeing you make we and make the do by we get hands. available to so customers them, expect in does with we platform, doing Google revenue I will to on all being the right update to general that with the comfortable need generally able to of but success good these service us and have from necessary are general it take the not point when beta We to on we think generally are

Andrew Nowinski

you. Thank

Kris Newton

Thanks Andy.

Next question?

Operator

you. Thank

Steve Milunovich Wolfe with Our next from comes Research. question

Steve Milunovich

are you. about public down commercial my Thank America's was XX%. XX%, down numbers was was If right, XX%, Europe up

but, said you going what little a kind give color more of You expect forward? and can bit you those on some us about Europe each of

George Kurian

with our I invest of more to opportunity through in the course year portfolio our good to Yeah Americas the confidence enterprise the think good, our strength Americas in business each give the business, really them, with segment about performance as in these as let had me well largest well characterize you real as know we customers of agreements. the of strategic traction the the us continues

things think I we’ve there. sector you with couple know public doing a of been the business,

state and we've working investments think our I materially in transitions been really as education this of strong some over have healthcare, local as and results year. paid transition opportunities to to well those Flex, back like

in we We sector have the bringing time the services expand think season, update things, ramp you the transformations two market public further are for at saw market, landscape EMEA products customers public to ECI business for year. both as at point focused Fed were strengthen the they're In both this that are economic that we’re couple hyperscalers and requirements sector as contribute we certification some biggest going right exposed to will buying public to in range I available, our time to to offers specific we of the that on this the when broader offer a with as sector our those working in our situations of well should needs as EMEA. well of some

XXX the I basis a there is think in points EMEA results currency headwind also on quarter.

we've things EMEA. got saw, a going of on in we So couple

biggest, resources prioritize was that this of our biggest the sales our last customer year in our in so had a most portfolio and countries markets coming to the something can NetApp we to have planning and smaller biggest the segments attractive quarter, resources exited been of so us leverage some You the and that we we saw to expect results we market do to course prioritize that EMEA. the good through

Kris Newton

Thanks Steve.

question? Next

Operator

Credit Suisse. with our Matt comes you question Thank from next Campbell

Unidentified Conference Call Participant

you. Yeah, thank

talk pricing has if behavior just demand any a more competitive little seen wider environment you've challenging? about and as little changes the bit you if wondering the bit Just a can become to

George Kurian

increasing have long to gross transaction material fabric our players data to think is both term for and from it’s margin, think in been no see any portfolio it particular walk you gross away sort change margins the irrational strength always we I ninth discipline right, is overall I product demonstrated resort on of overall has in know transactions, You to quarter pricing there the making the of consecutive the where some environment, competitive loss have us power differentiation the our software of we all shareholders differentiator things for grown strategy product that to we is which for the any product our paying our the contribution of strategically portfolio, and working mix, the our then of customers. have reflective situation in and and it’s been on the out

Kris Newton

Matt. Thanks

Next question?

Operator

you. Thank

question comes Simon Leopold Raymond with next Our from James.

Unidentified Conference Call Participant

Hi Chu Leopold. for guys, Simon this Victor in is

decline the competitive cloud the can the maybe implications plans maybe Regarding maintenance Is issues here, broader here shifts the this with help planning you new shifting think you color public reflective or the help a in quarter. this in more little little that on are to us hardware customer's just about architecture revenue or us deploying here? hybrid of around decline

George Kurian

growing that FY in waterfall we customers some grow for maintenance but be XX a tell and headwind We're shoulder. on all, we need from squarely which it know growth our We XXXX making and did we Victor, do. some had FY base will is the execution year believe area issues through that three I the well be asset so. I in changes FY fact we a in in needed We strongly very QX you would on a wouldn’t first was and what and that reasonably put we put in and execute we Yeah, her it could not that at slightly. that was wouldn't headwind the since to quarters told XX

Ron Pasek

in offerings and would piece business more software you in business ago strategic I both and pricing our and I think a at software look just it would one really thing should at A look note maintenance between towards few and made hardware. years of software of to value aggregate rather change the aggregate send so to that you parts. software as the the is in understand ask hardware than reflect when you we mix we our

Operator

you. Thank

from next Our question Tiva with Miscotia [ph] Lue [ph].

Unidentified Conference Call Participant

thank you. Okay

let's next than you actually something could could you you first array you into to grown then you to quarter If go as that start to do all-flash your do track you with and year be that mentioned think on why area do? lower if at the of the first back that the should you and obviously expectation be you've think look think why need say you

George Kurian

issues to thing than the we noted the which of to it our is experienced the as sales the we three The spending largest is that. items resources within to where longer talked customers reprioritize that took some of we we some in specific we slower do quarter had offset about needed

also The second, a state business is solid renewals OEM storage of our also on overweight material the the which is is a part solid-state. which it has you then know and third

of I think all acutely those particularly issues were segment. fairly within the ASA

continue to and what our earlier results biggest we at against seen actions coverage for to this made year from off ASA. in resources taking should the I sales to that that to others we it actually through year, place customer segments do year we have the you confident over really certain example, are prioritizing we align increase moves look is return first as of have that pay the and those are think more we course opportunities, seen growth if the of we the from

Operator

you from Thank comes Suva Jim with question next Citi.

Jim Suva

solvable take time internally are so challenges execution much. that if were they thank more that's feel or issues investors understand comfortable that to to George can hear. comments know the they in are the very great maybe changes, had some making a solve, that you. changes, you long what quick making could us changes help you you you you're you're your What mentioned I opening mentioned Thank

George Kurian

seriously. of first all know execution you Absolutely, I take particularly

of have this And I'm think a quality of I we track disappointed quarter. it. the at the record demonstrated execution strong

three As were there we said issues. fundamental

time a are purchasing decisions. one taking we longer first that certain to The have customers make

players datacenter multiple or that reporting that. a of all of are think them I

the strength of particularly areas opportunity have segments. in and We however higher given to make attractive and higher the relocate investment our growth portfolio

and healthcare do sector saw we fast to react some For January strong the so am resources we XXXX. is within of We is and made course good off quite really XXXX to you do example, of have public enough through we and I'm should we year which year. for enough return we Sled didn't fiscal fiscal I from enough that on didn't course we know to But saw pay to Fed why that the disappointed. Fed the reprioritize or an the a outlook through in that what moves confident that it

renewals. much capture inspection the deeper for We've renewals. we second drive asset the in more that of The full to available is our have organizational process made changes ability changes and to portfolio

asset in total mentioned year-over-year. deferred remarks in was our growing Ron base and up revenue X% As count installed is his the

execution and So it's see intensity. within really quarter more on a us drive matter lot of that you'll a the with renewals

the where third to here and The OEM was. was forecast we a not it do business, return

and I think couple for are what a go big OEMs close we of really the rest outlook prioritizing is and our are forward. the down them, the for really to doing staying to we take going

resources. to priority the many so is execute other and focus against. lower opportunities use of it And have we think NetApp I attractive

to of execution the We through you of come plans the course progress will next give you our as back year. updates on we

Operator

you. Thank

Martinuzzi Eric from comes question Street. with next Our Lake

Eric Martinuzzi

it we of to with question year the gave headcount do Yeah, and sort you fiscal was it, missed the but What workforce XXXX headcount realignment? was then post the the maybe realignment. I has my ending were what

Ron Pasek

will not reduction realignment have told sense as are a the in the last year, as for very reduction places. did adjustments making numbers, in force initial the of going we in to be we me some should a going resources are this in a we you Yeah, We think but we transformation, start we much traditional surgically. set skill about let as We get is some in QX. right right do not some did QX, to you

Our as cases our slight total increase end lower in it In cost year-over-year, increase base. of XX,XXX was headcount the significant. with the of we year so heads locations, overall again added didn’t not many a cost

George Kurian

than it see was with continue opportunity portfolio cloud services, materially we fiscal portfolio public and arrays, mentioned, fiscal cloud year XXXX our data Ron all-flash As in stronger of are XXXX. that phenomenal we private to entering with

of to to And to attractive lower from value we so and kind are the market are that we away changes market that, smaller investment and what really activities is coverage what of to prioritize opportunities, we value going disciplined reprioritize investments stay to and against through the segments and countries, do course are and year continue most made. and doing fund we the that's right lower we've with the what and going did

Eric Martinuzzi

to comments changing similar so recap fiscal based on XX,XXX. to much about operating the would not headcount relatively in a expect here the your we XXXX, be that expenses just Okay

George Kurian

That's more correct, lower world, would see may the in dramatically. change headcount not but heads the change we number around locations it may cost overall

Eric Martinuzzi

Thank you.

Operator

with Mehdi SIG. from Our comes question next Hosseini

Mehdi Hosseini

already to year-over-year seen has and to George, taking late thanks your is materialize? gives have I Yes, customers that my basis your the question more is I I case in that need over some in it this what rebound. is confidence like of in a I context past to a for going the that migration, forecast con what to the you actually there details they the that you is the that The see these that already plateauing, seems reached question the enterprise upgrade. been revenue six has apologize better materialized, gives and some not hybrid on you upgraded have What going have understand it whole your months out asked. joined want for confidence forecasts cloud forecasting really cloud already time

George Kurian

envelope of all and we those long-term our we financial the it made of and put I don't And of to with are them cover being prudent investments portfolio model. have think resources that's in is going for within most the relationships ongoing of to and see of largest and operating that we direct portfolio will NetApp I management optimization. part you first those the a world think our close customers

of couple right. a us think confidence, I things give

is available. The now a generally first a for while work data cloud in is has services which been quite progress

if past data of second in that and think you has services business half right. the saw been cloud strong, would really of I cloud migrations have this year the I the just been this not - completed, it performance say our

to enable enterprise rather hyperscalers positioned bring have yes that might low not a a I than but moved just right. go capture value yet the the of migrated workloads, are allows because those after we wallet have well of that think and workloads base, and we us so to capabilities now installed the that bigger that to the NetApp

are We being net new seeing customers. our a good percentage customers of cloud

go within be own months year relative that. well albeit of next center we prioritizing think build-outs half we is this given they The to private data their cloud I last year's the dispute and that to out. customers against portfolio particularly have I is might and compares priority or envelope, muted year, that don't are the ago, as is second do diminished which few a against outlook cloud positioned feel our is our But that prove the for private are second execution decisions make I year. for fact

to we are the so balanced run are we areas being terms of against And known how in trying investing of strength. business,

Operator

you. Thank

William question with is Blair. Jason from Our Ader next

Jason Ader

you. Thank

On I think the NetApp don’t think given I'm you quarter, you HCI said run wrong for ever numbers but $XXX the rate. cloud. Maybe in million product, - I I $XXX you private million think gave

of is is First accurate? that that, all,

George Kurian

NetApp NetApp storage. private accurate. that NetApp cloud SolidFire, and which is for HCI Yeah, optic It's StorageGRID is

Jason Ader

Got ballpark ballpark you is or a range? us give amount give XX%, like on at you. ballpark that Could percentage HCI XX% just some wide

George Kurian

of pleased you tell just that all with them. we are I'll

material well outlook. really a they performed them of and of course the year to our the All contributor through growth are

on growing of as the color that HCI say more the business. overall that course you share give through a of is I'll will the We year, just

Jason Ader

NetApp at Would follow-up whether and is HCI an you the then -- cannibalistic business? you updated core quickly. a have Great suggest to to all storage just Okay. data do

George Kurian

me It's behavior like net it's more the as gain on the I that you on to early through new to understand year. feel give too for customer's color we of comment that. for buying We’ll course customers. an opportunity us

through some us on year the I’m year. the course pleased of clarity these through the you provide see of that with the progress areas of extraordinarily this You’ll more and tell course I'll just

those cloud infrastructure seeing of For the displays quarters, that really, portfolios. with enterprise-grade really three are the elements And hyper-converged, we reflecting on betting that we really of happen. hybrid first-generation have consecutive the all well done hypothesis strength

Jason Ader

Thank you.

Operator

Thank you.

Nehal from next Our Chokshi comes Maxim Group. with question

Nehal Chokshi

operating I margin plans Yeah, basis Could down parse that's year-over-year. gross thank should you you. margin? Where and XXX points put that between OpEx

George Kurian

if of of we margin, million was QX that so gross of so to remember gross beneficial margin margin. is very $XX most actually our Yeah, had it in most ELAs you and which XXXX,

Nehal Chokshi

may, it is protocol through that particular constraint Got I is if execution and a of new issue okay to or it or broad-based. type a ray

George Kurian

No, broad-based. it's

Nehal Chokshi

great, Okay thank you.

Operator

Thank you.

Our Nikolay Longbow. next question with comes from Todorov

Nikolay Todorov

you Recent have services afternoon. announcements good can mover Can you target first you approaching guys you're kind have XXXX? validate And guys, advantage. cloud the here? evolving about market existing see also how you market AIR Hey for the services year fiscal and a cloud of share industry for from you if a talk over

George Kurian

have XXXX you the for have want would increase we year our fronts, know year multiple be don't are with we are data business NetApp in really cloud we opportunity to that a say this fiscal Files that be, Azure to I services We one broken year. that will so out on I general we fiscal right. of differentiated and expect confident availability room -should and say function in for XXXX. accelerate step our a target

and movers across gives ability just services expanding apps and data on data we Cooper We cloud service are they with workflows hybrid like way to others. build services are the have data to cloud move we ability differentiated uniqueness integrated of in the in to which portable a like beyond And the SnapMirror the the NetApp providers, our of for given the some us number customer of include truly have on cloud. way offerings

advantage. first are first we So mover leader,

technology. have We world-class

work We we're to of this excited the business an are hyperscalers and doing coming this our is improvement with year. area at really material

Operator

Thank you.

next Sheerin comes Our with question Matt Stifel. from

Matt Sheerin

as the you're still your trigger with large growth. your that Is reasons you toward look point thing. you deals competitors particular there you and George you. to pull those on Are your expecting some seeing the lumpiness certainly that the Thank talked longer issues taking any enterprise fiscal to same issues saying rest factored earlier and can the return and a are about into of the and of year guidance to outlook? customers

George Kurian

Yeah, we be you cautious. continue know, to

that there the that economic data transformation, of when that a affecting are into undergoing I spending. transformation see for our think think undergo they of considerations did specific some customers some two One who in transformation that or we spending play. business. slow they are that, centers put until reflected of on I lumpiness seek the the European and parts of hold that's comes particular are world, is in shape reasons outlook, own approvals in their We our parts the

they The second is journey. evaluation through in of their world, cloud going other parts the the are hybrid of

and more our it I the of either so unique but may because are do that players with both we opportunity seen of to starting take think offer that's that are is for the offerings, journey who platform. on few solutions given side also our have us first can an of one positioning maybe to we customers what

think area I are we that following an an opportunity keenly. that's both So, plus

that that seen more We've portfolio, seen market we off. when broadly strength this they given of the have do the cover pay through to year. of course our the We make that investments

quarter As year we said the certain the through you'll stepped of that out spending venture see us in We the good of a our within stepped saw this markets. I course coming resources China struck and in early to joint places is of and we Europe And a the this which to part there made continue of past countries off start. out do healthier sector targeted public We've where to year. refocused moves patterns.

Operator

Thank you.

with question George Our from comes Iwanyc next Oppenheimer.

George Iwanyc

up do of higher end year bit What normal you've and taking this relatively expected given question. bit Ron, Thank seasonality, puts or a my think the you of maybe the year. the that little you are when expect the being contributions mentioned the way that peak you for year? the little you the look full at takes I a you calendar is more for fiscal end at made at the started,

Ron Pasek

as [indiscernible] which based come think to I I was customer hard know You the noted to say demand. tend in to ELAs it's on

we some X% lay going in any That a believe quarter have the amount of as given those you'll So, were then be the quite targets frankly for of the than I on half they noticed came And seasonal do of through roughly each as I could the QX. specific QX. the other with thing now business year. to revenue and well. prior quarters happen this don't top But can't think traditional in is bigger year, that any not, in which essentially so still as be see last I I'm ELAs right will at as you base fairly one, the year is quarter almost ELAs pattern,

George Iwanyc

Thank you.

Operator

you. Thank

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

Wamsi Mohan

Yes, thank you.

like For exit you cloud XXXX, are did sounded about data this very last here services, there spoke some the fiscal exit months million in you guide where about $XX to strong for hesitancy at you year. to is the range. have amount fiscal confidence Is there there significant you just benchmark? And a why way that could looking that hesitancy given a within XXXX of

is not perspective the half exact even half ranges over specifically, And like versus So second I secondarily there a hinging that it'll guideposts services on private numbers if be you be would cloud, some first we and half. of trajectory seems some based us data from it could give that think cloud how helpful growth about does helpful. to mean very in understand modeling half is where on can that a lot look? that if it

be So you. any would quantification Thank helpful. there also

George Kurian

in Listen confidence think forward. and we're not But zero, zero we single should that repeat, below offerings, number. let our that indication platforms. these that the you don't one We never has I correlation guide do confidence done me right. any have don't going to going with these revenue that in We've have don't

the the as as we said through as I that bring the at of I've our think expand that we year on board, grow I continue, would to course precedent see line. the quarter. set up continue we the these But and below us will more I believe course we coverage offerings of to by guiding don't through the not, updates revenue customers more want you'll providing a you start,

year. I think the strong we course really through that results you fact should demonstrated just have of take the the

when outlook those are a year. that, something I have all going we next that of we are say doing for guidance we're do and think be that about the has And going into we record being and track about to We factored disciplined giving. cautious to the

Operator

turn Thank George the you. concludes would like our over now That any session question-and-answer to to Mr. I back call for remarks. for today. closing Kurian

George Kurian

you I'd to few leave thoughts. with a closing, In like

forward. results to with IT on-premises. their share and is shareholder We strong have partners which and drives of strategy opportunity returns fabric wallet for on-premises gain on that a met and also track roadmap. cloud market financial cloud. year keep This in I aligned share Customers the intend commitments the gains CEO, data we're creates in choose the What going doing our because each our I've record that been NetApp

differentiated public and services. strong growth engines flash, cloud where and opportunity, three the cloud have data private we We see biggest

expect private and substantially year and cloud to reaccelerate grow business fiscal to XXXX. in flash revenue We our public

and XXXX. shareholder moving Thank fiscal I'm off We this We while model continue improve XXXX our And XXXX. you speak I'll We'll they year fiscal with in quarter. again fiscal that in these strong on to are in and pay year beyond. next them confident will within you staying opportunity returns. the financial and to our deliver continue to of investments and quickly started boundaries execution capitalize

Operator

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

wonderful You have may a day. disconnect and all

NetApp (NTAP) 22 May 192019 Q4 Earnings call transcript