NTAP - Earnings call transcript Q2 2020

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Operator

Good day, ladies and gentlemen and welcome to the NetApp, Second Quarter of Fiscal Year 2020 Conference Call. My name is Andrew and I will be your conference call coordinator for today. 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. Ms. proceed, Please

Newton.

Kris Newton

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

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

improve execution, expectations increasing and to Our of future our expand and and and revenue, total risk uncertainty. all without share, returns shareholder gain our regarding profitability, expenses, which capacity growth involve reaccelerate ability sales operating

disclaim ability materially conditions, strategy. execution available our capital spending accounts, We and differ for statements of on acquire a our forward-looking environment and expand variety the the IT accounts, our including continue update obligation fabric market and total any our of our capitalize our and new consistency in may strategy, allocation projections. improve Actual existing results reasons data to sales to expand market, capital macroeconomic

Analysis XXXX and the and the to risk our Form Please with Form from XX-K time-to-time on most our X-K. and fiscal sections specifically available we results on for of year filed operations refer the Web Discussion recent condition documents Management's site, also of factor SEC financial our including and Current Reports

presented measures estimates otherwise unless non-GAAP all indicated. the be call, on posted are non-GAAP will our GAAP of the to financial Web During Reconciliations site.

over now to turn George. I'll the call

George Kurian

Kris. joining us. Good you afternoon for Thanks thank and

all and unpredictability of potential innovation. operating our economic fundamentals business strong. of the the guidance results and FY'XX our the purchasing We margin solidly in the the gross uncertainty ranges. our our reflect behavior, macro Despite QX delivered are continuing Our above business ongoing margin, for enterprise model and EPS of value strength

share. and of we fabric business our are multicloud NetApp both our reality I've is experience points the and announced them new with join felt data by real to doubled. we and simplifying with the complexity app. and XX% customers had our number saw IT. The I'm the from to has with Hybrid number helping level of solution reaching sure and the to power net Microsoft differentiate experience us we buying those for to the are and underscore was their responsibilities customers, many challenges they the multicloud customers customer's We attendance for partners I how At clear as prospects grapple market just strategy great from data Ignite for centers and this it with our two own hybrid was of conversations the pain come highlight customers the we tangible Insight in address events, with Insight the I success witnessed conference, year's fabric that cloud multicloud building help user solving that enthusiasm Keystone. portfolio revolutionizing customers their are last these was succeed. Insight, customers the that executive of and an attendees, able increase excitement. in the of of Insight. were overall and first customer half you who innovation of strategy, NetApp customer this IT year environment up almost of NetApp and hybrid customer At expand

transform ease public a and cloud IT to center Keystone everywhere. to cloud the NetApp flexibility experience data like operate from consistent customers creates with helping

biggest through who the can manage a world's want without truly customers public cloud service NetApp they having consume for First, clouds. technology scaling as to elastic infrastructure,

optimize our like we've own want offer ownership and to NetApp unique experience of data our consistent grow data cloud a technology capabilities NetApp a own compliments customers to for range and want Keystone and with their experience of full simplified Second, fabric. with cloud NetApp. Customers ability customers customer for needed their customers offer this and a the to who across how operate in radically because choose build like on-premises. cloud partners experience public finally introduced for centers, buy, on-premises, services a we subscription and who

me be Let clear.

giving approach the Our increasing gives both workloads deployments. access us to makes relevance for on-premises more and as to and NetApp small. new opportunity cloud cloud companies the is both large well as and buyers of attractive to us us in Cloud public

services, heartened generated economic last weakness. the macro by QX. continued hybrid call quarter's persisted indicators a I'm headwinds While identified enthusiasm our by show we Both and data the cloud through spending enterprise

no we will are improve, While assuming these we when predict the external foreseeable business in future. our planning change cannot conditions for factors

of market. hybrid our address pleased business ability margins customers discipline deliver to discipline our is to customers. value remain gross us real capture To buyers able our that environment. that despite product soft to pathways, in new pricing relevance the return enables sales happening with new in tough confident because growth this our point, workloads, through demonstrate to our and environment. maintain This we and I'm expand existing Regardless environment, broader multicloud can were what I ability macro to with value and we reach that of the new increases strategic to presence the

primary to increasing plan success, our approximately you sales adding laid quarter that of operating for capitalize replicate without by resources for the QX the our we the To includes better on total company. out a proven end expenses FY'XX sales of XXX capacity by opportunity areas and last

They of our acquire funding new of with cloud like new primarily end to sources new existing deliver America's well well be buyers As the accounts. track and geography. of against architects on sales as as The engage to accounts we are capabilities goal. deployed this will bring QX, in headcount

three 'XX. of majority a capacity we As productivity benefit reminder, next to full the up and the be to additional realized resources fiscal to vast bring quarters roughly take expected of to in this will four year these year

and the cloud. public transitions key market to IT on of attack on-premises this private to traditional our flash, sharpening also are to We cloud architectures

our net of rate of inclusive all-flash FAS, QX $X.X up to products billion. SolidFire all-flash and run array was and services revenue EF business an XX% sequentially In annualized

leading and the the industry today. its ranking and execute took the the of published in Gartner We the for complete most guaranteed completeness have Magic vision. quarter, storage cloud integration ability for Quadrant In and the leader's storage highest to NetApp the in market highest our efficiency, primary performance both quadrant for our

private to solution. Moving our cloud

building to economics for data and NetApp public centers. customers cloud StorageGRID deployments enabling and SolidFire, and the into HCI blocks like bring cloud experience are private their

net chained the private Our cloud inclusive up XX% annualized and revenue rate of over year-over-year. quarter business and services, almost million a in run products second of $XXX

cloud month cloud recurring QX, to Based data last the Now up services. our data on million increased onto annualized XXX% year-over-year. services of $XX revenue approximately for

of customers, and healthy a cloud and workload's at reach customers in expect new buyers, to see us services managed to to NetApp our new customers. cloud that acquire enable our to continue We expand continue new services mix existing will the

consistent files. to from on-premises cloud SAP the the and choice generally we're At broad to QX Ignite, widest Azure is experience great the support first to Microsoft protocols I full Azure class they of procurement customers availability progress. has many that who and spoke quarter available within workloads like that a move files get enterprise Oracle and planning Azure range with file Customers Azure to NetApp love making billing. and of been NetApp performance are into

one hours. customers some To in reduced cloud flexibility, at we run energy cases to a of is global example Azure NetApp collaboration and in into file from A Ignite quote migrating experience workloads cloud. company The that's global with NetApp about days that's what for the scalability, are from were access files. the just and and they times simulation improvements about months excitement customer high-performance achieved their presented performance 'Azure we're outstanding, hearing doing the the lifesaver'

our Our their our available in traditional data volume from part access to we services. addressable cloud a not non-enterprise new leading we with world's in cloud are of reach enterprises gives economically infrastructure, customers all new three market are the solutions strategic hyperscalers small centers do to opportunities only where services buying and largest expanding us where

enormous integration operating multicloud to the public new new competitive in deep growing with number a give world. us and a We're an week of work leading adding We're we're hybrid deliver use and new of hybrid to of the a years delivering amount clouds customers, many hybrid advantage We're services. and multicloud. the world's Our adding sustainable best adding customers cases cloud data operate cloud to month each day. each in planning each regions value

strategy with fabric customers of As data choosing cloud relationship the providers. unique NetApp I've and our said partners our before, and are because hyperscale

customer experience services Net hybrid for the workloads customers to access help our heretofore multicloud succeed on-premises They has customers improve only work Our data Only solutions. cloud portfolio inaccessible give that innovation strategy, and us IT. app with our competitive position not traditional opportunities. in to and

delivering in strategy. made our We've progress a on data of fabric lot

Our highly product differentiated margin. on-premises solutions are gross strong evidenced a as by

are now We three the leading in available clouds.

delivered have we resonates the inside work our Ignite, drive to to story to days both growth. more in with the sales needed in execution do customers, of but multicloud customer improving technology and have our we it am is to experience confident of saw our ability as because and for generation are resources the hybrid adding success early and new the demand We our motion, and to I we in this, capabilities it return communicate scope full

and while return on for investing multicloud. long-term to unique capitalizing help of navigate ability shareholders We business our customers of will the continue the capital to the to hybrid the complexities health

has share at our organization. of for Worldwide the Operations Field Executive I of to year. Vice left the news Customer intent fiscal Before retire want to his and me know closing, President about Richard, some Henri end

the and the much data in for Over as modernize will technology at while force strategy and of new pivoted NetApp, and search the strength transition centers to we to the continuing sales past the lead has of his the advantage take to and and of improving leadership done years replacement our our execution. seamless participate our market. transform a Henri our growth X.X fabric field areas buying in Henri help to

to President James came acquisition organization. time, since leading the in the to announce the same been demand SolidFire James to marketing and NetApp Marketing Vice Chief and I'm strategy he promotion in the has of was where Officer. and Whitemore At CMO digital excited generation Senior our

already James the has impact a NetApp. glad and of CMO, made strong him to have as I'm CMO acting As

Ron our to and details it for Ron? that, turn over on With expectations. quarter the more I'll

Ron Pasek

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

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

face in Despite and the operating our confident QX, strong result a reaccelerate we environment. of product our from strategy margins leverage highlighted, demand are macro the growth George As uncertainty, we in and to of continued in the caution leadership forward. delivered as going customers

allocation to cash buybacks healthy shareholders of capital strategy dividends. also committed our our returning share to and remain quarterly We through

QX our including headwind. of In on Before detail quarter compared were X down of in QX point net billion performance. ELA XX% revenues revenue discussing zero I'll had to year-over-year, our guidance, ELA provide further $X.XXX the product currency million roughly revenue down been revenue 'XX, X% of in revenues approximately approximately would've XX% XX QX total year-over-year. decreased ELAs, have of revenue QX $XXX Adjusting XX%. product approximately down for been would million and We

P&L, of high-end X.X XX.X% and X.X of was hardware of by increased million improvement increase the Day. includes flat which product revenue range. XX% of was The margin in revenue down year-over-year currency long-term all-flash maintenance a mix guidance outlined our QX. target an X% and Analyst points reductions year-over-year and force above Deferred sales is the continued $XXX our our software nearly discipline margin above at Moving headwinds. increase year-over-year. and of in Product maintenance gross driven XX.X%, was was of cost and Gross

XXth a year-over-year maintenance range. was hardware of driven operating software product margin quarter, of straight for we margin, down when basis $XXX the improvements. compensation. adjusting combination solidly Operating XX% continued year-over-year and by QX were of the increased benefit over The other year-over-year driven XXX by productivity points variable reduction gross in services, X% and ELAs. QX margins high-end was our XX.X% of by billion expenses the primarily guidance increased above

the high-end of the X% headwinds, revenue the guidance was demonstrating and a operating model. of business our EPS leverage year-over-year in our up $X.XX Despite above

billion with investments. short-term We cash $X in closed QX in

Our days, was mix. days quarter increase up days, cash was negative year-over-year. conversion lesser in due DIO DSO day XX the year-over-year. six extent days, to to of cycle linearity a XX was and up a XX a year-over-year customer nine four days

business. was a The We not a cycle conversion primarily reflect timing and to receivable. Cash million. underlying million, fiscal our while was remain operations metrics a QX flow to throughout negative accounts continued negative The to in change expect $XX cash $XX issues negative cash do flow are from our the XXXX. due negative cashflow timing free were

shift FY'XX. cash Additionally, linearity of in there tax payments is a in the

XX% our the maintaining expectations of range cashflow to in to be We XXXX. of XX% for revenues free fiscal in are

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

During cash we in the out dividends. quarter, we In million in million paid to returned $XXX $XXX the quarter. shareholders total,

be cash $X.XX Our per will dividend fiscal QX share.

onto Now guidance.

for We approximately down to expect X% XXXX fiscal be revenues year-over-year.

represent We to continue revenue. approximately ELAs expect of to X% total

be fiscal For expect XX% XXXX product the due margin to to XX% margin now to of of margin. XXXX, above be to for of Operating guidance XX% range to the in primarily the expected XX% our gross we previous improvement in range XX% to XX% is in fiscal

year-over-year fiscal that is will due operating our XXXX be slightly in compensation. variable down guidance, this Implied in expenses lower to expectation

a be of between X% year-over-year without revenue we X% the updated and of EPS down As benefit the margin guidance, result and to expect buybacks.

to guidance. Now on QX

expect revenues year-over-year, which We X.X currency $X.XX including $X.XX at a between net of billion range QX and midpoint to in decline revenues a billion, X% headwind. implies the

to approximately gross to margin approximately and margin XX%. be For expect XX% be QX, we consolidated operating

quarter earnings the per $X.XX range per $X.XX and expect for to between share share. We

on focused improved are We challenges diligently face. we the and execution addressing

We model to growth our leverage confident, to are and shareholder remain company the committed we will business us returns. deliver enable to long-term returning

back I'll call to Kris? that, the for open to Q&A. With hand Kris it

Kris Newton

Ron. Thanks,

one We we so and be of We call to can will as yourself ask limit now you'd people open Operator? for get peers possible. question, the your many to that Q&A. as respectful

Operator

And Instructions] first Wamsi [Operator of you. comes the line our Thank with of Bank question from America. Mohan

Wamsi Mohan

you. Thank Yes.

the strong, margin seen product of how do mix? as that the margins you Your you about since have product very of been while you XX% mix gross tailwinds And federal year? or commodity is gross a or not driven actually XXXX. back feel much price north you go versus in sustain product maybe that can we of even talk have into margins was Can these expand that half

Ron Pasek

Good Yes, this last higher saw it a question. mixed we quarter of say of all-flash quarter. basis, did Wamsi. On most meaning percent that a was we year-over-year

as keep the through cost fiscal contemplate gross in reduction, well. in also was quarter. just having of you level was that goes the the I increase of of did Some and the in things of That ability that you. ELAs the not the on margin other year to this That of guide. face saw margin against rest total

Wamsi Mohan

seems quarter Okay, a great. ramping you. and CDS be expressed Thanks. not with big some revenue exit that could all you run this faster And X Thank lot fiscal the discussions monthly if I could really quickly Azure you and enthusiasm rate on Insight as where talk this of 'XX. CDS, expect know X night? million that you I with George of sales, you you do exited what So, Can your challenges quarter. and annualized about of quarter about, you despite [indiscernible] exited are last like with in million

George Kurian

guidance give business. on going aren't the CDS to you We

said, expected longer are I the market we've originally to taken to The to general customers. we what technical given think sophistication is availability addressable we offering total than we get there. of as

seeing a footprints demand on lot adding interest customers a are and basis. and We daily customers growing and from of we're

the pathways to to customers. wins to a replicate keep associated across of and all range workloads able the enable to are We market need being that just doing of more necessary to the solution scale to broad we've take work going into got the with and

at execution point. So, we're focused on this

Wamsi Mohan

Thank you.

Kris Newton

All Wamsi. right. Thanks,

question. Next

Operator

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

Rod Hall

just receivable while I and seen, the we've could DSOs, comment highest see for on check if ever wanted far accounts and Ron, Thanks the I models. questions. the our you Yes. in think to the

there I ELA heard was back the more holding So ELAs just, any the you yet, the color but of in then -- are it that? on guide loaded heavily X% no say you're And far. tail quarter, end this so the end

to anything you run confidence have into deals? you in to them Just got all that get help confidence have can that more still guide. are us ELA a would that you've visibility us treadmill why kind So that you having still understand, Thanks. on help just or of say

RonPasek

within the AR, a then linearity bought that of extent it to quarter was and respect in customers with And to lesser saw quarter. two the particularly month. mix the we the last So, the some within of of months

which collected You saw a where sometimes. And of that pretty a course, QX, similar back AR all phenomenon of in we in It QX cashflow. loaded. added end bunch a yielded of happens

reiterate year, mentioned But larger guidance cash XX% respect and XX% payments. make free issue other of well. the tax and Last revenue, cashflow, this the giving when that I let we've we quarter within with full cashflow you as ELAs full I'll can't full each script year for a of up ELAs, a was comment my we flow in did come as contemplate quarter. roughly comment George a free ended percent With of to which we I guide year in comfortable felt to year for cash The those with revenue. easily But to understand that. X%

the earnings making a with the impact huge it extensive We they based of fact importance on understood profit. that of because and did on this essentially sales it's has conversations force, the that parts sure pure

for the further conversation this led quarter was So, the to it second the that and half. continued commitment

George Kurian

know doesn't Rod, upfront. the multiyear strategic them events It's footprint ELA that broader clearly them get that to agreements us enable lot accounts, streamlined. the in get of It would and doing With the more require spend a to us I the things this streamlined to are we more with enable intending thing of enable really is We overall account. some them regard fundamental customer a streamlined ELAs, to to these their purchasing. think make to procurement with amount whole have to

in, who We we're have we're forward. are right? so, accounts And these and We working working into accounts. hard these bring this visibility know to

Rod Hall

you. Thank Okay.

Kris Newton

Rod. Thanks,

Next question.

Operator

next question Karl from line Our with comes Ackermann the Cowen. of

Karl Ackermann

me for question. Thank Hey, good afternoon. ask you letting

December, you if first have outlook That line at for for about two X% the time I averages a about to seems drive in have line Towards of seasonal in drives, will your business launched of decline Ron, to going at range the be hybrid seems hard half are suppliers XXXX mid-range near rate it may sequentially. your improved back you with all-flash employing but Insight. nearline the you December when about same also shipments new to and spoken know, not

I competitive know for your do is a the Thank next he forces So, impeding to better ability or few don't hybrid in too? quarters just conservative bit raise you.

George Kurian

not guiding I'm I not that, question. and We really We're sure revenue. all-flash. total not product So, within specific understand revenue your even

So, array where quite about I I'm feel sure, our you're going hybrid not market. in position But that. understand good the with we

are question vendor. customer array a and We two hybrid new across We've without of best the analyst introduced range surveys, models.

are we components the We're specific it number. really what up overall product of is level point. product to for guide at think not framing this an the quarter I next forecasting

Karl Ackerman

Thank you.

Kris Newton

Karl. Thanks,

Next question.

Operator

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

Mehdi Hosseini

taking the teens. you've penetrated is to installed the base Thanks only of the base. my go past In Yes. about talked to for back in installed want I George, question. topic that

you especially a the see, how results Thank So context October you. strong the quarter? AFA in do of for

George Kurian

points. on installed being few base of up the at a percentage now XX% AFA. We up are We're

at a rest installed to while continue growth to said the base over and refresh lot ship us AFA the of each allows of a base. systems to leaves base new opportunity installed the is we time number before, total size and its the we've quarter, so which As the of have and small penetration growing scope our installed

Mehdi Hosseini

you. Thank Sure.

may. support expedite if ONTAP clarification, I increase rate? X the penetration end one Just of for help, or actually life Would

George Kurian

to customers those number. they all-flash of disk-based upgraded the our CXXX, of look already XXK that a economics certainly, Some those is like today system, choose our a go they a there are not to if the would XXK go solutions than because better replace to with economics drives. But some have so far, small platform of at

Mehdi Hosseini

Great. Thank you.

Kris Newton

Thanks, Mehdi.

Next question.

Operator

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

Aaron Rakers

for a you're to guidance gross the kind based would the margin appear in on on ELA. current taking I'm the in bit quarter question. Thanks want not of that side. Yes. the obviously just understand little factoring guidance It

I time, margin. benefit in think point you last gross XXX-basis like a that it's saw product

going that's setup of and full-year we if the the kind quarter, hit April true, of kind guidance the about think it's So, level. into

an quarter factored implied ELA absolute your at one are quarter if be contribution margin would the should you April in in revenue thinking that is how just of to of into into you also full ELA kind trying is contribution to mechanics at all. that increase we total and gross April the you fall hit hit Number in revenue just understand includes that X% guidance a think revenue of factoring that an kind year the of that that, the therefore I'm into significantly the kind higher, guidance because or for about the quarter? that not of April

Ron Pasek

Yes.

just obviously. fiscal the is ELA, higher of QX the part overall through the holding go look becomes we So, larger product services mix versus as a total in right? don't overall margin, remember, you QX, to flat is and revenue have product to QX which dilutive margin QX because an can't you're of year that this numbers therefore, of you So, total, at for

some in is in there So, and QX. QX are some absolutely there ELA

Aaron Rakers

over on Okay. basis, absolute you've April quarter And an years. past versus the few done what

was healthy. market fairly storage the 'XX early think I

about trying in you just can look you the jump that just else sight sequential saw see I'm that in kind have that you the a back of, line XXXX not is kind absolute that of thinking model? on there So, or -- something says, I'm basis, of

Ron Pasek

got things in QX great to and last benefit extent. the again, you all you've essentially have ELAs QX QX, in QX didn't helps That which a of meaningful. the Well, year

Aaron Rakers

Okay. enough. Thank you. Fair

Kris Newton

Aaron. right. Thanks, All

question. Next

Operator

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

Katy Huberty

environment Thanks. see your did speaking, other the and just you market than you own improvement comment can first then highlighted segments? stronger about whether execution, in segments. on the the the was EMEA generally quarter you some that the afternoon. Good spending was you. Can relative major in Thank that to caution you or talk in

George Kurian

relatively And there saw down were which changes QX major We overall terms of from as in the last of a start said QX our unchanged at was fiscal no QX of we calendar from the but QX QX. year, the trajectory step year, scrutinizing is really, Customers terms of They offerings from today they in differentiation the clearly are QX our what They're and in to continue spending. be visible fact buying that for transactions. cautious. really the for strong. need were was gross margins

EMEA, strength teams have done has big regard our to I to teams, a lot and of EMEA. job salute execution really is been With part sales want our our of there a in a good that

Kris Newton

All right. Katy. Thanks,

Next question.

Katy Huberty

you. Thank

Operator

Our comes line Suisse. next from Matt of question with Cabral the Credit

Matt Cabral

down business together and a software. if services both The touch you you. Thank put was hardware

how going you prior if a talk about just you you should about that a on where we of little wondering are and Just services return could think calls some for forward? bit to renewal in issues highlighted addressing growth the

Ron Pasek

So, we've progress. made some

can that some for work adjust doing. some see some doing. process to still when work have is There you we're organizational we're You do. FX. work We There we're is essentially flat

And growth itself the installed indicated deferred You that number. you can't back revenue growing can in to see well. the as and as that eventually believe in we that growth, but is will we yet George get see base manifested

last of some So, it's not we to have did but do. work still is good year, going QX backwards, in it which as

Matt Cabral

you. Thank it. Got

Kris Newton

Matt. Thanks,

question. Next

Operator

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

Alex Kurtz

to it for was macro really focus seemed in team. on like issue seems the it sales taking question. the I'm but reset, productivity sure driver that on the Thanks last Yes. was George the the main call, from really touched call, the just the we that force like and

of So confidence, forward days to XX how I optimistic you like we that productive very step is as then fast because internally pretty things a what kind working, ramping it far far the team as gives you them? the overestimating seem were big maybe and later, seemed hiring new XX about reps and back was difficult were fix but as it just days the wonder as reps hiring as the and and of maybe

George Kurian

reflected on the we macro, was what results one-thirds Listen, quarterly said the two-thirds QX sales that execution. call

have largest portfolio was reflection the so, macro And purchasing drove always to it margin the and impact is market, the in and in really of more given customers sales gross of we're some of QX. majority We've really invest accounts field our room to in that leverage capture strong our we coverage. ample position strong behavior our seeing a that believed of in the the the investment that into

We've exciting always doing attractive are market. to We're things story we is the our in an differentiated believed, and place work.

So, pleasantly focused we've we're been on ability them. and quality productive good ramping surprised salespeople with hire to them our getting and

the the deals of We front are QX heads course to and I of our year. I think execute in just do and on terms say I improvement through keep that. us expect to that us. of to focused capture we down would in doing execution. got saw And an relative to ability the QX continue to

Alex Kurtz

Thank you.

Kris Newton

Alex. Thanks,

Next question.

Operator

Amit Our Daryanani next question with comes from the of Evercore. line

Amit Daryanani

specific there we benefits the of it gross about do fiscal margins taking more do notably Structurally, Thanks in longer I fiscal for long-term? nature question some guys. you're gross maybe this upside? are think 'XX 'XX. Or guess, that's think levers just XX% that plus one-time that's was term? I'm wondering, for you margin enabling sustainable taking Ron, my fairly up in versus something How

basis you a And and from competitive pricing then do solution George, that Dell's about or for mid-range do what guys? could think how upcoming you

Ron Pasek

Analyst year, at then are of at articulated for margins I think the the we at you where and X.X look Day in guide Amit, the our rest the ago. we if implied the are So, quarter for model product we of year in some

said change, that XX%. after I XX% we at XX% the said So, to point XXX

but not of completely lot flexibility were us be competitors one yes, aggressive, a gives it's under competitor. It's a where really believe to our who still so, all-flash of a It's XX below an ago place and XX points we above And to it's points is it I good years sustainable. good two so earn. be

George Kurian

very With Dell regard EMC, solution about our feel comment set. your we about to good

by the with seen and in the the are Primary are Storage customers and market for strategy. We as comprehensive vendor cloud a leader we Gartner only

position feel And market capture which we our to sales about why within so, it, accounts. go capacity is new in in and existing we share accounts net the investing going to are good we and expand capitalize wallet are on

Amit Daryanani

you. Thank

Kris Newton

Thanks Amit.

question. Next

Operator

of line Our next with question comes from Wolfe Research. the Vadheim Andrew

Andrew Vadheim

Hi. how it you. follow-up a prior wanted to on question I Thank to relates and guidance.

macroeconomic full-year decided weakness tightened seeing X-point range the So, to from deteriorating revenue guide environment, and it of then taking sort mentioned why you're X-point I'm a of estimate? especially you kind wondering the you on but just

Ron Pasek

you think guiding actuals discreetly. about of we guide, and when think have QX the two I quarters

have you essentially three So, quarters. four of the

it think to relatively X% of the easy compare, down XX% where kind a be know we'll were I be last Remember when fact down we we think we to X%. year strange keep in in QX. QX same is would

in to So, in with that of have that was half half, more was like should the the we getting compare. we this didn't difficult be Couple difficult ELAs to whereas it do. first the have that not felt thing much a better that second number first effect half year just

Andrew Vadheim

down thanks. sequentially. sector Okay, of then was public And separately, kind

in expected and extent Just company was on and line was basis think XQ? rest the wondering of and we that public should being of growth sort the year-over-year sector of sort to with QX what a of

George Kurian

and our shift sector public mix broaden last started other market. and education business business of to the to the program-related higher the and the just beyond be we book more of two, local state, fed the parts over know of year or You to

of QX. the As in a to standard big step business up as a result, see will you more opposed a toward trend pattern

Andrew Vadheim

Thank you.

Kris Newton

Andrew. Thanks,

Next question.

Operator

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

Simon Leopold

wanted bit the macro a bit demand what from of we you're on I if some of that given little me the you in tonight. a we've others to earlier. could heard seeing see reporting little sounds Thanks. touch maybe environment what to deterioration saw enterprise It

shifting course Is you this the in you. steady, I'm maybe so, how looking the among of or what verticals, over And from what really timing. about weakness August. the more evolved And of an is you issue talked Thank how is is, changed has quarter versus changed? of the demand it for

George Kurian

in change to say that we the in of I able are verticals it's executing And for of I to broad saw wouldn't there And and right? not on, some other be are think We to comment vertical would NetApp. aggregate, exposed any specifically With have the business. but QX. so well the we what that's say particular we a who is specific reflective spending tight, see in to to did market, book see it. the regard parts news from countries you teams Germany where in unique we us. the slowdowns of QX material see like really, are in nothing world, of a in did we exposure pattern really about that

disciplined the differentiated that the margin into deliver view stable of us more changed extracting to value our what a offerings capacity earnings back And that long-term the our planning To we've of the sales is some market the and bearing on is returns and get allow the we we're our about model our and And being is, -- value pattern quarter shareholders that business business operating and we time. should over gross it of continue margin the to we last leverage committed two and then growth combination by and that to we from to. investing that reflective deserve, that's we see bring QX materially time that feel from in price benefit a talked to from feel and capture QX around.

Simon Leopold

Thanks.

Just the Thanks. up recent quarter a thing. one is quarter, you? that tougher most that in seasonal vertical to material comp for see January sets sequential the in clarify in the federal you strength Did

George Kurian

of in market is the book sector broad. increasingly business public Our

business to We our by of diversified have deployable driven pattern. which spending, be book specific seasonality any in not program is

state our year so public in are had footprint smaller overall but local its Fed We a public business our end sector sector pattern, the the of is normal business. business growing governments, and component

Simon Leopold

questions. for the Thanks taking

Kris Newton

Simon. Thanks,

question. Next

Operator

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

George Iwanyc

with Thank as that's that taking sales us your continue adding you customers, workloads displacement be some primarily you and especially new traditional for pretty you storage new give sense Can question. transitioning cloud bullish a of well? over to offerings. my there, share to George, on is whether

George Kurian

transactional solutions, and databases bio seeing genetics are a ecommerce, and We of gas our and workloads science are on high-performance see applications applications, range SAP like and certainly We deployed workloads. cloud for being broad Oracle vertical which oil HANA healthcare.

set consistent that performance really high-availability. So, for. and applications require in of what we cloud broad are And that's think I uniquely the positioned

we in environment, are two move that harmonize want customer cloud, workload And customers have we for you're our can if between a we do the our that, that now them Keystone, standardize consumption use the to public on-premises listen, workloads to the and to with subscription landscapes. environments, that the and There on-premises that of experience going them so between technology the allows can announcement are only allows that. and not offering saying you but on-prem many cloud, to service models

George Iwanyc

do on All take expanding the selling will and you to comments. How up right. And Keystone get motion just long running? your that think

George Kurian

don't think will we CapEx a purchasing, be believe their for it that landscape. part want right? of listen, services We will that, think replace IT I what Keystone subscription customers

updates the are to we we We'll into to and position teams give offering our it be you take work enable doing will time. sales customers go. right as the in We able think way to that

to regard our hold model, our With on business assets books. we the

cloud You So, material the in similar year. going be we this not were see depreciation, it's what P&L we to have, depreciation, services report right? data to

George Iwanyc

Thank you.

Kris Newton

George. you, Thank

Next question.

Operator

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

Jim Suva

us sales. in cadence, much. relationships, remind six-month after. Thanks very more trained of the six we're you've is very months higher vocal it George, during about can kind growing you been hiring And just of And

looking off starts kind always or Is of be on right next really timeline fruit we're might of of I the from year to 'XX kind kind bear fiscal summer that or at said these efforts. So, the of that?

George Kurian

last Just said. to and QX quarters rep hire headcount demand four back takes on to to to going XXX we to four of go We said productivity. we full a are being three track. get It them incremental with what 'XX quarter fiscal to were generation the and over we that train quarters to

benefit of that we in the will So, additional this be capacity 'XX. fiscal think predominant

Jim Suva

much appreciated. Thank for the greatly Great. clarification. It's you so

Kris Newton

Jim. you, Thank

question. Next

Operator

comes from Miscioscia the question of Capital. with line Daiwa next Lou Our

Lou Miscioscia

Okay. Thank you.

together. sort two combined So, of questions

have line, I'm How sales about they sales just One the to wasn't sales given force, some good happening? a is selling you wondering, said portion the that maybe the it there. obviously is is adjusting actually more just plan. things going? the force and this how of relationships assume the of I entire product of the a reeducation

flash this with quickly a basis, improved on it you this last maybe of did get that back quarter? part just impacts you went significantly quarter, is how And combined flash of quarter-to-quarter obviously some then, through the but so bouncing

George Kurian

was the going cloud and field in of where public sort clouds credit private want think that market force sales the do in organization deployment we the enterprise the said would execution, right? credit attack progress of public for sales key the the and workloads I the focus I IT think I were just and market areas traditional to focus transitions what big all-flash. the on and for to we to we to to to flash, leadership

headcount. our there you we're different portfolio, the comments application our portfolio, we training and conference, of for on what number we to some like the them bringing expanding the types reaching XXX that company those storage to over a So, force sales DevOps, owners, interest made user field time, focused of to owners user earlier buyer. of saw our portfolio we're success after we new that been marketing go need observe conference, their Cloud the are teams ability pedigrees to people on course, specific from sell right? our workload that relevance our coming uplift in the buyers have sales than into regard as competency we on traditional reflecting to and them the we substantial them about and to as focused staff reaching our architects, storage of the bringing of With full both and motions the and well is focused these of as part And those some audiences. of our have in

that down benefit under against laser is the as QX of way on and I focused said in work saw the heads these So, through in three to year. We we're stay focus imperatives. of the to we're continue that rest going executing

Lou Miscioscia

Thank you.

Kris Newton

Thank you, Lou.

Next question.

Operator

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

Ananda Baruah

Hi. mid-single revenue last about Analyst questions. Thanks guys you Ron, George, digit taking the at growth. your George. Day, for guys talked

reoptimized the position the your revenue term think sort you it if in that to optimize? put from process getting growth, the stronger Does Now mean the you're maybe force, sales adding. call of marketplace reoptimized, give to I optimization longer

had quick real some believe you just then quarter. for the in results And expectation I Ron, ELA the

you revenues. did So, basically and in

your you. outperform quarter? you for do the Thank internal targets Thanks So, guys. revenue product

George Kurian

So, many I think avenues have that to our we grow business.

Storage We have position on-premises. leading Primary a in

vendor We clouds. all cloud and of growing storage we public private have can workloads business are a in enterprise the support major only who the

And market. so, plenty addressable we I feel of total like have

hold on terms we that numbers that meet to you on margins we time track And getting we'll delivered enterprise this to of will track on an spending the model growth, tell have barring long-term right? and you We more the so on next about the back are just the we gross even we top-line slowdown focused all were made tell earnings and of year, elements our the Analyst company margins Day. operating in on committed. commitments had of and we in I

the of the now. strong of headcount productive sales strongly profile them business getting is the of on in funded and our So, focused about against Right that's of growth all by the back focus right our opportunities on we to we commitments. entirely board are digital Ron? getting on company executing and the feel margin company delivering step, first now the us and front

Ron Pasek

the And in miss through. and entire guide, come And the not QX did QX. did essentially factored midpoint. had of which amount It I course Ananda, ELA mention we into was you're of to flaps right. some the it in simply

thought ELA. had one the we we've that yes, where sector exception So with

Ananda Baruah

Okay, great. Thanks much. so

Kris Newton

Thanks, Ananda.

question. Next

Operator

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

Nehal Chokshi

Thank Yes. you.

So, new of net really million the which quarter. nice ARR $XX ago compares $X million, in quarter cloud to the within year

or driven sales as else? growth. capacity net new are So that -- files they strong all or something that's driven very Is ARR

George Kurian

cloud is percentage big our Azure and single number. is NetApp revenue right? majority large of customers, the we of data saw total Microsoft don't net The So, have from services new from majority We the that's of growth in Files. a -- customer a that

seeing broad things use customers their and range broad a are workloads. and We range good deploying across cases first out of trying momentum a of

are we in success focused as our of footprints these both new go expand sets we've customers some to to acquire of broader got forward, workloads. customers, additionally we So, that continuing but now on to

that. for you thank So,

Nehal Chokshi

understanding that may. data specialists I cloud services. you sell trying some is if My And do have to

Although, force is believe capable. broader sales the also I also

ARR services. these What's new this cloud sales between So, of forces? cloud the sourcing two the in

George Kurian

for hard on comment me that. It's to

our number got we've field into specialists use are as to the multiple pathways cases technology. think have both and the are the Microsoft expanding of remits. we around services market. part We've generalists of who use their pathway got I cloud into our And the market, on data continuing work and focused within which selling to cases of we enable

down we're focused take So, time, but it it. on will and heads

and and things And sciences media an incredibly frankly in life For management board, wide have we're and databases really excited on right? and applications, that serving content the more of than technology had expected. about and I successful customers ecommerce range come like is how the

We that have compelling business customers. advantage we offer

Nehal Chokshi

Thank you. Great.

Kris Newton

Nehal. Thanks,

Next questions.

Operator

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

Nick Todorov

to Thank investing Service which guys you which can see CDS the headwind, margins continue is think about services at time? a business, are up continue noise. the or grow you I should over runway, Ron, you. some to of for how Apologize tick despite lot comment you the the to background opportunity do a still margins abate point.

Ron Pasek

Day, too in something saw what I focused I are don't to more efficient. it's we we Having said about than long-term we today. much in much get our quarter. our more trying where on contemplated we're be that, It's to that this want Analyst guide that are something not higher sense It's the at in

is So, that work number. work there I [Technical upside more but do, think done, there good to can being is some Difficulty] we

Nick Todorov

be to also of really are inflection. a that basis. for you function just what a the need needs to the guys point be start year seeing on what I I 'XX to increase can And if availability in fiscal some to -- guide Do at quarter-over-quarter hit Okay. go what step CDS, needs Google work guess follow-up, kind -- order done. guess general to to there you I needs

So, investors confident year can more Thanks. 'XX? that around exiting fiscal get target

George Kurian

we of to high-performance got than availability a into these complexity expected, hyperscale really started, later integrating We general so we service deeply given the cloud.

at We are GA with Microsoft.

a have we GA think broad And Google. sight with total We of that line -- is there clear into there. addressable the markets

deployed said is I than broader being use the our earlier, are we cases As number platform on that originally of anticipated.

to to and And We bringing so, to with attendance to a train talk to to number our NetApp the force, we've message and get of platform. proof us, were sales the concepts on the them that able start out of starts at train to really where coming got saw execute good. work to to and people deploy at to Ignite the Insight Microsoft Microsoft our do market the do us channel, to good customers be with

the on and to So, early down. got getting good we we really got customers really, really have platform been these deliver we've a heads results successful, feel got We like good. but

Nick Todorov

luck, Good Thanks. guys.

Kris Newton

Nick. Thanks,

Operator

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

Steven Fox

afternoon. good Hi,

next it fiscal Just to macro, one driven of grand growth? question I for any ambitions getting and or so you. growth, sort terms sales the mainly what's you're of execution important of about in Thank the you characterize you from how obviously force when not back most George, me. top-line rank Is making would the by return assume mentioned year.

George Kurian

full of sure it's think front are opportunities really we that can that I in capture available of the making range us.

leadership storage. in broad range a I As of have of categories said, we positions primary

the We forward showed we The a where and clouds, of and model the margins, gave. technology and public really the gross And customers really focus be critical the with big And available is are product just which the is decisions compelling the results our to is right? evident plan. the part guidance go differentiation big in cloud technology need go we the are our that of we in making only business is of vendor headcount in evident sales the leverage the those access clouds. able to strategy all public of

And us share take it's I to the think go be macro, for after going market. to we're going the addressable go is the macro and to

guidance you We prioritizing that within our of doing are that we prudently by and biggest the opportunities. gave the against resources

Steven Fox

appreciate color. Thank I that you.

Kris Newton

Steven. Thanks,

question. Next

Operator

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

Matt Sheerin

the you distribution of quarter. or partner have markets talk quarter June middle a strength stable Thank in from in channel saw a the resellers you. that following your big more channel distributors relative about is the out and Yes. bit partners, Could your in being bouncing very you. or programs? I weak you mean storage any called several the little Thank reflection changes contribution your

George Kurian

of to was unusual in approximately business relatively contribution reflective business, XX% channels The It's that's the of overall that business. mix our terms our there. each feel unchanged book of we of quarter, indirect and of nothing overall well our

correct a capture are there. You to concerned our share less uncertainty relatively it impact of in than of about economic because mid-market and opportunities slowdown is smaller some bit is share the the the mid-market is that And the global more have enterprise. in the the we

the and with, of with focused we've set progress NetApp's work were a so enablement focused narrow that enabling resources the we so on we're that impact channel pleased group channel Our partners, they got so partners full and get far. of

Kris Newton

pass it All George for to comments. right. Matt. final I'll back Thanks, some

George Kurian

points. want Before few we a close, underscore to I key

enormous in use in hybrid has customers to traditional value innovation broad the customers portfolio IT. and the helping deliver is succeed both help in strategy, Only and cloud-led NetApp experience NetApp cases. IT-led increasingly business customer multicloud

can We in and capacity portfolio our time growth buyers. investing value the of to over new believe we differentiated selling return additional reach sales to by

real saw and are Ignite, I Insight we progress here. at making As

quarter. We our shareholders of the strong And operating margins health a spending and you look to margins you. have cash growing our model again to continue to disciplined return financial and in and us that with long-term enable speaking Thank forward with to in be gross next invest business. I

Operator

you you a have may now and wonderful Ladies participating Thank concludes disconnect. day. Everyone call. and today's conference this for gentlemen,

NetApp (NTAP) 13 Nov 192020 Q2 Earnings call transcript