NTAP - Earnings call transcript Q1 2021

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Operator

Good day, ladies and gentlemen, and welcome to the NetApp First Quarter Fiscal Year 2021 Conference Call. My name is Joelle, 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 of 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 Mike our site live netapp.com. you will With our Berry. being This

X-K. capital expand to on the of XX-K operations Web and with Fabric most discussion Form our our of on XXXX, factor sections we for call, the growth, risk for share, conditions, which management’s forward-looking and reports statements a for our and we environment, flow and results refer strategy. expectations financial our fiscal We the including obligation XXXX; the to capital capitalize analysis the including time-to-time from gain file market, to documents business, second Actual and with and such spending available all prospects, regarding make Form market execute allocation the fiscal to current IT materially update return and involve to disclaim profitability ability our site, variety our returns; and continuing condition Please ability on outlook scale of our quarter recent our and financial of to forward-looking our year future projections. of SEC available generate differ uncertainty. will and statements total and future as cash reasons, and specifically risk today’s projections respect During also including pandemic, our results our COVID-XX the strategy, shareholder our impact and Data revenue, guidance may our and and any macroeconomic year

turn indicated. GAAP call presented over all George. now unless non-GAAP non-GAAP are our to I’ll Web Reconciliations call, financial estimates will be the on posted During the of site. to measures otherwise

George Kurian

you Kris, staying are We us healthy. safe that and everyone. good afternoon, today. joining Thanks, you and for Thank hope all

revenue, of of with the the health, can us, help impacting pandemic, saw the global NetApp improve work In on best exiting NetApp environment, and to we IT more momentum At continue midst the enterprises and Despite partner all projects, our drove customers the turn I uncertain social performed with to times. the for challenging of work and prioritizing quarter, hard a environments that economic to what value we cloud hard this them focus all these in these face all QX. consistent Due what we spending want well their to pandemic. these our an changes in to margin our execution. control accelerate transformational the we our important of to be exceeding and challenging, employees As customers, as navigate remain macroeconomic operational even and NetApp, to guidance. operating thank our are hybrid pressures, which plans. we particularly EPS during is

for We first delivering public heightened services, deliver safety health and public sector institutions. continue to and vital support responders customers

of terabytes offering by charge. Volumes Google NetApp Cloud for affected IT For free pandemic, teams Service are Cloud XX the we of

the each and home The their partners our extended adjusting and program remotely. new other, with Uncertainty operate financing quickly in customers also from high, of a We to remains working assist have customers our in we and a normal moving muscle managing employees cash partner virtual and into interacting partners of are to but environment. NetApp are built flow. majority our

a of Center virtually, build front teams sales Executive in year buyers The held Our getting over briefings more held number now are demand. increased of by visits, meet Briefing than to QX in ago. and XX%

good are program virtual number on tighter FYXX to our the takeout future coverage last execution results delivered compared reinvigorated Run NetApp opportunities. in the sales year. prospects in made improvements to Executive with in of focus Centers off. our to we doubling And meetings starting competitive The in a Briefing to and pay growth strong saw also QX We in-person

hybrid thrive Our means to hybrid the remote rich from and to are digital accelerate of than customers They applications to them bring help more work solutions, continuity through in IT achieve are and to home. customers leverages competitive cloud our products We application faster the them cloud. are development. challenges workforces acceleration help enterprise-grade data and operations tackle the also drive is software remotely, services remote cloud vendor, and pandemic are world. hybrid adapting center. rapidly cloud response to the the can moving of by to NetApp data the enterprise initial strategy, the customers and flexibility significantly new both accelerate now other looking data-centric of operationalizing simplicity normal. transformations data to collaborate and The No innovation delivering collaboration. our to digital fabric the their on-premises the the digital cloud managing their enterprises the NetApp Companies we to move With matter any help cloud where transformations means journey, customer in services advantage help We reaching optimizing enable customers deploy this of software a environments beyond business goals. on cloud. and

year differentiated two object business our 'XX; industry-leading highly from our by we business. the on priorities our block have and to powered in cloud storage software QX returning services gains share growth scaling in stated I fiscal file, As clear call, and

services. continued market, competitive transitions, cloud of array the shift accelerated the of We to to will exploit products use all-flash the expand the and growth our and

installed enables data-centric Leading customers Customers in cloud our workloads and for cloud enterprise-grade to the this and three requirements QX, roughly also Customers with new-to-NetApp customers help to are In to and their critical are half drives tested, continue of which in business. partner is to customers. are came the why innovation both NetApp nearly roadmaps. capabilities. Cloud us. recognize is now our through with We marketplace, to decades this why recognize digital they reach choosing the of software bring We cloud. new-to-NetApp to this accelerate them enterprise cloud progress cloud base this cloud, in in beginning deploy they transformation and business. the great make providers choosing us

customers, our growth acquired $XXX management clouds. the provider a customers, cloud-based compute desktop cloud and ARR an expanded optimization existing Spot, virtual of cost and acceleration CloudJumper, we leader an at on an portfolio public a year-over-year. to drove QX, of increase million, and New in XXX% In of services;

addition our customers cloud. driving us them In and they sales to more ability they because proposition by deploy of excited cover these to our talent our cloud NetApp. and teams, in optimize and cloud cloud are with strategy marketing, More spend, to DNA are extending customers’ strong and acquisitions bring value to are storage interest and the applications coming compute in increased to help engineering

more to As data I’ve the customers gain us and strategic a said center. enterprise partner many us help share our make attractive cloud services times, in

in cloud-like a their cloud them and we the Not the data consistent of on operating provide our purchasing system a powerful, industry-leading experience cloud, ONTAP unify Our hybrid system and customers across operating service. most most storage do efficient is with our through most Keystone we storage cloud-connected, software, center the ONTAP, market. the to cloud system to flexibility and key only provide on-premises. with success is operating

to for ONTAP infrequently our to any create StorageGRID. tier such more data AWS, FabricPool, including Azure, the automatic Google, or target, customers of which features key the is SX storage of solution, tiering accessed of policies cost-effective a as One object allows

automated positioned take help are on value strong them total object all-flash This these the XX% in business, have During advantage of year-over-year to tiering the transformation. ability cost our growth array. even best tier. of FAS this to uncertain help finding ownership unlock cloud expect strong their customers to important industry-leading lower gained economic Based market. for share capabilities drive both we growth through our while the cloud reducing and all-flash of is for StorageGRID arrays other a times, NetApp in digital we greater helped high-performance all-flash and A-series customers or in uniquely cost

trusted who Strategy. relationships a industry-leading an partnerships the our are building approach cloud Fabric of software endorse by is and open-ecosystem that innovation, with customer public leading foundation on companies strengthened Data We data-centric strong

remains Despite the no NetApp’s knows normal a Data and help we importance. pandemic, for challenge is one predictable solve their most world’s We organizations my I when leading managing confidence will growing to the In With data. future want the to more closing, in future. of uncertainties, the and uncertain scale environment. thing clear. one critical ongoing reiterate the many and companies, return near is for

enhanced We broadened team, have our our partnerships. our strengthened portfolio, leadership and

requirements We to market are with listening to respond to and customers speed will continue and their and agility. the

the address market the the agile NetApp our by We will long-term to positioning to continue be pandemic in opportunity. to conditions while created response

strategic Our strong management accomplish supports business objectives. ability and model to our disciplined our

and our to alike. priorities We aligned to are our creating and committed value customers customers’ shareholders deeply tightly for

a want happening to I of Day all that events to Finally, Virtual out I join September able this quarter. call our on be you XX. hope will key Analyst couple

Web Investor register Relations from site. our can You

best turn will We you unlock to of NetApp now hope of tune customers through I’ll it Our flagship XX. virtual in you the helps walk quarter. cloud. results the INSIGHT, conference, to how October to to user be fully Mike over can hear XX about the more

Mike Berry

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

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

revenue, QX result operating continued of As and EPS as high-end we guidance. above George macro noted, margin of in the COVID-XX, delivered the uncertainty despite a

increased Importantly, of billings year-over-year. $X.X net in billion billion, headwind. solid sales environment, very including execution currency a X% revenue up yielded point difficult of QX In by year-over-year, QX, $X.XX team, a X% of the

key Services, block business, storage Our software, and focus outperformed market Cloud the both two quarter. by and the strategic industry-leading object our in areas; our file, powered Public

up end $XXX in was all-flash QX, gains providing installed the XX% to cloud-connectivity customers our all-flash and adoption. revenue At growth by XX% Services all-flash, were XX% $XXX of remain quarter. delivered ARR, XXX% the the growing embrace positioning solutions. a of offered sequentially. year-over-year in the nicely and share We in Cloud impressive our as confident protection flash of Our Public for year-over-year, healthy continue an investment opportunity runway million million us systems for

excluding XXX% an plan acquisitions of our at Services of recent of upcoming Spot, Public our of total Public million Analyst growth to updated ARR and the Cloud Even provide end the our of for Our quarter. virtual to a opportunity acquisitions, decreased Cloud accelerated we of Services To revenues customers these saw between $XX contributed We the largest year-over-year. growth framework business value of CloudJumper as our Day. quarter, approximately software Total projects. In by and X% product as digital software we cloud the are improved accounts now provide in transformation and visibility into product global enterprise hardware. year-over-year. out our high-margin created hybrid franchise, the revenue $XXX million breaking Talon initiated

year-over-year, driven our DNA software-rich $XXX an software. revenue X% million increased grounded revenue The of continued solutions and million product by increase customers shareholders X% provide Software Hardware the product disk NetApp of year-over-year, $XXX decreased to all-flash in engineering to value FAS. we in spinning as is of and decline.

We will continue highlight innovation engine. to this invest in and

in When recurring XX% revenue. revenue. nearly margin X% margin hardware in QX of up quarter. to when Gross of expectations. $XX $XXX XX.X%, both increase software decrease the $X.X year-over-year X% believe XX% We These by net points revenue to with point lines year-over-year total continued representing year-over-year. for materially revenue Software We comprised of in-line totaled maintenance two of X and we these deferred was of revenue and week related as in NAND extra The Product and billion roughly up X revenue transitory year-over-year pricing gross million million a maintenance nature. recurring XX% and COVID-related driven headwinds was total million base. QX, was year-over-year of maintenance ended of revenue, with in our grow costs up combined, approximately XX% was an installed and decline $XXX the year-over-year the are adjusted trends. our higher

resulting in X recurring maintenance strategy assuming extra In our remainder of software profitability. the XX.X%, a given a variable model and selling week hardware expected The from 'XX. $XXX software solutions. up services the with continue $XX and model. exhibits our factors the continued the combination X% the are driven QX revenue operating by of approximately we with the margin QX on revenue of environment, XX.X%, reinforcing a be Cash profile a of the on $XXX driven of and the expenses related of year-over-year. from However, leverage free million from persist $X.XX $XX that continues million one-time better strong with was and associated of point margin growing business business uncertainty to and higher of The and last value interim, the by compensation focus in of combination increased in incremental for Operating we expansion will throughout X margin was very macro payment our was will fiscal tax these year-over-year, cautiously Cash and and other to support to margin us, was XX% profitable gross acquisitions. cash of XX% $XXX year-over-year. flow EPS year. operations flow flow was a up included operations of million, revenue. QX up points million representing from million than of

Excluding this free would cash XX% have have $XXX would item, of flow and been or operating been million cash flow revenue. million, $XXX

cash out quarter $XXX in million free XX% paid During the representing cash we dividends, flow. of

and recovery. a down we call, economic of shares QX timing year-over-year, outstanding sense is believe a it X% representing pause we the the the on have share until prudent average Weighted XXX to noted million shares XX magnitude for were we million, diluted our decrease. broader program repurchase better As

of We QX. our in and cash in share short-term will ended with per maintain $X.X cash We QX dividend $X.XX investments. billion

quarter As billion you in during we know, $X long-term raised debt. the

we $XXX also strong this of debt approximately to To million during financial added domestic of cash our already debt As our from used the pay down disciplined even end while XXXX long maintain we current history paper will reduce balance balances environment. the providing and economic senior position, be liquidity, liquidity M&A. additional clear, with raise flexibility commercial of debt The enhances our of the maturities. further raise quarter, our

Now to guidance.

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

will extra the in QX. a repeat week the maintenance As reminder, in revenue from benefit QX not

QX. we As $XX grow down revenue result, from maintenance being million year-over-year expect sequentially while a our approximately in total QX to

shift range expect product a As margin and gross sequential and mix consolidated we this result between XX% revenues, of maintenance between to XX%.

be XX% QX. in We approximately expect operating to margin

tax operating expenses million to in million $X.XX We share per $XXX non-GAAP recent guidance Assumed to between between QX range our including be per XX%. rate related we earnings share. and acquisitions. are this million $XX of for and And our $XXX to $X.XX to XX% expect anticipate

$XX Assumed million in our million, guidance this is of from by debt interest to recent $XX expense interest expense offering. increased driven

tax is through earnings associated payments normal comparing our trough further by QX for a came free our flow. guide impact QX As cash reform. be reminder, our QX EPS as QX in clearly cash remember When tends annual compares. they to seasonal to compounded the better tax the This the than with please relative expected. print, earlier items sequential I materially walked repatriation

will very we disciplined cost structure. promised, our As around be

our returning our investments scaling our in in business Cloud optimize resources and Services. we fund today, to filing growth to realigning outlined biggest and to while As continue are business, strategic priorities; X-K our storage systems software to Public

Officer. Kris company years. noted his Accounting departure NetApp for NetApp the in in confidence the today’s our Senior We to our will a heritage. September want around disciplined the the position contributions Scott his of execution, our I Scott filing this for personally allow We past we the to that building to OpEx will to reinvestment Day next our our success. the back of at open company, strategic missed. for career. of join we definitely Kris? all We on I Going long-term commitment is reiterate rich the can over Allen, to drive as now of our significant He Chief call best solid closing, will for chapter XX. into transition, I’ll want long-term Virtual X-K remain and Scott forward, to Vice continue with upcoming opportunities to be data-centric hand Q&A. call and our wish look us thank In President on four coupled you value shareholders. evolve Analyst believe in for software roadmap to hope envelope us Also all cloud-led

Kris Newton

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

Operator

Thank you. [Operator Instructions].

from comes question first Daryanani Our with Evercore. Amit

Your line open. is now

Amit Daryanani

customers them my as migrate a new really customers, and guess I much that break take even down guys lot It’s impressive to customers to is for is mid-XX% coming cloud stick the logo growth wins guys. net existing solution services you you will your how one that question you coming to be XXX% way year-over-year. Can of deals obviously out, gave out. ONTAP growth I – off-premise if versus new between maybe that existing from to on Thanks kind I us taking question, think a net are ARR metrics question. understand with helpful? you? taking just really net growth I think of up it’s that a So sequentially, help versus they that their new would there do customers perhaps

George Kurian

growth saw half cloud new and accounts NetApp our where for good about we business new chunk through new of presence. to the from customers customers came NetApp customers wallet in were meaning where workloads, a We our new quarter a of new of lot business the in cloud have to cloud the

of substitution business. of the cloud the our the overall on-prem was growth of workloads cloud smallest So the part to public

and business protection business where array copy on-premise quarter We of seeing cloud. continuum customers had disaster several increasingly the during disaster cloud in are a all-flash use our the combine purposes. for with protection wins the flexible We’ve

cloud the very very, business. with our pleased progress in So we’re

Our hyperscalers are helping us scale.

and existing architectures customers new new We’re wallets for as customers well. logos, building getting new in

Kris Newton

All Thanks, Amit. right.

question? Next

Operator

you. Thank

Our with Hall Goldman comes Rod from Sachs. next question

is line Your now open.

Rod Hall

off the kind and growing that’s like thought still blow on It with of you I we comment run a as rate have on as back I market start a question. bit on it’s just quarter. George, could to Thanks bit rate for big – quite journey, NetApp much as about on follow [ph] expected, larger And started I little ask is maybe, addressable growth is that. addressable and XXX%, pretty Hi. a I comment if a just what track the up. seems it’s to Azure that the it when same this Files? believe just last you year-over-year the that I or of it just maybe wanted was wonder market, you Yes. the CDS come thought Then

George Kurian

always cloud. to customers’ most are said the moving we important We’ve workloads that

once require with incredibly business do where to workloads deliberations of did but with good Microsoft cloud, only really not So were through our and the also starts. that. our they’re deployed the these our storage quarter cloud sticky the business are in before the course hyperscalers saw but sequential you other up of acceleration again was they What grow, planning we business

nicely are wallet us and solutions NetApp cases use We acquisitions which access the customer. in seeing the [indiscernible] as service desktop the our Azure growing new to complement customers and new are wallet high-performance net software-based Files wallets, a allowing compute

pleased be the So more I couldn’t about progress.

the Day. at Analyst business you cloud our We Virtual more tell long-term will our expectations of about

Rod Hall

on then little I And product the looks you margin ELA, be give for tell a you’re so then I thinking in you very if margins to core mentioned the to you quarter the that, can on Thanks. think what can the in get ELA the if is you of quarter? gross helpful? assume Okay. It there follow what there know heads trajectory up, on our so Mike you’d is us you also wonder product but I connected double the check. or made we could haven’t willing that? would guidance, – just to wanted July for clarify anything the gross And just that just trajectory us just around margins, – core comment be kind number like I don’t I know

Mike Berry

Rod. Sure,

and say in breaking it ELAs. financial discuss out So second on we absolutely you see also also I would will that’s significance quarter a the if us the we revenue, last be there. it not product statements, part told you’ll first lasted – you that do you’ll good. question, on as the to is now it with software would there of one going see so ELA in My anything we are so see What comment of margin size, it revenue until

that it core On a track significant to NAND core we to able margin discussed, going forward. well for pricing to be the as we’ve you’ll areas as as product, So pricing. consistent pretty any product ELAs COVID relates that so guided

conservatively We our through It’s are year, go Given the the little similar relatively uncertainty little as based on rest there a but control, NAND bit industry expect help in the do going be of pricing of the demand. to really assuming of and on we Rod. economy, we something that’s a out forward. supply

Rod Hall

Great.

That’s Okay. Thanks Mike. a lot, helpful.

Kris Newton

All right. Thanks, Rod.

question? Next

Operator

you. Thank

Ackerman with Our Cowen. next question comes from Karl

now is line Your open.

Sam Reiff

is in was program week, guessed Sam selling have have had on then could lower you been for OpEx OpEx the or a per coming restructuring the environment? could this through you been press the guided how that what you’ve of and that puts than the savings. gaining This year based hitting guide related efficiency release? quarter are on wondering characterize Hi. an on that, last difficult P&L extra adding give the heads in relatively bit but this takes guys the traction the you Thank would if just that I to quarter I’m the did I And Karl. aware that context should would you. begin

Mike Berry

take Okay. first one. Hi, the It’s Sam. I’ll Mike.

guide do the about XX midpoint the will XXX, XXX, the is a add expenses million for about we OpEx, did you So at year-over-year year-over-year. for the when you last of about acquisitions look I’ll guide year that of so

and something So of all obviously three together. year-over-year that is new that’s them

that about from restructuring. the offset be low million that year that’s for. by that performance. XX mind the then three credit from And were bonus two Last quite the savings get pay. in and variable a we’ll given only a accruals perspective, commission months the of higher have Keep will of We will

year-over-year walk your So on OpEx. that’s

George Kurian

deployed was team asked the They that the to contributing are our are about business. had that you they and we productivity The well hired. second of question

in that see contribution the You strength business growing business. the of as well cloud in as enterprise for storage both systems software our

to a start So business. our excited and heads add those the good we’re momentum we’re pleased we’re that that off to

Sam Reiff

Got it. Thank you.

Kris Newton

Thank Sam. you,

question? Next

Operator

you. Thank

comes SIG. Hosseini from question Mehdi with Next

is line Your now open.

Mehdi Hosseini

my question. taking for Thanks Yes.

especially October The If commentary, take on to which suggests the with included just first on basis, to July they quarter? I I year-over-year one follow when X% your it week product of show quarter. compare a has do the decline Is that a that some a July only in higher reflection extra up. had an just decline. color revenue ASA And I have a a

George Kurian

transactional not extra week. level the at to October the we perspective in in say and quarter. With the relatively high quarter about the services a July see the a prepared same our to the I’ll from extra October current regard a perspective from did explained just we macro see XX week. that quarter The million include from any quarter, due we revenue July the remarks demand revenue We the had quarter in as

looking say that at rather more would basis sequential the I business a year-on-year So you’re than on basis. a

me We tell hard that I have business. the predict market. our the would it’s to of continued you for monitor seasonality to

giving a basis. quarterly And an on outlook so we’re you

in far see in what to similar quarter we somewhat quarter. October July so the see And what we is the

Mehdi Hosseini

detail. for Got all the you it. Thank

explain the at but there is preview at Analyst longer way sure Day, your Virtual can on going looking quickly to provide us. articulate term, I’m we can the efforts Kubernetes? you an on update you’re Just any And any

George Kurian

infrastructure. as that who the containers new for way quickly to a grows applications solutions Kubernetes. and customers technology has very excellent are and building using deploy NetApp is Kubernetes manage applications

really solution have concert; optimize capabilities, Kubernetes data two Astra with software and Spot Project the acquired to using and technology Trident effectiveness the we of management of customers the application capable in their cost customers We and environment. the those storage that application persistent our that solutions work provide both allows really

So we’re excited. really

adopting state-of-the-art Day. have tell and We our are Virtual on it some we’ll customers solutions you about more that Analyst

Mehdi Hosseini

Okay.

cash had You said persisting updates; you and…? two

George Kurian

acquired helpful is that particularly compute with optimization in that we environment. Spot the Kubernetes And

Mehdi Hosseini

you. Thank it. Got

Kris Newton

All right. Thanks, Mehdi.

Next question?

Operator

Thank Matt with comes question Suisse. Credit next you. The from Cabral

Your line open. now is

Matt Cabral

inflection you guys the in Thank quarter. during you. Really that strong flash all saw

a that more think from compares Just wondering get what here? forward, going dig into just growth bit more difficult flash sustainable in could is the especially how you if drove you then much little and as all

George Kurian

Our all-flash powered was array business two by things. key

archival second is and strength our the of world’s both the flash have in that are and the is hybrid companies an storage the we cloud. NetApp. tier the biggest technology, And trust first confidence with objects as that The differentiation placing

dollar So most we being make macroeconomic growing power sense environments they that All Hitachi away continue landscape. IT data environment has be capabilities of course consideration large the and The several like flash is an received customers to several market the customers on to brought in a stored have market. center well in Dell. and be part customers them It of of took that total will by importantly and absolute product excellent accounts. storage displacing a and not are will spending in economics operational for customers the all from competitors of amount we flash

I’m We focus about for in we field, What share all-flash that a the confident our with and we in outlook in that now to market Analyst will Virtual about Day. array storage going the execution at strong have tell is the are the operational to market. more position be you gain

Matt Cabral

Got you. Thank it.

Kris Newton

Matt. All right. Thank you,

Next question?

Operator

Thank you.

Wells from comes Fargo. Rakers Aaron with question Next

open. now is line Your

Aaron Rakers

I’ll Yes. as Thanks congratulations taking on and well also the stick for question. the results. one to

ago last mentioned of I to XX% your back year installed in out it think I quarter was business, me and stands Just you If all the base it a XX% all-flash guess I think flash. that is is metric I even one kind now of the correct, think is was on XX%. my memory

in like also is accelerated higher, all inflecting installed seems help a what’s context, broadening that Maybe base flash your it is your why in going opinion? inflection or to that – drive much in growing? me how So an understand

George Kurian

flash base. very installed continues is with and at growing the we just time array, to to spend, all-flash dimension the representation of grow very, base systems, are installed installed that you’re a that face Our in replaces see of right, propensity These few but X% move we magnitude is talking of the customer penetration a One base a rates fact disk-based strong their of what about. growth I as think really a the numbers spend. big array adoption our

a hybrid that total to for just disk-based terms the flash priority on on more that mentioned, that cost be in will wallet more of the Our will flash well. view spend increase effective for technologies is systems disk-based spend in as be as that to continue They I systems. continue they customers market, of than There percentage place are storage. but flash, will always will there a

I you I expectation, think over try to an installed right. base were X% percentage to say to would increased several that we X% of listen, sequentially, take the our quarters, if

so focused sell to opportunities a large it. It’s And to customers. on us continues that more to it’s and value an runway asset ahead we’re provide good

Aaron Rakers

Thank you.

Kris Newton

Thank you, Aaron.

question? Next

Operator

Thank you.

Next question comes Tim from Barclays. with Long

now is Your line open.

Tim Long

wanted I hardware ask about a the and product between to software. you. Thank bit split little new of

the lower what you. – within between else? type that group? given that? whole color the changed margins doesn’t Is could, that, about margins of that than that split you do two the box high look like that is assuming how why does much, mix Thank It software the Just within can a for is demarcate more you two gross do that driven kind seeing product, are little or how we’re those something hardware has And if imply buckets I’m learn what you the we ELA real out? much between pretty

Mike Berry

Hi, Tim. It’s Mike.

question. great So

do of non-GAAP in to things of into. in come we fair estimated It’s couple you’ll up a release, see the with how One we the section basically is revenue. include descriptions press customers what and prices there jump in how those some similar the to we value allocate have that based across on allocation transaction the we’ve our of done board. with to revenue So

So bit. there’s value explanation components. basically a an of components hardware but and little The will there, estimated a it’s around software move those good fair in

goes certainly an will That have into each ELA. mentioned You on quarter. what influence

typical be it’s can that as number you those. good From perspective, well. accounted margins back when relates to had as of assume software If to for those a I think remember a business were how you our it margin we going

average to really and by be It’s bit. lower. going than move higher So also a I’ll to around will be little product. the that it’s caution hardware But the margin product going depends

so increase So the we would the maintenance also out would expect we as highlighting of those together. maintenance we And software that growth and that more your it continue will great to resulting component of want software can software move start to because to our break as question a percentage. we expectations also the AFF, sell

So that for helps. hopefully Thanks that question.

Tim Long

for and the you Thank thanks disclosure.

Kris Newton

Thanks, Tim.

question? Next

Operator

you. Thank

Morgan with Huberty Next question from comes Stanley. Katy

now Your line open. is

Katy Huberty

guidance Good you. want just of clarifying a from earlier ask afternoon. the questions I about commentary couple your Thank Q&A. to in

in Mike, above First, expected first But flat mix revenue the comment be heard little above I bit I on the so to margins, if sequentially. segment apply would margin a your that the gross quarter, your gross margins second XX%, product guidance. total I quarter that’s margins get a

the revenue. other on margin? ask So on gross I’ll is And see there guess, sequential then you George, do point I a some you this pressure where segment

You that at to from level revenue the order seeing in there at below in Is of October? conservatism driving tailwind extra Thank on quarter, some that of the you. George digits So you just environment? October you looking seasonal off we that terms you’re XX comments plus bit of adjust of that the bit the sequential what’s X% quarter business a high maybe the for obviously growth of trends reflects low-single is should a a get If of little a July outlook million first seasonality during for sequential second said you’re versus that revenue in on demand because normal in anything would currency I the normalized the quarter base sequential and look an basis. quarter then a

Mike Berry

Okay. It’s Mike.

So the one George I’ll take does the first one. second before

things out hit it two margin. you from million lowers One So the to that When the the services. margin you XX gross from percentage week, of dollars relates is extra back coming on. the

down the gross margin. bring naturally total will that So

other it’s it’s is, but not thing The mover. huge little a a mover

small As increasing little because pull are still below point, those on services gross has we average. services that at the do cloud down more a quarter the impact margins a every this margin nicely while

look to margin. the total think are you at gross when about those QX mechanics So

Katy Huberty

really Great. That’s And helpful. George?

George Kurian

we’re start communicating a regard patterns it taking that the I now. the apply good right environment. With seasonality It’s to we’re at not volatile quarter we’re clear whether We’ve picture, to think sequential a the And had just a revenue time. year. a traditional

So what I’ll tell year. full a you is, we’re not guiding

giving the We’re being cautious, right. you That’s see summary. the best outlook we’re we really and

Katy Huberty

Thank very Okay, you color. much that’s that understandable. for

Kris Newton

Katy. All right. Thanks,

question? Next

Operator

you. Thank

Stifel. Matt comes question Sheerin from Next with

now Your line open. is

Matt Sheerin

guidance, demand sector, drill and a by could revenue public appreciate on visibility of jump customer you, areas commercial, type, Thank you more George, regarding a out? the there’s picture Thank but weakness that not strength enterprise, current or region of you. I the lot little bit certainly down any Yes.

George Kurian

the And see. give not segment we part are from footprint the you’ve challenged. you of IT heard what sources industry, to quick larger and a the our of where was in a just a similar enterprises growth. our clearly commentary From is the They Small strong customer have perspective, I’ll summary. material several we business. is players medium which

We some through tailored APAC the the our market, smaller are picking companies. we business more customers performed regard performance those and the largest our cloud region where had the well. up in Americas essentially driven and geographies, to the by medium strength also of are to enterprises in our cash-constrained offerings Americas in strong With small

COVID, the we of I of starting think the it’s APAC of hard to early. region being times is but from and those reflective economies cautious really some are recover

continuity moving those. did of to investing see in we terms the transactions people in and I in was, think of beyond growth business larger types transactions. I transformational projects now And saw, are we said what

And benefitted so some we those. from of

Matt Sheerin

you. Thank

Kris Newton

Thanks, right. All Matt.

question? Next

Operator

you. Thank

Fox question Next Advisors. from Steven comes with Fox

open. now is line Your

Steven Fox

stock. ask, back your afternoon. you’re annualized last guidance, Good not on and just maybe back you to an buy a little I basically The just at per decision $X.XX wanted doing Thanks. push still to share. the look bit company’s – quarter

have down cash generate flows in period. You’re a obviously EBITDA healthy doing to more that than proven and during ability

buying decision start trigger to maybe management’s So what would back stock again? Thank you.

Mike Berry

Hi, Steve. Mike. It’s

take that. will I So

lot we starting a decided as a the timeline as better whole recovery, buyback the economic the able when put share hold, we see on about to last more to was we So on it needed firmly talked call to be really still George as lot about while talked the a uncertainty. bunch about, to And there’s feel still the economic year, of of depth. And we’re as there’s uncertainty. well the

comfortable are for more and a from managing recovery, our international us, So we the recovery that be to of domestic timeline need about sure then as cash we and perspective. prudently well making the the

into on through share growing M&A and at in that the This sure out debt going buyback call, will And make had why as to to to play to and looking disciplined it went discussed another want why dividend we we weigh that’s well, very opportunistic the very also is reason would back are that to then buybacks. of as we that that Steven. the committed we last hard very All again the make sure cash it. we want business reason firmly we and raise note is that, I guess we the the pulled did also versus Also we are to sure share maintain forward. into and make wanted

Steven Fox

appreciate I that Thank perspective. you. Great.

Kris Newton

Thanks, Steven. right. All

Next question?

Operator

you. Thank

Jeriel Bank. from Next Deutsche with question comes Ong

open. line Your now is

Jeriel Ong

focused results. SolidFire that focus headcount a I of Thanks want the exacerbated certain kind be general reduction out focusing in of beyond portion congrats and were for guess cuts, I verified. questions of of business. fact cuts or And bit me I and those relative press In Thanks. or of little I more impacted guess Could rest X% true? base guys Is whether yesterday indicated to that certain those letting on? was on you that portions worldwide as on that came just that to employee solid that a businesses the you more? percentage a that which the the might there ask clarify your HCI is say in report would the in something on of were

George Kurian

to of decide These go-forward our those driven business changes. when headcount make the business business. services care functions We priorities. to as were in public our cloud those – by core particularly the and Those in systems focus accelerating and aligned we take in alignment realigned reductions X.X% our the are we and the easy about but as of and consideration have that software make prioritize those resources strategic never to in parts workforce parts our not the business, and we business the all well storage that changes of of to were were

was I the can part SolidFire, yes, of impacted. confirm team

we HCI the the on and have focus with high SolidFire of narrowing prior the margin as our parts market portfolio are signaled We to calls.

Jeriel Ong

Thanks. appreciate it. I it. Got

Kris Newton

you. Thank

question. Next

Operator

Thank you.

comes with question of Next Bank America. Wamsi from Mohan

Your line is now open.

Wamsi Mohan

million data was to quarter-on-quarter at annualized Yes. and organic Thank services this on back want ARR to sequentially increase cloud look go in was quarter on you. I an that basis. The and basis $XX the million. $XX prior

GA of forward look why you’ve some Given providers the got given how more rate more mature, can is give more exposure status to accelerating to that we the fact as not that basis you the and sense and might us cloud here? organic maybe option more change it’s trajectory

George Kurian

in hyperscalers cheaper platform improvement similar This periodically. cost is to in cost customers allowed storage the what effective some adopt to do cloud services more that and portfolio made We our our tiers.

existing affect cost deploy our business some cloud did lower to of that tier. customers onto so our a on And choosing

it move the more of tier. we didn’t that did pretty and add basis. seeing capacity So of gap wasn’t cost within sequential some is quarter add on lower much to a like our more That customers the the revenue. We majority you’re a

Kris Newton

All right. Thanks, Wamsi.

Next question.

Operator

Thank you.

comes Next George with Oppenheimer. Iwanyc question from

Your open. line is now

George Iwanyc

technology taking look what from George, M&A maybe you perspective? comments you roadmap disciplined M&A, of for would you Mike’s an give can on with use areas to at Circling back from Thank a cash a us of my question. sense

George Kurian

centric range at cloud disciplined in transactions. broad that the have look I a for would cultural strategic, of that key acquirer think but been economic of both be terms a clear that would We’ve we and we two we software are and fit. interest filters

we’ve skeptical said, large transactions. As doing also about big are we

and far few think I those are between.

majority so the smaller investigations you that see. transactions And of are our would more

George Iwanyc

you. Thank

Kris Newton

Thanks, George.

question? Next

Operator

Thank you.

from comes question Louis Next Daiwa. Miscioscia with

Your line is now open.

Louis Miscioscia

evaluation portion that a that you some one of obviously but your is rates. medium not if good George, as which go at expand back to and material you you’re at gain recently not your more small, business looking aggressively that is must to sector you have obviously to business, why looking times have comments you. has to or Thank into share, earlier why of momentum Okay. an done

as us for you you why can give not idea an a to good opportunity you’re all? that’s thinking So as at

George Kurian

to It’s We all that within disciplined and have matter deploy of a resources. run we a opportunities P&L P&L prioritization.

small, We cloud business through portfolio a to and and the very reps. our in enterprises see address manner. The are we scalable the sales economically covering direct opportunity differentiated medium biggest through our direct an

to And so continuing focus us there. you’ll see

matter a it. resources of about spend disciplined being our and prioritization we it’s where of So

Louis Miscioscia

Okay. you. Thank

Kris Newton

Thank you, Lou.

question? Next

Operator

Thank you.

with Cross question Research. from Next Shannon comes Cross

line now Your is open.

Shannon Cross

curious. Thank you very much. George, I’m just

live I’m view pandemic how this of how new people How Thank as you’re you you. in you As hearing, where be? for you going as going do is just will well to company to happen expectation you’re for do to what about as what of think NetApp many seeing your offices customers, going to you’re going kind world sort thinking? go think what what the post in to is focus we’re back? forward? your both What’s from curious

George Kurian

you customers Thank across your board. We for the meet question.

time I the What at in especially time before day single globe. our briefings continue. customer is any executive predominately six the be knowledge number in will – at that world of from large in see on operating the is IT over been zones senior base. I the that said, the interactions model, in a buyers can have that executive in that we had and working than and workers across mostly think I’ve We subdued the home As a last months because multiple higher

that already home we calendar ago NetApp few from year. our to next July employees of weeks working to fact, signaled be till are a In has going

a as internal needed a priority, for a saying take of so collaboration would digitizing of interaction cloud businesses we’re going we been this happen with our it. see IT of period that and advantage of of have that the And long customer we as on-premises time, becoming do catalogue for as we see together customers well idea their services both to and deployment

Shannon Cross

Great. Thank you.

Kris Newton

Shannon. Thanks,

Next question?

Operator

next question with Jim comes The Suva you. Citigroup. from Thank

Your line open. is now

Jim Suva

to the or the year-over-year to EPS but sizably. pricing, with you Can maybe walk on yet on the question, through one EPS for have close Thank of that’s question quarter-over-quarter best cost year-over-year and due this want earlier Maybe the all logic a single to instead kind focus basis you. us structure out Q&A down revenues quarter-over-quarter being instead of year-over-year commentary basis, integration. on but about I quarter Mike NAND week, is us flat or us know to trying of look why that just for quarter you’re at And getting extra COVID? positive outlook, figure I’m of encouraging Or I don’t excluding if that’s I heard but of why? just on George, next pretty to is the you kind this profitability? Is year-over-year

Mike Berry

It’s there. you the took as account wanted a question. sure you of acquisitions parts when that impact the the A there week, couple as well the the was from number to of that guide good we moving QX compared for number of thanks the into with just OpEx additional XXth Jim, the QX EPS remarks, the pieces make prepared In Mike. Sure. there.

revenue continue the where as that to that’s a in are why a So lot we that with year-over-year to it commentary. as well the we in areas. wanting certainly to we obviously then perspective invest did make relates us from growth And to on and focus the sure yes, as OpEx has do guide

didn’t So confusing that. be to want I on

you large as you account that to some to QX those of into make also took movers. QX looked muscle Just sure at wanted

George Kurian

other the One in a to basis the that interest year-on-year of rate. we EPS was debt had QX expense items the the for related on

are Mike moving the So giving and you of big parts. sort I

you for said, as EPS. to and compare between QX I we QX think that’s a way understand the

Jim Suva

you. greatly Thank That’s appreciated, gentlemen.

Kris Newton

Jim. you, Thank right. All

question? Next

Operator

you. Thank

Baruah Loop question Next Ananda from Capital. comes with

is line open. Your now

Ananda Baruah

guys. afternoon, and Congrats Good good a quarter execution. solid on Hi.

of just think get how George focused coming they’re get data activities will love you I’d services to together the of productive? sales guys Just team, and sort long cloud be around Thanks. what real context it those until quickly the any Mike, on and

George Kurian

of Microsoft, on with as cloud we’ve and alongside that team working selling our services NetApp well are with the team hyperscalers, installed with of get as sales sales Amazon group closely cloud is The focused team They customers cloud us to a the hired base their who working our meaning portfolio. and data backgrounds. experts Google adopt

pleased. We’re

them. We’re forward continuous impact success one had to into organization, we’re quarter but an and looking clearly the from they’ve

Kris Newton

Ananda. All Thanks, right.

question? Next

Operator

you. Thank

comes question from Raymond Simon James. with Next Leopold

line now is open. Your

Victor Chiu

update understand you for Hi. and in Simon an a Leopold. consumption-based This relationship relationship way? as impact Keystone is and Victor between a you’re public or seeing whether offering with one progress particular your demand there maybe help services, Chiu us around impacts Could a there, if the the service that us complementary in cloud subscription on services and other a there’s potential there’s the there if provide

George Kurian

a to Keystone. good geographies. our had Keystone in start of some is available We’ve selectively to customers

We it will making more be broadly coming quarter. available this

INSIGHT Keystone come Keystone and as you Conference several And said so public correctly more. is User we’ll invite our to comparative We’ve you complement to to this with had wins good services. our cloud to hear quarter a

wants get for data a within there’s an a to single that So and use to portion there’s And run other integration for data and or complementary reasons the they cloud. deployed if the applications, have a compliance their Keystone a of from or to the cloud. process entire want temporary cloud can that public workload center to public they move their or that business public center to experience can business choose infrastructure process customer a has

progress. So we’re the pleased with

You’ll Conference. our Keystone us User at from hear more about

Kris Newton

Victor. Thanks, right. All

question? Next

Operator

Thank you.

Eric from comes Lake with Martinuzzi question Next Street.

now open. Your line is

Eric Martinuzzi

deeper they’re Is about displacements? Is defending Just COVID-related the to how some help layer vertical? a competitive it base? please. about the and I there particular Is Yes. manifesting themselves. wanted on go pricing trends it a there installed

George Kurian

COVID Typically want not do. go We the we go hedge cost when is when to go or is we that commodity. what down. customers along to they time in because do we not of when Clearly something typically industry up through pass others the happens to SSDs the in that and commodity prices them pass up the customers along they

brunt to careful cases not having others, our bear price regard have so good them and continue need margin the go-to-market portion certain aggressive aggressive to model we’ve always take focus are to model competitive us of the discipline we on to maintaining partners within up customers in of capabilities about our as increases. displacements, and the and a be Our in and there. gross we’re With and they going to be been

Eric Martinuzzi

Thank you.

Kris Newton

Thanks, Eric.

question. Next

Operator

Thank you.

Markets. Next question Northland comes Chokshi with Capital Nehal from

Your line open. is now

Nehal Chokshi

exceptionally some technical strong quite on Congrats Yes. question results, amazing. A from me.

that that in provides So additional their top relationships? Spot of compute cloud it has or effectively management and this of Is on cloud. make Kubernetes does competitor Spot a leveraging vRealize VMware’s to in say the and by software this Kubernetes adding bevy layered is

George Kurian

that most applications, Spot effectively. as and the well of applications is of for environment optimized What behavior does as identifies to cloud-native both the compute for traditional that it pattern application cost finds run application

a that regardless also customers customers tell time for they the compute or where and the use Spot of because traditional they Amazon XX% typical so complementary customer’s can all bill more optimize VMware. are application So we to use, on compute What the cloud to application. run complementary Amazon optimize cloud-native as of same we is provider and providers we whether address able a it and right It compute version tier. example, what and they’re for in Amazon us of run is run cloud very environment to cloud can do class good of to allows complementary which a substantial that now We see cloud storage, we bill. optimizing the for of money entirely are and Kubernetes tier using is partners, with our amount on is a frankly they

are a we relevant portfolio. as of strategically Spot much our now So in to more result customers us having

Kris Newton

Nehal. Thanks, right. All

Next question?

Operator

with Research. Thank from Longbow question you. And comes our Todorov final Nik

is Your line open. now

Nikolay Todorov

Thanks. to to back deals. go strength and large want Yes. the enterprise in around large comments I

transformation. you I the think I talked digital about your the get on across that but in consistent been just industry, take to – want the peers has

strength those towards So assuming sustainable enterprise how workloads? Thanks. are we going large do you new think that And is deals? spending is that in

George Kurian

One That’s exploiting I two and better. enduring enterprises serve is doing an to things. generational see think understand larger data we trend. their increasingly customers

reach can are extend that of deploying are their positioned hybrid both cloud We who who them those offices. serve for landscape can And we to trends. working their businesses also see consumers own the come their from so well or longer no they employees into home extremely

wait the we they strategic what large financial think the enterprise rather and I see make than of in is fact necessarily little decisions where for and have saw resources COVID, those the morph segment-related a the runway bit. and we now have in pattern that’s to our to business

Kris Newton

Thanks, All Nik. right. final pass for it George to comments. I’ll over some

George Kurian

uncertainty, this the for for moves position maintaining you Thank the with being discipline. afternoon. make face the while In operational that long to we continue us strategic us current well macro term of

about hybrid cloud cloud and thrive at our is the will and help world. help Virtual their innovation data at flexibility cloud the to journey, join the where cloud can the Stay the Our safe unlock we’ll of their for rich us I be well. have We you. Thank to goals. talk Day Analyst matter No which customers we in data-centric transformation. a best their center. digital more hope them data foundation from achieve is enterprise hybrid NetApp and you software the how bring where services we simplicity cloud a on customer customers enterprise-grade

Operator

Thank Ladies and gentlemen, you for participating. today’s this call. conference concludes

disconnect. You now may

NetApp (NTAP) 27 Aug 202021 Q1 Earnings call transcript