NTAP - Earnings call transcript Q2 2021

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Operator

Good day, ladies and gentlemen, and welcome to the NetApp Second Quarter Fiscal Year 2021 Conference Call. My name is Liz, 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 netapp.com. Thank and us. CFO, CEO, replay available be Kurian; and call website Mike our at live you will With our Berry. being This

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

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

George Kurian

earnings call. our hope your I market our 'XX operating NetApp guidance. ones and with revenue, continue exceeding Thanks, everyone. strong quarter an am and in uncertain our opportunities on us in our accelerating for with saw fiscal with joining against on strength their pay afternoon, biggest are Kris. and customers transformations all another Thank We we execution off. QX, progress pleased you geographies with loved tight safe made NetApp. and Good continued sales to The margin you focus all FY I healthy. environment. EPS delivered year coverage our in to 'XX larger digital improvements

It growth especially want all-flash significant our and will Investor and introduced and further I our We expand continue the NetApp, an a exploit busy Customer Annual these cloud success, services a new quarter Investor cloud-led, advance the for We the us. to we Day, transitions, on leadership competitive thank our was position. in strategy. to market, of Data customer and At the software focus execution held their shift Conference; a to for to which accelerating company. products our times. our challenging introduced Day; team Fabric new hosted for data-centric vision

are We foundation. on a NetApp the new strong building

are who organizations digital leading world’s undertaking the to partner trusted a transformations. are We

our advantage. software, We with sustained record revenue track returns efforts. growth, foundational OpEx a technology turning including leading unique maintenance to management, and and These elements market. cloud we our recurring streams. scale transitions have And long-term of growth our storage for the in share to high-margin integrated balanced investing This, business capital disciplined clouds, market coupled with services create fuel significant shareholder will a cloud with proven while business strategic approach a in gaining value. and the to deeply partnerships model, laid strong and have our out plan go-to-market We growing

year-over-year. $XXX you against successfully this ARR to Cloud of plan. executing million, grew are results, we services XXX% can from see As an our QX increase

net very dollar-based healthy services remains retention cloud at Our XXX%. rate

We Run-to-NetApp and existing our new an at success takeout customers. mix pleased workloads at saw important with program, We the win cloud are new customers. continued growth gain strategy new competitive customers to and existing of customers component services with of our

grew revenue, solutions. our to and rate maintenance XX% year-over-year, installed addition our in all-flash continued of to in run revenue, base, all-flash, year-over-year with us software year. end in from $X.X share we the industry-leading an drove systems increased market. of which Growth installed by cloud XX% recurring winning this believe all-flash opportunity business important and billion. in Our our QX, product customers new annualized of which momentum At all-flash XX% gained XX% We giving again for were last growth converting increased

about quarter, data NetApp number by freedom work in fabrics. increase discussed dramatic by working in held one how a our attendees. elevate digitally, it We put helping including in of We are their other, commitment to remotely partners. customers, arguably with of organizations last data and opportunity new the our attendees, As learning building a of joined industry our each the conference our and customer and that digital all first-time successful and Insight customers, to were talking gives of applications leading had to-date. the transformation world’s thrive partners from to was exploit business, I and most our We we normal the to the our luminaries number prospects the customers record

interest data and had we The strategy bring partner enterprise-grade of the data services engagements. face-to-face, thousands multi-cloud the for Fabric unmistakable. We cloud meet center. hybrid was simplicity of and cloud couldn’t solutions the customer and excitement in, Data flexibility and to and the we to While enterprise our

achieve for data far of organization is helping cloud. journey, an thrive tackle in customers transform challenges hybrid where it are matter to In digital goals. cloud on cloud world. we dozens to transformation its NetApp a further digitally can its hybrid We quarter, innovations help their more of No hybrid and the help industry-leading effectively the manage customers announced

autonomous the cloud cloud infrastructure, and storage on or We solutions and and management, workplace. for in data portfolio to modern the introduced data, whether elastic for Our allows storage, companies software-driven how serverless manage they redefine premises. scale hybrid containers, and storageless

of applications New to Spot the automatically customers services companies compute solutions hybrid, cloud compliance. automate how and full blend, and as our Cloud multi-cloud to visibility optimization deliver management. Virtual a the and storage simplifying containers rapidly and optimal all data with with of infrastructure storage Manager of management use containerized with tiering, Service, And and NetApp analysis control cloud-based centralized for the services, comprehensive Desktop to such Management automate costs provides backup, saving continuous infrastructure resources. workplace can through adjust console radically continuous

enable approach heart cost version the protocol services operating the failover flagship physical latest hybrid our access. of the ONTAP is of and X.X. We enhanced flexible, data to object SX provide cloud. integrated range business-critical widest unveiled for our also instantaneous caching data system, storage support ONTAP to ONTAP of and effective, applications, at We the with workloads locations, across

new give SAN-optimized arrays price hybrid to systems, options. a performance Additionally, and NVMe we systems, range and broad introduced customers of end-to-end

better business flexible enterprises a customers in with consume demands. managed our cloud. Only this Finally, service their subscription public we data innovations in and accelerate enable is offer experience adapt to to digital cloud-like made updates of cloud-like pay-as-you-grow for the to Data these data their on center a to able flexibility. NetApp as experience premises. to addition unpredictable transformation all a NetApp path Together, center, a rapidly with a Keystone to customers providing Fabric to enables Flex their cloud-enabled fast, Subscription, Keystone

from Let solutions of stories is how put provider me data helping share elevate businesses. patient NetApp illustrate and healthcare to experience. to a we U.S. with you customers AI using to improve care couple transformation leading their their are work digital A to

us displace initial enabled Our Kubernetes Dell deployment resulted to to of AI workloads. control early additional and success and in the integration plane expansion has our

AI-driven requiring trend. transformed to in both business I NetApp IT data de Hybrid is and a changing management against success has at pathology. AI-based a am was check-in sales for digital our dominant pandemic work everything products. believe conditions. selected critical growing cloud this COVID-XX the foundation now transformation in quickly necessity, using U.S.-based data of transformation primary that is to as ability retailer, efforts. of enterprises services data try scale scientists, this, from facto These foundation X,XXX. are with to execute engineers support for is respond integrated, we and of create We the speed digitally the plans and flexible improve foreseeable XXX confident their virtually need Having could and and opportunity the service foundation Digital online environment. of are agility At beneficiary architecture now clear so to it. during radiology the to expand for to increase It’s satisfaction. data the the patient AI-based supported to is an is and customer to NetApp long-term an reshaped our the to a NetApp a to future. new Because recommendations their customers increase importance to that

position leading Our of unique helping to organizations in the ability most the managing our data critical market. solve in fuels their the win world’s challenge

remain effectively We are leadership, the business, committed that cloud growth, and extending expanding our for our disciplined hybrid well-positioned ensuring to driving we future.

it and software ability I’ll maintenance turn and margin-rich over cloud results recurring to to growing of value through Mike? the our for now quarter. deliver Mike you Our shareholders. walk to customers and support revenues

Mike Berry

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

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

guidance. margin, the operating revenue, of above delivered we highlighted, George As and EPS high-end

up billion, This execution yielded increased net company quarter of year-over-year. point solid Importantly, billion the $X.XX QX is XX% year-over-year, second revenue billings growth. currency including of a year-over-year of straight $X.XX tailwind. of across In QX, billings our X%

Public Deferred year-over-year, revenue strategic systems revenue of deferred $X.X When maintenance the And future for growth. the key and of XX% focus billion Day, in dollar portfolio. Our maintenance recurring outperformed higher $X revenue. revenue the year-over-year. representing content and Cloud billion, we our of X% totaled to at combined, revenue, our recent Investor two our leading both as carry with industry-leading in and recurring our is cloud storage XX% all-flash increased revenue and total Services, relative increase rest all-flash business an areas, expectations ended software indicator QX We quarter. highlighted

of up our share $XXX end was million our gains Only of for organic flash XX% were us growth second providing all-flash highlighted, for healthy George QX, an XX% XX% a second XXX% with positioning $XXX the ARR installed straight As of for year-over-year, our delivered accelerating Public quarter. all-flash at consecutive Cloud the business. for revenue million the and quarter. sequentially, ARR, year-over-year in growing runway impressive very Services systems

retention see cohorts net with XXX%. strong our demand at customer QX to continue We dollar-based rate coming in from

continued $X We are remain ability on Cloud to confident Cloud our commitment customers $XXX X% exiting million transformation fiscal track revenue both fiscal in in as from to the deliver approximately in product cloud eclipse $XXX to we enterprise and digital quarter million million ARR year-over-year. decreased embrace sector of to of projects. ARR and hybrid Total $XXX public on engagement billion good 'XX, our and In in saw 'XX. accounts

increase year-over-year, net Software product revenue up of an our million Recurring systems. of the cloud mix. at guidance. revenue XX%, over revenue. XX% all-flash was driven high-end $XXX up was basis all-flash margin of of margin outperformance points constituting of high-end driven million in gross sequentially our mix maintenance was ahead $XXX The XX.X% of year-over-year, expectations. XXX increased better XX% and XX% total by of Gross Product was by and

'XX. margin product remain throughout level fiscal the of expect to at remainder We this

expectations. Operating margin were a $XXX was maintenance, in services of flow $XXX margin million was revenue. the from growing business and cash operating QX business in-line and of us, XX.X%. million with recurring our $X.XX, operations cloud very to representing continues free of gross Our for expenses with leverage our and strong EPS model. $XXX was XX.X% business million, be X% Cash and was demonstrating profitable other flow operating

cash to As QX be a free for seasonal reminder, flow. trough tends our

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

last recent share COVID-XX of our several our trials. the two backdrop. quarters positive have because business, paused we the of broader macro by stability trends we know, you the and results More As program recently, been the in vaccine encouraged macro repurchase

towards dilution progress plan in commitment from our our with a share we our repurchase QX, ended short-term $X.X equity investments. We As QX result, to during and to plans. program making offset cash reinitiate billion

to on guidance. Now

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

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

share OpEx And for Assumed and is share. expenses of QX XX%. between $XXX The $X.XX and per mainly earnings operating by in million our U.S. $X.XX We in sequential to to $XXX and in healthcare payroll between we expect are driven this taxes benefits. annual XX% reset non-GAAP increase guidance to per million. tax-rate being anticipate be the range

transitions million. open to of interest the commitment In thank quarter. Kris? advantage guidance We to great capitalize ahead. entire closing, delivering big Assumed well-positioned team take NetApp and in want $XX the in I’ll the to call back $XX hard and remain for I is opportunity another work million the the of Kris this to hand on now George the call market for Q&A. to highlighted expense

Kris Newton

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

Operator

Long [Operator Instructions] Barclays. with Our Tim first question comes from

Your line now is open.

Tim Long

of enterprise some few far just look And that, new anything much there us should customers products just as are next only I on further? color little contributed just then a growth line you. is wanted that new accelerate you? cloud is also into that And as for part are business. that you we to kind even little to business Thank another the help how more to line? the Thank that not Could how we services also new you. give bit cloud seeing maybe, with or that deployments carrying a insight over line of quarters outlets

George Kurian

We our very dimensions continued pleased of to be business by many cloud growth.

to we've everything breadth offerings. in got and for us to of expansion of course, environments, segments, new databases to think on. new and allow from Google, cloud the serve range huge serve FedRAMP both applications, example, regions so Windows certifications, virtualized I certifications, that now industries, With we and environments, customer expansion Microsoft of a service

in And front opportunity us. so large a of there's very

that In terms on born run center, cloud. a capturing a really are capture, range don't broad of data environments of are our customers, IT companies have natives, the all because the digital we who of cloud in their

net not footprints competitors, got new We with of but are data who center their IT of with have a who with deploy expanding they substantial environments NetApp number IT cloud-based are course, customers capturing a business, our and customers NetApp us. as

So the of dimensions we are across pleased business. all cloud our

innovation quarters. the the our we at of portfolio, from and next innovating see terms teams you'll of updates In over are Cloud continued all speed, few

Kris Newton

Thanks, Tim.

question. Next

Operator

next Goldman Hall comes Rod question with from Sachs. Our

open. now is line Your

Rod Hall

drill your by driven Yes, Mike, that really into you revenue which thank the question. remarks for revenue, in I that particularly know, to you product I said grew quarter. the product software well wanted in prepared the AFA. that was the high-end

the comments What's to you And wanted quarter made we would I think you're love on down line. about back So you that earlier also are guys to when you it there. revenue share curious in and that just come ELAs competitive note storage could here about thinking Dell talk to George competitive your revenue growth? the environment. comment I driving whether dynamics. whether just taking if X% was share less ask in any you that you and down there's on so guys I

George Kurian

and we have HP, share. competitors, if Dell, pure Listen, of look no the there's taken of all at major results our you question

And mix part in business model. in was all-flash market. integration, the richness array The advantage which high-end the which all-flash the driven carry a the the product maintenance, In array capabilities, of software up all revenue hybrid of our arrays software a deferred the and in is of category, the leads as the think best cloud all-flash all-flash growth has our within configurations, our I substantial to the segment. the products portfolio amount quarter. in

pleased. really we're So

I really think we about to portfolio. bullish our to sort outlook, with regard continue our of be

And have about there. really Mike regard customers comment. market, uniquely position our to products best As ELAs feel got good to the cloud I give a hybrid in positioned I'll roadmap. said, really, With I we the

Mike Berry

for Thanks, Rod. question. Mike. Thanks George. the It's Hey,

remarks, on in driven our anymore, And noted, George the we in that out going outperformance because right sales. those was to as we going the high-end as not guiding of a And product we're margins by and we're margin, revenue why forward longer prepared as mentioned, is two So said year. business, the such rest our product as any calls, for which the expect about, small they around product we are ELAs it breaking forward. system earnings remain any XX% the of talked we flash not last portion

Rod Hall

Thank great. Okay, you.

Kris Newton

Rod. Thanks,

question. Next

Operator

Our next Cowen. from with question comes Ackerman Karl

now is on open. be may Karl you line Your mute.

Karl Ackerman

Yep.

to Day. is because the rate there peers relative the versus during how XX% to your the that. a or in due of base? year-over-year Analyst saw installed to your of Sorry asked initiative about NetApp Is much in way sequential about running context the significant of spoke CAGR growth growth think implementation I your upgrading you you X% arrays about year-over-year was all-flash your

guess about for growth arrays, Thank your incentivize of rate changed you or for sustainability base I NetApp run force so sales installed to your for initiatives the all-flash? you think your And have upgrading way as these we all-flash the you.

George Kurian

to the to want want Investor rates saying just begin, I all-flash question. at really the growth of I X% was Day we market referred thanks for to CAGR arrays. begin the by that

noted, very, our transitions in very competitive campaign, continued very have we run feel very focused share We performance program a as the the and to-date. that another And efficiency, The attacking had which connectivity, has taking market. The are leadership share. match. confident about you our progress competitors scale And And to the outperform in NetApp we are cannot a good migration taking products out that market. and hybrid competitive architecture QX. strong some the is as competitors correctly, on we and feel we in to quarter noted of cloud we product offer we

means very installed of flash which expand amount have base, at the to If in penetration the we our base. a base, room XX% we're to look the large continue footprint that installed installed of you at still

think that product We advantage strong as about Day, real excellent taking that can product their we're net-net, transitions we share, continue of. our demonstrating our said in challenges executing at we quarter. and competitors the Analyst have to feel take We portfolio. and are we So

Kris Newton

All right. Thanks, Karl.

Next question.

Operator

Hosseini Our comes next from question with SIG. Mehdi

Your open. is now line

Mehdi Hosseini

share? follow-up have for quantitatively give qualitatively software quarter? all-flash Yes, detail can trends October so But Q-over-Q the I all understand in. there a AFA one in trying mix what around does on market of and the to it compare you Is basis in a And we us the actually, or you better thanks way dig gain can array. enables and any year-over-year there how to

Mike Berry

Mike. Mehdi, Hey, it's

the thanks question. So for

take on software non-GAAP our you'll at If a year-over-year, substantially. look disclosures, basis the quarter-over-quarter supplemental revenue you of see that grew and a product portion

So by on driven a year-over-year was basis, of hardware it XX%. XX%, the was all-flash. lot a up Commensurately in growth was that down

based addition, shrunk and billings In portions that, number the booking AFA than on year-over-year. faster our the of see XX% under other can growing portfolio that of you

that's because growth again, George which more our put in going growth mentioned, also So the in to revenue XX%, well, of And X%. great that support you to future revenue. is and a goes everything to for support balance revenue go software see doesn't lot a that as as lot sheet, billings of of

helps that question. your in hopefully So

George Kurian

For where put the focused in customers. color parts is on, why signalled, thinking the portfolio more really think hybrid we accelerated cloud helping hybrid the all-flash better customers two with of the there. we cloud I build there COVID, as architectures. winning our deployments. I have leadership about are we biggest And have I has on really we think, clear One strongest They're taking in our our is and share And executing in think opportunities. second, against we things emphasis business, the are are

strong a those to portfolio us in the having to ability that the think share. take addition are two gives I elements really product

Mehdi Hosseini

you. Thank

Kris Newton

Mehdi. Thanks,

Next question.

Operator

Amit Daryanani Our Evercore. with next question from comes

Your line open. is now

Amit Daryanani

And with on this array impressive. nice will AFA, array by surprised would question. a digit love mix the the maybe of my growth year, all-flash quarter. parts somewhat my of imagine the questions gross remain taking to I two sustainability then I'd for Congrats fairly as on better have understand and a well, for structure XX% product. margin it we rest as on but, at growth of I margins flat towards shifting Thanks all-flash worse go the guess keeps assuming all-flash I'm is forward. product the more gross the rest this because the commentary double

mix on all-flash on we So sustainability margin the getting then growth, touch Thanks. just aren't we're seeing better? through array. And this a why product seeing flow better of gross given

George Kurian

disk-based the your that to in in are the curve Investor think then multiyear you. And XX all-flash being about And Amit, will let's market market. it of coming that are array innings all-flash we we the to and said, we the business, next in to Mike meaning to of gross portfolio. disk-based see talk the move moves we talk array market of storage market, part of We the the of technology question transition XX I'll product all more We months percentage early this there to that because total as first With think will as margin. to I'll over the all-flash. about a that to that be all-flash the the said don't we Day, an thank still see, But more XX% a say array market. give the the substantial all-flash XX% market. storage more technologies regard online

it installed job, Mike all-flash. the that. gross many, entire meeting that, margins. in and years talk With games, focus, We to are a good stages. example, about ability in we're driving it's We customer long are said many and XX% to continue keep as to innovation, doing drive as going it's to base we at expectations. about me let we're and to continue all-flash, think share about regard to just our to With that hand installed about to it's doing we go, think of the way there's base upgrade a early to We an our after to

Mike Berry

Thanks, thanks George. the question. for Amit

on. couple that would focus a this So, I on pieces

the the had going of was majority we quarter. all-flash margin high-end As we earlier expected something and talked of that about not in that remarks, into today the gross prepared from our outperformance came the the in

a bit a get guidance you because year high-end, the normalizes that assumes margins software. higher in you all-flash. of But better the rest for percentage Our bit of growth that the still into little as the of little get even

So growth still much just back and normalize mix. now of not high-end we're in forecasting bit to a so all-flash, come the little

Amit Daryanani

Perfect. Thank you.

Kris Newton

Thanks, Amit.

Next question.

Operator

Aaron Our with Wells Rakers Fargo. next from comes question

now line open. Your is

Unidentified Analyst

is guys. think Spot Aaron. of quarter, on question. Could taking one. recent idea to million you behalf ARR a Last what Talon. of that CloudJumper, attributed $XX Michael just Thanks for This Hi, have quarter? the acquisitions you disclosed I this of and I of quick your was give us an

Mike Berry

disclose grow. quarter. it's so Michael, the Yes, continued the the to that Berry. to of Mike ARR as We that we going acquisitions growth are did during I Hey, accelerated will the ARR organic disclose going they well not tell have rate the from forward. you

to all the not But going forward, good separately. on break those still going So acquisitions. out we're

Unidentified Analyst

it. Got

Okay. you. Thank

Kris Newton

Thank you, Michael.

question. Next

Operator

with next question Our comes from Ananda Loop Baruah Capital.

Your line open. is now

Ananda Baruah

of for is recovery right sense of strength this now, Yes, guys. trying is you solid on may of just a get to how sense Thanks in force a a now. has taking that, how might a George, folks Please there spending sense a industry And sense how the industry much of more reviewing us get initiatives up Hi, looking of way so performance from you that? going give just been at any for talked incremental be recovery sort since lot. sense what us the is of and the structural to you go and of to be have sort anecdotally reopening the all about, guys, a portfolio really of And there you of for the sort from right question. the you thanks on good hybrid, some think much really, execution. many which just of one to of sales afternoon, stand of both initiatives. guys give strength Congratulations guys. you is

George Kurian

such difficult and we are being and applaud in an focus execute of of continue a that you I want customers, extraordinary for to think time. is to able our I great primarily time. in had will first-half teams execution. our first we our to because I have And, all, a that tell

think competitors, relatively has it's no those macro we out of in you question results of executed the choppy, took tough deteriorate But it's I there's to stabilized. been the against our market. if we going them think further, I look our not share a business and at

to the three highlight things. I think want within I customer base,

forward, enterprise are to to their to realize businesses First, they they meet beginning transform moment that in to because move customers the the and have moment. thrive

the so larger customers, in are transformational projects, especially forward. And the moving

Our tilted benefiting are mix is is business towards that that. from and key we

think news the from second listen, the the vaccines pleased it'll lockdown. The think go stabilized with is I in the get forward. are we're We we the here. mostly that, about midst has and of and vaccines. that should economy But It better nationwide a

We have lockdowns in many other parts of the world.

months few are and January. here for tough November a in We between

for few Mike, we turns comment? well-positioned for outlook And think months. any it will as being about add when want the next we're We you our to are the prudent market time. so extremely over

Mike Berry

No, nothing add. to

Ananda Baruah

of any to been update going ask was impact I Well so able make to sales the on force has far. how

George Kurian

XXX we had heads, for update a four we about ahead driving It quarter an about capacity that of wreck hiring 'XX. QX, quarters of time we that in expectations to fully have they results. really met of fiscal are We year were takes good are said our adding productive. provided on one board, Those that heads be

and executing. this to we pleased with down for we're head going the We're keep said, and is year our investment. So the progress keep that as payoff fiscal

Ananda Baruah

guys. Thanks, thanks. Great,

Kris Newton

All Ananda. right. Thanks,

question. Next

Operator

comes Stifel. Our from Sheerin next with question Matt

Your is open. line now

Matt Sheerin

the you program And mix the you. NetApp more given on your Thank from that there kind provide traction most In are the thank competitors is your model. projections? offering Yes, growth a as of commentary, similar how color customers, you on service highlighted programs, you. as Keystone a kind you're seeing service of the customer of Can differentiated?

George Kurian

procurement of you first a we thanks offer, think they vehicles we've want vehicles, an is regard know it And Keystone outcome go forward. outcome have as don't financing are There part really a element to motion. an our of manage a and that to continue which as I to to deploy for With other all, is want who going and offer of are service. people part do what, the with but to think we what I emotion to they offer question. we are had them to Keystone a how are the an infrastructure, always ability customers have be service. selling just of customers

solutions demand deployed instantly to effective have up Because fulfil the world's got ways those instantly And cloud environments, of are them clouds in customers. all on expectations. system you meet We world. operating the first most of public leading from to with spin way Clearly, the our many type you down. and that the them best spin and can

second partners. Keystone wide of Keystone from from services our services similarly, NetApp like provider is managed range and service service The and

we're a they demand. customer footprints, customers. net So that at outs, meet are the and we I'm have take are competitive new good of number pipeline are and ways them environments. They wins having. excited of the to Keystone lot of enterprise A

and looking So environments, the going we're new net business in customer not of deployment. at brownfields. We're after new cloud

next more from quarters. few hear about Thanks. you'll certainly the over So us that

Matt Sheerin

you. Thank

Kris Newton

Thank you, Matt.

Next question.

Operator

Oppenheimer. from comes question George next with Our Iwanyc

now is line open. Your

George Iwanyc

us the you've following last on globally, your Thank a George, the from takes a U.S. the you and quarter maybe the over for and surge, is what a up if learned regarding environment, continued comments give taking then for COVID maybe perspective? can in current you my here there sense question. puts

George Kurian

challenging are do as the of earlier, said next few months, I going that months, to I believe a right. be set think we

have seeing get I working news historically models they day. the their deal and that projects to They have think are with see towards every that the what remote operating optimized normal, right, or on. is were hybrid companies And so to move they've model. a realized new you in on that begun that moving we to stalled,

and So we is they with human there to deal surge better challenge one. do right. high, think cost if that equipped are the the doing so of The is

sort to back things most time get for next they're normal. the stabilized, so there. as we're stabilized. the think I new I appropriately being sign every And downward improvements over few see outlook the our careful said, that think But we trajectory We be further for that There'll to in mostly part, of think, not have we the months.

Kris Newton

George. you, Thank

Next question.

Operator

with Our Fox next Steven Fox question comes Advisors. from

Your now is line open.

Steven Fox

just one market on Good gains. the George, afternoon. share Thanks. more

just as of sort from You highlighted not end upside and you. driving in you software of revenues that but Can more higher much the was how forward, quarter, stimulus how Thank sales. going you just of why sort for shape able benefiting of to a the sort you're arrays opposed sort also just to workloads? saw all-flash about certain the talk

George Kurian

arrays mix to software, And can higher it much are all-flash the makes all-flash workload consolidate array on of a consolidation all-flash that generally infrastructure, it on. the customer terms model it they in With arrays have so type think really portfolio. deploy. of is is there rich that software consolidation, they and software, they mix, so very a and depends case. more typically of based efficient, management, the I deploy a systems system, have the If automation, to a of more use to certainly our fewer larger a the regard more first of type what customer in carry they more project If environments, midrange environments. so deep tend mix, have

really depend around it's customers. So

the right a the about right entry. sell focused the that feel And product across stay on would unique our midrange, also to I use say going to is what's for good to right flash we selling very we're think competitive allows customers. about and really solution NetApp high we position hybrid good all the customers. portfolio have I elements, also end, case us

Steven Fox

helpful. you. Thank very That's

Kris Newton

Thank you, Steve.

question. Next

Operator

Our with Matt next Cabral comes question Suisse. Credit from

now is line open. Your

Matt Cabral

about U.S. just like in that bit a and little Looks Why don't talk drove going you sustainable are quarter good guys you strength a public. you had you. more in thank what tailwinds forward? Yes, think how segment that

George Kurian

was our to want sector thank sector U.S. our public in leader. I public and execution public business. team It the good sector

of agencies, size. the range sector year rather at in public our said be to distributed the As business course both broaden we really had those I is business, total And public we program prior some have for calls, have a on year-end We spending across done in federal the to our sector percentage that of our as is local as dimensions. our which and type involved over more slides. the have company than typical continued a of think a education higher good well typical all wins than us smaller grow business we state, and to well

We have about business the a book in broad where we of I public sector, and good are. feel

in. administration a We have coming new

will administrations adapt adjust We that our priorities have But wait confident what are. to will and appropriately. team the I'm see to

will with we quarter are time we take and a it at good progress. the so pleased a And

Matt Cabral

Thank you.

Kris Newton

you, Thank Matt.

question. Next

with from next Our question Miscioscia Louis Daiwa. comes

now is line Your open.

Louis Miscioscia

strong, a it Okay, seasonally thank looks maybe bit was than similar you. U.S. Europe commercial. a stronger even little like note, On

why comparison these reason changing last strong Europe lot from a year. was last is But to a days, little a So year. know Commercial had bit year just U.S. stronger. any I comparison to this seasonality in you

George Kurian

progress. of If done you the look has half with really the pleased this at U.S. well. business just year, the I'm first

I deals between around I and the between think, when look at and quarters. QX, QX takes puts move

draw wouldn't in much the book any I all feel business a stronger we I unusual So across see like of QX did geographies. conclusion.

feel I and continue of as business we're really The and going prepared encouraging the focused in remarks. stay about breadth good talked to my is execute. So we

Louis Miscioscia

second-half. Good Okay. in luck the

George Kurian

Thank you.

Kris Newton

Thanks Louis.

question. Next

Operator

Our next question from Jim Citigroup. with comes Suva

now is line Your open.

Jim Suva

and quite first-half. be And ahead this time, than very your don't of and year place with much. are stronger of first-half. striking it just up. Is pause we ahead this want aware be my opening could fully you or a and kind out way boarded, some of was far second-half Plus, year everything's and of that fiscal seems like should sync, stronger of should like be they're in want Coronavirus, countries to we're if second-half about of other force kind shadowing than your hopefully myself. kind and some And don't seems vaccines that is things I you means think sales got through their quarter think there. of really second-half of or to stronger, even get getting are there should that memory now Thank of congratulations kind so, be even even a your healthcare it of team. things like just logical But by to the that benefits, well at the too on If net correct, I out? which George, So all seems

George Kurian

them, and we time comments. Jim, as 'XX. share, speed. year scale QX delivered sales enabling to of and to four all-flash takes we force completed of correct get our for hiring about quarter the rep initiatives, it a And thank you question revenue, Listen, a ahead great taking strategic a to for continue fiscal quarters about the are said, franchise. in cloud having fully growing you're We been your had we up key first-half, our we're

I've our market said position. love before, we As

U.S., only families, confidence. the but The of competitive the lockdown clearly the We not We're scalars. said, expanding have transitions, give the next big we I stabilizing macro the months And with what sobering in like all parts trying pipeline the the to incremental see looks should the of trials vaccine platform for world. in is many cloud hyper is healthy. as us the reality many, few businesses for balance

reality that in trying And to with engagement continue to the even be our customer compared fact with and in so the QX very balance constructive. we're

to is Mike, near-term So position like, add feel about year-to-date. our do view the very, a uncertainty. very prudent anything? you good what take of the trying to we looks want given we're But here

Mike Berry

question. add things. So I'd thanks of couple the Jim, a for just

do the of good we is As why the reinstituting we're George about, feel share about reasons our forward. look business. one talked buyback That we as

be do times, we of difficult months unfortunately all As a it's for of expect, couple going to still of us.

we keep changing growth revenue do we as too great do to continue Jim questions mind some growth cloud. based to guidance, the of be to we business, The well the billings more keep revenue the when a in mix other ahead thing of in on and that mind give earlier AFA expect is as in

the So also, as you as look that mind second-half, please. at keep in just well,

Jim Suva

much, congratulations. so you and Thank

Kris Newton

Thanks, Jim.

question. Next

Operator

Todorov Our next question comes from with Longbow. Nick

is line open. now Your

Nick Todorov

guys a Cloud Yes, progress Data quarter on thanks. businesses Mike, guys. George seeing Congrats think I the nice are Services you and great accelerating. on

'XX year your the I of high-end think towards you're fiscal tracking guidance. probably

have percent maybe the You you whether talked I some those is you And CDS give what some the net are percentage existing the can of environment customers of in can of what on place? an the on-prem us hindrance us whitelisting new born you NetApp factors, a [Indiscernible] file color versus in about some at update but cloud? was still guess that give

George Kurian

services the feel data progress of really cloud With good. the business, to regard we

business both the progress organic quarters I our especially and our demonstrated think last the accelerate, which couple have portfolio, business, of really to in inorganic continues Spot. in the

cloud so value in for strong both We them a optimize workloads, storage proposition helping native computing, serverless both compute workloads, have containerized, well traditional and customers, the and workloads, cloud on. for as as

did range customers market. So are enterprises not our said, are to customers center our the really native With broad in data have with good, as broad cloud that footprints position born I competitors. cloud as in well both that getting as a regard companies, the of who business buy mix, we NetApp from

expand you vehicles customers of for share over to go over I us comments? are to these displace want our app wallet add of any think Mike all or time time.

Mike Berry

add. to nothing No,

George Kurian

a sure workloads, we're need are but on platforms, flawless it as long And we our is your just of to service. before performance public the whitelisting comment RAC, less in whitelisting, hit removal making experience. I continue have register for of as the keep to requires Listen, to essentially whitelisting. deploy mission the customers Maybe about on run going deploy place, it business cloud put we computing, critical workloads place the customers mission they SAP, a database given and kinds that's that progress critical environments, on we going our towards can to high like customer like that make to capability in workload monitor. We're Oracle

Nick Todorov

Thanks.

Kris Newton

Nick. Thank you,

Next question.

Operator

next Our Eric Martinuzzi comes from question Street. Lake with

now line Your open. is

Eric Martinuzzi

and the wanted revenue sequential hardware Yes, the understand maintenance better to in pro services. I

to So I of inch kind would QX expect historically, QX. to that up

QX Now, QX? for composed and it's I expectation you hardware Pro QX know then about about that services. can XX% tell maintenance, of to What me and your XX% about

Mike Berry

the had that mind Eric, in it's in QX it. week Keep extra Hey, Mike. Yes.

coming quarter-on-quarter, the about incremental software revenue sheet, off was and So it when half because you and recorded $XX about half extra was simply of the million we pretty of look week that that close. hardware between balance

growth look out you quarter-on-quarter do when actually increase, that when that amount or hardware sequentially a to in see that you need nice you back in maintenance. still QX, So you

Eric Martinuzzi

continues. the And that QX for Okay. expectation

Mike Berry

would the be As as Eric, we then really saw in what long mix holds no entirely there believe conversation earlier, -- If in terms on had the mix. that to in consistent of be just maintenance with companies, XX% would of the QX, balance their mind revenue, deferred of depends impact so we technology it don't to comes off FX. you that most quarter Keep of revenue outside sheet, a software in our $X.X get XX% lot billion too different. like the of reason

Eric Martinuzzi

you. Thank it. Got

Kris Newton

Thanks, Eric.

Next question.

Operator

next Our Raymond James. comes from question with Simon Leopold

Your open. line is now

Victor Chiu

of what markets is this expectations. store Chiu this significant we've consistent Victor number refresh A to results? the fallen Leopold. that in with And conversations guys, observed? Is had power shift of Simon somewhat short NetApp's that's midrange Hi, piece Dell's for suggested contributing share is has you've this of

George Kurian

there. of think a things couple I

high-end is midrange architecture, our to new has will NetApp system. vast to performance product. the have from price It is a customers build our not incomplete has, system. is think And sweet There systems, across going of met entire majority Dell buy workloads power as of landscape. are only the the competitors transition First to a in observed, It the observed, many spot but are like we not to a we the I expectations. also believe hard an clustered customer midrange midrange continue have mid-range modular a or that of but architecture high-end all, the that max like

that we intend before real And to transition. they to time mature And take be them during going a some and make you bet system. from so share can that it's that

our to impact and that campaign. NetApp to we're run And execution in the on. of have seen We the pour it going

Victor Chiu

Great. helpful. you. That's Thank very

Kris Newton

Victor. you, Thank

question. Next

Operator

next Our comes Nehal from question Northland Capital. Chokshi with

Your is open. now line

Nehal Chokshi

that And to innovations? to real the due tends Good way. to XX about the quickly question you detail here that pile pieces was next going question arrays? to months. hybrid another are and a all-flash to continue software attach talked shift more those XX what on to all-flash array that you answer thanks. down are wanted to then coming where what is to innovations add-on the of for Could Yes, the array in I confidence by George, flash quarter flash

George Kurian

performance more technologies arrays. With the the level be that are of cost regard to erode all-flash underway. there there in all-flash more of innovations value in technology the all-flash drives, arrays more to will We coming transition segment, the drives effective array market, like continues quad and proposition that to that cell market think XXk will transitions that

to the them regard is is And of have more to on. much data with is given arrays of to to in you sitting system. second data all-flash make that a software ton contribution, ways data do second in software more so protect The their with and compression efficient we allow terms on the reduction, and what the data all-flash them more in an

higher So of are by software software, management. a a have those in of disk-based And based result, the using then configurations data economics a in all-flash as their percentage system. value benefited

Nehal Chokshi

you. Thank

Kris Newton

Nehal. you, Thank

Next question.

Operator

Research. Cross with Cross Shannon from comes question next Our

now is open. line Your

Shannon Cross

much. Thank you very

how do increases beyond? component you're looking of to something you as Thank pass you expecting was that HP of XXXX as seeing higher opportunity some backlog we're question they're feel mentioned costs. seeing Is overlap, through, component Just I'm go their is cost what increases. you're you. a not about into exact on that the obviously, filled price but with components it's curious that at that at? and some some necessarily And cost and

Mike Berry

saw costs, see QX do ease. higher Shannon, that We in see is it's some the fiscal What to to second-half we specifically pressure pricing expect component of SSDs. did year of Hey, Mike. we in related our

And into pricing. we we So continue likely do lower expect will that 'XX. some do expect

economy. Now the a that lot of depends on

go that of a phones, some of second-half demand fiscal lot consumed that a as consumer also seeing of we're are know, you by drop we into mobile the products, year. our lot As SSDs of

But the demand of how a expect second-half 'XX. the we do We'll to going costs to a supply and see into comes the and all have then be bit We we'll on see 'XX. in little expect out that go economy into component overall, to SSDs. hopefully rebounds help But especially though.

Shannon Cross

Thank you.

Kris Newton

Shannon. you, Thank

Next question.

Operator

Huberty Stanley. next Our from comes Katy Morgan with question

now is line Your open.

Katy Huberty

of you is new a percent to on driver gave And this the Thank few examples demand use quarter. high-end have in array AI a sense AI all-flash new of Do you. Congrats customer Thanks. deals orders adoption quarter? workloads? what a of strength in you tie the or the cases. George, for of

George Kurian

Katie. you, Thank

are in specific on are game plan We industries. AI in our tied to that solutions focused

in helped in employees are patient the financial and a healthcare, adoption AI parts on AI. personnel we whether manufacturing where by services are select use good of I whether focused are they we are of of administration think the seeing radiologists stretched being AI in also are or And techniques. they

good So we're that. returns from seeing

I image so think and and techniques with for solutions now video platform excellent AI we're and is they audio to is AI effective files succeeding example file them. an with technique, sit AI and for and for storage, regard why we audio are AI and a mature and on image because video analysis, analysis NetApp

Katy Huberty

Thank you.

Kris Newton

Thank Katie. you,

Next question.

Operator

comes with Our Paul from JP Morgan. question Chung next

Your now line is open.

Paul Chung

thanks guys, my questions. Hi, taking for

cash flow. one quick free on a just So

fiscal of less notice, the relative to year? working of kind to see as in investments going working harvesting year. typically see we past in are second-half in of the So I large cap first-half we cap the did

kind So just there. in as of the maybe seasonal swing the large thoughts not second-half your

Mike Berry

because about last QX. were those, flow that than pay Mike. big for in that. just $XXX question. more question. two in Hey, Paul, that year, million really in still year. year year, the Always paid any last of a to into cash on I cash payments second-half. it's tax numbers last this Hey, It's we so movers flow QX note taxes QX fun in Thanks aside the fall they'll to get mind We forward into keep that the note will in pulled the

collections. is saw part did flow other capital, The it cash working QX in you better as and the as relates do we to in statement,

revenue You saw ARR. deferred the by cash generated that and in

at to at, biggest think we're in please the the factor that on you as well. working capital. as I swing be see tax level But billings as continue second-half about that'll long So would as keep the that mind in second-half, expect those payments,

Paul Chung

Thank you.

Kris Newton

you, Thank Paul.

Next question.

Operator

question comes America. Ruplu from last Our Bank of with Bhattacharya

open. now is line Your

Wamsi Mohan

BofA. George, given guys. It's expecting pricing the QLC. you. Congrats of demand it some strong at the you're on sounded thank quarter like elasticity Wamsi Yes, advantages

given what did confidence NAND elasticity really the curious, you that downturn that Just declined. gives actually the NetApp’s revenues not show last pricing and

in it be Thank this what that you. would that's different So cycle you see?

George Kurian

We all, will time. first are not yet actually seeing that QLC be the of is in over it market

is are drive array seeing a all-flash even we XXk makes think I QLC advantage better. performance to that relative of the an what

So to times there customers half all-flash of that lot roughly hard drive. one cost today, closer a when buying number gets to three are arrays, times. a they the and a two are QLC, With

And material. so be the advantage even more will

up to going not to the require all-flash it's we transition will the I extent to simple. gives We pick that share. plain workloads to and got that come and to we us all-flash us share think think a win it drives, that execute. don't to chance compete array that all-flash, to I in that think that more executed transition, on

Kris Newton

final I'll for now All right. Well, to George it back pass thanks, Wamsi. comments.

George Kurian

another Thanks, to in Kris. we strong our plan cloud scale business successfully while market. Thanks executing summary, our growing to everyone. delivered the In storage quarter, against

of to value Thank families. holiday do wonderful our I are stay ability cloud a of confident hybrid the am long-term shareholders. I you deliver you growth, soon. all in and cloud our hope positioned loved ones safe to for increasing environments transformations. drive leadership help with hybrid so of beneficiary and uniquely We their primary data Have you. and our and season. customers, importance digital your and to See customers partners are in you extend a and all

Operator

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

You now disconnect. may

NetApp (NTAP) 1 Dec 202021 Q2 Earnings call transcript