NTAP - Earnings call transcript Q3 2021

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NetApp Q3 Fiscal Year 2021 Conference Call. [Operator Instructions].

As a reminder, today's conference call is being recorded. I would now like to turn the conference to your host, Ms. Kris Newton. begin. may you Ma'am,

Kris Newton

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

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

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

we revenue spoke. the billings despite since our joining I time of EPS another the our I'm our that quarter quarter delivered Thanks, everyone, report operating In top that your and growth stayed end consecutive safe healthy team thanks, challenging environment. you Kris, to ones the and high have we the hope the range and today. and of strong quarter, us our last for loved with and third margin guidance and expectations. above delivered revenues of at third pleased

was sales in in capacity incremental notable FY performance off. Our continues pay Americas The QX to broad-based, enterprise. we in added with 'XX strength

we of delivering gain Additionally, all-flash our competitors' markets: Run installed is to ability and again grow in to once both we quarter, our share competitive NetApp continued as bases. cloud displace program takeout demonstrated this arrays. and importantly, success key Most our

work delivering of year-over-year. ARR in saw $XXX services, standout the cloud. and both We the Cloud provide NetApp said for experience to As we many solid cloud and what the our the our we helps grew Spot XXX% good enterprise expand services that to our business, million, hardened portfolio, being Files do times, software our significant is an across on-premises additive Azure with growth. in and business have increase that momentum foundation cloud a

cloud-native expand while customers We and continue to new with enterprise existing adding customers.

dollar-based services healthy a retention net cloud Our rate XXX%. is

meeting. We and Our at go-to-market with at top us our in cloud this stay Sales activities This invest their cloud to of partners us deployments, expand helps presence reach workload growing with rapidly proposition. AWS re:Invent certifications broaden asking mind engagement both are value regional and to business. support a sellers and Google customers had kickoff significant

X move workloads customers more SAP the Tier as are such cloud. as to We benefiting

investments regions. we substantial with dedicated and presence our pulling cloud additional To partners, sales forward are cloud opportunity cloud service by Our public delivers capacity applications. volume performance the in mission-critical our availability adding expanding the required ahead, and address

our QX support As we pipeline look ahead, target. we strong to have a

Our and billion $X fiscal reinforce in 'XX. product expanding ARR cloud map cloud confidence in engagement our year goal in partner achieving of our road long-term

XX% all-flash net rate year-over-year annualized Our grew to revenue billion. an business run of $X.X

For market, all-flash. from share we installed and hybrid At the our from giving were growth. arrays converting all-flash, for of plenty to of we XX% third us gaining installed base believe competitors outpaced the consecutive QX, the continued quarter, end systems headroom of

technology. demanding Our powerful integrate of In efficiency a enterprise all-flash with and that of we the manufacturing. expanded scalable such alike. the QX, flash introduction electronic is the highly analysts arrays huge The medical breadth computer-aided FASXXXf, They for deliver trusted offerings our as and with of the a speed of QLC connectivity received and and solution volumes accolades customers data imaging, deployments smart, to and design from array industry flash support cloud solution for FASXXXf design the leveraging all-flash automation most workloads. first our unstructured

Our This cloud ONTAP. R&D significant foundation, services are on same built shared investment. and leverage R&D gives flash the software primary in our systems foundation us

consistent them data tools the at to and right a enterprise seamlessly and while bringing the pace innovation move them test innovate new It in location center at a functionality to are to This at time. and on-premises at cloud. can data operating right absorb. benefits IT right to their similar speed giving We customers, cloud shared able data environment the the also the management also price enables

digitally and is agility now call, elevate last to and foundation is As conditions. work of digital their and of this scale business helping Because to speed IT at Digital cloud of Hybrid data efforts. necessity, businesses. accelerate de to is Having a a facto is success transformations the beneficiary for primary their respond architecture to I to their requiring changing transformation noted put transformation digital data that growing NetApp data the NetApp on customers management our believe We is in critical this, foreseeable future. importance. flexible the trend. enterprises transformed an is integrated

on requirements We as are move that positioned well and that for cloud premises. address to to maintain uniquely as workloads the customers' those modernize

in customer's data to cloud. solid their A labs. cloud They have a needed selected petabyte cloud XXXX us Dell security the few mandates to protection manufacturer expanding year moving AI want for choose to capabilities. critical pharmaceutical from achieve to our wins cloud. was Calendar was and all-flash of risks connectivity company's a in our management along cloud a share manage services difficult availability results customers of hybrid to all We host security of to express to and helping to global AI-driven it my third to NetApp XXXX while decision. for clinical to conditions. unique NetApp the why to I'm to for by management challenges glad overcome and illustrate leverage and improving me health necessary the regulatory vaccine of deliver and because behind connectivity our the thrive data customers public calendar leading us. and the quarter while with working global ability care gratitude data laboratory, team data workloads optimism capabilities. We when public The won with displaced performance, At the coming compliance Let FAS their I the minimizing scale, health our together because ability for NetApp see remotely. for trial quickly NetApp NetApp reasons the to underpin

management, and create critical the well disciplined solid business This the returns in in even drive and OpEx shareholder new coupled company Cloud revenue will forward. margin FAS as value. the maintenance balanced is competitive regulatory look approach business cloud cloud-led advantage, the long-term are of capital In a in foundation. and significant and normal streams. our markets, software, our with we and The to data remain. growth, environments tax and high NetApp services on All a the our momentum going recurring organizations new to uncertain strategy investing as as strength built about confident and uncertainty more However, is software Flash it's our sustained fuel

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

unique partnerships record with transitions and integrated a track turning leading business strategic model technology deeply including go-to-market have advantage. with we a proven the our of world's And to We strong have efforts. market clouds,

of be even data I'll turn in results. more position on Mike? the an we Mike our As the to as stronger gradually challenge it customers we hybrid NetApp help cloud. for recovery to continue now the details managing unfolds, to believe over turn solve to them in will

Michael Berry

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

a another margin operating delivered As We end high reminder, quarter, solid noted. I'll otherwise and be non-GAAP revenue to numbers unless above with the our expectations. guide at referring and of EPS

services, year-over-year, third $X.X QX and strategic We a When market. $X.X totaled the outperform continues X% and recurring industry-leading solid revenue, up total XX% straight representing revenue, maintenance quarter billings This Importantly, storage revenue. execution X% of of indicator focus X net In billings deferred growth. revenue billion billion public tailwind. in to software and leading of billion continued XX% X all-flash increased We our our $X.X to with revenue QX for believe is revenue be revenue recurring year-over-year QX, currency business year-over-year. of of our points year-over-year, growth. yielded increase X% Deferred both including an combined, future cloud $X.XX cloud year-over-year. key areas, increased ended billion, of

dollar systems content all-flash and of software at the our As maintenance portfolio. Investor we our relative higher carry to highlighted Day, rest

a at of very highlighted, up were year-over-year, XX% gains As our third in year-over-year the consecutive our delivered growing business. share million was ARR, us million and Public revenue all-flash the for healthy runway George of systems XX% for QX, flash of $XXX cloud Only end solid positioning a for all-flash services sequentially. providing $XXX XX% quarter. XXX% our installed

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

map, cloud sales million continued our exit cloud million. partnerships strong 'XX of the deep pipeline expect fiscal road the QX, cloud expanding we public partners. remain R&D $XXX and $XXX includes with about We product excited with ARR Given heading co-development into to which to

ability Total cloud $XXX fiscal As motion. are road and support in expanding remain confident our in into to we product our of year-over-year. billion go-to-market $X sales revenue partners' product we decreased million 'XX, map cloud in capacity additional to head We deliver 'XX. approximately ARR in investing our fiscal X%

be accounts, we all-time engagement the company XX% enterprise continued shift mix million from noted, Recurring in sales was Consistent paying Gross towards XX.X% capacity Americas, revenue George was the margin was and quarter, As maintenance QX, revenue quarter. high year-over-year, adjustment we did by of total with high revenue. adjustment and increased dividends. maintenance, includes last please $XXX QX $XXX help modeling the To was maintenance with revenue revenue. constituting in is of year-to-date this hardware software an the clear, the the with margin Product driven million added To good impact revenue where all-flash consistent the our note of in million at maintenance delivered expectations. cloud a particularly gross maintenance guidance. XX.X% end year $X up in to your growth and software of year-over-year, of not XX% XX% total portfolio. of from saw product our

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

the full We expect operating for year. fiscal to cash digits flow double grow

repurchase share million During stock. buying QX, our reinitiated back we program, in $XX

cash dividends. returned of with the We shareholders total, $XXX closed investments. out in QX paid $X.X million short-term QX, During we cash cash million In and $XXX XX% to in free in flow. quarter, representing billion also we

guidance. to Now

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

narrowed Given we the range million. $XXX our growing confidence to in revenue the business,

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

Assumed in of $XXX this guidance, our million. million $XXX to operating expenses

cloud QX pull We our our services road for for 'XX. rate And non-GAAP both forward anticipate investments growth $X.XX capacity continued to expect share. we we product to and rapid positioning magnitude range into XX%. share fiscal per cloud in our our heading map, tax and opportunity, be sales to between approximately of $X.XX earnings plan the Given per

the remain team of I outstanding In and guidance incredibly commitment is entire expense want We in in hand industry million. and I'll capitalize this NetApp Kris Kris? the to execution delivering positioned Q&A. $XX open to for transitions the Assumed closing, on thank for the to continued another call market ahead. call opportunity to well back quarter. now interest

Kris Newton

Mike. Thanks,

Instructions]. [Operator Q&A. for call Operator? the open Let's

Operator

[Operator Instructions].

first Our comes Morgan question from Katy Stanley. of Huberty

Katy Huberty

I have two questions.

quarter. is expecting you're is investments you first April pipeline quarter? to convert deals dynamics this on that the the January The Or growth just in you're talk accelerating that didn't back the and next maybe about just into of some sequential quarter? that had you talking the cloud is were about, Can accelerate in ARR pushed where

George Kurian

It's on the back of pipeline dynamics.

pipeline we well in organic XXX%. did have of growth teams a saw And look QX total as push a every our of strong incremental the make year of incremental are it's range QX to, so good in fiscal as if really a in sales we that at have heading had we is We same XXX% the the what in year-end, good QX. cloud and have growth number We've ARR our real strong. confidence to that to the our finish going We growth QX. into guided year-to-date as you midpoint

So about the I to and of The investments The making we year. the next benefit fiscal really business. scale are continue the that finish. to is will good be Mike that majority both cloud feel help of

Katy Huberty

Great. today does pipeline view And shape recovery three deal of how versus ago? the today, that like look would the you the demand compare your what over George, And will several the broader then next quarters? pipeline how months

George Kurian

-- good early sales you three at outstanding the QX, very a good if the past was turns, look signs our pipeline's quarter. regular both really we inventory are linearity well to throughout had as constructive. strong. had if quarters. QX, We've so look the as The you January, And at days finish

else position, I for anyone competitive market. trade Our the not in would

So really, QX ahead in the about forward. I opportunity good feel really going not only but

and what elements there's many there incremental that vaccine bit think normal. provides the regulation, total government, stimulus that That I you new in need prudence, COVID the to of give a of decision together other really includes That to line a given policy environment. while package to confidence, is come the still things. see tax, from guidance new availability sight frameworks our the are other

the feel good QX. feel pipeline about into really heading we year. very about So We the good

for Our we competitive position as and demonstrated differentiated share with successive have X quarters. is strong gains

balance with the add? Mike, really in I business trying confidence what we still is are that think pandemic fact to you environment. a operating good the in we're our to want

Michael Berry

mind adjust too, about are a guide, the it's and Katy, take is X up when and you The really look that I'd you the a Mike. are on XXth week, So billings what year-to-date that's X%, thing thanks, is when add, at about you George. keep focusing for basis, in we on, folks revenue, three.

So that which customers. in leading is billings, growth the business our is in with still pretty of indicator us guidance significant a embedded to

Operator

Daryanani Our Evercore. next question of comes Amit from

Amit Daryanani

to of how I more I growth, digits understand, much of guess, around was conversion you array you the a out? think all-flash to I Is growth over base a customers? fairly that And array little from your for then of is optimal talk base all-flash versus hoping XX% installed this bit there the time, could this kind which percent to of installed just way a all-flash double array? what's coming impressive. I'd piece your is to getting do love new as level of guess, net

George Kurian

in good both our business We've about So is very by footprint which penetration large very, all-flash right? installed are So installed the of overall the years, number, for we a all-flash business a base many, is in we roughly feel the this base, customers, been and the growing many growing quarter. systems array in and in our X% very opportunity.

very very about runway good share fact demonstrated What the we we've ahead there's are long all-flash ahead, that very, runway of so is gains. long feeling penetration. And a a

workloads. rate the fact We competition are are that the of the really market winning this I the continues new new customers penetration Yes, and not of of demonstrating we and but installed an year. be at net is the of to about gains without opportunity, feel base growing the rate what good expense share net

Operator

Hosseini question comes Mehdi of next SIG. Our from

Mehdi Hosseini

Because question, I this growth Just get how this to just you think as perhaps more the want to can a do flash run that. and growth a follow-up. have year? follow-up overall Amit's I on about And at array high-teen I should color rate,

George Kurian

think the what's I One and I it. that of think aggregate the market two that then is there's market all-flash. about ways percentage the what's is

I the think We macro a think overall as better progress the bit when 'XX. no than part as the in than better to the But year said, little of of coming year feel the that of will overall, we year. year that aggregate everything the we very this trends steadily. better. good the picture, get made market question continues timing had we've gets uncertainty what specific be We better be of market. there's calendar should about with 'XX There's past bigger a sort

that, then we cost-effective especially overall see technologies to continuing more newer we market. the the that part be mix, in all-flash comes And I as make think a of within within have greater portfolio, market. share our gained to flash

QLC, So of. innings early we things where are the in like

customers. as that, new well don't substantial think will customers us So of And a said, will flash share opportunity think higher-margin to it be sell as as affords more the market. gain be we XXX% I software-rich, transition We to of that think we percentage. configurations storage to

Mehdi Hosseini

And follow-up NAND specifically especially see and as increased how just of impacting Great. the context that, procurement? in a do costs, to costs, you material QLC

Michael Berry

Mike. It's

it two Q and prices. in in QX. saw slightly modulated I'll tailwind be to to, is ways. the QX. call relatively first bit in NAND -- have we to significantly expect One that it, our a flat obviously, half, back -- We answer They came we us I'll did So do higher a in

I that Looking you'll continue. think see 'XX, into

half the see in year, second well. as especially next especially demand up, hyperscalers are of some We around of mobile pick the starting and to

all you know, business. As XX%, is mobile that of XX%

just the reverse So keep look, but Also, impact, near term. half call the a quite nearly a to bit. we in mind, component expect of an offsets percentage for of in DRAM QLC, that that there's little we're itself. in getting that bit I'll year for so not us. us, kind are it, of of much cost It's the up for second with And next not prices started

Operator

Longbow from Next comes Research. Todorov Nik of question

Nikolay Todorov

little Is any your additional the cloud you can sets certification. us George, can between additional And you for talked that? demand partners seeing are comes there different give customers And can also, services? you color broader from versus your any it you're from on cloud on existing a way enterprise new the you what for also, asking cloud-only growth about more you Maybe us delineate give color workload adopting that bit sector seeing CDS? customers? public your are to when customers customer

George Kurian

Okay.

me get let three So ways. in that

types of yet. clouds. of range is listen, new certified we was, deploying the NetApp. could first on customers applications, And Microsoft and -- could be deployed broad with parts containerized for The pursuing a Service as public additional are and This in vendors Software we applications. whole the we software of of for world with deployments that This Google. where it workloads platforms. in opportunities deploy are also haven't environments workloads a are certifications they be applications, a There set as are new are our them cloud-native And

that opportunity X monitoring certification, opens to sector in we're That's do which public portfolio. other the for keep completed our going things the other that with cloud services, for FedRAMP NetApp of doing. our the providers and example, Files. to set market Azure services we up There's So

deployments. expanding is other The

the the covered markets. with So we've large covered -- of providers, we've some cloud

the before. Pacific we are world, pursue Latin example, that to for America we Now Asia or cover in didn't of starting parts

is And the so ongoing this build-out.

of progress to the I the see, really achieved year. types we that excited are we've with regard this customer that think we sets at

retention certifications. our strongly. They shows industries really We us. NetApp's cloud across portfolio, are they than still substantially up verticals, they of really the in offerings rate and are the like our acquiring customers join regulated where They in regulated our at are expand once broad we in an pace cloud And with more less dollar-based accelerating a deployment through going range business.

NetApp. The second that never are broad range customer digital is a that were or from that whether enterprises cover bought natives they use customers primarily customers they competitors, NetApp, of types,

row, As and who in array in cloud customers multiple And additive start who overall data business. our come the there and us all-flash our are have demonstrated center. cloud in business to business our stuff back with is then for quarters a the buy cloud,

progress. billion ability and with will with about which So scope scale opportunity The is we expand $X long-term in to providers to good I doing target very year work and why, feel in and the continue again, are the that reach pleased cloud the the 'XX. really fiscal our ARR

Operator

Steven Fox Fox with Our next question is Advisors. from

Steven Fox

of talk understand quarter quarter, it was know But wondering what your I the mix was of into impact next the you necessarily about I margins, all-flash if was from think you like I arrays What this benefited not help. could and quarter? just like the on what's I larger-scale thinking the -- system sales. last software percentage

Michael Berry

Thanks Mike. it's question. Steven, the for

we thought by about talked what little about, end. would hey, that's when in we ASF, happened. we QX, being and we our a And that exactly the normalize high driven lot yes, gave guidance a systems for bit So all-flash QX talked

that So But the think it, that's bit I'll again, we normally NAND product distributed high, a bit in by were all-flash a what between then, systems. and we there's margin. and had lower you quarter another in can mid more, little helped And see very costs. And call low, I strong they saw. little

to do that expected, And into still customers do the to So in it flexibility normal different tough our products, because much for those shaping what we much came demand of our that's great more Again, expecting performance. distribution. we're configurations in also of achieve what it's QX. us going can pretty

QX. it to expect to we normal pretty similar So and be

Operator

Our next question Research. is from Cross Shannon with Cross

Shannon Cross

next And it, sector customers I you and from basis. seeing enterprise. could maybe what look as you hearing with geographically. wonder a bit on Americas if forward over or and in You've your could you then deeper You Americas mentioned the into strength you few talk are the either quarters? can stick a dig go

George Kurian

that feel say strong drew because was just about out the The of in book geographically. very that the finish the we to balanced particularly fact I'll think good performance the Americas. the QX. Americas I business was We of

our you badly. meaning enterprise, didn't is a business business. our percentage but preponderantly a our It small well business percentage small, medium know, As of is total It performed perform business. small it's total of

or think the in a the that had On I of of impacted were in part which strong offerings strong linearity financial what be saw QX, normal models us, continuation the we care, of that to was through have the and by enterprise, continue meaning the segments, is quarter, trends saw sort that less -- we demand, the of COVID ones like market. business we for health demand COVID really that were sources services good stabilization

Digital are I a normal, starting part new of a outlook, becomes looks business big think key for said, plans, many, of enabling a business's we to going the again, many any forward. prioritize customers digital transformation. and go-forward we are I data to with the what modern as think transformation foundation like regard part

data types forward. also help to pickup So well. continue the that for threats. those and across cloud And NetApp other we malicious good of and good saw example, projects, a cybersecurity as for has really hybrid against protection to technology ransomware projects in move portfolio

Operator

Baruah Loop Ananda Capital. from is of Next question

Ananda Baruah

Should you term kind anticipate cloud. Or capacity to margins overwhelm sales on any thoughts, we coverage ramp does that? on your Just and the yield investment talked momentum the intermediate increasing incremental love impact you about of cost? as just the get to

Michael Berry

Ananda, it's Mike.

by we bit did than folks. when last was what on a really we XXX think sales the great a thing I So little year different did bringing

For the is as just more that right great in us, this talked business. that just about, And play continued that investment we've continued you'll P&L, business. see more in growth or much into less I it think

add revenue continue our in is it. line continue capacity to So drive to goal growth with to to sales that

bump kind of to expect a wouldn't related specifically to any So on I see that. margins,

Operator

Deutsche is Sidney your Ho Bank, of line open.

Sidney Ho

sequential strong helped midpoint, kind the on be of there guidance, on fiscal how maintenance, Do to a basis? I side in up quarter. you a fourth was look up I revenue businesses every up it expect comment the As the be in last understand it software quarter similarly at particularly I'm given your was year-over-year, reclassification your X% software interested will quarter. quarter-over-quarter. X% reportable at that

Michael Berry

Yes.

you that, keep mind, that bifurcate no if revenue to impact you Sidney, different if the maintenance, there look numbers, So and in was, total that. was at

look maintenance strong So expect as quarter. in would the we be to to QX, to see continue we

X see a to expect this I slightly; we've QX, or you sequentially, saw seen little then actually and drop bit. maintenance continue revenue would likely think We product grow growing to it levels cloud X. in grow; growth keep keep and the growth and X% to back what similar in And goes to X%. back XX% X%, average quarters. is, talking about over out time that XXth mind has been question because as first in an about billings that you to three I just want the this Product again, week when Katy's

matters So lot. here a mix

do And to as result and product in expect helps. all-flash. Hopefully, really question we continued growth off-line maintenance in maintenance, to mix more see to point and that the will systems, do of we growth on revenue that earlier cloud be so the a continued in

Sidney Ho

Yes.

Operator

Simon Raymond is line of your Leopold open. James,

Victor Chiu

falls wanted spending for asked as example, et previously. a campus which enterprises resume NetApp recovery, into picture? This into question for prioritizing be follow in Simon on cetera, kind that investments sense of areas is that you data have for the to will I enterprise they center someone investments, Do versus up Leopold. Victor how Chiu spending and

George Kurian

do don't a lot campus. business We of the in

to don't center. for hybrid business throughout really our have their earlier, year, the and of key fall part cannot And modernizing played transformational flash I Those good priorities are using in which as projects, in the we behind prioritizing want our because pickup competitors. I people they've big saw they -- the We primary us bets defer mentioned and year. cloud technologies. -- out saw I center well think is throughout the in data a they we been think environments data

linearity. QX, we normal think I in saw

So steady our good have into throughout quarter. the our was did we pretty of year the and see calendar linearity that. you that not a from can sign from That's the about It a DSO back-end we inventory us. heading good rest feel for and loaded turns quarter

And really but done The it's is still we've We've -- we well. control so getting controlled what uncertain we environment can macro better. feel well.

we'll so execute. and continue take we'll And those to

Victor Chiu

could seeing offering quickly progress acceptance your trials kind you're you of time And pandemic that? around there? along drivers, the provide and pushout an around lines of of the line the and Has as-a-service disrupted just That's helpful. the us update

George Kurian

serve as-a-service environments, on which in ability have subscription support ways. to them instantaneous them managed we ways customers to offering, a give solutions we and are financial We the cloud service multiple and/or as have An solutions. public

continues portfolio Keystone progress the make Our to in market.

competitors, multiple in We've good we the Customers single in some buy a We It's against wins some good our requirements feel ability the have successes of multiple ways. offering unlike we quarter. to has those about and other market don't, mandate. think good the to we competitors had really and have some going. there. our that And early don't in want we ways, meet

Operator

your is of line Karl open. Cowen, Ackerman

Karl Ackerman

as billion ARR offerings I'm shed Mike, existing the content the between toward between as-a-service growth well differential light progression as we your your context this the seeing you margin in $X and and cloud think in accounts target? versus And accounts? quarter on could the accounts should how new you're existing of about new hoping

Michael Berry

Yes.

seen we at cloud the look us and accounts, look customers So driver being public if new we at business we've for versus a new talked as really take George that. as of existing about, the

at the look our existing there dollar-based great but as obviously, you customers, net growth we're well. when seeing addition, In retention,

about nice One look it's to new vary there's margin cloud see the you'll than to perspective, existing, more customers from not think new product, expansion Certainly, existing. well. is a there much existing across some margin that there. difference of the But we things have don't as of X I versus terms business versus material going start a in that as

X in driver we services will at help talked that gross they the think those We've scale that business more margin. of more Especially help go that expand take margins terms as driving forward. higher us on a than as and solutions, in I However, our more cloud product, will data certainly business. about margins

George Kurian

cloud make We cloud quarter. If I Day, achieving time objective. margins will the gross at that but to of -- towards not become we We're did accretive Financial could margins we the overall gross about business. Analyst margins out past have the our made we breaking as progress mentioned the this even progress add, good over feel

net has Keystone that So -- we does have show we're an customer up environments Keystone to are usually date traditional all-flash towards deployed existing like not customers to Keystone and regard want objective. making It's and/or environment Keystone, seen say, an that steady convert to These progress our not With seeing that we're a not to "I basis. achieving convert new new deployment." to and suddenly deployment net customers. a

healthy overall opportunities. so these margin to opportunities there And are are additive and business our

Operator

of Goldman Hall Rod Next question Sachs. from comes

Roderick Hall

semiconductor guys I just the on shortage a check I supplies. wanted with know of you lot affecting is to people. supplies in

whether what quick, maybe also in this anticipating if again. you the And think number that guide. And could comment strong comment you of super Just the you is outlook curious year. could you're then real that AFA was the for on supplies remainder

Just last bit think share comment you a quarter on substantial gained like little maybe or whether did less and you again share. you share

what this you done that curious Just overall AFA market think quarter. has

Michael Berry

first one. in will Rod, it's then Mike. the on part I'll jump second and take George the

semi at looked we there impact when out expect they for so news any that have We -- don't chain, one. be we on QX. noise and of to as supply lots there So the

much As us, as P&L not a impact. into year, of for we next hopefully it's look

first year. see we It's come I of the enough prudent sure folks, likely, a to to supply. to intend go to the when make a bit. other have I we that down thing sure buy ahead will given make had like that that started that last back bit inventory little cost have do, little about capital talked We turns. of We've We supply. this XXx

sheet I we up than the to But keep expect So we'll to more would of the it through certainly, P&L. speed balance go impact you this. as

George Kurian

share. continue we to that take all-flash number, feel the regard to array With we market

feel We've position even quarters. year. than in We're the We're focused. today, roundup position, good our of for of I to or And X executing market. the And the best start good rest really, we'll our portfolio better at continues really the the we reported really about based our X the market. in I we think this taken good had be share. people we're to the share, taking wait come, week and feel other that on today really that have about but right? So

Operator

question of Mohan Our Bank is Wamsi from America. next of

Wamsi Mohan

OpEx? relative And to we And elevated sort OpEx that, You see cloud. Is would the wondering, some are or noted of secondarily, from think phenomena XXX 'XX? the CDS or be to a that we is new spend X-quarter going to then pull fiscal it forward for the XXX that changing long normal A, should how this sort was in you of I there? trend expect of change and number of that

Michael Berry

Yes. Wamsi, it's Mike.

map ago, as couple minutes continue product expect we we're R&D and talked road see great as clearly in forward. sales opportunity on business sure we a to just the to to see opportunity. invest we that's moving So a cloud we the just and the that, in in make And of

the see as talk return -- don't means So absolutely to think in continue a on next about, go around also hey, is for we'll we that finish I we think a again, margins in haven't we all I we'll when to that. But we invest But OpEx. spending that think, and Disciplined a to have it is year bump we -- 'XX. goal as you'll invest us spending about fiscal this disciplined relates as where those talked The George we to where or reduction return forward. a we see you dollars. into we you get know, see want and to

Wamsi Mohan

extremely quarter. what And sorry comment on Can this, could, strong missed flow you drove that? I cash I Okay. had free the in you but if margins if

Michael Berry

talk Yes, to about I'd love absolutely. cash.

So say, of compared X paid QX we to things all on of cash, our Wamsi. taxes One is, virtually U.S. keep that in in last federal year, last year. mind

talk great year-to-date. let's in margins The So quarter. this were about

a million On 'XX, free in year-over-year. of was in mind to Also think keep is in number year-to-date also the the up that cash XX%. that IP our taxes from we've acquisition. transfer spot XX% basis, fiscal flow I $XX paid about related it

So actually a it's little bit stronger than that.

super were As below get great. you about, They below our George talked XX were strong. anytime -- XX, days, it's DSOs

linearity about in results, invoicing quarter. really on year-to-date and cash a very So yes, our free flow But good feel helped certainly basis. that strong collections the our

Operator

Our question Jim is from Citigroup next Suva Investment. of

James Suva

just what's sales margin But a higher, and the up, and arrays, financial it your component And And financial billings for probably kind I'm higher provided You've component offset not of fast when and force impact, then, revenue goes from not? NAND it's pricing so worried. you talks I'm the Mike to to the that? I -- lot? how the when lot a worried answer. clarity. best and your react doing enough walk I'm relationships, sales when question does the or impacted favorably pricing, like, you good reaction you're have wondering Mike, implications? it us through, George, or and NAND impact can does get does in Can since go margins NAND just prices X both force maybe all-flash of George prices the of well about

George Kurian

can I first. Okay. Maybe start

of customers. broad range We purchasing with a agreements have

agreements -- transactional preferred customers. ability or it. long-term trying to depending where not for don't beneficially look happens have a pass NAND environment, agreements, either to pricing commodity they we on move through into what to the to think We no are take impact schedules prices. pricing hedge I where We're In down of agreements locked prices. up there's we are the or to where pricing the are there typically that at master pricing some, disadvantage we or purchasing

think are the we that this face the a we good them. time cognizant COVID customers environment I so to particular challenge in of be partner try our to

Financial I we As COVID, array the all-flash mid-XXs of post gross business, the both our Mike to given at said see and product Analyst return ability the continued to margins. progress Day,

Michael Berry

Yes.

don't see expect on that going keep half. George earlier We see certainly Jim, we Supply that increases I the think, that path. to the will demand saw, do in dictate that. kind to as Just of first and talked path, about, we

it. story will our total more is as do margins not The much, The other part huge and about a in because helps too, push to been to I by gross renewals, keep cloud we at success and it's why always well. we've mind, you this thing of also, so talked this which great hey, a billings, also look business, impacted is

may financial DRAM this at, things, that sure. it. too, so many perspective, around. a other from up, down, else go Keep NAND in may we something So mind, may look are something is But there drive move go

have next the of supply all it chain keep every We'll where time again, final great supply and into what will going certainly in means quarter. We end. terms up-to-date demand They're it a year But we team. in you don't at know looking the financially.

Operator

Chokshi Nehal of Northland from question Next Capital. comes

Nehal Chokshi

drive net Great great to 'XX expect guys about But dollar-based cloud was it for rate And after ARR are what's do billion be by quarter and $X sustainable that it rate fiscal looks services. that growth you you a -- like you good you to about guidance for year revenue talking me. talk well? get public there? retention sustainable what the as Can

George Kurian

our aspirations Listen, I think grow strong we business. cloud to have

have we I achieving every billion a number. that think game have of plan the $X we confidence multiyear ARR

of bigger ability the give the a over and cloud is of will beyond we X to growth that next it. growth than past X cloud years think I the you get we be cloud I'll market, sustain of is, rates years. give sense when gigantic the to will growth What the over much a you

of time that a part constraints TAM, I think there just that ARR will frame. be cloud that you the if is think the overall So small in billion market $X even to overall

TAM-constrained. not we're So

about terms think on substantially our product a the are our reflects and I as us, prepared to of continuing starts go-to-market think good. expansions market and strength grow really dollar-based customer net regard With of which remarks. in we I to execute Mike offerings. have is of to in their position retention, work road up in and they with is map usage and it unique, talked products, the I activated is signs investments, our and When

industry Mike should norms. it see time, both back more that towards think I and over I trend

to which this industry journey. XXX%, quarter, is Mike, well of we had feel above think our cloud free early I the add. reflecting phase norms,

Michael Berry

Day. so there's and Yes. But XXX, XXX, cross-sell and have Keep continue can you customers. $X the path, get That's that well. our those part investment is they going is we of to up Investor great actually that a to we it, billion We that of this gosh, be driver help services. great critical. customers making sales that And that XXX. Very certainly, you call of at make we're sure talked it, examples in team companies sign importantly, a call motion of that that industry to once renewal, go about new there expect come and lot that's, it norms, that, want this that back, for to to on if upsell, do we do once support

come expect, to able great So we'll to but drive continue conjunction it in norms to time. industry over down be the retention we with will getting that there, do

Nehal Chokshi

Okay, great. bring into can a I shorter-term And basis. that on if -- then

the what provided of target that And disappointing the would You've range, range, would Because an seems million outcome. amazing that the end that that conversely, for to would end of a have of the actually. like $XXX occur? what to of seem $XXX to this happen would be then low high million be a have is probably outcome At year. end at to

George Kurian

I think it's execution. all

that only site, with not whose We strong of down negotiate a have still signed to. to facing, on see get customers what employees it number the we we who week. getting customers days certain are that's are of the And can comes execution, It through COVID good pipeline transaction think right? a customers down -- QX. I managing comes to challenges in up, a

I think services profile the fantastic. our overall demand for is

opportunities, pace these added are high-performance we sharing, course are the workloads And file deploying, accelerating I that databases, the types virtual think at we've of mega-market customers an computing. machines, year. through the of

we're opportunity-constrained. So not

transactions. just we to bring the I think in got and execute

Operator

of Jason from William Blair. comes question Ader Next

William Fitzsimmons

Analyst you talked This you at talked in was overlap is And org of Spot the only Billy standout in how and couple changes a there X% Fitzsimmons about how last on for quarter, the Jason there's and NetApp. Day also about quarters, are there know I Ader. the where obviously, your also to have of sales some Cesar Spot July. between customers been joined in

as such on So how please leadership products versus as given can of has the products of evolved typical from customer to talk end, those the some George, year and those you conversation that of well ago, X a as changes acquisitions some talent or jump some introduction newer Spot

George Kurian

Yes.

than and year force, I NetApp ago, a think, we acquired a now base ago, Spot, of through larger Microsoft ago. right? cross-sell customers it year at sales a upsell that's like whether can whether we larger have or we point first force massively was massively customer to of base, Even Mike a larger years this the sales a did base products, mentioned, all, Google couple we customer whom have or that's massively of than is installed through acquired

We're able they Spot the a are is every near customer they which brings of to, cloud to Mike unspent NetApp. and CFO is or is a and to us table. including and to X to CIO I dear what dollars, and think Spot substantial and problem topic is a assets that large that regard with bring a amount of to that money. solve I problem, save the talk the unused they at One that is customer table of growing

not well Spot native into bought ways digital the after cloud portfolio. now from to cloud-native didn't know pleasantly new NetApp enterprises and as NetApp, never able by customers that that find large get now surprised to go of only whole as are use to We parts

gives offering differentiated good us also for excited. expanded really of super set with that, of cloud-native in our truly have some They a I'm offerings, combination for So really capabilities a applications. container-based workloads storage

Operator

Chung of last from Paul comes our And JPMorgan. question

Paul Chung

are impact highlight there. in just pricing? gains seeing want anything a Which so but competition? competitors? So market you're you're on how you margins know any your displacing more verticals down Just mix, share just you I expand mentioned gross all-flash, beating on from how nice to on you're Can follow-up success? types mostly you of

George Kurian

With competitive was QX programs, regard good a X to results. program to the is of the program it NetApp that we've strongest have really And continues quarters broad customers. of the to our running. Run the had competitive mix

legacy the mix mostly of meaning And Given larger workloads incumbents. enterprise footprint, our new new are business, the we they're winning accounts. displacing

a center those whether that of customer's whether midrange, going is HP transition So substantially can our software it's against The NetApp their players. The with winning Dell strength an we its a with and And we a place a are of Hitachi it's midrange or segment simplify through to quite single data products, and fact can road differentiation. is a give the That's the do. nobody sweet way market it most that a to architecture in able where good is cloud where be unified differentiated. else spot, it's the them are right? map the largest or we

to got good feel really We've got progress focused. really game feel We've in We're we the it. So to date. just plan place. And the made results. about we've We're good. good I got keep executing. We on just keep to driving

Kris Newton

over All to Paul. George final pass I'm comments. some to it Thank going right. you, for

George Kurian

our another It's a impacted strategy. of team have lives. results. of And COVID we all executed our In the Kris. over environment, Thanks, been challenging year to again quarter since I this delivering closing, NetApp want thank pandemic for against solid despite successfully the

shown grow we cloud our businesses our and refocused simultaneously. have storage, and We can core both cloud storage that business the

continues positive operating maintained have and capacity maintaining increased fiscal discipline, yield execution of margins to our results. improved we've sales year-to-date. We And XX%

As I'm hybrid importance next the again helping and data Thank safe, and on in to you. talk manage cloud. in that position growing to position continue recovery to God we're unique unfolds, the customers Stay confident bless. you quarter. capitalize in their great the of our data on we'll a

Operator

all this gentlemen, today's conclude does and participating. Ladies for conference. you Thank

Have all may a disconnect. day. You great

NetApp (NTAP) 25 Feb 212021 Q3 Earnings call transcript