NTAP - Earnings call transcript Q1 2022

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Operator

Good afternoon, ladies and gentlemen. Welcome to the NetApp First Quarter Fiscal Year 2022 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. I will now like to turn the call over to Kris Newton, Vice President, Investor Relations.

Kris Newton

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

projections The to and future profitability, regarding such we forward-looking will quarter During the guidance future value and prospects, to XXXX, and today's outlook statements revenue, fiscal as call, year and we financial bring our with for make returns. second our shareholder respect obligation expectations our bring to of and ability customers, our materially ability variety reasons, differ market, and and to for forward-looking may capabilities execute, all of industry-leading our including which uncertainty. our to We to statements risk such documents involve macroeconomic results of a Cloud disclaim Actual the any generate uneven ability capital as flow. XX-K, we Condition and and the to Form and SEC impact storage Please website, recent the most our from with also Results Management's business, the Financial environment, in pandemic sections. and Operations factor specifically, and our market, conditions Analysis on as as recovery the of to and Discussion spending of continuing grow gain and available time in and risk our well the the including our cash to time file COVID-XX market greater refer update share

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

George Kurian

start cloud delivered revenue fiscal Building on results fiscal momentum year our from QX broad-based grew guidance to a year revenue XXX% for QX our growth call. high-end XX growth triple-digits ago. Public year afternoon. for year-over-year. the XX% one of to this year XX% up, a fiscal with again, product and quarter revenue 'XX through drove or strength above thanks Good earnings accelerating And strong everyone Kris. XX, we Thanks, our joining

demand also cloud, priorities, and accelerating and their transformation our long-term team use modern and on-premises significant centers are quickly modernize same customer traditional At customer the to for solve in and benefit solid modern reflect quarter. we to Customers hybrid trends. strong most both fabric from and time, sizable multi-cloud by of simplify like and micro-services machine to deploying in challenges results applications architectures and deploy Our in and top Kubernetes uniquely workloads are digital confidently. and our strategy, existing deep data-rich data Cloud the continue applications remain customers need With adopting application execution customers' initiatives and learning. the a like environments. traditional new we applications, data our and positioned these

materials earnings of cloud provided our not center I've they look we new give share data gains segments. corresponding us in for for cloud business. services many our into introduced We disclosures make times, I hybrid better the allow rapidly cloud, us As our our segment customers, also said only the the market, how with you in business. to insight partner growing cloud information In participate QX, segments to both strategic more hybrid and a enterprise at X dynamics to public financial club our public driving reporting our in

grew I strong public In revenue consumption by increased cloud and markets. our our delivered flexible unified Based growth, on foundation growth scaling maintain and simplifies management our QX, fiscal for hybrid across operation innovation cloud In all-flash on-premises to the in quarter, All-Flash-Array significant data am the annualized cloud, of growth environments. advances revenue we we storage revenue and the that an And outstanding cloud capabilities, business, one cloud of hybrid ONTAP new services industry's will again hybrid rate stamp X.X, services. gained data the We that security with share by our confident XX% protection cloud a X% run net in system storage improved enhancements, while $X.X. further which 'XX. our integrated introducing our and led We year-over-year, focus portfolio on only in cloud-ready hybrid driving with and leading year operating performance. enhance

to balancing. as flex a Equinix enhancements services. since Cloud momentum revenue for net spot XXX% dollar-based service cloud the We supports million, grew offerings. broad integration storage Public cloud It's protection announced ARR by innovation with brand. partner-delivered with a providers, data $XXX healthy new to with grid also increased Volumes, NetApp we SX management, XX% with features Spot. rate encryption brought key by the intelligent Spot the a cloud And retention year-over-year we've XX.X, to colocation Spot service, excited object with market Insights, using And Public driven we NetApp. under released Cloud year subscription grew of and we of range been Keystone which external increase ransomware at XXX%. are performance and the cloud an acquired by and locks, we a additional public have support, load and And year-over-year, remains by FlexPod

year, strong honored SAP that Azure Our were Partner partnerships of growing. by of award. with I the we recognized am their Year winner the cloud partner U.S. of and their providers experienced Microsoft customer and are global on the the of as

enterprise a customers Cloud use them and desktop, virtual and Cloud cost. services to desktop services managed, We XXX. continue for because In less Today, public as enabled to NetApp storage we QX, applications. and and at Windows PC, Azure Spot capabilities and use we infrastructure, for Customers announced secure, beyond cloud management fully service we more have data cost-effective a our migrate, automate, services. and the extend, cloud-native management public data cloud broaden optimize

Mechanics in data, application, and the to optimization accelerate for spot Additionally, big we Data platform and learning infrastructure Cloud. acquired and wave, for workloads the machine high-growth, roadmap automation

cloud-based Ocean an the Insights delivery of Insights. painful Ocean tool in a application application-aware, Ocean previews Ocean. the application reducing containers, Delivery potential and automatically reserved and to of utilization of and to data deployment scaling instances management In compute spot analytical solutions. for into We is introduced infrastructure deliver Delivery management we compute most up verification strategy maximize XX%. their and availability around Continuous blend modern Ocean for processes. Kubernetes set we a DevOps infrastructure and resources automates clusters automating by services costs aspects year, workloads. that Continuous focuses also vision Ocean then savings Spot to of Astra application-aware on-demand Spot on a our view storage optimal cloud evolve Last suite with continue containers. mission-critical QX, gives on full rich and by Ocean the with Control, of users and data for from

Center. a Astra extends to applications, Astra customer these critical Kubernetes a And world. protection to can deploy extended the solution, the the chooses Wherever to of data be software fabric accelerate deployment, and environments. cloud-native we in on-premises we Astra Control operation, deployable QX,

to Let customer story the Control brings share a with Astra you me Center customers. enterprise highlight to value

As exist container-native Control challenges a part These in of recovery the the using telecommunications database. the mission-critical applications. workloads its Center disaster is modern transformation of protection NetApp and based leading strategy, on provider to customer don't are a architecture Astra and that and address data Kubernetes to a turns

realize data across Kubernetes, their them distributions, of clusters. sharing across multiple vision and Additionally, Astra application helps affordability multiple

for have been storage long and recognized industry-leading data enterprise We our management technology.

customers. the storage expand services. to and reach but differentiation, services addressable cloud and monitoring automation deliver further optimization enable infrastructure services, also in market, services We us our cloud and new only public Our not industry-leading cloud cloud, drive

organic inorganic You deepening cloud activities, should and partnerships, expect delivering and our our us innovations. enhancing advantage best-in-class, capitalize by on to our go-to-market

Our ability strong customer Momentum of our and of in XX. public $X reach our to our goal fiscal the year position public billion ARR services in cloud confidence uniqueness cloud my further in

world. multi-cloud, a Our customers strong digital first-quarter our to data-driven results underscore value in hybrid

multi-cloud, that industry. with solve are made of a market, we focused will our top-line and will most journeys. about demonstrated am to deliver on and strategy leadership confident the announcements ability differentiated Cloud continue as software. in And and we We this quarter, pressing their we I'm in challenges. in digital our confident further well-positioned position our capabilities to are growth customers reshaping support the and transformation are bring bring. this and to number portfolio execution year cloud our We I enhancing we innovation excited what customers' industry-leading With right to hybrid

walk team, our that join us. NetApp remind want be turn in I hosting I to financial our you will that, an call we'll partners also Mike. customers, want over customer the turn the over With to to results outstanding to Mike October. through to Insight it and for I fully and hope Digital I event able Before be thank our expectations, to I quarter. you'll our

Mike Berry

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

a to team margin, QX of leverage unless to execution up entire year-over-year. up non referring revenue, As business. in Revenue noted. a is strong reminder, the - the yielded start $X.XX I'll Fiscal and billion, otherwise 'XX off NetApp numbers XX% XX% $X.XX whole GAAP billion came by gross with at operating across year-over-year. Excellent billings be great

operating hybrid came solid Our our Bob, EPS public results gross both in. by cloud healthy cloud guidance. demand and and of driven across margin, segments, QX the were margin, all high-end

for introduced As center segment which revenue our reporting product services. streams all cloud and Hybrid data materials cloud our and today, professional George from new both business, we captures earnings cloud. our disclosures public include enterprise noted support in the hybrid

Cloud revenue and gross hybrid visibility profile Our cloud year-over-year. of our Total public cloud up growing billion $X.XX incremental segment business. was the margin provides rapidly X% into of revenue

by million $XXX excluding shift All-Flash recurring quarter, delivered last the year-over-year, 'XX, driven mix trends revenue Within throughout growth week for portfolio. revenue we $XXX throughout product trend year-over-year, our continue million support XX% from with increased consecutive cloud, XXth this of was Consistent year's Product and QX Totaled compare, the of support revenue the year-over-year. recurring $XXX XX% was X% second to increased hybrid continued revenue software year-over-year. fiscal revenue up products the million we 'XX. expect saw towards fiscal flat the

QX recognized at to cloud $XX was growing points in public up continues representing year-over-year, revenue $X.X revenue. XX and impact the profile of XX% quarter public revenue, The million revenue, constituting in revenue revenue XX% Recurring As the revenue software one our four $XXX sequentially. XX% of George year-over-year, and versus support public cloud highlighted, $XXX totaled platform ARR combined, XX% delivering Public and XX% growth XXX% cloud cloud up recurring total of billion was exited increased positively overall the support, public of of up year-over-year. cloud million XX% of X% million scale in NetApp growth. total XX. When year-over-year and

continues revenue. support last from of year-over-year. to X% be of public QX platform. billion margin XXth revenue margin and from which year-over-year. towards recurring Excluding and product All-Flash up total margin the software our comparison, in was health high, consecutive systems. XX% Hybrid quarter a was reflecting was over the indicator with public the an We cloud best ended marks healthy of The cloud software-rich segment, our continued gross benefited Cloud gross increase total deferred The XX% of of year's portfolio QX. XX% of the cloud $X.X also and QX recurring in all-time revenue, gross week were mix the revenue value Within XX% deferred the year-over-year hybrid our the Company shift growth, XXth an

from cloud build margin $XXX portfolio of corporate came an recurring high for and of to Our public XX%, the public above trend operating major our a business business software the was in of profitable with our gross offerings, public XX% overall cloud leverage be as with to the $XXX we is our solutions. cloud-based end cloud continues was expect on continue an of diversified for of accretive high the This was of gross guidance Cash out QX. percentage cash business margin XX% as highlighted million, free was flow year-over-year. EPS software-only to million. QX very $X.XX XX%. model and support milestone of increasing The flow is an all-time this we to built up continue operating a margin tremendous average. a in operations

paid short-term and shareholders to cash and out representing closed total, QX, $XXX repurchased million $XXX QX $X.X dividend. with cash flow. million We million in cash of we returned $XXX free a During stock investments. we XXX% billion in In in

As the chain know, remains fluent. you situation supply all

with the of lead Our ecosystem at excellent times work partner backlog procurement customer keeping closely supply level. to normal team chain a with and goal and continues our

commitments the and longer-term us all year. customers Towards in any invest for continued expectation our of goal, singular have that continue added contract work we provides of to dollars our and effort this Aiding storage risks. powers the to is and meet fact which manufacturers and incremental will this execution the With inventory that potential mitigate to help we growth software flexibility strong products, with our of into key supply remainder to platform QX our demand. a

the our given We grow recurring the with expect fiscal now revenue growth, support growth raising billings are X% 'XX to to and revenues X% board. continued cloud contracts outpace guidance expected our and public strength across year-over-year We platform. to

have and of fiscal are guides. innovation. cloud deeper of We end XX XX $XXX our opportunity also cloud confidence growing activities, go-to-market XXX continued to by our low the enhanced and expect to We public cloud in with a product public partnerships, ARR now exit million driven fiscal raising

be operating the margin we to success between to track customer full billion XX%, XX%. billion, cloud in we product go-to-market to X.XX continued We expense eclipsed investments team. range year. portfolio, in investment approximately activities, solidly targeted in and gross approximately public for 'XX. resources, sales public margin XX in fiscal are expect to fiscal remain our 'XX, XX% to expectations revenue-generating expanding unchanged margin noted, on of $X George in a on ARR As the our to cloud deliver commitment total driven continued with our anticipate investment at In by $X.X Operating including the

faster Day grow As expenses. than we September, continue revenue Investor last to our discussed at we operating

growth and $X.XX are million to tax guidance public our cloud billion representing will growth We other delivering continues the this business $XX in $X.XX XX% to We hybrid expect 'XX in the fiscal a million and $X.X committed more our at be Implied 'XX XX%. rate midpoint. expectation negative EPS, will than in that $XX platform. at income fiscal our free to now cash is in effective remain year-over-year to flow generate in as to our cloud expenses fund

to call. our share dilution role remain key capital repurchases are allocation QX 'XX, equity allocation expect during in our fiscal framework the call our offset buybacks committed play to dividend capital The will to first We we will the outlined continue while plans. capital on In strategy. a we from

of exiting count remaining on purposes, public remain remain bolstering share long we the modeling acquisition roadmap. at For our million will the and generation XXX history discipline with cash XX. NetApp's go free flat fiscal Consistent to strategic focused cloud expect strategy, M towards shares our flow will A, which

$X.XX at QX the the revenues QX Now on net expect $X.XX X% increase and guidance, and we a midpoint which $X.XX between to implies billion, range billion year-over-year.

the consolidated the XXX operating per tax expect in margin XX% assumed QX per expect $X.XX approximately be $X.X our and we anticipate to earnings share. our range margin between QX of to guidance, We $XXX to gross We be approximately to and approximately expenses this and rate for million. operating XX% XX%. share be to

million. be guidance QX Assumed $XX $XX in our and a expenses that other our to million is expectation will income negative

the In with we entire working one-time the to sale want QX the maintain had compounded This reminder, tends our last a campus. free As trough year. our closing, payment QX the throughout tax thank Sunnyvale I flow. for by of be NetApp further to team cash for to exiting is tirelessly seasonal momentum associated

are unique focus hybrid We as public a maintaining the in platform continue cloud at an point Company's while build to the we unwavering truly inflection a business. differentiated history on cloud out

Q&A. as to ability execute ever hand to we for now confident opportunities. to our the to we result, both back shareholders, a deliver are the open than As and in our Kris? call Kris more value I'll customers, long-term partners call against

Kris Newton

Thanks, Mike.

question possible. keep as Please can Q&A. to for Operator? we just call the people one many so to open as get Let's

Operator

Stanley. Our Katy Huberty from of first Instructions] the line [Operator question you. Morgan comes with Thank

is line open. Your

Katy Huberty

second afternoon. profitability sources weaker Good ARR are in in any the sequential then the about you. you ARR cloud to different posted confirm in Cloud seasonality’s. and what the quarter, milestone. imply you would for of terms have expect driving the growth. or Thank quarter on just public stronger XQ your XQ, the Cloud July add platforms expect Congrats I And and cloud business. in the greater you. that, that's wanted I color of the business, Last different revenue question that that seasonality especially you would a that the Yes. than XQ, XQ, to cloud that you Thank this just quarter offerings your that shift quarter. to increase in just emphasize

Mike Berry

Hey, Kate. It's will I will one Mike. on second the jump and Thanks question. the for in one. the take first George

bit have plan driven sales last a sequential to expect our the basis. correct. in That's as our, we discussed little would be expect would that higher you we little QX So, QX. yes, in we and bit now, time We bi-annual really know, same QX seasonality a by in a on more so sequential

George Kurian

I really to the second hyperscalers, we're think strong the you offerings, by and with mix both NetApp, in we regard feel the with Microsoft that a about of Spot the and quarter. were good TD Google question, had with work especially doing

that the we seasonality reflected spot as in said, had than NetApp hyperscalers the but were the offerings by nicely, In, as much think as grew then. they not sold reflected I

Katy Huberty

you. Thank

Operator

you. Thank

Our comes from the next line Ader William of question Jason Blair. with

open. line Your is

Jason Ader

Yeah. Thank you.

that growth, how public The organic? on the question ARR, first much cloud, of revenue was

Mike Berry

it's Mike. if Sorry, -- you

If that growth. XXX% look at a the you was year-over-year growth revenue

then still you XXX%. strong acquisitions, about very at exclude the we're If

So super strong.

Jason Ader

correct? had Oh, you spotted it's And in Great. numbers the QX. year, last

Mike Berry

We Great question. We less for than closed only that spotted had a -- month.

Jason Ader

Over X okay. months,

Mike Berry

it QX very so year. July, last in little Early -- was

Jason Ader

right. All Okay.

was So Spot. QX will that be kind of apples-to-apples

Mike Berry

-- going a to full you're in get quarter each Yeah,

Jason Ader

Okay.

Mike Berry

this In year. QX --

Jason Ader

you what know, much side, growth the there you I Beyond then And to is type the X from as some reasonable? do this the right. easier sustainable are year here months, you or guess coming comps? of so. several started economy think think where months then George, revenue product on growth pent-up reopen is demand All And on do last the how over

George Kurian

And never V-shaped we so, of I snapback think like or that signaled anything have that.

than belief of COVID, vast majority with reopen. that several is the that in had that to directly environments, the digitize trends, But their small we a are doing been certainly, now, a by this seeing work has customers were number more the strengthening a on. as are customers or who demand for impacted Our the and to build pattern we've so quarters demand economies cloud work of customers business, hybridize worked steady other doing of long-term reflection they're that transformational

we see kind So, that pent-up I think as model. don't this of demand a

of really is good to that business, revenue revenue. product said, growth I segment And the particularly our the think we product as about sustainability we think feel very strong. very, of with -- our we regard we can We each Flash quarters this of year. sustain

year-on-year. we good phenomenal to feel to the anything year where revenue business there. by are share XXX% In Listen, our numbers, confidence real and all no we grew record very eight are. share. XX% feel really quarter. earnings per X% and are. by operating see anticipate product so, cloud year, for And And to We $X margins Company. good we These but finished momentum fiscal XX%, to good just our earnings QX, and I reason a all-flash where raised we growth close overall and full delivering we by about per about

Jason Ader

much. Thanks very

Operator

Thank you.

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

is line Your open.

Aaron Rakers

for can. kind the I Thanks questions of question. taking related if two guess I

we've pricing of component constraints a and kind component seen evidence industry all, of is inflationary dynamics. First of lot the of

in putting a behaved we has move seen not you may forward? orders as be a with in has will changed you How as that to place? factor relation lead believe this believe that. been times customers or you've your have that As risk that don't factor your be How do

George Kurian

the faces. fluid in think supply being something being everybody I base that components that and is industry dynamic the and Listen, constrained

environment, [Indiscernible] the fact we done the and for disciplined chain. margin gross given QX the supply we've adapt Our ahead gross for field product guide of scheduled guide reflection our in operating an constraints. have the and a outlook system steady QX that, don't organization. our margin pretty team and across demand and in excellent buying regard deal vast up potential the seek flexibility and pattern gives has inflationary with regard pricing react range With the I takes is and a revenue our the there that a ability a But to us across to to situations. job, majority an a said, of supply broad strong in single the to to and products that strength think constraints. the delay to customers the vast of of I anticipate Both With as remains real-time see and we've occasions maybe majority architecture deals. are single revenue manage strong and puts it's supply

Mike, You see this in our add want results quarter. that do to you any?

Mike Berry

in talked would on, had very give only just the everybody for we us. but George our as to a them our through well partners as expect industry that about, obviously to shout-out they and to as continue another I No, not perform all goes it's this work get faces team obviously quarter and fluid. help the us good really

Aaron Rakers

congrats. again. perfect guys, Thanks That's

Operator

Thank you.

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

open. line Your is

Amit Daryanani

thanks, adoption rest the perspective? look you is margin the from up better lot love you that guide I'd Thanks set in you execution, the apply. and for fiscal impressive raise understand gross this And a end. have in for achieved the at Mike, question. of and to Company? estimates like one, a year? I below lot, ARR George million the How confidence 'XX seeing it better Is what's services my cloud the relating to Just of on that, help XX year cloud of to margin than a uplift year sales your giving I board confidence you me really across gross or you number just guess. just are the then cloud a cloud early the what understand services. go-to-market, took may the a quicker by driving just guide to numbers Steve, now does

George Kurian

feel the about in cloud business, broader that as applications. very a It net-new as broader have. used well applications, good our and range confidence portfolio I we we the to both serves regard cases, of very, traditional think With

pathways Second, of both we and customers, the pathways. NetApp hyperscaler particularly are adding through a lot

once They with joins quite our they more portfolio like a lot expand rate, with platform, you the a net us. see Third, dollar-based when substantially do as can customer our from retention NetApp. they

three think to business the the fundamentals being confidence bottom the of up of in key to drive my those I take in this early range able year. the

Mike Berry

the then are gross And on questions margin, questions. great

cloud, in as If wonderful talked remember that And X Cloud here exceeded mind there doing it of hardcore the are Keep as more and making NetApp a are really gross drives everything about, There's on services dependent. I in scale sure ONTAP -- The that think was software. increased services, see Insights, we products things hardware only drive we've our is Remember you X back business. as improvements Spot, well margins underappreciated that September and hardware utilization. to we that in public we cloud and portfolio team's we ONTAP, will is think that great drive job at the the that we certainly one utilization. Volumes Volumes the revenue deploy on-prem, in major increased hardware well continue expectations. as Cloud Services, there. And in that Cloud

And number very then, hey, all then where are offerings, we exclude margin and the get us good for all just which was sleep The to helped software if they've it very organic so for on a that you Thank perspective. gave you Jason, -- Cloud XXX, still night. at are has can you other I revenue that. acquisitions. from Thanks grown three nicely, I all a question. XXX, growth

Amit Daryanani

Thank you.

Operator

Thank you.

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

Your line open. is

Rod Hall

what question. back to I we substantially, to talk bit beat come over were I the wonder was the X mean, I've mean, follow-up got if for try expectations and product than what our what product you for substantially you Thanks little guys. beat check. gross I and will I surprise guess be about But what just last points you thinking on there. Hi, is should and guide a was your the better total may say. different margin, just these also, what quarter anticipated. margins that? a could gross I I then

Mike Berry

Mike, performance. the Sure, going and All-Flash. year-over-year growth were Rob, rich, to its one that last you the drove which I XX% things the past. first was mix think really two was business majority as about And year And software of that that talked I XX. in large there margins, to so with from, that as was more And know, comes in better much it we've matters well believe that grow

-- as that percentage margin other year. lower The the Those at know, come you well de-prioritized helps thing pay as percentages. like we in as things HCI last

that's drove gross -- So, higher you the add product really those X gross margin together and number. what

Rod Hall

heard you quarter of out seasonality. you -- I cash helped Okay. I cash I call to on That's us great flow and that next a guide flow and a point Mike then it's the that way a is lot. wanted bit think low of like, full-year should of given I it the quite also pushing the for ask be curious flow. cash about just accrual, I'm I'm flow you've what know this particular see year? just a I but Thanks. curious looks flow why year? it Is the cash all I backend of mean, compensation does cash that

Mike Berry

the go similar. then billings movers you as collections, cash Every total QX QX, cash there an from to million is taxes -- QX, largely That's and well. up. follow collections perspective. if going Keep are cash In see as highlighted variable billings, that's QX. Sure. has dollar’s in when The those at taxes. flows and lower happy [Indiscernible] lot of QX and of in collections questions, that we aggregate in second the balance, In timing, when I XX done paid into other gets Sunnyvale largely that. relatively flows half, variable and from perspective our in that's a significantly That state growth in accrued the pay about Then pay then expenses lowest billings. the any campus. flow that pay mind, were to is we'll a time. look build mover answer cash big big you taxes, are on federal seasonality Love

Rod Hall

big Great. sale just flow you year a impacted of it's And say thing right? what on is quite year-to-year, bit, which cash a a that headquarters positively the last

Mike Berry

and mind right. cash go -- [Indiscernible], balances, didn't in yeah into it That, of helped operating that flow it cash keep

Rod Hall

Great. Thanks very much, Okay. Mike. Helpful.

Mike Berry

Thank Absolutely. you.

Operator

you. Thank

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

Your line is open.

Matt Cabral

very Thank much. you Yes.

and seeing the broader what you're has environment you're standpoint pick demand competitive in the up. like improved, terms Sounds to a of from demand Curious this environment that what as just your whether discounting pricing continues at point. seeing it's

Mike Berry

see, I cited my think across geos. prepared remarks, demand I all solid steady the we as

I think in well geographies demand. customers. as differentiation a good to to in on-premises public us both all executed capture conversations have that offerings, that the as I cloud our well the very our gives of drive feel about with chance extremely value

good the clearly solid the cloud geographies. team them all cloud. and business our cloud proposition customers get is Our able public see the us vendor the of storage cloud two to be hybrid execution to public and in bring differentiated new against market. for on-premises services that's to operating as and because And only help a us system customers with steady combination value to demand the across Very those allowing by on to maintain already

Operator

you. Thank

Our comes of from next with Chatterjee Samik question the line JPMorgan.

line open. Your is

Samik Chatterjee

taking margins. Good for had my question. afternoon. operating just I one Thanks on

But XXX margin between points of magnitude this drivers margins? about year, balance referred headroom we how beyond on should your but couple if to to XX That's think the the year, How about think the of expansion. year. basis prepared think this should we guiding remarks, of I start just margin and for full a you to OpEx leverage we trying to fiscal You're XX and know kind look that? beyond the times in gross expansion OpEx to about leverage. fiscal about of

George Kurian

I as disciplined team we business. way think management overall, continue run we the a in to said, be the we

you ahead should should topline model. should year see of You expenses, the in numbers as that the expect, that leverage create grow we and this in

we of core a to want we to improve operating XX over in rest margin to accretive of to kind add it of to as Mike, maintain I margin And Mike business, SaaS-like expectations margins the be do wanted terms to the Both model that have structure time to it us that elements creating public wanted to those of is. points of cloud top get more of and And achieved to that continue in product get outlined, -- as Company. towards well gross in cloud, which of think the we margin should you for hybrid to then the the we said want margin allow we the weren't business, leverage this year. gross have model. that anything? gross as we we line be

Mike Berry

No. Well, puts and. the are put. Those

Samik Chatterjee

Thank Okay. you.

Operator

Thank you.

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

line is open. Your

Karl Ackerman

thank you. Yes,

array better a the portfolio Your that only all-flash gets comparison in off second grew XX% and difficult half comparison, from a standpoint.

SMB even would that commercial you. area both hardware. So, driving that also of your for to love providers seeing and well doing outlook arrays hear hybrid you across revised is bulk it seems 'XX because that's I'd But from also too. the environments Thank are what upwardly suggest component fiscal

George Kurian

environments. have better has have customer that all-flash have offer to as solution a consistently in a array. an than use hybrid set maintained place I cases hybrid said, are a There think array a we of arrays we consistently

have And business strong continue customer’s arrays array is opportunity go-forward, And are hybrid see business. a to environments so, for an enduring we hybrid to a place.

differentiated We proposition hybrid, just value have in like we do a in all-flash.

Operator

you. Thank

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

is open. line Your

Steven Fox

the us trends about be drives today. to in target? the will all near-term sort just lot step around Can dominant ARR at perspective But versus of Good now. If X types X-year thought back where how plan we side a we maybe step are the and they're what billion the have going. Hi. what Thank mentioned put remarks you revenue base if in then today Thanks. and going. it of cloud have afternoon. $X isn't back the services towards you. for the and you in us, that And services you that we about threw prepared you public of your George, on

George Kurian

I Cloud use for of are early innings think business-critical enterprise the we application. [Indiscernible] in of mission-critical,

data of businesses partners around we and on have automation, and The protection think their that more next strong the clouds. management see operations public Cloud Volumes, and deploy work few more monitoring the I and way, very, and through management core business. storage we all see opportunities compute, which through with we a Spot they're Cloud why as same the through of hyperscaler that years, And Insights will with building it us. be very is much more over capabilities

in the We cloud also see public new a segment. engine growth

and containers we're cloud-native all around less. work You, doing are some the

adoption. Control, worked on the we cloud-native Company. be work Spot very to containerized the around of proposition is seeing same a with get a Cloud acquisition mentioned, we're Kubernetes the bring of applications wrap, organic brings to feel for enterprise that to to have about some started monitoring and management. That portfolio. Astra has for that Kubernetes is I Insights strong stellar and really for innovation to applications. proven see very We've especially lot new the starting value hyperscalers with Spot be spot So, and And then good applications. There's Ocean

Steven Fox

Thanks very Appreciate that color. much.

George Kurian

you. Thank

Operator

you. Thank

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

open. is line Your

Nik Todorov

Thanks, momentum that? there? and your can you than you’re if And for indirect there George, grew about in -- reason also, Xth on-prem the market congrats on share can sales any for color on Can Thanks. particular the results, direct great quarter do you your Is row. on faster of segments you the a us give strongest gains? talk which you see more guys. comment

George Kurian

this regard was mean, with see to the I really where a balanced we quarter think across I strength, geographies. all

the grew Europe very, results Asia-Pacific, Americas, in can results the all the at in very and major at you our You in we nicely. geographies look look in

wouldn't With about think of in grow regard continue a our seek versus So, tried that's who some like array [Indiscernible] largest the puts think I read feel the the all-flash our takes. good of indirect opportunities to contributor indirect, customers that. of into to some our strong I and the growth I anything trends to quarter-on-quarter direct, reflection direct of direct channel, I a good and it's sort very to channels. being specific so business buy both across

Nik Todorov

Thanks.

Operator

Thank you.

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

Your open. line is

Shannon Cross

or the investments will I we on very out. on more be from differentials impacting I you need OpEx Thank support in lumpy bit little that obviously the into longer-term, now wanted how if to I same And about and curious I'm specific terms longer-term the are from you the it it we on would you. flow. But impact should cloud, then gross a the shift just sort to the there about know perspective? allocate cash but much. Thank Cloud. you breaking it think side, of depending shift model? an And margin understand to dig you think R&D how of how the are SG&A

Mike Berry

I appreciate it's Mike. it,

So, as it relates OpEx, operating the marketing, in a that there. two R&D, lot resources expense to largest things shared a of of couple there's and lines, sales across keep mind and

has and Cloud, core there. marketing be. growth Let's to both. into certainly We of efficiencies been had do about selling and work probably most we've get focused that efficiencies sales excludes of of on then We expect get And will of a continue any where and from terms that and at in around in -- of now both it where lot R&D the we could the first, a focused that it. doesn't still on-prem perspective, Clearly, cloud. we've the line both they well. those, as play our That ONTAP acquisitions they're the is lot talked that team group would a in that and from do, sales

upsell like that cross-sell And we've success to talked team about in but to of largely be that's so and customer on terms will team. business cloud continue focus, that that also a add will our we focused the and expansion

cash certain that to XXX% from see much then we've where will that to as bit we're the time adding down income a I that you'll the more there little in flow, years largely over relates a talked difference But of better Once will location I a get about Azure. a think flow it. of But couple almost out. you're hardware. [Indiscernible] over would next to probably of to of if it's From see think flatten especially continue you versus you hardware, couple perspective, hey, cash also of follows motion. free years next a investment continue operating in. It's -- it more replacement to good, get the

cash and around So puts-and-takes X those OpEx those are for flow the segments.

Shannon Cross

you. Thank

Operator

Thank you.

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

open. is line Your

Jim Suva

is detail us to it more was help additional or to in kind And can other. this it were appreciated. you mostly And you. upside both, one greatly bit of if better answer Thank was volumes of say versus little due you. the the pricing? quarter, the The colors Thank for a

Mike Berry

Jim, to It Hey, Mike. it's volumes. largely related was

been We -- we've haven't seen of much external for competitive, talked competitive about but a in change similar. pricing environment relatively always as has

We've about largely going relatively quarters, previous with of was didn't by volumes. shaft. buoyancy. so see we to move it that a So, mixing it's driven in consistent, all We mostly talked saw, much

Jim Suva

appreciate we and Thank much you the and congratulations so details.

Mike Berry

you. Thank

Operator

Thank Your open. (ph)? [Indiscernible] you. Does our next line Lou with question come is (ph) from the line Lithioshil of

Lou Lithioshil

it to and that XXXX the will When XXXX? maybe get the centers. and it's down back we or But data broadly back to the to and that and enterprise at macro can ask years and spending 'XX, you. get market you we question. look coming obviously couple a a to When last we looking we commercial capital to I'm keep a in anniversary. equipment was Not strongly Thank and early that little see of had year. on customers when bit cycle hopefully XXXX, Okay. guidance to very four-year for XXXX, the George, at strong necessarily Hey, be referring

George Kurian

our the of demand last half consistent capabilities want to remind have that for year, for seen had strong and now. last our second us I steady particularly we year quarters several a We offerings year. a just

demand the steadily. brightening And overall environment so, see to is that we continue

economies, We experience. Europe a have benefit China quarters, to then behind another the leading to continue XX X with we beyond that, hold XX to X quarters of of said the and several many months recovery. that. the from that perspective we few maybe U.S. months, And the developing saw months

I feel good. so, very And

seeing are who technology. build starting a economic spending in have environment, confidence on we customers that think to better I

to I think within NetApp well-positioned initiatives after digital cloud, that segment, are and well-positioned go transformation hybrid that. is

Lou Lithioshil

comment That's and Any structure has components Thank improved. your on you. obviously Good. availability margin helpful. pricing

think we But So, for next what the Thank months about there? congratulations six on that. you. should

George Kurian

Listen, I dynamic is and chain. well in the the supply understood component prepared is slowing Mike remarks, in supply think as It and a chain said I industry.

Our team job has through an done that. managing excellent

We deep long-term suppliers and many them. of with with good relationships have commitments

we that suggested, cash have I and to of need can Mike will we so as use we ahead maintain think buy continue what availability. I to supply

products. done that's our for that system supply our chain value adapt really the have with execution the us. Sales think to team teams that for for our we're vast working the in. of I thank our our and majority current and the And I we that the drives a teams managing through a having environment. You cash allows to us a qualify to business continued partners good job operating in environment and And our think that to think environment should single good engineering of use capture want I

Lou Lithioshil

with Good of year. the luck rest the

George Kurian

you. Thank

Operator

Thank you.

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

Your line is open.

Wamsi Mohan

clarification an site, for on you stand AFA installed on give respect of one to you seeing where then you the too. us the base? with penetration any are side? update George, Yes. competitive And can on changes Thank you. Mike the And

George Kurian

it's so percent. another XX%, up It's

As again, as penetrating substantive right? incremental on new workloads. Flash we and any changes. competitive grow at ahead that sort don't installed said, And is a customers we our X% base. and of With regard environment, consistently, new installed X% long to So, continues time, the base see base installed a to have runway we that acquire to

I good have think a in market. offering really the we

Data to with our a portfolio. Deep only going also continue believe have not all-flash the new types others and focused but so Learning, like lakes, in workloads, we winning think share environment on XX, we're workloads to and we I Learning, of Machine taken stay

Wamsi Mohan

margins a from that either there heard any Okay, in the new also I thanks, impact of on field. renewal mix, commentary margins. product clarification And George. Mike, But on ELAs prior just ELAs or had was contribution software any in your these better the growth on discipline quarter?

Mike Berry

So, thanks Wamsi. for the question

would to we've it ELAs, what about, about small talk such every quarter. We're look, and talked a as piece the it's of point said not you here's So, going I've I to, business.

at that look last lockstep that increase, you you but large there numbers. specifically in amount see it sorted QX are if different And in the four results, financial the you the software see are and the If in basically if transactions hardware any mix, can revenue, will they've hardware, software our quarters. moved of anything, than current

Wamsi Mohan

you. Thank Okay.

Operator

you. Thank

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

is line open. Your

Simon Leopold

doing and wanted They're bit to can for some could business, to Thank it I cloud our to public little to better animals, your want you're community I forecasting we the if trends. Cloud. you. understand hybrid to do the enable ability how different just different about methodology talk compared on maturity if you a you your and have your your they're advice forecast see public what for cloud analyst

Mike Berry

Simon, only in hyperscalers. the the it's as the dynamics, not our team it from about forecast, There we certainly at that is it's new look looks Mike. is certainly well, from that When we talk it cloud Hey hybrid -- got some one. cloud coming see But -- that are second. much similar what sales we in that public I take of a will transactions business, we pipeline like. reports, I'll to Yeah.

XX. the Keep But at part renewal just rates gets rates, those, the we in it's I little of cloud we every of folks go I in renewal sequential, of of that it more, through years. it think details. And capacity of when than piece normal, at it and big at conversion terms hybrid and more sales that this business. in hey, about try it That's absolute to do that mind, for are makes all a been but of more look sales know when we’ve a very of cloud it's I it where Have year. look cross-sell. all relevant, have those net to to That's, sequential being us now up-sell, do growths revenue to then and for encourage mind, keep and and forecast renewals business. last So, cross-selling, difficult, I obviously, bit on big a much capacity? at those quarter-on-quarter is questions pipelines would a understand We businesses the you support $X.X are use of very looked get able rate. more the to COVID environment enough upsell, billion certainly obviously really to able different think we sequentially. look get we difficult now and -- to back see also lot couple software difficult a forecast we those as we're driver So, makes the forecast you it's also I you hopefully, last

Simon Leopold

Thank you.

Operator

you. Thank

comes Our Deutsche the Ho of Bank. next question from with line Sidney

open. is line Your

Sidney Ho

Thanks my question. for taking

raised rate the software given Just a target average, the going go you mix. the quick it's gross your follow-up to already on business. for corporate public Obviously, exit is cloud it sounds like higher this above year, margin

should there stream haven't or about will we too this be this margins. time the much a thinking about Is is think eventually revenue happened, average element? should that get growth? a that think certain we there operating What to But above-corporate we revenue of You are about business about when levels. talked consider target some things when should we

Mike Berry

Sidney, its Mike.

cloud about talking That's -- I your Just you're the question? segment. to profits make the operating sure public get for

Sidney Ho

Correct.

Mike Berry

Okay. Yeah.

at they dynamics as a there all that that that but And I a I at we billion. comps the is good the not businesses you great here's you'd a obviously the There, would lot of best the as see thing look in we out There million you only XXX then see call think Cloud to in margin, of look businesses. income. uptick the ARR, to way time. gross is encourage operating it about that slight at look grow

because cash-flow We of they take is the operating recognize benchmarking at income those up that So, I business look terms look before again, to positive went way comparisons. encourage they happening turn in ratable. of a you a would of largely at some revenue ends they turn lot our

really we group We'll So, and to believe, as look you at as no reason $X billion we I those take there's we said comparable would ARR. that a today, to march follow to. in encourage that wouldn't

Sidney Ho

Thank Great. you.

Mike Berry

Thank you.

Operator

Thank you.

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

Your line is open.

Ananda Baruah

guys. appreciate like [Indiscernible]. hardware up the sort to you and of afternoon, guys you as the thoughts more you benefit Hi, benefit if Really extent, to particularly as any, to are a on-prem sort I'd [Indiscernible] Thanks to particularly what lot. your love of a seeing shift workloads an taking to hardware workloads Cloud, question. good your, given cloud opposed move to get software it's the see.

George Kurian

that own I of out [Indiscernible] work think an are applications of specific Mike I software cloud, demand. has that scale-up hardware like with for computing software-based. to support it, the wider the applications that's before, go we regard used generic our hardware. run case. like by to our the can something used the a hardware, can that proprietary, that that doing range I've software to in mentioned, have traditional more broad majority we're And With our or or And narrow, are as requires where solutions the the that on cases, we to really clustering that and platform scale said think using for this application we it scale-up be public going certain so in vast more regard faster

Ananda Baruah

Okay, Yeah, a thank helpful. Thanks got it. you. lot. That's

Operator

you. Thank

Capital of Chokshi from Nehal line question comes Northland the final with Our Markets.

is line Your open.

Nehal Chokshi

on the product nice sounds of And shareholders that to well. All-Flash-Array Thank sustainable do Is see product here of growth rate the you. correct? congrats as seat, and then, it acceleration software what My that question a growth. the results like increasing you And strong capital year-over-year behind acceleration as in return XX% software? revenues, was we'll is rate

Mike Berry

Yes.

for product earlier revenue. HCI in One the of but in growth the less So, the would I nice the that things. grow total we're And in hardware. all-flash, expect by portion. software really XX% question product continued software the some growth towards less shift expect than two products software going increase is All-Flash, of if talking you portion forward, in have growth driven software mix really It's see also -- more given about should faster the revenue, portion product in to the if and

Nehal Chokshi

Okay. XX-plus percent viable? growth products Well, in be will software

Mike Berry

grow say to the not We're to to than total faster going should number. product guide it that than other

Nehal Chokshi

Understood. Thank you.

Kris Newton

some it closing Thank you going Nehal. pass to back for to I'm remarks. George

George Kurian

Thanks, a The trends. customer closing, positioned for digital throughout now Kris. long-term continue Cloud and these benefit growth delivered to And from priorities. to initiatives. year. In And 'XX. the very FY we we great transformation remaining well start continued sizable top

Our cloud unique most to in offerings hybrid address challenges. a NetApp cloud our position and pressing public put customers'

Our cloud and us. differentiate truly software property intellectual

ever As than our a partners. more confident in Thanks and joining for value result, long-term our ability I'm shareholders, to us. deliver to customers,

Mike Berry

Thank you.

Operator

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

now may disconnect. You

NetApp (NTAP) 26 Aug 212022 Q1 Earnings call transcript