NTAP - Earnings call transcript Q3 2022

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Operator

Good afternoon, ladies and gentlemen. Welcome to the NetApp Third 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 would 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

continued our projections drive to value and Cloud through risk of future environment; Results documents and recovery and materially our the market, greater macroeconomic spending cloud future the both to Management’s statements disclaim such including we our growth gain forward-looking disruptions; Discussion our our and time will and on and the market segments; During fourth and as file continuing our IT projections. guidance Operations forward-looking as COVID-XX the the revenue, in we XX-K share generate in which the shareholder prospects, our cash most resulting customers; to chain We Risk business, and grow of the as to our fiscal and of well the including reasons, chain including differ Public ability environment; of and and and for in any also today’s supply Actual and outlook statements such refer website, recent uneven profitability, SEC, and a Analysis Cloud year as ability call and XXXX; capital Hybrid conditions and storage bring financial flow. impact update to pandemic, our Please may Financial with to from obligation to specifically the Factors time we with for make available Forms supply sections. Condition XX-Q our the of variety involve quarter manage our returns; ability uncertainty. all to respect regarding and current results expectations

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

George Kurian

in achieve Kris. delivered: differentiated earnings In led the dollars, that to our everyone leaders, new cloud and another per business our receive our the role QX critical am third-party our technology businesses; XXXX to and a by recent building Amazon customers pleased afternoon margin Thanks, impressive validation we’ve continues and is solutions share. our on differentiation their by here periods. by recognized We helping All-flash for Good powered momentum were existing in and growth, focused plays goals. delivered earnings industry customers. and the by I transformation Public analysts, execution the XXXX Web FY for portfolio We quarter, call. Partner of AWS alignment Services customer FSx engineered had integrated for record Independent achievements and Software strong Amazon named of revenue Year Design jointly high welcome outstanding was – AWS performance Cloud the QX, U.S., and an partner. service. natively NetApp and double-digit NetApp our for operating priorities. our Services with ONTAP as NetApp array the income, Demand of gross Vendor independent

value, object also only execution Public and our out spotlights a each GigaOm storage leader the leader set, feature three. Hybrid were Large We Enterprise continued Cloud Hybrid enterprise-grade all segment digital listed are as arrays. our Systems, to vendor by for This three category, in with we data Cloud strong solutions we transformation segments. in to was comprehensive vendor driven in customers both across are demand options. a Primary in called and Cloud to are Cloud endorsing strength deployment Enterprises, as flexible File creating journeys. and in a we NetApp and plane translates multi-cloud lead Scale-Out Growth locations, GigaOm recognition in for our Radar and strategy value bring reports: and Storage the Additionally, on Not their the management only only File and Systems. our clouds continuous that cloud Customers a All-flash a

public am while usage partners adopt object are healthy point billion broadening services We participation to the support is us the and modernize the flash cutting-edge from lots continue Our and with $X activity level ticked including base an resiliency introduction integrated with business the which we increase ahead of record another rate have our proofs NetApp field to XXXX. data substantial of further the concept ramping year All-flash our for providers. with days, outstanding plan in critical of year, Service protocols, at and delivers Files business and which the partners Public ARR delivered systems, year-over-year, Cloud seeing I high Cloud with NetApp capabilities, headroom customers an Cloud increase help as Public XX% run new for early installed acquisition cloud cloud Cloud public of cloud of QX, our enhanced cloud-connected AFF the with protection All-flash AXXX, Storage reach net with ahead from performance XX% products. achieve for most and rate anti-ransomware sales and cloud grew storage our fully built-in and to block, XXX%, organization from AWS services. FSx The the ONTAP. services still of high the fiscal of segment puts in of our and our existing to Azure their has of performance file, engagement another with installed support Public penetration our revenue of performance million, arrays. unified expanded all in XX% of market with this a CloudCheckr in of ARR to plan; of Cloud required nicely; their customers and, us pleased uniquely, major retention remains Cloud $X.X workloads. Volumes increase early very environments position grew well milestone closed giving dollar-based again Google in benefit We, which our new our annualized the of array $XXX hit array QX. year-over-year. billion, to up base

portfolio management expanding at by It multi-cloud is growing and addressable complexity growing and rapidly customers and cloud market, Our and new existing environments. our managing buyers as led Cloud infrastructure the CloudOps Insights. opportunities differentiated new of reduce for their Spot also customers them is well, opening cost with we help with

innovation We automated application cloud cloud applications management aware deployment for Kubernetes Kubernetes of and made our Ocean speed solutions enhancing needs and Cloud applications. broaden enabling Spot management. Spark address infrastructure Apache Ocean with CD, born-in-the-cloud end-to-end Backup visibility the and and We've are to natives of cloud and delivering with at faster and

closed earlier, investment. the and manage governance needed to costs in cloud optimize CloudCheckr to acquisition their capabilities most mentioned plan, I out CloudCheckr the the QX. FinOps early organizations complements of Spot the As get we and analytics ensure reports, multi-cloud cloud with of

welcome Spot's will of This the advantage Spot with NetApp. easy understanding inorganic continue Fylamynt optimizing tools, for solutions Fylamynt cloud announcement in of team today's of suite rapid and infrastructure. and Spot the We with cloud their of the it customers acquisition Adding technology to code. will Fylamynt. of and innovation their infrastructure to to to extends their ability pace excited capabilities accelerate automation existing integrate Fylamynt's processes platform the organic to make leadership cloud for operations. our take I'm

business the I've winning to multi-protocol marks chose chose cloud us company Insights. environments and As competition. us third-party new new times, data helping many created opportunity support. its for managing with applications This is win Cloud cost to Nutanix in ONTAP Cloud global a by logistics logo strategy customers for centers. services multi-cloud for help our data data expand said and our deal from NetApp-based and challenges our and the has Manager customers NetApp displacing systems FSx for of hybrid resiliency, efficiency host and migrated already in additional They A

hybrid expired who Another to Spot lighthouse from its optimize and to agencies. We multi-cloud Dell energy most away in new replacing company, us first-time becomes unique summary, ONTAP Azure NetApp our multinational In on-premises can with now QX Cloud we significant international reference win considering our leverage easier position organization's to which multimillion-dollar with in systems cloud and Eco a make at had account They came Dell to a Volumes to environments spend. strong in workloads other both across systems. underscore challenges data migrate cloud-native win the environments. related from on-premises This systems win it applications, chose traditional results for agency an government into move solving are on-premises customer infrastructure in a in future. reach

deploy and and and existing quickly we First, centers customers simplify confidently. modernize help traditional applications data

focused And our to and opportunity and and for Kubernetes we'll We're data Day applications like the drive more customers modern confident machine deploy about Second, in we growth. that shareholder us third, Investor by growth XX, like we and I new plans March deep multiple technologies and and a on multi-cloud created architectures complexities security and with to opportunity customers continued help our growth, execution, adoption sizable ability for next-gen where workloads across adopt for cost, optimize management learning. rapid and performance, infrastructure clouds. availability The data-rich associated application help applications microservices capture talk am opportunity of holding our value. creates deliver an

at register investors.netapp.com. can You

reach the IR please If you out have questions, any team. to

to Mike Anderson to walk you it Product his take for over more that, the as software of I'll welcome want and building With Before to a categories to Chief with Mike. over I well XX services. industry-defining brings our I the through NetApp him him Brad years I to hand his to thank to want Harv Bhela turn retirement. and experience Harv call also numbers, moment than leadership cloud Officer. in wish

Mike Berry

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

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

as was our gross think operating the be all-time model I we our you had through another Before go themes today's another ahead financial EPS cloud details, quarter. key for operating valuable Number discussion. leverage clearly show two, through QX and as business in profitability margins. and walk quarter, with We are we year guidance demand our continues as business hit to to our outstanding original to Number company the to would significant profit solidly revenue one, income highs are operating of strong in it dollars, grow backdrop QX. continue a Public ARR $X as fiscal possible driven and target navigate ARR, very be shortages as are number much near-term meeting And QX to our QX. customer we EPS billion revenue, demand three, expect outperformance XXXX. and Number Cloud by the in we for full constrained healthy we four, in for component prioritizing increasing plan our and

business. Outstanding In team gross details. by margin year-over-year. $X.XX Revenue the to billion, operating Now XX% $X.XX the billion, across also delivered entire NetApp execution of we revenue, billings up up strong at fiscal the QX XX% and in leverage yielded year-over-year. came QX,

Our year-over-year. Cloud product revenue Product for by solid XX% shift $X.X expect Hybrid quarter fiscal demand support throughout increased QX by $XXX ongoing $XXX $XXX two Total seen continued of driven delivered revenue billion and fourth portfolio. continue Cloud over all-flash Cloud, software towards increased recurring of year-over-year, Public were year-over-year. year-over-year. of QX and X% segments. segment both our the million this X% strong X% we Consistent revenue with trends quarters, into QX Hybrid mix Hybrid across XXXX. of up last million consecutive momentum the Cloud and product revenue Within our was revenue growth the we've driven million the results increased to

XX of revenue the from cloud also year-over-year year-over-year. indicator Cloud margin X% revenue increased in gross revenue, margin the XX% margin the high XXth million consecutive Public growing increase year-over-year. QX our gross XX% at product product our Cloud public another the the margin positively $XX up of support revenue growth, profitable, up million, CloudCheckr QX our was with was the support and software growth highlighted, leading recognized representing excluding in billion, Public corporate continued Azure points continues year-over-year and XX% growing XX% When and QX. $X ARR combined, gross billion growth. recurring is rate, $XXX Cloud Public scale George year-over-year, company Insights, our Cloud Cloud ARR, support growth NetApp $XXX deferred of both The Spot Cloud of revenue margin billion Cloud Total value impact revenue, company's portfolio Files, best support QX sequentially. the was in business XXXX. an million history, XX% $X.X $XXX Public XXX% revenue in includes deferred quarter $XXX gross XX% cloud marks of XX% segment, which product recurring Total time XX% was was quarter recurring and continues ARR. XX%, for of total XX%, up exited up which all-flash was total with growth. QX revenue. We delivering year-over-year. in eclipsed run Recurring and Cloud with totaled QX, the Public the constituting of public million very revenue, while $X.X software for revenue of in ended and and accretive As NetApp, to XX% was to and be Hybrid in of of revenue first XX% overall portfolio. of profile reflecting Cloud strong contributing Organic to million, up Hybrid gross in our average. Within year-over-year, XX% XX%. in four overall revenue, Public up

last million, As goal will highlighted gross of AWS XX% addition an we Cloud for CloudCheckr margins built to to The the on company. operations are Spot for software tremendous year-over-year company a quarter, increasing be from cash solutions. Public which highlighted in with free our our of of to operating FSx Public million. $XXX leverage an model was flow as XX% portfolio, software margin our long-term of of XX% with towards ONTAP $X.XX record margin high. the we was also $XXX goal. and quarterly trend offerings, to flow our expect Cloud business both introduction and percentage continue was of of long-term QX up all-time and EPS operating support represented new the XX%, Cash the

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

disruptions many ecosystem. As situation chain continues during highlighted technology cause companies dynamic exacerbated supply earnings further were to headwinds Omicron. These this have season, by the the across

two also were decommits strategic components worsening consistently Consistent decision NetApp In half focused open significant To faced made a experienced versus the we product component and market the this optimizing beginning base, components years COVID. HDD to we a to which addition freight of to headwinds. with margins to near-term in customer product core are decision this us being especially premiums. great clear, loyal availability our to QX, meeting term. philosophy, required environment, short-term long-term customer short of a supporting with are throughout the purchase contributor demand SSD of second demand on in has prioritize We strategic last the at pricing of customer expedite and and in be and lower near-term the with the trade-off not stable the the our robust partner being supplier margin. the

these one, will critical With the headwinds and QX chain these in be number believe we product that two, to cost for Number supply I a as two highlight temporary want expect nature; margins. we headwinds trough backdrop, takeaways. are

– As cost fiscal do know, chain completely you these through headwinds to improvements the of quarters as XXXX. throughout the the but challenges supply first coming remain getting of all we supply in fluid, begin expect ease the half timing

stabilize coming We the also help further quarters. increases expect price recent margins our product in to

year gross product these normalize, that and mid-XXs level margins been cargo margin headwinds, them, structural to continues as ongoing revenue guidance. for our the updated return actions in chain We anticipate full supply into components have product particularly to impact and the to its will mitigate All-flash. base our our supply chain do towards airline QX factored we the challenges QX, mix and product As supply are trend and to our confident in

partner a and driven an purchases. QX with and great million through and prioritized many $XX is XX years; our We expect culture, in We margin incremental QX by we feel of to $XX being have billion to headwind over margin open philosophy in $X.XXX XX%, increase billion near-term gross net of which, revenues premiums which approximately managing range actively loyal to us implies at an $X.XXX the between midpoint, anticipate expect we year-over-year. displayed the in million the consolidated to incur X% has execution NetApp the strategic and market Consistent being current about for discipline to team component the been supply our with great customers, situation. be

supplier have margin been closer decommits. recent We to expect operating would without XX% which in the XX% approximately QX, to be

guidance Assumed driven both QX and We teams. anticipate in and customer $X.XX in activities, in portfolio, Cloud share sales earnings our generating QX investment of and including to range $XXX are our by operating for investments success share. per $XXX expanding revenue $X.XX expenses this Public continued between to per Cloud million million,

our our in be approximately other our XX%. is and expense expectation tax-rate that $XX QX be negative a Assumed will income and guidance million will

Our year-over-year QX of approximately guidance implies for fiscal revenue XXXX. XX% growth

We growing driven cloud Cloud and innovation. broader activities, by and enhanced expanding deeper also continued opportunity, our partnerships confidence go-to-market have in Public product

not full result, raising margin acquisition for As range Public tech total a is we million $XXX are to a is year. Cloud talent QX. and in new a $XXX guidance approximately XXXX. forecast that implied note Fylamynt ARR, gross any on will Please The the contribute with ARR XX% and million exiting for of the our fiscal

to cost year Our to management full disciplined the despite operating backdrop our headwinds, XX% the has margin business, of XX%. of us of allowed reaffirm supply guidance

delivering now EPS at the XX% entire $X.XX QX strong closing, our In guidance. team thank want raising to range fiscal growth, to in between the are I the NetApp mid-point. We We outstanding representing expect year-over-year EPS XXXX $X.XX execution for results. and

disciplined we to as meet challenges through continue customer supply possible. manage long-term the to as and minded demand as much temporary will be We

on we the focused and strategic stayed the three incredibly proud George growth priorities are and opportunity over that environment, five into to years. leaned current see the the executing against next team have collectively our I tremendous Given

to I’ll mentioned, potential Investor now hand where we will value our we an partners. discuss the the it further and shareholders, March call for Q&A. Kris drivers plan George host growth Kris? and XX open back for long-term As Day on to to customers

Kris Newton

Mike. Thanks

Operator, open the Let’s Q&A. begin questions. for call let’s the

Operator

first Our [Operator Instructions] Karl Ackerman from Cowen. with question comes

your You may proceed question. with

Karl Ackerman

Yes. you. Thank

Mike, if question may. for First I

your that You is growth. wanted it shortages understand by how constrained I QX. X% to moderated your revenue impacting component has spoke fiscal about revenue better how to be growth, in may But which deferred

was that describe a slowed? on in trajectory we more basis? have you could the a I so bit hoping how go-forward little And And detail think why may should about

Mike Berry

Sure.

So hey, thanks for the question, Karl.

there’s So of two parts that.

the revenue is or ship So to able when not go invoice, first is not deferred and it does into constrained thing we’re revenue.

So it sheet it’s go balance until the on not does actually invoiced.

support it call we’re X% sheet. FX. also the to into seven the On of when X% has not for not of ship, growth it you a on this does deferred revenue. look you able if When I’m to question; revenue, to it, support the important go last balance the to is account averaged that tie going super at revenue deferred somewhere quarters total take impact year-over-year revenue, between, and total So

in So year, points. X last X and percentage of QX to this had of benefit year, FX of more we a of be specific, QX QX to

of point. This X a quarter is actually percentage headwind

annual going hand you when between revenue, X%, those. going you’re basis all revenue impact, of for two FX almost or an normalize and to X% hand to get on and in for go So X% those deferred support the are

FX go together. also hopefully, it and that impacted question. answers deferred by and support doesn’t for if we would the So been then move deferred and don’t Thanks largely the have they Again, question. ship into

Karl Ackerman

in queue. hop Thank back you. I’ll

Operator

Thank you.

question next Meta comes with Marshall from Stanley. Our Morgan

question. your with proceed may You

Meta Marshall

Thanks. Great.

seeing any kind of just more what was headwind to Just the Thanks. would if of into up the as give inputs on as in sense – seeing? wondered supply product you’re maybe call is activity kind you I whether kind underlying order kind you availability? And of it’s what chain visibility you type impacted freight between a split pick you And assure of year, you’re look customers could next of more. try the that difference that whether impact, fiscal kind of giving versus of

George Kurian

multi-sourced storage, from with all, you bill really our our our a of leading suppliers. hard in the very we to good And continued supply support solid-state have well-managed we First processors, storage large as had have would DRAM, Most materials, chain from of regard items them. expect. and engagement seen have media drive, of meaning are

These I stabilization been think analog voltage have and across low we are the systems. semiconductors. things other mostly are families functions places used that our a of seen supply – volume of for decommits kinds lot where product components like value have in low in those analog

we’ve With that systems cases, constrained So decommits and they had which as both QX. of is major are impacted portfolio, to products, finished saw resort logistics, airfreight cargo source to, supplier to been by know, middle in and has parts why to some market the of broad-based offset the we all across regard purchases supply of our was open or in you the Omicron. distribution airfreight and

as recovery get process. have us as we includes both includes parts And that can see of share plan that logistics a you that the to management engagement steady strong through hopeful engagement, as that we well with can supplier taken constraints. and action I and this customer pricing availability uplifts into fiscal includes close we engineering programs, multistep certainly year XXXX discount that head We’re

Meta Marshall

you. Thank Great.

Operator

Thank you.

question next from comes Mehdi Hosseini SIG. with Our

You may question. with your proceed

Mehdi Hosseini

Mike, got Yes. questions. Thank I two you.

is for one First Mike.

I’m And I you. Thank of type should would how that about enterprise mean despite a a and seasonal all-flash trend new mix – array, just all-flash or help into be You quick versus the on-prem between in expansion? talked trough considered And quarter, the you customers for on think July customers we margin. follow-up see of about cloud April assuming your the operating all-flash margin that Does mix QX, on mark then the to the will cloud? array array. should

Mike Berry

So, hey, Mehdi, it’s Mike.

by almost is And which if operating your what the the premiums. mix the July quarter? So was I on the – the back driven going just QX, entirely your into lower replay question. question was margin And question, in want to

Mehdi Hosseini

some down, your would mix despite July the that would of seasonal rebound you a assuming would from I’m trend Yes. follow margins revenues. but benefit operating sort revenues lower so that

Mike Berry

Yes.

we to wouldn’t QX. think in fiscal as The into and you the would both relatively to about change expect from QX been starting which tell we I as QX, well one consistent. that you about impact talked thing yet. talk any much haven’t revenue margins, call. is and That’s that ARR growth going So I’d next in is seasonality to We’ll bigger about a guided XXXX on What positively on we ask it, the have cloud George is up. well to gross growth goes as our

your And Go QX for the to call. so would Mehdi. I And one guide again, that on ask ahead, as do would the you we’ll year. area you consider QX next be models

Mehdi Hosseini

No, of all-flash to I diversification customers? going question, just array was the repeat

George Kurian

a market Yes. we and growth customer indication which both ahead arrays regard All-flash new rates, of are new our that as existing share, continue gaining multiple customers, is we With be footprint, are we to workloads that in to winning elements our well by portfolio. winning well as are with clear of customers. doing

source great I of not their Our their to harmonize our only CloudOps our Public the customer data Spot, additions. center in also new environment NetApp been their centers a on gives cloud Cloud and an data their an portfolio, us with they suppliers Insights, customers cloud CloudCheckr environment as previous example have in portfolio, as call, displace net to but opportunity Cloud, new strength on with mentioned

Mehdi Hosseini

you. Thank

Operator

you. Thank

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

your with You may question. proceed

Wamsi Mohan

in you’re that headwinds you Yes, And could it you contemplated called supplier in – being as as George, from you become is thank margin there. had you these you and QX was and But NAND pressure? into are is a trough. not could about confidence making out incremental I on think running And seeing baking that you. that follow-up. wondering margins the relationships if specifically? of times issues create I talk a that some are HDDs appears if those some comment about to not headwinds, if well. to What if right that’s And it it start understand though to good seems have those

George Kurian

Okay.

that take Let me in two parts.

let to obviously market all NAND, then NAND base, that’s me SSD talk the all and across are the of the have they, industry we elements supply as and for recent and are of On incident our that rest of right? the of the With about the for memory strong you clearly first supplier multisource SSDs. members industry our if the impacting talk regard supplier supply one portfolio SSDs. relationships ecosystem, side, not So leading about know,

year-on-year. for feel There super be total about work and that in on we’ve our And we manufacturing flat the team in engineering done so we has increases that base. our good may and but SSD a some go-forward, expect prices the SSDs, be media job, done the storage cost will

and supply that dollar undertaken with base. items have the base the a we trough do that, are of we have – create to are elements sources certain supply our listen, of all supply other we a the product our on of us base are the been believe quarter the in open large have items major high we certain those lot in way supply managed, engineering we With that well regard elements of or of constraints to elements we far. impacted are the for do to supply decommits around the margins most feel broader in So that the that not see And to so required base going seen them by supply have with, dealing qualifications market. the of our engineer we has elements with of alternate supply to offsetting about constraints? work there’s Clearly, the why be with and supply good QX, There we in volume deal constraints. gross

over to solutions course market And of fiscal the engineering market will come half those year the first some XXXX. of the reached and have of

pricing The second the is third and element – discount management.

benefit price been fiscal we lot us increases for to with that this feel takes those QX know, we impending that most another prices part, mechanisms the increase have to about allow XXXX. seen we will impact communicated did better dealing have in the you will going through, the later the cause a have raise And be As have communicated of primary in also place the put fall, while to that and in year feel effect two month. price base, are path recently controls have previously us the that forward. in Those we the supply and confident all constrained we

Wamsi Mohan

XQ I on if your Mike, revenue Okay. mitigate could, the market That’s if taking seasonality really I open understood just paying go back to from to this prices in impact. right, to comment, actions helpful. XQ fiscal you’re And fiscal

able to – George’s revenue here not QX the if into have XXXX, in supply about – head better-than-normal normalization XQ do fiscal seasonality also you would some comments you if see a as are constrained? in chain take noted happening XQ we XXXX impact fiscal you’re fiscal sort but of you. you that then So you we fiscal and why is Thank

Mike Berry

Yes.

So thanks question, the for Wamsi.

the products QX portfolio. lot. really components and on here affecting we expect assuming plays – supply. do And all a talked George supply that as going the about we out availability specific into lot across after matters our of the QX, depends So QX a of mix

we from see When specific and hit sits some today it as QX, feel update on the Timing QX. chain really to XXXX. backdrop Wamsi. on flow that we going where terms look into situation, of we’ll call as we into to is say the supply on the are good a chain environment. depends again, expect to of QX you would about demand really the dependent those we and are fiscal certainly, really supply components. And And perspective in So of that’s

Wamsi Mohan

Thank much. you Okay. so

Mike Berry

You bet.

Operator

Thank you.

next of Wells comes Aaron question from Fargo. Rakers Our

You your question. may proceed with

Aaron Rakers

can. as the Yes. question, I taking well, have two for guys. Thanks if I

second to Just half of Obviously, building – I mid-XXs of on would there. to the helpful. you should But that cost XXXX? margin that fiscal think a expectations gross about of fiscal product for question margin do kind your think of framing simple question flat. through all product media the of being is on about of storage Any guess you’re it XXXX? confidence with in gross thinking that pressures the things of kind line I talk outlined returning I you’re in longevity said, Wamsi’s Is product on some mid-XX% how working gross the returns be the you’ve kind and me on that margin.

Mike Berry

Aaron, it’s Hey, Mike.

for thanks question. So the

super So is this important.

just think raised work a ARR of we you as as just revenue we we context, We And team. in have for and can of QX. have would on XXXX, hey, about. to at new things great executed we what guiding highs. revenue for straight execute the We do grown which really we EPS, would fiscal look will four of has replay is, expect is, you, we This continue multiple going So you folks a what And think today, the due things that but QX, largely sit guidance say well we’re think not we’ve help I to the said, control couple to to and XXXX. and is a into fiscal quarters. well as let’s product this

continue that expect issues. talked to next year. We the supply We’ve about chain into

of XXXX. moderate the expect we fiscal half as first go We to through

and price that of the So, really hope the the year. George that’s during second situation, driven increase. chain we improving about, talked and expect half things and three the mid-XXs would get we by freight back supply would And that expedite next of the to impact

that lot, look would as guidance for Again, modeling. back to we yes, in today. next year, you as your a of not QX, giving at just hopefully, get you expect But Aaron. So half we helps second helps the year. sit the with sometime we’re that Hopefully,

Aaron Rakers

Yes, just helpful. quick follow-up. a then as that’s And very

in as bit the at Cloud we us you You should as the revenue? I just more ramping. maybe kicking context give where far and into that that we’re was this that both progression and Public particular, you Google, a think about of business, Could point? of those know about mentioned at Google And Public really Cloud how – when those maybe talk Amazon

George Kurian

very our earliest our very, frankly, was Files pleased performer for of activity. we’re strong for ONTAP. a say and once We of Amazon to leverage and demonstrates I surpassed pleased knowledge FSx NetApp have quarter the the is scaled. as partnerships. that been Azure really enormous several a scale of hyperscaler how strength it’s has early this ability we quarters the and NetApp it in with us which now, think the I gives relationship and both all our level are going. expectations, three it but September, and in announced They trials early would it’s the with of

so to into translate the expand customers the trials those and And to it relationships takes time FSx. paid across

and but that where, we is. excited, a got work work to do, we’re say lot we’ve what know would of I So,

several behind should see the the is working Microsoft across customer expand workloads them have – to has in of I the Google FSx use cases broadly are with Google, range saw XX and And range about Google so seen AMS you expect, with between. months Azure. of we portfolio. we where we successes and with speaking, big

Aaron Rakers

Thank you.

Operator

Thank you.

from comes question Samik next JPMorgan. Our Chatterjee with

your You question. may proceed with

Samik Chatterjee

had the taking as Public question. following Aaron’s for of my quick a on Cloud just Thanks and couple question. well up I questions on

follow-up one, – versus if does still I look to look of excluding you at us is Public of That’s in much ARR, acceleration, a some recent of which ARR. you from $XX be acceleration Cloud so, get be then newer to coming driven that on I good. it How about the Public looks some to can an earlier, can the is quarters. or did growth so of your have And would insight initiated that an if maybe sequentially like that partnerships understand done it have ARR much more you’ve attributable CloudCheckr? of Cloud like you think was I that – you give million And quick does more that partnerships how this us into an how help sound if great. by compared me increase

Mike Berry

Sure.

is this So Mike. part. I’ll first take the

So we ARR. at finished that CloudCheckr $XX represented million, referenced XX% growth. $XXX In million about number ARR cloud of you as

XX% a XX% $XXX in million, QX. in QX So organic and that about XX% of was versus their core about year-over-year growth business,

that on organic really nice by Cloud really and the So out, growth was business. Files, driven And Azure Insights as we NetApp Spot. called

Samik Chatterjee

color – driving with versus George, How what’s coming application that on is partnerships any here? the AWS? the Azure partnerships much the newer earlier of from any with sorry,

George Kurian

are mentioned, yet. contributors material not the partnerships new Mike As

years. excited realized potential see about are the the that We but should potential, few next you over

I that use they shows additions strong quite dollar-based the net rate. majority acceleration both in portfolios, as of a these once one customer cloud vast new quarter, substantially. well customer of It that expand the as think the uses the their comes past from when see really retention you

majority vast has the progress think been. that’s the I So, where of

Samik Chatterjee

Thanks. great. Okay,

Operator

Thank you.

Our with comes Simon next from Leopold question Raymond James.

proceed your may with You question.

Simon Leopold

maybe if how Thanks about rates. that I customers, order you're for the are constraints, given question. just are given what had you. want a in the a seeing your your could get behaving, wanted lengthening that to order don’t taking many IT see space, of and kind sense lead supply the growth earlier. of experiencing. growth and chain understanding of help if putting that in confirm talked you're think you’ve us to I times you orders Thank And customers better I we rates

George Kurian

unusual any behavior. see don't we Listen,

healthy backlog a are shadow our multiple We tight given order pipeline. chain order pipeline. have purchases but demand close sense monitoring, of inspection no in We and supply Clearly, or relationships very demand of see with situation, very, customers. broad-based we our the our our

is Mike good it. Demand, sort the the we and of in business, real as to doing can we're has outpacing meet the So as much about said, feel demand as supply. we

Simon Leopold

Thank you.

Operator

Thank you.

Hall comes from Our next Goldman Rod Sachs. with question

with proceed question. may your You

Rod Hall

opinion the wanted Yeah, with guys general I increasing in quantify are people the too. be seen increases. whether as of costs category to on price they We've to a to that, down stay products, as these There's those fitting stickiness thanks I do. underlying for down around other maybe of ballpark could in. start XX%. prices around will back comment back maybe going people off you of flex And this by little prices price if to wonder and the as bit increases. a me difference go of

just that, could wanted on a I I if So comment it. get

George Kurian

a say we the and range, and We've the the fall the give you supply, industry action. taken our number. see won't and is appropriate those and benefits we I actions of read February, of So earlier, behavior the cost monitor of industry I'll your our target Listen, of specific in we out should in we play one in right? time. two over and in one as obviously, participation the the take the second it just mentioned

in flight. We benefit have the give orders those to our customers of already are that

business. new partner benefits over you But the to of of that should we customers. With year, so honor and into too come to early customers being off flight, always you the certainly the good need fiscal business. have regard likely listen, It's duration on, a partner heading QX for the course see in comment. that to are to into and the good with in to the a to maintain trade Our quotes margins me our to them be

changes, and will let monitor know. we you the We if to will we situation, make continue

Rod Hall

were just this driving I wondering, of you a Okay. is on then guess maybe had the answer It after the Americas? regions? more strong the generally, the quarter. then you that? do it's Or and quick comment spread Services, And strength the was follow-up regionally across for pretty then we And What's it Public Cloud one, that Americas. all in on I of accounted that

Mike Berry

Yes.

The Americas, strong mentioned, in. certainly report coming it to have order is would in flows an large So that generated strong growth a did internationally, majority the way. results we the the as lot business very they Americas, in the that extent That's answer entities there the the a business saw the we is to first strong of through that where you question PCS is quarter. of international

in the both Hybrid had quarter, Americas the and a Public So good Cloud Rod. segments, Cloud the

Rod Hall

thanks Great, Mike. Okay.

Mike Berry

you. Thank

Operator

Thank you.

with comes Our from next Fox question Advisors. Fox Steven

may with You your proceed question.

Steven Fox

Hi, good afternoon.

that about Just you further orders? quarter demand just I unmet first there to Or a follow-up. all, in some the And saying supply related clarification a the entirely acceleration also comments made was had on of of was just Are you closed. then a chain?

George Kurian

really is demand been wherever Demand, as we say, to we our outpacing We've supply. And just could. said, well. meet demand team I'll aggressive executed

in just QX. supply QX we'll and has expect we in I Demand both that transparent. think outpaced be

Steven Fox

there that M&A done the think Cloud sort way set have how you you any the like these to seems that have it that starting effect when Cloud, you've forward? side targets, for sort George, view growth on growth rates. of And then, And the on your of about compounding some Public is how growth longer-term going changes have in that into the some didn't layers first now? of a sort helpful. to That's of Is of capabilities Public fact given Thanks. you Okay.

George Kurian

billion target. I think, listen. we all, our ARR of are $X first of ahead clearly know We

about at we've We the communicate excited will long-term built. I right? started Investor So Day, We perspectives our storage. targets our business cloud with portfolio really on and the cloud am the

seeing world's We cloud integrated with and acceleration are leading natively business. cloud the providers, you the storage have of that

get We cloud also Insights, a portfolio adopted Cloud strong with infrastructure our Spot, CloudCheckr expanded portfolio now helping the by customers. and easily entire management in with position cloud Fylamynt

to us and so different and that like demonstrating feel I are really two beachheads customers in And TAM them markets cross-sell and are we to new do upsell the have built things. our overall a ability strong expanding for of lot get

I'm our excited portfolio. about So really

long-term growth returns, our of acquirers significant while free cash to a with be investing shareholder to both disciplined business manage for shareholders. flow returning continue of and We amount the

Steven Fox

Thank helpful. That’s you. Great.

Operator

Thank you.

comes Our Jason next Blair. William with question Ader from

may with You your proceed question.

Jason Ader

Yes. Thank you.

XXXX? I but say, revenue. revenue of early the model supply, So in takes the the pent-up us terms for XXXX? some But hybrid in guys your follow-up, the people some puts outpacing what about George, demand in – Mike, as then light any for are for quarters, just in right and impact solutions sorry, that now you I on is how versus, characterize understand about environment of last helping demand guiding quick few you not thinking a the talked kind thoughts is And supply especially would of the have FY demand with know XXXX

George Kurian

across that analytics, mean cloud all are It's different of be demand, these there demand. solid. are I right? think cases I headline not believe to steady the very of transformation, a lot data broad to Listen, It's verticals, use a in different intelligence, was I digital continue protection. artificial lot they enablement, we with use honest. ransomware for secular did industries, a well-known recovery, that are unstructured and news see cases industry, broad-based V-shaped

think mature centers, IT over they time. buy I are steadily departments and buying

opposite some year-on-year companies. think during many were during the saw for pattern by even business a We the compares good you the COVID, exacerbated I that had COVID. cases, in fact pattern

continue remain to I So optimistic.

team Our executed excellently. has

our We growth Hybrid all-flash. have object in we gained has have and and share in, every two strong category business Cloud played that in engines storage

Mike Berry

I'm Hey, Jason, something? you – want sorry, did to question on your add

Jason Ader

it. for go Yes, it. for go No,

Mike Berry

Great. Okay.

So back at it's go hard Support, talked again, exiting X%, X% look do QX, I'll over but we've straight basically support what especially a can when deferred for FX, off update grower. quarters, the you The short-term revenue there. seven X%, again, XXXX. deferred the question, different revenue, your in four comes quarter cloud Aaron's quarters XX% And – sheet. you XX%. about you ARR, fifth guided in continue balance in basis, look more so On than last We've of hey, at March, forecast a normalize revenue for the to of own the we we'll a in up we're components, you expect about because growth when that and product in year-to-date product. is been

growth As of in percentage about in script, XX four I contributed cloud the of points talked my quarter. the

pretty professional services, in really And it's impact. So results hey, starting then, to a small. meaningful it's have nice but

The that's to would in portfolio is well. So expand to organic. be continue next keep mind our be obviously those largely do acquirers, We'll year into next going but cloud puts and disciplined as look thing we to one year. takes the

Jason Ader

very Thanks Good much. luck.

George Kurian

you. Thank

Operator

you. Thank

Nik comes question Research. Longbow with next Our Todorov from

with may You question. your proceed

Nik Todorov

cloud do relation and customer afternoon Keystone? see Yes. all are your the any the question seeing increase and Thanks – talked guys price or about, in good managed solution? of maybe any fully everyone. Or constraints from in hardware prefer they regarding appetite to solutions in you you given changes cloud increases versus like you services A whether behavior

George Kurian

absolutely of about, that good ability customers feel the talked ways serve you about in all We the to on target.

trends any – us. is service defined, around a of playing cloud haven't radical in seen long-term the be use shift broadly model out to I of as we for think we've seen behavior, the while and continue sort

and able really Our and good would customer environments, like early across more deploy cloud on we we more and the wins you they geographic more be continues strong are early workloads cloud also see to base, Keystone to their build aren't wins environment an wins, focused portfolio data to help really, our be us continue and more also when and business. public to just very going, customers center. vertical It's an in on a in but quickly quarter. deploy if to expect managing industry able had new

growing both about then, business. of said, our good all-flash we and feel differentiated as course, product object I storage. the we're of on And So focused parts portfolio,

We system have that for market had in best operating flash quarter. a the hybrid good the

So board. across execution the good

Nik Todorov

it. guys. luck. Thanks Got Good

Operator

Thank you.

Research. Our next Cross question comes from Cross of Shannon

with may Your proceed your question.

Shannon Cross

very much. you Thank

Just two for me.

quarter pressure for and about And You guided in OpEx was came just to your of pressure? seems anything $XXX I'm if since that? ability and $XXX it million to sort $XXX there Thank million, which under think I million. talk it how thinking about you revenue, it specific just then was about Asia about to of margin bit OpEx gross remains XX% can curious last you. low. a you're Was toggle if

Mike Berry

Sure.

able of That below come spend. really On hire in was more Shannon, we to guidance. did able timing program we driven being here. had And were frankly, Mike folks little its baked OpEx, a So yes, than by bit to. in quite we

we drive QX, – make to the areas the to about From two talked it, were sure we're QX that we've that that big want those So drivers. in were hey; growth. investing

sales then view by great toggling spend our both QX and things QX. always like will didn't timing so there's OpEx. product. in into that a is during program hamstrings chain to certainly our work take If XXXX, changes There mean, a QX. want driven us business. is So It's in not you Asia it's today. question flow is And stance being able the don't on and growth to in drop again, temporary. driven around not in the some And we'll that's increase two really revenue is Therefore, that we spend its that going commissions, look cloud, the I something supply deliver. but to largely saw we is it, The way at do by XXXX. that's things, through to anything that this

So why the other supply that deliver drop which were you chain geos, year-over-year related mostly to saw in was revenue. more versus that able is we in

Shannon Cross

Great. Thank you.

Mike Berry

Thank you.

Operator

Thank you.

with question from Suva Jim next comes Citigroup. Our

your You may with question. proceed

Jim Suva

curious who just Thank them? suppliers placed It's you. down orders reaction your kind I some strategically? providers in just promises really have these situation? kind diverse the awkward And broke then break or and do Mike. the who alternative you and host you bridge with and road. probably or their loyal Do concessions Or NetApp back I'm commitments. contracted decommitments, the Or of you've you your road? some and taken you move you and what's one and on find without you've When long-term? question. for contracts the have of action hear the agreed who come do or of the very George maybe true terms like to ethical, to because just to But been customers it give an seems put high you

George Kurian

these Listen, supply we conversations have with the I are that our base. think all

of across us access and cases where to the our to of of are have we have reasons on the are supplier integrated understand the I meet of to bill profile. other We that we feel sometimes manage customer build demand such our into – directly. There's then for want We vast hard in we there for that engineering And in rely right? – and challenge of in have multiple that overall suppliers ways materials sort don't good we There we our supply for suppliers. think other systems we are a to are the a a decommit. to in here. continue the diversity clearly, majority our really bond part where sort been like support supplier the can components entire long-term discussions that to give of that there, the are to understand subassemblies want ability worked

so us to And see work our demand. next you'll levers the to to over sure all that that have several meet quarters continuing disposal we at make the

Jim Suva

so George. Thank you you. Thank much,

Operator

Thank you.

with Our Loop Baruah Capital. question next comes from Ananda

question. your with proceed may You

Ananda Baruah

over George, for thanks just question. in guys, that today And to your and do portfolio? quick a time the how Yes, taking describe as for Hey environments Yes. is me. hybrid for arrays? think would spot add the you object where you changes storage you one sweet all-flash

George Kurian

mid-range systems mean high-end is and arrays the we strongest clearly, I are mid-range displacing traditional all-flash systems. the vendor in

in So and we winning are the and well. more more of high market customers more the really as end

distribution broad-based strong portfolio. really of So our

hybrid really Our the entry well flash market. have systems done in

hybrid entry If growth you bands look at the all-flash rates, price than flash businesses are business. much more those

files scale customers of the those the object for another for use ability cover data increasingly, use unstructured in combination ease storage, of technology two of factor. a and and with the to it's started form give regard With to those of starting so the data us repositories out to part grown, portfolio. our of And right range have management as allow the extension administration. to The object are most cases broad unstructured

been really, Our solutions have really strong.

I that market. think on we're focused

truly object the parts a And environment, some good a build the we cloud data us scalable, some support being customers' Public centers cost-effective, being allows have public world, really true centrally hybrid unique object integrations with managed under have the combining environment that in and Cloud We one parts object policy of framework. highly even in solution. in to

Ananda Baruah

Helpful. super. Thanks. Appreciated. That’s

Operator

Thank you.

question comes with Evercore. from next Daryanani Amit Our

may proceed question. your with You

Amit Daryanani

apologize if I and me squeezing this for been has Thanks already. asked

the side. had cloud on was ARR The I one first

start being there in I to better are Is than to do to business gross operating think about a you corporate about potentially? corporate see cross what line averages think margins XX% the talked way margins that and we at in point averages. that

Mike Berry

Yes.

So is Mike. Amit, this

At going report go any margin. So reporting point, to go this look to reporting have but the gross in gross that, We'll down we we're the to at margin. we to to operating margin. segment down down continue don't plans segment revenue

Amit Daryanani

Fair enough. you going through now. these on you're component then everyone think been challenges these has And that I issues and

of gross about on maybe and I freight for is think right, in talked a about logistics us? the the table quarter And As issues, much you quantify how April to that any April is way the versus think issues? you would or revenue call margin there you've left component is headwinds, about out then there that

Mike Berry

there, freight. what the Freight components into is from that piece won't bigger but the components of what gave. then that's So that the was guidance logistics that. and And majority are are say the a baked headwinds from and versus we a all of full are we revenue we'd year quantify QX perspective,

Amit Daryanani

some I we guess left July was as have the in – of these as Mike up that you part the table on should these the quarter conviction products the bottlenecks right? and we we could are what alleviate, get revenue requalifying pick

Mike Berry

Yes.

QX we What We'll could So flow supply they of the what able chain at mix yet. QX. mix is of that end do not those, on and there terms is question the have entirely available was We're a then deliver the and dependent to previous that. guiding we'd on say that to we're into is extent supply that super here, matters components. what QX. almost it's are And important But situation. the in the

Amit Daryanani

Fair much. you very enough. Thank

Mike Berry

Thank you.

Operator

Thank you.

question comes from with last Our Louis Miscioscia Daiwa.

your proceed question. with may You

Louis Miscioscia

Okay.

four I've got OpEx ones. questions demand So and two

So IT replacement checks a outpacing big there know multiple demand my supply. I times talked hardware you of cycle look that just people back in growth XXXX And with also is – what cycle, workers because in calendar CIOs of also just but office, curious back But refresh drivers. some of joking suggest my the on some a happened getting at that, aside, that's some on, to checks then the the top when half of or year. the you CIO some of to coming that with back office this getting more is suggests maybe

to a year. So all hopefully these also I you before, talk for this a year of are but couple demand could about did maybe if good know some contributing you you George, calendar if extrapolate

George Kurian

hit Yes. points you Listen, quite the I accurately. think

be the the demand continues we of see to work sort all sort that the we year, the easing improvements course solid, in and impact remaining return same. through the based. think to think from broad of really overall I omicron, the And of and things steady

not much we we're I year the so And it about fiscal. meet my remarks, can We'll hard we certainly next We're as demand get. guide as very it. with good supply guiding excited and when But guide picture, as about ahead. the working we're said in to feel very, we

Louis Miscioscia

the Okay, thanks. luck Good Year. New on

George Kurian

Thank you.

NetApp the play in for role to our a digital are you critical where customer As we of products cloud services. up, goals at achieve sizable three customers and I wrap driving helping want transformation, callouts, demand and data-driven leave enduring we with their broad-based and trends

is our in to The of are year thanks addressable Our XXXX. ahead strong in us. embracive still billion achieve performance, ARR market. cloud And in of our Cloud well we Public has fiscal our front real opportunity $X Services expanded plan to

Thank we Our and operating you our our value us next hope long-term and of leverage I our and we talk grow expanding deliver about will you to as more operating our where and at headwind capture month, growth focused chain and margins. see temporary enable supply drivers. profitability effective opportunity execution to Day Investor management

Operator

for conference concludes you. today's you Thank call. participating. Thank This

now may disconnect. You

NetApp (NTAP) 24 Feb 222022 Q3 Earnings call transcript