Earnings call transcript Q4 2023

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Operator

Good day and welcome to the NetApp Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Kris Newton, Vice President of Investor Relations. ahead. go Please

Kris Newton

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

call, without a other number we may and and for initiatives revenue, various first differ profitability limitation, projections our actual statements of and and outlook fiscal These make our XXXX; quarter are and results to guidance our expectations statements respect returns; financial strategies. regarding future will year risks shareholder future today's forward-looking and and During cause with prospects, including, to growth subject to uncertainties, materially. which the our

we the most We time projections. file from information, our more Form XX-K to For time update SEC including statements our on forward-looking documents with our recent website, Form any obligation XX-Q. and and please refer disclaim the and to to

unless will During the on call, non-GAAP, are estimates to our all Reconciliations presented website. available financial be GAAP non-GAAP of otherwise measures indicated.

turn to the over George. call now I’ll

George Kurian

our everyone, call. Thanks fourth to quarter FY Kris. Welcome, XXXX

the QX disciplined of EPS solid results the above in of our macroeconomic operating expectations. Our above challenges. all-time revenue delivered guidance, execution ongoing with high yielding operational We and management face quarterly reflect midpoint margin

environment we FY demand revenue EPS, relatively and and slow XXXX, delivered the flat For FY record high margin annual despite operating from XXXX.

business response and budgets the applications not their as they in technologies investments to and growth. customers productivity tightening are drive Even in stopping macro, that are

on growth the premises our the remain our the analytics, markets AI, organizations. confidence of data in Digital temporary and top and This transformation modernization, IT cloud security, business in headwinds. despite future projects both drives application macro opportunity, and health priorities for involving

with approach we to and estate to further across customers relevance By deliver greater increase in to modern and are value, value. hybrid, of simplicity, the new and infrastructure position. continue security, management. sustainability, And our with with customer areas data innovations their a to entire providing multi-cloud data we priority spending ability strengthening We participating the leverage our introduce

our time, focus to On same for better areas call, sharpen long-term positioning the deliver three our to while ourselves our results, at success. outlined last execution of I

the Cloud remain the tightly storage our business managing are; prudent control. reminder, build company approach of focus our a support business. elements and efforts As within areas of across focused our business, a stewards Public the Reinvigorate to more in the systems

staying committed As remain demonstrated our move and our operating continuing to within we operational see XXXX, FY to EPS you the drive margin invest long-term. We adapt maintaining and to adjusting growth as to results, the changing ever while expansion XXXX elements we control QX flexible as FY the appropriate, also discipline and from for through can in to managing have success environment.

our Hybrid to and business. down revenue QX sequentially. was storage Turning X% year-over-year Cloud up systems segment billion of $X.X X%

annualized decreased array all-flash Our from an billion. business $X.X a year run to revenue rate ago QX of X%

headwinds QX, and our product Similar large to on from AFA weighed revenue. enterprises

customer greater spending are we storage growth. of customers, our seen, portfolio, deliver reach to better value, priority areas address you’ve As reinvigorating market new innovating and and

of arrays multiprotocol, ONTAP and speed to help deployments. designed mobility proven to AI AI reference These AI FlexPod suited simplify our solutions around the performance, tested and meet workloads. are and and architectures all-flash are are AI data which demands uniquely

of in enable benchmark, technology power QX, full GPU ability the leading the proof to AI. our customers Direct of for performance industry In demonstrated we GPU to use

multi-site, pipelines. at includes cases doesn’t use science and data and AI tools teams native data data stop to affinity performance; streamline workflows Our multi-platform, that management ONTAP for integrate multi-cloud

the workflow planned features benefits solutions not of but raise releases, just companies faster for expect bar again the performance data upcoming total performance with realize better we and results. ONTAP management AI new for With in that and to help

The new QX. began arrays, AFF late in all-flash our portfolio QLC-based shipping of comprehensive C-series,

initial very the customer are response. pleased with We

lots to addition of a number closed quarter. we activity, In in good quoting the of fourth deals

$XX was service-level cloud-ready, defined institution significantly that efficient. in for a denser financial deal our at million beat solution of business-critical competition workloads a C-series large One and was more environment. early the a wins its We with energy

efficiency, Following high this is line that and in A-series introduced levels we data highly The successful of systems ASA SAN-specific launch, the performance, ASA storage deliver QX. of new early flash scalability, NetApp a availability, block-only the to competitive siloes The avoiding competitors' consumption power and XX% our data emissions offerings of carbon ASA lower offerings. products. use address associated up with operational than while and connectivity cases, storage to complements unified cloud

to innovating a Lifecycle predictability upgrades. QX, Storage the bringing experience. portfolio the and of also introduced Program are customer Advance, programs storage including non-disruptive adaptability, for we In We improve NetApp

At QX, simple ONTAP. capabilities software of we all the a One, ONTAP and start to buy of announced native the way consume

We’re key built-in enhancing ONTAP’s Ransomware detect, recover from ransomware to stop, attacks real-time. features the value in of combination which unique of these and security with ransomware built-in Recovery leverages capabilities protection our and Guarantee,

significant and In on specialist go-to-market broad efforts, delivering for cloud. team sales selling reinstituting focusing organization addition a to our including through our flash have also rebalanced innovation, sales we compensation plans

drive and array We to enable all-flash believe confident in better team will regain these large revenue actions market. these storage share TAM. us the am FY to will that growth Entering allow XXXX, product the address the I actions

for are benefit to but growth in half. seeing signs, these second should driver the a take the and full develop of changes will product early, positive revenue be time We

XX% million the our of storage of Public we sharpening services. our was our Cloud by market, Cloud attack we on up taking eye While Cloud driven strength not in ahead expectations, Public are and off ARR the are Public year-over-year storage $XXX opportunity.

and indicate. was for lower in and loaded, resulting in million our results QX DBNRR revenue revenue $XXX XXX%. Cloud softer Public backend was Our QX DBNRR Cloud business would was than ARR Public

cloud our than services, $XXX,XXX number customers revenue customers with Our create Public Cloud over to advantage customers, quarter, total with Services all nicely. they multiple grow NetApp. preference a in greater competitors of of highly our of are for Cloud and and multiyear traditional the differentiated, continue using customer The Public

significant of customers new FY scale whose to expect continued that the optimizations While, the kicked partners, us projects we off optimizations, have our cloud next like created headwinds XXXX over cloud XX we for some in months. see

We our by and sold our partners, our branded cloud first-party biggest services, storage believe represent that opportunity.

We have aligned opportunity. our cloud go-to-market our partners’ specialist sales alignment to and resources against our our segmentation execution and customer tighten to improve this structure to

dedicated team FY of important remains opportunity. more to market this our will resources address to course focused an customer and improve cloud Cloud the have Over us, and and further develop operations success expansion we for retention customer channel model. XXXX, scale a go-to-market we

wavered Public potential services business that for We conviction our has ARR a not have multibillion-dollar in the Cloud to be us.

the long-term in While is the is favor an industry-wide experiencing to unchanged. cloud shift trend slowdown, of cloud

to In a XXXX us FY headwinds number in enabled and of the business the operating to EPS. are management and all-time our conclusion, was opportunity our margin year unchanged. not we long-term strategy health model while disciplined of confidence and The overcome our at high our expected outset, deliver sound is its fundamentals of

the will will are attack margin believe the our continue back and operating yielding of We and spending. new, fiscal actions this and environment, earnings priority remain be expansion year. a more we disciplined to business. half drive agile areas stewards growth while top growth to the innovation of the in line We with substantially In year of model more uncertain focused entering XXXX

value Thank long-term their focus. momentum pleased we this you our progress, to done. look for am on work I team with building the NetApp but driving and not shareholders. for and to We recognize our is dedication forward our

now Mike. turn call to I’ll the over

Mike Berry

you, Thank afternoon George and good everyone.

on focused the we noted, elements George laser control. are within our managing As

Our focus full deliver performance us and year P&L enabled for to strong the QX.

results the year XXXX. expectations for of quickly me into the let getting key details, fiscal themes Before highlight and our

reminder, discussed noted. are otherwise a numbers As all unless non-GAAP

record operating margin delivered year both We XXXX. and above range and EPS our QX fiscal setting guidance in

success the business operating continue driving fiscal position further We EPS to and while long-term will manage to year in ourselves expansion growth XXXX. margin for prudently

spend. in areas of alignment We position and to confident are of strength the priority our

and and the will spending time. However, these and IT pressured in environment macro headwinds FX rebound temporary that headwinds spending. We uncertainties have are believe budgets lowered

We reached gross drive improvement gross margin. Cloud of this expect level at maintain of margin year margin XXXX, mid-XXs In we target our to Public ahead and fiscal product gross to expectations. product

XXXX, of year by year plan shareholders in to a continue flow policy and count reduced returns from fiscal cash returned fiscal share full to free strong year. shareholder We In of we prior XXX% X% XXXX. year the

year up X% year-over-year. down to XXXX fiscal $X.XX Fiscal X%, of Adjusting up Now X% details. would FX, the have been headwind for year been and was billings down billion were revenue from Revenue the billion would X% XXXX. from have year-over-year. billings of $X.XX

was EPS was over headwind. margin operating Disciplined $X.XX and a of yielded XXX-basis $X.XX point fiscal highs included Operating operational from management year for headwind FX. margin all-time XX.X%, including and FX year year EPS.

down in were QX year-over-year, billings from at billion points came of midpoint $X.XX X%, our guidance above XX% the range adjusting or two last of including for FX X% billion, of down year FX. roughly headwind. $X.XX Revenue

Public cloud The expenditures uncertain and customers continue capital Cloud segments, impacted and in caution Cloud our both optimize exhibit Hybrid negatively in to as macro to revenue spend. look

and Hybrid Cloud from year. revenue of increased X% QX year-over-year. down Product Support of down last was $XXX revenue year-over-year. XX% revenue million X% $XXX $X.XX million billion was

to in of ARR XX% ahead revenue Cloud QX $XXX Cloud $XXX Public revenue composed expectations million, XX% total year year-over-year. grew Public XX% million. exited at year-over-year up the of and

in deferred deferred increase revenue marks of We growth. for revenue, revenue fiscal of XXXX Growth QX is year-over-year growth; exited XXst billion of recurring an best revenue with $X.XX year-over-year. the consecutive leading quarter indicator year deferred X% the

margin mix, XX%. guidance, Product lower XX%, was premiums, gross was by margin lower headwinds. gross FX and ahead consolidated our QX also well guidance. Hybrid better gross was driven Total Cloud margin above of XX%,

benefit commodity expect responsive in on pricing to reduction all market will to components. be As from retain calls, we’ve previous of the described the premiums and we

XX%. support to with XX%. margin business gross Public recurring profitable, highly margin Cloud of Our continues gross was be

quarterly guidance end of headwind. operational with again business XX%, high comfortably our model year-over-year all-time above and FX high. $X.XX of of EPS operating included QX of strength margin the the an and was of our discipline $X.XX highlighted

$XXX year to payments. expectations Free cash cash of and XXXX In $XXX $XXX for million QX, timing flow of was million. in free flow operations due fiscal collections below cash million from was and came flow lower

from Inventory last last steady restructuring together one-time flow tax we call, totaling of noted on XX included certain last QX cash our million. and quarter As year. approximately and were $XX turns payments,

$XXX $XXX repurchased we QX, out million million stock and dividends. in in During cash paid

representing million stock flow. and the out million of we repurchased year, total For dividends, in $XXX in a $XXX cash cash XXX% free of paid

QX diluted million down share count was of X% XXX year-over-year.

our end approximately left additional of repurchase share fiscal have as authorization announcing million XXXX billion. are on and year authorization current an $XXX today of $X We the of

closed very $X.XX short-term in year We the Our remains healthy. with and billion investments. balance sheet cash

guidance. Now, to

position our and of Let addressing priorities, underscore strength AI, in me confidence and in data our strategy analytics, application security, business key our modernization. customer the like

expect to we However, demand pressure macro on and the with continued environment. IT remain the budgets challenged,

we total result, to on basis. low XXXX expect down be a the revenue to in a As year mid-single-digits percentage fiscal measured

a year go-to-market changes. XXXX expected mid-teens. Cloud be introduced continue driven with products Public positive half revenue guidance the sales growth will revenue flash fiscal and Implied in in benefits of second to the our by year-over-year recently our growth in contributor is from

are today material backdrop. that macroeconomy are assume and half environment improve our year or economic a XXXX seeing we for second will of While hopeful plans to our not incorporate fiscal demand in the the fiscal the do year, change the we

XX%, product fiscal products. margin margins We consolidated a that by believe XXXX lower higher supported roughly to premiums margin, to XX%. approximately all-flash gross year expect will and remain be rotation We

demand. advantage our take of future. portion NAND strategic prices have help prices, pricing expected fiscal levels lock will commitments rise we us the of in when a SSD maintain purchase This for low year To product in margin gross made XXXX large record to component

revenue We improvement target XX% depreciation remain XX%. gross long-term in lower in confident of by year our Public fiscal to XXXX, Public see Cloud expense. Cloud We to expect and driven margin margin gross scale

XXXX. expectation this Implied operating We will flat anticipate year is margins versus roughly that the hold operating in of to $X.XX. $X.XX EPS guidance approximately expenses we of and XX% fiscal

INSIGHT the XXXX of compensation, reset since a annual year user support by QX first conference increases, benefits in sales kick reduction merit includes ex in-person our XXXX. op incremental expenses force, Fiscal and from offset off to and variable

fairly expenses year. be should the Operating spread throughout evenly

Operating range will on net to although cash income, We rate XX% XX%. capital. quarterly the in flow be expect some variance will line there in a tax with move working based of

should XXXX year come with fiscal fiscal before, stated CapEx beginning we’ve for As XXXX. the in year to peak down be expenditures

Our to healthy generation cash program us continue returns strong flow of enables our to capital shareholders.

the and dividends. cash going cash at with to free year throughout we fiscal shareholders in share of XXXX, quarterly of plan free share to XXX% year steady per to our We XXXX, return fiscal dividend flow In intend buybacks remainder to share $X.XX hold buybacks.

to timing to count by of share the XXXX. fiscal X% expect buybacks year be similar roughly and We fiscal least reduce XXXX, year to in at

guidance. to on Now, QX

We QX $X.XXX elevated decline constraints, a revenue that expect implies comparisons. midpoint revenue, from backlog $X.XXX from supply year year-over-year. between product levels and billion, billion year-over-year Remember the chain notably first half to range of fiscal impacting benefited of at which XXXX revenue, the XX% most

fiscal XXXX We SSD expect should incentive compensation lower associated of QX be to year commitments, operating QX will gross year-over-year approximately cash be payments offset XX%. with margin and margin $X by $X.XX. payments roughly XX% related to our be be EPS performance. by range flow in partially impacted consolidated the purchase to to

of commitment and George’s this team environment. uncertain the closing, appreciation NetApp in want In to continued I their echo

fiscal our our I’ll strategy confident our to I As to improve look execution profitability. over forward I ability in call the into to and Kris now am increase turn year for and Q&A. continue XXXX,

Kris Newton

Thanks Operator, the let’s Mike. begin Q&A.

Operator

question-and-answer Aaron of Rakers will Wells And now Fargo. our begin session. We Instructions] ahead. first go come [Operator will question from Please the

Unidentified Analyst

you. I Aaron. on optimization. new Hi, have wanted of to just or of is customers behalf following This some ask, period you guys. digestion Thank projects Mike kicked a mentioned off

cautious, you demand bucket us maybe sense versus how changed? incrementally to the in sense many Thanks. be environment or of just give customers to cautious has trying that this get continue curious, you becoming can of ones a I'm how a put just more

George Kurian

in year Broadly speaking, saw next not demand and what environment plans the substantially for the of different we QX QX, environment. same continuation was our from contemplate

larger anticipated These optimized to that on. the take their time We quarters ramp. some customers to of projects talked taking about in had the the who cloud we through significantly course the on the landscape segment, of began some them prior take projects

NetApp, in signs about using segment. on growth. customers were good in multiple We additions the products particularly said, also saw so strength cautious basis, new and still the revenue for enterprise broad future customers large and being from customer that number of all a That spending

Unidentified Analyst

you. Thank it. Got

Operator

from The Please next ahead. question Chatterjee JPMorgan. go Samik comes of

Samik Chatterjee

you you first guess the half. one. my Thanks macro to sort a reiterated back highlight did times baking I to taking opportunity growth but in get you're for few I guide, question. for the to not in -- any If really improvement second of the revenue the

have Just a those against like pieces, help other, of us ramp there revenue the of the sort more this it the follow-up. you're I drives confidence share calling sort you gain put in when year? both is wondering think can to if And of Thank particularly of than through of a And what sort sort of in than revenue each them share in rebound year, gain? half quick look through sequential it I a of more does second you. for

George Kurian

We've takes made. look I portfolio to about quarters it pattern linearity sequential in years. we've organization. field seen introductions improved more similar It what our the I a excited traditional have think next And build. recent few fiscal are you super speaking, seen think is in the of if to we focus we broadly of the at year, through benefits

I think FY a XXXX bit was anomalous.

we the about the feel so year. progress good And through

stays the that built us macro, the benefit we same. of macro plan the there's the assuming upside I to should the if over think are we've a not macro, our with year. the to -- regard course to Clearly, be

Mike Berry

revenue to point talk that's Samik, when we for that our If could on made. George underline Mike. talk XXXX, and it's to one guide about about add the linearity, we I want Hey, just When total more That's the in half. and we define much versus where is expect we half second first the those historically, as which in halves. been XX% at we've about -- and that XX%

a take in rates those heavily look year. by keep So, mind last the year-over-year when the in that XXXX, backlog growth you were at influenced just

a like in it for that, normalize So when more you normal linearity looks much XXXX.

Samik Chatterjee

it. got Okay,

the also thinking as And on but you retention wins? that just well? you. Thank On of versus you revenue AI XXXX. outline cloud side that expectations if business Can business curious about do you're fiscal have highlighted business, the see you you growth obviously the sort opportunity, new opportunity for how cloud the

George Kurian

are and customer in Listen, whether with of we pleased first performance, all, the clearly the is I or are efficiency our Public AI new of of an broadening Cloud. on-premises multiprotocol for very advantage whether think, the capability acquisition, they workloads, and workloads, our storage

is on AI Cloud Cloud lot models NetApp. curve to seen that's the learning their in Public using with available calibrate prebuilt of are What data we've Public of that quickly. the and science tools available And the for a get uniquely teams

regard year, with business alongside the hyperscalers the of listen, think primary cloud the sold year. full to storage our next our perspective I be driver that's especially for will storage, the

look you the customers we acquisition. is than of cloud existing customer in installed at good year, our amount is pace about very dollars small, are substantial. the but new contribute if total expand think customers feel substantially just because I the now any given they the customers base new that larger opportunity And of to

So, and there's opportunity a good to more them capabilities. upsell cross-sell

Samik Chatterjee

for you. Got Thank it. color. Great. Thanks the

Operator

ahead. of question The Meta Please Morgan next from Stanley. go Marshall comes

Meta Marshall

Great. and coming out add first starting of kind periods seeing Thanks. -- to starting noted question, you workloads. optimization customers Maybe of to noted

are Just that particular any more you seeing larger of types or wanted kind customers to starting to gain back? of, workloads a of sense they're that smaller or with add

the Series-C quarter. you customer in the question, noted that second maybe then winning And

was would cycle an Thanks. commentary helpful. that the kind of just existing long for being just there any but kind efficiency noted energy of Just you and customer? the that be efficiency sale, reason was on how sales any details whether just And

George Kurian

Yes.

the two get me let So, questions.

progressing deployment, seen is meaning what environment that analytics environment, new still we've down. AIML and workload cloud so new first and customers not that in the is on, right, applications, The are has slowed environment X

a optimizing think but infrastructure, of their I new was and time the deployments monitoring the there customers were environments period where continue.

I think of for more cautious being to where about landscapes. the where seen have benchmarking those total they cost Public Cloud, on-premises migration each environments, example, we people is of of are

in We that the because have workloads of we and a to large continue the and certifications on cloud public bring. growing opportunity capabilities new

excited opportunity. we're so about And that

over so environment, to a they for I that think terms of products, and landscape mentioned, advantage we all our products We competitive around the efficient both the with significant we advantages using on features, power and customer data management traditional did the of substantially the NetApp new a we're we -- C-Series competitive in that the were a we density more won. from multiprotocol standpoint. consumption regard and won all had not also replaced but based

Meta Marshall

Great. Thanks much. so

Operator

comes Fox Advisors. next from The Fox Steven of ahead. go question Please

Steven Fox

good Hi, afternoon.

for by that one I'm plan? And in happened? that product the this, seven, Can but of year gross fiscal of I rest Thanks. question through alone upside don't upside Just my points me. your think any how substantially whether carries is the surprised much just down How break you transitional? eight in of account. year the full the margin of

Mike Berry

Mike. it's Steven, Hey, Sure.

let's we the from walk guided do where So, what QX and to QX, up. ended we

on we quarter, That and expected expectation about. that forward. We from with And is product was about goal get XX%. to work about going the that never premium So, to lot full XXX largely we another guided continue would premiums were basis to that be. to point QX a talked benefit the call is mention the margins my we've XX% approximately relief

The incremental came a in bit in two capacity per than is better system little expected. better. came the that, mean were we by And we things mix that

talked of quarter-on-quarter that in a well QX, bit then bit And little gross well. little margin. in bit helped little about a all-flash as a you reduction better as FX as a remember, that, If we margins caused

to So, that's XX% from the XX%. walk

benefit we As be the can pricing sure also we competitive we're are look market. we retain next in as year, premium that make XX%. going component a into that flexible can that that we're There's bit to assuming but the of we rolls through little left,

commitments purchase at NAND today's about, large done supply And we've for some lock we XXXX of strategic the addition, in in then fiscal prices. to also a talked hey, portion

So, deal in have we're not excited to that the to able about it when starts go that, up. being likely to with event

is fall. know, all-time all at an we NAND pricing As

and that's So, we outlook our QX QX, the bit how from into a little better did walk XXXX. fiscal to

Steven Fox

super Thank Great, helpful. that’s you.

George Kurian

you. Thank

Operator

Evercore next Please ISI. The Amit go question from ahead. comes Daryanani of

Irvin Liu

Amit. This Hi. for public Liu Thank wanted the double-click of the you. to drivers Irvin cloud outperformance during a quarter. on is on ARR I

But I follow-up. the what cloud given think increased data Is can you and also Spot focus about optimization. spend? out there you to saw optimizing referenced strength. cloud anything for on talk management in a call just cloud services storage And I have you

George Kurian

optimizations from sequentially. the especially customers. QX by There rate QX CloudOps cloud storage, business was additions and consumption within our to some new were flat of The the The provider customer cloud business relatively existing with partners. was sequentially driven majority growth

Irvin Liu

a there delay how about direct your changes the as revenue Got relates thinking Is exposure. or it. Thank government half should there to of potential is then calendar federal any back you. about wanted through debt the ceiling your XX% your be looking budget ask, are And XXXX? in payable, a accounts view public environment potential it for in I of impacts perspective, From sector. to we you a

Mike Berry

Yes.

point, we don't or from to near-term. don't in We'll from At itself would we business that a from So, those resolve change for this impact watch it. certainly this At discussions. expect We point, have bookings to the this the any thing meaningful any expect AR question. relatively material expect perspective all perspective. thanks an in

Irvin Liu

Thank Got it. you.

Operator

Cross The of Please next Shannon question Suisse. Credit comes go ahead. from

Shannon Cross

to with regard a talk on very AI play you what and customers thinking roles step the not are, IT are I'm AI. seeing? we're you the take out can Thank to And a back conversations higher we maybe in or a George, bit because trying from figure with I'm but that near-term, think will hardware how just various I going understand proliferation like all level much.

traditional and training, be I'm then or lot got a it correct? move -- inferencing, storage, you I'm could with so fast wondering, just so that storage probably that you more beneficial not do customers to could you. Thank need you're be I I'm conversations -- us. know to wondering, well, is having So, you've of

George Kurian

Yes.

We environments. in analytics, the have done exceptionally learning AI, well deep

technology high-performance, applications. these customers need scale-out we drive what multi-cloud, done analytic across year important we've both past have and amount. leadership doubled multi-protocol, to to our this We And are of which have very storage super -- a significant buckets business

I cases cross-department solutions. analysis, key problems think use recommendation services, financial engines business example, AI the are in advanced for recommendations engines, sentiment around, medicine, and e-commerce, clinical precision

And file then advanced right? very even sets. win are new last of substantial a cloud autonomous that a typically around these deployed are in large-scale quarter, engines They we and integration. had form metaverse require So, driving, and data being object analytics on

And we of majority really see environments neural are as the networks. business re-platforming LLM from advanced well the the Hadoop are to today's not advanced more the model, modern use today around environments of as

customers where of We take the build source that, model, have. like and open require own we sets, or of it then OpenAI data generative tools impending the which storage that top ChatGPT onslaught see will but on the AI their

about real and our business excited today. have performance we future, and we're AI the in analytics So, strong

Shannon Cross

I'm this can I know -- you've Thank was some in cutting wondering, you. being had supposed you you flat delayed But and year. to bit some you're flatter investments be that. -- talk a is on planning helpful. about it That OpEx Mike, cost

there early some Or to in you're investments? that call? reaccelerate improvement or relative outperformance margin strength make to is those of the maybe given seeing, is seeing the it wondering, room gross just you're too I'm

Mike Berry

Shannon. Yes,

years. We've very reallocate good first conference lot a we as say to doing well actually accelerated team -- I job. I'd which really some of three growth those reallocating That's in talked dollars time initiatives. person a to as about So, for our INSIGHT. CONVERGE, investments. internally do credit sales the the have to in We give is of

You've quickly the things. perspective and last seen of react from in couple us very other product months, C-Series a

we see OpEx year. we an where perspective. So, how I at from think we good this We'll the feel get are through point, about

spend investing in And want when us, we're always the the what sure And areas, growth. business we what guide it is for we year. that's make the have, prudently managing about we we put sure you money to but talk the make right in for the and that's in

Shannon Cross

very you Thank much. Great.

Mike Berry

Thank you.

Operator

from comes of Ananda question ahead. next The Baruah Capital. go Loop Please

Ananda Baruah

afternoon guys. question. taking for Thanks good Hey, the

have AI maybe George, Just picking question, by well up T an product on-prem. growth to this on opportunity we do the even you And love altered time? cloud question actually, as similar see Shannon's a software rate time just AI as hanks. over for

George Kurian

I drive because a globe of topic efficiency and bring the AI CEO every that it way think business productivity room the in to discussion key companies. around are is applications to a speed operating

a many applications of the model. we transform that talked so And about business help company's

envelopes about they in spending and so really And we to get will are prioritized excited our opportunity capitalize that. on

pipeline to a data but in enable your then are available, data can integrations that the can and are a to into tool on at only We the but in really AI in data that the tools all center. the flexible chains build start the world in cloud the and build common of the not data addition, storage, operated work have where done be scale high-performance science

the AI and So, I keep forward. to see we're about holds pushing what as really and future excited opportunities going I cloud we're for two NetApp. see big

well and them to we of We forward. take of in going are look super both advantage positioned both,

Ananda Baruah

period NAND as HDD? a on-premise think on newer just could relative what so what I of Thanks can ability about to timeframe talk -- even much. technologies gains and about time? that share over And little the guess how the have follow-up, That's bit you should guess and we Just over I maybe dynamic great. a that

George Kurian

will in rate next products introduced the two I part of the our think biggest we've the our year flash through of technology three be industry the the part of or course over that years. in lower will and growth cost XXXX NAND storage a become the bigger fiscal business

HDD are multiyear, that years replacement cycles it think if These right? transition HDD the to footprint. XX,XXX took I high-performance segment, you multiple saw

But transition. of an even will XX,XXX, bigger opportunity excited take to the the and which many so years we've years. offerings, we're over the part And that start next market the is about our had many

Ananda Baruah

a appreciate lot. Thanks Really it.

Operator

comes from go next question Please The Krish of ahead. Cowen. Sankar

Robert Mertens

is you Thank color Congrats taking you the XXXX question. XX%. Hello. for product on the have there's with of or a there's purchases risk And headwinds This the around Mertens there? doing SSDs margins And on plays then bit give flip one the if how into on declines, my little if strong more targeted for Robert the I strategic on same and competitors Krish. guide follow-up. pricing elasticity a target? Could side, if to any of any execution

Mike Berry

It's Mike. Sure.

So, let's those. take both of

guide the So, has of we next are all-flash, which shift XX% higher continued of to course, One that's came There assumes continued some year. margins. is, into what out with. nice going tailwinds QX the of

In a to little premium. we do from bit benefit addition of that, have

really I'll the So, to number we lock number. in purchases we the XX% good The feel that prices that have it about today. strategic help, call hedge

price make have I NAND would at that sure flexibility to other the very certainly we lower probably doing we assume that of are XX%, pricing exercises. point. given why your around folks some And we're similar to want

our be that in flexibility the we able year. like to extent So, have the revenue the to pricing, XX%, to to product that we goals stay within there get for but changes still market are feel

Robert Mertens

then And sort of us sharing, the the mind seeing you Do Got cloud And it. are impact optimization efforts your portfolio on year? cloud. growth? the you. more strongest would the just areas from helpful. which for you. is just within Thank That's behind Thank one you cloud negative public think

George Kurian

optimization cloud think premature it's I signal behind to us. is that

manage infrastructure As we their customers is that public on on our cloud. I this commented that think will continue where center prepared remarks, to data or in spend

is see we growth invested. continue what right? and getting especially drive applications prioritized be and could Those the be analytics, could on, think business could performance projects that to core are projects and and business AI, I digital be those on manufacturing those

and it's are caution lift in we benchmarking think I cloud workloads enterprise whether from and some at people amount both where old of on-premises. I seen the or have shift, centers, environments, a taking public migration data look optimization of is hard think

see some So I we continue that's think to optimization. where

quarter. accelerating a hyperscaler cloud it on storage our XXXX, good storage. the for had that providers, plan The sold the this quarter is focus is In alongside real our

we are positioned the with wider wider We technology. and strength the our range a of serving applications in uniquely and market, are of

about excited that. we're So,

Robert Mertens

Got it. ask for letting you Thank me question. the

Operator

Barclays. go Long The Please question comes from Tim next ahead. of

Tim Long

bit well, if quarter, more enterprises into that bit give hoping midsized talk update first, and an kind little a small bit, going? were you Two, us that how I given class last a on little customer focused businesses. I could there I Can push could large think, a about you. the impacted, more you on macro was as talked increased focus Thank of you is little

think could I back you going if come taking how George, it just QLC-based second, to then I'm just curious And about it's to the proliferate more portfolio. share. products. talking your further

should workloads, you. Thank into more use kind help start of going are gain different a progression of products to you share of So, all-flash we different and your cases? moving about business? grow of How think percent to new as

George Kurian

Yes.

the our portfolio. portfolio last segment with the start of maybe the in I We've months. over four to can months expansions introduced all-flash five three So, major

industry. feature-rich, the flash, capacity flash have in most products We competitive most broadest, capacity the

point We've set is a of are products announced enterprises. entry our midsized all-flash price which a flash an perfect that at for brings shipping, in configuration software that industry-leading

we and don't use introduced want storage block SAN Array, large for and for environment offerings. to unified storage which a All that early have storage configuration quarter is those block-only And this customers

significant expansion to product expansion the our major many flash ago. So, our we since portfolio introduced years portfolio, most

both That that about address wallet but opportunity that. gives after serve, customers. in going within not wallet us enterprise to importantly, customers to expand we excited the of the opportunity expanding used So, I'm commercial parts share

customers and QX, the year of the environment. resilience throughout did so representing the fiscal has enterprise outperformed spending segment again in this segment those commercial to Our macro

So, reprioritized we feel resources about fiscal some We year to cover more market good envelope. resources the We commercial that. for within XXXX. our spending some moved

Tim Long

much. Okay. Thank you very

Operator

The next Northland question comes of from Markets. Nehal Capital Chokshi go Please ahead.

Nehal Chokshi

results. Congrats nice you. on thank Yes,

year-over-year decline year-over-year versus X% QX. Your the billings quite did into decelerate XX% bit, a

in your the trends. Is for low And that? billings given this why So, you is a that billings correct? expect if guidance like do terms it to point sounds represent so, analysts, of

Mike Berry

Nehal, Hey, it's Mike. Yes.

year-over-year because the billings between by difference about When same look revenue, basically and XX%. product were at down at if X%. are look was take change is Total the take revenue billings QX, total a there So, product you you in about billings by so and no a deferred. down revenue

half, in What product with correlated bookings than sales. bookings lower specifically bookings, especially second we the multiyear is QX, with saw in less support that come new

to billings to revenue. you go do next through going see back come That's be in expect that difference the as and we So, we see year. that

to points around from the based do a of minus is for be year, of than guidance do the the support. percent, again, low mid-single-digit revenue we revenue, or billings percentage to better to flat little expect bit more somewhere because a contribution which couple plus down So to on

Nehal Chokshi

much. very you Thank Okay.

Mike Berry

you. Thank

Operator

The of go James. next Simon Please Raymond from ahead. comes question Leopold

Simon Leopold

Thanks consumption-based. it much business In some to the seemed it unpack maybe more of of last a that for a some see recurring little I question. bit. public revenue it apparent and sensitive wanted was we cloud could very if and that quarter, taking the was stream

And get think I'd just to and composition you of Thank set to you would PCS the of consider you. recurring? to what truly consider like to how consumption-based would what as level as

Mike Berry

Hey Simon, it's Mike.

we'll We've ways. past. in the do two this given those detail So,

stayed the ARR. represents approximately XX% cloud consistent storage through XX%. So, XXXX. CloudOps represents fiscal It cloud of about amazingly total

two George which because our FSx, consumption look growing then the half consumption-based. what business, it's the are subscription fastest that you growing are If to versus that is more consumption the ANf referenced, are than cloud faster at than subscription, is storage of going products first-party and and products

consumption that XXXX. that business meant, as see percentage a continue And is an It means multiyear is no by hey, go It expect then a relationship. should consulting It's we date. faster. climb And or declining. growing we through is the to it of you subscription there not a pay-go subscription. doesn't consumption, to mean So, is end that starter

Simon Leopold

that. Thank you very for much

Mike Berry

you. Thank

Operator

David The from of Vogt Please ahead. next UBS. go question comes

David Vogt

guys Thanks for me in. Great. squeezing

OpEx business both sort and Mike. versus innovation going question your of what your be steep as should offerings years? rate this how in George demand think engine the should think When you growth by of of theoretically, about is invest a over So, storage sort to there for sort you the maybe customers keeping of about forward, product we new pretty some sort flat all-flash in and the a the couple of of next need

And your think within those then maybe gains as for NetApp. and means you productivity a do what it the about business, gains of and When how about productivity quick AI think follow-up. uses maybe you

whether the Thanks. reinvested flow like into go-to-market that you the how for business, just I'm of couple benefit would you years over what next does is Or a trying that it's well? about through? for the get channels? So as sense for to think look AI

George Kurian

Okay.

broad me which managers listen, think hit the are picture, is, of that of disciplined right, Let the the we sort I business.

of We business. portfolio to I with product our forgo is opportunity. us the strength are we so you'll see the we health continue the the returns balancing macro of best areas an and that don't invest the uncertain we And think in long-term what long-term see where the

prudent just the certainly landscape. terms the business. look see want we at managing of further point will If macro to year in the this But we be business given time, to we the outperform, in think investing at I accelerate

at management help a We use with I product to already be think requirements, uses and we support have regard portfolio have our NetApp, able AI much range our second users. customers to AI customer reduced the in of is, right? broad to

in customers data give So, for self-healing so system, and they chat example, well of is automate as we questions. automate basic all intelligent queue have system as for managed to don't that wait bots, in their the of how a

regard that productivity. software opportunity we the is areas really is, think to with see I in big development

this focus models that deliver language of you'll see think innovation period key underway of And into. us. leaning some for And ability I using the the to opportunity some some benefit already We more exciting there are faster areas in software work in profound have we customers the of of these those of that to and time. a are large for

Mike Berry

Mike. it's create and our able adds team, more If customer talked then and add a David, a I to sellers. cross-sells because And lot upsells shift which from go-to-market. capacity one renewals and building success for productivity we're about We've core could the

years. So next that's another initiative couple over the of

David Vogt

George. Thanks Mike. Thanks Great.

Operator

comes of The next Ho go Deutsche question ahead. Bank. from Sidney Please

Sidney Ho

Great. I Thank question. flow cash a have you.

shareholders these maybe about So, to free you by I going flow impacted is to be back linearity a do cash will Mike, of how fiscal to come strategic At are cash M&A sounds think year. like return to flow the But buys. year, the know what QX thinking It that? this all you're for expecting of XXX% free Thanks. point, priority? you be

Mike Berry

start at let's so top. Sidney, thanks Hey, Yes. the

talked Danish ended the XXXX We items, which year operating of fiscal was the case. cash billion flow. tax one-time we about restructuring the So, with the $X.X and

those So, in two the million we paid out $XX about for quarter. items

into flow year. $X.X kind year, you into I if back, about cash that for next billion. of expect going So, the going add those next We you had floor call would would

then drive capital bit little will can do we not. whether better Working a or

incentive will compensation in We some cash payments. because the QX lower of have outflow

bit So and and build that will they'll QX help in buys QX. little in QX QX. The a start then strategic will

the the a end number. big not that year, by largely of And it's

impact. more it's of So, intra-year an

of Sidney flow -- cash or again, income pretty and So, to than be net non-GAAP minus to we a do has plus historically. percent, been it expect close couple

last to always As that return reserve, XX% going hey, acquisitions. the our with flow year, it's capital March's of it for spent to allocation about of our tweak, what relates the little policy, a we we've free bit ago, two March, into about and it, continuation we've a XX% talked shareholders cash call said of on

half, we're the any -- share year. still we'll execution where But purchases won't mean where especially fiscal into are the and to would we'll and from an acquisitions. in looking it still rather doesn't reallocate in the There's that them. repurchases, share It we goes a of half perspective our we second on first do on pipeline, in buybacks, half. first business, given focus over-index see we at XXXX, the the especially that Going

Sidney Ho

Thanks. great. Okay,

Mike Berry

Thank you.

Operator

Our last of question Louis Markets. go will Miscioscia Daiwa ahead. Please Capital come from

Louis Miscioscia

George. Okay. you, Thank

now any that script array could lose more to you coming you I think into a have the might And did regain think and be going earlier gain how but some start all-flash in share. think after think products to in detail. just you're some then lost to Maybe you to you go going now could you you back? mention half Do if out quick what might second that had said you that with your share, the that much obviously, that. regain you maybe you're new in able follow-up you

George Kurian

look current you competitors, recent the first from took in all, at quarter. the Louis, our already we if think print share of I

good that's So, start a to that dynamic.

I areas, expanding to we about business. think to support focus talked regard our our innovation with storage kind of overall

the management we've product-led market in complete innovation our into as life cycle innovations innovation simplified so well well of customers. service the ransomware broad industry's the as lots licensing, lot done programs, of most as of storage And and and a protection recovery for guarantees advanced

execution. call, as go-to-market fiscal compensation on got teams strong a XXXX We mentioned laser a our there. a sales flash in we starting team complex, plan year, products, that array broad our I that our aligned had we've sell was be focused of think QX and have having frontline to portfolio. Last year our impacted opportunity We

that have cloud We portfolio. our and per focused more approach XXXX commitment, FY we to much our starting sharpened a brought have

portfolio us So, in -- capacity the portfolio now I flash in truly only strongest the flash portfolio industry. hybrid industry broadest unified the and have in expect the have we to storage the We industry. the

cloud. includes block, object file, Unified now and

level. to redefined And we've next it to unified landscape the the take for so

So we're the execute, excited about portfolio. on and got to it. focused We've we're

Louis Miscioscia

quick very a Then Okay. follow-up.

guidance and had perform, to an but in of what low next you're guidance there. -- revenues single, down if for giving I assume you expectation the that know On year? expect FX the to I didn't you expectation FX mid- what actual is

Mike Berry

Yes. Mike. Hey, it's Louis,

than to today sit less X% going from a not based a we all, where at be impact it's is expectation perspective. revenue on Our big

that's fund hit. knows Who are. we things. the where And FX we debt other benefit small go is a a So, to all we've FX and don't after rates think the that going where with of ceiling be had big

big to next year. it's driver we going a think don't So, be

Louis Miscioscia

Okay. Best the on new year. luck of

Mike Berry

you. Thank

Kris Newton

Louis. over to you, some going it Thank remarks. for closing to pass I'm George

George Kurian

Kris. Thanks

are The of results, solid business yielded capping strategy and high margin slow of record long-term our operating the despite EPS, off opportunity execution focused and QX XXXX demand annual and environment. is sound with in our fundamentals health confidence our Our fiscal unchanged. year model the

elements expansion continue margin profitability. to within our to the prudently and drive manage control We will improve

within excited enter call. to substantial progress a more model I'm innovations our quarter's better forward to operating and of I with priority areas look new next customers. you our spending to FY XXXX focused on address updating on

Operator

attending conference presentation today's you and The now for has may disconnect. concluded. Thank you now

NetApp (NTAP) 31 May 232023 Q4 Earnings call transcript