NetApp (NTAP) 29 Nov 222023 Q2 Earnings call transcript

Good day, and welcome to the NetApp Second Quarter 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. [Operator Instructions] 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

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.

Form our call, We evolved refer manage forward-looking for forward-looking for operate, drive with expectations Actual obligation statements time we strategy such risk and market macroeconomic introduce ability cloud trends markets expectations and in margins with and and our fiscal any operating costs, of recent the to supply our and gross customers to focus our of XXXX, on innovation a pace XX-Q alignment third to segments disruptions, we involve in disclaim focus as impact and our quarter ability with variety recovery sustained and with available such Hybrid prospects, regarding Cloud the profit in generate the market of and make Results and inflation, of in optimizing flow. revenue, rapid our our for uneven and number future website, services, our as to outlook chain to a acceptance cloud and sections. both and including profitability, in execute Public may and and from the the financial megatrends future growth shareholder to our Cloud returns, and all our of and IT will and the environment, and Factors our future turbulent continuing and time and industry industry, greater results as the and on today’s as including spending, rising the projections XX-K reasons, the the in including rates respect pandemic, strategic their the Please technological growth update Operations During and market services, our our changes well to our Management’s guidance deliver regarding of cloud usage and of year and which volatility, optimization environment, ability macroeconomic projections. interest while growth our conditions uncertainty. resulting differ and cash documents exchange statements opportunities materially foreign Risk cloud specifically also capital on which products COVID-XX gain including the we of and spending most and SEC, Analysis Condition Discussion Form Financial file keep our

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

Coming walk through of disciplined tightly will our the customer to priorities. EPS. a all-time good four focused call, for our today’s everyone topics; quarter welcome revenue, we strong XXXX and earnings is and QX income, Kris in call. quarter, remain On one, with delivered QX, our team Thanks, off environment. gross highs FY with a aligned dollars, QX a execution operating profit strategy, management delivered a We on billings, operational dynamic solid and I which

of disappointed cloud growth we with However, deceleration are the in our services.

data-driven transformations. are against megatrends aligned of cloud with digital conviction cloud ability and execute the to durable, the Two, it our Our unwavering. is in and opportunity we

value our costs. a and our outlook tempered innovation our strongly Three, in but opportunities, due revenue deliver already will operating to to that near-term the understand on environment macro focus optimizing to for have slightly the of believe strong in while continue the we imperative fiscal Four, growth We remainder shareholder the opportunity strategic our year, headwinds. ahead, position. furthers we continually slowing deliver

point, XXX%. first and the rate revenue dollar-based the healthy quarter. QX revenue net increased at $XXX to with retention our million remained cloud start public XX% performance in year-over-year segment Let's

$XXX However, of fell of Public Cloud ARR short million our expectations.

customers As macro-related earnings some partners look of optimize optimization to as our growth discussed cloud calls, growth services caused cloud cloud well. has spending. This slowed slowing on storage in their our as

Additionally, we customers those workloads very capacity with large that design, had project-based a came in reductions natural conclusion, in like to their few environments. chip resulting

same grows, our new customers calendar customers next number cloud and these a cloud storage projects services. their the of engine benefiting that from acceleration expect over is cloud We to and of to usage type from of be our value smoothed of this much a proposition spending as was cloud operations acquisition customer workload for a new Spot base. kick services logo headwind portfolio, the an new In additions Spot's QX. customer desire early the to Spot year, QX optimize impact of will cloud is saw our off strong broader

insights and growth are the customers with As we Cloud positive approach early our we've past refine discussed of on seeing cloud continue calls, Insights in to QX. signs, to new

last cloud adopting We new-to-NetApp has number enterprise see those than The customers greater with in of of growth growing to $X customers NetApp continue as and more customers and million our well. than services existing from of are year. ARR healthy doubled customers in QX scale

services NetApp. public create for Our customer cloud preference and differentiated are highly

our flash the run grew annualized grew billion. penetration in installed for rate and X% QX array of revenue installed traditional to competitors to Compared all-flash sustained We market, FX X% headwinds, us positioning $X.X revenue an in our base currency. ago, deliver X% systems. all-flash year grew this business grew well Cloud multiyear increased X% advantage our Adjusting a Hybrid and XX% to Hybrid of of have a significant to constant growth. over critical All Cloud

the these hybrid meet capacity-oriented objectives helps than cloud flash arrays, world evolved believe approach relevance data-driven across we opportunity to sizeable, which customers. megatrends. point, infrastructure the by multi-cloud is data continued the and ability our hybrid moving in second our both innovation. to We created Our growing FAS alignment lower durable, raising these with transformations and customers faster the provide necessities. all-flash well. strongly sustainability, the leverage megatrends cost, value management industry security, simplicity, with entire performed to Onto We and estate digital and arrays cloud. business ever, data and to their modern a increases that our The term to NetApp and and our

As same many of in running of bring bring now series to value with the in are conjunction VMware, we significant customers cloud. to VMware you know, on-premises. to customers we a that value able With announcements environments made

VMware, to accelerate Kubernetes. and the storage with Our enterprise native workloads helps effectively modern cloud migrate customers easily, cloud development service using cost integrated and quickly, application

supported cloud storage for for opportunity VMware certified and We creates significant Cloud, solution us. which only third-party are the new

in those environments. the It data processes is security, VMware capture introduced not cloud, manage, As unified highly of delivers competitors’ sustainability plane. business multi-cloud supporting operations that a differentiated on clouds environments and true the systems. evolved next customers At give we infrastructure needed BlueXP the the the customers services by enables cloud. to BlueXP, solution hybrid, big a but data, bringing and across move on-premises we to optimize and multiple single, in simplicity, and data discover, and only November, for control together on-premises storage start deploy, resides an fulfilling savings, step vision to can our that

by bringing efficient In we forward creating products. energy capabilities, customers environmental are addition to goals technical their helping achieve

for Cloud customers and guarantee real-time help into I gold efficiency customers and to rating We Insights the reasonable of NetApp not placing help give a their customers we expenditure X:X ranking, top sound a SAN energy power their am a minimize it of stewardship, announce to within carbon provide and the lower footprint with footprint temperature in storage a the view efficiency only us practice practice to estimate enhanced have that carbon usage. EcoVadis, agency, reporting energy NetApp X% evaluated storage environmental systems. our proud for We impact companies. evidence-based added ESG reports our awarded We leading ourselves. workloads

Now macro the business point, and third environment the our outlook.

quarter. requiring our through we smaller in change In increased longer We quarter, the scrutiny, underlying which in this saw position. cycles, out level confident opportunity of Americas acutely we resulted QX, in and to deals As and our approvals, hi-tech sectors. sizes, provider some service deal the see selling most the higher are and moving felt moved budget we no

are slowing headwinds footprint. we hiring However, continue will finally, and our expenses. four, And the economic response agile impact to taking spending, us further realities shareholder a point freeze, temper causing line, unprecedented discretionary spending, we as broad-based are and second reducing our being action top well operating In are estate IT and half. have value. to current real and for the lower FX driving expectations optimizing revenue to implemented Already, as to

in we closing, focusing the away resources activities strategic as By remain maximize our opportunities. priorities continue long-term on yield headwinds. disciplined we near-term In product cloud entire a remain In I over the execution, Mike. and delivering in to now NetApp environment, half. operational infrastructure our challenging optimization. like a and on to while storage, turn focused we seek with are external biggest we on shift for remain portfolio, control, to opportunity, and the our return cloud leveraging will our clearly innovation, despite we leadership We and all-flash, confident the services strong will what I’ll from thank aggressively to customers' our position can would lower discipline. team aligned call first to current

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

fiscal think gross company to challenging it as focused flow Number key outlook environment, valuable are adjusted operating operating all-time driving Number a dynamic go QX as would unprecedented highlighted, EPS. we of current the macro due navigate the billings, headwinds. through an delivered for the profit our environment, through margins income half we Before dollars, cash QX three, and I and to George be FX the discussion. generation. free themes and revenue, we financial details, laser you today’s the in environment Number a two, macroeconomic increasingly one, on have for through with we second for we year highs walk strong

from entirety envelope the of in we take full a cost assessing result to remain being we capital Cloud of As as Op have and billion the through flow continue in incremental fiscal Flow QX will share to investors continue the to Cash 'XX cash of more guidance costs pause From taken and five, actions seen, fluid two than and the Free to a Number savings full out currency $X.X since measures, points for business. we to Operations for plan noted, the now we year is $X.X expense and and our in deepening call; margin fiscal the expect EPS revision one greater by incremental dividends return these to further opportunities year. remainder the the driven reduce to four, will George flow our of 'XX. have We year to for XXX% repurchases. perspective, acquisitions of operating full generate cash allocation number free billion costs than

details. to Now the

$X.X product noted. would exited million, profile QX constituting I’ll total our million impact recurring have a X% of was growth Public the margin referring XX.X%, of in Total the revenue highlighting increased numbers indicator headwind overall FX, year-over-year. were gross Product our headwind of of or of an year-over-year. points was support the XX% with $XXX recognized recurring deferred unless million revenue was in million, to three-point constant was QX was growth. billings the cloud is $XXX up marks revenue revenue. line ended FX. XX%, Total As sequentially. Cloud best $XXX increase ARR challenging with of six came $X.XX portfolio headwind reminder, up and revenue margin constant Total QX otherwise including up billion, for currency, NetApp, gross a base. the X% year-over-year, our at segment or from respectively. $X.XX year-over-year, XX% Revenue Even revenue health currency. the point in X% and Hybrid year-over-year, Hybrid Recurring $XXX $XXX XXth in XX% installed revenue our in consecutive including million segment, year-over-year. Hybrid Cloud up X% QX, Cloud Cloud year-over-year XX% Public at of Within XX% QX in X.X from billion, increased in the guidance. We in up a Public up growth. of year-over-year. growth, up year-over-year margin be X% revenue revenue leading X% of with FX. of QX, Adjusting $X.X quarter year-over-year. billion continues billion was basis Cloud quarter positively two-point gross non-GAAP year-over-year X% been from revenue, XXX QX Cloud X% support and XX% deferred and year-over-year, which delivering billings year-over-year XX% the for to revenue XX%

edge gross XX%. continues the in Public gross confident revenue constrained payment $XXX continued free Cloud $XXX cash XX% is our growing our cash was business and for and of to flow in and corporate very margin highlighted including consecutive parts. FX support margin and inventory annual in included Cloud long-term software year-over-year Cash leverage margin premiums as with trailing FX of of XX%, headwinds. of certain for guidance be included the average profitable, and increasing strong percentage operations was margin QX We with of nicely the an for to $X.XX gross scales $X.XX Public to repatriation remain million was of million. Our a eighth solutions. two-points cloud recurring quarter. flow business accretive model, EPS Public XX% of headwind. Cloud operating outflows QX driven goal XX%, from ahead came analog by business our of the tax our and

Additionally, for that receivable were invoicing balance. than linearity to higher a quarter loaded see the expected you in accounts collections backend lower due

strategy allows us clear a much margins. remains as as customer demand Our component flow and to headwind meet but possible, cash purchasing to gross

start in free relief be second timing of signs cash uncertain, 'XX. inventory remains however, go through of we our of seeing full are to flow recovery a a the availability. levels half We to supply will tailwind as it fiscal as normalize, The supply

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

guidance. to Now

As a we with taking decidedly discussed, spending. George the cautious softening seen backdrop, approach have to customers in macro

offset to the manage X% fiscal XX% margins. we ARR. tighten macro costs which to margin materialize million, to in Three only of continue until X% headwinds up component elevated customers expect full We head the $XXX our for take headwind continue continued this guidance. product to we ARR. 'XX, have number expect the three-points company number near-term we some project-based will of incremental Number drivers which weigh continued Public exit we cross-sell ARR don’t both We year-over-year, expect fiscal sales now which Insights rate with are services, 'XX and to ARR; XX%, and benefits five storage opportunity impacting on storage but help project of FX to motion, their as versus they approximately revenue Cloud four-point Cloud of In Number into segment growth headwinds as spending, 'XX. our equates into total fiscal expect to between grow points as assumed range currency near-term of in increase. includes two, optimization FX expect year. meaningful revenue to one, the this three, driving services environment, gross growth scale, Additionally, now Public we sizable will to to Cloud but our in headwind 'XX some fiscal it Spot, prior that we grow ramp, workloads time materialize but we will and and Cloud

you procured vast our dollars. majority of in bill As US of is know, materials the

year, of on also in reducing NAND should cost declining that benefit optimistic further significant a are procuring premiums. at We will prices our supply fiscal second ease in half the from our We QX. constraints dependence see

to the will uncertain, normalize the While of remain fullness mid-XXs timing confident margins structural the we our product in that is back time.

now $X.XX we $X.XX, the points to includes and important that revenue an It’s with currency XX%, spending year, envelope. more operating our year which to impacts. includes of to of two approximately $X.XX than approximately offsetting approach of full extremely headwind which full margin EPS now the disciplined FX reiterate we For expect of adjustment are

driven year by seen a the of to As and we is deepening since from margin one entirety result, points currency being costs the the guidance full for revision call. QX Op our the the two have incremental EPS

remainder of Cloud refining focus and our portfolio cash XXXX, $X.X We we integration driving of value billion cloud in continue allocation flow acquisitions integration sharpen to and greater into for accelerating expect pause capital year. Spot generate free From successful will the by and sales single operating perspective, billion the continue operations full $X.X the in Fiscal a the proposition we for a as the flow than Insight motion, to Instaclustr. CloudCheckr cash and suite, FinOps of to

I now earlier, fiscal to As said repurchases. share flow we cash investors to free and return more XXXX dividends of XXX% incremental through plan than

to QX on guidance. Now

$X.XXX to at implies revenues between a X% X% growth We or net expect QX and currency. midpoint range decrease which the constant year-over-year, billion $X.XXX billion, in

expect We margin between be earnings XX%. We per between to XX% XX% rate be gross range per to $X.XX and consolidated XX%. expect margin for to share. to our between tax and QX $X.XX range anticipate operating to approximately and we XX% share And

million interest QX of approximately back for continued NetApp million. to our Kris entire their I’ll want open the and call share a environment. a thank the guidance hand now I count to XXX in for is net dynamic closing, $X in team Q&A. commitment Kris? Assumed income it of to such In

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

you. Thank

with might be our begin Evercore. question-and-answer [Operator session. We will from will the And go first come your Pardon, Please muted. Amit, Instructions] Amit now question ahead. Daryani line

Can you hear me?

hear can now. we Yeah,

Okay.

So speaking for Abdulla this in [ph] Amit. is

any challenged versus there? ramps storage there's if you. not? to softness guys expectations. more where coming touch I $XXX analytics? maybe I the your Is here. prior Thank expectation the And just more or perhaps cloud So I million one by on on think is wanted appreciate you ask down could guys' would cloud And details versus compute, are this ARR whether provider

them the are we which involve of that from expect so in proactively see a some most high-performance continuation with could our That's either their us the reducing migrate trends to wanting portfolio, tier in to reduce of us. we a the storage on which saw helping use of consumption they and them by benefit value continue impacted customers oriented think more to offerings cloud or services cloud workloads amount offerings they were see is one. that the will of their some I tier, to our capacity It spending. cost-effective QX,

of to coming large-scale came but part semiconductor workloads, with those in saw calendar about continued the focus -- are We products. example, of cautious growth Cloud wins early Insights some in the back its And our QX future about being the the Cloud that workloads of to sharpen for new we in saw case next finally, Second, work the of that then customer of anticipate We some success we natural cautious further design But some conclusion. wins. early evidence to being terms on customer rate have success. we project-based we see until product we're to year, product, use that. new of Insights

the I largest the the impact longest, relationship I this different with with anything see different Clearly, saw did the is providers. materially cloud our of they Microsoft and think we've the them worked those biggest the were for not three. So quarter. given so between that three,

you. Thank

question please. Next

Hosseini with go Our from next question will Mehdi SIG. ahead. come Please

year-over-year question. in should show for taking revenues quarter? suggest Thanks array and Two I January my all-flash just take your decline follow-ups. that guidance commentary, Q-over-Q George, if you Yes.

revenue. we -- guide don't all-flash of anything specific terms We array didn't in

company quarter environment. at in the we We're about the macroeconomic guided outlook given our what the level. continued total cautious being have and We saw

any guiding are We product maybe. not category specific

with. were decline? that away what assumption Is that's revenues for array I all-flash a Just to realistic walked

product Mehdi. We're not the line, guiding down to

Sorry, we you can't that. with help that

tried. Yeah. That's fine. I At least

design. obviously for expected -- comment chip and There's your then They products to new a about product to AI application. the migration. introduce Just are follow-up

your that You services. calendar this is to think that, assumption, going year. with your help cloud completely data I transition. also in better it transition you -- guide Is that in is the whether you understand early ramp suggested do And want services should on a rebound derisked data given cloud product to underlying

wondering just I'm And assumptions longer. what key take transitions the there? these are Sometimes

period we've level they outlook, customers cloud been they see to will see by use being or One capacity and total in storage right? yet happen that I cautious of time consumption will the think performance reducing That with services. our build our for a the we optimizing outlook. use address is that don't the services topics, the on impacted by then back. in cloud spend three are cloud We either

of project-based think regard different I with with workloads, lots projects. to different are listen, there customers

I new back those saw case; think take come And we many them cautious how been in and for come as off back will our we've designs. about a in large outlook. to projects few of projects our terms new of this environment. come It time chip

design public technologies verified We the only are be semiconductor cloud to the option in for cloud as service. chip a

to then we that that and So, in I work our services over our with the are There's take use more far. be will we said, more time, think work cloud pleased will customers more done. but I as still And we've expect, done time. portfolio, so CloudOps

we're product so that Insights especially how second of the appropriately cautious grows half being fast Cloud year. this And in portfolio, about

you. Thank

Our next UBS. David come Please question go Vogt ahead. from with will

for as thought question quarter But it a arrays about progressed solutions. were customers and the job mentioned backdrop. a relatively costs, taking or Mike. cost for and you my the knew weaker CTO probably lot the you maybe cost-effective in And level to cutting that in of all-flash good were economic business how up that the a CFO you the the more were managing early quarter, level. Great. of suggesting or just decisions the big looking picked did obviously, conscious guys you picture linearity to quarter because on Hi George, Maybe macro question. hi obviously, Thanks

days the bleed had to, this you, or did quarter demand of there of, perspective? you was ago when XX gradual conversation? a Thanks. point what relate the just pivot Was a each And it discuss saw it we of can months? let's through kind say, as a from So, progressed we as how sort walk

got it worse quarter. I through the progressively think

our I guide appropriately in us as a cautious being think result as you well. see

the I a confidence, of and increases through grew of compounded impacted clip think business that and that the rate spending on certainly at got quarter range don't were impact their depth that fast grew. the between the the affected the very any with flash getting customers customers' steady mix saw I business has -- quarter. more quarters all-flash in shifts has few than been of meaningful Hybrid performed total percentage we for of particularly our product well a has as and a a think growing as mix been percentage now our mix. confidence

So, I business view add think view total product -- affected our that as in the much the let customers. of any I available don't think portfolio as of the color. I'll opportunity Mike

George. Thanks, Yes.

quarter. in non-QX of So That and pushed call in really it, when And linearity it, quarters. month two David. I'll month relatively three. XX% was what three. consistent call the month invoices saw we've was What almost George's to mid push transactions seen Per one quarter, into with month comments, XX% we will we this we in, saw see, typically,

was So, what saw that to month prepared back-end you push about the second saw started my linearity we I into what quarter third And the remarks. that really really in in that's month. spoke of the

Mike. maybe follow-up quick Got for a it. just you, And

dollar help you your as on a But bit three Just incremental headwinds, currency has denominated understand two. can that negative is four us transition know point from the negative to negative to weakened business the late. dollars. US maybe of kind of five, primarily I or in that

the there get to headwind understanding and what's Thanks. under what's kind that want incremental of of surface an kind better of from a kind FX perspective? driving Just

Yes. Sure, David, happy to.

like is So, the what saw, it's September again, when most dollar And the strongest. dollar. GBP, international companies, of was was we foreign August across we significant the yen most currencies have and those euro, Aussie and

that's October. the through when stayed That largely So, significant hit. impact most

end Everything Now, weakened what of holds. we is, Yes, ended, November, saw got the we little see after hey, better little a dollar October. we've put of as a in we'll FX you, the front if used rates bit. our in have bit quarter of it that

little better, good. FX a our it says So, that living try will to making not betting be bit rates, But that. going we're on

for the rates of October use the we year. So rest

mouth George. Yes, of Mike. the Thanks, great. Perfect. that's helpful. Thanks, End is

Thank you, David.

Please with Our next Samik Chatterjee question come go ahead. JPMorgan. will from

Angela is And question. This for Chatterjee. Hi. my Jin Samik first on

So, Americas held vertical/segments. concentrated of you Were the dynamics I versus your each for example? more and weakness what there that better, certain up just enterprise customer mentioned provider hi-tech dive SMB, remarks, customer behaviors that prepared see specific Can in of we each that, sectors. vertical? in you types or patterns ones think your And was in service into of

We don't revenue. vertical our material a have any that contribution is to specific

Let me there. start

did just we growing through did economically. deliver in And outlook in public but performed I in phenomenally I team saw the cautious QX, strong pressure the headwinds. thought European -- increasing team our markets, that of the there's was, what in face think for our the international we appropriately quarter result are where well sector exceptionally about Germany, to Americas both our well, the a and internationally. well

recession in cautious regard market, think saw about team the job. our macro We a in exposure, I that American enterprise good given with historic to and good did QX. well to midsized but results vulnerability We're the segment team segment, North did potential their the there.

the larger change specific the public from where -- think did I the ones and verticals for expect last forward. compare, segment provider them enterprise service in tech be those high well enterprise Last go most in we the the a cautious saw and year substantive to large us. spending, we year-on-year were year, and

working as compare, a we through. are well year-on-year that is this So

predict lowered follow-up, the billion or cloud you the $X thinking million, my in for to risk out you that to those looking downturn could year that And for ahead fiscal about ARR what target by asking deep long how $XXX years? gives then And are be. a out But accelerate can how you ARR you ARR cloud target it. confidence with potential Got not to to year, I'm 'XX.

Mike. Angela, Hey it's

So, feel as Cloud look, we really still CloudOps. talked and both the we both Storage about about, good cloud business,

through some things to this year. have We work

really we So would we not where the was about even still though like, feel good QX future.

XXXX and fiscal the $X We for give when guidance next our you views we of will update year. billion

numbers we couple So you a we'll to XXXX update wait quarters. until of our fiscal ask in

focused I our that help good to to think spend we they doing can their are with are make business sure where a where we on the partner optimize cloud moment at is need that. so customers that we our

accelerate going buying grown today cloud to are about cloud cloud them are And have customers our continuing installed one selling of the products to focus of more have our cloud that number Cloud our be of our to service. number more products. XX% where our we on Hybrid of the base We customers than it's and

So ahead. executing in blocking tackling opportunities there's of on opportunity on lots and us. focused of We're front the and

Thank you.

Our next Cowen from go and question Sankar Company. Krish Please ahead. come will with

from my them. mentioned Yeah, customer hi. curious ask or have Thanks for like of Mike. your storage we the George competitors customer question. on the high a for is $XXX scenario. the rate. due any follow-up of one cloud the million both is or on you're taking from is NetApp question. And them share of is color Thanks the cloud That's kind of cloud customers. ARR to curious, competitive first specific, the ago strong I'll to of either two $XXX pretty just spoke two the upfront about million, I'm there yet weeks I weakness retention kind loss demand still I'm seeing to threats? then

ramp on the This challenge is be the Any FSx? new of would color helpful there the cut? signing ARR is you. Thank customers with So AWS now ANF?

first-party ones cloud consistent. saw of They services, party us we services. regard have the unique we cloud stayed was which really are that what it first business the impacted. were quarter cloud have native in native, competitors consumption the marketplace through with we The offerings think services. customers. They most consumption offer None give marketplace. for our are Those I to relatively

And so business The what that is would you usage consumption the to is business. in expect. than changes subscription less near-term susceptible

to the consumption be when it to to turn optimize We benefits you off customers of want also that spend. to and do so customers want can partner that. And a up shows want the being on good

which more is in hyperscaler cost the to give their access with with compute options so we well did to platform quarter. Spot, optimization working our actually to are And effective partners spend. the them more be

I storage vehicle noted optimize consumption spend was did impacted well was So which the -- very in remarks, Spot quarter. computing by a while is my a in as spend, the to

said, growth are has we We to With starting business. to and so about good been through continue the so journey. things cloud number strong, to retention listen, And rate we the customers as good very felt of several good net dollar-based customer adds. that we in our regard help I very of opportunities, our felt cross-selling see amount about

And on side? the ARR

of ARR questions So down point, the on million. there's the $XXX couple been about to a million $XXX the so

we end Taking we when see now, we some That's to to half all all $XXX we expect had looked look grow the across about at second $XXX million. grow storage, the it that, to growth. QX. ANF, be, expect when that expect So to the of FSx it, baked as million don't call of given have somewhere acquisitions organic around expect we originally, we we good GCP, at in. $XXX million, continue any to and because And specifically cloud a

conservative I it's because back say, half. just business not to consumption QX if or that be the QX. will in come sure or We cautious, around to have really We're we going do second to the tried be expect

significant But bit bit the really step stepping still based little the in and Cloud down feel back on a good QX Insights. on we it $XXX also about a results So that million, a growth a take little business.

of product -- So I'll year. it, the rest the of the view call that's the Krish,

Thanks a lot lot Mike. a it. Got George. Thanks

you. Thank

Our go from question Please Deutsche come will with ahead. Ho next Bank. Sidney

Thanks for side. cloud the on more public question. Maybe a taking couple my

next on say you question than if ARR the it quarter. Is and of last cancellations the just on cloud that maybe here. fair dynamics there lower about feel would of the churn I'll And comfortable basis talked be some on the the your how was reported you maybe guys restructuring quarter, revenue future exiting throw do ARR to not so, And from public were about in So annualized reduced your three based earlier. an some that deals level? the some

about at quite of coming if $XXX I ARR retention, some certain you If the assumptions need then growth from revised a for you new ARR your exclude bit and inorganic still dollar-based look make net customers. million, the

the traction So in you point? which of terms you. most at seeing offerings are Thank new customers, this

Hey, Sidney, it's Mike.

So do let the first me one.

question. great So

ARR. QX million finished at in we $XXX So

of -- because revenue recognize you divide -- make quarter. If The very we $XXX the take we of Those especially expect some And going chip you of in you simply nicely Thus, in it's design larger quarter four, happened of in the lose during million that the quarter. you'd calculation, to flow the that ARR to about recognized of project-based wins. the by the the that being that during typically, revenue. the about reduced was get you quarter, revenue the that the that million. can of some in as $XXX was talked beginning here the can do terms consumption some nuance things is did initiatives,

due see So a that's don't nuance. It's to was great in it that We to the question, future. the happen largely but expect that.

that I'll linearity The NetApp, business third part is some the the business follows on call well. it, of the back-ended as subscription core

really coming simply attributed it's taking that than to by three those ARR revenue four. divided lower So in the things

Great. And new from new in of customers? -- ARR the customers terms

Listen, we had a terms additions. of in quarter new customer good

additions. major new two for vehicles have customer We

cloud for being the a vehicle Those first and good help cloud strong Spark sell then partners, to our continue be to vehicles Microsoft customer continued additions. The Google customer we us. provider And that native additions. be Amazon, new for services new has for

new So the good pace of net about I customers. feel

Great. Thank very much. you

with Please Simon Our next James. go question Leopold will Raymond ahead. come from

This is Victor Simon Chiu for Leopold. in

described capacity of of versus you way reductions. at what projects Can would noted have concluded large the expectations were and it kind exactly expected. customers your that help then because drove so and that You clarify we conclusions changed you assumed the several natural then somewhat kind several been

either dynamic So, chip issues. expected? of why conclude just clarify earlier? design Can mentioned us I was there kind they you not was some did this timing-related help you think

large saw projects like. concluded projects finish the quarter time, where other that concluded quarter. we and quarter a next by same think the the the in of projects the past the have seen we quarter is we than in of other Listen, within customers would get I or in the further get started This the quarter and beyond start project particularly within out some up

in I that quarter. was the So, happened of what the think nature

think I better honestly want visibility. would get to the --

working are that. We on

I think this is when we have another partner the customer. selling the service to end

to teams end of time into sales priorities better lines. kind get customers working visibility are and Our spending the

us. do on and that's that. So promise I better We can that, on

observing workload commentary quickly, secular or explicit explicit your trends the headwinds, shift the Okay. are the to to macro a like public accelerating macro migrations behavioral that with discussions customers slowing regarding cloud? specific on you environment just you having And makes then that confident is more versus

through we of with closely sales I customers with enterprise market midsized in engaged go our channel the are think enterprise the we providers. market, you the force number direct to large a as know,

are because us the around of yet other purchase customer some In not projects are in projects a we phases start share is terms did saw -- rather typical approvals deals of more that phases online. them that we the moving to up smaller very one into mean of else did reflective in lose out the behavior somebody large it the That customers deals, broken forward. that projects dialogue We we sizes, cycle, and being are to other ongoing projects know and that those macro did the come quarter, for not of move deal quarter. with than not

That’s you. Got Thank it. helpful.

Stanley. question will from Marshall next come ahead. Morgan Please go Meta with Our

I a we storage of If just would cloud services a what had get an is just have update size kind be just of of of there, should sense Great. then as we as could wanted to or ARR. revenue percentage last provider any you be the concentration mindful given cloud well. vertical whether Hi-tech Thanks. the get and quarter, could maybe Thanks, of a as we of? percentage that service helpful And kind of the that

we're cloud Yes. It segment. providers. say is be I be Meta, provider a out posture is Listen, telco. verticals. going saw It quite defined. broad-based hosting segment, we a some of and could hi-tech specific could Service across provider. also we fairly just would conservative not could to broadly saw form could a be that It that broad -- break --

broader conservative very So, these those a across customers. of we specific are saw definition. categories postures most a than fairly And

Instaclustr storage total your you. Amy data continues it's be CloudOps. [ph], On Cloud that includes, of end question, of points which second almost as to CloudCheckr and for the and are QX, the XX% two so of Mike. in exactly

XX%. storage seen stayed as growth total cloud we've number So a there great around the because right see in you overall, has

important other consumption The subscription. we've about is talked number versus

of as for that's do end it's to higher by the expect to of percentage little with closer end GCP QX, and the consumption. of expect to XX%, across close XX-XX, growth the a get much for points well. those couple of year As that pretty because that FSx, $XXX products We we a where the million ANF, bit

points you ARR down the gave those number. that So data break cloud we that are two

Thanks, Great. so much.

you. Thank

ahead. go next Ananda Capital. question Loop Please from Baruah come Our with will

quick guys remarks is a times the thanks comments couple about prepared just whatever a well. that sort could. of driving was. have the the portion the then FX Could clarification. and you follow-up really that? And Hi, you in for of context or the I as taking clarifications, some that made question. Actually this clarify guide of Mike, two I down if clarification

Sure, Ananda. to. Happy

with the reference $X.XX is would on have situation, continue in drive the number still gave this as being, QX that call. there midpoint. the we around second of doing the lower in given FX we the seeing what basis, number on EPS. outlook is the was to the above Since we're consistent $X.XX. we time, even -- the the been the we're actually half had FX-adjusted about costs that around related efficiencies and So that that and revenue, that's last number call, point ensure because strengthening an to can of $X.XX you to that all of with hey, weakening we to EPS The on the continued time given directly dollar We've other

-- to along -- and got something sort some I of Mike, Could QX. or comments of QX you pickup is of clarification. QX it But it clarify to QX, of the the then, second questions, the demand you That's gave think, around that context back the super is where timing you is well, you fiscal one addition though QX, calendar it. the you weren't And was And helpful. QX, was it. sure come is, half, mentioned, sort you expect clarification that? -- in of the or made, gist 'XX I to in it was second it it Thanks.

Sure.

calendar year, So and trained been fiscal talk I about years. only I've

second growth. was ARR related fiscal, and directly this half to So cloud that was the

finished at year of million. $XXX we end million. We've guided $XXX So to

second it as There's in the the around or going about half three our not good large flow these QX? are only -- project-based half. feel as of whether those again, we're a the of the fiscal four, QX feel about confident little second bit year. in? it's hence, We doing consumption. these to well are nuance end some guide When QX. We or of that because We Is does

helpful. super That's

a guys experiencing sideways George, same, the free pause. guys that -- it, here, bit call was jump are and too, of a you a experiencing, this are so, feel anecdotally, you you're And little that like, anecdotally, in on to

then it's I the what months, that do like communicating? are period eight max expect let's six guys after mid-quarter, gist guess, to starts you is anticipate months, You could last context that pickup slowing in Anecdotally, months of you six an in that. say going some last, additional of But

the to the pick anything up half. mind, more about than second this more things hey, cloud this the that's calling, Ananda, we again, this large on talking to all just keep is the come is Well, to expect after it of Hybrid see we April. the And because base, in us ARR. not really nuance related expect of in This is us when project back Cloud. versus And

got it. it, got it, Got

cool. Okay, Thanks Appreciate guys. it.

Thank you.

ahead. question Jim with will next from Our come Please go Citigroup. Suva

economic and Any so, if out slowing there. afternoon. Good outlook ordering, and double how George, a just any cycles? purely Mike, there's around mentioned your or is that or outlook, on on which understood. inventory sense you. long your digestion And Thank you digestion, is pausing is there thoughts it economic comments, of about inventory elongation

not did any cancellations order or see of We those things. any

of line behaviors spending As our and largest them. into we engaged with and priorities are we have customer’s repeatedly, have mentioned the of directly sight good

of second we quarter, year. things, defer think cautious a the and revisions, part where a saw half or reducing of a at portion to and budget clearly These continue year. subsequent be looking scrutinizing quarter the they related the in projects about are we'll I we to are right, subsequent this or as that deal to IT sizes of project calendar

So orders we in because of and cancellations the activities of see have prior good not visibility customers, we did into ordering. orders our or double

-- thoughts But on digestion, that's corporate allow Thanks. about out digested the were any inventory any being of any still there Great. inventory or is or revisions, providers that concern inventory prolong may service there? to these

sweat these, like situations seen their have we customers macro assets. during Typically,

to a defer higher what for utilization that they by level can capacity is will a time. system augmentation And drive upgrades so system or of period we so either mean and they that a of

that's Now keeps is data consumed forever, Storage growing. because right? not

that. of in behavior certainly that we on. our hi-tech so of always see some And We there's as verticals, that And that well. certainly service Jim, we going segment, provider the saw trade-off. in think, some I see

Great. Thank you so much for the details clarifications. and

you. Thank Yeah.

Our next go question Please ahead. Long will Tim with from come Barclays.

on have for Long. George Tim It's Wang actually I two questions.

Spot, in integration any Instaclustr. until XXXX? deal the can following Firstly, George, of current deal on elaborate maybe you state the terms And FY behind process thought of

suited already. for a on to use what best adopt, and we Listen, to expand technologies portfolio customers cases good right? one that priority. -- are of really the be capabilities environment And operational the making current two some use we than cases renew, macro that rather easy are integrate are the work broader those CloudCheckr the And becomes have the so and is There focused that Spot to is offerings. highest there's focus parallel into done suite to offering our it sharpening

the open-source are be two the services done. services integration progress and a is And adds fact cloud our One Instaclustr. good second there there's is work into along is platform. we of way, Spot made unique value but bring. the have to data it truly that Instaclustr, We In services more the that storage

have being two the those We first worked. of

in feel work of we value on want on a our to there's so to be side. There's we teams like portfolio. and already we completed, our the And technology keep have lot that focused work

we On position training into our the CloudCheckr sales go-to-market able side, the for account. Instaclustr enablement more have broad Spot also be and and and to to teams

it work to other finish we're doing. before good we look the got we things. about So feel at We

elaborate cost R&D? Cool. on for some is sales cuts, can Okay. marketing, and be kind of of cuts. or that's the color SG&A components kind quick the cost you follow-up on Yeah, whether disaggregate the just appreciated. Maybe of the Any would a the

are want in And second at we Hey, was just Was I question that to George, it's Mike. cost the reductions looking half? sure what -- make the for question? your the

Yes.

Thank you. Perfect.

several think premiums. the It you're to that better. expect The supply to start bit to there's from relief going see some P&L. top, I little going finally is is significant I'm to flow chain every way So see day. all do through related the our getting at the which better gets expenditures we a

the So second half. to that's help going

help will well. pricing NAND us addition, In as

in have but that QX, we you'll bit work And do still QX, a see of inventory as you'll by expect that we little see Now through. to well.

programs, done a else talked outside has services, travel, spending, about our look hard taking We're we've side, environment. freeze. facilities headcount at all hybrid we're at work On well. look a everybody including like as OpEx embraced George discretionary who We'll costs the -- and take the already a just

look talked started as I those half. those we'll So down hey, continue several we into as go about, of already at path on the second we've to the

to numerous there's focus areas for us So on.

there's the too, and in And a half those comp as second bit good come certainly, structure of down addition, will in in OpEx, mind, well. commissions. keep cost In that incentive related to that

Thank Great. you. Okay.

question go Nehal Chokshi Northland Capital next ahead. Please Our will come Markets. with from

Thanks. Yeah.

basis XXX to the total then due guidance the incremental lower constant XXX transpire weaker due on lowered a basis And basis quarter, basis quarter, or again, points by points XXX PCS points billings points revenue during is FX, the -- the either target. So currency basis that a XXX to remaining characterizes weaker is result it on has basis? to during a another billings third that constant ARR results due started currency to

in which for largely and be So would revenue, is second quarter. Nehal, the the that half, product booked to related mostly recognized

is the So normal it's -- would that normal largely -- seasonal there's we at backlog rates, expect. the rates

I to So systems the second going be that question. the of third is think, is half, part in your

Excellent.

to retention quite And Okay. project-related declined revenue dollar-based rate XXX XXX. Is significantly, largely net because stuff? then this the of

Dollar-based net revenue retention XXX now was quarter, it's XXX. last and

we see so did as down expect. on see we business, materially don't step our would in that some as customers of expand, the what different call, than we noted as So, we our and consumption base churn

that continue been And like that dollar-based several percentage decline quarters, point, will for XXX, land, we've is Nehal, gets retention will to increases. We net number where to calling call percentage to it as think which bigger, add down. but we have the been XXX, that that George's to calling ARR come it we number that

That have. you

Okay. both GM And is then did year-over-year. down and Q-on-Q Why come PCS just Mike, finally, that? the

Note down The relative right, you deployed are that infrastructure based less deployed. scale, PCS gross to the less And see of margin. they the some consumption those business, came utilization, elements margin provider see when on gross revenue we systems, less that you have the the scale environments. have because in of cloud our

from slightly. to And It scale. to to that's George's so XX.X% came down largely down XX.X%, due point,

I notes good, the that as my in scale. XX% drive XX% we to feel We continue to about as mentioned

you. Thank

Please will question of ahead. America. next Bank Our come with from Wamsi Mohan go

you was I the that. guide. IT to if what Yes. caution XXXX color appreciate were around on a have I your budgets? But XXXX relative you earlier And Thank calendar and you. And on George, talking view fiscal your to more around in some IT follow-up. how some grow you the could customers what's I from expect share hearing year budgets storage and market about growth you're wondering that?

being cautious regard I we year, fiscal we being are XXXX. calendar aren’t XXXX, to next about start the to guiding but cautious think year we're with

in probably budget outlays macro situations start to year a typically calendar than typical. We have seen new that take longer these

the workload we've going year. about With been regard be deployments. new market storage it's to start to the paced calendar of overall, by new So, I cautious think the

customers performance. cases. of will their I and/or think either of just the for be cost or to energy end to because use But there will end deployments existing new upgrade be will of systems forced that consolidation out life useful benefit I or prioritize capacity systems and think coming are workload they're majority system

a the We long-term bunch a are continue bit, to customers see to whole -- cloud we see going continue while take down as that to slowing are on for of migrations trend a reasons. that

And broader be the so going will bigger market. see world, NAND on-prem helping outpace on-prem think And in a mix part flash I in cloud the forward. the of we

where good Our are quarter, they flash hybrid our quarter, about products good products are flash had capacity had conscious. cost a a typical customers

pricing NAND George. That's is market. just your severe. few dislocation in about significant one the you the and follow-up Every on comment helpful, years, quite Okay. a And see last this

about Are you impact NAND benefit decline? how in can gross thinking you demand you are the you to you. of terms. just that? price guys recognize elasticity revenues, revenues in expecting You a expecting that on will us But noted AFA on offset the the to deceleration based margin Thank remind or you're

AFAs, Wamsi. in more Customers' there's dollars, see been but right? the less macro we probably dollars, the budget So mix they'll budget value to has shift environment if spending in offering, the dollars, them in current

would terms, Okay. the down But cloud on-prem, up together? in that put in budgets be whether say it's would full you all in or like customer aggregate aggregate,

start we overall, to start year. certainly the good the 'XX to a at year. expect to year-on-year, of the 'XX, and think 'XX, think be had I relative moderated I down

half And people of cautious fiscal outlook Wamsi. the new year, think year, so our we our start calendar be baked going which for the is second overall, of to into are more

so you George. Thank much, Okay.

Yes, thank you.

from come Shannon ahead. Credit Suisse. will go question with Cross next Please Our

hearing for Keystone wondering much your offering. I my just you're from question. Thank taking you customers was on very what

economic I are a downturn. bit think, more in becoming as an attractive a service they offerings,

what kind you're traction seeing wondering So I'm of there?

It's early, but good traction.

momentum channel focused with good brought selling We our partners of a offerings. good to in We've on had in new innovation market enabled in are your workloads those. terms quarter, the either environment a are a who We offering control few customer Keystone. so consumption licenses last can use our offerings, cloud public unified you and across plane you can that or both and Keystone-based move wins,

is buying this good amount environment. kind So in whatever customers a of around to of And continue correct, innovation. see opportunities help you're model we'll their to

our to forward look you I on And conference. seeing Thursday thanks. and Great at

look Thursday. seeing well as I on forward to

Our ahead. from Please final Jefferies. question will with come Kyle McNealy go

Hey good much Thanks question. afternoon. very for the

But slowdown the now mix least Thanks. the stays but efficiency, you You much of same mix bit for touched decisions their mentioned not to arrays that but on mindset And on expect the that on are more subset change the you directly. that scrutiny this our you're and all-flash has back a from provisioning the portfolio projects. at you're pull do leading know of right embrace new to of that does trajectory? seeing I impact customers willing everything versus how relatively all-flash customers' budget cost earlier, the for hybrid they're potentially seeing all-flash? pockets some Will provisioning

We -- for you customer’s infrastructure what technical see question. decisions reevaluating type of the to buy. of think sort about thank didn't I

I the think they cost effectiveness disk that value, allowed what relative most the team flash. choose on and the decisions technical to was based of make versus

and/or That shrinking what wanted quarter up one phasing have into same to a goes cycles think up what by phases. a in the got projects at time CTO. an up deal people now buy they level was approval for approved VP the deal VP, by we to probably been director, saw to multiple and what what taken would going I how much is was approved elongated

helpful. much. That’s Thanks Okay. very

back Kyle. All I'm thoughts. a give to of Thank for George you, it going couple right. closing to

are the there economic growing. challenges While of company, our business and near-term for know and our substantial, fundamentals is The customers value is we bring every that strong ahead we durable opportunity undeniable. are

the sustained top tightly growth. are Our opportunities infrastructure cloud and storage to for represent customers' strategic profitable potential arrays, optimization cloud priority and long-term and all-flash aligned growth

disciplined of business, the to while focusing shareholder costs on our drive continually stewards growth opportunities optimizing you. will continue strategic value. our We be operating to Thank

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

now may disconnect. You