NetApp Inc at Wells Fargo TMT Summit Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Nailed it. Perfect. From memory. So Kris, thanks again for joining us. So may -- maybe I'll start, I've got a list of questions here, but I want to go back to you guys had a very good Analyst Day earlier this year talked about the growth algorithms, talked about mid to high single digit and maybe we could start there just like, unpacking as we look out into next year or longer term. What are the key kind of growth vectors? The underlying algorithms of getting that kind of growth in the NetApp store. Sure.

Question: Aaron Rakers - Wells Fargo Securities - Analyst : So before we unpack those couple of things because I definitely kind of a lot of the questions I have is that, again, for those, on the webcast in the audience, like the -- from there, the revenue, the P&L drivers, the gross margin, the operating margins remind us again of, where we're at how those long term trends look like?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : And just to be clear, I mean that's mid to high single digit in each actual year, right? That's --

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Okay. Perfect. Perfect. I got you. So the -- let's double click on some of those things. So I want to start with the all flash because that's obviously one of the more tops I think last quarter you reported, not too long ago, $3.8 billion of revenue annualized is 19% growth. I think you're outgrowing the market in general (multiple speakers) Yeah, by about two hours. So the all flash opportunity that you see is it fair to assume that's accelerating? And how do I characterize that of, hey, this is opportunity to go in and upgrade NetApp installed base versus maybe net new winning customers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 8:45PM, NTAP.OQ - NetApp Inc at Wells Fargo TMT Summit

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Yeah. Let's maybe kind of double click on that last point because I think at the Analyst Day there was a discussion around 20,000 customers the opportunity that you see in the block space. I think I asked the question at the end of the day, but the ability to go in, I personally think it's kind of underappreciated. NetApp is the ability to actually participate in a market that despite the established position, NetApp has in the market is very untapped in that block area. So may maybe you can unpack how probably early innings there. But how do you think about success in that opportunity?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Right. And so what inning are we in terms of actually starting to see that show up? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 8:45PM, NTAP.OQ - NetApp Inc at Wells Fargo TMT Summit

Question: Aaron Rakers - Wells Fargo Securities - Analyst : And I would assume one of the insertion points for you in this market would be is that a lot of these customers have NetApp in some form or fashion, just not in that dedicated block area.

Question: Aaron Rakers - Wells Fargo Securities - Analyst : So I would go back kind of to the top level. I mean, you grew 19% in all flash is there. When you look at the demand profile in front of us and you think about 43% of your install base, is it fair to think like you guys can grow that? Do you think that you can grow this business under the umbrella of five, mid to high single digits that this business should grow mid-teens?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Right. And that flash business, when I think about it, it's been consistent, right. That business has a higher structural margin profile, explain what it is?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Yeah. And you probably can imagine I was going to ask the next question like that procurement of NAND, the strategic purchases. It sounds like -- just remind me again, the messaging from the company is that you're in a good spot. Do you see a scenario where you'd have to kind of get active again on some strategic purchases to protect that margin or how are you thinking about that right now?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Perfect. Perfect. Anything I'm not asking you about in terms of the all flash market that we should be thinking about as far as, maybe I've got another list of on where we're at AI and stuff and we'll get to that. But anything else on the product portfolio that, we should think about as kind of a catalyst on the growth side, on all-flash?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Perfect. Shifting gears. I think one of the -- I think, maybe one of the underappreciated areas within the NetApp growth profile is we're getting at that point where maybe the headwind associated with some of the public cloud vertical is starting to abate. And we've got the first-party native services growing quite rapidly. Why would that not accelerate growth as we move forward Walk us through unpacking that cloud business and thinking about the growth drivers underneath that?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Is it fair to think that those businesses stabilizing is something we should think about in the back half of the fiscal year, like we get to a point where they stop declining, and we just think that it's more steady state?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Yes. And to put some perspective on that, you mentioned it, but you grew 30% and 43% these last two quarters in that first-party services business. So to me, it seems like the setup looks pretty good growth-wise into next year. On that mindset, though, the other kicker would be is that I think the flow-through effect on the P&L is pretty high, right? The gross margin in that business is -- should be -- the flow-through of margin is almost 100%, like the incremental cost of that, right?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Yeah. Perfect. Keystone, unbilled RPO in excess of deferred revenue, how much is that growing? Because to me, that's a metric that's going to matter.

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Would you say it's fair to think that 85%, 90% of that the keystone. Is that the right way to think about it or?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : So, yeah, so that's an interesting point really just starting to show up and that becomes an important metric. May maybe I should have started here, maybe for the people like Keystone is what it's, the as a service offering and the push on that piece of the story.

Question: Aaron Rakers - Wells Fargo Securities - Analyst : What is the -- that business if it becomes -- as it becomes maybe more visible, what's the typical terms of those deals? How does that price?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : And it's based on capacity. Okay. That's great. So the next topic is AI opportunity. So last quarter, just recently you talked about having 100 AI specific customer wins. The question was brought up on a call like that was a pretty good jump, right? That was 100 versus 50.

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Okay. What are you looking at to start to call this? Because you -- I think one good thing that you did at the Day was that you didn't jump on the bandwagon of AI is the next big growth factor for NetApp. It's like -- it's there, it's interesting, but it's more longer duration in nature. What -- how does the company look at that starts to show, hey, this is starting to take off? Like what are you seeing in those customer engagements and what you think maybe would be the inflection?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Okay. The relationships you have with the, and I'm jumping around here a little bit, the public cloud partnerships you have and it's going back to your public cloud business and the first party services. They're -- they've been now well established, right. They've been in the market for a while. Are there opportunities to deepen those relationships? How do you think about extending those opportunity sets going forward?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Perfect. The final topic, I want to touch on with you. It's a -- the capital return, strategy M&A how is the company's thinking evolved around that, how much cash do you need, comfortably on the balance sheet? Just, anything that you want to share on capital return?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : And on the dividend side, just because I get this question every once in a while from longer term marine investors. It's like, do you have a state of dividend growth?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : And I lied, I'm going to go back to one other quick topic. So we mentioned on the all flash side, the competitive landscape, you brought up, Dell, EMC brought up HPE, the legacy kind of footprints and the market shares that those companies have had. I mean, there's a handful of others that are legacy guys. How, how do you see like sure competitively in the market?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : And then we get the question competitively every once in a while and it's more around AI and I think it's a different vein of AI than what you deal in, but like the WEKAs, the DDNs. Is it different? They're just different?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : So Kris, anything that I should have asked you that I didn't or any topics of discussions you've had with investors that you feel aren't maybe appreciated enough?

Question: Aaron Rakers - Wells Fargo Securities - Analyst : Perfect. Kris. thank you so much. Appreciate it.