NetApp, Inc.

Good afternoon, ladies and gentlemen, and welcome to the NetApp first quarter fiscal year 2023 earnings call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. I would now like to turn the conference over to Chris Newton, Vice President and Investor Relations. Please go ahead.

Thank you for joining us. With me today are our CEO, George Kurian, and CFO, Mike Berry. This call is being webcast live and will be available for replay on our website at NetApp.com. During today's call, we will make forward-looking statements and projections with respect to our financial outlook and future prospects, such as our guidance for second quarter and fiscal year 2023, our expectations regarding future revenue, profitability, and shareholder returns, our resilience and opportunity for future growth in the turbulent macroeconomic environment, our ability to drive continued growth in both our hybrid cloud and public cloud segments, our ability to invest in areas of high return while managing supply chain constraints and maintaining disciplined operational management, all of which involve risk and uncertainty. We disclaim any obligation to update our forward-looking statements and projections. Actual results may differ materially for a variety of reasons, including macroeconomic and market conditions such as the continuing impact and uneven recovery of the COVID-19 pandemic, including the resulting supply chain disruptions and the IT capital spending environment, as well as our ability to keep pace with the rapid industry, technological, and market trends and changes in the markets in which we operate, execute our data fabric strategy, and introduce and gain market acceptance for our products and services, and generate greater cash flow. Please also refer to the documents we file from time to time with the SEC and available on our website, specifically our most recent Form 10-K, including in the Management's Discussion and Analysis of Financial Condition and Results of Operation and Risk Factors sections. During the call, all financial measures presented will be non-GAAP unless otherwise indicated. Reconciliations of GAAP to non-GAAP estimates are posted on our website. I'll now turn the call over to George.

Thanks, Chris. Welcome, everyone. Thank you for joining us this afternoon. We delivered a great start to the year with company all-time Q1 highs for billings, revenue, gross margin dollars, operating income, and EPS, fueled by broad-based demand across our portfolio and geographies, achieving record results in the face of ongoing macroeconomic uncertainty and Decades high inflation and supply constraints underscores our disciplined operational management. As organizations accelerate their data-driven digital and cloud transformations, our relevance grows. We are helping customers navigate disruption with a modern approach to hybrid multi-cloud infrastructure and data management. Our opportunity is defined by the complexities created by rapid data and cloud growth, multi-cloud management, and the adoption of next-generation technologies such as AI, Kubernetes, and modern databases. The urgency to address these priorities increased with the COVID pandemic and is further driven by the turbulent macroeconomy. Customers are searching for ways to reduce costs, improve flexibility, increase automation, and accelerate application delivery in the public cloud, in their own data centers, and in hybrid cloud environments. Our role in helping organizations achieve these transformation goals underpins our strategy and confidence in future growth. Let me share with you a couple of examples how data-intensive applications like AI drive demand for both our public cloud and hybrid cloud solutions. A global e-commerce company chose ONTAP AI for several AI workloads, including natural language processing, recommendation engines, and deep learning. Our ultra-high-performance storage, closed partnership with NVIDIA, and tight application integration were key to the win, and the customer has realized better performance and reliability while reducing its operating costs and data center footprint. A Fortune 500 hyperscaler is adopting a hybrid cloud strategy to augment existing on-premises AI ML workloads. It shows Azure NetApp files to accelerate AI research and development on cutting edge machine learning training workloads for its AI business unit. The initial footprint consists of nearly one petabyte of Azure NetApp file storage with plenty of opportunity for continued growth. Our AI solutions remove data processing bottlenecks at the edge, core, and cloud to enable more efficient data collection, accelerated AI workloads, faster time to insight, and smoother cloud integration. Now let's turn to our public cloud segment performance for the quarter. In Q1, we continued to see strong demand for our public cloud services. Public cloud ARR grew 73% year over year, exiting Q1 at $584 million. Public cloud segment revenue grew 67% from Q1 a year ago to $132 million, and dollar-based net revenue retention rate of 151% remains healthy. We continue to expand our public cloud customer base, the penetration into our hybrid cloud install base, and the percentage of customers using multiple of our public cloud services. Storage services constitute approximately 60% of our public cloud ARR. We see significant opportunity for continued growth in this part of our business as we help customers migrate or deploy data intensive demanding storage workloads to the cloud. Early in Q1, AWS announced that FSx for NetApp ONTAP is SAP certified. SAP certification for Azure NetApp files has helped drive large business-critical deployments on that service, and we are excited about the potential to see similar workloads deployed on FSx for ONTAP. We recently announced that NetApp is the only cloud storage service provider certified and supported for use as an external data store for VMware cloud environments, further expanding the opportunity for our public cloud storage services. We've long been known for the high levels of enterprise-grade data services we bring to on-premises VMware environments, and now we can bring those same benefits to VMware workloads running in the major public clouds. As we discussed on last quarter's call, we made organizational changes to increase focus on renewal and expansion motions and refined our go-to-market execution to better address the cloud operations opportunity. These actions are starting to deliver results. In Q1, Spot bounced back, returning to its prior growth trajectory. Cloud Insights stabilized but remains a work in progress as we continue to optimize our sales and customer success motions. We delivered a substantial amount of innovation in our cloud operations portfolio. with announcements of general availability of Spot Security, Spot PC, and Ocean for Apache Spark, providing a fully managed serverless infrastructure for Apache Spark on Google Cloud. We also completed the acquisition of InstaCluster, a leading provider of fully managed open source database, pipeline, and workflow applications. We can now combine the spot capabilities of continuous infrastructure optimization, automation, monitoring, and security with expertise in deploying and operating fully managed open source applications to help our customers focus on their business goals, building and releasing leading edge applications at speed. On to our hybrid cloud segment. In Q1, Hybrid cloud revenue grew 6% year-over-year, driven by solid product revenue growth of 8%. All-flash array annualized revenue run rate grew 7% year-over-year to $3 billion. All-flash penetration of our install base grew to 32% of installed systems. PaaS hybrid arrays again posted strong unit growth. The breadth of our storage systems portfolio enables us to address a broad range of customer business, technical, and economic requirements. Under a single unified management environment, we offer high-performance all-flash arrays for mission-critical, performance-sensitive deployments, QLC-based all-flash arrays for capacity-oriented applications, and hybrid flash arrays for price-sensitive workloads. Despite the uncertain macro, the enterprise spending environment has remained steady, driven by priority investments in digital and cloud transformations. Organizations around the globe want to learn how NetApp can increase the performance and reliability of these transformational projects while helping reduce cost, risk, and complexity. Our ability to address a broad range of customer problems while also optimizing cloud and IT investments makes NetApp more resilient to a potential further slowdown than many of our peers. Just as our customers are looking to save while transforming, we too must be agile in our response to the dynamic macro. We will continue to invest into areas of high return to drive growth, while at the same time moderating spending elsewhere. In closing, we delivered a great quarter, kicking off a strong start to FY23. Customer priorities are increasingly aligned with the solutions that we uniquely provide. You are seeing evidence of that in the strong growth of our revenues, billings, and profitability. I am proud of the NetApp team's focus, execution, and disciplined operational management in navigating this dynamic environment. I'll now turn the call over to Mike to walk through the details of our outstanding Q1.