NetApp, Inc. (NTAP) Earnings Call Transcript & Summary

[Presentation] Forward-looking statements. This presentation and the statements made on behalf of NetApp during this presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act regarding our strategy, products and services, shareholder returns and our future results, performance or achievements, financial and otherwise. Such statements or projections reflect management's current expectations, estimates and assumptions based on the information currently available to us and are not guarantees of future performance. Actual results may differ materially from our statements or projections for a variety of reasons, including, without limitation, general global political, macroeconomic and market conditions, such as the effect of the invasion of Ukraine by Russia and the effect of the resulting sanctions, if any, on our business; the continuing impact of the COVID-19 pandemic, supply chain disruptions, changes in the U.S. government spending and the revenue seasonality as well as matters specific to our business, such as the impact of the COVID-19 pandemic on our operations, financial performance and results of operations; our ability to expand our total available market and grow our portfolio of products; customer demand for and acceptance of our products and services; our ability to successfully execute new business models; our ability to successfully execute on our data fabric strategy to generate profitable growth and stockholder return; and our ability to manage our gross profit margins. These and other equally important factors that may affect our future results are described in reports and documents we file from time to time with the SEC, including the factors described under the section titled Risk Factors in our most recent filings on Form 10-K and Form 10-Q available at www.sec.gov. The forward-looking statements made in these presentations are being made as of the time and date of this live presentation. If these presentations are reviewed after the time and date of the live presentation, even if subsequently made available by us on our website or otherwise, these presentations may not contain current or accurate information. Except as required by law, we undertake no obligation to update or revise any forward-looking statement based on new information, future events or otherwise. This presentation also includes non-GAAP financial measures. Reconciliations of these measures to the comparable GAAP measures are available in the appendix to this presentation. NetApp's Investor Relations website at https://investors.netapp.com/investorrelations contains a significant amount of information about NetApp, including financial and other information for investors. NetApp encourages investors to visit that website from time to time as information is updated and new information is posted. The content of NetApp's website is not incorporated by reference into this presentation, and any references to NetApp's website are intended to be inactive textual references only.

Welcome, everyone, and thank you for joining us. It's great to see those of you who came in person and thanks to everyone who's on the webcast. We've got a great agenda for you today. You'll first hear from our CEO, George Kurian. You'll get to meet our new Chief Product Officer, Harv Bhela, and then you'll hear from Anthony Lye to talk about our cloud operations suite. We'll take a quick break and then -- until about 9:55, and then we'll have Cesar and Mike come on. We'll have about an hour of Q&A, both live in the room and for the virtual audience. And for those of you who are here, we'll have a small group lunch afterwards, where you get a chance to interact with our execs. For the Q&A, those of you in the room, just raise your hands. I know it's been a long time since we've all been together, but that does still work. You can also submit questions via e-mail. So for everyone on the webcast, just e-mail [email protected], and he'll read your questions out here in the room. And for everyone in the room, there's a survey in front of you. Your feedback and input really helps us make a great event. For everyone on the webcast, we'll be e-mailing you after the event is over. So look for an e-mail from Billie Fagenstrom with a link to the survey. It's very short, and we really do appreciate your feedback. So with that, it is my honor to welcome our CEO, George Kurian, to the stage.

Thank you, Kris. Good morning, and welcome. It's a real pleasure to be gathered with you after 2 long years of the pandemic, and it's great to see you in person. I'm excited to spend the next 20 minutes giving you an update on NetApp's business and discussing our strategy to expand growth and drive sustainable value as a cloud-led software company. Two years ago, when we met here in September of 2020, we were right in the middle of the pandemic. We saw enormous disruptions, but also the acceleration of fundamental trends that we had been predicting. And what we told you then at our Investor Day was the following 6 cornerstones of our strategic and financial plan. Software leadership and trusted relationships with industry leaders positioned us uniquely. When combined with focused execution and disciplined management, we will deliver shareholder value. Fast forward to today, very simply, we delivered on our commitments, further distancing ourselves from all of our on-premises competitors. Revenue growth of 11%, public cloud ARR growth accelerating to 98%, all-flash arrays at 23% year-on-year revenue growth, positioning us unquestionably in a leadership position in the growth segments of the enterprise storage market. A growing part of our total business is coming from high-margin software, cloud and recurring revenue, providing a high-margin, stable foundation of cash flow. And we've expanded our cloud partnerships with the world's leading hyperscale cloud providers with a first-party service on Amazon Web Services, a fast-scaling partnership with Microsoft and early results with Google Cloud. And we've done all of this while delivering record operating margin, investing for growth and returning capital to shareholders. So to summarize, we delivered on our commitments while further distancing ourselves from all of our on-premises competitors. So now let me look ahead. I want to spend a few minutes giving you our strategy to deliver sustainable growth, which, in turn, translates to shareholder returns. I want to spend time talking about customer priorities and the growing challenges that we address, how we are delivering innovation at cloud speed and, in doing so, enabling an expanding market opportunity. Cesar will come up and tell you about how we are capturing that opportunity through focused, optimized execution in go-to-market. And Mike Berry, our CFO, will share with you how we translate high-margin revenue growth into shareholder value. So let's talk about customers. Organizations face transformational change accelerated by the events of the last few years. They need to operate with unparalleled speed at global scale while simultaneously building in the flexibility to deal with an ever-widening range of disruptions. And this requires every business to become a digital software-infused, data-driven organization. And in doing so, they face huge and growing challenges. They have to deal with an accelerating onslaught of data. Data center data alone has grown eightfold over the last 5 years. Cloud growth, cloud infrastructure growth and complexity is at an unprecedented level. There are 475 different computing instance types in AWS alone, making it virtually impossible for any organization to have humans manage all of that infrastructure. And every business needs to balance the need for speed and flexibility with risk and control, especially in the light of the fact that cyber attacks on data have grown 1,885% over the last few years. NetApp helps every organization become a digital software-infused, data-driven organization. We help them to marshal their data so that it's an asset to power their business, so that they can move from a batch next-day business paradigm to an instantaneous AI-driven business model by giving them the best storage and data services spanning on-premises, hybrid cloud and multi-cloud. We help them to maximize cloud leverage by giving them the tools to simplify and automate the management of multi-cloud infrastructure, to control costs and optimize performance. And we help them to do all of this while protecting their enterprise against an accelerating range of threats by giving them the tools to meet compliance needs, protect against threats like ransomware by detecting the attack, protecting the data and rapidly enabling recovery. So let's talk about how we are innovating at cloud speed to address new and growing markets. I'll give you a summary, and then Anthony Lye and Harvinder Bhela will come up and tell you more in more detail. Let's begin by telling you about the enterprise data center, the part of NetApp's business that you are most familiar with. Data as the foundation of a modern digital business needs to be centrally managed and shared across all the departments in companies. We address those needs with the world's best shared storage, especially in the fast-growing categories of all-flash storage and object storage. In all-flash arrays, enterprises like DreamWorks, cloud-native companies like Yahoo! JAPAN And bandwidth.com and SaaS companies like CyberAgent are using NetApp. Today, NetApp AFA is approximately 50% of NetApp's revenue, and we are growing substantially faster than the overall market, winning new customers and expanding our wallet opportunity in existing customers. Today, as we said in our last earnings call, it's approximately 31% of our installed base, giving us a long runway to go. NetApp's All-Flash Array portfolio is also software-rich, providing support for higher gross margin number and a higher percentage of recurring support revenue as we get customers to adopt this portfolio. Over the last few years, what we've also done at NetApp is, in addition to all-flash storage, we have grown a second category of leadership in object storage. Object storage is critical for managing large volumes of unstructured data. The architecture started in the public cloud and has now come to enterprise data centers around the world for a range of content and media management, fast-growing modern analytics applications and vast amounts of machine-to-machine communication data. Our leadership in object storage allows us to extend our leadership in the unstructured data category, from file storage now to a completely new part of the enterprise data center. And customers like AstraZeneca and France Télévisions Publicité, cloud-native companies like ProSiebenSat and SaaS companies like Hyland Software are adopting NetApp's leadership position in object storage. Harv will tell you more about how we are not only solving traditional storage and data management problems in new ways but how, with our portfolio, we are extending our leadership to new horizons, solving the same challenges in new workloads like serverless and containers, modern analytics and artificial intelligence. Now several years ago, we saw customers wanting to deploy applicants and extend the capabilities of their data centers to the public cloud. We had the vision of a data fabric, a single unified data control plane that would extend the reach of customers' data management capabilities from their data centers to the world's leading public clouds, combining not only the world's best storage management capabilities, but also advanced data services on one cloud and across multiple clouds. The NetApp Data Fabric expands the opportunity for NetApp from enterprise data centers to now a large new category, cloud storage, allowing us to help existing and new customers deploy new applications as well as migrate existing ones from their data centers with all of the capabilities that NetApp has led the industry for so many years. Today, we uniquely bring those capabilities to the Amazon Cloud, the Google Cloud and the Microsoft Azure clouds as well as several other clouds across the globe. We've executed on this game plan with NetApp cloud volumes that now is deeply integrated into the world's leading cloud providers. We're innovating at cloud speed to expand our competitive differentiation and deepen the competitive moat, providing frictionless customer onboarding combined with the huge reach of the hyperscaler routes to market. And enterprises like Cardinal Health, SoftBank and Siemens Healthineers; cloud-native companies like MailerLite, Jedox and bandwidth.com; SaaS companies like Blackboard, Restaurant Magic, D2L; and ISVs like Eidosmedia are deploying their data fabric powered by NetApp to marshal their data, making it an asset that can power their digital business. Now as we've worked on building our cloud portfolio, starting with cloud storage, we began to hear from our customers that they wanted us to help them with a broader range of problems, such as they wanted to understand the performance of their cloud infrastructure, of which we were solving the storage part. Where are the bottlenecks? Is there application challenge because of a lack of computing resources? They wanted to understand whether they had any unknown configuration security issues. And they wanted the same ease of managing compute and applications that we gave them to managing data. We saw them wanting us to provide a broader range of capabilities than storage and data services. And organically and inorganically, we've built a new category called cloud operations, which solves for computing and applications the problems that we solve for data and storage. Cloud operations is led by Anthony Lye at NetApp. It is, today, 40% approximately of our cloud -- public cloud ARR, and he will tell you more about it. I want to summarize. We've combined organic innovation like building a solution called Cloud Insights that helps you understand performance bottlenecks and provide cloud infrastructure monitoring. Spot provides cloud automation to optimize the dynamic infrastructure and applications that we serve. CloudCheckr gives customers a view of the bills and compliance and security of their cloud infrastructure. And the cloud operations portfolio is an entirely new category, expanding NetApp's total addressable market and allowing us access to new customers, new buyers and existing customers and strengthening our overall strategic relevance to customers across the globe. Today, with our cloud operations portfolio, we serve enterprises like Ticketmaster, Logitech and Accenture; cloud-native companies like GumGum; SaaS companies like Demandbase, Freshworks and Glympse; and ISVs like DLT Software. So to summarize, today, we have extended the benefits of NetApp to solve customers' multi-cloud challenges around data with the data fabric and around infrastructure and operational management with the cloud operations suite. And it positions us uniquely in the market with a differentiated portfolio that can address a broad range of needs for all applications on one cloud and across multiple clouds. Nobody in the industry does that, not the cloud providers who operate on one cloud, not players who are building proprietary walled gardens in public clouds to migrate legacy infrastructure and certainly not our on-premises storage competitors. This creates a big and growing opportunity, allowing us to participate in a total addressable market of $96 billion in 2025, growing at 8% CAGR from roughly $75 billion in 2021. You've seen NetApp in the blue buckets in the storage market. But what we've also done in the last few years is build up a growing presence in the green cloud storage market and in the purple cloud operations market. And as Mike will tell you, the percentage of our business mix from the growing parts of the blue, green and purple segments is much higher today than it was just 2 years ago. So now that we've created this opportunity, I'm going to tell you how we're going to go get it. Strategy is great, but I love execution even better. And over the past couple of years, I feel that our focus and consistent execution has been at a much higher level. And I feel that this leadership team is going to drive that bar of consistent execution, even higher over the next 3 years. So let's talk about how we do that. It begins by strengthening the leadership team. I feel really good about the world-class leadership that we've brought to NetApp, not only at our CEO team, but also in many parts of our business leadership reporting to our CEO team. Cesar will, for example, give you an update on how we have substantially strengthened and deepened our capabilities in go-to-market. The second, we've structured to scale cloud focus across the company and accelerate cloud growth. Over the last few years, our cloud business has now reached a point where it is of substantial scale. We began this exercise in go-to-market, where we've integrated our cloud sales team and our enterprise sales team into one team that sells the full portfolio of capabilities to customers, and you've seen the results of that this past year. In engineering, Anthony Lye, who successfully incubated our cloud business, is now focused on scaling our cloud operations portfolio so that it becomes the second scaled part of our cloud portfolio over time. Harv Bhela, who led significant initiatives at Microsoft, joined NetApp in January as Chief Product Officer to drive acceleration in our cloud storage and enterprise storage portfolio and significantly expand our data services capabilities, and you will hear from each of them. You will hear from Cesar Cernuda on how we are aligning go-to-market to capture this expanding opportunity. When Cesar spoke at our last Financial Analyst Day, he was really new to NetApp. And I must give him credit for the really good work he's done over the last couple of years to evolve our go-to-market team so that we can sell more cloud and more storage to more customers. He will tell you about the next phase of our go-to-market evolution in a few minutes. And then Mike Berry will tell you about how we are able to translate our disciplined approach to portfolio management to allow us to invest for growth while translating our high-margin revenue growth into substantial shareholder value. So to summarize, growth drives value, simply put. Our differentiated portfolio increases NetApp's strategic relevance to new customers as well as to existing customers. We can help them in ways that none of our competitors can. And it is reflected by the fact that those customers that buy our cloud portfolio and our enterprise data center portfolio spend substantially more on us in both categories, cloud and in their enterprise data center. Our differentiated portfolio drives growth by attracting more customers, gaining more wallet per customer by adding more services per customer and makes us substantially more sticky with each customer. You see that in the incredible economics of our cloud business with dollar-based net retention rate of almost 170%. You see that in the fact that our cloud portfolio is primarily purchased by new-to-NetApp customers so far, giving us substantial runway to both cross-sell new services into that installed base as well as to bring more cloud to our enterprise storage installed base. And not only that, our strategy is not only delivering growth today but positioning us for growth into the future. We have built a strategic position in customers' architectures and in the industry architecture, where we can deliver more solutions moving across the stack, like we've done with our cloud operations portfolio, and deliver more services moving up the stack, like we've done with data services. And you should expect us to capitalize on this strategic position to expand growth. In our Hybrid Cloud segment, we've been delivering above-market growth with focus, product leadership and a growing percentage of our mix coming from the growth segments of the market where we are gaining share and driving competitive advantage against our traditional competitors. These solutions, both enterprise storage, like all-flash arrays, and our cloud portfolio are rapidly growing high-margin software-centered businesses, giving us room to invest for growth while driving shareholder value. Which is why, today, I want to share with you our next important milestone. We are very confident in our ability to drive our cloud business significantly ahead of our prior targets, so much so that we are committing to delivering $2 billion in public cloud ARR exiting fiscal year '26. This will be achieved through a combination of organic and inorganic growth from storage beyond storage and CloudOps and additional categories like data services. And it's built on the confidence of our strong leadership position in 2 significant, complementary, adjacent market segments that are growing rapidly and a scaling go-to-market engine that allows us to capture more of these opportunities, allowing us to serve not only traditional customers but new categories of customers like managed service providers, born-in-the-cloud organizations as well as our competitors' customers and NetApp's customers. So in closing, we are driving sustainable growth to deliver shareholder value. We innovate to solve customers' top priorities in unique ways. We are capturing that opportunity with expanding routes to market and high-margin cloud and software solutions through disciplined investments, resulting in sustained growth and shareholder value. I want to thank you for being here. Now let me hand over to Harvinder Bhela, Chief Product Officer, to talk to you about how we are growing our hybrid multi-cloud storage and data services business. Harv?

I hope this is working. It's working. You can hear me? Excellent. All right. Hey, everyone. I am Harv. I joined NetApp in January of this year. Let me skip to -- all right. So the reason I joined NetApp, there were 3 reasons. One is that we have a really amazing opportunity in front of us. This is indeed the age of data. And then number two, I really feel great about NetApp's ability. I think we can really go win. We can help customers and win in this age of data. And then finally, I really love the team we have. We have an amazing team. We have a customer-obsessed culture, and that's the most important thing of all. Those 3 things are the reasons why I came to NetApp. Before NetApp, I spent 25 years at Microsoft. At Microsoft, I was like really blessed to be able to do things like build the Office 365 cloud business, start the security business from scratch. And when I think about NetApp and the data opportunity, I feel that it's at the same level, the same kind of opportunity that we have in front of us. And so that's kind of why I came to NetApp. And I love that with the great team here, we'll be able to help customers with some of the biggest challenges they have in taking care of all the data problems that they have. All right. So we already are in the age of data. I think you all know this. Every business today, every business is a digital data-driven business. But that data, it is exponentially growing. It is ever harder to go manage that data. The data is also not in one place. Data will always be in all these different places. It's on-prem, it's in multiple public clouds. Customers have to like deal with all the locations of data everywhere, where did they spread. And finally, businesses, they have to worry about not just storage and not just cost and performance. Today, a business has to worry about how do I protect my data from ransomware? What do I do about privacy? What do I do about complying with this increasing number of data regulations being through an [admin ]? So as a business, the complexity, the risk of data is just increasing every single day. So no wonder that every single business today, every business is basically trying to create this new role called the CDO role, or the Chief Data Officer role. Almost about 60% of the businesses today have this role. And think of them as data stewards. Their job is to go help the business get the maximum value from what is likely, what is definitely is the most important asset they have, data. That's their job. And I feel like NetApp is extremely well positioned to help customers in this new age of data. This is an eye chart. I don't expect you to read this. It shows you all of the innovation that NetApp has done in the past 30 years in this space. We have 30 years of amazing customer focus, accelerating into innovation in this space. And industry analysts, they recognized NetApp as this innovation leader in that space. I want to draw your attention to our GigaOm side. GigaOm said that NetApp's Data Fabric is simply, simply unmatched of all the different storage vendors. Our products are category leaders. And what I love the most is that our customers really love our products. We power their most critical workloads. We help them achieve their missions. That is the most important validation of all. So I really believe that we can help customers unlock that enormous business value they have across their entire data estate everywhere and across on-prem and cloud, in all of those places. So I would love to have you pay attention to this framework. I'm going to kind of walk you through 1, 2, 3 equals framework. And I'm going to reuse this in the rest of the presentation, okay? So number one, we're going to keep innovating to keep winning share in the enterprise storage space. That's number one. Number two, we are deeply integrating into all the major public clouds as a native service that helps us see all the data that a customer has, right? Then number three, we are moving up the stack in order to provide complete data services to customers everywhere, to all the -- to solve all the data problems that customers have. And all of that together results in NetApp providing this single unified data fabric across the entire data estate of the customer. All right, we're going to go through each one of these one at a time. All right, number one. So I want to walk you 5 things we are doing for this first part of our framework. Number one, we already have the world's best software for enterprise storage. It's unified across protocols, across platforms, across data types. Cloud integration is built right in, and we are rigorously investing in more and more on this front. So let me give you a few examples. One example is we're adding smart to our system so that we can automatically take the cold data that a customer has and tier that to the carbon-neutral public clouds. That way, we help the customers attain their sustainability goals. That's something that every customer in the world cares about. Another example, we are adding more and more AI capabilities so that our customers can run their AI and ML workloads at scale. I'm going to give you some real customer examples of that. The net of all that is that our customers can run their most demanding workloads on-prem or in the cloud with us. Number two, we have an open innovation ecosystem. We have these trusted relationships. We have this deep integrations and partnerships with the silicon innovators, the systems integrators in this space: NVIDIA, Samsung, Cisco. And that's why we are the first to market in many of the new technologies. For example, we were the first to market with the complete end-to-end NVMe system. We were the first to market with Samsung's cutting-edge SSDs. And by building these deep relationships by partnering with the industry in this way, we are confident -- we feel confident that we'll always be the first to market to bring all this great innovation from the entire industry to go benefit our customers, okay? And it also helps us differentiate from competition because it helps us -- it helps us stay ahead of competitors and win those key market transitions. A good example is what we're doing right now with the market transition to cloud. That's a great example. Security, that's top of mind for customers and it's top of mind for us. And let's take a few examples. Ransomware right now is the #1 -- is the #1 security problem for customers. And so what we're doing is we're adding AI-based detections, protection, automatic remediation to help customers with ransomware. We would love to make ransomware be a thing of the past. And customers with customers with us -- customers with NetApp shouldn't have to even worry about it. Another example. We were the first to receive certifications from NSA and DoD. And finally, we are adding new AI-based governance for privacy, for CCPA, for GDPR. So we believe that, with us, customers can really have peace of mind for the data -- for all of the data, which is their most valuable asset. Every customer we know is building cloud-native apps, on-prem and in the cloud. We launched Astra last year -- end of last year. Astra, today, is orchestrating protection. It's orchestrating disaster recovery, storage for thousands of Kubernetes workloads across hundreds of customers. We don't want the people building, the developers building cloud-native apps to even worry about data and storage. They shouldn't have to worry about that. So our goal is to bring this enterprise-class storage, this enterprise-class data to every cloud-native app, simply by using NetApp. And by doing that, we also get new customers, new users, new usage to NetApp that way. And finally, we are providing a simple and modern experience for customers throughout the entire product life cycle. When you first buy the product, you can buy it as a -- buy it upfront, or you can purchase it as a service with Keystone. When you are ongoing running the product, we use AI ops-based insights and actions to automatically keep your systems at optimal health at optimal performance without you having to do anything. And then with the predictive advisory, digital support, advisory support we have, it means that you can have operational simplicity that is simply not possible with any other competing product we have. The net of all this is that we are -- we have a strong innovation engine. We are putting more fuel into that innovation engine. We are going to keep increasing the gap between us and the competitors. We're going to keep increasing -- following the problems for our customers better than anyone else in the world. And we're going to keep winning this enterprise storage market. All right. Now I move to some examples. Let's take a few examples. And so this is an example of a customer, which is -- who is a large financial institution. They were using a competing product on-prem. But then as they transition to using both on-prem in the cloud, they switched to using us because we were the only solution that met their needs for performance, multi-protocol support cloud integration across both on-prem as well as Microsoft Azure and Google Cloud. They were building a data platform internally for AI and analytics. They're going to use this platform within the company for the next 10 years. And so they wanted to make sure that they're betting with a partner -- they're using a partner who can be great for them for the next 10 years as they build all these internal apps around AI and data. And over time, they want to move to -- they want to extend to the cloud as well. Here's another example. This is an online retailer that's only on-prem. They were using us for file, and they were using a competitor for SAN. And then they decided that, hey, they want to use just one solution for all that. And so one solution, great performance across file and object, simple operational -- in a simple operational [ form ] from the customer point of view. And I'm going to move to the second part of our growth thesis, and that's about moving horizontally and building deep integration into all the major public clouds. Now I would love your attention on how we're doing it because the way we are doing it is what makes a difference. So I'm going to -- let me kind of walk you through that. So what we're doing with these -- with the cloud hyperscalers, with GCP, with Azure, with AWS, we're not just like a service in that marketplace. We are integrating deeply into those clouds as a first-party service, as a native service. That means that our management capabilities are built right into their portals. We are practically co-developing, co-engineering the solution together with them. From a customer point of view, our solution is built right into those cloud fabrics. None of our competitors do this. And if we think from a business point of view, they would love this. They will want one solution, one product they can use, both on-prem as well as it's built right into all the public clouds that they use. This is a big deal. This approach of how we are integrating into the public cloud makes a big difference. It's not just something in the marketplace. It's part of the fabric of what the cloud -- what the cloud scalers or the hyperscalers are doing. And don't take my word for it. Let's see what the hyperscalers are saying. They love the integration we are doing in the space. They love how we are solving problems together with customers. And they love how we're doing it by integrating very deeply into the fabric of those public clouds. So I'm going to take a few examples again. This is a customer that's a global financial institution. They were using a competitor on-prem, and then they decided to move to us because we were the only solution that provides this unified data plane across both on-prem as well as Google Cloud. I love this example, this customer, Italgas. They didn't think that they could actually get the same performance in the public cloud that they were getting on-prem, but they do with NetApp. And so they were excited by what they could do with NetApp, in this case, with Azure. We're seeing rapid growth in Azure. We joke internally about how we are helping customers migrate their unmigratable apps to the public cloud with NetApp. It's not a joke. It's really true what customers are saying. This is why tons of oil and natural gas companies are moving to Azure with our solution. We're seeing rapid growth in Azure. Blackboard, they had to keep up with 45x growth, 45x demand growth during the pandemic. And we made the difference between continued education or catastrophic failure for them. And so they use our solution in AWS. It just takes a few clicks to get started. It just takes a few clicks for them to stay ahead of that 45x growth they were experiencing. Without us, they would not have been able to like do that. We are so proud. We're so happy to be able to help customers with amazing growth like this. AstraZeneca is like many different -- many examples with many different customers. They're using -- their data is spread across on-prem, and not just one cloud but many different public clouds. As you can imagine, this is a very common pattern. And they love that multi-cloud fabric, the fact that they can use one solution, one fabric across all of those different locations. And we're delighted to be able to help them with that. Again, no competitor has this built right into the public clouds like we do. They are one of my favorite examples. This is a leading grocery chain that never used NetApp. They had never used NetApp in the past. So the first time they'd use NetApp was in the cloud. They were moving to the cloud. They wanted to use SAP on Azure, and we were the only solution that met their performance goals. So they used us first in the cloud on Azure. And they loved the performance, the ease of use, the reliability so much that they decided to go use us then also on-prem. Now they use our flash storage systems on-prem. So a great example of a customer who started their journey with us first in the cloud, and then they are -- and it helps us win their business on-prem as well. All right. I want to move to the third part of my framework, which is moving up the stack and providing complete data services for customers, so we can help them solve their most complex data problems. I'm going to go back to using some customer examples again. They're doing amazing things on top of our platform. I mentioned earlier how we're building more and more AI/ML capabilities that helps customers run those workloads at scale. There's an example of a customer, who is a health care provider. They're using AI/ML workloads to go treat diseases like Parkinson's. They're improving patient outcomes. They are building a completely new AI-based radiology practice. It feels amazing. It feels great to be able to help customers with problems like this, for us to enable them to go -- have this cutting-edge research in medicine. Another customer -- by the way, I'm going to keep adding more data services along the top tier. Another customer, they're an existing communications tech company. They were an existing NetApp customer. And now they are using to -- using Astra to go provide disaster recovery and protection in Kubernetes for their cloud-native apps. This is a good example of an existing customer where new departments, new groups within that customer is beginning to use us because we have this -- we have Astra, and we support Kubernetes and cloud-native apps. A leading hospital, a leading soccer club, they're using our add-on data service for protection. And they're using that to protect themselves from ransomware, from on-prem as well -- in on-prem as well as in the cloud. I believe every customer in the world will care about this. Every customer in the world will want to buy this. And finally, again, one of my favorite customer examples is because they started in the cloud first. WalkMe, an example of a customer who had never used NetApp before, they used us in the cloud for our compliance data service. They're using it to meet their CCPA and GDPR reporting requirements. They love the product in the cloud, and then they are expanding their use of NetApp as a result of this. Again, a good example of a customer who first saw us -- first used us in the cloud, and now we are winning more business with them in other places. All right. Finally, to bring it all together, all of that results in NetApp providing this single unified data fabric to customers for their entire data estate. And I thought, rather than me talking about this in some abstract way, how about I just show you what the customers see when they use the product, okay? So this is a screen chart from our cloud console. And this is what the customers actually see when they use the product. And if you look inside this dotted red circle -- you might have to squint a little bit, what it shows to the customer is all of the data with NetApp everywhere, what data do they have on-prem, what data do they have in AWS, what data do they have in Azure, in GCP and so on. It's pretty amazing for the customer to be able to see all of the data with NetApp all in one place in one view. But that's not all. What we also let the customer do is the customer can also act on the data. So see all these lines you see between those locations, with a mouse and a simple drag and click, a customer can easily set up tiering between like, say, the on-prem location and any of the cloud locations. So this idea of being able to see all of my data in one place, being able to act on all of my data in one place, it's freaking awesome. I think customers really love that, they really value that. And so let me give you another example. If you kind of look at the sort of the ribbon in the top in this dotted red rectangle, the customer can discover many of the data services. I only gave a few examples. They can discover many of the data services that I talked about earlier. So from a customer point of view, from the same console, they can discover, they can purchase, they can onboard, they can start using any of those data services and more that I was describing earlier. I think this is pretty good, pretty awesome, because from a customer point of view, there are no humans involved. They can actually go see what the -- which services are available. They can do easy try, easy buy. The product is essentially selling itself at this point. And so no humans needed from NetApp in order for the customer to see, buy, start using all of these services. So I hope that -- those screen shots, how do you sort of visualize what do we mean by this unified -- single unified data fabric. I think it helps customers. It provides good value to the customers. It helps us differentiate from competitors because no one else can do that. So I'm going to summarize quickly what I walked you through. Number one, we have an amazing innovation engine. We're going to keep adding more fuel to that fire, keep winning enterprise share. We are deeply integrating into all the public clouds as a native service. That's the key difference, as a native service. And by doing that, it's easy for customers, and they can -- we can see all of the data. Number three, we are moving up the stack to provide complete data services to customers, help them solve their complex data problems. And finally, we want to still preserve that simplicity for customers, the simplicity of having a single unified data fabric. I feel that we are solving this data problem, the storage problem for customers in a holistic way, in a complete way. Most of our competitors are solving one problem or the other problem in this space, and not even as good as what we are doing on those fronts. But only we are solving the complete problem for the customer without treating the whole patient. And from a customer point of view, that means that they can get that value, they can get an enormous business value across their entire data estate everywhere in this age of data. Well, thank you, everyone. And while I go get Anthony up here, he's going to walk us through the awesome work that he is doing on cloud operations. Thank you.

Thanks, Harv. Thank you. Good morning, everybody. It's great to be back. As George said, it's been a very strange 2 years. I've been with NetApp 5 years now. And I think the wonderful opportunity, I think, that was presented was not just to sort of think about cloud but to really reimagine the entire experience. And I think, uniquely, we were able to partner, as Harv said, with these very, very large public clouds to provide a fully elastic storage service, something that can be deployed in seconds. And sort of 3 years ago, we started to see an adjacent opportunity by being on the inside of these public clouds. By partnering with them, by co-developing with them, we saw an opportunity to sort of go beyond storage. Our storage had really cemented itself inside the public clouds, and we started to see this sort of opportunity that we've defined as cloud operations. And cloud operations really expands the opportunity for NetApp. It leverages all of the capabilities that Harv talked about in the established storage services that run in the public clouds. And we started, as many of you know, to see new buyers. While the IT organizations typically migrated or extended their existing infrastructures, there's an enormous market opportunity of buyers who build and run on the public cloud, so didn't have on-premises infrastructures, whether those are divisions or departments of large enterprises or the plethora of new companies that have been started to really act upon this sort of once-in-a-lifetime digital transformation. We started to see a sort of a fundamental transformation of the IT organization into a sort of application-centric DevOps or SRE, site reliability engineering organization. And so what I'd like to try and convey to everybody today is really this opportunity for CloudOps significantly expands the TAM. As George said, the nonstorage-related ARR that we kicked off a little over 3 years ago is now about 40% of our total ARR and expanding incredibly quickly. We're able to capture new workloads, new applications that we couldn't, that didn't exist on-premise. We're able to expand into adjacent customers and buyers within our organizations, people that talk the language of DevOps or FinOps or SecOps. We help customers that want to go really fast, customers that see speed as we set NetApp becoming the new scale. If we can help people by going fast, sort of to keep them out of the ditches, we can really empower a population of people in ways that nobody else can. Now everything we do in CloudOps is, of course, delivered as a service. It's all, of course, a portfolio of high-growth and high-margin software. So fundamentally, I think everybody is in the building an application or being disintermediated by somebody else that does. The growth in the application stores of Apple and Google are just amazing. Today, there are over 6 million applications available through those 2 application stores, not including the games, which would add probably another 1 million to that total. And what's backing all of these modern digital applications that we all subscribe to or consume on our cell phones and tablets is the enormous growth that we've seen in public cloud. And so today, every company is a software company. Companies are either born digital or they expand physical and add digital. And so this really is the basis of this sort of digital transformation. Now in being competitive and taking advantage of the customer and the opportunity, application complexity is significantly increasing infrastructure cost. As George said, there are over 470 compute instances on Amazon alone. There isn't a person on planet Earth that can make a good and accurate decision to empower the application to run as efficiently as it possibly can. We've moved from sort of large monolithic suites, a CRM or an ERP or a human capital management system, to now a highly diverse set of micro services that interact. We've moved from sort of standard sort of data entry and transactional tables to rich AI and ML-based models that drive business outcomes. Speed of release has increased significantly. When I first started building software a long time ago, we would build a set of documents and then we would tell our engineers to code against those documents for 2 years. The customer would take the application, put it in the lab for a year, and then hire Accenture to do an upgrade, which would take another 2 years. So from ideation to production, we used to release on about a 5-year cadence. Now we release every single day. There is automation in the build and executional tools that really enable all of our applications to be released continuously. And that's what's forced this sort of transformation of organizational design. And so we want to help people run fast. We want to help people deploy competitive applications to enable and empower digital disruption and digital transformation. We think, and as George pointed out, this is a significant market opportunity for us, a fast-growing TAM estimated to be about $11 billion in 2025. And we think that cloud operations at NetApp can significantly grow our customer base. Within existing customers, we find new buyers. Within customers that have never bought NetApp, we find new buyers. And with companies that were born in the cloud, we find new buyers. And then we're able to execute not just what we would call a land-and-expand motion but a very significant cross-sell and upsell. So why us? Well, we bet big on the public clouds. All 3 of them chose NetApp. All 3 of them put us behind their CLIs, their APIs and consoles. We get to see the world in a very unique way. Now over the last sort of 2, 2.5 years, we have significantly leaned into our own organic development, and we've targeted a number of acquisitions to bolster our portfolio. Today, all of these applications are sold and consumed by our customers. But we are platforming for a much bigger market where we believe every company will compete for the digital business, where every company moves from traditional sort of waterfall or agile deployment models, every company will deploy continuous integration and continuous deployment. We took a very successful product OnCommand Insight, and we reimagined it as Cloud Insights, and it significantly expanded our opportunity. OnCommand Insight was deployed at about 750 of the top 1,000 companies in the world who could afford to do it. Now with Cloud Insights, a modern multi-tenant SaaS application, we can deploy into the enterprise, we can deploy into divisions and departments of the enterprise, and we can deploy into customers who couldn't or wouldn't deploy expensive infrastructure. Spot has been hugely successful. It's really been the anchor tenant of our CloudOps portfolio. In each of our earnings calls, there is regular association and commentary about the success of that acquisition. And so to enable Spot to be what we know it can be, we've made a number of acquisitions. We acquired a company called StratCloud to help optimize reservations. Reserved instances are a big problem for customers. We acquired CloudJumper to provide optimizations of virtual desktop infrastructures, CloudHawk to build our security offering around configuration and what we call posture management. We acquired Data Mechanics, a group of people that came out of Databricks. And now we provide a very unique optimization service for companies deploying Apache Spark. CloudCheckr was our last significant acquisition. And CloudCheckr has brought a wealth of intellectual property and given us the ability to target a new buyer, the managed service provider and global systems integrator that are playing the role to assist their customers who suffer from skill shortages. And most recently, Fylamynt brings us an extensibility story, an integration and automation story that we didn't have before. So Spot is really, as I said, the cornerstone. It extends a customer's existing DevOps process. Spot continuously optimizes, automates, monitors and secures application infrastructures. It can be deployed across virtual machines or containers or applications like virtual desktops and, as I said, across Apache Spark. What does it do? Well, think about Spot sort of like Tetris. Application people like me when we're presented with infrastructure, we're given a choice between fast, faster and fastest. We don't really know why the first 2 were put on the dashboard. And then what we tend to do is if we size a particular application in the peak, we will almost certainly double or triple it to give us an effective headroom because the most important thing is we cannot affect the SLA or the SLO. Now Spot uses machine learning and AI to actually rightsize all of the different compute types at run time. It's incredibly sticky. We sit between the application and the public cloud infrastructure, and we're continuously trying to find ways to better fit all of the different compute types, all of the different buying types into a highly tuned and highly optimized infrastructure. So when we're continuously rightsizing, monitoring and analyzing containing utilization, we're sort of packing them into the virtual machines in the most effective way we can. And this typically gives customers savings of about 30%, but we don't stop there. We then have a sort of a machine that will actually select the compute types, the instance size and the pricing based on the application's run time specification. We're able to run at close to sort of 90-plus percent utilization. We eliminate that doubling and tripling of capacity and the unnecessary headroom. And then what we do is we auto provision them, and we take advantage of buying vehicles on the public clouds, like Spot. Spot Instances are the lowest cost of compute you can buy. And uniquely, Spot enables customers to know when they're coming and when they're being taken away. We're able to complement applications that need on-demand or reserved instances with significantly lower-cost Spot Instances. Cloud Insights, as I said, it's been a tremendous success. We reengineered and reimagined it as a cloud SaaS-based application. And customers today use Cloud Insights to monitor their on-premise infrastructures for things like latencies, virtual machines, sort of expensive scenarios where storage isn't attached to particular compute, and we extended that construct, that sort of layer of infrastructure monitoring into the public cloud. So today, customers choose Cloud Insights on-premise. They choose Cloud Insights for one cloud, for many clouds and across the hybrid multi-cloud. And companies are choosing our cloud op services, companies that were sort of large established enterprises, but a sizable number of logos that we put on this screen that never really existed in on-premise infrastructure that were born in the cloud, that took advantage of the cloud to build and disrupt existing markets using digital technologies. But large financial services firms are choosing Cloud Insights to run across their hybrid multi-cloud infrastructures. We're replacing technologies from EMC and VMware and other companies that haven't made this shift to a more modern SaaS and cloud-based infrastructure. And as George pointed out, our cloud overall has established, call it, the year-over-year of 98% in our last public quarter. So think about our platform as being a layer of infrastructure, a layer of services that sits beneath the application and above the infrastructure of Amazon, Google and Microsoft. And what we really provide is an optimization of the infrastructure and an optimization of the operations. We then have intellectual property that serves those optimizations up through the databases, through the pipelining tools like Kafka, through the big data processing engines like Apache Spark and, of course, for companies building and running traditional web applications on virtual machines. GumGum, a company that many of you probably don't even -- never heard of, a company built for the cloud, built to disrupt a marketplace, saves over $200,000 a year by deploying this infrastructure, by deploying the NetApp CloudOps portfolio. Everything that we do, we're building on a base of monitoring security and observability. Our APIs are cloud agnostic. We're helping institutions and organizations like the United Nations here in New York to do things on public cloud that, without our capabilities, would cost a significant amount more, slowing down the adoption and use of public cloud. Now we started to see about almost 18 months ago that there was the significant shortage of expertise. And that our tools, while incredibly capable, we needed to basically penetrate customers who didn't have the skill sets to run them. And we started to see a real opportunity as partners became managed service organizations. As people started to take on the cloud operations roles, we started to see CSPs and distributors really start to focus on CloudOps as a service. We really thought this was a big opportunity for us, and this really drove the acquisition of CloudCheckr. We closed CloudCheckr in November. And CloudCheckr, as I said, brings a wealth of intellectual property of recurring revenue and an alternative route to market. CloudCheckr has basically extended and expanded our FinOps and our SecOps capabilities. It provides customers with billing analytics. It tells them where, when and how they should be using particular cloud services. It gives them the partner or the customer extensive dashboarding capabilities. It allows the partner to rerate these services to create their own SKUs and bundles of their own services in combination with public cloud. It expands the margin opportunity through optimization that the partner can choose to provide all, some or none of that on to their particular customer base. And CloudCheckr uniquely powers a significant number of these global systems integrators and managed service providers who provide a very, very rich and expansive channel for us to take to market, to companies who don't have this particular expertise. NaviSite, an IT consulting and managed service provider, uses CloudCheckr to sort of enable AWS infrastructure management. It sort of believes that the sort of the cost optimization, the rerating and invoicing functionality provides them with that platform that no other vendor could. It's helping them drive triple-digit growth. We're empowering partners to make money and to grow their businesses. Pinnacle Technology Partners, another managed service provider, closed -- chose CloudCheckr as the platform behind its PeakPlus cloud management services platform. So this layer of technology we've acquired through CloudCheckr will sit as an alternative console on top of our CloudOps technology. That same stack of Spot, CloudHawk and the other acquisitions will now all be served, not just directly to the end customer, but served to the managed service provider. And in turn, the managed service provider can then impart some or all of the savings on to the customers. Now why did we do this? Why are we being so successful? Simply put, we strive to give our customers more cloud at less cost. The more we can enable our customers to optimize their infrastructures, the more they can deploy to the cloud. Companies that were built or born digital can significantly expand their gross margins or choose to reduce their price points to be more competitive in this sort of global digital business. Customers tell us they can move much faster to the cloud. They can save enormous amounts of money. The automation has a significant role in removing the automation and the operational bundles. Customers vote for our cloud operations with their wallets. Spot, today, charges a percentage of savings. For all intents and purposes, Spot is a free tool. We benchmark a company before Spot, and then we take a percentage of the savings that we give to those customers. There's no better, I think, or more valid or deliberate sort of ROI that we provide to our customers uniquely. As Harv said, on the storage and data services, industry analysts recognize us. They like what we're doing. We are becoming the leader in a number of established categories. We're able to point to industry analyst reports that demonstrate that our thinking and our capabilities, the feedback that they get from customers is really making a significant difference. So what I told you at the start, I'll just simply repeat at the end. I hope that you see this, as we do, as an adjacent and significant expansion to our market opportunity. We feel we have, organically and through acquisition, been able to address the needs of the new buyers, of the new customers who consume cloud services, oftentimes as much, if not more, than the traditional enterprise customers. We feel that the combined portfolio of storage, compute and the optimization of that infrastructure is unique to us. And we believe that by building and expanding upon this CloudOps portfolio, all delivered as a service, will result in higher margins and higher value that we return to our shareholders. So with that, I thank you for your time. I will hand it back to Kris.

All right. Thank you, Anthony. So one of the joys of being live and in person is we're running a little bit long. So we're going to take a break until 10:00. We'll start sharply at 10:00, not 9:55. Thanks. [Break]

Okay, all right. It's 10:00, and we're going to start, trying to stay on time. Thank you all. I mentioned to some of you during the break. We're posting the presentations to the Investor Day microsite as they're being done so you can go and find them. And with that, it is my honor to introduce Cesar Cernuda, President of NetApp.

Thank you so much. Well, good morning to everybody, and thank you so much for being here with us, and thanks, everybody attending as well livecast. It's my great pleasure to be back with you and I'm saying back with you because I met -- last time I was with you was, I think, September, 2020, a lot respect for Harv, which was 2 months in the job as I was back then, having a session with you. I'm not going to say I'm a veteran, but at least I've been 20 months now in the company. And I shared back then with you all, why did I join NetApp at that stage of my career. And what I ensured back then was about, hey, the opportunity that I saw the road map, the technology and how we could transform our company and better serve our customers. That customer obsession that NetApp has was a great motivator for me to join NetApp. Here's the good news. After 20 months, I feel even more excited about the opportunity that we have. I hope that today, we're sharing with you, you have seen the technology and the road map that we have and how we're really building momentum in the market. So let me kind of share a little bit with you what are we doing in the go-to-market organization and how we're helping our customers towards a journey. First thing is we have a team of a little bit above 6,000 people between sellers, solution specialists, technical people, solution architects, cloud specialists, marketing, people working on the partner side, support and professional services, helping our approximately 40,000 customers across the globe and more than 10,000 partners. Today, you have seen or heard some of the customer cases that we've been helping on their overall journey, using data. And also on the ops side, one of the things that we haven't shared with you is if you look into every single industry, I'm seeing every single industry because I get that question a lot, which is hey, where is NetApp better positioned, in which industry? And I said, we serve pretty much every single industry. And actually, probably the top customers or companies in those industries are customers of NetApp as well. On the partner side, I'll have a slide on partners, but one of the biggest highlights that we have seen in the last couple of years is the partnership that we have built with hyperscalers. I'm going to be talking more about that. But think about them not just as a first-party service, as we have shared before, but also on how we're expanding with them on winning market. For me, one of the key things, and George talked about, hey, focus on execution, the go-to-market organization has been simplicity and clarity. Since I have joined, I've been trying to drive that simplicity and clarity on how we're going to go and win, how we should be executing. And for me, it's all about how do we increase our share of wallet. How do we expand in our installed base. And not just bringing cloud services, but as well winning new workloads. And I'm going to talk about that today. How do we bring new customers to NetApp? For sure, there's on the CloudOps side and some of the cloud services, but also on the on-premise side. What are we doing there? The third thing which is very connected to the fourth is around productivity. How can we do this in a more efficient way? What are the type of workloads or motions that we have inside NetApp in signed up, we can connect the dots and utilize our resources in a better way so we can help customers faster in a more simple way and also in a more productive way for us. And that's very connected to the utilization of some of the motions, how we're using AI Ops, which I also will be talking about that, how we improve our overall support using AI ops as well. And the last piece, which is the least is, how we're evolving out with overall partner ecosystem. You know that we have a huge partner ecosystem, how do we ensure that partners transform with us and we transform with them, and how do we embrace new partners working with us. So let me give you a quick update on things that we have done since last time that we have met. And some of them, you have seen it. First, I think you have seen the change on the way we have rebrand NetApp. How we're being perceived by our customers on who we are, which we're a cloud-led software company. It's interesting because many customers or some customers were in the cloud that even know about NetApp in the past, see us as a cloud-led software company, helping them actually under overall data with these hybrid cloud vendors but also on the cloud ops piece, as Anthony just shared before. But at the same time, our own customers have been working years with us. They realize and recognize the change that the company is going through, which is kind of tricky because you need to make sure that you perform what we transform and at the same time, ensure that you keep working on their core business, as we've been doing the last several years. And as Harv has shared before and George, our technology is really enabling them to go the entire customer life cycle. Focus on execution around accelerated flash, you've seen our 23% growth number. That's a growth opportunity for us. One of the things that we have done is ensure that our go-to-market team, our sellers understand that is a critical investment path for us, winning share there and moving workloads through flash. One of the things that I feel proud about is the progress that we have made, what I called our tracking mechanism. So in other words, one of the things that I think we have been good at is once we have an issue, you're going to try to find what is the issue on the execution side and you solve it. But that's not good enough. The reality is we need to use even our own technology to predict or actually have some kind of [ real ] alarms that can tell us, hey, we may have this performing issue here for these different reasons, which are the KPIs that we're tracking now that can help us anticipate a potential challenge or performance issue in this segment or in this market or in this industry, so we can work that out in advance. We call that our rhythm of the business, ROE process, which we have established by weeks, monthly and even quarterly in the business reviews. And sometimes people say, is this an inspection, right? Not necessarily in inspection, but certainly, we go much deeper instead of the KPIs to run our business and ensure that we can perform what we transform. We start to invest in new programs on the partner ecosystem. Anthony has been talking before about ISVs. I will say MSPs as well. I know just on the cloud side, interestingly enough, some of the progress that we have made with some of those ISVs are also helping us to win in the on-premise world. And we've been expanding our overall cloud participation. One of the biggest decisions that we have made in the last 18 months has been that we have instead of having a cloud team and what we used to call core team or on-premise team, we certainly have said, hey, we need to serve our customers wherever they are. And that means all our sellers are carrying the entire portfolio, and that means they have [ proved our worth ] on the on-premise side and on the cloud side. So their job is to sell both because customers are buying both. So that has helped us to expand our overall cloud portfolio selling. But at the same time, we've been adding more and more cloud specialists. And I'm going to share more about that because one of the biggest things that we have done as a company has been really focusing on saying, we need to become a specialist company. We need to have in-depth specialists and technical people helping our customers. That's a big differentiator. And this joint go-to-market plans with hyperscalers is one of the biggest highlights. So yes, from a product perspective, a technology perspective, as was Harv was sharing before, we're even doing co-development, co-engineering. But for me, one of the most important things was how can we take advantage of the partnership. How can we use actually those are hyperscalers, go-to-market, sales force because there are thousands of them. How do we ensure that they get trained? How do we ensure that we team up with them so we can really amplify? So what we have done is basically in every single geo in every single country, actually, not all the countries, but in 12 areas that we have defined outside of kind of inside NetApp. We have tried to map our leadership teams on our go-to-market people, so they have common targets, common goals and common execution. We also have been able to go and address their partners. There are hundreds of thousands of partners, and we're investing with our partner plans as well and our partner programs to help those partners as well to understand our joint value proposition and joint offering. We have quarterly executive meetings, monthly executive meetings, weekly actually meetings in the field, of course, ensuring that we can execute properly. So I feel quite proud of the progress that we have made on that area. And at the end of the day, all these things that we're doing is to better serve our customers and partners. That customer obsession that Harv said before is critical for the future of the company. Many companies talk about that. I'll give you a couple of numbers on how we've been increasing our customer satisfaction and we have done on customer success. But this is one of the things that I feel the most proud about. Customers feel good working with us. Harv talked about financial services win. He was talking about a customer that actually was not a NetApp customer, where basically we came in and talked to the customer, which was used in other technology, and that customer moved and start working with us. Yes. And he did that from a [ pro ] perspective, what was the technology that we had that attract them. Let me talk about how we make that happen from a go-to-market perspective. First, our global footprint really help us to start talking to the customer. Our account team came to the customer, trying to understand their need. And yes, we put in place an unsolicited proposal, which basically was, "hey, let us bring our specialists, let us bring our specialists and our experts on the technical side to try to understand your need and try to see if the solution that we can put in place something that will solve your problems." And they give us the opportunity, based on our brand and our history and our enterprise ready 24/7 experience. And we run a proof of concept. And as a consequence of that proof of concept, they trust on us and we're working with them. And actually, right now, we're working on a new workload, expanding our footprint. We heard before as well about a large telco company, a large telco company, that was already a NetApp customer that were working with us for the last several years. But for their top of mind and for the Chief Digital Officer, actually, that we're really looking forward to say, "hey, how do we ensure that have a single control plane that I can really manage all my data in a seamless way, regardless it's in the Public Cloud in a multi-cloud environment, but also on prem." Well, we got involved with our cloud solution architects, we also with our solution engineering team trying to understand their needs on the cloud side, their needs on the premise side connect the dots and this kind of the data fabric vision that we've been sharing with you, help us really get all those workloads with us, or the pharma customer that Harv also referred before. In that case, what we brought was our professional services team, working with the customer, linking with the solution specialists and that helped us as well to win. So our win rates have going up because we're more efficient using our resources in some of those workloads differentiating ourselves. And I would actually like to highlight 1 case, and Anthony talked about several, but this is a global system integrator that wasn't necessarily using our on-prem solutions. And this system integrator was very worried about the cost that they were having using Public Cloud. So we came with Spot doing this cloud optimization exercise. And as a consequence of that, of course, they've become a good customer of Spot. But now we're also working with them on the on-premise side. So we're seeing more and more customers that are joining through cloud that are actually working with us as well in different on-premise environments or workloads. I think in the first slide or second slide, George talked about strengthening and kind of improving our overall leadership team. And he highlights the work or the progress that we have made on the go-to-market side. And for me, that was one of the biggest focus since I joined. I believe we have a great momentum right now to attract great talent. People realize the potential that we have, people in the market are seeing the progress that we're making. And you see there's many companies in different industries trying to transform. And the biggest challenge when you transform is how do you perform or you transform, right? And say, let me go and transform in a way it's kind of easy, but you don't want to go and stop performing. How do you keep performing and have that growth mindset of transformation? I feel proud on the mix that we have been building and how we're doing that transformation. The first big decision that we made was we created what we call the Chief Commercial Officer. And basically, this is a kind of a headquarters function, right? And this is Rick Scurfield, has been 20 years of NetApp. We created this role to do something that we have not really done in the past as much, which is we want to build once and then scale everywhere. In other words, hey, we go and say, this is how we're going to execute. And I want to make sure that we are simple and clear in every single geo and area on our execution plan. Yes, markets are different and we can adjust but strategy and the focus area cannot change. So this, under Rick we have been building what we call playbooks and blueprints so we can simplify our execution and be more focused. So we have 3 big geos; North America, EMEA and APAC. Two out of the 3 are new to NetApp, right? North America, Max Long joining us from Adobe. He's been with us less than 1 year. May 1, we'll have a new leader running EMEA. And in APAC, Sanjay has been with us the last 3 years, with very strong performance, by the way. So I feel very good on the changes that we're driving on the geos as well, bringing that mix of people coming from the outside with people that we have inside the organization. And then we've been also adding senior leaders from the outside to help us run our enterprise strategy and execution. So the top managed accounts worldwide. What we call commercial business, which is a non-managed account. We have a new leader as well running our overall partner ecosystem and a new leader coming on the product marketing and solution marketing. And these leaders are joining us from Cisco, Microsoft, HP, and VMware, very recognized leaders that are helping us to have and strengthen our leadership team on the go-to-market side. Now when we look into how do we focus in on the market coverage, one of the things that we've been very harder on is working on the propensity models. What are these propensity models. Simple, when I go and looking toward installed base, we're using our own technology, AI ops to really understand the opportunities that we have inside our customer installed base, how they're using data, and we have more and more information. You saw this slide before, presented on the different data places that a customer has and how we, through cloud manager or even Cloud Insights, we can go and help those customers. Well, with that propensity model, I can optimize my resources and actually we knew workloads on my existing customers, but also, we're using more and more mechanism to kind of understand nonstructured data coming from different marketing activities and initiatives, even our own website to identify different moments in new potential opportunities. On top of that, we're using third-party data and all of that is creating this propensity models where we know in this industry, in this geo, we have a good opportunity with AI or modernizing apps, which is the second piece, which is we are trying to go much deeper with these solution areas and specialization. Think about modernizing data centers, huge opportunity for us, modern analytics, AI, cloud ops. It's not just having the specialists, but this propensity model is helping us to go and say, let's go identify the opportunities and let's go and assign resources to those accounts to go and have a better win ratio. So we are in a way more focused on targeting those also working with partners. And we are saying you're going to take care of this segment or this industry, we're doing this other in each of those deals. And for me, consistent execution is key, which goes back to the point that I was talking about the KPIs, but at the same time, I want to learn the accountability in the field, in every single area in those geos and those countries where they need to be accountable, but at the same time, have the resources to be fast, agile, more simple in the way we wish we could get closer to the customers. For me, it might look like a busy slide, but actually it's simple in a way. Think about our installed base and the following different motions. Installed base, where we refresh, we'll renew or we'll bring and sell add-ons. This is one of those that we can utilize more and more. This is one of those where you think about renewals and the add-on business, we've been centralized in that. We've been trying to take out time from our sellers in those 2 motions because we know when customers want to renew, we talk to them. We're trying to do that in a centralized way so our sellers can spend more time increasing our share wallet with new workloads or selling to new customers. And we're doing more and more of that as well on the refresh side, providing them support and ensuring that the customer experience actually is even better, faster and better. When we think about increasing our share of wallet, it's not just cloud, which all of us will say, yes, of course, you have a new cloud ops portfolio. You have all these partnerships, you can increase your share wallet there. And the answer is, for sure. But one of the things that we review on those KPIs is how many workloads do we have with this existing customer? It's not any longer is this our customer. Yes, but how many workloads are we running in the customer? Are we only doing the modernization of the data center? Are we working with them on AI? What are we doing with them in all these different solution areas? And what is the team that is involved in the customer to -- and win our share of wallet? And that's what you see new workloads and solution areas. New customers, certainly, cloud is a great engine. We are adding a lot of new customers through the hyperscalers, but also with our own sellers and our partners on the cloud space. I want to highlight the progress that we're making and some of the momentum we're gaining in the commercial segment, which is a segment that in the past, we were not that strong and that focused, but now with cloud, we're winning new customers, and they're starting to get to know better NetApp and that gives us an opportunity as well to sell our entire portfolio. And yes, we've been more diligent on the competitive attack. We think we have a unique value proposition, and we're trying to take advantage of it. Last but not least, the customer success piece. You see on the customer success piece, Active IQ is a great technology that we have. We have all -- we are tracking the data of our customers and how are they're using that data, how the consumption is going on the technology they have with us, and that helps us actually to serve them better. Just to give you a number on support and digital support, for every single time that we have support engineering engagement in a case, 65 of them are sold online. We have more than 20,000 articles published. So our customers go there, and that has helped us to increase 4 points of our overall customer satisfaction. It's kind of interesting. The more they can self-serve, the more digital experience they have with us, the faster they can answer their issues, the better scores we're getting. So that's why the digitalization and that focus on customers is key for us. Before we close, let me talk about partners. I think today, we have talked a lot about the hyperscalers, which we feel extremely proud and certainly are the most important partners that we have. It's not that the others are not important, but we've been investing a lot with them lately. I also want to call out IBM Cloud because many of you know that IBM Cloud is running with our ONTAP technology, right? So it's kind of interesting. We're talking about these hyperscalers with IBM, we're doing a lot of things on the go-to-market side, doing account planning and working together. And for us, by the way, that's not a Public Cloud revenue. The way we look into that partnership, they're buying our technology, they put it in their instance and that's pretty much ONTAP, flash revenue for us that is going with them. Huge business, great partnership, super thankful in the partnership and the trust there. I put the word partners here, probably some of the names you're familiar with them. They've been working with us for many years, but they've been transforming their business and we are transforming the business with them as well. For example, Kyndryl. With Kyndryl we just had a great win in Europe. We team up. There was a big customer, large customer, BMW, actually, they were looking for a name to end solution. And we teamed up with Kyndryl, we came together with our data fabric and they brought their technology with our technology and BMW trust us as their partner working with them. For example, Incyte has been a partner for many years. We heard before talking about storage as a service. Well, Incyte has built with Keystone, a great value proposition and solution where customers can pay as a service and they're providing that service to those customers. They have started in the public sector side, but they're expanding as well. Our new partners that have joined us like NS Solutions, is a partner working on the cloud side with hyperscalers. And this partner has great experience on the Public Cloud offering are starting to use FSX, starting to use Azure NetApp Files or technology to bring some workloads to the cloud. Or take Razor, which is a great partner of on the Spot. Basically, they're using Spot to optimize cloud consumption of their customers. [ So all of ] you seen everything is interconnected and interlocked, for me, the most important thing, as I think about the future is not just how do we perform we transform, but more important. How do we ensure that we have sustainable growth with consistent execution, delivering, of course, shareholder value. And that goes back to what I shared before, which is, hey, we need to acquire new customers. We need to expand our share wallet on our existing customers. We need to be more productive by digitalizing several of the engines that we have and the 4 Ps, which is involved in our partner ecosystem. So with that, I hope that I have given you a little bit of a sense on the progress that we have made, trying to simplify our focus on execution, how we're trying to get things done. As I've shared, we have great talent have joined us from the outside in this journey. And let me close by saying that I feel very positive with the future ahead. With that, let me ask Mike Berry, our CFO, to join us on stage. Thank you.

Thank you, Cesar. Good morning, everybody. I know I am the last person between you and lunch. So I have a lot of numbers also we're going to go through them. If I could, though, I'd like to welcome everybody. Thank you for coming and folks online, welcome as well. I'd also like to welcome Harv to the team. Great to have you. Thanks for joining us. And then, hey, as we go through it, I want to give you a little bit of context to where we are. So we all got together in September '20. I was sitting in the Dallas office, I remember that. You couldn't go out, couldn't shake anybody's hands, nobody knew really what was going on, lots of risk in the world, but there were 2 really great priorities that help NetApp at that time. One is movement to the cloud, digital transformation. Everything that we went through 18 months ago helped move that forward. Now let's shift to 18 months to where we are today. Boy, the world has changed, huh. Thankfully, we have vaccines, which is great. The world seems to be getting back to normal. I'll let you folks define what that new normal is. Economically, boy, lots of things going on. Unfortunately, we have this conflict going on in Europe. Economically, all of a sudden now supply chain is an issue. I never thought [ I'd see $5 ] gas again, inflation is there. At some point, probably -- now they're starting to raise rates again for the first time in many years and higher taxes are probably on the way. So you look at that and you say, wow, lot's going on. How do you feel about the business. Hey, the great part is the stuff that we talked about 18 months ago is still here. And when I read the priorities from all your great research groups, 3 biggest priorities still are; movement to the cloud, digital transformation and security, areas where NetApp continues to do very well. So yes, lots of movement, lots of things going on, lots of things we have to deal with in our personal life, but from a business perspective, still feel really good about where we are with the NetApp business. Okay. We did the forward-looking statements earlier. I just want to note all the numbers I'll go through today. These are all non-GAAP numbers, okay? So I just want to make that point. Okay. So here is the agenda that I'll go through today. I'm going to take a look back at where we were in September '20. George did a little bit of that as well. Then I'm going to go through both of our segments. We're going to break it up between Public Cloud and Hybrid Cloud. I'll talk about where we're going to invest and why. We'll talk about capital returns and then I'll bring it together in the financial framework at the end. Okay. So what did we tell you on September '20. This is the exact slide that we use. And as I just talked about, hey, it was an interesting world at that point. Lots of uncertainty we were guiding by quarter. We didn't even guide the full year because of that. So instead of giving you a detailed model, we gave you a high-level framework and said this is how we see the business from revenue down to capital returns. So how did we do against those -- that framework that we laid out? We hit almost all of them. I'll hit the one that we're coming a little bit short on. Revenue growth, George talked about 11% revenue growth, grow to 12% growth in gross margin dollars and a 35% growth in operating profit dollars. We committed to drive revenue growth and invest in the business, but grow OpEx lower than revenue, and we did that, resulting in operating margin of a record number of 24% during the year. Keeping our share count flat, driving high profitability, 34% growth in EPS as well. The only one where we don't get a green check is on free cash flow, and I'll talk about that in a couple of slides. Hey, we have invested additional dollars in 2 big areas. One is to support the ANF business, which does -- we do deploy our hardware. The other area is we've funded additional dollars in inventory, and we've had to try to get through the supply chain issue. So that will pull down free cash flow a little bit. Operating cash flow is up 3% year-over-year. Free cash flow is down about 1%. All these results, by the way, are the 3 quarters '22 versus the 3 quarters '21, okay? And because of our disciplined investment, we've done 4 acquisitions. Anthony showed you that great chart. And we've also done -- we've returned year-to-date more than 100% of our free cash flow to shareholders, and I'll talk about that growth. So before we go through this, George gave a great overview of the company, Harv talked about our great storage business. Hopefully, a listen to Anthony as it related to cloud ops. That's going to be a big part of our business and Cesar did a great job saying how are we addressing that from a go-to-market. My job is now, okay, what does it mean from a numbers perspective. So let's go through that. Let's pull those together. Okay, Public Cloud segment. We'll do this one first. Okay. So lots of data on this slide. Let me stop for a second and let you look at it. This will be the format that I'll use today. We're going to show you '20 actuals, '21 actuals, '22 mid of guidance, midpoint of guidance. And then on all the financials, I'm going to show you what our projections are for '25. For this one, I'm going to stick with '26 because this is the one where, again, as George talked about, we have now pulled in our ARR targets, and increased them to our $2 billion target exiting fiscal '26, okay? We feel great about this path, and I'm going to walk you through that as we go through this slide. In addition, both George and Anthony talked about, hey, when you look at our cloud ARR, about 60% of that is cloud storage. This is ANF, FSX for ONTAP, GCP plus data services. And about 40% is cloud ops, all the businesses that Anthony showed you the big 3; Spot, CloudCheckr with the recent acquisitions, that's what we call FinOps and Cloud Insights, okay? Those are the big 3. And that has grown as a percentage as we've added acquisitions, okay? As we go to $2 billion, we expect that 60-40 to stay relatively consistent, it's a combination of organic and inorganic. We will continue to look for acquisitions to deepen that competitive moat and add new products, okay? But we expect the majority of this growth to be organic. And if I had to guess in 2026, hey, I think that 60-40 split probably still holds depending on where acquisitions come, okay? So lots of new data, lots of stuff on the slide. That's the components, and that's why we feel good about them. And on the right side, you see, hey, what are those drivers? First-party service, ANF and FSX, growth in cloud ops, new data services, which is going to be a big driver as we go forward, and then the cross-sell, upsell, as Cesar talked about. We also gave you a view of this last time in September, which is, hey, we always -- how do we get to those numbers? We look at it by product. We look at it by capacity. We look at what the hyperscalers are doing, and we also look at what the competitive set is. So we picked the group, and there's a bunch of names on the bottom. It's relatively rarefied air. There are some high-growth companies in these numbers. The top of it is their high growth. The bottom of it is their lower growth -- of that group and hey, we're right in the sweet spot. So we feel really good about our ability when we look at the industry, other companies in the SaaS cloud business, how they've been able to grow their business. And again, we're right. I'll use my favorite analogy. We're right down the middle of the fairway on this one. So we feel good about that. Okay. How does that translate to revenue? So now I'm going to shift to '25. Everything you're going to see going forward goes '22 to '25, so we can give you our view of the next 3 years. Very similar mix. ARR is annualized revenue run rate, so revenue is very consistent with ARR. This would get us to between $1.3 billion and $1.4 billion in revenue, in fiscal '25 recognized revenue. Again, same growth drivers, as we talked about, first-party services, cross-sell, upsell and the growth in cloud ops. Okay. How does that translate down into margins? And we've talked a lot about this in the past. Public cloud margins are accretive to the total company average, and how are we going to drive that going forward? As you see, hey, great progress from less than 50 3 years ago to 71 this year. The growth drivers are revenue scale. A lot of this is just us driving revenue scale. A bigger increase of software and as a service. And as Anthony talked about, all software and as a service in his business. Hey, folks note, really the one partner where we deploy hardware is for ANF. It's been a great return. We're happy to do it. It's actually been a big driver of that margin growth as we better utilize that hardware. Keep in mind, too, 3-year depreciation average life of that hardware typically 5 to 7. So that utilization of that efficiency will accrue to all of us as we start to utilize those, and we get past that 3-year life. Hey, 1 negative that I'm going to put on here, and this is per the accounting rules, everybody has to do it. Starting in Q2, we started to capitalize internal software development for our cloud products. So this is a capitalization of R&D and OpEx, the amortization goes above the line. That started in Q2, it will be about a 2 percentage point headwind in '22 -- I'm sorry, '23 and '24 and then about 1 as it catches up to itself in '25. So I just want to note, we got a lot of questions about, hey, it actually went down a little bit quarter-on-quarter. So that is a little bit of a but it is something that we need to do, okay? You're going to hear me talk about this a lot. Scale, utilization, more software is what's driving growth in the public cloud margins. Okay. Hey, isn't the same group, and you look at it and say, okay, how do you feel about 75 to 80 really good about it. If you look at where we sit from a revenue scale perspective, this isn't growth rate, this is revenues to scale. Gross margin on the bottom, revenue dollars on the left and where we sit as it relates to gross margin. You can see in this business and you folks know it. As you scale, as you get bigger, margins naturally go up. In addition, more software, more as a service. Keep in mind, FSX just getting started, 100% software. The cloud ops business, software and as a service, those all will have higher margins. So we do expect over time, we're going to be able to drive that up again, feel really good about the 75% to 80% target, very consistent with competitive -- our comparator set as well as the underlying drivers of our business. Okay. Let's talk about some cloud metrics. One, we've talked about, 1 is a new 1 for you. The one on your left is the dollar-based net retention on rate, and we've talked about this a lot. Hey, it's a great number, largely because keep in mind, about half of the cloud ARR is consumption, i.e., it grows with data. The other half is more of a subscription model. That has driven a nice growth in our dollar-based net retention as they deploy more data, then our revenue goes up. And that's been a big driver, and we do expect that to continue. Hey, a lot of big numbers at some point, we'll bring that down into more of the industry average of 120% to 140% is our view today. On the right, similar to what we'll talk about with AFF penetration. This is how many of our public cloud customers are also Hybrid Cloud customers. And hey, it's a pretty low number, tons of room to run here. 8% last -- or 2 years ago, 12% this year, and we expect that to get to 25% to 30%. Cesar talked about all of these activities to cross-sell. Again, super low number, lots of room to run as we start to penetrate that base. And George talked about, hey, when you look at it and so did Harv, when you look at the cohorts of our customers they use both, they perform better if they're both hybrid and public than if they're just hybrid. So that cross-sell opportunity is a big one for us, not only here but in the Hybrid Cloud business as well. Okay. Enough about public cloud as a super exciting fun. Now let's shift to Hybrid Cloud. So these are similar -- you folks should know all these numbers. This is the Hybrid Cloud segment. So this is the enterprise storage part of the world. Again, same format, 2021 actual '22 midpoint of guidance. Our expectation into '25 is that we will continue to grow ahead of the market in storage. We view that at about 4% growth. We expect to be able to grow faster than the market because we're over indexed in the higher growth areas, especially all-flash. Harv talked about all the great drivers, and I'm going to go through these because we get a lot of questions, hey, how can you be comfortable you can continue to grow this part of the business? And look at the growth drivers, over-indexed to the market, all-flash share gains continue. We are positioned at the intersection of a lot of new workloads and the new services around AI, ML. All the introduction of the new data services that Harv talked about, it's a pretty small number now, that will increase over time. We've always focused on renewals, and we will continue to. It's a big number for us. And I just talked about the cross-sell, upsell. Keep in mind that when they roll -- when they start in public cloud, the goal, obviously, is to migrate them well as well to Hybrid Cloud. And then our focus on net new customers. And we'll talk about it in investments. All these numbers assume we will continue to discipline but prudent investment to drive growth. We will not back off of investment in this area around especially sales and engineering, okay? How does that now translate to gross margin? So similar, we expect gross margins to grow a little bit more than revenue, again, over-indexed on flash, less spinning disk, increased software and support. And certainly, the assumption here is that the supply chain situation normalizes as we go through '23, okay? So very similar trends to what you've seen around gross margin, excluding the fun with supply chain. All right. Let's take a look at a couple of metrics if we could. The first one is what is the percent in Hybrid Cloud of software and recurring revenue? And we do expect that to continue to grow. Again, around all-flash and around our movement object helps as well. But this is really -- keep in mind, all-flash has higher mix of software and support. So we expect that to go up higher margin revenue in this part of the business. And then to the -- you're right, the nice, I guess, orange color. This is the percent of our base that has all flash. And it's gone up just about 1% every year or every quarter, just a nice steady growth, and we get questions about, hey, do you think that starts to move? Folks, I don't think there's going to be any huge inflection. Keep in mind, people buy hardware, they have depreciation. They're going to -- it's going to go typically as the refresh cycle goes. So we expect to see nice consistent growth as we continue to penetrate our base with all-flash. Okay. So that's Public Cloud, Private cloud. Now let's pull it together. What does it mean for total NetApp? When you look at total NetApp, our expectations are in the next 3 years that we're going to be able to consistently drive 8% to 10% revenue compound annual growth rate, driven by really 3 things; 50% growth in cloud revenue that we talked about, the 4% to 6% growth growing above the market in Hybrid Cloud and continue to drive investment so we don't end up in a situation where we say, hey, we should have invested there because our goal, and you're going to see this throughout the presentation, drive revenue, great unit economics through gross margin, and we're going to fund investments on a disciplined basis to drive that growth. Okay. What does that mean then for gross margin? Again, 8% to 10% revenue, gross margin about 9% to 11%. The interesting thing here is, if you look at it, Public Cloud revenue is going to go from about 6% of total company to the expectations or, call it, 16% to 17%. However, in the 3 years, it contributes more than 50% of the incremental revenue and gross margin. And as that continues to grow, it has an outsized impact on the gross margin dollars as well. So again, significant contribution from public cloud and increased software and support mix. It doesn't want to move forward, it's a great slide, but I don't want to leave it up here for the whole time. Here we go. Okay. So now let's talk about investments. As I talked about, all of this is focused on or predicated on us continuing to invest in the business, and let's walk through where those areas are. There's really 3 areas of investment. And it's -- this is, folks, not changed really in the last 18 months. Sales, as Cesar discussed, we're making great progress on our go-to-market optimization and what we're doing there with the org. We're going to continue to invest in cloud sales teams. We're going to continue to invest in customer success and importantly, Hybrid Cloud sales as well. I don't want to -- George or I don't want to stand in front of you and say, hey, we fell behind on hiring, we're going to have to go do this surge hiring we're not going to do that. So the goal is to consistently invest there to make sure that we have the right coverage. Engineering, both Harv and Anthony gave you a great view of those businesses. We're going to have to continue to invest in data services, ONTAP, which we view as the best operating system in storage in the world, and also as it relates to acquisitions, and that's number three. So we will continue to be acquisitive, discipline. And folks, we've done really 2 types of acquisitions: tech and talent. Since September '20, I think we've done 3 of those. And then I'll say, larger adjacencies, and this is where the Spot, CloudCheckr deals come in. We'll continue to do those, but those will also drive incremental OpEx. Again, our goal is we want to get the customer at the top when they're deploying in the cloud, drive those unit economics through gross margin, and we're going to invest in OpEx to do that, okay? That will, over time, drive additional dollars in additional margin, and you'll see how that plays in the model. Okay. So operating income, I'm going to spend a little bit of time on this chart. So as you can see, we're targeting the operating income growth a little bit higher than revenue. I'm going to talk about the about 25% in a couple of seconds. So keep in mind, 2 key themes here. In Hybrid Cloud, we continue to look for trade-offs and efficiencies. We did that in fiscal '21 when we moved resources from HCI to all flash. We'll continue to look at whether that's the right decision or not, but we will invest incrementally around ONTAP and around sales to make sure we have enough capacity. And then in Public Cloud, the goal is to capture net new customers, introduce new products and services, cross-sell into the base and add complementary products. That will require investments, and I just walked you through those. So the expectation is that we can get operating profit -- operating profitability above that $2 billion. That says about 25% operating margin. So look, I don't think we have an operating margin issue, I want to invest to drive growth. Now here's the other thing I said it for 2 years. George and I will be very disciplined around where we spend it. If the return is not there, we will pull back and we will change, and we have a great team, we talk about this all the time. But the goal is consistent revenue growth, drive unit economics through gross margin and to do disciplined investing, okay? If we don't see it, we'll let it go up. But again, our goal is to make sure that we don't end up in a situation where we haven't invested correctly. And then I have to talk to you about less than 8 to 10, I would rather do that, okay? So that's this slide. Again, we will be disciplined and this is also where acquisitions play in. I'd love to tell you we can do an acquisition in cloud and it's day 1 accretive. You throw something at me during lunch, it doesn't happen. Now we will get it accretive as soon as we can, but there will be some dilutive aspect right away, that's part of the operating margin. So again, we say about 25%, we're excited about this. Our goal is to drive incremental dollars at a very good margin, and that's what we've shown you today. Okay. Now let's shift to my favorite subject. What does that mean for cash, okay? Profits great, what does it mean for cash? The interesting thing is if you look over fiscal '19 to '21, non-GAAP operating income, operating cash flow almost dead on over a 3-year period. And what it says is with the business model we have at operating profits generate cash, now that moves around every year and every quarter based on working capital. That's what we've seen for fiscal '22 when we invested incrementally in inventories. But I do expect over time that, that operating margin and operating cash flow will move together. No big change in the business model. Everything that we've talked about will continue to generate cash. So our goal is to get that operating cash flow number above $2 billion, right along with operating margins in fiscal '25. So again, that should move in line. Hey, folks, it's going to bump around each quarter. You have working capital, you have recruits, you have inventories and stuff. But over time, we feel like the cash generation from profitability should stay relatively consistent, okay? Okay. So we've given you a lot today, a lot of good stuff. If you walk away with 3 things to remember, this is what I'd ask them to be. Clear path to $2 billion in cloud ARR exiting fiscal '26, 8% to 10% revenue growth during that period of time with cloud becoming a bigger portion of that every single year and greater than $2 billion of operating cash flow. Those are the 3 big takeaways, okay? And hopefully, you've heard today from a product strategy, a corporate strategy or go-to-market all the stuff that supports it. I'm super excited about being here. It's been a great 2 years so far. And I think the next 3 are going to be even more fun. So I think we have the right strategy and the right people to execute on these. Okay. So what are we going to do with that cash flow? Let's talk about capital returns. So last year or 18 months ago, we talked about 30% going to acquisitions and then 50-20 from a dividend buyback perspective. So we are -- we want to make sure that we're using our cash flow to grow the business, so we will continue to look at acquisitions. Again, this is going to jump around each year based on the M&A market, availability of acquisitions. We're not going to do anything just because we want to go spend the money. It has to be the right thing, has to add value. But right around that 30% to 40% of free cash flow. And again, super excited about the cloud business. And these -- we will look in both cloud ops and cloud storage as it relates to growing the business, both of those. And then for the remainder, 60% to 70%, so our dividend is about $2 a share. It's I would call it a minimum. We're not going to back off from that. Going forward, I wouldn't expect a significant growth in dividend, but it is a huge part, so think of it as $2, not a significant growth there. And then buybacks, we've said before, we'll be opportunistic to reduce the share count and at least keep it flat and that's what we've done so far. So in fiscal '22, again, we've increased the buybacks and we spent year-to-date over 100%. That will continue into Q4. So let me give you 2 updates. These will be the only Q4 updates I'll give you today. Number 1 is the Board has approved an additional authorization. We had $500 million left as of the end of Q3. We're going to add another $1 billion to our authorization for share buyback. And then we also doubled the buyback in Q4, again, being opportunistic. So instead of the $125 million you saw in Q3, we're now targeting $250 million in Q4. That will reduce share count going into Q1 of next year from the fully diluted number of $2.29 to about $2.26. So again, we said all along, we'll be opportunistic where it makes sense, and that's what we're going to do in Q4. So again, very mindful of you folks as shareholders, while we try to grow the business as well. The third point I want to add is, hey, folks, we have a great balance sheet. Thank you to George and Ron for giving me that strong balance sheet. We're going to continue it. That investment-grade rating, super important to us. The ability to access capital, if we want to, in the debt markets is important. So we want to maintain that. So again, we've targeted 100% of cash flow. It will bump up and down a little bit based on acquisitions and buybacks. But you shouldn't expect us to see -- you shouldn't expect to see us do anything crazy as it relates to leverage. We want to keep that investment-grade rating. Okay. Now I showed you the financial framework at the beginning. Now let's pull it all together, and I'll show you the new one. So again, lots on this chart, starting from your left, Public Cloud, the finance this is the fiscal '25 framework. And it goes revenue, gross profit operating income, I'll hit tax rate in a second and then capital returns. So again, we talked about it. Key themes here, 50% growth in cloud ARR or cloud revenue. Growth in revenue driven by cloud and all-flash translates into strong unit economics for our gross margin, prudent investment to drive that growth, which results in strong operating income and cash flow dollars and returning 100% every year through -- or spending 100% every year through acquisitions and shareholder returns. One important note I want to make is tax rate so that, hey, folks, this is a moving target. But based on where we sit today, there are some deductions that we and other folks have had in the past related to foreign R&D where you can expense it in the period versus amortizing it. That has expired. We thought it would get fixed in the build back better that never got approved. So what that's going to mean is a permanent increase to our foreign rate, and we expect next year that to be between 21% and 22%. Again, moving target, as all this changes, taxation, not only in the U.S. but worldwide, we'll update you. Unfortunately, it is what it is as we go into next year. So I don't want to give you that number. Okay. What does that mean to drive shareholder value? Clear path to $2 billion in cloud ARR, above market growth in Hybrid Cloud, delivering operating leverage and cash flow, capital allocation to invest in the business, plus be mindful of our shareholders. And as I always like to say, it's a very compelling sum of the parts valuation. I'll let you do the numbers on your own, but that's what we continue to push for is a super profitable, growing Hybrid Cloud business and a very fast-growing Public Cloud business with great gross margins. So that's a story. Now before we hand it back to Kris, I have to do the compulsory thing and I will actually page through the gap to non-GAAP reconciliations for you. You can look at them online. And then while I do it, please don't be concerned there will be people putting chairs behind me. So hopefully, you've enjoyed that. Thank you again for coming. And as we scroll through this, I'm going to hand it back to Kris.

All right. Thank you, everyone. We've got about 40 minutes for Q&A. For those of you in the room, obviously, raise your hand. We'll have people running mics. You need to be mic to ask a question so the people on the webcast can hear it. So don't start until a mic comes. Now that we have chairs, I'll invite the rest of the speakers up. If you're on the webcast and you have a question, just e-mail Lance, he'll read it out for you. And so let's let these guys get settled for a second, a lot of activity here in the room.

Okay. We'll go with Tim first then Billy.

Tim Long here at Barclays. Two questions, if I could. First, on the cloud business, obviously, we're going to start there. As you accumulate all these different offerings, can you talk to us a little bit about kind of the cross-sell opportunities? What have you seen so far the ability to cross-sell across all of these offerings. That would be number one, have you had success? And how do you think that plays into the -- getting to the $2 billion number? And then second, when thinking about the longer-term framework, if there's success above that 8% to 10% as you roll through the model, how do you envision that? Do you envision maybe being healthier on acquisitions? Or reinvesting more internally in the business or letting the margins and cash flow move a little higher?

Maybe I can start. We are early in the cross-sell journey. As Mike had shared and Cesar had shared, the majority, the vast majority of our cloud customers buy 1 product from us and they scale the usage of that product, whether it's a consumption-based scaling or the expansion of that through a subscription or a pay-for-performance model. I think with cloud storage, we have the opportunity to sell more cloud data services alongside them. And then, of course, first, in cloud operations, we're building a suite where we have the unique opportunity to now not only figure out what workloads are -- have performance issues, what workloads have cost issues and then have ways to remediate and then show the benefit of the remediation with an updated bill, right? So there's a really comprehensive suite-based strategy that Anthony [ just updated on ]. So there's plenty of room to acquire more customers and cross-sell and upsell. I think with regard to the comments on what happens if we exceed our targets, I'd be happy to do that, but let me give that to Mike to answer.

Thank you, George. Thanks, Tim. So -- hey, 2 answers to that question. Number one is, if we do better than 8% to 10%, I think what you'll see is that likely come through operating income and cash flow. We're not constraining ourselves based on that number on investments. So we're going to invest where we think we can drive growth. If we do better, because of the leverage in the model, I think you should expect to see that flow through. And then as it relates to acquisitions, I wouldn't think of that as either a driver or a limiter. Hey, folks we have a great balance sheet to the extent that we want to do acquisitions, generate cash, we'll do those. I think what you'll see operating is that probably goes to the bottom line. And then if that means we feel even better going forward, maybe that means more forward investment.

All right. How about Amit right here. We'll try and get to all of you, I promise.

I guess 2 things for me as well. First, on the cloud services side, George, this has really been helpful to get all the insights in terms of how broad this is beyond just storage. A question that comes up a fair bit to unlock for you to answer this is why wouldn't the public cloud vendors do it themselves? Because if this is really going to scale to be $2 billion at 75%, 80% gross margins, why wouldn't the AWS or GCP say this is my moat to differentiate? And I'm going to do this organically rather than use NetApp. So maybe just talk about what differentiates you why other won't do it? And then secondly, Mike for you, could you just update us a little bit on the supply chain dynamics sort of what you talked about last quarter, if there's been any changes there that would be helpful.

I think, first of all, they have offerings in these segments. So it's not like they don't have cloud storage offerings. It's not like they don't have cloud operations offerings. I think it's our focus, our integration and the benefits of multi-cloud that, over time, continue to differentiate us. So we compete on one cloud against the hyperscaler offerings, and we win. And then we also have a road map to multi-cloud that's quite differentiated.

Maybe I can add to that a little bit. The hyperscalers are trying to like do something amazing, which is they're trying to kind of build like a broad platform for everything in the world. And I came from hyperscalers. So I know that I -- that is a -- it's like a new wonder of the world in some way, they're trying to go build. The ability to go -- when you do that, you really need awesome partners to work together with because you cannot solve that problem yourself. It doesn't matter who you are. If you're a Amazon or you're a Microsoft or you're Google, you cannot build a cloud platform for the whole world just yourself. And so you have to go partner deeply with the best-of-breed partners in order for your platform to go offer depth in those specific areas. And when you look at storage, one of the best partners they can work with is us. We have this 30 years of awesome storage capabilities. It's not just like storage at a simple level. How do you do backup? How do you do auto tuning? How do you understand cold data and hot data? How do you actually go look inside the data and be able to offer compliance? How do you -- this is a very deep stack. And so for hyperscalers to offer this as a platform to the world, we are really excited to work together with them to make this part of their platform deep. I know that they wouldn't be able to like do this on their own, and they really appreciate what we're doing together with them. Because together, we are solving the -- like the really crazy problems our customers are running into as they move their workloads to the cloud.

Amit, if I may, I would just add. I think what we've done are industry-firsts. I actually don't think that this is a sort of easily repeatable pattern for any other sort of legacy company. We worked incredibly hard. I remember being in front of you with delays because of the complexity of what we were doing with Microsoft. That creates an enormous barrier to entry. And we have proven to them all that we can operate at or above their own speed of innovation. We do things in very specific areas that they haven't done, and I think are increasingly of the opinion to let us do them. But this is not something -- I don't think you're going to see the public cloud sort of -- offer sort of every vendor's product because it's very difficult to do. They weren't engineered for these partnerships. We really helped to sort of build those things with them, and [ their lies ] a very sort of defensible moat.

The amazing thing when I came to NetApp that I found, just [indiscernible] what Anthony said, is that our teams like really practically work as part of the hyperscaler teams. We co-design. We co-engineer, and we follow -- we are part of the semester planning, the semester cadence. That was pretty impressive when we do like see that somebody outside of Microsoft, as an example, or somebody outside of Amazon, as an example, could actually be like an extensions to the engineering team and building this part of their platform. That was pretty amazing to say. It's not easy to do, even within a company. So it's pretty hard to like do across companies. And so it's not something that you can replicate easily at all like Anthony said.

I've only been saying they go to market as well. So we're seeing some of them we got the blue batch. So one of those companies, right, have a blue batch. We have people inside that company working with it on the go-to-market side. But I want to amplify one thing, which is important. Because we're talking of hyperscaler, we need to talk as well about the customer. Many of those customers, they want to make sure that in the hybrid -- in that multicloud strategy, they're not just getting marry with one hyperscaler, but as well I mean the company like us that can help them to be multi-cloud, which is very important as well.

And then on your last question, supply chain, no material changes. Two things that really happened since the call, right? We had the shutdown in China. I think now they're back. And then, of course, the unfortunate stuff in Ukraine. That has not had a material impact on us. So no material changes to what we talked about.

Simon Leopold with Raymond James. Two as well for me. One is within the cloud -- public cloud services, if you could talk about competition? I know you all considered yourselves unique. So I'm going to ask it this way, who do you see as your closest competitors? And then the second part is you've been very careful, I think, in selecting the acquisition targets. What are your boundary conditions as to what's too big? What are your thresholds in terms of the kinds of deals you'd like to do?

Competitors, I think George and I were discussing the other day, in the cloud business, we don't see legacy on-premise. They don't have relevance. So we are actually having a really good time going to our competitors' customers with a cloud story. And I think Cesar can touch upon some of his strategies to even push the cloud in certain geos. So from an on-premise perspective, I think HPE and Dell EMC don't have a cloud story. They've left their customers, I think, somewhat stranded. We can go in and we could help those companies extend or migrate. That's been really good. I'd say in the public cloud, as George said, we know that the public clouds will offer different services. And so oftentimes, we're sort of part of an architectural conversation over the pros and cons of shared file storage versus object storage. We're sort of considered whether our sort of cloud service provides a point of differentiation over another cloud service. I think in some cases, we obviously compete with vendors who sort of are trying to operate on the hybrid cloud. People like VMware. We'll compete with parts of the VMware portfolio, where we think we have an advantage. And we'll compete against sort of other smaller software companies. On the cloud ops side, we obviously track people like Turbonomic that went to IBM, Densify, VMware, companies -- sort of new companies like Harness, other companies like that. But it's not the legacy hardware vendors that we see. We think we can get a lot of business from them as their customers migrate. But there are on public clouds, I think, native services that we have to differentiate and beat. And I think we've done very well doing that over the last 4, 5 years.

I just want to going to say, for me, when I talk to the team, it's all about the speed of how these hyperscalers are moving some of those workloads to the cloud. In a way, I think we have seen the tip of the iceberg. We've seen some basic workloads having moving to the cloud in the last years, when we're looking to the enterprise apps and some of these new workloads really moving to the cloud. I think that's why we have a great position, right? And in a way, I would say we compete to ourselves, making sure that those customers really understand the value proposition. And that's what I was sharing before about our own sellers fully embracing the entire portfolio of NetApp, ensuring that we talk to our customers about the full opportunity they have.

And then, Simon, on your acquisition question. So we've talked about this. We look at 3 kinds. One is think about, hey, tech and talent. Think of those as road map accelerators, where we have a great group of talent. We can add it into our products. Then you have, number 2 is -- are the adjacencies. That's like the spot, the cloud checker. Those will typically be a little bit bigger because you're buying a business. And then number 3 is, say, something bigger. And here's what I'd say that our aspirations there are not really limited by size, it's, hey, does it fit? Is it something NetApp should do? Is it something our customers will buy? That typically will constrain those to be a little bit smaller versus us rolling and saying, "Hey, we did this big acquisition and now we're doing something." And you go, "Okay, that doesn't make any sense." So that will limit it a little bit. From a financial perspective, we have a lot of flexibility if we wanted to, but we're focused on 1 and 2. Never say never on 3, but it's really 1 and 2 are the continued focus.

Samik from JPMorgan. The first question I had was for Anthony. Anthony in your presentation, you went through the cloud operations business, which you're building as sort of the infrastructure optimization as well as operations optimization. Now you had that 11 billion TAM number, if I'm not wrong. If you get to sort of dissect that a bit in terms of how to think about those market opportunities? And when you now think about organic or inorganic sort of expansion, is it a third pillar to that growth strategy? Or is it just building vertically up that stack at that point? The second question I had was for Cesar here. I think the broader investor perception is that NetApp does really well with large enterprises, but the commercial segment is an opportunity. How much of that is a go-to-market versus a product push? And how much are you relying on the cloud strategy to get into the commercial segment?

Yes. So let me just take the first question in terms of what we look at, whether it's sort of expansion either side of where we currently are on moving up the stack. I think the short answer is both. I think the sort of the better, I think, answer is our customers are telling us what to do. And that's always a wonderful thing where you go from a sort of a hypothetical that gets proved or disproved. Our road maps are now being directed to us by our customers. Our customers are telling us, we -- you are the platform for this, and we'd like you to consider that. So we've got enough customer base now and enough sort of real-time interaction that our acquisitions are sort of very, very easy for us to sort of consider because the bulk of the ideas are coming from their product road maps, not from external sort of M&A. Our customers are really informing us where to go and what to do.

Your question around the commercial segment. And just to make sure that everybody will speak the same language. We talk about approximately, give or take, 5,000 accounts that we call enterprise accounts, which are deeply managed, right, or managed. And the rest, we call the commercial segment. So your question was, "Hey, do you see an opportunity there? How are you going to grow? Is it technology ready or resold cloud?" There's no doubt about the cloud. We have a good opportunity in the commercial segment. We're seeing that. We're adding a lot of new logos on the commercial side, and that's why we brought new leadership because that's a great source for us of customer adds through the hyperscalers. And also in our own go-to-market and digital marketing, we're getting more momentum and traction there. But also, I want to call out that in our hybrid cloud offering, we have a huge opportunity there. We talked today about storage as a service, a couple of times. Keystone is a great solution to address that market. We've been putting more and more solution specialists and partners like Insight, as I talked before, that are helping us to address this opportunity in the market. We're going to lose millions there. I mean $5 million to $7 million opportunity in the next years to come, the total addressable market on the storage as a service itself. We have -- we believe we have a great value proposition on Keystone. So that would be the 2 focus areas that we have. And again, when I said the commercial piece, we have kind of the managed commercial segment, kind of depth. That's another great opportunity for us where we're investing to win new logos, with the workload as I was sharing before.

Sidney Ho with Deutsche Bank. So 2 questions, one short term, one longer term. On the shorter-term question on supply constraints, I just want to follow up on that. You talked about product gross margin going back to normal levels in the next few quarters. Can you give us a little more color what are the major variables to get back to those levels? And what the timing of when some of those elements will happen? And then longer term, also maybe for Mike, it's great public cloud gross margin. It's been about hybrid cloud for past 5 quarters. I know this has been asked before. But now that your public cloud, if you get to the growth rate you're expecting will be a scale. Can you help us understand what the -- when the operating margins of public cloud will be accretive? Any color there you can provide would be great.

Sure. So hey, on the short term, as we talked about, Sidney, on the last call, we would expect the supply chain constraints. What we really talked about is that getting better in the second half of '23. There's several movements that are obviously just the supply chain getting better in terms of that normalizing. We have implemented 2 price increases that will start to help as well. So as we go through '23, we expect it to get better just from a supply perspective. And then with our price increases, that will help as well. That gave us confidence to say getting better in the second half. And then what I showed you today basically says, hey, back to that mid-50s product margin as we go through the rest of the 3 years. And then, hey, longer term on public cloud, we're not going to go down into the operating margin. We're going to focus on driving that gross margin. Because keep in mind, there's a lot of co-investment across those as well. So even for me to sit in front of you and say, hey, here's what's public cloud and hybrid cloud, be an allocation gain there. So we feel really, really good about driving public cloud margins higher. We're going to continue to invest where it makes sense, we will. We don't look at it and say, hybrid versus public cloud, we look at growth across NetApp.

Mehdi Hosseini from Susquehanna International. Two follow-ups, one for Mike. I just want to go back to your comment about costs coming down looking forward. I look at NAND prices, which is a big cost component for your SSDs is actually shown a rebound. What gives you confidence that, that increase in NAND prices are actually going to stop and go down? And maybe you could elaborate on specific components? And then a question for Anthony. You talked about expanding into adjacent customers. Can you give us an idea of who are these customers, which competitors you're dealing with, the barrier to entry? Because NetApp, as a storage company trying to capitalize the cloud relationship and selling or cross-selling into adjacent customers, is a little bit difficult for me to understand. So maybe you can talk about just the competitive landscape. And what gives you the confidence that you're going to be able to come in and actually drive a couple of hundred dollars of incremental revenue?

Want me to go first?

Yes, please.

The exciting thing...

Yes.

So Mehdi, again, when you look at it, we look at our total BOM. And you have SSDs. You have HDDs. You have DRAM around storage, and then there's all the other stuff that we provide. As we go into fiscal '23, some of those will go up, some of those will go down. Keep in mind, too, there's a lot of work in Harv's great team about making sure that we're engineering efficiencies as well. So looking into '23, even if NAND jumps up a little bit, we expect to be able to offset that as we go through the year. Now if it's a significant shock, we'll have that discussion. That's not what we expect. So as we look at our total BOM for '22, it was largely consistent. It might move around a little bit, but we don't, at sitting here today, feel that, that's an issue for us. It is simply getting the supply outside of the higher expedites that we've talked about.

Yes. I think on the concept, I think you're asking about the people that associate themselves with this term cloud ops, the sort of application-centric teams that are sort of driving new application development. I think there's a couple of things. First and foremost, our storage is a first-party service in a console. And so it's considered by all of the new buyers to be a building block for applications. And it turns out that a high-performing, low-latency shared storage has a ton of value for relational databases, for container-based applications that need state. There are some really, really good use cases that our legacy has brought us, too. I think the other point I'd make is we are obviously seeing as sort of cloud native becomes a sort of a standard for application architecture, a greater involvement of the IT team, partnering with the cloud ops teams. But there are still a lot of things that the application teams aren't good at that the IT organizations can assist with. So certainly things like financial operations. Cloud application people will run as hard and as fast as they can until Mike Berry calls me and says, "You're overspending. Can you please bring this down and spend some time on it." So I think there's really a sort of a technology adjacency. I think there is a buyer adjacency. Now I do feel that NetApp, by itself, is becoming an appealing company. And our customers, through Spot and CloudCheckr and Cloud Insights, understand and appreciate the value that we give and we go out and we compete. As I said earlier, we are competing in the sort of cloud ops space against organizations like VMware. VMware purchased CloudHealth. We compete with Turbonomic, IBM-acquired Turbonomic. We compete with companies like Densify, well-funded start-ups like Harness. Those are sort of companies that we would typically see in a DevOps scenario. But we're fortunate that we can always start from the Azure console or the Google console or the AWS console. And it's always great to say, "This is our product, and you can't buy it from us." People are sort of, I think, incredibly pleased that we have gone to the lengths that we had to engineer and imagine storage as a sort of a necessary and fundamental component for all parts of public cloud use.

Aaron Rakers at Wells Fargo. I appreciate all the detail today. It was actually really helpful. I guess I'll stick to the cadence of 2 questions, if I can. So first of all, Mike, you outlined that $2 billion target for ARR in public cloud. Not to nitpick, but if I'm looking at the numbers and kind of the trajectory of the model, are you also telling us like, "Hey, we're pulling forward that $1 billion target relative to what you outlined last Analyst Day, given the trajectory of the business?" And then the second question kind of for whomever on the hybrid cloud side, some of your peers have talked about actually opportunities around AI and ML to sell into the actual public cloud vendors. Have you seen those opportunities? What would be the driver there, be it QLC lowering NAND cost? Are those opportunities that you've thought of? Or do you see those opportunities potentially developing?

So thanks, and you're not nitpicking. So what I'd say is we've increased the target, and we certainly pulled forward the $1 billion. We didn't give you the number in '25. But if you look at the charts and you draw any type of a line, you're going to say, hey, that's probably pulled forward into '24. Again, it depends more than anything on the timing of acquisitions, Aaron.

With regard to AI and ML, I think the fundamental building block that is successful today with high confidence is really around natural language processing and computer vision, right? That's where AI models are well capable and can drive results. If you look at natural language processing, it's executed on audio files. And if you look at computer vision, it's executed on images. And so the natural platform for high-performance AI workloads is really file storage, and we have a huge business and successful business in that. We sell to a lot of cloud companies, IBM Cloud, Yahoo!, Broadband. There's a huge range of them. MATAs SAP, on-demand, SAP, by design. They're all our cloud customers. I think we count that in our hybrid cloud group in our hybrid cloud segment. Our cloud -- public cloud segment is true cloud. We're not cloud washing our public cloud revenue. That's true cloud.

If I...

Absolutely.

If I make...

That's factored into our models.

We see a big opportunity to optimize Spark. Spark is really the leading open source platform for AI, ML, DL. And we acquired, as Mike said, a sort of a very talented group of people that could accelerate our road map there. So we -- because now we play in sort of the PaaS layer, not just the infrastructure layer, we can attack various different applications or workloads through either the sort of the storage and data services or -- and the cloud operations model. So we get a lot of penetration now in AI and ML through the Spot service.

You talked before about the solution areas. Certainly, AI and ML is one, right? So we have solution specialists just dedicated to those type of workloads. I just want to make sure what George has shared because you guys have mentioned, hey, there's others talking about AI, ML, with hyperscaler. I think the answer of George saying all IBM Cloud, they're offering. How they're doing some of their offerings are in AI, ML is used in our technology and other companies that George have shared. And there's others as well that we're have -- we can go and share publicly. But that's a big area for us, big area on the solution areas and those new workloads that we're trying to win, we have specialists dedicated to AI and ML.

Meta Marshall from Morgan Stanley. I had a question on the MSP and GSI channel. And just one, is there any friction with any of the cost optimization products you guys may be coming out with offerings that they might have? And then just how is the road map request of that channel different from kind of your direct go-to-market?

Yes. So to answer the first question, some MSPs have started to build. And we oftentimes will go in and show them that we have a commercial off-the-shelf service. And that with their limited resources, they don't have to duplicate the core IP that we haven't built. We acquired CloudCheckr that has already established a very large network of distributors, global systems integrators and MSPs and is within their businesses, a core platform that they use to essentially manage and optimize the services that they provide. Simply put, the MSPs have a sort of a chance to aggregate these skills at a higher sort of utilization rate than a lot of small and midsized companies can do themselves. So the MSP and GSI channel has been 100% additive to us. We actually refer a lot of customers who have an interest in cost optimization to the MSP because they're actually better suited to provide the entire service as opposed to just the tools and technology.

This is Max Gamperl from Goldman Sachs. I'm here on behalf of Rod Hall. And we already talked a lot about margins, but I have one more for clarification. And it looks like your 2025 margin guidance suggests that the difference between gross margins and operating margins is about 1% wider than it is in your 2022 guidance. And we're wondering if you could talk a little bit about what is driving that higher OpEx to sales in your model over time?

Sure. Thanks, Matt. So again, as we talked about, we want to make sure that we are doing our best to acquire those customers in cloud, invest in hybrid cloud. That -- and as we continue to do acquisitions, that will bring OpEx in as well. So when you take those 3 big pieces, again, it is make sure to drive consistent revenue growth, great unit economics through gross margin and we'll invest where we need to. So if you see that go up a little bit, it is us saying, hey, we know we need to invest to drive that growth. Acquisitions will be a part of it. We talked about it. Those will almost all come through in year 1 as dilutive to operating, not to gross margin, and that's really the dynamics you see in the model.

I just have one question. It's Jim Suva from Citigroup Investment Research. For George, and maybe Mike, but probably George, a lot of the financial data that Mike put out is very contingent upon the growth in cloud. I'm wondering if you're getting more visibility now since we've gone through COVID pandemic? About that because in the past, it seems like there's been cloud buildup of inventory digestion, sprints then pauses. Can you talk a little bit about that? Because it seems like for you to put out that confidence, you probably have more visibility now than you've had, say, 3 years ago. And I don't want to put words in your mouth, but from your presenters today, it seems like that, that would be a big conclusion. If you could just comment a little bit about the visibility on the cloud.

I think the cloud business is essentially in a much, much stronger position today than it was 2 years ago, right? It has got a much broader base of customers, much more routes to market, whether it's a hyperscaler route, whether it's a route through new channels like MSP channels. And whether it's through new routes like GSI and DevOps channels, right? So it's in a much, much stronger position. I think the second is that we have a good pattern of adoption, right? So we know what customers do now with thousands of customers on the cloud with us. We kind of have a good sense of what's the typical customer adoption pattern. Remember that 50% of our business is consumption-driven, and 50% is more subscription and pay for performance driven. The consumption-driven ones have a natural kind of growth rate to them, right? You start. You expand the use of data. You deploy production workloads. So there's a lot more understanding of the business. And I would just tell you that Amazon and Google are in the really early stages of their ramps. So I think with all of those dynamics, we've done top-down views, bottoms-up views from both the field and the business unit, and we feel good about those numbers.

And I would just highlight, if you're okay, George? We build this customer to the organization of cloud. So we look of how we're expanding on existing customers that have moved with us to the cloud piece, that's helping us. And then one of the very important things that we have done in the last 12 months has been all our go-to-market like, the sellers, are carrying as well the cloud piece. And we have created this cloud specialists. So one of the things that we're talking before about the cross-selling, and I think was connected to other questions that we got is we are the ones that have those specialists. So the hyperscalers don't necessarily have the specialists that we have on storage. So they actually have access to bring those specialists in their customer engagements. So we get, with our specialists and our accounting supports, their account teams or even our partners, and that help us to try to expand in that cloud business.

I mean I just think we've got a lot more data. And I think we've instrumented the entire company now to operate on cloud telemetry. And we have, as George said, now sort of proven models that give us a lot more confidence as to sort of when and how we interact with the customer as they go through the particular cloud process.

Nehal Chokshi from Northland Capital Markets. I have like 8 questions, but I'll cut it down to 2 or so. So first of all, the PCS target, $2 billion, that's awesome. And thanks for all the underlying metrics that will drive that. One of the things that's interesting there is that the pace of incremental penetration [ are ] hyper cloud based with PCS looks like it's been about 400 basis points per year. And you're projecting that to continue to be that pace there. So why can't this be a higher pace of incremental penetration? And on the flip side, what gives you confidence that you're not hitting a ceiling there either?

So you're talking about our penetration into hybrid cloud?

Penetration of PCS within the hyper cloud customers?

In the hybrid cloud -- yes. So look, it certainly [ couldn't hold ]. What we looked at is, and Cesar just touched on it. We're just getting started and having the core sales team also have hybrid cloud and public cloud. That will help. And again, these things in Jim's question about, hey, 2 to 3 years ago, things are going a little bit. So these things go at the customer speed, and we want to track that. So it could be better. We're doing all the cross-sell, upsell, the focus on it. We feel very good about that, that ramp. And we'll have to see where we end up in '25, right? But hey, if we're going to give you a number and say that's where we focus on, we're going to feel really good about that number.

And I will add just a very important thing, which is for me, is critical, not only focused on our existing customer installed base. So one of the things that I've been very clear with our go-to-market organization is, hey, I want to make sure that we're bringing new logos and new customers to NetApp as well as we go and make sure that we serve our customers. And the second thing is, your shared part of it is when you think about the storage piece with hyperscalers, many of those are new logos for NetApp, right? So we need to go and serve them as well. And the last piece and not least the cloud ops is pretty much kind of a new business. Many of them are born in the cloud not necessarily in our hybrid cloud customers.

Great. And then my follow-up question is, what are your underlying expectations for hybrid cloud market growth for the 4% to 6% growth for the hyper cloud business?

We had said in our TAM data that hybrid cloud grows at 4%. That's currently the forecast. There are lots of puts and takes. What we are really, really confident about is that if the market grows faster, we will outpace the market because of our positions in the faster-growing segments of the market and each of those segments, the ability to take share.

Matt Sheerin with Stifel. I wanted to ask about the commentary about your targeting the AFA installation to represent 40% to 45% of all installed storage versus currently 31% to 30% -- 32%. It seems like a fairly ambitious target. What is driving that? You talked about cross-selling opportunities, obviously, lower costs. Are we also in the middle of a strong spending cycle in terms of what you're seeing from customers?

I think that 40% to 45% was essentially an extrapolation of the penetration rates that we have seen. For the longest time, the least magical number that we report per quarter is the penetration of our flash into our installed base. It always seems to tick up by about 1%, reflecting the fact that we are adding a lot of new customers and also the size and scope of our installed base. So it's -- there's not a lot of black magic in that number, Matt. It's just kind of what we see as sort of down the middle kind of growth rates that we have demonstrated for many, many, many quarters now.

Wamsi Mohan at BofA. Mike, I was wondering if you could maybe double-click or triple-click into the OpEx. If you think about how much operating leverage you guys have been delivering, it's been about maybe 400 basis points relative to revenue growth that you've been able to accomplish. And looking at your fiscal '25 guide of 25% operating margin, it seems like OpEx is growing roughly at the same rate as revenues. And I know you addressed in a prior question some of the key drivers there. But if you were to think about it from the context of you said incremental revenue and gross profit contribution from public cloud side is fairly significant. How should we think about OpEx in the same framework? And why shouldn't we see more operating leverage as you're hitting scale and particularly some of these businesses?

Yes. So thanks, Wamsi. So look, OpEx today, we spent about $2.8 billion. Let's talk about it. As we look forward into the fiscal '25 numbers, it's a pretty significant increase. Again, it's around those 3 areas. And we want to focus on adding cloud sales because, to your point, we want to get those folks when they're moving to the cloud, not chasing them later. It's a little bit of a wallet share grab, and that's super important. In addition, we want to build the customer success team because, hey, a lot of that $2 billion, you know this as well. In a Software-as-a-Service business, most of that business by that time is going to be renewals, upsell, cross-sell, right? And we need to build that muscle, and that's a big part of that as well. Around engineering, there's still a lot we want to do to build that competitive mode. Harv gave a great view of cloud storage. We feel like we have the best products out there, but we need to make sure that, that continues. And there was a question about the hyperscaler competition. We need to wrap data services around that. So that's a big part of it. And look, here's the wildcard, Wamsi, is acquisition. What do we add there? And do we want to add adjacencies that may add more OpEx? That's really the flux in that model. I would rather sit in front of you in '25 and say, hey, we didn't spend as much as we want, but we hit that 8% to 10%, then the opposite. So there is certainly leverage in the model, but I want to make sure you know -- and again, we will be disciplined. Not easy to get money from George or Mike. But at the end of the day, there will be a return, but we want to make sure that we're investing in the business, and that's what I wanted to show you today.

I'll just add on, if we don't see the growth, we won't invest, right? So we demonstrated that discipline over the capacity.

If I could follow up, maybe Cesar. Can you talk a little bit about the sales compensation incentives as it pertains to both the cloud side and the hybrid cloud side? And are you seeing any cannibalization at customers that are maybe spending less on the hybrid cloud side relative to the public cloud side? And how is the sales compensation geared to address that?

Yes. Thanks for the question. Two things. This cannibalization question, as you know, has always been on the table for many different instance. And I always say, look, to my team and to the market, and actually, you've seen that, which is certainly public cloud market is growing. You've seen the total addressable market, but also the hybrid cloud is growing. So we need to go and address both. So that's a huge opportunity for us, right? So that's kind of on the cannibalization side. From a go-to-market perspective, as I shared a couple of years ago, we had dedicated teams for cloud and dedicated teams for hybrid cloud. And in a way, that wasn't really customer obsessed, right? Because the customer want to talk to us about, hey, this is what I have and how do we team up? So we made a couple of changes. One is today, our sellers carry the entire portfolio, right? So they need to sell both. There is one or the other. So in other words, they have a compensation where they have a hybrid cloud quota, and they also have a cloud quota, right? Of course, it's different because our [indiscernible] is much bigger than the cloud, but they have thresholds. You need to reach both because those customers are buying both, right? It's somehow connected to our hey, how we're going to go and grow the penetration in our installed base with those customers, but also with new customers. We want to make sure they sell both things. Now the specialists are different. We have cloud specialists that they're only compensated on those cloud, for example, on Spot, or on [indiscernible] or FSx or CDO or Cloud Insights. They are driving that specialization. And then on the workloads that I shared before or the solution areas, they're actually compensating in everything including those solution areas like AI or modernization of the data center, you said, look, do I want to have as well kind of CDO or CI in this instance? Or I don't need to bring an hyperscaler. So we're trying to ensure that we are not driving the behavior, say, let me compete here or cannibalize for these reasons, but actually ensure that we serve the customer in the right way. We're in pivoting more and more -- that compensation, making sure that we balance, but getting more traction on the cloud side because a huge growth opportunity for us.

I think just to add, I think 2 things, elasticity is a value proposition that we didn't have before cloud. So we can now complement on-premise customers with elastic use cases that better, I think, the value proposition. We've taken a lot of the cloud services that we had built for A&F and CDO and extending them back to on-premise to give on-premise customers more and more of the data services. And we run the service. So customers pay us more to run the service because we're responsible for a lot of the SLA, the SLO, the patching. So actually, we have very complementary, I think, capabilities from on-prem to the cloud, from cloud to on-prem and the sort of the consumption/subscription business models, as you see, have much higher margins and are very lucrative to us and complement, not cannibalize the on-premise business.

All right. Last -- final chance for a final question. All right. No. Thank you all very much. I'll ask everyone except for George to exit. George, you stay here with me. All right. Thank you, guys. All right. We'll give George a second for some closing remarks.

Thank you, Kris, and thank you to all of you for being here, for spending your morning with us. I hope you found the discussion helpful and the update on our business plans to drive sustainable growth and deliver shareholder value. I feel really, really good about the accomplishments to date, right? We've built a scaling cloud business, while keeping focus and leadership in our hybrid cloud segment. And the gross margin profiles of both those businesses get better over time as we deliver more and more value through software and deliver more capability to customers. Today, we talked about addressing our customers' top priorities, the big and enduring challenges of marshaling their data of using cloud wisely and protecting their most import assets data, how we're delivering innovation at cloud speed, organically and inorganically and deeply co-innovating with the biggest cloud providers in the world to give us an opportunity to participate in large and growing markets. Our TAM now is $96 billion in 2025, growing at an 8% CAGR. And we are focusing our execution as Cesar talked to go get that opportunity in our customers through both our traditional routes to market but through an expanding set of new routes to market. This gives us the ability to deliver a really good set of shareholder milestones, a clear path to $2 billion in public cloud ARR, 8% to 10% revenue CAGR for the next 3 years and greater than $2 billion in operating cash flow. So thank you for coming. I hope you all stay well and have a wonderful spring. I'll give it back to Kris.

All right. Thank you, George. Just administrative, please follow the surveys in the room. On the webcast, when you get the link, please fill it out. It's very much appreciated. It will help us improve this program for you guys. Also for everyone who's here in the room we'll be having lunch, and you'll have an opportunity to meet with all the executives who spoke today. Lunch is in the room where you picked up breakfast. We're going to break this room up. So take your stuff with you, especially if you're in the middle section because I don't think it will be here when you come back. All right. Thank you very much. We appreciate it.