Meta Marshall: Great, thanks. Maybe as a first question, you noted that the storage and consumption piece of the business you expected that, that was growing about market rate this quarter. I guess just is kind of the assumption there that essentially optimization has stabilized, and we are starting to see growth again? I just kind of want to get a sense of where you guys are in terms of what you — if we’re at kind of the bottom of optimization and seeing growth again or if we’re still kind of in this bottom out period? And then as a second question, just if there’s any kind of surprises in terms of customer types or workload types that have been more interested in C-Series than kind of initially expected? Thanks.
George Kurian: On the first question, Meta, I think that what we saw was continued good pace of customer additions, which means that there are cloud projects and ongoing deployment of workloads on the cloud. We saw the pace of optimization slowdown as customers have basically done the easy stuff. And so now they probably are more cautious about what further to optimize. Within the latter bucket, the customers that have been optimizing, there are early signs of them starting to do new projects on our technology, but they haven’t ramped those projects yet. So the benefit we saw within the quarter was new customers and new workloads as opposed to the ones that optimize reaccelerating spending. With regard to the second question, capacity flash, we were selling high-performance flash into use cases where capacity flash was a better product.
Those were in two flavors. One would be more of a general purpose private cloud environment where customers don’t care about the performance of a particular application, but generally want good performance. And so that was one and then smaller environments where we had the A150 product that was also introduced at a lower price point than any other flash product. Both of them saw strength. And I think we saw strength in the mid-market segment, broadly speaking, across all of our products.
Meta Marshall: Great, thank you.
Operator: The next question is from Amit Daryanani with Evercore. Please go ahead.
Amit Daryanani: Yes. Thanks for taking my questions. I got caught off in the middle, so I apologize if this was addressed. But on the Public Cloud, can you just talk about what are the reasons that led to the miss of here? Was it macro or there any micro impact as well? And then when you talk about the initiatives you’re taking, is it more around just aligning your specialists to the hyperscalers? Or are you taking any more incremental initiatives? Just love to understand macro versus micro impact? And then what are the initiatives you’re specifically taking to address them?
George Kurian: I think broadly speaking, if you look at our cloud business, roughly three-quarter is consumption and one-quarter is subscription. That mix has shifted in favor of consumption a meaningful amount over the last year as customers have preferred more of the marketplace and first-party offerings over some of our more traditional subscription type, bring your own license offerings. I think the impact that we saw was more pronounced in subscription rather than consumption. Consumption performed quite well. And so I would point out that it’s in the one-quarter of the business in subscription. Then second, with regard to whether it was macro or micro, it was a mix of things. I think it was — in some customers, clearly, it was related to budget constraints, where upon renewal, they said, listen, I want to use less of the product and only use it for the most mission-critical environment, some of our monitoring tools.
In other cases, it was the customer not being ready to deploy the product and so we’ve taken a couple of actions. One action is to, as we said, conduct a review of our products, make sure we have the right products tailored to the right use cases that pricing is set up right, that the value share between us and the customers set up right, that is already underway. We’ve implemented some of those changes. We’ll give you a more fulsome update. And then with regard to go-to-market, we’ve, as we noted, implemented both a dedicated cloud specialist organization aligned with the hyperscalers and also implemented customer success so that customers can get expertise from NetApp on how to use the products. It’s early. We’ve seen some good evidence of progress, but there’s more work to be done.
Amit Daryanani: Got it. That’s really helpful. And Mike, if I could just have you clarify Q1 free cash flow, I think, was much better than what I had expected and what you typically be in Q1, I think, as well. Can you just touch on maybe what drove that, if there was a bit of a pull-in or something with some of the stuff? And any view on fiscal year free cash flow, given the strong performance here?
Mike Berry: Yes. Awesome. Thanks for the question on cash. Yes, there was — it was quite a bit better than we thought. There was three moving parts. Amit, I would say you’ve seen billings come in lower in the last two quarters. So collections were down year-over-year. But what really drove the operating and free cash flow was the reduction in our supply chain spending. And that’s not only premiums. It’s the quantity of components that came down significantly. And then, of course, pricing came down as well. So that, if you think about the rest of the year, we should expect to continue to see some of that benefit not as big as in Q1 because that compares to Q1 of last year when we were still, I’ll call it, bulking up on inventory because we expect the growth before things slowed down in the middle of the year.
You know, the one-time benefit year-over-year, which unfortunately is we paid a good bit less in incentive compensation. So that helped drive it as well. And then lower CapEx helped drive free cash flow as well. And we did say, hey, the $239 million we spent last year, we expect to be the high and we expect that to continue to come down. As you look at the rest of the year, we do expect on a full-year basis it to track pretty close to non-GAAP net income, which guidance is somewhere around $1.2 billion. I do want to note, though, hey, folks in Q2 — and this happens every year, keep in mind, it’s the quarter we pay most of our taxes. So we pay almost $88 million in repatriation taxes and then we make our U.S. federal tax payment as well. So expect Q2 to be down from Q1, and it’s been like that every year.
And then in the back half, following more typical trends. So thanks for the question.
Amit Daryanani: Thank you.
Operator: And the final question today comes from Shannon Cross with Credit Suisse. Please go ahead.
Shannon Cross: Thank you very much. I guess my first question, George, can you talk about ONTAP AI from a competitive standpoint? Are you seeing this as an ability basically to sell into your existing customer base you are using ONTAP and comfortable with it in that? Or is this something that, from a competitive differentiation standpoint, can actually drive switchers to NetApp’s product set? And then I have a follow-up. Thank you.
George Kurian: We sell ONTAP AI into data science teams and AI teams, whether they are in our installed base or net new accounts. They are — it’s a very verticalized selling model. So for example, in pharmaceuticals, we work with teams on rapid drug discovery, clinical data analysis so that they can apply really high-performance GPUs from NVIDIA with — together with large-scale data storage from NetApp. We could also do the same thing. For example, in manufacturing, we are selling into advanced digital twin prototypes where they are optimizing manufacturing yield and sort of accelerating development. So I think those are the key areas that we have sort of net new budget, net new customer landscape. Our advantages are high performance, large scale advanced demo management, the best in the industry, and it’s highly integrated into the data science toolkit of our customers.
And then increasingly, we also now have the same versions of 2 chains running on all the leading public clouds, and you’ll hear more about that in the next couple of weeks at the Google conference.
Shannon Cross: Okay. And then I guess we’ve asked you about AI from sort of an opportunity standpoint. But how are you thinking about utilizing generative AI internally within NetApp to increase productivity, save costs and maybe, I don’t know, improve customer experience? Thanks.
