- Revenue: $1.67 billion for Q4, up 6% year over year.
- All-Flash Array Revenue: $3.6 billion annualized run rate, up 17% year over year.
- Hybrid Cloud Revenue: $1.52 billion for Q4, up 6% year over year.
- Product Revenue: $806 million for Q4, up 8% year over year.
- Support Revenue: $623 million for Q4, up 4% year over year.
- Public Cloud Revenue: $152 million for Q4, up 1% year over year.
- Public Cloud ARR: $630 million, up 2% year over year.
- Gross Margin: 71.5% for Q4.
- Product Gross Margin: 61% for Q4.
- Support Gross Margin: 92% for Q4.
- Public Cloud Gross Margin: 68% for Q4.
- Operating Margin: 28% for Q4.
- EPS: $1.80 for Q4.
- Free Cash Flow: $567 million for Q4.
- Share Repurchases: $100 million in Q4.
- Dividends: $104 million in Q4.
- Deferred Revenue: $4.23 billion, down 2% year over year.
- Fiscal Year Revenue: $6.27 billion, down 1% year over year.
- Fiscal Year Operating Margin: 27%, up 260 basis points year over year.
- Fiscal Year Free Cash Flow: $1.53 billion, up 76% year over year.
- Cash and Short-Term Investments: $3.25 billion.
- Total Debt: $2.4 billion.
- Q1 FY25 Revenue Guidance: $1.455 billion to $1.605 billion.
- Q1 FY25 Gross Margin Guidance: 72%.
- Q1 FY25 Operating Margin Guidance: 25%.
- Q1 FY25 EPS Guidance: $1.40 to $1.50.
Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NetApp Inc (NTAP, Financial) exceeded the midpoint of its revenue guidance for both Q4 and FY24, driven by strong growth in its All Flash portfolio.
- The company achieved record highs in annual gross margin, operating margin, earnings per share, operating cash flow, and free cash flow.
- Keystone, NetApp Inc (NTAP)'s storage-as-a-service offering, saw total contract value sales more than double from the prior year, reaching nearly $150 million.
- NetApp Inc (NTAP) introduced new All Flash A-Series Unified Data Storage products, enhancing performance and density at a lower cost.
- The company reported a robust year-over-year performance in its hybrid cloud segment, with revenue growth of 6% and product revenue growth of 8%.
Negative Points
- Despite the positive results, NetApp Inc (NTAP) remains cautiously optimistic about the macro environment, indicating ongoing uncertainty and caution in customer spending.
- Public cloud segment revenue grew only 1% year over year, reflecting slower growth compared to other segments.
- The company anticipates higher NAND component costs in fiscal '25, which could pressure gross margins in the second half of the year.
- Deferred revenue decreased by 2% year over year, consistent with the year-over-year decrease in Q3.
- NetApp Inc (NTAP) expects operating margins to be lower in Q1 of fiscal '25 due to seasonality and annual incentive compensation payments.
Q & A Highlights
Q: George, can you expand on the competitive successes of the A-Series and C-Series in the current macro environment? Also, what factors are driving Keystone's success, and what is the average length of these agreements?
A: We are cautiously optimistic about the macro environment, which is better than last year but still uncertain. Customers prioritize applications like analytics and AI, and we have had strong wins across these areas. Keystone's success is driven by its unified data platform and cloud-like experience, not price. These are multi-year agreements.
Q: Regarding your outlook for fiscal '25, are you seeing signs of AI investments leading to push-outs of other projects?
A: We see general scrutiny of spending rather than specific push-outs due to AI. We are confident entering the year with a strong flash portfolio and success in AI opportunities, such as building supercomputing environments for genomics and oil and gas companies.
Q: Can you discuss the trends in first-party and marketplace cloud storage customers? Are they existing NetApp customers or new ones?
A: We see a good balance of new customers, including competitive displacements, and existing NetApp customers migrating workloads to the cloud. This sets us up for a strong outlook in cloud storage for the coming year.
Q: How do AI deployments translate into revenue for fiscal '25, and what are the gross margin variances between Q3 and Q4?
A: We had over 50 AI wins in Q4, and while AI server ramp-ups are ahead of storage, we expect more data creation over time. All AI growth is factored into our guidance. Gross margins were consistent, with product margins slightly higher due to better mix.
Q: Can you clarify the Q1 operating margin guide and its context for fiscal '25? Does it include all OpEx leverage from last year's resizing?
A: We expect Q1 operating margins to be lower due to seasonality but anticipate full-year margins of 27% to 28%. We have some OpEx leverage and plan targeted hiring in sales and engineering to drive key initiatives.
Q: Can you outline your strategy for pre-buys and the gross margin headwinds from higher NAND costs in the second half?
A: We have locked in a large majority of our SSD demand for fiscal '25 at higher prices. We expect product gross margins to be 58% to 60% for the full year, starting higher in the first half and scaling down as we use our pre-buy inventory.
Q: What is driving the return to growth in public cloud services, and can you quantify this?
A: We have sharpened our focus on first-party and hyperscaler storage services, which are performing well. Subscription headwinds are decreasing, and we expect consistent cloud revenue growth in fiscal '25, stronger in the second half.
Q: Can you discuss the impact of increased competition in the QLC C-Series market and the success of this business?
A: We see strong advantages for existing NetApp customers upgrading to C-Series due to seamless integration. We also see new customer wins and competitive displacements. We are confident in our comprehensive data management and hybrid cloud solutions.
Q: How should we think about the most accretive opportunities for fiscal '25?
A: We focus on four growth areas: all-flash storage, block storage, cloud storage, and AI. Each has significant potential, with AI expected to become more meaningful over time. We will provide more details at our Financial Analyst Day on June 11.
Q: Can you update us on the adoption of 30-terabyte SSDs in your systems?
A: We have 30-terabyte SSDs, and they are growing quickly as a percentage of total capacity. Our systems can pack more density than many competitors, making them well-suited for large-scale data lakes and AI environments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
