NetApp, Inc. (NTAP) Q3 2025 Earnings Summary

Executive Summary

• Q3 FY2025 revenue was $1.64B (+2% YoY), non-GAAP EPS $1.91; operating margin reached 30% above internal guidance despite revenues near the low end of the range as sales execution issues pushed several large deals into Q4 .
• Segment performance: Hybrid Cloud $1.47B (+1% YoY) and Public Cloud $174M (+15% YoY); public cloud gross margin improved to 76% from 66% YoY, aided by first‑party and marketplace storage services growth >40% .
• Guidance lowered modestly for FY2025 (revenue to $6.49–$6.64B; non‑GAAP EPS to $7.17–$7.27) due to FX (~$30M revenue, $0.08 EPS impact) and the Spot divestiture; Q4 guidance calls for $1.65–$1.80B revenue and non‑GAAP EPS $1.84–$1.94 .
• Spot by NetApp FinOps portfolio sale to Flexera closed Mar 3, sharpening focus on storage-led cloud services; Q4 includes ~1 month of Spot, with ~$15M less cloud revenue expected in Q4 from the transaction .

What Went Well and What Went Wrong

What Went Well

• Public Cloud gross margin expanded ~1,000 bps YoY to 76%; first‑party and marketplace storage services grew >40% YoY, driving 15% segment revenue growth .
• Non‑GAAP operating margin hit 30% (ahead of expectations) as disciplined OpEx control offset lower revenue and gross margin; non‑GAAP EPS delivered in line with guidance at $1.91 .
• Management cited strong AI demand with 100+ AI infrastructure/data lake wins and refreshed AFF A‑Series/C‑Series/ASA offerings improving customer traction: “supplier of choice for AI and other data‑driven workloads” .

What Went Wrong

• Top‑line near low end of range; revenue was ~$44M below guidance midpoint, with ~⅓ FX‑driven; several 7‑/8‑figure deals slipped late in quarter due to procurement timing and upsizing .
• Product gross margin declined to 56.7% (from 62.5% in Q3 FY2024), reflecting higher-cost SSD pre‑buys flowing through COGS; inventory turns dropped to 7 (vs. 14 a year ago) .
• Operating cash flow $385M (vs. $484M YoY) and FCF $338M (vs. $448M YoY) were pressured by lower collections and higher cash outflows tied to strategic SSD purchases; DSOs rose to 50 days .

Financial Results

Key Financials vs Prior Quarters

Segment and Revenue Mix

Select Margins (Segment)

KPIs and Cash Metrics

Results vs Estimates

S&P Global consensus data could not be retrieved at the time of analysis; estimates comparison unavailable.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “Operating margin ahead of and EPS in‑line with expectations, despite Q3 top line performance below our standards… confident in our position as the supplier of choice for AI and other data‑driven workloads” .
• CEO on execution: “Instituted a higher level of scrutiny on deal progression… many of the deals that pushed from Q3 have closed in Q4” .
• CFO: “Operating margin of 30% ahead of expectations… EPS $1.91 in line; revenues and gross margins below guidance points, but offset by operating expense control” .
• CFO on guidance drivers: “Strength of the U.S. dollar… ~$30M less reported revenue and ~$0.08 EPS; Spot divestiture ~$15M less cloud revenue in Q4, largely neutral to EPS” .
• CEO on public cloud: “First‑party and marketplace cloud storage services again grew well over 40%… broadening addressable opportunity with hyperscalers” .

Q&A Highlights

• Sales execution and pipeline: Large late‑quarter deals slipped due to procurement timing and upsizing; enhanced closing discipline implemented; several pushed deals already closed in early Q4 .
• Product gross margin outlook: Q4 product GM guided ~56%; component cost peak in Q4 then expected to steady/decline into FY2026; price changes a tailwind in FY2026 .
• Public sector/regional: EU caution (France/Germany), modest U.S. public sector weakness factored into Q4; U.S. public sector ~10–13% of company revenue .
• Tariffs: Minimal China exposure; flexible manufacturing footprint; no tariffs assumed in Q4 guide .
• Keystone growth: Strong STaaS adoption supporting professional services and RPO; unbilled RPO +6% QoQ .

Estimates Context

• S&P Global consensus estimates for Q3 FY2025 revenue and EPS could not be retrieved at the time of analysis; comparison to Street estimates is unavailable.
• Company reported non‑GAAP EPS $1.91 (in line with internal guidance) and revenue $1.64B near the low end; this combination typically implies modest estimate risk skew to revenue, with cost discipline supporting EPS trajectories .

Key Takeaways for Investors

• Margin resilience: Despite gross margin headwinds, non‑GAAP operating margin expanded to 30%, with OpEx control sustaining EPS—supportive for near‑term EPS stability even with softer revenue .
• Cloud mix and margin: First‑party/marketplace storage services growth and public cloud margin expansion to 76% should continue to lift consolidated gross profit mix; Spot exit refocuses on higher‑margin storage services .
• Pipeline and execution: Late‑quarter slippage appears execution‑driven; tighter deal governance and early Q4 closings reduce rollover risk—monitor Q4 conversion rates and regional public sector dynamics .
• FY25 guide reset: FX and Spot sale drove modest revenue/EPS guide reductions; watch for Q4 GM/OM delivery within 69–70%/~28% and progress on component cost normalization into FY2026 .
• AI catalysts: Broadening enterprise AI deployments and refreshed AFF/ASA/StorageGRID portfolio position NTAP to capture data infrastructure spend—track ARR growth and AI deal cadence as potential stock catalysts .
• Cash/returns: OCF/FCF pressured by working capital (SSD pre‑buys), but balance sheet remains healthy; continued buybacks/dividend ($0.52 next payment) underpin shareholder returns through transition .
• Watch list: Product GM recovery trajectory post pre‑buys, Keystone RPO growth, EU macro/public sector spend timing, and hyperscaler storage service adoption rates .