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NetApp, Inc. (NTAP) Q4 2024 Earnings Summary

Executive Summary

  • Q4 FY24 revenue was $1.67B (+6% y/y; +4% q/q) with non-GAAP EPS of $1.80; EPS was $0.02 above guidance and revenue landed slightly above the midpoint, driven by stronger product mix and all‑flash momentum .
  • All-flash array ARR reached a record $3.6B (+17% y/y), while Public Cloud ARR was $630M (+2% y/y); first‑party/marketplace cloud storage grew >30% y/y, lifting cloud gross margin to 68% .
  • FY25 outlook: revenue $6.45–$6.65B (midpoint +4.5% y/y), non‑GAAP GM 71–72%, non‑GAAP Op margin 27–28%, non‑GAAP EPS $6.80–$7.00; Q1 FY25 revenue $1.455–$1.605B and non‑GAAP EPS $1.40–$1.50 .
  • Capital return stepped up: quarterly dividend raised to $0.52 and new $1B buyback authorization; management expects to return up to 100% of FY25 FCF to shareholders .
  • Stock reaction catalysts: record profitability and FCF with a growth guide and higher capital returns vs. watch items of rising NAND costs pressuring H2 product gross margins and modest Public Cloud ARR growth .

What Went Well and What Went Wrong

  • What Went Well

    • Record profitability: “Operating margin of 28%, the highest for Q4 in the history of NetApp,” with non‑GAAP EPS $1.80 beating guidance by $0.02 on better gross margins; Q4 free cash flow $567M .
    • All‑flash momentum: AFA ARR hit $3.6B (+17% y/y) as C‑Series and ASA traction drove product revenue +8% y/y and product GM 61% .
    • Cloud mix and margin: First‑party/marketplace cloud storage grew >30% y/y; cloud GM advanced to 68% (+290 bps q/q and y/y) .
    • Quote: “We concluded fiscal year 2024 on a high note… building positive momentum” – CEO George Kurian .

  • What Went Wrong

    • Public Cloud ARR growth modest: ARR $630M (+2% y/y) as subscription headwinds are still being mitigated, offset by first‑party storage strength .
    • Macro still unsettled: Management remains “cautiously optimistic,” but cites continued budget scrutiny and uncertainty impacting IT spend priorities .
    • Rising NAND costs: FY25 product GM expected 58–60% with higher prices; margins start higher in 1H and “slide down” in 2H as pre‑buy inventory is consumed .
    • Deferred revenue down y/y: FY24-end deferred revenue/financed unearned services revenue $4.234B (−2% y/y), consistent with Q3 trend .

Financial Results

MetricQ2 FY24Q3 FY24Q4 FY24
Revenue ($USD Billions)$1.562 $1.606 $1.668
GAAP Diluted EPS ($)$1.10 $1.48 $1.37
Non‑GAAP Diluted EPS ($)$1.58 $1.94 $1.80
GAAP Gross Margin (%)71.1% 71.7% 70.5%
GAAP Operating Margin (%)19.5% 22.8% 21.9%
Billings ($USD Billions)$1.454 $1.687 $1.814

Segment revenue

SegmentQ2 FY24Q3 FY24Q4 FY24
Hybrid Cloud ($USD Billions)$1.408 $1.455 $1.516
Public Cloud ($USD Millions)$154 $151 $152

KPIs and margins

KPI / MarginQ2 FY24Q3 FY24Q4 FY24
All‑Flash Array ARR ($USD Billions)$3.2 $3.4 $3.6
Public Cloud ARR ($USD Millions)$609 $608 $630
Product GM (GAAP) (%)60.9% 62.2% 61.0%
Support GM (GAAP) (%)92.0% 92.2% 92.1%
Public Cloud GM (GAAP) (%)66.2% 65.6% 68.4%
Free Cash Flow ($USD Millions)$97 $448 $567
Deferred Rev + Financed Unearned ($USD Billions)$4.002 $4.127 $4.234

Notes:

  • Q4 revenue +6% y/y; product revenue +8% y/y; CFO: revenue +4% q/q .
  • EPS was $0.02 above guidance midpoint ($1.78) on better product mix; revenue slightly above midpoint .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)Q1 FY25n/a$1.455–$1.605 New
GAAP EPS ($)Q1 FY25n/a$0.98–$1.08 New
Non‑GAAP EPS ($)Q1 FY25n/a$1.40–$1.50 New
Revenue ($B)FY25n/a$6.45–$6.65 New
GAAP Gross Margin (%)FY25n/a70–71 New
Non‑GAAP Gross Margin (%)FY25n/a71–72 New
GAAP Op Margin (%)FY25n/a20–21 New
Non‑GAAP Op Margin (%)FY25n/a27–28 New
GAAP EPS ($)FY25n/a$4.96–$5.16 New
Non‑GAAP EPS ($)FY25n/a$6.80–$7.00 New
Tax Rate (%)FY25n/a21–22% (management) New
Dividend/Share ($)Quarterly$0.50 (prior) $0.52 (effective Jul 24, 2024) Raised
Share Repurchase AuthorizationOpen$0.5B remaining as of Apr 26, 2024 +$1.0B additional authorization Increased

Earnings Call Themes & Trends

TopicQ2 FY24 (Q-2)Q3 FY24 (Q-1)Q4 FY24 (Current)Trend
AI/Technology InitiativesExpanded ASA C‑Series; ransomware guarantees; ONTAP AI affordability; BlueXP DR preview Dozens of AI wins; NVIDIA superpod/basepod deployments; unified data pipelines for GenAI >50 AI wins; AI Pod, FlexPod AI, OVX validation; positioning as “AI infrastructure of choice” Building momentum
Public Cloud StrategyFirst‑party services (ANF/FSx/GCNV) expanded; partnerships deepened Sharpened focus to first‑party/marketplace; subscription headwinds planned First‑party/marketplace +30% y/y; Public Cloud GM 68%; ARR +2% y/y; subscription headwinds abating through 1H FY25 Mix improving, ARR modest
Product Performance (All‑flash)AFA ARR $3.2B; product GM 60.9% AFA ARR $3.4B; product GM 62.2% record AFA ARR $3.6B; product GM 61%; flash ≈60% of Hybrid Cloud revenue Strong, durable
Macro/Tariffs/Supply ChainFX and macro noted; record Q2 margins Uncertain macro; operational discipline “Cautiously optimistic”; budgets still scrutinized Cautious tone
NAND/GM Outlook—New baseline product GM upper‑50s to 60% despite NAND increases FY25 product GM 58–60%; 1H>2H as pre‑buys consumed H2 GM headwind
Keystone/ConsumptionKeystone guarantees, program enhancements Keystone rev up triple‑digits y/y FY24 TCV ~ $150M; displacing competitive STaaS; strong Q4 Accelerating

Management Commentary

  • Strategy and momentum: “We concluded fiscal year 2024 on a high note… Our modern approach to unified data storage… is clearly resonating in the market” – CEO George Kurian .
  • Profitability discipline: “Operating margin of 28%… second only to last quarter’s 30% operating margin” – CFO Mike Berry .
  • AI positioning: “We give customers the ability to talk directly to the large amount of existing data stored on NetApp… demonstrating the value of our installed base and the critical role we play in AI” – CEO .
  • Cloud mix: “First party and hyperscaler marketplace storage services… increasing more than 30% year‑over‑year… driving cloud storage services to 2/3 of total public cloud ARR” – CEO .
  • Capital returns: “In fiscal ’25, we intend to return up to 100% of free cash flow to shareholders… dividend to $0.52” – CFO .

Q&A Highlights

  • Competitive wins and Keystone: Customers prefer unified platform and consistent cloud‑like experience; Keystone deals are multi‑year architectural commitments, not price‑led .
  • Macro and AI mix: Spending scrutiny persists; AI server ramp leads storage, with expanding storage opportunity over time; >50 AI wins in Q4 across training/inferencing/data foundations .
  • NAND and margins: FY25 product GM guided 58–60%, starting higher in 1H then moderating in 2H; pricing discipline and mix offset part of NAND cost increases .
  • Public Cloud trajectory: Subscription headwinds diminishing through 1H FY25; expecting consistent growth led by first‑party/marketplace services .
  • Operating leverage: FY25 Op margin guided 27–28%; OpEx growth ~2% vs. ~4.5% revenue growth with targeted investments in sales/engineering .

Estimates Context

  • Wall Street consensus (S&P Global) was unavailable at the time of request due to API rate limits; therefore, vs‑consensus comparisons are not shown.
  • Management context: Q4 non‑GAAP EPS of $1.80 was $0.02 above guidance midpoint, and revenue landed slightly above the guidance midpoint .
  • Implication: Street models likely need to incorporate (1) a higher starting revenue/margin base from Q4 mix, (2) FY25 growth at ~4.5% with stable non‑GAAP GM/OM, and (3) H2 product GM drift on NAND costs as flagged by management .

Key Takeaways for Investors

  • Mix‑led upside: All‑flash momentum and first‑party cloud mix drove record profitability; maintain focus on product mix as key EPS lever into FY25 .
  • Watch H2 margin cadence: Expect higher product GM in 1H vs. 2H FY25 as pre‑buy SSD inventory is consumed; monitor NAND pricing and pass‑through dynamics .
  • Cloud strategy inflection: First‑party/marketplace storage is comping >30% y/y with improving cloud GM; subscription headwinds should fade through 1H FY25 .
  • Capital return support: Dividend raised to $0.52 and new $1B buyback; management plans to return up to 100% of FCF in FY25, offering downside support .
  • AI optionality building: >50 AI wins in Q4; validated integrations (NVIDIA, Google, AWS) plus on‑prem AI pods position NTAP to monetize data pipelines as deployments move from POC to scale .
  • Support revenue tailwind: As product sales grow, multi‑year support should follow with a lag, supporting recurring margin dollars .
  • Trading setup: Near‑term, investors may reward growth plus record margin/FCF and capital returns; medium‑term, monitor AI contribution ramp, Public Cloud ARR acceleration, and H2 gross margin resilience .

Additional Relevant Press Releases (Q4 context)

  • Dividend and buyback were disclosed with Q4 results: dividend to $0.52; new $1B repurchase authorization .
  • Security/AI: AAA rating for ONTAP ARP/AI ransomware detection (99% recall, no false positives), underscoring data‑security positioning for AI era .

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