NetApp, Inc. (NASDAQ:NTAP) Q3 2025 Earnings Conference Call February 27, 2025 5:30 PM ET Company Participants Kris Newton - Vice President, Investor Relations George Kurian - Chief Executive Officer Mike Berry - Chief Financial Officer Conference Call Participants Aaron Rakers - Wells Fargo Meta Marshall - Morgan Stanley Mehdi Hosseini - SIG Irvin Liu - Evercore ISI David Vogt - UBS Jason Ader - William Blair Ruplu Bhattacharya - Bank of America Steven Fox - Fox Advisors Krish Sankar - TD Cowen Simon Leopol ...

For the quarter ended January 2025, NetApp (NTAP) reported revenue of $1.64 billion, up 2.2% over the same period last year. EPS came in at $1.91, compared to $1.94 in the year-ago quarter.The reported revenue compares to the Zacks Consensus Estimate of $1.69 billion, representing a surprise of -3.09%. The company has not delivered EPS surprise, with the consensus EPS estimate being $1.91.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare ...

Group 1: Earnings Performance - NetApp reported quarterly earnings of $1.91 per share, matching the Zacks Consensus Estimate, compared to $1.94 per share a year ago [1] - The company posted revenues of $1.64 billion for the quarter ended January 2025, missing the Zacks Consensus Estimate by 3.09%, and showing a slight increase from $1.61 billion year-over-year [2] - Over the last four quarters, NetApp has surpassed consensus EPS estimates two times and topped consensus revenue estimates three times [2][1] Group 2: Stock Performance and Outlook - NetApp shares have increased approximately 7.2% since the beginning of the year, outperforming the S&P 500's gain of 1.3% [3] - The company's earnings outlook is crucial for determining future stock movements, with current consensus EPS estimates at $2 on $1.76 billion in revenues for the coming quarter and $7.33 on $6.66 billion in revenues for the current fiscal year [4][7] - The estimate revisions trend for NetApp is currently favorable, resulting in a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [6] Group 3: Industry Context - The Computer-Storage Devices industry, to which NetApp belongs, is currently ranked in the top 34% of over 250 Zacks industries, suggesting a positive outlook for stocks within this sector [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

• This presentation contains forward-looking statements and projections about our strategy, products and services, shareholder returns, and our future results, performance or achievements, financial and otherwise. These statements and 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 these statements for a variety of reasons, including, w ...

Financial Performance - Net revenues for the three months ended January 24, 2025, were $1,641 million, a 2.2% increase from $1,606 million in the same period last year[20]. - Net income for the nine months ended January 24, 2025, was $846 million, representing a 21.8% increase compared to $695 million for the same period in 2024[20]. - For the nine months ended January 24, 2025, net revenues reached $4,840 million, up from $4,600 million in the same period of 2024, representing a 5.2% growth[99]. - The total gross profit for the nine months ended January 24, 2025, was $3,420 million, with a total gross margin of 70.7%, compared to $3,257 million and a margin of 70.8% for the same period in 2024[98]. - The basic net income per share for the three months ended January 24, 2025, was $1.47, compared to $1.52 for the same period last year[20]. Assets and Liabilities - Total current assets decreased to $3,908 million as of January 24, 2025, down from $4,897 million as of April 26, 2024, reflecting a 20.2% decline[15]. - Total liabilities decreased to $7,994 million as of January 24, 2025, compared to $8,741 million as of April 26, 2024, a reduction of 8.5%[17]. - Cash and cash equivalents were $1,511 million as of January 24, 2025, down from $1,903 million as of April 26, 2024, a decrease of 20.6%[15]. - NetApp's non-current assets increased to $1,742 million as of January 24, 2025, compared to $1,503 million as of April 26, 2024, representing a growth of 15.9%[45]. - Total long-term debt as of January 24, 2025, was $1,244 million, down from $1,992 million on April 26, 2024[64]. Stock and Dividends - The company repurchased $900 million of common stock during the nine months ended January 24, 2025[25]. - The company declared cash dividends of $0.52 per common share during the three months ended January 24, 2025[27]. - Cash dividends declared were $130 million for the nine months ended January 24, 2025, compared to $171 million for the same period in the previous year, indicating a decrease of 24.0%[29]. - The stock repurchase program has authorized cumulative repurchases of up to $17.1 billion, with 7.4 million shares repurchased at an average price of $121.46 per share[77][78]. - Dividends per share declared increased to $1.56 for the nine months ended January 24, 2025, compared to $1.50 in the prior year[79]. Revenue Segments - The Hybrid Cloud segment generated product revenues of $2,195 million for the nine months ended January 24, 2025, compared to $2,043 million for the same period in 2024, indicating a growth of approximately 7.4%[98]. - The Public Cloud segment reported revenues of $501 million for the nine months ended January 24, 2025, compared to $459 million for the same period in 2024, reflecting an increase of approximately 9.1%[98]. - Revenues from the Americas increased to $833 million in Q3 2025 from $802 million in Q3 2024, while EMEA revenues decreased slightly from $567 million to $559 million[99]. Expenses and Costs - Operating expenses for the nine months ended January 24, 2025, totaled $2,431 million, a marginal increase from $2,409 million in the same period last year[20]. - Cost of product revenues for the third quarter was $330 million, a 17% increase from $282 million in the same period of fiscal 2024; for the first nine months, it was $906 million, a 10% increase from $823 million[136]. - Sales and marketing expenses for the third quarter were $439 million, a 3% decrease from $451 million in the same period of fiscal 2024; for the first nine months, expenses were $1,407 million, a 3% increase from $1,368 million[149]. - Research and development expenses for the third quarter were $247 million, a 1% decrease from $249 million in the same period of fiscal 2024; for the first nine months, expenses were $756 million, remaining flat compared to $758 million[150]. - General and administrative expenses for the third quarter were $74 million, a 9% decrease from $81 million in the same period of fiscal 2024; for the first nine months, expenses were $226 million, a 2% decrease from $230 million[152]. Cash Flow and Financing - Net cash provided by operating activities for the first nine months of fiscal 2025 was $831 million, down from $1.1 billion in the same period of fiscal 2024[162]. - Cash flows used in financing activities totaled $1.7 billion in the first nine months of fiscal 2025, compared to $1.1 billion in the same period of fiscal 2024[166]. - The company has a $1.0 billion revolving unsecured credit facility, maturing on January 22, 2026, with no amounts drawn against it as of January 24, 2025[69]. - The company has a commercial paper program allowing for the issuance of unsecured notes up to $1.0 billion, with no outstanding notes as of January 24, 2025[175]. - The outstanding payment related to the transition tax is estimated at approximately $100 million, expected to be paid during fiscal 2026[178]. Restructuring and Workforce - In the first nine months of fiscal 2025, the company reduced its global workforce by approximately 4% as part of restructuring plans, with charges primarily related to employee severance costs[84]. - Restructuring charges recorded in the first nine months of fiscal 2025 totaled $38 million, with $9 million recorded in the third quarter[121]. - Restructuring charges for the first nine months of fiscal 2025 were $38 million, a decrease of 14% compared to $44 million in the same period of fiscal 2024, with a global workforce reduction of approximately 4%[153]. Tax and Compliance - The effective tax rate for the nine months ended January 24, 2025, was 17.8%, down from 21.3% for the same period in 2024, reflecting a significant amount of earnings taxed in foreign jurisdictions at lower rates[87]. - The company had $228 million of gross unrecognized tax benefits as of January 24, 2025, with $169 million potentially affecting the provision for income taxes if recognized[91]. - Provision for income taxes for the first nine months of fiscal 2025 was $188 million, a decrease of 3% compared to $193 million in the same period of fiscal 2024[158]. Other Information - The company is implementing a new global ERP system, expected to strengthen internal controls over financial reporting by fiscal 2026[188]. - There have been no material changes in market risk exposures compared to the previous fiscal year[185]. - The report includes various certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002[206].

Revenue Performance - Net revenues for Q3 FY2025 were $1.64 billion, a 2% increase from $1.61 billion in Q3 FY2024[3] - Hybrid Cloud segment revenue reached $1.47 billion, slightly up from $1.46 billion in the same quarter last year[3] - All-flash array annualized net revenue run rate was $3.8 billion, reflecting a 10% year-over-year increase[4] - First-party and marketplace cloud storage services revenue grew over 40% year-over-year[4] - Total net revenues for Q3 FY25 were $1,641 million, slightly down from $1,658 million in Q2 FY25 and up from $1,606 million in Q3 FY24[52] - The public cloud segment net revenues increased to $174 million in Q3 FY25, up from $168 million in Q2 FY25 and $151 million in Q3 FY24[52] Income and Profitability - GAAP net income for Q3 FY2025 was $299 million, down from $313 million in Q3 FY2024[10] - Non-GAAP net income for Q3 FY2025 was $397 million, compared to $410 million in Q3 FY2024[10] - Net income for Q3 FY25 was $299 million, a decrease of 4.5% compared to $313 million in Q3 FY24[59] - Non-GAAP income from operations increased to $492 million in Q3 FY25, representing 30.0% of net revenues, compared to 28.6% in Q2 FY25[53] - Non-GAAP income from operations for Q3'FY25 was $492 million, compared to $485 million in Q3'FY24, reflecting a 1.4% increase[63] - The company reported a non-GAAP operating margin of 30.0% for Q3'FY25, compared to 30.2% in Q3'FY24[71] Cash Flow and Shareholder Returns - The company returned $306 million to stockholders through share repurchases and cash dividends[4] - Free cash flow for Q3 FY25 was $338 million, which is 20.6% of net revenues, significantly higher than 3.6% in Q2 FY25[57] - Free cash flow for Q3'FY25 was $338 million, significantly lower than $448 million in Q3'FY24[74] - The company repurchased $200 million of common stock in Q3 FY25, compared to $100 million in Q2 FY25[57] Guidance and Projections - For Q4 FY2025, net revenues are expected to be in the range of $1.65 billion to $1.80 billion[6] - Full FY2025 net revenues are projected to be between $6.49 billion and $6.64 billion[7] - The company expects Q4'FY25 GAAP net income per share guidance to be between $1.45 and $1.55, with non-GAAP guidance between $1.84 and $1.94[78] - Fiscal 2025 GAAP guidance for net income per share is projected to be between $5.49 and $5.59[82] - Non-GAAP guidance for net income per share is estimated to be between $7.17 and $7.27[82] Assets and Liabilities - Total assets decreased from $9,887 million as of April 26, 2024, to $8,989 million as of January 24, 2025, a reduction of approximately 9.1%[46] - The total liabilities decreased from $8,741 million as of April 26, 2024, to $7,994 million as of January 24, 2025, a decline of approximately 8.5%[46] - NetApp's cash, cash equivalents, and investments decreased from $3,252 million as of April 26, 2024, to $2,261 million as of January 24, 2025, a decline of approximately 30.5%[46] - The company’s accounts receivable decreased from $1,007 million as of April 26, 2024, to $898 million as of January 24, 2025, a reduction of approximately 10.9%[46] Operating Expenses and Margins - The company’s total operating expenses for the three months ended January 24, 2025, were $783 million, compared to $785 million for the same period in 2024, a marginal decrease of 0.3%[49] - Operating expenses for Q3'FY25 totaled $783 million, a decrease from $785 million in Q3'FY24[61] - The gross margin for the product segment decreased to 56.7% in Q3 FY25 from 60.3% in Q2 FY25[52] - GAAP gross margin for Q3'FY25 was 69.8%, down from 71.7% in Q3'FY24, while non-GAAP gross margin was 70.7%[65] Tax and Other Metrics - The effective tax rate for Q3'FY25 was 19.2%, compared to 18.1% in Q3'FY24[73] - Days sales outstanding (DSO) increased to 50 days in Q3 FY25 from 48 days in Q2 FY25[55] - Deferred revenue and financed unearned services revenue stood at $4,122 million, slightly up from $4,100 million in Q2 FY25[55]

Core Viewpoint - NetApp, Inc. is set to release its third-quarter financial results, with analysts projecting a slight decline in earnings per share but an increase in quarterly revenue [1]. Financial Performance - Analysts expect NetApp to report quarterly earnings of $1.91 per share, down from $1.94 per share in the same period last year [1]. - The company projects quarterly revenue of $1.7 billion, compared to $1.61 billion a year earlier [1]. Analyst Rating and Price Target - Bank of America Securities analyst Wamsi Mohan upgraded NetApp's rating from Underperform to Neutral and raised the price target from $121 to $128 [2]. Dividend Information - NetApp currently offers an annual dividend yield of 1.70%, translating to a quarterly dividend of 52 cents per share, or $2.08 annually [3]. - To achieve a monthly dividend income of $500, an investor would need to own approximately 2,885 shares, equating to a total investment of about $359,154 [5]. - For a more conservative monthly income goal of $100, an investor would need 577 shares, or an investment of approximately $71,831 [5]. Stock Price Movement - Shares of NetApp increased by 1.5%, closing at $124.49 on Wednesday [7].

Core Viewpoint - Analysts forecast that NetApp (NTAP) will report quarterly earnings of $1.90 per share, reflecting a year-over-year decline of 2.1%, while revenues are expected to reach $1.69 billion, indicating a 5.2% increase compared to the previous year [1]. Earnings Estimates - There has been no revision in the consensus EPS estimate for the quarter over the last 30 days, indicating stability in analysts' forecasts [2]. - Changes in earnings estimates are crucial for predicting investor reactions, as empirical research shows a strong correlation between earnings estimate revisions and short-term stock performance [3]. Revenue Projections - Analysts predict 'Net revenues- Services' will reach $899.89 million, a 4.8% increase from the prior-year quarter [5]. - The consensus for 'Net revenues- Product' is $788.90 million, reflecting a 9% increase from the year-ago quarter [5]. - 'Net revenues- Public Cloud' is estimated at $172.98 million, showing a 14.6% increase from the previous year [5]. - 'Net revenues- Hybrid Cloud' is forecasted to be $1.52 billion, indicating a 4.3% increase from the prior year [6]. Margin Estimates - Analysts expect 'Gross margin - Product - Non-GAAP' to be 59.5%, down from 62.5% in the same quarter last year [6]. - The projected 'Gross margin - Services - Non-GAAP' is 82.2%, up from 81.5% in the previous year [7]. Geographic Mix - The estimated 'Geographic Mix - Asia Pacific' is 15.2%, compared to 15% in the same quarter last year [8]. - 'Geographic Mix - Americas' is expected to be 51.1%, up from 50% a year ago [8]. - The average prediction for 'Geographic Mix - EMEA' is 33.7%, down from 35% in the previous year [8]. - 'Geographic Mix - Americas - Americas Commercial' is projected to be 40.9%, slightly down from 41% a year ago [9]. Stock Performance - NetApp shares have shown a return of -1.2% over the past month, compared to a -0.5% change in the Zacks S&P 500 composite [9].

Core Viewpoint - NetApp (NTAP) is positioned to potentially continue its earnings-beat streak in the upcoming report, supported by a history of surpassing earnings estimates and a positive earnings outlook [1][3]. Earnings Performance - In the last reported quarter, NetApp achieved earnings of $1.87 per share, exceeding the Zacks Consensus Estimate of $1.79 per share, resulting in a surprise of 4.47% [2]. - For the previous quarter, NetApp's earnings were $1.56 per share against an expected $1.46 per share, delivering a surprise of 6.85% [2]. Earnings Estimates and Predictions - Estimates for NetApp have been trending higher, influenced by its history of earnings surprises, and the stock currently has a positive Zacks Earnings ESP of +1.40%, indicating bullish sentiment among analysts [3][6]. - The combination of a positive Earnings ESP and a Zacks Rank of 3 (Hold) suggests a high likelihood of another earnings beat, with historical data showing that such combinations lead to positive surprises nearly 70% of the time [4][6]. Earnings ESP Explanation - The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, with the Most Accurate Estimate reflecting the latest analyst revisions, which may be more accurate than earlier predictions [5]. - A negative Earnings ESP does not necessarily indicate an earnings miss but can reduce the predictive power of the metric [7]. Importance of Earnings ESP - It is crucial for investors to check a company's Earnings ESP before quarterly releases to enhance the chances of successful predictions regarding earnings performance [8].

Company Performance - NetApp (NTAP) closed at $124.58, with a slight increase of +0.04%, outperforming the S&P 500's loss of 0.43% on the same day [1] - Over the past month, NetApp's stock has decreased by 1.21%, underperforming the Computer and Technology sector's gain of 0.32% and the S&P 500's gain of 2.6% [1] Upcoming Earnings - NetApp is set to disclose its earnings on February 27, 2025, with projected earnings of $1.90 per share, reflecting a year-over-year decline of 2.06% [2] - The consensus estimate for revenue is $1.69 billion, indicating a growth of 5.16% compared to the same quarter last year [2] Full-Year Estimates - Zacks Consensus Estimates forecast NetApp's full-year earnings at $7.31 per share and revenue at $6.65 billion, representing year-over-year increases of +13.16% and +6.06%, respectively [3] - Recent changes in analyst estimates suggest optimism regarding NetApp's business and profitability [3] Valuation Metrics - NetApp has a Forward P/E ratio of 17.02, which is in line with the industry average [6] - The company has a PEG ratio of 2.38, matching the industry average as of the latest close [6] Industry Context - The Computer-Storage Devices industry, part of the broader Computer and Technology sector, holds a Zacks Industry Rank of 151, placing it in the bottom 40% of over 250 industries [7] - Research indicates that industries in the top 50% outperform those in the bottom half by a factor of 2 to 1 [7]