Core Viewpoint - Super Micro Computer (SMCI) has shown significant volatility in its stock price, with a recent 12% increase following strong quarterly earnings, but subsequently dropped over 15% as investors reacted to Nvidia's performance and ongoing concerns about SMCI's financial stability [2][5]. Financial Performance - SMCI reported a revenue increase of 143% year-over-year for Q4 FY2024, reaching $5.3 billion, and a total revenue growth of 110% for the fiscal year [3]. - The company projects revenues between $23.5 billion and $25 billion for FY2025, with expectations to reach $40 billion by FY2026 [3][9]. Market Position and Competitors - SMCI's stock has declined 60.8% over the past year, while peers like HPE, NetApp, and Seagate have averaged a 16.2% increase during the same period, highlighting a significant performance gap of -71.6% [2]. - The company has established partnerships with major players like Nvidia, AMD, Intel, and Broadcom, positioning itself as a leader in liquid cooling technology amid rising demand for data centers driven by AI [4]. Risk Factors - SMCI faces ongoing risks related to accounting issues, tariffs, and market conditions, which have contributed to a nearly 30% drop in stock price leading up to its earnings announcement [5][20]. - Despite avoiding Nasdaq delisting, the company continues to grapple with unresolved accounting problems, as indicated by negative opinions from its auditors regarding internal financial controls [20]. Analyst Ratings and Valuation - Analysts have maintained a quantitative hold rating on SMCI, with recent upgrades in momentum metrics, suggesting potential for entering a buy zone if ratings improve further [6][15]. - The stock is currently valued attractively with a forward PEG ratio of 0.53, significantly lower than the industry median of 1.71, indicating it may be undervalued compared to peers [10]. Growth Metrics - SMCI has demonstrated impressive growth metrics, with a year-over-year revenue growth rate of 125%, far exceeding the industry median of 4.94% [12]. - The company’s EBITDA growth for FY2024 is projected at 63.88%, again significantly higher than the sector average [13]. Profitability and Cash Flow - SMCI's gross profit margin stands at 12.44%, which is substantially lower than the industry median of 50.15%, indicating room for improvement in profitability [14]. - The company reported a negative free cash flow of $524.98 million for Q4, reflecting challenges in cash generation despite strong revenue growth [12].

Financial Data and Key Metrics Changes - In Q3 FY 2025, the company reported revenue of $1.64 billion, reflecting a 2% year-over-year growth, although it was $44 million below the midpoint of guidance [31] - Billings increased to $1.71 billion, also up 2% year-over-year, marking the fifth consecutive quarter of year-over-year growth [31] - Operating margin was reported at 30%, exceeding expectations, while EPS was $1.91, in line with guidance [36][37] - Operating cash flow decreased to $385 million from $484 million a year ago, and free cash flow was $338 million compared to $448 million a year ago [37] Business Line Data and Key Metrics Changes - Hybrid cloud revenue increased by 1% year-over-year, while the all-flash array business grew by 10%, reaching an annualized revenue run rate of $3.8 billion [10] - Support revenue declined by 2% year-over-year to $621 million, but was flat in constant currency [32] - Professional services revenue grew by 14% year-over-year, primarily driven by the Keystone Storage-as-a-Service offering, which saw nearly 60% growth [32] - Public cloud revenue increased by 15% year-over-year to $174 million, with first-party and marketplace storage services growing over 40% [20][32] Market Data and Key Metrics Changes - The company noted a cautious environment in European markets, particularly in France and Germany, and some caution in the US public sector [57] - The public cloud segment, excluding Spot by NetApp, grew 21% year-over-year, indicating a healthy demand environment [20][32] Company Strategy and Development Direction - The company is focused on enhancing its AI solutions and has seen significant demand for AI infrastructure and data lake modernization, with over 100 AI-related wins in Q3 [14] - The divestiture of Spot by NetApp is part of a strategy to streamline operations and focus on core offerings [18][41] - The company aims to maintain a strong operating margin and free cash flow generation while controlling expenses [30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that Q3 performance did not meet expectations but expressed confidence in returning to growth in Q4 due to improved sales execution [24] - The company expects a slight decrease in FY 2025 guidance due to the divestiture of Spot, foreign exchange impacts, and near-term headwinds in the public sector [25][41] - Management remains optimistic about achieving long-term financial goals set during the Investor Day [24][48] Other Important Information - The company returned over $300 million to shareholders through dividends and share repurchases, reducing the diluted share count by 3 million shares year-over-year [30] - The balance sheet remains healthy, with approximately $2.3 billion in cash and short-term investments against $2 billion in debt [40] Q&A Session Summary Question: Sales execution issues and rectification efforts - Management noted that several large deals slipped into Q4 due to procurement delays, but many have since closed, and tighter controls on deal progression are being implemented [51][53] Question: Public sector performance and caution - Management confirmed that there is caution in European markets and some in the US public sector, but overall performance in Q3 was as planned [57][58] Question: Competitive landscape and QLC mix - Management stated that the competitive landscape remains strong, with no significant changes, and highlighted the successful refresh of the product portfolio [62] Question: Product gross margins and future expectations - Management discussed expectations for product gross margins to stabilize and potentially improve as new products gain traction and costs decline [73] Question: Impact of divestiture of Spot on revenue - The divestiture is expected to have a neutral impact on EPS, with trailing cloud revenue from Spot being approximately $94 million [88][90] Question: AI in enterprise and storage grid enhancements - Management indicated that AI adoption is growing, with clients establishing AI centers of excellence, and enhancements to storage solutions are aimed at capitalizing on this trend [121][122] Question: Tariffs and supply chain flexibility - Management emphasized a flexible global supply chain that mitigates tariff impacts, particularly due to reduced dependency on China [128][130]

Core Insights - NetApp reported revenue of $1.64 billion for the quarter ended January 2025, reflecting a year-over-year increase of 2.2% [1] - The earnings per share (EPS) for the quarter was $1.91, slightly down from $1.94 in the same quarter last year [1] - The reported revenue fell short of the Zacks Consensus Estimate of $1.69 billion, resulting in a surprise of -3.09% [1] - The company met the consensus EPS estimate of $1.91, indicating no surprise in earnings [1] Key Performance Metrics - Gross margin for Product (Non-GAAP) was 56.7%, below the average estimate of 59.5% from eight analysts [4] - Total revenue growth was 2%, compared to the average estimate of 5.2% from seven analysts [4] - Gross margin for Services (Non-GAAP) was 82.8%, slightly above the average estimate of 82.2% from seven analysts [4] - Geographic revenue mix showed EMEA at 34%, Americas at 51%, and Asia Pacific at 15%, all in line with analyst estimates [4] - Net revenues from Services were $883 million, below the estimated $900.11 million, but represented a year-over-year increase of 2.8% [4] - Net revenues from Product were $758 million, compared to the estimated $793.22 million, with a year-over-year increase of 4.7% [4] - Public Cloud revenues reached $174 million, exceeding the estimate of $173.43 million, with a year-over-year growth of 15.2% [4] - Hybrid Cloud revenues were $1.47 billion, below the estimated $1.52 billion, with a year-over-year increase of 0.8% [4] - Support revenues were $621 million, below the estimated $642.46 million, reflecting a year-over-year decline of 1.6% [4] - Professional and Other Services revenues were $88 million, slightly above the estimated $87.02 million, with a year-over-year increase of 14.3% [4] Stock Performance - NetApp shares have returned +3.5% over the past month, outperforming the Zacks S&P 500 composite, which declined by -2.2% [3] - The stock currently holds a Zacks Rank 2 (Buy), suggesting potential for outperformance in the near term [3]

Financial Performance - NetApp's Q3 FY25 revenue reached $1.64 billion, a 2.2% year-over-year increase[61] - Billings for Q3 FY25 amounted to $1.71 billion, representing a 1.5% year-over-year growth[61] - The company's all-flash array annualized revenue run rate grew by 10% year-over-year, reaching $3.8 billion[59] - First party and marketplace cloud storage services revenue grew approximately 46% year-over-year[59] - Capital returns totaled $306 million in Q3 FY25[61] Guidance - NetApp projects Q4 FY25 revenue between $1.65 billion and $1.80 billion[97] - The company anticipates a Non-GAAP gross margin of 69% to 70% and a Non-GAAP operating margin of approximately 28% for Q4 FY25[97] - NetApp expects Non-GAAP earnings per share to be in the range of $1.84 to $1.94 for Q4 FY25[97] Strategic Focus - NetApp secured over 100 AI and data lake modernization deals, including AI-as-a-Service wins[59] - The company divested Spot by NetApp to refine its Public Cloud business focus[59] - NetApp launched new all-flash AFF A-series and C-series, enhanced StorageGRID object storage capabilities, and expanded cloud storage offerings[59]

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]

Revenue and Profit - Net revenues for the three months ended October 25, 2024, were $1.658 billion, compared to $1.562 billion in the same period last year, representing a 6.1% increase[15] - Net income for the three months ended October 25, 2024, was $299 million, up from $233 million in the same period last year, a 28.3% increase[15] - Gross profit for the three months ended October 25, 2024, was $1.177 billion, compared to $1.110 billion in the same period last year, a 6.0% increase[15] - Comprehensive income for the three months ended October 25, 2024, was $303 million, compared to $226 million in the same period last year, a 34.1% increase[16] - Net income for the three months ended October 25, 2024 was $299 million[21] - Net income for the six months ended October 25, 2024 was $547 million[23] - Net income per share for the three months ended October 25, 2024, was $1.47 (basic) and $1.42 (diluted), compared to $1.12 (basic) and $1.10 (diluted) for the same period in 2023[62] - Net income per share for the six months ended October 25, 2024, was $2.67 (basic) and $2.59 (diluted), compared to $1.82 (basic) and $1.79 (diluted) for the same period in 2023[62] - Net revenues increased by 6% to $1.658 billion in Q2 2024 and by 7% to $3.199 billion in the first six months of 2024 compared to the same periods in 2023[80] - Net income increased to 18% of net revenues in Q2 2024 and 17% in the first six months of 2024 compared to 15% and 13% in the same periods in 2023[80] Assets and Liabilities - Total assets as of October 25, 2024, were $9.004 billion, down from $9.887 billion as of April 26, 2024, a decrease of 8.9%[13] - Cash and cash equivalents decreased to $1.478 billion as of October 25, 2024, from $1.903 billion as of April 26, 2024, a 22.3% decline[13] - Total current liabilities as of October 25, 2024, were $4.317 billion, up from $4.106 billion as of April 26, 2024, a 5.1% increase[13] - Long-term debt decreased to $1.244 billion as of October 25, 2024, from $1.992 billion as of April 26, 2024, a 37.5% reduction[13] - Total goodwill as of October 25, 2024 was $2.759 billion, with $1.714 billion in Hybrid Cloud and $1.045 billion in Public Cloud[29] - Total purchased intangible assets as of October 25, 2024 were $96 million, down from $124 million as of April 26, 2024[29] - Cash and cash equivalents decreased to $1,478 million as of October 25, 2024, from $1,903 million as of April 26, 2024[31] - Inventories increased to $317 million as of October 25, 2024, up from $186 million as of April 26, 2024[31] - Property and equipment, net, decreased slightly to $593 million as of October 25, 2024, from $604 million as of April 26, 2024[32] - Deferred revenue and financed unearned services revenue totaled $4.1 billion as of October 25, 2024, with $2.045 billion classified as short-term and $2.055 billion as long-term[36] - The aggregate amount of the transaction price allocated to remaining performance obligations was $4.4 billion as of October 25, 2024, with 49% expected to be recognized as revenue within the next 12 months[37] - Investments in U.S. Treasury and government debt securities decreased to $744 million as of October 25, 2024, from $1,349 million as of April 26, 2024[42] - The fair value of cash, cash equivalents, and short-term investments was $2.222 billion as of October 25, 2024, with $2.208 billion classified as Level 1 and $14 million as Level 2[44] - Total cash and cash equivalents as of April 26, 2024, were $1.903 billion, with $730 million in cash and $1.161 billion in money market funds[45] - The fair value of long-term debt as of October 25, 2024, was $1.881 billion, compared to $2.209 billion as of April 26, 2024[45] - Total principal amount of senior notes as of October 25, 2024, was $2.0 billion, with an unamortized discount and issuance costs of $7 million[46] - The company repaid $407 million in 3.30% Senior Notes due September 2024 upon maturity on September 30, 2024[47] - Future principal debt maturities as of October 25, 2024, include $750 million in 2026, $550 million in 2028, and $700 million thereafter[47] - The company has a $1.0 billion revolving unsecured credit facility, with no amounts drawn as of October 25, 2024[49] - The company had $223 million of gross unrecognized tax benefits as of October 25, 2024, with $162 million potentially affecting the provision for income taxes if recognized[61] - Cash, cash equivalents, and short-term investments totaled $2.222 billion as of October 25, 2024, compared to $3.252 billion as of April 26, 2024[103] - $1.9 billion of cash, cash equivalents, and short-term investments were held by foreign subsidiaries as of October 25, 2024, while $0.3 billion was available in the U.S.[103] - Off-balance sheet purchase commitments totaled approximately $0.9 billion at October 25, 2024[111] Expenses and Costs - Research and development expenses for the three months ended October 25, 2024, were $257 million, down from $262 million in the same period last year, a 1.9% decrease[15] - Net cash provided by operating activities for the six months ended October 25, 2024, was $446 million, compared to $588 million in the same period last year, a 24.1% decrease[19] - Retired approximately $25 million of fully amortized intangible assets during the first six months of fiscal 2025[29] - Amortization expense for purchased intangible assets totaled $14 million for the three months ended October 25, 2024, consistent with the same period in 2023[30] - Future amortization expense related to purchased intangible assets is projected to be $96 million from 2025 to 2028[30] - Total lease cost for operating leases was $33 million for the six months ended October 25, 2024, compared to $36 million for the same period in 2023[50] - Future minimum operating lease payments as of October 25, 2024, total $296 million, with $24 million due in the remainder of fiscal year 2025[51] - Total stock-based compensation expense for the six months ended October 25, 2024 was $188 million, compared to $180 million for the same period in 2023[53] - As of October 25, 2024, total unrecognized compensation expense related to equity awards was $764 million, expected to be recognized over a weighted-average remaining service period of 2.2 years[53] - The effective tax rate for the six months ended October 25, 2024 was 17.0%, down from 23.8% for the same period in 2023, due to increased discrete tax benefits related to stock compensation[61] - The company reduced its global workforce by approximately 2% in the first six months of fiscal 2025, resulting in restructuring charges of $29 million[59] - Operating expenses for Q2 and first six months of fiscal 2025 totaled $819 million (49% of net revenues) and $1,617 million (51% of net revenues), respectively, reflecting a 2 percentage point decrease compared to fiscal 2024 due to higher net revenues[92] - Sales and marketing expenses increased by 5% to $485 million in Q2 and 3% to $956 million in the first six months of fiscal 2025, driven by higher sales commissions[92] - Research and development expenses decreased by 2% to $257 million in Q2 but remained flat at $509 million in the first six months of fiscal 2025 compared to the prior year[92] - General and administrative expenses increased by 3% to $77 million in Q2 and 2% to $152 million in the first six months of fiscal 2025[92] - Restructuring charges increased by 140% to $12 million in Q2 but decreased by 6% to $29 million in the first six months of fiscal 2025, primarily due to workforce reductions[92][93] - Acquisition-related expenses decreased by 67% to $1 million in Q2 and $2 million in the first six months of fiscal 2025[94] - Interest income increased by 8% to $15 million in Q2 and 19% to $63 million in the first six months of fiscal 2025 due to higher yields on cash and investments[95] - Cash flows used in financing activities totaled $1.4 billion in the first six months of fiscal 2025, including $700 million for stock repurchases and $400 million for debt repayment[101] - The company anticipates capital expenditures for the remainder of fiscal 2025 to be between $50 million and $100 million[108] - The outstanding payment related to the transition tax is estimated to be approximately $100 million, expected to be paid during fiscal 2026[109] Stock and Dividends - Stock-based compensation for the six months ended October 25, 2024 was $188 million[23] - Repurchase of common stock for the six months ended October 25, 2024 totaled $700 million[23] - Cash dividends declared for the six months ended October 25, 2024 were $213 million ($1.04 per common share)[23] - Other comprehensive income for the six months ended October 25, 2024 was $4 million[23] - The company granted approximately 3 million restricted stock units (RSUs) with a weighted average grant date fair value of $127.61 per share during the six months ended October 25, 2024[52] - The aggregate grant date fair value of PBRSUs granted in the current year was $62 million, recognized over the remaining performance/service periods[53] - The company repurchased 5.8 million shares at an average price of $121.58 per share, totaling $672 million allocated to retained earnings for the six months ended October 25, 2024[54] - The company declared a cash dividend of $0.52 per share, payable on January 22, 2025, with total dividend payments allocated to retained earnings of $83 million for the six months ended October 25, 2024[55] - The remaining authorization for stock repurchases at the end of the period was $802 million, with cumulative repurchases authorized up to $17.1 billion since the program's inception[54] - The company repurchased 5.8 million shares of common stock at an average price of $121.58 per share, totaling $700 million, during the first six months of fiscal 2025[77] - Aggregate cash dividends declared in the first six months of fiscal 2025 were $1.04 per share, totaling $213 million[77] - The company declared a cash dividend of $0.52 per share of common stock, payable on January 22, 2025[110] - The company repurchased a total of 377 million shares of common stock at an average price of $43.25 per share, for an aggregate purchase price of $16.3 billion[110] - The remaining authorized amount for stock repurchases under the program was $0.8 billion as of October 25, 2024[110] Segment Performance - Hybrid Cloud segment revenue for the three months ended October 25, 2024, was $1.49 billion, with a gross profit of $1.07 billion and a gross margin of 71.8%[63] - Public Cloud segment revenue for the three months ended October 25, 2024, was $168 million, with a gross profit of $124 million and a gross margin of 73.8%[63] - Consolidated net revenues for the three months ended October 25, 2024, were $1.658 billion, with a total gross profit of $1.177 billion and a gross margin of 71.0%[63] - Hybrid Cloud segment revenue for the six months ended October 25, 2024, was $2.872 billion, with a gross profit of $2.070 billion and a gross margin of 72.5%[64] - Public Cloud segment revenue for the six months ended October 25, 2024, was $327 million, with a gross profit of $237 million and a gross margin of 72.5%[64] - Consolidated net revenues for the six months ended October 25, 2024, were $3.199 billion, with a total gross profit of $2.275 billion and a gross margin of 71.1%[64] - Unallocated costs of revenues for the six months ended October 25, 2024, included $15 million in stock-based compensation and $17 million in amortization of intangible assets[64] - Americas revenues increased to $862 million for the three months ended October 25, 2024, up from $789 million in the same period in 2023, representing a 9.3% growth[66] - EMEA revenues grew to $543 million for the three months ended October 25, 2024, compared to $525 million in the same period in 2023, a 3.4% increase[66] - APAC revenues rose to $253 million for the three months ended October 25, 2024, from $248 million in the same period in 2023, a 2.0% increase[66] - Total net revenues for the three months ended October 25, 2024, were $1,658 million, up from $1,562 million in the same period in 2023, a 6.1% growth[66] - U.S. sales accounted for $807 million of the Americas revenues for the three months ended October 25, 2024, up from $729 million in the same period in 2023, a 10.7% increase[66] - Product revenues grew by 9% to $768 million in Q2 2024 and by 11% to $1.437 billion in the first six months of 2024 compared to the same periods in 2023[81] - Services revenues increased by 4% to $890 million in Q2 2024 and by 4% to $1.762 billion in the first six months of 2024 compared to the same periods in 2023[82] - Public Cloud revenues grew by 9% to $168 million in Q2 2024 and by 6% to $327 million in the first six months of 2024 compared to the same periods in 2023[82] - Cost of product revenues increased by 11% to $307 million in Q2 2024 and by 6% to $576 million in the first six months of 2024 compared to the same periods in 2023[86] - Hybrid Cloud product gross margins increased by approximately two percentage points in the first six months of 2024 compared to the same period in 2023[87] - Public Cloud gross margins increased by eight percentage points in Q2 2024 and by six percentage points in the first six months of 2024 compared to the same periods in 2023[90] - Professional and other services revenues increased by 10% to $87 million in Q2 2024 and by 8% to $169 million in the first six months of 2024 compared to the same periods in 2023[82] - Support revenues increased by 2% to $635 million in Q2 2024 and by 3% to $1.266 billion in the first six months of 2024 compared to the same periods in 2023[82] Cash Flow and Financing - Net cash provided by operating activities for the six months ended October 25, 2024, was $446 million, compared to $588 million in the same period last year, a 24.1% decrease[19] - The notional amount of outstanding U.S. dollar equivalent foreign currency exchange forward contracts was $128 million for cash flow hedges as of October 25, 2024[58] - Cash flows used in financing activities totaled $1.4 billion in the first six months of fiscal 2025, including $700 million for stock repurchases and $400 million for debt repayment[101] - Net cash provided by operating activities decreased to $446 million in the first six months of fiscal 2025 from $588 million in the prior year, driven by changes in accounts receivable and deferred revenue[97][99] - The company sold $26 million of receivables during the six months ended October 25, 2024, compared to $27 million in the same period in 2023[69] - The company has a commercial paper program with a maximum aggregate face amount of $1.0 billion, with no commercial paper notes outstanding as of October 25, 2024[107] - The company has a $1.0 billion revolving unsecured credit facility, with no amounts drawn as of October 25, 2024[107] Restructuring and Workforce - The company reduced its global workforce by approximately 2% in the first six months of fiscal 2025, resulting in restructuring charges of $29 million[59] - Restructuring charges totaled $12 million for the second quarter and $29 million for the first six months of fiscal 2025[78] - Restructuring charges increased by 140% to $12 million in Q2 but decreased

Q2 FY25 Financial Highlights - NetApp delivered Q2 year-over-year revenue growth of 6% and billings growth of 9%[68] - The company set Q2 records for operating margin at 29% and EPS at $1.87[68] - All-flash annualized revenue run rate grew by 19% year-over-year, reaching an all-time high of $3.8 billion[68] - First party and marketplace cloud storage services revenue grew approximately 43% year-over-year[68] Q2 FY25 Performance vs Guidance - Q2 revenue reached $1.66 billion, a 6.1% year-over-year increase, exceeding the initial guidance of $1.565 billion[70] - Billings amounted to $1.59 billion, reflecting a 9.1% year-over-year growth[70] - Non-GAAP gross margin was 72.0%, consistent with the guidance, while non-GAAP operating margin was 28.6%, a 180 bps year-over-year increase[70] - Non-GAAP EPS was $1.87, an 18.4% year-over-year increase, surpassing the guidance of $1.73 - $1.83[70] YTD FY25 Performance - Year-to-date revenue reached $3.20 billion, a 6.8% year-over-year increase[73] - Year-to-date billings amounted to $3.04 billion, reflecting a 10.2% year-over-year growth[73] - Year-to-date non-GAAP gross margin was 72.1%, a 70 bps year-over-year increase, and non-GAAP operating margin was 27.3%, a 300 bps year-over-year increase[73] - Year-to-date non-GAAP EPS was $3.42, a 25.7% year-over-year increase[73] FY25 Guidance - The company updated FY25 revenue guidance to $6.54 billion - $6.74 billion, with a non-GAAP operating margin between 28% - 28.5% and non-GAAP EPS between $7.20 - $7.40[115] Sustainability - NetApp responsibly managed and diverted 99% of e-waste from landfills[59] - The company achieved a 37% reduction in Scope 1 & 2 emissions and a 19% reduction in Scope 3 intensity as of FY23, compared to the FY20 baseline[64]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $1.66 billion, a 6% year-over-year increase, marking the fourth consecutive quarter of growth [34][31] - Billings increased by 9% year-over-year to $1.59 billion [34] - Operating margin reached 29%, with gross margin at 72%, both near all-time highs [31][37] - EPS was $1.87, exceeding guidance expectations [40] - Free cash flow was $60 million, down from $97 million year-over-year, primarily due to strategic SSD purchases [41][45] Business Line Data and Key Metrics Changes - All-flash storage revenue grew 19% year-over-year, contributing significantly to overall revenue growth [10][15] - Hybrid Cloud segment revenue increased by 6%, with product revenue up 9% [14] - Keystone, the Storage-as-a-Service offering, saw revenue growth of approximately 55% year-over-year [18] - Public Cloud revenue grew 9% year-over-year to $168 million, driven by first-party and marketplace cloud storage services [25][34] Market Data and Key Metrics Changes - Public Cloud segment gross margins improved to 74% from 66% year-over-year [39] - Deferred revenue was $4.1 billion, up 2% year-over-year, indicating strong future revenue potential [36] - Unbilled remaining performance obligations (RPO) increased by 11% quarter-over-quarter to approximately $330 million [36] Company Strategy and Development Direction - The company is focused on executing its strategy in data center modernization, cloud, and AI, aligning with customer spending priorities [54] - Continued innovation in product offerings, particularly in all-flash arrays and AI solutions, is a key focus [15][19] - The company aims to return to double-digit growth in cloud revenues in the second half of fiscal year 2025 [35][100] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment remains unchanged, with a focus on priority spending areas [54] - The company expects to achieve mid to upper-single digit revenue growth and double-digit EPS growth on average through fiscal year 2027 [30] - There is optimism regarding the AI business, with over 100 wins in Q2, indicating strong future growth potential [22][56] Other Important Information - The company returned over $400 million to shareholders through dividends and share repurchases [32] - Strategic purchase commitments for SSDs have been made to mitigate rising prices, providing confidence in product gross margins [37] Q&A Session Summary Question: Insights on macroeconomic recovery and revenue growth - Management indicated that macro conditions have remained stable and the growth outlook is independent of macro factors [54] Question: Updates on AI deployment and future expectations - Early stages of AI infrastructure readiness are being observed, with significant wins across various sectors [56] Question: Durability of all-flash array growth - The company has experienced consistent high-teens growth in all-flash arrays, outpacing competitors [61] Question: Inventory pre-buying strategy - The increase in inventory is primarily due to pre-buys, but no further pre-buys are planned for the remainder of the fiscal year [63][64] Question: Public sector performance and outlook - The public sector business performed well, supported by long-term projects and program spending [74] Question: Competitive environment and pricing - The competitive landscape remains rational, with no significant changes noted [91] Question: Impact of new U.S. administration on business - The company is well-protected from potential tariffs and will monitor policy changes from the new administration [94] Question: Public cloud revenue recovery - Growth in public cloud revenue is attributed to a focused go-to-market strategy and broadening service offerings [100] Question: Customer feedback on Keystone - Customer feedback on Keystone has been positive, with no churn reported, indicating strong market traction [110]

Financial Performance - Net revenues for Q2 FY2025 were $1.66 billion, a 6% increase year-over-year from $1.56 billion in Q2 FY2024[2] - Billings increased by 9% year-over-year to $1.59 billion, compared to $1.45 billion in Q2 FY2024[3] - GAAP net income was $299 million, up from $233 million in Q2 FY2024, with non-GAAP net income at $392 million compared to $334 million[3] - GAAP earnings per share were $1.42, an increase from $1.10 in Q2 FY2024, while non-GAAP earnings per share rose to $1.87 from $1.58[3] - Net revenues for the three months ended October 27, 2023, increased to $1.658 billion, up from $1.562 billion in the same period last year, representing a growth of 6.1%[47] - Gross profit for the three months ended October 27, 2023, was $1.177 billion, compared to $1.110 billion in the prior year, reflecting an increase of 6.0%[47] - Net income for the three months ended October 27, 2023, was $299 million, up from $233 million year-over-year, indicating a growth of 28.3%[47] - Basic net income per share increased to $1.47 for the three months ended October 27, 2023, compared to $1.12 in the same period last year, a rise of 31.3%[47] Revenue Segments - Hybrid Cloud segment revenue reached $1.49 billion, up from $1.41 billion in the same quarter last year, while Public Cloud segment revenue grew to $168 million from $154 million[3] - The hybrid cloud segment net revenues for Q2 FY25 were $1,490 million, up from $1,382 million in Q1 FY25[49] - Q2'FY25 product revenues were $768 million, an increase from $669 million in Q1'FY25 and $706 million in Q2'FY24[61] - Q2'FY25 services revenues reached $890 million, up from $872 million in Q1'FY25 and $856 million in Q2'FY24[63] Guidance and Projections - Q3 FY2025 revenue guidance is projected between $1.610 billion and $1.760 billion, with GAAP earnings per share expected to be in the range of $1.41 to $1.51[5] - Full FY2025 revenue guidance is updated to a range of $6.540 billion to $6.740 billion, with consolidated gross margins expected between 70% and 72%[5] - Non-GAAP guidance for net income per share for Q3 FY25 is projected to be between $1.85 and $1.95[72] - GAAP guidance for net income per share for FY25 is estimated to be between $5.48 and $5.68[77] - Non-GAAP gross margin guidance for FY25 is expected to be between 71% and 72%[75] - Operating margin guidance for FY25 is projected to be between 21% and 21.5% on a GAAP basis, and between 28% and 28.5% on a non-GAAP basis[75] Cash Flow and Assets - Cash provided by operating activities for the three months ended October 27, 2023, was $105 million, down from $135 million in the prior year[48] - Net cash used in investing activities was $564 million for the three months ended October 27, 2023, compared to $227 million in the same period last year[48] - Net cash used in financing activities totaled $842 million for the three months ended October 27, 2023, compared to $421 million in the prior year[48] - The company reported a cash balance of $1.487 billion at the end of the period, down from $1.941 billion at the beginning of the period[48] Balance Sheet - NetApp's total current assets decreased from $4,897 million in April 2024 to $3,939 million in October 2024, a decline of approximately 19.6%[45] - The company's cash, cash equivalents, and investments dropped from $3,252 million to $2,222 million, representing a decrease of about 31.7%[45] - Current liabilities increased from $4,106 million to $4,317 million, an increase of approximately 5.1%[45] - Long-term debt decreased from $1,992 million to $1,244 million, a reduction of about 37.6%[45] - Total liabilities decreased from $8,741 million to $8,112 million, a decline of approximately 7.2%[45] - Stockholders' equity fell from $1,146 million to $892 million, a decrease of about 22.2%[45] Operational Metrics - Operating expenses rose to $832 million for the three months ended October 27, 2023, compared to $806 million in the same period last year, marking a 3.2% increase[47] - Total cost of revenues for the three months ended October 27, 2023, was $481 million, an increase from $452 million in the same period last year, reflecting a growth of 6.4%[47] - Days sales outstanding (DSO) increased to 48 days in Q2 FY25 from 40 days in Q1 FY25[50] - Inventory turns decreased to 6 in Q2 FY25, down from 8 in Q1 FY25[50] Product and Innovation - New product innovations include the launch of all-flash NetApp™ ASA A-Series storage systems and enhancements to cyber resilience offerings with AI capabilities[6][7] - NetApp is focusing on driving growth in total product revenues through the sale of configured storage systems, with less emphasis on the pricing of individual hardware and software components[23] - The company is considering simplifying pricing for certain products, potentially eliminating separate prices for hardware and software components[24] Non-GAAP Measures - Non-GAAP measures are used to provide supplemental metrics that assist in understanding current results and future prospects, including non-GAAP net income and non-GAAP earnings per share[26] - NetApp approximates billings by adding net revenues to the change in total deferred revenue, providing a performance measure that reflects amounts under purchase orders received during a given period[28] - Non-GAAP income from operations for Q2 FY25 was $475 million, representing 28.6% of net revenues, up from 25.9% in Q1 FY25[50] - Non-GAAP net income for Q2 FY25 was $392 million, compared to $330 million in Q1 FY25[50] - Non-GAAP operating expenses for Q2'FY25 were $719 million, compared to $714 million in Q1'FY25 and $706 million in Q2'FY24[55] - Non-GAAP gross margin for Q2'FY25 was 72.0%, compared to 72.2% in Q1'FY25 and 72.0% in Q2'FY24[59]