Key Takeaways NetApp posted $1.71B in fiscal Q2 revenues, up 3% YoY, with non-GAAP operating margin expanding to 31.1%.NTAP returned $353M to shareholders via dividends and buybacks in the fiscal second quarter. NTAP closed 200 AI infrastructure deals and expanded offerings with AFX, AI Data Engine, and Keystone STaaS.NetApp ((NTAP) is managing capital returns while focusing on emerging AI, cloud and All-Flash growth engines. In the last reported quarter, the company reported revenues of $1.71 billion, whic ...

Financial Data and Key Metrics Changes - The company reported Q2 revenue of $1.71 billion, an increase of 3% year-over-year, and 4% excluding the divested Spot business [5][18] - Non-GAAP earnings per share (EPS) was $2.05, reflecting a 10% year-over-year growth [20][23] - Gross margin reached a record 72.6%, exceeding guidance, with operating margin at 31.1%, up 2.4 percentage points year-over-year [20][23] - Cash flow from operations was $127 million, and free cash flow was $78 million [21] Business Line Data and Key Metrics Changes - Hybrid cloud revenue was $1.53 billion, up 3% year-over-year, with Keystone showing significant growth of 76% year-over-year [18][20] - Public cloud revenue increased by 2% year-over-year to $171 million, and 18% excluding the Spot business [18] - All-flash array revenue grew 9% year-over-year to $1 billion, with an annualized run rate of $4.1 billion [14] Market Data and Key Metrics Changes - The company experienced strong demand for AI solutions and cloud storage services, with approximately 200 AI infrastructure and data lake modernization deals closed in Q2 [9][19] - Revenue from first-party and marketplace cloud storage services increased by approximately 32% year-over-year [11][68] Company Strategy and Development Direction - The company is focused on expanding its presence in AI, hybrid cloud, and all-flash markets, aiming to leverage its unified data platform for operational efficiencies [7][16] - Innovations such as AFX and AIDE are designed to enhance AI workload capabilities and simplify data management [8][9] - The company is committed to maintaining operational discipline while driving growth in key areas [20][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the uncertain macro environment and capture market share despite near-term headwinds in the U.S. public sector [16][58] - The company anticipates a strong second half of the fiscal year, driven by growth in non-U.S. public sector segments and AI-related spending [57][58] Other Important Information - The company raised its fiscal year 2026 revenue guidance to between $6.625 billion and $6.875 billion, reflecting a 3% year-over-year growth [22][23] - Deferred revenue balance was $4.45 billion, up 8% year-over-year, indicating strong future revenue visibility [19] Q&A Session Summary Question: Component environment and pricing dynamics - Management indicated they have locked in prices for components and have visibility for a couple more quarters, expecting product margins to remain stable [26][28] Question: Drivers of product gross margin expansion - Product gross margin is driven by a combination of mix and pricing, with expectations to maintain current levels [36][40] Question: Trends in AI-related transactions - The company reported a stable mix of AI transactions, with significant interest in the AFX platform, although it is too early to quantify its impact [44][47] Question: Seasonal revenue guidance - Management noted that U.S. public sector headwinds are expected to impact seasonal growth, but they view this as temporary [50] Question: Demand drivers and inventory management - The company is optimistic about demand in the second half of the year and is prepared to secure supply as needed [56][59] Question: Opportunities with Sovereign clouds - The company is actively participating in Sovereign cloud initiatives and sees potential for growth in AI workloads [89][92] Question: AI's impact on storage revenue - Management believes that as AI adoption increases, particularly in inferencing, storage consumption will also rise [114]

Financial Data and Key Metrics Changes - The company reported Q2 revenue of $1.71 billion, up 3% year-over-year, and 4% excluding the divested Spot business [5][18] - Non-GAAP earnings per share (EPS) was $2.05, growing 10% year-over-year [20] - Gross margin for Q2 was 72.6%, above guidance, with operating margin at 31.1%, up 2.4 percentage points year-over-year [20][21] - Cash flow from operations was $127 million, and free cash flow was $78 million [21] Business Line Data and Key Metrics Changes - Hybrid cloud revenue was $1.53 billion, up 3% year-over-year, with Keystone showing 76% growth [18] - Public cloud revenue was $171 million, increasing by 2% year-over-year, and 18% excluding the Spot business [18] - All-flash array revenue grew 9% year-over-year to $1 billion, with an annualized run rate of $4.1 billion [14] Market Data and Key Metrics Changes - The company experienced strong demand for AI solutions and cloud storage services, with first-party and marketplace cloud storage services revenue increasing approximately 32% year-over-year [11][68] - Deferred revenue balance was $4.45 billion, up 8% year-over-year, indicating strong future revenue potential [19] Company Strategy and Development Direction - The company is focused on expanding its presence in AI, cloud, and all-flash markets, leveraging innovations like AFX and AIDE to enhance its offerings [7][9] - The strategy includes enhancing partnerships with hyperscalers and expanding capabilities in public cloud environments [10][11] - The company aims to capture market share by aligning with customer spending on AI and data infrastructure modernization [58] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macroeconomic challenges and expects a recovery in the U.S. public sector business [16][50] - The company anticipates continued growth in the second half of the fiscal year, driven by strong demand in non-U.S. public sector segments and AI projects [57][58] - Management highlighted the importance of operational discipline and innovation in maintaining competitive advantages [16][20] Other Important Information - The company launched the NetApp Ransomware Resilience Service to enhance cyber resilience capabilities [14] - The company is committed to maintaining a strong balance sheet and securing supply commitments to mitigate potential risks [59][75] Q&A Session Summary Question: Component environment and pricing dynamics - Management indicated they have locked in prices for components and have visibility for a couple more quarters [27][28] Question: Drivers of product gross margin expansion - Management noted that product gross margin is driven by a mix of factors including pricing and product mix, with expectations for stability [39][41] Question: Trends in AI-related transactions - Management reported closing approximately 200 AI infrastructure deals, with a stable mix of transaction types [46][47] Question: Seasonal revenue guidance for Q3 - Management acknowledged potential headwinds in the U.S. public sector but views them as temporary [50] Question: Demand drivers and inventory management - Management expressed confidence in demand despite public sector challenges and indicated a proactive approach to securing supply [57][59] Question: Opportunities with Sovereign clouds - Management highlighted ongoing participation in Sovereign clouds and the introduction of AFX to enhance offerings [89][92] Question: Cash flow and pricing flexibility - Management noted seasonality in cash flow and emphasized the ability to adjust pricing based on commodity costs [125]

Financial Data and Key Metrics Changes - The company reported Q2 revenue of $1.71 billion, representing a 3% year-over-year increase. Excluding the divested Spot business, total revenue increased by 4% [4][15] - Non-GAAP earnings per share (EPS) was $2.05, reflecting a 10% year-over-year growth [17] - Gross margin for Q2 was 72.6%, exceeding guidance and up 1.5 percentage points sequentially [16][17] - Operating income was $530 million, up 12% compared to Q2 2025, with an operating margin of 31.1%, an increase of 2.4 percentage points year-over-year [17] Business Line Data and Key Metrics Changes - Hybrid cloud revenue reached $1.53 billion, up 3% year-over-year, driven by product, support, and Keystone services, which grew 76% year-over-year [15] - Public cloud revenue was $171 million, a 2% increase year-over-year, and up 18% excluding the Spot business [15][16] - All-flash array revenue grew 9% year-over-year to $1 billion, with an annualized run rate of $4.1 billion [12] Market Data and Key Metrics Changes - The company closed approximately 200 AI infrastructure and data lake modernization deals across various geographies and industries in Q2 [8] - The first-party and marketplace cloud storage services revenue increased approximately 32% year-over-year [10] Company Strategy and Development Direction - The company is focused on growing markets, particularly in all-flash, public cloud, and AI, which are expected to drive top-line growth [14] - Innovations such as AFX and AIDE are aimed at enhancing AI workload capabilities and improving data management [6][8] - The company is committed to leveraging its competitive advantages and aligning with customer data initiatives to capture additional market share [14][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the uncertain macro environment and expected growth in non-U.S. public sector segments [14][33] - The company anticipates a slight decline in U.S. public sector revenue due to recent shutdowns but expects recovery in the long term [31][34] - Management raised guidance for gross margin, operating margin, and EPS for the fiscal year based on strong Q2 performance [19][20] Other Important Information - Cash flow from operations was $127 million, and free cash flow was $78 million [18] - The company returned $353 million to shareholders through share repurchases and dividends [18] Q&A Session Summary Question: Component environment and pricing dynamics - Management indicated they have locked in prices for components and have visibility for a couple more quarters [21] - They expect product gross margin to remain stable through the rest of the year despite potential volatility in component pricing [22][24] Question: Drivers of product gross margin expansion - Product gross margin expansion is driven by a combination of mix and pricing, with a focus on maintaining operational discipline [27][28] Question: Trends in AI-related transactions - The company reported a stable mix of AI transactions, with a significant increase in the number of deals closed [29][30] Question: Seasonal growth expectations - Management noted that the U.S. public sector business is expected to be slightly below seasonal trends due to recent shutdowns, but they view this as temporary [31] Question: Demand drivers for the second half of the year - Despite U.S. public sector headwinds, management sees acceleration in non-U.S. public sector segments and strong demand for AI projects [33] Question: AI deal sizes and customer feedback - Deal sizes vary widely, and while there is strong interest in the AFX platform, it is still early to assess its impact on results [36] Question: Cash flow and seasonality - Q2 cash flow is typically lower due to seasonality and tax payments, but management expects improvement in the second half [55]

Core Insights - NetApp is transforming storage from a passive repository to an active data foundation, aligning with industry trends towards infrastructure that orchestrates and accelerates data use, particularly for AI workloads [1][3] - The event featured keynotes from major partners like Google, Microsoft, and AWS, highlighting the importance of collaboration in advancing storage solutions [1] - CEO George Kurin emphasized the connection between unstructured and structured data through the AI Data Engine and knowledge graphs, showcasing NetApp's vision for AI integration [1] Key Themes Emerging from the Event - The evolution of storage strategy is essential for enterprises, with principles such as disaggregation, embedded governance, and active metadata being crucial for future roadmaps [3] - The AI era necessitates a shift in infrastructure priorities, focusing on observability, accountability, security, and intelligibility as foundational elements [4] Technological Developments - NetApp introduced AFX, a modular all-flash platform that allows for independent scaling of performance and capacity, catering to AI pipeline optimization [5] - The focus on active metadata indicates a transition towards dynamic data fabrics that support semantic search and governance, vital for AI workflows [5] - The new NetApp Console modernizes management across hybrid and multicloud environments, unifying controls for various data services [5] Security and Compliance - Enhancements in ransomware detection and isolated recovery environments reflect the growing expectation for compliance and protection to be integrated within infrastructure [5] - Governance and regulatory compliance must be inherent to the data layer, emphasizing the need for native solutions [5] Strategic Recommendations - Organizations should audit their current storage platforms to ensure support for GPU adjacency and metadata-driven workflows [6] - Data services such as observability and security should be embedded within the storage layer for enhanced functionality [6] - Planning for governance and scalability should be prioritized from the outset of infrastructure design [6]