NetApp(NTAP) - 2025 Q2 - Earnings Call Transcript

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]