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    NTAP
    Earnings call· Apr 2025(Q4 FY25)

    NetApp Q4 FY25 earnings call NTAP

    May 29, 2025 Source

    Executive summary

    NetApp Q4 FY25 — Record Revenue and Profitability Driven by All-Flash and Cloud Growth

    NetApp achieved record Q4 and FY25 financial results, driven by strong growth in all-flash storage and accelerating cloud services, particularly first-party and marketplace offerings. The company is at an inflection point, leveraging its unified data architecture and AI-ready infrastructure to capitalize on the evolving enterprise AI market. Despite a cautious near-term macro outlook, NetApp expresses confidence in its full-year FY26 guidance, anticipating continued market share gains and profitability expansion.

    Highlights

    5

    • Achieved record revenue for Q4 and FY25, along with all-time highs for gross profit, operating profit, operating margin, and EPS in FY25.

    • All-flash array annualized revenue run rate grew 14% year-over-year to a record $4.1 billion.

    • First-party and marketplace cloud storage services grew 44% year-over-year in Q4.

    • AI business grew fivefold year-over-year in Q4, closing approximately 150 AI infrastructure and data lake modernization deals.

    • Gained almost 300 basis points of all-flash market share and almost 100 basis points of block storage market share in calendar 2024.

    Concerns

    4

    • Q1 FY26 revenue guidance implies a 1% year-over-year decline (or 1% growth excluding the divested Spot business), below typical expectations.

    • Macro environment remains uncertain with potential for lower IT spending and ongoing friction in the U.S. public sector and EMEA.

    • Tariffs are expected to impact gross margin by 40 to 60 basis points in fiscal year 2026.

    • Product gross margin is expected to be flattish in Q1 FY26 compared to Q4 FY25, before gradual improvement.

    Guidance & targets

    13
    CategoryTargetConfidence
    Total Revenue
    $6.625 billion to $6.875 billion
    high materiality
    High
    Consolidated Gross Margin
    71% to 72%
    medium materiality
    High
    Operating Margin
    approximately 28.8% to 29.8%
    high materiality
    High
    Other Income and Expenses
    approximately negative $10 million
    low materiality
    High
    Tax Rate
    20% to 21%
    medium materiality
    High
    EPS
    $7.60 to $7.90
    high materiality
    High
    Operating Cash Flow
    move in line with net income
    medium materiality
    Medium
    Shareholder Returns
    up to 100% of free cash flow
    high materiality
    High
    Diluted Share Count Reduction
    low single-digit percentage points
    medium materiality
    High
    Total Revenue
    $1.455 billion to $1.605 billion
    high materiality
    High
    Consolidated Gross Margin
    71% to 72%
    medium materiality
    High
    Operating Margin
    25% to 26%
    high materiality
    High
    EPS
    $1.48 and $1.58
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Hybrid Cloud
    Growth driven by strong performance in product revenue, particularly all-flash systems, and professional services from Keystone.
    Product revenue: $845 million (up 5% YoY)Support revenue: $625 million (flat YoY)Professional Services revenue: $98 million (up 13% YoY, driven by Keystone)All-flash made up approximately 2/3 of Hybrid Cloud segment revenue44% of systems in installed base under active support contracts are all-flash
    		$1.57 billion3%—68.4% gross margin
    Public Cloud
    Strong growth driven by first-party and marketplace cloud storage services, with significant gross margin expansion.
    First-party and marketplace cloud storage services grew 44% YoYFirst-party and marketplace cloud storage services compose roughly 75% of Public Cloud segment revenueGross margin up 290 basis points sequentially and 11 percentage points YoY
    		$164 million8% (22% ex-Spot)—79.3% gross margin

    Operational metrics

    24
    Non-GAAP EPS
    $1.93up 7% YoY
    Q4 FY25

    Predominantly driven by lower operating expenses and effective tax rate.

    Non-GAAP EPS
    $7.75up 12% YoY
    FY25

    Midpoint of the full year EPS, growing over twice the rate of revenue growth.

    Non-GAAP operating margin
    28.6%up 50 bps YoY
    Q4 FY25

    Highest for Q4 in the history of NetApp.

    Non-GAAP operating margin
    28.3%up 150 bps YoY
    FY25

    All-time fiscal year high, driven by flat operating expenses against 5% revenue growth.

    Consolidated Gross Margin
    69.5%
    Q4 FY25

    Non-GAAP consolidated gross margin.

    Cash and investments balance
    $3.85 billion
    FY25

    Cash and short-term investments at year-end.

    Net cash position
    $610 million
    FY25

    Calculated as $3.85 billion cash and short-term investments minus $3.24 billion total debt.

    Total revenue
    $1.73 billionup 4% YoY, up 6% sequentially
    Q4 FY25

    Slightly above the midpoint of guidance range. Marks sixth consecutive quarter of YoY revenue growth.

    Total revenue
    $6.57 billionup 5% YoY
    FY25

    All-time company high.

    Billings
    $2.03 billionup 12% YoY
    Q4 FY25

    Marks sixth consecutive quarter of YoY billings growth.

    Billings
    $6.78 billionup 8% YoY
    FY25

    All-time company high.

    Deferred revenue
    $4.54 billionup 7% YoY (5% CC)
    FY25

    Deferred revenue at the end of fiscal year.

    Operating expenses
    $707 milliondown 2% YoY, up 6% sequentially
    Q4 FY25

    Non-GAAP operating expenses.

    Diluted share count
    206 milliondown 6 million or 3% YoY
    Q4 FY25

    Diluted share count for the quarter.

    Share repurchase authorization
    $350 million
    FY25

    Remaining on current authorization at end of FY25. Increased by $1.1 billion.

    Share repurchases
    $250 million
    Q4 FY25

    Amount returned to shareholders through share repurchases.

    Cash dividends
    $105 million
    Q4 FY25

    Amount returned to shareholders through cash dividends.

    Inventory turns
    12%
    Q4 FY25

    Inventory decreased in the quarter and inventory turns increased.

    Keystone TCV sales
    $224 millionup 54% YoY
    FY25

    Total Contract Value sales for Keystone, the Storage as a Service offering.

    Spot business revenue
    $95 million
    annually

    Revenue generated by the recently divested Spot business, which accounted for a low teens percentage of Public Cloud segment revenue.

    AI business growth
    fivefold
    Q4 FY25

    AI business grew fivefold year-over-year, performing ahead of plan.

    AI deals closed
    150
    Q4 FY25

    Approximately 150 AI infrastructure and data lake modernization deals closed.

    Tariff impact on gross margin
    40-60 bps
    FY26

    Impact from current tariff situation, based on the 10% baseline tariff.

    OpEx growth
    at most half of revenue growth
    FY26

    Operating expense growth is not expected to be faster than revenue growth, aiming for operating leverage.

    Industry KPIs

    6
    MetricValueDetails
    Capital return FCF$355 millionUSD
    Gross margin drivers40-60 bpsbps
    Services peripheral attach$224 millionUSD
    Installed base refresh runway44%%
    Ai server orders revenue backlogfivefoldYoY
    Revenue mix by end market segment2/3%

    Orderbook & backlog

    2
    Remaining Performance Obligations$4.97 billionend of FY25

    up approximately $500 million from Q1

    Unbilled Remaining Performance Obligations$430 millionend of FY25

    up 23% quarter-over-quarter

    Key indicator of future Keystone revenue growth.

    Product announcements

    2
    ProductTypeDetails
    ONTAP all-flash storagemilestone
    AI Reference Architectureslaunch

    Deals & partnerships

    9
    NVIDIAExpanded AI ecosystem and introduced AI reference architectures

    Delivering innovations and introduced AI reference architectures for AIDP, and ONTAP all-flash storage was certified for NVIDIA DGX SuperPOD, NVIDIA Cloud Partners and NVIDIA-Certified Systems.

    DominoExpanded AI ecosystem

    Expanded AI ecosystem for enterprise AI.

    DremioExpanded AI ecosystem

    Expanded AI ecosystem for enterprise AI.

    Open Platform for Enterprise AIExpanded AI ecosystem through open-source projects

    Expanded AI ecosystem for enterprise AI open-source projects.

    HyperscalersExpanded AI ecosystem and co-engineered services

    Expanded AI ecosystem through AI toolkits and co-engineered services with major cloud providers.

    CiscoIntroduced AI reference architecture

    Introduced AI reference architecture for FlexPod.

    LenovoIntroduced AI reference architecture

    Introduced AI reference architecture for AIPod.

    IntelIntroduced AI reference architecture

    Introduced AI reference architecture for AIPod Mini.

    Spot by NetAppDivestiture of Spot by NetApp services

    Recently divested Spot by NetApp services, which accounted for a low teens percentage of Public Cloud segment revenue.

    Risks & headwinds

    7
    Macroeconomic UncertaintyFY26

    General slowdown in growth, lingering inflation concerns, significantly higher level of uncertainty.

    Mitigation: Incorporating an appropriate level of caution in outlook, focusing on growth opportunities and efficiencies.

    IT Spending CautionFY26

    Expected increased spending caution from customers.

    Mitigation: Focusing on value proposition addressing top customer priorities like data modernization, cloud transformation, AI, and cyber resiliency.

    U.S. Public Sector FrictionQ1 FY26 and beyond

    Ongoing friction and uncertainty, particularly regarding budget approvals and the impact of Doge.

    Mitigation: Anticipating Doge wrapping up and a new spending bill being authorized to help going forward.

    EMEA FrictionQ1 FY26 and beyond

    Ongoing friction in EMEA, particularly in large countries with public sector uncertainty and impact from tariffs/manufacturing.

    Mitigation: Acknowledging less visibility into timing and resolution of geopolitical situations, maintaining prudent guidance.

    Tariff Impact on Gross MarginFY26

    40 to 60 basis points impact on gross margin.

    Mitigation: Diverse supply chain with no exposure to China, final assembly in Singapore, Hungary, Mexico, and U.S. to minimize impact; semiconductor exemption helps.

    Product Gross Margin PressureQ1 FY26

    Expected to be flattish in Q1 FY26 compared to Q4 FY25.

    Mitigation: Anticipates gradual improvement from Q2 FY26 onwards.

    Broadcom/VMware Acquisition DisruptionOngoing

    Greater degree of caution about hyper-converged infrastructures; replatforming exercises by customers.

    Mitigation: Expanding support for alternative hypervisors, leveraging success in block storage for replatforming, and good growth with VMR services in Public Cloud.

    What to watch in Q1 FY26

    5

    Product Gross Margin Trajectory

    Q2 FY26 and beyond
    CurrentFlattish to Q4 FY25 in Q1 FY26
    TargetGradual improvement

    Why it matters

    Indicates pricing power, cost management, and overall profitability trend, crucial for full-year margin targets.

    We did say previously in last quarter that earnings call that Q4 would be the bottom we're seeing Q1 to be more or less in line with Q4, but we anticipate improvement from there gradual improvement into the rest of the fiscal year on a quarterly basis.

    Q&A highlights

    6

    Why is Q1 guidance light but full-year intact, and what drives the acceleration? What is the outlook for product gross margins given NAND prices and macro?

    Q1 caution stems from public sector uncertainty in Europe and the U.S., and tariff impacts. Full-year acceleration is expected from large AI deals, increased sales capacity, and continued strength in cloud and all-flash. Product gross margins are anticipated to be flattish in Q1, then gradually improve over the rest of the fiscal year.

    “We are coming into the year with a ton of momentum. We have been the fastest-growing all-flash player in the market.”

    asked by Tim Long · answered by George Kurian

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Inflection Point

    NetApp believes it has reached an inflection point where the growth of all-flash systems and Public Cloud services, reinforced by the AI market, will drive sustained top-line growth. These areas now represent over two-thirds of total revenue, up from less than half five years ago. The company expects these growth drivers, combined with focused investments and execution, to deliver more company records in FY26 and beyond.

    02

    All-Flash and Block Storage Momentum

    The all-flash array annualized revenue run rate grew 14% year-over-year to a record $4.1 billion, comprising approximately two-thirds of Hybrid Cloud segment revenue in Q4. NetApp gained almost 300 basis points of all-flash market share and nearly 100 basis points in the block storage market in calendar 2024, outpacing the market. The company is in the early stages of entry into the dedicated block storage market with significant headroom for continued growth.

    03

    Public Cloud Services Focus and Growth

    NetApp focused its Public Cloud services to emphasize highly differentiated first-party and marketplace cloud storage services, which grew 44% year-over-year in Q4. These services now compose roughly 75% of Public Cloud segment revenue. Public Cloud revenue (excluding the recently divested Spot business) grew 22% year-over-year in Q4, demonstrating accelerated growth through the year.

    04

    Enterprise AI Acceleration and Ecosystem Expansion

    NetApp's AI business grew fivefold year-over-year in Q4, closing approximately 150 AI infrastructure and data lake modernization deals. The company dramatically expanded its AI ecosystem, delivering innovations with NVIDIA, Domino, Dremio, and leading hyperscaler AI toolkits. It also introduced AI reference architectures with NVIDIA, Cisco, Lenovo, and Intel, positioning itself as a leader in AI transformation.

    05

    Macroeconomic Caution and Prudent Outlook

    Despite strong internal momentum and competitive positioning, NetApp is incorporating caution into its FY26 outlook. This is due to mixed macroeconomic signals, lingering inflation concerns, and uncertainty in the U.S. public sector and EMEA, particularly regarding trade policies and government budgets. The company has less visibility into the timing and resolution of these geopolitical situations.

    06

    Strong Financial Performance and Operational Leverage

    NetApp achieved all-time fiscal year highs for operating margin (28.3%) and EPS (up 12% YoY) in FY25, demonstrating the effect of high operating leverage. This was driven predominantly by flat operating expenses against a backdrop of 5% revenue growth. The company's balance sheet remains healthy with a net cash position of approximately $610 million at year-end.

    AI-generated summary of the company’s earnings call. Not investment advice.