The operator welcomes listeners to the NetApp Fourth Quarter Fiscal Year 2024 Earnings Call and introduces the CEO and CFO. The call will include forward-looking statements and projections, and all financial measures presented will be non-GAAP. The CEO discusses the company's strong performance in the fourth quarter and fiscal year 2024, with revenue exceeding guidance due to the growth of their all-flash portfolio.

In FY '24, NetApp saw record-breaking numbers in various aspects of their business due to their strong operational discipline. They implemented a plan to improve their storage and Public Cloud business, which has resulted in positive outcomes and a strong market presence. NetApp offers a comprehensive and integrated portfolio of unified data storage solutions, providing simplicity and flexibility to customers in managing their data. In the latest quarter, their Hybrid Cloud segment saw significant growth in revenue, driven by high demand for their modern all-flash arrays.

In the first quarter of FY '25, the company's all-flash array annualized revenue reached a record high of $3.6 billion, driven by strong demand for their new A-series unified data storage products. These products offer enhanced performance and cost savings for customers, positioning the company to increase their share in the all-flash market. The company's Storage-as-a-Service offering, Keystone, also saw significant growth, with total contract value sales doubling from the previous year. A major semiconductor manufacturer has selected Keystone as their global standard for both block and file storage, displacing the incumbent vendor. The company expects continued growth for Keystone in FY '25.

NetApp's multi-year deal with a customer allowed them to simplify and improve their storage environment, making AI a top priority for organizations. Data management is crucial for enterprise AI, and NetApp's high-performance all-flash storage and comprehensive data management capabilities make them a top choice for customers. They continue to strengthen their position in enterprise AI through the introduction of NetApp AIPod and updates to their FlexPod AI reference architectures. They were also recognized at NVIDIA GTC for their role in storing enterprises' unstructured data, which is essential for GenAI.

NetApp's partnership with NVIDIA allows customers to access their large amount of data stored on NetApp's on-premises and cloud platforms, showcasing the company's role in AI infrastructure. One of the world's leading oil and gas companies has chosen NetApp's all-flash storage for their AI initiatives and is also building an AI Center of Excellence. NetApp's first-party and hyperscaler marketplace storage services are a top priority and have seen a 30% increase in growth, with many competitors being replaced by NetApp's cloud storage services. NetApp is ahead of the competition in cloud storage services and has improved the performance of Amazon FSx for NetApp ONTAP in Q4.

In paragraph 6, the speaker discusses the introduction of a new service level for Google Cloud NetApp Volumes and the company's receipt of Google Cloud's Technology Partner of the Year award. They thank the NetApp team for their work and express confidence in the company's strong momentum and leadership in the storage industry. Looking ahead, they remain cautiously optimistic about the macro environment and will continue to focus on top priorities and operational discipline. The speaker encourages listeners to attend the upcoming Investor Day and turns the call over to Mike to discuss the company's strong P&L performance.

In Q4, the company saw solid revenue growth driven by their all-flash and cloud storage portfolio. Their all-flash array revenue grew 17% year-on-year and now accounts for 60% of hybrid cloud revenue. Their Storage-as-a-Service offering had triple-digit revenue growth and their first-party and marketplace cloud storage also saw double-digit growth. The company's operating profit margin and operating cash flow were at record highs, and their product gross margins reached a record high of 60%. They have an increasing share of revenue from higher margin and recurring sources. In fiscal '24, they generated $1.53 billion in free cash flow and returned 86% of it to shareholders through share repurchases and dividends. They plan to continue a strong policy of shareholder returns in fiscal '25 and have increased their quarterly dividend and share repurchase authorization.

In the fourth quarter, NetApp saw a 6% increase in revenue and an 8% increase in billings year-over-year. Their Hybrid Cloud revenue also increased by 6%, with product revenue up 8% and support revenue up 4%. Public Cloud ARR also saw a 2% increase year-over-year. The company's gross margin was 71.5%, with the Hybrid Cloud gross margin at 72%. The recurring support business had a gross margin of 92% and the Public Cloud gross margin increased by 290 basis points. NetApp had an operating margin of 28%, the highest for a Q4 in the company's history. EPS was $1.80, $0.02 above guidance. Cash flow from operations and free cash flow were both higher than expected due to increased customer collections, lower tax payments, and lower supply chain payments.

In Q4, the company repurchased $100 million in stock and paid out $104 million in dividends. The diluted share count decreased by 2% year-over-year. The company has $500 million left on their share repurchase authorization and has announced an increase of $1 billion. For the full year of fiscal '24, revenue and billings were down 1% and 2% respectively, but the company achieved all-time highs for operating margin and EPS. Operating cash flow and free cash flow were also at all-time highs. The company expects fiscal '25 total revenue to be in the range of $6.45 to $6.65 billion, with year-over-year growth in each quarter. The company remains confident in their strategy and their ability to address key customer priorities. The macro environment is still uncertain, but there has been some improvement.

In fiscal year 2025, the company expects Public Cloud revenue to return to consistent growth, with a gross margin of 71% to 72% despite rising NAND component costs. They anticipate growth in support and cloud gross profit, and have secured a majority of their forecasted SSD demand. They are confident in their long-term gross margin target of 75% to 80% and expect to make progress towards it in fiscal '25. The company also expects operating margins of 27% to 28%, EPS of $6.80 to $7, and a tax rate of 21% to 22%. They plan to return up to 100% of free cash flow to shareholders through dividends and share buybacks, and anticipate reducing share count by 1% to 2%. For Q1, they expect revenue to range between $1.455 billion and $1.605 billion, with a midpoint growth of 7% year-over-year.

In the first quarter, NetApp expects a 72% consolidated gross margin and a 25% operating margin, with EPS between $1.40 and $1.50. The CEO, George Kurian, expressed appreciation for the NetApp team's focus and execution in a challenging environment. Looking ahead to fiscal year 2025, Kurian is confident in their strategy and ability to capture opportunities and increase profitability. During the Q&A portion, Kurian discussed the company's competitive successes in both the A-series and C-series, despite potential macro headwinds. He also mentioned that Keystone has seen some displacements due to factors such as performance, but did not mention price. The average length of agreements for Keystone is two to three years.

The company is prioritizing applications in analytics, data unification for AI, modernization, and disruptions from changes like VMware. They have had strong success in these areas, including displacing VxRail and other platforms. Customers are making long-term commitments to their unified, integrated data platform. Regarding the outlook for fiscal '25, the company is expecting 4.5% growth due to macro concerns and potential push-outs of projects due to vendors focusing on AI investments. The company is also seeing continued cautiousness in budgeting.

George Kurian, CEO of NetApp, believes that there is continued scrutiny of spending in the market. However, the company is confident entering the year and had a strong finish to the previous quarter. Their Flash portfolio has been refreshed and their A-series and C-series products are performing well. Kurian also mentioned their success in the AI market, with NetApp being the installed incumbent for the world's largest unstructured data set and helping customers build data lakes. The company has also had success in traditional enterprise applications. In terms of first-party and marketplace cloud storage, there has been strength, but there are no specific trends in terms of the type of customer. The first quarter of the year is starting off strong compared to the previous year.

George Kurian, CEO of NetApp, discussed the company's strong results in the cloud storage sector and its outlook for the coming year. He mentioned a good balance of new customers and existing customers expanding their usage of NetApp's services. CFO Mike Berry also spoke about the seasonality of the first quarter and the potential impact of the A-series launch on future performance. A question was asked about the support provided to customers for their AI deployments and Kurian mentioned recent wins in this area.

During a recent earnings call, a question was asked about how the company plans to translate their recent AI wins into revenue, specifically in regards to their fiscal year 2025 guidance. The CEO responded by stating that they had over 50 AI wins in the fourth quarter and that the ramp on AI servers will be ahead of storage. He also mentioned that while there will eventually be more data created and unified to feed the model, they are currently in the proof of concept stage. He reassured that all of their AI growth is factored into their guidance for the next year. The CFO then provided details on the company's gross margins, stating that they came in higher than expected due to better mix and that they expect a continued increase in cloud gross margins in the next year. Another analyst asked a follow-up question about the gross margin variance between the third and fourth quarter, to which the CFO responded that it was consistent and that they saw a nice increase in their cloud gross margins.

Mehdi Hosseini asked a question during the Q&A portion of the earnings call about NetApp's operating margin guide for FY '25. He noted that the company's Q1 operating margin guide seemed to suggest an exit in the high 20% range, specifically 29%. Mike Berry responded that the full year operating margin for FY '25 is expected to be between 27% to 28%, with some OpEx leverage continuing. Mehdi asked why the company couldn't meet or exceed the 30% operating margin they achieved in January, given their reduced footprint. George Kurian explained that the 30% operating margin was influenced by the gross margin number, which is expected to come down as the year progresses due to pre-buys for SSD. Steven Fox then asked a question, but it is not mentioned in the paragraph.

The speaker, Mike Berry, discusses the company's strategy for pre-buys and their focus on driving top-line growth and profitability. He also mentions that they are comfortable with their projected product gross margins for the year, but there may be changes due to fluctuations in NAND costs and storage market pricing. Another speaker, Steven Fox, asks about their pre-buy strategy and gross margin headwinds, to which Berry responds that they have locked in a majority of their forecasted SSDs for the year and are focused on driving profitable revenue growth. The next question from Simon Leopold is about the expected growth of public cloud services throughout the year.

The company has taken actions to improve its public cloud business, focusing on first-party and hyperscaler storage services and addressing headwinds in the subscription business. This has resulted in a decrease in subscription revenue, but the company expects the impact to lessen in the first half of next year.

The speaker expects strong growth in cloud first-party and marketplace cloud storage, leading to overall growth in cloud and consistent revenue growth in fiscal year '25. They clarify that the product gross margin range will be 58% to 60% for the full year, starting higher in the first half and decreasing in the second half due to pre-buys. They also discuss the potential impact of increased NAND costs on revenue and gross margins, noting that customers budget in dollars, not systems.

The company expects the industry to raise prices as commodity prices go up, but this may not directly increase revenue as customers may buy smaller amounts of storage. The outlook for cost of goods sold is based on current market pricing, but if the overall market raises prices, the company will follow suit. The volatility of margins in fiscal year 23 was due to dealing with a premium issue, and fiscal year 24 is expected to have a margin range of 55-61%. The increase in first-party marketplace cloud storage is a sustainable driver for the company.

NetApp expects continued growth in public cloud storage, particularly in first-party and marketplace offerings. The company is focusing on sharpening its subscription offerings and expects consistent growth in the second half of fiscal year '25. There has been increased competition in the QLC C-series business, but NetApp has seen success with both new customers and existing customers upgrading from hybrid systems.

The speaker discusses the advantages of upgrading to NetApp's C-series for existing hybrid flash customers. They mention the seamless transition due to the same operating system, management console, and telemetry system. They have seen a good number of upgrades from 10K drive environments to all-flash and expect this trend to continue. They also mention new customers who have switched to NetApp, displacing competitive footprints or bringing in new ones. They give examples of large customers unifying on NetApp and hyper-converged VMware landscapes optimizing costs with C-series. They also mention the introduction of the C-series AI part for cost-effective AI training and inferencing. The speaker expresses confidence in their comprehensive data management and hybrid cloud solution, as well as their track record in large-scale data management on flash products. They feel positive about the future.

George Kurian discusses the four growth opportunities that NetApp is focused on: all-flash storage, block storage, cloud storage, and AI. The company has seen success in replacing legacy storage systems with modern high-performance solutions and expanding its total addressable market (TAM). The cloud storage market is a multi-billion-dollar opportunity and NetApp is well-positioned to grow in this area. The AI opportunity is expected to become more significant in the future.

The company is well positioned to take advantage of the growing demand for AI applications fueled by the large amount of unstructured data in their installed base. Their unified data storage systems and hybrid cloud architecture make them an ideal choice for customers looking to build data lakes or train models. They will provide more details on specific opportunities at their Financial Analyst Day. The company has seen an increase in demand for higher density storage for RAG applications and is excited about the potential for their C-series and object storage solutions.

The speaker asked about 10 terabyte SSDs and the company confirmed that they are already shipping them. The company also mentioned that they have 30 terabyte SSDs and they are growing quickly. The company expects cash flow to track with net income and for operating cash flow to increase in line with net income. They also expect to pay annual incentive compensation in Q1 and for collections to increase year-over-year. They anticipate CapEx to be consistent with the previous year.

In the paragraph, the speaker discusses the company's capital allocation, including an increase in the dividend and plans for free cash flow. They also mention the growth opportunities in capacity flash, block storage, cloud storage, and AI. The company is performing well and expects continued growth. They are focused on maintaining operating discipline and will hold an Investor Day on June 11th.

This summary was generated with AI and may contain some inaccuracies.