The operator introduces the NetApp First Quarter Fiscal Year 2025 Earnings Call, and Kris Newton, the Vice President of Investor Relations, introduces the CEO, George Kurian, and CFO, Mike Berry. The call will discuss forward-looking statements and projections for the company's financial outlook and future prospects. The call will also cover the company's growth initiatives and strategies. George Kurian speaks about the strong start to FY25, with 8% year-over-year revenue growth and record-breaking first quarter operating margin and EPS.

NetApp's strong execution and confidence in their intelligent data infrastructure platform has led to an increase in their revenue and profit outlook for FY25. They are focused on their differentiated solutions in flash, block, cloud storage, and AI, which have shown notable momentum in Q1. NetApp's comprehensive and integrated storage and data management platform allows customers to unify their data for any application and manage it securely. The Hybrid Cloud segment saw strong growth, driven by all-flash storage, and the introduction of the new AFF A-series family has further expanded their capabilities.

The new AFF A-series has been well-received by customers and has exceeded expectations, with strong growth in both capacity flash and block optimized all flash arrays. NetApp has had success in competitive take-outs and capturing new customers, particularly in the artificial intelligence market. The company's Keystone Storage-as-a-Service offering has also seen significant growth, providing customers with operational agility and reduced financial risk. NetApp's focus on AI has solidified its position as a leader in data infrastructure and thought leader in the industry.

NetApp is being chosen by customers as their partner for AI at every stage of the lifecycle due to their high-performance all-flash storage, cloud integration, and data management capabilities. This has resulted in strong momentum for their AI business, with over 50 wins in Q1. Examples of this success include being selected by a large oil and gas company for their AI workloads and helping a financial services institution consolidate data for AI and analytics. NetApp continues to develop their GenAI solutions in partnership with industry leaders, including a new system with Lenovo and new capabilities for cloud AI workloads.

NetApp has integrated their GenAI toolkit with Microsoft Azure NetApp Files, allowing customers to generate high-quality results by combining their data with pre-trained models. They also released a reference architecture for Amazon Bedrock to help customers implement RAG-enabled workflows. Their public cloud segment revenue grew by 3% and their first party and hyperscaler marketplace storage services are performing well. They expect the headwinds from subscription services to lessen in the future, allowing their cloud storage services to shine. They continue to innovate and enhance their capabilities, and were recognized by Microsoft for their work in moving a retail customer to Azure using Azure NetApp Files. Their strong performance in Q1 continues the momentum from last year.

The company has experienced significant growth in revenue, billings, and profitability due to the alignment of customer needs with their unique solutions. They are well positioned to capture growth in various areas such as flash, block, cloud storage, and AI. The company's priorities include maintaining disciplined operational management and hosting a customer conference to showcase their innovation agenda. The speaker also thanks the retiring Mike for his contributions to the company's growth and announces his commitment to stay through the end of the fiscal year for a smooth transition.

The author, who is the current CFO, assures that it is business as usual until a new CFO is named. The company had a solid quarter, exceeding all guidance ranges and making progress towards long-term targets. The top-line billings and revenue exceeded expectations, with product revenue growing 13%. Gross margin and operating margin were both strong, resulting in a record operating margin and EPS. The company returned a high percentage of free cash flow to stockholders and plans to continue doing so. Due to strong execution and operational management, the company expects to see year-over-year revenue growth in each quarter of the year and has raised their fiscal year expectations for revenue and EPS. The quarter's revenue and billings both increased by 8% and 12% respectively, exceeding expectations.

The company has experienced growth in revenue and billings for the third consecutive quarter, despite a challenging macro environment for IT spending. Product revenue and support revenue both saw increases, while public cloud revenue was driven by hyperscaler first party and marketplace storage services. Gross margins improved and the company has made strategic purchase commitments to maintain margins in the future. Operating expenses were up slightly, but the company still maintained a strong operating margin and exceeded expectations for EPS.

In the first quarter, the company's operating cash flow decreased by 25% due to higher annual incentive compensation payouts and payments for strategic SSD purchases. However, customer collections from higher billings helped offset this decrease. Free cash flow also decreased by 28%, but the company returned $507 million to stockholders through share repurchases and cash dividends. The company's balance sheet remains healthy with $3 billion in cash and short-term investments. Deferred revenue was $4.2 billion, showing a smaller decline than in previous quarters. The company expects continued improvement in deferred revenue growth and is adding RPO as a new disclosure. Keystone, the company's storage-as-a-service offering, is gaining traction and becoming a more significant part of the business. The company is raising its revenue guidance for the full year and expects a 5% year-over-year growth. Gross margin and operating margin are expected to remain unchanged.

The company is increasing its net interest income expectations for the year and expects a 20-21% tax rate. They anticipate EPS to grow by 10% and have provided guidance for the second quarter. The CEO thanks employees, customers, and investors and expresses confidence in the company's ability to help customers with their digital and cloud transformation. The current CFO will continue to lead until a successor is found and the company is evolving with the help of a new CFO. The CEO thanks everyone for their support and looks forward to the company's continued success.

The speaker reiterates that everything is normal for now and looks forward to upcoming events. He then hands it over to Kris for Q&A. The first question is from Krish Sankar, congratulating Mike on his retirement and asking about the impact of higher NAND pricing on demand and gross margins. Mike explains that they have purchased a majority of their forecasted NAND for fiscal 2025 and it will depend on market conditions if they do more pre-buys. There has been no change in demand from customers. Krish also asks about the ASA series released earlier this year.

The AFF A series, a unified storage product, has been performing well and has seen strong adoption rates. There is a certification process for larger customers, but there have been wins in deploying new environments. The A-series complements the C-series for different types of workloads, and there has also been strong growth in the block optimized ASA family. The flash business overall had a 21% year-on-year growth. Mike's departure was acknowledged and wished well.

The speaker asks a question about how uncertain macro conditions are impacting storage demand and how customers are spending. The company's revenue has been in line with historical trends and they are on track for record revenue. The speaker mentions geopolitical risks and potential interest rate changes as sources of uncertainty. They also mention strength in product lines and international markets, but slower growth in the U.S. public sector due to budget challenges. Customers are prioritizing spending on strategic projects and the company's solutions align with this trend.

The speaker discusses the potential impact of AI workloads on the company's fiscal year 2025 and mentions the high rate of innovation in software applications for AI. They also mention the strength of their data foundation for AI and cloud storage portfolio, which has contributed to strong results for multiple quarters. The speaker believes that the company's ability to create a unified architecture for both public cloud and hybrid solutions will continue to drive success in the future. However, they note that they have not yet seen large scale data center refreshes, which would indicate a broader economic recovery and confidence in the business.

The company expects cloud revenue to return to consistent growth for the rest of the year, despite facing some challenges. The storage portfolio had a strong quarter and the company is confident in meeting its full year guidance. The increase in public cloud revenue was driven by strong growth in first party and marketplace cloud storage. The company expects cloud revenue to continue to accelerate throughout the year, with subscription services being a smaller headwind.

In the paragraph, Mike Berry and an unidentified analyst discuss the growth of the cloud and first party marketplace for the company. They expect this growth to continue and accelerate due to the strength of these products. Most of the demand for the company's AI contributions comes from large enterprises, with a mix of use cases. The analyst also asks about competitive dynamics and where the company is seeing gains in market share. George Kurian responds by saying that the company's focus and execution have improved, leading to momentum and progress in the second half of last year.

The speaker, George Kurian, is pleased with the company's performance in the cloud and flash storage portfolios. They have seen growth in both areas, with an increase in customers and integration with hyperscalers. On the flash side, there has been a 21% growth in the latest quarter, driven by a mix of new customers and conversions from existing ones. The speaker believes this growth will continue in the future.

The speaker discusses the momentum in the portfolio and the upgrade of the installed base to QLC flash, which is a mix of new accounts and refresh of old ones. They mention the large volume of 10K drives in the market and estimate that they are in the second inning of a nine inning game. The speaker also mentions that the penetration of flash into the installed base has remained steady. In response to a question about product gross margins, the speaker says they expect it to come down slightly as they work through pre buys.

George Kurian, CEO of the company, addressed the question of potential deceleration in flash array growth during a recent earnings call. He stated that the company is still on track to meet its targets for the full year and that there has been no change in trajectory compared to the previous quarter. He also mentioned that some competitors have increased their pricing, which is a leading indicator of industry trends in an inflationary environment. When asked about potential deceleration in the future, Kurian pointed to the company's broader portfolio, which now includes flash products across all price points and custom offerings for block storage. This diversity in offerings gives the company confidence in its long-term growth potential.

The speaker expresses confidence in their company's product portfolio and pace of innovation, particularly in the area of data security. They also note that their company is performing well compared to other players in the market, despite a challenging macroeconomic environment. They expect to see growth in the use of QLC technology in their flash business. The questioner congratulates them on their quarter and asks for more information about the demand for AI products in the enterprise sector.

George Kurian believes that we are still in the early stages of AI adoption and that the competitive landscape is still developing. Currently, there is a focus on getting data ready for AI applications, and NetApp is well positioned for this with their data storage capabilities. Inferencing is expected to be the main driver of the storage market for AI, making up about 80-90% of the total market.

The speaker, Mike Berry, discusses the potential impact of RAG on data generation and the inferencing market. He also addresses a question about how RAG fits into the overall storage market opportunity and compares their capabilities to other companies in the space. Berry emphasizes their confidence in their capability set.

George Kurian, CEO of NetApp, discusses the company's experience in AI and its strengths in the market, including its ONTAP file system and hybrid cloud pipelines. He also mentions the upcoming NetApp Insight event, where they will showcase innovations and capabilities for solving AI problems. Analyst Ananda Baruah asks if this means NetApp could have an amplified share position in GenAI storage, to which Kurian responds that they feel very good about their capabilities. The next question comes from Wamsi Mohan of Bank of America.

George Kurian, CEO of NetApp, discusses the traction in the all-flash market, with the capacity flash market being the fastest growing. They compete against frame arrays in the performance flash market, and have seen good progress in the mid-range with QLC. In terms of financials, Mike, the CFO, explains the drivers for the lower tax rate and the slight increase in interest income, but there were no significant changes at the operational level despite slightly higher revenue.

The speaker, Mike Berry, addresses a question about gross margins and changes to the company's projections for the second half of the year. He explains that there will be no change to the previously stated trajectory of gross margins, despite an increase in revenue and EPS in the first quarter. The company has raised projections for the second quarter and the second half of the year, but will also be spending more in OpEx in the second half. The tax rate is expected to remain consistent with the previous year, and interest income has been adjusted due to lower interest rates than anticipated. These are the main factors influencing the company's updated guidance for the year.

The company's gross margin and operating income percentages are consistent for the full year, but they will reassess after the next quarter. Flash makes up about 60% of hybrid cloud revenue and 40% of the total installed base, but it is still a small part of the overall installed base. For AI, the portion of data actively used with models is on flash, while archive data is kept on disk-based solutions.

The speaker discusses the use of large scale object repositories and active model training in data storage solutions. They mention the use of all-flash configurations for processing data sets and the flexibility of inferencing models in different environments, such as data centers, manufacturing facilities, and the cloud. They also mention the increasing use of cloud-based inferencing. The speaker concludes by emphasizing the company's strong start to FY 2025 and their focus on key markets such as flash, block, cloud storage, and AI. They express their excitement for the upcoming NetApp Insight and look forward to updating listeners on their progress next quarter.

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