NetApp Inc ((NTAP)) has held its Q1 earnings call. Read on for the main highlights of the call.
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NetApp Inc. kicked off fiscal year 2026 with a strong earnings call, showcasing a balanced sentiment. The company exceeded revenue guidance and reported significant growth in its all-flash and cloud services. However, challenges were noted in the US public sector and EMEA, alongside a decline in product revenue. Despite these hurdles, NetApp highlighted robust cash flow and strategic wins in AI infrastructure, painting a mixed yet optimistic picture for investors.
Revenue Exceeds Guidance
NetApp started fiscal year 2026 on a high note, reporting a revenue of $1.56 billion, surpassing the midpoint of their guidance range. Excluding the divested Spot business, the total revenue saw a 3% year-on-year increase, indicating a solid performance and strategic growth.
All-Flash Array Growth and Market Leadership
The company reported a 5% year-over-year growth in all-flash array revenue, reaching $893 million. This achievement secured NetApp the top position in the all-flash array market for calendar Q1 2025, as per IDC’s report, reinforcing its market leadership.
Public Cloud Services Growth
Public cloud services demonstrated impressive growth, with a 33% increase from Q1 of the previous year. Excluding Spot, public cloud revenue rose by 18% year-over-year, highlighting NetApp’s strong position in the cloud storage sector.
Strong Cash Flow and Shareholder Returns
NetApp set Q1 records with $673 million in cash flow from operations and $620 million in free cash flow. The company returned $404 million to shareholders through share repurchases and dividends, underlining its commitment to delivering shareholder value.
AI Infrastructure Wins
The company secured approximately 125 AI infrastructure and data lake modernization deals in Q1, showcasing significant customer engagement and positioning itself strongly in the enterprise AI market.
US Public Sector and EMEA Softness
NetApp faced year-over-year declines in the US public sector and EMEA markets, with spending delays in the public sector impacting results. This softness presents a challenge that the company aims to address moving forward.
Product Revenue Decline
Product revenue declined by 2% year-over-year, totaling $654 million. This drop was attributed to an unfavorable product and customer mix, highlighting areas for potential improvement.
All-Flash Revenue Growth Deceleration
The growth in all-flash revenue decelerated to 5%, down from previous double-digit figures. Market dynamics and pricing strategies were noted as influencing factors, suggesting a need for strategic adjustments.
Forward-Looking Guidance
Looking ahead, NetApp provided guidance for the second quarter and full fiscal year 2026. The company expects Q2 revenue to reach $1.69 billion, with a gross margin of around 71% and an operating margin between 28% to 29%. Full-year revenue is anticipated to be between $6.625 billion and $6.875 billion, reflecting a 3% year-over-year growth. NetApp remains focused on executing its strategy, enhancing profitability, and delivering value to customers and shareholders.
In conclusion, NetApp’s earnings call reflected a balanced sentiment, with strong revenue performance and growth in key areas like all-flash and cloud services. Despite challenges in certain sectors, the company demonstrated resilience through robust cash flow and strategic wins. Investors can look forward to NetApp’s continued focus on executing its strategy and enhancing shareholder value.