Q4 2024 NetApp Inc Earnings Call

Operator: Good day, and welcome to the NetApp fourth quarter fiscal year 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Kris Newton, Vice President, Investor Relations. Please go ahead.

Good day and welcome to the <unk> fourth quarter fiscal year 2024 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions. Please.

Please note this event is being recorded.

I would now like to turn the conference over to Kris Newton Vice President Investor Relations. Please go ahead hi.

Kris Newton: Hi everyone. Thanks for joining us.

Kris Newton: Everyone. Thanks for joining us with me today are our CEO, George Kurian and CFO, Mike Berry. This call is being webcast live and will be available for replay on our website.

Kris Newton: With me today are our CEO, George Kurian, and CFO, Mike Berry. This call is being webcast live and will be available for replay on our website at NetApp.com. During today's call, we will make forward-looking statements and projections with respect to our financial outlook and future prospects, including, without limitation, our guidance for the first quarter and fiscal year 2025, our expectations regarding future revenue, profitability, and shareholder returns, and other growth initiatives and strategies.

Speaker Change: <unk> com during today's call, we will make forward looking statements and projections with respect to our financial outlook and future prospects, including without limitation, our guidance for the first quarter and fiscal year 2025, our expectations regarding future revenue profitability and shareholder returns and other growth initiatives and.

Kris Newton: These statements are subject to various risks and uncertainties, which may cause our actual results to differ materially. For more information, please refer to the documents we file from time to time with the SEC and on our website, including our most recent Form 10-K and Form 10-Q. We disclaim any obligation to update our forward-looking statements and projections. During the call, all financial measures presented will be non-GAAP unless otherwise indicated. Reconciliations of GAAP to non-GAAP estimates are available on our website. I'll now turn the call over to George.

Speaker Change: These statements are subject to various risks and uncertainties, which may cause our actual results to differ materially.

Speaker Change: For more information please refer to the documents we file from time to time with the SEC and on our website, including our most recent Form 10-K and Form 10-Q, we disclaim any obligation to update our forward looking statements and projections during the call all financial measures presented will be non-GAAP, unless otherwise indicated reconciliations of GAAP to non-GAAP estimates.

George Kurian: Sorry available on our website I will now turn the call over to George. Thank you Chris Welcome everyone. We concluded FY 'twenty four on a high note.

George Kurian: Thank you, Kris. Welcome, everyone.

George Kurian: We concluded FY24 on a high note, demonstrating robust performance in the fourth quarter and building positive momentum as we step into FY25. Our revenue for both Q4 and FY24 exceeded the midpoint of our guidance, reflecting the strong growth of our expanded All Flash portfolio. Throughout FY24, we maintained a high level of operational discipline, leading to company records for annual gross margin, operating margin, earnings per share, operating cash flow, and free cash flow.

George Kurian: Demonstrating robust performance in the fourth quarter and building positive momentum as we step into FY 'twenty five.

George Kurian: Our revenue for both Q4 and FY 'twenty four exceeded the midpoint of our guidance, reflecting the strong growth.

George Kurian: Our expanded all flash portfolio.

George Kurian: Throughout FY 'twenty four we maintain the high level of operational discipline.

George Kurian: Leading to company records for annual gross margin operating margin earnings per share operating cash flow and free cash flow.

George Kurian: At the start of FY24, we implemented a plan to enhance the performance of our storage business and build a more focused approach to the public cloud business while managing the elements within our control in an uncertain macro environment. This plan has yielded tangible results, and our value proposition is responding strongly in the marketplace.

George Kurian: At the start of FY 'twenty four we implemented a plan to enhance the performance of our storage business.

George Kurian: And build a more focused approach to the public cloud business, while managing the elements within our control in an uncertain macro environment.

George Kurian: This plan has yielded tangible results and our value proposition is resonating strongly in the marketplace.

George Kurian: Customers are increasingly turning to NetApp to help them build intelligent data infrastructures and leverage the power of public and hybrid clouds for rapidly growing data-intensive workloads like AI, cloud-native, open-source, and enterprise applications, while ensuring their data remains secure and protected from ransomware attacks. NetApp uniquely delivers a comprehensive and integrated portfolio of unified data storage solutions based on one operating system on tap, supporting any application, any data type, and spanning on-premises and multiple cloud environments.

Customers are increasingly turning to net out.

George Kurian: Help them build intelligent data infrastructures and leveraged the power of public and hybrid clouds or rapidly growing data intensive workloads like AI.

George Kurian: Native open source and enterprise applications, while ensuring that data remains secure and protected from ransomware attacks.

George Kurian: Net up uniquely delivers a comprehensive and integrated portfolio of unified data storage solutions based on one operating system on DAP supporting any application any data types and spanning on premises and multiple cloud environments.

George Kurian: We deliver unparalleled simplicity of data management and infrastructure and application deployment with consistent automation, all unified by common APIs and a single control plane. In a world of limited IT resources, rapid data growth, and escalating cyber security threats, we empower customers with the flexibility to rapidly deploy new applications, unify their data for AI, simplify cloud integration, and strengthen data protection. Now to the results of the quarter.

George Kurian: We deliver unparalleled simplicity of data management and infrastructure and application deployment with consistent automation, all unified by common API and a single control plane.

George Kurian: In a world of limited it resources rapid data growth and escalating cyber security threats.

George Kurian: We empower our customers with the flexibility to rapidly deploy new applications.

George Kurian: Unify their data for AI simplified cloud integration and strengthen data protection.

George Kurian: We delivered robust year-over-year performance in our hybrid cloud segment with revenue growth of 6% and product revenue growth of 8%. Strong customer demand for our broad portfolio of modern all-flash arrays, particularly the C-Series Capacity Flash and ASA Block Optimized Flash, was again ahead of our expectations. This demand propelled our all-flash annualized revenue run rate to an all-time high of $3.6 billion, up 17% year-

George Kurian: Now to the results of the quarter.

George Kurian: We delivered robust year over year performance in our hybrid cloud segment with revenue growth of 6% and product revenue growth of 8%.

George Kurian: Strong customer demand for our broad portfolio of modern all flash arrays, particularly the C series capacity Flash and E. S. They block optimized splash was again I head off our expectations. This.

George Kurian: This demand propelled our all flash array annualized revenue run rate.

George Kurian: All time high.

George Kurian: <unk> three $6 billion up 17% year over year.

George Kurian: Early in Q1 of FY25, we unveiled our new All-Flash A-Series Unified Data Storage product, offering customers enhanced performance and effective density at a lower cost than the previous A-series generation. These products set a new standard for enterprise storage, enabling customers to turbocharge workloads ranging from traditional enterprise applications to Gen AI. The new AFF A-Series, coupled with our highly successful C-Series and TAM expanding ASA products, position us to further increase our share in the all-flash market.

George Kurian: Early in Q1 of FY 'twenty five we unveiled our new all Flash E series unified data storage products offering customers enhanced performance and effective density at a lower cost than the previous H E. BS generation. These products set a new standard.

George Kurian: And enterprise storage, enabling customers to turbocharge workloads, ranging from traditional enterprise applications do journey.

George Kurian: The new E F F E series, coupled with our highly successful theory and.

Tam expanding assay products.

George Kurian: <unk> to further increase our share in the all flash market.

George Kurian: Keystone, our storage as a service offering, was also a highlight of the quarter. Keystone provides cloud-like management for hybrid cloud resources in a single subscription with flexible multi-year contracts that align storage costs with business needs, enabling rapid response to changing capacity and performance requirements. We consistently hear from customers that our integrated service level assurance with performance, availability, ransomware recovery, and sustainability guarantees is our differentiator. This has enabled us to accelerate growth by displacing competitors' storage-as-a-service subscriptions. Winning new Keystone subscriptions and expanding existing ones, FY24 total contract value sales of Keystone more than doubled from the prior year to almost $150 million.

George Kurian: Keystone our storage as a service offering was also a highlight of the quarter.

George Kurian: Keystone provide cloud like management for hybrid cloud resources in a single subscription with flexible multiyear contract there.

George Kurian: Life storage costs with business needs, enabling rapid response to changing capacity and performance requirements.

George Kurian: We consistently hear from customers that are integrated service level assurance with performance availability ransomware recovery and sustainability guarantees is our differentiator.

George Kurian: This has enabled us to accelerate growth by displacing competitors storage as a service subscriptions, winning new Keystone subscriptions and expanding existing ones.

George Kurian: Wait 24 total contract value sales of Keystone more than doubled from the prior year to almost $150 million.

George Kurian: We expect this momentum to continue and that FY25 will be another significant growth year for Keystone. A leading semiconductor manufacturer selected Keystone as the vehicle to consolidate its storage needs. Initially aiming to select one vendor for block and another for file, we established ourselves as a single global standard for both environments, displacing the incumbent for block storage. This multi-year, eight-figure deal allows the customer to reduce the complexity and improve the availability of their storage environment.

George Kurian: We expect this momentum to continue and then FY 'twenty pie will be another significant growth year for Keystone.

George Kurian: Leading semiconductor manufacturer selected Keystone as the vehicle to consolidate its storage needs.

Speaker Change: Initially Amy to select one vendor for block and another for file we established ourselves as a single global standard for both environments displacing the incumbent for block storage.

Speaker Change: This multi year eight figure deal allows the customer to reduce the complexity and improve the availability of their storage environments.

George Kurian: AI is a top priority for organizations as they seek to accelerate innovation, revolutionize operations, drive competitive advantage, and deliver superior solutions to their customers. Data management is essential for enterprise AI. Customers choose NetApp to support them at every phase of the AI lifecycle because of our high-performance all-flash storage, complemented by comprehensive data management capabilities that support requirements from data preparation, model training and tuning, retrieval augmented generation (RAG), and inferencing, as well as requirements for responsible AI, including model and data versioning, data governance, and privacy.

Speaker Change: AI is the top priority for organizations as they seek to accelerate innovation revolutionized operations drive competitive advantage and deliver superior solutions to their customers.

Speaker Change: Data management is essential for enterprise AI.

Speaker Change: Customers choose net app to support them at every phase of the AI lifecycle due to our high performance all flash storage.

Speaker Change: Complemented by comprehensive data management capabilities that support requirements from data preparation model training and tuning retrieval augmented generational rag and infant thing as well as requirements for responsible AI, including modeling data.

Speaker Change: Janine data governance.

Speaker Change: Vernon and privacy.

George Kurian: We continue to strengthen our position in enterprise AI, focusing on making it easier for customers to derive value from their AI investment. In Q4, we introduced NetApp AI Pod with the C-series capacity flat system, delivering a new level of cost and performance, RACS-based utilization, and sustainability. In conjunction with Cisco, we updated FlexPod AI reference architectures to support the NVIDIA AI enterprise software platform, giving customers an end-to-end blueprint to efficiently design, deploy, and operate AI infrastructure.

Speaker Change: We continued to strengthen our position in enterprise they are focusing on making it easier for customers to derive value from their AI investments.

Speaker Change: In Q4, we introduced Netapp AI board with C series capacity plaques system, delivering a new level of cost and performance rack space utilization and sustainability in.

Speaker Change: In conjunction with Cisco, we updated flex body I referenced architectures to support the Nvidia AI enterprise software platform, giving customers an end to end blueprint to efficiently design deploy and operate AI infrastructure.

George Kurian: We were one of the first partners to complete the storage validation for NVIDIA OBX systems, and at the start of Q1, we were the first to announce a full-stack OBX system. The NetApp AI pod with Lenovo ThinkSystem servers for NVIDIA OBX is optimized for Gen AI and designed to support RAG.

Speaker Change: We were one of the first partners to complete the storage validation for Nvidia Ob X system and at the start of Q1, we were the first to announce a full stack will be X system.

Speaker Change: <unk> AI bot with Lenovo think system silvers for Nvidia Obs is optimized for Jenny I and designed to support Rag.

George Kurian: We announced much of this innovation at NVIDIA GTC, where we were honored to be recognized during the keynote for our role in storing a significant portion of enterprises' unstructured data, which is the fuel for Gen AI. Through our partnership with NVIDIA, we give customers the ability to talk directly to the large amount of existing data stored on NetApp on-premises and in the cloud. Demonstrating the value of our installed base and the critical role we play in AI.

Speaker Change: We announced much of this innovation at Nvidia GTC, where we were honored to be recognized during the keynote four hour role in story, a significant portion of enterprises unstructured data, which is the fuel for Gen AI.

Speaker Change: Through our partnership with Nvidia, we give customers the ability to talk directly to the large amount of existing data stored on net up on premises and in the cloud.

Speaker Change: Demonstrating the value of our installed base and the critical role we play in AI.

George Kurian: We are the AI infrastructure of choice for one of the world's leading oil and gas companies. The company is developing its own large language models using a high-performance AI cluster with NetApp all-flash storage. They are now also building an AI center of excellence to support various departmental AI initiatives and have again selected NetApp Storage for this part of their AI infrastructure, leveraging CCDs to optimize price and performance. They are rapidly ramping up their AI infrastructure, building new models, and onboarding AI resources.

Speaker Change: We are the AI infrastructure of choice for one of the worlds, leading oil and gas companies there.

Speaker Change: The company is developing its own large language model using our high performance. They are clustered with Netapp all flash storage.

Speaker Change: They are now also building an AI center of excellence to support various departmental AI initiatives and have again selected netapp storage for this part of their AI infrastructure.

Speaker Change: Leveraging <unk> to optimize price and performance.

Speaker Change: They are rapidly ramping up their AI infrastructure building, new models and on boarding AI resources.

George Kurian: They awarded us the deal over their AI server vendor because of our ability to remove roadblocks in their AI workflows and accelerate the time to value from their AI investment. Public cloud segment revenue was $152 million, up 1% year over year. First-party and hyperscaler marketplace storage services remain our priority and are growing rapidly, increasing more than 30% year over year and driving cloud storage services to two-thirds of total public cloud ARR. These offerings are highly differentiated and closely aligned with customers' purchase preferences.

Speaker Change: They awarded US the deal over their AI server vendor because of our ability to remove roadblocks and their AI workloads and accelerate the time to value from their investments.

Speaker Change: Public cloud segment revenue was $152 million up 1% year over year.

Speaker Change: First party and hyper scaler marketplace storage services.

Speaker Change: Our priority and our growing rapidly increasing more than 30% year over year and driving cloud storage services to two thirds of total public cloud E. R. R.

Speaker Change: These offerings are highly differentiated and closely aligned with customers purchased preferences.

George Kurian: In Q4, we had a good number of takeouts of competitors' on-premises infrastructure with cloud storage services based on NetApp OnTap technology, which helped drive our best quarter for cloud storage services with each of our hyperscale partners. We are well ahead of the competition in cloud storage services, and we are innovating to further extend our leadership position. In Q4, we further increased the performance of Amazon FFX for NetApp OnTap, addressing an even broader set of performance-intensive workloads. We also introduced a new service level for Google Cloud NetApp Volumes, giving customers more granular control to match the capacity and performance needs of their cloud workloads.

Speaker Change: In Q4, we added a good number of takeouts of competitors on premises infrastructure with cloud storage services based on net up on tap technology, which helped drive our best quarter for cloud storage services with each of our Hyperscale or partners.

Speaker Change: We are well ahead of the competition and cloud storage services and we are innovating to further extend our leadership position in Q4, we further increase the performance of Amazon FSX for Netapp on tap addressing an even broader set of performance intensive workloads.

Speaker Change: We also introduced a new service level for Google Cloud Netapp volumes, giving customers more granular control to match the capacity and performance needs of their cloud workloads.

George Kurian: We were proud to receive Google Cloud's Technology Partner of the Year for Infrastructure Storage for the second consecutive year. Reflecting on FY24, I want to thank the NetApp team for their work to strengthen our position. We have a stronger, more complete all-flash portfolio, are addressing a wider set of cloud storage workloads, and have a robust go-to-market plan, better positioning us to win across the board and in new markets like AI. Without question, our modern approach to unified data storage, spanning data types, price points, and hybrid multi-cloud environment is resonating in the market, giving us solid momentum as we enter the new fiscal year Looking ahead to FY25, we are cautiously optimistic about the macro environment. The backdrop is better now than it was at the start of FY24.

Speaker Change: We were proud to receive Google cloud technology partner of the year for infrastructure storage for the second consecutive year.

Speaker Change: Reflecting on FY 'twenty four.

Speaker Change: I want to thank the Netapp team for their work to strengthen our position.

Speaker Change: We have a stronger more complete all flash portfolio.

Speaker Change: Addressing a wider set of cloud storage workloads and they have a robust go to market plan better positioning us to win across the board.

Speaker Change: And in new markets like AI.

Speaker Change: Without question, our modern approach to unified data storage spanning data types and price points and hybrid multi cloud environment is resonating in the market, giving us solid momentum as we enter the new fiscal year.

Speaker Change: Looking ahead to FY 'twenty five we are cautiously optimistic on the macro environment.

Speaker Change: The backdrop is better now than it was at the start of FY 'twenty four.

Michael J. Berry: We will remain laser focused on our top priorities while continuing to raise the bar on execution and maintaining our operational discipline. NetApp is leading the evolution of the storage industry. Helping our customers make their data infrastructure intelligent for the age of AI. I am confident that this leadership, coupled with the strong momentum we've built through FY24, positions us for continued growth and share gain. I encourage you to attend or tune into our June 11th Investor Day to learn more about our long-term strategy. Visit our investor relations website for more information. I'll now turn the call over to Mike.

Speaker Change: We will remain laser focused on our top priority, while continuing to raise the bar on execution and maintaining our operational discipline.

Speaker Change: <unk> is leading the evolution of the storage industry, helping our customers make their data infrastructure intelligent for the age of AI I am confident that this leadership coupled with the strong momentum we built through FY 'twenty four positions us for continued.

Speaker Change: Growth and share gains I encourage you to attend or tune into our June 11, Investor day to learn more about our long term strategy visitor.

Speaker Change: Visit our Investor Relations website for more information I'll now turn the call over to Mike.

Michael J. Berry: Thank you, George, and good afternoon everyone. As George noted, we are laser-focused on managing the elements within our control. This focus enables us to deliver strong P&L performance for Q4 and the full year. Before getting into the details, let me quickly highlight the key themes.

Michael J. Berry: Thank you George and good afternoon, everyone. As George noted we are laser focused on managing the elements within our control.

Michael J. Berry: This focus enabled us to deliver strong P&L performance for Q4, and the full year before getting into the details. Let me quickly highlight the key themes. As a reminder, all numbers discussed are non-GAAP unless otherwise noted.

Michael J. Berry: As a reminder, all numbers discussed are non-GAAP and LUS unless otherwise noted. We delivered solid revenue growth in Q4, driven by our all-flash and cloud storage portfolio, which has strong momentum as we head into fiscal year 25. For Q4, our all FlashArray revenue achieved a $3.6 billion annualized run rate, growing 17% year-on-year. Flash now accounts for approximately 60% of hybrid cloud revenue.

We delivered solid revenue growth in Q4, driven by our all flash and cloud storage portfolio, which have strong momentum as we head into fiscal year 'twenty five for.

Michael J. Berry: For Q4, our all flash array revenue achieved a $3.6 billion annualized run rate growing 17% year on year Flash now accounts for approximately 60% of hybrid cloud revenue.

Michael J. Berry: Keystone, our storage as a service offering, delivered another strong quarter and a strong year with revenue growth up triple digits year over year in fiscal year 24, and first party marketplace cloud storage. The largest part of our cloud business grew double digits quarter over quarter and over 30% year over year in Q4. Our operating profit margin was a record for Q4 and operating cash flow was an all-time record. For the full year of Fiscal 24, product gross margins reached a record high of 60%, representing around 1,000 basis points of year-over-year improvement driven by product mix, lower SSD costs, and a normalizing supply chain environment.

Michael J. Berry: Keystone our storage as a service offering delivered another strong quarter and a strong year with revenue growth up triple digits year over year in fiscal year 'twenty four.

Michael J. Berry: And first party and marketplace cloud storage the largest part of our cloud business grew double digits quarter over quarter and over 30% year over year in Q4.

Michael J. Berry: Our operating profit margin was a record for a Q4 operating cash flow was an all time record for.

Michael J. Berry: For the full year fiscal 'twenty for product gross margins reached a record high of 60% representing around 1000 basis points of year over year improvement driven by product mix lower SSD costs, and a normalizing supply chain environment, we have an increasing share of total Rev.

Michael J. Berry: We have an increasing share of total revenue derived from higher margin and recurring revenue sources, which we expect to continue into Fiscal 25. In fiscal 24, we generated $1.53 billion in free cash flow, a 76% year-over-year increase compared to fiscal year 23, and an all-time high. And we returned 86% of fiscal 24 free cash flow to shareholders through $900 million of share repurchases and around $400 million of dividends. Our share repurchases resulted in a reduction in the 4-year diluted share count by approximately 3% from the prior year.

Michael J. Berry: New derived from higher margin and recurring revenue sources, which we expect to continue into fiscal 'twenty five.

Michael J. Berry: In fiscal 'twenty, four we generated $1.53 billion in free cash flow, a 76% year over year increase compared to fiscal year 'twenty, three and an all time high.

Michael J. Berry: And we returned 86% of fiscal 'twenty, four free cash flow to shareholders through $900 million of share repurchases and around $400 million of dividends or.

Michael J. Berry: Our share repurchases resulted in a reduction of four year diluted share count by approximately 3% from the prior year.

Michael J. Berry: We plan to continue a strong policy of shareholder returns in fiscal 25 and are announcing today an increase in our quarterly dividend from 50 cents to 52 cents. Furthermore, today, we are announcing an increase to our share repurchase authorization by another $1 billion. Now to the details of Q4. Revenue came in slightly above the midpoint of our guidance range at $1.67 billion, up 6% year over year and up 4% quarter over quarter.

Michael J. Berry: We plan to continue our strong policy of shareholder returns in fiscal 'twenty five and are announcing today, an increase in our quarterly dividend from 50 cents to.

Michael J. Berry: So 52 cents.

Michael J. Berry: Furthermore, today, we are announcing an increase to our share repurchase authorization by another $1 billion.

Michael J. Berry: Q4 billings of $1.81 billion were up 8% year over year. This marks our second straight quarter of year-over-year revenue and billings growth. Q4 hybrid cloud revenue of $1.52 billion was up 6% year over year. Product revenue was $806 million, and it was up 8% year over year. Support revenue of $623 million increased 4% year over year. Public Cloud ARR exited the year at $630 million, up 2% year over year, and up $22 million from Q3.

Michael J. Berry: The details of Q4.

Michael J. Berry: Revenue came in slightly above the midpoint of our guidance range at $1.67 billion.

<unk>, 6% year over year, and up 4% quarter over quarter.

Michael J. Berry: Q4 billings of $1.81 billion were up 8% year over year.

Michael J. Berry: This marks our second straight quarter of year over year revenue and billings growth.

Michael J. Berry: Q4 hybrid cloud revenue of $1.52 billion was up 6% year over year.

Michael J. Berry: Product revenue was $806 million and up 8% year over year support.

Revenue of $623 million increased 4% year over year.

Michael J. Berry: Public cloud ALR exited the year at $630 million.

Michael J. Berry: <unk>, 2% year over year and up $22 million from Q3.

Michael J. Berry: Public cloud revenue composed 9% of total revenue in Q4 and grew 1% year over year to $152 million. We exited fiscal 24 with $4.23 billion in deferred revenue, a decrease of 2% year-over-year, consistent with the year-over-year decrease in Q3. Q4 consolidated gross margin was approximately 71.5%. Total hybrid cloud gross margin was 72%. Product Growth Margin was 61%, 130 basis points ahead of our prior guidance, driven by a better mix and continued growth in our C-Series products. Our recurring support business continues to be highly profitable, with gross margin of 92%.

Michael J. Berry: Cloud revenue composed 9% of total revenue in Q4 and grew 1% year over year to $152 million.

Michael J. Berry: We exited fiscal 'twenty four with four point to $3 billion and deferred revenue a decrease of 2% year over year consistent with the year over year decrease in Q3.

Michael J. Berry: Q4 consolidated gross margin was approximately 71, 5%.

Michael J. Berry: Total hybrid cloud gross margin was 72%.

Michael J. Berry: Product gross margin was 61% a 130 basis points ahead of our prior guidance driven by better mix and continued growth in our C series products.

Michael J. Berry: Our recurring support business continues to be highly profitable with gross margin of 92%.

Michael J. Berry: Public Cloud Gross Margin increased 290 basis points both quarter over quarter and year over year to 68%. Q4 again highlighted the strength of our business model and our operational discipline with an operating margin of 28%, the highest for a Q4 in the history of NetApp, and the second only to last quarter's 30% operating margin. EPS of $1.80 was $0.02 ahead of guidance of $1.78, predominantly driven by better gross margin. As a reminder, we had a one-time improvement in our tax rate in Q3 that normalized towards our usual low 20% range in Q4, which was contemplated in our prior guidance.

Michael J. Berry: Public cloud gross margin increased 290 basis points, both quarter over quarter and year over year to 68%.

Michael J. Berry: Q4, again highlighted the strength of our business model and our operational discipline with operating margin of 28%.

Michael J. Berry: The highest for Q4 in the history of net App and the second only to last quarter's 30% operating margin.

Michael J. Berry: EPS of $1.80 was two cents ahead of guidance of $1.78 predominantly driven by better gross margins.

Michael J. Berry: As a reminder, we had a one time improvement in our tax rate in Q3 that normalized towards our usual low 20% range in Q4, which was contemplated in our prior guidance.

Michael J. Berry: In Q4, cash flow from operations was $613 million, and free cash flow was $567 million. These cash flow metrics came in above our expectations in Q4 due to higher customer collections, lower tax payments, and lower supply chain payments. During Q4, we repurchased $100 million in stock and paid out $104 million in dividends. The Q4 diluted share count of $212 million was down 2% year over year.

Michael J. Berry: In Q4 cash flow from operations was $613 million and free cash flow was $567 million.

Michael J. Berry: These cash flow metrics came in above our expectations in Q4, due to higher customer collections, lower tax payments and lower supply chain payments.

Michael J. Berry: During Q4, we repurchased $100 million in stock and paid out $104 million in dividends.

Michael J. Berry: Q4 diluted share count of $212 million was down 2% year over year.

Michael J. Berry: We had approximately $500 million left on our current share repurchase authorization as of the end of fiscal 24, and today we are announcing an increase in that authorization by another $1 billion. Before moving to guidance, let's review the results for the full year Fiscal 24. Revenue of $6.27 billion was down 1% year over year, and billings of $6.25 billion were down 2% year over year.

We had approximately $500 million left on our current share repurchase authorization as of the end of fiscal 'twenty four and today, we are announcing an increase in that authorization by another $1 billion.

Michael J. Berry: Before moving to guidance, let's review the results for the full year fiscal 'twenty four.

Michael J. Berry: Revenue of six point to $7 billion was down 1% year over year and billings of $6.25 billion were down 2% year over year.

Michael J. Berry: Discipline Operational Management yielded all-time fiscal year highs for operating margin and EPS. For Fiscal 24, operating margin was 27%, up 260 basis points year-over-year, driven predominantly by 450 basis points of year-over-year improvement in gross margins, slightly offset by a small year-over-year revenue decline and targeted operating expense growth. For Fiscal 24, operating cash flow was $1.69 billion, and free cash flow was $1.53 billion, both all-time company records. Our balance sheet remains very healthy. We close the year with $3.25 billion in cash and short-term investments against $2.4 billion in total debt.

Disciplined operational management yielded all time fiscal year highs for operating margin and EPS.

Michael J. Berry: For fiscal 'twenty four operating margin was 27% up 260 basis points year over year, driven predominantly by 450 basis points of year over year improvement in gross margins slightly offset by the small year over year revenue decline and Targa.

Michael J. Berry: In operating expense growth.

For fiscal 'twenty, four operating cash flow was $1.69 billion and free cash flow was $1.53 billion, both all time company highs.

Michael J. Berry: Our balance sheet remains very healthy we closed the year with $3 billion to $5 billion in cash and short term investments against $2.4 billion in total debt.

Michael J. Berry: Now to guidance, starting with Fiscal 25. Let me underscore our confidence in our strategy and the strength of our position in addressing key customer priorities such as business analytics, AI, cloud transitions, data security, and application modernization. Macro indicators today are better than a year ago. However, while there has been some improvement, in our view, the macro environment remains unsettled.

Now to guidance, starting with fiscal 'twenty five.

Michael J. Berry: Let me underscore our confidence in our strategy and the strength of our position in addressing key customer priorities, such as business analytics, AI cloud transitions data security and application modernization.

Michael J. Berry: Macro indicators today are better than a year ago. However, while there has been some improvement in our view the macro environment remains unsettled.

Michael J. Berry: As a result, we expect fiscal 25 total revenue to be in the range of $6.45 to $6.65 billion, which at the midpoint reflects 4.5% year-over-year growth. Implied in our Fiscal 25 Revenue Guidance is year-over-year revenue growth in each quarter of Fiscal 25. While we are not providing specific cloud revenue guidance, we do expect public cloud revenue to return to consistent growth in fiscal 25. We expect fiscal 25 consolidated gross margin to be roughly 71 to 72%, despite the pressure coming from the rising NAN component. We expect growth and support in cloud gross profit to help maintain our overall gross margin.

Michael J. Berry: As a result, we expect fiscal 'twenty five total revenue to be in the range of $6.45 billion to $6.65 billion, which at the midpoint reflects 4.5% year over year growth.

Michael J. Berry: Implied in our fiscal 'twenty five revenue guidance is year over year revenue growth in each quarter of fiscal 'twenty five.

Michael J. Berry: While we are not providing specific cloud revenue guidance, we do expect public cloud revenue to return to consistent growth in fiscal 'twenty five.

Michael J. Berry: We expect fiscal 'twenty five consolidated gross margin to be roughly 71% to 72% consistent with fiscal 'twenty four gross margins. Despite the pressure coming from rising NAND component cost.

Michael J. Berry: We expect growth in supporting cloud gross profit to help maintain our overall gross margins implied in this guidance is growth year over year and gross profit dollars, which is our focus.

Michael J. Berry: Employed in this guidance is growth year-over-year in gross profit dollars, which is our focus. We have secured a large majority of our forecasted SSD demand for Fiscal 25, albeit at higher prices than Fiscal 24. Given our existing inventory levels and the forecasted use of our pre-buy supply, product gross margins are expected to be higher in the first half of fiscal 25 as we utilize our inventory compared to the second half of fiscal 25.

Michael J. Berry: We have secured a large majority of our forecasted SSD demand for fiscal 'twenty, five, albeit at higher prices than fiscal 'twenty for.

Michael J. Berry: Given our existing inventory levels and our forecasted use of our pre buys supply product gross margins are expected to be higher in the first half of fiscal 'twenty five.

Michael J. Berry: As we utilize our inventory compared to the second half of fiscal 'twenty five.

Michael J. Berry: We remain confident in our long-term public cloud gross margin target of 75 to 80% and expect to make progress in fiscal 25 towards this target. We anticipate operating margins of 27 to 28% and EPS of $6.80 to $7. For the year, we expect a tax rate in the range of 21 to 22 percent.

Michael J. Berry: We remain confident in our long term public cloud gross margin target of 75% to 80% and expect to make progress in fiscal 'twenty five towards this target.

Michael J. Berry: We anticipate operating margins of 27% to 28% and EPS of $6 80.

Michael J. Berry: $207 for the year, we expect the tax rate in the range of 21% to 22%.

Michael J. Berry: We expect operating cash flow will move in line with net income, although there will be some quarterly variance based on working capital, especially in Q1, when we will pay our annual incentive compensation. Our anticipated healthy cash generation enables us to continue our strong return of capital to shareholders. In fiscal 25, we intend to return up to 100% of free cash flow to shareholders in share buybacks and dividends. Our conviction in future cash flow generation is driving the increase in our quarterly dividend to $0.52 per share in fiscal 25, with the remainder of free cash flow going to share buybacks.

We expect the operating cash flow will move in line with net income, although there will be some quarterly variance based on working capital, especially in Q1, when we will pay our annual incentive compensation plans.

Our anticipated healthy cash generation enables us to continue our strong return of capital to shareholders.

In fiscal 'twenty, five we intend to return up to 100% of free cash flow to shareholders and share buybacks and dividends.

Michael J. Berry: Our conviction and future cash flow generation is driving the increase in our quarterly dividend to <unk> 52 per share in fiscal 'twenty five with the remainder of free cash flow going to share buybacks.

Michael J. Berry: We expect to reduce the share count by approximately 1 to 2% in fiscal 25. Now on to Q1 guidance. We expect Q1 revenue to range between $1.455 and $1.605 billion, which at the midpoint implies growth of 7% year over year. We expect Q1 consolidated gross margin to be roughly 72% and operating margin to be approximately 25%. EPS should be in the range between $1.40 and $1.50.

Michael J. Berry: We expect to reduce share count by approximately 1% to 2% in fiscal 'twenty five.

Michael J. Berry: Now onto Q1 guidance.

Michael J. Berry: We expect Q1 revenue to range between 1.455.

Michael J. Berry: And 1.6, all $5 billion, which at the midpoint implies growth of 7% year over year.

Michael J. Berry: We expect Q1 consolidated gross margin to be roughly 72% and operating margin to be approximately 25%.

Michael J. Berry: EPS should be in the range between $1 40.

Michael J. Berry: And $1 50.

Michael J. Berry: In closing, I want to echo George's appreciation of the NetApp team and their continued focus and execution in this uncertain environment. As I look forward into fiscal 25, I am confident in our strategy and our ability to capture our growing set of opportunities and increase profitability. I'll now turn the call over to Kris for a Q&A. Thanks.

Michael J. Berry: In closing I want to Echo George's appreciation of the Netapp team and their continued focus and execution in this uncertain environment as.

Michael J. Berry: As I look forward into fiscal 'twenty, five I am confident in our strategy and our ability to capture our growing set of opportunities and increase profitability.

Chris: Now I'll turn the call over to Chris for Q&A. Thanks, Mike Operator, let's begin the Q&A.

Kris Newton: Thanks, Mike. Operator, let's begin the Q&A.

Operator: Thank you. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question at any time, you may press star, then two. Our first question comes from David Vogt with UBS. Please go ahead.

Speaker Change: Thank you to ask a question you May Press Star then one on your telephone keypad.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Withdraw your question at any time, you May Press Star then two.

Speaker Change: Our first question comes from David Kelley with UBS. Please go ahead.

David Vogt: Great, thank you guys for taking my question. Maybe George, to start, you spent some time talking about the competitive successes that you had in the quarter and the strength of both the A Series and the C Series. Can you maybe expand upon that relative to sort of what you're seeing in the macro? I mean, there's a lot of discussion in the market, not just for storage, but in IT for general, about macro headwinds, and it doesn't appear to be a big factor for you this quarter.

David Kelley: Great. Thank you guys for taking my call. My question, maybe George to start you know you spent some time talking about the competitive successes that you've had in the quarter and the strength of both the E series and the C series can you maybe expand upon that relative to sort of what you're seeing in the macro I mean, there's a lot of discussion.

David Kelley: The market not just for storage, but an I T for general macro headwinds and it doesn't appear to be a big factor for you. This quarter and then with regards to Keystone you talked about some displacements because there are a whole host of factors with the offering can you maybe expand upon what you know.

David Vogt: And then with regard to Keystone, you talked about some displacements because of a whole host of factors with the offering. Can you maybe expand upon what, you know, what were some of the more important factors? You mentioned performance. Was price a consideration, or is it really the suite of solutions, a suite of offerings that really drives sort of that Keystone success? And can you maybe talk about the average length of these agreements, or these two to three year agreements? Any color there would be helpful. Thank you.

Speaker Change: What were some of the more important factors you mentioned performance was price a consideration or is it really the suite of solutions a suite of offerings that really drives shorter that Keystone.

Speaker Change: Success and can you maybe talk about the average length of these agreements and these two to three year agreement any color there would be helpful. Thank you.

George Kurian: Thank you for the question. Listen, we are cautiously optimistic on the macro. As you noted, it's better than we started the prior year, but there's still a good amount of uncertainty and caution in customer spending. They are prioritizing applications like analytics, unifying their data for AI, modernizing their environment, and dealing with disruptions from changes like VMware. And we have had really good success across all of those landscapes. We've had strong wins across multiple elements of the AI opportunity, from data lakes, to model training, to rag on our customers' installed data, and we see that across multiple verticals.

Speaker Change: Thank you for the question listen we are cautiously optimistic on the macro as you noted it's better than we started the prior year, but theres still a good amount of uncertainty and caution in customer spending they are prioritizing the applications.

Speaker Change: Like analytics unifying their data for AI.

Speaker Change: And I think their environment and dealing with disruption from changes like Vmware and we have had really good success across all of those landscape.

We've had strong wins across multiple elements of the AI opportunity from data lakes to motto training to brag on our customers' installed data and.

Speaker Change: We see that across the multiple.

Speaker Change: Verticals.

George Kurian: We've had strong success with our offering displacing VxRail and other hyper-converged platforms that customers look to optimize their VMware landscapes, and in the case of Keystone, which has had a really strong year, every quarter of the year has been strong, and we had a really, really strong Q4. What we are seeing is customers like the idea of a unified, integrated data platform for all of their data and a cloud- What we are able to offer uniquely in the market is the same experience in your data center, as in a co-location environment, as in all the leading public clouds, and so the value of the flexibility that we offer and the operational consistency and simplicity is what's allowing us to win all these deals, and it's not price. These are long-term architectural commitments that customers are making, and they are multi-year agreements. I'll leave it be.

Speaker Change: We've had strong success with our offering displacing VX rail another hyper converged platform that customers look to optimize their vmware landscape.

Speaker Change: And in the case of Keystone, which was had a really strong year every quarter of the year has been strong and we had a really really strong Q4.

Speaker Change: What we're seeing is customers like the idea of a unified integrated data platform for all of their data.

Speaker Change: Cloud like you know.

Speaker Change: What we are able to offer uniquely in the market is the same experience in your data center.

Speaker Change: In a colocation environment.

Speaker Change: And all of the leading public clouds and so the.

Speaker Change: Value of the flexibility that we offer and the operational consistency and simplicity is what's allowing us to win all these deals.

Speaker Change: And you know theyre not on Friday. These are long term architectural commitments that customers are making.

Speaker Change: Our multiyear agreements I'll leave it there.

Unknown Attendee: Perfect, thank you very much.

Speaker Change: Perfect. Thank you very much.

Matthew John Sheerin: The next question comes from Matt Sheeran with Stiefel. Please go ahead.

Speaker Change: The next question comes from Matt Sheerin with Stifel. Please go ahead.

George Kurian: Yes, thank you. George, regarding your outlook for growth for fiscal 25, 4.5% growth, which, as you say, reflects macro concerns. We are hearing another reason is that vendors are focusing on AI investments, which are leading to the push out of other projects, including both hardware and software. We heard from another of a number of big companies just this week. Are you seeing signs of that as well in your business, or are you just seeing continued caution concerning all budgets?

George Kurian: Yes. Thank you George I regarding your outlook for growth for fiscal 'twenty five four.

Unknown Attendee: Four 5% growth, which as you say reflects macro concerns are we.

Speaker Change: We're hearing another reason is that vendors.

Speaker Change: Focusing on AI investment side, which are leading to push outs of other projects, including both hardware and software we heard from another a number of big companies. Just this week are you seeing signs of that as well in your business or is that just you're just seeing continued cautiousness concerning all budgets.

Unknown Attendee: I think more of the latter. There's just generally, you know, continued scrutiny of spending. I think with regard to our outlook, we are very confident entering the year. We finished really strong. Our flash portfolio even got stronger in Q1 with the refresh of our A-series flash products. So we feel really good with a really up-to-date A-series, a TAM expanding ASA product, which had a really strong quarter, and, of course, the C-series, which has been setting records for performance in our business. So we feel really good.

Speaker Change: I think more of the latter just generally you know continued through to the spending I think with regard to our outlook.

Speaker Change: Confident entering the year, we finished really strong our flash portfolio was even got stronger in Q1 with the refresh of our AC read flash products. So we feel really good with.

Speaker Change: Really up to date, a series of Tam expanding a safe product, which had a really strong quarter and of course, the TCE rates, which has been setting records for <unk>.

Speaker Change: Performance in our business. So we feel really good I think on the AI side listen beyond the installed incumbent for the world's largest unstructured data.

George Kurian: I think on the AI side, listen. We are the installed incumbent for the world's largest unstructured data set, and we are helping customers unify those data sets, building data lakes. We saw that, for example, at one of the world's largest genomics companies, where, together with NVIDIA, we built a supercomputing environment that allowed them to accelerate drug discovery. And then we talked about the success we had at one of the world's largest oil and gas companies, where we not only built their supercomputer for a trillion-parameter large language model, but we are also the backbone for all of their rag at their AI center of excellence. So I feel really good about our ability to, you know, tap into the AI opportunity, as well as continue the leadership we've shown in traditional enterprise applications.

Speaker Change: We are helping customers to unify those dataset building data lakes, we saw that for example in one of the world's largest genomics companies, where together with Nvidia we've built a supercomputing environment that allows them to accelerate drug discovery and then we talked about.

Speaker Change: The success, we had at one of the worlds largest oil and gas companies, where we not only build their supercomputer for a trillion parameter large language motto, but we are also the backbone for all right.

Speaker Change: Our AI as a center of excellence, so I feel really good about our ability to tap.

Speaker Change: Tap into the AI opportunity as well as continue the leadership he's shown in traditional enterprise applications.

Speaker Change: Okay. Thank you very much.

Meta A. Marshall: The next question comes from Meta Marshall with Morgan Stanley. Please go ahead.

Speaker Change: The next question comes from meta Marshall with Morgan Stanley. Please go ahead.

Meta A. Marshall: Great. Thanks, and maybe the first question just on the first party and marketplace cloud storage strength.

George Kurian: You know, are there any trends that you're seeing with the type of customer? Is that, you know, somebody who is an existing NetApp customer, those largely new customers, just any trends of who those customers are where you're seeing that strength? And then maybe just as a second question for Mike, you know, it would seem Q1 is starting seasonally strong, at least in comparison with last year, which maybe was seasonally weak, you know, some of that A-series launch, just how to think about how the A-series launch impacts the seasonality of the year. Thanks.

Is there any trends that you're seeing with the type of customer is that you know somebody who is an existing DAP customer that was largely new customers, just any trends of who who.

Speaker Change: Are those customers, where you're seeing that strength and then maybe just as a second question for Mike you know it would seem that Q1 is starting seasonally strong at least in comparison with last year, which maybe was seasonally weak and some of that.

Speaker Change: Series launch.

Speaker Change: Just how to think about how a series launch impacts the seasonality of the year. Thanks.

George Kurian: I'll take the first question, Meta. On the cloud storage side, the first-party and marketplace storage services, which are our focus, have had strong results throughout the year. In Q4, we continue to see a really good balance of new customers that are new to NetApp, including competitive displacement, bringing competitor footprints to the cloud on our platform, as well as a mix of existing NetApp customers who were deploying and migrating workloads to the cloud, and expansions, where a customer might have not had a first-party service like Google, now expanding on our first-party Google Cloud service. So this good balance across Mike? Thank you, George. Thanks for the question, Meta.

Speaker Change: I'll take the first question.

Speaker Change: On the cloud storage side.

Speaker Change: First party and marketplace storage services, which are our focus have had strong results throughout the year.

In Q4, we continued to see a really good balance of new customers.

Speaker Change: Our new to net out including competitive displacement, bringing competitor a footprint to cloud onto our platform as well as a mix of existing customers, who are deploying and migrating workloads to the cloud and expansions where a customer might have not had.

Speaker Change: A first party service like in Google now expanding on our first party Gogo cloud service. So good balance across the board sets us up to have a continued strong outlook for cloud storage this coming year, Mike Stankey George Thanks for the question. So yes, we do expect Q1 to be.

Michael J. Berry: So, yes, we do expect Q1 to be seasonally strong. As you mentioned, Q1 of last year was seasonally weak, so it is one of the easier comparisons, I'll say, for the year. In reference to the A-series launch, we're super excited about it. That is something that has just gotten started, though, so it won't have a big impact on Q1. We do expect that, though, to start driving some nice growth trajectory as we move through fiscal 25.

Speaker Change: It seems very strong as you imagine Q1 of last year. It was seasonally weak. So it is what are the easier compares I'll say for the year in reference to the ACC resolved. We're super excited about it that is something that has just gotten started though so it won't have a big impact on Q1, we do expect that to start driving so some.

Speaker Change: Nice trajectory as we move through fiscal 'twenty five.

Speaker Change: Great. Thank you.

Michael J. Berry: Thank you. The next question comes from Samik Chatterjee with J.P. Morgan. Please go ahead.

Speaker Change: Thank you the next question.

Speaker Change: The next question comes from stomach Chatterji with J P. Morgan. Please go ahead.

Speaker Change: Oh, Hey, Thanks for taking my question I guess, George you talked about the.

Samik Chatterjee: the infrastructure that you're providing your customers as they go through their AI deployments and the wins you have. I was just curious if you could give us a bit more sense about how to then translate that into revenue, particularly when I think about sort of fiscal 25 guide here, how much of that is incorporated in terms of those deployments in your revenue and how to think about that ramping up in the next year.

George: Food and sort of the infrastructure.

Speaker Change: Whiting your customers as they go through with it.

Speaker Change: AI deployments and the wins you have I was just curious if you can give us a bit more sense about how to translate that into revenue, particularly when I think about fiscal 'twenty five guide here how much of that is incorporated in terms of those deployments in your revenue and how to think about that ramping in the Q and a quick follow up for Mike Mike If you can just.

Samik Chatterjee: And a quick follow-up for Mike. Mike, if you can just help me with the puts and takes in terms of cross margin variance between Q3 and Q4, that will be helpful in terms of what the headwinds and tailwinds were. Thank you.

Speaker Change: Help me with the puts and takes in terms of gross margin.

Speaker Change: Variance between Q3, and Q4 that would be helpful in themselves.

Speaker Change: Headwind and tailwind to it thank you.

George Kurian: Listen, broadly speaking, we had more than 50 AI wins in Q4, across all elements of the AI landscape I talked about, both in data foundations like data lakes, as well as model training and inferencing across all of the geographies. I would tell you that in the AI market, the ramp on AI servers will be much ahead of storage because what clients are doing is they're building new computing stacks but using their existing data.

Speaker Change: Listen broadly speaking, we had about more than 50 AI win in Q4 across all elements of the AI landscape I talked about.

Speaker Change: As you know in.

Speaker Change: Data foundations like database as well as models looking at it differently.

Speaker Change: Across all of the geographies I wouldn't tell you that in the AI market.

The ramp on AI servers would it be much ahead of storage because what clients are doing is they are building, new computing stacks, but using their existing data and.

George Kurian: And so we expect that over time, there will be a lot more data created and unified to continue to feed the model. But at this stage, we are in proof of concept. We think that there's a strong opportunity for us, and all of the AI growth is factored into our guidance for next year.

Speaker Change: So we expect that over time there.

Speaker Change: It will be a lot more data creativity and unified two continuing to feed the model, but at this stage. We are in a proof of concept, we think that there's a strong opportunity over time for us and all of the AI growth is factored into our guidance for next year.

Michael J. Berry: And on your follow-up, Samik, on gross margins from Q3 to Q4, so as we talked about in the prepared remarks, we did come in about 130 basis points higher on product margins, although we had guided around 60%. That was largely due to better mix.

Speaker Change: On your follow up.

Speaker Change: Gross margin from Q3 to Q4, so as we talked about on the in the prepared remarks, we did come in about 130 basis points higher on product margins, we had guided around 60%.

Michael J. Berry: As we had talked about, we did expect that to come down from Q3 just because it was our Q4, and that's largely what happened. We support gross margin very consistently, and importantly, we started to see a nice increase in our cloud gross margins, and we expect that to continue in the next year. So pretty consistent performance from Q3 to Q4 in our gross margin.

Speaker Change: That was largely due to better with a better mix.

Speaker Change: We have talked about we do it we did expect that to come down from Q3, just because it was our Q4 and that's largely what happened we support gross margin very consistent and importantly, we started to see a nice increase in our cloud gross margins and we expect that to continue into next year, So pretty consistent performance Q3 to Q4.

Our gross margin line.

Unknown Attendee: Thank you. Thanks for taking the questions.

Speaker Change: Yeah.

Thank you thanks for taking the question.

Mehdi Hosseini: The next question comes from Mehdi Hosseini with SIG. Please go ahead. Yes.

Speaker Change: The next question comes from Mehdi Hosseini with S. I G. Please go ahead.

Michael J. Berry: Yes, thanks for taking my question. Mike, when I look at your Q1 operating margin guide, actually, in context of the fiscal year, it seems like you're going to exit FY25 in the high 20% operating margin, 29% to be exact. Does that 29% operating margin exiting FY25 include all the leverage given the resizing that you went through last year?

Yes, thanks for taking my question.

Speaker Change: Mike.

Mike: I look at your Q1.

Mehdi Hosseini: Operating margin guide I put it in context of fiscal year. It seems like you're going to exit it's like 25 in the high 20% operating margin, 29% to be exact does that 29% operating margin exiting FY 'twenty five includes all the opex leverage give.

Speaker Change: The resizing that you went through last year.

Michael J. Berry: Yeah, so we got a full year 27 to 28% operating margin. And yes, operating margin is always a little bit lower as a percentage in Q1, just given the seasonality. So I think what you're referring to Mehdi is that we did do the restructuring last year in Q4.

Speaker Change: Yeah. So so we've got in full year, 'twenty, seven or 28% operating margin.

And yes operating margin is always a little bit lower on a percentage in Q1, just given the seasonality. So I think what you're referring to Matt is we did do the restructuring last year in Q4.

Speaker Change: As we enter fiscal 'twenty five we do have some leverage continuing at Opex, we do expect opex to grow I'm going to say about 2% for the full year basis on our revenue guide of about 4.5%.

Michael J. Berry: As we enter fiscal 25, we do have some leverage continuing in OPEX. We do expect OPEX to grow, I'm going to say about 2% for the full year. On a revenue guide of about 4.5%, we are doing targeted hiring in sales and in engineering to drive key product initiatives.

Speaker Change: Aren't doing targeted hiring in sales and engineering to drive key product initiatives outside of that as we've always said our goal is to always drive operating leverage in the business that have opex grow at a rate less than our.

Speaker Change: Revenue growth excuse me, but but you did 30% operating margin in January at a lower revenue run rate why shouldn't be able to meet.

Speaker Change: Meet or exceed 30% operating margin given the.

Speaker Change: Given your reduce our footprint.

Michael J. Berry: Outside of that, as we've always said, our goal is to always drive operating leverage in the business and have OPEX grow at a rate less than operating or revenue growth. Excuse me. Yeah, so the 30%, keep in mind; that was the highest that we saw in our gross margin numbers. And we have talked about many of those coming starting higher in fiscal 25 and then coming down as we go through the year, as we go through the pre-buys that we have for SSD. So it is significantly influenced by that gross margin number. You know, we'd love to get back to 30%. At this point, a lot of that depends on where the gross margin line goes.

Speaker Change: Okay.

Speaker Change: Yeah. So the 30% keep in mind that was the highest that we saw in our gross margin numbers and we have talked about many of those coming starting higher in fiscal 'twenty five and then coming down as we go through the year.

As we go through the pre buys that we have four SSP. So it is significantly influenced by that gross margin number we'd love to get back over 30%.

Speaker Change: At this point a lot of that depends on where the gross margin line goes.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Michael J. Berry: Thank you. The next question is from Steven Fox with Fox Advisors. Please go ahead. Hi.

Steven Bryant Fox: Thank you. The next question is from Steven Fox with Fox Advisors. Please go ahead. Hi Mike, just to follow up on

Speaker Change: The next question is from Steven Fox with Fox Advisors. Please go ahead.

Speaker Change: Hi.

Speaker Change: Mike just to follow up on the points on the pre buys can you just maybe further outline your strategy in terms of pre buys where you continue to do that six months out 12 months out et cetera or is it more depending on how you view the market and along those lines can you give us a better sense for sort of that the gross margin headwinds as you get into the second half from the higher NAND costs. Thanks.

Michael J. Berry: Sure. As we talked about, we were very active in pre-buys for fiscal 24. As we talked about in the prepared remarks, we have locked in a large majority of our forecasted SSDs for 25, albeit at prices higher than 24, as you would expect, Steve. And really, when we look at that, we look at where the market is, we look at, obviously, our demand, and where we think the prices are going to go.

Speaker Change: Sure. So we talked about we did we were very active in pre buys for fiscal 'twenty four as we talked about in the prepared remarks, we have.

Speaker Change: Locked in a large majority of our forecasted ssds for 25, albeit at prices higher than 24 months, you would expect Steve and really when we look at that we look at where the market is we look at obviously, our demand and where we think the prices are going to go the supply chain team has been very active in this market.

Michael J. Berry: The supply chain team has been very active in this market, and we think it's an important part of protecting our margins. At this point, we are still comfortable with the full year 58 to 60% range that we talked about in product gross margins for fiscal 25. The variables there are potential further increases or decreases in their cost through the rest of the year, and then, of course, storage market pricing plays into it.

Speaker Change: And we think it's an important part of our protecting our margins at this point, we are still comfortable with the full year, 58% to 60% range that we talked about and product gross margins for fiscal 'twenty five.

Those are all potential further increases or decreases and then pass through the rest of the year that our corn storage market pricing points anyway.

Michael J. Berry: I do want to reiterate, hey, we are focused on driving top line growth and driving additional gross margin dollars at EPS. While being disciplined in pricing, we certainly continue to look at product gross margin percentages. But at the end of the day, we will focus on driving profitable revenue growth and margin dollars. So again, 58 to 60 for the full year, starting higher in the first half and then scaling down as we go through the Great Depression. That's helpful.

Speaker Change: Do want to reiterate we are focused on driving the topline growth.

Speaker Change: And driving additional gross margin dollars and EPS, while being disciplined in pricing. We certainly continue to look at product gross margin percentages.

Speaker Change: Good day, we will focus on driving profitable revenue growth and margin dollars.

Speaker Change: Okay got it.

<unk> 16 for the full year, starting higher in the first half and then scaling down as we go through the year.

Great. That's helpful. Thank you.

Speaker Change: Thank you.

Simon Matthew Leopold: The next question is from Simon Leopold with Raymond James. Please go ahead. Thanks for taking the question.

Michael J. Berry: Thank you. The next question is from Simon Leopold with Raymond James. Please go ahead. Thanks for taking the question.

Speaker Change: The next question is from Simon Leopold with Raymond James. Please go ahead.

Simon Matthew Leopold: Thanks for taking the question.

Simon Matthew Leopold: I didn't catch the comment that you expect public cloud services to grow through the year I just wanted to see if we can maybe get a refresh on what what's changing in that business, that's getting us back to growth and maybe if you could quantify what you mean in terms of their contribution.

Speaker Change: More numbers I'd appreciate it thank you.

George Kurian: Yeah, listen. A couple of quarters ago, we said that we were taking action to sharpen the focus of our public cloud business. Those are along two dimensions.

Speaker Change: Yeah, just the next couple of quarters ago, We said that we were taking action just sharpen the focus of our public cloud business. Those are along two dimensions. The first was to continue to drive the execution of our growth strategy.

George Kurian: The first was to continue to drive the execution of a growth strategy around our first party and hyperscaler storage services. As we said, storage is now about two-thirds of the total cloud business, and first party and marketplace cloud storage services are the preponderant majority of our cloud storage. And that has performed really, really well and is the foundation for long-term success and growth in the cloud.

Speaker Change: Around our first party and Hyperscale or storage services as we said storage is now about two thirds of the total cloud business and first party and marketplace cloud storage services are the preponderant majority of our cloud.

Speaker Change: Storage and that has performed really really well and is the foundation for long term success and growth in cloud.

George Kurian: Second, we said that the subscription business had headwinds related to cloud optimization, and we took several actions to improve the health of our subscription business. As a reminder, we said that subscriptions were about a fifth of the total cloud business, so a small part, and we took actions to both. To stop selling certain products and services that are no longer a part of our Go Forward plan. To migrate some customers from our subscription offerings to our first-party cloud consumption offerings.

Speaker Change: And we said that the subscription business had headwinds related to cloud optimization.

Speaker Change: It took several actions to improve the health of our subscription business.

Speaker Change: As a reminder, we said that subscription was about a fifth of the total cloud business.

Speaker Change: Small part.

Speaker Change: We took actions to bone.

Speaker Change: Stop.

Speaker Change: Selling certain products and services that we're no longer a part of our go forward plan to migrate customers from our subscription offerings to our first party cloud consumption offerings can integrate some of the stuff.

George Kurian: To integrate some of the subscription products as big features of our cloud storage offerings, and to be able to sharpen the value proposition of our subscription offerings and work with our customer success team to improve the value of the client.

Speaker Change: Certain products.

Speaker Change: <unk> features of our cloud storage offerings.

Speaker Change: And to be able to sharpen the value proposition of our subscription offerings and work with our customer success team to improve the value of the client. What this has resulted in a decrease in subscription revenue in the second half of this year as the forecast.

George Kurian: What this has resulted in is a decrease in subscription revenue in the second half of this year, as we forecast. But the headwinds from that decrease are getting smaller and smaller. And over the course of the first half of next year, we feel that a large part of those headwinds will be mitigated. We expect that cloud first-party and marketplace cloud storage should continue to ramp strongly, which will deliver overall growth in cloud, and consistent revenue growth in cloud services in fiscal year 25. They were stronger in the second half than in the first half.

Speaker Change: But the headwinds from that decrease are getting smaller and smaller and over the course of the first half of next year, we feel that a large part of those headwinds will be mitigated, we expect that cloud first party and marketplace cloud storage should continue to ramp strongly which.

Speaker Change: We'll deliver overall growth in cloud.

Speaker Change: Revenue growth in cloud in fiscal year, 'twenty five stronger in the second half than in the first half.

Speaker Change: Thank you.

Wamsi Mohan: The next question comes from Wamsi Mohan with Bank of America. Please go ahead.

Speaker Change: The next question comes from <unk> Mohan with Bank of America. Please go ahead.

Michael J. Berry: Yes, thank you so much for taking the question. I was wondering, Mike, did I hear correctly? You say that the range of product gross margin could be between 50 to 60%, starting at sort of the high end of that range and maybe closing out somewhere towards the lower end of that range. Could you clarify that?

Speaker Change: Oh, yes. Thank you so much for taking the question I was wondering Mike did I hear correctly, you say that the.

The range of product gross margin could be between 50% to 60% starting at sort of the high end of that range and maybe closing up somewhere towards the lower end up that range could you clarify that.

Michael J. Berry: Yeah, Wamsi, so sorry if I said it correctly. What we talked about is we're still comfortable with the 58 to 60% range and product gross margins for the full year, starting out higher in the first half and then sliding down as we go through the second half and use the inventory of pre-bought.

Mike: Yeah. So one thing so I'm sorry, if I said it correctly, while we talked about is we're still comfortable with the 58% to 60% range on product gross margins for the full year starting out higher in the first half and then sliding down as we go through the second half and use the inventory of pre buys.

George Kurian: Okay, I mean, historically, when you looked at the swing in product gross margins, given, you know, change in commodity pricing, you had two impacts. The first one is just sort of your ability to pass some of that through on your top line. And secondarily, the swing on product gross margin has been a little bit larger. So could you just maybe talk through maybe four or 500 basis points, maybe historically? You might correct me if I'm wrong there.

Speaker Change: Okay. I mean, historically you went when you looked at the swing in product gross margins.

Speaker Change: Given the change in commodity pricing, you'll have two impacts first one is just sort of your ability to pass some of that through on your topline and secondarily.

Speaker Change: The swing on product gross margin has been a little bit larger.

Speaker Change: So could you just maybe talk through maybe four or 500 basis points, maybe historically, Mike can correct me, if I'm wrong there but.

George Kurian: But the Can you just talk through sort of what is the upside on revenue that you're thinking could come from the pass through of the increased NAN cost in the second half? And and why is it not quite as wide this time around, when presumably you've done pre-buys in the past too? Thank you.

Speaker Change: Can you just talk through sort of what is the upside on the revenue that you're thinking could come from pass through of the increased cost in the second half and why is it not quite as wide. This time around when presumably you've done pre buys in the past too. Thank you.

Michael J. Berry: Listen, I'll take that question in two parts, one on the revenue side and the second on the gross margin side. On the revenue side, we continue to believe that customers budget in dollars, not in systems. And so while we expect that the industry will follow the normal course of behavior, which is to raise prices to customers as commodity prices go up, we don't expect that to translate into directly increasing revenue. Customers will buy smaller amounts of storage if they have to pay more for it, but they will spend the dollars budgeted for it.

Speaker Change: But it's and I'll take that question in two parts one on the revenue side and the second on the gross margin side on the revenue side. We continue to believe that customers' budget in dollars not in systems and so while we expect that the industry will follow that normal course.

Speaker Change: So behavior, which is to raise prices to customers.

Commodity prices go up we don't expect that to translate into directly increasing revenue customers will buy smaller amounts of storage if they have to pay more for it but they will spend the dollars budgeted for it and that's what's reflected in our topline with regard to cost of goods sold I think first.

Michael J. Berry: And that's what's reflected in our top line. With regard to cost of goods sold, I think, first of all, as Mike said, we have already completed a large percentage of our forecasted demand for NAND through the course of next year. And as we have said before, NAND is less than 50% of our total cost of goods, the rest of which stays flat. The outlook we are providing is based on current market prices. If the overall market raises prices as it has done in the past, we expect to follow the market, and that should be consistent with the outlook that we have provided.

Speaker Change: As Mike said, we have completed a large percentage of our forecasted demand for NAND through the course of next year and as we have said before <unk> is less than 50% of our total cost of goods directive.

Speaker Change: As you know flat.

Speaker Change: The outlook, we are providing is based on our current pay is based on current market pricing if the overall market raises prices.

Speaker Change: They have done in the back we expect to follow the market and that should be accretive to the outflows that we have provided.

Michael J. Berry: And if I could just add one thing, Wamsi, and you asked about the volatility of the margins, keep in mind that in fiscal 23, we had to deal with the premium issue that then went away. So that caused a lot of it. Fiscal 24 was really 55 to 61. So just keep that in mind as you look at fiscal 23.

Speaker Change: And if I can just add one thing you asked about the volatility of the margins keep in mind that in fiscal 'twenty. Three we had to deal with the premium mass shoot that that went away. So that's caused a lot of it in fiscal 'twenty. Four it was really 55 to 61. So just keep that in mind as you look at fiscal 'twenty three please.

Speaker Change: Okay. Thank you so much.

Speaker Change: Yeah.

Timothy Patrick Long: The next question is from Tim Long with Barclays. Please go ahead. Thank you.

Speaker Change: Next question is from Tim long with Barclays. Please go ahead.

Timothy Patrick Long: Thank you.

Speaker Change: Two also if I could first.

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Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: For.

Unknown Attendee: [inaudible] Compe... Thank you. [inaudible]

Speaker Change: Yeah.

Hum.

Speaker Change: Yes.

Speaker Change: Yes.

Unknown Attendee: Can you hear me? No, you are off the static.

Speaker Change: Yeah.

Speaker Change: Can you hear me okay.

Speaker Change: Yeah.

Speaker Change: Static.

Speaker Change: Thank you.

Speaker Change: Yeah.

Unknown Attendee: All right, next question please. You can hear us, we'll move on, but you can dial back into the queue at any time. The next question is from Nehal Chokshi with Northern Capital Markets. Please go ahead. Yeah, thank you. Given the discussion around the driver for the 10% cubic increase in first-party marketplace cloud storage, it sounds like this is a sustainable solution.

Speaker Change: All right next question. Please from here bold moves on but you can dial back into the queue at any time. The next question is kind of male chest Chuck C with Northland capital market. Please go ahead.

Nehal Sushil Chokshi: Yeah, thank you. Given the discussion,

Speaker Change: Yeah. Thank you.

Speaker Change:

Chuck C: Given the discussion around the driver and a 10% Q O Q increase in the first part of your marketplace allows for it sounds like this is a sustainable driver.

Speaker Change: And so is it fair to expect that the.

Public.

The cloud storage and first party marketplace.

Speaker Change: European growth will accelerate as we go through fiscal year 'twenty five here.

George Kurian: Listen, we expect public cloud storage, particularly first party and marketplace, which are the focus of our cloud efforts, to continue to grow nicely through the course of the year. I'm not going to comment on sequential growth rates. You know, each quarter, we had a really nice quarter this quarter, and we had a good year all year. I think that we see that first party and cloud storage and marketplace are a much bigger part of our overall cloud business.

Speaker Change: So we expect public cloud storage, particularly first party and marketplace, which are the focus of our cloud efforts.

Speaker Change: To grow nicely through the course of the year I'm not going to comment about sequential growth rate you know each quarter, we had a really nice quarter. This quarter and we had a good year all year I think that we see that first party and cloud storage end markets.

Speaker Change: This is a much bigger part of our overall cloud is nuts.

George Kurian: And the rest of the offerings, as I said, we continue to sharpen the focus and be more targeted in terms of our subscription offerings. They will have a little bit more headwinds in the first half of the year, but we expect cloud to grow consistently in FY25, stronger in the second half than in the first.

Entering fiscal year 'twenty five than it was entering fiscal year 'twenty four and the rest of the offerings as I said, we continue to sharpen our focus and be more targeted in terms of our subscription offerings. They will have a little bit more headwind in the first half of the year, but we expect the cloud.

Speaker Change: To grow consistently in FY 'twenty five stronger in the second half than in the first.

Speaker Change: Thank you.

Timothy Patrick Long: Thank you. The next question comes from Tim Long with Barclays. Please go ahead.

Speaker Change: Thank you. The next question comes from Tim Long with Barclays. Please go ahead.

Unknown Attendee: Thank you. I'll try it again with a different headset.

Timothy Patrick Long: Thank you I'll try it again with a different headset sorry about that.

Unknown Attendee: Sorry about that. I just wanted to touch on the QLC C-Series business. It seems like there's been some competitors trying to get into that piece of the market as well. So, a two-parter.

Speaker Change: Just wanted to touch on the QL C. C series business. It seems like there's been some competitors trying to get into that piece of the market as well so.

George Kurian: Number one, what do you think the increased competition would mean for that business, for NetApp? And then, secondly, if you could just remind us, that business has been very successful for you. Can you talk a little bit about how that business has been going? Meaning, has this been a lot of success with new customers or keeping your own base that's upgrading from hybrid systems? Any help there would be great. Thank you.

Speaker Change: Two parter number one what do you think the increased competition would mean.

Speaker Change: For that business, where net out and then secondly, if you could just remind us that business has been very successful for you can.

Speaker Change: Can you talk a little bit about.

Speaker Change: How is that how that business has been going meaning as it has been a lot of success with new customers or keeping your own base. That's that's upgrading from hybrid systems any help there would be great. Thank you.

George Kurian: Yeah, thanks for the question. With regard to upgrading an existing hybrid slash customer, In our C series, there are enormous advantages for a customer of NetApp to stay in play because we have the same operating system, the same management console, the same telemetry system, and we can do that virtually seamlessly for customers. And so we've seen a good chunk of upgrades from 10K drive environments to our all-flash, and we expect that to continue over time.

Speaker Change: Yeah. Thanks for the question with regard to upgrading an existing hybrid flash customer to our C series.

Speaker Change: There are enormous that back into for a customer up net up to stay in place.

Speaker Change: We have the same operating system the <unk>.

Speaker Change: Management console.

Jack: Hey, Jack telling battery system, and we can do that virtually seamlessly for customers and so we've seen a good chunk of upgrades from 10-K drive environments to our all flash shouldn't be expecting that to continue over time, you know those will come up as a customer.

George Kurian: You know, those will come up as customers upgrade their fleet in a periodic and steady fashion. We also saw a lot of new-to-NetApp environments in our customers where we were able to either replace competitive footprints or bring new footprints to NetApp as customers deployed new applications. We talked about the example with Keystone at a large customer that was considering two different approaches, one for file and one for block, and decided to unify on NetApp.

Jack: Upgrade their fleet in a periodic and steady fashion.

Jack: Also saw a lot of net new to Netapp environment.

Jack: Customers wherever you were able to either displace competitive footprint.

Jack: Or bring new footprints to net up as customers deploy new applications. We talked about the example, with Keystone in the large customer that was considering two different approaches one profile and one for block and decided to unify all net out we have seen several environments where.

George Kurian: We have seen several environments where hyper-converged VMware landscapes are now moving to optimize the cost of their VMware licenses and are using C-series. And over time, we just introduced the C-series AI pod that gives clients a cost-effective, capacity-flash-based AI model training and inferencing environment. So we're excited about the prospects for the C-series. Listen, everybody will have their alternatives in the market. We feel really good about the fact that we have the industry's most comprehensive data management, the only real hybrid cloud solution, and a track record of having really large-scale data management capabilities on our flash products. And we feel very, very confident heading into next year.

Jack: Hyper converged.

Jack: Somewhere landscapes turned out movie to optimize the cost of the Vmware licenses and are using C series and over time, we just introduced the E series, a I pod that give clients a cost effective capacity flash based AI model training an interesting environment. We're in.

Cited about the prospects of C T V.

Jack: Everybody will have their alternatives in the market, we feel really good about the fact that we have the industry's most comprehensive data management, the only real hybrid cloud solution and a track record of having really large scale data management capabilities on our flash products.

You'll feel very very confident heading into next year.

Speaker Change: Okay. Thank you.

Ananda Prosad Baruah: The next question is from Ananda Baruah with Loop Capital. Please go ahead.

Speaker Change: The next question is from Ananda Baruah with loop capital. Please go ahead.

George Kurian: Hey guys, thanks for taking the question. Good afternoon. George, maybe just actually picking it up right there. Is there a useful way to think about, you know, which of these, you know, kind of opportunities you've been stepping into are sort of the most accretive, you know, through the fiscal year? And I believe you were talking about, I think like the last few quarters, I'm saying a few loosely, it's kind of been the ASA San opportunity and the 10K drive opportunity. Is there any way to, I don't know, like sort of anecdotally... Not force the issue, but give us context around which opportunities are going to be the biggest catalysts as you go through the year?

Ananda Prosad Baruah: Yeah, Hey, guys yeah. Thanks for taking the question good afternoon.

Unknown Attendee: Thanks a lot.

George maybe just actually pick it up right. There is is there a useful way.

Think about.

Which of these.

Ananda Prosad Baruah: You kind of opportunities you've been stepping into.

Ananda Prosad Baruah: Or is sort of the most accretive.

Speaker Change: Through the fiscal year and I believe you had talked to you I think it's the last few quarters I'd say few lately, it's kind of been a.

Speaker Change: <unk> San opportunity and the 10-K drive opportunity.

Is there any way that I don't know like sort of anecdotally not.

Speaker Change #100: Not force rank, but give us context about around which which opportunities are going to be the biggest catalysts as you go through the year. Thanks a lot.

George Kurian: We have four growth opportunities that we are focused on. All flat storage. Block Storage, Cloud Storage, and AI. And let me cover each of those in turn.

Speaker Change #101: We have four growth opportunities that we are focused on all flash storage.

Speaker Change #101: Block storage.

George Kurian: In flash storage, we have seen strong success with high-performance flash, replacing legacy frame arrays and sort of, you know, traditional mainframe class storage with a much more modern, high performance landscape. We have seen the C-Series both replace hyper-converged as well as traditional hybrid flash architectures, upgrading both our install base and competitor install bases. With the ASA platform, which is Block, the second part of the growth opportunity is CAM expanding for NetApp.

Speaker Change #102: Storage and AI and let me hit each of those bids are in.

Our flash storage, we have seen strong success with high performance flash, replacing legacy frame array.

Speaker Change #102: And sort of you know traditional mainframe cloud storage with much more modern high performance landscapes, we have seen the C series, both replay hydro converts as well as traditional hybrid flash architectures upgrading both our installed base and.

Speaker Change #102: Competitor installed bases.

Speaker Change #102: With the <unk> platform, which has blocked the second part of the growth opportunity that is Tam expanding four net app and mirroring the.

George Kurian: And we are excited at the wins that we've seen and the momentum that we have. This will be a smaller business this coming year relative to the C-series and the AFF, and the A-series, but it will be all CAM expanding for NetApp. And I'm excited at where we are today.

Speaker Change #102: The wins that we've seen and the momentum that we have it will be a smaller business. This year relative to the E. C. D E. F. F E series, but it will be all Tam expanding for Nevada, and I'm excited at where we are today with cloud storage listen the cloud market is enormous.

George Kurian: With cloud storage, listen. The cloud market is an enormous market. It's a multi-billion dollar opportunity. And our cloud storage is a part of that opportunity. As cloud providers have seen a re-acceleration in their business, we are well positioned to grow our business. And our focus is to grow it at a rate higher than the infrastructure as a service growth rates of the big hyperscalers. And then, finally, AI. This is an opportunity that will become much more meaningful over time.

Speaker Change #102: It's a multibillion dollar opportunity and our cloud storage as a part of that opportunity.

Speaker Change #102: The cloud providers.

Speaker Change #102: Re acceleration in their business, we are well positioned to grow our business and our focus is to grow it at a rate higher than the infrastructure as a service growth rates of the big hyper scaler.

Speaker Change #102: And then finally this is the opportunity that will become much more meaningful over time.

George Kurian: We are well positioned with a huge installed base of unstructured data, which is the fuel for Gen AI, and we are focused on helping customers do in-place RAD and inferencing on that data. Second, our unified data storage systems with integrated data services provide an ideal foundation for customers looking to build a data lake or model training landscapes. And then, our hybrid cloud architecture gives us a unique place in the environment, allowing customers to use public cloud AI platforms such as Vertex from Google or Bedrock from AWS with their on-premises data and be able to scale inferencing to where every piece of the customer's data and IT landscape exists So those are the four. We're excited about the year ahead. We will tell you more about the specific puts and takes of each opportunity at our Financial Analyst Day on June 11.

Speaker Change #102: We're well positioned with our huge installed base of unstructured data, which is the fuel for journey II and.

Speaker Change #102: And we are focused on helping customers do in place right and interesting off that data second our unified data storage systems with integrated data services provide an ideal foundation for customers looking to build a data lake or modern training landscapes and then.

Speaker Change #102: Our hybrid cloud architecture gives us a unique place in the environment.

Speaker Change #102: Environment, allowing customers to use public cloud AI platforms, such as vertex from Google or bedrock from AWS.

Speaker Change #102: They are on premises data and be able to scale them interesting to where every piece of customer data and Nike landscape exists. So those are the four we're excited about year end, we will tell you more about the specific puts and takes of each opportunity at our financial analyst day on June 11.

Unknown Attendee: That's great, George. Thanks so much. The next question is from Kris Sankar with TD Cohen. Please go ahead.

George: Yeah, that's great that's great George Thanks, so much.

George: Yeah.

Krish Sankar: The next question is from Kris Sankar with TD Cohen. Please go ahead. Hey guys, this is Adi for Krish. When it comes to WAC applications, have you seen

Speaker Change #103: The next question is from Chris at the same time with T. D. Cohen. Please go ahead.

Chris: Hey, guys. This is Chris.

Chris: What comes to Reg applications have you seen any increase in storage density requirements.

Speaker Change #104: And I Wonder if you can update us on your efforts adult thing Jerry terabytes of SSD systems. Thank you.

George Kurian: Listen, I think with the question I didn't hear the question entirely clearly, but what we see with RAG is customers wanting to use a large amount of unstructured data alongside a model that has already been trained to get it even more aware of the context in which it's operating. And then for large-scale data lakes, we are able to build highly dense object storage or mixed object and file storage landscapes, which we have done for many, many clients over the last quarter.

Speaker Change #105: Listen I think with the.

Speaker Change #106: I didn't hear the question entirely clearly, but what we see with thrive and customers wanting to use a large amount of unstructured data alongside a model that has already been trained to getting even more aware of the context in which you're operating.

Speaker Change #106: Our C series and E series, our bolds well suited for that for customers that want really large landscapes.

Speaker Change #106: Are really excited about the opportunity with the C series, where we already have 30 terabyte drives that are adding you know a higher density drives that customer's need.

Speaker Change #106: And then for large scale data lakes, we are able to build highly dense object storage or makes the object and file storage landscape as we have done for many many clients over the last quarter.

George Kurian: Okay, yeah, my question, George, thank you. And my question was about 30 terabytes of SSDs. So it seems like that's already shipping in your systems as of today. Is that right? We have 30 terabytes of SSDs, and they're growing quickly as a percentage of the total capacity. The way our systems are built, we can pack a lot more density into a single system than many of our competitors

Speaker Change #107: Okay. Yeah. My question George I think my question was about like Ssds. So it seems like that's already shipping in your systems.

Speaker Change #108: As of today is that right.

Speaker Change #109: We have 30, terabyte ssds and they're growing quickly as a percentage of the total capacity the way our systems are built we get a lot more density into a single system than many of our competitors.

George Kurian: Thank you, George. Thank you. Today's last question comes from.

Speaker Change #110: Got it thank you George.

Speaker Change #110: Welcome.

Speaker Change #110: Yeah.

Unknown Attendee: Today's last question comes from Asiya Merchant with Citigroup. Please go ahead. Great, thanks.

Speaker Change #111: Today's last question comes from but I see a merchant with Citigroup. Please go ahead.

Speaker Change #112: Great. Thanks, and I apologize if this question's been asked but you know maybe if I can get okay time to free cash flow for next year.

Speaker Change #113: I don't know if this is a guide that was provided for that and how you can think about how we should think about that in the shareholder returns.

Speaker Change #114: Our fiscal.

Speaker Change #114: Fiscal year.

Asiya Merchant: Sure, thanks for asking the Caspo question. We'll have a couple more minutes.

Brett: Sure. Thanks, Brett I think the cash flow question. So maybe I'll have a couple more a matter of as I talked about on the program.

Speaker Change #116: In the prepared remarks, we expect cash flow to continue to track with that income. So if you take the midpoint of the guide that says that that income does go up year over year, a couple of things.

Speaker Change #116: So we would expect cash flow to move with it.

Speaker Change #116: The ear there'll be some working capital changes that I just want to make sure and highlight please keep in mind that in Q1, we will pay our annual incentive compensation payments that incrementally year over year Thankfully. It's a relatively large number it's about $150 million, we expect collections to increase year over year, and then as long as we can.

Speaker Change #116: Continue to purchase two pre buys we'd expect that to even out over the year as well. So all of that says we would expect cash operating cash flow to continue to track with net income and from a capex perspective, we did about $1 55 in fiscal 'twenty four you should expect something relatively consistent with that.

Michael J. Berry: As I talked about in the prepared remarks, we expect Caspo to continue to track with net income. So if you take the midpoint of the guide that says that net income does go up year over year, a couple things. And so we would expect Caspo to move with it.

Speaker Change #116: Fiscal 'twenty five.

Nat Cat set off of capital allocation, we did increase the dividend from 50 cents a share to 52 cents a share so that'll us call it $425 million of cash about for the year. The remainder of free cash flow is slated to go against share repurchases.

Speaker Change #117: Great. Thank you.

Speaker Change #118: Thank you. Thank you I'll now pass it over to George for some final comments.

Michael J. Berry: During the year, there'll be some working capital changes, and I just want to make sure and highlight these. Keep in mind that in Q1, we will pay our annual incentive compensation payments, and, thankfully, year over year, it's a relatively large number. It's about $150 million.

Michael J. Berry: We expect, then, collections to increase year over year. And then, as long as we continue to purchase and do pre-buys, we expect that to even out over the year as well. So, all of that said, we would expect cash flow, operating cash flow, to continue to track with net income. And from a CapEx perspective, we did about $155 million in fiscal 24. You should expect something relatively consistent with that in fiscal 25. And then, that caps it off with capital allocation.

George: Thanks, Chris.

Michael J. Berry: We did increase the dividend from $0.50 a share to $0.52 a share. So, that'll use probably $425 million of cash for the year. The remainder of free cash flow is slated to go against share repurchase.

George Kurian: Thank you. Thank you. I'll now pass it over to George for some final comments. Thanks, Chris.

George: We ended FY 'twenty four strong with robust performance in Q4 and building positive momentum entering FY 'twenty five.

George Kurian: Thanks Kris. We ended FY24 strong with robust performance in Q4 and built positive momentum entering FY25. Capacity Flash, Block Storage, Cloud Storage Services, and AI all represent enormous growth opportunities for us. We are performing well and expect continued growth in these areas. NetApp is leading the evolution of the storage industry, helping our customers make their data infrastructure intelligent for the age of AI. We are capitalizing on our shared gain opportunities and will maintain the operating discipline that has yielded record profitability. Thank you for your time today, and I hope to see you at our June 11th Investor Day.

George: In fact, the flash.

Storage cloud storage services and.

George: All represent enormous growth opportunity for us we are performing well and expect continued growth in these areas.

George: And that happens leading the evolution of the storage industry, helping our customers meet their data infrastructure intelligent for the age of AI.

George: We are capitalizing on our share gain opportunity and will maintain the operating discipline that has yielded.

George: Our record profitability. Thank you.

Thanks for your time today and I hope to see you at our June 11 Investor Day.

Operator: The conference is now concluded. Thank you for your participation. You may now disconnect your lines.

Speaker Change #119: The conference has now concluded. Thank you for your participation you may now disconnect your line.

Speaker Change #119: Goodbye.

Speaker Change #119: Okay.

Speaker Change #119: [music].