NetApp, Inc.

Good day, and welcome to the NetApp fourth quarter and fiscal year 2025 earnings call. All participants will be in a 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 Chris Newton, Vice President, Investor Relations. Please go ahead.

Hi, everyone. Thanks for joining us. With me today are our CEO, George Kurian, and CFO, Wissam Jabra. 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 2026, our expectations regarding future revenue, profitability, and shareholder returns, and other growth initiatives and strategies. 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.

Thanks, Chris, and good afternoon, everyone. Thank you for joining us. Record revenue for the fourth quarter and fiscal year 2025 was driven by strong growth and significant market share gains in all-flash storage. along with accelerating growth in our first party and marketplace storage services. We achieved all-time highs for gross profit, operating profit, operating margin, and EPS in FY25, a clear indication of our ability to navigate a dynamic environment. By relentlessly prioritizing our four growth opportunities and leveraging AI for increased efficiencies, we are able to invest in growth and expand our profitability metrics. In fiscal year 25, we refreshed our entire systems portfolio, sharpened the focus of our cloud services, and positioned ourselves to lead in the enterprise AI market. I believe that we've now reached an inflection point where the growth of all flash systems and public cloud services reinforced by the ongoing development of the AI market, will drive sustained top-line growth. Five years ago, these areas accounted for less than half our total revenue. Today, they represent over two-thirds. Looking ahead, we expect these growth drivers, along with our laser focus, prioritized investments, and robust execution, to deliver more company records in FY26 and beyond. Organizations are turning to NetApp to help them with data-driven strategies to deliver competitive advantage and operational efficiencies. As the enterprise AI market evolves and expands, there is greater urgency to transform. The demands of AI are complex and unrelenting, with massive volumes of data scattered across multiple silos. This fragmentation leads to difficult integrations, inefficiencies, and challenges in governance, security, and data protection. Gen AI transformation has made it clear that legacy architectures are inadequate to serve these complex workloads. NetApp's unified data architecture, spanning any data type, anywhere enables customers to build an intelligent data infrastructure, delivering the required flexibility needed to overcome these barriers. Our modern approach to hybrid multi-cloud infrastructure and data management empowers organizations to harness the full potential of their entire data estate simply, securely, and sustainably. We are expanding our install base and reaching new customers with our AI ready intelligent data infrastructure, which reduces cost and complexity by seamlessly bridging on premises and cloud storage with unified control. The world's biggest cloud providers, as well as governments and leading companies, trust and rely on our technology. All Flash Array annualized revenue run rate grew 14% from Q4 a year ago to a record $4.1 billion. In the fourth quarter, All Flash made up approximately 2 thirds of hybrid cloud segment revenue and 44% of systems in our installed base under active support contracts are All Flash. The rich data services of our All Flash unified data storage systems create a secure foundation for consolidating organizational data and accelerating AI-powered insights. As organizations seek to build future-proof, AI-ready infrastructure, they increasingly choose our solutions, driving our faster-than-market growth. In calendar 2024, we gained almost 300 basis points of all-flash market share, more than any other vendor as reported by IDC. We are in the early stages of our entry into the dedicated block storage market with plenty of headroom for continued growth. The breadth of our advanced data management helps organizations lower operational risk and enhance business continuity. by keeping data available, protected, and secure. We are seeing accelerating growth from our block-optimized ASA systems as we displace competitors' legacy installations with our simple, powerful, scale-out, all-flash block storage. Our momentum outpaced the market and resulted in almost 100 basis points of share gain in calendar 2024 for IDC. Demonstrating the power of our comprehensive all-flash portfolio, we signed a deal in the fourth quarter with a leading life sciences company to replace a competitor's nearly 10 petabyte footprint. With NetApp, they can now meet diverse multi-protocol and price performance requirements under a single operating environment, streamlining their data operations. To keep pace in an AI-driven world, companies must unlock the scale and agility of the public cloud. Only NetApp can help them achieve the required cost efficiency, cybersecurity, and AI readiness with services co-engineered with the major cloud providers. We continue to expand the workloads we address in the cloud and enhance our alignment with our hyperscaler partners' go-to-market motions. broadening our opportunity and accelerating growth. Over the course of fiscal year 25, we focused our public cloud services to emphasize our highly differentiated first-party and marketplace cloud storage services, closely complemented by intelligent data, operational, and workload services. This strategic focus continues to yield positive results. First party and marketplace cloud storage services grew 44% year over year in the fourth quarter. These services composed roughly 75% of public cloud segment revenue, which grew 22% from Q4 a year ago, excluding the recently divested spot by NetApp services. A SaaS provider needed high-performance multi-protocol storage to meet their cost optimization and resiliency requirements. In Q4, this new to NetApp customer chose to migrate to AWS FSx for NetApp ONTAP. FSxN helped the customer achieve a high-performance unified file and block environment with improved availability and resiliency for efficient and secure operations with a more cost-effective solution than alternatives. Just as we have helped enterprises harness the power of hybrid cloud environments, we are now enabling them to accelerate their AI deployments and achieve faster time to value. As the market for enterprise AI evolves, customers are moving from proof of concepts to real-world deployments, driving the need to unify their data for business impact. Our secure, cloud-integrated, silo-free infrastructure positions us as a leader in this transformation. We power AI pipelines from data preparation to model training to production deployments on-premises and in the cloud. In the fourth quarter, our AI business grew five-fold year over year, again performing ahead of plan. We closed approximately 150 AI infrastructure and data lake modernization deals, spanning multiple geographies, industries, and use cases. Over the course of FY25, we dramatically expanded our AI ecosystem, delivering innovations with NVIDIA, Domino, Dremio, the open platform for enterprise AI open source projects, and leading hyperscaler AI toolkits. We also introduced AI reference architectures with NVIDIA for AIDP, Cisco for FlexPod, Lenovo for AIPod, and most recently Intel for AIPod Mini. In Q4, our high-performance ONTAP all-flash storage was certified for NVIDIA DGX SuperPOD, NVIDIA Cloud Partners, and NVIDIA-certified systems. Building on our large installed base of unstructured data, we enable customers to gain intelligence from their data in place, making it ready and useful for production AI use cases without the need for migrations, or changes to data operations. We are helping customers deploy AI inferencing in production today and expect FY26 to be a pivotal year for enterprise AI storage with the opportunity outstripping that of model training. In the quarter, a large Asian telco service provider selected NetApp as the foundation for its AI workloads. The company needed to quickly stand up a cloud-based model training environment, and at the same time, build a larger model training cluster to support its plan to deliver Gen AI as a service. By leveraging NetApp solutions both on-premises and in their cloud, the customer optimized performance, cost, and scalability for both environments. This ensured seamless integration with their training pipelines supporting current and future AI projects. Before turning to the details of the quarter, I want to share some observations about the environment as we enter fiscal year 26. The global macroeconomic outlook faces mixed signals with a general slowdown in growth, lingering inflation concerns, and a significantly higher level of uncertainty. Looking ahead, we expect some increased spending caution, as well as ongoing friction in US public sector and EMEA. We are incorporating an appropriate level of caution in our outlook due to these factors. Our fiscal year 25 results demonstrate how the alignment of our solutions with key IT priorities, our focus, and the strength of our business model enables us to deliver strong performance in an uncertain environment. Additionally, the unfolding enterprise AI market is driving urgency amongst customers to modernize their data infrastructure, drive cloud transformations, and increase cyber resiliency. We are currently negotiating sizable AI and data infrastructure modernization deals with multiple large enterprises which we expect to close later in the year. This gives us confidence in our full year outlook. We are starting FY26 following a year of market share gains armed with the strongest portfolio in the company's history and a value proposition that addresses customers' top priorities. We plan to make prudent investments in R&D and sales capacity to drive ongoing innovation and capture additional market share. Looking ahead, I am confident in our ability to capitalize on this significant opportunity and deliver more record results. Finally, I am happy to introduce Visam Jabre, our new CFO. I am excited to have Visam with his deep knowledge of our market and strong track record of value creation on the team. He has quickly integrated into NetApp and will be a key partner to me and the leadership team as we continue to execute on our visionary approach for our data-driven future. Wissam, welcome.