NTAP

• Record Financial Performance: Delivered a record Q1 with revenue of $2.03 billion (+30% YoY) and non-GAAP EPS of $2.58 (+66% YoY), exceeding guidance on all metrics.
• AI-Driven Growth: AI is now a business imperative; won ~350 AI/data lake deals in Q1 with increasing deal sizes as customers move from POC to production.
• Platform Strength: Unified storage strategy enables 'AI-ready' data in place without movement, winning against legacy and flash-only competitors (e.g., major U.S. utility win).
• Cloud & VMware Momentum: Public cloud revenue grew 28% YoY; strong adoption of FSX for NetApp OnTap and Azure NetApp Files facilitates VMware migrations to AWS and Azure.
• All-Flash Dominance: All FlashArray revenue surged 47% YoY to $1.31 billion, driven by GPU-intensive AI pipelines and cyber resilience needs.
• Strategic Acquisitions: Acquired Datapilago (AI data infrastructure/in-place processing) and Jetstream (cloud-native disaster recovery for VMware) to enhance platform capabilities.
• Broad-Based Demand: Strength across all customer sizes, geographies, and verticals; structural improvement in underlying demand beyond just tech refresh.

• Q2 FY2027 Revenue: Expected at $2.1 billion (+/- $75 million), implying ~23% YoY growth at the midpoint.
• Q2 FY2027 Gross Margin: Expected between 67% and 68%, sequentially lower due to higher product revenue mix.
• Q2 FY2027 Operating Margin: Expected between 30.9% and 31.9%.
• Q2 FY2027 EPS: Expected between $2.54 and $2.64, with a midpoint of $2.59.
• Full Year FY2027 Revenue: Raised to $7.975–$8.225 billion (midpoint $8.1 billion), representing 17% YoY growth, an increase of $650 million from prior guidance.
• Full Year FY2027 Gross Margin: Expected between 68.1% and 69.1%, reflecting higher product mix but improved underlying product margins.
• Full Year FY2027 Operating Margin: Raised to 30.3%–31.3%.
• Full Year FY2027 EPS: Raised to $9.73–$10.03 (midpoint $9.88), representing 22% YoY growth.

Hybrid Cloud: Revenue of $1.82 billion, up 30% year-over-year (up 27% excluding the extra week). This segment constitutes approximately 90% of total revenue. Product: Revenue of $987 million, up 51% year-over-year, representing roughly 49% of total revenue. Support: Revenue of $720 million, up 11% year-over-year (up 4% excluding the extra week), representing roughly 35% of total revenue. Professional Services: Revenue of $112 million, up 15% year-over-year, driven by Keystone growth. Public Cloud: Revenue of $206 million, up 28% year-over-year (up 19% excluding the extra week), representing roughly 10% of total revenue.

• Component Costs: Rising silicon and commodity costs pressure product gross margins, though partially offset by pricing actions.
• Inventory Management: Inventory levels expanded to secure supply amid growing demand, potentially impacting inventory turns.
• Execution Risk: Ability to maintain high growth rates and margin expansion in a challenging cost environment.
• Competitive Pressure: Intense competition in AI infrastructure and cloud storage requires continuous innovation and differentiation.

Q: Analyst asked about drivers distinguishing accelerated purchasing vs. durable structural demand and their impact on H2 outlook. / A: CEO noted broad-based strength across all customer segments and geographies, contrary to typical tech-refresh cycles during cost hikes. While some large customers accelerated purchases for specific use cases, overall demand is structurally improved by AI modernization. Pricing actions are capturing value, supporting confidence in the raised full-year guidance despite typical seasonal deceleration expectations.

Q: Analyst questioned the durability of growth, noting implied H2 deceleration, and sought metrics confirming structural shifts vs. pre-buying. / A: CEO emphasized that outperformance was consistent across all product lines, commercial vehicles, and routes to market, validating the raised outlook. He stated that budget priorities for data infrastructure have risen significantly due to AI requirements. The company feels strongly about alignment with customer spend and expanding opportunities, viewing the current momentum as durable rather than merely pull-forward activity.

Q: Analyst asked how to split customer investment between modernization of existing base vs. incremental AI capacity, and clarified product gross margin trajectory. / A: CEO explained that while there are specific AI build-outs (GPU-as-a-service, data lakes), AI is also driving broad-based modernization of adjacent workloads like databases and unstructured data across industries. CFO clarified that product gross margins were managed well in Q1, outperforming expectations. The updated outlook for the rest of the year implies slightly better product margins than previously guided, reflecting improved confidence in recouping component costs through pricing and mix.

Q: Analyst inquired about the magnitude of accelerated purchases contributing to Q1 results and seasonality implications. / A: CEO stated that only a very small percentage of the customer base has the financial flexibility to accelerate spending significantly. These instances involve kitting out multiple data centers faster than planned, not widespread pull-forward. He emphasized that this is not a material part of the overall business and does not distort the view of long-term growth trends or seasonality, which remains broadly consistent with historical patterns adjusted for the extra week.

Q: Analyst asked about the equation for managing gross profit amidst rising component costs and inventory builds, and where inventory dollars are spent. / A: CFO explained the focus is on total gross profit dollars, which are growing at a pace similar to top-line growth, driving operating leverage. CEO added that they are solving for customer problems by offering the right solution mix, notably seeing a resurgence in hybrid flash solutions. Inventory increases are strategic to secure supply for anticipated demand growth, ensuring they can deliver products to customers effectively without compromising margin targets.