NetApp, Inc. (NTAP) Q4 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates positive sentiment with strong growth in Public Cloud services, AI-related projects, and Keystone's consumption-based offerings. The company shows resilience in managing component cost pressures and price increases. Despite some unclear management responses, the overall strategic focus on AI and cloud services, along with a strong large deal pipeline, suggests a positive outlook for stock performance.
Key Financial Performance
Revenue Revenue for Q4 was $1.95 billion, up 12% year-over-year and 14% sequentially. Excluding the divested Spot business, revenue grew 13% year-over-year. This growth was driven by strong demand for first-party and marketplace storage services, as well as a multiyear agreement with Google Cloud.
Public Cloud Revenue Public cloud revenue grew to $688 million in FY '26, up 18% year-over-year, normalized for the divestiture of the Spot by NetApp business in March 2025. This growth was driven by first-party and marketplace cloud services, which increased 30% in FY '26.
All-Flash Revenue FY '26 all-flash revenue was $4.2 billion, an increase of 11% from last year. Q4 performance was particularly strong with revenue of $1.2 billion, up 18% year-over-year. This growth was driven by robust customer demand for mission-critical workloads and innovation in all-flash arrays.
Keystone Revenue Revenue from the Keystone storage-as-a-service offering grew approximately 65% from FY '25. This growth reflects the broader shift towards consumption-based IT models and customer demand for flexible, cloud-like experiences for on-premises data.
Operating Margin Achieved a full-year operating margin of 30.2%, up 190 basis points year-over-year. This improvement underscores the company's focus on profitable growth and operational discipline.
Earnings Per Share (EPS) Non-GAAP EPS for Q4 was $2.43, up 26% year-over-year. Full-year EPS was $8.13, up 12% year-over-year, driven by revenue growth and operational efficiency.
Cash Flow Q4 cash flow from operations was $950 million, and free cash flow was $900 million, both up over 40% year-over-year. Full-year free cash flow generation was $1.87 billion, up close to 40% year-over-year, driven by stronger cash collections and net working capital benefits.
Deferred Revenue Exited FY '26 with $4.85 billion in deferred revenue, an increase of 7% year-over-year. Remaining performance obligations were $5.65 billion, up 14% year-over-year, driven by growth in Keystone and support performance obligations.
Gross Margin Q4 gross margin was 70.5%, up 100 basis points year-over-year, driven by public cloud gross margin expansion. Full-year gross margin was 71.3%, up 20 basis points year-over-year.
Hybrid Cloud Revenue Hybrid Cloud revenue for Q4 was $1.77 billion, up 13% year-over-year. This growth was driven by product revenue and a multiyear agreement with Google Cloud.
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Operating Highlights
AI and Data Solutions: Launched next-generation solutions, including AFX and AI Data Engine, with strong early momentum and positive feedback. Enhanced performance and capabilities of all-flash arrays and expanded converged AI solutions.
All-Flash Storage: FY '26 all-flash revenue reached $4.2 billion, an 11% increase year-over-year. Customers are choosing NetApp for mission-critical workloads due to high performance, cyber resilience, and ransomware protection.
Keystone Storage-as-a-Service: Revenue grew approximately 65% year-over-year. Keystone supports AI strategies with secure, flexible platforms for massive data sets.
Public Cloud Revenue: Grew to $688 million in FY '26, up 18% year-over-year. First-party and marketplace cloud services increased by 30%.
Partnerships with Hyperscalers: Expanded partnership with Google Cloud for Google Distributed Cloud, enabling government agencies and regulated enterprises to leverage AI capabilities securely.
Revenue Growth: Achieved record revenue of $6.93 billion in FY '26, a 5% increase year-over-year. Q4 revenue was $1.95 billion, up 12% year-over-year.
Cash Flow: FY '26 free cash flow was $1.87 billion, up nearly 40% year-over-year, driven by strong cash collections and net working capital benefits.
AI and Cloud Strategy: Positioned as a leader in hybrid multi-cloud and AI transformations. Focused on enabling secure, governed, high-performance data access for AI workloads.
Consumption-Based IT Models: Keystone's growth reflects a shift towards consumption-based IT models, meeting customers' transformation needs.
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Risk or Challenges
Rising memory and component costs: The company is managing rising memory and component costs by working closely with supply chain partners and adjusting pricing to balance growth and margins. This could impact profitability if not managed effectively.
Potential for demand fluctuations: There is recognition of potential pockets of demand driven by accelerated purchasing, which could lead to uneven revenue streams and operational challenges.
Supply chain dependencies: The company relies on supply chain partners to manage costs and ensure timely delivery of components. Any disruptions could adversely affect operations and financial performance.
Regulatory and compliance risks: The expanded partnership with Google Cloud for government and regulated enterprises introduces regulatory and compliance risks, especially in sensitive environments.
Economic uncertainties: The company acknowledges a dynamic macro environment, which could pose risks to revenue growth and operational stability.
Competition in AI and cloud markets: The company faces competitive pressures in the AI and cloud markets, which could impact its ability to maintain market share and profitability.
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Guidance & Outlook
Fiscal Year 2027 Revenue: Expected to be in the range of $7.325 billion to $7.575 billion, representing 8% year-over-year growth at the midpoint.
Fiscal Year 2027 Gross Margin: Expected to be in the range of 68.5% to 69.5%.
Fiscal Year 2027 Operating Margin: Expected to be in the range of 29.1% to 30.1%.
Fiscal Year 2027 EPS: Expected to be in the range of $8.70 to $9.00, representing 9% year-over-year growth at the midpoint.
Fiscal Year 2027 Free Cash Flow: Intended to return up to 100% of free cash flow to shareholders through dividends and share repurchases.
Q1 Fiscal Year 2027 Revenue: Expected to be in the range of $1.75 billion to $1.9 billion, implying 17% year-over-year growth at the midpoint.
Q1 Fiscal Year 2027 Gross Margin: Expected to be in the range of 69.1% to 70.1%.
Q1 Fiscal Year 2027 Operating Margin: Expected to be in the range of 28.4% to 29.4%.
Q1 Fiscal Year 2027 EPS: Expected to be in the range of $2.05 to $2.15, with a midpoint of $2.10.
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Shareholder Return Plan
Dividends Paid in Q4: $103 million paid in dividends or $0.52 per share.
Total Dividends Paid in FY 2026: $1.36 billion returned to shareholders through share repurchases and cash dividends.
Share Repurchases in Q4: $200 million in share repurchases.
Remaining Share Repurchase Authorization: Approximately $500 million remaining from current share repurchase authorization.
Increase in Share Repurchase Authorization: An increase in authorization by $1 billion announced.
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Key Q&A
Q:Can you touch on the demand strength, particularly for all-flash, and its drivers as we move into subsequent quarters?
A:Momentum in the business was very strong, driven by enterprises ready for AI across all segments: Cloud, Flash, AI, and Keystone. Accelerated decision-making was minimal, and Q4 results were tied to big deals expected earlier. The outlook for the coming year is strong, supported by enterprise AI growth.
Q:Is product gross margin expected to stabilize or improve, given the challenging component backdrop?
A:The July quarter is expected to be the trough for product gross margin, with gradual improvements anticipated as price adjustments take effect. The company is taking actions to mitigate component cost increases.
Q:How should we think about ASP versus unit growth for all-flash arrays and their growth into fiscal '27?
A:All-flash arrays saw 18% growth, driven by strong AI use cases. ASP was not a significant tailwind in Q4, and growth is expected to continue into fiscal '27, supported by enterprise AI and hybrid flash deployments.
Q:How much of fiscal '27 revenue guidance is driven by AI wins, and what is the mix between public cloud and on-prem solutions?
A:All 500 AI wins in Q4 were on-prem, with use cases split into data preparation (50%), training and fine-tuning large language models (25%), and inferencing (25%). AI demand is broad-based and contributes to the confidence in fiscal '27 revenue guidance.
Q:Is there conservatism in the gross margin guide for the full year, given unprecedented pricing territory?
A:The gross margin guide is based on current information, with actions planned to mitigate component cost pressures. The long-term product gross margin target remains in the mid-50s to high 50s, with Public Cloud and Keystone providing tailwinds.
Q:How is the large deal pipeline evolving, and is the strength sustainable?
A:The large deal pipeline includes infrastructure modernization and AI-related projects. AI wins are particularly strong, even in accounts without a large NetApp installed base, indicating durable demand.
Q:Why was there minimal evidence of pull-forward demand in Q4, and how are price increases expected to impact future quarters?
A:Pull-forward demand had minimal impact on Q4 results, which were tied to big deals. Price increases are expected to flow through over the next 1-2 quarters, with efforts to balance cost, supply availability, and lead times.
Q:What is the sustainability of Public Cloud revenue growth, and how does the Google deal impact this?
A:Public Cloud storage services grew 30% year-on-year and are expected to grow faster next year. The Google Distributed Cloud deal supports the hybrid cloud segment and expands opportunities in sovereign and secure environments.
Q:What is driving Keystone's growth, and is it durable beyond pricing dynamics?
A:Keystone's growth is driven by a market shift towards consumption-based offerings, with some customers using it to balance costs during inflation. Storage-as-a-service is expected to grow faster than traditional business.
Q:How does the extra week in Q1 affect the fiscal year revenue pattern?
A:Adjusting for the extra week in Q1, the first half and second half of the fiscal year are expected to follow a typical seasonal pattern, with mid-single-digit percent growth over the same period in fiscal '26.
Q:What is the impact of NAND price increases on product revenue and gross margin?
A:NAND price increases impact product gross margin, with price adjustments made to protect profitability. The elasticity of demand due to price increases is minimal, and updates will be provided as the year progresses.
Q:What is the early feedback on AFX and AI Data Engine (AIDE), and their revenue potential?
A:AFX has seen wins in Neo cloud, financial services, and life sciences, while AIDE is helping customers organize data for AI projects. Both are expected to contribute to revenue growth, with AIDE monetized based on data volume and use cases.
Q:How much of all-flash growth is driven by pricing versus capacity and unit growth?
A:All-flash growth is driven by differentiated solutions for priority use cases, with pricing adjustments expected to flow through in the next 1-2 quarters. The installed base grew to 48%, with significant conversion runway remaining.
Q:What is the strategic focus for M&A in fiscal '27?
A:The company is open to M&A opportunities that align with its capital allocation strategy, but no specific plans were disclosed.
Q:What is the opportunity with Neo cloud wins, and how significant are they?
A:Neo cloud wins, particularly in high-performance enterprise AI use cases, are significant and expand NetApp's reach into new customer segments.
Q:What percentage of product revenue is AI-related?
A:The company does not break out AI-related revenue but notes that AI wins are a growing portion of revenue.
Q:What is the incremental revenue opportunity from AIDE, and how is it monetized?
A:AIDE creates a competitive moat for the installed base and drives new customer wins. It is monetized based on data volume, type, and use cases, either as a stand-alone subscription or part of a broader solution.
Q:How is the go-to-market strategy evolving for AI, Neo cloud, and sovereign opportunities?
A:The company has built a specialist team for AI opportunities and expanded account coverage to gain share. The strategy includes targeting Neo cloud and sovereign cloud opportunities.
Q:Why does the fiscal year guidance imply less than seasonal growth?
A:Adjusting for the extra week in Q1, the fiscal year is expected to follow a typical seasonal pattern, with mid-single-digit percent growth over fiscal '26.
Q:What are the supply chain risks beyond memory components?
A:The company works with multiple suppliers to mitigate risks and believes it can source adequate supply to meet fiscal year outlook. HDDs remain an important part of the portfolio.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the percentage of product revenue driven by AI, the exact impact of price increases on revenue, and the normalized growth rate for Public Cloud revenue. Additionally, they did not quantify the incremental revenue opportunity from AIDE or provide a detailed breakdown of AI-related bookings or revenue.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
FY
Google
Keystone storage
NetApp flash
Product
Spot
ability
basis point
capability
cash flow
cloud
collaboration
customer
demand
deployment
end
environment
generation solution
income
infrastructure platform
margin basis
momentum
offering
opportunity
partner
record
scale
share repurchase
storage service
term
value
workload
world enterprise
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The earnings call indicates positive sentiment with strong growth in Public Cloud services, AI-related projects, and Keystone's consumption-based offerings. The company shows resilience in managing component cost pressures and price increases. Despite some unclear management responses, the overall strategic focus on AI and cloud services, along with a strong large deal pipeline, suggests a positive outlook for stock performance.
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NTAP Slides
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