NetApp: Fiscal 2Q24 Financial Results

Comments

George Kurian, CEO, commented: "2FQ24 improved on our solid start to FY24 in what continues to be a challenging macroeconomic environment. We delivered revenue above the midpoint of guidance while our operational discipline yielded company all-time highs for gross margin, operating margin, and EPS."

Shares rose more than 6% in extended-hours trading the day of the announcement, after the data infrastructure company posted results that beat estimates and boosted its full-year forecast.

Looking at the results of the quarter, momentum from new products and the go-to-market changes the company made at the start of the year drove 10% Q/Q growth in hybrid cloud segment revenue to $1.4 billion. AFA business benefited from the growth of the AFF C-Series increasing 14% from 1FQ24 to ARR run rate of $3.2 billion.

2FQ24 billings of $1.5 billion decreased 9% Y/Y, and revenue of $1.6 billion decreased 6% Y/Y, as IT budgets remain constrained in a challenging macro environment.

Hybrid cloud revenue of $1.4 billion decreased 7% Y/Y, and product revenue of $706 million decreased 16% Y/Y. As discussed in 1FQ24, 1FH23 and most notably product revenue, benefited from elevated levels of backlog entering FY23. For 2FH24 Y/Y comparisons should be more apples-to-apples.

Support revenue, an attach to install base and indicative of the value of products, grew 3% Y/Y to $623 million.

Public cloud revenue increased 8% Y/Y to $154 million and was flat from 1FQ24 and up 8% Y/Y. This growth was driven by hyperscaler 1rst party and marketplace services, partially offset by continued declines in subscription services. 1st party and marketplace offerings are highly differentiated and are tightly aligned with customers’ buying preferences. These services grew over 30% from 2FQ23. The firm continue to see customer expansion and deepening partnerships, as well as increases in customer count, capacity, revenue and ARR in this part of the portfolio.

The AFF C-Series AFA continues to exceed expectations, delivering new customers and numerous wins over the competition. In 2FQ24, the firm competed vs. an AFA competitor with C-Series to win a $16 million deal at an IaaS company.

It anticipate ARR headwinds of approximately $55 million from exited services and unrenewed subscriptions in 2FH24. Growth in 1st party and marketplace services are expected to partially offset this decline, positioning the manufacturer to enter FY25 with a more focused and much healthier business from which to grow.

It expects the momentum in 2FQ24 to continue through FY24, despite continued softness in the demand environment due to the challenging macro.

The vendor is raising its F24 guidance in still a soft IT spending environment. It now expect FY24 revenue to be down approximately 2% Y/Y. It expects to see continued strength in product and hyper-scaler 1st-party and marketplace services, as it works through minor headwinds from public cloud subscription services. Consolidated gross margins are expected to be approximately 71%.

In 3FQ24, it expects revenue to range between $1.51 billion and $1.67 billion, which at the midpoint implies an increase of 4% Y/Y.

NetApp's financial results since FY16 in $ million

Earnings call transcript