Revenue and Profitability
- Q1 2026 total revenue: $1.56B, up 1% YoY; excluding divested Spot, YoY growth approximately 3% (FX favorable about +1ppt).
- Gross margin: 71.1% overall; Hybrid Cloud gross margin 70% (up 1.6pp sequential), Product gross margin 54%; Public Cloud gross margin 80.1% (up 80bp sequential, up 9pp YoY). Recurring support gross margin: 92.3%; Professional services gross margin: 29.9%.
- Operating profit: $401M; Operating margin: 25.7%; Diluted EPS: $1.55 (Q1 commentary) versus guide confirmation for Q2 and FY2026 below.
- AI and cloud initiatives: ~125 AI infrastructure/data lake modernization wins in Q1; Keystone revenue growth ~80% YoY; first-party cloud services up 33% YoY.
Cash Flow and Balance Sheet
- Cash flow from operations: $673M; Free cash flow: $620M.
- Balance sheet: cash, short-term investments of ~$3.324B; total debt ~$2.485B; net cash ≈ $0.84B; redeemed $757M senior notes due 2025; dividends and buybacks totaled $404M from equity and cash returns in Q1.
- Deferred revenue: $4.53B (up 9% YoY); remaining performance obligations (RPO): $4.94B (up 11% YoY); unbilled RPO: $415M (up 40% YoY).
Guidance and Outlook
- Q2 2026 revenue guidance: $1.69B ± $75M (2% YoY at midpoint; 3% growth excluding Spot).
- Q2 gross margin: ~71% ± 0.5pp; operating margin: 28–29%; Q2 diluted EPS: $1.84 to $1.94 (midpoint $1.89).
- Fiscal 2026: Revenue guidance $6.625B–$6.875B (midpoint $6.75B, +3% YoY; ex-Spot +4%); diluted EPS guidance $7.60–$7.90 (midpoint $7.75).
- Management reaffirmed strategy to capitalize on AI, cloud, and data-management opportunities, with expectations of margin improvement in public cloud and ongoing efficiency gains in operating expenses.
Management Sentiment and Key Drivers
- George Kurian emphasized AI-driven data infrastructure demand and NetApp’s ability to unify, search, and manage data across cloud and on-premises environments. He highlighted real customer wins in AI, data lakes, and autonomous systems, with NetApp positioned as a platform for enterprise AI readiness.
- Wissam Jabre highlighted that Q1 results exceeded the midpoint of guidance, with FX favorable but not material relative to guidance; public cloud gross margins have continued to improve, and the long-term target was raised to 80–85%. He explained the Q1 product margin dynamics were driven by higher flash costs and a less favorable mix, but expected sequential improvements and a return to the long-term margin range as the year progresses.
- The management narrative centers on enterprise AI adoption, cloud-hybrid flexibility, and the NetApp ONTAP-based architecture as a differentiator in data-management, security, and multi-cloud operations.