Net Revenues of $1.47 Billion Grew 12%
Year-over-Year
- Product revenue grew 20%
year-over-year
- All-flash array annualized net revenue
run rate of $2.2 billion increased 50% year-over-year
- Free cash flow was 18% of revenue and
increased 22% year-over-year
- $605 million returned to shareholders
in share repurchases and cash dividends
Please replace the release with the following corrected version
due to multiple revisions.
The corrected release reads:
NETAPP REPORTS FIRST QUARTER FISCAL YEAR
2019 RESULTS
Net Revenues of $1.47 Billion Grew 12%
Year-over-Year
- Product revenue grew 20%
year-over-year
- All-flash array annualized net revenue
run rate of $2.2 billion increased 50% year-over-year
- Free cash flow was 18% of revenue and
increased 22% year-over-year
- $605 million returned to shareholders
in share repurchases and cash dividends
NetApp (NASDAQ: NTAP) today reported financial results for the
first quarter of fiscal year 2019, which ended July 27, 2018.
“We delivered a very strong first quarter with revenue, gross
margin, operating margin, and earnings per share all above our
guidance. In Q1, we introduced substantial innovation across our
portfolio, expanding our industry-leading cloud data services and
introducing new partnerships, products and solutions to help
data-driven organizations thrive,” said George Kurian, chief
executive officer. “Enterprises are signaling strong confidence in
NetApp by making long-term investments to enable the NetAppTM Data
Fabric across their entire enterprise.”
First Quarter Fiscal Year 2019 Financial Results
- Net Revenues: $1.47 billion,
increased 12% year-over-year from $1.32 billion* in the first
quarter of fiscal 2018
- Net Income: GAAP net income of
$283 million, compared to GAAP net income of $131 million* in the
first quarter of fiscal 2018; non-GAAP net income1 of $281 million,
compared to non-GAAP net income of $166 million* in the first
quarter of fiscal 2018
- Earnings per Share: GAAP
earnings per share2 of $1.05 compared to GAAP earnings per share of
$0.47* in the first quarter of fiscal 2018; non-GAAP earnings per
share of $1.04, compared to non-GAAP earnings per share of $0.60*
in the first quarter of fiscal 2018
- Cash, Cash Equivalents and
Investments: $4.8 billion at the end of the first quarter of
fiscal 2019
- Cash from Operations: $326
million, compared to $250 million in the first quarter of fiscal
2018
- Share Repurchase and Dividend:
Returned $605 million to shareholders through share repurchases and
cash dividends
* In the first quarter of fiscal 2019, NetApp adopted Revenue
from Contracts with Customers (ASC 606), a new accounting standard
which establishes a comprehensive new revenue recognition model
designed to depict the transfer of goods or services to a customer
in an amount that reflects the consideration the entity expects to
receive in exchange for those goods or services. The full
retrospective method of adoption was employed. Accordingly,
NetApp’s condensed consolidated balance sheet as of April 27, 2018,
condensed consolidated statements of operations and cash flows for
all prior periods presented, and all related financial statement
metrics included herein, have been restated to conform to the new
rules. The adoption of the standard had no impact to cash provided
by or used in operating, investing or financing activities as
presented on the condensed consolidated statement of cash
flows.
Second Quarter Fiscal Year 2019 Financial Outlook
The Company provided the following financial guidance for the
second quarter of fiscal year 2019:
- Net revenues are expected to be in the
range of $1.450 billion to $1.550 billion
GAAP
Non-GAAP
- Earnings per share is expected to be in the range of:
$0.79-$0.85 $0.94-$1.00
Dividend
Next cash dividend of $0.40 per share to be paid on October 24,
2018, to shareholders of record as of the close of business on
October 5, 2018.
First Quarter Fiscal Year 2019 Business Highlights
NetApp Expands the Industry's Most
Complete Cloud Data Services
- Azure NetApp Files is now
available in public preview. Jointly developed by Microsoft and
NetApp, Azure NetApp Files is a native Azure service powered by
NetApp’s leading ONTAP technology and storage expertise.
- NetApp announced NetApp Cloud
Volumes Services for Google Cloud Platform offering customers a
fully-managed, cloud-native file storage service that is integrated
with Google Cloud Platform.
New Products and Solutions that will
Help Data-Driven Organizations Thrive
- NetApp introduced the AFF A800
array, a high performance, cloud-connected flash system to power
artificial intelligence and compute-intensive applications. The
NetApp AFF A800 is the first available end-to-end NVMe enterprise
grade all flash array and boasts the industry’s first support of
30TB solid state drives.
- The latest update to our
flagship NetApp ONTAPTM 9 software
includes enhancements to FabricPool and improves hybrid cloud data
tiering and adds support for Microsoft Azure. ONTAP will
automatically move inactive data to a lower-cost storage tier to
save money and bring data back when needed.
- NetApp Active IQTM
technology provides new cloud-based analytics for all NetApp
systems that predicts future performance needs and identifies
unprotected data to optimize operations.
- NetApp StorageGRID object-based
storage solution now provides superior next-generation,
cloud-architected infrastructure for financial and personal data
retention compliance as one integrated resource across public and
private clouds.
Cisco and NetApp Simplify the Delivery
of Cloud Infrastructure and Industry-Specific
Applications
- The new Managed Private Cloud
solution built on FlexPodTM enables customers to realize a
cloud-like, As-a-Service model for their on-premises IT with remote
management, securing critical customer data and advancing
cloud-capabilities for both partners and their customers.
- New FlexPod industry solutions provide
a proven platform to quickly deploy key applications across
industries that are challenged by the increasingly diverse, dynamic
and distributed nature of data. The initial industry solution,
FlexPod Datacenter for Epic EHR, simplifies IT
infrastructure for healthcare customers, helping them move faster
and improve patient care.
Recognition for Industry Leading
Products
- NetApp all-flash array technology was
recognized as a Leader in Gartner’s 2018 Magic Quadrant for
Solid-State Arrays.3 NetApp has improved its position in the
Leaders Quadrant with a higher rating for its ability to
execute.
- NetApp StorageGRID named a Leader in
IDC’s MarketScape for Object-Based Storage.4 IDC recognizes the
strength of applying StorageGRID capabilities across our broader
NetApp portfolio, and specifically praises a few capabilities in
the report, including integration with NetApp FabricPool
technology.
- According to a new Storage
Performance Council SPC-1 Result,5 tests of the AFF A800 system
places it as number 1 overall in terms of SPC-1 Response Time and
makes it the top-performing enterprise all-flash array among the
industry’s leading storage providers. The AFF A800 is also in the
top 4 on the SPC-1 Performance list. The SPC-1 tests of the AFF
A800 were conducted with compression and deduplication enabled,
just as they would be under real-world conditions.
Webcast and Conference Call Information
NetApp will host a conference call to discuss these results
today at 2:30 p.m. Pacific Time. To access the live webcast of this
event, visit the NetApp Investor Relations website at
investors.netapp.com. In addition, this press release, historical
supplemental data tables, and other information related to the call
will be posted on the Investor Relations website. An audio replay
will also be available on the website after 4:30 p.m. Pacific Time
today.
About NetApp
NetApp is the data authority for hybrid cloud. We provide a full
range of hybrid cloud data services that simplify management of
applications and data across cloud and on-premises environments to
accelerate digital transformation. Together with our partners, we
empower global organizations to unleash the full potential of their
data to expand customer touchpoints, foster greater innovation, and
optimize their operations. For more information, visit
www.netapp.com. #DataDriven
“Safe Harbor” Statement Under U.S. Private Securities
Litigation Reform Act of 1995
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements include, but are not limited to, all of the
statements made under the Second Quarter Fiscal Year 2019 Financial
Outlook section and statements about enterprise customers making
long term investments in the NetApp Data Fabric. All of these
forward-looking statements involve risk and uncertainty. Actual
results may differ materially from these statements for a variety
of reasons, including, without limitation, general global
political, macroeconomic and market conditions, changes in U.S.
government spending, revenue seasonality and matters specific to
our business, such as our ability to expand our total available
market and grow our portfolio of products, customer demand for and
acceptance of our products and services, our ability to
successfully execute new business models, our ability to
successfully execute on our Data Fabric strategy to generate
profitable growth and stockholder return and our ability to manage
our gross profit margins. These and other equally important factors
are described in reports and documents we file from time to time
with the Securities and Exchange Commission, including the factors
described under the section titled “Risk Factors” in our most
recently submitted report on 10-K. We disclaim any obligation to
update information contained in this press release whether as a
result of new information, future events, or otherwise.
NetApp and the NetApp logo and the marks listed at
http://www.netapp.com/TM are trademarks of NetApp, Inc. Other
company and product names may be trademarks of their respective
owners.
Footnotes
1Non-GAAP net income excludes, when applicable,
(a) amortization of intangible assets, (b) stock-based
compensation expenses, (c) litigation settlements, (d)
acquisition-related expenses, (e) restructuring charges, (f) asset
impairments, (g) gains/losses on the sale of properties, and (h)
our GAAP tax provision, but includes a non-GAAP tax provision based
upon our projected annual non-GAAP effective tax rate for the first
three quarters of the fiscal year and an actual non-GAAP tax
provision for the fourth quarter of the fiscal year. NetApp makes
additional adjustments to the non-GAAP tax provision for certain
tax matters as described below. A detailed reconciliation of our
non-GAAP to GAAP results can be found at
http://investors.netapp.com. NetApp’s management uses these
non-GAAP measures in making operating decisions because it believes
the measurements provide meaningful supplemental information
regarding NetApp’s ongoing operational performance.
2GAAP earnings per share and non-GAAP earnings per share are
calculated using the diluted number of shares.
3Leader in Gartner’s 2018 Magic Quadrant for Solid-State Arrays,
Gartner Magic Quadrant for Solid-State Arrays, by Valdis Filks,
John Monroe, Joseph Unsworth, Santhosh Rao, July 23, 2018
4Leader in IDC’s MarketScape for Object-Based Storage, “IDC
MarketScape: Worldwide Object-Based Storage 2018 Vendor
Assessment,” by Amita Potnis, June 2018. IDC #US42665518
5Storage Performance Council SPC-1 Result,
http://spcresults.org/benchmarks/results/spc1-spc1e#A32007
NetApp Usage of Non-GAAP Financial Information
To supplement NetApp’s condensed consolidated financial
statement information presented in accordance with generally
accepted accounting principles in the United States (GAAP), NetApp
provides investors with certain non-GAAP measures, including, but
not limited to, historical non-GAAP operating results, non-GAAP net
income, non-GAAP effective tax rate and free cash flow, and
historical and projected non-GAAP earnings per diluted share.
NetApp believes that the presentation of non-GAAP net income,
non-GAAP effective tax rates, and non-GAAP earnings per share data
when shown in conjunction with the corresponding GAAP measures,
provides useful information to investors and management regarding
financial and business trends relating to its financial condition
and results of operations. NetApp believes that the presentation of
free cash flow, which it defines as the net cash provided by
operating activities less cash used to acquire property and
equipment, to be a liquidity measure that provides useful
information to management and investors because it reflects cash
that can be used to, among other things, invest in its business,
make strategic acquisitions, repurchase common stock, and pay
dividends on its common stock. As free cash flow is not a measure
of liquidity calculated in accordance with GAAP, free cash flow
should be considered in addition to, but not as a substitute for,
the analysis provided in the statement of cash flows.
NetApp’s management uses these non-GAAP measures in making
operating decisions because it believes the measurements provide
meaningful supplemental information regarding NetApp’s ongoing
operational performance. These non-GAAP financial measures are used
to: (1) measure company performance against historical results, (2)
facilitate comparisons to our competitors’ operating results and
(3) allow greater transparency with respect to information used by
management in financial and operational decision making.
NetApp excludes the following items from its non-GAAP measures
when applicable:
A. Amortization of intangible assets. NetApp records
amortization of intangible assets that were acquired in connection
with its business combinations. The amortization of intangible
assets varies depending on the level of acquisition activity.
Management finds it useful to exclude these charges to assess the
appropriate level of various operating expenses to assist in
budgeting, planning and forecasting future periods and in measuring
operational performance.
B. Stock-based compensation expenses. NetApp excludes
stock-based compensation expenses from its non-GAAP measures
primarily because they are non-cash expenses. While management
views stock-based compensation as a key element of our employee
retention and long-term incentives, we do not view it as an
expense to be used in evaluating operational performance in any
given period.
C. Litigation settlements. NetApp may periodically incur charges
or benefits related to litigation settlements. NetApp excludes
these charges and benefits, when significant, because it does not
believe they are reflective of ongoing business and operating
results.
D. Acquisition-related expenses. NetApp excludes
acquisition-related expenses, including (a) due diligence, legal
and other one-time integration charges and (b) write down of assets
acquired that NetApp does not intend to use in its ongoing
business, from its non-GAAP measures, primarily because they are
not related to our ongoing business or cost base and, therefore,
cannot be relied upon for future planning and forecasting.
E. Restructuring charges. These charges consist of restructuring
charges that are incurred based on the particular facts and
circumstances of restructuring decisions, including employment and
contractual settlement terms, and other related charges, and can
vary in size and frequency. We therefore exclude them in our
assessment of operational performance.
F. Asset impairments. These are non-cash charges to write down
assets when there is an indication that the asset has become
impaired. Management finds it useful to exclude these non-cash
charges due to the unpredictability of these events in its
assessment of operational performance.
G. Gains/losses on the sale of properties. These are
gains/losses from the sale of our properties. Management believes
that these transactions do not reflect the results of our
underlying, on-going business and, therefore, cannot be relied upon
for future planning or forecasting.
H. Income tax adjustments. NetApp’s non-GAAP tax provision is
based upon a projected annual non-GAAP effective tax rate for the
first three quarters of the fiscal year and an actual non-GAAP tax
provision for the fourth quarter of the fiscal year. The non-GAAP
tax provision also excludes, when applicable, (a) tax charges or
benefits in the current period that relate to one or more prior
fiscal periods that are a result of events such as changes in tax
legislation, authoritative guidance, income tax audit settlements
and/or court decisions, (b) tax charges or benefits that are
attributable to unusual or non-recurring book and/or tax accounting
method changes, (c) tax charges that are a result of a non-routine
foreign cash repatriation, (d) tax charges or benefits that are a
result of infrequent restructuring of the Company’s tax structure,
(e) tax charges or benefits that are a result of a change in
valuation allowance, and (f) tax charges resulting from the
integration of intellectual properties from acquisitions.
Management believes that the use of non-GAAP tax provisions
provides a more meaningful measure of the Company’s operational
performance.
These non-GAAP measures are not in accordance with, or an
alternative for, measures prepared in accordance with GAAP, and may
be different from non-GAAP measures used by other companies. In
addition, these non-GAAP measures are not based on any
comprehensive set of accounting rules or principles. NetApp
believes that non-GAAP measures have limitations in that they do
not reflect all of the amounts associated with the Company’s
results of operations as determined in accordance with GAAP and
that these measures should only be used to evaluate the Company’s
results of operations in conjunction with the corresponding GAAP
measures. NetApp management compensates for these limitations by
analyzing current and projected results on a GAAP basis as well as
a non-GAAP basis. The presentation of non-GAAP financial
information is not meant to be considered in isolation or as a
substitute for the directly comparable financial measures prepared
in accordance with generally accepted accounting principles in the
United States. The non-GAAP financial measures are meant to
supplement, and be viewed in conjunction with, GAAP financial
measures.
NETAPP, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In millions)
(Unaudited)
July 27,2018
April 27,2018
ASSETS Current assets: Cash, cash equivalents
and investments $ 4,811 $ 5,391 Accounts receivable 616 1,047
Inventories 97 122 Other current assets 329 392 Total
current assets 5,853 6,952 Property and equipment, net 768
756 Goodwill and purchased intangible assets, net 1,820 1,833 Other
non-current assets 464 450 Total assets $ 8,905 $
9,991
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable $ 425 $ 609 Accrued expenses
592 825 Commercial paper notes 200 385 Short-term deferred revenue
and financed unearned services revenue 1,623 1,712
Total current liabilities 2,840 3,531 Long-term debt 1,542 1,541
Other long-term liabilities 964 992 Long-term deferred revenue and
financed unearned services revenue 1,637 1,651 Total
liabilities 6,983 7,715 Stockholders' equity
1,922 2,276 Total liabilities and stockholders'
equity $ 8,905 $ 9,991
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In millions, except per share
amounts)
(Unaudited)
Three Months Ended
July 27,2018
July 28,2017
Revenues: Product $ 875 $ 727 Software maintenance 229 223
Hardware maintenance and other services 370 371 Net
revenues 1,474 1,321 Cost of revenues: Cost of
product 398 376 Cost of software maintenance 7 7 Cost of hardware
maintenance and other services 106 114 Total cost of
revenues 511 497 Gross profit 963 824
Operating expenses: Sales and marketing 409 423 Research and
development 208 193 General and administrative 73 68 Restructuring
charges 19 — Total operating expenses 709
684 Income from operations 254 140 Other
income, net 18 5 Income before income taxes
272 145 Provision (benefit) for income taxes (11 )
14 Net income $ 283 $ 131 Net income per
share: Basic $ 1.08 $ 0.49 Diluted $ 1.05 $ 0.47
Shares used in net income per share calculations: Basic 262
270 Diluted 269 278 Cash
dividends declared per share $ 0.40 $ 0.20
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
July 27,2018
July 28,2017
Cash flows from operating activities: Net income $ 283 $ 131
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 49 51 Stock-based compensation 40 48
Deferred income taxes (26 ) — Other items, net 8 5 Changes in
assets and liabilities, net of acquisitions of businesses: Accounts
receivable 423 226 Inventories 25 24 Accounts payable (177 ) (58 )
Accrued expenses (221 ) (135 )
Deferred revenue and financed unearned
services revenue
(87 ) (102 ) Long-term taxes payable 5 — Changes in other operating
assets and liabilities, net 4 60 Net cash provided by
operating activities 326 250
Cash flows from
investing activities: Redemptions of investments, net 248 112
Purchases of property and equipment (64 ) (36 ) Acquisitions of
businesses, net of cash acquired — (24 ) Other investing
activities, net 2 1 Net cash provided by investing
activities 186 53
Cash flows from financing
activities:
Proceeds from issuance of common stock
under employee stock award plans
63 48
Payments for taxes related to net share
settlement of stock awards
(84 ) (57 )
Repurchase of common stock
(500 ) (150 )
Proceeds from (repayments of) commercial
paper notes, net
(185 ) 394
Dividends paid
(105 ) (54 )
Other financing activities, net
(1 ) — Net cash provided by (used in) financing
activities (812 ) 181
Effect of exchange
rate changes on cash, cash equivalents and restricted cash (14
) 19
Net increase (decrease) in cash, cash equivalents
and restricted cash (314 ) 503
Cash, cash equivalents and
restricted cash: Beginning of period 2,947 2,450
End of period $ 2,633 $ 2,953
SELECTED CONDENSED CONSOLIDATED BALANCE
SHEET LINE ITEMS
(In millions)
(Unaudited)
As of April 27, 2018
As PreviouslyReported
Impact of ASC606
Adoption
As Adjusted ASSETS Accounts receivable $ 1,009
$ 38 $ 1,047 Inventories 126 (4 ) 122 Other current assets 330 62
392 Other non-current assets 420 30 450
LIABILITIES AND
STOCKHOLDERS' EQUITY Short-term deferred revenue and financed
unearned services revenue $ 1,804 $ (92 ) $ 1,712 Other long-term
liabilities 961 31 992 Long-term deferred revenue and financed
unearned services revenue 1,673 (22 ) 1,651 Total stockholders'
equity 2,067 209 2,276
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In
millions, except per share amounts) (Unaudited)
Three Months Ended July 28, 2017
As Previously Reported
Impact of ASC
606Adoption
As Adjusted Revenues: Product $ 723 $ 4 $ 727
Software maintenance 234 (11 ) 223 Hardware maintenance and other
services 368 3 371 Net revenues 1,325
(4 ) 1,321 Cost of revenues: Cost of product
371 5 376 Cost of software maintenance 7 — 7 Cost of hardware
maintenance and other services 113 1 114 Total
cost of revenues 491 6 497 Gross profit
834 (10 ) 824 Operating expenses: Sales and
marketing 425 (2 ) 423 Research and development 193 — 193 General
and administrative 68 — 68 Total operating
expenses 686 (2 ) 684 Income from
operations 148 (8 ) 140 Other income, net 5 —
5 Income before income taxes 153 (8 ) 145
Provision for income taxes 17 (3 ) 14
Net income $ 136 $ (5 ) $ 131 Net income per share: Basic $
0.50 $ (0.01 ) $ 0.49 Diluted $ 0.49 $ (0.02 ) $ 0.47
Shares used in net income per share calculations: Basic 270
270 270 Diluted 278 278
278
NETAPP, INC. CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (In millions, except per share
amounts) (Unaudited) Three Months Ended
October 27, 2017
As Previously Reported
Impact of ASC
606Adoption
As Adjusted Revenues: Product $ 807 $ 12 $ 819
Software maintenance 240 (16 ) 224 Hardware maintenance and other
services 375 (3 ) 372 Net revenues
1,422 (7 ) 1,415 Cost of revenues: Cost of
product 399 (2 ) 397 Cost of software maintenance 6 — 6 Cost of
hardware maintenance and other services 115 (3 )
112 Total cost of revenues 520 (5 ) 515
Gross profit 902 (2 ) 900 Operating
expenses: Sales and marketing 420 1 421 Research and development
194 — 194 General and administrative 69 — 69
Total operating expenses 683 1 684
Income from operations 219 (3 ) 216 Other income, net
6 — 6 Income before income taxes 225 (3 ) 222
Provision for income taxes 50 (2 ) 48
Net income $ 175 $ (1 ) $ 174 Net income per share:
Basic $ 0.65 $ — $ 0.65 Diluted $ 0.64 $ (0.01 ) $ 0.63
Shares used in net income per share calculations: Basic
269 269 269 Diluted 275
275 275
NETAPP, INC. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except
per share amounts) (Unaudited) Three
Months Ended January 26, 2018
As Previously Reported
Impact of ASC
606Adoption
As Adjusted Revenues: Product $ 920 $ 32 $ 952
Software maintenance 237 (16 ) 221 Hardware maintenance and other
services 366 — 366 Net revenues 1,523
16 1,539 Cost of revenues: Cost of product 468
1 469 Cost of software maintenance 6 — 6 Cost of hardware
maintenance and other services 108 — 108 Total
cost of revenues 582 1 583 Gross profit
941 15 956 Operating expenses: Sales and
marketing 423 (4 ) 419 Research and development 193 — 193 General
and administrative 72 — 72 Gain on sale of properties (218 )
— (218 ) Total operating expenses 470
(4 ) 466 Income from operations 471 19 490
Other income, net 14 — 14 Income before
income taxes 485 19 504 Provision for income taxes
991 (8 ) 983 Net loss $ (506 ) $ 27 $ (479 )
Net loss per share: Basic $ (1.89 ) $ 0.10 $ (1.79 )
Diluted $ (1.89 ) $ 0.10 $ (1.79 ) Shares used in net loss
per share calculations: Basic 268 268 268
Diluted 268 268 268
NETAPP, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (In millions, except per share amounts)
(Unaudited) Three Months Ended April 27,
2018
As Previously Reported
Impact of ASC
606Adoption
As Adjusted Revenues: Product $ 1,011 $ 16 $
1,027 Software maintenance 247 (13 ) 234 Hardware maintenance and
other services 383 — 383 Net revenues
1,641 3 1,644 Cost of revenues: Cost of
product 500 (4 ) 496 Cost of software maintenance 6 — 6 Cost of
hardware maintenance and other services 113 —
113 Total cost of revenues 619 (4 ) 615 Gross
profit 1,022 7 1,029 Operating
expenses: Sales and marketing 461 (18 ) 443 Research and
development 203 — 203 General and administrative 71 —
71 Total operating expenses 735 (18 )
717 Income from operations 287 25 312 Other income,
net 16 — 16 Income before income taxes
303 25 328 Provision for income taxes 32 6
38 Net income $ 271 $ 19 $ 290 Net income per
share: Basic $ 1.02 $ 0.07 $ 1.09 Diluted $ 0.99 $ 0.07 $
1.06 Shares used in net income per share calculations: Basic
265 265 265 Diluted 273
273 273
NETAPP, INC. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except
per share amounts) (Unaudited) Year
Ended April 27, 2018 As Previously Reported
Impact of ASC
606Adoption
As Adjusted Revenues: Product $ 3,461 $ 64 $
3,525 Software maintenance 958 (56 ) 902 Hardware maintenance and
other services 1,492 — 1,492 Net revenues
5,911 8 5,919 Cost of revenues: Cost of
product 1,738 — 1,738 Cost of software maintenance 25 — 25 Cost of
hardware maintenance and other services 449 (2 )
447 Total cost of revenues 2,212 (2 )
2,210 Gross profit 3,699 10 3,709
Operating expenses: Sales and marketing 1,729 (23 ) 1,706 Research
and development 783 — 783 General and administrative 280 — 280 Gain
on sale of properties (218 ) — (218 ) Total
operating expenses 2,574 (23 ) 2,551
Income from operations 1,125 33 1,158 Other income
(expense), net 41 — 41 Income before
income taxes 1,166 33 1,199 Provision for income taxes
1,090 (7 ) 1,083 Net income $ 76 $ 40 $
116 Net income per share: Basic $ 0.28 $ 0.15 $ 0.43
Diluted $ 0.28 $ 0.14 $ 0.42 Shares used in net income per
share calculations: Basic 268 268 268
Diluted 276 276 276
NETAPP,
INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts) (Unaudited)
Year Ended April 28, 2017 As Previously
Reported
Impact of ASC
606Adoption
As Adjusted Revenues: Product $ 3,006 $ 54 $
3,060 Software maintenance 965 (60 ) 905 Hardware maintenance and
other services 1,548 (22 ) 1,526 Net revenues
5,519 (28 ) 5,491 Cost of revenues:
Cost of product 1,614 (2 ) 1,612 Cost of software maintenance 28 —
28 Cost of hardware maintenance and other services 487
— 487 Total cost of revenues 2,129 (2 )
2,127 Gross profit 3,390 (26 ) 3,364
Operating expenses: Sales and marketing 1,633 18 1,651
Research and development 779 — 779 General and administrative 271 —
271 Restructuring charges 52 — 52 Gain on sale of properties
(10 ) — (10 ) Total operating expenses 2,725
18 2,743 Income from operations 665 (44 ) 621
Other income (expense), net — — —
Income before income taxes 665 (44 ) 621 Provision
for income taxes 156 (16 ) 140 Net
income $ 509 $ (28 ) $ 481 Net income per share: Basic $
1.85 $ (0.10 ) $ 1.75 Diluted $ 1.81 $ (0.10 ) $ 1.71
Shares used in net income per share calculations: Basic 275
275 275 Diluted 281 281
281
NETAPP, INC. SUPPLEMENTAL DATA
(In millions except net income per share, percentages, DSO, DIO,
DPO, CCC and Inventory Turns) (Unaudited)
Q1 FY'19 Q4 FY'18
Q3 FY'18 Q2 FY'18 Q1 FY'18 FY 2018 FY 2017
Revenues
Product
$ 875 $ 1,027 $ 952 $ 819 $ 727 $ 3,525 $
3,060 Strategic
$ 612 $ 747 $ 657 $ 566 $ 498 $ 2,468
$ 2,000 Mature
$ 263 $ 280 $ 295 $ 253 $ 229 $ 1,057
$ 1,060 Software Maintenance
$ 229 $ 234 $ 221 $ 224
$ 223 $ 902 $ 905 Hardware Maintenance and Other Services
$
370 $ 383 $ 366 $ 372 $ 371 $ 1,492 $ 1,526 Hardware
Maintenance Support Contracts
$ 303 $ 310 $ 300 $ 306
$ 298 $ 1,214 $ 1,258 Professional and Other Services
$
67 $ 73 $ 66 $ 66 $ 73 $ 278 $ 268
Net Revenues
$ 1,474 $ 1,644 $ 1,539 $ 1,415 $ 1,321 $ 5,919 $
5,491
Geographic Mix % of Q1 FY'19
Revenue % of Q4 FY'18 Revenue % of Q3 FY'18 Revenue % of Q2
FY'18 Revenue % of Q1 FY'18
Revenue
% of FY 2018
Revenue
% of FY 2017
Revenue
Americas
57 % 54 % 53 % 56 % 55 % 54 % 55 % Americas
Commercial
46 % 42 % 43 % 40 % 42 % 41 % 42 % U.S.
Public Sector
11 % 12 % 10 % 16 % 13 % 13 % 13 % EMEA
29 % 33 % 33 % 30 % 30 % 32 % 32 % Asia Pacific
14 % 13 % 14 % 14 % 15 % 14 % 13 %
Pathways Mix % of Q1 FY'19 Revenue % of Q4 FY'18
Revenue % of Q3 FY'18 Revenue % of Q2 FY'18 Revenue % of Q1 FY'18
Revenue
% of FY 2018
Revenue
% of FY 2017
Revenue
Direct
29 % 21 % 22 % 22 % 20 % 21 % 22 % Indirect
71 % 79 % 78 % 78 % 80 % 79 % 78 %
Non-GAAP Gross Margins Q1 FY'19 Q4 FY'18 Q3 FY'18 Q2
FY'18 Q1 FY'18 FY 2018 FY 2017 Non-GAAP Gross Margin
66.2
% 63.3 % 63.0 % 64.5 % 63.3 % 63.5 % 62.1 % Product
55.7 % 52.7 % 51.8 % 52.7 % 49.5 % 51.8 % 48.4 %
Software Maintenance
96.9 % 97.4 % 97.3 % 97.3 % 96.9
% 97.2 % 96.9 % Hardware Maintenance and Other Services
72.2
% 71.0 % 71.3 % 70.4 % 70.1 % 70.7 % 68.9 %
Non-GAAP Income from Operations, Income before Income Taxes
& Effective Tax Rate Q1 FY'19 Q4 FY'18 Q3 FY'18 Q2
FY'18 Q1 FY'18 FY 2018 FY 2017 Non-GAAP Income from Operations
$ 326 $ 360 $ 329 $ 269 $ 201 $ 1,159 $ 906 % of Net
Revenues
22.1 % 21.9 % 21.4 % 19.0 % 15.2 % 19.6 %
16.5 % Non-GAAP Income before Income Taxes
$ 344 $
376 $ 343 $ 275 $ 206 $ 1,200 $ 906 Non-GAAP Effective Tax Rate
18.3 % 18.4 % 15.7 % 19.6 % 19.4 % 18.1 % 18.4 %
Non-GAAP Net Income Q1 FY'19 Q4
FY'18 Q3 FY'18 Q2 FY'18 Q1 FY'18 FY 2018 FY 2017 Non-GAAP Net
Income
$ 281 $ 307 $ 289 $ 221 $ 166 $ 983 $ 739
Non-GAAP Weighted Average Common Shares Outstanding, Diluted
269 273 276 275 278 276 281 Non-GAAP Income per Share,
Diluted
$ 1.04 $ 1.12 $ 1.05 $ 0.80 $ 0.60 $ 3.56 $
2.63
Select Balance Sheet Items Q1
FY'19 Q4 FY'18 Q3 FY'18 Q2 FY'18 Q1 FY'18 Deferred Revenue and
Financed Unearned Services Revenue
$ 3,260 $ 3,363 $
3,143 $ 3,059 $ 3,127 DSO (days)
38 58 46 39 37 DIO (days)
17 18 14 18 25 DPO (days)
76 90 71 67 53 CCC (days)
(20 ) (14 ) (12 ) (10 ) 8 Inventory Turns
21
20 26 21 15 Days sales outstanding (DSO) is defined as
accounts receivable divided by net revenues, multiplied by the
number of days in the quarter. Days inventory outstanding (DIO) is
defined as net inventories divided by cost of revenues, multiplied
by the number of days in the quarter. Days payables outstanding
(DPO) is defined as accounts payable divided by cost of revenues,
multiplied by the number of days in the quarter. Cash conversion
cycle (CCC) is defined as DSO plus DIO minus DPO. Inventory turns
is defined as annualized cost of revenues divided by net
inventories.
Select Cash Flow Statement Items
Q1 FY'19 Q4 FY'18 Q3 FY'18 Q2 FY'18 Q1 FY'18 FY 2018 FY 2017
Net Cash Provided by Operating Activities
$ 326 $ 494
$ 420 $ 314 $ 250 $ 1,478 $ 986 Purchases of Property and Equipment
$ 64 $ 48 $ 32 $ 29 $ 36 $ 145 $ 175 Free Cash Flow
$ 262 $ 446 $ 388 $ 285 $ 214 $ 1,333 $ 811 Free Cash
Flow as a % of Net Revenues
17.8 % 27.1 % 25.2 % 20.1
% 16.2 % 22.5 % 14.8 % Free cash flow is a non-GAAP measure
and is defined as net cash provided by operating activities less
purchases of property and equipment. Some items may not add
or recalculate due to rounding.
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP INCOME STATEMENT
INFORMATION (In millions, except net income (loss) per share
amounts)
Q1'FY19 Q4'FY18 Q3'FY18 Q2'FY18
Q1'FY18 FY2018 FY2017 NET INCOME
(LOSS) $ 283 $ 290 $ (479 ) $ 174 131 $ 116 $ 481 Adjustments:
Amortization of intangible assets 13 12 14 14 13 53 48 Stock-based
compensation 40 36 38 39 48 161 195 Litigation settlements — — 5 —
— 5 — Restructuring charges 19 — — — — — 52 Gain on sale of
properties — — (218 ) — — (218 ) (10 ) Income tax effects (40 ) (31
) 73 (6 ) (26 ) 10 (27 ) Income tax benefit of ASC 606 adoption (34
) — — — — — — Tax reform — — 856 —
— 856 —
NON-GAAP NET INCOME $ 281 $ 307
$ 289 $ 221 $ 166 $ 983 $ 739
COST OF REVENUES $ 511
$ 615 $ 583 $ 515 $ 497 $ 2,210 $ 2,127 Adjustments: Amortization
of intangible assets (9 ) (9 ) (10 ) (9 ) (8 ) (36 ) (29 )
Stock-based compensation (4 ) (3 ) (3 )
(3 ) (4 ) (13 ) (17 )
NON-GAAP COST OF
REVENUES $ 498 $ 603 $ 570 $ 503 $ 485 $ 2,161 $ 2,081
COST OF PRODUCT REVENUES $ 398 $ 496 $ 469 $ 397 $ 376 $
1,738 $ 1,612 Adjustments: Amortization of intangible assets (9 )
(9 ) (10 ) (9 ) (8 ) (36 ) (29 ) Stock-based compensation (1
) (1 ) — (1 ) (1 ) (3 )
(4 )
NON-GAAP COST OF PRODUCT REVENUES $ 388 $ 486 $ 459 $
387 $ 367 $ 1,699 $ 1,579
COST OF HARDWARE MAINTENANCE
AND OTHER SERVICES REVENUES $ 106 $ 113 $ 108 $ 112 $ 114 $ 447
$ 487 Adjustment: Stock-based compensation (3 ) (2 )
(3 ) (2 ) (3 ) (10 ) (13 )
NON-GAAP COST OF HARDWARE MAINTENANCE AND OTHER SERVICES
REVENUES $ 103 $ 111 $ 105 $ 110 $ 111 $ 437 $ 474
GROSS PROFIT $ 963 $ 1,029 $ 956 $ 900 $ 824 $ 3,709 $ 3,364
Adjustments: Amortization of intangible assets 9 9 10 9 8 36 29
Stock-based compensation 4 3 3 3
4 13 17
NON-GAAP GROSS PROFIT $ 976 $ 1,041 $
969 $ 912 $ 836 $ 3,758 $ 3,410
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP INCOME STATEMENT
INFORMATION (In millions, except net income (loss) per share
amounts)
Q1'FY19 Q4'FY18 Q3'FY18 Q2'FY18
Q1'FY18 FY2018 FY2017 SALES AND
MARKETING EXPENSES $ 409 $ 443 $ 419 $ 421 $ 423 $ 1,706 $
1,651 Adjustments: Amortization of intangible assets (4 ) (3 ) (4 )
(5 ) (5 ) (17 ) (19 ) Stock-based compensation (17 )
(15 ) (16 ) (16 ) (21 ) (68 )
(84 )
NON-GAAP SALES AND MARKETING EXPENSES $ 388 $ 425 $
399 $ 400 $ 397 $ 1,621 $ 1,548
RESEARCH AND DEVELOPMENT
EXPENSES $ 208 $ 203 $ 193 $ 194 $ 193 $ 783 $ 779 Adjustment:
Stock-based compensation (12 ) (11 ) (11 )
(12 ) (15 ) (49 ) (59 )
NON-GAAP
RESEARCH AND DEVELOPMENT EXPENSES $ 196 $ 192 $ 182 $ 182 $ 178
$ 734 $ 720
GENERAL AND ADMINISTRATIVE EXPENSES $ 73
$ 71 $ 72 $ 69 $ 68 $ 280 $ 271 Adjustment: Stock-based
compensation (7 ) (7 ) (8 ) (8 ) (8 ) (31 ) (35 ) Litigation
settlements — — (5 ) — —
(5 ) —
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $
66 $ 64 $ 59 $ 61 $ 60 $ 244 $ 236
RESTRUCTURING
CHARGES $ 19 $ — $ — $ — $ — $ — $ 52 Adjustment: Restructuring
charges (19 ) — — — — —
(52 )
NON-GAAP RESTRUCTURING CHARGES $ — $ — $ — $ —
$ — $ — $ —
GAIN ON SALE OF PROPERTIES $ — $ — $ (218
) $ — $ — $ (218 ) $ (10 ) Adjustment: Gain on sale of properties
— — 218 — — 218 10
NON-GAAP GAIN ON SALE OF PROPERTIES $ — $ — $ — $ — $ — $ —
$ —
OPERATING EXPENSES $ 709 $ 717 $ 466 $ 684 $ 684
$ 2,551 $ 2,743 Adjustments: Amortization of intangible assets (4 )
(3 ) (4 ) (5 ) (5 ) (17 ) (19 ) Stock-based compensation (36 ) (33
) (35 ) (36 ) (44 ) (148 ) (178 ) Litigation settlements — — (5 ) —
— (5 ) — Restructuring charges (19 ) — — — — — (52 ) Gain on sale
of properties — — 218 — —
218 10
NON-GAAP OPERATING EXPENSES $ 650 $ 681 $ 640
$ 643 $ 635 $ 2,599 $ 2,504
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP INCOME STATEMENT
INFORMATION (In millions, except net income (loss) per share
amounts)
Q1'FY19 Q4'FY18 Q3'FY18 Q2'FY18
Q1'FY18 FY2018 FY2017 INCOME FROM
OPERATIONS $ 254 $ 312 $ 490 $ 216 $ 140 $ 1,158 $ 621
Adjustments: Amortization of intangible assets 13 12 14 14 13 53 48
Stock-based compensation 40 36 38 39 48 161 195 Litigation
settlements — — 5 — — 5 — Restructuring charges 19 — — — — — 52
Gain on sale of properties — — (218 ) —
— (218 ) (10 )
NON-GAAP INCOME FROM
OPERATIONS $ 326 $ 360 $ 329 $ 269 $ 201 $ 1,159 $ 906
INCOME BEFORE INCOME TAXES $ 272 $ 328 $ 504 $ 222 $ 145 $
1,199 $ 621 Adjustments: Amortization of intangible assets 13 12 14
14 13 53 48 Stock-based compensation 40 36 38 39 48 161 195
Litigation settlements — — 5 — — 5 — Restructuring charges 19 — — —
— — 52 Gain on sale of properties — — (218 )
— — (218 ) (10 )
NON-GAAP INCOME
BEFORE INCOME TAXES $ 344 $ 376 $ 343 $ 275 $ 206 $ 1,200 $ 906
PROVISION FOR INCOME TAXES $ (11 ) $ 38 $ 983 $ 48 $
14 $ 1,083 $ 140 Adjustments: Income tax effects 40 31 (73 ) 6 26
(10 ) 27 Income tax benefit of ASC 606 adoption 34 — — — — — — Tax
reform — — (856 ) — —
(856 ) —
NON-GAAP PROVISION FOR INCOME TAXES $ 63 $
69 $ 54 $ 54 $ 40 $ 217 $ 167
NET INCOME (LOSS) PER
SHARE $ 1.05 $ 1.06 $ (1.79 ) $ 0.63 $ 0.47 $ 0.42 $ 1.71
Adjustments: Amortization of intangible assets 0.05 0.04 0.05 0.05
0.05 0.19 0.17 Stock-based compensation 0.15 0.13 0.14 0.14 0.17
0.58 0.69 Litigation settlements — — 0.02 — — 0.02 — Restructuring
charges 0.07 — — — — — 0.19 Gain on sale of properties — — (0.81 )
— — (0.79 ) (0.04 ) Income tax effects (0.15 ) (0.11 ) 0.27 (0.02 )
(0.09 ) 0.04 (0.10 ) Income tax benefit of ASC 606 adoption (0.13 )
— — — — — — Tax reform — — 3.19 —
— 3.10 —
NON-GAAP NET INCOME PER SHARE
$ 1.04 $ 1.12 $ 1.05 $ 0.80 $ 0.60 $ 3.56 $ 2.63 In Q3'FY18,
our GAAP net loss per share was calculated using basic shares of
268 million, as the impact of common stock equivalents would have
been anti-dilutive. Additionally, each adjustment presented in the
reconciliation was computed using basic shares. However, because we
reported net income on a non-GAAP basis, non-GAAP net income per
share was computed using diluted shares of 276 million. As a result
of the difference in the number of shares, the summation of GAAP
net loss per share and the adjustments does not equal non-GAAP net
income per share.
RECONCILIATION OF NON-GAAP TO
GAAP GROSS MARGIN ($ in millions)
Q1'FY19 Q4'FY18 Q3'FY18
Q2'FY18 Q1'FY18 FY2018
FY2017 Gross margin-GAAP 65.3 % 62.6 % 62.1 %
63.6 % 62.4 % 62.7 % 61.3 % Cost of revenues adjustments 0.9
% 0.7 % 0.8 % 0.8 % 0.9 % 0.8 %
0.8 %
Gross margin-Non-GAAP 66.2 % 63.3 % 63.0 % 64.5
% 63.3 % 63.5 % 62.1 % GAAP cost of revenues $ 511 $ 615 $
583 $ 515 $ 497 $ 2,210 $ 2,127 Cost of revenues adjustments:
Amortization of intangible assets (9 ) (9 ) (10 ) (9 ) (8 ) (36 )
(29 ) Stock-based compensation (4 ) (3 ) (3 )
(3 ) (4 ) (13 ) (17 ) Non-GAAP cost of
revenues $ 498 $ 603 $ 570 $ 503 $ 485 $ 2,161 $ 2,081 Net
revenues $ 1,474 $ 1,644 $ 1,539 $ 1,415 $ 1,321 $ 5,919 $ 5,491
RECONCILIATION OF NON-GAAP TO GAAP PRODUCT
GROSS MARGIN ($ in millions)
Q1'FY19 Q4'FY18 Q3'FY18
Q2'FY18 Q1'FY18 FY2018 FY2017
Product gross margin-GAAP 54.5 % 51.7 % 50.7 % 51.5 %
48.3 % 50.7 % 47.3 % Cost of product revenues adjustments
1.1 % 1.0 % 1.1 % 1.2 % 1.2 %
1.1 % 1.1 %
Product gross margin-Non-GAAP 55.7 % 52.7
% 51.8 % 52.7 % 49.5 % 51.8 % 48.4 % GAAP cost of product
revenues $ 398 $ 496 $ 469 $ 397 $ 376 $ 1,738 $ 1,612 Cost of
product revenues adjustments: Amortization of intangible assets (9
) (9 ) (10 ) (9 ) (8 ) (36 ) (29 ) Stock-based compensation
(1 ) (1 ) — (1 ) (1 ) (3 )
(4 ) Non-GAAP cost of product revenues $ 388 $ 486 $ 459 $
387 $ 367 $ 1,699 $ 1,579 Product revenues $ 875 $ 1,027 $
952 $ 819 $ 727 $ 3,525 $ 3,060
RECONCILIATION OF
NON-GAAP TO GAAP HARDWARE MAINTENANCE AND OTHER SERVICES
GROSS MARGIN ($ in millions)
Q1'FY19 Q4'FY18 Q3'FY18
Q2'FY18 Q1'FY18 FY2018 FY2017
Hardware maintenance and other services gross
margin-GAAP 71.4 % 70.5 % 70.5 % 69.9 % 69.3 % 70.0 % 68.1 %
Cost of hardware maintenance and other services revenues adjustment
0.8 % 0.5 % 0.8 % 0.5 % 0.8 %
0.7 % 0.9 %
Hardware maintenance and other
services gross margin-Non-GAAP 72.2 % 71.0 % 71.3 % 70.4 % 70.1
% 70.7 % 68.9 % GAAP cost of hardware maintenance and other
services revenues $ 106 $ 113 $ 108 $ 112 $ 114 $ 447 $ 487 Cost of
hardware maintenance and other services revenues adjustment:
Stock-based compensation (3 ) (2 ) (3 )
(2 ) (3 ) (10 ) (13 ) Non-GAAP cost of
hardware maintenance and other services revenues $ 103 $ 111 $ 105
$ 110 $ 111 $ 437 $ 474 Hardware maintenance and other
services revenues $ 370 $ 383 $ 366 $ 372 $ 371 $ 1,492 $ 1,526
RECONCILIATION OF NON-GAAP TO GAAP
EFFECTIVE TAX RATE
Q1'FY19 Q4'FY18 Q3'FY18
Q2'FY18 Q1'FY18 FY2018 FY2017
GAAP effective tax rate
(4.0 )% 11.6 % 195.0 % 21.6 % 9.7 % 90.3 % 22.5 % Adjustment:
Income tax effects 9.8 % 6.8 % (9.5 )% (2.0 )% 9.8 % (0.8 )% (4.1
)% Income tax benefit of ASC 606 adoption 12.5 % — % — % — % — % —
% — % Tax reform — % — % (169.8 )% — %
— % (71.4 )% — %
Non-GAAP effective tax
rate 18.3 % 18.4 % 15.7 % 19.6 % 19.4 % 18.1 % 18.4 %
RECONCILIATION OF NET CASH PROVIDED BY OPERATING
ACTIVITIES TO FREE CASH FLOW (NON-GAAP) (In
millions) Q1'FY19
Q4'FY18 Q3'FY18 Q2'FY18
Q1'FY18 FY2018 FY2017 Net cash provided by
operating activities $ 326 $ 494 $ 420 $ 314 $ 250 $ 1,478 $ 986
Purchases of property and equipment (64 ) (48 )
(32 ) (29 ) (36 ) (145 ) (175 )
Free cash flow $ 262 $ 446 $ 388 $ 285 $ 214 $ 1,333 $ 811
Some items may not add or recalculate due
to rounding.
NETAPP, INC. RECONCILIATION OF NON-GAAP
GUIDANCE TO GAAP EXPRESSED AS EARNINGS PER SHARE
SECOND QUARTER FISCAL 2019 Second
Quarter Fiscal 2019 Non-GAAP Guidance -
Net Income Per Share $0.94 - $1.00 Adjustments of Specific
Items to Net Income Per Share for the Second Quarter Fiscal 2019:
Amortization of intangible assets (0.05 ) Stock-based compensation
expense (0.14 ) Income tax effects 0.04 Total
Adjustments (0.15 ) GAAP Guidance - Net Income Per Share
$0.79 - $0.85
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180815005608/en/
NetAppPress Contact:Madge Miller, 1
408-419-5263madge.miller@netapp.comorInvestor Contact:Kris
Newton, 1 408-822-3312kris.newton@netapp.com
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