Strengthens Data Fabric Strategy with
Substantial Innovation Across the Entire Portfolio
- Net revenues of $1.52 billion grew 7%
year-over-year
- Product revenue of $913 million grew
11% year-over-year
- All-flash array annualized net revenue
run rate of $2.2 billion increased 29% year-over-year
- $663 million returned to shareholders
in share repurchases and cash dividends
NetApp (NASDAQ: NTAP) today reported financial results for the
second quarter of fiscal year 2019, which ended October 26,
2018.
“Through focus and disciplined execution, NetApp again delivered
strong results in the second quarter. We introduced a tremendous
amount of innovation across our portfolio that helps us drive share
gains, expand our available market, and set the industry agenda,”
said George Kurian, chief executive officer. “Our consistent and
strong performance reflects the clear differentiation of our
technology and the strength of our business model, as well as our
customers' growing commitment to NetApp and value of our Data
Fabric strategy.”
Second Quarter Fiscal Year 2019 Financial Results
- Net Revenues: $1.52 billion,
increased 7% year-over-year from $1.42 billion* in the second
quarter of fiscal 2018
- Net Income: GAAP net income of
$241 million, compared to GAAP net income of $174 million* in the
second quarter of fiscal 2018; non-GAAP net income1 of $280
million, compared to non-GAAP net income of $221 million* in the
second quarter of fiscal 2018
- Earnings per Share: GAAP
earnings per share2 of $0.91 compared to GAAP earnings per share of
$0.63* in the second quarter of fiscal 2018; non-GAAP earnings per
share of $1.06, compared to non-GAAP earnings per share of $0.80*
in the second quarter of fiscal 2018
- Cash, Cash Equivalents and
Investments: $4.3 billion at the end of the second quarter of
fiscal 2019
- Cash from Operations: $165
million, compared to $314 million in the second quarter of fiscal
2018
- Share Repurchase and Dividend:
Returned $663 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) using the full
retrospective method of adoption. Accordingly, NetApp’s condensed
consolidated balance sheet as of April 27, 2018, condensed
consolidated statements of operations and cash flows for all fiscal
2018 periods presented, and all related financial statement metrics
included herein, have been restated to conform to the new
rules.
Third Quarter Fiscal Year 2019 Financial Outlook
The Company provided the following financial guidance for the
third quarter of fiscal year 2019:
- Net revenues are expected to be in the
range of:
$1.550 billion to $1.650 billion
GAAP
Non-GAAP
- Earnings per share is expected to be in the range of:
$0.96-$1.02 $1.12-$1.18
Dividend
Next cash dividend of $0.40 per share to be paid on January 23,
2019, to shareholders of record as of the close of business on
January 4, 2019.
Second Quarter Fiscal Year 2019 Business Highlights
New Products and Solutions Help
Data-Driven Organizations Thrive
- NetApp announced new solutions to
enable customers to deliver data-driven business outcomes for
applications across hybrid cloud and multicloud environments,
including NetApp™ Cloud Insights, Azure NetApp Files,
Cloud Volumes Service, Cloud Volumes ONTAP™,
NetApp HCI, SaaS Backup for Microsoft Office 365, and
NetApp Data availability Services.
- NetApp announced expanded availability
and features for NetApp Cloud Volumes for Google Cloud Platform
(GCP) to help customers deploy workloads such as video
rendering, databases, high-performance computing, and continuous
integration on GCP.
- NetApp announced ONTAP 9.5,
MAX Data, StorageGRID™ SG6060, NetApp Solution
Support for FlexPod™, and Flash Performance Guarantee.
These new data services and solutions further extend the NetApp
Data Fabric across edge, core, and cloud, enabling
organizations to fully realize the promise of artificial
intelligence.
- NetApp introduced NetApp ONTAP
AI proven architecture, powered by NVIDIA DGX supercomputers
and NetApp AFF A800 cloud-connected all-flash storage, to
simplify, accelerate, and scale the data pipeline across edge,
core, and cloud for deep learning deployments and to help customers
achieve real business impact with AI.
- NetApp announced: updates to
Trident, its automated provisioner for solving the
persistent storage challenge for containers; a new verified
architecture for Red Hat OpenShift Container Platform on NetApp
HCI; and enhanced flexibility for DevOps on both
NetApp Cloud Volumes for Google Cloud Platform and NetApp
Cloud Volumes for AWS.
- NetApp OnCommand™ System Manager
9.4 is now bundled with NetApp ONTAP 9.4 features improvements
that simplify day-to-day operations.
- NetApp announced the acquisition of
StackPointCloud, a leader in multicloud Kubernetes as a
service and a contributor to the Kubernetes project. The
combination of StackPointCloud with NetApp creates NetApp
Kubernetes Service, the industry's first complete Kubernetes
platform for multicloud deployments and a complete cloud-based
stack for Azure, Google Cloud, AWS, and
NetApp HCI.
NetApp Expands Strategic
Partnerships
- NetApp announced that it has partnered
with DreamWorks to develop and oversee the studio’s
customized Data Fabric approach, designed to enable expanded
capabilities and future growth for the Glendale-based leader in
family entertainment.
- NetApp announced a partnership with
WuXi NextCODE, the world’s leading genomic data platform and
analysis company, working to improve health for people around the
globe. WuXi NextCODE will use NetApp Cloud Volumes
for simplified deployment and optimized management of data-driven
applications.
- Lenovo and NetApp announced a
global, multifaceted partnership to bring innovative technology and
a simplified experience to help customers modernize IT and
accelerate their digital transformation.
NetApp Strengthens Leadership
Team
- NetApp announced the appointment of
Atish Gude as the chief strategy officer (CSO), reporting to
CEO George Kurian.
- NetApp announced the appointment of
Debra McCowan as senior vice president and chief human
resources officer (CHRO), reporting to CEO George Kurian.
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 Third Quarter Fiscal Year 2019 Financial
Outlook section, statements about our ability to gain share, expand
our available market, set the industry agenda as well as statements
about the differentiation of our technology, strength of our
business model, customers’ growing commitment to NetApp and value
of our Data Fabric strategy. 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
reports on 10-Q and 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.
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)
October 26,2018
April 27,2018
ASSETS Current assets: Cash, cash equivalents
and investments $ 4,299 $ 5,391 Accounts receivable 765 1,047
Inventories 86 122 Other current assets 321 392 Total
current assets 5,471 6,952 Property and equipment, net 770
756 Goodwill and purchased intangible assets, net 1,811 1,833 Other
non-current assets 499 450 Total assets $ 8,551 $
9,991
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable $ 472 $ 609 Accrued expenses
652 825 Commercial paper notes 249 385 Current portion of long-term
debt 399 — Short-term deferred revenue and financed unearned
services revenue 1,538 1,712 Total current
liabilities 3,310 3,531 Long-term debt 1,144 1,541 Other long-term
liabilities 899 992 Long-term deferred revenue and financed
unearned services revenue 1,668 1,651 Total
liabilities 7,021 7,715 Stockholders' equity
1,530 2,276 Total liabilities and stockholders'
equity $ 8,551 $ 9,991
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In millions, except per share
amounts)
(Unaudited)
Three Months Ended Six Months Ended
October 26,2018
October 27,2017
October 26,2018
October 27,2017
Revenues: Product $ 913 $ 819 $ 1,788 $ 1,546 Software
maintenance 236 224 465 447 Hardware maintenance and other services
368 372 738 743 Net revenues
1,517 1,415 2,991 2,736 Cost of
revenues: Cost of product 428 397 826 773 Cost of software
maintenance 8 6 15 13 Cost of hardware maintenance and other
services 107 112 213 226 Total cost of
revenues 543 515 1,054 1,012 Gross
profit 974 900 1,937 1,724
Operating expenses: Sales and marketing 408 421 817 844 Research
and development 211 194 419 387 General and administrative 69 69
142 137 Restructuring charges — — 19 —
Total operating expenses 688 684 1,397
1,368 Income from operations 286 216 540 356 Other
income, net 7 6 25 11 Income
before income taxes 293 222 565 367 Provision for income
taxes 52 48 41 62 Net income $
241 $ 174 $ 524 $ 305 Net income per share: Basic $ 0.93 $
0.65 $ 2.02 $ 1.13 Diluted $ 0.91 $ 0.63 $ 1.96 $ 1.10
Shares used in net income per share calculations: Basic
258 269 260 270 Diluted
264 275 267 277 Cash dividends declared
per share $ 0.40 $ 0.20 $ 0.80 $ 0.40
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended Six Months Ended
October 26,2018
October 27,2017
October 26,2018
October 27,2017
Cash flows from operating activities: Net income $ 241 $ 174
$ 524 $ 305
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 49 51 98 102 Stock-based compensation
38 39 78 87 Deferred income taxes 1 40 (25 ) 40 Other items, net 3
(10 ) 11 (5 ) Changes in assets and liabilities, net of
acquisitions of businesses: Accounts receivable (154 ) (80 ) 269
146 Inventories 11 34 36 58 Accounts payable 50 92 (127 ) 34
Accrued expenses 59 67 (162 ) (68 )
Deferred revenue and financed unearned
services revenue
(42 ) (61 ) (129 ) (163 ) Long-term taxes payable (68 ) 2 (63 ) 2
Changes in other operating assets and liabilities, net (23 )
(34 ) (19 ) 26 Net cash provided by operating
activities 165 314 491 564
Cash
flows from investing activities: Redemptions of investments,
net 241 (64 ) 489 48 Purchases of property and equipment (43 ) (29
) (107 ) (65 ) Acquisitions of businesses, net of cash acquired (3
) (51 ) (3 ) (75 ) Other investing activities, net —
(1 ) 2 — Net cash provided by (used in) investing
activities 195 (145 ) 381 (92 )
Cash
flows from financing activities:
Proceeds from issuance of common stock
under employee stock award plans
2 9 65 57
Payments for taxes related to net share
settlement of stock awards
(5 ) (3 ) (89 ) (60 ) Repurchase of common stock (561 ) (150 )
(1,061 ) (300 )
Proceeds from (repayments of) commercial
paper notes, net
50 (176 ) (135 ) 218 Issuance of long-term debt, net — 795 — 795
Dividends paid (102 ) (54 ) (207 ) (108 ) Other financing
activities, net (1 ) (1 ) (2 ) (1 ) Net
cash provided by (used in) financing activities (617 )
420 (1,429 ) 601
Effect of exchange
rate changes on cash, cash equivalents and restricted cash (11
) (6 ) (25 ) 13
Net increase (decrease) in cash, cash
equivalents and restricted cash (268 ) 583 (582 ) 1,086
Cash, cash equivalents and restricted cash: Beginning of
period 2,633 2,953 2,947 2,450 End of
period $ 2,365 $ 3,536 $ 2,365 $ 3,536
SELECTED CONDENSED CONSOLIDATED
BALANCE SHEET LINE ITEMS
(In millions)
(Unaudited)
As of April 27, 2018
As PreviouslyReported
Impact of ASC 606
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 Six Months Ended October 27, 2017
October 27, 2017
As Previously
Reported
Impact of ASC 606
Adoption
As Adjusted
As Previously
Reported
Impact of ASC 606
Adoption
As Adjusted
Revenues: Product $ 807 $ 12 $ 819 $ 1,530 $ 16 $ 1,546
Software maintenance 240 (16 ) 224 474 (27 ) 447 Hardware
maintenance and other services 375 (3 ) 372
743 — 743 Net revenues 1,422 (7
) 1,415 2,747 (11 ) 2,736 Cost
of revenues: Cost of product 399 (2 ) 397 770 3 773 Cost of
software maintenance 6 — 6 13 — 13 Cost of hardware maintenance and
other services 115 (3 ) 112 228
(2 ) 226 Total cost of revenues 520 (5 )
515 1,011 1 1,012 Gross profit
902 (2 ) 900 1,736 (12 ) 1,724
Operating expenses: Sales and marketing 420 1 421 845 (1 )
844 Research and development 194 — 194 387 — 387 General and
administrative 69 — 69 137 —
137 Total operating expenses 683 1 684
1,369 (1 ) 1,368 Income from operations
219 (3 ) 216 367 (11 ) 356 Other income, net 6
— 6 11 — 11 Income before income
taxes 225 (3 ) 222 378 (11 ) 367 Provision for income taxes
50 (2 ) 48 67 (5 ) 62
Net income $ 175 $ (1 ) $ 174 $ 311 $ (6 ) $ 305 Net
income per share: Basic $ 0.65 $ — $ 0.65 $ 1.15 $ (0.02 ) $ 1.13
Diluted $ 0.64 $ (0.01 ) $ 0.63 $ 1.12 $ (0.02 ) $ 1.10
Shares used in net income per share calculations: Basic
269 269 269 270 270 270
Diluted 275 275 275 277
277 277
NETAPP, INC. SUPPLEMENTAL
DATA (In millions except net income per share, percentages,
DSO, DIO, DPO, CCC and Inventory Turns) (Unaudited)
Q2 FY'19 Q1
FY'19 Q2 FY'18
Revenues Product
$ 913 $
875 $ 819 Strategic
$ 649 $ 612 $ 566 Mature
$
264 $ 263 $ 253 Software Maintenance
$ 236 $
229 $ 224 Hardware Maintenance and Other Services
$
368 $ 370 $ 372 Hardware Maintenance Support Contracts
$ 303 $ 303 $ 306 Professional and Other Services
$ 65 $ 67 $ 66
Net Revenues $
1,517 $ 1,474 $ 1,415
Geographic Mix
% of Q2 FY'19 % of Q1 FY'19 % of Q2 FY'18
Revenue
Revenue Revenue Americas
57 % 57 % 56 % Americas
Commercial
44 % 46 % 40 % U.S. Public Sector
14 % 11 % 16 % EMEA
28 % 29 % 30 % Asia
Pacific
15 % 14 % 14 %
Pathways
Mix % of Q2 FY'19 % of Q1 FY'19 % of Q2 FY'18
Revenue Revenue Revenue Direct
23 % 29 % 22 %
Indirect
77 % 71 % 78 %
Non-GAAP
Gross Margins Q2 FY'19 Q1 FY'19 Q2 FY'18 Non-GAAP Gross
Margin
64.9 % 66.2 % 64.5 % Product
54.1
% 55.7 % 52.7 % Software Maintenance
96.6 %
96.9 % 97.3 % Hardware Maintenance and Other Services
71.5
% 72.2 % 70.4 %
Non-GAAP Income from
Operations, Income before Income Taxes & Effective Tax Rate
Q2 FY'19 Q1 FY'19 Q2 FY'18 Non-GAAP Income from Operations
$ 336 $ 326 $ 269 % of Net Revenues
22.1
% 22.1 % 19.0 % Non-GAAP Income before Income Taxes
$
343 $ 344 $ 275 Non-GAAP Effective Tax Rate
18.5
% 18.3 % 19.6 %
Non-GAAP Net Income Q2 FY'19 Q1 FY'19 Q2 FY'18
Non-GAAP Net Income
$ 280 $ 281 $ 221 Non-GAAP
Weighted Average Common Shares Outstanding, Diluted
264 269
275 Non-GAAP Income per Share, Diluted
$ 1.06 $ 1.04
$ 0.80
Select Balance Sheet Items Q2
FY'19 Q1 FY'19 Q2 FY'18 Deferred Revenue and Financed Unearned
Services Revenue
$ 3,206 $ 3,260 $ 3,059 DSO (days)
46 38 39 DIO (days)
14 17 18 DPO (days)
79 76
67 CCC (days)
(19 ) (20 ) (10 ) Inventory Turns
25 21 21 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
Q2 FY'19 Q1 FY'19 Q2 FY'18 Net Cash Provided by Operating
Activities
$ 165 $ 326 $ 314 Purchases of Property
and Equipment
$ 43 $ 64 $ 29 Free Cash Flow
$
122 $ 262 $ 285 Free Cash Flow as a % of Net Revenues
8.0 % 17.8 % 20.1 % 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 per share amounts)
Q2'FY19 Q1'FY19 Q2'FY18
NET INCOME $ 241 $ 283 $ 174 Adjustments: Amortization of
intangible assets 12 13 14 Stock-based compensation 38 40 39
Restructuring charges — 19 — Income tax effects (11 ) (40 ) (6 )
Income tax benefit of ASC 606 adoption — (34 )
—
NON-GAAP NET INCOME $ 280 $ 281 $ 221
COST OF
REVENUES $ 543 $ 511 $ 515 Adjustments: Amortization of
intangible assets (9 ) (9 ) (9 ) Stock-based compensation (2
) (4 ) (3 )
NON-GAAP COST OF REVENUES $ 532 $
498 $ 503
COST OF PRODUCT REVENUES $ 428 $ 398 $ 397
Adjustments: Amortization of intangible assets (9 ) (9 ) (9 )
Stock-based compensation — (1 ) (1 )
NON-GAAP COST OF PRODUCT REVENUES $ 419 $ 388 $ 387
COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES $
107 $ 106 $ 112 Adjustment: Stock-based compensation (2 )
(3 ) (2 )
NON-GAAP COST OF HARDWARE MAINTENANCE
AND OTHER SERVICES REVENUES $ 105 $ 103 $ 110
GROSS
PROFIT $ 974 $ 963 $ 900 Adjustments: Amortization of
intangible assets 9 9 9 Stock-based compensation 2 4
3
NON-GAAP GROSS PROFIT $ 985 $ 976 $ 912
NETAPP, INC. RECONCILIATION OF NON-GAAP TO
GAAP INCOME STATEMENT INFORMATION (In millions,
except net income per share amounts)
Q2'FY19 Q1'FY19
Q2'FY18 SALES AND MARKETING EXPENSES $ 408 $
409 $ 421 Adjustments: Amortization of intangible assets (3 ) (4 )
(5 ) Stock-based compensation (16 ) (17 ) (16
)
NON-GAAP SALES AND MARKETING EXPENSES $ 389 $ 388 $ 400
RESEARCH AND DEVELOPMENT EXPENSES $ 211 $ 208 $ 194
Adjustment: Stock-based compensation (12 ) (12 )
(12 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES $
199 $ 196 $ 182
GENERAL AND ADMINISTRATIVE EXPENSES $
69 $ 73 $ 69 Adjustment: Stock-based compensation (8 )
(7 ) (8 )
NON-GAAP GENERAL AND ADMINISTRATIVE
EXPENSES $ 61 $ 66 $ 61
RESTRUCTURING CHARGES $ —
$ 19 $ — Adjustment: Restructuring charges — (19 )
—
NON-GAAP RESTRUCTURING CHARGES $ — $ — $ —
OPERATING EXPENSES $ 688 $ 709 $ 684 Adjustments:
Amortization of intangible assets (3 ) (4 ) (5 ) Stock-based
compensation (36 ) (36 ) (36 ) Restructuring charges —
(19 ) —
NON-GAAP OPERATING EXPENSES $ 649 $
650 $ 643
NETAPP, INC. RECONCILIATION OF
NON-GAAP TO GAAP INCOME STATEMENT INFORMATION (In
millions, except net income per share amounts)
Q2'FY19 Q1'FY19
Q2'FY18 INCOME FROM OPERATIONS $ 286 $ 254 $
216 Adjustments: Amortization of intangible assets 12 13 14
Stock-based compensation 38 40 39 Restructuring charges —
19 —
NON-GAAP INCOME FROM OPERATIONS $ 336 $
326 $ 269
INCOME BEFORE INCOME TAXES $ 293 $ 272 $
222 Adjustments: Amortization of intangible assets 12 13 14
Stock-based compensation 38 40 39 Restructuring charges —
19 —
NON-GAAP INCOME BEFORE INCOME TAXES $ 343
$ 344 $ 275
PROVISION (BENEFIT) FOR INCOME TAXES $ 52
$ (11 ) $ 48 Adjustments: Income tax effects 11 40 6 Income tax
benefit of ASC 606 adoption — 34 —
NON-GAAP
PROVISION FOR INCOME TAXES $ 63 $ 63 $ 54
NET INCOME
PER SHARE $ 0.91 $ 1.05 $ 0.63 Adjustments: Amortization of
intangible assets 0.05 0.05 0.05 Stock-based compensation 0.14 0.15
0.14 Restructuring charges — 0.07 — Income tax effects (0.04 )
(0.15 ) (0.02 ) Income tax benefit of ASC 606 adoption —
(0.13 ) —
NON-GAAP NET INCOME PER SHARE $ 1.06
$ 1.04 $ 0.80
RECONCILIATION OF NON-GAAP TO
GAAP GROSS MARGIN ($ in millions)
Q2'FY19 Q1'FY19
Q2'FY18 Gross margin-GAAP 64.2 % 65.3 % 63.6 %
Cost of revenues adjustments 0.7 % 0.9 % 0.8 %
Gross margin-Non-GAAP 64.9 % 66.2 % 64.5 % GAAP cost
of revenues $ 543 $ 511 $ 515 Cost of revenues adjustments:
Amortization of intangible assets (9 ) (9 ) (9 ) Stock-based
compensation (2 ) (4 ) (3 ) Non-GAAP cost of
revenues $ 532 $ 498 $ 503 Net revenues $ 1,517 $ 1,474 $
1,415
RECONCILIATION OF NON-GAAP TO GAAP
PRODUCT GROSS MARGIN ($ in millions)
Q2'FY19 Q1'FY19
Q2'FY18 Product gross margin-GAAP 53.1 % 54.5
% 51.5 % Cost of product revenues adjustments 1.0 %
1.1 % 1.2 %
Product gross margin-Non-GAAP 54.1 % 55.7
% 52.7 % GAAP cost of product revenues $ 428 $ 398 $ 397
Cost of product revenues adjustments: Amortization of intangible
assets (9 ) (9 ) (9 ) Stock-based compensation — (1 )
(1 ) Non-GAAP cost of product revenues $ 419 $ 388 $ 387
Product revenues $ 913 $ 875 $ 819
RECONCILIATION OF NON-GAAP TO GAAP HARDWARE MAINTENANCE
AND OTHER SERVICES GROSS MARGIN ($ in millions)
Q2'FY19 Q1'FY19
Q2'FY18 Hardware maintenance and other services
gross margin-GAAP 70.9 % 71.4 % 69.9 % Cost of hardware
maintenance and other services revenues adjustment 0.5 %
0.8 % 0.5 %
Hardware maintenance and other
services gross margin-Non-GAAP 71.5 % 72.2 % 70.4 % GAAP
cost of hardware maintenance and other services revenues $ 107 $
106 $ 112 Cost of hardware maintenance and other services revenues
adjustment: Stock-based compensation (2 ) (3 )
(2 ) Non-GAAP cost of hardware maintenance and other services
revenues $ 105 $ 103 $ 110 Hardware maintenance and other
services revenues $ 368 $ 370 $ 372
RECONCILIATION
OF NON-GAAP TO GAAP EFFECTIVE TAX RATE
Q2'FY19 Q1'FY19
Q2'FY18 GAAP effective tax rate
17.7 % (4.0 )% 21.6 % Adjustments: Income tax effects 0.8 % 9.8 %
(2.0 )% Income tax benefit of ASC 606 adoption — %
12.5 % — %
Non-GAAP effective tax rate 18.5 % 18.3 %
19.6 %
RECONCILIATION OF NET CASH PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW (NON-GAAP) (In
millions) Q2'FY19
Q1'FY19 Q2'FY18 Net cash provided by
operating activities $ 165 $ 326 $ 314 Purchases of property and
equipment (43 ) (64 ) (29 )
Free cash
flow $ 122 $ 262 $ 285
Some items may not add or recalculate due
to rounding.
NETAPP, INC. RECONCILIATION OF NON-GAAP
GUIDANCE TO GAAP EXPRESSED AS EARNINGS PER SHARE
THIRD QUARTER FISCAL 2019 Third
Quarter Fiscal 2019 Non-GAAP Guidance -
Net Income Per Share $1.12 - $1.18 Adjustments of Specific
Items to Net Income Per Share for the Third Quarter Fiscal 2019:
Amortization of intangible assets (0.05 ) Stock-based compensation
expense (0.15 ) Income tax effects 0.04 Total
Adjustments (0.16 ) GAAP Guidance - Net Income Per Share
$0.96 - $1.02
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181114005778/en/
Press Contact:Madge MillerNetApp1 408 419
5263madge.miller@netapp.com
Investor Contact:Kris NewtonNetApp1 408 822
3312kris.newton@netapp.com
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