Expanded Gross Margins, Operating Margins and
Earnings Per Share Quarter-over-Quarter
- All-flash array annualized net revenue run rate of $2.2 billion
increased 29% quarter-over-quarter
- NetApp™ cloud data services annualized recurring revenue of
approximately $72 million, an increase of 167% year-over-year
- Consolidated GAAP gross margin of 67.5%, non-GAAP gross margin
of 68.6%
- GAAP product gross margin of 55.8%, non-GAAP product gross
margin of 57.3%
- $611 million returned to shareholders in share repurchases and
cash dividends
NetApp (NASDAQ: NTAP) today reported financial results for the
second quarter of fiscal year 2020, which ended on October 25,
2019.
“Our Q2 FY20 results reflect the strength of our business model
and value of our innovation. We delivered gross margin, operating
margin, and EPS all solidly ahead of our guidance ranges. We are
delivering real business value to customers’ hybrid multicloud
environments increasing our strategic relevance and enabling us to
reach new buyers, address new workloads and expand our presence
with existing customers,” said George Kurian, chief executive
officer. “We continue to be disciplined in our spending and have a
strong financial model with growing gross margins and operating
margins that enable us to return cash to shareholders and invest in
the long-term health of our business.”
Second Quarter of Fiscal Year 2020 Financial Results
- Net Revenues: $1.37 billion, compared to $1.52 billion*
in the second quarter of fiscal 2019
- Net Income: GAAP net income of $243 million, compared to
GAAP net income of $241 million in the second quarter of fiscal
2019; non-GAAP net income1 of $257 million, compared to non-GAAP
net income of $280 million in the second quarter of fiscal
2019
- Earnings per Share: GAAP net income per share2 of $1.03
compared to GAAP net income per share of $0.91 in the second
quarter of fiscal 2019; non-GAAP net income per share of $1.09,
compared to non-GAAP net income per share of $1.06 in the second
quarter of fiscal 2019
- Cash, Cash Equivalents and Investments: $3.0 billion at
the end of the second quarter of fiscal 2020
- Cash Provided By (Used In) Operations: $(53) million,
compared to $165 million in the second quarter of fiscal 2019
- Share Repurchase and Dividend: Returned $611 million to
shareholders through share repurchases and cash dividends
*Net revenues in the second quarter of fiscal year 2019 included
$20 million from enterprise software license agreements which did
not repeat in the second quarter of fiscal year 2020.
Third Quarter of Fiscal Year 2020 Financial Outlook
The Company provided the following financial guidance for the
third quarter of fiscal year 2020:
- Net revenues are expected to be in the range of:
$1.390 billion to $1.540
billion
GAAP
Non-GAAP
- Earnings per share is expected to be in the range of:
$0.96 - $1.04
$1.14 - $1.22
Full Fiscal Year 2020 Financial Outlook
The Company updated the following financial guidance for the
full fiscal year 2020:
- Net revenues are expected to decline approximately 8%
year-over-year
GAAP
Non-GAAP
- Consolidated gross margins are expected to be in the range
of:
66% - 67%
67% - 68%
- Operating margins are expected to be in the range of:
18% - 19%
21% - 22%
Dividend
Next cash dividend of $0.48 per share to be paid on January 22,
2020, to shareholders of record as of the close of business on
January 3, 2020.
Second Quarter of Fiscal Year 2020 Business
Highlights
Driving Innovation in the Industry
- NetApp announced a series of innovative offerings at VMworld
2019 that enable customers to have simplified, scalable,
high-performance infrastructure for any cloud at their fingertips:
NetApp HCI for VDI with VMware Horizon 7, NetApp
Kubernetes Service (NKS) and NetApp HCI Implementation
Service for VMware Private Cloud.
- NetApp unveiled the NetApp EF600 all-flash array—an
end-to-end NVMe midrange array that accelerates access to data and
empowers companies to rapidly develop new insights for
performance-sensitive workloads.
- With NetApp ONTAP™ System Manager 9.6, users can
now launch the new ONTAP System Manager GUI, called
Optimized GUI, allowing IT generalists to perform day-to-day
storage management tasks with a streamlined, simple-to-use
interface.
- NetApp unveiled the new and improved NetApp SnapCenter™
4.2dashboard, offering significant value that IT generalists
and backup administrators can use for day-to-day reporting.
- NetApp announced the 9.6 release of the virtual
appliance for Virtual Storage Console (VSC), NetApp
VASA Provider and VMware Storage Replication Adapter
(SRA) to support the HTML5-based framework of VMware vSphere
Client, providing a more simplified and seamless user
experience.
- NetApp presented the new end-to-end NVMe for FlexPod™,
which enables customers to handle the scalability requirements of
next-generation, mission-critical applications.
- NetApp introduced a new memory-accelerated FlexPod
powered by NetApp MAX Data, a futuristic NetApp
server-side storage technology that works with Intel Optane memory
to accelerate applications.
Notable Awards and Strengthened Partnerships
- NetApp was named #1 in the 2019 Gartner Magic
Quadrant for Primary Storage3, further demonstrating that
NetApp solutions deliver data-driven business outcomes across core,
edge and cloud.
- NetApp announced its collaboration with Equinix and Alibaba
Cloud through Indonet, connecting NetApp Private Storage for
Cloud (NPS for Cloud), Alibaba Cloud and Platform
Equinix. This collaboration allows businesses in Indonesia to
get the freedom and flexibility to run their applications or
workloads and gain full control of their data across the multicloud
platform.
- NetApp announced its sponsorship of NVIDIA’s Artificial
Intelligence (AI) Champions program for EMEA NVIDIA Partner
Network (NPN) and a Vertical Specialized Award for partners
who are able to help customers accelerate their AI projects by
using joint ONTAP AI solutions from NetApp and NVIDIA.
- NetApp and Broadcom published a new NetApp Verified
Architecture: a best practice reference architecture that
illustrates an optimally configured VMware installation on
NetApp ONTAP 9.6 and Broadcom technology (Emulex 32GB HBAs
and Brocade 32GB FC switches).
- NetApp and Rubrik have partnered to integrate Rubrik’s Cloud
Data Management platform with NetApp StorageGRID™to enable
enterprises to simplify data lifecycle management at cloud
scale.
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, go to 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 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 of Fiscal Year 2020
Financial Outlook section and the Full Fiscal Year 2020 section,
and statements about our ability to reach new buyers, address new
workloads, expand presence with existing customers, increase gross
margin and operating margin, return cash to shareholders and invest
in our business. 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 annual report on Form 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 or derecognition of assets, 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 net income per share and non-GAAP net income per share are
calculated using the diluted number of shares.
3NetApp named #1 in Gartner’s 2019 Magic Quadrant for Primary
Storage, Gartner Magic Quadrant for Primary Storage By Santhosh
Rao, John Monroe, Roger W. Cox, Joseph Unsworth,
https://www.gartner.com/doc/reprints?id=1-1OI9TL9M&ct=190917&st=sb
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 or derecognition of assets. These
are gains/losses from the sale of our properties and other
transactions in which we transfer control of assets to a third
party. 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 25, 2019
April 26, 2019
ASSETS
Current assets:
Cash, cash equivalents and investments
$
2,987
$
3,899
Accounts receivable
780
1,216
Inventories
111
131
Other current assets
313
364
Total current assets
4,191
5,610
Property and equipment, net
746
759
Goodwill and purchased intangible assets,
net
1,821
1,782
Other non-current assets
714
590
Total assets
$
7,472
$
8,741
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
382
$
542
Accrued expenses
606
851
Commercial paper notes
498
249
Current portion of long-term debt
—
400
Short-term deferred revenue and financed
unearned services revenue
1,718
1,825
Total current liabilities
3,204
3,867
Long-term debt
1,145
1,144
Other long-term liabilities
837
797
Long-term deferred revenue and financed
unearned services revenue
1,750
1,843
Total liabilities
6,936
7,651
Stockholders' equity
536
1,090
Total liabilities and stockholders'
equity
$
7,472
$
8,741
NETAPP, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In millions, except per share
amounts)
(Unaudited)
Three Months Ended
Six Months Ended
October 25, 2019
October 26, 2018
October 25, 2019
October 26, 2018
Revenues:
Product
$
771
$
913
$
1,415
$
1,788
Software maintenance
254
236
504
465
Hardware maintenance and other
services
346
368
688
738
Net revenues
1,371
1,517
2,607
2,991
Cost of revenues:
Cost of product
341
428
653
826
Cost of software maintenance
11
8
21
15
Cost of hardware maintenance and other
services
94
107
192
213
Total cost of revenues
446
543
866
1,054
Gross profit
925
974
1,741
1,937
Operating expenses:
Sales and marketing
389
408
794
817
Research and development
209
211
424
419
General and administrative
69
69
140
142
Restructuring charges
—
—
21
19
Gain on sale or derecognition of
assets
(38
)
—
(38
)
—
Total operating expenses
629
688
1,341
1,397
Income from operations
296
286
400
540
Other income, net
3
7
18
25
Income before income taxes
299
293
418
565
Provision for income taxes
56
52
72
41
Net income
$
243
$
241
$
346
$
524
Net income per share:
Basic
$
1.03
$
0.93
$
1.46
$
2.02
Diluted
$
1.03
$
0.91
$
1.44
$
1.96
Shares used in net income per share
calculations:
Basic
235
258
237
260
Diluted
236
264
240
267
NETAPP, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In millions)
Three Months Ended
Six Months Ended
October 25, 2019
October 26, 2018
October 25, 2019
October 26, 2018
Cash flows from operating
activities:
Net income
$
243
$
241
$
346
$
524
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization
50
49
99
98
Stock-based compensation
40
38
82
78
Deferred income taxes
(16
)
1
(23
)
(25
)
Gain on sale or derecognition of
assets
(38
)
—
(38
)
—
Other items, net
7
3
13
11
Changes in assets and liabilities, net of
acquisitions of businesses:
Accounts receivable
(237
)
(154
)
435
269
Inventories
5
11
20
36
Accounts payable
38
50
(157
)
(127
)
Accrued expenses
(38
)
59
(315
)
(162
)
Deferred revenue and financed unearned
services
revenue
(43
)
(42
)
(197
)
(129
)
Long-term taxes payable
(46
)
(68
)
(49
)
(63
)
Changes in other operating assets and
liabilities, net
(18
)
(23
)
41
(19
)
Net cash provided by (used in) operating
activities
(53
)
165
257
491
Cash flows from investing
activities:
Redemptions of investments, net
119
241
1,146
489
Purchases of property and equipment
(36
)
(43
)
(68
)
(107
)
Proceeds from sale of properties
96
—
96
—
Acquisitions of businesses, net of cash
acquired
—
(3
)
(56
)
(3
)
Other investing activities, net
(1
)
—
(2
)
2
Net cash provided by investing
activities
178
195
1,116
381
Cash flows from financing
activities:
Proceeds from issuance of common stock
under employee
stock award plans
1
2
55
65
Payments for taxes related to net share
settlement of stock
awards
(3
)
(5
)
(74
)
(89
)
Repurchase of common stock
(500
)
(561
)
(750
)
(1,061
)
Proceeds from (repayments of) commercial
paper notes,
net
468
50
249
(135
)
Repayment of long-term debt
(400
)
—
(400
)
—
Dividends paid
(111
)
(102
)
(226
)
(207
)
Other financing activities, net
—
(1
)
(2
)
(2
)
Net cash used in financing activities
(545
)
(617
)
(1,148
)
(1,429
)
Effect of exchange rate changes on
cash, cash equivalents and restricted cash
(2
)
(11
)
(5
)
(25
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
(422
)
(268
)
220
(582
)
Cash, cash equivalents and restricted
cash:
Beginning of period
2,973
2,633
2,331
2,947
End of period
$
2,551
$
2,365
$
2,551
$
2,365
NETAPP, INC.
SUPPLEMENTAL DATA
(In millions except net income
per share, percentages, DSO, DIO, DPO, CCC and Inventory
Turns)
(Unaudited)
Q2 FY'20
Q1 FY'20
Q2 FY'19
Revenues
Product
$
771
$
644
$
913
Strategic*
$
442
$
337
$
485
Mature*
$
329
$
307
$
428
Software Maintenance
$
254
$
250
$
236
Hardware Maintenance and Other
Services
$
346
$
342
$
368
Hardware Maintenance Support Contracts
$
286
$
284
$
303
Professional and Other Services
$
60
$
58
$
65
Net Revenues
$
1,371
$
1,236
$
1,517
* In Q1 FY’20 we made changes to the
products and solutions contained in each of the Strategic and
Mature product groupings. Strategic now includes All-flash FAS
products, including all related add-on hardware and OS software,
private cloud solutions, enterprise software license agreements and
other optional add-on software products. Mature now includes Hybrid
FAS products, including all related add-on hardware and OS
software, OEM products, and branded E-Series. Prior to this change,
Hybrid FAS and branded E-Series were included in Strategic, while
all add-on hardware and OS software were included in Mature. For
comparability, Strategic and Mature revenues presented for the
prior year period have been recast based on the revised
groupings.
Geographic Mix
% of Q2 FY'20 Revenue
% of Q1 FY'20 Revenue
% of Q2 FY'19 Revenue
Americas
56
%
51
%
57
%
Americas Commercial
42
%
38
%
44
%
U.S. Public Sector
14
%
13
%
14
%
EMEA
29
%
33
%
28
%
Asia Pacific
14
%
16
%
15
%
Pathways Mix
% of Q2 FY'20 Revenue
% of Q1 FY'20 Revenue
% of Q2 FY'19 Revenue
Direct
21
%
19
%
23
%
Indirect
79
%
81
%
77
%
Non-GAAP Gross Margins
Q2 FY'20
Q1 FY'20
Q2 FY'19
Non-GAAP Gross Margin
68.6
%
67.2
%
64.9
%
Product
57.3
%
53.4
%
54.1
%
Software Maintenance
95.7
%
96.0
%
96.6
%
Hardware Maintenance and Other
Services
73.7
%
71.9
%
71.5
%
Non-GAAP Income from Operations, Income
before Income Taxes & Effective Tax Rate
Q2 FY'20
Q1 FY'20
Q2 FY'19
Non-GAAP Income from Operations
$
309
$
178
$
336
% of Net Revenues
22.5
%
14.4
%
22.1
%
Non-GAAP Income before Income Taxes
$
312
$
193
$
343
Non-GAAP Effective Tax Rate
17.6
%
18.7
%
18.5
%
Non-GAAP Net Income
Q2 FY'20
Q1 FY'20
Q2 FY'19
Non-GAAP Net Income
$
257
$
157
$
280
Non-GAAP Weighted Average Common Shares
Outstanding, Diluted
236
243
264
Non-GAAP Income per Share, Diluted
$
1.09
$
0.65
$
1.06
Select Balance Sheet Items
Q2 FY'20
Q1 FY'20
Q2 FY'19
Deferred Revenue and Financed Unearned
Services Revenue
$
3,468
$
3,510
$
3,206
DSO (days)
52
40
46
DIO (days)
23
25
14
DPO (days)
78
75
79
CCC (days)
(4
)
(10
)
(19
)
Inventory Turns
16
14
25
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'20
Q1 FY'20
Q2 FY'19
Net Cash Provided by (Used in) Operating
Activities
$
(53
)
$
310
$
165
Purchases of Property and Equipment
$
36
$
32
$
43
Free Cash Flow
$
(89
)
$
278
$
122
Free Cash Flow as a % of Net Revenues
(6.5
)%
22.5
%
8.0
%
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'FY20
Q1'FY20
Q2'FY19
NET INCOME
$
243
$
103
$
241
Adjustments:
Amortization of intangible assets
11
11
12
Stock-based compensation
40
42
38
Restructuring charges
—
21
—
Gain on sale or derecognition of
assets
(38
)
—
—
Income tax effects
1
(20
)
(11
)
NON-GAAP NET INCOME
$
257
$
157
$
280
COST OF REVENUES
$
446
$
420
$
543
Adjustments:
Amortization of intangible assets
(11
)
(11
)
(9
)
Stock-based compensation
(4
)
(3
)
(2
)
NON-GAAP COST OF REVENUES
$
431
$
406
$
532
COST OF PRODUCT REVENUES
$
341
$
312
$
428
Adjustments:
Amortization of intangible assets
(11
)
(11
)
(9
)
Stock-based compensation
(1
)
(1
)
—
NON-GAAP COST OF PRODUCT
REVENUES
$
329
$
300
$
419
COST OF HARDWARE MAINTENANCE AND OTHER
SERVICES REVENUES
$
94
$
98
$
107
Adjustment:
Stock-based compensation
(3
)
(2
)
(2
)
NON-GAAP COST OF HARDWARE MAINTENANCE
AND OTHER SERVICES REVENUES
$
91
$
96
$
105
GROSS PROFIT
$
925
$
816
$
974
Adjustments:
Amortization of intangible assets
11
11
9
Stock-based compensation
4
3
2
NON-GAAP GROSS PROFIT
$
940
$
830
$
985
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO
GAAP
INCOME STATEMENT
INFORMATION
(In millions, except net
income per share amounts)
Q2'FY20
Q1'FY20
Q2'FY19
SALES AND MARKETING EXPENSES
$
389
$
405
$
408
Adjustments:
Amortization of intangible assets
—
—
(3
)
Stock-based compensation
(17
)
(18
)
(16
)
NON-GAAP SALES AND MARKETING
EXPENSES
$
372
$
387
$
389
RESEARCH AND DEVELOPMENT
EXPENSES
$
209
$
215
$
211
Adjustment:
Stock-based compensation
(13
)
(15
)
(12
)
NON-GAAP RESEARCH AND DEVELOPMENT
EXPENSES
$
196
$
200
$
199
GENERAL AND ADMINISTRATIVE
EXPENSES
$
69
$
71
$
69
Adjustment:
Stock-based compensation
(6
)
(6
)
(8
)
NON-GAAP GENERAL AND ADMINISTRATIVE
EXPENSES
$
63
$
65
$
61
RESTRUCTURING CHARGES
$
—
$
21
$
—
Adjustment:
Restructuring charges
—
(21
)
—
NON-GAAP RESTRUCTURING CHARGES
$
—
$
—
$
—
GAIN ON SALE OR DERECOGNITION OF
ASSETS
$
(38
)
$
—
$
—
Adjustment:
Gain on sale or derecognition of
assets
38
—
—
NON-GAAP GAIN ON SALE OR DERECOGNITION
OF ASSETS
$
—
$
—
$
—
OPERATING EXPENSES
$
629
$
712
$
688
Adjustments:
Amortization of intangible assets
—
—
(3
)
Stock-based compensation
(36
)
(39
)
(36
)
Restructuring charges
—
(21
)
—
Gain on sale or derecognition of
assets
38
—
—
NON-GAAP OPERATING EXPENSES
$
631
$
652
$
649
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO
GAAP
INCOME STATEMENT
INFORMATION
(In millions, except net
income per share amounts)
Q2'FY20
Q1'FY20
Q2'FY19
INCOME FROM OPERATIONS
$
296
$
104
$
286
Adjustments:
Amortization of intangible assets
11
11
12
Stock-based compensation
40
42
38
Restructuring charges
—
21
—
Gain on sale or derecognition of
assets
(38
)
—
—
NON-GAAP INCOME FROM OPERATIONS
$
309
$
178
$
336
INCOME BEFORE INCOME TAXES
$
299
$
119
$
293
Adjustments:
Amortization of intangible assets
11
11
12
Stock-based compensation
40
42
38
Restructuring charges
—
21
—
Gain on sale or derecognition of
assets
(38
)
—
—
NON-GAAP INCOME BEFORE INCOME
TAXES
$
312
$
193
$
343
PROVISION FOR INCOME TAXES
$
56
$
16
$
52
Adjustment:
Income tax effects
(1
)
20
11
NON-GAAP PROVISION FOR INCOME
TAXES
$
55
$
36
$
63
NET INCOME PER SHARE
$
1.03
$
0.42
$
0.91
Adjustments:
Amortization of intangible assets
0.05
0.05
0.05
Stock-based compensation
0.17
0.17
0.14
Restructuring charges
—
0.09
—
Gain on sale or derecognition of
assets
(0.16
)
—
—
Income tax effects
—
(0.08
)
(0.04
)
NON-GAAP NET INCOME PER SHARE
$
1.09
$
0.65
$
1.06
RECONCILIATION OF NON-GAAP TO
GAAP
GROSS MARGIN
($ in millions)
Q2'FY20
Q1'FY20
Q2'FY19
Gross margin-GAAP
67.5
%
66.0
%
64.2
%
Cost of revenues adjustments
1.1
%
1.1
%
0.7
%
Gross margin-Non-GAAP
68.6
%
67.2
%
64.9
%
GAAP cost of revenues
$
446
$
420
$
543
Cost of revenues adjustments:
Amortization of intangible assets
(11
)
(11
)
(9
)
Stock-based compensation
(4
)
(3
)
(2
)
Non-GAAP cost of revenues
$
431
$
406
$
532
Net revenues
$
1,371
$
1,236
$
1,517
RECONCILIATION OF NON-GAAP TO
GAAP
PRODUCT GROSS MARGIN
($ in millions)
Q2'FY20
Q1'FY20
Q2'FY19
Product gross margin-GAAP
55.8
%
51.6
%
53.1
%
Cost of product revenues adjustments
1.6
%
1.9
%
1.0
%
Product gross margin-Non-GAAP
57.3
%
53.4
%
54.1
%
GAAP cost of product revenues
$
341
$
312
$
428
Cost of product revenues adjustments:
Amortization of intangible assets
(11
)
(11
)
(9
)
Stock-based compensation
(1
)
(1
)
—
Non-GAAP cost of product revenues
$
329
$
300
$
419
Product revenues
$
771
$
644
$
913
RECONCILIATION OF NON-GAAP TO
GAAP
HARDWARE MAINTENANCE AND OTHER
SERVICES GROSS MARGIN
($ in millions)
Q2'FY20
Q1'FY20
Q2'FY19
Hardware maintenance and other services
gross margin-GAAP
72.8
%
71.3
%
70.9
%
Cost of hardware maintenance and other
services revenues adjustment
0.9
%
0.6
%
0.5
%
Hardware maintenance and other services
gross margin-Non-GAAP
73.7
%
71.9
%
71.5
%
GAAP cost of hardware maintenance and
other services revenues
$
94
$
98
$
107
Cost of hardware maintenance and other
services revenues adjustment:
Stock-based compensation
(3
)
(2
)
(2
)
Non-GAAP cost of hardware maintenance and
other services revenues
$
91
$
96
$
105
Hardware maintenance and other services
revenues
$
346
$
342
$
368
RECONCILIATION OF NON-GAAP TO
GAAP
EFFECTIVE TAX RATE
Q2'FY20
Q1'FY20
Q2'FY19
GAAP effective tax rate
18.7
%
13.4
%
17.7
%
Adjustment:
Income tax effects
(1.1
)%
5.3
%
0.8
%
Non-GAAP effective tax rate
17.6
%
18.7
%
18.5
%
RECONCILIATION OF NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
TO FREE CASH FLOW
(NON-GAAP)
(In millions)
Q2'FY20
Q1'FY20
Q2'FY19
Net cash provided by (used in) operating
activities
$
(53
)
$
310
$
165
Purchases of property and equipment
(36
)
(32
)
(43
)
Free cash flow
$
(89
)
$
278
$
122
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
2020
Third Quarter
Fiscal 2020
Non-GAAP Guidance - Net Income Per
Share
$1.14 - $1.22
Adjustments of Specific Items to Net
Income
Per Share for the Third Quarter Fiscal
2020:
Amortization of intangible assets
(0.04
)
Stock-based compensation expense
(0.17
)
Income tax effects
0.03
Total Adjustments
(0.18
)
GAAP Guidance - Net Income Per Share
$0.96 - $1.04
NETAPP, INC.
RECONCILIATION OF NON-GAAP
GUIDANCE TO GAAP
FISCAL 2020
(Unaudited)
Fiscal 2020
Gross Margin - Non-GAAP Guidance
67%-68%
Adjustment:
Cost of revenues adjustments
(1)%
Gross Margin - GAAP Guidance
66%-67%
Fiscal 2020
Operating Margin - Non-GAAP Guidance
21%-22%
Adjustments:
Amortization of intangible assets
(1)%
Stock-based compensation expense
(3)%
Gain on sale or derecognition of
assets
1%
Operating Margin - GAAP Guidance
18%-19%
Some items may not add or recalculate due
to rounding
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191113005832/en/
(Press) Amelia Vierra 1 408 822 6403
amelia.vierra@netapp.com
(Investors) Lance Berger 1 408 822 6628
lance.berger@netapp.com
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