Expanded Gross Margins, Operating Margins and
Earnings Per Share
- Net revenues of $1.56 billion grew 2%
year-over-year
- Product revenue of $967 million grew 2%
year-over-year
- All-flash array annualized net revenue
run rate of $2.4 billion increased 19% year-over-year
- $649 million returned to shareholders
in share repurchases and cash dividends
NetApp (NASDAQ: NTAP) today reported financial results for the
third quarter of fiscal year 2019, which ended January 25,
2019.
“Although I am disappointed that revenue came in at the low-end
of our guidance range, we continue to demonstrate discipline in how
we manage the business. We are playing into the big market
transitions from a position of strength and are focused on
execution to maximize our opportunity in an uncertain macroeconomic
environment,” said George Kurian, chief executive officer. “Our
flash, hybrid cloud infrastructure, and AI solutions are serving as
pillars of customers’ new architectures and we are seeing adoption
of our cloud offerings as part of our customers’ foundation for
moving applications and data to the cloud. We have conviction in
our strategy to drive long-term growth.”
Third Quarter Fiscal Year 2019 Financial Results
- Net Revenues: $1.56 billion,
increased 2% year-over-year from $1.54 billion* in the third
quarter of fiscal 2018
- Net Income: GAAP net income of
$249 million, compared to GAAP net loss of $479 million*1 in the
third quarter of fiscal 2018; non-GAAP net income2 of $305 million,
compared to non-GAAP net income of $289 million* in the third
quarter of fiscal 2018
- Earnings per Share: GAAP net
income per share3 of $0.98 compared to GAAP net loss per share4 of
$1.79*1 in the third quarter of fiscal 2018; non-GAAP net income
per share of $1.20, compared to non-GAAP net income per share of
$1.05* in the third quarter of fiscal 2018
- Cash, Cash Equivalents and
Investments: $4.0 billion at the end of the third quarter of
fiscal 2019
- Cash from Operations: $451
million, compared to $420 million in the third quarter of fiscal
2018
- Share Repurchase and Dividend:
Returned $649 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.
Fourth Quarter Fiscal Year 2019 Financial Outlook
The Company provided the following financial guidance for the
fourth quarter of fiscal year 2019:
- Net revenues are expected to be in the
range of:
$1.590 billion to $1.690 billion
GAAP Non-GAAP
- Earnings per share is expected to be in the range of:
$1.06-$1.12 $1.22-$1.28
Dividend
Next cash dividend of $0.40 per share to be paid on April 24,
2019, to shareholders of record as of the close of business on
April 5, 2019.
Third Quarter Fiscal Year 2019 Business Highlights
New World-Class Products and Solutions Help Manage Data
Demands
- NetApp announced new data services and
solutions that empower customers to innovate in the cloud. These
new offerings include the expanded availability of the Microsoft
Azure NetApp™ Files preview.
- NetApp announced NetApp Element™
11.0 software, which introduces new functionality for their
NetApp HCI customers with Protection Domains. In addition,
Element 11.0 has the ability to manage storage clusters running
Element software on IPv6 networks, 16TiB volume
support, and QoS histograms to help understand the
user’s environment.
NetApp Strengthens Strategic Partnerships
- NetApp announced NetApp Cloud
Volumes Service for Google Cloud Platform will soon be
available in Europe to help even more customers handle the
configuring and managing of their storage infrastructures.
- NetApp announced VMware Validated
Design for Private Cloud with NetApp HCI, NetApp
Verified Architecture for VMware End-User Computing with
NetApp HCI and NVIDIA GPUs and NetApp Technical Report
for Object Storage with NetApp HCI.
Recognition for Industry Leading Products
- NetApp’s AFF A800 took the top
spot in the latest SPEC SFS2014 swbuild Result5 at
the time of publication in Nov 2018. The AFF A800 delivered
performance that was 3 times as fast as the nearest
competitor. These results also highlighted the fact that ONTAP™
with FlexGroup volumes can do more work at lower
latencies and higher throughput.
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 Fourth Quarter Fiscal Year 2019 Financial
Outlook section, statements about our ability to maximize our
opportunity in an uncertain macroeconomic environment and maintain
disciplined execution as well as statements about the impact of
customer adoption of our product solutions and offerings, and our
strategy to drive long-term growth. 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
1GAAP net loss for the third quarter of fiscal year 2018
included a one-time charge of $856 million which resulted from the
enactment of the Tax Cuts and Jobs Act on December 22, 2017.
2Non-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.
3GAAP net income per share and non-GAAP income per share are
calculated using the diluted number of shares.
4GAAP net loss per share is calculated using the basic number of
shares and excludes common stock equivalents because the impact
would be anti-dilutive.
5SPEC SFS®2014_swbuild Result.
https://www.spec.org/sfs2014/results/res2018q4/sfs2014-20181112-00053.html
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)
January 25, April 27, 2019 2018
ASSETS Current assets: Cash, cash equivalents
and investments $ 4,049 $ 5,391 Accounts receivable 872 1,047
Inventories 100 122 Other current assets 340 392
Total current assets 5,361 6,952 Property and equipment, net
763 756 Goodwill and purchased intangible assets, net 1,798 1,833
Other non-current assets 496 450 Total assets $ 8,418
$ 9,991
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable $ 497 $ 609 Accrued expenses
730 825 Commercial paper notes 163 385 Current portion of long-term
debt 399 — Short-term deferred revenue and financed unearned
services revenue 1,641 1,712 Total current
liabilities 3,430 3,531 Long-term debt 1,144 1,541 Other long-term
liabilities 898 992 Long-term deferred revenue and financed
unearned services revenue 1,716 1,651 Total
liabilities 7,188 7,715 Stockholders' equity
1,230 2,276 Total liabilities and stockholders'
equity $ 8,418 $ 9,991
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In millions, except per share
amounts)
(Unaudited)
Three Months Ended Nine Months Ended
January 25, January 26, January
25, January 26, 2019 2018
2019 2018 Revenues: Product $ 967 $ 952 $
2,755 $ 2,498 Software maintenance 239 221 704 668 Hardware
maintenance and other services 357 366 1,095
1,109 Net revenues 1,563 1,539 4,554
4,275 Cost of revenues: Cost of product 469 469 1,295
1,242 Cost of software maintenance 10 6 25 19 Cost of hardware
maintenance and other services 102 108 315
334 Total cost of revenues 581 583
1,635 1,595 Gross profit 982 956 2,919
2,680 Operating expenses: Sales and marketing 401 419
1,218 1,263 Research and development 203 193 622 580 General and
administrative 67 72 209 209 Restructuring charges — — 19 — Gain on
sale of properties — (218 ) — (218 )
Total operating expenses 671 466 2,068
1,834 Income from operations 311 490 851 846 Other
income, net 8 14 33 25 Income
before income taxes 319 504 884 871 Provision for income
taxes 70 983 111 1,045 Net
income (loss) $ 249 $ (479 ) $ 773 $ (174 ) Net income
(loss) per share: Basic $ 1.00 $ (1.79 ) $ 3.01 $ (0.65 )
Diluted $ 0.98 $ (1.79 ) $ 2.94 $ (0.65 ) Shares used in net
income (loss) per share calculations: Basic 250 268
257 269 Diluted 255 268
263 269 Cash dividends declared per share $ 0.40 $
0.20 $ 1.20 $ 0.60
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended Nine Months Ended
January 25, January 26, January 25,
January 26, 2019 2018 2019
2018 Cash flows from operating activities: Net income
(loss) $ 249 $ (479 ) $ 773 $ (174 ) Adjustments to reconcile net
income (loss) to net cash provided by operating activities:
Depreciation and amortization 51 48 149 150 Stock-based
compensation 43 38 121 125 Deferred income taxes 4 205 (21 ) 245
Gain on sale of properties — (218 ) — (218 ) Other items, net (3 )
(3 ) 8 (8 ) Changes in assets and liabilities, net of acquisitions
of businesses: Accounts receivable (104 ) (156 ) 165 (10 )
Inventories (14 ) 10 22 68 Accounts payable 26 81 (101 ) 115
Accrued expenses 77 126 (85 ) 58 Deferred revenue and financed
unearned services
revenue
146 64 17 (99 ) Long-term taxes payable 3 721 (60 ) 723 Changes in
other operating assets and liabilities, net (27 ) (17
) (46 ) 9 Net cash provided by operating activities
451 420 942 984
Cash flows from
investing activities: Redemptions (purchases) of investments,
net 172 (226 ) 661 (178 ) Purchases of property and equipment (31 )
(32 ) (138 ) (97 ) Proceeds from sale of properties — 210 — 210
Acquisitions of businesses, net of cash acquired — — (3 ) (75 )
Other investing activities, net (1 ) (1 ) 1
(1 ) Net cash provided by (used in) investing activities
140 (49 ) 521 (141 )
Cash flows from
financing activities: Proceeds from issuance of common stock
under employee
stock award plans
53 100 118 157 Payments for taxes related to net share settlement
of stock
awards
(3 ) (7 ) (92 ) (67 ) Repurchase of common stock (550 ) (150 )
(1,611 ) (450 ) Proceeds from (repayments of) commercial paper
notes,
net
(86 ) (86 ) (221 ) 132 Issuance of long-term debt, net — — — 795
Repayment of long-term debt — (750 ) — (750 ) Dividends paid (99 )
(53 ) (306 ) (161 ) Other financing activities, net (3 )
(5 ) (5 ) (6 ) Net cash used in financing
activities (688 ) (951 ) (2,117 ) (350
)
Effect of exchange rate changes on cash, cash
equivalents and restricted cash 8 24 (17 ) 37
Net
increase (decrease) in cash, cash equivalents and restricted
cash (89 ) (556 ) (671 ) 530
Cash, cash equivalents and
restricted cash: Beginning of period 2,365 3,536
2,947 2,450 End of period $ 2,276 $ 2,980 $ 2,276 $
2,980
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 Nine Months Ended January 26, 2018
January 26, 2018
AsPreviouslyReported
Impact of ASC606
Adoption
AsAdjusted
AsPreviouslyReported
Impact of ASC606
Adoption
AsAdjusted
Revenues: Product $ 920 $ 32 $ 952 $ 2,450 $ 48 $ 2,498
Software maintenance 237 (16 ) 221 711 (43 ) 668 Hardware
maintenance and other services 366 — 366
1,109 — 1,109 Net revenues 1,523
16 1,539 4,270 5 4,275 Cost of
revenues: Cost of product 468 1 469 1,238 4 1,242 Cost of software
maintenance 6 — 6 19 — 19 Cost of hardware maintenance and other
services 108 — 108 336 (2 )
334 Total cost of revenues 582 1 583
1,593 2 1,595 Gross profit 941
15 956 2,677 3 2,680 Operating
expenses: Sales and marketing 423 (4 ) 419 1,268 (5 ) 1,263
Research and development 193 — 193 580 — 580 General and
administrative 72 — 72 209 — 209 Gain on sale of properties
(218 ) — (218 ) (218 ) — (218 )
Total operating expenses 470 (4 ) 466
1,839 (5 ) 1,834 Income from operations 471 19
490 838 8 846 Other income, net 14 — 14
25 — 25 Income before income taxes 485
19 504 863 8 871 Provision for income taxes 991
(8 ) 983 1,058 (13 ) 1,045
Net loss $ (506 ) $ 27 $ (479 ) $ (195 ) $ 21 $ (174 )
Net loss per share: Basic $ (1.89 ) $ 0.10 $ (1.79 ) $ (0.72
) $ 0.07 $ (0.65 ) Diluted $ (1.89 ) $ 0.10 $ (1.79 ) $
(0.72 ) $ 0.07 $ (0.65 ) Shares used in net loss per share
calculations: Basic 268 268 268 269
269 269 Diluted 268 268
268 269 269 269
NETAPP,
INC. SUPPLEMENTAL DATA (In millions except net income
per share, percentages, DSO, DIO, DPO, CCC and Inventory Turns)
(Unaudited) Q3
FY'19 Q2 FY'19 Q3 FY'18
Revenues Product
$
967 $ 913 $ 952 Strategic
$ 674 $ 649 $ 657
Mature
$ 293 $ 264 $ 295 Software Maintenance
$ 239 $ 236 $ 221 Hardware Maintenance and Other
Services
$ 357 $ 368 $ 366 Hardware Maintenance
Support Contracts
$ 292 $ 303 $ 300 Professional and
Other Services
$ 65 $ 65 $ 66
Net Revenues
$ 1,563 $ 1,517 $ 1,539
Geographic
Mix % of Q3 FY'19 % of Q2 FY'19 % of Q3 FY'18
Revenue Revenue Revenue Americas
52 % 57 % 53
% Americas Commercial
41 % 44 % 43 % U.S. Public
Sector
11 % 14 % 10 % EMEA
33 % 28 % 33
% Asia Pacific
14 % 15 % 14 %
Pathways Mix % of Q3 FY'19 % of Q2 FY'19 % of Q3
FY'18
Revenue Revenue Revenue Direct
19 % 23 %
22 % Indirect
81 % 77 % 78 %
Non-GAAP Gross Margins Q3 FY'19 Q2 FY'19 Q3 FY'18
Non-GAAP Gross Margin
63.7 % 64.9 % 63.0 % Product
52.6 % 54.1 % 51.8 % Software Maintenance
95.8
% 96.6 % 97.3 % Hardware Maintenance and Other Services
72.3 % 71.5 % 71.3 %
Non-GAAP Income
from Operations, Income before Income Taxes & Effective Tax
Rate Q3 FY'19 Q2 FY'19 Q3 FY'18 Non-GAAP Income from
Operations
$ 367 $ 336 $ 329 % of Net Revenues
23.5 % 22.1 % 21.4 % Non-GAAP Income before Income
Taxes
$ 375 $ 343 $ 343 Non-GAAP Effective Tax Rate
18.7 % 18.5 % 15.7 %
Non-GAAP Net Income Q3 FY'19 Q2 FY'19
Q3 FY'18 Non-GAAP Net Income
$ 305 $ 280 $ 289
Non-GAAP Weighted Average Common Shares Outstanding, Diluted
255 264 276 Non-GAAP Income per Share, Diluted
$
1.20 $ 1.06 $ 1.05
Select Balance Sheet
Items Q3 FY'19 Q2 FY'19 Q3 FY'18 Deferred Revenue and
Financed Unearned Services Revenue
$ 3,357 $ 3,206 $
3,143 DSO (days)
51 46 46 DIO (days)
16 14 14 DPO
(days)
78 79 71 CCC (days)
(11 ) (19 ) (12 )
Inventory Turns
23 25 26 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 Q3 FY'19 Q2 FY'19 Q3 FY'18 Net Cash
Provided by Operating Activities
$ 451 $ 165 $ 420
Purchases of Property and Equipment
$ 31 $ 43 $ 32
Free Cash Flow
$ 420 $ 122 $ 388 Free Cash Flow as a
% of Net Revenues
26.9 % 8.0 % 25.2 % 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)
Q3'FY19 Q2'FY19 Q3'FY18
NET INCOME $ 249 $ 241 $ (479 ) Adjustments: Amortization of
intangible assets 13 12 14 Stock-based compensation 43 38 38
Litigation settlements — — 5 Gain on sale of properties — — (218 )
Income tax effects — (11 ) 73 Tax reform — —
856
NON-GAAP NET INCOME $ 305 $ 280 $ 289
COST OF
REVENUES $ 581 $ 543 $ 583 Adjustments: Amortization of
intangible assets (10 ) (9 ) (10 ) Stock-based compensation
(4 ) (2 ) (3 )
NON-GAAP COST OF REVENUES $ 567
$ 532 $ 570
COST OF PRODUCT REVENUES $ 469 $ 428 $
469 Adjustments: Amortization of intangible assets (10 ) (9 ) (10 )
Stock-based compensation (1 ) — —
NON-GAAP
COST OF PRODUCT REVENUES $ 458 $ 419 $ 459
COST OF
HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES $ 102 $ 107 $
108 Adjustment: Stock-based compensation (3 ) (2 )
(3 )
NON-GAAP COST OF HARDWARE MAINTENANCE AND OTHER
SERVICES REVENUES $ 99 $ 105 $ 105
GROSS PROFIT $
982 $ 974 $ 956 Adjustments: Amortization of intangible assets 10 9
10 Stock-based compensation 4 2 3
NON-GAAP
GROSS PROFIT $ 996 $ 985 $ 969
NETAPP,
INC. RECONCILIATION OF NON-GAAP TO GAAP INCOME
STATEMENT INFORMATION (In millions, except net income per
share amounts)
Q3'FY19 Q2'FY19 Q3'FY18 SALES AND
MARKETING EXPENSES $ 401 $ 408 $ 419 Adjustments: Amortization
of intangible assets (3 ) (3 ) (4 ) Stock-based compensation
(19 ) (16 ) (16 )
NON-GAAP SALES AND MARKETING
EXPENSES $ 379 $ 389 $ 399
RESEARCH AND DEVELOPMENT
EXPENSES $ 203 $ 211 $ 193 Adjustment: Stock-based compensation
(13 ) (12 ) (11 )
NON-GAAP RESEARCH AND
DEVELOPMENT EXPENSES $ 190 $ 199 $ 182
GENERAL AND
ADMINISTRATIVE EXPENSES $ 67 $ 69 $ 72 Adjustment: Stock-based
compensation (7 ) (8 ) (8 ) Litigation settlements —
— (5 )
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $
60 $ 61 $ 59
GAIN ON SALE OF PROPERTIES $ — $ — $
(218 ) Adjustment: Gain on sale of properties — —
218
NON-GAAP GAIN ON SALE OF PROPERTIES $ — $ — $ —
OPERATING EXPENSES $ 671 $ 688 $ 466 Adjustments:
Amortization of intangible assets (3 ) (3 ) (4 ) Stock-based
compensation (39 ) (36 ) (35 ) Litigation settlements — — (5 ) Gain
on sale of properties — — 218
NON-GAAP
OPERATING EXPENSES $ 629 $ 649 $ 640
NETAPP,
INC. RECONCILIATION OF NON-GAAP TO GAAP INCOME
STATEMENT INFORMATION (In millions, except net income per
share amounts)
Q3'FY19 Q2'FY19 Q3'FY18 INCOME FROM
OPERATIONS $ 311 $ 286 $ 490 Adjustments: Amortization of
intangible assets 13 12 14 Stock-based compensation 43 38 38
Litigation settlements — — 5 Gain on sale of properties —
— (218 )
NON-GAAP INCOME FROM OPERATIONS $ 367
$ 336 $ 329
INCOME BEFORE INCOME TAXES $ 319 $ 293 $
504 Adjustments: Amortization of intangible assets 13 12 14
Stock-based compensation 43 38 38 Litigation settlements — — 5 Gain
on sale of properties — — (218 )
NON-GAAP
INCOME BEFORE INCOME TAXES $ 375 $ 343 $ 343
PROVISION FOR INCOME TAXES $ 70 $ 52 $ 983 Adjustments:
Income tax effects — 11 (73 ) Tax reform — —
(856 )
NON-GAAP PROVISION FOR INCOME TAXES $ 70 $ 63 $ 54
NET INCOME (LOSS) PER SHARE $ 0.98 $ 0.91 $ (1.79 )
Adjustments: Amortization of intangible assets 0.05 0.05 0.05
Stock-based compensation 0.17 0.14 0.14 Litigation settlements — —
0.02 Gain on sale of properties — — (0.81 ) Income tax effects —
(0.04 ) 0.27 Tax reform — — 3.19
NON-GAAP
NET INCOME PER SHARE $ 1.20 $ 1.06 $ 1.05 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)
Q3'FY19 Q2'FY19
Q3'FY18 Gross margin-GAAP 62.8 % 64.2 % 62.1 %
Cost of revenues adjustments 0.9 % 0.7 % 0.8 %
Gross margin-Non-GAAP 63.7 % 64.9 % 63.0 % GAAP cost
of revenues $ 581 $ 543 $ 583 Cost of revenues adjustments:
Amortization of intangible assets (10 ) (9 ) (10 ) Stock-based
compensation (4 ) (2 ) (3 ) Non-GAAP cost of
revenues $ 567 $ 532 $ 570 Net revenues $ 1,563 $ 1,517 $
1,539
RECONCILIATION OF NON-GAAP TO GAAP PRODUCT
GROSS MARGIN ($ in millions)
Q3'FY19 Q2'FY19
Q3'FY18 Product gross margin-GAAP 51.5 % 53.1
% 50.7 % Cost of product revenues adjustments 1.1 %
1.0 % 1.1 %
Product gross margin-Non-GAAP 52.6 % 54.1
% 51.8 % GAAP cost of product revenues $ 469 $ 428 $ 469
Cost of product revenues adjustments: Amortization of intangible
assets (10 ) (9 ) (10 ) Stock-based compensation (1 )
— — Non-GAAP cost of product revenues $ 458 $ 419 $ 459
Product revenues $ 967 $ 913 $ 952
RECONCILIATION OF NON-GAAP TO GAAP HARDWARE MAINTENANCE
AND OTHER SERVICES GROSS MARGIN ($ in millions)
Q3'FY19 Q2'FY19
Q3'FY18 Hardware maintenance and other services
gross margin-GAAP 71.4 % 70.9 % 70.5 % Cost of hardware
maintenance and other services revenues adjustment 0.8 %
0.5 % 0.8 %
Hardware maintenance and other
services gross margin-Non-GAAP 72.3 % 71.5 % 71.3 % GAAP
cost of hardware maintenance and other services revenues $ 102 $
107 $ 108 Cost of hardware maintenance and other services revenues
adjustment: Stock-based compensation (3 ) (2 )
(3 ) Non-GAAP cost of hardware maintenance and other services
revenues $ 99 $ 105 $ 105 Hardware maintenance and other
services revenues $ 357 $ 368 $ 366
RECONCILIATION
OF NON-GAAP TO GAAP EFFECTIVE TAX RATE
Q3'FY19 Q2'FY19 Q3'FY18
GAAP effective tax rate 21.9 % 17.7 %
195.0 % Adjustments: Income tax effects (2.7 )% 0.8 % (9.5 )% Tax
reform — % — % (169.8 )%
Non-GAAP effective
tax rate 19.3 % 18.5 % 15.7 %
RECONCILIATION
OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH
FLOW (NON-GAAP) (In millions)
Q3'FY19 Q2'FY19
Q3'FY18 Net cash provided by operating activities $ 451 $
165 $ 420 Purchases of property and equipment (31 )
(43 ) (32 )
Free cash flow $ 420 $ 122 $ 388
Some items may not add or recalculate due
to rounding.
NETAPP, INC. RECONCILIATION OF NON-GAAP
GUIDANCE TO GAAP EXPRESSED AS EARNINGS PER SHARE
FOURTH QUARTER FISCAL 2019 Fourth
Quarter Fiscal 2019 Non-GAAP Guidance - Net
Income Per Share $1.22 - $1.28 Adjustments of Specific Items
to Net Income Per Share for the Fourth Quarter Fiscal 2019:
Amortization of intangible assets (0.04 ) Stock-based compensation
expense (0.14 ) Income tax effects 0.02 Total Adjustments
(0.16 ) GAAP Guidance - Net Income Per Share $1.06 - $1.12
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190213005738/en/
(Press)Madge Miller1 408 419 5263madge.miller@netapp.com
(Investors)Kris Newton1 408 822 3312kris.newton@netapp.com
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