Solid Margins, Cash Flow and Operating
Leverage
- All-flash array annualized net revenue run rate of $2.3 billion
increased 7% quarter-over-quarter
- NetApp™ cloud data services annualized recurring revenue of
approximately $83 million, an increase of 146% year-over-year
- Consolidated GAAP gross margin of 67.0%, non-GAAP gross margin
of 67.8%*
- $420 million in cash from operations; $388 million in free cash
flow
- $608 million returned to shareholders in share repurchases and
cash dividends *Note: NetApp had no ELA revenue in Q3
NetApp (NASDAQ: NTAP) today reported financial results for the
third quarter of fiscal year 2020, which ended on January 24,
2020.
“Our third quarter results, highlighted by strong gross margins,
cash flow and operating leverage, reflect our continued operational
discipline. Customers are on a journey to the cloud and are looking
to NetApp to help them address the complexities of data management
in hybrid multicloud,” said George Kurian, chief executive officer.
“We see significant opportunity ahead and are focused on
replicating the areas where we have proven success. Our strong
business model enables us to navigate the market dynamics, while
making the strategic investments necessary to position the company
for long-term growth.”
Third Quarter of Fiscal Year 2020 Financial Results
- Net Revenues: $1.40 billion, compared to $1.56 billion
in the third quarter of fiscal 2019
- Net Income: GAAP net income of $277 million, compared to
GAAP net income of $249 million in the third quarter of fiscal
2019; non-GAAP net income1 of $265 million, compared to non-GAAP
net income of $305 million in the third quarter of fiscal 2019
- Earnings per Share: GAAP net income per share2 of $1.21
compared to GAAP net income per share of $0.98 in the third quarter
of fiscal 2019; non-GAAP net income per share of $1.16, compared to
non-GAAP net income per share of $1.20 in the third quarter of
fiscal 2019
- Cash, Cash Equivalents and Investments: $3.0 billion at
the end of the third quarter of fiscal 2020
- Cash Provided by Operations: $420 million, compared to
$451 million in the third quarter of fiscal 2019
- Share Repurchase and Dividend: Returned $608 million to
shareholders through share repurchases and cash dividends
Organizational Update
Ron Pasek, EVP, Chief Financial Officer, has informed NetApp of
his intent to retire by the end of the fiscal year after a
successful four-year tenure. Pasek will remain on to ensure a
transition to his successor, which the Company expects to name
prior to the end of the fiscal year. Pasek joined NetApp in April
2016, assuming leadership of the company's finance, customer
leasing, workplace resources, internal audit, and IT functions.
“Ron has been an integral part of the NetApp executive leadership
team. He has helped increase product margins by 10 points, nearly
doubled our earnings power and raised our dividend by over 100%,”
said George Kurian, chief executive officer. “We are grateful for
Ron’s achievements at NetApp and wish him well in his future
endeavors.”
Fourth Quarter of Fiscal Year 2020 Financial Outlook
The Company provided the following financial guidance for the
fourth quarter of fiscal year 2020:
- Net revenues are expected to be in the range of:
$1.455 billion to $1.605
billion
GAAP
NonGAAP
- Earnings per share is expected to be in the range of:
$01.11 - $1.19
$1.28 - $1.36
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 10%
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:
~18%
~21%
- GAAP earnings per share is expected to decline approximately
16% year-over-year, while Non-GAAP earnings per share is expected
to decline approximately 7% year-over-year
Dividend
Next cash dividend of $0.48 per share to be paid on April 22,
2020, to shareholders of record as of the close of business on
April 3, 2020.
Third Quarter of Fiscal Year 2020 Business Highlights
Consistently Delivering Groundbreaking Innovations
- NetApp announced its reinvention of the customer experience
with the NetApp Keystone™ program which offers a range of
flexible solutions for customers, whether they choose to build or
to buy their cloud infrastructure, on or off their premises.
- To meet the increasing demand for object storage, NetApp
announced new NetApp StorageGRID™ enhancements: StorageGRID 11.3
software, SGF6024 all-flash appliance, SG6060 expansion appliance,
SG1000 service appliance, and StorageGRID tiering to Azure
Blob storage.
- NetApp Cloud Manager 3.7.5 (formerly OnCommand™ Cloud
Manager) offers new features and tighter integration with the
NetApp cloud portfolio which enables customers to get more out of
their data.
- NetApp enhanced NetApp Cloud Volumes ONTAP™
for AWS with new NetApp Cloud Backup Service, the
new NetApp Cloud Compliance service, and the ability
to leverage NVMe flash available on virtual compute instances.
- NetApp has expanded its multiprotocol file services to
encompass NFSv4.1, NFSv3, and SMB for both Azure
NetApp Files and NetApp Cloud Volumes Service for AWS. With this
expansion, NetApp now delivers the widest range of support for
Microsoft Windows and Linux workloads.
- NetApp introduced new storage systems: the NetApp AFF
A400 end-to-end NVMe all-flash system, the NetApp
FAS8700 high-end hybrid flash array, and the FAS8300
next-generation midrange hybrid flash array.
- NetApp ONTAP 9.7 offers expanded integration of hybrid
cloud, with seamless and efficient migration of tiered data between
private and public clouds by using FabricPool, symmetric
active-active host-to-LUN access, and extended scale-out NAS
deployments.
- Three new features for NetApp Cloud Insights were
announced, including Kubernetes Topology Visualization,
NetApp Cloud Secure Insider Threat Detection, and
NetApp Active IQ™ Integration.
- NetApp Active IQ Unified Manager 9.7 (formerly OnCommand
Unified Manager) delivers enhanced simplicity, automation, active
management, and virtualization layer monitoring and reporting,
along with strengthened dark site support.
- With the release of NetApp ONTAP Select 9.7,
NetApp has introduced support for software RAID
configurations backed by NVMe drives.
- NetApp announced that NFS-based NetApp Cloud Volumes has
been added to its cloud services offerings on premises in preview
mode.
Growing Partnerships and Distinguished Awards
- NetApp and Google Cloud announced an expanded partnership,
including the general availability of NetApp Cloud Volumes
ONTAP and Cloud Volumes Service for Google Cloud. The
expansion also includes the availability of Cloud Volumes
Service in the U.K. region and support for Anthos on Cloud
Volumes ONTAP, Cloud Volumes Service, and NetApp
HCI.
- Enterprise Networking Solutions, Inc. (ENS-Inc.) was granted a
3-year contract by the State of California Department of General
Services to deliver NetApp data center modernization and hybrid
cloud infrastructure solutions to the State of California.
- NetApp and NVIDIA unveiled the NVIDIA DGX SuperPOD,
which helps simplify supercomputing and enables AI for
high-performance computing (HPC) teams. NetApp and NVIDIA also
announced their collaboration on the NVIDIA Magnum IO, a
multi-GPU, multinode networking and storage I/O optimization
stack.
- NetApp was named a leader of Scale-Out NAS (File-Based
Storage) in the IDC MarketScape: Worldwide Scale-Out
File-Based Storage 2019 Vendor Assessment.3
- NetApp was again named a leader in object storage in the IDC
MarketScape: Worldwide Object-Based Storage 2019 Vendor
Assessment.4
NetApp Executive Team Grows with the Company
- NetApp appointed James Whitemore as the Company’s
senior vice president and chief marketing officer, reporting
to CEO George Kurian.
- NetApp appointed Kim Stevenson
as senior vice
president and general manager of the NetApp Foundational Data
Services business unit, reporting to Brad Anderson.
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 leader in cloud data services, empowering global
organizations to change their world with data. Together with our
partners, we are the only ones who can help you build your unique
data fabric. Simplify hybrid multicloud and securely deliver the
right data, services and applications to the right people at the
right time. Learn more at www.netapp.com.
“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 in the Fourth Quarter of Fiscal Year 2020 Financial
Outlook and the Full Fiscal Year 2020 Financial Outlook sections,
and statements about our opportunity ahead, our ability to
replicate our proven areas of success, and our ability to position
the company for 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 annual
reports on Form 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 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 was named a leader of Scale-Out NAS (File-Based Storage)
in the IDC MarketScape: Worldwide Scale-Out File-Based Storage 2019
Vendor Assessment,
https://www.netapp.com/us/media/ar-idc-marketscape-worldwide-scale-out-vendor-assessment.pdf.
4NetApp was named a leader in object storage in the IDC
MarketScape: Worldwide Object-Based Storage 2019 Vendor Assessment,
https://www.netapp.com/us/media/idc-marketscape-worldwide-object-based-storage-2019-vendor-assessment.pdf.
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,
statute lapses 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 property 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 24,
2020
April 26,
2019
ASSETS
Current assets:
Cash, cash equivalents and investments
$
3,008
$
3,899
Accounts receivable
821
1,216
Inventories
113
131
Other current assets
276
364
Total current assets
4,218
5,610
Property and equipment, net
740
759
Goodwill and purchased intangible assets,
net
1,813
1,782
Other non-current assets
712
590
Total assets
$
7,483
$
8,741
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
381
$
542
Accrued expenses
660
851
Commercial paper notes
693
249
Current portion of long-term debt
—
400
Short-term deferred revenue and financed
unearned services revenue
1,795
1,825
Total current liabilities
3,529
3,867
Long-term debt
1,146
1,144
Other long-term liabilities
748
797
Long-term deferred revenue and financed
unearned services revenue
1,778
1,843
Total liabilities
7,201
7,651
Stockholders' equity
282
1,090
Total liabilities and stockholders'
equity
$
7,483
$
8,741
NETAPP, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In millions, except per share
amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
January 24,
2020
January 25,
2019
January 24,
2020
January 25,
2019
Revenues:
Product
$
787
$
967
$
2,202
$
2,755
Software maintenance
263
239
767
704
Hardware maintenance and other
services
354
357
1,042
1,095
Net revenues
1,404
1,563
4,011
4,554
Cost of revenues:
Cost of product
360
469
1,013
1,295
Cost of software maintenance
12
10
33
25
Cost of hardware maintenance and other
services
91
102
283
315
Total cost of revenues
463
581
1,329
1,635
Gross profit
941
982
2,682
2,919
Operating expenses:
Sales and marketing
402
401
1,196
1,218
Research and development
211
203
635
622
General and administrative
60
67
200
209
Restructuring charges
—
—
21
19
Gain on sale or derecognition of
assets
—
—
(38
)
—
Total operating expenses
673
671
2,014
2,068
Income from operations
268
311
668
851
Other income, net
8
8
26
33
Income before income taxes
276
319
694
884
Provision (benefit) for income taxes
(1
)
70
71
111
Net income
$
277
$
249
$
623
$
773
Net income per share:
Basic
$
1.23
$
1.00
$
2.67
$
3.01
Diluted
$
1.21
$
0.98
$
2.64
$
2.94
Shares used in net income per share
calculations:
Basic
226
250
233
257
Diluted
229
255
236
263
NETAPP, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In millions)
Three Months Ended
Nine Months Ended
January 24,
2020
January 25,
2019
January 24,
2020
January 25,
2019
Cash flows from operating
activities:
Net income
$
277
$
249
$
623
$
773
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
47
51
146
149
Non-cash operating lease cost
13
—
39
—
Stock-based compensation
36
43
118
121
Deferred income taxes
—
4
(23
)
(21
)
Gain on sale or derecognition of
assets
—
—
(38
)
—
Other items, net
(3
)
(3
)
(16
)
8
Changes in assets and liabilities, net of
acquisitions of businesses:
Accounts receivable
(41
)
(104
)
394
165
Inventories
(2
)
(14
)
18
22
Accounts payable
(1
)
26
(158
)
(101
)
Accrued expenses
42
77
(273
)
(85
)
Deferred revenue and financed unearned
services
revenue
104
146
(93
)
17
Long-term taxes payable
(84
)
3
(133
)
(60
)
Changes in other operating assets and
liabilities, net
32
(27
)
73
(46
)
Net cash provided by operating
activities
420
451
677
942
Cash flows from investing
activities:
Redemptions of investments, net
142
172
1,288
661
Purchases of property and equipment
(32
)
(31
)
(100
)
(138
)
Proceeds from sale of properties
—
—
96
—
Acquisitions of businesses, net of cash
acquired
—
—
(56
)
(3
)
Other investing activities, net
1
(1
)
(1
)
1
Net cash provided by investing
activities
111
140
1,227
521
Cash flows from financing
activities:
Proceeds from issuance of common stock
under employee
stock award plans
47
53
102
118
Payments for taxes related to net share
settlement of stock
awards
(3
)
(3
)
(77
)
(92
)
Repurchase of common stock
(500
)
(550
)
(1,250
)
(1,611
)
Proceeds from (repayments of) commercial
paper notes,
net
194
(86
)
443
(221
)
Repayment of long-term debt
—
—
(400
)
—
Dividends paid
(108
)
(99
)
(334
)
(306
)
Other financing activities, net
(2
)
(3
)
(4
)
(5
)
Net cash used in financing activities
(372
)
(688
)
(1,520
)
(2,117
)
Effect of exchange rate changes on
cash, cash equivalents and restricted cash
1
8
(4
)
(17
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
160
(89
)
380
(671
)
Cash, cash equivalents and restricted
cash:
Beginning of period
2,551
2,365
2,331
2,947
End of period
$
2,711
$
2,276
$
2,711
$
2,276
NETAPP, INC.
SUPPLEMENTAL DATA
(In millions except net income
per share, percentages, DSO, DIO, DPO, CCC and Inventory
Turns)
(Unaudited)
Q3 FY'20
Q2 FY'20
Q3 FY'19
Revenues
Product
$
787
$
771
$
967
Strategic*
$
483
$
442
$
517
Mature*
$
304
$
329
$
450
Software Maintenance
$
263
$
254
$
239
Hardware Maintenance and Other
Services
$
354
$
346
$
357
Hardware Maintenance Support Contracts
$
293
$
286
$
292
Professional and Other Services
$
61
$
60
$
65
Net Revenues
$
1,404
$
1,371
$
1,563
* 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 Q3 FY'20 Revenue
% of Q2 FY'20 Revenue
% of Q3 FY'19 Revenue
Americas
50
%
56
%
52
%
Americas Commercial
39
%
42
%
41
%
U.S. Public Sector
11
%
14
%
11
%
EMEA
35
%
29
%
33
%
Asia Pacific
15
%
14
%
14
%
Pathways Mix
% of Q3 FY'20 Revenue
% of Q2 FY'20 Revenue
% of Q3 FY'19 Revenue
Direct
21
%
21
%
19
%
Indirect
79
%
79
%
81
%
Non-GAAP Gross Margins
Q3 FY'20
Q2 FY'20
Q3 FY'19
Non-GAAP Gross Margin
67.8
%
68.6
%
63.7
%
Product
55.4
%
57.3
%
52.6
%
Software Maintenance
95.4
%
95.7
%
95.8
%
Hardware Maintenance and Other
Services
74.9
%
73.7
%
72.3
%
Non-GAAP Income from Operations, Income
before Income Taxes & Effective Tax Rate
Q3 FY'20
Q2 FY'20
Q3 FY'19
Non-GAAP Income from Operations
$
312
$
309
$
367
% of Net Revenues
22.2
%
22.5
%
23.5
%
Non-GAAP Income before Income Taxes
$
320
$
312
$
375
Non-GAAP Effective Tax Rate
17.2
%
17.6
%
18.7
%
Non-GAAP Net Income
Q3 FY'20
Q2 FY'20
Q3 FY'19
Non-GAAP Net Income
$
265
$
257
$
305
Non-GAAP Weighted Average Common Shares
Outstanding, Diluted
229
236
255
Non-GAAP Income per Share, Diluted
$
1.16
$
1.09
$
1.20
Select Balance Sheet Items
Q3 FY'20
Q2 FY'20
Q3 FY'19
Deferred Revenue and Financed Unearned
Services Revenue
$
3,573
$
3,468
$
3,357
DSO (days)
53
52
51
DIO (days)
22
23
16
DPO (days)
75
78
78
CCC (days)
1
(4
)
(11
)
Inventory Turns
16
16
23
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'20
Q2 FY'20
Q3 FY'19
Net Cash Provided by (used in) Operating
Activities
$
420
$
(53
)
$
451
Purchases of Property and Equipment
$
32
$
36
$
31
Free Cash Flow
$
388
$
(89
)
$
420
Free Cash Flow as a % of Net Revenues
27.6
%
(6.5
)%
26.9
%
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'FY20
Q2'FY20
Q3'FY19
NET INCOME
$
277
$
243
$
249
Adjustments:
Amortization of intangible assets
8
11
13
Stock-based compensation
36
40
43
Gain on sale or derecognition of
assets
—
(38
)
—
Income tax effects
(6
)
1
—
Resolution of income tax matters
(50
)
—
—
NON-GAAP NET INCOME
$
265
$
257
$
305
COST OF REVENUES
$
463
$
446
$
581
Adjustments:
Amortization of intangible assets
(8
)
(11
)
(10
)
Stock-based compensation
(3
)
(4
)
(4
)
NON-GAAP COST OF REVENUES
$
452
$
431
$
567
COST OF PRODUCT REVENUES
$
360
$
341
$
469
Adjustments:
Amortization of intangible assets
(8
)
(11
)
(10
)
Stock-based compensation
(1
)
(1
)
(1
)
NON-GAAP COST OF PRODUCT
REVENUES
$
351
$
329
$
458
COST OF HARDWARE MAINTENANCE AND OTHER
SERVICES REVENUES
$
91
$
94
$
102
Adjustment:
Stock-based compensation
(2
)
(3
)
(3
)
NON-GAAP COST OF HARDWARE MAINTENANCE
AND OTHER SERVICES REVENUES
$
89
$
91
$
99
GROSS PROFIT
$
941
$
925
$
982
Adjustments:
Amortization of intangible assets
8
11
10
Stock-based compensation
3
4
4
NON-GAAP GROSS PROFIT
$
952
$
940
$
996
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO
GAAP
INCOME STATEMENT
INFORMATION
(In millions, except net
income per share amounts)
Q3'FY20
Q2'FY20
Q3'FY19
SALES AND MARKETING EXPENSES
$
402
$
389
$
401
Adjustments:
Amortization of intangible assets
—
—
(3
)
Stock-based compensation
(15
)
(17
)
(19
)
NON-GAAP SALES AND MARKETING
EXPENSES
$
387
$
372
$
379
RESEARCH AND DEVELOPMENT
EXPENSES
$
211
$
209
$
203
Adjustment:
Stock-based compensation
(13
)
(13
)
(13
)
NON-GAAP RESEARCH AND DEVELOPMENT
EXPENSES
$
198
$
196
$
190
GENERAL AND ADMINISTRATIVE
EXPENSES
$
60
$
69
$
67
Adjustment:
Stock-based compensation
(5
)
(6
)
(7
)
NON-GAAP GENERAL AND ADMINISTRATIVE
EXPENSES
$
55
$
63
$
60
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
$
673
$
629
$
671
Adjustments:
Amortization of intangible assets
—
—
(3
)
Stock-based compensation
(33
)
(36
)
(39
)
Gain on sale or derecognition of
assets
—
38
—
NON-GAAP OPERATING EXPENSES
$
640
$
631
$
629
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO
GAAP
INCOME STATEMENT
INFORMATION
(In millions, except net
income per share amounts)
Q3'FY20
Q2'FY20
Q3'FY19
INCOME FROM OPERATIONS
$
268
$
296
$
311
Adjustments:
Amortization of intangible assets
8
11
13
Stock-based compensation
36
40
43
Gain on sale or derecognition of
assets
—
(38
)
—
NON-GAAP INCOME FROM OPERATIONS
$
312
$
309
$
367
INCOME BEFORE INCOME TAXES
$
276
$
299
$
319
Adjustments:
Amortization of intangible assets
8
11
13
Stock-based compensation
36
40
43
Gain on sale or derecognition of
assets
—
(38
)
—
NON-GAAP INCOME BEFORE INCOME
TAXES
$
320
$
312
$
375
PROVISION (BENEFIT) FOR INCOME
TAXES
$
(1
)
$
56
$
70
Adjustments:
Income tax effects
6
(1
)
—
Resolution of income tax matters
50
—
—
NON-GAAP PROVISION FOR INCOME
TAXES
$
55
$
55
$
70
NET INCOME PER SHARE
$
1.21
$
1.03
$
0.98
Adjustments:
Amortization of intangible assets
0.03
0.05
0.05
Stock-based compensation
0.16
0.17
0.17
Gain on sale or derecognition of
assets
—
(0.16
)
—
Income tax effects
(0.03
)
—
—
Resolution of income tax matters
(0.22
)
—
—
NON-GAAP NET INCOME PER SHARE
$
1.16
$
1.09
$
1.20
RECONCILIATION OF NON-GAAP TO
GAAP
GROSS MARGIN
($ in millions)
Q3'FY20
Q2'FY20
Q3'FY19
Gross margin-GAAP
67.0
%
67.5
%
62.8
%
Cost of revenues adjustments
0.8
%
1.1
%
0.9
%
Gross margin-Non-GAAP
67.8
%
68.6
%
63.7
%
GAAP cost of revenues
$
463
$
446
$
581
Cost of revenues adjustments:
Amortization of intangible assets
(8
)
(11
)
(10
)
Stock-based compensation
(3
)
(4
)
(4
)
Non-GAAP cost of revenues
$
452
$
431
$
567
Net revenues
$
1,404
$
1,371
$
1,563
RECONCILIATION OF NON-GAAP TO
GAAP
PRODUCT GROSS MARGIN
($ in millions)
Q3'FY20
Q2'FY20
Q3'FY19
Product gross margin-GAAP
54.3
%
55.8
%
51.5
%
Cost of product revenues adjustments
1.1
%
1.6
%
1.1
%
Product gross margin-Non-GAAP
55.4
%
57.3
%
52.6
%
GAAP cost of product revenues
$
360
$
341
$
469
Cost of product revenues adjustments:
Amortization of intangible assets
(8
)
(11
)
(10
)
Stock-based compensation
(1
)
(1
)
(1
)
Non-GAAP cost of product revenues
$
351
$
329
$
458
Product revenues
$
787
$
771
$
967
RECONCILIATION OF NON-GAAP TO
GAAP
HARDWARE MAINTENANCE AND OTHER
SERVICES GROSS MARGIN
($ in millions)
Q3'FY20
Q2'FY20
Q3'FY19
Hardware maintenance and other services
gross margin-GAAP
74.3
%
72.8
%
71.4
%
Cost of hardware maintenance and other
services revenues adjustment
0.6
%
0.9
%
0.8
%
Hardware maintenance and other services
gross margin-Non-GAAP
74.9
%
73.7
%
72.3
%
GAAP cost of hardware maintenance and
other services revenues
$
91
$
94
$
102
Cost of hardware maintenance and other
services revenues adjustment:
Stock-based compensation
(2
)
(3
)
(3
)
Non-GAAP cost of hardware maintenance and
other services revenues
$
89
$
91
$
99
Hardware maintenance and other services
revenues
$
354
$
346
$
357
RECONCILIATION OF NON-GAAP TO
GAAP
EFFECTIVE TAX RATE
Q3'FY20
Q2'FY20
Q3'FY19
GAAP effective tax rate
(0.4
)%
18.7
%
21.9
%
Adjustments:
Income tax effects
2.0
%
(1.1
)%
(2.7
)%
Resolution of income tax matters
15.6
%
—
%
—
%
Non-GAAP effective tax rate
17.2
%
17.6
%
19.3
%
RECONCILIATION OF NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
TO FREE CASH FLOW
(NON-GAAP)
(In millions)
Q3'FY20
Q2'FY20
Q3'FY19
Net cash provided by (used in) operating
activities
$
420
$
(53
)
$
451
Purchases of property and equipment
(32
)
(36
)
(31
)
Free cash flow
$
388
$
(89
)
$
420
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
2020
Fourth Quarter
Fiscal 2020
Non-GAAP Guidance - Net Income Per
Share
$1.28 - $1.36
Adjustments of Specific Items to Net
Income
Per Share for the Fourth Quarter Fiscal
2020:
Amortization of intangible assets
(0.04
)
Stock-based compensation expense
(0.17
)
Income tax effects
0.04
Total Adjustments
(0.17
)
GAAP Guidance - Net Income Per Share
$1.11 - $1.19
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%
Adjustments:
Amortization of intangible assets
(1)%
Stock-based compensation expense
(3)%
Gain on sale or derecognition of
assets
1%
Operating Margin - GAAP Guidance
~18%
Fiscal 2020 versus Fiscal
2019
Year-over-year Decrease in Net Income Per
Share - Non-GAAP Guidance
(7)%
Adjustments:
Amortization of intangible assets
1%
Restructuring charges
1%
Gain on sale or derecognition of
assets
(3)%
Income tax benefit of ASC 606 adoption
(3)%
Income tax effects
(5)%
Year-over-year Decrease in Net Income Per
Share - GAAP Guidance
(16)%
Some items may not add or recalculate due
to rounding
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200212005813/en/
Press Contact: Amelia Vierra NetApp 1 408 822 6403
amelia.vierra@netapp.com
Investor Contact: Lance Berger NetApp 1 408 822 6628
lance.berger@netapp.com
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