Solid Margins, Cash Flow and Operating Leverage
View Financial Tables (PDF)
- 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
SUNNYVALE, Calif.—February 12, 2020—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:
|
$1.455 billion to $1.605 billion | |
| GAAP | Non-GAAP | |
|---|---|---|
|
$1.11 - $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:
|
||
| GAAP | Non-GAAP | |
|---|---|---|
|
66% - 67% | 67% - 68% |
|
~18% | ~21% |
|
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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.
“Safe Harbor” Statement Under U.S. Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, all of the statements made under the Second Quarter of Fiscal Year 2020 Financial Outlook and the Full Fiscal Year 2020 Financial Outlook sections, statements about our free cash flow generation, our ability to navigate the ongoing macroeconomic headwinds, and our ability to capitalize on our Data Fabric strategy. All of these forward-looking statements involve risk and uncertainty. Actual results may differ materially from these statements for a variety of reasons, including, without limitation, general global political, macroeconomic and market conditions, changes in U.S. government spending, revenue seasonality and matters specific to our business, such as our ability to expand our total available market and grow our portfolio of products, customer demand for and acceptance of our products and services, our ability to successfully execute new business models, our ability to successfully execute on our Data Fabric strategy to generate profitable growth and stockholder return and our ability to manage our gross profit margins. These and other equally important factors are described in reports and documents we file from time to time with the Securities and Exchange Commission, including the factors described under the section titled “Risk Factors” in our most recently submitted 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.
Footnotes
[1] Non-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 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.
[2]GAAP net income per share and non-GAAP net income per share are calculated using the diluted number of shares.
[3]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. (PDF)
[4]NetApp was named a leader in object storage in the 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.
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.
Contacts
| Press Contact: | Investor Contact: |
| Amelia Vierra | Lance Berger |
| NetApp | NetApp |
| 1 (408) 822-6403 | 1 (408) 822-6628 |
| amelia.vierra@netapp.com | lance.berger@netapp.com |
