Le Lézard
Classified in: Science and technology, Business, Covid-19 virus
Subjects: EARNINGS, Dividend, Conference Call, Webcast

NetApp Reports Second Quarter of Fiscal Year 2023 Results


NetApp (NASDAQ: NTAP) today reported financial results for the second quarter of fiscal year 2023, which ended on October 28, 2022.

"We delivered a solid quarter in a dynamic environment, with all-time highs for Q2 revenue, billings, gross profit dollars, operating income, and EPS," said George Kurian, chief executive officer. "Our modern approach to the hybrid multicloud delivers significant value to our customers and creates sizeable opportunity for us. In a challenging macro environment, we remain focused on innovation, execution, and operational discipline."

Second quarter of fiscal year 2023 financial results

Third quarter of fiscal year 2023 financial outlook

The Company provided the following financial guidance for the third quarter of fiscal year 2023:

Net revenues are expected to be in the range of:

$1.525 billion to $1.675 billion

 

GAAP

Non-GAAP

Earnings per share is expected to be in the range of:

$0.88 - $0.98

$1.25 - $1.35

Full fiscal year 2023 financial outlook

The Company provided the following financial guidance for the full fiscal year 2023:

Net revenues are expected to grow in the range of:

2% to 4%

Public Cloud ARR is expected to exit the fiscal year at:

~$700 million

 

GAAP

Non-GAAP

Consolidated gross margins are expected to be in the range of:

65% - 66%

66% - 67%

Operating margins are expected to be:

~17%

~23%

Earnings per share is expected to be:

$6.29 - $6.49

$5.30 - $5.50

Dividend

The next cash dividend of $0.50 per share is to be paid on January 25, 2023, to shareholders of record as of the close of business on January 6, 2023.

Second quarter of fiscal year 2023 business highlights

Leading product innovation

Customer and partner momentum

Corporate news and events

NetApp awards and recognition

Webcast and conference call information

NetApp will host a conference call to discuss these results today at 2:00 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 4:00 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 in the Third Quarter of Fiscal Year 2023 Financial Outlook section and Full Fiscal Year 2023 Financial Outlook section and statements about our ability to deliver significant customer value and opportunity through our approach to the hybrid multicloud. Actual results may differ materially from these statements for a variety of reasons, including, without limitation, our ability to keep pace with the rapid industry, technological and market trends and changes in the markets in which we operate, our ability to execute our evolved cloud strategy and introduce and gain market acceptance for our products and services, our ability to maintain our customer, partner, supplier and contract manufacturer relationships on favorable terms and conditions, general global political, macroeconomic and market conditions, including inflation, rising interest rates and foreign exchange volatility and the resulting impact on demand for our products, the impact of the COVID-19 pandemic, including supply chain disruptions, on our business operations, financial performance and results of operations, material cybersecurity and other security breaches, changes in U.S. government spending, revenue seasonality, changes in laws or regulations, including those relating to privacy, data protection and information security, 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 and quarterly report on Form 10-Q. We disclaim any obligation to update information contained in this press release whether as a result of new information, future events, or otherwise.

NetApp, the NetApp logo, and the marks listed at http://www.netapp.com/TM are trademarks of NetApp, Inc. All other marks are the property of their respective owners.

Footnotes

1Refer to the Constant Currency section below for an explanation of constant currency growth rates and the impact of foreign currency exchange rate changes on year-over-year fluctuations in earnings.

2Refer to the NetApp Usage of Non-GAAP Financial Information section below for an explanation of billings.

3Public Cloud annualized revenue run rate (ARR) is calculated as the annualized value of all Public Cloud customer commitments with the assumption that any commitment expiring during the next 12 months will be renewed with its existing terms.

4All-flash array annualized net revenue run rate is determined by products and services revenue for the current quarter, multiplied by 4.

5Non-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, (h) gains/losses on the sale of investments in equity securities, (i) debt extinguishment costs, and (j) 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 that the measurements provide meaningful supplemental information regarding NetApp's ongoing operational performance.

6GAAP net income per share and non-GAAP net income per share are calculated using the diluted number of shares.

7NetApp Blog, Gabie Boko, October 20, 2022. NetApp #1 in Cloud IT Operations & Containers for Primary Storage.

8Spot by NetApp Blog, Courtney Wilson, August 4, 2022. GigaOm Radar: Spot Leads the Way in FinOps Tools.

9NetApp Blog, Mike McNamara, October 20, 2022.

10CRN, Staff Reporters, August 1, 2022. The 25 Most Influential Executives Of 2022.

11CRN, Jennifer Follette, September 26, 2022. The 100 People You Don't Know But Should 2022.

12Business Intelligence Group, September 27, 2022. 59 Leading Cloud Computing Companies, Products and Services.

13Tahawultech.com, Daniel Shepherd, October 11, 2022. Future Enterprise Awards 2022 winners revealed.

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, free cash flow, billings, and historical and projected non-GAAP earnings per diluted share. NetApp also presents the hardware and software components of our GAAP product revenues. Because our revenue recognition policy under GAAP defines a configured storage system, inclusive of the operating system software essential to its functionality, as a single performance obligation, hardware and software components of our product revenues are considered non-GAAP measures. The hardware and software components of our product revenues are derived from an estimated fair value allocation of the transaction price of our contracts with customers, down to the level of the product hardware and software components. This allocation is primarily based on the contractual prices at which NetApp has historically billed customers for such respective components.

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 believes that the presentation of the software and hardware components of our product revenues is meaningful to investors and management as it illustrates the significance of the Company's software and provides improved visibility into the value created by our software innovation and R&D investment.

NetApp approximates billings by adding net revenues as reported on our Condensed Consolidated Statements of Operations for the period to the change in total deferred revenue and financed unearned services revenue as reported on our Condensed Consolidated Statements of Cash Flows for the same period. Billings is a performance measure that NetApp believes provides useful information to management and investors because it approximates the amounts under purchase orders received by us during a given period that have been billed.

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 the amount can fluctuate based on variables unrelated to the performance of the underlying business. 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, are less useful 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, are less useful for future planning and forecasting.

H. Gains/losses on the sale of investments in equity securities. These are gains/losses from the sale of our investment in certain equity securities. Typically, such investments are sold as a result of a change in control of the underlying businesses. Management believes that these transactions do not reflect the results of our underlying, on-going business and, therefore, are less useful for future planning and forecasting.

I. Debt extinguishment costs. NetApp excludes certain non-recurring expenses incurred as a result of the early extinguishment of debt. Management believes such nonrecurring costs do not reflect the results of its underlying, on-going business and, therefore, are less useful for future planning and forecasting.

J. 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.

Constant Currency

NetApp presents certain constant currency growth rates or quantifies the impact of foreign currency exchange rate changes on year-over-year fluctuations, including for net revenues, billings, and earnings. This constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results.

About NetApp

NetApp is a global, cloud-led, data-centric software company that empowers organizations to lead with data in the age of accelerated digital transformation. The company provides systems, software, and cloud services that enable them to run their applications optimally from data center to cloud, whether they are developing in the cloud, moving to the cloud, or creating their own cloudlike experiences on premises. With solutions that perform across diverse environments, NetApp helps organizations build their own data fabric and securely deliver the right data, services, and applications to the right people?anytime, anywhere. Learn more at www.netapp.com or follow us on Twitter, LinkedIn, Facebook, and Instagram.

 

NETAPP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

 

 

 

 

 

 

October 28,
2022

 

April 29,
2022

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

Cash, cash equivalents and investments

$

3,033

$

4,134

Accounts receivable

 

910

 

 

1,230

 

Inventories

 

244

 

 

204

 

Other current assets

 

416

 

 

377

 

Total current assets

 

4,603

 

 

5,945

 

 

 

 

Property and equipment, net

 

661

 

 

602

 

Goodwill and purchased intangible assets, net

 

2,982

 

 

2,488

 

Other non-current assets

 

1,534

 

 

991

 

Total assets

$

9,780

 

$

10,026

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities:

 

 

Accounts payable

$

584

 

$

607

 

Accrued expenses

 

819

 

 

925

 

Current portion of long-term debt

 

?

 

 

250

 

Short-term deferred revenue and financed unearned services revenue

 

1,992

 

 

2,171

 

Total current liabilities

 

3,395

 

 

3,953

 

Long-term debt

 

2,387

 

 

2,386

 

Other long-term liabilities

 

737

 

 

788

 

Long-term deferred revenue and financed unearned services revenue

 

2,059

 

 

2,061

 

Total liabilities

 

8,578

 

 

9,188

 

 

 

 

Stockholders' equity

 

1,202

 

 

838

 

Total liabilities and stockholders' equity

$

9,780

 

$

10,026

 

 

NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

October 28,
2022

 

October 29,
2021

 

October 28,
2022

 

October 29,
2021

Net revenues:

 

 

 

 

 

 

 

 

Product

$

837

 

$

814

 

$

1,623

 

$

1,544

 

Services

 

826

 

 

752

 

 

1,632

 

 

1,480

 

Net revenues

 

1,663

 

 

1,566

 

 

3,255

 

 

3,024

 

 

 

 

 

 

 

 

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

Cost of product

 

418

 

 

372

 

 

815

 

 

701

 

Cost of services

 

158

 

 

135

 

 

307

 

 

265

 

Total cost of revenues

 

576

 

 

507

 

 

1,122

 

 

966

 

Gross profit

 

1,087

 

 

1,059

 

 

2,133

 

 

2,058

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Sales and marketing

 

479

 

 

465

 

 

937

 

 

916

 

Research and development

 

243

 

 

216

 

 

483

 

 

426

 

General and administrative

 

67

 

 

76

 

 

139

 

 

142

 

Restructuring charges

 

11

 

 

7

 

 

22

 

 

29

 

Acquisition-related expense

 

5

 

 

1

 

 

15

 

 

2

 

Total operating expenses

 

805

 

 

765

 

 

1,596

 

 

1,515

 

 

 

 

 

 

 

 

 

 

Income from operations

 

282

 

 

294

 

 

537

 

 

543

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

23

 

 

(14

)

 

38

 

 

(26

)

 

 

 

 

 

 

 

 

 

Income before income taxes

 

305

 

 

280

 

 

575

 

 

517

 

 

 

 

 

 

 

 

 

 

(Benefit) provision for income taxes

 

(445

)

 

56

 

 

(389

)

 

91

 

 

 

 

 

 

 

 

 

 

Net income

$

750

 

$

224

 

$

964

 

$

426

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

$

3.46

 

$

1.00

 

$

4.40

 

$

1.91

 

 

 

 

 

 

 

 

 

 

Diluted

$

3.41

 

$

0.98

 

$

4.34

 

$

1.86

 

 

 

 

 

 

 

 

 

 

Shares used in net income per share calculations:

 

 

 

 

 

 

 

 

Basic

 

217

 

 

223

 

 

219

 

 

223

 

 

 

 

 

 

 

 

 

 

Diluted

220

229

222

229

 

NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

 

 

Three Months Ended

Six Months Ended

 

October 28,
2022

October 29,
2021

October 28,
2022

October 29,
2021

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

$

750

 

$

224

 

$

964

 

$

426

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

59

 

 

46

 

 

117

 

 

92

 

Non-cash operating lease cost

 

13

 

 

15

 

 

27

 

 

28

 

Stock-based compensation

 

78

 

 

62

 

 

145

 

 

115

 

Deferred income taxes

 

(555

)

 

(17

)

 

(570

)

 

(32

)

Other items, net

 

(61

)

 

(16

)

 

(127

)

 

(12

)

Changes in assets and liabilities, net of acquisitions of businesses:

 

 

 

 

 

 

 

 

Accounts receivable

 

(51

)

 

5

 

 

313

 

 

292

 

Inventories

 

(12

)

 

(47

)

 

(40

)

 

(41

)

Accounts payable

 

62

 

 

62

 

 

(28

)

 

11

 

Accrued expenses

 

100

 

 

36

 

 

(108

)

 

(206

)

Deferred revenue and financed unearned services revenue

 

(61

)

 

(15

)

 

(93

)

 

(97

)

Long-term taxes payable

 

(85

)

 

(57

)

 

(84

)

 

(65

)

Changes in other operating assets and liabilities, net

 

(23

)

 

?

 

 

(21

)

 

29

 

Net cash provided by operating activities

 

214

 

 

298

 

 

495

 

 

540

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

(Purchases) redemptions of investments, net

 

(211

)

 

15

 

 

(342

)

 

26

 

Purchases of property and equipment

 

(77

)

 

(46

)

 

(142

)

 

(97

)

Acquisitions of businesses, net of cash acquired

 

?

 

 

?

 

 

(491

)

 

(14

)

Other investing activities, net

 

?

 

 

?

 

 

59

 

 

?

 

Net cash used in investing activities

 

(288

)

 

(31

)

 

(916

)

 

(85

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock under employee stock award plans

 

?

 

 

?

 

 

54

 

 

53

 

Payments for taxes related to net share settlement of stock awards

 

(11

)

 

(6

)

 

(63

)

 

(63

)

Repurchase of common stock

 

(150

)

 

(125

)

 

(500

)

 

(225

)

Repayments and extinguishment of debt

 

(250

)

 

?

 

 

(250

)

 

?

 

Dividends paid

 

(108

)

 

(112

)

 

(218

)

 

(224

)

Other financing activities, net

 

(1

)

 

?

 

 

(2

)

 

(2

)

Net cash used in financing activities

 

(520

)

 

(243

)

 

(979

)

 

(461

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(25

)

 

(8

)

 

(43

)

 

(13

)

 

 

 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

(619

)

 

16

 

 

(1,443

)

 

(19

)

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Beginning of period

 

3,295

 

 

4,500

 

 

4,119

 

 

4,535

 

End of period

$

2,676

 

$

4,516

 

$

2,676

 

$

4,516

 

 

NETAPP, INC.

SUPPLEMENTAL DATA

(In millions except net income per share, percentages, DSO, DPO and Inventory Turns)

(Unaudited)

 

 

 

 

 

 

 

Revenues by Segment

 

 

 

 

 

 

 

Q2'FY23

 

Q1'FY23

 

Q2'FY22

Product

$

837

 

$

786

 

$

814

 

Support

 

607

 

 

598

 

 

590

 

Professional and Other Services

 

77

 

 

76

 

 

75

 

Hybrid Cloud Segment Net Revenues

 

1,521

 

 

1,460

 

 

1,479

 

Public Cloud Segment Net Revenues

 

142

 

 

132

 

 

87

 

Net Revenues

$

1,663

 

$

1,592

 

$

1,566

 

 

 

 

 

 

 

 

Gross Profit by Segment

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Product

$

420

 

$

391

 

$

445

 

Support

 

562

 

 

555

 

 

542

 

Professional and Other Services

 

23

 

 

24

 

 

21

 

Hybrid Cloud Segment Gross Profit

 

1,005

 

 

970

 

 

1,008

 

Public Cloud Segment Gross Profit

 

97

 

 

92

 

 

62

 

Total Segments Gross Profit

 

1,102

 

 

1,062

 

 

1,070

 

 

 

 

 

 

 

 

Amortization of Intangible Assets

 

(10

)

 

(11

)

 

(7

)

Stock-based Compensation

 

(5

)

 

(5

)

 

(4

)

Unallocated Cost of Revenues

 

(15

)

 

(16

)

 

(11

)

 

 

 

 

 

 

 

Gross Profit

$

1,087

 

$

1,046

 

$

1,059

 

 

 

 

 

 

 

 

Gross Margin by Segment

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Product

 

50.2

%

 

49.7

%

 

54.7

%

Support

 

92.6

%

 

92.8

%

 

91.9

%

Professional and Other Services

 

29.9

%

 

31.6

%

 

28.0

%

Hybrid Cloud Segment Gross Margin

 

66.1

%

 

66.4

%

 

68.2

%

Public Cloud Segment Gross Margin

 

68.3

%

 

69.7

%

 

71.3

%

 

 

 

 

 

 

 

Product Revenues

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Total

$

837

 

$

786

 

$

814

 

Software*

$

495

 

$

476

 

$

475

 

Hardware*

$

342

 

$

310

 

$

339

 

 

 

 

 

 

 

 

Software and recurring support and public cloud revenue

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Product - Software

$

495

 

$

476

 

$

475

 

Support

 

607

 

 

598

 

 

590

 

Public Cloud

 

142

 

 

132

 

 

87

 

Software and recurring support and public cloud revenue*

$

1,244

 

$

1,206

 

$

1,152

 

 

 

 

 

 

 

 

Software and recurring support and public cloud revenue as a percentage of net revenues

 

75

%

 

76

%

 

74

%

 

 

 

 

 

 

 

* Our revenue recognition policy under GAAP defines a configured storage system, inclusive of the operating system software essential to its functionality, as a single performance obligation. We have provided a breakdown of our GAAP product revenues into the software and hardware components, which are considered non-GAAP measures, to display the significance of software included in total product revenues. Software and recurring support and public cloud revenue is a non-GAAP measure because it includes the software component of our product revenues, but not the hardware component.

 

 

 

 

 

 

 

Geographic Mix

 

 

 

 

 

 

 

% of Q2 FY'23

 

% of Q1 FY'23

 

% of Q2 FY'22

 

Revenue

 

Revenue

 

Revenue

Americas

 

54

%

 

54

%

 

55

%

Americas Commercial

 

40

%

 

42

%

 

43

%

U.S. Public Sector

 

14

%

 

12

%

 

12

%

EMEA

 

32

%

 

31

%

 

29

%

Asia Pacific

 

14

%

 

15

%

 

15

%

 

 

 

 

 

 

 

Pathways Mix

 

 

 

 

 

 

 

% of Q2 FY'23

 

% of Q1 FY'23

 

% of Q2 FY'22

 

Revenue

 

Revenue

 

Revenue

Direct

 

23

%

 

21

%

 

24

%

Indirect

 

77

%

 

79

%

 

76

%

 

 

 

 

 

 

 

Non-GAAP Income from Operations, Income before Income Taxes & Effective Tax Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Non-GAAP Income from Operations

$

393

 

$

360

 

$

374

 

% of Net Revenues

 

23.6

%

 

22.6

%

 

23.9

%

Non-GAAP Income before Income Taxes

$

416

 

$

343

 

$

360

 

Non-GAAP Effective Tax Rate

 

21.6

%

 

21.6

%

 

18.9

%

 

 

 

 

 

 

 

Non-GAAP Net Income

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Non-GAAP Net Income

$

326

 

$

269

 

$

292

 

Non-GAAP Weighted Average Common Shares Outstanding, Diluted

 

220

 

 

224

 

 

229

 

Non-GAAP Net Income per Share, Diluted

$

1.48

 

$

1.20

 

$

1.28

 

 

 

 

 

 

 

 

Select Balance Sheet Items

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Deferred Revenue and Financed Unearned Services Revenue

$

4,051

 

$

4,170

 

$

3,866

 

DSO (days)

 

50

 

 

49

 

 

38

 

DPO (days)

 

92

 

 

86

 

 

78

 

Inventory Turns

 

9

 

 

9

 

 

13

 

 

 

 

 

 

 

 

Days sales outstanding (DSO) is defined as accounts receivable divided by net 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.

Inventory turns is defined as annualized cost of revenues divided by net inventories.

 

 

 

 

 

 

 

Select Cash Flow Statement Items

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Net Cash Provided by Operating Activities

$

214

 

$

281

 

$

298

 

Purchases of Property and Equipment

$

77

 

$

65

 

$

46

 

Free Cash Flow

$

137

 

$

216

 

$

252

 

Free Cash Flow as % of Net Revenues

 

8.2

%

 

13.6

%

 

16.1

%

 

 

 

 

 

 

 

Free cash flow is a non-GAAP measure and is defined as net cash provided by operating activities less purchases of property and equipment.

Some items may not add or recalculate due to rounding.

NETAPP, INC.

RECONCILIATION OF NON-GAAP TO GAAP

INCOME STATEMENT INFORMATION

(In millions, except net income per share amounts)

 

 

 

 

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

NET INCOME

$

750

 

$

214

 

$

224

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

17

 

 

17

 

 

10

 

Stock-based compensation

 

78

 

 

67

 

 

62

 

Restructuring charges

 

11

 

 

11

 

 

7

 

Acquisition-related expense

 

5

 

 

10

 

 

1

 

Gain on sale of equity investment

 

?

 

 

(32

)

 

?

 

Income tax effects

 

(11

)

 

(18

)

 

(13

)

Income tax expenses from integration of acquired companies

 

?

 

 

?

 

 

1

 

Income tax benefit from intra-entity intellectual property transfer

 

(524

)

 

?

 

 

?

 

NON-GAAP NET INCOME

$

326

 

$

269

 

$

292

 

 

 

 

 

 

 

 

COST OF REVENUES

$

576

 

$

546

 

$

507

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

(10

)

 

(11

)

 

(7

)

Stock-based compensation

 

(5

)

 

(5

)

 

(4

)

NON-GAAP COST OF REVENUES

$

561

 

$

530

 

$

496

 

 

 

 

 

 

 

 

COST OF PRODUCT REVENUES

$

418

 

$

397

 

$

372

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

?

 

 

(1

)

 

(2

)

Stock-based compensation

 

(1

)

 

(1

)

 

(1

)

NON-GAAP COST OF PRODUCT REVENUES

$

417

 

$

395

 

$

369

 

 

 

 

 

 

 

 

COST OF SERVICES REVENUES

$

158

 

$

149

 

$

135

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

(10

)

 

(10

)

 

(5

)

Stock-based compensation

 

(4

)

 

(4

)

 

(3

)

NON-GAAP COST OF SERVICES REVENUES

$

144

 

$

135

 

$

127

 

 

 

 

 

 

 

 

GROSS PROFIT

$

1,087

 

$

1,046

 

$

1,059

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

10

 

 

11

 

 

7

 

Stock-based compensation

 

5

 

 

5

 

 

4

 

NON-GAAP GROSS PROFIT

$

1,102

 

$

1,062

 

$

1,070

 

 

NETAPP, INC.

RECONCILIATION OF NON-GAAP TO GAAP

INCOME STATEMENT INFORMATION

(In millions, except net income per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Q2'FY23

 

Q1'FY23

 

Q2'FY22

SALES AND MARKETING EXPENSES

$

479

 

$

458

 

$

465

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

(7

)

 

(6

)

 

(3

)

Stock-based compensation

 

(35

)

 

(28

)

 

(29

)

NON-GAAP SALES AND MARKETING EXPENSES

$

437

 

$

424

 

$

433

 

 

 

 

 

 

 

 

RESEARCH AND DEVELOPMENT EXPENSES

$

243

 

$

240

 

$

216

 

Adjustments:

 

 

 

 

 

 

Stock-based compensation

 

(26

)

 

(24

)

 

(19

)

NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES

$

217

 

$

216

 

$

197

 

 

 

 

 

 

 

 

GENERAL AND ADMINISTRATIVE EXPENSES

$

67

 

$

72

 

$

76

 

Adjustments:

 

 

 

 

 

 

Stock-based compensation

 

(12

)

 

(10

)

 

(10

)

NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES

$

55

 

$

62

 

$

66

 

 

 

 

 

 

 

 

RESTRUCTURING CHARGES

$

11

 

$

11

 

$

7

 

Adjustments:

 

 

 

 

 

 

Restructuring charges

 

(11

)

 

(11

)

 

(7

)

NON-GAAP RESTRUCTURING CHARGES

$

?

 

$

?

 

$

?

 

 

 

 

 

 

 

 

ACQUISITION-RELATED EXPENSE

$

5

 

$

10

 

$

1

 

Adjustments:

 

 

 

 

 

 

Acquisition-related expense

 

(5

)

 

(10

)

 

(1

)

NON-GAAP ACQUISITION-RELATED EXPENSE

$

?

 

$

?

 

$

?

 

 

 

 

 

 

 

 

OPERATING EXPENSES

$

805

 

$

791

 

$

765

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

(7

)

 

(6

)

 

(3

)

Stock-based compensation

 

(73

)

 

(62

)

 

(58

)

Restructuring charges

 

(11

)

 

(11

)

 

(7

)

Acquisition-related expense

 

(5

)

 

(10

)

 

(1

)

NON-GAAP OPERATING EXPENSES

$

709

 

$

702

 

$

696

 

 

 

 

 

 

 

 

NETAPP, INC.

RECONCILIATION OF NON-GAAP TO GAAP

INCOME STATEMENT INFORMATION

(In millions, except net income per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Q2'FY23

 

Q1'FY23

 

Q2'FY22

INCOME FROM OPERATIONS

$

282

 

$

255

 

$

294

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

17

 

 

17

 

 

10

 

Stock-based compensation

 

78

 

 

67

 

 

62

 

Restructuring charges

 

11

 

 

11

 

 

7

 

Acquisition-related expense

 

5

 

 

10

 

 

1

 

NON-GAAP INCOME FROM OPERATIONS

$

393

 

$

360

 

$

374

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE), NET

$

23

 

$

15

 

$

(14

)

Adjustments:

 

 

 

 

 

 

Gain on sale of equity investment

 

?

 

 

(32

)

 

?

 

NON-GAAP OTHER INCOME (EXPENSE), NET

$

23

 

$

(17

)

$

(14

)

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

$

305

 

$

270

 

$

280

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

17

 

 

17

 

 

10

 

Stock-based compensation

 

78

 

 

67

 

 

62

 

Restructuring charges

 

11

 

 

11

 

 

7

 

Acquisition-related expense

 

5

 

 

10

 

 

1

 

Gain on sale of equity investment

 

?

 

 

(32

)

 

?

 

NON-GAAP INCOME BEFORE INCOME TAXES

$

416

 

$

343

 

$

360

 

 

 

 

 

 

 

 

(BENEFITS) PROVISION FOR INCOME TAXES

$

(445

)

$

56

 

$

56

 

Adjustments:

 

 

 

 

 

 

Income tax effects

 

11

 

 

18

 

 

13

 

Income tax expenses from integration of acquired companies

 

?

 

 

?

 

 

(1

)

Income tax benefit from intra-entity intellectual property transfer

 

524

 

 

?

 

 

?

 

NON-GAAP PROVISION FOR INCOME TAXES

$

90

 

$

74

 

$

68

 

 

 

 

 

 

 

 

NET INCOME PER SHARE

$

3.41

 

$

0.96

 

$

0.98

 

Adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

0.08

 

 

0.08

 

 

0.04

 

Stock-based compensation

 

0.35

 

 

0.30

 

 

0.27

 

Restructuring charges

 

0.05

 

 

0.05

 

 

0.03

 

Acquisition-related expense

 

0.02

 

 

0.04

 

 

?

 

Gain on sale of equity investment

 

?

 

 

(0.14

)

 

?

 

Income tax effects

 

(0.05

)

 

(0.08

)

 

(0.06

)

Income tax benefit from intra-entity intellectual property transfer

 

(2.38

)

 

?

 

 

?

 

NON-GAAP NET INCOME PER SHARE

$

1.48

 

$

1.20

 

$

1.28

 

 

 

 

 

 

 

 

RECONCILIATION OF NON-GAAP TO GAAP

GROSS MARGIN

($ in millions)

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Gross margin-GAAP

 

65.4

%

 

65.7

%

 

67.6

%

Cost of revenues adjustments

 

0.9

%

 

1.0

%

 

0.7

%

Gross margin-Non-GAAP

 

66.3

%

 

66.7

%

 

68.3

%

 

 

 

 

 

 

 

GAAP cost of revenues

$

576

 

$

546

 

$

507

 

Cost of revenues adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

(10

)

 

(11

)

 

(7

)

Stock-based compensation

 

(5

)

 

(5

)

 

(4

)

Non-GAAP cost of revenues

$

561

 

$

530

 

$

496

 

 

 

 

 

 

 

 

Net revenues

$

1,663

 

$

1,592

 

$

1,566

 

 

RECONCILIATION OF NON-GAAP TO GAAP

PRODUCT GROSS MARGIN

($ in millions)

 

 

 

 

 

 

Q2'FY23

 

Q1'FY23

 

Q2'FY22

Product gross margin-GAAP

 

50.1

%

 

49.5

%

 

54.3

%

Cost of product revenues adjustments

 

0.1

%

 

0.3

%

 

0.4

%

Product gross margin-Non-GAAP

 

50.2

%

 

49.7

%

 

54.7

%

 

 

 

 

 

 

 

GAAP cost of product revenues

$

418

 

$

397

 

$

372

 

Cost of product revenues adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

?

 

 

(1

)

 

(2

)

Stock-based compensation

 

(1

)

 

(1

)

 

(1

)

Non-GAAP cost of product revenues

$

417

 

$

395

 

$

369

 

 

 

 

 

 

 

 

Product revenues

$

837

 

$

786

 

$

814

 

 

RECONCILIATION OF NON-GAAP TO GAAP

SERVICES GROSS MARGIN

($ in millions)

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Services gross margin-GAAP

 

80.9

%

 

81.5

%

 

82.0

%

Cost of services revenues adjustments

 

1.7

%

 

1.7

%

 

1.1

%

Services gross margin-Non-GAAP

 

82.6

%

 

83.3

%

 

83.1

%

 

 

 

 

 

 

 

GAAP cost of services revenues

$

158

 

$

149

 

$

135

 

Cost of services revenues adjustments:

 

 

 

 

 

 

Amortization of intangible assets

 

(10

)

 

(10

)

 

(5

)

Stock-based compensation

 

(4

)

 

(4

)

 

(3

)

Non-GAAP cost of services revenues

$

144

 

$

135

 

$

127

 

 

 

 

 

 

 

 

Services revenues

$

826

 

$

806

 

$

752

 

 

RECONCILIATION OF NON-GAAP TO GAAP

EFFECTIVE TAX RATE

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

GAAP effective tax rate

(145.9

)%

20.7

%

20.0

%

Adjustments:

 

 

 

 

 

 

Income tax effects

41.6

%

0.8

%

(0.8

)%

Income tax expenses from integration of acquired companies

?

%

?

%

(0.4

)%

Income tax benefit from intra-entity intellectual property transfer

126.0

%

?

%

?

%

Non-GAAP effective tax rate

21.6

%

21.6

%

18.9

%

 

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES

TO FREE CASH FLOW (NON-GAAP)

(In millions)

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Net cash provided by operating activities

$

214

 

$

281

 

$

298

 

Purchases of property and equipment

 

(77

)

 

(65

)

 

(46

)

Free cash flow

$

137

 

$

216

 

$

252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF NET REVENUES

TO BILLINGS (NON-GAAP)

(In millions)

 

 

 

 

Q2'FY23

Q1'FY23

Q2'FY22

Net revenues

$

1,663

 

$

1,592

 

$

1,566

 

Change in deferred revenue and financed unearned services revenue*

 

(61

)

 

(32

)

 

(15

)

Billings

$

1,602

 

$

1,560

 

$

1,551

 

 

 

 

 

 

 

 

* As reported on our Condensed Consolidated Statements of Cash Flows

NETAPP, INC.

RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP

EXPRESSED AS EARNINGS PER SHARE

THIRD QUARTER FISCAL 2023

 

 

 

 

 

Third Quarter

 

 

Fiscal 2023

 

 

 

Non-GAAP Guidance - Net Income Per Share

 

$1.25-$1.35

 

 

 

Adjustments of Specific Items to Net Income

 

 

Per Share for the Third Quarter Fiscal 2023:

 

 

Amortization of intangible assets

 

($0.08)

Stock-based compensation expense

 

($0.35)

Income tax effects

 

$0.06

Total Adjustments

 

($0.37)

 

 

 

GAAP Guidance - Net Income Per Share

 

$0.88-$0.98

 

Some items may not add or recalculate due to rounding.

NETAPP, INC.

RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP

FISCAL 2023

 

 

 

 

 

 

Fiscal 2023

 

 

 

Gross Margin - Non-GAAP Guidance

 

66% - 67%

Adjustment:

 

 

Cost of revenues adjustments

 

(1)%

Gross Margin - GAAP Guidance

 

65% - 66%

 

 

 

 

 

Fiscal 2023

 

 

 

Operating Margin - Non-GAAP Guidance

 

~23%

Adjustments:

 

 

Amortization of intangible assets

 

(1)%

Stock-based compensation expense

 

(5)%

Operating Margin - GAAP Guidance

 

~17%

 

 

 

Some items may not add or recalculate due to rounding.

NETAPP, INC.

RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP

EXPRESSED AS EARNINGS PER SHARE

FISCAL 2023

 

 

 

 

 

 

 

 

Fiscal 2023

 

 

 

Non-GAAP Guidance - Net Income Per Share

 

$5.30 - $5.50

 

 

 

Adjustments of Specific Items to Net Income

 

 

Per Share for Fiscal 2023:

 

 

Amortization of intangible assets

 

($0.31)

Stock-based compensation expense

 

($1.37)

Restructuring charges

 

($0.10)

Acquisition-related expenses

 

($0.07)

Gain on sale of equity investment

 

$0.14

Income tax benefit from intra-entity intellectual property transfer

 

$2.37

Income tax effects

 

$0.33

Total Adjustments

 

$0.99

 

 

 

GAAP Guidance - Net Income Per Share

 

$6.29 - $6.49

 

 

 

Some items may not add or recalculate due to rounding.

 


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