NetApp Reports Fourth Quarter and Fiscal Year 2018 Results
Net Revenues of
- Net revenue for fiscal year 2018 increased 7% year-over-year
- Product revenue for fiscal year 2018 grew 15% year-over-year
-
All-flash array annualized net revenue run rate of
$2.4 billion increased 43% year-over-year - Free Cash Flow was 23% of revenue for fiscal year 2018 and increased 64% year-over-year
-
$1.01 billion returned to shareholders in share repurchases and cash dividends in fiscal year 2018
"The fourth quarter marked a great finish to a strong year. We
successfully pivoted to the growth areas of the market, expanded our
opportunity with HCI and new cloud partnerships, and improved
operational discipline to deliver sustained and profitable growth," said
Fourth Quarter Fiscal Year 2018 Financial Results
-
Net Revenues:
$1.64 billion , increased 11% year-over-year from$1.48 billion in the fourth quarter of fiscal 2017 -
Net Income: GAAP net income of
$271 million , compared to GAAP net income of$190 million in the fourth quarter of fiscal 2017; non-GAAP net income1 of$288 million , compared to non-GAAP net income of$239 million in the fourth quarter of fiscal 2017 -
Earnings per Share: GAAP earnings per share2 of
$0.99 compared to GAAP earnings per share of$0.68 in the fourth quarter of fiscal 2017; non-GAAP earnings per share of$1.05 , compared to non-GAAP earnings per share of$0.86 in the fourth quarter of fiscal 2017 -
Cash, Cash Equivalents and Investments:
$5.4 billion at the end of fiscal 2018 -
Cash from Operations:
$494 million , compared to$365 million in the fourth quarter of fiscal 2017 -
Share Repurchase and Dividend: Returned
$397 million to shareholders through share repurchases and a cash dividend
Fiscal Year 2018 Financial Results
-
Net Revenues:
$5.91 billion , increased 7% year-over-year from$5.52 billion in fiscal 2017 -
Net Income: GAAP net income of
$76 million *, compared to GAAP net income of$509 million in fiscal 2017; non-GAAP net income of$957 million , compared to non-GAAP net income of$768 million in fiscal 2017 -
Earnings per Share: GAAP earnings per share of
$0.28 *, compared to GAAP earnings per share of$1.81 in fiscal 2017; non-GAAP earnings per share of$3.47 , compared to non-GAAP earnings per share of$2.73 in fiscal 2017 -
Cash from Operations:
$1.48 billion , compared to$986 million in fiscal year 2017 -
Share Repurchase and Dividend: Returned
$1.01 billion to shareholders through share repurchases and cash dividends
*On
First Quarter Fiscal Year 2019 Financial Outlook |
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The Company provided the following financial guidance for the first quarter of fiscal year 2019: |
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• Net revenues are expected to be in the range of |
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GAAP |
Non-GAAP |
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• Earnings per share is expected to be in the range of: |
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Full Fiscal Year 2019 Financial Outlook |
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The Company provided the following financial guidance for the full fiscal year 2019: |
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• Net revenues are expected to grow in the mid-single digits |
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GAAP |
Non-GAAP |
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• Consolidated gross margins are expected to be: |
~62% |
~63% |
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• Operating margins are expected to be in the range of: |
18%-19% |
20%-21% |
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• Effective tax rate is expected to be: |
~22% |
~18% |
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Dividend
-
In the first quarter of fiscal year 2019, the Company will double its
quarterly dividend to
$0.40 per share. The quarterly dividend will be paid onJuly 25, 2018 to shareholders of record as of the close of business onJuly 6, 2018 .
Fourth Quarter Fiscal Year 2018 Business Highlights
-
Ducati partners with
NetApp to drive digital transformation of motorcycle racing in the MotoGP World Championship, counting on the NetApp™ Data Fabric as it participates in 19 races in 15 countries on 5 continents around the globe. Ducati will useNetApp technologies to modernize its IT and data protection infrastructure, enhancing data protection and security. -
NetApp helps customers build General Data Protection Regulation (GDPR)-compliant processes.NetApp helps customers integrateNetApp and partner technologies to enable them to identify where personal information is held, improve their data management and governance processes, and build GDPR-compliant processes into their day-to-day activities. -
NetApp is one of the few data management companies with a dedicated healthcare solutions team and is uniquely positioned to assist healthcare organizations providing secure access to critical information, so customers can quickly accelerate workloads and analytics and can integrate cloud data services with industry-leading simplicity and efficiency.
Webcast and Conference Call Information
About
"Safe Harbor" Statement Under
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 First Quarter Fiscal Year 2019 Financial Outlook and the Full
Fiscal Year 2019 Financial Outlook sections, statements about our
ability to deliver sustained and profitable growth, and statements about
the acceleration of our momentum with customers. 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
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 of properties, and (h) our GAAP tax provision, but includes a
non-GAAP tax provision based upon our projected annual non-GAAP
effective tax rate for the first three quarters of the fiscal year and
an actual non-GAAP tax provision for the fourth quarter of the fiscal
year.
2GAAP earnings per share and non-GAAP earnings per share are calculated using the diluted number of shares.
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
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.
A. Amortization of intangible assets.
B. Stock-based compensation expenses.
C. Litigation settlements.
D. Acquisition-related expenses.
E. Restructuring charges. These charges consist of restructuring charges that are incurred based on the particular facts and circumstances of restructuring decisions, including employment and contractual settlement terms, and other related charges, and can vary in size and frequency. We therefore exclude them in our assessment of operational performance.
F. Asset impairments. These are non-cash charges to write down assets when there is an indication that the asset has become impaired. Management finds it useful to exclude these non-cash charges due to the unpredictability of these events in its assessment of operational performance.
G. Gains/losses on the sale of properties. These are gains/losses from the sale of our properties. Management believes that these transactions do not reflect the results of our underlying, on-going business and, therefore, cannot be relied upon for future planning or forecasting.
H. Income tax adjustments. NetApp's non-GAAP tax provision is based upon a projected annual non-GAAP effective tax rate for the first three quarters of the fiscal year and an actual non-GAAP tax provision for the fourth quarter of the fiscal year. The non-GAAP tax provision also excludes, when applicable, (a) tax charges or benefits in the current period that relate to one or more prior fiscal periods that are a result of events such as changes in tax legislation, authoritative guidance, income tax audit settlements and/or court decisions, (b) tax charges or benefits that are attributable to unusual or non-recurring book and/or tax accounting method changes, (c) tax charges that are a result of a non-routine foreign cash repatriation, (d) tax charges or benefits that are a result of infrequent restructuring of the Company's tax structure, (e) tax charges or benefits that are a result of a change in valuation allowance, and (f) tax charges resulting from the integration of intellectual properties from acquisitions. Management believes that the use of non-GAAP tax provisions provides a more meaningful measure of the Company's operational performance.
These non-GAAP measures are not in accordance with, or an alternative
for, measures prepared in accordance with GAAP, and may be different
from non-GAAP measures used by other companies. In addition, these
non-GAAP measures are not based on any comprehensive set of accounting
rules or principles.
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CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(In millions) | ||||||||
(Unaudited) | ||||||||
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2018 | 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash, cash equivalents and investments | $ | 5,391 | $ | 4,921 | ||||
Accounts receivable | 1,009 | 731 | ||||||
Inventories | 126 | 163 | ||||||
Other current assets | 330 | 383 | ||||||
Total current assets | 6,856 | 6,198 | ||||||
Property and equipment, net | 756 | 799 | ||||||
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1,833 | 1,815 | ||||||
Other non-current assets | 420 | 681 | ||||||
Total assets | $ | 9,865 | $ | 9,493 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 609 | $ | 347 | ||||
Accrued expenses | 825 | 782 | ||||||
Commercial paper notes | 385 | 500 | ||||||
Current portion of long-term debt | — | 749 | ||||||
Short-term deferred revenue and financed unearned services revenue | 1,804 | 1,744 | ||||||
Total current liabilities |
3,623 | 4,122 | ||||||
Long-term debt | 1,541 | 744 | ||||||
Other long-term liabilities | 961 | 249 | ||||||
Long-term deferred revenue and financed unearned services revenue | 1,673 | 1,598 | ||||||
Total liabilities | 7,798 | 6,713 | ||||||
Stockholders' equity | 2,067 | 2,780 | ||||||
Total liabilities and stockholders' equity | $ | 9,865 | $ | 9,493 | ||||
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Three Months Ended | Year Ended | ||||||||||||||||
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Revenues: | |||||||||||||||||
Product | $ | 1,011 | $ | 852 | $ | 3,461 | $ | 3,006 | |||||||||
Software maintenance | 247 | 242 | 958 | 965 | |||||||||||||
Hardware maintenance and other services | 383 | 387 | 1,492 | 1,548 | |||||||||||||
Net revenues | 1,641 | 1,481 | 5,911 | 5,519 | |||||||||||||
Cost of revenues: | |||||||||||||||||
Cost of product | 500 | 444 | 1,738 | 1,614 | |||||||||||||
Cost of software maintenance | 6 | 6 | 25 | 28 | |||||||||||||
Cost of hardware maintenance and other services | 113 | 118 | 449 | 487 | |||||||||||||
Total cost of revenues | 619 | 568 | 2,212 | 2,129 | |||||||||||||
Gross profit | 1,022 | 913 | 3,699 | 3,390 | |||||||||||||
Operating expenses: | |||||||||||||||||
Sales and marketing | 461 | 405 | 1,729 | 1,633 | |||||||||||||
Research and development | 203 | 191 | 783 | 779 | |||||||||||||
General and administrative | 71 | 70 | 280 | 271 | |||||||||||||
Restructuring charges | — | — | — | 52 | |||||||||||||
Gain on sale of properties | — | — | (218 | ) | (10 | ) | |||||||||||
Total operating expenses | 735 | 666 | 2,574 | 2,725 | |||||||||||||
Income from operations | 287 | 247 | 1,125 | 665 | |||||||||||||
Other income (expense), net | 16 | 1 | 41 | — | |||||||||||||
Income before income taxes | 303 | 248 | 1,166 | 665 | |||||||||||||
Provision for income taxes | 32 | 58 | 1,090 | 156 | |||||||||||||
Net income | $ | 271 | $ | 190 | $ | 76 | $ | 509 | |||||||||
Net income per share: | |||||||||||||||||
Basic | $ | 1.02 | $ | 0.70 | $ | 0.28 | $ | 1.85 | |||||||||
Diluted | $ | 0.99 | $ | 0.68 | $ | 0.28 | $ | 1.81 | |||||||||
Shares used in net income per share calculations: | |||||||||||||||||
Basic | 265 | 270 | 268 | 275 | |||||||||||||
Diluted | 273 | 278 | 276 | 281 | |||||||||||||
Cash dividends declared per share | $ | 0.20 | $ | 0.19 | $ | 0.80 | $ | 0.76 | |||||||||
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||
(In millions) | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Three Months Ended | Year Ended | ||||||||||||||||
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Cash flows from operating activities: | |||||||||||||||||
Net income | $ | 271 | $ | 190 | $ | 76 | $ | 509 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization | 48 | 53 | 198 | 226 | |||||||||||||
Stock-based compensation | 36 | 46 | 161 | 195 | |||||||||||||
Deferred income taxes | 19 | 17 | 277 | 90 | |||||||||||||
Gain on sale of properties | — | — | (218 | ) | (10 | ) | |||||||||||
Other items, net | (19 | ) | 2 | (27 | ) | (6 | ) | ||||||||||
Changes in assets and liabilities, net of acquisitions of businesses: |
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Accounts receivable | (264 | ) | (127 | ) | (272 | ) | 81 | ||||||||||
Inventories | (28 | ) | (38 | ) | 37 | (65 | ) | ||||||||||
Accounts payable | 147 | 81 | 262 | 94 | |||||||||||||
Accrued expenses | 104 | 35 | 162 | (86 | ) | ||||||||||||
Deferred revenue and financed unearned services revenue |
226 | 111 | 124 | (37 | ) | ||||||||||||
Long-term taxes payable | (9 | ) | 10 | 714 | (6 | ) | |||||||||||
Changes in other operating assets and liabilities, net |
(37 | ) | (15 | ) | (16 | ) | 1 | ||||||||||
Net cash provided by operating activities |
494 | 365 | 1,478 | 986 | |||||||||||||
Cash flows from investing activities: | |||||||||||||||||
Redemptions (purchases) of investments, net | 168 | (45 | ) | (10 | ) | (43 | ) | ||||||||||
Purchases of property and equipment | (48 | ) | (38 | ) | (145 | ) | (175 | ) | |||||||||
Proceeds from sale of properties | — | — | 210 | — | |||||||||||||
Acquisitions of businesses, net of cash acquired | — | (8 | ) | (75 | ) | (8 | ) | ||||||||||
Other investing activities, net | — | 4 | (1 | ) | 6 | ||||||||||||
Net cash provided by (used in) investing activities | 120 | (87 | ) | (21 | ) | (220 | ) | ||||||||||
Cash flows from financing activities: | |||||||||||||||||
Proceeds from issuance of common stock under employee stock award plans | 16 | 28 | 173 | 140 | |||||||||||||
Payments for taxes related to net share settlement of stock awards | (8 | ) | (6 | ) | (75 | ) | (48 | ) | |||||||||
Repurchase of common stock | (344 | ) | (129 | ) | (794 | ) | (705 | ) | |||||||||
Proceeds from (repayments of) commercial paper notes, net | (247 | ) | 107 | (115 | ) | 499 | |||||||||||
Issuance of long-term debt, net | — | — | 795 | — | |||||||||||||
Repayment of short-term loan | — | — | — | (850 | ) | ||||||||||||
Repayment of long-term debt | — | — | (750 | ) | — | ||||||||||||
Dividends paid | (53 | ) | (51 | ) | (214 | ) | (208 | ) | |||||||||
Other financing activities, net | — | — | (6 | ) | (7 | ) | |||||||||||
Net cash used in financing activities | (636 | ) | (51 | ) | (986 | ) | (1,179 | ) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (11 | ) | 4 | 26 | (11 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | (33 | ) | 231 | 497 | (424 | ) | |||||||||||
Cash and cash equivalents: | |||||||||||||||||
Beginning of period | 2,974 | 2,213 | 2,444 | 2,868 | |||||||||||||
End of period | $ | 2,941 | $ | 2,444 | $ | 2,941 | $ | 2,444 | |||||||||
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SUPPLEMENTAL DATA | |||||||||||||||||||||
(In millions except net income per share, percentages, DSO, DIO, DPO, CCC and Inventory Turns) | |||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
Q4 FY'18 | Q3 FY'18 | Q4 FY'17 | FY 2018 | FY 2017 | |||||||||||||||||
Revenues | |||||||||||||||||||||
Product | $ | 1,011 | $ | 920 | $ | 852 | $ | 3,461 | $ | 3,006 | |||||||||||
Strategic | $ | 745 | $ | 647 | $ | 596 | $ | 2,449 | $ | 1,971 | |||||||||||
Mature | $ | 266 | $ | 273 | $ | 256 | $ | 1,012 | $ | 1,035 | |||||||||||
Software Maintenance | $ | 247 | $ | 237 | $ | 242 | $ | 958 | $ | 965 | |||||||||||
Hardware Maintenance and Other Services | $ | 383 | $ | 366 | $ | 387 | $ | 1,492 | $ | 1,548 | |||||||||||
Hardware Maintenance Support Contracts | $ | 310 | $ | 299 | $ | 313 | $ | 1,213 | $ | 1,265 | |||||||||||
Professional and Other Services | $ | 73 | $ | 67 | $ | 74 | $ | 279 | $ | 283 | |||||||||||
Net Revenues | $ | 1,641 | $ | 1,523 | $ | 1,481 | $ | 5,911 | $ | 5,519 | |||||||||||
Geographic Mix | |||||||||||||||||||||
% of Q4 | % of Q3 | % of Q4 | % of | % of | |||||||||||||||||
FY'18 | FY'18 | FY'17 | FY 2018 | FY 2017 | |||||||||||||||||
Revenue | Revenue | Revenue | Revenue | Revenue | |||||||||||||||||
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51 | % | 54 | % | 54 | % | 54 | % | 56 | % | |||||||||||
Americas Commercial |
39 | % | 44 | % | 42 | % | 41 | % | 43 | % | |||||||||||
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12 | % | 10 | % | 12 | % | 13 | % | 13 | % | |||||||||||
EMEA | 34 | % | 32 | % | 32 | % | 32 | % | 31 | % | |||||||||||
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15 | % | 14 | % | 14 | % | 14 | % | 13 | % | |||||||||||
Pathways Mix | |||||||||||||||||||||
% of Q4 | % of Q3 | % of Q4 | % of | % of | |||||||||||||||||
FY'18 | FY'18 | FY'17 | FY 2018 | FY 2017 | |||||||||||||||||
Revenue | Revenue | Revenue | Revenue | Revenue | |||||||||||||||||
Direct | 21 | % | 22 | % | 22 | % | 21 | % | 22 | % | |||||||||||
Indirect | 79 | % | 78 | % | 78 | % | 79 | % | 78 | % | |||||||||||
Non-GAAP Gross Margins | |||||||||||||||||||||
Q4 FY'18 | Q3 FY'18 | Q4 FY'17 | FY 2018 | FY 2017 | |||||||||||||||||
Non-GAAP Gross Margin | 63.0 | % | 62.6 | % | 62.5 | % | 63.4 | % | 62.3 | % | |||||||||||
Product | 51.5 | % | 50.2 | % | 48.9 | % | 50.9 | % | 47.4 | % | |||||||||||
Software Maintenance | 97.6 | % | 97.5 | % | 97.5 | % | 97.4 | % | 97.1 | % | |||||||||||
Hardware Maintenance and Other Services | 71.0 | % | 71.3 | % | 70.3 | % | 70.6 | % | 69.4 | % | |||||||||||
Non-GAAP Income from Operations, Income before Income Taxes & Effective Tax Rate | |||||||||||||||||||||
Q4 FY'18 | Q3 FY'18 | Q4 FY'17 | FY 2018 | FY 2017 | |||||||||||||||||
Non-GAAP Income from Operations | $ | 335 | $ | 310 | $ | 306 | $ | 1,126 | $ | 950 | |||||||||||
% of Net Revenues | 20.4 | % | 20.4 | % | 20.7 | % | 19.0 | % | 17.2 | % | |||||||||||
Non-GAAP Income before Income Taxes | $ | 351 | $ | 324 | $ | 307 | $ | 1,167 | $ | 950 | |||||||||||
Non-GAAP Effective Tax Rate | 17.9 | % | 15.7 | % | 22.1 | % | 18.0 | % | 19.2 | % | |||||||||||
Non-GAAP Net Income | |||||||||||||||||||||
Q4 FY'18 | Q3 FY'18 | Q4 FY'17 | FY 2018 | FY 2017 | |||||||||||||||||
Non-GAAP Net Income | $ | 288 | $ | 273 | $ | 239 | $ | 957 | $ | 768 | |||||||||||
Non-GAAP Weighted Average Common Shares Outstanding, Diluted | 273 | 276 | 278 | 276 | 281 | ||||||||||||||||
Non-GAAP Income per Share, Diluted | $ | 1.05 | $ | 0.99 | $ | 0.86 | $ | 3.47 | $ | 2.73 | |||||||||||
Select Balance Sheet Items | |||||||||||||||||||||
Q4 FY'18 | Q3 FY'18 | Q4 FY'17 | |||||||||||||||||||
Deferred Revenue and Financed Unearned Services Revenue | $ | 3,477 | $ | 3,269 | $ | 3,342 | |||||||||||||||
DSO (days) | 56 | 45 | 45 | ||||||||||||||||||
DIO (days) | 19 | 15 | 26 | ||||||||||||||||||
DPO (days) | 90 | 72 | 56 | ||||||||||||||||||
CCC (days) | (15 | ) | (11 | ) | 15 | ||||||||||||||||
Inventory Turns | 20 | 24 | 14 | ||||||||||||||||||
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 | |||||||||||||||||||||
Q4 FY'18 | Q3 FY'18 | Q4 FY'17 | FY 2018 | FY 2017 | |||||||||||||||||
Net Cash Provided by Operating Activities | $ | 494 | $ | 420 | $ | 365 | $ | 1,478 | $ | 986 | |||||||||||
Purchases of Property and Equipment | $ | 48 | $ | 32 | $ | 38 | $ | 145 | $ | 175 | |||||||||||
Free Cash Flow | $ | 446 | $ | 388 | $ | 327 | $ | 1,333 | $ | 811 | |||||||||||
Free Cash Flow as a % of Net Revenues | 27.2 | % | 25.5 | % | 22.1 | % | 22.6 | % | 14.7 | % | |||||||||||
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. | |||||||||||||||||||||
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RECONCILIATION OF NON-GAAP TO GAAP | |||||||||||||||||||||
INCOME STATEMENT INFORMATION | |||||||||||||||||||||
(In millions, except net income per share amounts) | |||||||||||||||||||||
Q4'FY18 | Q3'FY18 | Q4'FY17 | FY2018 | FY2017 | |||||||||||||||||
NET INCOME (LOSS) | $ | 271 | $ | (506 | ) | $ | 190 | $ | 76 | $ | 509 | ||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | 12 | 14 | 13 | 53 | 48 | ||||||||||||||||
Stock-based compensation | 36 | 38 | 46 | 161 | 195 | ||||||||||||||||
Litigation settlements | — | 5 | — | 5 | — | ||||||||||||||||
Restructuring charges | — | — | — | — | 52 | ||||||||||||||||
Gain on sale of properties | — | (218 | ) | — | (218 | ) | (10 | ) | |||||||||||||
Income tax effects | (31 | ) | 84 | (10 | ) | 24 | (26 | ) | |||||||||||||
Tax reform | — | 856 | — | 856 | — | ||||||||||||||||
NON-GAAP NET INCOME | $ | 288 | $ | 273 | $ | 239 | $ | 957 | $ | 768 | |||||||||||
COST OF REVENUES | $ | 619 | $ | 582 | $ | 568 | $ | 2,212 | $ | 2,129 | |||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | (9 | ) | (10 | ) | (8 | ) | (36 | ) | (29 | ) | |||||||||||
Stock-based compensation | (3 | ) | (3 | ) | (4 | ) | (13 | ) | (17 | ) | |||||||||||
NON-GAAP COST OF REVENUES | $ | 607 | $ | 569 | $ | 556 | $ | 2,163 | $ | 2,083 | |||||||||||
COST OF PRODUCT REVENUES | $ | 500 | $ | 468 | $ | 444 | $ | 1,738 | $ | 1,614 | |||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | (9 | ) | (10 | ) | (8 | ) | (36 | ) | (29 | ) | |||||||||||
Stock-based compensation | (1 | ) | — | (1 | ) | (3 | ) | (4 | ) | ||||||||||||
NON-GAAP COST OF PRODUCT REVENUES | $ | 490 | $ | 458 | $ | 435 | $ | 1,699 | $ | 1,581 | |||||||||||
COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES | $ | 113 | $ | 108 | $ | 118 | $ | 449 | $ | 487 | |||||||||||
Adjustment: | |||||||||||||||||||||
Stock-based compensation | (2 | ) | (3 | ) | (3 | ) | (10 | ) | (13 | ) | |||||||||||
NON-GAAP COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES | $ | 111 | $ | 105 | $ | 115 | $ | 439 | $ | 474 | |||||||||||
GROSS PROFIT | $ | 1,022 | $ | 941 | $ | 913 | $ | 3,699 | $ | 3,390 | |||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | 9 | 10 | 8 | 36 | 29 | ||||||||||||||||
Stock-based compensation | 3 | 3 | 4 | 13 | 17 | ||||||||||||||||
NON-GAAP GROSS PROFIT | $ | 1,034 | $ | 954 | $ | 925 | $ | 3,748 | $ | 3,436 | |||||||||||
|
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RECONCILIATION OF NON-GAAP TO GAAP | |||||||||||||||||||||
INCOME STATEMENT INFORMATION | |||||||||||||||||||||
(In millions, except net income per share amounts) | |||||||||||||||||||||
Q4'FY18 | Q3'FY18 | Q4'FY17 | FY2018 | FY2017 | |||||||||||||||||
SALES AND MARKETING EXPENSES | $ | 461 | $ | 423 | $ | 405 | $ | 1,729 | $ | 1,633 | |||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | (3 | ) | (4 | ) | (5 | ) | (17 | ) | (19 | ) | |||||||||||
Stock-based compensation | (15 | ) | (16 | ) | (20 | ) | (68 | ) | (84 | ) | |||||||||||
NON-GAAP SALES AND MARKETING EXPENSES | $ | 443 | $ | 403 | $ | 380 | $ | 1,644 | $ | 1,530 | |||||||||||
RESEARCH AND DEVELOPMENT EXPENSES | $ | 203 | $ | 193 | $ | 191 | $ | 783 | $ | 779 | |||||||||||
Adjustment: | |||||||||||||||||||||
Stock-based compensation | (11 | ) | (11 | ) | (13 | ) | (49 | ) | (59 | ) | |||||||||||
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES | $ | 192 | $ | 182 | $ | 178 | $ | 734 | $ | 720 | |||||||||||
GENERAL AND ADMINISTRATIVE EXPENSES | $ | 71 | $ | 72 | $ | 70 | $ | 280 | $ | 271 | |||||||||||
Adjustments: | |||||||||||||||||||||
Stock-based compensation | (7 | ) | (8 | ) | (9 | ) | (31 | ) | (35 | ) | |||||||||||
Litigation settlements | — | (5 | ) | — | (5 | ) | — | ||||||||||||||
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES | $ | 64 | $ | 59 | $ | 61 | $ | 244 | $ | 236 | |||||||||||
RESTRUCTURING CHARGES | $ | — | $ | — | $ | — | $ | — | $ | 52 | |||||||||||
Adjustment: | |||||||||||||||||||||
Restructuring charges | — | — | — | — | (52 | ) | |||||||||||||||
NON-GAAP RESTRUCTURING CHARGES | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
GAIN ON SALE OF PROPERTIES | $ | — | $ | (218 | ) | $ | — | $ | (218 | ) | $ | (10 | ) | ||||||||
Adjustment: | |||||||||||||||||||||
Gain on sale of properties | — | 218 | — | 218 | 10 | ||||||||||||||||
NON-GAAP GAIN ON SALE OF PROPERTIES | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
OPERATING EXPENSES | $ | 735 | $ | 470 | $ | 666 | $ | 2,574 | $ | 2,725 | |||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | (3 | ) | (4 | ) | (5 | ) | (17 | ) | (19 | ) | |||||||||||
Stock-based compensation | (33 | ) | (35 | ) | (42 | ) | (148 | ) | (178 | ) | |||||||||||
Litigation settlements | — | (5 | ) | — | (5 | ) | — | ||||||||||||||
Restructuring charges | — | — | — | — | (52 | ) | |||||||||||||||
Gain on sale of properties | — | 218 | — | 218 | 10 | ||||||||||||||||
NON-GAAP OPERATING EXPENSES | $ | 699 | $ | 644 | $ | 619 | $ | 2,622 | $ | 2,486 | |||||||||||
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RECONCILIATION OF NON-GAAP TO GAAP | |||||||||||||||||||||
INCOME STATEMENT INFORMATION | |||||||||||||||||||||
(In millions, except net income per share amounts) | |||||||||||||||||||||
Q4'FY18 | Q3'FY18 | Q4'FY17 | FY2018 | FY2017 | |||||||||||||||||
INCOME FROM OPERATIONS | $ | 287 | $ | 471 | $ | 247 | $ | 1,125 | $ | 665 | |||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | 12 | 14 | 13 | 53 | 48 | ||||||||||||||||
Stock-based compensation | 36 | 38 | 46 | 161 | 195 | ||||||||||||||||
Litigation settlements | — | 5 | — | 5 | — | ||||||||||||||||
Restructuring charges | — | — | — | — | 52 | ||||||||||||||||
Gain on sale of properties | — | (218 | ) | — | (218 | ) | (10 | ) | |||||||||||||
NON-GAAP INCOME FROM OPERATIONS | $ | 335 | $ | 310 | $ | 306 | $ | 1,126 | $ | 950 | |||||||||||
INCOME BEFORE INCOME TAXES | $ | 303 | $ | 485 | $ | 248 | $ | 1,166 | $ | 665 | |||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | 12 | 14 | 13 | 53 | 48 | ||||||||||||||||
Stock-based compensation | 36 | 38 | 46 | 161 | 195 | ||||||||||||||||
Litigation settlements | — | 5 | — | 5 | — | ||||||||||||||||
Restructuring charges | — | — | — | — | 52 | ||||||||||||||||
Gain on sale of properties | — | (218 | ) | — | (218 | ) | (10 | ) | |||||||||||||
NON-GAAP INCOME BEFORE INCOME TAXES | $ | 351 | $ | 324 | $ | 307 | $ | 1,167 | $ | 950 | |||||||||||
PROVISION FOR INCOME TAXES | $ | 32 | $ | 991 | $ | 58 | $ | 1,090 | $ | 156 | |||||||||||
Adjustments: | |||||||||||||||||||||
Income tax effects | 31 | (84 | ) | 10 | (24 | ) | 26 | ||||||||||||||
Tax reform | — | (856 | ) | — | (856 | ) | — | ||||||||||||||
NON-GAAP PROVISION FOR INCOME TAXES | $ | 63 | $ | 51 | $ | 68 | $ | 210 | $ | 182 | |||||||||||
NET INCOME (LOSS) PER SHARE | $ | 0.99 | $ | (1.89 | ) | $ | 0.68 | $ | 0.28 | $ | 1.81 | ||||||||||
Adjustments: | |||||||||||||||||||||
Amortization of intangible assets | 0.04 | 0.05 | 0.05 | 0.19 | 0.17 | ||||||||||||||||
Stock-based compensation | 0.13 | 0.14 | 0.17 | 0.58 | 0.69 | ||||||||||||||||
Litigation settlements | — | 0.02 | — | 0.02 | — | ||||||||||||||||
Restructuring charges | — | — | — | — | 0.19 | ||||||||||||||||
Gain on sale of properties | - | (0.81 | ) | — | (0.79 | ) | (0.04 | ) | |||||||||||||
Income tax effects | (0.11 | ) | 0.31 | (0.04 | ) | 0.09 | (0.09 | ) | |||||||||||||
Tax reform | — | 3.19 | — | 3.10 | — | ||||||||||||||||
NON-GAAP NET INCOME PER SHARE | $ | 1.05 | $ | 0.99 | $ | 0.86 | $ | 3.47 | $ | 2.73 | |||||||||||
In Q3'FY18, our GAAP net loss per share was calculated using basic shares of 268 million, as the impact of common stock equivalents would have been anti-dilutive. Additionally, each adjustment presented in the reconciliation was computed using basic shares. However, because we reported net income on a non-GAAP basis, non-GAAP net income per share was computed using diluted shares of 276 million. As a result of the difference in the number of shares, the summation of GAAP net loss per share and the adjustments does not equal non-GAAP net income per share. | |||||||||||||||||||||
RECONCILIATION OF NON-GAAP TO GAAP | |||||||||||||||||||||
GROSS MARGIN | |||||||||||||||||||||
($ in millions) | |||||||||||||||||||||
Q4'FY18 | Q3'FY18 | Q4'FY17 | FY2018 | FY2017 | |||||||||||||||||
Gross margin-GAAP | 62.3 | % | 61.8 | % | 61.6 | % | 62.6 | % | 61.4 | % | |||||||||||
Cost of revenues adjustments | 0.7 | % | 0.9 | % | 0.8 | % | 0.8 | % | 0.8 | % | |||||||||||
Gross margin-Non-GAAP | 63.0 | % | 62.6 | % | 62.5 | % | 63.4 | % | 62.3 | % | |||||||||||
GAAP cost of revenues | $ | 619 | $ | 582 | $ | 568 | $ | 2,212 | $ | 2,129 | |||||||||||
Cost of revenues adjustments: | |||||||||||||||||||||
Amortization of intangible assets | (9 | ) | (10 | ) | (8 | ) | (36 | ) | (29 | ) | |||||||||||
Stock-based compensation | (3 | ) | (3 | ) | (4 | ) | (13 | ) | (17 | ) | |||||||||||
Non-GAAP cost of revenues | $ | 607 | $ | 569 | $ | 556 | $ | 2,163 | $ | 2,083 | |||||||||||
Net revenues | $ | 1,641 | $ | 1,523 | $ | 1,481 | $ | 5,911 | $ | 5,519 | |||||||||||
RECONCILIATION OF NON-GAAP TO GAAP | |||||||||||||||||||||
PRODUCT GROSS MARGIN | |||||||||||||||||||||
($ in millions) | |||||||||||||||||||||
Q4'FY18 | Q3'FY18 | Q4'FY17 | FY2018 | FY2017 | |||||||||||||||||
Product gross margin-GAAP |
50.5 | % | 49.1 | % | 47.9 | % | 49.8 | % | 46.3 | % | |||||||||||
Cost of product revenues adjustments | 1.0 | % | 1.1 | % | 1.1 | % | 1.1 | % | 1.1 | % | |||||||||||
Product gross margin-Non-GAAP | 51.5 | % | 50.2 | % | 48.9 | % | 50.9 | % | 47.4 | % | |||||||||||
GAAP cost of product revenues | $ | 500 | $ | 468 | $ | 444 | $ | 1,738 | $ | 1,614 | |||||||||||
Cost of product revenues adjustments: | |||||||||||||||||||||
Amortization of intangible assets | (9 | ) | (10 | ) | (8 | ) | (36 | ) | (29 | ) | |||||||||||
Stock-based compensation | (1 | ) | — | (1 | ) | (3 | ) | (4 | ) | ||||||||||||
Non-GAAP cost of product revenues | $ | 490 | $ | 458 | $ | 435 | $ | 1,699 | $ | 1,581 | |||||||||||
Product revenues | $ | 1,011 | $ | 920 | $ | 852 | $ | 3,461 | $ | 3,006 | |||||||||||
RECONCILIATION OF NON-GAAP TO GAAP | |||||||||||||||||||||
HARDWARE MAINTENANCE AND OTHER SERVICES GROSS MARGIN | |||||||||||||||||||||
($ in millions) | |||||||||||||||||||||
Q4'FY18 | Q3'FY18 | Q4'FY17 | FY2018 | FY2017 | |||||||||||||||||
Hardware maintenance and other services gross margin-GAAP | 70.5 | % | 70.5 | % | 69.5 | % | 69.9 | % | 68.5 | % | |||||||||||
Cost of hardware maintenance and other services revenues adjustment | 0.5 | % | 0.8 | % | 0.8 | % | 0.7 | % | 0.8 | % | |||||||||||
Hardware maintenance and other services gross margin-Non-GAAP | 71.0 | % | 71.3 | % | 70.3 | % | 70.6 | % | 69.4 | % | |||||||||||
GAAP cost of hardware maintenance and other services revenues | $ | 113 | $ | 108 | $ | 118 | $ | 449 | $ | 487 | |||||||||||
Cost of hardware maintenance and other services revenues adjustment: | |||||||||||||||||||||
Stock-based compensation | (2 | ) | (3 | ) | (3 | ) | (10 | ) | (13 | ) | |||||||||||
Non-GAAP cost of hardware maintenance and other services revenues | $ | 111 | $ | 105 | $ | 115 | $ | 439 | $ | 474 | |||||||||||
Hardware maintenance and other services revenues | $ | 383 | $ | 366 | $ | 387 | $ | 1,492 | $ | 1,548 | |||||||||||
RECONCILIATION OF NON-GAAP TO GAAP | |||||||||||||||||||||
EFFECTIVE TAX RATE | |||||||||||||||||||||
Q4'FY18 | Q3'FY18 | Q4'FY17 | FY2018 | FY2017 | |||||||||||||||||
GAAP effective tax rate | 10.6 | % | 204.3 | % | 23.4 | % | 93.5 | % | 23.5 | % | |||||||||||
Adjustments: | |||||||||||||||||||||
Income tax effects | 7.3 | % | (12.1 | )% | (1.3 | )% | (2.1 | )% | (4.3 | )% | |||||||||||
Tax reform | — | % | (176.5 | )% | — | % | (73.4 | )% | — | % | |||||||||||
Non-GAAP effective tax rate | 17.9 | % | 15.7 | % | 22.1 | % | 18.0 | % | 19.2 | % | |||||||||||
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES | |||||||||||||||||||||
TO FREE CASH FLOW (NON-GAAP) | |||||||||||||||||||||
(In millions) | |||||||||||||||||||||
Q4'FY18 | Q3'FY18 | Q4'FY17 | FY2018 | FY2017 | |||||||||||||||||
Net cash provided by operating activities | $ | 494 | $ | 420 | $ | 365 | $ | 1,478 | $ | 986 | |||||||||||
Purchases of property and equipment | (48 | ) | (32 | ) | (38 | ) | (145 | ) | (175 | ) | |||||||||||
Free cash flow | $ | 446 | $ | 388 | $ | 327 | $ | 1,333 | $ | 811 | |||||||||||
Some items may not add or recalculate due to rounding. |
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|
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RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP | |||||
EXPRESSED AS EARNINGS PER SHARE | |||||
FIRST QUARTER FISCAL 2019 | |||||
First Quarter | |||||
Fiscal 2019 | |||||
Non-GAAP Guidance - Net Income Per Share | $0.76 - $0.82 | ||||
Adjustments of Specific Items to Net Income | |||||
Per Share for the First Quarter Fiscal 2019: | |||||
Amortization of intangible assets | (0.05 | ) | |||
Stock-based compensation expense | (0.15 | ) | |||
Restructuring charges | (0.07 | ) | |||
Income tax effects | 0.04 | ||||
Total Adjustments | (0.23 | ) | |||
GAAP Guidance - Net Income Per Share | $0.53 - 0.59 | ||||
|
|||
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP | |||
FISCAL 2019 | |||
(Unaudited) | |||
GROSS MARGIN | |||
Gross Margin - Non-GAAP Guidance | ~63% | ||
Adjustment: | |||
Cost of revenues adjustments | (1)% | ||
Gross Margin - GAAP Guidance | ~62% | ||
OPERATING MARGIN | |||
Operating Margin - Non-GAAP Guidance | 20% - 21% | ||
Adjustments: | |||
Amortization of intangible assets | (1)% | ||
Stock-based compensation expense | (2)% | ||
Gain on sale of properties | 1% | ||
Operating Margin - GAAP Guidance | 18% - 19% | ||
EFFECTIVE TAX RATE | |||
Effective Tax Rate - Non-GAAP Guidance | ~18% | ||
Adjustment: | |||
Income tax effects | 4% | ||
Effective Tax Rate - GAAP Guidance | ~22% | ||
Some items may not add or recalculate due to rounding | |||
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