UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (date of earliest event reported): May 26,
2010
NETAPP,
INC.
(Exact
name of Registrant as specified in its charter)
|
Delaware
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0-27130
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77-0307520
|
||
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(State
or other jurisdiction of
incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
Number)
|
||
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495
East Java Drive
Sunnyvale,
CA 94089
|
||||
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(Address
of principal executive offices) (Zip Code)
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||||
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(408) 822-6000
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||||
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(Registrant’s
telephone number, including area code)
|
||||
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Not
Applicable
|
||||
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(Former
name or former address, if changed since last report
)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
Item 2.02 Results
of Operations and Financial Condition.
On May
26, 2010, NetApp, Inc. (“NetApp” or the “Company”) issued a press release and
supplemental commentary reporting financial results for the fourth quarter and
year ended April 30, 2010. The press release and supplemental
commentary are furnished herewith as Exhibit 99.1 and Exhibit 99.2,
respectively, and are incorporated herein by reference.
These
exhibits shall not be deemed “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or
incorporated by reference in any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except as shall be expressly set forth by specific
reference in such a filing.
Non-GAAP Financial
Measures
To
supplement NetApp’s condensed consolidated financial statement
information presented on a GAAP basis, the press release and supplemental
commentary furnished herewith as Exhibit 99.1 and Exhibit 99.2,
respectively, provide investors with certain non-GAAP measures, including, but
not limited to, historical non-GAAP net income and historical and future
non-GAAP net income per diluted share. For purposes of internal planning,
performance measurement and resource allocation, NetApp’s management uses
non-GAAP measures of operating results and net income that exclude: (a) the
GSA settlement, (b) amortization of intangible assets, (c) stock-based
compensation expenses, (d) acquisition related income and expenses, (e)
restructuring and other charges, (f) asset impairments, (g) non-cash interest
expense associated with our convertible debt, (h) net losses or gains on
investments, and (i) our GAAP tax provision, including discrete items, 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’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. In addition, these non-GAAP financial
measures are used to measure company performance for the purposes of determining
employee incentive plan compensation.
As
described above, NetApp excludes the following items from its non-GAAP
measures:
A. GSA
Settlement. NetApp excludes from its revenue as well from its
budgeting, planning and forecasting of future periods the impact of the
settlement with the GSA because management believes that the settlement related
to certain past business practices, and is not representative of NetApp’s
on-going business and future revenue generating potential.
B. 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.
C. 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, it does not view it as an expense to be used
in evaluating operational performance in any given period. In addition, the
valuation of stock-based awards and associated expense are based on factors and
assumptions that management believes are, in large part, outside of management’s
control.
D.
Acquisition related (income)
expenses, net. NetApp excludes acquisition related income and
expenses, including merger termination proceeds, from its non-GAAP
measures primarily because they are not related to our on-going business and,
therefore, cannot be relied upon for future planning and
forecasting.
E.
Restructuring and other
charges. These charges include 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. These items are not ordinarily
included in our annual operating plan and related budget due to the
unpredictability of the timing and size of these events. We therefore exclude
them in our assessment of operational performance.
F. Asset impairment. 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. Non-cash interest
expense. These are non-cash charges from the amortization of
debt discount and issuance costs. Management does not believe that
these charges reflect the underlying performance of our business.
H. (Gain) loss on investments,
net. These include realized gains and losses on and other-than-temporary
impairments of our investments related to significant investment impairments or
liquidation events. Management believes that these gains and losses
do not reflect the results of our underlying, on-going businesses and,
therefore, finds it useful to exclude them in assessing our
performance.
I. Income tax effects. NetApp
excludes its GAAP tax provision, including discrete items, from its non-GAAP
measure of net income, but includes a non-GAAP tax provision based
upon its 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. Management believes the use of a non-GAAP tax
provision provides a more meaningful measure of the company’s operational
performance in any given period.
There are
limitations in using non-GAAP financial measures because the non-GAAP financial
measures are not prepared in accordance with generally accepted accounting
principles and may be different from non-GAAP financial measures used by other
companies. In addition, the non-GAAP financial measures are limited in value
because they exclude certain items that may have a material impact upon our
reported financial results. Management compensates for these limitations by
analyzing current and future results on a GAAP basis as well as a non-GAAP basis
and also by providing GAAP measures in our earnings release and prepared
remarks. 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. Investors should review
the information regarding non-GAAP financial measures provided in our press
release and prepared remarks.
Item
9.01 Financial Statements and
Exhibits.
(d) Exhibits.
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Exhibit
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Description
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Press
release, dated May 26, 2010, reporting earnings for the fiscal quarter
ended April 30, 2010.
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Supplemental
Commentary, dated May 26, 2010.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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NETAPP,
INC.
(Registrant)
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May
26, 2010
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By:
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/s/
Andrew Kryder
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Andrew
Kryder
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Secretary,
General Counsel, and
Senior
Vice President, Legal
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Index
to Exhibits
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Exhibit
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Description
|
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Press
release, dated May 26, 2010, reporting earnings for the fiscal quarter
ended
April
30, 2010.
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|
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Prepared
remarks, dated May 26, 2010.
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Exhibit 99.1
| Press Contact: | Investor Contacts: | |
| Ryan Lowry | Tara Dhillon | Billie Fagenstrom |
| NetApp | NetApp | NetApp |
| (408) 822-7544 | (408) 822-6909 | (408) 822-6428 |
| ryanl@netapp.com | tara@netapp.com | billief@netapp.com |
NETAPP
ANNOUNCES RESULTS FOR FOURTH QUARTER
AND FISCAL YEAR 2010
Annual
and Quarterly Records Reported for Revenue, Earnings
and Free Cash Flow
Sunnyvale, Calif.—May 26,
2010—NetApp (NASDAQ: NTAP) today reported results for the fourth fiscal
quarter and fiscal year 2010, which ended April 30, 2010. Revenues for the
fourth fiscal quarter of 2010 totaled $1.17 billion compared to revenues of $880
million for the same period one year ago.
For the
fourth fiscal quarter, GAAP net income was $145 million, or $.40 per share1
compared to GAAP net income of $68 million, or $0.21 per share for the same
period in the prior year. Non-GAAP net income for the fourth fiscal quarter was
$183 million, or $0.50 per share2,
compared to non-GAAP net income of $103 million, or $0.31 per share for the same
period a year ago.
For
fiscal year 2010, GAAP and non-GAAP revenues totaled $3.93 billion, an increase
of 15% compared to GAAP revenues of $3.41 billion and an increase of 11%
compared to non-GAAP revenue of $3.54 billion for fiscal year 2009. For fiscal
year 2010, GAAP net income was $400 million, or $1.13 per share, compared to
GAAP net income of $65 million, or $0.19 per share for fiscal year 2009.
Non-GAAP net income for fiscal year 2010 was $533 million, or $1.51 per share,
compared to non-GAAP net income of $364 million, or $1.09 per share for fiscal
year 2009.
“With 50%
growth in product revenue this quarter, NetApp significantly outperformed the
competition. With accelerating revenue growth every quarter, we culminated
our fiscal year with record levels of revenue, earnings per share, and free cash
flow,” said Tom Georgens, president & CEO. “The server virtualization
and cloud computing trends are driving significant business for us, as our
competitive advantages in those areas lead more customers to choose NetApp
storage efficiency solutions for larger and larger data center
projects.”
Outlook
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§
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NetApp
estimates revenue for the first quarter of fiscal year 2011 to be in the
range of $1.10 billion to $1.14
billion.
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§
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NetApp
estimates share count for the first quarter of fiscal year 2011 to
increase by about 6 million shares.
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§
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NetApp estimates that
the first quarter of fiscal year 2011 GAAP earnings per share will be
approximately $0.31 to $0.35 per share. NetApp estimates that the
first quarter fiscal year 2011 non-GAAP earnings per share will be
approximately $0.43 to $0.47 per
share.
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Business
Highlights
In the
fourth quarter of fiscal year 2010, NetApp expanded key partnerships and
introduced new solutions to enable customers’ virtualization and cloud-based
infrastructures, as well as help service providers deliver compelling cloud services for
enterprise information technology. NetApp also reached several significant
milestones during the quarter related to the adoption and deployment of its
storage solutions. In addition, several new customer deployments demonstrated
how NetApp storage
efficiency technologies can help customers reach never-before-seen levels
of efficiency. Key business highlights included the following.
New
Solutions and Expanded Partnerships
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·
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New service provider
solutions. NetApp unveiled new design guides and capabilities
geared specifically for service providers that will help them deliver
greater value to their cloud customers. NetApp®
service-oriented infrastructure, data protection as a service, backup and
recovery as a service, and NetApp Open Management will help service
providers differentiate their cloud services, accelerate their services'
time to market, and achieve industry-leading cost and service-level
benefits.
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·
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CA, Inc. and NetApp build
solutions for cloud infrastructures. CA and NetApp extended their
multiyear solutions partnership to develop management solutions for public
and private cloud environments. The companies will integrate CA
Spectrum®
Automation Manager, CA Spectrum Service Assurance, CA Spectrum
Infrastructure Manager, and CA eHealth®
Performance Manager with NetApp's storage management solutions, including
NetApp Provisioning Manager and NetApp SANscreen®.
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·
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NetApp, Brocade, Emulex, and
VMware expand options for FCoE and DCB customers. NetApp will
resell a new Converged Network Adapter from Emulex, and is among the first
storage vendors to support VMware®
vSphere™
4 in a Fibre
Channel over Ethernet (FCoE) host environment. NetApp also
augmented its FCoE portfolio from Brocade and introduced a DCB-only
version of the Brocade 8000. Now customers have even more options to build
complete end-to-end FCoE infrastructures and unify their Ethernet and
Fibre Channel architectures.
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Milestones
and Awards
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·
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NetApp reaches milestone of
150,000 unified storage systems deployed. This historic milestone
underscores NetApp's long standing commitment and significant industry
innovation in making unified storage
a reality for customers. Customers worldwide are leveraging NetApp's
unified storage solutions to simplify operations, achieve business
breakthroughs, increase productivity, and recognize significant cost
savings.
|
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·
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NetApp gains leadership in SAN
market and reaches significant milestone with more than 30,000 deployments
worldwide. NetApp has more than doubled its SAN business in just
two years by providing customers with an impressive list of technologies
and maximizing strong solution partnerships with companies such as
Brocade, Cisco, Microsoft, and VMware. According to IDC's Worldwide
Quarterly Disk Storage Systems Tracker, Q3 2009, NetApp grew faster than
the FC SAN market year over year.
|
|
·
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Customers help NetApp pass
milestone of 5,000 V-Series units shipped. Customers made V-Series
one of NetApp’s fastest growing products, with 70% year-over-year growth
and more than 5,000 units shipped. More customers are turning to NetApp
V-Series to unify their non NetApp storage environments and increase
efficiency, reduce costs, and improve data
protection.
|
|
·
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NetApp positioned in Leaders
Quadrant in top analyst firm’s Magic Quadrant. Gartner, Inc.
positioned NetApp in the Leaders Quadrant for Midrange and High-End NAS
Solutions3.
NetApp NAS solutions are built on a unified storage
platform, providing customers of all sizes with increased flexibility and
performance along with industry-leading storage
efficiency capabilities.
|
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·
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NetApp ranked #2 on "Best
Workplaces in Canada" list. NetApp was ranked #2 on the "Best
Workplaces in Canada" list for 2010 and was also recognized as the top
workplace in Canada in the Respect category. NetApp now ranks in the top
20 places to work in 9 different regions, including #7 in the United
States.
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Mergers
and Acquisitions
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·
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NetApp acquires Bycast.
On May 13, 2010, NetApp completed its acquisition of Bycast Inc., a
privately held company headquartered in Vancouver, British Columbia,
Canada, in an all-cash transaction. Bycast extends NetApp's leadership
position in unified storage
by adding an object-based storage software
offering.
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Businesses
Built on NetApp
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·
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Weta
Digital, a world leader in visual effects, relied on NetApp storage in the
production of the record-breaking film Avatar. NetApp helped
reduce Weta's data management overhead by 95% and increase its storage
price-to-performance ratio by 40%.
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·
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J&B
Group turned to NetApp for its storage to support its perishable foods
production and distribution business. NetApp's storage efficiency
technology helped increase utilization to 67%, and storage requirements
for VMware virtual servers dropped from 4.5TB to 1.5TB, a 66%
reduction.
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·
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The
College of Saint Rose implemented NetApp and VMware virtualization
solutions to tackle the challenges of data growth, availability, and
reliability. NetApp thin provisioning and deduplication technologies
helped improve the college's storage efficiency, increasing utilization
rates by up to 85% and deferring $134,000 in hardware costs each
year.
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Webcast
and Conference Call Information
The
NetApp fourth quarter and fiscal year 2010 results conference call will be
broadcast live on the Internet at http://investors.netapp.com
on Wednesday, May 26, 2010, at 2:00 p.m. Pacific Time. This press release and
any other information related to the call will also be posted on the Web site at
that location. An audio replay Webcast will also be available after 4:00 p.m.
Pacific Time on our web site at http://investors.netapp.com.
NetApp is
now using a new hybrid format for disclosing key financial information
associated with our quarterly results. Concurrent with the press release, NetApp
will post and distribute a separate document with financial commentary and
statistics that were previously disclosed during our earnings calls. These
prepared remarks will be available prior to the conference call in order to
provide the investment community with additional time to analyze our results.
This commentary will not be read during the earnings call.
About
NetApp
NetApp
creates innovative storage and data management solutions that accelerate
business breakthroughs and deliver outstanding cost efficiency. Discover our
passion for helping companies around the world go further, faster at www.netapp.com.
“Safe
Harbor” Statement Under U.S. Private Securities Litigation Reform Act of
1995
This
press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements include all
of the statements under the Outlook section relating to our forecasted operating
results, share count, and metrics for the first quarter of fiscal year 2011, our
expectations regarding our current and new partnerships and strategic alliances
and the benefits that we expect our customers to realize from using our products
and those from our strategic alliances and partnerships. These forward-looking
statements involve risks and uncertainties, and actual results could vary.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements include customer demand for our products
and services; our ability to increase revenue and manage our operating costs;
increased competition risks associated with the anticipated growth in network
storage market; our ability to deliver new product architectures and enterprise
service offerings; our ability to design products and services that compete
effectively from a price and performance perspective; our reliance on a limited
number of suppliers; our ability to accurately forecast demand for our products;
and other important factors as described in NetApp reports and documents filed
from time to time with the Securities and Exchange Commission (SEC), including
the factors described under the sections captioned “Risk Factors” in our most
recently submitted 10-K and 10-Q. We disclaim any obligation to update
information contained in these forward-looking statements whether as a result of
new information, future events, or otherwise.
###
NetApp,
the NetApp logo, Go further, faster, and SANscreen are trademarks or registered
trademarks of NetApp, Inc. in the United States and/or other countries. VMware
is a registered trademark and vSphere is a trademark of VMware, Inc. All other
brands or products are trademarks or registered trademarks of their respective
holders and should be treated as such.
|
|
1GAAP
earnings per share is calculated using the diluted number of shares for
all periods presented.
|
|
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2Non-GAAP
results of operations exclude the GSA settlement, amortization of
intangible assets, stock-based compensation
expenses, acquisition related income and expenses, restructuring and
other charges, asset impairments, non-cash interest expense associated
with our convertible debt, net losses or gains on investments, and our
GAAP tax provision, including discrete items, 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. Non-GAAP earnings per
share is calculated using the diluted number of shares
for
all periods presented.
|
|
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3Gartner,
Inc. Magic Quadrant for Midrange and High-End NAS Solutions, Pushan
Rinnen, Robert E. Passmore, Roger W. Cox, March 15,
2010.
|
NetApp
Usage of Non-GAAP Financials
The
Company refers to the non-GAAP financial measures cited above in making
operating decisions because they provide meaningful supplemental information
regarding the Company's ongoing operational performance. Non-GAAP results of
operations exclude the GSA settlement, amortization of intangible
assets, stock-based compensation expenses, acquisition related income
and expenses, restructuring and other charges, asset impairments, non-cash
interest expense associated with our convertible debt, net losses or gains on
investments, and our GAAP tax provision, including discrete items, 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. We have excluded
these items in order to enhance investors’ understanding of our ongoing
operations. The use of these non-GAAP financial measures has material
limitations because they should not be used to evaluate our company without
reference to their corresponding GAAP financial measures. As such, we compensate
for these material limitations by using these non-GAAP financial measures in
conjunction with GAAP financial measures.
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. In addition, these
non-GAAP financial measures are used to measure company performance for the
purposes of determining employee incentive plan compensation. In addition, we
have historically reported similar non-GAAP financial measures to our investors
and believe that the inclusion of comparative numbers provides consistency in
our financial reporting at this time.
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NETAPP,
INC.
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||||||||
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CONDENSED
CONSOLIDATED BALANCE SHEETS
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||||||||
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(In
millions)
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||||||||
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(Unaudited)
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||||||||
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April
30, 2010
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April
24, 2009
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|||||||
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ASSETS
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||||||||
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Current
assets:
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||||||||
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Cash,
cash equivalents and investments
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$ | 3,724.0 | $ | 2,604.2 | ||||
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Accounts
receivable, net
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471.5 | 446.5 | ||||||
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Inventories
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112.9 | 61.1 | ||||||
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Other
current assets
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228.7 | 327.0 | ||||||
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Total
current assets
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4,537.1 | 3,438.8 | ||||||
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Property
and equipment, net
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804.4 | 807.9 | ||||||
|
Goodwill
and other intangible assets, net
|
706.1 | 726.7 | ||||||
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Long-term
investments and restricted cash
|
72.8 | 127.3 | ||||||
|
Other
non-current assets
|
374.0 | 283.7 | ||||||
| $ | 6,494.4 | $ | 5,384.4 | |||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 184.6 | $ | 137.8 | ||||
|
Accrued
compensation and other current liabilities
|
591.3 | 527.9 | ||||||
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Deferred
revenue
|
1,135.1 | 1,013.6 | ||||||
|
Total
current liabilities
|
1,911.0 | 1,679.3 | ||||||
|
Long-term
debt and other obligations
|
1,273.4 | 1,219.3 | ||||||
|
Long-term
deferred revenue
|
779.5 | 701.6 | ||||||
| 3,963.9 | 3,600.2 | |||||||
|
Stockholders'
equity
|
2,530.5 | 1,784.2 | ||||||
| $ | 6,494.4 | $ | 5,384.4 | |||||
|
NETAPP,
INC.
|
||||||||||||||||
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
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||||||||||||||||
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(In
millions, except net income per share amounts)
|
||||||||||||||||
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(Unaudited)
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||||||||||||||||
|
Three
Months Ended
|
Year
Ended
|
|||||||||||||||
|
April
30, 2010
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April
24, 2009
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April
30, 2010
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April
24, 2009
|
|||||||||||||
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Revenues:
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||||||||||||||||
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Product
|
$ | 758.8 | $ | 506.2 | $ | 2,381.1 | $ | 2,152.7 | ||||||||
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Software
entitlements and maintenance
|
173.8 | 164.6 | 679.8 | 618.3 | ||||||||||||
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Service
|
239.2 | 209.5 | 870.5 | 764.1 | ||||||||||||
|
GSA
settlement
|
- | (0.7 | ) | - | (128.7 | ) | ||||||||||
|
Net
revenues
|
1,171.8 | 879.6 | 3,931.4 | 3,406.4 | ||||||||||||
|
Cost
of revenues:
|
||||||||||||||||
|
Cost
of product
|
310.9 | 245.2 | 976.4 | 1,007.6 | ||||||||||||
|
Cost
of software entitlements and maintenance
|
3.1 | 2.4 | 12.3 | 9.2 | ||||||||||||
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Cost
of service
|
109.3 | 98.1 | 423.5 | 399.7 | ||||||||||||
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Total
cost of revenues
|
423.3 | 345.7 | 1,412.2 | 1,416.5 | ||||||||||||
|
Gross
profit
|
748.5 | 533.9 | 2,519.2 | 1,989.9 | ||||||||||||
|
Operating
expenses:
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||||||||||||||||
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Sales
and marketing
|
366.7 | 287.3 | 1,293.7 | 1,186.1 | ||||||||||||
|
Research
and development
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143.7 | 125.0 | 535.7 | 498.5 | ||||||||||||
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General
and administrative
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64.2 | 52.2 | 238.8 | 203.7 | ||||||||||||
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Restructuring
and other charges
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(0.2 | ) | 35.5 | 2.5 | 54.4 | |||||||||||
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Acquisition
related (income) expense, net
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1.2 | - | (39.9 | ) | - | |||||||||||
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Total
operating expenses
|
575.6 | 500.0 | 2,030.8 | 1,942.7 | ||||||||||||
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Income
from operations
|
172.9 | 33.9 | 488.4 | 47.2 | ||||||||||||
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Other
income (expenses), net
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||||||||||||||||
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Interest
income
|
8.1 | 11.7 | 31.2 | 57.6 | ||||||||||||
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Interest
expense
|
(18.8 | ) | (18.5 | ) | (74.1 | ) | (63.4 | ) | ||||||||
|
Other
income (expenses), net
|
1.7 | (2.4 | ) | 1.5 | (33.1 | ) | ||||||||||
|
Total
other expenses, net
|
(9.0 | ) | (9.2 | ) | (41.4 | ) | (38.9 | ) | ||||||||
|
Income
before income taxes
|
163.9 | 24.7 | 447.0 | 8.3 | ||||||||||||
|
Provision
for (benefit from) income taxes
|
18.8 | (43.7 | ) | 46.6 | (56.3 | ) | ||||||||||
|
Net
income
|
$ | 145.1 | $ | 68.4 | $ | 400.4 | $ | 64.6 | ||||||||
|
Net
income per share:
|
||||||||||||||||
|
Basic
|
$ | 0.42 | $ | 0.21 | $ | 1.18 | $ | 0.20 | ||||||||
|
Diluted
|
$ | 0.40 | $ | 0.21 | $ | 1.13 | $ | 0.19 | ||||||||
|
Shares
used in per share computation:
|
||||||||||||||||
|
Basic
|
346.1 | 330.9 | 339.6 | 330.3 | ||||||||||||
|
Diluted
|
364.5 | 333.1 | 353.2 | 334.6 | ||||||||||||
|
NETAPP,
INC.
|
||||||||||||||||
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOW
|
||||||||||||||||
|
(In
millions)
|
||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Three
Months Ended
|
Year
Ended
|
|||||||||||||||
|
April
30, 2010
|
April
24, 2009
|
April
30, 2010
|
April
24, 2009
|
|||||||||||||
|
Cash
Flows from Operating Activities:
|
||||||||||||||||
|
Net
income
|
$ | 145.1 | $ | 68.4 | $ | 400.4 | $ | 64.6 | ||||||||
|
Adjustments
to reconcile net income to net cash
|
||||||||||||||||
|
provided
by operating activities:
|
||||||||||||||||
|
Depreciation
and amortization
|
40.0 | 40.7 | 166.0 | 170.5 | ||||||||||||
|
Stock-based
compensation
|
37.8 | 42.2 | 159.8 | 140.8 | ||||||||||||
|
Accretion
of discount and issue costs on notes
|
13.1 | 12.2 | 50.8 | 41.0 | ||||||||||||
|
Other,
net
|
4.1 | (35.3 | ) | (1.6 | ) | (66.8 | ) | |||||||||
|
Tax
benefit from stock-based compensation
|
1.8 | 4.5 | (0.9 | ) | 45.4 | |||||||||||
|
Excess
tax benefit from stock-based compensation
|
(7.6 | ) | (1.8 | ) | (8.6 | ) | (36.7 | ) | ||||||||
|
Changes
in assets and liabilities:
|
||||||||||||||||
|
Accounts
receivable
|
(13.4 | ) | (101.6 | ) | (21.3 | ) | 128.7 | |||||||||
|
Inventories
|
(41.2 | ) | 21.1 | (52.1 | ) | 9.1 | ||||||||||
|
Accounts
payable
|
43.1 | 15.2 | 42.7 | (27.0 | ) | |||||||||||
|
Accrued
compensation and other current liabilities
|
112.4 | 49.7 | 53.2 | 190.5 | ||||||||||||
|
Deferred
revenue
|
116.6 | 81.3 | 176.7 | 219.3 | ||||||||||||
|
Changes
in other operating assets and liabilities, net
|
22.8 | (1.0 | ) | 9.9 | 9.8 | |||||||||||
|
Net
cash provided by operating activities
|
474.6 | 195.6 | 975.0 | 889.2 | ||||||||||||
|
Cash
Flows from Investing Activities:
|
||||||||||||||||
|
Purchases
and redemptions of investments, net
|
(768.9 | ) | (291.9 | ) | (860.3 | ) | (116.8 | ) | ||||||||
|
Reclassification
from cash and cash equivalents to short-term investments
|
- | - | - | (598.0 | ) | |||||||||||
|
Purchases
of property and equipment
|
(38.4 | ) | (134.7 | ) | (135.6 | ) | (289.6 | ) | ||||||||
|
Other
investing activities, net
|
4.1 | 0.7 | 8.2 | 1.1 | ||||||||||||
|
Net
cash used in investing activities
|
(803.2 | ) | (425.9 | ) | (987.7 | ) | (1,003.3 | ) | ||||||||
|
Cash
Flows from Financing Activities:
|
||||||||||||||||
|
Issuance
of common stock
|
40.4 | 16.6 | 197.1 | 85.9 | ||||||||||||
|
Repurchases
of common stock
|
- | - | - | (400.0 | ) | |||||||||||
|
Excess
tax benefit from stock-based compensation
|
7.6 | 1.8 | 8.6 | 36.7 | ||||||||||||
|
Issuance
of debt
|
- | - | - | 1,238.4 | ||||||||||||
|
Sale
of common stock warrants
|
- | - | - | 163.1 | ||||||||||||
|
Settlement
(purchase) of note hedge
|
14.2 | - | 14.2 | (254.9 | ) | |||||||||||
|
Repayment
of long-term debt
|
- | - | - | (172.6 | ) | |||||||||||
|
Net
cash provided by financing activities
|
62.2 | 18.4 | 219.9 | 696.6 | ||||||||||||
|
Effect
of Exchange Rate Changes on Cash and Cash Equivalents
|
(4.4 | ) | (2.1 | ) | 3.6 | (24.8 | ) | |||||||||
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(270.8 | ) | (214.0 | ) | 210.8 | 557.7 | ||||||||||
|
Cash
and Cash Equivalents:
|
||||||||||||||||
|
Beginning
of period
|
1,975.8 | 1,708.2 | 1,494.2 | 936.5 | ||||||||||||
|
End
of period
|
$ | 1,705.0 | $ | 1,494.2 | $ | 1,705.0 | $ | 1,494.2 | ||||||||
|
NETAPP,
INC.
|
||||||||||||||||||||||||||||||||||||
|
SUPPLEMENTAL
INFORMATION
|
||||||||||||||||||||||||||||||||||||
|
(In
millions)
|
||||||||||||||||||||||||||||||||||||
|
(Unaudited)
|
||||||||||||||||||||||||||||||||||||
|
Three
Months Ended April 30, 2010
|
||||||||||||||||||||||||||||||||||||
|
GSA
Settlement
|
Amortization
of Intangible Assets
|
Stock-based
Compensation Expenses
|
Asset
Impairment
|
Restructuring
and Other Charges
|
Acquisitions
related (income) expense, net
|
Non-Cash
Interest Expense
|
(Gain)
Loss on Investments, Net
|
Total
|
||||||||||||||||||||||||||||
|
Cost
of product revenues
|
- | $ | 4.1 | $ | 1.3 | - | - | - | - | - | $ | 5.4 | ||||||||||||||||||||||||
|
Cost
of service revenues
|
- | - | 3.5 | - | - | - | - | - | 3.5 | |||||||||||||||||||||||||||
|
Sales
and marketing expense
|
- | 0.8 | 16.9 | - | - | - | - | - | 17.7 | |||||||||||||||||||||||||||
|
Research
and development expense
|
- | - | 9.0 | - | - | - | - | - | 9.0 | |||||||||||||||||||||||||||
|
General
and administrative expense
|
- | - | 7.1 | - | - | - | - | - | 7.1 | |||||||||||||||||||||||||||
|
Restructuring
and other charges
|
- | - | - | - | (0.2 | ) | - | - | - | (0.2 | ) | |||||||||||||||||||||||||
|
Acquisitions
related (income) expense, net
|
- | - | - | - | - | 1.2 | - | - | 1.2 | |||||||||||||||||||||||||||
|
Interest
expense
|
- | - | - | - | - | - | 13.1 | - | 13.1 | |||||||||||||||||||||||||||
|
(Gain)
loss on investments, net
|
- | - | - | - | - | - | - | (1.2 | ) | (1.2 | ) | |||||||||||||||||||||||||
|
Effect
on income before income taxes
|
- | $ | 4.9 | $ | 37.8 | - | $ | (0.2 | ) | $ | 1.2 | $ | 13.1 | $ | (1.2 | ) | $ | 55.6 | ||||||||||||||||||
|
Year
Ended April 30, 2010
|
||||||||||||||||||||||||||||||||||||
|
GSA
Settlement
|
Amortization
of Intangible Assets
|
Stock-based
Compensation Expenses
|
Asset
Impairment
|
Restructuring
and Other Charges
|
Acquisitions
related (income) expense, net
|
Non-Cash
Interest Expense
|
(Gain)
Loss on Investments, Net
|
Total
|
||||||||||||||||||||||||||||
|
Cost
of product revenues
|
- | $ | 17.1 | $ | 4.0 | - | - | - | - | - | $ | 21.1 | ||||||||||||||||||||||||
|
Cost
of service revenues
|
- | - | 14.3 | - | - | - | - | - | 14.3 | |||||||||||||||||||||||||||
|
Sales
and marketing expense
|
- | 3.4 | 73.7 | - | - | - | - | - | 77.1 | |||||||||||||||||||||||||||
|
Research
and development expense
|
- | - | 38.5 | - | - | - | - | - | 38.5 | |||||||||||||||||||||||||||
|
General
and administrative expense
|
- | - | 29.3 | - | - | - | - | - | 29.3 | |||||||||||||||||||||||||||
|
Restructuring
and other charges
|
- | - | - | - | 2.5 | - | - | - | 2.5 | |||||||||||||||||||||||||||
|
Acquisitions
related (income) expense, net
|
- | - | - | - | - | (39.9 | ) | - | - | (39.9 | ) | |||||||||||||||||||||||||
|
Interest
expense
|
- | - | - | - | - | - | 50.8 | - | 50.8 | |||||||||||||||||||||||||||
|
(Gain)
loss on investments, net
|
- | - | - | - | - | - | - | (4.7 | ) | (4.7 | ) | |||||||||||||||||||||||||
|
Effect
on pre-tax income
|
- | $ | 20.5 | $ | 159.8 | - | $ | 2.5 | $ | (39.9 | ) | $ | 50.8 | $ | (4.7 | ) | $ | 189.0 | ||||||||||||||||||
|
Three
Months Ended April 24, 2009
|
||||||||||||||||||||||||||||||||||||
|
GSA
Settlement
|
Amortization
of Intangible Assets
|
Stock-based
Compensation Expenses
|
Asset
Impairment
|
Restructuring
and Other Charges
|
Acquisitions
related (income) expense, net
|
Non-Cash
Interest Expense
|
(Gain)
Loss on Investments, Net
|
Total
|
||||||||||||||||||||||||||||
|
Total
revenues
|
$ | 0.7 | - | - | - | - | - | - | - | $ | 0.7 | |||||||||||||||||||||||||
|
Cost
of product revenues
|
- | 4.9 | 1.0 | - | - | - | - | - | 5.9 | |||||||||||||||||||||||||||
|
Cost
of service revenues
|
- | - | 3.9 | - | - | - | - | - | 3.9 | |||||||||||||||||||||||||||
|
Sales
and marketing expense
|
- | 0.8 | 20.1 | - | - | - | - | - | 20.9 | |||||||||||||||||||||||||||
|
Research
and development expense
|
- | - | 11.3 | - | - | - | - | - | 11.3 | |||||||||||||||||||||||||||
|
General
and administrative expense
|
- | - | 5.9 | - | - | - | - | - | 5.9 | |||||||||||||||||||||||||||
|
Restructuring
and other charges
|
- | - | - | - | 35.5 | - | - | - | 35.5 | |||||||||||||||||||||||||||
|
Interest
expense
|
- | - | - | - | - | - | 11.0 | - | 11.0 | |||||||||||||||||||||||||||
|
(Gain)
loss on investments, net
|
- | - | - | - | - | - | 2.6 | 2.6 | ||||||||||||||||||||||||||||
|
Effect
on income before income taxes
|
$ | 0.7 | $ | 5.7 | $ | 42.2 | - | $ | 35.5 | - | $ | 11.0 | $ | 2.6 | $ | 97.7 | ||||||||||||||||||||
|
Year
Ended April 24, 2009
|
||||||||||||||||||||||||||||||||||||
|
GSA
Settlement
|
Amortization
of Intangible Assets
|
Stock-based
Compensation Expenses
|
Asset
Impairment
|
Restructuring
and Other Charges
|
Acquisitions
related (income) expense, net
|
Non-Cash
Interest Expense
|
(Gain)
Loss on Investments, Net
|
Total
|
||||||||||||||||||||||||||||
|
Total
revenues
|
$ | 128.7 | - | - | - | - | - | - | - | $ | 128.7 | |||||||||||||||||||||||||
|
Cost
of product revenues
|
- | 24.5 | 3.3 | - | - | - | - | - | 27.8 | |||||||||||||||||||||||||||
|
Cost
of service revenues
|
- | - | 12.3 | - | - | - | - | - | 12.3 | |||||||||||||||||||||||||||
|
Sales
and marketing expense
|
- | 4.4 | 65.1 | 9.4 | - | - | - | - | 78.9 | |||||||||||||||||||||||||||
|
Research
and development expense
|
- | - | 37.9 | - | - | - | - | - | 37.9 | |||||||||||||||||||||||||||
|
General
and administrative expense
|
- | - | 22.2 | - | - | - | - | - | 22.2 | |||||||||||||||||||||||||||
|
Restructuring
and other charges
|
- | - | - | - | 54.4 | - | - | - | 54.4 | |||||||||||||||||||||||||||
|
Interest
expense
|
- | - | - | - | - | - | 36.6 | - | 36.6 | |||||||||||||||||||||||||||
|
(Gain)
loss on investments, net
|
- | - | - | - | - | - | - | 29.6 | 29.6 | |||||||||||||||||||||||||||
|
Effect
on pre-tax income
|
$ | 128.7 | $ | 28.9 | $ | 140.8 | $ | 9.4 | $ | 54.4 | - | $ | 36.6 | $ | 29.6 | $ | 428.4 | |||||||||||||||||||
|
RECONCILIATION
OF NON-GAAP AND GAAP
|
||||||||||||||||
|
IN
THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||||||
|
(In
millions, except net income per share amounts)
|
||||||||||||||||
|
(Unaudited)
|
||||||||||||||||
|
Three
Months Ended
|
Year
Ended
|
|||||||||||||||
|
April
30, 2010
|
April
24, 2009
|
April
30, 2010
|
April
24, 2009
|
|||||||||||||
|
SUMMARY RECONCILIATION OF NET
INCOME
|
||||||||||||||||
|
NET
INCOME
|
$ | 145.1 | $ | 68.4 | $ | 400.4 | $ | 64.6 | ||||||||
|
Adjustments:
|
||||||||||||||||
|
GSA settlement
|
- | 0.7 | - | 128.7 | ||||||||||||
|
Amortization
of intangible assets
|
4.9 | 5.7 | 20.5 | 28.9 | ||||||||||||
|
Stock-based
compensation expenses
|
37.8 | 42.2 | 159.8 | 140.8 | ||||||||||||
|
Asset
impairment
|
- | - | - | 9.4 | ||||||||||||
|
Restructuring
and other charges
|
(0.2 | ) | 35.5 | 2.5 | 54.4 | |||||||||||
|
Acquisitions
related (income) expense, net
|
1.2 | - | (39.9 | ) | - | |||||||||||
|
Non-cash
interest expense
|
13.1 | 11.0 | 50.8 | 36.6 | ||||||||||||
|
(Gain)
loss on investments, net
|
(1.2 | ) | 2.6 | (4.7 | ) | 29.6 | ||||||||||
|
Discrete
GAAP tax provision items
|
(13.1 | ) | 6.5 | (20.4 | ) | 6.9 | ||||||||||
|
Income
tax effect
|
(4.5 | ) | (69.8 | ) | (36.0 | ) | (135.6 | ) | ||||||||
|
NON-GAAP
NET INCOME
|
$ | 183.1 | $ | 102.8 | $ | 533.0 | $ | 364.3 | ||||||||
|
NET
INCOME PER SHARE
|
$ | 0.398 | $ | 0.205 | $ | 1.134 | $ | 0.193 | ||||||||
|
Adjustments:
|
||||||||||||||||
|
GSA settlement
|
- | 0.002 | - | 0.385 | ||||||||||||
|
Amortization
of intangible assets
|
0.013 | 0.017 | 0.058 | 0.086 | ||||||||||||
|
Stock-based
compensation expenses
|
0.104 | 0.127 | 0.452 | 0.421 | ||||||||||||
|
Asset
impairment
|
- | - | - | 0.028 | ||||||||||||
|
Restructuring
and other charges
|
(0.001 | ) | 0.106 | 0.007 | 0.163 | |||||||||||
|
Acquisitions
related (income) expense, net
|
0.003 | - | (0.113 | ) | - | |||||||||||
|
Non-cash
interest expense
|
0.036 | 0.033 | 0.144 | 0.109 | ||||||||||||
|
(Gain)
loss on investments, net
|
(0.003 | ) | 0.008 | (0.013 | ) | 0.088 | ||||||||||
|
Discrete
GAAP tax provision items
|
(0.036 | ) | 0.020 | (0.058 | ) | 0.021 | ||||||||||
|
Income
tax effect
|
(0.012 | ) | (0.210 | ) | (0.102 | ) | (0.405 | ) | ||||||||
|
NON-GAAP
NET INCOME PER SHARE
|
$ | 0.502 | $ | 0.308 | $ | 1.509 | $ | 1.089 | ||||||||
| NETAPP, INC. | |||||
| RECONCILIATION OF NON GAAP GUIDANCE TO GAAP | |||||
| EXPRESSED AS EARNINGS PER SHARE | |||||
| FIRST QUARTER 2011 | |||||
| (Unaudited) | |||||
|
First
Quarter
|
|||||
|
2011
|
|||||
|
Non-GAAP
Guidance
|
$0.43 - $0.47 | ||||
|
Adjustments
of Specific Items to
|
|||||
|
Net
Income Per Share for the First
|
|||||
|
Quarter
2011:
|
|||||
|
Stock
based compensation expense
|
(0.11) | ||||
|
Amortization
of intangible assets
|
(0.01) | ||||
|
Non
cash interest expense
|
(0.03) | ||||
|
Income
tax effect
|
0.03 | ||||
|
Total
Adjustments
|
(0.12) | ||||
|
GAAP
Guidance -Net Income Per Share
|
$0.31 - $0.35 | ||||
Exhibit
99.2
NetApp Q4 and FY10
Earnings Results
Supplemental
Commentary
May 26,
2010
The
information in this written commentary, which was historically presented during
our live conference call, is now being provided to the investment community
concurrently with our press release to allow for additional time for review and
analysis prior to commencement of the live call. Please note that these prepared
remarks will not be read during the call. The live call will focus on strategic
commentary from the CEO and CFO, followed by Q&A.
Safe
Harbor Statement
These
prepared remarks contain forward-looking statements and projections that involve
risk and uncertainty, including statements regarding our
financial performance for the fourth quarter of fiscal 2010. Actual
results may differ materially from our statements or projections. Factors that
could cause actual results to differ from our projections include, but are not
limited to, customer demand for our products and services; our ability to
increase revenue and manage our operating costs; increased competition risks
associated with the anticipated growth in the networked storage market; our
ability to deliver new product architectures and enterprise service offerings;
our ability to design products and services that compete effectively from a
price and performance perspective; our reliance on a limited number of
suppliers; and our ability to accurately forecast demand for our products. Other
equally important factors are detailed in our accompanying press release as well
as in our 10-K and 10-Q reports on file with the SEC and also available on our
website, all of which are incorporated by reference into today’s
commentary.
All
numbers stated herein are stated in accordance with U.S. Generally Accepted
Accounting Principles (GAAP) unless stated otherwise. To see the reconciling
items between our non-GAAP and GAAP financial information, refer to the table at
the end of this document, as well as in our press release and on our
website.
Fiscal
2010 Highlights
In fiscal
2010, NetApp achieved company records in several categories, including revenue,
income from operations, and net income per share.
Year over
Year Overview
|
FY2010
|
FY20091
|
Year/Year
Growth
|
|
|
Non-GAAP
Net Revenue
|
$3,931M
|
$3,535M
|
11%
|
|
Non-GAAP
Gross Margin
|
65.0%
|
61.1%
|
|
|
Non-GAAP
Operating Expenses
|
$1,923M
|
$1,749M
|
10%
|
|
Non-GAAP
Income from Operations
|
$631M
|
$409M
|
54%
|
|
Non-GAAP
Operating Margin
|
16.1%
|
11.6%
|
|
|
Non-GAAP
Net Income per Share, Diluted
|
$1.51
|
$1.09
|
39%
|
Fiscal
year 2010 revenue was $3.93 billion, an 11% increase over FY2009 net revenue.
Non-GAAP gross margins were 65%, up from 61.1% in FY 2009, due to a favorable
revenue mix as well as favorable trends in materials cost for low-end and
mid-range systems. Non-GAAP operating expenses were up 10% year over
year. We returned to our targeted non-GAAP operating margin of
approximately 16%, up from our FY2009 operating margin of 11.6%. These
improvements in profitability are reflected in our non-GAAP net income per
share, which rose 39% from $1.09 in FY 2009 to $1.51 in FY2010.
1 GAAP revenue in FY2009 was $3,406 million,
Non-GAAP revenue in FY2009 excludes the impact of the $129 million GSA
settlement
Q4 Fiscal
2010 Overview
In the
fourth quarter, NetApp achieved record performance in revenue, income from
operations, net income per share, deferred revenue, cash flow from operations,
and units shipped. As customers increasingly turn to server
virtualization and the benefits of cloud computing to reduce IT costs, they are
choosing NetApp for the storage efficiency and flexibility we provide as they
begin to re-architect their data centers for a virtual future.
Revenue
|
Q4
FY10 Revenue
|
%
of Q4 FY10 Revenue
|
Sequential Growth2
|
Year/Year
Growth
|
|
|
Product
Revenue
|
$759M
|
65%
|
23%
|
50%
|
|
Software
Entitlements
&
Maintenance
|
$174M
|
15%
|
2%
|
6%
|
|
Service
|
$239M
|
20%
|
8%
|
14%
|
|
Net
Revenue
|
$1,172M
|
100%
|
16%
|
33%
|
Revenue
for the fourth quarter was $1.17 billion, increasing 16% sequentially and 33%
year over year. Foreign currency effects3 decreased our
sequential results by approximately one percentage point and increased our year
over year growth rate by approximately two percentage points.
2 Sequential growth calculation based upon
Q3FY10 results, which can be found at www.investor.netapp.com
3 Foreign currency effects represent the
translation effect of changes in average foreign exchange rates between the
current period and the comparative prior periods (or, in the case of deferred
revenue, the exchange rate in effect when the transaction was invoiced), less
current period actual net gains or losses on revenue hedging activities.
Product
revenue grew 23% sequentially and increased 50% year over year to $759 million.
The product component of our revenue mix increased to 65% of total revenue, up
strongly from 61% last quarter.
Revenue
from software entitlements and maintenance (SEM), which is a deferred revenue
element and is recognized ratably over the related contract period, was $174
million, or 15% of total revenue. SEM was up 2% sequentially and up 6% year over
year, reflecting the slower business growth rates of prior
periods. Product revenue growth can be viewed as a leading indicator
for future SEM revenue growth. The average contract life on the
balance sheet for SEM is approximately 32 months.
Service
revenue was $239 million, up 8% sequentially and up 14% over 2009 Q4
revenue. Service revenue represented 20% of total revenue and is comprised
mainly of hardware maintenance support contracts and professional
services.
|
·
|
Revenue
from hardware maintenance support contracts, which is also a deferred
revenue element, comprised approximately 62% of our services revenue this
quarter, increasing 5% sequentially and 19% year over
year.
|
|
·
|
The
professional services component of service revenue increased 15%
sequentially and was up 7% year over
year.
|
Gross
Margin
|
Q4
FY10
|
Q3
FY10
|
Q4
FY09
|
|
|
Non-GAAP
Gross Margin
|
64.6%
|
64.2%
|
61.8%
|
|
Product
|
59.7%
|
59.8%
|
52.7%
|
|
S/W
Entitlements & Maintenance
|
98.2%
|
98.3%
|
98.5%
|
|
Services
|
55.8%
|
50.4%
|
55.0%
|
On a
non-GAAP basis, consolidated gross margin was 64.6% of revenue this quarter, a
slight increase from Q3 results. There were no significant changes in
non-GAAP product or SEM gross margins from the prior quarter. Non-GAAP service
margin increased five percentage points sequentially to 55.8%, due primarily to
a seasonal increase in professional services work completed.
Operating
Expenses
|
Q4
FY10
|
Q3
FY10
|
Q4
FY09
|
|
|
Non-GAAP
Operating Expenses
|
$541M
|
$479M
|
$426M
|
Non-GAAP
operating expenses increased 13% sequentially and were up 27% year over year,
totaling $541 million or 46% of revenue in Q4. Headcount increased by a net
of 159 people to 8,333 at the end of the quarter, consistent with our plan to
increase our sales and engineering staff worldwide.
On a GAAP
basis, Q4 operating expenses include $33 million of stock compensation compared
to $32 million in Q3, as well as amortization of intangible assets associated
with prior acquisitions, current period impact of prior restructuring actions
and acquisition related expenses.
Income
from Operations & Other Income
|
Q4
FY10
|
Q3
FY10
|
Q4
FY09
|
|
|
Non-GAAP
Income from Operations
|
$217M
|
$171M
|
$118M
|
|
Non-GAAP
Other Income (Expense), Net
|
$3M
|
$0.33M
|
$4.4M
|
|
Non-GAAP
Income Before Income Taxes
|
$220M
|
$171M
|
$122M
|
|
Non-GAAP
Effective Tax Rate
|
16.6%
|
16.0%
|
16.0%
|
|
Non-GAAP
Net Income
|
$183M
|
$144M
|
$103M
|
|
Non-GAAP
Net Income per Share, Diluted
|
$0.50
|
$0.40
|
$0.31
|
Non-GAAP
income from operations was up 27% sequentially and 84% year over year to $217
million, or 18.5% of revenue, significantly outpacing our target operating
margin of approximately 16%.
Non-GAAP
other income and expense increased to $3 million, primarily due to realized
gains on investments as well as a shift toward longer-term investment
vehicles. GAAP other income (expense) also includes $13 million of
non-cash interest expense associated with our convertible debt.
Non-GAAP
income before income taxes was $220 million or 18.7% of revenue, up from 16.9%
in Q3. Our non-GAAP provision for income tax was $36 million, up from $27
million in Q3, and our effective tax rate increased to 16.6% from our average of
16% in prior quarters due to a year-end true-up. As a result, our
non-GAAP effective tax rate for FY2010 was 16.2%. Our diluted share count
increased sequentially by 4.2 million shares to 365 million shares
outstanding.
Non-GAAP
net income totaled $183 million, or $0.50 per share, another record for
NetApp.
Select
Balance Sheet Items
|
Q4
FY10
|
Q3
FY10
|
Q4FY09
|
|
|
Cash,
Cash Equivalents & Investments
|
$3.7B
|
$3.2B
|
$2.6B
|
|
Deferred
Revenue
|
$1.9B
|
$1.8B
|
$1.7B
|
|
DSO
(days)4
|
37
|
41
|
46
|
|
Inventory
Turns5
|
14.7
|
20.2
|
22.1
|
During
Q4, our cash and short term investments grew by $491 million, ending the quarter
at $3.7 billion, up 15% sequentially and up 43% year over year. Of
this Q4 FY10 balance, 56% was in the United States.
The total
deferred revenue balance of $1.9 billion reflects a sequential increase of
approximately $120 million this quarter and a 12% increase in the balance year
over year.
With
respect to DSO, accounts receivable days sales outstanding were 37 days this
quarter, compared to 41 days last quarter and 46 days in Q4 last
year. The strong DSO performance is attributable to record collection
efforts on the part of our accounts receivables team. At the end of Q4, 93% of
our receivables balance was current. Inventory turns were down from 20.2
turns in Q3 to 14.7 turns, a side effect of the rapid growth we are experiencing
and the unpredictable spot shortages of some parts.
Select
Cash Flow Statement Items
|
Q4
FY10
|
Q3
FY10
|
Q4
FY09
|
|
|
Net
Cash Provided by Operating Activities
|
$475M
|
$195M
|
$196M
|
|
Purchases
of Property and Equipment
|
$38M
|
$50M
|
$135M
|
|
Free
Cash Flow6
|
$436M
|
$145M
|
$61M
|
|
Free
Cash Flow as % of Net Revenue
|
37%
|
14%
|
7%
|
Net cash
provided by operating activities was $475 million, more than doubling both
sequentially and year over year, primarily due to strong growth in net income,
increased deferred revenue, and well managed receivables. Capital
expenditures were about $38 million, down from $50 million last
quarter.
Free cash
flow totaled $436 million, over three times higher than Q3 levels. Expressed as
a percent of revenue, Q4 free cash flow was 37% of net revenue, well above our
average range.
Q1
FY11 Outlook
|
Q1
FY11 Outlook
|
|
|
Revenue
|
$1,100M
– $1,140M
|
|
Share
Count
|
Approximately
370M
|
|
Non-GAAP
Net Income per Share, Diluted
|
$0.43
- $0.47
|
|
GAAP
Net Income per Share, Diluted
|
$0.31
- $0.35
|
This
forecast is based on current business expectations and current market
conditions.
Other Business Metrics
6 Free cash
flow is defined as net cash provided by operating activities less cash purchases
of property and equipment
Geographic
Mix
|
%
of Q4 FY10 Revenue
|
Q4
FY10 Revenue
|
Year/Year
Growth
|
|
|
Americas
|
54%
|
$639M
|
34%
|
|
U.S. Public Sector
|
11%
|
$133M
|
30%
|
|
EMEA
|
36%
|
$419M
|
32%
|
|
AsiaPacific
|
10%
|
$113M
|
31%
|
The
Americas generated revenue of $639 million, up 11% sequentially and up 34% year
over year, contributing 54% of total revenue. Included in the Americas numbers,
the US Public Sector Team delivered 11% of total revenue, which was seasonally
down by approximately 7% sequentially, though up 30% year over
year.
EMEA
revenue increased 24% sequentially and 32% year over year to $419 million,
comprising 36% of total revenue. AsiaPacific revenue was $113 million, an
increase of 14% sequentially and 31% year over year, for a total of 10% of
revenue this quarter.
Channel
Mix
Both our
direct and indirect channels posted increases in revenue during the fourth
quarter. Consistent with our strategy, our indirect channel continues to grow
faster than our direct channel. Direct revenue was 29% of total
revenue, increasing 10% sequentially and 19% year over year. Indirect
revenues, generated by channel and OEM partners, contributed 71% of total
revenues in the quarter. Indirect revenues increased 19% sequentially
and 40% over Q4 last year. Within the indirect channel, Arrow
continued last quarter’s record pace of 16% of total revenue, while Avnet was
down slightly to 11% of revenue from last quarter’s record of 12% of revenue.
Revenue from the IBM OEM partnership was 3% of total revenue, up 2% over their
absolute dollar contribution in Q4 last year.
Customer
Dynamics
This
quarter’s top 100 accounts contributed approximately 42% of total Q4 revenue,
about the same level as in Q3FY10. In FY10 we added 121 net new
Storage50007
accounts, down modestly from the record high number added in FY09.
Protocol
Trends
|
Q4
FY09
|
Q1
FY10
|
Q2
FY10
|
Q3
FY10
|
Q4FY10
|
|
|
NAS
|
47%
|
51%
|
48%
|
42%
|
41%
|
|
SAN
|
14%
|
15%
|
19%
|
15%
|
16%
|
|
Unified
|
39%
|
35%
|
34%
|
42%
|
42%
|
For over
eight years, NetApp has been shipping storage systems which support multiple
protocols concurrently on every system—a capability called Unified Storage. We
have shipped over 150,000 Unified Storage systems since we pioneered this
innovation in 2002. This quarter the unified storage percentage of our
configured system product revenue continued at record levels.
We
continue to actively bundle and sell more of our systems in a Unified
configuration. In addition, since all of our systems enable the use of multiple
protocols for applications, we have found that our installed base usage
profiles—especially for protocols— frequently changes after installation, while
the system configuration sold does not. As a result, we have come to the
conclusion that trying to partition our revenues across the traditional NAS and
SAN categories at time of shipment it is no longer meaningful, therefore this
will be the last quarter in which we provide the data in the chart
above.
Platform
Trends
Total
system units shipped grew 10% sequentially again this quarter and also increased
52% over Q4 last year. The standout growth segment this quarter was our
mid-range, which grew 36% sequentially and 40% year over year. Sales
of high-end units were also up strongly this quarter, growing 27% sequentially
and 48% year over year. While low end units were down modestly from
last quarter’s record levels, they were up 61% over Q4 of last
year.
7 The
Storage 5000 is a proprietary NetApp list of companies we believe to be the
5,000 largest buyers of storage worldwide
Our
V-Series platform, which is our controller and data management software without
any disks, reached a milestone 5,000 units shipped since inception this quarter.
Units of V-Series shipped were up 80% sequentially and over 230% higher year
over year.
Capacity
Trends
|
(in
Petabytes)
|
Q4
FY09
|
Q1
FY10
|
Q2
FY10
|
Q3
FY10
|
Q4
FY10
|
|
Fibre
Channel
|
72
|
69
|
79
|
88
|
99
|
|
ATA
|
165
|
175
|
173
|
209
|
298
|
|
SAS
|
8
|
7
|
8
|
29
|
49
|
|
Total
|
245
|
250
|
260
|
326
|
445
|
Total
petabytes shipped grew 37% sequentially and 82% year over year to 445 petabytes.
The mix of drive capacity continued to trend toward SAS and ATA, with ATA
remaining by far the largest segment as customers utilize our efficiency
features to get more out of our storage on less expensive drives.
Additional
Information
For more
detailed information about our solutions, corporate strategy and our
go-to-market initiatives, please visit our website at
www.netapp.com.
NetApp
Usage of Non-GAAP Financials
The
Company refers to the non-GAAP financial measures cited above in making
operating decisions because they provide meaningful supplemental information
regarding the Company's operational performance. Non-GAAP operating results and
net income exclude the GSA settlement, amortization of intangible
assets, stock-based compensation expenses, acquisition related income
and expenses, restructuring and other charges, asset impairments, non-cash
interest expense associated with our convertible debt, net losses or gains on
investments, and our GAAP tax provision, including discrete items, but includes
a non-GAAP tax provision based upon projected annual non-GAAP effective tax
rates for the first three quarters of the fiscal year and an actual non-GAAP
provision for the fourth quarter. We have excluded these items in order to
enhance investors’ understanding of our ongoing operations. The use of
these non-GAAP financial measures has material limitations because they should
not be used to evaluate our company without reference to their
corresponding GAAP financial measures. As such, we compensate for these material
limitations by using these non-GAAP financial measures in conjunction
with GAAP financial measures.
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. In addition,
these non-GAAP financial measures are used to measure company performance for
the purposes of determining employee incentive plan compensation.
Non-GAAP
to GAAP Reconciliation
|
NETAPP,
INC.
|
||||||||||||
|
RECONCILIATION
OF NON-GAAP AND GAAP
|
||||||||||||
|
IN
THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||
|
(In
millions, except net income per share amounts)
|
||||||||||||
|
(Unaudited)
|
||||||||||||
|
Three
Months Ended
|
||||||||||||
|
April
30, 2010
|
April
24, 2009
|
January
29, 2010
|
||||||||||
|
SUMMARY RECONCILIATION OF NET
INCOME
|
||||||||||||
|
NET
INCOME
|
$ | 145.1 | $ | 68.4 | $ | 107.9 | ||||||
|
Adjustments:
|
||||||||||||
|
GSA
settlement
|
- | 0.7 | - | |||||||||
|
Amortization
of intangible assets
|
4.9 | 5.7 | 4.9 | |||||||||
|
Stock-based
compensation expenses
|
37.8 | 42.2 | 36.6 | |||||||||
|
Restructuring
and other charges
|
(0.2 | ) | 35.5 | 0.1 | ||||||||
|
Acquisitions
related (income) expense, net
|
1.2 | - | - | |||||||||
|
Non-cash
interest expense
|
13.1 | 11.0 | 12.4 | |||||||||
|
(Gain)
loss on investments, net
|
(1.2 | ) | 2.6 | (0.7 | ) | |||||||
|
Discrete
GAAP tax provision items
|
(13.1 | ) | 6.5 | 0.6 | ||||||||
|
Income
tax effect
|
(4.5 | ) | (69.8 | ) | (18.0 | ) | ||||||
|
NON-GAAP
NET INCOME
|
$ | 183.1 | $ | 102.8 | $ | 143.8 | ||||||
|
DETAILED RECONCILIATION OF SPECIFIC
ITEMS:
|
||||||||||||
|
TOTAL
NET REVENUES
|
$ | 1,171.8 | $ | 879.6 | $ | 1,011.7 | ||||||
|
Adjustment:
|
||||||||||||
|
GSA
settlement
|
- | 0.7 | - | |||||||||
|
NON-GAAP
TOTAL NET REVENUES
|
$ | 1,171.8 | $ | 880.3 | $ | 1,011.7 | ||||||
|
COST
OF REVENUES
|
$ | 423.3 | $ | 345.7 | $ | 370.1 | ||||||
|
Adjustment:
|
||||||||||||
|
Amortization
of intangible assets
|
(4.1 | ) | (4.9 | ) | (4.1 | ) | ||||||
|
Stock-based
compensation expenses
|
(4.8 | ) | (4.9 | ) | (4.3 | ) | ||||||
|
NON-GAAP
COST OF REVENUES
|
$ | 414.4 | $ | 335.9 | $ | 361.7 | ||||||
|
COST
OF PRODUCT REVENUES
|
$ | 310.9 | $ | 245.2 | $ | 253.9 | ||||||
|
Adjustment:
|
||||||||||||
|
Amortization
of intangible assets
|
(4.1 | ) | (4.9 | ) | (4.1 | ) | ||||||
|
Stock-based
compensation expenses
|
(1.3 | ) | (1.0 | ) | (1.0 | ) | ||||||
|
NON-GAAP
COST OF PRODUCT REVENUES
|
$ | 305.5 | $ | 239.3 | $ | 248.8 | ||||||
|
COST
OF SERVICE REVENUES
|
$ | 109.3 | $ | 98.1 | $ | 113.3 | ||||||
|
Adjustment:
|
||||||||||||
|
Stock-based
compensation expenses
|
(3.5 | ) | (3.9 | ) | (3.3 | ) | ||||||
|
NON-GAAP
COST OF SERVICE REVENUES
|
$ | 105.8 | $ | 94.2 | $ | 110.0 | ||||||
|
GROSS
PROFIT
|
$ | 748.5 | $ | 533.9 | $ | 641.5 | ||||||
|
Adjustment:
|
||||||||||||
|
GSA
settlement
|
- | 0.7 | - | |||||||||
|
Amortization
of intangible assets
|
4.1 | 4.9 | 4.1 | |||||||||
|
Stock-based
compensation expenses
|
4.8 | 4.9 | 4.3 | |||||||||
|
NON-GAAP
GROSS PROFIT
|
$ | 757.4 | $ | 544.4 | $ | 649.9 | ||||||
|
SALES
AND MARKETING EXPENSES
|
$ | 366.7 | $ | 287.3 | $ | 324.8 | ||||||
|
Adjustments:
|
||||||||||||
|
Amortization
of intangible assets
|
(0.8 | ) | (0.8 | ) | (0.8 | ) | ||||||
|
Stock-based
compensation expenses
|
(16.9 | ) | (20.1 | ) | (17.2 | ) | ||||||
|
NON-GAAP
SALES AND MARKETING EXPENSES
|
$ | 349.0 | $ | 266.4 | $ | 306.8 | ||||||
|
RESEARCH
AND DEVELOPMENT EXPENSES
|
$ | 143.7 | $ | 125.0 | $ | 129.3 | ||||||
|
Adjustments:
|
||||||||||||
|
Stock-based
compensation expenses
|
(9.0 | ) | (11.3 | ) | (8.9 | ) | ||||||
|
NON-GAAP
RESEARCH AND DEVELOPMENT EXPENSES
|
$ | 134.7 | $ | 113.7 | $ | 120.4 | ||||||
|
GENERAL
AND ADMINISTRATIVE EXPENSES
|
$ | 64.2 | $ | 52.2 | $ | 58.1 | ||||||
|
Adjustments:
|
||||||||||||
|
Stock-based
compensation expenses
|
(7.1 | ) | (5.9 | ) | (6.2 | ) | ||||||
|
NON-GAAP
GENERAL AND ADMINISTRATIVE EXPENSES
|
$ | 57.1 | $ | 46.3 | $ | 51.9 | ||||||
|
OPERATING
EXPENSES
|
$ | 575.6 | $ | 500.0 | $ | 512.2 | ||||||
|
Adjustments:
|
||||||||||||
|
Amortization
of intangible assets
|
(0.8 | ) | (0.8 | ) | (0.8 | ) | ||||||
|
Stock-based
compensation expenses
|
(33.0 | ) | (37.3 | ) | (32.3 | ) | ||||||
|
Restructuring
and other charges
|
0.2 | (35.5 | ) | (0.1 | ) | |||||||
|
Acquisitions
related (income) expense, net
|
(1.2 | ) | - | - | ||||||||
|
NON-GAAP
OPERATING EXPENSES
|
$ | 540.8 | $ | 426.4 | $ | 479.0 | ||||||
|
INCOME
FROM OPERATIONS
|
$ | 172.9 | $ | 33.9 | $ | 129.3 | ||||||
|
Adjustments:
|
||||||||||||
|
GSA settlement
|
- | 0.7 | - | |||||||||
|
Amortization
of intangible assets
|
4.9 | 5.7 | 4.9 | |||||||||
|
Stock-based
compensation expenses
|
37.8 | 42.2 | 36.6 | |||||||||
|
Restructuring
and other charges
|
(0.2 | ) | 35.5 | 0.1 | ||||||||
|
Acquisitions
related (income) expense, net
|
1.2 | - | - | |||||||||
|
NON-GAAP
INCOME FROM OPERATIONS
|
$ | 216.6 | $ | 118.0 | $ | 170.9 | ||||||
|
TOTAL
OTHER INCOME (EXPENSES), NET
|
$ | (9.0 | ) | $ | (9.2 | ) | $ | (11.4 | ) | |||
|
Adjustments:
|
||||||||||||
|
Non-cash
interest expense
|
13.1 | 11.0 | 12.4 | |||||||||
|
(Gain)
loss on investments, net
|
(1.2 | ) | 2.6 | (0.7 | ) | |||||||
|
NON-GAAP
TOTAL OTHER INCOME (EXPENSES), NET
|
$ | 2.9 | $ | 4.4 | $ | 0.3 | ||||||
|
INCOME
BEFORE INCOME TAXES
|
$ | 163.9 | $ | 24.7 | $ | 117.9 | ||||||
|
Adjustments:
|
||||||||||||
|
GSA
settlement
|
- | 0.7 | - | |||||||||
|
Amortization
of intangible assets
|
4.9 | 5.7 | 4.9 | |||||||||
|
Stock-based
compensation expenses
|
37.8 | 42.2 | 36.6 | |||||||||
|
Restructuring
and other charges
|
(0.2 | ) | 35.5 | 0.1 | ||||||||
|
Acquisitions
related (income) expense, net
|
1.2 | - | - | |||||||||
|
Non-cash
interest expense
|
13.1 | 11.0 | 12.4 | |||||||||
|
(Gain)
loss on investments, net
|
(1.2 | ) | 2.6 | (0.7 | ) | |||||||
|
NON-GAAP
INCOME BEFORE INCOME TAXES
|
$ | 219.5 | $ | 122.4 | $ | 171.2 | ||||||
|
PROVISION
FOR (BENEFIT FROM) INCOME TAXES
|
$ | 18.8 | $ | (43.7 | ) | $ | 10.0 | |||||
|
Adjustments:
|
||||||||||||
|
Discrete
GAAP tax provision items
|
13.1 | (6.5 | ) | (0.6 | ) | |||||||
|
Income
tax effect
|
4.5 | 69.8 | 18.0 | |||||||||
|
NON-GAAP
PROVISION FOR INCOME TAXES
|
$ | 36.4 | $ | 19.6 | $ | 27.4 | ||||||
|
NET
INCOME PER SHARE
|
$ | 0.398 | $ | 0.205 | $ | 0.299 | ||||||
|
Adjustments:
|
||||||||||||
|
GSA settlement
|
- | 0.002 | - | |||||||||
|
Amortization
of intangible assets
|
0.013 | 0.017 | 0.013 | |||||||||
|
Stock-based
compensation expenses
|
0.104 | 0.127 | 0.102 | |||||||||
|
Restructuring
and other charges
|
(0.001 | ) | 0.106 | - | ||||||||
|
Acquisitions
related (income) expense, net
|
0.003 | - | - | |||||||||
|
Non-cash
interest expense
|
0.036 | 0.033 | 0.035 | |||||||||
|
(Gain)
loss on investments, net
|
(0.003 | ) | 0.008 | (0.002 | ) | |||||||
|
Discrete
GAAP tax provision items
|
(0.036 | ) | 0.020 | 0.002 | ||||||||
|
Income
tax effect
|
(0.012 | ) | (0.210 | ) | (0.050 | ) | ||||||
|
NON-GAAP
NET INCOME PER SHARE
|
$ | 0.502 | $ | 0.308 | $ | 0.399 |
Reg G Schedule
|
NETAPP,
INC.
|
|
|
RECONCILIATION
OF NON GAAP GUIDANCE TO GAAP
|
|
|
EXPRESSED
AS EARNINGS PER SHARE
|
|
|
FIRST
QUARTER 2011
|
|
|
(Unaudited)
|
|
|
First
Quarter
|
|
|
2011
|
|
|
Non-GAAP
Guidance
|
$0.43
- $0.47
|
|
Adjustments
of Specific Items to
|
|
|
Net
Income Per Share for the First
|
|
|
Quarter
2011:
|
|
|
Stock
based compensation expense
|
(0.11)
|
|
Amortization
of intangible assets
|
(0.01)
|
|
Non
cash interest expense
|
(0.03)
|
|
Income
tax effect
|
0.03
|
|
Total
Adjustments
|
(0.12)
|
|
GAAP
Guidance -Net Income Per Share
|
$0.31
- $0.35
|
