10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 28, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-27130

NetApp, Inc.

(Exact name of registrant as specified in its charter)

Delaware

77-0307520

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

3060 Olsen Drive,

San Jose, California 95128

(Address of principal executive offices, including zip code)

(408) 822-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

 

Name of exchange on which registered

Common Stock, $0.001 Par Value

NTAP

 

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 23, 2023, there were 208,791,155 shares of the registrant’s common stock, $0.001 par value, outstanding.


TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

 

 

 

 

 

Item 1

Condensed Consolidated Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets as of July 28, 2023 and April 28, 2023

3

Condensed Consolidated Statements of Income for the Three Months Ended July 28, 2023 and July 29, 2022

4

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended July 28, 2023 and July 29, 2022

5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended July 28, 2023 and July 29, 2022

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended July 28, 2023 and July 29, 2022

 

7

Notes to Condensed Consolidated Financial Statements

8

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4

Controls and Procedures

36

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

Item 1

Legal Proceedings

37

Item 1A

Risk Factors

37

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3

Defaults upon Senior Securities

37

Item 4

Mine Safety Disclosures

37

Item 5

Other Information

37

Item 6

Exhibits

38

SIGNATURE

39

 

TRADEMARKS

© 2023 NetApp, Inc. All Rights Reserved. No portions of this document may be reproduced without prior written consent of NetApp, Inc. NetApp, the NetApp logo, and the marks listed at http://www.netapp.com/TM are trademarks of NetApp, Inc. Other company and product names may be trademarks of their respective owners.

 

2


PART I — FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

NETAPP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)

(Unaudited)

 

 

 

July 28,
 2023

 

 

April 28,
  2023

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,020

 

 

$

2,316

 

Short-term investments

 

 

955

 

 

 

754

 

Accounts receivable

 

 

653

 

 

 

987

 

Inventories

 

 

131

 

 

 

167

 

Other current assets

 

 

401

 

 

 

456

 

Total current assets

 

 

4,160

 

 

 

4,680

 

Property and equipment, net

 

 

641

 

 

 

650

 

Goodwill

 

 

2,759

 

 

 

2,759

 

Other intangible assets, net

 

 

166

 

 

 

181

 

Other non-current assets

 

 

1,544

 

 

 

1,548

 

Total assets

 

$

9,270

 

 

$

9,818

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

344

 

 

$

392

 

Accrued expenses

 

 

778

 

 

 

857

 

Short-term deferred revenue and financed unearned services revenue

 

 

2,127

 

 

 

2,218

 

Total current liabilities

 

 

3,249

 

 

 

3,467

 

Long-term debt

 

 

2,390

 

 

 

2,389

 

Other long-term liabilities

 

 

703

 

 

 

708

 

Long-term deferred revenue and financed unearned services revenue

 

 

2,055

 

 

 

2,095

 

Total liabilities

 

 

8,397

 

 

 

8,659

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock and additional paid-in capital, $0.001 par value; 209 and 212 shares issued and outstanding as of July 28, 2023 and April 28, 2023, respectively

 

 

921

 

 

 

945

 

Retained earnings

 

 

 

 

 

265

 

Accumulated other comprehensive loss

 

 

(48

)

 

 

(51

)

Total stockholders' equity

 

 

873

 

 

 

1,159

 

Total liabilities and stockholders' equity

 

$

9,270

 

 

$

9,818

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

 

 

July 28,
 2023

 

 

July 29,
2022

 

Net revenues:

 

 

 

 

 

 

Product

 

$

590

 

 

$

786

 

Services

 

 

842

 

 

 

806

 

Net revenues

 

 

1,432

 

 

 

1,592

 

Cost of revenues:

 

 

 

 

 

 

Cost of product

 

 

265

 

 

 

397

 

Cost of services

 

 

171

 

 

 

149

 

Total cost of revenues

 

 

436

 

 

 

546

 

Gross profit

 

 

996

 

 

 

1,046

 

Operating expenses:

 

 

 

 

 

 

Sales and marketing

 

 

468

 

 

 

458

 

Research and development

 

 

247

 

 

 

240

 

General and administrative

 

 

74

 

 

 

72

 

Restructuring charges

 

 

26

 

 

 

11

 

Acquisition-related expense

 

 

3

 

 

 

10

 

Total operating expenses

 

 

818

 

 

 

791

 

Income from operations

 

 

178

 

 

 

255

 

Other income, net

 

 

8

 

 

 

15

 

Income before income taxes

 

 

186

 

 

 

270

 

Provision for income taxes

 

 

37

 

 

 

56

 

Net income

 

$

149

 

 

$

214

 

Net income per share:

 

 

 

 

 

 

Basic

 

$

0.70

 

 

$

0.97

 

Diluted

 

$

0.69

 

 

$

0.96

 

Shares used in net income per share calculations:

 

 

 

 

 

 

Basic

 

 

212

 

 

 

220

 

Diluted

 

 

216

 

 

 

224

 

See accompanying notes to condensed consolidated financial statements.

 

4


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

 

Three Months Ended

 

 

July 28,
 2023

 

 

July 29,
2022

 

Net income

 

$

149

 

 

$

214

 

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2

 

 

 

(3

)

Unrealized gains on cash flow hedges:

 

 

 

 

 

 

Unrealized holding gains arising during the period

 

 

2

 

 

 

 

Reclassification adjustments for gains included in net income

 

 

(1

)

 

 

(1

)

Other comprehensive income (loss)

 

 

3

 

 

 

(4

)

Comprehensive income

 

$

152

 

 

$

210

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

Three Months Ended

 

 

 

July 28,
 2023

 

 

July 29,
2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

149

 

 

$

214

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

64

 

 

 

58

 

Non-cash operating lease cost

 

 

11

 

 

 

14

 

Stock-based compensation

 

 

87

 

 

 

67

 

Deferred income taxes

 

 

(6

)

 

 

(15

)

Other items, net

 

 

(2

)

 

 

(66

)

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

 

 

 

 

 

 

Accounts receivable

 

 

332

 

 

 

364

 

Inventories

 

 

37

 

 

 

(28

)

Other operating assets

 

 

57

 

 

 

1

 

Accounts payable

 

 

(56

)

 

 

(90

)

Accrued expenses

 

 

(89

)

 

 

(208

)

Deferred revenue and financed unearned services revenue

 

 

(133

)

 

 

(32

)

Long-term taxes payable

 

 

1

 

 

 

1

 

Other operating liabilities

 

 

1

 

 

 

1

 

Net cash provided by operating activities

 

 

453

 

 

 

281

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of investments

 

 

(571

)

 

 

(133

)

Maturities, sales and collections of investments

 

 

379

 

 

 

2

 

Purchases of property and equipment

 

 

(35

)

 

 

(65

)

Acquisitions of businesses, net of cash acquired

 

 

 

 

 

(491

)

Other investing activities, net

 

 

(1

)

 

 

59

 

Net cash used in investing activities

 

 

(228

)

 

 

(628

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock under employee stock
   award plans

 

 

52

 

 

 

54

 

Payments for taxes related to net share settlement of stock awards

 

 

(65

)

 

 

(52

)

Repurchase of common stock

 

 

(400

)

 

 

(350

)

Dividends paid

 

 

(106

)

 

 

(110

)

Other financing activities, net

 

 

(2

)

 

 

(1

)

Net cash used in financing activities

 

 

(521

)

 

 

(459

)

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

 

 

 

 

 

(18

)

Net change in cash, cash equivalents and restricted cash

 

 

(296

)

 

 

(824

)

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Beginning of period

 

 

2,322

 

 

 

4,119

 

End of period

 

$

2,026

 

 

$

3,295

 

See accompanying notes to condensed consolidated financial statements.

 

6


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended July 28, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock and

 

 

 

 

 

Other

 

 

 

 

 

 

Additional Paid-in Capital

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Loss

 

 

Total

 

Balances, April 28, 2023

 

 

212

 

 

$

945

 

 

$

265

 

 

$

(51

)

 

$

1,159

 

Net income

 

 

 

 

 

 

 

 

149

 

 

 

 

 

 

149

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Issuance of common stock under employee
    stock award plans, net of taxes

 

 

2

 

 

 

(13

)

 

 

 

 

 

 

 

 

(13

)

Repurchase of common stock

 

 

(5

)

 

 

(24

)

 

 

(376

)

 

 

 

 

 

(400

)

Excise tax on net stock repurchases

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

(2

)

Stock-based compensation

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

83

 

Cash dividends declared ($0.50 per
    common share)

 

 

 

 

 

(68

)

 

 

(38

)

 

 

 

 

 

(106

)

Balances, July 28, 2023

 

 

209

 

 

$

921

 

 

$

 

 

$

(48

)

 

$

873

 

 

 

 

 

Three Months Ended July 29, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock and

 

 

 

 

 

Other

 

 

 

 

 

 

Additional Paid-in Capital

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Loss

 

 

Total

 

Balances, April 29, 2022

 

 

220

 

 

$

760

 

 

$

122

 

 

$

(44

)

 

$

838

 

Net income

 

 

 

 

 

 

 

 

214

 

 

 

 

 

 

214

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Issuance of common stock under employee
    stock award plans, net of taxes

 

 

3

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Repurchase of common stock

 

 

(5

)

 

 

(18

)

 

 

(332

)

 

 

 

 

 

(350

)

Stock-based compensation

 

 

 

 

 

67

 

 

 

 

 

 

 

 

 

67

 

Cash dividends declared ($0.50 per
    common share)

 

 

 

 

 

(106

)

 

 

(4

)

 

 

 

 

 

(110

)

Balances, July 29, 2022

 

 

218

 

 

$

705

 

 

$

 

 

$

(48

)

 

$

657

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

7


NETAPP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Description of Business and Significant Accounting Policies

NetApp, Inc. (we, us, NetApp, or the Company) is a global cloud-led, data-centric software company that provides organizations the ability to manage and share their data across on-premises, private and public clouds. We provide a full range of enterprise-class software, systems and services solutions that customers use to modernize their infrastructures, build next generation data centers and harness the power of hybrid clouds.

Basis of Presentation and Preparation

Our fiscal year is reported on a 52- or 53-week year ending on the last Friday in April. An additional week is included in the first fiscal quarter approximately every six years to realign fiscal months with calendar months. Fiscal years 2024 and 2023, ending on April 26, 2024 and April 28, 2023, respectively, are each 52-week years, with 13 weeks in each quarter.

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, and reflect all adjustments, consisting only of normal recurring adjustments, that are, in the opinion of management, necessary for the fair presentation of our financial position, results of operations, comprehensive income, cash flows and stockholders’ equity for the interim periods presented. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, these statements do not include all information and footnotes required by GAAP for annual consolidated financial statements, and should be read in conjunction with our audited consolidated financial statements as of and for the fiscal year ended April 28, 2023 contained in our Annual Report on Form 10-K. The results of operations for the three months ended July 28, 2023 are not necessarily indicative of the operating results to be expected for the full fiscal year or future operating periods.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to, revenue recognition, reserves and allowances; inventory valuation; valuation of goodwill and intangibles; restructuring reserves; employee benefit accruals; stock-based compensation; loss contingencies; investment impairments; income taxes and fair value measurements. Actual results could differ materially from those estimates, the anticipated effects of which have been incorporated, as applicable, into management's estimates as of July 28, 2023.

2. Recent Accounting Pronouncements

Although there are new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements had or will have a material impact on our consolidated financial position, operating results, cash flows or disclosures.

 

3. Business Combination

Fiscal 2023 Acquisition

Instaclustr Acquisition

On May 20, 2022, we acquired all the outstanding shares of privately-held Instaclustr US Holding, Inc. (Instaclustr) for approximately $498 million. Instaclustr is a leading platform provider of fully managed open-source database, pipeline and workflow applications delivered as-a-service.

The acquisition-date values of the assets acquired and liabilities assumed are as follows (in millions):

 

 

Amount

 

Cash

 

$

4

 

Intangible assets

 

 

107

 

Goodwill

 

 

413

 

Other assets

 

 

19

 

Total assets acquired

 

 

543

 

Liabilities assumed

 

 

(45

)

Total purchase price

 

$

498

 

 

8


The components of the intangible assets acquired were as follows (in millions, except useful life):