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Share Name | Share Symbol | Market | Type |
---|---|---|---|
NetApp Inc | NASDAQ:NTAP | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.39 | 0.39% | 101.33 | 100.76 | 102.02 | 102.045 | 100.24 | 101.18 | 2,124,805 | 01:00:00 |
Solid Margins, Cash Flow and Operating Leverage
NetApp (NASDAQ: NTAP) today reported financial results for the third quarter of fiscal year 2020, which ended on January 24, 2020.
“Our third quarter results, highlighted by strong gross margins, cash flow and operating leverage, reflect our continued operational discipline. Customers are on a journey to the cloud and are looking to NetApp to help them address the complexities of data management in hybrid multicloud,” said George Kurian, chief executive officer. “We see significant opportunity ahead and are focused on replicating the areas where we have proven success. Our strong business model enables us to navigate the market dynamics, while making the strategic investments necessary to position the company for long-term growth.”
Third Quarter of Fiscal Year 2020 Financial Results
Organizational Update
Ron Pasek, EVP, Chief Financial Officer, has informed NetApp of his intent to retire by the end of the fiscal year after a successful four-year tenure. Pasek will remain on to ensure a transition to his successor, which the Company expects to name prior to the end of the fiscal year. Pasek joined NetApp in April 2016, assuming leadership of the company's finance, customer leasing, workplace resources, internal audit, and IT functions. “Ron has been an integral part of the NetApp executive leadership team. He has helped increase product margins by 10 points, nearly doubled our earnings power and raised our dividend by over 100%,” said George Kurian, chief executive officer. “We are grateful for Ron’s achievements at NetApp and wish him well in his future endeavors.”
Fourth Quarter of Fiscal Year 2020 Financial Outlook
The Company provided the following financial guidance for the fourth quarter of fiscal year 2020:
$1.455 billion to $1.605 billion
GAAP
NonGAAP
$01.11 - $1.19
$1.28 - $1.36
Full Fiscal Year 2020 Financial Outlook
The Company updated the following financial guidance for the full fiscal year 2020:
GAAP
Non-GAAP
66% - 67%
67% - 68%
~18%
~21%
Dividend
Next cash dividend of $0.48 per share to be paid on April 22, 2020, to shareholders of record as of the close of business on April 3, 2020.
Third Quarter of Fiscal Year 2020 Business Highlights
Consistently Delivering Groundbreaking Innovations
Growing Partnerships and Distinguished Awards
NetApp Executive Team Grows with the Company
Webcast and Conference Call Information
NetApp will host a conference call to discuss these results today at 2:30 p.m. Pacific Time. To access the live webcast of this event, go to the NetApp Investor Relations website at investors.netapp.com. In addition, this press release, historical supplemental data tables, and other information related to the call will be posted on the Investor Relations website. An audio replay will be available on the website after 4:30 p.m. Pacific Time today.
About NetApp
NetApp is the leader in cloud data services, empowering global organizations to change their world with data. Together with our partners, we are the only ones who can help you build your unique data fabric. Simplify hybrid multicloud and securely deliver the right data, services and applications to the right people at the right time. Learn more at www.netapp.com.
“Safe Harbor” Statement Under U.S. Private Securities Litigation Reform Act of 1995
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, all of the statements made in the Fourth Quarter of Fiscal Year 2020 Financial Outlook and the Full Fiscal Year 2020 Financial Outlook sections, and statements about our opportunity ahead, our ability to replicate our proven areas of success, and our ability to position the company for long-term growth. All of these forward-looking statements involve risk and uncertainty. Actual results may differ materially from these statements for a variety of reasons, including, without limitation, general global political, macroeconomic and market conditions, changes in U.S. government spending, revenue seasonality and matters specific to our business, such as our ability to expand our total available market and grow our portfolio of products, customer demand for and acceptance of our products and services, our ability to successfully execute new business models, our ability to successfully execute on our data fabric strategy to generate profitable growth and stockholder return and our ability to manage our gross profit margins. These and other equally important factors are described in reports and documents we file from time to time with the Securities and Exchange Commission, including the factors described under the section titled “Risk Factors” in our most recently submitted annual reports on Form 10-Q and 10-K. We disclaim any obligation to update information contained in this press release whether as a result of new information, future events, or otherwise.
NetApp and 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.
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 or derecognition of assets, and (h) our GAAP tax provision, but includes a non-GAAP tax provision based upon our projected annual non-GAAP effective tax rate for the first three quarters of the fiscal year and an actual non-GAAP tax provision for the fourth quarter of the fiscal year. NetApp makes additional adjustments to the non-GAAP tax provision for certain tax matters as described below. A detailed reconciliation of our non-GAAP to GAAP results can be found at http://investors.netapp.com. NetApp’s management uses these non-GAAP measures in making operating decisions because it believes the measurements provide meaningful supplemental information regarding NetApp’s ongoing operational performance.
2GAAP net income per share and non-GAAP net income per share are calculated using the diluted number of shares.
3NetApp was named a leader of Scale-Out NAS (File-Based Storage) in the IDC MarketScape: Worldwide Scale-Out File-Based Storage 2019 Vendor Assessment, https://www.netapp.com/us/media/ar-idc-marketscape-worldwide-scale-out-vendor-assessment.pdf.
4NetApp was named a leader in object storage in the IDC MarketScape: Worldwide Object-Based Storage 2019 Vendor Assessment, https://www.netapp.com/us/media/idc-marketscape-worldwide-object-based-storage-2019-vendor-assessment.pdf.
NetApp Usage of Non-GAAP Financial Information
To supplement NetApp’s condensed consolidated financial statement information presented in accordance with generally accepted accounting principles in the United States (GAAP), NetApp provides investors with certain non-GAAP measures, including, but not limited to, historical non-GAAP operating results, non-GAAP net income, non-GAAP effective tax rate and free cash flow, and historical and projected non-GAAP earnings per diluted share.
NetApp believes that the presentation of non-GAAP net income, non-GAAP effective tax rates, and non-GAAP earnings per share data, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations. NetApp believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock. As free cash flow is not a measure of liquidity calculated in accordance with GAAP, free cash flow should be considered in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.
NetApp’s management uses these non-GAAP measures in making operating decisions because it believes the measurements provide meaningful supplemental information regarding NetApp’s ongoing operational performance. These non-GAAP financial measures are used to: (1) measure company performance against historical results, (2) facilitate comparisons to our competitors’ operating results and (3) allow greater transparency with respect to information used by management in financial and operational decision making.
NetApp excludes the following items from its non-GAAP measures when applicable:
A. Amortization of intangible assets. NetApp records amortization of intangible assets that were acquired in connection with its business combinations. The amortization of intangible assets varies depending on the level of acquisition activity. Management finds it useful to exclude these charges to assess the appropriate level of various operating expenses to assist in budgeting, planning and forecasting future periods and in measuring operational performance.
B. Stock-based compensation expenses. NetApp excludes stock-based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses. While management views stock-based compensation as a key element of our employee retention and long-term incentives, we do not view it as an expense to be used in evaluating operational performance in any given period.
C. Litigation settlements. NetApp may periodically incur charges or benefits related to litigation settlements. NetApp excludes these charges and benefits, when significant, because it does not believe they are reflective of ongoing business and operating results.
D. Acquisition-related expenses. NetApp excludes acquisition-related expenses, including (a) due diligence, legal and other one-time integration charges and (b) write down of assets acquired that NetApp does not intend to use in its ongoing business, from its non-GAAP measures, primarily because they are not related to our ongoing business or cost base and, therefore, cannot be relied upon for future planning and forecasting.
E. Restructuring charges. These charges consist of restructuring charges that are incurred based on the particular facts and circumstances of restructuring decisions, including employment and contractual settlement terms, and other related charges, and can vary in size and frequency. We therefore exclude them in our assessment of operational performance.
F. Asset impairments. These are non-cash charges to write down assets when there is an indication that the asset has become impaired. Management finds it useful to exclude these non-cash charges due to the unpredictability of these events in its assessment of operational performance.
G. Gains/losses on the sale or derecognition of assets. These are gains/losses from the sale of our properties and other transactions in which we transfer control of assets to a third party. Management believes that these transactions do not reflect the results of our underlying, on-going business and, therefore, cannot be relied upon for future planning or forecasting.
H. Income tax adjustments. NetApp’s non-GAAP tax provision is based upon a projected annual non-GAAP effective tax rate for the first three quarters of the fiscal year and an actual non-GAAP tax provision for the fourth quarter of the fiscal year. The non-GAAP tax provision also excludes, when applicable, (a) tax charges or benefits in the current period that relate to one or more prior fiscal periods that are a result of events such as changes in tax legislation, authoritative guidance, income tax audit settlements, statute lapses and/or court decisions, (b) tax charges or benefits that are attributable to unusual or non-recurring book and/or tax accounting method changes, (c) tax charges that are a result of a non-routine foreign cash repatriation, (d) tax charges or benefits that are a result of infrequent restructuring of the Company’s tax structure, (e) tax charges or benefits that are a result of a change in valuation allowance, and (f) tax charges resulting from the integration of intellectual property from acquisitions. Management believes that the use of non-GAAP tax provisions provides a more meaningful measure of the Company’s operational performance.
These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. NetApp believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. NetApp management compensates for these limitations by analyzing current and projected results on a GAAP basis as well as a non-GAAP basis. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with generally accepted accounting principles in the United States. The non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures.
NETAPP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
January 24,
2020
April 26,
2019
ASSETS
Current assets:
Cash, cash equivalents and investments
$
3,008
$
3,899
Accounts receivable
821
1,216
Inventories
113
131
Other current assets
276
364
Total current assets
4,218
5,610
Property and equipment, net
740
759
Goodwill and purchased intangible assets, net
1,813
1,782
Other non-current assets
712
590
Total assets
$
7,483
$
8,741
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
381
$
542
Accrued expenses
660
851
Commercial paper notes
693
249
Current portion of long-term debt
—
400
Short-term deferred revenue and financed unearned services revenue
1,795
1,825
Total current liabilities
3,529
3,867
Long-term debt
1,146
1,144
Other long-term liabilities
748
797
Long-term deferred revenue and financed unearned services revenue
1,778
1,843
Total liabilities
7,201
7,651
Stockholders' equity
282
1,090
Total liabilities and stockholders' equity
$
7,483
$
8,741
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
January 24,
2020
January 25,
2019
January 24,
2020
January 25,
2019
Revenues:
Product
$
787
$
967
$
2,202
$
2,755
Software maintenance
263
239
767
704
Hardware maintenance and other services
354
357
1,042
1,095
Net revenues
1,404
1,563
4,011
4,554
Cost of revenues:
Cost of product
360
469
1,013
1,295
Cost of software maintenance
12
10
33
25
Cost of hardware maintenance and other services
91
102
283
315
Total cost of revenues
463
581
1,329
1,635
Gross profit
941
982
2,682
2,919
Operating expenses:
Sales and marketing
402
401
1,196
1,218
Research and development
211
203
635
622
General and administrative
60
67
200
209
Restructuring charges
—
—
21
19
Gain on sale or derecognition of assets
—
—
(38
)
—
Total operating expenses
673
671
2,014
2,068
Income from operations
268
311
668
851
Other income, net
8
8
26
33
Income before income taxes
276
319
694
884
Provision (benefit) for income taxes
(1
)
70
71
111
Net income
$
277
$
249
$
623
$
773
Net income per share:
Basic
$
1.23
$
1.00
$
2.67
$
3.01
Diluted
$
1.21
$
0.98
$
2.64
$
2.94
Shares used in net income per share calculations:
Basic
226
250
233
257
Diluted
229
255
236
263
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Three Months Ended
Nine Months Ended
January 24,
2020
January 25,
2019
January 24,
2020
January 25,
2019
Cash flows from operating activities:
Net income
$
277
$
249
$
623
$
773
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
47
51
146
149
Non-cash operating lease cost
13
—
39
—
Stock-based compensation
36
43
118
121
Deferred income taxes
—
4
(23
)
(21
)
Gain on sale or derecognition of assets
—
—
(38
)
—
Other items, net
(3
)
(3
)
(16
)
8
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable
(41
)
(104
)
394
165
Inventories
(2
)
(14
)
18
22
Accounts payable
(1
)
26
(158
)
(101
)
Accrued expenses
42
77
(273
)
(85
)
Deferred revenue and financed unearned services
revenue
104
146
(93
)
17
Long-term taxes payable
(84
)
3
(133
)
(60
)
Changes in other operating assets and liabilities, net
32
(27
)
73
(46
)
Net cash provided by operating activities
420
451
677
942
Cash flows from investing activities:
Redemptions of investments, net
142
172
1,288
661
Purchases of property and equipment
(32
)
(31
)
(100
)
(138
)
Proceeds from sale of properties
—
—
96
—
Acquisitions of businesses, net of cash acquired
—
—
(56
)
(3
)
Other investing activities, net
1
(1
)
(1
)
1
Net cash provided by investing activities
111
140
1,227
521
Cash flows from financing activities:
Proceeds from issuance of common stock under employee
stock award plans
47
53
102
118
Payments for taxes related to net share settlement of stock
awards
(3
)
(3
)
(77
)
(92
)
Repurchase of common stock
(500
)
(550
)
(1,250
)
(1,611
)
Proceeds from (repayments of) commercial paper notes,
net
194
(86
)
443
(221
)
Repayment of long-term debt
—
—
(400
)
—
Dividends paid
(108
)
(99
)
(334
)
(306
)
Other financing activities, net
(2
)
(3
)
(4
)
(5
)
Net cash used in financing activities
(372
)
(688
)
(1,520
)
(2,117
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
1
8
(4
)
(17
)
Net increase (decrease) in cash, cash equivalents and restricted cash
160
(89
)
380
(671
)
Cash, cash equivalents and restricted cash:
Beginning of period
2,551
2,365
2,331
2,947
End of period
$
2,711
$
2,276
$
2,711
$
2,276
NETAPP, INC.
SUPPLEMENTAL DATA
(In millions except net income per share, percentages, DSO, DIO, DPO, CCC and Inventory Turns)
(Unaudited)
Q3 FY'20
Q2 FY'20
Q3 FY'19
Revenues
Product
$
787
$
771
$
967
Strategic*
$
483
$
442
$
517
Mature*
$
304
$
329
$
450
Software Maintenance
$
263
$
254
$
239
Hardware Maintenance and Other Services
$
354
$
346
$
357
Hardware Maintenance Support Contracts
$
293
$
286
$
292
Professional and Other Services
$
61
$
60
$
65
Net Revenues
$
1,404
$
1,371
$
1,563
* In Q1 FY’20 we made changes to the products and solutions contained in each of the Strategic and Mature product groupings. Strategic now includes All-flash FAS products, including all related add-on hardware and OS software, private cloud solutions, enterprise software license agreements and other optional add-on software products. Mature now includes Hybrid FAS products, including all related add-on hardware and OS software, OEM products, and branded E-Series. Prior to this change, Hybrid FAS and branded E-Series were included in Strategic, while all add-on hardware and OS software were included in Mature. For comparability, Strategic and Mature revenues presented for the prior year period have been recast based on the revised groupings.
Geographic Mix
% of Q3 FY'20 Revenue
% of Q2 FY'20 Revenue
% of Q3 FY'19 Revenue
Americas
50
%
56
%
52
%
Americas Commercial
39
%
42
%
41
%
U.S. Public Sector
11
%
14
%
11
%
EMEA
35
%
29
%
33
%
Asia Pacific
15
%
14
%
14
%
Pathways Mix
% of Q3 FY'20 Revenue
% of Q2 FY'20 Revenue
% of Q3 FY'19 Revenue
Direct
21
%
21
%
19
%
Indirect
79
%
79
%
81
%
Non-GAAP Gross Margins
Q3 FY'20
Q2 FY'20
Q3 FY'19
Non-GAAP Gross Margin
67.8
%
68.6
%
63.7
%
Product
55.4
%
57.3
%
52.6
%
Software Maintenance
95.4
%
95.7
%
95.8
%
Hardware Maintenance and Other Services
74.9
%
73.7
%
72.3
%
Non-GAAP Income from Operations, Income before Income Taxes & Effective Tax Rate
Q3 FY'20
Q2 FY'20
Q3 FY'19
Non-GAAP Income from Operations
$
312
$
309
$
367
% of Net Revenues
22.2
%
22.5
%
23.5
%
Non-GAAP Income before Income Taxes
$
320
$
312
$
375
Non-GAAP Effective Tax Rate
17.2
%
17.6
%
18.7
%
Non-GAAP Net Income
Q3 FY'20
Q2 FY'20
Q3 FY'19
Non-GAAP Net Income
$
265
$
257
$
305
Non-GAAP Weighted Average Common Shares Outstanding, Diluted
229
236
255
Non-GAAP Income per Share, Diluted
$
1.16
$
1.09
$
1.20
Select Balance Sheet Items
Q3 FY'20
Q2 FY'20
Q3 FY'19
Deferred Revenue and Financed Unearned Services Revenue
$
3,573
$
3,468
$
3,357
DSO (days)
53
52
51
DIO (days)
22
23
16
DPO (days)
75
78
78
CCC (days)
1
(4
)
(11
)
Inventory Turns
16
16
23
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
Q3 FY'20
Q2 FY'20
Q3 FY'19
Net Cash Provided by (used in) Operating Activities
$
420
$
(53
)
$
451
Purchases of Property and Equipment
$
32
$
36
$
31
Free Cash Flow
$
388
$
(89
)
$
420
Free Cash Flow as a % of Net Revenues
27.6
%
(6.5
)%
26.9
%
Free cash flow is a non-GAAP measure and is defined as net cash provided by operating activities less purchases of property and equipment.
Some items may not add or recalculate due to rounding.
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP
INCOME STATEMENT INFORMATION
(In millions, except net income per share amounts)
Q3'FY20
Q2'FY20
Q3'FY19
NET INCOME
$
277
$
243
$
249
Adjustments:
Amortization of intangible assets
8
11
13
Stock-based compensation
36
40
43
Gain on sale or derecognition of assets
—
(38
)
—
Income tax effects
(6
)
1
—
Resolution of income tax matters
(50
)
—
—
NON-GAAP NET INCOME
$
265
$
257
$
305
COST OF REVENUES
$
463
$
446
$
581
Adjustments:
Amortization of intangible assets
(8
)
(11
)
(10
)
Stock-based compensation
(3
)
(4
)
(4
)
NON-GAAP COST OF REVENUES
$
452
$
431
$
567
COST OF PRODUCT REVENUES
$
360
$
341
$
469
Adjustments:
Amortization of intangible assets
(8
)
(11
)
(10
)
Stock-based compensation
(1
)
(1
)
(1
)
NON-GAAP COST OF PRODUCT REVENUES
$
351
$
329
$
458
COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES
$
91
$
94
$
102
Adjustment:
Stock-based compensation
(2
)
(3
)
(3
)
NON-GAAP COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES
$
89
$
91
$
99
GROSS PROFIT
$
941
$
925
$
982
Adjustments:
Amortization of intangible assets
8
11
10
Stock-based compensation
3
4
4
NON-GAAP GROSS PROFIT
$
952
$
940
$
996
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP
INCOME STATEMENT INFORMATION
(In millions, except net income per share amounts)
Q3'FY20
Q2'FY20
Q3'FY19
SALES AND MARKETING EXPENSES
$
402
$
389
$
401
Adjustments:
Amortization of intangible assets
—
—
(3
)
Stock-based compensation
(15
)
(17
)
(19
)
NON-GAAP SALES AND MARKETING EXPENSES
$
387
$
372
$
379
RESEARCH AND DEVELOPMENT EXPENSES
$
211
$
209
$
203
Adjustment:
Stock-based compensation
(13
)
(13
)
(13
)
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES
$
198
$
196
$
190
GENERAL AND ADMINISTRATIVE EXPENSES
$
60
$
69
$
67
Adjustment:
Stock-based compensation
(5
)
(6
)
(7
)
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES
$
55
$
63
$
60
GAIN ON SALE OR DERECOGNITION OF ASSETS
$
—
$
(38
)
$
—
Adjustment:
Gain on sale or derecognition of assets
—
38
—
NON-GAAP GAIN ON SALE OR DERECOGNITION OF ASSETS
$
—
$
—
$
—
OPERATING EXPENSES
$
673
$
629
$
671
Adjustments:
Amortization of intangible assets
—
—
(3
)
Stock-based compensation
(33
)
(36
)
(39
)
Gain on sale or derecognition of assets
—
38
—
NON-GAAP OPERATING EXPENSES
$
640
$
631
$
629
NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP
INCOME STATEMENT INFORMATION
(In millions, except net income per share amounts)
Q3'FY20
Q2'FY20
Q3'FY19
INCOME FROM OPERATIONS
$
268
$
296
$
311
Adjustments:
Amortization of intangible assets
8
11
13
Stock-based compensation
36
40
43
Gain on sale or derecognition of assets
—
(38
)
—
NON-GAAP INCOME FROM OPERATIONS
$
312
$
309
$
367
INCOME BEFORE INCOME TAXES
$
276
$
299
$
319
Adjustments:
Amortization of intangible assets
8
11
13
Stock-based compensation
36
40
43
Gain on sale or derecognition of assets
—
(38
)
—
NON-GAAP INCOME BEFORE INCOME TAXES
$
320
$
312
$
375
PROVISION (BENEFIT) FOR INCOME TAXES
$
(1
)
$
56
$
70
Adjustments:
Income tax effects
6
(1
)
—
Resolution of income tax matters
50
—
—
NON-GAAP PROVISION FOR INCOME TAXES
$
55
$
55
$
70
NET INCOME PER SHARE
$
1.21
$
1.03
$
0.98
Adjustments:
Amortization of intangible assets
0.03
0.05
0.05
Stock-based compensation
0.16
0.17
0.17
Gain on sale or derecognition of assets
—
(0.16
)
—
Income tax effects
(0.03
)
—
—
Resolution of income tax matters
(0.22
)
—
—
NON-GAAP NET INCOME PER SHARE
$
1.16
$
1.09
$
1.20
RECONCILIATION OF NON-GAAP TO GAAP
GROSS MARGIN
($ in millions)
Q3'FY20
Q2'FY20
Q3'FY19
Gross margin-GAAP
67.0
%
67.5
%
62.8
%
Cost of revenues adjustments
0.8
%
1.1
%
0.9
%
Gross margin-Non-GAAP
67.8
%
68.6
%
63.7
%
GAAP cost of revenues
$
463
$
446
$
581
Cost of revenues adjustments:
Amortization of intangible assets
(8
)
(11
)
(10
)
Stock-based compensation
(3
)
(4
)
(4
)
Non-GAAP cost of revenues
$
452
$
431
$
567
Net revenues
$
1,404
$
1,371
$
1,563
RECONCILIATION OF NON-GAAP TO GAAP
PRODUCT GROSS MARGIN
($ in millions)
Q3'FY20
Q2'FY20
Q3'FY19
Product gross margin-GAAP
54.3
%
55.8
%
51.5
%
Cost of product revenues adjustments
1.1
%
1.6
%
1.1
%
Product gross margin-Non-GAAP
55.4
%
57.3
%
52.6
%
GAAP cost of product revenues
$
360
$
341
$
469
Cost of product revenues adjustments:
Amortization of intangible assets
(8
)
(11
)
(10
)
Stock-based compensation
(1
)
(1
)
(1
)
Non-GAAP cost of product revenues
$
351
$
329
$
458
Product revenues
$
787
$
771
$
967
RECONCILIATION OF NON-GAAP TO GAAP
HARDWARE MAINTENANCE AND OTHER SERVICES GROSS MARGIN
($ in millions)
Q3'FY20
Q2'FY20
Q3'FY19
Hardware maintenance and other services gross margin-GAAP
74.3
%
72.8
%
71.4
%
Cost of hardware maintenance and other services revenues adjustment
0.6
%
0.9
%
0.8
%
Hardware maintenance and other services gross margin-Non-GAAP
74.9
%
73.7
%
72.3
%
GAAP cost of hardware maintenance and other services revenues
$
91
$
94
$
102
Cost of hardware maintenance and other services revenues adjustment:
Stock-based compensation
(2
)
(3
)
(3
)
Non-GAAP cost of hardware maintenance and other services revenues
$
89
$
91
$
99
Hardware maintenance and other services revenues
$
354
$
346
$
357
RECONCILIATION OF NON-GAAP TO GAAP
EFFECTIVE TAX RATE
Q3'FY20
Q2'FY20
Q3'FY19
GAAP effective tax rate
(0.4
)%
18.7
%
21.9
%
Adjustments:
Income tax effects
2.0
%
(1.1
)%
(2.7
)%
Resolution of income tax matters
15.6
%
—
%
—
%
Non-GAAP effective tax rate
17.2
%
17.6
%
19.3
%
RECONCILIATION OF NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
TO FREE CASH FLOW (NON-GAAP)
(In millions)
Q3'FY20
Q2'FY20
Q3'FY19
Net cash provided by (used in) operating activities
$
420
$
(53
)
$
451
Purchases of property and equipment
(32
)
(36
)
(31
)
Free cash flow
$
388
$
(89
)
$
420
Some items may not add or recalculate due to rounding.
NETAPP, INC.
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP
EXPRESSED AS EARNINGS PER SHARE
FOURTH QUARTER FISCAL 2020
Fourth Quarter
Fiscal 2020
Non-GAAP Guidance - Net Income Per Share
$1.28 - $1.36
Adjustments of Specific Items to Net Income
Per Share for the Fourth Quarter Fiscal 2020:
Amortization of intangible assets
(0.04
)
Stock-based compensation expense
(0.17
)
Income tax effects
0.04
Total Adjustments
(0.17
)
GAAP Guidance - Net Income Per Share
$1.11 - $1.19
NETAPP, INC.
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP
FISCAL 2020
(Unaudited)
Fiscal 2020
Gross Margin - Non-GAAP Guidance
67% - 68%
Adjustment:
Cost of revenues adjustments
(1)%
Gross Margin - GAAP Guidance
66% - 67%
Fiscal 2020
Operating Margin - Non-GAAP Guidance
~21%
Adjustments:
Amortization of intangible assets
(1)%
Stock-based compensation expense
(3)%
Gain on sale or derecognition of assets
1%
Operating Margin - GAAP Guidance
~18%
Fiscal 2020 versus Fiscal 2019
Year-over-year Decrease in Net Income Per Share - Non-GAAP Guidance
(7)%
Adjustments:
Amortization of intangible assets
1%
Restructuring charges
1%
Gain on sale or derecognition of assets
(3)%
Income tax benefit of ASC 606 adoption
(3)%
Income tax effects
(5)%
Year-over-year Decrease in Net Income Per Share - GAAP Guidance
(16)%
Some items may not add or recalculate due to rounding
View source version on businesswire.com: https://www.businesswire.com/news/home/20200212005813/en/
Press Contact: Amelia Vierra NetApp 1 408 822 6403 amelia.vierra@netapp.com
Investor Contact: Lance Berger NetApp 1 408 822 6628 lance.berger@netapp.com
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