NetApp: Fiscal 2Q20 Financial Results

(in $ million)	2Q19	2Q20	6 mo. 19	6 mo. 20
Revenue	1,517	1,371	2,991	2,607
*Growth*		-10%		*-13%*
Net income (loss)	241	243	524	346

NetApp, Inc. reported financial results for 2FQ20, which ended on October 25, 2019.

“Our 2FQ20 results reflect the strength of our business model and value of our innovation. We delivered gross margin, operating margin, and EPS all solidly ahead of our guidance ranges. We are delivering real business value to customers’ hybrid multicloud environments increasing our strategic relevance and enabling us to reach new buyers, address new workloads and expand our presence with existing customers,” said George Kurian, CEO. “We continue to be disciplined in our spending and have a strong financial model with growing gross margins and operating margins that enable us to return cash to shareholders and invest in the long-term health of our business.”

2FQ20 Financial Results
• Net Revenues: $1.37 billion, compared to $1.52 billion in 2FQ19
• Net Income: GAAP net income of $243 million, compared to GAAP net income of $241 million in 2FQ19; non-GAAP net income of $257 million, compared to non-GAAP net income of $280 million in 2FQ19
• Earnings per Share: GAAP net income per share of $1.03 compared to GAAP net income per share of $0.91 in 2FQ19; non-GAAP net income per share of $1.09, compared to non-GAAP net income per share of $1.06 in 2FQ19
• Cash, Cash Equivalents and Investments: $3.0 billion at the end of 2FQ19
• Cash Provided By (Used In) Operations: $(53) million, compared to $165 million in 2FQ19
• Share Repurchase and Dividend: Returned $611 million to shareholders through share repurchases and cash dividends

3FQ20 Outlook
Net revenues in the range of $1.390 billion to $1.540 billion

FY20 Outlook
Net revenues to decline approximately 8% Y/Y

Note: * In 1FQ20 the company 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.

Comments

NetApp delivered gross margin, operating margin and EPS above guidance ranges but 2FQ20 revenue on low guidance of $1.371 billion down 10% Y/Y (but up 11% Q/Q) and 13% for the last 6-month period, because of "ongoing macroeconomic uncertainty and the potential for continuing unpredictability in enterprise purchasing behavior," according to CEO.

Despite sales regularly decreasing at high rates since two quarters, the firm continues to be profitable.

Product revenue of $771 million decreased 16% Y/Y. But AFA business inclusive of all-flash FAS, EF and SolidFire products and services was up 29% sequentially in 2FQ20 to an annualized net revenue run rate of $2.2 billion.

Private cloud business inclusive of products and services, a chained and annualized net revenue run rate of over $300 million in 2FQ20 up almost 30% Y/Y.

Based on the last month of most recent quarter, annualized recurring revenue for cloud data services increased to $72 million up 167% Y/Y.

Software maintenance and hardware maintenance revenue of $540 million was flat Y/Y.

NetApp laid out a plan for last quarter that includes increasing sales capacity by approximately 200 primary sales resources by the end of 1FQ21 without adding to the total operating expenses. As of the end of 2FQ20, it is on track to deliver vs. this goal. The sales headcount will be deployed primarily in its America's geography.

Next quarter, the firm promises to be finally back to growth with sales up sequentially 1% to 12%.

At the end of the former, the storage company stated that it was expected revenue declining of 5% to 10% Y/Y for FY20, and now around 8%.

Fiscal Period

Revenue

Y/Y Growth

Net income (loss)

FY16

5,546

-9%

229

FY17

5,519