| [November 12, 2008] |
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NetApp Announces Results for Second Quarter of Fiscal Year 2009
SUNNYVALE, Calif. --(Business Wire)-- NetApp (NASDAQ: NTAP) today reported results for the second fiscal quarter of 2009. Revenues for the second fiscal quarter of 2009 were $912 million, an increase of 15% compared to revenues of $792 million for the same period a year ago.
For the second fiscal quarter of 2009, GAAP net income was $49 million, or $0.15 per share(1) compared to GAAP net income of $84 million, or $0.23 per share for the same period in the prior year. Non-GAAP(2) net income for the second fiscal quarter of 2009 was $92 million, or $0.28 per share, compared to non-GAAP net income of $116 million, or $0.32 per share for the same period a year ago.
Revenues for the first six months of the current fiscal year totaled $1.78 billion, compared to revenues of $1.48 billion for the first six months of the prior year, an increase of 20% year over year.
GAAP net income for the first six months of the current fiscal year totaled $87 million, or $0.26 per share, compared to GAAP net income of $118 million, or $0.32 per share for the first six months of the prior fiscal year. Non-GAAP net income for the first six months of the current fiscal year totaled $168 million, or $0.50 per share, compared to non-GAAP net income of $192 million, or $0.52 per share for the first six months of the prior fiscal year.
"NetApp produced solid revenue and earnings results despite a challenging economic environment," said Dan Warmenhoven, chairman and CEO. "More and more customers are turning to NetApp to drive down their storage costs by increasing their storage utilization. We expect NetApp's unique storage efficiency offerings to resonate well with customers, particularly during periods of constrained IT spending."
Outlook
Given the reduced visibility caused by the recent changes in the macroeconomic environment, NetApp will not be providing formal revenue guidance for the third quarter of fiscal year 2009.
-- NetApp estimates non-GAAP gross margins for the third quarter of fiscal year 2009 to be substantially the same level as reported in the second quarter of fiscal year 2009.
-- NetApp estimates non-GAAP operating expenses for the third quarter of fiscal year 2009 to be roughly flat from the operating expenses reported in the second quarter of fiscal year 2009.
Quarterly Highlights
In the second quarter of fiscal year 2009, NetApp introduced new solutions that continue to help customers transform their data center architectures through higher efficiencies and asset utilization, greater power and space savings, and innovative data management techniques. NetApp also received many industry awards that recognize its leadership in quality, innovation, and service in the storage market.
NetApp launched a global program that offers customers a guarantee(3) that they will use 50% less storage in their virtual environments with NetApp(R) compared to traditional storage. NetApp wants to assure customers who choose NetApp and leverage its unique storage efficiency technologies that they will reduce their overall storage usage while improving performance.
During the second quarter, NetApp announced that it will be the first storage vendor to offer native Fibre Channel over Ethernet (FCoE) SAN storage solutions. FCoE support extends NetApp's unified storage architecture, enabling customers to address changing business needs and opportunities with flexible data access across all protocols.
NetApp announced the availability of deduplication on NetApp Virtual Tape Library (VTL) systems, enabling customers to lower the disk capacity required to back up any storage system, including EMC and HP, up to 95%.(4)
During the quarter, NetApp announced the NetApp GetSuccessful(TM) Partner Enablement Program to help partners maximize strategic opportunities and distinguish themselves with their customers. The program is a new benefit of NetApp's current VIP Partner Program and complements the Authorized Professional Service Provider and the Virtualization Specialization programs announced earlier this year.
NetApp continues to receive industry recognition from third parties. During the quarter, NetApp received the following awards:
-- Diogenes Labs' Storage Magazine Quality Awards for the Enterprise Arrays category (Storage)
-- 2008 InformationWeek 500 (InformationWeek)
-- Penton Media's Windows IT Pro(R) 2008 Community Choice Awards (Windows IT Pro)
-- Service Management Achievement Award for Executive Stewardship (Aberdeen Group)
-- 2008 Rising Star Award (Global Technology Distribution Council), Learning in Practice Awards (Chief Learning Officer magazine)
-- "Best Places to Work" in Research Triangle Park 2008 (Triangle Business Journal)
Webcast and Conference Call Information
-- The NetApp quarterly results conference call will be broadcast live on the Internet at http://investors.netapp.com on Wednesday, November 12, 2008, 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.
-- The conference call will also be available live in a listen-only format at (866) 831-6270 in the United States and (617) 213-8858 outside the United States. The pass code for both numbers is 96289060.
-- A replay will be available for 72 hours following the completion of the live call by dialing (888) 286-8010 in the United States and (617) 801-6888 outside the United States, using replay code 76798622. The Webcast replay will be posted on our Web site for at least one year.
About NetApp
NetApp creates innovative storage and data management solutions that accelerate business breakthroughs and deliver outstanding cost efficiency. Discover NetApp's 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 and metrics for the third quarter of fiscal year 2009 and statements regarding our product and service offerings. 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 the material and adverse global economic and market conditions that currently exist (particularly in the credit markets) and that are expected to persist well into calendar 2009; our ability to build nondeferred backlog to levels consistent with our past results and to increase our revenue over the next several quarters; risks associated with the anticipated growth in network storage and content delivery markets; our ability to deliver new product architectures and enterprise service offerings; competition risks, including our ability to design products and services that compete effectively from a price and performance perspective; risks with new product introductions; our reliance on a limited number of suppliers; our ability to accurately forecast demand for our products and successfully manage our relationships with our contract manufacturers; our ability to expand our direct sales operations and reseller distribution channels; our ability to develop, maintain, and strengthen our relationships and product offerings with strategic partners; risks associated with international operations; our ability to successfully acquire and integrate complementary businesses and technologies; foreign currency exchange rate fluctuations; and other important factors as described in NetApp reports and documents filed from time to time with the Securities and Exchange Commission, 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.
(1) Earnings per share is calculated using the diluted number of shares for all periods presented.
(2) Non-GAAP results of operations exclude amortization of intangible assets, stock-based compensation expenses, acquisition-related retention costs, prior acquisition related costs, net gain or loss on investments, and the related effects on income taxes as well as certain discrete GAAP provisions for income tax matters recognized ratably for non-GAAP purposes.
(3) The description of the guarantee program in this press release is a summary and does not purport to be complete. For a full description of the terms and conditions of the program, go to www.netapp.com/guarantee. The description of the guarantee program is not incorporated by reference into this press release.
(4) Based on NetApp internal testing, October 2008.
NetApp, the NetApp logo, Go further, faster, and GetSuccessful are trademarks or registered trademarks of NetApp, Inc. in the United States and/or other countries. All other brands or products are trademarks or registered trademarks of their respective holders and should be treated as such.
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. These non-GAAP results of operations exclude amortization of intangible assets, stock-based compensation expenses, acquisition-related retention costs, prior acquisition-related costs, net gain or loss on investments, and the related effects on income taxes as well as certain discrete GAAP provisions for income tax matters recognized ratably for non-GAAP purposes. 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 facilitate management's internal comparisons to the Company's historical operating results and comparisons to competitors' operating results. We include these non-GAAP financial measures in our earnings announcement because we believe they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making, such as employee compensation planning. 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.
NetApp Use of Corporate Web Site
In accordance with SEC guidance published on August 22, 2008 (Release No. 34-58288), NetApp will begin to disseminate material information about the company through its corporate Web site within the next several fiscal quarters. NetApp intends to designate a separate portion of its corporate Web site for purposes of these disclosures and will include a prominent link on its Web site to allow visitors to locate this material information, which will be routinely updated. The Web site will supplement, rather than replace, NetApp's current existing channels of information distribution.
NETAPP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
October 24, April 25,
2008 2008
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,479,152 $ 936,479
Short-term investments 819,366 227,911
Accounts receivable, net 362,317 582,110
Inventories 78,214 70,222
Prepaid expenses and other assets 139,136 120,561
Short-term restricted cash 2,022 2,953
Short-term deferred income taxes 165,852 127,197
----------- -----------
Total current assets 3,046,059 2,067,433
PROPERTY AND EQUIPMENT, net 717,849 693,792
GOODWILL 680,054 680,054
INTANGIBLE ASSETS, net 73,671 90,075
LONG-TERM INVESTMENTS AND RESTRICTED CASH 211,832 331,105
LONG-TERM DEFERRED INCOME TAXES AND OTHER
ASSETS 348,921 208,529
----------- -----------
$ 5,078,386 $ 4,070,988
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 156,842 178,233
Accrued compensation and related benefits 161,450 202,929
Other accrued liabilities 153,419 154,331
Income taxes payable 5,559 6,245
Deferred revenue 919,910 872,364
----------- -----------
Total current liabilities 1,397,180 1,414,102
----------- -----------
LONG-TERM DEBT AND OTHER OBLIGATIONS 1,483,958 318,658
LONG-TERM DEFERRED REVENUE 657,714 637,889
----------- -----------
3,538,852 2,370,649
----------- -----------
STOCKHOLDERS' EQUITY 1,539,534 1,700,339
----------- -----------
$ 5,078,386 $ 4,070,988
=========== ===========
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except net income per share amounts)
(Unaudited)
Quarter Ended Six Months Ended
----------------------- -----------------------
October 24, October 26, October 24, October 26,
2008 2007 2008 2007
----------- ----------- ----------- -----------
REVENUES:
Product $ 570,436 $ 541,392 $1,118,291 $1,004,725
Software
entitlements and
maintenance 152,722 117,134 297,134 225,061
Service 188,473 133,672 364,982 251,647
----------- ----------- ----------- -----------
Total revenues 911,631 792,198 1,780,407 1,481,433
----------- ----------- ----------- -----------
COST OF REVENUES:
Cost of product 260,332 223,832 510,110 416,279
Cost of software
entitlements and
maintenance 2,259 1,914 4,445 3,998
Cost of service 102,884 82,447 203,048 159,954
----------- ----------- ----------- -----------
Total cost of
revenues 365,475 308,193 717,603 580,231
----------- ----------- ----------- -----------
GROSS MARGIN 546,156 484,005 1,062,804 901,202
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Sales and
marketing 304,045 255,374 607,152 500,017
Research and
development 125,496 108,964 250,848 215,520
General and
administrative 51,011 39,507 100,474 80,956
----------- ----------- ----------- -----------
Total
operating
expenses 480,552 403,845 958,474 796,493
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 65,604 80,160 104,330 104,709
OTHER INCOME
(EXPENSES), net:
Interest income 17,619 16,296 33,094 33,332
Interest expense (7,542) (1,410) (12,117) (2,492)
Net (loss) gain on
investments (22,613) 13,619 (25,234) 13,619
Other income
(expense), net (479) 231 (2,468) 1,062
----------- ----------- ----------- -----------
Total other
income, net (13,015) 28,736 (6,725) 45,521
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES 52,589 108,896 97,605 150,230
PROVISION FOR INCOME
TAXES 3,407 25,138 10,752 32,135
----------- ----------- ----------- -----------
NET INCOME $ 49,182 $ 83,758 $ 86,853 $ 118,095
=========== =========== =========== ===========
NET INCOME PER SHARE:
BASIC $ 0.15 $ 0.24 $ 0.26 $ 0.33
=========== =========== =========== ===========
DILUTED $ 0.15 $ 0.23 $ 0.26 $ 0.32
=========== =========== =========== ===========
SHARES USED IN PER SHARE
CALCULATION:
BASIC 327,319 355,665 330,587 360,061
=========== =========== =========== ===========
DILUTED 333,385 365,458 337,253 371,544
=========== =========== =========== ===========
NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
Quarter Ended Six Months Ended
----------------------- -----------------------
October 24, October 26, October 24, October 26,
2008 2007 2008 2007
----------- ----------- ----------- -----------
Cash Flows from
Operating Activities:
Net income $ 49,182 $ 83,758 $ 86,853 $ 118,095
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation 35,866 28,282 69,063 55,016
Amortization of
intangible assets
and patents 8,052 6,795 16,404 13,688
Stock-based
compensation 27,763 38,370 64,167 78,781
Net loss (gain) on
investments (638) (13,619) 1,983 (13,619)
Impairment on
investments 13,953 - 13,953 -
Net loss on
disposal of
equipment 581 128 760 245
Allowance for
doubtful accounts 1,740 164 1,704 248
Deferred income
taxes (31,718) (17,706) (40,846) (40,398)
Deferred rent 2,184 113 3,011 512
Income tax benefit
from stock-based
compensation 25,503 31,853 45,220 42,642
Excess tax benefit
from stock-based
compensation (24,169) (7,247) (34,311) (15,586)
Changes in assets
and liabilities:
Accounts
receivable 60,915 (22,364) 211,207 122,633
Inventories (14,756) (4,558) (8,014) (7,703)
Prepaid expenses
and other assets (28,260) 6,173 (18,128) 21,856
Accounts payable 13,740 (26,095) (16,333) (40,177)
Accrued
compensation and
related benefits 23,683 40,005 (30,756) (29,884)
Other accrued
liabilities 6,312 11,198 4,909 (8,930)
Income taxes
payable 1,857 3,718 (536) (43,989)
Other liabilities 401 2,855 (818) 62,744
Deferred revenue 35,249 65,849 88,143 112,397
----------- ----------- ----------- -----------
Net cash provided
by operating
activities 207,440 227,672 457,635 428,571
----------- ----------- ----------- -----------
Cash Flows from
Investing Activities:
Purchases of
investments (219,024) (111,097) (483,962) (439,990)
Redemptions of
investments 155,711 165,612 263,643 627,564
Reclassification from
cash and cash
equivalents to short-
term investments (289,851) - (289,851) -
Change in restricted
cash 457 324 682 (1,443)
Proceeds from sales
of marketable
securities - 18,256 - 18,256
Proceeds from sales
of nonmarketable
securities 1,057 - 1,057 -
Purchases of property
and equipment (27,354) (37,572) (103,967) (71,158)
Purchases of
nonmarketable
securities (125) - (250) (4,035)
----------- ----------- ----------- -----------
Net cash (used in)
provided by
investing
activities (379,129) 35,523 (612,648) 129,194
----------- ----------- ----------- -----------
Cash Flows from
Financing Activities:
Proceeds from sale
of common stock
related to employee
stock transactions 10,038 16,076 45,566 66,067
Tax withholding
payments reimbursed
by restricted stock (37) (2,460) (2,591) (5,202)
Excess tax benefit
from stock-based
compensation 24,169 7,247 34,311 15,586
Proceeds from
revolving credit
facility - 249,754 - 249,754
Proceeds from
issuance of
convertible notes - - 1,265,000 -
Payment of financing
costs (1,136) - (26,581) -
Sale of common stock
warrants - - 163,059 -
Purchase of note
hedge - - (254,898) -
Repayment of debt - (21,380) - (37,340)
Repayment of
revolving credit
facility (65,416) - (107,251) -
Repurchases of common
stock - (499,973) (399,982) (699,973)
----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities (32,382) (250,736) 716,633 (411,108)
----------- ----------- ----------- -----------
Effect of Exchange Rate
Changes on Cash and
Cash Equivalents (19,172) (10,742) (18,947) (10,029)
Net Increase in Cash
and Cash Equivalents (223,243) 1,717 542,673 136,628
Cash and Cash
Equivalents:
Beginning of period 1,702,395 623,990 936,479 489,079
----------- ----------- ----------- -----------
End of period $1,479,152 $ 625,707 $1,479,152 $ 625,707
=========== =========== =========== ===========
NETAPP, INC.
SUPPLEMENTAL INFORMATION
(In thousands)
(Unaudited)
QUARTER ENDED OCTOBER 24, 2008
--------------------------------------------
Acquisition-
Amortization of Stock-based Related
Intangible Compensation Retention
Assets Expenses Cost
--------------------------------------------
Cost of product revenues $ 6,748 $ 624 -
Cost of service revenues - 2,419 -
Sales and marketing
expense 1,259 12,849 -
Research and development
expense - 7,482 -
General and administrative
expense - 4,389 -
Net loss (gain) on
investments - - -
--------------------------------------------
Effect on pre-tax income $ 8,007 $ 27,763 -
SIX MONTHS ENDED OCTOBER 24, 2008
--------------------------------------------
Acquisition-
Amortization of Stock-based Related
Intangible Compensation Retention
Assets Expenses Cost
--------------------------------------------
Cost of product revenues $ 13,496 $ 1,572 -
Cost of service revenues - 5,460 -
Sales and marketing
expense 2,518 29,191 -
Research and development
expense - 17,669 -
General and administrative
expense - 10,275 -
Net loss (gain) on
investments - - -
--------------------------------------------
Effect on pre-tax income $ 16,014 $ 64,167 -
QUARTER ENDED OCTOBER 26, 2007
--------------------------------------------
Acquisition-
Amortization of Stock-based Related
Intangible Compensation Retention
Assets Expenses Cost
--------------------------------------------
Cost of product revenues $ 5,278 $ 768 -
Cost of service revenues - 2,606 -
Sales and marketing
expense 971 17,135 1,162
Research and development
expense - 12,332 -
General and administrative
expense 50 5,529 -
Net loss (gain) on
investments - - -
--------------------------------------------
Effect on pre-tax income $ 6,299 $ 38,370 $ 1,162
SIX MONTHS ENDED OCTOBER 26, 2007
--------------------------------------------
Acquisition-
Amortization of Stock-based Related
Intangible Compensation Retention
Assets Expenses Cost
--------------------------------------------
Cost of product revenues $ 10,556 $ 1,713 -
Cost of service revenues - 5,277 -
Sales and marketing
expense 1,941 34,626 2,324
Research and development
expense - 25,507 -
General and administrative
expense 200 11,658 -
Net loss (gain) on
investments - - -
--------------------------------------------
Effect on pre-tax income $ 12,697 $ 78,781 $ 2,324
QUARTER ENDED OCTOBER 24, 2008
---------------------------------------------
Prior Acquisition- Net Loss (Gain)
related Costs on Investments Total
---------------------------------------------
Cost of product revenues - - $ 7,372
Cost of service revenues - - 2,419
Sales and marketing
expense - - 14,108
Research and development
expense - - 7,482
General and
administrative expense - - 4,389
Net loss (gain) on
investments - 22,613 22,613
---------------------------------------------
Effect on pre-tax income - $ 22,613 $ 58,383
SIX MONTHS ENDED OCTOBER 24, 2008
---------------------------------------------
Prior Acquisition- Net Loss (Gain)
related Costs on Investments Total
---------------------------------------------
Cost of product revenues - - $ 15,068
Cost of service revenues - - 5,460
Sales and marketing
expense - - 31,709
Research and development
expense - - 17,669
General and
administrative expense - - 10,275
Net loss (gain) on
investments - 25,234 25,234
---------------------------------------------
Effect on pre-tax income - $ 25,234 $105,415
QUARTER ENDED OCTOBER 26, 2007
---------------------------------------------
Prior Acquisition- Net Loss (Gain)
related Costs on Investments Total
---------------------------------------------
Cost of product revenues - - $ 6,046
Cost of service revenues - - 2,606
Sales and marketing
expense - - 19,268
Research and development
expense - - 12,332
General and
administrative expense - - 5,579
Net loss (gain) on
investments - (13,619) (13,619)
---------------------------------------------
Effect on pre-tax income - ($13,619) $ 32,212
SIX MONTHS ENDED OCTOBER 26, 2007
---------------------------------------------
Prior Acquisition- Net Loss (Gain)
related Costs on Investments Total
---------------------------------------------
Cost of product revenues - - $ 12,269
Cost of service revenues - - 5,277
Sales and marketing
expense - - 38,891
Research and development
expense - - 25,507
General and
administrative expense 2,800 - 14,658
Net loss (gain) on
investments - (13,619) (13,619)
---------------------------------------------
Effect on pre-tax income $ 2,800 ($13,619) $ 82,983
NETAPP, INC.
RECONCILIATION OF NON-GAAP AND GAAP
IN THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except net income per share amounts)
(Unaudited)
Quarter Ended Six Months Ended
----------------------- -----------------------
October 24, October 26, October 24, October 26,
2008 2007 2008 2007
----------- ----------- ----------- -----------
SUMMARY RECONCILIATION
OF NET INCOME
----------------------
NET INCOME $ 49,182 $ 83,758 $ 86,853 $ 118,095
Adjustments:
Amortization of
intangible assets 8,007 6,299 16,014 12,697
Stock-based
compensation
expenses 27,763 38,370 64,167 78,781
Acquisition-related
retention cost - 1,162 - 2,324
Prior acquisition-
related costs - - - 2,800
Net (gain) loss on
investments 22,613 (13,619) 25,234 (13,619)
Tax effect on sale
of investments - 5,477 - 5,477
Discrete GAAP tax
provision items 3,816 (1,127) 4,308 (684)
Income tax effect (19,274) (3,906) (28,530) (13,470)
----------- ----------- ----------- -----------
NON-GAAP NET INCOME $ 92,107 $ 116,414 $ 168,046 $ 192,401
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.148 $ 0.229 $ 0.258 $ 0.318
Adjustments:
Amortization of
intangible assets 0.024 0.017 0.047 0.034
Stock-based
compensation
expenses 0.083 0.105 0.190 0.212
Acquisition-related
retention cost - 0.003 - 0.006
Prior acquisition-
related costs - - - 0.008
Net (gain) loss on
investments 0.068 (0.037) 0.075 (0.037)
Tax effect on sale
of investments - 0.015 - 0.015
Discrete GAAP tax
provision items 0.011 (0.003) 0.013 (0.002)
Income tax effect (0.058) (0.011) (0.085) (0.036)
----------- ----------- ----------- -----------
NON-GAAP NET INCOME
PER SHARE $ 0.276 $ 0.318 $ 0.498 $ 0.518
=========== =========== =========== ===========
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