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NetApp Reports Second Quarter of Fiscal Year 2022 Results

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Net revenues for the second quarter grew 11% year-over-year to $1.57 billion;
Expanded cloud partnerships and delivered substantial innovation across entire portfolio

  • NetApp Public Cloud annualized revenue run rate (ARR)1 increased 80% year-over-year to $388 million

  • All-flash array annualized net revenue run rate2 increased 22% year-over-year to $3.1 billion

  • Product revenue grew 9% year-over-year to $814 million

  • Billings3 increased 7% year-over-year to $1.55 billion

  • $298 million in cash provided by operations; $252 million in free cash flow3

SAN JOSE, Calif., November 30, 2021--(BUSINESS WIRE)--NetApp (NASDAQ: NTAP) today reported financial results for the second quarter of fiscal year 2022, which ended on October 29, 2021.

"We delivered another strong quarter, with results all at the high end or above our guidance. Our performance reflects a strong demand environment, a clear vision, and exceptional execution by the NetApp team and gives the confidence to raise our full year guidance for revenue, EPS and Public Cloud ARR," said George Kurian, chief executive officer. "We are gaining share in the key markets of all-flash and object storage, while rapidly scaling our public cloud business. Our industry-leading innovation and unique and deep cloud partnerships position us well to capitalize on significant opportunity ahead."

Second quarter of fiscal year 2022 financial results

  • Net revenues: $1.57 billion, compared to $1.42 billion in the second quarter of fiscal year 2021

    • Hybrid Cloud segment revenue: $1.48 billion, compared to $1.37 billion in the second quarter of fiscal year 2021

    • Public Cloud segment revenue: $87 million, compared to $47 million in the second quarter of fiscal year 2021

  • Net income: GAAP net income of $224 million, compared to $137 million in the second quarter of fiscal year 2021; non-GAAP net income4 of $292 million, compared to $236 million in the second quarter of fiscal year 2021

  • Earnings per share: GAAP net income per share5 of $0.98, compared to $0.61 in the second quarter of fiscal year 2021; non-GAAP net income per share of $1.28, compared to $1.05 in the second quarter of fiscal year 2021

  • Cash, cash equivalents and investments: $4.55 billion at the end of the second quarter of fiscal year 2022

  • Cash provided by operations: $298 million, compared to $161 million in the second quarter of fiscal year 2021

  • Share repurchase and dividends: Returned $237 million to shareholders through share repurchases and cash dividends

Third quarter of fiscal year 2022 financial outlook

The Company provided the following financial guidance for the third quarter of fiscal year 2022:

Net revenues are expected to be in the range of:

$1.525 billion to $1.675 billion

GAAP

Non-GAAP

Earnings per share is expected to be in the range of:

$0.93 - $1.03

$1.21 - $1.31

Full fiscal year 2022 financial outlook

The Company provided an update to their financial guidance for the full fiscal year 2022:

Net revenues are expected to grow in the range of:

9% to 10%

Public Cloud ARR is expected to exit the fiscal year in the range of:

$510 million to $540 million

GAAP

Non-GAAP

Consolidated gross margins are expected to be:

~67%

~68%

Operating margins are expected to be:

18% - 19%

23% - 24%

Effective tax rate is expected to be:

~21%

~19%

Earnings per share is expected to be in the range of:

$3.80 - $4.00

$4.90 - $5.10

Dividend

The next cash dividend of $0.50 per share is to be paid on January 26, 2022, to shareholders of record as of the close of business on January 7, 2022.

Second quarter of fiscal year 2022 business highlights

Expanding cloud partnerships

  • AWS and NetApp announced the general availability of Amazon FSx for NetApp ONTAP, a native AWS managed service that’s powered by NetApp ONTAP software and is available around the world.

  • Google Cloud announced that NetApp will serve as the primary data and storage vendor for its new Google Distributed Cloud Hosted offering and introduced the integration of Google Cloud VMware Engine with NetApp Cloud Volumes Service support for VM datastores, a fully managed service that helps organizations meet their need for virtual workload storage and disaster recovery.

  • NetApp and Google Cloud launched NetApp Cloud Volumes Service for Google Cloud in Salt Lake City and Tokyo, with available Cloud Volumes Service regions now totaling 19 as demand continues to increase.

  • NetApp announced expanded backup/restore and cross-region replication capabilities in Azure NetApp Files.

  • NetApp announced that whitelisting has been removed from Azure NetApp Files, enabling customers to directly consume Azure NetApp Files from the Azure portal, CLI, API, or with the software development kit (SDK).

Leading innovation

  • NetApp announced an agreement to acquire CloudCheckr to expand the Spot by NetApp cloud operations (CloudOps) portfolio, enabling organizations to better optimize and secure multi-cloud infrastructures. The CloudCheckr acquisition closed on November 5, 2021.

  • NetApp announced the latest release of NetApp ONTAP data management software, which offers autonomous ransomware protection against cyberattacks, increased performance for SAN and modern workloads with NVMe over TCP (NVMe/TCP) support, expanded object storage capabilities with NetApp SnapMirror, and simplified storage management.

  • NetApp introduced new digital wallet capabilities available in NetApp Cloud Manager for greater mobility and more visibility into usage of data service licenses across a hybrid cloud, with prepayment of credits enabling streamlined deployment.

  • NetApp introduced enhancements to NetApp Cloud Backup and Cloud Data Sense services. Enhancements include greater data protection and governance for ONTAP environments, simplified deployment of NetApp Cloud Volumes ONTAP with new customer-ready templates, and fully embedded NetApp Active IQ in Cloud Manager.

  • NetApp announced Kubernetes enhancements and deeper ONTAP integrations with NetApp Cloud Insights to support and manage Kubernetes workloads.

  • NetApp announced a new freemium service tier for Cloud Volumes ONTAP. This service tier gives customers access to a full-featured, perpetual license to use ONTAP in the cloud for workloads that need less than 500GB of storage.

  • NetApp previewed NetApp Astra Data Store, a Kubernetes-native shared file service for unified management of container-based storage and virtual machines (VMs) across a hybrid cloud.

  • Spot by NetApp launched Spot Elastigroup by NetApp for Azure Stateful Groups, allowing companies to use Azure’s Spot VM technology to save up to 90% of infrastructure costs while running stateful applications.

  • Spot by NetApp announced Spot Security, a new product to help safeguard cloud infrastructure with automated security monitoring, analysis, and remediation capabilities.

  • NetApp introduced new Support and Professional Services offerings, including the extension of NetApp SupportEdge Advisor and SupportEdge Protect for cloud services, as well as NetApp Flex Professional Services (FlexPS), which offers on-demand support for customers transitioning to hybrid cloud.

NetApp recognition and awards

  • NetApp was named a leader in the 2021 Gartner Magic Quadrant for Primary Storage.6 NetApp was also among this year’s top vendor solutions evaluated in the 2021 Gartner Critical Capabilities for Primary Storage7 across all use cases. In the Cloud IT Operations use case, the NetApp AFF A-Series family received the highest scores.

  • NetApp AI won a 2021 Stratus Award for artificial intelligence from the Business Intelligence Group.

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.

"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 Third Quarter of Fiscal Year 2022 Financial Outlook section and Full Fiscal Year 2022 Financial Outlook section and statements about our ability to gain share in key markets while scaling our public cloud business, and our ability to capitalize on significant opportunity ahead. Actual results may differ materially from these statements for a variety of reasons, including, without limitation, customer demand for and acceptance of our products and services, our ability to successfully execute on our data fabric strategy to generate profitable growth and stockholder return, our ability to successfully execute new business models, general global political, macroeconomic and market conditions, changes in U.S. government spending, revenue seasonality, our ability to manage our gross profit margins, the impact of the COVID-19 pandemic on our business operations, including supply chain disruptions, our financial performance and results of operations, and our ability to expand our total available market and grow our portfolio of products. 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 report on Form 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, the NetApp logo, and the marks listed at http://www.netapp.com/TM are trademarks of NetApp, Inc. All other marks are the property of their respective owners.

Footnotes

1Public Cloud annualized revenue run rate (ARR) is calculated as the annualized value of all Public Cloud customer commitments with the assumption that any commitment expiring during the next 12 months will be renewed with its existing terms.

2All-flash array annualized net revenue run rate is determined by products and services revenue for the current quarter, multiplied by 4.

3Refer to the NetApp Usage of Non-GAAP Financial Information section below for an explanation of billings and free cash flow.

4Non-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, (h) gains/losses on the sale of investments in equity securities, (i) debt extinguishment costs, (j) COVID-19 charges and (k) 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.

5GAAP net income per share and non-GAAP net income per share are calculated using the diluted number of shares.

6Gartner, "Magic Quadrant for Primary Storage, 2021," Jeff Vogel, Roger W. Cox, Joseph Unsworth, Santhosh Rao, October 11, 2021.

7Gartner, "Critical Capabilities for Primary Storage, 2021," Santhosh Rao, Roger W. Cox, Joseph Unsworth, Jeff Vogel, October 11, 2021.

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, free cash flow, billings, and historical and projected non-GAAP earnings per diluted share. NetApp also presents the hardware and software components of our GAAP product revenues. Because our revenue recognition policy under GAAP defines a configured storage system, inclusive of the operating system software essential to its functionality, as a single performance obligation, hardware and software components of our product revenues are considered non-GAAP measures. The hardware and software components of our product revenues are derived from an estimated fair value allocation of the transaction price of our contracts with customers, down to the level of the product hardware and software components. This allocation is primarily based on the contractual prices at which NetApp has historically billed customers for such respective components.

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 believes that the presentation of the software and hardware components of our product revenues is meaningful to investors and management as it illustrates the significance of the Company’s software and provides improved visibility into the value created by our software innovation and R&D investment.

NetApp approximates billings by adding net revenues as reported on our Condensed Consolidated Statements of Operations for the period to the change in total deferred revenue and financed unearned services revenue as reported on our Condensed Consolidated Statements of Cash Flows for the same period. Billings is a performance measure that NetApp believes provides useful information to management and investors because it approximates the amounts under purchase orders received by us during a given period that have been billed.

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 the amount can fluctuate based on variables unrelated to the performance of the underlying business. 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, are less useful 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, are less useful for future planning and forecasting.

H. Gains/losses on the sale of investments in equity securities. These are gains/losses from the sale of our investment in certain equity securities. Typically, such investments are sold as a result of a change in control of the underlying businesses. Management believes that these transactions do not reflect the results of our underlying, on-going business and, therefore, are less useful for future planning and forecasting.

I. Debt extinguishment costs. NetApp excludes certain non-recurring expenses incurred as a result of the early extinguishment of debt. Management believes such nonrecurring costs do not reflect the results of its underlying, on-going business and, therefore, are less useful for future planning and forecasting.

J. COVID-19 charges. NetApp has excluded certain non-recurring expenses incurred as a direct result of the COVID-19 pandemic. Management believes such nonrecurring costs do not reflect the results of its underlying, on-going business and, therefore, are less useful for future planning and forecasting.

K. 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.

About NetApp

In a world full of generalists, NetApp is a specialist. We’re focused on one thing, helping your business get the most out of your data. NetApp brings the enterprise-grade data services you rely on into the cloud, and the simple flexibility of cloud into the data center. Our industry-leading solutions work across diverse customer environments and the world’s biggest public clouds. As a cloud-led, data-centric software company, only NetApp can help build your unique data fabric, simplify and connect your cloud, and securely deliver the right data, services, and applications to the right people—anytime, anywhere.

NETAPP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

October 29,
2021

April 30,
2021

ASSETS

Current assets:

Cash, cash equivalents and investments

$

4,548

$

4,596

Accounts receivable

647

945

Inventories

155

114

Other current assets

319

346

Total current assets

5,669

6,001

Property and equipment, net

549

525

Goodwill and purchased intangible assets, net

2,137

2,140

Other non-current assets

867

694

Total assets

$

9,222

$

9,360

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

432

$

420

Accrued expenses

796

970

Short-term deferred revenue and financed unearned services revenue

1,967

2,062

Total current liabilities

3,195

3,452

Long-term debt

2,634

2,632

Other long-term liabilities

735

650

Long-term deferred revenue and financed unearned services revenue

1,899

1,941

Total liabilities

8,463

8,675

Stockholders' equity

759

685

Total liabilities and stockholders' equity

$

9,222

$

9,360

NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

Three Months Ended

Six Months Ended

October 29,
2021

October 30,
2020

October 29,
2021

October 30,
2020

Net revenues:

Product

$

814

$

749

$

1,544

$

1,376

Services

752

667

1,480

1,343

Net revenues

1,566

1,416

3,024

2,719

Cost of revenues:

Cost of product

372

360

701

676

Cost of services

135

123

265

238

Total cost of revenues

507

483

966

914

Gross profit

1,059

933

2,058

1,805

Operating expenses:

Sales and marketing

465

432

916

861

Research and development

216

212

426

445

General and administrative

76

67

142

128

Restructuring charges

7

37

29

42

Acquisition-related expense

1

3

2

11

Total operating expenses

765

751

1,515

1,487

Income from operations

294

182

543

318

Other expense, net

(14

)

(7

)

(26

)

(39

)

Income before income taxes

280

175

517

279

Provision for income taxes

56

38

91

65

Net income

$

224

$

137

$

426

$

214

Net income per share:

Basic

$

1.00

$

0.62

$

1.91

$

0.96

Diluted

$

0.98

$

0.61

$

1.86

$

0.96

Shares used in net income per share calculations:

Basic

223

222

223

222

Diluted

229

224

229

223

NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended

Six Months Ended

October 29,
2021

October 30,
2020

October 29,
2021

October 30,
2020

Cash flows from operating activities:

Net income

$

224

$

137

$

426

$

214

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

Depreciation and amortization

46

56

92

105

Non-cash operating lease cost

15

13

28

26

Stock-based compensation

62

49

115

103

Deferred income taxes

(17

)

(32

)

Other items, net

(16

)

3

(12

)

28

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

Accounts receivable

5

(194

)

292

197

Inventories

(47

)

20

(41

)

29

Accounts payable

62

(30

)

11

(59

)

Accrued expenses

36

117

(206

)

(69

)

Deferred revenue and financed unearned services
revenue

...

(15

)

40

(97

)

(118

)

Long-term taxes payable

(57

)

(52

)

(65

)

(46

)

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