) reported third quarter fiscal 2013 adjusted earnings per share
(EPS) of 52 cents, which surpassed the Zacks Consensus Estimate
of 42 cents. Adjusted EPS excludes amortization of intangible
assets, acquisition-related expenses, non-cash interest expense
as well as investments and tax gains, but includes stock-based
NetApp reported third quarter revenues of $1.63 billion, up 4.1%
from $1.57 billion in the year-ago quarter. Revenues were within
the company's guidance range of $1.575-$1.675 billion and
slightly above the Zacks Consensus Estimate of $1.62 billion. The
year-over-year revenue improvement was mainly attributable to
solid performances by Software and Services, partially offset by
Product revenues were $1.06 billion in the quarter, flat year
over year and accounted for about 65.1% of the total revenue.
Growth in Branded revenues was offset by weak OEM revenues.
Software Entitlement & Maintenance revenues were $228.6
million, up 12.3% from $203.5 million in the year-ago quarter.
The segment's revenues represented around 14.0% of the total
Service revenues were $340.8 million, up 13.9% from $299.3
million reported in the year-ago quarter. The segment accounted
for 20.9% of the total revenue.
NetApp reported gross profit of $964.9 million, which increased
6.2% year over year. Gross margin grew 120 basis points (bps)
year over year to 59.2%, mainly due to product mix.
Total operating expenses increased 3.3% from the year-ago quarter
to $777.0 million. Operating income increased 20.1% from the
year-ago quarter to $187.9 million. Operating margin was 11.5%,
up from 10.0% in the year-ago quarter.
Net income on a GAAP basis was $158.1 million, or 43 cents per
share, compared with $119.6 million, or 32 cents in the
prior-year quarter. The quarter's result was above the company
guided range of 29-34 cents.
Excluding the above-mentioned special items, but including
stock-based compensation, adjusted net income was $188.5 million
or 52 cents per share, compared with $151.5 million or 41 cents a
Balance Sheet & Cash Flow
NetApp exited the quarter with cash, cash equivalents and
investments of $6.72 billion, up from $5.57 billion in the
previous quarter. Receivables were $633.8 million, up from $615.0
million a quarter ago. Inventories decreased $40.3 million from
the prior quarter to $172.9 million. The company bears a
long-term debt balance of $994.3 million.
Cash generated from operations was $365.1 million compared with
$336.4 million generated in the prior quarter. Capital
expenditure in the quarter was $110.7 million, up from $67.1
million in the prior quarter.
NetApp repurchased $62.0 million shares.
For the fourth quarter of 2013, NetApp expects revenues in the
range of $1.7 billion to $1.8 billion, representing roughly 7.0%
sequential growth and 3.0% year-over-year growth.
Non-GAAP gross margin is expected in the range of 60.0-61.0%,
while non-GAAP operating margin is projected at roughly 17.0%.
GAAP EPS is expected to range between 43 cents and 48 cents,
while non-GAAP EPS is expected between 65 cents and 70 cents. The
company estimates shares outstanding of approximately 365 million
and a tax rate of 16.0%. The Zacks Consensus Estimates for the
fourth quarter and fiscal 2013 are 51 cents and $1.55,
The quarter's results were decent with the top and bottom lines
surpassing the Zacks Consensus Estimates. Favorable product mix
and cost optimization measures helped in margin expansion.
Keeping in mind the ongoing macro uncertainty caused by the
European debt crisis and federal budget cuts, management guided a
cautious fourth quarter.
But we believe that NetApp can witness strong product demand with
its newly launched 3250 and 3220 platforms, the new series of
midrange storage platforms.
Though new product refreshes, association with
Cisco Systems Inc.
), and ramp of ONTAP 8.1 are positives, we believe that uncertain
IT spending patterns and growth prospects of its archrival
) may pose serious threats.
NetApp currently carries a Zacks Rank #3 (Hold).
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