) reported fourth quarter fiscal 2012 adjusted earnings per share
(EPS) of 55 cents, surpassing the Zacks Consensus Estimate of 49
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 compensation
expenses. The quarter's beat was aided by better-than-expected
revenue growth and favorable tax rate.
However, after the closing bell, NetApp's share price slid a
massive 16.59% only due to a dismal guidance for the next quarter
that was below the Street expectation. The guidance reflected
uncertainty in the macroeconomic environment and levels of tech
NetApp reported fourth quarter revenues of $1.70 billion, up
19.2% from $1.43 billion in the year-ago quarter. The revenue was
within the company's guidance range of $1.645-$1.725 billion and
slightly above the Zacks Consensus Estimate of $1.68 billion. While
product revenues grew the most, other segments also improved year
over year. The company is enjoying a strong demand for its storage
products thanks to mobile devices with remote computing and
Internet access like
) iPhone that are so in vogue.
Customer wins during the quarter were healthy as they were keen
on leveraging storage virtualization to re-architect their data
centers in order to gain efficiency, flexibility and cost savings.
Moreover, the quarter witnessed solid geographical contributions
from America and Asia-Pacific. But revenue growth was adversely
affected by the slowing demand from the U.S. federal government and
constrained European spending.
Product revenues were $1.17 billion in the quarter, up 21.3%
from $960.5 million reported in the year-ago quarter and accounted
for about 68.4% of the total revenue. The double-digit improvement
has been consistent since the past nine quarters and the reason can
be attributed to the successful launch of new products and a
well-knitted distribution system. The recent launch of FlexPod, in
association with networking giant
Cisco Systems Inc.
) was quick to attract customers.
Software Entitlement & Maintenance revenues were $212.5
million, up 13.6% from $187.0 million in the year-ago quarter. The
segment's revenues represented around 12.5% of the total
Service revenues were $324.9 million, up 19.1% from $262.6
million reported in the year-ago quarter. The segment accounted for
19.1% of the total revenue.
NetApp reported gross profit of $995.0 million, representing a
7.2% year-over-year increase. Gross margin dropped 660 basis points
(bps) year over year to 58.4%. The gross margin was affected by
higher costs of drives due to supply shortages post the Thailand
Total operating expenses increased 8.2% from the year-ago
quarter to $773.6 million. This was mostly due to a steep rise
(25.6%) in research and development expenses. Operating income grew
4.0% from the year-ago quarter to $221.4 million. Operating margin
fell 190 bps year over year to 13.0%.
Net income on a GAAP basis was $180.7 million, or 47 cents per
share, compared with $160.6 million, or 40 cents in the prior-year
quarter. The quarter's result was on the lower end of the company's
guided range of 38-43 cents.
Excluding the above-mentioned special items, but including
stock-based compensation, adjusted net income was $208.3 million or
55 cents per share, compared to $186.2 million or 46 cents a year
Balance Sheet & Cash Flow
NetApp exited the quarter with cash, cash equivalents and
investments of $5.4 billion, up from $4.9 billion in the previous
quarter. Receivables were $830.9 million, up from $685.4 million a
quarter ago. Inventories increased $7.7 million from the prior
quarter to $161.5 million. The company bears no long-term debt, a
1.75% convertible senior notes amounting $62.6 million is due in
Cash generated from operations of $582.6 million, nearly doubled
from $269.2 million in the prior quarter. The improvement was
backed by higher profit generation and a favorable working capital.
Capital expenditure in the quarter was $124.2 million, up from
$91.3 million in the year-ago quarter.
NetApp provided a feeble first quarter 2013 outlook reflecting
normal seasonality (which is typical of first quarters) and
increasing macro uncertainty. Additionally, management stated that
operating expenses will be closely monitored to neutralize the
For the first quarter of 2013, NetApp expects revenues in the
range of $1.4 billion to $1.5 billion, representing a decline of
12.0% to 18.0% sequentially. However, the year-over-year comparison
indicates a range of 4.0% decline to 3.0% growth.
Non-GAAP gross margins are expected in the range of 60.0-61.0%,
while non-GAAP operating margins are projected at roughly 11.5%
(+/- 5.0%). GAAP EPS is expected to range between 10 cents and 15
cents, while non-GAAP EPS is expected between 34 cents and 39
cents. The company estimates shares outstanding of approximately
380 million and a tax rate of 17.5%.
The quarter's results were encouraging, with the top and bottom
lines beating the Zacks Consensus Estimates. Product strength was
the driving force, but margin contraction remained the main
challenge. Moreover, management guided a lackluster first quarter,
keeping in mind the ongoing macro uncertainty caused by the
European debt crisis, federal budget cuts and Thailand flood (which
is limiting component availability).
But we believe NetApp will be able to sustain its growth story
and remain a key player in the virtualization and network storage
market based on product launches and strategic acquisitions. With
its latest Engenio takeover, NetApp will now be able to address the
video storage market as well as high performance computing
applications like genomics sequencing. Considering this, we think
that the first quarter guidance is a bit conservative.
However, we are cautious regarding the impact of new product
) on NetApp's fundamentals, going forward.
NetApp currently carries a Zacks #3 Rank (short-term Hold
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