) reported second quarter fiscal 2013 adjusted earnings per share
(EPS) of 37 cents, which surpassed the Zacks Consensus Estimate
of 33 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. Shares leaped 10.21% in the after-hours
reflecting better-than-expected results and outlook.
NetApp reported second quarter revenues of $1.54 billion, up
2.3% from $1.51 billion in the year-ago quarter. Reported revenue
was within the company's guidance range of $1.50-$1.60 billion
and in line with the Zacks Consensus Estimate. The year-over-year
revenue improvement was mainly attributable to solid performances
by Software and Services, partially offset by Product revenue.
Currency fluctuations, however, pulled down revenue growth by
Geographically, revenue growth from America and Europe
remained modest while revenue from Asia-Pacific grew 14.0%.
Growth in America was mostly driven by the U.S. public
Product revenues were $995.8 million in the quarter, down 2.0%
from $1.02 billion reported in the year-ago quarter and accounted
for about 64.6% of the total revenue. Despite the year-over-year
decline, some positive factors were noticed. ONTAP 8 and
clustered Data ONTAP witnessed increasing demand as the products
are successfully helping customers to build agile data
infrastructure environments with intelligent data management,
utmost scalability, and non-stop operations.
Software Entitlement & Maintenance revenues were $219.4
million, up 10.8% from $198.0 million in the year-ago quarter.
The segment's revenues represented around 14.2% of the total
Service revenues were $326.0 million, up 11.3% from $292.8
million reported in the year-ago quarter. The segment accounted
for 21.2% of the total revenue.
NetApp reported gross profit of $913.9 million, which inched
up 0.1% year over year. Gross margin dropped 130 basis points
(bps) year over year to 59.3%.
Total operating expenses increased 8.0% from the year-ago
quarter to $778.6 million. This was mostly due to a 12.1% rise in
research and development expenses. Operating income fell 29.7%
from the year-ago quarter to $135.3 million. Operating margin was
8.8%, down from 12.8% in the year-ago quarter.
Net income on a GAAP basis was $109.6 million, or 30 cents per
share, compared with $165.6 million, or 44 cents in the
prior-year quarter. The quarter's result was above the company
guided range of 23-28 cents.
Excluding the above-mentioned special items, but including
stock-based compensation, adjusted net income was $137.9 million
or 37 cents per share, compared with $190.5 million or 51 cents a
Balance Sheet & Cash Flow
NetApp exited the quarter with cash, cash equivalents and
investments of $5.57 billion, up from $5.44 billion in the
previous quarter. Receivables were $615.0 million, up from $584.2
million a quarter ago. Inventories increased $9.5 million from
the prior quarter to $213.2 million. The company bears no
long-term debt. But 1.75% convertible senior notes amounting to
$1.23 billion are due in 2013.
Cash generated from operations was $336.4 million compared
with $229.2 million generated in the prior quarter. Capital
expenditure in the quarter was $67.1 million, up from $61.9
million in the prior quarter.
NetApp repurchased roughly 6 million shares and ended the
quarter with approximately 148 million remaining of its prior
authorization. The company also announced the continuation of its
share repurchase program with an additional authorization of $1.5
For the third quarter of 2013, NetApp expects revenues in the
range of $1.575 billion to $1.675 billion, representing 5.0%
sequential growth and 4.0% 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 15.0%.
GAAP EPS is expected to range between 29 cents and 34 cents,
while non-GAAP EPS is expected between 53 cents and 58 cents. The
company estimates shares outstanding of approximately 365 million
and a tax rate of 17.3%. The Zacks Consensus Estimates for the
third quarter and fiscal 2013 are 38 cents and $1.45,
The quarter's results were decent with the bottom line
surpassing the Zacks Consensus Estimate and the top line matching
the same. Continuous margin contraction due to cost increases
remained the main challenge. Keeping in mind the ongoing macro
uncertainty caused by the European debt crisis and federal budget
cuts, management guided a cautious third 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 Corp.
), 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 #4 Rank (short-term Sell
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