Edit Symbol List
Enter up to 25 symbols separated by commas or spaces in the text box below. These symbols will be available during your session for use on applicable pages.
Don't know the stock symbol? Use the symbol lookup tool.
Alphabetize the sort order of my symbols
Q3 2013 Earnings Call
February 13, 2013 5:30 pm ET
Nicholas R. Noviello - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Thomas Georgens - Chief Executive Officer, President, Principal Operating Officer and Director
Kulbinder Garcha - Crédit Suisse AG, Research Division
Shebly Seyrafi - FBN Securities, Inc., Research Division
Andrew J. Nowinski - Piper Jaffray Companies, Research Division
Brian Marshall - ISI Group Inc., Research Division
Amit Daryanani - RBC Capital Markets, LLC, Research Division
Keith F. Bachman - BMO Capital Markets U.S.
Ananda Baruah - Brean Capital LLC, Research Division
Brian G. Alexander - Raymond James & Associates, Inc., Research Division
Kathryn L. Huberty - Morgan Stanley, Research Division
Maynard Joseph Um - Wells Fargo Securities, LLC, Research Division
Rajesh Ghai - Craig-Hallum Capital Group LLC, Research Division
Benjamin A. Reitzes - Barclays Capital, Research Division
Steven Milunovich - UBS Investment Bank, Research Division
Peter Misek - Jefferies & Company, Inc., Research Division
Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division
Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division
Glenn Hanus - Needham & Company, LLC, Research Division
Mark A. Moskowitz - JP Morgan Chase & Co, Research Division
Previous Statements by NTAP
» NetApp Management Discusses Q2 2013 Results - Earnings Call Transcript
» NetApp Management Discusses Q1 2013 Results - Earnings Call Transcript
» NetApp Management Discusses Q4 2012 Results - Earnings Call Transcript
Good afternoon, everyone. Thank you for joining us. With me on today's call are our CEO, Tom Georgens; and our CFO, Nick Noviello. This call is being webcast live and will be available for replay on our website at netapp.com, along with the earnings release, the supplemental commentary, our financial tables and the non-GAAP to GAAP reconciliation.
As a reminder, during today's call, we will make forward-looking statements and projections, including our financial outlook for Q4 and expected dilution from our convertible notes, as well as the benefits to us and our customers of our products, our expectations regarding future competitive position and expected benefits of partnerships, alliances and acquisitions, all of which involve risk and uncertainty.
Actual results may differ materially from our statements and projections for a variety of reasons, including among other things, general economic and market conditions and matters specific to the company's business such as customer demand for and acceptance of our products and services. We describe some of these factors in our accompanying press release, which we have furnished to the SEC on an 8-K. A detailed discussion of risk factors which may cause our actual results to differ from our forward-looking statements and projections is contained in our most recent 10-K and subsequent 10-Q reports also on file with the SEC and available on our website, all of which are incorporated by reference in today's discussion.
All numbers discussed today are GAAP unless stated otherwise. To see the reconciling items between the non-GAAP and GAAP, you may refer to the table in our press release or supplemental commentary or on our website.
In a moment, Nick will walk you through some additional color on our financial results, and then Tom will walk you through his perspective on the business this quarter.
I'll now turn the call over to Nick.
Nicholas R. Noviello
Thank you, Kris. Good afternoon, everyone. NetApp delivered solid financial results in fiscal Q3. Revenue of $1.63 billion was slightly above the midpoint of our prior guidance. We achieved non-GAAP gross margins of 60.4% and operating margins of 17.1%. Non-GAAP EPS of $0.67 exceeded the high end of our Q3 guidance range, and we generated $254 million in free cash flow in the quarter, just under 16% of revenue.
Revenue increased 6% sequentially and 4% year-over-year. Revenue from our Americas commercial, EMEA and APAC geographies all grew, both sequentially and year-over-year. Revenue from our U.S. public sector geography was down sequentially as expected but was up 14% from Q3 a year ago. Branded revenue of $1.43 billion was up both sequentially and year-over-year. Branded revenue grew 7% from Q2 and 8% from Q3 last year, while OEM revenue declined 3% sequentially and 17% from Q3 a year ago. Product revenue was flat from last year but up 7% from Q2.
Non-GAAP gross margins of 60.4% were in line with prior guidance and our targeted financial model. Product gross margins of 53.1% were down slightly from Q2 related to customer mix. Service gross margins of 58.7% were up just over 1 point from Q2 due to lower costs and the more favorable mix of revenues related to service contracts versus professional services.
Non-GAAP operating margins of 17.1% were just inside the range of our targeted financial model and exceeded prior guidance for the quarter. Non-GAAP operating expenses were down slightly from Q2, reflecting lower variable compensation and conservatism in spending, given the overall business environment. Non-GAAP other income net was down from prior quarters, reflecting interest expense related to our senior notes offering in December.
Our Q3 effective tax rate was 13.6%, lower than prior guidance and reflected a prior year discrete item and current year cumulative benefit related to the R&D tax credit approved by Congress in early January. For Q4 and the fiscal year 2013, we now expect a non-GAAP effective tax rate just below 16%.
Non-GAAP EPS exceeded the high end of our guidance range by $0.09, $0.03 of which was due to the lower effective tax rate and the remainder due to improved operating margins.
Our balance sheet remains strong with approximately $6.7 billion in cash and investments. The increase of approximately $1.2 billion in cash and investments from Q2 reflects the $1 billion in 5- and 10-year senior unsecured notes we issued in December. Total deferred revenue increased by $106 million from Q2, and accounts receivable day sales outstanding decreased slightly from 36 to 35 days. Inventory improved to 14.9 turns, with inventory levels down and normalizing to more historical levels.