01—Abstract
Summary
Summary of the 10-K filed June 20, 2017. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. reported fiscal 2017 (year ended April 28, 2017) net revenues of $5.52 billiona, essentially flat versus $5.55 billion in fiscal 2016, as product revenues rose 1% to $3.01 billion while software and hardware maintenance and other services revenues declined 2%.
Gross profit was $3.39 billionb, with gross profit margin at 61%, unchanged from the prior year. Income from operations rose to $665 million, or 12% of net revenues, from $348 million (6%) in fiscal 2016, reflecting lower operating expenses from cost reduction initiatives. Net income increased to $509 million, or $1.81 per diluted share, compared with $229 million, or $0.77, in fiscal 2016.
Operating cash flow was $986 millionc. The balance sheet shows cash, cash equivalents and short-term investments of $4.92 billion, against total debt of $1.99 billion. Working capital fell to $2.08 billion, largely because $750 million of senior notes were reclassified to current.
The company repaid an $850 milliond short-term loan used for the SolidFire acquisition, repurchased 22 million shares for $705 million, paid $208 million in dividends, and issued $499 million of net commercial paper. Stockholders' equity declined to $2.78 billion, and $4.5 billion of cash was held by foreign subsidiaries, where repatriation would trigger significant U.S. tax. Management highlights a strategic shift away from mature products: strategic solutions grew 17% to $1.97 billion in product revenue, while mature solutions fell 21% to $1.04 billion, driven by a 57% drop in 7-mode unit volume.
Indirect channels generated 78% of net revenues, with distributors Arrow Electronics and Avnet accounting for 22% and 20%. The filing notes that the networked storage hardware market declined in each of the last two calendar years and that revenue declined in fiscal 2015, 2016 and 2017 on a year-over-year basis, so future growth is uncertain.
02—Key points
Key Highlights
- Net revenues of $5,519 million, relatively flat versus $5,546 million in fiscal 2016; product revenues up 1% to $3,006 million, offset by a 2% decline in software and hardware maintenance and other services revenues.
- Income from operations rose to $665 million (12% of net revenues) from $348 million (6%), driven by lower operating expenses from cost reduction initiatives and restructuring.
- Net income of $509 million, or $1.81 per diluted share, versus $229 million, or $0.77, in fiscal 2016; the effective tax rate fell to 23.5% from 33.6%.
- Strategic solutions product revenue grew 17% to $1,971 million, while mature solutions fell 21% to $1,035 million, reflecting the planned transition to newer all-flash and hybrid-cloud products.
- Cash, cash equivalents and short-term investments totaled $4.9 billion, with $4.5 billion held by foreign subsidiaries; repatriation would subject these funds to significant U.S. taxes.
- Returned capital through $705 million of share repurchases (22 million shares) and $208 million of dividends; $0.8 billion remains authorized under the $9.6 billion program.
- The company repaid an $850 million short-term loan tied to the SolidFire acquisition and now carries $1.5 billion of senior notes, with $750 million due in December 2017, plus $500 million of commercial paper outstanding.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, NetApp kept $0.09.
- Revenue$5.52B100.0%
- Cost of revenue−$2.15B39.0%
- Gross profit$3.36B61.0%
- Operating costs−$2.74B49.7%
- Operating income$621.0M11.3%
- Interest, other & tax−$140.0M2.5%
- Net income$481.0M8.7%
Where FY2017 revenue went
$5.52B- Cost of revenue: $2.13B, 39% of revenue
- Other operating costs: $1.99B, 36% of revenue
- R&D: $779.0M, 14% of revenue
- Net income: $481.0M, 8.7% of revenue
- Interest, other & tax: $140.0M, 2.5% of revenue
Kept 8.7% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed June 20, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $5.52B$5.55B | −0.5% |
| Cost of Revenue | $2.13B$2.17B | −2.0% |
| Gross Profit | $3.36B$3.37B | −0.3% |
| R&D Expenses | $779.00M$861.00M | −9.5% |
| Operating Expenses | $2.74B$3.02B | −9.3% |
| Operating Income | $621.00M$348.00M | +78.4% |
| Interest Expense | $52.00M$49.00M | +6.1% |
| Net Income | $481.00M$229.00M | +110.0% |
| EPS (Basic) | $1.75$0.78 | +124.4% |
| EPS (Diluted) | $1.71$0.77 | +122.1% |
| Shares Outstanding (Basic) | 275.00M294.00M | −6.5% |
| Shares Outstanding (Diluted) | 281.00M297.00M | −5.4% |
05—Questions
Frequently Asked Questions
How did NetApp's revenue and profitability change in fiscal 2017?
Net revenues were $5,519 million, essentially flat compared with $5,546 million in fiscal 2016. Gross profit was $3,390 million with a 61% margin, unchanged year over year. Income from operations increased to $665 million from $348 million, and net income rose to $509 million from $229 million, primarily due to lower operating expenses from cost reduction initiatives and a lower effective tax rate.
What is driving the shift in NetApp's product portfolio?
Strategic solutions, including Clustered ONTAP, branded E-Series, SolidFire, AltaVault and optional add-on software, grew product revenue 17% to $1,971 million, while mature solutions such as 7-mode systems fell 21% to $1,035 million. The filing attributes this to the planned transition to newer all-flash and hybrid-cloud compatible products and customer adoption of those offerings.
How is NetApp managing its balance sheet and capital returns?
The company repaid an $850 million short-term loan and repurchased $705 million of stock, while paying $208 million in dividends. It issued $499 million of net commercial paper under a $600 million program backed by a $600 million revolving credit facility. Total debt declined to $1,993 million from $2,339 million, and the company stated it has no need to repatriate foreign cash to fund U.S. operations.
What risks does the filing highlight for investors?
The filing notes that the networked storage hardware market declined in each of the last two calendar years and that revenue declined in fiscal 2015, 2016 and 2017 on a year-over-year basis. It also cites dependence on distributors (Arrow and Avnet accounted for 22% and 20% of net revenues), reliance on limited suppliers and contract manufacturers, competitive pressure from full-stack vendors and cloud providers, and the tax cost of repatriating $4.5 billion of foreign-held cash.
06—Continue