01—Abstract
Summary
Summary of the 10-K filed June 19, 2018. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. (NTAP) reported fiscal 2018 (ended April 27, 2018) net revenues of $5.91 billiona, up 7% from $5.52 billion in fiscal 2017, driven primarily by a 15% increase in product revenues to $3.46 billion.
Strategic solutions grew 24% to $2.45 billionb and now represent 71% of product revenues, while software maintenance revenues were $958 million and hardware maintenance and other services revenues declined 4% to $1.49 billion. Gross profit margin rose to 63% from 61%, and income from operations increased to $1.13 billion, aided by a $218 million gain on sale of properties. Net income fell sharply to $76 million, or $0.28 per diluted share, from $509 million in fiscal 2017.
The decline reflects a $1.09 billionc provision for income taxes, which includes a $732 million one-time transition tax and a $126 million charge for remeasurement of deferred tax assets under the Tax Cuts and Jobs Act. The company states it has elected to pay the transition tax over eight years, so operating cash flows will be affected until those payments are complete. Operating cash flow nonetheless rose to $1.48 billion from $986 million.
The balance sheet shows cash, cash equivalents and short-term investments of $5.39 billiond against $1.93 billion of total debt, and stockholders' equity fell to $2.07 billion. The company repurchased 15 million shares for $794 million, paid $214 million in dividends, and declared a $0.40 quarterly dividend. Its board authorized up to $13.6 billion in repurchases, including a $4.0 billion increase approved in April 2018.
02—Key points
Key Highlights
- Net revenues grew 7% to $5.91 billion, led by a 15% rise in product revenues to $3.46 billion.
- Strategic solutions product revenues increased 24% to $2.45 billion and comprised 71% of product revenues.
- Gross profit margin rose to 63% from 61%, and income from operations increased to $1.13 billion from $665 million.
- Net income declined to $76 million ($0.28 per diluted share) from $509 million, primarily due to a $1.09 billion income tax provision including a $732 million transition tax under U.S. tax reform.
- Operating cash flow increased to $1.48 billion from $986 million, while the transition tax will be paid over eight years.
- Cash, cash equivalents and short-term investments totaled $5.39 billion versus $1.93 billion of principal debt; the company issued $800 million of senior notes and redeemed $750 million.
- Capital returns included $794 million in share repurchases and $214 million in dividends, with a $0.40 quarterly dividend declared in May 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, NetApp kept $0.02.
- Revenue$5.92B100.0%
- Cost of revenue−$2.21B37.3%
- Gross profit$3.71B62.7%
- Operating costs−$2.55B43.1%
- Operating income$1.16B19.6%
- Interest, other & tax−$1.04B17.6%
- Net income$116.0M2.0%
Where FY2018 revenue went
$5.92B- Cost of revenue: $2.21B, 37% of revenue
- Other operating costs: $1.77B, 30% of revenue
- Interest, other & tax: $1.04B, 18% of revenue
- R&D: $783.0M, 13% of revenue
- Net income: $116.0M, 2.0% of revenue
Kept 2.0% as net incomeNet income $116.0M · 2.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed June 19, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.92B$5.52B | +7.2% |
| Cost of Revenue | $2.21B$2.13B | +3.8% |
| Gross Profit | $3.71B$3.36B | +10.3% |
| R&D Expenses | $783.00M$779.00M | +0.5% |
| Operating Expenses | $2.55B$2.74B | −7.0% |
| Operating Income | $1.16B$621.00M | +86.5% |
| Interest Expense | $62.00M$52.00M | +19.2% |
| Net Income | $116.00M$481.00M | −75.9% |
| EPS (Basic) | $0.43$1.75 | −75.4% |
| EPS (Diluted) | $0.42$1.71 | −75.4% |
| Shares Outstanding (Basic) | 268.00M275.00M | −2.5% |
| Shares Outstanding (Diluted) | 276.00M281.00M | −1.8% |
05—Questions
Frequently Asked Questions
Why did net income drop so sharply in fiscal 2018?
The provision for income taxes rose to $1.09 billion from $156 million, driven mainly by a $732 million one-time transition tax on accumulated foreign earnings and a $126 million charge from remeasuring deferred tax assets and liabilities after the Tax Cuts and Jobs Act. Income before taxes actually increased to $1.17 billion from $665 million.
What drove revenue growth in fiscal 2018?
Product revenues increased $455 million, or 15%, with strategic solutions rising 24% to $2.45 billion on higher Clustered ONTAP unit volume and higher average selling prices from All-Flash FAS products. Hardware maintenance and other services revenues declined 4% to $1.49 billion, and software maintenance revenues were $958 million, down 1%.
How is the company returning cash to shareholders?
In fiscal 2018 NetApp repurchased 15 million shares for $794 million and paid $214 million in dividends at $0.80 per share for the year. The board had authorized up to $13.6 billion for repurchases through April 27, 2018, and declared a $0.40 per share dividend payable July 25, 2018.
What are the company's main debt and liquidity positions?
At April 27, 2018, Senior Notes totaled $1.55 billion in principal, and commercial paper outstanding was $385 million. Cash, cash equivalents and short-term investments were $5.39 billion, of which $4.5 billion was held by foreign subsidiaries. The company also has a $1.0 billion revolving credit facility that was undrawn.
What is the company's exposure to distributors?
Sales through indirect channels represented 79% of fiscal 2018 net revenues. Arrow Electronics, Inc. accounted for 23% and Tech Data Corporation for 19% of net revenues, and the company notes that its reseller agreements generally do not require minimum purchases.
06—Continue