01—Abstract
Summary
Summary of the 10-K filed June 18, 2019. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. (NTAP) reported fiscal 2019 (year ended April 26, 2019) net revenues of $6.146 billiona, up from $5.919 billion in fiscal 2018, with product revenues rising to $3.755 billion and hardware maintenance and other services declining to $1.445 billion.
Gross profit was $3.945 billionb, and net income was $1.169 billion, or $4.51 per diluted share, compared with $116 million in fiscal 2018, which was burdened by a $732 million transition tax charge under U.S. tax reform. The company describes itself as the data authority for hybrid cloud and cites its Data Fabric strategy, with indirect channels representing 76% of net revenues. The filing notes that the networked storage hardware market declined in each of the last three calendar years, and that revenue declined in fiscal years 2015, 2016 and 2017.
Cash, cash equivalents and short-term investments fell to $3.899 billionc from $5.391 billion, primarily reflecting $2.111 billion of share repurchases, $403 million of dividends, and $136 million of net commercial paper repayments, partly offset by $1.341 billion of operating cash flow. Total debt was $1.793 billion, and stockholders' equity declined to $1.090 billion from $2.276 billion, largely due to repurchases charged to equity.
The company declared a quarterly dividend of $0.48d per share for the first quarter of fiscal 2020 and had $1.889 billion remaining under its $13.6 billion repurchase authorization as of April 26, 2019. The filing also highlights a $73 million gain from a joint venture with Lenovo in China, a restructuring plan under which the workforce was reduced by less than 3% in fiscal 2019 with charges of $35 million, and a subsequent event in May 2019 in which NetApp acquired Cognigo Research Ltd. for approximately $56 million in cash.
02—Key points
Key Highlights
- Net revenues rose 4% to $6.146 billion in fiscal 2019, driven by a $230 million increase in product revenues, while hardware maintenance and other services revenues declined 3% to $1.445 billion.
- Gross profit margin rose by one percentage point to a level the filing does not state numerically, aided by higher margins on product revenues and the up-front recognition of software license components of several enterprise license agreements under ASC 606.
- Net income was $1.169 billion, or $4.51 per diluted share, versus $116 million in fiscal 2018, which included the $732 million transition tax charge; the effective tax rate was 7.8%, compared with 90.3% in fiscal 2018.
- Cash, cash equivalents and short-term investments declined to $3.899 billion from $5.391 billion, as the company repurchased $2.111 billion of stock and paid $403 million in dividends.
- Total stockholders' equity fell to $1.090 billion from $2.276 billion, and total debt was $1.793 billion, including $1.6 billion of senior notes.
- Deferred revenue and financed unearned services revenue increased $305 million, or 9%, to $3.668 billion, reflecting a growing installed base of maintenance contracts.
- The company formed a joint venture with Lenovo in China, recording a $73 million gain on the contribution of assets in exchange for a 49% non-controlling interest, and acquired Cognigo Research Ltd. for approximately $56 million in May 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, NetApp kept $0.19.
- Revenue$6.15B100.0%
- Cost of revenue−$2.20B35.8%
- Gross profit$3.94B64.2%
- Operating costs−$2.72B44.3%
- Operating income$1.22B19.9%
- Interest, other & tax−$52.0M0.8%
- Net income$1.17B19.0%
Where FY2019 revenue went
$6.15B- Cost of revenue: $2.20B, 36% of revenue
- Other operating costs: $1.90B, 31% of revenue
- Net income: $1.17B, 19% of revenue
- R&D: $827.0M, 13% of revenue
- Interest, other & tax: $52.0M, 0.8% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed June 18, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $6.15B$5.92B | +3.8% |
| Cost of Revenue | $2.20B$2.21B | −0.4% |
| Gross Profit | $3.94B$3.71B | +6.4% |
| R&D Expenses | $827.00M$783.00M | +5.6% |
| Operating Expenses | $2.72B$2.55B | +6.8% |
| Operating Income | $1.22B$1.16B | +5.4% |
| Interest Expense | $58.00M$62.00M | −6.5% |
| Net Income | $1.17B$116.00M | +907.8% |
| EPS (Basic) | $4.60$0.43 | +969.8% |
| EPS (Diluted) | $4.51$0.42 | +973.8% |
| Shares Outstanding (Basic) | 254.00M268.00M | −5.2% |
| Shares Outstanding (Diluted) | 259.00M276.00M | −6.2% |
05—Questions
Frequently Asked Questions
How did NetApp perform financially in fiscal 2019?
Net revenues increased 4% to $6.146 billion, gross profit rose to $3.945 billion, and net income reached $1.169 billion, or $4.51 per diluted share. Earnings were materially higher than fiscal 2018 net income of $116 million, which was reduced by a $732 million one-time transition tax charge.
What drove the change in cash and capital returns during the year?
Cash, cash equivalents and short-term investments declined by $1.5 billion to $3.899 billion. The company used $2.111 billion to repurchase shares and $403 million to pay dividends, partly offset by $1.341 billion of operating cash flow. As of April 26, 2019, $1.889 billion remained under the $13.6 billion repurchase authorization.
What risks does the filing highlight for future revenue?
The filing states that the networked storage hardware market declined in each of the last three calendar years and that revenue declined in fiscal years 2015, 2016 and 2017. It also cites reliance on indirect channel partners, who accounted for 76% of net revenues, and two distributors, Arrow Electronics and Tech Data, which accounted for 24% and 20% of net revenues. Revenue forecasting is described as difficult, and the company relies on a limited number of suppliers and contract manufacturers.
What is the company's dividend and debt position?
The company paid $0.40 per share quarterly in fiscal 2019, totaling $1.60 for the year, and declared a $0.48 per share dividend payable July 24, 2019. Total debt was $1.793 billion as of April 26, 2019, including $1.6 billion of senior notes maturing between 2019 and 2024 and $249 million of commercial paper outstanding.
What notable events occurred after fiscal year-end?
On May 23, 2019, NetApp acquired privately held Cognigo Research Ltd., a data discovery classification software provider, for approximately $56 million in cash. The company also declared a $0.48 quarterly dividend in May 2019.
06—Continue