01—Abstract
Summary
Summary of the 10-K filed June 15, 2020. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. reported fiscal 2020 (ended April 24, 2020) net revenues of $5.41 billiona, down 12% from $6.15 billion in fiscal 2019, driven mainly by a 20% decline in product revenues to $2.99 billion.
Software maintenance revenues rose 9% to $1.03 billionb, and hardware maintenance and other services fell to $1.38 billion. Gross profit margin improved to 67% from 64%, as maintenance revenues made up a larger share of the mix. Net income fell to $819 million from $1.17 billion, and diluted EPS was $3.52 versus $4.51.
Management attributed the weakness to lower enterprise IT spending, go-to-market execution issues in the first quarter, and COVID-19-related delays in the fourth quarter. The company stated it withdrew fourth-quarter guidance and limited fiscal 2021 guidance to the first quarter. Cash, cash equivalents and short-term investments declined to $2.88 billionc from $3.90 billion.
The decline reflected $1.41 billiond in share repurchases, $439 million in dividends, and $400 million to repay Senior Notes. Operating cash flow was $1.06 billion, down from $1.34 billion. The company suspended its stock repurchase program in March 2020 and declared a quarterly dividend of $0.48 per share.
Total stockholders' equity fell to $242 million from $1.09 billion, and the company had $1.15 billion in senior notes principal and $523 million of commercial paper outstanding. The filing also describes a shift toward cloud and hybrid cloud data services, the introduction of the Keystone consumption offering, and acquisitions of Cognigo, Talon and Cloud Jumper, plus a definitive agreement to acquire Spot, Inc. announced June 3, 2020. Investors should weigh the revenue decline, the pandemic-related uncertainty the company repeatedly flagged, and the pending shareholder class action tied to fiscal 2020 guidance.
02—Key points
Key Highlights
- Net revenues fell 12% to $5.41 billion in fiscal 2020, with product revenues down 20% to $2.99 billion.
- Gross profit margin rose to 67% from 64%, as software and hardware maintenance made up a higher share of revenue.
- Net income declined to $819 million from $1.17 billion; diluted EPS was $3.52 versus $4.51.
- Cash, cash equivalents and short-term investments fell to $2.88 billion from $3.90 billion after $1.41 billion in share repurchases and $439 million in dividends.
- Stock repurchases were suspended in March 2020; the company withdrew fourth-quarter guidance and limited fiscal 2021 guidance to the first quarter due to COVID-19.
- Total stockholders' equity dropped to $242 million from $1.09 billion, and $1.15 billion of senior notes principal remained outstanding.
- Indirect channels represented 79% of net revenues, and distributors Arrow Electronics and Tech Data accounted for 25% and 21% of net revenues, respectively.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, NetApp kept $0.15.
- Revenue$5.41B100.0%
- Cost of revenue−$1.79B33.1%
- Gross profit$3.62B66.9%
- Operating costs−$2.68B49.5%
- Operating income$945.0M17.5%
- Interest, other & tax−$126.0M2.3%
- Net income$819.0M15.1%
Where FY2020 revenue went
$5.41B- Other operating costs: $1.83B, 34% of revenue
- Cost of revenue: $1.79B, 33% of revenue
- R&D: $847.0M, 16% of revenue
- Net income: $819.0M, 15% of revenue
- Interest, other & tax: $126.0M, 2.3% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed June 15, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $5.41B$6.15B | −11.9% |
| Cost of Revenue | $1.79B$2.20B | −18.7% |
| Gross Profit | $3.62B$3.94B | −8.2% |
| R&D Expenses | $847.00M$827.00M | +2.4% |
| Operating Expenses | $2.68B$2.72B | −1.7% |
| Operating Income | $945.00M$1.22B | −22.6% |
| Interest Expense | $55.00M$58.00M | −5.2% |
| Net Income | $819.00M$1.17B | −29.9% |
| EPS (Basic) | $3.56$4.60 | −22.6% |
| EPS (Diluted) | $3.52$4.51 | −22.0% |
| Shares Outstanding (Basic) | 230.00M254.00M | −9.4% |
| Shares Outstanding (Diluted) | 233.00M259.00M | −10.0% |
05—Questions
Frequently Asked Questions
Why did NetApp's revenue decline in fiscal 2020?
The filing attributes the decline primarily to a $760 million decrease in product revenues, reflecting less favorable macroeconomic conditions, lower enterprise IT spending, and go-to-market execution issues with some large global customer accounts in the first quarter. In the fourth quarter, COVID-19 increased macroeconomic uncertainty, contributed to demand weakness, and caused logistical delays in deliveries.
How did the company's profitability change despite lower revenue?
Gross profit margin increased to 67% from 64%, mainly because software and hardware maintenance revenues made up a larger percentage of total revenues as product revenues declined. Materials costs fell $393 million, partly reflecting a lower average unit materials cost of AFF systems. Income from operations fell to $945 million from $1.22 billion, and operating margin declined to 17% from 20%.
How is NetApp managing its cash and capital returns?
The company paid $439 million in dividends and repurchased 25 million shares for $1.41 billion during fiscal 2020. It suspended repurchases in March 2020 to strengthen liquidity given COVID-19 uncertainty, and it declared a $0.48 quarterly dividend payable July 29, 2020. The remaining repurchase authorization was $0.5 billion as of April 24, 2020.
What are the main risks the filing highlights?
The filing highlights COVID-19 effects on demand, supply chain and financing; a traditional networked storage market that declined in each of the last three calendar years; intense competition and industry consolidation; reliance on distributors and a limited number of suppliers; and a shift toward consumption-based models that may change revenue timing. It also cites a pending purported securities class action filed August 14, 2019 regarding fiscal 2020 guidance, which the company says it believes is without merit.
06—Continue