01—Abstract
Summary
Summary of the 10-Q filed August 29, 2023. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. reported net revenues of $1,432 milliona for the first quarter of fiscal 2024 (three months ended July 28, 2023), down from $1,592 million in the prior-year quarter, a decrease of 10%.
The decline was primarily driven by lower product revenues, which fell to $590 millionb from $786 million, partially offset by higher services revenues of $842 million versus $806 million. Management attributes the weaker product results to softening customer demand and cites a weakened demand environment characterized by cloud optimizations and increased budget scrutiny. Net income was $149 million, or $0.69 per diluted share, compared with $214 million, or $0.96 per diluted share, a year earlier.
Income from operations was $178 millionc versus $255 million. Cash flow from operations was $453 million, up from $281 million in the prior-year period, aided by a $332 million decrease in accounts receivable. Cash, cash equivalents and short-term investments totaled $2.975 billion at quarter end, a decrease of $95 million during the quarter, as the company repurchased $400 million of common stock and paid $106 million in dividends.
Long-term debt principal was $2.4 billiond, and a $1.0 billion revolving credit facility remained undrawn. The company initiated a restructuring plan in the quarter that reduced its global workforce by approximately 1% and terminated certain real estate leases, generating restructuring charges of $26 million. Total stockholders' equity declined to $873 million from $1,159 million at fiscal year-end, reflecting share repurchases, dividends and the retained earnings balance falling to zero.
02—Key points
Key Highlights
- Net revenues were $1,432 million, down 10% from $1,592 million, driven primarily by a 25% decline in product revenues to $590 million.
- Services revenues rose 4% to $842 million, with public cloud revenues increasing 17% to $154 million and support revenues increasing 2% to $611 million.
- Net income declined to $149 million ($0.69 per diluted share) from $214 million ($0.96 per diluted share) in the prior-year quarter.
- Net cash provided by operating activities increased to $453 million from $281 million, while cash, cash equivalents and short-term investments decreased $95 million to $2.975 billion.
- The company repurchased approximately 5 million shares for $400 million and paid $106 million in dividends, with $1.0 billion remaining under the repurchase authorization.
- A restructuring plan initiated in the quarter, reducing the global workforce by approximately 1%, resulted in $26 million of restructuring charges.
- Deferred revenue and financed unearned services revenue totaled $4.18 billion, with approximately 51% expected to be recognized as revenue in the next 12 months.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, NetApp kept $0.10.
- Revenue$1.43B100.0%
- Cost of revenue−$436.0M30.4%
- Gross profit$996.0M69.6%
- Operating costs−$818.0M57.1%
- Operating income$178.0M12.4%
- Interest, other & tax−$29.0M2.0%
- Net income$149.0M10.4%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed August 29, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $1.43B$1.59B | −10.1% |
| Cost of Revenue | $436.00M$546.00M | −20.1% |
| Gross Profit | $996.00M$1.05B | −4.8% |
| R&D Expenses | $247.00M$240.00M | +2.9% |
| Operating Expenses | $818.00M$791.00M | +3.4% |
| Operating Income | $178.00M$255.00M | −30.2% |
| Interest Expense | $16.00M$18.00M | −11.1% |
| Net Income | $149.00M$214.00M | −30.4% |
| EPS (Basic) | $0.70$0.97 | −27.8% |
| EPS (Diluted) | $0.69$0.96 | −28.1% |
| Shares Outstanding (Basic) | 212.00M220.00M | −3.6% |
| Shares Outstanding (Diluted) | 216.00M224.00M | −3.6% |
05—Questions
Frequently Asked Questions
Why did NetApp's revenue decline in the first quarter of fiscal 2024?
The filing states that the decrease in net revenues was primarily due to a decrease in product revenues, which fell 25% to $590 million, reflecting lower sales of all-flash array and hybrid systems as a result of softening customer demand. Services revenues partially offset the decline, increasing 4% to $842 million.
How did profitability change compared with the prior-year quarter?
Gross profit fell to $996 million from $1,046 million, and income from operations declined to $178 million from $255 million. Net income was $149 million compared with $214 million. Total operating expenses rose to $818 million from $791 million, including a $26 million restructuring charge.
What did the company do with its cash during the quarter?
Operating activities generated $453 million. The company used $400 million to repurchase common stock, $106 million for dividends, and $35 million for purchases of property and equipment. Cash, cash equivalents and short-term investments ended the quarter at $2.975 billion.
What is the company's debt and liquidity position?
Principal amount of Senior Notes outstanding was $2.4 billion, with the nearest maturity being $400 million due in fiscal 2025. The company also has a $1.0 billion revolving credit facility under which no amounts were drawn, and no commercial paper notes were outstanding as of July 28, 2023. Management stated it believes liquidity is sufficient for at least the next 12 months.
What restructuring actions did NetApp take this quarter?
In the first quarter of fiscal 2024, NetApp initiated a restructuring plan to redirect resources to its highest-return activities and optimize its global office space for a hybrid work model. The plan reduced the global workforce by approximately 1% and terminated certain real estate leases, with restructuring charges of $26 million consisting primarily of severance and lease termination costs.
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