01—Abstract
Summary
Summary of the 10-Q filed November 30, 2023. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. reported net revenues of $1.56 billiona for the second quarter of fiscal 2024 (three months ended October 27, 2023), down from $1.66 billion a year earlier, and $2.99 billion for the first six months versus $3.26 billion in the prior-year period.
The decline was primarily driven by lower product revenues, partially offset by higher services revenues. Net income fell to $233 millionb for the quarter from $750 million, and to $382 million for the six months from $964 million; the prior-year period included a $524 million discrete tax benefit from an intra-entity IP transfer. Management cites a weakened demand environment characterized by cloud optimizations and increased budget scrutiny, while supply chain conditions substantially improved, lowering product component and freight costs.
Cash, cash equivalents and short-term investments totaled $2.62 billionc at October 27, 2023, down from $3.07 billion at April 28, 2023. During the first six months, the company repurchased approximately 9 million shares for $700 million and paid $209 million in dividends, while operating cash flow was $588 million. The company had $2.4 billion in principal amount of Senior Notes outstanding, with $400 million classified as current following the reclassification of the notes due September 2024.
Stockholders' equity declined to $770 milliond from $1.16 billion. On November 21, 2023, the company declared a cash dividend of $0.50 per share.
The filing also discloses that the company is involved in patent litigation brought by non-practicing entities and other third parties, with no material accrual recorded as of October 27, 2023. Management did not identify any material changes to risk factors since the Form 10-K for the year ended April 28, 2023.
02—Key points
Key Highlights
- Net revenues of $1.56 billion for Q2 FY2024, down from $1.66 billion, with six-month revenues of $2.99 billion versus $3.26 billion; product revenues fell to $706 million from $837 million in the quarter.
- Services revenues rose to $856 million from $826 million in the quarter, with public cloud revenues of $154 million versus $142 million.
- Net income of $233 million for the quarter versus $750 million in the prior-year quarter; the prior-year period included a $524 million discrete tax benefit from an IP transfer.
- Cash, cash equivalents and short-term investments of $2.62 billion, down from $3.07 billion at April 28, 2023.
- Repurchased approximately 9 million shares for $700 million in the first six months and paid $209 million in dividends; $0.7 billion remained under the repurchase authorization.
- Net working capital was $0.3 billion, a reduction of $953 million from April 28, 2023, largely due to lower cash and the reclassification of $400 million of senior notes to current liabilities.
- Stockholders' equity declined to $770 million from $1.16 billion, reflecting share repurchases and dividends exceeding net income for the period.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, NetApp kept $0.15.
- Revenue$1.56B100.0%
- Cost of revenue−$452.0M28.9%
- Gross profit$1.11B71.1%
- Operating costs−$806.0M51.6%
- Operating income$304.0M19.5%
- Interest, other & tax−$71.0M4.5%
- Net income$233.0M14.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed November 30, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.56B$1.66B | −6.1% |
| Cost of Revenue | $452.00M$576.00M | −21.5% |
| Gross Profit | $1.11B$1.09B | +2.1% |
| R&D Expenses | $262.00M$243.00M | +7.8% |
| Operating Expenses | $806.00M$805.00M | +0.1% |
| Operating Income | $304.00M$282.00M | +7.8% |
| Interest Expense | $15.00M$17.00M | −11.8% |
| Net Income | $233.00M$750.00M | −68.9% |
| EPS (Basic) | $1.12$3.46 | −67.6% |
| EPS (Diluted) | $1.10$3.41 | −67.7% |
| Shares Outstanding (Basic) | 208.00M217.00M | −4.1% |
| Shares Outstanding (Diluted) | 211.00M220.00M | −4.1% |
05—Questions
Frequently Asked Questions
Why did revenue decline in the second quarter of fiscal 2024?
Net revenues fell to $1.56 billion from $1.66 billion, primarily due to lower product revenues, which the filing attributes to softening customer demand, including lower sales of all-flash array and hybrid systems. Services revenues partially offset the decline, increasing to $856 million from $826 million.
Why did net income drop so sharply compared with the prior year?
The prior-year quarter included a benefit for income taxes of $445 million, driven in part by a $524 million discrete tax benefit from an intra-entity IP transfer completed in the second quarter of fiscal 2023. The current quarter reported a tax provision of $82 million, so net income declined to $233 million from $750 million.
How is NetApp returning capital to shareholders?
In the first six months of fiscal 2024, NetApp repurchased approximately 9 million shares for $700 million and paid $209 million in dividends. On November 21, 2023, it declared a cash dividend of $0.50 per share payable January 24, 2024, and $0.7 billion remained under its $16.1 billion repurchase authorization.
How is the company's liquidity and debt position?
Cash, cash equivalents and short-term investments totaled $2.62 billion, against $2.4 billion in principal amount of Senior Notes. The $400 million 3.30% notes due September 2024 are now classified as current. The company also has a $1.0 billion revolving credit facility, with no amounts drawn as of October 27, 2023.
What were the key cost and supply chain trends?
Supply chain conditions substantially improved compared with the first half of fiscal 2023, lowering component and freight costs. Cost of Hybrid Cloud product revenues represented about 39% of product revenues in the second quarter, versus 50% in the prior-year period, and Hybrid Cloud product gross margins increased by about eleven percentage points.
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