01—Abstract
Summary
Summary of the 10-Q filed February 29, 2024. Cited figures are marked; the original filing is the authoritative source.
NetApp, Inc. reported its third quarter of fiscal 2024 (ended January 26, 2024) with net revenues of $1.61 billiona, up from $1.53 billion a year earlier, while nine-month net revenues of $4.60 billion declined from $4.78 billion.
Net income was $313 millionb for the quarter versus $65 million in the prior-year quarter, and diluted EPS was $1.48 versus $0.30. For the nine months, net income was $695 million compared with $1.03 billion a year earlier, which included a prior-year $524 million discrete tax benefit from an intra-entity IP transfer. Product revenue rose 10% in the quarter to $747 million, driven by higher QLC-flash array sales, while nine-month product revenue fell 11% on softer demand for hybrid systems.
Services revenue grew 3% for the nine months to $2.56 billionc, with public cloud revenue up 8% to $459 million. Gross margin improved to 71.7% in the quarter from 65.6%, reflecting lower component and freight costs after supply chain improvements. Operating income for the quarter was $366 million, up from $172 million, and restructuring charges fell to $13 million from $87 million.
Cash, cash equivalents and short-term investments totaled $2.9 billiond at quarter end, down from $3.07 billion at fiscal year-end, as the company spent $800 million on share repurchases and $312 million on dividends. Total debt principal remained $2.4 billion, with $400 million of 3.30% notes reclassified to current liabilities because they mature in September 2024. The company declared a $0.50 per share quarterly dividend on February 22, 2024.
Management cited a weakened demand environment characterized by cloud optimizations and increased budget scrutiny, and warned that further macroeconomic deterioration could reduce customer demand. The filing states there have been no material changes to risk factors since the fiscal 2023 Form 10-K.
02—Key points
Key Highlights
- Q3 FY2024 net revenues of $1,606 million, up from $1,526 million; nine-month net revenues of $4,600 million, down from $4,781 million.
- Q3 FY2024 net income of $313 million ($1.48 diluted EPS) versus $65 million ($0.30) in Q3 FY2023; nine-month net income of $695 million versus $1,029 million.
- Gross margin of 71.7% in Q3 FY2024 versus 65.6% a year earlier, driven by lower component and freight costs after supply chain improvements.
- Product revenues rose 10% to $747 million in Q3, led by QLC-flash array systems, while nine-month product revenues declined 11% to $2,043 million on softer hybrid systems demand.
- Public Cloud revenues were $459 million for the nine months, up 8%, and Hybrid Cloud support revenues increased on a higher installed-base support contract value.
- Cash, cash equivalents and short-term investments of $2,917 million at January 26, 2024, versus $3,070 million at April 28, 2023, after $800 million of buybacks and $312 million of dividends in the nine months.
- $400 million of 3.30% Senior Notes due September 2024 were reclassified to current liabilities; $1.0 billion revolving credit facility remained undrawn.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, NetApp kept $0.19.
- Revenue$1.61B100.0%
- Cost of revenue−$455.0M28.3%
- Gross profit$1.15B71.7%
- Operating costs−$785.0M48.9%
- Operating income$366.0M22.8%
- Interest, other & tax−$53.0M3.3%
- Net income$313.0M19.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed February 29, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $1.61B$1.53B | +5.2% |
| Cost of Revenue | $455.00M$525.00M | −13.3% |
| Gross Profit | $1.15B$1.00B | +15.0% |
| R&D Expenses | $249.00M$230.00M | +8.3% |
| Operating Expenses | $785.00M$829.00M | −5.3% |
| Operating Income | $366.00M$172.00M | +112.8% |
| Interest Expense | $17.00M$16.00M | +6.3% |
| Net Income | $313.00M$65.00M | +381.5% |
| EPS (Basic) | $1.52$0.30 | +406.7% |
| EPS (Diluted) | $1.48$0.30 | +393.3% |
| Shares Outstanding (Basic) | 206.00M216.00M | −4.6% |
| Shares Outstanding (Diluted) | 211.00M219.00M | −3.7% |
05—Questions
Frequently Asked Questions
How did NetApp's profitability change in the third quarter of fiscal 2024?
Net income rose to $313 million from $65 million, and income from operations increased to $366 million from $172 million. Gross profit was $1,151 million, up from $1,001 million, with gross margin of 71.7% versus 65.6%. Restructuring charges fell to $13 million from $87 million.
Why did nine-month revenue decline despite growth in services?
Nine-month net revenues fell to $4,600 million from $4,781 million, primarily because product revenues decreased 11% due to lower sales of hybrid systems amid softer customer demand. Services revenues grew 3% to $2,557 million, partially offsetting the decline.
Why did nine-month net income decline year over year?
Nine-month net income was $695 million versus $1,029 million. The prior-year period included a $524 million discrete tax benefit from an intra-entity transfer of intellectual property, and the nine-month fiscal 2024 provision for income taxes was $188 million compared with a benefit of $277 million a year earlier.
How much cash did NetApp return to shareholders and what is its liquidity position?
In the first nine months of fiscal 2024, NetApp repurchased about 11 million shares for $800 million and paid $312 million in dividends. Cash, cash equivalents and short-term investments totaled $2.9 billion, and the company had a $1.0 billion revolving credit facility with no amounts drawn. Remaining buyback authorization was $602 million.
What risks did management highlight for future demand?
Management noted continuing global economic uncertainty, inflation, rising interest rates and possibly a recession. It cited a weakened demand environment with cloud optimizations, increased budget scrutiny, smaller deal sizes, longer selling cycles and deal delays, and said further reductions in customer demand could affect operating results.
06—Continue