NetApp: Fiscal 3Q09 Financial Results

NetApp reported results for the third fiscal quarter of 2009. Including the impact of a $128 million accrual to value a contingency related to a dispute with the General Services Administration (GSA), GAAP revenues for the third fiscal quarter of 2009 totaled $746 million compared to GAAP and Non-GAAP revenues of $884 million for the same period a year ago. Non-GAAP revenues1 for the third fiscal quarter, excluding the impact of the $128 million GSA accrual, totaled $874 million.

GAAP net loss for the third quarter of fiscal year 2009 was $75 million, or $0.23 per share, compared to GAAP net income of $102 million, or $0.29 per share for the same period in the prior year. Non-GAAP net income for the third fiscal quarter of 2009 was $93 million, or $0.28 per share, compared to non-GAAP net income of $132 million, or $0.37 per share for the same period a year ago.

GAAP revenues for the first nine months of the current fiscal year totaled $2.5 billion compared to GAAP and non-GAAP revenues of $2.4 billion for the first nine months of the prior year, an increase of 7% year over year. Non-GAAP revenues for the first nine months of the current fiscal year, excluding the impact of the $128 million GSA accrual, totaled $2.7 billion.

GAAP net income for the first nine months of the current fiscal year totaled $11 million, or $0.03 per share, compared to GAAP net income of $220 million, or $0.60 per share for the first nine months of the prior fiscal year. Non-GAAP net income for the first nine months of the current fiscal year totaled $262 million, or $0.78 per share, compared to non-GAAP net income of $324 million, or $0.89 per share for the first nine months of the prior fiscal year.

“Business levels softened in January as many customers’ budgets contracted, resulting in lower revenues than we had expected. At the same time, our storage efficiency value proposition resonates in challenging economic times, and we gained a record number of new customers during the quarter,” said Dan Warmenhoven, chairman and CEO. “Operationally, the NetApp team also did a stellar job, decreasing non-GAAP operating expenses by $30 million in one quarter. However, we needed to make further reductions in order to optimize our resource allocation for our strategic growth initiatives. Therefore, we have implemented a restructuring that unfortunately includes the elimination of approximately 6% of our global workforce. While this was a very difficult decision, we believe our actions will best position the company for additional market share gains in the future.”

Outlook
Given the reduced visibility caused by the recent changes in the macroeconomic environment, NetApp will not be providing formal revenue guidance for the fourth quarter of fiscal year 2009.

• NetApp estimates non-GAAP gross margins for the fourth quarter of fiscal year 2009 to be approximately 60%.
• NetApp estimates non-GAAP operating expenses for the fourth quarter of fiscal year 2009 to increase by about $5 million to $10 million from the third quarter of fiscal year 2009.
• NetApp estimates the company will incur approximately $30 million to $35 million in GAAP severance and other charges associated with a business restructuring in the fourth fiscal quarter.

Quarterly Highlights
In the third quarter of fiscal year 2009, NetApp introduced several new solutions to help customers transform their data center architectures through greater storage efficiency, greater power and space savings, and innovative data management techniques. The company also received industry recognition for its environmental, product, and operational excellence.

During the quarter, NetApp was ranked number one by Fortune magazine on the ‘100 Best Companies to Work For’ list. This is the second year it has achieved a top-10 ranking and the third consecutive year it has been named in the top 15. An egalitarian culture, competitive salaries, unique benefits, and a down-to-earth management style are attributes that have catapulted the company to the number-one spot for 2009. In addition, The Boston Globe named NetApp as one of the Top Places to Work in Massachusetts.

This quarter, NetApp extended its 50% Virtualization Guarantee Program, previously available only for VMware, to Citrix and Microsoft virtual environments. As part of the program, NetApp is offering a guarantee that customers will use 50% less storage with NetApp compared to traditional storage in Citrix XenServer and Microsoft Windows Server Hyper-V virtual environments.

Also this quarter, NetApp announced the availability of the FAS3160 and V3160, strengthening its current series of midrange storage offerings. Additionally, the company announced availability of SANscreen 5.0, a new addition to the award-winning SANscreen product suite that provides customers increased storage management capabilities for improved cost savings and data center efficiencies. NetApp also introduced SnapManager 3.0 for Oracle, providing customers who have Oracle Database environments running on NetApp® enterprise storage systems significant improvements in backup, restore, and cloning capabilities.

NetApp was also recognized by the following third parties for its environmental, product and operational excellence:

Pacific Gas and Electric Company (PG&E) presented NetApp with a rebate of $1.4 million under PG&E’s Non-Residential New Construction Program, which encourages PG&E’s commercial, industrial, high-technology, and agricultural customers to implement energy-efficient building and process design and construction.
Citrix Systems, Inc. honored NetApp with the Citrix Ready Solution of the Year award, which recognizes a company that excels in providing application delivery and virtualization solutions that are complementary to Citrix and drive Citrix adoption.
Baseline Magazine and Business Technology Management Corporation (BTM) presented NetApp with the Baseline/BTM 500 Award and recognized Marina Levinson, NetApp CIO, for Outstanding Technology Management at NetApp.