NetApp: Fiscal 1Q17 Financial Results

Revenue continues to diminish but back to profit.
This is a Press Release edited by on 2016.08.18

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(in $ million) 1Q16 1Q17 Growth
1,355 1,294 -3%
Net income (loss) (30) 64  

 NetApp, Inc. reported financial results for the first quarter fiscal year 2017, ended July 29, 2016.

First Quarter Financial Results

  • Net revenues were $1.29 billion. GAAP net income for the first quarter of fiscal year 2017 was $64 million, or $0.23 income per share, compared to GAAP net loss of $30 million, or $0.10 loss per share, for the comparable period of the prior year.
  • Non-GAAP net income was $129 million, or $0.46 income per share, compared to non-GAAP net income of $89 million, or $0.29 income per share, for the comparable period of the prior year.
  • Ended the first quarter of fiscal year 2017 with $4.4 billion in total cash, cash equivalents and investments. During the first quarter of fiscal year 2017, the company generated $228 million in cash from operations and returned $228 million to shareholders through share repurchases and a cash dividend.

The company announced the next cash dividend of $0.19 per share. The quarterly dividend will be paid on October 26, 2016, to shareholders of record as of the close of business on October 7, 2016.

"We are pleased with our first quarter results. Our focus on disciplined execution of our strategy is yielding results and starting to change the trajectory of our business," said George Kurian, CEO. "We remain sharply focused on operating more efficiently while delivering market-leading innovations that are aligned to our customers' business and IT transformation priorities."

Q2 Fiscal Year 2017 Outlook

  • Net revenues are expected to be in the range of $1.265 billion to $1.415 billion.
  • GAAP earnings per share is expected to be in the range of $0.31 to $0.36 per share.
  • Non-GAAP earnings per share is expected to be in the range of $0.51 to $0.56 per share.

Business Highlights

  • Continued leadership in flash
  • Integration of the flash storage portfolio with the NetApp Docker Volume Plug-In (nDVP) allows containerized applications to take advantage of solid-state performance with deployment flexibility.
  • NetApp SolidFire unveils storage purchasing model for the next-generation data center. FlashForward Capacity Licensing creates flexibility and investment protection for customers to purchase storage infrastructure in alignment with the dynamic and growing nature of their businesses.
  • The latest addition to the SolidFire SF-Series product line delivers twice the performance and capacity and version 9 of the SolidFire Element OS (Fluorine) simplifies customers' transitions to service delivery-oriented infrastructure.
  • The new FlashAdvantage 3-4-5 program now includes a guaranteed efficiency data reduction of 4:1. This program, combined with the new NetApp 15TB solid state drives, will make flash the workload consolidation platform for customers' infrastructure needs.
  • Enhancements to NetApp data protection software, including NetApp OnCommand Insight and new NetApp Data Protection Solutions for Microsoft Office 365, help customers reduce the risk of data loss while enabling BC with the right mix of cloud resources.
  • With ONTAP 9 software, enterprises can quickly integrate the best of traditional and emerging technologies, incorporating flash, the cloud, and software-defined architectures to build a data fabric foundation across on-premises and cloud resources.
  • With one of the largest cloud footprints of any U.S. federal government agency, NASA Johnson Space Center chose NetApp AltaVault to help protect NASA's mission-critical data, optimize its cloud footprint, and drive down cost.
  • NetApp AFF enabled the University of Scranton to enhance e-learning with a BYOD program, which helped connect students and teachers anywhere in the world at any time. In addition, Seminole County Public Schools used FAS8040HA storage and AltaVault backup-to-cloud solutions to provide nonstop, secure data access and fast application response to more than 40 departments.
  • Citrix chose NetApp to support automated testing on a large scale, drive down latency, and work with the Xenserver and NFS shared storage. NetApp's performance, flexibility, rich data management features, and previous partnership with Citrix were key reasons NetApp was selected.

Our Comments

For the eleventh consecutive quarter, revenue decreased year-over-year (see table below), down 6% on a sequential basis and 3% Y/Y, above the midpoint of its prior guidance range, but NetApp swings to profit after two quarters of losses. 

CEO George Kurian is pleased with these first quarter results and said: "Our focus on disciplined execution of our strategy is yielding results and starting to change the trajectory of our business."

Revenue by products

NetApp,Fiscal 1Q17 Financial Results

In this first quarter, strategic solutions represented 61% of net product revenue and grew yearly 24% while sales from legacy solutions declined 24% Y/Y.

Declines in legacy business are lessening and the storage firm expects that the growth of its strategic solutions to accelerate, returning the company to moderated revenue growth in FY18.

Product revenue was $660 million and for the first time in several quarters was essentially flat on a year-over-year basis. Product gross margin of 46.7% was flat sequentially. Product gross margin was down yearly 4.5 points. Software maintenance gross margin was relatively flat, while hardware maintenance and other services gross margin increased Y/Y just under 4 points.

The combination of software maintenance and hardware maintenance and other services revenue of $634 million, down yearly 6% due to the extra week of business recorded in 1Q16.

Clustered ONTAP was deployed on 82% of FAS systems shipped during the most recent quarter, up from 65% a year ago. The company saw continued strong customer demand with unit shipments of clustered ONTAP systems growing 35% year-over-year. The installed base of clustered ONTAP in 7-mode systems continues to grow in total and clustered ONTAP is now running on 32% of that growing installed base.

All-flash array business continues to be strong, up 385% Y/Y to an annualized revenue run rate of $775 million, inclusive of all-flash FAS, EF and SolidFire product and services. The majority of this growth was driven by high demand for the all-flash FAS.

The company expects revenue between $1.265 billion and $1.415 billion for the next three-month period or between -2% and 9% Q/Q.

Period Revenue Y/Y Growth Net income (loss)
1FQ14 1,516 5% 82
2FQ14 1,550 1% 167
3FQ14 1,610 -1% 192
4FQ14 1,649 -4% 197
FY14 6,325 -0% 638
1FQ15 1,489 -2% 88
2FQ15 1,542 -0% 160
3FQ15 1,551 -4% 177
4FQ15 1,540 -2% 135
FY15 6,123 -3% 560
1FQ16 1,335 -10% (30)
2FQ16 1,445 -9% 114
3FQ16 1,386 -11% 153
4FQ16 1,380 -10% (8)
FY16 5,546 -9% 229
1FQ17 1,294 -3% 64

To read the earnings call transcript