NetApp: Fiscal 4Q22 Financial Results

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For 4FQ22, the company formerly expected sales between $1,635 and $1,735 million or up 5% to 12%, being a record since at least 1FQ20. Final result is $1,680 million at low end of guidance.

FY22 ended with record revenue of $6,318 million, up 10% Y/Y.

The company delivered billings of $6.74 billion.

Public Cloud ARR of $505 million grew 68% Y/Y, driven by strength in Cloud Storage, led by Azure NetApp Files. The 4FQ22 dollar-based net revenue retention rate remains strong at 159%. The firm finished FY22 with $505 million in Public Cloud ARR, with Public Cloud revenue growing 99% for FY22. It balanced strong growth in its key strategic areas with another year of disciplined investment - delivering record operating margin of 23.7% (up more than 3 points from last year), with all-time high EPS of $5.28, up 30% Y/Y. Public Cloud ARR exited 4FQ22 at $505 million, up 68% Y/Y. Public Cloud revenue recognized in the quarter was $120 million, up 82% Y/Y and 9% Q/Q. NetApp ended 4FQ22 with a record $4.2 billion in deferred revenue, an increase of 6% Y/Y. This quarter marks the 17th consecutive quarter of Y/Y deferred revenue growth.

Demand for cloud storage solutions was strong in 4FQ22. The company also saw a healthy number of new customer additions across both cloud storage and cloud operations services in the quarter. Unfortunately, these tailwinds were not enough to offset the lower-than-expected growth created by higher churn, lower expansion rates, and sales force turnover in cloud operations portfolio.

The firm understand the root causes of these temporary headwinds, and, in FY23, its focus will be on returning these services to the growth trajectory saw in the first three quarters of the year.

Overall, FY22 was a good year for cloud business, doubling Public Cloud segment revenue from $199 million in FY21 to $396 million in FY22, expanding its cloud partnerships and routes to market, and introducing new, organic innovations.

Demand for our Hybrid Cloud solutions remains high. Despite supply constraints that impeded firm's ability to meet all customer demand, NetApp grew product revenue 6% in 4FQ22 and 10% in FY22. Hybrid Cloud segment revenue of $1.56 billion was up 5% Y/Y. Within Hybrid Cloud, product revenue grew for the 5th consecutive quarter and the company expects this momentum to continue into FY23. Product revenue of $894 million increased 6% Y/Y. Software product revenue of $530 million increased yearly 10%, driven by the on-going mix shift towards all-flash portfolio. Total 4FQ22 recurring support revenue of $590 million increased 2% Y/Y, highlighting the health of installed base.

Within hybrid cloud segment, all-flash revenue grew 20% and object storage revenue 49%. All flash array annualized revenue run rate is up 12% Y/Y to $3.2 billion. Thanks to strong unit growth in FAS hybrid arrays, all flash penetration remained flat at 31% of installed systems.

Bad outlook is expected next quarter: $1,475 to 1,625 million, or 1% to 11% Y/Y and -3% to -4% Q/Q.

Net revenues is supposed to grow in the range of 6% to 8% (10% was announced last quarter).

The company plans to slow the pace of acquisitions and reprioritize its use of cash in FY23 to favor shareholder returns.

In FY23, revenue is expected to grow 6 to 8% Y/Y, which includes a 2% point headwind from Fx. The firm anticipates sustained demand for and continued share gain momentum in both all-flash and object storage solutions, which it expects to drive product revenue growth in the mid-single digits. It will also continue to grow and invest in its Public Cloud business. It expects to exit FY23 with Public Cloud ARR of $780 to $820 million, which includes approximately $40 million from recently closed acquisition of Instaclustr. At the ARR mid-point, it expects Public Cloud segment to drive 4 points of total company revenue growth in FY23. It remains confident in its ability to deliver $2 billion in Public Cloud ARR exiting FY26.

In FY23, gross margin is expected in the range between 66% and 67%, as elevated component costs and logistical expenses from supply constraints continue to weigh on product margins.

Operating margin is anticipated to be between 23% and 24% for the full year as NetApp continue to invest in its growth initiatives, while maintaining a disciplined approach to spending. Commitment is to again grow revenue faster than operating expenses in FY23.

NetApp's financial results since FY2016

Revenue and net income (loss) in $ million
* Outlook

Earnings call transcript