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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 29, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-27130

NetApp, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

77-0307520

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

3060 Olsen Drive,

San Jose, California 95128

(Address of principal executive offices, including zip code)

(408) 822-6000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

 

Name of exchange on which registered

Common Stock, $0.001 Par Value

NTAP

 

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 24, 2022, there were 217,365,705 shares of the registrant’s common stock, $0.001 par value, outstanding.


TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets as of July 29, 2022 and April 29, 2022

 

3

 

 

Condensed Consolidated Statements of Income for the Three Months Ended July 29, 2022 and July 30, 2021

 

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended July 29, 2022 and July 30, 2021

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended July 29, 2022 and July 30, 2021

 

6

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended July 29, 2022 and July 30, 2021

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

Item 4

 

Controls and Procedures

 

38

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

Item 1

 

Legal Proceedings

 

39

Item 1A

 

Risk Factors

 

39

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

Item 3

 

Defaults upon Senior Securities

 

40

Item 4

 

Mine Safety Disclosures

 

40

Item 5

 

Other Information

 

40

Item 6

 

Exhibits

 

41

SIGNATURE

 

42

 

TRADEMARKS

© 2022 NetApp, Inc. All Rights Reserved. No portions of this document may be reproduced without prior written consent of NetApp, Inc. NetApp, the NetApp logo, and the marks listed at http://www.netapp.com/TM are trademarks of NetApp, Inc. Other company and product names may be trademarks of their respective owners.

 

2


PART I — FINANCIAL INFORMATION

 

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

NETAPP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except par value)

(Unaudited)

 

 

 

July 29,
 2022

 

 

April 29,
 2022

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,288

 

 

$

4,112

 

Short-term investments

 

 

151

 

 

 

22

 

Accounts receivable

 

 

865

 

 

 

1,230

 

Inventories

 

 

232

 

 

 

204

 

Other current assets

 

 

386

 

 

 

377

 

Total current assets

 

 

4,922

 

 

 

5,945

 

Property and equipment, net

 

 

622

 

 

 

602

 

Goodwill

 

 

2,767

 

 

 

2,346

 

Other intangible assets, net

 

 

232

 

 

 

142

 

Other non-current assets

 

 

1,001

 

 

 

991

 

Total assets

 

$

9,544

 

 

$

10,026

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

515

 

 

$

607

 

Accrued expenses

 

 

722

 

 

 

925

 

Current portion of long-term debt

 

 

250

 

 

 

250

 

Short-term deferred revenue and financed unearned services revenue

 

 

2,088

 

 

 

2,171

 

Total current liabilities

 

 

3,575

 

 

 

3,953

 

Long-term debt

 

 

2,387

 

 

 

2,386

 

Other long-term liabilities

 

 

843

 

 

 

788

 

Long-term deferred revenue and financed unearned services revenue

 

 

2,082

 

 

 

2,061

 

Total liabilities

 

 

8,887

 

 

 

9,188

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock and additional paid-in capital, $0.001 par value; 218 and 220 shares issued and outstanding as of July 29, 2022 and April 29, 2022, respectively

 

 

705

 

 

 

760

 

Retained earnings

 

 

 

 

 

122

 

Accumulated other comprehensive loss

 

 

(48

)

 

 

(44

)

Total stockholders' equity

 

 

657

 

 

 

838

 

Total liabilities and stockholders' equity

 

$

9,544

 

 

$

10,026

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

July 29,
 2022

 

 

July 30,
2021

 

Net revenues:

 

 

 

 

 

 

Product

 

$

786

 

 

$

730

 

Services

 

 

806

 

 

 

728

 

Net revenues

 

 

1,592

 

 

 

1,458

 

Cost of revenues:

 

 

 

 

 

 

Cost of product

 

 

397

 

 

 

329

 

Cost of services

 

 

149

 

 

 

130

 

Total cost of revenues

 

 

546

 

 

 

459

 

Gross profit

 

 

1,046

 

 

 

999

 

Operating expenses:

 

 

 

 

 

 

Sales and marketing

 

 

458

 

 

 

451

 

Research and development

 

 

240

 

 

 

210

 

General and administrative

 

 

72

 

 

 

66

 

Restructuring charges

 

 

11

 

 

 

22

 

Acquisition-related expense

 

 

10

 

 

 

1

 

Total operating expenses

 

 

791

 

 

 

750

 

Income from operations

 

 

255

 

 

 

249

 

Other income (expense), net

 

 

15

 

 

 

(12

)

Income before income taxes

 

 

270

 

 

 

237

 

Provision for income taxes

 

 

56

 

 

 

35

 

Net income

 

$

214

 

 

$

202

 

Net income per share:

 

 

 

 

 

 

Basic

 

$

0.97

 

 

$

0.91

 

Diluted

 

$

0.96

 

 

$

0.88

 

Shares used in net income per share calculations:

 

 

 

 

 

 

Basic

 

 

220

 

 

 

223

 

Diluted

 

 

224

 

 

 

229

 

See accompanying notes to condensed consolidated financial statements.

 

4


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

July 29,
 2022

 

 

July 30,
2021

 

Net income

 

$

214

 

 

$

202

 

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3

)

 

 

(4

)

Unrealized losses on available-for-sale securities:

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

 

 

 

 

(1

)

Unrealized gains (losses) on cash flow hedges:

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

 

 

 

1

 

Reclassification adjustments for gains included in net income

 

 

(1

)

 

 

 

Other comprehensive income (loss)

 

 

(4

)

 

 

(4

)

Comprehensive income

 

$

210

 

 

$

198

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

July 29,
 2022

 

 

July 30,
2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

214

 

 

$

202

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

58

 

 

 

46

 

Non-cash operating lease cost

 

 

14

 

 

 

13

 

Stock-based compensation

 

 

67

 

 

 

53

 

Deferred income taxes

 

 

(15

)

 

 

(15

)

Other items, net

 

 

(66

)

 

 

4

 

Changes in assets and liabilities, net of acquisitions of businesses:

 

 

 

 

 

 

Accounts receivable

 

 

364

 

 

 

287

 

Inventories

 

 

(28

)

 

 

6

 

Other operating assets

 

 

1

 

 

 

29

 

Accounts payable

 

 

(90

)

 

 

(51

)

Accrued expenses

 

 

(208

)

 

 

(242

)

Deferred revenue and financed unearned services revenue

 

 

(32

)

 

 

(82

)

Long-term taxes payable

 

 

1

 

 

 

(8

)

Other operating liabilities

 

 

1

 

 

 

 

Net cash provided by operating activities

 

 

281

 

 

 

242

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of investments

 

 

(133

)

 

 

(5

)

Maturities, sales and collections of investments

 

 

2

 

 

 

16

 

Purchases of property and equipment

 

 

(65

)

 

 

(51

)

Acquisitions of businesses, net of cash acquired

 

 

(491

)

 

 

(14

)

Other investing activities, net

 

 

59

 

 

 

 

Net cash used in investing activities

 

 

(628

)

 

 

(54

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock under employee stock
   award plans

 

 

54

 

 

 

53

 

Payments for taxes related to net share settlement of stock awards

 

 

(52

)

 

 

(57

)

Repurchase of common stock

 

 

(350

)

 

 

(100

)

Dividends paid

 

 

(110

)

 

 

(112

)

Other financing activities, net

 

 

(1

)

 

 

(2

)

Net cash used in financing activities

 

 

(459

)

 

 

(218

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(18

)

 

 

(5

)

Net change in cash, cash equivalents and restricted cash

 

 

(824

)

 

 

(35

)

Cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Beginning of period

 

 

4,119

 

 

 

4,535

 

End of period

 

$

3,295

 

 

$

4,500

 

See accompanying notes to condensed consolidated financial statements.

 

6


NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended July 29, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock and

 

 

 

 

 

Other

 

 

 

 

 

 

Additional Paid-in Capital

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Loss

 

 

Total

 

Balances, April 29, 2022

 

 

220

 

 

$

760

 

 

$

122

 

 

$

(44

)

 

$

838

 

Net income

 

 

 

 

 

 

 

 

214

 

 

 

 

 

 

214

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Issuance of common stock under employee
    stock award plans, net of taxes

 

 

3

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Repurchase of common stock

 

 

(5

)

 

 

(18

)

 

 

(332

)

 

 

 

 

 

(350

)

Stock-based compensation

 

 

 

 

 

67

 

 

 

 

 

 

 

 

 

67

 

Cash dividends declared ($0.50 per
    common share)

 

 

 

 

 

(106

)

 

 

(4

)

 

 

 

 

 

(110

)

Balances, July 29, 2022

 

 

218

 

 

$

705

 

 

$

 

 

$

(48

)

 

$

657

 

 

 

 

 

Three Months Ended July 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock and

 

 

 

 

 

Other

 

 

 

 

 

 

Additional Paid-in Capital

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Loss

 

 

Total

 

Balances, April 30, 2021

 

 

222

 

 

$

504

 

 

$

211

 

 

$

(30

)

 

$

685

 

Net income

 

 

 

 

 

 

 

 

202

 

 

 

 

 

 

202

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Issuance of common stock under employee
    stock award plans, net of taxes

 

 

3

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

Repurchase of common stock

 

 

(1

)

 

 

(3

)

 

 

(97

)

 

 

 

 

 

(100

)

Stock-based compensation

 

 

 

 

 

53

 

 

 

 

 

 

 

 

 

53

 

Cash dividends declared ($0.50 per
    common share)

 

 

 

 

 

 

 

 

(112

)

 

 

 

 

 

(112

)

Balances, July 30, 2021

 

 

224

 

 

$

550

 

 

$

204

 

 

$

(34

)

 

$

720

 

 

 

See accompanying notes to condensed consolidated financial statements.

7


NETAPP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Description of Business and Significant Accounting Policies

NetApp, Inc. (we, us, or the Company) is a global cloud-led, data-centric software company that provides organizations the ability to manage and share their data across on-premises, private and public clouds. We provide a full range of enterprise-class software, systems and services solutions that customers use to modernize their infrastructures, build next generation data centers and harness the power of hybrid clouds.

Basis of Presentation and Preparation

Our fiscal year is reported on a 52- or 53-week year ending on the last Friday in April. An additional week is included in the first fiscal quarter approximately every six years to realign fiscal months with calendar months. Fiscal years 2023 and 2022, ending on April 28, 2023, and April 29, 2022, respectively, are each 52-week years, with 13 weeks in each quarter.

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, and reflect all adjustments, consisting only of normal recurring adjustments, that are, in the opinion of management, necessary for the fair presentation of our financial position, results of operations, comprehensive income, cash flows and stockholders’ equity for the interim periods presented. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Accordingly, these statements do not include all information and footnotes required by GAAP for annual consolidated financial statements, and should be read in conjunction with our audited consolidated financial statements as of and for the fiscal year ended April 29, 2022 contained in our Annual Report on Form 10-K. The results of operations for the three months ended July 29, 2022 are not necessarily indicative of the operating results to be expected for the full fiscal year or future operating periods.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to, revenue recognition, reserves and allowances; inventory valuation; valuation of goodwill and intangibles; restructuring reserves; employee benefit accruals; stock-based compensation; loss contingencies; investment impairments; income taxes and fair value measurements. Actual results could differ materially from those estimates. Management’s estimates include, as applicable, the anticipated impacts of the COVID-19 pandemic.

2. Recent Accounting Pronouncements

Although there are new accounting pronouncements issued or proposed by the FASB that we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements had or will have a material impact on our consolidated financial position, operating results, cash flows or disclosures.

 

3. Business Combinations

Fiscal 2023 Acquisition

Instaclustr Inc. Acquisition

On May 20, 2022, we acquired all the outstanding shares of privately-held Instaclustr Inc., (Instaclustr) for approximately $498 million. Instaclustr is a leading platform provider of fully managed open-source database, pipeline and workflow applications delivered as-a-service.

The preliminary acquisition-date values of the assets acquired and liabilities assumed are as follows (in millions):

 

 

Amount

 

Cash

 

$

4

 

Intangible assets

 

 

107

 

Goodwill

 

 

421