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Financial Review

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Analyst Day 2011 presentations by Steve Gomo

Analyst Day 2011 presentations by Steve Gomo

Published in: Business, Economy & Finance

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  • 1. Financial Analyst Day – June 30, 2011Financial OverviewSteve GomoEVP and CFO
  • 2. Financial Overview Agenda1. Brief review of FY11 performance2. FY 12 projections – earnings statement & balance sheet metrics3. Cash flow projections & model4. Summary
  • 3. Safe HarborThis presentation contains forward-looking statements and projections, including statements regardingour forecasted results of operations, balance sheet metrics and cash flows; our market share andoperating goals; and the performance of our products and the benefits our products will bring to ourcustomers. Such statements involve risks and uncertainties, and actual results may differ materially fromour statements or projections. Factors that could cause actual results to differ from those describedherein include, but are not limited to, customer demand for our products and services; our ability toaccurately forecast customer demand; the amount of orders in future periods; our ability to achieveanticipated pricing, cost, and gross margins levels; our ability to increase revenue and manage ouroperating costs; increased competition risks associated with the anticipated growth in networked storagemarket; general economic and market conditions; and our ability to design and deliver new productarchitectures and enterprise service offerings that compete effectively from a price and performanceperspective. These and other equally important risks and uncertainties have been outlined in more detailin the Companys most recent 10-K and 10-Q reports under the sections captioned “Risk Factors" on filewith the Securities Exchange Commission and accessible through our website.During the course of today’s presentation, we will be referring to both GAAP and non-GAAPnumbers. The reconciliation between these GAAP and non-GAAP numbers can be found in theInvestors section of our Company website at www.netapp.com/investor.For clarity of presentation, all projections shown are at the midpoint of our expectations.
  • 4. FY11 Actual Non-GAAP Financials FY 11 – actual Revenue $5,123M year/year growth 30% Gross Margin 65.6% Operating Expense % 46% Operating Profit % 20.0% Tax Rate 17.1% Net Income 16.9% EPS $2.20 Estimated Impact of Bond Hedge Accounting on EPS add $0.05All Financials include adoption of new revenue recognition standards
  • 5. Projected Q1 FY12 Non-GAAP Financials FY 11 – Q1 FY 12 – actual projected Revenue $5,123M $1,455M - $1,545M year/year growth 30% 26% - 34% Gross Margin 65.6% ~62.7%* Operating Expense % 46% ~45%* Operating Profit % 20.0% ~18.2%* Tax Rate 17.1% 18.5% Net Income 16.9% ~15.0%* EPS $2.20 $0.52 - $0.57 Estimated Impact of Bond Hedge Accounting on EPS add $0.05 add $0.02All Financials include adoption of new revenue recognition standards *Midpoint of targeted range
  • 6. FY11 & Q1 FY12 EstimatedGAAP to Non-GAAP EPS Reconciliation FY 11 – Q1 FY12 – actual projectedEstimated GAAP EPS $1.71 $0.31 - $0.36+ Amortization of Intangible Assets $0.05 $0.04+ Stock Based Comp Expense $0.45 $0.13+ Acquisition Related Expense $0.01 $0.04+ Restructuring & Other Charges - $0.02+ Non-Cash Interest Expense $0.14 $0.03 (Convertible Notes)+ Gain on Investments ($0.01) -+ Income Tax Effect ($0.15) ($0.05)Estimated Non-GAAP EPS $2.20 $0.52 - $0.57
  • 7. Projected FY12 Non-GAAP Financials FY 11 – actual Revenue $5,123M year/year growth 30% Gross Margin 65.6% Operating Expense % 46% Operating Profit % 20.0% Tax Rate 17.1% Net Income 16.9% EPS $2.20 Estimated Impact of Bond Hedge add $0.05 Accounting on EPSAll Financials include adoption of new revenue recognition standards
  • 8. Projected FY12 Non-GAAP Financials FY 11 – FY 12 – actual projected Revenue $5,123M $6,600M - $6,940M year/year growth 30% 29% - 35% Gross Margin 65.6% ~62.5%* Operating Expense % 46% ~43.5%* Operating Profit % 20.0% ~19.0%* Tax Rate 17.1% 18.5% Net Income 16.9% ~15.7%* EPS $2.20 $2.46 - $2.62 Estimated Impact of Bond Hedge add $0.05 add $0.08 Accounting on EPSAll Financials include adoption of new revenue recognition standards *Midpoint of targeted range
  • 9. FY11 & FY12 EstimatedGAAP to Non-GAAP EPS Reconciliation FY 11 – FY 12 – actual projectedEstimated GAAP EPS $1.71 $1.76 - $1.92 + Amortization of Intangible Assets $0.05 $0.20 + Stock Based Comp Expense $0.45 $0.43 + Acquisition-Related Expense $0.01 $0.05 + Restructuring & Other Charges - $0.02 + Non-Cash Interest Expense $0.14 $0.14 (Convertible Notes) + Gain on Investments ($0.01) - + Income Tax Effect ($0.15) ($0.14)Estimated Non-GAAP EPS $2.20 $2.46 - $2.62
  • 10. FY12 Revenue Growth Annual Growth % FAS ~$6,020M + 18% + 20%Total Revenue* E-Series Branded + 32% $6,770M ~$150M E-Series OEM ~$600M *Midpoint of targeted range
  • 11. FY12 Projected Revenue Growth FY12 Projected Annual Revenue* Growth %Product $4,705M +40% FAS + E-Series Branded $4,105M +22% E-Series OEM $600M n/aTotal SEM $815M +13%Total Services $1,250M +21% Support $915M +34% Other Services $335M -4%Total Company $6,770M +32% *Midpoint of targeted range
  • 12. Estimated FY12 Quarterly Revenue LinearityRevenue Linearity Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 FY12Total Product % 22% 24% 26% 28% 100% FAS + E-Series Branded % 21% 23% 26% 30% 100% E-Series OEM % 23% 25% 27% 25% 100%Total SEM % 23% 24% 26% 27% 100%Total Services % 22% 24% 26% 28% 100% Support % 22% 24% 26% 28% 100% Services % 24% 24% 25% 27% 100%Total Revenue % 22% 24% 26% 28% 100%
  • 13. Revenue Mix Variables FY11 – FY12 – actual projectedInternational / Domestic 46 / 54 42 / 58Direct / Indirect (Fulfillment) 27 / 73 22 / 78 - Arrow / Avnet 29% 30% - Total OEM 5% 13%
  • 14. Historical Revenue Mix & Non-GAAP Gross Margin Revenue Mix FY06 FY07 FY08 FY09 FY10 FY11 Product 76% 74% 68% 61% 61% 66% SEM 12% 12% 15% 17% 17% 14% Support 7% 8% 10% 13% 14% 13% Services 5% 6% 7% 9% 8% 7% Total Revenue 100% 100% 100% 100% 100% 100% Gross Margin Product % 61.5% 61.9% 60.5% 54.5%* 59.9%* 60.6%* SEM % 97.0% 97.0% 98.2% 98.5% 98.2% 97.8% Support % 45.7% 51.1% 59.6% 72.3%* 73.9%* 75.1%* Services % (5.3%) (1.6%) 4.6% 14.7% 16.6% 29.7% Consolidated % 61.4% 61.9% 62.1% 61.1% 65.0% 65.6%* Reflects impact of reclassification of warranty expense from Support to Product
  • 15. Revenue & Non-GAAP Gross Margin Detail FAS* E-Series OEM Consolidated Revenue Mix FY11 FY12 FY12 FY12 Product 66% 67% 100% 70% SEM 14% 13% n/a 12% Support 13% 15% n/a 13% Services 7% 5% n/a 5% Total Revenue 100% 100% 100% 100% FAS* E-Series OEM Consolidated Gross Margin FY11 FY12 FY12 FY12 Product % 60.6% ~60% ~39% ~57% SEM % 97.8% ~97% n/a ~97% Support % 75.1% ~77% n/a ~77% Services % 29.7% ~18% n/a ~18% Consolidated % 65.6% ~65.2% ~39% ~62.5%*Includes E-Series Branded
  • 16. Non-GAAP Operating Expense Projections ~ $2,940M $2,335M $1,923M +26% +21% +10% FY 10 FY 11 FY 12*R&D 13% 12% 12%SG&A 36% 34% 31%Total OpEx 49% 46% 43% *Midpoint of targeted range
  • 17. Balance Sheet Metrics FY11 – FY12 – actual projected DSO 47* Low to Mid 40s Inventory Turns 18.1* ~20 Capital Expenditures $223M ~ $340M Depreciation $148M ~ $200M*Q4 FY11
  • 18. Cash Flow Trend$M FY08 FY09 FY10 FY11 FY12Total Revenue $3,303 $3,535 $3,931 $5,123 ~$6,770*Cash from Operations $1,009 $873 $975 $1,346 ~$1,665*Less Capital Purchases $188 $290 $136 $223 ~$340*Free Cash Flow $821 $584 $839 $1,124 ~$1,325* % of Revenue 25% 17% 21% 22% ~20%GAAP Net Income + Stock Comp $473 $235 $611 $901 ~$1,090*+ Non Cash Interest ExpenseChange in Deferred Revenue $401 $219 $177 $383 ~$410*Cash Contribution $874 $454 $788 $1,284 ~$1,500* % of Cash from Operations 87% 52% 81% 95% ~90% *Midpoint of targeted range
  • 19. Long Term (2-3 yr) Free Cash Flow Model* Target: 21% – 25% of Revenue Assumptions:  Pre-Tax profitability of ~18-21%  Revenue growth of 15% or greater  Constant mix of non-deferred / deferred revenue  Capital purchases exceed depreciation by approximately $50 million* Free Cash Flow is defined as cash from operations less capital expenditures
  • 20. Long Term Free Cash Flow as % of Revenue Pre-Tax Profit (Op Margin + Other Income) 18% 19% 20% 21% 30% 23% 23% 24% 25% 25% 22% 23% 24% 24% Revenue CAGR* 20% 21% 22% 23% 24% 15% 21% 22% 22% 23%* Provided for illustrative purposes only - not intended to be guidance.
  • 21. Financial Summary Projected performance reflects underlying health of core business, plus contribution from E-Series – Core business model is intact Potential for operating efficiencies from acquisition going forward Cash generation remains strong – Enables share repurchase per our objectives