2014 Financial Analyst Day

2014 NetApp, Inc. All rights reserved.

June 24, 2014
Delivering Shareholder Value
Nick Noviello
Chief Financial Officer
Executive Vice President, Finance and Operations
2014 NetApp, Inc. All rights reserved.
June 24, 2014
Forward-Looking Statements
This presentation contains forward-looking statements and projections that involve risk and uncertainty, including the
statements under the FY15 Financial Projection section regarding our forecasts for the first quarter and full year of FY15, and
the FY15-FY17 Targeted Financial Framework section regarding our long term financial model, market expectations, capital
structure and return to shareholders. Actual results may differ materially from our statements or projections for a variety of
reasons, including general economic and market conditions, and matters specific to the company's business, such as
transitions in the storage industry and customer demand for our products and services. These and other equally important
factors that may affect our future results are described in reports and documents we file from time to time with the SEC,
including the factors described under the section titled Risk Factors in our most recent filings on Form 10-K and Form 10-Q
available at www.sec.gov. The forward-looking statements made in this presentation are being made as of the time and date
of its live presentation. If this presentation is reviewed after the time and date of the live presentation, even if subsequently
made available by us, on our web site or otherwise, this presentation may not contain current or accurate information. We
disclaim any obligation to update or revise any forward-looking statement based on new information, future events or
otherwise.
Use of non-GAAP Financial Information
During the course of todays presentation, we will be referring to both non-GAAP and GAAP numbers. We provide a
reconciliation between non-GAAP and GAAP numbers in the appendix to this presentation, as well as on our website at
www.netapp.com under Company in the Investors section at http://investors.netapp.com/
For clarity of presentation, projections shown are at the midpoint of our expectations unless otherwise indicated.
2014 NetApp, Inc. All rights reserved.
Delivering Shareholder Value
Innovation, execution and growth
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
2014 NetApp, Inc. All rights reserved.
Looking Back
2014 NetApp, Inc. All rights reserved.
Strong execution in a challenging environment
FY13 - FY14: Overview
Difficult macro environment
Pressure on IT spending
Storage market slowdown
OEM partner challenges
Challenges
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Strong execution in a challenging environment
FY13 - FY14: Overview
Difficult macro environment
Pressure on IT spending
Storage market slowdown
OEM partner challenges
Challenges
Accelerated innovation, strong portfolio
Branded revenue growth, market share
gain
Increasing gross, operating margins*
Consistent cash flow generation,
significant capital returned to
shareholders
Execution
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Original expectations of total revenue at ~2X
market growth on average
Market grew less than anticipated
Branded revenue growth at ~2X market**
~4% branded revenue growth in each of FY13
and FY14
OEM declined faster than anticipated
Branded revenue growth and increasing gross margin*
FY13 - FY14: Financial Performance
Revenue
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
** Market is based on IDC Worldwide and U.S. Enterprise Storage Systems 2014-2018 Forecast, May 2014 and NetApp Internal estimates.
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Original expectations of total revenue at ~2X
market growth on average
Market grew less than anticipated
Branded revenue growth at ~2X market**
~4% branded revenue growth in each of FY13
and FY14
OEM declined faster than anticipated
Branded revenue growth and increasing gross margin*
FY13 - FY14: Financial Performance
Revenue
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Gross Margin*
62%
60 - 62%
~62 - 63%
Recognized benefit from portfolio and business mix
Proactive management of supply chain and costs
2.5 point increase in gross margin* FY13 to FY14
FY13 - 14
Actual Results
FY13 - 15
Previous 3 Year
Guidance (2012)
FY13 - 15
With FY15 Guidance
Incorporated
As percent of revenue
** Market is based on IDC Worldwide and U.S. Enterprise Storage Systems 2014-2018 Forecast, May 2014 and NetApp Internal estimates.
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Proactive management of headcount
Flat operating expense* FY13 to FY14
Re-sized OEM, select country investments
Optimizing investments for maximum return
FY13 - FY14: Financial Performance
45%
42 - 43%
~45 - 46%
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
FY13 - 14
Actual Results
FY13 - 15
Previous 3 Year
Guidance (2012)
FY13 - 15
With FY15 Guidance
Incorporated
Operating Expense*
As percent of revenue
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Optimizing investments for maximum return
FY13 - FY14: Financial Performance
Benefit from gross margin* increase
Strong cost controls and discipline
~3 point increase in operating margin* FY13 to FY14
17%
17 - 19%
~17%
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
FY13 - 14
Actual Results
FY13 - 15
Previous 3 Year
Guidance (2012)
FY13 - 15
With FY15 Guidance
Incorporated
Operating Margin*
As percent of revenue
Proactive management of headcount
Flat operating expense* FY13 to FY14
Re-sized OEM, select country investments
45%
42 - 43%
~45 - 46%
FY13 - 14
Actual Results
FY13 - 15
Previous 3 Year
Guidance (2012)
FY13 - 15
With FY15 Guidance
Incorporated
Operating Expense*
As percent of revenue
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Strong cash flow generation
FY13 - FY14: Financial Performance
Consistent cash flow generation, >$1 billion
each of last four fiscal years
Increasing free cash flow* margin FY13 to
FY14
Consistent investment in the business
Focus on working capital management
- Consistent DSOs
- Improved inventory turns
~ 23 - 25%
Free Cash
Flow*
Cash From
Ops
~19 - 21%
22%
17%
Free Cash
Flow*
Cash From
Ops
Free Cash
Flow*
Cash From
Ops
FY13 - 14
Actual Results
FY13 - 15
Previous 3 Year
Guidance (2012)
FY13 - 15
With FY15 Guidance
Incorporated
Cash Flow
As percent of revenue
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Efficient balance sheet with focus on shareholder returns
FY13 - FY14: Financial Performance
$5.4B
Fiscal Year-End
FY12
Intl
50%
Domestic
50%
Ample US cash
No credit rating
Sporadic buyback to offset dilution
No dividend
Cash and Investments Then
2014 NetApp, Inc. All rights reserved.
Efficient balance sheet with focus on shareholder returns
FY13 - FY14: Financial Performance
$5.4B
Fiscal Year-End
FY12
Intl
50%
Domestic
50%
$5.0B
Fiscal Year-End
FY14
Intl
86%
Domestic
14%
Ample US cash
No credit rating
Sporadic buyback to offset dilution
No dividend
Lean US cash, credit facility available
Strong investment-grade credit rating
- Senior notes in place
- Retirement of convertible note
Enhanced buyback
- Repurchased 65M shares
Instituted dividend
- ~1.7% yield (exit FY14)
Cash and Investments Then Cash and Investments Now
2014 NetApp, Inc. All rights reserved.
Optimized for efficiency and shareholder returns
FY13 - FY14: Summary
Managed top line headwinds
Delivered operationally against target model
Implemented new approach to capital
structure and returns
Increased pace of innovation while
delivering shareholder returns
2014 NetApp, Inc. All rights reserved.
Laying the Foundation for the Future
2014 NetApp, Inc. All rights reserved.
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
Delivering Shareholder Value
Innovation, execution and growth
2014 NetApp, Inc. All rights reserved.
Accelerating return from investments
Portfolio of Innovation
More efficiency, effectiveness and reach
from R&D spend
Accelerating pace of innovation drives faster
time to value
Focusing investments on high return areas
Innovating for changing customer needs,
business models
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
2014 NetApp, Inc. All rights reserved.
Focusing Go-to-Market engine
Go-to-Market Leadership
Optimizing Go-to-Market approach
Increased ability to serve large enterprise
Partnerships enable efficient reach
Leveraging sales, service, support and
marketing investments for scale, efficiency
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
2014 NetApp, Inc. All rights reserved.
Driving efficiency and execution
Strong Operational Discipline
Adapting investments to optimize return
Driving efficiency of business model
Multiple levers to support earnings growth
Continued focus on capital structure and
shareholder returns
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
2014 NetApp, Inc. All rights reserved.
Continued execution in gradually improving environment
FY15 - FY17: Driving Growth and Value
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
Environment
Storage growth slowly returns
Customers accelerate transition from
legacy point solutions
Customers begin to architect cloud
into their IT environments
2014 NetApp, Inc. All rights reserved.
Continued execution in gradually improving environment
FY15 - FY17: Driving Growth and Value
Environment
Storage growth slowly returns
Customers accelerate transition from
legacy point solutions
Customers begin to architect cloud
into their IT environments
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
NetApp
Branded revenue growth and share gains continue
Expanded reach into enterprise environments
OEM smaller part of business, with reduced
investment
Continued operational execution and discipline
Balance sheet efficiency and capital returns
2014 NetApp, Inc. All rights reserved.
Reiterating guidance
FY15 Financial Projection
FY15
Revenue Mid-single digit branded growth; up to 40% OEM decline $1.42B - $1.52B
Gross Margin* ~63 - 64% ~63.5 - 64.0%
Operating Margin* ~18% ~15%
EPS* Just under 10% growth ~$0.53 - $0.58
Capital Return Increased dividend
Completion of existing share repurchase authorization within 12 months
FY15: Q1
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Branded revenue growth, 50 to 100 basis point
share gain per year**
OEM revenue: Modest declines beyond FY15
Continued focus on share gain and strong gross margin*
FY15 - FY17: Targeted Financial Framework
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Revenue
4%
FY14 FY13
4%
Mid Single Digits
FY15 - FY17
Branded Revenue Growth
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
** Market is based on IDC Worldwide and U.S. Enterprise Storage Systems 2014-2018 Forecast, May 2014 and NetApp Internal estimates.
2014 NetApp, Inc. All rights reserved.
Branded revenue growth, 50 to 100 basis point
share gain per year**
OEM revenue: Modest declines beyond FY15
Continued focus on share gain and strong gross margin*
FY15 - FY17: Targeted Financial Framework
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Revenue Gross Margin*
Strength from portfolio and business mix
Consistent management of supply chain and costs
4%
FY14 FY13
4%
Mid Single Digits
FY15 - FY17
63%
FY14 FY13
61%
~63 - 64%
FY15 - FY17
Branded Revenue Growth
As percent of revenue
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
** Market is based on IDC Worldwide and U.S. Enterprise Storage Systems 2014-2018 Forecast, May 2014 and NetApp Internal estimates.
2014 NetApp, Inc. All rights reserved.
Prudent expense management and discipline
Consistent investment in innovation
Operational discipline and operating margin* expansion
FY15 - FY17: Targeted Financial Framework
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
45%
FY14 FY13
45%
~44 - 46%
FY15 - FY17
Operating Expense*
As percent of revenue
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Prudent expense management and discipline
Consistent investment in innovation
Operational discipline and operating margin* expansion
FY15 - FY17: Targeted Financial Framework
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Align resources to highest return activities
Balance growth and investments for profitability
45%
FY14 FY13
45%
~44 - 46%
FY15 - FY17
Operating Margin*
18%
FY14 FY13
15%
~18 - 20%
FY15 - FY17
Operating Expense*
As percent of revenue As percent of revenue
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Completion of existing share repurchase
authorization in within 12 months
Expect to maintain flat share count in FY16 and
FY17 with potential for further reduction
Ongoing focus on earnings growth
FY15 - FY17: Targeted Financial Framework
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
FY14 FY13 FY15 - FY17
Weighted Average Diluted Share Count
348M
368M
Commitment to reducing
share count over time
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Completion of existing share repurchase
authorization in within 12 months
Expect to maintain flat share count in FY16 and
FY17 with potential for further reduction
Ongoing focus on earnings growth
FY15 - FY17: Targeted Financial Framework
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Expected tax rate* ~16 17%
Grow EPS* at ~2X annual branded revenue growth
FY14 FY13 FY15 - FY17
Weighted Average Diluted Share Count Earnings Per Share*
FY14 FY13 FY15 - FY17
348M
368M
Commitment to reducing
share count over time
$2.78
$2.28
Commitment to increasing
EPS* over time
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
z
FY15 - FY17: Targeted Financial Framework
Strong cash flow generation and shareholder returns
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results for a
particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Free Cash Flow*
Strong cash generation
Continued investment in the business
Consistent M&A philosophy
Ongoing focus on capital structure and returns to
shareholders
- FY15 plan: Distribute >100% of free cash flow* in
repurchases and dividends
- FY16 - FY17: Intend to distribute >50% of free
cash flow* in repurchases and dividends
- Continued focus on dividend growth
FY14 FY13 FY15 - FY17
18%
~17 - 19%
17%
As percent of revenue
* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.
2014 NetApp, Inc. All rights reserved.
Delivering shareholder value
Investment Thesis
1. Proven track record of delivering financial results in transitioning
market
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
2014 NetApp, Inc. All rights reserved.
Delivering shareholder value
Investment Thesis
1. Proven track record of delivering financial results in transitioning
market
2. The right strategy and innovations to help customers bridge from
today to tomorrow
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
2014 NetApp, Inc. All rights reserved.
Delivering shareholder value
Investment Thesis
1. Proven track record of delivering financial results in transitioning
market
2. The right strategy and innovations to help customers bridge from
today to tomorrow
3. Adaptable financial model with multiple levers to deliver future results
and shareholder value
This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual results
for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.
Portfolio of
Innovation
Go-to-Market
Leadership
Growth & Value
Operational Discipline
2014 NetApp, Inc. All rights reserved.
2014 Financial Analyst Day
2014 NetApp, Inc. All rights reserved.
June 24, 2014