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Analyst Day 2011 presentations by Steve Gomo
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Financial Analyst Day – June 30, 2011
Steve Gomo
EVP and CFO
Financial Overview
Financial Overview Agenda
1. Brief review of FY11 performance
2. FY 12 projections – earnings statement &
balance sheet metrics
3. Cash flow projections & model
4. Summary
Safe Harbor
This presentation contains forward-looking statements and projections, including statements regarding
our forecasted results of operations, balance sheet metrics and cash flows; our market share and
operating goals; and the performance of our products and the benefits our products will bring to our
customers. Such statements involve risks and uncertainties, and actual results may differ materially from
our statements or projections. Factors that could cause actual results to differ from those described
herein include, but are not limited to, customer demand for our products and services; our ability to
accurately forecast customer demand; the amount of orders in future periods; our ability to achieve
anticipated pricing, cost, and gross margins levels; our ability to increase revenue and manage our
operating costs; increased competition risks associated with the anticipated growth in networked storage
market; general economic and market conditions; and our ability to design and deliver new product
architectures and enterprise service offerings that compete effectively from a price and performance
perspective. These and other equally important risks and uncertainties have been outlined in more detail
in the Company's most recent 10-K and 10-Q reports under the sections captioned “Risk Factors" on file
with 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-GAAP
numbers. The reconciliation between these GAAP and non-GAAP numbers can be found in the
Investor's section of our Company website at www.netapp.com/investor.
For clarity of presentation, all projections shown are at the midpoint of our expectations.
FY11 Actual Non-GAAP Financials
Revenue
year/year growth
Gross Margin
Operating Expense %
Operating Profit %
Tax Rate
Net Income
EPS
Estimated Impact of Bond Hedge
Accounting on EPS
FY 11 – actual
$5,123M
30%
65.6%
46%
20.0%
17.1%
16.9%
$2.20
add $0.05
All Financials include adoption of new revenue recognition standards
FY 11 – actual
Projected Q1 FY12 Non-GAAP Financials
Revenue
year/year growth
Gross Margin
Operating Expense %
Operating Profit %
Tax Rate
Net Income
EPS
Estimated Impact of Bond Hedge
Accounting on EPS
$5,123M
30%
65.6%
46%
20.0%
17.1%
16.9%
$2.20
add $0.05
$1,455M - $1,545M
26% - 34%
~62.7%*
~45%*
~18.2%*
18.5%
~15.0%*
$0.52 - $0.57
add $0.02
*Midpoint of targeted range
Q1 FY 12 – projected
All Financials include adoption of new revenue recognition standards
FY11 & Q1 FY12 Estimated
GAAP to Non-GAAP EPS Reconciliation
FY 11 – actual
Q1 FY12 – projected
Estimated 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
(Convertible Notes) $0.14 $0.03
+ Gain on Investments ($0.01) -
+ Income Tax Effect ($0.15) ($0.05)
Estimated Non-GAAP EPS $2.20 $0.52 - $0.57
Projected FY12 Non-GAAP Financials
Revenue
year/year growth
Gross Margin
Operating Expense %
Operating Profit %
Tax Rate
Net Income
EPS
Estimated Impact of Bond Hedge
Accounting on EPS
$5,123M
30%
65.6%
46%
20.0%
17.1%
16.9%
$2.20
add $0.05
FY 11 – actual
All Financials include adoption of new revenue recognition standards
Projected FY12 Non-GAAP Financials
Revenue
year/year growth
Gross Margin
Operating Expense %
Operating Profit %
Tax Rate
Net Income
EPS
Estimated Impact of Bond Hedge
Accounting on EPS
$6,600M - $6,940M
29% - 35%
~62.5%*
~43.5%*
~19.0%*
18.5%
~15.7%*
$2.46 - $2.62
add $0.08
FY 11 – actual
FY 12 – projected
$5,123M
30%
65.6%
46%
20.0%
17.1%
16.9%
$2.20
add $0.05
*Midpoint of targeted range All Financials include adoption of new revenue recognition standards
FY11 & FY12 Estimated
GAAP to Non-GAAP EPS Reconciliation
FY 11 – actual
FY 12 – projected
Estimated 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
(Convertible Notes) $0.14 $0.14
+ Gain on Investments ($0.01) -
+ Income Tax Effect ($0.15) ($0.14)
Estimated Non-GAAP EPS $2.20 $2.46 - $2.62
FY12 Revenue Growth
Total Revenue*
$6,770M
FAS
~$6,020M
E-Series Branded
~$150M
E-Series OEM
~$600M
Annual Growth %
+ 18%
+ 20%
+ 32%
*Midpoint of targeted range
FY12 Projected Revenue Growth
FY12
Projected
Revenue*
Annual
Growth %
Product $4,705M +40%
FAS + E-Series Branded $4,105M +22%
E-Series OEM $600M n/a
Total SEM $815M +13%
Support $915M +34%
Other Services $335M -4%
Total Services $1,250M +21%
Total Company $6,770M +32%
*Midpoint of targeted range
Total Revenue % 22% 24% 26% 28% 100%
Total Services % 22% 24% 26% 28% 100%
Support % 22% 24% 26% 28% 100%
Services % 24% 24% 25% 27% 100%
Total SEM % 23% 24% 26% 27% 100%
Estimated FY12
Quarterly Revenue Linearity
Revenue Linearity Q1 ’12 Q2 ’12 Q3 ’12 Q4 ’12 FY12
Total Product % 22% 24% 26% 28% 100%
FAS + E-Series Branded % 21% 23% 26% 30% 100%
E-Series OEM % 23% 25% 27% 25% 100%
Revenue Mix Variables
FY11 –
actual
FY12 –
projected
International / Domestic 46 / 54 42 / 58
Direct / Indirect (Fulfillment) 27 / 73 22 / 78
- Arrow / Avnet 29% 30%
- Total OEM 5% 13%
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
Revenue & Non-GAAP
Gross Margin Detail
Gross Margin FY11 FAS*
FY12
E-Series OEM
FY12
Consolidated
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%
Revenue Mix FY11 FAS*
FY12
E-Series OEM
FY12
Consolidated
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%
*Includes E-Series Branded
Non-GAAP Operating Expense Projections
FY 10 FY 11 FY 12*
R&D 13% 12% 12%
SG&A 36% 34% 31%
Total OpEx 49% 46% 43%
+10% +21%
$1,923M
$2,335M
+26%
~ $2,940M
*Midpoint of targeted range
Balance Sheet Metrics
FY11 –
actual
FY12 –
projected
DSO 47* Low to Mid 40s
Inventory Turns 18.1* ~20
Capital Expenditures $223M ~ $340M
Depreciation $148M ~ $200M
*Q4 FY11
Cash Flow Trend
$M FY08 FY09 FY10 FY11 FY12
Total 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
+ Non Cash Interest Expense $473 $235 $611 $901 ~$1,090*
Change 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
Long Term (2-3 yr) Free Cash Flow Model*
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
Target: 21% – 25% of Revenue
* Free Cash Flow is defined as cash from operations less capital expenditures
Long Term Free Cash Flow as % of Revenue
23% 23% 24% 25%
22% 23% 24% 24%
21% 22% 23% 24%
21% 22% 22% 23%
Revenue
CAGR*
30%
25%
20%
15%
Pre-Tax Profit (Op Margin + Other Income)
18% 19% 20% 21%
* Provided for illustrative purposes only - not intended to be guidance.
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
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