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NetApp (NTAP) Up 8.8% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for NetApp (NTAP - Free Report) . Shares have added about 8.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is NetApp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
NetApp’s Q3 Earnings And Revenues Surpass Estimates
NetApp reported third-quarter fiscal 2022 non-GAAP earnings of $1.44 per share, which surpassed the Zacks Consensus Estimate by 12.5% and increased 30.9% year over year. The company had anticipated non-GAAP earnings between $1.21 and $1.31 per share.
Revenues of $1.614 billion increased 10% year over year, outpacing the Zacks Consensus Estimate by 0.1%. The company had projected revenues in the range of $1.525-$1.675 billion. The upside can be attributed to strong demand across the Hybrid Cloud and Public Cloud divisions.
Region wise, the Americas, EMEA and Asia Pacific contributed 56%, 32% and 12% to total revenues, respectively.
Direct and Indirect revenues contributed 21% and 79%, respectively, to total revenues. In the quarter under review, billings were $1.76 billion, up 10% year over year.
NetApp also announced that it acquired Fylamynt for an undisclosed sum. Fylamynt specializes in providing CloudOps automation technology that allows clients to create deploy and manage workflows across any cloud environment with minimal coding requirements.
However, pandemic-induced supply chain headwinds and substantial increases in costs are major concerns. The company expects supply chain troubles to affect product revenues and product gross margins in the fiscal fourth quarter. The company expects gross margin to be 64% and operating margin to be 22% in the fiscal fourth quarter. NetApp noted that without recent supplier decommits, the operating margin in the current quarter could have been near 25%.
Top Line Details
The company introduced two segments for financial reporting, namely Hybrid Cloud and Public Cloud.
Hybrid Cloud consists of revenues from the company’s enterprise datacenter business, which includes product, support and professional services.
The Public Cloud segment consists of revenues from products, which are delivered as-a-service and include related support. The portfolio is inclusive of the company’s cloud automation and optimization services, storage services as well as cloud infrastructure monitoring services.
Revenues in the Hybrid Cloud segment were up 6% year over year to $1.5 billion. Revenues in the Public Cloud segment doubled from the year-ago quarter’s levels to $110 million.
Within the Hybrid Cloud segment, Product revenues (56% of segment revenues) increased 9% year over year to $846 million.
Revenues from Support Contracts (39%) totaled $586 million, up 3% year over year. Revenues from Professional and Other Services (5%) were $72 million, up 4.4% year over year.
Software product revenues amounted to $507 million, up 18% on the back of a favorable shift toward an all-flash portfolio.
In the quarter under review, the company also expanded its cloud partnerships. For instance, NetApp teamed up with Kyndryl to deliver critical enterprise data infrastructure to BMW Group.
NetApp also concluded the buyout of CloudCheckr for an undisclosed sum. With the CloudCheckr buyout, the company is looking to bolster the Spot by NetApp FinOps solutions.
Key Metrics
During the fiscal third quarter, the company’s All-Flash Array Business annualized net revenue run rate came in at $3.2 billion, up 23% year over year.
Public Cloud Services recorded annualized recurring revenues (ARR) of $469 million, up 98% year over year. The performance was driven by continued momentum in Azure NetApp Files, Spot and Cloud Insights as well as the CloudCheckr buyout. The company is witnessing solid momentum across customer cohorts with the fiscal third quarter. Public Cloud registered dollar-based net retention rate of 169%.
Combined software revenue, recurring support and Public Cloud revenues stood at $1.2 billion, up 14% on a year-over-year basis and contributing 75% to total net revenues.
Operating Details
Non-GAAP gross margin was 67.3%, in line with the year-ago quarter’s levels.
The Hybrid segment gross margin of 67.1% contracted 20 bps year over year. The Public Cloud segment gross margin of 70.9% expanded 180 bps year over year.
Management noted that recurring support, cloud and other services business is a growth driver with gross margin coming in at 92%.
Non-GAAP operating expenses were up 2.2% year over year to $683 million. As a percentage of net revenues, the figure contracted 310 bps on a year-over-year basis to 42.3%.
Non-GAAP operating income increased 25.5% year over year to $404 million. Non-GAAP operating margin expanded 310 bps to 25%.
Balance Sheet & Cash Flow
NetApp exited the quarter ending Jan 28, 2022, with $4.201 billion in cash, cash equivalents and investments compared with $4.548 billion as of Oct 29, 2021. Long-term debt was $2.385 billion as of Jan 28, 2022, compared with $2.634 billion as of Oct 29, 2021.
The company generated net cash from operations of $260 million during the reported quarter compared with $298 million in the prior quarter.
Free cash flow was $199 million (free cash flow margin of 12.3%) compared with $252 million in the previous quarter (free cash flow margin of 16.1%).
The company returned $236 million to shareholders in the form of dividends ($111 million) and share repurchases ($125 million).
The company also announced a dividend of 50 cents payable on Apr 27, 2022, to shareholders of record as of the close of business on Apr 8.
Guidance
The company anticipates non-GAAP earnings for fourth-quarter fiscal 2022 between $1.21 and $1.31 per share. The Zacks Consensus Estimate for earnings is pegged at $1.35.
Net revenues are anticipated in the range of $1.635-$1.735 billion, indicating year-over-year growth of 8% at mid-point. The Zacks Consensus Estimate for revenues is pegged at $1.67 billion.
NetApp raised fiscal year outlook on strong fiscal third-quarter results. For fiscal 2022, NetApp projects revenue growth of 10% compared with the earlier guidance of 9-10%. Public cloud ARR is expected between $525 million and $545 million compared with the previous guidance of $510-$540 million
The company anticipates non-GAAP earnings for fiscal 2022 between $5.07 and $5.17 per share compared with the previous range of $4.90-$5.10 per share. The Zacks Consensus Estimate for fiscal 2022 earnings is pegged at $5.05.
For fiscal 2022, NetApp expects non-GAAP gross margin to be 67% and non-GAAP operating margin in the range of 23-24%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.06% due to these changes.
VGM Scores
At this time, NetApp has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, NetApp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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NetApp (NTAP) Up 8.8% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for NetApp (NTAP - Free Report) . Shares have added about 8.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is NetApp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
NetApp’s Q3 Earnings And Revenues Surpass Estimates
NetApp reported third-quarter fiscal 2022 non-GAAP earnings of $1.44 per share, which surpassed the Zacks Consensus Estimate by 12.5% and increased 30.9% year over year. The company had anticipated non-GAAP earnings between $1.21 and $1.31 per share.
Revenues of $1.614 billion increased 10% year over year, outpacing the Zacks Consensus Estimate by 0.1%. The company had projected revenues in the range of $1.525-$1.675 billion. The upside can be attributed to strong demand across the Hybrid Cloud and Public Cloud divisions.
Region wise, the Americas, EMEA and Asia Pacific contributed 56%, 32% and 12% to total revenues, respectively.
Direct and Indirect revenues contributed 21% and 79%, respectively, to total revenues. In the quarter under review, billings were $1.76 billion, up 10% year over year.
NetApp also announced that it acquired Fylamynt for an undisclosed sum. Fylamynt specializes in providing CloudOps automation technology that allows clients to create deploy and manage workflows across any cloud environment with minimal coding requirements.
However, pandemic-induced supply chain headwinds and substantial increases in costs are major concerns. The company expects supply chain troubles to affect product revenues and product gross margins in the fiscal fourth quarter. The company expects gross margin to be 64% and operating margin to be 22% in the fiscal fourth quarter. NetApp noted that without recent supplier decommits, the operating margin in the current quarter could have been near 25%.
Top Line Details
The company introduced two segments for financial reporting, namely Hybrid Cloud and Public Cloud.
Hybrid Cloud consists of revenues from the company’s enterprise datacenter business, which includes product, support and professional services.
The Public Cloud segment consists of revenues from products, which are delivered as-a-service and include related support. The portfolio is inclusive of the company’s cloud automation and optimization services, storage services as well as cloud infrastructure monitoring services.
Revenues in the Hybrid Cloud segment were up 6% year over year to $1.5 billion. Revenues in the Public Cloud segment doubled from the year-ago quarter’s levels to $110 million.
Within the Hybrid Cloud segment, Product revenues (56% of segment revenues) increased 9% year over year to $846 million.
Revenues from Support Contracts (39%) totaled $586 million, up 3% year over year. Revenues from Professional and Other Services (5%) were $72 million, up 4.4% year over year.
Software product revenues amounted to $507 million, up 18% on the back of a favorable shift toward an all-flash portfolio.
In the quarter under review, the company also expanded its cloud partnerships. For instance, NetApp teamed up with Kyndryl to deliver critical enterprise data infrastructure to BMW Group.
NetApp also concluded the buyout of CloudCheckr for an undisclosed sum. With the CloudCheckr buyout, the company is looking to bolster the Spot by NetApp FinOps solutions.
Key Metrics
During the fiscal third quarter, the company’s All-Flash Array Business annualized net revenue run rate came in at $3.2 billion, up 23% year over year.
Public Cloud Services recorded annualized recurring revenues (ARR) of $469 million, up 98% year over year. The performance was driven by continued momentum in Azure NetApp Files, Spot and Cloud Insights as well as the CloudCheckr buyout. The company is witnessing solid momentum across customer cohorts with the fiscal third quarter. Public Cloud registered dollar-based net retention rate of 169%.
Combined software revenue, recurring support and Public Cloud revenues stood at $1.2 billion, up 14% on a year-over-year basis and contributing 75% to total net revenues.
Operating Details
Non-GAAP gross margin was 67.3%, in line with the year-ago quarter’s levels.
The Hybrid segment gross margin of 67.1% contracted 20 bps year over year. The Public Cloud segment gross margin of 70.9% expanded 180 bps year over year.
Management noted that recurring support, cloud and other services business is a growth driver with gross margin coming in at 92%.
Non-GAAP operating expenses were up 2.2% year over year to $683 million. As a percentage of net revenues, the figure contracted 310 bps on a year-over-year basis to 42.3%.
Non-GAAP operating income increased 25.5% year over year to $404 million. Non-GAAP operating margin expanded 310 bps to 25%.
Balance Sheet & Cash Flow
NetApp exited the quarter ending Jan 28, 2022, with $4.201 billion in cash, cash equivalents and investments compared with $4.548 billion as of Oct 29, 2021. Long-term debt was $2.385 billion as of Jan 28, 2022, compared with $2.634 billion as of Oct 29, 2021.
The company generated net cash from operations of $260 million during the reported quarter compared with $298 million in the prior quarter.
Free cash flow was $199 million (free cash flow margin of 12.3%) compared with $252 million in the previous quarter (free cash flow margin of 16.1%).
The company returned $236 million to shareholders in the form of dividends ($111 million) and share repurchases ($125 million).
The company also announced a dividend of 50 cents payable on Apr 27, 2022, to shareholders of record as of the close of business on Apr 8.
Guidance
The company anticipates non-GAAP earnings for fourth-quarter fiscal 2022 between $1.21 and $1.31 per share. The Zacks Consensus Estimate for earnings is pegged at $1.35.
Net revenues are anticipated in the range of $1.635-$1.735 billion, indicating year-over-year growth of 8% at mid-point. The Zacks Consensus Estimate for revenues is pegged at $1.67 billion.
NetApp raised fiscal year outlook on strong fiscal third-quarter results. For fiscal 2022, NetApp projects revenue growth of 10% compared with the earlier guidance of 9-10%. Public cloud ARR is expected between $525 million and $545 million compared with the previous guidance of $510-$540 million
The company anticipates non-GAAP earnings for fiscal 2022 between $5.07 and $5.17 per share compared with the previous range of $4.90-$5.10 per share. The Zacks Consensus Estimate for fiscal 2022 earnings is pegged at $5.05.
For fiscal 2022, NetApp expects non-GAAP gross margin to be 67% and non-GAAP operating margin in the range of 23-24%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.06% due to these changes.
VGM Scores
At this time, NetApp has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, NetApp has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.