Netapp, Inc. · NASDAQ:NTAP

Netapp — Q2 FY2023 Earnings Presentation

39 slides from Netapp's earnings presentation, Nov 29, 2022

1. Slide 1: Q2 FY23 Earnings Results

   Q2 FY23 Earnings Results November 29, 2022 © 2022 NetApp, Inc. All rights reserved.

2. Slide 2: Safe harbor

   Safe harbor This presentation contains forward-looking statements and projections about our strategy, products and services, shareholder returns, and our future results, performance or achievements, financial and otherwise. These statements and projections reflect management's current expectations,

3. Slide 3: NetApp unlocks the best of cloud

   NetApp unlocks the best of cloud We help customers build their data fabric so they can thrive during times of disruption by getting the most out of their data, whether on premises, in a hybrid environment, or entirely in the cloud. 3 © 2022 NetApp, Inc. All rights reserved.

4. Slide 4: In the post-COVID business world, work and IT architectures are hybrid

   In the post-COVID business world, work and IT architectures are hybrid… Physical is being replaced or complemented by digital Physical: predictable, slow Digital: resilient, agile 4 © 2022 NetApp, Inc. All rights reserved.

5. Slide 5: The new rules of digital – and hybrid – business

   The new rules of digital – and hybrid – business… Speed and flexibility matter enormously: businesses will pay more for these capabilities Speed is the Flexibility is the Cloud is the platform Hybrid multi-cloud new scale greatest strength and data is the is the de facto currency for digital IT arch

6. Slide 6: Our solutions address crucial workloads in the cloud and on premises

   Our solutions address crucial workloads in the cloud and on premises Cloud Compute Cloud Cloud services storage operations controls and analytics Bring the simplicity and flexibility Enterprise Data AI and of cloud to the enterprise data center workloads protection data lakes Bring enterprise data s

7. Slide 7: Strategic approach with focused execution for growth

   Strategic approach with Building on a strong foundation focused execution for growth • Data-centric software specialist Technology and innovation leadership • Trusted by the world’s leading organizations • Unique partnerships with the biggest public clouds Aligned to customer • Differentiated data f

8. Slide 8: Results highlights

   • Company all-time highs for Q2 billings, revenue, gross profit dollars, operating income, and EPS • Delivered significant innovation advancing our leadership position in cloud, AI, and sustainability • Returned $258M to shareholders in dividends Results highlights and stock buybacks • Named a leade

9. Slide 9: Q2 FY23 summary

   Q2 FY23 summary Q2 guidance Q2 actual (as of Aug 24, 2022) Revenue $1.595B – $1.745B $1.66B +6.2% y/y ✅ Billings* $1.60B +3.3% y/y Non-GAAP gross margin 66% – 67% 66.3% -210 bps y/y ✅ Non-GAAP operating margin ~ 23% 23.6% -30 bps y/y ✅ Non-GAAP EPS $1.28 – $1.38 $1.48 +15.6% y/y ✅ Non-GAAP FCF margi

10. Slide 10: FY23 summary

    FY23 summary Q1 Q2 1H FY23 Revenue $1.59B $1.66B $3.26B +9.2% y/y +6.2% y/y +7.6% y/y Billings* $1.56B $1.60B $3.16B +13.4% y/y +3.3% y/y +8.0% y/y Non-GAAP gross margin 66.7% 66.3% 66.5% -260 bps y/y -210 bps y/y -230 bps y/y Non-GAAP operating margin 22.6% 23.6% 23.1% -40 bps y/y -30 bps y/y -40 b

11. Slide 11: Revenues

    Revenues 6% Y/Y $1.7B $1.7B $1.6B $1.6B $1.6B $1.5B Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Services revenue Product revenue © 2022 NetApp, Inc. All rights reserved.

12. Slide 12: Billings

    Billings $2.0B 3% Y/Y $1.8B $1.6B $1.6B $1.6B $1.4B Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Billings Billings is a Non-GAAP measure. Refer to appendix for details and a reconciliation between Non-GAAP and GAAP numbers. © 2022 NetApp, Inc. All rights reserved.

13. Slide 13: Non-GAAP gross margin

    Non-GAAP gross margin $1,087M $1,103M $1,102M $1,070M $1,062M $1,010M 69.3% 68.3% 67.3% 66.7% 66.3% 65.7% Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Non-GAAP gross margin dollars Non-GAAP gross margin Refer to appendix for a reconciliation between Non-GAAP and GAAP numbers © 2022 NetApp, Inc. A

14. Slide 14: Segment revenue and gross margin

    Segment revenue and gross margin Hybrid Cloud Public Cloud $1,560M $1,504M $1,521M $142M $1,479M $1,460M $1,379M $132M $120M $110M 70.9% 71.3% 70.9% 69.2% $87M 69.7% 68.2% $79M 68.3% 68.3% 67.1% 66.4% 66.1% 65.4% Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23

15. Slide 15: All flash array annualized revenue run rate

    All flash array annualized revenue run rate 2% Y/Y $3.2B $3.2B $3.1B $3.0B $3.1B $2.8B Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 All flash annualized array revenue run rate © 2022 NetApp, Inc. All rights reserved. AFA annualized net revenue run rate is determined by products and services reven

16. Slide 16: Public cloud ARR

    Public cloud ARR 55% Y/Y $603M $584M $505M $469M $388M $337M Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Public cloud ARR © 2022 NetApp, Inc. All rights reserved. Public cloud annualized revenue run-rate is calculated as the annualized value of all Public Cloud customer commitments with the assu

17. Slide 17: Non-GAAP operating expense

    Non-GAAP operating expense $721M $702M $709M $674M $696M $683M 46.2% 44.4% 44.1% 42.9% 42.6% 42.3% Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Non-GAAP operating expense Non-GAAP operating expense as a percent of revenue Refer to appendix for a reconciliation between Non-GAAP and GAAP numbers ©

18. Slide 18: Non-GAAP operating profit

    Non-GAAP operating profit $404M $393M $382M $374M $360M $336M 25.0% 23.9% 23.6% 23.0% 22.7% 22.6% Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Non-GAAP operating profit Non-GAAP operating margin Refer to appendix for a reconciliation between Non-GAAP and GAAP numbers © 2022 NetApp, Inc. All right

19. Slide 19: Non-GAAP earnings per share

    Non-GAAP earnings per share 16% Y/Y $1.44 $1.48 $1.42 $1.28 $1.20 $1.15 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Non-GAAP earnings per share Refer to appendix for a reconciliation between Non-GAAP and GAAP numbers © 2022 NetApp, Inc. All rights reserved.

20. Slide 20: Non-GAAP free cash flow

    Non-GAAP free cash flow $343M $252M $216M $191M $199M 20.4% $137M 16.1% 13.1% 12.3% 13.6% 8.2% Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Free cash flow Free cash flow as a percent of revenue Refer to appendix for a reconciliation between Non-GAAP and GAAP numbers © 2022 NetApp, Inc. All rights

21. Slide 21: Deferred revenue

    Deferred revenue $4.2B $4.2B $4.0B $4.1B $3.9B $3.9B 7.8% 6.8% 5.9% 5.7% 4.8% 3.7% Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Deferred revenue balance Deferred revenue y/y growth © 2022 NetApp, Inc. All rights reserved.

22. Slide 22: Q3 FY23 Guidance

    Q3 Guide Revenue $1.525B – $1.675B Non-GAAP gross margin ~ 67% Non-GAAP operating margin 22% – 23% Q3 FY23 Guidance Earnings per share* $1.25 – $1.35 as of Nov 29, 2022 Additional modeling points Net interest income $5M Non-GAAP tax rate 21% – 22% Share count ~ 220M *Earnings per share is presented

23. Slide 23: Updated FY23 Guidance

    FY23 Guide Revenue + 2% – 4% y/y Non-GAAP gross margin 66% – 67% Non-GAAP operating margin ~ 23% Updated FY23 Guidance Earnings per share* $5.30 – $5.50 as of Nov 29, 2022 Additional modeling points Public Cloud ARR ~ $700M Operating cash flow $1.4B Free cash flow $1.1B *Earnings per share is presen

24. Slide 24: Appendix: Supplementary Tables and Non-GAAP to GAAP Reconciliations & Explanations

    Appendix: Supplementary Tables and Non-GAAP to GAAP Reconciliations & Explanations © 2022 NetApp, Inc. All rights reserved.

25. Slide 25: Supplemental revenue and gross margin data

    Supplemental revenue and gross margin data RECONCILIATION OF SEGMENTS GROSS PROFIT TO TOTAL GROSS PROFIT ($ in millions) First Six First Six Q1 FY'22 Q2 FY'22 Q3 FY'22 Q4 FY'22 Q1 FY'23 Q2 FY'23 Months of FY'22 Months of FY'23 Revenues by Segment Product $ 730 $ 814 $ 846 $ 894 $ 786 $ 837 $ 1,544 $

26. Slide 26: Dollar-based net revenue retention rate for public cloud services (Non-GAAP)

    Dollar-based net revenue retention rate for public cloud services (Non-GAAP) Dollar-based net revenue retention rate (DBNRR) for public cloud services is a Non-GAAP metric calculated by dividing the approximate total revenue from our public cloud customer base at the end of a period (“Cloud Current

27. Slide 27: Reconciliation of net revenues to billings (Non-GAAP)

    Reconciliation of net revenues to billings (Non-GAAP) RECONCILIATION OF NET REVENUES TO BILLINGS (NON-GAAP) (In millions) First Six First Six Q1 FY'22 Q2 FY'22 Q3 FY'22 Q4 FY'22 Q1 FY'23 Q2 FY'23 Months of FY'22 Months of FY'23 Net revenues $ 1,458 $ 1,566 $ 1,614 $ 1,680 $ 1,592 $ 1,663 $ 3,024 $ 3

28. Slide 28: Reconciliation of Non-GAAP to GAAP gross profit and gross margin

    Reconciliation of Non-GAAP to GAAP gross profit and gross margin RECONCILIATION OF NON-GAAP TO GAAP GROSS PROFIT AND GROSS MARGIN ($ in millions) First Six First Six Q1 FY'22 Q2 FY'22 Q3 FY'22 Q4 FY'22 Q1 FY'23 Q2 FY'23 Months of FY'22 Months of FY'23 NET REVENUES $ 1,458 $ 1,566 $ 1,614 $ 1,680 $ 1

29. Slide 29: Reconciliation of Non-GAAP to GAAP operating expenses

    Reconciliation of Non-GAAP to GAAP operating expenses RECONCILIATION OF NON-GAAP TO GAAP OPERATING EXPENSES ($ in millions) First Six First Six Q1 FY'22 Q2 FY'22 Q3 FY'22 Q4 FY'22 Q1 FY'23 Q2 FY'23 Months of FY'22 Months of FY'23 OPERATING EXPENSES $ 750 $ 765 $ 752 $ 796 $ 791 $ 805 $ 1,515 $ 1,596

30. Slide 30: Reconciliation of Non-GAAP to GAAP income from operations

    Reconciliation of Non-GAAP to GAAP income from operations RECONCILIATION OF NON-GAAP TO GAAP INCOME FROM OPERATIONS ($ in millions) First Six First Six Q1 FY'22 Q2 FY'22 Q3 FY'22 Q4 FY'22 Q1 FY'23 Q2 FY'23 Months of FY'22 Months of FY'23 INCOME FROM OPERATIONS $ 249 $ 294 $ 321 $ 293 $ 255 $ 282 $ 5

31. Slide 31: Reconciliation of Non-GAAP to GAAP net income per share

    Reconciliation of Non-GAAP to GAAP net income per share RECONCILIATION OF NON-GAAP TO GAAP NET INCOME PER SHARE First Six First Six Q1 FY'22 Q2 FY'22 Q3 FY'22 Q4 FY'22 Q1 FY'23 Q2 FY'23 Months of FY'22 Months of FY'23 NET INCOME PER SHARE $ 0.88 $ 0.98 $ 1.10 $ 1.14 $ 0.96 $ 3.41 $ 1.86 $ 4.34 Adjus

32. Slide 32: Reconciliation of operating cash flow to free cash flow (Non-GAAP)

    Reconciliation of net cash provided by (used in) operating activities to free cash flow (Non-GAAP) RECONCILIATION OF NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES TO FREE CASH FLOW (NON-GAAP) (In millions) First Six First Six Q1 FY'22 Q2 FY'22 Q3 FY'22 Q4 FY'22 Q1 FY'23 Q2 FY'23 Months of FY'2

33. Slide 33: Reconciliation of Non-GAAP guidance to GAAP - third quarter fiscal 2023

    Reconciliation of Non-GAAP guidance to GAAP - third quarter fiscal 2023 NETAPP, INC. RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP THIRD QUARTER FISCAL 2023 (Unaudited) Third Quarter Fiscal 2023 Gross Margin - Non-GAAP Guidance ~67% Adjustment: Cost of revenues adjustments (1)% Gross Margin - GAAP Gui

34. Slide 34: Reconciliation of Non-GAAP guidance to GAAP - third quarter fiscal 2023, continued

    Reconciliation of Non-GAAP guidance to GAAP - third quarter fiscal 2023, continued NETAPP, INC. RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP THIRD QUARTER FISCAL 2022 (Unaudited) Third Quarter Fiscal 2023 Net Income Per Share - Non-GAAP Guidance $1.25 - $1.35 Adjustments: Amortization of intangible a

35. Slide 35: Reconciliation of Non-GAAP guidance to GAAP – fiscal 2023

    Reconciliation of Non-GAAP guidance to GAAP – fiscal 2023 NETAPP, INC. RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP FISCAL 2023 (Unaudited) Fiscal 2023 Gross Margin - Non-GAAP Guidance 66% - 67% Adjustment: Cost of revenues adjustments (1)% Gross Margin - GAAP Guidance 65% - 66% Fiscal 2023 Operating

36. Slide 36: Reconciliation of Non-GAAP guidance to GAAP – fiscal 2023, continued

    Reconciliation of Non-GAAP guidance to GAAP – fiscal 2023, continued NETAPP, INC. RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP FISCAL 2023 (Unaudited) Fiscal 2023 Net Income Per Share - Non-GAAP Guidance $5.30 - $5.50 Adjustments: Amortization of intangible assets ($0.31) Stock-based compensation exp

37. Slide 37: Reconciliation of Non-GAAP guidance to GAAP - second quarter fiscal 2023

    Reconciliation of Non-GAAP guidance to GAAP - second quarter fiscal 2023 NETAPP, INC. RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP SECOND QUARTER FISCAL 2023 (Unaudited) Second Quarter Fiscal 2023 Gross Margin - Non-GAAP Guidance 66% - 67% Adjustment: Cost of revenues adjustments (1)% Gross Margin -

38. Slide 38: Reconciliation of Non-GAAP guidance to GAAP - second quarter fiscal 2023, continued

    Reconciliation of Non-GAAP guidance to GAAP - second quarter fiscal 2023, continued NETAPP, INC. RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP SECOND QUARTER FISCAL 2022 (Unaudited) Second Quarter Fiscal 2023 Net Income Per Share - Non-GAAP Guidance $1.28 - $1.38 Adjustments: Amortization of intangibl

39. Slide 39: NetApp unlocks the best of cloud

    NetApp unlocks the best of cloud © 2022 NetApp, Inc. All rights reserved.

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