NetApp Inc NTAP
Q2 2013 Earnings Call Transcript

Transcript Call Date 11/14/2012

Operator: Welcome to the NetApp Second Quarter Fiscal Year 2013 Earnings Call. My name is Anthony, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session at the conclusion of the conference. Please note that this conference is being recorded.

I would now like to turn the call over to Kris Newton. Ms. Newton, you may begin.

Kris Newton - Director, Analyst Relations: Good afternoon, everyone. Thank you for joining us. With me on today's call are our CEO, Tom Georgens and our CFO, Nick Noviello. This call is being webcast live and will be available for replay on our website at, along with the earnings release, the supplemental commentary, our financial tables and the non-GAAP to GAAP reconciliation.

As reminder, during today's call, we will make forward-looking statements and projections, including our financial outlook for Q3, the benefits to us and our customers of our products, our expectations regarding the future customer demand for our products and services and the expected benefits of partnership and alliances, all of which involve risk and uncertainty. Actual results may differ materially from our statements and projections for a variety of reasons, including general economic and market conditions such as the global macroeconomic environment and the continuing deliberations regarding future tax and fiscal policy in the U.S. and matters specific to the Company's business such as customer demand for and acceptance of our products and services. We describe these factors in our accompanying press release which we have filed on an 8-K with the SEC, as well as in our 10-K and 10-Q reports also on file with the SEC and available on our website, all of which are incorporated by reference in today's discussion.

All numbers discussed today are GAAP unless otherwise stated. To see the reconciling items between non-GAAP and GAAP, you may refer to the table in our press release, our supplemental commentary, or on our website. In a moment, Nick will walk you through some additional color on our financial results, and then Tom will walk you through his perspective on the business for this quarter.

I will now turn the call over to Nick.

Nick Noviello - EVP, Finance and CFO: Thank you, Kris. Good afternoon, everyone. NetApp delivered financial results in line with our expectations for fiscal Q2. Revenue of $1.54 billion was roughly at the midpoint of our guidance range. We achieved gross margins of 60.6% and exceeded our prior guidance with operating margins of 14.4%. Non-GAAP EPS of $0.51 exceeded the high end of our guidance range and we generated $269 million in free cash flow in the quarter, about 17% of revenue. Revenue increased 7% sequentially and 2% from Q2 last year. Year-over-year growth was negatively impacted by 1.5 points from FX. Branded revenue was up 8% sequentially and 4% year-over-year despite the continued challenges in the macroeconomic environment.

OEM revenue was flat versus Q1 and down 9% versus Q2 last year, the result of a reduction in demand from OEM customers. Product revenue was up 11% sequentially and down 2% year-over-year. Both software entitlements and maintenance and service revenue were within expected ranges. All geographies showed flat-to-modest year-over-year revenue growth with the exception of Asia-Pacific, which was up 14%. On a constant currency basis, EMEA revenue was up 7% year-over-year. Versus Q1, we also saw flat-to-modest revenue growth across the geographies. In the Americas we saw a 12% sequential increase comprised largely of expected growth in the U.S. public sector and corresponding to the fiscal year-end of the U.S. government. Non-GAAP gross margins of 60.6% were slightly above the mid-point of our guidance range and benefited from the strength of our product gross margins. At their highest rate since Q2 last year, non-GAAP product gross margin of 53.6% were driven primarily by increased sales of more highly configured systems. Software entitlements and maintenance and service margin were within normal ranges.

Read our Earnings Call Transcript disclaimer.
Add a Comment
E-mail me new replies.