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NetApp Inc NTAP
Q4 2013 Earnings Call Transcript

Transcript Call Date 05/21/2013

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

I will now like to turn the call over to Kris Newton, Senior Director, Investor Relations. Ms. Newton, you may begin.

Kris Newton - Director, Analyst Relations: Hello and thank you for joining us. With me on today's call are CEO, Tom Georgens and our CFO, Nick Noviello. This call is being webcast live and will be available for replay on our website at netapp.com, 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 with respect to our financial outlook and future prospects all of which involve risk and uncertainty. Actual results may differ materially from our statements and projections for a variety of reasons. We describe some of these reasons in our accompanying press release which we have furnished to the SEC on an 8-K. A detailed discussion of the reasons is included in our risk factors included in our most recent 10-K and subsequent 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 stated otherwise. 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, thanks everyone for joining us. Q4 represented another quarter of solid financial performance by NetApp. Net revenue of $1.72 billion was inside our prior guidance range driven by branded revenue growth. We achieved a strong non-GAAP gross margin of 61.3% and non-GAAP operating margin of 17% underscoring our continued execution focus. Non-GAAP EPS of $0.69 was just under the high end of our Q4 guidance range and we generated $392 million of free cash flow in the quarter approximately 23% of revenue.

Starting with revenue; Q4 revenue increased 5% sequentially and 1% over Q4 last year. Q4 deferred revenue increased by $134 million from Q3. Branded revenue was up 9% from Q3 and 3% from Q4 last year, while OEM revenue declined 19% sequentially and 18% from Q4 year ago. For fiscal year 2013 revenue of $6.33 billion increased 2% from fiscal year 2012 with branded revenue up almost 4% and OEM revenue down 12% from the prior fiscal year.

For fiscal year 2013, revenue for all geographies was flat to up 1% from fiscal year 2012 with the exception of APAC, which was up 11%. Non-GAAP gross margin of 61.3% in Q4 exceeded our previous guidance driven by strong product gross margin. Product gross margin of 55.8% was up both sequentially and year-over-year fueled by branded revenue growth and sales of more highly configured systems. Service gross margin of 56.2% decreased both sequentially and year-over-year due to increased investments in our service and support infrastructure which we expect to continue as our installed base grows.

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