ad-2014-shareholder-value-nn-480887.pdf

8/11/2019 ad-2014-shareholder-value-nn-480887.pdf

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2014 Financial Analyst Day

2014 NetApp, Inc. All rights reserved.

June 24, 2014


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Delivering Shareholder ValuNick NovielloChief Financial Officer Executive Vice President, Finance and Operations


June 24, 2014


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Forward-Looking Statements

This presentation contains forward-looking statements and projections that involve risk and uncertainty, including thstatements under the FY15 Financial Projection section regarding our forecasts for the first quarter and full year of Fthe FY15-FY17 Targeted Financial Framework section regarding our long term financial model, market expectationstructure and return to shareholders. Actual results may differ materially from our statements or projections for a va

reasons, including general economic and market conditions, and matters specific to the company's business, such astransitions in the storage industry and customer demand for our products and services. These and other equally impofactors that may affect our future results are described in reports and documents we file from time to time with the Sincluding the factors described under the section titled Risk Factors in our most recent filings on Form 10available at www.sec.gov . The forward-looking statements made in this presentation are being made as of the timof its live presentation. If this presentation is reviewed after the time and date of the live presentation, even if subseqmade available by us, on our web site or otherwise, this presentation may not contain current or accurate informationdisclaim any obligation to update or revise any forward-looking statement based on new information, future events ootherwise.

Use of non-GAAP Financial Information

During the course of todays presentation, we will be referring to both non -GAAP and GAAP numbers. We preconciliation between non-GAAP and GAAP numbers in the appendix to this presentation, as well as on our websiwww.netapp.com under Company in the Investors section at http://investors.netapp.com/

For clarity of presentation, projections shown are at the midpoint of our expectations unless otherwise indicated.

http://www.sec.gov/http://investors.netapp.com/http://investors.netapp.com/http://www.sec.gov/


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Delivering Shareholder ValueInnovation, execution and growth

Portfolio ofInnovation

Go-to-MarketLeadership

Growth & Value

Operational Discipline



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Looking Back



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Strong execution in a challenging environmentFY13 - FY14: Overview

Difficult macro environmentPressure on IT spendingStorage market slowdown

OEM partner challenges

Challenges

* Numbers presented are non-GAAP. Refer to the appendix in this presentation for a reconciliation between non-GAAP and GAAP numbers. Free Cash Flow is defined as a net cash provided by operating activities less purchases of property and equipment.



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Strong execution in a challenging environmentFY13 - FY14: Overview

Difficult macro environmentPressure on IT spendingStorage market slowdown

OEM partner challenges

Challenges Accelerated innovation, strongBranded revenue growth, markgain

Increasing gross, operating maConsistent cash flow generatiosignificant capital returned toshareholders

Execution




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Original expectations of total revenue at ~2Xmarket growth on average

Market grew less than anticipated

Branded revenue growth at ~2X market**

~4% branded revenue growth in each of FY13

and FY14

OEM declined faster than anticipated

Branded revenue growth and increasing gross margin*FY13 - FY14: Financial Performance

Revenue

This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual resufor a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.

**Market is based on IDC Worldwide and U.S. Enterprise Storage Systems 2014 -2018 Forecast, May 2014 and NetApp Internal estimat




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Original expectations of total revenue at ~2Xmarket growth on average

Market grew less than anticipated

Branded revenue growth at ~2X market**

~4% branded revenue growth in each of FY13

and FY14OEM declined faster than anticipated

Branded revenue growth and increasing gross margin*FY13 - FY14: Financial Performance

Revenue


Gross Margin*

62%60 - 62%

Recognized benefit from portfolio and

Proactive management of supply chain

2.5 point increase in gross margin* FY

FY13 - 14 Actual Results

FY13 - 15Previous 3 YearGuidance (2012)

Wi

As percent of revenue

**Market is based on IDC Worldwide and U.S. Enterprise Storage Systems 2014 -2018 Forecast, May 2014 and NetApp Internal estimat




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Proactive management of headcount

Flat operating expense* FY13 to FY14

Re-sized OEM, select country investments

Optimizing investments for maximum returnFY13 - FY14: Financial Performance

45%42 - 43%~45 - 46%

This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual resu

for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.



FY13 - 15With FY15 Guidance

Incorporated

Operating Expense*





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Optimizing investments for maximum returnFY13 - FY14: Financial Performance

Benefit from gross margin* increase

Strong cost controls and discipline

~3 point increase in operating margin*

17%17 - 19%

This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual resu

for a particular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and economic conditions. Past performance is not an indicator or guarantee of future performance.



Operating Margin*


Proactive management of headcount

Flat operating expense* FY13 to FY14

Re-sized OEM, select country investments

45%42 - 43%~45 - 46%




Incorporated

Operating Expense*





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Strong cash flow generationFY13 - FY14: Financial Performance

Consistent cash flow generatioeach of last four fiscal years

Increasing free cash flow* marFY14

Consistent investment in the bu

Focus on working capital mana

- Consistent DSOs- Improved inventory turns

~ 23 - 25%

Free CashFlow*

Cash FromOps

~19 - 21%22%

17%

Free CashFlow*

Cash FromOps

Free CashFlow*

Cash FromOps




Incorporated

Cash Flow





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Efficient balance sheet with focus on shareholder returnsFY13 - FY14: Financial Performance

$5.4B

Fiscal Year-End

FY12

Intl

50%

Domestic50%

Ample US cash

No credit rating

Sporadic buyback to offset dilution

No dividend

Cash and Investments Then



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Efficient balance sheet with focus on shareholder returnsFY13 - FY14: Financial Performance

$5.4B

Fiscal Year-End

FY12

Intl

50%

Domestic50%

$5.0B

Fiscal Year-End

FY14

Intl

86%

Domestic14%

Ample US cash

No credit rating

Sporadic buyback to offset dilution

No dividend

Lean US cash, credit fa

Strong investment-gra- Senior notes in pla

- Retirement of conv

Enhanced buyback- Repurchased 65M

Instituted dividend- ~1.7% yield (exit F

Cash and Investments Then Cash and Investments No



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Optimized for efficiency and shareholder returnsFY13 - FY14: Summary

Managed top line headwindsDelivered operationally against target model

Implemented new approach to capitalstructure and returns

Increased pace of innovation whiledelivering shareholder returns



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Laying the Foundation for the Future



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Growth & Value


Delivering Shareholder ValueInnovation, execution and growth



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Accelerating return from investmentsPortfolio of Innovation

More efficiency, effectiveness and refrom R&D spend

Accelerating pace of innovation drivtime to value

Focusing investments on high return

Innovating for changing customer nbusiness models



Growth & Value




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Focusing Go-to-Market engineGo-to-Market Leadership

Optimizing Go-to-Market approachIncreased ability to serve large enter

Partnerships enable efficient reach

Leveraging sales, service, support an

marketing investments for scale, eff



Growth & Value




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Driving efficiency and executionStrong Operational Discipline

Adapting investments to optimize reDriving efficiency of business mode

Multiple levers to support earnings g

Continued focus on capital structure

shareholder returns



Growth & Value




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Continued execution in gradually improving environmentFY15 - FY17: Driving Growth and Value



Growth & V

Operational Disc

Environment

Storage growth slowly returns

Customers accelerate transition fromlegacy point solutions

Customers begin to architect cloudinto their IT environments



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Continued execution in gradually improving environmentFY15 - FY17: Driving Growth and Value

Environment

Storage growth slowly returns

Customers accelerate transition fromlegacy point solutions

Customers begin to architect cloudinto their IT environments



Growth & V

Operational Disc

NetApp

Branded revenue growth and share gains

Expanded reach into enterprise environm

OEM smaller part of business, with reduinvestment

Continued operational execution and dis

Balance sheet efficiency and capital retu



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Reiterating guidanceFY15 Financial Projection

FY15Revenue Mid-single digit branded growth; up to 40% OEM decline $1.42B

Gross Margin* ~63 - 64% ~6

Operating Margin* ~18%

EPS* Just under 10% growth ~$0

Capital Return Increased dividendCompletion of existing share repurchase authorization within 12 month





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Branded revenue growth, 50 to 100 basis pointshare gain per year**

OEM revenue: Modest declines beyond FY15

Continued focus on share gain and strong gross margin*FY15 - FY17: Targeted Financial Framework


Revenue

4%

FY14FY13

4%

Mid Single Digits

FY15 - FY17Branded Revenue Growth


**Market is based on IDC Worldwide and U.S. Enterprise Storage Systems 2014 -2018 Forecast, May 2014 and NetApp Internal estimat 2014 NetApp, Inc. All rights reserved.


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Branded revenue growth, 50 to 100 basis pointshare gain per year**

OEM revenue: Modest declines beyond FY15

Continued focus on share gain and strong gross margin*FY15 - FY17: Targeted Financial Framework


Revenue Gross Margin*

Strength from portfolio and business miConsistent management of supply chain

4%

FY14FY13

4%

Mid Single Digits

FY15 - FY17

63%

FY14FY13

61% ~6

FY1Branded Revenue Growth



**Market is based on IDC Worldwide and U.S. Enterprise Storage Systems 2014 -2018 Forecast, May 2014 and NetApp Internal estimat 2014 NetApp, Inc. All rights reserved.


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Prudent expense management and disciplineConsistent investment in innovation

Operational discipline and operating margin* expansionFY15 - FY17: Targeted Financial Framework


45%

FY14FY13

45% ~44 - 46%

FY15 - FY17

Operating Expense*





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Prudent expense management and disciplineConsistent investment in innovation

Operational discipline and operating margin* expansionFY15 - FY17: Targeted Financial Framework


Align resources to highest return activitiBalance growth and investments for pro

45%

FY14FY13

45% ~44 - 46%

FY15 - FY17

Operating Margin*

18%

FY14FY13

15%

~18 -

FY15 -

Operating Expense*

As percent of revenue As percent of revenue




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Completion of existing share repurchaseauthorization in within 12 months

Expect to maintain flat share count in FY16 andFY17 with potential for further reduction

Ongoing focus on earnings growthFY15 - FY17: Targeted Financial Framework


FY14FY13 FY15 - FY17

Weighted Average Diluted Share Count

348M368MCommitment to reducing

share count over time




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Completion of existing share repurchaseauthorization in within 12 months

Expect to maintain flat share count in FY16 andFY17 with potential for further reduction

Ongoing focus on earnings growthFY15 - FY17: Targeted Financial Framework


Expected tax rate* ~16 17%Grow EPS* at ~2X annual branded rev


Weighted Average Diluted Share Count Earnings Per Share*

FY14FY13 FY15

348M368MCommitment to reducing

share count over time $2.78$2.28

CommitmenEPS*




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z

FY15 - FY17: Targeted Financial FrameworkStrong cash flow generation and shareholder returns

This long-term financial model, including all FY15 17 amounts, is dependent on revenue mix and growth and does not represent projections or guidance for a particular period. Rather, this is a model management utilizes in managing the business. Actual rparticular period may differ materially due to a variety of factors listed in NetApps SEC filings, including business and ec onomic conditions. Past performance is not an indicator or guarantee of future performance.

Free Cash Flow* Strong cash generation

Continued investment in the business

Consistent M&A philosophy

Ongoing focus on capital structure and returnsshareholders

- FY15 plan: Distribute >100% of free cash flrepurchases and dividends

- FY16 - FY17: Intend to distribute >50% of fcash flow* in repurchases and dividends

- Continued focus on dividend growth


18%~17 - 19%

17%





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Delivering shareholder valueInvestment Thesis

1. Proven track record of delivering financial results in transitionimarket



Growth &

Operational D



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2. The right strategy and innovations to help customers bridge frotoday to tomorrow



Growth &

Operational D



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2. The right strategy and innovations to help customers bridge frotoday to tomorrow

3. Adaptable financial model with multiple levers to deliver futurand shareholder value



Growth &

Operational D



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2014 Financial Analyst Day

June 24, 2014

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ad-2014-shareholder-value-nn-480887.pdf