Conference Call notes courtesy of Down South:
Feb 8 2001 NTAP CC Notes: 780.3M revenue for first 9 mo of FY. 106% increase YoY. Pro Forma = 118% increase YoY for first 9 mo.
Book/Bill = 1/1
Stronger international business this Q, particularly from Europe.
Gross margin 60.6% fall of 1.3%. Expanded storage offering drove the change. Software mix = 18% of revenue.
R&D = 12.1%, up from 10.9% last Q. Reflects WebManage acquisition.
Pro Forma EPS = $.11/sh. Headcount = 2300, up 300.
DSO = 70 days up from 57 last Q. Parts shortage and uneven demand = 6 days increase. International mix = 3 day increase. 4 days from deferred income from software maint contracts. Will bring back within 2 quarters.
DW: Fiscal 3rd quarter always a challenge. Slower start this January than usual. Bookings and revenues skewed to end of Q. International business up to 40% from 33% last Q. New accounts = 465 down from 500. 38% of bookings from new accounts.
Internet sector down to 34% down from 40% of business. Internet component is now a horizontal market, rather than vertical market. Shipped 600 F840. 15% were upgrades. NetCache = 9% of revenue.
ASP declined due to C1100 low end caching product shipments.
Competitive environment has not changed materially. 80% win rate against all competitors. Center to edge strategy is being accepted. Primary concerns are microeconomic issues.
JA: Expects low end of 10-15% quarter to quarter growth. Expecting 55-60% growth target for FY2002. GM will decline moderately as number of disks in configs expand. Expect $.41/sh for 2001. $.55-.60 for FY2002.
UBS Warburg: Caching win rates. DW: Market demand is for caching and storage. Filers at the center; caching at the edge; software to move it around.
SSB: Overall ASP and decline: JA: ASP decline very moderate. Shift to midrange, but more disk content. TM: Competition caused no new issues. Issue is customer spending programs. Product acceptance is equal or higher than before. Competition is telling customers about NTAP.
ASPs of filers up 10%. ASPs of caching down 10%.
1st Boston: DW: Two was to interpret that vendors are having problems: 1 is that the market is in trouble; the other is that they are getting beat. I believe in the latter. TM: Mentioned big markets, including financials.
Goldman f#@&ing Saks: What gives you confidence about demand and margins? Did you say that bookings and revenues picked up at the end of the month?
DW: Forecast from field gives us confidence, including downward revisions from Nov to Dec. This quarter (Q4) is historically best quarter. Tend to miss on upside, not downside. Competitive environment has not changed. Customers have indicated increased interest in our solutions because of price points. Orders in Jan were skewed to backend. First 10 days after holidays were very slow.
Deutsche Bank AB: Projections for pricing environment. Are competitors dropping prices? TM: EMC sales force does not lead with new product. No more successful than Celerra. They throw NAS in at high discount to Symmetrix sales. NTAP wins because we are better. DW: List price comparison of EMC vs F840 3.6TB EMC is 40% higher than F840.
Prudential: Vertical situation? DW: Big changes in types of internet customers. ASPs were big. Database customers were way up. Wins in financial services. Energy strong. Manufacturing started soft. Semis down. MCAD down. Spotty, but will not stay locked up. Reassessing now on their spending. TM: Listed big energy sales. Many TB configs deployed in the field.
Thomas Partners: Comment on expanding distribution capabilities overseas. Asia is indirect sales model. Europe is 50/50 ISO/DSO. Intent is not to get new partners, but to enhance existing. Storage Networks is helping round out portfolio.
Bear Stearns: Guidance for rev growth implies consistent rate over next year. Why so confident? Issues of receivables in turns? JA: Receivables= ½ due to linearity of shipment. Turns due to expanding worldwide customer service mix and timing of orders near end of quarter. Giving guidance for next two quarters at low end of our goals.
Roberson Stephens: Competition seems to be rolling out new offerings. Is market more competitive? TM: The analysts are more impressed with new offerings than the customers are. Oracle for example. Every competitive environment quickly rules out competitors. DW: In 1600 deals were competitive. Won 80%. TM: Competitors are not leading with NAS. Brought in after NTAP is seen as competitor. Customers have confidence in NTAP's credibility. We do what we say. Competitors are helping us win deals by bringing up our name.
JPM: Talk about new markets. How quickly can you move into new verticals? TM: It is not about new vertical markets. Bigger issue is the ecnomomy. Sales force shifted from dotcom focus into enterprise sales mode for at least 6 months. DW: Think of app horizontals rather than verticals. Oracle platform is across verticals. Target is business apps, rather than verticals. Database is only 25% of business. Next step is to pick up app provider endorsements. SAP, PSFT, etc.
Lehman Bros: Partnership portfolios-further thoughts. TM: Getting real wins with MSFT and ORCL. Professional services are important partners. Will talk more about that later. CSC and PWC are partnering with us.
M/L: Filer/software/netcache percentages and impact of currencies. DW: Caching = 9% Software = 18% OEMs = 4%. Seen shift wrt internet. Basic website and ISP deployments down, but much business in telcos and major ISPs. Moved away from "new age" internet companies. Moved into strong companies like ORCL ASPs and Storage Networks. TM: Every single Y! property is hosted on NTAP. We are not focused on people without money. DW: Mentioned 6 or so major ASPs using NTAP.
"For EMC roadkill, you guys look pretty good."
Thomas Wietzel (sp) Partners: International vs domestic: DW: 40/60. Appears that economic concerns are strictly in US. Asia/Pacific and Europe are confident. TM: Vast majority of deals due to lower cost of ownership. When they spend, we will win. DW: Total cost of ownership is now big buying criteria, rather than scalability a few years ago.
M/L: From scalability stand point, avg TB. JA: Approaching 1TB per system. DW: 97% of ORCL databases are less than 1TB.
Buckingham Research Group: JA: Market is moving to a network based model.
JPM: Give us glimpse into what product roadmap is. DW: Stay tuned Monday. Will see over the year an integrated low end system for workgroups in remote office. A SAN switching fabric as a step to complete stg virtualization. Synchronous Mirroring.
Goldman f#%&ing Sachs: Sales people are incented. Would you expect normal 20/30/50 pattern? Backend loaded or what? DW: Can't see that well. Pushing for mid-April bookings. Have confidence in sales forecasts by sales force. TM: Storage is a market in which our customers must continue to invest. We will do what we can to continue in a linear fashion.
M/L: NAS/San are complimentery. Some conclude that NAS is a niche relative to EMC. Distinction between file and block level. DW: Why do you need block mode anything. M/L: Streaming media. DW: ORCL picked file level structure. They showed that we had a better solution. Misconceptions from the Northeast. Whoever is making those claims I challenge to put the data up.
Pru: The filer units were down modestly sequentially? JA: ASPs on filer side continue to go up as scalability goes up. Mix is hard to tell. We have repriced midrange. Highend is very strong in penetration. Not sure where it goes. Storage is expanding. DW: Unit count down because F840 has 4x capacity of F760. New low end unit will drive unit sales up and ASPs down. You will see more of the low end go in. I don't care. It's a question of deal size. As long as I win the accounts; TM: Deal sizes are getting larger because customers see what we can do.
M/L: San switching fabric? DW: We won't build our own switch so we will be partnering.
Thomas…partners: TM: Aggressive investment in education sales force. Using our own streaming technology to educate our force. Potential TB caches on the edge for video storage. DW: Center to edge strategy includes significant filer capacity. Caching is a small portion of the solution.
Roberson Stephens: Apologize for negative slant. What about revenue being a low end of range. DW: We did not expect to hit that hard in January. I don't feel that bad about this last quarter. IT doesn't take too many TXNs delaying purchases to hit $10M. TM: Competitors will not stop us. Now we must deliver products that people will buy.
End of call.
My overall impressions: 1) Analysts were doing there best to shoot holes in the report, but were unsuccessful. 2) NTAP's focus on enterprise customers, database horizontals, rather than ISPs is paying off. 3) NTAP is betting on the content management/distribution model with filers, caches, and WebManage software as the "killer app". 4) Monday's announcement will be of small scale filer for edge of content delivery network. 5) DW and team are confident that their direction is still sound and that competitors are not a threat to that direction as of yet.
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