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NetApp CFO On Why He’s Leaving And Why Not To Obsess Over Financials

Ron Pasek, who this week said he plans to retire from his role at NetApp during a time when NetApp is looking at how to restart growth, told CRN why he is retiring now and why businesses should not read too much into the company's recent financials.

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What are the key things in NetApp's third quarter financials to watch besides the drop in revenue?

Well, let me just point out that the drop in revenue is really due to one transaction. There was one ELA (enterprise licensing agreement) that we thought would happen in Q3. For that matter, we thought it would happen in Q2. And that was approximately $50 million, and our [revenue] miss was $60 million. So, really we had one transaction that did not occur. Even with that, we still were well within the range of EPS (earnings per share) because we had strong gross margins and obviously we contain our costs well. If you look at that, it's pretty amazing. You miss revenue at $60 million, of which, ELAs are almost pure profit. These are licenses, so there's revenue with almost no cost. And with that not being part of it, we still almost made the midpoint of EPS. So that shows you the power of the leverage of our business model. That's a strong point. The guide for Q4 itself shows operating margins of 23 [percent] to 24 percent right now. Extremely profitable. So, to your earlier point, this is really just about the top line getting back to growth because the rest of the business model is in great shape.

That missed ELA, what happened there?

[ELAs are] very difficult to predict. We didn't have any in the first half. And it's tough. I tried to give a guide for the full year. Unfortunately, since they're back-end loaded, there's a chance that some of them could slip out of the year. And I think we had some slip out of Q4 that we thought we're going to come out in Q4. So it's just difficult. They're lumpy. For the small set of customers that do these, they tend to be our largest global customers. And they're just difficult to predict. It's not as if the customers lost interest, or don't understand the value proposition. It's just difficult to predict. That's it.

 
 
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