NetApp Inc. (NASDAQ: NTAP) stock crashed over 8% in the pre-market session on Feb 14th, 2019 (Source: Google finance) after the company narrowly missed the sales expectations for its fiscal third quarter. The cash conversion cycle remained extremely healthy at a negative 11 days, which is roughly flat year-over-year. Cash flow from operations was $451 million. Free cash flow of $420 million represented 27% of revenues, while year-to-date free cash flows of $804 million represent 18% of revenues.
Gross margin of 63.7% was above the high-end of the guided range. As expected, NTAP saw the normal seasonal sequential decline in product margin from Q2 to Q3. Product gross margin came in at 52.6%, which is an increase of about 100 basis points year-on-year, reflecting continued sales force discipline in the face of macroeconomic uncertainty and about 50 basis points of currency headwinds. The combination of software and hardware maintenance and other services gross margin of 81.7% increased about 50 basis points year-over-year. Operating margin of 23.5% came in solidly above the high-end guidance and represented a new company record.
NTAP in the third quarter of FY 19 has reported the adjusted earnings per share of $1.20, while adjusted revenue growth of 2 percent to $1.56 billion in the third quarter of FY 19, missing the analysts’ estimates for revenue of $1.60 billion. Product revenue of $967 million increased 2% year-over-year, reflecting the shift to all-flash arrays and growing traction in the private cloud solutions, offset by about 150 basis points of currency headwinds. There were no ELAs in the quarter. Software maintenance and hardware maintenance revenue of $531 million increased 2% year-over-year, driven by the continued growth in the installed base and to a lesser extent, the cloud data services business.
NTAP has declared a cash dividend of $0.40 per share to be paid on April 24, 2019, to shareholders of record as of the close of business on April 5, 2019. During the quarter, NTAP has paid out $99 million in cash dividends. In total, NTAP returned $649 million to shareholders, representing 155% of free cash flow generated in the fourth quarter.
For FY 19, NTAP expects net revenues to be in the range of $1.590 billion to $1.690 billion. Non-GAAP earnings per share is expected to be in the range of $1.22-$1.28