With companies racing to use the cloud as effectively as possible during the downturn, NetApp is pursuing a return-to-growth strategy by increasing its sales force by 200 people so it can bring in new customers to its data storage and cloud data services businesses.
"Remote work has [spun up] really quickly," NetApp CFO Mike Berry told CFO Dive. "We're seeing an uptick [in cloud services] because it's so much easier and faster. So many companies now have some portion of their infrastructure in the cloud."
The company ended last year in a strong liquidity position. It generated almost $1 billion in free cash flow and closed out the fourth quarter with almost $3 billion in cash and short-term investments and $500 million in credit.
Despite its relatively strong financial position, the company in late June raised an additional $2 billion through three senior note offerings, mainly to ensure it has cash to get through the unpredictable months ahead, but also to pay off $500 million in debt it had on the books. The pricing on its three new notes was between 1.9% and 2.7%, while the old debt was at 3.8%.
"We'll use half of that debt raise to finance our existing debt, and then we'll put about $1 billion on the balance sheet as a buffer," Berry said. "As we go through this pandemic, we want to make sure we have enough cash."
Growth in cloud services
The company specializes in helping organizations leverage what it calls the hybrid- and multi-cloud environment: a combination of on-premises software, data storage, and public and private cloud computing.
"We believe hybrid- and multi-cloud are here [to stay], so we help our customers navigate that," Berry said.
Most companies are already at least partially on the cloud, and those that aren't are in the process of getting there, notwithstanding the economic downturn, he said.
"It really puts a smile on my face how well accounting teams and external auditors have worked together [during the pandemic]," he said. "So many processes and controls that actually require someone to look at them and they’ve been able to do that remotely."
What's not happening much these days are big digital transformation projects, he said. Those are on the back burner until stay-at-home mandates clear and the economy starts to recover.
"Those typically require third-party help," he said. "They also require employees who can get out of their houses, and that’s difficult from a logistical perspective."
To pay for its 200 new salespeople, none of the new money will go into the staffing. Instead, the company is using money in its operating budget, with some of that freed up from reductions in travel and other discretionary accounts. "It's all within the same operating expense envelope," he said. "We've re-prioritized. We want to make sure we’re being prudent around spending and capital, given the high level of uncertainty we all have."
The new sales people will help it drive growth in two areas: data storage, where it competes with Dell and Hewlett-Packard, and cloud computing.
Its data storage products include both the hardware — old-style spinning-disc as well as newer all-flash appliances — and the software to run them. Its cloud operations include helping organizations use both its own private cloud and other cloud environments, public and private, and integrating cloud operations with companies' on-premises software.
"The hybrid cloud goes across all three of those," he said. "Many customers will always have data on-premises, [although] more are moving workloads to the cloud, or are building their own cloud environment."
Berry, a tech industry finance veteran, joined NetApp on March 16, the day mandatory work-from-home restrictions were placed by California, where the company is headquartered.
“My first day, I worked with the IT department,” he said. “They shipped my computer. I got it on Tuesday.”
For the next two and a half months, his contact with the company leadership and his finance and accounting teams was by phone or over Zoom.
"The things you miss are those water cooler discussions," he said, "the ability to have a one-off conversation, versus having to ping someone and say, 'Hey, can we get on Zoom to talk about this?'"
As the company's first-quarter earnings call neared, the Dallas-based executive prepared in person with the executive team at the company's headquarters.
"There was no way we were going to do the first earnings call together 10 states away," he said. "That was an effective week. We sat in a room — socially distanced; we used a huge conference room and there were six of us in it. The team was super helpful in prepping me for that."
With the earnings call behind him, he's focusing on the changes he wants to make, including supplementing his team with finance staff who bring an outside view of cloud operations.
"It's just a different way to look at the business," he said. "We have a great group in California, and we also have people in Raleigh [North Carolina], where we have a large operation. So, we’re continuing to balance our workforce, and bring in extra talent for areas we want to focus on."
Those areas are the cloud, just as other organizations are focusing on the cloud to help them get through the pandemic and remain successful once it's over.