NetApp Reports Fourth Quarter and Fiscal Year 2019 Results

NetApp (NASDAQ: NTAP) today reported financial results for the fourth
quarter and fiscal year 2019, which ended April 26, 2019.

“Despite the modest shortfall relative to our fiscal year 2019
expectations, we made significant progress in the strategic markets of
all-flash, private cloud, and cloud data services. Our Data Fabric
strategy clearly differentiates us from our competitors,” said George
Kurian, chief executive officer. “Enterprises are choosing NetApp to be
a strategic partner in their digital transformations. Our opportunity is
large and growing, and we are moving quickly to improve our execution.”

Fourth Quarter Fiscal Year 2019 Financial Results*

• Net Revenues: $1.59 billion, compared to $1.64 billion in the
  fourth quarter of fiscal 2018
• Net Income: GAAP net income of $396 million, compared to GAAP
  net incomeof $290 million in the fourth quarter of fiscal
  2018; non-GAAP net income¹ of $305 million, compared to
  non-GAAP net income of $307 million in the fourth quarter of fiscal
  2018
• Earnings per Share: GAAP net income per share² of
  $1.59 compared to GAAP net income per share of $1.06 in the fourth
  quarter of fiscal 2018; non-GAAP net income per share of $1.22,
  compared to non-GAAP net income per share of $1.12 in the fourth
  quarter of fiscal 2018
• Cash, Cash Equivalents and Investments: $3.9 billion at the end
  of fiscal 2019
• Cash from Operations: $399 million, compared to $494 million in
  the fourth quarter of fiscal 2018
• Share Repurchase and Dividend: Returned $597 million to
  shareholders through share repurchases and cash dividends

Fiscal Year 2019 Financial Results*

• Net Revenues: $6.15 billion, increased 4% year-over-year from
  $5.92 billion in fiscal 2018
• Net Income: GAAP net income of $1.17 billion, compared to GAAP
  net income of $116 million** in fiscal 2018; non-GAAP net income of
  $1.17 billion, compared to non-GAAP net income of $983 million in
  fiscal 2018
• Earnings per Share: GAAP net income per share of $4.51,
  compared to GAAP net income per share of $0.42** in fiscal 2018;
  non-GAAP net income per share of $4.52, compared to non-GAAP net
  income per share of $3.56 in fiscal 2018
• Cash from Operations: $1.34 billion, compared to $1.48 billion
  in fiscal year 2018
• Share Repurchase and Dividend: Returned $2.51 billion to
  shareholders through share repurchases and cash dividends

*In the first quarter of fiscal 2019, NetApp adopted Revenue from
Contracts with Customers (ASC 606) using the full retrospective
method of adoption. Accordingly, NetApp’s condensed consolidated balance
sheet as of April 27, 2018, condensed consolidated statements of
operations and cash flows for all fiscal 2018 periods presented, and all
related financial statement metrics included herein, have been restated
to conform to the new rules.

**On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law.
This tax reform legislation contains several key tax provisions that
affected the company, including a one-time mandatory transition tax on
accumulated foreign earnings and a reduction of the U.S. corporate
income tax rate to 21% effective January 1, 2018, among others. GAAP net
income in fiscal year 2018 was impacted by a resulting one-time charge
of approximately $850 million.

First Quarter Fiscal Year 2020 Financial Outlook

The Company provided the following financial guidance for the first
quarter of fiscal year 2020:

Full Fiscal Year 2020 Financial Outlook

The Company provided the following financial guidance for the full
fiscal year 2020:

Dividend

The Company will increase the first quarter fiscal year 2020 dividend by
20% to $0.48 per share. The quarterly dividend will be paid on July 24,
2019, to shareholders of record as of the close of business on July 5,
2019.

Fourth Quarter Fiscal Year 2019 Business Highlights

New Products Enable Digital Transformation

• NetApp announced a variety of new and updated offerings that give
  customers more flexibility across hybrid multicloud environments for a
  range of use cases, including FlexPod™ AI platform; FlexPod
  for MEDITECH software; NetApp™ Service Level Manager; and
  the FlexCache™.
• OnCommand™ Workflow Automation 5.0 makes it easier for
  customers to automate, monitor, and maintain storage workflows. Changes
  in the web UI deliver a consistent user experience across OnCommand
  System Manager, Unified Manager, and Workflow Automation, resulting in
  improved simplicity and efficiency.

Industry-Leading Strategic Partnerships

• Intel Optane DC Persistent Memory and NetApp
  Memory Accelerated Data extended their partnership to help
  customers realize the promise of solutions that offer shorter time to
  results with their data.
• NetApp partnered with H2O.ai and integrated NetApp
  Cloud Volumes Service, a cloud-native file storage service. H2O
  Driverless AI provides a platform for customers to
  collaborate, scale, and deploy AI solutions more quickly.
• Texas-based Soccour Solutions received HCI Champion Partner status after
  it embraced NetApp HCI as part of its customer offerings.

Industry Recognition

• NetApp was named 2018 Google Cloud Technology Partner of the
  Year for Infrastructure at the Google Cloud Next 2019 Partner
  Summit.
• NetApp was awarded Brand of the Year by Think Global Awards,
  which recognizes achievements in promoting an awareness of thinking
  globally for individuals, communities, startups, small to medium-sized
  businesses, global brands, and large-scale international organizations.

Webcast and Conference Call Information

NetApp will host a conference call to discuss these results today at
2:00 p.m. Pacific Time. To access the live webcast of this event, go to
the NetApp Investor Relations website at investors.netapp.com.
In addition, this press release, historical supplemental data tables,
and other information related to the call will be posted on the Investor
Relations website. An audio replay will be available on the website
after 4:00 p.m. Pacific Time today.

About NetApp

NetApp is the data authority for hybrid cloud. We provide a full range
of hybrid cloud data services that simplify management of applications
and data across cloud and on-premises environments to accelerate digital
transformation. Together with our partners, we empower global
organizations to unleash the full potential of their data to expand
customer touchpoints, foster greater innovation, and optimize their
operations. For more information, visit www.netapp.com.
#DataDriven

“Safe Harbor” Statement Under U.S. Private Securities Litigation
Reform Act of 1995

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements include, but are not limited to, all of the statements made
under the First Quarter Fiscal Year 2020 Financial Outlook and Full
Fiscal Year 2020 Financial Outlook sections, statements about our large
and growing opportunity and our ability to improve our execution. All of
these forward-looking statements involve risk and uncertainty. Actual
results may differ materially from these statements for a variety of
reasons, including, without limitation, general global political,
macroeconomic and market conditions, changes in U.S. government
spending, revenue seasonality and matters specific to our business, such
as our ability to expand our total available market and grow our
portfolio of products, customer demand for and acceptance of our
products and services, our ability to successfully execute new business
models, our ability to successfully execute on our Data Fabric strategy
to generate profitable growth and stockholder return and our ability to
manage our gross profit margins. These and other equally important
factors are described in reports and documents we file from time to time
with the Securities and Exchange Commission, including the factors
described under the section titled “Risk Factors” in our most recently
submitted reports on 10-Q and 10-K. We disclaim any obligation to update
information contained in this press release whether as a result of new
information, future events, or otherwise.

NetApp and the NetApp logo and the marks listed at http://www.netapp.com/TM
are trademarks of NetApp, Inc. Other company and product names may be
trademarks of their respective owners.

Footnotes

¹Non-GAAP net income excludes, when applicable,
(a) amortization of intangible assets, (b) stock-based compensation
expenses, (c) litigation settlements, (d) acquisition-related expenses,
(e) restructuring charges, (f) asset impairments, (g) gains/losses on
the sale or derecognition of assets, and (h) our GAAP tax provision, but
includes a non-GAAP tax provision based upon our projected annual
non-GAAP effective tax rate for the first three quarters of the fiscal
year and an actual non-GAAP tax provision for the fourth quarter of the
fiscal year. NetApp makes additional adjustments to the non-GAAP tax
provision for certain tax matters as described below. A detailed
reconciliation of our non-GAAP to GAAP results can be found at http://investors.netapp.com.
NetApp’s management uses these non-GAAP measures in making operating
decisions because it believes the measurements provide meaningful
supplemental information regarding NetApp’s ongoing operational
performance.

²GAAP net income per share and non-GAAP net income per share
are calculated using the diluted number of shares.

NetApp Usage of Non-GAAP Financial Information

To supplement NetApp’s condensed consolidated financial statement
information presented in accordance with generally accepted accounting
principles in the United States (GAAP), NetApp provides investors with
certain non-GAAP measures, including, but not limited to, historical
non-GAAP operating results, non-GAAP net income, non-GAAP effective tax
rate and free cash flow, and historical and projected non-GAAP earnings
per diluted share.

NetApp believes that the presentation of non-GAAP net income, non-GAAP
effective tax rates, and non-GAAP earnings per share data, when shown in
conjunction with the corresponding GAAP measures, provides useful
information to investors and management regarding financial and business
trends relating to its financial condition and results of operations.
NetApp believes that the presentation of free cash flow, which it
defines as the net cash provided by operating activities less cash used
to acquire property and equipment, to be a liquidity measure that
provides useful information to management and investors because it
reflects cash that can be used to, among other things, invest in its
business, make strategic acquisitions, repurchase common stock, and pay
dividends on its common stock. As free cash flow is not a measure of
liquidity calculated in accordance with GAAP, free cash flow should be
considered in addition to, but not as a substitute for, the analysis
provided in the statement of cash flows.

NetApp’s management uses these non-GAAP measures in making operating
decisions because it believes the measurements provide meaningful
supplemental information regarding NetApp’s ongoing operational
performance. These non-GAAP financial measures are used to: (1) measure
company performance against historical results, (2) facilitate
comparisons to our competitors’ operating results and (3) allow greater
transparency with respect to information used by management in financial
and operational decision making.

NetApp excludes the following items from its non-GAAP measures when
applicable:

A. Amortization of intangible assets. NetApp records amortization
of intangible assets that were acquired in connection with its business
combinations. The amortization of intangible assets varies depending on
the level of acquisition activity. Management finds it useful to exclude
these charges to assess the appropriate level of various operating
expenses to assist in budgeting, planning and forecasting future periods
and in measuring operational performance.

B. Stock-based compensation expenses. NetApp excludes stock-based
compensation expenses from its non-GAAP measures primarily because they
are non-cash expenses. While management views stock-based compensation
as a key element of our employee retention and long-term incentives, we
do not view it as an expense to be used in evaluating operational
performance in any given period.

C. Litigation settlements. NetApp may periodically incur charges
or benefits related to litigation settlements. NetApp excludes these
charges and benefits, when significant, because it does not believe they
are reflective of ongoing business and operating results.

D. Acquisition-related expenses. NetApp excludes
acquisition-related expenses, including (a) due diligence, legal and
other one-time integration charges and (b) write down of assets acquired
that NetApp does not intend to use in its ongoing business, from its
non-GAAP measures, primarily because they are not related to our ongoing
business or cost base and, therefore, cannot be relied upon for future
planning and forecasting.

E. Restructuring charges. These charges consist of restructuring
charges that are incurred based on the particular facts and
circumstances of restructuring decisions, including employment and
contractual settlement terms, and other related charges, and can vary in
size and frequency. We therefore exclude them in our assessment of
operational performance.

F. Asset impairments. These are non-cash charges to write down
assets when there is an indication that the asset has become impaired.
Management finds it useful to exclude these non-cash charges due to the
unpredictability of these events in its assessment of operational
performance.

G. Gains/losses on the sale or derecognition of assets. These are
gains/losses from the sale of our properties and other transactions in
which we transfer control of assets to a third party. Management
believes that these transactions do not reflect the results of our
underlying, on-going business and, therefore, cannot be relied upon for
future planning or forecasting.

H. Income tax adjustments. NetApp’s non-GAAP tax provision is
based upon a projected annual non-GAAP effective tax rate for the first
three quarters of the fiscal year and an actual non-GAAP tax provision
for the fourth quarter of the fiscal year. The non-GAAP tax provision
also excludes, when applicable, (a) tax charges or benefits in the
current period that relate to one or more prior fiscal periods that are
a result of events such as changes in tax legislation, authoritative
guidance, income tax audit settlements and/or court decisions, (b) tax
charges or benefits that are attributable to unusual or non-recurring
book and/or tax accounting method changes, (c) tax charges that are a
result of a non-routine foreign cash repatriation, (d) tax charges or
benefits that are a result of infrequent restructuring of the Company’s
tax structure, (e) tax charges or benefits that are a result of a change
in valuation allowance, and (f) tax charges resulting from the
integration of intellectual properties from acquisitions. Management
believes that the use of non-GAAP tax provisions provides a more
meaningful measure of the Company’s operational performance.

These non-GAAP measures are not in accordance with, or an alternative
for, measures prepared in accordance with GAAP, and may be different
from non-GAAP measures used by other companies. In addition, these
non-GAAP measures are not based on any comprehensive set of accounting
rules or principles. NetApp believes that non-GAAP measures have
limitations in that they do not reflect all of the amounts associated
with the Company’s results of operations as determined in accordance
with GAAP and that these measures should only be used to evaluate the
Company’s results of operations in conjunction with the corresponding
GAAP measures. NetApp management compensates for these limitations by
analyzing current and projected results on a GAAP basis as well as a
non-GAAP basis. The presentation of non-GAAP financial information is
not meant to be considered in isolation or as a substitute for the
directly comparable financial measures prepared in accordance with
generally accepted accounting principles in the United States. The
non-GAAP financial measures are meant to supplement, and be viewed in
conjunction with, GAAP financial measures.