NetApp Reports Second Quarter Fiscal Year 2018 Results

Net Revenues of $1.42 Billion Grew 6% Year-over-Year

• Second Quarter Fiscal 2018 Highlights
• Product revenue increased 14% year-over-year
• All-flash array annualized net revenue run rate of $1.7 billion increased 58% year-over-year
• GAAP EPS of $0.64 and non-GAAP EPS of $0.81 increased 68% and 35% year-over-year, respectively

Sunnyvale, Calif.—November 15, 2017 — NetApp (NASDAQ: NTAP) today reported financial results for the second quarter fiscal year 2018, ended October 27, 2017.

“In the second quarter, NetApp again delivered strong operating results on the top and bottom lines. We also introduced a number of industry-leading innovations that position us for continued growth and expand our leadership position in the growth segments of the market,” said George Kurian, chief executive officer. “Our strong performance was driven by excellent execution and reflects our customers’ clear and growing preference for the value of our Data Fabric strategy. We are winning because we enable our customers’ success through data.”

Second Quarter Fiscal 2018 Financial Results

Dividend

• Next cash dividend of $0.20 per share to be paid on January 24, 2018, to shareholders of record as of the close of business on January 5, 2018

Second Quarter Fiscal 2018 Business Highlights

New Solutions Expand NetApp Impact in Flash, Next-Generation Data Center, and Cloud

• NetApp™ EF570 all-flash system is the storage industry’s price/performance leader as demonstrated by SPC-1 and SPC-2 benchmark tests.³
• NetApp E5700 Series hybrid flash system accelerates performance and increases density with a hybrid flash system optimal for modern enterprise applications.
• NetApp SANtricity™ Cloud Connector enables Data Fabric capabilities by providing cost-effective backup and recovery to the cloud from NetApp E-Series and EF-Series systems.
• NetApp SANtricity 11.4 software now comes with security enhancements such as role-based access control and audit log, Active Directory support, and an external key manager.
• NetApp Converged Infrastructure Solution for Data Analytics brings together the latest storage, networking, and server technologies to help simplify deployment of data analytics environments.
• NetApp introduces new AI-enabled virtual support assistant, Elio, and Active IQ™ cloud-based analytics to help companies gain intelligent insights.
• NetApp expands collaboration with Microsoft Azure to deliver the industry's first Azure enterprise NFS service.
• NetApp SolidFire™ Element™ OS 10 supports data movement from Element OS systems to ONTAP™ systems across the Data Fabric and helps customers align IT service levels to business goals.
• NetApp HCI, built on SolidFire Element OS, the world’s first enterprise-scale hyper converged solution, became generally available in October 2017.
• StorageGRID™ Webscale 11 simplifies the creation of next-generation data center cloud architecture by enabling easy implementation of hybrid cloud data pipelines with AWS.
• NetApp ONTAP 9.3 software offers 40% increased performance over earlier versions, further optimizes deduplication, and enhances security and compliance.
• OnCommand™ Insight updated with new cloud cost monitoring provides a complete picture of IT infrastructure.

NetApp Enables Customers to Improve Their Performance Through Cloud and Flash Services

“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 Third Quarter Fiscal Year 2018 Financial Outlook section, statements about our innovations positioning us for continued growth and expanding our leadership position in the growth segments of the market as well as statements about our customers’ growing preference for the value of our Data Fabric strategy. 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 Form 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.

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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

1 Non-GAAP net income excludes, when applicable, (a) amortization of intangible assets, (b) stock-based compensation expenses, (c) acquisition-related expenses, (d) restructuring charges, (e) asset impairments, (f) gains/losses on the sale of properties, and (g) 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.

2 GAAP earnings per share and non-GAAP earnings per share are calculated using the diluted number of shares for all periods presented.

3 Storage Performance Council, NetApp EF570 SPC-1, September 18, 2017, and NetApp EF570 SPC-2, September 18, 2017. Full Disclosure Reports.

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. 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.

D. 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.

E. 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.

F. Gains/losses on the sale of properties. These are gains/losses from the sale of our properties. 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.

G. 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.