• Net Revenues for Q4 up 5% quarter-over-quarter and 7% year-over-year.
  • Q4 All-flash array annualized net revenue run rate of $1.70 billion, up almost 140% year-over-year.
  • Over an exabyte of flash shipped in fiscal year 2017.
  • $913 million returned to shareholders in share repurchases and cash dividends in fiscal year 2017.
  • First quarter fiscal year 2018 dividend to increase by 5% to $0.20 per share.

SUNNYVALE, Calif., May 24, 2017 (GLOBE NEWSWIRE) — NetApp (NASDAQ:NTAP) today reported financial results for the fourth quarter and fiscal year 2017, ended April 28, 2017.

Fourth Quarter Financial Results
Net revenues for the fourth quarter of fiscal year 2017 were $1.48 billion. GAAP net income for the fourth quarter of fiscal year 2017 was $190 million, or $0.68 per share,1 compared to GAAP net loss of $8 million, or $0.03 loss per share,2 for the comparable period of the prior year. Non-GAAP net income for the fourth quarter of fiscal year 2017 was $239 million, or $0.86 per share,3 compared to non-GAAP net income of $157 million, or $0.55 per share, for the comparable period of the prior year.

Fiscal Year 2017 Financial Results
Net revenues for fiscal year 2017 were $5.52 billion. GAAP net income for fiscal year 2017 was $509 million, or $1.81 per share,1 compared to GAAP net income of $229 million, or $0.77 per share, for the comparable period of the prior year. Non-GAAP net income for fiscal year 2017 was $768 million, or $2.73 per share,3 compared to non-GAAP net income of $633 million, or $2.13 per share, for the comparable period of the prior year.

Cash, Cash Equivalents and Investments
NetApp ended the fourth quarter of fiscal year 2017 with $4.9 billion in total cash, cash equivalents and investments. During the fourth quarter of fiscal year 2017, the Company generated $365 million in cash from operations and returned $180 million to shareholders through share repurchases and a cash dividend.

The Company will increase the first quarter fiscal year 2018 dividend by 5% to $0.20 per share. The quarterly dividend will be paid on July 26, 2017, to shareholders of record as of the close of business on July 7, 2017.

“Our continued focus and disciplined execution yielded yet another quarter of solid results. We have regained momentum, returning the company to revenue growth and delivering against all of our fiscal year 2017 commitments,” said George Kurian, chief executive officer. “By innovating to redefine traditional markets and to bring enterprise-grade technology to emerging areas of the market, we are gaining market share, expanding our addressable market, and creating new opportunities for NetApp.”

Q1 Fiscal Year 2018 Outlook
The Company provided the following financial guidance for the first quarter of fiscal year 2018: 
 
 • Net revenues are expected to be in the range of $1.24 billion to $1.39 billion
 
  GAAP Non-GAAP
 • Earnings per share is expected to be in the range of:   $0.30 – $0.38 $0.49 – $0.57
     
Full Fiscal Year 2018 Outlook
The Company provided the following financial guidance for the full fiscal year 2018:
     
  GAAP Non-GAAP
• Consolidated gross margin is expected to be in the range of: 61% – 62% 62% – 63%
• Operating margin is expected to be in the range of: 14% – 16% 18% – 20%
• Effective tax rate is expected to be in the range of: 23% – 24% 19% – 20%

Business Highlights

  • NetApp Expands Impact in Flash, Cloud, and Next-Generation Data Center
    – New NetApp All-Flash Innovations Improve Data Center Economics. New All Flash FAS A700s array delivers breakthrough performance in a compact form factor to modernize IT for demanding enterprise applications, analytic workloads and cloud integration.
    – NetApp Names Anthony Lye to Lead Cloud Business Unit. Cloud champion joins NetApp to accelerate hyperscaler and hybrid cloud progress. Lye, who reports to NetApp CEO George Kurian, drives the strategy and execution necessary to create a profitable cloud business for NetApp and establish the Company as the undisputed leader in managing data in a cloud-integrated world.
    – One-Year Anniversary: NetApp SolidFire Redefines Data Center Infrastructure. NetApp celebrated the one-year anniversary of its acquisition of SolidFire, fueling the advance of the next-generation data center that is transforming IT for enterprises and service providers.
  • Customers Team with NetApp to Drive Transformation and Improve Performance with Their Choice of Hybrid Cloud Deployment
    – NetApp Supports Vital Energi in Transforming Data into Energy Savings Throughout the UK. Sustainable energy company, Vital Energi, deployed a NetApp all-flash array to speed performance and NetApp AltaVault cloud-integrated storage to help the company meet mandatory back up requirements.
    – DARZ Drives DevOps Success with NetApp. German IT services leader fuels customers’ digital transformation by enabling agile software development through its Docker & Container as a Service offering.
    – neteffect Offers Hybrid Cloud Disaster Recovery Solutions with NetApp. NetApp converged infrastructure gives neteffect technologies the flexibility to blend on-premises and cloud services for customers.
    – NetApp Helps Kaufman Hall Transform Businesses with Data-Driven Insight. Kaufman Hall takes critical first step toward a hybrid cloud future by consolidating on FlexPod to speed innovation as well as maximize performance and growth.
    – Contegix Accelerates Private Cloud Deployment and Cuts Service Costs in Half with NetApp SolidFire. The leading cloud host provider prepares for coming data deluge with high-performing, scalable NetApp SolidFire all-flash storage to meet customers’ demands for scalability and guaranteed performance to accelerate their private cloud deployments.

Webcast and Conference Call Information
NetApp will host a conference call to discuss these results today at 2:30 p.m. Pacific Time. To access the live webcast of this event, visit 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 also be available on the website after 4:30 p.m. Pacific Time today.

About NetApp
Leading organizations worldwide count on NetApp for software, systems and services to manage and store data. We help customers capitalize on the value of their data in the hybrid cloud through our Data Fabric strategy, data management expertise, portfolio and ecosystem. To learn more, visit www.netapp.com.

“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 Q1 Fiscal Year 2018 Outlook section and the Full Fiscal Year 2018 Outlook section and statements ­­made about our ability to redefine traditional markets, address emerging markets and gain market share. 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 understand, and effectively respond to changes affecting our market environment, product, technologies and customer requirements, including the impact of the cloud, customer demand for and acceptance of our products and services, our ability to reduce our cost structure, streamline the business and improve efficiency, our ability to effectively integrate the SolidFire acquisition, 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 Annual Report on Form 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.

1GAAP net income per share is calculated using the diluted number of shares.
2GAAP net loss per share is calculated using the basic number of shares and excludes common stock equivalents because the impact would be anti-dilutive.
3Non-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. Non-GAAP earnings per share is calculated using the diluted number of shares for all periods presented. 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.

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. In addition, in fiscal years 2016 and 2017 these non-GAAP financial measures are used to measure company performance for the purposes of determining employee incentive plan compensation. 

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.

NETAPP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
    April 28,
2017
    April 29,
2016
 
                 
ASSETS                
                 
Current assets:                
Cash, cash equivalents and investments   $ 4,921     $ 5,303  
Accounts receivable     731       813  
Inventories     163       98  
Other current assets     383       234  
Total current assets     6,198       6,448  
                 
Property and equipment, net     799       937  
Goodwill and purchased intangible assets, net     1,815       1,856  
Other non-current assets     681       796  
Total assets   $ 9,493     $ 10,037  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current liabilities:                
Accounts payable   $ 347     $ 254  
Accrued expenses     782       765  
Commercial paper notes     500        
Short-term loan           849  
Current portion of long-term debt     749        
Short-term deferred revenue and financed unearned services revenue     1,661       1,794  
Total current liabilities     4,039       3,662  
Long-term debt     744       1,490  
Other long-term liabilities     249       413  
Long-term deferred revenue and financed unearned services revenue     1,681       1,591  
Total liabilities     6,713       7,156  
                 
Stockholders’ equity     2,780       2,881  
Total liabilities and stockholders’ equity   $ 9,493     $ 10,037  

 

NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
 
    Three Months Ended     Year Ended  
    April 28,
2017
    April 29,
2016
    April 28,
2017
    April 29,
2016
 
                                 
Revenues:                                
Product   $ 852     $ 757     $ 3,006     $ 2,986  
Software maintenance     242       234       965       949  
Hardware maintenance and other services     387       389       1,548       1,611  
Net revenues     1,481       1,380       5,519       5,546  
                                 
Cost of revenues:                                
Cost of product     444       424       1,614       1,558  
Cost of software maintenance     6       9       28       37  
Cost of hardware maintenance and other services     118       129       487       578  
Total cost of revenues     568       562       2,129       2,173  
  Gross profit     913       818       3,390       3,373  
                                 
Operating expenses:                                
Sales and marketing     405       434       1,633       1,792  
Research and development     191       201       779       861  
General and administrative     70       84       271       307  
Restructuring charges           80       52       108  
Acquisition-related expense           6             8  
Gain on sale of properties           (51 )     (10 )     (51 )
Total operating expenses     666       754       2,725       3,025  
                                 
Income from operations     247       64       665       348  
                                 
Other income (expense), net     1       (4 )           (3 )
                                 
Income before income taxes     248       60       665       345  
                                 
Provision for income taxes     58       68       156       116  
                                 
Net income (loss)   $ 190     $ (8 )   $ 509     $ 229  
                                 
Net income (loss) per share:                                
Basic   $ 0.70     $ (0.03 )   $ 1.85     $ 0.78  
                                 
Diluted   $ 0.68     $ (0.03 )   $ 1.81     $ 0.77  
                                 
Shares used in net income (loss) per share calculations:                                
Basic     270       284       275       294  
                                 
Diluted     278       284       281       297  
                                 
Cash dividends declared per share   $ 0.190     $ 0.180     $ 0.760     $ 0.720  

NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
    Three Months Ended     Year Ended  
    April 28,
2017
    April 29,
2016
    April 28,
2017
    April 29,
2016
 
Cash flows from operating activities:                                
Net income (loss)   $ 190     $ (8 )   $ 509     $ 229  
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
                               
Depreciation and amortization     53       77       226       279  
Stock-based compensation     46       61       195       260  
Gain on sale of properties           (51 )     (10 )     (51 )
Other items, net     19       31       84       (43 )
Changes in assets and liabilities, net of acquisitions of
  businesses:
                               
Accounts receivable     (127 )     (206 )     81       (16 )
Inventories     (38 )     5       (65 )     49  
Accounts payable     81       60       94       (53 )
Accrued expenses     35       108       (86 )     30  
Deferred revenue and financed unearned services
  revenue
    111       238       (37 )     186  
Changes in other operating assets and liabilities, net     (5 )     30       (5 )     104  
Net cash provided by operating activities     365       345       986       974  
Cash flows from investing activities:                                
Redemptions (purchases) of investments, net     (45 )     103       (43 )     982  
Purchases of property and equipment     (38 )     (35 )     (175 )     (160 )
Proceeds from sale of properties           102             102  
Acquisitions of businesses, net of cash acquired     (8 )     (842 )     (8 )     (842 )
Other investing activities, net     4       4       6       3  
Net cash provided by (used in) investing activities     (87 )     (668 )     (220 )     85  
Cash flows from financing activities:                                
Issuance of common stock under employee stock award
  plans
    22             92       70  
Repurchase of common stock     (129 )     (262 )     (705 )     (960 )
Changes in commercial paper notes, net     107             499        
Proceeds from sale-leaseback financing transactions           148             148  
Proceeds from short-term loan           870             870  
Repayment of short-term loan           (20 )     (850 )     (20 )
Dividends paid     (51 )     (51 )     (208 )     (210 )
Other financing activities, net           (4 )     (7 )     (7 )
Net cash provided by (used in) financing activities     (51 )     681       (1,179 )     (109 )
                                 
Effect of exchange rate changes on cash and cash equivalents     4       15       (11 )     (4 )
                                 
Net increase (decrease) in cash and cash equivalents     231       373       (424 )     946  
Cash and cash equivalents:                                
Beginning of period     2,213       2,495       2,868       1,922  
End of period   $ 2,444     $ 2,868     $ 2,444     $ 2,868  

NETAPP, INC.  
SUPPLEMENTAL DATA  
(In millions except net income per share, percentages, DSO, DIO, DPO, CCC and Inventory Turns)  
(Unaudited)  
                                         
                                         
    Q4 FY’17     Q3 FY’17     Q4 FY’16     FY 2017     FY 2016  
                                         
Revenues                                        
Product (1)   $ 852     $ 784     $ 757     $ 3,006     $ 2,986  
Strategic   $ 596     $ 512     $ 481     $ 1,971     $ 1,682  
Mature   $ 256     $ 272     $ 276     $ 1,035     $ 1,304  
Software Maintenance   $ 242     $ 240     $ 234     $ 965     $ 949  
Hardware Maintenance and Other Services:   $ 387     $ 380     $ 389     $ 1,548     $ 1,611  
Hardware Maintenance Support Contracts   $ 313     $ 313     $ 318     $ 1,265     $ 1,316  
Professional and Other Services   $ 74     $ 67     $ 71     $ 283     $ 295  
Net Revenues   $ 1,481     $ 1,404     $ 1,380     $ 5,519     $ 5,546  
                                         
                                         
Geographic Mix                                        
    % of Q4
FY’17
Revenue
    % of Q3
FY’17
Revenue
    % of Q4
FY’16
Revenue
    % of
FY 2017
Revenue
    % of
FY 2016
Revenue
 
Americas     54 %     55 %     54 %     56 %     55 %
Americas Commercial     42 %     44 %     43 %     43 %     43 %
U.S. Public Sector     12 %     10 %     12 %     13 %     12 %
EMEA     32 %     33 %     33 %     31 %     32 %
Asia Pacific     14 %     13 %     13 %     13 %     13 %
                                         
                                         
Pathways Mix                                        
    % of Q4
FY’17
Revenue
    % of Q3
FY’17
Revenue
    % of Q4
FY’16
Revenue
    % of
FY 2017
Revenue
    % of
FY 2016
Revenue
 
Direct     22 %     21 %     26 %     22 %     23 %
Indirect     78 %     79 %     74 %     78 %     77 %
                                         
                                         
Non-GAAP Gross Margins                                        
    Q4 FY’17     Q3 FY’17     Q4 FY’16     FY 2017     FY 2016  
Non-GAAP Gross Margin     62.5 %     61.5 %     61.1 %     62.3 %     62.5 %
Product     48.9 %     45.7 %     46.8 %     47.4 %     50.2 %
Software Maintenance     97.5 %     97.1 %     96.2 %     97.1 %     96.1 %
Hardware Maintenance and Other Services     70.3 %     71.6 %     67.9 %     69.4 %     65.7 %
                                         
                                         
Non-GAAP Income from Operations, Income before Income Taxes & Effective Tax Rate                                        
    Q4 FY’17     Q3 FY’17     Q4 FY’16     FY 2017     FY 2016  
Non-GAAP Income from Operations   $ 306     $ 284     $ 185     $ 950     $ 751  
% of Net Revenues     20.7 %     20.2 %     13.4 %     17.2 %     13.5 %
Non-GAAP Income before Income Taxes   $ 307     $ 284     $ 181     $ 950     $ 748  
Non-GAAP Effective Tax Rate     22.1 %     18.6 %     13.1 %     19.2 %     15.4 %
                                         
                                         
Non-GAAP Net Income                                        
    Q4 FY’17     Q3 FY’17     Q4 FY’16     FY 2017     FY 2016  
Non-GAAP Net Income   $ 239     $ 231     $ 157     $ 768     $ 633  
Non-GAAP Weighted Average Common Shares Outstanding, Diluted     278       281       287       281       297  
Non-GAAP Income per Share, Diluted   $ 0.86     $ 0.82     $ 0.55     $ 2.73     $ 2.13  
                                         
                                         
Select Balance Sheet Items                                        
    Q4 FY’17     Q3 FY’17     Q4 FY’16                  
Deferred Revenue and Financed Unearned Services Revenue   $ 3,342     $ 3,234     $ 3,385                  
DSO (days)     45       39       54                  
DIO (days)     26       21       16                  
DPO (days)     56       42       41                  
CCC (days)     15       17       28                  
Inventory Turns     14       18       23                  
                                         
Days sales outstanding (DSO) is defined as accounts receivable divided by net revenues, multiplied by the number of days in the quarter.  
Days inventory outstanding (DIO) is defined as net inventories divided by cost of revenues, multiplied by the number of days in the quarter.  
Days payables outstanding (DPO) is defined as accounts payable divided by cost of revenues, multiplied by the number of days in the quarter.  
Cash conversion cycle (CCC) is defined as DSO plus DIO minus DPO.  
Inventory turns is defined as annualized cost of revenues divided by net inventories.  
                   
                                         
Select Cash Flow Statement Items                                        
    Q4 FY’17     Q3 FY’17     Q4 FY’16     FY 2017     FY 2016  
Net Cash Provided by Operating Activities   $ 365     $ 235     $ 345     $ 986     $ 974  
Purchases of Property and Equipment   $ 38     $ 45     $ 35     $ 175     $ 160  
Free Cash Flow   $ 327     $ 190     $ 310     $ 811     $ 814  
Free Cash Flow as a % of Net Revenues     22.1 %     13.5 %     22.5 %     14.7 %     14.7 %
                                         
Free cash flow is a non-GAAP measure and is defined as net cash provided by operating activities less purchases of property and equipment.  
                                         
Some items may not add or recalculate due to rounding.                  
                                         
(1) Sales of certain products which should have been reported as strategic products were improperly reported as mature product revenues. All FY 2016 periods presented have been recast to reflect the appropriate classification.  

NETAPP, INC.  
RECONCILIATION OF NON-GAAP TO GAAP  
INCOME STATEMENT INFORMATION  
(In millions, except net income (loss) per share amounts)  
                                         
    Q4’FY17     Q3’FY17     Q4’FY16     FY2017     FY2016  
                                         
NET INCOME (LOSS)   $ 190     $ 146     $ (8 )   $ 509     $ 229  
Adjustments:                                        
Amortization of intangible assets     13       13       25       48       67  
Stock-based compensation     46       46       61       195       260  
Asset impairment                             11  
Restructuring charges           52       80       52       108  
Acquisition-related expense                 6             8  
Gain on sale of properties           (10 )     (51 )     (10 )     (51 )
Income tax effect of non-GAAP adjustments     (10 )     (16 )     (20 )     (26 )     (86 )
Income tax expenses from integration of intellectual
  properties from acquisition
                64             64  
Settlement of income tax audit                             23  
NON-GAAP NET INCOME   $ 239     $ 231     $ 157     $ 768     $ 633  
                                         
COST OF REVENUES   $ 568     $ 553     $ 562     $ 2,129     $ 2,173  
Adjustments:                                        
Amortization of intangible assets     (8 )     (8 )     (20 )     (29 )     (61 )
Stock-based compensation     (4 )     (4 )     (5 )     (17 )     (24 )
Asset impairment                             (11 )
NON-GAAP COST OF REVENUES   $ 556     $ 541     $ 537     $ 2,083     $ 2,077  
                                         
COST OF PRODUCT REVENUES   $ 444     $ 435     $ 424     $ 1,614     $ 1,558  
Adjustments:                                        
Amortization of intangible assets     (8 )     (8 )     (20 )     (29 )     (61 )
Stock-based compensation     (1 )     (1 )     (1 )     (4 )     (5 )
Asset impairment                             (5 )
NON-GAAP COST OF PRODUCT REVENUES   $ 435     $ 426     $ 403     $ 1,581     $ 1,487  
                                         
COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES   $ 118     $ 111     $ 129     $ 487     $ 578  
Adjustments:                                        
Stock-based compensation     (3 )     (3 )     (4 )     (13 )     (19 )
Asset impairment                             (6 )
NON-GAAP COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES   $ 115     $ 108     $ 125     $ 474     $ 553  
                                         
GROSS PROFIT   $ 913     $ 851     $ 818     $ 3,390     $ 3,373  
Adjustments:                                        
Amortization of intangible assets     8       8       20       29       61  
Stock-based compensation     4       4       5       17       24  
Asset impairment                             11  
NON-GAAP GROSS PROFIT   $ 925     $ 863     $ 843     $ 3,436     $ 3,469  

NETAPP, INC.  
RECONCILIATION OF NON-GAAP TO GAAP  
INCOME STATEMENT INFORMATION  
(In millions, except net income (loss) per share amounts)  
                                         
    Q4’FY17     Q3’FY17     Q4’FY16     FY2017     FY2016  
                                         
SALES AND MARKETING EXPENSES   $ 405     $ 381     $ 434     $ 1,633     $ 1,792  
Adjustments:                                        
Amortization of intangible assets     (5 )     (5 )     (5 )     (19 )     (6 )
Stock-based compensation     (20 )     (20 )     (26 )     (84 )     (110 )
NON-GAAP SALES AND MARKETING EXPENSES   $ 380     $ 356     $ 403     $ 1,530     $ 1,676  
                                         
RESEARCH AND DEVELOPMENT EXPENSES   $ 191     $ 181     $ 201     $ 779     $ 861  
Adjustment:                                        
Stock-based compensation     (13 )     (14 )     (20 )     (59 )     (84 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES   $ 178     $ 167     $ 181     $ 720     $ 777  
                                         
GENERAL AND ADMINISTRATIVE EXPENSES   $ 70     $ 64     $ 84     $ 271     $ 307  
Adjustment:                                        
Stock-based compensation     (9 )     (8 )     (10 )     (35 )     (42 )
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES   $ 61     $ 56     $ 74     $ 236     $ 265  
                                         
RESTRUCTURING CHARGES   $     $ 52     $ 80     $ 52     $ 108  
Adjustment:                                        
Restructuring charges           (52 )     (80 )     (52 )     (108 )
NON-GAAP RESTRUCTURING CHARGES   $     $     $     $     $  
                                         
ACQUISITION-RELATED EXPENSE   $     $     $ 6     $     $ 8  
Adjustment:                                        
Acquisition-related expense                 (6 )           (8 )
NON-GAAP ACQUISITION-RELATED EXPENSE   $     $     $     $     $  
                                         
GAIN ON SALE OF PROPERTIES   $     $ (10 )   $ (51 )   $ (10 )   $ (51 )
Adjustment:                                        
Gain on sale of properties           10       51       10       51  
NON-GAAP GAIN ON SALE OF PROPERTIES   $     $     $     $     $  
                                         
OPERATING EXPENSES   $ 666     $ 668     $ 754     $ 2,725     $ 3,025  
Adjustments:                                        
Amortization of intangible assets     (5 )     (5 )     (5 )     (19 )     (6 )
Stock-based compensation     (42 )     (42 )     (56 )     (178 )     (236 )
Restructuring charges           (52 )     (80 )     (52 )     (108 )
Acquisition-related expense                 (6 )           (8 )
Gain on sale of properties           10       51       10       51  
NON-GAAP OPERATING EXPENSES   $ 619     $ 579     $ 658     $ 2,486     $ 2,718  

NETAPP, INC.  
RECONCILIATION OF NON-GAAP TO GAAP  
INCOME STATEMENT INFORMATION  
(In millions, except net income (loss) per share amounts)  
                                         
    Q4’FY17     Q3’FY17     Q4’FY16     FY2017     FY2016  
                                         
INCOME FROM OPERATIONS   $ 247     $ 183     $ 64     $ 665     $ 348  
Adjustments:                                        
Amortization of intangible assets     13       13       25       48       67  
Stock-based compensation     46       46       61       195       260  
Asset impairment                             11  
Restructuring charges           52       80       52       108  
Acquisition-related expense                 6             8  
Gain on sale of properties           (10 )     (51 )     (10 )     (51 )
NON-GAAP INCOME FROM OPERATIONS   $ 306     $ 284     $ 185     $ 950     $ 751  
                                         
INCOME BEFORE INCOME TAXES   $ 248     $ 183     $ 60     $ 665     $ 345  
Adjustments:                                        
Amortization of intangible assets     13       13       25       48       67  
Stock-based compensation     46       46       61       195       260  
Asset impairment                             11  
Restructuring charges           52       80       52       108  
Acquisition-related expense                 6             8  
Gain on sale of properties           (10 )     (51 )     (10 )     (51 )
NON-GAAP INCOME BEFORE INCOME TAXES   $ 307     $ 284     $ 181     $ 950     $ 748  
                                         
PROVISION FOR INCOME TAXES   $ 58     $ 37     $ 68     $ 156     $ 116  
Adjustments:                                        
Income tax effect of non-GAAP adjustments     10       16       20       26       86  
Income tax expenses from integration of intellectual
  properties from acquisition
                (64 )           (64 )
Settlement of income tax audit                             (23 )
NON-GAAP PROVISION FOR INCOME TAXES   $ 68     $ 53     $ 24     $ 182     $ 115  
                                         
NET INCOME (LOSS) PER SHARE   $ 0.68     $ 0.52     $ (0.03 )   $ 1.81     $ 0.77  
Adjustments:                                        
Amortization of intangible assets     0.05       0.05       0.09       0.17       0.23  
Stock-based compensation     0.17       0.16       0.21       0.69       0.88  
Asset impairment                             0.04  
Restructuring charges           0.19       0.28       0.19       0.36  
Acquisition-related expense                 0.02             0.03  
Gain on sale of properties           (0.04 )     (0.18 )     (0.04 )     (0.17 )
Income tax effect of non-GAAP adjustments     (0.04 )     (0.06 )     (0.07 )     (0.09 )     (0.29 )
Income tax expenses from integration of intellectual
  properties from acquisition
                0.23             0.22  
Settlement of income tax audit                             0.08  
NON-GAAP NET INCOME PER SHARE   $ 0.86     $ 0.82     $ 0.55     $ 2.73     $ 2.13  

RECONCILIATION OF NON-GAAP TO GAAP  
GROSS MARGIN  
($ in millions)  
                       
    Q4’FY17     Q3’FY17     Q4’FY16     FY2017     FY2016  
                                         
Gross margin-GAAP     61.6 %     60.6 %     59.3 %     61.4 %     60.8 %
Cost of revenues adjustments     0.8 %     0.9 %     1.8 %     0.8 %     1.7 %
Gross margin-Non-GAAP     62.5 %     61.5 %     61.1 %     62.3 %     62.5 %
                                         
GAAP cost of revenues   $ 568     $ 553     $ 562     $ 2,129     $ 2,173  
Cost of revenues adjustments:                                        
Amortization of intangible assets     (8 )     (8 )     (20 )     (29 )     (61 )
Stock-based compensation     (4 )     (4 )     (5 )     (17 )     (24 )
Asset impairment                             (11 )
Non-GAAP cost of revenues   $ 556     $ 541     $ 537     $ 2,083     $ 2,077  
                                         
Net revenues   $ 1,481     $ 1,404     $ 1,380     $ 5,519     $ 5,546  

RECONCILIATION OF NON-GAAP TO GAAP  
PRODUCT GROSS MARGIN  
($ in millions)  
                       
    Q4’FY17     Q3’FY17     Q4’FY16     FY2017     FY2016  
                                         
Product gross margin-GAAP     47.9 %     44.5 %     44.0 %     46.3 %     47.8 %
Cost of product revenues adjustments     1.1 %     1.1 %     2.8 %     1.1 %     2.4 %
Product gross margin-Non-GAAP     48.9 %     45.7 %     46.8 %     47.4 %     50.2 %
                                         
GAAP cost of product revenues   $ 444     $ 435     $ 424     $ 1,614     $ 1,558  
Cost of product revenues adjustments:                                        
Amortization of intangible assets     (8 )     (8 )     (20 )     (29 )     (61 )
Stock-based compensation     (1 )     (1 )     (1 )     (4 )     (5 )
Asset impairment                             (5 )
Non-GAAP cost of product revenues   $ 435     $ 426     $ 403     $ 1,581     $ 1,487  
                                         
Product revenues   $ 852     $ 784     $ 757     $ 3,006     $ 2,986  

RECONCILIATION OF NON-GAAP TO GAAP  
HARDWARE MAINTENANCE AND OTHER SERVICES GROSS MARGIN  
($ in millions)  
                       
    Q4’FY17     Q3’FY17     Q4’FY16     FY2017     FY2016  
                                         
Hardware maintenance and other services gross margin-GAAP     69.5 %     70.8 %     66.8 %     68.5 %     64.1 %
Cost of hardware maintenance and other services revenues adjustments     0.8 %     0.8 %     1.0 %     0.8 %     1.6 %
Hardware maintenance and other services gross margin-Non-GAAP     70.3 %     71.6 %     67.9 %     69.4 %     65.7 %
                                         
GAAP cost of hardware maintenance and other services revenues   $ 118     $ 111     $ 129     $ 487     $ 578  
Cost of hardware maintenance and other services revenues adjustments:                                        
Stock-based compensation     (3 )     (3 )     (4 )     (13 )     (19 )
Asset impairment                             (6 )
Non-GAAP cost of hardware maintenance and other services revenues   $ 115     $ 108     $ 125     $ 474     $ 553  
                                         
Hardware maintenance and other services revenues   $ 387     $ 380     $ 389     $ 1,548     $ 1,611  

RECONCILIATION OF NON-GAAP TO GAAP  
EFFECTIVE TAX RATE  
                   
    Q4’FY17     Q3’FY17     Q4’FY16     FY2017     FY2016  
                                         
GAAP effective tax rate     23.4 %     20.2 %     113.3 %     23.5 %     33.6 %
Adjustments:                                        
Tax effect of non-GAAP adjustments     (1.3 )%     (1.6 )%     (64.9 )%     (4.3 )%     (6.6 )%
Income tax expenses from integration of intellectual
  properties from acquisition
    %     %     (35.4 )%     %     (8.6 )%
Settlement of income tax audit     %     %     %     %     (3.1 )%
Non-GAAP effective tax rate     22.1 %     18.6 %     13.1 %     19.2 %     15.4 %

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES  
TO FREE CASH FLOW (NON-GAAP)  
(In millions)  
                       
    Q4’FY17     Q3’FY17     Q4’FY16     FY2017     FY2016  
Net cash provided by operating activities   $ 365     $ 235     $ 345     $ 986     $ 974  
Purchases of property and equipment     (38 )     (45 )     (35 )     (175 )     (160 )
Free cash flow   $ 327     $ 190     $ 310     $ 811     $ 814  

Some items may not add or recalculate due to rounding.

NETAPP, INC.  
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP  
EXPRESSED AS EARNINGS PER SHARE  
FIRST QUARTER FISCAL 2018  
         
    First Quarter  
    Fiscal 2018  
         
Non-GAAP Guidance – Net Income Per Share   $0.49 – $0.57  
         
Adjustments of Specific Items to Net Income        
Per Share for the First Quarter Fiscal 2018:        
Amortization of intangible assets     (0.05 )
Stock-based compensation expense     (0.17 )
Income tax effect of non-GAAP adjustments     0.03  
Total Adjustments     (0.19 )
         
GAAP Guidance – Net Income Per Share   $0.30 – $0.38  

NETAPP, INC.
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP
FISCAL 2018
(Unaudited)
     
     
    GROSS MARGIN
     
Gross Margin – Non-GAAP Guidance   62% – 63%
Adjustment:    
Cost of revenues adjustments   (1)%
Gross Margin – GAAP Guidance   61% – 62%
     
     
    OPERATING
MARGIN
     
Operating Margin – Non-GAAP Guidance   18% – 20%
Adjustments:    
Amortization of intangible assets   (1)%
Stock-based compensation expense   (3)%
Operating Margin – GAAP Guidance   14% – 16%
     
     
     
    EFFECTIVE TAX
RATE
     
Effective Tax Rate – Non-GAAP Guidance   19% – 20%
Adjustment:    
Tax effect of non-GAAP adjustments   4%
Effective Tax Rate – GAAP Guidance   23% – 24%

Some items may not add or recalculate due to rounding.

 

CONTACT: Press Contact:
Judy Radlinsky
NetApp
1 408 822 6527
[email protected]

Investor Contact:
Kris Newton
NetApp
1 408 822 3312
[email protected]