Third Quarter Fiscal 2018 Highlights

• Product revenue increased 17% year-over-year
• All-flash array annualized net revenue run rate of $2.0 billion increased almost 50% year-over-year
• Expanded Cloud Data Services with introduction of NetApp Cloud Volumes for AWS
• Free cash flow was 25% of revenue and increased 104% year-over-year

SUNNYVALE, Calif., Feb. 14, 2018 (GLOBE NEWSWIRE) -- NetApp (NASDAQ:NTAP) today reported financial results for the third quarter fiscal year 2018, ended January 26, 2018.

"NetApp again delivered strong results in the third quarter with accelerating revenue and strong cash generation. It is rewarding to see the results of our improved execution as we transform NetApp to deliver sustained and profitable growth," said George Kurian, chief executive officer. "We saw a solid demand environment and customer momentum, landing wins and footprint expansions with leading organizations in all geographies. With our Data Fabric Strategy and industry-leading solutions, we are winning new customers and expanding our business opportunity."

Third Quarter Fiscal 2018 Financial Results

• Net Revenues: $1.52 billion, increased 8% year-over-year from $1.40 billion in the third quarter of fiscal 2017
• Net Income: GAAP net loss of $506 million*, compared to GAAP net income of $146 million in the third quarter of fiscal 2017; non-GAAP net income¹ of $273 million, compared to non-GAAP net income of $231 million in the third quarter of fiscal 2017
• Earnings per Share: GAAP net loss per share² of $1.89*, compared to GAAP net income per share³ of $0.52 in the third quarter of fiscal 2017; non-GAAP net income per share⁴ of $0.99, compared to non-GAAP net income per share of $0.82 in the third quarter of fiscal 2017
• Cash, Cash Equivalents and Investments: $5.6 billion at the end of the third quarter of fiscal 2018
• Cash from Operations: $420 million, compared to $235 million in the third quarter of fiscal 2017
• Share Repurchase and Dividend: Returned $203 million to shareholders through share repurchases and a cash dividend

*On December 22, 2017, The 2017 Tax Reform Reconciliation 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 loss in the third quarter of fiscal 2018 includes a resulting one-time charge of $856 million.

Fourth Quarter Fiscal 2018 Financial Outlook
The Company provided the following financial guidance for the fourth quarter of fiscal year 2018: 

• Net revenues are expected to be in the range of $1.525 billion to $1.675 billion

Dividend 

• Next cash dividend of $0.20 per share to be paid on April 25, 2018, to shareholders of record as of the close of business on April 6, 2018

Third Quarter Fiscal 2018 Business Highlights

New NetApp Product Updates and Offerings

• New NetApp™ AltaVault™ software updates provide customers with faster ingest performance, multifactor authentication, increased security enhancements and Microsoft Azure Archive Blob Storage tier support.
• NetApp introduces SnapMirror™ for SolidFire™ Element™ OS, which supports disparate system data movement from Element OS systems to ONTAP™ 9.3 systems, allowing companies to remain agile while still protecting their data.
• NetAppCloud Volumes for AWS enables both NFSv3 and NFSv4 with fully featured Snapshot™ copies and is available in cloud-only and hybrid cloud deployments, with integration into on-premises systems and seamless data migration and synchronization between on-premises and the cloud.

NetApp Enables Customers to Improve Their Business Performance

• JFK Medical Center, part of the Hackensack Meridian Health Network, leverages NetApp technology to increase stability and reliability and achieve a higher performance level for its critical infrastructure.
• Safelight leverages NetApp to transform the delivery of its auto glass services, surpass competitors, and expand its customer base during one of the worst recorded hurricane seasons.

NetApp Strengthens Partnerships

• NetApp strengthens its 20-year partnership with Fujitsu by introducing the NFLEX™ converged infrastructure, which combines Fujitsu's server PRIMERGY CX compute platform and NetAppONTAP.
• NetApp announces support for VMware Cloud on AWS to allow customers more flexibility when deploying ONTAP Cloud to deliver seamlessly integrated hybrid cloud architectures that extend on-premises vSphere environments to a VMware SDDC running on AWS elastic bare-metal infrastructure.

NetApp Strengthens Board and Leadership Team

• NetApp strengthens its board of directors with two new members:
  • Deborah Kerr, who brings insights into how customers buy, deploy, manage, and use IT to NetApp; and
  • Scott Schenkel, CFO of eBay, who brings current C-level experience to NetApp's board, with his understanding of the technology landscape and market forces, capital structure, and modern financial reporting
• NetApp appoints Brad Anderson as SVP and GM of the NetApp Cloud Infrastructure business unit to help customers build out their next-generation data centers.
  

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
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 Fourth Quarter Fiscal 2018 Financial Outlook section, statements about our ability to deliver sustained and profitable growth as well as statements about winning new customers and expanding our business opportunity. 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.

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 of properties, 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 loss per share is calculated using the basic number of shares and excludes common stock equivalents because the impact would be anti-dilutive.
³GAAP net income per share is calculated using the diluted number of shares.
⁴Non-GAAP net income per share is calculated using the diluted number of shares for all periods.

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 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.
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.

NETAPP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)

NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)

NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

Some items may not add or recalculate due to rounding.

Press Contact:
Madge Miller
NetApp
1 408 419 5263
madge.miller@netapp.com

Investor Contact:
Kris Newton
NetApp
1 408 822 3312
kris.newton@netapp.com

News Provided by Acquire Media