August 23, 2018—NetApp (NASDAQ: NTAP) reported financial results for the first quarter of fiscal year 2019, which ended July 27, 2018.

“We delivered a very strong first quarter with revenue, gross margin, operating margin, and earnings per share all above our guidance. In Q1, we introduced substantial innovation across our portfolio, expanding our industry-leading cloud data services and introducing new partnerships, products and solutions to help data-driven organizations thrive,” said George Kurian, chief executive officer. “Enterprises are signaling strong confidence in NetApp by making long-term investments to enable the NetAppTM Data Fabric across their entire enterprise.”

First Quarter Fiscal Year 2019 Financial Results

• Net Revenues: $1.47 billion, increased 12% year-over-year from $1.32 billion* in the first quarter of fiscal 2018
• Net Income: GAAP net income of $283 million, compared to GAAP net income of $131 million* in the first quarter of fiscal 2018; non-GAAP net income1 of $281 million, compared to non-GAAP net income of $166 million* in the first quarter of fiscal 2018
• Earnings per Share: GAAP earnings per share2 of $1.05 compared to GAAP earnings per share of $0.47* in the first quarter of fiscal 2018; non-GAAP earnings per share of $1.04, compared to non-GAAP earnings per share of $0.60* in the first quarter of fiscal 2018
• Cash, Cash Equivalents and Investments: $4.8 billion at the end of the first quarter of fiscal 2019
• Cash from Operations: $326 million, compared to $250 million in the first quarter of fiscal 2018
• Share Repurchase and Dividend: Returned $605 million to shareholders through share repurchases and cash dividends
• * In the first quarter of fiscal 2019, NetApp adopted Revenue from Contracts with Customers (ASC 606), a new accounting standard which establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The full retrospective method of adoption was employed. Accordingly, NetApp’s condensed consolidated balance sheet as of April 27, 2018, condensed consolidated statements of operations and cash flows for all prior periods presented, and all related financial statement metrics included herein, have been restated to conform to the new rules. The adoption of the standard had no impact to cash provided by or used in operating, investing or financing activities as presented on the condensed consolidated statement of cash flows.

Second Quarter Fiscal Year 2019 Financial Outlook
The Company provided the following financial guidance for the second quarter of fiscal year 2019:

Net revenues are expected to be in the range of $1.450 billion to $1.550 billion

• GAAP
• Non-GAAP

Earnings per share is expected to be in the range of:

• $0.79-$0.85
• $0.94-$1.00

Dividend

• Next cash dividend of $0.40 per share to be paid on October 24, 2018, to shareholders of record as of the close of business on October 5, 2018
• First Quarter Fiscal Year 2019 Business Highlights
• NetApp Expands the Industry's Most Complete Cloud Data Services
• Azure NetApp Files is now available in public preview. Jointly developed by Microsoft and NetApp, Azure NetApp Files is a native Azure service powered by NetApp’s leading ONTAP technology and storage expertise.
• NetApp announced NetApp Cloud Volumes Services for Google Cloud Platform offering customers a fully-managed, cloud-native file storage service that is integrated with Google Cloud Platform.
• New Products and Solutions that will Help Data-Driven Organizations Thrive

NetApp introduced the AFF A800 array, a high performance, cloud-connected flash system to power artificial intelligence and compute-intensive applications. The NetApp AFF A800 is the first available end-to-end NVMe enterprise grade all flash array and boasts the industry’s first support of 30TB solid state drives.
The latest update to our flagship NetApp ONTAPTM9 software includes enhancements to FabricPool and improves hybrid cloud data tiering and adds support for Microsoft Azure. ONTAP will automatically move inactive data to a lower-cost storage tier to save money and bring data back when needed.
NetApp Active IQTM technology provides new cloud-based analytics for all NetApp systems that predicts future performance needs and identifies unprotected data to optimize operations. 
NetApp StorageGRID object-based storage solution now provides superior next-generation, cloud-architected infrastructure for financial and personal data retention compliance as one integrated resource across public and private clouds. 
Cisco and NetApp Simplify the Delivery of Cloud Infrastructure and Industry-Specific Applications  

The new Managed Private Cloud solution built on FlexPodTM enables customers to realize a cloud-like, As-a-Service model for their on-premises IT with remote management, securing critical customer data and advancing cloud-capabilities for both partners and their customers.  
New FlexPod industry solutions provide a proven platform to quickly deploy key applications across industries that are challenged by the increasingly diverse, dynamic and distributed nature of data. The initial industry solution, FlexPod Datacenter for Epic EHR, simplifies IT infrastructure for healthcare customers, helping them move faster and improve patient care.  
Recognition for Industry Leading Products 

NetApp all-flash array technology was recognized as a Leader in Gartner’s 2018 Magic Quadrant for Solid-State Arrays.3 NetApp has improved its position in the Leaders Quadrant with a higher rating for its ability to execute.
NetApp StorageGRID named a Leader in IDC’s MarketScape for Object-Based Storage.4 IDC recognizes the strength of applying StorageGRID capabilities across our broader NetApp portfolio, and specifically praises a few capabilities in the report, including integration with NetApp FabricPool technology.
According to a new Storage Performance Council SPC-1 Result,5 tests of the AFF A800 system places it as number 1 overall in terms of SPC-1 Response Time and makes it the top-performing enterprise all-flash array among the industry’s leading storage providers. The AFF A800 is also in the top 4 on the SPC-1 Performance list. The SPC-1 tests of the AFF A800 were conducted with compression and deduplication enabled, just as they would be under real-world conditions. 
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 4:00 p.m. Pacific Time today.

“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 Second Quarter Fiscal Year 2019 Financial Outlook section and statements about enterprise customers making long term investments in the NetApp Data Fabric. 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 report on 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.

[1]Non-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 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.

[3]Leader in Gartner’s 2018 Magic Quadrant for Solid-State Arrays, Gartner Magic Quadrant for Solid-State Arrays, by Valdis Filks, John Monroe, Joseph Unsworth, Santhosh Rao, July 23, 2018 
[4]Leader in IDC’s MarketScape for Object-Based Storage, “IDC MarketScape: Worldwide Object-Based Storage 2018 Vendor Assessment,” by Amita Potnis, June 2018. IDC #US42665518 
[5]Storage Performance Council SPC-1 Result, spcresults.org/benchmarks/results/spc1-spc1e#A32007

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.