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NetApp Reports Fourth Quarter and Fiscal Year 2019 Results

May 22, 2019 4:01 PM

Net Revenues of $1.59 Billion for the Fourth Quarter and $6.15 Billion for Fiscal Year 2019

SUNNYVALE, Calif.--(BUSINESS WIRE)-- 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*

Fiscal Year 2019 Financial Results*

*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:

• Net revenues are expected to be in the range of:

�

$1.315 billion to $1.465 billion

�

�

GAAP

�

Non-GAAP

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

$0.56-$0.64

$0.78-$0.86

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Full Fiscal Year 2020 Financial Outlook

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

• Net revenues are expected to grow at the low-end of mid-single-digit range

�

GAAP

�

Non-GAAP

• Consolidated gross margins are expected to be:

63%-64%

64%-65%

• Operating margins are expected to be in the range of:

�

20%-21%

23%-24%

• Effective tax rate is expected to be approximately 19.5% on both a GAAP and Non-GAAP basis

�

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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

Industry-Leading Strategic Partnerships

Industry Recognition

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.

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NETAPP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

April 26,
2019

April 27,
2018

�
ASSETS
�
Current assets:
Cash, cash equivalents and investments $ 3,899 $ 5,391
Accounts receivable 1,216 1,047
Inventories 131 122
Other current assets � 364 � 392
Total current assets 5,610 6,952
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Property and equipment, net 759 756
Goodwill and purchased intangible assets, net 1,782 1,833
Other non-current assets � 590 � 450
Total assets $ 8,741 $ 9,991
�
LIABILITIES AND STOCKHOLDERS' EQUITY
�
Current liabilities:
Accounts payable $ 542 $ 609
Accrued expenses 851 825
Commercial paper notes 249 385
Current portion of long-term debt 400 —
Short-term deferred revenue and financed unearned services revenue � 1,825 � 1,712
Total current liabilities 3,867 3,531
Long-term debt 1,144 1,541
Other long-term liabilities 797 992
Long-term deferred revenue and financed unearned services revenue � 1,843 � 1,651
Total liabilities � 7,651 � 7,715
�
Stockholders' equity � 1,090 � 2,276
Total liabilities and stockholders' equity $ 8,741 $ 9,991
�
� � �

NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

�
Three Months Ended Year Ended
April 26, 2019 � April 27, 2018 April 26, 2019 � April 27, 2018
�
Revenues:
Product $ 1,000 $ 1,027 $ 3,755 $ 3,525
Software maintenance 242 234 946 902
Hardware maintenance and other services � 350 � 383 � 1,445 � 1,492
Net revenues � 1,592 � 1,644 � 6,146 � 5,919
�
Cost of revenues:
Cost of product 457 496 1,752 1,738
Cost of software maintenance 10 6 35 25
Cost of hardware maintenance and other services � 99 � 113 � 414 � 447
Total cost of revenues � 566 � 615 � 2,201 � 2,210
Gross profit � 1,026 � 1,029 � 3,945 � 3,709
�
Operating expenses:
Sales and marketing 439 443 1,657 1,706
Research and development 205 203 827 783
General and administrative 69 71 278 280
Restructuring charges 16 — 35 —
Gain on sale or derecognition of assets � (73 ) � — � (73 ) � (218 )
Total operating expenses � 656 � 717 � 2,724 � 2,551
�
Income from operations 370 312 1,221 1,158
�
Other income, net � 14 � 16 � 47 � 41
�
Income before income taxes 384 328 1,268 1,199
�
Provision (benefit) for income taxes � (12 ) � 38 � 99 � 1,083
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Net income $ 396 $ 290 $ 1,169 $ 116
�
Net income per share:
Basic $ 1.62 $ 1.09 $ 4.60 $ 0.43
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Diluted $ 1.59 $ 1.06 $ 4.51 $ 0.42
�
Shares used in net income per share calculations:
Basic � 245 � 265 � 254 � 268
�
Diluted � 249 � 273 � 259 � 276
�
Cash dividends declared per share $ 0.40 $ 0.20 $ 1.60 $ 0.80
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NETAPP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended Year Ended
April 26, 2019 � April 27, 2018 April 26, 2019 � April 27, 2018
Cash flows from operating activities:
Net income $ 396 $ 290 $ 1,169 $ 116

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 48 48 197 198
Stock-based compensation 37 36 158 161
Deferred income taxes 18 25 (3 ) 270
Gain on sale or derecognition of assets (73 ) — (73 ) (218 )
Other items, net (6 ) (19 ) 2 (27 )

Changes in assets and liabilities, net of acquisitions of businesses:

Accounts receivable (350 ) (279 ) (185 ) (289 )
Inventories (31 ) (32 ) (9 ) 36
Accounts payable 44 147 (57 ) 262
Accrued expenses 127 104 42 162

Deferred revenue and financed unearned services revenue

326 238 343 139
Long-term taxes payable (104 ) (9 ) (164 ) 714

Changes in other operating assets and liabilities, net

� (33 ) � (55 ) � (79 ) � (46 )
Net cash provided by operating activities � 399 � 494 � 1,341 � 1,478
Cash flows from investing activities:
Redemptions (purchases) of investments, net 215 168 876 (10 )
Purchases of property and equipment (35 ) (48 ) (173 ) (145 )
Proceeds from sale of properties — — — 210
Acquisitions of businesses, net of cash acquired — — (3 ) (75 )
Other investing activities, net � 3 � — � 4 � (1 )
Net cash provided by (used in) investing activities � 183 � 120 � 704 � (21 )
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock award plans 3 16 121 173

Payments for taxes related to net share settlement of stock awards

(4 ) (8 ) (96 ) (75 )
Repurchase of common stock (500 ) (344 ) (2,111 ) (794 )
Proceeds from (repayments of) commercial paper notes, net 85 (247 ) (136 ) (115 )
Issuance of long-term debt, net — — — 795
Repayment of long-term debt — — — (750 )
Dividends paid (97 ) (53 ) (403 ) (214 )
Other financing activities, net � (1 ) � — � (6 ) � (6 )
Net cash used in financing activities � (514 ) � (636 ) � (2,631 ) � (986 )
�
Effect of exchange rate changes on cash, cash equivalents and restricted cash (13 ) (11 ) (30 ) 26
�
Net increase (decrease) in cash, cash equivalents and restricted cash 55 (33 ) (616 ) 497
Cash, cash equivalents and restricted cash:
Beginning of period � 2,276 � 2,980 � 2,947 � 2,450
End of period $ 2,331 $ 2,947 $ 2,331 $ 2,947
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�

SELECTED CONDENSED CONSOLIDATED BALANCE SHEET LINE ITEMS

(In millions)

(Unaudited)

�
As of April 27, 2018
� � �

As Previously
Reported

Impact of ASC
606 Adoption

As Adjusted
ASSETS
Accounts receivable $ 1,009 $ 38 $ 1,047
Inventories 126 (4 ) 122
Other current assets 330 62 392
Other non-current assets 420 30 450
�
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term deferred revenue and financed unearned services revenue $ 1,804 $ (92 ) $ 1,712
Other long-term liabilities 961 31 992
Long-term deferred revenue and financed unearned services revenue 1,673 (22 ) 1,651
Total stockholders' equity 2,067 209 2,276
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NETAPP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
� � � � � � � �
Three Months Ended Year Ended
April 27, 2018 April 27, 2018

As
Previously
Reported

Impact of
ASC 606
Adoption

�

As
Adjusted

As
Previously
Reported

Impact of
ASC 606
Adoption

�

As
Adjusted

�
Revenues:
Product $ 1,011 $ 16 $ 1,027 $ 3,461 $ 64 $ 3,525
Software maintenance 247 (13 ) 234 958 (56 ) 902
Hardware maintenance and other services � 383 � — � 383 � 1,492 � — � 1,492
Net revenues � 1,641 � 3 � 1,644 � 5,911 � 8 � 5,919
�
Cost of revenues:
Cost of product 500 (4 ) 496 1,738 — 1,738
Cost of software maintenance 6 — 6 25 — 25
Cost of hardware maintenance and other services � 113 � — � 113 � 449 � (2 ) � 447
Total cost of revenues � 619 � (4 ) � 615 � 2,212 � (2 ) � 2,210
Gross profit � 1,022 � 7 � 1,029 � 3,699 � 10 � 3,709
�
Operating expenses:
Sales and marketing 461 (18

)

443 1,729 (23 ) 1,706
Research and development 203 — 203 783 — 783
General and administrative 71 — 71 280 — 280
Gain on sale or derecognition of assets � — � — � — � (218 ) � — � (218 )
Total operating expenses � 735 � (18 ) � 717 � 2,574 � (23 ) � 2,551
�
Income from operations 287 25 312 1,125 33 1,158
�
Other income, net � 16 � — � 16 � 41 � — � 41
�
Income before income taxes 303 25 328 1,166 33 1,199
�
Provision for income taxes � 32 � 6 � 38 � 1,090 � (7 ) � 1,083
�
Net income $ 271 $ 19 $ 290 $ 76 $ 40 $ 116
�
Net income per share:
Basic $ 1.02 $ 0.07 $ 1.09 $ 0.28 $ 0.15 $ 0.43
�
Diluted $ 0.99 $ 0.07 $ 1.06 $ 0.28 $ 0.14 $ 0.42
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Shares used in net income per share calculations:
Basic � 265 � 265 � 265 � 268 � 268 � 268
�
Diluted � 273 � 273 � 273 � 276 � 276 � 276
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�
NETAPP, INC.
SUPPLEMENTAL DATA
(In millions except net income per share, percentages, DSO, DIO, DPO, CCC and Inventory Turns)
(Unaudited)
� � � �
Q4 FY'19 Q3 FY'19 Q4 FY'18 FY 2019 FY2018
�
Revenues
Product $ 1,000 $ 967 $ 1,027 $ 3,755 $ 3,525
Strategic $ 774 $ 674 $ 747 $ 2,709 $ 2,468
Mature $ 226 $ 293 $ 280 $ 1,046 $ 1,057
Software Maintenance $ 242 $ 239 $ 234 $ 946 $ 902
Hardware Maintenance and Other Services $ 350 $ 357 $ 383 $ 1,445 $ 1,492
Hardware Maintenance Support Contracts $ 284 $ 292 $ 310 $ 1,182 $ 1,214
Professional and Other Services $ 66 $ 65 $ 73 $ 263 $ 278
Net Revenues $ 1,592 $ 1,563 $ 1,644 $ 6,146 $ 5,919
�
�
Geographic Mix

% of Q4
FY'19
Revenue

% of Q3
FY'19
Revenue

% of Q4
FY'18
Revenue

% of FY
2019
Revenue

% of FY
2018
Revenue

Americas 57 % 52 % 54 % 56 % 54 %
Americas Commercial 45 % 41 % 42 % 44 % 41 %
U.S. Public Sector 11 % 11 % 12 % 12 % 13 %
EMEA 29 % 33 % 33 % 30 % 32 %
Asia Pacific 14 % 14 % 13 % 14 % 14 %
�
�
Pathways Mix

% of Q4
FY'19
Revenue

% of Q3
FY'19
Revenue

% of Q4
FY'18
Revenue

% of FY
2019
Revenue

% of FY
2018
Revenue

Direct 24 % 19 % 21 % 24 % 21 %
Indirect 76 % 81 % 79 % 76 % 79 %
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�
Non-GAAP Gross Margins
Q4 FY'19 Q3 FY'19 Q4 FY'18 FY 2019 FY2018
Non-GAAP Gross Margin 65.2 % 63.7 % 63.3 % 65.0 % 63.5 %
Product 55.3 % 52.6 % 52.7 % 54.4 % 51.8 %
Software Maintenance 95.9 % 95.8 % 97.4 % 96.3 % 97.2 %
Hardware Maintenance and Other Services 72.3 % 72.3 % 71.0 % 72.0 % 70.7 %
�
�
Non-GAAP Income from Operations, Income before Income Taxes & Effective Tax Rate
Q4 FY'19 Q3 FY'19 Q4 FY'18 FY 2019 FY2018
Non-GAAP Income from Operations $ 358 $ 367 $ 360 $ 1,387 $ 1,159
% of Net Revenues 22.5 % 23.5 % 21.9 % 22.6 % 19.6 %
Non-GAAP Income before Income Taxes $ 372 $ 375 $ 376 $ 1,434 $ 1,200
Non-GAAP Effective Tax Rate 18.1 % 18.7 % 18.4 % 18.4 % 18.1 %
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�
�
�
�
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Non-GAAP Net Income
Q4 FY'19 Q3 FY'19 Q4 FY'18 FY 2019 FY2018
Non-GAAP Net Income $ 305 $ 305 $ 307 $ 1,171 $ 983
Non-GAAP Weighted Average Common Shares Outstanding, Diluted 249 255 273 259 276
Non-GAAP Income per Share, Diluted $ 1.22 $ 1.20 $ 1.12 $ 4.52 $ 3.56
�
�
Select Balance Sheet Items
Q4 FY'19 Q3 FY'19 Q4 FY'18
Deferred Revenue and Financed Unearned Services Revenue $ 3,668 $ 3,357 $ 3,363
DSO (days) 70 51 58
DIO (days) 21 16 18
DPO (days) 87 78 90
CCC (days) 3 (11 ) (14 )
Inventory Turns 17 23 20
�
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'19 Q3 FY'19 Q4 FY'18 FY 2019 FY2018
Net Cash Provided by Operating Activities $ 399 $ 451 $ 494 $ 1,341 $ 1,478
Purchases of Property and Equipment $ 35 $ 31 $ 48 $ 173 $ 145
Free Cash Flow $ 364 $ 420 $ 446 $ 1,168 $ 1,333
Free Cash Flow as a % of Net Revenues 22.9 % 26.9 % 27.1 % 19.0 % 22.5 %
�
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.
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NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP
INCOME STATEMENT INFORMATION
(In millions, except net income per share amounts)
� � � � �
Q4'FY19 Q3'FY19 Q4'FY18 FY2019 FY2018
�
NET INCOME $ 396 $ 249 $ 290 $ 1,169 $ 116
Adjustments:
Amortization of intangible assets 8 13 12 46 53
Stock-based compensation 37 43 36 158 161
Litigation settlements — — — — 5
Restructuring charges 16 — — 35 —
Gain on sale or derecognition of assets (73 ) — — (73 ) (218 )
Income tax effects (31 ) — (31 ) (82 ) 10
Resolution of income tax examinations (48 ) — — (48 ) —
Income tax benefit of ASC 606 adoption — — — (34 ) —
Tax reform � — � — � — � — � 856
NON-GAAP NET INCOME $ 305 $ 305 $ 307 $ 1,171 $ 983
�
COST OF REVENUES $ 566 $ 581 $ 615 $ 2,201 $ 2,210
Adjustments:
Amortization of intangible assets (8 ) (10 ) (9 ) (36 ) (36 )
Stock-based compensation � (4 ) � (4 ) � (3 ) � (14 ) � (13 )
NON-GAAP COST OF REVENUES $ 554 $ 567 $ 603 $ 2,151 $ 2,161
�
COST OF PRODUCT REVENUES $ 457 $ 469 $ 496 $ 1,752 $ 1,738
Adjustments:
Amortization of intangible assets (8 ) (10 ) (9 ) (36 ) (36 )
Stock-based compensation � (2 ) � (1 ) � (1 ) � (4 ) � (3 )
NON-GAAP COST OF PRODUCT REVENUES $ 447 $ 458 $ 486 $ 1,712 $ 1,699
�
COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES $ 99 $ 102 $ 113 $ 414 $ 447
Adjustment:
Stock-based compensation � (2 ) � (3 ) � (2 ) � (10 ) � (10 )
NON-GAAP COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES $ 97 $ 99 $ 111 $ 404 $ 437
�
GROSS PROFIT $ 1,026 $ 982 $ 1,029 $ 3,945 $ 3,709
Adjustments:
Amortization of intangible assets 8 10 9 36 36
Stock-based compensation � 4 � 4 � 3 � 14 � 13
NON-GAAP GROSS PROFIT $ 1,038 $ 996 $ 1,041 $ 3,995 $ 3,758
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NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP
INCOME STATEMENT INFORMATION
(In millions, except net income per share amounts)
� � � � �
Q4'FY19 Q3'FY19 Q4'FY18 FY2019 FY2018
�
SALES AND MARKETING EXPENSES $ 439 $ 401 $ 443 $ 1,657 $ 1,706
Adjustments:
Amortization of intangible assets — (3

)

�

(3 ) (10 ) (17 )
Stock-based compensation � (15 ) � (19 ) � (15 ) � (67 ) � (68 )
NON-GAAP SALES AND MARKETING EXPENSES $ 424 $ 379 $ 425 $ 1,580 $ 1,621
�
RESEARCH AND DEVELOPMENT EXPENSES $ 205 $ 203 $ 203 $ 827 $ 783
Adjustment:
Stock-based compensation � (11 ) � (13 ) � (11 ) � (48 ) � (49 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES $ 194 $ 190 $ 192 $ 779 $ 734
�
GENERAL AND ADMINISTRATIVE EXPENSES $ 69 $ 67 $ 71 $ 278 $ 280
Adjustments:
Stock-based compensation (7 ) (7 ) (7 ) (29 ) (31 )
Litigation settlements � — � — � — � — � (5 )
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES $ 62 $ 60 $ 64 $ 249 $ 244
�
�
RESTRUCTURING CHARGES $ 16 $ — $ — $ 35 $ —
Adjustment:
Restructuring charges � (16 ) � — � — � (35 ) � —
NON-GAAP RESTRUCTURING CHARGES $ — $ — $ — $ — $ —
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GAIN ON SALE OR DERECOGNITION OF ASSETS $ (73 ) $ — $ — $ (73 ) $ (218 )
Adjustment:
Gain on sale or derecognition of assets � 73 � — � — � 73 � 218
NON-GAAP GAIN ON SALE OR DERECOGNITION OF ASSETS $ — $ — $ — $ — $ —
�
OPERATING EXPENSES $ 656 $ 671 $ 717 $ 2,724 $ 2,551
Adjustments:
Amortization of intangible assets — (3 ) (3 ) (10 ) (17 )
Stock-based compensation (33 ) (39 ) (33 ) (144 ) (148 )
Litigation settlements — — — — (5 )
Restructuring charges (16 ) — — (35 ) —
Gain on sale or derecognition of assets � 73 � — � — � 73 � 218
NON-GAAP OPERATING EXPENSES $ 680 $ 629 $ 681 $ 2,608 $ 2,599
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NETAPP, INC.
RECONCILIATION OF NON-GAAP TO GAAP
INCOME STATEMENT INFORMATION
(In millions, except net income per share amounts)
� � � � � �
Q4'FY19 Q3'FY19 Q4'FY18 FY2019 FY2018
�
INCOME FROM OPERATIONS $ 370 $ 311 $ 312 $ 1,221 $ 1,158
Adjustments:
Amortization of intangible assets 8 13 12 46 53

Stock-based compensation

37 43 36 158 161
Litigation settlements — — — — 5
Restructuring charges 16 — — 35 —
Gain on sale or derecognition of assets � (73 ) � — � — � (73 ) � (218 )
NON-GAAP INCOME FROM OPERATIONS $ 358 $ 367 $ 360 $ 1,387 $ 1,159
�
INCOME BEFORE INCOME TAXES $ 384 $ 319 $ 328 $ 1,268 $ 1,199
Adjustments:
Amortization of intangible assets 8 13 12 46 53
Stock-based compensation 37 43 36 158 161
Litigation settlements — — — — 5
Restructuring charges 16 — — 35 —
Gain on sale or derecognition of assets � (73 ) � — � — � (73 ) � (218 )
NON-GAAP INCOME BEFORE INCOME TAXES $ 372 $ 375 $ 376 $ 1,434 $ 1,200
�
PROVISION (BENEFIT) FOR INCOME TAXES $ (12 ) $ 70 $ 38 $ 99 $ 1,083
Adjustments:
Income tax effects 31 — 31 82 (10 )
Resolution of income tax examinations 48 — — 48 —
Income tax benefit of ASC 606 adoption — — — 34 —
Tax reform � — � — � — � — � (856 )
NON-GAAP PROVISION FOR INCOME TAXES $ 67 $ 70 $ 69 $ 263 $ 217
�
NET INCOME PER SHARE $ 1.59 $ 0.98 $ 1.06 $ 4.51 $ 0.42
Adjustments:
Amortization of intangible assets 0.03 0.05 0.04 0.18 0.19
Stock-based compensation 0.15 0.17 0.13 0.61 0.58
Litigation settlements — — — — 0.02
Restructuring charges 0.06 — — 0.14 —
Gain on sale or derecognition of assets (0.29 ) — — (0.28 ) (0.79 )
Income tax effects (0.12 ) — (0.11 ) (0.32 ) 0.04
Resolution of income tax examinations (0.19 ) — — (0.19 ) —
Income tax benefit of ASC 606 adoption — — — (0.13 ) —
Tax reform � — � — � — � — � 3.10
NON-GAAP NET INCOME PER SHARE $ 1.22 $ 1.20 $ 1.12 $ 4.52 $ 3.56
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RECONCILIATION OF NON-GAAP TO GAAP
GROSS MARGIN
($ in millions)
� � �
Q4'FY19 � Q3'FY19 � Q4'FY18 FY2019 FY2018
�
Gross margin-GAAP 64.4 % 62.8 % 62.6 % 64.2 % 62.7 %
Cost of revenues adjustments � 0.8 % � 0.9 % � 0.7 % � 0.8 % � 0.8 %
Gross margin-Non-GAAP 65.2 % 63.7 % 63.3 % 65.0 % 63.5 %
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GAAP cost of revenues $ 566 $ 581 $ 615 $ 2,201 $ 2,210
Cost of revenues adjustments:
Amortization of intangible assets (8 ) (10 ) (9 ) (36 ) (36 )
Stock-based compensation � (4 ) � (4 ) � (3 ) � (14 ) � (13 )
Non-GAAP cost of revenues $ 554 $ 567 $ 603 $ 2,151 $ 2,161
�
Net revenues $ 1,592 $ 1,563 $ 1,644 $ 6,146 $ 5,919
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RECONCILIATION OF NON-GAAP TO GAAP
PRODUCT GROSS MARGIN
($ in millions)
� � �
Q4'FY19 � Q3'FY19 � Q4'FY18 FY2019 FY2018
�
Product gross margin-GAAP 54.3 % 51.5 % 51.7 % 53.3 % 50.7 %
Cost of product revenues adjustments � 1.0 % � 1.1 % � 1.0 % � 1.1 % � 1.1 %
Product gross margin-Non-GAAP 55.3 % 52.6 % 52.7 % 54.4 % 51.8 %
�
GAAP cost of product revenues $ 457 $ 469 $ 496 $ 1,752 $ 1,738
Cost of product revenues adjustments:
Amortization of intangible assets (8 ) (10 ) (9 ) (36 ) (36 )
Stock-based compensation � (2 ) � (1 ) � (1 ) � (4 ) � (3 )
Non-GAAP cost of product revenues $ 447 $ 458 $ 486 $ 1,712 $ 1,699
�
Product revenues $ 1,000 $ 967 $ 1,027 $ 3,755 $ 3,525
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�
RECONCILIATION OF NON-GAAP TO GAAP
HARDWARE MAINTENANCE AND OTHER SERVICES GROSS MARGIN
($ in millions)
� � �
Q4'FY19 � Q3'FY19 � Q4'FY18 FY2019 FY2018
�
Hardware maintenance and other services gross margin-GAAP 71.7 % 71.4 % 70.5 % 71.3 % 70.0 %

Cost of hardware maintenance and other services revenues adjustment

� 0.6 % � 0.8 % � 0.5 % � 0.7 % � 0.7 %
Hardware maintenance and other services gross margin-Non-GAAP 72.3 % 72.3 % 71.0 % 72.0 % 70.7 %
�
GAAP cost of hardware maintenance and other services revenues $ 99 $ 102 $ 113 $ 414 $ 447
Cost of hardware maintenance and other services revenues adjustment:
Stock-based compensation � (2 ) � (3 ) � (2 ) � (10 ) � (10 )
Non-GAAP cost of hardware maintenance and other services revenues $ 97 $ 99 $ 111 $ 404 $ 437
�
Hardware maintenance and other services revenues $ 350 $ 357 $ 383 $ 1,445 $ 1,492
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RECONCILIATION OF NON-GAAP TO GAAP
EFFECTIVE TAX RATE
� � � � �
Q4'FY19 � Q3'FY19 � Q4'FY18 FY2019 FY2018
� � �
GAAP effective tax rate (3.1 )% 21.9 % 11.6 % 7.8 % 90.3 %
Adjustments:
Income tax effects 8.3 % (3.2 )% 6.8 % 4.9 % (0.8 )%
Resolution of income tax examinations 12.9 % — % — % 3.3 % — %
Income tax benefit of ASC 606 adoption — % — % — % 2.4 % — %
Tax reform � — % � — % � — % � — % � (71.4 )%
Non-GAAP effective tax rate 18.1 % 18.7 % 18.4 % 18.4 % 18.1 %
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�
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW (NON-GAAP)
(In millions)
� � �
Q4'FY19 � Q3'FY19 � Q4'FY18 FY2019 FY2018
Net cash provided by operating activities $ 399 $ 451 $ 494 $ 1,341 $ 1,478
Purchases of property and equipment � (35 ) � (31 ) � (48 ) � (173 ) � (145 )
Free cash flow $ 364 $ 420 $ 446 $ 1,168 $ 1,333

Some items may not add or recalculate due to rounding.

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�
NETAPP, INC.
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP
EXPRESSED AS EARNINGS PER SHARE
FIRST QUARTER FISCAL 2020
� �
First Quarter
Fiscal 2020
�
Non-GAAP Guidance - Net Income Per Share $0.78 - $0.86
�
Adjustments of Specific Items to Net Income
Per Share for the First Quarter Fiscal 2020:
Amortization of intangible assets (0.04 )
Stock-based compensation expense (0.16 )
Restructuring charges (0.07 )
Income tax effects � 0.05
Total Adjustments (0.22 )
�
GAAP Guidance - Net Income Per Share $0.56 - $0.64
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NETAPP, INC.
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP
FISCAL 2020
(Unaudited)
�
�
GROSS MARGIN
�
Gross Margin - Non-GAAP Guidance 64% - 65%
Adjustment:
Cost of revenues adjustments (1)%
Gross Margin - GAAP Guidance 63% - 64%
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�
OPERATING MARGIN
�
Operating Margin - Non-GAAP Guidance 23% - 24%
Adjustments:
Amortization of intangible assets (1)%
Stock-based compensation expense (3)%
Gain on sale of properties 1%
Operating Margin - GAAP Guidance 20% - 21%
�
�
Some items may not add or recalculate due to rounding

Press Contact:

Madge Miller

NetApp

1 408 419 5263

[email protected]

Investor Contact:

Lance Berger

NetApp

1 408 822 6628

[email protected]

Source: NetApp

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