NetApp Reports Second Quarter Fiscal Year 2017 Results

  • All flash array annualized net revenue run rate exceeded $1 billion
  • Over 200 petabytes of flash shipped
  • Clustered Data ONTAP™ deployed on 86% of systems shipped
  • $169 million returned to shareholders in share repurchases and cash dividends

SUNNYVALE, Calif., Nov. 16, 2016 (GLOBE NEWSWIRE) -- NetApp (NASDAQ:NTAP) today reported financial results for the second quarter fiscal year 2017, ended October 28, 2016.

Second Quarter Financial ResultsNet revenues for the second quarter of fiscal year 2017 were $1.34 billion. GAAP net income for the second quarter of fiscal year 2017 was $109 million, or $0.38 per share, 1 compared to GAAP net income of $114 million, or $0.39 per share, for the comparable period of the prior year. Non-GAAP net income for the second quarter of fiscal year 2017 was $169 million, or $0.60 per share, 2 compared to non-GAAP net income of $181 million, or $0.61 per share, for the comparable period of the prior year.

Cash, Cash Equivalents and Investments NetApp ended the second quarter of fiscal year 2017 with $4.4 billion in total cash, cash equivalents and investments. During the second quarter of fiscal year 2017, the Company generated $158 million in cash from operations and returned $169 million to shareholders through share repurchases and a cash dividend.

The Company announced the next cash dividend of $0.19 per share. The quarterly dividend will be paid on January 25, 2017, to shareholders of record as of the close of business on January 6, 2017.

"Our second quarter results are evidence of our ability to maintain a high level of execution while streamlining the business and pivoting to the growth areas of the market," said George Kurian, chief executive officer. "Our market-leading innovations in flash, next-generation data centers and hybrid cloud, coupled with a sharp focus on operational discipline, position NetApp to lead in the digital era."

Q3 Fiscal Year 2017 OutlookThe Company provided the following financial guidance for the third quarter of fiscal year 2017:

  • Net revenues are expected to be in the range of $1.325 billion to $1.475 billion.
  • GAAP earnings per share is expected to be in the range of $0.41 to $0.46 per share.
  • Non-GAAP earnings per share is expected to be in the range of $0.72 to $0.77 per share.

Business Highlights
  • Increasing Flash Momentum
    • NetApp Recognized as a Leader in Gartner Magic Quadrant for Solid-State Arrays. NetApp named a Leader in the 2016 Gartner Magic Quadrant for Solid-State Arrays, based on the ability to execute and the completeness of vision. According to Gartner, Leaders execute well against their current vision and are well positioned for tomorrow. 3
    • NetApp Takes Top Honors for Customer Implementation, Brand Leadership at Flash Memory Summit 2016. NetApp's SolidFire™ deployment was recognized for customer innovation at Internet Solutions and NetApp swept all six brand leadership categories for all-flash NAS and unified SAN/NAS arrays in the 2016 Brand Leader Survey.
  • Simplifying Data Management with New Solutions
    • New NetApp Software and Flash Systems Simplify Data Management. NetApp ONTAP software, flash systems and expanded public cloud support for Microsoft Azure provide the modern foundation to help customers maximize the value of data in the hybrid cloud.
    • NetApp Boosts Performance, Lowers Cost of Data Analytics Applications for Midsize Businesses, Remote Offices. NetApp SANtricity™ software and the entry-level E2800 all-flash array deliver affordable performance and simplify the process of extracting value from third platform data.
  • Delivering Positive Customer Outcomes
    • UZ Leuven Speeds Collaboration of 17 Hospitals with NetApp Flash. This hospital network teams with NetApp to move, manage, and protect 6PB of critical patient data and was able to roll out new features across 17 hospitals within business hours with no downtime.
    • Inland Northwest Health Services/Engage Protects Critical Patient Data, Boosts Care with NetApp. NetApp helped the technology arm for this healthcare provider create a new cloud service based on AltaVault™ that allows it to easily and affordably secure critical customer data.
    • Buzinessware Fuels its On-demand Managed Infrastructure with NetApp SolidFire All-Flash Storage. Buzinessware, a Middle Eastern hosting and cloud service provider, teams with NetApp to deliver the exact level of performance required for each customer application and is able to make changes to performance and capacity on the fly without any disruption.
    • RapidScale Accelerates Enterprise Profitability with NetApp. NetApp's All Flash FAS gives RapidScale, a cloud service provider, a solid foundation to support its 100% annual growth, helping to preserve profit margins through storage efficiency, administration, and time savings.
    • TechnologyOne Selects NetApp to Improve Profitability and Efficiency of Its SaaS Cloud Offering. NetApp enabled Australia's largest enterprise software company to respond to changing customer needs by adopting a multi-cloud approach without increasing costs or complexity.

Webcast and Conference Call InformationNetApp 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 NetAppLeading organizations worldwide count on NetApp for software, systems and services to manage and store their data. Customers value our teamwork, expertise and passion for helping them succeed now and into the future. To learn more, visit  www.netapp.com.

"Safe Harbor" Statement Under U.S. Private Securities Litigation Reform Act of 1995This 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 Q3 Fiscal Year 2017 Outlook section and statements ­­made about our ability to maintain operational discipline and lead in the digital era. 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.

1 GAAP earnings per share is calculated using the diluted number of shares. Non-GAAP net income excludes, when applicable, (a) amortization of intangible assets, (b) stock-based compensation expenses, (c) acquisition-related expenses, (d) restructuring and other 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. Gartner Research Methodologies, Gartner Magic Quadrant, www.gartner.com/technology/research/methodologies/research_mq.jsp Gartner, Magic Quadrant for Solid-State Arrays, Valdis Filks, Joseph Unsworth, Arun Chandrasekaran, 22 August 2016

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, after deducting capital expenditures. 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, 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 and other charges. These charges include 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. These items are not ordinarily included in our annual operating plan and related budget due to the unpredictability of the timing and size of these events. 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)  
             
    October 28, 2016     April 29, 2016  
                 
ASSETS                
                 
Current assets:                
Cash, cash equivalents and investments   $ 4,357     $ 5,303  
Accounts receivable     547       813  
Inventories     97       98  
Other current assets     219       234  
Total current assets     5,220       6,448  
                 
Property and equipment, net     949       937  
Goodwill and purchased intangible assets, net     1,834       1,856  
Other non-current assets     759       796  
Total assets   $ 8,762     $ 10,037  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
Accounts payable   $ 253     $ 254  
Accrued expenses     620       765  
Short-term loan           849  
Short-term deferred revenue and financed unearned services revenue     1,655       1,794  
Total current liabilities     2,528       3,662  
Long-term debt     1,492       1,490  
Other long-term liabilities     407       413  
Long-term deferred revenue and financed unearned services revenue     1,546       1,591  
Total liabilities     5,973       7,156  
                 
Stockholders' equity     2,789       2,881  
Total liabilities and stockholders' equity   $ 8,762     $ 10,037  
                 

 
NETAPP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) (Unaudited)  
   
    Three Months Ended     Six Months Ended  
    October 28, 2016     October 30, 2015     October 28, 2016     October 30, 2015  
                                 
Revenues:                                
Product   $ 710     $ 815     $ 1,370     $ 1,479  
Software maintenance     242       233       483       481  
Hardware maintenance and other services     388       397       781       820  
Net revenues     1,340       1,445       2,634       2,780  
                                 
Cost of revenues:                                
Cost of product     376       408       735       753  
Cost of software maintenance     7       9       15       19  
Cost of hardware maintenance and other services     128       144       258       308  
Total cost of revenues     511       561       1,008       1,080  
Gross profit     829       884       1,626       1,700  
                                 
Operating expenses:                                
Sales and marketing     418       448       847       940  
Research and development     200       216       407       460  
General and administrative     69       74       137       153  
Restructuring and other charges           1             28  
Total operating expenses     687       739       1,391       1,581  
                                 
Income from operations     142       145       235       119  
                                 
Other income (expense), net           (1 )     (1 )     3  
                                 
Income before income taxes     142       144       234       122  
                                 
Provision for income taxes     33       30       61       38  
                                 
Net income   $ 109     $ 114     $ 173     $ 84  
                                 
Net income per share:                                
Basic   $ 0.39     $ 0.39     $ 0.62     $ 0.28  
                                 
Diluted   $ 0.38     $ 0.39     $ 0.61     $ 0.28  
                                 
Shares used in net income per share calculations:                                
Basic     278       294       278       299  
                                 
Diluted     284       296       283       302  
                                 
Cash dividends declared per share   $ 0.190     $ 0.180     $ 0.380     $ 0.360  
                                 

 
NETAPP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited)
             
    Three Months Ended     Six Months Ended  
    October 28, 2016     October 30, 2015     October 28, 2016     October 30, 2015  
Cash flows from operating activities:                                
Net income   $ 109     $ 114     $ 173     $ 84  
Adjustments to reconcile net income to net cash  provided by operating activities:                                
Depreciation and amortization     57       67       117       136  
Stock-based compensation     51       59       103       136  
Other non-cash items, net     1       (16 )     13       (52 )
Changes in assets and liabilities:                                
Accounts receivable     (47 )     (172 )     264       189  
Inventories     (16 )     68       1       21  
Accounts payable     17       (27 )     (13 )     (60 )
Accrued expenses     60       31       (138 )     (88 )
Deferred revenue and financed unearned services  revenue     (96 )     (16 )     (179 )     (137 )
Changes in other operating assets and liabilities, net     22       37       45       45  
Net cash provided by operating activities     158       145       386       274  
Cash flows from investing activities:                                
Redemptions (purchases) of investments, net     (123 )     10       190       788  
Purchases of property and equipment     (56 )     (46 )     (92 )     (84 )
Other investing activities, net           (2 )     (1 )      
Net cash provided by (used in) investing activities     (179 )     (38 )     97       704  
Cash flows from financing activities:                                
Issuance of common stock under employee stock award  plans     16       6       25       25  
Repurchase of common stock     (117 )     (183 )     (292 )     (613 )
Repayment of short-term loan                 (850 )      
Dividends paid     (52 )     (53 )     (105 )     (107 )
Other financing activities, net     (1 )           (3 )     1  
Net cash used in financing activities     (154 )     (230 )     (1,225 )     (694 )
                                 
Effect of exchange rate changes on cash and cash equivalents     (6 )     (3 )     (13 )     (8 )
                                 
Net increase (decrease) in cash and cash equivalents     (181 )     (126 )     (755 )     276  
Cash and cash equivalents:                                
Beginning of period     2,294       2,324       2,868       1,922  
End of period   $ 2,113     $ 2,198     $ 2,113     $ 2,198  
                                 

NETAPP, INC.  
SUPPLEMENTAL DATA  
(In millions except net income per share, percentages, DSO, DIO, DPO, CCC and Inventory Turns)  
(Unaudited)  
                         
                         
    Q2 FY'17     Q1 FY'17     Q2 FY'16  
                         
Revenues                        
Product   $ 710     $ 660     $ 815  
Strategic   $ 439     $ 400     $ 434  
Mature   $ 271     $ 260     $ 381  
Software Maintenance   $ 242     $ 241     $ 233  
Hardware Maintenance and Other Services:   $ 388     $ 393     $ 397  
Hardware Maintenance Support Contracts   $ 316     $ 323     $ 326  
Professional and Other Services   $ 72     $ 70     $ 71  
Net Revenues   $ 1,340     $ 1,294     $ 1,445  
                         
                         
Geographic Mix                        
    % of Q2 FY'17 Revenue     % of Q1FY'17Revenue     % of Q2FY'16Revenue  
Americas     57 %     57 %     57 %
Americas Commercial     42 %     44 %     42 %
U.S. Public Sector     16 %     13 %     14 %
EMEA     30 %     30 %     30 %
Asia Pacific     13 %     13 %     14 %
                         
                         
Pathways Mix                        
    % of Q2 FY'17 Revenue     % of Q1FY'17Revenue     % of Q2FY'16Revenue  
Direct     22 %     23 %     23 %
Indirect     78 %     77 %     77 %
                         
                         
Non-GAAP Gross Margins                        
    Q2 FY'17     Q1 FY'17     Q2 FY'16  
Non-GAAP Gross Margin     62.7 %     62.4 %     62.5 %
Product     48.2 %     46.7 %     51.8 %
Software Maintenance     97.1 %     96.7 %     96.1 %
Hardware Maintenance and Other Services     67.8 %     67.9 %     64.7 %
                         
                         
Non-GAAP Income from Operations, Income before Income Taxes & Effective Tax Rate                        
    Q2 FY'17     Q1 FY'17     Q2 FY'16  
Non-GAAP Income from Operations   $ 204     $ 156     $ 219  
% of Net Revenues     15.2 %     12.1 %     15.2 %
Non-GAAP Income before Income Taxes   $ 204     $ 155     $ 218  
Non-GAAP Effective Tax Rate     17.3 %     16.6 %     17.0 %
                         
                         
                         
Non-GAAP Net Income                        
    Q2 FY'17     Q1 FY'17     Q2 FY'16  
Non-GAAP Net Income   $ 169     $ 129     $ 181  
Non-GAAP Weighted Average Common Shares Outstanding, Diluted     284       282       296  
Non-GAAP Income per Share, Diluted   $ 0.60     $ 0.46     $ 0.61  
                         
                         
Select Balance Sheet Items                        
    Q2 FY'17     Q1 FY'17     Q2 FY'16  
Deferred Revenue and Financed Unearned Services Revenue   $ 3,201     $ 3,300     $ 3,046  
DSO (days)     37       35       37  
DIO (days)     17       15       20  
DPO (days)     45       44       37  
CCC (days)     9       6       21  
Inventory Turns     21       25       18  
                         
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                        
    Q2 FY'17     Q1 FY'17     Q2 FY'16  
Net Cash Provided by Operating Activities   $ 158     $ 228     $ 145  
Purchases of Property and Equipment   $ 56     $ 36     $ 46  
Free Cash Flow   $ 102     $ 192     $ 99  
Free Cash Flow as a % of Net Revenues     7.6 %     14.8 %     6.9 %
                         
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.  
   

NETAPP, INC.  
RECONCILIATION OF NON-GAAP TO GAAP  
INCOME STATEMENT INFORMATION  
(In millions, except net income per share amounts)  
                         
    Q2'FY17     Q1'FY17     Q2'FY16  
                         
NET INCOME   $ 109     $ 64     $ 114  
Adjustments:                        
Amortization of intangible assets     11       11       14  
Stock-based compensation     51       52       59  
Restructuring and other charges                 1  
Income tax effect of non-GAAP adjustments     (2 )     2       (17 )
Settlement of income tax audit                 10  
NON-GAAP NET INCOME   $ 169     $ 129     $ 181  
                         
COST OF REVENUES   $ 511     $ 497     $ 561  
Adjustments:                        
Amortization of intangible assets     (7 )     (6 )     (14 )
Stock-based compensation     (4 )     (5 )     (5 )
NON-GAAP COST OF REVENUES   $ 500     $ 486     $ 542  
                         
COST OF PRODUCT REVENUES   $ 376     $ 359     $ 408  
Adjustments:                        
Amortization of intangible assets     (7 )     (6 )     (14 )
Stock-based compensation     (1 )     (1 )     (1 )
NON-GAAP COST OF PRODUCT REVENUES   $ 368     $ 352     $ 393  
                         
COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES   $ 128     $ 130     $ 144  
Adjustment:                        
Stock-based compensation     (3 )     (4 )     (4 )
NON-GAAP COST OF HARDWARE MAINTENANCE AND OTHER SERVICES REVENUES   $ 125     $ 126     $ 140  
                         
GROSS PROFIT   $ 829     $ 797     $ 884  
Adjustments:                        
Amortization of intangible assets     7       6       14  
Stock-based compensation     4       5       5  
NON-GAAP GROSS PROFIT   $ 840     $ 808     $ 903  
                         

NETAPP, INC.  
RECONCILIATION OF NON-GAAP TO GAAP  
INCOME STATEMENT INFORMATION  
(In millions, except net income per share amounts)  
                         
    Q2'FY17     Q1'FY17     Q2'FY16  
                         
SALES AND MARKETING EXPENSES   $ 418     $ 429     $ 448  
Adjustments:                        
Amortization of intangible assets     (4 )     (5 )      
Stock-based compensation     (21 )     (23 )     (26 )
NON-GAAP SALES AND MARKETING EXPENSES   $ 393     $ 401     $ 422  
                         
RESEARCH AND DEVELOPMENT EXPENSES   $ 200     $ 207     $ 216  
Adjustment:                        
Stock-based compensation     (17 )     (15 )     (18 )
NON-GAAP RESEARCH AND DEVELOPMENT EXPENSES   $ 183     $ 192     $ 198  
                         
GENERAL AND ADMINISTRATIVE EXPENSES   $ 69     $ 68     $ 74  
Adjustment:                        
Stock-based compensation     (9 )     (9 )     (10 )
NON-GAAP GENERAL AND ADMINISTRATIVE EXPENSES   $ 60     $ 59     $ 64  
                         
RESTRUCTURING AND OTHER CHARGES   $     $     $ 1  
Adjustment:                        
Restructuring and other charges                 (1 )
NON-GAAP RESTRUCTURING AND OTHER CHARGES   $     $     $  
                         
OPERATING EXPENSES   $ 687     $ 704     $ 739  
Adjustments:                        
Amortization of intangible assets     (4 )     (5 )      
Stock-based compensation     (47 )     (47 )     (54 )
Restructuring and other charges                 (1 )
NON-GAAP OPERATING EXPENSES   $ 636     $ 652     $ 684  
                         

NETAPP, INC.  
RECONCILIATION OF NON-GAAP TO GAAP  
INCOME STATEMENT INFORMATION  
(In millions, except net income per share amounts)  
                         
    Q2'FY17     Q1'FY17     Q2'FY16  
                         
INCOME FROM OPERATIONS   $ 142     $ 93     $ 145  
Adjustments:                        
Amortization of intangible assets     11       11       14  
Stock-based compensation     51       52       59  
Restructuring and other charges                 1  
NON-GAAP INCOME FROM OPERATIONS   $ 204     $ 156     $ 219  
                         
INCOME BEFORE INCOME TAXES   $ 142     $ 92     $ 144  
Adjustments:                        
Amortization of intangible assets     11       11       14  
Stock-based compensation     51       52       59  
Restructuring and other charges                 1  
NON-GAAP INCOME BEFORE INCOME TAXES   $ 204     $ 155     $ 218  
                         
PROVISION FOR INCOME TAXES   $ 33     $ 28     $ 30  
Adjustments:                        
Income tax effect of non-GAAP adjustments     2       (2 )     17  
Settlement of income tax audit                 (10 )
NON-GAAP PROVISION FOR INCOME TAXES   $ 35     $ 26     $ 37  
                         
NET INCOME PER SHARE   $ 0.38     $ 0.23     $ 0.39  
Adjustments:                        
Amortization of intangible assets     0.04       0.04       0.05  
Stock-based compensation     0.18       0.18       0.20  
Restructuring and other charges                  
Income tax effect of non-GAAP adjustments     (0.01 )     0.01       (0.06 )
Settlement of income tax audit                 0.03  
NON-GAAP NET INCOME PER SHARE   $ 0.60     $ 0.46     $ 0.61  
                         

RECONCILIATION OF NON-GAAP TO GAAP  
GROSS MARGIN  
($ in millions)  
       
    Q2'FY17     Q1'FY17     Q2'FY16  
                         
Gross margin-GAAP     61.9 %     61.6 %     61.2 %
Cost of revenues adjustments     0.8 %     0.9 %     1.3 %
Gross margin-Non-GAAP     62.7 %     62.4 %     62.5 %
                         
GAAP cost of revenues   $ 511     $ 497     $ 561  
Cost of revenues adjustments:                        
Amortization of intangible assets     (7 )     (6 )     (14 )
Stock-based compensation     (4 )     (5 )      (5 )
Non-GAAP cost of revenues   $ 500     $ 486     $ 542  
                         
Net revenues   $ 1,340     $ 1,294     $ 1,445  
                         

RECONCILIATION OF NON-GAAP TO GAAP  
PRODUCT GROSS MARGIN  
($ in millions)  
       
    Q2'FY17     Q1'FY17     Q2'FY16  
                         
Product gross margin-GAAP     47.0 %     45.6 %     49.9 %
Cost of product revenues adjustments     1.1 %     1.1 %     1.8 %
Product gross margin-Non-GAAP     48.2 %     46.7 %     51.8 %
                         
GAAP cost of product revenues   $ 376     $ 359     $ 408  
Cost of product revenues adjustments:                        
Amortization of intangible assets     (7 )     (6 )     (14 )
Stock-based compensation     (1 )     (1 )     (1 )
Non-GAAP cost of product revenues   $ 368     $ 352     $ 393  
                         
Product revenues   $ 710     $ 660     $ 815  
                         

RECONCILIATION OF NON-GAAP TO GAAP  
HARDWARE MAINTENANCE AND OTHER SERVICES GROSS MARGIN  
($ in millions)  
       
    Q2'FY17     Q1'FY17     Q2'FY16  
                         
Hardware maintenance and other services gross margin-GAAP     67.0 %     66.9 %     63.7 %
Cost of hardware maintenance and other services revenues adjustments     0.8 %     1.0 %     1.0 %
Hardware maintenance and other services gross margin-Non-GAAP     67.8 %     67.9 %     64.7 %
                         
GAAP cost of hardware maintenance and other services revenues   $ 128     $ 130     $ 144  
Cost of hardware maintenance and other services revenues adjustment:                        
Stock-based compensation     (3 )     (4 )     (4 )
Non-GAAP cost of hardware maintenance and other services revenues   $ 125     $ 126     $ 140  
                         
Hardware maintenance and other services revenues   $ 388     $ 393     $ 397  
                         

RECONCILIATION OF NON-GAAP TO GAAP  
EFFECTIVE TAX RATE  
       
    Q2'FY17     Q1'FY17     Q2'FY16  
                         
GAAP effective tax rate     23.2 %     30.4 %     20.8 %
Adjustments:                        
Tax effect of non-GAAP adjustments     (5.9 )%     (13.8 )%     0.8 %
Settlement of income tax audit     %     %     (4.6 )%
Non-GAAP effective tax rate     17.3 %     16.6 %     17.0 %
                         

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES  
TO FREE CASH FLOW (NON-GAAP)  
(In millions)  
       
    Q2'FY17     Q1'FY17     Q2'FY16  
Net cash provided by operating activities   $ 158     $ 228     $ 145  
Purchases of property and equipment     (56 )     (36 )     (46 )
Free cash flow   $ 102     $ 192     $ 99  
                         

Some items may not add or recalculate due to rounding.
NETAPP, INC.  
RECONCILIATION OF NON-GAAP GUIDANCE TO GAAP  
EXPRESSED AS EARNINGS PER SHARE  
THIRD QUARTER FISCAL 2017  
         
    Third Quarter  
    Fiscal 2017  
         
Non-GAAP Guidance - Net Income Per Share   $0.72 - $0.77  
         
Adjustments of Specific Items to Net Income        
Per Share for the Third Quarter Fiscal 2017:        
Amortization of intangible assets     (0.05 )
Stock-based compensation expense     (0.17 )
Restructuring and other charges     (0.18 )
Gain on sale of properties     0.03  
Income tax effect of non-GAAP adjustments     0.06  
Total Adjustments     (0.31 )
         
GAAP Guidance - Net Income Per Share   $0.41 - $0.46  
       
Press Contact:Judy RadlinskyNetApp1 408 822 6527judy.radlinsky@netapp.comInvestor Contact:Kris NewtonNetApp1 408 822 3312kris.newton@netapp.com

Primary Logo

If you liked this article you might like

Now Is the Perfect Time for Dell to Go Public

Now Is the Perfect Time for Dell to Go Public

Who Cares About the Jobs Report? Here Are 3 Quick Reasons Stocks Could Skyrocket

Who Cares About the Jobs Report? Here Are 3 Quick Reasons Stocks Could Skyrocket

What the Tax Cuts Mean for Apple, Cisco and Silicon Valley

What the Tax Cuts Mean for Apple, Cisco and Silicon Valley

HPE and Dell Are Under Pressure as Amazon and Others Upend Storage

HPE and Dell Are Under Pressure as Amazon and Others Upend Storage

HPE and Dell Are Under Pressure as Amazon and Others Upend Storage

HPE and Dell Are Under Pressure as Amazon and Others Upend Storage