EMC Achieves Record Fourth-Quarter Revenue Ahead of Company Expectations; Quarterly Earnings Per Share Up 54% Year Over Year

HOPKINTON, Mass., January 26 /PRNewswire-FirstCall/ -- EMC Corporation (NYSE: EMC), the world leader in information infrastructure solutions, today reported financial results for the fourth quarter of 2009.  Ongoing strategic investments aligned to key customer priorities helped EMC achieve record fourth-quarter revenue.  A continued focus on efficiencies and expense controls helped deliver expanded gross and operating margins, record quarterly free cash flow and fourth-quarter profit that exceeded prior company outlook.      

Consolidated revenue for the fourth quarter of 2009 reached a record $4.1 billion, an increase of 17% sequentially, 2% year over year and $100 million more than the outlook provided by EMC for the fourth quarter of 2009.  Fourth-quarter GAAP net income attributable to EMC reached $426.5 million, an increase of 43% sequentially and 58% year over year.  Fourth-quarter GAAP diluted earnings per share were $0.20, up 43% sequentially and 54% compared with the year-ago quarter.  Non-GAAP(1) net income attributable to EMC for the fourth quarter was $695.5 million, an increase of 45% sequentially and 11% compared with the fourth quarter of 2008.  Non-GAAP(1) earnings per diluted share were $0.33 for the fourth quarter, $0.03 ahead of the company outlook provided for the fourth quarter of 2009.  Fourth-quarter non-GAAP(1) earnings per diluted share increased 43% sequentially and were up 6% year over year.(2)  

During the fourth quarter, EMC expanded gross and operating margins on a sequential basis, generated operating cash flow of $1.0 billion and achieved record quarterly free cash flow of $793 million.  EMC completed the fourth quarter with $9.4 billion in cash and investments.

For the full year 2009, EMC achieved total consolidated revenue of $14.0 billion.  GAAP net income attributable to EMC for 2009 was $1.1 billion or $0.55 per diluted share.  Non-GAAP(3) net income attributable to EMC for the full year was $1.9 billion or $0.90 per diluted share.  For comparison, GAAP net income attributable to EMC for 2008 was $1.3 billion or $0.61 per diluted share and non-GAAP(3) net income attributable to EMC for 2008(2) was $2.1 billion or $1.00 per diluted share.  For 2009, EMC’s operating cash flow was $3.3 billion and free cash flow was $2.6 billion, an increase of 2% year over year.  

Joe Tucci, EMC Chairman and Chief Executive Officer, said, “Aggressive investment in core technology and strategic partnerships during the downturn, combined with heightened operational discipline, leaves EMC stronger than ever financially and intensely focused on our customers.  We are well positioned to lead the industry’s newest and potentially largest wave of IT, which we and others refer to as cloud computing.  As we execute on our vision for where the industry is heading, EMC’s primary focus is on helping customers safely build out their next-generation, fully virtualized data centers and lead them along the journey to private cloud computing, which offers the promise of a dramatically more efficient and effective model for delivering IT as a service.”      

David Goulden, EMC Executive Vice President and Chief Financial Officer, said, “Emerging from the worst global recession in company history, EMC is in the best financial and operational shape ever.  We refined our financial model to a new level of efficiency and cost discipline, while continuing to invest in strategic technologies and high-growth markets. We rolled out new and more-advanced solutions and services with the best quality in our history and gained market share.  With this positive momentum, EMC stands well positioned to continue to gain share in key markets and drive even greater profitability in 2010.”  

Fourth-Quarter Highlights

EMC’s Information Infrastructure business for the fourth quarter – comprising product and service revenue from the company’s Information Storage, RSA Security, and Content Management and Archiving business segments – reached $3.5 billion, an increase of 15% sequentially.  Within the Information Infrastructure business, the company’s Information Storage and Content Management and Archiving business segments achieved double-digit sequential revenue growth and EMC’s RSA Security business achieved record quarterly revenue.  Fourth-quarter highlights included solid customer demand and strong sequential revenue growth for EMC’s Data Domain and Avamar next-generation backup and recovery solutions, EMC’s market-leading Symmetrix and CLARiiON networked storage systems and EMC Celerra unified storage systems; and continued strong demand for EMC’s RSA information security solutions, consumer and small business-focused Iomega products and EMC’s broad portfolio of consulting and professional services.  

VMware (NYSE: VMW), which is majority-owned by EMC, contributed fourth-quarter revenue of $607 million.

EMC consolidated fourth-quarter revenue from the United States reached $2.2 billion, an increase of 14% sequentially and 1% year over year, representing 53% of consolidated fourth-quarter revenue.  Revenue from EMC’s business operations outside of the United States reached $1.9 billion, an increase of 20% sequentially and 4% year over year, representing 47% of consolidated fourth-quarter revenue.

2009 Highlights  

Full-year 2009 consolidated revenue was $14.0 billion.  Revenue from EMC’s Information Infrastructure business reached $12.0 billion and VMware contributed revenue of $2.0 billion.   Throughout the year, EMC executed on numerous strategic initiatives that collectively helped strengthen the company’s market leadership and advance its competitive lead, including:

• Sustained aggressive investment in research and development, totaling 12% of annual consolidated 2009 revenue, resulted in innovation across all business units.  For example, EMC introduced an entirely new approach to high-end data storage with the EMC Virtual Matrix Architecture and EMC Symmetrix V-Max storage systems, unprecedented automation capabilities across all primary EMC storage platforms with the new EMC fully automated storage tiering (FAST) technology, and more than 30 new EMC services and solutions to drive the acceleration of private cloud computing.
• Use of financial strength to make strategic acquisitions, including deduplication storage solutions leader Data Domain, and increase investment levels in higher-growth markets and geographies.
• Tighter alignment with strategic partners, demonstrated by the Virtual Computing Environment coalition formed by EMC and Cisco with VMware, the extension of EMC’s strategic alliance with Microsoft, as well as enhanced technology integration and expanded solutions and services support with major industry players such as Cisco, VMware, Microsoft, Dell and others.
• Further movement and penetration down market, including a wave of new consumer storage technologies and services from Iomega and Mozy.

Business Outlook

The following statements are based on current expectations.  These statements are forward-looking, and actual results may differ materially.  These statements do not give effect to the potential impact of mergers, acquisitions, divestitures or business combinations that may be announced or closed after the date hereof.  These statements supersede all prior statements regarding 2010 financial results set forth in prior EMC news releases.

All dollar amounts and percentages set forth below should be considered to be approximations.

• Consolidated EMC revenues are expected to be $16.0 billion for 2010.
• 2010 GAAP research and development (“R&D”) expense and non-GAAP R&D expense are each expected to increase 20% over 2009.  Excluded from the increase in non-GAAP R&D expense is stock-based compensation expense of $42 million and intangible asset amortization of $8 million.
• Transition costs to a more efficient cost structure are expected to be $50 million in 2010.
• GAAP operating income is expected to be 13% of revenues for 2010 and non-GAAP operating income is expected to be 20% of revenues for 2010.  Excluded from non-GAAP operating income are restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization, which account for less than 1%, 5% and 2% of revenues, respectively.
• Total non-operating expense, which includes investment income, interest expense and other expense, is expected to be $90 million in 2010.
• Consolidated GAAP diluted earnings per share are expected to be $0.78 for 2010.
• Consolidated non-GAAP diluted earnings per share, excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization are expected to be $1.12 for 2010.
• Consolidated restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization are expected to be $0.02, $0.24 and $0.08 per diluted share, respectively for 2010.
• The consolidated GAAP income tax rate is expected to be 17% for 2010.  Excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization, which collectively impact the tax rate by 3%, the consolidated non-GAAP income tax rate is expected to be 20% for 2010.  Both GAAP and non-GAAP income tax rates assume that the U.S. research and development tax credit will be re-enacted in 2010.
• The weighted average outstanding diluted shares are expected to be 2.12 billion for 2010.
• EMC expects to repurchase up to $1.0 billion of the company’s common stock.

Supporting Resources

• EMC will host its 2009 fourth-quarter earnings conference call today at 8:30 a.m. ET, which will be available on EMC’s web site at http://www.emc.com/about/investor-relations/index.htm    
• Additional information regarding EMC’s financials, as well as a webcast of the conference call, will be available at 8:30 a.m. ET at http://www.emc.com/about/investor-relations/index.htm
• Visit http://ir.vmware.com for more information about VMware’s fourth-quarter financial results.

About EMC

EMC Corporation (NYSE: EMC) is the world’s leading developer and provider of information infrastructure technology and solutions that enable organizations of all sizes to transform the way they compete and create value from their information. Information about EMC’s products and services can be found at www.EMC.com.

(1) Items excluded from the non-GAAP results are restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and a special income tax charge for the fourth quarter of 2009 and restructuring charge, IPR&D charge,  stock-based compensation expense and intangible asset amortization for the fourth quarter of 2008.  See attached schedules for reconciliation of GAAP to non-GAAP.

(2) The results for 2008 have been adjusted to give effect to the adoption of authoritative guidance relating to non-controlling interests and the accounting for convertible debt instruments.

(3) Items excluded from the non-GAAP results are gains on Data Domain and SpringSource common stock, restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and a special income tax charge for 2009 and restructuring charge, IPR&D charge, special income tax benefit, stock-based compensation expense and intangible asset amortization for 2008.  See attached schedules for reconciliation of GAAP to non-GAAP.

EMC, Avamar, Celerra, CLARiiON, Symmetrix, Symmetrix V-Max and Virtual Matrix Architecture are registered trademarks of EMC Corporation. RSA is a registered trademark of RSA Security Inc. VMware is a registered trademark of VMware, Inc.  Iomega is a registered trademark of Iomega Corporation. Data Domain is a registered trademark of Data Domain, Inc. Mozy is a registered trademark of Decho Corporation. SpringSource is a registered trademark of SpringSource, Inc. All other trademarks used are the property of their respective owners.

Forward-Looking Statements

This release contains “forward-looking statements” as defined under the Federal Securities Laws.  Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in information technology spending; (iii) our ability to protect our proprietary technology; (iv) risks associated with managing the growth of our business, including risks associated with acquisitions and investments and the challenges and costs of integration, restructuring and achieving anticipated synergies; (v) fluctuations in VMware, Inc.’s operating results and risks associated with trading of VMware stock; (vi) competitive factors, including but not limited to pricing pressures and new product introductions; (vii) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (viii) component and product quality and availability; (ix) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (x) insufficient, excess or obsolete inventory; (xi) war or acts of terrorism; (xii) the ability to attract and retain highly qualified employees; (xiii) fluctuating currency exchange rates; (xiv) litigation that we may be involved in; and (xv) other one-time events and other important factors disclosed previously and from time to time in EMC’s filings with the U.S. Securities and Exchange Commission.  EMC disclaims any obligation to update any such forward-looking statements after the date of this release.

Use of Non-GAAP Financial Measures

This release, the accompanying schedules and the additional content that is available on EMC’s website contain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of EMC’s performance or liquidity, should be considered in addition to, not as a substitute for, measures of EMC’s financial performance or liquidity prepared in accordance with GAAP. EMC’s non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how EMC defines its non-GAAP financial measures in this release.

Where specified in the accompanying schedules for various periods entitled “Reconciliation of GAAP to Non-GAAP,” certain items noted on each such specific schedule (including, where noted, amounts relating to gains on Data Domain and SpringSource common stock, restructuring and acquisition-related charges, special income tax charge, stock-based compensation expense, intangible asset amortization, IPR&D charge, special income tax benefit and restructuring charge) are excluded from the non-GAAP financial measures.  

EMC’s management uses the non-GAAP financial measures in the accompanying schedules to gain an understanding of EMC’s comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects and excludes the above-listed items from its internal financial statements for purposes of its internal budgets and each reporting segment’s financial goals. These non-GAAP financial measures are used by EMC’s management in their financial and operating decision-making because management believes they reflect EMC’s ongoing business in a manner that allows meaningful period-to-period comparisons. EMC’s management believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding and evaluating EMC’s current operating performance and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner the Company’s current financial results with the Company’s past financial results.

This release also includes disclosures regarding free cash flow which is a non-GAAP financial measure. Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software development costs. EMC uses free cash flow, among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than capital expenditures and capitalized software development costs. Management believes that information regarding free cash flow provides investors with an important perspective on the cash available to make strategic acquisitions and investments, repurchase shares, service debt and fund ongoing operations. 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.

Certain items in the accompanying schedules refer to growth rates at constant currency or adjusting for currency so that business results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of EMC’s business performance. To present this information, current period results for entities reporting in currencies other than US dollars are converted into US dollars at the exchange rate applied in each month of the prior year quarter.  Constant currency includes the impacts from EMC’s hedging program.  

All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude the items noted above do not include all items of income and expense that affect EMC’s operations. Further, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and do not reflect any benefit that such items may confer on EMC. Management compensates for these limitations by also considering EMC’s financial results as determined in accordance with GAAP.

SOURCE EMC Corporation