EMC Reports Record First-Quarter Financial Results

HOPKINTON, Mass., April 21 /PRNewswire-FirstCall/ -- EMC Corporation (NYSE: EMC) today reported record financial results for the first quarter of 2010.  Ongoing investments aligned to key customer priorities combined with an industry-leading product and service portfolio helped EMC achieve its second consecutive quarter of record revenue, high double-digit profit growth and all-time record quarterly free cash flow.

First-quarter consolidated revenue was $3.9 billion, an increase of 23% compared with the year-ago quarter.  First-quarter GAAP net income attributable to EMC increased 92% year over year to $373 million.  First-quarter GAAP diluted earnings per share were $0.17, up 70% year over year.  Non-GAAP(1) net income attributable to EMC for the first quarter was $550 million, an increase of 70% compared with the year-ago quarter.  First-quarter non-GAAP(1) earnings per diluted share were $0.26, an increase of 63% year over year.  

During the first quarter, EMC expanded gross and operating margins substantially on a year-over-year basis, achieved record quarterly operating cash flow of $1.3 billion and record quarterly free cash flow of $1.1 billion.  The company completed the first quarter with $10.2 billion in cash and investments.

Joe Tucci, EMC Chairman and Chief Executive Officer, said, “EMC is off to a strong start in 2010, turning in the best first quarter in company history with record first-quarter revenue, high double-digit profit growth and all-time record free cash flow.  Our private cloud strategy and focus on four multi-billion dollar markets – each expected to experience rapid growth for many years to come – are resonating very well with customers.  We are confident in our ability to lead the next major wave of IT, maintain a long-term double-digit revenue growth rate and continue to take share.”  

David Goulden, EMC Executive Vice President and Chief Financial Officer, said, “During the first quarter, we saw customers move forward with increased confidence, focusing not only on cost cutting initiatives, but beginning new innovative projects in their traditional and virtual data center infrastructures.  This helped us clearly achieve the ‘triple play’ we projected last quarter by gaining market share while investing for the future and increasing profitability.  Looking ahead, we remain confident that we’ll continue to execute on all three of these areas.”  

First-Quarter Highlights

EMC’s Information Infrastructure business for the first quarter – comprising product and service revenue from the company’s Information Storage, RSA Security, and Content Management and Archiving business segments – reached $3.3 billion, increasing 22% year over year.  First-quarter highlights included strong customer demand and double-digit revenue growth for EMC’s market-leading high-end Symmetrix storage product portfolio, which increased first-quarter revenue by 28% compared with the year-ago quarter, and EMC’s mid-tier platform product portfolio(2), which grew revenue 32% year over year.  Within EMC’s Backup and Recovery Systems Division (BRS), EMC Data Domain and Avamar next-generation backup and recovery products each grew over 100% on a year-over-year basis(3).  Additional highlights included strong customer demand for EMC’s RSA information security solutions and the company’s broad portfolio of consulting and professional services.

VMware (NYSE: VMW), which is majority-owned by EMC, contributed first-quarter revenue of $632 million, increasing 34% compared with the year-ago quarter.

EMC consolidated first-quarter revenue from the United States reached $2.1 billion, an increase of 29% year over year, representing 54% of consolidated first-quarter revenue.  Revenue from EMC’s business operations outside of the United States reached $1.8 billion, an increase of 17% year over year, representing 46% of consolidated first-quarter revenue. Within this, revenue increased 16%, 11% and 28% year over year respectively in EMC’s Europe, Middle East and Africa (EMEA), Asia Pacific and Japan (APJ) and Latin America regions.

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.

The following statements regarding 2010 financial results have been revised from the statements disclosed by EMC on January 26, 2010:

• Consolidated EMC revenues are expected to be $16.5 billion for 2010.

• Consolidated GAAP diluted earnings per share are expected to be $0.84 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 $1.18 for 2010.

• GAAP operating income is expected to be 14% to 15% of revenues for 2010, and non-GAAP operating income is expected to be 20% to 21% 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%, 4% and 2% of revenues, respectively.

• The weighted average outstanding diluted shares are expected to be 2.15 billion for 2010.

The following statements regarding 2010 financial results remain unchanged from the statements disclosed by EMC on January 26, 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.

• Total non-operating expense, which includes investment income, interest expense and other expense, is expected to be $90 million in 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.

• EMC expects to repurchase up to $1.0 billion of the company’s common stock.

Supporting Resources

• EMC will host its first-quarter 2010 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 first-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 and intangible amortization for the first quarter of 2010, and restructuring charges, stock-based compensation expense and intangible amortization for the first quarter of 2009.  See attached schedules for reconciliation of GAAP to non-GAAP.

(2) Mid-tier platform products include hardware and software products from EMC CLARiiON, EMC Celerra, EMC Centera, EMC Data Domain, EMC Avamar and EMC Atmos.

(3) EMC purchased Data Domain in July 2009.  The year-over-year comparison assumes Data Domain had been acquired on January 1, 2009 and incorporates revenue reported by Data Domain during the period from January 1, 2009 through the date of acquisition.

EMC, Atmos, Avamar, Celerra, Centera, CLARiiON, Data Domain, RSA and Symmetrix are either registered trademarks or trademarks of EMC Corporation in the United States and/or other countries. VMware is a registered trademark or trademark of VMware, Inc. in the United States and/or other countries. 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 restructuring and acquisition-related charges, stock-based compensation expense and intangible amortization) 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.

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.