EMC: Fiscal 2Q15 Financial Results

 EMC Corporation reported second-quarter 2015 financial results.

Consolidated second-quarter GAAP revenue was $6 billion, up 2% year over year.

GAAP revenue was reduced by the amount of a VMware settlement with the DOJ and the GSA, which was entered into and paid in cash by VMware in the second quarter.

Consolidated second-quarter non-GAAP revenue was $6.1 billion, up 3% year over year and up 8% on a constant currency basis.

GAAP earnings per weighted average diluted share was $0.25, down 11% year over year. Non-GAAP1 earnings per weighted average diluted share was $0.43, flat compared with the year-ago quarter.

EMC generated $1 billion in operating cash flow and $647 million in free cash flow in the second quarter, and ended the quarter with $14.8 billion in cash and investments.

EMC repurchased approximately $2 billion worth of its common stock year-to-date and returned $225 million to shareholders in the second quarter via a quarterly dividend.

Joe Tucci, EMC chairman and CEO, said: “While pleased with many aspects of the second quarter, especially with the market acceptance and rapid growth of our newer products, we also saw customers become more conservative around refreshing their traditional infrastructures as they plan their IT transformations. We also saw ongoing geo-political factors in China and Russia. To capture more opportunity we have honed our growth strategy around four pillars: best-in class products and solutions that are, or will be, offered as a service; an expanded focus on cloud services; tighter coordination of our federated go-to-market approach; and a leadership team that is second to none. We are confident in our strategy in becoming the most trusted partner to customers embarking on digital transformation and hybrid cloud journeys, and we remain laser focused on enhancing shareholder value.“

Zane Rowe, EMC CFO, said: “My thanks to the entire team for their hard work and execution in the second quarter. We are seeing success in the growth areas of our portfolio, while our traditional storage category was impacted by customers focusing on their short-term purchasing needs as they develop their digital agendas. We continue to drive growth, cost efficiency and business transformation, as well as additional alignment across our businesses.“

David Goulden, CEO of EMC Information Infrastructure, said: “In an IT market that is changing rapidly, our new businesses are performing exceptionally well, with the Emerging Storage business now at nearly a $3 billion revenue run-rate, which we expect will grow more than 30% in 2015. We are focused on evolving our storage portfolio, delivering solutions, leading in high-growth areas and getting more aggressive on costs and are taking additional steps to manage the trends in our traditional storage business. Going forward, the favorable mix toward new applications and transformational spend will serve us well beyond 2015.”

Business highlights

• EMC Information Infrastructure: Second-quarter revenue was up 1% year over year and up 6% on a constant currency basis. Information Storage revenue in the second quarter was up 1% year over year and up 6% on a constant currency basis. Emerging Storage revenue was up 49% year over year in the second quarter, led by XtremIO, Isilon and Software-Defined Storage. Within Emerging Storage, XtremIO revenue growth exceeded 300% year over year, and remains the all-flash array market segment leader. Within the Converged Infrastructure business, Vblock and Vblock-related revenue had greater than 30% growth year over year.
• Pivotal: Second-quarter revenue was up 18% year over year and up 19% on a constant currency basis. Pivotal continues its transition to a subscription business model, more commonly measured by annual recurring revenue (ARR), which in the second quarter was approximately $60 million, up almost 60% quarter over quarter. Pivotal is achieving significant momentum as enterprise customers leverage the Pivotal portfolio for their digital transformation journey.
• VMware: Second-quarter 2015 GAAP revenue was up 4% year over year, non-GAAP revenue was up 10% (up 13% on a constant currency basis) year over year. VMware continues to diversify its business by expanding its portfolio of products to enable the software-defined enterprise, making progress on its strategic initiatives focused on the software-defined data center, hybrid cloud solutions, business mobility and end-user computing.

Global highlights

• Consolidated GAAP revenues are expected to be $25.2 billion for 2015 and consolidated non-GAAP5 revenues are expected to be $25.3 billion for 2015.
• Consolidated GAAP operating income is expected to be 12.8% of revenues for 2015 and consolidated non-GAAP5 operating income is expected to be 20.7% of non-GAAP revenues for 2015.
• Consolidated GAAP earnings per weighted average diluted share are expected to be $1.17 for 2015 and consolidated non-GAAP5 earnings per weighted average diluted share are expected to be $1.87 for 2015.
• The consolidated GAAP income tax rate is expected to be 22.5% and the consolidated non-GAAP5 income tax rate is expected to be 23.6% for 2015. This assumes that the U.S. R&D tax credit is enacted during 2015.
• Consolidated net cash provided by operating activities is expected to be $5.5 billion for 2015 and free cash flow3 is expected to be $4 billion for 2015.
• The weighted average outstanding diluted shares are expected to be 1.96 billion for 2015.
• EMC expects to repurchase an aggregate of $3.0 billion of the company’s common stock in 2015.

Full-year 2015 outlook
GAAP revenues of $25.2 billion and non-GAAP revenues of $25.3 billion; GAAP EPS of $1.17 and non-GAAP EPS of $1.87