EMC: Fiscal 3Q09 Financial Results

EMC Corporation reported third-quarter 2009 consolidated revenue for the period ending in September 30, 2009 that exceeded company expectations for the quarter.

Highlights

• Third-quarter consolidated revenue up 8% sequentially; Ahead of prior company outlook of 4% to 5% sequential growth
• Third-quarter GAAP net income up 45% sequentially; Non-GAAP net income up 34% sequentially
• Third-quarter GAAP diluted EPS up 40% sequentially; Non-GAAP diluted EPS up 28% sequentially
• Strong sequential increase in gross and operating margins
• Year-to-date operating cash flow – $2.3 billion; Year-to-date free cash flow – $1.8 billion

The company achieved third-quarter revenue of $3.52 billion, an increase of 8% compared with the second quarter of 2009. The results exceeded previous company outlook of 4% to 5% sequential revenue growth. Third-quarter GAAP net income attributable to EMC reached $298.2 million, an increase of 45% sequentially and GAAP diluted earnings per share were $0.14, an increase of 40% sequentially. Third-quarter 2009 non-GAAP(1) net income attributable to EMC increased 34% sequentially, reaching $480.3 million or $0.23 per diluted share, an increase of 28% sequentially.

Third-quarter consolidated revenue of $3.52 billion declined 5% compared with the year-ago period. Third-quarter 2009 GAAP net income attributable to EMC compares with $393.4 million or $0.19 per diluted share for the third quarter of 2008 and third-quarter 2009 non-GAAP net income attributable to EMC compares with $510 million or $0.24 per diluted share achieved in the third quarter of 2008.(2)

In the third quarter, EMC generated operating cash flow of $888 million and free cash flow of $745 million and ended the quarter with cash and investments of $8.4 billion. Year to date, EMC has generated operating cash flow of $2.3 billion and free cash flow of $1.8 billion.

Joe Tucci, EMC Chairman and Chief Executive Officer, said: "I am very pleased with EMC’s solid financial performance in a challenging economic climate. While remaining closer than ever to customers, we made additional progress optimizing our cost structure, expanded our product portfolio, strengthened our partner ecosystem and positioned EMC to capitalize on four of the higher-growth, multi-billion-dollar market opportunities around fully virtualized data centers, cloud computing, virtualized desktops and clients, and next-generation backup and recovery. I am extremely proud of the EMC and VMware people around the world who achieved these results."

Commenting further, Tucci said: "Customers are signaling more comfort spending their IT budgets, which gives EMC confidence in our ability to perform well and achieve our full-year 2009 targets. We are strategically aligned with the major technology shifts and well positioned to play a pivotal role in the IT industry for the next decade."

David Goulden, EMC Executive Vice President and Chief Financial Officer, said: "EMC achieved solid sequential revenue and profit growth while continuing to generate strong free cash flow. Combined with a continued disciplined focus on cost control, this helped EMC deliver improved gross and operating margins, highlighting the resilience of our financial model and our crisp execution. We remain committed to driving growth and operating leverage through our business, while continuing to invest in strategic growth opportunities to further extend EMC’s market leadership."

Third-Quarter Business Highlights
EMC’s Information Infrastructure business for the third quarter – comprising product and services revenue from Information Storage, RSA Security, and Content Management and Archiving – reached $3.03 billion, an increase of 8% sequentially. The Information Infrastructure business was driven by strong sequential growth of the market-leading EMC Symmetrix high-end storage systems including strong adoption of the new EMC Symmetrix V-Max line, EMC next-generation backup and recovery solutions and EMC Celerra unified storage systems. Further third-quarter highlights included customer demand for EMC’s RSA information security solutions, consumer and small business-focused Iomega products, content management and archiving solutions, and EMC’s broad consulting and professional services portfolio.

VMwar, which is majority-owned by EMC, contributed third-quarter revenue of $489 million.

EMC consolidated third-quarter revenue from the United States reached $1.90 billion, up 13% sequentially, and represented 54% of total third-quarter revenue. Revenue from EMC’s operations outside of the United States reached $1.62 billion, up 3% sequentially, and represented 46% of total third-quarter revenue.

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 business outlook and certain items impacting 2009 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 $4.0 billion for the fourth quarter of 2009 and $13.9 billion for 2009.
• Consolidated GAAP diluted earnings per share are expected to be $0.21 for the fourth quarter of 2009 and $0.55 for 2009.
• Consolidated non-GAAP diluted earnings per share, excluding the impact of restructuring charges, stock-based compensation expense and intangible asset amortization, are expected to be $0.30 for the fourth quarter of 2009.
• Consolidated non-GAAP diluted earnings per share, excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and gains recognized from holdings in Data Domain and SpringSource common stock, are expected to be $0.87 for 2009.
• Consolidated restructuring charges, stock-based compensation expense and intangible asset amortization are expected to be $0.01, $0.06 and $0.02 per diluted share, respectively, for the fourth quarter of 2009.
• Consolidated restructuring and acquisition-related charges, stock-based compensation expense and intangible asset amortization are expected to be $0.04, $0.21 and $0.08 per diluted share, respectively, for 2009. Offsetting these charges is a $0.01 per diluted share gain recognized from holdings in Data Domain and SpringSource common stock.
• The consolidated GAAP income tax rate is expected to be 13% for 2009. Excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and gains recognized from holdings in Data Domain and SpringSource common stock, which collectively impact the tax rate by 6%, the consolidated non-GAAP income tax rate is expected to be 19% for 2009.
• The weighted average outstanding diluted shares are expected to be 2.12 billion for the fourth quarter of 2009.
• In 2010, cost reduction actions are expected to generate savings of $500 million compared with 2008.

Notes:
1) 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 and intangible asset amortization for the third quarter of 2009 and restructuring charge, special income tax benefit, stock-based compensation expense and intangible asset amortization for the third 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