EMC: Fiscal 1Q10 Financial Results

EMC Corporation reported record financial results for the first quarter of 2010.

First-Quarter Highlights:

• Record first-quarter consolidated revenue up 23% year over year
• GAAP net income up 92% year over year
• Record first-quarter non-GAAP net income up 70% year over year
• Record quarterly operating cash flow and free cash flow
• Strong year-over-year increase in gross and operating margins

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 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 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, 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. 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, 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 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.