EMC: Fiscal 2Q10 Financial Results

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

Second-Quarter Highlights

• Record second-quarter consolidated revenue up 24% year over year
• GAAP net income up 108% year over year
• Record second-quarter non-GAAP net income up 66% year over year
• All-time record year-to-date operating cash flow and free cash flow
• Strong year-over-year increase in gross and operating margins

Consistently strong execution across the business and healthy customer demand across all geographies contributed to EMC achieving its third consecutive quarter of record revenue and reporting net income that more than doubled on a year-over-year basis.

For the second quarter, consolidated revenue was $4.02 billion, an increase of 24% compared with the year-ago quarter; GAAP net income attributable to EMC increased 108% year over year to $426 million; and GAAP diluted earnings per share were $0.20, up 100% year over year.  Non-GAAP net income attributable to EMC for the second quarter was $596 million, an increase of 66% compared with the year-ago quarter, and non-GAAP earnings per diluted share were $0.28, an increase of 56% year over year. 

During the quarter, EMC expanded gross and operating margins substantially on a year-over-year basis. The company achieved all-time record year-to-date operating cash flow and free cash flow of $2.1 billion and $1.6 billion, which grew 44% and 47%, respectively, compared with the year-ago period. The company completed the quarter with $10.3 billion in cash and investments.

Joe Tucci, EMC Chairman and Chief Executive Officer, said: “The strength and demand that we saw during the quarter is testament to the value our customers see in our information infrastructure and virtual infrastructure solutions and the massive opportunity before us. The IT industry is in the midst of a major transformation to cloud computing and, ultimately, to a more agile way to consume and deliver IT. Never in our history have we had a stronger team, more compelling vision, or more innovative set of technologies, services, and partnerships. As a result, EMC is in an excellent position to lead this dramatic shift in IT and provide our customers with a clear path forward on their journey to the cloud.”

David Goulden, EMC Executive Vice President and Chief Financial Officer, said: “For the second consecutive quarter, EMC once again turned a ‘triple play’ by gaining market share while investing for the future and increasing profitability. With this, we also expanded gross and operating margins and generated all-time record year-to-date operating and free cash flow. Moving forward, we remain confident that we have the right business and operating model to continue delivering annual double-digit revenue and earnings growth over the long term.”     

Second-Quarter Highlights
Second-quarter revenue highlights included strong customer demand and double-digit revenue growth for the market-leading high-end EMC Symmetrix storage product portfolio , which increased 32% compared with the year-ago quarter, and EMC’s mid-tier storage product portfolio (mid-tier platform products include hardware and software products from EMC CLARiiON, EMC Celerra, EMC Centera, EMC Data Domain, EMC Avamar and EMC Atmos), which grew revenue 33% year over year. Within EMC’s fast-growing Backup and Recovery Systems Division (BRS), the combined second-quarter revenue run rate for EMC Data Domain and Avamar backup solutions exceeded the billion-dollar revenue run rate the company reported in the first quarter of 2010.

VMware, which is majority-owned by EMC, contributed second-quarter revenue of $673 million, increasing 48% compared with the year-ago quarter.

Additional second-quarter highlights included strong customer demand for EMC’s RSA information security solutions, which grew revenue 18% year over year, and the company’s broad portfolio of consulting and professional services.

EMC consolidated second-quarter revenue from the United States reached $2.1 billion, an increase of 28% year over year, representing 53% of consolidated second-quarter revenue. Revenue from EMC’s business operations outside of the United States reached $1.9 billion, an increase of 19% year over year, representing 47% of consolidated second-quarter revenue. Within this, revenue increased 18%, 20% and 22% year over year, respectively, in EMC’s Europe, Middle East and Africa; Asia Pacific and Japan; and Latin America regions.

Business Outlook
The following statements regarding 2010 financial results have been revised from the statements disclosed by EMC on April 21, 2010:

• For 2010, EMC expects to exceed its previous outlook of $16.5 billion in revenue, $0.84 in consolidated GAAP diluted earnings per share, and $1.18 in consolidated non-GAAP diluted earnings per share, which excludes the impact of restructuring and acquisition-related charges, stock-based compensation expense, and intangible asset amortization.
• For 2010, consolidated restructuring and acquisition-related charges, stock-based compensation expense, and intangible asset amortization are expected to be $0.02, $0.23 and $0.09 per diluted share, respectively.
• 2010 GAAP and non-GAAP research and development expense is expected to increase between 18% and 19% over 2009. Excluded from the increase in non-GAAP R&D expense is stock-based compensation expense of $46 million and intangible asset amortization of $10 million.
• 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 less than 2% of revenues, respectively. 
• The consolidated GAAP income tax rate is expected to be 19% 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 2%, the consolidated non-GAAP income tax rate is expected to be 21% for 2010. The expected annual GAAP and non-GAAP income tax rates assume that the U.S. research and development tax credit will be re-enacted in 2010.

The following statements regarding 2010 financial results remain unchanged from the statements disclosed by EMC on April 21, 2010:

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