EMC: Fiscal 2Q11 Financial Results

Second-Quarter Highlights:

• Record Q2 consolidated revenue – up 20% year over year
• Record Q2 GAAP net income – up 28% year over year
• Record Q2 non-GAAP net income – up 33% year over year
• Strong year-over-year percentage increases in non-GAAP gross and operating margins
• All-time record consolidated quarterly revenue for EMC’s business operations outside of the United States

EMC Corporation reported record financial results for the second quarter of 2011.  

Strong worldwide customer demand for EMC’s information infrastructure and virtual infrastructure products and services, balanced growth and continued execution contributed to EMC achieving record second-quarter consolidated revenue and net income. The results were also highlighted by strong year-over-year percentage increases in non-GAAP operating and gross margins and all-time record consolidated quarterly revenue for EMC’s business operations outside of the United States.
 
Second-quarter consolidated revenue was $4.85 billion, an increase of 20% compared with the year-ago quarter. Second-quarter GAAP net income attributable to EMC increased 28% year over year to $546 million. Second-quarter GAAP earnings per weighted average diluted share increased 20% year over year to $0.24. Non-GAAP net income attributable to EMC for the second quarter was $793 million, an increase of 33% compared with the year-ago quarter. Second-quarter non-GAAP earnings per weighted average diluted share were $0.35, an increase of 25% year over year.

EMC achieved year-to-date operating cash flow of $2.2 billion and free cash flow of $1.6 billion. The company ended the second quarter with $9.5 billion in cash and investments.

Joe Tucci, EMC Chairman and Chief Executive Officer, said: "Our record-setting performance during the quarter was marked by balanced growth, solid execution and significant technology innovation as customers around the world continue to embrace EMC’s cloud computing and Big Data strategies. It is our firm belief that this strategy is well-placed and underpinned with winning products and services and strategic partners. We remain confident in our ability to continue delivering strong results this year and over the long term. Furthermore, we remain committed to investing heavily to extend our technology lead and help customers and service provider partners accelerate their IT and business model transformations."

David Goulden, EMC Executive Vice President and Chief Financial Officer, said: "EMC’s second-quarter results are further evidence that our strategy is on target and that we continue to execute our financial ‘triple play’ – gaining market share, investing aggressively to take full advantage of the massive opportunities at the intersection of cloud computing and Big Data, and improving profitability. Our focus on providing technology and services that accelerate our customers’ journey to the cloud and enable them to leverage their data for more competitive advantage is resonating strongly in the market. Given the strong results we have achieved this year and the opportunity we see for the remainder of 2011, we are raising our financial outlook for the year. We now expect to exceed 2011 consolidated revenue of $19.8 billion, GAAP EPS of $1.07 and non-GAAP EPS of $1.48."

Second-Quarter Highlights
Second-quarter highlights included double-digit revenue growth for EMC Information Storage business, which increased 19% year over year. EMC’s high-end EMC Symmetrix storage product portfolio, which includes the EMC Symmetrix VMAX, increased revenue 15% compared with the year-ago quarter, and EMC’s portfolio of mid-tier storage products grew revenue 27% year over year. Revenue from VMware, which is majority-owned by EMC, increased 37% and revenue from EMC’s RSA Information Security business grew 13% year over year. Additional second-quarter highlights included strong revenue growth for the EMC VNX unified storage and the company’s backup and recovery solutions. EMC saw increasing customer demand for its Big Data technologies – product revenue from EMC Isilon, EMC Atmos and EMC Greenplum each doubled year over year. Further second-quarter highlights included continued customer demand for EMC’s broad consulting and professional services portfolio.

Also during the quarter, VCE, the Virtual Computing Environment Company formed by Cisco and EMC with investments from VMware and Intel, experienced continued momentum as demand from customers for best-of-breed converged infrastructure through the Vblock Infrastructure Platform grew. VCE’s year-to-date revenue for 2011 has already exceeded its full-year 2010 revenue amount.

EMC’s consolidated second-quarter revenue from the United States reached $2.5 billion, an increase of 17% year over year, representing 52% of consolidated second-quarter revenue. Revenue from EMC’s business operations outside of the United States hit an all-time record $2.3 billion, an increase of 25% year over year, representing 48% of consolidated second-quarter revenue. Within this, revenue increased 20%, 34% and 43% year over year, respectively, in EMC’s Europe, Middle East and Africa; Asia Pacific and Japan; and Latin America regions.

Business Outlook
All dollar amounts and percentages set forth below should be considered to be approximations.

• Consolidated revenues are expected to exceed $19.8 billion for 2011.
• Consolidated GAAP operating income is expected to be 16% to 17% of revenues for 2011 and consolidated non-GAAP operating income is expected to be 23% to 24% of revenues for 2011. Excluded from consolidated non-GAAP operating income are restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and an RSA special charge, which account for 0.5%, 4%, 2% and 0.5% of revenues, respectively.
• Total consolidated GAAP non-operating expense, which includes investment income, interest expense and other income and expense, is expected to be $119 million in 2011 and total consolidated non-GAAP non-operating expense is expected to be $175 million in 2011. Excluded from non-GAAP non-operating expense is a non-recurring gain on strategic investments of $56 million.
• Consolidated GAAP net income is expected to exceed $2.44 billion in 2011 and consolidated non-GAAP net income is expected to exceed $3.35 billion in 2011. Excluded from consolidated non-GAAP net income are restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization, a non-recurring gain on strategic investments and an RSA special charge, which account for $75 million, $600 million, $225 million, ($29 million) and $56 million, respectively.
• Consolidated GAAP diluted earnings per share are expected to exceed $1.07 for 2011 and consolidated non-GAAP diluted earnings per share are expected to exceed $1.48 for 2011. Excluded from consolidated non-GAAP diluted earnings per share are restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization, a non-recurring gain on strategic investments and an RSA special charge, which are expected to be $0.03, $0.27, $0.10, ($0.01) and $0.02 per diluted share, respectively.
• The consolidated GAAP income tax rate is expected to be 21% for 2011. Excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization, a non-recurring gain on strategic investments and an RSA special charge, which collectively impact the tax rate by 1%, the consolidated non-GAAP income tax rate is expected to be 22% for 2011.
• GAAP net income attributable to the non-controlling interest in VMware is expected to be $121 million and non-GAAP net income attributable to the non-controlling interest in VMware is expected to be $185 million for 2011. Excluded from non-GAAP net income attributable to the non-controlling interest in VMware are acquisition-related charges, stock-based compensation expense, intangible asset amortization and a non-recurring gain on strategic investments which are expected to be $1 million, $60 million, $10 million and ($7 million), respectively. The incremental dilution attributable to the shares of VMware held by EMC is expected to be $16 million for 2011.
• The weighted-average outstanding diluted shares are expected to be 2.265 billion for 2011.
• Consolidated net cash provided by operating activities is expected to be $5.4 billion for 2011, and free cash flow is expected to be $4.0 billion in 2011. Excluded from free cash flow are $950 million of additions to property, plant and equipment and $450 million of capitalized software development costs.
• EMC expects to repurchase $1.5 billion of the company’s stock in 2011.