EMC: Fiscal 1Q14 Financial Results

EMC Corporation reported first-quarter 2014 financial results.

First-quarter revenue was $5.5 billion, an increase of 2% compared with the year-ago quarter.

First-quarter GAAP net income attributable to EMC was $392 million and first-quarter GAAP earnings per weighted average diluted share was $0.19. First-quarter non-GAAP net income attributable to EMC was $728 million and first-quarter non-GAAP earnings per weighted average diluted share was $0.35.

During the first quarter, EMC exceeded its first-quarter revenue outlook by more than $80 million; met outlook for GAAP earnings per weighted average diluted share and exceeded outlook1 for non-GAAP earnings per weighted average diluted share by $0.01; generated $1.3 billion in operating cash flow and $946 million in free cash flow3 ; and ended the first quarter with $15.3 billion in cash and investments.

In addition, board of directors approved a 15% increase in the quarterly cash dividend paid to shareholders. The first increased dividend of $0.115 per share of common stock will be paid on July 23, 2014 to shareholders of record as of the close of business on July 1, 2014.

Joe Tucci, chairman and CEO, said: “In a time of shifting market dynamics, EMC continued to generate revenue growth through our EMC Federation strategy across EMC Information Infrastructure, VMware and Pivotal. Customers are embracing these foundational and transformative technologies as core to their ability not only to maximize their existing infrastructures for many years to come, but to redefine their businesses as they seek new ways to generate growth and customer value. EMC is extremely well equipped to help our customers flourish in this next wave of computing, or what many call the Third Platform of IT.”

David Goulden, CEO of Information Infrastructure and CFO, said: “EMC is at the threshold of expansive opportunity. While planned business practice changes had a negative impact on year-over-year revenue and EPS growth in the quarter, we are very confident we are on the right track with our Federation model and technologies. With our strong foothold in Second Platform environments and some of the most exciting IT assets in the industry helping us propel customers to the Third Platform of IT, EMC is well positioned to meet our stated 2014 targets.”

First-Quarter Highlights
For the first quarter, revenue from the Information Infrastructure business declined 3%.

Within this, Information Storage business declined 3% and, excluding high-end storage business, increased 6% year over year. Emerging storage business revenue growth accelerated to 81% year over year, propelled by a number of products including XtremIO all-flash storage, ViPR software-defined storage, Atmos distributed object storage and Isilon scale-out storage. EMC continued its leadership in enterprise flash storage, selling more than 17PB of flash capacity in the first quarter of 2014 alone, an increase of more than 70% year over year.

Growth of VSPEX reference architectures continued at a rapid pace in the quarter, with year-over-year demand more than doubling.

Within the Information Intelligence Group, Syncplicity revenue grew well over 100% year over year.

EMC’s Service Provider partner program completed its eighth consecutive quarter as the company’s fastest-growing vertical segment. Revenue from RSA Information Security business increased 5% in the first quarter, with Security Analytics and Archer each growing over 25%.

VCE had another strong quarter as demand for Vblocks once again grew at well over 50% year over year in the first quarter, with over half of the Vblock unit sales in the quarter going to new customers.

In the first quarter, VMware continued to gain traction as revenues increased 16% year over year. VMware continues to help customers build out their software-defined data centers, improve the end-user computing experience, and add seamless connections to external clouds with vCHS. VMware’s hybrid cloud business, which includes the VSPP program and vCHS, more than doubled year over year in the first quarter. VMware also completed its acquisition of AirWatch in the quarter.

After its successful first full year of operations, Pivotal has laid a solid foundation for growth with revenue increasing 41% over the year-ago quarter. Pivotal is winning many enterprise customers – including a marquee customer in almost every major industry sector – who want to build modern cloud-agnostic applications and reason over massive volumes of data. In the first quarter of 2014, Pivotal increased its focus on software and strategic services with the transfer of Data Computing Appliance and implementation services into Information Infrastructure.

Consolidated first-quarter revenue from the United States remained flat year over year at $2.8 billion, representing 52% of consolidated first-quarter revenue. Revenue from business operations outside of the United States increased 3% year over year to $2.6 billion and represented 48% of consolidated first-quarter revenue. Within this, on a year-over-year basis, revenue from EMEA region grew 8%.

Business Outlook

• Consolidated revenues are expected to be $24.575 billion for 2014.
• Consolidated GAAP operating income is expected to range from 16.5% – 17.0% of revenues for 2014 and consolidated non-GAAP operating income is expected to range from 24.0% – 24.5% of revenues for 2014.
• Consolidated GAAP earnings per weighted average diluted share are expected to be $1.29 for 2014 and consolidated non-GAAP earnings per weighted average diluted share are expected to be $1.90 for 2014.
• The consolidated GAAP income tax rate is expected to be 23.0% and the consolidated non-GAAP6 income tax rate is expected to be 23.5% for 2014. This assumes that the U.S. R&D tax credit is extended during 2014.
• Consolidated net cash provided by operating activities is expected to be $7.2 billion for 2014 and free cash flow3 is expected to be $5.8 billion for 2014.
• The weighted average outstanding diluted shares are expected to be 2.06 billion for 2014.
• EMC expects to repurchase an aggregate of $2.0 billion of the company’s common stock in 2014.