EMC: Fiscal 1Q11 Financial Results

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

Continued healthy customer demand for EMC’s information infrastructure and virtual infrastructure products and services, and strong performance within the company’s Europe/Middle East/Africa and Asia Pacific/Japan regions, contributed to EMC achieving record first-quarter consolidated revenue, record first-quarter net income, and strong year-over-year percentage increase in operating and gross margins.

First-quarter consolidated revenue was $4.6 billion, an increase of 18% compared with the year-ago quarter. First-quarter GAAP net income attributable to EMC increased 28% year over year to $477.1 million. First-quarter GAAP diluted earnings per share were $0.21, up 24% year over year. Non-GAAP net income attributable to EMC for the first quarter was $700.4 million, an increase of 27% compared with the year-ago quarter. First-quarter non-GAAP earnings per diluted share were $0.31, an increase of 19% year over year.

During the first quarter, EMC expanded gross and operating margins substantially on a year-over-year basis. The company achieved operating cash flow of $1.1 billion and free cash flow of $857.3 million, and ended the first quarter with $9.5 billion in cash and investments.

Joe Tucci, EMC Chairman and Chief Executive Officer, said: "EMC is off to a strong start in 2011 with significant opportunity and long-term growth potential ahead. With market-leading virtualization and information infrastructure products and services, and a strong partner ecosystem, we are positioned squarely at the intersection of two of the most sweeping trends in IT – cloud computing and Big Data. These assets, along with a robust innovation pipeline, uniquely align EMC to help customers accelerate their journey to cloud computing and unlock the full value of their information."

David Goulden, EMC Executive Vice President and Chief Financial Officer, said: "For the fifth consecutive quarter EMC achieved our financial ‘triple play’ – gaining market share, investing aggressively to take advantage of the rapidly emerging opportunities offered by cloud computing and Big Data, and improving profitability. Financial strength and flexibility, combined with an intense focus on customers, enable us to continually identify and successfully execute on opportunities that increase our value proposition to customers and reward shareholders. Given the strong growth we saw in the quarter and the opportunity we see throughout 2011, we are now even more confident that we can meet and potentially exceed our 2011 consolidated revenue, non-GAAP EPS and free cash flow goals while continuing to achieve our ‘triple play’ over the long term."

First-Quarter Highlights
First-quarter highlights included strong customer demand for the company’s high-end EMC Symmetrix storage product portfolio, which increased revenue 25% compared with the year-ago quarter, and EMC’s portfolio of mid-tier storage products, which grew revenue 20% year over year. Revenue from VMware, which is majority-owned by EMC, increased 33% and revenue from EMC’s RSA information security business grew 8% year over year. Additional first-quarter highlights included consistently strong revenue growth for EMC’s backup and recovery solutions, led by EMC Data Domain products. The new Isilon Storage Division exceeded revenue expectations in its first quarter within EMC, while the Data Computing Division continued to perform well with highly differentiated Greenplum offerings in the Big Data warehousing and analytics space.

Also during the quarter, VCE – the Virtual Computing Environment Company formed by Cisco and EMC with investments from VMware and Intel – experienced increasing customer traction and an expanding pipeline for its Vblock converged architecture.

EMC’s consolidated first-quarter revenue from the United States reached $2.4 billion, an increase of 12% year over year, representing 51% of consolidated first-quarter revenue. Revenue from EMC’s business operations outside of the United States reached $2.2 billion, an increase of 26% year over year, representing 49% of consolidated first-quarter revenue. Within this, consolidated revenue in EMC’s Europe/Middle East/Africa region increased 21% and consolidated revenue in EMC’s Asia Pacific/Japan region reached an all-time record amount, growing 43% year over year.

Business Outlook

• Consolidated revenues are expected to be $19.6 billion for 2011.
• Consolidated GAAP operating income is expected to be 16.5% to 17.5% 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 and intangible asset amortization, which account for less than 1%, 5% and 2% of revenues, respectively.
• Total consolidated GAAP non-operating expense, which includes investment income, interest expense and other expense, is expected to be $120 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 $55 million.
• Consolidated GAAP net income is expected to be $2.5 billion in 2011 and consolidated non-GAAP net income is expected to be $3.3 billion in 2011. Excluded from consolidated non-GAAP net income are restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and a non-recurring gain on strategic investments, which account for $70 million, $590 million, $200 million and a gain of $30 million, respectively.
• Consolidated GAAP diluted earnings per share are expected to be $1.09 for 2011 and consolidated non-GAAP diluted earnings per share are expected to be $1.46 for 2011. Excluded from consolidated non-GAAP diluted earnings per share are restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and a non-recurring gain on strategic investments which are expected to be $0.03, $0.26, $0.09 and ($0.01) per diluted share, respectively, for 2011.
• The consolidated GAAP income tax rate is expected to be 20% for 2011. Excluding the impact of restructuring and acquisition-related charges, stock-based compensation expense, intangible asset amortization and a non-recurring gain on strategic investments, which collectively impact the tax rate by 2%, 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 $117 million and non-GAAP net income attributable to the non-controlling interest in VMware is expected to be $175 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, $57 million, $8 million and ($8 million), respectively. The incremental dilution attributable to the shares of VMware held by EMC is expected to be $15 million for 2011.
• The weighted-average outstanding diluted shares are expected to be 2.26 billion for 2011.
• Consolidated net cash provided by operating activities is expected to be $5.3 billion for 2011, and free cash flow is expected to be $4.0 billion in 2011. Excluded from free cash flow are $900 million of additions to property, plant and equipment and $440 million of capitalized software development costs.
• EMC expects to repurchase $1.5 billion of the company’s stock in 2011.