EMC Reports Record Third-Quarter 2014 Financial Results
- Record Q3 consolidated EMC revenue, up 9% year over year
- Q3 GAAP EPS up 4% year over year; Q3 non-GAAP EPS up 10% year over year
- EMC Information Infrastructure, VMware and Pivotal Q3 revenue up 6%, 17% and 24% respectively year over year
EMC generated $1.7 billion in operating cash flow and $1.3 billion in free cash flow2 in the third quarter. EMC ended the quarter with $15.4 billion in cash and investments. The company repurchased approximately $375 million worth of its common stock in the third quarter and returned approximately $240 million to shareholders via a quarterly dividend.
Joe Tucci, EMC Chairman and Chief Executive Officer, said, “EMC’s continued momentum is evidence that our strategy and execution are working. Our strategically aligned businesses – EMC Information Infrastructure, VMware, Pivotal and RSA – are well positioned to capitalize on the massive IT market opportunity in front of us. From my conversations with customers, it’s clear that we have the right best-of-breed technologies in cloud, mobile, Big Data and security, and offer a level of choice and flexibility second-to-none. We are extremely well positioned to help customers maximize their existing IT platforms and build a 3rd IT platform to redefine their businesses with a whole generation of new applications.”
David Goulden, CEO of EMC Information Infrastructure, said, “EMC’s solid third-quarter performance was in line with our expectations, as customers continue to seek strong and well-equipped partners to help them achieve their new IT goals. EMC is growing faster than many of our peers because we continue to make the right strategic investments – assembling a leading portfolio of technology assets over several years – that enable customers to use cloud, mobile, Big Data and security technologies to create competitive advantage.”
Zane Rowe, EMC CFO, added, “These results demonstrate the soundness of EMC’s strategy, a formula combining industry-leading assets, talent, and a uniquely flexible business model that puts customer choice first. Following my first three weeks at EMC I can say, without hesitation, that I am excited to be part of a company that is central to this future-defining industry transformation, and look forward to being part of the team helping EMC create value for shareholders, customers and employees.”
- EMC Information Infrastructure business revenue was up 6% year over year. Information Storage revenue growth accelerated to 6% year over year. The new VMAX high-end storage system became generally available towards the end of the third quarter; shipments of the new systems in the third quarter were in line with expectations. Unified and Backup and Recovery portfolios continued solid revenue growth of 6% year over year. Emerging Storage3 revenue grew 47% year over year, with notably strong growth for EMC XtremIO, EMC ViPR and EMC ScaleIO. EMC Isilon revenue growth accelerated in the third quarter, benefiting from newer growth vectors where Hadoop capabilities allow efficient analysis of Big Data. RSA grew revenue 4% year over year as security remains a priority for organizations building hybrid clouds.
- VMware continued its rapid growth trajectory with revenue within EMC up 17% year over year as customers continue investing in software-defined data center, hybrid cloud solutions and end-user computing.
- Pivotal grew revenue 24% year over year. Pivotal is the fastest growing of EMC’s federated businesses, benefiting from the transition to next-generation applications by organizations.
EMC’s consolidated third-quarter revenue from North America grew 8% year over year, representing 55% of consolidated third-quarter revenue. Revenue from EMC’s Europe, Middle East and Africa region grew 15% year over year, Asia Pacific and Japan grew 4% year over year and Latin America grew 1% year over year. Revenue from the BRIC+13 markets grew 9% year over year.
EMC is updating its expectations for 2014 to reflect the impact of foreign currency fluctuations, the timing of EMC’s second-half share buyback, and the revised free cash flow outlook from VMware.
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 made by EMC regarding 2014 financial results.
All dollar amounts and percentages set forth below should be considered to be approximations.
- Consolidated revenues are expected to be $24.5 billion for 2014.
- Consolidated GAAP operating income is expected to be 16.5% of revenues for 2014 and consolidated non-GAAP4 operating income is expected to be 24.0% of revenues for 2014.
- Consolidated GAAP earnings per weighted average diluted share are expected to be $1.29 for 2014 and consolidated non-GAAP4 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-GAAP4 income tax rate is expected to be 23.5% for 2014. This assumes that the U.S. research and development tax credit is extended during 2014.
- Consolidated net cash provided by operating activities is expected to be $6.80 billion for 2014 and free cash flow2 is expected to be $5.35 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 $3.0 billion of the company’s common stock in 2014.
- The third-quarter 2014 webcast will be available for replay on the EMC Investor Relations website at http://www.emc.com/ir
- EMC financial results are also available on the U.S. Securities and Exchange Commission website
- Visit http://ir.vmware.com for more detail on VMware's third-quarter 2014 financial results
- Download the EMC Investor Relations App here
- Visit EMC Pulse for breaking product and technology news from EMC
- Visit EMC Reflections for executive insight on business and IT trends
- Connect with EMC via @EMCCorp , LinkedIn and Facebook
EMC Corporation is a global leader in enabling businesses and service providers to transform their operations and deliver IT as a service. Fundamental to this transformation is cloud computing. Through innovative products and services, EMC accelerates the journey to cloud computing, helping IT departments to store, manage, protect and analyze their most valuable asset — information — in a more agile, trusted and cost-efficient way. Additional information about EMC can be found at www.EMC.com.
1 Items excluded from the non-GAAP results for the third quarters of 2014 and 2013 are amounts relating to stock-based compensation expense, intangible asset amortization, restructuring charges, acquisition and other related charges, the amortization of VMware's capitalized software from prior periods, a net gain on the disposition of certain lines of business and other, special tax charges and a VMware litigation and other contingencies charge. A benefit of the U.S. research and development (“R&D”) tax credit for the third quarter of 2014 is included in the non-GAAP results for the third quarter of 2014 as if the credit had been extended. See attached schedules for GAAP to non-GAAP reconciliations.
2 Free cash flow is a non-GAAP financial measure which is defined as net cash provided by operating activities, less additions to property, plant and equipment and capitalized software development costs. See attached schedules for a reconciliation of net cash provided by operating activities to free cash flow for the three and nine months ended September 30, 2014 and 2013.
3 EMC's Emerging Storage business primarily includes product and maintenance revenues from EMC Isilon, EMC Atmos, EMC VPLEX, EMC ViPR, EMC ScaleIO, EMC Elastic Cloud Storage Appliance, EMC RecoverPoint, Data Computing Appliance, ASD Suites and EMC vFlash and EMC XtremIO families.
4 Items excluded from the non-GAAP business outlook for 2014 are amounts relating to stock-based compensation expense, intangible asset amortization, restructuring charges, acquisition and other related charges and other one-time items. The benefit of the R&D tax credit is included in the GAAP and non-GAAP business outlook for 2014. See attached schedules for GAAP to non-GAAP reconciliations.
EMC, EMC RecoverPoint, Atos, Isilon, ScaleIO, ViPR, VMAX, VPLEX and XtremIO are registered trademarks or trademarks of EMC Corporation in the United States and/or other countries. All other trademarks used are the property of their respective owners.
This release contains “forward-looking statements” as defined under the Federal Securities Laws. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in information technology spending; (iii) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (iv) competitive factors, including but not limited to pricing pressures and new product introductions; (v) component and product quality and availability; (vi) fluctuations in VMware, Inc.'s operating results and risks associated with trading of VMware stock; (vii) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (viii) risks associated with managing the growth of our business, including risks associated with acquisitions and investments and the challenges and costs of integration, restructuring and achieving anticipated synergies; (ix) the ability to attract and retain highly qualified employees; (x) insufficient, excess or obsolete inventory; (xi) fluctuating currency exchange rates; (xii) threats and other disruptions to our secure data centers or networks; (xiii) our ability to protect our proprietary technology; (xiv) war or acts of terrorism; and (xv) other one-time events and other important factors disclosed previously and from time to time in EMC's filings with the U.S. Securities and Exchange Commission. EMC disclaims any obligation to update any such forward-looking statements after the date of this release.
Use of Non-GAAP Financial Measures
This release, the accompanying schedules and the additional content that is available on EMC's website contain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of EMC's performance or liquidity, should be considered in addition to, not as a substitute for, measures of EMC's financial performance or liquidity prepared in accordance with GAAP. EMC's non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how EMC defines its non-GAAP financial measures in this release.
Where specified in the accompanying schedules for various periods entitled "Reconciliation of GAAP to Non-GAAP," (a) certain items noted on each such specific schedule (including, where noted, amounts relating to stock-based compensation expense, intangible asset amortization, restructuring charges, acquisition and other related charges, the amortization of VMware's capitalized software from prior periods, a net gain on the disposition of certain lines of business and other, special tax charges, a gain on previously held interests in strategic investments, an impairment of strategic investment and a VMware litigation and other contingencies charge are excluded from the non-GAAP financial measures and (b) the benefit of the R&D tax credit for 2014 is included in the non-GAAP financial measures for the third quarter of 2014 as if the credit had been extended.
EMC's management uses the non-GAAP financial measures in the accompanying schedules to gain an understanding of EMC's comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects and includes the benefit of the R&D tax credit in, and excludes the above-listed items from, its internal financial statements for purposes of its internal budgets and each reporting segment's financial goals. These non-GAAP financial measures are used by EMC's management in their financial and operating decision-making because management believes they reflect EMC's ongoing business in a manner that allows meaningful period-to-period comparisons. EMC's management believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding and evaluating EMC's current operating performance and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner the Company's current financial results with the Company's past financial results.
This release also includes disclosures regarding free cash flow which is a non-GAAP financial measure. Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment and capitalized software development costs. EMC uses free cash flow, among other measures, to evaluate the ability of its operations to generate cash that is available for purposes other than capital expenditures and capitalized software development costs. Management believes that information regarding free cash flow provides investors with an important perspective on the cash available to make strategic acquisitions and investments, repurchase shares, pay dividends, service debt and fund ongoing operations. As free cash flow is not a measure of liquidity calculated in accordance with GAAP, free cash flow should be considered in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.
All of the foregoing non-GAAP financial measures have limitations. Specifically, the non-GAAP financial measures that exclude the items noted above do not include all items of income and expense that affect EMC's operations. Further, these non-GAAP financial measures are not prepared in accordance with GAAP, may not be comparable to non-GAAP financial measures used by other companies and do not reflect any benefit that such items may confer on EMC. Management compensates for these limitations by also considering EMC's financial results as determined in accordance with GAAP.
Quarter News Highlights
- New EMC VMAX³ – Industry's First Enterprise Data Service Platform
- EMC Announces Products To Speed New Application Innovation, Reduce Cost and Accelerate The Journey To The Hybrid Cloud
- EMC Announces XtremIO 3.0, Adds New Inline Data Services, Expands Family
- New EMC Innovations Bring Enterprise-Grade Scale-Out Data Lake to Life
- RSA® Web Threat Detection Adds Enhanced Visibility & Analytics; Takes on Mobile Fraud
- Kangwon Land Casino Eliminates the Storage Gamble with EMC Video Surveillance Infrastructure
- Love at First Swipe: New EMC Syncplicity iPhone App
- RSA Turns the Table on Cyber Attackers
- EMC Recognized by Dow Jones and CDP for Commitment to Sustainability
- New VNXe-Based VSPEX Proven Architecture For Oracle 12c