EMC Reports First-Quarter 2015 Financial Results
- Q1 results broadly in line with EMC expectations
- Full-year outlook adjusted to $25.7 billion in revenue and non-GAAP EPS of $1.91 to reflect the impact of foreign currency exchange rates as of March 31, 2015
- Revenue up 2% year over year, up 6% on a constant currency basis
- GAAP and non-GAAP EPS down 32% and 11% year over year, respectively
- Six key high-growth areas 5 grew combined revenue well over 100% year over year and are on track to achieve $2 billion in combined revenue in 2015
EMC Corporation (NYSE:EMC) today reported first-quarter 2015 financial results. Consolidated first-quarter revenue was $5.6 billion, up 2% year over year and up 6% on a constant currency basis. GAAP earnings per weighted average diluted share was $0.13, down 32% year over year. Non-GAAP1 earnings per weighted average diluted share was $0.31, down 11% compared with the year-ago quarter.
EMC generated $1.1 billion in operating cash flow and $755 million in free cash flow2 in the first quarter, and ended the quarter with $13.5 billion in cash and investments. The company repurchased approximately $1.5 billion worth of its common stock in the first quarter and returned approximately $230 million to shareholders via a quarterly dividend.
Joe Tucci, EMC Chairman and CEO, said, “We are pleased that we slightly exceeded our first-quarter non-GAAP EPS expectations; however, we fell a bit short on first-quarter storage revenue due to geo-political factors in Russia and China and not executing as crisply as we had expected in the first quarter. That said, we are confident that we will meet our business outlook for the year. Our investments in high-growth areas are bearing fruit, and the scale and strength of our federated businesses continue to provide a steadily increasing number of large, multi-national customers with the capabilities needed to build their digital agendas and undergo massive IT transformations.”
Zane Rowe, EMC CFO, said, “Our financial results were broadly in line with our expectations for the quarter and previously disclosed outlook for the year, thanks to the hard work of the entire EMC team. By realigning our organization and optimizing our investments, we were able to drive further cost efficiencies in the quarter. We are well positioned for the remainder of 2015 with a strong portfolio, tremendous potential in our six key growth opportunities, and increasing strategic relevance with customers. We will continue to aggressively look for opportunities to grow the revenue line, become more efficient and increase shareholder value.”
David Goulden, CEO of EMC Information Infrastructure, said, “With most of the factors that impacted first-quarter storage revenue versus our expectations now behind us, the future is rich with opportunity for EMC Information Infrastructure. We continue to expand our lead in traditional storage market segments by bridging the gap between current and newer storage technologies to lead customers into a new digital age. We are evolving our storage portfolio and have leading positions in newer technologies – including flash, scale-out file and object storage, software-defined storage and converged infrastructure – that are growing much faster than traditional storage. Our market-segment share in most of these areas exceeds our strong leadership in traditional external storage. Finally, by working more closely with our Federation partners to leverage our best-of-breed portfolio and collective influence, our strategic relevance with our largest customers continues to grow and open up new opportunities.”
- EMC Information Infrastructure: First-quarter revenue was down 1% year over year, and up 3% on a constant currency basis. Information Storage revenue in the first quarter was flat, and up 3% on a constant currency basis. Within the Converged Infrastructure business, Vblock-related first-quarter revenue was up more than 30% compared to the year-ago quarter. Emerging Storage3 revenue had solid growth in the first quarter, with notably strong growth for EMC XtremIO and EMC Isilon products. RSA first-quarter revenue grew 1% year over year.
- VMware: First-quarter 2015 revenue within EMC was up 12% year over year as the business continued making significant progress on its strategic initiatives focused on the software-defined data center, hybrid cloud solutions and end-user computing.
- Pivotal: First-quarter revenue grew 8% year over year and, most importantly, Pivotal's subscription revenue was significantly up year over year in the first quarter as Pivotal continues its transition to a software subscription business model. Customers are benefiting from leveraging the Pivotal portfolio to build third-platform applications to transform their businesses.
EMC's consolidated first-quarter revenue from North America grew 5% year over year. Asia Pacific and Japan and Latin America grew 1% and 8% year over year, respectively, and up 6% and 14% respectively on a constant currency basis. First-quarter revenue from EMC's Europe, Middle East and Africa region was down 2% year over year, and up 5% year over year on a constant currency basis.
The revised business outlook reflects the impact of foreign currency exchange rates as of March 31, 2015. Further detail will be provided during today's 8:30 a.m. ET live webcast for investors, which is available on the EMC Investor Relations website ( http://www.emc.com/ir ).
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 2015 financial results.
All dollar amounts and percentages set forth below should be considered to be approximations.
- Consolidated revenues are expected to be $25.7 billion for 2015.
- Consolidated GAAP operating income is expected to be 13.5% of revenues for 2015 and consolidated non-GAAP4 operating income is expected to be 21.0% of revenues for 2015.
- Consolidated GAAP earnings per weighted average diluted share are expected to be $1.23 for 2015 and consolidated non-GAAP4 earnings per weighted average diluted share are expected to be $1.91 for 2015.
- The consolidated GAAP income tax rate is expected to be 22.6% and the consolidated non-GAAP4 income tax rate is expected to be 23.6% for 2015. This assumes that the U.S. research and development tax credit is enacted during 2015.
- Consolidated net cash provided by operating activities is expected to be $5.7 billion for 2015 and free cash flow2 is expected to be $4.1 billion for 2015.
- The weighted average outstanding diluted shares are expected to be 1.96 billion for 2015.
- EMC expects to repurchase an aggregate of $3.0 billion of the company's common stock in 2015.
- The first-quarter 2015 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 first-quarter 2015 financial results
- Download the EMC Investor Relations App here
- 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 first quarters of 2015 and 2014 are amounts relating to stock-based compensation expense, intangible asset amortization, restructuring charges, acquisition and other related charges and VMware litigation and other contingencies. A benefit of the U.S. research and development (“R&D”) tax credit for the first quarters of 2015 and 2014 is included in the non-GAAP results for the first quarters of 2015 and 2014 as if the credit had been enacted. 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 months ended March 31, 2015 and 2014 and for the full year 2015 business outlook.
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 2015 are amounts relating to stock-based compensation expense, intangible asset amortization, restructuring charges and acquisition and other related charges. A benefit for an R&D tax credit is included in the GAAP and non-GAAP business outlook for 2015. See attached schedules for GAAP to non-GAAP reconciliations.
5 EMC's six key high-growth areas include Airwatch, NSX, Pivotal, ViPR/ScaleIO/Elastic Cloud Storage, DSSD and XtremIO.
EMC, Atmos, DSSD, Elastic Cloud Storage, EMC RecoverPoint, Isilon, VPLEX, ViPR, ScaleIO and XtremIO are either 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 and VMware litigation and other contingencies) are excluded from the non-GAAP financial measures and (b) a benefit for the R&D tax credit for the first quarters of 2015 and 2014 is included in the non-GAAP financial measures for the first quarters of 2015 and 2014.
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.
This release also refers to growth rates at constant currency or adjusting for currency so that business results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of EMC's business performance. To present this information, current period results for entities reporting in currencies other than US dollars are converted into US dollars at the exchange rate applied in each month of the prior year quarter. Constant currency includes the impacts from EMC's hedging program.
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
- EMC Expands Board of Directors with Appointment of José E. Almeida and Donald J. Carty
- EMC ViPR Strikes Again with New Support for Flash and Data Protection
- EMC Redefines Simplicity With VSPEX BLUE Hyper-Converged Infrastructure Appliance
- EMC Embraces VMware vSphere 6, Pledges Expanded Support to Accelerate Hybrid Cloud Adoption
- Need a Data Lake Foundation? EMC Portfolio Delivers
- EMC Honored with 2015 Climate Leadership Award
- RSA Further Empowers its Customers & Channel Partners
- RSA Names Zulfikar Ramzan as Chief Technology Officer
- EMC Turns Open Source Sensei, Stages First Cloud Foundry “Dojo”
- New Federation Business Data Lake Solution Paves Way for Big Data To Disrupt Every Industry Around The Globe