EMC Reports Second-Quarter 2014 Financial Results
- Record Q2 revenue of $5.9 billion, up 5% year over year
- Q2 GAAP EPS of $0.28 and Q2 non-GAAP EPS of $0.43
- Accelerates 2014 share buyback plan from $2 billion to $3 billion
- Increases full-year GAAP and non-GAAP EPS outlook by $0.01 each
- Double-digit Q2 revenue growth from VMware (up 17%) and Pivotal (up 29%) year over year
EMC Corporation (NYSE:EMC) today reported second-quarter 2014 financial results, including record second-quarter revenue of $5.9 billion, an increase of 5% year over year. GAAP net income attributable to EMC was $589 million and GAAP earnings per weighted average diluted share was $0.28. Non-GAAP1 net income attributable to EMC was $882 million and non-GAAP1 earnings per weighted average diluted share was $0.43.
EMC generated $1.3 billion in operating cash flow and $930 million in free cash flow2 in the second quarter – up 2% and 10% year over year, respectively. EMC ended the quarter with $14.6 billion in cash and investments. The company repurchased approximately $600 million worth of its common stock in the second quarter and returned approximately $200 million to shareholders via a quarterly dividend.
In addition, EMC's Board of Directors has approved an acceleration of EMC's share buyback plan for 2014 from $2 billion to $3 billion. Including the accelerated buyback and EMC's increased dividend (announced in the first quarter of 2014), EMC expects to return more than $7 billion to shareholders over the course of 2013 and 2014.
Joe Tucci, EMC Chairman and Chief Executive Officer, said, “Our industry and customers are in the midst of a massively disruptive and transformational shift, and the pace of change is accelerating. EMC detected it early on, put the right strategy in place and is executing well. New customers are coming to EMC for the first time, and existing customers are investing more heavily, because of our expanded capabilities across EMC Information Infrastructure, VMware and Pivotal. As a result, we have no doubt that EMC and our customers and shareholders will emerge among the primary beneficiaries of this transformation.”
David Goulden, CEO of EMC Information Infrastructure and EMC's Chief Financial Officer, said, “EMC performance in Q2 was solid and on track, with good performance from each of our major business units. We are at the threshold of expansive opportunity and remain confident about the rest of the year, as evidenced by the accelerated buyback program. Our market leadership, healthy partner ecosystem and cutting-edge technologies all support a strategy that deeply resonates with customers.”
- EMC Information Infrastructure business revenue was up 1% year over year. Excluding the High-end Storage business3, Information Storage revenue grew 7% year over year – which is faster than the industry growth rate. Emerging Storage4 revenue grew 52% year over year, based on demand for technologies such as the EMC XtremIO all-flash storage array, EMC ViPR software-defined storage and EMC Isilon scale-out storage. EMC has established clear leadership in the all-flash array market with XtremIO, surpassing a $300 million annualized demand run rate5 in its second full quarter of availability. ViPR adoption continues with the number of customers doubling in the second quarter compared to the first quarter of 2014. Data Domain had another strong quarter and the Data Protection Suite achieved very strong double-digit revenue growth both sequentially and year over year. RSA Information Security revenue grew 6% year over year, with Security Analytics and Archer each up over 20% in the second quarter. VCE had another strong quarter as demand for VCE Vblock systems once again showed very strong year over year growth.
- Pivotal grew revenue 29% year over year. The proliferation of Cloud Foundry as the industry's standard for open-source PaaS continues to flourish. Attendance at the second annual Cloud Foundry Summit held in the second quarter more than doubled.
- VMware continues to see growth with revenue up 17% year over year. VMware remains focused on delivering virtualization technologies to propel its three strategic initiatives including Software-Defined Data Centers, hybrid cloud and end-user computing.
EMC's consolidated second-quarter revenue from the United States was up 3% year over year at $3.1 billion, representing 52% of consolidated second-quarter revenue. Revenue from EMC's business operations outside of the United States increased 7% year over year to $2.8 billion representing 48% of consolidated second-quarter revenue. Within this, revenue from EMC's Europe, Middle East and Africa region grew 12% year over year and revenue from EMC's Latin America region grew 14% year over year. Revenue from the BRIC+13 markets grew 5% year over year.
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 $24.575 billion for 2014.
- Consolidated GAAP operating income is expected to range from 16.3% - 16.8% of revenues for 2014 and consolidated non-GAAP6 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 $1.30 for 2014 and consolidated non-GAAP6 earnings per weighted average diluted share are expected to be $1.91 for 2014.
- The consolidated GAAP income tax rate is expected to be 23.0% for 2014 and the consolidated non-GAAP6 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 $7.2 billion for 2014 and free cash flow2 is expected to be $5.8 billion for 2014.
- The weighted average outstanding diluted shares are expected to be 2.05 billion for 2014.
- EMC expects to repurchase an aggregate of $3.0 billion of the company's common stock in 2014.
- The second-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 second-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 second 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, a gain on previously held interests in strategic investments, an impairment of strategic investment and a VMware litigation charge. A benefit of the U.S. research and development (“R&D”) tax credit for the second quarter of 2014 is included in the non-GAAP results for the second 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 six months ended June 30 , 2014 and 2013.
3 EMC's High-end Storage business includes product and maintenance revenues from EMC Symmetrix.
4 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.
5 Demand run rate is an annualized calculation of orders received in the applicable period by EMC for the sale of XtremIO products and related services.
6 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, Archer, Atmos, Data Domain, Data Protection Suite, Elastic Cloud Storage, EMC RecoverPoint, Isilon, ScaleIO, Symmetrix, Vblock, ViPR, 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, a gain on previously held interests in strategic investments, an impairment of strategic investment and a VMware litigation 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 second quarter of 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.
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
- Digital Universe Invaded by Sensors
- EMC Announces New Entry Level VNXe, Data-At-Rest Encryption for VNX and New VSPEX Reference Architectures
- EMC Delivers No-Compromise Data Protection for the Midmarket with New Data Domain DD2200
- EMC Rolls Out Breakthrough Hybrid Cloud Innovations at EMC World 2014
- EMC To Acquire DSSD, Inc., Extends Flash Storage Leadership
- EMC Elastic Cloud Storage Appliance Up To 28% Lower TCO Than Public Cloud; Brings Hyperscale Cloud Ease-of-Use, Agility and Cost Benefits to Everyone
- New ViPR Software-Defined Storage Brings Cloud-Scale Capabilities and Economics to the Masses
- EMC Unveils New Business partner Program Architected for Partners to Lead Industry Transformation
- EMC Delivers 2013 Sustainability Report, “Thinking Forward: Redefine the Future”
- Global Internet Privacy Study Reveals Consumers' Conflicting Views