EMC Corporation (NYSE:EMC), the world leader in information management and storage, today reported record first-quarter revenues on increased demand for its new family of high-end networked EMC Symmetrix® storage systems, EMC Documentum® content management software, EMC Smarts® resource management software and VMware virtual infrastructure software.
First Quarter Financial Results
- Total consolidated revenue for the first quarter of 2006 was $2.55 billion, 14% higher than the $2.24 billion reported for the first quarter of 2005.
- Net income for the quarter was $272.5 million or $0.11 per diluted share, which includes $0.03 per share for employee stock option expense. Had EMC expensed stock options during the year-ago quarter, net income for the first quarter of 2006 would have been up 50% compared with the $182.2 million or $0.07 per diluted share that EMC would have reported for the first quarter of 2005.
- Net income for the first quarter of 2006, excluding stock-based compensation and intangible asset amortization (which is a non-GAAP measure), grew 28% to $380.3 million or $0.16 per diluted share, compared with non-GAAP first-quarter 2005 net income of $296.6 million or $0.12 per diluted share.
Additional information about EMC's net income is included within the supplemental tables released with today's first-quarter financial announcement.
Joe Tucci, Chairman, President and CEO of EMC, said, "The power of our balanced, solutions-focused business model is evident. Our sustained focus on information lifecycle management (ILM) and expanding portfolio of best-in-class products and services enabled us to deliver double-digit revenue growth for the 11th quarter in a row.
"Our business continues to be rich with opportunity," Tucci continued. "We have the strongest new product lineup in our history, and this aggressive rollout will continue at a fast pace as the year unfolds. At the same time, we are making major inroads into emerging areas like unified ILM, virtualization, model-based resource management and information security. Together, these new, exciting solutions are enabling us to engage customers at a more strategic level and help them transform the way they build, manage and realize more value from their information infrastructures."
Systems revenue in the first quarter was $1.23 billion, a 20% increase over the year-ago quarter, giving EMC its strongest quarterly systems revenue growth rate in more than two years. EMC had double-digit software license and maintenance revenue growth for the 11th consecutive quarter, increasing revenues 11% to $925 million. Professional services, systems maintenance and other services revenue grew 6% year over year to $396 million.
EMC completed the first quarter with $7.4 billion in cash and investments. Year-to-date the company has purchased approximately $375 million in EMC stock in the open market and redeemed $125 million in convertible debt. Earlier this week, EMC's Board of Directors approved the repurchase of an additional 250 million shares of EMC common stock.
"When you consider its price relative to the opportunity, EMC stock at these levels continues to be one of the best values in the market," said Bill Teuber, EMC's Executive Vice President and Chief Financial Officer. "We plan to purchase another $2.5 billion worth of stock through the rest of this year, deploying $3 billion toward share reduction in 2006 three times our 2005 investment. These investments, along with our continued interest in strategic, growth-oriented acquisitions, are part of our expanded commitment to increase our addressable market and drive shareholder value by leveraging our strong cash position."
First Quarter Highlights
EMC's strong, double-digit systems revenue growth was driven by solid demand for the new Symmetrix DMX-3 family of tiered networked storage. Sales of the new DMX-3 made up more than half of the total Symmetrix systems revenues during the quarter, as customers increasingly deployed the most scalable, highest-performance system available in the marketplace today.
EMC multi-platform software revenue growth was led by record sales of enterprise content management software. Excluding acquisition impact, enterprise content management software license revenue grew approximately 30% compared with the year-ago quarter, driven by rapid growth of unstructured information and improved synergy between EMC's traditional and software-focused sales forces. Smarts software also surged during the quarter as customers continue to transition to model-based resource management to pinpoint service-affecting problems automatically and calculate the impact of those problems in real time without human intervention.
VMware, an EMC subsidiary, again achieved record quarterly revenues, growing sales 64% year over year to $131 million during the first quarter. VMware showed continued growth as customers increasingly standardize on its enterprise-class suite of virtual infrastructure products. During the quarter, VMware introduced VMware Server (the successor to GSX Server) and made it freely available to accelerate mainstream adoption of virtualization. VMware Server is the first commercially available server virtualization product with support for 64-bit virtual machines and Intel Virtualization Technology. During the quarter VMware also continued to win top accolades in the industry, with its innovation and technology leadership being recognized by eWeek and InfoWorld.
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 any mergers, acquisitions, divestitures or business combinations that may be announced after the date hereof. These statements supersede all prior statements regarding business outlook set forth in prior EMC news releases.
- Consolidated revenues for the second quarter of 2006 are expected to be at least $2.66 billion.
- GAAP diluted earnings per share for the second quarter are expected to be $0.13. Non-GAAP diluted earnings per share, excluding stock-based compensation and intangible amortization, are expected to be $0.17.
- Consolidated revenues for 2006 are expected to be between $11.1 billion and $11.3 billion. Current expectations are for revenues to be at the lower end of that range.
- GAAP diluted earnings per share for 2006 are expected to be between $0.54 and $0.57. Non-GAAP diluted earnings per share, excluding stock-based compensation and intangible amortization, are expected to be between $0.70 and $0.73.
EMC Corporation (NYSE: EMC) is the world leader in products, services and solutions for information management and storage that help organizations extract the maximum value from their information, at the lowest total cost, across every point in the information lifecycle. Information about EMC's products and services can be found at www.EMC.com.
EMC, Documentum, Smarts and Symmetrix are registered trademarks of EMC Corporation. VMware is a registered trademark of VMware, Inc. All other trademarks 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) risks associated with acquisitions and investments, including the challenges and costs of integration, restructuring and achieving anticipated synergies; (iv) competitive factors, including but not limited to pricing pressures and new product introductions; (v) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (vi) component and product quality and availability; (vii) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (viii) insufficient, excess or obsolete inventory; (ix) war or acts of terrorism; (x) the ability to attract and retain highly qualified employees; (xi) fluctuating currency exchange rates; and (xii) 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.
This release contains non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of EMC's performance, should be considered in addition to, not as a substitute for, or superior to, measures of EMC's financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to GAAP is provided in the text of this release or in the tables entitled "Income Statement Adjusted to exclude Stock Option Expense," "Quarterly Non-GAAP Income Statement Trend," "Reconciliation of GAAP Income Statement to a Non-GAAP Income Statement" for various periods and "Reconciliation of Net Income and Diluted Net Income per Weighted Average Share had the Provisions of FAS No. 123 been Adopted in 2005" attached to this release. EMC's non-GAAP measures 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.
Specifically, stock option expense is excluded from each non-GAAP financial measure in this release. Restricted stock expense and intangible amortization are also excluded from certain of the non-GAAP financial measures detailed in this release or the attached tables. Management views these items as non-cash expenses that are reported internally as corporate expenses. In addition, in some cases where specified, restructuring and other special items are excluded from net income and earnings per share. For purposes of its internal budgets and each reporting segment's financial goals, EMC's management uses financial statements that do not include such items.
EMC's management uses these non-GAAP financial measures to gain an understanding of EMC's comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects. These non-GAAP financial measures are also used by EMC's management in their financial and operating decision-making because management believes they reflect the underlying economics of EMC's ongoing business in a manner that allows meaningful period-to-period comparisons. Such comparisons may be more meaningful because operating results presented under GAAP may include, from time to time, items that are not necessarily relevant to understand EMC's business and may, in some cases, be difficult to forecast accurately for future periods. EMC's management believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating EMC's current operating performance and future prospects in the same manner as management does if they so choose. These non-GAAP financial measures have limitations, however, because they do not include all items of income and expense that affect EMC's operations. One material limitation of a non-GAAP financial measure that excludes stock-based compensation is that it does not reflect any benefit that such compensation may confer on EMC. Management compensates for this and other limitations by also considering EMC's financial results as determined in accordance with GAAP.