EMC Reports Third-Quarter 2015 Financial Results
Third-Quarter 2015 Summary:
- Revenue up 1% year over year and up 5% year over year on a constant currency basis
- GAAP and non-GAAP EPS of $0.25 and $0.43, respectively
- EMC Emerging Storage, Pivotal and VMware revenues up 27%, 16% and 10% year over year, respectively; up 32%, 18% and 14% year over year on a constant currency basis, respectively
EMC Corporation (NYSE:EMC) today reported third-quarter 2015 financial results. Consolidated third-quarter revenue was $6.08 billion, up 1% year over year and up 5% year over year on a constant currency basis1. GAAP and non-GAAP2 earnings per weighted average diluted share were $0.25 and $0.43, respectively.
EMC generated $1.4 billion in operating cash flow and $1.03 billion in free cash flow3 in the third quarter, and ended the quarter with $14.3 billion in cash and investments. EMC returned $229 million to shareholders in the third quarter via a quarterly dividend.
Joe Tucci, EMC Chairman and CEO, said, “This is an historic time for EMC and the entire IT industry. EMC combining with Dell, two highly complementary companies, will create a tech industry powerhouse – a new company with more than $80 billion in revenue that is extremely well positioned for a new era. We firmly believe that this compelling combination is the best strategic option for all our stakeholders. Our customers are sharing overwhelmingly positive feedback about the potential of having a strategic partner with more heft and relevance to drive their digital transformations.”
Zane Rowe, EMC CFO, said, “EMC Emerging Storage, Pivotal and VMware generated positive momentum in the third quarter, thanks to the hard work of the entire EMC team. We continue to be relentlessly focused on building upon the strength of our portfolio and being more efficient. More specifically, the $850 million cost reduction and business transformation plans are on track, and the team is working on many initiatives in areas such as SKU simplification, facilities and manufacturing optimization, and direct material procurement that span EMC's global operations.”
David Goulden, CEO of EMC Information Infrastructure, said, “As the broader market shifts toward cloud, mobile, social and Big Data, we continue to expect newer storage technologies revenue to grow at high teens while traditional stand-alone storage systems revenue to decline at low teens. We anticipated this trend ahead of the broader market and evolved to a wider and deeper portfolio that has reached an interesting inflection point. For the first time in Q3, our newer storage products6 now make up more than half of our strategic storage business7. This is a good indicator of the progress we've made in transitioning the portfolio, setting EMC up nicely for the future.”
- EMC Information Infrastructure: Third-quarter revenue was down 3% year over year and up 2% year over year on a constant currency basis1. Information Storage revenue was down 2% year over year and up 3% on a constant currency basis1, a result of a higher than expected number of unshipped orders of approximately $100 million. Emerging Storage4 revenue was up 27% year over year and up 32% on a constant currency basis 1. Within Emerging Storage in the quarter, XtremIO had another quarter of strong triple-digit revenue growth and is on track for more than $1 billion in bookings in 2015.
- Pivotal: Third-quarter revenue was up 16% year over year and up 18% on a constant currency basis1. Pivotal continues its transition to a subscription business model, with annual recurring revenue5 at the end of the third quarter of $75 million, up 26% quarter over quarter.
- VMware: Third-quarter revenue was up 10% year over year and up 14% on a constant currency basis1. VMware continues to be a central player in the transformation of IT and its influence continues to grow with key technologies in the software-defined datacenter, end-user computing and hybrid cloud. VMware continues to be integral to EMC's success as demonstrated by the companies' aligned strategies, technology integration and financial results, with VMware representing 27% of EMC consolidated third-quarter revenue and 44% of EMC consolidated third-quarter non-GAAP2 operating income.
EMC's consolidated third-quarter revenue from North America and Latin America was up 4% and 1% year over year, respectively, and up 4% and 14% on constant currency basis1, respectively. EMEA and Asia Pacific and Japan revenue in the third quarter was down 3% and 4% year over year, respectively, and up 7% and 3% on a constant currency basis1, respectively.
Given the announcement made on October 12, 2015 regarding EMC's entry into a definitive merger agreement, the company will no longer be providing outlook for its 2015 financial results.
Details 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).
- To access today's webcast at 8:30 a.m. ET, visit the EMC Investor Relations website
- A replay of today's webcast will be available here
- EMC financial results are available on the U.S. Securities and Exchange Commission website
- For more information about Dell and EMC combining visit http://www.emc.com/futureready
- Visit the VMware Investor Relations website for more detail on its third-quarter results
- Connect with EMC on Twitter ( @EMCCorp and @EMC_News), LinkedIn, Facebook and SocialSphere
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 This release 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.
2 Items excluded from the non-GAAP results for the third 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 third quarters of 2015 and 2014 is included in the non-GAAP results for the third quarters of 2015 and 2014 as if the credit had been enacted. See attached schedules for GAAP to non-GAAP reconciliations.
3 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, 2015 and 2014.
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 Annual Recurring Revenue (“ARR”) is an operational performance metric used to assess the health and trajectory of our Pivotal segment. We calculate ARR as the value of contracted recurring revenue of term subscriptions which includes both current subscriptions and contracted subscriptions with a future start date, adjusted by the actual churn in the period. ARR should be viewed independently of revenue and any other GAAP measure.
6 Newer storage products include all-flash arrays, scale-out file, software-defined storage, converged infrastructure and purpose-built backup appliances.
7 Strategic storage business includes product-related revenue in the storage categories identified as High-End, Unified/Backup, and Emerging.
EMC, Atmos, 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.
Disclosure Regarding Forward Looking Statements
This release contains forward-looking information about EMC Corporation and the proposed transaction that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. 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) the failure to obtain the approval of EMC shareholders in connection with the proposed transaction; (ii) the failure to consummate or delay in consummating the proposed transaction for other reasons; (iii) the risk that a condition to closing of the proposed transaction may not be satisfied or that required financing for the proposed transaction may not be available or may be delayed; (iv) the risk that a regulatory approval that may be required for the proposed transaction is delayed, is not obtained, or is obtained subject to conditions that are not anticipated; (v) risk as to the trading price of Class V Common Stock to be issued by Denali Holding Inc. in the proposed transaction relative to the trading price of shares of VMware, Inc.'s common stock; (vi) the effect of the proposed transaction on VMware's business and operating results and impact on the trading price of shares of Class V Common Stock of Denali Holding Inc. and shares of VMware common stock; (vii) the diversion of management time on transaction-related issues; (viii) adverse changes in general economic or market conditions; (ix) delays or reductions in information technology spending; (x) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (xi) competitive factors, including but not limited to pricing pressures and new product introductions; (xii) component and product quality and availability; (xiii) fluctuations in VMware's operating results and risks associated with trading of VMware common stock; (xiv) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (xv) the ability to attract and retain highly qualified employees; (xvi) insufficient, excess or obsolete inventory; (xvii) fluctuating currency exchange rates; (xiii) threats and other disruptions to our secure data centers or networks; (xix) our ability to protect our proprietary technology; (xx) war or acts of terrorism; and (xxi) 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 (the "SEC"). Except to the extent otherwise required by federal securities laws, EMC disclaims any obligation to update any such forward-looking statements after the date of this release.
Additional Information and Where to Find It
This release does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law. This communication is being made in respect of the proposed business combination transaction between EMC Corporation and Denali Holding Inc. The proposed transaction will be submitted to the shareholders of EMC for their consideration. In connection with the issuance of Class V Common Stock of Denali Holding Inc. in the proposed transaction, Denali Holding Inc. will file with the SEC a Registration Statement on Form S-4 that will include a preliminary proxy statement/prospectus regarding the proposed transaction and each of Denali Holding Inc. and EMC Corporation plans to file with the SEC other documents regarding the proposed transaction . After the registration statement has been declared effective by the SEC, a definitive proxy statement/prospectus will be mailed to each EMC shareholder entitled to vote at the special meeting in connection with the proposed transaction. INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER DOCUMENTS RELATING TO THE TRANSACTION FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors may obtain copies of the proxy statement/prospectus (when available) and all other documents filed with the SEC regarding the proposed transaction, free of charge, at the SEC's website (http://www.sec.gov). Investors may also obtain these documents, free of charge, from EMC's website (www.EMC.com) under the link "Investor Relations" and then under the tab "Financials" then "SEC Filings" or by directing a request to: EMC Corporation, 176 South Street, Hopkinton, Massachusetts, Attn: Investor Relations, 866-362-6973.
Participants in the Solicitation
EMC Corporation and its directors, executive officers and other members of management and employees may be deemed to be “participants” in the solicitation of proxies from EMC shareholders in connection with the proposed transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of EMC shareholders in connection with the proposed transaction and a description of their direct and indirect interest, by security holdings or otherwise, will be set forth in the proxy statement/prospectus filed with the SEC in connection with the proposed transaction. You can find information about EMC's executive officers and directors in its definitive proxy statement filed with the SEC on March 2, 2015 and in its Annual Report on Form 10-K filed with the SEC on February 27, 2015. You can also obtain free copies of these documents from EMC using the contact information above.
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 third quarters of 2015 and 2014 is included in the non-GAAP financial measures for the third 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 Completes Acquisition of Virtustream
- RSA President Outlines Steps to Bolster Cyber Defense in Asia and Beyond
- EMC Boldly Enters SPC Benchmark Arena — Confirms Midrange and High-end Leadership
- EMC Federation Unveils New Innovations, Expanded Partnership with SAP, Partner Programs and Customer Solutions Across Hybrid Cloud Portfolio
- EMC XtremIO Achieves $1 Billion in Aggregate Bookings
- Introducing EMC ScaleIO Node: Loving what's INSIDE the Box
- Hybrid Cloud Meets Mid-Sized Enterprise
- U2 Rocks Global Tour with EMC's All-Flash Technology
- EMC Sustainability Initiatives Earn Coveted Spot in 2015 Dow Jones Sustainability Index for 5th Consecutive Year
- EMC Names Laura Sen to Board of Directors