EMC Reports Record Fourth Quarter and Full Year Results
EMC Exceeds Quarterly Revenue and Profit Expectations
Hopkinton, Mass.-Tuesday, January 23, 2007, EMC Corporation (NYSE:EMC), the world leader in information infrastructure solutions, today reported all-time record revenue and strong profit growth for the fourth quarter and full fiscal year 2006. EMC’s 14th consecutive quarter of double-digit year-over-year revenue growth was highlighted by better-than-expected revenue and profit performance.
Total consolidated revenue for the fourth quarter was a record $3.215 billion, 19% higher than the $2.710 billion for the fourth quarter of 2005 and $55 million more than the fourth-quarter revenue forecast provided by EMC in October 2006.
GAAP net income for the fourth quarter of 2006 was $389 million or $0.18 per diluted share, which includes a $0.06 per share restructuring charge, a $0.05 per share tax benefit related to prior years and a $0.02 per share tax benefit related to the first three quarters of 2006. Excluding these items, net income for the fourth quarter of 2006 was $0.17 per share, $0.02 higher than the fourth quarter forecast provided by EMC in October 2006. GAAP reported fourth-quarter net income for 2005 was $148 million or $0.06 per diluted share.
Total consolidated revenue for EMC’s full 2006 fiscal year was a record $11.155 billion, 15% higher than the $9.664 billion reported for the full 2005 fiscal year.
GAAP net income for 2006 was $1.22 billion or $0.54 per diluted share. Excluding special items discussed below diluted earnings per share for 2006 also was $0.54. GAAP reported net income for 2005 was $1.13 billion or $0.47 per diluted share. Adjusting for special items in both years, and had stock options been expensed in 2005, diluted earnings per share would have increased 35% to $0.54 in 2006 from the $0.40 diluted earnings per share in 2005.
Joe Tucci, EMC Chairman, President and Chief Executive Officer, said, “EMC had another record quarter and a solid finish to 2006. We have now delivered strong, double-digit revenue growth for four straight years and we are well positioned to do it again in 2007.”
“EMC has clearly joined the short list of the world’s elite information technology suppliers that organizations around the world choose to partner with to drive their business,” Tucci continued. “We have focused our entire company on information infrastructure, enabling our customers to put their information to work and better leverage its value. We begin 2007 with the technology portfolio, the strategy and, most importantly, the trust of our customers to help them solve their most pressing issues and gain an even greater share of our $60 billion market opportunity.”
During the fourth quarter, EMC achieved double-digit revenue growth across its systems, software and services offerings, and across all four of its major geographies. EMC systems revenue grew 12%; software license and maintenance revenue increased 27%; and professional services, systems maintenance and other services revenue increased 20% compared with the fourth quarter of 2005. Quarterly revenue from North America was up 18%; revenues from Europe, Middle East and Africa grew 22%; revenue from Latin America increased 14%; and revenue from the Asia Pacific and Japan region returned to double-digit growth, increasing 13% compared with the fourth quarter of 2005.
EMC completed the fourth quarter with $5.6 billion in cash and investments. In 2006 the company spent approximately $3.8 billion to purchase 302 million EMC shares and to redeem $125 million in convertible debt.
David Goulden, EMC Executive Vice President and Chief Financial Officer, said, “Looking across our business, we are pleased with how well we performed in the quarter. We achieved solid top- and bottom-line growth, gained market share across each of our four business units, and delivered double-digit revenue growth across all four of our major geographies. We are poised for continued momentum in 2007 as we address our customers’ most critical IT priorities.”
EMC’s Information Storage business, which comprises storage systems, information management, information protection and resource management software, and related customer and professional services, increased revenue 9% compared with the year-ago quarter to $2.67 billion on continued demand for the new EMC CLARiiON CX3 UltraScale and EMC Symmetrix DMX-3 networked storage systems. EMC Rainfinity File Virtualization software revenue more than doubled as more and more organizations turned to file virtualization to improve the management and utilization of files and global file systems. EMC Smarts and EMC NetWorker software continued to gain share on solid, double-digit license revenue growth, reflecting strong customer adoption of EMC’s broad portfolio of resource management and backup and recovery software.
The EMC Content Management and Archiving business grew 43% compared with the year-ago quarter to a record $203 million. EMC continues to expand its lead in enterprise content management, as more organizations turn to EMC Documentum software to effectively manage their increasing volumes of unstructured information.
Information security revenues for the fourth quarter—the first full quarter of operations for RSA, the Security Division of EMC—grew 26% to $114 million compared with the results reported by the division’s constituent companies (RSA Security and Network Intelligence) in the year-ago period. The division’s strong performance reflected continued traction for RSA’s consumer identity protection solutions as a result of federal guidelines for stronger authentication practices in online banking and concerns over credit card fraud and identity theft. It also demonstrates the early post-acquisition progress that has been made in integrating the division’s operations and customers’ enthusiastic response to EMC’s information-centric approach to securing business information.
VMware, an EMC subsidiary, had its 31st consecutive record quarter and grew total revenues 101% year-over-year to $232 million. VMware has delivered accelerating year-over-year growth for the past five quarters. VMware’s exceptional performance was fueled by rapid customer adoption of VMware Infrastructure 3, which began shipping in June 2006. VMware’s fourth-quarter momentum and expanding customer base were driven in part by the release of 64-bit support for VMware Infrastructure 3, VMware Lab Manager – an automation suite designed to improve software development processes, and a new virtual appliance marketplace and certification program now delivering more than 380 virtual appliances.
EMC had double-digit revenue growth across its systems, software and services offerings in 2006 as organizations turned to EMC’s portfolio to better store, protect, optimize and leverage their expanding volumes of information in increasingly complex IT environments.
Systems revenue grew 15% during the year to $5.14 billion, helped by the introduction of new models and enhancements to EMC’s entire line of networked storage platforms. Software license and maintenance revenue grew 20% to a record $4.27 billion. Professional services, systems maintenance and other services revenue grew 10% in 2006, as more customers engaged EMC Global Services professionals to help plan, build, manage and support their information infrastructures.
EMC’s Information Storage business annual revenue increased 9% in 2006 to $9.6 billion, driven in large part by EMC Symmetrix systems, which had their strongest growth in six years. Annual revenue for EMC’s Content Management and Archiving business grew 42% compared to 2005. Had EMC owned RSA and Network Intelligence for all of 2005 and 2006, 2006 annual revenues for the RSA security division would have been up 26% year over year. VMware revenue also achieved accelerated revenue growth throughout the year, increasing revenues 83% to $709 million for 2006.
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 after the date hereof. These statements supersede all prior statements regarding business outlook set forth in prior EMC news releases.
* Consolidated revenue for 2007 is expected to be at least $12.7 billion, representing 14% growth over 2006.
* GAAP diluted earnings per share for 2007 are expected to be at least $0.64, representing 19% growth over 2006 diluted earnings per share of $0.54.
* The tax rate for 2007 is expected to be in the mid-20s.
* Stock option expense is expected to be approximately $0.09 per diluted share and the cost associated with acquisition amortization is expected to be approximately $0.07 per diluted share.
The net impact of special items on full-year 2006 EPS was $0.00 per diluted share maintaining diluted earnings per share at $0.54 on both a GAAP and adjusted basis. These items included a:
* $129 million after-tax net restructuring charge.
* $35 million in-process research and development charge relating to various acquisitions.
* $144 million in tax benefits, primarily from the favorable resolution of income tax audits.
The net impact of special items on full-year 2005 EPS was $0.07 per diluted share, decreasing GAAP diluted earnings per share from $0.47 to $0.40. These items included a:
* $14 million in-process research and development charge relating to various acquisitions.
* $180 million charge for income taxes related to the repatriation of approximately $3 billion of accumulated income earned abroad.
* $70 million after-tax net restructuring charge.
* $106 million in tax benefits from an income tax settlement.
* $320 million of after-tax stock option expense had EMC expensed options in 2005.
EMC Corporation (NYSE: EMC) is the world’s leading developer and provider of information infrastructure technology and solutions that enable organizations of all sizes to transform the way they compete and create value from their information. Information about EMC’s products and services can be found at www.EMC.com.
For more on EMC news, events, and recent media coverage visit the news section of EMC.com. Note to editors: For further information about this release contact EMC Public Relations at firstname.lastname@example.org
EMC, Symmetrix, CLARiiON, Rainfinity, Documentum and Smarts are registered trademarks, and Global File Virtualization, NetWorker, RecoverPoint, and UltraScale are trademarks of EMC and its subsidiaries. VMware is a registered trademark of VMware Inc. RSA is a registered trademark of RSA. 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) 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, measures of EMC’s financial performance prepared in accordance with GAAP. The reconciliation for the diluted earnings per share for the fourth quarter of 2006 and the fourth quarter of 2005 and diluted earnings per share for 2006 and 2005 are in the tables entitled “Selected Non-GAAP Data” for the quarters and years ended December 31, 2006 and 2005 attached to this release. EMC’s non-GAAP financial 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.
As specified, certain non-GAAP financial measures in the accompanying schedule entitled “Selected Non-GAAP Data For the Three Months Ended December 31, 2006” are adjusted for restructuring charges and the tax impact of such restructuring charges and certain tax benefits. Where specified, in the accompanying schedule entitled “Selected Non-GAAP Data For the Year Ended December 31, 2006,” in-process research and development charges, restructuring charges, the related tax impact and certain tax benefits are excluded from the non-GAAP financial measures in such schedule. In addition, stock option expense was included, and in-process research and development charges, restructuring charges, the related tax impact and certain tax charges are excluded from the non-GAAP financial measures in the accompanying schedule entitled “Selected Non-GAAP Data For the Three Months Ended December 31, 2005” where specified. Stock option expense was included, and in-process research and development charges, restructuring charges, the related tax impact and certain tax charges are excluded from the non-GAAP financial measures in the accompanying schedule entitled “Selected Non-GAAP Data For the Year Ended December 31, 2005” where specified. Stock option expense, restricted stock expense, intangible amortization, restructuring charges, the related tax impact and certain tax benefits are excluded from the non-GAAP financial measures in the accompanying schedule entitled “Selected Non-GAAP Data For the Three Months Ended December 31, 2006” where specified. Finally, stock option expense, restricted stock expense, intangible amortization, in-process research and development, restructuring charges, the related tax impact and certain tax benefits are excluded from the non-GAAP financial measures in the accompanying schedule entitled “Selected Non-GAAP Data For the Year Ended December 31, 2006” where specified.
EMC’s management uses 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 and excludes the above listed expenses from its internal financial statements for purposes of its internal budgets and each reporting segment’s financial goals. 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. These non-GAAP financial measures have limitations, however, because they do not include all items of income and expense that affect EMC’s operations. Specifically, 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 with respect to the non-GAAP financial measures that exclude stock-based compensation, intangible amortization, in-process research and development, restructuring charges, the related tax impact of each and certain tax charges and benefits, 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.
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