EMC Reports Record First-Quarter Results

HOPKINTON, Mass., April 17 /PRNewswire-FirstCall/ -- EMC Corporation , the world leader in information infrastructure solutions, today reported record first-quarter revenue and strong profit growth. Highlights of the quarter included increased demand for VMware virtual infrastructure solutions and RSA information security software and accelerating growth in the company's Asia-Pacific and Japan operations.

Total consolidated revenue for the first quarter of 2007 was $2.98 billion, 17% higher than the $2.55 billion reported for the first quarter of 2006.

GAAP net income for the first quarter of 2007 was $312.6 million or $0.15 per diluted share, which included a $0.01 per diluted share tax benefit. GAAP earnings per diluted share for the first quarter was 36% higher than the GAAP earnings per diluted share of $0.11 reported for the year-ago period.

Joe Tucci, EMC Chairman, President and Chief Executive Officer, said, "EMC is off to a solid start in 2007. Customers around the globe continue to embrace our information infrastructure solutions to help store, protect, optimize and leverage their corporate information. We have an established leadership position in the areas of the IT market that CIOs prioritize most. Our first-quarter performance and our focus on integration and execution place us firmly on track to meet our financial targets for 2007."

Tucci continued, "For more than two decades, EMC has been the trusted caretaker of information, partnering with the world's largest companies and government institutions. Our greatest opportunity and competitive advantages lie in the value realized by our customers when our products come together in a unified information infrastructure to solve today's information management issues, better leverage information's value and reduce the costs associated with its explosive growth."

Compared with the first quarter of 2006, EMC systems revenue, which represents 44% of total first-quarter revenue, increased 6%; software license and maintenance revenue, which represents 40% of total revenue, increased 29%; and professional services, systems maintenance and other services revenue, which represents 16% of total revenue, grew by 21%. First-quarter revenue from North America increased 16% compared with the same period a year ago and represents 58% of total reported revenue. First-quarter revenue from customers outside of North America grew 18% year-over-year, driven by strong double-digit revenue growth in Europe, Middle East and Africa, and across the Asia-Pacific region.

Tucci continued, "I am pleased with the improvements in our Asia-Pacific and Japan operations. After strengthening our executive management team in the region about a year ago, our business in that part of the world is back on track, delivering first-quarter revenue growth of nearly 30%. A strong focus on execution and a reinvigorated partner strategy have helped our business in the APJ region expand significantly faster than the overall market and re- emerge as our fastest-growing geography."

David Goulden, EMC Executive Vice President and Chief Financial Officer, said, "Looking across EMC's lines of business and major geographies, we are pleased with our first-quarter performance and our balanced systems, software and services revenue mix. The breadth, quality and diversity of our information infrastructure portfolio is differentiating EMC in the marketplace and strengthening our financial model. We are on pace to grow as fast or faster than the major markets we serve and to gain share of our expanding $60 billion worldwide market opportunity."

Goulden added, "During the quarter, EMC generated strong operating cash flow of $809 million, an increase of 27%, and strong free cash flow of $586 million, an increase of 37% compared with the same period last year. We continue to believe share buybacks are an effective way to deploy our growing cash balance and return value to our shareholders. During the first quarter, we spent $489 million to buy back approximately 35 million EMC shares."

First-Quarter Highlights

EMC's Information Storage business, which includes revenue from storage systems, information management, information protection and resource management software, and related customer and professional services, reached $2.4 billion, an increase of 8% compared with the year-ago quarter. Growth in the Information Storage business reflects continued global demand for EMC's networked storage products and related professional services, for EMC's industry-leading resource management and file virtualization software, and for EMC's comprehensive approach to information protection and recovery management.

VMware, an EMC subsidiary, again achieved record quarterly revenue, growing sales 95% year-over-year to $256 million during the first quarter and placing the company's revenue on an annualized run rate of more than $1 billion. VMware showed continued growth as organizations of various sizes and across numerous industries increasingly standardize on VMware virtual infrastructure for server consolidation and containment, software lifecycle automation, business continuity and desktop manageability and security. VMware and its products received numerous industry accolades during the quarter: VMware Infrastructure 3 received the InfoWorld "Technology of the Year Award," the SearchWinComputing.com "Disaster Recovery Product of the Year Award" and the Network World "Best of the New Data Center Award"; VMware Lab Manager won the 2007 Jolt Product Excellence Award; and Linux Magazine named VMware a "top company to watch" in 2007.

In the first quarter, EMC announced its intention to sell approximately 10% of VMware via an initial public offering (IPO) of newly issued VMware stock. EMC expects the IPO will unlock more of VMware's value for EMC shareholders, strengthen VMware's ability to retain and attract the software industry's top talent, and reinforce EMC's commitment to VMware's open platform strategy.

EMC's Content Management and Archiving business grew first-quarter revenue to $172 million, an increase of 3% year-over-year. Maintenance and professional services revenue for the Content Management and Archiving business grew 30% year-over-year, reflecting strong license growth in 2006. Businesses around the world are relying on EMC's industry-leading content management and archiving solutions for a robust, unified repository, as well as for content and process services to automate their entire business process, ensuring compliance and making it easier to find information within or outside the organization. In the first quarter, EMC announced the availability of the EMC Documentum Process Suite, a comprehensive business process management (BPM) solution for analyzing, modeling, orchestrating and optimizing a wide range of enterprise processes involving people, systems, content and data. The introduction marks the integration of the software gained from EMC's June 2006 acquisition of Proactivity Inc., with EMC's existing Documentum business process management capabilities.

Information Security revenues for the first quarter - the second full quarter of operation for RSA, The Security Division of EMC - grew 25% to $120 million compared with the results reported by the division's constituent companies (RSA Security and Network Intelligence) in the year-ago period. During the quarter, the division attracted more than 1,200 new customers. These results reflect the value of the combined EMC and RSA technology portfolios and RSA's sustained strength within the enterprise, where the focus on identity assurance and robust access controls continues to grow. In addition, the division's consumer identity protection, data security, and information and event management solutions also reported strong year-on-year growth.

About EMC

EMC Corporation 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 http://www.emc.com/.

EMC and Documentum are registered trademarks of EMC Corporation. VMware is a registered trademark of VMware, Inc. RSA is a registered trademark of RSA Security Inc. All other trademarks used are the property of their respective owners.

Contact: Michael Gallant 508-293-6357 gallant_michael@emc.com

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) risks associated with the VMware IPO, including the inability to manage successfully and complete the IPO, and risks associated with trading of VMware stock if the IPO is completed; (v) competitive factors, including but not limited to pricing pressures and new product introductions; (vi) the relative and varying rates of product price and component cost declines and the volume and mixture of product and services revenues; (vii) component and product quality and availability; (viii) the transition to new products, the uncertainty of customer acceptance of new product offerings and rapid technological and market change; (ix) insufficient, excess or obsolete inventory; (x) war or acts of terrorism; (xi) the ability to attract and retain highly qualified employees; (xii) fluctuating currency exchange rates; and (xiii) 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 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 than similar terms used by other companies, and accordingly, care should be exercised in understanding how EMC defines its non-GAAP financial measures.

Where specified in the accompanying schedule entitled "Selected Non-GAAP Data For the Three Months Ended March 31, 2007," stock option expense, restricted stock expense, intangible amortization and certain tax benefits are excluded from the non-GAAP financial measures. In addition, where specified in the accompanying schedule entitled "Selected Non-GAAP Data For the Three Months Ended March 31, 2006," stock option expense, restricted stock expense and intangible amortization are excluded from the non-GAAP financial measures.

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 excludes the above-listed expenses (stock option expense, restricted stock expense, intangible amortization and certain tax benefits) 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. For the first quarter of 2007, free cash flow equals $586.3 million and is calculated as follows: net cash provided by operating activities (as defined by GAAP) of $808.7 million minus additions to property plant and equipment of $170.5 million minus capitalized software development costs of $51.9 million. For the first quarter of 2006, free cash flow equals $427.8 million and is calculated as follows: net cash provided by operating activities (as defined by GAAP) of $637.2 million minus additions to property plant and equipment of $160.5 million minus capitalized software development costs of $48.9 million. 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, 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 stock option expense, restricted stock expense, intangible amortization and certain tax benefits, 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 with respect to the non-GAAP financial measures that exclude stock-based compensation, intangible amortization 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.

EMC CORPORATION Consolidated Income Statements (in thousands, except per share amounts) Unaudited Three Months Ended ------------------------------- March 31, March 31, 2007 2006 ------------- ------------- Revenues: Product sales $2,112,426 $1,848,530 Services 862,579 702,157 ------------- ------------- 2,975,005 2,550,687 Cost and expenses: Cost of product sales 1,038,478 917,897 Cost of services 366,587 299,447 Research and development 355,392 283,489 Selling, general and administrative 875,690 748,224 Restructuring credits (2,670) (1,194) ------------- ------------- Operating income 341,528 302,824 Investment income 52,139 61,803 Interest expense (18,293) (2,010) Other income, net 4,840 2,716 ------------- ------------- Income before taxes 380,214 365,333 Income tax provision 67,607 89,505 ------------- ------------- Income before cumulative effect of change in accounting principle 312,607 275,828 Cumulative effect of change in accounting principle, net of tax benefit of $808 - (3,372) ------------- ------------- Net income $312,607 $272,456 ============= ============= Net income per weighted average share, basic: Income before cumulative effect of a change in accounting principle $0.15 $0.12 Cumulative effect of a change in accounting principle - - ------------- ------------- Net income $0.15 $0.12 ============= ============= Net income per weighted average share, diluted: Income before cumulative effect of a change in accounting principle $0.15 $0.12 Cumulative effect of a change in accounting principle - - ------------- ------------- Net income $0.15 $0.11 ============= ============= Weighted average shares, basic 2,080,039 2,350,606 Weighted average shares, diluted 2,121,826 2,400,312 As a % of total revenue: Gross margin 52.8% 52.3% Selling, general and administrative 29.4% 29.3% Research and development 11.9% 11.1% Operating income 11.5% 11.9% Net income 10.5% 10.7% EMC CORPORATION Selected Non-GAAP Data For the Three Months Ended March 31, 2007 (in thousands, except per share amounts) Unaudited Costs and Expenses ----------------------------------------- Selling, Research General and and Restruct- Cost of Develop- Admini- uring Operating Revenue ment strative Credits Income ----------- --------- --------- --------- --------- GAAP $1,405,065 $355,392 $875,690 $(2,670) $341,528 Adjustments to reconcile to Non- GAAP: Stock Option Expense (1) (11,039) (12,830) (27,090) - 50,959 Restricted Stock Expense (1) (2,519) (10,612) (19,257) - 32,388 Intangible Amortization (2) (29,007) (2,113) (17,123) - 48,243 ----------- --------- --------- --------- --------- Non-GAAP $1,362,500 $329,837 $812,220 $(2,670) $473,118 =========== ========= ========= ========= ========= Net Net Income per Income per Weighted Weighted Average Average Income Income Tax Net Share, Share, Before Tax Provision Income Basic Diluted ----------- --------- --------- --------- --------- GAAP $380,214 $67,607 $312,607 $0.15 $0.15 Adjustments to reconcile to Non-GAAP: Stock Option Expense (1) 50,959 12,895 38,064 0.02 0.02 Restricted Stock Expense (1) 32,388 9,830 22,558 0.01 0.01 Intangible Amortization (2) 48,243 17,040 31,203 0.02 0.01 Tax Benefits (3) - 19,912 (19,912) (0.01) (0.01) ----------- --------- --------- --------- --------- Non-GAAP $511,804 $127,284 $384,520 $0.18 # $0.18 =========== ========= ========= ========= ========= (1) Represents equity compensation recognized pursuant to FAS No. 123R "Share-Based Payment". (2) Represents amortization associated with intangible assets acquired in connection with business combinations. (3) Represents income tax benefits consisting of statute of limitation expirations, resolution of income tax audits and other matters. # May not foot due to rounding. EMC CORPORATION Selected Non-GAAP Data For the Three Months Ended March 31, 2006 (in thousands, except per share amounts) Unaudited Costs and Expenses ----------------------------------------- Selling, Research General and and Restruct- Cost of Develop- Admini- uring Operating Revenue ment strative Credits Income ----------- --------- --------- --------- --------- GAAP $1,217,344 $283,489 $748,224 $(1,194) $302,824 Adjustments to reconcile to Non- GAAP: Stock Option Expense (1) (17,395) (16,885) (40,964) - 75,244 Restricted Stock Expense (1) (1,908) (8,377) (18,087) - 28,372 Intangible Amortization (2) (21,599) (3,413) (10,330) - 35,342 ----------- --------- --------- --------- --------- Non-GAAP $1,176,442 $254,814 $678,843 $(1,194) $441,782 =========== ========= ========= ========= ========= Net Net Income per Income per Weighted Weighted Average Average Income Income Tax Net Share, Share, Before Tax Provision Income Basic Diluted ----------- --------- --------- --------- --------- GAAP $365,333 $89,505 $272,456 $0.12 $0.11 Adjustments to reconcile to Non-GAAP: Stock Option Expense (1) 75,244 14,230 64,386 0.03 0.03 Restricted Stock Expense (1) 28,372 7,864 20,508 0.01 0.01 Intangible Amortization (2) 35,342 12,349 22,993 0.01 0.01 ----------- --------- --------- --------- --------- Non-GAAP $504,291 $123,948 $380,343 $0.16 # $0.16 =========== ========= ========= ========= ========= (1) Represents equity compensation recognized pursuant to FAS No. 123R "Share-Based Payment". (2) Represents amortization associated with intangible assets acquired in connection with business combinations. # May not foot due to rounding. EMC CORPORATION Consolidated Balance Sheets (in thousands, except per share amounts) Unaudited March 31, December 31, 2007 2006 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $2,347,374 $1,828,106 Short-term investments 1,936,816 1,521,925 Accounts and notes receivable, less allowance for doubtful accounts of $33,546 and $39,509 1,542,351 1,692,214 Inventories 824,841 834,800 Deferred income taxes 419,624 418,146 Other current assets 248,657 225,396 ------------- ------------- Total current assets 7,319,663 6,520,587 Long-term investments 1,535,779 2,246,290 Property, plant and equipment, net 2,075,989 2,035,559 Deferred income taxes 109,350 104,446 Intangible assets, net 956,157 1,003,549 Other assets, net 629,478 638,655 Goodwill, net 5,995,892 6,017,161 ------------- ------------- Total assets $18,622,308 $18,566,247 ============= ============= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $726,755 $680,263 Accrued expenses 1,458,330 1,592,022 Income taxes payable 27,941 63,806 Deferred revenue 1,552,615 1,325,671 ------------- ------------- Total current liabilities 3,765,641 3,661,762 Income taxes payable 213,077 219,342 Deferred revenue 732,252 780,124 Long-term convertible debt 3,450,000 3,450,000 Other liabilities 121,560 129,312 Commitments and contingencies Stockholders' equity: Series preferred stock, par value $.01; authorized 25,000 shares, none outstanding - - Common stock, par value $.01; authorized 6,000,000 shares; issued 2,098,455 and 2,122,339 shares 20,985 21,223 Additional paid-in capital 2,250,009 2,564,554 Retained earnings 8,113,609 7,794,493 Accumulated other comprehensive loss (44,825) (54,563) ------------- ------------- Total stockholders' equity 10,339,778 10,325,707 ------------- ------------- Total liabilities and stockholders' equity $18,622,308 $18,566,247 ============= ============= EMC CORPORATION Consolidated Statements of Cash Flows (in thousands) Unaudited Three Months Ended ------------------ March 31, 2007 March 31, 2006 -------------- -------------- Cash flows from operating activities: Cash received from customers $3,298,580 $2,878,265 Cash paid to suppliers and employees (2,471,509) (2,013,463) Dividends and interest received 57,824 60,297 Interest paid (3,201) (2,020) Income taxes paid (73,011) (285,901) -------------- -------------- Net cash provided by operating activities 808,683 637,178 -------------- -------------- Cash flows from investing activities: Additions to property, plant and equipment (170,526) (160,520) Capitalized software development costs (51,920) (48,883) Purchases of short and long-term available for sale securities (1,891,806) (2,185,463) Sales and maturities of short and long-term available for sale securities 2,192,202 1,328,151 Business acquisitions, net of cash acquired (3,261) (18,759) Other (860) (7,700) -------------- -------------- Net cash provided by (used in) investing activities 73,829 (1,093,174) -------------- -------------- Cash flows from financing activities: Issuance of common stock 103,312 62,608 Repurchase of EMC common stock (488,662) (376,056) Excess tax benefits from stock based compensation 12,812 6,309 Payment of long-term and short- term obligations (620) (314) Proceeds from long-term and short- term obligations 2,229 70 -------------- -------------- Net cash used in financing activities (370,929) (307,383) -------------- -------------- Effect of exchange rate changes on cash 7,685 3,794 -------------- -------------- Net increase (decrease) in cash and cash equivalents 519,268 (759,585) Cash and cash equivalents at beginning of period 1,828,106 2,322,370 -------------- -------------- Cash and cash equivalents at end of period $2,347,374 $1,562,785 ============== ============== Reconciliation of net income to net cash provided by operating activities: Net income $312,607 $272,456 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of a change in accounting principle - 3,372 Depreciation and amortization 212,848 181,394 Stock-based compensation expense 83,347 103,616 Reduction in provision for doubtful accounts (787) (2,167) Deferred income taxes, net (457) (31,121) Excess tax benefits from stock based compensation (12,812) (6,309) Other 1,980 6,655 Changes in assets and liabilities, net of acquisitions: Accounts and notes receivable 142,873 205,380 Inventories 18,302 41,498 Other assets (11,068) 19,393 Accounts payable 45,685 54,746 Accrued expenses (150,962) (160,245) Income taxes payable (4,952) (180,562) Deferred revenue 181,489 124,365 Other liabilities (9,410) 4,707 -------------- -------------- Net cash provided by operating activities $808,683 $637,178 ============== ============== EMC Corporation Supplemental Financial Data Revenue Analysis (in thousands) Unaudited Revenue Components Q1 2006 Q2 2006 Q3 2006 ------------------------------------- Revenues Systems $1,226,928 $1,151,600 $1,299,321 Software: Software License 621,602 681,998 736,331 Software Maintenance 303,202 315,189 345,650 ------------------------------------- Total Software License & Maintenance 924,804 997,187 1,081,981 Professional, Systems Maintenance and Other Services 396,081 423,525 431,989 2,547,813 2,572,312 2,813,291 Other Businesses 2,874 2,211 2,015 ------------------------------------- Total Consolidated Revenues $2,550,687 $2,574,523 $2,815,306 ===================================== Percentage impact to EMC revenue growth rate due to changes in exchange rates from the prior year (2.1)% (1.1)% 0.7% Revenue Components Q4 2006 YTD 2006 Q1 2007 ------------------------- ----------- Revenues Systems $1,462,777 $5,140,626 $1,305,766 Software: Software License 897,485 2,937,416 806,660 Software Maintenance 371,163 1,335,204 382,080 ------------------------- ----------- Total Software License & Maintenance 1,268,648 4,272,620 1,188,740 Professional, Systems Maintenance and Other Services 481,471 1,733,066 478,972 3,212,896 11,146,312 2,973,478 Other Businesses 1,678 8,778 1,527 ------------------------- ----------- Total Consolidated Revenues $3,214,574 $11,155,090 $2,975,005 ========================= =========== Percentage impact to EMC revenue growth rate due to changes in exchange rates from the prior year 1.4% (0.2)% 2.1% EMC Corporation Supplemental Financial Data Revenue Analysis (in thousands) Unaudited Supplemental Revenue Data Q1 2006 Q2 2006 Q3 2006 ------------------------------------ Storage Systems Revenue $1,222,624 $1,147,892 $1,295,524 Storage Software License Revenue 446,720 493,002 524,679 Storage Maintenance and Services Revenue 583,010 610,015 619,496 ------------------------------------ Total Storage Revenue $2,252,354 $2,250,909 $2,439,699 ==================================== Content Management and Archiving Systems Revenue $4,304 $3,708 $87 Content Management and Archiving Software License Revenue 83,038 75,161 59,092 Content Management and Archiving Maintenance and Services Revenue 79,978 87,253 90,173 ------------------------------------ Total Content Management and Archiving Revenue $167,320 $166,122 $149,352 ==================================== Security Systems Revenue $- $- $3,710 Security Software License Revenue - - 27,084 Security Maintenance and Services Revenue - - 6,961 ------------------------------------ Total Security Revenue $- $- $37,755 ==================================== VMware Software License Revenue $91,844 $113,835 $125,476 VMware Maintenance and Services Revenue 39,169 43,657 63,024 ------------------------------------ Total VMware Revenue $131,013 $157,492 $188,500 ==================================== Supplemental Revenue Data Q4 2006 YTD 2006 Q1 2007 ------------------------ ----------- Storage Systems Revenue $1,458,740 $5,124,780 $1,302,741 Storage Software License Revenue 550,856 2,015,257 486,558 Storage Maintenance and Services Revenue 656,020 2,468,541 637,629 ------------------------ ----------- Total Storage Revenue $2,665,616 $9,608,578 $2,426,928 ======================== =========== Content Management and Archiving Systems Revenue $522 $8,621 $68 Content Management and Archiving Software License Revenue 106,302 323,593 68,472 Content Management and Archiving Maintenance and Services Revenue 96,172 353,576 103,658 ------------------------ ----------- Total Content Management and Archiving Revenue $202,996 $685,790 $172,198 ======================== =========== Security Systems Revenue $3,515 $7,225 $2,958 Security Software License Revenue 76,835 103,919 81,934 Security Maintenance and Services Revenue 33,581 40,542 34,969 ------------------------ ----------- Total Security Revenue $113,931 $151,686 $119,861 ======================== =========== VMware Software License Revenue $163,492 $494,647 $169,696 VMware Maintenance and Services Revenue 68,539 214,389 86,322 ------------------------ ----------- Total VMware Revenue $232,031 $709,036 $256,018 ======================== ===========