This summary is based on the fourth quarter fiscal 2006 earnings call conducted by EMC Corp. (EMC) on January 23, 2007.
Management:
Chairman, President and CEO: Joe Tucci
EVP and CFO: David Goulden
Key Investor Issues:
- Total consolidated full year revenue was $11.155 billion versus $9.664 billion last year.
- The GAAP net income for 2006 was $1.22 billion or 54 cents versus $1.13 billion or 47 cents a share in 2005.
- The consolidated revenue for 2007 is forecast to be at least $12.7 billion.
Fiscal 2006 Highlights
- Systems revenue grew 15% during the year to $5.14 billion, fueled by the introduction of new models and enhancements to the company’s entire line of networked storage platforms.
- Software license and maintenance revenue grew 20% to a record $4.27 billion.
- The professional services, systems maintenance and other services revenue grew 10% in 2006, helped by more customers engaging EMC Global Services professionals in planning, building, managing and supporting their information structures.
- The Information Storage business annual revenue increased 9% in fiscal 2006 to $9.6 billion, helped by EMC Symmetrix systems, which recorded their strongest growth in six years.
- The full year revenue for the Content Management and Archiving business grew 42% versus the 2005 levels.
- The VMware revenue also achieved accelerated revenue growth throughout the year, increasing 83% to $709 million in fiscal 2006.
- The company’s product products and service revenue mix as a percentage of total revenue for the full year was 46% systems, 38% software and 16% services.
Fourth-Quarter Financial Highlights
The GAAP net income for the quarter was $389 million, or 18 cents per diluted share.
This is inclusive of 6 cents per share restructuring charge, 5 cents per share tax benefit related to prior years and 2 cents per share tax benefit related to the first three of 2006. Excluding these items, quarter net income was 17 cents per share, 2 cents higher than the Q4 forecast provided by the company in October 2006. The 2 cents improvement is comprised of about 1 cent from a lower tax rate in Q4 than the 26% estimated together with some favorable impact from the financing completed in the quarter and about 1 cent from better operating results. The comparable GAAP net income for Q4 fiscal 2005 was $148 million, or 6 cents per share.
The consolidated gross margin for the quarter was 54.1%, a sequential increase of 140 basis points.
- The service margins were up 80 basis points and product margins increased 160 basis points.
- The increase in product margins was driven primarily by volumes but also helped by mix.
- The Q4 operating income margin excluding one-time items was 14.5%, an increase of 160 basis points from Q3 fiscal 2006.
During the quarter, the company finalized an accelerated integration plan.
- The majority of the 22 acquisitions were made over the last three years.
- The company recognized a pre-tax restructuring charge of $167 million or 6 cents per diluted share.
- The management reported that the final consolidation plan affects about 1,350 employees and eliminates excess facilities and other products.
- The management anticipates the plan will improve efficiencies across the company’s business and reduce costs while facilitating the company to provide a more unified experience to customers.
The company recorded a Q4 net tax benefit of $77 billion, which equated to an effective tax rate of a negative 25%.
- Excluding the tax impact of the 6 cents restructuring charge and the 5 cents or $112 million of one-time tax benefits related to prior years, the company’s Q4 taxes were $73 million or an effective tax rate of 15.2%.
- The 5 cents of one-time tax benefits from prior years is mainly comprised of favorable resolutions of income tax audits in several European countries and the U.S. from periods through 2004.
- The quarterly taxes included a $42 million or 2 cents catch up in tax rate related to the first three quarters of the year. This resulted from the re-enactment of R&D tax credit and charges in the domestic international-income mix. Adjusting for all these items results in a Q4 tax rate of 24%.
The company completed the quarter with $5.6 billion in cash and investments.
The management successfully completed a convertible debt transaction with net proceeds of about $3.4 billion to pay down the $2.2 billion short term credit facility used to fund the purchase of RSA security.
- During the year, the management spent about $3.8 billion to purchase 302 million ordinary shares and to redeem $125 million in convertible debt.
- In the fiscal year 2007, management is committed to spending at least $1 million on the stock repurchase program.
- The company has currently purchased 20 million shares during the year to date.
- The management will also continue to use cash for tuck-in acquisitions and to maintain a strong balance sheet.
- During the quarter, the company spent $155 million in the Avamar acquisition.
- Systems revenues for the quarter were up 12%, quarter software revenues rose 27% and service revenues increased 20% compared with the prior year’s fourth quarter.
- The CapEx for the quarter was $212 million and $718 million for the full year. The One EMC IT initiatives and various facility projects were the major contributors in CapEx usage for the year.
