VMware Reports Record Fourth Quarter and Full Year 2013 Results
Date : 28 Jan 2014Quarterly Review
- Revenues for the fourth quarter were
$1.48 billion , an increase of 15% from the fourth quarter of 2012. Excluding revenues attributable to Pivotal and all divestitures that occurred in 2013, revenues for the fourth quarter increased 20% from the fourth quarter of 2012.(1)
- Operating income for the fourth quarter was
$374 million , an increase of 48% from the fourth quarter of 2012. Non-GAAP operating income for the fourth quarter was$528 million , an increase of 25% from the fourth quarter of 2012.
- Net income for the fourth quarter was
$335 million , or$0.77 per diluted share, an increase of 62% per diluted share compared to$206 million , or$0.47 per diluted share, for the fourth quarter of 2012. Non-GAAP net income for the quarter was$436 million , or$1.01 per diluted share, an increase of 25% per diluted share compared to$349 million , or$0.81 per diluted share, for the fourth quarter of 2012.
- Operating cash flows for the fourth quarter were
$688 million , an increase of 40% from the fourth quarter of 2012. Free cash flows for the quarter were$590 million , an increase of 44% from the fourth quarter of 2012.
Annual Review
- Revenues for 2013 were
$5.21 billion , an increase of 13% from 2012 or an increase of 17% excluding revenues attributable to Pivotal and all divestitures that occurred in 2013.(1)
- Operating income for 2013 was
$1.09 billion , an increase of 25% from 2012. Non-GAAP operating income for 2013 was$1.77 billion , an increase of 19% from 2012.
- Net income for 2013 was
$1.01 billion , or$2.34 per diluted share, an increase of 36% compared to$746 million , or$1.72 per diluted share, for 2012. Non-GAAP net income for 2013 was$1.46 billion , or$3.37 per diluted share, an increase of 18% per diluted share compared to$1.24 billion , or$2.85 per diluted share, for 2012.
- Operating cash flows for 2013 were
$2.54 billion , an increase of 34% from 2012, and free cash flows for the year were$2.19 billion , an increase of 32% from 2012.
- Cash, cash equivalents and short-term investments were
$6.18 billion and unearned revenues were$4.09 billion as ofDecember 31, 2013 .
"Our strong performance throughout 2013 is evidence that our customers are embracing our vision and realizing value from our solutions," said
"We delivered record 2013 results as customer demand across all our business offerings continues to thrive," said
Recent Highlights & Strategic Announcements
- Following VMworld® 2013 and VMworld 2013 Europe, where
VMware hosted a combined total of over 31,000 registered attendees,VMware took VMworld on the road to theAsia Pacific Region and heldVMware vForum customer and partner user conferences in six countries hosting 27,000 attendees.
- Last week
VMware announced its intent to acquire AirWatch, the leader in Enterprise Mobile Management and Security. This acquisition will provide customers the most complete end-user computing solution to manage users, devices and applications across desktops and mobile environments.VMware also recently acquiredDesktone, Inc. , which pioneered Desktop as a Service® (DaaS) to deliver Windows desktops and applications as a cloud service to any user, anywhere, on any device.
VMware announced general availability of new and updated Management solutions purpose-built for the cloud, includingVMware vCloud® Automation Center™ 6.0,VMware vCenter™ Operations Management Suite™ 5.8 and VMware IT Business Management Suite™. These solutions simplify and automate how IT is managed, helping customers on their journey to deliver IT as a Service.
VMware vCloud Hybrid Service™ continues to see good customer traction and momentum having launched itsU.K private beta service in December and opened another new data center in the U.S.VMware also recently announced HIPAA compliance providing healthcare customers the agility and flexibility of vCloud Hybrid Service and the ability to collaborate, share, store and centralize Protected Healthcare Information to operate more efficiently while protecting patient privacy.
VMware announced general availability of VMware NSX™, the network virtualization platform, whichVMware expects to do for networking what server virtualization did for compute. In addition,VMware announced a partnership with security leader Palo Alto Networks to co-develop a solution that will enable customers to use the VMware NSX platform to automate provisioning and distribution of Palo Alto Networks technologies in their software-defined data centers.
(1) Comparative growth percentages exclude revenues in each period attributable to the products and services contributed to
About
Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to
Forward-Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding long-term customer commitments to
VMware, Inc. CONSOLIDATED STATEMENTS OF INCOME (amounts in millions, except per share amounts, and shares in thousands) (unaudited) For the Three Months Ended For the Year Ended December 31, December 31, ------------------------ ------------------------ 2013 2012 2013 2012 ----------- ----------- ----------- ----------- Revenues: License$ 687 $ 597 $ 2,270 $ 2,087 Services 796 696 2,937 2,518 ----------- ----------- ----------- ----------- Total revenues 1,483 1,293 5,207 4,605 Operating expenses (1): Cost of license revenues 47 63 210 237 Cost of services revenues 145 128 520 484 Research and development 284 268 1,082 999 Sales and marketing 507 478 1,815 1,645 General and administrative 122 103 419 368 Realignment charges 4 - 68 - ----------- ----------- ----------- ----------- Operating income 374 253 1,093 872 Investment income 8 6 30 27 Interest expense with EMC (1) (1) (4) (5) Other income (expense), net - 2 28 (1) ----------- ----------- ----------- ----------- Income before income taxes 381 260 1,147 893 Income tax provision 46 54 133 147 ----------- ----------- ----------- ----------- Net income$ 335 $ 206 $ 1,014 $ 746 =========== =========== =========== =========== Net income per weighted- average share, basic for Class A and Class B$ 0.78 $ 0.48 $ 2.36 $ 1.75 Net income per weighted- average share, diluted for Class A and Class B$ 0.77 $ 0.47 $ 2.34 $ 1.72 Weighted-average shares, basic for Class A and Class B 430,174 427,266 429,093 426,658 Weighted-average shares, diluted for Class A and Class B 433,621 433,205 433,415 433,974 ______ (1) Includes stock-based compensation as follows: Cost of license revenues$ - $ 1 $ 2 $ 2 Cost of services revenues 8 7 29 28 Research and development 62 63 227 210 Sales and marketing 38 39 144 150 General and administrative 14 14 56 48 Realignment charges - - 6 - VMware, Inc. CONSOLIDATED BALANCE SHEETS (amounts in millions, except per share amounts, and shares in thousands) (unaudited) December 31, ------------------------------- 2013 2012 --------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 2,305 $ 1,609 Short-term investments 3,870 3,022 Accounts receivable, net of allowance for doubtful accounts of$2 and$4 1,220 1,151 Due from related parties, net - 68 Deferred tax asset 190 179 Other current assets 96 91 --------------- --------------- Total current assets 7,681 6,120 Property and equipment, net 845 665 Other assets, net 107 128 Deferred tax asset 60 103 Intangible assets, net 607 732 Goodwill 3,027 2,848 --------------- --------------- Total assets$ 12,327 $ 10,596 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 109 $ 90 Accrued expenses and other 608 644 Due to related parties, net 18 - Unearned revenues 2,558 2,196 --------------- --------------- Total current liabilities 3,293 2,930 Note payable to EMC 450 450 Unearned revenues 1,534 1,265 Other liabilities 234 211 --------------- --------------- Total liabilities 5,511 4,856 Commitments and contingencies Stockholders' equity: Class A common stock, par value$.01 ; authorized 2,500,000 shares; issued and outstanding 130,349 and 128,688 shares 1 1 Class B convertible common stock, par value$.01 ; authorized 1,000,000 shares; issued and outstanding 300,000 shares 3 3 Additional paid-in capital 3,496 3,432 Accumulated other comprehensive income 4 6 Retained earnings 3,312 2,298 --------------- --------------- Total stockholders' equity 6,816 5,740 --------------- --------------- Total liabilities and stockholders' equity$ 12,327 $ 10,596 =============== =============== VMware, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited) For the Three Months Ended For the Year Ended December 31, December 31, -------------------- -------------------- 2013 2012 2013 2012 --------- --------- --------- --------- Operating activities: Net income$ 335 $ 206 $ 1,014 $ 746 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 76 93 337 355 Stock-based compensation 122 124 454 426 Excess tax benefits from stock- based compensation (10) (27) (70) (138) Deferred income taxes, net 15 (4) 56 (74) Non-cash realignment charges - - 15 - Gain on disposition of certain lines of business and other, net - - (31) - Other 4 4 7 2 Changes in assets and liabilities, net of acquisitions: Accounts receivable (431) (470) (71) (268) Other assets 13 9 (59) (112) Due to/from related parties, net (23) (22) 60 6 Accounts payable 14 (2) 30 24 Accrued expenses 93 85 1 22 Income taxes receivable from EMC 1 19 17 19 Income taxes payable 23 11 19 138 Unearned revenues 456 467 756 751 --------- --------- --------- --------- Net cash provided by operating activities 688 493 2,535 1,897 --------- --------- --------- --------- Investing activities: Additions to property and equipment (98) (82) (345) (234) Purchases of available-for-sale securities (953) (469) (3,181) (3,189) Sales of available-for-sale securities 527 227 1,599 1,880 Maturities of available-for-sale securities 120 134 717 902 Proceeds from disposition of certain lines of business - - 37 - Business acquisitions, net of cash acquired (105) - (289) (1,344) Other investing 1 (37) (10) (50) --------- --------- --------- --------- Net cash used in investing activities (508) (227) (1,472) (2,035) --------- --------- --------- --------- Financing activities: Proceeds from issuance of common stock 12 39 197 253 Repurchase of common stock (116) (160) (508) (467) Excess tax benefits from stock- based compensation 10 27 70 138 Shares repurchased for tax withholdings on vesting of restricted stock (44) (43) (126) (133) --------- --------- --------- --------- Net cash used in financing activities (138) (137) (367) (209) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents 42 129 696 (347) Cash and cash equivalents at beginning of the period 2,263 1,480 1,609 1,956 --------- --------- --------- --------- Cash and cash equivalents at end of the period$ 2,305 $ 1,609 $ 2,305 $ 1,609 ========= ========= ========= ========= VMware, Inc. SUPPLEMENTAL REVENUES SCHEDULE (INCLUDES RECONCILIATION OF GAAP TO NON-GAAP DATA) (in millions) (unaudited) For the Three Months For the Three Months Ended Ended -------------------------------------- -------------------- December September March December September 31, 30, June 30, 31, 31, 30, 2013 2013 2013 2013 2012 2012 Revenues as reported (1): License$ 687 $ 564 $ 531 $ 488 $ 597 $ 491 Software maintenance 699 644 614 605 591 551 Professional services 97 81 98 98 105 92 -------- -------- -------- -------- -------- -------- Total revenues$ 1,483 $ 1,289 $ 1,243 $ 1,191 $ 1,293 $ 1,134 ======== ======== ======== ======== ======== ======== Change (%) over prior year License 15.1% 14.8% 2.6% 1.3% 16.1% 10.7% Software maintenance 18.3% 16.9% 18.3% 23.0% 27.5% 29.0% Professional services -8.4% -11.4% 13.4% 20.8% 27.0% 28.6% -------- -------- -------- -------- -------- -------- Total revenues 14.7% 13.7% 10.7% 12.9% 22.0% 20.4% ======== ======== ======== ======== ======== ======== Revenues as reported, excluding Pivotal (2) License$ 687 $ 564 $ 531 $ 485 $ 589 $ 486 Software maintenance 699 644 614 601 587 546 Professional services 97 81 98 84 77 72 -------- -------- -------- -------- -------- -------- Total revenues$ 1,483 $ 1,289 $ 1,243 $ 1,170 $ 1,253 $ 1,104 ======== ======== ======== ======== ======== ======== Change (%) over prior year License 16.6% 16.0% 4.4% 1.5% 15.7% 11.2% Software maintenance 19.2% 17.8% 19.3% 23.0% 27.5% 28.9% Professional services 24.5% 14.0% 45.1% 19.8% 6.4% 12.3% -------- -------- -------- -------- -------- -------- Total revenues 18.3% 16.8% 14.0% 12.8% 20.3% 19.4% ======== ======== ======== ======== ======== ======== Revenues as reported, excluding Pivotal and all dispositions (3) License$ 687 $ 562 $ 526 $ 476 $ 581 $ 479 Software maintenance 699 642 611 590 574 535 Professional services 97 81 98 83 77 70 -------- -------- -------- -------- -------- -------- Total revenues$ 1,483 $ 1,285 $ 1,235 $ 1,149 $ 1,232 $ 1,084 ======== ======== ======== ======== ======== ======== Change (%) over prior year License 18.2% 17.3% 5.3% 1.1% 16.0% 11.8% Software maintenance 21.8% 20.0% 21.3% 23.4% 27.2% 28.5% Professional services 24.8% 15.4% 45.6% 19.9% 6.3% 11.3% -------- -------- -------- -------- -------- -------- Total revenues 20.3% 18.5% 15.4% 12.9% 20.3% 19.4% ======== ======== ======== ======== ======== ======== Reconciliation of "revenues as reported" to"revenues as reported, excluding Pivotaland all dispositions": Revenues as reported, excluding Pivotal and all dispositions (3)$ 1,483 $ 1,285 $ 1,235 $ 1,149 $ 1,232 $ 1,084 Pivotal - - - 22 40 30 All dispositions - 4 8 20 21 20 -------- -------- -------- -------- -------- -------- Revenues as reported (1)$ 1,483 $ 1,289 $ 1,243 $ 1,191 $ 1,293 $ 1,134 ======== ======== ======== ======== ======== ======== For the Three Months Ended For the Year Ended ------------------ ------------------ March December December June 30, 31, 31, 31, 2012 2012 2013 2012 Revenues as reported (1): License$ 517 $ 482 $ 2,270 $ 2,087 Software maintenance 519 492 2,563 2,153 Professional services 87 81 374 365 -------- -------- -------- -------- Total revenues$ 1,123 $ 1,055 $ 5,207 $ 4,605 ======== ======== ======== ======== Change (%) over prior year License 11.3% 15.0% 8.7% Software maintenance 34.4% 35.3% 19.0% Professional services 23.7% 33.0% 2.5% -------- -------- -------- Total revenues 21.9% 25.1% 13.1% ======== ======== ======== Revenues as reported, excluding Pivotal (2) License$ 508 $ 478 $ 2,266 $ 2,061 Software maintenance 515 489 2,559 2,137 Professional services 68 69 360 287 -------- -------- -------- -------- Total revenues$ 1,091 $ 1,036 $ 5,185 $ 4,485 ======== ======== ======== ======== Change (%) over prior year License 9.8% 15.1% 10.0% Software maintenance 34.3% 35.0% 19.7% Professional services 8.3% 24.3% 25.6% -------- -------- -------- Total revenues 20.0% 24.4% 15.6% ======== ======== ======== Revenues as reported, excluding Pivotal and all dispositions (3) License$ 500 $ 471 $ 2,251 $ 2,031 Software maintenance 504 478 2,542 2,090 Professional services 67 69 359 284 -------- -------- -------- -------- Total revenues$ 1,071 $ 1,018 $ 5,152 $ 4,405 ======== ======== ======== ======== Change (%) over prior year License 9.2% 14.5% 10.9% Software maintenance 33.1% 33.7% 21.6% Professional services 8.1% 24.3% 26.2% -------- -------- -------- Total revenues 19.2% 23.5% 16.9% ======== ======== ======== Reconciliation of "revenues as reported" to"revenues as reported, excluding Pivotaland all dispositions": Revenues as reported, excluding Pivotal and all dispositions (3)$ 1,071 $ 1,018 $ 5,152 $ 4,405 Pivotal 32 19 22 120 All dispositions 20 18 33 80 -------- -------- -------- -------- Revenues as reported (1)$ 1,123 $ 1,055 $ 5,207 $ 4,605 ======== ======== ======== ======== (1) Represents revenues reported each quarter. (2) Represents revenues reported each quarter less the revenues attributable to products and services contributed byVMware toPivotal Software, Inc. ("Pivotal") onApril 1, 2013 . All quarters have been adjusted to exclude the related revenues. (3) Represents revenues reported each quarter less a) the revenues attributable to products and services contributed byVMware to Pivotal onApril 1, 2013 and b) the revenues attributable to all lines of businesses which were disposed of in 2013, including Zimbra which was disposed of inJuly 2013 . All quarters have been adjusted to exclude the related revenues. VMware, Inc. SUPPLEMENTAL UNEARNED REVENUES SCHEDULE (INCLUDES RECONCILIATION OF GAAP TO NON-GAAP DATA) (in millions) (unaudited) September December 31, 30, June 30, March 31, 2013 2013 2013 2013 Unearned revenues as reported (1) License$ 465 $ 415 $ 427 $ 446 Software maintenance 3,304 2,937 2,903 2,797 Professional services 323 284 266 247 ------------ ------------ ------------ ------------ Total unearned revenues$ 4,092 $ 3,636 $ 3,596 $ 3,490 ============ ============ ============ ============ Change (%) over prior year License 0.5% 13.3% 13.7% 19.6% Software maintenance 19.9% 21.6% 23.2% 24.5% Professional services 33.1% 34.3% 26.8% 30.6% ------------ ------------ ------------ ------------ Total unearned revenues 18.3% 21.5% 22.2% 24.3% ============ ============ ============ ============ Unearned revenues as reported, excluding Pivotal and all dispositions (2) License$ 465 $ 414 $ 427 $ 407 Software maintenance 3,304 2,933 2,903 2,736 Professional services 323 285 266 246 ------------ ------------ ------------ ------------ Total unearned revenues$ 4,092 $ 3,632 $ 3,596 $ 3,389 ============ ============ ============ ============ Change (%) over prior year License 12.3% 26.4% 27.1% 15.7% Software maintenance 23.7% 25.0% 26.8% 25.0% Professional services 34.4% 35.7% 28.7% 31.7% ------------ ------------ ------------ ------------ Total unearned revenues 23.0% 26.0% 27.0% 24.3% ============ ============ ============ ============ Reconciliation of "unearned revenues as reported" to "unearned revenues as reported, excluding Pivotal and all dispositions": Unearned revenues as reported, excluding Pivotal and all dispositions (2)$ 4,092 $ 3,632 $ 3,596 $ 3,389 Pivotal and all dispositions - 4 - 101 ------------ ------------ ------------ ------------ Unearned revenues as reported (1)$ 4,092 $ 3,636 $ 3,596 $ 3,490 ============ ============ ============ ============ September December 31, 30, June 30, March 31, 2012 2012 2012 2012 Unearned revenues as reported (1) License$ 463 $ 366 $ 376 $ 373 Software maintenance 2,755 2,415 2,357 2,246 Professional services 243 212 209 189 ------------ ------------ ------------ ------------ Total unearned revenues$ 3,461 $ 2,993 $ 2,942 $ 2,808 ============ ============ ============ ============ Change (%) over prior year License 18.9% 35.8% 56.5% 48.4% Software maintenance 29.1% 33.8% 39.8% 41.3% Professional services 30.8% 32.5% 37.9% 37.3% ------------ ------------ ------------ ------------ Total unearned revenues 27.8% 34.0% 41.6% 41.9% ============ ============ ============ ============ Unearned revenues as reported, excluding Pivotal and all dispositions (2) License$ 414 $ 327 $ 336 $ 352 Software maintenance 2,671 2,346 2,289 2,189 Professional services 241 210 207 186 ------------ ------------ ------------ ------------ Total unearned revenues$ 3,326 $ 2,883 $ 2,832 $ 2,727 ============ ============ ============ ============ Change (%) over prior year License 11.6% 25.9% 49.4% 45.4% Software maintenance 28.5% 33.3% 38.7% 40.4% Professional services 30.8% 31.9% 36.2% 36.0% ------------ ------------ ------------ ------------ Total unearned revenues 26.3% 32.3% 39.7% 40.7% ============ ============ ============ ============ Reconciliation of "unearned revenues as reported" to "unearned revenues as reported, excluding Pivotal and all dispositions": Unearned revenues as reported, excluding Pivotal and all dispositions (2)$ 3,326 $ 2,883 $ 2,832 $ 2,727 Pivotal and all dispositions 135 110 110 81 ------------ ------------ ------------ ------------ Unearned revenues as reported (1)$ 3,461 $ 2,993 $ 2,942 $ 2,808 ============ ============ ============ ============ (1) Represents unearned revenues reported each quarter. (2) Represents unearned revenues reported each quarter less a) the unearned revenues attributable to products and services contributed byVMware to Pivotal onApril 1, 2013 and b) the unearned revenues attributable to all lines of businesses which were disposed of in 2013, including Zimbra which was disposed of inJuly 2013 . All quarters have been adjusted to exclude the related unearned revenues. VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended December 31, 2013 (amounts in millions, except per share amounts, and shares in thousands) (unaudited) Employer Payroll Taxes on Employee Intangible Stock-Based Stock Amortiz- GAAP Compensation Transactions ation ---------- ---------- ---------- ---------- Operating expenses: Cost of license revenues$ 47 - - (23) Cost of services revenues$ 145 (8) - - Research and development$ 284 (62) (1) (1) Sales and marketing$ 507 (38) - (1) General and administrative$ 122 (14) - - Realignment charges$ 4 - - - Operating income$ 374 122 1 25 Operating margin (2) 25.2% 8.2% 0.1% 1.7% Income before income taxes$ 381 122 1 25 Income tax provision$ 46 Tax rate (2) 12.1% Net income$ 335 122 1 25 Net income per weighted- average share, basic for Class A and Class B (2) (3)$ 0.78 $ 0.28 $ -$ 0.06 Net income per weighted- average share, diluted for Class A and Class B (2) (4)$ 0.77 $ 0.28 $ -$ 0.06 Acquisition and Other Tax Non-GAAP, Realignment Related Adjustment as Charges Items (1) adjusted ---------- ---------- ---------- ---------- Operating expenses: Cost of license revenues - - -$ 24 Cost of services revenues - - -$ 137 Research and development - - -$ 220 Sales and marketing - - -$ 468 General and administrative - (2) -$ 106 Realignment charges (4) - - $ - Operating income 4 2 -$ 528 Operating margin (2) 0.3% 0.1% - 35.6% Income before income taxes 4 2 -$ 535 Income tax provision 53$ 99 Tax rate (2) 18.5% Net income 4 2 (53)$ 436 Net income per weighted- average share, basic for Class A and Class B (2) (3)$ 0.01 $ -$ (0.12) $ 1.01 Net income per weighted- average share, diluted for Class A and Class B (2) (4)$ 0.01 $ -$ (0.11) $ 1.01 (1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. (2) Operating margin, tax rate and net income per weighted-average share information are calculated based upon the respective underlying, non-rounded data. (3) Calculated based upon 430,174 basic weighted-average shares for Class A and Class B. (4) Calculated based upon 433,621 diluted weighted-average shares for Class A and Class B. VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended December 31, 2012 (amounts in millions, except per share amounts, and shares in thousands) (unaudited) Employer Payroll Taxes on Employee Stock-Based Stock Intangible GAAP Compensation Transactions Amortization ------------ ------------ ------------ ------------ Operating expenses: Cost of license revenues $ 63 (1) - (25) Cost of services revenues$ 128 (7) - (1) Research and development$ 268 (63) (1) (1) Sales and marketing$ 478 (39) (1) (3) General and administrative$ 103 (14) (1) - Operating income$ 253 124 3 30 Operating margin (3) 19.5% 9.6% 0.3% 2.4% Income before income taxes$ 260 124 3 30 Income tax provision $ 54 Tax rate (3) 20.8% Net income$ 206 124 3 30 Net income per weighted-average share, basic for Class A and Class B (3) (4)$ 0.48 $ 0.29 $ 0.01 $ 0.07 Net income per weighted-average share, diluted for Class A and Class B (3) (5)$ 0.47 $ 0.29 $ 0.01 $ 0.07 Capitalized Acquisition Software Tax Related Development Adjustment Non-GAAP, Items Costs (1) (2) as adjusted ------------ ------------ ------------ ------------ Operating expenses: Cost of license revenues - (13) - $ 24 Cost of services revenues - - -$ 120 Research and development - - -$ 203 Sales and marketing - - -$ 435 General and administrative (1) - - $ 87 Operating income 1 13 -$ 424 Operating margin (3) - 1.0% - 32.8% Income before income taxes 1 13 -$ 431 Income tax provision 28 $ 82 Tax rate (3) 19.0% Net income 1 13 (28)$ 349 Net income per weighted-average share, basic for Class A and Class B (3) (4) $ -$ 0.03 $ (0.06) $ 0.82 Net income per weighted-average share, diluted for Class A and Class B (3) (5) $ -$ 0.03 $ (0.06) $ 0.81 (1) For the fourth quarter of 2012, no costs were capitalized for the development of software products. Amortization expense from previously capitalized amounts was$13 . (2) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. (3) Operating margin, tax rate and net income per weighted-average share information are calculated based upon the respective underlying, non-rounded data. (4) Calculated based upon 427,266 basic weighted-average shares for Class A and Class B. (5) Calculated based upon 433,205 diluted weighted-average shares for Class A and Class B. VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Year Ended December 31, 2013 (amounts in millions, except per share amounts, and shares in thousands) (unaudited) Employer Payroll Taxes on Employee Intangible Stock-Based Stock Amortiz- Realignment GAAP Compensation Transactions ation Charges --------- --------- --------- --------- --------- Operating expenses: Cost of license revenues$ 210 (2) - (90) - Cost of services revenues$ 520 (29) (1) (2) - Research and development$ 1,082 (227) (4) (4) - Sales and marketing$ 1,815 (144) (3) (7) - General and administrative$ 419 (56) (2) - - Realignment charges$ 68 - - - (68) Operating income$ 1,093 458 10 103 68 Operating margin (3) 21.0% 8.8% 0.2% 2.0% 1.3% Other income (expense), net$ 28 - - - - Income before income taxes$ 1,147 458 10 103 68 Income tax provision$ 133 Tax rate (3) 11.6% Net income$ 1,014 458 10 103 68 Net income per weighted-average share, basic for Class A and Class B (3) (4)$ 2.36 $ 1.07 $ 0.02 $ 0.24 $ 0.16 Net income per weighted-average share, diluted for Class A and Class B (3) (5)$ 2.34 $ 1.06 $ 0.02 $ 0.24 $ 0.16 Gain on Disposition of Acquisition Capitalized Certain and Other Software Lines of Tax Non-GAAP, Related Development Business & Adjust- as Items Costs (1) Other, Net ment (2) adjusted --------- --------- --------- --------- --------- Operating expenses: Cost of license revenues - (34) - -$ 84 Cost of services revenues - - - -$ 488 Research and development - - - -$ 847 Sales and marketing - - - -$ 1,661 General and administrative (5) - - -$ 356 Realignment charges - - - - $ - Operating income 5 34 - -$ 1,771 Operating margin (3) - 0.7% - - 34.0% Other income (expense), net - - (31) -$ (3) Income before income taxes 5 34 (31) -$ 1,794 Income tax provision 199$ 332 Tax rate (3) 18.5% Net income 5 34 (31) (199)$ 1,462 Net income per weighted-average share, basic for Class A and Class B (3) (4)$ 0.01 $ 0.08 $ (0.07) $ (0.46) $ 3.41 Net income per weighted-average share, diluted for Class A and Class B (3) (5) $ -$ 0.08 $ (0.07) $ (0.46) $ 3.37 (1) For the year endedDecember 31, 2013 , no costs were capitalized for the development of software products. Amortization expense from previously capitalized amounts was$34 . (2) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. (3) Operating margin, tax rate and net income per weighted-average share information are calculated based upon the respective underlying, non-rounded data. (4) Calculated based upon 429,093 basic weighted-average shares for Class A and Class B. (5) Calculated based upon 433,415 diluted weighted-average shares for Class A and Class B. VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Year Ended December 31, 2012 (amounts in millions, except per share amounts, and shares in thousands) (unaudited) Employer Payroll Taxes on Employee Stock-Based Stock Intangible GAAP Compensation Transactions Amortization ------------ ------------ ------------ ------------ Operating expenses: Cost of license revenues$ 237 (2) - (72) Cost of services revenues$ 484 (28) (1) (4) Research and development$ 999 (210) (6) (4) Sales and marketing$ 1,645 (150) (5) (12) General and administrative$ 368 (48) (2) - Operating income$ 872 438 14 92 Operating margin (3) 18.9% 9.5% 0.3% 2.0% Income before income taxes$ 893 438 14 92 Income tax provision$ 147 Tax rate (3) 16.5% Net income$ 746 438 14 92 Net income per weighted-average share, basic for Class A and Class B (3) (4)$ 1.75 $ 1.03 $ 0.03 $ 0.22 Net income per weighted-average share, diluted for Class A and Class B (3) (5)$ 1.72 $ 1.01 $ 0.03 $ 0.21 Capitalized Acquisition Software Tax Related Development Adjustment Non-GAAP, Items Costs (1) (2) as adjusted ------------ ------------ ------------ ------------ Operating expenses: Cost of license revenues - (71) - $ 92 Cost of services revenues - - -$ 451 Research and development - - -$ 779 Sales and marketing - - -$ 1,478 General and administrative (4) - -$ 314 Operating income 4 71 -$ 1,491 Operating margin (3) 0.2% 1.5% - 32.4% Income before income taxes 4 71 -$ 1,512 Income tax provision 129$ 276 Tax rate (3) 18.3% Net income 4 71 (129)$ 1,236 Net income per weighted-average share, basic for Class A and Class B (3) (4)$ 0.01 $ 0.17 $ (0.31) $ 2.90 Net income per weighted-average share, diluted for Class A and Class B (3) (5)$ 0.01 $ 0.16 $ (0.29) $ 2.85 (1) For the year endedDecember 31, 2012 , no costs were capitalized for the development of software products. Amortization expense from previously capitalized amounts was$71 . (2) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. (3) Operating margin, tax rate and net income per weighted-average share information are calculated based upon the respective underlying, non-rounded data. (4) Calculated based upon 426,658 basic weighted-average shares for Class A and Class B. (5) Calculated based upon 433,974 diluted weighted-average shares for Class A and Class B. VMware, Inc. REVENUES BY TYPE (in millions) (unaudited) For the Three Months Ended For the Year Ended December 31, December 31, ---------------------------- ---------------------------- 2013 2012 2013 2012 ------------- ------------- ------------- ------------- Revenues: License $ 687 $ 597$ 2,270 $ 2,087 Services: Software maintenance 699 591 2,563 2,153 Professional services 97 105 374 365 ------------- ------------- ------------- ------------- Total services 796 696 2,937 2,518 ------------- ------------- ------------- ------------- Total revenues$ 1,483 $ 1,293 $ 5,207 $ 4,605 ============= ============= ============= ============= Percentage of revenues: License 46.3% 46.1% 43.6% 45.3% Services: Software maintenance 47.2% 45.7% 49.2% 46.8% Professional services 6.5% 8.2% 7.2% 7.9% ------------- ------------- ------------- ------------- Total services 53.7% 53.9% 56.4% 54.7% ------------- ------------- ------------- ------------- Total revenues 100.0% 100.0% 100.0% 100.0% ============= ============= ============= ============= VMware, Inc. REVENUES BY GEOGRAPHY (in millions) (unaudited) For the Three Months Ended For the Year Ended December 31, December 31, ---------------------------- ---------------------------- 2013 2012 2013 2012 ------------- ------------- ------------- ------------- Revenues: United States $ 712 $ 639$ 2,485 $ 2,229 International 771 654 2,722 2,376 ------------- ------------- ------------- ------------- Total revenues$ 1,483 $ 1,293 $ 5,207 $ 4,605 ============= ============= ============= ============= Percentage of revenues: United States 48.0% 49.4% 47.7% 48.4% International 52.0% 50.6% 52.3% 51.6% ------------- ------------- ------------- ------------- Total revenues 100.0% 100.0% 100.0% 100.0% ============= ============= ============= ============= VMware, Inc. RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES TO FREE CASH FLOWS (A NON-GAAP FINANCIAL MEASURE) (in millions) (unaudited) For the Three Months Ended For the Year Ended December 31, December 31, ---------------------------- ---------------------------- 2013 2012 2013 2012 ------------- ------------- ------------- ------------- GAAP cash flows from operating activities $ 688 $ 493$ 2,535 $ 1,897 Capital expenditures (98) (82) (345) (234) ------------- ------------- ------------- ------------- Free cash flows $ 590 $ 411$ 2,190 $ 1,663 ============= ============= ============= =============
About Non-GAAP Financial Measures
To provide investors and others with additional information regarding
We have also presented in this press release quarterly and annual historical data for revenue and unearned revenue, excluding revenue generated each period by the products and services contributed to
Management believes these non-GAAP financial measures are useful to investors and others in assessing
- Stock-based compensation. Stock-based compensation is generally fixed at the time the stock-based instrument is granted and amortized over a period of several years. Although stock-based compensation is an important aspect of the compensation of our employees and executives, the expense for the fair value of the stock-based instruments we utilize may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock options is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Additionally, in order to establish the amount of expense to recognize for performance-based stock awards, which are also an element of our ongoing stock-based compensation, we are required to apply judgment to estimate the probability of the extent to which performance objectives will be achieved. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies.
- Employer payroll tax on employee stock transactions. The amount of employer payroll taxes on stock-based compensation is dependent on
VMware's stock price and other factors that are beyond our control and do not correlate to the operation of the business.
- Amortization of acquired intangible assets. A portion of the purchase price of
VMware's acquisitions is generally allocated to intangible assets, such as intellectual property, and is subject to amortization. However,VMware does not acquire businesses on a predictable cycle. Additionally, the amount of an acquisition's purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition. Therefore,VMware believes that the presentation of non-GAAP financial measures that adjust for the amortization of intangible assets provides investors and others with a consistent basis for comparison across accounting periods.
- Realignment charges: Realignment charges include workforce reductions, asset impairments and losses on asset disposals, and costs to exit facilities. We believe it is useful to exclude these items, when significant, as they are not reflective of our ongoing business and operating results.
- Acquisition and other-related items. Acquisition and other -related items include direct costs of acquisitions and dispositions, such as transaction and advisory fees, which vary significantly and are unique to each transaction. Additionally,
VMware does not acquire or dispose of businesses on a predictable cycle.
- Capitalized software development costs. Capitalized software development costs encompass capitalization of development costs and the subsequent amortization of the capitalized costs over the useful life of the product. Amortization and capitalization of software development costs can vary significantly depending upon the timing of products reaching technological feasibility and being made generally available. We did not capitalize software development costs related to product offerings in either fiscal year 2013 or fiscal year 2012 given our current go-to-market strategy. In future periods, we do not expect amortization expense as previously capitalized software development costs have become fully amortized.
- Gain on disposition of certain lines of business and other, net. In 2013, we recognized a gain as a result of exiting certain lines of business under our business realignment plan, which was partially offset by a charge recognized for a non-recoverable strategic investment. These transactions resulted in a net gain of
$31 million . To the extent that significant gains or losses are realized on such dispositions and strategic investments, they do not occur on a predictable cycle, and such gains and losses are not reflective of our ongoing business and operating results.
- Tax adjustment. Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating our non-GAAP income. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.
Additionally, we believe that the non-GAAP financial measure free cash flows is meaningful to investors because we review cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations.
The use of non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense that affect
Contacts:Paul Ziots VMware Investor Relations pziots@vmware.com 650-427-3267Joan Stone VMware Global Communications joanstone@vmware.com 650-427-4436
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