VMware Reports Fiscal 2018 Second Quarter Results
Date : August 24, 2017- Revenue for the second quarter was
$1.90 billion , an increase of 12.2% from the second quarter of 2016. - License revenue for the second quarter was
$732 million , an increase of 13.7% from the second quarter of 2016. - GAAP net income for the second quarter was
$334 million , or$0.81 per diluted share, up 30% per diluted share compared to$265 million , or$0.62 per diluted share, for the second quarter of 2016. Non-GAAP net income for the quarter was$489 million , or$1.19 per diluted share, up 22% per diluted share compared to$414 million , or$0.97 per diluted share, for the second quarter of 2016. - GAAP operating income for the second quarter was
$338 million , an increase of 5% from the second quarter of 2016. Non-GAAP operating income for the second quarter was$585 million , an increase of 15% from the second quarter of 2016. - Operating cash flows for the second quarter were
$620 million . Free cash flows for the quarter were$563 million . - Cash, cash equivalents and short-term investments were
$8.9 billion , and unearned revenue was$5.5 billion as ofAugust 4, 2017 . - Total revenue plus sequential change in total unearned revenue grew 18% year-over-year.
- License revenue plus sequential change in unearned license revenue grew 14% year-over-year.
VMware's debut debt offering of$4 billion in 3-, 5- and 10-year senior unsecured notes was completed onAugust 21, 2017 .- As previously announced,
VMware's Board of Directors authorized$1 billion for stock repurchases throughAugust 31, 2018 , in addition to the$900 million authorized amount remaining in the ongoing$1.2 billion stock repurchase program for fiscal 2018, originally announced inJanuary 2017 .
"We are very pleased with our Q2 results, which were driven by broad-based strength across the product portfolio in all three geographies," said
"
Recent Highlights & Strategic Announcements
- In June,
VMware introduced major updates across its VMware™ vRealize™ Cloud Management Platform which enable customers to manage and provision at scale -- including compute, network, storage, and application services across multi-cloud environments. - Analyst firm IDC named
VMware as the market share leader in both the worldwide cloud systems management and the datacenter automation software markets based on 2016 revenue.VMware topped both categories for the fourth year in a row.(1)(2) VMware was acknowledged as a visionary in the 2017 Gartner Magic Quadrant for Data Center Networking.(3) - VMware AirWatch® was again named a leader in the 2017 Gartner Magic Quadrant for Enterprise Mobility Management (EMM) Suites and positioned highest in ability to execute and completeness of vision.
(4) - VMware AirWatch was named as a leader in the IDC EMM MarketScape.
(5)
The company will host a conference call today at
Revised Fiscal Calendar -- Year-over-Year Comparisons of Quarterly Results and Sequential Change in Unearned Revenue Balances
Year-over-year comparisons of quarterly financial results included in this press release and the attached financial tables compare results for
About
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Additional Information
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 customer adoption of
VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
August 4, June 30, August 4, June 30,
2017 2016 2017 2016
--------- --------- --------- ---------
Revenue:
License $ 732 $ 644 $ 1,342 $ 1,216
Services 1,168 1,049 2,294 2,066
--------- --------- --------- ---------
Total revenue 1,900 1,693 3,636 3,282
Operating expenses(1):
Cost of license revenue 39 40 78 81
Cost of services revenue 231 221 481 432
Research and development 428 363 849 720
Sales and marketing 668 580 1,255 1,144
General and administrative 160 167 311 338
Realignment and loss on
disposition 36 (1) 86 52
--------- --------- --------- ---------
Operating income 338 323 576 515
Investment income 25 19 48 35
Interest expense with Dell (7) (7) (13) (13)
Other income (expense), net 51 2 54 -
--------- --------- --------- ---------
Income before income tax 407 337 665 537
Income tax provision 73 72 99 111
--------- --------- --------- ---------
Net income $ 334 $ 265 $ 566 $ 426
========= ========= ========= =========
Net income per weighted-average
share, basic for Class A and Class
B $ 0.82 $ 0.62 $ 1.39 $ 1.00
Net income per weighted-average
share, diluted for Class A and
Class B $ 0.81 $ 0.62 $ 1.37 $ 1.00
Weighted-average shares, basic for
Class A and Class B 408,399 425,107 408,415 424,169
Weighted-average shares, diluted for
Class A and Class B 412,768 427,102 413,920 425,729
______
(1) Includes stock-based
compensation as follows:
Cost of license revenue $ - $ - $ 1 $ 1
Cost of services revenue 12 13 25 25
Research and development 89 74 170 144
Sales and marketing 48 47 98 95
General and administrative 20 18 37 36
VMware, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
August 4, December 31,
2017 2016
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,552 $ 2,790
Short-term investments 5,350 5,195
Accounts receivable, net of allowance for
doubtful accounts of $2 and $2 1,189 1,856
Due from related parties, net 207 132
Other current assets 173 362
------------ -------------
Total current assets 10,471 10,335
Property and equipment, net 1,005 1,049
Other assets 262 248
Deferred tax assets 691 462
Intangible assets, net 476 517
Goodwill 4,270 4,032
------------ -------------
Total assets $ 17,175 $ 16,643
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 116 $ 125
Accrued expenses and other 1,016 898
Note payable to Dell 680 -
Unearned revenue 3,464 3,531
------------ -------------
Total current liabilities 5,276 4,554
Notes payable to Dell 820 1,500
Unearned revenue 2,040 2,093
Other liabilities 440 399
------------ -------------
Total liabilities 8,576 8,546
Contingencies
Stockholders' equity:
Class A common stock, par value $.01 ;
authorized 2,500,000 shares; issued and
outstanding 109,651 and 108,351 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 1,640 1,721
Accumulated other comprehensive income (loss) 16 (9)
Retained earnings 6,939 6,381
------------ -------------
Total stockholders' equity 8,599 8,097
------------ -------------
Total liabilities and stockholders' equity $ 17,175 $ 16,643
============ =============
VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
August 4, June 30, August 4, June 30,
2017 2016 2017 2016
--------- --------- --------- ---------
Operating activities:
Net income $ 334 $ 265 $ 566 $ 426
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 80 86 165 174
Stock-based compensation 169 152 331 301
Excess tax benefits from stock-
based compensation - (1) - (1)
Deferred income taxes, net 43 13 35 (5)
Loss on disposition 29 - 79 -
Loss on Dell stock purchase - - 2 -
Impairment of strategic
investments - - 2 5
Gain on disposition of strategic
investments (38) (1) (38) (1)
Other 1 5 1 5
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable (322) (127) 4 417
Other assets (16) (20) (27) (23)
Due to/from related parties, net (80) (81) (114) (18)
Accounts payable 1 18 60 (10)
Accrued expenses 157 136 122 18
Income taxes payable (7) (13) 8 (36)
Unearned revenue 269 145 199 45
--------- --------- --------- ---------
Net cash provided by operating
activities 620 577 1,395 1,297
--------- --------- --------- ---------
Investing activities:
Additions to property and equipment (57) (38) (105) (79)
Purchases of available-for-sale
securities (1,647) (1,087) (2,152) (2,211)
Sales of available-for-sale
securities 706 558 1,253 979
Maturities of available-for-sale
securities 353 332 770 619
Proceeds from disposition of assets - - - 3
Purchases of strategic investments (27) (24) (32) (27)
Proceeds from sales of strategic
investments 6 1 6 1
Business combinations, net of cash
acquired (236) (59) (236) (59)
Net cash paid on disposition of a
business (41) - (41) -
Increase in restricted cash (2) (4) - (2)
--------- --------- --------- ---------
Net cash used in investing
activities (945) (321) (537) (776)
--------- --------- --------- ---------
Financing activities:
Proceeds from issuance of common
stock 70 1 76 52
Payment to acquire non-controlling
interests - (4) - (4)
Repurchase of common stock - - (425) -
Excess tax benefits from stock-based
compensation - 1 - 1
Shares repurchased for tax
withholdings on vesting of
restricted stock (57) (48) (177) (72)
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities 13 (50) (526) (23)
--------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (312) 206 332 498
Cash and cash equivalents at
beginning of the period 3,864 2,785 3,220 2,493
--------- --------- --------- ---------
Cash and cash equivalents at end of
the period $ 3,552 $ 2,991 $ 3,552 $ 2,991
========= ========= ========= =========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 7 $ 7 $ 16 $ 14
Cash paid for taxes, net 36 72 63 135
Non-cash items:
Changes in capital additions,
accrued but not paid $ 1 $ (16) $ 6 $ (19)
VMware, Inc.
GROWTH IN REVENUE PLUS SEQUENTIAL CHANGE IN UNEARNED REVENUE
(in millions)
(unaudited)
Growth in Total Revenue Plus Sequential Change in Unearned Revenue
----------------------------------------------------------------------------
Three Months Ended
------------------
August 4, June 30,
2017 2016
--------- --------
Total revenue, as reported $ 1,900 $ 1,693
Sequential change in unearned revenue(1) 269 146
--------- --------
Total revenue plus sequential change in unearned revenue $ 2,169 $ 1,839
========= ========
---------
Change (%) over prior year, as reported 18%
---------
Growth in License Revenue Plus Sequential Change in Unearned License Revenue
----------------------------------------------------------------------------
Three Months
Ended
------------------
August June
4, 30,
2017 2016
--------- --------
Total license revenue, as reported $ 732 $ 644
Sequential change in unearned license revenue 47 40
--------- --------
Total license revenue plus sequential change in unearned
license revenue $ 779 $ 684
========= ========
---------
Change (%) over prior year, as reported 14%
---------
(1) Sequential change in unearned revenue consists of the change in total
unearned revenue from the preceding quarter. Total unearned revenue
consists of current and non-current unearned revenue amounts presented in
the condensed consolidated balance sheets.
VMware, Inc.
SUPPLEMENTAL UNEARNED REVENUE SCHEDULE
(in millions)
(unaudited)
December September
August 4, May 5, 31, 30, June 30, March 31,
2017 2017 2016 2016 2016 2016
--------- --------- -------- --------- --------- ---------
Unearned revenue
as reported:
License $ 519 $ 472 $ 503 $ 425 $ 455 $ 415
Software
maintenance 4,522 4,323 4,628 4,201 4,189 4,105
Professional
services 463 440 493 468 478 456
--------- --------- -------- --------- --------- ---------
Total unearned
revenue $ 5,504 $ 5,235 $ 5,624 $ 5,094 $ 5,122 $ 4,976
========= ========= ======== ========= ========= =========
Change (%) over
prior year:
License 14.2% 13.8% 17.4% 5.1% (5.5)% (11.0)%
Software
maintenance 8.0% 5.3% 10.9% 9.1% 7.6% 6.7%
Professional
services (3.1)% (3.7)% 3.9% 8.6% 9.2% 6.0%
--------- --------- -------- --------- --------- ---------
Total unearned
revenue 7.5% 5.2% 10.8% 8.7% 6.4% 4.9%
========= ========= ======== ========= ========= =========
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended August 4, 2017
(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
revenue $ 39 - - (26)
Cost of
services
revenue $ 231 (12) 1 (1)
Research and
development $ 428 (89) (1) -
Sales and
marketing $ 668 (48) (1) (6)
General and
administrat-
ive $ 160 (20) - -
Realignment
and loss on
disposition $ 36 - - -
Operating income $ 338 169 1 33
Operating
margin(2) 17.8% 8.9% 0.1% 1.7%
Other income
(expense), net $ 51 - - -
Income before
income tax $ 407 169 1 33
Income tax
provision $ 73
Tax rate(2) 17.9%
Net income $ 334 169 1 33
Net income per
weighted-
average share,
diluted for
Class A and
Class B(2) (3) $ 0.81 $ 0.41 $ - $ 0.08
table continued below
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended August 4, 2017
(amounts in millions, except per share amounts, and shares in
thousands)
(unaudited)
Acquisition,
Disposition
and Other
Related Tax Non-GAAP,
Items Adjustment(1) as adjusted(2)
-------------- -------------- --------------
Operating
expenses:
Cost of
license
revenue - - $ 12
Cost of
services
revenue 1 - $ 221
Research and
development (1) - $ 338
Sales and
marketing (1) - $ 612
General and
administrat-
ive (8) - $ 132
Realignment
and loss on
disposition (36) - $ -
Operating income 45 - $ 585
Operating
margin(2) 2.4% - 30.8%
Other income
(expense), net (38) - $ 13
Income before
income tax 7 - $ 616
Income tax
provision 53 $ 127
Tax rate(2) 20.5%
Net income 7 (53) $ 489
Net income per
weighted-
average share,
diluted for
Class A and
Class B(2) (3) $ 0.02 $ (0.13) $ 1.19
Employer
Payroll Taxes
on Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
-------------- -------------- -------------- --------------
Operating
expenses:
Cost of
license
revenue $ 39 - - (26)
Cost of
services
revenue $ 231 (12) 1 (1)
Research and
development $ 428 (89) (1) -
Sales and
marketing $ 668 (48) (1) (6)
General and
administrat-
ive $ 160 (20) - -
Realignment
and loss on
disposition $ 36 - - -
Operating income $ 338 169 1 33
Operating
margin(2) 17.8% 8.9% 0.1% 1.7%
Other income
(expense), net $ 51 - - -
Income before
income tax $ 407 169 1 33
Income tax
provision $ 73
Tax rate(2) 17.9%
Net income $ 334 169 1 33
Net income per
weighted-
average share,
diluted for
Class A and
Class B(2) (3) $ 0.81 $ 0.41 $ - $ 0.08
Acquisition,
Disposition
and Other
Related Tax Non-GAAP,
Items Adjustment(1) as adjusted(2)
-------------- -------------- --------------
Operating
expenses:
Cost of
license
revenue - - $ 12
Cost of
services
revenue 1 - $ 221
Research and
development (1) - $ 338
Sales and
marketing (1) - $ 612
General and
administrat-
ive (8) - $ 132
Realignment
and loss on
disposition (36) - $ -
Operating income 45 - $ 585
Operating
margin(2) 2.4% - 30.8%
Other income
(expense), net (38) - $ 13
Income before
income tax 7 - $ 616
Income tax
provision 53 $ 127
Tax rate(2) 20.5%
Net income 7 (53) $ 489
Net income per
weighted-
average share,
diluted for
Class A and
Class B(2) (3) $ 0.02 $ (0.13) $ 1.19
(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 as well as significant
tax adjustments. 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 revenue 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) Totals may not sum, due to rounding. 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 412,768 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended June 30, 2016
(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
revenue $ 40 - - (25)
Cost of
services
revenue $ 221 (13) - (1)
Research and
development $ 363 (74) - -
Sales and
marketing $ 580 (47) (1) (5)
General and
administrative $ 167 (18) - -
Realignment $ (1) - - -
Operating income $ 323 152 1 31
Operating
margin(2) 19.1% 9.0% 0.1% 1.8%
Other income
(expense), net $ 2 - - -
Income before
income tax $ 337 152 1 31
Income tax
provision $ 72
Tax rate(2) 21.4%
Net income $ 265 152 1 31
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $0.62 $ 0.35 $ - $ 0.07
table continued below
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended June 30, 2016
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Acquisition,
Disposition
and Other
Realignment Related Tax Non-GAAP,
Charges Items Adjustment(1) as adjusted(2)
------------- -------------- -------------- --------------
Operating
expenses:
Cost of license
revenue - - - $ 15
Cost of
services
revenue - - - $ 207
Research and
development - - - $ 289
Sales and
marketing - - - $ 527
General and
administrative - (3) - $ 146
Realignment 1 - - $ -
Operating income (1) 3 - $ 509
Operating
margin(2) -% 0.2% - 30.0%
Other income
(expense), net - (2) - $ -
Income before
income tax (1) 1 - $ 521
Income tax
provision 35 $ 107
Tax rate(2) 20.5%
Net income (1) 1 (35) $ 414
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ - $ - $ (0.08) $ 0.97
Employer
Payroll Taxes
on Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
------ -------------- -------------- --------------
Operating
expenses:
Cost of license
revenue $ 40 - - (25)
Cost of
services
revenue $ 221 (13) - (1)
Research and
development $ 363 (74) - -
Sales and
marketing $ 580 (47) (1) (5)
General and
administrative $ 167 (18) - -
Realignment $ (1) - - -
Operating income $ 323 152 1 31
Operating
margin(2) 19.1% 9.0% 0.1% 1.8%
Other income
(expense), net $ 2 - - -
Income before
income tax $ 337 152 1 31
Income tax
provision $ 72
Tax rate(2) 21.4%
Net income $ 265 152 1 31
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $0.62 $ 0.35 $ - $ 0.07
Acquisition,
Disposition
and Other
Realignment Related Tax Non-GAAP,
Charges Items Adjustment(1) as adjusted(2)
------------- -------------- -------------- --------------
Operating
expenses:
Cost of license
revenue - - - $ 15
Cost of
services
revenue - - - $ 207
Research and
development - - - $ 289
Sales and
marketing - - - $ 527
General and
administrative - (3) - $ 146
Realignment 1 - - $ -
Operating income (1) 3 - $ 509
Operating
margin(2) -% 0.2% - 30.0%
Other income
(expense), net - (2) - $ -
Income before
income tax (1) 1 - $ 521
Income tax
provision 35 $ 107
Tax rate(2) 20.5%
Net income (1) 1 (35) $ 414
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ - $ - $ (0.08) $ 0.97
(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 as well as significant
tax adjustments. 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 revenue 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) Totals may not sum, due to rounding. 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 427,102 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended August 4, 2017
(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
revenue $ 78 (1) - (52)
Cost of services
revenue $ 481 (25) (1) (1)
Research and
development $ 849 (170) (1) -
Sales and
marketing $1,255 (98) (2) (11)
General and
administrative $ 311 (37) - -
Realignment and
loss on
disposition $ 86 - - -
Operating income $ 576 331 4 64
Operating
margin(2) 15.8% 9.1% 0.1% 1.8%
Other income
(expense), net $ 54 - - -
Income before
income tax $ 665 331 4 64
Income tax
provision $ 99
Tax rate(2) 14.9%
Net income $ 566 331 4 64
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 1.37 $ 0.80 $ 0.01 $ 0.15
table continued below
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended August 4, 2017
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Acquisition,
Disposition
and Other Loss on
Related Share Tax Non-GAAP,
Items Repurchase Adjustment(1) as adjusted(2)
-------------- ------------ -------------- --------------
Operating
expenses:
Cost of license
revenue - - - $ 25
Cost of services
revenue - - - $ 454
Research and
development (3) - - $ 675
Sales and
marketing (2) - - $ 1,142
General and
administrative (13) - - $ 260
Realignment and
loss on
disposition (86) - - $ -
Operating income 104 - - $ 1,080
Operating
margin(2) 2.9% - - 29.7%
Other income
(expense), net (37) 2 - $ 19
Income before
income tax 67 2 - $ 1,134
Income tax
provision 134 $ 233
Tax rate(2) 20.5%
Net income 67 2 (134) $ 901
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 0.16 $ - $ (0.32) $ 2.18
Employer
Payroll Taxes
on Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
------- -------------- -------------- --------------
Operating
expenses:
Cost of license
revenue $ 78 (1) - (52)
Cost of services
revenue $ 481 (25) (1) (1)
Research and
development $ 849 (170) (1) -
Sales and
marketing $1,255 (98) (2) (11)
General and
administrative $ 311 (37) - -
Realignment and
loss on
disposition $ 86 - - -
Operating income $ 576 331 4 64
Operating
margin(2) 15.8% 9.1% 0.1% 1.8%
Other income
(expense), net $ 54 - - -
Income before
income tax $ 665 331 4 64
Income tax
provision $ 99
Tax rate(2) 14.9%
Net income $ 566 331 4 64
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 1.37 $ 0.80 $ 0.01 $ 0.15
Acquisition,
Disposition
and Other Loss on
Related Share Tax Non-GAAP,
Items Repurchase Adjustment(1) as adjusted(2)
-------------- ------------ -------------- --------------
Operating
expenses:
Cost of license
revenue - - - $ 25
Cost of services
revenue - - - $ 454
Research and
development (3) - - $ 675
Sales and
marketing (2) - - $ 1,142
General and
administrative (13) - - $ 260
Realignment and
loss on
disposition (86) - - $ -
Operating income 104 - - $ 1,080
Operating
margin(2) 2.9% - - 29.7%
Other income
(expense), net (37) 2 - $ 19
Income before
income tax 67 2 - $ 1,134
Income tax
provision 134 $ 233
Tax rate(2) 20.5%
Net income 67 2 (134) $ 901
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 0.16 $ - $ (0.32) $ 2.18
(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 as well as significant
tax adjustments. 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 revenue 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) Totals may not sum, due to rounding. 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 413,920 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended June 30, 2016
(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
revenue $ 81 (1) - (50)
Cost of
services
revenue $ 432 (25) - (1)
Research and
development $ 720 (144) (1) -
Sales and
marketing $1,144 (95) (2) (11)
General and
administrative $ 338 (36) (1) (1)
Realignment $ 52 - - -
Operating income $ 515 301 4 63
Operating
margin(2) 15.7% 9.2% 0.1% 1.9%
Other income
(expense), net $ - - - -
Income before
income tax $ 537 301 4 63
Income tax
provision $ 111
Tax rate(2) 20.7%
Net income $ 426 301 4 63
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 1.00 $ 0.71 $ 0.01 $ 0.15
table continued below
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended June 30, 2016
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Acquisition,
Disposition
and Other
Realignment Related Tax Non-GAAP,
Charges Items Adjustment(1) as adjusted(2)
------------- -------------- -------------- --------------
Operating
expenses:
Cost of license
revenue - - - $ 30
Cost of
services
revenue - - - $ 405
Research and
development - - - $ 575
Sales and
marketing - - - $ 1,034
General and
administrative - (19) - $ 283
Realignment (52) - - $ -
Operating income 52 19 - $ 955
Operating
margin(2) 1.6% 0.6% - 29.1%
Other income
(expense), net - 1 - $ 1
Income before
income tax 52 20 - $ 978
Income tax
provision 87 $ 198
Tax rate(2) 20.3%
Net income 52 20 (87) $ 780
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 0.12 $ 0.05 $ (0.21) $ 1.83
Employer
Payroll Taxes
on Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
------- -------------- -------------- --------------
Operating
expenses:
Cost of license
revenue $ 81 (1) - (50)
Cost of
services
revenue $ 432 (25) - (1)
Research and
development $ 720 (144) (1) -
Sales and
marketing $1,144 (95) (2) (11)
General and
administrative $ 338 (36) (1) (1)
Realignment $ 52 - - -
Operating income $ 515 301 4 63
Operating
margin(2) 15.7% 9.2% 0.1% 1.9%
Other income
(expense), net $ - - - -
Income before
income tax $ 537 301 4 63
Income tax
provision $ 111
Tax rate(2) 20.7%
Net income $ 426 301 4 63
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 1.00 $ 0.71 $ 0.01 $ 0.15
Acquisition,
Disposition
and Other
Realignment Related Tax Non-GAAP,
Charges Items Adjustment(1) as adjusted(2)
------------- -------------- -------------- --------------
Operating
expenses:
Cost of license
revenue - - - $ 30
Cost of
services
revenue - - - $ 405
Research and
development - - - $ 575
Sales and
marketing - - - $ 1,034
General and
administrative - (19) - $ 283
Realignment (52) - - $ -
Operating income 52 19 - $ 955
Operating
margin(2) 1.6% 0.6% - 29.1%
Other income
(expense), net - 1 - $ 1
Income before
income tax 52 20 - $ 978
Income tax
provision 87 $ 198
Tax rate(2) 20.3%
Net income 52 20 (87) $ 780
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 0.12 $ 0.05 $ (0.21) $ 1.83
(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 as well as significant
tax adjustments. 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 revenue 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) Totals may not sum, due to rounding. 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 425,729 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
REVENUE BY TYPE
(in millions)
(unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
August 4, June 30, August 4, June 30,
2017 2016 2017 2016
--------- --------- --------- ---------
Revenue:
License $ 732 $ 644 $ 1,342 $ 1,216
Services:
Software maintenance 1,015 915 1,988 1,806
Professional services 153 134 306 260
--------- --------- --------- ---------
Total services 1,168 1,049 2,294 2,066
--------- --------- --------- ---------
Total revenue $ 1,900 $ 1,693 $ 3,636 $ 3,282
========= ========= ========= =========
Percentage of revenue:
License 38.5% 38.0% 36.9% 37.1%
Services:
Software maintenance 53.4% 54.1% 54.7% 55.0%
Professional services 8.1% 7.9% 8.4% 7.9%
--------- --------- --------- ---------
Total services 61.5% 62.0% 63.1% 62.9%
--------- --------- --------- ---------
Total revenue 100.0% 100.0% 100.0% 100.0%
========= ========= ========= =========
VMware, Inc.
REVENUE BY GEOGRAPHY
(in millions)
(unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
August 4, June 30, August 4, June 30,
2017 2016 2017 2016
--------- --------- --------- ---------
Revenue:
United States $ 963 $ 870 $ 1,823 $ 1,671
International 937 823 1,813 1,611
--------- --------- --------- ---------
Total revenue $ 1,900 $ 1,693 $ 3,636 $ 3,282
========= ========= ========= =========
Percentage of revenue:
United States 50.7% 51.4% 50.1% 50.9%
International 49.3% 48.6% 49.9% 49.1%
--------- --------- --------- ---------
Total revenue 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)
Three Months Ended Six Months Ended
------------------- -------------------
August 4, June 30, August 4, June 30,
2017 2016 2017 2016
--------- --------- --------- ---------
GAAP cash flows from operating
activities $ 620 $ 577 $ 1,395 $ 1,297
Capital expenditures (57) (38) (105) (79)
--------- --------- --------- ---------
Free cash flows $ 563 $ 539 $ 1,290 $ 1,218
========= ========= ========= =========
About Non-GAAP Financial Measures
To provide investors and others with additional information regarding
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
VMware's employees and executives, the expense for the fair value of the stock-based instrumentsVMware utilizes may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance ofVMware's core business and to facilitate comparison of its 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 beyondVMware's 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, losses on asset disposals and costs to exit facilities.
VMware's management believes it is useful to exclude these items, when significant, as they are not reflective ofVMware's ongoing business and operating results. - Acquisition, disposition and other-related items. As
VMware does not acquire or dispose of businesses on a predictable cycle and the terms of each transaction can vary significantly and are unique to each transaction,VMware believes it is useful to exclude acquisition, disposition and other-related items when looking for a consistent basis for comparison across accounting periods. These items include:
-- Direct costs of acquisitions and dispositions, such as transaction and advisory fees.
-- Accruals for the portion of merger consideration payable in installments that may be paid in cash orVMware stock, at the option ofVMware .
-- Charges recognized for non-recoverable strategic investments or gains recognized on the disposition of strategic investments are included as other-related items.
-- Gains or losses on sale or disposal of distinct lines of business or product offerings, or transactions with features similar to discontinued operations, including recoveries or charges recognized to adjust the fair value of assets that qualify as "held for sale."
-- Certain costs incurred related toDell's acquisition ofVMware's parent company, EMC Corporation. - Gain on share repurchase. In
December 2016 ,VMware entered into a stock purchase agreement withDell andDell's wholly-owned subsidiary,EMC Equity Assets LLC , pursuant to whichVMware agreed to purchase$500 million of VMware Class A common stock. ThroughDecember 31, 2016 ,VMware had purchased 4.8 million shares for$375 million , as well as recognized a derivative asset related to its obligation to repurchase$125 million of additional shares. The derivative asset was measured at fair value on a recurring basis and resulted in the recognition of gains and losses, which were recorded to other income (expense), net on the condensed consolidated statements of income. OnFebruary 15, 2017 , the stock purchase agreement withDell was completed.VMware's management believes it is useful to exclude the mark-to-market adjustment on the derivative asset, as it is not reflective ofVMware's ongoing business and operating results. - Certain litigation and other contingencies.
VMware , from time to time, may incur charges or benefits that are outside of the ordinary course ofVMware's business related to litigation and other contingencies.VMware believes it is useful to exclude such charges or benefits because it does not consider such amounts to be part of the ongoing operation ofVMware's business and because of the singular nature of the claims underlying such matters. - Tax adjustment. Non-GAAP financial information for the quarter is adjusted for a tax rate equal to
VMware's annual estimated tax rate on non-GAAP income. This rate is based onVMware's estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculatingVMware's non-GAAP income as well as significant tax adjustments.VMware's estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends thatVMware management believes materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue 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 toVMware's estimated annual tax rates as described above, the estimated tax rate on non-GAAP income may differ from the GAAP tax rate and fromVMware's actual tax liabilities.
Additionally,
The use of non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense that affect
Management encourages investors and others to review
Contacts:Paul Ziots VMware Investor Relationspziots@vmware.com650-427-3267Michael ThackerVMware Global PRmthacker@vmware.com650-427-4454
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