VMware Reports Fiscal Year 2021 Second Quarter Results
Date : 27 Aug 2020Total revenue growth of 9% year-over-year
Subscription and SaaS revenue growth of 44% year-over-year; 22% of total revenue
-
Revenue for the second quarter was
$2.88 billion , an increase of 9% from the second quarter of fiscal 2020.
-
The combination of subscription and SaaS and license revenue was
$1.35 billion , an increase of 11% from the second quarter of fiscal 2020.
-
Subscription and SaaS revenue for the second quarter was
$631 million , an increase of 44% year-over-year, representing 22% of total revenue.
-
GAAP net income for the second quarter was
$447 million , or$1.06 per diluted share, compared to$5.30 billion 1, or$12.47 per diluted share, for the second quarter of fiscal 2020. Non-GAAP net income for the second quarter was$766 million , or$1.81 per diluted share, up 18% per diluted share compared to$650 million , or$1.53 per diluted share, for the second quarter of fiscal 2020.
-
GAAP operating income for the second quarter was
$534 million , an increase of 15% from the second quarter of fiscal 2020. Non-GAAP operating income for the second quarter was$950 million , an increase of 20% from the second quarter of fiscal 2020.
-
Operating cash flow for the second quarter was
$719 million . Free cash flow for the second quarter was$643 million .
-
RPO for Q2 totaled
$10.3 billion , up 17% year-over-year; total revenue plus sequential change in total unearned revenue grew 2% year-over-year.
- The combination of subscription and SaaS and license revenue plus sequential change in unearned subscription and SaaS and license revenue grew 12% year-over-year.
“In light of these uncertain times, we delivered solid execution and financial performance in Q2 FY21,” said
“Our performance in Q2 reflected strength in our Subscription and SaaS product offerings, which grew 44% year-over-year,” said
Business Highlights & Strategic Announcements
-
VMware continues to further the Company’s multi-cloud strategy with advancements across the cloud platform and ecosystem.-
VMware made available the second generation of VMware Cloud on Dell EMC, aVMware service that delivers simple, more secure and scalable infrastructure as-a-service to customers’ on-premises data center and edge locations. -
Google Cloud announced the general availability of
Google Cloud VMware Engine, an integrated first-party offering with end-to-end support to migrate and run theVMware environment inGoogle Cloud. -
Microsoft previewed the next generation of Azure VMware Solution, a first-party solution designed, built and supported by Microsoft and endorsed by
VMware . -
VMware announced new capabilities designed to further improve the economic value of VMware Cloud on AWS while meeting an evolving set of requirements for application modernization, business continuity and resiliency, and cloud migration. -
Oracle unveiled worldwide availability of Oracle Cloud VMware Solution, a dedicated, cloud-native
VMware -based environment that enables enterprises to easily move their productionVMware workloads to Oracle Cloud Infrastructure.
-
-
DISH has chosen VMware Telco Cloud to help deploy the world’s first 5G, cloud-native Open Radio Access Network. The platform will help bring to life the first network in the
U.S. to combine the efficiency of the distributed telco cloud, public cloud and private cloud environments while delivering consistent, low-latency edge computing. -
Intel and
VMware announced they are collaborating on an integrated software platform for virtualized Radio Access Networks to accelerate the rollout of both existing LTE and future 5G networks. -
VMware announced a series of technology acquisitions including:-
Lastline , a pioneer in anti-malware research and Artificial Intelligence-powered network detection and response that is being integrated into NSX to provide a complete, internal firewall capability, opening new opportunities for NSX and dramatically accelerating the customer journey towards Intrinsic Security. -
The True Visibility Suite team and products from Blue Medora enabling
VMware vRealize Operations to provide visibility and insight into customers’ broad data center and hybrid cloud environments. - Datrium, which expands VMware Cloud on AWS’ Site Recovery offering with Datrium’s world-class cost-optimized disaster recovery as a solution.
-
-
VMware introducedVMware vSphere BitFusion, a new integrated feature inVMware vSphere 7 that will enable enterprises to deliver elastic infrastructure on-demand for artificial intelligence (AI) and machine learning (ML) applications. -
In the second quarter,
VMware received further recognition from leading industry analysts:- IDC has ranked VMware No. 1 in worldwide cloud system and service management software2 based on IDC calculations for calendar year 2019.
- IDC ranked VMware No. 1 in worldwide IT automation and configuration management (ITACM) based on IDC calculations for calendar year 2019.3
-
VMware has been recognized as a Leader in the 2020 Gartner Magic Quadrant for Unified Endpoint Management4, for the third consecutive year. The report recognizedVMware as a leader for overall completeness of vision and ability to execute, positioned furthest for completeness of vision. -
VMware was positioned as a Leader in “The Forrester Wave™: Infrastructure Automation Platforms, Q3 2020.”5 According to Forrester’s report,VMware achieved the highest possible score in 22 criteria.
The company will host a conference call today at
1 During the second quarter of fiscal 2020,
2 IDC, “Worldwide Cloud System and Service Management Software Market Shares, 2019: SaaS and ITOM Drive Growth,” doc #US45083420e,
3 IDC, “Worldwide IT Automation and Configuration Management Software Market Shares, 2019: Market Expands Ahead of Coronavirus Impact,” doc #US46397520,
4 Gartner, Inc., Magic Quadrant for Unified Endpoint Management,
5 Forrester,
About
Additional Information
VMware’s website is located at www.vmware.com, and its investor relations website is located at http://ir.vmware.com. VMware’s goal is to maintain the investor relations website as a portal through which investors can easily find or navigate to pertinent information about
Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to VMware’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled “About Non-GAAP Financial Measures.”
Forward-Looking Statements
This press release contains forward-looking statements including, among other things, statements regarding plans for the acceleration of certain product initiatives and their expected benefits to customers and the growth of our Subscription and SaaS product offerings; and the implementation of the following programs and their benefits to customers: the release of the next generation of Azure VMware Solution; new capabilities of VMware Cloud on AWS; Oracle Cloud VMware Solution; the future implementation of VMware Telco Cloud platform for DISH; the rollout of virtualized Radio Access Networks with Intel; the integration with
|
||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) |
||||||||||||||||
(unaudited) |
||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
Revenue: |
|
|
|
|
|
|
|
|
||||||||
License |
|
$ |
719 |
|
|
$ |
773 |
|
|
$ |
1,379 |
|
|
$ |
1,419 |
|
Subscription and SaaS |
|
631 |
|
|
439 |
|
|
1,204 |
|
|
850 |
|
||||
Services |
|
1,525 |
|
|
1,420 |
|
|
3,026 |
|
|
2,813 |
|
||||
Total revenue |
|
2,875 |
|
|
2,632 |
|
|
5,609 |
|
|
5,082 |
|
||||
Operating expenses(1): |
|
|
|
|
|
|
|
|
||||||||
Cost of license revenue |
|
35 |
|
|
38 |
|
|
74 |
|
|
74 |
|
||||
Cost of subscription and SaaS revenue |
|
132 |
|
|
97 |
|
|
258 |
|
|
191 |
|
||||
Cost of services revenue |
|
321 |
|
|
306 |
|
|
639 |
|
|
605 |
|
||||
Research and development |
|
679 |
|
|
614 |
|
|
1,344 |
|
|
1,204 |
|
||||
Sales and marketing |
|
897 |
|
|
888 |
|
|
1,814 |
|
|
1,756 |
|
||||
General and administrative |
|
277 |
|
|
223 |
|
|
523 |
|
|
432 |
|
||||
Realignment and loss on disposition |
|
— |
|
|
— |
|
|
4 |
|
|
— |
|
||||
Operating income |
|
534 |
|
|
466 |
|
|
953 |
|
|
820 |
|
||||
Investment income |
|
1 |
|
|
14 |
|
|
7 |
|
|
28 |
|
||||
Interest expense |
|
(55 |
) |
|
(34 |
) |
|
(104 |
) |
|
(68 |
) |
||||
Other income (expense), net |
|
15 |
|
|
41 |
|
|
8 |
|
|
58 |
|
||||
Income before income tax |
|
495 |
|
|
487 |
|
|
864 |
|
|
838 |
|
||||
Income tax provision (benefit) |
|
48 |
|
|
(4,798 |
) |
|
31 |
|
|
(4,812 |
) |
||||
Net income |
|
447 |
|
|
5,285 |
|
|
833 |
|
|
5,650 |
|
||||
Less: Net loss attributable to non-controlling interests |
|
— |
|
|
(18 |
) |
|
— |
|
|
(33 |
) |
||||
Net income attributable to |
|
$ |
447 |
|
|
$ |
5,303 |
|
|
$ |
833 |
|
|
$ |
5,683 |
|
Net income per weighted-average share attributable to |
|
$ |
1.06 |
|
|
$ |
12.72 |
|
|
$ |
1.99 |
|
|
$ |
13.62 |
|
Net income per weighted-average share attributable to |
|
$ |
1.06 |
|
|
$ |
12.47 |
|
|
$ |
1.97 |
|
|
$ |
13.34 |
|
Weighted-average shares, basic for Classes A and B |
|
420,031 |
|
|
416,983 |
|
|
419,208 |
|
|
417,310 |
|
||||
Weighted-average shares, diluted for Classes A and B |
|
423,050 |
|
|
425,091 |
|
|
422,428 |
|
|
426,044 |
|
||||
__________ |
|
|
|
|
|
|
|
|
||||||||
(1) Includes stock-based compensation as follows: |
|
|
|
|
|
|
|
|
||||||||
Cost of license revenue |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
1 |
|
Cost of subscription and SaaS revenue |
|
5 |
|
|
3 |
|
|
9 |
|
|
6 |
|
||||
Cost of services revenue |
|
26 |
|
|
20 |
|
|
48 |
|
|
38 |
|
||||
Research and development |
|
132 |
|
|
109 |
|
|
257 |
|
|
211 |
|
||||
Sales and marketing |
|
88 |
|
|
68 |
|
|
159 |
|
|
129 |
|
||||
General and administrative |
|
42 |
|
|
34 |
|
|
91 |
|
|
64 |
|
||||
|
|
|||||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||||
(amounts in millions, except per share amounts, and shares in thousands) |
|||||||
(unaudited) |
|||||||
|
|
|
|
||||
|
|
|
|
||||
|
2020 |
|
2020 |
||||
ASSETS |
|
|
|
||||
Current assets: |
|
|
|
||||
Cash and cash equivalents |
$ |
4,703 |
|
|
$ |
2,915 |
|
Accounts receivable, net of allowance for doubtful accounts of |
1,970 |
|
|
1,883 |
|
||
Due from related parties, net |
897 |
|
|
1,457 |
|
||
Other current assets |
457 |
|
|
436 |
|
||
Total current assets |
8,027 |
|
|
6,691 |
|
||
Property and equipment, net |
1,302 |
|
|
1,280 |
|
||
Other assets |
2,381 |
|
|
2,266 |
|
||
Deferred tax assets |
5,809 |
|
|
5,556 |
|
||
Intangible assets, net |
1,109 |
|
|
1,172 |
|
||
|
9,547 |
|
|
9,329 |
|
||
Total assets |
$ |
28,175 |
|
|
$ |
26,294 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
||||
Current liabilities: |
|
|
|
||||
Accounts payable |
$ |
216 |
|
|
$ |
208 |
|
Accrued expenses and other |
2,195 |
|
|
2,151 |
|
||
Current portion of long-term debt and other borrowings |
1,500 |
|
|
2,747 |
|
||
Unearned revenue |
5,215 |
|
|
5,218 |
|
||
Total current liabilities |
9,126 |
|
|
10,324 |
|
||
Note payable to |
270 |
|
|
270 |
|
||
Long-term debt |
4,714 |
|
|
2,731 |
|
||
Unearned revenue |
4,170 |
|
|
4,050 |
|
||
Income tax payable |
783 |
|
|
817 |
|
||
Operating lease liabilities |
781 |
|
|
746 |
|
||
Other liabilities |
424 |
|
|
347 |
|
||
Total liabilities |
20,268 |
|
|
19,285 |
|
||
Contingencies |
|
|
|
||||
Stockholders’ equity: |
|
|
|
||||
Class A common stock, par value |
1 |
|
|
1 |
|
||
Class B convertible common stock, par value |
3 |
|
|
3 |
|
||
Additional paid-in capital |
2,070 |
|
|
2,000 |
|
||
Accumulated other comprehensive loss |
(9 |
) |
|
(4 |
) |
||
Retained earnings |
5,842 |
|
|
5,009 |
|
||
Total stockholders’ equity |
7,907 |
|
|
7,009 |
|
||
Total liabilities and stockholders’ equity |
$ |
28,175 |
|
|
$ |
26,294 |
|
|
|||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||||||||||||||
(in millions) |
|||||||||||||||
(unaudited) |
|||||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
Operating activities: |
|
|
|
|
|
|
|
||||||||
Net income |
$ |
447 |
|
|
$ |
5,285 |
|
|
$ |
833 |
|
|
$ |
5,650 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
||||||||
Depreciation and amortization |
252 |
|
|
206 |
|
|
496 |
|
|
407 |
|
||||
Stock-based compensation |
293 |
|
|
234 |
|
|
565 |
|
|
449 |
|
||||
Deferred income taxes, net |
(98 |
) |
|
(4,937 |
) |
|
(196 |
) |
|
(4,955 |
) |
||||
Unrealized (gain) loss on equity securities, net |
— |
|
|
(23 |
) |
|
(6 |
) |
|
(20 |
) |
||||
(Gain) loss on disposition of assets, revaluation and impairment, net |
1 |
|
|
— |
|
|
7 |
|
|
(4 |
) |
||||
Loss on extinguishment of debt |
8 |
|
|
— |
|
|
8 |
|
|
— |
|
||||
Other |
2 |
|
|
2 |
|
|
(2 |
) |
|
2 |
|
||||
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
||||||||
Accounts receivable |
(432 |
) |
|
(323 |
) |
|
(79 |
) |
|
116 |
|
||||
Other current assets and other assets |
(173 |
) |
|
(229 |
) |
|
(345 |
) |
|
(356 |
) |
||||
Due to/from related parties, net |
(130 |
) |
|
(316 |
) |
|
560 |
|
|
298 |
|
||||
Accounts payable |
21 |
|
|
(4 |
) |
|
11 |
|
|
7 |
|
||||
Accrued expenses and other liabilities |
455 |
|
|
361 |
|
|
207 |
|
|
9 |
|
||||
Income taxes payable |
(66 |
) |
|
33 |
|
|
(51 |
) |
|
(11 |
) |
||||
Unearned revenue |
139 |
|
|
352 |
|
|
86 |
|
|
443 |
|
||||
Net cash provided by operating activities |
719 |
|
|
641 |
|
|
2,094 |
|
|
2,035 |
|
||||
Investing activities: |
|
|
|
|
|
|
|
||||||||
Additions to property and equipment |
(76 |
) |
|
(91 |
) |
|
(163 |
) |
|
(163 |
) |
||||
Purchases of strategic investments |
(6 |
) |
|
(8 |
) |
|
(11 |
) |
|
(8 |
) |
||||
Proceeds from disposition of assets |
18 |
|
|
— |
|
|
21 |
|
|
22 |
|
||||
Business combinations, net of cash acquired, and purchases of intangible assets |
(296 |
) |
|
(340 |
) |
|
(335 |
) |
|
(384 |
) |
||||
Net cash paid on disposition of a business |
— |
|
|
1 |
|
|
— |
|
|
(5 |
) |
||||
Net cash used in investing activities |
(360 |
) |
|
(438 |
) |
|
(488 |
) |
|
(538 |
) |
||||
Financing activities: |
|
|
|
|
|
|
|
||||||||
Proceeds from issuance of common stock |
36 |
|
|
18 |
|
|
142 |
|
|
152 |
|
||||
Net proceeds from issuance of long-term debt |
(5 |
) |
|
— |
|
|
1,979 |
|
|
— |
|
||||
Repayment of current portion of long-term debt |
(1,257 |
) |
|
— |
|
|
(1,257 |
) |
|
— |
|
||||
Repurchase of common stock |
(130 |
) |
|
(446 |
) |
|
(311 |
) |
|
(1,037 |
) |
||||
Shares repurchased for tax withholdings on vesting of restricted stock |
(161 |
) |
|
(148 |
) |
|
(276 |
) |
|
(351 |
) |
||||
Payment to acquire non-controlling interests |
(91 |
) |
|
— |
|
|
(91 |
) |
|
— |
|
||||
Principal payments on finance lease obligations |
(1 |
) |
|
(1 |
) |
|
(1 |
) |
|
(1 |
) |
||||
Net cash provided by (used in) financing activities |
(1,609 |
) |
|
(577 |
) |
|
185 |
|
|
(1,237 |
) |
||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
1 |
|
|
— |
|
|
— |
|
|
— |
|
||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
(1,249 |
) |
|
(374 |
) |
|
1,791 |
|
|
260 |
|
||||
Cash, cash equivalents and restricted cash at beginning of the period |
6,071 |
|
|
4,230 |
|
|
3,031 |
|
|
3,596 |
|
||||
Cash, cash equivalents and restricted cash at end of the period |
$ |
4,822 |
|
|
$ |
3,856 |
|
|
$ |
4,822 |
|
|
$ |
3,856 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
||||||||
Cash paid for interest |
$ |
17 |
|
|
$ |
2 |
|
|
$ |
91 |
|
|
$ |
64 |
|
Cash paid for taxes, net |
206 |
|
|
100 |
|
|
282 |
|
|
188 |
|
||||
Non-cash items: |
|
|
|
|
|
|
|
||||||||
Changes in capital additions, accrued but not paid |
$ |
(1 |
) |
|
$ |
(7 |
) |
|
$ |
(7 |
) |
|
$ |
(5 |
) |
|
||||||||
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 |
||||||
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
||||
Total revenue, as reported |
|
$ |
2,875 |
|
|
$ |
2,632 |
|
Sequential change in unearned revenue(1) |
|
167 |
|
|
360 |
|
||
Total revenue plus sequential change in unearned revenue |
|
$ |
3,042 |
|
|
$ |
2,992 |
|
Change (%) over prior year, as reported |
|
2 |
% |
|
|
|||
|
|
|
|
|
||||
|
|
|
|
|
||||
Growth in License and Subscription and SaaS Revenue Plus Sequential Change in Unearned License and Subscription and SaaS Revenue |
||||||||
|
|
|
|
|
||||
|
|
Three Months Ended |
||||||
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
||||
Total license and subscription and SaaS revenue, as reported |
|
$ |
1,350 |
|
|
$ |
1,212 |
|
Sequential change in unearned license and subscription and SaaS revenue(2) |
|
36 |
|
|
23 |
|
||
Total license and subscription and SaaS revenue plus sequential change in unearned license and subscription and SaaS revenue |
|
$ |
1,386 |
|
|
$ |
1,235 |
|
Change (%) over prior year, as reported |
|
12 |
% |
|
|
|||
__________ |
|
|
|
|
||||
(1) 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. |
||||||||
(2) Consists of the change in unearned license and subscription and SaaS revenue from the preceding quarter. |
||||||||
|
|||||||||||||||||||||||
SUPPLEMENTAL UNEARNED REVENUE SCHEDULE |
|||||||||||||||||||||||
(in millions) |
|||||||||||||||||||||||
(unaudited) |
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
2020 |
|
2020 |
|
2020 |
|
2019 |
|
2019 |
|
2019 |
||||||||||||
Unearned revenue as reported: |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
License |
$ |
11 |
|
|
$ |
15 |
|
|
$ |
19 |
|
|
$ |
19 |
|
|
$ |
19 |
|
|
$ |
19 |
|
Subscription and SaaS |
1,619 |
|
|
1,579 |
|
|
1,534 |
|
|
1,199 |
|
|
976 |
|
|
953 |
|
||||||
Services |
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Software maintenance |
6,696 |
|
|
6,611 |
|
|
6,700 |
|
|
6,106 |
|
|
6,042 |
|
|
5,754 |
|
||||||
Professional services |
1,059 |
|
|
1,013 |
|
|
1,015 |
|
|
893 |
|
|
851 |
|
|
802 |
|
||||||
Total unearned revenue |
$ |
9,385 |
|
|
$ |
9,218 |
|
|
$ |
9,268 |
|
|
$ |
8,217 |
|
|
$ |
7,888 |
|
|
$ |
7,528 |
|
|
|||||||||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA |
|||||||||||||||||||||||||||
For the Three Months Ended |
|||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) |
|||||||||||||||||||||||||||
(unaudited) |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
GAAP |
|
Stock-Based
|
|
Employer
|
|
Intangible
|
|
Acquisition,
|
|
Tax
|
|
Non-GAAP
|
||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cost of license revenue |
$ |
35 |
|
|
— |
|
|
— |
|
|
(9 |
) |
|
— |
|
|
— |
|
|
$ |
25 |
|
|||||
Cost of subscription and SaaS revenue |
$ |
132 |
|
|
(5 |
) |
|
— |
|
|
(48 |
) |
|
— |
|
|
— |
|
|
$ |
79 |
|
|||||
Cost of services revenue |
$ |
321 |
|
|
(26 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
$ |
294 |
|
|||||
Research and development |
$ |
679 |
|
|
(132 |
) |
|
(1 |
) |
|
— |
|
|
(1 |
) |
|
— |
|
|
$ |
545 |
|
|||||
Sales and marketing |
$ |
897 |
|
|
(88 |
) |
|
(3 |
) |
|
(24 |
) |
|
— |
|
|
— |
|
|
$ |
784 |
|
|||||
General and administrative |
$ |
277 |
|
|
(42 |
) |
|
— |
|
|
— |
|
|
(37 |
) |
|
— |
|
|
$ |
198 |
|
|||||
Operating income |
$ |
534 |
|
|
293 |
|
|
4 |
|
|
81 |
|
|
38 |
|
|
— |
|
|
$ |
950 |
|
|||||
Operating margin(2) |
18.6 |
% |
|
10.2 |
% |
|
0.1 |
% |
|
2.8 |
% |
|
1.3 |
% |
|
— |
|
|
33.0 |
% |
|||||||
Other income (expense), net(3) |
$ |
15 |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
$ |
16 |
|
|||||
Income before income tax |
$ |
495 |
|
|
293 |
|
|
4 |
|
|
81 |
|
|
39 |
|
|
— |
|
|
$ |
912 |
|
|||||
Income tax provision |
$ |
48 |
|
|
|
|
|
|
|
|
|
|
98 |
|
|
$ |
146 |
|
|||||||||
Tax rate(2) |
9.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
16.0 |
% |
||||||||||||
Net income |
$ |
447 |
|
|
293 |
|
|
4 |
|
|
81 |
|
|
39 |
|
|
(98 |
) |
|
$ |
766 |
|
|||||
Net income per weighted-average share, diluted for Classes A and B(2)(4) |
$ |
1.06 |
|
|
$ |
0.69 |
|
|
$ |
0.01 |
|
|
$ |
0.19 |
|
|
$ |
0.09 |
|
|
$ |
(0.23 |
) |
|
$ |
1.81 |
|
__________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
(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, changes to our corporate structure 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) Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized. |
|||||||||||||||||||||||||||
(4) Calculated based upon 423,050 diluted weighted-average shares for Classes A and B. |
|||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA |
|||||||||||||||||||||||||||||||
For the Six Months Ended |
|||||||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) |
|||||||||||||||||||||||||||||||
(unaudited) |
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
GAAP |
|
Stock-Based
|
|
Employer
|
|
Intangible
|
|
Realignment
|
|
Acquisition,
|
|
Tax
|
|
Non-GAAP
|
||||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Cost of license revenue |
$ |
74 |
|
|
(1 |
) |
|
— |
|
|
(21 |
) |
|
— |
|
|
— |
|
|
— |
|
|
$ |
52 |
|
||||||
Cost of subscription and SaaS revenue |
$ |
258 |
|
|
(9 |
) |
|
— |
|
|
(89 |
) |
|
— |
|
|
— |
|
|
— |
|
|
$ |
160 |
|
||||||
Cost of services revenue |
$ |
639 |
|
|
(48 |
) |
|
(1 |
) |
|
(1 |
) |
|
— |
|
|
— |
|
|
— |
|
|
$ |
589 |
|
||||||
Research and development |
$ |
1,344 |
|
|
(257 |
) |
|
(1 |
) |
|
(1 |
) |
|
— |
|
|
(1 |
) |
|
— |
|
|
$ |
1,085 |
|
||||||
Sales and marketing |
$ |
1,814 |
|
|
(159 |
) |
|
(3 |
) |
|
(49 |
) |
|
— |
|
|
(2 |
) |
|
— |
|
|
$ |
1,600 |
|
||||||
General and administrative |
$ |
523 |
|
|
(91 |
) |
|
(1 |
) |
|
— |
|
|
— |
|
|
(76 |
) |
|
— |
|
|
$ |
355 |
|
||||||
Realignment and loss on disposition |
$ |
4 |
|
|
— |
|
|
— |
|
|
— |
|
|
(4 |
) |
|
— |
|
|
— |
|
|
$ |
— |
|
||||||
Operating income |
$ |
953 |
|
|
565 |
|
|
6 |
|
|
161 |
|
|
4 |
|
|
79 |
|
|
— |
|
|
$ |
1,768 |
|
||||||
Operating margin(2) |
17.0 |
% |
|
10.1 |
% |
|
0.1 |
% |
|
2.9 |
% |
|
0.1 |
% |
|
1.4 |
% |
|
— |
|
|
31.5 |
% |
||||||||
Other income (expense), net(3) |
$ |
8 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(6 |
) |
|
— |
|
|
$ |
3 |
|
||||||
Income before income tax |
$ |
864 |
|
|
565 |
|
|
6 |
|
|
161 |
|
|
4 |
|
|
73 |
|
|
— |
|
|
$ |
1,674 |
|
||||||
Income tax provision |
$ |
31 |
|
|
|
|
|
|
|
|
|
|
|
|
237 |
|
|
$ |
268 |
|
|||||||||||
Tax rate(2) |
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
16.0 |
% |
||||||||||||||
Net income |
$ |
833 |
|
|
565 |
|
|
6 |
|
|
161 |
|
|
4 |
|
|
73 |
|
|
(237 |
) |
|
$ |
1,406 |
|
||||||
Net income per weighted-average share, diluted for Classes A and B(2)(4) |
$ |
1.97 |
|
|
$ |
1.34 |
|
|
$ |
0.01 |
|
|
$ |
0.38 |
|
|
$ |
0.01 |
|
|
$ |
0.17 |
|
|
$ |
(0.56 |
) |
|
$ |
3.33 |
|
__________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
(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, changes to our corporate structure 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) Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized. |
|||||||||||||||||||||||||||||||
(4) Calculated based upon 422,428 diluted weighted-average shares for Classes A and B. |
|||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA |
|||||||||||||||||||||||||||
For the Three Months Ended |
|||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) |
|||||||||||||||||||||||||||
(unaudited) |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
GAAP |
|
Stock-Based
|
|
Employer
|
|
Intangible
|
|
Acquisition,
|
|
Tax
|
|
Non-GAAP
|
||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cost of license revenue |
$ |
38 |
|
|
— |
|
|
— |
|
|
(21 |
) |
|
— |
|
|
— |
|
|
$ |
17 |
|
|||||
Cost of subscription and SaaS revenue |
$ |
97 |
|
|
(3 |
) |
|
— |
|
|
(26 |
) |
|
— |
|
|
— |
|
|
$ |
68 |
|
|||||
Cost of services revenue |
$ |
306 |
|
|
(20 |
) |
|
— |
|
|
(1 |
) |
|
— |
|
|
— |
|
|
$ |
285 |
|
|||||
Research and development |
$ |
614 |
|
|
(109 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
$ |
505 |
|
|||||
Sales and marketing |
$ |
888 |
|
|
(68 |
) |
|
(4 |
) |
|
(22 |
) |
|
— |
|
|
— |
|
|
$ |
795 |
|
|||||
General and administrative |
$ |
223 |
|
|
(34 |
) |
|
— |
|
|
— |
|
|
(22 |
) |
|
— |
|
|
$ |
167 |
|
|||||
Operating income |
$ |
466 |
|
|
234 |
|
|
4 |
|
|
70 |
|
|
22 |
|
|
— |
|
|
$ |
795 |
|
|||||
Operating margin(2) |
17.7 |
% |
|
8.9 |
% |
|
0.2 |
% |
|
2.7 |
% |
|
0.8 |
% |
|
— |
|
|
30.2 |
% |
|||||||
Other income (expense), net(3) |
$ |
41 |
|
|
— |
|
|
— |
|
|
— |
|
|
(23 |
) |
|
— |
|
|
$ |
17 |
|
|||||
Income before income tax |
$ |
487 |
|
|
234 |
|
|
4 |
|
|
70 |
|
|
(1 |
) |
|
— |
|
|
$ |
792 |
|
|||||
Income tax provision (benefit) |
$ |
(4,798 |
) |
(4) |
|
|
|
|
|
|
|
|
4,925 |
|
|
$ |
127 |
|
|||||||||
Tax rate(2) |
N/M |
(4) |
|
|
|
|
|
|
|
|
|
|
16.0 |
% |
|||||||||||||
Net income |
$ |
5,285 |
|
|
234 |
|
|
4 |
|
|
70 |
|
|
(1 |
) |
|
(4,925 |
) |
|
$ |
665 |
|
|||||
Less: Net income (loss) attributable to non-controlling interests |
$ |
(18 |
) |
|
26 |
|
|
— |
|
|
9 |
|
|
— |
|
|
(1 |
) |
|
$ |
15 |
|
|||||
Net income attributable to |
$ |
5,303 |
|
|
208 |
|
|
4 |
|
|
61 |
|
|
(1 |
) |
|
(4,924 |
) |
|
$ |
650 |
|
|||||
Net income per weighted-average share attributable to |
$ |
12.47 |
|
|
$ |
0.49 |
|
|
$ |
0.01 |
|
|
$ |
0.14 |
|
|
$ |
— |
|
|
$ |
(11.58 |
) |
|
$ |
1.53 |
|
__________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
N/M - Tax rate calculated on a GAAP basis is not considered meaningful. |
|||||||||||||||||||||||||||
(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, changes to our corporate structure 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) Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized. |
|||||||||||||||||||||||||||
(4) During the second quarter of fiscal 2020, we completed an intra-group transfer of certain of our intellectual property rights to our Irish subsidiary, where our international business is headquartered. A discrete tax benefit of |
|||||||||||||||||||||||||||
(5) Calculated based upon 425,091 diluted weighted-average shares for Classes A and B. |
|||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA |
|||||||||||||||||||||||||||
For the Six Months Ended |
|||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) |
|||||||||||||||||||||||||||
(unaudited) |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
GAAP |
|
Stock-Based
|
|
Employer
|
|
Intangible
|
|
Acquisition,
|
|
Tax
|
|
Non-GAAP
|
||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cost of license revenue |
$ |
74 |
|
|
(1 |
) |
|
— |
|
|
(41 |
) |
|
— |
|
|
— |
|
|
$ |
32 |
|
|||||
Cost of subscription and SaaS revenue |
$ |
191 |
|
|
(6 |
) |
|
— |
|
|
(52 |
) |
|
— |
|
|
— |
|
|
$ |
132 |
|
|||||
Cost of services revenue |
$ |
605 |
|
|
(38 |
) |
|
— |
|
|
(1 |
) |
|
— |
|
|
— |
|
|
$ |
566 |
|
|||||
Research and development |
$ |
1,204 |
|
|
(211 |
) |
|
— |
|
|
(1 |
) |
|
— |
|
|
— |
|
|
$ |
993 |
|
|||||
Sales and marketing |
$ |
1,756 |
|
|
(129 |
) |
|
(6 |
) |
|
(45 |
) |
|
— |
|
|
— |
|
|
$ |
1,575 |
|
|||||
General and administrative |
$ |
432 |
|
|
(64 |
) |
|
— |
|
|
— |
|
|
(34 |
) |
|
— |
|
|
$ |
333 |
|
|||||
Operating income |
$ |
820 |
|
|
449 |
|
|
6 |
|
|
140 |
|
|
34 |
|
|
— |
|
|
$ |
1,451 |
|
|||||
Operating margin(2) |
16.1 |
% |
|
8.8 |
% |
|
0.1 |
% |
|
2.8 |
% |
|
0.7 |
% |
|
— |
|
|
28.6 |
% |
|||||||
Other income (expense), net(3) |
$ |
58 |
|
|
— |
|
|
— |
|
|
— |
|
|
(23 |
) |
|
— |
|
|
$ |
34 |
|
|||||
Income before income tax |
$ |
838 |
|
|
449 |
|
|
6 |
|
|
140 |
|
|
11 |
|
|
— |
|
|
$ |
1,445 |
|
|||||
Income tax provision (benefit) |
$ |
(4,812 |
) |
(4) |
|
|
|
|
|
|
|
|
5,043 |
|
|
$ |
231 |
|
|||||||||
Tax rate(2) |
N/M |
(4) |
|
|
|
|
|
|
|
|
|
|
16.0 |
% |
|||||||||||||
Net income |
$ |
5,650 |
|
|
449 |
|
|
6 |
|
|
140 |
|
|
11 |
|
|
(5,043 |
) |
|
$ |
1,214 |
|
|||||
Less: Net income (loss) attributable to non-controlling interests |
$ |
(33 |
) |
|
47 |
|
|
— |
|
|
18 |
|
|
— |
|
|
(6 |
) |
|
$ |
27 |
|
|||||
Net income attributable to |
$ |
5,683 |
|
|
402 |
|
|
6 |
|
|
122 |
|
|
11 |
|
|
(5,037 |
) |
|
$ |
1,187 |
|
|||||
Net income per weighted-average share attributable to |
$ |
13.34 |
|
|
$ |
0.94 |
|
|
$ |
0.01 |
|
|
$ |
0.29 |
|
|
$ |
0.03 |
|
|
$ |
(11.82 |
) |
|
$ |
2.79 |
|
__________ |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
N/M - Tax rate calculated on a GAAP basis is not considered meaningful. |
|||||||||||||||||||||||||||
(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, changes to our corporate structure 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) Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized. |
|||||||||||||||||||||||||||
(4) During the second quarter of fiscal 2020, we completed an intra-group transfer of certain of our intellectual property rights to our Irish subsidiary, where our international business is headquartered. A discrete tax benefit of |
|||||||||||||||||||||||||||
(5) Calculated based upon 426,044 diluted weighted-average shares for Classes A and B. |
|||||||||||||||||||||||||||
|
|
||||||||||||||||
REVENUE BY TYPE |
||||||||||||||||
(in millions) |
||||||||||||||||
(unaudited) |
||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
Revenue: |
|
|
|
|
|
|
|
|
||||||||
License |
|
$ |
719 |
|
|
$ |
773 |
|
|
$ |
1,379 |
|
|
$ |
1,419 |
|
Subscription and SaaS |
|
631 |
|
|
439 |
|
|
1,204 |
|
|
850 |
|
||||
Total license and subscription and SaaS |
|
1,350 |
|
|
1,212 |
|
|
2,583 |
|
|
2,269 |
|
||||
Services: |
|
|
|
|
|
|
|
|
||||||||
Software maintenance |
|
1,270 |
|
|
1,172 |
|
|
2,515 |
|
|
2,319 |
|
||||
Professional services |
|
255 |
|
|
248 |
|
|
511 |
|
|
494 |
|
||||
Total services |
|
1,525 |
|
|
1,420 |
|
|
3,026 |
|
|
2,813 |
|
||||
Total revenue |
|
$ |
2,875 |
|
|
$ |
2,632 |
|
|
$ |
5,609 |
|
|
$ |
5,082 |
|
Percentage of revenue: |
|
|
|
|
|
|
|
|
||||||||
License |
|
25.0 |
% |
|
29.4 |
% |
|
24.6 |
% |
|
27.9 |
% |
||||
Subscription and SaaS |
|
22.0 |
% |
|
16.7 |
% |
|
21.4 |
% |
|
16.7 |
% |
||||
Total license and subscription and SaaS |
|
47.0 |
% |
|
46.1 |
% |
|
46.0 |
% |
|
44.6 |
% |
||||
Services: |
|
|
|
|
|
|
|
|
||||||||
Software maintenance |
|
44.2 |
% |
|
44.5 |
% |
|
44.8 |
% |
|
45.6 |
% |
||||
Professional services |
|
8.8 |
% |
|
9.4 |
% |
|
9.2 |
% |
|
9.8 |
% |
||||
Total services |
|
53.0 |
% |
|
53.9 |
% |
|
54.0 |
% |
|
55.4 |
% |
||||
Total revenue |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
||||
|
|||||||||||||||
REVENUE BY GEOGRAPHY |
|||||||||||||||
(in millions) |
|||||||||||||||
(unaudited) |
|||||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
||||||||
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
Revenue: |
|
|
|
|
|
|
|
||||||||
|
$ |
1,439 |
|
|
$ |
1,317 |
|
|
$ |
2,802 |
|
|
$ |
2,512 |
|
International |
1,436 |
|
|
1,315 |
|
|
2,807 |
|
|
2,570 |
|
||||
Total revenue |
$ |
2,875 |
|
|
$ |
2,632 |
|
|
$ |
5,609 |
|
|
$ |
5,082 |
|
Percentage of revenue: |
|
|
|
|
|
|
|
||||||||
|
50.0 |
% |
|
50.0 |
% |
|
50.0 |
% |
|
49.4 |
% |
||||
International |
50.0 |
% |
|
50.0 |
% |
|
50.0 |
% |
|
50.6 |
% |
||||
Total revenue |
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
||||
|
|||||||||||||||
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 |
||||||||||||
|
|
|
|
|
|
|
|
||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
GAAP cash flows from operating activities |
$ |
719 |
|
|
$ |
641 |
|
|
$ |
2,094 |
|
|
$ |
2,035 |
|
Capital expenditures |
(76 |
) |
|
(91 |
) |
|
(163 |
) |
|
(163 |
) |
||||
Free cash flows |
$ |
643 |
|
|
$ |
550 |
|
|
$ |
1,931 |
|
|
$ |
1,872 |
|
About Non-GAAP Financial Measures
To provide investors and others with additional information regarding VMware’s results,
VMware’s management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, to calculate bonus payments and to evaluate VMware’s financial performance, the performance of its individual functional groups and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect VMware’s ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in VMware’s business, as they exclude charges and gains that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating VMware’s operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Additionally, management believes information regarding free cash flow provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to repurchase shares, to fund ongoing operations and to fund other capital expenditures.
Management believes these non-GAAP financial measures are useful to investors and others in assessing VMware’s operating performance due to the following factors:
-
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 instruments
VMware 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 of VMware’s core business.
- Employer payroll taxes 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 VMware’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 of VMware’s core business and operating results.
-
Acquisition, disposition and other 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 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.
– Costs associated with integrating acquired businesses.
– Accruals for the portion of merger consideration payable in installments that may be paid in cash or
– Gains or losses on equity investments, whether realized or unrealized.
– Charges recognized for non-recoverable strategic investments or gains recognized on the disposition of strategic investments.
– 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.”
-
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 on VMware’s estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating VMware’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 that
VMware 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, changes to our corporate structure 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 VMware’s estimated annual tax rates as described above, the estimated tax rate on non-GAAP income may differ from the GAAP tax rate and from VMware’s actual tax liabilities.
Additionally, VMware’s management believes that the non-GAAP financial measure of free cash flow is meaningful to investors because management reviews cash flow 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 VMware’s operations. Specifically, in the case of stock-based compensation, if
View source version on businesswire.com: https://www.businesswire.com/news/home/20200827005665/en/
VMware Investor Relations
pziots@vmware.com
650-427-3267
VMware Global PR
mthacker@vmware.com
650-427-4454
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