•	Revenue for the first quarter was $2.73 billion, an increase of 12% from the first quarter of fiscal 2020.

•	The combination of subscription and SaaS and license revenue was $1.23 billion, an increase of 17% from the first quarter of fiscal 2020.

•	Subscription and SaaS revenue for the first quarter was $572 million, an increase of 39% year-over-year.

•	GAAP net income for the first quarter was $386 million, or $0.92 per diluted share, compared to $380 million, or $0.89 per diluted share, for the first quarter of fiscal 2020. Non-GAAP net income for the first quarter was $640 million, or $1.52 per diluted share, up 21% per diluted share compared to $535 million, or $1.25 per diluted share, for the first quarter of fiscal 2020.

•	GAAP operating income for the first quarter was $418 million, an increase of 18% from the first quarter of fiscal 2020. Non-GAAP operating income for the first quarter was $818 million, an increase of 25% from the first quarter of fiscal 2020.

•	Operating cash flow for the first quarter was $1.37 billion. Free cash flow for the first quarter was $1.29 billion.

•	RPO for Q1 totalled $10.1 billion, up 19% year-over-year; total revenue plus sequential change in total unearned revenue grew 6% year-over-year.

•	The combination of subscription and SaaS and license revenue plus sequential change in unearned subscription and SaaS and license revenue grew 16% year-over-year.

•	VMware launched VMware Tanzu, a portfolio of products and services that enable enterprises to deliver better software faster. Customers can use the VMware Tanzu suite to automate the modern app lifecycle, run Kubernetes across clouds, and unify and optimize multi-cloud operations.

•	VMware acquired Octarine, which will bring intrinsic security to containerized applications running in Kubernetes and build security capabilities into the fabric of the existing IT and DevOps ecosystems.

•	VMware made major updates to its core portfolio across VMware Cloud Foundation, the largest evolution of vSphere in a decade, NSX-T, vSAN and vRealize Operations Cloud, continuing to bring innovation to its leading infrastructure stack that powers on-premises environments and public clouds across the world.

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•	VMware introduced new security offerings, including new VMware Advanced Security for Cloud Foundation, which will enable customers to replace legacy security solutions and deliver unified protection across private and public clouds.

•	Deutsche Telekom and VMware announced that they are collaborating on an open and intelligent virtual RAN platform, based on O-RAN standards, to bring agility to radio access networks (RANs) for both existing LTE and future 5G networks.

•	VMware launched VMware Partner Connect, the new, simplified and flexible program that empowers partners with flexibility to meet customers’ needs, making VMware technologies and services opportunities more accessible.

•	VMware was positioned as a leader in the IDC MarketScape: Worldwide Virtual Client Computing 2019-2020 Vendor Assessment, which evaluated 10 virtual client computing (VCC) vendors.1

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VMware, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
		Three Months Ended
		May 1,				May 3,
		2020				2019
Revenue:
License		$	660			$	646
Subscription and SaaS		572				411
Services		1,502				1,393
Total revenue		2,734				2,450
Operating expenses(1):
Cost of license revenue		70				36
Cost of subscription and SaaS revenue		96				94
Cost of services revenue		318				299
Research and development		665				590
Sales and marketing		917				868
General and administrative		246				209
Realignment and loss on disposition		4				—
Operating income		418				354
Investment income		5				14
Interest expense		(49		)		(34		)
Other income (expense), net		(6		)		17
Income before income tax		368				351
Income tax benefit		(18		)		(14		)
Net income		386				365
Less: Net loss attributable to non-controlling interests		—				(15		)
Net income attributable to VMware, Inc.		$	386			$	380
Net income per weighted-average share attributable to VMware, Inc. common stockholders, basic for Classes A and B		$	0.92			$	0.91
Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B		$	0.92			$	0.89
Weighted-average shares, basic for Classes A and B		418,383				417,636
Weighted-average shares, diluted for Classes A and B		421,513				426,697
__________
(1)  Includes stock-based compensation as follows:
Cost of subscription and SaaS revenue		$	4			$	3
Cost of services revenue		22				18
Research and development		125				102
Sales and marketing		72				63
General and administrative		49				30

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VMware, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
	May 1,				January 31,
	2020				2020
ASSETS
Current assets:
Cash and cash equivalents	$	5,946			$	2,915
Accounts receivable, net of allowance for doubtful accounts of $6 and $7	1,535				1,883
Due from related parties, net	767				1,457
Other current assets	457				436
Total current assets	8,705				6,691
Property and equipment, net	1,292				1,280
Other assets	2,328				2,266
Deferred tax assets	5,658				5,556
Intangible assets, net	1,106				1,172
Goodwill	9,353				9,329
Total assets	$	28,442			$	26,294
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	195			$	208
Accrued expenses and other	1,922				2,151
Current portion of long-term debt and other borrowings	2,748				2,747
Unearned revenue	5,182				5,218
Total current liabilities	10,047				10,324
Note payable to Dell	270				270
Long-term debt	4,712				2,731
Unearned revenue	4,036				4,050
Income tax payable	816				817
Operating lease liabilities	787				746
Other liabilities	346				347
Total liabilities	21,014				19,285
Contingencies
Stockholders’ equity:
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 112,068 and 110,484 shares	1				1
Class B convertible common stock, par value $0.01; authorized 1,000,000 shares; issued and outstanding 307,222 shares	3				3
Additional paid-in capital	2,047				2,000
Accumulated other comprehensive loss	(18		)		(4		)
Retained earnings	5,395				5,009
Total stockholders’ equity	7,428				7,009
Total liabilities and stockholders’ equity	$	28,442			$	26,294

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VMware, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
	Three Months Ended
	May 1,				May 3,
	2020				2019
Operating activities:
Net income	$	386			$	365
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	244				201
Stock-based compensation	272				216
Deferred income taxes, net	(98		)		(18		)
Unrealized (gain) loss on equity securities, net	(6		)		3
(Gain) loss on disposition of assets, revaluation and impairment, net	6				(5		)
Other	(4		)		1
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	352				438
Other current assets and other assets	(171		)		(125		)
Due to/from related parties, net	690				614
Accounts payable	(10		)		16
Accrued expenses and other liabilities	(249		)		(356		)
Income taxes payable	15				(45		)
Unearned revenue	(53		)		90
Net cash provided by operating activities	1,374				1,395
Investing activities:
Additions to property and equipment	(87		)		(73		)
Purchases of strategic investments	(5		)		—
Proceeds from disposition of assets	4				22
Business combinations, net of cash acquired, and purchases of intangible assets	(38		)		(45		)
Net cash paid on disposition of a business	—				(4		)
Net cash used in investing activities	(126		)		(100		)
Financing activities:
Proceeds from issuance of common stock	106				134
Net proceeds from issuance of long-term debt	1,984				—
Repurchase of common stock	(181		)		(591		)
Shares repurchased for tax withholdings on vesting of restricted stock	(115		)		(204		)
Principal payments on finance lease obligations	(1		)		—
Net cash provided by (used in) financing activities	1,793				(661		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1		)		—
Net increase in cash, cash equivalents and restricted cash	3,040				634
Cash, cash equivalents and restricted cash at beginning of the period	3,031				3,596
Cash, cash equivalents and restricted cash at end of the period	$	6,071			$	4,230
Supplemental disclosures of cash flow information:
Cash paid for interest	$	74			$	62
Cash paid for taxes, net	76				88
Non-cash items:
Changes in capital additions, accrued but not paid	$	(7	)		$	3

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VMware, Inc.

SUPPLEMENTAL UNEARNED REVENUE SCHEDULE
(in millions)
(unaudited)
	May 1,				January 31,				November 1,				August 2,				May 3,				February 1,
	2020				2020				2019				2019				2019				2019
Unearned revenue as reported:
License	$	15			$	19			$	19			$	19			$	19			$	15
Subscription and SaaS	1,579				1,534				1,199				976				953				916
Services
Software maintenance	6,611				6,700				6,106				6,042				5,754				5,741
Professional services	1,013				1,015				893				851				802				767
Total unearned revenue	$	9,218			$	9,268			$	8,217			$	7,888			$	7,528			$	7,439

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VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended May 1, 2020
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
	GAAP				Stock-Based Compensation				Employer Payroll Taxes on Employee Stock Transactions				Intangible Amortization				Realignment Charges				Acquisition, Disposition and Other Items				Tax Adjustment(1)				Non-GAAP As Adjusted(2)
Operating expenses:
Cost of license revenue	$	70			—				—				(42		)		—				—				—				$	27
Cost of subscription and SaaS revenue	$	96			(4		)		—				(12		)		—				—				—				$	81
Cost of services revenue	$	318			(22		)		—				(1		)		—				—				—				$	295
Research and development	$	665			(125		)		—				—				—				—				—				$	540
Sales and marketing	$	917			(72		)		(3		)		(25		)		—				(2		)		—				$	816
General and administrative	$	246			(49		)		—				—				—				(39		)		—				$	157
Realignment and loss on disposition	$	4			—				—				—				(4		)		—				—				$	—
Operating income	$	418			272				3				80				4				41				—				$	818
Operating margin(2)	15.3		%		10.0		%		0.1		%		2.9		%		0.1		%		1.5		%		—				29.9		%
Other income (expense), net(3)	$	(6	)		—				—				—				—				(6		)		—				$	(12	)
Income before income tax	$	368			272				3				80				4				35				—				$	762
Income tax provision (benefit)	$	(18	)																						140				$	122
Tax rate(2)	N/A																												16.0		%
Net income	$	386			272				3				80				4				35				(140		)		$	640
Net income per weighted-average share, diluted for Classes A and B(2)(4)	$	0.92			$	0.65			$	0.01			$	0.19			$	0.01			$	0.08			$	(0.33	)		$	1.52
__________
N/A - GAAP tax rate was not applicable due to the income tax benefit recorded for the three months ended May 1, 2020.
(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 421,513 diluted weighted-average shares for Classes A and B.

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VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended May 3, 2019
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
	GAAP				Stock-Based Compensation				Employer Payroll Taxes on Employee Stock Transactions				Intangible Amortization				Acquisition, Disposition and Other Items				Tax Adjustment(1)				Non-GAAP As Adjusted(2)
Operating expenses:
Cost of license revenue	$	36			—				—				(20		)		—				—				$	16
Cost of subscription and SaaS revenue	$	94			(3		)		—				(26		)		—				—				$	65
Cost of services revenue	$	299			(18		)		—				(1		)		—				—				$	279
Research and development	$	590			(102		)		—				—				—				—				$	489
Sales and marketing	$	868			(63		)		(2		)		(22		)		—				—				$	781
General and administrative	$	209			(30		)		—				—				(13		)		—				$	166
Realignment and loss on disposition	$	—			—				—				—				—				—				$	—
Operating income	$	354			216				2				69				13				—				$	654
Operating margin(2)	14.4		%		8.8		%		0.1		%		2.8		%		0.5		%		—				26.7		%
Other income (expense), net(3)	$	17			—				—				—				(1		)		—				$	16
Income before income tax	$	351			216				2				69				12				—				$	650
Income tax provision (benefit)	$	(14	)																		118				$	104
Tax rate(2)	N/A																								16.0		%
Net income	$	365			216				2				69				12				(118		)		$	546
Less: Net income (loss) attributable to non-controlling interests	$	(15	)		22				—				9				—				(5		)		$	11
Net income attributable to VMware, Inc.	$	380			194				2				60				12				(113		)		$	535
Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(2)(4)	$	0.89			$	0.45			$	—			$	0.14			$	0.03			$	(0.27	)		$	1.25
__________
N/A - GAAP tax rate was not applicable due to the income tax benefit recorded for the three months ended May 3, 2019.
(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 426,697 diluted weighted-average shares for Classes A and B.

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VMware, Inc.

REVENUE BY TYPE
(in millions)
(unaudited)
		Three Months Ended
		May 1,				May 3,
		2020				2019
Revenue:
License		$	660			$	646
Subscription and SaaS		572				411
Total license and subscription and SaaS		1,232				1,057
Services:
Software maintenance		1,245				1,148
Professional services		257				245
Total services		1,502				1,393
Total revenue		$	2,734			$	2,450
Percentage of revenue:
License		24.1		%		26.4		%
Subscription and SaaS		21.0		%		16.7		%
Total license and subscription and SaaS		45.1		%		43.1		%
Services:
Software maintenance		45.5		%		46.8		%
Professional services		9.4		%		10.1		%
Total services		54.9		%		56.9		%
Total revenue		100.0		%		100.0		%

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VMware, Inc.

REVENUE BY GEOGRAPHY
(in millions)
(unaudited)
	Three Months Ended
	May 1,				May 3,
	2020				2019
Revenue:
United States	$	1,363			$	1,196
International	1,371				1,254
Total revenue	$	2,734			$	2,450
Percentage of revenue:
United States	49.9		%		48.8		%
International	50.1		%		51.2		%
Total revenue	100.0		%		100.0		%

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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
	May 1,				May 3,
	2020				2019
GAAP cash flows from operating activities	$	1,374			$	1,395
Capital expenditures	(87		)		(73		)
Free cash flows	$	1,287			$	1,322

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VMware, Inc.

About Non-GAAP Financial Measures

To provide investors and others with additional information regarding VMware’s results, VMware has disclosed in this earnings release the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per diluted share and free cash flow. VMware has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. These non-GAAP financial measures, other than free cash flow, differ from GAAP in that they exclude stock-based compensation, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, realignment charges, acquisition, disposition and other items, and discrete items that impacted our GAAP tax rate, each as discussed below. Our non-GAAP financial measures also reflect the application of our non-GAAP tax rate. Free cash flow differs from GAAP cash flow from operating activities with respect to the treatment of capital expenditures.

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 VMware stock, at the option of VMware.

–	Gains or losses on equity investments, whether realized or unrealized.

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VMware, Inc.

–	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 VMware did not pay out a portion of its compensation in the form of stock-based compensation and related employer payroll taxes, the cash salary expense included in operating expenses would be higher, which would affect VMware’s cash position. VMware compensates for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP and should not be considered measures of VMware’s liquidity. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited.

Management encourages investors and others to review VMware’s financial information in its entirety and not rely on a single financial measure.