•	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 billion1, 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.

•	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, a VMware 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 the VMware environment in Google Cloud.

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◦	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 production VMware 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 introduced VMware vSphere BitFusion, a new integrated feature in VMware 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 recognized VMware 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 WaveTM: Infrastructure Automation Platforms, Q3 2020."5 According to Forrester’s report, VMware achieved the highest possible score in 22 criteria.

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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								Six Months Ended
		July 31,				August 2,				July 31,				August 2,
		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 VMware, Inc.		$	447			$	5,303			$	833			$	5,683
Net income per weighted-average share attributable to VMware, Inc. common stockholders, basic for Classes A and B		$	1.06			$	12.72			$	1.99			$	13.62
Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B		$	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

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VMware, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
	July 31,				January 31,
	2020				2020
ASSETS
Current assets:
Cash and cash equivalents	$	4,703			$	2,915
Accounts receivable, net of allowance for doubtful accounts of $6 and $7	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
Goodwill	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 Dell	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 $0.01; authorized 2,500,000 shares; issued and outstanding 113,248 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	2,070				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

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VMware, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
	Three Months Ended								Six Months Ended
	July 31,				August 2,				July 31,				August 2,
	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	)

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VMware, Inc.

SUPPLEMENTAL UNEARNED REVENUE SCHEDULE
(in millions)
(unaudited)
	July 31,				May 1,				January 31,				November 1,				August 2,				May 3,
	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

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VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended July 31, 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				Acquisition, Disposition and Other Items				Tax Adjustment(1)				Non-GAAP As Adjusted(2)
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.

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VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended July 31, 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	$	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.

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VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended August 2, 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	$	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 VMware, Inc.	$	5,303			208				4				61				(1		)		(4,924		)		$	650
Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(2)(5)	$	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 $4.9 billion was recorded as a deferred tax asset. Due to the impact of the discrete tax benefit of $4.9 billion, the tax rate calculated on a GAAP basis is not considered meaningful.
(5) Calculated based upon 425,091 diluted weighted-average shares for Classes A and B.

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VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended August 2, 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	$	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 VMware, Inc.	$	5,683			402				6				122				11				(5,037		)		$	1,187
Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(2)(5)	$	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 $4.9 billion was recorded as a deferred tax asset. Due to the impact of the discrete tax benefit of $4.9 billion, the tax rate calculated on a GAAP basis is not considered meaningful.
(5) Calculated based upon 426,044 diluted weighted-average shares for Classes A and B.

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VMware, Inc.

REVENUE BY TYPE
(in millions)
(unaudited)
		Three Months Ended								Six Months Ended
		July 31,				August 2,				July 31,				August 2,
		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		%

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VMware, Inc.

REVENUE BY GEOGRAPHY
(in millions)
(unaudited)
	Three Months Ended								Six Months Ended
	July 31,				August 2,				July 31,				August 2,
	2020				2019				2020				2019
Revenue:
United States	$	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:
United States	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		%

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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								Six Months Ended
	July 31,				August 2,				July 31,				August 2,
	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

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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.