0001193125-08-086809 8-K 2 20080422 2.02 9.01 20080422 20080422 VMWARE, INC. 0001124610 7372 943292913 DE 1231 8-K 34 001-33622 08769428 3401 HILLVIEW AVENUE PALO ALTO CA 94304 (650) 427-5000 3401 HILLVIEW AVENUE PALO ALTO CA 94304 VMWARE INC 20000923 8-K 1 d8k.htm FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): April 22, 2008 VMWARE, INC. (Exact name of registrant as specified in its charter) Delaware 001-33622 94-3292913 (State or Other (Commission File Number) (IRS Employer Jurisdiction of Identification Number) Incorporation) 3401 Hillview Avenue, Palo 94304 Alto, CA (Address of Principal (Zip code) Executive Offices) Registrant’s telephone number, including area code: (650) 427-5000 N/A (Former Name or Former Address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) -------------------------------------------------------------------------------- Item 2.02 Results of Operations and Financial Condition. On April 22, 2008, VMware, Inc. (“VMware”) issued a press release (“Earnings Release”) announcing its financial results for the quarter ended March 31, 2008. The press release, which includes information regarding VMware’s use of non-GAAP financial measures, is attached hereto as Exhibit 99.1 and incorporated by reference herein. The information in this Item 2.02 and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filing. Item 9.01 Financial Statements and Exhibits. (d) Exhibits 99.1 Press release of VMware, Inc. dated April 22, 2008 -------------------------------------------------------------------------------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: April 22, 2008 VMWARE, INC. By: /s/ Mark Peek Mark Peek Chief Financial Officer EX-99.1 2 dex991.htm PRESS RELEASE Exhibit 99.1 VMware Reports First-Quarter Results Virtualization Leader Grew First Quarter Revenues 69% to $438 Million PALO ALTO, Calif., April 22, 2008 — VMware, Inc. (NYSE: VMW) the global leader in virtualization solutions from the desktop to the datacenter, today announced financial results for the first quarter of 2008: • Revenues for the first quarter were $438 million, an increase of 69% compared to the first quarter of 2007. • GAAP operating income for the first quarter was $48 million, compared to $46 million in the first quarter of 2007. Non-GAAP operating income was $106 million, an increase of 62% over the year-ago quarter. • GAAP net income for the quarter was $43 million, or $0.11 per diluted share, compared to $41 million, or $0.12 per diluted share, in the year-ago quarter. Non-GAAP net income for the quarter was $88 million, or $0.22 per diluted share, compared to $0.16 a year ago. “Q1 was another quarter of increased demand for VMware virtualization products and solutions,” said Diane Greene, president and chief executive officer of VMware. “Our strategy to continually deliver superb quality and market-expanding solutions well ahead of the competition is working and we’re advantaging our lead with our well developed multi-tier partner distribution model. We are seeing customers progress more rapidly through the virtualization adoption path; many are now moving right into a VMware based architecture so that they can pool their resources, deliver capacity on demand, and also get an insurance policy for business continuity and disaster recovery.” First quarter U.S. revenues grew 65% compared to the year-ago quarter on increased demand from large enterprises standardizing on the VMware platform and an increase in the number of smaller transactions delivered through VMware channel partners. International revenues, which increased 74%, were driven in part by triple-digit business growth across Australia and emerging markets including Brazil, China, India and Russia. Software license revenue grew 73% compared to the same period last year to $294 million and service revenue, including support, subscription and professional services, increased 62% to $144 million. VMware plans to host a conference call today to review its first-quarter results and discuss its financial outlook. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via the Web at http://ir.vmware.com. The Internet broadcast and related slides will be available live, and a replay will be available following completion of the live broadcast for approximately 30 days. First Quarter Highlights During the first quarter VMware announced and shipped new products and technologies in four key areas: (1) desktop virtualization, (2) datacenter virtualization, (3) management & automation for the datacenter and (4) platform security. VMware announced OEM agreements with four major hardware vendors to pre-install the VMware ESXi hypervisor on their servers. The company announced major enhancements to its channel partner programs to help the more than 13,000 indirect channel partners reselling VMware expand their virtualization practices and drive new customer adoption. This quarter also marked the launch of VMworld Europe, the industry’s first European virtualization conference. Held in Cannes, France, VMworld Europe drew more than 4,500 customers and partners. Specific, notable quarterly highlights include: • General availability of VMware Virtual Desktop Manager 2, which allows users to securely connect to their virtual desktops in the datacenter and gives IT administrators an easy and cost-effective way to manage virtual desktops. • General availability of VMware Lifecycle Manager, which enables companies to implement a consistent and automated process for requesting, approving, deploying, updating, and retiring virtual machines. -------------------------------------------------------------------------------- • The announcement of VMware VMsafe™, a new security initiative endorsed by more than 20 security vendors that protects applications running in virtual machines in ways previously not possible in physical environments. Visit www.vmware.com/go/q108highlights for a comprehensive list of VMware highlights from the first quarter. Financial Outlook The following forward-looking statements are based on current expectations and are subject to uncertainties and risks discussed below and in documents filed by VMware with the United States Securities and Exchange Commission. Actual results may differ materially. • VMware continues to expect 2008 revenue growth of approximately 50% compared to 2007. • Second quarter 2008 revenues are expected to increase approximately 55% compared to the second quarter of 2007. About VMware VMware (NYSE: VMW) is the global leader in virtualization solutions from the desktop to the datacenter. Customers of all sizes rely on VMware to reduce capital and operating expenses, ensure business continuity, strengthen security and go green. With 2007 revenues of $1.3 billion, more than 100,000 customers and nearly 14,000 partners, VMware is one of the fastest growing public software companies. VMware is headquartered in Palo Alto, California and on the web at www.vmware.com. VMware is a registered trademark of VMware, Inc. in the United States and/or other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective companies. Use of Non-GAAP Financial Measures 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, which are used as measures of VMware’s performance, should be considered in addition to, not as a substitute for or in isolation from, measures of VMware’s financial performance prepared in accordance with GAAP. These measures differ from GAAP in that they exclude stock-based compensation, amortization of intangible assets, the write-off of in-process research and development, employer payroll tax on employee stock transactions, and the net effect of the amortization and capitalization of software under Statement of Financial Accounting Standards No. 86 (“FAS86”), VMware’s bases for these adjustments are described below. VMware’s management uses the non-GAAP financial measures referenced in this release and shown in the accompanying schedules to gain an understanding of VMware’s comparative operating results (when comparing such results with previous periods or forecasts) and its future prospects and excludes the above-listed items (stock-based compensation, amortization of intangible assets, write-off of in-process research and development, employer payroll tax on employee stock transactions, and the net effect of the amortization and capitalization of software under FAS86) from its internal operating plans and measurement of financial performance, including budgeting, calculating bonus payments, and forecasting future periods. These non-GAAP financial measures are used by VMware’s management in their financial and operating decision-making because management believes they reflect VMware’s ongoing business in a manner that allows meaningful period-to-period comparisons. As the non-GAAP financial measures exclude expenses that VMware believes are not reflective of ongoing operating results, management believes the non-GAAP financial measures enable management to better analyze trends in its business. VMware’s management also believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding and evaluating VMware’s current operating results and future prospects in the same manner as management does, if they so choose, and (b) in comparing in a consistent manner VMware’s current financial results with VMware’s past financial results. In addition to the foregoing, management believes that these non-GAAP measures are useful to investors and others in assessing VMware’s operating performance due to the following factors: • Although stock-based compensation is an important aspect of the compensation of VMware’s employees and executives, determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. VMware does not believe these non-cash expenses are reflective of ongoing operating results. • The amount of employer payroll taxes on stock-based compensation is dependent on VMware’s stock price and the timing and size of exercise by employees of their stock options and of vesting in restricted stock, over which management has limited to no control, and as such does not correlate to VMware’s operation of the business. -------------------------------------------------------------------------------- • VMware’s amortization of intangible assets includes the effects of EMC’s acquisition of VMware in January 2004. Also, VMware does not acquire businesses on a predictable cycle. VMware therefore believes that the presentation of non-GAAP measures that adjust for the amortization of intangible assets and the write-off of in-process research and development, provide investors and others with a consistent basis for comparison across accounting periods and, therefore, are useful to investors and others in helping them to better understand VMware’s operating results and underlying operational trends. • The amortization and capitalization of software under FAS86 can vary significantly depending upon the timing of products reaching technological feasibility. VMware does not believe that the variance in operating results caused by the net effect of applying FAS86 properly reflect underlying operational trends. VMware’s non-GAAP financial measures may be defined differently than similar terms used by other companies and, accordingly, may not be comparable to similarly-titled non-GAAP financial measures used by other companies. There are significant limitations associated with the use of non-GAAP financial measures. Specifically, the non-GAAP financial measures that exclude stock-based compensation, intangible amortization, in-process research and development, and the net effect of the amortization and capitalization of software under FAS86, do not include all items of income and expense that affect VMware’s operations. More 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 costs of revenues and operating expenses would be higher. Payment of employer payroll taxes on stock-based compensation is also a cash expense for VMware and impacts the Company’s cash position. In the case of intangible amortization, while not directly affecting VMware’s cash position, it represents the loss of value of intangible assets over time. As a result, non-GAAP net income and non-GAAP net income per share, which exclude this expense, do not reflect the full economic loss in value of those intangible assets. Management compensates for these limitations by reconciling the non-GAAP financial measures to VMware’s financial results as determined in accordance with GAAP, which reconciliations are set forth in the accompanying schedules to this release, in the current report on Form 8-K furnished to the SEC on the date hereof and on http://ir.vmware.com. Forward-Looking Statements Statements made in this press release which are not statements of historical fact are forward-looking statements and are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate, but are not limited, to our financial outlook for revenue growth during the second quarter of 2008 and throughout 2008, continuing customer adoption and deployment of our products and architecture, levels of demand for our products including market size and leadership, ongoing development and delivery of innovative new products and continuing development of our distribution model. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization market, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and beta programs; (v) our customers’ ability to develop, and to transition to, new products, (vi) the uncertainty of customer acceptance of emerging technology; (viii) rapid technological and market changes in virtualization software; (ix) changes to product development timelines; (x) VMware’s relationship with EMC Corporation, and EMC’s ability to control matters requiring stockholder approval, including the election of VMware’s board members; (xi) our ability to protect our proprietary technology; (xii) our ability to attract and retain highly qualified employees; and (xiii) fluctuating currency exchange rates. These forward looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including the report on Form 10-K for the fiscal year ended December 31, 2007, which could cause actual results to vary from expectations. VMware disclaims any obligation to update any such forward-looking statements after the date of this release. Contacts: Michael Haase VMware Investor Relations mhaase@vmware.com 650-427-2875 Greg Eden VMware Public Relations eden@vmware.com 650-427-1095 Ulysses King OutCast Communications ulysses@outcastpr.com 415-345-4731 -------------------------------------------------------------------------------- VMware, Inc. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) March 31, 2008 December 31, 2007 ASSETS Current assets: Cash and cash equivalents $ 1,306,011 $ 1,231,168 Accounts receivable, less allowance for doubtful accounts of $1,439 and $1,603 284,309 283,824 Deferred tax asset 74,036 54,386 Other current assets 40,392 33,956 Total current assets 1,704,748 1,603,334 Property and equipment, net 325,906 276,983 Other assets, net 62,533 71,695 Deferred tax asset 88,907 72,249 Intangible assets, net 37,622 32,073 Goodwill 681,742 639,366 Total assets $ 2,901,458 $ 2,695,700 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 88,798 $ 61,503 Accrued expenses 161,950 173,610 Due to EMC, net 20,005 2,759 Income taxes payable to EMC, current portion 34,858 68,823 Deferred revenue, current portion 402,326 363,317 Total current liabilities 707,937 670,012 Note payable to EMC 450,000 450,000 Deferred revenue, net of current portion 238,801 189,479 Deferred tax liability 30,349 27,327 Income taxes payable to EMC, net of current portion 21,575 18,265 Commitments and contingencies Stockholders’ equity: Class A common stock, par value $.01; authorized 2,500,000 shares; issued and outstanding 83,679 and 82,924 shares 837 829 Class B convertible common stock, par value $.01; authorized 1,000,000 shares; issued and outstanding 300,000 shares 3,000 3,000 Additional paid-in capital 1,442,154 1,352,788 Accumulated surplus (deficit) 6,805 (16,000 ) Total stockholders’ equity 1,452,796 1,340,617 Total liabilities and stockholders’ equity $ 2,901,458 $ 2,695,700 -------------------------------------------------------------------------------- VMware, Inc. CONSOLIDATED INCOME STATEMENTS (in thousands, except per share amounts) For the Three Months Ended March 31, 2008 2007 Revenues: License $ 293,980 $ 169,557 Services 144,195 89,138 438,175 258,695 Operating expenses: Cost of license revenues 22,859 20,556 Cost of services revenues 54,311 23,468 Research and development 119,255 54,958 Sales and marketing 149,257 86,707 General and administrative 44,102 26,624 Operating income 48,391 46,382 Investment income 8,004 1,704 Interest income (expense) with EMC, net (5,819 ) 1,273 Other expense, net 454 59 Income before taxes 51,030 49,418 Income tax provision 7,975 8,338 Net income $ 43,055 $ 41,080 Net income per weighted average share, basic for Class A and Class B $ 0.11 $ 0.12 Net income per weighted average share, diluted for Class A and Class B $ 0.11 $ 0.12 Weighted average shares, basic for Class A and Class B 381,026 332,500 Weighted average shares, diluted for Class A and Class B 398,063 332,500 -------------------------------------------------------------------------------- VMware, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Three Months Ended March 31, 2008 2007 Cash flows from operating activities: Net income $ 43,055 $ 41,080 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 37,434 21,197 Stock-based compensation, excluding amounts capitalized 42,161 11,644 Excess tax benefits from stock-based compensation (22,692 ) — Other adjustments 1,336 563 Changes in assets and liabilities, net of acquisitions: Accounts receivable 846 46,361 Other assets (8,594 ) (602 ) Due to (from) EMC, net 17,246 (56,178 ) Accounts payable 7,472 (1,968 ) Accrued expenses (15,305 ) 960 Income taxes payable to EMC (21,596 ) 14,696 Deferred income taxes, net (36,344 ) (6,591 ) Deferred revenue 88,161 33,740 Net cash provided by operating activities 133,180 104,902 Cash flows from investing activities: Additions to property and equipment, net (49,022 ) (16,584 ) Capitalized software development costs (4,164 ) (6,672 ) Business acquisitions, net of cash acquired (33,289 ) — Decrease in restricted cash 896 688 Net cash used in investing activities (85,579 ) (22,568 ) Cash flows from financing activities: Proceeds from exercises of stock options 23,669 — Excess tax benefits from stock-based compensation 22,692 — Shares repurchased for tax withholdings on vesting of restricted stock (19,119 ) — Net cash provided by financing activities 27,242 — Net increase in cash and cash equivalents 74,843 82,334 Cash and cash equivalents at beginning of the period 1,231,168 176,134 Cash and cash equivalents at end of the period $ 1,306,011 $ 258,468 -------------------------------------------------------------------------------- VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended March 31, 2008 (in thousands, except per share amounts) (unaudited) Stock-based Compensation Included in Employer Capitalized Capitalized Payroll Tax on Software Software Stock-Based Employee Stock Intangible Development Development Non-GAAP, GAAP Compensation Transactions Amortization Costs (1) Costs as adjusted Operating expenses: Cost of license revenues $ 22,859 (263 ) (2 ) (2,310 ) (14,870 ) $ 5,414 Cost of services revenues $ 54,311 (3,261 ) (37 ) $ 51,013 Research and development $ 119,255 (21,097 ) (797 ) 5,036 (873 ) $ 101,524 Sales and marketing $ 149,257 (11,301 ) (288 ) (894 ) $ 136,774 General and administrative $ 44,102 (6,239 ) (157 ) (647 ) $ 37,059 Operating income $ 48,391 42,161 1,281 3,851 9,834 873 $ 106,391 Income before taxes $ 51,030 42,161 1,281 3,851 9,834 873 $ 109,030 Income tax provision $ 7,975 8,500 328 1,411 2,182 175 $ 20,571 Quarterly tax rate 15.6 % 18.9 % Net income $ 43,055 33,661 953 2,440 7,652 698 $ 88,459 Net income per weighted average share, basic for Class A and Class B $ 0.11 $ 0.09 $ 0.00 $ 0.01 $ 0.02 $ 0.00 $ 0.23 Net income per weighted average share, diluted for Class A and Class B $ 0.11 $ 0.08 $ 0.00 $ 0.01 $ 0.02 $ 0.00 $ 0.22 Weighted average shares, basic for Class A and Class B 381,026 381,026 381,026 381,026 381,026 381,026 381,026 Weighted average shares, diluted for Class A and Class B 398,063 398,063 398,063 398,063 398,063 398,063 398,063 (1) For the first quarter of 2008, VMware capitalized $5.0 million (including $0.9 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $14.9 million for the first quarter of 2008. -------------------------------------------------------------------------------- VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended March 31, 2007 (in thousands, except per share amounts) (unaudited) Stock-based Compensation Included in Capitalized Capitalized Software Software Stock-Based Intangible Development Development Non-GAAP, GAAP Compensation Amortization Costs (1) Costs as adjusted Operating expenses: Cost of license revenues $ 20,556 (36 ) (5,215 ) (7,987 ) — $ 7,318 Cost of services revenues $ 23,468 (494 ) — — — $ 22,974 Research and development $ 54,958 (6,392 ) — 7,599 (927 ) $ 55,238 Sales and marketing $ 86,707 (2,944 ) (577 ) — — $ 83,186 General and administrative $ 26,624 (1,778 ) (493 ) — — $ 24,353 Operating income $ 46,382 11,644 6,285 388 927 $ 65,626 Income before taxes $ 49,418 11,644 6,285 388 927 $ 68,662 Income tax provision $ 8,338 2,675 2,325 144 343 $ 13,825 Quarterly tax rate 16.9 % 20.1 % Net income $ 41,080 8,969 3,960 244 584 $ 54,837 Net income per weighted average share, basic for Class A and Class B $ 0.12 $ 0.03 $ 0.01 $ 0.00 $ 0.00 $ 0.16 Net income per weighted average share, diluted for Class A and Class B $ 0.12 $ 0.03 $ 0.01 $ 0.00 $ 0.00 $ 0.16 Weighted average shares, basic for Class A and Class B 332,500 332,500 332,500 332,500 332,500 332,500 Weighted average shares, diluted for Class A and Class B 332,500 332,500 332,500 332,500 332,500 332,500 (1) For the first quarter of 2007, VMware capitalized $7.6 million (including $0.9 million of stock-based compensation), of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $8.0 million for the first quarter of 2007.