0001124610-20-000061 10-Q 95 20201030 20201207 20201207 VMWARE, INC. 0001124610 7372 943292913 DE 0129 10-Q 34 001-33622 201373455 3401 HILLVIEW AVENUE PALO ALTO CA 94304 (650) 427-5000 3401 HILLVIEW AVENUE PALO ALTO CA 94304 VMWARE INC 20000923 10-Q 1 vmw-1030202010xq.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission File Number 001-33622
_______________________________________________________
VMWARE, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________________
Delaware
94-3292913
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
3401 Hillview Avenue

Palo Alto,
CA
94304
(Address of principal executive offices)
(Zip Code)
(650) 427-5000
(Registrant’s telephone number, including area code)
_____________________________________________________

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Class A common stock
 
VMW
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of November 27, 2020, the number of shares of common stock, par value $0.01 per share, of the registrant outstanding was 419,777,970, of which 112,556,134 shares were Class A common stock and 307,221,836 were Class B common stock.



TABLE OF CONTENTS
 
 
Page
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 
VMware, Pivotal, SaltStack, Datrium, Lastline, Nyansa, vRealize, Carbon Black, Workspace ONE, Horizon, CloudHealth, NSX, VMware vSAN, VMware Foundation, vSphere, VeloCloud, Heptio, and Tanzu are registered trademarks or trademarks of VMware or its subsidiaries in the United States and other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective companies.

2


PART I
FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
October 30,

November 1,
 
October 30,

November 1,
 
2020

2019(1)
 
2020

2019(1)
Revenue(2)(3):
 
 
 
 
 
 
 
License
$
639

 
$
728

 
$
2,019

 
$
2,147

Subscription and SaaS
676

 
470

 
1,880

 
1,320

Services
1,549

 
1,458

 
4,574

 
4,271

Total revenue
2,864

 
2,656

 
8,473

 
7,738

Operating expenses(2)(4):
 
 
 
 
 
 
 
Cost of license revenue
44

 
42

 
119

 
116

Cost of subscription and SaaS revenue
142

 
103

 
400

 
294

Cost of services revenue
330

 
311

 
969

 
916

Research and development
714

 
642

 
2,058

 
1,846

Sales and marketing
912

 
918

 
2,727

 
2,674

General and administrative
250

 
269

 
773

 
701

Realignment
44

 

 
47

 

Operating income
428

 
371

 
1,380

 
1,191

Investment income
1

 
12

 
7

 
40

Interest expense
(52
)
 
(40
)
 
(156
)
 
(108
)
Other income (expense), net
177

 
17

 
186

 
75

Income before income tax
554

 
360

 
1,417

 
1,198

Income tax provision (benefit)
120

 
(30
)
 
150

 
(4,842
)
Net income
434

 
390

 
1,267

 
6,040

Less: Net loss attributable to non-controlling interests

 
(17
)
 

 
(50
)
Net income attributable to VMware, Inc.
$
434

 
$
407

 
$
1,267

 
$
6,090

Net income per weighted-average share attributable to VMware, Inc. common stockholders, basic for Classes A and B
$
1.03

 
$
0.98

 
$
3.02

 
$
14.60

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B
$
1.02

 
$
0.96

 
$
3.00

 
$
14.32

Weighted-average shares, basic for Classes A and B
420,857

 
416,387

 
419,758

 
417,002

Weighted-average shares, diluted for Classes A and B
423,400

 
423,035

 
423,093

 
425,366

__________
 
 
 
 
 
 
 
(1)   Adjusted to reflect the recast of prior period information due to the Pivotal Software, Inc. (“Pivotal”) acquisition in fiscal 2020, which was accounted for as a transaction between entities under common control (refer to Note A).
(2)   Effective the fourth quarter of fiscal 2020, revenue recognized from subscription and SaaS offerings, as well as the related cost of subscription and SaaS revenue, are being presented separately (refer to Note A).
(3)   Includes related party revenue as follows (refer to Note C):
License
$
289

 
$
353

 
$
976

 
$
992

Subscription and SaaS
136

 
88

 
373

 
239

Services
518

 
376

 
1,439

 
1,052

(4)   Includes stock-based compensation as follows:
 
 
 
 
 
 
Cost of license revenue
$

 
$

 
$
1

 
$
1

Cost of subscription and SaaS revenue
4

 
3

 
13

 
10

Cost of services revenue
25

 
20

 
74

 
58

Research and development
140

 
118

 
397

 
328

Sales and marketing
85

 
76

 
243

 
204

General and administrative
50

 
39

 
141

 
104

The accompanying notes are an integral part of the condensed consolidated financial statements.

3


VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
Three Months Ended
 
Nine Months Ended
 
October 30,
 
November 1,
 
October 30,
 
November 1,
 
2020
 
2019(1)
 
2020
 
2019(1)
Net income
$
434

 
$
390

 
$
1,267

 
$
6,040

Other comprehensive income (loss):
 
 
 
 
 
 
 
Changes in fair value of effective foreign currency forward contracts:
 
 
 
 
 
 
 
Unrealized gains (losses), net of tax provision (benefit) of $— for all periods
2

 
(1
)
 
(1
)
 
3

Reclassification of (gains) losses realized during the period, net of tax (provision) benefit of $— for all periods
2

 
(3
)
 

 
(2
)
Net change in fair value of effective foreign currency forward contracts
4

 
(4
)
 
(1
)
 
1

Total other comprehensive income (loss)
4

 
(4
)
 
(1
)
 
1

Comprehensive income, net of taxes
438

 
386

 
1,266

 
6,041

Less: Net loss attributable to the non-controlling interests

 
(17
)
 

 
(50
)
Comprehensive income attributable to VMware, Inc.
$
438

 
$
403

 
$
1,266

 
$
6,091

__________
 
 
 
 
 
 
 
(1)   Adjusted to reflect the recast of prior period information due to the Pivotal acquisition in fiscal 2020, which was accounted for as a transaction between entities under common control (refer to Note A).
The accompanying notes are an integral part of the condensed consolidated financial statements.

4


VMware, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
 
October 30,

January 31,
 
2020

2020
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,898

 
$
2,915

Accounts receivable, net of allowance for doubtful accounts of $6 and $7
1,789

 
1,883

Due from related parties, net
672

 
1,457

Other current assets
473

 
436

Total current assets
6,832

 
6,691

Property and equipment, net
1,311

 
1,280

Other assets
2,698

 
2,266

Deferred tax assets
5,865

 
5,556

Intangible assets, net
1,059

 
1,172

Goodwill
9,559

 
9,329

Total assets
$
27,324

 
$
26,294

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
190

 
$
208

Accrued expenses and other
2,232

 
2,151

Current portion of long-term debt and other borrowings

 
2,747

Unearned revenue
5,205

 
5,218

Total current liabilities
7,627

 
10,324

Note payable to Dell
270

 
270

Long-term debt
4,715

 
2,731

Unearned revenue
4,030

 
4,050

Income tax payable
790

 
817

Operating lease liabilities
904

 
746

Other liabilities
512

 
347

Total liabilities
18,848

 
19,285

Contingencies (refer to Note D)

 

Stockholders’ equity:
 
 
 
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 113,300 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
2,201

 
2,000

Accumulated other comprehensive loss
(5
)
 
(4
)
Retained earnings
6,276

 
5,009

Total stockholders’ equity
8,476

 
7,009

Total liabilities and stockholders’ equity
$
27,324

 
$
26,294

The accompanying notes are an integral part of the condensed consolidated financial statements.

5


VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Nine Months Ended
 
October 30,
 
November 1,
 
2020
 
2019(1)
Operating activities:
 
 
 
Net income
$
1,267

 
$
6,040

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
757

 
626

Stock-based compensation
869

 
705

Deferred income taxes, net
(177
)
 
(5,138
)
Unrealized (gain) loss on equity securities, net
(197
)
 
(30
)
(Gain) loss on disposition of assets, revaluation and impairment, net
22

 
(4
)
Loss on extinguishment of debt
8

 

Other

 
4

Changes in assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
102

 
164

Other current assets and other assets
(622
)
 
(444
)
Due to/from related parties, net
785

 
299

Accounts payable
(4
)
 
14

Accrued expenses and other liabilities
393

 
(82
)
Income taxes payable
(53
)
 
15

Unearned revenue
(65
)
 
618

Net cash provided by operating activities
3,085

 
2,787

Investing activities:
 
 
 
Additions to property and equipment
(247
)
 
(215
)
Purchases of strategic investments
(16
)
 
(18
)
Proceeds from disposition of assets
21

 
22

Business combinations, net of cash acquired, and purchases of intangible assets
(390
)
 
(2,437
)
Net cash paid on disposition of a business

 
(4
)
Net cash used in investing activities
(632
)
 
(2,652
)
Financing activities:
 
 
 
Proceeds from issuance of common stock
264

 
294

Net proceeds from issuance of long-term debt
1,979

 

Borrowings under term loan, net of issuance costs

 
1,993

Repayment of term loan
(1,500
)
 
(1,400
)
Repayment of current portion of long-term debt
(1,257
)
 

Repurchase of common stock
(566
)
 
(1,279
)
Shares repurchased for tax withholdings on vesting of restricted stock
(319
)
 
(393
)
Payment to acquire non-controlling interests
(91
)
 

Contribution from Dell

 
27

Principal payments on finance lease obligations
(3
)
 
(1
)
Net cash used in financing activities
(1,493
)
 
(759
)
Net increase (decrease) in cash, cash equivalents and restricted cash
960

 
(624
)
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
$
3,991

 
$
2,972

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
142

 
$
131

Cash paid for taxes, net
393

 
283

Non-cash items:
 
 
 
Changes in capital additions, accrued but not paid
$
(18
)
 
$
5

Changes in tax withholdings on vesting of restricted stock, accrued but not paid
(4
)
 
49

__________
 
 
 
(1)   Adjusted to reflect the recast of prior period information due to the Pivotal acquisition in fiscal 2020, which was accounted for as a transaction between entities under common control (refer to Note A).
The accompanying notes are an integral part of the condensed consolidated financial statements.

6


VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
 
Three Months Ended October 30, 2020
 
Class A
Common Stock
 
Class B
Convertible
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Stockholders’
Equity
Shares
 
Par Value
 
Shares
 
Par Value
 
Balance, July 31, 2020
113

 
$
1

 
307

 
$
3

 
$
2,070

 
$
5,842

 
$
(9
)
 
$
7,907

Proceeds from issuance of common stock
1

 

 

 

 
122

 

 

 
122

Repurchase and retirement of common stock
(2
)
 

 

 

 
(255
)
 

 

 
(255
)
Issuance of restricted stock
1

 

 

 

 

 

 

 

Shares withheld for tax withholdings on vesting of restricted stock

 

 

 

 
(39
)
 

 

 
(39
)
Stock-based compensation

 

 

 

 
303

 

 

 
303

Amount due from tax sharing arrangement

 

 

 

 

 

 

 

Total other comprehensive income (loss)

 

 

 

 

 

 
4

 
4

Net income

 

 

 

 

 
434

 

 
434

Balance, October 30, 2020
113

 
$
1

 
307

 
$
3

 
$
2,201

 
$
6,276

 
$
(5
)
 
$
8,476


 
Nine Months Ended October 30, 2020
 
Class A
Common Stock
 
Class B
Convertible
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Stockholders’
Equity
Shares
 
Par Value
 
Shares
 
Par Value
 
Balance, January 31, 2020
110

 
$
1

 
307

 
$
3

 
$
2,000

 
$
5,009

 
$
(4
)
 
$
7,009

Proceeds from issuance of common stock
3

 

 

 

 
264

 

 

 
264

Repurchase and retirement of common stock
(4
)
 

 

 

 
(566
)
 

 

 
(566
)
Issuance of restricted stock
6

 

 

 

 

 

 

 

Shares withheld for tax withholdings on vesting of restricted stock
(2
)
 

 

 

 
(315
)
 

 

 
(315
)
Stock-based compensation

 

 

 

 
863

 

 

 
863

Amount due from tax sharing arrangement

 

 

 

 
(45
)
 

 

 
(45
)
Total other comprehensive income (loss)

 

 

 

 

 

 
(1
)
 
(1
)
Net income

 

 

 

 

 
1,267

 

 
1,267

Balance, October 30, 2020
113

 
$
1

 
307

 
$
3

 
$
2,201

 
$
6,276

 
$
(5
)
 
$
8,476



 
Three Months Ended November 1, 2019(1)
 
Class A
Common Stock
 
Class B
Convertible
Common Stock
 
Additional
Paid-in
Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-controlling Interests
 
Stockholders’
Equity
Shares
 
Par Value
 
Shares
 
Par Value
 
Balance, August 2, 2019
109

 
$
1

 
300

 
$
3

 
$
2,437

 
$
4,330

 
$
3

 
$
1,097

 
$
7,871

Proceeds from issuance of common stock
1

 

 

 

 
94

 

 

 

 
94

Issuance of stock-based awards in acquisition

 

 

 

 
10

 

 

 

 
10

Repurchase and retirement of common stock
(2
)
 

 

 

 
(194
)
 
(48
)
 

 

 
(242
)
Issuance of restricted stock
2

 

 

 

 

 

 

 

 

Shares withheld for tax withholdings on vesting of restricted stock

 

 

 

 
(94
)
 

 

 

 
(94
)
Stock-based compensation

 

 

 

 
230

 

 

 
26

 
256

Investment from Dell, net

 

 

 

 
1

 

 

 
1

 
2

Total other comprehensive income (loss)

 

 

 

 

 

 
(4
)
 

 
(4
)
Transactions with Pivotal’s non-controlling stockholders

 

 

 

 
(4
)
 

 

 
49

 
45

Net income (loss)

 

 

 

 

 
407

 

 
(17
)
 
390

Balance, November 1, 2019
110

 
$
1

 
300

 
$
3

 
$
2,480

 
$
4,689

 
$
(1
)
 
$
1,156

 
$
8,328


 
Nine Months Ended November 1, 2019(1)
 
Class A
Common Stock
 
Class B
Convertible
Common Stock
 
Additional
Paid-in
Capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-controlling Interests
 
Stockholders’
Equity
Shares
 
Par Value
 
Shares
 
Par Value
 
Balance, February 1, 2019
111

 
$
1

 
300

 
$
3

 
$
2,959

 
$
(1,096
)
 
$
(2
)
 
$
1,026

 
$
2,891

Cumulative effect of adoption of new accounting pronouncements

 

 

 

 

 
2

 

 

 
2

Proceeds from issuance of common stock
1

 

 

 

 
200