0001124610-21-000068 10-Q 93 20211029 20211203 20211203 VMWARE, INC. 0001124610 7372 943292913 DE 0128 10-Q 34 001-33622 211470071 3401 HILLVIEW AVENUE PALO ALTO CA 94304 (650) 427-5000 3401 HILLVIEW AVENUE PALO ALTO CA 94304 VMWARE INC 20000923 10-Q 1 vmw-20211029.htm 10-Q vmw-20211029
00011246101/282022Q3FALSEIncludes related party revenue as follows (refer to Note C):
License$335 $289 $996 $976 
Subscription and SaaS221 136 589 373 
Services644 518 1,838 1,439 
Includes stock-based compensation as follows:
Cost of license revenue— — 
Cost of subscription and SaaS revenue16 13 
Cost of services revenue21 25 70 74 
Research and development125 140 402 397 
Sales and marketing74 85 227 243 
General and administrative33 50 97 141 
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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 29, 2021
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)
_______________________________________________________
Delaware94-3292913
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A common stockVMWNew 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 filerAccelerated filer
Non-accelerated filerSmaller 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 26, 2021, the number of shares of Class A common stock, par value $0.01 per share, of the registrant outstanding was 420,365,558.


VMware, Pivotal, vSphere, vRealize, Workspace ONE, Tanzu, Carbon Black, CloudHealth, VeloCloud, VMware vSAN, NSX, Horizon, Heptio, and Nyansa are registered trademarks or trademarks of VMware, Inc. or its subsidiaries in the United States and other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective organizations.
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 EndedNine Months Ended
 October 29,October 30,October 29,October 30,
 2021202020212020
Revenue(1):
License$710 $639 $2,093 $2,019 
Subscription and SaaS820 676 2,336 1,880 
Services1,658 1,549 4,891 4,574 
Total revenue3,188 2,864 9,320 8,473 
Operating expenses(2):
Cost of license revenue37 44 111 119 
Cost of subscription and SaaS revenue175 142 502 400 
Cost of services revenue362 330 1,051 969 
Research and development768 714 2,251 2,058 
Sales and marketing1,011 912 2,993 2,727 
General and administrative316 250 808 773 
Realignment 44 1 47 
Operating income519 428 1,603 1,380 
Investment income 1 1 7 
Interest expense(74)(52)(173)(156)
Other income (expense), net12 177 (7)186 
Income before income tax457 554 1,424 1,417 
Income tax provision59 120 190 150 
Net income$398 $434 $1,234 $1,267 
Net income per weighted-average share, basic for Classes A and B$0.95 $1.03 $2.94 $3.02 
Net income per weighted-average share, diluted for Classes A and B$0.94 $1.02 $2.92 $3.00 
Weighted-average shares, basic for Classes A and B419,456 420,857 419,309 419,758 
Weighted-average shares, diluted for Classes A and B421,763 423,400 422,201 423,093 
__________
(1)   Includes related party revenue as follows (refer to Note C):
License$335 $289 $996 $976 
Subscription and SaaS221 136 589 373 
Services644 518 1,838 1,439 
(2)   Includes stock-based compensation as follows:
Cost of license revenue$ $ $1 $1 
Cost of subscription and SaaS revenue5 4 16 13 
Cost of services revenue21 25 70 74 
Research and development125 140 402 397 
Sales and marketing74 85 227 243 
General and administrative33 50 97 141 
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 EndedNine Months Ended
October 29,October 30,October 29,October 30,
 2021202020212020
Net income$398 $434 $1,234 $1,267 
Other comprehensive income (loss):
Changes in fair value of effective foreign currency forward contracts:
Unrealized gains (losses), net of tax provision (benefit) of $, $, $ and $
1 2 1 (1)
Reclassification of (gains) losses realized during the period, net of tax (provision) benefit of $, $, $ and $
(1)2 1  
Net change in fair value of effective foreign currency forward contracts 4 2 (1)
Total other comprehensive income (loss) 4 2 (1)
Comprehensive income, net of taxes$398 $438 $1,236 $1,266 
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 29,January 29,
20212021
ASSETS
Current assets:
Cash and cash equivalents$12,500 $4,692 
Short-term investments33 23 
Accounts receivable, net of allowance of $8 and $5
1,675 1,929 
Due from related parties, net660 1,438 
Other current assets577 530 
Total current assets15,445 8,612 
Property and equipment, net1,411 1,334 
Other assets2,645 2,697 
Deferred tax assets5,830 5,781 
Intangible assets, net781 993 
Goodwill9,598 9,599 
Total assets$35,710 $29,016 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$229 $131 
Accrued expenses and other2,273 2,382 
Current portion of long-term debt1,498  
Unearned revenue5,808 5,873 
Total current liabilities9,808 8,386 
Note payable to Dell 270 
Long-term debt9,170 4,717 
Unearned revenue4,425 4,441 
Income tax payable781 805 
Operating lease liabilities885 891 
Other liabilities416 455 
Total liabilities25,485 19,965 
Contingencies (refer to Note D)
Stockholders’ equity:
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 112,441 and 112,082 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 capital1,923 1,985 
Accumulated other comprehensive loss(3)(5)
Retained earnings8,301 7,067 
Total stockholders’ equity10,225 9,051 
Total liabilities and stockholders’ equity$35,710 $29,016 
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 29,October 30,
 20212020
Operating activities:
Net income$1,234 $1,267 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization825 757 
Stock-based compensation813 869 
Deferred income taxes, net(92)(177)
Unrealized (gain) loss on equity securities, net25 (197)
(Gain) loss on disposition of assets, revaluation and impairment, net4 22 
Loss on extinguishment of debt 8 
Other6  
Changes in assets and liabilities, net of acquisitions:
Accounts receivable247 102 
Other current assets and other assets(467)(622)
Due to/from related parties, net777 785 
Accounts payable87 (4)
Accrued expenses and other liabilities(181)393 
Income taxes payable24 (53)
Unearned revenue(82)(65)
Net cash provided by operating activities3,220 3,085 
Investing activities:
Additions to property and equipment(263)(247)
Sales of investments in equity securities68  
Purchases of strategic investments(7)(16)
Proceeds from disposition of assets5 21 
Business combinations, net of cash acquired, and purchases of intangible assets(15)(390)
Net cash used in investing activities(212)(632)
Financing activities:
Proceeds from issuance of common stock267 264 
Net proceeds from issuance of long-term debt5,944 1,979 
Repayment of term loan (1,500)
Repayment of current portion of long-term debt (1,257)
Repayment of note payable to Dell(270) 
Repurchase of common stock(872)(566)
Shares repurchased for tax withholdings on vesting of restricted stock(291)(319)
Payment to acquire non-controlling interests (91)
Principal payments on finance lease obligations(3)(3)
Net cash provided by (used in) financing activities4,775 (1,493)
Net increase in cash, cash equivalents and restricted cash7,783 960 
Cash, cash equivalents and restricted cash at beginning of the period4,770 3,031 
Cash, cash equivalents and restricted cash at end of the period$12,553 $3,991 
Supplemental disclosures of cash flow information:
Cash paid for interest$146 $142 
Cash paid for taxes, net276 393 
Non-cash items:
Changes in capital additions, accrued but not paid$9 $(18)
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 29, 2021
Class A
Common Stock
Class B
Convertible
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders’
Equity
SharesPar ValueSharesPar Value
Balance, July 30, 2021
112 $1 307 $3 $1,716 $7,903 $(3)$9,620 
Proceeds from issuance of common stock1 — — — 128 — — 128 
Repurchase and retirement of common stock(1)— — — (143)— — (143)
Issuance of restricted stock1 — — — — — — — 
Shares withheld for tax withholdings on vesting of restricted stock(1)— — — (42)— — (42)
Stock-based compensation— — — — 264 — — 264 
Net income— — — — — 398 — 398 
Balance, October 29, 2021
112 $1 307 $3 $1,923 $8,301 $(3)$10,225 
Nine Months Ended October 29, 2021
Class A
Common Stock
Class B
Convertible
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders’
Equity
SharesPar ValueSharesPar Value
Balance, January 29, 2021
112 $1 307 $3 $1,985 $7,067 $(5)$9,051 
Proceeds from issuance of common stock3 — — — 267 — — 267 
Repurchase and retirement of common stock(6)— — — (872)— — (872)
Issuance of restricted stock5 — — — — — — — 
Shares withheld for tax withholdings on vesting of restricted stock(2)— — — (284)— — (284)
Stock-based compensation— — — — 827 — — 827 
Total other comprehensive income (loss)— — — — — — 2 2 
Net income— — — — — 1,234 — 1,234 
Balance, October 29, 2021
112 $1 307 $3 $1,923 $8,301 $(3)$10,225 
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
SharesPar ValueSharesPar Value
Balance, July 31, 2020
113 $1 307 $3 $2,070 $5,842 $(9)$7,907 
Proceeds from issuance of common stock1 — — — 122 — — 122 
Repurchase and retirement of common stock(2)— — — (255)— — (255)
Issuance of restricted stock1 — — — — — — — 
Shares withheld for tax withholdings on vesting of restricted stock— — — — (39)— — (39)
Stock-based compensation— — — — 303 — — 303 
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
SharesPar ValueSharesPar Value
Balance, January 31, 2020
110 $1 307 $3 $2,000 $5,009 $(4)$7,009 
Proceeds from issuance of common stock3 — — — 264 — — 264 
Repurchase and retirement of common stock(4)— — — (566)— — (566)
Issuance of restricted stock6 — — — — — — — 
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 
The accompanying notes are an integral part of the condensed consolidated financial statements.
7

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Overview and Basis of Presentation
Company and Background
VMware, Inc. (“VMware” or the “Company”) originally pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the underlying hardware. Information technology (“IT”) driven innovation continues to disrupt markets and industries. Technologies emerge faster than organizations can absorb, creating increasingly complex environments. IT is working at an accelerated pace to harness new technologies, platforms and cloud models, ultimately guiding businesses through a digital transformation. To take on these challenges, VMware is working with customers in the areas of hybrid and multi-cloud, virtual cloud networking, digital workspaces, modern applications and intrinsic security. VMware’s software provides a flexible digital foundation to enable customers in their digital transformation.
Accounting Principles
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, for a fair statement of VMware’s condensed consolidated results of operations, financial position and cash flows for the periods presented. Results of operations are not necessarily indicative of the results that may be expected for the full fiscal year 2022. Certain information and footnote disclosures typically included in annual consolidated financial statements have been condensed or omitted. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in VMware’s Annual Report on Form 10-K filed on March 26, 2021.
Effective September 7, 2016, Dell Technologies Inc. (“Dell”) (formerly Denali Holding Inc.) acquired EMC Corporation (“EMC”), VMware’s then-parent company, including EMC’s majority control of VMware. As of October 29, 2021 (the “Record Date”), Dell controlled 80.5% of VMware’s outstanding common stock and 97.4% of the combined voting power of VMware’s outstanding common stock, including 31 million shares of VMware’s Class A common stock (“Class A Stock”) and all of VMware’s Class B convertible common stock (“Class B Stock”). On November 1, 2021, VMware’s spin-off from Dell (the “Spin-Off”) was completed, and VMware paid an $11.5 billion special dividend, pro rata, to each of the holders of Class A and Class B Stock (including Dell) as of the Record Date.
As VMware was a majority-owned and controlled subsidiary of Dell through October 29, 2021, its results of operations and financial position were consolidated with Dell’s financial statements.
Refer to Note O for more information regarding the Spin-Off.
Management believes the assumptions underlying the condensed consolidated financial statements are reasonable. However, the amounts recorded for VMware’s related party transactions with Dell and its consolidated subsidiaries may not be considered arm’s length with an unrelated third party. Therefore, the condensed consolidated financial statements included herein may not necessarily reflect the results of operations, financial position and cash flows had VMware engaged in such transactions with an unrelated third party during all periods presented. Accordingly, VMware’s historical financial information is not necessarily indicative of what the Company’s results of operations, financial position and cash flows will be in the future, if and when VMware contracts at arm’s length with unrelated third parties for products and services the Company receives from and provides to Dell.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of VMware and subsidiaries in which VMware has a controlling financial interest. All intercompany transactions and account balances between VMware and its subsidiaries have been eliminated in consolidation. Transactions with Dell and its consolidated subsidiaries are generally settled in cash and are classified on the condensed consolidated statements of cash flows based upon the nature of the underlying transaction.
8

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Use of Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenue and expenses during the reporting periods, and the disclosure of contingent liabilities at the date of the financial statements. Estimates are used for, but not limited to, trade receivable valuation, marketing development funds, expected period of benefit for deferred commissions, useful lives assigned to fixed assets and intangible assets, valuation of goodwill and definite-lived intangibles, income taxes, stock-based compensation and contingencies. Actual results could differ from those estimates. To the extent the Company’s actual results differ materially from those estimates and assumptions, VMware’s future financial statements could be affected. 
Recently Adopted Accounting Standards
Effective January 30, 2021, VMware adopted, on a modified retrospective basis, Accounting Standards Update (“ASU”) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This update simplifies the accounting for convertible instruments and contracts in an entity’s own equity and amends the diluted earnings per share guidance for greater consistency within the standard. The standard did not have an impact on the Company’s condensed consolidated financial statements except for the calculation of the year-to-date weighted-average diluted share count, which did not have a material impact on the Company’s diluted net income per share for the nine months ended October 29, 2021.
Effective January 30, 2021, VMware adopted ASU No. 2019-12, Income Taxes (Topic 740), simplifying the accounting for income taxes. The standard did not have a material impact on the Company’s condensed consolidated financial statements.
New Accounting Pronouncement
In October 2021, the Financial Accounting Standard Board issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This update requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by an acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The new standard is effective for interim and annual periods beginning after December 15, 2022, but may be early adopted. The adoption of the ASU will be applied prospectively to business combinations occurring on or after the effective date of the ASU. If the new standard is early adopted in an interim period, it should be applied retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and prospectively to all business combinations that occur on or after the date of initial application. VMware plans to early adopt this standard during the fourth quarter of fiscal 2022. The standard did not have an impact on business combinations occurring during the nine months ended October 29, 2021.
B. Revenue, Unearned Revenue and Remaining Performance Obligations
Revenue
Contract Assets
A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract assets include fixed fee professional services where transfer of services has occurred in advance of the Company’s right to invoice. Contract assets are classified as accounts receivables upon invoicing. Contract assets are included in other current assets on the condensed consolidated balance sheets. Contract assets were $50 million and $43 million as of October 29, 2021 and January 29, 2021, respectively. Contract asset balances will fluctuate based upon the timing of the transfer of services, billings and customers’ acceptance of contractual milestones.
Contract Liabilities
Contract liabilities consist of unearned revenue, which is generally recorded when VMware has the right to invoice or payments have been received for undelivered products or services.
Customer Deposits
Customer deposits include prepayments from customers related to amounts received for contracts that include certain cancellation rights. Purchased credits eligible for redemption of VMware’s hosted services (“cloud credits”) are included in customer deposits until the cloud credit is consumed or is contractually committed to a specific hosted service. Cloud credits are redeemable by the customer for the gross value of the hosted offering. Upon contractual commitment for a hosted service, the net value of the cloud credits that are expected to be recognized as revenue when the obligation is fulfilled will be classified as unearned revenue.
As of October 29, 2021, customer deposits related to customer prepayments and cloud credits of $322 million were included in accrued expenses and other, and $151 million were included in other liabilities on the condensed consolidated
9

VMware, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

balance sheets. As of January 29, 2021, customer deposits related to customer prepayments and cloud credits of $294 million were included in accrued expenses and other, and $163 million were included in other liabilities on the condensed consolidated balance sheets.
Deferred Commissions
Deferred commissions are classified as current or non-current based on the duration of the expected period of benefit. Deferred commissions, including the employer portion of payroll taxes, included in other current assets as of October 29, 2021 and January 29, 2021 were $12 million and $31 million, respectively. Deferred commissions included in other assets were $1.2 billion and $1.1 billion as of October 29, 2021 and January 29, 2021, respectively.
Amortization expense for deferred commissions was included in sales and marketing on the condensed consolidated statements of income and was $130 million and $383 million during the three and nine months ended October 29, 2021, respectively, and $113 million and $319 million during the three and nine months ended October 30, 2020, respectively.
Unearned Revenue
Unearned revenue as of the periods presented consisted of the following (table in millions):
October 29,January 29,
20212021
Unearned license revenue$17 $15 
Unearned subscription and SaaS revenue2,238 1,998 
Unearned software maintenance revenue6,773