Total Revenue growth of 3%
year-over-year
Subscription and SaaS Revenue of $899 million,
an increase of 21% year-over-year
VMware Enters into Definitive Agreement to be
Acquired by Broadcom
VMware, Inc. (NYSE: VMW), a leading innovator in enterprise
software, today announced financial results for the first quarter
of fiscal year 2023:
Quarterly Review
- Revenue for the first quarter of fiscal 2023 was $3.09 billion,
an increase of 3% from the first quarter of fiscal 2022.
- Continued momentum in the subscription and SaaS business,
constituting 29% of total revenue for the quarter.
- While license revenue was impacted by the transition to
subscription and SaaS, the combination of subscription and SaaS and
license revenue was $1.47 billion, an increase of 6% from the first
quarter of fiscal 2022.
- Subscription and SaaS revenue for the first quarter was $899
million, an increase of 21% year-over-year.
- When excluding the impact associated with the suspension of
business operations in Russia and foreign currency, total revenue
for the first quarter was $3.14 billion, representing
year-over-year growth of 5%, and subscription and SaaS revenue was
$912 million, representing year-over-year growth of 23%.
- Subscription and SaaS ARR for the first quarter was $3.66
billion, an increase of 21% year-over-year.
- GAAP net income for the first quarter was $242 million, or
$0.57 per diluted share, down 43% per diluted share compared to
$425 million, or $1.01 per diluted share, for the first quarter of
fiscal 2022. Non-GAAP net income for the first quarter was $542
million, or $1.28 per diluted share, down 27% per diluted share
compared to $744 million, or $1.76 per diluted share, for the first
quarter of fiscal 2022.1
- GAAP operating income for the first quarter was $408 million, a
decrease of 27% from the first quarter of fiscal 2022. Non-GAAP
operating income for the first quarter was $771 million, a decrease
of 16% from the first quarter of fiscal 2022.
- Operating cash flow for the first quarter was $1.01 billion.
Free cash flow for the first quarter was $899 million.
- RPO for the first quarter totaled $11.56 billion, up 5%
year-over-year.
“We are focused on accelerating growth of our subscription and
SaaS portfolio as we provide customers the flexibility and choice
they seek,” said Raghu Raghuram, CEO, VMware. “In this multi-cloud
environment, we are committed to delivering a comprehensive
technology platform spanning critical customer requirements for our
hundreds of thousands of customers who trust our software as the
foundation for their most critical applications.”
“In the quarter, we saw continued progress with our subscription
and SaaS go-to-market motion, which resulted in a
higher-than-expected mix versus our license offerings in total
revenue,” said Zane Rowe executive vice president and CFO,
VMware.
Business Highlights & Strategic Announcements
- Google Cloud and VMware expanded their partnership to help
customers accelerate application modernization and cloud
transformation. Customers will now be able to use the VMware Cloud
Universal program to take advantage of Google Cloud VMware Engine,
gaining greater financial flexibility, choice and the ability to
accelerate their cloud migrations and modernize their enterprise
applications in Google Cloud.
- VMware expanded the VMware Sovereign Cloud initiative with new
partners, as well as new cloud-native, developer-centric
capabilities that bring more value to all VMware Cloud provider
offerings. The VMware Sovereign Cloud initiative helps customers
identify and engage with trusted national or regional cloud service
providers to meet their unique sovereign cloud requirements.
- Deloitte and VMware created the Deloitte VMware Distributed
Cloud (DVDC) practice to help clients transform their businesses
and the industries they serve by more effectively implementing and
utilizing distributed cloud architectures.
- DISH will trial VMware’s RAN Intelligent Controller (RIC) as
the platform on top of which RAN applications will run. The RIC is
a new layer of software that makes the RAN a software platform
programmable and accessible by developers. Through the RIC, ISVs
and developers can build exciting new applications enabling a
dynamic new marketplace for new consumer and business
applications.
- VMware was recognized for its continued Environmental, Social
and Governance (ESG) leadership and sustainability initiatives with
inclusion on Barron’s list of the 100 Most Sustainable Companies in
2022 and on the Clean 200 list for the third consecutive year.
- VMware was named by Forbes to its list of America’s Best
Employers for Diversity in 2022 for the fourth consecutive year.
VMware ranked number two on the overall list—and was the top ranked
technology company—among the 500 employers Forbes ranked most
dedicated to diversity, equity and inclusion.
- VMware was recognized by Newsweek in its first annual ranking
of America’s Most Trustworthy Companies. VMware was ranked fourth
in the software and telecommunications category.
Entry into Definitive Agreement to be Acquired by
Broadcom
VMware’s results are provided in conjunction with today’s
announcement that VMware has entered into a definitive agreement to
be acquired by Broadcom Inc. Please refer to today’s announcement
entitled, “Broadcom to Acquire VMware for Approximately $61 Billion
in Cash and Stock,” available on news.vmware.com.
Due to the Company’s pending acquisition by Broadcom, the
Company is canceling its May 26 conference call and webcast to
discuss its fiscal year 2023 first quarter financial results.
Additionally, VMware will not be providing financial guidance for
Q2 2023 and is suspending its financial guidance for the full
fiscal year 2023.
1 Our annual estimated tax rate is based upon, among other
things, current tax law regarding the impacts of Internal Revenue
Code Section 174 (“Section 174”) research and development expense
capitalization, which became effective beginning VMware’s fiscal
2023. Although the U.S. Congress continues to consider various
legislative options that would defer the amortization requirement
to later years, which were considered in our full year guidance
provided on February 28, 2022, the financial results for the three
months ended April 29, 2022 reflect the impact of the tax law in
effect as of April 29, 2022. The provided estimated tax adjustment
range in the table accompanying this release reflects the non-GAAP
adjustment we would expect should the capitalization provisions of
Section 174 be deferred or repealed with effect for fiscal
2023.
About VMware
VMware is a leading provider of multi-cloud services for all
apps, enabling digital innovation with enterprise control. As a
trusted foundation to accelerate innovation, VMware software gives
businesses the flexibility and choice they need to build the
future. Headquartered in Palo Alto, California, VMware is committed
to building a better future through the company’s 2030 Agenda. For
more information, please visit vmware.com/company.
Additional Information
VMware’s website is located at vmware.com, and its investor
relations website is located at ir.vmware.com. VMware’s goal is to
maintain the investor relations website as a portal through which
investors can easily find or navigate to pertinent information
about VMware, all of which is made available free of charge. The
additional information includes: materials that VMware files with
the SEC; announcements of investor conferences, speeches and events
at which its executives talk about its products, services and
competitive strategies; webcasts of its quarterly earnings calls,
investor conferences and events (archives of which are also
available for a limited time); additional information on its
financial metrics, including reconciliations of non-GAAP financial
measures to the most directly comparable GAAP measures; press
releases on quarterly earnings, product and service announcements,
legal developments and international news; corporate governance
information; ESG (environmental, social and governance)
information; other news, blogs and announcements that VMware may
post from time to time that investors may find useful or
interesting; and opportunities to sign up for email alerts and RSS
feeds to have information pushed in real time.
VMware and VMware Sovereign Cloud 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.
Use of Non-GAAP Financial Measures
Reconciliations of non-GAAP financial measures to VMware’s
financial results as determined in accordance with GAAP are
included at the end of this press release following the
accompanying financial data. For a description of these non-GAAP
financial measures, including the reasons management uses each
measure, please see the section of the tables titled “About
Non-GAAP Financial Measures.”
Annual Recurring Revenue (“ARR”)
ARR is an operating measure VMware uses to assess the strength
of the Company’s subscription and SaaS offerings. ARR is a
performance metric and should be viewed independently of, and not
as a substitute for or combined with, revenue and unearned revenue.
ARR represents the annualized value of VMware’s committed customer
subscription and SaaS contracts as of the end of the reporting
period, assuming any contract that expires during the next 12
months is renewed on its existing terms, except that, for
consumption-based subscription and SaaS offerings, ARR represents
the annualized quarterly revenue based on revenue recognized for
the current reporting period
Forward-Looking Statements
This press release contains forward-looking statements
including, among other things, statements regarding the expected
benefits to customers and partners of VMware’s strategy and
offerings, as well as the announced proposed acquisition of VMware
by Broadcom. These forward-looking statements are subject to the
safe harbor provisions created by the Private Securities Litigation
Reform Act of 1995. 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: (1) the impact
of the COVID-19 pandemic on VMware’s operations, financial
condition, VMware’s customers, the business environment and global
and regional economies; (2) the ability of VMware to adapt its
offerings, business operations and go-to-market activities to
changes in how customers consume information technology resources,
such as through subscription and SaaS offerings; (3) the effect of
the spin-off from Dell and changes in VMware’s and Dell’s
commercial relationships and go-to-market and technology
collaborations on VMware’s ability to maintain relationships with
its customers, suppliers and on VMware’s operating results and
business generally; (4) changes to VMware’s and Dell’s respective
financial conditions and strategic directions that could adversely
impact their commercial relationship and collaborations; (5) the
continued risk of litigation and regulatory actions; (6) adverse
changes in general economic or market conditions; (7) delays or
reductions in consumer, government and information technology
spending; (8) competitive factors, including but not limited to
pricing pressures, industry consolidation, entry of new competitors
into the industries in which VMware competes, as well as new
product and marketing initiatives by VMware’s competitors; (9)
rapid technological changes in the virtualization software and
cloud, end user, edge security and mobile computing and telecom
industries; (10) the uncertainty of VMware’s customers’ acceptance
of and ability to transition to emerging technologies and new
offerings and computing strategies in the industries in which
VMware competes; (11) VMware’s ability to enter into, maintain and
extend strategically effective partnerships, collaborations and
alliances; (12) VMware’s ability to protect its proprietary
technology; (13) changes to product and services development
timelines; (14) risks associated with cyber-attacks, information
security and data privacy; (15) disruptions resulting from key
management changes; (16) risks associated with international sales,
such as fluctuating currency exchange rates and increased trade
barriers; (17) changes in VMware’s financial condition; (18) the
effect of the proposed acquisition on VMware’s ability to maintain
relationships with customers and partners, operating results and
business; (19) business disruption following the announcement of
the proposed transaction, including disruption of current plans and
operations; (20) difficulties in retaining and hiring key personnel
and employees due to the proposed acquisition and business
combination; (21) the satisfaction of the conditions precedent to
consummation of the proposed acquisition; (22) outcome of any legal
proceedings related to the proposed transaction; (23) the ability
to consummate the proposed acquisition on a timely basis or at all;
(24) the ability to implement plans, forecasts and other
expectations with respect to the business after the completion of
the proposed transaction and realize synergies; and (25) other
business effects, including those related to industry, market,
economic, political, regulatory and global health conditions. These
forward-looking statements are made as of the date of this press
release, 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 VMware’s most recent
reports on Form 10-K and Form 10-Q and current reports on Form 8- K
that VMware may file from time to time, which could cause actual
results to vary from expectations. VMware assumes no obligation to,
and does not currently intend to, update any such forward-looking
statements after the date of this release.
VMware, Inc.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(amounts in millions, except
per share amounts, and shares in thousands)
(unaudited)
Three Months Ended
April 29,
April 30,
2022
2021
Revenue:
License
$
572
$
646
Subscription and SaaS
899
741
Services
1,617
1,607
Total revenue
3,088
2,994
Operating expenses(1):
Cost of license revenue
35
37
Cost of subscription and SaaS revenue
192
157
Cost of services revenue
375
337
Research and development
774
708
Sales and marketing
1,053
959
General and administrative
251
236
Realignment
—
1
Operating income
408
559
Investment income
1
—
Interest expense
(71
)
(50
)
Other income (expense), net
(10
)
(23
)
Income before income tax
328
486
Income tax provision
86
61
Net income
$
242
$
425
Net income per weighted-average share,
basic
$
0.58
$
1.01
Net income per weighted-average share,
diluted
$
0.57
$
1.01
Weighted-average shares, basic
420,586
419,116
Weighted-average shares, diluted
422,987
422,038
__________
(1) Includes stock-based compensation as
follows:
Cost of subscription and SaaS revenue
$
5
$
5
Cost of services revenue
23
25
Research and development
132
127
Sales and marketing
83
75
General and administrative
40
31
VMware, Inc.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(amounts in millions, except
per share amounts, and shares in thousands)
(unaudited)
April 29,
January 28,
2022
2022
ASSETS
Current assets:
Cash and cash equivalents
$
3,719
$
3,614
Short-term investments
—
19
Accounts receivable, net of allowance of
$11 and $10
1,620
2,297
Due from related parties
638
1,438
Other current assets
666
598
Total current assets
6,643
7,966
Property and equipment, net
1,492
1,461
Deferred tax assets
5,948
5,906
Intangible assets, net
651
714
Goodwill
9,598
9,598
Due from related parties
197
199
Other assets
2,905
2,832
Total assets
$
27,434
$
28,676
LIABILITIES AND STOCKHOLDERS’
DEFICIT
Current liabilities:
Accounts payable
$
204
$
234
Accrued expenses and other
2,276
2,806
Unearned revenue
6,296
6,479
Due to related parties
116
132
Total current liabilities
8,892
9,651
Long-term debt
11,926
12,671
Unearned revenue
4,570
4,743
Income tax payable
241
242
Operating lease liabilities
927
927
Due to related parties
911
909
Other liabilities
378
409
Total liabilities
27,845
29,552
Contingencies
Stockholders’ deficit:
Class A common stock, par value $0.01;
authorized 2,500,000 shares; issued and outstanding 420,517 and
418,808 shares
4
4
Additional paid-in capital
227
—
Accumulated other comprehensive loss
(9
)
(5
)
Accumulated deficit
(633
)
(875
)
Total stockholders’ deficit
(411
)
(876
)
Total liabilities and stockholders’
deficit
$
27,434
$
28,676
VMware, Inc.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
April 29,
April 30,
2022
2021
Operating activities:
Net income
$
242
$
425
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
288
269
Stock-based compensation
283
263
Deferred income taxes, net
(43
)
(48
)
(Gain) loss on equity securities and
disposition of assets, net
(9
)
36
Other
3
1
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable
675
395
Other current assets and other assets
(244
)
(161
)
Due from related parties
801
685
Accounts payable
(28
)
65
Accrued expenses and other liabilities
(665
)
(630
)
Income taxes payable
74
80
Unearned revenue
(357
)
(114
)
Due to related parties
(15
)
—
Net cash provided by operating
activities
1,005
1,266
Investing activities:
Additions to property and equipment
(106
)
(70
)
Sales of investments in equity
securities
20
8
Purchases of strategic investments
(8
)
—
Proceeds from disposition of assets
6
—
Business combinations, net of cash
acquired, and purchases of intangible assets
(3
)
(10
)
Net cash used in investing activities
(91
)
(72
)
Financing activities:
Proceeds from issuance of common stock
119
131
Repayment of term loan
(750
)
—
Repurchase of common stock
(89
)
(371
)
Shares repurchased for tax withholdings on
vesting of restricted stock
(94
)
(56
)
Principal payments on finance lease
obligations
(1
)
(1
)
Net cash used in financing activities
(815
)
(297
)
Net increase in cash, cash equivalents and
restricted cash
99
897
Cash, cash equivalents and restricted cash
at beginning of the period
3,663
4,770
Cash, cash equivalents and restricted cash
at end of the period
$
3,762
$
5,667
Supplemental disclosures of cash flow
information:
Cash paid for interest
$
80
$
46
Cash paid for taxes, net
69
38
Non-cash items:
Changes in capital additions, accrued but
not paid
$
(7
)
$
3
VMware, Inc.
GROWTH IN REVENUE PLUS
SEQUENTIAL CHANGE IN UNEARNED REVENUE
(in millions)
(unaudited)
Growth
in Total Revenue Plus Sequential Change in Unearned
Revenue
Three Months Ended
April 29,
April 30,
2022
2021
Total revenue, as reported
$
3,088
$
2,994
Sequential change in unearned
revenue(1)
(356
)
(114
)
Total revenue plus sequential change in
unearned revenue
$
2,732
$
2,880
Change (%) over prior year, as
reported
(5
) %
Growth
in License and Subscription and SaaS Revenue Plus Sequential Change
in Unearned License and Subscription and SaaS
Revenue
Three Months Ended
April 29,
April 30,
2022
2021
Total license and subscription and SaaS
revenue, as reported
$
1,471
$
1,387
Sequential change in unearned license and
subscription and SaaS revenue(2)
3
67
Total license and subscription and SaaS
revenue plus sequential change in unearned license and subscription
and SaaS revenue
$
1,474
$
1,454
Change (%) over prior year, as
reported
1
%
__________
(1) Consists of the change in total
unearned revenue from the preceding quarter. Total unearned revenue
consists of current and non-current unearned revenue amounts
presented in the condensed consolidated balance sheets.
(2) Consists of the change in unearned
license and subscription and SaaS revenue from the preceding
quarter.
REMAINING PERFORMANCE
OBLIGATIONS
(in millions)
(unaudited)
Growth
in Remaining Performance Obligations
April 29,
April 30,
2022
2021
Remaining performance obligations(3)
$
11,556
$
11,032
Change (%) over prior year
5
%
Remaining performance obligations,
current(4)
$
6,563
$
6,164
Change (%) over prior year
6
%
__________
(3) Remaining performance obligations
represent the aggregate amount of the transaction price in
contracts allocated to performance obligations not delivered, or
partially undelivered, as of the end of the reporting period.
Remaining performance obligations include unearned revenue,
multi-year contracts with future installment payments and certain
unfulfilled orders against accepted customer contracts at the end
of any given period.
(4) Current remaining performance
obligations represent the amount expected to be recognized as
revenue over the next twelve months.
VMware, Inc.
SUPPLEMENTAL UNEARNED REVENUE
SCHEDULE
(in millions)
(unaudited)
April 29,
January 28,
October 29,
July 30,
April 30,
January 29,
2022
2022
2021
2021
2021
2021
Unearned revenue as reported:
License
$
20
$
19
$
17
$
20
$
16
$
15
Subscription and SaaS
2,671
2,669
2,238
2,208
2,064
1,998
Services
Software maintenance
6,877
7,208
6,773
6,916
6,957
7,092
Professional services
1,298
1,326
1,205
1,194
1,163
1,209
Total unearned revenue
$
10,866
$
11,222
$
10,233
$
10,338
$
10,200
$
10,314
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Three Months Ended
April 29, 2022
(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
—
—
(10
)
—
—
$
24
Cost of subscription and SaaS revenue
$
192
(5
)
—
(37
)
—
—
$
150
Cost of services revenue
$
375
(23
)
—
—
—
—
$
352
Research and development
$
774
(132
)
—
(2
)
—
—
$
639
Sales and marketing
$
1,053
(83
)
(2
)
(17
)
—
—
$
954
General and administrative
$
251
(40
)
—
—
(13
)
—
$
198
Operating income
$
408
283
2
66
13
—
$
771
Operating margin(2)
13.2
%
9.2
%
0.1
%
2.1
%
0.4
%
—
25.0
%
Other income (expense), net(3)
$
(10
)
—
—
—
(9
)
—
$
(19
)
Income before income tax
$
328
283
2
66
4
—
$
682
Income tax provision
$
86
54
$
140
Tax rate(2)
26.1
%
20.5
%
Net income
$
242
283
2
66
4
(54
)
$
542
Net income per weighted-average share,
diluted(2)(4)
$
0.57
$
0.67
$
—
$
0.16
$
0.01
$
(0.13
)
$
1.28
__________
(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 investments in equity
securities, whether realized or unrealized.
(4) Calculated based upon 422,987 diluted
weighted-average shares of common stock.
VMware, Inc.
SUPPLEMENTAL RECONCILIATION OF
GAAP TO NON-GAAP DATA
For the Three Months Ended
April 29, 2022
(amounts in millions, except
per share amounts, and shares in thousands)
(unaudited)
GAAP
Tax Adjustment (1)
Non-GAAP As
Adjusted
Estimated Tax Adjustment
Excluding Section 174 Impact (2)
Non-GAAP As Adjusted
Excluding Section 174 Impact
(3)
Income before income tax
$
328
$
682
$
682
Income tax provision
$
86
$
54
$
140
$
(27
)
-
(34
)
$
113
-
106
Tax rate (4)
26.1
%
20.5
%
16.5
-
15.5
%
Net income
$
242
$
542
$
569
-
576
Net income per weighted-average share,
diluted (4)(5)
$
0.57
$
1.28
$
1.35
-
1.36
__________
(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) Our annual estimated tax rate is based
upon, among other things, current tax law regarding the impacts of
Internal Revenue Code Section 174 (“Section 174”) research and
development expense capitalization, which became effective
beginning in VMware’s fiscal 2023. Although the U.S. Congress is
considering various legislative options that would defer the
capitalization requirement to later years and such possible
deferral was considered in our full year guidance provided on
February 28, 2022, the financial results for the three months ended
April 29, 2022 reflect the impact of the tax law in effect as of
April 29, 2022. The provided estimated tax adjustment range
reflects the non-GAAP adjustment we would expect should the
capitalization provisions of Section 174 be deferred or repealed
with effect for fiscal 2023.
(3) Represents the estimated non-GAAP
results excluding the impact of Section 174 capitalization under
the tax law in effect as of April 29, 2022.
(4) Totals may not sum, due to rounding.
Tax rate and net income per weighted average share information are
calculated based upon the respective underlying, non-rounded
data.
(5) Calculated based upon 422,987 diluted
weighted-average shares of common stock.
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Three Months Ended
April 30, 2021
(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
$
37
—
—
(11
)
—
—
—
$
26
Cost of subscription and SaaS revenue
$
157
(5
)
—
(42
)
—
—
—
$
109
Cost of services revenue
$
337
(25
)
—
—
—
—
—
$
312
Research and development
$
708
(127
)
—
(2
)
—
—
—
$
578
Sales and marketing
$
959
(75
)
(1
)
(22
)
—
—
—
$
863
General and administrative
$
236
(31
)
—
—
—
(22
)
—
$
183
Realignment
$
1
—
—
—
(1
)
—
—
$
—
Operating income
$
559
263
1
77
1
22
—
$
923
Operating margin(2)
18.7
%
8.8
%
—
%
2.6
%
—
%
0.7
%
—
30.8
%
Other income (expense), net(3)
$
(23
)
—
—
—
—
36
—
$
12
Income before income tax
$
486
263
1
77
1
58
—
$
885
Income tax provision
$
61
80
$
141
Tax rate(2)
12.6
%
16.0
%
Net income
$
425
263
1
77
1
58
(80
)
$
744
Net income per weighted-average share,
diluted for Classes A and B(2)(4)
$
1.01
$
0.62
$
—
$
0.18
$
—
$
0.14
$
(0.19
)
$
1.76
__________
(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 investments in equity
securities, whether realized or unrealized.
(4) Calculated based upon 422,038 diluted
weighted-average shares for Classes A and B.
VMware, Inc.
REVENUE BY TYPE
(in millions)
(unaudited)
Three Months Ended
April 29,
April 30,
2022
2021
Revenue:
License
$
572
$
646
Subscription and SaaS
899
741
Total license and subscription and
SaaS
1,471
1,387
Services:
Software maintenance
1,310
1,321
Professional services
307
286
Total services
1,617
1,607
Total revenue
$
3,088
$
2,994
Percentage of revenue:
License
18.5
%
21.6
%
Subscription and SaaS
29.1
%
24.7
%
Total license and subscription and
SaaS
47.6
%
46.3
%
Services:
Software maintenance
42.4
%
44.1
%
Professional services
10.0
%
9.6
%
Total services
52.4
%
53.7
%
Total revenue
100.0
%
100.0
%
VMware, Inc.
REVENUE BY GEOGRAPHY
(in millions)
(unaudited)
Three Months Ended
April 29,
April 30,
2022
2021
Revenue:
United States
$
1,518
$
1,466
International
1,570
1,528
Total revenue
$
3,088
$
2,994
Percentage of revenue:
United States
49.1
%
49.0
%
International
50.9
%
51.0
%
Total revenue
100.0
%
100.0
%
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
April 29,
April 30,
2022
2021
GAAP cash flows from operating
activities
$
1,005
$
1,266
Capital expenditures
(106
)
(70
)
Free cash flows
$
899
$
1,196
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 investments in equity
securities, whether realized or unrealized.
– 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.”
– Certain costs incurred related to VMware's
spin-off from its former parent company, Dell Technologies Inc.,
completed on November 1, 2021, such as legal and advisory fees.
- 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220525006086/en/
Paul Ziots VMware Investor Relations pziots@vmware.com
650-427-3267
Michael Thacker VMware Global PR mthacker@vmware.com
650-427-4454
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