Total revenue growth of 12% year-over-year
Subscription and SaaS revenue growth of 39%
year-over-year
VMware, Inc. (NYSE: VMW), a leading innovator in enterprise
software, today announced financial results for the first quarter
of fiscal 2021:
- Revenue for the first quarter was $2.73 billion, an increase of
12% from the first quarter of fiscal 2020.
- The combination of subscription and SaaS and license revenue
was $1.23 billion, an increase of 17% from the first quarter of
fiscal 2020.
- Subscription and SaaS revenue for the first quarter was $572
million, an increase of 39% year-over-year.
- GAAP net income for the first quarter was $386 million, or
$0.92 per diluted share, compared to $380 million, or $0.89 per
diluted share, for the first quarter of fiscal 2020. Non-GAAP net
income for the first quarter was $640 million, or $1.52 per diluted
share, up 21% per diluted share compared to $535 million, or $1.25
per diluted share, for the first quarter of fiscal 2020.
- GAAP operating income for the first quarter was $418 million,
an increase of 18% from the first quarter of fiscal 2020. Non-GAAP
operating income for the first quarter was $818 million, an
increase of 25% from the first quarter of fiscal 2020.
- Operating cash flow for the first quarter was $1.37 billion.
Free cash flow for the first quarter was $1.29 billion.
- RPO for Q1 totalled $10.1 billion, up 19% year-over-year; total
revenue plus sequential change in total unearned revenue grew 6%
year-over-year.
- The combination of subscription and SaaS and license revenue
plus sequential change in unearned subscription and SaaS and
license revenue grew 16% year-over-year.
“In these unprecedented times, we delivered solid performance
and strong execution in Q1 FY21,” said Pat Gelsinger, VMware CEO.
“Ensuring the safety and well-being of our employees and addressing
our customers’ rapidly changing needs have been our top priorities.
We serve as an essential digital service to those customers who
provide essential services, helping them scale efficiently and more
securely.”
“Q1 demonstrated our ability to drive a positive ROI and
enhanced resilience for customers undergoing digital
transformations,” said Zane Rowe, executive vice president and CFO,
VMware. “The quarter also highlighted VMware’s strengths and
opportunities in a challenging economic environment.”
Business Highlights & Strategic Announcements
- VMware launched VMware Tanzu, a portfolio of products and
services that enable enterprises to deliver better software faster.
Customers can use the VMware Tanzu suite to automate the modern app
lifecycle, run Kubernetes across clouds, and unify and optimize
multi-cloud operations.
- VMware acquired Octarine, which will bring intrinsic security
to containerized applications running in Kubernetes and build
security capabilities into the fabric of the existing IT and DevOps
ecosystems.
- VMware made major updates to its core portfolio across VMware
Cloud Foundation, the largest evolution of vSphere in a decade,
NSX-T, vSAN and vRealize Operations Cloud, continuing to bring
innovation to its leading infrastructure stack that powers
on-premises environments and public clouds across the world.
- VMware introduced new security offerings, including new VMware
Advanced Security for Cloud Foundation, which will enable customers
to replace legacy security solutions and deliver unified protection
across private and public clouds.
- Deutsche Telekom and VMware announced that they are
collaborating on an open and intelligent virtual RAN platform,
based on O-RAN standards, to bring agility to radio access networks
(RANs) for both existing LTE and future 5G networks.
- VMware launched VMware Partner Connect, the new, simplified and
flexible program that empowers partners with flexibility to meet
customers’ needs, making VMware technologies and services
opportunities more accessible.
- VMware was positioned as a leader in the IDC MarketScape:
Worldwide Virtual Client Computing 2019-2020 Vendor Assessment,
which evaluated 10 virtual client computing (VCC) vendors.1
The company will host a conference call today at 1:30 p.m. PT/
4:30 p.m. ET to review financial results and business outlook. A
live web broadcast of the event will be available on the VMware
investor relations website at http://ir.vmware.com. Slides will
accompany the web broadcast. The replay of the webcast and slides
will be available on the website for two months. In addition, six
quarters of historical data for unearned revenue will also be made
available at http://ir.vmware.com in conjunction with the
conference call.
1“IDC MarketScape: Worldwide Virtual Client Computing 2019-2020
Vendor Assessment” (Doc #US45752419, January 2020).
About VMware
VMware software powers the world’s complex digital
infrastructure. The company’s cloud, networking and security, and
digital workspace offerings provide a dynamic and efficient digital
foundation to customers globally, aided by an extensive ecosystem
of partners. Headquartered in Palo Alto, California, VMware is
committed to being a force for good, from its breakthrough
innovations to its global impact. For more information, please
visit https://www.vmware.com/company.html.
Additional Information
VMware’s website is located at www.vmware.com, and its investor
relations website is located at http://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; 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, Tanzu, VMware Cloud Foundation, vSphere, vRealize,
NSX-T, VMware Advanced Security and Carbon Black 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.”
Forward-Looking Statements
This press release contains forward-looking statements
including, among other things, statements regarding expected
benefits to customers of VMware’s acquisition of Octarine,
collaboration with Deutsche Telecom, as well as products, solutions
and services, including, for example, VMware Tanzu, VMware Cloud
Foundation, vSphere, vRealize Operations Cloud, NSX-T, vSAN, VMware
Advanced Security for Cloud Foundation, VMware Carbon Black and
VMware Partner Connect. 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 our
operations, financial condition, our customers, the business
environment and the global and regional economies; (2) adverse
changes in general economic or market conditions; (3) delays or
reductions in consumer, government and information technology
spending; (4) competitive factors, including but not limited to
pricing pressures, industry consolidation, entry of new competitors
into the virtualization software and cloud, end user and mobile
computing, and security industries, as well as new product and
marketing initiatives by VMware’s competitors; (5) the ability to
successfully integrate into VMware acquired companies and assets
and smoothly transition services related to divested assets from
VMware; (6) rapid technological changes in the virtualization
software and cloud, end user, security and mobile computing
industries; (7) VMware’s customers’ ability to transition to new
products, platforms, services, solutions and computing strategies
in such areas as containerization, modern applications, intrinsic
security and networking, cloud, digital workspaces, virtualization
and the software defined data center, and the uncertainty of their
acceptance of emerging technology; (8) VMware’s ability to enter
into, maintain and extend strategically effective partnerships and
alliances; (9) the continued risk of litigation and regulatory
actions; (10) VMware’s ability to protect its proprietary
technology; (11) changes to product and service development
timelines; (12) VMware’s relationship with Dell Technologies and
Dell’s ability to control matters requiring stockholder approval,
including the election of VMware’s board members and matters
relating to Dell’s investment in VMware; (13) VMware’s ability to
attract and retain highly qualified employees; (14) the ability of
VMware to utilize our relationship with Dell to leverage
go-to-market and product development activities; (15) risks
associated with cyber-attacks, information security and data
privacy; (16) disruptions resulting from key management changes;
(17) risks associated with international sales such as fluctuating
currency exchange rates and increased trade barriers; (18) changes
in VMware’s financial condition; (19) geopolitical changes such as
Brexit and increased tariffs and trade barriers that could
adversely impact our non-U.S. sales; and (20) 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 we 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
May 1,
May 3,
2020
2019
Revenue:
License
$
660
$
646
Subscription and SaaS
572
411
Services
1,502
1,393
Total revenue
2,734
2,450
Operating expenses(1):
Cost of license revenue
70
36
Cost of subscription and SaaS revenue
96
94
Cost of services revenue
318
299
Research and development
665
590
Sales and marketing
917
868
General and administrative
246
209
Realignment and loss on disposition
4
—
Operating income
418
354
Investment income
5
14
Interest expense
(49
)
(34
)
Other income (expense), net
(6
)
17
Income before income tax
368
351
Income tax benefit
(18
)
(14
)
Net income
386
365
Less: Net loss attributable to
non-controlling interests
—
(15
)
Net income attributable to VMware,
Inc.
$
386
$
380
Net income per weighted-average share
attributable to VMware, Inc. common stockholders, basic for Classes
A and B
$
0.92
$
0.91
Net income per weighted-average share
attributable to VMware, Inc. common stockholders, diluted for
Classes A and B
$
0.92
$
0.89
Weighted-average shares, basic for Classes
A and B
418,383
417,636
Weighted-average shares, diluted for
Classes A and B
421,513
426,697
__________
(1) Includes stock-based compensation as
follows:
Cost of subscription and SaaS revenue
$
4
$
3
Cost of services revenue
22
18
Research and development
125
102
Sales and marketing
72
63
General and administrative
49
30
VMware, Inc.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(amounts in millions, except
per share amounts, and shares in thousands)
(unaudited)
May 1,
January 31,
2020
2020
ASSETS
Current assets:
Cash and cash equivalents
$
5,946
$
2,915
Accounts receivable, net of allowance for
doubtful accounts of $6 and $7
1,535
1,883
Due from related parties, net
767
1,457
Other current assets
457
436
Total current assets
8,705
6,691
Property and equipment, net
1,292
1,280
Other assets
2,328
2,266
Deferred tax assets
5,658
5,556
Intangible assets, net
1,106
1,172
Goodwill
9,353
9,329
Total assets
$
28,442
$
26,294
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
195
$
208
Accrued expenses and other
1,922
2,151
Current portion of long-term debt and
other borrowings
2,748
2,747
Unearned revenue
5,182
5,218
Total current liabilities
10,047
10,324
Note payable to Dell
270
270
Long-term debt
4,712
2,731
Unearned revenue
4,036
4,050
Income tax payable
816
817
Operating lease liabilities
787
746
Other liabilities
346
347
Total liabilities
21,014
19,285
Contingencies
Stockholders’ equity:
Class A common stock, par value $0.01;
authorized 2,500,000 shares; issued and outstanding 112,068 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
2,047
2,000
Accumulated other comprehensive loss
(18
)
(4
)
Retained earnings
5,395
5,009
Total stockholders’ equity
7,428
7,009
Total liabilities and stockholders’
equity
$
28,442
$
26,294
VMware, Inc.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
May 1,
May 3,
2020
2019
Operating activities:
Net income
$
386
$
365
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
244
201
Stock-based compensation
272
216
Deferred income taxes, net
(98
)
(18
)
Unrealized (gain) loss on equity
securities, net
(6
)
3
(Gain) loss on disposition of assets,
revaluation and impairment, net
6
(5
)
Other
(4
)
1
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable
352
438
Other current assets and other assets
(171
)
(125
)
Due to/from related parties, net
690
614
Accounts payable
(10
)
16
Accrued expenses and other liabilities
(249
)
(356
)
Income taxes payable
15
(45
)
Unearned revenue
(53
)
90
Net cash provided by operating
activities
1,374
1,395
Investing activities:
Additions to property and equipment
(87
)
(73
)
Purchases of strategic investments
(5
)
—
Proceeds from disposition of assets
4
22
Business combinations, net of cash
acquired, and purchases of intangible assets
(38
)
(45
)
Net cash paid on disposition of a
business
—
(4
)
Net cash used in investing activities
(126
)
(100
)
Financing activities:
Proceeds from issuance of common stock
106
134
Net proceeds from issuance of long-term
debt
1,984
—
Repurchase of common stock
(181
)
(591
)
Shares repurchased for tax withholdings on
vesting of restricted stock
(115
)
(204
)
Principal payments on finance lease
obligations
(1
)
—
Net cash provided by (used in) financing
activities
1,793
(661
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(1
)
—
Net increase in cash, cash equivalents and
restricted cash
3,040
634
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
$
6,071
$
4,230
Supplemental disclosures of cash flow
information:
Cash paid for interest
$
74
$
62
Cash paid for taxes, net
76
88
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
May 1,
May 3,
2020
2019
Total revenue, as reported
$
2,734
$
2,450
Sequential change in unearned
revenue(1)
(50
)
89
Total revenue plus sequential change in
unearned revenue
$
2,684
$
2,539
Change (%) over prior year, as
reported
6
%
Growth in License and
Subscription and SaaS Revenue Plus Sequential Change in Unearned
License and Subscription and SaaS Revenue
Three Months Ended
May 1,
May 3,
2020
2019
Total license and subscription and SaaS
revenue, as reported
$
1,232
$
1,057
Sequential change in unearned license and
subscription and SaaS revenue
41
41
Total license and subscription and SaaS
revenue plus sequential change in unearned license and subscription
and SaaS revenue
$
1,273
$
1,098
Change (%) over prior year, as
reported
16
%
__________
(1) Sequential change in unearned revenue
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.
VMware, Inc.
SUPPLEMENTAL UNEARNED REVENUE
SCHEDULE
(in millions)
(unaudited)
May 1,
January 31,
November 1,
August 2,
May 3,
February 1,
2020
2020
2019
2019
2019
2019
Unearned revenue as reported:
License
$
15
$
19
$
19
$
19
$
19
$
15
Subscription and SaaS
1,579
1,534
1,199
976
953
916
Services
Software maintenance
6,611
6,700
6,106
6,042
5,754
5,741
Professional services
1,013
1,015
893
851
802
767
Total unearned revenue
$
9,218
$
9,268
$
8,217
$
7,888
$
7,528
$
7,439
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Three Months Ended May
1, 2020
(amounts in millions, except
per share amounts, and shares in thousands)
(unaudited)
GAAP
Stock-Based
Compensation
Employer Payroll Taxes on
Employee Stock Transactions
Intangible
Amortization
Realignment Charges
Acquisition, Disposition and
Other Items
Tax Adjustment(1)
Non-GAAP As
Adjusted(2)
Operating expenses:
Cost of license revenue
$
70
—
—
(42
)
—
—
—
$
27
Cost of subscription and SaaS revenue
$
96
(4
)
—
(12
)
—
—
—
$
81
Cost of services revenue
$
318
(22
)
—
(1
)
—
—
—
$
295
Research and development
$
665
(125
)
—
—
—
—
—
$
540
Sales and marketing
$
917
(72
)
(3
)
(25
)
—
(2
)
—
$
816
General and administrative
$
246
(49
)
—
—
—
(39
)
—
$
157
Realignment and loss on disposition
$
4
—
—
—
(4
)
—
—
$
—
Operating income
$
418
272
3
80
4
41
—
$
818
Operating margin(2)
15.3
%
10.0
%
0.1
%
2.9
%
0.1
%
1.5
%
—
29.9
%
Other income (expense), net(3)
$
(6
)
—
—
—
—
(6
)
—
$
(12
)
Income before income tax
$
368
272
3
80
4
35
—
$
762
Income tax provision (benefit)
$
(18
)
140
$
122
Tax rate(2)
N/A
16.0
%
Net income
$
386
272
3
80
4
35
(140
)
$
640
Net income per weighted-average share,
diluted for Classes A and B(2)(4)
$
0.92
$
0.65
$
0.01
$
0.19
$
0.01
$
0.08
$
(0.33
)
$
1.52
__________
N/A - GAAP tax rate was not applicable due
to the income tax benefit recorded for the three months ended May
1, 2020.
(1) Non-GAAP financial information for the
quarter is adjusted for a tax rate equal to our annual estimated
tax rate on non-GAAP income. This rate is based on our estimated
annual GAAP income tax rate forecast, adjusted to account for items
excluded from GAAP income in calculating the non-GAAP financial
measures presented above as well as significant tax adjustments.
Our estimated tax rate on non-GAAP income is determined annually
and may be adjusted during the year to take into account events or
trends that we believe materially impact the estimated annual rate
including, but not limited to, significant changes resulting from
tax legislation, material changes in the geographic mix of revenue
and expenses, changes to our corporate structure and other
significant events. Due to the differences in the tax treatment of
items excluded from non-GAAP earnings, as well as the methodology
applied to our estimated annual tax rates as described above, our
estimated tax rate on non-GAAP income may differ from our GAAP tax
rate and from our actual tax liabilities.
(2) Totals may not sum, due to rounding.
Operating margin, tax rate and net income per weighted average
share information are calculated based upon the respective
underlying, non-rounded data.
(3) Non-GAAP adjustment to other income
(expense), net includes gains or losses on equity investments,
whether realized or unrealized.
(4) Calculated based upon 421,513 diluted
weighted-average shares for Classes A and B.
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Three Months Ended May
3, 2019
(amounts in millions, except
per share amounts, and shares in thousands)
(unaudited)
GAAP
Stock-Based
Compensation
Employer Payroll Taxes on
Employee Stock Transactions
Intangible
Amortization
Acquisition, Disposition and
Other Items
Tax Adjustment(1)
Non-GAAP As
Adjusted(2)
Operating expenses:
Cost of license revenue
$
36
—
—
(20
)
—
—
$
16
Cost of subscription and SaaS revenue
$
94
(3
)
—
(26
)
—
—
$
65
Cost of services revenue
$
299
(18
)
—
(1
)
—
—
$
279
Research and development
$
590
(102
)
—
—
—
—
$
489
Sales and marketing
$
868
(63
)
(2
)
(22
)
—
—
$
781
General and administrative
$
209
(30
)
—
—
(13
)
—
$
166
Realignment and loss on disposition
$
—
—
—
—
—
—
$
—
Operating income
$
354
216
2
69
13
—
$
654
Operating margin(2)
14.4
%
8.8
%
0.1
%
2.8
%
0.5
%
—
26.7
%
Other income (expense), net(3)
$
17
—
—
—
(1
)
—
$
16
Income before income tax
$
351
216
2
69
12
—
$
650
Income tax provision (benefit)
$
(14
)
118
$
104
Tax rate(2)
N/A
16.0
%
Net income
$
365
216
2
69
12
(118
)
$
546
Less: Net income (loss) attributable to
non-controlling interests
$
(15
)
22
—
9
—
(5
)
$
11
Net income attributable to VMware,
Inc.
$
380
194
2
60
12
(113
)
$
535
Net income per weighted-average share
attributable to VMware, Inc. common stockholders, diluted for
Classes A and B(2)(4)
$
0.89
$
0.45
$
—
$
0.14
$
0.03
$
(0.27
)
$
1.25
__________
N/A - GAAP tax rate was not applicable due
to the income tax benefit recorded for the three months ended May
3, 2019.
(1) Non-GAAP financial information for the
quarter is adjusted for a tax rate equal to our annual estimated
tax rate on non-GAAP income. This rate is based on our estimated
annual GAAP income tax rate forecast, adjusted to account for items
excluded from GAAP income in calculating the non-GAAP financial
measures presented above as well as significant tax adjustments.
Our estimated tax rate on non-GAAP income is determined annually
and may be adjusted during the year to take into account events or
trends that we believe materially impact the estimated annual rate
including, but not limited to, significant changes resulting from
tax legislation, material changes in the geographic mix of revenue
and expenses, changes to our corporate structure and other
significant events. Due to the differences in the tax treatment of
items excluded from non-GAAP earnings, as well as the methodology
applied to our estimated annual tax rates as described above, our
estimated tax rate on non-GAAP income may differ from our GAAP tax
rate and from our actual tax liabilities.
(2) Totals may not sum, due to rounding.
Operating margin, tax rate and net income per weighted average
share information are calculated based upon the respective
underlying, non-rounded data.
(3) Non-GAAP adjustment to other income
(expense), net includes gains or losses on equity investments,
whether realized or unrealized.
(4) Calculated based upon 426,697 diluted
weighted-average shares for Classes A and B.
VMware, Inc.
REVENUE BY TYPE
(in millions)
(unaudited)
Three Months Ended
May 1,
May 3,
2020
2019
Revenue:
License
$
660
$
646
Subscription and SaaS
572
411
Total license and subscription and
SaaS
1,232
1,057
Services:
Software maintenance
1,245
1,148
Professional services
257
245
Total services
1,502
1,393
Total revenue
$
2,734
$
2,450
Percentage of revenue:
License
24.1
%
26.4
%
Subscription and SaaS
21.0
%
16.7
%
Total license and subscription and
SaaS
45.1
%
43.1
%
Services:
Software maintenance
45.5
%
46.8
%
Professional services
9.4
%
10.1
%
Total services
54.9
%
56.9
%
Total revenue
100.0
%
100.0
%
VMware, Inc.
REVENUE BY GEOGRAPHY
(in millions)
(unaudited)
Three Months Ended
May 1,
May 3,
2020
2019
Revenue:
United States
$
1,363
$
1,196
International
1,371
1,254
Total revenue
$
2,734
$
2,450
Percentage of revenue:
United States
49.9
%
48.8
%
International
50.1
%
51.2
%
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
May 1,
May 3,
2020
2019
GAAP cash flows from operating
activities
$
1,374
$
1,395
Capital expenditures
(87
)
(73
)
Free cash flows
$
1,287
$
1,322
VMware, Inc.
About Non-GAAP Financial Measures
To provide investors and others with additional information
regarding VMware’s results, VMware has disclosed in this earnings
release the following non-GAAP financial measures: non-GAAP
operating income, non-GAAP operating margin, non-GAAP net income,
non-GAAP net income per diluted share and free cash flow. VMware
has provided a reconciliation of each non-GAAP financial measure
used in this earnings release to the most directly comparable GAAP
financial measure. These non-GAAP financial measures, other than
free cash flow, differ from GAAP in that they exclude stock-based
compensation, employer payroll taxes on employee stock
transactions, amortization of acquired intangible assets,
realignment charges, acquisition, disposition and other items, and
discrete items that impacted our GAAP tax rate, each as discussed
below. Our non-GAAP financial measures also reflect the application
of our non-GAAP tax rate. Free cash flow differs from GAAP cash
flow from operating activities with respect to the treatment of
capital expenditures.
VMware’s management uses these non-GAAP financial measures to
understand and compare operating results across accounting periods,
for internal budgeting and forecasting purposes, for short- and
long-term operating plans, to calculate bonus payments and to
evaluate VMware’s financial performance, the performance of its
individual functional groups and the ability of operations to
generate cash. Management believes these non-GAAP financial
measures reflect VMware’s ongoing business in a manner that allows
for meaningful period-to-period comparisons and analysis of trends
in VMware’s business, as they exclude charges and gains that are
not reflective of ongoing operating results. Management also
believes that these non-GAAP financial measures provide useful
information to investors and others in understanding and evaluating
VMware’s operating results and future prospects in the same manner
as management and in comparing financial results across accounting
periods and to those of peer companies. Additionally, management
believes information regarding free cash flow provides investors
and others with an important perspective on the cash available to
make strategic acquisitions and investments, to repurchase shares,
to fund ongoing operations and to fund other capital
expenditures.
Management believes these non-GAAP financial measures are useful
to investors and others in assessing VMware’s operating performance
due to the following factors:
- Stock-based compensation. Stock-based compensation is generally
fixed at the time the stock-based instrument is granted and
amortized over a period of several years. Although stock-based
compensation is an important aspect of the compensation of VMware’s
employees and executives, the expense for the fair value of the
stock-based instruments VMware utilizes may bear little resemblance
to the actual value realized upon the vesting or future exercise of
the related stock-based awards. Management believes it is useful to
exclude stock-based compensation in order to better understand the
long-term performance of VMware’s core business.
- Employer payroll taxes on employee stock transactions. The
amount of employer payroll taxes on stock-based compensation is
dependent on VMware’s stock price and other factors that are beyond
VMware’s control and do not correlate to the operation of the
business.
- Amortization of acquired intangible assets. A portion of the
purchase price of VMware’s acquisitions is generally allocated to
intangible assets, such as intellectual property, and is subject to
amortization. However, VMware does not acquire businesses on a
predictable cycle. Additionally, the amount of an acquisition’s
purchase price allocated to intangible assets and the term of its
related amortization can vary significantly and are unique to each
acquisition. Therefore, VMware believes that the presentation of
non-GAAP financial measures that adjust for the amortization of
intangible assets provides investors and others with a consistent
basis for comparison across accounting periods.
- Realignment charges. Realignment charges include workforce
reductions, asset impairments, losses on asset disposals and costs
to exit facilities. VMware’s management believes it is useful to
exclude these items, when significant, as they are not reflective
of VMware’s core business and operating results.
- Acquisition, disposition and other items. As VMware does not
acquire or dispose of businesses on a predictable cycle and the
terms of each transaction can vary significantly and are unique to
each transaction, VMware believes it is useful to exclude
acquisition, disposition and other items when looking for a
consistent basis for comparison across accounting periods. These
items include:
– Direct costs of acquisitions and
dispositions, such as transaction and advisory fees.
– Costs associated with integrating acquired
businesses.
– Accruals for the portion of merger
consideration payable in installments that may be paid in cash or
VMware stock, at the option of VMware.
– Gains or losses on equity investments,
whether realized or unrealized.
– Charges recognized for non-recoverable
strategic investments or gains recognized on the disposition of
strategic investments.
– Gains or losses on sale or disposal of
distinct lines of business or product offerings, or transactions
with features similar to discontinued operations, including
recoveries or charges recognized to adjust the fair value of assets
that qualify as “held for sale.”
- Tax adjustment. Non-GAAP financial information for the quarter
is adjusted for a tax rate equal to VMware’s annual estimated tax
rate on non-GAAP income. This rate is based on VMware’s estimated
annual GAAP income tax rate forecast, adjusted to account for items
excluded from GAAP income in calculating VMware’s non-GAAP income
as well as significant tax adjustments. VMware’s estimated tax rate
on non-GAAP income is determined annually and may be adjusted
during the year to take into account events or trends that VMware
management believes materially impact the estimated annual rate
including, but not limited to, significant changes resulting from
tax legislation, material changes in the geographic mix of revenue
and expenses, changes to our corporate structure and other
significant events. Due to the differences in the tax treatment of
items excluded from non-GAAP earnings, as well as the methodology
applied to VMware’s estimated annual tax rates as described above,
the estimated tax rate on non-GAAP income may differ from the GAAP
tax rate and from VMware’s actual tax liabilities.
Additionally, VMware’s management believes that the non-GAAP
financial measure of free cash flow is meaningful to investors
because management reviews cash flow generated from operations
after taking into consideration capital expenditures due to the
fact that these expenditures are considered to be a necessary
component of ongoing operations.
The use of non-GAAP financial measures has certain limitations
because they do not reflect all items of income and expense that
affect VMware’s operations. Specifically, in the case of
stock-based compensation, if VMware did not pay out a portion of
its compensation in the form of stock-based compensation and
related employer payroll taxes, the cash salary expense included in
operating expenses would be higher, which would affect VMware’s
cash position. VMware compensates for these limitations by
reconciling the non-GAAP financial measures to the most comparable
GAAP financial measures. These non-GAAP financial measures should
be considered in addition to, not as a substitute for or in
isolation from, measures prepared in accordance with GAAP and
should not be considered measures of VMware’s liquidity. Further,
these non-GAAP measures may differ from the non-GAAP information
used by other companies, including peer companies, and therefore
comparability may be limited. Management encourages investors and
others to review VMware’s financial information in its entirety and
not rely on a single financial measure.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200528005750/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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