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Record annual revenue of $8.97 billion, increasing 14% year-over-year
Q4 revenue growth of 16% year-over-year, driven by broad-based strength across the business
PALO ALTO, Calif., Feb. 28, 2019 (GLOBE NEWSWIRE) -- VMware, Inc. (NYSE: VMW), a leading innovator in enterprise software, today announced financial results for the fourth quarter and full fiscal year 2019:
Quarterly Review
Annual Review
“Q4 was a terrific ending to a strong fiscal ’19 driven by broad-based strength across our diverse product portfolio and in all three geographies,” commented Pat Gelsinger, chief executive officer, VMware. “VMware is providing the essential ubiquitous software foundation for our customers’ digital transformations while we also work to drive positive global impact across our people, products and the planet.”
“We’re pleased with our performance in the quarter and for the year, including the return of $11 billion dollars to shareholders through a special dividend in December,” said Zane Rowe, executive vice president and chief financial officer, VMware. “We continued to drive deeper engagement with our customers and partners, who leverage the VMware portfolio for their business initiatives.”
Quarterly Business Highlights & Strategic Announcements
The company will host a conference call today at 2:00 p.m. PT/ 5:00 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.
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i Forrester, Andrew Hewitt and Chris Sherman, The Forrester Wave™: Unified Endpoint Management, Q4 2018, 20 November 2018
ii Gartner, John MacAurthur, et. Al., Magic Quadrant for Hyperconverged Infrastructure, 2 January 2019. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
Adoption of New Revenue Standard ASC 606
During May 2014, the Financial Accounting Standards Board issued updates to accounting standards related to revenue recognition ("ASC 606"). VMware adopted ASC 606 on a full retrospective basis effective February 3, 2018. Accordingly, the financial results for the fourth quarter and full year fiscal 2019 presented in this release have been prepared under ASC 606. In order to provide meaningful comparisons to prior periods, VMware has included financial statements for the three months and year ended February 2, 2018, adjusted for ASC 606, and the balance sheet as of the end of fiscal 2018, adjusted for ASC 606. All year-over-year comparisons in this release compare fourth quarter and full year fiscal 2019 results to the fourth quarter and full year fiscal 2018 as adjusted for ASC 606.
To further assist investors, the financial tables in this release also include a supplemental unearned revenue schedule for the third and fourth quarters of fiscal 2018 as adjusted for ASC 606.
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 over 500,000 customers globally, aided by an ecosystem of 75,000 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 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; and other news, blogs and announcements that VMware may post from time to time that investors may find useful or interesting, including information regarding the tax treatment of VMware’s special dividend that was paid on December 28, 2018.
VMware, VMware Cloud, vSphere, Workspace ONE and Heptio 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 the expected benefits to customers of VMware products and services, including new offerings from VMware and AWS that will run on AWS Outposts and planned efforts with Heptio and within the open source community regarding Kuberbetes. 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: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer, government and information technology spending; (iii) 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 industries, and new product and marketing initiatives by VMware’s competitors; (iv) VMware’s customers’ ability to transition to new products and computing strategies such as cloud computing, desktop virtualization and the software defined data center; (v) VMware’s ability to enter into and maintain strategically effective partnerships and alliances; (vi) the uncertainty of customer acceptance of emerging technology; (vii) the ability to successfully integrate into VMware acquired companies and assets and smoothly transition services related to divested assets from VMware; (viii) rapid technological changes in the virtualization software and cloud, end user and mobile computing industries; (ix) changes to product and service development timelines; (x) 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; (xi) VMware’s ability to protect its proprietary technology; (xii) VMware’s ability to attract and retain highly qualified employees; (xiii) the ability of VMware to realize synergies from Dell; (xiv) disruptions resulting from key management changes; (xv) risks associated with international sales such as fluctuating currency exchange rates and increased trade barriers; (xvi) changes in VMware’s financial condition; and (xvii) risks associated with cyber-attacks, information security and privacy. 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.
Contacts:
Paul Ziots
VMware Investor Relations
pziots@vmware.com
650-427-3267
Michael Thacker
VMware Global PR
mthacker@vmware.com
650-427-4454
VMware, Inc. | |||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME (LOSS) | |||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||||||
(unaudited) | |||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||
February 1, | February 2, | February 1, | February 2, | ||||||||||||
2019 | 2018(1) | 2019 | 2018(1) | ||||||||||||
Revenue: | |||||||||||||||
License | $ | 1,231 | $ | 1,018 | $ | 3,788 | $ | 3,200 | |||||||
Services | 1,360 | 1,208 | 5,186 | 4,662 | |||||||||||
Total revenue | 2,591 | 2,226 | 8,974 | 7,862 | |||||||||||
Operating expenses(2): | |||||||||||||||
Cost of license revenue | 52 | 41 | 191 | 157 | |||||||||||
Cost of services revenue | 291 | 263 | 1,067 | 984 | |||||||||||
Research and development | 542 | 457 | 1,975 | 1,755 | |||||||||||
Sales and marketing | 807 | 689 | 2,918 | 2,506 | |||||||||||
General and administrative | 235 | 169 | 764 | 654 | |||||||||||
Realignment and loss on disposition | — | 2 | 9 | 104 | |||||||||||
Operating income | 664 | 605 | 2,050 | 1,702 | |||||||||||
Investment income (loss) | (7 | ) | 38 | 161 | 120 | ||||||||||
Interest expense | (34 | ) | (33 | ) | (134 | ) | (74 | ) | |||||||
Other income (expense), net | (32 | ) | 15 | 806 | 66 | ||||||||||
Income before income tax | 591 | 625 | 2,883 | 1,814 | |||||||||||
Income tax provision | 89 | 1,012 | 461 | 1,155 | |||||||||||
Net income (loss) | $ | 502 | $ | (387 | ) | $ | 2,422 | $ | 659 | ||||||
Net income (loss) per weighted-average share, basic for Classes A and B | $ | 1.22 | $ | (0.96 | ) | $ | 5.94 | $ | 1.62 | ||||||
Net income (loss) per weighted-average share, diluted for Classes A and B | $ | 1.21 | $ | (0.96 | ) | $ | 5.85 | $ | 1.59 | ||||||
Weighted-average shares, basic for Classes A and B | 410,277 | 403,383 | 407,766 | 406,738 | |||||||||||
Weighted-average shares, diluted for Classes A and B | 416,451 | 403,383 | 414,267 | 413,368 | |||||||||||
__________ | |||||||||||||||
(1) Adjusted to reflect the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). | |||||||||||||||
(2) Includes stock-based compensation as follows: | |||||||||||||||
Cost of license revenue | $ | — | $ | — | $ | 1 | $ | 2 | |||||||
Cost of services revenue | 14 | 12 | 51 | 50 | |||||||||||
Research and development | 99 | 88 | 371 | 355 | |||||||||||
Sales and marketing | 56 | 49 | 203 | 197 | |||||||||||
General and administrative | 31 | 21 | 105 | 79 |
VMware, Inc. | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||
(unaudited) | |||||||
February 1, | February 2, | ||||||
2019 | 2018(1) | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 2,830 | $ | 5,971 | |||
Short-term investments | 19 | 5,682 | |||||
Accounts receivable, net of allowance for doubtful accounts of $2 and $2 | 1,576 | 1,394 | |||||
Due from related parties, net | 937 | 532 | |||||
Other current assets | 289 | 257 | |||||
Total current assets | 5,651 | 13,836 | |||||
Property and equipment, net | 1,133 | 1,074 | |||||
Other assets | 1,853 | 924 | |||||
Deferred tax assets | 103 | 227 | |||||
Intangible assets, net | 541 | 548 | |||||
Goodwill | 5,381 | 4,597 | |||||
Total assets | $ | 14,662 | $ | 21,206 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 135 | $ | 15 | |||
Accrued expenses and other | 1,593 | 1,357 | |||||
Unearned revenue | 3,968 | 3,438 | |||||
Total current liabilities | 5,696 | 4,810 | |||||
Notes payable to Dell | 270 | 270 | |||||
Long-term debt | 3,972 | 3,964 | |||||
Unearned revenue | 3,010 | 2,401 | |||||
Income tax payable | 889 | 954 | |||||
Other liabilities | 274 | 183 | |||||
Total liabilities | 14,111 | 12,582 | |||||
Contingencies | |||||||
Stockholders’ equity: | |||||||
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 110,715 and 103,776 | 1 | 1 | |||||
Class B convertible common stock, par value $0.01; authorized 1,000,000 shares; issued and outstanding 300,000 shares | 3 | 3 | |||||
Additional paid-in capital | 531 | 844 | |||||
Accumulated other comprehensive income (loss) | 2 | (15 | ) | ||||
Retained earnings | 14 | 7,791 | |||||
Total stockholders’ equity | 551 | 8,624 | |||||
Total liabilities and stockholders’ equity | $ | 14,662 | $ | 21,206 | |||
(1) Adjusted to reflect the adoption of ASC 606. |
VMware, Inc. | |||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||
(in millions) | |||||||||||||||
(unaudited) | |||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||
February 1, | February 2, | February 1, | February 2, | ||||||||||||
2019 | 2018(1) | 2019 | 2018(1) | ||||||||||||
Operating activities: | |||||||||||||||
Net income (loss) | $ | 502 | $ | (387 | ) | $ | 2,422 | $ | 659 | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 165 | 146 | 630 | 565 | |||||||||||
Stock-based compensation | 200 | 170 | 731 | 683 | |||||||||||
Deferred income taxes, net | (50 | ) | 191 | 113 | 310 | ||||||||||
Unrealized (gain) loss on equity securities, net | 38 | — | (799 | ) | — | ||||||||||
Loss on disposition | 1 | 1 | 7 | 95 | |||||||||||
(Gain) loss on disposition of assets, revaluation and impairment, net | 5 | (13 | ) | 6 | (45 | ) | |||||||||
Gain on extinguishment of debt | — | — | — | (6 | ) | ||||||||||
Loss on Dell stock purchase | — | — | — | 2 | |||||||||||
Other | 3 | 2 | 7 | 3 | |||||||||||
Changes in assets and liabilities, net of acquisitions: | |||||||||||||||
Accounts receivable | (476 | ) | (386 | ) | (178 | ) | (102 | ) | |||||||
Other current assets and other assets | (85 | ) | (205 | ) | (350 | ) | (446 | ) | |||||||
Due to/from related parties, net | (395 | ) | (278 | ) | (405 | ) | (440 | ) | |||||||
Accounts payable | (21 | ) | (75 | ) | 104 | (35 | ) | ||||||||
Accrued expenses and other liabilities | 397 | 319 | 281 | 330 | |||||||||||
Income taxes payable | (49 | ) | 722 | (40 | ) | 660 | |||||||||
Unearned revenue | 777 | 643 | 1,134 | 985 | |||||||||||
Net cash provided by operating activities | 1,012 | 850 | 3,663 | 3,218 | |||||||||||
Investing activities: | |||||||||||||||
Additions to property and equipment | (66 | ) | (99 | ) | (245 | ) | (263 | ) | |||||||
Purchases of available-for-sale securities | — | (930 | ) | (780 | ) | (4,269 | ) | ||||||||
Sales of available-for-sale securities | 3,812 | 449 | 3,999 | 2,195 | |||||||||||
Maturities of available-for-sale securities | 488 | 368 | 2,393 | 1,573 | |||||||||||
Purchases of strategic investments | (5 | ) | (4 | ) | (8 | ) | (37 | ) | |||||||
Proceeds from disposition of assets | 3 | 7 | 38 | 13 | |||||||||||
Business combinations, net of cash acquired, and purchases of intangible assets | (419 | ) | (436 | ) | (938 | ) | (671 | ) | |||||||
Net cash paid on disposition of a business | — | (5 | ) | (12 | ) | (53 | ) | ||||||||
Net cash provided by (used in) investing activities | 3,813 | (650 | ) | 4,447 | (1,512 | ) | |||||||||
Financing activities: | |||||||||||||||
Proceeds from issuance of common stock | 7 | 18 | 188 | 122 | |||||||||||
Net proceeds from issuance of long-term debt | — | — | — | 3,961 | |||||||||||
Repayment of notes payable to Dell | — | — | — | (1,225 | ) | ||||||||||
Repurchase of common stock | (42 | ) | (169 | ) | (42 | ) | (1,449 | ) | |||||||
Shares repurchased for tax withholdings on vesting of restricted stock | (129 | ) | (80 | ) | (357 | ) | (351 | ) | |||||||
Payment for Special Dividend | (11,000 | ) | — | (11,000 | ) | — | |||||||||
Payment for common control transaction with Dell | — | — | (8 | ) | — | ||||||||||
Net cash provided by (used in) financing activities | (11,164 | ) | (231 | ) | (11,219 | ) | 1,058 | ||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (6,339 | ) | (31 | ) | (3,109 | ) | 2,764 | ||||||||
Cash, cash equivalents and restricted cash at beginning of the period | 9,233 | 6,034 | 6,003 | 3,239 | |||||||||||
Cash, cash equivalents and restricted cash at end of the period | $ | 2,894 | $ | 6,003 | $ | 2,894 | $ | 6,003 | |||||||
Supplemental disclosures of cash flow information: | |||||||||||||||
Cash paid for interest | $ | 3 | $ | 2 | $ | 129 | $ | 21 | |||||||
Cash paid for taxes, net | 192 | 89 | 398 | 177 | |||||||||||
Non-cash items: | |||||||||||||||
Changes in capital additions, accrued but not paid | $ | (7 | ) | $ | (9 | ) | $ | 9 | $ | 10 | |||||
Changes in tax withholdings on vesting of restricted stock, accrued but not paid | (44 | ) | (12 | ) | 17 | (4 | ) | ||||||||
(1) Adjusted to reflect the adoption of ASC 606 and Accounting Standards Update ("ASU") No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. Net cash provided by operating activities increased by $3 million and $7 million for the three and twelve months ended February 2, 2018 when compared to the previously reported amounts due to the adoption of ASU 2016-18. |
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 | ||||||||
February 1, | February 2, | |||||||
2019 | 2018(1) | |||||||
Total revenue, as reported | $ | 2,591 | $ | 2,226 | ||||
Sequential change in unearned revenue(2) | 777 | 647 | ||||||
Total revenue plus sequential change in unearned revenue | $ | 3,368 | $ | 2,873 | ||||
Change (%) over prior year, as reported | 17 | % | ||||||
Growth in License Revenue Plus Sequential Change in Unearned License Revenue | ||||||||
Three Months Ended | ||||||||
February 1, | February 2, | |||||||
2019 | 2018(1) | |||||||
Total license revenue, as reported | $ | 1,231 | $ | 1,018 | ||||
Sequential change in unearned license revenue(3) | 43 | 41 | ||||||
Total license revenue plus sequential change in unearned license revenue | $ | 1,274 | $ | 1,059 | ||||
Change (%) over prior year, as reported | 20 | % | ||||||
(1) Adjusted to reflect the adoption of ASC 606. | ||||||||
(2) 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 consolidated balance sheets. | ||||||||
(3) Unearned license revenue primarily consists of the allocated portion of VMware's SaaS offerings. |
VMware, Inc. | |||||||||||||||||||||||
SUPPLEMENTAL UNEARNED REVENUE SCHEDULE | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
February 1, | November 2, | August 3, | May 4, | February 2, | November 3, | ||||||||||||||||||
2019 | 2018 | 2018 | 2018 | 2018(1) | 2017(1) | ||||||||||||||||||
Unearned revenue as reported: | |||||||||||||||||||||||
License | $ | 255 | $ | 212 | $ | 190 | $ | 157 | $ | 184 | $ | 143 | |||||||||||
Software maintenance | 5,972 | 5,345 | 5,223 | 5,024 | 5,082 | 4,541 | |||||||||||||||||
Professional services | 751 | 644 | 617 | 575 | 573 | 508 | |||||||||||||||||
Total unearned revenue | $ | 6,978 | $ | 6,201 | $ | 6,030 | $ | 5,756 | $ | 5,839 | $ | 5,192 | |||||||||||
(1) Adjusted to reflect the adoption of ASC 606. |
VMware, Inc. | |||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||
For the Three Months Ended February 1, 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 | $ | 52 | — | — | (31 | ) | — | — | $ | 20 | |||||||||||
Cost of services revenue | $ | 291 | (14 | ) | — | (1 | ) | (1 | ) | — | $ | 275 | |||||||||
Research and development | $ | 542 | (99 | ) | — | — | (1 | ) | — | $ | 442 | ||||||||||
Sales and marketing | $ | 807 | (56 | ) | (1 | ) | (10 | ) | (1 | ) | — | $ | 738 | ||||||||
General and administrative | $ | 235 | (31 | ) | — | — | (55 | ) | — | $ | 149 | ||||||||||
Realignment and loss on disposition | $ | — | — | — | — | — | — | $ | — | ||||||||||||
Operating income | $ | 664 | 200 | 1 | 42 | 58 | — | $ | 967 | ||||||||||||
Operating margin(2) | 25.6 | % | 7.7 | % | 0.1 | % | 1.6 | % | 2.2 | % | — | 37.3 | % | ||||||||
Investment income (loss) | $ | (7 | ) | — | — | — | 46 | — | $ | 40 | |||||||||||
Other income (expense), net(3) | $ | (32 | ) | — | — | — | 40 | — | $ | 7 | |||||||||||
Income before income tax | $ | 591 | 200 | 1 | 42 | 144 | — | $ | 980 | ||||||||||||
Income tax provision | $ | 89 | 67 | $ | 157 | ||||||||||||||||
Tax rate(2) | 15.1 | % | 16.0 | % | |||||||||||||||||
Net income | $ | 502 | 200 | 1 | 42 | 144 | (67 | ) | $ | 823 | |||||||||||
Net income per weighted-average share, diluted for Classes A and B(2) (4) | $ | 1.21 | $ | 0.48 | $ | — | $ | 0.10 | $ | 0.35 | $ | (0.16 | ) | $ | 1.98 | ||||||
(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, such as adjustments resulting from the U.S. Tax Cuts and Jobs Act enacted on December 22, 2017 (the "2017 Tax Act"). 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 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. During the three months ended February 1, 2019, this adjustment primarily included a loss of $38 million, which related to VMware's investment in Pivotal to adjust it to its fair value. | |||||||||||||||||||||
(4) Calculated based upon 416,451 diluted weighted-average shares for Classes A and B. | |||||||||||||||||||||
VMware, Inc. | |||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||
For the Three Months Ended February 2, 2018 | |||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||||||||||||
(unaudited) | |||||||||||||||||||||
GAAP(1) |
Stock-Based Compensation |
Employer Payroll Taxes on Employee Stock Transactions |
Intangible Amortization |
Acquisition, Disposition and Other Items |
Tax Adjustment(1)(2) |
Non-GAAP, as adjusted(1)(3) |
|||||||||||||||
Operating expenses: | |||||||||||||||||||||
Cost of license revenue | $ | 41 | — | — | (28 | ) | — | — | $ | 12 | |||||||||||
Cost of services revenue | $ | 263 | (12 | ) | 1 | (1 | ) | — | — | $ | 251 | ||||||||||
Research and development | $ | 457 | (88 | ) | — | — | (1 | ) | — | $ | 368 | ||||||||||
Sales and marketing | $ | 689 | (49 | ) | (1 | ) | (7 | ) | 1 | — | $ | 633 | |||||||||
General and administrative | $ | 169 | (21 | ) | — | — | (6 | ) | — | $ | 142 | ||||||||||
Realignment and loss on disposition | $ | 2 | — | — | — | (2 | ) | — | $ | — | |||||||||||
Operating income | $ | 605 | 170 | — | 36 | 8 | — | $ | 820 | ||||||||||||
Operating margin(3) | 27.2 | % | 7.6 | % | — | % | 1.6 | % | 0.4 | % | — | 36.8 | % | ||||||||
Other income (expense), net | $ | 15 | — | — | — | (13 | ) | — | $ | 2 | |||||||||||
Income before income tax | $ | 625 | 170 | — | 36 | (5 | ) | — | $ | 827 | |||||||||||
Income tax provision | $ | 1,012 | (843 | ) | $ | 170 | |||||||||||||||
Tax rate(3) | 161.9 | % | 20.5 | % | |||||||||||||||||
Net income (loss) | $ | (387 | ) | 170 | — | 36 | (5 | ) | 843 | $ | 657 | ||||||||||
Net income (loss) per weighted-average share, diluted for Classes A and B(3) (4) (5) | $ | (0.96 | ) | $ | 0.41 | $ | — | $ | 0.09 | $ | (0.01 | ) | $ | 2.06 | $ | 1.60 | |||||
(1) Adjusted to reflect the adoption of ASC 606. | |||||||||||||||||||||
(2) 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, such as adjustments resulting from the 2017 Tax Act. 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 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. | |||||||||||||||||||||
(3) 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. | |||||||||||||||||||||
(4) GAAP net loss per weighted-average share, diluted, was based upon 403,383 diluted weighted-average shares for Classes A and B. During the three months ended February 2, 2018, VMware incurred a GAAP net loss. As a result, all potentially dilutive securities were anti-dilutive and excluded from the computation of GAAP net loss per weighted-average share, diluted. | |||||||||||||||||||||
(5) Non-GAAP net income per weighted-average share, diluted, was calculated based upon 410,096 diluted weighted-average shares for Classes A and B. |
VMware, Inc. | |||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||
For the Twelve Months Ended February 1, 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 | $ | 191 | (1 | ) | — | (120 | ) | — | — | $ | 70 | ||||||||||
Cost of services revenue | $ | 1,067 | (51 | ) | (1 | ) | (3 | ) | (2 | ) | — | $ | 1,011 | ||||||||
Research and development | $ | 1,975 | (371 | ) | (1 | ) | — | (3 | ) | — | $ | 1,600 | |||||||||
Sales and marketing | $ | 2,918 | (203 | ) | (4 | ) | (33 | ) | (1 | ) | — | $ | 2,675 | ||||||||
General and administrative | $ | 764 | (105 | ) | (1 | ) | — | (82 | ) | — | $ | 577 | |||||||||
Realignment and loss on disposition | $ | 9 | — | — | — | (9 | ) | — | $ | — | |||||||||||
Operating income | $ | 2,050 | 731 | 7 | 156 | 97 | — | $ | 3,041 | ||||||||||||
Operating margin(2) | 22.8 | % | 8.1 | % | 0.1 | % | 1.7 | % | 1.1 | % | — | 33.9 | % | ||||||||
Investment income | $ | 161 | — | — | — | 46 | — | $ | 208 | ||||||||||||
Other income (expense), net(3) | $ | 806 | — | — | — | (798 | ) | — | $ | 6 | |||||||||||
Income before income tax | $ | 2,883 | 731 | 7 | 156 | (655 | ) | — | $ | 3,121 | |||||||||||
Income tax provision | $ | 461 | 38 | $ | 499 | ||||||||||||||||
Tax rate(2) | 16.0 | % | 16.0 | % | |||||||||||||||||
Net income | $ | 2,422 | 731 | 7 | 156 | (655 | ) | (38 | ) | $ | 2,622 | ||||||||||
Net income per weighted-average share, diluted for Classes A and B(2) (4) | $ | 5.85 | $ | 1.76 | $ | 0.02 | $ | 0.38 | $ | (1.58 | ) | $ | (0.09 | ) | $ | 6.33 | |||||
(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, such as adjustments resulting from the 2017 Tax Act. 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 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. During the twelve months ended February 1, 2019, this adjustment primarily included a gain of $813 million, which related to VMware's investment in Pivotal to adjust it to its fair value. | |||||||||||||||||||||
(4) Calculated based upon 414,267 diluted weighted-average shares for Classes A and B. |
VMware, Inc. | ||||||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA | ||||||||||||||||||||||||
For the Twelve Months Ended February 2, 2018 | ||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | ||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
GAAP(1) |
Stock-Based Compensation |
Employer Payroll Taxes on Employee Stock Transactions |
Intangible Amortization |
Acquisition, Disposition and Other Items(1) |
Loss on Share Repurchase |
Tax Adjustment(1)(2) |
Non-GAAP, as adjusted(1)(3) |
|||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Cost of license revenue | $ | 157 | (2 | ) | — | (107 | ) | — | — | — | $ | 48 | ||||||||||||
Cost of services revenue | $ | 984 | (50 | ) | (1 | ) | (2 | ) | — | — | — | $ | 930 | |||||||||||
Research and development | $ | 1,755 | (355 | ) | (1 | ) | — | (5 | ) | — | — | $ | 1,395 | |||||||||||
Sales and marketing | $ | 2,506 | (197 | ) | (3 | ) | (23 | ) | (2 | ) | — | — | $ | 2,281 | ||||||||||
General and administrative | $ | 654 | (79 | ) | (1 | ) | — | (23 | ) | — | — | $ | 551 | |||||||||||
Realignment and loss on disposition | $ | 104 | — | — | — | (104 | ) | — | — | $ | — | |||||||||||||
Operating income | $ | 1,702 | 683 | 6 | 132 | 134 | — | — | $ | 2,657 | ||||||||||||||
Operating margin(3) | 21.6 | % | 8.7 | % | 0.1 | % | 1.7 | % | 1.7 | % | — | — | 33.8 | % | ||||||||||
Other income (expense), net | $ | 66 | — | — | — | (46 | ) | 2 | — | $ | 21 | |||||||||||||
Income before income tax | $ | 1,814 | 683 | 6 | 132 | 88 | 2 | — | $ | 2,724 | ||||||||||||||
Income tax provision | $ | 1,155 | (597 | ) | $ | 558 | ||||||||||||||||||
Tax rate(3) | 63.7 | % | 20.5 | % | ||||||||||||||||||||
Net income | $ | 659 | 683 | 6 | 132 | 88 | 2 | 597 | $ | 2,166 | ||||||||||||||
Net income per weighted-average share, diluted for Classes A and B(3) (4) | $ | 1.59 | $ | 1.65 | $ | 0.02 | $ | 0.32 | $ | 0.21 | $ | — | $ | 1.44 | $ | 5.24 | ||||||||
(1) Adjusted to reflect the adoption of ASC 606. | ||||||||||||||||||||||||
(2) 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, such as adjustments resulting from the 2017 Tax Act. 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 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. | ||||||||||||||||||||||||
(3) 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. | ||||||||||||||||||||||||
(4) Calculated based upon 413,368 diluted weighted-average shares for Classes A and B. |
VMware, Inc. | ||||||||||||||||
REVENUE BY TYPE | ||||||||||||||||
(in millions) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||
February 1, | February 2, | February 1, | February 2, | |||||||||||||
2019 | 2018(1) | 2019 | 2018(1) | |||||||||||||
Revenue: | ||||||||||||||||
License | $ | 1,231 | $ | 1,018 | $ | 3,788 | $ | 3,200 | ||||||||
Services: | ||||||||||||||||
Software maintenance | 1,183 | 1,043 | 4,506 | 4,032 | ||||||||||||
Professional services | 177 | 165 | 680 | 630 | ||||||||||||
Total services | 1,360 | 1,208 | 5,186 | 4,662 | ||||||||||||
Total revenue | $ | 2,591 | $ | 2,226 | $ | 8,974 | $ | 7,862 | ||||||||
Percentage of revenue: | ||||||||||||||||
License | 47.5 | % | 45.7 | % | 42.2 | % | 40.7 | % | ||||||||
Services: | ||||||||||||||||
Software maintenance | 45.6 | % | 46.9 | % | 50.2 | % | 51.3 | % | ||||||||
Professional services | 6.9 | % | 7.4 | % | 7.6 | % | 8.0 | % | ||||||||
Total services | 52.5 | % | 54.3 | % | 57.8 | % | 59.3 | % | ||||||||
Total revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
(1) Adjusted to reflect the adoption of ASC 606. |
VMware, Inc. | |||||||||||||||
REVENUE BY GEOGRAPHY | |||||||||||||||
(in millions) | |||||||||||||||
(unaudited) | |||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||
February 1, | February 2, | February 1, | February 2, | ||||||||||||
2019 | 2018(1) | 2019 | 2018(1) | ||||||||||||
Revenue: | |||||||||||||||
United States | $ | 1,152 | $ | 1,010 | $ | 4,205 | $ | 3,834 | |||||||
International | 1,439 | 1,216 | 4,769 | 4,028 | |||||||||||
Total revenue | $ | 2,591 | $ | 2,226 | $ | 8,974 | $ | 7,862 | |||||||
Percentage of revenue: | |||||||||||||||
United States | 44.5 | % | 45.4 | % | 46.9 | % | 48.8 | % | |||||||
International | 55.5 | % | 54.6 | % | 53.1 | % | 51.2 | % | |||||||
Total revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||
(1) Adjusted to reflect the adoption of ASC 606. |
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 | Twelve Months Ended | ||||||||||||||
February 1, | February 2, | February 1, | February 2, | ||||||||||||
2019 | 2018(1) | 2019 | 2018(1) | ||||||||||||
GAAP cash flows from operating activities | $ | 1,012 | $ | 850 | $ | 3,663 | $ | 3,218 | |||||||
Capital expenditures | (66 | ) | (99 | ) | (245 | ) | (263 | ) | |||||||
Free cash flows | $ | 946 | $ | 751 | $ | 3,418 | $ | 2,955 | |||||||
(1) Adjusted to reflect the adoption of ASU 2016-18. GAAP cash flows from operating activities increased by $3 million and $7 million for the three and twelve months ended February 2, 2018 when compared to the previously reported amounts due to the adoption of ASU 2016-18. |
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 tax on employee stock transactions, amortization of acquired intangible assets, realignment charges, acquisition, disposition and other-related items, gain or loss on share repurchase, certain litigation and other contingencies 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:
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.