Total Revenue growth of 6% year-over-year
Subscription and SaaS Revenue of $943 million,
an increase of 22% year-over-year
VMware, Inc. (NYSE: VMW), a leading innovator in enterprise
software, today announced financial results for the second quarter
of fiscal year 2023:
Quarterly Review
- Revenue for the second quarter was $3.34 billion, an increase
of 6% from the second quarter of fiscal 2022.
- The combination of subscription and SaaS and license revenue
was $1.74 billion for the second quarter, an increase of 15% from
the second quarter of fiscal 2022.
- Subscription and SaaS revenue for the second quarter was $943
million, an increase of 22% year-over-year, constituting 28% of
total revenue for the quarter.
- Subscription and SaaS ARR for the second quarter was $3.89
billion, an increase of 24% year-over-year.
- GAAP net income for the second quarter was $347 million, or
$0.82 per diluted share, down 16% per diluted share compared to
$411 million, or $0.97 per diluted share, for the second quarter of
fiscal 2022. Non-GAAP net income for the second quarter was $697
million, or $1.64 per diluted share, down 6% per diluted share
compared to $739 million, or $1.75 per diluted share, for the
second quarter of fiscal 2022.1
- GAAP operating income for the second quarter was $566 million,
an increase of 8% from the second quarter of fiscal 2022. Non-GAAP
operating income for the second quarter was $965 million, an
increase of 5% from the second quarter of fiscal 2022.
- Operating cash flow for the second quarter was $397 million.
Free cash flow for the second quarter was $284 million.
- RPO for the second quarter totaled $12.10 billion, up 8%
year-over-year.
“We are pleased with our performance in Q2. Our momentum
continues next week at VMware Explore where we will showcase new
innovative offerings while also highlighting how we are helping
customers continue to transform their businesses,” said Raghu
Raghuram, CEO, VMware. “We remain committed to helping
organizations unlock the full potential of multi-cloud.”
“Our Q2 financial results reflect the continued commitment of
the entire VMware team to accelerate innovation for our customers
as they move to a multi-cloud environment,” said Zane Rowe,
executive vice president and CFO, VMware. “Investments in our
Subscription and SaaS offerings helped contribute to ARR growth of
24% year-over-year.”
Business Highlights & Strategic Announcements
- VMware unveiled VMware vSphere+ and VMware vSAN+ to help
organizations bring the benefits of the cloud to their existing
on-premises infrastructure with no disruption to their workloads or
hosts.
- VMware became an Official Partner of the McLaren Formula 1
Team. VMware multi-cloud solutions will help McLaren operate with
speed and drive confidence no matter where the team is racing in
the world.
- VMware and HCL Technologies announced the formation of HCL’s
new dedicated VMware Business Unit, designed to unlock the untapped
value of multi-cloud and app modernization. The new unit combines
the power of HCL’s CloudSMART Framework with VMware Cross-Cloud
services to help enterprises accelerate cloud transformation, scale
cloud-native platform operations and empower hybrid
workforces.
- VMware and Wipro Limited announced an expanded collaboration
that will enable customers to achieve the cloud freedom they desire
with the enterprise control they require as they execute their
digital strategies.
- VMware was named the 2022 HPE Global Technology Partner of the
Year, recognizing VMware as an HPE partner that exemplifies
commitment and success in delivering value to customers on their
digital transformation journey.
- VMware received the 2021 Google Cloud Technology Partner of the
Year Award for Infrastructure Modernization, recognizing VMware for
its achievements as part of the Google Cloud ecosystem in helping
mutual customers accelerate their enterprise cloud
transformation.
- VMware received industry analyst recognition:
- VMware has been positioned as a Leader in three recent IDC
MarketScape reports related to the Unified Endpoint Management
(UEM) space2: WW UEM Software 2022 Vendor Assessment, WW UEM
Software for Apple Devices 2022 Vendor Assessment, WW UEM Software
for Ruggedized/Internet of Things Device Deployments 2022 Vendor
Assessment.
- VMware was named a Visionary in the 2022 Gartner® Magic
Quadrant™ for Application Performance Monitoring and Observability3
for its observability platform, Tanzu Observability by Wavefront.
VMware has been recognized for its vision and execution.
Organizations are increasingly adopting multi-cloud strategies and
modern application development to meet the requirements of being a
modern digital business.
- VMware posted its 2022 Environmental Social and Governance
(ESG) Report and 2022 Diversity, Equity and Inclusion (DEI) Report,
continuing to enhance ESG disclosures.
- VMware has recently been recognized for human capital
commitments by ranking as a Top 100 U.S. company supporting healthy
families and communities by JUST Capital.
- VMware received a 100% score on the 2022 Disability Equality
Index and being recognized as a Best Place to Work for Disability
Inclusion by Disability:IN and AAPD for the second year in a
row.
- VMware recently joined more than 80 companies in supporting the
development of the IFRS Sustainability Disclosure Standards,
underlying the importance of better standardization and
transparency in ESG disclosures for the investor community.
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, the financial results for the six months ended July
29, 2022 reflect the impact of the tax law in effect as of July 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.
2 IDC MarketScape: Worldwide Unified Endpoint Management
Software 2022 Vendor Assessment (doc #US48325122, May 2022); IDC
MarketScape: Worldwide Unified Endpoint Management Software for
Apple Devices 2022 Vendor Assessment (doc #US48325222, May 2022);
IDC MarketScape: Worldwide Unified Endpoint Management Software for
Ruggedized/Internet of Things Device Deployments 2022 Vendor
Assessment (doc #US48325322, May 2022)
3 Gartner, Inc., Magic Quadrant for Application Performance
Monitoring and Observability, Padraig Byrne and Gregg Siegfried, 07
June 2022. 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, expressed or implied, with respect to this research,
including any warranties of merchantability or fitness for a
particular purpose. Gartner and Magic Quadrant are registered
trademarks and service marks of Gartner, Inc. and/or its affiliates
in the U.S. and internationally and is used herein with permission.
All rights reserved.
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.
Definitive Agreement to be Acquired by Broadcom
VMware has entered into a definitive agreement to be acquired by
Broadcom Inc. (“Broadcom”). The transaction, which is expected to
be completed in Broadcom's fiscal year 2023, is subject to the
receipt of regulatory approvals and other customary closing
conditions, including approval by VMware shareholders. Please refer
to the May 26, 2022 announcement entitled, “Broadcom to Acquire
VMware for Approximately $61 Billion in Cash and Stock,” available
on news.vmware.com.
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 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, vSphere+, vSAN+, Tanzu, and Wavefront 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 proposed acquisition of VMware by
Broadcom and related timing of its consummation. 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 satisfaction of
the conditions precedent to consummation of the proposed
acquisition, and the ability to consummate the proposed
acquisition, on a timely basis or at all; (2) business disruption
following the announcement of the proposed transaction, including
disruption of current plans and operations; (3) the effects of the
proposed acquisition, the spin-off of VMware from Dell and changes
in VMware’s and Dell’s commercial relationships and go-to-market
strategy, on VMware’s ability to (a) enter into, maintain and
extend strategically effective partnerships, collaborations and
alliances (b) maintain and establish new relationships with
customers, partners and suppliers, and (c) maintain operating
results and its business generally; (4) difficulties in retaining
and hiring key personnel and employees, including due to the
proposed acquisition; (5) the ability to implement plans, forecasts
and other expectations with respect to the business after the
completion of the proposed acquisition and realize synergies; (6)
the impact of the COVID-19 pandemic on VMware’s operations,
financial condition, VMware’s customers, the business environment
and global and regional economies; (7) 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; (8) changes to VMware’s and Dell’s respective financial
conditions and strategic directions, including potential effects of
the proposed acquisition of VMware by Broadcom, that could
adversely impact the VMware-Dell commercial relationship and
collaborations; (9) the continued risk of litigation and regulatory
actions, including the outcome of any legal proceedings related to
the proposed acquisition; (10) adverse changes in general economic
or market conditions; (11) delays or reductions in consumer,
government and information technology spending, including due to
the announced acquisition; (12) competitive factors, such as
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; (13)
rapid technological changes in the virtualization software and
cloud, end user, edge security and mobile computing and telecom
industries; (14) 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; (15) VMware’s ability to protect its proprietary
technology; (16) changes to product and services development
timelines; (17) risks associated with cyber-attacks, information
security and data privacy; (18) disruptions resulting from key
management changes; (19) risks associated with international sales,
such as fluctuating currency exchange rates and increased trade
barriers; (20) changes in VMware’s financial condition; and (21)
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
Six Months Ended
July 29,
July 30,
July 29,
July 30,
2022
2021
2022
2021
Revenue:
License
$
796
$
738
$
1,369
$
1,384
Subscription and SaaS
943
776
1,842
1,516
Services
1,597
1,624
3,213
3,232
Total revenue
3,336
3,138
6,424
6,132
Operating expenses(1):
Cost of license revenue
39
37
74
75
Cost of subscription and SaaS revenue
196
170
387
327
Cost of services revenue
369
352
744
689
Research and development
803
775
1,577
1,483
Sales and marketing
1,080
1,023
2,134
1,981
General and administrative
276
256
527
492
Realignment
7
—
7
1
Operating income
566
525
974
1,084
Investment income
7
1
8
1
Interest expense
(74
)
(49
)
(145
)
(99
)
Other income (expense), net
(20
)
3
(30
)
(19
)
Income before income tax
479
480
807
967
Income tax provision
132
69
218
131
Net income
$
347
$
411
$
589
$
836
Net income per weighted-average share,
basic
$
0.82
$
0.98
$
1.40
$
1.99
Net income per weighted-average share,
diluted
$
0.82
$
0.97
$
1.39
$
1.98
Weighted-average shares, basic
422,002
419,355
421,294
419,235
Weighted-average shares, diluted
424,125
422,802
423,561
422,419
__________
(1) Includes stock-based compensation as
follows:
Cost of license revenue
$
—
$
—
$
1
$
1
Cost of subscription and SaaS revenue
6
5
11
11
Cost of services revenue
25
24
48
49
Research and development
146
150
278
277
Sales and marketing
93
81
174
153
General and administrative
41
33
81
64
VMware, Inc.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(amounts in millions, except
per share amounts, and shares in thousands)
(unaudited)
July 29,
January 28,
2022
2022
ASSETS
Current assets:
Cash and cash equivalents
$
3,242
$
3,614
Short-term investments
—
19
Accounts receivable, net of allowance of
$9 and $10
2,073
2,297
Due from related parties
1,267
1,438
Other current assets
636
598
Total current assets
7,218
7,966
Property and equipment, net
1,550
1,461
Deferred tax assets
5,986
5,906
Intangible assets, net
589
714
Goodwill
9,598
9,598
Due from related parties
189
199
Other assets
2,863
2,832
Total assets
$
27,993
$
28,676
LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)
Current liabilities:
Accounts payable
$
208
$
234
Accrued expenses and other
2,683
2,806
Unearned revenue
6,388
6,479
Due to related parties
202
132
Total current liabilities
9,481
9,651
Long-term debt
11,181
12,671
Unearned revenue
4,843
4,743
Income tax payable
253
242
Operating lease liabilities
889
927
Due to related parties
802
909
Other liabilities
404
409
Total liabilities
27,853
29,552
Contingencies
Stockholders’ equity (deficit):
Class A common stock, par value $0.01;
authorized 2,500,000 shares; issued and outstanding 422,622 and
418,808 shares
4
4
Additional paid-in capital
435
—
Accumulated other comprehensive loss
(13
)
(5
)
Accumulated deficit
(286
)
(875
)
Total stockholders’ equity (deficit)
140
(876
)
Total liabilities and stockholders’ equity
(deficit)
$
27,993
$
28,676
VMware, Inc.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
Six Months Ended
July 29,
July 30,
July 29,
July 30,
2022
2021
2022
2021
Operating activities:
Net income
$
347
$
411
$
589
$
836
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
302
275
590
544
Stock-based compensation
311
293
593
555
Deferred income taxes, net
(37
)
17
(80
)
(31
)
(Gain) loss on equity securities and
disposition of assets, net
(3
)
1
(12
)
37
Other
—
2
3
4
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable
(453
)
(189
)
222
206
Other current assets and other assets
(175
)
(229
)
(418
)
(390
)
Due from related parties
(621
)
(162
)
180
522
Accounts payable
(3
)
5
(31
)
70
Accrued expenses and other liabilities
345
412
(319
)
(218
)
Income taxes payable
41
(110
)
114
(29
)
Unearned revenue
366
138
9
24
Due to related parties
(23
)
—
(38
)
—
Net cash provided by operating
activities
397
864
1,402
2,130
Investing activities:
Additions to property and equipment
(113
)
(87
)
(219
)
(157
)
Sales of investments in equity
securities
—
26
20
34
Purchases of strategic investments
—
(6
)
(8
)
(7
)
Proceeds from disposition of assets
84
1
90
1
Business combinations, net of cash
acquired, and purchases of intangible assets
(1
)
(6
)
(4
)
(15
)
Net cash used in investing activities
(30
)
(72
)
(121
)
(144
)
Financing activities:
Proceeds from issuance of common stock
5
8
124
139
Repayment of term loan
(750
)
—
(1,500
)
—
Repurchase of common stock
—
(358
)
(89
)
(729
)
Shares repurchased for tax withholdings on
vesting of restricted stock
(111
)
(186
)
(205
)
(242
)
Principal payments on finance lease
obligations
(1
)
(1
)
(2
)
(2
)
Net cash used in financing activities
(857
)
(537
)
(1,672
)
(834
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
(490
)
255
(391
)
1,152
Cash, cash equivalents and restricted cash
at beginning of the period
3,762
5,667
3,663
4,770
Cash, cash equivalents and restricted cash
at end of the period
$
3,272
$
5,922
$
3,272
$
5,922
Supplemental disclosures of cash flow
information:
Cash paid for interest
$
59
$
50
$
140
$
97
Cash paid for taxes, net
114
166
184
204
Non-cash items:
Changes in capital additions, accrued but
not paid
$
16
$
8
$
9
$
11
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
July 29,
July 30,
2022
2021
Total revenue, as reported
$
3,336
$
3,138
Sequential change in unearned
revenue(1)
365
138
Total revenue plus sequential change in
unearned revenue
$
3,701
$
3,276
Change (%) over prior year, as
reported
13
%
Growth
in License and Subscription and SaaS Revenue Plus Sequential Change
in Unearned License and Subscription and SaaS
Revenue
Three Months Ended
July 29,
July 30,
2022
2021
Total license and subscription and SaaS
revenue, as reported
$
1,739
$
1,514
Sequential change in unearned license and
subscription and SaaS revenue(2)
281
148
Total license and subscription and SaaS
revenue plus sequential change in unearned license and subscription
and SaaS revenue
$
2,020
$
1,662
Change (%) over prior year, as
reported
22
%
__________
(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
July 29,
July 30,
2022
2021
Remaining performance obligations(3)
$
12,103
$
11,201
Change (%) over prior year
8
%
Remaining performance obligations,
current(4)
$
6,767
$
6,249
Change (%) over prior year
8
%
__________
(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)
July 29,
April 29,
January 28,
October 29,
July 30,
April 30,
2022
2022
2022
2021
2021
2021
Unearned revenue as reported:
License
$
20
$
20
$
19
$
17
$
20
$
16
Subscription and SaaS
2,952
2,671
2,669
2,238
2,208
2,064
Services
Software maintenance
6,903
6,877
7,208
6,773
6,916
6,957
Professional services
1,356
1,298
1,326
1,205
1,194
1,163
Total unearned revenue
$
11,231
$
10,866
$
11,222
$
10,233
$
10,338
$
10,200
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Three Months Ended
July 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
Realignment
Charges
Acquisition, Disposition
and Other Items
Tax Adjustment(1)
Non-GAAP As
Adjusted(2)
Operating expenses:
Cost of license revenue
$
39
—
—
(9
)
—
—
—
$
30
Cost of subscription and SaaS revenue
$
196
(6
)
—
(36
)
—
—
—
$
154
Cost of services revenue
$
369
(25
)
—
—
—
—
—
$
343
Research and development
$
803
(146
)
(1
)
(3
)
—
—
—
$
654
Sales and marketing
$
1,080
(93
)
(3
)
(15
)
—
—
—
$
971
General and administrative
$
276
(41
)
—
—
—
(15
)
—
$
219
Realignment
$
7
—
—
—
(7
)
—
—
$
—
Operating income
$
566
311
4
63
7
15
—
$
965
Operating margin(2)
17.0
%
9.3
%
0.1
%
1.9
%
0.2
%
0.4
%
—
28.9
%
Other income (expense), net(3)
$
(20
)
—
—
—
—
(3
)
—
$
(21
)
Income before income tax
$
479
311
4
63
7
12
—
$
877
Income tax provision
$
132
47
$
180
Tax rate(2)
27.6
%
20.5
%
Net income
$
347
311
4
63
7
12
(47
)
$
697
Net income per weighted-average share,
diluted(2)(4)
$
0.82
$
0.73
$
0.01
$
0.15
$
0.02
$
0.03
$
(0.11
)
$
1.64
__________
(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 424,125 diluted
weighted-average shares of common stock.
VMware, Inc.
SUPPLEMENTAL RECONCILIATION OF
GAAP TO NON-GAAP DATA
IMPACT OF INTERNAL REVENUE
CODE SECTION 174
For the Three Months Ended
July 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
$
479
$
877
$
877
Income tax provision
$
132
$
47
$
180
$
(35
)
-
(44
)
$
145
-
136
Tax rate (4)
27.6
%
20.5
%
16.5
-
15.5
%
Net income
$
347
$
697
$
732
-
741
Net income per weighted-average share,
diluted (4)(5)
$
0.82
$
1.64
$
1.73
-
1.75
__________
(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
July 29, 2022 reflect the impact of the tax law in effect as of
July 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 July 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 424,125 diluted
weighted-average shares of common stock.
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Three Months Ended
July 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
Acquisition, Disposition
and Other Items
Tax Adjustment(1)
Non-GAAP As
Adjusted(2)
Operating expenses:
Cost of license revenue
$
37
—
—
(10
)
—
—
$
27
Cost of subscription and SaaS revenue
$
170
(5
)
—
(43
)
—
—
$
121
Cost of services revenue
$
352
(24
)
(1
)
—
—
—
$
326
Research and development
$
775
(150
)
(1
)
(2
)
—
—
$
622
Sales and marketing
$
1,023
(81
)
(3
)
(22
)
—
—
$
919
General and administrative
$
256
(33
)
(1
)
—
(23
)
—
$
199
Operating income
$
525
293
6
77
23
—
$
924
Operating margin(2)
16.7
%
9.3
%
0.2
%
2.4
%
0.7
%
—
29.4
%
Other income (expense), net(3)
$
3
—
—
—
1
—
$
4
Income before income tax
$
480
293
6
77
24
—
$
880
Income tax provision
$
69
71
$
141
Tax rate(2)
14.4
%
16.0
%
Net income
$
411
293
6
77
24
(71
)
$
739
Net income per weighted-average share,
diluted for Classes A and B(2)(4)
$
0.97
$
0.69
$
0.02
$
0.18
$
0.06
$
(0.17
)
$
1.75
__________
(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 422,802 diluted
weighted-average shares for Classes A and B.
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Six Months Ended July
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
Realignment
Charges
Acquisition,
Disposition and Other Items
Tax Adjustment(1)
Non-GAAP As
Adjusted(2)
Operating expenses:
Cost of license revenue
$
74
(1
)
—
(19
)
—
—
—
$
54
Cost of subscription and SaaS revenue
$
387
(11
)
—
(73
)
—
—
—
$
303
Cost of services revenue
$
744
(48
)
(1
)
—
—
—
—
$
695
Research and development
$
1,577
(278
)
(1
)
(5
)
—
—
—
$
1,293
Sales and marketing
$
2,134
(174
)
(3
)
(32
)
—
—
—
$
1,925
General and administrative
$
527
(81
)
(1
)
—
—
(28
)
—
$
417
Realignment
$
7
—
—
—
(7
)
—
—
$
—
Operating income
$
974
593
6
129
7
28
—
$
1,737
Operating margin(2)
15.2
%
9.2
%
0.1
%
2.0
%
0.1
%
0.4
%
—
27.0
%
Other income (expense), net(3)
$
(30
)
—
—
—
—
(12
)
—
$
(41
)
Income before income tax
$
807
593
6
129
7
16
—
$
1,559
Income tax provision
$
218
101
$
320
Tax rate(2)
27.0
%
20.5
%
Net income
$
589
593
6
129
7
16
(101
)
$
1,239
Net income per weighted-average share,
diluted(2)(4)
$
1.39
$
1.40
$
0.01
$
0.30
$
0.02
$
0.04
$
(0.24
)
$
2.93
__________
(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 423,561 diluted
weighted-average shares of common stock.
VMware, Inc.
SUPPLEMENTAL RECONCILIATION OF
GAAP TO NON-GAAP DATA
IMPACT OF INTERNAL REVENUE
CODE SECTION 174
For the Six Months Ended July
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
$
807
$
1,559
$
1,559
Income tax provision
$
218
$
101
$
320
$
(62
)
-
(78
)
$
257
-
242
Tax rate (4)
27.0
%
20.5
%
16.5
-
15.5
%
Net income
$
589
$
1,239
$
1,302
-
1,317
Net income per weighted-average share,
diluted (4)(5)
$
1.39
$
2.93
$
3.07
-
3.11
__________
(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 six months ended
July 29, 2022 reflect the impact of the tax law in effect as of
July 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 July 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 423,561 diluted
weighted-average shares of common stock.
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Six Months Ended July
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
$
75
(1
)
—
(20
)
—
—
—
$
54
Cost of subscription and SaaS revenue
$
327
(11
)
—
(85
)
—
—
—
$
231
Cost of services revenue
$
689
(49
)
(1
)
—
—
—
—
$
639
Research and development
$
1,483
(277
)
(1
)
(4
)
—
—
—
$
1,200
Sales and marketing
$
1,981
(153
)
(4
)
(45
)
—
—
—
$
1,779
General and administrative
$
492
(64
)
(1
)
—
—
(45
)
—
$
383
Realignment
$
1
—
—
—
(1
)
—
—
$
—
Operating income
$
1,084
555
7
154
1
45
—
$
1,846
Operating margin(2)
17.7
%
9.1
%
0.1
%
2.5
%
—
%
0.7
%
—
30.1
%
Other income (expense), net(3)
$
(19
)
—
—
—
—
36
—
$
17
Income before income tax
$
967
555
7
154
1
81
—
$
1,765
Income tax provision
$
131
152
$
282
Tax rate(2)
13.5
%
16.0
%
Net income
$
836
555
7
154
1
81
(152
)
$
1,483
Net income per weighted-average share,
diluted for Classes A and B(2)(4)
$
1.98
$
1.31
$
0.02
$
0.36
$
—
$
0.19
$
(0.36
)
$
3.51
__________
(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 422,419 diluted
weighted-average shares for Classes A and B.
VMware, Inc.
REVENUE BY TYPE
(in millions)
(unaudited)
Three Months Ended
Six Months Ended
July 29,
July 30,
July 29,
July 30,
2022
2021
2022
2021
Revenue:
License
$
796
$
738
$
1,369
$
1,384
Subscription and SaaS
943
776
1,842
1,516
Total license and subscription and
SaaS
1,739
1,514
3,211
2,900
Services:
Software maintenance
1,299
1,336
2,609
2,657
Professional services
298
288
604
575
Total services
1,597
1,624
3,213
3,232
Total revenue
$
3,336
$
3,138
$
6,424
$
6,132
Percentage of revenue:
License
23.9
%
23.5
%
21.3
%
22.6
%
Subscription and SaaS
28.2
%
24.7
%
28.7
%
24.7
%
Total license and subscription and
SaaS
52.1
%
48.2
%
50.0
%
47.3
%
Services:
Software maintenance
38.9
%
42.6
%
40.6
%
43.3
%
Professional services
9.0
%
9.2
%
9.4
%
9.4
%
Total services
47.9
%
51.8
%
50.0
%
52.7
%
Total revenue
100.0
%
100.0
%
100.0
%
100.0
%
VMware, Inc.
REVENUE BY GEOGRAPHY
(in millions)
(unaudited)
Three Months Ended
Six Months Ended
July 29,
July 30,
July 29,
July 30,
2022
2021
2022
2021
Revenue:
United States
$
1,648
$
1,539
$
3,166
$
3,005
International
1,688
1,599
3,258
3,127
Total revenue
$
3,336
$
3,138
$
6,424
$
6,132
Percentage of revenue:
United States
49.4
%
49.1
%
49.3
%
49.0
%
International
50.6
%
50.9
%
50.7
%
51.0
%
Total revenue
100.0
%
100.0
%
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
Six Months Ended
July 29,
July 30,
July 29,
July 30,
2022
2021
2022
2021
GAAP cash flows from operating
activities
$
397
$
864
$
1,402
$
2,130
Capital expenditures
(113
)
(87
)
(219
)
(157
)
Free cash flows
$
284
$
777
$
1,183
$
1,973
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, free cash flow, non-GAAP
income tax provision as adjusted for the impact of Internal Revenue
Code Section 174 (“Section 174”) and non-GAAP revenue as adjusted
for the impact of the suspension of our business operations in
Russia and foreign currency. VMware has provided a reconciliation
of each non-GAAP financial measure used in this earnings release to
the most directly comparable GAAP financial measure. Other than
free cash flow, non-GAAP income tax provision as adjusted for the
impact of Section 174 and non-GAAP revenue as adjusted for the
impact of the suspension of our business operations in Russia and
foreign currency, these non-GAAP financial measures 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. – Certain costs
incurred related to VMware's pending acquisition by Broadcom Inc.
("Broadcom"), such as legal and advisory fees incurred to effect
the acquisition. The acquisition is expected to occur in Broadcom's
fiscal year 2023 and is subject to the receipt of regulatory
approvals and other customary closing conditions, including
approval by VMware shareholders.
- 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.
VMware’s management also believes that the non-GAAP income tax
provision as adjusted for the impact of Section 174 research and
development expense capitalization, which became effective
beginning with VMware’s fiscal 2023, is meaningful to investors,
given that the U.S. Congress is considering various legislative
options that would defer the capitalization requirement to later
years, possibly with effect for fiscal 2023.
Further, VMware’s management believes that the non-GAAP revenue
as adjusted for the impact of the suspension of our business
operations in Russia and foreign currency is meaningful to
investors due to the unexpected impacts of Russia’s invasion of
Ukraine on VMware’s business operations in the quarter as well as
changes in foreign currency exchange rates versus our
expectations.
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/20220825005451/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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