Total Revenue of $3.41 billion
Subscription and SaaS Revenue of $1.26 billion,
an increase of 34% year-over-year
VMware, Inc. (NYSE: VMW), a leading innovator in enterprise
software, today announced financial results for the second quarter
of fiscal year 2024:
Quarterly Review
- Revenue for the second quarter was $3.41 billion, an increase
of 2% from the second quarter of fiscal 2023.
- Subscription and SaaS revenue for the second quarter was $1.26
billion, an increase of 34% year-over-year.
- Subscription and SaaS revenue constituted 37% of total revenue
for the quarter.
- Subscription and SaaS ARR exiting the second quarter was $5.31
billion, an increase of 36% year-over-year.
- GAAP net income for the second quarter was $477 million, or
$1.10 per diluted share, up 34% per diluted share compared to $347
million, or $0.82 per diluted share, for the second quarter of
fiscal 2023. Non-GAAP net income for the second quarter was $792
million, or $1.83 per diluted share, up 11% per diluted share
compared to $697 million, or $1.64 per diluted share, for the
second quarter of fiscal 2023.1
- GAAP operating income for the second quarter was $547 million,
a decrease of 3% from the second quarter of fiscal 2023. Non-GAAP
operating income for the second quarter was $977 million, up 1%
compared to the second quarter of fiscal 2023.
- Operating cash flow for the second quarter was $444 million.
Free cash flow for the second quarter was $350 million.
- RPO for the second quarter totaled $12.88 billion, up 6%
year-over-year.2
“We delivered solid Q2 results. Our customers continue to invest
in our Multi-Cloud offerings as they modernize their infrastructure
to run enterprise, cloud-native, and new AI workloads,” said Raghu
Raghuram, CEO, VMware. “At the recent VMware Explore Las Vegas, we
unveiled new offerings including the next evolution of VMware
Cloud, NSX+, vSAN Max, and an enhanced Tanzu Application Platform,
all designed to help customers innovate faster and reduce total
cost of ownership. We also introduced VMware Private AI Foundation
with NVIDIA to accelerate AI-enabled applications in the
enterprise.”
“We are pleased with our Q2 performance, which reflects the
continued strength of our Subscription and SaaS portfolio and
execution of our business model transition,” said Karen Dykstra,
executive vice president and CFO, VMware. “Subscription and SaaS
ARR reached $5.31 billion to exit the quarter and grew 36%
year-over-year, highlighting the momentum of our multi-cloud
offerings.”
Business Highlights & Strategic Announcements
- Last week at VMware Explore 2023 Las Vegas, the company
introduced several new offerings, including:
- The next evolution of VMware Cloud, empowering customers to
invest in digital transformation and growth while helping them
innovate faster, increase operational efficiency, improve threat
defenses, and recover from ransomware attacks faster.
- An expanded Tanzu portfolio to help customers develop, operate,
and optimize apps on any cloud with an enhanced Tanzu Application
Platform, new Tanzu Intelligence Services with artificial
intelligence (AI)/machine learning (ML) capabilities for deeper
insights, and updates to Tanzu Hub.
- The new VMware Edge Cloud Orchestrator (formerly VMware SASE
Orchestrator) which will provide unified management for VMware SASE
and Edge Compute Stack—an industry-first offering to bridge the gap
between edge networking and edge compute.
- New Digital Experience (DEX) Insights based on greatly expanded
data and ML algorithms that enhance DEX remediation capabilities.
These updates broaden access to data, help strengthen VMware
Insights, and allow for remediation of more issues.
- Also at VMware Explore Las Vegas, VMware unveiled its
perspective on generative AI in the enterprise with the
introduction of Private AI, which serves as an architectural
approach that balances the business gains from AI with the
practical privacy and compliance needs of an organization.
- VMware Private AI Foundation with NVIDIA is a new integrated
offering that will enable enterprises to customize models and run
generative AI applications, including intelligent chatbots,
assistants, search, and summarization. The fully integrated
solution will feature generative AI software and accelerated
computing from NVIDIA, built on VMware Cloud Foundation optimized
for AI.
- VMware released VMware Cloud Foundation 5.0. This major release
delivered increased scalability, security and several key
enhancements that address requirements for cloud scale
infrastructure as a service (IaaS), simplified deployment of
on-premises clouds, and enhanced protection against
cyberattacks.
- VMware Cloud on AWS continued to expand globally, with new
regions opening in Melbourne, Australia and Zurich, Switzerland.
This brings the total number of global regions for VMware Cloud on
AWS to 25.
- VMware joined forces with AMD, Samsung, and members of the
RISC-V Keystone community to simplify the development and
operations of confidential computing applications, which have the
potential to secure workloads no matter where they run including in
Multi-Cloud and edge settings. The companies will collaborate on
and contribute to the open-source Certifier Framework for
Confidential Computing project.
- VMware received recognition from analyst firm Omdia3 citing
that VMware’s take on SASE builds on two key strengths: its broad
set of technologies and products and its strong presence in
SD-WAN.
- VMware released its 2023 Environmental, Social and Governance
(ESG) report, sharing its Smart Impact strategy and progress made
over the last year toward the company’s 2030 Agenda. VMware also
received recognition for its ongoing ESG and diversity, equity, and
inclusion (DEI) leadership including:
- Awarded 100% score on the Disability Equality Index® and
recognized as a DEI Best Place to Work for Disability
Inclusion.
- Ranked in the top 5% on USA Today’s inaugural America's Climate
Leaders List, which ranks companies based on their emissions
reductions year-over-year.
- Recognized by Newsweek as one of America’s Greatest Workplaces,
receiving a 5/5 workplace score.
1 Our annual effective tax rate is based upon, among other things,
current tax law, including Internal Revenue Code Section 174
relating to research and development expense capitalization, which
became effective beginning in VMware’s fiscal 2023. If in the
future this provision is deferred, modified or repealed, our
effective tax rate may fluctuate significantly in the quarter in
which such change in law becomes effective. 2 Remaining
performance obligations do not include customer prepayments
received for contracts that include certain cancellation rights,
such as termination for convenience clauses, which are included in
customer deposits on the condensed consolidated balance sheets and
were $1.6 billion as of August 4, 2023. 3 On the Radar:
VMware offers SASE as journey centered on SD-WAN and paints a
broader picture of modern technology stacks (7 July 2023).
About VMware
VMware is a leading provider of multi-cloud services for all
apps, enabling digital innovation with enterprise control. As a
trusted foundation to accelerate innovation, VMware software gives
businesses the flexibility and choice they need to build the
future. Headquartered in Palo Alto, California, VMware is committed
to building a better future through the company’s 2030 Agenda. For
more information, please visit vmware.com/company.
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 on October 30, 2023, is subject to the receipt of
regulatory approvals and other customary closing conditions. 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, Explore, NSX+, vSAN Max, and Tanzu 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 and any applicable
termination for convenience rights are not exercised, 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 momentum
of, customer investment in and expected benefits to customers,
partners and stockholders of VMware’s strategy, offerings,
collaborations and partnerships; and the proposed acquisition of
VMware by Broadcom, related timing of its consummation and benefits
to customers of combined VMware and Broadcom solutions. 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 pending acquisition,
and the ability to consummate the pending acquisition, on a timely
basis or at all; (2) business disruption following the announcement
of the pending acquisition, including disruption of current plans
and operations; (3) the effects of the pending 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 VMware’s business
generally; (4) difficulties in retaining and hiring key personnel
and employees, including due to the pending acquisition; (5) the
ability to implement plans, forecasts and other expectations with
respect to the business after the completion of the pending
acquisition and realize synergies; (6) the ability of VMware to
transition its business model and 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 and its subscription and SaaS
portfolio; (7) changes to VMware’s and Dell’s respective financial
conditions and strategic directions, including potential effects of
the pending acquisition of VMware by Broadcom, that could adversely
impact the VMware-Dell commercial relationship and collaborations;
(8) the continued risk of on-going and new litigation and
regulatory actions, including the outcome of any legal proceedings
related to the pending acquisition; (9) adverse changes in general
economic or market conditions; (10) delays or reductions in
consumer, government and information technology spending, including
due to the announced acquisition; (11) 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; (12)
rapid technological changes in the virtualization software, cloud,
end user, edge security and mobile computing and telecom
industries; (13) the uncertainty of VMware’s customers’ acceptance
of and ability to transition to emerging technologies, including,
for example, AI and ML, and new offerings and computing strategies
in the industries in which VMware competes; (14) VMware’s ability
to protect its proprietary technology; (15) changes to product and
services development timelines; (16) risks associated with
cyber-attacks, information security and data privacy; (17)
disruptions resulting from key management changes; (18) risks
associated with international sales, such as fluctuating currency
exchange rates and increased trade barriers; (19) changes in
VMware’s financial condition; and (20) other impacts to VMware’s
business, 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
August 4,
July 29,
August 4,
July 29,
2023
2022
2023
2022
Revenue:
License
$
619
$
796
$
1,136
$
1,369
Subscription and SaaS
1,259
943
2,476
1,842
Services
1,530
1,597
3,073
3,213
Total revenue
3,408
3,336
6,685
6,424
Operating expenses(1):
Cost of license revenue
37
39
76
74
Cost of subscription and SaaS revenue
203
196
411
387
Cost of services revenue
399
369
796
744
Research and development
835
803
1,682
1,577
Sales and marketing
1,100
1,080
2,205
2,134
General and administrative
287
276
660
527
Realignment
—
7
—
7
Operating income
547
566
855
974
Investment income
74
7
138
8
Interest expense
(79
)
(74
)
(159
)
(145
)
Other income (expense), net
19
(20
)
26
(30
)
Income before income tax
561
479
860
807
Income tax provision
84
132
159
218
Net income
$
477
$
347
$
701
$
589
Net income per weighted-average share,
basic
$
1.11
$
0.82
$
1.63
$
1.40
Net income per weighted-average share,
diluted
$
1.10
$
0.82
$
1.62
$
1.39
Weighted-average shares, basic
430,395
422,002
429,290
421,294
Weighted-average shares, diluted
434,090
424,125
432,839
423,561
__________
(1) Includes stock-based compensation as
follows:
Cost of license revenue
$
—
$
—
$
1
$
1
Cost of subscription and SaaS revenue
6
6
13
11
Cost of services revenue
23
25
45
48
Research and development
146
146
293
278
Sales and marketing
88
93
166
174
General and administrative
47
41
81
81
VMware, Inc.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(amounts in millions, except
per share amounts, and shares in thousands)
(unaudited)
August 4,
February 3,
2023
2023
ASSETS
Current assets:
Cash and cash equivalents
$
6,801
$
5,100
Accounts receivable, net of allowance of
$10 and $9
2,432
2,510
Due from related parties
1,267
2,078
Other current assets
519
543
Total current assets
11,019
10,231
Property and equipment, net
1,644
1,623
Deferred tax assets
6,402
6,157
Intangible assets, net
368
478
Goodwill
9,598
9,598
Due from related parties
267
208
Other assets
2,901
2,942
Total assets
$
32,199
$
31,237
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
217
$
267
Accrued expenses and other
2,358
2,568
Customer deposits
2,017
1,087
Current portion of long-term debt
1,000
1,000
Unearned revenue
6,739
7,079
Due to related parties
404
390
Total current liabilities
12,735
12,391
Long-term debt
9,449
9,440
Unearned revenue
5,351
5,664
Income tax payable
381
287
Operating lease liabilities
785
845
Due to related parties
504
648
Other liabilities
447
428
Total liabilities
29,652
29,703
Contingencies
Stockholders’ equity:
Class A common stock, par value $0.01;
authorized 2,500,000 shares; issued and outstanding 431,379 and
426,741 shares
4
4
Additional paid-in capital
1,409
1,095
Accumulated other comprehensive loss
(6
)
(4
)
Retained earnings
1,140
439
Total stockholders’ equity
2,547
1,534
Total liabilities and stockholders’
equity
$
32,199
$
31,237
VMware, Inc.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
Six Months Ended
August 4,
July 29,
August 4,
July 29,
2023
2022
2023
2022
Operating activities:
Net income
$
477
$
347
$
701
$
589
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
336
302
666
590
Stock-based compensation
310
311
599
593
Deferred income taxes, net
(150
)
(37
)
(237
)
(80
)
(Gain) loss on equity securities and
disposition of assets, net
3
(3
)
4
(12
)
Other
—
—
6
3
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable
(600
)
(453
)
72
222
Other current assets and other assets
(188
)
(175
)
(291
)
(418
)
Due from related parties
(667
)
(621
)
752
180
Accounts payable
(9
)
(3
)
(49
)
(31
)
Accrued expenses, customer deposits and
other liabilities
1,234
345
717
(319
)
Income taxes payable
(69
)
41
37
114
Unearned revenue
(114
)
366
(653
)
9
Due to related parties
(119
)
(23
)
(130
)
(38
)
Net cash provided by operating
activities
444
397
2,194
1,402
Investing activities:
Additions to property and equipment
(94
)
(113
)
(199
)
(219
)
Sales of investments in equity
securities
—
—
—
20
Purchases of strategic investments
(3
)
—
(3
)
(8
)
Proceeds from disposition of assets
10
84
10
90
Business combinations, net of cash
acquired, and purchases of intangible assets
—
(1
)
(8
)
(4
)
Net cash used in investing activities
(87
)
(30
)
(200
)
(121
)
Financing activities:
Proceeds from issuance of common stock
4
5
5
124
Repayment of term loan
—
(750
)
—
(1,500
)
Repurchase of common stock
—
—
—
(89
)
Shares repurchased for tax withholdings on
vesting of restricted stock
(112
)
(111
)
(300
)
(205
)
Principal payments on finance lease
obligations
(1
)
(1
)
(3
)
(2
)
Net cash used in financing activities
(109
)
(857
)
(298
)
(1,672
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
248
(490
)
1,696
(391
)
Cash, cash equivalents and restricted cash
at beginning of the period
6,575
3,762
5,127
3,663
Cash, cash equivalents and restricted cash
at end of the period
$
6,823
$
3,272
$
6,823
$
3,272
Supplemental disclosures of cash flow
information:
Cash paid for interest
$
68
$
59
$
154
$
140
Cash paid for taxes, net
353
114
416
184
Non-cash items:
Changes in capital additions, accrued but
not paid
$
(3
)
$
16
$
(12
)
$
9
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
August 4,
July 29,
2023
2022
Total revenue, as reported
$
3,408
$
3,336
Sequential change in unearned
revenue(1)
(115
)
365
Total revenue plus sequential change in
unearned revenue
$
3,293
$
3,701
Change (%) over prior year, as
reported
(11
)%
Growth
in Subscription and SaaS Revenue Plus Sequential Change in Unearned
Subscription and SaaS Revenue
Three Months Ended
August 4,
July 29,
2023
2022
Subscription and SaaS revenue, as
reported
$
1,259
$
943
Sequential change in unearned subscription
and SaaS revenue(2)
102
281
Subscription and SaaS revenue plus
sequential change in unearned subscription and SaaS revenue
$
1,361
$
1,224
Change (%) over prior year, as
reported
11
%
__________
(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 subscription and SaaS revenue from the preceding
quarter.
REMAINING PERFORMANCE
OBLIGATIONS
(in millions)
(unaudited)
Growth
in Remaining Performance Obligations
August 4,
July 29,
2023
2022
Remaining performance obligations(3)
$
12,875
$
12,103
Change (%) over prior year
6
%
Remaining performance obligations,
current(4)
$
7,019
$
6,767
Change (%) over prior year
4
%
__________
(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)
August 4,
May 5,
February 3,
October 28,
July 29,
April 29,
2023
2023
2023
2022
2022
2022
Unearned revenue as reported:
License
$
11
$
17
$
21
$
28
$
20
$
20
Subscription and SaaS
4,488
4,386
4,401
3,197
2,952
2,671
Services
Software maintenance
6,095
6,348
6,805
6,636
6,903
6,877
Professional services
1,496
1,454
1,516
1,356
1,356
1,298
Total unearned revenue
$
12,090
$
12,205
$
12,743
$
11,217
$
11,231
$
10,866
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Three Months Ended
August 4, 2023
(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(3)
Operating expenses:
Cost of license revenue
$
37
—
—
(9
)
—
—
$
28
Cost of subscription and SaaS revenue
$
203
(6
)
—
(33
)
(1
)
—
$
163
Cost of services revenue
$
399
(23
)
—
—
(9
)
—
$
366
Research and development
$
835
(146
)
(1
)
(2
)
(1
)
—
$
685
Sales and marketing
$
1,100
(88
)
(3
)
(14
)
(10
)
—
$
986
General and administrative
$
287
(47
)
—
—
(36
)
—
$
203
Operating income
$
547
310
4
58
57
—
$
977
Operating margin(3)
16.0
%
9.1
%
0.1
%
1.7
%
1.7
%
—
28.7
%
Other income (expense), net(4)
$
19
—
—
—
6
—
$
25
Income before income tax
$
561
310
4
58
63
—
$
997
Income tax provision
$
84
120
$
205
Tax rate(2)(3)
15.0
%
20.5
%
Net income
$
477
310
4
58
63
(120
)
$
792
Net income per weighted-average share,
diluted(3)(5)
$
1.10
$
0.71
$
0.01
$
0.13
$
0.15
$
(0.28
)
$
1.83
__________
(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 effective tax rate is
based upon, among other things, current tax law, including Internal
Revenue Code Section 174 relating to research and development
expense capitalization, which became effective beginning in
VMware’s fiscal 2023. If in the future this provision is deferred,
modified or repealed, our effective tax rate may fluctuate
significantly in the quarter in which such change in law becomes
effective.
(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)
Non-GAAP adjustment to other
income (expense), net includes gains or losses on investments in
equity securities, whether realized or unrealized.
(5)
Calculated based upon 434,090
diluted weighted-average shares of common stock.
VMware, Inc.
RECONCILIATION OF GAAP TO
NON-GAAP DATA
For the Six Months Ended
August 4, 2023
(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
Certain Litigation and Other
Contingencies
Tax Adjustment(1)
Non-GAAP As
Adjusted(3)
Operating expenses:
Cost of license revenue
$
76
(1
)
—
(18
)
—
—
—
$
58
Cost of subscription and SaaS revenue
$
411
(13
)
—
(66
)
(1
)
—
—
$
331
Cost of services revenue
$
796
(45
)
(1
)
—
(19
)
—
—
$
732
Research and development
$
1,682
(293
)
(1
)
(5
)
(1
)
—
—
$
1,381
Sales and marketing
$
2,205
(166
)
(5
)
(29
)
(21
)
—
—
$
1,982
General and administrative
$
660
(81
)
(1
)
—
(89
)
(85
)
—
$
405
Operating income
$
855
599
8
118
131
85
—
$
1,796
Operating margin(3)
12.8
%
9.0
%
0.1
%
1.8
%
2.0
%
1.3
%
—
26.9
%
Other income (expense), net(4)
$
26
—
—
—
6
—
—
$
32
Income before income tax
$
860
599
8
118
137
85
—
$
1,807
Income tax provision
$
159
211
$
371
Tax rate(2)(3)
18.5
%
20.5
%
Net income
$
701
599
8
118
137
85
(211
)
$
1,436
Net income per weighted-average share,
diluted(3)(5)
$
1.62
$
1.38
$
0.02
$
0.27
$
0.32
$
0.20
$
(0.49
)
$
3.32
__________
(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 effective tax rate is
based upon, among other things, current tax law, including the
impacts of Internal Revenue Code Section 174 relating to research
and development expense capitalization, which became effective
beginning in VMware’s fiscal 2023. If in the future this provision
is deferred, modified or repealed, our effective tax rate may
fluctuate significantly in the quarter in which such change in law
becomes effective.
(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)
Non-GAAP adjustment to other
income (expense), net includes gains or losses on investments in
equity securities, whether realized or unrealized.
(5)
Calculated based upon 432,839
diluted weighted-average shares of common stock.
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.
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 for Classes A and B.
VMware, Inc.
REVENUE BY TYPE
(in millions)
(unaudited)
Three Months Ended
Six Months Ended
August 4,
July 29,
August 4,
July 29,
2023
2022
2023
2022
Revenue:
License
$
619
$
796
$
1,136
$
1,369
Subscription and SaaS
1,259
943
2,476
1,842
Services:
Software maintenance
1,222
1,299
2,456
2,609
Professional services
308
298
617
604
Total services
1,530
1,597
3,073
3,213
Total revenue
$
3,408
$
3,336
$
6,685
$
6,424
Percentage of revenue:
License
18.2
%
23.9
%
17.0
%
21.3
%
Subscription and SaaS
36.9
%
28.2
%
37.0
%
28.7
%
Services:
Software maintenance
35.8
%
38.9
%
36.7
%
40.6
%
Professional services
9.1
%
9.0
%
9.3
%
9.4
%
Total services
44.9
%
47.9
%
46.0
%
50.0
%
Total revenue
100.0
%
100.0
%
100.0
%
100.0
%
VMware, Inc.
REVENUE BY GEOGRAPHY
(in millions)
(unaudited)
Three Months Ended
Six Months Ended
August 4,
July 29,
August 4,
July 29,
2023
2022
2023
2022
Revenue:
United States
$
1,621
$
1,648
$
3,176
$
3,166
International
1,787
1,688
3,509
3,258
Total revenue
$
3,408
$
3,336
$
6,685
$
6,424
Percentage of revenue:
United States
47.6
%
49.4
%
47.5
%
49.3
%
International
52.4
%
50.6
%
52.5
%
50.7
%
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
August 4,
July 29,
August 4,
July 29,
2023
2022
2023
2022
GAAP cash flows from operating
activities
$
444
$
397
$
2,194
$
1,402
Capital expenditures
(94
)
(113
)
(199
)
(219
)
Free cash flows
$
350
$
284
$
1,995
$
1,183
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. Other than free cash flow, 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,
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:
- 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 pending acquisition
by Broadcom Inc. (“Broadcom”), such as legal and advisory fees
incurred to effect the acquisition and retention compensation
incurred to preserve our business organization through the
consummation of the merger. The acquisition is expected to be
consummated on October 30, 2023 and is subject to the receipt of
regulatory approvals and other customary closing conditions.
- Certain litigation and other contingencies. VMware, from time
to time, may incur charges or benefits that are outside of the
ordinary course of VMware’s business related to litigation and
other contingencies. VMware believes it is useful to exclude such
charges or benefits because it does not consider such amounts to be
part of the ongoing operation of VMware’s business and because of
the singular nature of the claims underlying such matters.
- Tax adjustment. Non-GAAP financial information for the quarter
is adjusted for a tax rate equal to VMware’s annual estimated tax
rate on non-GAAP income. This rate is based on VMware’s estimated
annual GAAP income tax rate forecast, adjusted to account for items
excluded from GAAP income in calculating VMware’s non-GAAP income
as well as significant tax adjustments. VMware’s estimated tax rate
on non-GAAP income is determined annually and may be adjusted
during the year to take into account events or trends that VMware
management believes materially impact the estimated annual rate
including, but not limited to, significant changes resulting from
tax legislation, material changes in the geographic mix of revenue
and expenses, changes to our corporate structure and other
significant events. Due to the differences in the tax treatment of
items excluded from non-GAAP earnings, as well as the methodology
applied to VMware’s estimated annual tax rates as described above,
the estimated tax rate on non-GAAP income may differ from the GAAP
tax rate and from VMware’s actual tax liabilities.
Additionally, VMware’s management believes that the non-GAAP
financial measure of free cash flow is meaningful to investors
because management reviews cash flow generated from operations
after taking into consideration capital expenditures due to the
fact that these expenditures are considered to be a necessary
component of ongoing operations.
The use of non-GAAP financial measures has certain limitations
because they do not reflect all items of income and expense that
affect VMware’s operations. Specifically, in the case of
stock-based compensation, if VMware did not pay out a portion of
its compensation in the form of stock-based compensation and
related employer payroll taxes, the cash salary expense included in
operating expenses would be higher, which would affect VMware’s
cash position. VMware compensates for these limitations by
reconciling the non-GAAP financial measures to the most comparable
GAAP financial measures. These non-GAAP financial measures should
be considered in addition to, not as a substitute for or in
isolation from, measures prepared in accordance with GAAP and
should not be considered measures of VMware’s liquidity. Further,
these non-GAAP measures may differ from the non-GAAP information
used by other companies, including peer companies, and therefore
comparability may be limited.
Management encourages investors and others to review VMware’s
financial information in its entirety and not rely on a single
financial measure.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230830315470/en/
Jagroop Bal VMware Investor Relations ir@vmware.com
Doreen Ruyak VMware Global PR druyak@vmware.com
Vmware (NYSE:VMW)
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