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VMware Reports Fourth Quarter and Fiscal Year 2020 Results

Delivers annual revenue of $10.81 billion; growth of 12% year-over-year

Subscription and SaaS increased 52% year-over-year, representing 18% of total revenue in Q4

PALO ALTO, Calif.--(BUSINESS WIRE)--VMware, Inc. (NYSE: VMW), a leading innovator in enterprise software, today announced financial results for the fourth quarter and full fiscal year 2020:

Quarterly Review

  • Revenue for the fourth quarter was $3.07 billion, an increase of 11% from the fourth quarter of fiscal 2019.
  • The combination of subscription and SaaS and license revenue was $1.59 billion, an increase of 14% from the fourth quarter of fiscal 2019.
  • Subscription and SaaS revenue for the fourth quarter was $556 million, an increase of 52% year-over-year.
  • GAAP net income for the fourth quarter was $321 million, or $0.76 per diluted share, compared to $496 million, or $1.17 per diluted share, for the fourth quarter of fiscal 2019. Non-GAAP net income for the fourth quarter was $868 million, or $2.05 per diluted share, up 9% per diluted share compared to $795 million, or $1.87 per diluted share, for the fourth quarter of fiscal 2019.
  • GAAP operating income for the fourth quarter was $250 million, a decrease of 58% from the fourth quarter of fiscal 2019. Non-GAAP operating income for the fourth quarter was $1.05 billion, an increase of 12% from the fourth quarter of fiscal 2019.
  • Operating cash flow for the fourth quarter was $1.09 billion. Free cash flow for the fourth quarter was $1.02 billion.
  • Total revenue plus sequential change in total unearned revenue grew 11% year-over-year.
  • The combination of subscription and SaaS and license revenue plus sequential change in unearned subscription and SaaS and license revenue grew 17% year-over-year.

Annual Review

  • Revenue for fiscal year 2020 was $10.81 billion, an increase of 12% from fiscal 2019.
  • The combination of subscription and SaaS and license revenue for fiscal 2020 was $5.06 billion, an increase of 16% from fiscal year 2019.
  • Subscription and SaaS revenue for fiscal year 2020 was $1.88 billion, an increase of 44% from fiscal year 2019.
  • GAAP net income for fiscal year 2020 was $6.41 billion, or $15.08 per diluted share, compared to $1.65 billion, or $3.92 per diluted share, for fiscal 2019.Non-GAAP net income for fiscal year 2020 was $2.66 billion, or $6.24 per diluted share, up 4% per diluted share compared to $2.52 billion, or $5.98 per diluted share, for fiscal 2019.
  • GAAP operating income for fiscal year 2020 was $1.44 billion, a decrease of 20% from fiscal 2019. Non-GAAP operating income for fiscal year 2020 was $3.26 billion, an increase of 11% from fiscal 2019.
  • Operating cash flow for fiscal year 2020 was $3.87 billion. Free cash flow for fiscal year 2020 was $3.59 billion.
  • Cash was $2.91 billion, and unearned revenue was $9.27 billion, as of January 31, 2020.

“VMware delivered over $10 billion in revenue for the first time in company history in fiscal 2020, along with continued double-digit topline growth,” commented Pat Gelsinger, CEO, VMware. “Our results demonstrate the power of our broad-based portfolio and a strategy that continues to resonate with our customers.”

“We signed a record number of enterprise agreements above $10 million in Q4, including a significant increase in the value of subscription and SaaS offerings in the top ten agreements,” said Zane Rowe, executive vice president and CFO, VMware. “Subscription and SaaS revenue grew 52% year-over-year in the fourth quarter to $556 million and is expected to continue strong growth in fiscal 2021.”

Growth rates in Q4 results include the recast of prior period financial information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control in accordance with generally accepted accounting principles (GAAP). Effective with the fourth quarter of fiscal year 2020, VMware is presenting a new revenue line item in its earnings reports entitled “subscription and SaaS revenue.” Accordingly, reported revenue consists of the following three components: license, subscription and SaaS, and services. Previously, subscription and SaaS revenue was referred to as “hybrid cloud subscription and SaaS revenue” and was allocated between license and services revenue. The cost of subscription and SaaS revenue was included in both cost of license revenue and cost of services revenue in prior periods and has been reclassified to conform with current period presentation.

To assist investors in their understanding of the impact of (1) combined Pivotal with VMware results in the recast financial statements and (2) reclassifying revenue from two to three categories, the company has posted a slide deck on its Investor Relations webpage at ir.vmware.com. The slide deck details the impact of Pivotal adjustments and the reclassification of revenues on VMware’s fourth quarter of fiscal 2020 results to enable investors to compare VMware’s performance in the quarter to the fourth quarter guidance that VMware provided on its previous quarter earnings call on November 26, 2019, which excluded Pivotal, as the acquisition had not been completed at that time, and did not separate out subscription and SaaS revenue. The slide deck also includes a similar comparison of VMware’s full year fiscal 2020 cash flows to November 26, 2019 guidance and a tabular summary of the differences in key metrics between VMware’s financial statements as previously reported and as recast for the seven fiscal quarters beginning with the first quarter of fiscal 2019 and for full year fiscal 2019.

Business Highlights & Strategic Announcements

  • VMware completed the acquisition of Pivotal on December 30, 2019. The combination of Pivotal’s developer-centric offerings with VMware’s upstream Kubernetes run-time infrastructure and management tools will allow VMware to deliver a comprehensive enterprise solution that enables dramatic improvements in developer productivity in the creation of modern applications.
  • At the RSA Conference, VMware advanced its Intrinsic Security Strategy for the world’s digital infrastructure by announcing “VMware Advanced Security for Cloud Foundation,” a new security suite that enables customers to replace legacy security solutions and deliver unified protection across private and public clouds. Product update announcements also included enhancements to the VMware Carbon Black Cloud and VMware Secure State.
  • VMware showcased how communications service providers (CSPs) across the world—including Millicom, Singtel, Telecom Italia, Telia Company and TIM Brasil—are adopting VMware’s Telco Cloud platform to accelerate time to revenue, automate service lifecycle and simplify operations management. VMware also unveiled new capabilities across its Telco and Edge Cloud product portfolio, including innovations to its telco cloud core, edge and RAN offerings.
  • VMware acquired Nyansa, which enables VMware to deliver an end-to-end network visibility, monitoring and remediation solution within VMware SD-WAN by VeloCloud that can proactively predict client problems, optimize application and network performance and better assure the behavior of critical IoT devices.
  • In the fourth quarter, VMware received further recognition from leading industry analysts:
    • VMware was positioned as a leader in The Forrester Wave™: Unified Endpoint Management, Q4 2019, which evaluated 13 unified endpoint management (UEM) vendors. VMware’s intelligence-driven digital workspace platform, VMware Workspace ONE, was top ranked in the current offering and strategy categories. The platform also received the highest possible score in the product roadmap, roadmap execution, and partner ecosystem criteria, as well as in all of the report’s market presence criteria (i.e., customer count, Windows 10 customer count, devices under management, and revenue).1
    • VMware was positioned as a leader in three recent IDC MarketScape reports related to the End-User Computing (EUC) space.2

Recast Financial Statements and Addition of Subscription and SaaS Revenue Line item

On December 30, 2019, VMware completed its acquisition of Pivotal. As Pivotal was an entity under common control, pursuant to GAAP, financial statements for prior periods are required to be recast as if the entities were combined for all periods presented. Recast quarterly results on a GAAP and non-GAAP basis, consolidated statements of income and key cash flow metrics for fiscal year 2019 and fiscal year 2020 are included in this earnings press release. All comparisons of fiscal year and fourth quarter 2020 financial metrics to prior periods in this press release are comparisons to the recast financial metrics for the respective prior period.

To assist investors in their understanding of the impact of combining Pivotal with VMware results in the recast financial statements on prior periods and to compare current results to the financial results originally reported for prior periods, VMware is including tables attached to this press release showing the impact of Pivotal adjustments on its previously reported (1) GAAP and non-GAAP net income for each fiscal quarter for fiscal years 2019 and 2020 and for fiscal years 2019 and 2018; (2) fiscal year 2019 balance sheet; and (3) GAAP cash flows from operating activities and free cash flows for each fiscal quarter for fiscal years 2019 and 2020 and for fiscal years 2019 and 2018.

Additionally, effective with the fourth quarter of fiscal year 2020, VMware is presenting a new revenue line item in its earnings reports entitled “subscription and SaaS revenue.” Accordingly, reported revenue consists of the following three components: license, subscription and SaaS, and services. Previously, subscription and SaaS revenue was referred to as “hybrid cloud subscription and SaaS revenue” and was allocated between license and services revenue. In light of VMware’s recent acquisitions, management determined that revenue recognized from subscription and SaaS offerings will be presented separately. The new subscription and SaaS revenue line item includes revenue from VMware’s VCPP cloud offerings that are billed to customers on a consumption basis, revenue from Pivotal and other offerings that are billed on a subscription basis as well as revenue from SaaS offerings such as Workspace ONE and VMware Cloud on AWS. Revenue from prior periods has been reclassified to conform to the fourth quarter fiscal year 2020 presentation and is reflected in the recast quarterly financial statements for fiscal years 2019 and 2020 included in the tables accompanying this earnings press release.

The company will host a conference call today at 1:30 p.m. PT/ 4:30 p.m. ET to review financial results and business outlook. A live web broadcast of the event will be available on the VMware investor relations website at http://ir.vmware.com. Slides will accompany the web broadcast. The replay of the webcast and slides will be available on the website for two months. In addition, six quarters of historical data for unearned revenue will also be made available at http://ir.vmware.com in conjunction with the conference call.

1 “The Forrester Wave™: Unified Endpoint Management, Q4 2019”

2 IDC MarketScape: Worldwide Unified Endpoint Management Software 2019–2020 Vendor Assessment (doc # US45355119, November 2019); IDC MarketScape: Worldwide Enterprise Mobility Management Software 2019-2020 Vendor Assessment (doc # US45353719, November 2019); and IDC MarketScape: Worldwide Enterprise Mobility Management Software for Ruggedized/IoT Device Deployments 2019–2020 Vendor Assessment (Doc #US45353819, November 2019)

About VMware

VMware software powers the world’s complex digital infrastructure. The company’s cloud, app modernization, networking, security, and digital workspace offerings help customers deliver any application on any cloud across any device. Headquartered in Palo Alto, California, VMware is committed to being a force for good, from its breakthrough technology innovations to its global impact. For more information, please visit https://www.vmware.com/company.html

Additional Information

VMware’s website is located at www.vmware.com, and its investor relations website is located at http://ir.vmware.com. VMware’s goal is to maintain the investor relations website as a portal through which investors can easily find or navigate to pertinent information about VMware, all of which is made available free of charge. The additional information includes: materials that VMware files with the SEC; announcements of investor conferences, speeches and events at which its executives talk about its products, services and competitive strategies; webcasts of its quarterly earnings calls, investor conferences and events (archives of which are also available for a limited time); additional information on its financial metrics, including reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures; press releases on quarterly earnings, product and service announcements, legal developments and international news; corporate governance information; other news, blogs and announcements that VMware may post from time to time that investors may find useful or interesting; and opportunities to sign up for email alerts and RSS feeds to have information pushed in real time.

VMware, Pivotal, VMware Advances Security, Carbon Black, VMware Secure State, Nyansa, VeloCloud, Workspace ONE, and VMware Cloud are registered trademarks or trademarks of VMware, Inc. or its subsidiaries in the United States and other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective organizations.

Use of Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to VMware’s financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled “About Non-GAAP Financial Measures.”

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding expected benefits to customers of VMware’s acquisitions of Pivotal and Nyansa, as well as products, solutions and services, including in areas of modern applications, security, telco and edge cloud, and VMware SD-WAN by Velocloud. 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) adverse changes in general economic or market conditions; (2) delays or reductions in consumer, government and information technology spending; (3) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization software and cloud, end user and mobile computing, and security industries, as well as new product and marketing initiatives by VMware’s competitors; (4) the ability to successfully integrate into VMware acquired companies and assets and smoothly transition services related to divested assets from VMware; (5) rapid technological changes in the virtualization software and cloud, end user, security and mobile computing industries; (6) VMware’s customers’ ability to transition to new products, platforms, services, solutions and computing strategies in such areas as containerization, modern applications, intrinsic security and networking, cloud, digital workspaces, virtualization and the software defined data center, and the uncertainty of their acceptance of emerging technology; (7) VMware’s ability to enter into, maintain and extend strategically effective partnerships and alliances; (8) the continued risk of litigation and regulatory actions, including those related to the Carbon Black and Pivotal acquisitions; (9) VMware’s ability to protect its proprietary technology; (10) changes to product and service development timelines; (11) VMware’s relationship with Dell Technologies and Dell’s ability to control matters requiring stockholder approval, including the election of VMware’s board members and matters relating to Dell’s investment in VMware; (12) VMware’s ability to attract and retain highly qualified employees; (13) the ability of VMware to realize synergies from Dell; (14) risks associated with cyber-attacks, information security and privacy; (15) disruptions resulting from key management changes; (16) risks associated with international sales such as fluctuating currency exchange rates and increased trade barriers; (17) changes in VMware’s financial condition; (18) geopolitical changes such as Brexit and increased tariffs and trade barriers that could adversely impact our non-U.S. sales; and (19) other business effects, including those related to industry, market, economic, political, regulatory and global health conditions, such as the coronavirus (COVID-19) public health emergency. These forward-looking statements are made as of the date of this press release, are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including VMware’s most recent reports on Form 10-K and Form 10-Q and current reports on Form 8- K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

VMware, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

January 31,

 

February 1,

 

January 31,

 

February 1,

 

 

2020

 

2019(1)

 

2020

 

2019(1)

Revenue(2):

 

 

 

 

 

 

 

 

License

 

$

1,034

 

 

$

1,027

 

 

$

3,181

 

 

$

3,042

 

Subscription and SaaS

 

556

 

 

367

 

 

1,877

 

 

1,303

 

Services

 

1,483

 

 

1,365

 

 

5,753

 

 

5,268

 

Total revenue

 

3,073

 

 

2,759

 

 

10,811

 

 

9,613

 

Operating expenses(2)(3):

 

 

 

 

 

 

 

 

Cost of license revenue

 

50

 

 

40

 

 

166

 

 

150

 

Cost of subscription and SaaS revenue

 

106

 

 

86

 

 

400

 

 

280

 

Cost of services revenue

 

317

 

 

292

 

 

1,233

 

 

1,122

 

Research and development

 

676

 

 

596

 

 

2,522

 

 

2,173

 

Sales and marketing

 

1,003

 

 

889

 

 

3,677

 

 

3,230

 

General and administrative

 

592

 

 

258

 

 

1,293

 

 

846

 

Realignment and loss on disposition

 

79

 

 

 

 

79

 

 

9

 

Operating income

 

250

 

 

598

 

 

1,441

 

 

1,803

 

Investment income (loss)

 

20

 

 

(7

)

 

60

 

 

161

 

Interest expense

 

(41

)

 

(34

)

 

(149

)

 

(134

)

Other income (expense), net

 

10

 

 

9

 

 

86

 

 

(1

)

Income before income tax

 

239

 

 

566

 

 

1,438

 

 

1,829

 

Income tax provision (benefit)

 

(76

)

 

87

 

 

(4,918

)

 

239

 

Net income

 

315

 

 

479

 

 

6,356

 

 

1,590

 

Less: Net loss attributable to non-controlling interests

 

(6

)

 

(17

)

 

(56

)

 

(60

)

Net income attributable to VMware, Inc.

 

$

321

 

 

$

496

 

 

$

6,412

 

 

$

1,650

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, basic for Classes A and B

 

$

0.77

 

 

$

1.19

 

 

$

15.37

 

 

$

3.99

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B

 

$

0.76

 

 

$

1.17

 

 

$

15.08

 

 

$

3.92

 

Weighted-average shares, basic for Classes A and B

 

417,225

 

 

417,499

 

 

417,058

 

 

413,769

 

Weighted-average shares, diluted for Classes A and B

 

424,007

 

 

424,630

 

 

425,235

 

 

421,131

 

__________

 

 

 

 

 

 

 

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal Software, Inc. ("Pivotal") acquisition, which was accounted for as a transaction between entities under common control.

(2) Effective the fourth quarter of fiscal 2020, management decided to separately present revenue recognized from subscription and SaaS offerings. Historically, subscription and SaaS revenue was allocated between license and services revenue. Prior period amounts have been reclassified to conform with current period presentation. Historically, cost of subscription and SaaS revenue was allocated between cost of license revenue and cost of services revenue in prior year. Prior period amounts have been reclassified to conform with current period presentation.

(3) Includes stock-based compensation as follows:

Cost of license revenue

 

$

 

 

$

 

 

$

1

 

 

$

1

 

Cost of subscription and SaaS revenue

 

3

 

 

2

 

 

13

 

 

7

 

Cost of services revenue

 

24

 

 

16

 

 

83

 

 

58

 

Research and development

 

130

 

 

105

 

 

459

 

 

391

 

Sales and marketing

 

91

 

 

63

 

 

293

 

 

226

 

General and administrative

64

34

168

117

 

VMware, Inc.

CONSOLIDATED BALANCE SHEETS

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

 

 

 

 

 

January 31,

 

February 1,

 

2020

 

2019(1)

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

2,915

 

 

$

3,532

 

Short-term investments

 

 

19

 

Accounts receivable, net of allowance for doubtful accounts of $7 and $6(1)

1,883

 

 

1,723

 

Due from related parties, net

1,457

 

 

1,090

 

Other current assets

436

 

 

305

 

Total current assets

6,691

 

 

6,669

 

Property and equipment, net

1,280

 

 

1,162

 

Other assets

2,266

 

 

1,088

 

Deferred tax assets

5,556

 

 

290

 

Intangible assets, net

1,172

 

 

966

 

Goodwill

9,329

 

 

7,418

 

Total assets

$

26,294

 

 

$

17,593

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

208

 

 

$

153

 

Accrued expenses and other

2,151

 

 

1,664

 

Current portion of long-term debt and other borrowings

2,747

 

 

 

Unearned revenue

5,218

 

 

4,339

 

Total current liabilities

10,324

 

 

6,156

 

Note payable to Dell

270

 

 

270

 

Long-term debt

2,731

 

 

3,972

 

Unearned revenue

4,050

 

 

3,100

 

Income tax payable

817

 

 

889

 

Operating lease liabilities

746

 

 

 

Other liabilities

347

 

 

315

 

Total liabilities

19,285

 

 

14,702

 

Contingencies

 

 

 

Stockholders’ equity:

 

 

 

Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 110,484 and 110,715 shares

1

 

 

1

 

Class B convertible common stock, par value $0.01; authorized 1,000,000 shares; issued and outstanding 307,222 shares and 300,000 shares

3

 

 

3

 

Additional paid-in capital

2,000

 

 

2,959

 

Accumulated other comprehensive loss

(4

)

 

(2

)

Retained earnings (Accumulated deficit)

5,009

 

 

(1,096

)

Total VMware, Inc. stockholders’ equity

7,009

 

 

1,865

 

Non-controlling interests

 

 

1,026

 

Total stockholders’ equity

7,009

 

 

2,891

 

Total liabilities and stockholders’ equity

$

26,294

 

 

$

17,593

 

__________

 

 

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

VMware, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Twelve Months Ended

 

January 31,

 

February 1,

 

January 31,

 

February 1,

 

2020 

 

 2019(1)

 

2020 

 

2019(1) 

Operating activities:

 

 

 

 

 

 

 

Net income

$

315

 

 

$

479

 

 

$

6,356

 

 

$

1,590

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

247

 

 

189

 

 

873

 

 

727

 

Stock-based compensation

312

 

 

220

 

 

1,017

 

 

800

 

Deferred income taxes, net

(146

)

 

(52

)

 

(5,284

)

 

(110

)

Unrealized (gain) loss on equity securities, net

(1

)

 

 

 

(31

)

 

14

 

Loss on disposition

 

1

 

 

 

 

7

 

(Gain) loss on disposition of assets, revaluation and impairment, net

 

 

5

 

 

(4

)

 

2

 

Other

6

 

 

3

 

 

9

 

 

11

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

(283

)

 

(506

)

 

(119

)

 

(214

)

Other current assets and other assets

(224

)

 

(99

)

 

(668

)

 

(347

)

Due to/from related parties, net

(673

)

 

(503

)

 

(374

)

 

(480

)

Accounts payable

21

 

 

(18

)

 

35

 

 

105

 

Accrued expenses and other liabilities

499

 

 

411

 

 

417

 

 

290

 

Income taxes payable

(38

)

 

(49

)

 

(23

)

 

(40

)

Unearned revenue

1,050

 

 

939

 

 

1,668

 

 

1,302

 

Net cash provided by operating activities

1,085

 

 

1,020

 

 

3,872

 

 

3,657

 

Investing activities:

 

 

 

 

 

 

 

Additions to property and equipment

(64

)

 

(68

)

 

(279

)

 

(254

)

Purchases of available-for-sale securities

 

 

 

 

 

 

(780

)

Sales of available-for-sale securities

 

 

3,811

 

 

 

 

3,999

 

Maturities of available-for-sale securities

 

 

488

 

 

 

 

2,393

 

Purchases of strategic investments

(12

)

 

(5

)

 

(30

)

 

(8

)

Proceeds from disposition of assets

 

 

3

 

 

22

 

 

41

 

Business combinations, net of cash acquired, and purchases of intangible assets

 

 

(419

)

 

(2,437

)

 

(938

)

Net cash paid on disposition of a business

 

 

 

 

(4

)

 

(11

)

Net cash provided by (used in) investing activities

(76

)

 

3,810

 

 

(2,728

)

 

4,442

 

Financing activities:

 

 

 

 

 

 

 

Proceeds from the initial public offering of Pivotal, net of issuance costs paid

 

 

 

 

 

 

544

 

Proceeds from issuance of common stock

14

 

 

36

 

 

308

 

 

259

 

Borrowings under term loan, net of issuance costs

1,400

 

 

 

 

3,393

 

 

 

Borrowings on credit facility, net of debt issuance costs

 

 

 

 

 

 

15

 

Repayment of term loan

(500

)

 

 

 

(1,900

)

 

 

Repayments on credit facility

 

 

 

 

 

 

(35

)

Repurchase of common stock

(55

)

 

(42

)

 

(1,334

)

 

(42

)

Shares repurchased for tax withholdings on vesting of restricted stock

(141

)

 

(129

)

 

(534

)

 

(357

)

Payment for Special Dividend

 

 

(11,000

)

 

 

 

(11,000

)

Payment to acquire non-controlling interests

(1,666

)

 

 

 

(1,666

)

 

 

Contribution from Dell

 

 

3

 

 

27

 

 

44

 

Payment for common control transaction with Dell

 

 

 

 

 

 

(8

)

Principal payments on finance lease obligations

 

 

 

 

(1

)

 

 

Net cash used in financing activities

(948

)

 

(11,132

)

 

(1,707

)

 

(10,580

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(2

)

 

 

 

(2

)

 

1

 

Net increase (decrease) in cash, cash equivalents and restricted cash

59

 

 

(6,302

)

 

(565

)

 

(2,480

)

Cash, cash equivalents and restricted cash at beginning of the period

2,972

 

 

9,898

 

 

3,596

 

 

6,076

 

Cash, cash equivalents and restricted cash at end of the period

$

3,031

 

 

$

3,596

 

 

$

3,031

 

 

$

3,596

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Issuance of VMware Class B common shares for Pivotal Class B common shares held by Dell

$

1,101

 

 

$

 

 

$

1,101

 

 

$

 

Cash paid for interest

3

 

 

3

 

 

134

 

 

129

 

Cash paid for taxes, net

86

 

 

192

 

 

369

 

 

399

 

Non-cash items:

 

 

 

 

 

 

 

Changes in capital additions, accrued but not paid

$

13

 

 

$

(7

)

 

$

18

 

 

$

9

 

Changes in tax withholdings on vesting of restricted stock, accrued but not paid

(62

)

 

(44

)

 

(13

)

 

17

 

_________

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

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

 

 

January 31,

 

February 1,

 

 

2020

 

2019(1)

Total revenue, as reported

 

$

3,073

 

 

$

2,759

 

Sequential change in unearned revenue(2)

 

1,051

 

 

943

 

Total revenue plus sequential change in unearned revenue

 

$

4,124

 

 

$

3,702

 

Change (%) over prior year, as reported

 

11

%

 

 

 

 

 

 

 

 

 

 

 

 

Growth in License and Subscription and SaaS Revenue Plus Sequential Change in Unearned License and Subscription and SaaS Revenue

 

 

 

 

 

 

 

Three Months Ended

 

 

January 31,

 

February 1,

 

 

2020

 

2019(1)

Total license and subscription and SaaS revenue, as reported

 

$

1,590

 

 

$

1,394

 

Sequential change in unearned license and subscription and SaaS revenue

 

335

 

 

253

 

Total license and subscription and SaaS revenue plus sequential change in unearned license and subscription and SaaS revenue

 

$

1,925

 

 

$

1,647

 

Change (%) over prior year, as reported

 

17

%

 

 

 

 

 

 

 

 

 

 

 

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

(2) Sequential change in unearned revenue consists of the change in total unearned revenue from the preceding quarter. Total unearned revenue consists of current and non-current unearned revenue amounts presented in the consolidated balance sheets.

VMware, Inc.

SUPPLEMENTAL UNEARNED REVENUE SCHEDULE

(in millions)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31,

 

November 1,

 

August 2,

 

May 3,

 

February 1,

 

November 2,

 

2020

 

2019 (1)

 

2019 (1)

 

2019 (1)

 

2019 (1)

 

2018 (1)

Unearned revenue as reported:

 

 

 

 

 

 

 

 

 

 

 

License

$

19

 

 

$

19

 

 

$

19

 

 

$

19

 

 

$

15

 

 

$

17

 

Subscription and SaaS(2)

1,534

 

 

1,199

 

 

976

 

 

953

 

 

916

 

 

661

 

Services

 

 

 

 

 

 

 

 

 

 

 

Software maintenance

6,700

 

 

6,106

 

 

6,042

 

 

5,754

 

 

5,741

 

 

5,161

 

Professional services

1,015

 

 

893

 

 

851

 

 

802

 

 

767

 

 

657

 

Total unearned revenue

$

9,268

 

 

$

8,217

 

 

$

7,888

 

 

$

7,528

 

 

$

7,439

 

 

$

6,496

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

(2) Unearned subscription and SaaS revenue was allocated between unearned license revenue and unearned software maintenance revenue in prior periods and has been reclassified to conform with current period presentation.

 

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Three Months Ended January 31, 2020

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

Stock-Based
Compensation

 

Employer
Payroll Taxes
on Employee
Stock Transactions

 

Intangible
Amortization

 

Realignment
Charges

 

Acquisition, Disposition
and Other
Items

 

Certain Litigation and Other Contingencies

 

Tax
Adjustment(1)

 

Non-GAAP
As Adjusted(2)

Operating expenses(3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license revenue

$

50

 

 

 

 

 

 

(27

)

 

 

 

 

 

 

 

 

 

$

23

 

Cost of subscription and SaaS revenue

$

106

 

 

(3

)

 

 

 

(25

)

 

 

 

 

 

 

 

 

 

$

79

 

Cost of services revenue

$

317

 

 

(24

)

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

$

291

 

Research and development

$

676

 

 

(130

)

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

$

543

 

Sales and marketing

$

1,003

 

 

(91

)

 

 

 

(34

)

 

 

 

 

 

 

 

 

 

$

881

 

General and administrative

$

592

 

 

(64

)

 

(3

)

 

 

 

 

 

(84

)

 

(237

)

 

 

 

$

202

 

Realignment and loss on disposition

$

79

 

 

 

 

 

 

 

 

(79

)

 

 

 

 

 

 

 

$

 

Operating income

$

250

 

 

312

 

 

7

 

 

86

 

 

79

 

 

84

 

 

237

 

 

 

 

$

1,054

 

Operating margin(2)

8.1

%

 

10.1

%

 

0.2

%

 

2.8

%

 

2.6

%

 

2.7

%

 

7.7

%

 

 

 

34.3

%

Other income (expense), net(4)

$

10

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

$

10

 

Income before income tax

$

239

 

 

312

 

 

7

 

 

86

 

 

79

 

 

83

 

 

237

 

 

 

 

$

1,043

 

Income tax provision (benefit)

$

(76

)

 

 

 

 

 

 

 

 

 

 

 

 

 

242

 

 

$

166

 

Tax rate(2)

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16.0

%

Net income

$

315

 

 

312

 

 

7

 

 

86

 

 

79

 

 

83

 

 

237

 

 

(242

)

 

$

877

 

Less: Net income (loss) attributable to non-controlling interests

$

(6

)

 

23

 

 

 

 

7

 

 

 

 

1

 

 

 

 

(15

)

 

$

9

 

Net income attributable to VMware, Inc.

$

321

 

 

289

 

 

7

 

 

79

 

 

79

 

 

82

 

 

237

 

 

(227

)

 

$

868

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(2)(5)

$

0.76

 

 

$

0.68

 

 

$

0.02

 

 

$

0.19

 

 

$

0.19

 

 

$

0.19

 

 

$

0.56

 

 

$

(0.53

)

 

$

2.05

 

N/A - GAAP tax rate was not applicable due to the income tax benefit recorded for the three months ended January 31, 2020.

(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

(2) Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.

(3) Cost of subscription and SaaS revenue was allocated between cost of license revenue and cost of services revenue in prior year and has been reclassified to conform with current period presentation.

(4) Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized.

(5) Calculated based upon 424,007 diluted weighted-average shares for Classes A and B.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Three Months Ended February 1, 2019

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP(1)

 

Stock-Based
Compensation(1)

 

Employer
Payroll Taxes
on Employee
Stock Transactions(1)

 

Intangible
Amortization(1)

 

Acquisition, Disposition
and Other
Items(1)

 

Tax
Adjustment(1)(2)

 

Non-GAAP
As Adjusted(1)(3)

Operating expenses(4):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license revenue

$

40

 

 

 

 

 

 

(20

)

 

 

 

 

 

$

20

 

Cost of subscription and SaaS revenue

$

86

 

 

(2

)

 

 

 

(25

)

 

 

 

 

 

$

58

 

Cost of services revenue

$

292

 

 

(16

)

 

 

 

(1

)

 

(1

)

 

 

 

$

274

 

Research and development

$

596

 

 

(105

)

 

 

 

 

 

(1

)

 

 

 

$

490

 

Sales and marketing

$

889

 

 

(63

)

 

(1

)

 

(17

)

 

(1

)

 

 

 

$

808

 

General and administrative

$

258

 

 

(34

)

 

 

 

 

 

(55

)

 

 

 

$

169

 

Realignment and loss on disposition

$

 

 

 

 

 

 

 

 

 

 

 

 

$

 

Operating income

$

598

 

 

220

 

 

1

 

 

63

 

 

58

 

 

 

 

$

940

 

Operating margin(3)

21.7

%

 

8.0

%

 

%

 

2.3

%

 

2.1

%

 

 

 

34.1

%

Investment income (loss)

$

(7

)

 

 

 

 

 

 

 

46

 

 

 

 

$

39

 

Other income (expense), net(5)

$

9

 

 

 

 

 

 

 

 

2

 

 

 

 

$

11

 

Income before income tax

$

566

 

 

220

 

 

1

 

 

63

 

 

106

 

 

 

 

$

956

 

Income tax provision

$

87

 

 

 

 

 

 

 

 

 

 

67

 

 

$

154

 

Tax rate(3)

15.4

%

 

 

 

 

 

 

 

 

 

 

 

16.0

%

Net income

$

479

 

 

220

 

 

1

 

 

63

 

 

106

 

 

(67

)

 

$

802

 

Less: Net income (loss) attributable to non-controlling interests

$

(17

)

 

20

 

 

 

 

7

 

 

 

 

(3

)

 

$

7

 

Net income attributable to VMware, Inc.

$

496

 

 

200

 

 

1

 

 

56

 

 

106

 

 

(64

)

 

$

795

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(3)(6)

$

1.17

 

 

$

0.47

 

 

$

 

 

$

0.13

 

 

$

0.25

 

 

$

(0.15

)

 

$

1.87

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

(2) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments, such as adjustments resulting from the U.S. Tax Cuts and Jobs Act enacted on December 22, 2017 (the "2017 Tax Act"). Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

(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) Cost of subscription and SaaS revenue was allocated between cost of license revenue and cost of services revenue in prior year and has been reclassified to conform with current period presentation.

(5) Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized.

(6) Calculated based upon 424,630 diluted weighted-average shares for Classes A and B.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Twelve Months Ended January 31, 2020

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

Stock-Based
Compensation

 

Employer
Payroll Taxes
on Employee
Stock Transactions

 

Intangible
Amortization

 

Realignment
Charges

 

Acquisition, Disposition
and Other
Items

 

Certain Litigation and Other Contingencies

 

Tax
Adjustment(1)

 

Non-GAAP
As Adjusted(2)

Operating expenses(3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license revenue

$

166

 

 

(1

)

 

 

 

(89

)

 

 

 

 

 

 

 

 

 

$

76

 

Cost of subscription and SaaS revenue

$

400

 

 

(13

)

 

 

 

(103

)

 

 

 

 

 

 

 

 

 

$

285

 

Cost of services revenue

$

1,233

 

 

(83

)

 

(2

)

 

(2

)

 

 

 

 

 

 

 

 

 

$

1,147

 

Research and development

$

2,522

 

 

(459

)

 

(3

)

 

(1

)

 

 

 

 

 

 

 

 

 

$

2,058

 

Sales and marketing

$

3,677

 

 

(293

)

 

(6

)

 

(105

)

 

 

 

 

 

 

 

 

 

$

3,273

 

General and administrative

$

1,293

 

 

(168

)

 

(3

)

 

 

 

 

 

(173

)

 

(237

)

 

 

 

$

711

 

Realignment and loss on disposition

$

79

 

 

 

 

 

 

 

 

(79

)

 

 

 

 

 

 

 

$

 

Operating income

$

1,441

 

 

1,017

 

 

14

 

 

300

 

 

79

 

 

173

 

 

237

 

 

 

 

$

3,261

 

Operating margin(2)

13.3

%

 

9.4

%

 

0.1

%

 

2.8

%

 

0.7

%

 

1.6

%

 

2.2

%

 

 

 

30.2

%

Other income (expense), net(4)

$

86

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

 

 

 

$

50

 

Income before income tax

$

1,438

 

 

1,017

 

 

14

 

 

300

 

 

79

 

 

138

 

 

237

 

 

 

 

$

3,222

 

Income tax provision (benefit)

$

(4,918

)

(6)

 

 

 

 

 

 

 

 

 

 

 

 

5,432

 

 

$

514

 

Tax rate(2)

N/M

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16.0

%

Net income

$

6,356

 

 

1,017

 

 

14

 

 

300

 

 

79

 

 

138

 

 

237

 

 

(5,432

)

 

$

2,708

 

Less: Net income (loss) attributable to non-controlling interests

$

(56

)

 

97

 

 

 

 

33

 

 

 

 

3

 

 

 

 

(24

)

 

$

53

 

Net income attributable to VMware, Inc.

$

6,412

 

 

920

 

 

14

 

 

267

 

 

79

 

 

135

 

 

237

 

 

(5,408

)

 

$

2,655

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(2)(5)

$

15.08

 

 

$

2.16

 

 

$

0.03

 

 

$

0.63

 

 

$

0.19

 

 

$

0.32

 

 

$

0.56

 

 

$

(12.72

)

 

$

6.24

 

N/M - Tax rate calculated on a GAAP basis is not considered meaningful.

(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) Cost of subscription and SaaS revenue was included in both cost of license revenue and cost of services revenue in prior year and has been reclassified to conform with current period presentation.

(4) Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized.

(5) Calculated based upon 425,235 diluted weighted-average shares for Classes A and B.

(6) During the second quarter of fiscal 2020, we completed an intra-group transfer of certain of our intellectual property rights to our Irish subsidiary, where our international business is headquartered. A discrete tax benefit of $4.9 billion was recorded as a deferred tax asset. Due to the impact of the discrete tax benefit of $4.9 billion, the tax rate calculated on a GAAP basis is not considered meaningful.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Twelve Months Ended February 1, 2019

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP(1)

 

Stock-Based
Compensation(1)

 

Employer
Payroll Taxes
on Employee
Stock Transactions(1)

 

Intangible
Amortization(1)

 

Acquisition, Disposition
and Other Items(1)

 

Tax
Adjustment(1)(2)

 

Non-GAAP
As Adjusted(1)(3)

Operating expenses(4):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license revenue

$

150

 

 

(1

)

 

 

 

(85

)

 

 

 

 

 

$

64

 

Cost of subscription and SaaS revenue

$

280

 

 

(7

)

 

 

 

(89

)

 

 

 

 

 

$

184

 

Cost of services revenue

$

1,122

 

 

(58

)

 

(1

)

 

(3

)

 

(2

)

 

 

 

$

1,058

 

Research and development

$

2,173

 

 

(391

)

 

(1

)

 

 

 

(3

)

 

 

 

$

1,778

 

Sales and marketing

$

3,230

 

 

(226

)

 

(4

)

 

(64

)

 

(1

)

 

 

 

$

2,935

 

General and administrative

$

846

 

 

(117

)

 

(1

)

 

 

 

(82

)

 

 

 

$

646

 

Realignment and loss on disposition

$

9

 

 

 

 

 

 

 

 

(9

)

 

 

 

$

 

Operating income

$

1,803

 

 

800

 

 

7

 

 

241

 

 

97

 

 

 

 

$

2,948

 

Operating margin(3)

18.8

%

 

8.3

%

 

0.1

%

 

2.5

%

 

1.0

%

 

 

 

30.7

%

Investment income (loss)

$

161

 

 

 

 

 

 

 

 

46

 

 

 

 

$

207

 

Other income (expense), net(5)

$

(1

)

 

 

 

 

 

 

 

10

 

 

 

 

$

9

 

Income before income tax

$

1,829

 

 

800

 

 

7

 

 

241

 

 

153

 

 

 

 

$

3,030

 

Income tax provision

$

239

 

 

 

 

 

 

 

 

 

 

247

 

 

$

486

 

Tax rate(3)

13.1

%

 

 

 

 

 

 

 

 

 

 

 

16.0

%

Net income

$

1,590

 

 

800

 

 

7

 

 

241

 

 

153

 

 

(247

)

 

$

2,544

 

Less: Net income (loss) attributable to non-controlling interests

$

(60

)

 

69

 

 

 

 

24

 

 

(1

)

 

(6

)

 

$

26

 

Net income attributable to VMware, Inc.

$

1,650

 

 

731

 

 

7

 

 

217

 

 

154

 

 

(241

)

 

$

2,518

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(3)(6)

$

3.92

 

 

$

1.74

 

 

$

0.02

 

 

$

0.51

 

 

$

0.37

 

 

$

(0.57

)

 

$

5.98

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

(2) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments, such as adjustments resulting from the 2017 Tax Act. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

(3) Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.

(4) Cost of subscription and SaaS revenue was included in both cost of license revenue and cost of services revenue in prior year and has been reclassified to conform with current period presentation.

(5) Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized.

(6) Calculated based upon 421,131 diluted weighted-average shares for Classes A and B.

VMware, Inc.

REVENUE BY TYPE

(in millions)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

January 31,

 

February 1,

 

January 31,

 

February 1,

 

 

2020

 

2019(1)

 

2020

 

2019(1)

Revenue:

 

 

 

 

 

 

 

 

License

 

$

1,034

 

 

$

1,027

 

 

$

3,181

 

 

$

3,042

 

Subscription and SaaS(2)

 

556

 

 

367

 

 

1,877

 

 

1,303

 

Total license and subscription and SaaS

 

1,590

 

 

1,394

 

 

5,058

 

 

4,345

 

Services:

 

 

 

 

 

 

 

 

Software maintenance

 

1,235

 

 

1,133

 

 

4,754

 

 

4,351

 

Professional services

 

248

 

 

232

 

 

999

 

 

917

 

Total services

 

1,483

 

 

1,365

 

 

5,753

 

 

5,268

 

Total revenue

 

$

3,073

 

 

$

2,759

 

 

$

10,811

 

 

$

9,613

 

Percentage of revenue:

 

 

 

 

 

 

 

 

License

 

33.7

%

 

37.2

%

 

29.4

%

 

31.6

%

Subscription and SaaS(2)

 

18.1

%

 

13.3

%

 

17.4

%

 

13.6

%

Total license and subscription and SaaS

 

51.8

%

 

50.5

%

 

46.8

%

 

45.2

%

Services:

 

 

 

 

 

 

 

 

Software maintenance

 

40.2

%

 

41.1

%

 

44.0

%

 

45.3

%

Professional services

 

8.0

%

 

8.4

%

 

9.2

%

 

9.5

%

Total services

 

48.2

%

 

49.5

%

 

53.2

%

 

54.8

%

Total revenue

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

__________

 

 

 

 

 

 

 

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

(2) Subscription and SaaS revenue was allocated between license revenue and services revenue in prior year and has been reclassified to conform with current period presentation.

VMware, Inc.

REVENUE BY GEOGRAPHY

(in millions)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Twelve Months Ended

 

January 31,

 

February 1,

 

January 31,

 

February 1,

 

2020

 

2019(1)

 

2020

 

2019(1)

Revenue:

 

 

 

 

 

 

 

United States

$

1,569

 

 

$

1,280

 

 

$

5,405

 

 

$

4,696

 

International

1,504

 

 

1,479

 

 

5,406

 

 

4,917

 

Total revenue

$

3,073

 

 

$

2,759

 

 

$

10,811

 

 

$

9,613

 

Percentage of revenue:

 

 

 

 

 

 

 

United States

51.1

%

 

46.4

%

 

50.0

%

 

48.9

%

International

48.9

%

 

53.6

%

 

50.0

%

 

51.1

%

Total revenue

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 

 

 

 

 

 

 

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

VMware, Inc.

RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES

TO FREE CASH FLOWS

(A NON-GAAP FINANCIAL MEASURE)

(in millions)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Twelve Months Ended

 

January 31,

 

February 1,

 

January 31,

 

February 1,

 

2020

 

2019(1)

 

2020

 

2019(1)

GAAP cash flows from operating activities

$

1,085

 

 

$

1,020

 

 

$

3,872

 

 

$

3,657

 

Capital expenditures

(64

)

 

(68

)

 

(279

)

 

(254

)

Free cash flows

$

1,021

 

 

$

952

 

 

$

3,593

 

 

$

3,403

 

(1) Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

VMware, Inc.
SUPPLEMENTAL SCHEDULE OF FINANCIAL INFORMATION ADJUSTED FOR PIVOTAL ACQUISITION
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)

During the fourth quarter of fiscal 2020, VMware acquired Pivotal, which was accounted for as a transaction between entities under common control. This transaction required prior period information to be recast for all periods presented, as if the combination had been in effect since the inception of the common control, which could include eliminations and other adjustments (referred to in the schedules below as "Pivotal Adjustments").

Condensed Consolidated Statements of Income Adjusted for Pivotal Acquisition

The following table presents the condensed consolidated statements of income for the first three quarters of fiscal 2020, the four quarters of fiscal 2019, and the annual periods of fiscal 2019 and fiscal 2018 as adjusted for the Pivotal acquisition (tables in millions, except per share amounts, and shares in thousands):

 

Three Months Ended

 

Twelve Months Ended

 

November 1,

 

August 2,

 

May 3,

 

February 1,

 

November 2,

 

August 3,

 

May 4,

 

February 1,

 

February 2,

 

2019

 

2019

 

2019

 

2019

 

2018

 

2018

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License

$

728

 

 

$

773

 

 

$

646

 

 

$

1,027

 

 

$

692

 

 

$

723

 

 

$

601

 

 

$

3,042

 

 

$

2,628

 

Subscription and SaaS

470

 

 

439

 

 

411

 

 

367

 

 

334

 

 

308

 

 

294

 

 

1,303

 

 

927

 

Services

1,458

 

 

1,420

 

 

1,393

 

 

1,365

 

 

1,337

 

 

1,301

 

 

1,264

 

 

5,268

 

 

4,781

 

Total revenue

2,656

 

 

2,632

 

 

2,450

 

 

2,759

 

 

2,363

 

 

2,332

 

 

2,159

 

 

9,613

 

 

8,336

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of license revenue

42

 

 

38

 

 

36

 

 

40

 

 

37

 

 

37

 

 

36

 

 

150

 

 

135

 

Cost of subscription and SaaS revenue

103

 

 

97

 

 

94

 

 

86

 

 

72

 

 

65

 

 

62

 

 

280

 

 

200

 

Cost of services revenue

311

 

 

306

 

 

299

 

 

292

 

 

279

 

 

279

 

 

271

 

 

1,122

 

 

1,072

 

Research and development

642

 

 

614

 

 

590

 

 

596

 

 

551

 

 

528

 

 

498

 

 

2,173

 

 

1,917

 

Sales and marketing

918

 

 

888

 

 

868

 

 

889

 

 

786

 

 

772

 

 

782

 

 

3,230

 

 

2,723

 

General and administrative

269

 

 

223

 

 

209

 

 

258

 

 

199

 

 

203

 

 

185

 

 

846

 

 

722

 

Realignment and loss on disposition

 

 

 

 

 

 

 

 

6

 

 

1

 

 

2

 

 

9

 

 

104

 

Operating income

371

 

 

466

 

 

354

 

 

598

 

 

433

 

 

447

 

 

323

 

 

1,803

 

 

1,463

 

Investment income (loss)

12

 

 

14

 

 

14

 

 

(7

)

 

63

 

 

57

 

 

48

 

 

161

 

 

120

 

Interest expense

(40

)

 

(34

)

 

(34

)

 

(34

)

 

(33

)

 

(34

)

 

(34

)

 

(134

)

 

(74

)

Other income (expense), net

17

 

 

41

 

 

17

 

 

9

 

 

(17

)

 

10

 

 

(1

)

 

(1

)

 

68

 

Income before income tax

360

 

 

487

 

 

351

 

 

566

 

 

446

 

 

480

 

 

336

 

 

1,829

 

 

1,577

 

Income tax provision (benefit)

(30

)

 

(4,798

)

 

(14

)

 

87

 

 

41

 

 

64

 

 

46

 

 

239

 

 

1,152

 

Net income

390

 

 

5,285

 

 

365

 

 

479

 

 

405

 

 

416

 

 

290

 

 

1,590

 

 

425

 

Less: Net loss attributable to non-controlling interests

(17

)

 

(18

)

 

(15

)

 

(17

)

 

(17

)

 

(17

)

 

(9

)

 

(60

)

 

(12

)

Net income attributable to VMware, Inc.

$

407

 

 

$

5,303

 

 

$

380

 

 

$

496

 

 

$

422

 

 

$

433

 

 

$

299

 

 

$

1,650

 

 

$

437

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, basic for Classes A and B

$

0.98

 

 

$

12.72

 

 

$

0.91

 

 

$

1.19

 

 

$

1.01

 

 

$

1.04

 

 

$

0.73

 

 

$

3.99

 

 

$

1.07

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B

$

0.96

 

 

$

12.47

 

 

$

0.89

 

 

$

1.17

 

 

$

1.00

 

 

$

1.03

 

 

$

0.71

 

 

$

3.92

 

 

$

1.04

 

Weighted-average shares, basic for Classes A and B

416,387

 

 

416,983

 

 

417,636

 

 

417,499

 

 

415,930

 

 

414,334

 

 

409,266

 

 

413,769

 

 

410,315

 

Weighted-average shares, diluted for Classes A and B

423,035

 

 

425,091

 

 

426,697

 

 

424,630

 

 

422,629

 

 

421,421

 

 

418,836

 

 

421,131

 

 

420,887

 

VMware, Inc.
Reconciliations of GAAP to Non-GAAP Data Adjusted for Pivotal Acquisition

The following tables present the reconciliations of GAAP to non-GAAP data for the first three quarters of fiscal 2020, the four quarters of fiscal 2019, and the annual periods of fiscal 2019 and fiscal 2018 as adjusted for the Pivotal acquisition (tables in millions, except per share amounts):

 

Three Months Ended November 1, 2019

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

431

 

 

(60

)

 

$

371

 

 

386

 

(1)

$

758

 

Income tax provision (benefit)

45

 

 

(75

)

 

(30

)

 

147

 

(2)

118

 

Net income attributable to VMware, Inc.

$

621

 

 

(214

)

 

$

407

 

 

195

 

(3)

$

602

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

1.50

 

 

 

 

$

0.96

 

 

0.45

 

(4)

$

1.42

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($256 million), employer payroll taxes on employee stock transactions ($1 million), intangible amortization ($74 million) and acquisition, disposition and other items ($55 million).

(2) Non-GAAP adjustments to income tax provision (benefit) were $147 million during the three months ended November 1, 2019.

(3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($230 million), employer payroll taxes on employee stock transactions ($1 million), intangible amortization ($65 million), acquisition, disposition and other items ($43 million) and tax adjustment (-$144 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.54), intangible amortization ($0.15), acquisition, disposition and other items ($0.10) and tax adjustment (-$0.34).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 423,035 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

 

 

Three Months Ended August 2, 2019

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

523

 

 

(57

)

 

$

466

 

 

330

 

(1)

$

795

 

Income tax provision (benefit)

(4,925

)

 

127

 

 

(4,798

)

 

4,925

 

(2)

127

 

Net income attributable to VMware, Inc.

$

4,926

 

 

377

 

 

$

5,303

 

 

(4,652

)

(3)

$

650

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

11.83

 

 

 

 

$

12.47

 

 

(10.94

)

(4)

$

1.53

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($234 million), employer payroll taxes on employee stock transactions ($4 million), intangible amortization ($70 million) and acquisition, disposition and other items ($22 million).

(2) Non-GAAP adjustments to income tax provision (benefit) were $4,925 million during the three months ended August 2, 2019.

(3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($208 million), employer payroll taxes on employee stock transactions ($4 million), intangible amortization ($61 million), acquisition, disposition and other items (-$1 million) and tax adjustment (-$4,924 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.49), employer payroll taxes on employee stock transactions ($0.01), intangible amortization ($0.14), and tax adjustment (-$11.58).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 425,091 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

 

Three Months Ended May 3, 2019

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

415

 

 

(61

)

 

$

354

 

 

300

 

(1)

$

654

 

Income tax provision (benefit)

35

 

 

(49

)

 

(14

)

 

118

 

(2)

104

 

Net income attributable to VMware, Inc.

$

505

 

 

(125

)

 

$

380

 

 

155

 

(3)

$

535

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

1.21

 

 

 

 

$

0.89

 

 

0.35

 

(4)

$

1.25

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($216 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($69 million) and acquisition, disposition and other items ($13 million).

(2) Non-GAAP adjustments to income tax provision (benefit) were $118 million during the three months ended May 3, 2019.

(3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($194 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($60 million), acquisition, disposition and other items ($12 million) and tax adjustment (-$113 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.45), intangible amortization ($0.14), acquisition, disposition and other items ($0.03) and tax adjustment (-$0.27).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 426,697 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

 

 

Three Months Ended February 1, 2019

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

664

 

 

(66

)

 

$

598

 

 

342

 

(1)

$

940

 

Income tax provision

89

 

 

(2

)

 

87

 

 

67

 

(2)

153

 

Net income attributable to VMware, Inc.

$

502

 

 

(6

)

 

$

496

 

 

299

 

(3)

$

795

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

1.21

 

 

 

 

$

1.17

 

 

0.70

 

(4)

$

1.87

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($220 million), employer payroll taxes on employee stock transactions ($1 million), intangible amortization ($63 million) and acquisition, disposition and other items ($58 million).

(2) Non-GAAP adjustments to income tax provision were $67 million during the three months ended February 1, 2019.

(3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($200 million), employer payroll taxes on employee stock transactions ($1 million), intangible amortization ($56 million), acquisition, disposition and other items ($106 million) and tax adjustment (-$64 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.47), intangible amortization ($0.13), acquisition, disposition and other items ($0.25) and tax adjustment (-$0.15).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 424,630 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

 

Three Months Ended November 2, 2018

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

495

 

 

(62

)

 

$

433

 

 

287

 

(1)

$

720

 

Income tax provision

11

 

 

30

 

 

41

 

 

79

 

(2)

120

 

Net income attributable to VMware, Inc.

$

334

 

 

88

 

 

$

422

 

 

200

 

(3)

$

622

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

0.81

 

 

 

 

$

1.00

 

 

0.47

 

(4)

$

1.47

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($211 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($60 million) and acquisition, disposition and other items ($14 million).

(2) Non-GAAP adjustments to income tax provision were $79 million during the three months ended November 2, 2018.

(3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($192 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($53 million), acquisition, disposition and other items ($30 million) and tax adjustment (-$77 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.45), intangible amortization ($0.13), acquisition, disposition and other items ($0.07) and tax adjustment (-$0.18).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 422,629 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

 

 

Three Months Ended August 3, 2018

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

509

 

 

(62

)

 

$

447

 

 

267

 

(1)

$

714

 

Income tax provision

128

 

 

(64

)

 

64

 

 

54

 

(2)

118

 

Net income attributable to VMware, Inc.

$

644

 

 

(211

)

 

$

433

 

 

180

 

(3)

$

613

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

1.56

 

 

 

 

$

1.03

 

 

0.42

 

(4)

$

1.45

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($196 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($60 million) and acquisition, disposition and other items ($9 million).

(2) Non-GAAP adjustments to income tax provision were $54 million during the three months ended August 3, 2018.

(3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($177 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($53 million), acquisition, disposition and other items ($1 million) and tax adjustment (-$53 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.42), intangible amortization ($0.13) and tax adjustment (-$0.13).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 421,421 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

 

Three Months Ended May 4, 2018

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

382

 

 

(59

)

 

$

323

 

 

248

 

(1)

$

572

 

Income tax provision

233

 

 

(187

)

 

46

 

 

48

 

(2)

94

 

Net income attributable to VMware, Inc.

$

942

 

 

(643

)

 

$

299

 

 

189

 

(3)

$

488

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

2.29

 

 

 

 

$

0.71

 

 

0.45

 

(4)

$

1.16

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($172 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($59 million) and acquisition, disposition and other items ($15 million).

(2) Non-GAAP adjustments to income tax provision were $48 million during the three months ended May 4, 2018.

(3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($161 million), employer payroll taxes on employee stock transactions ($2 million), intangible amortization ($55 million), acquisition, disposition and other items ($18 million) and tax adjustment (-$47 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($0.39), intangible amortization ($0.13), acquisition, disposition and other items ($0.04) and tax adjustment (-$0.11).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 418,836 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

 

 

Twelve Months Ended February 1, 2019

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

2,050

 

 

(247

)

 

$

1,803

 

 

1,145

 

(1)

$

2,948

 

Income tax provision

461

 

 

(222

)

 

239

 

 

247

 

(2)

486

 

Net income attributable to VMware, Inc.

$

2,422

 

 

(772

)

 

$

1,650

 

 

868

 

(3)

$

2,518

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

5.85

 

 

 

 

$

3.92

 

 

2.07

 

(4)

$

5.98

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($800 million), employer payroll taxes on employee stock transactions ($7 million), intangible amortization ($241 million) and acquisition, disposition and other items ($97 million).

(2) Non-GAAP adjustments to income tax provision were $247 million during the twelve months ended February 1, 2019.

(3) Non-GAAP adjustments to net income attributable to VMware, Inc. include stock-based compensation ($731 million), employer payroll taxes on employee stock transactions ($7 million), intangible amortization ($217 million), acquisition, disposition and other items ($154 million) and tax adjustment (-$241 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($1.74), employer payroll taxes on employee stock transactions ($0.02), intangible amortization ($0.51), acquisition, disposition and other items ($0.37) and tax adjustment (-$0.57).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 421,131 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

 

Twelve Months Ended February 2, 2018

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted(6)

 

Non-GAAP
Adjustments

 

Non-GAAP
As Adjusted(6)

Operating income

$

1,702

 

 

(239

)

 

$

1,463

 

 

1,026

 

(1)

$

2,489

 

Income tax provision

1,155

 

 

(3

)

 

1,152

 

 

(627

)

(2)

525

 

Net income attributable to VMware, Inc.

$

659

 

 

(222

)

 

$

437

 

 

1,578

 

(3)

$

2,016

 

 

 

 

 

 

 

 

 

 

 

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B(5)(6)

$

1.59

 

 

 

 

$

1.04

 

 

3.74

 

(4)

$

4.79

 

__________

(1) Non-GAAP adjustments to operating income include stock-based compensation ($712 million), employer payroll taxes on employee stock transactions ($6 million), intangible amortization ($174 million) and acquisition, disposition and other items ($134 million).

(2) Non-GAAP adjustments to income tax provision were -$627 million during the twelve months ended February 2, 2018.

(3) Non-GAAP adjustments to net income attributable to VMware Inc. include stock-based compensation ($683 million), employer payroll taxes on employee stock transactions ($6 million), intangible amortization ($172 million), acquisition, disposition and other items ($88 million), loss on share repurchase ($2 million) and tax adjustment ($627 million).

(4) Non-GAAP adjustments to net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, include stock-based compensation ($1.62), employer payroll taxes on employee stock transactions ($0.01), intangible amortization ($0.41), acquisition, disposition and other items ($0.21) and tax adjustment ($1.49).

(5) Combined GAAP as adjusted and non-GAAP as adjusted net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted, were calculated based upon 420,887 diluted weighted-average shares for Classes A and B.

(6) Totals may not sum, due to rounding. Net income per weighted-average share attributable to VMware, Inc. common stockholders was calculated based upon the respective underlying, non-rounded data.

VMware, Inc.
Condensed Consolidated Balance Sheet Adjusted for Pivotal Acquisition

The following table presents the condensed consolidated balance sheet for fiscal 2019 as originally reported and as adjusted for the Pivotal acquisition (tables in millions):

 

February 1, 2019

 

GAAP
As Originally
Reported

 

Pivotal
Adjustments

 

Combined
GAAP
As Adjusted

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

2,830

 

 

702

 

 

$

3,532

 

Short-term investments

19

 

 

 

 

19

 

Accounts receivable, net of allowance for doubtful accounts

1,576

 

 

147

 

 

1,723

 

Due from related parties, net

937

 

 

153

 

 

1,090

 

Other current assets

289

 

 

16

 

 

305

 

Total current assets

5,651

 

 

1,018

 

 

6,669

 

Property and equipment, net

1,133

 

 

29

 

 

1,162

 

Other assets

1,853

 

 

(765

)

 

1,088

 

Deferred tax assets

103

 

 

187

 

 

290

 

Intangible assets, net

541

 

 

425

 

 

966

 

Goodwill

5,381

 

 

2,037

 

 

7,418

 

Total assets

$

14,662

 

 

2,931

 

 

$

17,593

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

135

 

 

18

 

 

$

153

 

Accrued expenses and other

1,593

 

 

71

 

 

1,664

 

Unearned revenue

3,968

 

 

371

 

 

4,339

 

Total current liabilities

5,696

 

 

460

 

 

6,156

 

Note payable to Dell

270

 

 

 

 

270

 

Long-term debt

3,972

 

 

 

 

3,972

 

Unearned revenue

3,010

 

 

90

 

 

3,100

 

Income tax payable

889

 

 

 

 

889

 

Other liabilities

274

 

 

41

 

 

315

 

Total liabilities

14,111

 

 

591

 

 

14,702

 

Contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Class A common stock

1

 

 

 

 

1

 

Class B convertible common stock

3

 

 

 

 

3

 

Additional paid-in capital

531

 

 

2,428

 

 

2,959

 

Accumulated other comprehensive income (loss)

2

 

 

(4

)

 

(2

)

Retained earnings (Accumulated deficit)

14

 

 

(1,110

)

 

(1,096

)

Total VMware, Inc. stockholders’ equity

551

 

 

1,314

 

 

1,865

 

Non-controlling interests

 

 

1,026

 

 

1,026

 

Total stockholders’ equity

551

 

 

2,340

 

 

2,891

 

Total liabilities and stockholders’ equity

$

14,662

 

 

2,931

 

 

$

17,593

 

VMware, Inc.
Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flows Adjusted for Pivotal Acquisition

The following table presents the reconciliation of GAAP cash flows from operating activities to free cash flows as adjusted for the Pivotal acquisition for the first three quarters of fiscal 2020, the four quarters of fiscal 2019, and the annual periods of fiscal 2019 and fiscal 2018 (table in millions):

 

Three Months Ended

 

Twelve Months Ended

 

November 1,

 

August 2,

 

May 3,

 

February 1,

 

November 2,

 

August 3,

 

May 4,

 

February 1,

 

February 2,

 

2019

 

2019

 

2019

 

2019

 

2018

 

2018

 

2018

 

2019

 

2018

GAAP cash flows from operating activities

$

751

 

 

$

641

 

 

$

1,395

 

 

$

1,020

 

 

$

733

 

 

$

805

 

 

$

1,101

 

 

$

3,657

 

 

$

3,101

 

Capital expenditures

(52

)

 

(91

)

 

(73

)

 

(68

)

 

(60

)

 

(63

)

 

(63

)

 

(254

)

 

(276

)

Free cash flows

$

699

 

 

$

550

 

 

$

1,322

 

 

$

952

 

 

$

673

 

 

$

742

 

 

$

1,038

 

 

$

3,403

 

 

$

2,825

 

The following tables present the reconciliation of GAAP cash flows from operating activities to free cash flows as originally reported and as adjusted for the Pivotal acquisition for the first three quarters of fiscal 2020, the four quarters of fiscal 2019, and the annual periods of fiscal 2019 and fiscal 2018 (tables in millions):

 

Three Months Ended November 1, 2019

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

810

 

 

(59

)

 

$

751

 

Capital expenditures

(50

)

 

(2

)

 

(52

)

Free cash flows

$

760

 

 

(61

)

 

$

699

 

 

Three Months Ended August 2, 2019

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

699

 

 

(58

)

 

$

641

 

Capital expenditures

(88

)

 

(3

)

 

(91

)

Free cash flows

$

611

 

 

(61

)

 

$

550

 

 

Three Months Ended May 3, 2019

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

1,273

 

 

122

 

 

$

1,395

 

Capital expenditures

(71

)

 

(2

)

 

(73

)

Free cash flows

$

1,202

 

 

120

 

 

$

1,322

 

 

Three Months Ended February 1, 2019

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

1,012

 

 

8

 

 

$

1,020

 

Capital expenditures

(66

)

 

(2

)

 

(68

)

Free cash flows

$

946

 

 

6

 

 

$

952

 

 

Three Months Ended November 2, 2018

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

769

 

 

(36

)

 

$

733

 

Capital expenditures

(57

)

 

(3

)

 

(60

)

Free cash flows

$

712

 

 

(39

)

 

$

673

 

 

Three Months Ended August 3, 2018

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

787

 

 

18

 

 

$

805

 

Capital expenditures

(61

)

 

(2

)

 

(63

)

Free cash flows

$

726

 

 

16

 

 

$

742

 

 

Three Months Ended May 4, 2018

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

1,095

 

 

6

 

 

$

1,101

 

Capital expenditures

(61

)

 

(2

)

 

(63

)

Free cash flows

$

1,034

 

 

4

 

 

$

1,038

 

 

Twelve Months Ended February 1, 2019

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

3,663

 

 

(6

)

 

$

3,657

 

Capital expenditures

(245

)

 

(9

)

 

(254

)

Free cash flows

$

3,418

 

 

(15

)

 

$

3,403

 

 

Twelve Months Ended February 2, 2018

 

As Originally
Reported

 

Pivotal
Adjustments

 

Combined
As Adjusted

GAAP cash flows from operating activities

$

3,218

 

 

(117

)

 

$

3,101

 

Capital expenditures

(263

)

 

(13

)

 

(276

)

Free cash flows

$

2,955

 

 

(130

)

 

$

2,825

 

About Non-GAAP Financial Measures

To provide investors and others with additional information regarding VMware’s results, VMware has disclosed in this earnings release the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per diluted share and free cash flow. VMware has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. These non-GAAP financial measures, other than free cash flow, differ from GAAP in that they exclude stock-based compensation, employer payroll taxes on employee stock transactions, amortization of acquired intangible assets, realignment charges, acquisition, disposition and other items, certain litigation and other contingencies, loss on share repurchase and discrete items that impacted our GAAP tax rate, each as discussed below. Our non-GAAP financial measures also reflect the application of our non-GAAP tax rate. Free cash flow differs from GAAP cash flow from operating activities with respect to the treatment of capital expenditures.

VMware’s management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, to calculate bonus payments and to evaluate VMware’s financial performance, the performance of its individual functional groups and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect VMware’s ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in VMware’s business, as they exclude charges and gains that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating VMware’s operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Additionally, management believes information regarding free cash flow provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to repurchase shares, to fund ongoing operations and to fund other capital expenditures.

Management believes these non-GAAP financial measures are useful to investors and others in assessing VMware’s operating performance due to the following factors:

  • Stock-based compensation. Stock-based compensation is generally fixed at the time the stock-based instrument is granted and amortized over a period of several years. Although stock-based compensation is an important aspect of the compensation of VMware’s employees and executives, the expense for the fair value of the stock-based instruments VMware utilizes may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of VMware’s core business.
  • Employer payroll taxes on employee stock transactions. The amount of employer payroll taxes on stock-based compensation is dependent on VMware’s stock price and other factors that are beyond VMware’s control and do not correlate to the operation of the business.
  • Amortization of acquired intangible assets. A portion of the purchase price of VMware’s acquisitions is generally allocated to intangible assets, such as intellectual property, and is subject to amortization. However, VMware does not acquire businesses on a predictable cycle. Additionally, the amount of an acquisition’s purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition. Therefore, VMware believes that the presentation of non-GAAP financial measures that adjust for the amortization of intangible assets provides investors and others with a consistent basis for comparison across accounting periods.
  • Realignment charges. Realignment charges include workforce reductions, asset impairments, losses on asset disposals and costs to exit facilities. VMware’s management believes it is useful to exclude these items, when significant, as they are not reflective of VMware’s core business and operating results.
  • Acquisition, disposition and other items. As VMware does not acquire or dispose of businesses on a predictable cycle and the terms of each transaction can vary significantly and are unique to each transaction, VMware believes it is useful to exclude acquisition, disposition and other items when looking for a consistent basis for comparison across accounting periods. These items include:
    • Direct costs of acquisitions and dispositions, such as transaction and advisory fees.
    • Costs associated with integrating acquired businesses.
    • Accruals for the portion of merger consideration payable in installments that may be paid in cash or VMware stock, at the option of VMware.
    • Gains or losses on equity investments, whether realized or unrealized.
    • Charges recognized for non-recoverable strategic investments or gains recognized on the disposition of strategic investments.
    • Gains or losses on sale or disposal of distinct lines of business or product offerings, or transactions with features similar to discontinued operations, including recoveries or charges recognized to adjust the fair value of assets that qualify as “held for sale.”
  • 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.
  • Gain or loss on share repurchase. In December 2016, VMware entered into a stock purchase agreement with Dell and Dell’s wholly-owned subsidiary, EMC Equity Assets LLC, pursuant to which VMware agreed to purchase $500 million of VMware Class A common stock. The derivative asset was measured at fair value on a recurring basis and resulted in the recognition of gains and losses, which were recorded to other income (expense), net on the condensed consolidated statements of income. On February 15, 2017, the stock purchase agreement with Dell was completed. VMware’s management believes it is useful to exclude the mark-to-market adjustment on the derivative asset, as it is not reflective of VMware’s core business and operating results.
  • 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.

Paul Ziots
VMware Investor Relations
pziots@vmware.com
650-427-3267

Michael Thacker
VMware Global PR
mthacker@vmware.com
650-427-4454

Source: VMware, Inc.