CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | ||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
October 28, | October 29, | October 28, | October 29, | |||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
License | $ | 621 | $ | 710 | $ | 1,990 | $ | 2,093 | ||||||||||||||||||
Subscription and SaaS | 988 | 820 | 2,830 | 2,336 | ||||||||||||||||||||||
Services | 1,602 | 1,658 | 4,815 | 4,891 | ||||||||||||||||||||||
Total revenue | 3,211 | 3,188 | 9,635 | 9,320 | ||||||||||||||||||||||
Operating expenses(1): | ||||||||||||||||||||||||||
Cost of license revenue | 39 | 37 | 113 | 111 | ||||||||||||||||||||||
Cost of subscription and SaaS revenue | 196 | 175 | 583 | 502 | ||||||||||||||||||||||
Cost of services revenue | 384 | 362 | 1,128 | 1,051 | ||||||||||||||||||||||
Research and development | 832 | 768 | 2,409 | 2,251 | ||||||||||||||||||||||
Sales and marketing | 1,081 | 1,011 | 3,216 | 2,993 | ||||||||||||||||||||||
General and administrative | 289 | 316 | 815 | 808 | ||||||||||||||||||||||
Realignment | — | — | 7 | 1 | ||||||||||||||||||||||
Operating income | 390 | 519 | 1,364 | 1,603 | ||||||||||||||||||||||
Investment income | 20 | — | 28 | 1 | ||||||||||||||||||||||
Interest expense | (77) | (74) | (222) | (173) | ||||||||||||||||||||||
Other income (expense), net | (14) | 12 | (44) | (7) | ||||||||||||||||||||||
Income before income tax | 319 | 457 | 1,126 | 1,424 | ||||||||||||||||||||||
Income tax provision | 88 | 59 | 306 | 190 | ||||||||||||||||||||||
Net income | $ | 231 | $ | 398 | $ | 820 | $ | 1,234 | ||||||||||||||||||
Net income per weighted-average share, basic | $ | 0.55 | $ | 0.95 | $ | 1.94 | $ | 2.94 | ||||||||||||||||||
Net income per weighted-average share, diluted | $ | 0.54 | $ | 0.94 | $ | 1.93 | $ | 2.92 | ||||||||||||||||||
Weighted-average shares, basic | 423,993 | 419,456 | 422,194 | 419,309 | ||||||||||||||||||||||
Weighted-average shares, diluted | 426,328 | 421,763 | 424,490 | 422,201 | ||||||||||||||||||||||
__________ | ||||||||||||||||||||||||||
(1) Includes stock-based compensation as follows: | ||||||||||||||||||||||||||
Cost of license revenue | $ | — | $ | — | $ | 1 | $ | 1 | ||||||||||||||||||
Cost of subscription and SaaS revenue | 7 | 5 | 18 | 16 | ||||||||||||||||||||||
Cost of services revenue | 31 | 21 | 79 | 70 | ||||||||||||||||||||||
Research and development | 163 | 125 | 441 | 402 | ||||||||||||||||||||||
Sales and marketing | 104 | 74 | 278 | 227 | ||||||||||||||||||||||
General and administrative | 43 | 33 | 124 | 97 | ||||||||||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||
(unaudited) | |||||||||||
October 28, | January 28, | ||||||||||
2022 | 2022 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 3,972 | $ | 3,614 | |||||||
Short-term investments | — | 19 | |||||||||
Accounts receivable, net of allowance of $10 and $10 | 1,909 | 2,297 | |||||||||
Due from related parties | 821 | 1,438 | |||||||||
Other current assets | 616 | 598 | |||||||||
Total current assets | 7,318 | 7,966 | |||||||||
Property and equipment, net | 1,597 | 1,461 | |||||||||
Deferred tax assets | 6,090 | 5,906 | |||||||||
Intangible assets, net | 526 | 714 | |||||||||
Goodwill | 9,598 | 9,598 | |||||||||
Due from related parties | 189 | 199 | |||||||||
Other assets | 2,808 | 2,832 | |||||||||
Total assets | $ | 28,126 | $ | 28,676 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 297 | $ | 234 | |||||||
Accrued expenses and other | 2,566 | 2,806 | |||||||||
Current portion of long-term debt | 1,000 | — | |||||||||
Unearned revenue | 6,339 | 6,479 | |||||||||
Due to related parties | 201 | 132 | |||||||||
Total current liabilities | 10,403 | 9,651 | |||||||||
Long-term debt | 9,686 | 12,671 | |||||||||
Unearned revenue | 4,878 | 4,743 | |||||||||
Income tax payable | 260 | 242 | |||||||||
Operating lease liabilities | 849 | 927 | |||||||||
Due to related parties | 804 | 909 | |||||||||
Other liabilities | 440 | 409 | |||||||||
Total liabilities | 27,320 | 29,552 | |||||||||
Contingencies | |||||||||||
Stockholders’ equity (deficit): | |||||||||||
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 424,613 and 418,808 shares | 4 | 4 | |||||||||
Additional paid-in capital | 870 | — | |||||||||
Accumulated other comprehensive loss | (13) | (5) | |||||||||
Accumulated deficit | (55) | (875) | |||||||||
Total stockholders’ equity (deficit) | 806 | (876) | |||||||||
Total liabilities and stockholders’ equity (deficit) | $ | 28,126 | $ | 28,676 | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
October 28, | October 29, | October 28, | October 29, | ||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Operating activities: | |||||||||||||||||||||||
Net income | $ | 231 | $ | 398 | $ | 820 | $ | 1,234 | |||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||
Depreciation and amortization | 316 | 281 | 906 | 825 | |||||||||||||||||||
Stock-based compensation | 348 | 258 | 941 | 813 | |||||||||||||||||||
Deferred income taxes, net | (101) | (61) | (181) | (92) | |||||||||||||||||||
(Gain) loss on equity securities and disposition of assets, net | 1 | (9) | (11) | 29 | |||||||||||||||||||
Other | 3 | 3 | 6 | 6 | |||||||||||||||||||
Changes in assets and liabilities, net of acquisitions: | |||||||||||||||||||||||
Accounts receivable | 162 | 41 | 384 | 247 | |||||||||||||||||||
Other current assets and other assets | (92) | (77) | (512) | (467) | |||||||||||||||||||
Due from related parties | 446 | 255 | 627 | 777 | |||||||||||||||||||
Accounts payable | 79 | 17 | 48 | 87 | |||||||||||||||||||
Accrued expenses and other liabilities | (208) | 37 | (527) | (181) | |||||||||||||||||||
Income taxes payable | 94 | 53 | 208 | 24 | |||||||||||||||||||
Unearned revenue | (15) | (106) | (6) | (82) | |||||||||||||||||||
Due to related parties | 1 | — | (36) | — | |||||||||||||||||||
Net cash provided by operating activities | 1,265 | 1,090 | 2,667 | 3,220 | |||||||||||||||||||
Investing activities: | |||||||||||||||||||||||
Additions to property and equipment | (108) | (106) | (327) | (263) | |||||||||||||||||||
Sales of investments in equity securities | — | 34 | 20 | 68 | |||||||||||||||||||
Purchases of strategic investments | (3) | (1) | (11) | (7) | |||||||||||||||||||
Proceeds from disposition of assets | — | 4 | 91 | 5 | |||||||||||||||||||
Business combinations, net of cash acquired, and purchases of intangible assets | — | — | (4) | (15) | |||||||||||||||||||
Net cash used in investing activities | (111) | (69) | (231) | (212) | |||||||||||||||||||
Financing activities: | |||||||||||||||||||||||
Proceeds from issuance of common stock | 124 | 128 | 248 | 267 | |||||||||||||||||||
Proceeds from issuance of senior notes, net of issuance costs | — | 5,944 | — | 5,944 | |||||||||||||||||||
Repayment of term loan | (500) | — | (2,000) | — | |||||||||||||||||||
Repayment of note payable to Dell | — | (270) | — | (270) | |||||||||||||||||||
Repurchase of common stock | — | (143) | (89) | (872) | |||||||||||||||||||
Shares repurchased for tax withholdings on vesting of restricted stock | (48) | (48) | (253) | (291) | |||||||||||||||||||
Principal payments on finance lease obligations | (1) | (1) | (4) | (3) | |||||||||||||||||||
Net cash provided by (used in) financing activities | (425) | 5,610 | (2,098) | 4,775 | |||||||||||||||||||
Net increase in cash, cash equivalents and restricted cash | 729 | 6,631 | 338 | 7,783 | |||||||||||||||||||
Cash, cash equivalents and restricted cash at beginning of the period | 3,272 | 5,922 | 3,663 | 4,770 | |||||||||||||||||||
Cash, cash equivalents and restricted cash at end of the period | $ | 4,001 | $ | 12,553 | $ | 4,001 | $ | 12,553 | |||||||||||||||
Supplemental disclosures of cash flow information: | |||||||||||||||||||||||
Cash paid for interest | $ | 86 | $ | 49 | $ | 226 | $ | 146 | |||||||||||||||
Cash paid for taxes, net | 94 | 73 | 278 | 276 | |||||||||||||||||||
Non-cash items: | |||||||||||||||||||||||
Changes in capital additions, accrued but not paid | $ | 14 | $ | (2) | $ | 23 | $ | 9 | |||||||||||||||
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 | |||||||||||
October 28, | October 29, | ||||||||||
2022 | 2021 | ||||||||||
Total revenue, as reported | $ | 3,211 | $ | 3,188 | |||||||
Sequential change in unearned revenue(1) | (14) | (105) | |||||||||
Total revenue plus sequential change in unearned revenue | $ | 3,197 | $ | 3,083 | |||||||
Change (%) over prior year, as reported | 4 | % | |||||||||
Growth in License and Subscription and SaaS Revenue Plus Sequential Change in Unearned License and Subscription and SaaS Revenue | |||||||||||
Three Months Ended | |||||||||||
October 28, | October 29, | ||||||||||
2022 | 2021 | ||||||||||
Total license and subscription and SaaS revenue, as reported | $ | 1,609 | $ | 1,530 | |||||||
Sequential change in unearned license and subscription and SaaS revenue(2) | 253 | 27 | |||||||||
Total license and subscription and SaaS revenue plus sequential change in unearned license and subscription and SaaS revenue | $ | 1,862 | $ | 1,557 | |||||||
Change (%) over prior year, as reported | 20 | % | |||||||||
__________ | |||||||||||
(1) Consists of the change in total unearned revenue from the preceding quarter. Total unearned revenue consists of current and non-current unearned revenue amounts presented in the condensed consolidated balance sheets. | |||||||||||
(2) Consists of the change in unearned license and subscription and SaaS revenue from the preceding quarter. | |||||||||||
REMAINING PERFORMANCE OBLIGATIONS | |||||||||||
(in millions) | |||||||||||
(unaudited) | |||||||||||
Growth in Remaining Performance Obligations | |||||||||||
October 28, | October 29, | ||||||||||
2022 | 2021 | ||||||||||
Remaining performance obligations(3) | $ | 11,902 | $ | 11,123 | |||||||
Change (%) over prior year | 7 | % | |||||||||
Remaining performance obligations, current(4) | $ | 6,660 | $ | 6,232 | |||||||
Change (%) over prior year | 7 | % | |||||||||
__________ | |||||||||||
(3) Remaining performance obligations represent the aggregate amount of the transaction price in contracts allocated to performance obligations not delivered, or partially undelivered, as of the end of the reporting period. Remaining performance obligations include unearned revenue, multi-year contracts with future installment payments and certain unfulfilled orders against accepted customer contracts at the end of any given period. | |||||||||||
(4) Current remaining performance obligations represent the amount expected to be recognized as revenue over the next twelve months. |
SUPPLEMENTAL UNEARNED REVENUE SCHEDULE | |||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||||||
October 28, | July 29, | April 29, | January 28, | October 29, | July 30, | ||||||||||||||||||||||||||||||
2022 | 2022 | 2022 | 2022 | 2021 | 2021 | ||||||||||||||||||||||||||||||
Unearned revenue as reported: | |||||||||||||||||||||||||||||||||||
License | $ | 28 | $ | 20 | $ | 20 | $ | 19 | $ | 17 | $ | 20 | |||||||||||||||||||||||
Subscription and SaaS | 3,197 | 2,952 | 2,671 | 2,669 | 2,238 | 2,208 | |||||||||||||||||||||||||||||
Services | |||||||||||||||||||||||||||||||||||
Software maintenance | 6,636 | 6,903 | 6,877 | 7,208 | 6,773 | 6,916 | |||||||||||||||||||||||||||||
Professional services | 1,356 | 1,356 | 1,298 | 1,326 | 1,205 | 1,194 | |||||||||||||||||||||||||||||
Total unearned revenue | $ | 11,217 | $ | 11,231 | $ | 10,866 | $ | 11,222 | $ | 10,233 | $ | 10,338 | |||||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended October 28, 2022 | |||||||||||||||||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||||||||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||||||||||||
GAAP | Stock-Based Compensation | Employer Payroll Taxes on Employee Stock Transactions | Intangible Amortization | Acquisition, Disposition and Other Items | Tax Adjustment(1) | Non-GAAP As Adjusted(2) | |||||||||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||
Cost of license revenue | $ | 39 | — | — | (9) | — | — | $ | 29 | ||||||||||||||||||||||||||||||||
Cost of subscription and SaaS revenue | $ | 196 | (7) | — | (36) | — | — | $ | 153 | ||||||||||||||||||||||||||||||||
Cost of services revenue | $ | 384 | (31) | — | — | (8) | — | $ | 345 | ||||||||||||||||||||||||||||||||
Research and development | $ | 832 | (163) | — | (2) | — | — | $ | 666 | ||||||||||||||||||||||||||||||||
Sales and marketing | $ | 1,081 | (104) | (1) | (15) | (7) | — | $ | 956 | ||||||||||||||||||||||||||||||||
General and administrative | $ | 289 | (43) | — | — | (41) | — | $ | 205 | ||||||||||||||||||||||||||||||||
Operating income | $ | 390 | 348 | 1 | 62 | 56 | — | $ | 857 | ||||||||||||||||||||||||||||||||
Operating margin(2) | 12.1 | % | 10.8 | % | — | % | 1.9 | % | 1.7 | % | — | 26.7 | % | ||||||||||||||||||||||||||||
Other income (expense), net(3) | $ | (14) | — | — | — | 1 | — | $ | (13) | ||||||||||||||||||||||||||||||||
Income before income tax | $ | 319 | 348 | 1 | 62 | 57 | — | $ | 787 | ||||||||||||||||||||||||||||||||
Income tax provision | $ | 88 | 73 | $ | 161 | ||||||||||||||||||||||||||||||||||||
Tax rate(2) | 27.6 | % | 20.5 | % | |||||||||||||||||||||||||||||||||||||
Net income | $ | 231 | 348 | 1 | 62 | 57 | (73) | $ | 626 | ||||||||||||||||||||||||||||||||
Net income per weighted-average share, diluted(2)(4) | $ | 0.54 | $ | 0.82 | $ | — | $ | 0.15 | $ | 0.13 | $ | (0.17) | $ | 1.47 | |||||||||||||||||||||||||||
__________ | |||||||||||||||||||||||||||||||||||||||||
(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. | |||||||||||||||||||||||||||||||||||||||||
(2) Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data. | |||||||||||||||||||||||||||||||||||||||||
(3) Non-GAAP adjustment to other income (expense), net includes gains or losses on investments in equity securities, whether realized or unrealized. | |||||||||||||||||||||||||||||||||||||||||
(4) Calculated based upon 426,328 diluted weighted-average shares of common stock. | |||||||||||||||||||||||||||||||||||||||||
SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||||||||||||||||||||||
IMPACT OF INTERNAL REVENUE CODE SECTION 174 | |||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended October 28, 2022 | |||||||||||||||||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||||||||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||||||||||||
GAAP | Tax Adjustment (1) | Non-GAAP As Adjusted | Estimated Tax Adjustment Excluding Section 174 Impact (2) | Non-GAAP As Adjusted Excluding Section 174 Impact (3) | |||||||||||||||||||||||||||||||||||||
Income before income tax | $ | 319 | $ | 787 | $ | 787 | |||||||||||||||||||||||||||||||||||
Income tax provision | $ | 88 | $ | 73 | $ | 161 | $ | (31) | - | (39) | $ | 130 | - | 122 | |||||||||||||||||||||||||||
Tax rate (4) | 27.6 | % | 20.5 | % | 16.5 | - | 15.5% | ||||||||||||||||||||||||||||||||||
Net income | $ | 231 | $ | 626 | $ | 657 | - | 665 | |||||||||||||||||||||||||||||||||
Net income per weighted-average share, diluted (4)(5) | $ | 0.54 | $ | 1.47 | $ | 1.54 | - | 1.56 | |||||||||||||||||||||||||||||||||
__________ | |||||||||||||||||||||||||||||||||||||||||
(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. | |||||||||||||||||||||||||||||||||||||||||
(2) Our annual estimated tax rate is based upon, among other things, current tax law regarding the impacts of Internal Revenue Code Section 174 (“Section 174”) research and development expense capitalization, which became effective beginning in VMware’s fiscal 2023. Although the U.S. Congress is considering various legislative options that would defer the capitalization requirement to later years and such possible deferral was considered in our full year guidance provided on February 28, 2022, the financial results for the three months ended October 28, 2022 reflect the impact of the tax law in effect as of October 28, 2022. The provided estimated tax adjustment range reflects the non-GAAP adjustment we would expect should the capitalization provisions of Section 174 be deferred or repealed with effect for fiscal 2023. | |||||||||||||||||||||||||||||||||||||||||
(3) Represents the estimated non-GAAP results excluding the impact of Section 174 capitalization under the tax law in effect as of October 28, 2022. | |||||||||||||||||||||||||||||||||||||||||
(4) Totals may not sum, due to rounding. Tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data. | |||||||||||||||||||||||||||||||||||||||||
(5) Calculated based upon 426,328 diluted weighted-average shares of common stock. |
RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended October 29, 2021 | |||||||||||||||||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||||||||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||||||||||||
GAAP | Stock-Based Compensation | Employer Payroll Taxes on Employee Stock Transactions | Intangible Amortization | Acquisition, Disposition and Other Items | Tax Adjustment(1) | Non-GAAP As Adjusted(2) | |||||||||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||
Cost of license revenue | $ | 37 | — | — | (10) | — | — | $ | 27 | ||||||||||||||||||||||||||||||||
Cost of subscription and SaaS revenue | $ | 175 | (5) | — | (43) | — | — | $ | 127 | ||||||||||||||||||||||||||||||||
Cost of services revenue | $ | 362 | (21) | — | — | — | — | $ | 341 | ||||||||||||||||||||||||||||||||
Research and development | $ | 768 | (125) | — | (2) | — | — | $ | 641 | ||||||||||||||||||||||||||||||||
Sales and marketing | $ | 1,011 | (74) | (1) | (20) | — | — | $ | 915 | ||||||||||||||||||||||||||||||||
General and administrative | $ | 316 | (33) | — | — | (82) | — | $ | 202 | ||||||||||||||||||||||||||||||||
Operating income | $ | 519 | 258 | 1 | 75 | 82 | — | $ | 935 | ||||||||||||||||||||||||||||||||
Operating margin(2) | 16.3 | % | 8.1 | % | — | % | 2.4 | % | 2.6 | % | — | 29.3 | % | ||||||||||||||||||||||||||||
Other income (expense), net(3) | $ | 12 | — | — | — | (10) | — | $ | 2 | ||||||||||||||||||||||||||||||||
Income before income tax | $ | 457 | 258 | 1 | 75 | 72 | — | $ | 863 | ||||||||||||||||||||||||||||||||
Income tax provision | $ | 59 | 79 | $ | 138 | ||||||||||||||||||||||||||||||||||||
Tax rate(2) | 12.9 | % | 16.0 | % | |||||||||||||||||||||||||||||||||||||
Net income | $ | 398 | 258 | 1 | 75 | 72 | (79) | $ | 725 | ||||||||||||||||||||||||||||||||
Net income per weighted-average share, diluted for Classes A and B(2)(4) | $ | 0.94 | $ | 0.61 | $ | — | $ | 0.18 | $ | 0.17 | $ | (0.19) | $ | 1.72 | |||||||||||||||||||||||||||
__________ | |||||||||||||||||||||||||||||||||||||||||
(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. | |||||||||||||||||||||||||||||||||||||||||
(2) Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data. | |||||||||||||||||||||||||||||||||||||||||
(3) Non-GAAP adjustment to other income (expense), net includes gains or losses on investments in equity securities, whether realized or unrealized. | |||||||||||||||||||||||||||||||||||||||||
(4) Calculated based upon 421,763 diluted weighted-average shares for Classes A and B. | |||||||||||||||||||||||||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||||||||||||||||||||||||||||
For the Nine Months Ended October 28, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Stock-Based Compensation | Employer Payroll Taxes on Employee Stock Transactions | Intangible Amortization | Realignment Charges | Acquisition, Disposition and Other Items | Tax Adjustment(1) | Non-GAAP As Adjusted(2) | ||||||||||||||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
Cost of license revenue | $ | 113 | (1) | — | (28) | — | — | — | $ | 83 | |||||||||||||||||||||||||||||||||||||
Cost of subscription and SaaS revenue | $ | 583 | (18) | — | (109) | — | — | — | $ | 456 | |||||||||||||||||||||||||||||||||||||
Cost of services revenue | $ | 1,128 | (79) | (1) | — | — | (8) | — | $ | 1,040 | |||||||||||||||||||||||||||||||||||||
Research and development | $ | 2,409 | (441) | (1) | (7) | — | — | — | $ | 1,959 | |||||||||||||||||||||||||||||||||||||
Sales and marketing | $ | 3,216 | (278) | (4) | (48) | — | (7) | — | $ | 2,881 | |||||||||||||||||||||||||||||||||||||
General and administrative | $ | 815 | (124) | (1) | — | — | (69) | — | $ | 622 | |||||||||||||||||||||||||||||||||||||
Realignment | $ | 7 | — | — | — | (7) | — | — | $ | — | |||||||||||||||||||||||||||||||||||||
Operating income | $ | 1,364 | 941 | 7 | 192 | 7 | 84 | — | $ | 2,594 | |||||||||||||||||||||||||||||||||||||
Operating margin(2) | 14.2 | % | 9.8 | % | 0.1 | % | 2.0 | % | 0.1 | % | 0.9 | % | — | 26.9 | % | ||||||||||||||||||||||||||||||||
Other income (expense), net(3) | $ | (44) | — | — | — | — | (10) | — | $ | (54) | |||||||||||||||||||||||||||||||||||||
Income before income tax | $ | 1,126 | 941 | 7 | 192 | 7 | 74 | — | $ | 2,346 | |||||||||||||||||||||||||||||||||||||
Income tax provision | $ | 306 | 175 | $ | 481 | ||||||||||||||||||||||||||||||||||||||||||
Tax rate(2) | 27.2 | % | 20.5 | % | |||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 820 | 941 | 7 | 192 | 7 | 74 | (175) | $ | 1,865 | |||||||||||||||||||||||||||||||||||||
Net income per weighted-average share, diluted(2)(4) | $ | 1.93 | $ | 2.22 | $ | 0.02 | $ | 0.45 | $ | 0.02 | $ | 0.17 | $ | (0.41) | $ | 4.39 | |||||||||||||||||||||||||||||||
__________ | |||||||||||||||||||||||||||||||||||||||||||||||
(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. | |||||||||||||||||||||||||||||||||||||||||||||||
(2) Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data. | |||||||||||||||||||||||||||||||||||||||||||||||
(3) Non-GAAP adjustment to other income (expense), net includes gains or losses on investments in equity securities, whether realized or unrealized. | |||||||||||||||||||||||||||||||||||||||||||||||
(4) Calculated based upon 424,490 diluted weighted-average shares of common stock. | |||||||||||||||||||||||||||||||||||||||||||||||
SUPPLEMENTAL RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||||||||||||||||||||||
IMPACT OF INTERNAL REVENUE CODE SECTION 174 | |||||||||||||||||||||||||||||||||||||||||
For the Nine Months Ended October 28, 2022 | |||||||||||||||||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||||||||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||||||||||||
GAAP | Tax Adjustment (1) | Non-GAAP As Adjusted | Estimated Tax Adjustment Excluding Section 174 Impact (2) | Non-GAAP As Adjusted Excluding Section 174 Impact (3) | |||||||||||||||||||||||||||||||||||||
Income before income tax | $ | 1,126 | $ | 2,346 | $ | 2,346 | |||||||||||||||||||||||||||||||||||
Income tax provision | $ | 306 | $ | 175 | $ | 481 | $ | (94) | - | (117) | $ | 387 | - | 364 | |||||||||||||||||||||||||||
Tax rate (4) | 27.2 | % | 20.5 | % | 16.5 | - | 15.5% | ||||||||||||||||||||||||||||||||||
Net income | $ | 820 | $ | 1,865 | $ | 1,959 | - | 1,982 | |||||||||||||||||||||||||||||||||
Net income per weighted-average share, diluted (4)(5) | $ | 1.93 | $ | 4.39 | $ | 4.61 | - | 4.67 | |||||||||||||||||||||||||||||||||
__________ | |||||||||||||||||||||||||||||||||||||||||
(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. | |||||||||||||||||||||||||||||||||||||||||
(2) Our annual estimated tax rate is based upon, among other things, current tax law regarding the impacts of Internal Revenue Code Section 174 (“Section 174”) research and development expense capitalization, which became effective beginning in VMware’s fiscal 2023. Although the U.S. Congress is considering various legislative options that would defer the capitalization requirement to later years and such possible deferral was considered in our full year guidance provided on February 28, 2022, the financial results for the nine months ended October 28, 2022 reflect the impact of the tax law in effect as of October 28, 2022. The provided estimated tax adjustment range reflects the non-GAAP adjustment we would expect should the capitalization provisions of Section 174 be deferred or repealed with effect for fiscal 2023. | |||||||||||||||||||||||||||||||||||||||||
(3) Represents the estimated non-GAAP results excluding the impact of Section 174 capitalization under the tax law in effect as of October 28, 2022. | |||||||||||||||||||||||||||||||||||||||||
(4) Totals may not sum, due to rounding. Tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data. | |||||||||||||||||||||||||||||||||||||||||
(5) Calculated based upon 424,490 diluted weighted-average shares of common stock. |
RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||||||||||||||||||||||||||||
For the Nine Months Ended October 29, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
(amounts in millions, except per share amounts, and shares in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
GAAP | Stock-Based Compensation | Employer Payroll Taxes on Employee Stock Transactions | Intangible Amortization | Realignment Charges | Acquisition, Disposition and Other Items | Tax Adjustment(1) | Non-GAAP As Adjusted(2) | ||||||||||||||||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
Cost of license revenue | $ | 111 | (1) | — | (30) | — | — | — | $ | 80 | |||||||||||||||||||||||||||||||||||||
Cost of subscription and SaaS revenue | $ | 502 | (16) | — | (128) | — | — | — | $ | 358 | |||||||||||||||||||||||||||||||||||||
Cost of services revenue | $ | 1,051 | (70) | (1) | — | — | — | — | $ | 979 | |||||||||||||||||||||||||||||||||||||
Research and development | $ | 2,251 | (402) | (1) | (5) | — | — | — | $ | 1,842 | |||||||||||||||||||||||||||||||||||||
Sales and marketing | $ | 2,993 | (227) | (5) | (66) | — | — | — | $ | 2,696 | |||||||||||||||||||||||||||||||||||||
General and administrative | $ | 808 | (97) | (1) | — | — | (126) | — | $ | 584 | |||||||||||||||||||||||||||||||||||||
Realignment | $ | 1 | — | — | — | (1) | — | — | $ | — | |||||||||||||||||||||||||||||||||||||
Operating income | $ | 1,603 | 813 | 8 | 229 | 1 | 126 | — | $ | 2,781 | |||||||||||||||||||||||||||||||||||||
Operating margin(2) | 17.2 | % | 8.7 | % | 0.1 | % | 2.5 | % | — | % | 1.4 | % | — | 29.8 | % | ||||||||||||||||||||||||||||||||
Other income (expense), net(3) | $ | (7) | — | — | — | — | 28 | — | $ | 20 | |||||||||||||||||||||||||||||||||||||
Income before income tax | $ | 1,424 | 813 | 8 | 229 | 1 | 154 | — | $ | 2,629 | |||||||||||||||||||||||||||||||||||||
Income tax provision | $ | 190 | 231 | $ | 421 | ||||||||||||||||||||||||||||||||||||||||||
Tax rate(2) | 13.3 | % | 16.0 | % | |||||||||||||||||||||||||||||||||||||||||||
Net income | $ | 1,234 | 813 | 8 | 229 | 1 | 154 | (231) | $ | 2,208 | |||||||||||||||||||||||||||||||||||||
Net income per weighted-average share, diluted for Classes A and B(2)(4) | $ | 2.92 | $ | 1.93 | $ | 0.02 | $ | 0.54 | $ | — | $ | 0.36 | $ | (0.55) | $ | 5.23 | |||||||||||||||||||||||||||||||
__________ | |||||||||||||||||||||||||||||||||||||||||||||||
(1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities. | |||||||||||||||||||||||||||||||||||||||||||||||
(2) Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data. | |||||||||||||||||||||||||||||||||||||||||||||||
(3) Non-GAAP adjustment to other income (expense), net includes gains or losses on investments in equity securities, whether realized or unrealized. | |||||||||||||||||||||||||||||||||||||||||||||||
(4) Calculated based upon 422,201 diluted weighted-average shares for Classes A and B. | |||||||||||||||||||||||||||||||||||||||||||||||
REVENUE BY TYPE | ||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
October 28, | October 29, | October 28, | October 29, | |||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
License | $ | 621 | $ | 710 | $ | 1,990 | $ | 2,093 | ||||||||||||||||||
Subscription and SaaS | 988 | 820 | 2,830 | 2,336 | ||||||||||||||||||||||
Total license and subscription and SaaS | 1,609 | 1,530 | 4,820 | 4,429 | ||||||||||||||||||||||
Services: | ||||||||||||||||||||||||||
Software maintenance | 1,298 | 1,354 | 3,907 | 4,011 | ||||||||||||||||||||||
Professional services | 304 | 304 | 908 | 880 | ||||||||||||||||||||||
Total services | 1,602 | 1,658 | 4,815 | 4,891 | ||||||||||||||||||||||
Total revenue | $ | 3,211 | $ | 3,188 | $ | 9,635 | $ | 9,320 | ||||||||||||||||||
Percentage of revenue: | ||||||||||||||||||||||||||
License | 19.3 | % | 22.3 | % | 20.6 | % | 22.5 | % | ||||||||||||||||||
Subscription and SaaS | 30.8 | % | 25.7 | % | 29.4 | % | 25.0 | % | ||||||||||||||||||
Total license and subscription and SaaS | 50.1 | % | 48.0 | % | 50.0 | % | 47.5 | % | ||||||||||||||||||
Services: | ||||||||||||||||||||||||||
Software maintenance | 40.4 | % | 42.5 | % | 40.5 | % | 43.0 | % | ||||||||||||||||||
Professional services | 9.5 | % | 9.5 | % | 9.5 | % | 9.5 | % | ||||||||||||||||||
Total services | 49.9 | % | 52.0 | % | 50.0 | % | 52.5 | % | ||||||||||||||||||
Total revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||
REVENUE BY GEOGRAPHY | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
October 28, | October 29, | October 28, | October 29, | ||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||
United States | $ | 1,614 | $ | 1,582 | $ | 4,780 | $ | 4,587 | |||||||||||||||
International | 1,597 | 1,606 | 4,855 | 4,733 | |||||||||||||||||||
Total revenue | $ | 3,211 | $ | 3,188 | $ | 9,635 | $ | 9,320 | |||||||||||||||
Percentage of revenue: | |||||||||||||||||||||||
United States | 50.3 | % | 49.6 | % | 49.6 | % | 49.2 | % | |||||||||||||||
International | 49.7 | % | 50.4 | % | 50.4 | % | 50.8 | % | |||||||||||||||
Total revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||||||||
TO FREE CASH FLOWS | |||||||||||||||||||||||
(A NON-GAAP FINANCIAL MEASURE) | |||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
October 28, | October 29, | October 28, | October 29, | ||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
GAAP cash flows from operating activities | $ | 1,265 | $ | 1,090 | $ | 2,667 | $ | 3,220 | |||||||||||||||
Capital expenditures | (108) | (106) | (327) | (263) | |||||||||||||||||||
Free cash flows | $ | 1,157 | $ | 984 | $ | 2,340 | $ | 2,957 | |||||||||||||||