VMware Reports Second Quarter 2016 Results
Strong Momentum From Newer Businesses Contributed to Year-Over-Year Growth
/EINPresswire.com/ -- PALO ALTO, CA--(Marketwired - July 18, 2016) - VMware, Inc. (NYSE: VMW), a leader in cloud infrastructure and business mobility, today announced financial results for the second quarter of 2016:
- GAAP and non-GAAP revenues for the second quarter were $1.69 billion, an increase of 6% from non-GAAP revenues for the second quarter of 2015, and an increase of 11% from GAAP revenues for the second quarter of 2015.
- License revenues for the second quarter were $644 million, an increase of 1% from the second quarter of 2015.
- GAAP net income for the second quarter was $265 million, or $0.62 per diluted share, up 54% per diluted share compared to $172 million, or $0.40 per diluted share, for the second quarter of 2015. Non-GAAP net income for the quarter was $414 million, or $0.97 per diluted share, up 5% per diluted share compared to $396 million, or $0.93 per diluted share, for second quarter of 2015.
- GAAP operating income for the second quarter was $323 million, an increase of 57% from the second quarter of 2015. Non-GAAP operating income for the second quarter was $509 million, an increase of 6% from the second quarter of 2015.
- Operating cash flows for the second quarter were $577 million. Free cash flows for the quarter were $539 million.
- Cash, cash equivalents and short-term investments were $8.67 billion, and unearned revenue was $5.12 billion as of June 30, 2016.
- Total non-GAAP revenues plus sequential change in total unearned revenues grew 10% year-over-year. Total GAAP revenues plus sequential change in total unearned revenues grew 16% year-over-year.
- License revenues plus sequential change in unearned license revenues grew 5% year-over-year.
"Q2 was a continuation of the good start to the year we experienced in Q1, both for results and against our strategic goal of building momentum for our newer growth businesses and in the cloud," said Pat Gelsinger, chief executive officer, VMware. "Customers are turning to VMware to help them run, manage, secure and connect their applications across all clouds and all devices, with unparalleled connectivity, security and visibility."
Zane Rowe, executive vice president and chief financial officer, VMware, said, "This was another good quarter for VMware, and I'm particularly pleased with our financial performance and increasing strength of our balance sheet. We're also looking forward to returning value to our stockholders through the $1.2 billion stock repurchase we announced last quarter."
Recent Highlights & Strategic Announcements
- Last month, VMware made announcements to further innovate its Business Mobility strategy and product offerings. Announcements included:
- A new endpoint security solution powered by Tanium. The new solution, VMware TrustPoint, delivers an integrated solution for unified endpoint management and security.
- Advancements to Workspace ONE, powered by the latest update of VMware AirWatch 8.4 and VMware Identity Manager, that will deliver a new identity-defined managed workspace.
- VMware announced the acquisition of Arkin Net, a leader in software-defined data center security and operations. The acquisition will help customers accelerate adoption of VMware NSX and software-defined data centers.
- In April, VMware teamed with Pivotal to accelerate the deployment of cloud native applications. The new enterprise cloud native solution -- powered by Pivotal Cloud Foundry and VMware Photon Platform -- allows enterprises to run applications and infrastructure at startup speeds.
- Leading analyst firm IDC named VMware as the market share leader in both the worldwide cloud systems management
1 and the datacenter automation software markets2 based on 2015 revenues. This is the third consecutive year that VMware has topped both categories. - VMware AirWatch continues to receive industry recognition from top analyst firms:
- It was named a leader in the Gartner June 2016 Magic Quadrant for Enterprise Mobility Management (EMM), Suites
3 for the sixth consecutive year. It was also positioned the highest for ability to execute for the fourth year in a row and the furthest in completeness of vision this year. This is the first time in the history of the Gartner Magic Quadrant for EMM Suites that a single vendor placed the furthest on both axes.4 - For the second consecutive year, leading analyst firm IDC ranked VMware AirWatch as the largest EMM vendor in terms of market share for 2015.
5
- It was named a leader in the Gartner June 2016 Magic Quadrant for Enterprise Mobility Management (EMM), Suites
The company will host a conference call today at 2:00 p.m. PT/ 5:00 p.m. ET to review financial results and business outlook. A live web broadcast of the event will be available on the VMware investor relations website at http://ir.vmware.com. Slides will accompany the web broadcast. The replay of the webcast and slides will be available on the website for two months. In addition, six quarters of historical data for revenues which include year over year comparisons will also be made available at http://ir.vmware.com in conjunction with the conference call.
About VMware
VMware is a global leader in cloud infrastructure and business mobility. Built on VMware's industry-leading virtualization technology, our solutions deliver a brave new model of IT that is fluid, instant and more secure. Customers can innovate faster by rapidly developing, automatically delivering and more safely consuming any application. With 2015 revenues of $6.6 billion, VMware has more than 500,000 customers and 75,000 partners. The company is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com.
Additional Information
VMware's website is located at www.vmware.com, and its investor relations website is located at http://ir.vmware.com. VMware's goal is to maintain the investor relations website as a portal through which investors can easily find or navigate to pertinent information about VMware, all of which is made available free of charge. The additional information includes materials that VMware files with the SEC; announcements of investor conferences and events at which its executives talk about its products, services and competitive strategies; webcasts of its quarterly earnings calls, investor conferences and events (archives of which are also available for a limited time); additional information on its financial metrics, including reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures; press releases on quarterly earnings, product and service announcements, legal developments and international news; corporate governance information; and other news, blogs and announcements that VMware may post from time to time that investors may find useful or interesting.
VMware, VMware TrustPoint, VMware Identity Manager, Workspace ONE, Photon, and AirWatch, are registered trademarks or trademarks of VMware or its subsidiaries in the United States and other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective organizations.
Footnotes
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 VMware's plans to repurchase its Class A common stock, continuing growth and momentum across VMware's portfolio of newer products and businesses, the expected benefits of the VMware/Tanium partnership and VMware TrustPoint, VMware Workspace ONE, the acquisition of Arkin Net and the VMware/Pivotal partnership relating to cloud native applications. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer, government and information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization software and cloud, end user and mobile computing industries, and new product and marketing initiatives by VMware's competitors; (iv) VMware's customers' ability to transition to new products and computing strategies such as cloud computing, desktop virtualization and the software defined data center; (v) VMware's ability to enter into and maintain strategically effective partnerships; (vi) the uncertainty of customer acceptance of emerging technology; (vii) changes in the willingness of customers to enter into longer term licensing and support arrangements; (viii) rapid technological changes in the virtualization software and cloud, end user and mobile computing industries; (ix) changes to product and service development timelines; (x) VMware's relationship with EMC Corporation and EMC's ability to control matters requiring stockholder approval, including the election of VMware's board members and matters relating to EMC's investment in VMware, and any changes that Dell may implement following the completion of the Dell-EMC merger; (xi) VMware's ability to protect its proprietary technology; (xii) VMware's ability to attract and retain highly qualified employees; (xiii) the unsuccessful integration of acquired companies and assets into VMware; (xiv) disruptions to VMware's business resulting from the pendency and consummation of EMC's acquisition by Dell and the potential for loss of VMware customers due to uncertainty that the Dell-EMC transaction could have on VMware's business; (xv) the failure of Dell's acquisition of EMC to close when anticipated, if at all; (xvi) the ability of VMware to realize synergies following Dell's acquisition of EMC; (xvii) the potential negative analyst or stockholder sentiment regarding VMware's stock price due to the pending Dell-EMC merger; (xviii) the potential negative impact on VMware's stock price due to any confusion or uncertainty caused by the VMware tracking stock that is expected to be issued by Dell to EMC stockholders in the transaction; (xix) disruptions resulting from key management changes; (xx) pending or future stockholder litigation related to the Dell-EMC transaction; (xxi) fluctuating currency exchange rates; (xxii) fluctuations and volatility in VMware's stock price; (xxiii) changes in VMware's financial condition; (xxiv) changes in business opportunities and priorities that could cause VMware to consider alternative uses of cash; (xxv) fluctuations in the level of cash held in the United States that is available for stock repurchases; and (xxvi) potential disruptions of VMware's stock repurchase program due to regulatory restrictions related to Dell's acquisition of EMC and issuance of tracking stock. 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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2016 2015 2016 2015
--------- --------- --------- ---------
Revenues:
License $ 644 $ 638 $ 1,216 $ 1,214
Services 1,049 959 2,066 1,894
GSA settlement - (76) - (76)
--------- --------- --------- ---------
Total revenues 1,693 1,521 3,282 3,032
Operating expenses(1):
Cost of license revenues 40 46 81 96
Cost of services revenues 221 204 432 397
Research and development 363 322 720 627
Sales and marketing 580 565 1,144 1,100
General and administrative 167 180 338 367
Realignment charges (1) (2) 52 21
--------- --------- --------- ---------
Operating income 323 206 515 424
Investment income 19 13 35 25
Interest expense with EMC (7) (7) (13) (13)
Other income (expense), net 2 1 - -
--------- --------- --------- ---------
Income before income taxes 337 213 537 436
Income tax provision 72 41 111 68
--------- --------- --------- ---------
Net income $ 265 $ 172 $ 426 $ 368
========= ========= ========= =========
Net income per weighted-average
share, basic for Class A and
Class B $ 0.62 $ 0.41 $ 1.00 $ 0.86
Net income per weighted-average
share, diluted for Class A and
Class B $ 0.62 $ 0.40 $ 1.00 $ 0.86
Weighted-average shares, basic
for Class A and Class B 425,107 424,169 424,169 426,055
Weighted-average shares, diluted
for Class A and Class B 427,102 426,797 425,729 428,772
______
(1) Includes stock-based
compensation as follows:
Cost of license revenues $ - $ - $ 1 $ 1
Cost of services revenues 13 10 25 22
Research and development 74 53 144 107
Sales and marketing 47 43 95 81
General and administrative 18 17 36 31
VMware, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
June 30, December 31,
2016 2015
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,991 $ 2,493
Short-term investments 5,674 5,016
Accounts receivable, net of allowance for
doubtful accounts of $2 and $2 1,215 1,633
Due from related parties, net 96 74
Other current assets 167 144
------------- ------------
Total current assets 10,143 9,360
Property and equipment, net 1,073 1,128
Other assets 218 193
Deferred tax assets 442 456
Intangible assets, net 577 616
Goodwill 4,031 3,993
------------- ------------
Total assets $ 16,484 $ 15,746
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 115 $ 138
Accrued expenses and other 735 746
Unearned revenues 3,276 3,245
------------- ------------
Total current liabilities 4,126 4,129
Notes payable to EMC 1,500 1,500
Unearned revenues 1,846 1,831
Other liabilities 376 363
------------- ------------
Total liabilities 7,848 7,823
Contingencies
Stockholders' equity:
Class A common stock, par value $.01;
authorized 2,500,000 shares; issued and
outstanding 125,792 and 121,947 shares 1 1
Class B convertible common stock, par value
$.01; authorized 1,000,000 shares; issued and
outstanding 300,000 shares 3 3
Additional paid-in capital 2,991 2,728
Accumulated other comprehensive income (loss) 20 (8)
Retained earnings 5,621 5,195
------------- ------------
Total VMware, Inc.'s stockholders' equity 8,636 7,919
Non-controlling interests - 4
------------- ------------
Total stockholders' equity 8,636 7,923
------------- ------------
Total liabilities and stockholders' equity $ 16,484 $ 15,746
============= ============
VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2016 2015 2016 2015
--------- --------- --------- ---------
Operating activities:
Net income $ 265 $ 172 $ 426 $ 368
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 86 83 174 159
Stock-based compensation 152 123 301 242
Excess tax benefits from
stock-based compensation (1) (24) (1) (26)
Deferred income taxes, net 13 (6) (5) (22)
Impairment of strategic
investments - - 5 -
Gain on sale of strategic
investments (1) (1) (1) (1)
Other 5 - 5 -
Changes in assets and
liabilities, net of
acquisitions:
Accounts receivable (127) (226) 417 305
Other assets (20) (13) (23) (13)
Due to/from related parties,
net (81) 11 (18) 63
Accounts payable 18 16 (10) (33)
Accrued expenses 136 127 18 27
Income taxes payable (13) (16) (36) (49)
Unearned revenues 145 70 45 (21)
--------- --------- --------- ---------
Net cash provided by operating
activities 577 316 1,297 999
--------- --------- --------- ---------
Investing activities:
Additions to property and
equipment (38) (78) (79) (184)
Purchases of available-for-sale
securities (1,087) (1,068) (2,211) (2,095)
Sales of available-for-sale
securities 558 872 979 1,373
Maturities of available-for-sale
securities 332 269 619 524
Proceeds from disposal of assets - - 3 -
Purchases of strategic
investments (24) (3) (27) (4)
Sales of strategic investments 1 1 1 2
Business acquisitions, net of
cash acquired (59) - (59) (21)
Decrease (increase) in
restricted cash (4) - (2) 1
--------- --------- --------- ---------
Net cash used in investing
activities (321) (7) (776) (404)
--------- --------- --------- ---------
Financing activities:
Proceeds from issuance of common
stock 1 15 52 69
Proceeds from non-controlling
interests - 4 - 4
Payment to acquire non-
controlling interests (4) - (4) -
Repurchase of common stock - (412) - (850)
Excess tax benefits from stock-
based compensation 1 24 1 26
Shares repurchased for tax
withholdings on vesting of
restricted stock (48) (90) (72) (124)
--------- --------- --------- ---------
Net cash used in financing
activities (50) (459) (23) (875)
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents 206 (150) 498 (280)
Cash and cash equivalents at
beginning of the period 2,785 1,941 2,493 2,071
--------- --------- --------- ---------
Cash and cash equivalents at end
of the period $ 2,991 $ 1,791 $ 2,991 $ 1,791
========= ========= ========= =========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 7 $ 7 $ 14 $ 14
Cash paid for taxes, net 72 62 135 136
Non-cash items:
Changes in capital additions,
accrued but not paid $ (16) $ 20 $ (19) $ (22)
VMware, Inc.
CONSTANT CURRENCY GROWTH IN REVENUES PLUS SEQUENTIAL CHANGE IN UNEARNED
REVENUES
(in millions)
(unaudited)
Constant Currency Growth in Total Revenues Plus Sequential Change in
Unearned Revenues
---------------------------------------------------------------------------
Three Months Ended
June 30,
--------------------------
2016 2015
------------ ------------
Total revenues, as reported $ 1,693 $ 1,521
Sequential change in unearned revenues 146 70
------------ ------------
Total revenues plus sequential change in
unearned revenues $ 1,839 $ 1,591
============ ============
-------------
Change (%) over prior year, as reported 16%
Change (%) over prior year, including adjustment
for impact of foreign currency(1) 15%
-------------
Reduction of revenues due to the GSA
settlement(2) $ - $ (76)
------------ ------------
Total revenues plus sequential change in
unearned revenues, excluding reduction of
revenues due to the GSA settlement $ 1,839 $ 1,667
============ ============
-------------
Change (%) over prior year, excluding reduction
of revenues due to the GSA settlement 10%
Change (%) over prior year, adjusting for Q2-
2015 foreign currency impact and excluding
reduction of revenues due to the GSA settlement 10%
-------------
Constant Currency Growth in License Revenues Plus Sequential Change in
Unearned License Revenues
---------------------------------------------------------------------------
Three Months Ended
June 30,
--------------------------
2016 2015
------------ ------------
Total license revenues as reported $ 644 $ 638
Sequential change in unearned license revenues 40 15
------------ ------------
Total license revenues plus sequential change in
unearned license revenues $ 684 $ 653
============ ============
-------------
Change (%) over prior year, as reported 5%
Change (%) over prior year, including adjustment
for impact of foreign currency(3) 4%
-------------
(1) Percentage change compares total revenues plus sequential change in
unearned revenues in constant currency for the three months ended June
30, 2016 versus total revenues plus sequential change in unearned
revenues as reported for the three months ended June 30, 2015. See
"Growth in Constant Currency" for more information.
(2) Reflects reduction of revenues due to the GSA settlement that was
included in VMware's reported revenues during the quarter ended June 30,
2015.
(3) Percentage change compares license revenues plus sequential change in
unearned license revenues in constant currency for the three months
ended June 30, 2016 versus license revenues plus sequential change in
unearned license revenues as reported for the three months ended June
30, 2015. See "Growth in Constant Currency" for more information.
VMware, Inc.
SUPPLEMENTAL REVENUES SCHEDULE
(INCLUDES RECONCILIATION OF GAAP TO NON-GAAP DATA)
(in millions)
(unaudited)
Three Months Ended
------------------------------------------------------------
December September
June 30, March 31, 31, 30, June 30, March 31,
2016 2016 2015 2015 2015 2015
-------- --------- ---------- ---------- -------- ---------
Revenues as
reported(1):
License $ 644 $ 572 $ 825 $ 681 $ 638 $ 576
Software
maintenance 915 891 901 863 829 813
Professional
services 134 126 142 128 130 122
GSA
settlement - - - - (76) -
-------- --------- ---------- ---------- -------- ---------
Total revenues $ 1,693 $ 1,589 $ 1,868 $ 1,672 $ 1,521 $ 1,511
======== ========= ========== ========== ======== =========
Change (%) over
prior year:
License 0.9% (0.7)% 6.2% 6.6% 3.9% 2.7%
Software
maintenance 10.4% 9.7% 12.1% 10.8% 12.4% 15.9%
Professional
services 3.5% 2.7% 16.1% 31.3% 22.6% 24.6%
GSA
settlement n/a n/a n/a n/a n/a n/a
-------- --------- ---------- ---------- -------- ---------
Total revenues 11.3% 5.2% 9.7% 10.3% 4.4% 11.1%
======== ========= ========== ========== ======== =========
Revenues as
reported,
excluding GSA
settlement(2):
License $ 644 $ 572 $ 825 $ 681 $ 638 $ 576
Software
maintenance 915 891 901 863 829 813
Professional
services 134 126 142 128 130 122
-------- --------- ---------- ---------- -------- ---------
Non-GAAP total
revenues $ 1,693 $ 1,589 $ 1,868 $ 1,672 $ 1,597 $ 1,511
======== ========= ========== ========== ======== =========
Change (%) over
prior year:
License 0.9% (0.7)% 6.2% 6.6% 3.9% 2.7%
Software
maintenance 10.4% 9.7% 12.1% 10.8% 12.4% 15.9%
Professional
services 3.5% 2.7% 16.1% 31.3% 22.6% 24.6%
-------- --------- ---------- ---------- -------- ---------
Non-GAAP total
revenues 6.0% 5.2% 9.7% 10.3% 9.6% 11.1%
======== ========= ========== ========== ======== =========
(1) Represents revenues reported each quarter.
(2) Represents revenues reported each quarter less the reduction of
revenues due to the GSA settlement recognized in the second quarter of
2015.
VMware, Inc.
SUPPLEMENTAL UNEARNED REVENUES SCHEDULE
(in millions)
(unaudited)
March December September
June 30, 31, 31, 30, June 30, March 31,
2016 2016 2015 2015 2015 2015
-------- -------- ---------- --------- -------- ---------
Unearned
revenues as
reported(1):
License $ 455 $ 415 $ 428 $ 404 $ 481 $ 466
Software
maintenance 4,189 4,105 4,174 3,850 3,894 3,847
Professional
services 478 456 474 432 438 431
-------- -------- ---------- --------- -------- ---------
Total unearned
revenues $ 5,122 $ 4,976 $ 5,076 $ 4,686 $ 4,813 $ 4,744
======== ======== ========== ========= ======== =========
Change (%)
over prior
year:
License (5.5)% (11.0)% (12.2)% (5.6)% 1.1% 1.7%
Software
maintenance 7.6% 6.7% 6.9% 8.2% 10.0% 13.9%
Professional
services 9.2% 6.0% 7.9% 11.2% 17.9% 28.2%
-------- -------- ---------- --------- -------- ---------
Total unearned
revenues 6.4% 4.9% 5.0% 7.1% 9.7% 13.7%
======== ======== ========== ========= ======== =========
(1) Represents unearned revenues reported each quarter.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended June 30, 2016
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Employer
Payroll Taxes
on Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
----- ------------ ------------- ------------
Operating income $ 323 152 1 31
Operating margin(2) 19.1% 9.0% 0.1% 1.8%
Income before income
taxes $ 337 152 1 31
Income tax provision $ 72
Tax rate(2) 21.4%
Net income $ 265 152 1 31
Net income per
weighted-average
share, diluted for
Class A and Class B(2)
(3) $0.62 $ 0.35 $ - $ 0.07
table continued below
Acquisition Non-GAAP,
and Other Tax as
Realignment Related Adjustment adjusted
Charges Items (1) (2)
------------- ------------ ------------ ----------
Operating income (1) 3 - $ 509
Operating margin(2) -% 0.2% - 30.0%
Income before income
taxes (1) 2 - $ 521
Income tax provision 35 $ 107
Tax rate(2) 20.5%
Net income (1) 2 (35)$ 414
Net income per
weighted-average
share, diluted for
Class A and Class B(2)
(3) $ - $ - $ (0.08)$ 0.97
(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 revenues and
expenses and other significant events. Due to the differences in the tax
treatment of items excluded from non-GAAP earnings, as well as the
methodology applied to our estimated annual tax rates as described
above, our estimated tax rate on non-GAAP income may differ from our
GAAP tax rate and from our actual tax liabilities.
(2) Totals may not sum, due to rounding. Operating margin, tax rate and net
income per weighted average share information are calculated based upon
the respective underlying, non-rounded data.
(3) Calculated based upon 427,102 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended June 30, 2015
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Employer
Payroll
Taxes on
Employee
Stock-Based Stock Intangible Realignment
GAAP Compensation Transactions Amortization Charges
------ ------------ ------------ ------------ -----------
Revenues:
GSA
settlement $ (76) - - - -
Total revenues $1,521 - - - -
Operating
income $ 206 123 5 36 (2)
Operating
margin(2) 13.5% 8.1% 0.3% 2.4% (0.1)%
Income before
income taxes $ 213 123 5 36 (2)
Income tax
provision $ 41
Tax rate(2) 19.3%
Net income $ 172 123 5 36 (2)
Net income per
weighted-
average share,
diluted for
Class A and
Class B(2) (3) $ 0.40 $ 0.29 $ 0.01 $ 0.08 $ -
table continued below
Acquisition
and Other Non-GAAP,
Related GSA Tax as
Items Settlement Adjustment(1) adjusted(2)
------------ ------------ ------------- -----------
Revenues:
GSA
settlement - 76 - $ -
Total revenues - 76 - $ 1,597
Operating
income 42 70 - $ 479
Operating
margin(2) 2.8% 4.6% - 30.0%
Income before
income taxes 41 70 - $ 486
Income tax
provision 49 $ 90
Tax rate(2) 18.5%
Net income 41 70 (49) $ 396
Net income per
weighted-
average share,
diluted for
Class A and
Class B(2) (3)$ 0.10 $ 0.16 $ (0.11) $ 0.93
(1) Non-GAAP financial information for the quarter is adjusted for a tax
rate equal to our annual estimated tax rate on non-GAAP income. This
rate is based on our estimated annual GAAP income tax rate forecast,
adjusted to account for items excluded from GAAP income in calculating
the non-GAAP financial measures presented above as well as significant
tax adjustments. Our estimated tax rate on non-GAAP income is determined
annually and may be adjusted during the year to take into account events
or trends that we believe materially impact the estimated annual rate
including, but not limited to, significant changes resulting from tax
legislation, material changes in the geographic mix of revenues and
expenses and other significant events. Due to the differences in the tax
treatment of items excluded from non-GAAP earnings, as well as the
methodology applied to our estimated annual tax rates as described
above, our estimated tax rate on non-GAAP income may differ from our
GAAP tax rate and from our actual tax liabilities.
(2) Totals may not sum, due to rounding. Operating margin, tax rate and net
income per weighted average share information are calculated based upon
the respective underlying, non-rounded data.
(3) Calculated based upon 426,797 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended June 30, 2016
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Employer
Payroll
Taxes on
Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
------ ------------ ------------ ------------
Operating income $ 515 301 4 63
Operating margin(2) 15.7% 9.2% 0.1% 1.9%
Income before income
taxes $ 537 301 4 63
Income tax provision $ 111
Tax rate(2) 20.7%
Net income $ 426 301 4 63
Net income per
weighted-average
share, diluted for
Class A and Class B(2)
(3) $ 1.00 $ 0.71 $ 0.01 $ 0.15
table continued below
Acquisition Non-GAAP,
and Other Tax as
Realignment Related Adjustment adjusted
Charges Items (1) (2)
------------ ------------ ------------ ----------
Operating income 52 19 - $ 955
Operating margin(2) 1.6% 0.6% - 29.1%
Income before income
taxes 52 21 - $ 978
Income tax provision 87 $ 198
Tax rate(2) 20.3%
Net income 52 21 (87) $ 780
Net income per
weighted-average
share, diluted for
Class A and Class B(2)
(3) $ 0.12 $ 0.05 $ (0.21) $ 1.83
(1) Non-GAAP financial information for the quarter is adjusted for a tax
rate equal to our annual estimated tax rate on non-GAAP income. This
rate is based on our estimated annual GAAP income tax rate forecast,
adjusted to account for items excluded from GAAP income in calculating
the non-GAAP financial measures presented above as well as discrete
items. 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 revenues and
expenses and other significant events. Due to the differences in the tax
treatment of items excluded from non-GAAP earnings, as well as the
methodology applied to our estimated annual tax rates as described
above, our estimated tax rate on non-GAAP income may differ from our
GAAP tax rate and from our actual tax liabilities.
(2) Totals may not sum, due to rounding. Operating margin, tax rate and net
income per weighted average share information are calculated based upon
the respective underlying, non-rounded data.
(3) Calculated based upon 425,729 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Six Months Ended June 30, 2015
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
Employer
Payroll
Taxes on
Employee
Stock-Based Stock Intangible Realignment
GAAP Compensation Transactions Amortization Charges
------ ------------ ------------ ------------ -----------
Revenues:
GSA settlement $ (76) - - - -
Total revenues $3,032 - - - -
Operating income $ 424 242 7 72 21
Operating
margin(2) 14.0% 8.0% 0.2% 2.4% 0.7%
Income before
income taxes $ 436 242 7 72 21
Income tax
provision $ 68
Tax rate(2) 15.5%
Net income $ 368 242 7 72 21
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 0.86 $ 0.57 $ 0.02 $ 0.17 $ 0.05
table continued below
Acquisition Certain Non-GAAP,
and Other Litigation Tax as
Related GSA and Other Adjustment adjusted
Items Settlement Contingencies (1) (2)
----------- ---------- ------------- ---------- ---------
Revenues:
GSA settlement - 76 - - $ -
Total revenues - 76 - - $ 3,107
Operating income 84 70 11 - $ 931
Operating
margin(2) 2.8% 2.3% 0.4% - 30.0%
Income before
income taxes 81 70 11 - $ 939
Income tax
provision 106 $ 174
Tax rate(2) 18.5%
Net income 81 70 11 (106)$ 765
Net income per
weighted-average
share, diluted
for Class A and
Class B(2) (3) $ 0.19 $ 0.16 $ 0.03 $ (0.25)$ 1.78
(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 revenues and
expenses and other significant events. Due to the differences in the tax
treatment of items excluded from non-GAAP earnings, as well as the
methodology applied to our estimated annual tax rates as described
above, our estimated tax rate on non-GAAP income may differ from our
GAAP tax rate and from our actual tax liabilities.
(2) Totals may not sum, due to rounding. Operating margin, tax rate and net
income per weighted average share information are calculated based upon
the respective underlying, non-rounded data.
(3) Calculated based upon 428,772 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
REVENUES BY TYPE
(in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2016 2015 2016 2015
--------- -------- --------- --------
Revenues:
License $ 644 $ 638 $ 1,216 $ 1,214
Services:
Software maintenance 915 829 1,806 1,641
Professional services 134 130 260 253
--------- -------- --------- --------
Total services 1,049 959 2,066 1,894
GSA settlement - (76) - (76)
--------- -------- --------- --------
Total revenues $ 1,693 $ 1,521 $ 3,282 $ 3,032
========= ======== ========= ========
Percentage of revenues:
License 38.0% 42.0% 37.1% 40.1%
Services:
Software maintenance 54.1% 54.5% 55.0% 54.1%
Professional services 7.9% 8.5% 7.9% 8.3%
--------- -------- --------- --------
Total services 62.0% 63.0% 62.9% 62.4%
GSA settlement -% (5.0)% -% (2.5)%
--------- -------- --------- --------
Total revenues 100.0% 100.0% 100.0% 100.0%
========= ======== ========= ========
VMware, Inc.
REVENUES BY GEOGRAPHY
(in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2016 2015 2016 2015
--------- --------- --------- ---------
Revenues:
United States $ 870 $ 742 $ 1,671 $ 1,504
International 823 779 1,611 1,528
--------- --------- --------- ---------
Total revenues $ 1,693 $ 1,521 $ 3,282 $ 3,032
========= ========= ========= =========
Percentage of revenues:
United States 51.4% 48.8% 50.9% 49.6%
International 48.6% 51.2% 49.1% 50.4%
--------- --------- --------- ---------
Total revenues 100.0% 100.0% 100.0% 100.0%
========= ========= ========= =========
VMware, Inc.
RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES
TO FREE CASH FLOWS
(A NON-GAAP FINANCIAL MEASURE)
(in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2016 2015 2016 2015
--------- --------- --------- ---------
GAAP cash flows from operating
activities $ 577 $ 316 $ 1,297 $ 999
Capital expenditures (38) (78) (79) (184)
--------- --------- --------- ---------
Free cash flows $ 539 $ 238 $ 1,218 $ 815
========= ========= ========= =========
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 revenues, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP income per diluted share, and free cash flows. 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 flows, differ from GAAP in that they exclude stock-based compensation, employer payroll tax on employee stock transactions, amortization of acquired intangible assets, realignment charges, acquisition and other-related items, certain litigation and other contingencies, and the GSA settlement, each as discussed below. Free cash flows differ from GAAP cash flows from operating activities in its treatment of capital expenditures.
VMware has also presented in this earnings release (i) quarterly historical data for total revenues, excluding the GSA settlement, and unearned revenues; and (ii) data on the percentage change in total revenues and license revenues plus the sequential change in unearned revenues and unearned license revenues, respectively, excluding the reduction of total revenues due to the GSA settlement during the second quarter of 2015. VMware's management believes that these measures are useful to investors because they allow investors to make meaningful comparisons of VMware revenues and unearned revenues across periods.
Additionally, VMware has presented in this earnings release data on the year-over-year growth in constant currency of (i) total revenues plus the sequential change in total unearned revenues and (ii) license revenues plus sequential change in unearned license revenues. VMware provides this information in order to provide a comparable framework for assessing how our business performed, adjusted for the impact of foreign currency fluctuations.
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 flows 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 and to facilitate comparison of its results to those of peer companies.
- Employer payroll tax 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 ongoing business and operating results.
-
Acquisition and other-related 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 and other-related 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.
- Accruals for the portion of merger consideration payable in installments that may be paid in cash or VMware stock, at the option of VMware. These accruals are primarily composed of amounts VMware has committed to make to designated founders and key executives of AirWatch, subject to employment conditions and indemnification claims, if any.
- Charges recognized for non-recoverable strategic investments or gains recognized on the disposition of strategic investments are included as other-related items.
- Certain costs incurred related to Denali's proposed acquisition of VMware's parent company, EMC Corporation.
- 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 the matter.
- GSA Settlement. During the second quarter of 2015, VMware reached an agreement with the Department of Justice ("DOJ") and the General Services Administration ("GSA") to resolve allegations that its sales practices between 2006 and 2013 had violated the federal False Claims Act. The settlement amount was $76 million and was recorded as a reduction of total revenues. VMware believes it is useful to exclude this amount because it does not consider it to be part of the ongoing operations of VMware's business and because of the singular nature of the claims underlying the matter.
- 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 revenues 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 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 free cash flows is meaningful to investors because management reviews cash flows 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.
Growth in Constant Currency
A majority of VMware's sales are denominated in the U.S. dollar; however, VMware also invoices and collects in the euro, the British pound, the Japanese yen, the Australian dollar and the Chinese renminbi in their respective regions. The U.S. dollar is the functional currency for all of VMware's legal entities. At the time a non-U.S. dollar transaction is recorded, the value of the transaction is converted into U.S. dollars at the exchange rate in effect for the month in which each order is booked.
As a result, the amount of license and total revenues and unearned revenues derived from these transactions will be impacted by foreign exchange fluctuations. In order to provide a comparable framework for assessing how VMware's business performed adjusted for the impact of foreign currency fluctuations, management analyzes year-over-year license and total revenues growth on a constant currency basis.
Revenues Growth in Constant Currency and Sequential Change in Unearned Revenues
License and total revenues recognized during the current period derived from non-U.S. dollar based transactions were converted into U.S. dollars using the exchange rates that were effective in the comparable prior year period. The calculated current period license and total revenues, adjusted for foreign currency fluctuations, is compared to the license and total revenues of the comparable prior year period, as reported, in calculating license and total revenues growth in constant currency.
Unearned license revenues and unearned total revenues at the end of the period, derived from non-U.S. dollar transactions recorded during the current period, were adjusted for foreign currency fluctuations using the exchange rates that were effective in the comparable prior year period. Unearned license revenues and unearned total revenues, adjusted for foreign currency fluctuations at the end of the period, are compared to unearned license revenues and unearned total revenues at the beginning of the period, as reported, in determining the sequential change in unearned revenues.
Contacts:
Paul Ziots
VMware Investor Relations
pziots@vmware.com
650-427-3267
Michael Thacker
VMware Global PR
mthacker@vmware.com
650-427-4454
Legal Disclaimer:
EIN Presswire provides this news content "as is" without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the author above.
