VMware Reports Fourth Quarter and Full Year 2016 Results
PALO ALTO, CA -- (Marketwired) -- 01/26/17 -- VMware, Inc. (NYSE: VMW), a leader in cloud infrastructure and business mobility, today announced financial results for the fourth quarter and full year of 2016:
Quarterly Review
- Revenue for the fourth quarter was $2.03 billion, an increase of 9% from the fourth quarter of 2015.
- License revenue for the fourth quarter was $887 million, an increase of 8% from the fourth quarter of 2015.
- GAAP net income for the fourth quarter was $441 million, or $1.04 per diluted share, up 18% per diluted share compared to $373 million, or $0.88 per diluted share, for the fourth quarter of 2015. Non-GAAP net income for the quarter was $597 million, or $1.43 per diluted share, up 13% per diluted share compared to $534 million, or $1.26 per diluted share, for the fourth quarter of 2015.
- GAAP operating income for the fourth quarter was $543 million, an increase of 21% from the fourth quarter of 2015. Non-GAAP operating income for the fourth quarter was $747 million, an increase of 14% from the fourth quarter of 2015.
- Operating cash flows for the fourth quarter were $463 million. Free cash flows for the quarter were $419 million.
- Total revenue plus sequential change in total unearned revenue grew 13% year-over-year.
- License revenue plus sequential change in unearned license revenue grew 14% year-over-year.
Annual Review
- Revenue for 2016 was $7.09 billion, an increase of 8% from 2015 on a GAAP basis and up 7% on a non-GAAP basis.
- License revenue for 2016 was $2.79 billion, an increase of 3% from 2015.
- GAAP net income for 2016 was $1.19 billion, or $2.78 per diluted share, up 19% per diluted share compared to $997 million, or $2.34 per diluted share, for 2015. Non-GAAP net income for 2016 was $1.86 billion, or $4.39 per diluted share, up 8% per diluted share compared to $1.73 billion, or $4.06 per diluted share, for 2015.
- GAAP operating income for 2016 was $1.44 billion, an increase of 20% from 2015. Non-GAAP operating income for 2016 was $2.29 billion, an increase of 9% from 2015.
- Operating cash flows for 2016 were $2.38 billion. Free cash flows for 2016 were $2.23 billion.
- Cash, cash equivalents and short-term investments were $7.99 billion, and unearned revenue was $5.62 billion as of December 31, 2016.
The company also announced that its Board of Directors has authorized the repurchase of up to $1.2 billion of its Class A common stock through the end of fiscal 2018, ending on February 2, 2018. Stock will be purchased from time to time, in the open market or through private transactions, subject to market conditions. The stock repurchase authorization is in addition to the Company's ongoing $500 million stock repurchase program announced in December 2016.
"Q4 closed out a strong fiscal 2016 and was one of the most balanced quarters for VMware in years," said Pat Gelsinger, chief executive officer, VMware. "We're very pleased with our strong product momentum and customer enthusiasm for our Cloud strategy. We believe we have the world's most complete and capable hybrid cloud architecture, uniquely offering customers freedom and control in their infrastructure decisions."
Zane Rowe, executive vice president and chief financial officer, VMware, said, "This was a very good year for VMware demonstrated by strong revenue, earnings and cash flow growth, as well as a significant amount of capital returned to shareholders in the form of stock repurchases. We're pleased to announce the authorization of an additional $1.2 billion of stock repurchases to be completed during fiscal 2018."
Recent Highlights & Strategic Announcements
- In October, VMware and Amazon Web Services announced a partnership to provide a new VMware vSphere®-based cloud service running on AWS. VMware Cloud™ on AWS will make it easier to run any application, using a common set of familiar software and tools, in a consistent hybrid cloud environment. This new service will be delivered, sold and supported by VMware and will be available later in 2017.
- VMware hosted over 75,000 customers, partners and influencers at VMworld® 2016, VMworld 2016 Europe and across APJ vForums in 17 cities across 13 countries.
- At VMworld 2016 Europe, the company introduced a wave of new products and services designed to help customers accelerate their digital transformation:
- Now generally available, the new releases of VMware vSphere®, VMware vSAN™ and VMware vRealize® Automation™ all introduced support for containers, enabling developers to become more productive and IT to easily run containerized applications in production.
- VMware further expanded the company's growing ecosystem of VMware Ready™ for Network Functions Virtualization (NFV) certified solutions, with 22 Virtual Network Functions now certified from 19 vendors worldwide. VMware's growing set of NFV partners helps global communications service providers adopt and deploy NFV to transform their operations and service portfolio with speed and confidence.
- VMware was positioned as a leader in the "IDC MarketScape: Worldwide Virtual Client Computing Software 2016 Vendor Assessment (doc # US40700016, November 2016)." The report evaluated eight vendors based on criteria that span across strategies and capabilities. VMware was recognized for the second consecutive year for having the most complete mix of business and solution strategies and capabilities for delivering virtual desktops and applications through its VMware Horizon® portfolio of solutions and services that includes VMware Horizon® 7, Horizon Air™, Horizon FLEX™ and VMware App Volumes™.
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, a global leader in cloud infrastructure and business mobility, helps customers accelerate their digital transformation. VMware enables enterprises to master a software-defined approach to business and IT with its Cross-Cloud Architecture™ and solutions for the data center, mobility, and security. With 2016 revenue of $7.09 billion, VMware is headquartered in Palo Alto, CA and has over 500,000 customers and 75,000 partners worldwide.
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, vSphere, VMware Cloud, VMworld, VMware vSAN, vRealize, vRealize Automation, VMware Ready, Horizon, Horizon Air, Horizon FLEX, VMware App Volumes, and Cross-Cloud Architecture 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.
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 product momentum and stock repurchase plans; the anticipated availability of the VMware Cloud on AWS; and the expected benefits to customers of VMware Cloud on AWS, VMware's recent product releases and VMware's growing number of NFV partnerships. 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) rapid technological changes in the virtualization software and cloud, end user and mobile computing industries; (viii) changes to product and service development timelines; (ix) 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; (x) VMware's ability to protect its proprietary technology; (xi) VMware's ability to attract and retain highly qualified employees; (xii) the ability to successfully integrate acquired companies and assets into VMware; (xiii) the ability of VMware to realize synergies from Dell; (xiv) disruptions resulting from key management changes; (xv) fluctuating currency exchange rates; (xvi) changes in VMware's financial condition; (xvii) potential disruptions relating to the transition to Dell's fiscal year and further business integrations with Dell, (xviii) changes in business opportunities and priorities that could cause VMware to consider alternative uses of cash; and (xix) fluctuations in the level of cash held in the United States that is available for stock repurchases. 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
December 31, December 31,
--------------------- ---------------------
2016 2015 2016 2015
---------- ---------- ---------- ----------
Revenue:
License $ 887 $ 825 $ 2,794 $ 2,720
Services 1,145 1,043 4,299 3,927
GSA settlement - - - (76)
---------- ---------- ---------- ----------
Total revenue 2,032 1,868 7,093 6,571
Operating expenses(1):
Cost of license revenue 38 44 159 186
Cost of services revenue 237 222 894 832
Research and development 395 342 1,503 1,300
Sales and marketing 646 612 2,357 2,267
General and administrative 173 198 689 766
Realignment - 3 52 23
---------- ---------- ---------- ----------
Operating income 543 447 1,439 1,197
Investment income 21 11 77 49
Interest expense with Dell (7) (7) (26) (26)
Other income (expense), net (8) 2 (17) (7)
---------- ---------- ---------- ----------
Income before income tax 549 453 1,473 1,213
Income tax provision 108 80 287 216
---------- ---------- ---------- ----------
Net income $ 441 $ 373 $ 1,186 $ 997
========== ========== ========== ==========
Net income per weighted-average
share, basic for Class A and
Class B $ 1.07 $ 0.89 $ 2.82 $ 2.35
Net income per weighted-average
share, diluted for Class A and
Class B $ 1.04 $ 0.88 $ 2.78 $ 2.34
Weighted-average shares, basic
for Class A and Class B 412,118 421,640 420,520 424,003
Weighted-average shares, diluted
for Class A and Class B 416,512 422,858 423,994 426,547
______
(1) Includes stock-based
compensation as follows:
Cost of license revenue $ 1 $ 1 $ 2 $ 2
Cost of services revenue 14 11 52 44
Research and development 81 62 305 226
Sales and marketing 49 44 195 168
General and administrative 20 17 82 64
VMware, Inc.
CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
December 31, December 31,
2016 2015
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,790 $ 2,493
Short-term investments 5,195 5,016
Accounts receivable, net of allowance for
doubtful accounts of $2 and $2 1,856 1,633
Due from related parties, net 132 74
Other current assets 362 144
-------------- --------------
Total current assets 10,335 9,360
Property and equipment, net 1,049 1,128
Other assets 248 193
Deferred tax assets 462 456
Intangible assets, net 517 616
Goodwill 4,032 3,993
-------------- --------------
Total assets $ 16,643 $ 15,746
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 125 $ 138
Accrued expenses and other 898 746
Unearned revenue 3,531 3,245
-------------- --------------
Total current liabilities 4,554 4,129
Notes payable to Dell 1,500 1,500
Unearned revenue 2,093 1,831
Other liabilities 399 363
-------------- --------------
Total liabilities 8,546 7,823
Contingencies
Stockholders' equity:
Class A common stock, par value $.01;
authorized 2,500,000 shares; issued and
outstanding 108,351 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 1,721 2,728
Accumulated other comprehensive income
(loss) (9) (8)
Retained earnings 6,381 5,195
-------------- --------------
Total VMware, Inc.'s stockholders' equity 8,097 7,919
Non-controlling interests - 4
-------------- --------------
Total stockholders' equity 8,097 7,923
-------------- --------------
Total liabilities and stockholders'
equity $ 16,643 $ 15,746
============== ==============
VMware, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
2016 2015 2016 2015
---------- ---------- ---------- ----------
Operating activities:
Net income $ 441 $ 373 $ 1,186 $ 997
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 83 90 345 335
Stock-based compensation 165 135 636 504
Excess tax benefits from
stock-based compensation (9) - (15) (28)
Deferred income taxes, net 16 12 (8) (31)
Gain on Dell share repurchase (8) - (8) -
Impairment of strategic
investments 2 - 14 5
Loss on disposal of assets 4 - 16 -
Other 1 (1) (2) (1)
Changes in assets and
liabilities, net of
acquisitions:
Accounts receivable (737) (622) (224) (114)
Other assets (195) 17 (215) 32
Due to/from related parties,
net (109) (52) (54) (21)
Accounts payable 17 1 (9) (35)
Accrued expenses 251 154 187 1
Income taxes payable 11 (10) (15) 13
Unearned revenue 530 391 547 242
---------- ---------- ---------- ----------
Net cash provided by operating
activities 463 488 2,381 1,899
---------- ---------- ---------- ----------
Investing activities:
Additions to property and
equipment (44) (59) (153) (333)
Purchases of available-for-sale
securities (389) (648) (3,725) (3,323)
Sales of available-for-sale
securities 458 494 2,227 2,193
Maturities of available-for-sale
securities 294 261 1,307 1,100
Proceeds from disposal of assets - - 3 -
Purchases of strategic
investments (16) (3) (49) (14)
Proceeds from sales of strategic
investments - 1 1 4
Business combinations, net of
cash acquired (15) (17) (74) (38)
Decrease (increase) in
restricted cash - (2) (2) 75
---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities 288 27 (465) (336)
---------- ---------- ---------- ----------
Financing activities:
Proceeds from issuance of common
stock 2 3 109 126
Proceeds from non-controlling
interests - - - 4
Payment to acquire non-
controlling interests - - (4) -
Repurchase of common stock (559) (75) (1,575) (1,125)
Excess tax benefits from stock-
based compensation 9 - 15 28
Shares repurchased for tax
withholdings on vesting of
restricted stock (67) (33) (164) (174)
---------- ---------- ---------- ----------
Net cash used in financing
activities (615) (105) (1,619) (1,141)
---------- ---------- ---------- ----------
Net increase in cash and cash
equivalents 136 410 297 422
Cash and cash equivalents at
beginning of the period 2,654 2,083 2,493 2,071
---------- ---------- ---------- ----------
Cash and cash equivalents at end
of the period $ 2,790 $ 2,493 $ 2,790 $ 2,493
========== ========== ========== ==========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 8 $ 7 $ 29 $ 28
Cash paid for taxes, net 255 76 467 231
Non-cash items:
Changes in capital additions,
accrued but not paid $ 8 $ - $ (7) $ (49)
Changes in tax withholdings on
vesting of restricted stock,
accrued but not paid 2 1 3 (2)
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
December 31,
--------------------
2016 2015
---------- ---------
Total revenue, as reported $ 2,032 $ 1,868
Sequential change in unearned revenue 530 391
---------- ---------
Total revenue plus sequential change in unearned
revenue $ 2,562 $ 2,259
========== =========
----------
Change (%) over prior year, as reported 13%
----------
Growth in License Revenue Plus Sequential Change in Unearned License Revenue
----------------------------------------------------------------------------
Three Months Ended
December 31,
--------------------
2016 2015
---------- ---------
Total license revenue, as reported $ 887 $ 825
Sequential change in unearned license revenue 78 24
---------- ---------
Total license revenue plus sequential change in
unearned license revenue $ 965 $ 849
========== =========
----------
Change (%) over prior year, as reported 14%
----------
VMware, Inc.
SUPPLEMENTAL REVENUE SCHEDULE
(INCLUDES RECONCILIATION OF GAAP TO NON-GAAP DATA)
(in millions)
(unaudited)
Three Months Ended
------------------------------------------------------------
December September June March December September
31, 2016 30, 2016 30, 2016 31, 2016 31, 2015 30, 2015
--------- --------- --------- ---------- --------- ---------
Revenue as
reported(1):
License $ 887 $ 691 $ 644 $ 572 $ 825 $ 681
Software
maintenance 987 947 915 891 901 863
Professional
services 158 140 134 126 142 128
--------- --------- --------- ---------- --------- ---------
Total revenue $ 2,032 $ 1,778 $ 1,693 $ 1,589 $ 1,868 $ 1,672
========= ========= ========= ========== ========= =========
Change (%) over
prior year:
License 7.5% 1.4% 0.9% (0.7)% 6.2% 6.6%
Software
maintenance 9.6% 9.7% 10.4% 9.7% 12.1% 10.8%
Professional
services 11.3% 10.7% 3.5% 2.7% 16.1% 31.3%
--------- --------- --------- ---------- --------- ---------
Total revenue 8.8% 6.4% 11.3% 5.2% 9.7% 10.3%
========= ========= ========= ========== ========= =========
Revenue as
reported,
excluding GSA
settlement(2):
License $ 887 $ 691 $ 644 $ 572 $ 825 $ 681
Software
maintenance 987 947 915 891 901 863
Professional
services 158 140 134 126 142 128
--------- --------- --------- ---------- --------- ---------
Non-GAAP total
revenue $ 2,032 $ 1,778 $ 1,693 $ 1,589 $ 1,868 $ 1,672
========= ========= ========= ========== ========= =========
Change (%) over
prior year:
License 7.5% 1.4% 0.9% (0.7)% 6.2% 6.6%
Software
maintenance 9.6% 9.7% 10.4% 9.7% 12.1% 10.8%
Professional
services 11.3% 10.7% 3.5% 2.7% 16.1% 31.3%
--------- --------- --------- ---------- --------- ---------
Non-GAAP total
revenue 8.8% 6.4% 6.0% 5.2% 9.7% 10.3%
========= ========= ========= ========== ========= =========
(1) Represents revenue reported each quarter.
(2) Represents revenue reported each quarter less the reduction of revenue
due to the GSA settlement recognized in the second quarter of 2015.
VMware, Inc.
SUPPLEMENTAL UNEARNED REVENUE SCHEDULE
(in millions)
(unaudited)
December September June March December September
31,2016 30,2016 30,2016 31,2016 31,2015 30,2015
--------- --------- ---------- ---------- ---------- ----------
Unearned
revenue as
reported:
License $ 503 $ 425 $ 455 $ 415 $ 428 $ 404
Software
mainten-
ance 4,628 4,201 4,189 4,105 4,174 3,850
Profession-
al
services 493 468 478 456 474 432
--------- --------- ---------- ---------- ---------- ----------
Total
unearned
revenue $ 5,624 $ 5,094 $ 5,122 $ 4,976 $ 5,076 $ 4,686
========= ========= ========== ========== ========== ==========
Change (%)
over prior
year:
License 17.4% 5.1% (5.5)% (11.0)% (12.2)% (5.6)%
Software
mainten-
ance 10.9% 9.1% 7.6% 6.7% 6.9% 8.2%
Profession-
al
services 3.9% 8.6% 9.2% 6.0% 7.9% 11.2%
--------- --------- ---------- ---------- ---------- ----------
Total
unearned
revenue 10.8% 8.7% 6.4% 4.9% 5.0% 7.1%
========= ========= ========== ========== ========== ==========
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended December 31, 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 expenses:
Cost of license revenue $ 38 (1) - (24)
Cost of services
revenue $ 237 (14) - (1)
Research and
development $ 395 (81) - -
Sales and marketing $ 646 (49) (2) (5)
General and
administrative $ 173 (20) - -
Operating income $ 543 165 2 30
Operating margin(2) 26.7% 8.1% 0.1% 1.5%
Other income (expense),
net $ (8) - - -
Income before income tax $ 549 165 2 30
Income tax provision $ 108
Tax rate(2) 19.6%
Net income $ 441 165 2 30
Net income per weighted-
average share, diluted
for Class A and Class
B(2) (3) $ 1.04 $ 0.40 $ - $ 0.07
table continued below
Acquisition Gain on Non-GAAP,
and Other Share Tax as
Related Repurchase Adjustment adjusted
Items (4) (1) (2)
---------------------------------------------------
Operating expenses:
Cost of license revenue - - - $ 14
Cost of services
revenue - - - $ 222
Research and
development - - - $ 314
Sales and marketing - - - $ 591
General and
administrative (9) - - $ 144
Operating income 9 - - $ 747
Operating margin(2) 0.4% - - 36.8%
Other income (expense),
net 6 (8) - $ (11)
Income before income tax 15 (8) - $ 751
Income tax provision 46 $ 154
Tax rate(2) 20.5%
Net income 15 (8) (46) $ 597
Net income per weighted-
average share, diluted
for Class A and Class
B(2) (3) $ 0.04 $ - $ (0.11) $ 1.43
(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 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 416,512 diluted weighted-average shares for
Class A and Class B.
(4) In December 2016, VMware entered into a stock purchase agreement with
Dell and Dell's wholly-owned subsidiary, EMC Equity Assets LLC ("EMC")
pursuant to which VMware agreed to purchase $500 million of VMware
Class A common stock from EMC. The final aggregate number of shares
purchased will be determined based on a volume-weighted average price,
less a contractually agreed upon discount. As of December 31, 2016,
VMware had made an up-front payment of $375 million, as well as
recognized a derivative asset and related $8 million gain in Other
income (expense), net. The derivative asset is related to its
obligation to repurchase $125 million of additional shares and is
measured at fair value on a recurring basis. In accordance with U.S.
GAAP, diluted net income per share does not include the impact of the
remeasurement.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended December 31, 2015
(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 expenses:
Cost of license revenue $ 44 (1) - (25)
Cost of services
revenue $ 222 (11) - (1)
Research and
development $ 342 (62) (1) -
Sales and marketing $ 612 (44) (1) (7)
General and
administrative $ 198 (17) - (1)
Realignment $ 3 - - -
Operating income $ 447 135 2 34
Operating margin(2) 23.9% 7.2% 0.1% 1.8%
Other income (expense),
net $ 2 - - -
Income before income tax $ 453 135 2 34
Income tax provision $ 80
Tax rate(2) 17.5%
Net income $ 373 135 2 34
Net income per weighted-
average share, diluted
for Class A and Class
B(2) (3) $ 0.88 $ 0.32 $ 0.01 $ 0.08
table continued below
Acquisition Non-GAAP,
and Other Tax as
Realignment Related Adjustment adjusted
Charges Items (1) (2)
---------------------------------------------------
Operating expenses:
Cost of license revenue - - - $ 18
Cost of services
revenue - - - $ 210
Research and
development - - - $ 280
Sales and marketing - - - $ 559
General and
administrative - (35) - $ 145
Realignment (3) - - $ -
Operating income 3 35 - $ 656
Operating margin(2) 0.2% 1.9% - 35.1%
Other income (expense),
net - (2) - $ -
Income before income tax 3 33 - $ 660
Income tax provision 46 $ 126
Tax rate(2) 19.0%
Net income 3 33 (46) $ 534
Net income per weighted-
average share, diluted
for Class A and Class
B(2) (3) $ 0.01 $ 0.08 $ (0.11) $ 1.26
(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 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 422,858 diluted weighted-average shares for
Class A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Twelve Months Ended December 31, 2016
(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
--------------------------------------------------------------
Operating
expenses:
Cost of
license
revenue $ 159 (2) - (100) -
Cost of
services
revenue $ 894 (52) (1) (2) -
Research
and
develop-
ment $1,503 (305) (1) - -
Sales and
marketing $2,357 (195) (5) (22) -
General and
administra-
tive $ 689 (82) (1) (1) -
Realignment $ 52 - - - (52)
Operating
income $1,439 636 8 125 52
Operating
margin(2) 20.3% 9.0% 0.1% 1.8% 0.7%
Other income
(expense),
net $ (17) - - - -
Income before
income tax $1,473 636 8 125 52
Income tax
provision $ 287
Tax rate(2) 19.5%
Net income $1,186 636 8 125 52
Net income
per
weighted-
average
share,
diluted for
Class A and
Class B(2)
(3) $ 2.78 $ 1.50 $ 0.02 $ 0.30 $ 0.12
table continued below
Acquisition Gain on
and Other Share Tax Non-GAAP,
Related Repurchase Adjustment as adjusted
Items (4) (1) (2)
-----------------------------------------------------
Operating
expenses:
Cost of
license
revenue - - - $ 57
Cost of
services
revenue - - - $ 839
Research
and
develop-
ment - - - $ 1,197
Sales and
marketing - - - $ 2,134
General and
administra-
tive (34) - - $ 572
Realignment - - - $ -
Operating
income 34 - - $ 2,294
Operating
margin(2) 0.5% - - 32.3%
Other income
(expense),
net 20 (8) - $ (5)
Income before
income tax 54 (8) - $ 2,340
Income tax
provision 191 $ 478
Tax rate(2) 20.4%
Net income 54 (8) (191) $ 1,862
Net income
per
weighted-
average
share,
diluted for
Class A and
Class B(2)
(3) $ 0.13 $ - $ (0.45) $ 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 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 423,994 diluted weighted-average shares for
Class A and Class B.
(4) In December 2016, VMware entered into a stock purchase agreement with
Dell and Dell's wholly-owned subsidiary, EMC Equity Assets LLC ("EMC")
pursuant to which VMware agreed to purchase $500 million of VMware
Class A common stock from EMC. The final aggregate number of shares
purchased will be determined based on a volume-weighted average price,
less a contractually agreed upon discount. As of December 31, 2016,
VMware had made an up-front payment of $375 million, as well as
recognized a derivative asset and related $8 million gain in Other
income (expense), net. The derivative asset is related to its
obligation to repurchase $125 million of additional shares and is
measured at fair value on a recurring basis. In accordance with U.S.
GAAP, diluted net income per share does not include the impact of the
remeasurement.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Twelve Months Ended December 31, 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
--------------------------------------------------------------
Revenue:
GSA
settlement $ (76) - - - -
Total revenue $6,571 - - - -
Operating
expenses:
Cost of
license
revenue $ 186 (2) - (107) -
Cost of
services
revenue $ 832 (44) (1) (3) -
Research
and
develop-
ment $1,300 (226) (3) - -
Sales and
marketing $2,267 (168) (5) (28) -
General and
administra-
tive $ 766 (64) (2) (3) -
Realignment $ 23 - - - (23)
Operating
income $1,197 504 11 141 23
Operating
margin(2) 18.2% 7.7% 0.2% 2.1% 0.4%
Other income
(expense),
net $ (7) - - - -
Income before
income tax $1,213 504 11 141 23
Income tax
provision $ 216
Tax rate(2) 17.8%
Net income $ 997 504 11 141 23
Net income
per
weighted-
average
share,
diluted for
Class A and
Class B(2)
(3) $ 2.34 $ 1.18 $ 0.03 $ 0.33 $ 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)
---------------------------------------------------------------
Revenue:
GSA
settlement - 76 - - $ -
Total revenue - 76 - - $ 6,647
Operating
expenses:
Cost of
license
revenue - - - - $ 77
Cost of
services
revenue - - - - $ 784
Research
and
develop-
ment - - - - $ 1,072
Sales and
marketing - - - - $ 2,066
General and
administra-
tive (158) 6 (11) - $ 534
Realignment - - - - $ -
Operating
income 158 70 11 - $ 2,114
Operating
margin(2) 2.4% 1.1% 0.2% - 31.8%
Other income
(expense),
net (1) - - - $ (7)
Income before
income tax 158 70 11 - $ 2,130
Income tax
provision 181 $ 398
Tax rate(2) 18.7%
Net income 158 70 11 (181) $ 1,732
Net income
per
weighted-
average
share,
diluted for
Class A and
Class B(2)
(3) $ 0.37 $ 0.16 $ 0.03 $ (0.42) $ 4.06
(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 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 426,547 diluted weighted-average shares for
Class A and Class B.
VMware, Inc.
REVENUE BY TYPE
(in millions)
(unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ----------------------
2016 2015 2016 2015
---------- ---------- ---------- -----------
Revenue:
License $ 887 $ 825 $ 2,794 $ 2,720
Services:
Software maintenance 987 901 3,740 3,405
Professional services 158 142 559 522
---------- ---------- ---------- -----------
Total services 1,145 1,043 4,299 3,927
GSA settlement - - - (76)
---------- ---------- ---------- -----------
Total revenue $ 2,032 $ 1,868 $ 7,093 $ 6,571
========== ========== ========== ===========
Percentage of revenue:
License 43.6% 44.2% 39.4% 41.4%
Services:
Software maintenance 48.6% 48.2% 52.7% 51.8%
Professional services 7.8% 7.6% 7.9% 7.9%
---------- ---------- ---------- -----------
Total services 56.4% 55.8% 60.6% 59.7%
GSA settlement -% -% -% (1.1)%
---------- ---------- ---------- -----------
Total revenue 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ===========
VMware, Inc.
REVENUE BY GEOGRAPHY
(in millions)
(unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
2016 2015 2016 2015
---------- ---------- ---------- ----------
Revenue:
United States $ 1,001 $ 947 $ 3,588 $ 3,311
International 1,031 921 3,505 3,260
---------- ---------- ---------- ----------
Total revenue $ 2,032 $ 1,868 $ 7,093 $ 6,571
========== ========== ========== ==========
Percentage of revenue:
United States 49.3% 50.7% 50.6% 50.4%
International 50.7% 49.3% 49.4% 49.6%
---------- ---------- ---------- ----------
Total revenue 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ==========
VMware, Inc.
RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES
TO FREE CASH FLOWS
(A NON-GAAP FINANCIAL MEASURE)
(in millions)
(unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
2016 2015 2016 2015
---------- ---------- ---------- ----------
GAAP cash flows from operating
activities $ 463 $ 488 $ 2,381 $ 1,899
Capital expenditures (44) (59) (153) (333)
---------- ---------- ---------- ----------
Free cash flows $ 419 $ 429 $ 2,228 $ 1,566
========== ========== ========== ==========
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 revenue, 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, gain on share repurchase, certain litigation and other contingencies, and the GSA settlement, each as discussed below. Free cash flows differ from GAAP cash flows from operating activities with respect to the treatment of capital expenditures.
VMware has also presented in this earnings release (i) quarterly historical data for total revenue, excluding the GSA settlement, and unearned revenue; and (ii) data on the percentage change in total revenue and license revenue plus the sequential change in unearned revenue and unearned license revenue, respectively. VMware's management believes that these measures are useful to investors because they allow investors to make meaningful comparisons of VMware revenue and unearned revenue across periods.
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 paid to designated founders and key executives of AirWatch. Such payments were completed in the first quarter of 2016.
- Charges recognized for non-recoverable strategic investments or gains recognized on the disposition of strategic investments are included as other-related items.
- Gains or losses on sale or disposal of distinct lines of business or product offerings, or transactions with features similar to discontinued operations, including recoveries or charges recognized to adjust the fair value of assets that qualify as "held for sale".
- Certain costs incurred related to Dell's acquisition of VMware's parent company, EMC Corporation.
- Gain 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 ("EMC") pursuant to which VMware agreed to purchase $500 million of VMware Class A common stock. The final aggregate number of shares purchased will be determined based on a volume-weighted average price, less a contractually agreed upon discount. As of December 31, 2016, VMware had made an up-front payment of $375 million, as well as recognized a derivative asset and related $8 million gain in Other income (expense), net. The derivative asset is related to its obligation to repurchase $125 million of additional shares and is measured at fair value on a recurring basis. VMware's management believes it is useful to exclude this item, as it is not reflective of VMware's ongoing business and operating results.
- 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.
- 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 revenue. 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 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 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 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.
Contacts:Paul Ziots VMware Investor [email protected] ThackerVMware Global [email protected]
Source: VMware, Inc.