PALO ALTO, CA -- (Marketwire) -- 01/28/13 -- VMware, Inc. (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the fourth quarter and full year of 2012:
- Revenues for the fourth quarter were $1.29 billion, an increase of 22% from the fourth quarter of 2011.
- Operating income for the fourth quarter was $253 million, an increase of 18% from the fourth quarter of 2011. Non-GAAP operating income for the fourth quarter was $424 million, an increase of 25% from the fourth quarter of 2011.
- Net income for the fourth quarter was $206 million, or $0.47 per diluted share, compared to $200 million, or $0.46 per diluted share, for the fourth quarter of 2011. Non-GAAP net income for the quarter was $349 million, or $0.81 per diluted share, compared to $266 million, or $0.62 per diluted share, for the fourth quarter of 2011.
- Fourth quarter Non-GAAP diluted EPS was $0.81, an increase of 30.6% from the fourth quarter of 2011.
- Operating cash flows for the fourth quarter were $493 million, a decrease of 12% from the fourth quarter of 2011. Free cash flows for the quarter were $412 million, a decrease of 19% from the fourth quarter of 2011.
- Revenues for 2012 were $4.61 billion, an increase of 22% from 2011.
- Operating income for 2012 was $872 million, an increase of 19% from 2011. Non-GAAP operating income for 2012 was $1.49 billion, an increase of 28% from 2011.
- Net income for 2012 was $746 million, or $1.72 per diluted share, compared to $724 million, or $1.68 per diluted share, for 2011. Non-GAAP net income for 2012 was $1.24 billion, or $2.85 per diluted share, compared to $936 million, or $2.17 per diluted share, for 2011.
- Annual Non-GAAP diluted EPS was $2.85, an increase of 31.4% from 2011.
- Operating cash flows for 2012 were $1.90 billion, a decrease of 6% and free cash flows for the year were $1.66 billion, a decrease of 7% from 2011.
- Cash, cash equivalents and short-term investments were $4.63 billion and unearned revenue was $3.46 billion as of December 31, 2012.
U.S. revenues for 2012 grew 22% to $2.23 billion from 2011. International revenues grew 22% to $2.38 billion from 2011.
License revenues for 2012 were $2.09 billion, an increase of 13% from 2011. Service revenues, which include software maintenance and professional services, were $2.52 billion for 2012, an increase of 31% from 2011.
Annual 2013 total revenues are expected to be in the range of $5.230 billion to $5.350 billion, an increase of approximately 14 to 16 percent from 2012, and annual license revenues are expected to grow between 8 and 11 percent.
First quarter 2013 total revenues are expected to be in the range of $1.170 billion to $1.190 billion, an increase of approximately 11 to 13 percent from the first quarter 2012.
"2012 was a strong year for VMware, with solid Q4 results despite a tough economic environment," said Pat Gelsinger, chief executive officer, VMware. "We see a tremendous market opportunity in 2013 and beyond, as we focus on what our customers value most: VMware's role as a pioneer of virtualization technologies that radically simplify IT infrastructure from the data center to the virtual workspace."
Recent Highlights & Strategic Announcements
- On October 9, VMware unveiled an updated cloud management portfolio, including significant enhancements to the management products in the VMware vCloud® Suite. VMware also introduced a new product to the suite, VMware vCloud Automation Center 5.1, to further simplify and automate governance services across multiple, heterogeneous clouds. The announcement strengthened the VMware vCloud® Suite 5.1- the first solution to deliver the software-defined datacenter.
- On December 4, VMware announced the newly formed Pivotal Initiative, in which VMware and EMC are committing key existing technology, people and programs from both companies focused on Big Data and Cloud Application Platforms under one virtual organization. The Pivotal Initiative will enable a new generation of workloads that can exploit the advancements VMware is driving with the software-defined datacenter, the de facto infrastructure at the heart of cloud computing, and with end-user computing.
- In December, VMware established the Network and Security Virtualization group internally to align operations, engineering and go to market efforts to drive demand for next generation networking solutions associated with the software-defined datacenter. The Company appointed Stephen Mullaney, formerly CEO of Nicira, as vice president and general manager of the new organization.
VMware plans to host a conference call today to review its fourth quarter and full year 2012 results and to discuss its financial outlook. The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via the Web at http://ir.vmware.com. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 60 days.
About VMware
VMware is the leader in virtualization and cloud infrastructure solutions that enable businesses to thrive in the Cloud Era. Customers rely on VMware to help them transform the way they build, deliver and consume Information Technology resources in a manner that is evolutionary and based on their specific needs. With 2012 revenues of $4.61 billion, VMware has more than 480,000 customers and 55,000 partners. The company is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com.
VMware, vCloud Automation Center and VMware vCloud are registered trademarks or trademarks of VMware, Inc. in the United States and other jurisdictions. Other marks mentioned herein are trademarks, which are proprietary to VMware, Inc. or another company.
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 expected first quarter and annual 2013 revenues and annual 2013 license revenues; VMware's market opportunity; and the benefits of the Pivotal Initiative. 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 or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization market, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and promotions and beta programs; (v) our customers' ability to develop, and to transition to, new products and computing strategies such as cloud computing, desktop virtualization and the software defined data center; (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 and market changes in virtualization software and platforms for cloud and desktop computing; (ix) changes to product 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; (xi) our ability to protect our proprietary technology; (xii) our ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; and (xiv) fluctuating currency exchange rates. These forward-looking statements 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 our 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 BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
December 31, December 31,
2012 2011
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,609,322 $ 1,955,756
Short-term investments 3,021,512 2,556,450
Accounts receivable, net of allowance for
doubtful accounts of $4,267 and $3,794 1,150,906 882,857
Due from EMC, net 67,934 73,799
Deferred tax asset 179,430 128,471
Other current assets 90,935 80,439
------------- -------------
Total current assets 6,120,039 5,677,772
Property and equipment, net 664,669 525,490
Other assets, net 128,701 154,236
Deferred tax asset 103,001 156,855
Intangible assets, net 731,852 407,375
Goodwill 2,848,130 1,759,080
------------- -------------
Total assets $ 10,596,392 $ 8,680,808
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 89,562 $ 49,747
Accrued expenses and other 674,746 587,650
Unearned revenues 2,195,926 1,764,109
------------- -------------
Total current liabilities 2,960,234 2,401,506
Note payable to EMC 450,000 450,000
Unearned revenues 1,264,639 944,309
Other liabilities 181,538 114,711
------------- -------------
Total liabilities 4,856,411 3,910,526
Commitments and contingencies
Stockholders' equity:
Class A common stock, par value $.01;
authorized 2,500,000 shares; issued and
outstanding 128,688 and 123,610 shares 1,287 1,236
Class B convertible common stock, par value
$.01; authorized 1,000,000 shares; issued and
outstanding 300,000 shares 3,000 3,000
Additional paid-in capital 3,431,710 3,212,264
Accumulated other comprehensive income 5,676 1,176
Retained earnings 2,298,308 1,552,606
------------- -------------
Total stockholders' equity 5,739,981 4,770,282
------------- -------------
Total liabilities and stockholders' equity $ 10,596,392 $ 8,680,808
============= =============
VMware, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the Three Months
Ended For the Year Ended
December 31, December 31,
---------------------- ----------------------
2012 2011 2012 2011
---------- ---------- ---------- ----------
Revenues:
License $ 596,720 $ 513,767 $2,086,990 $1,841,169
Services 696,435 546,535 2,518,057 1,925,927
---------- ---------- ---------- ----------
Total revenues 1,293,155 1,060,302 4,605,047 3,767,096
Operating expenses (1):
Cost of license revenues 63,393 56,389 237,027 207,398
Cost of services revenues 128,431 110,485 484,296 414,589
Research and development 268,323 216,992 999,214 775,051
Sales and marketing 478,401 385,236 1,644,849 1,334,346
General and administrative 102,082 77,144 367,718 300,541
---------- ---------- ---------- ----------
Operating income 252,525 214,056 871,943 735,171
Investment income 6,364 4,685 26,557 16,157
Interest expense with EMC (1,047) (1,060) (4,654) (3,906)
Other income (expense), net 2,082 (8,815) (732) 46,991
---------- ---------- ---------- ----------
Income before income taxes 259,924 208,866 893,114 794,413
Income tax provision 54,155 8,438 147,412 70,477
---------- ---------- ---------- ----------
Net income $ 205,769 $ 200,428 $ 745,702 $ 723,936
========== ========== ========== ==========
Net income per weighted-
average share, basic for
Class A and Class B $ 0.48 $ 0.47 $ 1.75 $ 1.72
Net income per weighted-
average share, diluted for
Class A and Class B $ 0.47 $ 0.46 $ 1.72 $ 1.68
Weighted-average shares,
basic for Class A and Class
B 427,266 422,873 426,658 421,188
Weighted-average shares,
diluted for Class A and
Class B 433,205 431,375 433,974 431,750
______
(1) Includes stock-based
compensation as follows:
Cost of license revenues $ 547 $ 335 $ 2,072 $ 1,606
Cost of services revenues 7,482 5,993 28,220 23,389
Research and development 62,779 39,643 210,377 174,264
Sales and marketing 39,100 25,138 149,879 95,688
General and administrative 13,894 9,650 48,107 40,206
VMware, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three Months
Ended For the Year Ended
December 31, December 31,
---------------------- ------------------------
2012 2011 2012 2011
---------- ---------- ----------- -----------
Operating activities:
Net income $ 205,769 $ 200,428 $ 745,702 $ 723,936
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 93,276 86,228 354,868 315,871
Stock-based
compensation, excluding
amounts capitalized 123,802 80,759 425,995 335,153
Excess tax benefits from
stock-based
compensation (27,225) (26,811) (138,139) (224,503)
Gain on sale of
Terremark investment -- -- -- (56,000)
Other 3,645 10,626 2,355 21,420
Changes in assets and
liabilities, net of
acquisitions:
Accounts receivable (469,947) (336,123) (267,639) (263,366)
Other assets 9,597 15,576 (112,266) (75,879)
Due to/from EMC, net (21,759) (61,310) 5,865 (18,370)
Accounts payable (2,426) (3,960) 23,692 (16,513)
Accrued expenses 84,978 100,353 21,997 115,025
Income taxes
receivable from EMC 19,488 23,018 19,488 269,258
Income taxes payable 10,842 27,261 138,508 79,183
Deferred income taxes,
net (3,962) (28,936) (74,060) (19,663)
Unearned revenue 467,299 474,300 751,158 840,081
---------- ---------- ----------- -----------
Net cash provided by
operating activities 493,377 561,409 1,897,524 2,025,633
---------- ---------- ----------- -----------
Investing activities:
Additions to property and
equipment (81,639) (52,911) (234,458) (230,091)
Purchase of leasehold
interest - - - (151,083)
Capitalized software
development costs - - - (73,998)
Purchases of available-
for-sale securities (469,042) (584,397) (3,188,684) (2,667,888)
Sales of available-for-
sale securities 227,443 208,058 1,880,545 816,351
Maturities of available-
for-sale securities 133,639 249,706 901,743 974,413
Sale of strategic
investments - - - 78,513
Business acquisitions, net
of cash acquired - - (1,344,214) (303,610)
Transfer of net assets
under common control - - - (22,393)
Other investing (37,195) (815) (49,552) (31,187)
---------- ---------- ----------- -----------
Net cash used in investing
activities (226,794) (180,359) (2,034,620) (1,610,973)
---------- ---------- ----------- -----------
Financing activities:
Proceeds from issuance of
common stock 38,936 52,332 253,159 337,618
Repurchase of common stock (160,522) (35,287) (467,534) (526,203)
Excess tax benefits from
stock-based compensation 27,225 26,811 138,139 224,503
Shares repurchased for tax
withholdings on vesting
of restricted stock (43,100) (18,979) (133,102) (123,787)
---------- ---------- ----------- -----------
Net cash provided by (used
in) financing activities (137,461) 24,877 (209,338) (87,869)
---------- ---------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents 129,122 405,927 (346,434) 326,791
Cash and cash equivalents
at beginning of the
period 1,480,200 1,549,829 1,955,756 1,628,965
---------- ---------- ----------- -----------
Cash and cash equivalents
at end of the period $1,609,322 $1,955,756 $ 1,609,322 $ 1,955,756
========== ========== =========== ===========
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended December 31, 2012
(in thousands, except per share amounts)
(unaudited)
Employer
Payroll
Taxes
on Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
-------- ------------ ------------ ------------
Operating expenses:
Cost of license
revenues $ 63,393 (547) (17) (25,271)
Cost of services
revenues $128,431 (7,482) (194) (1,098)
Research and
development $268,323 (62,779) (1,277) (1,254)
Sales and marketing $478,401 (39,100) (1,076) (3,096)
General and
administrative $102,082 (13,894) (631) -
Operating income $252,525 123,802 3,195 30,719
Operating margin 19.5% 9.6% 0.3% 2.4%
Income before income
taxes $259,924 123,802 3,195 30,719
Income tax provision $ 54,155
Tax rate 20.8%
Net income $205,769 123,802 3,195 30,719
Net income per
weighted-average
share, basic for Class
A and Class B (3) $ 0.48 $ 0.29 $ 0.01 $ 0.07
Net income per
weighted-average
share, diluted for
Class A and Class B
(4) $ 0.47 $ 0.29 $ 0.01 $ 0.07
table continued below
Capitalized Non-
Acquisition Software Tax GAAP,
Related Development Adjustment as
Items Costs (1) (2) adjusted
----------- ------------ ------------ --------
Operating expenses:
Cost of license
revenues - (13,151) - $ 24,407
Cost of services
revenues - - - $119,657
Research and
development - - - $203,013
Sales and marketing - - - $435,129
General and
administrative (494) - - $ 87,063
Operating income 494 13,151 - $423,886
Operating margin - 1.0% - 32.8%
Income before income
taxes 494 13,151 - $431,285
Income tax provision 27,832 $ 81,987
Tax rate 19.0%
Net income 494 13,151 (27,832) $349,298
Net income per
weighted-average
share, basic for Class
A and Class B (3) $ - $ 0.03 $ (0.06) $ 0.82
Net income per
weighted-average
share, diluted for
Class A and Class B
(4) $ - $ 0.03 $ (0.06) $ 0.81
(1) For the fourth quarter of 2012, no costs were capitalized for the
development of software products. Amortization expense from previously
capitalized amounts was $13.2 million.
(2) Non-GAAP financial information for the quarter is adjusted for a tax
rate equal to our annual estimated tax rate on non-GAAP income. This rate is
based on our estimated annual GAAP income tax rate forecast, adjusted to
account for items excluded from GAAP income in calculating the non-GAAP
financial measures presented above. 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.
(3) Calculated based upon 427,266 basic weighted-average shares for Class A
and Class B.
(4) Calculated based upon 433,205 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended December 31, 2011
(in thousands, except per share amounts)
(unaudited)
Employer
Payroll
Taxes
on Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
-------- ------------ ------------ ------------
Operating expenses:
Cost of license
revenues $ 56,389 (335) (27) (13,187)
Cost of services
revenues $110,485 (5,993) (160) (1,241)
Research and
development $216,992 (39,643) (1,486) (796)
Sales and marketing $385,236 (25,138) (867) (2,866)
General and
administrative $ 77,144 (9,650) (383) (37)
Operating income $214,056 80,759 2,923 18,127
Operating margin 20.2% 7.6% 0.3% 1.7%
Income before income
taxes $208,866 80,759 2,923 18,127
Income tax provision $ 8,438
Tax rate 4.0%
Net income $200,428 80,759 2,923 18,127
Net income per
weighted-average
share, basic for Class
A and Class B (3) $ 0.47 $ 0.19 $ 0.01 $ 0.04
Net income per
weighted-average
share, diluted for
Class A and Class B
(4) $ 0.46 $ 0.19 $ 0.01 $ 0.04
table continued below
Capitalized Non-
Acquisition Software Tax GAAP,
Related Development Adjustment as
Items Costs (1) (2) adjusted
----------- ----------- ---------- --------
Operating expenses:
Cost of license
revenues - (22,042) - $ 20,798
Cost of services
revenues - - - $103,091
Research and
development - - - $175,067
Sales and marketing - - - $356,365
General and
administrative (197) - - $ 66,877
Operating income 197 22,042 - $338,104
Operating margin - 2.1% - 31.9%
Income before income
taxes 197 22,042 - $332,914
Income tax provision 58,145 $ 66,583
Tax rate 20.0%
Net income 197 22,042 (58,145) $266,331
Net income per
weighted-average
share, basic for Class
A and Class B (3) $ - $ 0.06 $ (0.14) $ 0.63
Net income per
weighted-average
share, diluted for
Class A and Class B
(4) $ - $ 0.05 $ (0.13) $ 0.62
(1) For the fourth quarter of 2011, no costs were capitalized for the
development of software products. Amortization expense from previously
capitalized amounts was $22.0 million.
(2) Non-GAAP financial information for the quarter is adjusted for a tax
rate equal to our annual estimated tax rate on non-GAAP income. This rate is
based on our estimated annual GAAP income tax rate forecast, adjusted to
account for items excluded from GAAP income in calculating the non-GAAP
financial measures presented above. Our estimated tax rate on non-GAAP
income is determined annually and may be re-calculated 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, tax audit closures, 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.
(3) Calculated based upon 422,873 basic weighted-average shares for Class A
and Class B.
(4) Calculated based upon 431,375 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Year Ended December 31, 2012
(in thousands, except per share amounts)
(unaudited)
Employer
Payroll
Taxes
on Employee
Stock-Based Stock Intangible
GAAP Compensation Transactions Amortization
---------- ------------ ------------ ------------
Operating expenses:
Cost of license
revenues $ 237,027 (2,072) (60) (71,605)
Cost of services
revenues $ 484,296 (28,220) (1,040) (4,392)
Research and
development $ 999,214 (210,377) (6,327) (3,718)
Sales and marketing $1,644,849 (149,879) (4,847) (12,243)
General and
administrative $ 367,718 (48,107) (1,622) -
Operating income $ 871,943 438,655 13,896 91,958
Operating margin 18.9% 9.5% 0.3% 2.0%
Income before income
taxes $ 893,114 438,655 13,896 91,958
Income tax provision $ 147,412
Tax rate 16.5%
Net income $ 745,702 438,655 13,896 91,958
Net income per
weighted-average
share, basic for
Class A and Class B
(3) $ 1.75 $ 1.03 $ 0.03 $ 0.22
Net income per
weighted-average
share, diluted for
Class A and Class B
(4) $ 1.72 $ 1.01 $ 0.03 $ 0.21
table continued below
Capitalized
Acquisition Software Tax Non-GAAP,
Related Development Adjustment as
Items Costs (1) (2) adjusted
----------- ----------- ----------- ----------
Operating expenses:
Cost of license
revenues - (70,608) - $ 92,682
Cost of services
revenues - - - $ 450,644
Research and
development - - - $ 778,792
Sales and marketing - - - $1,477,880
General and
administrative (3,896) - - $ 314,093
Operating income 3,896 70,608 - $1,490,956
Operating margin 0.2% 1.5% - 32.4%
Income before income
taxes 3,896 70,608 - $1,512,127
Income tax provision 129,126 $ 276,538
Tax rate 18.3%
Net income 3,896 70,608 (129,126) $1,235,589
Net income per
weighted-average
share, basic for
Class A and Class B
(3) $ 0.01 $ 0.17 $ (0.31) $ 2.90
Net income per
weighted-average
share, diluted for
Class A and Class B
(4) $ 0.01 $ 0.16 $ (0.29) $ 2.85
(1) For the year ended December 31, 2012, no costs were capitalized for the
development of software products. Amortization expense from previously
capitalized amounts was $70.6 million.
(2) Non-GAAP financial information for the quarter is adjusted for a tax
rate equal to our annual estimated tax rate on non-GAAP income. This rate is
based on our estimated annual GAAP income tax rate forecast, adjusted to
account for items excluded from GAAP income in calculating the non-GAAP
financial measures presented above. 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.
(3) Calculated based upon 426,658 basic weighted-average shares for Class A
and Class B.
(4) Calculated based upon 433,974 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Year Ended December 31, 2011
(in thousands, except per share amounts)
(unaudited)
Employer
Payroll
Taxes
on Employee Acquisition
Stock-Based Stock Intangible Related
GAAP Compensation Transactions Amortization Items
---------- ------------ ------------ ------------ --------
Operating
expenses:
Cost of license
revenues $ 207,398 (1,606) (120) (46,074) -
Cost of
services
revenues $ 414,589 (23,389) (1,368) (4,967) -
Research and
development $ 775,051 (174,264) (9,724) (3,187) -
Sales and
marketing $1,334,346 (95,688) (5,577) (10,213) -
General and
administrative $ 300,541 (40,206) (1,580) (145) (2,423)
Operating
income $ 735,171 335,153 18,369 64,586 2,423
Operating
margin 19.5% 8.9% 0.5% 1.7% 0.1%
Other income
(expense), net $ 46,991
Income before
income taxes $ 794,413 335,153 18,369 64,586 2,423
Income tax
provision $ 70,477
Tax rate 8.9%
Net income $ 723,936 335,153 18,369 64,586 2,423
Net income per
weighted-
average share,
basic for
Class A and
Class B (4) $ 1.72 $ 0.80 $ 0.04 $ 0.15 $ 0.01
Net income per
weighted-
average share,
diluted for
Class A and
Class B (5) $ 1.68 $ 0.78 $ 0.04 $ 0.15 $ 0.01
table continued below
Stock-Based
Compensation
Capitalized Included in Gain on
Software Capitalized sale of Tax Non-GAAP,
Development Software Terremark Adjustment as
Costs (1) Development (2) (3) adjusted
----------- ------------ --------- ---------- ----------
Operating
expenses:
Cost of license
revenues (84,741) - - - $ 74,857
Cost of
services
revenues - - - - $ 384,865
Research and
development 86,426 (12,428) - - $ 661,874
Sales and
marketing - - - - $1,222,868
General and
administrative - - - - $ 256,187
Operating
income (1,685) 12,428 - - $1,166,445
Operating
margin - 0.3% - - 31.0%
Other income
(expense), net (56,000) $ (9,009)
Income before
income taxes (1,685) 12,428 (56,000) - $1,169,687
Income tax
provision 163,459 $ 233,936
Tax rate 20.0%
Net income (1,685) 12,428 (56,000) (163,459) $ 935,751
Net income per
weighted-
average share,
basic for
Class A and
Class B (4) $ (0.01) $ 0.03 $ (0.13) $ (0.39) $ 2.22
Net income per
weighted-
average share,
diluted for
Class A and
Class B (5) $ (0.01) $ 0.03 $ (0.13) $ (0.38) $ 2.17
(1) For the year ended December 31, 2011, we capitalized $86.4 million
(including $12.4 million of stock-based compensation) of costs incurred for
the development of software products. Amortization expense from capitalized
amounts was $84.7 million.
(2) VMware realized a gain of $56.0 million on the sale of its investment in
Terremark Worldwide, Inc.
(3) 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. Our estimated tax rate on non-GAAP
income is determined annually and may be re-calculated 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, tax audit closures, 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.
(4) Calculated based upon 421,188 basic weighted-average shares for Class A
and Class B.
(5) Calculated based upon 431,750 diluted weighted-average shares for Class
A and Class B.
VMware, Inc.
REVENUE BY TYPE
(in thousands)
(unaudited)
For the Three Months
Ended For the Year Ended
December 31, December 31,
---------------------- ----------------------
2012 2011 2012 2011
---------- ---------- ---------- ----------
Revenues:
License $ 596,720 $ 513,767 $2,086,990 $1,841,169
Services:
Software maintenance 590,971 463,489 2,152,986 1,640,397
Professional services 105,464 83,046 365,071 285,530
---------- ---------- ---------- ----------
Total services 696,435 546,535 2,518,057 1,925,927
---------- ---------- ---------- ----------
Total revenues $1,293,155 $1,060,302 $4,605,047 $3,767,096
========== ========== ========== ==========
Percentage of revenues:
License 46.1% 48.5% 45.3% 48.9%
Services:
Software maintenance 45.7% 43.7% 46.8% 43.5%
Professional services 8.2% 7.8% 7.9% 7.6%
---------- ---------- ---------- ----------
Total services 53.9% 51.5% 54.7% 51.1%
---------- ---------- ---------- ----------
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 thousands)
(unaudited)
For the Three Months Ended
December 31,
----------------------------
2012 2011
------------- -------------
GAAP cash flows from operating activities $ 493,377 $ 561,409
Capital expenditures (81,639) (52,911)
------------- -------------
Free cash flows $ 411,738 $ 508,498
============= =============
VMware, Inc.
RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES
TO FREE CASH FLOWS
(A NON-GAAP FINANCIAL MEASURE)
(in thousands)
(unaudited)
For the Year Ended
December 31,
------------------------
2012 2011
----------- -----------
GAAP cash flows from operating activities $ 1,897,524 $ 2,025,633
Capital expenditures (234,458) (230,091)
----------- -----------
Free cash flows $ 1,663,066 $ 1,795,542
=========== ===========
About Non-GAAP Financial Measures
To provide investors and others with additional information regarding VMware's results, we have disclosed in this press release the following non-GAAP financial measures: non-GAAP operating income, non-GAAP net income, non-GAAP income per diluted share, non-GAAP operating margin 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 intangible assets, acquisition related items, the net effect of the amortization and capitalization of software development costs, and the gain that VMware realized upon its sale of its investment in Terremark Worldwide, Inc. during the second quarter of fiscal 2011, each as discussed below. Free cash flows differ from GAAP cash flows from operating activities in its treatment of capital expenditures.
VMware's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, to calculate bonus payments and to evaluate VMware's financial performance, the performance of its individual functional groups and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect VMware's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in VMware's business, as they exclude expenses 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. Although stock-based compensation is an important aspect of the compensation of VMware's employees and executives, determining the fair value of certain of the stock-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing stock-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our 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 our control and do not correlate to the operation of the business.
- Amortization of 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.
- Acquisition-related items. Acquisition-related items include direct costs of acquisitions, such as transaction fees, which vary significantly and are unique to each acquisition. Additionally, VMware does not acquire businesses on a predictable cycle.
- Capitalized software development costs. Capitalized software development costs encompasses capitalization of development costs and the subsequent amortization of the capitalized costs over the useful life of the product. Amortization and capitalization of software development costs can vary significantly depending upon the timing of products reaching technological feasibility and being made generally available. We did not capitalize software development costs related to product offerings during 2012. In future periods, we expect our amortization expense from capitalized software development costs to decline as software development costs are expected to be recorded as R&D expense as incurred given our go-to-market strategy, which has changed from single product solutions to product suite solutions. We also expect amortization of previously capitalized software development costs to steadily decline as previously capitalized software development costs become fully amortized.
- Gain on sale of Terremark investment. In the second quarter of 2011, we sold our investment in Terremark Worldwide, Inc., which was acquired by Verizon in a cash transaction, and realized a gain of $56.0 million. Our investment in Terremark was made in connection with a business and technical collaboration and was not made to seek an investment gain or to fund our business operations. To the extent that sizeable gains or losses are realized on investments like this, they do not occur on a predictable cycle. Additionally, the timing of the event that triggered our divestment and whether or not we realized a gain or loss, was not under our control.
- Tax adjustment. 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 our non-GAAP income. 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.
Additionally, we believe that the non-GAAP financial measure free cash flows is meaningful to investors because we review 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.
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