PALO ALTO, CA--(Marketwire - Jan 23, 2012) - VMware, Inc. (
- Revenues for the fourth quarter were $1.06 billion, an increase of 27%
from the fourth quarter of 2010, and an increase of 26% measured in
constant currency.
- Operating income for the fourth quarter was $214 million, an increase
of 64% from the fourth quarter of 2010. Non-GAAP operating income for the
fourth quarter was $338 million, an increase of 37% from the fourth quarter
of 2010.
- Net income for the fourth quarter was $200 million, or $0.46 per
diluted share, compared to $120 million, or $0.28 per diluted share, for
the fourth quarter of 2010. Non-GAAP net income for the quarter was $266
million, or $0.62 per diluted share, compared to $198 million, or $0.46 per
diluted share, for the fourth quarter of 2010.
- Operating cash flows for the fourth quarter were $561 million, an
increase of 38% from the fourth quarter of 2010. Free cash flows for the
quarter were $535 million, an increase of 32% from the fourth quarter of
2010.
- Revenues for 2011 were $3.77 billion, an increase of 32% from 2010.
- Operating income for 2011 was $735 million, an increase of 72% from
2010. Non-GAAP operating income for 2011 was $1.17 billion, an increase of
43% from 2010.
- Net income for 2011 was $724 million, or $1.68 per diluted share,
compared to $357 million, or $0.84 per diluted share, for 2010. Non-GAAP
net income for 2011 was $936 million, or $2.17 per diluted share, compared
to $639 million, or $1.51 per diluted share, for 2010.
- Operating cash flows for 2011 were $2.03 billion, an increase of 72%
and free cash flows for the year were $1.95 billion, an increase of 62%
from 2010.
- Cash, cash equivalents and short-term investments were $4.51 billion and unearned revenue was $2.71 billion as of December 31, 2011.
U.S. revenues for 2011 grew 26% to $1.82 billion from 2010. International revenues grew 38% to $1.94 billion from 2010.
License revenues for 2011 were $1.84 billion, an increase of 31% from 2010. Service revenues, which include software maintenance and professional services, were $1.93 billion for 2011, an increase of 32% from 2010.
"The quarter's strong performance further signals that virtualization is the foundation for simplifying and automating IT," said Paul Maritz, chief executive officer, VMware. "As customers continue to drive significant IT transformation, our task remains in providing solutions that go beyond cost reduction, yielding business and competitive value."
"We are pleased with our record fourth quarter results," said Mark Peek, chief financial officer, VMware. "Our investments over the years have clearly paid off and we will continue to take advantage of long-term opportunities ahead. First quarter 2012 revenues are expected to be in the range of $1.015 and $1.040 billion, an increase of 20% to 23% from the first quarter 2011. Annual 2012 revenues are expected to be in the range of $4.475 and $4.6 billion, an increase of 19% to 22% from 2011, and annual license revenues are expected to grow between 11% and 16%."
Recent Highlights & Strategic Announcements
- In October 2011, VMware unveiled three product suites designed to
simplify and automate IT management. With significant enhancements to
VMware® vCenter Operations™ and the introduction of new VMware®
vFabric Application Management™ and VMware® IT Business Management
suites, VMware will help customers amplify the value of their virtual
environments and achieve the agility and economics of cloud computing.
- VMware announced VMware vCenter™ Protect Essentials Plus™, a
complete on-premise management system designed to meet the needs of the
small and midsize businesses (SMBs) and enhancements to its VMware Go
Pro™ service, simplifying IT management for SMBs.
- VMware announced VMware® Horizon Mobile, a simple way for IT
departments to securely provision, manage and de-provision a corporate
mobile workspace to an employee's Android device over-the-air, while
enabling the employee to retain the privacy and control of their personal
mobile environments. VMware Horizon Mobile is expected to be available in
early 2012.
- In December 2011, VMware announced new VMware View™ Clients for Kindle Fire, Mac and Linux, along with updates to its popular VMware View Clients for Android and iPad. The new VMware View Clients for Mac and Linux enable IT organizations to empower more agile, productive and connected workforce or school communities by providing an easy-to-access, high-fidelity desktop virtualization experience optimized for the device of their choice. The new VMware View™ Clients for Mac and Linux are expected to be available in early 2012.
VMware plans to host a conference call today to review its fourth quarter and 2011 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 2011 revenues of $3.77 billion, VMware has more than 300,000 customers and 25,000 partners. The company is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com.
VMware, VMware vCenter Operations, VMware vFabric Application Management, VMware vCenter Protect Essentials Plus, VMware View and VMware Go Pro are registered trademarks or trademarks of VMware, Inc. in the United States and/or 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 2012 revenues and annual 2012 license revenue growth, the expected transformation of IT and the role and value proposition of virtualization and VMware solutions in the IT transformation, our ability to take advantage of long-term opportunities, the value to customers and the prospect of customer adoption of our new product suites, and the expected features and benefits and availability of VMware Horizon Mobile and VMware View Clients for Mac and Linux. 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 and cloud computing markets, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements, beta programs and product promotions that can cause revenue recognition of certain orders to be deferred; (v) our customers' ability to develop, and to transition to, new products and computing strategies such as cloud computing and desktop virtualization; (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 STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three Months
Ended For the Year Ended
December 31, December 31,
------------------------ ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Operating activities:
Net income $ 200,428 $ 119,880 $ 723,936 $ 357,439
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization 86,228 77,090 315,871 260,551
Stock-based
compensation,
excluding amounts
capitalized 80,759 86,501 335,153 291,691
Excess tax benefits
from stock-based
compensation (26,811) (56,253) (224,503) (223,457)
Gain on sale of
Terremark investment -- -- (56,000) --
Other 10,626 6,963 21,420 13,083
Changes in assets and
liabilities, net of
acquisitions:
Accounts
receivable (336,123) (236,362) (263,366) (77,121)
Other assets 15,576 3,999 (75,879) (79,431)
Due to/from EMC,
net (61,310) (44,439) (18,370) (28,508)
Accounts payable (3,960) 4,292 (16,513) 8,881
Accrued expenses 100,353 92,353 115,025 120,880
Income taxes
receivable from
EMC 23,018 -- 269,258 2,508
Income taxes
payable 27,261 46,618 79,183 89,439
Deferred income
taxes, net (28,936) (48,513) (19,663) (56,948)
Unearned revenue 474,300 354,486 840,081 495,382
----------- ----------- ----------- -----------
Net cash provided by
operating activities 561,409 406,615 2,025,633 1,174,389
----------- ----------- ----------- -----------
Investing activities:
Additions to property
and equipment (52,911) (40,450) (230,091) (131,695)
Purchase of leasehold
interest -- -- (151,083) --
Capitalized software
development costs -- (15,955) (73,998) (64,149)
Purchases of available-
for-sale securities (584,397) (477,201) (2,667,888) (2,101,907)
Sales of available-for-
sale securities 208,058 265,033 816,351 389,251
Maturities of
available-for-sale
securities 249,706 96,160 974,413 127,054
Sale of strategic
investments -- -- 78,513 2,648
Business acquisitions,
net of cash acquired -- -- (303,610) (292,970)
Transfer of net assets
under common control -- (10,580) (22,393) (185,580)
Other investing (815) (4,800) (31,187) (4,594)
----------- ----------- ----------- -----------
Net cash used in
investing activities (180,359) (187,793) (1,610,973) (2,261,942)
----------- ----------- ----------- -----------
Financing activities:
Proceeds from issuance
of common stock 52,332 75,460 337,618 431,306
Repurchase of common
stock (35,287) (52,587) (526,203) (338,527)
Excess tax benefits
from stock-based
compensation 26,811 56,253 224,503 223,457
Shares repurchased for
tax withholdings on
vesting of restricted
stock (18,979) (16,063) (123,787) (86,179)
----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities 24,877 63,063 (87,869) 230,057
----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents 405,927 281,885 326,791 (857,496)
Cash and cash
equivalents at
beginning of the
period 1,549,829 1,347,080 1,628,965 2,486,461
----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
the period $ 1,955,756 $ 1,628,965 $ 1,955,756 $ 1,628,965
=========== =========== =========== ===========
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,
---------------------- ----------------------
2011 2010 2011 2010
---------- ---------- ---------- ----------
Revenues:
License $ 513,767 $ 422,343 $1,841,169 $1,401,424
Services 546,535 413,318 1,925,927 1,455,919
---------- ---------- ---------- ----------
1,060,302 835,661 3,767,096 2,857,343
Operating expenses (1):
Cost of license
revenues 56,389 50,735 207,398 177,458
Cost of services
revenues 110,485 89,616 414,589 316,257
Research and
development 216,992 177,671 775,051 652,968
Sales and marketing 385,236 313,045 1,334,346 1,013,281
General and
administrative 77,144 73,980 300,541 269,386
---------- ---------- ---------- ----------
Operating income 214,056 130,614 735,171 427,993
Investment income 4,685 2,604 16,157 6,633
Interest expense with EMC (1,060) (966) (3,906) (4,069)
Other income (expense), net (8,815) (7,205) 46,991 (14,182)
---------- ---------- ---------- ----------
Income before income taxes 208,866 125,047 794,413 416,375
Income tax provision 8,438 5,167 70,477 58,936
---------- ---------- ---------- ----------
Net income $ 200,428 $ 119,880 $ 723,936 $ 357,439
========== ========== ========== ==========
Net income per weighted-
average share, basic for
Class A and Class B $ 0.47 $ 0.29 $ 1.72 $ 0.87
Net income per weighted-
average share, diluted for
Class A and Class B $ 0.46 $ 0.28 $ 1.68 $ 0.84
Weighted-average shares,
basic for Class A and
Class B 422,873 414,919 421,188 409,805
Weighted-average shares,
diluted for Class A and
Class B 431,375 427,883 431,750 423,446
(1) Includes stock-based
compensation as follows:
Cost of license
revenue $ 335 $ 483 $ 1,606 $ 1,653
Cost of services
revenues 5,993 5,877 23,389 18,478
Research and
development 39,643 47,143 174,264 164,435
Sales and marketing 25,138 23,545 95,688 73,146
General and
administrative 9,650 9,453 40,206 33,979
VMware, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
December 31, December 31,
2011 2010
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,955,756 $ 1,628,965
Short-term investments 2,556,450 1,694,675
Accounts receivable, net of allowance for
doubtful accounts of $3,794 and $4,519 882,857 614,726
Due from EMC, net 73,799 55,481
Deferred tax asset 128,471 100,689
Other current assets 80,439 203,119
------------- -------------
Total current assets 5,677,772 4,297,655
Property and equipment, net 525,490 419,065
Capitalized software development costs, net and
other 154,236 151,945
Deferred tax asset 156,855 149,126
Intangible assets, net 407,375 210,928
Goodwill 1,759,080 1,568,600
------------- -------------
Total assets $ 8,680,808 $ 6,797,319
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,747 $ 58,913
Accrued expenses and other 587,650 459,813
Unearned revenues 1,764,109 1,270,426
------------- -------------
Total current liabilities 2,401,506 1,789,152
Note payable to EMC 450,000 450,000
Unearned revenues 944,309 589,668
Other liabilities 114,711 160,056
------------- -------------
Total liabilities 3,910,526 2,988,876
Commitments and contingencies
Stockholders' equity:
Class A common stock, par value $.01;
authorized 2,500,000 shares; issued and
outstanding 123,610 and 116,701 shares 1,236 1,167
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 3,212,264 2,955,971
Accumulated other comprehensive income 1,176 19,635
Retained earnings 1,552,606 828,670
------------- -------------
Total stockholders' equity 4,770,282 3,808,443
------------- -------------
Total liabilities and stockholders'
equity $ 8,680,808 $ 6,797,319
============= =============
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
Stock- Employee
Based Stock
Compen- Trans- Intangible
GAAP sation actions 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
Acquisition Software
Related Development Tax Non-GAAP,
Items and Costs Adjustment as
Other (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 for the fourth quarter of 2011.
(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 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 Three Months Ended December 31, 2010
(in thousands, except per share amounts)
(unaudited)
Employer
Payroll
Taxes
on
Stock- Employee Acquisition
Based Stock Related
Compen- Trans- Intangible Items and
GAAP sation actions Amortization Other
-------- --------- --------- --------- ----------
Operating expenses:
Cost of license
revenues $ 50,735 (483) (21) (8,375) -
Cost of services
revenues $ 89,616 (5,877) (228) (1,471) -
Research and
development $177,671 (47,143) (3,299) (627) -
Sales and marketing $313,045 (23,545) (1,496) (1,664) -
General and
administrative $ 73,980 (9,453) (342) (38) (325)
Operating income $130,614 86,501 5,386 12,175 325
Operating margin 15.6% 10.4% 0.6% 1.5% -
Income before income
taxes $125,047 86,501 5,386 12,175 325
Income tax provision $ 5,167
Tax rate 4.1%
Net income $119,880 86,501 5,386 12,175 325
Net income per
weighted-average
share, basic for
Class A and
Class B (3) $ 0.29 $ 0.21 $ 0.01 $ 0.03 $ -
Net income per
weighted-average
share, diluted for
Class A and
Class B (4) $ 0.28 $ 0.20 $ 0.01 $ 0.03 $ -
table continued below
Stock-
Based
Compensation
Included
Capitalized in
Software Capitalized Tax Non-GAAP,
Development Software Adjustment as
Costs (1) Development (2) adjusted
---------- ---------- ---------- ----------
Operating expenses:
Cost of license
revenues (28,465) - - $ 13,391
Cost of services
revenues - - - $ 82,040
Research and
development 18,776 (2,821) - $ 142,557
Sales and marketing - - - $ 286,340
General and
administrative - - - $ 63,822
Operating income 9,689 2,821 - $ 247,511
Operating margin 1.2% 0.3% - 29.6%
Income before income
taxes 9,689 2,821 - $ 241,944
Income tax provision 38,383 $ 43,550
Tax rate 18.0%
Net income 9,689 2,821 (38,383)$ 198,394
Net income per
weighted-average
share, basic for
Class A and
Class B (3) $ 0.02 $ 0.01 $ (0.09)$ 0.48
Net income per
weighted-average
share, diluted for
Class A and
Class B (4) $ 0.02 $ 0.01 $ (0.09)$ 0.46
(1) For the fourth quarter of 2010, we capitalized $18.8
million (including $2.8 million of stock-based compensation)
of costs incurred for the development of software products.
Amortization expense from capitalized amounts was $28.5
million for the fourth quarter of 2010.
(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 414,919 basic weighted-average shares
for Class A and Class B.
(4) Calculated based upon 427,883 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
Stock- Employee Acquisition
Based Stock Intangible Related
Compen- Trans- Amor- Items and
GAAP sation actions tization Other
----------- -------- -------- -------- --------
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
Included
in Capit-
Capitalized alized Gain on
Software Software Sale of Tax Non-GAAP,
Development Develop- Terremark Adjust- as
Costs (1) ment (2) ment (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 for the year ended December 31, 2011.
(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 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.
(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.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Year Ended December 31, 2010
(in thousands, except per share amounts)
(unaudited)
Employer
Payroll
Taxes on
Stock- Employee Acquisition
Based Stock Intangible Related
Compen- Transact- Amor- Items and
GAAP sation ions tization Other
----------- -------- -------- -------- --------
Operating expenses:
Cost of license
revenues $ 177,458 (1,653) (84) (23,785) --
Cost of services
revenues $ 316,257 (18,478) (791) (4,670) --
Research and
development $ 652,968 (164,435) (9,101) (2,354) --
Sales and marketing $ 1,013,281 (73,146) (4,633) (3,797) --
General and
administrative $ 269,386 (33,979) (1,689) (152) (3,499)
Operating income $ 427,993 291,691 16,298 34,758 3,499
Operating margin 15.0% 10.2% 0.6% 1.2% 0.1%
Income before income
taxes $ 416,375 291,691 16,298 34,758 3,499
Income tax provision $ 58,936
Tax rate 14.2%
Net income $ 357,439 291,691 16,298 34,758 3,499
Net income per
weighted-average
share, basic for
Class A and Class B
(3) $ 0.87 $ 0.71 $ 0.04 $ 0.08 $ 0.01
Net income per
weighted-average
share, diluted for
Class A and Class B
(4) $ 0.84 $ 0.69 $ 0.04 $ 0.08 $ --
table continues below
Stock-
Based
Compensation
Included
in Capit-
Capitalized alized
Software Software Tax Non-GAAP,
Development Develop- Adjust- as
Costs (1) ment ment (2) adjusted
----------- -------- -------- --------
Operating expenses:
Cost of license
revenues (99,522) -- -- $ 52,414
Cost of services
revenues -- -- -- $ 292,318
Research and
development 71,666 (10,924) -- $ 537,820
Sales and marketing -- -- -- $ 931,705
General and
administrative -- -- -- $ 230,067
Operating income 27,856 10,924 -- $ 813,019
Operating margin 1.0% 0.4% -- 28.5%
Income before income
taxes 27,856 10,924 -- $ 801,401
Income tax provision 103,558 $ 162,494
Tax rate 20.3%
Net income 27,856 10,924 (103,558) $ 638,907
Net income per
weighted-average
share, basic for
Class A and Class B
(3) $ 0.07 $ 0.03 $ (0.25) $ 1.56
Net income per
weighted-average
share, diluted for
Class A and Class B
(4) $ 0.07 $ 0.03 $ (0.24) $ 1.51
(1) For the year ended December 31 2010, we capitalized $71.7 million
(including $10.9 million of stock-based compensation) of costs incurred for
the development of software products. Amortization expense from capitalized
amounts was $99.5 million for the year ended December 31, 2010.
(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 409,805 basic weighted-average shares for Class A
and Class B.
(4) Calculated based upon 423,446 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,
------------------------ ------------------------
2011 2010 2011 2010
----------- ----------- ----------- -----------
Revenues:
License $ 513,767 $ 422,343 $ 1,841,169 $ 1,401,424
Services:
Software
maintenance 463,489 345,260 1,640,397 1,217,064
Professional
services 83,046 68,058 285,530 238,855
----------- ----------- ----------- -----------
Total services 546,535 413,318 1,925,927 1,455,919
----------- ----------- ----------- -----------
$ 1,060,302 $ 835,661 $ 3,767,096 $ 2,857,343
=========== =========== =========== ===========
Percentage of revenues:
License 48.5% 50.5% 48.9% 49.0%
Services:
Software
maintenance 43.7% 41.3% 43.5% 42.6%
Professional
services 7.8% 8.2% 7.6% 8.4%
----------- ----------- ----------- -----------
Total services 51.5% 49.5% 51.1% 51.0%
----------- ----------- ----------- -----------
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)
For the Three Months Ended December 31, 2011 and 2010
(in thousands)
(unaudited)
For the Three Months
Ended
December 31,
------------------------
2011 2010
----------- -----------
GAAP cash flows from operating activities $ 561,409 $ 406,615
Capitalized software development costs - (15,955)
Excess tax benefits from stock-based compensation 26,811 56,253
Capital expenditures (52,911) (40,450)
----------- -----------
Free cash flows $ 535,309 $ 406,463
=========== ===========
VMware, Inc.
RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES
TO FREE CASH FLOWS
(A NON-GAAP FINANCIAL MEASURE)
For the Year Ended December 31, 2011 and 2010
(in thousands)
(unaudited)
For the Year Ended
December 31,
------------------------
2011 2010
----------- -----------
GAAP cash flows from operating activities $ 2,025,633 $ 1,174,389
Capitalized software development costs (73,998) (64,149)
Excess tax benefits from stock-based compensation 224,503 223,457
Capital expenditures (230,091) (131,695)
----------- -----------
Free cash flows $ 1,946,047 $ 1,202,002
=========== ===========
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 operating margin, free cash flows and trailing
twelve-month 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 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.
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, future exercise or termination 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. In addition, we account for
stock-based compensation under GAAP, which requires that we report the
excess income tax benefit from stock-based compensation as a financing cash
flow rather than as an operating cash flow. We have added this benefit back
to our calculation of free cash flows in order to generally classify cash
flows arising from income taxes as operating cash flows.
- 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. In addition,
we exclude the capitalization of software from our free cash flows to
better convey management's view of operating cash flows. To the extent that
we capitalize costs under generally accepted accounting guidance, we
increase our GAAP operating cash flows due to f the reduced expense
recognized within net income and paid out in cash during the period.
- 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 such investments, 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. As discussed above, we also exclude capitalization of software development costs and the excess income tax benefit from stock-based compensation from our measure of free cash flows.
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 costs of revenues and 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.
Revenue Growth in Constant Currency
We have invoiced and collected in the Euro, the British Pound, the Japanese Yen, and the Australian Dollar in their respective regions since May 2009. As a result, our total revenues are affected by changes in the U.S. Dollar against these currencies. In order to provide a comparable framework for assessing how our business performed excluding the effect of foreign currency fluctuations, management analyzes year-over-year revenue growth on a constant currency basis. Since all of our entities operate with the U.S. Dollar as their functional currency, unearned revenues for orders booked in currencies other than U.S. Dollars are converted into U.S. Dollars at the exchange rate in effect for the month in which each order is booked We calculate constant currency on license revenues recognized during the current period that were originally booked in currencies other than U.S. Dollars by comparing the exchange rates at which the revenue was recognized against the exchange rate that was used in the comparable period. We do not calculate constant currency on services revenues, which include software maintenance revenues and professional services revenues.
Contact Information:
Contacts:
Michael Haase
VMware Investor Relations
mhaase@vmware.com
650-427-2875
Gloria Lee
VMware Investor Relations
glee@vmware.com
650-427-3267
Joan Stone
VMware Global Communications
joanstone@vmware.com
650-427-4436