VMware Reports Fourth Quarter and Fiscal Year 2020 Results

VMware, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

Three Months Ended

Twelve Months Ended

January 31,

February 1,

January 31,

February 1,

2020

2019⁽¹⁾

2020

2019⁽¹⁾

Revenue⁽²⁾:

License

$

1,034

$

1,027

$

3,181

$

3,042

Subscription and SaaS

556

367

1,877

1,303

Services

1,483

1,365

5,753

5,268

Total revenue

3,073

2,759

10,811

9,613

Operating expenses⁽²⁾⁽³⁾:

Cost of license revenue

50

40

166

150

Cost of subscription and SaaS revenue

106

86

400

280

Cost of services revenue

317

292

1,233

1,122

Research and development

676

596

2,522

2,173

Sales and marketing

1,003

889

3,677

3,230

General and administrative

592

258

1,293

846

Realignment and loss on disposition

79

—

79

9

Operating income

250

598

1,441

1,803

Investment income (loss)

20

(7

)

60

161

Interest expense

(41

)

(34

)

(149

)

(134

)

Other income (expense), net

10

9

86

(1

)

Income before income tax

239

566

1,438

1,829

Income tax provision (benefit)

(76

)

87

(4,918

)

239

Net income

315

479

6,356

1,590

Less: Net loss attributable to non-controlling interests

(6

)

(17

)

(56

)

(60

)

Net income attributable to VMware, Inc.

$

321

$

496

$

6,412

$

1,650

Net income per weighted-average share attributable to VMware, Inc. common stockholders, basic for Classes A and B

$

0.77

$

1.19

$

15.37

$

3.99

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B

$

0.76

$

1.17

$

15.08

$

3.92

Weighted-average shares, basic for Classes A and B

417,225

417,499

417,058

413,769

Weighted-average shares, diluted for Classes A and B

424,007

424,630

425,235

421,131

__________

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal Software, Inc. (“Pivotal”) acquisition, which was accounted for as a transaction between entities under common control.

⁽²⁾ Effective the fourth quarter of fiscal 2020, management decided to separately present revenue recognized from subscription and SaaS offerings. Historically, subscription and SaaS revenue was allocated between license and services revenue. Prior period amounts have been reclassified to conform with current period presentation. Historically, cost of subscription and SaaS revenue was allocated between cost of license revenue and cost of services revenue in prior year. Prior period amounts have been reclassified to conform with current period presentation.

⁽³⁾ Includes stock-based compensation as follows:

Cost of license revenue

$

—

$

—

$

1

$

1

Cost of subscription and SaaS revenue

3

2

13

7

Cost of services revenue

24

16

83

58

Research and development

130

105

459

391

Sales and marketing

91

63

293

226

General and administrative

64

34

168

117

VMware, Inc.

CONSOLIDATED BALANCE SHEETS

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

January 31,

February 1,

2020

2019⁽¹⁾

ASSETS

Current assets:

Cash and cash equivalents

$

2,915

$

3,532

Short-term investments

—

19

Accounts receivable, net of allowance for doubtful accounts of $7 and $6⁽¹⁾

1,883

1,723

Due from related parties, net

1,457

1,090

Other current assets

436

305

Total current assets

6,691

6,669

Property and equipment, net

1,280

1,162

Other assets

2,266

1,088

Deferred tax assets

5,556

290

Intangible assets, net

1,172

966

Goodwill

9,329

7,418

Total assets

$

26,294

$

17,593

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

208

$

153

Accrued expenses and other

2,151

1,664

Current portion of long-term debt and other borrowings

2,747

—

Unearned revenue

5,218

4,339

Total current liabilities

10,324

6,156

Note payable to Dell

270

270

Long-term debt

2,731

3,972

Unearned revenue

4,050

3,100

Income tax payable

817

889

Operating lease liabilities

746

—

Other liabilities

347

315

Total liabilities

19,285

14,702

Contingencies

Stockholders’ equity:

Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 110,484 and 110,715 shares

1

1

Class B convertible common stock, par value $0.01; authorized 1,000,000 shares; issued and outstanding 307,222 shares and 300,000 shares

3

3

Additional paid-in capital

2,000

2,959

Accumulated other comprehensive loss

(4

)

(2

)

Retained earnings (Accumulated deficit)

5,009

(1,096

)

Total VMware, Inc. stockholders’ equity

7,009

1,865

Non-controlling interests

—

1,026

Total stockholders’ equity

7,009

2,891

Total liabilities and stockholders’ equity

$

26,294

$

17,593

__________

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

VMware, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

Three Months Ended

Twelve Months Ended

January 31,

February 1,

January 31,

February 1,

2020 

 2019⁽¹⁾

2020 

2019⁽¹⁾ 

Operating activities:

Net income

$

315

$

479

$

6,356

$

1,590

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

247

189

873

727

Stock-based compensation

312

220

1,017

800

Deferred income taxes, net

(146

)

(52

)

(5,284

)

(110

)

Unrealized (gain) loss on equity securities, net

(1

)

—

(31

)

14

Loss on disposition

—

1

—

7

(Gain) loss on disposition of assets, revaluation and impairment, net

—

5

(4

)

2

Other

6

3

9

11

Changes in assets and liabilities, net of acquisitions:

Accounts receivable

(283

)

(506

)

(119

)

(214

)

Other current assets and other assets

(224

)

(99

)

(668

)

(347

)

Due to/from related parties, net

(673

)

(503

)

(374

)

(480

)

Accounts payable

21

(18

)

35

105

Accrued expenses and other liabilities

499

411

417

290

Income taxes payable

(38

)

(49

)

(23

)

(40

)

Unearned revenue

1,050

939

1,668

1,302

Net cash provided by operating activities

1,085

1,020

3,872

3,657

Investing activities:

Additions to property and equipment

(64

)

(68

)

(279

)

(254

)

Purchases of available-for-sale securities

—

—

—

(780

)

Sales of available-for-sale securities

—

3,811

—

3,999

Maturities of available-for-sale securities

—

488

—

2,393

Purchases of strategic investments

(12

)

(5

)

(30

)

(8

)

Proceeds from disposition of assets

—

3

22

41

Business combinations, net of cash acquired, and purchases of intangible assets

—

(419

)

(2,437

)

(938

)

Net cash paid on disposition of a business

—

—

(4

)

(11

)

Net cash provided by (used in) investing activities

(76

)

3,810

(2,728

)

4,442

Financing activities:

Proceeds from the initial public offering of Pivotal, net of issuance costs paid

—

—

—

544

Proceeds from issuance of common stock

14

36

308

259

Borrowings under term loan, net of issuance costs

1,400

—

3,393

—

Borrowings on credit facility, net of debt issuance costs

—

—

—

15

Repayment of term loan

(500

)

—

(1,900

)

—

Repayments on credit facility

—

—

—

(35

)

Repurchase of common stock

(55

)

(42

)

(1,334

)

(42

)

Shares repurchased for tax withholdings on vesting of restricted stock

(141

)

(129

)

(534

)

(357

)

Payment for Special Dividend

—

(11,000

)

—

(11,000

)

Payment to acquire non-controlling interests

(1,666

)

—

(1,666

)

—

Contribution from Dell

—

3

27

44

Payment for common control transaction with Dell

—

—

—

(8

)

Principal payments on finance lease obligations

—

—

(1

)

—

Net cash used in financing activities

(948

)

(11,132

)

(1,707

)

(10,580

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(2

)

—

(2

)

1

Net increase (decrease) in cash, cash equivalents and restricted cash

59

(6,302

)

(565

)

(2,480

)

Cash, cash equivalents and restricted cash at beginning of the period

2,972

9,898

3,596

6,076

Cash, cash equivalents and restricted cash at end of the period

$

3,031

$

3,596

$

3,031

$

3,596

Supplemental disclosures of cash flow information:

Issuance of VMware Class B common shares for Pivotal Class B common shares held by Dell

$

1,101

$

—

$

1,101

$

—

Cash paid for interest

3

3

134

129

Cash paid for taxes, net

86

192

369

399

Non-cash items:

Changes in capital additions, accrued but not paid

$

13

$

(7

)

$

18

$

9

Changes in tax withholdings on vesting of restricted stock, accrued but not paid

(62

)

(44

)

(13

)

17

_________

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

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

January 31,

February 1,

2020

2019⁽¹⁾

Total revenue, as reported

$

3,073

$

2,759

Sequential change in unearned revenue⁽²⁾

1,051

943

Total revenue plus sequential change in unearned revenue

$

4,124

$

3,702

Change (%) over prior year, as reported

11

%

Growth in License and Subscription and SaaS Revenue Plus Sequential Change in Unearned License and Subscription and SaaS Revenue

Three Months Ended

January 31,

February 1,

2020

2019⁽¹⁾

Total license and subscription and SaaS revenue, as reported

$

1,590

$

1,394

Sequential change in unearned license and subscription and SaaS revenue

335

253

Total license and subscription and SaaS revenue plus sequential change in unearned license and subscription and SaaS revenue

$

1,925

$

1,647

Change (%) over prior year, as reported

17

%

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

⁽²⁾ Sequential change in unearned revenue consists of the change in total unearned revenue from the preceding quarter. Total unearned revenue consists of current and non-current unearned revenue amounts presented in the consolidated balance sheets.

VMware, Inc.

SUPPLEMENTAL UNEARNED REVENUE SCHEDULE

(in millions)

(unaudited)

January 31,

November 1,

August 2,

May 3,

February 1,

November 2,

2020

2019⁽¹⁾

2019⁽¹⁾

2019⁽¹⁾

2019⁽¹⁾

2018⁽¹⁾

Unearned revenue as reported:

License

$

19

$

19

$

19

$

19

$

15

$

17

Subscription and SaaS⁽²⁾

1,534

1,199

976

953

916

661

Services

Software maintenance

6,700

6,106

6,042

5,754

5,741

5,161

Professional services

1,015

893

851

802

767

657

Total unearned revenue

$

9,268

$

8,217

$

7,888

$

7,528

$

7,439

$

6,496

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

⁽²⁾ Unearned subscription and SaaS revenue was allocated between unearned license revenue and unearned software maintenance revenue in prior periods and has been reclassified to conform with current period presentation.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Three Months Ended January 31, 2020

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

GAAP

Stock-Based


Compensation

Employer


Payroll Taxes


on Employee


Stock Transactions

Intangible


Amortization

Realignment


Charges

Acquisition, Disposition


and Other


Items

Certain Litigation and Other Contingencies

Tax


Adjustment⁽¹⁾

Non-GAAP


As Adjusted⁽²⁾

Operating expenses⁽³⁾:

Cost of license revenue

$

50

—

—

(27

)

—

—

—

—

$

23

Cost of subscription and SaaS revenue

$

106

(3

)

—

(25

)

—

—

—

—

$

79

Cost of services revenue

$

317

(24

)

(2

)

—

—

—

—

—

$

291

Research and development

$

676

(130

)

(2

)

—

—

—

—

—

$

543

Sales and marketing

$

1,003

(91

)

—

(34

)

—

—

—

—

$

881

General and administrative

$

592

(64

)

(3

)

—

—

(84

)

(237

)

—

$

202

Realignment and loss on disposition

$

79

—

—

—

(79

)

—

—

—

$

—

Operating income

$

250

312

7

86

79

84

237

—

$

1,054

Operating margin⁽²⁾

8.1

%

10.1

%

0.2

%

2.8

%

2.6

%

2.7

%

7.7

%

—

34.3

%

Other income (expense), net⁽⁴⁾

$

10

—

—

—

—

(1

)

—

—

$

10

Income before income tax

$

239

312

7

86

79

83

237

—

$

1,043

Income tax provision (benefit)

$

(76

)

242

$

166

Tax rate⁽²⁾

N/A

16.0

%

Net income

$

315

312

7

86

79

83

237

(242

)

$

877

Less: Net income (loss) attributable to non-controlling interests

$

(6

)

23

—

7

—

1

—

(15

)

$

9

Net income attributable to VMware, Inc.

$

321

289

7

79

79

82

237

(227

)

$

868

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B⁽²⁾⁽⁵⁾

$

0.76

$

0.68

$

0.02

$

0.19

$

0.19

$

0.19

$

0.56

$

(0.53

)

$

2.05

N/A – GAAP tax rate was not applicable due to the income tax benefit recorded for the three months ended January 31, 2020.

⁽¹⁾ Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

⁽²⁾ Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.

⁽³⁾ Cost of subscription and SaaS revenue was allocated between cost of license revenue and cost of services revenue in prior year and has been reclassified to conform with current period presentation.

⁽⁵⁾ Calculated based upon 424,007 diluted weighted-average shares for Classes A and B.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Three Months Ended February 1, 2019

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

GAAP⁽¹⁾

Stock-Based


Compensation⁽¹⁾

Employer


Payroll Taxes


on Employee


Stock Transactions⁽¹⁾

Intangible


Amortization⁽¹⁾

Acquisition, Disposition


and Other


Items⁽¹⁾

Tax


Adjustment⁽¹⁾⁽²⁾

Non-GAAP


As Adjusted⁽¹⁾⁽³⁾

Operating expenses⁽⁴⁾:

Cost of license revenue

$

40

—

—

(20

)

—

—

$

20

Cost of subscription and SaaS revenue

$

86

(2

)

—

(25

)

—

—

$

58

Cost of services revenue

$

292

(16

)

—

(1

)

(1

)

—

$

274

Research and development

$

596

(105

)

—

—

(1

)

—

$

490

Sales and marketing

$

889

(63

)

(1

)

(17

)

(1

)

—

$

808

General and administrative

$

258

(34

)

—

—

(55

)

—

$

169

Realignment and loss on disposition

$

—

—

—

—

—

—

$

—

Operating income

$

598

220

1

63

58

—

$

940

Operating margin⁽³⁾

21.7

%

8.0

%

—

%

2.3

%

2.1

%

—

34.1

%

Investment income (loss)

$

(7

)

—

—

—

46

—

$

39

Other income (expense), net⁽⁵⁾

$

9

—

—

—

2

—

$

11

Income before income tax

$

566

220

1

63

106

—

$

956

Income tax provision

$

87

67

$

154

Tax rate⁽³⁾

15.4

%

16.0

%

Net income

$

479

220

1

63

106

(67

)

$

802

Less: Net income (loss) attributable to non-controlling interests

$

(17

)

20

—

7

—

(3

)

$

7

Net income attributable to VMware, Inc.

$

496

200

1

56

106

(64

)

$

795

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B⁽³⁾⁽⁶⁾

$

1.17

$

0.47

$

—

$

0.13

$

0.25

$

(0.15

)

$

1.87

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

⁽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 as well as significant tax adjustments, such as adjustments resulting from the U.S. Tax Cuts and Jobs Act enacted on December 22, 2017 (the “2017 Tax Act”). 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.

⁽³⁾ 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.

⁽⁴⁾ Cost of subscription and SaaS revenue was allocated between cost of license revenue and cost of services revenue in prior year and has been reclassified to conform with current period presentation.

⁽⁵⁾ Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized.

⁽⁶⁾ Calculated based upon 424,630 diluted weighted-average shares for Classes A and B.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Twelve Months Ended January 31, 2020

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

GAAP

Stock-Based


Compensation

Employer


Payroll Taxes


on Employee


Stock Transactions

Intangible


Amortization

Realignment


Charges

Acquisition, Disposition


and Other


Items

Certain Litigation and Other Contingencies

Tax


Adjustment⁽¹⁾

Non-GAAP


As Adjusted⁽²⁾

Operating expenses⁽³⁾:

Cost of license revenue

$

166

(1

)

—

(89

)

—

—

—

—

$

76

Cost of subscription and SaaS revenue

$

400

(13

)

—

(103

)

—

—

—

—

$

285

Cost of services revenue

$

1,233

(83

)

(2

)

(2

)

—

—

—

—

$

1,147

Research and development

$

2,522

(459

)

(3

)

(1

)

—

—

—

—

$

2,058

Sales and marketing

$

3,677

(293

)

(6

)

(105

)

—

—

—

—

$

3,273

General and administrative

$

1,293

(168

)

(3

)

—

—

(173

)

(237

)

—

$

711

Realignment and loss on disposition

$

79

—

—

—

(79

)

—

—

—

$

—

Operating income

$

1,441

1,017

14

300

79

173

237

—

$

3,261

Operating margin⁽²⁾

13.3

%

9.4

%

0.1

%

2.8

%

0.7

%

1.6

%

2.2

%

—

30.2

%

Other income (expense), net⁽⁴⁾

$

86

—

—

—

—

(35

)

—

—

$

50

Income before income tax

$

1,438

1,017

14

300

79

138

237

—

$

3,222

Income tax provision (benefit)

$

(4,918

)

⁽⁶⁾

5,432

$

514

Tax rate⁽²⁾

N/M

⁽⁶⁾

16.0

%

Net income

$

6,356

1,017

14

300

79

138

237

(5,432

)

$

2,708

Less: Net income (loss) attributable to non-controlling interests

$

(56

)

97

—

33

—

3

—

(24

)

$

53

Net income attributable to VMware, Inc.

$

6,412

920

14

267

79

135

237

(5,408

)

$

2,655

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B⁽²⁾⁽⁵⁾

$

15.08

$

2.16

$

0.03

$

0.63

$

0.19

$

0.32

$

0.56

$

(12.72

)

$

6.24

N/M – Tax rate calculated on a GAAP basis is not considered meaningful.

⁽¹⁾ Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-GAAP financial measures presented above as well as significant tax adjustments. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

⁽²⁾ Totals may not sum, due to rounding. Operating margin, tax rate and net income per weighted average share information are calculated based upon the respective underlying, non-rounded data.

⁽³⁾ Cost of subscription and SaaS revenue was included in both cost of license revenue and cost of services revenue in prior year and has been reclassified to conform with current period presentation.

⁽⁴⁾ Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized.

⁽⁵⁾ Calculated based upon 425,235 diluted weighted-average shares for Classes A and B.

⁽⁶⁾ During the second quarter of fiscal 2020, we completed an intra-group transfer of certain of our intellectual property rights to our Irish subsidiary, where our international business is headquartered. A discrete tax benefit of $4.9 billion was recorded as a deferred tax asset. Due to the impact of the discrete tax benefit of $4.9 billion, the tax rate calculated on a GAAP basis is not considered meaningful.

VMware, Inc.

RECONCILIATION OF GAAP TO NON-GAAP DATA

For the Twelve Months Ended February 1, 2019

(amounts in millions, except per share amounts, and shares in thousands)

(unaudited)

GAAP⁽¹⁾

Stock-Based


Compensation⁽¹⁾

Employer


Payroll Taxes


on Employee


Stock Transactions⁽¹⁾

Intangible


Amortization⁽¹⁾

Acquisition, Disposition


and Other Items⁽¹⁾

Tax


Adjustment⁽¹⁾⁽²⁾

Non-GAAP


As Adjusted⁽¹⁾⁽³⁾

Operating expenses⁽⁴⁾:

Cost of license revenue

$

150

(1

)

—

(85

)

—

—

$

64

Cost of subscription and SaaS revenue

$

280

(7

)

—

(89

)

—

—

$

184

Cost of services revenue

$

1,122

(58

)

(1

)

(3

)

(2

)

—

$

1,058

Research and development

$

2,173

(391

)

(1

)

—

(3

)

—

$

1,778

Sales and marketing

$

3,230

(226

)

(4

)

(64

)

(1

)

—

$

2,935

General and administrative

$

846

(117

)

(1

)

—

(82

)

—

$

646

Realignment and loss on disposition

$

9

—

—

—

(9

)

—

$

—

Operating income

$

1,803

800

7

241

97

—

$

2,948

Operating margin⁽³⁾

18.8

%

8.3

%

0.1

%

2.5

%

1.0

%

—

30.7

%

Investment income (loss)

$

161

—

—

—

46

—

$

207

Other income (expense), net⁽⁵⁾

$

(1

)

—

—

—

10

—

$

9

Income before income tax

$

1,829

800

7

241

153

—

$

3,030

Income tax provision

$

239

247

$

486

Tax rate⁽³⁾

13.1

%

16.0

%

Net income

$

1,590

800

7

241

153

(247

)

$

2,544

Less: Net income (loss) attributable to non-controlling interests

$

(60

)

69

—

24

(1

)

(6

)

$

26

Net income attributable to VMware, Inc.

$

1,650

731

7

217

154

(241

)

$

2,518

Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B⁽³⁾⁽⁶⁾

$

3.92

$

1.74

$

0.02

$

0.51

$

0.37

$

(0.57

)

$

5.98

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

⁽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 as well as significant tax adjustments, such as adjustments resulting from the 2017 Tax Act. 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.

⁽³⁾ 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.

⁽⁴⁾ Cost of subscription and SaaS revenue was included in both cost of license revenue and cost of services revenue in prior year and has been reclassified to conform with current period presentation.

⁽⁵⁾ Non-GAAP adjustment to other income (expense), net includes gains or losses on equity investments, whether realized or unrealized.

⁽⁶⁾ Calculated based upon 421,131 diluted weighted-average shares for Classes A and B.

VMware, Inc.

REVENUE BY TYPE

(in millions)

(unaudited)

Three Months Ended

Twelve Months Ended

January 31,

February 1,

January 31,

February 1,

2020

2019⁽¹⁾

2020

2019⁽¹⁾

Revenue:

License

$

1,034

$

1,027

$

3,181

$

3,042

Subscription and SaaS⁽²⁾

556

367

1,877

1,303

Total license and subscription and SaaS

1,590

1,394

5,058

4,345

Services:

Software maintenance

1,235

1,133

4,754

4,351

Professional services

248

232

999

917

Total services

1,483

1,365

5,753

5,268

Total revenue

$

3,073

$

2,759

$

10,811

$

9,613

Percentage of revenue:

License

33.7

%

37.2

%

29.4

%

31.6

%

Subscription and SaaS⁽²⁾

18.1

%

13.3

%

17.4

%

13.6

%

Total license and subscription and SaaS

51.8

%

50.5

%

46.8

%

45.2

%

Services:

Software maintenance

40.2

%

41.1

%

44.0

%

45.3

%

Professional services

8.0

%

8.4

%

9.2

%

9.5

%

Total services

48.2

%

49.5

%

53.2

%

54.8

%

Total revenue

100.0

%

100.0

%

100.0

%

100.0

%

__________

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

⁽²⁾ Subscription and SaaS revenue was allocated between license revenue and services revenue in prior year and has been reclassified to conform with current period presentation.

VMware, Inc.

REVENUE BY GEOGRAPHY

(in millions)

(unaudited)

Three Months Ended

Twelve Months Ended

January 31,

February 1,

January 31,

February 1,

2020

2019⁽¹⁾

2020

2019⁽¹⁾

Revenue:

United States

$

1,569

$

1,280

$

5,405

$

4,696

International

1,504

1,479

5,406

4,917

Total revenue

$

3,073

$

2,759

$

10,811

$

9,613

Percentage of revenue:

United States

51.1

%

46.4

%

50.0

%

48.9

%

International

48.9

%

53.6

%

50.0

%

51.1

%

Total revenue

100.0

%

100.0

%

100.0

%

100.0

%

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

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

January 31,

February 1,

January 31,

February 1,

2020

2019⁽¹⁾

2020

2019⁽¹⁾

GAAP cash flows from operating activities

$

1,085

$

1,020

$

3,872

$

3,657

Capital expenditures

(64

)

(68

)

(279

)

(254

)

Free cash flows

$

1,021

$

952

$

3,593

$

3,403

⁽¹⁾ Adjusted to reflect the recast of prior period information due to the Pivotal acquisition, which was accounted for as a transaction between entities under common control.

Three Months Ended

Twelve Months Ended

November 1,

August 2,

May 3,

February 1,

November 2,

August 3,

May 4,

February 1,

February 2,

2019

2019

2019

2019

2018

2018

2018

2019

2018

Revenue:

License

$

728

$

773

$

646

$

1,027

$

692

$

723

$

601

$

3,042

$

2,628

Subscription and SaaS

470

439

411

367

334

308

294

1,303

927

Services

1,458

1,420

1,393

1,365

1,337

1,301

1,264

5,268

4,781

Total revenue

2,656

2,632

2,450

2,759

2,363

2,332

2,159

9,613

8,336

Operating expenses:

Cost of license revenue

42

38

36

40

37

37

36

150

135

Cost of subscription and SaaS revenue

103

97

94

86

72

65

62

280

200

Cost of services revenue

311

306

299

292

279

279

271

1,122

1,072

Research and development

642

614

590

596

551

528

498

2,173

1,917

Sales and marketing

918

888

868

889

786

772

782

3,230

2,723

General and administrative

269

223

209

258

199

203

185

846

722

Realignment and loss on disposition

—

—

—

—

6

1

2

9

104

Operating income

371

466

354

598

433

447

323

1,803

1,463

Investment income (loss)

12

14

14

(7

)

63

57

48

161

120

Interest expense

(40

)

(34

)

(34

)

(34

)

(33

)

(34

)

(34

)

(134

)

(74

)