VMware Reports First Quarter 2013 Results

VMware Reports First Quarter 2013 Results 
Year-Over-Year Revenue Growth of 13% to $1.19 Billion; GAAP Operating
Margin of 13.4%; Non-GAAP Operating Margin of 32.5%; GAAP EPS of
$0.40; Non-GAAP EPS of $0.74 
PALO ALTO, CA -- (Marketwired) -- 04/23/13 --  VMware, Inc. (NYSE:
VMW), the global leader in virtualization and cloud infrastructure,
today announced financial results for the first quarter of 2013:  


 
--  Revenues for the first quarter were $1.19 billion, an increase of 13%
    from the first quarter of 2012.
    
    
--  Operating income for the first quarter was $160 million, a decrease of
    26% from the first quarter of 2012, reflecting a $63 million
    realignment charge. Non-GAAP operating income for the first quarter
    was $388 million, an increase of 13% from the first quarter of 2012.
    
    
--  Net income for the first quarter was $174 million, or $0.40 per
    diluted share, down 9% compared to $191 million, or $0.44 per diluted
    share, for the first quarter of 2012. Non-GAAP net income for the
    quarter was $319 million, or $0.74 per diluted share, up 11% compared
    to $287 million, or $0.66 per diluted share, for the first quarter of
    2012.
    
    
--  Operating cash flows for the first quarter were $676 million, an
    increase of 17% from the first quarter of 2012. Free cash flows for
    the quarter were $599 million, an increase of 10% from the first
    quarter of 2012.
    
    
--  Cash, cash equivalents and short-term investments were $4.94 billion
    and unearned revenue was $3.49 billion as of March 31, 2013.

  
Annual 2013 revenues are expected to be in the range of $5.12 billion
to $5.24 billion, an increase of approximately 11% to 14% from 2012,
and annual license revenues are expected to grow approximately 6% to
9%.  
Second quarter 2013 total revenues are expected to be in the range of
$1.21 billion to $1.24 billion, an increase of approximately 8% to
10% from the second quarter of 2012. Second quarter license revenues
are expected to be between $515 million and $535 million. 
"We're very pleased with our performance this quarter, particularly
in light of recent results from many of our industry peers," said Pat
Gelsinger, chief executive officer, VMware. "VMware is the
virtualiz
ation software infrastructure leader and the company most
capable of providing an end-to-end infrastructure solution designed
to bridge our customers' legacy client/server applications and
desktops to next-generation applications for the mobile/cloud era. We
continue to execute against our strategy, and our position in the
market is clear as we embark on this multi-year journey with our
customers." 
Recent Highlights & Strategic Announcements  


 
--  On February 12, 2013, VMware introduced VMware vSphere(R) with
    Operations Management(TM), which unites the leading virtualization
    platform for all applications, including business-critical and
    low-latency applications, with patented analytic capabilities to
    provide insight into the performance, health and efficiency of
    virtualized environments.
    
    
--  On February 20, 2013, VMware introduced VMware(R) Horizon
    Suite(TM), a comprehensive platform for workforce mobility that will
    connect end users to their data, applications and desktops on any
    device without sacrificing IT security and control. With updates to
    VMware Horizon View(TM) and VMware Horizon Mirage(TM), as well as
    a new product, VMware Horizon Workspace(TM), the VMware Horizon
    Suite will enable IT organizations to empower users with a secure,
    easy-to-manage virtual workspace that delivers a consistent,
    compelling experience across devices.
    
    
--  On February 26, 2013, at VMware Partner Exchange 2013, VMware unveiled
    a range of programs, incentives and benefits aimed at enabling its
    partner community to deliver complete virtualization, cloud and
    mobility solutions that simplify IT infrastructure from the data
    center to the mobile workspace.
    
    
--  On March 13, 2013, at a Strategic Forum for Institutional Investors,
    VMware CEO Pat Gelsinger outlined the company's strategy, including
    plans to extend the software-defined data center with a hybrid cloud
    service offering, and the creation of a new Hybrid Cloud Services
    business unit to be led by cloud services veteran Bill Fathers. At the
    event, VMware also revealed intentions to extend its network
    footprint, merging the VMware vCloud Networking and Security(TM)
    product line with the Nicira Network Virtualization Platform into a
    single product family based on a common technology foundation, to be
    named VMware NSX.

  
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 500,000 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. 
Additional Information 
Our website is located at www.vmware.com, and our investor relations
website is located at http://ir.vmware.com. Our goal is to maintain
the investor relations website as a portal through which investors
can easily find or navigate to pertinent information about us, all of
which is made available free of charge. The additional information
includes materials that we file with the SEC; announcements of
investor conferences and events at which our executives talk about
our products, services and competitive strategies; webcasts of our
quarterly earnings calls, investor conferences and events (archives
of which are also available for a limited time); additional
information on our financial metrics, including reconciliations of
non-GAAP financial measures to the most directly comparable GAAP
measures; press releases on quarterly earnings, product and service
announcements, legal developments and international news; corporate
governance information; and other news, blogs and announcements that
we may post from time to time that investors may find useful or
interesting. 
VMware, vSphere, vSphere with Operations Management, vCenter, vCenter
Operations Management Suite, Horizon, View, Mirage, Horizon
Workspace, VMware vCloud, and vCloud Networking and Security 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 second
quarter and annual revenue and license revenue projections; VMware's
market opportunity, our expectations for leadership in
next-generation applications for the mobile/cloud 
era; the expected
benefits to customers of newly available VMware products and
services, such as VMware vSphere with Operations Management and
VMware Horizon Suite, our planned hybrid cloud service offering and
our intentions to extend our network footprint. These forward-looking
statements are subject to the safe harbor provisions created by the
Private Securities Litigation Reform Act of 1995. Actual results
could differ materially from those projected in the forward-looking
statements as a result of certain risk factors, including but not
limited to: (i) adverse changes in general economic or market
conditions; (ii) delays or reductions in consumer, government and
information technology spending; (iii) competitive factors, including
but not limited to pricing pressures, industry consolidation, entry
of new competitors into the virtualization 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, end user and mobile
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 INCOME                      
                  (in thousands, except per share amounts)                  
                                (unaudited)                                 
                                                                            
                                                                            
                                                 For the Three Months Ended 
                                                          March 31,         
                                                 -------------------------- 
                                                     2013          2012     
                                                 ------------  ------------ 
                                                                            
Revenues:                                                                   
  License                                        $    488,227  $    481,927 
  Services                                            703,239       573,255 
                                                 ------------  ------------ 
Total revenues                                      1,191,466     1,055,182 
Operating expenses (1):                                                     
  Cost of license revenues                             57,344        56,743 
  Cost of services revenues                           124,596       114,172 
  Research and development                            270,558       222,390 
  Sales and marketing                                 417,418       363,412 
  General and administrative                           98,466        81,300 
  Realignment charges                                  62,882             - 
                                                 ------------  ------------ 
Operating income                                      160,202       217,165 
Investment income                                       7,720         5,743 
Interest expense with EMC                                (965)       (1,287)
Other income (expense), net                            (2,874)        2,285 
                                                 ------------  ------------ 
Income before income taxes                            164,083       223,906 
Income tax provision (benefit)                         (9,486)       32,470 
                                                 ------------  ------------ 
Net income                                       $    173,569  $    191,436 
                                                 ============  ============ 
                                                                            
Net income per weighted-average share, basic for                            
 Class A and Class B                             $       0.41  $       0.45 
                                                                            
Net income per weighted-average share, diluted                              
 for Class A and Class B                         $       0.40  $       0.44 
                                                                            
Weighted-average shares, basic for Class A and                              
 Class B                                              428,005       424,989 
Weighted-average shares, diluted for Class A and                            
 Class B                                              432,631       433,213 
                                                                            
(1) Includes stock-based compensation as                                    
 follows:                                                                   
  Cost of license revenues                       $        523  $        440 
  Cost of services revenues                             7,278         5,819 
  Research and development                             62,355        39,377 
  Sales and marketing                                  36,092        25,234 
  General and administrative                           13,969        10,936 
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                         CONSOLIDATED BALANCE SHEETS                        
                  (in thousands, except per
 share amounts)                  
                                 (unaudited)                                
                                                                            
                                                                            
                                                   March 31,    December 31,
                                                      2013          2012    
                                                 ------------- -------------
                                                                            
                     ASSETS                                                 
Current assets:                                                             
  Cash and cash equivalents                      $   1,840,149 $   1,609,322
  Short-term investments                             3,096,531     3,021,512
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $1,585 and $4,267              773,204     1,150,906
  Due from EMC, net                                      8,485        67,934
  Deferred tax asset                                   200,904       179,430
  Other current assets                                 138,510        90,935
                                                 ------------- -------------
Total current assets                                 6,057,783     6,120,039
Property and equipment, net                            693,993       664,669
Other assets, net                                      117,165       128,701
Deferred tax asset                                     107,846       103,001
Intangible assets, net                                 701,375       731,852
Goodwill                                             3,003,068     2,848,130
                                                 ------------- -------------
    Total assets                                 $  10,681,230 $  10,596,392
                                                 ============= =============
                                                                            
      LIABILITIES AND STOCKHOLDERS' EQUITY                                  
Current liabilities:                                                        
  Accounts payable                               $      58,830 $      89,562
  Accrued expenses and other                           577,785       674,746
  Unearned revenues                                  2,191,159     2,195,926
                                                 ------------- -------------
Total current liabilities                            2,827,774     2,960,234
Note payable to EMC                                    450,000       450,000
Unearned revenues                                    1,299,049     1,264,639
Other liabilities                                      191,482       181,538
                                                 ------------- -------------
    Total liabilities                                4,768,305     4,856,411
Contingencies                                                               
Stockholders' equity:                                                       
  Class A common stock, par value $.01;                                     
   authorized 2,500,000 shares; issued and                                  
   outstanding 128,376 and 128,688 shares                1,284         1,287
  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                         3,431,263     3,431,710
  Accumulated other comprehensive income                 5,501         5,676
  Retained earnings                                  2,471,877     2,298,308
                                                 ------------- -------------
    Total stockholders' equity                       5,912,925     5,739,981
                                                 ------------- -------------
      Total liabilities and stockholders' equity $  10,681,230 $  10,596,392
                                                 ============= =============
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                               (in thousands)                               
                                (unaudited)                                 
                                                                            
                                                                            
                                                 For the Three Months Ended 
                                                          March 31,         
                                                 -------------------------- 
                                                     2013          2012     
                                                 ------------  ------------ 
                                                                            
Operating activities:                                                       
Net income                                       $    173,569  $    191,436 
Adjustments to reconcile net income to net cash                             
 provided by operating activities:                                          
  Depreciation and amortization                        91,243        85,766 
  Stock-based compensation                            115,925        81,806 
  Excess tax benefits from stock-based                                      
   compensation                                       (22,215)      (53,682)
  Non-cash realignment charges                         14,468             - 
  Other                                                (2,236)         (928)
  Changes in assets and liabilities, net of                                 
   acquisitions:                                                            
    Accounts receivable                               380,259       226,550 
    Other assets                                      (40,807)      (47,706)
    Due to/from EMC, net                               59,449        55,548 
    Accounts payable                                   (8,310)       12,525 
    Accrued expenses                                 (115,308)      (94,817)
    Income taxes payable                                1,783        55,366 
    Deferred income taxes, net                        (28,121)      (34,955)
    Unearned revenues                                  56,723        99,695 
                                                 ------------  ------------ 
Net cash provided by operating activities             676,422       576,604 
                                                 ------------  ------------ 
                                                                            
Investing activities:                                                       
Additions to property and equipment                   (77,843)      (33,671)
Purchases of available-for-sale securities           (736,927)     (701,463)
Sales of available-for-sale securities                485,560       422,317 
Maturities of available-for-sale securities           181,978       256,977 
Business acquisitions, net of cash acquired          (184,486)            - 
Other investing                                            48        (1,497)
                                                 ------------  ------------ 
Net cash used in investing activities                (331,670)      (57,337)
                                             
    ------------  ------------ 
                                                                            
Financing activities:                                                       
Proceeds from issuance of common stock                 67,889       111,041 
Repurchase of common stock                           (181,961)            - 
Excess tax benefits from stock-based                                        
 compensation                                          22,215        53,682 
Shares repurchased for tax withholdings on                                  
 vesting of restricted stock                          (22,068)      (13,637)
                                                 ------------  ------------ 
Net cash provided by (used in) financing                                    
 activities                                          (113,925)      151,086 
                                                 ------------  ------------ 
Net increase in cash and cash equivalents             230,827       670,353 
Cash and cash equivalents at beginning of the                               
 period                                             1,609,322     1,955,756 
                                                 ------------  ------------ 
Cash and cash equivalents at end of the period   $  1,840,149  $  2,626,109 
                                                 ============  ============ 
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                   RECONCILIATION OF GAAP TO NON-GAAP DATA                  
                  For the Three Months Ended March 31, 2013                 
                  (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         $  57,344          (523)           (5)      (23,341)
  Cost of services                                                      
   revenues         $ 124,596        (7,278)         (112)         (990)
  Research and                                                          
   development      $ 270,558       (62,355)         (908)         (994)
  Sales and                                                             
   marketing        $ 417,418       (36,092)         (667)       (2,580)
  General and                                                           
   administrative   $  98,466       (13,969)         (212)            - 
  Realignment                                                           
   charges          $  62,882             -             -             - 
                                                                        
Operating income    $ 160,202       120,217         1,904        27,905 
Operating margin         13.4%         10.1%          0.2%          2.3%
                                                                        
Income before                                                           
 income taxes       $ 164,083       120,217         1,904        27,905 
                                                                        
Income tax                                                              
 provision                                                              
 (benefit)          $  (9,486)                                          
Tax rate                 -5.8%                                          
                                                                        
Net income          $ 173,569       120,217         1,904        27,905 
                                                                        
Net income per                                                          
 weighted-average                                                       
 share, basic for                                                       
 Class A and Class                                                      
 B (3)              $    0.41 $        0.28 $           - $        0.07 
                                                                        
Net income per                                                          
 weighted-average                                                       
 share, diluted for                                                     
 Class A and Class                                                      
 B (4)              $    0.40 $        0.28 $           - $        0.06 
                                                                        
 
                                table continued below
                                                                            
                                                                            
                               Acquisition Capitalized               Non-   
                                and Other    Software     Tax        GAAP,  
                   Realignment   Related   Development Adjustment     as    
                     Charges      Items     Costs (1)      (2)     adjusted 
                   ----------- ----------- ----------- ----------  -------- 
                                                                            
Operating expenses:                                                         
  Cost of license                                                           
   revenues                  -           -     (13,150)         -  $ 20,325 
  Cost of services                                                          
   revenues                  -           -           -          -  $116,216 
  Research and                                                              
   development               -           -           -          -  $206,301 
  Sales and                                                                 
   marketing                 -           -           -          -  $378,079 
  General and                                                               
   administrative            -      (1,328)          -          -  $ 82,957 
  Realignment                                                               
   charges             (62,882)          -           -          -  $      - 
                                                                            
Operating income        62,882       1,328      13,150          -  $387,588 
Operating margin           5.3%        0.1%        1.1%         -      32.5%
                                                                            
Income before                                                               
 income taxes           62,882       1,328      13,150          -  $391,469 
                                                                            
Income tax                                                                  
 provision                                                                  
 (benefit)                                                 81,908  $ 72,422 
Tax rate                                                               18.5%
                          
                                                  
Net income              62,882       1,328      13,150    (81,908) $319,047 
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, basic for                                                           
 Class A and Class                                                          
 B (3)             $      0.15 $         - $      0.03 $    (0.19) $   0.75 
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, diluted for                                                         
 Class A and Class                                                          
 B (4)             $      0.15 $         - $      0.03 $    (0.18) $   0.74 
                                                                            
                                                                            
(1) For the first quarter of 2013, 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. In the first quarter of 2013, our GAAP tax rate of     
    -5.8% was increased by 2.2% for the impact of the federal R&D tax credit
    reinstated retroactively for 2012 and by 22.1% for the impact of the    
    items excluded from our non-GAAP earnings, as shown in the table above, 
    resulting in a non-GAAP tax rate of 18.5%.                              
                                                                            
(3) Calculated based upon 428,005 basic weighted-average shares for Class A 
    and Class B.                                                            
                                                                            
(4) Calculated based upon 432,631 diluted weighted-average shares for Class 
    A and Class B.                                                          
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                   RECONCILIATION OF GAAP TO NON-GAAP DATA                  
                  For the Three Months Ended March 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             $  56,743          (440)          (16)      (13,279)
  Cost of services                                                          
   revenues             $ 114,172        (5,819)         (454)       (1,098)
  Research and                                                              
   development          $ 222,390       (39,377)       (1,923)         (751)
  Sales and marketing   $ 363,412       (25,234)       (1,999)       (2,932)
  General and                                                               
   administrative       $  81,300       (10,936)         (382)            - 
                                                                            
Operating income        $ 217,165        81,806         4,774        18,060 
Operating margin             20.6%          7.8%          0.4%          1.7%
                                                                            
Income before income                                                        
 taxes                  $ 223,906        81,806         4,774        18,060 
                                                                            
Income tax provision    $  32,470                                           
Tax rate                     14.5%                                          
                                                                            
Net income              $ 191,436        81,806         4,774        18,060 
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, basic for Class                                                     
 A and Class B (3)      $    0.45 $        0.19 $        0.01 $        0.04 
                                                                            
Net income per                                                              
 weighted-average                                                           
 share, diluted for                                                         
 Class A and Class B                                                        
 (4)                    $    0.44 $        0.19 $        0.01 $        0.04 
                                                                            
 
                        table continued below
                                                                         
                                                                         
                       Acquisition  Capitalized                          
                        and Other    Software       Tax                  
                         Related    Development  Adjustment   Non-GAAP,  
                          Items      Costs (1)      (2)      as adjusted 
                       ----------- ------------ -----------  ----------- 
                                                                         
Operating expenses:                                                      
  Cost of license                                                        
   revenu
es                      -      (21,838)          -  $    21,170 
  Cost of services                                                       
   revenues                      -            -           -  $   106,801 
  Research and                                                           
   development                   -            -           -  $   180,339 
  Sales and marketing            -            -           -  $   333,247 
  General and                                                            
   administrative              (39)           -           -  $    69,943 
                                                                         
Operating income                39       21,838           -  $   343,682 
Operating margin                 -          2.1%          -         32.6%
                                                                         
Income before income                                                     
 taxes                          39       21,838           -  $   350,423 
                                                                         
Income tax provision                                 30,606  $    63,076 
Tax rate                                                            18.0%
                                                                         
Net income                      39       21,838     (30,606) $   287,347 
                                                                         
Net income per                                                           
 weighted-average                                                        
 share, basic for Class                                                  
 A and Class B (3)     $         - $       0.06 $     (0.07) $      0.68 
                                                                         
Net income per                                                           
 weighted-average                                                        
 share, diluted for                                                      
 Class A and Class B                                                     
 (4)                   $         - $       0.05 $     (0.07) $      0.66 
                                                                         
                                                                            
(1) For the first quarter of 2012, no costs were capitalized for the        
    development of software products. Amortization expense from previously  
    capitalized amounts was $21.8 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 424,989 basic weighted-average shares for Class A 
    and Class B.                                                            
                                                                            
(4) Calculated based upon 433,213 diluted weighted-average shares for Class 
    A and Class B.                                                          
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                              REVENUES BY TYPE                              
                               (in thousands)                               
                                (unaudited)                                 
                                                                            
                                                                            
                                                 For the Three Months Ended 
                                                          March 31,         
                                                 -------------------------- 
                                                     2013          2012     
                                                 ------------  ------------ 
                                                                            
Revenues:                                                                   
  License                                        $    488,227  $    481,927 
  Services:                                                                 
    Software maintenance                              605,421       492,270 
    Professional services                              97,818        80,985 
                                                 ------------  ------------ 
  Total services                                      703,239       573,255 
                                                 ------------  ------------ 
Total revenues                                   $  1,191,466  $  1,055,182 
                                                 ============  ============ 
                                                                            
                                                                            
Percentage of revenues:                                                     
  License                                                41.0%         45.7%
  Services:                                                                 
    Software maintenance                                 50.8%         46.6%
    Professional services                                 8.2%          7.7%
                                                 ------------  ------------ 
  Total services                                         59.0%         54.3%
                                                 ------------  ------------ 
Total revenues  
                                        100.0%        100.0%
                                                 ============  ============ 
                                                                            
                                                                            
                                                                            
                                VMware, Inc.                                
                                                                            
                           REVENUES BY GEOGRAPHY                            
                               (in thousands)                               
                                (unaudited)                                 
                                                                            
                                                                            
                                                 For the Three Months Ended 
                                                          March 31,         
                                                 -------------------------- 
                                                     2013          2012     
                                                 ------------  ------------ 
                                                                            
Revenues:                                                                   
  United States                                  $    568,528  $    484,974 
  International                                       622,938       570,208 
                                                 ------------  ------------ 
Total revenues                                   $  1,191,466  $  1,055,182 
                                                 ============  ============ 
                                                                            
                                                                            
Percentage of revenues:                                                     
  United States                                          47.7%         46.0%
  International                                          52.3%         54.0%
                                                 ------------  ------------ 
Total revenues                                          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 
                                                          March 31,         
                                                 -------------------------- 
                                                     2013          2012     
                                                 ------------  ------------ 
                                                                            
GAAP cash flows from operating activities        $    676,422  $    576,604 
Capital expenditures                                  (77,843)      (33,671)
                                                 ------------  ------------ 
Free cash flows                                  $    598,579  $    542,933 
                                                 ============  ============ 

 
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 operating margin, non-GAAP net income, non-GAAP income per
diluted share and free cash flows. VMware has provided a
reconciliation of each non-GAAP financial measure used in this
earnings release to the most directly comparable GAAP financial
measure. These non-GAAP financial measures, other than free cash
flows, differ from GAAP in that they exclude stock-based
compensation, employer payroll tax on employee stock transactions,
amortization of acquired intangible assets, realignment charges,
acquisition and other-related items and the net effect of the
amortization and capitalization of software development costs, 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. Stock-based compensation is generally fixed
    at the time the stock-based instrument is granted and amortized over a
    period of several years. Although stock-based compensation is an
    important aspect of the compensation of our employees and executives,
    the expense for the fair value of the stock-based instruments we
    utilize 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 is
    determined using a complex formula that incorporates factors, such as
    market volatility, that are beyond our control. Additionally, in order
    to establish the fair value of performance-based stock awards, which
    are also an element of our ongoing stock-based compensation, we are
    required to apply judgment to estimate the probability of the extent
    to which performance objectives will be achieved. 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 acquired intangible assets. A portion of the purchase
    price of VMware's acquisitions is generally allocated to intangible
    assets, such as intellectual property, and is subject to amortization.
    However, VMware does not acquire businesses on a predictable cycle.
    Additionally, the amount of an acquisition's purchase price allocated
    to intangible assets and the term of its related amortization can vary
    significantly and are unique to each acquisition. Therefore, VMware
    believes that the presentation of non-GAAP financial measures that
    adjust for the amortization of intangible assets provides investors
    and others with a consistent basis for comparison across accounting
    periods.
    
    
--  Realignment charges: Rea
lignment charges include workforce reductions,
    asset impairments and losses on asset disposals. We believe it is
    useful to exclude these items, when significant, as they are not
    reflective of our ongoing business and operating results.
    
    
--  Acquisition and other-related items. Acquisition and other-related
    items include direct costs of acquisitions and dispositions, such as
    transaction and advisory fees, which vary significantly and are unique
    to each transaction. Additionally, VMware does not acquire or dispose
    of businesses on a predictable cycle.
    
    
--  Capitalized software development costs. Capitalized software
    development costs encompass 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 in either the first quarter of 2013 or fiscal year
    2012 given our current go-to-market strategy. In future periods, we
    expect our amortization expense to steadily decline as previously
    capitalized software development costs become fully amortized.
    
    
--  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.  
Contacts: 
Paul Ziots 
VMware Investor Relations
pziots@vmware.com
650-427-3267 
Joan Stone
VMware Global Communications
joanstone@vmware.com 
650-427-4436 
 
 
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