Science & Technology
Science and Technology
Science and Technology
Thu, July 23, 2009
Wed, July 22, 2009
VMware, Inc.: VMware Reports Second Quarter 2009 Results
PALO ALTO, CA--(Marketwire - July 22, 2009) - VMware, Inc. (
- Revenues for the second quarter were $456 million, flat from the second quarter of 2008.
- Non-GAAP operating income for the second quarter was $96 million, a decrease of 14% from the second quarter of 2008. GAAP operating income for the second quarter was $38 million, a decrease of 38% from the second quarter of 2008.
- Non-GAAP net income for the quarter was $80 million, or $0.20 per diluted share, compared to $92 million, or $0.23 per diluted share, for the second quarter of 2008. GAAP net income for the second quarter was $33 million, or $0.08 per diluted share, compared to $52 million, or $0.13 per diluted share, for the second quarter of 2008.
- Cash and cash equivalents were $2.3 billion and total deferred revenues were $934 million as of June 30, 2009. Compared to the same period a year ago, cash increased 48% and deferred revenue increased 30%. Since the beginning of 2009, cash increased 24% and deferred revenue increased 7%.
- Non-GAAP operating cash flows for the quarter were $233 million, an increase of 19% from the second quarter of 2008. GAAP operating cash flows were $243 million, an increase of 62% from the second quarter of 2008. For the trailing twelve months ended June 30, 2009, non-GAAP operating cash flows were $910 million and GAAP operating cash flows were $1 billion.
US revenues for the second quarter declined 3% to $234 million from the second quarter of 2008. International revenues for the second quarter grew 3% to $222 million from the second quarter of 2008.
Services revenues, which include software maintenance and professional services, were $228 million, an increase of 32% from the second quarter of 2008. Driven by the challenging macro economic environment, license revenues were $228 million, a decline of 20% from last year.
"In addition to achieving solid financial results in the quarter, we were able to successfully complete the shipment of VMware vSphere™ 4, to a good reception from customers," said Paul Maritz, president and chief executive officer, VMware. "vSphere is not only the largest and most ambitious product step we have taken so far, but the release also reflected improvements in most operational aspects of our business. We now look forward to releasing complementary management and desktop virtualization products over the remainder of the year."
"Once again we executed well, driving strong cash flows while continuing to invest in our long term growth opportunities," said Mark Peek, chief financial officer, VMware. "Although we remain cautious about the global economic conditions, we are beginning to get somewhat better visibility into our business and expect third quarter revenues to be between $465 and $480 million and revenues for the full year 2009 to grow one to three percent compared to 2008."
Recent Strategic Announcements and Highlights
- On May 21, VMware announced the general availability of VMware vSphere™ 4 with the support of an extensive partner ecosystem and customers around the globe. In June, VMware vSphere™ 4 was named the Best of Interop 2009 Grand Prize Winner and won the Best of Interop Award in the Cloud Computing and Virtualization category at Interop Las Vegas.
- VMware announced record storage performance for VMware vSphere™ 4, outperforming any virtualization solution on the market and nearly quadrupling its previous record. According to data collected with VMware Capacity Planner, most demanding databases usually require a few thousand IOPS in storage performance. For example, an Oracle database averages 1,280 IOPS for a 4-way Oracle virtual machine. VMware vSphere 4 exceeds this requirement from a single server -- and can power up to: 700,000 Microsoft Exchange mailboxes, 273 4-way Oracle databases.
- VMware and HP expanded the companies' strong relationship with VMware signing an OEM agreement to integrate HP Discovery and Dependency Mapping software into the VMware vCenter™ suite and working with HP on new datacenter management initiatives. In addition, HP has integrated VMware ThinApp™ with the HP Client Automation policy-based management platform. Both of these initiatives will help customers seamlessly and cost-effectively manage their physical and virtual datacenter and desktop initiatives.
- On July 13, VMware announced advancements in virtualization management with the general availability of two new products: VMware vCenter™ AppSpeed and VMware vCenter™ Chargeback. VMware also announced a major release of VMware vCenter™ Lab Manager 4. These new management products simplify and automate key IT processes such as application performance monitoring, chargeback, and management of dev/test environments to increase IT productivity in the datacenter -- delivering more value to customers as they scale out their virtual environments.
VMware plans to host a conference call today to review its second quarter 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 30 days.
About VMware
VMware (
VMware is a registered trademark or trademark of VMware, Inc. in the United States and/or other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective companies.
Use of Non-GAAP Financial Measures
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, which are used as measures of VMware's performance, should be considered in addition to, not as a substitute for or in isolation from, measures of VMware's financial performance prepared in accordance with GAAP. These measures differ from GAAP in that they exclude stock-based compensation, amortization of intangible assets, the write-off of in-process research and development, employer payroll tax on employee stock transactions, the net effect of the amortization and capitalization of software under Statement of Financial Accounting Standards No. 86 ("FAS86"). VMware's bases for these adjustments are described below.
VMware's management uses the non-GAAP financial measures referenced in this release and shown in the accompanying schedules to gain an understanding of VMware's comparative operating results (when comparing such results with previous periods or forecasts) and its future prospects and excludes the above-listed items from its internal operating plans and measurement of financial performance, including budgeting, calculating bonus payments, and forecasting future periods. These non-GAAP financial measures are used by VMware's management in their financial and operating decision-making because management believes they reflect VMware's ongoing business in a manner that allows meaningful period-to-period comparisons. As the non-GAAP financial measures exclude expenses that VMware believes are not reflective of ongoing operating results, management believes the non-GAAP financial measures enable management to better analyze trends in its business. When evaluating the performance of our individual functional groups, VMware does not consider the above-listed items that it excludes from its non-GAAP financial measures. Likewise, VMware excludes such items from its short and long-term operating plans. VMware's management also believes that these non-GAAP financial measures provide useful information to investors and others (a) in understanding and evaluating VMware's current operating results and future prospects in the same manner as management does, if they so choose, and (b) an additional basis for comparing in a consistent manner VMware's current financial results with VMware's past financial results.
In addition to the foregoing, management believes that these non-GAAP measures are useful to investors and others in assessing VMware's operating performance due to the following factors:
- Although stock-based compensation is an important aspect of the compensation of VMware's employees and executives, determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the future exercise or termination of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock-based compensation is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. VMware does not believe these non-cash expenses are reflective of ongoing operating results.
- The amount of employer payroll taxes on stock-based compensation is dependent on VMware's stock price and the timing and size of exercise by employees of their stock options and of vesting in restricted stock, over which management has limited to no control, and as such does not correlate to VMware's operation of the business.
- VMware's amortization of intangible assets includes the effects of EMC's acquisition of VMware in January 2004. Also, VMware does not acquire businesses on a predictable cycle. VMware therefore believes that the presentation of non-GAAP measures that adjust for the amortization of intangible assets and the write-off of in-process research and development, provide investors and others with a consistent basis for comparison across accounting periods and, therefore, are useful to investors and others in helping them to better understand VMware's operating results and underlying operational trends.
- The amortization and capitalization of software under FAS86 can vary significantly depending upon the timing of products reaching technological feasibility and the timing of when products are made generally available. VMware believes that by removing the variance in operating results caused by the net effect of applying FAS86, the non-GAAP presentation provides investors and others with a basis similar to that used by management for comparing the level of ongoing research and development expenses and related operational trends across accounting periods.
In addition we provide measures of non-GAAP operating cash flows for the quarter and the trailing twelve month periods ending June 30, 2009 and 2008. Our definition of non-GAAP operating cash flows excludes the effects of capitalized software development costs and excess tax benefits related to stock-based compensation. VMware uses non-GAAP operating cash flows, among other measures, to evaluate the ability of our operations to generate cash. We exclude the capitalization of software under FAS86 from our non-GAAP operating cash flows to reflect management's perspective in assessing our operating results. If we did not capitalize costs under FAS86, our GAAP operating cash flows would be lower as a result of additional expense recognized within net income and paid out in cash during the period. In addition, we account for share-based compensation under SFAS 123(R), which requires that we report the excess income tax benefit from share-based compensation as a financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of non-GAAP operating cash flows in order to generally classify cash flows arising from income taxes as operating cash flows. Management believes that information regarding non-GAAP operating cash flows provides investors with an important perspective on the cash available to make strategic acquisitions and investments, repurchase shares, fund ongoing operations and to fund capital expenditures. Additionally, as non-GAAP operating cash flow is not a measure of liquidity calculated in accordance with GAAP, non-GAAP operating cash flow should be considered in addition to, but not as a substitute for, the analysis provided in the statement of cash flows.
VMware's non-GAAP financial measures may be defined differently than similar terms used by other companies and, accordingly, may not be comparable to similarly-titled non-GAAP financial measures used by other companies. There are significant limitations associated with the use of non-GAAP financial measures. Specifically, the non-GAAP financial measures that exclude stock-based compensation, intangible amortization, in-process research and development, and the net effect of the amortization and capitalization of software under FAS86, do not include all items of income and expense that affect VMware's operations. More 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. Payment of employer payroll taxes on stock-based compensation is also a cash expense for VMware and impacts the Company's cash position. In the case of intangible amortization, while not directly affecting VMware's cash position, it represents the loss of value of intangible assets over time. A limitation of non-GAAP operating cash flows is that it cannot be combined with GAAP cash flows from investing and financing activities to yield the total increase or decrease in the cash balance for the periods reported. Management compensates for this limitation by also relying on the net change in cash and cash equivalents as presented in the Company's unaudited condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period. As a result, non-GAAP net income and non-GAAP net income per share, which exclude this expense, do not reflect the full economic loss in value of those intangible assets. Management compensates for these limitations by reconciling the non-GAAP financial measures to VMware's financial results as determined in accordance with GAAP, which reconciliations are set forth in the accompanying schedules to this release, in the current report on Form 8-K furnished to the SEC on the date hereof and on [ http://ir.vmware.com ].
Forward-Looking Statements
Statements made in this press release which are not statements of historical fact are forward-looking statements and are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate, but are not limited, to our financial outlook for the third quarter of 2009 and full year 2009, ongoing shifts in our revenue mix, continuation of operational improvements and long term investments in growth opportunities, the timing of new product releases and updates, and deployment of our products by customers. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization market, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and beta programs; (v) our customers' ability to develop, and to transition to, new products, (vi) the uncertainty of customer acceptance of emerging technology; (vii) rapid technological and market changes in virtualization software; (viii) changes to product development timelines; (ix) VMware's relationship with EMC Corporation, and EMC's ability to control matters requiring stockholder approval, including the election of VMware's board members; (x) our ability to protect our proprietary technology; (xi) our ability to attract and retain highly qualified employees; and (xii) fluctuating currency exchange rates.
Ongoing uncertainty in global economic conditions poses a risk to the overall economy as consumers and businesses may defer purchases in response to tighter credit and negative financial news, which could negatively affect product demand and other related matters. Consequently, demand for VMware products could be different from VMware's expectations due to factors including changes in business and economic conditions, including conditions in the credit market that could affect consumer confidence; customer acceptance of VMware's and competitors' products; changes in customer order and payment patterns; changes in the willingness of customers to enter into longer term licensing and support arrangements, the ability of third party service providers to fulfill their obligations to us and the ability of our channel partners to pursue joint development and marketing initiatives with us.
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 the report on Form 10-Q for the quarter ended March 31, 2009, which could cause actual results to vary from expectations. VMware disclaims any obligation to update any such forward-looking statements after the date of this release.
VMware, Inc. CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited) June 30, December 31, 2009 2008 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 2,275,660 $ 1,840,812 Accounts receivable, less allowance for doubtful accounts of $1,460 and $1,690 257,363 338,014 Deferred tax asset, current portion 51,231 44,573 Income taxes receivable from EMC 22,725 111,050 Other current assets 65,656 55,639 ------------- ------------- Total current assets 2,672,635 2,390,088 Property and equipment, net 415,271 418,212 Capitalized software development costs, net and other 178,330 134,553 Deferred tax asset, net of current portion 76,530 68,280 Intangible assets, net 50,406 56,984 Goodwill 768,409 771,088 ------------- ------------- Total assets $ 4,161,581 $ 3,839,205 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 38,833 $ 74,708 Accrued expenses 214,972 211,519 Due to EMC, net 23,996 33,407 Income taxes payable 24,791 15,761 Deferred revenue, current portion 598,091 544,355 ------------- ------------- Total current liabilities 900,683 879,750 Note payable to EMC 450,000 450,000 Deferred revenue, net of current portion 336,153 325,634 Deferred tax liability 49,743 47,825 Other liabilities 77,827 65,929 ------------- ------------- Total liabilities 1,814,406 1,769,138 Commitments and contingencies Stockholders' equity: Class A common stock, par value $.01; authorized 2,500,000 shares; issued and outstanding 94,948 and 90,448 shares 950 904 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 2,027,417 1,836,513 Accumulated other comprehensive income 1,934 -- Retained earnings 313,874 229,650 ------------- ------------- Total stockholders' equity 2,347,175 2,070,067 ------------- ------------- Total liabilities and stockholders' equity $ 4,161,581 $ 3,839,205 ============= ============= VMware, Inc. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (unaudited) For the Three Months For the Six Months Ended Ended June 30, June 30, ---------------------- ---------------------- 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Revenues: License $ 227,962 $ 284,233 $ 484,965 $ 578,213 Services 227,713 171,895 441,020 316,090 ---------- ---------- ---------- ---------- 455,675 456,128 925,985 894,303 Operating expenses: Cost of license revenues 27,853 21,639 48,212 44,498 Cost of services revenues 53,293 58,892 107,937 113,203 Research and development 121,380 114,128 226,781 233,383 Sales and marketing 167,421 158,307 321,565 307,564 General and administrative 47,729 42,162 96,588 86,264 ---------- ---------- ---------- ---------- Operating income 37,999 61,000 124,902 109,391 Investment income 2,496 6,310 5,558 14,314 Interest expense with EMC, net (1,999) (3,579) (4,673) (9,398) Other income (expense), net 375 370 (1,449) 824 ---------- ---------- ---------- ---------- Income before income taxes 38,871 64,101 124,338 115,131 Income tax provision 6,336 11,765 21,868 19,740 ---------- ---------- ---------- ---------- Net income $ 32,535 $ 52,336 $ 102,470 $ 95,391 ========== ========== ========== ========== Net income per weighted-average share, basic for Class A and Class B $ 0.08 $ 0.14 $ 0.26 $ 0.25 Net income per weighted-average share, diluted for Class A and Class B $ 0.08 $ 0.13 $ 0.26 $ 0.24 Weighted-average shares, basic for Class A and Class B 391,841 382,931 390,855 381,976 Weighted-average shares, diluted for Class A and Class B 395,826 398,979 393,178 398,258 VMware, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the Three Months For the Six Months Ended Ended June 30, June 30, ------------------------ ------------------------ 2009 2008 2009 2008 ----------- ----------- ----------- ----------- Cash flows from operating activities: Net income $ 32,535 $ 52,336 $ 102,470 $ 95,391 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 44,927 39,459 86,310 76,893 Stock-based compensation, excluding amounts capitalized 51,456 42,072 101,271 84,233 Excess tax benefits from stock-based compensation (4,243) (56,735) (4,473) (79,427) Other 141 (278) 634 1,058 Changes in assets and liabilities, net of acquisitions: Accounts receivable 6,530 (25,132) 80,691 (24,286) Other assets (9,313) (4,687) 896 (13,281) Due to/from EMC, net 5,973 23,040 (9,411) 40,286 Accounts payable (8,925) (19,313) (28,382) (15,575) Accrued expenses 26,316 12,060 13,888 489 Income taxes receivable from EMC 87,899 (107,514) 87,899 (107,514) Income taxes payable 733 32,102 21,110 10,506 Deferred income taxes, net (7,755) 83,063 (14,599) 46,719 Deferred revenue 17,046 80,161 64,255 168,322 ----------- ----------- ----------- ----------- Net cash provided by operating activities 243,320 150,634 502,559 283,814 ----------- ----------- ----------- ----------- Cash flows from investing activities: Additions to property and equipment (29,843) (51,899) (65,668) (100,921) Capitalized software development costs (14,745) (11,770) (44,680) (15,934) Purchase of investments (25,000) (1,750) (25,745) (1,750) Business acquisitions, net of cash acquired -- -- -- (33,289) Decrease in restricted cash 549 -- 549 896 ----------- ----------- ----------- ----------- Net cash used in investing activities (69,039) (65,419) (135,544) (150,998) ----------- ----------- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock 77,103 109,658 81,606 133,327 Excess tax benefits from stock-based compensation 4,243 56,735 4,473 79,427 Shares repurchased for tax withholdings on vesting of restricted stock (11,449) (17,359) (18,246) (36,478) ----------- ----------- ----------- ----------- Net cash provided by financing activities 69,897 149,034 67,833 176,276 ----------- ----------- ----------- ----------- Net increase in cash and cash equivalents 244,178 234,249 434,848 309,092 Cash and cash equivalents at beginning of the period 2,031,482 1,306,011 1,840,812 1,231,168 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of the period $ 2,275,660 $ 1,540,260 $ 2,275,660 $ 1,540,260 =========== =========== =========== =========== VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended June 30, 2009 (in thousands, except per share amounts) (unaudited) Employer Payroll Tax on Employee Stock-Based Stock Intangible GAAP Compensation Transactions Amortization ----------- ----------- ----------- ----------- Operating expenses: Cost of license revenues $ 27,853 (313) (4) (2,757) Cost of services revenues $ 53,293 (3,463) (20) -- Research and development $ 121,380 (26,433) (411) -- Sales and marketing $ 167,421 (13,311) (141) (388) General and administrative $ 47,729 (7,936) (164) (124) Operating income $ 37,999 51,456 740 3,269 Income before income taxes $ 38,871 51,456 740 3,269 Income tax provision $ 6,336 9,853 190 1,154 Quarterly tax rate 16.3% Net income $ 32,535 41,603 550 2,115 Net income per weighted-average share, basic for Class A and Class B $ 0.08 $ 0.11 $ 0.00 $ 0.00 Net income per weighted-average share, diluted for Class A and Class B $ 0.08 $ 0.11 $ 0.00 $ 0.00 Weighted-average shares, basic for Class A and Class B 391,841 391,841 391,841 391,841 Weighted-average shares, diluted for Class A and Class B 395,826 395,826 395,826 395,826 Stock-Based Compensation Capitalized Included in Software Capitalized Development Software Non-GAAP, Costs (1) Development as adjusted ----------- ----------- ----------- Operating expenses: Cost of license revenues (17,629) -- $ 7,150 Cost of services revenues -- -- $ 49,810 Research and development 18,388 (3,643) $ 109,281 Sales and marketing -- -- $ 153,581 General and administrative -- -- $ 39,505 Operating income (759) 3,643 $ 96,348 Income before income taxes (759) 3,643 $ 97,220 Income tax provision (560) 686 $ 17,659 Quarterly tax rate 18.2% Net income (199) 2,957 $ 79,561 Net income per weighted-average share, basic for Class A and Class B $ 0.00 $ 0.01 $ 0.20 Net income per weighted-average share, diluted for Class A and Class B $ 0.00 $ 0.01 $ 0.20 Weighted-average shares, basic for Class A and Class B 391,841 391,841 391,841 Weighted-average shares, diluted for Class A and Class B 395,826 395,826 395,826 (1) For the second quarter of 2009, VMware capitalized $18.4 million (including $3.6 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from capitalized amounts was $17.6 million for the second quarter of 2009. VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended June 30, 2008 (in thousands, except per share amounts) (unaudited) Employer Payroll Tax on Employee Stock-Based Stock Intangible GAAP Compensation Transactions Amortization ----------- ----------- ----------- ----------- Operating expenses: Cost of license revenues $ 21,639 (276) (23) (2,294) Cost of services revenues $ 58,892 (3,795) (154) -- Research and development $ 114,128 (19,479) (1,642) -- Sales and marketing $ 158,307 (11,699) (856) (897) General and administrative $ 42,162 (6,823) (320) (647) Operating income $ 61,000 42,072 2,995 3,838 Income before income taxes $ 64,101 42,072 2,995 3,838 Income tax provision $ 11,765 9,913 811 1,292 Quarterly tax rate 18.4% Net income $ 52,336 32,159 2,184 2,546 Net income per weighted-average share, basic for Class A and Class B $ 0.14 $ 0.08 $ 0.00 $ 0.01 Net income per weighted-average share, diluted for Class A and Class B $ 0.13 $ 0.08 $ 0.00 $ 0.01 Weighted-average shares, basic for Class A and Class B 382,931 382,931 382,931 382,931 Weighted-average shares, diluted for Class A and Class B 398,979 398,979 398,979 398,979 Stock-Based Compensation Capitalized Included in Software Capitalized Development Software Non-GAAP, Costs (1) Development as adjusted ----------- ----------- ----------- Operating expenses: Cost of license revenues (14,269) -- $ 4,777 Cost of services revenues -- -- $ 54,943 Research and development 14,817 (3,046) $ 104,778 Sales and marketing -- -- $ 144,855 General and administrative -- -- $ 34,372 Operating income (548) 3,046 $ 112,403 Income before income taxes (548) 3,046 $ 115,504 Income tax provision (1,291) 682 $ 23,172 Quarterly tax rate 20.1% Net income 743 2,364 $ 92,332 Net income per weighted-average share, basic for Class A and Class B $ 0.00 $ 0.01 $ 0.24 Net income per weighted-average share, diluted for Class A and Class B $ 0.00 $ 0.01 $ 0.23 Weighted-average shares, basic for Class A and Class B 382,931 382,931 382,931 Weighted-average shares, diluted for Class A and Class B 398,979 398,979 398,979 (1) For the second quarter of 2008, VMware capitalized $14.8 million (including $3.0 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from capitalized amounts was $14.3 million for the second quarter of 2008. VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Six Months Ended June 30, 2009 (in thousands, except per share amounts) (unaudited) Employer Payroll Tax on Employee Stock-Based Stock Intangible GAAP Compensation Transactions Amortization ----------- ----------- ----------- ----------- Operating expenses: Cost of license revenues $ 48,212 (643) (5) (5,514) Cost of services revenues $ 107,937 (6,938) (21) -- Research and development $ 226,781 (50,337) (606) -- Sales and marketing $ 321,565 (27,145) (181) (816) General and administrative $ 96,588 (16,208) (177) (248) Operating income $ 124,902 101,271 990 6,578 Income before income taxes $ 124,338 101,271 990 6,578 Income tax provision $ 21,868 19,787 255 2,322 Quarterly tax rate 17.6% Net income $ 102,470 81,484 735 4,256 Net income per weighted-average share, basic for Class A and Class B $ 0.26 $ 0.21 $ 0.00 $ 0.01 Net income per weighted-average share, diluted for Class A and Class B $ 0.26 $ 0.21 $ 0.00 $ 0.01 Weighted-average shares, basic for Class A and Class B 390,855 390,855 390,855 390,855 Weighted-average shares, diluted for Class A and Class B 393,178 393,178 393,178 393,178 Stock-Based Compensation Capitalized Included in Software Capitalized Development Software Non-GAAP, Costs (1) Development as adjusted ----------- ----------- ----------- Operating expenses: Cost of license revenues (28,281) -- $ 13,769 Cost of services revenues -- -- $ 100,978 Research and development 54,769 (10,089) $ 220,518 Sales and marketing -- -- $ 293,423 General and administrative -- -- $ 79,955 Operating income (26,488) 10,089 $ 217,342 Income before income taxes (26,488) 10,089 $ 216,778 Income tax provision (8,675) 1,971 $ 37,528 Quarterly tax rate 17.3% Net income (17,813) 8,118 $ 179,250 Net income per weighted-average share, basic for Class A and Class B $ (0.04) $ 0.02 $ 0.46 Net income per weighted-average share, diluted for Class A and Class B $ (0.04) $ 0.02 $ 0.46 Weighted-average shares, basic for Class A and Class B 390,855 390,855 390,855 Weighted-average shares, diluted for Class A and Class B 393,178 393,178 393,178 (1) For the first six months of 2009, VMware capitalized $54.8 million (including $10.1 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from capitalized amounts was $28.3 million for the first six months of 2009. VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP DATA For the Six Months Ended June 30, 2008 (in thousands, except per share amounts) (unaudited) Employer Payroll Tax on Employee Stock-Based Stock Intangible GAAP Compensation Transactions Amortization ----------- ----------- ----------- ----------- Operating expenses: Cost of license revenues $ 44,498 (539) (25) (4,604) Cost of services revenues $ 113,203 (7,056) (191) -- Research and development $ 233,383 (40,576) (2,439) -- Sales and marketing $ 307,564 (23,000) (1,144) (1,791) General and administrative $ 86,264 (13,062) (477) (1,294) Operating income $ 109,391 84,233 4,276 7,689 Income before income taxes $ 115,131 84,233 4,276 7,689 Income tax provision $ 19,740 18,413 1,139 2,703 Quarterly tax rate 17.1% Net income $ 95,391 65,820 3,137 4,986 Net income per weighted-average share, basic for Class A and Class B $ 0.25 $ 0.17 $ 0.01 $ 0.01 Net income per weighted-average share, diluted for Class A and Class B $ 0.24 $ 0.16 $ 0.01 $ 0.01 Weighted-average shares, basic for Class A and Class B 381,976 381,976 381,976 381,976 Weighted-average shares, diluted for Class A and Class B 398,258 398,258 398,258 398,258 Stock-Based Compensation Capitalized Included in Software Capitalized Development Software Non-GAAP, Costs (1) Development as adjusted ----------- ----------- ----------- Operating expenses: Cost of license revenues (29,139) -- $ 10,191 Cost of services revenues -- -- $ 105,956 Research and development 19,853 (3,919) $ 206,302 Sales and marketing -- -- $ 281,629 General and administrative -- -- $ 71,431 Operating income 9,286 3,919 $ 218,794 Income before income taxes 9,286 3,919 $ 224,534 Income tax provision 891 857 $ 43,743 Quarterly tax rate 19.5% Net income 8,395 3,062 $ 180,791 Net income per weighted-average share, basic for Class A and Class B $ 0.02 $ 0.01 $ 0.47 Net income per weighted-average share, diluted for Class A and Class B $ 0.02 $ 0.01 $ 0.45 Weighted-average shares, basic for Class A and Class B 381,976 381,976 381,976 Weighted-average shares, diluted for Class A and Class B 398,258 398,258 398,258 (1) For the first six months of 2008, VMware capitalized $19.9 million (including $3.9 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from capitalized amounts was $29.1 million for the first six months of 2008. VMware, Inc. REVENUE BY TYPE (in thousands) (unaudited) For the Three Months For the Six Months Ended Ended June 30, June 30, -------------------- -------------------- 2009 2008 2009 2008 --------- --------- --------- --------- Revenues: License $ 227,962 $ 284,233 $ 484,965 $ 578,213 Services: Software maintenance 188,995 135,981 364,735 248,105 Professional services 38,718 35,914 76,285 67,985 --------- --------- --------- --------- Total services 227,713 171,895 441,020 316,090 --------- --------- --------- --------- $ 455,675 $ 456,128 $ 925,985 $ 894,303 ========= ========= ========= ========= Percentage of revenues: License 50.0% 62.3% 52.4% 64.7% Services: Software maintenance 41.5% 29.8% 39.4% 27.7% Professional services 8.5% 7.9% 8.2% 7.6% --------- --------- --------- --------- Total services 50.0% 37.7% 47.6% 35.3% --------- --------- --------- --------- 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ========= VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP CASH FLOWS FROM OPERATING ACTIVITIES For the Three Months Ended June 30, 2009 and 2008 (in thousands) (unaudited) For the Three Months Ended June 30, -------------------------- 2009 2008 ------------ ------------ GAAP cash flows from operating activities $ 243,320 $ 150,634 Capitalized software development costs (14,745) (11,770) Excess tax benefits from stock-based compensation 4,243 56,735 ------------ ------------ Non-GAAP cash flows from operating activities $ 232,818 $ 195,599 ============ ============ VMware, Inc. RECONCILIATION OF GAAP TO NON-GAAP CASH FLOWS FROM OPERATING ACTIVITIES For the Trailing Twelve Months Ended June 30, 2009 and 2008 (in thousands) (unaudited) For the Trailing Twelve Months Ended June 30, ------------------------ 2009 2008 ----------- ----------- GAAP cash flows from operating activities $ 1,018,876 $ 645,721 Capitalized software development costs (119,646) (53,125) Excess tax benefits from stock-based compensation 10,822 79,427 ----------- ----------- Non-GAAP cash flows from operating activities $ 910,052 $ 672,023 =========== ===========
