VMware Reports Fiscal Year 2021 Third Quarter Results

Total revenue growth of 8% year-over-year

Subscription and SaaS revenue growth of 44% year-over-year; 24% of total revenue

PALO ALTO, Calif.–(BUSINESS WIRE)–VMware, Inc. (NYSE: VMW), a leading innovator in enterprise software, today announced financial results for the third quarter of fiscal 2021:

Revenue for the third quarter was $2.86 billion, an increase of 8% from the third quarter of fiscal 2020.
The combination of subscription and SaaS and license revenue was $1.32 billion, an increase of 10% from the third quarter of fiscal 2020.
Subscription and SaaS revenue for the third quarter was $676 million, an increase of 44% year-over-year, representing 24% of total revenue.
GAAP net income for the third quarter was $434 million, or $1.02 per diluted share, compared to $407 million, or $0.96 per diluted share, for the third quarter of fiscal 2020. Non-GAAP net income for the third quarter was $704 million, or $1.66 per diluted share, up 17% per diluted share compared to $602 million, or $1.42 per diluted share, for the third quarter of fiscal 2020.
GAAP operating income for the third quarter was $428 million, an increase of 15% from the third quarter of fiscal 2020. Non-GAAP operating income for the third quarter was $888 million, an increase of 17% from the third quarter of fiscal 2020.
Operating cash flow for the third quarter was $992 million. Free cash flow for the third quarter was $908 million.
RPO for Q3 totaled $10.2 billion, up 10% year-over-year. Excluding the impact in the third quarter of fiscal year 2020 of unearned revenue assumed in the acquisition of Carbon Black, which negatively impacted the year-over-year growth rate by 5 percentage points, total revenue plus sequential change in total unearned revenue decreased 4% year-over-year.
Excluding the impact in the third quarter of fiscal year 2020 of unearned revenue assumed in the acquisition of Carbon Black, which negatively impacted the year-over-year growth rate by 10 percentage points, subscription and SaaS and license revenue plus sequential change in unearned subscription and SaaS and license revenue grew 1% year-over-year.

“Q3 was another good quarter for VMware, and we’re pleased with our results,” commented Pat Gelsinger, CEO, VMware. “As customers navigate through these unprecedented times, our focus remains on delivering the digital foundation for an unpredictable world. We continue to shape the future in areas that are top priority for every business–from app development to multi-cloud to security and digital workspaces.”

“Subscription and SaaS revenue increased 44% year-over-year in Q3 and surpassed license revenue for the first time,” said Zane Rowe, executive vice president and CFO, VMware. “VMware will continue to invest in and focus on further expanding our Subscription and SaaS portfolio, which we believe will drive company growth, customer satisfaction and shareholder value.”

VMware is raising full-year fiscal 2021 total revenue guidance to $11.7 billion and increasing GAAP net income per diluted share to between $4.17 and $4.27 with non-GAAP net income per diluted share of $7.03.

Business Highlights & Strategic Announcements

At VMworld 2020, VMware welcomed nearly 200,000 registrants and introduced a wave of new offerings and partnerships designed to help customers navigate their own transformation journeys. The news across VMworld includes:
- VMware unveiled new innovations to deliver intrinsic security to the world’s digital infrastructure. Specifically, VMware Carbon Black Cloud Workload delivers advanced protection built into vSphere for better securing modern workloads to reduce the attack surface and strengthen security posture.
- VMware outlined VMware Workforce Anywhere solutions to provide exceptional workforce experiences, end-to-end Zero Trust security controls and simplified management featuring VMware NSX Secure Access Service Edge (SASE), Workspace ONE and Carbon Black Endpoint Security capabilities.
- VMware announced partnerships with Menlo Security and Zscaler to help large global enterprises simplify the adoption of a complete SASE architecture and more effectively implement Zero Trust security.
- VMware acquired SaltStack, a pioneer in building intelligent, event-driven automation software. SaltStack will enable VMware to significantly broaden its software configuration management and infrastructure and network automation capabilities.
- VMware unveiled updates to Tanzu support across VMware Cloud on AWS, Azure VMware Solution and Oracle Cloud VMware Solution.
- VMware announced Project Monterey—a technology preview focused on evolving the architecture for the data center, cloud and edge to address the changing requirements of next-generation applications including AI, machine learning and 5G applications.
- VMware and NVIDIA announced a broad partnership to deliver both an end-to-end enterprise platform for AI and a new architecture for data center, cloud and edge that uses NVIDIA® DPUs (data processing units) to support existing and next-generation applications. This will help accelerate AI adoption, enabling enterprises to extend existing infrastructure for AI, manage all applications with a single set of operations and deploy AI-ready infrastructure where the data resides, across the data center, cloud and edge.
The company announced the 5G Telco Cloud Platform, a consistent cloud-first solution powered by a field-proven, carrier-grade, and high-performance cloud native infrastructure with intelligent automation. This new platform includes Tanzu Kubernetes Grid—an embedded Kubernetes distribution—that will allow Communication Service Providers to reliably build, manage and run containerized workloads across private, telco, edge and public clouds.
VMware announced it has collaborated with Samsung Electronics Co., Ltd. to further extend its leadership in 5G. Through this alliance, the companies seek to help communication service providers meet the requirements of 5G networks and accelerate the roll-out of 5G by optimizing Samsung’s portfolio of telco offerings from Core to Edge to RAN for both containerized network functions and virtualized network functions with VMware Telco Cloud Platform.
The company unveiled VMware vSphere 7 Update 1, VMware vSAN 7 Update 1 and VMware Cloud Foundation 4.1 product releases that streamline customer adoption of Kubernetes, support stateful applications with new developer-ready capabilities and enhance scalability and operations with new features. VMware also announced Tanzu editions—packaging portfolio capabilities to address the most common scenarios customers encounter in their modernization efforts.
In August, the company was positioned as a Leader in “The Forrester Wave™: Infrastructure Automation Platforms, Q3 2020.”¹
In September, VMware has again been positioned as a Leader in the Gartner 2020 Magic Quadrant for WAN Edge Infrastructure.² This is the third consecutive year VMware has been positioned as a Leader for VMware SD-WAN in Gartner’s evaluation for WAN Edge Infrastructure.

The company will host a conference call today at 1:30 p.m. PT/ 4:30 p.m. ET to review financial results and business outlook. A live web broadcast of the event will be available on the VMware investor relations website at http://ir.vmware.com. Slides will accompany the web broadcast. The replay of the webcast and slides will be available on the website for two months. In addition, six quarters of historical data for unearned revenue will also be made available at http://ir.vmware.com in conjunction with the conference call.

¹ Forrester, “The Forrester Wave™: Infrastructure Automation Platforms, Q3 2020,” August 2020

² Gartner Magic Quadrant for WAN Edge Infrastructure, Jonathan Forest, Andrew Lerner, Naresh Singh, 23rd September 2020. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

About VMware

VMware software powers the world’s complex digital infrastructure. The company’s cloud, networking and security, and digital workspace offerings provide a dynamic and efficient digital foundation to customers globally, aided by an extensive ecosystem of partners. Headquartered in Palo Alto, California, VMware is committed to being a force for good, from its breakthrough innovations to its global impact. For more information, please visit https://www.vmware.com/company.html.

Additional Information

VMware’s website is located at www.vmware.com, and its investor relations website is located at http://ir.vmware.com. VMware’s goal is to maintain the investor relations website as a portal through which investors can easily find or navigate to pertinent information about VMware, all of which is made available free of charge. The additional information includes: materials that VMware files with the SEC; announcements of investor conferences, speeches and events at which its executives talk about its products, services and competitive strategies; webcasts of its quarterly earnings calls, investor conferences and events (archives of which are also available for a limited time); additional information on its 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; other news, blogs and announcements that VMware may post from time to time that investors may find useful or interesting; and opportunities to sign up for email alerts and RSS feeds to have information pushed in real time.

VMware, VMworld, Carbon Black, Workspace ONE, NSX, SaltStack, Tanzu, vSphere and VMware vSAN are registered trademarks or trademarks of VMware, Inc. or its subsidiaries in the United States and other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective organizations.

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 innovations, product and solutions developments and previews, and their expected benefits to customers, including those relating to VMware Carbon Black Cloud, VMware Workforce Anywhere, Tanzu, Project Monterey and the 5G Telco Cloud Platform; partnerships with Menlo Security and Zscaler and collaboration with NVIDIA, and their expected benefits to customers; the expected benefits of the acquisition of SaltStack; and VMware FY21 financial guidance regarding total revenue and GAAP and Non-GAAP net income per diluted share. 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: (1) the impact of the COVID-19 pandemic on our operations, financial condition, our customers, the business environment and the global and regional economies; (2) adverse changes in general economic or market conditions; (3) delays or reductions in consumer, government and information technology spending; (4) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization software and cloud, end user and mobile computing, and security industries, as well as new product and marketing initiatives by VMware’s competitors; (5) the ability to successfully integrate into VMware acquired companies and assets and smoothly transition services related to divested assets from VMware; (6) rapid technological changes in the virtualization software and cloud, end user, security and mobile computing industries; (7) VMware’s customers’ ability to transition to new products, platforms, services, solutions and computing strategies in such areas as containerization, modern applications, intrinsic security and networking, cloud, digital workspaces, virtualization and the software defined data center, and the uncertainty of their acceptance of emerging technology; (8) VMware’s ability to enter into, maintain and extend strategically effective partnerships, collaborations and alliances; (9) the continued risk of litigation and regulatory actions; (10) VMware’s ability to protect its proprietary technology; (11) changes to product and service development timelines; (12) VMware’s relationship with Dell Technologies and Dell’s ability to control matters requiring stockholder approval, including the election of VMware’s board members and matters relating to Dell’s investment in VMware; (13) the potential impact of Dell’s investigation of strategic alternatives with respect to its interest in VMware, including a potential spinoff and related special cash dividend; (14) VMware’s ability to attract and retain highly qualified employees; (15) the ability of VMware to utilize our relationship with Dell to leverage go-to-market and product development activities; (16) risks associated with cyber-attacks, information security and data privacy; (17) disruptions resulting from key management changes; (18) risks associated with international sales such as fluctuating currency exchange rates and increased trade barriers; (19) changes in VMware’s financial condition; (20) geopolitical changes such as Brexit and increased tariffs and trade barriers that could adversely impact our non-U.S. sales; and (21) other business effects, including those related to industry, market, economic, political, regulatory and global health conditions. These forward-looking statements are made as of the date of this press release, 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 VMware’s 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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)

	Three Months Ended						Nine Months Ended
	October 30,			November 1,			October 30,			November 1,
	2020			2019			2020			2019
Revenue:
License	$	639		$	728		$	2,019		$	2,147
Subscription and SaaS		676			470			1,880			1,320
Services		1,549			1,458			4,574			4,271
Total revenue		2,864			2,656			8,473			7,738
Operating expenses⁽¹⁾:
Cost of license revenue		44			42			119			116
Cost of subscription and SaaS revenue		142			103			400			294
Cost of services revenue		330			311			969			916
Research and development		714			642			2,058			1,846
Sales and marketing		912			918			2,727			2,674
General and administrative		250			269			773			701
Realignment		44			—			47			—
Operating income		428			371			1,380			1,191
Investment income		1			12			7			40
Interest expense		(52	)		(40	)		(156	)		(108	)
Other income (expense), net		177			17			186			75
Income before income tax		554			360			1,417			1,198
Income tax provision (benefit)		120			(30	)		150			(4,842	)
Net income		434			390			1,267			6,040
Less: Net loss attributable to non-controlling interests		—			(17	)		—			(50	)
Net income attributable to VMware, Inc.	$	434		$	407		$	1,267		$	6,090
Net income per weighted-average share attributable to VMware, Inc. common stockholders, basic for Classes A and B	$	1.03		$	0.98		$	3.02		$	14.60
Net income per weighted-average share attributable to VMware, Inc. common stockholders, diluted for Classes A and B	$	1.02		$	0.96		$	3.00		$	14.32
Weighted-average shares, basic for Classes A and B		420,857			416,387			419,758			417,002
Weighted-average shares, diluted for Classes A and B		423,400			423,035			423,093			425,366
__________
⁽¹⁾ Includes stock-based compensation as follows:
Cost of license revenue	$	—		$	—		$	1		$	1
Cost of subscription and SaaS revenue		4			3			13			10
Cost of services revenue		25			20			74			58
Research and development		140			118			397			328
Sales and marketing		85			76			243			204
General and administrative		50			39			141			104

VMware, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)

	October 30,			January 31,
	2020			2020
ASSETS
Current assets:
Cash and cash equivalents	$	3,898		$	2,915
Accounts receivable, net of allowance for doubtful accounts of $6 and $7		1,789			1,883
Due from related parties, net		672			1,457
Other current assets		473			436
Total current assets		6,832			6,691
Property and equipment, net		1,311			1,280
Other assets		2,698			2,266
Deferred tax assets		5,865			5,556
Intangible assets, net		1,059			1,172
Goodwill		9,559			9,329
Total assets	$	27,324		$	26,294
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	190		$	208
Accrued expenses and other		2,232			2,151
Current portion of long-term debt and other borrowings		—			2,747
Unearned revenue		5,205			5,218
Total current liabilities		7,627			10,324
Note payable to Dell		270			270
Long-term debt		4,715			2,731
Unearned revenue		4,030			4,050
Income tax payable		790			817
Operating lease liabilities		904			746
Other liabilities		512			347
Total liabilities		18,848			19,285
Contingencies
Stockholders’ equity:
Class A common stock, par value $0.01; authorized 2,500,000 shares; issued and outstanding 113,300 and 110,484 shares		1			1
Class B convertible common stock, par value $0.01; authorized 1,000,000 shares; issued and outstanding 307,222 shares		3			3
Additional paid-in capital		2,201			2,000
Accumulated other comprehensive loss		(5	)		(4	)
Retained earnings		6,276			5,009
Total stockholders’ equity		8,476			7,009
Total liabilities and stockholders’ equity	$	27,324		$	26,294

VMware, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

	Three Months Ended						Nine Months Ended
	October 30,			November 1,			October 30,			November 1,
	2020			2019			2020			2019
Operating activities:
Net income	$	434		$	390		$	1,267		$	6,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		261			219			757			626
Stock-based compensation		304			256			869			705
Deferred income taxes, net		20			(183	)		(177	)		(5,138	)
Unrealized (gain) loss on equity securities, net		(190	)		(10	)		(197	)		(30	)
(Gain) loss on disposition of assets, revaluation and impairment, net		15			1			22			(4	)
Loss on extinguishment of debt		—			—			8			—
Other		2			1			—			4
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		181			48			102			164
Other current assets and other assets		(277	)		(91	)		(622	)		(444	)
Due to/from related parties, net		225			2			785			299
Accounts payable		(15	)		7			(4	)		14
Accrued expenses and other liabilities		186			(92	)		393			(82	)
Income taxes payable		(2	)		27			(53	)		15
Unearned revenue		(152	)		176			(65	)		618
Net cash provided by operating activities		992			751			3,085			2,787
Investing activities:
Additions to property and equipment		(84	)		(52	)		(247	)		(215	)
Purchases of strategic investments		(5	)		(9	)		(16	)		(18	)
Proceeds from disposition of assets		—			—			21			22
Business combinations, net of cash acquired, and purchases of intangible assets		(56	)		(2,052	)		(390	)		(2,437	)
Net cash paid on disposition of a business		—			—			—			(4	)
Net cash used in investing activities		(145	)		(2,113	)		(632	)		(2,652	)

Financing activities:
Proceeds from issuance of common stock		122			141			264			294
Net proceeds from issuance of long-term debt		—			—			1,979			—
Borrowings under term loan, net of issuance costs		—			1,993			—			1,993
Repayment of term loan		(1,500	)		(1,400	)		(1,500	)		(1,400	)
Repayment of current portion of long-term debt		—			—			(1,257	)		—
Repurchase of common stock		(255	)		(242	)		(566	)		(1,279	)
Shares repurchased for tax withholdings on vesting of restricted stock		(44	)		(41	)		(319	)		(393	)
Payment to acquire non-controlling interests		—			—			(91	)		—
Contribution from Dell		—			27			—			27
Principal payments on finance lease obligations		(1	)		—			(3	)		(1	)
Net cash provided by (used in) financing activities		(1,678	)		478			(1,493	)		(759	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(831	)		(884	)		960			(624	)
Cash, cash equivalents and restricted cash at beginning of the period		4,822			3,856			3,031			3,596
Cash, cash equivalents and restricted cash at end of the period	$	3,991		$	2,972		$	3,991		$	2,972
Supplemental disclosures of cash flow information:
Cash paid for interest	$	51		$	67		$	142		$	131
Cash paid for taxes, net		111			95			393			283
Non-cash items:
Changes in capital additions, accrued but not paid	$	(11	)	$	10		$	(18	)	$	5
Changes in tax withholdings on vesting of restricted stock, accrued but not paid		(6	)		53			(4	)		49

VMware, Inc.
GROWTH IN REVENUE PLUS SEQUENTIAL CHANGE IN UNEARNED REVENUE
(in millions)
(unaudited)

Growth in Total Revenue Plus Sequential Change in Unearned Revenue

	Three Months Ended
	October 30,			November 1,
	2020			2019
Total revenue, as reported	$	2,864		$	2,656
Sequential change in unearned revenue⁽¹⁾		(150	)		329
Total revenue plus sequential change in unearned revenue	$	2,714		$	2,985
Change (%) over prior year, as reported		(9	)%

Assumed Carbon Black unearned revenue⁽³⁾	$	—		$	(151	)
Total revenue plus sequential change in unearned revenue, excluding impact of Carbon Black	$	2,714		$	2,834
Change (%) over prior year, excluding impact of Carbon Black		(4	)%

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

	Three Months Ended
	October 30,			November 1,
	2020			2019
Total license and subscription and SaaS revenue, as reported	$	1,315		$	1,198
Sequential change in unearned license and subscription and SaaS revenue⁽²⁾		(23	)		223
Total license and subscription and SaaS revenue plus sequential change in unearned license and subscription and SaaS revenue	$	1,292		$	1,421
Change (%) over prior year, as reported		(9	)%

Assumed Carbon Black unearned subscription and SaaS revenue⁽³⁾	$	—		$	(145	)
Total license and subscription and SaaS revenue plus sequential change in unearned license and subscription and SaaS revenue, excluding impact of Carbon Black	$	1,292		$	1,276
Change (%) over prior year, excluding impact of Carbon Black		1	%
__________
⁽¹⁾Consists of the change in total unearned revenue from the preceding quarter. Total unearned revenue consists of current and non-current unearned revenue amounts presented in the condensed consolidated balance sheets.
⁽²⁾ Consists of the change in unearned license and subscription and SaaS revenue from the preceding quarter.
⁽³⁾ Amount represents unearned revenue assumed in the acquisition of Carbon Black.

Contacts

Paul Ziots

VMware Investor Relations

pziots@vmware.com
650-427-3267

Michael Thacker

VMware Global PR

mthacker@vmware.com
650-427-4454

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