VMware Reports Third-Quarter Results
Wednesday October 24, 4:01 pm ET
Delivers Strong Revenue and Earnings Growth During Initial Quarter as a Public Company
PALO ALTO, Calif., Oct. 24 /PRNewswire-FirstCall/ -- VMware, Inc., the virtualization software leader, today announced financial results for the third quarter of 2007:
-- Total consolidated revenues were $358 million, an increase of 90% compared to the year-ago quarter.
-- GAAP net income was $65 million or $0.18 per diluted share compared to $19 million or $0.06 per diluted share in the year-ago quarter. GAAP operating income was $66 million compared to $28 million in the third quarter of 2006.
-- Non-GAAP net income was $85 million or $0.23 per diluted share. Non-GAAP operating income was $91 million, which represents 25% of third-quarter revenues and is an increase of 71% over the year-ago quarter.
"VMware had a strong quarter by several measures," said Diane Greene, president and chief executive officer of VMware. "Increased customer-adoption of VMware Infrastructure was a significant driver in growing our revenues 90%. We completed our IPO. Our annual VMworld conference drew more than 10,800 attendees, including more than 1,800 people representing our partners. And we introduced four brand new products to the market, including our next-generation server-embedded hypervisor VMware ESX Server 3i."
"We believe customer appreciation for the quality and functionality of our products is driving our business," continued Greene. "Companies large and small are moving to a VMware Infrastructure architecture for their data centers and, in many cases, for their desktops. During the quarter customers continued to standardize on our third-generation VMware Infrastructure suite of virtualization software. We also saw increased adoption of VMware Virtual Desktop Infrastructure (VDI), backed by the VMware Infrastructure architecture, to centrally manage and secure enterprise desktops."
GAAP operating cash flows, on a trailing 12 month basis ending September 30, 2007, were $514 million compared to $230 million for the twelve months that ended September 30, 2006.
"We had solid growth during our first quarter as a public company," said Mark Peek, chief financial officer of VMware. "In particular, we were pleased with our ability to grow operating income while continuing to invest in the business, increase our footprint in the market, develop new products, and meet the high expectations of our customers and partners."
VMware plans to host a conference call today to review its third-quarter financial results. 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 ir.vmware.com. The Internet broadcast will be available live, and a replay will be available following completion of the live broadcast for approximately one year.
About VMware
VMware (NYSE: VMW - News) is the global leader in virtual infrastructure software for industry-standard systems. Organizations of all sizes use VMware solutions to simplify their IT, fully leverage their existing computing investments and respond faster to changing business demands. VMware is based in Palo Alto, California and majority-owned by EMC Corporation (NYSE: EMC - News). For more information, visit vmware.com.
VMware is a registered 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.
Forward-Looking Statements
This release contains "forward-looking statements" as defined under the Federal Securities Laws. 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, and new product introductions; (iv) the ability to develop, and to transition to, new products, the uncertainty of customer acceptance of emerging technology, and rapid technological and market change; (v) VMware's relationship with EMC Corporation, and EMC's ability to control matters requiring stockholder approval, including the election of VMware's board members; (vi) the ability to protect our proprietary technology; (vii) earthquakes, war or acts of terrorism; (viii) the failure to attract and retain highly qualified employees; (ix) fluctuating currency exchange rates; and (x) other one-time events and other important factors disclosed previously and from time to time in VMware's filings with the U.S. Securities and Exchange Commission (the "SEC"). VMware disclaims any obligation to update any such forward-looking statements after the date of this release.
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, and 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 (stock-based compensation, amortization of intangible assets, write-off of in-process research and development, and the net effect of the amortization and capitalization of software under FAS86) 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 non-cash 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. 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) in 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. VMware does not believe these non-cash expenses are reflective of ongoing operating results.
-- 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. VMware does not believe that the variance in operating results caused by the net effect of applying FAS86 properly reflects underlying operational trends.
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, the cash salary expense included in costs of revenues and operating expenses would be higher. 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. 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 ir.vmware.com.
Contact: Greg Eden
VMware
eden@vmware.com
650-427-1095
VMware, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
September 30, December 31,
------------- -------------
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $1,133,916 $176,134
Accounts receivable, less allowance
for doubtful accounts of $1,382 and
$2,139 164,106 193,710
Due from EMC, net 76,681 2,245
Deferred tax asset 39,050 27,656
Other current assets 37,489 22,686
----------- --------------
Total current assets 1,451,242 422,431
Property and equipment, net 245,882 48,675
Other assets, net 64,786 49,912
Deferred tax asset 52,987 20,935
Intangible assets, net 38,631 43,515
Goodwill 628,210 560,482
----------- --------------
Total assets $2,481,738 $1,145,950
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $66,890 $44,227
Accrued expenses 125,264 103,321
Income taxes payable to EMC, current
portion 143,025 87,598
Deferred revenue, current portion 290,013 242,603
----------- --------------
Total current liabilities 625,192 477,749
Note payable to EMC 450,000 800,000
Deferred revenue, net of current
portion 137,206 63,912
Deferred tax liability 27,203 30,579
Other liabilities 9,897 4,522
Commitments and contingencies
Stockholder's equity (deficit):
Class A common stock, par value $.01;
authorized 2,500,000 shares; issued
and outstanding 82,942 and 32,500
shares 829 325
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 1,322,566 -
Accumulated deficit (94,155) (234,137)
------------ --------------
Total stockholders' equity (deficit) 1,232,240 (230,812)
------------ --------------
Total liabilities and stockholders'
equity (deficit) $2,481,738 $1,145,950
============ ==============
VMware, Inc.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2007 2006 2007 2006
-------- -------- -------- --------
Revenues:
License $247,481 $126,303 $621,086 $329,904
Services 110,335 62,503 292,250 144,419
-------- -------- -------- --------
357,816 188,806 913,336 474,323
Costs of revenues:
Cost of license revenues 19,158 18,498 60,546 44,717
Cost of services revenues 39,493 19,014 90,946 41,415
-------- -------- -------- --------
58,651 37,512 151,492 86,132
-------- -------- -------- --------
Gross profit 299,165 151,294 761,844 388,191
Operating expenses:
Research and development 67,840 43,169 194,379 98,123
Sales and marketing 125,736 61,077 311,432 157,724
General and administrative 39,839 19,016 97,166 44,514
In-process research and
development - - - 3,700
-------- -------- -------- --------
Operating income 65,750 28,032 158,867 84,130
Investment income 7,300 775 11,718 1,884
Interest income (expense) with
EMC, net (6,743) 480 (13,261) (334)
Other expense, net (19) (291) (106) (876)
-------- -------- -------- --------
Income before taxes 66,288 28,996 157,218 84,804
Income tax provision 1,610 9,765 17,236 30,068
-------- -------- -------- --------
Income before cumulative effect of
a change in accounting principle 64,678 19,231 139,982 54,736
Cumulative effect of a change in
accounting principle, net of tax
of $108 - - - 175
-------- -------- -------- --------
Net income $64,678 $19,231 $139,982 $54,911
======== ======== ======== ========
Net income per weighted average
share, basic for Class A and
Class B:
Income per share before cumulative
effect of a change in accounting
principle $0.18 $0.06 $0.41 $0.16
Cumulative effect of a change in
accounting principle - - - -
-------- -------- -------- --------
Net income per share $0.18 $0.06 $0.41 $0.17
======== ======== ======== ========
Net income per weighted average
share, diluted for Class A and
Class B:
Income per share before cumulative
effect of a change in accounting
principle $0.18 $0.06 $0.41 $0.16
Cumulative effect of a change in
accounting principle - - - -
-------- -------- -------- --------
Net income per share $0.18 $0.06 $0.41 $0.17
======== ======== ======== ========
Weighted average shares, basic for
Class A and Class B 356,431 332,500 340,565 332,500
Weighted average shares, diluted
for Class A and Class B 368,567 332,500 344,736 332,500
VMware, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
---------------- ------------------
2007 2006 2007 2006
-------- ------- -------- --------
Cash flows from operating
activities:
Net income $64,678 $19,231 $139,982 $54,911
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 27,643 19,360 72,462 46,446
In-process research and
development - - - 3,700
Stock-based compensation 31,737 16,593 59,354 35,020
Other adjustments (528) 499 (394) 155
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable 37,062 (14,016) 30,972 (17,885)
Other assets 5,994 (9,147) (2,666) (10,619)
Due from EMC, net 15,644 (81,622) (74,436) (105,569)
Accounts payable 8,578 5,880 20,959 19,096
Accrued expenses (667) 17,936 10,801 38,467
Income taxes payable to EMC 22,888 15,913 60,397 31,841
Deferred income taxes, net (22,446) (5,677) (45,074) (1,686)
Deferred revenue 7,750 10,761 116,505 61,170
-------- ------- -------- --------
Net cash provided (used) by
operating activities 198,333 (4,289) 388,862 155,047
-------- ------- -------- --------
Cash flows from investing
activities:
Additions to furniture,
fixtures and equipment (42,375) (20,158) (91,294) (41,960)
Purchase of headquarters
facilities from EMC (132,564) - (132,564) -
Capitalized software
development costs (22,314) (5,656) (32,858) (28,065)
Business acquisitions, net of
cash acquired (54,108) - (75,518) (46,541)
Decrease (increase) in
restricted cash 555 455 (5,139) (12,129)
-------- ------- -------- --------
Net cash used in investing
activities (250,806) (25,359) (337,373) (128,695)
-------- ------- -------- --------
Cash flows from financing
activities:
Proceeds from Class A common
stock issued in IPO, net of
issuance costs 1,035,233 - 1,035,233 -
Proceeds from Class A common
stock issued to Intel Capital,
net of issuance costs 218,300 - 218,300 -
Proceeds from exercises of
stock options 2,760 - 2,760 -
Repayment of note payable to
EMC (350,000) - (350,000) -
--------- ------- --------- --------
Net cash provided by financing
activities 906,293 - 906,293 -
--------- ------- --------- --------
Net increase (decrease) in cash
and cash equivalents 853,820 (29,648) 957,782 26,352
Cash and cash equivalents at
beginning of the period 280,096 94,653 176,134 38,653
--------- ------- --------- --------
Cash and cash equivalents at
end of the period $1,133,916 $65,005 $1,133,916 $65,005
=========== ======== =========== ========
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended September 30, 2007
(in thousands, except per share amounts)
(unaudited)
Stock-based
Compensation
Included in
Capitalized Capitalized
Stock- Software Software
Based Intangible Develop- Develop- Non-
Compen- Amorti- ment ment GAAP, as
GAAP sation zation Costs(1) Costs adjusted
----------------------------------------------------------
Costs of
revenues:
Cost of
license
revenues $19,158 (212) (5,353) (9,212) $4,381
Cost of
services
revenues 39,493 (2,195) 37,298
----------------------------------------------------------
Total costs
of revenues $58,651 (2,407) (5,353) (9,212) - $41,679
Operating
expenses:
Research and
development $67,840 (13,033) 27,593 (5,279) $77,121
Sales and
marketing $125,736 (9,594) (766) $115,376
General and
admini-
strative $39,839 (6,703) (491) $32,645
Operating
income $65,750 31,737 6,610 (18,381) 5,279 $90,995
Income
before
taxes $66,288 31,737 6,610 (18,381) 5,279 $91,533
Income tax
provision $1,610 7,009 2,446 (5,734) 1,073 $6,404
Net income $64,678 24,728 4,164 (12,647) 4,206 $85,129
Net income
per weighted
average share,
basic for
Class A
and Class B $0.18 $0.07 $0.01 $(0.04) $0.01 $0.24
Net income
per weighted
average share,
diluted for
Class A
and Class B $0.18 $0.07 $0.01 $(0.03) $0.01 $0.23
Weighted
average
shares,
basic for
Class A
and Class B 356,431 356,431 356,431 356,431 356,431 356,431
Weighted
average
shares,
diluted for
Class A
and Class B 368,567 368,567 368,567 368,567 368,567 368,567
(1) For the third quarter of 2007, VMware capitalized $27.6 million (including $5.3 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $9.2 million for the third quarter of 2007.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Three Months Ended September 30, 2006
(in thousands, except per share amounts)
(unaudited)
Stock-based
Compensation
Included in
Capitalized Capitalized
Stock- Software Software
Based Intangible Develop- Develop- Non-
Compen- Amorti- ment ment GAAP, as
GAAP sation zation Costs(1) Costs adjusted
----------------------------------------------------------
Costs of
revenues:
Cost of
license
revenues $18,498 (30) (5,534) (7,852) $5,082
Cost of
services
revenues 19,014 (700) 18,314
----------------------------------------------------------
Total costs
of revenues $37,512 (730) (5,534) (7,852) - $23,396
Operating
expenses:
Research and
development $43,169 (9,251) 6,793 (1,137) $39,574
Sales and
marketing $61,077 (3,772) (548) $56,757
General and
admini-
strative $19,016 (2,840) (374) $15,802
Operating
income $28,032 16,593 6,456 1,059 1,137 $53,277
Income
before
taxes $28,996 16,593 6,456 1,059 1,137 $54,241
Income
tax
provision $9,765 4,358 2,453 402 299 $17,277
Net income $19,231 12,235 4,003 657 838 $36,964
Net income
per weighted
average share,
basic for
Class A
and Class B $0.06 $0.04 $0.01 $0.00 $0.00 $0.11
Net income
per weighted
average share,
diluted for
Class A
and Class B $0.06 $0.04 $0.01 $0.00 $0.00 $0.11
Weighted
average
shares,
basic for
Class A
and Class B 332,500 332,500 332,500 332,500 332,500 332,500
Weighted
average
shares,
diluted for
Class A
and Class B 332,500 332,500 332,500 332,500 332,500 332,500
(1) For the third quarter of 2006, VMware capitalized $6.8 million (including $1.1 million of stock-based compensation), of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $7.9 million for the third quarter of 2006.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Nine Months Ended September 30, 2007
(in thousands, except per share amounts)
(unaudited)
Stock-based
Compensation
Included in
Capitalized Capitalized
Stock- Software Software
Based Intangible Develop- Develop- Non-
Compen- Amorti- ment ment GAAP, as
GAAP sation zation Costs(1) Costs adjusted
----------------------------------------------------------
Costs of
revenues:
Cost of
license
revenues $60,546 (322) (15,783) (25,929) $18,512
Cost of
services
revenues 90,946 (3,608) 87,338
----------------------------------------------------------
Total costs
of revenues $151,492 (3,930) (15,783) (25,929) - $105,850
Operating
expenses:
Research and
development $194,379 (27,677) 39,594 (6,736) $199,560
Sales and
marketing $311,432 (16,778) (1,924) $292,730
General and
admini-
strative $97,166 (10,969) (1,476) $84,721
Operating
income $158,867 59,354 19,183 (13,665) 6,736 $230,475
Income
before
taxes $157,218 59,354 19,183 (13,665) 6,736 $228,826
Income tax
provision $17,236 14,743 7,098 (3,989) 1,612 $36,700
Net income $139,982 44,611 12,085 (9,676) 5,124 $192,126
Net income
per weighted
average share,
basic for
Class A
and Class B $0.41 $0.13 $0.04 $(0.03) $0.02 $0.56
Net income
per weighted
average share,
diluted for
Class A
and Class B $0.41 $0.13 $0.04 $(0.03) $0.01 $0.56
Weighted
average
shares,
basic for
Class A
and Class B 340,565 340,565 340,565 340,565 340,565 340,565
Weighted
average
shares,
diluted for
Class A
and Class B 344,736 344,736 344,736 344,736 344,736 344,736
(1) For the nine months ended September 30, 2007, VMware capitalized $39.6 million (including $6.7 million of stock-based compensation) of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $25.9 million for the first nine months of 2007.
VMware, Inc.
RECONCILIATION OF GAAP TO NON-GAAP DATA
For the Nine Months Ended September 30, 2006
(in thousands, except per share amounts)
(unaudited)
Stock-based
Compensation
Included in
IPR&D Capitalized Capitalized
Stock- and Software Software
Based Intangible Develop- Develop- Non-
Compen- Amorti- ment ment GAAP, as
GAAP sation zation Costs(1) Costs adjusted
----------------------------------------------------------
Costs of
revenues:
Cost of
license
revenues $44,717 (62) (16,308) (14,236) $14,111
Cost of
services
revenues 41,415 (1,666) 39,749
----------------------------------------------------------
Total costs
of revenues $86,132 (1,728) (16,308) (14,236) - $53,860
Operating
expenses:
Research and
development $98,123 (17,341) 37,881 (9,816) $108,847
Sales and
marketing $157,724 (8,377) (1,640) $147,707
General and
admini-
strative $44,514 (7,574) (1,122) $35,818
In-process
research and
development $3,700 (3,700) $-
Operating
income $84,130 35,020 22,770 (23,645) 9,816 $128,091
Income
before
taxes $84,804 35,020 22,770 (23,645) 9,816 $128,765
Income tax
provision $30,068 9,200 7,248 (8,985) 2,579 $40,110
Net income $54,911 25,820 15,522 (14,660) 7,237 $88,830
Net income
per weighted
average share,
basic for
Class A
and Class B $0.17 $0.08 $0.05 $(0.04) $0.02 $0.27
Net income
per weighted
average share,
diluted for
Class A
and Class B $0.17 $0.08 $0.05 $(0.04) $0.02 $0.27
Weighted
average
shares,
basic for
Class A
and Class B 332,500 332,500 332,500 332,500 332,500 332,500
Weighted
average
shares,
diluted for
Class A
and Class B 332,500 332,500 332,500 332,500 332,500 332,500
(1) For the nine months ended September 30, 2006, VMware capitalized $37.9 million (including $9.8 million of stock-based compensation), of costs incurred for the development of software products. Amortization expense from previously capitalized amounts was $14.2 million for the first nine months of 2006.
--------------------------------------------------------------------------------
Source: VMware, Inc.
biz.yahoo.com |
