VMware(VMW) - 2023 Q1 - Quarterly Report

Revenue Performance - Total revenue for the three months ended April 29, 2022, was $3,088 million, representing a 3% increase from$ 2,994 million in the same period of 2021[119]. - License revenue decreased by 11% to $572 million in Q1 fiscal 2023 from$ 646 million in Q1 fiscal 2022, primarily due to a shift towards cloud-based solutions[119]. - Subscription and SaaS revenue increased by 21% to $899 million in Q1 fiscal 2023, up from$ 741 million in Q1 fiscal 2022, driven by higher sales of Workspace ONE and VMware Tanzu offerings[119]. - Annual recurring revenue (ARR) reached $3.7 billion as of April 29, 2022, compared to$ 3.0 billion as of April 30, 2021, indicating strong growth in subscription and SaaS contracts[123]. - Revenue from Dell accounted for 37% of consolidated revenue for the three months ended April 29, 2022, compared to 35% in the same period last year[151]. - Reseller revenue for the three months ended April 29, 2022, was $1,137 million, an increase from$ 1,036 million for the same period in 2021, representing a growth of 9.7%[152]. Financial Obligations and Cash Flow - Remaining performance obligations totaled $11.6 billion as of April 29, 2022, with approximately 57% expected to be recognized as revenue over the next twelve months[128]. - Customer deposits from transactions with Dell were$ 282 million as of April 29, 2022, compared to $298 million as of January 28, 2022, indicating a decrease of 5.4%[153]. - Cash and cash equivalents increased to$ 3,719 million as of April 29, 2022, up from $3,614 million as of January 28, 2022, reflecting a growth of 2.9%[159]. - Net cash provided by operating activities decreased by$ 261 million to $1,005 million for the three months ended April 29, 2022, compared to$ 1,266 million for the same period in 2021, a decline of 20.6%[164]. - Cash used in investing activities increased by $18 million to$ 91 million for the three months ended April 29, 2022, compared to $72 million for the same period in 2021, an increase of 25%[165]. - Cash used in financing activities increased by$ 518 million to $815 million for the three months ended April 29, 2022, compared to$ 297 million for the same period in 2021, a rise of 174.4%[166]. - The company has unsecured senior notes with an aggregated carrying value of $9.2 billion as of April 29, 2022, with interest paid of$ 70 million for the three months ended April 29, 2022[167]. - The Transition Tax liability related to the 2017 Tax Act was $504 million as of April 29, 2022, expected to be paid over the next four years[160]. - The company plans to use free cash flow primarily to repay outstanding indebtedness through the end of fiscal 2023, while continuing a balanced capital allocation policy[160]. Operational Expenses - The company expects operating margins to be negatively impacted in fiscal 2023 due to increased investments in its subscription and SaaS portfolio[113]. - The company reported a 1% increase in total services revenue to$ 1,617 million in Q1 fiscal 2023, driven by a rise in professional services revenue[119]. - Cost of subscription and SaaS revenue increased by $35 million (23%) to$ 187 million for the three months ended April 29, 2022, compared to $152 million in the same period last year[133]. - Cost of services revenue rose by$ 39 million (13%) to $352 million for the three months ended April 29, 2022, up from$ 312 million in the prior year[136]. - Research and development expenses increased by $62 million (11%) to$ 642 million for the three months ended April 29, 2022, compared to $581 million in the same period last year[138]. - Sales and marketing expenses grew by$ 88 million (10%) to $970 million for the three months ended April 29, 2022, up from$ 884 million in the prior year[140]. - General and administrative expenses increased by $15 million (6%) to$ 251 million for the three months ended April 29, 2022, compared to $236 million in the same period last year[143]. - Interest expense rose by$ 21 million (43%) to $71 million for the three months ended April 29, 2022, compared to$ 50 million in the same period last year, primarily due to the issuance of $6.0 billion in unsecured senior notes[145]. - Other income (expense), net improved by$ 14 million (56%) to $(10) million for the three months ended April 29, 2022, compared to$ (23) million in the prior year[147]. - The effective income tax provision increased to $86 million for the three months ended April 29, 2022, with an effective tax rate of 26.1%, up from$ 61 million and 12.6% in the same period last year[148]. Strategic Initiatives - The proposed merger with Broadcom Inc. involves a cash consideration of $142.50 per share or an exchange ratio of 0.25200 shares of Broadcom common stock[114]. - Business operations in Russia and Belarus were suspended due to geopolitical events, but the financial impact on Q1 fiscal 2023 was not material[116]. - Total backlog as of April 29, 2022, was$ 25 million, down from $88 million as of January 28, 2022, indicating fluctuations in unfulfilled purchase orders[129]. - The company continues to invest in expanding its subscription and SaaS offerings, reflecting a strategic focus on growth in these areas[134]. - The company entered into a Merger Agreement with Broadcom on May 26, 2022, which includes a termination fee of$ 1.5 billion if the transaction does not close by February 26, 2023[160]. - No material changes to market risk exposures during the three months ended April 29, 2022[175].