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VMware(VMW) - 2023 Q2 - Quarterly Report
VMWVMware(VMW)2022-09-02 20:08

Revenue Performance - Total revenue for the six months ended July 29, 2022, was 6.424billion,representinga56.424 billion, representing a 5% increase from 6.132 billion in the same period of 2021[123]. - Subscription and SaaS revenue increased by 22% to 943millionforthethreemonthsendedJuly29,2022,comparedto943 million for the three months ended July 29, 2022, compared to 776 million in the same period of 2021[123]. - Annual recurring revenue (ARR) reached 3.9billionasofJuly29,2022,upfrom3.9 billion as of July 29, 2022, up from 3.2 billion as of July 30, 2021[126]. - Remaining performance obligations totaled 12.1billionasofJuly29,2022,withapproximately5612.1 billion as of July 29, 2022, with approximately 56% expected to be recognized as revenue over the next twelve months[132]. - License revenue for the six months ended July 29, 2022, was 1.369 billion, a decrease of 1% from 1.384billioninthesameperiodof2021[123].−Professionalservicesrevenueincreasedby51.384 billion in the same period of 2021[123]. - Professional services revenue increased by 5% to 604 million for the six months ended July 29, 2022, compared to 575millioninthesameperiodof2021[127].−ResellerrevenueforthethreemonthsendedJuly29,2022,was575 million in the same period of 2021[127]. - Reseller revenue for the three months ended July 29, 2022, was 1,313 million, an increase from 1,162millioninthesameperiodin2021[156].−RevenuefromDellaccountedfor401,162 million in the same period in 2021[156]. - Revenue from Dell accounted for 40% of consolidated revenue for the three months ended July 29, 2022, compared to 37% in the same period in 2021[155]. - Revenue recognized on transactions financed through Dell Financial Services (DFS) was 17 million for the six months ended July 29, 2022, compared to 15millionforthesameperiodin2021[160].ExpensesandCosts−CostoflicenserevenueforthethreemonthsendedJuly29,2022,was15 million for the same period in 2021[160]. Expenses and Costs - Cost of license revenue for the three months ended July 29, 2022, was 39 million, remaining flat compared to 37millionforthesameperiodin2021[135].−CostofsubscriptionandSaaSrevenueincreasedby1637 million for the same period in 2021[135]. - Cost of subscription and SaaS revenue increased by 16% to 190 million for the three months ended July 29, 2022, compared to 165millionforthesameperiodin2021[137].−Costofservicesrevenueincreasedby5165 million for the same period in 2021[137]. - Cost of services revenue increased by 5% to 344 million for the three months ended July 29, 2022, compared to 328millionforthesameperiodin2021[139].−Researchanddevelopmentexpensesroseby5328 million for the same period in 2021[139]. - Research and development expenses rose by 5% to 657 million for the three months ended July 29, 2022, compared to 625millionforthesameperiodin2021[142].−Salesandmarketingexpensesincreasedby5625 million for the same period in 2021[142]. - Sales and marketing expenses increased by 5% to 987 million for the three months ended July 29, 2022, compared to 942millionforthesameperiodin2021[144].−TotalexpensesforthethreemonthsendedJuly29,2022,were942 million for the same period in 2021[144]. - Total expenses for the three months ended July 29, 2022, were 1,080 million, up from 1,023millionforthesameperiodin2021,reflectinga61,023 million for the same period in 2021, reflecting a 6% increase[144]. - General and administrative expenses increased by 20 million (4%) for the six months ended July 29, 2022, compared to the same period in 2021, primarily due to increased employee-related expenses and stock-based compensation[146]. - Cash-based employee-related expenses increased significantly across all categories, driven by headcount growth and salary increases[133]. - Increased travel-related expenses were noted due to lifted COVID-19 restrictions, impacting both sales and marketing expenses[144]. Financial Position and Cash Flow - Cash and cash equivalents decreased from 3.633billionasofJanuary28,2022,to3.633 billion as of January 28, 2022, to 3.242 billion as of July 29, 2022[162]. - Net cash provided by operating activities was 1.402billionforthesixmonthsendedJuly29,2022,downfrom1.402 billion for the six months ended July 29, 2022, down from 2.130 billion for the same period in 2021, a decrease of 728million[165][166].−Cashusedinfinancingactivitiesincreasedby728 million[165][166]. - Cash used in financing activities increased by 838 million during the six months ended July 29, 2022, primarily due to the repayment of 1.5billiontowardsaseniorunsecuredtermloanfacility[168].−Cashusedininvestingactivitiesdecreasedby1.5 billion towards a senior unsecured term loan facility[168]. - Cash used in investing activities decreased by 23 million during the six months ended July 29, 2022, compared to the same period in 2021[167]. - The company has unsecured senior notes with an aggregated carrying value of 9.2billionasofJuly29,2022,withinterestpaidamountingto9.2 billion as of July 29, 2022, with interest paid amounting to 117 million for the six months ended July 29, 2022[169]. - The company plans to use free cash flow primarily to repay outstanding indebtedness through the end of fiscal 2023[163]. Strategic Developments - The company expects operating margin to be negatively impacted in fiscal 2023 due to increased investment in subscription and SaaS offerings[117]. - The company suspended sales and services in Russia and Belarus in response to geopolitical events, with no material impact on financial statements expected[120]. - The merger agreement with Broadcom includes a cash consideration of 142.50pershareoranexchangeratioof0.25200sharesofBroadcomcommonstock[118].−TheMergerAgreementwithBroadcomincludesaterminationfeeof142.50 per share or an exchange ratio of 0.25200 shares of Broadcom common stock[118]. - The Merger Agreement with Broadcom includes a termination fee of 1.5 billion if the transaction does not occur by February 26, 2023[163]. - The company suspended its stock repurchase program in connection with the Merger Agreement and did not repurchase common stock during the three months ended July 29, 2022[172]. Tax and Interest - Interest expense rose by 45million(4645 million (46%) for the six months ended July 29, 2022, compared to the same period in 2021, driven by the issuance of 6.0 billion in unsecured senior notes[148]. - The income tax provision for the three months ended July 29, 2022, was 132million,withaneffectivetaxrateof27.6132 million, with an effective tax rate of 27.6%, up from 14.4% in the same period in 2021[152]. - The effective tax rate may be significantly affected by the composition of earnings in U.S. and non-U.S. jurisdictions, particularly with the impact of the Inflation Reduction Act starting in fiscal 2024[152]. - The liability related to the one-time Transition Tax was 445 million as of July 29, 2022, expected to be paid over the next three years[163]. - The company expects annual interest expense associated with the 2021 Senior Notes to be approximately 100million[148].CustomerandMarketDynamics−CustomerdepositsfromtransactionswithDellwere100 million[148]. Customer and Market Dynamics - Customer deposits from transactions with Dell were 359 million as of July 29, 2022, up from 298millionasofJanuary28,2022[157].−PurchasesandleasesofproductsandservicesfromDellamountedto298 million as of January 28, 2022[157]. - Purchases and leases of products and services from Dell amounted to 53 million for the three months ended July 29, 2022, down from 61millioninthesameperiodin2021[159].−Otherincome(expense),netdecreasedby61 million in the same period in 2021[159]. - Other income (expense), net decreased by 24 million for the three months ended July 29, 2022, resulting in a 528% decline compared to the same period in 2021, primarily due to net losses on investments in equity securities[150].