VMware(VMW) - 2023 Q3 - Quarterly Report

Revenue Performance - Total revenue for the nine months ended October 28, 2022, was $9.635 billion, representing a 3$9.320 billion in the same period of the previous year[130]. - Subscription and SaaS revenue increased by 21% to $2.830 billion for the nine months ended October 28, 2022, compared to$2.336 billion for the same period in 2021[130]. - Annual recurring revenue (ARR) reached $4.1 billion as of October 28, 2022, up from$3.3 billion as of October 29, 2021[133]. - License revenue decreased by 5% to $1.990 billion for the nine months ended October 28, 2022, compared to$2.093 billion for the same period in 2021[130]. - Revenue from Dell accounted for 37% of consolidated revenue for the three months ended October 28, 2022, compared to 38% in the same period in 2021[162]. - Reseller revenue for the three months ended October 28, 2022, was $1,184 million, slightly up from$1,183 million in the same period in 2021[163]. Financial Outlook and Expectations - The company expects operating margin to be negatively impacted in fiscal 2023 due to increased investment in subscription and SaaS offerings[124]. - The company expects fluctuations in backlog amounts and composition, which are not indicative of future sales or revenue[140]. - The company expects annual interest expense associated with the 2021 Senior Notes to be approximately $100 million[155]. - The company expects to use free cash flow primarily to repay outstanding indebtedness through the end of fiscal 2023[172]. Backlog and Performance Obligations - As of October 28, 2022, the aggregate transaction price allocated to remaining performance obligations was$11.9 billion, with approximately 56% expected to be recognized as revenue over the next twelve months[139]. - Total backlog as of October 28, 2022, was $85 million, with$35 million excluded from remaining performance obligations due to cancellation clauses[140]. Expenses and Costs - Cost of subscription and SaaS revenue increased by 11% to $189 million for the three months ended October 28, 2022, and by 16$565 million for the nine months ended October 28, 2022[145]. - Research and development expenses rose by 4% to $669 million for the three months ended October 28, 2022, and by 6$1.968 billion for the nine months ended October 28, 2022[149]. - Sales and marketing expenses increased by 5% to $977 million for the three months ended October 28, 2022, and by 6$2.938 billion for the nine months ended October 28, 2022[151]. - Cost of services revenue increased by 4% to $353 million for the three months ended October 28, 2022, and by 7$1.049 billion for the nine months ended October 28, 2022[147]. - Total expenses for research and development reached $832 million for the three months ended October 28, 2022, reflecting an 8$60 million and increased stock-based compensation of $51 million[151]. - General and administrative expenses decreased by$38 million (13%) for the three months ended October 28, 2022, compared to the same period in 2021, primarily due to the absence of $66 million in costs related to the Spin-Off[153]. Cash Flow and Financing Activities - Cash and cash equivalents as of October 28, 2022, were$3.972 billion, an increase from $3.633 billion as of January 28, 2022[170]. - Net cash provided by operating activities decreased by$553 million to $2.667 billion for the nine months ended October 28, 2022, compared to$3.220 billion for the same period in 2021[173][174]. - Cash used in financing activities increased by $6.873 billion during the nine months ended October 28, 2022, primarily due to the absence of net cash proceeds from senior notes issuance in the prior year[176]. - The company has unsecured senior notes outstanding with an aggregated carrying value of$9.2 billion as of October 28, 2022[178]. - Cash used in investing activities increased by $19 million during the nine months ended October 28, 2022, primarily due to increased additions to property and equipment[175]. - Interest paid for the Senior Notes was$184 million for the nine months ended October 28, 2022, compared to $139 million for the same period in 2021[178]. Geopolitical and Regulatory Impact - The company suspended sales and services in Russia and Belarus in response to geopolitical events, with no material impact on financial statements expected[127]. - The merger agreement with Broadcom is expected to be consummated in Broadcom's fiscal year 2023, pending regulatory approvals[126]. - The company entered into a Merger Agreement with Broadcom, which includes a termination fee of$1.5 billion if the transaction does not close by February 26, 2023[172]. Tax and Other Financial Metrics - The effective income tax rate for the three months ended October 28, 2022, was 27.6%, up from 12.9% in the same period in 2021, driven by a higher estimated annual income tax rate due to changes in tax laws[159]. - Other income (expense), net showed a decrease of $24 million (221$49 million (28%) for the nine months ended October 28, 2022, compared to the same period in 2021, driven by the issuance of $6.0 billion in unsecured senior notes[155].