VMware(VMW) - 2024 Q2 - Quarterly Report

Revenue Performance - Total revenue for the six months ended August 4, 2023, was $6.685 billion, a 4% increase from$ 6.424 billion in the same period of 2022[96]. - Subscription and SaaS revenue increased by 34% to $2.476 billion for the six months ended August 4, 2023, compared to$ 1.842 billion in the same period of 2022[96]. - License revenue decreased by 17% to $1.136 billion for the six months ended August 4, 2023, down from$ 1.369 billion in the same period of 2022[96]. - Annual Recurring Revenue (ARR) reached $5.3 billion as of August 4, 2023, up from$ 3.9 billion as of July 29, 2022[101]. - Remaining performance obligations totaled $12.9 billion as of August 4, 2023, with approximately 55% expected to be recognized as revenue over the next twelve months[104]. - Professional services revenue increased by 2% to$ 617 million for the six months ended August 4, 2023, compared to $604 million in the same period of 2022[102]. - Reseller revenue decreased by$ 88 million (6.7%) for the three months ended August 4, 2023, compared to the same period in 2022, while internal-use revenue increased significantly[126]. - Revenue from Dell accounted for 37% and 36% of the company's consolidated revenue for the three and six months ended August 4, 2023, respectively[127]. Cost and Expenses - Subscription and SaaS revenue cost increased by $6 million (3%) for the three months ended August 4, 2023, and by$ 22 million (6%) for the six months ended August 4, 2023, primarily due to increased equipment and depreciation costs[110][111]. - Cost of services revenue rose by $32 million (9%) for the three months ended August 4, 2023, and by$ 55 million (8%) for the six months ended August 4, 2023, driven by cash-based employee-related expenses and merger-related costs[112]. - Research and development expenses increased by $32 million (5%) for the three months ended August 4, 2023, and by$ 90 million (7%) for the six months ended August 4, 2023, mainly due to higher cash-based employee-related expenses[115]. - Sales and marketing expenses grew by $25 million (3%) for the three months ended August 4, 2023, and by$ 77 million (4%) for the six months ended August 4, 2023, attributed to higher commission costs and retention compensation[114][116]. - General and administrative expenses increased by $5 million (2%) for the three months ended August 4, 2023, and by$ 133 million (30%) for the six months ended August 4, 2023, primarily due to merger-related costs and legal fees[119]. Financial Position - Total unearned revenue as of August 4, 2023, was $12.090 billion, down from$ 12.743 billion as of February 3, 2023[100]. - Cash provided by operating activities increased by $791 million to$ 2.194 billion for the six months ended August 4, 2023, compared to $1.402 billion for the same period in 2022[135]. - The company held cash and cash equivalents of$ 6.801 billion as of August 4, 2023, compared to $5.100 billion as of February 3, 2023[130]. - The company has unsecured senior notes with a net carrying value of$ 9.2 billion as of August 4, 2023, with interest paid of $114 million during the six months ended August 4, 2023[138]. - Cash used in investing activities increased by$ 79 million to $200 million for the six months ended August 4, 2023, compared to$ 121 million for the same period in 2022[136]. - Cash used in financing activities decreased by $1.4 billion to$ 298 million for the six months ended August 4, 2023, primarily due to the absence of a $1.5 billion repayment against a senior unsecured term loan facility[137]. - Financing fees from transactions financed through Dell Financial Services were$ 21 million for the six months ended August 4, 2023, compared to $17 million for the same period in 2022[131]. Investment and Tax - Investment income surged by$ 67 million (935%) for the three months ended August 4, 2023, and by $130 million compared to the same period in 2022, driven by higher investment yields[120]. - Interest expense rose by$ 6 million (8%) for the three months ended August 4, 2023, and by $15 million (10%) for the six months ended August 4, 2023, due to higher interest rates on the senior unsecured term loan[118][121]. - Other income (expense), net improved by$ 40 million (206%) for the three months ended August 4, 2023, and by $55 million for the six months ended August 4, 2023, influenced by changes in investment gains and foreign currency exchange[122][123]. - The effective income tax rate decreased to 15.0% for the three months ended August 4, 2023, from 27.6% in the prior year, primarily due to a discrete tax benefit recognized[124]. - The Transition Tax liability related to accumulated earnings of foreign subsidiaries was$ 334 million as of August 4, 2023, expected to be paid over the next two years[132]. Strategic Developments - The company is experiencing a shift towards subscription and SaaS offerings, impacting the growth rate of license revenue[99]. - Operating margin was negatively impacted due to incremental investments in the subscription and SaaS portfolio during the six months ended August 4, 2023[93]. - The Broadcom merger transaction is expected to be consummated on October 30, 2023, pending regulatory approvals[94]. - The company plans to continue a balanced capital allocation policy, including investments in product offerings and acquisitions[132]. - Customer deposits from transactions with Dell increased to $1.1 billion as of August 4, 2023, up from$ 766 million as of February 3, 2023[128].