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VMware Reports Record Fourth Quarter and Full Year 2013 Results

PALO ALTO, CA--(Marketwired - Jan 28, 2014) - VMware, Inc. ( NYSE : VMW ), the global leader in virtualization and cloud infrastructure, today announced financial results for the fourth quarter and full year of 2013:

Quarterly Review

  • Revenues for the fourth quarter were $1.48 billion, an increase of 15% from the fourth quarter of 2012. Excluding revenues attributable to Pivotal and all divestitures that occurred in 2013, revenues for the fourth quarter increased 20% from the fourth quarter of 2012.1

  • Operating income for the fourth quarter was $374 million, an increase of 48% from the fourth quarter of 2012. Non-GAAP operating income for the fourth quarter was $528 million, an increase of 25% from the fourth quarter of 2012.

  • Net income for the fourth quarter was $335 million, or $0.77 per diluted share, an increase of 62% per diluted share compared to $206 million, or $0.47 per diluted share, for the fourth quarter of 2012. Non-GAAP net income for the quarter was $436 million, or $1.01 per diluted share, an increase of 25% per diluted share compared to $349 million, or $0.81 per diluted share, for the fourth quarter of 2012.

  • Operating cash flows for the fourth quarter were $688 million, an increase of 40% from the fourth quarter of 2012. Free cash flows for the quarter were $590 million, an increase of 44% from the fourth quarter of 2012.

Annual Review

  • Revenues for 2013 were $5.21 billion, an increase of 13% from 2012 or an increase of 17% excluding revenues attributable to Pivotal and all divestitures that occurred in 2013.1

  • Operating income for 2013 was $1.09 billion, an increase of 25% from 2012. Non-GAAP operating income for 2013 was $1.77 billion, an increase of 19% from 2012.

  • Net income for 2013 was $1.01 billion, or $2.34 per diluted share, an increase of 36% compared to $746 million, or $1.72 per diluted share, for 2012. Non-GAAP net income for 2013 was $1.46 billion, or $3.37 per diluted share, an increase of 18% per diluted share compared to $1.24 billion, or $2.85 per diluted share, for 2012.

  • Operating cash flows for 2013 were $2.54 billion, an increase of 34% from 2012, and free cash flows for the year were $2.19 billion, an increase of 32% from 2012.

  • Cash, cash equivalents and short-term investments were $6.18 billion and unearned revenues were $4.09 billion as of December 31, 2013.

"Our strong performance throughout 2013 is evidence that our customers are embracing our vision and realizing value from our solutions," said Pat Gelsinger, chief executive officer, VMware. "In every region of the world, customers are making a long-term bet on VMware to help them transform their businesses for the mobile-cloud world."

"We delivered record 2013 results as customer demand across all our business offerings continues to thrive," said Jonathan Chadwick, chief financial officer, VMware. "We have increased our guidance for 2014 and are confident about our opportunities for long-term growth as we help our customers innovate for the future."

Recent Highlights & Strategic Announcements

  • Following VMworld® 2013 and VMworld 2013 Europe, where VMware hosted a combined total of over 31,000 registered attendees, VMware took VMworld on the road to the Asia Pacific Region and held VMware vForum customer and partner user conferences in six countries hosting 27,000 attendees.

  • Last week VMware announced its intent to acquire AirWatch, the leader in Enterprise Mobile Management and Security. This acquisition will provide customers the most complete end-user computing solution to manage users, devices and applications across desktops and mobile environments. VMware also recently acquired Desktone, Inc., which pioneered Desktop as a Service® (DaaS) to deliver Windows desktops and applications as a cloud service to any user, anywhere, on any device.

  • VMware announced general availability of new and updated Management solutions purpose-built for the cloud, including VMware vCloud® Automation Center™ 6.0, VMware vCenter™ Operations Management Suite™ 5.8 and VMware IT Business Management Suite™. These solutions simplify and automate how IT is managed, helping customers on their journey to deliver IT as a Service.

  • VMware vCloud Hybrid Service™ continues to see good customer traction and momentum having launched its U.K private beta service in December and opened another new data center in the U.S. VMware also recently announced HIPAA compliance providing healthcare customers the agility and flexibility of vCloud Hybrid Service and the ability to collaborate, share, store and centralize Protected Healthcare Information to operate more efficiently while protecting patient privacy.

  • VMware announced general availability of VMware NSX™, the network virtualization platform, which VMware expects to do for networking what server virtualization did for compute. In addition, VMware announced a partnership with security leader Palo Alto Networks to co-develop a solution that will enable customers to use the VMware NSX platform to automate provisioning and distribution of Palo Alto Networks technologies in their software-defined data centers.

VMware plans to host a conference call today to review its fourth quarter and full year 2013 results and to discuss its financial outlook. 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 http://ir.vmware.com. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 60 days.

1 Comparative growth percentages exclude revenues in each period attributable to the products and services contributed to Pivotal Software, Inc. and all divestitures consummated by VMware in 2013

About VMware

VMware is the leader in virtualization and cloud infrastructure solutions that enable businesses to thrive in the Cloud Era. Customers rely on VMware to help them transform the way they build, deliver and consume Information Technology resources in a manner that is evolutionary and based on their specific needs. With 2013 revenues of $5.21 billion, VMware has more than 500,000 customers and 55,000 partners. The company is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com.

VMware, VMworld, Desktop as a Service, vCenter, VCenter Operations Management Suite, IT Business Management Suite, vCloud Hybrid Service, NSX, vCloud Automation Center and VMware vCloud are registered trademarks or trademarks of VMware, Inc. in the United States and other jurisdictions. Other marks mentioned herein are trademarks, which are proprietary to VMware, Inc. or another company.

Use of Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to VMware's financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data. For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled "About Non-GAAP Financial Measures."

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding long-term customer commitments to VMware, VMware's guidance for 2014 and opportunities for long-term growth, the acquisition of Airwatch, the expected benefits to customers from the AirWatch acquisition, the future availability of announced products and services and their benefits to customers, including VMware's recently announced HIPAA compliance, and the benefits to customers of VMware's partnership with Palo Alto Networks. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. 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, government and information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization software and cloud, end user and mobile computing industries, and new product and marketing initiatives by VMware's competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and promotions and beta programs; (v) VMware's customers' ability to transition to, new products and computing strategies such as cloud computing, desktop virtualization and the software-defined data center; (vi) the uncertainty of customer acceptance of emerging technology; (vii) changes in the willingness of customers to enter into longer term licensing and support arrangements; (viii) rapid technological changes in the virtualization software and cloud, end user and mobile computing industries; (ix) changes to product development timelines; (x) VMware's relationship with EMC Corporation and EMC's ability to control matters requiring stockholder approval, including the election of VMware's board members; (xi) VMware's ability to protect its proprietary technology; (xii) VMware's ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; (xiv) fluctuating currency exchange rates and (xv) the satisfaction of closing conditions for the AirWatch acquisition, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act. These forward-looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including VMware's most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.

   
   
VMware, Inc.  
                       
CONSOLIDATED STATEMENTS OF INCOME  
(amounts in millions, except per share amounts, and shares in thousands)  
(unaudited)  
                       
                       
  For the Three Months Ended     For the Year Ended  
  December 31,     December 31,  
  2013     2012     2013     2012  
                       
Revenues:                      
  License $ 687     $ 597     $ 2,270     $ 2,087  
  Services   796       696       2,937       2,518  
Total revenues   1,483       1,293       5,207       4,605  
Operating expenses (1):                              
  Cost of license revenues   47       63       210       237  
  Cost of services revenues   145       128       520       484  
  Research and development   284       268       1,082       999  
  Sales and marketing   507       478       1,815       1,645  
  General and administrative   122       103       419       368  
  Realignment charges   4       -       68       -  
Operating income   374       253       1,093       872  
Investment income   8       6       30       27  
Interest expense with EMC   (1 )     (1 )     (4 )     (5 )
Other income (expense), net   -       2       28       (1 )
Income before income taxes   381       260       1,147       893  
Income tax provision   46       54       133       147  
Net income $ 335     $ 206     $ 1,014     $ 746  
                               
Net income per weighted-average share, basic for Class A and Class B $ 0.78     $ 0.48     $ 2.36     $ 1.75  
                               
Net income per weighted-average share, diluted for Class A and Class B $ 0.77     $ 0.47     $ 2.34     $ 1.72  
                               
Weighted-average shares, basic for Class A and Class B   430,174       427,266       429,093       426,658  
Weighted-average shares, diluted for Class A and Class B   433,621       433,205       433,415       433,974  
______                              
  (1) Includes stock-based compensation as follows:                              
  Cost of license revenues $ -     $ 1     $ 2     $ 2  
  Cost of services revenues   8       7       29       28  
  Research and development   62       63       227       210  
  Sales and marketing   38       39       144       150  
  General and administrative   14       14       56       48  
  Realignment charges   -       -       6       -  
                                 
                                 
 
 
VMware, Inc.
       
CONSOLIDATED BALANCE SHEETS
(amounts in millions, except per share amounts, and shares in thousands)
(unaudited)
       
       
  December 31,
  2013   2012
       
ASSETS      
Current assets:      
  Cash and cash equivalents $ 2,305   $ 1,609
  Short-term investments   3,870     3,022
  Accounts receivable, net of allowance for doubtful accounts of $2 and $4   1,220     1,151
  Due from related parties, net   -     68
  Deferred tax asset   190     179
  Other current assets   96     91
Total current assets   7,681     6,120
Property and equipment, net   845     665
Other assets, net   107     128
Deferred tax asset   60     103
Intangible assets, net   607     732
Goodwill   3,027     2,848
    Total assets $ 12,327   $ 10,596
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
  Accounts payable $ 109   $ 90
  Accrued expenses and other   608     644
  Due to related parties, net   18     -
  Unearned revenues   2,558     2,196
Total current liabilities   3,293     2,930
Note payable to EMC   450     450
Unearned revenues   1,534     1,265
Other liabilities   234     211
    Total liabilities   5,511     4,856
Commitments and contingencies          
Stockholders' equity:          
  Class A common stock, par value $.01; authorized 2,500,000 shares; issued and outstanding 130,349 and 128,688 shares   1     1
  Class B convertible common stock, par value $.01; authorized 1,000,000 shares; issued and outstanding 300,000 shares   3     3
  Additional paid-in capital   3,496     3,432
  Accumulated other comprehensive income   4     6
  Retained earnings   3,312     2,298
    Total stockholders' equity   6,816     5,740
      Total liabilities and stockholders' equity $ 12,327   $ 10,596
           
           
   
   
VMware, Inc.  
                       
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in millions)  
(unaudited)  
                       
                       
  For the Three Months Ended     For the Year Ended  
  December 31,     December 31,  
  2013     2012     2013     2012  
                       
Operating activities:                      
Net income $ 335     $ 206     $ 1,014     $ 746  
Adjustments to reconcile net income to net cash provided by operating activities:                              
  Depreciation and amortization   76       93       337       355  
  Stock-based compensation   122       124       454       426  
  Excess tax benefits from stock-based compensation   (10 )     (27 )     (70 )     (138 )
  Deferred income taxes, net   15       (4 )     56       (74 )
  Non-cash realignment charges   -       -       15       -  
  Gain on disposition of certain lines of business and other, net   -       -       (31 )     -  
  Other   4       4       7       2  
  Changes in assets and liabilities, net of acquisitions:                              
    Accounts receivable   (431 )     (470 )     (71 )     (268 )
    Other assets   13       9       (59 )     (112 )
    Due to/from related parties, net   (23 )     (22 )     60       6  
    Accounts payable   14       (2 )     30       24  
    Accrued expenses   93       85       1       22  
    Income taxes receivable from EMC   1       19       17       19  
    Income taxes payable   23       11       19       138  
    Unearned revenues   456       467       756       751  
Net cash provided by operating activities   688       493       2,535       1,897  
                               
Investing activities:                              
Additions to property and equipment   (98 )     (82 )     (345 )     (234 )
Purchases of available-for-sale securities   (953 )     (469 )     (3,181 )     (3,189 )
Sales of available-for-sale securities   527       227       1,599       1,880  
Maturities of available-for-sale securities   120       134       717       902  
Proceeds from disposition of certain lines of business   -       -       37       -  
Business acquisitions, net of cash acquired   (105 )     -       (289 )     (1,344 )
Other investing   1       (37 )     (10 )     (50 )
Net cash used in investing activities   (508 )     (227 )     (1,472 )     (2,035 )
                               
Financing activities:                              
Proceeds from issuance of common stock   12       39       197       253  
Repurchase of common stock   (116 )     (160 )     (508 )     (467 )
Excess tax benefits from stock-based compensation   10       27       70       138  
Shares repurchased for tax withholdings on vesting of restricted stock   (44 )     (43 )     (126 )     (133 )
Net cash used in financing activities   (138 )     (137 )     (367 )     (209 )
Net increase (decrease) in cash and cash equivalents   42       129       696       (347 )
Cash and cash equivalents at beginning of the period   2,263       1,480       1,609       1,956  
Cash and cash equivalents at end of the period $ 2,305     $ 1,609     $ 2,305     $ 1,609  
                               
                               
...
 
 
VMware, Inc.
                                                         
SUPPLEMENTAL REVENUES SCHEDULE
(INCLUDES RECONCILIATION OF GAAP TO NON-GAAP DATA)
(in millions)
(unaudited)
                                                         
                                                         
  For the Three Months Ended     For the Three Months Ended     For the Year Ended
  December 31,
2013
    September 30,
2013
    June 30,
2013
    March 31,
2013
    December 31,
2012
    September 30,
2012
    June 30,
2012
    March 31,
2012
    December 31,
2013
    December 31,
2012
                                     
Revenues as reported (1):                                                        
  License $ 687     $ 564     $ 531     $ 488     $ 597     $ 491     $ 517     $ 482     $ 2,270     $ 2,087
  Software maintenance   699       644       614       605       591       551       519       492       2,563       2,153
  Professional services   97       81       98       98       105       92       87       81       374       365
Total revenues $ 1,483     $ 1,289     $ 1,243     $ 1,191     $ 1,293     $ 1,134     $ 1,123     $ 1,055     $ 5,207     $ 4,605
                                                                             
Change (%) over prior year                                                                            
  License   15.1 %     14.8 %     2.6 %     1.3 %     16.1 %     10.7 %     11.3 %     15.0 %     8.7 %      
  Software maintenance   18.3 %     16.9 %     18.3 %     23.0 %     27.5 %     29.0 %     34.4 %     35.3 %     19.0 %      
  Professional services   -8.4 %     -11.4 %     13.4 %     20.8 %     27.0 %     28.6 %     23.7 %     33.0 %     2.5 %      
Total revenues   14.7 %     13.7 %     10.7 %     12.9 %     22.0 %     20.4 %     21.9 %     25.1 %     13.1 %