SOURCE: VMware, Inc.

VMware, Inc.

January 23, 2012 16:01 ET

VMware Reports Fourth Quarter and Full Year 2011 Results

Annual Revenue Growth of 32% to $3.77 Billion With Fourth Quarter Year-Over-Year Growth of 27% to $1.06 Billion; Annual Operating Margin of 19.5%; Non-GAAP Operating Margin of 31.0%. Fourth Quarter Operating Margin of 20.2%; Non-GAAP Operating Margin of 31.9%; Trailing Twelve Months Operating Cash Flows Growth of 72% to $2.03 Billion; Free Cash Flows Growth of 62% to $1.95 Billion

PALO ALTO, CA--(Marketwire - Jan 23, 2012) - VMware, Inc. (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the fourth quarter and full year of 2011:

  • Revenues for the fourth quarter were $1.06 billion, an increase of 27% from the fourth quarter of 2010, and an increase of 26% measured in constant currency.

  • Operating income for the fourth quarter was $214 million, an increase of 64% from the fourth quarter of 2010. Non-GAAP operating income for the fourth quarter was $338 million, an increase of 37% from the fourth quarter of 2010.

  • Net income for the fourth quarter was $200 million, or $0.46 per diluted share, compared to $120 million, or $0.28 per diluted share, for the fourth quarter of 2010. Non-GAAP net income for the quarter was $266 million, or $0.62 per diluted share, compared to $198 million, or $0.46 per diluted share, for the fourth quarter of 2010.

  • Operating cash flows for the fourth quarter were $561 million, an increase of 38% from the fourth quarter of 2010. Free cash flows for the quarter were $535 million, an increase of 32% from the fourth quarter of 2010.

  • Revenues for 2011 were $3.77 billion, an increase of 32% from 2010.

  • Operating income for 2011 was $735 million, an increase of 72% from 2010. Non-GAAP operating income for 2011 was $1.17 billion, an increase of 43% from 2010.

  • Net income for 2011 was $724 million, or $1.68 per diluted share, compared to $357 million, or $0.84 per diluted share, for 2010. Non-GAAP net income for 2011 was $936 million, or $2.17 per diluted share, compared to $639 million, or $1.51 per diluted share, for 2010.

  • Operating cash flows for 2011 were $2.03 billion, an increase of 72% and free cash flows for the year were $1.95 billion, an increase of 62% from 2010.

  • Cash, cash equivalents and short-term investments were $4.51 billion and unearned revenue was $2.71 billion as of December 31, 2011.

U.S. revenues for 2011 grew 26% to $1.82 billion from 2010. International revenues grew 38% to $1.94 billion from 2010.

License revenues for 2011 were $1.84 billion, an increase of 31% from 2010. Service revenues, which include software maintenance and professional services, were $1.93 billion for 2011, an increase of 32% from 2010.

"The quarter's strong performance further signals that virtualization is the foundation for simplifying and automating IT," said Paul Maritz, chief executive officer, VMware. "As customers continue to drive significant IT transformation, our task remains in providing solutions that go beyond cost reduction, yielding business and competitive value."

"We are pleased with our record fourth quarter results," said Mark Peek, chief financial officer, VMware. "Our investments over the years have clearly paid off and we will continue to take advantage of long-term opportunities ahead. First quarter 2012 revenues are expected to be in the range of $1.015 and $1.040 billion, an increase of 20% to 23% from the first quarter 2011. Annual 2012 revenues are expected to be in the range of $4.475 and $4.6 billion, an increase of 19% to 22% from 2011, and annual license revenues are expected to grow between 11% and 16%."

Recent Highlights & Strategic Announcements

  • In October 2011, VMware unveiled three product suites designed to simplify and automate IT management. With significant enhancements to VMware® vCenter Operations™ and the introduction of new VMware® vFabric Application Management™ and VMware® IT Business Management suites, VMware will help customers amplify the value of their virtual environments and achieve the agility and economics of cloud computing.

  • VMware announced VMware vCenter™ Protect Essentials Plus™, a complete on-premise management system designed to meet the needs of the small and midsize businesses (SMBs) and enhancements to its VMware Go Pro™ service, simplifying IT management for SMBs.

  • VMware announced VMware® Horizon Mobile, a simple way for IT departments to securely provision, manage and de-provision a corporate mobile workspace to an employee's Android device over-the-air, while enabling the employee to retain the privacy and control of their personal mobile environments. VMware Horizon Mobile is expected to be available in early 2012.

  • In December 2011, VMware announced new VMware View™ Clients for Kindle Fire, Mac and Linux, along with updates to its popular VMware View Clients for Android and iPad. The new VMware View Clients for Mac and Linux enable IT organizations to empower more agile, productive and connected workforce or school communities by providing an easy-to-access, high-fidelity desktop virtualization experience optimized for the device of their choice. The new VMware View™ Clients for Mac and Linux are expected to be available in early 2012.

VMware plans to host a conference call today to review its fourth quarter and 2011 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.

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 2011 revenues of $3.77 billion, VMware has more than 300,000 customers and 25,000 partners. The company is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com.

VMware, VMware vCenter Operations, VMware vFabric Application Management, VMware vCenter Protect Essentials Plus, VMware View and VMware Go Pro are registered trademarks or trademarks of VMware, Inc. in the United States and/or 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 VMware's expected first quarter and annual 2012 revenues and annual 2012 license revenue growth, the expected transformation of IT and the role and value proposition of virtualization and VMware solutions in the IT transformation, our ability to take advantage of long-term opportunities, the value to customers and the prospect of customer adoption of our new product suites, and the expected features and benefits and availability of VMware Horizon Mobile and VMware View Clients for Mac and Linux. 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 or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization and cloud computing markets, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements, beta programs and product promotions that can cause revenue recognition of certain orders to be deferred; (v) our customers' ability to develop, and to transition to, new products and computing strategies such as cloud computing and desktop virtualization; (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 and market changes in virtualization software and platforms for cloud and desktop computing; (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) our ability to protect our proprietary technology; (xii) our ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; and (xiv) fluctuating currency exchange rates. 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 our 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 CASH FLOWS
                              (in thousands)
                                (unaudited)

                          For the Three Months
                                  Ended              For the Year Ended
                              December 31,              December 31,
                        ------------------------  ------------------------
                            2011         2010         2011         2010
                        -----------  -----------  -----------  -----------

Operating activities:
Net income              $   200,428  $   119,880  $   723,936  $   357,439
Adjustments to
 reconcile net income
 to net cash provided
 by operating
 activities:
  Depreciation and
   amortization              86,228       77,090      315,871      260,551
  Stock-based
   compensation,
   excluding amounts
   capitalized               80,759       86,501      335,153      291,691
  Excess tax benefits
   from stock-based
   compensation             (26,811)     (56,253)    (224,503)    (223,457)
  Gain on sale of
   Terremark investment          --           --      (56,000)          --
  Other                      10,626        6,963       21,420       13,083 
  Changes in assets and
   liabilities, net of
   acquisitions:
      Accounts
       receivable          (336,123)    (236,362)    (263,366)     (77,121)
      Other assets           15,576        3,999      (75,879)     (79,431)
      Due to/from EMC,
       net                  (61,310)     (44,439)     (18,370)     (28,508)
      Accounts payable       (3,960)       4,292      (16,513)       8,881
      Accrued expenses      100,353       92,353      115,025      120,880
      Income taxes
       receivable from
       EMC                   23,018           --       269,258        2,508
      Income taxes
       payable               27,261       46,618       79,183       89,439
      Deferred income
       taxes, net           (28,936)     (48,513)     (19,663)     (56,948)
      Unearned revenue      474,300      354,486      840,081      495,382
                        -----------  -----------  -----------  -----------
Net cash provided by
 operating activities       561,409      406,615    2,025,633    1,174,389
                        -----------  -----------  -----------  -----------

Investing activities:
Additions to property
 and equipment              (52,911)     (40,450)    (230,091)    (131,695)
Purchase of leasehold
 interest                        --           --      (151,083)         --
Capitalized software
 development costs               --      (15,955)     (73,998)     (64,149)
Purchases of available-
 for-sale securities       (584,397)    (477,201)  (2,667,888)  (2,101,907)
Sales of available-for-
 sale securities            208,058      265,033      816,351      389,251
Maturities of
 available-for-sale
 securities                 249,706       96,160      974,413      127,054
Sale of strategic
 investments                     --           --       78,513        2,648
Business acquisitions,
 net of cash acquired            --           --     (303,610)    (292,970)
Transfer of net assets
 under common control            --      (10,580)     (22,393)    (185,580)
Other investing                (815)      (4,800)     (31,187)      (4,594)
                        -----------  -----------  -----------  -----------
Net cash used in
 investing activities      (180,359)    (187,793)  (1,610,973)  (2,261,942)
                        -----------  -----------  -----------  -----------

Financing activities:
Proceeds from issuance
 of common stock             52,332       75,460      337,618      431,306
Repurchase of common
 stock                      (35,287)     (52,587)    (526,203)    (338,527)
Excess tax benefits
 from stock-based
 compensation                26,811       56,253      224,503      223,457
Shares repurchased for
 tax withholdings on
 vesting of restricted
 stock                      (18,979)     (16,063)    (123,787)     (86,179)
                        -----------  -----------  -----------  -----------
Net cash provided by
 (used in) financing
 activities                  24,877       63,063      (87,869)     230,057
                        -----------  -----------  -----------  -----------
Net increase (decrease)
 in cash and cash
 equivalents                405,927      281,885      326,791     (857,496)
Cash and cash
 equivalents at
 beginning of the
 period                   1,549,829    1,347,080    1,628,965    2,486,461
                        -----------  -----------  -----------  -----------
Cash and cash
 equivalents at end of
 the period             $ 1,955,756  $ 1,628,965  $ 1,955,756  $ 1,628,965
                        ===========  ===========  ===========  ===========




                               VMware, Inc.

                     CONSOLIDATED STATEMENTS OF INCOME
                 (in thousands, except per share amounts)
                                (unaudited)                                

                             For the Three Months
                                     Ended            For the Year Ended
                                 December 31,            December 31,
                            ----------------------  ----------------------
                               2011        2010        2011        2010
                            ----------  ----------  ----------  ----------

Revenues:
      License               $  513,767  $  422,343  $1,841,169  $1,401,424
      Services                 546,535     413,318   1,925,927   1,455,919
                            ----------  ----------  ----------  ----------
                             1,060,302     835,661   3,767,096   2,857,343
Operating expenses (1):
      Cost of license
       revenues                 56,389      50,735     207,398     177,458
      Cost of services
       revenues                110,485      89,616     414,589     316,257
      Research and
       development             216,992     177,671     775,051     652,968
      Sales and marketing      385,236     313,045   1,334,346   1,013,281
      General and
       administrative           77,144      73,980     300,541     269,386
                            ----------  ----------  ----------  ----------
Operating income               214,056     130,614     735,171     427,993
Investment income                4,685       2,604      16,157       6,633
Interest expense with EMC       (1,060)       (966)     (3,906)     (4,069)
Other income (expense), net     (8,815)     (7,205)     46,991     (14,182)
                            ----------  ----------  ----------  ----------
Income before income taxes     208,866     125,047     794,413     416,375
Income tax provision             8,438       5,167      70,477      58,936
                            ----------  ----------  ----------  ----------
Net income                  $  200,428  $  119,880  $  723,936  $  357,439
                            ==========  ==========  ==========  ==========

Net income per weighted-
 average share, basic for
 Class A and Class B        $     0.47  $     0.29  $     1.72  $     0.87

Net income per weighted-
 average share, diluted for
 Class A and Class B        $     0.46  $     0.28  $     1.68  $     0.84

Weighted-average shares,
 basic for Class A and
 Class B                       422,873     414,919     421,188     409,805
Weighted-average shares,
 diluted for Class A and
 Class B                       431,375     427,883     431,750     423,446

(1) Includes stock-based
     compensation as follows:
      Cost of license
       revenue              $      335  $      483  $    1,606  $    1,653
      Cost of services
       revenues                  5,993       5,877      23,389      18,478
      Research and
       development              39,643      47,143     174,264     164,435
      Sales and marketing       25,138      23,545      95,688      73,146
      General and
       administrative            9,650       9,453      40,206      33,979




                                VMware, Inc.

                        CONSOLIDATED BALANCE SHEETS
                  (in thousands, except per share amounts)
                                (unaudited)

                                                 December 31,  December 31,
                                                     2011          2010
                                                ------------- -------------

                     ASSETS
Current assets:
    Cash and cash equivalents                   $   1,955,756 $   1,628,965
    Short-term investments                          2,556,450     1,694,675
    Accounts receivable, net of allowance for
     doubtful accounts of $3,794 and $4,519           882,857       614,726
    Due from EMC, net                                  73,799        55,481
    Deferred tax asset                                128,471       100,689
    Other current assets                               80,439       203,119
                                                ------------- -------------
Total current assets                                5,677,772     4,297,655
Property and equipment, net                           525,490       419,065
Capitalized software development costs, net and
 other                                                154,236       151,945
Deferred tax asset                                    156,855       149,126
Intangible assets, net                                407,375       210,928
Goodwill                                            1,759,080     1,568,600
                                                ------------- -------------
      Total assets                              $   8,680,808 $   6,797,319
                                                ============= =============

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                            $      49,747 $      58,913
    Accrued expenses and other                        587,650       459,813
    Unearned revenues                               1,764,109     1,270,426
                                                ------------- -------------
Total current liabilities                           2,401,506     1,789,152
Note payable to EMC                                   450,000       450,000
Unearned revenues                                     944,309       589,668
Other liabilities                                     114,711       160,056
                                                ------------- -------------
    Total liabilities                               3,910,526     2,988,876
Commitments and contingencies
Stockholders' equity:
  Class A common stock, par value $.01;
   authorized 2,500,000 shares; issued and
   outstanding 123,610 and 116,701 shares               1,236         1,167
  Class B convertible common stock, par value
   $.01; authorized 1,000,000 shares; issued
   and outstanding 300,000 shares                       3,000         3,000
  Additional paid-in capital                        3,212,264     2,955,971
  Accumulated other comprehensive income                1,176        19,635
  Retained earnings                                 1,552,606       828,670
                                                ------------- -------------
    Total stockholders' equity                      4,770,282     3,808,443
                                                ------------- -------------
      Total liabilities and stockholders'
       equity                                   $   8,680,808 $   6,797,319
                                                ============= =============





                               VMware, Inc.

                  RECONCILIATION OF GAAP TO NON-GAAP DATA
               For the Three Months Ended December 31, 2011
                 (in thousands, except per share amounts)
                                (unaudited)


                                                     Employer
                                                     Payroll
                                                     Taxes on
                                           Stock-    Employee
                                           Based      Stock
                                          Compen-     Trans-    Intangible
                               GAAP       sation      actions  Amortization
                            ----------  ----------  ----------  ----------

Operating expenses:
Cost of license revenues    $   56,389        (335)        (27)    (13,187)
Cost of services revenues   $  110,485      (5,993)       (160)     (1,241)
Research and development    $  216,992     (39,643)     (1,486)       (796)
Sales and marketing         $  385,236     (25,138)       (867)     (2,866)
General and administrative  $   77,144      (9,650)       (383)        (37)

Operating income            $  214,056      80,759       2,923      18,127
Operating margin                  20.2%        7.6%        0.3%        1.7%

Income before income taxes  $  208,866      80,759       2,923      18,127

Income tax provision        $    8,438
Tax rate                           4.0%

Net income                  $  200,428      80,759       2,923      18,127

Net income per
 weighted-average share,
 basic for Class A and
 Class B (3)                $     0.47  $     0.19  $     0.01  $     0.04

Net income per
 weighted-average share,
 diluted for Class A and
 Class B (4)                $     0.46  $     0.19  $     0.01  $     0.04

table continued below

                                        Capitalized
                           Acquisition   Software
                             Related    Development     Tax      Non-GAAP,
                            Items and     Costs      Adjustment     as
                              Other        (1)          (2)      adjusted
                            ----------  ----------  ----------  ----------

Operating expenses:
Cost of license revenues            --     (22,042)         --  $   20,798
Cost of services revenues           --          --          --  $  103,091
Research and development            --          --          --  $  175,067
Sales and marketing                 --          --          --  $  356,365
General and administrative        (197)         --          --  $   66,877

Operating income                   197      22,042          --  $  338,104
Operating margin                    --         2.1%         --        31.9%

Income before income taxes         197      22,042          --  $  332,914

Income tax provision                                    58,145  $   66,583
Tax rate                                                              20.0%

Net income                         197      22,042     (58,145) $  266,331

Net income per
 weighted-average share,
 basic for Class A and
 Class B (3)                $       --  $     0.06  $    (0.14) $     0.63

Net income per
 weighted-average share,
 diluted for Class A and
 Class B (4)                $       --  $     0.05  $    (0.13) $     0.62


(1)  For the fourth quarter of 2011, no costs were capitalized for the
development of software products. Amortization expense from previously
capitalized amounts was $22.0 million for the fourth quarter of 2011.


(2) Non-GAAP financial information for the quarter is adjusted for a tax
rate equal to our annual estimated tax rate on non-GAAP income. This rate
is based on our estimated annual GAAP income tax rate forecast, adjusted to
account for items excluded from GAAP income in calculating the non-GAAP
financial measures presented above. Our estimated tax rate on non-GAAP
income is determined annually and may be adjusted during the year to take
into account events or trends that we believe materially impact the
estimated annual rate including, but not limited to, significant changes
resulting from tax legislation, material changes in the geographic mix of
revenues and expenses and other significant events. Due to the differences
in the tax treatment of items excluded from non-GAAP earnings, as well as
the methodology applied to our estimated annual tax rates as described
above, our estimated tax rate on non-GAAP income may differ from our GAAP
tax rate and from our actual tax liabilities.

(3) Calculated based upon 422,873 basic weighted-average shares for Class A
and Class B.

(4) Calculated based upon 431,375 diluted weighted-average shares for Class
A and Class B.




                               VMware, Inc.

                  RECONCILIATION OF GAAP TO NON-GAAP DATA
               For the Three Months Ended December 31, 2010
                 (in thousands, except per share amounts)
                                (unaudited)

                                           Employer
                                           Payroll
                                            Taxes
                                              on
                                 Stock-    Employee            Acquisition
                                 Based      Stock                Related
                                Compen-    Trans-   Intangible  Items and
                       GAAP     sation     actions  Amortization  Other
                     --------  ---------  ---------  --------- ----------

Operating expenses:
Cost of license
 revenues            $ 50,735       (483)       (21)    (8,375)         -
Cost of services
 revenues            $ 89,616     (5,877)      (228)    (1,471)         -
Research and
 development         $177,671    (47,143)    (3,299)      (627)         -
Sales and marketing  $313,045    (23,545)    (1,496)    (1,664)         -
General and
 administrative      $ 73,980     (9,453)      (342)       (38)      (325)

Operating income     $130,614     86,501      5,386     12,175        325
Operating margin         15.6%      10.4%       0.6%       1.5%         -
                                                                          
Income before income
 taxes               $125,047     86,501      5,386     12,175        325

Income tax provision $  5,167
Tax rate                  4.1%

Net income           $119,880     86,501      5,386     12,175        325

Net income per
 weighted-average
 share, basic for
 Class A and
 Class B (3)        $   0.29  $    0.21  $    0.01  $    0.03 $        -

Net income per
 weighted-average
 share, diluted for
 Class A and
  Class B (4)       $   0.28  $    0.20  $    0.01  $    0.03 $        -


table continued below


                                 Stock-
                                  Based
                              Compensation
                                Included
                    Capitalized    in
                      Software Capitalized   Tax      Non-GAAP,
                    Development Software   Adjustment    as
                     Costs (1) Development    (2)     adjusted
                    ---------- ---------- ---------- ----------

Operating expenses:
Cost of license
 revenues              (28,465)         -          - $   13,391
Cost of services
 revenues                    -          -          - $   82,040
Research and
 development            18,776     (2,821)         - $  142,557
Sales and marketing          -          -          - $  286,340
General and
 administrative              -          -          - $   63,822

Operating income         9,689      2,821          - $  247,511
Operating margin           1.2%       0.3%         -       29.6%

Income before income
 taxes                   9,689      2,821          - $  241,944

Income tax provision                          38,383 $   43,550
Tax rate                                                   18.0%

Net income               9,689      2,821    (38,383)$  198,394

Net income per
 weighted-average
 share, basic for
 Class A and
 Class B (3)        $     0.02 $     0.01 $    (0.09)$     0.48

Net income per
 weighted-average
 share, diluted for
 Class A and
 Class B (4)        $     0.02 $     0.01 $    (0.09)$     0.46


(1) For the fourth quarter of 2010, we capitalized $18.8
million (including $2.8 million of stock-based compensation)
of costs incurred for the development of software products.
Amortization expense from capitalized amounts was $28.5
million for the fourth quarter of 2010.

(2) Non-GAAP financial information for the quarter is adjusted
for a tax rate equal to our annual estimated tax rate on non-
GAAP income. This rate is based on our estimated annual GAAP
income tax rate forecast, adjusted to account for items
excluded from GAAP income in calculating the non-GAAP
financial measures presented above. Our estimated tax rate on
non-GAAP income is determined annually and may be adjusted
during the year to take into account events or trends that we
believe materially impact the estimated annual rate including,
but not limited to, significant changes resulting from tax
legislation, material changes in the geographic mix of
revenues and expenses and other significant events. Due to the
differences in the tax treatment of items excluded from non-
GAAP earnings, as well as the methodology applied to our
estimated annual tax rates as described above, our estimated
tax rate on non-GAAP income may differ from our GAAP tax rate
and from our actual tax liabilities.

(3) Calculated based upon 414,919 basic weighted-average shares
for Class A and Class B.

(4) Calculated based upon 427,883 diluted weighted-average
shares for Class A and Class B.




                               VMware, Inc.

                  RECONCILIATION OF GAAP TO NON-GAAP DATA
                   For the Year Ended December 31, 2011
                 (in thousands, except per share amounts)
                                (unaudited)


                                              Employer
                                              Payroll
                                             Taxes on
                                     Stock-  Employee          Acquisition
                                     Based    Stock   Intangible  Related
                                    Compen-  Trans-     Amor-   Items and
                           GAAP     sation    actions   tization   Other
                       -----------  --------  --------  --------  --------

Operating expenses:
Cost of license
 revenues              $   207,398    (1,606)     (120)  (46,074)     --
Cost of services
 revenues              $   414,589   (23,389)   (1,368)   (4,967)     --
Research and
 development           $   775,051  (174,264)   (9,724)   (3,187)     --
Sales and marketing    $ 1,334,346   (95,688)   (5,577)  (10,213)     --
General and
 administrative        $   300,541   (40,206)   (1,580)     (145)   (2,423)

Operating income       $   735,171   335,153    18,369    64,586     2,423
Operating margin              19.5%      8.9%      0.5%      1.7%      0.1%

Other income
 (expense), net        $    46,991

Income before income
 taxes                 $   794,413   335,153    18,369    64,586     2,423

Income tax provision   $    70,477
Tax rate                       8.9%

Net income             $   723,936   335,153    18,369    64,586     2,423

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (4)                   $      1.72  $   0.80  $   0.04  $   0.15  $   0.01

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (5)                   $      1.68  $   0.78  $   0.04  $   0.15  $   0.01


table continued below

                                     Stock-
                                     Based
                                  Compensation
                                    Included
                                    in Capit-
                       Capitalized   alized   Gain on
                         Software   Software  Sale of     Tax     Non-GAAP,
                       Development  Develop-  Terremark Adjust-      as
                         Costs (1)    ment    (2)       ment (3)  adjusted
                       -----------  --------  --------  --------  ---------

Operating expenses:
Cost of license
 revenues                  (84,741)     --        --        --  $  74,857
 Cost of services
 revenues                     --        --        --        --  $ 384,865
Research and
 development                86,426   (12,428)     --        --  $ 661,874
Sales and marketing           --        --        --        --  $1,222,868
General and
 administrative               --        --        --        --  $  256,187

Operating income            (1,685)   12,428      --        --  $1,166,445
Operating margin              --         0.3%     --        --        31.0%

Other income
 (expense), net                                (56,000)             (9,009)

Income before income
 taxes                      (1,685)   12,428   (56,000)     --  $1,169,687

Income tax provision                                    163,459 $  233,936
Tax rate                                                              20.0%

Net income                  (1,685)   12,428   (56,000)(163,459)$  935,751

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (4)                   $     (0.01) $   0.03  $  (0.13) $ (0.39)$     2.22

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (5)                   $     (0.01) $   0.03  $  (0.13) $ (0.38)$     2.17


(1)  For the year ended December 31, 2011, we capitalized $86.4 million
(including $12.4 million of stock-based compensation) of costs incurred for
the development of software products. Amortization expense from capitalized
amounts was $84.7 million for the year ended December 31, 2011.

(2) VMware realized a gain of $56.0 million on the sale of its investment
in Terremark Worldwide, Inc.

(3) Non-GAAP financial information for the quarter is adjusted for a tax
rate equal to our annual estimated tax rate on non-GAAP income. This rate
is based on our estimated annual GAAP income tax rate forecast, adjusted to
account for items excluded from GAAP income in calculating the non-GAAP
financial measures presented above. Our estimated tax rate on non-GAAP
income is determined annually and may be adjusted during the year to take
into account events or trends that we believe materially impact the
estimated annual rate including, but not limited to, significant changes
resulting from tax legislation, material changes in the geographic mix of
revenues and expenses and other significant events. Due to the differences
in the tax treatment of items excluded from non-GAAP earnings, as well as
the methodology applied to our estimated annual tax rates as described
above, our estimated tax rate on non-GAAP income may differ from our GAAP
tax rate and from our actual tax liabilities.

(4) Calculated based upon 421,188 basic weighted-average shares for Class A
and Class B.

(5) Calculated based upon 431,750 diluted weighted-average shares for Class
A and Class B.





                               VMware, Inc.

                  RECONCILIATION OF GAAP TO NON-GAAP DATA
                   For the Year Ended December 31, 2010
                 (in thousands, except per share amounts)
                                (unaudited)


                                              Employer
                                              Payroll
                                             Taxes on
                                     Stock-   Employee         Acquisition
                                     Based    Stock   Intangible  Related
                                    Compen-  Transact-  Amor-    Items and
                           GAAP     sation     ions     tization   Other
                       -----------  --------  --------  --------  --------

Operating expenses:
Cost of license
 revenues              $   177,458    (1,653)      (84)  (23,785)     --
Cost of services
 revenues              $   316,257   (18,478)     (791)   (4,670)     --  
Research and
 development           $   652,968  (164,435)   (9,101)   (2,354)     --
Sales and marketing    $ 1,013,281   (73,146)   (4,633)   (3,797)     --
General and
 administrative        $   269,386   (33,979)   (1,689)     (152)   (3,499)

Operating income       $   427,993   291,691    16,298    34,758     3,499
Operating margin              15.0%     10.2%      0.6%      1.2%      0.1%

Income before income
 taxes                 $   416,375   291,691    16,298    34,758     3,499

Income tax provision   $    58,936
Tax rate                      14.2%

Net income             $   357,439   291,691    16,298    34,758     3,499

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (3)                   $      0.87  $   0.71  $   0.04  $   0.08  $   0.01

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (4)                   $      0.84  $   0.69  $   0.04  $   0.08  $   --


table continues below

                                     Stock-
                                     Based
                                  Compensation
                                    Included
                                    in Capit-
                       Capitalized   alized
                         Software   Software  Tax       Non-GAAP,
                       Development  Develop-  Adjust-      as
                         Costs (1)    ment    ment (2)  adjusted
                       -----------  --------  --------  --------

Operating expenses:
Cost of license
 revenues                  (99,522)     --        --    $  52,414
Cost of services
 revenues                     --        --        --    $ 292,318
Research and
 development                71,666   (10,924)     --    $ 537,820

Sales and marketing           --        --        --    $ 931,705
General and
 administrative               --        --        --    $ 230,067


Operating income            27,856    10,924      --    $ 813,019
Operating margin               1.0%      0.4%     --         28.5%

Income before income
 taxes                      27,856    10,924      --    $ 801,401


Income tax provision                           103,558  $ 162,494
Tax rate                                                    20.3%


Net income                  27,856    10,924  (103,558) $ 638,907

Net income per
 weighted-average
 share, basic for
 Class A and Class B
 (3)                   $      0.07  $   0.03  $  (0.25) $   1.56

Net income per
 weighted-average
 share, diluted for
 Class A and Class B
 (4)                   $      0.07  $   0.03  $  (0.24) $   1.51


(1)  For the year ended December 31 2010, we capitalized $71.7 million
(including $10.9 million of stock-based compensation) of costs incurred for
the development of software products. Amortization expense from capitalized
amounts was $99.5 million for the year ended December 31, 2010.

(2) Non-GAAP financial information for the quarter is adjusted for a tax
rate equal to our annual estimated tax rate on non-GAAP income. This rate
is based on our estimated annual GAAP income tax rate forecast, adjusted to
account for items excluded from GAAP income in calculating the non-GAAP
financial measures presented above. Our estimated tax rate on non-GAAP
income is determined annually and may be adjusted during the year to take
into account events or trends that we believe materially impact the
estimated annual rate including, but not limited to, significant changes
resulting from tax legislation, material changes in the geographic mix of
revenues and expenses and other significant events. Due to the differences
in the tax treatment of items excluded from non-GAAP earnings, as well as
the methodology applied to our estimated annual tax rates as described
above, our estimated tax rate on non-GAAP income may differ from our GAAP
tax rate and from our actual tax liabilities.

(3) Calculated based upon 409,805 basic weighted-average shares for Class A
and Class B.

(4) Calculated based upon 423,446 diluted weighted-average shares for Class
A and Class B.




                               VMware, Inc.

                              REVENUE BY TYPE
                              (in thousands)
                                (unaudited)


                          For the Three Months
                                  Ended              For the Year Ended
                              December 31,              December 31,
                        ------------------------  ------------------------
                            2011         2010         2011         2010
                        -----------  -----------  -----------  -----------

Revenues:
  License               $   513,767  $   422,343  $ 1,841,169  $ 1,401,424
  Services:
    Software
     maintenance            463,489      345,260    1,640,397    1,217,064
    Professional
     services                83,046       68,058      285,530      238,855
                        -----------  -----------  -----------  -----------
  Total services            546,535      413,318    1,925,927    1,455,919
                        -----------  -----------  -----------  -----------
                        $ 1,060,302  $   835,661  $ 3,767,096  $ 2,857,343
                        ===========  ===========  ===========  ===========


Percentage of revenues:
  License                      48.5%        50.5%        48.9%        49.0%
  Services:
    Software
     maintenance               43.7%        41.3%        43.5%        42.6%
    Professional
     services                   7.8%         8.2%         7.6%         8.4%
                        -----------  -----------  -----------  -----------
  Total services               51.5%        49.5%        51.1%        51.0%
                        -----------  -----------  -----------  -----------
                              100.0%       100.0%       100.0%       100.0%
                        ===========  ===========  ===========  ===========




                               VMware, Inc.

        RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES
                            TO FREE CASH FLOWS
                      (A NON-GAAP FINANCIAL MEASURE)
          For the Three Months Ended December 31, 2011 and 2010
                              (in thousands)
                                (unaudited)


                                                    For the Three Months
                                                            Ended
                                                        December 31,
                                                  ------------------------
                                                      2011         2010
                                                  -----------  -----------

GAAP cash flows from operating activities         $   561,409  $   406,615
Capitalized software development costs                      -      (15,955)
Excess tax benefits from stock-based compensation      26,811       56,253
Capital expenditures                                  (52,911)     (40,450)
                                                  -----------  -----------
Free cash flows                                   $   535,309  $   406,463
                                                  ===========  ===========




                               VMware, Inc.

        RECONCILIATION OF GAAP CASH FLOWS FROM OPERATING ACTIVITIES
                            TO FREE CASH FLOWS
                      (A NON-GAAP FINANCIAL MEASURE)
              For the Year Ended December 31, 2011 and 2010
                              (in thousands)
                                (unaudited)


                                                     For the Year Ended
                                                        December 31,
                                                  ------------------------
                                                      2011         2010
                                                  -----------  -----------

GAAP cash flows from operating activities         $ 2,025,633  $ 1,174,389
Capitalized software development costs                (73,998)     (64,149)
Excess tax benefits from stock-based compensation     224,503      223,457
Capital expenditures                                 (230,091)    (131,695)
                                                  -----------  -----------
Free cash flows                                   $ 1,946,047  $ 1,202,002
                                                  ===========  ===========

About Non-GAAP Financial Measures
To provide investors and others with additional information regarding VMware's results, we have disclosed in this press release the following non-GAAP financial measures: non-GAAP operating income, non-GAAP net income, non-GAAP operating margin, free cash flows and trailing twelve-month free cash flows. VMware has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. These non-GAAP financial measures differ from GAAP in that they exclude stock-based compensation, employer payroll tax on employee stock transactions, amortization of intangible assets, acquisition related items, the net effect of the amortization and capitalization of software development costs and the gain that VMware realized upon its sale of its investment in Terremark Worldwide, Inc. during the second quarter of fiscal 2011, each as discussed below.

VMware's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, to calculate bonus payments and to evaluate VMware's financial performance, the performance of its individual functional groups and the ability of operations to generate cash. Management believes these non-GAAP financial measures reflect VMware's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in VMware's business, as they exclude expenses and gains that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating VMware's operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Additionally, management believes information regarding free cash flows provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to repurchase shares, to fund ongoing operations and to fund other capital expenditures.

Management believes these non-GAAP financial measures are useful to investors and others in assessing VMware's operating performance due to the following factors:

  • Stock-based compensation. Although stock-based compensation is an important aspect of the compensation of VMware's employees and executives, determining the fair value of certain of the stock-based instruments we utilize involves a high degree of judgment and estimation and the expense recorded may bear little resemblance to the actual value realized upon the vesting, future exercise or termination of the related stock-based awards. Furthermore, unlike cash compensation, the value of stock options, which is an element of our ongoing stock-based compensation expense, is determined using a complex formula that incorporates factors, such as market volatility, that are beyond our control. Management believes it is useful to exclude stock-based compensation in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies. In addition, we account for stock-based compensation under GAAP, which requires that we report the excess income tax benefit from stock-based compensation as a financing cash flow rather than as an operating cash flow. We have added this benefit back to our calculation of free cash flows in order to generally classify cash flows arising from income taxes as operating cash flows.

  • Employer payroll tax on employee stock transactions. The amount of employer payroll taxes on stock-based compensation is dependent on VMware's stock price and other factors that are beyond our control and do not correlate to the operation of the business.

  • Amortization of intangible assets. A portion of the purchase price of VMware's acquisitions is generally allocated to intangible assets, such as intellectual property, and is subject to amortization. However, VMware does not acquire businesses on a predictable cycle. Additionally, the amount of an acquisition's purchase price allocated to intangible assets and the term of its related amortization can vary significantly and are unique to each acquisition. Therefore, VMware believes that the presentation of non-GAAP financial measures that adjust for the amortization of intangible assets, provides investors and others with a consistent basis for comparison across accounting periods.

  • Acquisition related items. Acquisition related items include direct costs of acquisitions, such as transaction fees, which vary significantly and are unique to each acquisition. Additionally, VMware does not acquire businesses on a predictable cycle.

  • Capitalized software development costs. Capitalized software development costs encompasses capitalization of development costs and the subsequent amortization of the capitalized costs over the useful life of the product. Amortization and capitalization of software development costs can vary significantly depending upon the timing of products reaching technological feasibility and being made generally available. In addition, we exclude the capitalization of software from our free cash flows to better convey management's view of operating cash flows. To the extent that we capitalize costs under generally accepted accounting guidance, we increase our GAAP operating cash flows due to f the reduced expense recognized within net income and paid out in cash during the period.

  • Gain on sale of Terremark investment. In the second quarter of 2011, we sold our investment in Terremark Worldwide, Inc., which was acquired by Verizon in a cash transaction, and realized a gain of $56.0 million. Our investment in Terremark was made in connection with a business and technical collaboration and was not made to seek an investment gain or to fund our business operations. To the extent that sizeable gains or losses are realized on such investments, they do not occur on a predictable cycle. Additionally, the timing of the event that triggered our divestment and whether or not we realized a gain or loss, was not under our control.

  • Tax Adjustment. Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-GAAP income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating our non-GAAP income. Our estimated tax rate on non-GAAP income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-GAAP earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-GAAP income may differ from our GAAP tax rate and from our actual tax liabilities.

Additionally, we believe that the non-GAAP financial measure, free cash flows, is meaningful to investors because we review cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations. As discussed above, we also exclude capitalization of software development costs and the excess income tax benefit from stock-based compensation from our measure of free cash flows.

The use of non-GAAP financial measures has certain limitations because they do not reflect all items of income and expense that affect VMware's operations. Specifically, in the case of stock-based compensation, if VMware did not pay out a portion of its compensation in the form of stock-based compensation and related employer payroll taxes, the cash salary expense included in costs of revenues and operating expenses would be higher, which would affect VMware's cash position. VMware compensates for these limitations by reconciling the non-GAAP financial measures to the most comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP and should not be considered measures of VMware's liquidity. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review VMware's financial information in its entirety and not rely on a single financial measure.

Revenue Growth in Constant Currency

We have invoiced and collected in the Euro, the British Pound, the Japanese Yen, and the Australian Dollar in their respective regions since May 2009. As a result, our total revenues are affected by changes in the U.S. Dollar against these currencies. In order to provide a comparable framework for assessing how our business performed excluding the effect of foreign currency fluctuations, management analyzes year-over-year revenue growth on a constant currency basis. Since all of our entities operate with the U.S. Dollar as their functional currency, unearned revenues for orders booked in currencies other than U.S. Dollars are converted into U.S. Dollars at the exchange rate in effect for the month in which each order is booked We calculate constant currency on license revenues recognized during the current period that were originally booked in currencies other than U.S. Dollars by comparing the exchange rates at which the revenue was recognized against the exchange rate that was used in the comparable period. We do not calculate constant currency on services revenues, which include software maintenance revenues and professional services revenues.

Contact Information