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VMware’s Cash and Cash Flow in 3Q18

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VMware’s cash and debt position in fiscal 3Q18

So far in this series, we’ve discussed VMware’s (VMW) fiscal 3Q18 results. Its top-line growth also trickled down to its bottom line in fiscal 3Q18. The market sentiment for VMware also improved due to its increased initiatives and strategic partnerships with Google (GOOG), Amazon (AMZN), and International Business Machines (IBM). Let’s have a look at VMware’s cash, debt, and cash flows to ascertain the strength of its balance sheet.

In 3Q18, VMware’s cash, cash equivalents, and short-term investments stood at $11.6 billion. It has $4.2 billion in total debt as of 3Q18, a majority of which is long-term. Notes payable to its parent company Dell were only $270 million. VMware made a debut in the bond market in August 2017.

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VMware’s improving cash flows

Operating cash flows in the quarter grew 56% on a YoY (year-over-year) basis to $970 million. After taking out $59 million of capex (capital expenditure), VMware’s FCF (free cash flow) stood at $911 million, an increase of 54%, and represented a 46% FCF margin.

Let’s look at which direction VMware’s FCF margins are headed. In fiscal 2018 to date, VMware has generated $2.2 billion in FCF. Considering YTD (year-to-date) fiscal 2018 revenues of $5.6 billion, that represents a 39% margin. In the prior year’s YTD period, it generated $1.8 billion of FCF on $5.1 billion of revenue, which translated to a 36% margin.

VMware’s cash flows are consistently improving due to its top-line growth and improvements in operating margins. A steady increase in cash flows, decent cash reserves, and low debt levels could indicate VMware’s potential in the future.

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