
If You’re Gonna Keep Customers Waiting To Make Your Projections Look Good, You’re Gonna Have To Let Investors Know It
When a company solemnly intones that it manages order backlogs “based upon multiple considerations,” it seems likely that the thoughts of investors (and, indeed, the customers waiting for that backlog to be filled) don’t immediately race to “retrospectively making our projections look a bit more respectable and corresponding to reality than they otherwise would” as being among those considerations. Nor, for that matter, does the SEC’s, which is why VMWare’s next quarterly report will show an $8 million hole in the revenue it’s tried so hard to make look like it said it would.
Beginning in fiscal year 2019, VMware began delaying the delivery of license keys on some sales orders until just after quarter-end so that it could recognize revenue from the corresponding license sales in the following quarter. According to the SEC’s order, VMware shifted tens of millions of dollars in revenue into future quarters, building a buffer in those periods and obscuring the company’s financial performance as its business slowed relative to projections in fiscal year 2020. Although VMware publicly disclosed that its backlog was “managed based upon multiple considerations,” it did not reveal to investors that it used the backlog to manage the timing of the company’s revenue recognition.
SEC Charges VMware with Misleading Investors by Obscuring Financial Performance [press release]
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