VMware Inc. (VMW) has agreed to pay a civil monetary penalty of $8 million without admitting or denying the Securities and Exchange Commission's findings, which related to the company's backlog disclosures in public filings for its 2019 and 2020 fiscal years. The fiscal years ran from February 3, 2018 through January 31, 2020.
The SEC charged VMware for misleading investors about its order backlog management practices, which enabled the Palo Alto, California-based technology company to push revenue into future quarters by delaying product deliveries to customers, concealing the company's slowing performance relative to its projections.
The SEC's order found that, 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.
The company noted the SEC's findings do not include any findings that thecCompany failed to comply with generally accepted accounting principles. The SEC Staff has confirmed that it does not intend to recommend enforcement action against any current or former VMware officers or other member of management in connection with the investigation, and the settlement concludes the matter.
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