) reported third-quarter 2013 non-GAAP earnings per share of 64
cents, beating the Zacks Consensus Estimate of 60 cents. The
company witnessed year-over-year growth in revenues. VMware
shares jumped 11.30% in after-hours trading.
Total revenue increased 13.7% from the year-ago quarter to
$1.29 billion and was in line the Zacks Consensus Estimate.
Reported revenues were toward the higher end of management's
guided range of $1.27 billion and 1.30 billion. Revenues
excluding Pivotal revenues and other divestitures increased
The year-over-year increase in revenues can be attributed to
higher service revenues and modest growth in license revenues.
Moreover, strong demand for VMware solutions across international
and domestic markets also helped revenues.
During the quarter, VMware secured five deals, each worth more
than $10.0 million. VMware introduced technologies such as VMware
NSX, VMware Virtual SAN, VMware vCloud Suite 5.5, and VMware
License revenues increased 14.9% from the year-ago quarter to
$564.0 million. Enterprise License Agreements (ELA) accounted for
approximately 33.0% of third-quarter bookings, comprising a mix
of new ELAs and renewals.
Service revenues surged 12.8% from the year-ago quarter to
$725.0 million. It includes two segments, namely Software
maintenance (up 16.9% year over year), and Professional services
(down 12.0% year over year).
Non-GAAP operating income (including stock-based compensation)
increased 38.4% from the year-ago quarter to $321.0 million,
while operating margins were up 440 basis points (bps) on a
year-over-year basis to 24.9%.
Operating margin (excluding stock-based compensation) was at
the high point of management's guided range of 32.5% to 34.0%
attributable to higher revenues and cost controlling
On a non-GAAP basis, operating expenses increased 6.0% year
over year to $1.0 billion. Including stock-based compensation,
operating expenses came in at $968.0 million.
Non-GAAP net income increased 44.4% from the year-ago quarter
to $277.4 million or 64 cents per share.
VMware exited the quarter with cash and cash equivalents
(including short-term investments) of $5.84 billion compared with
$5.32 billion in the previous quarter. Cash from operations was
$637.0 million versus $534.1 million in the previous quarter.
Free cash flow was $543.0 million.
During the quarter, VMware repurchased approximately 1.2
million shares for approximately $90 million at an average price
of $74 per share.
VMware expects fourth-quarter revenues to range between $1.45
billion and 1.48 billion, reflecting an increase of 12% to 14% on
a year-over-year basis. Moreover, revenues from license
agreements are expected to grow in the range of 12% to 16% to
For fiscal 2013, VMware has increased the high end of the
guidance range. VMware now expects revenues in the range of
$5.175 billion - $5.205 billion, reflecting 12.0% to 13.0%
growth. Excluding pivotal and other divestiture, revenues for
VMware is expected to increase in the range of 10% to 11%.
We believe that VMware's posted a modest third quarter result
with revenues matching the Zacks Consensus Estimate and earnings
beating the same. Moreover, the company's continues to perform
well in the International market.
However, we believe that sluggish North American and European
markets coupled with modest IT spending environment and stiff
competition from its peers such as
Computer Sciences Corp.
) are the headwinds, going forward.
Saturation of the server virtualization market is another
point of concern. Moreover, VMware's continued investments in the
emerging markets, product innovations and acquisitions are
expected to weigh on margins in the short term.
Currently, VMware has a Zacks Rank #4 (Sell).
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