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VMware, Inc. (VMW)
Q3 2009 Earnings Call
October 21, 2009 5:00 pm ET
Michael Haase - Vice President of Investor Relations
Mark S. Peek – Chief Financial Officer
Tod Neilsen - Chief Operating Officer
Paul Maritz - President and Chief Executive Officer
Heather Bellini - ISI Group
Kash Rangan - Merrill Lynch
Brian Marshall - Broadpoint AmTech
John Difucci - J.P. Morgan
Katherine Egbert - Jefferies & Company
Derek Bingham - Goldman Sachs
Adam Holt - Morgan Stanley
Unidentified Analyst - Morgan, Keegan & Company, Inc.
Bill Fearnley - FTN Equity Capital Markets
Keith Bachman - Bank of Montreal
Michael Turits - Raymond James
Good afternoon. Welcome to VMware's third quarter 2009 conference call. (Operator Instructions)
At this time I'd like to turn the call over Mike Haase, Vice President of Investor Relations. Mr. Haase, you may begin your conference.
Thank you, and welcome to VMware's third quarter 2009 earnings conference call.
Previous Statements by VMW
» VMware, Inc. Q2 2009 Earnings Call Transcript
» VMware, Inc. Q1 2009 Earnings Call Transcript
» VMware, Inc. Q4 2008 Earnings Call Transcript
This call is being simultaneously webcast on our website. Our press release was issued after close of market and is posted on the website.
Statements made on this call that are not statements of historical fact are forward-looking statements subject to safe harbor provisions. This includes statements with the words will, believes, expects, continues, and similar phrases that denote future expectation or intent. This includes but is not limited to statements regarding our financial outlook, future product offerings and future demand. These statements are based on current expectations as of the date of this call and are subject to uncertainties and changes in condition, significance, value and effects, as well as other risks detailed in documents filed with the SEC, including our quarterly report on Form 10-Q for the period ending June 30, 2009 that may cause actual results to differ materially from those set forth in our statements.
In addition, during today's call we will discuss certain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of VMware's performance, should be considered in addition to, not as a substitute for or in isolation from, GAAP measures. Our non-GAAP measures exclude the effects on our GAAP results of share-based compensation, amortization of intangible assets, employer payroll tax on employee stock transactions, the net effect of amortization and capitalization of software, and acquisition-related items. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures, in our earnings release for the period ended September 30, 2009 and on the Investor Relations page of our website.
The webcast replay of this call will be available for the next 30 days on our company website under the Investor Relations link.
Our fourth quarter quiet period begins at the close of business December 17, 2009.
Also, unless otherwise stated, all financial comparisons in this call will be in reference to our results for the comparable period of 2008.
With that, let's begin, and let me hand it over to Mark.
Mark S. Peek
Thanks, Mike. Good afternoon, and welcome to our third quarter earnings call. Let's start by summarizing where we are.
We had a solid third quarter. We were pleased with the U.S. federal sector, with transaction volumes and continued interest in ELAs, albeit smaller in size than we saw last year. We benefited from our operational change in local currency billing as the dollar weakened, and we had stronger than expected maintenance revenue recoveries. We delivered operating leverage from our top line results.
The macro environment has provided enough visibility so that we can increase our guidance for the fourth quarter. That said, it's important to underscore that we still remain cautious about the speed and pace of the economic recovery. When you listen carefully to economic views of the largest companies in the industry, there remains significant uncertainty as to how long the recovery will take and whether it'll be smooth and gradual or have bumps along the way. So while we welcome the improved short-term visibility in our business, we are still planning conservatively and assuming a slow recovery.
We're also pleased to see vSphere tracking well since our launch in May. We've seen customers both gravitating towards Enterprise Plus, our most feature-rich offering, and at the same time smaller customers purchasing Essentials and Essentials Plus. We also recently launched two new management products - vCenter Site Recovery Manager and vCenter CapacityIQ. Later this quarter we plan on launching our new View solution for desktop virtualization. Tod will cover these launches in more detail.
One of the real milestones of the quarter was closing our acquisition of SpringSource in September. We welcome the SpringSource employees to their first VMware earnings call.
Now the key financial headlines for the quarter: Revenues were $490 million. License revenues were $240 million. We achieved non-GAAP operating margins of 22.2%. Non-GAAP diluted EPS was $0.24 per share, driven by a $0.03 tax benefit not contemplated in our previous guidance. Non-GAAP operating cash flows were $199 million for the quarter and $898 million for the trailing 12 months. Free cash flows were $185 million for the quarter and $760 million for the trailing 12 months. Although we utilized $350 million to purchase SpringSource, we still have a very strong balance sheet, with $2.2 billion in cash and nearly $1 billion in deferred revenue.
Those are the headlines. Here are the details: Revenues for the third quarter were $490 million, which is an increase of 4% from a year ago and 7% sequentially. Our sales teams have executed well. Since adding general managers for each of our three regions, our decentralized decision making has enabled us to be more responsive to customer needs.