Vmware, Inc. (VMW)

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VMware, Inc. (VMW)

Q1 2010 Earnings Call Transcript

April 20, 2010 5:00 pm ET

Executives

Michael Haase – VP, IR & Treasury

Mark Peek – CFO

Tod Nielsen – COO

Paul Maritz – President & CEO

Analysts

Israel Hernandez – Barclays Capital

Brent Thill – UBS

Phil Winslow – Credit Suisse

John DiFucci –JPMorgan

Derek Bingham – Goldman Sachs

Adam Holt – Morgan Stanley

Heather Bellini – ISI

Walter Pritchard – Citigroup

Jonathan Doros – Raymond James

Tim Klasell – Thomas Weisel Partners

Shaul Eyal – Oppenheimer & Co.

Brent Williams – The Benchmark Company

Presentation

Operator

Good afternoon. Welcome to VMware’s first quarter 2010 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. At this time I’d like to turn the call over to Mr. Mike Haase, Vice President of Investor Relations. Mr. Haase, you may begin your conference.

Mr. Haase, we are unable to hear you at this time. Please check the mute function on your phone.

Michael Haase

– 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 effect as well as other risks detailed in documents filed with the Securities & Exchange Commission, including our Annual Report on Form 10-K for the period ending December 31st, 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 effect on our GAAP results of stock-based compensation, amortization of intangible assets, employer payroll tax and 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 March 31st, 2010 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 second quarter quiet period begins at the close of business June 16th, 2010. Also, unless otherwise stated all financial comparisons in this call will be in reference to our results for the comparable period of 2009.

With that, let me hand it over to Mark.

Mark Peek

Thanks, Mike, and good afternoon everyone. VMware had a great first quarter with record free cash flows, revenue, and operating profits. Our business was particularly strong in Europe, China, and Japan. The demand we witnessed in the December quarter somewhat unexpectedly carried over into the March quarter. We are not yet ready to assume that the world’s economy is robust and believe that w4e continue to benefit from pent up customer demand on the heels of a long dry period.

Our field execution was outstanding across the board and we are seeing the benefit of our international investments particularly in Japan and China. In Europe, we closed an eight-figure ELA that included over $8 million of license bookings. This is our largest ELS since Q1 2009.

We maintained strong discipline on product discounting and even though our mix shifted from Enterprise Plus towards the SMB focused vSphere packages, we were able to maintain our blended ASPs at similar levels to those in 2009. Customers continue to adopt the vSphere platform as a strategic investment that delivers substantial cost savings, improved efficiency, and flexibility for their business.

Our message is clear and is resonating with our customers. Cloud computing is not a destination, it is an architecture. The foundation of that architecture is vSphere, which enables customers to leverage their existing IT investment and greatly simplify their data centers while providing the flexibility to take advantage of the offerings from vCloud service providers.

During the March quarter we closed the acquisitions of RTO Software and Zimbra. In early April, we acquired certain of the management products, technology, and people from EMC’s Ionix group. Combined, we welcome the nearly 500 new people that these acquisitions bring to VMware and look forward to delivering new products to our customers.

These acquisitions compliment our virtualization solutions. We continue to invest in our core virtualization platform to maintain and extend our multi-generational lead over commodity virtualization offerings. We plan to release updates of both View and vSphere during the year.

We ended the quarter with nearly $2.8 billion of cash and $1.4 billion of deferred revenue. Strong revenue performance, improved operating leverage, and capital efficiency led the trailing 12 months free cash flows just short of a billion dollars growth year-over-year of 40%. We are pleased with the quarter and want to thank all of the people at VMware, our partners, and our customers.

Now, I will walk you through the details. Total revenue for the first quarter was $634 million, up 35% from a year ago. Total license revenue was $312 million, an increase of 21% from the first quarter of a year ago. Clearly, revenues surpassed our expectations as IT spending was stronger than expected, driven by a carryover of the pent up demand we witnessed in the December quarter.

We also benefited from strong sales across our global regions and all customer segments. In particular, Europe was stronger than expected and the team closed an eight-figure ELA with a larger customer that netted over $8 million of license bookings.

Read the rest of this transcript for free on seekingalpha.com