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Q4 2010 Earnings Call
January 24, 2011 5:00 pm ET
Tod Nielsen - Chief Operating Officer
Paul Maritz - Chief Executive Officer, President, Director and Member of Mergers and Acquisitions Committee
Mark Peek - Chief Financial Officer and Senior Vice President
Michael Haase - IR
Brian Marshall - Gleacher & Company, Inc.
Adam Holt - Morgan Stanley
Derek Bingham - Goldman Sachs Group Inc.
Heather Bellini - ISI Group Inc.
Brent Thill - UBS Investment Bank
Jayson Noland - Robert W. Baird & Co. Incorporated
John DiFucci - JP Morgan Chase & Co
Philip Winslow - Crédit Suisse AG
Walter Pritchard - Citigroup Inc
Jason Maynard - Wells Fargo Securities, LLC
Israel Hernandez - Barclays Capital
Kash Rangan - BofA Merrill Lynch
Previous Statements by VMW
» VMware, Inc. Q2 2010 Earnings Call Transcript
» VMware, Inc. Q1 2010 Earnings Call Transcript
» VMware, Inc. Q4 2009 Earnings Call Transcript
Welcome to VMware's Fourth Quarter and Full Year 2010 Earnings Conference Call. We will have prepared remarks from Mark Peek, our Chief Financial Officer; Paul Maritz, our CEO; and Tod Nielsen, our COO, will join Mark for the Q&A session. Our press release was issued after close of market, and is posted on our website where this call is being simultaneously webcast.
Statements made on this call include forward-looking statements such as those with the words will, believes, expects, continues and similar phrases that denote future expectation or intent regarding our financial outlook, product offerings, customer demand and other matters. These statements are based on the environment as we currently see it, and are subject to risks and uncertainties. Please refer to the press release and the risk factors and documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10-Q and Form 10-K for information on risks and uncertainties that may cause actual results to differ materially from those set forth in such 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 an 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 the press release 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 first quarter quiet period begins at the close of business, March 17, 2011. Also unless otherwise stated, all financial comparisons in this call will be in reference to our results with the comparable period of 2010. With that, let me hand it over to Mark.
Thanks, Mike, and good afternoon, everyone. We capped an outstanding 2010 with a great fourth quarter, producing record revenue, non-GAAP operating margin and free cash flows.
Total fourth quarter revenues increased 37% and license revenues increased 39%, and as you'll recall, we posted a strong performance in Q4 2009. To the year, revenue grew 41%, with license revenue growing 36% compared to a 13% decline in 2009.
Our non-GAAP operating margin was 29.6% for the quarter and 28.5% for the year, primarily driven by the operating leverage of our revenue growth. Full year free cash flows were $1.2 billion, an increase of 43% from a year ago.
Before diving further into our discussion of Q4 and 2011 guidance, I want to take a few moments to reflect back on 2010. We achieved much during the past year and clearly raised the bar on our performance. The IT spending environment improved dramatically compared to 2009, and we were able to capitalize by continuing to offer superior and trusted products, and we executed well, all of this in the face of determined and persistent competition.
During 2010, we successfully delivered on multiple product releases, including vSphere 4.1 and View 4.5, each receiving industry awards and positive recognition broadly from our community and customers. We integrated seven acquisitions during 2010, welcoming approximately 600 people from Zimbra, RTL Software, EMC's Ionix group, Gemstone, RabbitMQ, TriCipher and Integrien. We increased our net headcount by nearly 2,000 people, including the 600 through acquisitions.
We expanded our international footprint and customer-facing capacity, particularly in the key markets of China, Japan, Eastern Europe and Latin America. All of this was accomplished while maintaining high standards of product quality and improving our 2010 non-GAAP operating margin by over 450 basis points.
And importantly, with our three-layer strategy focused on modernizing infrastructure, application platforms and end-user computing, we enter 2011 well-positioned to help customers navigate the journey to cloud computing. We are pleased with our 2010 accomplishments and want to thank all of the people of VMware, our partners and our customers.
Now I'll walk you through the financial details. The total revenue for the fourth quarter were $836 million, an increase of 37% from a year ago, or 38% on a constant currency basis. We believe we experienced the strongest Q4 budget flush we have seen since going public in 2007, helping to drive record volume in Enterprise License Agreements, which represented over 26% of total bookings for the quarter.
The quarter was characterized by strong and balanced growth across geographies, with U.S. and international bookings split evenly, and transactions with order values above and below $50,000 evenly split. A great performance by both our channel partners and our direct enablement teams.