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Q1 2011 Earnings Call
April 19, 2011 5:00 pm ET
Mark Peek - Chief Financial Officer and Co-President of Business Operations
Michael Haase - IR
Paul Maritz - Chief Executive Officer, Director and Member of Mergers and Acquisitions Committee
Adam Holt - Morgan Stanley
Heather Bellini - ISI Group Inc.
Derek Bingham - Goldman Sachs Group Inc.
Brent Thill - UBS Investment Bank
John DiFucci - JP Morgan Chase & Co
Philip Winslow - Crédit Suisse AG
Walter Pritchard - Citigroup Inc
Tim Klasell - Stifel, Nicolaus & Co., Inc.
Robert Breza - RBC Capital Markets, LLC
Kash Rangan - BofA Merrill Lynch
Previous Statements by VMW
» VMware's CEO Discusses Q4 2010 Results - Earnings Call Transcript
» VMware, Inc. Q2 2010 Earnings Call Transcript
» VMware, Inc. Q1 2010 Earnings Call Transcript
Welcome to VMware's First Quarter 2011 Earnings Conference Call. On the call, we have Paul Maritz, our Chief Executive Officer; and Mark Peek, our Chief Financial Officer. Following their prepared remarks, we will take questions.
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 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 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, June 16, 2011.
Also unless otherwise stated, all financial comparisons in this call will be in reference to our results for the comparable period of 2010. With that, let me hand it over to Mark.
Thanks, Mike, and good afternoon, everyone. The financial and business results of our first quarter of 2011 exceeded our expectations. We achieved record revenue, non-GAAP operating margin and free cash flow, driven by strength in all geographies. We also had success closing large Enterprise License Agreements during the quarter.
Total first quarter revenues increased 33%, and license revenues increased 34%. Our non-GAAP operating margin was 29.9%. Trailing 12-month free cash flows were $1.3 billion, an increase of 38% from a year ago.
The strength of our balance sheet is evident, with cash and investments of $3.7 billion and unearned revenue of nearly $2 billion. Customers continue to move along the virtualization journey and migrate from virtualizing their test and dev environments and simpler Tier 3 apps to more mission-critical applications, including databases, ERP systems, e-mail and collaboration systems.
Virtualization is mainstream within data centers as a modern way of computing that enables business agility, flexibility and continuity. In the first quarter, we released VMware vCenter Operations, a new suite of management products and solutions that bring together performance, capacity and configuration management capabilities. Virtualization and cloud computing require a different approach to IT management where resources are pooled across multiple sources where provisioning in capacity are highly dynamic and where configurations are fluid.
We've been very pleased to see positive initial customer feedback for vC [vCenter] Operations. The VMware service provider program continues to gain traction, with over 3,500 partners. Our partners include a cross-section of small, medium and large service providers, working with VMware to provide hosted IT services based on our infrastructure.
Related to VSPP [VMware Service Provider Program] is our vCloud Datacenter Services Program, which enables service providers to stand up enterprise-class cloud offering that are compatible with our enterprise customers' virtualized data centers. This program represents a higher level of service that is enterprise ready with specific security requirements audited and approved by VMware.
We most recently announced that SOFTBANK has joined the vCloud Datacenter Services Program. This brings us now to seven large cloud service provider partners standardizing on the VMware cloud infrastructure stack, including Colt, Verizon, Terremark, SingTel, Bluelock, CSC [Computer Sciences Corporation] and now SOFTBANK.
And to further strengthen our cloud initiative, on April 1, we welcomed the more than 300 people from EMC's Mozy and cloud services group. This team will continue to run the Mozy service, on behalf of EMC without interruption, and will add its R&D and product knowledge to VMware's engineering team, as we collaborate to continue developing products that help our cloud service providers. We expect Mozy to have little impact on our revenue or operating margins for Q2 and the remainder of 2011.