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VMWare, Inc. (VMW)

Q3 2016 Earnings Conference Call

October 26, 2016, 17:00 ET


Paul Ziots - VP, IR

Pat Gelsinger - CEO and Director

Zane Rowe - CFO


Matt Hedberg - RBC Capital Markets

Raimo Lenschow - Barclays

Mark Murphy - JPMorgan

Keith Weiss - Morgan Stanley

Brent Thill - UBS

John DiFucci - Jefferies

Walter Pritchard - Citi

Heather Bellini - Goldman Sachs

Kash Rangan - Bank of America Merrill Lynch

Kevin Buttgieg - MKM Partners

Michael Turtis - Raymond James

Gregg Moskowitz - Cowen and Company

Brad Reback - Stifel

Shannon Cross - Cross Research



Welcome to VMware Third Quarter FY '16 Earnings Conference Call. Today's conference is being recorded and at this time I'd like to turn the conference over to Mr. Paul Ziots, Vice President of Investor Relations, please go ahead sir

Paul Ziots

Thank you, good afternoon everyone and welcome to VMware's third quarter 2016 earnings conference call. On the call we have Pat Gelsinger, Chief Executive Officer and Zane Rowe, Executive Vice President and 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. Slides which accompany this webcast can be viewed in conjunction with live remarks and can also be downloaded at the conclusion of the webcast from ir.vmware.com.

On this call today we will making forward looking statements are subject to risks and uncertainties. Actual results may differ materially as a result of various risk factors including those described in the 10Ks, 10 Qs and 8Ks VMware filed with the SEC. We assume no obligation to and do not currently intend to update any such forward looking 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 on employees transactions, acquisition and other related items and include non-GAAP tax rate adjustments. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in the press release and on our Investor Relations website.

Webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link. Our fourth quarter 2016 quiet period begins at the close of business, December 15 2016. Unless otherwise stated, all financial comparisons in this call will be in reference to our results for the comparable period of 2015.

With that, I'll turn it over to Pat

Pat Gelsinger

Thank you Paul and good afternoon everyone. This has been a very good quarter for VMware. We continue to see momentum behind our newer gross businesses and announced an extension of our leadership in the hybrid cloud with important new partnerships and offerings. Revenue grew 6% year-over-year to $1.8 billion with non-GAAP earnings of $1.14 per share.

In terms regional bookings performance, Asia Pacific performed particularly well, followed by EMEA and the Americas. We had balanced performance across our routs to market in the quarter and our OBM partner business grew year-over-year. Our strategy is strong we're confident about our outlook and growth. The strength of our diversified product portfolio was a highlight of the quarter.

Compute and management bookings exceeded expectations in Q3 as some of our largest customers decided to double down on VMware core technologies and extend their strategic commitments to the e-sphere. NSX, AirWatch, our hyper converged offerings including virtual SAN and VxRail and our vCloud Air network business grew robustly. We didn't perform as expected with our end user computing desktop business, with a number of deals pushing into Q4.

Let's turn now to our cloud strategy. At VMworld in late August we announced VMware's new cross-cloud architecture. We believe this is the world's most complete and capable hyper cloud architecture and uniquely offers customers freedom and control in their infrastructure decisions. This new architecture extends our hybrid cloud strategy with new public and private cloud capabilities that enable our customers to run, manage, secure and connect all their applications across all clouds and all devices. VMware cloud foundation is at the core of our hybrid strategy. It makes the private cloud easy and enables customers to extend their private cloud into the public cloud using a proven and familiar set of software and tools.

VMware cloud foundation is a unified software defined data center platform that provides the virtualized infrastructure including vSphere, virtual SAN and NSX to build both private and public clouds. Our vCloud Air network partners which continue to show strong growth in Q3, are already expressing strong interest in including VMware cloud foundation as part of their own service offerings. You will have heard our announcements about two significant cloud partnerships which bring VMware cloud foundation to the public cloud. We announced an expansion of our cloud partnership with IBM which is providing a service to help customers quickly and easily move enterprise workloads to the cloud.

We're seeing strong customer momentum from the partnership with more than 1000 joint customers to date. And two weeks ago as part of our new strategic alliance with Amazon web services, we announced VMware cloud on AWS, a new cloud service that would be delivered, sold and supported by VMware. VMware cloud and AWS represents the best of both the private and public clouds, will make it easier for our customers to run any application using a standard set of familiar software and tools in a consistent hybrid cloud environment. Cross cloud services are an additional key component of our hybrid cloud strategy. During Q3 we previewed these new SaaS offerings that will provide unparalleled connectivity, security and visibility across multi-cloud IT resources regardless of whether the underlying infrastructure is VMware-based.

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