Image source: VMware.
Virtualization and cloud infrastructure provider VMware (VMW +0.00%) reported its second-quarter results after the market close on July 18. The company returned to non-GAAP earnings growth after reporting flat EPS during the first quarter, and both of the company's segments posted revenue growth. Here are the details.
VMware results: The raw numbers
| Metric |
Q2 2016 |
Q2 2015 |
Growth (YOY) |
|---|---|---|---|
|
Revenue |
$1.693 billion |
$1.521 billion* |
11.3% |
|
GAAP net income |
$265 million |
$172 million |
54.1% |
|
GAAP EPS |
$0.62 |
$0.40 |
55% |
|
Non-GAAP EPS |
$0.97 |
$0.93 |
4.3% |
*Includes a $76 million reduction related to GSA settlement. Data source: VMware Q2 2016 earnings release.
What happened with VMware this quarter?
Both the license and services segments posted revenue growth during the second quarter.
- License revenue increased by 1% year over year to $644 million.
- Services revenue rose 9.4% year over year to $1.049 billion.
- License revenue plus the sequential change in unearned license revenue grew 5% year over year.
- NSX license bookings more than doubled, with over 1,700 customers now using the network virtualization product.
- VMware generated $577 million of operating cash flow and $539 million of free cash flow during the quarter.
- The company didn't buy back any stock during the quarter, but it plans to spend a total of $1.2 billion on share repurchases this year.
VMware also provided guidance for the third quarter and the full year.
- Third-quarter revenue expected between $1.738 billion and $1.788 billion, up 5.4% year over year at the midpoint.
- Third-quarter non-GAAP EPS expected between $1.08 and $1.11, up 7.4% year over year at the midpoint.
- Full-year revenue expected between $6.95 billion and $7.05 billion, up from a previous range of $6.785 billion to $6.935 billion.
- Full-year non-GAAP EPS expected between $4.27 and $4.33, up from a previous range of $4.07 to $4.16.
What management had to say
VMware CEO Pat Gelsinger emphasized the company's cloud progress:
"Q2 was a continuation of the good start to the year we experienced in Q1, both for results and against our strategic goal of building momentum for our newer growth businesses and in the cloud. Customers are turning to VMware to help them run, manage, secure and connect their applications across all clouds and all devices, with unparalleled connectivity, security and visibility."
CFO Zane Rowe highlighted VMware's strong balance sheet and share buyback program:
"This was another good quarter for VMware, and I'm particularly pleased with our financial performance and increasing strength of our balance sheet. We're also looking forward to returning value to our stockholders through the $1.2 billion stock repurchase we announced last quarter."
Looking forward
VMware reported another quarter of steady revenue growth, and its results beat analyst expectations on all fronts. Strong growth in newer businesses such as NSX and vCloud Air Network helped drive the company's results, with the latter posting 25% year-over-year bookings growth. Eight of VMware's top 10 enterprise deals during the quarter included NSX.
VMware stock has tumbled over the past year, shedding more than 20% of its value. The company is no longer growing as quickly as it once was, but its strategy of focusing on growth businesses and cloud computing is driving revenue and earnings higher.
