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VMware Boosts Its Guidance After a Strong Quarter

By Timothy Green - Aug 25, 2017 at 8:20PM

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Revenue grew at a double-digit rate, and the growth businesses are picking up steam.

Virtualization solutions provider VMware (VMW 0.07%) reported its second-quarter results after the market closed on Aug. 24. License and services growth drove the top and bottom lines higher, growth businesses like NSX and vSAN produced impressive bookings growth, and the company boosted its guidance for the full year. Here's what investors need to know about VMware's second-quarter results.

VMware: The raw numbers

Metric

Q2 2018

Q2 2016

Year-Over-Year Change

Revenue

$1.90 billion

$1.69 billion

12.2%

GAAP net income

$334 million

$265 million

26%

GAAP EPS

$0.81

$0.62

30.6%

Non-GAAP EPS

$1.19

$0.97

22.7%

VMware revised its fiscal calendar on Jan. 1. Data source: VMware.

What happened with VMware this quarter?

Strong license growth drove sales and profits higher.

  • License revenue grew 13.7% year over year to $732 million.
  • Services revenue grew 11.3% to $1.17 billion.
  • License revenue plus the sequential change in total unearned revenue rose 14% year over year.
  • Hybrid cloud and software-as-a-service accounted for 9% of total revenue.
  • VMware closed 12 enterprise deals valued at over $10 million, with the top 10 including NSX (network virtualization and security platform) and EUC (end-user computing), and eight of the top 10 including vSAN (hyper-converged infrastructure).
  • Total cloud management bookings rose by a double-digit percentage year over year, and cloud management license bookings increased by mid-single-digit percentage.
  • NSX license bookings grew by more than 40% year over year, while vSAN license bookings surged 150% and EUC licensing bookings jumped 20%.

VMware provided guidance for the third quarter and the full year:

  • For the third quarter: Revenue between $1.93 billion and $1.98 billion, license revenue between $755 million and $785 million, and non-GAAP EPS between $1.25 and $1.28.
  • For the full year: Revenue of $7.83 billion, license revenue of $3.075 billion, non-GAAP EPS of $5.06, and free cash flow of $2.74 billion.
A VMware sign at its Palo Alto campus.

Image source: VMware.

What management had to say

VMware CEO Pat Gelsinger discussed the company's ongoing transformation:

We are very pleased with our Q2 results, which were driven by broad-based strength across the product portfolio in all three geographies. As we continue our multi-year journey from a compute virtualization company to offer a broad portfolio of products driving efficiency and digital transformation, customers are increasingly turning to VMware to help them run, manage, secure and connect their applications across all clouds and all devices.

CFO Zane Rowe noted the guidance increase: "VMware had a strong quarter and is well positioned for the future. We increased our fiscal year guidance, completed our successful debut debt offering and received authorization for an additional $1.0 billion of stock repurchases."

Looking forward

VMware boosted its full-year guidance for both revenue and earnings compared to the ranges it gave in its first-quarter report, reflecting its strong performance during the second quarter. Both license and services revenue grew at a double-digit pace, and growth businesses like NSX and vSAN continued to expand rapidly. The company also pointed out that VMware cloud services, which includes VMware Cloud on AWS, is experiencing strong customer interest, although no hard numbers were given. Given VMware's results, it looks like the company is navigating a changing landscape just fine.

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