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The company had a solid fourth quarter, but a possible transaction with parent company Dell is overshadowing those results.
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Virtualization solutions provider VMware (VMW +0.00%) reported its fourth-quarter results after the market closed on March 1. The company posted strong double-digit revenue and adjusted earnings growth, and its guidance calls for more of the same. But the long-term picture is clouded by Dell's ongoing consideration of various strategic options, including a scenario where VMware acquires the privately held company. Dell owns 80% of VMware. Here's what investors need to know about VMware's fourth-quarter results.
|
Metric |
Q4 2018 |
Q4 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$2.31 billion |
$2.03 billion |
13.6% |
|
GAAP net income |
($440 million) |
$441 million |
N/A |
|
GAAP earnings per share |
($1.09) |
$1.04 |
N/A |
|
Non-GAAP earnings per share |
$1.68 |
$1.43 |
17.5% |
VMware revised its fiscal calendar last year. Data source: VMware.
Image source: VMware.
VMware's first-quarter guidance:
VMware's fiscal 2019 guidance:
VMware CFO Zane Rowe commented on the impact of the U.S. tax bill during the conference call: "Our non-GAAP tax rate for fiscal 2019 and Q1 '19 is expected to be 16%, due to lower U.S. tax rates with the enactment of the Tax Cuts and Jobs Act. The lower U.S. tax rate on domestic earnings is expected to more than offset the increase in U.S. taxes on international earnings."
CEO Pat Gelsinger discussed the company's successful partnership with IBM: "As we said in the formal remarks, the IBM partnership, in particular, is progressing extremely well with very big-name brands that are making major bets on the IBM-VMware cloud offering: Vodafone, Amdocs, Rico, the three that we talked about on the call. ... If anything, we're picking up the speed so very, very happy with our VMware cloud provider program broadly, IBM cloud partnership, in particular, and we continue to sign new partners, as well, into the program."
Gelsinger also made clear that management would not be commenting on a potential deal with Dell: "We will not comment further on Dell's 13-D in these prepared remarks or in the Q&A."
VMware's results were once again solid, but uncertainty surrounding Dell's plans is overshadowing the numbers. Privately held Dell owns 80% of VMware, and the company is exploring various options, including a reverse merger where VMware would acquire Dell. This would allow Dell to effectively go public without needing to go through the IPO process.
How such a deal would shake out for shareholders that aren't Dell is unclear. Depending on how the deal is structured, VMware shareholders will likely see their positions significantly diluted, and the resulting company would be saddled with quite a bit of debt. An announcement isn't expected anytime soon, so investors will have to wait to see how this story plays out.