Virtualization solutions provider VMware (NYSE:VMW) 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.

VMware: The raw numbers


Q4 2018

Q4 2016

Year-Over-Year Change


$2.31 billion

$2.03 billion


GAAP net income

($440 million)

$441 million


GAAP earnings per share




Non-GAAP earnings per share




VMware revised its fiscal calendar last year. Data source: VMware.

The VMware logo.

Image source: VMware.

What happened with VMware this quarter?

  • VMware recorded a $970 million charge related to the Tax Cuts and Jobs Act during the fourth quarter, with roughly $800 million related to the international portion of the company's earnings and $167 million related to the remeasurement of deferred taxes. These charges were excluded from the non-GAAP numbers.
  • License revenue rose 20.4% year over year to $1.07 billion.
  • Services revenue increased 8.4% year over year to $1.24 billion.
  • Hybrid cloud and software-as-a-service accounted for over 8% of total revenue, flat compared to the third quarter.
  • NSX license bookings rose 24% year over year, with an annual run rate of $1.4 billion.
  • vSAN license bookings doubled in the fourth quarter, reaching a $600 million run rate.
  • EUC license bookings jumped 30% year over year, while compute license bookings slumped 4%.
  • Forty-seven percent of total bookings were enterprise agreements, with 16 deals over $10 million. All of the top 10 deals involved EUC and NSX, and nine out of ten involved vSAN.

VMware's first-quarter guidance:

  • Total revenue of $1.955 billion, up 10.1% year over year. License revenue of $730 million, up 13.5% year over year.
  • Non-GAAP operating margin of 28.5% and diluted non-GAAP EPS of $1.14.

VMware's fiscal 2019 guidance:

  • Revenue of $8.725 billion, up 10.8% year over year. License revenue of $3.565 billion, up 11.3% year over year.
  • Non-GAAP operating margin of 33.3% and diluted non-GAAP EPS of $6.02.
  • Cash flow from operations of $3.55 billion, and free cash flow of $3.27 billion.

What management had to say

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."

Looking forward

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.

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