Virtualization software provider VMware (VMW) reported its fiscal 2020 second-quarter results after the market closed on Thursday. While adjusted earnings growth was sluggish, much like in the first quarter, the company announced two major acquisitions that will help it grow its hybrid cloud and subscription software businesses. 

VMware results: The raw numbers


Q2 2020

Q2 2019

Change (Decline)


$2.44 billion

$2.17 billion


GAAP net income

$4.93 billion*

$644 million


GAAP earnings per share




Non-GAAP (adjusted) EPS




*GAAP figures include a $4.9 billion discrete tax benefit. GAAP = generally accepted accounting principles. Data source: VMware.

What happened with VMware this quarter?

  • Along with its second-quarter results, the company announced two major acquisitions. It has agreed to buy Pivotal Software for a blended price per share of $11.71. This includes $15 per share in cash for Pivotal Class A shares, and an exchange of VMware's Class B shares for Pivotal Class B shares held by Dell Technologies. The deal has an enterprise value of $2.7 billion.
  • It has also agreed to buy Carbon Black through an all-cash tender offer. The company will pay $26 per share, good for an enterprise value of $2.1 billion.
  • GAAP net income included a $4.9 billion discrete tax benefit resulting from an internal transfer of intellectual property rights, and a $538 million unrealized loss on its existing investment in Pivotal.
  • License revenue was $1.01 billion, up 12.3% year over year.
  • Services revenue was $1.43 billion, up 12.1% year over year.
  • Hybrid cloud subscription and software as a service (SaaS) accounted for 12.5% of total revenue during the quarter.
  • NSX license bookings rose more than 30% year over year, and NSX was included in nine of VMware's top 10 deals.
  • vSAN license bookings grew more than 45% year over year, and vSAN was included in eight of VMware's top 10 deals.
  • Enterprise agreements accounted for 47% of total bookings, and the company booked 14 deals valued at over $10 million each.
A cloud.

Image source: Getty Images.

What management had to say

During the earnings call, CEO Patrick Gelsinger gave an update on the VMware Cloud on AWS (Amazon Web Services) product: "On the hybrid cloud front, VMware Cloud on AWS is now present in 16 regions globally, with the addition of the Seoul and Sao Paulo AWS regions in the quarter. We are seeing customers who initially made smaller deployments on VMware Cloud on AWS grow those investments."

CFO Zane Rowe discussed the company's acquisitions of Pivotal and Carbon Black:

We believe these acquisitions will help us accelerate delivery on our portfolio strategy in the areas of building and protecting any app, on any cloud and any device. These acquisitions will also accelerate the growth of our subscription and SaaS revenue. Adding both to our portfolio will be of mutual benefit. In particular, we will deepen Pivotal's and Carbon Black's penetration with enterprise customers by leveraging the VMware and Dell Technologies go-to-market capabilities and breadth of technology solutions.

VMware expects these two acquisitions to add more than 2 percentage points of revenue growth in the first year after closing, as well as over $1 billion in mostly hybrid cloud subscription and SaaS revenue. By the second year, VMware is expecting its total hybrid cloud subscription and SaaS revenue to surpass $3 billion.

Looking forward

VMware provided the following guidance for the third quarter of fiscal 2020:

  • Revenue of $2.405 billion, up 9.3% year over year.
  • License revenue of $950 million, up 7.5% year over year.
  • Non-GAAP earnings per share of $1.42.

For the full fiscal year, VMware expects:

  • Revenue of $10.03 billion, up 11.8% year over year.
  • License revenue of $4.215 billion, up 11.3% year over year.
  • Non-GAAP earnings per share of $6.54.
  • Free cash flow of $3.63 billion.

VMware's earnings growth was sluggish in the second quarter, especially for a tech company, and it expects adjusted earnings per share to rise just 3.3% in fiscal 2020. Neither Pivotal nor Carbon Black are profitable on an adjusted basis, so the acquisitions won't help the bottom line. But they will boost VMware's revenue growth, fueling the hybrid cloud and SaaS businesses.