Highlights and Guidance from VMware Fourth-Quarter Financial Results

The VMware fourth-quarter financial results were released at the beginning of March 2018. I’d like to share some of its highlights and offer some insight on what these results might indicate for the future. Let’s start out with the facts and figures from the conference call and throw in the future guidance that VMware has given.

Fiscal Year 2018 Results

  • Revenue for FY18 was $7.92 billion, increasing 12% year over year.
  • Revenue from licenses for FY18 was $3.19 billion, an increase of 14% from 2016.
  • Cash flows for FY18 were $3.21 billion. Free cash flows for the year were $2.95 billion.
  • Cash, cash equivalents, and short-term investments were $11.65 billion, and unearned revenue was $6.25 billion as of February 2, 2018.

4Q18 Results (January 2018)

  • Revenue of $2.31B (+13.6% Y/Y) vs. guidance of $2.26B.
  • Operating margin of 37.3% vs. guidance of 36.9%.
  • Cash flow from operations totaled $847M vs. $970M in prior Q ($463M in year ago Q).
  • Ending deferred revenue of $6.25B, +11% Y/Y vs. $5.65B (+11% Y/Y) last Q and $5.62B in year ago Q, +11%.
  • Bookings totaled $2.912B, +14% Y/Y vs. $2.12B last Q, +21% Y/Y ($2.56B in year ago Q, +13%).

1Q19 Guidance (April 2018)

  • Revenue of $1.96B (+11%).
  • License revenues of $730M (+13.5% Y/Y).
  • Operating margin of 28.5%.

FY19 Guidance (January 2019)

  • Revenue of $8.725B (+11%) vs. prior $8.66B (+10% Y/Y).
  • Operating margin of 33.3% vs. prior 32.5%.

What do the numbers indicate? Let’s take a look at some of the highlights that we can take away from this. Let’s start with the fourth-quarter reported revenue of $2.31 billion. This reported revenue is an increase of 13.6% year over year. The guidance for this quarter was set at $2.26 billion, which would have been an 11% increase year over year. This indicates that VMware exceeded the revenue guidance by 2%. License revenues increased by 20% and topped out at $1.07 billion. You can compare this to the 14% increase in the prior quarter of $785 million. Service revenue for this quarter was up 8% at $1.24 billion, compared to the 10% increase in the prior quarter of $1.19 billion.

Something that was quite impressive was the growth in the license booking, mainly in the network and storage areas, where VMware NSX licenses grew 24% year over year; this contributed to a 50% increase for FY18. The exit run rate of the networking business now stands at $1.4 billion, and that is an impressive 100% growth from the last quarter.

Something even better than that comes to us from the storage side of the business, with VMware vSAN licenses growth in excess of 100%, following an over 150% increase from the prior quarter. VMware vSAN total revenue is now at a $600 million run rate, a 130% increase for the full fiscal year. Things appear to be going so well that Gartner has named VMware as part of its leaders quadrant. All indications from both VMware and Dell are indicating strong momentum for VMware vSAN, with Dell indicating momentum for vSAN coming from Dell’s partnership on VxRail. There is a very strong sales pipeline for vSAN, and VMware has a very unique hypervisor-based offering in the market. All of this indicates good things in the storage space for VMware.

The end user computing (EUC) area also continues to show solid growth, with a 40% increase in the previous quarter followed up with a 30% increase in this quarter. This growth has been driven primarily by VMware’s Workspace ONE solution and will soon be the largest component of VMware’s EUC.

Finally, I want to close out with the areas in which VMware is focusing most of its research and development investments. VMware is aggressively feeding investments into vSAN, NFV, NSX, and EUC. It is spending a lot of time and resources on VMware Cloud on AWS with the goal of making this platform as big as possible over the long run. In the meantime, VMware is looking at AppDefense, PKS, and the Internet of Things (IoT) as the newest opportunities to invest and expand in.

Overall, the facts, figures, and insight into VMware R&D seem to indicate that the rest of 2018 should be a banner year for VMware, based on the highlights and guidance from VMware fourth-quarter financial results.

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