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VMware’s second-quarter fiscal 2021 non-GAAP earnings of $1.81 per share beat the Zacks Consensus Estimate by 24.8% and also increased 18.3% year over year.
Moreover, revenues of $2.88 billion surpassed the consensus mark by 2.6% and also improved 9.2% on a year-over-year basis.
VMware’s results for the fiscal second quarter reflected benefits from its ongoing transition to cloud that fully offset sluggish on-premise project developments. Subscription & SaaS generated 22% of total revenues in the quarter under review. VCPP, modern applications, EUC and Carbon Black were major top-line contributors.
Markedly, VMware has reached general-availability status for new first-party services offerings with Alphabet’s (GOOGL - Free Report) Google Cloud and Oracle (ORCL - Free Report) .
Google Cloud announced the general availability of Google Cloud VMware Engine that provides end-to-end support to migrate and run the VMware environment in Google Cloud.
Moreover, Oracle introduced Oracle Cloud VMware Solution. This dedicated, cloud-native VMware-based environment enables enterprises to easily move their production workloads to Oracle Cloud Infrastructure.
Further, in early fiscal second quarter, Microsoft (MSFT - Free Report) unveiled its next-generation Azure VMware solution.
Notably, VMware Cloud on AWS revenues grew triple digits year over year. Additionally, VMware announced new capabilities that further improve the economic value of VMware Cloud on AWS.
VMware also made available the second generation of VMware Cloud on Dell EMC in the quarter under review.
Furthermore, VMware vSphere BitFusion, a new integrated feature in VMware vSphere 7 was introduced. The solution willenable enterprises to deliver elastic infrastructure on-demand for AI and machine learning applications.
Top-Line Details
Region-wise, U.S. revenues (50.1% of revenues) increased 9.3% year over year to $1.44 billion. International revenues (49.9%) grew 9.2% from the year-ago quarter to $1.44 billion.
Services revenues (53% of revenues) rose 7.4% year over year to $1.53 billion. Software Maintenance (83.3% of Services revenues) climbed 8.4% to $1.27 billion. Professional Services (16.7% of Services revenues) were $255 million, up 2.8% year over year.
Total License and Subscription & SaaS revenues (47% of revenues) improved 11.4% from the year-ago quarter to $1.35 billion.
License revenues (53.3% of License and Subscription & SaaS revenues) declined7% year over year to $719million.
Subscription & SaaS revenues (46.7% of segment revenues) jumped 43.7% year over year to $631 million.
Coronavirus Hurt Bookings in Q2
VMware witnessed slowdown in a number of on-premise projects in the Americas due to the coronavirus outbreak. This negatively impacted bookings in the reported quarter.
NSX product bookings (includes Subscription and SaaS, and license bookings equivalent to those stated in prior periods) declined in the mid-single-digits range.
Further, vSAN product bookings (includes Subscription and SaaS, and license bookings equivalent to as the same stated in prior periods) decreased in the low-single-digits range year over year.
Markedly, Carbon Black’s customer base jumped to more than 20,000. VMware’s modern applications business, which includes Pivotal, Heptio and Wavefront, generated product bookings well ahead of expectations in the fiscal second quarter.
EUC product bookings (includes Subscription and SaaS, and license bookings equivalent to the ones stated in prior periods) decreased in high-single-digits range on a year-over-year basis. However, EUC SaaS based on annual contract value grew more than 35% year over year.
Moreover, core SDDC product bookings (includes Subscription and SaaS, and license bookings equivalent to the levels stated in prior periods) decreased in the low-single-digit range year over year.
At the end of the quarter, VMware had license backlog of $8 million and total backlog of $36 million.
Revenue Performance Obligation increased 17% year over year to $10.3 billion. Of this, 54% is classified as current.
Operating Details
Research & development (R&D) expenses as a percentage of revenues slipped 20 basis points (bps) year over year to 19%.
Moreover, sales & marketing (S&M) expenses as a percentage of revenues decreased 290 bps on a year-over-year basis to 27.3%.
However, general & administrative (G&A) expenses as a percentage of revenues increased 50 bps to 6.9%.
Non-GAAP operating margin expanded 280 bps on a year-over-year basis to 33% in the reported quarter, driven by lower spending.
Balance Sheet & Cash Flow
As of Jul 31, 2020, cash & cash equivalents were $4.70 billion compared with $5.95 billion as of May 1, 2020.
Total debt as of Jul 31, 2020, was $6.21 billion compared with $7.46 billion as of May 1, 2020. During the reported quarter, VMware redeemed $1.250 billion of notes.
Operating cash flow plunged 47.7% sequentially but increased 12.2% year over year to $643 million.
Free cash flow fell 50% sequentially but increased 16.9% year over year to $643 million.
In the reported quarter, VMware bought back $130 million worth of shares. The company has approximately $1.69 billion remaining under its current share-repurchase authorization.
Acquisitions
During the reported quarter, VMware acquired Lastline, a pioneer in anti-malware research and AI-powered network detection and response-solution provider. The company integrated it into NSX to provide a complete, internal firewall capability.
VMware also bought True Visibility Suite team and products from Blue Medora. This enables VMware vRealize Operations to provide visibility and insight into customers’ broad data center and hybrid cloud environments.
Further, the Datrium acquisition expands VMware Cloud on AWS’ Site Recovery offering.
Q3 Developments
On Aug 5, VMware and Intel announced a collaboration that focuses on developing an integrated software platform for virtualized Radio Access Networks to accelerate the rollout of both existing LTE and future 5G networks.
Moreover, VMware was selected as the cloud platform by DISH Network to deploy its 5G cloud-native Open Radio Access Network on Jul 31.
Guidance
For the fiscal third quarter, total revenues are expected to be $2.80 billion, suggesting 5.4% year-over-year growth.
Subscription & SaaS and License Revenues are expected to be $1.265 billion (more than 50% from Subscription & SaaS), hinting at 5.6% growth year over year.
Non-GAAP operating margin is anticipated to be 27.5%. Moreover, non-GAAP earnings are expected to be $1.42 per share.
For fiscal 2021, VMware now expects revenues of roughly $11.6 billion, suggesting 7% year-over-year growth.
Subscription & SaaS and License Revenues are expected to be $5.5 billion (more than 45% from Subscription & SaaS), indicating nearly 9% growth year over year.
Non-GAAP operating margin is anticipated to be 30.5%. Moreover, non-GAAP earnings are expected to be $6.62 per share for fiscal 2021.
Further, cash flow from operations, capital expenditure and free cash flow are now expected to be roughly $3.7 billion, $300 million and $3.4 billion, respectively.
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VMware (VMW) Q2 Earnings Beat Estimates, Revenues Rise Y/Y
VMware’s second-quarter fiscal 2021 non-GAAP earnings of $1.81 per share beat the Zacks Consensus Estimate by 24.8% and also increased 18.3% year over year.
Moreover, revenues of $2.88 billion surpassed the consensus mark by 2.6% and also improved 9.2% on a year-over-year basis.
VMware’s results for the fiscal second quarter reflected benefits from its ongoing transition to cloud that fully offset sluggish on-premise project developments. Subscription & SaaS generated 22% of total revenues in the quarter under review. VCPP, modern applications, EUC and Carbon Black were major top-line contributors.
Markedly, VMware has reached general-availability status for new first-party services offerings with Alphabet’s (GOOGL - Free Report) Google Cloud and Oracle (ORCL - Free Report) .
VMware, Inc. Price, Consensus and EPS Surprise
VMware, Inc. price-consensus-eps-surprise-chart | VMware, Inc. Quote
Google Cloud announced the general availability of Google Cloud VMware Engine that provides end-to-end support to migrate and run the VMware environment in Google Cloud.
Moreover, Oracle introduced Oracle Cloud VMware Solution. This dedicated, cloud-native VMware-based environment enables enterprises to easily move their production workloads to Oracle Cloud Infrastructure.
Further, in early fiscal second quarter, Microsoft (MSFT - Free Report) unveiled its next-generation Azure VMware solution.
Notably, VMware Cloud on AWS revenues grew triple digits year over year. Additionally, VMware announced new capabilities that further improve the economic value of VMware Cloud on AWS.
This Zacks Rank #3 (Hold) company also witnessed solid adoption of VMware Cloud Foundation at clients like Daimler and across financial services end-market. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
VMware also made available the second generation of VMware Cloud on Dell EMC in the quarter under review.
Furthermore, VMware vSphere BitFusion, a new integrated feature in VMware vSphere 7 was introduced. The solution willenable enterprises to deliver elastic infrastructure on-demand for AI and machine learning applications.
Top-Line Details
Region-wise, U.S. revenues (50.1% of revenues) increased 9.3% year over year to $1.44 billion. International revenues (49.9%) grew 9.2% from the year-ago quarter to $1.44 billion.
Services revenues (53% of revenues) rose 7.4% year over year to $1.53 billion. Software Maintenance (83.3% of Services revenues) climbed 8.4% to $1.27 billion. Professional Services (16.7% of Services revenues) were $255 million, up 2.8% year over year.
Total License and Subscription & SaaS revenues (47% of revenues) improved 11.4% from the year-ago quarter to $1.35 billion.
License revenues (53.3% of License and Subscription & SaaS revenues) declined7% year over year to $719million.
Subscription & SaaS revenues (46.7% of segment revenues) jumped 43.7% year over year to $631 million.
Coronavirus Hurt Bookings in Q2
VMware witnessed slowdown in a number of on-premise projects in the Americas due to the coronavirus outbreak. This negatively impacted bookings in the reported quarter.
NSX product bookings (includes Subscription and SaaS, and license bookings equivalent to those stated in prior periods) declined in the mid-single-digits range.
Further, vSAN product bookings (includes Subscription and SaaS, and license bookings equivalent to as the same stated in prior periods) decreased in the low-single-digits range year over year.
Markedly, Carbon Black’s customer base jumped to more than 20,000. VMware’s modern applications business, which includes Pivotal, Heptio and Wavefront, generated product bookings well ahead of expectations in the fiscal second quarter.
EUC product bookings (includes Subscription and SaaS, and license bookings equivalent to the ones stated in prior periods) decreased in high-single-digits range on a year-over-year basis. However, EUC SaaS based on annual contract value grew more than 35% year over year.
Moreover, core SDDC product bookings (includes Subscription and SaaS, and license bookings equivalent to the levels stated in prior periods) decreased in the low-single-digit range year over year.
At the end of the quarter, VMware had license backlog of $8 million and total backlog of $36 million.
Revenue Performance Obligation increased 17% year over year to $10.3 billion. Of this, 54% is classified as current.
Operating Details
Research & development (R&D) expenses as a percentage of revenues slipped 20 basis points (bps) year over year to 19%.
Moreover, sales & marketing (S&M) expenses as a percentage of revenues decreased 290 bps on a year-over-year basis to 27.3%.
However, general & administrative (G&A) expenses as a percentage of revenues increased 50 bps to 6.9%.
Non-GAAP operating margin expanded 280 bps on a year-over-year basis to 33% in the reported quarter, driven by lower spending.
Balance Sheet & Cash Flow
As of Jul 31, 2020, cash & cash equivalents were $4.70 billion compared with $5.95 billion as of May 1, 2020.
Total debt as of Jul 31, 2020, was $6.21 billion compared with $7.46 billion as of May 1, 2020. During the reported quarter, VMware redeemed $1.250 billion of notes.
Operating cash flow plunged 47.7% sequentially but increased 12.2% year over year to $643 million.
Free cash flow fell 50% sequentially but increased 16.9% year over year to $643 million.
In the reported quarter, VMware bought back $130 million worth of shares. The company has approximately $1.69 billion remaining under its current share-repurchase authorization.
Acquisitions
During the reported quarter, VMware acquired Lastline, a pioneer in anti-malware research and AI-powered network detection and response-solution provider. The company integrated it into NSX to provide a complete, internal firewall capability.
VMware also bought True Visibility Suite team and products from Blue Medora. This enables VMware vRealize Operations to provide visibility and insight into customers’ broad data center and hybrid cloud environments.
Further, the Datrium acquisition expands VMware Cloud on AWS’ Site Recovery offering.
Q3 Developments
On Aug 5, VMware and Intel announced a collaboration that focuses on developing an integrated software platform for virtualized Radio Access Networks to accelerate the rollout of both existing LTE and future 5G networks.
Moreover, VMware was selected as the cloud platform by DISH Network to deploy its 5G cloud-native Open Radio Access Network on Jul 31.
Guidance
For the fiscal third quarter, total revenues are expected to be $2.80 billion, suggesting 5.4% year-over-year growth.
Subscription & SaaS and License Revenues are expected to be $1.265 billion (more than 50% from Subscription & SaaS), hinting at 5.6% growth year over year.
Non-GAAP operating margin is anticipated to be 27.5%. Moreover, non-GAAP earnings are expected to be $1.42 per share.
For fiscal 2021, VMware now expects revenues of roughly $11.6 billion, suggesting 7% year-over-year growth.
Subscription & SaaS and License Revenues are expected to be $5.5 billion (more than 45% from Subscription & SaaS), indicating nearly 9% growth year over year.
Non-GAAP operating margin is anticipated to be 30.5%. Moreover, non-GAAP earnings are expected to be $6.62 per share for fiscal 2021.
Further, cash flow from operations, capital expenditure and free cash flow are now expected to be roughly $3.7 billion, $300 million and $3.4 billion, respectively.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q2 2020, while the S&P 500 gained an impressive +44.0%, five of our strategies returned +50.9%, +93.8%, +122.2%, +153.0%, and even +156.8%.
This outperformance has not just been a recent phenomenon. From 2000 – Q2 2020, while the S&P averaged +5.5% per year, our top strategies averaged up to +51.7% per year.
See their latest picks free >>