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VMware (VMW) Q2 Earnings Beat Estimates, Revenues Rise Y/Y

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VMware’s (VMW - Free Report) second-quarter fiscal 2022 non-GAAP earnings of $1.75 per share beat the Zacks Consensus Estimate by 8%. On a year-over-year basis, the bottom line declined 3%.

Revenues of $3.14 billion surpassed the consensus mark by 1.1% and increased 9% on a year-over-year basis.

The company lowered its fiscal 2022 guidance for Subscription & SaaS and License revenues. Subscription & SaaS and License revenues are now expected to be $6.27 billion, indicating nearly 11.5% growth year over year. Earlier, the company had projected Subscription & SaaS and License revenues to be $6.33 billion, indicating nearly 12.5% growth year over year.

VMware also added that it was on track to complete the spin-off from Dell Technologies in early November 2021.

Following the announcement, shares are down 6.2% in the premarket trading on Aug 27. In the past year, shares have returned 8.7% compared with industry’s rally of 28.1%.

VMware, Inc. Price, Consensus and EPS Surprise

 

VMware, Inc. Price, Consensus and EPS Surprise

VMware, Inc. price-consensus-eps-surprise-chart | VMware, Inc. Quote

 

Top-Line Details

Region-wise, U.S. revenues (49.1% of revenues) increased 6.9% year over year to $1.54 billion. International revenues (50.9%) rose 11.4% from the year-ago quarter’s levels to $1.6 billion.

Services revenues (51.8% of revenues) rose 6.5% year over year to $1.62 billion. Software Maintenance revenues (82.3% of Services revenues) climbed 5.2% to $1.336 billion. Professional Services revenues (17.7% of Services revenues) were $288 million, up 12.9% year over year.

Total License and Subscription & SaaS revenues (48.2% of revenues) increased 12% from the year-ago quarter’s levels to $1.51 billion.

License revenues (48.7% of License and Subscription & SaaS revenues) increased 3% year over year to $738 million.

Subscription & SaaS revenues (51.3% of segment revenues) increased 23% year over year to $776 million, driven by strong growth in VCPP, modern applications, end-user computing, Carbon Black and VMware Cloud on AWS.

At the end of the second quarter, ARR for Subscription & SaaS was $3.2 billion, up 26% from the year-ago quarter’s figures.

VMware continued to witness momentum in the Tanzu platform across key verticals, including financial services.

Operating Details

Research & development (R&D) expenses, as a percentage of revenues, increased 110 basis points (bps) year over year to 24.7%.

Sales & marketing (S&M) expenses, as a percentage of revenues, increased 140 bps on a year-over-year basis to 32.6%.

General & administrative (G&A) expenses, as a percentage of revenues, fell 140 bps to 8.2%.

Non-GAAP operating margin contracted 360 bps on a year-over-year basis to 29.4% in the reported quarter.

Balance Sheet & Cash Flow

As of Jul 30, 2021, VMware’s cash & cash equivalents were $5.86 billion compared with $5.59 billion as of Apr 30, 2021.

Total debt was $4.72 billion as of Jul 30, 2021, unchanged sequentially.

Operating cash flow was $864 million compared with $1.27 billion reported in the previous quarter.

Free cash flow was $777 million compared with $1.2 billion reported in the previous quarter.

Revenue Performance Obligation increased 8% year over year to $11.2 billion.

Key Q2 Highlights

On Aug 3, VMWare rolled out new features to enable IT teams to seamlessly manage VMware Horizon deployments across on-premises and cloud environments. VMware Horizon forms part of the company’s VMware Workspace ONE solution.

On Jun 15, VMware and Cohere Technologies announced that they are collaborating to build an open radio access network solution. This will enable communication service providers to enhance network and spectrum efficiencies.

On Jun 9, VMware and Vapor IO teamed up to develop a Multi-Cloud Services Grid by combining Vapor IO’s Kinetic Grid platform with VMware Telco Cloud Platform. This will help service operators to “hypercompose” grid services on-demand and slash expenses related to deployment of 5G systems.

On Jun 3, VMware announced that it is working with Zoom Video to offer a more secured hybrid work environment. Interoperability between VMware Anywhere Workspace and the Zoom collaboration platform is part of this initiative. This is expected to further simplify the usage, application and network performance as well as security.

Guidance

For third-quarter fiscal 2022, VMware expects revenues of nearly $3.12 billion, suggesting 9% year-over-year growth. Subscription & SaaS and License revenues are expected to be $1.47 billion, indicating nearly 12% growth year over year.

Non-GAAP operating margin is anticipated to be 27%, while non-GAAP earnings are expected to be $1.53 per share for fiscal third quarter.

For fiscal 2022, VMware expects revenues of nearly $12.80 billion, suggesting 9% year-over-year growth.

Non-GAAP operating margin is now anticipated to be 29%, while non-GAAP earnings are expected to be $6.90 per share for fiscal 2022. Earlier, the company had projected non-GAAP operating margin to be 28.5% and non-GAAP earnings to be $6.88 per share.

Cash flow from operations, capital expenditures and free cash flow are expected to be $3.90 billion, $380 million and $3.52 billion, respectively.

Zacks Rank & Key Picks

At present, VMware carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Avnet (AVT - Free Report) , Paycom Software (PAYC - Free Report) and Silicon Motion Technology (SIMO - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Long-term earnings growth rate of Avnet, Paycom and Silicon Motion is pegged at 25.4%, 25% and 8%, respectively.