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VMware (VMW) Q3 Earnings Miss Estimates, Revenues Rise Y/Y
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VMware’s third-quarter fiscal 2023 non-GAAP earnings of $1.47 per share missed the Zacks Consensus Estimate of $1.60 and declined 11.4% year over year.
Revenues of $3.21 billion lagged the consensus mark by 4.81%. The top line registered year-over-year growth of a mere 0.7%.
Suspension of business operations in Russia and foreign currency transactions negatively impacted the quarter’s top and bottom lines.
Top-Line Details
Region-wise, U.S. revenues (50.3% of revenues) increased 2% year over year to $1.61 billion. International revenues (49.7%) grew fell 0.6% to $1.59 billion.
Services revenues (49.9% of revenues) rose 0.7% year over year to $1.60 billion. Software Maintenance revenues (81% of Services revenues) dipped 4.1% to $1.29 billion. Professional Services revenues (19% of Services revenues) were $304 million, flat year over year.
Total License and Subscription & SaaS revenues (50.1% of revenues) increased 5.2% from the year-ago quarter to $1.61 billion.
License revenues (38.6% of License and Subscription & SaaS revenues) decreased 12.5% year over year to $621 million due to the transition to subscription and SaaS.
Subscription & SaaS revenues (76.1% of segment revenues) increased 20.5% year over year to $988 million.
Operating Details
Research & development (R&D) expenses as a percentage of revenues increased 60 basis points (bps) year over year to 20.7%.
Sales & marketing (S&M) expenses as a percentage of revenues increased 110 bps on a year-over-year basis to 30.9%.
General & administrative (G&A) expenses as a percentage of revenues remained flat at 6.4%.
Non-GAAP operating margin contracted 260 bps on a year-over-year basis to 26.7%.
Balance Sheet & Cash Flow
As of Oct 28, 2022, VMware’s cash & cash equivalents were $3.97 billion compared with $3.24 billion as of Jul 29, 2022.
Total debt (including the current portion of long-term debt) was $9.69 billion as of Oct 28, 2022, compared with $11.18 billion as of Jul 29.
Operating cash flow was $1.26 billion in the fiscal third quarter compared with $397 million reported in the previous quarter.
Free cash flow was $1.16 million in the reported quarter compared with $284 million in the previous quarter.
Revenue Performance Obligation increased 7% year over year to $11.90 billion.
Guidance
VMware has entered into a definitive agreement to be acquired by Broadcom (AVGO - Free Report) .
Broadcom is set to acquire VMware for approximately $61 billion in cash and stock. VMW will not be providing financial guidance for the fourth quarter and full-year fiscal 2023.
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VMware (VMW) Q3 Earnings Miss Estimates, Revenues Rise Y/Y
VMware’s third-quarter fiscal 2023 non-GAAP earnings of $1.47 per share missed the Zacks Consensus Estimate of $1.60 and declined 11.4% year over year.
Revenues of $3.21 billion lagged the consensus mark by 4.81%. The top line registered year-over-year growth of a mere 0.7%.
Suspension of business operations in Russia and foreign currency transactions negatively impacted the quarter’s top and bottom lines.
Top-Line Details
Region-wise, U.S. revenues (50.3% of revenues) increased 2% year over year to $1.61 billion. International revenues (49.7%) grew fell 0.6% to $1.59 billion.
Services revenues (49.9% of revenues) rose 0.7% year over year to $1.60 billion. Software Maintenance revenues (81% of Services revenues) dipped 4.1% to $1.29 billion. Professional Services revenues (19% of Services revenues) were $304 million, flat year over year.
Total License and Subscription & SaaS revenues (50.1% of revenues) increased 5.2% from the year-ago quarter to $1.61 billion.
License revenues (38.6% of License and Subscription & SaaS revenues) decreased 12.5% year over year to $621 million due to the transition to subscription and SaaS.
VMware, Inc. Price, Consensus and EPS Surprise
VMware, Inc. price-consensus-eps-surprise-chart | VMware, Inc. Quote
Subscription & SaaS revenues (76.1% of segment revenues) increased 20.5% year over year to $988 million.
Operating Details
Research & development (R&D) expenses as a percentage of revenues increased 60 basis points (bps) year over year to 20.7%.
Sales & marketing (S&M) expenses as a percentage of revenues increased 110 bps on a year-over-year basis to 30.9%.
General & administrative (G&A) expenses as a percentage of revenues remained flat at 6.4%.
Non-GAAP operating margin contracted 260 bps on a year-over-year basis to 26.7%.
Balance Sheet & Cash Flow
As of Oct 28, 2022, VMware’s cash & cash equivalents were $3.97 billion compared with $3.24 billion as of Jul 29, 2022.
Total debt (including the current portion of long-term debt) was $9.69 billion as of Oct 28, 2022, compared with $11.18 billion as of Jul 29.
Operating cash flow was $1.26 billion in the fiscal third quarter compared with $397 million reported in the previous quarter.
Free cash flow was $1.16 million in the reported quarter compared with $284 million in the previous quarter.
Revenue Performance Obligation increased 7% year over year to $11.90 billion.
Guidance
VMware has entered into a definitive agreement to be acquired by Broadcom (AVGO - Free Report) .
Broadcom is set to acquire VMware for approximately $61 billion in cash and stock. VMW will not be providing financial guidance for the fourth quarter and full-year fiscal 2023.
Zacks Rank & Stocks to Consider
VMware currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
VMW’s shares have risen 2.2% in the year-to-date period against the Zacks Computer - Software industry’s and the Computer and Technology sector’s decline of 29.2% and 33%, respectively.
Here are some better-ranked stocks worth considering in the broader Computer and Technology Sector.
Axcelis Technologies (ACLS - Free Report) has a Zacks Rank #2 (Buy) at present.
ACLS shares have risen 5.5% in the year-to-date period compared with the Zacks Electronics - Manufacturing Machinery industry’s decline of 33.7%.
Bumble (BMBL - Free Report) has a Zacks Rank #2 at present.
BMBL shares have lost 35% in the year-to-date period compared with the Zack Internet Software industry’s decline of 61.2%.