VMware, Inc. (VMW)

Q2 2010 Earnings Call

July 20, 2010 5:00 p.m. ET


Paul Maritz – President and Chief Executive Officer

Todd Nielsen – Chief Operating Officer

Mark Peek – Chief Financial Officer

Michael Haase – Vice President of Investor Relations


Kash Rangan – Merrill Lynch

Derek Bingham - Goldman Sachs

Walter Pritchard – Citigroup

Brent Hill – UBS

Adam Holt - Morgan Stanley

John DiFucci - JP Morgan

Brian Marshall - Gleacher and Company

Heather Bellini – ISI Group

Scott Zeller - Needham & Company

Kaushik Roy – Wedbush

Jayson Noland – Robert Baird

Rob Owens - Pacific Crest Securities

Michael Turits - Raymond James



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» VMware, Inc. Q1 2010 Earnings Call Transcript
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Welcome to the VMware Q2 2010 earnings call, and thank you for standing by. At this time all participants are in a listen only mode. (Operator Instructions.) Today’s conference is being recorded. If you have any objections you may disconnect at this time. I will turn the meeting over to Mr. Mike Haase, Vice President of Investor Relations. Sir, you may begin.

Mike Haa


Thank you, and welcome to VMware’s Q2 2010 earnings conference call. On the call we have Paul Maritz, our CEO; Todd Nielsen, COO; and Mark Peek, CFO. Following their prepared remarks we will take your questions. A press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast.

Statements made on this call include forward looking statements, such as those with the words “will”, “believes”, “expects”, “continues”, and similar phrases that denote future expectations or intent regarding our financial outlook, product offerings, customer demand, and other matters. These statements are based on the environment as we currently see it and are subject to risks and uncertainties. Please refer to the press release and the risk factors in documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10Q and Form 10K for information on risks and uncertainties that may cause actual results to differ materially from those set forth in such statements.

In addition, during today’s call we will discuss certain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of VMware’s performance, should be considered in addition to, not as a substitute for or an isolation from GAAP measures. Our GAAP measures exclude the effect on our GAAP results for stock-based compensation, amortization of intangible assets, employer payroll tax and employee stock transactions, the net effect of amortization and capitalization of software, and acquisition related items. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures, in the press release and on the investor relations page of our website.

Our Q2 quiet period begins at the close of business September 16, 2010. Also, unless otherwise stated, all financial comparisons in this call will be in reference to our results of the comparable period of 2009. For your planning purposes, VMworld 2010, the industry’s leading virtualization conference, takes place at San Francisco’s Moscone Center August 30


through September 2


. As part of this we will be hosting our first Analyst Day on August 31


at the same location. We plan on sending more details around registration, agenda, and logistics next week.

With that, let me hand it over to Mark.

Mark Peek

Thanks, Mike, and good afternoon, everyone. VMware had a great Q2 with record revenue, operating profit, and trailing 12-month free cash flow. Our business was strong across all geographies, transaction types and products. During the quarter we continued to see strong demand in the SMB-focused vSphere packages, which were a factor in achieving a record number of transactions in the quarter. With this increase in transaction volume, driven by small- and medium-sized business, the blended ASP per vSphere unit declined sequentially by $100. However, we displayed strong discipline around discounting as ASPs in our enterprise products increased modestly.

Customers continued to adopt the vSphere platform as a strategic investment that delivers substantial cost savings, improved efficiency, and flexibility for their business. Our message is clear and is resonating with our customers, as they begin the journey to the private cloud: Cloud computing is not a destination, it is an architecture. The foundation of that architecture is vSphere, which enables customers to leverage their existing IT investment and greatly simply their data centers while providing the flexibility to take advantage of the offerings from vCloud providers.

In early April, we acquired certain of the management, products, technology, and people from EMC’s Ionix Group. We’re very pleased with the integration process and recently announced the integration of two of Ionix’s products into our management portfolio. We also closed the acquisition of Gemstone and RabbitMQ. We want to welcome the more then 400 people from these acquisitions to VMware. In addition to acquisitions, we are continuing to invest in our core virtualization products to maintain and extend our multi-generational lead over commodity virtualization offerings.

Last week we released vSphere 4.1. With this release we not only added functionality and performance to our enterprise SKUs, but we introduced vMotion to the SMB packages. So today, at very low price points, customers have the advantage of this mature, robust technology. We also introduced per-virtual-machine pricing for our management products. This will allow customers to scale into management offerings more aligned to their specific usage. We do not expect a material near-term financial impact from these changes.

We ended the quarter with $2.8 billion of cash, cash equivalents and short-term investments, and $1.5 billion of deferred revenue. Strong operating performance and capital efficiency led to trailing 12-month free cash flows of just over $1 billion, growth year-over-year of 33%. We are pleased with the quarter and want to thank all of the people of VMware, our partners, and our customers.

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