VMware (VMW)

Q3 2011 Earnings Call

October 17, 2011 5:00 pm ET


Paul A. Maritz - Chief Executive Officer, Director and Member of Mergers & Acquisitions Committee

Mark S. Peek - Chief Financial Officer and Co-President of Business Operations

Michael Haase - IR


Adam H. Holt - Morgan Stanley, Research Division

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Brent Thill - UBS Investment Bank, Research Division

Jason Maynard - Wells Fargo Securities, LLC, Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

Heather Bellini - Goldman Sachs Group Inc., Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Rob D. Owens - Pacific Crest Securities, Inc., Research Division

Philip Winslow - Crédit Suisse AG, Research Division

Robert P. Breza - RBC Capital Markets, LLC, Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Mark L. Moerdler - Sanford C. Bernstein & Co., LLC., Research Division



Welcome to the VMware Third Quarter 2011 Earnings Call, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the meeting over to Mr. Mike Haase, Vice President of Investor Relations.

Michael Haase

Welcome to VMware's Third Quarter 2011 Earnings Conference Call. On the call, we have Paul Maritz, our CEO and Mark Peek, our CFO. Following their prepared remarks, we will take questions. Our 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 expectation 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 and documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10-Q and Form 10-K 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 non-GAAP measures exclude the effect on our GAAP results of 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 the comparable GAAP measures in the press release and on the Investor Relations page of our website.

The webcast replay of this call will be available for the next 30 days on our company website under the Investor Relations link. Our fourth quarter quiet period begins at the close of business, December 16, 2011.

Finally, unless otherwise stated, all financial comparisons in this call will be in reference to our results for the comparable period of 2010. With that, let me hand it over to Mark.

Mark S. Peek

Thanks, Mike, and good afternoon, everyone. The financial and business results for our third quarter were once again very strong. We achieved record revenue and free cash flows driven by strength across our product offerings. We successfully launched vSphere 5, as well as 11 new additional products and services. We hosted over 19,000 registered attendees at VMworld Las Vegas. And beginning this week, we will host more than 20,000 customers and partners internationally at VMworld Europe and our Asia-Pacific and Japan Vform events.

Now for the financial highlights. Total third quarter revenues increased 32% year-over-year and license revenues increased to 29%. Our non-GAAP operating margin was 30.3%. Trailing 12 month free cash flows were $1.8 billion, an increase of 72% from a year ago. Our balance sheet remains strong with cash and investments of $4 billion and unearned revenues of $2.2 billion.

Our results speak to the value of our products. vSphere is the most trusted, widely deployed virtualization platform in the world. During the third quarter, we launched vSphere 5 and a comprehensive suite of cloud infrastructure technologies to not only help customers virtualize their application portfolio, but also help them build and operate modern data centers with cloud architectures.

With nearly 200 new and enhanced capabilities, vSphere 5 continues to raise the bar and set the standard in virtualization, delivering better application performance and availability for business-critical applications, while automating the management of an increasingly broad pool of data center resources.

We also expanded our end user computing strategy to help IT organizations empower more agile, productive, and connected enterprise. View 5 delivers new levels of innovation and simplicity with protocol enhancements, advanced 3D graphics, scalable unified communications and integrated persona management.

During the quarter, we closed the acquisitions of Digital Fuel and Packet Motion and welcomed over 100 new employees from those companies to VMware. We are very pleased with our results for the third quarter of 2011, and want to thank all of the people of VMware, our partners, and our customers.

Now I'll walk you through the financial details. Total revenue for the third quarter was $942 million, an increase of 32% from a year ago, or 30% on a constant currency basis. The quarter was characterized by strong demand in our Asia-Pacific markets and seasonal strength with the U.S. Federal Government.

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