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VMware Conference Call Highlights

Shazir Mucklai

VMware, Inc. (NASDAQ: VMW) reported its third quarter earnings on Tuesday. Shares of the company are down 7 percent.

Below are some key highlights from its conference call.

• We are pleased with our revenue growth of 18% and that our operating margin exceeded our guidance.
• We are particularly pleased with these results in the context of industry disruption and economic challenges, which are affecting businesses around the world.
• Looking ahead, our roadmap of groundbreaking innovation is unparalleled and we are seeing continued strong growth and momentum with our new products and services including AirWatch, NSX, VSAN and vCloud Air.
• We are also continuing to attract the best leaders in the industry across all of our businesses.
• Customers are telling me that their businesses are facing more change and disruption than ever before.
• Business models that once seemed solid and permanent are being replaced by fluid, rapidly shape-shifting new approaches.
• They also recognize that in this fluid world, software is now the primary means of engaging prospects and customers and is the key driver of innovation and growth.
• In addition, we were excited to announce two additional partners in Barcelona last week: HP and Hitachi Data Systems.
• We also announced new virtualization, cloud management and Integrate OpenStack solutions.
• Over the past quarter, we announced strategic technology in go-to-market partnerships for NSX with Arista Networks, F5, and HP.
• VMware is listed as one of only five mega providers in Gartner's 2015 Planning Guide for Cloud Computing and we believe it's because of our rapidly-expanding service offerings, geographic reach and extensive partner network.
• In fact, at VMworld 2014 Europe, we announced a number of new services, as well as another new VMware-operated data center located in Germany.
• Finally, we also announced a series of new and expanded partnerships.
• These include an agreement with SAP to deliver mobile security and a simplified user experience for mobile applications and a collaborative effort between VMware, NVIDIA and Google to deliver high-performance, virtual desktops and Workstation-class graphics to Google Chromebooks.
• In summary, our business is growing.
• We are confident in our strategy and our portfolio of groundbreaking new technologies is helping customers realize the dramatic benefits of a new software-defined model for IT.

• We remain pleased with the increasing breadth and growth of our new product offerings across all three of our business priorities: the software-defined data center, hybrid cloud and end-user computing.
• Customers continue to move from buying purely standalone vSphere to purchasing our suite and additional products such as network virtualization.
• We continue to transition from being a compute virtualization company to a provider of a broad range of cloud infrastructure and mobile offerings.
• We closed three deals greater than $10 million in the quarter compared to five deals in Q3 last year, which included our largest deal ever.
• Meanwhile, the channel enablement activities we have talked about previously continued to bear fruit. This resulted in another quarter of improving transactional bookings.
• Our renewal performance during the quarter was once again very strong.
• Q3 was the highest ever in-quarter renewal rate for support and our in-quarter renewal rate for ELAs also remained at near record levels.
• The average term for support remained well above 24 months.
• Moving to regional bookings performance, we saw similar growth across all three geographies.
• Overall, bookings grew year-over-year in our Asia-Pacific region despite continued softness in Japan.
• We once again had solid growth in China, which is in contrast with many of our peers.
• While in EMEA bookings grew, in Russia, geopolitical tensions weighed on the bookings performance and we saw an over 50% decline year-over-year.
• In Q3, we also announced expansion of our hybrid offerings through vCloud Air
• OnDemand, which is a new online channel helping us capture the secular move of workloads to ratable cloud-delivered models.
• In Q3, we saw very strong PSO consulting bookings. Our customers are looking to VMware more than ever for expertise and helping them deploy the software-defined data center, transition to the hybrid cloud and transform their desktop and mobile environments.
• We had a solid Q3.
• We're continuing to invest in enabling our sales force and channel around our new growth products and see these market opportunities paying off in the coming quarters.

View more earnings on VMW

Financial results:

• Q3 total revenue was $1.515 billion, $15 million above the midpoint of our guidance range and up 18% year-over-year.
• License revenue of $639 million also exceeded the midpoint of our guidance and was up 13% year-over-year.
• We also remain pleased with the increasing breadth and diversification of our business.
• With non-standalone vSphere license bookings once again greater than 50% of total license bookings, up from more than 40% in Q3 2013.
• Total unearned revenue ended the quarter at $4.37 billion, up 20% from Q3 2013 and of which $1.65 billion is long-term, up 17% year-over-year.


• We are reaffirming the midpoint of full year 2014 revenue guidance at $6.20 billion with a range of between $6 billion and $6.40 billion, representing year-over-year growth of between 15% and 16%.
• Excluding Pivotal and divestitures, we continue to expect the midpoint of our 2014 total revenue growth to be approximately 17%.
• We are also reaffirming the midpoint of full year 2014 license guidance at $2.590 billion with a range of between $2.580 billion and $2.600 billion, or up 14% year-over-year.
• We continue to expect that non-GAAP operating margin for 2014 will be approximately 31%.
• And finally, other income and expense is expected to be approximately $5 million in Q4.

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