VMware Reports Second Quarter 2011 Results

Year-over-Year Revenue Growth of 37% to $921 Million

Operating Margin of 20.3%; Non-GAAP Operating Margin of 31.6%

EPS Growth of 183% to $0.51; Non-GAAP EPS Growth of 62% to $0.55

Trailing Twelve Months Operating Cash Flows Growth of 46% to $1.5 Billion; Free Cash Flows Growth of 56% to $1.6 Billion

PALO ALTO, Calif., July 19, 2011 —VMware, Inc. (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the second quarter of 2011:

  • Revenues for the second quarter were $921 million, an increase of 37% from the second quarter of 2010 as reported, and an increase of 35% measured in constant currency. 
  • Operating income for the second quarter was $187 million, an increase of 85% from the second quarter of 2010. Non-GAAP operating income for the second quarter was $291 million, an increase of 56% from the second quarter of 2010.
  • Net income for the second quarter was $220 million, or $0.51 per diluted share, compared to $75 million, or $0.18 per diluted share, for the second quarter of 2010.   Non-GAAP net income for the quarter was $235 million, or $0.55 per diluted share, compared to $142 million, or $0.34 per diluted share, for the second quarter of 2010. 
  • Operating cash flows for the second quarter were $463 million, an increase of 114% from the second quarter of 2010.  Free cash flows for the quarter were $443 million, an increase of 91% from the second quarter of 2010.
  • Trailing twelve months operating cash flows were $1.5 billion, an increase of 46%.  Trailing twelve months free cash flows were $1.6 billion, an increase of 56%.
  • Cash, cash equivalents and short-term investments were $3.7 billion and unearned revenue was $2.1 billion as of June 30, 2011.

U.S. revenues for the second quarter of 2011 grew 35% to $450 million from the second quarter of 2010.  International revenues grew 38% to $471 million from the second quarter of 2010.

License revenues for the second quarter of 2011 were $465 million, an increase of 44% from the second quarter of 2010 as reported, and an increase of 40% measured in constant currency.  Service revenues, which include software maintenance and professional services, were $456 million for the second quarter of 2011, an increase of 30% from the second quarter of 2010. 

"VMware's second quarter results were driven by strength across geographies and record enterprise license agreement bookings as a percentage of total bookings," said Mark Peek, chief financial officer.  "Third quarter 2011 revenues are expected to be in the range of $915 and $940 million, a year-over-year increase of 28% to 32%.  The third quarter non-GAAP operating margin is expected to decline sequentially by 260 to 360 basis points.  For the year, we expect annual revenues to be in the range of $3.65 billion and $3.75 billion, an increase of 28% to 31% compared to 2010."

"The quarter's strong performance reflects the continued adoption of virtualization as a key technology for the next era of computing," said Paul Maritz, chief executive officer.  "VMware will continue to help customers accelerate towards more efficiency, flexibility and automation with VMware vSphere® 5 and the cloud infrastructure suite."

Recent Highlights & Strategic Announcements

  • In June 2011, VMware announced vFabric 5, an integrated application platform for virtual and cloud environments.  vFabric 5 will provide the core application platform for building, deploying and running modern applications by combining our Spring development framework for Java and the latest generation of  vFabric application services.  We expect vFabric 5 to be generally available in late summer 2011.
  • In June 2011, VMware announced a new collaboration with HP on turnkey solutions to simplify and accelerate virtualization for customers on the journey to cloud computing. The new HP VirtualSystem solutions will be integrated, pre-tested IT infrastructure stacks that will help improve business agility, lower costs and enable cloud computing for enterprise customers of all sizes.
  • In July 2011, VMware announced vSphere 5 and a comprehensive suite of cloud infrastructure technologies. With nearly 200 new and enhanced capabilities, vSphere 5 will set the standard in virtualization, delivering better application performance and availability for all business-critical applications while automating the management of all datacenter resources.   VMware vShield™ 5, VMware vCenter™ Site Recovery Manager 5, and VMware vCloud® Director 1.5, products  together with VMware vSphere 5 amplify the value customers can realize from virtualized resources by enabling cloud-scale operations.  We expect vSphere 5 to begin shipping by the end of our third quarter.
  • During the second quarter, VMware announced the acquisitions of Shavlik Technologies, SlideRocket, SocialCast and Digital Fuel.  Shavlik Technologies provides on-premise and SaaS-based management solutions, enabling small and medium-sized businesses to more effectively manage, monitor and secure their IT environments.  SocialCast, a modern business communication platform for the enterprise, unites people, information and enterprise applications within collaborative communities.  SlideRocket delivers innovative presentation solutions that uniquely leverage modern concepts of cloud computing, collaboration, social media and mobile computing platforms.  Digital Fuel enables enterprises to more effectively manage the business impact of IT environments, centralizing visibility of IT costs and integrating financial discipline into IT decisions to deliver meaningful measurements and reports.

VMware plans to host a conference call today to review its second quarter 2011 results and to discuss its financial outlook.  The call is scheduled to begin at 2:00 p.m. PT/ 5:00 p.m. ET and can be accessed via the Web at http://ir.vmware.com. The webcast will be available live, and a replay will be available following completion of the live broadcast for approximately 30 days. 

About VMware

VMware delivers virtualization and cloud infrastructure solutions that enable IT organizations to energize businesses of all sizes.  With the industry leading virtualization platform – VMware vSphere® – customers rely on VMware to reduce capital and operating expenses, improve agility, ensure business continuity, strengthen security and go green. With 2010 revenues of $2.9 billion, more than 250,000 customers and 25,000 partners, VMware is the leader in virtualization, which consistently ranks as a top priority among CIOs. VMware is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com

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VMware, VMware vSphere, VMware vCenter and VMware vCloud are registered trademarks or trademarks of VMware, Inc. in the United States and/or other jurisdictions. Other marks mentioned herein are trademarks which are proprietary to VMware, Inc. or another company.  

Use of Non-GAAP Financial Measures

Reconciliations of non-GAAP financial measures to VMware's financial results as determined in accordance with GAAP are included at the end of this press release following the accompanying financial data.  For a description of these non-GAAP financial measures, including the reasons management uses each measure, please see the section of the tables titled “About Non-GAAP Financial Measures.”

Forward-Looking Statements

This press release contains forward-looking statements including, among other things, statements regarding VMware’s third quarter and annual revenue projections, expectations regarding third quarter operating margins, continued adoption of virtualization by customers, the role of VMware products in customer implementations of IT and expectations for vFabric 5 and VMware vSphere 5, including their expected release dates.  These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: (i) adverse changes in general economic or market conditions; (ii) delays or reductions in consumer or information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization market, and new product and marketing initiatives by our competitors; (iv) factors that affect timing of license revenue recognition such as product announcements and beta programs; (v) our customers’ ability to develop, and to transition to, new products and computing strategies such as cloud computing and desktop virtualization; (vi) the uncertainty of customer acceptance of emerging technology; (vii) changes in the willingness of customers to enter into longer term licensing and support arrangements; (viii) rapid technological and market changes in virtualization software and platforms for cloud and desktop computing; (ix) changes to product development timelines; (x) VMware's relationship with EMC Corporation and EMC’s ability to control matters requiring stockholder approval, including the election of VMware’s board members; (xi) our ability to protect our proprietary technology; (xii) our ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; and (xiv) fluctuating currency exchange rates. These forward looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks detailed in documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that we may file from time to time, which could cause actual results to vary from expectations. VMware assumes no obligation to, and does not currently intend to, update any such forward-looking statements after the date of this release.