VCR License Consolidation - Correctly Preparing The Annual Revenue Growth

Transcription

1 VMW Q Earnings Conference Call 2014 VMware Inc. All rights reserved.

2 Speakers Slide 2 Paul Ziots VP, Investor Relations Pat Gelsinger CEO Carl Eschenbach President & COO Jonathan Chadwick CFO & COO

3 Pat Gelsinger, CEO Slide 3 Q1 revenue grew 13% year over year in constant currency February 2 nd product launch: o New vcloud Air hybrid networking services o Availability of VMware Integrated OpenStack o VMware vsphere 6 which serves as the foundation for the Hybrid Cloud o VMware Virtual SAN 6 and vsphere Virtual Volumes Launched AirWatch 8 and NFV at Mobile World Congress Announced cloud native strategy and key open source technologies Ranked in Fortune 100 Best Companies to Work for in U.S.

4 Slide 4 Building for the Future: One Cloud, Any Application, Any Device End User Computing Desktop Mobile Software-Defined Data Center Hybrid Cloud Compute Networking Storage Management vcloud Air vcloud Air Network 2014 VMware Inc. All rights reserved. 4

5 Carl Eschenbach, President & COO Slide 5 Balanced growth across all geographies Pleased with our global sales execution ELAs approximately 30% of total bookings Three deals at or above $10M Cloud management penetration nearly 15% of installed base

6 Carl Eschenbach, President & COO Slide 6 YoY EUC license bookings, including AirWatch, up over 50% in constant currency Desktop license business grew over 15% YoY, in constant currency AirWatch awarded best mobile cloud service or app for EMM at Mobile World Congress Continued momentum for VMware NSX vcloud Air service is now generally available in five global markets

7 Overview of Results: Q1-15 Revenue Highlights Slide 7 Q1-15 Actual YoY YoY in Constant Currency Total Revenues ($M) 1,511 11% 13% License Revenues ($M) 576 3% 6%

8 Hybrid Cloud and SaaS Slide 8 Q Over 6% of total revenues Growth of greater than 100% YoY Hybrid Cloud and SaaS Revenue contains: vcloud Air vcloud Air Network Portion of AirWatch revenues recognized as SaaS Other "as a Service" offerings such as Desktop as a Service (DaaS) and vrealize as a Service

9 Q1-15 Income Statement Highlights Slide 9 Q1-14 Actual Q4-14 Actual Q1-15 Actual License Revenues ($M) Services Revenues ($M) Total Revenues ($M) 1,360 1,703 1,511 Non-GAAP Operating Margin (1) 31.1% 33.3% 29.9% Non-GAAP EPS (fully diluted) ($) (1) (1) See Appendix for reconciliation to GAAP.

10 Q1-15 Select Financial Measures Slide 10 Q1-14 Actual Q4-14 Actual Q1-15 Actual Headcount 16,339 17,979 18,072 Cash & Short Term Investments ($M) (1) Non-current Unearned Revenues as reported on VMware s consolidated balance sheet 6,616 7,075 7,226 Operating Cash Flow ($M) Unearned Revenues Total ($M) CapEx ($M) ,172 4,833 4,744 Long-Term Unearned Revenues ($M) (1) 1,600 1,851 1,774

11 Q1-15 Revenues + Sequential Change in Unearned Revenues Q1-15 Total Revenues + Sequential Change in Unearned Total Revenues Q1-15 License Revenues + Sequential Change in Unearned License Revenues Y/Y Growth %, as reported (1%) 0% Y/Y Growth %, at constant currency 4% 5% Y/Y Growth %, at constant currency and excluding Unearned Revenues 7% 9% added at close of AirWatch in Q1-14 (1) Slide 11 (1) See Appendix for reconciliation to GAAP

12 FY-2015 Revenue Guidance Slide 12 Guidance ($M) FY-15 YoY YoY in Constant Currency Total Revenues 6,570-6, % 12-14% License Revenues 2,700-2, % 9-12% For the purposes of guidance, we are applying an average US dollar to Euro rate of 1.07 for Q2, Q3 and Q4.

13 Q Revenue Guidance Slide 13 Guidance ($M) Q2-15 YoY YoY in Constant Currency Total Revenues 1,580-1, % 12-14% License Revenues % 9-11% For the purposes of guidance, we are applying an average US dollar to Euro rate of 1.07 for Q2.

14 Q2-15 and FY-2015 Additional Guidance Slide 14 Q2-15 FY-15 Non-GAAP Operating Margin (1) Approximately 30.25% Approximately 31.50% GAAP Operating Margin 15-18% 17-20% Diluted Non-GAAP EPS (1) Non-GAAP Tax Rate GAAP Tax Rate Diluted Share Count (M) Cash Flow From Operations $ $ % Up to 1.0% pt lower than Non-GAAP Tax Rate 430 $ $ % Approx. 0.5 to 2.5% pts lower than Non- GAAP Tax Rate Approximately $1.95B CapEx $400M Share Buyback Program Expect to repurchase over $1B of stock (1) See Appendix for reconciliation to GAAP.

15 Q&A Slide 15

16 VMware, Inc. Appendix Slide 16 RECONCILIATION OF GAAP TO NON-GAAP DATA For the Three Months Ended March 31, 2014 (amounts in millions, except per share amounts, and shares in thousands) (unaudited) GAAP Stock-Based Compensation Employer Payroll Taxes on Employee Stock Transactions Intangible Amortization Acquisition and Other Related Items Tax Adjustment (1) Non-GAAP, as adjusted Operating expenses: Cost of license revenues $ 50 (1) (24) $ 25 Cost of services revenues $ 151 (9) $ 142 Research and development $ 293 (60) (1) (1) $ 231 Sales and marketing $ 474 (41) (1) (3) $ 429 General and administrative $ 151 (17) (24) $ 110 Operating income $ $ 423 Operating margin (2) 17.7% 9.4% 0.2% 2.1% 1.7% 31.1% Income before income taxes $ $ 427 Income tax provision $ $ 79 Tax rate (2) 18.6% 18.5% Net income $ (33) $ 348 Net income per weighted-average share, basic for Class A and Class B (2) (3) $ 0.46 $ 0.30 $ $ 0.07 $ 0.06 $ (0.08) $ 0.81 Net income per weighted-average share, diluted for Class A and Class B (2) (4) $ 0.46 $ 0.29 $ $ 0.07 $ 0.06 $ (0.08) $ 0.80 (1) Non-GAAP financial information for the quarter is adjusted for a tax rate equal to our annual estimated tax rate on non-gaap income. This rate is based on our estimated annual GAAP income tax rate forecast, adjusted to account for items excluded from GAAP income in calculating the non-gaap financial measures presented above. Our estimated tax rate on non-gaap income is determined annually and may be adjusted during the year to take into account events or trends that we believe materially impact the estimated annual rate including, but not limited to, significant changes resulting from tax legislation, material changes in the geographic mix of revenues and expenses and other significant events. Due to the differences in the tax treatment of items excluded from non-gaap earnings, as well as the methodology applied to our estimated annual tax rates as described above, our estimated tax rate on non-gaap income may differ from our GAAP tax rate and from our actual tax liabilities. (2) Operating margin, tax rate and net income per weighted-average share information are calculated based upon the respective underlying, non-rounded data. (3) Calculated based upon 430,546 basic weighted-average shares for Class A and Class B. (4) Calculated based upon 434,729 diluted weighted-average shares for Class A and Class B.

17 Appendix Slide 17

18 Appendix Slide 18

19 Appendix Slide 19 Reconciliation of Non-GAAP to GAAP Operating Margin Guidance Second Quarter Fiscal 2015 (Projected) Full Year Fiscal 2015 (Projected) Non-GAAP Operating Margin ~30.25% Expected ~31.5% Expected Stock-based compensation 8.1 Estimated 8.1 Estimated Employer payroll tax on employee stock transactions 0.1 Estimated 0.1 Estimated Intangible Amortization 2.3 Estimated 2.1 Estimated Realignment Charges 0.0 Estimated 0.3 Estimated Acquisition and other related items 2.6 Estimated 2.3 Estimated Certain Litigation & Other Contingencies GAAP Operating Margin 15% - 18% 0.0 Estimated 0.2 Estimated Expected to be 12 to 15 percentage points less than Non-GAAP margin 17% - 20% Expected to be 12 to 15 percentage points less than Non-GAAP margin

20 Appendix Slide 20 Reconciliation of Non-GAAP to GAAP Diluted Earnings per Share Guidance Second Quarter Fiscal 2015 (Projected) Full Year Fiscal 2015 (Projected) Non-GAAP Diluted Earnings per Share $ $0.92 Expected $ $4.02 Expected Stock-based compensation 0.30 Estimated 1.25 Estimated Employer payroll tax on employee stock transactions 0.00 Estimated 0.01 Estimated Intangible Amortization 0.08 Estimated 0.33 Estimated Realignment Charges 0.00 Estimated 0.05 Estimated Acquisition and other related items 0.10 Estimated 0.35 Estimated Certain Litigation & Other Contingencies 0.00 Estimated 0.03 Estimated Tax Adjustment (0.09) Estimated (0.41) Estimated GAAP Diluted Earnings per Share $ $0.56 Expected to be 34 to 47 cents less than Non-GAAP Diluted Earnings per Share $ $2.52 Expected to be 142 to 185 cents less than Non-GAAP Diluted Earnings per Share

21 Forward Looking Statements Slide 21 This presentation contains forward-looking statements including, among other things, statements regarding momentum for VMware NSX, expected availability and features of VMware vcloud for NFV, key open source technologies for VMware s cloud native strategy, anticipated impact of currency exchange rates on Q and FY 2015 revenue growth; guidance to VMware s expected total revenues, license revenues, GAAP and non-gaap operating margins, GAAP and non-gaap earnings per share, GAAP and non-gaap tax rates and share count for Q and FY 2015; expected cash flow from operations and capital expenditures for FY 2015; and expected stock repurchases over $1 billion in 2015 under VMware s stock repurchase program. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of Actual results could differ materially from those projected in the forwardlooking 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, government and information technology spending; (iii) competitive factors, including but not limited to pricing pressures, industry consolidation, entry of new competitors into the virtualization software and cloud, end user and mobile computing industries, and new product and marketing initiatives by VMware s competitors; (iv) VMware s customers ability to transition to new products and computing strategies such as cloud computing, desktop virtualization and the software defined data center; (v) factors that affect timing of license revenue recognition such as product announcements and promotions and beta programs; (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 changes in the virtualization software and cloud, end user and mobile computing industries; (ix) changes to product and service 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) VMware s ability to protect its proprietary technology; (xii) VMware s ability to attract and retain highly qualified employees; (xiii) the successful integration of acquired companies and assets into VMware; (xiv) fluctuating currency exchange rates; (xv) fluctuations and volatility in VMware s stock price; (xvi) changes in VMware s financial condition; (xvii) changes in business opportunities and priorities that could cause VMware to consider alternative uses of cash; (xviii) fluctuations in the level of cash held in the United States that is available for stock repurchases; and (xix) changes in the dilutive impact in 2015 of shares issuable through VMware s equity compensation programs. 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 VMware s most recent reports on Form 10-K and Form 10-Q and current reports on Form 8-K that VMware 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 presentation.

22 Growth in Constant Currency Slide 22 A majority of our sales are denominated in the U.S. dollar; however, we also invoice and collect in the euro, the British pound, the Japanese yen, the Australian dollar and the Chinese renminbi in their respective regions. The U.S. dollar is the functional currency for all of our legal entities. At the time a non-u.s. dollar transaction is recorded, the value of the transaction is converted into U.S. dollars at the exchange rate in effect for the month in which each order is booked. As a result, the amount of license and total revenues and unearned revenues derived from these transactions will be impacted by foreign exchange fluctuations. In order to provide a comparable framework for assessing how our business performed adjusted for the impact of foreign currency fluctuations, management analyzes year-over-year license and total revenue growth on a constant currency basis. Revenue Growth in Constant Currency and Sequential Change in Unearned Revenues License and total revenues recognized during the current period derived from non-u.s. dollar based transactions were converted into U.S. dollars using the exchange rates that were effective in the comparable prior year period. The calculated current period license and total revenues, adjusted for foreign currency fluctuations, is compared to the license and total revenues of the comparable prior year period, as reported, in calculating license and total revenue growth in constant currency. Non-U.S. dollar based transactions for which revenue was recognized in both the current period and the comparable prior year period do not have a significant year over year foreign exchange impact and are excluded from the calculation. Unearned license revenues and unearned total revenues at the end of the period, derived from non-u.s. dollar transactions recorded during the current period, were adjusted for foreign currency fluctuations using the exchange rates that were effective in the comparable prior year period. Unearned license revenues and unearned total revenues, adjusted for foreign currency fluctuations at the end of the period, are compared to unearned license revenues and unearned total revenues at the beginning of the period, as reported, in determining the sequential change in unearned revenues.