VMware Reports Revenue Growth and Flat Earnings

By Markets Fool.com

Cloud infrastructure and virtualization solutions provider VMware reported its first-quarter results after the market close on April 19. The company managed to grow revenue, but non-GAAP earnings were flat due to higher costs. Here are the details.

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VMware results: The raw numbers

Q1 2016

Q1 2015

Growth (YOY)

Revenue

$1.59 billion

$1.51 billion

5.2%

GAAP Net Income

$161 million

$196 million

(17.9%)

GAAP EPS

$0.38

$0.45

(15.6%)

Non-GAAP EPS

$0.86

$0.86

--

Data source: VMware Q1 2016 earnings release.

What happened with VMware this quarter?
VMware's licensing revenue declined slightly, but growth in services more than offset that decline.

  • Licensing revenue fell 1% year over year to $572 million. Adjusted for currency, licensing revenue increased 1%. Services revenue rose 8.8% year over year.
  • Adjusted for currency, VMware's total revenue increased by 6% year over year.
  • VMware generated $720 million of operating cash flow and $679 million of free cash flow during the quarter.
  • License revenue plus the sequential change in unearned license revenue increased 1% year over year, or 2% adjusted for currency.
  • VMware announced a $1.2 billion share repurchase program.
  • Head count fell by about 3% compared to the fourth quarter as a result of the company's previously announced restructuring program.

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VMware also provided guidance for both the second quarter and the full year.

  • Second-quarter revenue is expected to be between $1.66 billion and $1.71 billion, up 4% to 7% year over year, with license revenue between $623 million and $653 million, flat at the midpoint.
  • Non-GAAP EPS is expected to be in a range of $0.94 to $0.96.
  • Full-year revenue guidance remained unchanged, with the company expecting revenue in a range of $6.785 billion to $6.935 billion.
  • VMware increased its outlook for full-year non-GAAP EPS to a range of $4.09 to $4.18, up from a range of $4.07 to $4.16.

What management had to say
VMware CEO Pat Gelsinger pointed to progress in the company's key growth areas:

Q1 was a good start to 2016. We made solid progress with our strategic goal of building momentum for our newer growth businesses and in the cloud. We continue to see momentum across our portfolio of growth products and businesses, including NSX, Virtual SAN and End-User Computing.

CFO Zane Rowe reiterated the company's plan to repurchase shares: "I'm pleased with the team's ability to execute according to our Q1 plan. Our intent to repurchase$1.2 billionof stock this year underscores the confidence we have in the business and reinforces our capital allocation strategy, which includes returning capital to shareholders."

Looking forward
VMware's quarter was better than analysts were expecting, with the company beating estimates on all fronts, but there are still some things to be concerned about. Stagnant license revenue is one, and with the company's second-quarter guidance calling for flat license revenue compared to the prior-year period, services revenue will need to continue to pick up the slack.

In the long run, the strategy is to focus on the company's growth businesses, including NSX, virtual SAN, and end-user computing. NSX license bookings more than doubled year over year during the first quarter, but the business is still too small to move the needle.

The article VMware Reports Revenue Growth and Flat Earnings originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.