Another Strong Quarter for VMware Amid Dell Deal Uncertainty

Virtualization solutions provider VMware (NYSE: VMW) reported its first-quarter results after the market closed on May 31. The company is seeing strong growth across many of its product lines, including growth businesses like NSX and vSAN. A potential merger with parent company Dell continues to cloud the company's long-term story, and VMware provided no new information on that front. Here's what investors need to know about VMware's first-quarter results.

VMware: The raw numbers

What happened with VMware this quarter?

  • License revenue rose 20.7% year over year to $774 million.
  • Services revenue jumped 9.8% year over year to $1.23 billion.
  • Hybrid cloud subscription and software-as-a-service accounted for over 10% of total revenue, up from over 8% in the fourth quarter.
  • NSX license bookings grew by more than 30% year over year, while vSAN license bookings grew by more than 70% year over year.
  • All ten of the company's top ten deals during the quarter included vSAN and NSX, while nine included EUC.
  • Enterprise agreements were 36% of total bookings, with five deals valued over $10 million.
  • EUC license bookings and compute license bookings rose by low double-digit percentages.

VMware's second-quarter guidance:

  • Total revenue of $2.145 billion, up 11% year over year; license revenue of $875 million, up 11.7% year over year
  • Non-GAAP operating margin of 33.5% and non-GAAP earnings per share of $1.49

VMware's full-year guidance:

  • Total revenue of $8.78 billion, up 11.7% year over year; license revenue of $3.61 billion, up 12.8% year over year
  • Non-GAAP operating margin of 33.6% and non-GAAP EPS of $6.14
  • Cash flow from operations of $3.6 billion and free cash flow of $3.32 billion

What management had to say

During the quarterly conference call, in response to an analyst question, VMware CEO Pat Gelsinger discussed the long-term potential of NSX:

Gelsinger also commented on the success of the company's IBM cloud partnership and its support for Microsoft Azure:

Management provided no further updates on the potential merger with parent company Dell.

Looking forward

VMware put up another solid quarter, with double-digit revenue and earnings growth, and its guidance calls for more of the same throughout the rest of the fiscal year. The company's focus on supporting multicloud and hybrid cloud environments, via partnerships with Amazon Web Services, IBM, and other cloud providers, is helping to drive cloud and subscription revenue higher.

This strong performance comes at a time of uncertainty surrounding a potential transaction with Dell, which owns around 80% of VMware. Rumors have been swirling for months, but investors may still have to wait a while before anything is announced.

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