VMware Reports Fiscal 2019 Third Quarter Results Total revenue growth of 14% year-over-year License revenue growth of 17% year-over-year, driven by broad product portfolio strength

Pat Gelsinger, CEO, VMware - HR-2

VMware Reports Fiscal 2019 Third Quarter Results

Total revenue growth of 14% year-over-year

License revenue growth of 17% year-over-year, driven by broad product portfolio strength

DUBAI, UNITED ARAB EMIRATES ,  Dec. 6, 2018  — VMware, Inc. (NYSE: VMW), a leading innovator in enterprise software, today announced financial results for the third quarter of fiscal year 2019:

 Revenue for the third quarter was $2.20 billion, an increase of 14% from the third quarter of fiscal 2018.

 License revenue for the third quarter was $884 million, an increase of 17% from the third quarter of fiscal 2018.

 GAAP net income for the third quarter was $334 million, including a loss of $161 million on an investment in Pivotal Software, or $0.81 per diluted share, down 16% per diluted share compared to $395 million, or $0.96 per diluted share, for the third quarter of fiscal 2018. Non-GAAP net income for the third quarter was $645 million, or $1.56 per diluted share, up 26% per diluted share compared to $509 million, or $1.23 per diluted share, for the third quarter of fiscal 2018.

 GAAP operating income for the third quarter was $495 million, an increase of 21% from the third quarter of fiscal 2018. Non-GAAP operating income for the third quarter was $741 million, an increase of 17% from the third quarter of fiscal 2018.

 Operating cash flows for the third quarter were $769 million. Free cash flows for the third quarter were $712 million.

 Total revenue plus sequential change in total unearned revenue grew 11% year-over-year.

 License revenue plus sequential change in unearned license revenue grew 15% year-over-year .

“Q3 was another strong quarter, and we’re pleased with our results, which continue to be driven by broad-based strength across our diverse product portfolio and in all three geographies,” commented Pat Gelsinger, chief executive officer, VMware. “Our successful annual VMworld events featured many new product, partnership and acquisition announcements – demonstrating continued innovation and investment in our strategy for the future.”

“We had solid Q3 performance on top of a strong Q3 last year,” said Zane Rowe, executive vice president and chief financial officer, VMware. “We are increasing our full year fiscal 2019 guidance as a result of our strength in Q3 and outlook for Q4.”

VMware is raising full-year fiscal 2019 total revenue guidance to $8.882 billion (up from prior guidance of $8.820 billion), updating GAAP net income per diluted share to between $5.95 and $6.07, and updating non-GAAP net income per diluted share to $6.22 (up from prior guidance of $6.14 per diluted share).

Quarterly Business Highlights & Strategic Announcements

 VMware Cloud on AWS saw further momentum with data center expansion across multiple regions globally including the U.S., Europe and now Asia-Pacific, including Sydney and Tokyo.

VMware expanded its integrated hybrid cloud offering, VMware Cloud Foundation 3.5, to deliver greater deployment flexibility and choice, including new Kubernetes support. Other enhancements to the VMware hybrid cloud portfolio included the new VMware vSphere Platinum Edition, along with updates to VMware vSAN and the VMware vRealize Cloud Management Platform.

VMware acquired CloudHealth Technologies, a cloud operations platform across AWS, Microsoft Azure, Google Cloud and VMware environments enabling the delivery of a consistent and actionable view into cost and resource management, security and performance for applications across multiple clouds.

VMware signed a definitive agreement to acquire Heptio, a leader in the open Kubernetes ecosystem, to accelerate enterprise adoption of Kubernetes on-premises and across multi-cloud environments.

IBM and VMware announced a major partnership expansion , including  a new IBM Services offering to help migrate and extend mission-critical VMware workloads to the IBM Cloud and new integrations to help enterprises to modernize applications with Kubernetes and containers.

VMware announced innovations across its intelligence-driven Workspace ONE platform to embrace technology heterogeneity in the workplace, while extending modern management and security across the platform.

VMware NSX SD-WAN by VeloCloud is targeting integration with Microsoft Azure Virtual WAN in the first half of 2019, enabling customers across all industries that have business resources in Azure to gain simple, automated and high-performance connectivity to the branch. This new solution will extend customers’ current ability to connect workloads running in Azure using VMware NSX SD-WAN and VMware NSX Data Center and will enable customers to deliver pervasive connectivity and intrinsic security from branch locations to Azure.

In the inaugural Gartner Magic Quadrant for WAN Edge Infrastructure (published on 18 October 2018),  VMware was recognized as a Leader. The report, profiling 20 vendors, recognized VMware as a Leader in both ability to execute and completeness of vision, and VMware’s position was placed furthest for completeness of vision.

In September,  the company was positioned as a Leader in “The Forrester Wave™: Hyperconverged Infrastructure, Q3 2018.” According to Forrester’s report, VMware achieved the highest possible score in the product strategy criterion, which is comprised of the sub-criteria of value proposition and planned product enhancements, and which appears in the strategy category.

In October, IDC ranked VMware No. 1 in market share in both worldwide cloud systems management and IT automation and configuration management software based on 2017 revenues.  ,   Additionally, VMware was named a Leader in the IDC MarketScape: Unified Endpoint Management Software 2018 Vendor Assessment.

VMware announced it achieved carbon neutrality in global operations two years ahead of its scheduled 2020 goal. Additionally,  VMware and the City of Palo Alto plans to work together on a joint exploration of a community microgrid. Beginning as a proof-of-concept on the VMware headquarters campus, the microgrid will serve as a testbed to explore the potential of community microgrids for controlling distributed energy resources and integrating renewable energy in order to maintain resilience at the corporate and community level.

VMware, with Women Who Code, have launched Project Taara, an initiative in India  that will give an opportunity to 15,000 women, who have taken a break in their careers to return to work. The program aims at upskilling women with free training and certification on advanced digital transformation solutions by VMware.

The company will host a conference call today at 2:00 p.m. PT/ 5:00 p.m. ET to review financial results and business outlook. A live web broadcast of the event will be available on the VMware investor relations website at  http://ir.vmware.com . Slides will accompany the web broadcast. The replay of the webcast and slides will be available on the website for two months . In addition, six quarters of historical data for unearned revenue will also be made available at  http://ir.vmware.com in conjunction with the conference call.

Adoption of New Revenue Standard ASC 606

During May 2014, the Financial Accounting Standards Board issued updates to accounting standards related to revenue recognition (“ASC 606”). VMware adopted ASC 606 on a full retrospective basis effective February 3, 2018. Accordingly, the financial results for the third quarter of fiscal 2019 presented in this release have been prepared under ASC 606. In order to provide meaningful comparisons to prior periods, VMware has included financial statements for the three and nine months ended November 3, 2017, adjusted for ASC 606, and the balance sheet as of the end of fiscal 2018, adjusted for ASC 606. All year-over-year comparisons in this release compare third quarter of fiscal 2019 results to the third quarter of fiscal 2018 as adjusted for ASC 606.

To further assist investors, the financial tables in this release also include a supplemental unearned revenue schedule for the second, third and fourth quarters of fiscal 2018 as adjusted for ASC 606.

About VMware

VMware software powers the world’s complex digital infrastructure. The company’s compute, cloud, mobility, networking and security offerings provide a dynamic and efficient digital foundation to over 500,000 customers globally, aided by an ecosystem of 75,000 partners. Headquartered in Palo Alto, California, this year VMware celebrates twenty years of breakthrough innovation benefiting business and society. For more information please visit https://www.vmware.com/company.html.

Additional Information

VMware’s website is located at www.vmware.com, and its investor relations website is located at http://ir.vmware.com. VMware’s goal is to maintain the investor relations website as a portal through which investors can easily find or navigate to pertinent information about VMware, all of which is made available free of charge. The additional information includes materials that VMware files with the SEC; announcements of investor conferences and events at which its executives talk about its products, services and competitive strategies; webcasts of its quarterly earnings calls, investor conferences and events (archives of which are also available for a limited time); additional information on its financial metrics, including reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures; press releases on quarterly earnings, product and service announcements, legal developments and international news; corporate governance information; and other news, blogs and announcements that VMware may post from time to time that investors may find useful or interesting, including updates regarding VMware’s conditional special dividend that was announced on July 2, 2018.

VMware, VMworld, VMware Cloud, Cloud Foundation, vSphere, VMware vSAN, vRealize, NSX, Workspace ONE, CloudHealth and VeloCloud are registered trademarks or trademarks of VMware, Inc. or its subsidiaries in the United States and other jurisdictions. All other marks and names mentioned herein may be trademarks of their respective organizatizations.

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 expectations and estimates regarding FY19 total revenue and GAAP and non-GAAP earnings per diluted share; momentum across its portfolio and geographic regions; intention to acquire Heptio; and the expected benefits to customers of VMware products and services, such as the forthcoming integration of VMware NSX SD-WAN by VeloCloud with Microsoft Azure Virtual WAN. 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, 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) VMware’s ability to enter into and maintain strategically effective partnerships and alliances; (vi) the uncertainty of customer acceptance of emerging technology; (vii) the ability of VMware and Heptio to satisfy closing conditions to the acquisition on a timely basis or at all; (viii) market conditions, regulatory requirements and other corporate considerations that could affect the timing and closing conditions to the acquisition of Heptio by VMware; (ix) the ability to successfully integrate into VMware acquired companies and assets and smoothly transition services related to divested assets from VMware; (x) rapid technological changes in the virtualization software and cloud, end user and mobile computing industries; (xi) changes to product and service development timelines; (xii) VMware’s relationship with Dell Technologies and Dell’s ability to control matters requiring stockholder approval, including the election of VMware’s board members and matters relating to Dell’s investment in VMware; (xiii) VMware’s ability to protect its proprietary technology; (xiv) VMware’s ability to attract and retain highly qualified employees; (xv) the ability of VMware to realize synergies from Dell; (xvi) disruptions resulting from key management changes; (xvii) risks associated with international sales such as fluctuating currency exchange rates and increased trade barriers; (xviii) changes in VMware’s financial condition; and (xix) risks associated with cyber-attacks, information security and privacy. These forward-looking statements are made as of the date of this press release, 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 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.

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