Beating Q2 market expectations, VMware (VMW 103.22, +2.39 +2.37%) trades to better than three-year highs as results were came in ahead of the August 14 pre-announcement. Management cited cloud service strength, VMware Cloud on AWS and increased adoption among offerings as points reasoning behind the Q2 beat.
Highlighting the Q2 strength, VMW reported License revenues which rose about 13.7% to about $732 million. Additionally, license revenue plus sequential change in unearned license revenue grew 14% year-over-year. Faring slightly worse, Services revenues were up 11.3% in Q2 to about $1.168 billion. All told, VMW reported Q2 earnings of $1.19 per share and revenues which rose about 12.2% compared to last year to about $1.9 billion.
Bookings were once again strong in Q2. NSX license bookings grew more than 40% and vSAN license bookings were up more than 150% year-over-year. EUC license bookings for Q2 were up 20% as healthy growth in both desktop and mobile, aided by Workspace ONE, drove the growth. Management also gave commentary on the increased customer interest surrounding the VMware Cloud on AWS service. Additionally, total compute bookings were up about 10% with compute license bookings up in the mid-single digits. As such, VMW now expects total compute bookings to grow in the low-single digits with compute license bookings flattish during the next few years.
Management’s tone on the call was also promising. Highlighting both the strength across product and geographical areas, VMW noted that VMware NSX and Workspace ONE saw increased market adoption. Further, management noted Q3 is off to a strong start as the company’s largest ever telco deal with Vodafone (VOD 28.76, +0.19 +0.67%) and the company’s first deal in excess of $100 million, a multi-year agreement with DXC Tech (DXC 84.82, -0.21 -0.25%), should lead to solid growth in the years to come.
Looking at the guidance, VMW struck a quiet albeit upbeat tone on the conference call. FY18 guidance was reaffirmed from the August pre-announce as EPS expectations still stand at $5.08 and revenue guidance stays at $7.8 billion on non-GAAP operating margins of 32.7%. However, VMW did raise their guidance for cash flow from operations to about $3 billion for fiscal 2018.
As for Q3, VMW expects EPS and revenues in-line at $1.25-1.28 and $1.93-1.98 billion, respectively. License revenues for the period are expected between $755-785 million with non-GAAP operating margins of about 33.4%.