VMware (VMW) Q3 Earnings And Revenues Surpass Estimates

VMware’s VMW third-quarter fiscal 2022 non-GAAP earnings of $1.72 per share beat the Zacks Consensus Estimate by 11.7% and increased 3.6% on a year-over-year basis.

Revenues of $3.188 billion surpassed the consensus mark by 2.1% and increased 11.3% on a year-over-year basis.

Following the announcement, shares are down 2% in the premarket trading on Nov 24. In the past year, shares have declined 17.8% compared with industry’s rally of 48.8%.

VMware (NYSE:VMW), Inc. Price, Consensus and EPS Surprise

VMware, Inc. price-consensus-eps-surprise-chart | VMware, Inc. Quote

Top-Line Details

Region-wise, U.S. revenues (49.6% of revenues) increased 7.9% year over year to $1.582 billion. International revenues (50.4%) rose 14.9% from the year-ago quarter’s levels to $1.606 billion.

Services revenues (52% of revenues) rose 7% year over year to $1.658 billion. Software Maintenance revenues (81.7% of Services revenues) moved up 5.6% to $1.354 billion. Professional Services revenues (18.3% of Services revenues) were $304 million, up 13.9% year over year.

Total License and Subscription & SaaS revenues (48% of revenues) increased 16.3% from the year-ago quarter’s levels to $1.53 billion.

License revenues (46.4% of License and Subscription & SaaS revenues) increased 11.1% year over year to $710 million.

Subscription & SaaS revenues (53.6% of segment revenues) increased 21% year over year to $820 million, driven by strong growth in VCPP, Tanzu, end-user computing, Carbon Black and VMware Cloud on AWS.

At the end of the third quarter, ARR for Subscription & SaaS was $3.31 billion, up 25% from the year-ago quarter’s figures.

VMware continued to witness momentum in the Tanzu platform across key verticals, including financial services.

Operating Details

Research & development (R&D) expenses, as a percentage of revenues, increased 10 basis points (bps) year over year to 20.1%.

Sales & marketing (S&M) expenses, as a percentage of revenues, increased 70 bps on a year-over-year basis to 28.7%.

General & administrative (G&A) expenses, as a percentage of revenues, increased 30 bps to 6.3%.

Non-GAAP operating margin contracted 170 bps on a year-over-year basis to 29.3% in the reported quarter.

Balance Sheet & Cash Flow

As of Oct 29, 2021, VMware’s cash & cash equivalents were $12.5 billion compared with $5.86 billion as of Jul 30, 2021.

Total debt (including the current portion of long-term debt) was $10.67 billion as of Oct 29, 2021.

Operating cash flow was $1.09 billion compared with $864 million reported in the previous quarter.

Free cash flow was $984 million compared with $777 million reported in the previous quarter.

Revenue Performance Obligation increased 9% year over year to $11.12 billion.

Some of the Q3 Highlights

In October 2021, at VMworld 2021 event, VMWare rolled out VMware Edge product portfolio to aid enterprises to deploy, manage and safeguard edge-native apps across several cloud environments at the edge and far edge locations.

On the same day, VMware debuted VMware Cross-Cloud services to facilitate customers with the ability to build, run and extend tight security to apps across multiple cloud locations with ample flexibility. The company also announced the addition of new functionalities to the Tanzu Platform.

VMware also added several advancements made to its Telco Cloud Platform to help service providers accelerate their multi-cloud transformation. The company unveiled several updates for its Radio Access Network (RAN) portfolio and debuted the VMware RAN Intelligent Controller solution.

VMware announced that it was adjudged as a leader by research firm IDC in its latest Worldwide Cloud System and Service Management Software Market Shares, 2020: Growth Continues for Top Vendors report.

Guidance

For fourth-quarter fiscal 2022, VMware expects revenues of nearly $3.51 billion. The projection suggests 7% year-over-year growth. Subscription & SaaS and License revenues are expected to be $1.875 billion, indicating nearly 9% growth year over year.

Non-GAAP operating margin is anticipated to be 30.4%, while non-GAAP earnings are expected to be $1.96 per share for the fiscal fourth quarter.

For fiscal 2022, VMware expects revenues of nearly $12.83 billion, suggesting 9% year-over-year growth.

Subscription & SaaS and License revenues are now expected to be $6.305 billion, indicating nearly 12% growth year over year. The company had projected Subscription & SaaS and License revenues to be $6.27 billion, indicating nearly 11.5% growth year over year.

Non-GAAP operating margin is now anticipated to be 30%, while non-GAAP earnings are expected to be $7.19 per share for fiscal 2022. The company had projected non-GAAP operating margin to be 29% and non-GAAP earnings to be $6.90 per share.

Cash flow from operations, capital expenditures and free cash flow is expected to be $4.10 billion, $380 million and $3.72 billion, respectively.

Zacks Rank & Stocks to Consider

Currently, VMware carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth consideration in the broader technology space includes Arrow Electronics (NYSE:ARW) ARW, Alphabet (NASDAQ:GOOGL) GOOGL and Monolithic Power (NASDAQ:MPWR) Systems MPWR.

While Alphabet sport a Zacks Rank #1 (Strong Buy), Arrow Electronics and Monolithic carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arrow Electronics’ shares have gained 33.2% on a year-to-date basis. The long-term earnings growth rate for the company is currently projected at 27.4%.

Alphabet’s shares have surged 66.4% on a year-to-date basis. The long-term earnings growth rate for the company is currently projected at 25.8%.

Monolithic’s shares have rallied 49.1% on a year-to-date basis. The long-term earnings growth rate for the company is currently projected at 25%.

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