Q4 2020 Earnings Call

[music].

Good day and welcome to the coupon.

2020 Conference call today's conference is being recorded at this time I would like to turn the conference over to Mr. powered by its Vice President Investor Relations. Please go ahead Sir.

Thank you good afternoon, everyone and welcome to be in worst fourth quarter in fiscal year 2020 earnings conference call on the call we effect Gulf singer Chief Executive Officer in General Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will take questions.

Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast slides, which company. This webcast can be viewed in conjunction with life remarks, and downloaded at the conclusion of the webcast from higher density and more dot com.

On this call today, we will make forward looking statements that are subject to risks and uncertainties actual results may differ materially as a result, various risk factors described in the 10-K's 10-Q's, eight case volume or files with the SEC, we see no obligation to and currently do not intend to update any such forward looking statements.

In addition, during today's call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of Vmwares performance should be considered in addition to that as a substitution for or nicely done from GAAP measures.

Our non-GAAP measures exclude the effect on our GAAP results of stock based compensation amortization of acquired intangible assets employer payroll tax on employee stock transactions acquisition disposition certain litigation matters and other items as well as discrete items impacting our GAAP tax rate.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in the press release and on our Investor Relations Web site.

Unless otherwise indicated all financial metrics provided on this call are for the consolidated Vmware entity, including pivotal growth rates compare Q4 in full fiscal year 2020 results with the recast of prior periods financial information to include pivotal due to the pivotal acquisition, which was accounted for as a transaction by entities under common control in accordance with gap.

Also the Morse presenting a new revenue line item titled subscription and SaaS revenue. Accordingly reported revenue consists of the following three components license subscription SaaS and services previously subscription and SaaS revenue was referred to as hybrid cloud subscription SaaS revenue it was allocated between.

License and services revenue.

Accordingly, beginning this quarter, we will use the term product bookings to refer to the combination of subscription SaaS and license bookings for particular product groups. This term is equivalent to license bookings, which has been used in prior quarters.

A webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link our first quarter fiscal 2001 quiet period begins at the close of business Thursday April 16th 2020 with that I'll turn it over the past.

Thank you Paul and thank you everyone. Joining us today. It was a good finish to a record fiscal year, we're thrilled to deliver more than 10 billion revenue for full fiscal year 20 with double digit topline growth.

A significant milestone for Vmware.

In Q4 total revenue increased 11% year over year with non-GAAP earnings of $2.05 per share.

For fiscal year 20, total revenue increased 12% year over year with non-GAAP earnings of $6, a 24 cents per share.

Although we had good bookings performance for the quarter ended year revenue came in a pit short of expectations due to a higher mix of subscription SAS as well as linked quarter deal execution challenges in particular with regard to the volume of deals at the ended the quarter.

We continued to see large global brands bedding their future on B M, where in Q4, we had two major financial services customers close deals above 100 billion.

Within the last two fiscal years more than half of the top 30 global banks have made major commitments to be somewhere to modernize their IP infrastructure.

More broadly we closed a record 31 deals over 10 million in Q4 across many industries. This compares with 23 deals in a very strong Q4 last year customers continue to choose Vmware to help deliver the digital foundation to power their app services and experiences.

We're thrilled to welcome pivotal to the VM, where family customers have resoundingly affirmed that both pivotal and carbon black acquisitions offer tremendous value as we help customers with their digital transformations.

The skew your 20 was a year of Momenta strategic importance with our App monetization strategy, a pivotal our multi cloud strategy across the Hyperscalers and our security strategy with carbon black all taking form.

I'm extremely proud of what we have accomplished over the last 12 months nine energized by the tremendous opportunities ahead.

Our vision continues to resonate with customers as we help them build run me and its connect the protect any application when any cloud across any device.

And as companies build their digital Foundation C O priorities in 2020 play to our strengths with App monetization multi cloud security sitting at the top with their Lewis.

With our recent portfolio expansions, we davoli addressing each of their top priorities. We also now touch almost every portion of the CIO his budget.

With the completion of the pivotal acquisition, we are well positioned to empower developers who are building enterprise ready cloud native labrum applications.

Yeah, I wouldn't pivotal acquisitions combined with the Vmware cloud native offerings make up the recently announced plans to a portfolio of products and services designed to transform the way enterprises build run and manage application software and simplify the use of kubernetes multi cloud environment.

We will soon be shipping initial tons to offerings as well as unveiling the highly anticipated first project specific release.

Checked Pacific will help transform DM, where beast figure into a kubernetes native platform, enabling enterprises to seamlessly air kubernetes to their existing environments applications operations and skill sets I'm looking forward to provide more detail on these innovations imminently.

We continue to execute against our multi cloud strategy as we drive and expand dark cloud partnerships to offer our customers choice and flexibility.

You have more cloud native view us, we're seeing a balanced distribution and use cases across one data center expansion to disaster recovery and three application specific cloud migration.

We are seeing the eight ws channel accelerate and the overall node count has increased more than four acts in the past year.

We continue to expand market presence and capabilities to reach more customers and keeping customers like vanguard.

In addition, we announced beta programs for Vmware cloud and aided view us outposts, bringing the Vmware manage model for aided us infrastructure on premises.

We are seeing customers also turned to azure beyond where solutions one of the world's largest global wealth management firms recently chose Azure VM were solution powered by Vmware Cloud foundation to expand their existing data center capacity with the specific requirements of using existing skills toolsets and processes.

Be it where club foundation is the integrated cloud infrastructure offering that customers, including many of the worlds largest brands are standardizing on for both private and public clouds.

With carbon black now part of the Vmware family Vmware is poised to take a significant leadership role in the security for the new age of multi cloud modern apps and modern devices, we view security as an essential in common thread throughout our offerings as we simplify security by making it an intrinsic element of our customers operation.

This past quarter. We've also seen early success, the enhanced partnership with Dell, making carbon black cloud the preferred endpoint security solution for del commercial customers. We have added more than 5000, new customers doubling the total customer counts carbon black to well over 10000 yesterday Sanjay Putin presented.

The key though that the artist say conference alongside carry Mills, who is ahead of threat intelligence and response of southwest Airlines together they talked about the sophistication of today's cyber security exploits and the role of intrinsic security help solve those challenges.

The NSX portfolio is now comprehensive across key networking requirements and use cases, and as a crucial proponent and Vmware solutions, including Vmware Cloud Foundation and that monetization and security. This quarter, we were particularly strong in selling or NSX advanced load balancer solution.

In addition customers with particular strength and large retail brands are deploying the Vmware SDN platform at scale, achieving better real time application performance saving significantly on network cost and driving digital transformation in the organizations.

This month, Vmware announced the acquisition of my answer which will enable the n. where to deliver an end to end network visibility monitoring and remediation solution within VM winner Sq plan. This addition, and the answer AI ml capabilities to be immerse existing network and security portfolio will further VM worse ability.

To enable self healing networks.

We experienced very strong Q4 execution across the end user computing business what are the largest institutions in the UK chose our workspace one solution to transform their employee experience and modernize the management across a base of more than 200000 devices.

Wells Fargo, One company a diversified community based financial services company has committed to our workspace, one and virtual platforms for significant workforce transformation by quadrupling the size of their virtual desktops to provide agility and resilience ended the fourth quarter Vmwares end user computing technology received.

Further recognition from industry analyst being where it was positioned as a leader in the Forrester wave unified endpoint management, Q4, 2019, which evaluated 13 unified endpoint management vendors Vmwares intelligence, driven digital workspace platform VM, where workspace one was top ranked in the Kurt.

Offering that strategy categories being where it was also position as a leader in three recent I'd see Marketscape reports related to the end user computing space.

We continue to experience customer and partner momentum with our telco cloud offerings, just yesterday, we jointly announced a reference design collaboration with British Telecom and Intel. This collaboration built on an open and intelligent ovarian compliant platform will bring the power of virtualization for the first time ever to.

Radio access networks for both existing Ltd, and future Fiveg networks. We believe this effort is a key milestone and transforming the telecom industry towards a software defined approach. We're pleased to be working with Rogers, a leading Canadian technology media company help enable their core network expense.

Sure and automation efforts using Vmwares telco cloud solution Rogers will accelerate their innovation and time to market for new service offerings.

We're excited about the opportunity ahead of us as we continue to enable our customers digital transformations, we are well underway and building the portfolio and services offerings required as a foundation for the next phase of our growth one that will set us up well for the next decade, we're committed to executing at scale as we continue to build our.

Subscription SaaS business and invest in our growth, while we deliver technologies and solutions now to help our customers with their digital transformations I want to thank all of the where customers partners and of course TBM their employees for milestone fiscal year 2020.

I'll now turn it over to Dave to talk more about our business performance.

Thank you Pat Q4, two included a strong fiscal 20 with significant expansion in our broad product and solutions portfolio, including the successful closing of carbon black and pivotal in Q3, and Q4, respectively, all of which continue to resonate well with our customers.

In Q4, we had good bookings growth overall and saw continued strength in EMEA and the Americas.

Our Asia Pacific region had a strong year. However, we saw some weakness on a year over year basis in the quarter due to a tough compare with 40% growth in Q4 last year.

While total bookings performance for the quarter and full year can't close our expectations license revenue in the quarter fell short this was primarily due to three reasons.

On the product side are easy product bookings strength of over 30% growth year over year in Q4 had a far greater SAS mix that expected, which is recognized as revenue ratably.

Second we saw a stronger than expected mix of subscription and SaaS and our larger deals for the quarter. For example, our top 10 deals had two times the mix of subscription and fast than we saw in Q4 last year, which also exceeded our expectations and third as Pat mentioned, we believe we could have executed better against our sales.

Pipeline and closing on transactions, especially towards the end of the quarter, which has historically, where we've seen strong close rates.

As we previously reported for example in Q4 last year, we had very high close rates, which we didn't accomplish this year as well as strong backlog that we were able to utilize.

We are however, pleased that we completed a record number of deals above $10 million in Q4, and the increased demand for our subscription and SAS offerings demonstrates the value, we're delivering to our largest and most strategic customer base.

Our focus on subscription and staff has delivered significant bookings growth over the last number of quarters and we expect this trend to continue.

Before moving to financial metrics for the quarter end the year. We've made a couple of key changes in the way we report that I'd like to highlight.

As we mentioned on the Q2 and Q3 calls financial statements for the combined entity of him where and pivotal have been recast for prior periods and presented as if the entities were consolidated as required by GAAP.

We are now presenting a new revenue line titled subscription and SAS find acquisitions of pivotal and carbon black.

Previously we had referred to this category as hybrid cloud subscription and Hsas and earnings remarks. It was not a separate revenue line item on the income statement and revenue for these offerings was historically allocated between license and services.

Recast financial statements for the prior two years, including the additional revenue line for subscription Hsas are included in the slide deck accompanying this webcast as well as with the Q4 press released financial statements on our website.

Metrics I discussed on this call a based on the recast financial statements which include pivotal.

As well as the new revenue line item for subscription or SaaS, unless I indicate otherwise.

In Q4 total revenue grew 11.4% year over year to $3.073 billion.

Excluding pivotal total revenue growth was 10.9% year over year.

The combination of subscription and SaaS and license revenue grew 14.1% year over year to $1.590 billion.

Excluding pivotal revenue for the combination of subscription in SaaS and license grew 12.1% here of a year.

Well now the reporting on and providing guidance for the aggregate as these two revenue line items as it reflects how were managing the combination of offerings across our portfolio.

Subscription SaaS revenue for Q4 rose, 52% year over year to $556 million or 18% of total revenue.

License revenue, which now represents on premises perpetual license revenue increased 1% here over here.

Just on premises license revenue line item is expected to have a slower growth rate than it has historically now that our fast growing cloud offerings are captured in the subscription SaaS revenue line.

We also expect on premises license revenue to fluctuate more on a quarter by quarter basis than what we've seen previously.

This is driven by a higher percentage of subscription and SAS being sold as well as the variability of large deals between quarters that has historically had a large license revenue impact.

Q4, non-GAAP operating income rose, 12.1% to $1.054 billion.

Non-GAAP operating margin was 34.3% up 20 basis points versus Q4, 19, and non-GAAP earnings per share was $2.05 on a share count of 424 million diluted shares.

We ended the quarter with $9.3 billion, an unearned revenue and $2.9 billion in cash cash flow from operations for fiscal 20 with $3.872 billion and free cash flow was $3.593 billion.

In the slide deck that accompanies this call. We've also included Q4 and 520 results to compare with our prior guidance provided on the Q3 call which excluded pivotal.

Q4 growth and total revenue plus sequential change and unearned revenue was 11.4% year over year.

We grew 17% year over year in Q4 for subscription and SaaS and license revenue, that's the sequential change and unearned subscription SaaS and license revenue.

Excluding pivotal revenue to level set with how we forecasted revenue growth for the quarter growth in total revenue plus sequential change and unearned revenue was 12.3% year over year for Q4.

Reflecting out prior definition of license revenue and excluding pivotal growth in license revenue plus the sequential change and unearned license revenue was 11.9% year over year for Q4.

At the end of Q4, our IPO, which includes our committed and noncancelable future revenue was $10.3 billion.

Total backlog was $18 million, which consisted primarily of orders held you to export requirements license backlog at quarter end was $5 million.

Turning to bookings for product groups Q4, NSX product bookings, which includes both on premises license and SaaS bookings grew over 20% year over year for Q4 and over 30% for the full year fiscal 20.

He sent product bookings grew in the mid teens year over year for Q4 and over 30% for the full year.

As we mentioned previously we added skews that multiple price points to cover more market segments. We've also enabled customers to utilize previously purchased licenses, which has had a near term impact on vsan growth.

We believe this strategy will drive long term growth and customer adoption.

Do you see product bookings increased over 30% for the quarter and over 20% for the full year as customers continue to increase their SAS purchases of workspace one.

More than two thirds of you see product bookings were sold assassin Q4.

Core SDDC product bookings for Q4, which includes compute and management combined decreased in the low single digits year over year and increased in the mid single digits for the full year fiscal twinning.

Total core STD seat bookings were flat for Q4 and up mid single digits for fiscal 20 additional details for product bookings are contained in the slide deck accompanying this call.

In Q4, we repurchased $55 million in stock and ended the quarter with $1 billion remaining under our current repurchase authorization, which extends through the end of fiscal 21.

Turning to guidance for fiscal 21, we expect total revenue of approximately $12.050 billion for a growth rates of 11.5%, which is consistent with the outlook. We provided on our last call.

This forecast includes the pivotal acquisition, which does not have material impact on our expected growth rate for fiscal 2001.

It all this in the process of creating a pass version for Kubernetes in fiscal 21, and we expect Pivotals contribution to families growth will increase in future years as it becomes part of our applications business.

Based on the visibility we have in the business. Our current view that is incorporated into our guidance includes an impact from Cove at 19 on our Asia Pacific results in Q1.

We are monitoring the situation closely and have not included any further impact for Q1 or for the full year at this time.

We currently expect to generate approximately $5.860 billion from the combination of subscription and SaaS and license revenue in fiscal 2001, or an increase of 15.9% versus fiscal 20 with over 40% of this amount from subscription and SAS.

We expect non-GAAP operating margin of 28.8% for fiscal 21 with non-GAAP earnings per share a $6 at 55 cents on a diluted share count of 422 million shares.

For full year fiscal 21, we expect cash flow from operations at $4.1 billion up 6% versus fiscal 20, and we expect free cash flow of $3.76 billion.

For Q1, we expect total revenue of approximately $2.730 billion or growth rates of 11.4% as I mentioned earlier. This factors into preliminary estimate for covert 19 in our Asia Pacific region for Q1.

Expect approximately $1.225 billion from combined subscription or SaaS and license revenue in Q1, or an increase of 15.9% year over year with over 45% of this amount from subscription and SAS.

We expect non-GAAP operating margin of 25.1% for Q1 with non-GAAP earnings per share of one dollar and 27 cents on a diluted share count a 423 million shares.

In conclusion Q4 was a good handing to a successful fiscal year for Vmware.

We're pleased to now have pivotal along with carbon black as part of the everywhere, which strengthens our strategic positioning in our applications and security franchise platforms.

Subscription and SAS offerings have been a significant contributor to overall company performance in fiscal 20 and are expected to continue to perform well throughout fiscal 2001 with that I'll turn it back to Paul.

Thanks, saying before we begin the QNX I'll ask you to limit yourselves to one question consisting of one part so we can get to as many people as possible operator, let's get started.

Thank you.

He would like to ask your question. Please signal by pressing star one on your telephone keypad and if you're using the speakerphone. Please make sure. Your mute function is turned off kind of my your signal, we got equipment, but we know that you have a question.

Again, I thought I wanted to ask a question.

And but we were first to kind of ranking of bank of America.

Hi, Tim. Thank you Sam is so much for taking my question and a nice finished the year Pat I was wondering if you could talk about what is the accident plan for execution is it is it just the company product portfolio as rich as deep as it is it's probably growing a little bit do too much that you have to contend with making tweaks to the go to market.

Strategy as you go to the next fiscal year and also if you could give us a little bit more depth into the partnerships with Amazon other cloud providers I know you've been calling out a certain percentage the business that go would embed the revenues and business booked meant to be slug partnerships impurities, we can drill <unk> drilling a little bit more talk about any key customer wins.

That do that should give us more conviction as the EMS and partnership progresses over the next I will ask but the other cloud providers as well. Thank you so much.

Okay. Thank you cash and you know me maybe I'll just start bus framing back you know our vision strategy consistent unchanged, but what we've seen is that as we've added new capabilities to the portfolio. We do have a lot of products now and that's a result of that we have laid out or what I call or five pillars.

Rata G, which says the Vmware cloud Vmware cloud offerings as well as being more cloud foundation on top of that as Tom Zoo, the portfolio of or developer offerings plus the three other capabilities that we have our virtual cloud network with NSX, our digital workspace and now the intrinsic security.

Platform of carbon Black cloud and these five we're just focusing all our attention on right and this is how we're going to reach the market, we're going to increasingly view that uses the franchise offerings to simplify the portfolio.

Vmware and drive more efficiency execution through our sales and go to market. It was you mentioned, we didn't have as good execution at the finished the quarter and as we saw we had a you know simply too many deals to get done as we finished the quarter and while we had their own extraordinary a number of big deals a 31 over 10 million.

Again, and that was compared to 23 deals a year ago, which was an exceptional quarter, we simply had too much to get done at the end of the quarter and Sanjay with Sean here, we're taking steps to improve or deal timing and execution, we simply had too much to get done and one deal in particular, Joseph very large deal came in an hour after our bookings cut off.

So those that kind of things, we just can't allowed have happened or execution, Sanjay and jump here are well underway on executing.

Proven plans to get better execution timelines and linear to give our business over the quarter, Ross, who ask a bit about the cloud and Mcleod partnerships that I mentioned that we're seeing acceleration fourx the number of nodes in or Amazon cloud year on year, and we really a as you've heard me say before cash show.

You know any new major enterprise offering needs about two years to get mature till customers to really start betting on it and you know across the two year a milestone in Q4 of last year. You know, we're seeing the acceleration of the relationship Amazon is a reseller is gaining traction I mentioned Vanguard you know a gray.

Customer example, agreed Springer and whose betting on us for a couple of data center.

Accusations, but their plans are to do a much bigger hybrid deployment of with Vmware freeze Ah well executed in the near term. So we're seeing that momentum pick up we've seen our first major deal with.

The Azure Vmware services a major.

Financial services institutions. So overall the momentum of our multi cloud strategy that we have with the key partnerships Amazon as a preferred partner now Microsoft or Google Oracle Alibaba IBCM offerings all of those gaining momentum. So we feel like our strategy is exactly where the market wants to head.

Into the future.

Thank you cash next question please.

Welcome to Matt Hedberg of RBC capital markets.

Okay guys. Thanks for taking my question Pat I wanted to start with you you always have such a great perspective on the overall demand environment. It sounds like you know what happened at the end of Q. Your Q4, maybe more sort of your own close process and sort of curious, though your view on the overall market, obviously I think the competitive positioning a stronger.

Certainly you know how does the buying environment feels lean mentioned there was a small impact I think your Q1 Guy for covert 19, but are you seeing anything impacting demand, thus far among them to the quarter.

Yeah, let's say the bigger picture and thanks for the question, Matt You know the bigger picture, we would say is unchanged right. The view of technology digital transformation and as you've heard me say before I think we're like your three in a 10 year cycle of digital transformation and with the digital transformation, it's not an I.T. priority.

It's a company priority and as a result, it's become a central theme of every CEO whenever C suites activity there and as a result, we expect to see tech spend well exceed GDP and we expect the software and enterprise software to well exceed overall tech spend so overall, we continue to see.

You know that scenario in last thing for several years into the future feel and obviously, a cobiz 19 too early to tell its ultimate impact than probably has some effect of moderation.

Overall for the year, but that's against a robust view of I T of tech spend as a core digital transformation agenda for years into the future and overall feel even though we didn't completely execute our businesses. We finished the year, we saw a major brands and customer.

I was making huge commitments.

To be aware I mean, you mentioned wells Fargo is one of the examples.

We saw that particular strength, we highlighted with financial services now a major essentially half of the top 30 banks in the World I made major commitments to US just got back from Europe, you're meeting numerous customers are the soeder of like.

Mobile World Congress on tour met with many of the top service providers and the other a major brands. There again strong affirmation for the portfolio. We continue to believe that our long term growth and value creation and the value we bring to our customers as Troy quite tremendous hitting that this is zane I'll just add as Pat pointed out obviously, we're monitoring.

Covert 19 very closely within our guide we did mention that we have expected a moderate impact at this time tower, a P.J. region, we haven't extended that beyond that so thats taking into account for the first quarter in that element into the full year as well, but obviously, we're monitoring closely in its early in our quarter and then potentially early day.

So the virus as well thank you Matt the next question. Please.

Woman Walter Pritchard City.

Hi, Thanks, Pat wanted to ask you anything about it looks like the impact of growth from pivotal I understand it's included in a year ago, but the overall business growing about the same as the I'm wondering I think they were growing roughly twice the rate. If we think about sort of what what has to happen from a product perspective, you went into little bit a detailed maybe you could help us understand.

What's holding that on that product line back and when do you expect that we start to see between that Tanzeum Pacific the.

If you take your strategy really start to help to be accretive to revenue.

Yeah. So let me frame the a strategy and I'll ask Zane to help on some of the specific financial impacts, but overall year, we're very happy to get the acquisition close which would you just before the ended the year you know this idea of being able to augment the infrastructure portfolio Vmware with the developer platform and this is what the.

So you portfolio and the imminent launch for that portfolio was all about when we really believe this gives us tremendous slipped position to help customers with their modern applications and kubernetes one of the most important shifts in enterprise architecture since the cloud and there's a great anticipation for the launch of Pissing.

<unk> as well.

Q4 performance of the pivotal was inline with our expectations.

We're in the process of integrating and operationalizing it into the M., where as well as accelerating its moved to a common kubernetes, a framework and really building it as a key component of the overall attendance you portfolio. This year is really a transition year for the business in our fiscal year 21, as we get.

It to that point that it really is a complete set of kubernetes services, well integrated with Vmware and a key component of the overall tons through portfolio and along with that Walter as you as you highlighted we do expect the on the performance to be a slight headwind on our financials. This year. It as it has been recast is obviously par.

To the base and you're exactly right as you as you think about that trajectory. We do believe beyond F. why 21, as we roll out the elements of has that had articulated we think it'll add significantly to our to our bookings into this portion of our business. So were excited about the long term prospects on the have worked to do shortage we do.

I think that the strength in the renewal business will continue. However, so were pleased to see that strength continue for pivotal.

Thank you Walter next question please.

And we'll go next [noise] Raimo Lenschow Barclays.

He.

Thanks for taking my question and it's funny to see because he Olympic not the whole company has delivered strong stair step there D.

Christian I had was like and you talked about these issues that you had.

On the quarter, but you also said there was more subscription that more soften the mix.

Can you help us understand what part of we're seeing on which part was more important. Thank you.

Yeah I'll start do you know we were very pleased with the subscription SaaS makes me over 50% growth on a year over year basis, and as as you think about those elements we touched on it a few quarters ago with our go to market efforts you know, obviously seeing a nice balance with that says that just happened in the case of the fourth quarter, we saw more.

That in particular with our APC business, which had a remarkable shift as fast, which we're very pleased with but as I pointed out in my prepared remarks, we get that revenue Ratably and if you look at you see you know total product bookings grew over 30% and yet license bookings are actually off 17%. So when you think about that license line.

Item, which now doesn't include any element of the subscription SaaS component with stripping that out. So you do see the net decline in the license line item in particular with those products that could shift towards the SAS.

Module or otherwise assess go to market or otherwise be perpetual. So we're actually generally pleased with the overall growth we've seen in particular with these larger deals as I mentioned for the top 10 deals. We had two times the amounts of subscription SaaS that we've seen historically and that was unexpected as well. So generally speaking we're comfortable with where the bookings are obviously dissipate.

And in our ability to execute we still had license revenue, where we had it in the guide. So we're disappointed by that element, but generally speaking we like the trends, we're seeing with subscription as fast.

Thank you Ryan mall.

Next question please.

And our next question comes from.

I wouldn't say right pharmaco.

Hi, guys. Thanks for taking my question I, just wondered if everything on the SBC up your bookings you called them out of on the products out of negative this quarter definitely deviation in trend from.

In the prior peak or whatever you just.

Okay and on that obviously feel good.

For the full year, but definitely be viewed and before that.

There was some color that that how are you thinking about that but the seat bookings over the course of others coming from Peter Thanks.

Yeah, and overall, we continue to see customers, making major commitments to the Vmware platform and obviously, that's a combination of what they're doing on premises as well as what's happening with their cloud offerings and no particular like if we look at Vmware Cloud foundation or marquee offering a into so.

Based you know where does a very excited to see the customers and we doubled year on year doubled the number of logos that are now wanting that as a platform you mentioned a major customers. So last quarter was a J P. Morgan a major commitment.

To the platform and this idea is becoming more and more powerful that people are saying I want to standardize the VM, where a platform for my data center transformation and that same software stack is exactly what we're running and being more cloud and what we're seeing now.

For our Azure Oracle.

General and Ali Baba offerings, we also see that there's a great excitement Tim the want should be sure seven that's imminent and without a major refresh that we build more of the security capabilities and most importantly project Pacific and that is this new capability around making kubernetes and containers exam.

<unk> equal and operate as part of the VM infrastructure that customers has today a lot of excitement for that so we do see that overall that you know there is some variability quarter to quarter large deals and the growth rate that we see and obviously the restatement of the Euro way, we're now breaking out the revenue and communicating that are what they.

And at our.

View of how that plays out over the coming here as well.

Yeah, I mean as Tad pointed out even in this category. We're very pleased with you know what we expect to see on the Vmc booking site and then V CPP, which historically was in license and now isn't subscription SaaS is having an element in those growth rates as well. So we're pleased that we haven't changed our outlook in this category at all as we.

As we think about the mid term.

Thank you Phil next question please.

I remember to Brent Thill of Jefferies Group.

Thanks, Pat you mentioned that one of the deals closed subsequent to quarter and I'm. Just curious if you could get a little more color about.

It sounds like these deals and still in the pipeline. They haven't been lost its just a matter of time more than anything else happened.

It slipped oh thanks.

Yeah. Thanks, Brent and you know, we'll just say that a lot of deals to many of them late in the quarter a lot going on with the acquisition closures you acceleration of the large number of deals and simply put we should have executed a better as I mentioned one of the deals here literally a major deal closes.

An hour after our bookings cut off you know unacceptable and taking steps to get more linear to driving those harder obviously is a key part of Sean peer and Sanjay you set focus as we drive that execution, but overall, we had enough business in the pipeline you know to meet our financial goals and we simply didn't get it done we do feel that.

As we look at Q1 again, we have enough pipeline to go execute a the business and it's now or an opportunity to go well execute that as we look at to Q1 and you know it's part of bar.

Guidance, that's seen has presented to us and we're well underway with the deals we had in the pipeline as we finished the year were over half the deal value was already completed.

For US you always have more pipeline than you would expect to be able to close at any point in time, but we're well underway in Q1 of getting major deals and major partners and now so we do feel good about what weve communicated so far today.

When some of what I touched on earlier can also be highlighted in our IPO in deferred revenue numbers, which were up nicely on a on a year over year basis here as we think about that shift to subscription even with some of these larger deals. It is captured in the deferred line, which we expect to see through the course of the year and beyond Yeah, and maybe just one other point to add.

No losses, it's not like any of these deals have gone away right. We didn't lose to any competitors. This was really about us executing a pipeline that has you know some of the world's biggest brands betting on us now and very strategic and Broadway's.

Thank you Brent next question please.

And our next question for Mark Murphy Bernstein Research.

Thank you very much and thank you for the additional details in a breaking out of.

SASSA subscription and the numbers I think it'll help people you read test the financials for the full here, including pivotal was a 30.2% operating margins can you help us understand the individual moving parts that bringing the margins next year gap until your estimate of 20 point 28.8 on business due to a bigger impact.

Carbon black is if you use a mix of a higher percentage of subscription cloud.

Can you give us any color would be appreciated. Thank you.

Sure Yeah, Mark you're actually on the right track [laughter]. We you know when we when we mentioned the acquisitions, we highlighted they'd be a couple of points. So two points impact just with the recast.

Of the of pivotal as as you look at the fourth quarter you see that they are actually some improvements on the pivotal line on a year over year basis. So we're pleased to see the trend.

The positive, albeit a two points that you know that did impact. Our result, we also mentioned that carbon black would have an impact.

On the year and we've seen good progress on the carbon black side as well, but it also has an impact as well as our continued investments in some of the key areas of the subscription SaaS businesses much like vmc in some of the other growth areas fellow cloud and cloud health or all consuming some of those investments on a year over year basis. We're very pleased as you can tell.

With the trajectory, we're seeing on the topline for the <unk> for the areas, where we are investing and we expect to see continued returns and the trajectory and a number of those businesses is positive, albeit obviously on a weighted average having a having a and impact on the aggregate company operating margin, but were in line with where we thought we'd be.

And if anything seeing a little more progress then was earlier expected <unk> in the broader category overall, we'd say you know, we're managing carefully the long term value creation.

But we're driving forward, we see this being the combination of accelerating growth rate varied as well as a balancing the margin that we a trade off those were building the business. We're very happy to see you know hsas and subscription accelerating the over 50% growth this quarter and that's something we've been talking about bill for quite a few key.

Orders now as that's been building up and seen good growth so get another quarter of very good.

Growth in that area, we think strategically sets the company out for the longer term very well and saying and I managed carefully the margin versus growth profile of the company for the best long term outcome for our customers and value creation for our shareholders.

Thank you Mark next question please.

Well hear from Morgan Stanley.

Excellent. Thank you guys were taking the question I was hoping maybe we could dig in on that margin discussion a little bit and on a forward looking basis.

His name is there is there any help you could give us in kind of understanding when margins are gonna bottom now I understand there's acquisition it back from the from carbon black and pivotal I understand subscription.

Im going to continue their pricing pressure on it but this is any kind of revenue breakeven levels or cloud unit economics, or like anything that could give us some kind of indication of where those operating margin.

But even from a level or a timeframe perspective of one that is first to bottom out and perhaps not started ahead upwards.

Yeah, Keith you know I'd say in general, we're where we track it very closely in as Pat mentioned in aggregate, we're always trading off between revenue growth and margin and thinking about that and quite disciplined about the aggregate. What I will tell you is there are obviously and number of businesses with nvme, where that our deferred.

Levels of maturity when you think about that margin profile in particular on the subscription SaaS side. So we've been talking about pivotal and where we are with the with the pivotal economics. We're very pleased that the majority of these businesses are on the right trajectory, but what I wouldn't want to do is optimized around the whole and then starve them for cash.

Capital and investment dollars internally, because we're trying to optimize around around that margin level. You know as an example, even when you think about the E. C business, which is one that you know candidly is putting a little bit of headwinds on our revenue growth. If I wanted to just optimize around margin, we wouldn't have leaned into the SAS element to that portfolio as we as we.

Having we're very pleased with the long term value, we see any you see but it is generating probably you know about a point or even more of headwind. If you. If you were to compare apples to apples. So a quick way to get that margin improving would be to pull that lever on perpetual versus SAS, which we think is the longer term answer. So you know I recognize it's a long way of.

Saying, we're not going to get get ahead of ourselves on the margin profile. What I will say is that in a number of these key businesses. The margin trajectory is on the right side and the growth elements are actually producing the levels. We expect that if not more and we're balancing that very thoughtfully and we'll update you as the year progressed as on how to think about that for the upcoming years.

It's just too early to tell given where we are with the consolidated acquisitions of a pivotal and carbon black and where we are in growing the SaaS portfolio I wouldn't want to star that with growth by pulling back investment dollars at this time.

Thank you Keith next question please.

And we'll go next Keith Bachman Bank of Montreal.

Hi, Thank you.

The key.

I wanted to revisit on you see.

You did mention some activities surrounding.

All right, saying it does seem like there's some opportunities there and security within the context of these see but could you just flush out a little bit would thing when speaking about how should we be thinking about.

You see growth over the next 12 to 18 months I'm kind of bookings looked really good in the quarter, even with some of those transitions, but if you could just revisit on you see including in some of the comments around security and how we use investors should be thinking about the growth potential there.

Yeah. Thank you and just really delighted with the do you see team's execution.

In Q4, 30% growth rate barrel in that category is really quite exceptional and zinc.

Indicated the number of those major deals like Wells Fargo that I called out in the script. There was an acceleration of assassins subscription. So we've seen that business in particular.

We offer both perpetual and subscription to customers in that area. So that business. In particular has seen the characteristics are describing of a customer's going to more of a SAS offerings, but we do feel very good with do you see strategy. Overall, you know I'd also point out with a even in today's Corona virus right.

Customers are anxious, saying not going to have more resilience for worked at home environment and again that even accelerates the today's offering a that you see but what we talked about a PR say conferences entirely consistent with our intrinsic security strategy, where it isn't about end user computing, it's about secure end user computing and we're going to read.

Fine the category and really bring management and security into a singular integrated set of solutions for customers and this idea of right. The security industry today as highly bespoke highly fragmented way too. Many products you know complexity for customers to manage and validating and putting these pieces together this has to come.

When it and that's really the strategy that we've laid out is to bring security intrinsically ended the core platforms redefine these categories minimize the space that customers need to test to validate operationalize by making a part of the environments that are already running you or the other piece of Q4 that was really quite.

Exceptional was the early success of the Dell channel and as we said over 5000 customers added to the carbon black cloud quite exceptional doubled the number of customers approximately that we have on that platform and this idea of bringing management security with the client was most acutely seen a buyback.

The Dell channel over really quite excited about the benefits and the residents and you know Sanjay had just a tremendous so.

Come at the our say conference for this keynote tenant joining together with southwest Airlines and this idea of simplifying the security strategy was quite well received by customers there.

Thank you Keith next question please.

And we'll hear next from Heather Bellini apartments that.

Great. Thank you so much team I. Appreciate you guys, taking the question I just wanted to ask a little bit about carbon black and I know you made some odd early comments in your prepared remarks about it but obviously I know, it's obviously early thing I think clearly.

Just wondering if it's actually like when you saw kind of Q4 conversations and renewal conversations happened was that factored in to you know any anybody deal deals in the quarter in kind of what was the Bakken you know who are you being compared to most docket.

In the market when clients are camping kidding, you guys are telling you that they're taking a lot of kind of holiday backing up what you're offering on an integrated basis for the competition. Thank you.

Yeah. Thank you a lot in that question I have heard overall, we feel very good about a carbon black and what we laid out in the deal like case that we laid out or is absolutely coming true up the team itself is integrating into the m. were very quickly and as I've said problem within two quarters, but it seems.

Like they were always part of US go so the values culture focus opportunity everything is being realized that quickly.

They had about 100% growth and the A.R.R. of carbon black in Q4, so a very good business performance, obviously that business. This is so large just sort of affect the overall numbers dramatically, but still is performing very nicely in its early days huge customer momentum.

The three big immigration, so that we talked about workspace one that I just covered in the last conversation to be sphere, and NSX are well underway and then the Dell channel as we mentioned is going quite well. The terms of competition are you. It really is the two new guys crowd strike and carbon black versus the old guys and in that.

Very much as how fast can customers move to a modern EDI our environment, that's going very rapidly, but the Vmware strategy as we've laid out is so much bigger than just replacing old.

Virus with new EDI, our it's about building an intrinsic platform and that message is very rapidly are resonating with customers and they might have said HM carbon black proud strike Oh, it's a vmware into platform I would assume a great appeal to that strategy, we're executing at a nicely.

I feel quite good about how our sales teams plus carbon black plus dollar coming together. So we feel very good about this piece of our strategy.

Thank you Heather next question please.

Next we'll hear from Michael Turits Raymond James.

And then I'm not sure if yet or answering this keith what what is the impact of the subscription and SAS mix on revenues on margins and on cash flow in fiscal 21.

Yeah, you know we haven't broken it out specifically I mean, the best example to use is probably the easiest see example, where I'd say, it's it's having you know roughly a a a point headwind on our revenues in that because that's the product that is most easily sort of shifted either towards per pet.

Actual or otherwise towards SaaS.

You know, we're still very pleased with what the subscription SaaS bucket is doing with the you know significant growth we've seen year over year and then what we're doing to help guide you know the combination in light of the fact that we've got a good component of both is aggregating the license the on Prem license portion with the subscription and SaaS.

Portion, which you know as as we indicated for the year, we expect to be just shy of 16% growth. So we're very pleased with the aggregate subscription SaaS inc. is entering new markets. It's a new growth opportunities. So it's difficult to sort of say what you would have done overall versus what you are doing if you think about you know some of the products.

It could go towards.

You know a a cloud environment versus the perpetual environment VCP P. as an example of one that has shifted from license now to be categorized as subscription or SaaS and we've seen tremendous growth in that in that bucket. Overall vmc is another one that will continue to grow so we see it more of a net add overall than sort of an impact on the business.

So we're taking sort of one element from another at the same I'd say for you know when I talk to keep about margins I mean, it's all incorporated with the portfolio.

Products that we have so we're pleased with the investments we're making we're pleased with the returns where we're seeing within that portfolio and that's incorporated in our guide for the year.

Thank you Michael next question please.

Well go to Brad Zelnick of credit Suisse.

Great. Thanks, so much guys.

As you continue to integrate carbon black and pivotal can you talk about how these sales organizations are all coming together and getting them tossing from the same song. She does this at all account for the Q4 execution commentary Pappy, you talked about earlier and as well with the portfolio shifting to more subscription and SAS, how should we think about the sales incentive.

For selling one first together and as it is that changing at all from last year into this year. Thanks.

Yeah. Thank you Brad on the up you're clearly a as we've laid out these five pillars represent the core of the solution value propositions that we're presenting the customers and with that there's going to be a dedicated singular salesforce dedicated to the security portfolio and we brought together the pieces of the.

The security portfolio particular, OCC defense is now being integrated directly into our security Bu and a dedicated sales force focused on that area as the specialty sales force. Similarly, we've integrated the sales teams a pivotal with that of Hep deal with that of little until we were doing from a cloud native perspective bring all those.

Solutions together into a single Salesforce. So wonder Sanjay we now have these focused sales force on each of these particular.

Areas and then they each operator specialty sales teams for the global sales team and the account specialist they'll be I'm aware of globally. So that model is now well underway as we're bringing these teams together with respect to subscription staff SAS, we've gone to split quotas, where the teams have specific SAS quotas as well as.

Specific license a quota sit there need to execute and that's now represented across every seller of a b M, where and we believe this model was one that will further accentuate the need for us to both sides of our business.

But will also give incentive for everybody to be driving this move to subscription incest, where the puck is going and as you saw Q4 saw exceptional performance in that area of the business.

Thank you Brad I think we'll have time now for a one last question. So the next question would be the last.

And we'll go to my last question from Kirk Materne of Evercore ISI.

Oh. Thanks, Thanks, very much for fitting man I pad I was wondering if you just talk a little bit about the bigger deals you're saying in terms of you know sort of the platform deals and its most of the funding for those type of engagement the coming away for are you taking share from other vendors answer that the tangential areas such that you are now able.

And it sort of reach I'm, just trying to get a sense on how much of this is being fueled by the fact that people have incremental dollars to spend versus you know Sir your ability to consistently sort of take market share from you know other competitors and those in those parts of the market. Thanks.

Yeah. Thank you and overall, we'd say you know in many cases, what we're seeing is that we're able to build a business case and the this might be data center consolidation here, where they have scattered data centers and they are consolidating many of those clearly some of that a share gain where when they move to Vmware Cloud Foundation.

We've gone from having the severe and management to the complete portfolio, including networking and storage. So clearly we're sort of gaining share right in the infrastructure bucket also with the acceleration of being a more cloud offerings, we're gaining a portion of the cloud budget and overall.

So as we've seen now that we're having a hundreds of customers who have gone down this pathway with us.

We've now seen that we're consistently producing them savings in the 30% to 60% range from operations capital a savings you saw that six of 10 of our six to 10 of our largest deals this quarter had via more cloud foundation all of them head NSX and Vsan as part of them all of them had management. So we're clearly seeing.

Our big deals you know these brands are just fabulous and you've heard us talk over the last couple of quarters about Comcast J.P. Morgan Bank of America Wells Fargo. This quarter. You know these are enormous brands were betting on us in a very significant ways and in some cases that were definitely gaining share other cases were gaining wallace.

Here are the I T budget, it always it's coming with a major ROI and us.

Ah <unk> return on those investments in very short periods of time.

Clearly this quarter. We also saw some the success of telco and a major announcements with telco a huge momentum with people like Vodafone has become a very strategic partner, but also key announcements like we just saw this week with Deutsche Telekom Telia or expansions of our relationship with Singtel.

Linda Telstra it'll these again or some of the most important customers and the entire telecommunication space. So overall, great execution, great momentum some of the largest brands in the world. So overall, a exciting phase of the M., where where these brands are betting on us up scale. So thank you for that last question.

And then closing I'll, just say, we're excited to motivated by the opportunities in front of US you know I'm proud of the roll our software is playing in a powering the world digital infrastructure transformation, our progress demonstrates the power of this broad based portfolio and our strategy is resonating with some of these customers that we've just discussed right ASCO.

Well that's on imaginable you know thank you again to our customers partners and a particular TBM where in helping US close what is truly a milestone year for the company. Thank you very much.

And that does conclude the call we would like to thank everyone for your participation you may now disconnect.

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Good day and welcome to the coupon.

2020 Conference call today's conference is being recorded at this time I would like to turn the conference over to Mr. apart.

Probably the most Investor Relations. Please go ahead.

Thank you good afternoon, everyone and welcome to be at worst fourth quarter in fiscal year 2020 earnings conference call.

Oh, yes that culture at our Chief Executive Officer in General Executive Vice President and Chief Financial Officer. Following their prepared remarks, we'll take questions.

A press release was issued after close of market and its posted on our website, where this call is being simultaneously webcast slides, which company. This webcast can be viewed in conjunction with life remarks and download it at the conclusion of the webcast from higher Doug do you get more dot com.

On this call today, we will make forward looking statements that are subject to risks and uncertainties actual results may differ materially as a result, various risk factors described in the 10-K's 10-Q's aka stream or false with the FCC, we shouldn't obligation to like currently do not intend to update any such forward looking statements.

In addition, during today's call will discuss certain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures at the worst performance should be considered in addition to that as a substitution for werent isolation from GAAP measures.

Our non-GAAP measures exclude the impact on our GAAP results of stock based compensation amortization of acquired intangible assets employer payroll taxes on employee stock transactions acquisition disposition certain litigation matters and other items as well as discrete items impacting our GAAP tax rate.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in the press release and on our Investor Relations Web site.

Unless otherwise indicated all financial metrics provided on this call are for the consolidated via more entity, including pivotal growth rates compare our Q4 in full fiscal year 2020 results with the recast of prior periods financial information to include pivotal due to the pivotal acquisition, which was accounted for as a transaction by entities under common control in accordance with gap.

Also the worst presenting a new revenue line item titled subscription and SaaS revenue. Accordingly reported revenue consists of the following three components license subscription and SaaS and services.

Obviously subscription SaaS revenue was referred to list hybrid cloud subscription SaaS revenue it was allocated between license and services revenue.

Accordingly, beginning this quarter, we will use the term product bookings you referred to the combination of subscription SaaS and license bookings for particular product groups. This term is equivalent to license bookings, which has been used in prior quarters.

What cast replay of this call will be available for the next 60 days at our company website under the Investor Relations like our first quarter fiscal 2001 quiet period begins at the close of business Thursday April 16th 2020 with that I'll turn it over the past.

Thank you Paul Thank you everyone joining us today. It was a good finish to a record fiscal year, we're thrilled to deliver more than 10 billion revenue for full fiscal year 20 with double digit top line growth significant milestone for Vmware in Q4 total revenue increased 11% year over year with non-GAAP burdens.

$2.05 per share.

For fiscal year 20, total revenue increased 12% year over year with non-GAAP earnings of $6, a 24 cents per share.

Although we had good bookings performance for the quarter ended year revenue came in a bit short of expectations due to a higher mix of subscription sales as well as linked quarter deal execution challenges in particular with regard to the volume of deals at the ended the quarter.

We continued to see large global brands betting your future or be somewhere in Q4, we had two major financial services customers close deals above 100 billion.

Within the last two fiscal years more than half of the top 30 global banks have made major commitments to be in work to modernize their IP infrastructure.

More broadly we closed the record 31 deals over 10 million in Q4 across many industries. This compares with 23 deals in a very strong Q4 last year customers continue to choose Vmware helped deliver the digital foundation to power their app services and experiences.

We're thrilled to welcome people to the yen where family customers have when you sounded like affirmed that both pivotal and carbon black acquisitions offer tremendous value as we help customers with their digital transformations.

The skew your 20 wasn't Europe led to strategic importance with our App monetization strategy of pivotal our multi cloud strategy or cost the hyperscalers and our security strategy with carbon black all taking form.

Extremely proud of what we have accomplished over the last 12 months land energized by the tremendous opportunities ahead.

Our vision continues to resonate with customers as we help them build one man it's connected protect any application on any cloud across any device.

And as companies build their digital Foundation C O priorities in 2020 play to our strengths with App monetization multi cloud and security sitting at the top with their Willis.

With our recent portfolio expansions, we davoli addressing each of their top priorities. We also now touch almost every portion of the CIO his budget.

With the completion of the pivotal acquisition, we are well positioned to empower developers who are building enterprise ready cloud native labrum applications.

Yeah, I wouldn't pivotal acquisitions combined with the Vmware cloud native offerings make up the recently announced punch through a portfolio of products and services decide to transform the way enterprises build well manage application software and simplify the use of kubernetes multi cloud environment.

We'll soon be shipping additional tons, you offerings as well as unveiling the highly anticipated first project specific release.

Second Pacific will help transform being where beast figure into a kubernetes native platform, enabling enterprises to seamlessly add kubernetes to their existing environments applications operations and skill sets.

Looking forward to provide more detail on these innovations imminently.

We continue to execute against our multi cloud strategy as we drive and expand dark cloud partnerships to offer our customers choice and flexibility with Vmware cloud Native you us we're seeing a balanced distribution and use cases across one data center expansion to disaster recovery and three application specific club.

Gration.

We are seeing Vws channel accelerate I mean overall moved count has increased more than four acts in the past year.

We continue to expand market presence and capabilities to reach more customers and keeping customers like vanguard.

In addition, we announced beta programs for Vmware cloud and eight of U.S. outposts, bringing that you have where manage models for eight of U.S. infrastructure on premises.

We are seeing customers also turned to Asher Vmware solutions, one of the world's largest global wealth management firms recently chose Azure beyond where solution powered by Vmware Cloud foundation to expand their existing data center capacity with the specific requirements of using existing skills toolsets and processes.

Yeah. We're club foundation is the integrated cloud infrastructure offering that customers, including many of the worlds largest brands or standardizing on for both private and public clouds.

With carbon black now part of the via more family be aware is poised to take a significant leadership role in the security for the new age of multi cloud Robert absent modern devices, we view security that's an essential in common thread throughout our offerings as we simplify security by making it an intrinsic element of our customers operation.

This past quarter. We've also seen early success, the enhanced partnership with Dell, making carbon black cloud the preferred endpoint security solution for del commercial customers. We have had a more than 5000, new customers doubling the total customer counts carbon black to well over 10000 yesterday Sanjay Putin presented.

A key though that the RF say conference alongside carried mills, who had a threat intelligence in response to southwest Airlines together they talked about the sophistication of today's cyber security exports and the role of intrinsic security help solve those challenges.

The NSX portfolio is now comprehensive across key networking requirements and use cases and as a crucial component.

Where solutions, including Vmware Cloud foundation that monetization and security this quarter, we were particularly strong in selling our NSX advanced load balancer solution.

In addition customers with particular strength and large retail brands are deploying the Vmware STB and platform at scale, achieving better real time application performance saving significantly on network cost and driving digital transformation in the organizations.

This month, Vmware announced the acquisition of my answer which will enable the n. where to luber, an end to end network visibility monitoring and remediation solution within via Sq plan. This addition, and the answer a high ml capabilities to be immerse existing network and security portfolio will further VM worse ability.

To enable self healing networks.

We experienced very strong Q4 execution across the end user computing business what are the largest institutions in the UK chose our workspace one solution to transform their employee experience and modernize the management across a base of more than 200000 devices.

Wells Fargo, One company a diversified community based financial services company, that's committed to our workspace, one and virtual platforms for significant workforce transformation by quadrupling the size with their virtual desktops to provide a gilbody eat resilience and in the fourth quarter Vmwares end user computing technology received.

Further recognition from industry analyst being where it was positioned as a leader in the Forrester wave unified endpoint management, Q4, 2019, which evaluated 13 unified endpoint management vendors being worse intelligence, driven digital workspace platform VM, where workspace one was top ranked in the car.

Offering that strategy categories.

There was also position as a leader in three recent I'd see Marketscape reports related to the end user computing space.

We continue to experience customer and partner momentum with our telco cloud offerings, just yesterday, we jointly announced the reference design collaboration with bridges Telecom and Intel.

Collaboration built on an open and intelligent Rand compliant platform will bring the power of virtualization for the first time ever to radio access networks for both existing Ltd, and future Fiveg networks. We believe this effort is a key milestone and transforming the telecom industry towards a soft.

Where do you find approach.

We're pleased to be worked with Rogers, a leading Canadian technology media company help enable their core network expansion and automation efforts using VM, there's telco cloud solution watchers will accelerate their innovation and time to market for new service offerings.

We're excited about the opportunity ahead of us as we continue to enable our customers digital transformations, we are well underway in building the portfolio and services offerings required as a foundation for the next phase of our growth one that will set us up well for the next decade, we're committed to executing at scale as we continue to build our.

Our subscription SaaS business and invest in our growth, while we deliver technologies and solutions now to help our customers with their digital transformations.

Want to thank all of you have more customers partners and of course, GBM, where employees for milestone fiscal year 2020.

I'll now turn it over to Dave to talk more about our business performance.

Thank you Pat Q4 concluded a strong fiscal 20 with significant expansion in a broad product and solutions portfolio, including the successful closing of carbon black and pivotal in Q3, and Q4, respectively, all of which continue to resonate well with our customers.

In Q4, we had good bookings growth overall and saw continued strength in EMEA and the Americas.

Our Asia Pacific region had a strong year. However, we saw some weakness on a year over year basis in the quarter due to a tough compare with 40% growth in Q4 last year.

While total bookings performance for the quarter and full year can't close our expectations license revenue in the quarter fell short this was primarily due to three reasons.

On the product side are easy product bookings strength of over 30% growth year over year in Q4 had a far greater SAS mix that expected, which is recognized as revenue ratably.

Second we saw a stronger than expected mix of subscription and SaaS and our larger deals for the quarter. For example, our top 10 deals had two times the mix of subscription and SAS than we saw in Q4 last year, which also exceeded our expectations.

And third as Pat mentioned, we believe we could have executed better against our sales pipeline and closing on transactions, especially towards the end of the quarter, which has historically, where we've seen strong close rates.

We previously reported for example in Q4 last year, we had very high close rates, which we didn't accomplish this year as well as strong backlog that we were able to utilize.

We are however, please that we completed a record number of deals above $10 million in Q4, and the increased demand for us subscription SaaS offerings demonstrates the value, we're delivering to our largest and most strategic customer base.

Our focus on subscription and SAP has delivered significant bookings growth over the last number of quarters and we expect this trend to continue.

Before moving to financial metrics for the quarter end the year. We've made a couple of key changes in the way we report that I'd like to highlight.

As we mentioned on the Q2 and Q3 calls financial statements for the combined entity of handler and pivotal have been recast for prior periods and presented at the entities were consolidated as required by GAAP.

Were now presenting a new revenue line titled subscription and SAS find acquisitions of pivotal and carbon black.

Previously we had referred to this category as hybrid cloud subscription Hsas and earnings remarks. It was not a separate revenue line item on the income statement and revenue for these offerings was historically allocated between license and services.

We cast financial statements for the prior two years, including the additional revenue line for subscription Hsas are included in the slide deck accompanying this webcast as well as with the Q4 press released financial statements on our website.

Metrics I discussed on this call a based on the recast financial statements which include pivotal.

As well as the new revenue line item for subscription and stuff unless I indicate otherwise.

In Q4 total revenue grew 11.4% year over year to $3.073 billion.

Excluding pivotal total revenue growth was 10.9% year over year.

The combination of subscription and SaaS and license revenue grew 14.1% year over year to $1.590 billion.

Excluding pivotal revenue for the combination of subscription SaaS and license grew 12.1% year over year.

Well now the reporting on and providing guidance for the aggregate of these two revenue line items as it reflects how were managing the combination of offerings across our portfolio.

Subscription SaaS revenue for Q4 rose, 52% year over year to $556 million or 18% of total revenue.

License revenue, which now represents on premises perpetual license revenue increased 1% here over here.

Just on trend. This isn't license revenue line item is expected to have a slower growth rate than it has historically now that a fast growing cloud offerings I captured in the subscription SaaS revenue line.

We also expect on premises license revenue to fluctuate more on a quarter by quarter basis than what we've seen previously.

This is driven by a higher percentage of subscription and SAS being sold as well as the variability of large deals between quarters that has historically had a large license revenue impact.

Q4, non-GAAP operating income rose, 12.1% to $1.054 billion.

Non-GAAP operating margin was 34.3% up 20 basis points versus Q4, 19, and non-GAAP earnings per share was $2.05 on a share count of 424 million diluted shares.

We ended the quarter with $9.3 billion, an unearned revenue and $2.9 billion in cash cash flow from operations for fiscal 20 with $3.872 billion and free cash flow was $3.593 billion.

In the slide deck that accompanies this call. We've also included Q4 and fly 20 results to compare with our prior guidance provided on the Q3 call which excluded pivotal.

Thank you for growth and total revenue plus sequential change and unearned revenue was 11.4% year over year.

We grew 17% year over year in Q4 for subscription and SaaS and license revenue, that's the sequential change and under and subscription SaaS and license revenue.

Excluding pivotal revenue to level set with how we forecasted revenue growth for the quarter growth in total revenue plus sequential change and unearned revenue was 12.3% year over year for Q4.

Reflecting out prior definition of license revenue and excluding pivotal growth in license revenue less the sequential change and unearned license revenue was 11.9% year over year for Q4.

At the end of Q4, RPL, which includes our committed and noncancelable future revenue was $10.3 billion.

Total backlog was $18 million, which consisted primarily of orders held you to export requirements license backlog at quarter end was $5 million.

Turning to bookings for product groups Q4, NSX product bookings, which includes both on premises license and SaaS bookings grew over 20% year over year for Q4 and over 30% for the full year fiscal 20.

He sent product bookings grew in the mid teens year over year for Q4 and over 30% for the full year.

As we mentioned previously we added skews that multiple price points to cover more market segments. We've also enabled customers to utilize previously purchased licenses, which has had a near term impact on V sound growth.

We believe this strategy will drive long term growth and customer adoption.

Can you see product bookings increased over 30% for the quarter and over 20% for the full year as customers continue to increase their SAS purchases of workspace one.

More than two thirds of you see product bookings were sold assassin Q4.

Core SPDC product bookings for Q4, which include compute and management combined decreased in the low single digits year over year and increased in the mid single digits for the full year fiscal twinning.

Total core SPDC bookings were flat for Q4 and up mid single digits for fiscal 20 additional details for product bookings are contained in the slide deck accompanying this call.

In Q4, we repurchased $55 million in stock and ended the quarter with $1 billion remaining under our current repurchase authorization, which extends through the end of fiscal 21.

Turning to guidance for fiscal 21, we expect total revenue of approximately $12.050 billion for a growth rate of 11.5%, which is consistent with the outlook. We provided on our last call.

This forecast includes the pivotal acquisition, which does not have material impact on our expected growth rate for fiscal 2001.

It all is in the process of creating a pass vision for kubernetes in fiscal 21, and we expect Pivotals contribution to families growth will increase in future years as it becomes part of our applications business.

Based on the visibility we have in the business. Our current view that is incorporated into our guidance includes an impact from Cove at 19 on our Asia Pacific results in Q1.

We're monitoring the situation closely and have not included any further impact for Q1 more for the full here at this time.

We currently expect to generate approximately $5.860 billion from the combination of subscription SaaS and license revenue in fiscal 21, or an increase of 15.9% versus fiscal 20 with over 40% of this amount from subscription and SAS.

We expect non-GAAP operating margin of 28.8% for fiscal 21 with non-GAAP earnings per share a $6 at 55 cents on a diluted share count to 422 million shares.

For full year fiscal 21, we expect cash flow from operations, a $4.1 billion up 6% versus fiscal 20, and we expect free cash flow of $3.76 billion.

For Q1, we expect total revenue of approximately $2.730 billion or a growth rates of 11.4% as I mentioned earlier this factors and the preliminary estimate for covert 19 in our Asia Pacific region for Q1.

That's approximately $1.225 billion from combined subscription SaaS and license revenue in Q1, or an increase of 15.9% year over year with over 45% of this amount from subscription and fast.

We expect non-GAAP operating margin of 25.1% for Q1 with non-GAAP earnings per share of one dollar and 27 cents on a diluted share count a 423 million shares.

In conclusion, Q4 was a good and into a successful fiscal year for Vmware.

I'm pleased to now have pivotal along with carbon black as part of the everywhere, which strengthens our strategic positioning in our applications and security franchise platforms.

Subscription and SAS offerings have been a significant contributor to overall company performance in fiscal 2000 team and are expected to continue to perform well throughout fiscal 21 with that I'll turn it back to Paul.

Thanks, saying before we begin the QNX I'll ask you to limit yourselves to one question consisting of one part so we can get to as many people as possible operator, let's get started.

Thank you.

He would like to ask your question. Please signal by pressing star one on your telephone keypad after using the speakerphone. Please make sure. Your me it's something that's turned off where my your signal for me to our equipment. When it. We noted that you have a question.

I guess I thought I want to ask a question.

And but we won't know first to kind of run kind of bank of America.

Hi, Tim Thank you Sam so much for taking my question and a nice finished the year Pat I was wondering if you could talk about what is the accident plan for execution is it if it just the company product portfolio as rich and deep as it has its probably growing a little bit do too much that you have to contend with making tweaks to the go to market.

Strategy as you go to the next fiscal year and also if you could give us a little bit more depth into the partnerships with Amazon other cloud providers I know you've been calling notice of the percentage of the business that go would embed the revenues and business booked meant to be slug partnerships are pure has begun to drilling done, but more talk about any key customer wins.

That give that should give us more conviction.

I was on partnership regressive sort of next so as does the other cloud providers as well. Thank you so much.

Okay. Thank you cash and you know me, maybe able to start bus framing back you know our vision strategy consistent unchanged, but what we've seen is that as we've added new capabilities to the portfolio. We do have a lot of products now and that's the results of that we have laid out or what I call or five pillars stuff.

Try to G, which says the Vmware cloud Vmware cloud offerings as well as being more cloud foundation on top of that as Tom Zoo, the portfolio of our developer offerings plus the three other capabilities that we have our virtual cloud network with NSX, our digital workspace and now the intrinsic security.

A platform its carbon black cloud and these five we're just focusing all our attention on right and this is how we're going to reach the market, we're going to increasingly view be since the franchise offerings to simplify the portfolio.

Vmware and drive more efficiency execution through our sales and go to market goes you mentioned, we didn't have as good execution at the finished the quarter and as we saw we had a you know simply too many deals to get done as we finish the year quarter and while we had their own extraordinary a number of a big deals a 31 the over 10 million.

You know that was compared to 23 deals a year ago, which was a exceptional quarter, we simply had too much to get done at the ended the quarter and Sanjay with a CHMP here, we're taking steps to improve our deal timing and execution that we simply had too much to get done and one deal. A particular just a very large deal came in an hour after our bookings cut off.

So those the kind of things, we just can't allow to have happened or execution, Sanjay and shop here are well underway on executing a improvement plans to get better execution timelines and linear to give our business over the quarter loss to ask a bit about the cloud in the cloud partnerships I mentioned that were.

Seeing acceleration fourx the number of nodes in our Amazon cloud year on year, and we really a as you've heard me say before cash show any new major enterprise offering needs about two years to get mature till customers to really start betting on it and you know cost a two year up a milestone in Q4 of last year.

Yeah, we're seeing the acceleration of the relationship Amazon is a reseller is gaining traction I mentioned Vanguard you know a great customer example, a great Bayer and whose betting on us for a couple of data center evacuations, but their plans are to do a much bigger hybrid deployment of hub with Vmware free.

Ah well executed in the near term so we're seeing that momentum pick up we've seen our first major deal with.

The Azure Vmware services, a major financial services institutions. So overall the momentum of our multi cloud strategy that we have with the key partnerships Amazon as a preferred partner now Microsoft or Google Oracle Ali Baba IBM offerings, all of those gaining momentum so we feel like.

Our strategy is exactly where the market wants to head.

Into the future.

Thank you cash next question please.

And when I got the Matt Hedberg of RBC capital markets.

Okay guys. Thanks for taking my question Pat I wanted to start with you you always have such a great perspective on the overall demand environment. It sounds like you know what happened at the end of Q. Your Q4, maybe more sort of a your own close process and sort of curious, though your view on the overall market. Obviously I think the competitive positioning is strong but.

You know how does the buying environment feels lean mentioned there was a small impact I think your Q1 Guy for coven 19, but.

Are you seeing anything.

Impacting demand, thus far among them to the quarter.

Yeah, let's say the bigger picture and thanks for the question might you know the bigger picture, we would say it's unchanged right. The view of technology digital transformation and as you've heard me say before I think we're like your three in a 10 year cycle of digital transformation and with that you don't digital transformation, it's not an I.T. price.

Already it's a company priority and as a result, it's become a central theme of every CEO whenever C suites activity.

As a result, we expect to see tech spend well exceed GDP and we expect the software and enterprise software the well exceed overall tech spend. So overall, we continue to see feel that scenario in last thing for several years into the future feel and obviously a coated 19 too early to tell.

Its ultimate impact than probably has some effect of moderation oh overall for the year, but that's against a world bus view of I T. A tech spend as a core digital transformation agenda for years a into the future and overall you know even though we didn't compete.

We execute our businesses. We finished the year, we saw a major brands and customers, making huge commitments.

To be up where you mentioned wells Fargo is one of the examples of we saw that particular strength, we highlighted with financial services now a major essentially half of the top 30 banks in the World has made major commitments to US just got back from Europe. The meeting numerous customers are the soda of like.

Mobile World Congress on tour and met with many of the top service providers on the other major brands. There again strong affirmation for the portfolio. We continue to believe that our long term growth and value creation and the value we bring to our customers as Troy quite tremendous came that this is Zane I'll just add had pointed out obviously, we're monitoring covance.

19, very closely within our guide we did mention that we have expected a moderate impact at this time tower, a P.J. region, we haven't extended that beyond that so thats taken into account for the first quarter in that element into the full year as well, but obviously were monitoring closely in its early in our quarter and then potentially early days with it.

Iris as well.

Thank you Matt the next question please.

And one month Walter Pritchard [laughter].

Hi, Thanks.

I wanted to ask you anything about it looks like the impact of growth through pivotal I understand it's included in a year ago, but the overall business growing about the same as the M. learned I think they were growing roughly twice the rate.

We think about sort of what what has to happen from a product perspective, you went into little bit a detailed maybe could help us understand what's holding that product line back and when do you expect to be start to see between that Tianjin Pacific. The Oh, the container strategy really start to help to be accretive to revenue.

Yeah. So let me frame the strategy and I'll ask Zane to help on some of the specific financial impacts, but overall year, we're very happy to get the acquisition close which would you just before the ended the year you know this idea of being able to augment the infrastructure portfolio Vmware with the developer platform and this is what the.

<unk> portfolio and the Internet launch for that portfolio was all about when we really believe this gives us a tremendous sub position to help customers with our modern applications and kubernetes one of the most important shifts in enterprise architecture since the cloud and there's a great anticipation for the launch of Pacific.

<unk> as well you know the Q4 performance of a pivotal was inline with our expectations a we're in the process of integrating and operationalizing it into the M., where as well as accelerating its moved to a common kubernetes, a framework and really building it as a key component of the overall attendance you put.

Four wheel. So this year is really a transition year for the business in our fiscal year 21, as we get it to that point that it really is a complete set of kubernetes services, well integrated with Vmware and to a key component of the overall tons through portfolio and along with that Walter as you as you highlighted we do expect the.

The the performance to be a slight headwind on our financials. This year as it has been recast is obviously part of the base and you're exactly right. As you as you think about that trajectory. We do believe beyond F. why 21, as we roll out the elements of has that had articulated we think it'll add significantly to our to our book.

Things into this portion of our business. So we're excited about the long term prospects on the have worked to do short. So we do think that the strength and the renewal business will continue. However, so we're pleased to see that strength continue for pivotal.

Thank you Walter next question please.

And we'll go next <unk> Raimo Lenschow Barclays.

He.

Thanks for taking my question and it's funny to see because he olin thing that the whole company hasn't did have a strong stair step there B D. Christian I had it was like and you talked about the issues that you had.

On the quarter, but you also said there was more subscription that more soften the mix.

Can you help on that then what part of what do you know, which part was more important thank you.

Yeah I'll start you know we were very pleased with the subscription SaaS makes me to over 50% growth on a year over year basis, and as as you think about those elements we touched on it a few quarters ago with our go to market efforts you know, obviously seeing a nice balance with that says that just happened in the case as a fourth quarter we saw more.

That in particular with our E C business, which had a remarkable shift as fast, which we're very pleased with but as I pointed out in my prepared remarks, we get that revenue Ratably and if you look at you see you know total product bookings grew over 30% and yet license bookings are actually off 17%. So when you think about that license line.

Item, which now doesn't include any element of the subscription or SaaS component with stripping that out. So you do see the net decline in the license line item in particular with those products that could shift towards msas.

Module or otherwise assessed go to market or otherwise be perpetual. So we're actually generally pleased with the overall growth we've seen in particular with these larger deals as I mentioned for the top 10 deals. We had two times the amounts of subscription that says that we've seen historically and that was unexpected as well. So generally speaking were comfortable with where the bookings are obviously dissipate.

And in our ability to execute we still had license revenue, where we had it in the guide. So we're disappointed by that element, but generally speaking we like the trends, we're seeing with subscription as fast.

Thank you Ryan mall.

Next question please.

And our next question comes from.

At one point of Wells Fargo.

Hi, guys. Thanks for taking my question I just wanted to focus in on the SVP of bookings, obviously, you called them out on the products out of negative this quarter definitely aviation and trend from.

In the prior peak or whatever you just.

Okay and on that obviously feel good.

<unk> for the four year, but definitely BBAM for them.

Maybe some color that and how are you thinking about that but the.

Bookings over the course.

Thanks.

Yeah, and overall, we continue to see customers, making major commitments to the Vmware platform, but obviously, that's a combination of what they're doing gone promises as well as what's happening with their cloud offerings and no particular like if we look at Vmware Cloud foundation or marquee offering.

In the space, you know where does a very excited to see the customers and we doubled year on year double the number of logos that are not wanting that as a platform. You know mentioned a major customer so last quarter was a J P Morgan and major commitment.

To the platform and this idea is becoming more and more powerful that people are saying I want to standardize the Vmware platform for my data center transformation in that same software stack is exactly what we're running it'd be a more cloud and what we're seeing a.

For our azure or coal.

Role and Ali Baba offerings, we also see that there's a great excitement Tim the want should be sphere, seven that's imminent and without a major refresh that we built more of a security capabilities and most importantly project Pacific and that is this a new capability around making kubernetes and containers exact.

<unk> equal and operate as part of the VM infrastructure that customers has today a lot of excitement for that so we do see that overall that you know there is some variability quarter to quarter large deals and the growth rate that we see and obviously the restatement of the Yo way, we're now breaking out the revenue and communicating that I'll, let say.

And at our view of how that plays out over the coming here as well.

Yeah, I mean as it had pointed out even in this category. We're very pleased with you know what we expect to see on the BMC. Both inside and then be CPP, which historically was in license and now is in subscription SaaS is having an element in those growth rates as well. So we're pleased that we haven't changed our outlook in this category at all as we.

As we think about the midterm.

Thank you Phil next question please.

And we'll go to Brent Thill of Jefferies Group.

Thanks, Pat you mentioned that one of these deals to close.

Subsequent to quarter and I'm, just curious if you could give a little more color about.

It sounds like these deals going still in the pipeline. They haven't been lost its just a matter of pine more than anything else happened.

That slipped a.

Thanks.

Yeah. Thanks, Brent and you know, we'll just say that yes, a lot of deals to many of them late in the quarter or a lot going on with the acquisition closures you acceleration of the large number of deals and simply put we should have executed a better as I've mentioned one of the deals we are literally a major deal closes and now.

We're after our bookings cut off you know unacceptable and taking steps to get more linear he driving those harder obviously is a key part of Sean Pierre and Sanjay So focus as we drive that execution, but overall, we had enough business into pipeline you know to meet our financial goals and we simply didn't get it done we do feel that.

We look at Q1 again, we have enough pipeline to go execute a the business and it's now our opportunity to go well execute that as we look at to Q1 and you know it's part of bar.

Cadence that scene has presented to us and we're well underway will be a deals we had in the pipeline as we finished the year were over half the deal value was already completed.

For US you always have more pipeline than you would expect to be able to close at any point in time, but we're well underway in Q1 of getting major deals and major partners announced so we do feel good about what weve communicated so far today.

Brent I wonder what I touched on earlier can also be highlighted in our IPO in deferred revenue numbers, which were up nicely on a on a year over year basis here as we think about that shift to subscription even with some of these larger deals that is captured in the deferred line, which we expect to see through the course than a year and beyond.

And maybe just one other point to add no losses, it's not like any of these deals have gone away right. We didn't lose to any competitors, which was really about us executing a pipeline that has you know some of the world's biggest brands betting on us now in very strategic and Broadway's.

Thank you Brent next question please.

And our next question is from Mark Murphy <unk> Bernstein research.

Thank you very much and thank you for the additional details in the breaking out of SASSA subscription and the numbers I think it'll help people you read test the financials for the full year, including pivotal was a 30.2% operating margins can you help us understand the individual moving parts that bringing the margins. Thanks.

Your gas how your estimate of 20 point 28.8 on business due to a bigger impact from carbon black is if you use a mix of a higher percentage of subscription in cloud can you give us any color would be appreciated. Thank you.

Yeah, Mark you're actually on the right [laughter], we went away when we mentioned the acquisitions, we highlighted they'd be a couple of points. So two points impact just with the recast of the pivotal as as you look at the fourth quarter you see that there are actually some improved.

It's on the pivotal line on a year over year basis. So we're pleased to see the trend positive, albeit a two points that a you know that did impact. Our result, we also mentioned that carbon black would have an impact.

On the air and we've seen good progress on the carbon black side as well, but it also has an impact as well as art continued investments in some of the key areas of the subscription SaaS businesses much like vmc in some of the other growth areas fellow cloud and cloud health or all consuming some of those investments on a year over year basis. We're very pleased as you can tell.

With the trajectory, we're seeing on the topline for the for the areas, where we are investing we expect to see continued returns and the trajectory in a number of those businesses is positive, albeit obviously on a weighted average having a having a and impact on the aggregate company operating margins that were in line with where we thought we'd be.

And if anything seeing a little more progress then was earlier expected them in the broader category.

Overall, we tell you know, we're managing carefully the long term value creation.

That we're driving for we see this being the combination of accelerating growth rate varied as well as a balancing of the on margin that we a trade off those were building the business, we're very happy to see Hsas and subscription accelerating the over 50% growth this quarter and that's something we've been talking about bill for quite a few key.

Orders Dallas, that's been building up and seen good growth so get another quarter or very good growth in that area. We think strategically sets the company out for the longer term very well and saying and I managed carefully the margin versus growth profile of the company for the best long term outcome for our customers and value creation Porsche.

Holders.

Thank you Mark next question please.

Well hear from Morgan Stanley.

Excellent. Thank you guys were taking the question I was hoping maybe we could extend on that margin discussion a little bit and on a forward looking basis.

The thing is there is any hope you could give us in kind of understanding when margins are going to bottom out I I understand there's acquisition impact from that from carbon black and pivotal I understand subscription he's going to continue that puts some pressure on it but this is any kind of revenue breakeven levels or cloud unit economics or.

Like anything that could give us some kind of indication of where are those operating margin even from a level or a timeframe perspective of one that is first to bottom out and perhaps start to head upwards.

Yeah, Keith you know I'd say in general, we're where we track it very closely and as Pat mentioned in aggregate, we're always trading off between revenue growth and margin and thinking about that and quite disciplined about the aggregate. What I will tell you is there are obviously and number of businesses with nvme where that are.

Front levels of maturity when you think about that margin profile in particular on the subscription and SaaS side. So we've been talking about pivotal and where we are with the with the pivotal economics. We're very pleased that the majority of these businesses are on the right trajectory, but what I wouldn't want to do is optimized around the hall and then starve them for.

Capital and investment dollars internally, because we're trying to optimize around around that margin level. You know as an example, even when you think about the easy business, which is one that you know candidly is putting a little bit of headwind on our revenue growth. If I wanted to just optimize around margin, we wouldn't have leaned into the SAS elements of that portfolio as we as.

We haven't we're very pleased with a long term value, we see an easy but it is generating probably you know about a point or even more of headwind. If you. If you were to compare apples to apples. So a quick way to get that margin improving would be to pull that lever on perpetual versus us, which we think is the longer term answer. So you know I recognize it's a long way.

Saying, we're not going to get get ahead of ourselves on the margin profile. What I will say is that in a number of these key businesses to margin trajectory is on the right side and the growth elements are actually producing the levels. We expected if not more and were balancing that very thoughtfully and well update you as the year progress is on how to think about that for the upcoming.

Years, it's just too early to tell given where we are with the consolidated acquisitions of pivotal and carbon black and where we are in growing the SaaS portfolio I wouldn't want to start with growth by pulling back investment dollars at this time.

Thank you Keith next question please.

And we'll go next Bachman bank of Montreal.

Hi, Thank you Keith sticky.

Pat I wanted to revisit on you see.

You did mention some activities surrounding.

Our assai and it does seem like there's some opportunities there and security within the context of these see but could you just flush out a little bit would thing when speaking on how should we be thinking about.

You see growth over the next 12 to 18 months product bookings looked really good in the quarter, even with some of those transitions, but if you could just revisit on you see including in some of the comments around security and how we use investors should be thinking about the growth potential there.

Yeah. Thank you I'm, just really delighted with the you see team's execution in Q4, 30% growth rate barrel in that category was really quite exceptional and a as saying indicated the number of those on major deals like wells Fargo that I called out in the script goal was an access.

Coloration of assassins subscription so we've seen that business in particular, Oh, we offer both perpetual and subscription to customers in that area. So that business. In particular has seen the characteristics are describing of a customer's going to more of a SAS offerings and we do feel very good with you see strategy over.

All you know I'd also point out with a even in today's Corona virus right customers are anxious, saying how can I have more resilience for work at home environment and again that even accelerates the today's offering a that you see but what we talked about a PR say conferences entirely consistent with our intrinsic security.

Strategy, where isn't about end user computing, it's about secure end user computing and we're going to redefine the category really bring management and security into a singular integrated set of solutions for customers and this idea of right. The security industry today as highly bespoke highly fragmented way too many.

Products, you know complexity for customers to manage and validating and putting these pieces together. This has to come to an end and that's really the strategy that we've laid out as to brain security intrinsically into the core platforms redefine these categories minimize the space that customers need to test to validate operational.

By making a part of the environments that are already running your the other piece of Q4 that was really quite exceptional was the early success of the Dell channel and as we said over 5000 customers added to the carbon black cloud quite exceptional doubled the number of customers approximately that we have on that platform and the site.

D a bringing management security with the client was most acutely seen a by the adult channel over really quite excited about the benefits and the residents and you know Sanjay had just a tremendous so outcome at the our say conference for this keynotes and the joining together with southwest Airlines and this idea of simplifying the secure.

During the strategy was quite well received by customers there.

Thank you Keith next question please.

And we'll hear next from Heather Bellini apartments that.

The way that can't so much team I. Appreciate you guys, taking the question I just wanted to ask a little bit about carbon black and I know you made some odd early comments in your prepared remarks about it but obviously no. It's obviously early Sen Cowen.

Just wondering if especially when when you saw kind of Q4 conversations and renewal conversations happened wasn't that factored in to you know any anybody deal deals in the quarter and kind of what was that the Bakken you know who are you being compared to most often in them.

Market when clients are she anything to that you guys are telling you that they're taking a lot of kind of how are they staffing up what you're offering on an integrated basis versus the competition banking.

Yeah. Thank you a lot in that question I have the right overall, we feel very good about a carbon black and what we laid out in the deal like case that we like it out or is absolutely coming true. The a team itself is integrating into the m. were very quickly and as I've said problem within two quarters about it.

Like they were always part of US go so the values culture focus opportunity everything is being realized quickly a they had about 100% growth and the A.R.R. of carbon black a in Q4. So a very good business performance, obviously that business is so large to sort of affect the overall numbers.

Radically but still is performing very nicely and it's early days huge customer momentum.

And the three big Immigrations, a that we talked about workspace one that I just covered in the last conversation be sphere, and NSX are well underway and then the Dell channel as we mentioned is going quite well in terms of competition are you. It really is the two new guys crowds strike and carbon black versus the old guys and in that.

Very much as how fast can customers move to a modern yahr environment, that's growing very rapidly, but the VM where strategy as we've laid out is so much bigger than just replacing old a virus, what's new DDR. It's about building an intrinsic platform and that message is very rapidly.

So meeting with customers and they might have said HM carbon black crowd strike Oh, that's a V anywhere in the platform I would assume a great appeal to that strategy, we're executing at a nicely I feel quite good about how our sales teams plus carbon black plus dollar coming together. So we feel very good about this piece.

Of our strategy.

Thank you Heather next question please.

Next we'll hear from Michael Turits Raymond James.

And then.

Not sure if yet or answering this keith what what is the impact of the subscription.

Asked mix on revenues on margins and on cash flow.

Fiscal 21.

Yeah, you know we haven't broken it out specifically I mean, the best example to use is probably the easiest see example, where I'd say, it's it's having you know roughly a a a point headwind on our revenues and that because that's the product that is most easily sort of shifted either towards perpetual.

Otherwise towards SaaS.

You know, we're still very pleased with what the subscription SaaS bucket is doing with the you know significant growth we've seen year over year and then what we're doing to help guide you know the combination in light of the fact that we've got a good component of both is aggregating the license the on premise license portion with the subscription and.

Last portion of what she has as we indicated for the year, we expect to be just shy of 16% growth. So we're very pleased with the aggregate subscription SaaS is inc. is entering new markets. It's a new growth opportunities. So it's difficult to sort of say what you would have done overall versus what you are doing if you think about you know some of the products.

That could go towards a you know a a cloud environment versus the perpetual environment VC P.P. as an example of one that has shifted from license now to be categorized as subscription SaaS and we've seen tremendous growth in that in that bucket. Overall vmc is another one that will continue to grow so we see it more of a net add overall than sort of.

And the impact on the business or taking sort of one element from another at the same I'd say for you know what I talked to keep about margins I mean, it's all incorporated with the portfolio.

Of products that we have so we're pleased with the investments we're making we're pleased with the returns where we're seeing within that portfolio and that's incorporated in our guide for the year.

Thank you Michael next question please.

Well go into Brad Zelnick of credit Suisse.

Great. Thanks, so much guys.

As you continue to integrate carbon black and pivotal can you talk about how these sales organizations are all coming together and getting them tossing from the same song sheet.

<unk> for the Q4 execution commentary, Pat you talked about earlier and as well with the portfolio shifting to more subscription and SAS, how should we think about the sales incentive for selling one first together and as it is that changing at all from last year into this year. Thanks.

Yeah. Thank you Brad I'm be up you're clearly a as we've laid out these five pillars represent the core of the solution value propositions that we're presenting the customers and with that there's going to be a dedicated singular sales force dedicated to the security portfolio and we bought together the pieces of the.

Security portfolio particular, OCC defense is now being integrated directly into our security Bu and a dedicated sales force focused on that area specialty sales force. Similarly, we've integrated the sales teams a pivotal without a hefty go with that a little up till we were doing from a cloud native perspective, bringing all those solution.

Together into a single sales force so wonder Sanjay we now have these focused sales force on each of these particular.

Areas and then they each operated a specialty sales teams for the global sales team and the account specialist of the everywhere globally. So that model is now well underway as we're bringing these teams together, but with respect to subscription and staff SAS, we've gone to split quotas, where the teams have specific SAS quotas as well as.

Specific license Clovis with their needing to execute and that's not representative across every seller of a b M where when we believe this model was one that will further accentuate the need for us to both sides of our business.

But will also give incentive for everybody to be driving this move to subscription incest, where the puck is going and as you saw Q4 saw exceptional performance in that area of the business.

Thank you Brad I think we'll have time now for a one last question. So the next question will be the last.

And we'll go to our last question.

Correct My turn of Evercore ISI.

Oh. Thanks, Thanks, very much are fitting man I pad I was wondering if you just talk a little bit about the bigger deals you're saying in terms of you know sort of the platform deals and its most of the funding for those type of engagement the coming away or are you taking share from other vendors and serve that the tangential areas budget, but you are now able.

In a sort of reach is trying to guess that's not how much of this is being fueled by the fact that people have incremental dollars to spend versus you know sir your ability to consistently sort of take market share from other competitors in the end those and those parts of the market back.

Yeah. Thank you and you know overall, we'd say you know in many cases, what we're seeing is that we're able to build a business case and the this might be data center consolidation, there where they have scatter data centers and there are consolidating many of those clearly some of that a share gain where when they move to Vmware Cloud Foundation.

We've gone from having the severe and management to the complete portfolio, including a networking and storage. So clearly we're sort of gaining share rates in the infrastructure bucket also with the acceleration of Vmware cloud offerings, we're gaining a portion of the cloud budget and overall.

So as we've seen now that we're having a hundreds of customers who have gone down this pathway with us.

We've now seen that we're consistently producing a savings as a 30% to 60% range from operations capital a savings you saw that six of 10 of our six a ton of our largest deals this quarter had to be a more cloud foundation all of them head NSX and Vsan and as part of then all of them had management. So we're clearly seeing.

Our big deals in these brands are just fabulous and you've heard us talk over the last couple of quarters about Comcast J.P. Morgan Bank of America Wells Fargo. This quarter. You know these are enormous brands were betting on us and a very significant ways and in some cases that were definitely gaining share other cases were gaining wallace.

Sure Happy I T budget, it always it's coming with a major ROI and us.

Ah return on those investments in very short periods of time.

Clearly this quarter. We also saw some of the successful telco and a major announcements with telco a huge momentum with people like Vodafone has become a very strategic partner, but also key announcements like we just saw this week with Deutsche Telekom Telia.

Expansions of our relationship with Singtel, Linda Telstra build these again or some of the most important customers and the entire telecommunication space. So overall, great execution, great momentum some of the largest brands in the world. So overall, a a exciting phase of P.M., where where these brands or both.

I think on a sub scale. So thank you for that last question and then closing I'll just say we're excited the motivated by the opportunities in front US you know I'm proud of the roll our software is playing in a powering the world's digital infrastructure transformation or progress demonstrates the power of this broad based portfolio and our strategy is resonating.

Some of the so customers that we've just discussed right at scale that Sun imaginable Bill. Thank you again to our customers partners and a particular TV everywhere in helping US close what is truly a milestone year for the company. Thank you very much.

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