Q2 2021 VMware Inc Earnings Call
[music].
21 earnings call.
I'd now like to hand to conference over to your Speaker today Mr. Paul Giants. Thank you. Please go ahead Sir.
Thank you good afternoon, everyone and welcome to via more second quarter fiscal 2021 earnings conference call on the call. We have that goal singer Chief Executive Officer insane.
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 IR deck Vmware dotcom 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 of various risk factors described in the 10-K's 10-Q's in a case via more files with the SEC, we assume no obligation to and do not currently 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 this measures of Vmwares performance should be considered in addition to not as a substitution for or an isolation 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 website.
Unless otherwise indicated all financial metrics provided on this call are for the consolidated Vmware entity, including pivotal growth rates compare our Q2 flight 21 results with the recast of prior period 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.
The webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link our third quarter fiscal 2001 quiet period begins at the close of business Thursday October 15, 2020 with that I'll turn it over to Pat.
Thank you Paul everyone, who has joined our call today in light of these uncertain times I am pleased with Vmware solid execution in the financial performance in Q2, driven by strength in our subscription SaaS product offerings, we experienced good sales execution in both the Asia Pacific and EMEA regions with some Cobra related challenges in the.
Americas are any cloud any application any device strategy continues to resonate with customers and our five franchise platforms consisting of modern applications multi cloud networking digital workspace insecurity helped form the digital foundation that addresses customers hardest technology challenges as.
Organizations everywhere navigate a world transformed by the pandemic many of our customers accelerated their cloud plans, while some slowed their on premise as projects. The on premises impact was overcome by continued strengthen our subscription SaaS offerings globally, and we believe as the economy recovers, we will see resumption of on premises.
Projects.
Over 20% of the immerse total revenue is now generated from our subscription SaaS product offerings with a greater than 40% increase year over year, and we expect our momentum to continue stay tune to hear more about SAS announcements at Vmworld in September now will turn to updates across the businesses.
And the modern apps space, we continue to see customers engaged with tansu, our comprehensive portfolio of products and services that help customers modernize their applications and infrastructure and build new modern apps. This past quarter. We closed the acquisition of OCC Dream, which will help to further expand our intrinsic security strategy.
Containers and kubernetes environments by embedding the OCC during technology into the Vmware carbon black cloud as we continue to build relevance with the tansu platform in the federal sector. The United States Space Force has recently committed to the tansu platform to help deliver a continuous dev ops environment with increased velocity.
Okay and agility next week, we are expecting thousands of enterprise developers to join us for our virtual spring One conference as we continue to increase mind share with us audience.
We continue to further our multi cloud strategy, which includes our cloud platform cloud services and cloud management offerings, we're helping customers with cloud monetization and cloud migration, while also innovating across the cloud platform an ecosystem. We have reached general availability status for new first party.
Services offerings with Google Cloud and Oracle. In addition, Microsoft unveiled its next generation Azure Vmware solution earlier this quarter.
We announced availability of the second generation of Vmware cloud on Dell MC Adele technologies cloud service from Vmware that deliver simple more secure and scalable infrastructure as a service to customers on premises data center and edge locations.
We also launched new capabilities for Vmware cloud on ADW West for App monetization business continuity and resiliency and cloud migration.
We are further enhancing Vmware cloud on ADW us with our data room acquisition, which will expand the Vmware site recovery offering with day trims World class cost optimized disaster recovery as a service solution.
With Vmware Cloud Foundation, we have continued to see major adoption at large firms like Deibler and have seen a number of large customers across financial services and service providers, reaching production at scale in the past few months. Additionally, farce their position Vmware as a leader in the Q3 2020 farce there.
Wave for infrastructure automation platforms, and I'd see has ranked Vmware number one in the worldwide cloud system and service management software.
Our increasing focus on network security was reinforced this quarter with our acquisition of last line a pioneer in anti malware research and world, leading AI powered network threat detection and response last line is being integrated into NSX to provide a complete internal firewall capability enables.
Hi, NSX to address broader opportunities across datacenter and cloud and branch firewall sectors, while accelerating the customer journey towards intrinsic security.
We're seeing good adoption of our load balancing offering as large customers that scale build out their cloud environments and replaced legacy hardware appliances. As an example, a large financial institution has chosen NSX advanced load balancer as their de facto next generation load balancing solution.
While companies governments and organizations are slowly returning to the office a remote everything worked from anywhere environment is now the new normal.
We recently introduced a suite of new workspace solutions, and Vmware workspace, one intelligent hub to help customers improve business resilience and prepare for the new distributed hybrid workforce of the future.
We also unveiled Vmware horizon, eight our flagship VDI platform, bringing more secure delivery and management of virtual desktops and applications across the hybrid cloud.
Be aware has been recognized as a leader in the August 2020, Gartner Magic quadrant for unified endpoint management for the third consecutive year.
Across the globe the races on to bring five achieve from idea to wide deployment communication service providers have two options as they build out there fiveg capabilities the legacy vertically integrated hardware reliant proprietary platform.
Our cost effective open interoperable software defined platform that can enable a large ecosystem to build innovative services, we view the Vmware telco cloud as the software operating system for Fiveg and beyond and our momentum in the last quarter shows the industry is agree.
We're excited to be partnering with dish to bring fiveg speed performance to the majority of the U.S. population with the world's first opened radio access network offering with Vmware the new software defined cloud Native Fiveg network will be equipped to deploy new services and a cost effective manner with great agility.
In addition, we announced the collaboration with Intel designed to develop an integrated software platform for Virtualized ran to accelerate the rollout of both existing LTE and future Fiveg networks.
Before I wrap up I want to acknowledge the recent Dell technologies 13 de filing about their considerations of potential Vmware spin off as we stated previously our board has formed a special committee of independent directors and we're in discussions with style. We have over a year to go as any potential spin off would not occur prior.
To September 2021.
While we believe us that a spinoff may be value enhancing to Vmware and its stockholders. We will continue a mutually beneficial partnership with Dell supporting our customers regardless of any outcome. Meanwhile, we remain focused on enabling customer success, we do not plan to comment further on these discussions.
I'm excited to mention Vmworld will be online September 29 through October one.
We expect over 100000 attendees to join us for completely digital experience, including general session Keynotes, featuring customers and guest speakers as well as hundreds of sessions and customer case studies I'm, particularly excited about the new innovations will be announcing that span AI and ml modern apps new security.
Offerings and key new partnerships with leading technology and services companies make sure to join us.
In closing, we are honored and humbled to continue to work with our customers as they traverse these uncertain times confident that as we help them develop and deploy their digital foundation, they will be better equipped to accelerate their business objectives. We are committed with our partners to deliver the trust the digital foundation that.
Give every customer on unconditional path to a better future with that I'll turn it over design.
Thank you Pat we're pleased with our financial performance in Q2, driven by growth in our subscription and SaaS offerings. It team continue to execute well, while operating virtually and Q2 results demonstrated the value of our diversified products and services portfolio. Despite anticipated Cove at 19 related impact.
To bookings, particularly in the Americas.
We're accelerating our efforts on subscription SaaS product offerings in the current environment, which delivers value to customers as well as increases recurring revenue for Vmware.
In Q2 total revenue grew 9.2% year over year to $2.875 billion.
The combination of subscription and SaaS and license revenue grew 11.4% to $1.350 billion with subscription and SaaS revenue up 44% year over year to $631 million.
Subscription and SaaS revenue comprised 22% of total revenue in Q2, an increase at more than five percentage points versus Q2 of last year.
Within subscription and SaaS the largest revenue contributors include fee CPP modern applications easy and carbon black.
We're also pleased with that performance of Vmware cloud enabled us, which once again grew revenue in triple digits year over year.
In addition, the Amazon reseller channel performed very well in Q2.
These contracts will be recognized as revenue in future quarters.
Our on premises perpetual license revenue for the quarter was $719 million down 7% year over year and inline with our expectations at the beginning of the quarter.
Non-GAAP operating income increased 20% year over year in Q2 to $950 million.
Operating income benefited from both higher than expected revenue performance and lower spending tied to the impact of Cove at 19 on the business.
Non-GAAP operating margin for the quarter was 33% up nearly three percentage points year over year with non-GAAP earnings per share of $1.81 cents on a share count to 423 million diluted shares.
We ended the quarter with approximately $9.4 billion in unearned revenue and $4.7 billion in cash.
Early in Q2, we redeemed $1.250 billion of notes, which were originally due to mature in August of this year.
Cash flow from operations in the quarter was $719 million and free cash flow was $643 million.
Our BPO, which includes our committed and noncancelable future revenue was $10.3 billion up 17% year over year, 54% of which is classified as current inline with historical levels.
Total backlog was $36 million, which consisted of orders received on the last day of the quarter that were not ship that day and orders held due to our export control process.
License backlog at quarter end was $8 million.
For Q2 growth in total revenue plus the sequential change in unearned revenue was 2% year over year.
Growth in combined subscription and SaaS and license revenue plus the sequential change in unearned subscription and SaaS and license revenue was 12% year over year.
Turning to product bookings in Q2, as Pat mentioned and number of on premises projects in Americas experienced a slowdown due to covert 19.
This had an impact on our core SDDC envy sand product bookings each down in that low single digits year over year as well as NSX product bookings, which declined in the mid single digits.
I go to market focus on annual contracts for easy resulted in a CV growth of over 35% year over year for you see SaaS bookings in Q2.
While total easy product bookings, including on premises license bookings and TCV SaaS bookings declined in the high single digits.
We've seen good demand from customers wanting to purchase are easy portfolio is SAS, which we believe will position us well into the future.
We're also pleased with the progress, we're making with our two large acquisitions last year pivotal and carbon black.
In Q2 carbon black had strong product bookings as customer account increased to over 20000.
Total bookings for our modern applications be you exceeded our expectations with particular strength and services for the quarter.
Pivotal and carbon Black has also helped us make progress in building out our five franchise platforms of modern apps multi cloud networking digital workspace and security.
In Q2, we repurchased $130 million a stock in the open market at an average price of $141 per share.
Through the end of Q2, we've utilized $810 million from our current authorization of $2.5 billion.
Turning to our outlook for Q3 and the remain at the year due to the impact of Cove at 19 on the global economy and on our business. We continue to have limited visibility and a higher level of volatility than we've seen historically.
With that in mind, we expect Q3 total revenue to be $2.8 billion up 5.4% year over year, we expect combined subscription SaaS and license revenue to be $1.265 billion up 5.6% year over year with subscription SaaS contributing just over half of this revenue.
We expect non-GAAP operating margin to be 27.5% for Q3 with non-GAAP earnings per share of $1.42 cents on a diluted share count of 423 million shares.
As we look at the full year, we expect total revenue for fiscal 21 to be incrementally better than what we indicated on our last call.
We now expect total revenue for fight 21 to be approximately $11.6 billion up 7% versus fiscal 20.
Combined subscription and SaaS and license revenues forecast to be approximately $5.5 billion for fiscal 2001 up nearly 9% year over year with over 45% of this total generated from subscription and SAS.
We expect operating profit for the full year to benefit from some of the short term covert 19 impacts on expenses that we've seen in the first half of the year, including variable costs, such as T. any employee related and facilities expenses.
Non-GAAP operating margin is expected to be 30.5% for fiscal 2001, and full year non-GAAP EPS is expected to be $6.62.
A share on a diluted share count of 423 million shares.
Operating cash flow is expected to be approximately $3.7 billion and free cash flow is expected to be approximately $3.4 billion.
Overall, we're pleased with our Q2 financial performance and our team's ability to manage through the immediate effects of covert 19 on the business.
As I mentioned earlier, we plan to accelerate certain product initiatives through the remainder of the year to further support our customers digital transformations and grow our subscription and SaaS product offerings.
This pandemic has accentuated the need for companies to become more digitally enabled and we believe the growth of our diversified portfolio will continue to provide value to our customers partners and shareholders I'll turn the call back to Paul for Couponing.
Thanks, saying before we begin the Q in a 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.
At this time in order to ask a question you're ready depressed.
Our next telephone can we try a question crash the Packer Heskey. Please god battle the compiled richer any roster.
First question, Sir we have Matt Hedberg from RBC.
Your line is open.
Oh, Hey, guys. Thanks for taking my questions and congrats on the result, obviously difficult environment, the Hsas and subscription was particularly impressive.
Pat I guess my question is you guys you in particular have.
Very strong visibility on global IP demand environment.
And now that we're through some of the initial aspects of code and based on your conversations with executives do you still think that Q2 was was the low point for demand and how do you think about the return of spending in the U.S. in particular thanks.
Hey, Thanks, Matt and yes, a you know what it was a real pleased with the performance overall and subscription Psas in particular it was good execution by our teams and obviously the Q2 results here were Harold emphasized by a big customer commitments such as our 22 10 plus.
Million dollar E age you know the greater than 40% subscription and SAS again was particularly nice great momentum and be MCV CPP horizon VDI, a P.J. anemia. Despite some of the weakness that we saw in Americas and some of the on Prime products here. We do think that you know the environment remains.
Pretty uncertain one as we indicated we're in this Nike swim ish kind of recovery cycle as we see it with Q2 and Q3 being the bottom quarters. So we expect Q3, just there will be challenging with recovery in Q4 Q1 and into next year a lot of remaining uncertainties as you know a country star.
To go back into second ways than you know fits and starts certain segments of the industry being challenged or travel entertainment all of the aspects of the retail segments had been challenged you know brand segment, so lots of uncertainty overall.
But you know as I've indicated than the past, Matt we expect that so I T is comfortably better than the GDP and that to software and cloud are comfortably better than I T. Overall ill and we see that continuing to be case, but we still think of several quarters of recovery until we're back to a more normal economic environment here.
Matt This is saying I just add you know well I mentioned, we don't have great visibility into the latter half the year. It is that outperformance in the second quarter that ahead of us raise our outlook for the remainder of the air to be about 7% up and total revenue versus what I indicated on the last call, which is mid single digit. So we felt incrementally better not only with output.
Formats for the first half of the air that generally our outlook for the remainder of the or as well.
Thank you Matt next question please.
Next question, we have Mark Murphy from JP Morgan Your line is open.
Thank you very much I'll add my congrats.
And that is in a point, they're great to see the increase and the outflow your guide and.
Pat I wanted to ask how you are thinking about vmwares ability to generate new pipeline ads to be closing in future quarters. In this kind of environment, where you don't have the face to face a sales interactions.
And just how your your sales teams are overcoming that and also what to expect for lead generation coming up in DVM World online event.
Yeah, It's a great to question Mark and Neil. Thank you for that you ought to overall you know when we comment on this last quarter, but that was one of the areas of uncertainty as how well we could do for generating new pipeline and we do think with the increase in the second half guide that saying just referenced that we're going to work.
Comfortable incrementally that we have been able to generate tub pipeline. We do see you got to building, we particularly see it and segments like telco like financial services like government.
So those areas in particular that we're seeing more strength in the business and we continue to build these new sales muscles as Weve described it clearly there's been a rebalancing of IP budgets heroin areas, they've just been Oh extremely successful with work from home on how quick.
We we were able to adjust some of the on prime process projects for pushed a bit down and access to data center, so a bit more challenging but overall, we feel good about the pipeline generation that so we've seen in our euro laying clear that we can see moment to build and the second half and into.
Your next year.
And again Mark.
Next question please.
Next question.
Josh Raskin from Bank of America. Your line is open.
Hi.
Okay very much congratulations on the quarter.
Did subscription SaaS product offerings outgrowth of 44% looks very solid it's increasing as a percentage of revenue.
I'm curious if you can elaborate your thoughts on how you plan to accelerate product initiatives.
Looks like you certainly want to.
Make this a bigger profile as part of your business is concerned I'm curious if we can connect bet that product initiative with the digital transformation to help connect those dots and help us see.
Hi, this could be possible. Thank you so much once again.
Yeah, Thanks cash and overall it was another good quarter in the ups, a subscription and SAS area for us and obviously offerings like vmc on AAMC or triple digit growth again.
And a really good momentum from the Amazon sales channel. We also saw VCP, you'll be incrementally stronger and Q2, which was nice to see also and then the new areas like security and pivotal right as we bring those into the company and we start.
Having success of making those part of our a bigger sales and a bigger deals. We expect that is gonna be an area of acceleration and those are subscription of SAS. As you know and then areas like you see in the VDI offerings. So overall a good set of offerings now, we're really getting to scale and maturity in the off.
Offerings, we are going to be making more announcements at vmworld around additional subscription and SASSA solutions and programs to accelerate those offerings. We expect that it will be a bit more modest than the growth rate next quarter year over year as we start to lap some of the carbon black acquisition.
That we are have been able to uniquely benefit from but overall, we continue to see this being a strong area of growth one that we're putting more focus on and obviously one that to our customers have been very pleased with and it is and then this cobot environment, where they are just has been an acceleration of cloud and SaaS offerings.
Overall, we're leaning into that I think a very good time and where the markets our overall.
Thank you cash next question please.
Next question, we have Mark Moerdler from Bernstein. Your line is open.
Thank you very much and also congrats on the quarter, it's nice to see.
Subscription has asked was strong.
License was down as we expected year over year could you give a bit more color on exactly how licenses acting or are you seeing the tradeoff between the same solutions driving what would have been license revenue to a cloud revenue. We just are you seeing more of a shift between specific products occurring thats negatively impacting licenses.
Susan products themselves with has it been acting as you expected.
Sure Mark I'll start and then I know paddle have a few comments as well I mean generally speaking yes. It is and as we pointed out we were clearly impacted by Covidien, most particularly in the Americas. It has been acting in line with our expectations, we talked about pre cove. It as we set up the year that this would be a year, we'd we'd be focusing more.
And our subscription SaaS businesses, so while it's off and we actually expected to be off if you look at our Q3 guide we expected to come off further part of that was planned for as we laid out the year, even pre cove, it but theres no doubt that license has been more impacted with Covidien SaaS subscription SaaS products, yeah, and a few points to add on the license.
Clearly, we were expecting sub sales to be faster and license to be less. So you know some of that was uniquely impacted by the Americas and the on premise offerings. So we've already indicated so that was a little bit weaker than we were initially forecasting for the year, but as somewhat offset by the strength and subscription and SAS, we do believe as the year.
Goes on and as the economy accelerates that we do expect to see recovery in that area and some of the specific products inside of that and I would also emphasize again you know examples like 22, Elaine over $10 million right. You know its oh compare to a 13 last year, we are still seeing.
This large strategic commitment to Vmware and those a 22 year lays are largely your license based the offerings, even though increasingly we're seeing it in those large delays subscription as fast as well. So overall the strategic commitment as high to Vmware acceleration of subscription and Hsas and the segments that we saw that.
Weakness for larger what you'd expect things like travel entertainment health care and such for the ones that were more uniquely impacted as overall I T budgets for Reprioritized.
Thank you Mark next question please.
Next question, we have Walter Pritchard from Citi. Your line open.
Hi, Thanks question on a pivotal enhancing the container strategy and I'm just wondering you've had now.
Going on seven eight months here.
So with pivotal and I know you had some caution early in the year around how that might play out in and just wondering how you're feeling about the contribution from pivotal and the momentum of that business now seven or eight months in with the tansey launches and so forth.
Yes, Thanks, Walter and overall, we'll just say be integration. The execution is on track and we're starting to see some good co selling momentum and a one of our largest deals. This quarter was a dime LER right, which was both a foundation deal VCF plus 10 zoo. So these integrated deals.
Both the run environment as well as the build and manage environment are really coming together for us and we're quite excited about that we had a successful tansey launches the v. sphere, 710 zoo kubernetes grid the base kubernetes offering the management team zoo.
Management.
Offering TMC as we call. It all of those are now starting to gain momentum we did exceed our overall bookings for tansu.
In the quarter, so we're starting to see the momentum.
You merge and we'll say overall, there's a marked increase from customers interest in app monetization and as they move their kubernetes project sort of from this original your phase of go developers playing around with it a moving into the enterprise production phase the value proposition of Vmware is starting to.
Serialize also some of our largest deals in Q2 include a bit such as our dish deal. Some very large government agencies, such as phase space Force with an eight figure a commitment to the tansu platform. All a testament of the network effects and synergies of it being a part to Vmworld also Ah you know a pay.
Eight advertisement spring one youre feature developer conferences coming up in September as well. So that's a pretty important event for us to further accelerate developer momentum around the tansey portfolio.
Thank you Walter next question please.
Next question really has been a lifestyle from Barclays. Your line is open.
Click.
On some of the product bookings for some of the key products like a vsan NSX can you just kind of help us understand that little bit to some of the drivers here. Thank you.
Yeah. Thank you Raimo, and obviously would say both Vsan and NSX, we're just impacted and we had the year on year decline largely because of the overall co bid in Americas comments and on premises project delays that we referenced earlier overall.
All you know if I just dig into V. Sand first and then a little bit more and NSX go on V. Sand Oh, we continue to see that we're gaining share in the marketplace. Our each CIA offerings. We saw again from I'd see that would be somewhere gainshare last quarter, our H.T.I. offerings, we're now getting more and more solutioning with.
Our full Vmware Cloud Foundation, there were twice as large as a number two in the marketplace and the Vsan and NSX components play critical roles as part of both VCF Vmc and our Vichy P.P. solution. So, it's becoming a piece of our bigger or cloud offerings.
When we look at NSX go obviously, the same with sort of effect with regard to America's on premises projects, but I'd also point out that we saw particularly good performance in EMEA and Asia, P.J. with greater than 30% year on year growth and the product bookings area. So overall, we're starting to see some global strength of some of those economy.
He's also for NSX very good quarter for RV, our load balancing solution with last line, we're expanding our market to address more of the firewall and security capabilities. We'd also say that we had a little bit of unique issue that a lot of our pipeline for velocloud was associated with retail hospitality.
The travel solutions, where a lot of branch projects and a lot of those for obvious reasons were delayed or put on hold so we had a little bit of unique issue on velocloud, but overall, we're very confident in our vsan and NSX strategy. The portfolio was strong and we're seeing more and more market opportunities.
In front of Us and we do expect that we'll see a a good momentum in those areas as we go forward.
Thank you became all.
Next question please.
Well certainly has found one small from Wells Fargo. Your line is open.
Hi, Thanks for taking my question congrats on a strong quarter, especially in this environment.
Have a question about accelerated shift to cloud, which a lot of people are thinking is going to be the results of the cobot 19 pandemic.
On a two parts or how do you view sort of be somewhere as position to help your customers accelerate that chef or things like.
Cloud five o'clock Foundation, obviously, the cloud partnerships. So you have but also can you talk through sort of the monetization, but we think about sort of lift in shifting you an on premise workload to the cloud what doesn't monetization opportunity to for you.
Yeah, maybe I'll start with a high level Alaska's, saying the comment a bit more in the monetization aspects at the highest level. As you said you know this was a in the co bid period, we've seen an acceleration of cloud overall and its customers goes not like are starting new projects largely it's accelerating existing projects.
Existing plans that they had are being accelerated and for us it was a tremendous quarter.
We definitely saw that momentum with the vmc their cloud migration projects and as we have the full range of our Hyperscale solutions, where the vmc offerings of the Vmware cloud offerings are 60% cheaper from a T. C. O perspective, we're able to do cloud migrations forex faster than Replatforming to native.
Services. It really is a much better way to accelerate to a multi cloud hybrid cloud future. Good roadmap execution by Amazon very happy to see the next version of.
Azure being announced them, becoming GA in the second half of the year, you know Google announced their first production GA versions of their offering we're starting to see.
Hybrid customers emerge and I'll say you know we had a major European financial company, taking advantage of the Vmware cloud solutions now, including the Google offering Oracle announced the GA of the Vmware solution and all of their availability zones across the globe set was a very powerful announcement also IB m. had their biggest ever deal.
On the Vmware cloud platform. So a lot of momentum as we think about a growth globally and I think as I already commented or VCP P. You know the 4300 total B.C.P.P. partners, we saw a bit of acceleration in that area of the business this quarter as well so overall, the vmware position of accelerating.
You know cloud monetization in cloud migration is now being well accepted in the industry as a very unique position and capability that we offer mark. So I wouldn't have much went out on the monetization I think it's mostly caught up in our subscription and SaaS revenue, which was up nicely on a year over year book basis, you know as we pointed out VCP also had a very.
The strong quarter, both sequentially and year over year. So we're very pleased as that captures much of that and as we turned more to solution selling we end up selling more and more of that stack in different form says you think about our franchises that's been the broader part of the shift to cloud and each of those franchises have its own opportunities and avenues as our custom.
As they're shifting to the cloud. So we believe it helps you know across the board both a subscription SaaS and in some cases quite frankly, it has a carryover effect on prem as well. So we feel like we're well positioned there yeah. As we've commented before they go the Vmc solution also the Hyperscalers all of those are the full stack management lifecycle compute.
Network storage, so it's a very rich vmware offering us customers migrate to that solution.
Thank you Phil next question please.
Next question, we have Keith Bachman from BMO. Your line is open.
Okay. Thank you very much a good segue from Phil pad I wanted to ask you you made a comment that you thought the as the economy improves on Prem spending will likewise improves and I wanted to try to understand your reasoning behind that is it because the in most impacted tendency travel leisure you think come back or is there something broader because I.
I think many investors and.
View this this transition to the cloud is.
Certainly has alone lot of momentum in question, whether the economy was actually turned that around and if I could just sneak in one clarification. Zane is there anything you could give us the organic revenue growth for the quarter. Thanks very much.
Yeah. It lets US you pulled out apart a little bit more Keith good question and we see the I'll say the recovery an on premise if I can phrased it that way you know driven by three or four factors. One is just that as the economy recovers, we expect overall business to improve second as co bid lockdowns.
Right you know are lifted people start getting back into the Datacenters also many of these projects have very powerful economics associated with them right where boy my on premise environment 30, 40% cheaper than a cloud only a public cloud only environment powerful economics to be unleashed and we've also seen that many.
Of those projects now of the industry leaders as we've talked about before customers like Fad, Fedex and Comcast than J.P. Morgan to customers, who have gone big on this strategy Bank of America. All of these they'll have now demonstrated that scale economic value and an on premise and hybrid environment you know all.
So as customers look at that so on a global a basis, there clearly seeing that certain segments ill SMB travel entertainment those areas. As you suggest you know many of those projects. We expect those cobot starts to moderate economies start to recover SMB starts to recover but those will be more.
For on premise environments, you know finally, I'd say many of the things that we've talked about and we've talked about our great momentum in Fiveg Intalco those will start to assure an edge projects as well, which will largely be on premises based the.
Project. So overall, we see lots of those signals are out there and we think that it will be a recovery, even though as you say, there's a lot of momentum on a cloud subscription and Hsas and that's represented in our numbers, but I think as we look at our pipeline, we're pretty calm the comfortable that so our comments are backed by good solid data.
As measured inside of the pipeline that we're seeing for the rest of the year and into next year. He case and I'll just add with your second part on the organic growth you know, we don't typically break that out that as as you. All know Pivotals included both in this year and in in last years as we recast.
Our results to include pivotal which is actually a slight headwind on a year over year basis. If you think about that growth rate. So that's a headwind carbon black is a smaller number we clearly got a tailwind I'd say just over 10 points. If you have to look at that subscription and SAS element on with and without that beyond that we don't typically break them out as they are now so integrated within there.
So the company already.
Thank you feel like using.
Your next question please.
Next question, we have Keith Weiss from Morgan Stanley Your line open.
Hi, This is the other thing and thank you for taking the question on patent mentioned on the call that.
The board is looking at potential spin and evaluating those opportunities and they don't want to address it directly but maybe if I take it from a different angle.
As we've been having as the company now.
Strained in terms of pursuing strategic option strategic partnerships because on the basis it doesn't seem like you.
Yeah major partnerships with all the few major cloud providers on kind of understand.
Historically has there been any sort of eliminating the opportunity that could potentially.
Open now with a different structure.
Yeah, and you know overall, our ability to pursue our strategies strategic partnerships you all have clearly been well supported by the current took capital structure. So we're very happy with that we have been able to also be a aggressive with M&A consideration. So clearly we've had good support.
And or a capital structures del Valle has a very much supported that as well you'd say something so being able to use equity for acquisitions as maybe an area that we hadnt been able to pursue before so those kind of opportunities might be opened up a should a spin outs occur.
Overall, we do think that it could be positive for equity and debt market holders.
In the future as we've indicated overall, though we say we've had good support by Dell. This has worked well we've seen good acceleration.
From Dell in their Vmware, a business and we feel good about today's structure as well as what might happen in the future and Oh per the <unk> earlier comments the special committees been formed they're evaluating.
And discussing.
With a Dell and we won't have anything else to say on this topic at this time. Thank you Sanjit next question. Please.
Next question, we have Jason had there from William Blair. Your line is open.
Yes. Thank you I want to ask keeps question somewhat differently.
Do you think Cove it is.
Actually HM.
Growing a structural headwinds to on Prem.
And if so what are the puts and takes on your business from that.
Well I do think as we've indicated that yacov. It has been a bit of a headwind for on premise growth and oh that affected us in Q2, and we clearly saw that particularly in the Americas also in some segments uniquely as we said travel entertainment health care.
SMB have been more affected.
That said ratios were saw a as we indicated than a P.J. in EMEA, where we did see a bit more strength.
Clearly, we're seeing the pipeline building for on premise as projects and you know why were indicating the guidance that we're giving in those areas.
But when you get down to it a multi cloud hybrid cloud solution set simply has compelling economics and we've seen that from a number of customers now at scale and economics always matter and the on premise environment. Clearly also has some governance benefits.
Associated with it for data management and data privacy also there are certain highly sensitive security.
Related segments of the market. So overall clearly it has been a headwind do we expect that it will be somewhat.
As we continue to work through the Swedish as Weve called it of recovery.
And there as you've seen in our numbers and others. There's a lot of excitement around some of the subscription and SASSA offerings, and clearly that's becoming a bigger benefit for our business as well.
Thank you Jason next question please.
Next question, we have brand sales from Jefferies. Your line is open.
Thanks, Good afternoon pad is there anything in the license.
Component that you could subscription eyes or put into a recurring cloud package, so meaning could you take.
Any the on premise services there is there anything prohibiting.
It's actually you doing that or is this.
Or is there some some other concern over that.
Well you know for something to be considered subscription and SAS you have to have cloud delivered value associated with that offering in a number of the products were not architected that way, it's not that they couldn't be architected that way as we're seeing in many cases of is as we've done for instance, with the VDI or with a rise in solution.
It's essentially the same bits now that over a couple of years, we've re architected, it's become a cloud based solution, we see a number of those capabilities across the product portfolio. We are now our offering not for instance, with the be realized products, where we felt the products now as a cloud based up product even managing on premise.
Environment. So we're one by one going through the portfolio and bringing more cloud and subscription value into those offerings and as those become fully available that becomes also an element of our subscription SaaS business as we deliver more of that as a cloud delivered offering.
Clearly the move Vmware Cloud Foundation to Vmc heard is a great example of that where we've taken the same on premises spits now delivering it as a cloud based offering dimension is another. Good example of that which is essentially an on premise infrastructure solution being managed as a cloud delivered offering. So all of these are example.
Most of that all of those are gaining momentum and really portend. The overall movements of the m. were to be much more of a subscription SaaS based company as we go forward.
Thank you Brent next question please.
Next question do we have he tied to draw from Oppenheimer. Your line is open.
Thanks.
[noise], Pat maybe I wanted to kind of drilling to you see I mean last quarter clearly was a very nice source of upside as remote remote workers kind of kicked in can you talk about the pattern quarter over quarter, how does that business.
Operate Dan.
No you used the low hanging fruit regards to work from home already done over there well what else is is there to do on that front.
Yeah, and overall you see continues to play a critical role enabling organizations to work from home to distributed workforce to business continuity. When we do expect that those are multi quarter trends here. This is a just a near term blip. Yeah. We do see this is shifting the water line.
Overall for the category.
We did see Q2 saw the same kind of benefits, particularly in the horizon VDI solution that we saw in Q1.
The Q2 mix, a though was more weighted toward the SAS solution versus license in Q1, so customers largely if they need to more license in this trial phase they acquired them in Q1, we saw that now it's much more deploying the scalable horizon cloud based solutions you know consist.
With the cobot impact in Americas, though we did see some impact on our transformative workspace one.
Deals in Q2 of the year.
Overall, you know I'd see continues to recognize us as a leader as they did this quarter also I'd point out that this is a very nice aspect of our Azure and Microsoft relationship as our horizon Azure solution is seeing a good momentum as well. So we see this very much as a long term trend because essentially everybody is now gearing up.
For a long term view of a distributed a workforce at scale. He tied just add easy product bookings are primarily hsas and within that the sales teams have been focusing on the annual contracts, which helped drive our HCV up over 35% year over year. So a lot of dynamics within that Q2 number but we were pleased.
The HCV increase on a year over year basis.
Thank you eat died next question please.
Next question.
Experience from Keybanc Your line is helping.
Yeah. Thanks, Thanks for taking the question hope all is well.
The second half of the year, and what you're expecting as far as.
Close rates imply close rates from what you saw in the quarter versus what you expect in next couple of quarters then.
Opex to you.
It's just a challenge.
This quarter next quarter as far as bringing people in and hitting headcount target so kind of what the implied views are on close rates and opex.
Yeah I'll take the first part of that led to Zane talk about Opex. Your overall, we feel good about our pipeline a for the second half the year, we're set up quite a thorough analysis of what that looks like based on that pipeline is the increase the guidance that to Zane commented on earlier you know those close.
Those rates are I'll say, our typical close rates.
And here, we do feel quite comfortable with that clearly we've taken a more conservative view of that given the turbulence that we have in the marketplace overall, it's a very unpredictable environment.
Given all of the different dynamics across the industries, but we've done a pretty thorough scrubbing of that pipeline feel that this uh huh Nike solutions, we've called it as it takes place over several more quarters leads everybody to be a bit more careful with how we manage it so a lot more scrutiny on the pipeline and.
As I commented on earlier to a one of the questions that we are developing the muscles to build that pipeline virtually as well. So we do feel comfortable that the deals are real the businesses there and we've shown in Q1 in Q2 that we can execute it.
Yeah, and just touching on Opex I think you. We lost you on some of the question there, but generally speaking hiring has been strong we feel good about growth rate you know with a with our teams through the course of the air I would bracket some of the Opex and to covert related and obviously that you know we hope will be short lived or actually launch.
Have teams out there selling more and we want to actually be spending on marketing and sales programs. Because we believe strongly that it drives topline growth all that being said you know as you see where were exceeding our expectations on a on the amount of spend you know tied to some of the savings were seeing you know with with the coated atmosphere that were in and what you see.
That dropped down to the bottom line, but some of that we expect I will start increasing through the course of the year. Yeah. Maybe I'll just pilot you know we never stop hiring yeah, right and that also gives us a maturity to particularly our sales teams to go execute so we've continued to build those sales teams through the year, you know getting them on the new product areas, bringing them in getting them up to speed.
We're continuing to higher in Q3 in Q4 as well. So we have the teams the capacity, particularly in the sales area to go execute the business that we've laid out.
Thank you Alex next question please.
Next question, we have albright needs ACTRIMS Liam minimum teens your line is open.
Thanks, It's been close two year since you acquired carbon black can you elaborate on how you're feeling about the acquisition is point and where you stand in terms of integrating it with the existing portfolio.
Yeah. Thank you you know an overall, we're very happy with the acquisition the team. It just feels like it's always been part of the I'm, where you know a great to cultural fit.
We had a strong bookings growth in Q2 were at a 20000 customers now.
Our our grew almost triple digits for our cloud based offerings in June we added last line.
To the portfolio, we closed doctoring, so were beefing up our overall a security a portfolio of products also you know this aspect of the synergies of bringing this intrinsic security and integrating it with our Dell unified workspace, our workspace one our NSX our V severe.
Our offerings. So all of those integrations are well underway and you can expect to see some exciting announcements on this at Vmworld coming up in late.
September we had some great wins, a conduit a was a great win October zoom, a major federal agencies. So we're starting to get much more of the Vmware effect, where we're able to make them part of bigger deals bring them into more enterprise a portions of the market where before the carbon black was part of.
I'm, where they were a much more of a low end enterprise scale commercial play and we're now starting to bring them into the large enterprise customers as well you know what if anything co bid is driving a bigger footprint of protecting remote workforces customers now went through some 100 sites to 10 through.
Yes, and sites and that you know broadening security footprint is putting more of a premium on how we manage our remote workforce. So we're seeing an increased amount of interest for both the Vmware offerings overall and for carbon black in particular.
Thank you Robert it looks like we have time for one more question. So of the next question be the last question. Please.
Last question, we have Brad gentlemen from credits as your line is open.
Yes, so much guys really appreciate you taking my question then the upside and margins for both the quarter and the full year guide was great to see especially given the upside in SaaS and subscription obviously here you're benefiting from kobin related savings, but have synergies from pivotal indoor carbon black contributed here and and if so how should we think.
About the contribution to margins on a go forward basis.
Yeah, I'd say, it's great question about I'd say not initially you know obviously, we're very pleased as Tad pointed out and I mentioned my prepared remarks.
With the performance of both pivotal and carbon black as they get integrated into into Vmware I wouldn't say that they're contributing.
On the margin side at this point, it's more some of the covert related.
Short term impacts that we're seeing as far as.
Significant margin improvement, we did outperform on revenue, which helped us with margin profile in the second quarter, but we do look over you know over a period of time to see contributions from pivotal and carbon black as they begin to grow within a within the company. So that's as we think about long term margin expansion that's part of.
Portfolio that'll be driving that.
Thanks, So much Dana and very squeeze one then just for Pat real quick Pat on the last question about carbon Black. That's just one example of really successful M&A that you guys have been doing.
You know just given that you've demonstrated at such an ability to flex that muscle. How are you thinking about that as a lever and when you come across build versus buy decisions within the business. You know how should we think about that going forward.
Overall, we're going to continue to do that as we look forward and were uniquely good I think at making those acquisitions effective and we have a tremendously good track record for doing that and we'll be highlighting some of those innovations as part of Vmworld. Maybe then just wrapping up you know very much appreciate.
All joining our call today proud of the Vmware team for our solid execution and financial performance. This quarter precinct, particularly excited about some of the new partnerships and new innovations that we'll be talking about and announcing at our virtual Vmworld that begins on September 29th and I hope to see every one of you there bring your friends, it's going to be a great party.
Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating and have a wonderful day you may all disconnect.
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