Q4 2021 VMware Inc Earnings Call

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Yes.

Ladies and gentlemen, thank you for standing by and welcome to the Vmware sport quarter and fiscal year 2021 earnings call. At this time all participants are in a listen only mode. Please be advised that the day conference is being recorded after the speaker's presentation. There will be a question and answer session. The asked the question doing.

That's fine you will need to press. The Star then the number one on your telephone keypad. If you require any further assistance. Please press star Zero I would now like the hand the conference over to your first speaker for today, the Vice President Investor Relations Mr. Paul diets. Thank you. Please go ahead Sir.

Thank you good afternoon, everyone and welcome to Vmware as fourth quarter and fiscal year 2021 of the earnings conference call on the call, we obtain Rowe CFO and interim CEO. Following Zane his prepared remarks, we will take questions Ragu rug of ROM C O O products and cloud services, and Sanjay Pune and C O O customer operation.

She will join for Q&A.

Our press release was issued after close of market and is supposed to have it on our website, where this call is being simultaneously webcast slides, which accompany this webcast can be viewed in conjunction with life remarks and downloaded at the conclusion of the webcast from I heard of Vmware 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 the result of various risk factors described in the 10-K's 10-Q's, and 8-K's Vmware files with the SEC, we assume no obligation to and do not currently intend to update any such forward looking statements and.

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 Vmware performance should be considered in addition to that is the substitution for or in 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 unemployed stock transactions acquisition disposition of 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 in our Investor Relations website.

The 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 'twenty two quiet period begins at the close of business Thursday April 15th 'twenty 'twenty, one with that I'll turn it over to Zane.

Thank you Paul and thank you to everyone for joining us today.

We realize you're used to hearing pets voice as we start these quarterly conference calls I want to thank Pat for his leadership, which helped put Vmware in a position to execute on our strategy and drive long term value.

How does the true partner and a friend and of course will still be of Vmware Board member.

We're pleased without queue for financial performance as it was a good finish to the fiscal year Q.

Q4, total revenue increased 7% year over year with non-GAAP EPS up over 8%.

We finished fiscal 'twenty, one with the $11 $8 billion in total revenue and non-GAAP EPS of $7 20 a share.

This past year was one of unprecedented disruption and uncertainty and we're proud of what the team accomplished as we quickly adapted to a distributed workforce, we helped our customers accelerate their work from anywhere journey and their application in cloud monetization initiatives.

We're seeing customers continue to choose Vmware to help them deliver the digital foundation to power their apps clouds security and user experiences.

Large global customers continue to align and partner with us and the nature of our strategic relationships with our largest customers continues to grow in.

In Q4, we closed deals with significant aerospace and telco customers and saw particular strength in the financial sector, including wins with HSBC and Wells Fargo.

We see financial services customers utilizing a combination of franchise solutions, ranging from modern apps and cloud infrastructure to networking in our digital workspace offerings.

We also continue to see momentum with key communication service providers, such as NTT Docomo and tell you of increasing their focus on Vmware solutions as well as new and expanded contracts with additional tier one communication service providers globally.

In the retail sector of large customer that standardized on our technologies in their private cloud is leveraging Vmware is the platform for their cloud migrations, while also investing in edge cloud infrastructure and using 10 Xu for containers and the retail edge locations.

We see this as a repeatable use case for other retailers along with other E Commerce App development to use cases retailers of building on top of tens of you.

I'll work with life Sciences, and healthcare customers is enabling their critical lapse to run on our hybrid cloud and is helping to secure their user devices for employees working from anywhere.

In addition, our partner ecosystem is driving the momentum for Vmware solutions.

We're expanding the reach of our solutions through key strategic partnerships from our V. C. P. P partners type of scalar to system integrators. For example earlier this month, we announced an expansion of our partnership with Accenture, resulting in the launch of their dedicated Vmware business unit.

The group will bring together approximately 2000 professionals across a variety of industries with expertise in hybrid cloud and cloud migrations.

Loud native in application modernization as well as security.

We also recently formed a joint innovation lab with lumen designed to drive the edge computing.

Security and secure access service edge or sassy for customers in a number of industries.

Looking at the broader portfolio, we continue to further our multi cloud strategy and are seeing traction as customers align app requirements to the cloud of their choice, whether it's private hybrid or public.

This quarter, we expanded our resale program with AWS to include additional Vmware technologies and services, such as Vmware cloud disaster recovery and we realize.

Additionally, Vmware cloud on the Dell EMC Dell technologies cloud service from Vmware expanded to the EMEA market with immediate availability in the U K, Germany and France.

We continue to deliver on innovation with tens of <unk> with the announcement of general availability of tens of advanced edition. We now have three tens of additions in the market basic standard and advanced <unk>.

Each addition is targeted at a common customer challenge of modernizing infrastructure and applications tens of advanced includes all of the capabilities that enterprises need to embrace Dev ops and manage complete container of lifecycle.

We continue to see strong positive reception to all three tenths of the additions.

We also added container security to Vmware carbon black cloud leveraging technology from our recent okta rhyne acquisition to provide visibility into on Prem and public cloud kubernetes clusters.

Our NSX portfolio offers a comprehensive set of L. Two to L. Seven capabilities implemented completely in software. We recently released the latest version of NSX, which included enhancements across routing identity firewall load balancing and cloud.

In FY 'twenty, one Vmware was recognized by top industry analyst firms as the leader in 13 key reports of cross cloud management networking hyper converged infrastructure and end user computing and.

In November of Forrester named Vmware, the leader in the forest of wave hybrid cloud management cute for 'twenty 'twenty more recently, we were named a leader in December 2020, Gartner Magic quadrant for hyper converged infrastructure software and then January Vmware was positioned as a leader in three I D. C market Scape reports really.

To the end user computing space, including the worldwide unified endpoint management software 'twenty 'twenty, one vendor assessment.

From a broader corporate perspective, I'm personally pleased to highlight that we recently unveiled our 2030 agenda, which encapsulates how we will drive ESG goes into every aspect of our business. Our 20th 30 of agenda is integrated into the business and is focused on three business outcomes Trust.

Equity and sustainability.

Recently, we also performed well in the areas of sustainability, earning the distinction of being included in the 'twenty 'twenty Dow Jones sustainability index, among the world's leading ESG benchmarks.

Now, let's move to more detail on our business performance as well as our forecast.

In Q4, the combination of subscription and SaaS and license revenue grew 8% year over year to $1.721 billion. We saw a large enterprise demand strength throughout the quarter, which allowed us to close a record 35 deals over $10 million. This was balanced with good performance in our commercial business as well.

Subscription and SaaS revenue increased 27% year over year for the quarter with strong growth in our Vmware cloud provider program end user computing carbon black and Vmware cloud on AWS offerings.

We continue to invest and expect to see further growth in this important area for us in FY 'twenty, two and beyond our focus is on scaling existing offerings as well as adding new solutions.

The M C on AWS once again had a great quarter with both workloads and revenue nearly doubling year over year as we continued to expand functionality and use case adoption.

As of the end of Q4, <unk> for subscription and SaaS was $2 $9 billion, an increase of 27% year over year.

License revenue for the quarter declined 2% year over year to $1.014 billion. Now this was better than expected as we had a strong deal closure rates throughout the quarter.

Non-GAAP operating income increased 8% year over year in Q4 to $1.133 billion, primarily driven by better than expected revenue growth non-GAAP operating margin for the quarter was $34 four per cent with non-GAAP earnings per share of $2.21 on the share count.

Of 423 million diluted shares.

We ended the quarter with $10 $3 billion in unearned revenue and $4 $7 billion in cash cash equivalents and short term investments.

Cash flow from operations for fiscal 'twenty, one was for $4 billion, which was well ahead of our expectations.

Q4 cash flow from operations was $1.324 billion and free cash flow was $1 $242 million.

Now the strength was primarily due to our emphasis on closing certain deals prior to calendar year end, which resulted in receiving the associated cash in FY 'twenty, one rather than FY 'twenty two.

In addition, we benefited from early collections and advanced payments from partners and customers as well of certain other expenditures, which were lower than expected in FY 'twenty one.

But the subscription and SaaS, becoming a larger share of total revenue. We're now providing our end of period total and current of our P. O for Q for RPM was $11 $3 billion up 10% on the year over year basis, and current of our P. O was $6 $2 billion up 12% year over year.

Total backlog was $93 million substantially all of which consisted of orders received on the last day of the quarter that were not shipped that day and orders held Utah export control process license backlog at quarter end was $23 million.

Overall, our product portfolio performed well in Q4 with customers continuing to purchase solutions that contain multiple products chorus.

Of course D. D C product bookings increased 12% year over year in Q4 highlighted by strength in our view of realized management offerings, which are now available both on a perpetual and SaaS basis compute product bookings also performed well growing in the low single digits year over year.

And the Sx and VSAT had single digit year over year declines, which was an improvement for both versus Q3 of FY 'twenty. One. These two technologies continue to be further integrated into our broader solutions.

Three quarters of our E. C product bookings are now SAS. He sees a C V. SaaS growth rate was 30% year over year in Q4, driven primarily by horizon and our initiatives related to anywhere workspace.

Given our focus on the SaaS a C D E C product bookings decreased in the high single digits here of a year.

Carbon black cloud once again grew in the high double digits year over year, and we continue to make progress in expanding our endpoint and workload protection capabilities and delivering intrinsic security value to our customers.

Our turns of your portfolio exceeded expectations and had a strong attach rate in eight of the top 10 of Vmware deals in Q4.

In Q4, we repurchased two 7 million shares in the open market and the average price of $140 per share.

At the end of Q4, we've utilized over $1.4 billion from our current repurchase authorization of $2 $5 billion.

Turning to guidance for fiscal 'twenty, two we expect total revenue of approximately $12.700 billion or a growth rate of 8%, which is consistent with the early outlook provided on our last call.

We expect to generate approximately 6 billion of $300 million from the combination of subscription and SaaS and license revenue or an increase of 12% with approximately 55% of this amount from subscription and SaaS.

We expect non-GAAP operating margin of 28% with non-GAAP earnings per share of $6.68 on the diluted share count of 422 million shares.

As I mentioned earlier, we had very strong cash flow from operations in Q4 due to a number of initiatives that resulted in exceeding our cash flow guidance by over $650 million. While we're extremely pleased with this result, the bulk of this over achievement was accelerated from our upcoming fiscal year, taking that into account for FY 'twenty two we current.

We expect cash flow from operations of $3 $8 billion and free cash flow of three point for $2 billion.

On a normalized basis, taking into account the acceleration of cash into FY 'twenty, one cash flow from operations would be roughly flat on a year over year basis for FY 'twenty two in line with our operating performance.

For Q1, we expect total revenue of approximately $2.910 billion or a growth rate of 6%, we expect approximately $1 billion $320 million from combined subscription and SaaS and license revenue in Q1, an increase of 7% year over year with over 55 per cent of this amount from.

And SAS.

Our expected growth rate for Q1 license revenue was impacted by continued growth in subscription and SaaS and the strength we saw in Q1 last year.

We expect non-GAAP operating margin of 27 five per cent for Q1 with non-GAAP earnings per share of $1.49 on the diluted share count of 422 million shares.

In closing, we're pleased with our Q4 performance the improvements we're seeing in the macro environment and our expanding opportunities to engage with our customers and partners.

We're committed to executing at scale as we continue to build our subscription and SaaS business and invest in our future growth, while delivering technologies and solutions today that help our customers and partners with their digital transformations.

Before we go to questions I'm pleased to tell you that we're making progress on the potential spinoff of Vmware from Dell, While a special committee of independent directors continues to evaluate the spinoff, we believe that it could be value enhancing to Vmware and its stockholders, we will not be commenting further on these discussions until there's more definitive news to share.

With that I'll turn it back to Paul for Q&A.

Thanks, Zane before we begin the Q&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 ragu and Sanjay or joining us now for Q&A operator, let's get started.

Thank you Paul as a reminder to ask the question you will need the process for then the number one on your telephone keypad again, that's far then the number one on your kind of funky bed.

All of your question please pass of the pounds.

The standby, while we compile the Q&A roster.

Our first question will come from the line of Raimo line show. The line is now open.

Hey, Thanks for taking my question and congrats on a great finished for the year and I do Miss Pat as well.

Okay.

My question was on the sign of NSX.

Those are obviously growth areas for you and the path of suffering from the pandemic, but it looks like it's getting a little bit better can you just talk a little bit of what you're seeing there in terms of how this gets gets impact on how how does the ex when we're coming out of the pandemic. Thank you.

Sure Raimo, Yeah happy to happy to talk about that and maybe ask Rajiv to add a few comments. Afterwards, you know as anticipated. We did see continued COVID-19 impact you know most particularly on the transformational deals in Q4, even as you point out we had a great quarter and the performance suggests that you know there is some recovery in this area.

I'll point out we had as I mentioned on the prepared remarks, 35 deals with $10 million and over versus 28, a year ago and within those deals last year. We were fortunate to have what we'd call sort of our Uber deals, which are extra large deals that clearly had an impact on both NSX and V. Sand. We also had some tough compares of NN.

<unk> was up 21% last.

Last year year over year of V. San was up 15%. So when you think about those transactions. If you exclude the the really large transactions NSX was actually up incrementally on a year over year basis. So overall, we're pleased with both where we are in the incremental basis as well as year over year for both of those products and then maybe an opportunity for you to talk a little bit more.

[noise] about NSX in particular, absolutely.

As you know the.

The expanded greatly expanded on the NSX portfolio of law firms. The complete set of data to deliver seven services and software notable amongst similar.

Are all of the load balancing capabilities all the advanced threat protection suite, the dream produce for I D. S. Ips in the east for a security in general kind of.

Of course, I'm going to the cloud all of those businesses did really well and that'll be it.

Please for the growth of those businesses.

And so that's the one aspect of that is ex growth. The other aspect of that of six two set of Texas also becoming the.

The underlying network for.

For the modern applications and container workloads.

Those use cases sort of did really well for kind of sex and then the last but not the least we are increasingly NSX as part of our cloud solutions and we had some better for them as well.

Okay very good thank you.

Thank you Raimo next question please.

Our next question will come from the line of Phil Winslow. The line is now open.

Hey, Thanks, guys for taking my question on the congrats to you on the strong close to the fiscal year I just wanted to focus in on Pangu and particular Zane.

As Andy mentioned eight of the top 10 deals attached Townsville.

Could you just talk about the momentum that you're seeing in terms of coming into the into this coming fiscal the fiscal year, obviously, you're talking about some transformative deals.

Having having been pushed out over the prior quarters do you think we're starting to see all of these transformative deals come back because of obviously tons of you would probably fit into that bucket.

Yeah, we are of Phil it's a it's a great question and thanks for mentioning it you know as you pointed out we're very pleased with our Q4 tons of your performance we'd see good momentum there in the end the team exceeded our expectations across the number of fronts. You know as you point out we had eight of our top deals eight of the top 10 deals in the quarter include tons Xu.

And we saw strength in verticals and telco sensor of life Sciences health care, they're all embracing the the tons suite platform. So we're very pleased with it we think we've got good momentum where actually you know, we just G. Eight tons of advance and maybe a rug too if you want to dig into that a little bit more I think that'd be helpful. Here too.

Oh sure. So our efforts in tons of lot of along two axis, one is to win new customers, especially in the kubernetes ecosystem.

Second revenue and expand the customers the.

Well part of the pivotal family so.

The new customer acquisition of arena, we've been steadily introducing new product innovations.

In the kubernetes ecosystem of these chartered with tons of basic.

Rich embedded kubernetes into visa for Ya.

When we introduced the tons of standard which provides for a multi cloud management of kubernetes clusters, and usually that goes along with the Vmware Cloud Foundation.

Zane just said last quarter of introduced a tons of advance and tons of advance has three value propositions for the first one is it provides for management of the complete container of lifecycle second as it allows enterprises to embrace the Dev side comps of.

Model for software development.

In the third of that accelerates code to production, which is especially critical in the customers of building the digital applications.

In terms of advanced.

It's a pretty unique offering in the marketplace.

Gartner of classifieds about the Toronto capabilities needed for a modern the set top box.

The SEC hops framework and the container ecosystem.

The answer of advance House 11 of those for the 12 two of them coming into the first time for this year. So the first thing to note about tons of advances, it's a very comprehensive offering.

Both of the infrastructure and the application of developing leaders on the.

The place of the areas that we have traditionally been very strong and things like that.

Networking and resource management, and so on and so forth.

The second thing to note about tons of advances it is modular so customers can pick and choose the elements that they want it's not like they have to swallow all of it in one shot.

And so they can choose the best of breed on the third of course of sits very well integrated with these for especially for customers that are starting from the.

The SKU base.

It is multi cloud so it's a very comprehensive offering in that regard and that's why customers are excited about that and we hope to do a lot of business with it.

Thank you Phil next question please.

Yeah.

Our next question will come from the line of Matt Hedberg. The line is now open.

Hey, great. Thanks for taking my question guys.

I had a question about the the solar winds bleach and perhaps the impact on your security business I know it's.

It's kind of at or near of the run rate of $1 billion, just kind of curious on the carbon black so many benefits or just sort of the broader thoughts on the security transformations in sort of the post sunburst world. Thank you.

Thank you Matt This is Sanjay pointed.

No I think it's a wake up call for security overall uncertainty, it's become a boardroom topic as we talk to Chief Security officers. As you know we now have a much more comprehensive zero Trust security platform and we found certainly it allowed us to have a more discussion we have the sort of rules of cyber hygiene, where we could tell them about everything they need to do for multi factor authentication.

<unk> and identity management workspace, one to micro segmentation with NSX to all of the endpoint and workload security of the carbon black So that comprehensive story that is zero trust really allowed us to now have much more strategic conversations is the role of the Chief Security Officer.

Became more important than the last of the.

The 30 60 days without of course being ambulance chasing and behind that we were able to then sell elements of what you heard from Zane is prepared come on the comments about carbon black cloud had the high double digit growth and is now over 25000 customers. We're excited about the the good innovation that Robert talked about the NSX of lot of that the security capabilities.

And then of course workspace one continues to deliver in a work from anywhere environment, where security is paramount.

Thank you Matt next question please.

Our next question will come from the line of cash on the line is now open.

Gosh for and on the line is now open.

Okay I think we'll go onto the next question.

The next question will come from the line of Walter Pritchard. The line is now open.

Hi, Thanks Zane.

Zane.

Sanjay I guess Im wondering as it relates to your articulation of around the subscription transition you've gone through sales kickoff.

Youre further youre getting into new year here, I'm curious sort of what you're charging the salesforce with around.

Pushing vs fear on the subscription basis, and I know Zane you mentioned you'd have that at least for some green the numbers as you guided for the year initially and you didn't change that but just an update there would be helpful. I think for folks.

Yes.

We are we're just pleased you're not asking a security question.

No.

We continue to focus on on all of our southern of SaaS growth Weird.

As you you know where are.

A week away from our sales kickoff I'm, we're very comfortable with the transition that we're making in and the growth that we're seeing in our southern of SaaS portfolio. You know I highlighted we grew 27% year over year in the in the fourth quarter comprised 22% of our of our total revenue. So we're we're excited about the.

The opportunity we're excited about what FY 'twenty two will bring we've guided to 31%. If you. If you look at the the guide for FY 'twenty two.

It'll be a nice increase we think the portfolio within that is growing nicely and the sales teams of candidly doing a great job as we work with our customers to to meet their needs and to grow the portfolio of Sanjay I don't know if you want a total a little bit more about the the comp structure of Theyre very briefly next week as our sales kick off and what we're emphasizing to them is obviously the go where the customer.

He is going so as you think about the move towards cloud its private cloud public cloud and edge cloud and we're going to go where the customers of theirs appropriate deployments on premise will will will oriented that and especially in the edge. We saw for some of those use cases, but certainly theres a orientation towards cloud and that will accelerate subscription and SaaS. We've also seen good success with <unk>.

Some of the places where we have some of these flexible offerings already realized SaaS has some of those capabilities now of horizon and that is giving of the reps early taste of how we can orient our discussion towards some of those SaaS offerings and bring those splits flexible of universal type of offering so you'll hear more about that from us in the coming months.

Thank you Walter and good luck in your next endeavor.

Next question please.

The next question will come from the line of Shannon Cross the line is now open.

Shannon Cross the line is now open.

Okay. We'll go to the next question then.

Next question will come from the line of Mark Murphy. The line is now open.

Hi, Good afternoon. This is Matt Coss on behalf of Mark Murphy I'll add my congratulations for this quarter.

Wondering if you could let us know over the past year, where have you specifically seen areas of Underinvestment in private cloud then.

Where might we see some of this investment come back or snapback in this fiscal year.

Yeah.

Yeah. So this is a true.

From a.

From your question of it's not clear whether you were talking about Vmware investment of all of the customer's investment I'll try to touch upon both the Vmware we're super excited by the obviously the full of private cloud stack and that's indeed, one of the ways, we distinguish ourselves in the marketplace and the over the last year.

As you saw in the prepared remarks.

Investments in management.

Restaurants in the network security.

And or all of private cloud the investments have paid off really well.

From a customer of point of view Sanjay just mentioned.

Think about the cloud spending in the.

Suddenly in the data center, but also increasingly the edge, but if you step back and look at it.

The way customers look at it.

The very often adopt what we call of two plus one or a two plus two strategy. What I mean by that is they look at debt obligations and deploy them across to public clouds.

The cloud on the edge cloud.

And then the question becomes how do you.

Modernize your obligations on the cloud of your choice how do you migrate the applications to the cloud of your choice of how do you manage all of these things together.

And that's where our portfolio is focused on so with the Vmware cloud for example.

Can.

How the customers are historically via the help customers migrated faster the migrate to the cloud faster than any other.

The mechanism, 47% faster than 57% cheaper.

The tons of portfolio, we can help our customers modernize them there.

Application portfolio and in the enterprise the majority of applications out of Java in the spring and we provide the fastest paths of modernization.

Cost of the private cloud on the public cloud.

And as I said earlier, you can pull it altogether and manage it altogether as one one.

Oh of all obligation of infrastructure of state and last but not the least sort of investments in security.

We are focusing on investing in protecting the workload, whether it's the workload.

Of these field based platform with carbon black workload.

Workload on the container of a thought of trained actor in technology.

And in the future of workload running natively on AWS. So the the answer to your question as customers look at this is the continuum between private cloud public cloud and edge and they would like to be able to build run manage connect and protect their applications across all clouds, and then of course, Delaware of trial devices.

So that's really customer how customers are looking at it.

So that's where all of our roadmap has pointed out.

Hey, Matt I would just add as you look at our guide for FY 'twenty, two and you. If you were to think about sort of the on Prem piece and where we are with our license guide. If you were to take a look at two elements that we're moving towards SaaS. When you think about the return on investment on that on that on Prem business. The if you looked at just what we're doing with.

The realized that that Roku mentioned as well as E C and you converted that back into sort of an on Prem basis, you would actually see positive growth for our for our on Prem license business into FY 'twenty two so while we've guided slightly negative it's not a reflection of our investment going into that business. All of the returns we're getting of that business actually.

With our push towards southern SaaS, it'd probably masks some of the growth that we see within that business. So we continue to invest in it and see a great opportunity ahead for that as well.

Thank you Matt.

Next question please.

The next question will come from the line of Mark Martin or the line is now open.

I'm sorry of Cognex on for Mark Martin I think you guys for taking my question could you provide any color on what Youre hearing for my team of organizations about demand for core of server virtualization, given the current demand environment.

Sure Yeah, I'll start and then let roku add on on the on the service side you know obviously, what we saw in Q for was highlighted by what we saw with our core the S. T D C product strength, which as I mentioned was up 12% year over year, we saw strength in our V realized management offerings as well as the.

The compute products that are that performed really well you know on a year over year basis compute was actually up slightly positive, which was I think a surprise to many of our multi cloud offerings such as V. C. P. P cloud management, the MCR natively U S <unk>.

Tribute to the chorus, DTC growth, which I think is at least somewhat synonymous with as you're thinking about you know where you are with servers. In the question you had on compute revenue, maybe if you want to touch on a little bit more on the demand that yeah. So for virtualization typically has been a function of the workloads that are being introduced into.

Into these environments.

Clearly historically, we have done really well and traditional enterprise applications over the last couple of years customers are increasingly adopting.

What we would call of cloud native architecture of applications applications built.

Using micro services and containers and so on riding on top of.

The sphere.

And.

Sanjay pointed out of you're seeing virtualization of the edge and in previous calls we've also pointed out how.

The core telco network is getting Virtualized theyre going on the journey of just like it did from physical to virtual and then for virtual to cloud.

Extending all the way into the radio access network. So the breadth of the workloads of the virtualization can handle is continuously evolving and expanding and that's what's fundamentally driving server virtualization business.

Thank you Victoria next question please.

Our next question will come from the line of Shannon Cross the line.

Hello, Paul.

Thank you very much and I apologize I was juggling at the different Colin So anyway, that's asked for.

Can you talk a bit about what's going on with the <unk> telco cloud and just in general what Youre thinking about <unk> and the opportunity for Vmware definitely starting to hear from others, who.

Who are working around for you know.

Working with the providers that they're starting to see of ramp. So I'm just curious how we should expect that to the welfare of numbers. Thank you.

Yeah.

Yeah, I'll take that question.

The Shannon so.

This past quarter, we saw continued momentum with the tier.

Tier one global.

Service providers and the five G.

Of the five G architecture, well, it's one of the big considerations and then selecting the Vmware.

And as I said, a few minutes ago, our customers the telco customers out of the journey to go from in the core network from.

Physical to virtual and the virtual to cloud.

Our offerings of matched the customer needs there and we have introduced the telco cloud platform, but the automation layer on and operation plan.

The next step beyond the core network virtualization.

The radio access network.

One of the radio access network, it's fundamentally a couple of disruptive trends that are happening one of the radio access network being Delaware.

Disaggregated components delivered increasingly and software.

Running on virtual machines are containers running.

The Virtualized framework.

And then this is the first type of and then the next step is of course, the open standards here and in fact, if there is any industry segment or the right.

The open source and open standards of matters a lot. It's obviously in the <unk> arena.

So that's where our Vmware.

That's where the customers that are selecting Vmware are most interested in our roadmap and we are fast becoming the operating system for five day providers and we have out of number of wins in this area.

Thank you Shannon.

Next question please.

The next question will come from the line of Keith Weiss. Your line is now open.

Thank you for taking the questions.

Well Michael.

Uh huh.

Losses.

Some of the market.

You really had a net debt.

Hum.

Hum.

No power in each of the.

Pretty impressive acceleration.

Hum.

Hum.

And that can come out of Covid I wanted to get the.

On what.

The income Clawback.

And that's net.

Part of it.

Got it.

The day.

Why is that all of their growth.

Uh huh.

Hum.

Thank you for the picture.

Wow.

Over the.

Net.

For the pod.

Yeah.

Sure Yeah, I'm happy to start and then have Rick maybe dig into some of the opportunities within those products. I mean, obviously, we feel very good around our sub in the SaaS portfolio and redo went through sort of all the components of that that we believe will drive growth for many years to come and are quite pleased with the.

31% growth that we're expecting in FY 'twenty to and obviously sizable growth beyond that we are focused on app and cloud modernization and you know you've heard US talk about 10 zoo and we believe that and how that integrates.

With our cloud portfolio is going to drive significant upside for us and significant growth for US. We also talk more about stack. So you're going to hear us talk more about whether it's V. M. C on AWS or just the Vmware cloud and that's probably the area that I would identify as the.

Of the integrated nature of this in our five franchises that we've been talking about over the last number of quarters now all of that as being key drivers to growth as well as you know the the work we've been doing with intrinsic security of the two form of wrapper around all of that so we're pleased with the portfolio now more than ever before and how it's integrated and how its working together, but I'll have ray go maybe give a couple of.

Highlights as he sees the of the product set as well absolutely so all of the.

Talk about our portfolio.

Yeah.

To have sustainable.

One is addressing.

Customers drive towards the application modernization of.

The big part of obligation of modernization of course want us modernizing the obligation of state of the others.

Moving to our cloud and our Vmware cloud offerings, which are now present across all of the Hyperscale ours.

The other cloud providers as well as on premise and the tons of offerings. Both of them are maturing and we're bringing them together along with our management portfolio into something that we're calling is Vmware cloud.

The combination of tons of plus.

The core of Vmware Cloud Foundation Delaware's of service plus management.

<unk> addresses a secular of need from the customer base in terms of the application modernization and migration journey and to be able to manage all of that together. So that's one.

That's kind of be one driver of our growth the other looking at the other side of the puzzle is.

Our customers increasingly.

The.

Coming to the conclusion that most of their employees, even post COVID-19 of significant portion are going to continue working from home.

And if you look at the work from home environments for most of the enterprises today, it's fairly AD hoc it has not been architected.

Taking into consideration of the needs for security performance and user experience manageability et cetera et cetera. So what we have done the severe bought all of the.

Components necessary for a great work from any of that experience for both IP and end users.

The bringing together of carbon black.

Our and ease of computing portfolio.

Our S T round velo portfolio of along with the Vmware Sochi announcements put them together as a solution and we think that is going to drive significant customer interest in growth as well. So these would be the two pillars thought the or.

Our sales force will be taking to market in a big way of this year.

Thank you Sanjay next question please.

The next question will come from the line of Brent You know the line is now open.

Thanks This is Paul.

The one for Brent.

Zane Rowe Sanjay can you speak to the assumptions that you're embedding into the.

The 8% revenue growth guide for fiscal 'twenty, two relative to last year, just in terms of sales cycles close rates.

Expansion rates on the satisfied any any color there would be helpful.

Sure Yeah, I'm happy to start and then I'll I'll hand, it over to Sanjay you know as I pointed out earlier, you know, we're expecting 31% growth in our in our southern of SaaS portfolio.

We were fortunate to have.

Renewal rates, which continue we also have I'd say you know good duration with our E as in and obviously.

Saw significant EBITDA growth above $10 million spend in the fourth quarter. So we would expect those natural trends to continue through FY 'twenty. Two we've got a number of products within that southern of SaaS portfolio that have been performing really well V. C. P. P had one of its best quarters ever in the fourth quarter.

We see that trend continuing we're also very pleased with the the work that's going on with the M. C. On AWS, both on our side and with AWS as a reseller there. So we're very encouraged by the.

The opportunity set we see there and candidly with our much of our southern of SaaS portfolio. We think there's a there's a great opportunity ahead. So Sanjay I know of if you want to dig in a little bit more talk of it from the customer lands, what youre, saying, yes, I think of as we kind of translate and hopefully there's a gradual recovery in the economy I think those two portfolio.

Once the drug who built on its kind of what we're reinforcing to our sales force our.

If you think about the App monetization on cloud migrations that should drive subscription or SaaS led by tens of almost think of tens of like a magnet that pulls the full cloud Foundation software defined data center underneath it and that could then be deployed in private cloud public cloud or edge cloud, we feel that that should drive subscription and SaaS, but we can certainly hold our own whenever a customer.

Looking to spend on premise and of private cloud and the second is a workspace and security dialogue and that should also be driven very much by subscription or SaaS, but of course workspace, one and carbon black the secure access service such as the various subscription and SaaS. So that's the org.

Organizing element that led to that 31 per cent, the subscription or SaaS growth that Zane talked about.

We certainly don't want the cost of the the field to feel like it's the student body right and customers aren't investing in areas like edge or private clouds, where there will be appropriate spending on premise.

Thank you part of the next question please.

The next question will come from the line of Kirk, let turning the line is now open.

Hi, This is suraj, the calling on behalf of Kirk and thanks for taking the questions I wanted to ask about Vmware.

Loud for there.

Clearly great traction given the prepared remarks on doubling revenue and workloads year over year on Vmware cloud on AWS. The strong established partnerships with all of the Hyperscale cloud vendors.

When you think about your growth here, our Vmware cloud customers actively expanding their presence on the platform or is the AOR growth more of a function of bringing on net new customers and are you able to give any color on what for US and you see is longer term customers or partners versus how many of them do you believe.

And potentially look to lift and shift or re factor of workloads for the public cloud in the long run. Thank you.

Yeah, let me.

The start.

The answer to the first of all part of your question is of the workloads.

The growth in <unk> on the Vmware cloud on AWS platform is coming from both of the access that you talked about one of the existing customers expanding I'm in fact expanding of the considerable rate.

After the one thing abuse of the platform and then we're also acquiring new customers our partnership with AWS, both on the product side and on the go to.

<unk> side is helping us greatly in this and the resale of relationship is working very well.

In terms of the.

For the workloads themselves.

We see boat categories kind of the workloads are being brought out of this as well as workloads that are being brought in for modernization one of the great benefits for the unique benefits of the Vmware cloud architecture is so you can bring the workload in and you can re factor and run it on top of the.

Tons of stack or even the open sort of stack on top of Vmware cloud on Harvard connect all of the Native Cloud services. For example of this was Vmware cloud on AWS.

The workload running on Vmware cloud on AWS could the use of Aurora redshift or any of the other AWS services. So this provides a great environment, where our customers can take their entire enterprise portfolio and bring it onto one platform and none of this transformation of happens overnight.

So for a significant period of time, they will always have a lot of workloads on premise a lot of workloads in the cloud and now we can tie it altogether with the common management and security layer that really is the value proposition.

And by the way I used to Vmware cloud on AWS as an example, and that's our preferred partnership on a preferred platform.

Of course, we can do the same thing with the the other hyperscale ours as well with the.

The other hyperscale is that businesses and it's the.

The infancy, but we are seeing very robust pipelines on a lot of excitement for the great working relationship that as well.

Thank you sure next question please.

The next question will come from the line of Keith Bachman. The line is now open.

Uh huh.

Hi, Thank you very much and congratulations on a very strong set of results I wanted to go back to tons of you if I could.

And thank you for the description on the the three levels and my question is a.

Tons do in your mind, a part of pulling the portfolio or indoors at a revenue generator and B is there any.

Metrics that you anticipate giving.

Giving this year.

<unk> tons of adoption and what might those metrics include many thanks.

Yeah I'll answer the first part and then.

The can talk about the second part of the story.

So tons of for US is all of the above and the short answer the.

Absolutely see it as a independently a significant of massive market.

Which is the market for our customers doing the digital transformation and building new applications.

The re factoring and modernizing the existing applications.

And we are.

The very unique in that market in terms of both the breadth of our portfolio as well as the fact that we are a multi cloud and force we run really well on top of the sphere.

So that's the.

The first part of the answer the question and of course customers never run infrastructure for its own sake right. They always want infrastructure in order to run the applications and the more of our platform does better at supporting tons of the more differentiator of our infrastructure platforms would be sort of definitely will pull.

Alan.

The infrastructure story as well and then the last but not the least kubernetes is an industry phenomenon and it's turning out to be the cross cloud portability layer in many respects and Soviet investing very heavily as part of the tons of portfolio and providing the world's best Kubernetes management and control regardless.

Of which kubernetes platform you, maybe the hunting around and so it's the strategic benefit to us.

Revenue generator and it pulls in the rest of our platform.

Hey, Keith the thing so just to add to that I thought the rig you actually took the easier side of that question [laughter].

We will continue to to give you more information as we find it beneficial I mean as Rajiv said you know it's it's both of the above it's very strategic and we believe as it is of great revenue and bookings producer for us as well. So it's part of our strategy and with that you'll hear us talk more about customer accounts and other sort of relevant statistic.

Mystics as the product grows and as we grow and the adoption and as we continue to make exciting announcements and within that product portfolio. So more to come on that front Keith. Thank you Keith.

Yeah.

The next question please.

Yeah.

Next question will come from the line of been bothering. The line is now open.

Good evening, everyone. Thank you for taking the question.

Could you talk a little bit about the relationship with the lumen and in particular.

How do you view your strategy with that for you.

And the differentiated versus the rest of the market.

Okay.

Yeah, I'm happy to talk of luminous the former Centurylink and we were excited to announce the strategic relationship with them and it really covered three areas number one is edge computing, because we see as compute storage networking most of the edge. These sort of service provider of telcos and service providers are very interest in working with us and it builds on the <unk>.

The comments that Roku and Zane talked about the second is work from anywhere and they see a tremendous for prop.

Proposition of Vmware portfolio of around workspace, one inclusive of horizon tying into secure services. We've made some very strategic announcement of being world around that so that's going to be very key part of their portfolio and the third was security of particularly carbon black for protecting endpoints and workloads.

We're gonna for them with them May of joined the innovation lab, where we will take the solutions jointly the market and.

And it's a very very exciting type of partnership and we're seeing these type of partnership emerge with other service providers in many telcos as they have a beat of be arm that once the then service our enterprise customers given these big moves of our in the industry of five G and security.

Thank you Ben I think we have time for one more question. So let's take the last question.

Alright.

Question will come from the line of Robert Mac. The line is now open.

Great. Thanks, the theme I keep hearing about it infrastructure automation, which ties in well with your recent stack acquisition can you just expand on how Vmware benefits from automation and where you stand in integrating the salt stack acquisition.

Yeah, we are very excited by.

The salt.

Interest in salt amongst our customer base.

And overall, if you think about our management portfolio.

There's the operations piece called V realize operations and in automation piece called realized automation.

And the role of we realized the automation on products like that in the industry.

Is to automate the setup of infrastructure.

To meet the needs of applications and application developers. So if you think about one of the reasons why cloud is so attractive to application developers and application development teams and as you kind of instantaneously set up the right infrastructure for the application and either expanded elastically are shrinking.

Et cetera.

The magic behind all of that is what is called automation software and.

This has been in the area.

Right for the industry innovation.

For a number of years now salt stock happens to be one of the most popular open source of automation frameworks.

Been around for multiple years and it has a very very broad adoption, both for automating pieces of infrastructure as well as automating the setup of a conflict of setup and configuration of applications. We are in the process of integrating south stack for the rest of our realized automation to Delaware.

Integrated automation of environment that helps our I T teams, our customers I T teams and Dev ops teams, regardless of where they are clearly, it's gonna work phenomenally, well and the Vmware environment, but like I said, some staff can realize the automation of our multi cloud of nature. So you can use it to automate your E C two environment.

Are you of Azure you name it right. So that's really Hum, what's all stock restaurant stack plays in our portfolio and in an era of Covid as I said earlier.

Automate nobody can walk into the data center of nobody can sort of fill around with knobs, you really want automation of its highest levels and that's what's driving the interest in that category.

Thank you Robert before we conclude I think saying Theres a few final comments sure Paul Yeah, and thanks to all of you for your questions.

The summary, I'd say Q4 was a good finish to the fiscal year. These results demonstrate our ability to execute our multi cloud strategy at scale, we're committed to investing in our future growth and building our subscription and SaaS business, while we delivered technologies and solutions today that help our customers and partners with their digital transformations.

Thank you again to our customers our partners and the Vmware team for helping US close the successful fiscal 'twenty. One we look forward to providing continued updates on our progress in FY 'twenty to thank you everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now.

Correct.

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Yes.

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