Q1 2022 VMware Inc Earnings Call
[music].
Thank you for standing by and welcome to the Vmware of school on FY 2022 earnings call.
The time, all participants are in a listen only mode. After the speakers' back and thinking of there'll be a question and answer the session. So ask the question. During the session you will need the press star 1 on the telephone keypad.
The advice of the things gone from the seamless part of it for the.
Acquired any further assistance please press star zero.
I'd now like to hand, the conference over to your speaker of today, only sort of Paul diets, Vice presidents of things like the relief only thank you. Please go ahead.
Thank you good afternoon, everyone and welcome to Vmware as first quarter of fiscal year 'twenty 'twenty 1 earnings conference call on the call we have Zane Rowe CFO and interim CEO. Following Zane his 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 accompany this webcast can be viewed in conjunction with live remarks and downloaded at the conclusion of the webcast from IR of that Vmware of 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 Ks 10, Qs 8 Ks Vmware 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 as measures of Vmware performance should be considered in addition to that as a substitute for or in isolation from GAAP measures are.
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 certain litigation matters and other items as well as discrete items impacting our GAAP tax rate you can find the additional disclosures regarding these non-GAAP measures including.
Issues with comparable GAAP measures in the press release and on 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 second quarter of fiscal 'twenty..2 quiet period begins at the close of business Thursday July 15.2021.
With that I'll turn it over to Zane.
Thank you Paul and thank you to everyone joining us today before we move into Q1 results earlier. This month, we announced rugby rug around as the next CEO of Vmware effective June 1st reviews, the architect of our future and industry thought leader and has successfully steered the company's strategy and technology evolution across the.
The rich history. This.
This is an exciting milestone for Vmware, which along with the Dell spinoff plan marks the company's transition into its next chapter Roku will say a few words following our Q1 results overview.
Also on behalf of the company I'd like to thank Sanjay Qunar for his years of service his passion and his leadership, we wish him well on his next endeavor.
We're pleased with our Q1 financial performance Q1, total revenue was $3 billion, an increase of 9% from the first quarter of FY 'twenty, 1 with non-GAAP EPS of $1.76 per share up 16% year over year.
We continue to see customers utilize a combination of our solutions ranging from modern apps and cloud infrastructure, 2 networking and our digital workspace offerings.
We're also seeing momentum with our subscription and SaaS portfolio and are on track to make most of our major product offerings available as subscription and SaaS by the end of this year.
Customers remain focused on building out hybrid and multi cloud environments and are changing how they consume technology asking for more flexibility and choice.
Recently, we introduced Vmware cloud Universal a program that provides customers like Western Union, who is subscribed in Q1 with flexibility in utilizing Vmware hybrid cloud offerings as they progress on their cloud journeys.
With Vmware cloud Universal customers can deploy applications on their choice of 3 Vmware technology based infrastructure stacks Vmware Cloud Foundation.
Beyond where cloud on AWS or Vmware cloud on Dell EMC.
Then where cloud universal joins our product specific universal offerings, such as Vmware of the realized cloud Universal and Vmware Horizon service Universal.
In conjunction with these universal offerings, we continue to drive innovation around 3 key customer priorities cloud.
The modernization and enabling a distributed workforce.
In Q1, we announced updates to the Vmware the realized cloud management and cloud health portfolio, expanding our support for Amazon Web services, Google Cloud, Microsoft Azure and Vmware cloud on AWS.
These new and enhanced capabilities enable customers to manage and govern their hybrid and multi cloud environments more securely.
This past quarter, we secured a deal with pirelli, helping them with consistent infrastructure and management capabilities.
And in Q1, Vmware cloud on AWS achieved PCI DSS certification at the highest level of available for a cloud provider expanding our ability to support customers that require PCI for cardholder payments processing e-commerce applications.
In the modern App space customers are embracing tons Xu our comprehensive portfolio of products and services to modernize their existing applications and build new modern apps.
We recently unveiled expanded cloud workload protection capabilities to deliver better security for containers, and kubernetes, helping customers with increased visibility and compliance and.
In Q1, we saw customer momentum with our tons of your platform across key verticals, including financial services and also secured of key 1 with Telecom Italia, where we help them deliver a better digital experience and modernize their operating infrastructure.
We also recently announced that Vmware tons of who has been selected by U S. Army Futures command to enable the software factory, where they can use modern cloud native development practices.
We're helping customers run their modern apps with new releases of V sphere, 7 N V 7 which are developer and AI ready scale without compromise boost infrastructure and data security and simplify operations.
This includes the next step in our collaboration with Nvidia to deliver an AI ready enterprise platform that combines the industry, leading compute virtualization software of Vmware V sphere, and the innovation of Nvidia AI Enterprise suite.
We also continue to see momentum with our Dell technologies partnership of New example of our collaboration includes plans to build a simplified more secure high performing edge platform using Vmware Cloud Foundation on Dell VX rail that can consolidate a variety of edge workloads and use cases.
Additionally, Vmware and Dell continue to help unleash the potential of <unk> as an accelerator at the edge, enabling customers to derive real time insights out of that data wherever it lives.
Be aware and Dell also continue to collaborate on solutions, such as Vmware cloud on Dell EMC.
Velo cloud SD Wan digital workspace and security, helping joint customers in their digital transformation journeys.
Over the past year companies have seen the benefits of remote work and want to become truly distributed businesses, where the employees can work from anywhere. We recently unveiled Vmware anywhere workspace solution designed to help customers manage multimodal employee experiences secure the distributed edge and automate their workspace.
Base.
Vmware anywhere workspace brings together 3 innovative solutions Vmware workspace 1 P M.
Carbon black cloud and Vmware sassy.
This is built on our SD Wan technology, which was recently recognized by I D C. As the leading offering in 2020.
Additionally, Vmware carbon black was recognized as a visionary in the 2021 Gartner magic quadrant for endpoint protection platforms and recognized as a leader in the Forrester wave endpoint security software as a service Q2.2021.
Our commitment to ESG continues to be of priority across the company as part of our 2030 agenda, we took meaningful steps towards our sustainability goals with the recent launch of our zero carbon committed cloud partner program.
Designed to accelerate the transition to zero carbon clouds by 2030 through Vmware cloud partner data centers that are powered by renewable energy sources.
We're also proud to have been recognized on Forbes best employers for diversity of 'twenty 'twenty, 1 list, having made significant gains in our position over the last year.
Now, let's move to more detail on our business performance as well as our forecast.
We had good performance overall in the quarter, including relative strength in our commercial business, which benefited from increased focus on partner collaboration and sales coverage.
In Q1, the combination of subscription and SaaS and license revenue grew 12% year over year to 1 billion of $387 million subscription.
Subscription and SaaS revenue increased 29% year over year with the largest revenue contributions coming from V. C. P. P.
Modern applications end user computing carbon black and Vmware cloud on AWS, which grew over 80% in Q1.
We're pleased with the growth and progress of our subscription and SaaS portfolio in Q1 and will continue to focus on our product development and go to market efforts on making subscription and SaaS a larger part of our business.
A R R for subscription and SaaS of $3 billion, an increase of 30% year over year, while we continue to drive growth in our subscription and SaaS portfolio license revenue exceeded our expectations declining 2% year over year to $646 million.
Our better than expected total revenue growth was the primary contributor to strength in non-GAAP operating income, which increased 13% year over year in Q1 to $923 million.
Non-GAAP operating margin for the quarter was 38% with non-GAAP earnings per share of $1.76 on the share count of 422 million diluted shares.
We ended the quarter with $10.2 billion in unearned revenue and $5.7 billion in cash cash equivalents and short term investments.
Q1 cash flow from operations was $1.266 billion and free cash flow was 1 billion of $196 million.
For Q1, our P. O was $11 billion up 9% year over year and current RP O was $6.2 billion up 12% year over year.
Total backlog was $52 million substantially all of which consisted of orders received on the last day of the quarter that were not shipped and orders held due to our export control process license backlog at quarter end was $14 million.
We're pleased with our product portfolio of performance in Q1 core S. T. D C product bookings increased over 20% year over year with compute increasing over 20% and cloud management up in the high teens.
Compute growth was strong for both on Prem deployments and subscription and SaaS offerings, such as V. C. P. P. N V M C on AWS.
Cloud management growth was driven by via realized subscription and SaaS, which enables customers to manage both on prem and multi cloud environments and of consistent manner.
While the large transformative projects is starting to show signs of recovery after a slow year NSX and VSAT product bookings were still impacted in Q1, resulting in single digit year over year declines.
Subscription and SaaS ACB bookings for AUC, which constituted approximately 3 fourths of total UC product bookings grew over 30% in Q1, primarily driven by horizon.
Total EC product bookings increased in the mid teens year over year.
We continue to focus on integrating carbon black and tons of into our product development and go to market selling motions tons Zoo was included in 5 of our top 10 deals in Q1.
In Q1, we repurchased 2.5 million shares in the open market at an average price of $148 of per share.
As of the end of Q1, we utilized $1.8 billion from our current repurchase authorization of $2.5 billion.
Vmware remains committed to maintaining an investment grade profile and credit rating and to that end, we expect to use of free cash flow primarily to delever. Following our planned spinoff from Dell.
In addition, we will continue to invest in growing our business, both organically and Inorganically and returning excess capital to shareholders through share repurchases.
We will provide further updates to our capital allocation plans as we near the planned spin off of this fall.
Turning to guidance for fiscal 'twenty, 2 we're increasing full year guidance to incorporate stronger than expected performance. In Q1. We now expect total revenue of approximately 12 billion of $800 million or a growth rate of approximately 9% year over year.
We expect to generate approximately $6.330 billion from the combination of subscription and SaaS and license revenue or an increase of approximately 12 and a half per cent with approximately 53% of this amount from subscription and SaaS.
We are increasing guidance for non-GAAP operating margin for the full year to 28.5 per cent and non-GAAP earnings per share to $6.88 on the diluted share count of 423 million shares were also increasing our cash flow from operations guidance to $3.9 billion and increasing free cash flow.
<unk> to $352 billion.
FY 'twenty 2 guidance does not include the impact of incremental debt, we expect to incur in conjunction with the planned spinoff from Dell later this year.
For Q2, we expect total revenue of approximately $3.100 billion or a growth rate of approximately 8% year over year.
We expect approximately $1.485 billion from combined subscription and SaaS and license revenue in Q2, or an increase of 10 per cent year over year with approximately 53% of this amount from subscription and SaaS.
We expect non-GAAP operating margin of 28 per cent for Q2 with non-GAAP earnings per share of $1.62 on the diluted share count of 423 million shares.
In summary, we're pleased with our progress in Q1 and the momentum we're building with our subscription and SaaS portfolio. My thanks to the Vmware team and our customers and partners for a good start to the year I'm looking forward to working with <unk> to accelerate our progress towards being the company that leads our customers to the multi cloud.
Puting era of creating value for them, our partners and our stockholders I'll now turn it over to review to make a few comments before we open it up for Q&A.
First off I'd like to talk to my friends Zane for leading Vmware through this interim period and keeping us focused on out of FY 'twenty 2 priorities.
I look forward to the continued partnership with both Zane and some of the 1 in his new role as president leading our go to market teams.
I joined Vmware everything we've heard of small independent startup of the product manager for our core Hypervisor.
I have been fortunate to lead many of our efforts in creating new product categories and building new businesses that I've made Vmware 1 of the most influential and successful companies in our industry.
We have an exceptional team great culture values and strong products.
Most importantly, hundreds of thousands of our customers Trust our software as the foundation for the most critical applications.
So I am humbled excited and honored to have been chosen to lead this great company in its next phase of growth.
This is an exciting time in the industry.
All of the organization's enterprises and governments of like hot in the transformational shift to become digital.
It's a part of the shift.
Customers are leveraging multiple public cloud data centers and increasingly the urge to transform the experience of their customers and their workforce enterprise architectures are becoming distribute it again.
We ended the dawn of this multi cloud era of computing that enterprises have the sovereignty to deploy their digital assets value best fits the business.
In this new era, our mission is to provide the foundational platforms.
For accelerating digital business.
We provide in the Bickford is consistent software platform across clouds data centers on the edge with which customers can rapidly build and modernize their applications.
We empower them to operate the entire distributed environment with the optimal cost of security and governance, while leveraging the existing investments in our technology and skills to go faster to the future.
Paul spend it'll be the only Standalone cloud company that has the necessary strategic partnerships with all of the major cloud companies and all of the leading infrastructure companies to deliver on a truly customer centered multi cloud vision.
In summary, we deliver to our customers their digital future faster with lower cost and with the flexibility and freedom to build applications on the platform as the best suit their needs and with confidence that their workloads will be resilient more secure and efficient value.
They're deployed.
Going forward, you'll be hearing from me more about the key areas the drive stockholder value that I'm passionate about such as accelerating our innovation to drive the industry, leading multi cloud computing portfolio of that best serves our customers.
And the accelerating our business model to support our customers' preference for subscription and SaaS.
As we make progress in these areas I'm confident that we will seize the tremendous opportunity in multi cloud platforms that were part of an exciting new phase of growth.
I've been privileged to have been with Vmware for 18 years, let.
Let me share with you that I'm as excited about our future today as of what's the day I walked in the door.
I will now hand, it back to Paul for Q&A.
Thanks, Ragu before we begin the Q&A I'll ask you to limit yourselves to 1 question consisting of 1 part so we can get to as many people as possible operator, let's get started.
Most of our alcohol of mine that asked the question Paul.
The star 1 on the telephone Bob.
1 by while we compile the Q&A software.
Well first of all 4 of them.
Line of Martin Hopburg Your line is open.
Oh, Hey, guys. Thanks for taking my question first of all of Ragu. Congrats on your new role and congrats of the team on the strong Q1.
You know I wanted to talk a little bit about life post the Dell spend maybe you've had a little bit more time to reflect on it.
And of course sort of curious you know how do you think it affects not only the growth algorithm on a go forward basis, but even obviously theres going to be of deleveraging period here, but how does profitability then change too in a world.
From an independent DMR perspective.
Sure, Matt I'm happy to start and then let Rick talk a little bit more about the strategy. You know obviously, we're excited about the benefits of the spin, which we articulated you know some time ago thinking about the you know the outcome for both stockholders as well as for customers.
Establish Vmware as a standalone company enhances our ability to extend our ecosystem in support of our vision of creating this ubiquitous software and SaaS platform across all clouds of infrastructure. So as we think about that in financial terms, you'll hear a lot more through the year as to what that portfolio will look like and how we plan on.
Leaning in even more with 7 of SaaS and in particular with the multi cloud work that rigor and the team or our of developing so we're encouraged by what that landscape looks like we're encouraged by the future and you see with the with the first quarter performance here, we feel like we've got a lot of momentum in the multi cloud categories in particular with core.
And with the M C and what we're seeing with V. C. P. P. We expect that to continue and we will continue to have a strong relationship with Dell, but allow us to use that ecosystem more broadly for the I'll, let you talk little bit more about the strategy sure.
Thanks Pat.
I'm I'm excited about the the impending spin off at the unlike Zane said allows us to.
Execute on our multi cloud version of our multi cloud strategy partnering with the all of the leading cloud companies and all of the infrastructure companies of the customers that are spoken to they are positive.
Based upon the.
The increased flexibility that we go to have in our partnering strategy at the same time, we have been working.
Well with the Dell over the long period of time and we have qualified.
Our business partnership and technical partnership in the form of a commercial agreement.
The Doctor will continue very very strongly so we think post spin will have the best of both worlds the partnership with but the dull as of today clearly around a bunch of technology areas that we've spoken to you about such as the VX rail Vmware cloud on del Valle of cloud et cetera, that's the VAT et cetera et cetera.
Going forward, we have 15 statements of work on fundamental areas of differentiation, where together, we can deliver a powerful solution for our customers something that's gonna be packed backed by our commercial agreement to work together in the field and service of our customers. So all of all I'm very excited about the income.
The <unk> spend.
Thank you Matt next question please.
Next question comes from the line of Mark Murphy Your line is open.
Yeah.
Yes, Thank you very much and Rajiv I will add my congrats as well very exciting you have spoken about turbocharging and accelerating the multi cloud computing strategy of Vmware and you're coming from a position of strength with that can you help us understand which products or less.
<unk> you want to accelerate them for instance, does it mean working perhaps a bit more with azure and Google and others does it mean.
The more subscription and SaaS does it mean.
Pushing tons of you even faster or are are you referring to something else.
Yeah.
Thanks, Mark so let the process from the customer perspective.
As we have talked about and so many of the industry have talked about the.
The top priorities for customer to accelerate their digital transformation what that means typically is that they are modernizing the application portfolio, they're moving to 1 or more clouds as it turns out and they are increasingly deploying applications in the data center of the edge.
Of this distributed.
Appraise architecture, that's taking shape in order to help customers accelerate this you have to solve multiple problems and that's what our software platform does he have to help customers build modern obligations faster on the cloud of their choice and other tons of tons of today.
The 8% of at least the third of the tons of business is deployments are on public clouds.
So that's the first aspect of the strategy. The second of course is the multi cloud infrastructure. We've talked of spoken to you about 70.585 million workloads on V sphere of platforms.
Today in the data center and as customers think about deploying them in the clouds all of the edge of of whatever the want to deploy them.
The presence of our stack on AWS, which is our preferred partner all of the avs.
Sorry of on Microsoft through the area of solution on Google through the G. C V solution on the.
The Oracle or IBM, Alibaba et cetera, et cetera provides customers with the significant choice on where to go to the private workload.
And then once you're of the proud of the work with the workload modernize the workload deployed. It then you want to manage it at our management portfolio of 3 realize.
A suite of products is geared for multi cloud management, where a significant portion of our customers that share might be on V sphere, and a significant portion of it might be non res here and of course, 1 of the common most important things that happens once you have deployed obligations everywhere. He has he got to connect them together.
Hadn't share common network policy all of that.
<unk> common security policy. So all of these parts of our portfolio are inherently of natively multi cloud and they all need to come together in a credible platform that really is what we want to accelerate.
And the what I'm really excited about is there is no other.
The industry player in the market that can bring all of these together into a coherent platform. We are very unique in that regard. The second reason we are very unique is the starting point for customers is the set of Vmware technologies and tools Theyre already using so we can help them get the future state faster than anybody else.
Yes.
And then last but not the least the third reason via the unique is post spin we will be the only cloud company that has all of the strategic relationships with the all of these major cloud players and of course all of the major infrastructure players to truly Delaware This platform into and so that's really what I mean, when I say accelerate its a lot of work.
To do but super exciting we are in a very strong position to begin with and as you know we have a history of innovating in each of these categories and I'm looking forward to the days and weeks ahead.
Thank you for the incremental color and looking forward to see that come together.
Thank you Mark next question please.
Next question comes from the line of round of lunch.
Your line is open.
Thank you and congrats from me as Robert Bugbee.
The can you talk about the strength in computes the debt, where it's kind of really amazing this quarter and you called out some of the partner kind of work there how much of that is kind of underlying recovery and how much of that is like kind of.
1 of stuff versus kind of fundamental changes to the business because that's really exciting. Thank you.
Yeah, Ron I'll start you know the as you point out the compute business continued its.
Its recovery now that we've cycled 1 year since the initial impact of Covid. So we had solid year over year growth granted on a on the softer Q1 compare but still solid growth in excess of 20% on a year over year basis. It is contributed by our multi cloud offerings such as V. C. P. P V M C on AWS and.
Just all of the the grouping in the aggregate contributed to compute growth. So we're really pleased.
With the solid performance of the <unk> of the category the commercial sector in particular, which was hit hard initially saw a nice turnaround this quarter and we would expect that to continue to gradually recover over the course of the year. So it's really you know the fundamental strength that we're seeing in the business. We started to see some of this in Q.
4 and it's continued into the into Q1, I think bodes well for the rest of the year I'll, maybe let rajiv touch on a little bit more on what we're seeing with some of the performance of and compute and some of the areas. We're working on.
Thanks Cheryl.
Zane so on computers, Zane said, we've seen strength because computers, such an integral part of our multi cloud.
Portfolio and as.
So.
Offerings like the Vmware cloud on AWS.
Cloud offerings of them.
Roger and Google et cetera, et cetera start to buildup of V. C. All of that strength of being reflected back into the computer business of course V. C. P. P has been for a long time.
Time being driving the contributor to driving the strength of part of our computer business overall.
And then across the board of in the enterprise and in the commercial sector, we have seen.
Thanks.
The computer business, although the.
If you look at the product portfolio.
You may have observed as we've actually accelerated.
All of innovation in core compute the.
Not just recently of 7 but the the vis vis of an updates Zane talked about the Nvidia portfolio sort of in really of partnership which brings a critical elements of the Nvidia AI portfolio on top of the sphere and makes the sphere of the go to the platform for enterprise AI.
I'm not sure we've talked previously about our strength in telco etcetera, etcetera, So our compute business we continue to.
Renovate and innovate around it in many different ways and you're seeing some of the results.
Thanks Ryan.
The next question please.
Next question kind of from the line of Mike Martin Blair. Your line is open.
Thank you very much and congratulations both on the quarter on ragu.
I'm not taking the helm and we're looking for great things from that.
So I want to pump a little more on this increasing focus on cloud and subscription you've been making more and more of your offerings available as a cloud or subscription, but you've not really actually actively driven how the client purchase of what the client purchases with the launch of Vmware cloud Universal Yeah.
A lot more flexibility for deploying and move do you see the firm taking a more aggressive approach specifically to drive the transition via pricing differentiated functionality sales commission of something else to shift the client to the ship the business.
Much much faster to 2 of recurring business. Thanks.
Thanks, Mark and yes. The short answer is yes, but we've got some of the law of our new President of go to market here on the call with us on the.
So the universal and many of his baby so I'll, let him elaborate.
Thanks, Pat and.
And thanks, Mark Yeah, So I think as you mentioned.
Universal programs are designed for customers to really give them flexibility to embrace the cloud services at their own pace. Okay. That's how we've designed the program and we launched the program in Q1, and we had a good initial success and so the program is designed is the flexible subscription.
That simplifies the purchase and consumption of our entire multi cloud infrastructure and management services.
The the customers get the benefit of having choice and flexibility with the buy once and they can deploy any eligible service at any time during the contract and truly be able to convert and apply anything that's unused on the on premise.
The technologies deployment towards the Vmware cloud on AWS, and that's a completely unique offering in the industry and that's been a welcome for our customers. We are starting to see a growth in our customer interest as well as just pipeline and the we have launched incentives to our teams which are.
You know driving the appropriate behaviors and our go to market teams and and as we go into the following semesters as we do our go to market planning will continue to make it so that the teams lead with the appropriate offerings encouraging their customers to embrace of the universal offers.
Thanks, Patrick I appreciate thanks.
Thank you next question please.
The next Scott from the line of Tyler.
Your line is open.
Yes, hi, thanks, very much for taking the question.
I wanted to ask you about.
What youre seeing on the NSX and <unk> and I think you talked about product bookings were still impacted in Q1, but I want to understand how you expect the.
Bookings trends the trend throughout the rest of the year and this is just kind of a function of.
Some of the the strategic projects being on hold but just some color on what drove that in the quarter and how you expect that to recover throughout the rest of the year. Thanks sure Tyler Yeah, I'll start and then hand it over to review you know as you point out as we mentioned in my prepared remarks, NSX N V. San product bookings were down single digits on a year over year basis.
But I'll also point out that if you look at the compare both of those products were up over 20% for the same quarter last year. So they hadn't seen the impact of the slowdown at this point in time last year and as you mentioned there are those large transformation.
Projects that are starting to show signs of improvement, which was slow through the course of last year. So we do expect to see to see those projects improve and to see more volumes of those projects. If you take a look at our top 10 deals 8 out of 10 included both NSX N V. So we're actually pleased with the technology. It's also you know of.
Key elements and part of our V M C as well as V. C. P. P offerings. So we're seeing it embedded in the rest of our product portfolio and while its off on a year over year basis. We're encouraged by the the general outlook, we're seeing through the year. Neither of you touched on a little bit more on what we're doing there yeah..2 3 of co what Zane just said.
NSX and visa are core part of our multi cloud offerings as well as a core part of our on premise of Vmware Cloud Foundation stack.
We continue to expand the leadership.
In both of those products and the segments of the participating.
The.
Remember cloud.
Ws and Vmware cloud on these other of Hyperscale.
And we see P. P continues to grow we expect that to benefit the intersection of the visa business as well all of that specifically on NSX. We are continuing to expand the product portfolio to address even greater number of use cases.
Now out of the full layer 2 layer 7 stacked with.
The fantastic load balancing offering east west.
The wall.
The idea of Ips offerings et cetera, all of which are tremendously of differentiated enough of significant economic benefit to the customers over other alternatives and of course fee of included.
Steve angle of cloud solution, which is also part of the networking portfolio into all of any of our workspace offering for our customers.
Similarly, we sound as a core part of our.
Vmware Cloud foundation stack as well as our multi cloud infrastructure stack.
And we have seen good performance there as well specifically we saw good performance in the VX rail and the the continue to be a industry leader in HCI.
And the continuing to innovate around it and we recently introduced an innovation where customers are able to scale the compute separately from storage and that increases the addressable set of use cases and opportunities for visa.
Tyler next question please.
Your next question comes from the line of Carl Perrysburg. Your line is open.
Thank you maybe this question is for Ragu and maybe Zane I think everybody on the line has heard countless anecdotes from the.
Corporate CTO is about their plans to pretty aggressively accelerate the migration of workloads into AWS Asher G. C. P and I think it's created a concern I've shared at the perhaps.
The C tiers would therefore be less inclined to upgrade their on premise data centers as a result, and yet I'm looking at your results were the CRP Oh growth was 12% revenue growth 9 core compute 'twenty that seems to sort of refute that concern and I'm wondering if you could offer your thoughts maybe.
The general thesis is incorrect but of.
The great for you to help us square of that thank you.
Tax.
Thanks, So the general thesis is sort of like we like.
Like I said in the start of <unk>.
Works.
We are of the dawn of a multi cloud computing era, what that means is that customers are increasingly deploying applications across multiple clouds, they're deploying applications of the data center, they're deploying applications.
Vacations of the edge and the.
As a result.
Our customers are looking for an end to end software platform that allows them to deploy the applications in the locations that best fit their business needs are there.
Looking to deploy on the developers are looking to build on the platform the best suits the application needs.
Of the CIO and I T teams have to be able to manage it all and keep everything resilient and secure in a cost efficient manner.
It really is the macro trend that we're addressing with our product solutions the solutions in our portfolio. So if you think about our portfolio all of them.
Modern application modernization portfolio, which as Tom Xu has done very well and the Townsville solve the value of proposition for solve the problem for the developer that is wanting to accelerate application modernization on the.
The cloud of their choice and tons of addresses the problem in fact at least a third of last year's tons of deployments have been in public clouds.
If a customer is looking to take that existing workloads and move them to the cloud Vmware cloud infrastructure. This is the problem if of customers looking to rationalize and consolidate data centers or optimize the existing environments Vmware cloud foundation of addresses that problem.
Customer is looking to build out their edge portfolio I'd put applications for because of the revamping the stores that are manufacturing facilities et cetera, Oh hyper converged infrastructure stack addresses the problem. What are you seeing the strength of compute is the fact that the new applications being deployed across all of these plays.
<unk> had all of these are being deployed at the fundamental Vmware Foundation because that is the consistent foundation that gives them the manageability of the security of.
The cost efficiency and so on and so forth that is how that.
That is why you see all of these are trend lines and that's the connecting.
The.
Chart across all of these trend lines of fuel.
That's helpful. Robert Thank you for that.
Thank you Carl next question please.
Next question from Paul.
John Your line is open.
Thanks, and my congrats as well we're doing good luck on the new role.
I did want to ask about our appeal its the fifth quarter in a row, where it's down significantly on the year over year basis.
Zane can you get into a little bit into the dynamics and the mechanics of this and what should we expect out of RPM growth going forward.
Sherri time, you know what we focus more on is the C. R. P O and if you look over the last number of quarters, it's actually been fairly consistent if you. If you look more broadly at RPM of obviously, we had some favorable compares with some of the acquisitions over multiple quarters, but if you take a look at C. R. P O growing <unk>.
Per cent on a year over year basis, it's somewhat consistent with what we've seen over the last few quarters and you know we're very pleased with that we think with our focus on a C V and especially as we as we spend more time on southern of SaaS that tends to be the metric that we're more focused on and we're quite pleased with the 12% growth. There I'll also point out that.
We've highlighted all along with the the tremendous growth we've seen in V. C. P. P and of course, that's not typically captured in an RPM metric because of the.
Utility model that that it represents and its been a very favorable on a year over year basis for the last number of quarters starting in the second quarter of last year. So we're quite pleased with the growth. We're seeing overall on both I'd say, our P O and most particularly on C. R. P O.
Alright, great. Thank you sure. Thank you. Thank you for your type of next question. Please.
Next question from Brad Martin.
So Paul.
Great. Thanks very much.
Zane as we look towards the Vmware cloud Universal product is the deployment flexibility that it gives customers.
As it grows bigger how should we think about the impact of Rev. Rec in cash flow from that flexibility.
Yeah, Brad it's of Great question, I mean, obviously it provides some flexibility at the onset and then customers depending on which you know which Pat they choose to go down you know will be will be engaging in the products in that regard. So you know the the programs designed probably favoring a little bit more of a you know.
Of the southern of SaaS type model in southern of SaaS products, obviously, giving our customers that choice and flexibility, but you know as we've seen we still have a number of our customers that will choose perpetual as well so with that flexibility of obviously, we've factored that into our guidance and we're pleased to move our guidance up this year as you saw with.
The strength that we saw in the first quarter, but as Universal comes along we'll learn more and more about what customers are choosing to deploy them in and have that flexibility on and will will account for that accordingly, but you know we were expecting for it to be you know a fair amount of that rolled up ratably, but that's embedded in our forecast and candidly in our optimism for <unk>.
Each of yours.
The first of all thanks very much share. Thank you next question. Please.
That's the question from the line of 1 of your line is open.
Hey, guys. Thanks for the question and review of congrats on the promotion of course not.
Not to beat a dead horse, but outside of the easy compare it does sound like the core business days of returning.
Any more color on the impact you're seeing more specifically from private cloud investments data center consolidation other items impacting the core and then obviously of your software company, but are the supply chain shortages of actually playing a role on the business from a push or a pull dynamic and al. Thanks Scott.
Sure I'll start on the on the macro and then let Rajiv touched on as well you know I think just in general is as I pointed out earlier, we saw some of this building up and in Q4 and I think that's just the general sense of optimism and clearly improved spend.
Net we're observing and that's coming back in in our core products and we couldnt be more pleased as you said with the dead horse. So we continue to beat on on the computer and management, but we're happy with over 20% growth will just keep beating the.
As long as we can but generally speaking.
Speaking, where we're pleased I think it's the integration of the multi cloud portfolio and what we're seeing with our customers.
And then thankfully as you know where we hopefully are starting to see the light at the end of the tunnel here with regard to the impact of the pandemic on a number of our customers in particular of those in the commercial space and with our partners. We're encouraged by some of the trends, we're seeing there as well.
Let you add to that absolutely. Thanks chip.
To add to what Zane said.
Fundamentally.
What we're providing to enterprises.
Is the.
The ability of the power for them to choose where they put their application.
And we are able to help them wherever they want to either build of new application of our modernized and existing obligation of just modernize the infrastructure underneath the.
The obligation.
So tons out of there is a lot of that still happening in the private cloud, especially amongst the very very large companies.
For example, we are working very closely with some of the largest banks that are continuing to build out of the private cloud even if the investing public cloud. Similarly, we are continuing to work with some of the very large.
Telcos that are continuing to build out the network infrastructure.
The.
Even as the thinking.
Think about the multi cloud strategy.
And I was speaking with the CTO yesterday.
And what that person told us says that the investing in the modernizing their existing infrastructure to generate savings that they can then reinvest in modernizing their applications. So we are seeing all of these dynamics play out of the same time, which is why I think the answer is not simple answer.
Something decreases in the area and shows up and be so.
Thank you. Thank you fish next question please.
Next question from the line of rent Paul Your line is open.
Yeah.
Revenue after 18 years, you've seen of line I guess as you look forward what is the top priority for you taking over.
Anything that you're changing that perhaps.
And it wasn't wasn't wasn't on the that the approach that you want a day. Thank you.
Yeah, I mean, I think thanks for the first of Brent.
I alluded to 2 things in my prepared remarks, let me sort of elaborate on that I think from if I look at the customer trends and you and I have spoken many many many times before and the.
We look at the world from the customer and customers are accelerating the use of multiple infrastructures in many ways of the industry.
It goes through the pendulum of centralization.
The decentralization of centralization and back again I think we are in such a pendulum swing again. So if you think about the last 10 years. It was all about centralizing to the cloud and everybody thought all applications in the world was going to run in 3 clouds right.
But the actual customer behavior is turning out to be the other way the customers are deploying.
The obligations across multiple places and it's not just Vmware that's observing it.
The Microsoft CEO made the same observation of the recent conference the World is becoming distribute it again now the question is who rich.
Of.
Which of the.
I T vendors that our customers depend upon can do a credible and.
Great job of helping them at the new distributed World and we think there is a tremendous opportunity here of the place to our strength and that is what I am focusing on so when I say, we want to accelerate.
The innovation of our multi cloud portfolio, that's exactly what I mean, providing an end to end software platform.
Not just the compute but.
Of the networking the connectivity of the management of the storage everything put together. So that's point number 1 foreign number 2 our customers are expressing a preference.
Towards the subscription and SaaS.
Models, so we have to accelerate our business model evolution to subscription and SaaS and we are doing 2 things in that regard 1 obviously as we focus on.
Our energies on application modernization multi cloud and.
Enabling the work force of our customers to work from anywhere all of those tend to be SaaS offerings, but as we have previously talked about we're also taking all of our existing on premise offerings.
The either.
Enabling them to be controlled from the cloud of delivered from the cloud as a result of our entire portfolio is going to be positioned to be available in our subscription and SaaS business model and we're going to accelerate that and the rest.
So, let's talk about where you're gonna entity, we are introducing offerings like the universal that makes it much much easier for the customers to go along the journey and we're going to look hard at what kind of sales incentives in the.
So on we can put in place so that it makes it the extraordinarily easy for customers to go on this journey.
Thank you Brent next question please.
Next question from the line of Macquarie. Your line is open.
Hi, yes, thanks, very much and my congrats on the.
The position I don't know if this is for Zane or argue but I was just kind of curious what you. All are hearing in terms of we're seeing frankly in terms of customers using multiple clouds.
Parallel with 1 another using use the infrastructure sort of move applications around it seems like customers are still sort of majoring in 1 of the navy minoring in the other versus having sort of parallel pass on.
Of our 3 I was just kind of curious about how your what youre seeing out there and how you're also helping that I think still what is a pretty big skills gap in terms of being able to understand you know clouds, there of getting frankly bigger and more complex as we go forward.
Absolutely I'll start and then Zane can perhaps add or Smith.
Thank you Kirk.
What we're seeing and this is Paul the way.
The data that we see him, but I'm gonna use of external vendor start for a second analysts that the prominent analyst estimated that the 80% of customers are using 2 or more clouds and we see the same pattern. There of 2 I would say of potentially 2 major reasons for this 1.
The customers have always been about selecting the infrastructure of the best suits the application they want to deploy.
And for certain applications. It turns out they prefer 1 set of cloud the 1 cloud for certain other obligations. They prefer the second 1.
So as multiple clouds of becoming mature and viable with the customers, we see customers selecting to put the applications different applications of different clients that.
1 reason we see this the second reason, we see it as the most large companies, especially the distributed organizations with the different buying centers and different technology preferences and the pick different clouds whatever be the the underlying reason the reality is that customers are using <unk>.
Paul clouds.
Your point it is fairly early in this process. So the mixture of shift and on top of that all of our customers are investing in private clouds as well.
So.
And the earlier conversations I've talked about a 2 plus 1 or a 2 plus 2 phenomenon where the.
They're using at least 2 public clouds or private cloud in many cases building of of edge cloud. So this is what we mean when we talk about multi cloud we don't just mean 2 clouds Artur more public clouds.
So does that provide you with the.
With a sense of the market around us.
Thanks very much. Thank you Kirk next question. Please.
Next question from the line of Shannon Cross of your line is open.
Thank you very much.
Zane just 1 for me.
I'm curious about security and obviously moving to more of a multi cloud.
Platform what are you hearing from customers in terms of the concern about security you know are there areas that you think you need to.
Expand onto the address some of their concerns and.
Is it the first thing people talk about or.
How are you the dressing that thank you.
Yes.
Thanks Shannon.
We had our security council of customer Advisory Council yesterday.
And so we had a great discussion.
The discussion this is.
Hi.
The Securities Hi, every CIO of priority list as you can imagine and the cloud phenomenon makes it go even higher.
And let me give you a couple of examples that are tied to multi cloud actually 1 major bank that was in the amount.
The customer Advisory Board.
The security architecture that said the annualized staff 900 of applications running on public clouds.
The annualized 9 out of the 900 of applications. They found all 900 of them.
Our multi cloud in the sense they are components.
<unk>.
In the public cloud in the private cloud.
And some other clouds because of these obligations by themselves are distributed on the.
The problem, they're trying to solve is how do I secure an obligation that's spread out like this right.
Of that if you step back the second problem, the they're all asking themselves.
Now the the obligation of assets, which are the most important digital assets and the data that is associated with that how do we protect and secure of them. When they are so distribute it sort of multi cloud suddenly put security even more to the forefront to the force.
[noise] front.
Thank you.
Thank you Shannon.
5 minutes left we're going to try to get as many of and as we can in the time remaining next question. Please.
Next question from the lineup.
Your line is open.
Hi, Thank you very much congrats regroup.
I wanted to ask Zane and review if you could talk about tons of adoption. It seems that this is an important beacon for the durability of the overall portfolio. So hoping you could speak on adoption trends broadly and I know you mentioned 5 of the top 10 deals included it how are you getting paid and those deals per tons of and more broad.
The can is there any kind of metrics you can give us on number of developers downloads anything that would give a broader indication.
On where tons, who sits today versus say a year ago and how you think that may unfold 12 months from now thank you.
Let me start so the.
The times of portfolio is.
Pretty comprehensive and it's the.
The growing even broader by the day.
And the central problem of the tons of the.
The portfolio wise, we are trying to solve the tons of is helping our customers developers.
Martin is that applications in the clouds of their choice, where the cloud could be the private or public cloud. The they chose to be and so that really is the value proposition of times of and given the importance of application modernization and digital initiatives at all of our customers you can imagine why tons of.
The becoming more and more central to what we talked about with a lot of our customers now in terms of the mountain Zane talked about it being present in the.
5 of our top 10 deals.
And.
Before I get to the second part of your question about metrics, Let me briefly talk about the elements of the portfolio.
All of them is.
The core of kubernetes aspect of it which is emerging as the modern substrate on which Martin modern applications live.
The second is the management of these applications along with the running on kubernetes.
And the third is what developers are using the tools. The developers are using to build out obligations just to take 1 data point on that spring.
As a modern developer who's been a developer framework that's been very popular the enterprises, we have over 5 million developers that are.
Registered to use the developers of spring.
The spring boot, which is how does the technology of spring developers use to modernize the.
We're seeing 32 of starts of spring boot applications every minute.
That's an amazing number.
In terms of our application marketplace.
The open source application marketplace, we have over 2 million developers registered for that Sylvia partly built quite a significant population of developers that are using tons of technologies to modernize their applications.
Thank you Keith we're going to take a couple of extra minutes here to try to get a few more questions and next question. Please.
Next question from the line.
Your line is now open.
Oh, yeah. Thank you. Thank you for taking my question and congrats the ragu looking for to.
Seeing what you can do here.
It will be fantastic.
Book It seems like the environment is improving strong results of fiscal year of 2018 guidance is raised by about $100 million versus the first quarter beat of about 85 million. So that represent the only about $15 million.
Right.
Given the context of just talk about why not you know a much larger raise here.
Yeah, you know we feel good about obviously about our performance in Q1, the outperform as you've heard through the through the course of this call is primarily on.
The the license element of the business and while we're pleased with the the sub in the SaaS performance, we recognized with the ratable revenue recognition that will continue to push that through the course of the year. So we feel good about obviously outperformance in Q1, we feel good about Q2 and as well as the the raise in the.
The guide for the full year, but obviously, we would continue to focus on on southern of SaaS, which will be something that we'll talk more about on the bookings side, but you would expect to see a lot of that revenue are recognized not only towards the tail end of this year, but well into next year as well. So we feel good about the forecast and we think the $100 million was a good.
Beaten raise.
Thank you Nicole next question please.
That's the question from the line.
Your line is open.
What's the path.
Many of them.
Okay why don't we take 1 last question then please go to the next question.
Our last question comes from the line of your line is open.
Hey, guys. This is Chris on for Keith Thanks for taking the question. So just a quick 1 for me we've been hearing in our checks that the Vmware and Azure relationship has been picking up pretty good traction. So I'm just wondering how that partnership is different from the the MCR of any of the us.
Our flagship partnership you have and any expectations you have for how the Azure partnership can scale, especially now that you have the Vmware cloud universal product out thanks.
Yes so.
Vmware cloud on AWS is the service that we own and operate AWS as a preferred partner.
Having said that.
The offering.
On the.
The platform is built and run by Microsoft, but it is the essential Vmware Cloud Foundation stack so of customer that's running on premise can move to the stock.
A lot of the similar benefits of they get.
From the Vmware cloud on AWS stack in fact, 1 of the Microsoft the team members that Ray.
Collaborate with that said this is the fast path for Microsoft workloads to go to the Azure so of you're seeing a significant amount of customer interest in the platform and we have already started seeing some early of reference wins like American Airlines, that's moving the desktop virtualization population there suncorp of large bank and a P. J.
During the data center evacuation on top of Azure. So we're seeing some good momentum early momentum.
Thank you Chris before we finish the saying here's the some concluding comments sure. Thanks, Paul you know and as you've heard Q1 was a good start to the fiscal year and we're pleased with our progress and the momentum we're building with our subscription and SaaS portfolio. We're excited about our next chapter as a standalone company with rigor as our CEO and look for.
At the updating you again next quarter. Thank you very much everyone.
Yeah.
Paul.
The conference call. Thank all of our partners.
Just couple of what May now disconnect.
Okay.
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