Q2 2022 VMware Inc Earnings Call
[music].
Good day, everyone and welcome to the Vmware second quarter fiscal year 'twenty 'twenty two earnings conference call.
Today's call is being recorded at this time I would like to turn the conference over to Paul Diets, Vice President of Investor Relations. Please go ahead Sir.
Thank you good afternoon, everyone and welcome to Vmware second quarter fiscal year 2021 earnings conference call on the call. We have ragu Rog ROM Chief Executive Officer, and Zane Rowe executive.
As President and Chief Financial Officer, following their prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast slides, which accompany this webcast can be viewed in conjunction with live remarks and downloaded at the conclusion of the webcast from IR Vmware dotcom.
On this call.
Today, we will make forward looking statements that are subject to risks and uncertainties actual results may differ materially as a result of various risk factors described in 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.
Actual measures. These non-GAAP financial measures, which are used as measures of Vmware. Its performance should be considered in addition to not as a substitute 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.
Actions acquisition disposition, certain litigation matters, and other items as well as discrete items impacting our GAAP tax rate.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in the press release and on our Investor Relations website.
The webcast replay of this call will be available for the next 60 days on our.
Web site under the Investor Relations link our third quarter fiscal 'twenty to quiet period begins at the close of business Thursday October 14th 2021 with that I'll turn it over to ragu.
Thank you Paul and thank you to everyone joining us today.
I am pleased with our Q.
The company was called a 'twenty 'twenty two performance.
Revenue of $3.1 billion, and non-GAAP earnings of $1.75 per share.
I'm, even more excited and energized today as I approach my 100th day has Vmware C E O.
I've been spending a lot of concentrated time talking with the customer.
Customers and partners about the opportunities and challenges in the industry today.
And how we can help them navigate and innovate for the future.
Over the last few years and especially during the pandemic enterprises have accelerated the adoption of the cloud.
Customers are evolving their strategy from a cloud first.
First to our cloud smart philosophy, there they are picking the right clouds and cloud services for the right workload, including private cloud and even on the edge.
That means most of our customers that are using not just one cloud today, but multiple clouds.
Multi cloud is emerging as the customer.
Customers default strategy.
Are these primary reasons.
First.
They need to Delaware, the best digital and op experiences by choosing the location of their services based on the technical capabilities.
<unk> performance.
Second.
They need to achieve business flexibility lower cost and better control and as a result, our wide being locked into a single cloud.
Third they need sovereignty, which is about the ability to control where their data resides.
These customer needs that are addressed with our multi cloud portfolio.
Folio.
Number one as application modernization and cloud management.
This is where it turns on our cloud management portfolio are critical as customers build run and manage cloud native workloads across public clouds.
Number two is cloud.
Loss take hybrid infrastructure with Vmware cloud, which provides a comprehensive platform for running enterprise workloads in private clouds and migrating them to any of the major public clouds.
Number three our solutions that enable our customers to innovate at the edge and empower at most.
More secure distributed workforce with workspace one.
And across all of these multi cloud services, we have built our software defined networking and carbon black cloud offering which is a key component to provide zero trust security flexibility and agility across all the clouds.
Customers are using our tons of a platform to drive a consistent developer and cloud operations experience across all of their clouds, including data centers.
As an example, one of the worlds largest tire manufacturers adopted the tons of portfolio to manage a large container runtime.
Across their data center.
Cloud and the number of manufacturing locations of the edge.
We are also continuing to see customers, who are building their application platform across hybrid clouds.
Adoption of our complete stock for their private cloud environment that can extend.
The public cloud as needed.
This full stack provides cost effectiveness and agility to run enterprise applications and build modern applications with our integrated tons of portfolio.
For example, a Japanese automaker is building a next generation open scalable private cloud platform.
To modernize their business using Vmware Cloud foundation has that infrastructure stack in terms of for modernizing their applications.
Customers are also seeing the value of Vmware cloud universal as it provides them flexibility to move to the cloud at their own pace and give them freedom.
To move applications based on business conditions.
We continue to see momentum with our cloud partners, providing more choice and flexibility for our customers.
In Q2, Vmware cloud on AWS customers continued to expand their usage has to be Delaware key engineering.
Nearing capabilities and footprint expansion, including a new AWS Milan region.
We continued to strengthen our go to market relationship with AWS.
Including the ability to offer additional products such as V realized cloud via the AWS resale channel.
In April we unveiled Vmware Saatchi.
Cloud native scalable solution.
That serves as the one stop shop for security and network services at the edge.
Vmware Saatchi provides customers a unified edge and cloud service model with a single.
Single place to manage a business policy configuration and monitoring.
It is also a key component of the Vmware anywhere workspace solution, which also includes Vmware workspace one.
And Vmware carbon black cloud and is designed to help.
But he is Delaware better and more secure experiences to their employees no matter, where they are in the world.
We continue to work with Zoom video communications during the quarter.
To drive interoperability between Vmware anywhere workspace and the zoom platform.
Enabling a better and more secure collaboration experience for hybrid work environments.
We also added new innovations to Vmware horizon with new capabilities to make it easier for I T to manage deployments that have or they may be on premises.
This are in the cloud.
Over the past few months Vmware Gardner recognition from industry, leading analysts.
Vmware has been recognized as a leader in the August 2021, Gartner Magic quadrant for unified endpoint management.
Management tools for the fourth consecutive year.
Additionally, Vmware was positioned as a leader in the Forrester wave endpoint security software as a service Q2 2021.
And I D C ranked Vmware number one in worldwide.
Automation and configuration management, 'twenty 'twenty market share as well as ranking Vmware number one in software defined compute for 2020 market share.
In Q2, we received recognition in support of our ESG efforts.
Including ranking in the top 1% and emissions intensity versus industry peers on the ISS.
Climate scorecard for the fiscal year 2020.
Vmware was also named to the Forbes 2021 list of best employers for women.
And was recognized as the best place to work for disability inclusion in 2021.
As we head into fall spring one VM world are both on the horizon.
These events are the epicenter of industry conversations.
And breakthrough technological innovations.
Spring one takes place September one and two and is optimized for developers Dev ops pros and software leaders looking to build scalable apps and learn more about the spring framework Kubernetes App modernization.
<unk> and more.
Real World, which takes place October four through seven will again be a virtual event, where attendees you'll hear more about our multi cloud strategy and offerings.
While also engaging in over 600 educational and technical content sessions.
While network.
Networking and connecting with the peers.
I look forward to seeing you online at these two events.
We remain on track to spinoff from Dell in early November of this year.
As a standalone company, we will have increased strategic operational and financial flexibility to.
<unk> growth strategy, while also strengthening our long standing strategic relationship with Dell partnership, we expect will continue to benefit our customers and partners as well as both the Dell and Vmware.
I'll now turn it over to Zane for more detail on our business performance.
Thank you again, we're pleased with our Q2 and first half of fiscal 'twenty two financial performance total revenue for Q2 was $3.1 billion with combined subscription and SaaS and license revenue growth of 12% year over year to $1.5 billion, which was above our expectations for the quarter.
Subscription.
To drive SaaS revenue grew 23% year over year with <unk> up 26% to $3.2 billion.
License revenue exceeded our expectations in Q2 with growth of nearly 3% year over year to $738 million.
We continue to focus on developing and.
Scripts and accelerating our subscription and SaaS portfolio and made good progress in Q2 towards that goal.
The largest contributors to seven SaaS, where V C. P P.
Modern applications.
Do you see carbon black and Vmware cloud on AWS, which grew revenue nearly 80%.
Sent year over year.
We continue to prioritize flexibility and choice for customers as they adopt our offerings and in Q2, we saw customers take a slightly larger than expected mix of perpetual licenses as well as term licenses in certain product areas such as the U C.
We're also driving continued momentum with.
With our Vmware cloud solutions, and Hyperscale or led agreements are becoming an important channel for scaling our cloud offerings.
With this route to market the length of time from bookings to revenue can be slightly longer as compared with Vmware direct sales.
Our non-GAAP operating income for the quarter of 924 million.
With stronger than expected driven by higher revenue and lower than expected expenses.
Non-GAAP operating margin for the quarter was 29, 4% with non-GAAP earnings per share of $1.75 on a share count of 423 million diluted shares.
We ended the quarter with $10.3 billion in unearned revenue and $5.9 billion in cash cash equivalents and short term investments.
Q2 cash flow from operations was $864 million and free cash flow was $777 million.
R. P O was 11.
$2 billion up 8% year over year and current RP O was $6.2 billion up 11% year over year.
Total backlog was $66 million substantially all of which consisted of orders received on the last day of the quarter that were not shipped and orders held you to our export control process.
License backlog at quarter end was $19 million.
We're pleased with the overall bookings performance in Q2, as we continue to grow our subscription and SaaS offerings, we saw year over year product bookings growth and major product categories, including our multi cloud and modern applications businesses as well as the U C.
11, poor S. T D C product bookings increased over 20% year over year with compute also increasing over 20% and cloud management up over 30%.
Compute growth was strong in both on Prem and cloud deployments benefiting from an improved economic backdrop.
Strength in our commercial business.
Thanks in part to our partners and continued growth in our multi cloud subscription and SaaS offerings.
Growth in our cloud management business was driven by a few realized cloud universal a service that enables customers to manage their entire multi cloud environment, including on Prem edge and public clouds.
Adoption.
A V realize cloud Universal is a great validation of our multi cloud strategy with more customers now embracing a unified cloud based approach for managing their hybrid and multi cloud environments.
Do you see an NSX product bookings were both up in the strong double digits versus Q2 last year and V sand product.
Bookings grew in the low single digits year over year.
Carbon black cloud and our modern applications business also had continued strong growth in the quarter.
Subscription and SaaS ACB bookings for AUC grew in the strong double digits year over year, driven by both horizon and workspace one.
As employees continue.
Working in hybrid environments customers are leveraging Vmware workspace offerings to support employees anywhere they work from knowledge workers back in the office or at home to essential employees and frontline workers.
In Q2, we repurchased two 2 million shares in the open market at an average price of $160.
Sir.
Through the end of Q2, we have utilized $2.2 billion from our current repurchase authorization of $2.5 billion.
We successfully completed a $6 billion bond offering in preparation for a special dividend payout to all stockholders associated with our planned spinoff from Dell technologies.
For sure in early November of this year.
Our Q2 cash balance does not reflect the proceeds from this bond offering.
We will continue to invest in growing our business, both organically and Inorganically and return excess capital to shareholders through share repurchases.
We also remain committed to an investment.
<unk> grade profile and credit rating and we expect to use free cash flow primarily to delever. Following our planned spinoff from Dell.
Turning to guidance for fiscal 'twenty, two we are reiterating our expectation for total revenue of $12.800 billion.
Growth rate of approximately 9% year over year.
We expect to generate $6.270 billion from the combination of subscription and SaaS and license revenue or an increase of approximately 11.5% with approximately 51.5% of this amount from subscription and SaaS.
We are increasing guidance for non-GAAP operating margin for the.
Or to 29% and non-GAAP earnings per share to $6.90 on a diluted share count of 423 million shares.
We're maintaining our cash flow from operations guidance of $3.9 billion, which now includes nearly $100 million in debt issuance costs and estimated costs associated.
<unk> with the planned spinoff and we're also maintaining free cash flow guidance of $352 billion.
Additional details for FY 'twenty, two such as other income and expense are contained in the slide deck accompanying this call for.
For Q3, we expect total revenue of $3 billion $120 million.
Or a growth rate of approximately 9% year over year.
We expect $1 billion $470 million from subscription and SaaS and license revenue in Q3, or an increase of nearly 12% year over year with approximately 56% of this amount from subscription and SaaS.
We expect non-GAAP operating.
Margin to be 27% for Q3 with non-GAAP earnings per share of $1.53 on the diluted share count of 422 million shares additional guidance details for Q3, such as other income and expense are contained in the slide deck accompanying this call.
In closing I want to thank our customers.
Our partners and the entire Vmware team for a good second quarter and first half of fiscal 'twenty two.
As we head into our second half and the spinoff later this year were energized by the opportunities we see to help customers leverage our trusted software foundation for their multi cloud environments and we look forward to seeing many.
Any of you at our analyst meeting to be held in conjunction with virtual VM World. In early October we will notify you of the day and time in the coming weeks.
I'll now turn it back to Paul for Q&A.
Thanks, Brian before we begin the Q&A I'll ask you to limit yourselves to one question consisting of one part so we.
We can get to as many people as possible operator, let's get started.
Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad, if you're calling from a speaker phone. Please make sure. Your mute function is off to ensure you're saying no can reach our equipment again star one to ask a question and first.
We'll go to Mark Murphy from J P. Morgan Your line is open.
Yes, Thank you very much and congrats on all the success, a rug out and saying so it's another quarter, where the mix went.
Lately more to a perpetual and term, but you know you have.
This strong fast growth and a strong CRP okra.
When you step back and think about that.
Do you think the imprint of the pandemic is a kind.
Kind of altering the equilibrium of cloud versus hybrid versus on Prem.
Deployments and that's kind of this is how it's manifesting or do you think that it's more of a.
A kind of a temporary bounce back in that perpetual and term piece.
Hey, Mark this is Zane I'll start and then let redo weigh in with his thoughts you know as you point out it was actually a good quarter.
Quarter for us with our sub and SaaS businesses growing 23% of revenue.
And as you mentioned, we were quite pleased with the 26% a R. R. I don't think fundamentally it's driven.
Driven by Covid or anything necessarily in the marketplace for US you know I pointed out two of the trends.
In my prepared remarks, you know one being around choice and candidly you know as it related to in particular with our horizon product, we were expecting a few more customers to lean into the to the southern SaaS part of that portfolio versus the term license and for a variety of reasons. They they chose.
Term, which you know on the margin actually did impact.
Our split between southern as fast an on Prem. So we're actually pleased with what we're seeing with that product I called out E. C performance. This quarter, which was was remarkable performance year over year. It's just that the mix. If you will within those products shifted a little bit more to term than we had.
Cid originally and then on top of that you know, we're very excited about the business we have with the Hyperscale, there's and that's become an important route to market for us and we have a lot of innovation and a lot of work going on with those that go to market effort takes a little longer than just the direct sale as it relates to BMC type products on on multiple.
For Hyperscale or so you know is that I think is another area, where we're probably a little more opportunistic early on and then what's coming to fruition here is as we think about just timing in getting those customers on board and then lastly, I've pointed out we've seen good strength across the portfolio our V. C. P. P.
Product were really tough compares if you look at our year over year basis D. C. P. P started accelerating from the second quarter on a year over year basis. So if you look at that category, it's actually impacted by that V. C. P. P. For instance is about a third of that category. So it's a significant size portion and then other than that I'd say the trends.
Trends are generally strong across all of our southern Saskatchewan, So I'll turn it over again, because I'm sure. It's on the market side. There are a few elements I've missed.
Ooh Taxane so mark our approach is to provide Zane said choice and flexibility in how customers consume our offerings and we are very happy whichever way they consume.
In a minute.
It turns out that in certain geographies and in certain verticals given the choice.
Most prefer.
Our license software business model or subscription or SaaS business model and that's what you saw in this quarter, especially with the horizon.
But zane referred to we also saw it a little bit with the cloud Universal which was off to a good start with cloud universal. They provide if you recall, we provide customers with a choice.
And flexibility on their cloud journey and many of them start their cloud journey on premise.
Uh huh.
That time, they're using a term license that has moved to the cloud they use our subscription offerings.
But if you step back and if you actually look out over the next a year or so.
We are very bullish about the overall subscription and SaaS portfolio. This is a big focus of mine.
<unk> talked about.
Before and if you look at most of our recent products.
On the innovations they have all come to market with a subscription or SaaS business model and that will continue.
In addition, we are.
Taking all of our existing perpetual license software products.
And making them also available in our subscription and SaaS business model and that.
And work is underway and that includes products like this fear.
Ci product line as well as NSX as we do that.
It'll be strengthening our subscription.
As the go to market offer mechanisms, even more with programs like universal et cetera. So over the next year I actually expect our subscription and SaaS.
Business to growth to accelerate.
Thank you Mark next question please.
Next well go to Raymond.
Lunch out from Barclays. Your line is open.
And thank you.
I wanted to ask about the transformational deals like in the last few quarters, you've talked about that.
People were not doing edge, but you were hopeful that that will pick up and if I look at some of the product items.
I'll go into these type of deals like NSX, VSAT et cetera. They all kind of accelerated so can you talk a little bit about what you're seeing about some customers' appetite to start thinking about more bigger transformational deals again. Thank you.
Yeah, So I'll start on 100 back to Zane.
Sure Sumit as well to talk about what.
What we're seeing with customers.
So.
We are seeing.
Gradual economic environment improvement suddenly compared to last year.
And you.
You saw the benefit of that.
Thanks.
For sure.
In the case of NSX.
Additional exciting thing is we've talked in the past about our expanded networking and security portfolio, especially with our advanced security offerings that protect east west traffic.
These days with ransomware etcetera, etcetera, so protecting east west traffic has become a big deal.
And so we are seeing increased pickup in our security.
Products with some <unk>.
Big wins this quarter also with our software based load balancing.
Well there is a tremendous advantage over.
The capabilities or conventional load balancers. So if you have seen all of that contributing to.
Networking growth.
The case of storage a recent product line.
VX rail was pretty strong this past quarter.
Our commercial business also grew.
So those are all some of the contributing factors.
Right.
I'll just jump in this.
Zane on it if you just to help you sort of think about the size that I called out on the commercial part of the business that sort of really good success in the second quarter. If that if anything I think that was the surprise if you take a step back and look at our enterprise agreement mix as a rough proxy for some of those larger deals where you know approximately.
44%, which is actually consistent with last year the mix within that.
It wasn't.
Quite as episodic if you will with some larger and some smaller we actually had a good mix of customers that were over we usually use the $10 million mark as a as a proxy for sort of a large versus smaller.
Smaller deal and we had.
The same number 22 customers that were greater than $10 million, which was consistent with last year as well. So you know we're pleased with that trend. We think as we have more sub in SaaS will be seeing more moderation in our large large deals, but we're pleased with that trend.
For the quarter.
I think this is Matt the only thing I would add.
Add to that would be that you know the engine that we have now which is helping customers on transformation is different than what you have traditionally thought of transformation now if you look at our top deals many of them have or tend to solution, which is a significant transformation for our customers and enabling our brand new application.
<unk> platform for them as well as you know how they're going to adopt adopt multi cloud. So we are very pleased with that trend and then just like Zane mentioned our investments in the commercial front is leading to greater volume of fields, which is helping our business as well.
Thank you Raimo next question please.
Next we'll go to Mark Martin from Bernstein Research Your line is open.
Thank you very much and congrats on the quarter.
Look as the company is now focusing more and more on subscription and SaaS like that a couple of questions related to try to better understand the transition.
Personal is this are we seeing more of existing license maintenance customers moving over to either term licenses or SaaS or is this predominantly new workloads and the second part is obviously there is multiple things shifting into some new product in here, but how should we think about the revenue.
Lift over time, when comparing a traditional.
License maintenance deal versus what you would get with either term or SaaS. Thank you.
Sure I'll start and then again, let <unk> jump in you know I'd say, it's a good mix of both.
If you look at our renewal.
Renewal rates they remain high and we're quite pleased with what we're seeing on the SNF side and the maintenance side.
Say opportunistically, where we have products that offer our customers that flexibility, we're taking advantage of that with our customers to rethink their portfolio of our products and in some.
Cases, you know we've mentioned it in particular on the Universal side and on the management side and we have with <unk> for a number of years now seen success in pivoting that over we believe there's value there both for ourselves as well as the customers. If you think about just the southern SaaS nature of the business, there's an opportunity for upgrading.
Theres, an opportunity to do more with our products and in many cases, we've seen more value to both of them and ourselves when we make that pivot, it's usually with it with a premium associated with it. So we do appreciate the fact that we would expect to see revenues increase overtime even if.
If you were looking at just the existing install base and moving that install base over to more of a southern SaaS centric portfolio versus wherever they are today with on Prem. So if you just looked at that but in addition to that and more importantly, we believe is the opportunity with the solutions to enter into new opportunities and more greenfield opportunities.
Is there so we see tremendous benefits in the long run here with both parts of the portfolio, but allowing more customers to work with us on their journey.
Yeah.
Just to add a little bit more but I think from customers convert or.
Subscription or SaaS.
Offerings, especially.
Especially the SAS offerings.
We also see is the increased possibility of perhaps.
Selling and crossing is cross selling them a larger portion of our portfolio more easily because customer uptake of SAS is easier than customer uptake of on premise license, where they have installed software.
Playa.
Why it et cetera.
So not only is the individual the lifetime value of Oh.
If a product when a customer goes to the SaaS equaling good possibilities of us selling and getting them to use more of our portfolio is also very good.
Thank you Mark next question please.
And next we'll go to Matt Hedberg from RBC capital markets. Your line is open.
Great. Thanks for taking my question you mentioned your 100 days in here and I'm sort of curious as you sit back and reflect.
That used to say that Covid really is moving this market faster to the future.
I'm wondering now after you've been in the seat for a while if you reflect back over the last year and I think even more important looking forward I mean does that philosophically kind of underlying trend still play out in customer conversations I mean, I'm just sort of curious if at that level of the conversation.
People executives think that way.
Yes.
I think.
As you mentioned.
The pandemic has suddenly accelerated things that the customers were already thinking about.
Hum.
I said in my opening remarks, I'm actually over the last 90 days I'm probably spoken.
Yeah, so nearly 200 customers.
That is one.
200 customers.
Feedback is overwhelmingly clear.
Consistent.
The feedback is that customers are.
Evolving their cloud strategy on the one hand, they're going from not just being cloud.
First we're going to being cloud smart.
What we mean by that is customers are now looking at the I T.
Asian assets.
Deciding which cloud are whether it's private or public cloud.
We knew what your obligations to live on based upon a number of factors.
Computer factors being a big concentration.
Factors costs.
The desire not to get locked into any particular cloud vendor.
Having sovereignty over where they put their applications and data so what we're seeing as a result.
The evolution from our customers partly propelled by.
<unk> technology.
By the pandemic, but also partly propelled by our customers.
Starting with the cloud customers are becoming multi cloud.
I, often say we have gone from the age of modal cloud to the edge of multi cloud.
It suddenly in these 200 conversations the overwhelming feedback as this is the.
State of their future.
What we are doing is pivoting our portfolio.
Positioning our portfolio to become the multi cloud platform for our customers.
We're doing that in three ways one is up.
Uh-huh, enabling them to execute their application transformation.
On the cloud of their choice using our tons of portfolio and tons of it was getting increased momentum, especially in the public cloud to help them come master the complexity of doing application modernization and the cloud and of course.
By putting a cloud infrastructure across all clouds, and we are the only one with.
<unk> cloud infrastructure across all clouds, and forming strategic partnerships with all of the cloud vendors.
And then take their enterprise applications to the right cloud.
Last but not the least is the other aspect of the fundamental change caused by the pandemic, where we're all not going back to pre pandemic state is remote.
What workforce right. We are firmly in an age of distributed workforce.
And this has given us opportunity to pull.
Our SaaS is bring our SAS solution to market integrated with our workspace one solution to deliver this anywhere workspace platform, which is also getting a lot of interest so what I would say long winded answer to your question.
Question as the pandemic accelerated some trends that were firmly underway, but it's also of course, the corresponding maturity amongst customers to take a step back and look at how they want to run their idea over the next decade.
Multi cloud is one such pillar the distributed Workforces and other such pillar the growth of the edge as a third pillar.
Put it altogether it is becoming more distributed and we are benefiting from that.
Thank you Matt next question please.
Next we'll go to James Fish from Piper Sandler Your line is open.
Hey, guys. Thanks for the question.
I wanted to go back to your commentary on more savvy.
What.
What are you seeing in terms of the competitive environment, especially as it pertains to really got those fully unified and consolidated solutions rather than Vmware offers the SD Wan side and partners on the security side.
And any further color about how to think about the growth in adopting a carbon black at this point is it's been a bit since we got an update.
Thanks, guys.
Yeah. So you have to some parts of the question I'm going to break it up a little bit. So if you think about SaaS seats. The fundamental aspect of our zero Trust architecture security architecture that our customers are putting in place and there are two aspects to the south of the momentum that we're seeing a lot is like.
He pointed out as a pure.
Extension of than the wide area network.
Re architecture, that's underway and we are the market leader here with Oh Velo cloud solution for SD Wan and that continues to do very well for us and all of those customers are now adopting.
Saatchi art is a natural extension of our.
F T one solution, but the more strategic in the more interesting thing that's happening in the marketplace.
So I'll refer you to what I, just said a few minutes ago about remote work, becoming a standard part of the enterprise workforce.
Oh, it enterprise workforce are structured.
And so customers are increasingly looking to see how does how would we secure and manage their remote workforce.
And in that context, Saatchi is an important component of the solution, but not the only component of the solution. If you think of you and I working.
King from home what are the things that we need the first thing we need is fantastic network experience because we are on zoom or teams calls all day long and so developed cloud solution provides that then of course it might be accessing it from an untrusted network from home.
He was a corporate network, so sassy become super important but at the same.
Things like carbon black become a super important.
And then how do we how does that.
T provision and manage users of their homes, our workspace one solution becomes super important so.
You see Safi is part of a larger anywhere workspace solution and we are very very differentiated there and we think that as the platform.
Phone sale as time goes on in this industry for the SaaS people have there are two components to it one was there'll always be a pine selling motion, but also the platform selling motion is part of the antibody workspace solution. So that's part one of what you asked US part two of what you asked me is about carbon black and.
Time deposits is looking at me to cut my answer short so I'll keep it short here.
Hum.
Black also had a good quarter carbon Blackberry cloud did well and we are executing on two axes, Dan want a strengthening of the carbon black cloud solution, we added things like device control for Mac.
Many of the new features but the more interesting thing with carbon black is the integration of the leverage we are getting from the rest of the portfolio. This is what we've been talking about for the last year or so where for example, we're now integrating carbon black workload.
Sorry, carbon black cloud and.
Endpoint protection with our VDI.
The solution, we are introducing carbon black workload and integrating it with our <unk> solution. So what you are able customer was able to get with carbon black now is integration across a network of security our endpoint security, our workload security and our cloud security. So that's the strategy there.
Thank you fish great questions.
<unk> I just wanted to be sure we try to keep to one question per person because we do have a good amount of people in queue next question. Please.
Thank you and next we'll go to Simon Leopold from Raymond James Your line is open.
Great. Thank you very much for taking the question I wanted to see if you could maybe compare and contrast.
Your competitive position in multi cloud for your customers versus your position when virtualization was the big wave of on Prem.
It seems like Youre in a much more competitive environment than you were in that prior page of the company's evolution and I just wanted to see how you'd frame.
Sort of a compare and contrast in your positioning today versus that earlier phase of the company's life. Thank you.
Yeah. So.
If you think about the evolution of Vmware as a company right. So chapter one for US like you pointed out was sort of a server virtualization company.
We.
Did that really well and today, we are trusted by hundreds of thousands of customers.
Computer environment of their data center running all of their mission critical applications.
After two was to expand from that into the private cloud or the software defined data center, which has also gone very well for us.
The combination of chapter.
One and two is that we are indeed, the trusted foundation number one for our customers and number two.
One of our customers our technology teams I T teams use Vmware technologies and tools and processes to run all of their obligations and infrastructure now chapter.
Three for US is the multi cloud and application.
Chapter and here I would say we are very well positioned in fact very very differentiated for the following reason one is we have the trust of the customer and the presence of the customer base on the customers' familiarity with all of our tools and technologies that we have.
Been delivering to them over the last two decades.
That's point number one point number two is we are.
The only large vendor.
That is a very strategic position and strategic partnerships with all of the major Hyperscale ours.
Well as a presence with all of the sovereign clouds around the world.
Point number three is our multi cloud portfolio is very comprehensive and broader than anybody else. So it starts with the obligation modernization. It goes out into multi cloud infrastructure, we were able to manage our customers' portfolio, regardless of whether they are using vms and containers are somewhat less on AWS or azure.
Google or you name it right and then we are able to connect it altogether with our networking portfolio and we are building out our security portfolio on top of it we can help them on the edge of the network as well. So there is no other vendor really if you think about it that it has all of these are portfolio elements that are needed in multi cloud and.
And then finally, if you think about our position we are industry neutral we.
We are not we have a great set of cloud partners.
What customers want to select cloud when they Wanna be cloud smart they want an industry neutral player to look at there to help them figure out which applications go there and we had a uniquely set up to do.
And with our spin that position also get strengthened as we become the Switzerland of the industry. So far all of these reasons, we think our competitive position is really really good the trust to the customers the portfolio of partnerships and our industry position.
Thank you Simon next question please.
No.
That they got you at Tyler Radke from Citibank Your line is open.
Hi, This is Brian came on for Tyler Radke.
A question.
With the spin off close to consummating, how should we think about the opex and Marcia applications of the commercial R&D and go to market agreements that you have in place with Dell.
<unk>, Yeah, I'd think about it in the same way I mean, we've been operating as two separate entities.
For some time now we have a CFA.
That is signed and we look forward to continuing the partnership with Dell if anything I think they're more incentives in the the new relationship but.
We've been working on this for five plus years.
Together I think we've established a good arm's length agreements and have a terrific partnership with them. So well, we expect to expand our ecosystem.
We will continue to have that partnership and expect to grow that partnership with Dell I don't expect to see.
Significant changes if you just think about the P&L related to the spinoff as I mentioned we've been.
Arm's length already and I don't expect any any significant changes on that part if anything I think we've codified.
The strengths of the agreements and we'd expect to see continued growth with our partners.
Thank you.
The next question please.
Next we'll go to Brad Sills from Bank of America. Your line is open.
Hey, guys. Thanks for taking my question, it's Adam on for Brad.
You guys mentioned that multi cloud.
And then just a big chunk right now and I kind of wanted to do.
Digging a little deeper you guys mentioned.
Paul.
A bright spot in addressing multi card element what else within Lamar specific product segments are kind of.
You know, there's a lot of you know.
Customer conversations being driven there.
As a quick follow up like what else are you guys investing in R&D wise in China.
Thank you.
Yeah. So.
Unfortunately.
And did not come across clearly I'm going to paraphrase and make sure that if if if I Miss something let me know the question was which aspects of our portfolio.
It sounds like you're investing in for.
Multi cloud.
Secondly.
A lot of customers interested in so if that is the right answer question, let me answer it and if not.
Correct me so yeah, that's perfect. Thank you okay, yeah. So.
If you think about the multi cloud phenomenon for our customers and in the context of what they're trying to do customers are trying to modernize their applications execute their digital transformation at scale right.
And ensure that they're able to manage and control the costs. So in other words while on.
On the one hand, they want to provide developers the freedom they Wanna get enterprise. So they want to have full control over the environment and to round. So given that context. The investments that we're making that are resonating with customers pretty heavily the first water application modernization with our times of portfolio. So the.
The value proposition of tons or is it helps accelerate the modernization obligated off applications in the cloud of their customers' choice.
The.
As we spoke in our prepared remarks.
Townsville is seeing growing momentum and for.
For the value propositions of the Delaware.
The worse of the fact that the Delaware is that across not only in.
A single public cloud, but across all public clouds and on premise on the edge.
We talked about that.
Global tire manufacturer.
Deploying townsville across there.
<unk>.
<unk> in their data centers and on Azure.
Roger.
So that's one example.
Second is the cloud agnostic infrastructure, which we started with Vmware Cloud Foundation on premise, which is the basis of the majority of the private clouds that enterprises.
Enterprises are deploying.
Into that the Vmware cloud on AWS and then subsequently.
The partner with Microsoft and with Google to create a multi cloud infrastructure that is present across all clouds.
Customers are using that to move to the cloud because it turns out that.
If you use Vmware cloud you can.
Extra cloud in half the time or half the car around half the cost with any other mechanism. So that's another one under the same time access all of the innovation in the cloud. So that's the second a core pillar of our multi cloud strategy.
Third pillar of our multi car Chargers management, because when customers start to deploy applications.
Move to the cloud all of these clouds. The cost is a big factor compliance is a big factor control is a big factor governance is a big factor on our management portfolio helps.
And the last I would say its a networking and security. So these are all the areas where our portfolio is very relevant to customers. Thank.
Thank you.
Patients actually in place.
Next well go to Keith Bachman from BMO. Your line is open.
Hi, Thank you.
The opportunity to ask a question because I think this is for you.
In the quarter you just reported you indicated a 25% of.
Total revenues were SaaS.
Next question, if I look at your guidance for Q3.
Suggest that that will move up to 26% of total revenues and on the last call and this call you've reiterated your perspective that you want to accelerate the pace of movement to SaaS and subscription I was hoping if you could just define that and how you should thinking about.
Subscription so in other words, if we look at the next calendar year.
Does that move up five points, just any kind of calibration on a the way you go the way you try to accelerate that is it pricing is it through features and functions and b any quantification on how we should be thinking about next.
Our next fiscal year in terms of that.
That percentage of SaaS and subscription versus total many thanks.
Yeah, So I'll start with the how we are accelerating it and then hum.
Zane comment on the quantification if any.
So in terms of how we are accelerating it.
This is an area that I am.
At very focused on and I'm very excited.
Satisfy because fundamentally we think this is a model that allows us to innovate faster on behalf of the customer and customers want this.
We think about our portfolio in two ways. One is products that we have cloud products, our cloud services that we're bringing to market.
From the get go that our SaaS and subscription oriented the most some of the recent examples our Vmware cloud tansu et cetera et cetera.
And then that little country of carbon.
Recent acquisitions like carbon black cloud. So these are all examples.
And we continue to innovate.
In a way to bring about new products and new cloud services in this model as well. So that's one category by which this category will grow. The second is we have got an extensive portfolio of products today that are sold.
Our software license model and we are making available all of those products.
The majority of those products over time.
Subscription and SaaS business model, including standout on premise portfolio like V sphere.
Our Hep C I and NSX over time as this happens then pretty much all of our major aspects of our portfolio will be available.
Customer in whichever form they want to consume whether its a license.
They're using our license business model.
Subscription and SaaS business model and as this happens we will be able to also strengthen our go to market.
<unk> and <unk>.
Programs like Universal.
It will truly be how we drive the growth of this.
Both directly and through our channel partners on other resellers. So when you put all of that together I expect to see our SaaS and subscription percentages the growth percentages increase in SaaS and subscription as a percentage of total also become more sizable.
Real and for that let me turn it over to Zane to add some more Keith I think as you pointed out we would expect for this year that number to just exceed 25%, which as you know a nice increase on a year over year basis, I would caution somewhat as you look at it quarter by quarter. It is impacted by the seasonal dynamic.
Did you see in the perpetual business, which obviously has a strong fourth quarter. So the the 25 point just over 25% will be the average as you saw with this quarter you see a nice bump up when you start to look at things like <unk>, and which you know I think helps.
Give you some sense of the momentum you're seeing in this.
Part of the portfolio undoubtedly it will be higher I will be giving more updates in that area on our next call as we've typically done in the past, where we'd give you a little bit deeper sense into what to expect for FY 'twenty three both in the southern SAS area as well as a the total revenue area, but without a doubt we are tremendous.
His focus on this area as Ruth you mentioned not only has the portfolio enhancing significantly in this area, but we're also providing our customers with a significant amount of toy choice. So part of it will actually be ultimately how customers decide to consume our product set but we're very encouraged by the trends, we're seeing across that whole portfolio.
Thank you Keith next question please.
Next we'll go to <unk> from Northland Capital markets. Your line is open.
Yeah. Thank you.
Beat a dead horse here, but can we delve a little bit deeper into what are the certain geos and verticals of customers that you thought would go subscription and stuff.
You are seeing perpetual.
Yeah. So let me actually I have submit the talk to that.
I think.
Subscription and SaaS portfolio is largely available in you know what you would consider that the top 10 countries and are starting with the U S and.
And the U K, and Europe, and Australia, New Zealand and typically.
Our business off subscription SaaS is growing where you would expect the just in general cloud adoption in the countries, where the cloud reduction is higher so there's no significant differences are its pretty consistent and obviously the north American countries.
Typically take the lead in our subscription SAS business.
Thank you Nicole I think we will have time for one more question. So let's make this the last question.
Thank you and we'll go to Greg Moskowitz from Mizuho. Your line is open.
Okay. Thank you for taking the question I.
One for Zane just on the guidance.
And while you reiterated your total revenue outlook for fiscal 'twenty, two if I'm not mistaken you lowered your assumptions for both subscription and SaaS and license as well as for subscription and SaaS, specifically, whereas presumably your maintenance revenue expectations have risen can you maybe put a finer point on any changes that you.
Freeze your assumptions for Q3 and Q4.
Yeah sure Greg as you point out we have a slight change in mix.
As it relates to our full year guide now we've held the guide at $12.8 billion and for the reasons that we've touched on earlier.
No the mix with customer choice and then as I mentioned on the Hyperscale.
We've made site that's the the the biggest impact that you're seeing for the remainder of the year. We're still very encouraged by the trends, we're seeing on that southern SaaS business and it's actually you know we're seeing good growth there, there's obviously as it.
Is more driven by consumption and the the timing elements that I mentioned as well as customer choice.
Scalar says a little bit of the mix shift you're seeing we have actually increased our license guide as you look at just the pure license element of the of the forecast to reflect that and then of course maintenance. We've also had some good strength in peso throughout the year. So we think the combination.
Still warrants the $12.8 billion dollar guide.
<unk> that we've put out there we're encouraged by it we think it's a it's still a a good growth year on year and nothing beyond the trends we've already talked about on this call I think it is worth highlighting.
Think about the components of that guide so just a couple of tweaks to the model that gets you to the same place.
Greg I think before.
Before we conclude ragu has final comment.
Thanks, Paul.
Clothing via Marin is well positioned to Delaware, the multi cloud platform for all applications.
Enabling digital innovation and enterprise control that our customers need to accelerate their business.
I look forward to seeing you all online.
One in real World, where you will hear about the new innovations and offerings for this multi cloud world. Thank you.
And that does conclude our call for today. Thank you for your participation you may now disconnect.
For sprint.
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