VMware announces Q3 2010 earnings, expects a difficult 2011

Yesterday VMware held its quarterly earnings call, announcing a new record for revenue, non-GAAP operating profit and trailing 12-month free cash flows.

Revenues for the third quarter were $714 million, up 46% from a year ago. $343 million come from the license revenue, an increase of 43% from Q3 2009. 
US revenues are equal to $362 million. International revenue is $352 million. In Latin-America Mexico, Brazil and Argentina scored over 100% year-over-year growth, while the APAC region grew more than 50% year-over-year.

Globally enterprise license agreements (ELAs) were 20% of total Q3 booking.
Software maintenance and support revenue was $314 million, an increase of 48% from 2009.
Customers continue to buy on average more than 2 years of support and maintenance with each new license purchase, but Q3 back maintenance was slight down from 2009 and VMware predicts this trend to continue in Q4.
Professional Services revenue was $57 million, an increase of 55% from last year, thanks to acquisitions and vSphere training.

Total operating expenses, including costs of services and costs of license, increased 5% sequentially to $510 million.
R&D expenses were flat at $136 million or 19% of revenues as compared with 20.2% in Q2 2010.
Sales and marketing expenses were $230 million or 32.3% of revenues, compared with 31.9% in Q2 2010.
G&A expenses were $57 million, or 8% of revenue, compared to 7.6% of revenue in Q2 2010.

Operating profit, measured on a non-GAAP basis, increased 9% sequentially to $204 million, or 28.6% of revenue.

The company reports record sales for its desktop virtualization unit, announcing a 7 figures  desktop ELA with 6,000 seats with one of the largest automotive part suppliers in the world. Despite that VMware’s executives don’t share any specific financial result about this part of the portfolio, reiterating the idea that the market is not ready yet.

The company has now 8700 employees, with 500 added during Q3. 100 of them come from the acquisitions of Integrien and TriCipher. While the amount paid for the two companies remains undisclosed, VMware unveiled that it has spent $300 million in aggregate for M&A activity, capital spending, and our share repurchase program during Q3.
It ended the quarter with $2.9B in cash, $100M more than in Q2 2010.

VMware expects Q4 2010 revenues to be within a range of $790 million to $810 million, or year-over-year growth of between 30% and 33%. The expected overall growth rate for 2010 is expected between 39% to 40% for total revenues.

VMware also expects a difficult 2011:

…we will have a tough revenue comparable from 2010, and inherently limited visibility at this time, I believe we can deliver 20% growth in 2011.

Despite that, the company reveals the interest to continue its M&A plan like the previous years, by buying small firms without any mayor acquisition.


Thanks to Seeking Alpha for the call transcript.