Friday, April 27, 2012

VMware Earnings Dip, Growth Slows

VMware reported Q1 2012 financial results on Wednesday, April 18.

I'm mildly concerned with VMware's Q1 2012 financial results. This is the first quarter that total revenues, net income, and earnings per share dipped QoQ since the QE June 2009. Total revenues had increased every quarter since, until now. Deferred revenues growth slowed considerably. Granted, Q1 is not a strong quarter for VMware on the annual cycle and the revenues dip was small (-0.48%), but the streak is broken. I'm probably being too tough. CFO Mark Peek even raised the annual 2012 revenues guidance.

VMW is doing very well, but I'm starting to see a slowdown in growth for YoY total revenues, net income, and earnings per share. Current performance is good, the margins held, and an acceleration may occur later in 2012. Having been a VMW bull for a few years, I'm just not as gung-ho after this report. That doesn't mean I wouldn't trade VMW for an earnings pop in the future and probably will. CEO Paul Maritz no doubt has some record financial performance on deck later in 2012.

I missed my GAAP earnings per share estimate of $0.51 to $0.56. Actual was $0.44 EPS. This was mostly attributable to the unexpected dip in total revenues and an increase in income taxes. In the past I was underestimating GAAP EPS. So maybe my overestimation is some of the reason for my aforementioned concern.

VMware Income Statement Q1 2012 VMware reported total revenues of $1.06 billion, net income of $191 million, and earnings per share of $0.44. From the prior quarter Q4 2011, these were -0.48%, -4.49%, and -4.35%. From the prior year Q1 2011, these were +25.06%, +52.16%, and +51.72%, respectively. Gross margin, operating, and net margins were stable at 83.80%, 20.58%, 18.14%, respectively. Cash flow from operations of $1.33 per share is another all-time high. The operating expense ratio 63% is below the historical average.

VMware Balance Sheet Q1 2012 Total assets increased to a record $9.13 billion. The capital ratio increased to 56.94%. The current ratio increased to 67.23%. VMware is liquid with adequate capital. Total deferred revenue, current and noncurrent, increased +3.68% QoQ, the smallest increase since the QE September 2010. Return on assets increased to +9.82%.

VMware Outlook Q2 2012 "Second quarter 2012 revenues are expected to be in the range of $1.10 and $1.12 billion. Annual 2012 revenues are expected to be in the range of $4.525 and $4.625 billion, an increase of 20% to 23% from 2011, and annual license revenues are expected to grow between 12% and 16%."

VMware announced a management team change on April 11, 2012: * Carl Eschenbach has been promoted to Chief Operating Officer and Co-President. Eschenbach previously served as VMware's Co-President, Customer Operations. * Raghu Raghuram has been promoted to Executive Vice President of Cloud Infrastructure and Management. Raghuram previously served as VMware's General Manager and Senior Vice President. * Mark Peek, VMware's Chief Financial Officer and Co-President, Business Operations, has decided to take a new opportunity as Chief Financial Officer of Workday, where he currently serves as a member of their Board of Directors. Peek will stay with VMware until June 1, 2012.


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