Osprey Flyer: VMware Reports Record Q2 Earnings! (Financial Charts) *3rd consecutive record quarter!* VMW

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VMware reported Q2 2011 financial results on Tuesday, July 19, 2011

*Charts and commentary have been updated for VMware Q2 June 2011 financial results*

VMware Reports Record Q2 Earnings!: 3rd consecutive record quarter!

VMware Summary Q2 2011 VMware reported record total revenues, operating income, net income, and earnings per share for Q2 2011. This is the 3rd consecutive quarter all 4 measurements have reached new record highs. Financial position continues liquid with strong capital. The only negative on VMware is the historically low return on assets, although much improved in recent quarters, and is now an improved 8.28%. A $56M gain on the sale of investment in Terremark Worldwide Inc. boosted net income and earnings per share. The gain was included in other income and did not affect operating income. However, even without this gain, VMware had record operating results.

VMware Income Statement Q2 2011 VMware reported record total revenues of $921.21M, record net income of $220.16M, and record earnings per share of $0.51. From the prior quarter Q1 2011, total revenues were up +9%, net income up +75%, and earnings per share up +76%. From the prior year Q2 2010, these were up an impressive +37%, +195%, and +183%, respectively. Gross, operating, and net margins were improved at 83.45%, 20.29%, and 23.90%, respectively. Cash flow from operations of $1.08 per share was just below the prior Q1 2011 record of $1.11.

VMware Balance Sheet Q2 2011 Total assets increased a strong +7% QoQ to a record $7.54B. The capital to assets ratio (total stockholders' equity divided by total assets) slightly increased to 57.02%. The current ratio (current assets divided by total assets) decreased to 61.33% but continues liquid. VMware is liquid with strong capital. Total deferred revenue, current and noncurrent, increased +5% and +$99.7M to $2.08B.

VMware Performance by the Quarters (Charts)

VMware Earnings Per Share and Cash Flow per Share (Chart) Below is a chart of quarterly earnings per share and cash flow from operations per share. Current Earnings per Share of $0.51 is an all-time high and have improved for 4 consecutive quarters. Current Cash Flow per Share of $1.08 decreased to just below the prior Q1 2011 all-time high of $1.11..

VMware Total Revenues, Operating Income, and Net Income (Chart) Below is a chart of quarterly total revenues, operating income, and net income. Current Total Revenues are at 7th consecutive quarterly record high of $921.21M. Current Operating Income is at a 3rd consecutive quarterly record high of $186.89M. Current Net Income is at a 3rd consecutive quarterly record high of $220.26M. VMware realized a gain on the sale of its investment in Terremark Worldwide, Inc. of $56M, which was included in Other Income and therefore inflated Net Income over and above normal operations. Operating Income was not affected. Net Income would have been $164.16M not including the sale and without taking into account income tax effect, but still would have been a quarterly record high.

VMware Gross Margin, Operating Margin, and Net Margin (Chart) Below is a chart of quarterly gross margin, operating margin, and net margin. Current Gross Margin of 83.45% is a 9-quarter high and has been stable in the 80%-84% range since the beginning of the chart, Q1 2007. Current Operating Margin of 20.29% is outstanding and an 11-quarter high. Current Net Margin of 23.90% includes the $56M gain on sale of investment in Terremark Worldwide, Inc. and is an all-time high.

VMware Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. The ROA peaked in March 2009 at 9.12%, dipped to less than half the peak, and has yet to fully recover. However, the ROA has improved for 6 consecutive quarters to the current Return on Assets of 8.28%, which is a 9-quarter high. As noted in charts above, the $56M gain on sale of investment in Terremark Worldwide, Inc. has inflated Net Income, but not Operating Income. This also inflates ROA to some extent. This is the only real negative about VMware: a low ROA for a technology sector company. For a leading-edge technology company, a minimum 10% ROA should be expected and even 20% is a reasonable expectation.

VMware Growth Rates (Chart) Below is a chart of the quarterly (QoQ, Q/Q, quarterly change) growth rates for revenues and earnings per share. Total Revenues have increased for 8 consecutive quarters, ranging from the current +0.96% to +24.19% in Q4 December 2009. Earnings per Share have increased 4 consecutive quarters and the current +3.57% to +75.86%. VMware has maintained an impressive uptrend.

VMware Reports Second Quarter 2011 Financial Results

*** Year-Over-Year Revenue Growth of 37% to $921 Million; Operating Margin of 20.3%; Non-GAAP Operating Margin of 31.6%; EPS Growth of 183% to $0.51; Non-GAAP EPS Growth of 62% to $0.55; Trailing Twelve Months Operating Cash Flows Growth of 46% to $1.5 Billion; Free Cash Flows Growth of 56% to $1.6 Billion ***

PALO ALTO, CA -- (MARKET WIRE) -- 07/19/11 -- VMware, Inc. (NYSE: VMW), the global leader in virtualization and cloud infrastructure, today announced financial results for the second quarter of 2011:

* Revenues for the second quarter were $921 million, an increase of 37% from the second quarter of 2010 as reported, and an increase of 35% measured in constant currency.

* Operating income for the second quarter was $187 million, an increase of 85% from the second quarter of 2010. Non-GAAP operating income for the second quarter was $291 million, an increase of 56% from the second quarter of 2010.

* Net income for the second quarter was $220 million, or $0.51 per diluted share, compared to $75 million, or $0.18 per diluted share, for the second quarter of 2010. Non-GAAP net income for the quarter was $235 million, or $0.55 per diluted share, compared to $142 million, or $0.34 per diluted share, for the second quarter of 2010.

* Operating cash flows for the second quarter were $463 million, an increase of 114% from the second quarter of 2010. Free cash flows for the quarter were $443 million, an increase of 91% from the second quarter of 2010.

* Trailing twelve months operating cash flows were $1.5 billion, an increase of 46%. Trailing twelve months free cash flows were $1.6 billion, an increase of 56%.

* Cash, cash equivalents and short-term investments were $3.7 billion and unearned revenue was $2.1 billion as of June 30, 2011.

U.S. revenues for the second quarter of 2011 grew 35% to $450 million from the second quarter of 2010. International revenues grew 38% to $471 million from the second quarter of 2010.

License revenues for the second quarter of 2011 were $465 million, an increase of 44% from the second quarter of 2010 as reported, and an increase of 40% measured in constant currency. Service revenues, which include software maintenance and professional services, were $456 million for the second quarter of 2011, an increase of 30% from the second quarter of 2010.

"The quarter's strong performance underscores the value that VMware is providing customers on their journey to cloud computing," said Paul Maritz, chief executive officer. "Customers continue to invest in our portfolio of virtualization and cloud infrastructure solutions to remove complexity and enable IT as a Service."

"VMware's second quarter results were driven by strength across geographies and record enterprise license agreement bookings as a percentage of total bookings," said Mark Peek, chief financial officer. "Third quarter 2011 revenues are expected to be in the range of $915 and $940 million, a year-over-year increase of 28% to 32%. The third quarter non-GAAP operating margin is expected to decline sequentially by 260 to 360 basis points. For the year, we expect annual revenues to be in the range of $3.65 billion and $3.75 billion, an increase of 28% to 31% compared to 2010."

"The quarter's strong performance reflects the continued adoption of virtualization as a key technology for the next era of computing," said Paul Maritz, chief executive officer. "VMware will continue to help customers accelerate towards more efficiency, flexibility and automation with VMware vSphere® 5 and the cloud infrastructure suite."

About VMware

VMware delivers virtualization and cloud infrastructure solutions that enable IT organizations to energize businesses of all sizes. With the industry leading virtualization platform - VMware vSphere - customers rely on VMware to reduce capital and operating expenses, improve agility, ensure business continuity, strengthen security and go green. With 2010 revenues of $2.9 billion, more than 250,000 customers and 25,000 partners, VMware is the leader in virtualization, which consistently ranks as a top priority among CIOs. VMware is headquartered in Silicon Valley with offices throughout the world and can be found online at www.vmware.com

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