VMware Inc. (VMW) reported third-quarter results after the closing bell on Wednesday. The company posted a 54.1% decline on GAAP net income to $38.2 million from $83.3 million in the year-ago period.
Excluding certain non-recurring items, adjusted earnings per share came in at 11 cents, edging past the Zacks Consensus Estimate by a penny.
The company recorded a growth of 3.7% to $489.8 million, compared to $472.1 million in the year-ago quarter. The expansion was primarily driven by the US federal sector, increased transaction volumes and growth in maintenance renewals. It was partially offset by the sluggish corporate spending environment, which affected VMware’s license revenues.
In terms of geographic regions, U.S. revenues slipped 1% year over year to $246 million, while international revenues grew 9% to $244 million driven by growth in Canada, South America and Asia-Pacific.
VMware spent $133.5 million during the quarter towards research and development, a growth of 56.5% from $85.3 million in the year-ago period. Sales and marketing expenses also increased 10.3% year over year to $185.2 million, primarily due to worldwide promotional efforts related to the new version of the company’s virtualization software, vSphere 4. Moreover, additional royalties and commissions paid to partners coupled with a weak dollar also contributed to total operating expenses, which increased 25.7% year over year to $466.5 million. Accordingly, operating income declined 77% year over year to $23.2 million, while operating margin contracted by 16.7% to 4.7%.
During the quarter, the company wrapped up the acquisition of SpringSource, a company engaged in enterprise and web application development and management. VMware paid about $420 million for the acquisition, including $356 million in cash, and expects the deal to have a dilutive impact on operating margins during the fourth quarter.
The company ended the quarter with cash and cash equivalents of $2.2 billion, compared to $1.7 billion in the year-ago period. During the quarter, VMware generated $199.4 million of cash from operations and deployed $14.2 million towards capital expenditure apart from the cash utilized for the acquisition.
Moving forward, management expects fourth-quarter revenues between $540 million and $560 million, citing improved short-term visibility in its business. However, the company plans to move ahead conservatively, assuming a slow recovery in macroeconomic conditions.
Meanwhile, the Zacks Consensus Estimate, derived from 15 covering analysts, is currently pegged at 48 cents per share for the full-year, which has remained constant over the past 3 months. However, the most accurate estimate is slightly more bullish at 51 cents per share.
VMware is a provider of virtualization solutions from the desktop to the data center. The company’s virtualization solutions address a range of information technology problems that include cost and operational inefficiencies, business continuity, software lifecycle management and desktop management. VMware works closely with over 900 technology partners, including server, microprocessor, storage, networking and software vendors.
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