VMware Inc (VMW) 2011 Q1 法說會逐字稿

Welcome to the VMware first quarter 2011 earnings call, and thank you for standing by. At this time, all participants are in a listen-only mode. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn today's meeting over to Mr. Mike Haase, Vice President of Investor Relations.

Welcome to VMware's first quarter 2011 earnings conference call. On the call, we have Paul Maritz, our Chief Executive Officer; and Mark Peek, our 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. Statements made on this call include forward-looking statements, such as those with the words will, believes, expects, continues, and similar phrases that denote future expectation or intent regarding our financial outlook, product offering, customer demand, and other matters.

These statements are based on the environment as we currently see it, and are subject to risks and uncertainties. Please refer to the press release and the risk factors and documents filed with the Securities and Exchange Commission, including our most recent reports on Form 10-Q and Form 10-K, for information on risks and uncertainties that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call we will discuss certain non-GAAP financial measures. These non-GAAP financial measures, which are used as measures of VMware's 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 intangible assets, employer payroll tax on employee stock transactions, the net effect of amortization and capitalization of software and acquisition-related items.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures, in the press release and on the Investor Relations page of our website. The webcast replay of this call will be available for the next 30 days on our Company website under the Investor Relations link. Our first-quarter quiet period begins at the close of business, June 16, 2011. Also, unless otherwise stated, all financial comparisons in this call will be in reference to our results for the comparable period of 2010. With that, let me hand it over to Mark.

Thanks, Mike, and good afternoon, everyone. The financial and business results of our first quarter of 2011 exceeded our expectations. We achieved record revenue, non-GAAP operating margin, and free cash flow, driven by strength in all geographies. We also had success closing large enterprise license agreements during the quarter. Total first-quarter revenues increased 33%, and licensed revenues increased 34%. Our non-GAAP operating margin was 29.9%. Trailing 12-month free cash flows were $1.3 billion, an increase of 38% from a year ago. The strength of our balance sheet is evident, with cash and investments of $3.7 billion and unearned revenue of nearly $2 billion.

Customers continue to move along the virtualization journey and migrate from virtualizing their test and dev environments in simpler Tier 3 apps to more mission-critical applications, including databases, ERP systems, e-mail, and collaboration systems. Virtualization is mainstream within datacenters, as a modern way of computing that enables business agility, flexibility, and continuity. In the first quarter, we released VMware vCenter Operations, a new suite of management products and solutions that bring together performance, capacity, and configuration management capabilities.

Virtualization and cloud computing require a different approach to IT management, where resources are pooled across multiple sources, where provisioning and capacity are highly dynamic, and where configurations are fluid. We've been very pleased to see positive initial customer feedback for VC Operations.

The VMware Service Provider Program continues to gain traction, with over 3,500 partners. Our partners include a cross-section of small, medium, and large service providers, working with VMware to provide hosted IT services based on our infrastructure. Related to VSPP is our vCloud Datacenter Services Program, which enables service providers to stand up enterprise-class cloud offerings that are compatible with our enterprise customers' virtualized datacenters. This program represents a higher level of service that is enterprise-ready, with specific security requirements audited and approved by VMware.

We most recently announced that SOFTBANK has joined the vCloud Datacenter Services Program. This brings us now to seven large cloud service provider partners standardizing on the VMware cloud infrastructure stack, including Colt, Verizon, Terremark, SingTel, BlueLock, CFC, and now SOFTBANK. And to further strengthen our cloud initiative, on April 1, we welcomed the more than 300 people from EMC's Mozy and Cloud Services Group. This team will continue to run the Mozy service on behalf of EMC without interruption, and will add its R&D and product knowledge to VMware's engineering team, as we collaborate to continue developing products that help our cloud service providers. We expect Mozy to have little impact on our revenue or operating margins for Q2 and the remainder of 2011.

In the first quarter, we introduced the first upsell option to VMware Go. VMware Go is our hosted management offering for SMB customers to purchase additional management capabilities, including patch and software updates. At our VMware Partners Exchange held in February, we announced new specialization certifications, solution competencies, and tool kits designed to help partners deliver enterprise hybrid cloud solutions. The event includes 3,300 attendees and had 65 sponsors and exhibitors. Paul will make a few comments later about Cloud Foundry, our most recent announcement in the cloud platform as a service arena.

We are very pleased with our start to 2011, and want to thank all of the people of VMware, our partners, and our customers. Now I will walk you through the financial details. Total revenues for the first quarter were $844 million, an increase of 33% from a year ago, or 34% on a constant currency basis. The quarter was characterized by strong demand across our international markets. Total international revenue represented a record 53% of total revenue. The investments we have made and will continue to make in our international market expansion are clearly paying off.

License revenues were $419 million, up 34% from last year, driven by strong demand in our international markets and strength in our ELA bookings during the quarter. Enterprise license agreements were 22% of total first quarter bookings, and included five transactions of $10 million or more. These transactions resulted in significant upside to our expected bookings entering the first quarter. Blended vSphere ASPs were down slightly during the quarter, reflecting continued interest in our SMB SKUs and higher discounts from the large ELAs. In the first quarter, we were pleased with a number of View desktop virtualization wins, across geographies and verticals, that exceeded 5,000 seats.

We also announced general availability of View 4.6, with the enhancement of remote access for PC over IP, via VMware Security Server. This feature enables simple, secure remote connection and authentication to a desktop, eliminating the need for a VPN. Initial customer feedback for View 4.6 has been positive. We are also beginning to see increased demand for our management and automation tools -- solutions such as vCloud Director, Site Recovery Manager, and vCenter Operations are seeing improved traction in the market. The increased interest for our management tools is being driven by the buildout of private clouds within our customers' datacenters.

US revenues increased 26% year-over-year to $400 million, and international revenues were a record $444 million an increase of 40% compared to the first quarter of 2010. While clearly, there is still much uncertainty ahead, we were particularly gratified by the resiliency of our people, partners, and customers in Japan, where we achieved record Q1 bookings as Japan closed its fiscal year-end. Software maintenance and support revenue was $364 million, up 36% compared to last year. Customers continued to buy, on average, more than 24 months of support and maintenance, with each new license purchased illustrating their strong commitment to VMware as a core element of their datacenter architecture and longer-term private and hybrid cloud strategy.

Professional services revenue was $61 million, up 13% from last year. The increase was driven primarily by incremental services revenue from our M&A activity. Total unearned revenues ended the quarter at $2 billion, up 6% sequentially and 46% from a year ago. The complexity of our unearned revenue has increased over time as a result of acquisitions, an expanded product portfolio, and a broader range of pricing and packaging alternatives. Over 80% of our unearned revenue is recognized ratably with the passage of time, and includes primarily maintenance bookings, in addition to a growing amount of ratably recognized license bookings.

In addition, approximately 7% of unearned revenue is the result of prepaid professional services, including training, and is recognized as the services are delivered. And finally, just under 10% of unearned revenue is software license revenue, which is recognized upon product delivery or product releases.

We are pleased with our financial results and operational progress. We benefited from stronger than expected ELA demand, particularly among large transactions during the quarter. We also benefited from a strong quarter by our OEM partners, as most of their Q4 shipments were recognized in the first quarter. We continue to remain cautious about the macroeconomic environment and the volatility we are observing in the world economy and individual sovereign nations.

With this backdrop, we expect second-quarter revenues to be within a range of $860 million and $880 million, or year-over-year growth of between 28% and 31%. For the year, we are expecting total revenue of between $3.55 billion and $3.65 billion, or growth of 24% to 28% compared to 2010. Given the strong first-quarter results from our OEM partners and the large ELAs, we do not expect sequential growth in license revenues in Q2 over Q1, nor in Q3 over Q2.

I will now provide some details on our operating expenses. Unless otherwise noted, all references to our expenses and operating results are in a non-GAAP basis, which are reconciled in the press release tables and posted on our Investor Relations website. Our Q1 operating profit, measured on a non-GAAP basis, was a record $252 million, or 29.9% of revenue, compared with 29.6% in Q4 2010 and 27.6% in Q1 2010. The increase was primarily driven by operating leverage on our revenue growth. We ended the quarter with approximately 9,400 employees, up nearly 400 from the beginning of the year.

And, as I mentioned earlier, in April we added over 300 people from Mozy. We are in a rapidly changing and dynamic environment, and we see much opportunities in the adjacencies to the vSphere platform. So, you should expect that we will continue to hire at a brisk pace throughout 2011, to take advantage of this opportunity.

First-quarter R&D expenses increased sequentially $9 million to $152 million, or 18% of revenues, as compared with 19.5% a year ago. Sales and marketing expenses for the first quarter were $277 million, or 32.9% of revenues, compared with 31.6% a year ago. Sequentially, sales and marketing decreased in dollars and as a percentage of revenue, largely due to lower variable compensation. G&A expenses declined $6 million sequentially to $58 million, or 6.8% of revenue, compared to 9.1% a year ago. The sequential decline was largely due to reduced corporate expenses.

Diluted non-GAAP EPS was $0.48 a share on 429 million diluted shares. Our non-GAAP tax rate was 20%. The GAAP tax rate was just below that, at 19.4%. We continue to expect the non-GAAP tax rate to be approximately 20% for 2011, and the GAAP tax rate is not expected to be materially different than the non-GAAP tax rate. Taking into account our adjustments to GAAP operating income that Mike disclosed at the start of the call, we expect our non-GAAP operating margin for the second quarter to be between 28% and 29%, and the full-year 2011 to be between 28.5% and 29.5%. The GAAP operating margins for the second quarter and full-year 2011 are expected to be approximately 11 to 14 percentage points lower than the non-GAAP operating margins.

Although there is opportunity to expand margins at this level of scale, we fundamentally believe it is the wrong approach, and are building our investment model assuming we will rapidly continue to hire high-quality engineering talent and to expand our international market opportunity. We see a lot of very strong long-term growth opportunities, and need to invest to take advantage of them. As reminder, we will record a $56 million gain from Verizon's acquisition of Terremark in Q2. This gain will be classified as other income in the Q2 income statement.

Now on to our balance sheet and cash flow statement. Our balance sheet remains strong, as cash and short-term investments increased $300 million sequentially to $3.7 billion. During the quarter, we used nearly $200 million for M&A, capital spending, and our share repurchase program. During the quarter, we announced Board authorization to repurchase up to an additional $550 million of our Class A common stock through 2012. The objective of the VMware repurchase program is to partially offset the dilution from employee stock issuance.

Non-GAAP operating cash flows, which exclude adjustments for the capitalization of software development costs and excess tax benefits from stock compensation, were $501 million for Q1 and $1.5 billion for the trailing 12 months. We adjust our operating and free cash flows for excess tax benefits, because it converts to cash or reduces our tax liability. Free cash flows for the quarter were $473 million and $1.3 billion for the trailing 12 months. Free cash flow per diluted share was $1.10 for the quarter and $3.16 for the trailing 12 months. As we have mentioned, free cash flow per share can be volatile in the short term, so we believe looking at it over a trailing 12 months is a better indicator of progress.

The fully diluted share count increased to 429 million shares for the first quarter. We expect our share count will be within a range of 430 million and 440 million shares for the balance of the year. To summarize, we are very pleased with our execution and a great first-quarter performance. We continue to manage our resources prudently, while making the key investments necessary to maximize our long-term growth in free cash flow per share. Paul will now make a few remarks before we take questions.

Thanks, Mark. As Mark described, we had an excellent quarter. As you may recall, Q4 2010 was a particularly strong quarter, so we had concerns that demand may have been pulled forward out of Q1; so it was particularly satisfying to see the momentum continue, bolstered by several large deals. All of this underscores the importance that companies place on transforming their infrastructure through virtualization and the confidence they have in our products. I would also like to take this opportunity to publicly commend the fortitude and dedication of our employees in Japan, who have been operating in what is obviously a very difficult environment.

I want to say a few words now about the investments that we're making in 2011. We believe that the IT continents really are shifting, driven by technologies like virtualization and the cloud. The first aspect of this change is infrastructure-level transformation. Our offerings here are anchored by four key products -- vSphere itself, for the coordination and automation of computer storage and networking; vShield, for virtualized Edge functions and security; vCloud Director, to enable cloud functionality; and the vCenter Operations suite for management. This last product was introduced in the first quarter, and we are very pleased with its initial reception.

Now that we have these four anchor infrastructure-level products in place, we will continue to invest and update them as a family, going forward. These products will be used for both internal private clouds and by our vCloud service provider partners in their public clouds. This will enable our customers to have the flexibility to move workloads between their private clouds and a choice of public clouds, operated by some of the most respected names in the industry. We believe that this hybrid approach will be the way that most enterprises adopt cloud computing. Beyond the transformation of infrastructure, we believe that there's a comparable modernization and transformation of application development that is beginning. This is centered around the new programming frameworks and new data fabrics.

As you know, we already made investments in this space, starting with the acquisition of SpringSource in 2009. Last week, we took another major step forward with the announcement of Cloud Foundry, which is the industry's first open multicloud PaaS, or platform as a service layer. This largely internally developed layer broadens our support to other modern programming frameworks, such as rails and node, as well as provides portability across clouds. Released under an open source license, we believe it will be very attractive to developers and to the industry in general. Indeed, since last Tuesday when we announced it, over 13,000 developers have requested to join our trial service at cloudfoundry.com. Developers are the vanguard of IT, so appealing to their needs is critically important.

Finally, we agree with Steve Jobs when he says that we're entering the post-PC era. IT will now have to deliver applications and capabilities to an increasingly heterogeneous world, full of new tablets and smartphones. To do this in a secure and manageable way presents new challenges and opportunities. Our View desktop virtualization product line will be important to enabling IT to support these new devices in an evolutionary way. Building off View, we will invest in new capabilities to enable IT to focus on managing people, rather than managing physical devices. Taken together, we believe that these investments position us well for the future, both the nearer and the longer term. With that, we'll now open up for questions.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Brent Thill of UBS. Your line is open.

Mark, just on the five deals over $10 million, can you just give us a sense of -- is that all recognized up front, or are some of those deals spread over time? And for Paul, if you could just talk a little bit about Cloud Foundry and the impact to your business over time. I realize it's early, but how you expect that to contribute to the model.

Yes, hi, Brent. The large enterprise license agreements that we closed during the quarter, that have a combination of attributes to them -- some multiyear maintenance, as we've had a history of in the past; some PSO; and of course, license bookings, both from vSphere and from our other products. And so, it's not easy to characterize just how they fell exactly in the quarter. But they all contributed to our strong bookings for the quarter.

Following up on the Cloud Foundry question -- as I said, Cloud Foundry is first and foremost about appealing to developers. And if we believe that we can get their support, then that will open up opportunities to sell both infrastructure, data fabrics, and management products down the line. So, for -- certainly for 2011, it's really about building momentum in the developer space; and you would hope that that will pay off in 2012 and beyond.

Great, thank you.

And our next question comes from Derek Bingham of Goldman Sachs. Your line is open.

Hi, gentlemen. Congratulations on the quarter. Just following up on Brent's question first, you had talked a little bit, Mark, I think, last quarter about the ELA renewal cycle and kind of the base of those renewals deteriorating as we get through the second half of the year. And I'm wondering if you could just update on -- update us on what you're seeing in terms of the pipeline of the ELA renewals.

Sure. We're beginning to -- we started the ELA process in earnest in the summer of 2007, and so -- and typically, they're three years. So, we're beginning to go through an annual cycle of having seen some of the early renewals. To date, we are still very pleased at the large number of accounts that are renewing. It's very rare that we don't get a renewal at all of an ELA. And typically, when we don't get a renewal, it's due to either a government contract in which the code has been frozen, or some account that's been merged at some other point in time. That said, we-- the bookings continue to be at 100% or thereabouts of the aggregate. It's still part of our pipeline for the year.

Okay. Just a -- my follow-up is, on the management tool, it sounds like it's becoming a bigger focus for you as you get ready to start marketing your anchor products more aggressively. My question is related to kind of the approach you're taking with the sales force. I think they all have big demands on them, just fulfilling the interest in the core vSphere. Could you just update us on your approach with the sales force, if you have some specialization there, if it's kind of your rank and file that will be selling the management tools, as well? And is it kind of a -- more -- is it going to take some time to get them trained and able to sell that kind of stuff as you get deeper in the weeds of infrastructure?

This is Paul. In the acquisitions that we make, we look at those in two categories. There's some acquisitions that we believe are very well aligned and closely adjacent to the value propositions that our sales force is currently selling today. And there are others that are longer term and further apart. And for those latter ones, we maintain a separate, specialized sales force. In the case of management, we do believe that it is actually closely adjacent to the value propositions that our current sales force, in general, is selling.

So, for instance, the vCenter Operations suite that we introduced this quarter, we've trained all our sales force on that, and we believe that that's actually quite a doable task for them to take on that challenge. Now, that being said, this is the beginning of the journey, and we're growing off a small base here. So, we still have a lot to do.

Great. Thanks, Paul. Thanks, Mark.

Our next question comes from John DiFucci of JPMorgan. Your line is open.

Mark, the first question has to do with your guidance for license growth over the next couple of quarters. You said there would be no -- not to assume sequential license growth in Q2 and Q3. I can understand Q2, given this quarter sort of has bounced around in the past and you have these big deals this quarter. But with Q3, just wondering, is this sort of prudent conservatism, or does this go back to the ELA renewals? And just curious as to why -- because typically, you do see a little bit of a sequential bump into Q3.

Yes, John, there's a combination of factors. The first, when you look at unearned license revenue that we had in the first quarter, it's made up of a combination of ratable unearned and unearned based on product deliveries. And during the first quarter, we had a benefit of about 3% to 4% of our total license bookings coming from the unearned and net going down. When we guided in January for the full year, we indicated that we thought license bookings for Q2 and Q3 would be very comparable. And we just haven't moved off of that view at this point, given the seasonality in Europe and that more and more of our bookings are coming from international markets.

Okay, and just a quick follow-up. You saw a nice sequential bump in deferred revenue. I think it was up 6% sequentially, and I think that's the best sequential bump in the first quarter you've seen in the last three years. I'm just curious -- did you see more maintenance catch-up than you thought you would in this quarter? I know you've talked about that in the past, and how you saw some benefit last year. But you have sort of guided us that you thought that that benefit would start to wane. And I guess, how should we think about that going forward?

Yes, it -- we actually -- was one of the surprises in the quarter, is that we, back in January, had said that I believed that the back maintenance, or the catch-up maintenance, would actually be down year-over-year. And in fact, it was up slightly. You know, we -- I continue to believe that the back maintenance will decline, because our systems and processes have gotten better, so that customers don't fall out of maintenance. And so, it's not a significant upside to the rest of the year.

Okay, great. Nice job, thanks.

And our next question comes from Walter Pritchard of Citigroup. Your line is open.

Hi. I'm wondering, just to follow on, on the management side, if you could talk a bit about sort of what type of uplift you see, either per server -- I know it's sold per VM. But, just, if you could sort of abstract it up to per server, per unit, of sale; what type of uplift you see when a customer buys off on all the management tools, versus a customer who just wants the base offering without management tools?

It's too -- this is Paul. It's too early to give you a numerical quantification of that. Increasingly, as you said, we're looking at licensing these high-level products on a per-virtual machine basis, rather than a per-physical server basis. When we get further into this journey, we'll be able to characterize that for you.

And then, Mark, just on the Mozy, I think I understand the spirit of the deal. I'm wondering if you could just talk to us about any financial impact, especially on the expenses. I know you take on the expenses, but it sounds like you're reimbursed by -- by EMC. How will we see that on the numbers, as we see that reported next quarter?

Yes, the revenue that we receive from EMC will be an offset to the cost, so it will be netted. So, we won't be reporting revenue from EMC in supporting the Mozy backup service. And then, there will be an -- an incremental -- some small levels of dilution to our operating margin as a result, or the work that we do around the cloud application.

Great, thanks a lot.

And our next question comes from Adam Holt of Morgan Stanley. Your line is open. Your line is open.

Thank you. I am going to go back to the larger deals in the quarter, and then -- first of all, congratulations on a good Q1. But if you look at the larger deals, was there anything, from a common-denominator perspective that was consistent across those deals? And as you look into the guidance for the second quarter, does your guidance reflect any kind of large deals like that, or would $10 million-plus deals typically be stripped out of the forecast?

Adam, it's Mark. With -- between the five deals, they were actually all a little bit different, both from a geography perspective and from a use case. We had one transaction in which we had had limited-use case for vSphere, and the customer came back to us and wanted to expand for full use case for Enterprise Plus. We have a hoster in the deal. We have a large multinational. And so, they all have a little bit different flavor and came from different geographies. But they were primarily built around their next step on the journey and the fact that they had been heavy users of VMware and vSphere before, and were building out their cloud applications.

And just the part on the forward look, what the pipeline looks like with respect to larger deals like that, and what's embedded in guidance. Thank you.

Sure. We -- day one of the quarter -- in fact, the last day of the previous quarter, we began our forecast call process. And so, we build into the pipeline what we think is going to happen from an enterprise license agreement. There are always a few transactions that are counted in the forecast early in the quarter. And it's built -- so, it is built into our guidance, and they don't come as complete surprises, as you would imagine with that level.

Great, thank you.

That said, it takes the sales cycle -- on these larger transactions, can sometimes pass several quarters.

Great, thank you.

Our next question comes from Heather Bellini of ISI. Your line is open.

Yes, hi, thank you. I had two questions. The first one, Mark, is just -- first one is for you, the second one is for Paul. Last quarter, you mentioned that you had, I think you said about 20% of ELAs didn't renew in Q4. You thought you might not renew a small percentage of them. But I'm wondering how much of those spilled over into Q1, or are some of those still outstanding? And then, my second question is related to Cloud Foundry. And I'm just wondering, Paul, if you could talk to us a little bit about how this would contrast with your VMforce partnership? Thank you.

Sure, Heather. This is Mark. On the ELA renewals, you end up having -- really, a waterfall, in any given quarter of transactions where an ELA is, in fact, expiring. And as we're negotiating, it might fall over into a subsequent quarter. But at the same time, that's offset by ELAs that may be pulled forward a quarter or two. And so, I don't really think it's a significant factor, as we look at our pipeline and overall fluctuations from quarter to quarter.

Okay, great. And Paul?

Yes, I may have misunderstood your question. Did you say that we said that 20% of our ELAs did not renew?

I thought that you had said on last quarter's call that about 80% of your ELAs for the back half had renewed, and that you thought you would have some spill over into this year, if I went back to the transcript.

Yes, it really ties more to which quarter -- to tying it directly to the ELAs, as a percentage of total bookings in the quarter.

I thought it was a timing issue that you guys brought up last quarter.

Okay.

And then, Paul, this question for you was, just how should we think about Cloud Foundry, and how this contrasts -- your strategy here, how this works with your VMforce partnership.

Okay. It's quite simple. VMforce will be a particular instantiation of Cloud Foundry. The whole point about Cloud Foundry is that we view that as being a multicloud layer. And having released it on a -- under an open source license, not only will you see us taking Cloud Foundry and using it in various instantiations, but we're encouraging everyone else who would like to do so, to do the same. So, we expect to see many instantiations of Cloud Foundry, and VMforce is one of them.

Great, thank you.

Our next question comes from Kash Rangan of Merrill Lynch. Your line is open.

Hi. I can't help but notice, international is now bigger than US, and growing faster. Not too often do you see that dynamic at this stage of the game. Just curious, Paul, if you could talk about at a high level, what exactly is driving that international acceleration off of a high base? And, I guess, also for anybody who wants to touch upon this, how do you think server demand is shaping up? I think people are concerned about the slowdown in server shipments this year. What are you seeing with your customers, and what's your prognostication for server unit growth rate this year? That's it for me. Thank you.

I'll let Mark comment, as well. If you go back awhile, I used to like to joke that VMware was an English-speaking company and that the bulk of our revenues, if you go back three years, came from North America, United Kingdom, Australia. And we were significantly underpenetrated compared to other enterprise software vendors. And what you're really seeing is a reversion to the norm here; so rather than something unusual happening, what is you see us as taking on more of the profile of what you would expect out of a -- in a significant enterprise software vendor. And, as Mark said, we've invested in -- disproportionately invested in international geographies over the last two years. We kept that investment going right through the recession, and we're now seeing the results of that.

And I just would echo Paul's comments, is that it's -- we possibly disproportionately underinvested in international several years ago, and it's been a real focus of ours over the last few years. And you can see that in the sales and marketing, as a percentage of revenue line -- is that it's taken some time, but we're now beginning to see the fruits of those investments.

And just finally, if you could -- there's some talk of federal government IT spending freezes. How does that pertain to VMware? How are you going to be making out, with respect to the spending pressure?

I think that's the reason for some of our caution in our guidance here. We are seeing a lot of -- there are a bunch of uncertainties in the macro picture, which could include cutbacks in government spending. But I don't think we have a better crystal ball than anyone else there.

Great. Thank you very much.

Next question comes from Phil Winslow of Credit Suisse. Your line is open.

Great quarter. I just want to dig a little bit on just the -- the ELAs that you signed during the quarter, those five large deals. Just trying to get a sense, in terms of your Q2 guidance, just sort of how much showed up from those in license revenue during Q1. And also, just a high-level question in terms of what you are seeing geographically between the Americas and EMEA. And sort of -- just, any difference in the tone of business or any change in the tone of business there? Thanks.

Sure. Well, Phil, as we -- when you just look at the change in January in the guidance that we gave, in Q -- for Q1, you would have gotten into $390 million or so, in total license bookings for the quarter. We reported $419 million; and part of that is made up of the composition of deferred unearned license revenue, and part of it is made up from the strong quarter that we had in bookings, including the very large ELAs. And so, it's somewhat of a mix. It certainly had upside to the quarter, which is one of the reasons, as we look at the guide on license for Q2 and Q3, we see them as being very comparable to Q1. (Audio cut out)

And then, just from a geographic perspective, any sort of change in the tone of business, US versus EMEA, kind of comparing the two?

You know, we -- not particularly. We've continued to be cautious about the macroeconomic conditions around the world. Japan had it's quarter-end, and in spite of everything that was going on in the country, we delivered a very successful quarter, but we're cautious in that part of the world for Q2. And then, as we look at Europe, we have sovereign nation concerns. But, as -- to repeat what Paul said, we don't have a better crystal ball than anyone else.

Great. Thanks, guys.

Operator, we're going to take two more questions, please.

Thank you. Our next question comes from Tim Klasell of Stifel Nicolaus. Your line is open.

First question, the DSOs picked up a little bit, compared to the -- a couple of the prior Q1s. Can you talk about the shape of the quarter, or was that just due to the large deals?

It's partly due to the large -- the large transactions. We actually had -- one of the bellwethers internally for us is that this is the first quarter that we had collected, in cash, more than $1 billion dollars on our receivables. And so, it was a really strong collections quarter. But our terms are typically 30 to 60 days or so, and we are back-end loaded, and we had large transactions, so receivables are up.

Okay. Good. And then, the second question has to do with the ASPs. You mentioned that -- I can understand strength on the SMB, which would drive down ASPs a bit. But on the ELAs, what was driving that? Was it just volume -- greater volume discounts? Or, maybe you can walk us through the dynamics on the higher end of the ELAs.

When we calculate ASPs, we do it on a weighted average. And so, it's based purely -- if you're buying one unit or if you're buying hundreds of units, as you might do in an enterprise license agreement. We treat them all the same; and so, the more that the quarter is affected by larger deals, there tend to be higher discounts in ELAs. And then, just with respect to the -- our pricing and packaging mix, and the SMB, when we're selling Essentials or Essentials Plus, far lower average selling prices. And so, to the extent that we have a success there, the overall average ASP will decline.

Okay, great. Great. Thank you.

And our last question comes from Robert Breza of RBC Capital Markets. Your line is open.

Hi. Thanks for taking my questions. Congratulations, first, on the quarter. I was wondering if you could comment on how you see your four anchor products, maybe today from a mix perspective. And then, maybe how you think about maybe ending the year -- which products will be growing faster, maybe just kind of walk us through how we should think about that product mix shifting from those four anchor products. Thanks.

Okay. This is Paul. Clearly, vSphere is our dominant product today, and will continue to be our dominant product into the foreseeable future. What we are trying to do is to encourage more of our customers to adopt the other three products -- vShield, vCloud Director, and vCenter Operations. And as I said earlier, it's too early to give you a quantitative goal there. But we are -- and as I said earlier, as well, we're encouraging our sales force to take it as an objective to equip the customers with all four products.

Thank you.

Okay, great. That concludes the call. Thank you very much.

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