VMware Inc (VMW) 2018 Q2 法說會逐字稿

Good day, and welcome to the VMware Second Quarter Fiscal Year 2018 Earnings Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Paul Ziots, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, everyone, and welcome to VMware's second quarter fiscal 2018 earnings conference call. On the call, we have Pat Gelsinger, Chief Executive Officer; and Zane Rowe, Executive Vice President and 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. Slides which accompany this webcast can be viewed in conjunction with live remarks and can also be downloaded at the conclusion of the webcast from ir.vmware.com.

On this call today, we will make forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially as a result of various risk factors, including those described in the 10-Ks, 10-Qs and 8-Ks VMware files with the SEC. We assume no obligation to and do not currently intend to update any such forward-looking 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 acquired intangible assets; employer payroll tax on employee stock transactions, acquisition, divestitures and other related items; and include non-GAAP tax rate adjustments. You can find additional disclosures regarding these non-GAAP measures, including reconciliations of comparable GAAP measures in the press release and on our Investor Relations website.

The webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link. Our third quarter fiscal 2018 quiet period begins at the close of business, Thursday, October 19, 2017.

Year-over-year comparisons of quarterly financial results included on this call compare results for VMware's fiscal 2018 second quarter, May 6 through August 4, 2017, to VMware's fiscal 2016 second quarter, April 1 through June 30, 2016.

With that, I'll turn it over to Pat.

Thank you, Paul, and a very good afternoon, everyone. We are very pleased with our Q2 results, which were driven by broad-based strength across the product portfolio in all 3 geographies. Revenue grew 12% year-over-year with non-GAAP earnings of $1.19 per share. We feel confident about our continued growth as we move into the second half of the year, and as announced last week, we have increased our guidance for fiscal 2018. Zane will address this more specifically later in the call.

As we continue our multiyear journey from a compute virtualization company to offer a broad portfolio of products driving efficiency and digital transformation, customers are increasingly turning to VMware to help them run, manage, secure and connect their applications across all clouds and all devices.

A number of factors contributed to our strength in Q2 and increased outlook for the year. These include our cloud strategy and products resonating with customers; continued strength in our sales execution and ecosystem momentum across all geos; and the strengthening of the overall market environment for enterprise software.

During the quarter, we launched a number of new product offerings in compute, management and end-user computing. We also received strong analyst validation across the portfolio. In June, we announced a major upgrade to the VMware vRealize Cloud Management platform for managing a multicloud environment. This offering enables customers to manage and provision at scale, including compute, network, storage and application services across multicloud environments. For the fourth year in a row, IDC named VMware as a global market share leader in both cloud systems management and data center automation.

We continue to be pleased with the adoption of NSX. We believe NSX inclusion in all of our top 10 deals this quarter is a strong indication that the market is standardizing on VMware NSX to transform data centers. We advanced our position as a visionary in the July 2017 Gartner Magic Quadrant for Data Center Networking. We believe that the majority of our vSAN customers are now running business-critical applications and databases on the platform. Following the release of vSAN 6.6 in April, we are continuing to see tremendous momentum with nearly 10,000 customers.

In our end-user computing business, we are particularly pleased by market adoption of Workspace ONE. Workspace ONE is redefining the category by providing a complete solution across any app and across the broadest set of devices and operating systems in the industry. Customers are replacing the silos of the current endpoint solutions with Workspace ONE consolidating their mobile, identity and desktop solutions into a single platform. This quarter, Trend Micro also joined McAfee and Symantec in VMware's mobile security alliance.

During the quarter, our leadership and enterprise mobility management, or EMM, was again acknowledged by leading analyst firm, Gartner, who named VMware AirWatch a leader in the June 2017 Magic Quadrant for EMM suites and positioned us as the highest in ability to execute and completeness of vision. We were also named as a leader in the IDC EMM MarketScape.

As I mentioned earlier, we continue to see great customer momentum for our cloud offerings as we provide customers with powerful capabilities to extend their private cloud workloads into the public cloud and help them to run, manage, secure and connect all their applications across clouds and devices. Our VMware Cloud services, including our VMware Cloud and AWS service, continues to experience strong customer interest and remains on track. We also had great performance in our vCloud Air Network business. We will have much more to say about our cloud and container offerings at VMworld.

In looking to the future, we see edge computing as a significant adjacent opportunity. In May, we announced the VMware Pulse IoT Center to help manage, monitor and secure IoT devices. IoT and edge-specific solutions are being developed with key strategic partners, including Fujitsu, HARMAN and Eurotech as customers look to VMware to help extend the capabilities of the data center to the edges of their businesses. And VMware and Fujitsu are working with Toyota to build the next-generation in-car platform.

We're excited to see telcos and communication service providers, or CSPs, build out their global IT, cloud and increasingly also there network platforms with VMware Technology. As CSPs prepare for the transition to 5G, we're delighted to see carriers such as Telia Company choosing VMware as their partner for network functions virtualization infrastructure for their evolving distributed telco clouds.

We have seen a strong start to Q3. We just signed our largest ever telco deal with Vodafone, a huge step forward in our NFV initiative. We also signed our first deal in excess of $100 million, a multiyear agreement with our strategic partner, DXC, the world's leading independent end-to-end IT services company. The deal demonstrates a broad strategic adoption and alignment with VMware's next-generation hybrid cloud and digital workspace offerings.

Overall, we continue to see strong, broad-based growth across our portfolio, making us confident in our strategy and optimistic about the momentum we are seeing in our growth businesses. I look forward to seeing many of you at VMworld, which kicks off next week, on August 28, when we welcome over 23,000 attendees to our annual industry conference, which takes place in Las Vegas again this year.

I'll now turn it over to Zane to talk about our business performance in Q2.

Thank you, Pat, and thanks to all of you for joining us today.

As Pat conveyed, we're very pleased with our strong Q2 results and the strength of our business across the portfolio. In line with the preliminary results we issued in connection with our debut debt offering last week, total revenue for Q3 grew over 12% and license revenue increased nearly 14% year-over-year.

Hybrid cloud and SaaS continues to grow, representing approximately 9% of Q2 total revenue. Non-GAAP operating margin for Q2 was 30.8%, up 76 basis points year-over-year. Non-GAAP EPS was $1.19 per share, up 22% year-over-year, and share count for the quarter was 413 million diluted shares.

Cash and short-term investments totaled $8.9 billion. Approximately $900 million of this was domestic cash. Unearned revenue at quarter-end was $5.5 billion with $2 billion of this amount long term.

The growth rate for total revenue plus the sequential change in total unearned revenue was 18%, and the growth rate for license revenue plus the sequential change in unearned license revenue was 14% year-over-year. The port and services bookings once again had strong growth in Q2. This recurring part of the business continued to benefit from high-renewal rates and customer commitments to our product portfolio.

Looking at our product performance. Both NSX and vSAN continued their strong growth trajectory in Q2. NSX license bookings grew over 40% and vSAN license bookings once again grew over 150% year-over-year.

EUC license bookings for the quarter were up over 20% year-over-year, driven by healthy growth in both the desktop and mobile businesses, including exceptional early market success for Workspace ONE.

Total compute bookings were up approximately 10% with compute license bookings up in the mid-single digits year-over-year. After a number of relatively strong quarters for compute, our multiyear outlook for this business has increased. We now expect total compute bookings to grow in the low single digits with compute license bookings flattish over the next few years.

We do expect quarter-to-quarter fluctuations, which can be impacted by the timing of large deals. Even with the stronger outlook for compute over the next few years, we continue to expect our emerging products to represent a larger portion of our license bookings.

This quarter, we were also pleased with our total cloud management bookings, which are up double digits, and with cloud management license bookings up mid-single digits year-over-year.

Turning to our balance sheet and capital allocation. We recently completed our debut debt offering of $4 billion in 3-, 5- and 10-year senior unsecured notes. These notes are rated as investment grade by all 3 major rating agencies. They carry a weighted average coupon of approximately 3% with a weighted average life of approximately 6 years.

In addition to allowing us to extend our debt maturity profile, this transaction will increase our ability to return capital to shareholders in the form of share repurchases and maintain the flexibility to invest in opportunities for the business. In conjunction with this transaction, we expect to put in place a 5-year $1 billion revolving credit facility shortly.

We currently have $900 million remaining on our existing $1.2 billion repurchase authorization, which extends through the end of fiscal 2018. Our board recently authorized an incremental $1 billion in repurchases through the end of August '18. In addition to our expected open-market repurchase activity, we have recently agreed to repurchase $300 million of Class A common stock from Dell Technologies.

Turning to guidance for the year. As mentioned in our prerelease last week, we increased our revenue guidance for fiscal 2018 to approximately $7,830,000,000, up approximately 10% year-over-year. We increased license revenue guidance to approximately $3,075,000,000, also up approximately 10% year-over-year.

Non-GAAP operating margin is expected to be approximately 32.7%. Non-GAAP earnings per share is expected to be approximately $5.06. The debt offering and its use of proceeds has a $0.02 per share net impact in the second half of fiscal 2018.

Updated diluted share count, including our expectations for increased stock buybacks for the fiscal year, is expected to be 411 million shares for fiscal 2018. Due to the strength in our business, we are today raising our guidance for cash flow from operations to approximately $3 billion for fiscal 2018.

In terms of Q3 guidance, we expect total revenue to be between $1,930,000,000 and $1,980,000,000 and expect license revenue to be between $755 million and $785 million.

We expect non-GAAP operating margin to be approximately 33.4%, and expect non-GAAP earnings per share to be between $1.25 and $1.28 per share on a diluted share count of 411 million shares.

In summary, our products and our strategy are resonating in the marketplace, and we have good momentum across the business. I'd like to thank our loyal customers and partners for their business as well as the entire VMware team for delivering a strong quarter. We look forward to seeing many of you at VMworld next week.

With that, I'll turn it back to Paul.

Thanks, Zane. (Operator Instructions) Operator, let's get started.

(Operator Instructions) We'll go first to Karl Keirstead with Deutsche Bank.

This question is for Zane or Pat. Congrats on those growth metrics. 14% license growth, 18% billings growth is extraordinary. And I guess, I wanted to ask you both about the sustainability of those numbers. I don't think many investors think that growth can accelerate from these levels, but there's certainly a healthy debate about whether those growth rates will decelerate by a lot or a little in fiscal '19. And Zane, I'm certainly not asking for fiscal '19 guidance, but I thought -- I was hoping you could frame what factors driving these growth rates feel a little bit more temporary, whether it's an unusually robust ELA cycle you're seeing this year or easier comps. And conversely, what drivers feel like they've got legs and could persist into fiscal '19. That might help everybody on the line.

Sure, Karl. Yes, this is Zane. Happy to start that answer. And then I'll hand it over to Pat to add a little more color. I mean, obviously, as you go through the products that, that performance that we saw this quarter, we feel very good about our product performance in particular the emerging products and really across the portfolio, if you look at compute and all the other elements of the portfolio. And across the geographies, we continue to see sustained growth there as well. So while as you point out, we're not going to get into FY '19 guidance, I'd say, generally, we feel very good about the momentum we're building. You saw that reflection in our bookings as well as our guidance. And across the portfolio, things are really producing really well. So we feel good about the progress we've made through the course of the year and feel good about our outlook, again, without getting into FY '19. Pat, I'll let you touch on maybe some of the products.

Sure. Clearly, I mean, vSAN, NSX or vCloud Air Network, the mobility, we continue to just strengthen those areas with very good performance this quarter. Overall, our cloud strategy has -- just really resonating with customers and, obviously, as we come up on VMworld, we'll have more to say about that area as well. As we said in our formal remarks, we really see that our execution is strong, right. And we think that's going to continue. We see the market as strong, and with our strategy resonating, we feel very good about our performance and the momentum we believe carries through the year.

And our next question comes from Mark Murphy with JPMorgan.

Pat, I was wondering if you could compare and contrast the architecture and also the philosophy of VMware Cloud on AWS relative to Microsoft's approach with Azure and Azure Stack? It seems like there's more discussion about those offerings starting to go head-to-head in the near future. And so I'm just wondering, if you take a typical organization that uses both Microsoft and also VMware, does this change the discussion to have the top cloud provider or the top virtualization provider coming together like this?

Well, as we spoke about -- and thank you for the question, Mark, and the kind comments. As we spoke about when we did the announcement of the AWS service, it really is allowing VMware customers to seamlessly go to the cloud and take advantage of a cloud service as the full VMware experience. But really, it's that ability for a strong installed base of VMware to seamlessly extend their position to the AWS environment as well as to be able to consume additional AWS services in a very effective manner. In contrast, Azure Stack is about bringing Azure on-premise. So it's really, in many respects, the opposite, and it's asking customer to fork or create a heterogeneity in their on-premise environment just to take advantage of some services that they may want to consume from Microsoft. So we believe that's a much harder thing for customers to consume versus the elegance of what we're laying out in our AWS strategy. Obviously, we'll have more to say about this next week, but given the early market momentum that we've seen, we're very enthusiastic and we think customers and the market is going to be responding quite well to what we're doing together with the #1 private coming together with the #1 public for a really seamless, powerful offering.

We'll take our next question from Matt Hedberg with RBC Capital Markets.

Pat, I think you mentioned -- we'll hear more on VMC for AWS next week. But at a high level, could you sort of talk about the progression of the beta testing, sort of where we're at there? And then, maybe as I call sort of like a Phase 2 of this relationship, I know it was sort of talked about but potentially provisioning AWS software inside of VMware data center at some point. Could you just talk like theoretically about the merits of something like that as a potential option down the road?

So overall, the response to the AWS partnership, the customers on the beta service, very strong, a lot of enthusiasm for that potential. We really thank the AWS team who's been working very aggressively with our team in that area. We are, as we said, we'll have more to talk about next week about that offering and good ecosystem response to it. And we really believe this is the beginning of a very powerful capability. That this is -- we're going to expand the offering globally, additional capabilities. And it really is a start of a rich road map of joint innovations that we will be seeing with AWS. And while I can't comment on any of those specifically at this time, Matt, we are seeing just a lot of enthusiasm from AWS, from the VMware team as well as from our customers of the joint innovations that are yet to come.

The next question comes from Keith Weiss with Morgan Stanley.

I wanted to dig in a little bit on the revised kind of multiyear outlook for cloud management licenses and cloud management. That seemed to be something that you guys had kind of made a structural statement on, sort of given that the penetration where we were in that marketplace, you're expecting declines at least on the license side. But now something has changed. I was hoping you could help us understand kind of what's changed that's given you a more optimistic outlook on the ability of that business to be flat to grow on a going-forward basis?

Yes. And on the compute -- in the compute space, as Zane said in his formal remarks, we definitely have increased our outlook for that over the longer term. And what we've seen is inside of the compute business that there's just been strength to the overall resonance of the VMware Cloud strategy, and that unquestionably has been increasing and improving our business overall. We would point out that the vCloud Air Network and the growth of that aspect, of which a large portion of that is compute, has been very effective as well, and we've continued to see strong growth rate in the 30-plus percent range in that area. So overall, many of the factors of our cloud strategy are contributing to that. We'd also say some of the adjacent areas have been starting to be contributing. And clearly, the NFV win that I mentioned with Vodafone is yet another contributor to that. So while as Zane said, we do expect that there's some volatility quarter-to-quarter in some of the larger deals, we have raised our forecast for that area of the business. And that also always point out that everything in compute is a springboard for all of our other products, right. So the vSAN, the NSX, mobile products, everything else really gets the benefit by the increased outlook there. So that really is an exciting aspect of our strategic position for customers for the long term.

Keith, I would just add, as you point out, we've beaten our guidance in that area for the last number of quarters, and now for total compute, which includes both license and service, we expect that to be up in the low single digits. As Pat mentioned, we may see some quarter-to-quarter volatility, but we're overall pleased with the trajectory there.

Our next question comes from Walter Pritchard with Citi.

I'm wondering, Pat, just on the cloud side, having Amazon offering in the market -- or not in the market but sort of talking about it and on the road map and, imminently, released here. How do you think that's impacting customer-buying behavior, if at all, in terms of you saw pretty good performance the last 3 quarters, and I'm wondering, you talked about maybe 2.5, 3 years ago how there was a lot of uncertainty around cloud. Maybe you've cleared some of that up, and I'm just curious if you've seen any tangible impact.

Yes, we believe that the customer discussion that VMware now has is a much more strategic one with our customers. And as their -- you'll see their need to move to a multicloud future, and they want to be able to transform both their private as well as how they embrace public cloud offerings. That cloud strategy, and I'll say of that, the piece with Amazon, about our IBM partnership, the vCloud Air Network, all of those has contributed where customers now see us as a pathway to their cloud future. And that's very powerful, Walter, and unquestionably, we've seen that as an accelerant to our business. Because if customers see you as part of their strategic future, it's simply easier to get business done. Deals get larger. They get done quicker because you're not in the procurement aisle, right. You're in the strategic aisle of the customer's purchasing behavior, and that's where we are, and we're definitely feeling that in our business.

Our next question comes from John DiFucci with Jefferies.

My question is for Paul -- I'm sorry, not for Paul, for Pat. Listen, Pat, it sounds like everything is sitting pretty well. And by the way, Zane, love seeing that increase in cash flow guidance, but it sounds like the core compute doing well in all NSX and vSAN end-user computing. And -- but the one thing -- I don't know if you've talked much about yet and I'm curious as to how those synergies are developing with Dell EMC? Because it was something, when that all happened, there's $1 billion thrown out there as that could become a huge opportunity. It's something that we sort of really questioned at that time, but we're starting to hear a lot about that in the field, and I just wondered if you could comment on how that's progressing to-date.

Sure, thanks, John. And overall, we're pleased with the progress we're making with Dell. Overall, in this quarter, we continued that momentum. And as you may recall, John, last quarter, we raised our synergy guidance for the year from $200 million to $250 million of that $1 billion synergy, right. Simply say, we're on track to accomplish that. We raised it last quarter, and we continue to feel that good momentum this quarter. We had a great Dell EMC World. We announced VDI complete, AirWatch and Windows 10 Dell clients, VxRack, VxRail, [14G embrace], lots of good product announcements with them, and we're really seeing the synergies emerge really across the portfolio of VMware's product in the client space and the server, storage, networking management, really across the portfolio. So while in many ways, these efforts are still just getting started, the early momentum is strong, and Dell's market reach and capacity is really benefiting VMware. And I'll point you again to what we said last quarter, and that continues this quarter.

Thank you, John, and if you did have any more questions for me, I could take those later.

We'll take our next question from Brad Reback with Stifel.

Pat, with the coffers now topped up with domestic cash, as it relates to acquisition activity, what's you're willingness to embrace or take dilution from a big deal in the future?

I'd say, overall, our capital allocation strategy hasn't changed. And obviously, we had a good balance sheet with this debt offering. We've improved that position. But against that, we'll just say our strategy isn't changed for which we see that prudent M&A continues to be a good way for us to grow. We've been very successful with our M&As. We have a well-above industry track record with our acquisitions. And the ones that we completed recently, Wavefront, leading telemetry and metrics platform; the Arkin acquisition for our networking in-site has gone very well; Plumgrid. So at this point I'd say, no major shift in our strategy. We've never felt constrained in the size of those. It really is focused around how can we find assets that accelerate our business in a meaningful way that fit to the strategy we've laid out.

The next question comes from Michael Turits with Raymond James.

I had 2 likely connected product questions. One, management really turned around -- management turned from what was down to now up on license and even stronger on total. But how did that turn around? And the related question was on NFV. If you could give me some sense -- a little bit more sense for the details behind how you're executing NFV and what the drivers are there, whether it's 5G or what's really driving that?

Michael, I'm sorry to be a stickler. But it is my role. Could you pick which of the 2 you'd prefer?

Sorry about that. Okay, so we'll go with the management question. Management tools really turned around. How'd you do it?

Thank you.

Sure. Sure, and I'll try to give you a little hint from the second part of your question as well. Paul wouldn't allow me to do it, but I'll try to. The -- overall, the management this quarter, we just had a good quarter. Total bookings up double digits year-on-year. Good recognition by the analyst community as well. We mentioned the IDC and the Gartner reports. And if you think about our management products, vRealize Automation, vRealize Orchestration (sic) [vRealize Orchestrator], automate the full operation of a data center and automation be able to make application provisioning successful, and both of those performed well. We put more sales focus. [Some of the not] -- we mentioned some of the not as good execution as we had last quarter. That's paying off for us. We had good EA attach, and that can be lumpy as we've commented on in the past, but that attach rate was very solid this quarter with our focus. We also had major product upgrades. And increasingly, you'll see that our multicloud strategy includes many of the management components. So we're starting, as they understand our road map and where we're going, we're also feeling the momentum of cloud-based management products as well. So overall, we had a good quarter. We feel good about our momentum as we go into the second half of the year. We're improving the product cycle that we have and the overall strategic resonance, the management products fit into that very nicely. And they are also part of what we're selling in our NFV deals as well. And as we noted, we had very good success in that area and really the breadth of the VMware product line is an asset as we go into the NFV deals with management being one piece of that strategy.

Our next question comes from Kash Rangan with Bank of America Merrill Lynch.

Congratulations on the acceleration in your business. You guys sound really good. My question is, at a high level, when you look at the business model, the software industry has really moved away from licenses. Some of your peer companies like Citrix also have really enacted that shift in obviously some of the larger companies like Adobe [R and S] are fully on their way. As you look at your business model a couple of years, you've already started to make significant progress with your cloud revenues at 9% of total revenue, you carry significant installed base of recurring maintenance revenue. As you look at the remaining parts of your license business, either with the help of AWS or without, how do you see the business model shaking out towards more ratable recognition of your business to ensure that you get the predictability and the credit that you deserve from the capital markets and get away from all this 3-year, 2-year, yearly renewal which was a good vintage, bad vintage, and get away from all that cyclicality and make it more ratable. How -- what are your thoughts on that?

Sure, Kash. This is Zane. I'll start and then hand it over to Pat to talk about where we're spending more of our money. I mean, as you point out, the perpetual model has served us very well and continues to be very strong. So what we plan on doing is augmenting that with investments that we've made in our hybrid cloud and SaaS business, most notably in the cloud area that Pat can talk a little bit more about. As I pointed out, we're -- in hybrid cloud and SaaS, at 9% of total revenue, seeing tremendous growth there on a year-over-year basis. And as you look further out, we would expect that to continue to grow not only from products that we continue to convert over to SaaS-like products but also with the investments that we're making in the cloud and expectations on both the organic and the inorganic side. So Pat, I'll let you touch on some of the areas of growth there.

And as we think about those product areas, the strength of the vCloud Air Network, substantial AirWatch, right, is increasingly being delivered as a SaaS service or Desktop-as-a-Service offering. But those are really the contributors to-date, Kash. But as you look at what we're bringing to the marketplace, our Cross-Cloud Services, the VMware Cloud service offering, and NSX will be one of those cloud services, so NSX becomes a service more than the management products become a service. So we're really lining up a pretty rich set of service offerings that are entirely cloud or as a service based overall. So we definitely, even as we're seeing strength in that area, growing well above the VMware growth rate overall, we do think that we have a lot of upside for those growth areas as we really fill out a very robust product mix.

Our next question comes from Raimo Lenschow with Barclays.

The one area that stands out on the performance in terms of comparison to competition is EUC because we had like profit warnings from BlackBerry in mobile, and subjects were a little bit all over the place, and you guys are really performing well. Can you talk to the strength there? It feels like you're kind of walking away with that market.

Yes, thank you. And overall, we had a very good balanced quarter across our portfolio, greater than 20% growth rate year-on-year. We do, as you suggest, Raimo, we believe we're taking share on both the desktop and on the mobile side. The thing that probably is most exciting about our performance this quarter is Workspace ONE, right. And if you recall, Workspace ONE is bringing together of the complete desktop, mobile, identity, management security solution into an integrated offering that really eliminates many of the point products that customers might want, also gives a very compelling integrated application and identity solution and satisfies the ability to manage this increasing breadth of devices. And you might have seen we announced our Chromebook relationship last week. We announced the Workspace ONE on Azure as well like a month or 2 ago. We announced the deepening of our partnership with Dell. And all of that we add that on top of the richest ecosystem that already existed with our Amazon, Google, Samsung and, most importantly, our Apple partnership as well. So overall, the ecosystem is really coming to appreciate that strength of the ecosystem. Gartner and IDC recognized it as well in their recent reports where we advanced our leadership position in both of their calls. And we had good adoption. 10 of 10 of our top deals included EUC this quarter as well so our selling motion. This isn't a thing over to the side anymore. It's now integrated into our biggest sales campaign as well. So it really is hard to see anything bad about our performance. It really was quite spectacular in so many different dimensions this quarter. I'm quite proud of that team.

Our next question comes from Kirk Materne with Evercore ISI.

I apologize if this was already answered, but I was curious, Pat, if you could talk about just the [shift-ness] in the telcos towards 5G and how you see that maybe impacting sort of the NSX opportunity over the next couple of years? I was just kind of curious if you've seen any acceleration. What's sort of your broader thoughts on that opportunity in particular?

Yes, sure. Love to talk about it. And as we mentioned in our prepared remarks, the Vodafone deal that we just signed to kick off Q3 really was a great, great win because they're just recognized as a global powerful brand and a real thought leader in the area. So having them, right, to sign up with us in the NFV area was a huge win. We add that to Telia, some of the other accounts that we've done. We have over 90 NFV wins at this point in time, so we're feeling very good that our deployments are accelerating. And these wins, definitely, they're vSphere wins, but they also include, as you suggest, key components of NSX, our management products as we touched on before. So it really is bringing the full strength of the VMware portfolio into that market. Now as I think about that whole segment, if this was a sporting event, right, we haven't made it to the first inning or the first period yet. The national anthem is still playing because vendors are just figuring out how and in what way they're going to build their NFV architecture because there's going to be an enormous crescendo as 5G buildouts start to occur as we go to the latter part of this decade, and that's where I think this will really start to become a meaningful element of our business. And now, even with some of these good wins, it still is the very, very earliest phase in this market, and we're quite excited to see our success here. But there's a long, long journey to go in front of us.

We'll take our next question from Abhey Lamba with Mizuho Securities.

Pat, as you're looking at the feedback from your beta customers on the AWS offering, what type of workloads do you think people are going to be putting in on that? Is it going to be primarily existing workloads migrating to the cloud? Or do you think now we should expect some new workloads kind of coming onto the platform as well?

Yes, I think the earliest stages of the workload are simply going to be people testing. It's going to be dev test, test and dev kind of things. But we're seeing them very quickly, say, how can I use this as a data center extension of my existing VMware workloads? Second, we see it as an opportunity for them to drive data center consolidation where they're going to be able to say, wow, I have this powerful new tool. Maybe I can get by with 3 data centers instead of 4, looking forward. Maybe I can start to drive my DR capacity and scale up very rapidly that way. So we see the early market really to be centered around VMware users who are extending their VMware footprint in a powerful way. Further out of time, we fully expect that it will include new workloads as well where people will say, wow, this gives me a hybrid multicloud environment. I can bring it back. I can take it out. I can scale it. Wow, I'm going to bring new workloads on top of this as well. So we've already seen some customers start to talk about that, but we don't believe those would be the biggest initial users of it. It's going to be a much more familiar extension for vSphere, vCenter users today being able to have, literally, access to an infinitely scalable, globally available, seamless experience on the largest public cloud on the planet.

And our final question comes from Jayson Noland with Baird.

And I wanted to ask on international double-digit growth, now 3 quarters in a row. That's accelerated off of '15 and early '16. If you could talk about the drivers there and if Dell is helping overseas on the go-to-market side.

Sure, I'm happy to start with that. As you point out, international growth was terrific this quarter and has been strong all year long. It's really across all products and, I'll tell you, across all geographies. I know we've talked about balanced growth for some time, but this quarter was particularly strong. 7 of our top 10 countries experienced double-digit growth. So again, we see continued growth in the area and are very pleased with what the team were able to pull out on the international side.

And overall, as we noted, and why is the business strong? Our sales execution is unquestionably one of the factors for that. Maurizio, his geo leaders have really just been executing well. We're particularly -- we comment on, I think, last quarter on the strength of the Americas. Jean-Pierre in Europe has just been a very consistent performer. Duncan, who joined us about a year ago, really building momentum in our APJ market. Our channels are very balanced and strong, EA performance as well as transnational performance. Overall, we're just thrilled with the balance that we're seeing, the strength of the products across all geos and our execution by us as well as our channel partners, including Dell, which unquestionably has increased reach in certain markets, has all been really drivers of our very successful quarter.

Thank you, Jayson. Before we conclude today, Pat has a few final remarks.

Yes, and thank you all to our customers, our partners, employees for a great Q2 and a strong start to Q3, and a higher outlook for the year. And I again invite you and please join us. I hope to see many of you at VMworld next week.

And ladies and gentlemen, this does conclude today's conference. We appreciate your participation.