VMware Inc (VMW) 2019 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's VMware Fourth Quarter Fiscal Year 2019 Earnings Call.

I'd like to remind everyone that this conference is being recorded.

And at this time, I'd like to turn the floor over to Paul Ziots, Vice President, Investor Relations.

Thank you. Good afternoon, everyone, and welcome to VMware's fourth quarter and fiscal 2019 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 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 and employee stock transactions; acquisition, disposition and other related items, including the gains or losses on Pivotal Software; and discrete items impacting our GAAP tax rate. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in the press release and on our Investor Relations website.

A webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link. Our first quarter fiscal 2020 quiet period begins at the close of business, Thursday, April 18, 2019.

In addition, VMware adopted ASC 606 on a full retrospective basis effective February 3, 2018. Accordingly, the financial results for the fourth quarter and fiscal 2019 presented in our press release and discussed on this call have been prepared under ASC 606. In order to provide meaningful comparisons to prior periods, VMware has included statements of income and cash flows for the 3 and 12 months ended February 2, 2018, adjusted for ASC 606, and the balance sheet as of the end of fiscal 2018, adjusted for ASC 606 in our press release. All year-over-year comparisons discussed on this call for fourth quarter and fiscal 2019 results are comparisons to the corresponding periods of fiscal 2018, as adjusted for ASC 606.

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

Thanks, Paul. Q4 was a terrific ending to a strong fiscal '19, with total revenue up 16% year-over-year in Q4 and 14% for fiscal '19, driven by broad-based strength across our diverse product portfolio and in all 3 geographies, with particular strength in our Asia-Pacific region.

Non-GAAP earnings per share increased 23% year-over-year to $1.98 in Q4, and rose 21% to $6.33 per share for fiscal '19. VMware's software continues to connect, manage and automate the world's complex digital infrastructure. Our software forms a digital foundation that powers the app services and experiences that are transforming the way we live and work.

Customers look to VMware for solutions across hybrid cloud, multi-cloud, modern apps, networking and security and digital workspace to help enable their digital transformations.

We demonstrated good Q4 results across our hybrid cloud and SaaS portfolio as we strategically focused on expanding that offering. We remain committed to growing this business as customers continue to turn to us for the best solutions that span private and public clouds.

VMware Cloud and AWS continues to experience industry momentum across all 3 geos, including closing our largest deal ever at approximately $20 million. We were pleased to add significant customers such as the Federal Home Loan Mortgage Corporation, known as Freddie Mac, a public, government-sponsored enterprise; and Ant Media Holdings, which included the L.A. Times; as well as the United States Air Force Field Enterprise Data Center. Additionally, VMware announced the initial availability of VMware Cloud on AWS GovCloud in November with the first government customers adopting the service.

We also see exciting momentum of CloudHealth Technologies offerings. VMware is enabling customers to manage, secure and operate in an increasingly multi-cloud world. With CloudHealth by VMware, we have a data and collaboration platform that helps customers make business decisions related to cost management, security, governance and application health. We are expanding the value of the CloudHealth platform through our best-of-breed cloud services. And in Q4, we announced general availability of integration with Wavefront.

In December, we closed the acquisition of Heptio, a leader in the open Kubernetes ecosystem, making us well positioned to enable customers in modern application environments. We will accelerate efforts to make Kubernetes the standard for customers building and running their applications across clouds, and continue to drive the open source community's development of this critical platform. We also announced the general availability of VMware PKS 1.3, which delivers support for Microsoft Azure, further enhancing the solution's multi-cloud capabilities.

We're seeing a nice ramp of customer acquisitions across PKS and Heptio, with over 150 customers as we continue to build out our Kubernetes offerings. And continuing to build upon our vision for the Virtual Cloud Network, we announced VMware NSX service mesh to help solve some of the most pressing issues developers are facing building applications based on containers in Kubernetes. This solution is built on the foundation of the STL open source project, to which VMware is an active contributing member.

Our networking and security family, including NSX and VeloCloud experienced a strong quarter with over 50% growth in license bookings year-over-year, and now over 10,000 customers. Customers like Swisscom are embracing NSX as their networking and security platform to connect and protect multi-cloud application deployments and meet increasing customer demand for automation and cloud native workloads.

A leading financial services customer is working with VMware and Dell Technologies to fully automate its infrastructure as a service environment. The customer has made a major investment in VMware NSX, which is delivering critical networking and security automation. The customer is also utilizing VMware vSAN, vSphere, cloud management as they drive this IT transformation and using our end-user computing products to drive workplace transformation.

We're also seeing strong adoption of our NSX-T offering for multi-platform network and security use cases as customers move through the digital transformation initiatives, including automation, multi-cloud adoption and containers.

VMware SD-WAN by VeloCloud continues to exhibit exciting growth in both bookings and customer adoptions with companies like USAA and NCR. We are also seeing strong traction across retail, financial and manufacturing verticals. The need to improve end customer experience, network refresh, MPLS augmentation and displacement and cloud connectivity continue to drive enterprise adoption of VMware SD-WAN.

We were pleased to receive further industry recognition this past quarter. VMware was named the leader in the recent Gartner Magic Quadrant for hyperconverged infrastructure, which recognize VMware for both ability to execute and completeness of vision, which was published in January.

Additionally, in Gartner's January 25, 2019, reports, solution comparison for 4 hyperconverged and software-defined infrastructure solutions, VMware received high ratings in 17 of the 23 categories, and 0 low or none ratings. VMware is the only vendor in this report which features in every category: software-defined storage, network platform, hypervisor, container platform, management and hybrid cloud.

We're thrilled to receive what we believe is external validation of our hyperconverged infrastructure approach. VMware Dell VxRail solution also continues to experience momentum. On the broader Dell Technologies front, we have now achieved our synergy goal. We see continued opportunity across our collective portfolios, including Workspace ONE and Dell Client, where we're seeing considerable customer interest in Dell Workspace ONE factory-provisioned devices. With Dell Technologies now public and economic interests even more aligned with VMware, we are focused on our joint opportunities in fiscal 2020.

We continue to see customer momentum for our digital workspace platform, Workspace ONE, as we continue to help customers improve their employee engagement and experience. We recently acquired AetherPal, a remote support solution provider, reinforcing our commitment to provide customers with a single platform approach that simplifies digital workspace management.

VMware was also recognized in The Forrester Wave for Unified Endpoint Management released in November 2018. VMware was cited as a leader and it also achieved the highest possible score in the product division and roadmap execution criteria, which appear in the strategy category.

Earlier this week, I attended Mobile World Congress in Barcelona where the buzz about 5G was at an all-time high. I was thrilled to see the interest from communication service provider and enterprise customers and partners in VMware, and the role they see us playing and accelerating their transition to 5G. We are helping communication service providers, like Vodafone, globally, to build their telco clouds to run their network and IT workloads, enabling to address the costs associated with 5G, optimally use the public cloud and capture operational agility and cost efficiency at scale.

VMware is Vodafone's primary strategic partner for telco cloud infrastructure services. VMware solutions are used across Vodafone's operating markets around the world. They are live in 15 countries, in more than 50 sites, carrying increasing amounts of subscriber traffic on more than 300 core network functions.

We were also pleased to announce expanded collaboration with AT&T, Ericsson and T-Systems to support enterprise and consumer customers using technology such as SD-WAN, NFV as well as VMware Cloud on AWS.

Overall, we were very pleased with our momentum in the telco spaces. We are now working with more than 70 operators, more than 120 production implementations and over 100 certified virtual network functions.

In closing, we were very pleased with this terrific quarter and fiscal '19. At VMware, we believe that software has the power to transform business and humanity. We understand that our products, operations and people collectively have an impact in the world, and we strive to generate positive global impact through all that we do.

Our VMinclusion Taara project is a joint effort with Women Who Code India, upskills women returning to the workplace, and has already engaged 2,000 women since its launch just 2 months ago, well on its way to the goal of upscaling 15,000 Indian women.

Another proud moment for this quarter was being recognized in the Forbes and JUST Capital annual ranking of America's most just companies. VMware ranked #7 overall of the companies that work to make the world a more just place.

I want to thank all our VMware customers, partners, and of course, team VMware employees, for a great quarter and a terrific fiscal year 2019.

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

Thank you, Pat, and thanks to all of you for joining us today. We're pleased with our solid performance in Q4 and for the full year, with our broad-based strength across the business, and thanks to the efforts of the VMware team, we achieved record results in both Q4 and fiscal '19 for license revenue, total revenue and non-GAAP net income, as well as our annual operating cash flow and free cash flow.

We continue to drive deeper engagement with our customers and partners, who leverage the VMware portfolio for their business transformation initiatives. This is reflected in our record number of 23 deals over $10 million in the quarter.

In Q4, total revenue grew 16% and license revenue increased 21% year-over-year. Hybrid cloud subscription and SaaS comprised approximately 10% of total revenue and grew over 35% year-over-year.

Q4 non-GAAP operating margin was 37.3% as we continue to invest in key initiatives to support our growth strategy. Non-GAAP earnings per share for Q4 was $1.98 on a share count of 416 million diluted shares. Unearned revenue at quarter-end was $7 billion. Cash and short-term investments totaled $2.8 billion, following our $11 billion special dividend, which is distributed in late December.

Q4 growth in revenue, plus the sequential change in unearned revenue was 17%, and license revenue plus the sequential change in unearned license revenue increased 20% year-over-year. We exited Q4 with $147 million of license backlog compared to $144 million at the end of Q3.

As Pat mentioned, our networking and security portfolio had a strong Q4. Customers are embracing NSX to meet demand for automation and cloud-native workloads for SD-WAN and for their network and security platform to connect multi-cloud applications.

We've been pleased with the pace of NSX adoption and expansion within the existing customer base as repeat sales have been significantly higher than the size of the initial purchase value.

In Q4, total bookings for NSX surpassed $500 million, with full year bookings for this portfolio reaching approximately $1.3 billion.

vSAN also had a great quarter with license bookings growth of over 60% year-over-year. In particular, VxRail and VMware Cloud Foundation were strong this quarter. We closed our biggest vSAN deal ever in Q4, with a large financial institution that continued to build on their vSAN deployments, helping increase performance while reducing expenses.

EUC license bookings for the quarter were up in the mid-single digits year-over-year, and approximately 10% for fiscal '19. I would highlight this is on top of a strong 30% growth in both Q4 fiscal '18 and for the full year of fiscal '18.

EUC total bookings were over $1.6 billion for the year. Workspace ONE, once again, was an important contributor to both our EUC bookings growth as well as our hybrid cloud and SaaS growth.

Core SDDC performed exceptionally well in Q4, with license bookings up over 20% and total bookings growth in the mid-teens year-over-year. For cloud management, both licensed and total bookings, grew in the strong double digits in Q4, and nearly all of our largest deals, included management.

Customers are realizing increased value in hybrid cloud management solutions, driven by our capabilities from both organic and inorganic investments in this category.

We are pleased with the innovation and trends that we see in this part of the business.

Our compute business is also strong in Q4 with license bookings growth in the mid-teens and total compute bookings up in the high single digits year-over-year. Compute was attached to nearly all of our largest deals in the quarter. It is also a key component in our VMware Cloud Provider Program as well as a number of emerging solutions such as VMware Cloud on AWS and VMware Cloud Foundation.

In addition, more of our customers are incorporating vSphere as a foundational component of their hybrid cloud strategy.

For full year fiscal '19, compute license bookings grew over 10%, and total compute bookings increased in the mid-single digits year-over-year.

In Q4, we repurchased $42 million in stock. We have approximately $834 million remaining on our repurchase authorization, which extends through the end of August 2019.

We remain committed to a balanced capital allocation plan, delivering on our desire to grow the business, maintain flexibility for M&A, as well as return capital to shareholders.

For fiscal '20, guidance for total revenue is $10,030,000,000, ahead of the initial guidance we provided last quarter, and up 11.8% year-over-year when taking into account our outperformance in fiscal '19.

Fiscal '20 license revenue is expected to increase 12.8% to $4,275,000,000. We continue to expect non-GAAP operating margin for the year to be 33%.

Our non-GAAP EPS for fiscal '20 is expected to be $6.49 on a diluted share count of 418 million shares. The distribution of our $11 billion special dividend in December impacts our fiscal '20 non-GAAP EPS guidance by approximately $0.40, driven by lower interest income as a result of the lower cash balance.

For the full year, we expect cash flow from operations to be $3,950,000,000, up 8% versus the prior year, and we expect free cash flow of $3,630,000,000. Our $11 billion special dividend also impacts our cash flow due to lower interest income year-over-year.

For Q1 FY '20, total revenue is expected to be $2,245,000,000, up 11.8%, with license revenue of $865 million, an increase of 11.7% year-over-year. We expect non-GAAP operating margin of 29.2% and non-GAAP EPS of $1.27 per share on a diluted share count of 418 million shares. Interest income on our lower cash balance this year versus last year impacts non-GAAP EPS for Q1 by approximately $0.10 per share. Remaining guidance for Q1 and the full year is contained in the slide deck on our website accompanying this call.

In summary, we are pleased with our performance in Q4 and for the year. It's an exciting time at VMware with increasing customer adoption of our broad products and services portfolio, expansion in areas such as hybrid cloud and SaaS and a dedicated team of partners and employees committed to making VMware the foundation for our customers digital transformations.

We look forward to updating you on our progress throughout the year. With that, I'll turn it back to Paul.

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

(Operator Instructions) And first, from Deutsche Bank, we have Karl Keirstead.

Pat, maybe I'll start by asking you a question about the overall market demand. But rather than asking a general question about IT spend, I'd like to ask it in a slightly different way. It felt to me like in 2018, that every single tech supplier exposed to infrastructure IT had a terrific year, but in the last month-or-so, we've seen weakness from Intel, NVIDIA, NetApp, HP, and now Nutanix tonight, and yet you just posted one of your strongest revenue growth quarters in years. And I'm wondering if you could just explain that apparent divergence. Is it a function of the emerging products becoming a larger portion of the mix? Is it enterprise demand maybe transitioning from hardware to more software defined? Your thoughts will be welcome.

Thanks, Karl, and yes, we are very happy with the quarter's performance. And we do continue to see that it will be a good IT market into the future overall. And as you've heard me talk about in the past, I see it as sort of tech breaking out of tech. More areas consuming technology, more areas of every business differentiating and it's no longer IT is buying technology, it's now every aspect of the business. So overall, we continue to see a good tech market. Now inside of that, hey, I think there's some turbulence. There's going to be winners and losers. We continue to see lots of questions on cloud, private and public cloud, and how hybrid cloud transitions. You're clearly going to see these normal cycles of over and undersupply as people are building up rapidly in different geos. Clearly, there is a whole lot of those other effects that are going to play out where I think we're going to see some winners and losers. When we look at that against our business, we've just positioned ourself, we believe, extremely well in many of these growth sectors. And we're no longer dependent on any geo or any individual product, but the real breadth of our portfolio is nicely rewarding us across the broad landscape of, we believe a good tech market that's going to continue well into the future. And there will be winners and losers inside of that because there is so much change going on in the marketplace with these powerful trends. You might remember, I've talked about the 4 superpowers: cloud, mobility, AI and Edge and IoT, and all of those will have different effects of who's going to be the winners and losers inside of it. But it's a good market and really happy with our performance. Thank you, Karl.

And next we have Kash Rangan with Bank of America.

Congratulations on showing acceleration at scale. My question for you, Pat, is the AWS question. Dig a little bit deeper into how State of the Union on the AWS partnership? What kind of customers and verticals and types of products are likely to make that migration to AWS? And as it relates to that, if you have a time to get into Zane, but implications for VMware's long-term business model if the AWS partnership progresses into the next phase.

Thank you, Kash, and we are very happy with the VMware Cloud on AWS in Q4. And let me just remind you that this is the result of VMware Cloud offering as a result of a strong, preferred and unique partnership that we have with AWS to create this highly differentiated VMWare Cloud offering. The results of that are that we're really are seeing a broadening of the use cases. We've talked in the past about data center migration, data center extension and DR. We started to see the VDI use cases start to emerge as well, so we now have very -- 4 very solid use cases. We now have it available up across all 4 -- all 3 geos that we see in place where we have large deals being now executed across all 3 geos. And we also now launch with GovCloud, which you can almost think about that sort of as a fourth geo as a unique offer that we have there as well. And as we noted in our formal comments, we now have our first $20 million deal. So the deals are starting to get larger as well. And really, one of my favorite quotes from one of our customers, when the VMware Cloud on AWS pilot was successful, it was like manna from heaven, right? And really this idea that I can now move to the cloud, create a unique hybrid cloud experience that doesn't require me to change my applications. I mean, this is just game changing for customers, and overall, that and the continued partnership with Amazon, obviously we announced the re:Invent, the AWS Outposts, will soon be going GA on the RDS offering, we'll continue to innovate together. So overall, just a great execution this quarter and we are quite happy with the potential that this has and our customers are really clamoring for its potential.

Kash, I would just add that it was a contributor in the growth that we saw in our hybrid cloud and SaaS portion of our business. And as you know, it'll be a growing contributor, more generally in our cloud business. So we couldn't be more pleased with the logo acquisitions we had through the course of last year and the workloads were expected to come online through the course of this year and will become a more meaningful part of the business as the year progresses. So all in, we're very pleased with our results here.

Next, from Citi, we have Walter Pritchard.

I'm wondering, maybe Zane, if you can give us some color on when you get into some of the large customer relationships where they're buying storage and networking from you, any sense -- I know you talked about long term, the size of those markets are potentially the size of the compute market, but could you talk about how much the spend is on these customers who really discovered the value of those products? And how that stacks up in storage and network relative to compute?

Sure. I'll start with that and let Pat talk more broadly about the category. I mean, we couldn't be more pleased, Walter, with the significant opportunities we've had with our larger customers, in particular, in the fourth quarter, I called out 23 customers with over $10 million in deal size which is well up from the 16 that we had over the same period last year. The EA has contributed in the fourth quarter 51% of our total product bookings. So it's a nice component. And as we get more and more into the stack, it becomes just a broader talking point and selling point for our solutions selling with these customers. Pat, if you want to talk a bit more that relationship with Compute?

Yes. One of the things, Walter, that we've been talking about and you are going to see us talk about this more is that increasingly customers are buying the solution. And you're going to see us just focus more and more on the core cloud transform their data center, take them to the hybrid cloud with offerings like BMC, enable the multi-cloud capabilities with CloudHealth, the complete solution that we are offering for networking with NSX and our complete Workspace ONE to transform the workplace. And those solutions are really the core of how we are taking our customers in the future. And when you click inside of those, yes, they are the composite of compute network storage and management what we call it the 4 ingredients of baking a cake. They're all together. So as customers are buying that complete solution, right, it really is -- as I call it, the 4x, we have somebody going from compute to the complete solution of all 4, and all 4 of them have a similar kind of market opportunities associated with them. As a result, the deal size, as we get customers moving to the full VMware Cloud foundation, the full VMware Cloud on the AWS offering, those deals become much larger as a result and more strategic. Because really they are now buying the full data center capabilities from us. And we commented a couple of our largest deals this quarter demonstrated that exact capability. As we've talked about our largest deals, 8 of 10 with vSAN, 9 of 10 with NSX, 10 of 10 with compute, 10 of 10 with management, is demonstrating that large behavior of customers relying on us as their strategic partner for the entirety of their data center and/or their hybrid cloud.

Next, we'll hear from Mark Murphy with JPMorgan.

Pat, you stated that you've now achieved your Dell synergy goal. So just to clarify, you're referring to the $1 billion incremental revenue run rate contribution through the Dell channel. It wasn't clear to me if that was what you're referring to. And just if so, did you see some kind of unusual strengths there in Q4 to cause that achievement so soon?

Yes. As we've been citing, that we've been running ahead of our synergy goals over the last year, and we've been commenting on that. And yes, we're referring specifically to the $1 billion synergy goal that we put out when the merger was initially announced. As we said, it was approximately a 3-year goal and we achieved it in under that time. So we really do see the momentum of that relationship. And we're also seeing that with Dell. The strength there really is across the portfolio: compute, software-defined storage, networking, hyperconverged, cloud, Workspace ONE, all of those are performing. And the 2 that we put the most unique emphasis on, obviously, VxRail, right? The integrated hardware, software appliance for conversion infrastructure, and now with Workspace ONE and integration to Dell Clients. Going forward, we just see that they're becoming this powerful partner across our geos, across different market segments. And our focus going forward is to create more unique value with them in this integrated offering. So very good and very happy to have this milestone behind us.

Next, we have John DiFucci with Jefferies.

I think my question is for Pat, but also Zane. Your strategy, Pat, has always been to go out and sell the software-defined strategy, the software-defined data center. That's been the vision of VMware. But we really, this quarter, sort of noticed from fieldwork that it actually seems to be happening more, like the customers and numbers show too, right? I mean, customers seem to have gone all in on VMware, which is something more so than we've seen. So I guess, 2 parts, Paul, sorry. Is that true? Did you notice an inflection this quarter? And then secondly, do you think that's sustainable at this point? Or was it just you had some unique customers, that really say, hey, I'm going to buy all 4 Xs this quarter and the pipeline doesn't necessarily look quite the same going forward.

Thanks, John. This idea of customers going all in on us, we'd say yes. And probably the most demonstrable points, maybe the VMware Cloud Foundation offering which is the full integration of compute network storage and management, we well exceeded our goals for that in Q4. And the other example of that would be the complete VMC, the cloud offering which, again, is the full solution and we comfortably exceeded our customer goal for that and really started to see the acceleration. So with those 2 proof points, we say, boy, we're really starting to see that effect where customers are saying, boy, you're putting the pieces together, you're validating and we're taking full responsibility to make sure it all works together. That allows me to take my people, and instead of having them look down the stack, I get to take my resources and have them look up at applications and business differentiating value, wow. And that really is what we talk about when we see the VMware vision is to be the essential, ubiquitous infrastructure for our customers' digital transformation. The more of that we do for them, the more their resources can be aimed on creating business value, and that's the path we're on, and we really felt that in Q4, and we believe it's quite sustainable into the future.

John, I'd just add, it was a strong quarter across the board. What was impressive is across the product portfolio, we see that strength, which I think aligns with your thesis. And also impressive for the teams around the globe, we saw great business growth across the globe as well. So it was a truly balanced quarter on many fronts and becoming more and more strategic with these customers.

Next question will be from Matt Hedberg with RBC Capital Markets.

You guys have clearly a lot of good growth drivers that are I think becoming much more sizeable today and sort of bending the overall growth profile higher. But to me I think compute continues to surprise I think a lot of folks that we talk to. And obviously, Pat, you've talked about it being foundational to really everything you do, but wondering if you can talk a little bit more about the sustainability of compute growth? And I continue to hear more about vSphere Platinum out in the field. Wondering how important that is as a catalyst to continued compute growth?

Sure, yes. I'll start, Matt. Compute, as you point out has had a good number of years. We've seen, in aggregate compute, mid-single digit growth across the last number of years. Now we are not changing our forecast necessarily as we look out sort of mid to long term on compute, but it's clearly becoming a bigger and bigger part of the number of products in our portfolio and solutions in the portfolio.

Yes. And as you suggest, we do see it as foundational element where we're more about selling the solutions like I described to my answer to John on the last question. And we have now launched vSphere Platinum. And Platinum, for us, is potentially a driver in the future, but it's way early in its lifetime to really measure that or attribute unique value to it. But this idea that we're selling a premium SKU that includes security, that we believe is going to be an elegant differentiator to leverage that unique position that VMware has because the VM has full visibility of the running application. People in the networking world will talk about, oh, we have that visibility because we see different protocols. That's not app visibility, that's seeing protocols that are going across the wire, added agents. Again, we sit in this unique position where we see the entirety of the data flow, the storage flow, the operations of the VM and we get to build security on top of that. So we're super excited about vSphere Platinum, but it's very early in its life. So we do think that gives us great potential over time. I'll be at the RSA conference next week talking more about some of the unique capabilities we're bringing to market there.

And next from Barclays, we have Raimo Lenschow.

A quick more deeper, technical question. Can you and Pat remind us, how do we have to think about Heptio, especially as you work with PCS as well? Because one is kind of open for everyone. One is obviously the Pivotal 1, specifically, like how is that playing out? It seems like a conflict of interest.

Yes. Let me just -- we really now have 3 offerings. We just announced PKS essentials, which complements PKS, which complements PCF with a complete pivotal PaaS. When you think about of this PKS essentials, is essentially open source Kubernetes now supported and delivered by VMware. Second is the integration of that with the other value added components, in particular NSX, which is PKS. And then the complete PaaS layer, which is combining with the full Platform as a Service capability that Pivotal offers. So think about it as a 3-layer cake. And customers, everybody, we believe will be taking PKS essentials as that base capability for Kubernetes. Obviously, we're integrating more value when we bring the networking, the registry, the other capabilities inside of that. And if you want a more opinionated development environment, which is exactly where Pivotal has built its core franchise, then you would go with a complete PaaS offering from them. And our commitment to customers is it that we will be bringing all 3 of those into a common technology stack where they can go up into a more complete solution and have this available broadly across their portfolio. So we feel very good about that. We had a good quarter on PKS. And we're starting to see the consumer counts ramp very nicely in that space. And overall, as we said, we are out to be the Kubernetes dial tone for the enterprise. We're going to make this very standard and capable. We believe that we have a unique position now with the Heptio founders, 2 of the 3 founders of Kubernetes, and we're deeply committed to drive this as a key standard in the industry through the open source community of CNCF to accomplish that.

Next, we have Heather Bellini with Goldman Sachs.

Pat, I heard you mention that you were at Mobile World Congress this week, I know that's a usual stomping ground for you. I was wondering where we are in having telcos really start to see momentum in upgrading their networks to SDDC? And what key messages were kind of the telco customers that you're meeting with, what were they sharing with you? And how do you see it playing out?

Yes, thank you, Heather. It was a great few days at Barcelona in Mobile World Congress this week. At the industry level, we think that 5G is 2020 phenomena, where it really starts. And spending time there, the handsets are there, the spectrum is being allocated. The core infrastructure solutions are starting to be available. And if you might remember, I have been sort of predicting that 2020 is the year where it really starts to build out. I came away from Barcelona believing that even more so. Second, inside of that, we said, hey, we are the way that you can build the telco cloud. And instead of having these bespoke vertical infrastructure solutions like you have for 3G, 4G, LTE, we can build a horizontal solution, just like we've built data centers now that support a broad range of applications and a broad range of services that aren't tied to 4G or LTE or 5G, but allow you to have efficiency, allow you to have common operational models and a much more rapid deployment of new services. And this idea of the telco cloud was a core message that VMware was there delivering. Now with that, we're also thrilled to have Vodafone as a partner, and they are now at scale. And Vodafone now has VMware running in 15 countries of their 22, rapidly growing their footprint. And really, everybody sort of when they saw the momentum that we have and the right rate of innovation that Vodafone is able to bring to the marketplace, I think everybody was a bit astonished by how well that partnership is going for both companies. But we also announced 2 other key relationships, partnership with Ericsson. Their solutions being validated with VMware, and a major expansion of our AT&T relationship, primarily around VeloCloud, where we're integrating VeloCloud with the 5G capability. So taken together, those 3 relationships were very significant for us. We think next year, we're really going to start to see 5G deploy and VMware now with over 70 operators, 120 production implementations, over 100 validated VNFs or applications that run on it, we are now we believe quite uniquely positioned to benefit from this buildout of 5G.

Next we have Michael Turits with Raymond James.

You made some comments in the prepared remarks about the relationship with Dell now that Dell is public. And also commented that you may hit the last synergy goal. So can you talk about anything about where that synergy goal might be going forward? And anymore drill down on what you expect to be doing with Dell now they are public?

Sure. Michael. I'll start and let Pat add to that. I mean, our intention isn't to continue to update in the specificity that we laid out upon completion of the transaction. That was initially set up just to highlight the opportunity. And as Pat mentioned earlier, we couldn't be more pleased with the success we've had both on the R&D side as well as the go-to-market efforts and the relationship we have with Dell. So it's been a terrific journey over the last number of years. And we see that continuing, and we continue to see tremendous growth but we're not going to be giving any more specifics on beyond the $1 billion that we achieved.

Clearly, as I commented a little bit on earlier, we see these broad areas of cooperation with them. Against that, we're going to focus more and more on creating the unique value propositions together with them like the VxRail and the Dell client solutions. So bringing unique value together as the R&D and the go-to-market capabilities come together. Dell has, particularly post the go-public, they're just very aligned with us in terms of driving a joint value proposition into the industry. And we've been able to really build a cadence to that partnership that is starting to demonstrate great, persistent results.

Next we have Kirk Materne with Evercore ISI.

Pat, I was wondering if you would just comment on this idea that not only -- I think the common view is going to be that it's going to be a hybrid world, but a multi-cloud world. And obviously, there seem to be a pretty big opportunity for a vendor, maybe 2, they'll emerge as sort of the key management layers within that world. Can you just talk about sort of how your customer conversations are going along those lines? Meaning, you also have a relationship with AWS but that's just 1 cloud. I'm just kind of curious how you think about yourselves being positioned as it relates to being that sort of single pane of glass to help customers manage this hybrid and multi-cloud world.

Yes. That's a great question. Let me, first, when we talk to customers about cloud, we really position 3 things. One is build common infrastructure, and that's really what the hybrid cloud is. And we're uniquely now doing that with VMware Cloud Foundation with VMC. This ability to move to and from the cloud without changing the application in any way. Wow, that's powerful. The second is exactly what you're asking about but I'm going to have native services on Amazon or Azure or Google, I have data here, I'm using SaaS providers, I have my on-premise data centers. How do I manage this multi-cloud world? And recent data from IDC has indicated that customers today have 5 clouds on average of enterprise customer. How do I manage in that world? And for us, that's exactly what CloudHealth is about. And we're really building CloudHealth out as a multi-cloud platform. We have had great -- before we acquired them, they were clearly the leaders with Amazon, managing Amazon's spend and services. We are now rapidly expanding that to include all VMware Clouds, VMware on-premise. We just launched the complete portfolio of Azure services as well, and we'll be continuing to expand that with more integrations of VMware capabilities into the CloudHealth platform, like we just announced with Wavefront for instance for performance management across multiple clouds. And then the third conversation with customers is around cloud native development, and that's where Heptio, PKS, and if I refer back to the earlier part of the conversation, the Q&A comes into. And we believe every customer needs to have a strategy for all 3. How you have a hybrid cloud environment for consistent infrastructure, a multi-cloud environment for consistent operations and then a developer environment for the future, which is around cloud native and Kubernetes. And we really see that VMware is uniquely positioned to do all 3. And there really isn't any other company we see in that middle one that multi-cloud space that has anywhere near the assets that we have as well as the natural position of being able to partner and deliver that value across a multi-cloud future. So we're quite excited about that possibility. CloudHealth as part of VMware family, is going extremely well. They are highly motivated, they had a good Q4. And we expect that to ramp rapidly as we go through this year.

Next, from Wells Fargo, we have Philip Winslow.

Just wanted to double-click on software-defined storage and vSAN. Pat, I believe you mentioned that you signed the biggest vSAN deal in the company's history this quarter with 8 of the 10 attached to vSAN. I guess, kind of 2 parts to this question. One, how much is this just sort of the inflection and the hyperconverged or in your case sort of hypervisor-converged storage market? Versus that plus maybe some increase in win rates you're seeing versus competition. Just any more color that would be great.

Yes, over all, we are very pleased with our vSAN performance. VSAN has just become very nicely positioned as this leading hyperconverged infrastructure ingredient core to our VxRail offering which had a great quarter. And our view of it though is it's one of the ingredients, where we need to bring that full solution together, and that's what cloud foundation is about. Of our top 10 deals, 8 of 10 included vSAN this quarter. I referenced a major deal in financial, but we saw this across a variety of different verticals where we're really seeing larger deals and strength, and a very compelling TCO. Great industry recognition from Gartner and others. So we do believe that it's a secular trend, but we're also very confident that we are gaining share inside of that trend as well as people go to more of an integrated solution to a more software-defined solution. And it's also core to our cloud offerings as well, such that the VMware Cloud and AWS has that sitting right in the middle of it. We're see increasing momentum from our VMware Cloud partner program and our broader cloud partners such as IBM where that is a key piece of the ingredient solution as well. So overall, super happy with its performance. And I think it's going to be continuing to grow as an element of our portfolio for years to come.

Next is Keith Weiss with Morgan Stanley.

This is Sanjit Singh for Keith Weiss. Pat, I wanted to revisit your thoughts on NSX and get your view on the durability of growth. I think Velo has been a strong contributor this year, but sort of an organic basis looking out to fiscal year '20 and maybe even beyond, how do you feel about sustaining NSX growth at or near the level that you posted this fiscal year?

Yes. Thank you. And we're super pleased with Q4. 50-plus percent growth rate was really a spectacular and seeing acceleration of that growth rate. And NSX just continues to be a disruptor of the networking and security space. Total bookings for Q4 surpassed $500 million. We're seeing NSX-T now really have great adoption as well. Networking and security, but also reaching into the container space, so its becoming a major differentiator for PKS in our container and Kubernetes strategy. 9 out of 10 deals of our largest deals included NSX, VeloCloud's, super hot product. We reached 10,000 customers in Q4. So just a huge amount of accolades for that product area in the fourth quarter. Now as we look into the future, we're still tiny, right? Relative to the size of the overall networking opportunity. So we see that there's a tremendous market for us to be expanding into, over time. We also believe that some of these areas like VeloCloud and SD-WAN are just getting started. So there's a huge amount of WAN market place to go. And also if you think about the relationships like Heather's question around Mobile World Congress and telco, another key ingredient for an adjacent market. So we see tremendous opportunity for the long term.

And next we have Ittai Kidron with Oppenheimer.

Pretty clean quarter, but I do want to ask you, Zane, about hybrid cloud subscription in SaaS, which I think you called it as 10% of revenue. That business has been growing in the mid-30s for quite some time at percent of revenue, it's not moving that much. Can you give us a little bit more composition kind of color inside? Can you be a bit more granular as to what is VMWare on Cloud on AWS revenue wise, right now? How many customers are there? Are you seeing a deceleration in VCPP? Just a little more breakdown of that will be greatly appreciated.

Sure, Ittai. We're very pleased with the performance in that category. Recognize in the fourth quarter, you're into a seasonally strong fourth quarter with VLA, so the base is fairly large. And if you look at that 35% growth, if you recall this time last year, I think we're hovering around 8% as a percent of revenue. And this quarter, we are at 10% as a percent of revenue and growing. So we couldn't be more pleased with the category and the growth. I recognize a lot of the cloud opportunities are SaaS products, so they're correlated with consumption and a lot of them are new to the portfolio and growing and emerging. So we track them all very carefully. We're not at a point yet where we will offer a lot more granularity as far as the breakout within that broader category. But we are very pleased with the SaaS products, with the cloud products. And then the VCPP program continues to grow nicely as well. That was a little more susceptible to some of the FX changes on a year-over-year basis, so it's slowed down a little bit, tied to FX. But as you can see, in the grand scheme of things, and as you look at that whole category, it didn't have an overall impact on the overall growth for the category, which as I point out earlier was over 35%.

And Ittai, let me just pile on a little bit. We see the growth of that category for us, the hybrid cloud, the SaaS products. While many of these products are still small against the bigger number, we have extraordinary focus on growing those areas. CloudHealth is subscription, VMC is subscription. There's a large portion of VeloCloud that's subscription. PKS is subscription. So many of our new product areas that we've really just started to gain traction on are focused on building that hybrid cloud and subscription component of the revenue that we do have. As Zane said, it's trailing, given it's a subscription service, but we couldn't be happier with the momentum that we're getting, and we couldn't be more committed to driving this growth rate into our future.

Next we have Brad Zelnick from Crédit Suisse.

So now more than 2 years since you announced VMC on AWS, how should we think about your plans and depth of integration with other public clouds? Or is your relationship with AWS very unique and not easily replicated with other providers?

Yes. As I said in the earlier comments, we do see the Amazon relationship as unique, right. As we described it's a preferred relationship. The #1 public with the #1 private and the momentum that we're seeing, as we invest and partner with each other, is getting great benefit for us mutually in the marketplace. We do have the VCPP program, which enables us to have a much broader set of cloud partners, over 4,000 cloud partners are enabled through that program. And as Zane just commented, we had another good quarter of growth in that area. And we do expect that we'll continue to grow the offerings with other VCPP partners. But our preferred relationship with Amazon is giving us great results, and we'll be continuing to focus on that into the future.

And the final question is from Ben Bollin with Cleveland Research.

Could you talk a little bit more about the enterprise agreements. What's the average duration of those agreements? How is that changing? And as they become bigger across more stacks, what types of investments are you making to accelerate, improve understanding of those offerings so that you mitigate any shelfware concerns?

Sure Ben, I'll start and then let Pat finish. I mean, we couldn't be more pleased with the growth we are seeing, as I touched on earlier with our enterprise agreements. Fourth quarter, I think, was the largest ever was 26 over $10 million. Our agreements are becoming more strategic. They're covering far more products than ever before, and we are focused on adoption and focused on consumption in all of the areas. In particular, in the cloud areas, as we integrate those into those agreements. We don't typically get into too much detail on the average duration, but what I can tell you is that duration is increasing as the size is increasing. So we are very pleased with these relationships, with the partnerships and how strategic they become for both ourselves and our customers.

Yes. Just maybe to just add on 2 little points. We did build an organization 1.5, 2 years ago called our customer success organization. That is a non-pay for, essentially professional services group that just focuses on adoption, right? And we use for that really strategically to go to any place that we see that there is shelfware. We just target that team to go attack it and help customers get enabled. Because a customer with shelfware is not a happy customer. And we view this as very much the part of the reason we're seeing the great success in renewal rates, increased size of VAs, increased duration of VAs as a result that we're very focused on making sure customers are getting value from their investments that they've made in VMware products. So overall, that team is doing extremely well for us and showing great strategic relevance for our customers overall.

Maybe with that, then just to conclude, again, thank you all for joining us. We appreciate your time and interest in VMware. And in closing, I'll just reiterate what I think you've already heard on this call, we are very pleased with the terrific Q4 and fiscal '19 results that we are seeing in this broad-based strength across the business as we provide the essential, ubiquitous software foundation for our customers' digital transformation. They're investing in us. We're partnering with them. It was a great year. And I thank everybody on the team and on the call for great results.

And again, ladies and gentlemen, that does conclude today's call. We do appreciate you joining us today. You may now disconnect.