VMware 2015 Annual Report Download - page 36

TableofContents
Inordertoprovideacomparableframeworkforassessinghowourbusinessperformed,adjustedfortheimpactofforeigncurrencyfluctuations,management
analyzedyear-over-yearlicenseandtotalrevenuegrowthonaconstantcurrencybasis.Licenseandtotalrevenuegrowthinconstantcurrencyarenon-GAAP
financialmeasuresthatarecalculatedbyconvertinglicenseandtotalrevenuesrecognizedduringthecurrentperiodderivedfromnon-U.S.dollarbased
transactionsintoU.S.dollarsusingtheexchangeratesthatwereeffectiveinthecomparableprioryearperiod.Thecalculatedcurrentperiodlicenseandtotal
revenues,adjustedforforeigncurrencyfluctuations,iscomparedtothelicenseandtotalrevenuesofthecomparableprioryearperiod,asreported,incalculating
licenseandtotalrevenuegrowthinconstantcurrency.Foreigncurrencyfluctuationshadagreaterimpactonourrevenuegrowthduring2015ascomparedto2014.
Foreigncurrencyfluctuationsdidnothaveamaterialimpactwhencomparinglicenseandtotalrevenuegrowthin2014to2013,andasaresult,havebeenexcluded
fromthetableabove.
Hybridcloud,includingvCANandvCloudAir,andourSaaSofferings,includingourAirWatchmobilesolutions,increasedtogreaterthan6%ofourtotal
revenuesduringtheyearendedDecember31,2015andexperiencedsignificantgrowthascomparedto2014.vCANrevenuesaregenerallyincludedinlicense
revenuesandourSaaSrevenues,includingvCloudAirandourAirWatchmobilesolutions,areincludedinbothlicenseandservicesrevenues.
Whilelicenseandtotalsalesincreasedduring2015comparedto2014,thegrowthrateofourlicensesaleswasatalowerratethanwehadexpected.We
believethecontinuedmacroeconomicweaknessinBrazil,RussiaandChinawasacontributingfactor.Whileweareseeingstronggrowthacrossourportfolioof
emergingproducts,ourcomputeproductsarereachingmaturityandthesalesoftheseproductsareexpectedtorepresentadecreasingpercentageofourtotal
businessgoingforward.Takingthisintoaccount,weexpectourtotalrevenuegrowthin2016toslowassalesgrowthtransitionstoouremergingproducts.
License Revenues
Licenserevenuesincreased5%in2015and14%in2014.Ourlicenserevenuesincreasedprimarilyasaresultofincreasedsalesofouremergingproduct
offerings,includingNSX,AirWatchmobilesolutions,andvSpherewithOperationsManagement(“vSOM”),aswellasrevenuesfromourhybridcloudofferings.
Licenserevenuesduring2015alsobenefitedasaresultofdeclinesinunearnedlicenserevenues.
Ourlicenserevenuegrowthrateduring2015hasbeennegativelyimpactedbycertainfactorsincludinglowerlicensesalesofourcorecomputeproducts,
changesinthevalueoftheU.S.dollaragainsttheforeigncurrenciesinwhichweinvoice,andincreasedgrowthderivedfromourhybridcloudandSaaSofferings.
Perpetuallicenserevenuesthatarepartofamulti-yeararrangementaregenerallyrecognizedupondeliveryoftheunderlyinglicenseusingtheresidualmethod,
whereasrevenuesderivedfromourhybridcloudandSaaSofferingsarerecognizedoveraperiodoftime.GrowthfromourhybridcloudandSaaSofferingshave
resultedinlessrevenuebeingrecognizedup-frontwhichhashadanadverseimpactonourgrowthrateduring2015.For2016,weexpectsalesofouremerging
products,whichincludesNSXandvSAN,tocontinuetoincreaseasapercentageoftotalrevenuesandoveralllicenserevenuegrowthin2016isexpectedtobeflat
whencomparedwith2015.
Ourlicenserevenuegrowthratewasfavorablyimpactedduring2014comparedto2013asaresultofincreasedsalesofourintegratedproductsuites,
includingVMwarevCloudSuiteandvSOM.Ourintegratedproductsuitesincludevariousproductofferingsandaregenerallysoldatahigherpricethanour
productsthataresoldonanindividualbasis.Additionally,revenuesfromNSX,aswellasourend-usercomputingproducts,includingAirWatchmobilesolutions,
alsocontributedtotheincreaseinlicenserevenues.
Services Revenues
During2015and2014,softwaremaintenancerevenuesbenefitedfromrenewalsofoursoftwaremaintenancecontractssoldinpreviousperiodsandadditional
maintenancecontractssoldinconjunctionwithnewsoftwarelicensesales.Ineachperiodpresented,customersbought,onaweighted-averagebasis,morethan24
monthsofsupportandmaintenancewitheachnewlicensepurchased.
Professionalservicesrevenuesincreased23%in2015and13%in2014.Theincreasein2015and2014wasattributabletogrowthinourlicensesalesacross
ourthreeproductgroups,includingournewerproducts,resultinginincreaseddemandforimplementationandtrainingservices.Aswecontinuetoinvestinour
partnersandexpandourecosystemofthird-partyprofessionalswithexpertiseinourofferingstoindependentlyprovideprofessionalservicestoourcustomers,our
professionalservicesrevenueswillvarybasedonthedeliverychannelsusedinanygivenperiodaswellasthetimingofengagements.
GSA settlement
Duringthesecondquarterof2015,wereachedanagreementwiththeDepartmentofJustice(“DOJ”)andtheGeneralServicesAdministration(“GSA”)topay
$76milliontoresolveallegationsthatourgovernmentsalespracticesbetween2006and2013hadviolatedthefederalFalseClaimsAct.Thesettlementwaspaid
andrecordedasareductionofourtotalrevenuesduringtheyearendedDecember31,2015.
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