January 20, 2022

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VMware, Inc. (VMW) Management presents at Jefferies Software Summit (Transcript)

VMware, Inc. (NYSE:VMW) Jefferies Software Summit January 10, 2022 ET

Company Participants

Sumit Dhawan – President

Conference Call Participants

Brent Thill – Jefferies

Brent Thill

Welcome back, everyone. It’s Brent Thill from Jefferies. We’re here with Sumit Dhawan, President of VMware. He currently serves as President; he is the company’s go-to-market Leader Function Head including Worldwide Sales, Strategic Corporate Alliances, Experience, Global Industries Marketing and Communications. He previously was VMware’s Chief Customer Experience Officer. And prior to that was CEO of Instart, a startup delivering innovations and web application performance and security solutions. From IR perspective, I need to read the following statements on a forward-looking statement, statements made in these discussions which are not statements of historical facts are forward-looking statements based on current expectations, actual results could material — different materially from those projected due to a number of factors, including those references in VMware’s most recent SEC filings on 10-K, 10-Q and 8-K. With that Sumit, thank you so much for joining. And maybe just to start off at a really high level, talk about 2022 and your aspirations and kind of top priorities for VMware. When you look at a very high level, how you would frame up this year.

Sumit Dhawan

Great, first of all, good morning, everyone, and great to have, great to be here. Thank you for having me. Brent, we’re excited about 2022. We are first of all closing our fiscal year. This is the last month of the fiscal year. And we start a new fiscal year starting February. So but the New Year is very promising because we have two main objectives that we have put in front of us. Firstly, the customers are extremely interested in VMware, providing them solutions to adopt what we call multi cloud, which is their workloads, requiring now new requirements from how they’re going to run in their data center to public cloud to edge. And that brings a lot of complexity for customers, and they are looking for VMware to extend our trusted platform that’s already there for 10s of millions of virtual workloads and 10s of millions of endpoints to now be serving and solving the customer’s problems on multi cloud. It’s a key priority for us in offering the solutions, as well as helping customers adopt our solutions for both traditional applications and modern applications.

And second key priority for us is growing us subscription and SaaS business. We’ve had good momentum with our portfolio. Now more and more evolving towards subscription and SaaS next fiscal year, we’re excited about both making more of our portfolio available in subscription and SaaS and continue our momentum in terms of growth of our subscriptions as revenue as well as ARR. Those are the two main priorities for us. And given that we are now independent with Dell, you’re going to see us also in support of those two priorities, embrace a broader ecosystem.

Question-and-Answer Session

Operator

[Operator Instructions]

BrentThill

When you think about multi cloud, it certainly seems like it’s growing in popularity, I guess, when you look at where this stands today, maybe give us your sense of kind of where we’re at on this journey, the multi cloud, what’s driving that? Because ultimately, I think many companies have wanted to try to figure out how do you manage complexity and in bringing multiple clouds in can increase the complexity. So maybe just give us a sense of where we’re at in this journey? Why companies are doing this? And ultimately, what do you think? Do we see acceleration to multi cloud in ’22? Or how would you frame that discussion?

SumitDhawan

Yes, happy to, the underlying factors that are driving this whole growth of multi cloud is just growth of workloads everywhere. If you think about the workloads, in calendar year, say 2020, we sort of saw the workload off the order of about a little less than $400 million workloads that were split across public cloud on-premise, little bit on edge. Some hosted environments and telcos, if you go forward to calendar year 2024. So about three years exiting three years from now, that workload growth is expected to be going up to little shy of $600 million workloads.

So significant growth in the workloads and the distribution of the workload still stay to on-premise about 30% to 35%, public cloud to be 40% to 45%. Edge growing to almost double digit percentage and telcos growing to about double digit percentage, so all of them grow. But the distributed nature of where the workloads are going to be running continues to increase. In fact, if you ask customers today, 75% of businesses today use two or more public clouds, and almost all of them use private cloud and 40% of use three or more public clouds. And the reason is simple, Brent. The reason is that customers want to innovate using best of the best services from different clouds, and they want to avoid blocking. And when you look at that kind of an environment, the multi cloud creates tons of customer challenges, because of all of a sudden, what are the customers options, if they have to run different applications across different clouds, whether it’s Oracle, Google, AWS, Microsoft, they have to start building their own practices on how they’re going to run these applications, how they’re going to operate them, how they’re going to develop them, how they’re going to network them, how do you can secure them, and building that siloed vertical strategy per cloud is not viable from a customer’s perspective.

So customers are coming to us and saying that they started out with a cloud first strategy, which was they’re going to build new applications onto cloud, rather than building it on datacenters. And now they’re saying instead of having cloud first strategy, they’re going to have what we often sort of call with customers cloud smart strategy, which applications is going to run on which cloud and then have a platform to then be able to operate, secure and manage these applications across different clouds in a unified fashion, by providing a unified experience to developers. And that trend, from our conversations with customers continues to grow. And we think that 2022, it will only grow in the future, because customers are looking for power of cloud more so even induced by the pandemic, to be embraced holistically. And that’s what we call multi cloud.

So that’s the reason and the underlying factor for why there is interest in the growth of multi cloud.

BrentThill

When you think about the overall demand environment today, many have been concerned about this great pull forward, the COVID pull forward to digital and SIA Microsoft, and a number of other exec talked about this huge pull forward. And now the worry about 2022 being a hangover year, and is we going to see deceleration of growth and how do you frame what’s happened with just high level and what’s happening in IT?

SumitDhawan

I mean, what we see in IT is there are two or three trends that have happened. And firstly, there is certainly been like I mentioned this huge propensity of going to the cloud, almost to some extent blindly. And now customers are saying, okay, just like I mentioned, instead of just going after the cloud first, how we look after this cloud smart strategy. And when they’re looking at cloud smart, the second factor comes in, which is, well, they haven’t really modernized their on-premise infrastructure. And if they haven’t modernized their infrastructure for a period of time. And now they’re coming to the realization that they’re going to have a cloud smart solution, where they are going to run applications at the right, in the right cloud.

Now they’re saying, okay, in that kind of a framework, what should their strategy be using cloud like solutions for their traditional applications as well, especially if they haven’t modernized their on- premise infrastructure. So and then the third trend that we see is quick customers sort of started out with enabling the remote workforce using an extension of their remote technologies like VPNs, and whatnot, to their people as they had to go very quickly, because of the pandemic enable their remote workforce. Now, customers are stepping back and saying, well, if my people are going to be working from anywhere, and I’m going to have this anywhere workspace, which is not just a short-term thing, but it’s a strategic thing for us going forward, and something that we have to architect, how do we step back? And rather than thinking about just extending my remote technology and architectures for remote workforce, thinking about building and anywhere workspace architecture, which is leveraging the power of edge and whatnot? So three trends. Firstly, cloud first to cloud smart. Secondly, what does that mean for my, all my infrastructure, whether it’s on-premise or edge, and how do I either embrace the power of cloud for all my traditional applications, or modernize the infrastructure?

And then third, what do I do with my anywhere workspace; these are the trends that we see continually. And these trends are important because it’s not just going after cloud for one or two applications, but it’s thinking about the holistic multi cloud strategy. And that’s what every conversation that we have with customers and peers.

BrentThill

So you don’t believe in this great kind of digestion, that clients are just going to be digesting in many ways, it could actually be good for you, because you can actually make the infrastructure work better of all the things they bought, but you don’t see a big digestion period that’s going to happen in ’22.

SumitDhawan

At this point in time, the digestion period that we see I think the customers are coming up to the realization that they have to have multi cloud from our solutions perspective, we don’t see any sort of period where customers are saying no, no, we have to go digest what they have. They are in fact, looking at a strategic way of embracing a platform for building applications across cloud as well as operating applications across cloud, maybe that’s the result of the digestion period that you’re referring to. But for our solutions perspective, we don’t see that any of the trend in our customer base.

BrentThill

You broken down the VMware product family into categories based on availability versus perpetual license versus SAV and SaaS. Are there any go-to-market initiatives to incentive customers, I know you’ve been very open that some of your customers like to treat it as CapEx some like treat as OpEx. And the big telcos may end up wanting to purchase still on-prem. I think investors have been maybe it’s somewhat confusing to them, because it’s hard to model right. So when you think about kind of SaaSfying or creating an easier way to subsume services from you. Is there a way going forward where you see that happening? Or is this still going to always be a hybrid way to actually buy from you as well?

SumitDhawan

Yes, I mean, I think like I mentioned, our priority, first of all, first priority is giving the customers multi cloud solutions. And secondly, giving customers richer and richer incentives for moving towards subscription and SaaS model. So if you think about our portfolio is simplistic way of thinking about our portfolio is that there are products that are already only offered in subscription and SaaS. This is our cloud solution, VMware Cloud, VMware Cloud provider program, including all of our partnerships with various major public cloud providers and hyper scalars, VMware Tanzu, VMware Carbon Black, this portfolio is already fully subscription in SaaS. And if you see our revenue across this portfolio has had its 30% year-over-year growth. And as we sort of shared when we did our analyst meeting, about three months ago, then on the other end of the spectrum, we have a portfolio, which is something that our customers have used in building out their on-premise infrastructure, which is VMware vSphere, VMware, vSAN, and VMware NSX, which all come together in VMware Cloud Foundation of VCs.

And that’s what — that products today is only offered in license and software maintenance today. And then in the green is a portfolio where we will start offering the customer choice, we are already doing that with our end user computing and cloud management solutions. And our intent grant is that we give customers a period of time where they get choice of offering both subscription as well as licensed products. And then as we see enough of a trend and momentum, where customers prefer subscription and SaaS offers through all the incentives that we offer both in terms of product value proposition as well as in terms of just pricing benefits and other incentives that we offer, then our intent will be to gradually sort of phase out the license models as sort of when appropriate, and we have done that with end user computing solutions quite successfully.

And our intent strategic intent is to do that with the rest of the portfolio as well. Now at VMWorld, we are very excited about our announcement, the project Aspect, which is enabling existing vSphere customers to get cloud value proposition and effectively having a subscription and SaaS version of vSphere. Similarly, we intend to do that for vSAN and NSX as well. And we have publicly stated that through the course of the next fiscal year, which is very closely aligned to a calendar year, we intend to move all of our products with cloud delivered value and southern SaaS offering. And our strategy as we have done with end user computing will be that as customer adoption of a subscription and SaaS happens, then we would gradually just offer only a subscription SaaS offering over time.

Now, when those specific dates would be, we would make sure that we do it in when it’s appropriate for customers, because as we stated the subscription and SaaS offerings, while great in majors, sort of parts of the world and major economies, but our business off is also our customers are also there in certain parts of the world where they’re still not comfortable getting cloud and subscription and SaaS value proposition. And in those specific cases, we may see a little bit of an elongated sort of life of our licensed product. So we will follow when customers are ready. I know it creates a little bit of complexity in doing a full transition to subscription and SaaS. But this calendar year and or the next fiscal year, which are closely aligned, we’re excited that we will have almost all of our portfolio transition to subscription and SaaS offerings, which gives us a good sort of milestone given it stacks the clock for driving that transition in a much more rapid fashion.

BrentThill

Security has been a big area of focus. And I’m curious if you can just bring us all up to speed and what security means to you. And the bigger areas that you’re seeing customers come to you maybe just set up the 40,000 foot view as it relates to where you’re going, and then ultimately kind of drilling into some of the solution areas that seemed to be showing great success.

SumitDhawan

Yes, the security has become given the incident, even if you look back in the last two, two and a half months, what we are seeing is that there are three aspects of security, first of all, security is become a bit of a demand created for us. And here is why, because of security incidents, customers are coming to the realization that a lot of their infrastructure that they haven’t paid attention to, needs to be modernized because it creates a huge cybersecurity threat. So we see customers coming to us and saying I’m worried about what happens in case, either resiliency or security related issues can bring down our traditional applications, which are lifeline for businesses, and how do we make sure that there is no impact to the business because of these issues.

So that’s the first thing and we provide ransomware solutions to customers, of course, we provide modernized infrastructure that is delivered to customers both in their data center. And now also through all of our cloud provider partnerships where they can take any of their infrastructure running on-premise with traditional applications, don’t have to spend their time and talent in modernizing it for just take it to the cloud with the fastest path to the cloud, fully modernized infrastructure delivered from our solutions in partnership with AWS, Azure, Google, Alibaba, Ali Cloud, as well as IBM, Oracle, et cetera. So that’s one path where security becomes a demand created for us to some extent, the need for cybersecurity, and as a result, infrastructure modernization.

Secondly, we provide what we call a fairly, which is related to the first one of fairly end-to-end secured infrastructure, what is it, if you think about the security market, it’s so sort of siloed, as well as so fragmented that in the world of infrastructure, what the power belief is that the infrastructure itself needs to have underlying security built in, because otherwise you keep adding on all of these siloed technologies and not really get any of the desired results. And that’s been the trend so far. So if we look at this whole concept of zero trust architecture, where you do not trust anyone, you’re basically assuming that you have to have trust or no one and have the architecture itself planned with that kind of an assumption. We provide customers with that solution for our traditional application, modern applications, workspace solutions, security is kind of built in, from endpoint to networking to workload, and all of our security comes built in.

And then our endpoint security and workload security solutions, whether it’s endpoint container as well as workload security in the carbon black cloud, is something that customers really like because they can get one cloud to operate all of their endpoints whether it’s applications running in the datacenter or cloud, or applications running on the endpoint. So the three factors demand created, which creates interest for customers to modernize our solution for having intrinsic security across solutions, and then our carbon black cloud, which is why we monetize the security budget in itself, by having one solution for managing security for endpoints to applications running in the data center or cloud.

BrentThill

Great, when you think of end user competing, clearly there’s a tremendous push towards the move to work from screens, work from home. And you’ve also got the other factor with a major competitor wounded right now with pretty lack of strategic direction, obviously. So curious, it seems like it’s probably a great opportunity for you guys to gain share and go after that opportunity. Maybe walk through high level what’s happened in the EUC segment?

SumitDhawan

Yes, so our EUC segment, if you think about it, about 18 months or so ago, when the whole pandemic hit, we saw a huge surge in customer demand for using our end user computing solutions for rapidly enabling the remote workforce. And we feel great about how we helped several situations, whether they were pop up clinics that were getting set up, or just very quickly, enabling huge workforce rapidly, and user computing solutions came to rescue to some extent, what we’re seeing now is two trend, Brent. First of all, we see that the customers are saying that this solution that they quickly extended to the people working remotely, that needs to be thought through again, because many customers are saying that they’re using remote working and people being able to work from anywhere as a strategic path going forward, not just something that they have to enable, during the pandemic, but even post pandemic driven by preference for employees, as well as learning from the organization that people can be equally or even more productive.

Not necessarily working 100% the way they are today, but giving the employees enough flexibility where they can work from home when they have to. Now when you think about it and when customers are saying that, hey, when we think about it that way, then maybe the solutions that we extend it to the employees very quickly, due to the pandemic can be modernized, where we are leveraging the power of edge. So we have introduced our solution called Anywhere Workspace, which is getting tremendous interest from the marketplace. Anywhere Workspace combined our endpoint or end user computing solutions, workspace one, as well as horizon, which is a VDI solution with the power of endpoint security, as well as edge solutions. Edge is important here. Because if you think about all the people are working from home, and the applications are running in multi cloud, then you have this N by N connectivity problem. How do you get all the people from all over the location, locations all over the globe and applications running all over the globe effectively? And how do you best connect the two and the traditional way of beeping and where all the traffic gets hairpin to the corporate network again, to go back to the cloud or going through VPN doesn’t make any sense.

So you need edge solutions because edge provides the right place to enforce the right security as well as enable best performance for the workforce. And that’s what our Anywhere Workspace solution does. And that’s something that’s very interesting to our customers. Now, that’s sort of our solution. Secondly, like you mentioned, Brent, customers are coming to us and saying hey, in the past, they’ve had to rely on siloed vendors. Sometimes they rely on you whether it’s Blackberry or something for mobile management or endpoint management or doing VDI or something like that with Citrix. And they don’t see any future strategic directions from both of these players. And when the solutions need to work together in a holistic architecture, which is strategic for enabling Anywhere Workspace, then a siloed vendor strategy doesn’t make sense for our customers. And that’s where our solution for Anywhere Workspace becomes very effective. So we’re excited about that. We’re working with many customers and enabling this Anywhere Workspace solution. We introduced this solution at VMWorld. We released it right after that in the market. So it is a little bit of early days. But we’re excited about that. And we are intending to sort of bring more and more of our edge solution across the globe available so that we can build this Anywhere Workplace business in this calendar year, next fiscal year.

BrentThill

Yes, there were a couple client questions, and I’ll go through those. One question was can you talk about any disruption you’re seeing from Log4j, hearing there’s some late patches, anything that’s causing any issues there or not?

SumitDhawan

Well, first of all, if I were to say, and there is anyone in this world who doesn’t have any issues with Log4j I would be lying, it’s, as we all know, that Log4j is the sort of impact that Log4j created in this whole technology space, and for our customers was significant. I think what it is making our customers realize that they have to think about their entire environment and agility in this environment, in a very different fashion. Okay. So what does that mean for us now, in terms of, first of all, our solution we have provided our customers with the required fixes for our solutions. And as any new vulnerabilities that come up, we have built the right sort of, we’ve always had the right framework for providing the updates to our customers in a very sort of consistent as well as rapid fashion. And we are continuing to do that. So no issues on that front. In terms of from a customer perspective. This is what I meant when I said that cybersecurity is that demand created, because now customers are saying, listen, if these kinds of issues arise in our infrastructure here, we already have to deal with it for our application tier. If these types of issues arise in the infrastructure tier, won’t it be nice to have the responsibility of lifecycle management, the responsibility of the entire updates be handled by the vendor of the infrastructure itself. And that’s why a solution like Arctic as we bring to market where it provides lifecycle management from the cloud, or our VMware Cloud solution, in partnership with all of the hyperscalers becomes very interesting and viable and the best possible solution for our customers. So no issues in terms of delivering the appropriate fixes to our customers. And yes, from a customer issues perspective, where they step back and think about what’s the right strategic way of addressing these kinds of issues as they come up in the future. And we think they’re well positioned by providing us subscription and SaaS offerings to solve them as we go into the future.

BrentThill

Great. The next question was just around capital allocation. And in a high level, I’m asking for specific details. But M&A has been an important element to your strategy. And in a number of acquisitions historically and maybe if you can just talk through how you’re viewing M&A especially in the wake of, obviously, a lot of the public assets coming off. And I think the private assets have recalibrated quite yet, given the great tech sell off, we’ve seen the last month, but just maybe give us your high level perspective on use of capital and how you view M&A.

SumitDhawan

Yes, I’ll sort of give a very high level perspective and something that we have shared at prior analyst meeting as well. We’ve used M&A in addition to organic investments for growing our portfolio, or both doing tuck-in acquisitions, as we call them, which are technology acquisitions that bolster our existing portfolio and the product in the market that we are already in. And then we also have very selective, maybe one or two, over the course of say two or three years that we do, which enable us to expand our presence into adjacent market growing the markets that we serve. And our strategy on M&A will remain the same, where we will continue to do the appropriate number of tuck-in acquisitions to bolster the three main solutions that we are in the market for how do we help customers with traditional applications, providing them cloud infrastructure? How do we help customers build and operate new modern applications that are built on top of native public clouds often or even edge? And third, how do we enable customers to build a secure Anywhere Workspace?

These are three major markets we are in and we continue to assess both organic as well as technology tuck-in acquisitions to continue to differentiate and innovate in these three solution areas. And then we look at what are the appropriate pain points that customers have with our North Star of solving the problems of multi cloud, multi cloud is a growing pain points for customers, and there are as the appropriate adjacent solution areas to the three that I mentioned emerge, we’ll look at expansion opportunities in that broad space of multi cloud.

BrentThill

Number of questions just around your growth, and the growth rates been in the high single digits and clearly companies like Microsoft been growing twice as fast as you and you’re at a lower revenue, right, they’re at a higher run rate, obviously, they have an application suite, and a number of other solution areas and execution on their side has been phenomenal. But I guess the question is this, like, what’s holding you back from getting the double digit growth rate when all the end markets you’re in are growing double digit? So maybe talk through that? And obviously, you’ve got the license to subscription dynamic that’s also weighing on. And maybe if you can kind of have weave that in? And ultimately, how that’s having, perhaps some drag down on the overall revenue growth as well.

SumitDhawan

Yes, I mean, I was going to say that, listen, I think from our perspective, it is this important point of transition from the license to subscription and SaaS revenue, which creates in a period of time, a little bit of a drag down until the whole sort of recurring revenue aspect of it kicks in, and provides at scale sort of growth. Now, in terms of, if you look at our public cloud business, right, like I mentioned, in our subscription, and SaaS offers, those offers, which are VMware Cloud business, and VMware Cloud provider business, VMware Tanzu, VMware Carbon Black, which are already subscription and SaaS, that business as we share that at the analysts meeting is roughly $3 billion last 12 months at that point, as well as growing at 30% year-over-year. And if you just look at our cloud business with what we have shared across AWS, as well as all cloud providers, that business is growing at a really healthy rate, I forget the descriptor we have used maybe Paul can help me, but that businesses were quite pleased with it, because we continue to see customers coming in and adopting VMware Cloud solutions across all hyperscalars.

And we believe that our growth is faster than the growth rate of cloud across any of the hyperscalars. So that’s our subscription and SaaS business growth. And like you mentioned, Brent, that as we are going through the transition, it does create the lag, if you may, in terms of the overall revenue growth. Now, the other thing I would mention is that there is a — there are, if you look at the newer portfolio to include, and there are parts to the portfolio, which, because of the license business perspective, that business is the one that is growing, has been growing at low single digit. And if you combine the two, the total business as a result grows at roughly 9% to 10%, year-over-year. So, that’s sort of how you should — you can look at the business and as the business transition to subscription and SaaS and we build this sort of recurring revenue part of the business. That’s why when we share at the analysts meeting, we shared that exiting our FY25 we anticipate the revenue growth of double digit with Southern SaaS as a percentage of total revenue to be over 40%; ARR to be over $7.5 billion and non-GAAP operating margin to be over 30% And that’s what sort of — that’s what our goal is and that’s what we’re targeting at this point of time.

BrentThill

That’s great. Maybe at a high level 60 Minutes highlighted this last night about the great exit, the great resignation and what’s happening and employee turn and what’s happening and the likelihood if you’re offered remote work, the higher likelihood of you sticking around. I’m just curious when you look at the software industry what are happening. It seems like everyone’s struggling to find the right salespeople and keep people. What has been helpful to you guys, what has been your perspective on why you’ve had really good retention and kind of where you’re finding the right people?

SumitDhawan

Sorry, my zoom disconnected I am back now. I heard the question. So I think retention is very much related to aligning the people with the charter and the mission we have as well as making sure that they are constantly enabled and empowered. And I think VMware has done a great job, we went through the transition, in terms of the leadership, and our team is fully aligned, because we see momentum with customers and their interest in terms of VMware, solving and addressing their needs for multi cloud.

In terms of, from a customer point of view I can think of any CIO meeting that I’ve had where this topic hasn’t come up, okay. The talent shortage is severe in both talent wanting to go from traditional operations to now learning the new technologies, and how they can manage the infrastructure more and more as cold, as well as significant shortage of developers and churn in developers that customers are facing. So any strategies that customers have, where they can assume unlimited capacity of developers, and any development team can be doing any kind of development work is nearly impossible to execute. So there are two major implications that — there are two major conversations that we have with customers one, are you ready to have your talent, be able to operate your current environment in a cloud like fashion? If not, VMware can help you to be the fastest way to get to the cloud, so that your talent can focus on operating that cloud rather than operating the infrastructure. So that’s where our VMware Cloud solution comes in. And right away, the talent becomes the reasons why customers get engaged.

Secondly, are you prepared to scale your development environment for modern applications? How do you operate your modern applications, where these are not done one off for each cloud completely separately, build a consistent framework so that when you have to hire new developers, they can be brought up to speed and empowered and enabled rapidly? This is where our Tanzu solution comes in. And, of course, our Anywhere Workspace solution is simple way to recruit talent, not just coming into the offices, but anywhere. So the talent shortage is severe. And we believe our solutions help customers significantly. In fact, I have to say that about half of our projects, at this point of time, are driven with customers because of talent related challenges that they have, across the entire three swim lanes that we operate in, as I mentioned.

BrentThill

There was another question from a client on other software vendors typically undergoing a subscription, from license on perpetual to SAV in SaaS have typically experience 12 to 18 months of dishonor in revenue and declining margins is a move towards that new model. And do you anticipate kind of the same thing? Does that have an impact on you? Or is this more, hey, we’re in a hybrid environment, we’ve been going through this and ultimately, that’s what’s kept the growth at single digits while the rest of the industry is going double digits. Are you, if you’ve already gone through part of that? But just a question in compare and contrast. And I think we’re all under the realization that you’re not dodgy or into it with that easy of a transition. So with that stage set, I’ll let you address the question.

SumitDhawan

Yes, I mean, we have been at it for two years right, exiting this fiscal year. What we shared at the analyst meeting was that we would have 25% of our total revenue to be Southern SaaS, with an eight point growth from 17% in FY20 to 25% exiting at FY22; ARR, we projected and shared was close to $3.6 billion growing at 26% CAGR from $2.3 billion in FY20 to $3.6 billion in FY22. So in other words, we’ve been added for two years and we have been gradually on a go-to-market side as well as a product side and our underlying operations and systems and how we truly measure the cadence of a business been making changes and adjustments as we go. Okay. And this calendar year is another sort of important year for us this and like I said in this fiscal year, because much of our portfolio with VSphere and project Arctic becomes Southern SaaS end of this year, almost all of our portfolio become available in Southern SaaS. We are tilting our sales incentives to be more and more around subscription in SaaS, our customer and we have launched our customer incentive program, where they can leverage the investment, which is called VMware Cloud universal, which has had tremendous momentum, this calendar year.

So next year, we are going to even lean in more into that where customers can take their investment in their traditional license and maintenance, and apply towards Southern SaaS. And we have made significant investments in our systems and underlying operating model so that we have consistent metrics that we can measure the business across our entire portfolio. So have been at it for the last two years, this year becomes a critical year as all of our portfolio transitions to Southern SaaS and our systems as well as new programs, we believe give us a mechanism to drive this transition. Right now, as the business goes to Southern SaaS, because of the revenue ratability, will the revenue sort of changes or grows over time? Yes, but I think investors already understand that old phenomenon, and metrics like ARR gives as you see the 26% growth as we are expecting, exiting this year or CAGR, give us — give them — should give them the mechanism on how they can expect the growth to happen as we have sort of given the outlook for through fiscal year ’25.

BrentThill

Maybe another one was just around leadership and your role and what’s happening kind of post life with Gelsinger leaving to be the CEO of Intel. And I think everyone viewed him as obviously a phenomenal leader and in someone that had a really a great handle on the business and the transition with the new team. And if you can just walk through that transition and how you guys are feeling and what — has anything changed, maybe perhaps that he focused on that you’re spending more time focusing on that perhaps is getting even more attention now.

SumitDhawan

First of all, I think Pat’s a great leader, he is a personal mentor, and we all miss him. But Raghu has sort of taken the reins, and has kept the momentum going for us. Okay, we always had this vision of offering of this portfolio where more and more value is coming from the cloud. And given Raghu was the architect of all of that product strategy him now being in the CEO gives us the acceleration on all of that product strategy without any hiccups. So we really, really liked that. Because we always had that vision that was set up in partnership or under the leadership of Pat. But Raghu was the architect of all of that product strategy. And that whole product strategy is gaining momentum with him being the CEO where we can make decisions on the product faster.

On the rest of our operations and whatnot, a lot of our leadership, when it comes to our Head of Sales, Head of Marketing, me being running the customer and how we were managing the ARR side continues to be the same. So we’ve kept the momentum going in terms of what adjustments we were making, what conversations we were having with customers. And we focused ourselves in terms of execution into these three key priorities that customers have all aligned under this umbrella of multi cloud.

First, what are they going to do with traditional applications? Second and how do we help them adopt the power of cloud? Second, modern applications? How do we get developers to operators to build one platform to build new modern applications and operate them across all clouds and third anywhere workspace? And under those three major priorities, me, Raghu, Zane and our entire executive leadership team we are meeting once a quarter basis, and everyone’s just focused on making sure that the respective function, various functional areas that aligned to execute in these three major swim lanes that we have defined and grow towards the parameters that we shared at the analyst meeting.

BrentThill

Great and maybe to wrap up just final thoughts on from your perspective and most important things that we take away?

SumitDhawan

Yes, listen, just to reiterate, I’m super confident and super excited about our business because we are participating in a macro market that continues to be a high growth and high importance for our customers. We spent between Raghu and I, when we took on our jobs, we said our number one priority will be spending time with customers between the two of us last calendar year between June 1 to end up the year, we counted, and we had 1,000 customer meetings between the two of us. And all the customers said that they have, they use VMware as a trusted platform, and they’re looking for none else now that we are independent of Dell being the right partners for them to use for embracing the world of multi cloud that they’re all going in anyway.

So we’re very, very sort of confident with the feedback that we have received from customers. And we’ve had a long standing ecosystem that’s been working with us. And now that you are sort of have spun out of Dell. And if any of you saw at VMWorld, all the leading cloud vendors, all the major ISPs were with us on the stage as we seek to be the Switzerland of the industry, which gives us the position to go help the customers in the world of multi cloud and we’ve got the right team, the right portfolio to go help us with that execution. And that’s why we’re all extremely excited about the business.

Brent Thill

Sumit, thank you so much for your time. And, Paul, thank you again for the opportunity to host. Thanks everyone and looking forward to watching your ongoing success. Have a great beginning of ’22 and we’ll be in touch. Thanks again.

Sumit Dhawan

Thank you, Brent. Thank you, all.

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