Jun 1, 2017
Executives
Paul Ziots - VP of Investor Relations Patrick Gelsinger - Chief Executive Officer Zane Rowe - Executive Vice President and Chief Financial Officer
Analysts
Keith Weiss - Morgan Stanley John DiFucci - Jefferies Walter Pritchard - Citi Matthew Coss - JPMorgan Matt Hedberg - RBC Capital Markets Raimo Lenschow - Barclays Ted Lynn - Goldman Sachs Michael Tourette - Raymond James Greg Moscowitz - Cowen and Company Jayson Noland - Robert W. Baird Nehal Chokshi - Maxim Group Abhey Lamba - Mizuho Securities Srini Nandury - Summit Redstone Partners
Operator
Good day, and welcome to the VMware First Quarter Fiscal Year 2018 Earnings Conference Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Mr. Paul Ziots, VP of Investor Relations.
Please go ahead, sir.
Paul Ziots
Thank you. Good afternoon, everyone, and welcome to VMware's first quarter fiscal 2018 earnings conference call.
On the call, we have Pat Gelsinger, Chief Executive Officer; and Zane Rowe, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will take questions.
Our press release was issued after close of market and is posted on our website where this call is being simultaneously webcast. Slides which accompany this webcast can be viewed in conjunction with live remarks and can also be downloaded at the conclusion of the webcast from ir.vmware.com.
On this call today, we will make forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially as a result of various risk factors including those described in the 10-Ks, 10-Qs and 8-Ks VMware files with the SEC.
We assume no obligation to and do not currently intend to update any such forward-looking statements. In addition, during today's call, we will discuss certain non-GAAP financial measures.
These non-GAAP financial measures which are used as measures of VMware's performance should be considered in addition to, not as a substitute for or in isolation from GAAP measures. Our non-GAAP measures exclude the effect on our GAAP results of stock-based compensation, amortization of acquired intangible assets, employer payroll tax on employee stock transactions, acquisition, divestitures and other related items, and gain on share repurchase and include non-GAAP tax rate adjustments.
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 second quarter fiscal 2018 quiet period begins at the close of business Thursday, July 20, 2017. VMware revised its fiscal calendar effective January 1, 2017.
VMware’s first fiscal year under its revised fiscal calendar began on February 4, 2017 and will end February 2, 2018. The period from January 1, 2017 through February 3, 2017 has been recorded as a transition period and will be reported as a separate period in VMware’s Form 10-Q filing for the first quarter of fiscal 2018.
Year-over-year comparisons of quarterly financial results included on this call compare results for VMware’s fiscal 2018 first quarter February 4 through May 5, 2017 to VMware’s fiscal 2016 first quarter January 1 through March 31, 2016. Sequential changes in total unearned revenue and unearned licensed revenue for the first quarter of 2018 compare VMware’s total unearned revenue and unearned licensed revenue balances as of February 3, 2017 the last day of the transition period to the respective balances as of May 5, 2017 the last day of VMware’s fiscal 2018 first quarter.
With that, I'll turn it over to Pat.
Patrick Gelsinger
Thank you, Paul, and good afternoon, everyone. We are very pleased with our strong Q1 results.
Revenue grew 9% year-over-year with non-GAAP earnings of $0.99 per share. In terms of regional bookings, we have strong balanced results across geographies and were particularly pleased with the performance in the Americas this quarter.
We are confident about our outlook and growth opportunities, our strategy is resonating and our execution remains strong. Looking back on Q1, I am particularly pleased with the volume of expanding strategic partnerships we announced in addition to the positive momentum across our portfolio.
In early May, the OVH Group, a global hyper-scale cloud provider and the VMware, vCloud Air Network partner, acquired VMware’s vCloud Air, this included data center and customer operations, customers and an enterprise-ready support team. We will continue to support customers and provide technology differentiation to the OVH team as part of VMware’s thriving and global vCloud Air network program which we retained.
We also announced three enduser computing partnerships helping to expand the AirWatch footprint as well as Workspace ONE. Google and VMware are working together to accelerate the adoption of Chromebooks while Oracle and VMware are collaborating to enable advanced security features and streamline management of Oracle mobile enterprise applications.
Most recently we announced the collaboration with Microsoft to deliver Horizon Cloud on Azure, bringing VMware virtual desktops and applications to Azure users. We also announced new integrations with Dell EMC to accelerate workplace transformation.
These partnerships will accelerate the momentum we are seeing in our EUC products as will our acquisition of Apteligent, an innovator in mobile application performance and engagement insights. Overall the EUC business saw strong growth this quarter and some of our largest deals were led by EUC.
Additionally, at Dell EMC we already announced an integration of VMware software defined data center and Pivotal Cloud Foundry designed to deliver Developer-Ready Infrastructure. Developer-Ready Infrastructure represents a significant joint engineering effort between VMware and Pivotal at the intersection of developers and IT.
Developers are able to drive agility with a modern cloud native application platform from pivotal, while IT has peace of mind knowing that it runs on a secure software defined data center pioneered by VMware, the first example of this integration is with NSX. All of these partnerships provide more choices and innovation to our customers across clouds devices and applications.
On the product side, NSX continues to see great momentum with large NSX wins across multiple verticals including healthcare, telecom, state, local and federal governments. Nine of our top ten deals included NSX this quarter and it continues to be an integral piece of all of our offerings.
Security continues to be the lead used case across our NSX customers. We were excited to announce the availability of vSAN 6.6 in April featuring industry-first hyper-converged capabilities, lower total cost of ownership, industry-first native encryption and significantly higher all-flash performance.
These combined benefits help customers accelerate their data center modernization efforts. We are experiencing good customer partner and influence a response to this next version of vSAN as we continue to see momentum for vSAN as well as its hyper converged infrastructure solutions.
Turning to our momentum with our cloud offerings we believe we offer the world’s most complete and capable hybrid cloud architecture providing customers freedom and control in their infrastructure decisions. We are continuing to see great customer momentum for our VMware cloud on AWS service which remains on track for delivery midyear.
The VMware cloud on AWS lighthouse customers are now accessing the service and we are significantly over subscribed for our available data service slots. Our cross cloud services will expand our hybrid cloud strategy to enable our customers to run, manage, secure and connect all their applications across all clouds and all devices, regardless of whether the underlying infrastructure is VMware based.
We are on track to deliver initial set of cross cloud services. VMware recently completed the acquisition of Wavefront an ultra high performance metrics monitoring service for cloud and modern application environments.
The deal will allow VMware to accelerate delivery of its cross cloud management services. We also saw customer and industry interest in network functions virtualization and Internet of Things as customers seek out our expertise and solutions.
At Mobile World Congress in March, we unveiled VMware vCloud NFV 2.0, which is designed to modernize and transform network architectures and operations for global communications service providers. We now have over 80 production deployments for NFV.
We announced our first IoT offering, VMware Pulse IoT center which is a secure enterprise grade Internet of Things infrastructure management solution that will help our customers more efficiently manage, operate, scale and protect their IoT projects from the Edge to the Cloud. We also announced IoT partnerships with HARMAN, Fujitsu and Samsung.
We were honoured to be recognised for the third year in a row as one of the 2017 Fortune 100 best companies to work for according to Global research and consulting firm great place to work in Fortune. I am grateful to the VMware team for delivering another consecutive strong quarter.
As a team, we are all excited and committed to helping our customers succeed in their digital transformation journeys, our software and services help them build exactly what they need the way they need it. It’s a privilege to serve our customers and our partners.
Now, I will turn it over to Zane.
Zane Rowe
Thank you, Pat, and thanks to all of you for joining us today. We are pleased with our strong Q1 results which reflect the benefits of our broad portfolio and the performance of our growth products.
Our software defined data center end user computing and hybrid cloud strategy is resonating well and driving increased customer interest across our product offerings. Customers are also excited about our upcoming vSphere-based cloud service on AWS.
VMware cloud on AWS service will be powered by VMware cloud foundation which includes vSphere, vSAN and NSX. Total revenue for Q1 grew 9% and license revenue increased 7% year-over-year.
Hybrid cloud and SaaS represented greater than 9% of total revenue and grew over 30% year-over-year. Within hybrid cloud and SaaS our vCloud Air Network grew nearly 40% year-over-year with several partners up over 100% year-over-year.
Non-GAAP operating margin for Q1 was 28.5% and non-GAAP EPS was $0.99 per share, up 15% year-over-year. Share count for the quarter was 414 million diluted shares.
Cash and short-term investments totaled $8.6 billion; approximately $900 million of this was domestic cash. Unearned revenue at quarter end was $5.2 billion, with $1.9 billion of this amount long-term.
To calculate revenue plus sequential change in unearned revenue, with the change in our fiscal year, we have provided the unearned revenue balance as of the beginning of the quarter in our financial statements and in the slide deck on our website. With the sale of vCloud Air to OVH, unearned revenue for vCloud Air has been removed from our Q1 quarter end unearned revenue balances.
The impact of this removal is also reflected in our financial statements and in the slide deck on our website. Using beginning of quarter unearned revenue balances and excluding the impact on unearned revenue from the sale of vCloud Air to OVH, the year-over-year growth rate for total revenue plus the sequential change in total unearned revenue was 12% and the growth rate for licensed revenue plus sequential change in unearned licensed revenue was 10% year-over-year.
We saw good pipeline demand build during the January stub [ph] period which had some benefit for the bookings growth we experienced in Q1 for both licensed and total bookings. Support and services or S&S bookings growth was also strong in Q1 primarily due to the continued high renewals.
We continue to be pleased with customer commitments to our growing product portfolio. We had six large deals equal to or greater than $10 million in the quarter versus one large deal in Q1 last year.
Looking at our product performance, both NSX and vSAN continued their strong growth trajectory in Q1. NSX licensed bookings grew over 50% year-over-year and customer count increased to over 2600 total customers.
Our micro segmentation security used case continued to be a large driver of customer demand for NSX. vSAN licensed bookings once again grew over 150% year-over-year with continued momentum in customer growth to a total of over 8000 customers.
We believe we have the broadest offering in the hyper conversion market and that vSAN grew faster than the competition. EUC license bookings for the quarter were up over 20% year-over-year driven by healthy growth in both our mobile and desktop businesses.
Total Compute bookings as well as licensed compute bookings were each up mid single digits year-over-year. Our vCloud Air network business along with our strong renewals business both contributed to this quarter’s growth in Compute.
Total Cloud management bookings were up in the mid single digits year-over-year and cloud management licensed bookings were down in the low teens year-over-year, a result of less management tighter specific large deals this quarter versus Q1 last year. Turning to capital allocation, in Q1 we completed the remaining $125 million in stock repurchase from our December authorization of $500 million.
In addition we repurchased $300 million of stock in the quarter from Dell Technologies taking delivery of 2.7 million shares in Q1 and the remaining 0.7 million shares early in Q2. We currently have $900 million remaining in our $1.2 billion repurchase authorization which extends through the end of fiscal 2018.
Turning to guidance. Considering our strong Q1 performance we are updating our full year fiscal 2018 guidance.
We are increasing our total revenue forecast for 2018 to approximately $7,610 million [ph] and increasing licensed revenue guidance to approximately $2,975 million [ph]. We are expecting fiscal 2018 non-GAAP operating margin to be approximately 32.5%.
Non-GAAP earnings per share of approximately $4.91 per share and diluted share count of 411 million shares. Cash flow from operations is expected to be approximately $2.7 billion.
Although it’s still early in Q2, we are seeing strong sales in the quarter benefitting from the momentum we saw in Q1. We expect Q2 total revenue of between $1,840 million and $1,890 million.
Licensed revenue is expected to be between $695 million and $725 million. We expect non-GAAP operating margin of approximately 30.5% with non-GAAP earnings per share between $1.11 and $1.14 per share on a diluted share count of 412 million shares.
In summary, Q1 was a great start to the year and we are continuing to see good momentum across the business in Q2. We are pleased with our strong quarterly results driven by customer demand for our broad product and solution portfolio.
We are committed to providing increased value for our customers through our SDDC, EUC and hybrid cloud offerings. With that, I’ll turn the call back to Paul.
Paul Ziots
Thanks, Zane. Before we begin the Q&A, I’ll ask you to limit yourselves to one question consisting of one part so we can get to as many people as possible.
Operator, let’s get started.
Operator
Thank you. [Operator Instructions] And we'll take our first question from Keith Weiss with Morgan Stanley.
Please go ahead.
Keith Weiss
Excellent, nice quarter guys and thank you for taking the question. I was wondering if you could give us kind of an update now that you guys are fully integrated with Dell per se and Dell has more of the VMware product in their sales tool could, if you will on their distribution channels.
How has that been impacting results, have you guys seen any initial impact from the tighter collaboration between the two companies?
Patrick Gelsinger
Yes thank you Keith and great to take your question. You know overall we made great progress with Dell this quarter and Dell grew well and performed a bit better than our expectations for Q1 and we expect that momentum that we saw in Q4, Q1 to continue into fiscal 2018.
And the Dell EMC World event that we had was a really phenomenal event, you know lots of joint announcements, VDI complete, AirWatch on Win 10. VxRack and VxRail momentum strong alignment around 14G.
You know as I’ve said before, Keith key areas for that momentum include Compute, vSAN, VxRail, EUC, certain geos where they are just better penetrated. And as we’ve indicated we expect approximately a quarter of the billion dollar of synergy to be materialized this year.
So while still getting started, lots of work to do yet Dell has definitely been a very positive benefit and we’re excited to see that continue through the year.
Keith Weiss
[Indiscernible]
Patrick Gelsinger
No, we’re running a bit ahead as I said.
Keith Weiss
Excellent. Thank you guys.
Patrick Gelsinger
Thank you, Keith. Next question please.
Operator
Thank you. We’ll take our next question from John DiFucci with Jefferies.
Please go ahead.
John DiFucci
Thank you. I guess this question is probably for Zane.
And it has to do and when I look at your results and all the adjustments, I think there is some confusion right now. So and the guidance looks really strong and the results look strong.
But just to be clear does licensed billings excluding the vCloud Air sale and also adjusting for the one month thing and I think is what most of the confusion is grew 10%, is that correct? That’s what you said, right?
Zane Rowe
Yes, John this is Zane. Let me go over what we mention is.
As you highlight, we’ve made the adjustment to the unearned revenue as a result of the disposition of VCA [ph] and the sale to OVH. So you are exactly right.
The change versus the prior period is 10% for license and 12% for total bookings. So overall we were incredibly pleased with the bookings that we saw in the first quarter.
We are also very pleased with the momentum coming out of the first quarter which is why I think you see that in our guidance and you see us obviously moving our guidance quite nicely for the second quarter as well as the full year. So we feel confident with the business where it is in the first quarter and early results of the second quarter are solid as well.
John DiFucci
That’s helpful. I know that was a simple question, but your stock was down here and there’s probably a lot more people out there smarter than me, but I just want to make sure I didn’t miss anything and it doesn’t look like I did.
So thank you. I’ll....
Zane Rowe
No you have it exactly, John. I don’t shy – I would have added that last part for you, but you are right.
Why don’t I give you a little more color on the stub period, because I think as you highlight there maybe some questions around the stub period which we will be detailing in our 10-Q. So as a reminder, the stub period ran from Jan1, through Feb 3 of this year and we recognized for that period $496 million in total revenue during the period.
For some additional context if you were to compare that to total revenue for the month of January last year in 2016 was $482 million. On the spend side it was sort of business as usual.
Our operating expenses went up due to increase in headcounts and headcount-related costs, as well as a sales kickoff event which occurred during the stub period of this year. On the operating cash flow, as you recall, January is a strong operating cash flow month, operating cash flow was $361 million, so it’s historically been a strong month for us and was the same this year.
So hopefully for those of you listening at this provides additional context to the stub period. But we couldn't be more pleased with where the business is right now at where we’re heading.
Patrick Gelsinger
Yes. And I would just add for the stub period, we recall our business as usual for us in that one month and we operated as a very normal month and clearly Q1 was very strong quarter of momentum, but for us January was generally softer month overall as normal than we operated as normal in that month.
Keith Weiss
Thank you. And it’s very helpful.
Thanks.
Operator
Thank you. We’ll now take our next question from Walter Pritchard with Citi.
Walter Pritchard
Hi. I'm wondering, Pat, if you could give us an update from an AWS partnership perspective.
Any color you have out of customer betas or sort of the go-to-market planning on that. And sort of when should we expect – I’m assuming VMware, but any sort of roadmap in terms of further updates coming there?
Patrick Gelsinger
Yes. Thanks, Walter.
It’s always good to hear from you. Overall the markets interest in the VMware cloud and AWS continues to be very strong, and significantly oversubscribed for the beta slots that we have available.
Positive feedback from early customers as we've indicated and I’d say the beta, the development processes are going smoothly. As you said, we’ll have availability of the service in the middle of the year, so we’re on-track for that overall.
We’re seeing that the excitement of the private cloud leader with the public cloud leader coming together remains firmly in place. And we’ll -- certainly by VMware have a lot more to say about its availability and customers using it.
And so far on track, lot of excitement.
Walter Pritchard
And Zane anything to add just on the on the financial impact or sort of how pricing will work with, for example, the installed base who’s mostly paid you perpetual licenses? Or is it too early to talk about that?
Zane Rowe
Yes. Well, generally we’re not going to be announcing pricing until the availability, Walter, a couple of general comments about it.
One is, we have begun those pricing discussions with the beta customers. They feel very good with the pricing and the modeling that we've done around that.
So we do feel confident that we’re landing well in the marketplace overall with a very compelling service. We do believe that as we bring the service into the marketplace, its unique in the sense that it gives us hybrid ability for customers which really allow them to seamlessly move without changing operations management et cetera into a cloud experience.
And that combination we think is very compelling from their operational benefits they get in addition, the price of the service itself. With respect to impact on financials for the year we expected to be minimal this year's as we’ve said before and we’ll be giving more details on that certainly in our next quarter call.
Paul Ziots
Thank you, Walter. Next question please.
Operator
Thank you. We’ll now take our next question from Mark Murphy with JPMorgan.
Matthew Coss
Hi, good afternoon. This is Matthew Coss on for Mark Murphy.
You continue to have a very impressive growth in NSX and vSAN in addition to great customer growth there. What are some of these I guess customer pushbacks that are really sort of evaporating at this point?
And you do you see sort of any opportunity for just continued adoption at this pace throughout the rest of the year?
Patrick Gelsinger
Yes. Overall both products, NSX and vSAN that you call out, both of them very strong quarters.
Our customer counts on NSX is at 2600 customers. Deployments are continuing to grow rapidly in the year-on-year, that’s 85% customer growth on NSX.
And as I said before we've really now integrated NSX into really everything that VMware does. Our cloud offerings, our VMware cloud foundation of products.
We saw a very good strength in North America commercial EMEA, so its really now is well penetrated across the market. vSAN, again, a great quarter for vSAN, 150% growth rate, customer counts over 8000 now, and nothing in those would indicate any change in that kind of market acceptance that we’re seeing.
And in fact we just came out of our Partner Leadership Summit last week with the top couple of hundred partners of the VMware. And they are now seeing that market.
And when the partners start to really ante into it that really gives us a broadening of our ability to reach the market overall. So both products very hot, both of them continue to see great momentum.
Paul Ziots
Thank you, Matthew. Next question please.
Operator
Thank you. And then we’ll move on to Matt Hedberg with RBC Capital Markets.
Matt Hedberg
Hey, guys. Thanks for taking my question.
I have a question on IBM and I guess the expanded relationship there. Could you give us a more detail on that partnership?
When might we see some synergies there? And is there a way to think about that opportunity versus other partnerships like Dell or IBM?
Excuse me, like Dell or AWS?
Patrick Gelsinger
Yes. The IBM partnership, we really consider that one of our cloud network partners.
And we really believe that IBM is really one of the mega cloud leaders in the industry. I think everybody puts the range of mega cloud players and puts IBM in that list.
And what they're seeing is that the VMware offering on the IBM soft layer and now they call it the IBM cloud is just having great success in the marketplace. Many of the enterprise customers for IBM are very strong, right, many of those are customers have large VMware footprint so the combined momentum of us coming together is very strong.
And our partnership, the pipeline of customers, the realization of that in revenue for IBM this quarter has been strong. Overall, that’s seen in our numbers as part of the vCAN strength that we had which had another very strong quarter for us and IBM's really one of the strong members of the growth that we’re seeing in our overall vCloud Air Network.
We do expect that we’ll continue to see enhancements to the IBM offerings in the marketplace and we’re partnering with them to accelerate their offerings and their unique ability to benefit from the VMware a technologies in the IBM cloud offering, so we really couldn't be happier than we are seeing with how IBM is partnering with us. You had also point out that IBM Global Technology Services as a system integrator has been a great partner with VMware for a number of years long before the cloud relationship and that combination of DTS as well as IBM cloud for VMware customers give them a very unique position in the market.
Paul Ziots
Thank you, Matt. Next question please.
Operator
Thank you. We’ll now take our next question from Raimo Lenschow with Barclays.
Raimo Lenschow
Hey. Thanks for taking my question.
Can I ask question on EUC. I think I heard correctly that you’re over 20% license bookings growth.
That’s kind of like the strongest we’ve seen for a while. Can you just kind of talk little bit about what you saw as the drivers there and if that's kind of sustainable run rate?
Thank you.
Patrick Gelsinger
Yes, Raimo and I think we – after the challenges that we had in this area, last year the EUC license growth greater than 20%, really strong quarter. It could be happier if my team, particular AirWatch and Workspace ONE saw strong momentum, it’s even better than that in many ways, because some of the largest deals that VMware did this quarter were lead by EUC.
So in addition to the EUC component many of these were large strategic deals, a major financial institution just anted into get into a full set of VMware because of the EUC. Again, we continue to believe we’re gaining market share in virtual desktops as well as mobile and identity, emerging market growth was doing very well.
And across the entire suite with some of the announcements we’ve made with the partnerships as well, the Microsoft Azure partnership, the Oracle partnership, the Apteligent acquisition, the Google partnership along with Dell, all of those really give us enhancing strategic position in the marketplace. So, combined together we feel quite good about the growth in that business and we believe it just a sustainable growth above the growth rate of VMware overall.
Raimo Lenschow
Perfect. Thank you.
Patrick Gelsinger
That’s why nine of our top 10 deals had EUC in them, so just a tremendous quarter for EUC team.
Paul Ziots
Thank you, Raimo. Next question please.
Operator
Thank you. We’ll hear now from Heather Bellini with Goldman Sachs.
Ted Lynn
Hi. This is actually Ted Lynn on for Heather.
Pat, I wanted to get your thoughts on overall IT spending. How is the environment overall?
And are you seeing an uptick versus last year? Thanks.
Patrick Gelsinger
Yes. It's a great question and I'll just say from the macro sense we feel good.
We’re feeling like that's this idea of technology breaking out of technology where now every business is becoming a tech business, every element of every business is becoming a tech business. This idea of digital transformation is, we believe ushering in a broadening of the role of technology.
So I believe that this is overall a period of accelerating growth for technology companies broadly. And I think companies that are well-positioned for that are going to benefit by a good tailwind of tech growth in a broader sense.
We believe that VMware with our cloud offerings, our software driven offerings is uniquely positioned to benefit from many of those trends. And if you look at some of the, I’ll say related areas like IoT and NFV, they show even broadening of the market opportunity for us.
So, we're feeling quite good about the overall tech spending environment in the broadest sense and our ability to harvest that we think is a pretty unique.
Paul Ziots
Thank you, Ted. Next question please.
Operator
Thank you. We’ll hear now from Michael Tourette with Raymond James.
Michael Tourette
Hi, guys. You made some comments about the impact of January.
You said, you saw January did grow but not as big as far of the full quarters or so. Can you clarify was there any benefit from January sales going into this quarter at all?
Zane Rowe
Sure. Mike, I’ll start and then I'll let Pat give you a little more color on the quarter.
Obviously when you have – January period which is as Pat alluded to you earlier is a soft month, it gives you an opportunity to take a look and inspect the deals little more closely. We’ve been very pleased with the momentum we saw even coming out of the fourth quarter last year, so of course January benefited from that, as well as has the first quarter as we head into the second quarter.
So, I think it’s hard to parse out what any particular months did and its impact on the upcoming quarter, but we thought it was a fairly clean period, stub period anywhere and we feel very good about the first quarter and we think it stands on its own merits.
Patrick Gelsinger
Yes. Great Q4, solid performance in January, clearly January give us a strong start to the year, as well as everything was sorted in the starting blocks ready to go for Q1.
I’d also point out that it was a normal January for us and Dell consolidates that. So they're motivated that we just execute business as usual through the year January month.
And we believe that Q1 stands on its own merits and we delivered a great Q1.
Michael Tourette
Yes. Thanks.
Paul Ziots
Thank you, Michael. Next question please.
Operator
Thank you. We’ll hear now from Greg Moscowitz with Cowen and Company.
Please go ahead.
Greg Moscowitz
Okay. Thank you very much and good afternoon, guys.
For your 10-K you had, I believe, a fairly significant increase in backlog existing 2016 and Zane, just wondering did a lot of that happened to get recognize in Q1 or does most of that remain in backlog?
Zane Rowe
Yes, Greg, let me give you a little color obviously coming out of the K. We saw a mix of backlog which includes as you know licensed SaaS and committed S&S.
And generally speaking it's recognized over multiple periods including our stub period in January as well as Q1 and beyond. So, I pointed out in my prepared remarks, we obviously saw a good momentum even coming out of Q1 into Q2 and we've seen some good early sales in Q2, so we don't disclose backlog on a quarterly basis but hopefully that gives you a little bit more color than what we saw at the end of the year.
Greg Moscowitz
Yeah. That’s helpful.
Thanks Zane.
Zane Rowe
Thanks.
Paul Ziots
Thank you, Greg. Next question please.
Operator
Thank you. We’ll now move on to Jayson Noland with Robert W.
Baird.
Jayson Noland
Great. Thank you.
I wanted to ask a follow-up question on VMware cloud and AWS and that dedicated hardware. Is given the demand, Pat is that is I guess why what's the purpose of dedicated hardware and with that slow the ramp of the relationship going forward?
Patrick Gelsinger
I'm not sure I understand the question. Could you – what do you mean dedicated hardware?
Jayson Noland
Part of the relationship as I understand it is that, the AWS facilities would include dedicated hardware for VMware?
Patrick Gelsinger
Okay. I understand what you’re saying now.
So, the way the service is built, basically it's a new hardware footprint that Dell is making available. I mean that Amazon is making available to us to run the full VMware cloud service on.
So it’s a new hardware footprint. Everything else about it is the normal AWS and they're making it available to us that way.
And part of this is that you we are able to now run the full VMware stack. There’s not a hypervisor underneath the VMware stack.
We are the full stack all the way to the hardware level and that gives us compatibility, that gives us performance, this absolute ability to have the complete VMware experience and that's what's so compelling to customers is that they're not giving anything up, right, from their VMware experience. If they can run the vCenter, I think the most widely deployed management tool in the history of computing, right, everybody can run it, they’re using it all the time.
They can now take advantage of this service in a seamless way, early beta response-- early customer response for the beta has been quite strong, a lot of enthusiasm to it. So we think we’re well aligned on what customer needs are with the way the services stand up.
It is elastic capacity because the customer always managing vCenter environment. We’re managing the infrastructure.
We’re doing the back ending with the Amazon and making that seamless from the customer's experience as well. So in that sense we’re getting a cluster of the vSphere, they’re not managing the hardware underneath it, but it is dynamic and scalable as the AWS service, the ability to have elastic capacity on demand and again that is in a part of the compelling this as services we’re seeing from customer.
So, clearly as we rollout and make it generally available, we’ll go through a lot more details right of the experience itself and so far I’d say we’re on the money.
Jayson Noland
Appreciate the color.
Paul Ziots
Thank you, Jason. Next question please.
Operator
Thank you. We’ll hear now from Nehal Chokshi with Maxim Group.
Please go ahead.
Nehal Chokshi
Yes. The license guidance for Q2 5 million above --- your fiscal year 2018 guidance for license I believe is only a $5 million raise.
I think that then implies that you're expecting in the back half of fiscal year 2018 deceleration in license revenue growth. A is that correct and B what rationale behind that?
Zane Rowe
Sure. I’ll start with that and let Pat add some color.
If you take a look at license revenue on a year-over-year basis, obviously feel very good about the momentum we are seeing in the first quarter leading into the second quarter. If you take a look at the compares and license revenues, so we had easier compares on a year-over-year basis in the first half versus the first half of what we saw last year.
So it's easier compare. We feel very good about the momentum we’re building in license revenue.
I think if you take a look at total revenue and you look at first half versus second half seasonality on a normal year you will notice that our seasonality expectations very similar to what we’ve seen historically. 2016 was a little bit anomaly because we saw such strength coming into the back half of 2016, but we feel very good about the momentum we’re currently seeing as well as our guidance for the full year.
Patrick Gelsinger
Yes. Just to add to, you know the strategic residence with the customers is just increasing.
The cloud strategy momentum, the comments on EUC earlier in the call, the NXS, vSAN product momentum vCAN momentum, all of these pieces really give us a confidence of the ability to execute as we’ve said and I think the Q1 performance, the Q2 and your raise are all indicative of that confidence.
Paul Ziots
Thank you, Nehal. Next question please.
Operator
Thank you. We’ll now take our next question from Abhey Lamba with Mizuho Securities.
Abhey Lamba
Yes. Thank you for taking my question.
Good to hear about the strong traction of NSX and large deals. Can you talk about the types of use cases and the customers that where you’re seeing the adoption and there’s a primarily a large company player or you seeing it in the mid market as well?
Thank you.
Patrick Gelsinger
Yes. The question was on NSX.
Abhey Lamba
Yes, please.
Patrick Gelsinger
Yes. So definitely it's a larger play, larger company play, it’s a more enterprise play not really in the mid market yet.
It is a more I’ll say, higher end products today in that sense where you’re solving unique and complex enterprise use cases. The use cases that continue to be first and foremost is the security benefits.
Second has been application automation, the deployment of applications in a more automated fashion. Third use cases been around the multi-data center, right and ability to have a transportability and connectivity across data centers.
New use cases are starting to emerge, for instance announce the developer ready infrastructure, the partnership with the Pivotal, so integrating it more fully into the container space. It also is part of the VMC, the VMware cloud and AWS, the IBM offering all those are now including NSX will also be part of our cost cloud services.
So we’re rapidly expanding the use cases for NSX. We do believe as well that you know we are making progress to make the product let’s say simpler, more broadly deployed, introduce new price points to start bringing it down the stack, a lot of enthusiasm from our Partner Leadership Summit that we had last week, and when the partner starts showing up that’s when we can really start reaching the high end of commercial and the broader commercial market place as well.
We’ve also seen Dell starting to resell it as well and their ability to add a momentum to it as well was starting to show up. So overall we are feeling very good about that broader market momentum and the used cases are expanding concurrent with that.
Paul Ziots
Thank you, Abhey. The next question will be the last question.
Operator
Thank you. We’ll now hear from Srini Nandury with Summit Redstone Partners.
Srini Nandury
All right, thank you for taking my question. Pat, can you comment on the competitive environment in the vSAN space and what are some of the used cases your vSAN solution is being deployed?
Thank you.
Patrick Gelsinger
Sure. And overall vSAN you know the great momentum as we already commented on you know clearly the used cases have been any place that vSphere wants.
As I tell my team how many places does vSphere run? How many places does vSphere use storage?
Right, and the answer is 100%. So you know our target market places have replaced those vSphere.
You know we have an opportunity to deliver vSAN so we see it as a very broad market potential. Clearly a lot of the new features and capabilities, new performance, stretch clusters, native encryption, something I’m personally very excited about you know and the security benefit, it gives, just gives us more and more breadth of used cases emerge as a result.
Competitively, we’d say that it is a good market for us and seeing the growth rates that we’ve posted, clearly it’s a market share gainer that has been critical and the hyper converged infrastructure category, that’s where vSAN ready nodes as well as the VxRail with Dell has been very strong. There are a range of competitive offerings, clearly Nutanix, SimpliVity, Springpath, a variety of those in the market place but vSAN has unquestionably had the fastest growth rate that most customers, the category defining product and we’re really feeling like we are racing ahead of all the alternatives.
Paul Ziots
Thank you, Srini. Before we wrap up, I think that Pat had a couple of final comments.
Patrick Gelsinger
Yes, thank you so much for joining our call today. We are very pleased with our strong Q1 results and I want to thank all the VMware customers’ partners and especially my employees for a terrific quarter.
You know we are committed to help our customers succeed in their digital transformation journey and look forward to updating you again on our progress next quarter. Thanks so much.
Operator
Thank you. And that does conclude today’s conference.
Thank you for your participation. And you may now disconnect.