Aug 24, 2017
Executives
Paul Ziots - VP of Investor Relations Pat Gelsinger - Chief Executive Officer Zane Rowe - Executive Vice President and Chief Financial Officer
Analysts
Karl Keirstead - Deutsche Bank Mark Murphy - JPMorgan Matt Hedberg - RBC Capital Markets Keith Weiss - Morgan Stanley Walter Pritchard - Citi John DiFucci - Jefferies Brad Reback - Stifel Michael Tourette - Raymond James Kash Rangan - Bank of America Merrill Lynch Raimo Lenschow - Barclays Kirk Materne - Evercore ISI Abhey Lamba - Mizuho Securities Jayson Noland - Baird
Operator
Good day, and welcome to the VMware Second Quarter Fiscal Year 2018 Earnings Conference Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Mr. Paul Ziots, Vice President of Investor Relations.
Please go ahead, sir.
Paul Ziots
Thank you. Good afternoon, everyone, and welcome to VMware's second quarter fiscal 2018 earnings conference call.
On the call, we have Pat Gelsinger, Chief Executive Officer; and Zane Rowe, Executive Vice President and Chief Financial Officer. Following their prepared remarks, we will take questions.
Our press release was issued after close of market and is posted on our Web site where this call is being simultaneously webcast. Slides which accompany this webcast can be viewed in conjunction with live remarks and can also be downloaded at the conclusion of the webcast from ir.vmware.com.
On this call today, we will make forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially as a result of various risk factors including those described in the 10-Ks, 10-Qs and 8-Ks VMware files with the SEC.
We assume no obligation to and do not currently intend to update any such forward-looking statements. In addition, during today's call, we will discuss certain non-GAAP financial measures.
These non-GAAP financial measures which are used as measures of VMware's performance should be considered in addition to, not as a substitute for or in isolation from GAAP measures. Our non-GAAP measures exclude the effect on our GAAP results of stock-based compensation, amortization of acquired intangible assets, employer payroll tax on employee stock transactions, acquisition, divestitures and other related items, and include non-GAAP tax rate adjustments.
You can find additional disclosures regarding these non-GAAP measures including reconciliations with comparable GAAP measures in the press release and on our Investor Relations website. The webcast replay of this call will be available for the next 60 days on our company website under the Investor Relations link.
Our third quarter fiscal 2018 quiet period begins at the close of business Thursday, October 19, 2017. Year-over-year comparisons of quarterly financial results included on this call compare results for VMware's fiscal 2018 second quarter May 6 through August 4, 2017 to VMware's fiscal 2016 second quarter of April 1 through June 30, 2016.
With that, I'll turn it over to Pat.
Pat Gelsinger
Thank you, Paul and a very good afternoon everyone. We are very pleased with our Q2 results which were driven by broad-based strength across the product portfolio in all three geographies.
Revenue grew 12% year-over-year with non-GAAP earnings of $1.19 per share. We feel confident about our continued growth as we move into the second half of the year and as announced last week we have increased our guidance for fiscal 2018.
Zane will address this more specifically later in the call. As we continue our multi-year journey from a compute virtualization company to offer a broad portfolio of products driving efficiency and digital transformation.
Customers are increasingly turning to VMware to help them run, manage, secure and connect their applications across all clouds and all devices. The number of factors contributed to our strength in Q2 and increased outlook for the year, these include our cloud strategy and products resonating with customers, continued strength in our sales execution and ecosystem momentum across all geos and the strengthening of the overall market environment for enterprise software.
During the quarter, we launched a number of new product offerings in compute management and end user computing. We also received strong analyst validation across the portfolio.
In June, we announced the major upgrade to the VMware vRealize cloud management platform for managing a multi-cloud environment. This offering enables customers to manage and provision at scale including compute network storage and application services across multi-cloud environments.
For the fourth year in a row IDC named VMware as a global market share leader in both cloud systems management and datacenter automation. We continue to be pleased with the adoption of NSX.
We believe NSX inclusion in all of our top 10 deals this quarter is a strong indication that the market is standardizing on VMware NSX to transform datacenters. We advanced our position as a visionary in the July 2017 Gartner Magic Quadrant for datacenter networking.
We believe that the majority of our vSAN customers are now running business critical applications and databases on the platform. Following the release of vSAN 6.6 in April, we are continuing to see tremendous momentum with nearly 10,000 customers.
In our end user computing business, we are particularly pleased by market adoption of Workspace ONE. Workspace ONE is redefining the category by providing a complete solution across any app and across the broadest set of devices and operating systems in the industry.
Customers are replacing the silos of the current endpoint solutions with Workspace ONE consolidating their mobile identity and desktop solutions into a single platform. This quarter Trend Micro also joined McAfee and Symantec in VMware's mobile security alliance.
During the quarter our leadership in enterprise mobility management or EMM was again acknowledged by leading analyst firm Gartner who named VMware AirWatch leader in the June 2017 magic quadrant for EMM suites and positioned us with the highest and ability to execute and complete [this vision] [ph]. We were also named as a leader in the IDC EMM MarketScape.
As I mentioned earlier, we continue to see great customer momentum for our cloud offerings as we provide customers with powerful capabilities to extend their private cloud workloads into the public cloud and help them to run, manage, secure and connect all their applications across clouds and devices. Our VMware cloud services including our VMware cloud and AWS service continues to experience strong customer interest and remains on track.
We also had great performance in our vCloud Air Network business. We will have much more to say about our cloud and contain our offerings at VMworld.
And looking to the future, we edge computing as a significant adjacent opportunity. In May, we announced the VMware Pulse IoT Center to help manage, monitor and secure IoT devices.
IoT and edge specific solutions are being developed with key strategic partners including Fujitsu, HARMAN and EuroTech, as customers look to VMware to help extend the capabilities of the datacenter to the edges of their businesses. And VMware and Fujitsu are working with Toyota to build a next generation in-car platform.
We are excited to see telcos and communication service providers or CSPs build up their global IT cloud and increasingly also their network platforms with VMware technology. As CSPs prepare for the transits into 5G, we are delighted to see carrier such as Telia Company choosing VMware as their partner for network functions virtualization infrastructure for their revolving distributed telco clouds.
We have seen a strong start to Q3; we just signed our largest ever telco deal with Vodafone, a huge step forward in our NFV initiative. We also signed our first deal in excess of $100 million, a multi-year agreement with our strategic partner DXE, the world's leading independent end-to-end IT services company.
The deal demonstrates a broad strategic adoption and alignment with VMware's next generation hybrid cloud and digital workspace offerings. Overall, we continue to see strong broad-based growth across our portfolio making us confident in our strategy and optimistic about the momentum we are seeing in our growth businesses.
I look forward to seeing many of you at VMworld which kicks off next week on August 28, when we welcome over 23,000 attendees to our Annual Industry Conference which takes place in Las Vegas again this year. I'll now turn it over to Zane to talk about our business performance in Q2.
Zane Rowe
Thank you, Pat. And thanks to all of you for joining us today.
As Pat conveyed, we're very pleased with our strong Q2 results and the strength of our business across the portfolio. In line with the preliminary results, we issued in connection with our debut debt offering last week, total revenue for Q2 grew over 12% and license revenue increased nearly 14% year-over-year.
Hybrid cloud and SaaS continues to grow, representing approximately 9% of Q2 total revenue. Non-GAAP operating margin for Q2 was 30.8% up 76 basis points year-over-year.
Non-GAAP EPS was $1.19 per share up 22% year-over-year and share count for the quarter was $413 million diluted shares. Cash and short-term investments totaled $8.9 billion approximately $900 million of this was domestic cash.
Unearned revenue at quarter end was $5.5 billion with $2 billion of this amount long-term. The growth rate for total revenue plus the sequential change in total unearned revenue was 18%.
And the growth rate for license revenue plus the sequential change in unearned license revenue was 14% year-over-year. Support and services bookings once again had strong growth in Q2, this recurring part of the business continue to benefit from high renewal rates and customer commitments to our product portfolio.
Looking at our product performance both NSX and vSAN continued their strong growth trajectory in Q2. NSX license bookings grew over 40% and vSAN license bookings once again grew over a 150% year-over-year.
EUC license bookings for the quarter were up over 20% year-over-year driven by healthy growth in both the desktop and mobile businesses, including exceptional early market success for Workspace ONE. Total Compute bookings were up approximately 10% with compute license bookings up in the mid-single digits year-over-year.
After a number of relatively strong quarters for compute, our multi-year outlook for this business has increased. We now expect total compute bookings to grow in the low single digits with compute license bookings flattish over the next few years.
We do expect quarter-to-quarter fluctuations which can be impacted by the timing of large deals. Even with the stronger outlook for compute over the next few years, we continue to expect our emerging products to represent a larger portion of our license bookings.
This quarter we are also pleased with our total cloud management bookings which are up double digits and with cloud management license bookings up mid-single digits year-over-year. Turning to our balance sheet and capital allocation.
We recently completed our debut debt offering of $4 billion into 3, 5 and 10-year senior unsecured notes. These notes are rated as investment grade by all three major rating agencies.
They carry a weighted average coupon of approximately 3% with the weighted average life of approximately 6 years. In addition to allowing us to extend our debt maturity profile this transaction will increase our ability to return capital to shareholders in the form of share repurchase and maintain the flexibility to invest in opportunities for the business.
In conjunction with this transaction we expect to put in place a 5-year $1 billion revolving credit facility shortly. We currently have $900 million remaining on our existing $1.2 billion repurchase authorization which extends through the end of fiscal 2018.
Our Board recently authorized an incremental $1 billion in repurchases through the end of August 18. In addition to our expected open market repurchase activity we have recently agreed to repurchase $300 million of class A common stock from Dell Technologies.
Turning to guidance for the year. As mentioned in our pre-release last week, we increased our revenue guidance for fiscal 2018 to approximately $7.830 billion up approximately 10% year-over-year.
We increased license revenue guidance to approximately $3.75 billion also up approximately 10% year-over-year. Non-GAAP operating margin is expected to be approximately 32.7%, non-GAAP earnings per share is expected to be approximately $5.06, the debt offering and its use of proceeds as a $0.02 per share net impact in the second half of fiscal 2018.
Updated diluted share count including our expectations for increased stock buybacks for the fiscal year is expected to be 411 million shares for fiscal 2018. Due to the strength in our business, we are today raising our guidance for cash flow from operations to approximately $3 billion for fiscal 2018.
In terms of Q3 guidance, we expect total revenue to be between $1.930 billion and $1.980 billion and expect license revenue to be between $755 million and $785 million. We expect non-GAAP operating margin to be approximately 33.4% and expect non-GAAP earnings per share to be between $1.25 and $1.28 per share on a diluted share count of 411 million shares.
In summary, our products and our strategy are resonating in the marketplace and we have good momentum across the business. I'd like to thank our loyal customers and partners for their business as well as the entire VMware team for delivering a strong quarter.
We look forward to seeing many of you at VMworld next week. With that, I'll turn it back to Paul.
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, sir. [Operator Instructions] We'll go first to Karl Keirstead with Deutsche Bank.
Karl Keirstead
Thanks very much. This question is for Zane or Pat.
Congrats on those growth metrics 14% license growth, 18% billings growth is extraordinary and I guess I wanted to ask you both about the sustainability of those numbers. I don't think many investors think that growth can accelerate from these levels.
But there is certainly a healthy debate about whether those growth rates will decelerate by a lot or a little in fiscal 2019. And Zane I'm certainly not asking for fiscal 2019 guidance, but I thought, I was hoping you could frame what factors driving these growth rates feel a little bit more temporary whether it's an unusually robust ELA cycle you are seeing this year or easier comps and conversely what drivers feel like they've got legs and could persist into fiscal 2019 that might help everybody on the line?
Thanks so much.
Pat Gelsinger
Sure Karl.
Zane Rowe
Yes. This is Zane happy to start that answer and then I'll hand it over to Pat to add a little more color.
I mean obviously as you go through the products that performance that we saw this quarter, we feel very good about our product performance in particular the emerging products and really across the portfolio if you look at compute and all the other elements of the portfolio and across the geographies. We continue to see sustained growth there as well.
So, well as you point out we're not going to get into FY 2019 guidance, I'd say generally we feel very good about the momentum we're building you saw that reflection in our bookings and as well as our guidance and across the portfolio things are really producing really well. So, we feel good about the progress we've made through the course of the year and feel good about our outlook, again without getting into FY 2019.
Pat I'll let you touch on maybe some of the products.
Pat Gelsinger
Sure. Clearly I mean vSAN NSX or vCloud Air Network, the mobility, we continue to just strength those areas with very good performance this quarter.
Overall, our cloud strategy has just really resonating with customers and obviously as you come up on VMworld we have more to say about that area as well. As we said in our formal remarks, we really see that our execution is strong and we don't think that's going to continue, we see the market strong and with our strategy resonating we feel very good about our performance and the momentum we believe carries through the year.
Karl Keirstead
Okay. Thank you, both.
Paul Ziots
Thank you, Karl. Next question please.
Operator
And our next question comes from Mark Murphy with JPMorgan.
Mark Murphy
Yes. Thank you very much and congratulations on truly spectacular results.
Pat, I was wondering if you could compare and contrast the architecture and also the philosophy of VMware cloud on AWS relative to Microsoft approach with Azure and Azure Stack. It seems like there is more discussion about those offerings starting to go head-to-head in the near future.
And so I'm just wondering if you take a typical organization that uses both Microsoft and also VMware does this change the discussion to have the top cloud provider, the top virtualization provider coming together like this?
Pat Gelsinger
Well as we spoke about, and thank you for the question Mark and the kind comments. As we spoke about when we did the announcement of the AWS service, really is allowing VMware customers to seamlessly go to the cloud and take advantage of a cloud service is the full VMware experience.
But really is that ability for a strong installed base of VMware to seamlessly extend their position to the AWS environment as well as to be able to consume additional AWS services in a very effective manner. In contrast as your stack is about bringing Azure on premise, so it's really many respects the app opposite and its asking customers to fork or create a header genuity in their on-premise environment just to take advantage of some services that they may want to consume from Microsoft.
So, we believe that so much harder thing for customers to consumer versus the elegance of what we're laying out in our AWS strategy, obviously we have more to say about this next week, but given the early market momentum that we've seen, we're very enthusiastic and we think customers and the market is going to be responding quite well to what we're doing together with the number one private coming together with the number one public for really seamlessly powerful offering.
Mark Murphy
Thank you.
Paul Ziots
Thank you, Mark. Next question please.
Operator
We'll take our next question from Matt Hedberg with RBC Capital Markets.
Matt Hedberg
Hey guys thanks for taking my questions and I'll offer my congrats as well on the strong results. Pat, I think you mentioned, we'll hear more on VMC for AWS next week, but at a high level could you sort of talk about, the progression of the beta testing sort of where we are at there?
And then maybe as I call sort of like a phase II of this relationship I know it was, sort of talked about that, potentially provisioning AWS software inside of VMware datacenter at some point. Could you just talk like theoretically about the merits of something like that as a potential option down the road?
Pat Gelsinger
So, overall the response for the AWS partnership the customers on the beta service very strong, a lot of enthusiasm for that potential we really thank the AWS team who is working very aggressively with our team in that area. We are, as we said we'll have more to talk about next week about that offering and good ecosystem response to it.
And we really believe this is the beginning of a very powerful capability, that this is we're going to expand the offering globally additional capabilities and it really is a start of a rich roadmap of joint innovations that we will be seeing with AWS. And well I can't comment on any of those specifically at this time Matt, we're seeing just lot of enthusiasm from AWS from the VMware team as well as from our customers of the joint innovations that are yet to come.
Paul Ziots
Thank you, Matt. Next question please.
Operator
Next question comes from Keith Weiss with Morgan Stanley.
Keith Weiss
Thank you guys for taking the question and again very nice quarter. I wanted to dig in a little bit on the revised kind of multi-year outlook for thought management licenses and cloud management.
That seem to be something that you guys had kind of made a structural statement on and sort of given that the penetration where we were in that marketplace your expecting declines at least on the license side. But now something is changed, I hope, I was hoping you could help us understand kind of what's changed that given you a more optimistic outlook on the ability of that business to be flat to grow on a going forward basis?
Pat Gelsinger
Yes, on the compute, in compute space as Zane said in his formal remarks, we definitely have increased our outlook for that over the longer term. And what we've seen is inside of the compute business that's, this has been the strength to the overall resonance of the VMware cloud strategy and that unquestionably has been increasing and improving our business overall.
We would point out that the vCloud Air Network and the growth of that aspect of which a large of that is compute has been very effective as well and we've continued to see strong growth in the 30 plus percent range in that area. So overall many of the factors of our cloud strategy are contributing to that, we would also say some of the adjacent areas, have been starting to be contributing and clearly the NSV win that I mentioned with Vodafone is yet another contributor to that.
So, well as Zane said, we do expect that there is some volatility quarter-to-quarter in some of larger deals, we have raised our forecast for that area of the business. And I'd also always point out that everything in compute is a spring board for all of our other products, so the vSAN, NSX, mobile products everything else really gets the benefit by the increased outlook where so that really is an exciting aspect of our strategic position for customers for the long-term.
Zane Rowe
Keith, I would just add as you pointed out we've beaten our guidance in that area for the last number of quarters. Now for total compute which includes both license and service we expect that to be in the low single digits.
As Pat mentioned, we may see some quarter-to-quarter volatility that we're overall pleased with the trajectory there.
Paul Ziots
Thank you, Keith. Next question please.
Operator
Our next question comes from Walter Pritchard with Citi.
Walter Pritchard
Hi I'm wondering Pat, just on the cloud side having Amazon offering in the market, not in the market, but sort of talking about it in on the roadmap and imminently released here. How do you think that's impacting customer buying behavior if at all, in terms of I mean you saw pretty good performance last three quarters, I'm wondering you talked about maybe 2.5, 3 years ago how there is a lot of uncertainty around cloud maybe you cleared some of that up and I'm just curious if you have seen any tangible impact?
Pat Gelsinger
We believe that the customer discussion that VMware now as is a much more strategic one with our customers. And as there you'll see their need to move to a multi-cloud future and they want to be able to transform both their private as well as how they embrace public cloud offerings.
That as cloud strategy and I'll say of that the piece with Amazon but our IBM partnership the vCloud Air Network all of those is contributed, where customers now see us as a pathway to their cloud future. That's very powerful Walter and unquestionably we've seen that as an accelerant to our business, because of customer see you as part of their strategic future, but simply you should get me this done, deals get larger they get done quicker, because you are not in the procurement isle, right you are in the strategic isle of the customers purchasing behavior and that's where we are and we're definitely feeling that in our business.
Paul Ziots
Thank you, Walter. Next question please.
Operator
Our next question comes from John DiFucci with Jefferies.
John DiFucci
Thank you. My question is for Paul, I'm sorry not for Paul for Pat.
It sounds like everything is sitting pretty well and by way Zane Lowe seeing that increase in cash flow guidance. But it sounds like the core compute doing well in all NSX and vSAN end user computing.
And but the one thing, I don't think you've talked much about yet, and I'm curious is to how those synergies they are developing with Dell EMC, because it was something when that all happened, there is a billion dollars thrown out there as that could become future opportunity is something that we sort of really questioned at the time, but we're starting to hear, we're starting to hear a lot about that in-field and I just wondered if you can comment on how that's progressing today?
Pat Gelsinger
Sure thanks John. And overall, we're pleased with the progress we're making with Dell overall in this quarter we continued that momentum.
And as you may recall John last quarter we raised our synergy guidance for the year from $200 million to $250 million of that $1 billion synergy. And I'd simply say we are on track to accomplish that, we raised it last quarter and we continue to feel that good momentum this quarter, we had a great Dell EMC world, we announced VDI complete AirWatch on Windows 10 Dell clients, VxRack, VxRail, 14 Embrace, lots of good product announcements with them and we're really seeing the synergies emerge really across the portfolio of VMware's product and the client space and the server storage, networking management really across the portfolio.
So, well in many ways these efforts are still just getting started, the early momentum is strong and Dell's market reach and capacity is really benefiting VMware and I'll point you again to what we said last quarter and that continues this quarter.
Paul Ziots
Thank you, John. And if you did have more questions for me, I could take those later.
Next question please.
Operator
We'll take our next question from Brad Reback with Stifel.
Brad Reback
Hey great, thanks very much. Pat with the cost is now popped up with domestic cash, as it relates to acquisition activity what's your willingness to embrace sort of take dilution from the big deal in the future?
Pat Gelsinger
I would say overall, our capital allocation strategy hasn't changed, and obviously we had a good balance sheet with this debt offering, we've improved that position. But against that, we'll just say our strategy hasn't changed for which we see that prudent M&A continues to be a good way for us to grow, we've been very successful with our M&As, we have well above industry track record with our acquisitions and the ones that we completed recently way front leading telemetry and metrics of platform the Arkin acquisition for networking inside as gone very well PLUMgrid.
So at this point, I would say, no major shift in our strategy, we never felt constrained on the size of those, it really is focused around how can we find assets, but accelerate our business in a meaningful way that fit to the strategy we've laid out.
Paul Ziots
Thank you, Brad. Next question please.
Operator
Next question comes from Michael Tourette with Raymond James.
Michael Tourette
Hi guys, I had two likely connected kind of questions, one of management really turned around management turned from what was down to now up on license and even stronger on total. How did that turn around and related question was on NFV if you could give me some sense, little bit more sense for the details behind how you are executing NFV and what the drivers are there whether its 5G what's really driving that?
Paul Ziots
Michael, I'm sorry to be stickler, but it my role, could you pick which of the two you would prefer?
Michael Tourette
Oh sorry about that, okay so I go with the management question, management tools really turned around, how did you do it?
Paul Ziots
Thank you.
Pat Gelsinger
Sure, sure. And I'll try to give you a little hint from the second part of your question that's well Paul wouldn't allow me to give you that, but I'll just try to.
The, overall the management this quarter, we just had a good quarter total bookings up double-digits year-on-year good recognition by the analyst community as well. We mentioned the IDC in the Gartner reports.
And if you think about our management products, vRealize automation, vRealize orchestration, automate the full operation of the datacenter and automation be able to make application provisioning successful in both of those performed well. We put more sales focus, some of the, we mentioned some of the not as good execution as we had last quarter that's paying off for us.
We had good EA attached and that can be lumpy as we commented on the past, but that attach rate was very solid this quarter with our focus. We also had major product upgrades and increasingly you'll see that our multi-cloud strategy includes many of the management components.
So we're starting as I understand our roadmap on where we're going, we're also feeling the momentum of cloud-based management products as well. So overall we had a good quarter, we feel good about our momentum as we go into the second half of the year.
We're improving the product cycle that we have in the overall strategy resonance the management product fit into that very nicely and they are also part of what we're selling in our NFV deals as well. And as we noted, we had very good success in that area and really the breadth of the VMware product line is an asset as we go into the NFV deals with management being one piece of that strategy.
Paul Ziots
Thank you, Michael. Pat managed to combine the two into one, so, a two-for.
Next question please.
Operator
Our next question comes from Kash Rangan with Bank of America Merrill Lynch.
Kash Rangan
Hi guys, congratulations on the acceleration on your business, you guys sound really good. My question is at a high level when you look at the business model, the software industry has really moved away from licenses some of your peer companies like Citrix also have really enacted that shift and obviously some of the larger companies like Adobe, [Rdesk] [ph] fully on their way.
As you look at your business model couple of years, and you've already started to make significant progress with your cloud revenues at 9% of total revenue got a significant installed base of recurring maintenance revenue. As you look at the remaining parts of your license business either with the help of AWS or without how do you see the business model shaping out towards more ratable recognition of your business to ensure that you get the predictability and the credit that you deserve from the capital market and get away from all this 3 year ELA renewal which was a good vintage, bad vintage and get away from all that cyclicality and make it more ratable.
How what are your thoughts on that? Thank you so much.
Zane Rowe
Sure Kash, this is Zane, I'll start, then hand it over to Pat to talk about where we're spending more of our money. I mean as you point out the perpetual model as served us very well and continues to be very strong.
So, what we plan on doing is augmenting that with investments that we've made in our hybrid cloud and SaaS business most notably in the cloud area that Pat can talk a little bit more about. As I pointed out, we are an hybrid cloud and SaaS at 9% of total revenue seeing tremendous growth there on a year-over-year basis.
And as you look further out, we would expect that to continue to grow not only from products that we continue to convert over to SaaS like product but also with the investments that we are making in the cloud and expectations on both the organic and the inorganic side. So Pat, I'll let you touch on some of the areas of growth there.
Pat Gelsinger
And, as we think about those product areas, the strength of the vCloud Air Network substantial AirWatch is increasingly being delivered as a SaaS service or desktop as a service offering. Those are really the contributors today Kash.
But as you look at what we're bringing to the marketplace, our cost cloud services, the VMware cloud service offering and NSX will be one of those cloud services, so NSX becomes a service more the management product become the service. So we're lining up a pretty rich set of service offerings that are entirely cloud or as a service based overall.
So we definitely, even as we are seeing strength in that area growing well above the VMware growth rate overall. We do think that we have a lot of upside for those growth areas as we really fill out a very robust product mix.
Paul Ziots
Thank you, Kash. Next question please.
Operator
Our next question comes from Raimo Lenschow with Barclays.
Raimo Lenschow
Hey congrats from me as well. The one area that stands out on the performance in terms of, I mean comparison into competition is EUC, because we had like, [profit] [ph] warnings from Blackberry and [indiscernible] and you guys are really performing well.
Can you talk to the strength there, it feels like you kind of walking away with that market? Thank you.
Pat Gelsinger
Yes. Thank you.
and overall, we had a very good balanced quarter across our portfolio greater than 20% growth rate year-over-year. We do as you suggest Raimo, we believe we're taking share on both the desktop and on the mobile side.
The thing that probably is most exciting about our performance this quarter is Workspace ONE. And then if you recall Workspace ONE is bringing together of the complete desktop, mobile, identity management security solution into an integrated offering that really eliminates many of the point products that customers might want, also gives a very compelling integrated application and identity solution and satisfies the ability to manage this increasing breadth of devices.
And you might have seen, we announced our Chromebook relationship last week. We announced the Workspace ONE on Azure as well month third, two ago we announced the deepening of our partnership with Dell.
And all of that we add that on top of the richest ecosystem that already existed with our Amazon, Google, Samsung and most important our Apple partnership as well. So, overall the ecosystem is really coming to appreciate that strength of the ecosystem, Gartner and IDC recognize that as well in their recent reports where we advanced our leadership position in both of their calls.
And we had good adoption 10/10 of our top deals included EUC this quarter as well, so our selling motion, this isn't a thing over to decide anymore its now integrated into our biggest sales campaign as well. So, it really is hard to see anything bad about our performance, it really was quite spectacular in some many different dimensions this quarter, quite proud of that team.
Paul Ziots
Thank you, Raimo. Next question please.
Operator
Our next question comes from Kirk Materne with Evercore ISI.
Kirk Materne
Thanks very much and thanks for squeezing in the question. I apologize if this was already answered.
But I was curious Pat if you could talk about just the shift is on the telcos towards 5G and how you see that maybe impacting sort of the NSX opportunity over the next couple of years. I was just kind of curious, if you've seen any acceleration, what sort of your broader thoughts, on that opportunity in particular?
Thanks.
Pat Gelsinger
Yes sure, love to talk about it. And as we mentioned in our prepared remarks the Vodafone deal that we just signed to kick off Q3 really was a great, great win, because here they just recognize as a global powerful brand and a real thought leader in the area.
So having them right to sign up with us in the NFV area was a huge win, we had that Telia some of the other accounts that we've done. We have over 90 NFV wins at this point in time.
So we're feeling very good that our deployments are accelerating. And these wins definitely they are vSphere wins, but they also include as you suggest key components of NSX our management products as we touched on before.
So, really is bringing the full strength of the VMware portfolio into that market. Now as I think about that whole segment, if this was a sporting event, we haven't made it to the first ending or the first period yet.
The National Anthem is still playing, because vendors are just figuring out how and in what way they are going to build their NFV architecture, because there is going to be an enormous crescendo as 5G build out start to occur as we go to the latter part of this decade. And that's why I think this will really start to become a meaningful element of our business and now even with some of these good wins, it still is the very, very earlier phase of this market and we're quite excited to see our success here.
But there is a long, long journey to go in front of us.
Kirk Materne
Thanks for the color Pat.
Paul Ziots
Thank you, Kirk. Next question please.
Operator
We'll take our next question from Abhey Lamba with Mizuho Securities.
Abhey Lamba
Yes, thank you and congrats on good quarter. But Pat as you are looking at the feedback from your beta customers on the AWS offering.
What type of workloads do you think people are going to be putting on that, is it going to be primarily existing workloads migrating to the cloud or do you think how we should expect some new workloads, kind of coming on to the platform as well? Thank you
Pat Gelsinger
I think the earliest days of the workload are simply going to be people testing. It's going to be dev test, test and dev kind of things, but we're seeing them very quickly say how I can use this as a datacenter extension of my existing VMware workloads.
Second we see it as an opportunity for them to drive datacenter consolidation where they are going to be able to say well I have this powerful new tool, maybe I can get by with three datacenters instead of four looking forward. Maybe I can start to drive my DR capacity and scale up very rapidly that way.
So, we see the, early market really to be centered around VMware users who are extending their VMware footprint in the powerful way. Further out of time we fully expect that will include new workloads as well, where people will say well this gives me a hybrid multi-cloud environment, I can bring it back, I can take it out, I can scale it, well I'm going to bring new workloads on top of this as well.
So, we've already seen some customers start to talk about that, but we don't believe those would be the biggest initial users of it is going to be a much more familiar extension for vSphere, vCenter users today being able to have literally access to and infinitely scalable globally available seamless experience on the largest public cloud in the planet.
Paul Ziots
Thank you, Abhey. Next question which I believe is our last question.
Operator
Yes. And our final question comes from Jayson Noland with Baird
Jayson Noland
Okay great, thanks for sneaking me in and I wanted to ask on international double-digit growth now three quarters in a row that's accelerated off of 2015 and early 2016, if you could talk about the drivers there and if Dell is helping overseas on the go-to-market side?
Zane Rowe
Sure, I'm happy to start with that. As you point out international growth was terrific this quarter and has been strong all your long it's really across all products and I'd tell you across all geographies.
I know we've talked about balance growth for some time. But this - this quarter was particularly strong 7 of our top 10 countries experienced double-digit growth.
So, again we see continued growth in the area and we're very pleased with what the team were able to pull out on the international side.
Pat Gelsinger
And overall as we noted and why is the business strong, our sales execution is unquestionably and one of the factors for that, [indiscernible] leaders, have really just been executing well, we particularly commented I think last quarter on the strength of the Americas, as Jean-Pierre in Europe has just been a very consistent performer Duncan, who joined us about a year ago, really building momentum in our APJ market. Our channels are very balanced and strong EA performance as well as transactional performance.
Overall, we're just thrilled with the balance that we're seeing, the strength of the products across all geos and our execution by us as well as our channel partners including Dell which unquestionably as a increased reach in certain markets as all been really drivers of our very successful quarter.
Paul Ziots
Thank you, Jayson. Before we can conclude today, Pat has a few final remarks.
Pat Gelsinger
Yes. And thank you all to our customers, our partners, employees for a great Q2 and a strong start to Q3 and higher outlook for the year.
And again, I invite you and please join us I hope to see many of you at VMworld next week.
Operator
Again ladies and gentlemen, this does conclude today's conference. We appreciate your participation.