VMware subscription and software-as-a-service (SaaS) revenue surpassed its on-premises license revenue for the first time this quarter, CEO Pat Gelsinger said on VMware’s third-quarter fiscal 2021 earnings call today.

During Q3, subscription and SaaS revenue hit $676 million, an increase of 44% year over year, representing 24% of VMware’s total revenue. For comparison, VMware’s on-premises license revenue for the quarter was $639 million.

But it wasn’t only subscription and SaaS that had a good quarter. VMware reported total third-quarter 2021 revenue of $2.86 billion, an 8% increase from 2020, as well as Q3 income of $704 million or $1.66 per share. This is up 17% per share compared to $602 million, or $1.42 per share, for the third quarter of fiscal 2020.

VMware also raised its full-year fiscal 2021 guidance to $11.7 billion in revenue, representing 8% year-over-year growth, with income per share of $7.03.

Despite VMware’s earnings beat, its stock declined slightly (0.7%) in after-hours trading.

Historically, most of VMware’s revenue has come from selling on-premises data center software to customers, although it’s been transitioning to a cloud-delivered model in recent years. The ongoing COVID-19 pandemic has added urgency to this cloud-first shift as large enterprise customers slowed their on-premises spending and instead spent more money on cloud services to support their newly remote workforce.

While VMware expects “some level of recovery” in on-premises data center spending during Q4, the company will continue to invest in subscription and SaaS products “to work first and best in the cloud,” and “enable unique, multicloud capabilities, while also supporting customers who prefer to maintain some of all of their capacity on premises,” Gelisinger said, adding that VMware continues to invest in and expand its subscription and SaaS portfolio.

“We are on track to make most of our major product offerings available as subscription and SaaS in the next calendar year providing a broader set of consumption choices for our customers with the flexibility they need,” Gelsinger said.

This echoes a similar pledge from Dell Technologies, which owns 81% of VMware and also reported its quarterly earnings today. Dell also plans to make most of its products, including its storage, servers, and networking, available as cloud-delivered software.

VMware expects its license revenue to beat subscription and SaaS sales in the fourth quarter, because on-premises software “always has a great Q4.” However, the company expects subscription and SaaS will outpace license revenue next year “and really be the case for the entirety of next year,” Gelsinger said.

The company also plans to offer more flexible pricing and consumption models, he added. “We’re also going to have increasingly flexible purchase mechanisms for customers for their cloud migration,” Gelsinger said. “And one example of that was the flex offerings for vRealize that we launched and was well received. So that’s really sort of a first step in that direction for across the portfolio.”

Gelsinger’s talking about vRealize Cloud Universal, which the company rolled out at VMworld last month. It combines SaaS and on-premises management software into a single subscription license so customers can use either method of consumption interchangeably without the need to repurchase different licenses to support each option.

Gelsinger also highlighted VMware’s multicloud strategy, which includes partnerships with all the major public cloud vendors as well as Dell Technologies for on-premises private cloud. VMware’s cloud annual recurring revenue is about $1 billion, and its hybrid cloud services with Amazon Web Services, VMware Cloud on AWS, “continues to grow revenue over 100% year over year,” he said.