Dell Technologies Inc.

Good afternoon and welcome to the fiscal year 2019 third quarter earnings conference call for Dell Technologies, Inc. I'd like to inform all participants this call is being recorded at the request of Dell Technologies. This broadcast is the copyrighted property of Dell Technologies, Inc. Any rebroadcast of this information in part or whole without prior written permission of Dell Technologies is prohibited. As a reminder, the company is also simulcasting this call at investors.delltechnologies.com. A replay of this webcast will be available at the same location for one year. Following prepared remarks, we will conduct a question-and-answer session. If you have a question, simply press star, then 1 on your telephone keypad at any time during the presentation. I'd like to turn the call over to Rob Williams. Senior Vice President of Investor Relations. Mr. Williams, you may begin.

Thanks, Victoria. Good afternoon and evening, and thanks for joining us. With me today is our CFO, Tom Sweet, our Vice Chairman, Products and Operations, Jeff Clark, and our Treasurer, Tyler Johnson. We posted our third quarter press release and web deck on our website. I encourage you to review these documents for additional perspective. Our third quarter 10Q will be filed on Monday, December 10th. Let me take a moment to address the pending Class B transaction. Following extensive outreach and engagement, on November the 15th, we announced amendments to the proposed Class B common stock transaction. We filed a supplemental to our definitive form S-4 on November 26th, and we are scheduled to hold the special meeting and stockholder vote on Tuesday, December 11th at 8 a.m. Central Time. We expect to announce stockholder approval of the transaction on December 11th. So today, November the 29th, would be the first day of the 17-day measurement period for the determination of the volume-weighted average price of the Class B common stock. This volume-weighted average price will be used to determine the final exchange ratio to be used in connection with the Class B transaction. In this scenario, we expect the transaction to close in this calendar year with the projected close date and first day of trading for the Class C common stock on the NYSE under the ticker symbol DELL on December the 28th. Before I turn it over to Tom, I'd like to remind you of a few items. During this call, we will reference non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income, EBITDA, and adjusted EBITDA. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release. Our Q3 non-GAAP operating income includes $2.4 billion of adjustments. A large portion of these are non-cash and relate to purchase accounting and amortization of intangible assets. Please refer to the supplemental slides beginning on slide 22 for details of our non-GAAP adjustments. Please also note that all growth percentages refer to year-over-year unless otherwise specified. Finally, I would like to remind you that all statements made during this call that relate to future results and events are forward-looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties which are discussed in the cautionary statement section in our web deck. We assume no obligation to update our forward-looking statements. With that, I'll turn it over to Tom.

Thanks, Rob. Today, Dell Technologies has assembled a broad set of capabilities that are differentiated within the industry and drive an attractive financial model. We are running the business in a disciplined way for the long term, with our primary focus on relative growth in share gain and the optimization of cash flow. Our capital structure is efficient, drives flexibility, and we continue to focus our capital allocation framework on debt reduction. We are in the midst of a technology-led investment cycle driven by digital transformation and the enormous amount of data that is getting created every day. Our focus and investments are centered on data and the enablement through our technologies to help our customers digitally transform and drive their businesses forward. We are investing for long-term growth. We believe we have a differentiated portfolio in its breadth and capability, and our customers increasingly see us as a key partner to meet their needs from the edge to the core to the cloud, which is showing up in our results. We delivered another strong quarter of top-line velocity as all three of our reportable segments delivered double-digit revenue growth for the third consecutive quarter. GAAP revenue for the quarter was $22.5 billion, up 15%, with a GAAP operating loss of approximately $356 million. As Rob mentioned in his introductory comments, there are many adjustments between GAAP and non-GAAP results. I do want to call out a $190 million goodwill impairment related to Virtustream due to a reset of the long-term business model as we streamlined the product portfolio. Non-GAAP revenue was $22.7 billion, up 14%, driven primarily by double-digit growth in servers, commercial client, and VMware. Gross margin was up 8% to $7 billion and was 30.9% of revenue, which was down 170 basis points due to mixed dynamics within ISG as server results continued to be strong and foreign exchange impacts and supply chain headwinds within CSG. Operating expense was $4.9 billion, up 13%, and was 21.8% of revenue as our investments layered in. which is consistent with our comments on the Q2 call regarding the back half of this year. As a reminder, these investments are principally focused on go-to-market coverage expansion. Operating income was down 2% to $2.1 billion or 9.1% of revenue. Adjusted EBITDA for the quarter was $2.4 billion or 10.7% of revenue. On a trailing 12-month basis, adjusted EBITDA was $10 billion. Turning to the business segments, revenue for the infrastructure solutions group was 8.9 billion, up 19%. The increase was driven by a 30% growth in servers and networking to 5.1 billion and 6% growth in storage to 3.9 billion. This marked the third consecutive quarter of revenue growth for storage as we continue to make progress. Quite frankly, we would have liked to have seen higher growth in storage this quarter but we do believe we have taken the right actions to drive meaningful long-term improvements in the storage business. We are pleased with the overall server velocity. We continue to see strong demand for our PowerEdge server products and significant increases in server average selling prices, driven by increased acceptance of our 14th generation products and increases in memory and storage content. Operating income for ISG was $935 million, or 10.5% of revenue, which is down 100 basis points. Similar to the past few quarters, we continue to see a mixed shift within ISG to strengthen servers, which has impacted our overall ISG operating margin percentage. Revenue for the client solutions group was up 11% to $10.9 billion. Commercial revenue grew 12% to $7.6 billion, driven by balanced double-digit growth in commercial notebooks, desktops, and workstations. Consumer revenue was $3.3 billion, up 8%, primarily due to strength in notebooks. CSG operating income was $447 million, or 4.1% of revenue. Operating income was down 29% against a stronger prior period, And though an improvement from Q2, it was still lower than our expectations as the team navigated through foreign exchange and supply chain headwinds. Overall, we continue to be pleased with the business trajectory and relative performance and will continue to focus on relative growth and improving profitability through pricing and go-to-market execution around product mix and attach. The VMware segment had another strong quarter, delivering $2.2 billion of revenue, which was up 15%. Operating income was $768 million, or 34.5% of revenue. Based on VMware standalone results reported earlier today, the company had license revenue growth of 17%, driven by a broad portfolio strength, with license bookings growth up double digits for NSX and vSAN and VxRail, and up high single digits for in-user computing and core software-defined data center. Revenue from our other businesses, which includes Pivotal, SecureWorks, RSA Security, Virtustream, and Boomi, was $583 million, up 5%. Now, I'll turn it over to Tyler to walk you through our capital statement.