Dell Technologies Inc.

Good afternoon and welcome to the fiscal year 2020 second quarter financial results conference call for Dell Technologies, Inc. I'd like to inform all participants this call is being recorded at the request at Dell Technologies. This broadcast is the copyrighted property of Dell Technologies, Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. 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 now like to turn the call over to Rob Williams, Head of Investor Relations. Mr. Williams, you may begin.

Thanks, Erica, and thanks for joining us. With me today are our Vice Chairman, Jeff Cole, our CFO, Tom Sweet, and our Treasurer, Tyler Johnson. During this call, we will reference non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income, EPS, EBITDA, adjusted EBITDA, and adjusted free cash flow. A reconciliation of these measures to their most directly comparable gap measures can be found in our web deck and press release. Please also note that all growth percentages refer to year-over-year change unless otherwise specified. I want to mention that we will not be taking questions related to the pivotal or carbon black transactions that VMware announced on August the 22nd. Finally, I'd 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 our web deck. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Jeff.

Thanks, Rob, and thanks to all of you for joining us. Since we launched Dell Technologies, We have been consistent about our long-term view on global technology investment and what we have to do to realize this unprecedented opportunity. We have to innovate and integrate across the full Dell Technologies portfolio. Doing this creates the next generation of technology infrastructure that enables digital organizations operating in the data economy. We have to continue innovating within our business units to win the consolidation and generate cash. And of course, we have to do this with an eye towards the inevitable fluctuations in near-term demand. Today, I would like to touch on each of these areas and share some of the progress we have made executing against our strategic priorities. To begin, let me emphasize the long-term drivers for our business remain intact. we are in the early stages of a technology-led investment cycle that is accelerating digital transformation. That investment cycle is fueled by the exponential increase in data and data-centric workloads that drive better business outcomes alongside an increasingly diverse and mobile workforce. But to realize these outcomes, customers are grappling with increasing complexity across their operating environments and infrastructure, data proliferation, multi-cloud management, security, new software architectures, application, artificial intelligence, and machine learning, all the while defining their approach to cloud and increasingly the edge in IoT. Take hybrid cloud as an example. Companies deploying hybrid cloud strategies want seamless compatibility, consistent infrastructure and operations across private clouds, public clouds, and the edge. We are optimistic about IT spending because customers need a partner to help them address these challenges, one who is innovating and delivering a comprehensive end-to-end IT strategy. In fact, the latest IDC forecast for IT spending through 2023, excluding telco, backs up our optimistic view. IDC projects growth will be more than 2x real GDP, or about 4.3% per year on average. So as I said, we believe the long-term drivers of our business are intact. This brings me to my second point. Dell Technologies is uniquely positioned to capitalize on this enormous opportunity. We have been hard at work innovating and integrating across the portfolio to deliver the future of technology infrastructure with solutions that dramatically simplify IT management. Last quarter, we made major progress with the announcement of Dell Technologies Cloud and Unified Workspace. Interest remains high in our Dell Technologies Cloud Platform, the easiest and fastest way to a consistent hybrid cloud experience. It brings together Dell EMC's VxRail hyperconverged infrastructure with VMware's Cloud Foundation software stack, offering customers a single, consistent platform for both traditional and cloud-native workloads with full automation and integration for hybrid and multi-cloud environments. with consistent SLAs, tools, services, and management from VMware and Dell EMC. The customer pays subscription fees for as long as they use it, the same way they pay for public cloud infrastructure. CapEx becomes OpEx. Earlier this week at VMworld, we announced several other enhancements to our Dell Technologies cloud offerings, including new validated designs for storage arrays and servers, initial availability of the industry's first fully managed on-premise data center as a service offering, and general availability of new pay-for-what-you-use flexible consumption models. In addition, we announced Dell Technologies' cloud platforms now support VMware Pivotal container service. And with VMware's recent announcement of its intent to acquire Pivotal, our solutions and speed to market get even stronger. Pivotal further extends VMware's Kubernetes capabilities for building, running, managing modern applications on any cloud. Another powerful example of how we're innovating across Dell technologies is Unified Workspace. The solution integrates capabilities across Dell devices and services, VMware, and SecureWorks, and now includes Dell ProManage, managed services that integrate Dell's highly skilled experts as part of the customer's IT teams. Think about the IT investment cycle I mentioned earlier and the needs of the growing diverse and mobile workforce. Unified Workspace is an intelligent solution that tells you the specific devices and applications your workforce needs on their specific usage. Then it delivers those personalized devices directly to the end user, pre-configured and pre-loaded with all the applications and security features they need. IT never has to touch the device. With VMware's acquisition of Carbon Black, unified workspace will only improve with a comprehensive intrinsic security portfolio for the multi-cloud world and for modern applications and devices. As you can see, we are delivering on our promise to innovate across Dell Technologies to create the future of technology infrastructure from the cloud to the edge while dramatically simplifying the customer experience. And this brings me to our next strategic priority, which is all about what we are creating in our business units to drive and win in the consolidation, generate cash flow, and fuel innovation. We have the strongest solution set in our history with businesses that are consistently outperforming their competitors. In the data center, we are seeing significant traction from our new Unity XT mid-range storage solution. And the strong acceptance of XT in the market gives us confidence as we ramp the solution and prepare to bring our next generation mid-range storage offering to the market. We are also seeing strong receptivity of our PowerProtect X400 and PowerProtect software. The X400 delivers next-generation data management and protection in a software-defined, scale-out appliance. It is highly complemented by our PowerProtect software offering that delivers data protection, deduplication, operation agility, self-service, and IT governance. In Q2, VxRail orders grew 77% as organizations continue to benefit from its simple integration with VMware Cloud Foundation to enable hybrid cloud environments. It's just another example of how we are collaborating with VMware to bring another first and best solution to the marketplace. In client solutions, we introduced new XPS products with leading design and user experience, including more powerful processing and applications matched with thinner and lighter designs like our new XPS 13 2-in-1. And our Dell Latitude 7400 2-in-1 continues to receive incredible praise from the media and customers alike, with PC World deeming it a nearly perfect combination of power and battery life. It is the first commercial laptop with built-in sensing technology. Our teams are turning out the industry's best products and solutions, executing in our priority to win the consolidation and generate cash flow. Which brings me to my final point. As we invest and innovate to capture on the enormous opportunity in front of us, we must remain disciplined and mindful of the near-term environment in which we operate in. So before I turn it over to Tom, let me shift gears to the current demand environment and our view on component cost. Our core Dell orders were up 4% excluding China, and we are seeing a clear split between enterprise infrastructure and PC spending globally. In enterprise infrastructure, the market is softer than we and the industry anticipated. We expect it to remain soft through the balance of the year, particularly in China. We feel really good about our ISG execution in Q2, given the market context. In the first half, we have acquired approximately 21,000 ISG customers, up 11% from the prior year. And more of our ISG customers are purchasing multiple lines of businesses. Our storage business remains healthy in Q2 with orders up 1% and first half orders up 4%. Our sales team remain optimistic about our portfolio and positioning as we head into the second half of the year. Turning to servers, the industry saw unprecedented growth last year and many customers are still digesting their CapEx investments. We are balancing revenue and profitability as we navigate through the current server dynamics. Our Q2 server revenue declined, but we realized higher margin dollars as we were consciously more selective on large, low-margin deals in all geographies. Outside of China, our server orders were up 1%, and we expect to gain share this quarter in North America and EMEA when IDC publishes results next week. Our server ASPs remain strong, up high single digits, as customers are increasingly buying higher-end systems to support their high-value workloads. In Q2, CST delivered record performance driven by strong execution, the Win 10 refresh, and a declining component cost environment. Longer term, we expect to continue to drive share gains through innovation and execution as the industry continues to consolidate among the top vendors. We will continue to focus on commercial, high-end consumer, and gaming, as well as increasing our attach of services, financing, and software and peripherals. In the supply chain, we expect the component cost environment to remain deflationary and aggregate through at least the end of the year. Though it's important to note we expect the decline to significantly slow down in the second half measured against the first half. This quarter, we clearly benefited from the strength of our broad IT solutions portfolio, which helped us deliver strong results amid short-term market volatility. While we saw soft spending in pockets of the marketplace, our overall performance in Q2 reflected our competitive advantage. In the second half, you should expect us to continue to balance growth and profitability, but with a slightly higher bias towards maintaining growth at the portfolio level. We have built a business to be successful in any environment. We are differentiated by our broad portfolio in the industry with leading solutions, our direct model including services and financing, and our world-class supply chain with its size and scale. Whether the market expands or declines, we expect to outperform the industry. So to recap, we believe strongly that our long-term growth drivers are intact. We are innovating across the portfolio to create the infrastructure for the digital future. We are investing and innovating to win the consolidation, and we are mindful of the near-term environment, and we are confident we can outperform. Ultimately, it's all about the customer, and no one is better positioned than Dell Technologies to be our customer's best, most trusted partner on their digital transformation journey. With that, I'll turn it over to Tom to talk about our Q2 results.