Dell Technologies Inc.

Good afternoon and welcome to the fiscal year 2021 second quarter results 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 a 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 the question and answer session. If you have a question, simply press star, then 1 on your touchtone keypad at any time during the presentation. I'd like to turn the call over to Rob Williams, Head of Investor Relations. Mr. Williams, you may begin.

Thanks, Holly, and thanks, everyone, for joining us. With me today are our Vice Chairman and COO, Jeff Clark, our CFO, Tom Sweet, and our Treasurer, Tyler Johnson. Our press release, financial tables, web deck, prepared remarks, and additional materials are available on our IR website. The guidance section will be covered on today's call. During this call, unless we indicate otherwise, all references to financial measures refer to non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income, earnings per share, 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 and that VMware historical segment results have been recast to include pivotal results. Additionally, 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 and SEC reports. We assume no obligation to update our forward-looking statements. Finally, before I turn it over to Jeff, I want to address the amended 13D that we filed on July 15th, disclosing that Dell Technologies is exploring potential alternatives with respect to its ownership interest in VMware. including a potential spinoff of its ownership interest to Dell Technologies stockholders or maintaining the status quo. We believe a spinoff could benefit both Dell Technologies and VMware stockholders by simplifying capital structure and corporate structure and enhancing strategic flexibility while still maintaining a mutual beneficial strategic and commercial partnership. With that said, we will not address the filing or any further or take questions related to this topic. Now, I'll turn it over to Jeff.

Thanks, Rob. We are finishing up day 171 working remotely at Dell Technologies, and the novelty of the new normal has worn off. Michael sent a note to our team members earlier this month that captures the situation quite well, and I quote, this is going to be a marathon, and it's going to be uneven and frustrating at times. What I can tell you and what you will see in our results today is is that our team has continued to deliver in extraordinary ways in this unprecedented environment. I'd like to provide several examples of our team's resiliency, tenacity, and adaptability, the grit that is inherent in our Dell Technologies culture. These examples demonstrate why I remain so optimistic about the future of the company and our ability to consistently deliver no matter the obstacle. We are still largely working from home. We're not alone in this dimension, as we will highlight in our Q2 results. We have moved beyond work as a location. COVID-19 has made one thing clear to us. Work is something you do, an outcome, not a place or a time. And it takes teamwork and a culture that prioritizes outcomes and results over effort. Though we have team members juggling many challenges, parenting, caregiving, citizens and countries still grappling with surges of the pandemic, our employee engagement and productivity is at an all-time high. We are seeing a human transformation right before our eyes, emphasizing trust, empathy, patience, and flexibility that will serve society and business long after these tough times are over. While working from home and navigating a turbulent market, We continue to drive innovation in new and different ways. Over the course of nine weeks in Q2, we had nine product and solution launches, all while working remotely. We now have completed the modernization of the ISG portfolio, and the pipeline continues to fill with more innovative solutions and products to meet the needs of the new normal. We have not broken stride with customers. We may even be building deeper relationships than we were pre-COVID. Customer engagements have become more frequent, richer in content, while reaching a greater audience within the accounts. Customers bring more decision makers and technologists to executive briefings, and we respond with deep solution architecture and engineering to deliver better business outcomes. And right in the middle of this global pandemic, we paused to listen to our team members and society at large, given what happened a few days before we were last together, the murder of George Floyd. What we heard through a series of listening sessions was consistent. Our black team members want better representation, equal opportunity, advocacy, and to see measurable progress against our diversity and inclusion 2030 goals. That's what we all want. and the work of real change within our now virtual walls is well underway. I share this as a backdrop for the differentiated results we will report today. Our results come from a real competitive set of advantage, but also real cultural differentiation and resiliency. That is why I'm excited about our Q2 performance and optimistic about our long-term trajectory. What we know from our conversations with customers is technology has never been more important. Similar to what we saw in Q1, customers' top digital priorities are enabling learn and work from home and creating automation and agility across IT for consistency and resiliency of operations. While the pandemic didn't start the remote learn and work trend, it is certainly accelerating it. take the financial sector and its need to enable secure work-from-home solutions. A major bank in EMEA had to move 200,000 of their 280,000 employees to work from home. To give them the managed access to application and data they needed, we implemented a VDI solution based on VMware Horizon, VMware Cloud Foundation, VxRail, along with 200,000 VDI clients, and 2,000 servers and end-to-end services, all from one partner, fully integrated to help the bank get their employees up and running securely. After all of this investment to enable remote everything, we will never go back to the way things were before. Here at Dell, we expect on an ongoing basis that 60% of our workforce will stay remote or have a hybrid schedule. where they work from home mostly and come into the office one or two days a week. And we are not alone. Recent data shows that work from home is likely to increase by 20 points across all size companies across all sectors. I think that is understated. And it will take more technology to ensure productivity and collaboration from anywhere. In our 10 years as a connected workplace, we've learned that it's a combination of technology, the right tools for workforce enablement and culture. And we are sharing these best practices with our customers as they embark on this journey, a journey that will be transformational for customers and as the only player to be able to bring real solutions that connect the edge, core, and cloud will benefit Dell Technologies. Also showing up in our performance is demand for simpler, more agile IT across multiple clouds. Companies rushed towards the flexibility and ease of public cloud, but are now looking to hybrid cloud for a longer-term answer. Essentially, customers want a new operating model, one that consistently delivers the best of all clouds, private, public, and edge. One large hospital system is a great illustration. This customer wanted to modernize their environment to better support electronic medical record and imaging needs. They were happy with their public cloud implementation. but needed seamless integration with their storage solutions to pull down data from the public cloud quickly and affordably. We delivered PowerMax and PowerScale in a managed service facility connected to their public cloud, allowing them to better manage and control their data. Because the storage is directly and securely connected to the public cloud at the source, data costs are reduced and latency issues are nearly eliminated. This is a great example of how we're building our entire portfolio for customers' cloud needs with outcome-based decision-making top of mind. Similar to cloud, customers also want to consume more technology as a service, letting them pay for only what they use and to move fixed costs to variable costs, which is critically important right now given the environment. we continue to offer Dell Technologies Cloud on the most broadest infrastructure portfolio with the new Dell EMC PowerScale storage systems and Dell EMC Ready solutions on VMware Cloud Foundation. Customers are finding immense value in Dell Technologies on-demand flexible consumption models. Customer demand for these models prompted us to expand our offerings to include Brazil, Chile, Colombia, India, and China. That is why we are doubling down on both Dell Technologies Cloud and Dell Technologies On Demand. Now let's move to our second quarter results. Despite a dramatic deceleration in U.S. GDP during the second calendar quarter of the year, our team stayed focused on the customer and deliverer. Overall, we had a solid quarter relative to the macro environment with revenues of $22.8 billion, down 3%, an operating income of $2.6 billion, or 11.5% of revenue. Our client solution group delivered revenue of $11.2 billion, down 5%. In our consumer business, we outperformed, fueled by another outstanding quarter from our consumer direct business that was up 56% based on orders. and our consumer direct online business was up 79% based on orders. We saw strong double-digit growth across all consumer notebooks and gaming systems, driven by our premium XPS and Alienware brands, which were up 25% on an order's basis. Overall, notebook momentum continues, with orders up 8%, driven primarily by growth in consumer and commercial notebook needs at home and for remote work and learning. Infrastructure solution revenue was $8.2 billion, down 5%. We saw double-digit orders growth for data protection and VxRail in the second fiscal quarter, and mid-single-digit orders growth for high-end storage. These are all sectors where we hold the number one share position by a large margin and continue to have opportunity for growth. And while it's a little early to comment on PowerStore performance, we continue to hear positive feedback and feel confident that the pipeline will drive profitable share gains, specifically in mid-range segment this year. Our VMware business segment had another strong quarter, delivering $2.9 billion of revenue, up 10%. In addition to the depth and breadth of our portfolio, a big driver of our differentiated performance is our distinctive direct and channel coverage model of the entire IT market. In the second quarter, demand from government stayed strong, while education demand ramped with orders up double digits for both verticals. Small and medium business demand improved through the second quarter as businesses opened back up once government restrictions were lifted. take these results and combine them with the demand that we saw from large enterprises, healthcare, and the financial sector in QN, and our first half was strong. We delivered $44.7 billion of revenue, $4.8 billion of operating income, and $5.7 billion of adjusted EBITDA. We made the appropriate tough decisions around our cost environment in the first half to limit spending and to protect liquidity given the uncertainty of the demand environment. Our track record of consistent profitable growth, share gains, innovation, and financial returns reinforces our strategy is working and doesn't change even amidst the uncertainty. We are focused on winning the consolidation in our core markets, innovating and integrating across Dell Technologies to create the next generation of infrastructure, and to do both while strengthening our distinct advantages as a company. our go-to-market capabilities and global services footprint, our supply chain, our product breadth and integration, our financing, and the strategic work we do with VMware. Over the last three fiscal years alone, CSG and ISG have delivered a combined $230 billion in revenue and $18 billion in operating income. Over the last three calendar years, we have gained 330 basis points of share in commercial clients, 510 basis points of share in mainstream servers, and 120 basis points of share in mid-range storage. We have the right portfolio and the go-to-market plans in place, and the teams are focused on driving relative share. Back to why I'm so optimistic. The long-term trends in our business are favorable, and our sources of advantage are real. Though there is a high degree of uncertainty right now, our strategic position and the secular technology trends create long-term growth opportunities for us. We've been talking about the fourth industrial revolution for a while, and now the pandemic has accelerated its arrival. Organizations have had to pivot quickly. First, to work from home and learn from home, and now businesses are taking this opportunity to reinvent their models online for a more connected, digital, automated, data-intensive, and distributed future, a future that is hybrid. The reimagination of work as an outcome, not a place, reinforces the value of hybrid cloud and positions hybrid as the optimal cloud model to meet the new demands of a fluctuating world, essentially creating a hybrid cloud for a hybrid workforce. utilizing cloud as the modern IT foundation to deliver consistent experiences and economics across many places, workloads, and people reside. Dell is uniquely positioned to deliver in this hybrid reality. Public cloud, sure, but also real growth and resiliency in private clouds and on-premise infrastructure. We have a history of investing in new businesses and technology solutions that layer into our portfolio and spur growth. Our merging technologies around widespread connectivity with 5G, data-driven insights at the edge, and expanding workloads in a hybrid cloud future will each create opportunities for long-term growth and value creations at Dell Technologies. Increasingly, customers are turning to Dell Technologies to shape this digital future. Given the unique advantages we've talked about, combine these advantages with our purpose-driven culture and track record of consistently growing, Our core businesses, while investing in the long-term future, I like our hand. Now I'll turn it over to Tom for a look at our financials.