Dell Technologies Inc.

Good afternoon and welcome to the fiscal year 2021 third 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 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 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, Erica, and thanks, everyone, for joining us. With me today are our Vice Chairman and COO, Jeff Clark, and our CFO, Tom Sweet, along with 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 otherwise indicate, 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 can differ materially from those projected due to a number of risks and uncertainties which are discussed in our web deck and SEC filings. We assume no obligation to update our forward-looking statements. Finally, before I turn it over to Jeff, I'd like to touch on the amended 13D we filed in July regarding our exploration of potential alternatives with respect to our ownership interest in VMware. We believe a tax-free spin could drive significant shareholder value by simplifying our capital structures and enabling greater strategic flexibility while maintaining a strong commercial partnership between Dell and VMware. Both Dell and VMware have publicly highlighted mutual interest and the potential benefits of such a transaction and have engaged on key work streams, including mutually beneficial commercial arrangements and Dell's expectation of a substantial cash dividend to VMware stockholders in connection with such a transaction. As a reminder, the earliest a transaction could close would be September 2021, with an announcement coming between now and then, assuming we can come to an agreement. There is also the possibility that we will not do anything and we would maintain our current ownership structure. With that said, we will not address the discussions any further or take questions related to this topic on today's call. Now I'd like to turn it over to Jeff.

Thanks, Rob. We have now been through three quarters of navigating an uncertain and at times difficult year. We have been tested across our global society, across industries and companies, and as teams and as individuals like never before. I could not be prouder of how the Dell Technologies team has responded. We're growing, innovating, and delivering for our customers in extraordinary ways. When and how they need us most. Through it all, one thing is clear. The mega technology trends that we have long called out are accelerating, and these trends are highly favorable to Dell Technologies. We are uniquely positioned to win in the growing markets of 2020, and we are making the right investments and innovating to capture the growing markets of tomorrow. For the vast majority of companies, digital transformation is now a must-have and accelerating. We see it in our customers' interactions. We see it in our data. In October, we released the third installment of our latest Digital Transformation Index, where we have been tracking digital transformation patterns of more than 4,000 customers since 2016. Our 2020 index revealed that 80% of organizations globally have fast-tracked digital transformation programs, and when compared to the 2018 study, nearly 25% of respondents have progressed from being digital laggards or followers to to a more advanced stage in their digital journey. This is great news for our customers' future and more broadly for the global economy. And it's also great news for us, with major investments going towards edge, distributed work, and modern consumption, cybersecurity, 5G infrastructure, digital experiences, and data management. Together, these trends are taking us to a future that is highly distributed, with distributed workforce, learning, and healthcare Enabled by distributed technology infrastructure, computing, analytics, and real-time outcomes at the edge, organizations investing today will have an advantage tomorrow, and they are turning to Dell Technologies as their strategic partner. Let me use a real customer example to talk about the edge. FedEx CIO Rob Carter was with me last month at Dell Technologies World, where we talked about how latency, decentralized computing, and data-driven insights they need to lead in the Internet of everything. FedEx uses an array of our hybrid cloud technology to bring simplicity and speed to the edge, including VxRail, VMware, and Pivotal in cloud-native environments, all to keep our world connected and moving. Now we are building on that relationship, working with FedEx and Switch, a leading exascale data center company, to develop technology hubs across the United States to bring IT resources closer to where the applications and data reside, enabling the benefits of 5G and AI technologies. This is a perfect example of how we take our deep IT experience and make it easy for customers to manage data and workloads across all of their operations. We also had another exceptional quarter in CSG. and what has become a multi-quarter trend as customers turn to Dell to enable the remote and hybrid workforce. Our wide range of PCs, including Chromebooks, are providing students everywhere with the essential learning tool they need. The pandemic has expanded consumers' use of online purchasing, which is a big area of focus for us. While we did lose share in calendar Q3, this is a result of a strategic decisions we made earlier in the year. We've moved from retail to our advantage direct and online selling for consumers. Our strong financial performance reinforces that strategic decision, and we believe this is the right long-term balance for our business. And finally, customers are looking for a choice in the way they consume and pay for IT. That's why at Dell Technologies World, we announced Project Apex to unify our as-a-service and cloud capabilities. We have committed to providing all of our solutions as a service and launched the Dell Technologies Cloud Console, enabling a consistent cloud operating model across a customer's entire IT environment, from the edge to the core to the cloud. In the past year, we've seen increased interest in our as-a-service and flexible consumption offerings. And this type of transformation expands recurring revenue, providing even more stability as we navigate industry seasonality, mix, and demand. The accelerated digital transformation we are experiencing today plays directly to the thesis we had in creating Dell Technologies. We are number one in everything, all in one place. We have the breadth and diversity to lean into pockets of growth when and where they happen, and we can deliver consistent long-term returns as a result. Now, let's move into the third quarter performance and the team's strong execution. Revenue was $23.5 billion, up 3%. And operating income was up 12% to $2.7 billion, or 11.6% of revenue. As I mentioned earlier, our client solutions group had an outstanding quarter, delivering record shipments, revenue, and operating income. Revenue for Q3 was $12.3 billion, up 8%. The PC is the essential device for this remote everything environment we're living in today, as evidenced by the ongoing demand we are seeing for work and learn-from-home solutions, along with double-digit growth in education, government, particularly in our North America federal business, and the consumer vertical. Demand for notebooks remains strong, with orders up 24%, driven by double-digit orders growth across the majority of our commercial and consumer notebook lines. In addition, orders for commercial Chromebooks more than doubled. Our consumer business had another impressive quarter, primarily driven by our premium XPS and Alienware brands, which combined were up 43% on an orders basis. The consumer direct business was up 47% on orders, and our consumer direct online business was up 62% based on orders as we seized the opportunity, what we believe is a long-term, multi-year trend towards e-commerce. Infrastructure Solutions Group revenue was $8 billion, down 4%. While the overall market for ISG has been soft this year, we are seeing improvement. Server demand improved, and PowerEdge orders were up single digits sequentially. Large enterprise remained challenged, but we saw better velocity from our small business and medium business customers. Storage demand was mixed. We were pleased with our relative performance given current Market dynamics, bright spots included PowerMax and hyper-converged infrastructure, each growing double digits in the third quarter on an order's basis. PowerStore is gaining traction. We delivered nearly double the order's revenue achieved in the second quarter. Albeit on a small base, we are still early in the ramp. We are pleased with PowerStore progress and are seeing early wins as customers transition from existing Unity, SC, VNX, Ecologic, and Extreme IO products. And more than 15% of the PowerStore customers are new storage buyers. We feel great about the future of PowerStore and our storage leadership. Our VMware business segment had another strong quarter, delivering revenue of $2.9 billion, up 8%. The VMware partnership and teaming remain strong, and our cloud capabilities continue to build. Year-to-date. performance has been amazingly consistent in the light of what has turned out to be an incredibly challenging macro environment. We have delivered $68.2 billion of revenue flat year on year as we executed against growth opportunities. And we delivered $7.5 billion of operating income and $8.9 billion of adjusted EBITDA. In the first quarter, we saw a dramatic surge from large enterprise, healthcare, and the financial sector for work, from home, and business continuity solutions. This drove strong growth in our commercial client and with our VMware solutions. Towards the end of that quarter, we started to see signs of a slowdown in small and medium businesses. Then in Q2, demand shifted to government, education, and consumer as remote work continued and learn from home needs soared. Similar to GDP and given our third quarter results, our second quarter appears to be a trough for the year. In Q3, strength in government, education, and consumer continued, and it was encouraging to see double-digits order growth from our small and medium business customers, given the number of jobs this sector creates around the world. And though some companies have moved to the public cloud for certain workloads or immediate business continuity needs, hybrid cloud momentum is building as the longer-term answer. A new operating model where workloads will be distributed between public and private clouds, traditional data centers, and increasingly out to the edge. Like Australia's largest retailer, Woolworths, where we recently announced a deal to enable their hybrid cloud strategy by bringing together their public and private clouds onto a single platform, utilizing as a service with Dell technologies on demand. With our hybrid cloud capabilities, the depth and breadth of our portfolio, industry-leading global supply chain, go-to-market, and services reach, we have significant competitive advantages to be the partner of choice. Put this all together, and you get a track record of consistent execution, profitable growth, disciplined share gains, innovation, and financial returns, regardless of the environment. Looking ahead. I see an extraordinary opportunity as technology continues to drive our society forward and Dell Technology fulfills its role as the essential technology company for the data era. And with 5G, data-driven insights, automation, and embedded intelligence, we will see an explosion of edge computing in smart cities and transportation, factories, hospitals, and schools around the world. We know how to get technology into the real world at scale, providing a consistent approach to infrastructure, data, applications, and security across the entire environment from multiple clouds to the edge. What the last nine months has shown is that Dell Technologies is resilient, ready to meet the needs of customers today and for what's to come. According to IDC, the expected compound annual growth rate for IT, excluding telco, through 2024 is 4.7%. It's clear the digital future is bright. We're excited about the opportunities that lie ahead. Now I'll turn it over to Tom to look at the financials.