Dell Technologies Inc. Class C Common Stock

Q3 2022 Earnings Conference Call

11/23/2021

spk_0: that afternoon and welcome to the fiscal year twenty twenty two third quarter results conference call for delta technologies incorporated i'd like to inform all since this call is being recorded at the request of gel technology that broadcast is the copyrighted property of del technology incorporated any rebroadcast others and for nation and whole or part without the prior written permission of cell technology is prohibited following prepared remarks we will conduct a question and answer session if you have a question simply prep dar than one on your telephone phone keypad at any time during the presentation i'd like to turn the call over to robin williams had of him back to relations with your williams you may begin
spk_1: thanks to my area and thanks everyone for joining us with me today or jacquard joke when tom sweet and tyler johnson or press release financial tables web deck prepared remarks an additional materials are available on or i our website the garden section will be covered under a call during the call and let we otherwise indicated all references the financial measures refer to non gap financial measures including non gap revenue gross margin operating expenses operating income net income earnings per share even dog adjusted ebitda adjusted free cash flow as well as an estimated non gap revenue operating income and a ps from continuing operations a reconciliation of these measures to their most directly comparable got measures can be found in our web deck and press release also know that all growth percentages refer to year over year change unless otherwise specified certain items contained in earnings materials are presented on a continuing operations basis giving back to the vm more spin off be the mounds represent management's current estimate of continuing operations financial results final amounts presented on a continuing operations basis will be provided and are born ten k for fiscal two thousand and twenty two and subsequent forms and que filings amounts are subject to change with no obligation to reconcile these estimates additionally i'd like to remind you that all statements made during the call that relate to future result than 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 just got than our were deck and as if he filings we assumed no obligation to update are forward looking statements now i'd like and turn over a shock thanks rob and hi everyone thanks for joining us today we're three quarters and a wobble proved to be a historic here for now as michael said at our september analysts meeting were just beginning to write the next chapter of the dell technology story during that meeting and with industry analysts at our annual del technologies summit in october we shared our view on the i t industry our strategy going forward and our view on long term value creation we'd emphasize for key points from those sessions first we are uniquely positioned in the data and multi cloud era with durable it images market leading positions and the financial flexibility to drive sustained profitable growth second are i have three and cst core businesses are attractive they said enlarge markets estimated at six hundred and seventy billion and tam and are projected to grow in the low single digits over the next few years we have ample had room for growth a track record of gaining share and are pursuing a differentiated strategy to consolidate and modernize our core business including through our apex branded as a service solutions in csg are different chasing comes from are you need direct sales motion and strategic channel program our focus on the most stable and premium part for the pc mark get and are strong attach motion which captures the value around the device as customer seek exceptional experiences and improved productivity by buying more software and peripherals and fry g our leadership positions give us a unique ability to solve customer problems and data proliferates and infrastructure becomes more distributed hybrid and software driven where your number one in x eighty six and mainstream server revenue and we are also number one and all external storage categories with the most extensive and diverse george portfolio in the industry or storage business address addresses each segment of the market with a differentiated architecture optimized for workload needs and of course our alliance a vm where is unique in the industry we found a first and bath technical and commercial motion that enables faster time the market and differentiated jointly engineered solutions the third point we've highlighted the attracted new growth opportunities that surround our business six hundred and fifty billion in additional market opportunity growing at an eight percent keg or through twenty twenty four be their markets where we have a unique right to win and are driving real innovation today markets like telco an edge to name just two examples and laugh lee we are firmly committed to creating shareholder value with an attractive long term financial framework balanced capital allocation strategy and track record of delivering consistent results in any environment our year to date and que three financial results along with our steady strategic progress offer compelling proof of these points and our long term strategy let's start with our core markets and execution demand for are solutions remain strong as global economic recovery and widespread digital transformation reset i t demand to higher level of against that backdrop and despite the difficult supply environment we again delivered great performance and cute three was strong growth and all three business units all regions and broad strength across our commercial pc server and notably most of our storage portfolio we gain share and servers storage
spk_2: and pcs according to the latest reported id see results
spk_1: as we look forward all signposts point to continued strong market demand and we intend to continue winning and the consolidation and gaining share over the long term our strategy is not just the win and the consolidation but also to modernize our business and are apex branded solutions are important that out future there would it's still early days were pleased with our technical progress and know momentum across our family of as a service offerings which will continue to expand going forward for example in october we announced apex cloud services with the and were cloud a terrific example of our first and best alliance with me and were that solution gets organizations the ability to move workloads across multiple cloud environments and scale resources quickly with predictable pricing and transparent costs turning to our growth engines as i said edge and telecom are too perfect examples of the type the markets we're looking to disrupt and we delivered a steady stream of innovation in these spaces and cute three for the edge we introduced v x rail satellite nodes and updates to are streaming data platform for telecom we energy new bare metal orchestrator software multiple reference architectures to accelerate around and ads deployments and a new service offering called respond and restore for telecom were encouraged by our ability to simultaneously deliver in our core while driving innovation a new growth markets and we will continue to pursue adjacent growth wow market positions customer relationships and durable competitive advantages give us a unique right to solve customer problems in the data and multi cloud era let me conclude with our commitment to long term shareholder value since the september meeting we have had a few major milestones in our efforts to simplify our corporate structure and create financial flexibility to drive future growth we complete the transaction that's than off the and were and we closed the bumi divestiture each resulting in a more simplified corporate structure in addition we have returned to an investment grade corporate rating which opens up the opportunity for a more balanced capital allocation strategy to sum up we remain confident that are market positions articulated strategy durable competitive advantages commitment to discipline capital allocation and importantly our culture and track record of execution are great for customers and our team members and create an attractive near and long term opportunity for shareholders q three with a great example of these winning elements coming together and we're just getting started with that let me now turn it over to jeff
spk_3: thanks chuck and hello everyone i started off last quarter's call by saying and this incredibly unpredictable environment we delivered our best second quarter ever we now have delivered our best third quarter ever and we are on track for an historic here the conference role the change over the past eighteen months is the unprecedented demand for technology
spk_4: it is clear technology is more essential the day than ever before
spk_3: we are clearly winning in the core and this keeps his at the center of our customers i t and digital agendas three quarters into our fiscal year del technologies has seen a record or revenue as seventy nine billion dollars up sixteen percent along with record operating income of a point four billion dollars up twelve percent for the third quarter we deliver twenty one percent of revenue growth as we saw broad days growth across our business similar to last quarter demand remains a had a revenue growth as we continue to navigate industrywide supply constraints driven primarily by integrated circuits
spk_2: we shipped a record number of products globally into three and have leveraged our strikes a multi decade operational excellence
spk_3: product design flexibility coupled little less complexity and are direct model with it's high quality demand signal and ability to shape the man we're also delivering and our commitments innovation we launched a number of new offerings thirty four
spk_2: out of our growing telecom business we introduce their metal orchestration software to give cloud service providers a flexible and cost effective way to deploy an operator open cloud native network infrastructure
spk_3: in storage we announce network attached storage software and hardware innovation for power scale providing organizations with more flexible consumption management protection and cyber security capabilities additionally we launched the industry's first and the n n the m tcp san solution featuring smart fabric stores software which provides the intelligence for automated storage connectivity at scale and in client we are pairing windows eleven with our del optimize are built an intelligence to deliver the most personalized productive computing experience on the world's most intelligent business pcs we believe the introduction of windows eleven will continue to drive demand and pcs lastly as chuck mentioned our first and best partnership with them were continued to demonstrate our joint ability to deliver differentiated offers with the announcement of apex cloud services with the a more cloud had the in world it's multi cloud done right
spk_2: turning to our segment results
spk_3: or infrastructure solutions good continue to see positive momentum as enterprise i t spending rebounded and are multi your investments in the portfolio took hold ice tea delivered revenue growth of five percent to eight point four billion dollars which was our third consecutive quarter of your of your growth customers across all regions are investing in i to infrastructure focus on multi cloud solutions and accelerating digital transformation disinvestment is driving very strong demand for computer and storage operating income was eight hundred and ninety two million dollars or ten point six percent the revenue server and networking revenue was four point five billion dollars at nine percent or fourth consecutive quarter of growth those server and networking demand were exceptionally strong and ahead of revenue growth throughout the quarter or fifteen g's server app accelerated over the quarter and we continue to see positive momentum and either you workloads
spk_2: we are pleased with our stores performance and que three where we saw storage return to growth with revenue up a one percent to three point nine billion dollars are overall stores demand with strong driven by orders growth of forty seven percent for hyper converts infrastructure twenty six percent for data protection and
spk_3: eighteen percent from mid range storage momentum in our mid range storage business continues to be led by power store syrians twenty twenty one innovator award for mid range storage where twenty three percent a power store customers were new to del storage and twenty eight percent will repeat buyers our stores the fastest ranting storage product in our history
spk_4: dell continue to lead the transition to start for define data center this quarter with customers leveraging the power of the x rail and powerful acts as the foundation of their multi cloud strategy
spk_3: for example lows is bringing more power and resiliency to the edge deploying the x rail to handle i t demands and each of it's more than twenty two hundred home improvement and hardware stores in the united states and canada helping the company deliver new capabilities and services that allow it's employees to better serve customers during this holiday see
spk_5: and and beyond
spk_2: turning to csg we had another record quarter driven by the global economic recovery and the new distributor work environment required modern devices and advanced productivity solutions
spk_3: csg delivered revenue of sixteen point five billion dollars which was up thirty five percent driven by strong demand across the board commercially consumer notebooks and desktops and across all regions commercial revenue was a record at twelve point three billion dollars and que three up an unprecedented to forty percent
spk_4: we have reached record commercial revenue for each of the last three fiscal years and are on track for another strong year consumer revenue was a record at four point three billion dollars up twenty one percent driven by strong growth and notebooks as well as premium in gaming desktops our team did a good job navigate
spk_3: eating the inflationary component cause and logistics environment resulting in a record cst operating income of one point one billion dollars up fourteen percent and six point nine percent of revenue or long term focus on a higher value and stable segments of the client market is what helps drive are consistent results approximately eighty per cent of the industry's revenue and nearly all of the industry's revenue growth has come from commercial pcs and premium consumer pcs and that is where we are focused we are driving profitable share games over the long term especially in commercial client where we've gained nearly four hundred basis points of share for calendar to three according died he see for total client we gain more than three hundred basis points as sharing calendar to three outgoing outgrowing the next for pc dangerous combined and addition we believe our a leading share position and displays of further expanded during calendar to three based on preliminary i d c data will continue to leverage are strong attach motion to capture our share of the opportunity in the broader pc ecosystem our client this has delivered dependable and consistent grow throughout multiple cycles and we believe trends will remain healthy given businesses around the world are increasing fully digitizing and utilizing technology to increase productivity and drive innovation to close we are focused on driving consistent growth in our core businesses where we build customer trust and crate and sites that power innovation and we're expanding into new growth businesses where we have a unique right to win with are durable advantages like are broad customer each war class supply chain and modern services delivery network i believe we are well positioned to win today and into the future millimeter and the call over to done
spk_1: thanks jeff the digital trends in real time decision making at the edge or tell ones for infrastructure business and we continued to see differentiated opportunities and how we target and execute within the pc stays these trends along with our strategy and durable advantages lead us to be optimistic about our law
spk_6: long term growth prospects
spk_1: we continue to deliver strong results through any environment and the third quarter with another example of this performance stability we drove strong growth in revenue delivered solid profitability growth despite some challenging dynamics
spk_6: for the third quarter we saw record revenue of twenty eight point four billion up twenty one percent driven by growth and all three business units that by another record quarter for csg and continued growth and highest g
spk_1: i was pleased to see the improve demand growth and storage although it did not all flow to the piano given timing and deferrals gross margin was a point four billion up eight percent and was twenty nine point six percent of revenue gross margin is a percentage of revenue was three hundred and forty basis points lower primarily due to a revenue mix shift to csg along with an inflationary cost environment as we told you last quarter's call component cause for the a headwind que three particularly impacting are elevated units in the
spk_7: backlog
spk_1: we took various actions around pricing and configurations as we navigated through the quarter because of the higher cost in general as we discussed in the past we will realize a portion of the benefit of these price increases in the quarter in which we take the pricing options as well as and future quarters operating expense was five point five billion up ten percent as we invest for long term growth and are variable costs such a sales compensation and bonus a running ahead of prior your levels given are strong performance as all as we will personally manager spending and expenses even as we continue to invest in the business operating income was a third quarter record at two point nine billion up five percent and ten point one percent of revenue a decline in interest expense dude are reduce debt balances and a decline in are effective tax rate contributor to the eighty percent growth of consolidated net income to two billion and seventy percent growth in deluded earnings per share to two dollars and thirty seven cents adjusted ebitda with three point four billion up six percent that twelve percent of revenue for the trailing twelve months adjust viva was thirty point eight billion up forty percent or recurring revenue is approximately six billion a quarter of thirty percent or remaining performance obligations are are appeal is approximately forty seven billion up twenty six percent and includes deferred revenue plus committed contract value not included in deferred revenue excluding the and were gels or appeal is approximately thirty six billion up thirty two percent and up three percent sequentially the sequential girl was driven by an expanded eyes to backlog job financial service originations and cute three or two billion down seven percent given a number of customers have opted to use cash to fund their technology purchases gfs into the quarter with twelve point six billion in total mean it's assets flap year over year now turning toward balance sheet and capital structure which excluding dfs debt is now fully unsecured
spk_6: for cash flow continues to be strong and as promised we have repaid substantial debt and deliver the balance sheet
spk_1: as it today we have paid down approximately one third of our debt balance from the into the last fiscal year and we have paid down fifteen point nine billion of core and margin loan debt we are now solidly an investment great company haven't received upgrade small through the major credit rating agencies for the third quarter cask for from operations was three point three billion of nine percent and excluding the aware it was two point two billion on a trailing twelve month basis casual from operations was thirty point one billion up forty five percent and excluding the aware it was a point five billion up seventy six percent i'm happy with how we managed are working capital although we did see higher inventory levels given to supply chain dynamics and component availability we expect him a toy balances to come down as the supply chain situation improved over the next year cashin investments into the quarter at twenty four point two billion in approximately eleven point five billion of for dell excluding be aware finally as a last friday november nineteenth we have repurchased approximately two million shares our intent is to continue buying shares going forward programatic like as we managed dilution and opportunistically return capital to shareholders before i talk to our outlook like to provide a view of our third quarter financial results on a continuing operations basis which is how prior periods will be recast beginning in the fourth quarter that explained in appendix see of our web deck we currently estimated three revenue from continuing operations was twenty six point five billion operating income was two billion and deluded earnings per share was one dollar and sixty nine cents it's important to note that are continuing operations financials differ from the pro forma financials we've heard least to date particularly in the treatment of interest in other and and diluted share count please refer to appendix see of our web debt for further details now to our outlook the macro economic environment is healthy across multiple sectors including i keep or demand velocity reflects that businesses continue to prioritize their digital transformations tell me customer needs and improved productivity semiconductor shortages supply chain challenges heightened logistics cost as well as inflationary input past are common themes across the economy will leverage are durable competitive advantages to adapt and deliver consistent predictable results over time ah provide more guidance this quarter than is typical to help facilitate are reporting transition to i posted the him were spin basis as a reminder or fourth quarter financial results will include the i'm were reseller revenue forty four on continuing operations basis we expect revenue in the range of twenty seven billion to twenty eight billion which implies a twelve percent to sixty percent growth we expect gap operating income between one point six five billion and one point seven five billion and non gap operating income between two point two five billion in two point three five billion which is in line with historical trends operating income margin would be up sequentially and give given queue for his is seasonally strong storage quarter we expect it continued net inflationary environment and in estimating modest increase in our backs as we invest alongside our to song topline growth
spk_6: below the operating income line you should assume seventeen percent plus or minus one hundred basis points for non gap tax rate
spk_1: deluded shares in the range of eight hundred and ten million to eight hundred and twenty million additionally we will benefit from lower interest expense given the debt reduction we discussed we expect deluded gap earnings per share between ninety seven cents and a dollar one dollar and sixteen cents and non gap deluded earnings per share between one dollar and eighty five cents and two dollars and five cents i'll provide guidance for fiscal twenty three on or to for earnings call however i reiterate that we expect to see growth and both are csg and ice tea businesses we expect revenue growth and gps growth to be consistent with our long range financial framework which we discussed during our analysts media in said
spk_8: timber
spk_1: and closing a quick reminder he has she remains an important focus for dell technologies and we have a long legacy of engagement with investors he to mary's our corporate purpose and commitment to value creation to help move societal and business progress forward together he could find more details on slide nineteen of the web deck so i look forward on carpet in our ability deliver consistent and predictable financial performance across any economic r i t spending cycle with our track record of strong operational strategic execution in are durable competitive advantages i'm optimistic about the long term growth prospects for dell we're focused on executing our strategy to consolidate a modernized the core and build new growth businesses that enabled a multi cloud future along with delivery an attractive long term financial model of three to four percent revenue growth and six percent or better to looted earnings per share growth but that are turning back to rob to begin culinary thanks tom let's get can i left it protects them to ask one question until hours to get to as many of you as possible to my area can you please enter is the first question
spk_0: upper class san from funny sat the nazi with bernstein
spk_2: ah yes thank you for taking the question i was wondering if you could comment a little bit on the dynamics for operating margins and i g they were down ninety basis points sequentially and forty basis points year over year at despite improving volumes and ready to come meant ah on night you know sort of order growth relative to a revenue growth for both storage ah and for ah and for servers and networking thank you
spk_1: a tie it's tama need a me sort of take it to how we thought about it and what were stained self from an art margin perspective related to i as to crack the highlighted up or down quarter on quarter about ninety basis points and eleven five to ten point six i would remind all of you and reminds you tell you that at last quarter we talked about the increase component cause i would impact us includes rate and we clearly saw that aren't as we highlighted that we thought you know my overall operating margin guidance or operating income guide last quarter was to be wanted to percent sequentially i think well to the came on at to present this quarter we did have had once with component cause particularly in the service based on particularly what the his i mentioned again last quarter with the backlog i was sitting at sitting and backlog of or fixed well which probably did try to adjust price on some of those units were we did have some negative are some headlines i would say on those shitless as
spk_6: our self that was the principal dragon operating margins in eyes to follow orders growth don't really get into demand conversations here but i would tell you that we saw healthy demand growth and both servers and in storage really pleased with what velocity of those to sticker lines of business which is why
spk_1: yeah i highlighted in the rpr that a backlog dynamics that job archaeology pain and because of the backlog dynamic principle in i ask a soft pleased with the velocity and i get on employees of the overall environment as we see the demand environment as we move forward
spk_9: i think tony
spk_10: attack next class fans
spk_0: katie cbd with morgan stanley
spk_11: yes thank you i wanted to follow up on i sj because comedy said made note comments about i s t backlog rallying and of how strong storage to me and not necessarily converting to the piano and a quarter can just talk about the sake of the man linear it he you know why some of that revenue with past ten and how you see it flowing through in a january quarter particularly as it relates kale and whether we should expect an acceleration and in storage revenue growth
spk_1: keller katie zelda relates to on storage to me and know i think we've talked about the past that the storage demand tends to be more back and loaded in the quarter we clearly saw that again this quarter perhaps a bit more than in prior quarters and is result of that are we were not able to convert that backlogged or revenue so much are that much of that order demand revenue i should say so that was clearly i had when down also remember that with in my storage solutions that i'm selling i've got a high from high degree of software and services that is usually get wrapped up into malta multiyear arrangements that result the deferred to the balance sheet self a got it which i think get a good thing by always i don't want to say that's a negative because ultimately that that that gives us revenue stream in the future but what so that was the principal had one that we saw both rebuilt backlog and storage as a result of the linear aridi we also have differed f fair amount of revenue the balance sheets has given the service service catch rate as well was a software content within the than the storage
spk_3: maybe tom to add a little bit too that were encouraged by the storage quarters read because in the most strategic category softer define storage we grew forty seven percent ned range orders group eighteen percent which is now the fourth consecutive quarter armed major business has grown at on top of taking sharon black
spk_4: gg to data protection grew unstructured data room and our entry level orders group as well in stores but hey we remain encouraged by the orders growth we had the conversion that tom walk through that we have to continue to work on but the demand environmental two three please
spk_1: get and pretty accurate answer i guess the second half your question which is around as it is about what's the application for to for revenue look i think the reality as as as we highlighted in the talk track that work continue to they supply chain challenges and so how much of our server the man gets converted are back he gets converted into super bowl revenue is something that the teams are working every day now we have longstanding relationship with her supply chain but it is a pretty gananoque environment and semiconductors continued via a challenge privilege for nick cards and park cards for a self or that think that's gonna be are one of the things i and had to work our way through as go to the quarter in terms of how much headwind of supply chain give us jeff animal feed anything that will said i think scary shit question
spk_0: i'll take our next question from one see mohan with bank of america
spk_12: ah yes thank you i know you typically don't game free cash flow guy but in the spirit of giving more color on titans tom dick and you talk about cashflow that you're expecting to generate from down here and and fiscal for you and how should we expect that to track all of the night net income next year as you noted gotten both csgn i see that fiscal year little lancome framework should we be thinking of applying not that to free cash flow
spk_13: yeah hey wanna see if tyler and so like you said we don't typically of guidance on you for i'm that i would say that you for tends to be as strong cash port press and i'm expecting you know those same trend so so looking for a good cash from for and as i look in the next year that we talked about the relationship between net income in excess of one hundred percent and i expect that to continue to whole
spk_1: yeah that's adjusted free cash flow i just agree out for yet another i agree i hate thanks tyler thanks on it
spk_0: we'll take our next question from a meet during a non from evercore
spk_14: on thanksgiving my question of your yes maybe a question the cst side of your your ability to the extreme be a good despite compares gave difficult it's fairly impressive up some wanted me to stop about what are some the drivers that driving this our performance and have meeting about the durability of the cfc growth that you have followed because you compare that to get more more different letting to the next few quarters now are and related to see a tee off leaving the pods and discussion you had an eye as you can use not like margins on the cfc better walliams letting sequentially the imagine the some down
spk_3: he wanted it a chef has a lot of questions in their lease if i can work my way through them off what what we're seeing and and why we're encouraged about the demand environment that we've called out any seat in our performance is our focus being in commercial pcs premium consumer gaming and professional workstation
spk_15: and that's where the mantis
spk_3: that's our strength that's been our focus and molly think about the trends that are underway the do from anywhere work from home learn from home by from home game from home entertain from home
spk_15: the change in the usage pattern of hybrid workers what we think is now a reentry of workers back into the office that
spk_4: edition of windows eleven and the ability now to move to more mobile platforms and an aged install base all set up for the demand environment we're seeing today we believe continues into next year
spk_3: so we're encouraged by where the growth as in the marketplace the areas that certainly have been challenge on the consumer side or the chrome side we don't have read exposure to it we have exposure to where the growth is our execution and i think what is differentiating us today is the fact that we have a different shade of model weren't countering the same supply chain challenges the same integrated circuits and the conductor problems that tom mentioned earlier that everybody elses what's different is are direct del direct model our ability to really understand the pure demand signals from our customers to the equally trends as quickly into our supply base into the demand plan that we go build to were able to shake demand when don't they are indeed engine that is really optimized to be able to be aligned to write directly of selling translation we have fewer scuse less complexity we have a design methodology there's interchangeability and leveraging reeves that gives us tremendous flexibility were components are and the a
spk_16: able to do for example fast pangloss or can depend clause and in changing out of components if the down model all the way from its demand engine to how we market dad was shaped a man put that demands signal into the supply chain the product model that goes with it and then a response of supply chain that's pretty darn
spk_3: click on me what i like about our supply chain is with digitized that over the years when l able to do scenario planning and
spk_4: ah simulations that simulation allows us to make a quick decisions in this time and day quick decisions equal lot execution and then you couple that with partnerships that we built over the past three decades a by the leaders that are currently in our organization that on multiple levels down i think that the distinguishing characteristic of our performance and are differentiated model today for that help pay homage i might add on your operating margin comment on a bounty on that mind that my mistake things from of
spk_1: a on you know you are correct great your rear csg is down roughly hundred thirty bases plan on mars and i would tell you the phenomenon i just highlighted in server is played out in client as well and sense of again remember that we stepped in from two to indicate through it done the most significant cock opponent cause increases in the history of the company that we've average that we've ever seen as a result of that we also have c with elevated backlogs working our way through the backlog that was priced at the young component cause frameworks said perhaps and fully reflect the mana cost increases were coming through was a challenge every had to work our way through as went through the quarter so that was probably the principal reason you see the hundred thirty basis points design are margin differential there is some next dynamics in there as well and i've heard recall if you would call the recalled back to two three year ago or he saw the consumer demand quite high chrome demand very high or which actually drove actually pretty better profit margins and typical so there were some profit margin mix dynamics in there as well that have subsided as we go into as we look forward of your your from year ago thanks on it
spk_0: while her next class front san and cross the cross streets
spk_17: i thank you very much i wanted to ask that project a pax i realize it's it's pretty early but i'm wondering if you could maybe get some more details on what you're hearing from customers how we should think about you know growth and project a pact then benefiting the six billion i think you're now running in terms of recurring revenue of it there's anything we should either not include as we we think about growth there and then went runs through to your recurring line or you know it just anything and i'm sure everybody's going to be turning to focus on from these numbers know and forward thinking shaven taping senate it's chuck i'm gonna start on the will lay later and look at as we've called out
spk_2: our immediate focus f y twenty two has been centered on engaging customers and ensuring that are a pax offers are resonating in the marketplace know we are making progress against our multi are plans to bronner apex our portfolio of offers so what live on quote specific numbers to your question on customer
spk_1: feedback in a first and foremost that i would say his interest than a continued to accelerate and are pipeline continues to build across the family of offers and the customer feedback has been good they're drawn to the simplicity of get engaging ah through our console
spk_2: flexibility to adjust based on their needs and value obviously of only paying for what they use in the second thing i would call out and we continue to make good progress and broadening the portfolio as we called out now remarks today we were excited to announce the apex cloud services would be a more cloud which is available next year that saw another grapefruit point of our join engineering with the and were so we feel like we're making good progress on effects from a financial impact look as he said we're still in very early innings and will provide much more detailed commentary games when it's appropriate than the meantime were focused on
spk_1: summers and delivering and the technical roadmaps as i said i dang can present question
spk_0: attacker next question from bad hall withhold funds sachs
spk_18: yeah think your family and guys i just can't buy a couple of well one question really in it and add expansion on that but i wanted to check tom you said you had really high backlog it's very high backlog on csg bad due to commercial orders last quarter and a motor if you work through any of that backlog this quarter of an eerie remain at hi there isn't any kind of it the other flipside of that is what's the visibility now in that csgn particularly commercial whereby the can you see out the stage where are you know how far out and you see thank you
spk_1: hey rod of i will tell you that you know we did work through some of the elevated backlog in see years we worked our way through the quarter it is still elevated and that continues to be a challenge for us as we think about component availabilities will work our way through to for that was why we called out than like talk tracked anyway the fact that we saw i s t backlog your expand in terms of the know that elevated farther csg or i didn't explicitly say it came down somewhat the still elevated terms of order visibility look at me on it's hard to call but i mean overall the environment remains healthy were were optimistic about the the client space for the reasons judges highlighted earlier so the ah so you don't get it and as that's reflected in the guidance as that i provided for que for and also i would remind you that were also projected growth for next year and csg and and knives true self and he go wrong with your of good about the van environment it's gonna continue to be challenging from a supply chain perspective and old be to up to us to execute our way through that right and thanks rad
spk_0: what i can access son stephen box with fox it
spk_19: hi good afternoon i'm just wondering off of all the comments around how you manage to the current environment if we think about the current quarter on relative to seasonality and next and than your ability to shape the man vs manage supply chain and can you give us a sense for college in acting sort of the implied margins where you're getting better where it sort of status quo vs wade and last quarter's thanks
spk_20: yeah hey steve maybe i'll start and then on the chalk and in jeff kent can can jump and is appropriate i mean look for safety demand for frankly to the component availability that we help recognizing that within the cst space were shaping demand towards those areas of focus for us which is you okay
spk_1: marshall high end consumer gaming and the related pork peripheral environment around them and sell of prices relatively benign i should say stable the terms of the pricing environment self the really comes down to can we get supply yeah ensure that we can deliver against our customers commitments theirself and jeff and team or jonah nice job everyday of trying to fight their way through the component dynamics that are impacting us so look i feel good about our ability to shaped to man given the direct model our ability to top coat have this that sales organization
spk_6: ah seller configurations that we have ah and in terms of how that impacts profitability i think it adds a little bit harder to call all i would tell you that were twelve were trying to do is make sure we hit our customer commitment and our optimize the ah for our product giving the shortage in the industry that there is so now we are trying to measure that our pricing is consistent with
spk_20: the conditions that exist
spk_4: it tom i added adler cards are flexibility is shaped me and to the available supply i think is well understood and and we do quite well
spk_21: we priced with the
spk_4: for all of the known cost that we have coming into the system we just went through our largest quarter over quarter cost increased that we'd see
spk_2: the wild card for us roster the cost that we're continuing to work on his logistics sticks cost environment today is art is pretty challenging and bound freight the next i did freight the fact that we're expediting more things we've shifted from blockbuster option to more air that combination of thing making sure that we understand those input costs into
spk_3: you are pricing models i think is clearly the challenge that we look to in queue for and have to work our way through our component cause some component availability i think it's well understood we can shape it's all good that i guess the the dynamic for us to work through this really this logistics cost in the variability there
spk_22: okay great
spk_23: attack budget question
spk_10: we'll take our next question fan salmon we uphold with frame and shame
spk_24: thanks for here you you taken the question i imagine this maybe a little bit tricky dance there but but i'm trying to get a better understanding of may be a bridge for the gross park and in terms of the factors either sequentially or year by year leading to the results when i think about the input costs the product mix and your ability to to hire a s p if we could be to get some order of magnitude of of what are the factors affecting your gross margin had it think about that as where where modeling going forward
spk_14: directly in light of their bm wears thin like you
spk_1: but why a sign it's time so we don't typically comment on gross margin at a business unit level i would tell you at a top line level as we think about dynamics it's prince of blade gonna come down to how do we think about next as it is it moves forward into coupon which i would remind you that you for tends to be a higher storage quarter for us solve generally gross margins improved que three to queue for there is a seasonal pattern to storage as you move on to the next year that i think well understood at this point i think as relates to csg ah the look again we're focused on the higher areas of in terms of commercial in terms of gaming and turns a high and consumer ah comes component cost are going to be the drive
spk_25: over there for us
spk_1: right in the sense of of your how we think about the environment three i we did highlight that we do expect coupon on of costs and logistics cause together are gonna be inflationary which so well you know we have price for that with what we know today so the next dynamic are that he also the input costs are going to be a dynamic you gotta think your way to seek out the through your overall sort of what's the industry inflation and deflation look like as they were that we don't quite mimic that young dollar for dollar but it's probably a good bellwether for you and then i miss server but servers also going to be very much dependent upon know component cause dynamics right and south you go your way through that and then think through the next dynamics que fourteen to be a higher i as g higher storage quarter we have some consumer impact a few for given that the holiday season you move a q one which tends to be are seasonal a soft as quarter as you come out a cure for than a ramps again and que to with a higher i'm bill the higher volume coming to queue to and in that seasonal pattern begins to repeat self i think that's to the about the best guidance i can give you as you think your way through mix versus np
spk_20: what cost dynamics
spk_26: get great
spk_27: next question i'll take an action has some ten season with city great
spk_19: thank you very much harm it's well known a lot of component shortages are up here can you may be help us get our arms around you know which ones are the most hardest to get now and a like power management integrated circuits and what's the visibility to your suppliers are given you for you not equilibrium for you'd be able to catch up
spk_28: demand thank you
spk_3: asher jamal take dozens it's just a luck we see integrated circuit some again doctors remain constrained will remain constrained in the next year ah the trailing nodes are the most constraints only thing and eight inch network is certainly challenge as well as the twelve inch sixty five fifty five and forty enemy networks are certainly most challenge that across the board
spk_4: he can have wait for shortages to go along with i think i'd mention the last two calls the back in the assembly and tested been impacted by coded that's proved a little bit that still constrained there's been a number of substrate shortages around the world that continued impact this and answer questions specifically we track twenty seven different categories of integrated circuits us our portfolio i think i've mentioned the usual suspects but i'll do anything here so anywhere from codex to audio amplifiers i us be type see controllers mosque that's how i see cheat on censor i see tpm microcontrollers shriver ice
spk_3: these for rpc side and in honor enterprise side power i sees the and tpm that pj's and mosque that so power was one that you mention absolutely powers front and center are we are counting the same shortages and everybody else i think our team is navigating it quite well and and primarily driven by long term partnerships we've been doing this a long time i cannot add the relationships that i have with our supply base go back from the very beginning in the time other the developer your ah i think that helps serves as well doing this for three plus decades he continued to know the folks at these companies and knowing our long term history and the fact that we talk about long term design prospects as well ah i have that answer your question
spk_0: next thanks
spk_29: we'll take our next question from an records with files fargo yeah they they were taken a question and i won't ask multiply chain
spk_2: what i want and what i wanted to ask without is just like as you guys have executed it looks like nearly all the sixteen billion of of death reductions completed in a did do we look into fiscal twenty three and assume any a criminal be leveraged to the balance sheet or is the entirety of that the capital return strategy focused on ah focused on not share repurchase at this point and how do we think about again the bridge of of free cash flow to adjusted free castles we think about that that
spk_1: targeted forty to sixty percent hey aaron of time and i may well have tyler trump in here as well as it relates to as reading about debt reduction as we work our way to fiscal twenty three i would expect that there will be some continued debt reduction next year now clearly we have cleaned up a lot of the near term maturities but the on we are still focused on a our core leverage ratio target a one point five we're currently at one point nine ah so there will be some element of of debt reduction next year not actually not clearly to the extent that it has been in the past and i were to mine too young to the about our our of cab lactation framework were forty to sixty percent of our egypt adjuster free cash flow to go towards our shareholder capital returning to the form of what we believed to be dividends and board approves those next year
spk_6: or share buyback and then obviously investment investment business and debt reduction
spk_13: i tell you want to take the the free cash flow conversion question he animate maybe air and it is easier to take that when applying i'm in a there that the enchanter purpose of an adjustment is to to reflect the impact of dfs
spk_0: the other is a walk and now and the web deck every bad bad pappy take them on a fine
spk_30: i'll take our next class and from said me how with deutsche bank great thanks for taking my question i have a question on via a vm where resell revenue if i come on that's right the brand new would be somewhere around the billion dollar begin that of over a billion dollar quarter it as like if i can stay match for operating margin that doesn't seem like that that this is is that possible first if it writing
spk_1: collusion second how should we think about this profitability of probabilities this is going forward and the how you plan on disclosing that money in the future thanks
spk_31: hastening it's time so look silica i would get down to help you guys take your way through it i would think about you for vm were resell revenue somewhere in the range of one point three billion
spk_1: okay ah and you are right as as we have discussed are a number of times and in previous calls the ricky martin associated with that resell revenue as minimal i know that's an area that we're focused on beginning to to to drive up but it's never gonna be ah as we look at it today anyway it's it's it's gets got a ways to go to get to more distributor like margins but today's to think about it is not really impacting are contributed
spk_32: in any meaningful way to operating margin
spk_1: performance so yeah i'd sell that's that's that's probably the easiest way to think about for right now
spk_0: yeah not hey thanks for the thanks for the questions and a let's take one more question more wrap it up
spk_33: while now take our final question from the david thought with u p s great thanks guys for squeezing me and so this is more vulgar can question and i know you're not going to give guidance on the next fiscal year but when i when i was he talk about the strengthen the order book whether it's in servers and storage and and you taking share and enough flourishing well to be at least at it from an industry perspective strong backdrop you know what i think about next year from the ice tea
spk_1: side you know the a weed the are you being a little bit conservatively you think about sort of the longer term model and context the what you're seeing near term and how the i you know dr revenue growth next year and ice tea maybe little bit faster and three to five percent or at least a tyrant of that range
spk_6: hey david look i think young the messes i wanted to get out for purposes of people began to think your way through next year's out we expect growth
spk_1: and we expect at a minimum that our revenue frameworks will be in the range of on the long term framework that we provided in that are profitability will be in the framework that we provided and i don't want to go beyond that at this point other than the tell you that young when we get through to get to the queue for earnings that we're we're clearly have a conversation about our read you know any farther thinking around next year so at all the bit of that i thank david thanks thanks for a given the opportunity to talk about the long term my like that and up thanks for everyone for joining we're going to be we will be participating several conference's investor compromises over the next couple weeks and will be on the road on both the east and west coast in early january so we do look for doing gauging with the invest
spk_0: community at these events in the fourth quarter with that had thank you for joining us
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