Performance Review
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3Q FY’19 PERFORMANCE REVIEW November 29, 2018 DISCLAIMER Non-GAAP Financial Measures This presentation includes information about non-GAAP revenue, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, EBITDA, and Adjusted EBITDA (collectively the “non-GAAP financial measures”), which are not measurements of financial performance prepared in accordance with U.S. generally accepted accounting principles. We have provided a reconciliation of the historical non-GAAP financial measures to the most directly comparable GAAP measures in the slides captioned “Supplemental Non-GAAP Measures.” Special Note on Forward Looking Statements Statements in this material that relate to future results and events are forward-looking statements and are based on Dell Technologies' current expectations. In some cases, you can identify these statements by such forward-looking words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “confidence,” “may,” “plan,” “potential,” “should,” “will” and “would,” or similar expressions. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including those discussed in Dell Technologies’ periodic reports filed with the Securities and Exchange Commission. Dell Technologies assumes no obligation to update its forward-looking statements. 2 HIGHLIGHTS 3Q FY’19 SALES MOMENTUM 1 Third consecutive quarter of double-digit revenue growth for all three of our reportable business segments – ISG, CSG and VMware SHARE GAINS 2 We continue to grow above the market, driving significant share gains in servers, storage and client DEBT PAYDOWN 3 To date, we have reduced gross debt, excluding DFS related and subsidiary debt, by ~$14.4B since closing the EMC transaction STORAGE GROWTH 4 Storage actions are driving meaningful long-term improvements in the business as Q3 marked our third consecutive quarter of revenue growth PORTFOLIO BREADTH 5 With our differentiated portfolio, customers increasingly see us as a key partner to meet their needs from the edge to the core to the cloud 33 CONSOLIDATED GAAP RESULTS1 3Q FY’19 $ in millions 3Q'18 2Q'19 3Q'19 Y/Y Q/Q YTD'18 YTD'19 Y/Y • Strong quarter with top-line momentum across the business, including server, client Revenue 19,556 22,942 22,482 15% -2% 57,077 66,780 17% and VMware as well as continued progress in storage Gross Margin 5,220 6,123 5,943 14% -3% 14,645 17,944 23% GM % of revenue 26.7% 26.7% 26.4% -30 bps -30 bps 25.7% 26.9% 120 bps • The power of our portfolio is unmatched in its breadth and capability, and our SG&A 4,559 4,961 5,159 13% 4% 13,695 15,064 10% customers increasingly see us as a key R&D 1,071 1,175 1,140 6% -3% 3,297 3,402 3% partner to meet their needs, which is showing up in our results Operating Expense 5,630 6,136 6,299 12% 3% 16,992 18,466 9% OpEx % of revenue 28.8% 26.8% 28.0% -80 bps 120 bps 29.8% 27.7% -210 bps • We continue to invest for long-term growth and run the business in a disciplined way, Operating Income (Loss) (410) (13) (356) 13%2 NM 3 (2,347) (522) 78% with our primary focus on relative growth OpInc % of revenue -2.1% -0.1% -1.6% 50 bps -150 bps -4.1% -0.8% 330 bps and share gain 3 • We are in the midst of a technology-led Income Tax (241) (7) (100) 59% NM (1,353) (192) 86% investment cycle centered on data; we focus Effective tax rate % 22.1% 1.5% 10.1% 32.6% 9.2% our investments on enabling our customer’s digital transformation through our broad Net Income (Loss) (851) (461) (895) -5% -94% (2,793) (1,894) 32% family of technologies NI % of revenue -4.4% -2.0% -4.0% 40 bps -200 bps -4.9% -2.8% 210 bps 1 Results include material adjustments related to purchase accounting and other items. For additional detail on these adjustments, please refer to supplemental slides in the appendix. 2 $190M goodwill impairment related to Virtustream in Q3 FY’19. 3 NM indicates amounts that can be calculated, but results are not meaningful. 44 CONSOLIDATED NON-GAAP RESULTS1 3Q FY’19 $ in millions 3Q'18 2Q'19 3Q'19 Y/Y Q/Q YTD'18 YTD'19 Y/Y • Non-GAAP revenue growth of 14% Y/Y was driven primarily by double-digit growth in Revenue 19,851 23,122 22,651 14% -2% 58,062 67,316 16% servers, commercial client and VMware Gross Margin 6,474 7,066 7,000 8% -1% 18,534 20,985 13% • Gross margin was up 8% Y/Y and 30.9% of GM % of revenue 32.6% 30.6% 30.9% -170 bps 30 bps 31.9% 31.2% -70 bps revenue, down 170 bps due to mix dynamics within ISG as server results continue to be SG&A 3,457 3,938 3,912 13% -1% 10,298 11,765 14% strong along with FX and supply chain R&D 908 1,020 1,024 13% 0% 2,836 3,022 7% headwinds within CSG Operating Expense 4,365 4,958 4,936 13% 0% 13,134 14,787 13% • Operating expense was $4.9B, up 13% Y/Y, OpEx % of revenue 22.0% 21.4% 21.8% -20 bps 40 bps 22.6% 22.0% -60 bps and was 21.8% of revenue as our investments, primarily in go-to-market Operating Income (Loss) 2,109 2,108 2,064 -2% -2% 5,400 6,198 15% coverage expansion, layered in consistent OpInc % of revenue 10.6% 9.1% 9.1% -150 bps 0 bps 9.3% 9.2% -10 bps with our expectations for 2H’19 • Operating income was down 2% Y/Y to Net Income (Loss) 1,199 1,349 1,200 0% -11% 3,072 3,723 21% $2.1B, or 9.1% of revenue NI % of revenue 6.0% 5.8% 5.3% -70 bps -50 bps 5.3% 5.5% 20 bps • As we look to close out FY’19, we want to Adjusted EBITDA 2,441 2,459 2,426 -1% -1% 6,416 7,268 13% sustain the growth trajectory seen the past Adj EBITDA % of revenue 12.3% 10.6% 10.7% -160 bps 10 bps 11.1% 10.8% -30 bps several quarters while improving profitability 1 See supplemental slides in the appendix for reconciliation of GAAP to Non-GAAP measures. 55 CASH FLOW AND ADJUSTED EBITDA 3Q FY’19 $ in billions Fiscal quarter TTM • Generated cash flow from operations of 8.5 CASH FLOW FROM 7.7 7.7 $833M; it is typical that cash flow is 6.8 OPERATIONS lower in Q3 due to the seasonal decline 3.1 in revenue and this follows the strong 2.6 cash performance we saw in Q2 $833M 1.6 1.2 0.8 - 49% Y/Y • Additionally, Q3 cash flow was impacted 3Q'18 4Q'18 1Q'19 2Q'19 3Q'19 by higher inventory as a result of overall business growth, holiday seasonality and supply chain dynamics $ in billions • Trailing twelve months of cash flow from Fiscal quarter 9.7 10.0 10.0 operations was $7.7B TTM 9.1 ADJUSTED EBITDA • Adjusted EBITDA was $2.4B, or 10.7% 2.7 as a percentage of non-GAAP revenue 2.4 2.4 2.5 2.4 $2.4B • Trailing twelve months of Adjusted - 1% Y/Y 3Q'18 4Q'18 1Q'19 2Q'19 3Q'19 EBITDA was $10.0B Adjusted EBITDA as a % non-GAAP of revenue 12.3% 12.2% 11.1% 10.6% 10.7% 66 CAPITAL STRUCTURE1 3Q FY’19 $ in billions EMC Close 3Q'18 4Q'18 1Q'19 2Q'19 3Q'19 • Cash and investments balance was $20.4B Cash & Investments 15.5 18.0 20.3 21.7 21.5 20.4 • During Q3, we re-paid $1.2B of debt, primarily Cash & Investments (Excluding Unrestricted Subsidiaries) 6.8 6.1 8.3 8.1 7.2 6.0 related to our Term Loan A-3, plus another $100M of amortization, bringing our core debt 2 Core Secured Debt 35.4 29.1 28.7 29.1 28.9 28.0 balance to $36.2B3 Core Unsecured Debt 13.4 11.2 11.2 10.7 8.2 8.2 6 Total Core Debt 3 48.8 40.3 39.9 39.8 37.1 36.2 • Net core debt ended the quarter at $30.2B Other Debt 4.0 2.1 2.1 2.1 2.1 2.1 • Total debt of $49.4B, down $940M Q/Q due to our debt repayment, partially offset by an DFS Related Debt 4.5 6.1 6.7 6.8 7.1 7.1 increase in DFS debt Total Debt, Excluding Unrestricted Subsidiaries 4, 5 57.3 48.5 48.7 48.7 46.3 45.4 • Since closing the EMC transaction, we have Unrestricted Subsidiary Debt - 4.0 4.0 4.0 4.0 4.0 paid down ~$14.4B of gross debt, excluding Total Debt, Including Unrestricted Subsidiaries 5 57.3 52.5 52.7 52.7 50.3 49.4 DFS related and unrestricted subsidiary debt, while continuing to make appropriate and Net Core Debt, Excluding Unrestricted Subsidiaries 6 42.0 34.3 31.6 31.7 29.9 30.2 timely business investments 1 Amounts are based on underlying data and may not visually foot due to rounding – see supplemental slides in the appendix for additional detail.