10-QPeriod: Q2 FY2018

Dell Technologies Inc. Quarterly Report for Q2 Ended May 5, 2017

Filed June 9, 2017For Securities:DELL

Summary

Dell Technologies Inc. reported its first quarter fiscal year 2018 results, reflecting significant post-EMC merger integration. Total net revenue surged by 46% year-over-year to $17.8 billion, largely driven by the inclusion of EMC's financials and a notable 136% increase in services revenue. Despite the top-line growth, the company reported a net loss attributable to Dell Technologies Inc. of $1.3 billion for the quarter, a substantial decrease from the $55 million net gain in the prior year period. This loss was primarily due to increased operating expenses, including a significant rise in amortization of intangible assets and purchase accounting adjustments related to the EMC merger, which offset the improved gross margins from the acquired businesses. Key operational segments showed varied performance. The Infrastructure Solutions Group (ISG) experienced robust growth with a 91% increase in net revenue, heavily boosted by the EMC storage acquisition. The Client Solutions Group (CSG) saw a more modest 6% revenue increase, facing component cost inflation. VMware, now a key reportable segment, contributed $1.7 billion in net revenue with a strong 28% operating income margin. Despite the GAAP net loss, non-GAAP metrics painted a more positive picture, with non-GAAP net income from continuing operations increasing by 120% to $581 million, highlighting the company's efforts to present operational performance excluding merger-related impacts.

Financial Highlights

50 data points
Beta

Revenue

$18.00B

24.8% Gross Margin

Net Income

-$1.17B

-6.5% Net Margin

Total Assets

$116.04B

Cash & Equivalents

$9.55B

Free Cash Flow

$40.00M

Financial Statements
Beta
Revenue$18.00B
Cost of Revenue$13.54B
Gross Profit$4.46B
R&D Expenses$1.13B
SG&A Expenses$4.60B
Operating Expenses$5.73B
Operating Income-$1.27B
Net Income-$1.17B

Key Highlights

  • 1Total net revenue increased significantly by 46% to $17.8 billion, primarily due to the inclusion of EMC's operations.
  • 2Services net revenue saw a substantial increase of 136%, indicating strong growth in the services segment.
  • 3The Infrastructure Solutions Group (ISG) revenue grew by 91%, largely driven by the acquisition of EMC's storage business.
  • 4VMware emerged as a significant contributor, generating $1.7 billion in net revenue with a strong 28.0% operating income margin.
  • 5The company reported a GAAP net loss attributable to Dell Technologies Inc. of $1.3 billion, a significant decline from the prior year's net gain.
  • 6Non-GAAP net income from continuing operations showed strong growth, increasing 120% to $581 million, reflecting operational improvements excluding merger-related costs.
  • 7Operating expenses increased by 149%, largely due to integration costs and amortization related to the EMC merger.

Frequently Asked Questions

The primary driver of Dell's significant revenue increase was the inclusion of the financial results from the EMC acquired businesses following the merger completion on September 7, 2016. This led to a 46% overall increase in total net revenue.

The company reported a GAAP net loss primarily due to increased operating expenses. These expenses were heavily influenced by post-merger integration costs, significant amortization of intangible assets related to the EMC acquisition, and purchase accounting adjustments. These factors offset the improved gross margins from the acquired businesses.

VMware is performing strongly as a reportable segment, contributing $1.7 billion in net revenue for the quarter and achieving a healthy 28.0% operating income margin. Its performance is a positive factor in the company's overall results.

Dell Technologies uses non-GAAP financial measures to provide insights into operational performance, excluding items like purchase accounting impacts, amortization of intangibles, and transaction-related expenses. The substantial growth in non-GAAP net income from continuing operations indicates that, excluding these merger-related costs, the underlying business performance showed significant improvement.