10-QPeriod: Q3 FY2019

Dell Technologies Inc. Quarterly Report for Q3 Ended Aug 3, 2018

Filed September 11, 2018For Securities:DELL

Summary

Dell Technologies Inc.'s 10-Q filing for the period ending August 3, 2018, reveals a complex financial picture driven by significant debt and the ongoing integration following the EMC acquisition. While net revenue showed year-over-year growth across all segments (Infrastructure Solutions Group, Client Solutions Group, and VMware), the company reported a net loss for the quarter attributable to Dell Technologies Inc. of $499 million. This loss was primarily driven by substantial interest expenses and ongoing amortization of intangible assets related to past acquisitions. Despite the net loss, operational cash flow improved significantly compared to the prior year, indicating underlying business strength. The company also highlighted a pending "Class V transaction" involving the potential conversion of Class V common stock (tracking VMware) into Class C common stock or cash, which could materially alter the company's capital structure. Investors should monitor the progress of this transaction and Dell's ability to manage its considerable debt load while continuing to generate positive cash flow.

Financial Highlights

51 data points
Beta

Revenue

$22.94B

26.7% Gross Margin

Net Income

-$499.00M

-2.2% Net Margin

Total Assets

$123.38B

Cash & Equivalents

$15.31B

Free Cash Flow

$2.35B

Financial Statements
Beta
Revenue$22.94B
Cost of Revenue$16.82B
Gross Profit$6.12B
R&D Expenses$1.18B
SG&A Expenses$4.96B
Operating Expenses$6.14B
Operating Income-$13.00M
Net Income-$499.00M

Key Highlights

  • 1Total net revenue increased by 18% to $22.94 billion for the three months ended August 3, 2018, compared to the prior year period.
  • 2The company reported a net loss attributable to Dell Technologies Inc. of $499 million for the three months ended August 3, 2018.
  • 3Total debt remained substantial at $50.3 billion (principal amount) as of August 3, 2018, though it decreased from $52.7 billion at the start of the fiscal year.
  • 4Operating cash flow for the first six months of Fiscal 2019 was $3.8 billion, a significant increase from $2.1 billion in the prior year period.
  • 5The Infrastructure Solutions Group (ISG) saw a robust 24% increase in net revenue, driven by strong performance in servers and networking, and storage.
  • 6The Client Solutions Group (CSG) also experienced a 13% increase in net revenue, with continued demand across commercial and consumer segments.
  • 7VMware's net revenue grew by 11% year-over-year, driven by software license and maintenance services.
  • 8Dell announced a pending "Class V transaction" to convert Class V common stock into Class C common stock or cash, with a significant portion of the cash component to be funded by a special dividend from VMware.

Frequently Asked Questions

Dell Technologies Inc. reported an 18% increase in total net revenue to $22.94 billion for the three months ended August 3, 2018. However, the company posted a net loss attributable to Dell Technologies Inc. of $499 million, primarily due to high interest expenses and amortization of intangible assets.

Dell Technologies carries a significant debt load, totaling $50.3 billion (principal amount) as of August 3, 2018. While this is a decrease from the prior fiscal year-end, interest expenses remain substantial, contributing to the company's net loss. The company is actively managing its debt, having repaid $3 billion in principal amount of unsecured notes during the six months ended August 3, 2018.

Dell announced a pending "Class V transaction" whereby shares of Class V common stock (which track VMware's economic performance) will be exchanged for Class C common stock or cash. Holders will have a choice, subject to an aggregate cash consideration cap. This transaction is expected to be funded partly by an $11 billion special dividend from VMware. This could lead to a significant change in Dell's capital structure and the way its stake in VMware is represented.

All three major segments showed revenue growth. The Infrastructure Solutions Group (ISG) saw a strong 24% revenue increase, driven by servers and storage. The Client Solutions Group (CSG) grew revenue by 13%, supported by demand in both commercial and consumer markets. VMware's revenue increased by 11%, benefiting from software license and maintenance sales.