Dell Technologies Inc. — Form 10-Q Summary
Reporting period: First quarter of Fiscal 2024, the three months ended May 5, 2023. Comparisons are with the three months ended April 29, 2022, unless otherwise noted. Amounts are in U.S. dollars.
Business context
Dell designs, sells, and supports technology products and services globally. Its reportable segments are Infrastructure Solutions Group (ISG), including servers, networking, and storage, and Client Solutions Group (CSG), including commercial and consumer PCs and related services. VMware, Secureworks, and Virtustream are included in other businesses; Dell continued to resell and integrate VMware offerings after VMware’s spin-off.
Financial results
| Metric | Q1 FY2024 | Prior comparable quarter | Change |
|---|---|---|---|
| Net revenue | $20.9 billion | $26.1 billion | Down 20% |
| Product revenue | $15.0 billion | $20.5 billion | Down 27% |
| Services revenue | $5.9 billion | $5.7 billion | Up 4% |
| Gross margin | $5.0 billion; 24.0% of revenue | $5.8 billion; 22.1% | Amount down 13%; margin up 190 basis points |
| Operating income | $1.1 billion; 5.1% of revenue | $1.6 billion; 5.9% | Down 31%; margin down 80 basis points |
| Net income | $578 million | $1.1 billion | Down 46% |
| Net income attributable to Dell | $583 million | $1.1 billion | |
| Diluted EPS | $0.79 | $1.37 | |
| Cash from operating activities | $1.8 billion | Cash used of $269 million |
Non-GAAP operating income was $1.6 billion, down 25%; non-GAAP net income was $963 million, down 33%. These are company-defined non-GAAP measures and exclude specified items; Dell cautions they are not substitutes for GAAP results.
Segments and material changes
- ISG: Revenue was $7.6 billion, down 18%. Servers and networking revenue fell 24% and storage revenue fell 11%. Segment operating income was $740 million, down 32%; operating margin fell to 9.7% from 11.7%.
- CSG: Revenue was $12.0 billion, down 23%. Commercial revenue fell 18% and consumer revenue fell 41%. Segment operating income was $892 million, down 20%; operating margin rose to 7.4% from 7.2%.
- Product demand and unit sales weakened across both segments amid macroeconomic caution. Higher average selling prices and lower component and logistics costs supported gross margin rates, but did not offset lower sales volumes.
- Services revenue growth was supported in part by VMware Resale software maintenance from prior-period sales. Dell said services revenue is recognized over time, so its growth pattern differs from product revenue.
Cash, debt, and liquidity
- Cash and cash equivalents were $7.6 billion at May 5, down from $8.6 billion at February 3. Cash, cash equivalents, and restricted cash totaled $7.9 billion. Operating cash flow benefited principally from reduced accounts receivable and inventory; cash used in investing was $684 million and cash used in financing was $2.0 billion. Total cash, cash equivalents, and restricted cash declined $967 million during the quarter.
- Debt carrying value was $28.4 billion, including $10.2 billion of DFS debt; principal debt was $28.7 billion. Principal debt declined $1.2 billion, primarily after repayment of $1.0 billion of senior notes. Core debt, as defined by Dell, was $17.2 billion.
- Current assets were $37.4 billion versus current liabilities of $46.8 billion. Stockholders’ equity remained in deficit at $2.9 billion. These balances include Dell’s financing operations and deferred revenue.
- Dell reported $6.0 billion available under its revolving credit facility, with no facility borrowings or commercial paper outstanding. Management said cash, expected operating cash flow, and available borrowing capacity should meet material cash needs for at least the next 12 months.
- Capital expenditures were $701 million. Dell expects Fiscal 2024 capital expenditures of $3.2–$3.4 billion, including approximately $1.7 billion for revenue-generating assets.
Outlook, risks, and unusual items
- Dell anticipates a full-year Fiscal 2024 revenue decline, notably in the first half, which may pressure operating margins. Management expects demand declines to moderate during the remainder of the fiscal year; no specific full-year revenue or earnings guidance was provided in the filing text.
- Management cited challenging global macroeconomic conditions, cautious customer spending, PC-market weakness, infrastructure demand declines, competitive and pricing pressures, and potential foreign-exchange and interest-rate volatility. Dell also identified geopolitical and trade risks, including potential effects from the war in Ukraine, sanctions, supply disruptions, inflation, and cybersecurity threats.
- Supply-chain lead times had returned to standard levels and constrained-component availability improved. Dell expected component-cost deflation to continue at a more moderate rate in Q2 FY2024.
- Remaining performance obligations were approximately $39 billion; Dell expected to recognize about 57% as revenue in the next 12 months. Estimates may change with cancellations, scope changes, and currency effects.
- Dell’s reorganization affected approximately 5% of its workforce. It recorded $48 million of severance expense in Q1 FY2024, following $367 million in Q4 FY2023; the severance liability was $162 million at quarter-end.
- A $1.0 billion settlement of litigation concerning the 2018 Class V transaction had been accrued in Fiscal 2023, net of $106 million in insurance proceeds. Dell paid the settlement on May 16, 2023, after quarter-end, and said it did not expect further settlement expense.
- The effective tax rate rose to 18.0% from 11.9%, primarily due to income mix and higher U.S. tax on foreign operations. IRS examinations cover Fiscal 2015–2019; Dell said it had adequate reserves but noted unfavorable outcomes could materially affect results, financial position, or cash flows.
- Quarterly dividends increased to $0.37 per share from $0.33. Dell repurchased approximately $250 million of shares, versus approximately $1.5 billion in the prior comparable quarter.
Most important facts for investors to verify
- Whether PC and infrastructure demand stabilizes as management expects, and how revenue and operating margins track through the first half and remainder of Fiscal 2024.
- Whether strong working-capital cash generation is repeatable or mainly reflects the quarter’s inventory and receivables reductions.
- Debt maturities, interest costs—particularly variable-rate DFS funding—and progress on core-debt reduction.
- Credit quality and loss trends in DFS financing receivables, including the adequacy of its allowance as economic conditions evolve.
- Execution and cash costs of workforce actions, the stated capital expenditure range, and capital returns through dividends and repurchases.
- Resolution of tax audits and other contingencies, and confirmation of the settlement payment and related insurance recovery.