Dell Technologies Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended February 3, 2023; the year included 53 weeks. Comparisons are primarily with the 52-week fiscal year ended January 28, 2022. Dell provides infrastructure products and services through Infrastructure Solutions Group (ISG) and PCs, peripherals, and related services through Client Solutions Group (CSG).
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $102.3 billion | $101.2 billion | +1% |
| Gross margin | $22.7 billion; 22.2% | $21.9 billion; 21.6% | +4%; +60 bps |
| Operating income | $5.8 billion; 5.6% | $4.7 billion; 4.6% | +24%; +100 bps |
| Net income from continuing operations | $2.4 billion; diluted EPS $3.24 | $4.9 billion; diluted EPS $6.26 | −51% |
| Operating cash flow | $3.6 billion | $10.3 billion | Down $6.7 billion |
- Revenue mix: Product revenue was $79.3 billion, down 1%; services revenue was $23.1 billion, up 8%.
- Segments: ISG revenue rose 12% to $38.4 billion and operating income rose 35% to $5.0 billion (13.2% margin). CSG revenue fell 5% to $58.2 billion and operating income fell 12% to $3.8 billion (6.6% margin). CSG consumer revenue declined 20%; commercial revenue was flat.
- Cash, debt, and liquidity: Cash and cash equivalents were $8.6 billion. Principal debt was $29.9 billion ($29.6 billion carrying value), including $18.1 billion of core debt. The company reported $6.0 billion available under its revolving facility and $5.0 billion of commercial-paper capacity, with no outstanding commercial-paper borrowing. Management said available cash, expected operating cash flow, and borrowing capacity should cover requirements for at least 12 months.
- Balance sheet: Current assets were $42.4 billion versus current liabilities of $51.7 billion; total stockholders’ equity was negative $3.0 billion. Deferred revenue was $30.3 billion, and remaining performance obligations were approximately $40 billion, with about 57% expected to be recognized within 12 months.
- Capital returns and investment: Dell repurchased approximately 62 million shares for $2.8 billion and paid $964 million in dividends. It announced a 12% increase in the quarterly dividend, to $0.37 per share, beginning FY2024. FY2023 capital expenditures and capitalized software costs were $3.0 billion.
Material changes and unusual items
- Demand weakened during FY2023, particularly for PCs; ISG growth more than offset the CSG decline, and revenue mix shifted toward ISG.
- Operating cash flow fell to $3.6 billion, primarily due to less favorable working capital. FY2022 cash flow included $3.2 billion attributable to VMware, which Dell spun off in November 2021; cash-flow comparisons therefore include different business scopes.
- Continuing-operations net income declined sharply in part because FY2022 included a $4.0 billion pretax gain on the Boomi sale. FY2023 also included a net $894 million expense related to the Class V transaction litigation settlement, after expected insurance recovery, and a $206 million net loss on strategic investments.
- Dell recorded $171 million of costs related to exiting Russia. FY2023 severance charges were $527 million; $367 million was recognized in the fourth quarter for workforce actions announced February 6, 2023, expected to reduce the workforce by approximately 5%.
- R&D expense increased 8% to $2.8 billion. The annual goodwill impairment test found reporting-unit fair values above carrying values; no goodwill impairment was recorded.
Outlook, risks, and contingencies
- Management anticipated lower full-year FY2024 revenue, particularly in the first half, with possible operating-margin pressure. FY2024 capital expenditures were expected to be $2.9–$3.1 billion, including approximately $1.8 billion for revenue-generating assets. Management expected key commodity costs to remain deflationary through the first half, partly offset by processor price increases.
- Key risks include macroeconomic and technology-spending weakness, PC replacement-cycle declines, competition and pricing pressure, reliance on single- or limited-source suppliers, supply-chain disruption, foreign-exchange and interest-rate exposure, cybersecurity threats, and substantial indebtedness.
- The proposed $1.0 billion Class V litigation settlement was subject to final court approval, with a hearing scheduled for April 19, 2023; Dell expected payment in FY2024’s second quarter if approved. The filing reported no other reasonably possible material loss above amounts accrued, while noting litigation outcomes remain uncertain.
- The 2022022 Inflation Reduction Act introduced a 15% corporate alternative minimum tax effective FY2024 and a 1% excise tax on qualifying share repurchases after December 31, 2022; Dell did not expect a material impact. The filing also identifies risks from the multi-class voting structure and concentrated control.
- PwC issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. Its critical audit matter concerned identifying performance obligations in revenue contracts.
Important facts for investors to verify
- Whether the expected FY2024 revenue decline and CSG demand weakness materialize, and how they affect margins.
- Whether working-capital trends improve and operating cash flow recovers from FY2023’s decline.
- Debt maturities, refinancing and interest costs; reported contractual principal payments were $6.6 billion in FY2024, including $5.4 billion of DFS debt.
- Final court approval and payment of the Class V settlement, including receipt of the expected $106 million insurance proceeds.
- Execution and costs of workforce reductions, and sustainability of dividends and repurchases alongside deleveraging.
- Segment trends and recurring-revenue growth; assess non-GAAP measures alongside GAAP results because Dell excludes items that may recur.