Dell Inc. (DELL)
F1Q11 Earnings Call
May 20, 2010 5:00 pm ET
Robert Williams – Director of Investor Relations
Michael S. Dell – Chairman and Chief Executive Officer
Brian T. Gladden – Chief Financial Officer
Brad Anderson – Senior Vice President, Enterprise Product Group
Kathryn Huberty - Morgan Stanley
Brian Alexander – Raymond James
Richard Gardner - Citigroup
Toni Sacconaghi - Sanford Bernstein
Bill Shope - Credit Suisse
Jayson Noland - Robert W. Baird & Co., Inc.
Stephen Fox – CLSA
Benjamin Reitzes - Barclays Capital
Maynard Um - UBS
Chris Whitmore – Deutsche Bank
Mark Moskowitz - J.P. Morgan
Aaron Rakers – Stifel Nicolaus
David Bailey - Goldman Sachs
Shannon Cross – Cross Research
Rob Cihra – Caris & Company
Jeff Fidacaro – Susquehanna Financial Group
Louis Miscioscia – Collins Stewart LLC
Previous Statements by DELL
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Welcome to the Dell Inc. first quarter fiscal year 2011 earnings call. (Operator Instructions) I would like to turn the call over to Rob Williams, Director of Investor Relations. Mr. Williams, you may begin.
Thank you. With me today are Michael Dell, Brian Gladden, our CFO and Brad Anderson who leads our server storage and networking solutions group. Brian and Brad will review our first quarter results then Michael will follow with his perspective on our growth strategy.
We just posted information on Q1 results and a VLog with Brian and Brad on our IR site at Dell.com. I encourage you to review these materials. Our upcoming investor relations activities include the Bernstein CEO conference on June 3
and our analyst meeting here in Austin on June 23 and 24
Next I would like to remind you that all statements made during this call that relate to future results and events including statements about Dell’s future financial and operating performance, expected component pricing, global currency volatility and anticipated customer demand are forward-looking statements that are based on our current expectations. Actual results and events could differ materially from these projected in the forward-looking statements because of a number of risks and uncertainties which are discussed in our annual and quarterly SEC filings and in the cautionary statement contained in our press release and on our website. We assume no obligation to update our forward-looking statements.
Please note that on today’s call will be referring to non-GAAP financial measures including non-GAAP gross margin, operating expenses, operating income, net income and earnings per share. These measures are reconciled to the most directly comparable GAAP measures in the slide presentation posted on the Investor Relations portion of our website at Dell.com and our 8K filed today which we encourage you to review. Please note that unless otherwise mentioned all growth percentages refer to year-over-year progress.
Now I would like to turn it over to Brian.
Thanks, Rob. We had a solid first quarter in an improving global environment and demand has picked up especially with our commercial customers who make up approximately 78% o our revenue. We had solid unit and revenue growth in the quarter. Solution revenue which includes enterprise servers and networking, storage and our services business was up 38% to $4.2 billion aided by the acquisition of Perot Systems. We also saw very strong demand in the emerging countries around the world.
Our entire commercial business continued to benefit from improved demand and the hard work we have done to improve our cost structure and the critical investments we are making to build out our enterprise business. Our nearly $50 billion commercial business is performing well and this validates our strategy to expand our investments in servers, storage, software and services. Given the strategic importance of our enterprise business we have asked Brad Anderson to share his view on the progress we are making in enterprise solutions and discuss some of the underlying growth we are seeing there.
But first, let’s look at the first quarter P&L and the key performance metrics which are laid out on chart’s five and six in the web deck. Revenue in the first quarter was $14.9 billion up 21% year-over-year and flat sequentially. This is slightly better than our typical historical seasonality. On a GAAP basis operating income was $619 million or 4.2% of revenue and earnings per share was $0.22 which is up 47% year-over-year. On the rest of this call I will refer to non-GAAP financial measures.
Operating income grew 29% to $824 million or 5.5% of revenue. Sequentially, gross margins improved slightly to 17.6% and our OpEx was 12% of revenue. We continue to focus on improving operating income while making key investments in products and in sales and services resources. Net income and earnings per share were both up 20% year-over-year. Net income was $584 million while earnings per share was $0.30 per share.
Our financing and other expenses were $68 million, up versus prior quarter driven primarily by currency valuation of certain balance sheet items due to a strengthening U.S. dollar. Our tax rate was 22.8% and reflects the net benefit of certain effectively settled foreign tax audits. For the year we do expect our tax rate to be in the 27% range consistent with our previous outlook.
We generated $238 million in cash flow from operations and $400 million in free cash flow in the quarter. Over the past four quarters we generated $4.3 billion in free cash flow. As you know the first quarter is typically our weakest cash flow quarter as we make year-end bonus payments during the quarter. We also used about $130 million of cash to build some strategic inventory given the current component environment.