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Dell (DELL)

Q1 2013 Earnings Call

May 22, 2012 5:00 pm ET


Robert Williams - Director of Investor Relations

Brian T. Gladden - Chief Financial Officer and Senior Vice President

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» Dell's CEO Discusses Q4 2012 Results - Earnings Call Transcript
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Stephen J. Felice - President, Chief Commercial Officer, President of Global Small & Medium Business and President of Consumer Small & Medium Business

Michael S. Dell - Founder, Chairman and Chief Executive Officer


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Good afternoon, and welcome to the Dell Inc. First Quarter Fiscal Year 2013 Earnings Conference Call. I'd like to inform all participants, this call is being recorded at the request of Dell. This broadcast is a copyrighted property of Dell Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Inc. is prohibited. As a reminder, Dell is also simulcasting this presentation with slides at [Operator Instructions] I'd like to turn the call over to Rob Williams. Mr. Williams, you may begin.

Robert Williams

Thanks, Regina. With me today are Michael Dell, Brian Gladden and Steve Felice. During the Q4 earnings call, we discussed our initiatives to create a more streamlined and efficient earnings process. Effectively, we are reducing prepared comments and increasing the content in the web deck. The web deck, along with our DellShares VLog, are posted to our website in advance of the call, and I encourage you to review these for additional perspective.

Next, I'd like to remind you that all statements made during this call that relate to future results and events are forward-looking statements that are based on current expectations. Actual results and events could differ materially from those 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 statements in our press release and web deck. We assume no obligation to update our forward-looking statements.

Please also note that we will be referring to non-GAAP financial measures during -- including non-GAAP gross margin, operating expenses, operating income, net income and earnings per share. Historical non-GAAP measures are reconciled to the most directly comparable GAAP measures in the web deck posted in the Investor Relations section of and in our press release and 8-K filed today. I encourage you to review these documents as well. Please also note that unless otherwise mentioned, all growth percentages refer to year-over-year progress.

Now, I'll turn it over to Brian.

Brian T. Gladden

Thanks, Rob. While we continue to make strong progress in the transformation of the company, our first quarter results were mixed, and we fell short of our own expectations. There were some areas where our execution was not as expected, and there also are some market dynamics that created some headwinds for us. We want to be clear that we remain committed to our strategy, and we want to acknowledge that our progress will not always be linear.

Our commitment to build a broader set of end-to-end solutions and shift the mix of our business continues to be our top priority, and we're making progress. Our mix of enterprise solutions and services is now 50% of our margin and 31% of our revenue. Dell-owned IP storage, which is a key component of our enterprise solutions and an area where we made significant investment, grew at 24%. And we've announced 5 and closed 3 acquisitions year-to-date, all of which will help drive higher value mix and more predictable revenue and marginal -- margin streams going forward. Specifically, the acquisitions of SonicWALL and AppAssure further enhance our portfolio of Dell security and software solutions.

For the quarter, we delivered revenue of $14.4 billion, down 4%. This was below our outlook. There are a few key causes to the shortfall. Our sales execution was not up to our expectations, and we've made changes to improve this as we head into the second quarter. Additionally, the demand environment was tougher than we planned, and I'd specifically highlight weaker demand in markets like EMEA and parts of Asia, in addition to public markets. Finally, we're seeing a more challenging competitive environment in a few areas of the business. We'll address these items in more detail in a moment.

I'll refer to non-GAAP financial measures going forward. Our gross margin was 22%, up 30 basis points sequentially. While we saw improved enterprise solutions and services margins and mix and a sequential business shift from consumer to commercial, margins were impacted by a tougher pricing environment in client products. OpEx was down $183 million sequentially, driven by one less week in the first quarter versus the fourth quarter, combined with reductions in G&A and sales compensation.

Operating income was $1 billion or 7% of revenue. Cash flow from operations was a negative $138 million. While Q1 is normally a seasonal low for cash flow, the sequential revenue decline, coupled with a 14th week in Q4, negatively impacted our accounts payable balance in the quarter. Our trailing 12-month cash flow from operations was $4.9 billion, up 17%. We allocated $300 million of capital to repurchase 17 million shares of Dell's stock and ended the quarter with $17.2 billion in cash and investments.

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