Dell Technologies Reports Fiscal Year 2019 Second Quarter Financial Results

Special Note on Forward-Looking Statements:
Statements in this press release that relate to future results and events (including the financial guidance with respect to non-GAAP revenue, non-GAAP operating income and non-GAAP net income) are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933 and are based on Dell Technologies' current expectations. In some cases, you can identify these statements by such forward-looking words as "anticipate," "believe," "confidence," "could," "estimate," "expect," "guidance," "intend," "may," "objective," "outlook," "plan," "project," "possible," "potential," "should," "will" and "would," or similar words or expressions that refer to future events or outcomes.

Dell Technologies' results or events in future periods could differ materially from those expressed or implied by these forward-looking statements because of risks, uncertainties, and other factors that include risks relating to the proposed exchange of shares of Dell Technologies Class V common stock for shares of Class C common stock or, at the holder's election, cash (the "Class V transaction"), including the failure to consummate or delay in consummating the Class V transaction, including the failure to obtain the requisite stockholder approval or the failure of VMware Inc. ("VMware") to pay the special dividend or any inability of Dell Technologies to pay the cash consideration to Class V holders; the risk as to the trading price of Class C common stock to be issued by Dell Technologies in the Class V transaction relative to the trading price of shares of Class V common stock and VMware Class A common stock; the interests of directors and executive officers of Dell Technologies in the Class V transaction that may be different from, or in addition to, the interests of stockholders generally; and other risks discussed in the "Risk Factors" section of the proxy statement/prospectus filed with the Securities and Exchange Commission on August 6, 2018, forming part of Dell Technologies' Registration Statement on Form S-4. Other risks, uncertainties and factors include competitive pressures; Dell Technologies' reliance on third-party suppliers for products and components including reliance on single-source or limited-source suppliers; Dell Technologies' ability to achieve favorable pricing from its vendors; adverse global economic conditions and instability in financial markets; Dell Technologies' execution of its growth, business and acquisition strategies; the success of Dell Technologies' cost efficiency measures; Dell Technologies' ability to manage solutions and products and services transitions in an effective manner; Dell Technologies' ability to deliver high-quality products and services; Dell Technologies' foreign operations and ability to generate substantial non-U.S. net revenue; Dell Technologies' product, customer, and geographic sales mix, and seasonal sales trends; the performance of Dell Technologies' sales channel partners; access to the capital markets by Dell Technologies or its customers; weak economic conditions and additional regulation; counterparty default risks; the loss by Dell Technologies of any services contracts with its customers, including government contracts, and its ability to perform such contracts at its estimated costs; Dell Technologies' ability to develop and protect its proprietary intellectual property or obtain licenses to intellectual property developed by others on commercially reasonable and competitive terms; infrastructure disruptions, cyberattacks, or other data security breaches; Dell Technologies' ability to hedge effectively its exposure to fluctuations in foreign currency exchange rates and interest rates; expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other tax compliance matters; impairment of portfolio investments; unfavorable results of legal proceedings; increased costs and additional regulations and requirements as a result of Dell Technologies operation as a public company; Dell Technologies' ability to develop and maintain effective internal control over financial reporting; compliance requirements of changing environmental and safety laws; the effect of armed hostilities, terrorism, natural disasters, and public health issues; Dell Technologies' substantial level of indebtedness; the impact of the financial performance of VMware; and the market volatility of Dell Technologies' pension plan assets.

This list of risks, uncertainties, and other factors is not complete. Dell Technologies discusses some of these matters more fully, as well as certain risk factors that could affect Dell Technologies' business, financial condition, results of operations, and prospects, in its reports filed with the Securities and Exchange Commission, including Dell Technologies' Annual Report on Form 10-K for the fiscal year ended February 2, 2018, quarterly reports on Form 10-Q, and current reports on Form 8-K. These filings are available for review through the Securities and Exchange Commission's website at www.sec.gov. Any or all forward-looking statements Dell Technologies makes may turn out to be wrong and can be affected by inaccurate assumptions Dell Technologies might make or by known or unknown risks, uncertainties and other factors, including those identified in this press release. Accordingly, you should not place undue reliance on the forward-looking statements made in this press release, which speak only as of its date. Dell Technologies does not undertake to update, and expressly disclaims any duty to update, its forward-looking statements, whether as a result of circumstances or events that arise after the date they are made, new information, or otherwise.

No Offer or Solicitation:
This communication does not constitute an offer to sell or a solicitation of an offer to sell or a solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended (the "Securities Act"), and otherwise in accordance with applicable law.

Additional Information and Where to Find It:
This communication is being made in respect of the proposed merger of a wholly-owned subsidiary of Dell Technologies Inc. ("Dell Technologies") with and into Dell Technologies, with Dell Technologies as the surviving entity, pursuant to which each share of Class V common stock of Dell Technologies will, at the election of the holder, convert into the right to receive shares of Class C common stock of Dell Technologies or cash, without interest, and each existing share of Class A common stock, Class B common stock and Class C common stock of Dell Technologies will be unaffected by the merger and remain outstanding. The proposed transaction requires the approval of a majority of the aggregate voting power of the outstanding shares of Class A common stock, Class B common stock and Class V common stock other than those held by affiliates of Dell Technologies, in each case, voting as a separate class, and all outstanding shares of common stock of Dell Technologies, voting together as a single class, and will be submitted to stockholders for their consideration. Dell Technologies has filed a registration statement on Form S-4 (File No. 333-226618) containing a preliminary proxy statement/prospectus regarding the proposed transaction with the Securities and Exchange Commission ("SEC"). The information in the preliminary proxy statement/prospectus is not complete and may be changed. After the registration statement has been declared effective by the SEC, a definitive proxy statement/prospectus will be mailed to each holder of Class A common stock, Class B common stock, Class C common stock and Class V common stock entitled to vote at the special meeting in connection with the proposed transaction. INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER DOCUMENTS RELATING TO THE TRANSACTION TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. You may get these documents, when available, for free by visiting EDGAR on the SEC Website at www.sec.gov or by visiting Dell Technologies' website at http://investors.delltechnologies.com.

Participants in the Solicitation:
Dell Technologies and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from its stockholders in favor of the proposed merger and the other transactions contemplated by the merger agreement, including the exchange of shares of Class V common stock of Dell Technologies for shares of Class C common stock of Dell Technologies or cash. Information concerning persons who may be considered participants in such solicitation under the rules of the SEC, including a description of their direct or indirect interests, by security holdings or otherwise, is set forth in the aforementioned preliminary proxy statement/prospectus that has been filed with the SEC.

 

DELL TECHNOLOGIES INC.

Condensed Consolidated Statements of Income (Loss) and Related Financial Highlights

(in millions, except per share amounts and percentages; unaudited)

                       
 

Three Months Ended

     

Six Months Ended

   
 

August 3, 2018

 

August 4, 2017

 

Change

 

August 3, 2018

 

August 4, 2017

 

Change

Net revenue:

                     

Products

$

18,149

 

$

15,102

 

20 %

 

$

34,820

 

$

28,736

 

21 %

Services

4,793

 

4,419

 

8 %

 

9,478

 

8,785

 

8 %

Total net revenue

22,942

 

19,521

 

18 %

 

44,298

 

37,521

 

18 %

                       

Cost of net revenue:

                     

Products

14,943

 

12,775

 

17 %

 

28,549

 

24,598

 

16 %

Services

1,876

 

1,778

 

6 %

 

3,748

 

3,498

 

7 %

Total cost of net revenue

16,819

 

14,553

 

16 %

 

32,297

 

28,096

 

15 %

                       

Gross margin

6,123

 

4,968

 

23 %

 

12,001

 

9,425

 

27 %

                       

Operating expenses:

                     

Selling, general, and administrative

4,961

 

4,540

 

9 %

 

9,905

 

9,136

 

8 %

Research and development

1,175

 

1,093

 

8 %

 

2,262

 

2,226

 

2 %

Total operating expenses

6,136

 

5,633

 

9 %

 

12,167

 

11,362

 

7 %

                       

Operating loss

(13)

 

(665)

 

98 %

 

(166)

 

(1,937)

 

91 %

                       

Interest and other, net

(455)

 

(545)

 

17 %

 

(925)

 

(1,117)

 

17 %

Loss before income taxes

(468)

 

(1,210)

 

61 %

 

(1,091)

 

(3,054)

 

64 %

Income tax benefit

(7)

 

(471)

 

99 %

 

(92)

 

(1,112)

 

92 %

Net loss

(461)

 

(739)

 

38 %

 

(999)

 

(1,942)

 

49 %

Less: Net income (loss) attributable to non-controlling interests

38

 

(7)

 

(643)%

 

136

 

(39)

 

(449)%

Net loss attributable to Dell Technologies Inc.

$

(499)

 

$

(732)

 

32 %

 

$

(1,135)

 

$

(1,903)

 

40 %

                       

Earnings (loss) per share attributable to Dell Technologies Inc. - basic:

                     

Class V Common Stock - basic

$

1.61

 

$

1.00

     

$

3.97

 

$

1.60

   

DHI Group - basic

$

(1.44)

 

$

(1.65)

     

$

(3.39)

 

$

(3.94)

   
                       

Earnings (loss) per share attributable to Dell Technologies Inc. - diluted:

                     

Class V Common Stock - diluted

$

1.58

 

$

1.00

     

$

3.91

 

$

1.59

   

DHI Group - diluted

$

(1.45)

 

$

(1.66)

     

$

(3.40)

 

$

(3.95)

   
                       

Weighted-average shares outstanding:

                     

Basic - Class V Common Stock

199

 

203

     

199

 

205

   

Diluted - Class V Common Stock

199

 

203

     

199

 

205

   

Basic - DHI Group

567

 

566

     

568

 

566

   

Diluted - DHI Group

567

 

566

     

568

 

566

   
                       

Percentage of Total Net Revenue:

                     

Gross margin

27 %

 

25 %

     

27 %

 

25 %

   

Selling, general, and administrative

22 %

 

23 %

     

22 %

 

24 %

   

Research and development

5 %

 

6 %

     

5 %

 

6 %

   

Operating expenses

27 %

 

29 %

     

28 %

 

30 %

   

Operating loss

—%

 

(3)%

     

—%

 

(5)%

   

Loss before income taxes

(2)%

 

(6)%

     

(3)%

 

(8)%

   

Net loss

(2)%

 

(4)%

     

(2)%

 

(5)%

   
                       

Income tax rate

1.5 %

 

38.9 %

     

8.4 %

 

36.4 %

   

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