Good afternoon, and welcome to the Fiscal Year 2021 First Quarter Results Conference Call for Dell Technologies Inc. I want to let everyone know that this call is being recorded at Dell Technologies' request. This broadcast is the copyrighted property of Dell Technologies Inc. Any rebroadcast of this information in whole or in part without prior written permission from Dell Technologies is prohibited. After the prepared remarks, we will have a question-and-answer session. Now, I will turn the call over to Rob Williams, Head of Investor Relations. Mr. Williams, you may begin.

Thanks, Erica, and thanks, everyone, for joining us. With me today are our Vice Chairman and Chief Operating Officer, Jeff Clarke; our CFO, Tom Sweet; and our Treasurer, Tyler Johnson. In addition to our press release, financial tables, and web deck, beginning with Q1, edited prepared remarks and additional materials are now available before the call on our IR website. The guidance section will be covered on today's call. During this call, unless we indicate otherwise, all references to financial measures refer to non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income, EBITDA, adjusted EBITDA, and adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release. Please also note that all growth percentages refer to year-over-year change unless otherwise specified and that VMware historical segment results have been recast to include Pivotal results. Finally, I'd like to remind you that all statements made during this call that relate to future events and results are forward-looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and SEC reports. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Jeff.

Thanks, Rob. We are all living and working in extraordinary times. On behalf of the Dell Technologies team, let me send our thoughts and best wishes to the global community. Though we are starting to see positive signs around the globe regarding the pandemic, we understand the unimaginable scope and scale of what is essentially a humanitarian crisis. We know that little in our world is untouched. On a personal level, what keeps me going is staying connected. COVID-19 has challenged every convention of our lives. I am finishing up day 78 working from home and settling into a new normal. I am remote, yet more connected than ever with a deeper sense of unity. I'm not traveling, but I'm visiting with more customers, partners, suppliers, and team members, and I'm busier than ever, yet I have more time for my family than I've had in years. Reflecting on the past quarter, several truths have been reinforced through the pandemic. Firstly, technology has never been more important. It plays a key role in fighting the virus on the front line; it is essential in the development of vaccines and will be a catalyst in the recovery. As a result, digital transformation will accelerate us into the fourth industrial revolution. Lastly, Dell Technologies' broad portfolio of businesses and capabilities enabled us to work through the crisis and deliver differentiated results for our customers and our company. Over Q1, through today and into the future, our focus has been and will be on, one, our people; two, our customers; and three, our business. Let me start with our team members. The safety and health of our team members, their families, and the communities where we live and work is job one. We restricted global travel and moved to virtual-only events. 90% of our 165,000 team members worldwide moved to work from home over one weekend, and they are successfully supporting our customers and partners remotely. We are also protecting our essential employees whose jobs require them to be on-site or with customers with new pandemic-specific protocols. Next, our customers. Consumers to small businesses to multinational corporations were forced to implement work-from-home and learn-from-home strategies and reestablish business continuity literally overnight. We saw a flight to quality where customers leaned on technology partners who had the flexibility and agility to provide solutions at scale across all their IT needs and deliver services quickly and globally. Consider New York City as an example. Our team helped their IT department support the city's health care professionals and first responders, securing critical technology ranging from PCs to servers, storage, and VMware, all in a centralized manner with swift implementation. As governments issued their shelter-in-place orders, no one was at receiving docks to get the needed technology. So we shipped notebooks, monitors, and accessories directly to people's homes, or we set up drive-throughs with proper social distancing and PPE in place to get people the equipment they needed to be productive and connected. We rolled out our payment flexibility program, so customers can access the technology they need now, scale the usage of IT, and preserve cash. This program includes 0% interest rates and up to 180-day payment deferral, alongside $9 billion in financing available this year. Plus, we added a one-year term to our Dell Technologies On Demand offerings, which can be used with our cloud platform to rapidly consume hybrid cloud infrastructure. As for the business, we saw unprecedented demand dynamics over the course of the quarter. Though we face an uncertain environment ahead, we made prudent in-quarter decisions to manage costs and liquidity, ensuring our actions remain in line with our unchanging strategy to gain share, integrate, innovate across our portfolio, and create long-term value for all stakeholders. Despite uncertainty, we are in a position of strength; we hold a unique opportunity to perform differently, no matter the environment. To provide specifics on demand, we saw high single-digit order growth for commercial clients and double-digit order growth for notebooks. For example, orders for our Latitude notebook family grew 37% year-over-year and 45% sequentially. This growth primarily came from large commercial and government customers, which did put some pressure on profitability. We were the only vendor in the top five to achieve positive year-over-year PC unit growth for calendar Q1, according to IDC. We reached our highest share position to date for worldwide PCs at 19.4%, and in commercial PCs, Dell moved to number two worldwide with 26.2% unit share. As customers shifted spending to remote solutions and virtualization, they did so at the expense of infrastructure spending, resulting in lower ISG demand. However, there were some highlights. While down, we anticipated improved server performance and expect to gain unit and revenue share for mainstream servers when IDC x86 results are released next month. Though we expect our external storage share to be roughly flat in calendar Q1, we anticipate share growth in high-end, purpose-built backup appliances and unstructured arrays. From a customer standpoint, we saw order strength in banking and financial services, government, health care, and life sciences, each up 15% to 20% in Q1. Additionally, strong double-digit demand was seen in consumer direct, along with solid high single-digit demand in small business. However, small and medium business demand softened as the quarter progressed due to shelter-in-place orders from various governments. Although we faced challenges, we were advantage by our agility, breadth, and scale, allowing us to quickly pivot and lean into existing opportunities. We actively embraced a new sales motion through our nimble teams, pivoting to virtual interactions with hundreds of thousands of customer engagements in the quarter. Furthermore, our e-commerce business distinguished us: site visits to delltechnologies.com increased by 77% in April, largely due to interest in remote work offerings and solutions like PC offerings, quick-start bundles for Virtual Desktop Infrastructure, and Secure Access Service Edge for home access, relieving stress on corporate networks. Another strength lies in our global supply chain's scale and resilience, which afforded us the necessary flexibility to manage through various challenges over the years. We've leveraged our global footprint and partnerships to fulfill orders quickly, exploring all sourcing, production, and logistics strategies to meet our customers' needs. We've continued to advance innovation in engineering with a primarily remote workforce, resulting in several critical solutions developed by our product teams recently. PowerStore is now shipping and marks a significant advancement in the market: it is up to 7x faster and 3x more responsive than our previous arrays. Customer feedback has been overwhelmingly positive, and we are experiencing unprecedented interest, building a robust pipeline. The recent launch of several Dell Technologies Cloud advancements, including Dell Technologies Cloud OneFS for Google Cloud, combines Isilon's scalability and performance with Google Cloud's analytics and compute services, simplifying management of private and public cloud storage for customers. In March, VMware introduced new software solutions placing us centrally in our customers' multi-cloud landscapes. These releases featured VMware Tanzu, a portfolio transforming how enterprises build, run, and manage applications. Significant updates to our VMware Cloud Foundation portfolio were also announced, marking the largest evolution of vSphere in a decade, alongside enhancements to NSX-T, vSAN, and vRealize Operations Cloud, continuing to drive innovation in our leading infrastructure stack supporting on-premise environments and public clouds globally. These examples demonstrate our response to customers' needs while executing our strategy. As the world pivots from response to recovery, I view this in three phases: Phase 1, rapid response, which is largely behind us; Phase 2, the new normal, where we realize work isn't a destination but can be done from anywhere; and then Phase 3, new opportunities, where high volumes of virtual and online business, alongside an accelerated digital existence, underscores the importance of creating an intelligent and secure supply chain. Artificial intelligence and machine learning will play a vital role in deriving meaningful business insights from the extensive data this digital era will produce. Dell Technologies is uniquely positioned to excel in this transition, exemplified by our Q1 performance highlighting our differentiation and resiliency. To summarize, our broad solutions, scale, and strength have never been more critical as customers increasingly turn to us as a trusted partner in times of need. Thanks to our customers and our incredible team efforts, we've successfully executed our strategy and emerged stronger. This pandemic has altered everything at an unprecedented pace, affecting billions of lives in mere weeks. Yet, it has also brought forth remarkable innovation, collaboration, and acts of heroism and humanity. There remains much to be hopeful for, with abundant opportunities on the horizon. Now I’ll pass it on to Tom for a deeper look at our financials.

Thanks, Jeff. The global effects of COVID-19 created a challenging environment for us, but I am proud of our team members and partners around the globe. They continue to support our customers and frontline organizations battling this pandemic while managing their own personal responsibilities. Demand was robust for work-from-home and learn-from-home solutions, particularly in the first two months of the quarter. Revenue for the first quarter was $21.9 billion, which was flat year-over-year. Exchange rate movements, particularly in the euro zone, Brazil, and China, created headwinds this quarter, impacting growth by approximately 170 basis points. Gross margin was down 1% to $7.3 billion or 33.4% of revenue. Overall, gross margin decreased due to the strong CSG performance and the mix shift to large commercial and government customers that Jeff mentioned. Given the environment, we proactively took steps during the quarter to protect and position the company. These measures included a global hiring freeze, reductions in consulting and contractor costs, global travel restrictions, and the recent suspension of our 401(k) match program. The majority of our costs are variable, allowing us to adjust quickly. Our rapid cost actions helped reduce operating expenses by 1% year-over-year and down 8% sequentially to $5.2 billion. We are continuously evaluating the business and prepared to take additional actions if necessary. Operating income decreased by 2% to $2.2 billion or 9.8% of revenue. Profitability was slightly lower as we handled multiple impacts throughout the quarter. Supply chain-related costs for specific components and expedited shipping costs increased during the quarter. We were also affected by mix dynamics related to strong demand for work-from-home solutions, a higher mix of large commercial and government transactions, and the impacts of a strong dollar despite adjusting pricing. Profitability was also impacted by the application of the new Current Expected Credit Loss, or CECL, accounting standard as we recorded increased receivable reserves of approximately $100 million. Our consolidated net income was $1.1 billion, a decrease of 5%, and EPS was $1.34, down 8%. Adjusted EBITDA reached $2.6 billion or 11.9% of revenue, totaling $11.8 billion for the trailing 12 months. Turning to our business unit results, the Client Solutions Group generated $11.1 billion in revenue, marking a 2% increase. Commercial revenue was $8.6 billion, up 4%, driven by double-digit order growth in commercial notebooks and mobile workstations. Consumer revenue was $2.5 billion, down 5%, as we reallocated supply directly from retail. Our consumer direct orders increased nearly 40%, while consumer retail orders fell 37%. The strong demand for remote work and learning solutions bolstered our commercial client and notebook performance. The team effectively navigated supply chain impacts, which led to extended lead times, particularly for mobile solutions; however, these are returning to normal levels. The ISG revenue totaled $7.6 billion, down 8%. Storage revenue was $3.8 billion, reflecting a 5% decline. We observed double-digit demand growth in VxRail and solid growth in our high-end PowerMax solution and unstructured storage, offset by weakness in other core storage areas. Servers and networking revenue amounted to $3.8 billion, down 10%. We did see improved order results for mainstream servers and anticipate gaining additional share in this category. The ISG operating income was $732 million or 9.7% of revenue, which marked a decrease of 60 basis points. The first quarter typically represents our lightest quarter for ISG, especially storage, as it traditionally builds throughout the year. Our VMware business unit demonstrated strength with revenue of $2.8 billion, a 12% increase, and operating income of $773 million or 28.1% of revenue. Based on VMware's stand-alone results, subscription and as-a-service revenue surged by 39%, with strong revenue driven by end-user computing, Carbon Black, and VeloCloud offerings, as well as VMware Cloud on AWS, which exhibited a triple-digit revenue growth rate. Both NSX and vSAN product bookings advanced by over 20%. Regarding our balance sheet and capital structure, we concluded the quarter with $13.2 billion in cash and investments. This includes cash from the $2.25 billion of notes issued by Dell Technologies and the $2 billion issued by VMware in the first quarter. As announced, the primary use of proceeds from these offerings is debt repayment. Earlier this month, VMware paid down $1.25 billion of the note due in August 2020. At the Dell Tech level, we expect to use the $2.25 billion in proceeds for debt repayment in the coming months. Our total debt balance concluded the quarter at $57.3 billion, while core debt ended at $36.6 billion. Core debt excludes $9.1 billion of DFS-related debt, most of which is non-recourse to the company and is secured by high-quality receivables. We are committed to ensuring DFS is well-capitalized to support our customers, as demonstrated by the $1.1 billion asset-backed fixed-term securitization we completed in the quarter. We are effectively managing working capital in this challenging environment. We had a use of cash flow from operations of approximately $800 million, influenced by our routine annual bonus payout, P&L seasonality, and about $900 million of COVID impact on working capital, primarily linked to timing of accounts receivable collections and increased inventory, which we expect to normalize in the coming quarters. Adjusted free cash flow in Q1 was a negative $1.2 billion after a very strong fourth quarter. Historically, our first quarter is our weakest in terms of cash generation due to normal seasonality effects. On a trailing 12-month basis, adjusted free cash flow stood at $7.6 billion. We've suspended the share repurchase program announced on the Q4 call. In Q1, we repurchased approximately 6 million shares for about $240 million. Our liquidity position remains robust with excess cash on the balance sheet and $5.5 billion of undrawn revolver capacity following a partial drawdown in Q1. We are satisfied with our capital structure, including our capacity to support DFS growth. We’ve worked to streamline our debt maturity timelines, with only $600 million due this June, plus approximately $200 million of debt amortization for the year. Reflecting on current results and future opportunities, it's clear we are a different company than we were three years ago and significantly different from any prior economic slowdowns. Today, we've assembled a broad set of capabilities distinct within our industry that supports an appealing financial model. We boast extensive diversification across our portfolio of software and service solutions, hybrid cloud technologies, and traditional infrastructure, all operating as multibillion-dollar businesses. Similarly, we are broadly diversified across our customer base, providing insight into customer behavior and demand trends given our direct model. Our software and security business now exceeds $15 billion, showcasing robust as-a-service and recurring revenue features, generating a stable revenue foundation during volatile times. Our total deferred revenue reached $27.6 billion, an upsurge of 14% year-over-year, while our recurring revenue, which incorporates deferred revenue amortization, utility, and as-a-service models, stands at approximately $6 billion each quarter, representing a 16% year-over-year increase. Our focus remains on maximizing long-term value creation for all aligned shareholders by outperforming competitors, facilitating faster EPS growth than revenue, and generating strong cash flow over time. Moving forward, we withdrew previously issued fiscal 2021 financial guidance during the first quarter. We experienced strong demand in February and March but saw a decrease in demand in the last month of the quarter due to our direct model and end-user relationships. Consequently, we anticipate Q2 revenue to be seasonally lower than prior years, typically reflecting a 6% to 8% sequential increase from the first quarter. Current data suggests a challenging environment, with global GDP expected to decline by 3% to 5% in 2020, and IT spending, excluding telecom, anticipated to drop by 5% to 10%. While difficult to forecast the slowdown's trajectory and its effect on IT spending, our responsibility is to manage our business prudently to be in a robust position when this crisis subsides. We remain committed to delevering and achieving investment-grade ratings. We intend to reduce core debt by approximately $5.5 billion in fiscal 2021, alongside the debt repayment from the Q1 issuance, although this may be subject to macroeconomic conditions and related business performance. In conclusion, while these are unprecedented times, Dell Technologies is well-positioned to move forward, consolidating, integrating, and innovating to shape the future of technology infrastructure while creating long-term value for all stakeholders. This is our strategy and focus. In a world increasingly seeking resiliency, reliability, and innovation, we are uniquely positioned to emerge as the essential technology company for the data era. With that, I'll turn it back to Rob to initiate the Q&A.

Thanks, Tom. Let's get to Q&A. We ask that each participant ask one question to allow as many of you as possible. Erica, could you please introduce the first question?

We'll take our first question from Aaron Rakers with Wells Fargo.

Yes. Thanks for taking the question. Just real quickly, kind of thinking about the demand environment, particularly around the server space. Can you talk about how you saw demand pull forward in this last quarter, and what maybe the pipeline and activity looks like thus far in May and how you're currently seeing and characterizing the component pricing environment? Thank you.

Sure. Aaron, a couple of things. If I look at the server environment, one of the things that you'll see from us is – or that we saw during the quarter, I should say, is our P&L performance was down 10% as you saw and we commented on. But from an order perspective in the mainstream space, it was down only 1%. From our perspective, we saw an improvement from last year's numbers or last year's performance to Q1. We observed demand in large businesses and in government for our server products, sustaining throughout the quarter. The same segments mentioned earlier, the small and medium businesses, were impacted in the third month, as Tom and I referenced. Lastly, the financial services, health care, and life sciences sectors displayed demand throughout the quarter. While we did not see indications of demand pull-in, we observed overall demand strength in the areas referenced, highlighting sequential improvement in our business. I'll let Tom add some color to that risk profile, then we can discuss the cost environment.

Yes, hey, it’s Tom. I would echo Jeff's sentiments. I wouldn't describe it as a pull-in situation, but rather, this quarter focused more on work-from-home and customer-centered solutions. As noted in our talking points, we saw overall weakness or softness in ISG compared to what we'd anticipated coming into the quarter. Just to clarify, Jeff's comment regarding the -1% from a demand perspective reflects global demand excluding China. So I want to make sure you're clear on that.

Regarding the component cost environment, we observed deflation in Q1, but our outlook indicates we'll shift to an inflationary environment in Q2, which we expect to persist for the remainder of the year.

Perfect, okay. Just a reminder, one question for each person, if you don’t mind and Erica, we’ll move to the next question.

We'll take our next question from Toni Sacconaghi with Bernstein.

Yes, thank you. I just wanted to follow up on the linearity question. What did you – what have you seen so far in May? It sounds like you are planning for demand to get worse. You highlighted that spending is correlated with GDP. With GDP expected to be down, IT spend is anticipated to decline by 5% to 10%. That's similar to how much it dropped during the financial crisis, and your revenues fell more than 10% during that period. Is that the framework you’re currently considering? Or do the changes to your business suggest that you should perform better? So, I guess it's a long-winded question around the linearity of April and May. If I interpret your comments, it seems like you believe growth, specifically in the enterprise, might worsen before improving given your GDP outlook and IT spending forecast.

Well, hey, Toni, it’s Tom. Let me start. We are undoubtedly not immune to the global macro environment. We aimed to provide perspective on what we saw in demand as we progressed through the quarter. It’s really early in May; thus, I wouldn’t want to comment on our demand trends at this point. However, in the earlier periods of the quarter, we noticed the typical commencement of demand in February and March, which accelerated significantly when the COVID crisis impacted both Europe and North America. As various governments, companies, and businesses shut down or shifted to requiring employees to work remotely, we experienced a marked surge in demand through March, predominantly in CSG. The spike represented fulfilling needs for work-from-home and distant learning. Predominantly moving into April represented a transition past that initial surge, and our focus shifted to optimizing that work-from-home approach. Additionally, we noticed typical seasonality with infrastructure spending growth; while still positive, it remained below historical growth benchmarks. Consequently, our guidance communicates we do not anticipate the Q1 to Q2 historical sequencing to hold. We recommend careful thought about how you approach expectations for that dynamic. That’s our framework moving into the second quarter, and we strive to proceed in a prudent manner. Jeff, do you want to add any additional clarity?

One thing I'd emphasize is that regardless of the demand environment, the approach we are taking regarding business management places emphasis on driving market share by seizing opportunities during demand fluctuations. We believe we accomplished this in Q1, and that will persist as our objective for Q2.

Okay.

We'll take our next question from Amit Daryanani with Evercore.

Thanks for taking my question, guys. Tom, towards the end of your comments, you mentioned the July quarter being up less than 6% to 8%, which is the historical number. Should I interpret this to mean that it is likely still to be up but perhaps significantly muted compared to historical norms? How should we consider margins and free cash flow? And specifically, is the expectation for fiscal 2021 margins to align with those of fiscal 2019?

Hey, Amit, this is Tom. Again, I'm not going to delineate specifics of our guidance. The $5.5 billion guidance provided represents our best current view of the quarter. Regarding margins, the overall outlook will depend on component costs and pricing dynamics throughout the year, as well as demand trends. Currently, we anticipate the component cost environment will trend inflationary for the duration of the year. Will see how that eventuates in relation to the demand landscape. Furthermore, our margin framework may adapt based on the mix dynamics we experience within the business. As a result, this context is crucial if you wish to consider how we typically approach seasonal impacts throughout the year, particularly as the ISG segment generally ramps during Q4. Thus, historical sequential performance may not persist during the upcoming quarter. I will not be able to provide any specific predictions but caution regarding expectations for the softening trend compared to historical norms.

Thanks, Amit.

We’ll take our next question from Wamsi Mohan with Bank of America.

Yes, thank you. Tom, how should we think about your OpEx trajectory? You noted a number of initiatives around cost savings. Can you help us gauge the total impact of those savings? How much has already flowed through in the quarter, if any? And how much is still pending realization?

Yes. Hey, Wamsi. In considering our actions, we aim to protect liquidity and our business while managing uncertainties in the demand environment. Recent actions regarding global hiring freezes, scaling back consulting costs, and other listed items resulted in positive impacts during Q1, but not the full quarter impact. Most of those measures were implemented mid-to-late March through early April. As a result, you can expect OpEx savings to accumulate as we advance through the year. We also intend to ensure adequate protection surrounding EBITDA production on a company-wide basis. While I won't define the overall impact from those OpEx adjustments, my primary message is that we are being prudent stewards of our business, ensuring it aligns and manages liquidity and cash appropriately while undertaking necessary investments to prepare the company for post-crisis success. I feel confident that we've made wise approaches, factoring in our current understanding. We will continue to assess business needs and have potential levers if required.

Yes, and those decisions have protected the investments we've made in capacity and coverage, particularly regarding the advancement of our storage, R&D, and innovation efforts. This aligns with our strategy to consolidate core components of our businesses while fostering innovation and integration across the Dell Technologies network to establish differentiated offerings.

All right. Thanks, Wamsi.

We’ll take our next question from Katy Huberty with Morgan Stanley.

Thank you. Jeff, Dell clearly managed the supply chain better than peers. I'd love to hear how you think that has opened up any cross-selling opportunities across the portfolio. Do you think that the share gains you observed in the first quarter are sustainable even as competitors catch up with their backlogs and supply chain disruptions?

Thanks for the question, Katy. One notable observation from the quarter was the flight to quality, where customers gravitated toward partners who provided the comprehensive capabilities and services required across our product range. This was evident across companies of all sizes, from small businesses to large multinationals. This flight to quality bolstered our standing within the industry, reinforcing the breadth of our product portfolio and the robustness of our supply chain execution. Our ability to successfully navigate the challenging environment, primarily due to quick decision-making regarding supply pivots and assessing second-level and third-level supply chains, has allowed us to continue delivering Q1 PC performance. We were the only OEM to experience growth during Q1. Our expectation is to gain unit and revenue share in mainstream markets, and I anticipate that this momentum will continue into Q2 and throughout the year. Such differentiation within our supply chain is sustainable and highlights our advantages. The advancements we have made in establishing a digital supply chain, coinciding with the digital transformation of many customers, include automation across our planning, procurement, manufacturing, and logistics, as well as data transparency, enabling us to maintain robust visibility into our supply chain performance and utilize predictive analytics to anticipate requirements. Overall, I believe this has positioned us favorably.

All right. Thanks, Katy.

We'll take our next question from Jeriel Ong with Deutsche Bank.

Yes, thanks for letting me ask the question. I know it's tough to predict future revenue trends, but I want to focus on OpEx, which is a line where you have good control. For the latest quarter, you noted a year-over-year decrease in total operating expenses. Can you provide insight regarding whether the leverage you're generating in your model can be sustained throughout the year and your view on OpEx trends for the full year?

Hey Jeriel, it’s Tom. Indeed, we have good control over OpEx and are approaching it thoughtfully. We believe there is leverage to be realized in our OpEx. The actions taken to date, along with the 401(k) match suspension, provide us with flexibility modeling differing scenarios based on demand trends and impacts on the P&L. While we feel confident about the actions taken so far, we anticipate continuing operational efficiencies going forward. Should the demand environment turn out markedly different from our predictions, we are ready to implement requisite actions to appropriately realign the business. Our goal is to ensure serviceability to our customers while safeguarding the capabilities of the business.

Spot on.

Thanks, Jeriel.

We’ll take our next question from Rod Hall with Goldman Sachs.

Yes, hi. Thanks for the question. Tom, I'd like to examine the working capital change from COVID— the $900 million impact you highlighted, specifically concerning cash flow. I understand that you mentioned the effects on accounts receivable and inventory. I'm curious about how the changes to receivables have transitioned into a more structural shift, allowing for slower customer payments through the year, or if that is merely one-off. Additionally, regarding inventory, could you elaborate on the components of that inventory?

Hey Rod, let me start, and then I'll let Tyler jump in. We wanted to bring attention to the unusual working capital impacts this quarter due to COVID. We primarily noticed impacts in our collections and inventory. Our team effectively engaged proactively with customers to capture insights into their disbursement cycles amid their remote work adjustments, as many government entities and businesses halted operations, hindering their ability to process and issue payments. We handled the receivable dynamics well, and I don't expect this trend to be structural. In fact, we've made good progress on that $600 million in May. That said, we may still experience some COVID-related impacts, such as somewhat longer payment cycles. We observed a bit of aging creep at the end of the quarter, but I don't foresee a significant bad debt issue; I do foresee slower payments. Moreover, as for inventory, we’ve been maintaining supply to satisfy customer demand, which we will work through as we progress through the second quarter. Tyler, perhaps you could expand on the cash question that Rod raised regarding cash flow generation?

Yes. The working capital impact stemming from COVID was important to highlight as we evaluate our debt obligations while still focusing on cash flow. Entering the year, we retained excess cash; when addressing full-year cash instead of just a quarter's performance, we are optimistic about recovering that working capital. The RSA proceeds will materialize later in the year, which will aid our cash generation for debt repayment. So if you analyze the overarching free cash flow generation required to satisfy debt payments, we feel confident in our positioning.

Also, keep in mind that Q1 is historically our weakest cash generation quarter. We've consistently observed that pattern, considering the typical payouts associated with bonuses, the seasonal adjustments of P&L figures from Q4 to Q1, and we generally enhance our cash flow through the year. Therefore, points regarding seasonality need to be factored into cash generation perspective.

Just a final note, regarding year-over-year comparisons, recall that as we entered Q1 last year, we discussed ongoing working capital improvements which yielded significant benefits. This year, we’re observing the opposite trend, which will affect year-over-year comparisons.

Great. Okay, thank you.

Yes. Thanks, Rod.

We'll take our next question from Shannon Cross with Cross Research.

Thank you very much. Jeff, since PowerStore is now out, can you discuss initial customer feedback and how you foresee it rolling out in terms of share opportunity? Any context you can provide would be appreciated. Thank you.

Sure. Thanks for the opportunity to talk about PowerStore, Shannon. We're extremely excited about the product. The initial reception exceeded our high expectations. We received excellent reviews of the product, being acknowledged as a major advancement in data storage hardware, as it sets a new industry benchmark. The pipeline for PowerStore is vast, with over 70% of our storage specialists having already created a pipeline since our launch. Remember, we began shipping in April and officially launched on May 5. Customer demand indicates significant differentiation, and we are excited about our product offering. There isn't anything comparable in the marketplace. PowerStore has three main distinguishing features. First, it's built with a data-centric architecture optimized for performance, scalability, and storage efficiency. Secondly, it provides 7x the IOPS and 3x lower latency than our previous storage solutions, enhancing its performance in the marketplace. Lastly, it offers flexible architecture and adaptability, allowing applications to run directly on the array itself. By wrapping these capabilities with our future-proof offer surrounding anytime upgrades and seamless migration, combined with our broad end-to-end portfolio, we hope to achieve a significant market presence in external storage. We have a strong position in the marketplace overall, and we believe the future is very promising.

All right, thanks, Jeff. Thanks, Shannon. Erica, can we have the next question, please?

We’ll take our next question from Jeff Kvaal with Nomura.

Yes, thank you very much, gentlemen. I certainly appreciate your caution about offering quantitative guidance regarding upcoming quarters; that makes sense. A potential alternative to assist us in our understanding could be the trajectory of the business throughout February and March, particularly in contrast to what you observed in April. Any insights regarding the softness you previously highlighted would be greatly appreciated.

Hey, Jeff, it’s Tom. We aim to be as transparent as possible while remaining appropriate. The quarter kicked off like any normal quarter until we experienced acceleration during the last week of February and early March when the COVID crisis commenced impacting Europe and North America, prompting companies and governments to shut down operations and work remotely. We observed a surge of demand during March, primarily for work-from-home orders. As April approached, we found ourselves beyond that initial demand spike, and our focus changed to optimizing that environment. Nonetheless, we did experience some demand softening in our CSG segment. We want to provide guidance that indicates we anticipate the historical sequential growth from Q1 to Q2 may not persist as expected. We are working to navigate the evolving environments and demands faced by our businesses and customers globally as they shift back to work in some instances while maintaining remote capacities. The past financial crisis that you mentioned, I acknowledge your point; however, our current scenario is markedly different from then, given our diverse solution offerings and revenue streams. Thus, the guidance we provided reflects our perspective on the unfolding demand environment navigating through uncertainty, with Jeff's comments extending on how we've managed demand perception.

The key takeaway is that regardless of short-term demand fluctuations, our focus remains on capturing market share when opportunities arise, and we believe we've achieved that in Q1, which we aim to continue in Q2.

All right, thanks, Jeff.

We'll take our final question from Jim Suva with Citigroup.

Hey, thanks so much, guys for fitting me in. I’m not the smartest guy but maybe the most handsome looking guy, I’m joking. With that being said, regarding your capital program, outlined in your goals for achieving investment-grade metrics, it seems that nothing has changed, but you suspended share buybacks. Can you explain the timing? You've indicated a goal of $5.5 billion in debt repayment along with the suspension of repurchases. Can you clarify what features or variables you are assessing to potentially reinstate the share buyback program? Are there hesitations regarding the $5.5 billion repayment, or is it more about capital deployment overall returns? Thank you.

Hey, Jim, it's Tom, and I'll let Tyler contribute as well. We remain committed to achieving investment-grade status and the strategy for $5.5 billion repayment remains unchanged. However, we’re approaching our decisions with caution. We suspended our share buyback as a prudent measure amidst the uncertainty regarding demand trends, aiming to maintain liquidity while prioritizing debt repayment. Nothing has altered in our capital allocation framework. We're working diligently towards $5.5 billion repayment with the understanding that how the business performs in the coming quarters will influence our approach.

I’d like to stress there’s no hesitancy regarding our commitments; rather, it’s about observing how the general business dynamics evolve over the next quarters. However, it's essential to note we are well-positioned to meet the $5.5 billion commitment.

Jim, also remember that Tyler highlighted earlier how we view cash generation and the metrics surrounding our cash position for the anticipated RSA sale. The $5.5 billion target appears realistic, and we will move forward to achieve this framework for the year.

All right, thanks, Jim. Thanks for the question, and thank you all for joining us. Just a quick reminder, next week, Michael will be participating virtually in the Bank of America Technology Conference, presenting a keynote at 12:35 Central Daylight Time. Additionally, the leaders of our various solution segments will attend events throughout June. Tom and Jeff will also participate in events mid-month and later this month. We look forward to connecting with all of you virtually at these upcoming engagements. Thank you again.

This concludes today's conference call. We appreciate your participation. You may now disconnect.