Good afternoon, and welcome to the Fiscal Year 2021 Fourth Quarter and Year End Financial Results Conference Call for Dell Technologies Inc. I would like to inform everyone that this call is being recorded at the request of Dell Technologies. This broadcast is the copyrighted property of Dell Technologies, Inc. Any unauthorized rebroadcast of this information, in whole or in part, is prohibited. After the prepared remarks, we will have a question-and-answer session. I would now like to turn the call over to Rob Williams, Head of Investor Relations. Mr. Williams, you may proceed.

Thanks, Katherine, and thanks, everyone, for joining us today. With me today are our Vice Chairman and COO, Jeff Clarke, our CFO, Tom Sweet; and our Treasurer, Tyler Johnson. Our press release, financial tables, web deck, prepared remarks, and additional materials are available on our IR website. The guidance section will be covered on today's call. During this call, unless we otherwise indicate, all references to financial measures refer to non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income, earnings per share, 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. Additionally, I’d like to remind you that all statements made during this call that relate to future results and events 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 filings. We assume no obligation to update our forward-looking statements. Finally, before I turn it over to Jeff, I want to touch on the amended 13D we filed in July 2020 regarding our exploration of potential alternatives with respect to our ownership interest in VMware. We continue to believe that a tax-free spin could drive significant shareholder value by simplifying our capital structures and enabling greater strategic flexibility while maintaining a strong commercial partnership between Dell and VMware. Both companies continue to be engaged on key work streams, and as VMware communicated earlier today, we are making progress in our discussion. However, there is no assurance that we will reach a definitive agreement. We will not address the discussions any further or take questions related to this topic on today's call. Now, I’ll turn it over to Jeff.

Thanks, Rob. Hi, everyone. Thanks for joining us for our first call of calendar 2021. 2020 was a year that none of us anticipated and none of us want to repeat. But it also brought out the best of humanity and reinforced the criticality of technology to solving the problems of today and tomorrow. At Dell Technologies, we are grateful and honored to have a central role in helping our customers, from consumers to the largest enterprises, keep our society, our economy, and our lives moving forward. Finally, I could not be prouder of how our teams responded in Q4 and throughout this challenging year, delivering for customers worldwide, the real business outcomes they need. As a result, our customer relationships and conversations have deepened. And no customer is asking how they can unwind their investments in digital transformations. It’s all about moving their businesses forward and investing in their future. For example, gaining insights from data, customers like the University of Pisa in Italy turned to PowerStore, PowerScale, and PowerMax for core storage infrastructure to enable remote learning and accelerate their hybrid cloud and AI projects. Swisscomm AG is using our as-a-service and flexible consumption storage solutions for affordable, on-demand access to extra capacity when they need it. And Dell Technologies is in the middle of the edge and telecom transformation, most recently with Tech Mahindra and AlefEdge in Brazil to offer edge computing as-a-service to local telecommunication service providers. These customer examples illustrate not just the market tailwinds that will benefit Dell Technologies, a future that is highly digital and highly distributed, but why we are uniquely positioned to take advantage of the trends. Our unique direct sales engine touches more customers than anyone in technology, giving us insights as we build solutions and allowing us to meet customers where they are in their digital transformation. Our breadth from edge to core to cloud makes us relevant no matter the customer challenge, and our unmatched global services allow us to simplify IT complexity for our customers. Behind all of this, of course, are award-winning product teams, a global supply chain with unmatched scale and reach, and financing capabilities that make us trusted advisors to IT decision-makers at companies of all sizes. Dell Technologies has never been stronger or more relevant. Turning to the financial results, we delivered a record $26.1 billion of revenue in Q4 with sequential revenue growth of 11%, driven by strong results in our CSG and VMware businesses, as well as our improvement in our ISG business. Tom will cover Q4 in more detail later in the call. For the full year, revenue was a record $94.4 billion, up 2%. Operating income was up 6% to $10.8 billion, and adjusted EBITDA was $12.7 billion, up 8%. Earnings per share for the full year was $8.00, up 9%. Throughout FY21, we leveraged the depth and breadth of our portfolio to lean into the pockets of growth when and where they occurred. We executed with discipline, speed, and precision. And, in what was an extremely dynamic environment, we delivered record results. Our Client Solutions Group had an outstanding year, delivering record shipments, revenue, and operating income. Revenue for the full year was $48.4 billion, up 5%, and operating income was up 7% to $3.4 billion. And for the calendar year 2020, according to IDC, we shipped 50.3 million units, up 8% and the most ever in a year. Our consumer business delivered record revenue of $13 billion for the year, up 12%. Customers have shifted to e-commerce, and our strategy shift earlier this year to our advantaged direct and online selling paid off, our consumer business was up 51% on a revenue basis based on orders, and our consumer online business was up 64% for the year based on orders revenue. We are emerging in an advantaged position for the enormous opportunities ahead, technology delivered as-a-service, 5G, and edge computing. Technology is clearly front and center for the digital futures, and Dell Technologies is uniquely positioned to win in the Data Era that is already underway.

Thanks, Jeff. Given what we were modeling for the demand environment early last year with the onset of the pandemic, I am pleased with the record results in revenue, operating income, earnings per share, and cash generation; both for the full year and the fourth quarter. The flexibility of our business model and the adaptability of our team positioned us to successfully navigate the macro environment while enabling our customers' digital transformation. We ended the year with a strong Q4. Revenue was up 8% to $26.1 billion, driven primarily by the strong growth in our CSG and VMware businesses, with improvement in our ISG business. With a weaker US dollar, FX was a tailwind in the quarter of approximately 100 basis points. Gross margin was $8.6 billion, up 3% and 33% of revenue. Gross margin as a percent of revenue was 170 basis points lower driven by the overall mix shift to CSG, given the strong client demand environment. Operating expense was $5.3 billion, down 5% year-over-year, but up 6% sequentially. In the quarter, we started to add back certain employee-related costs like 401(k) match, merit, promotions, and new hiring to support growth. Operating income was up 19% to $3.3 billion, or 12.6% of revenue driven primarily by the operating expense controls, revenue growth in CSG, and improved consumer gross margins. Consolidated net income was $2.3 billion, up 36%, and earnings per share was $2.70 a share, up 35%. Our operational execution and the strong demand environment combined to deliver record P&L metrics and a record $5.9 billion in cash flow from operations. Total deferred revenue was $30.8 billion, up $3 billion. Our recurring revenue, which includes deferred revenue amortization, utility, and as-a-Service models, is now approximately $6 billion a quarter, up 8% year-over-year. The VMware business unit also had a record quarter, delivering revenue of $3.3 billion, up 6%, and operating income of $1.1 billion, or 32.2% of revenue. Based on VMware's standalone results, subscription as-a-service revenue grew 27%. The business saw strong growth in the VMware Cloud Provider Program, End-user Computing, Carbon Black, and VMware Cloud on AWS. VMware Cloud on AWS once again had a great quarter with both workloads and revenue nearly doubling year-over-year. Looking at our Dell Technologies results from a geographic perspective, we saw an encouraging rebound in Q4 orders demand across many of our largest countries. In our top three markets, the United States was up 1%, China was up 12%, and the UK was up 18%. Given the uncertainty that arose in the early stages of the pandemic, this progress is extraordinary, and I'm proud of the team for our strong liquidity position as we exited the year.

Yes, thanks. I guess the question is on the PC business as we look at your growth commercial up 16%, I think your competitor tonight was down 6%. I'm just curious how do you see as we return back to normal just the demand environment on commercial PCs? And what's your expectation of growth in that segment as we move through the course of 2021?

Sure Aaron, this is Jeff. If you think about where the strong points of growth have been in commercial this past year we think there are sources of growth as we head into 2021, with education being one of those and the public sector being another. There's a modernization moving towards notebooks, the mobile form factor. We're seeing the mobile form factor now represent roughly 75% of the marketplace and desktops being 25%. That bodes well for public organizations that have been roughly 50-50 notebook and desktops, so some catching up to do there. We think that continues to fuel growth as we head into the 2021 calendar year, soon to be or now in our fiscal 2022. I think those signs are good. I think we also have to realize that people are going to go back to work and go into an office in many cases they haven't been in for five, six, seven quarters depending on when that occurs. That will be the largest aging or the most significant aging of an installed base that we have seen ever in our industry. I also think that this work-from-home and do-from-anywhere environment don’t believe slows down post-pandemic or as people return to the office. So, we're going to continue to see an environment where people will do more and more work, more and more of their activities away from the office, driving demand for PCs which have become essential in this type of work environment, this type of consumer environment. Long-winded way of saying I think the market continues to look strong. If you saw the IDC data that came out yesterday, their strength in the demand environment continues to be strong in both the commercial and consumer marketplaces in calendar 2021. I hope that helps.

Yeah. Great. Thanks for the question. Tom, I wanted to drill into this cash flow number because it's extremely strong. And just get you maybe to talk a little bit about working capital changes there. How that working capital change looks in April? I mean normally in April, you'd be increasing working capital. I wonder if that's going to be the case this year. Just maybe talk us through kind of how sustainable some of that is? Thank you.

Yes. Hi, Rod. I'm glad to discuss this. First, I want to highlight that the company had an impressive fourth quarter from a cash flow standpoint. This demonstrates the strength of our model, especially with the sequential growth we achieved quarter-over-quarter. Q4 has historically been a strong cash flow quarter for us. When considering the working capital dynamics, even with robust revenue growth that led to an increase in accounts receivable, our aging actually improved. We maintained good discipline around our inventory, and our payables position was appropriate. Overall, there wasn't anything unusual in the quarter regarding working capital dynamics; the team effectively managed the balance sheet, benefiting from the strong business and revenue environment. It's important to note that Q1 is usually our weakest cash quarter and often the weakest quarter of the year from a business standpoint, so we generally experience a cash burn in Q1. We expect to see this again this quarter, although likely not as pronounced as last year. We're focused on managing and being disciplined with the balance sheet.

Yes. Look, I think the only thing I would add is, look, I think we'll remain focused on working capital, right? I mean, we did end at really good levels, right? I don't expect there to be a material shift as we work through next year. So I guess the only other thing is keep in mind also that Q1 a year ago, we did have some impacts from COVID to working capital, right? So obviously, we won't have those same impacts going into Q1 this year.

Yes. Thank you. Maybe Jeff, what do you expect the shape of the recovery to look like in ISG this year given that was a laggard in fiscal 2021? And just a color around orders or the pipeline build that you saw in ISG that might build some confidence in a recovery? Thanks.

Sure. I will tell you it's one of the questions Tom and I often sit back and reflect on inside the company as we look at our FY 2022 plan just how the ISG market responds. You've seen the market forecast, there shows growth to be in both the server and storage sectors. We spend a lot of time trying to figure out a model, what that looks like in terms of when and at what rate it comes back. It's still a little foggy, if you will, to call, because if you look at the IDC forecast for storage as an example in Q1, it's negative. That said, I think there's some encouraging signs in our business. If you recall in our Q3 comments, I made a comment that our server business accelerated throughout the quarter and that momentum continued in Q4 to the point where our server business had, for the first time in eight quarters, growth; that's encouraging. We saw in our server business large bids respond back positively. Our small business and medium business sectors came back positively. So seeing growth in the server sector is I think very encouraging for us. We saw growth in the high-value workloads. We're actually very excited about the progress that we've made in high-value workloads seeing that growth being in, let's say, significant double digits, if you will, and increasing our share position in the most valuable workloads in the data center. I'm encouraged by that and it clearly looks like server momentum continues. Storage; clearly, you've seen our results; we were down in the quarter, an improvement over Q3. We saw vast improvement in the midrange, the first time we've grown the midrange now in storage, I believe, it's in nine quarters. We grew midrange by 8% on the back of PowerStore. We had growth in both our PowerStore business, our HCI segment, we grew in our PowerProtect data domain segment, and we grew in our all-flash array segment. So we had growth in those areas in our storage business, obviously, still down but I'm encouraged by the progress we've made in the midrange. I think I made reference in our talking points about PowerStore is now up four times what it was in Q3 and Q4. 20% of the customers are new to our storage business, just for PowerStore alone. It is clearly the vehicle that we intend to take share with in fiscal 2022. Given the progress that we've made and unstructured, the progress we've made in the high end this is the space for us to absolutely capture needed market share. We intend to do so.

No, I would just say, Jeff, I would agree with that, Katie. I mean it's just a trying to figure out the timing I think is what we've been focused on and it's a little unclear now. We clearly think the back half is better than the first half.

Hi. This is Peter Zdebski on for Tim. Congratulations on the quarter. I wonder if you could drill down a bit on the gross margin outlook into fiscal 2022, specifically as related to component costs and any supply chain considerations there.

Sure. Let me begin, and then Jeff can elaborate on the supply chain and component costs. When we consider margins, I won't dive into gross margin specifics, but I want to touch on the bottom line. There will be some mix dynamics throughout the year related to the CSG and ISG businesses. Additionally, we are reinstating operational expenses this year, including employee benefits like the 401(k) match and merit cycle. VMware is also increasing their investment in their business, leading to higher operational expenses. Overall, we anticipate that operating margins, percentage-wise, may be slightly lower than this year, and absolute dollars may also see a slight decline. These are aspects we are currently navigating. The reality is that we will need to address component costs throughout the year, which Jeff will detail; this will be another dynamic we have to manage.

Yes. I have to weigh on the supply chain and commodity cost dynamics. Clearly, in 2020 we ended the year as a deflationary year. Our view right now as we look at 2021 Q1 is light deflationary. And then we believe over the year, it becomes inflationary. What's driving that? We see in Q1 SSDs continue to be coming down in costs offset, if you will, by increased cost what we see in LCDs and ICs that are driving some of the demand supply shortages that we have in the marketplace today. If I was to call out one specific thing, which we're keeping our eye on is freight costs. Freight costs continue to be a challenge for us. So that's not exactly component or commodity cost that part of our supply chain transformation. And while rates have, I think, eased a little bit, the fact is the industry is using and we are using more air, we're expediting more and the air network is tight. So we continue to watch the cost increase overall in that area, as well as steering into an overall inflationary year in calendar 2021 but to be specific deflationary in calendar Q1.

Thank you, Tom. You mentioned that the full year 2022 guidance is expected to be in the low to mid-single digits, but I believe that current currency rates might provide an additional two points. Could you confirm this? You also mentioned that the IDC and Gartner end markets are projected to grow at 5%. Considering this, it seems you're anticipating some share loss in 2022. Can you clarify that? Additionally, there is considerable interest from investors in ISG, which has shown volatility over the past four years, with declines in three of the last four. Do you think that servers, networking, and storage can achieve growth at constant currency in fiscal 2022, and is that included in your guidance? Thank you.

Hey, Toni, let me connect the dots regarding your multiple data points. Our perspective for fiscal 2022 starts with cautious optimism about ISG demand. We will be careful about the timing of our actions, but we plan to seize growth opportunities as they arise. In terms of revenue, we are currently projecting a growth range of about 3% to 5%. We will keep monitoring the situation to capitalize on opportunities and will keep you updated as the year progresses. From a currency standpoint, we anticipate some positive effects, but I won't comment on the specific spot rate you mentioned.

I guess it's fair.

Thanks for taking the question. I wanted to see if you could maybe discuss the impact of the semiconductor supply constraints, what you're doing to address, what we've heard across the board in terms of shortages? And if you can quantify if there was a revenue impact in the current quarter and in the April quarter what you expect as a constraint from just supply chain shortages of semiconductors? Thank you.

Sure. I'm not sure, Simon. I know exactly what you're hearing, but I'll at least illustrate what we're working through, being clearly we've been maneuvering across our supply base for now the better part of 2.5 years there are shortages most notably for the past couple of years with microprocessors. I think we made mention of it at the end of last quarter, the notion of that's now impacting things like LCDs. At the core of the issue is wafer capacity is tax. There's been a number of substrate issues that have disrupted the supply that is impacted particularly the 8-inch network. The 8-inch network makes a lot of the basic components that we all need in the industry from T-com, the driver ICs to power ICs to microcontrollers, card readers, Codex you name it. Those are the types of issues we are working through as an industry. Certainly, Dell is working through that. I think we've shown the ability to be resilient and responsive. At this point of pride, we shipped the most PCs we've ever shipped in Q3. We followed that up in Q4 by shipping the most PCs we've ever shipped in Q4. We had the best quarter in terms of absolute shipments and calendar fee more according to IDC. We just came off 50 million units of PC shipments in the calendar year. This is what we do for a living. There are challenges. I'm certainly not in denial about that. If you look at the forecast that came out from IDC last night, there's certainly a lot of demand. And we have challenges to make sure that we get the supply for our companies. Again, it's totally new. We think our total buy helps us here. We think our long-term relationship with our supply base helps us here. We think our direct model helps us here by shifting demand to the components that we do get but if you are hearing that there are supply shortages you are hearing correctly. I hope it's across the areas that I described. And that's what we see and we're navigating real-time today.

Yes. Hi. Thank you for taking my question and congrats on the good results in delevering. Jeff I had a question on the storage front. You folks have done a great job in consolidating the storage product portfolio over the last couple of years. And we highlighted some share gains a few quarters ago. How should we think of that momentum going into FY 2022? And where is your storage market share today?

Lots of questions. Let me see if I can work through that. So we've largely spent the last three years simplifying and consolidating the portfolio into the power portfolio that you would know them as PowerMax, PowerStore, PowerVault, and PowerScale is the primary storage of vehicles. That's gone from I think I've quoted in the past 88 different platforms, consolidating that to roughly 20 across our portfolio. We've seen tremendous progress in consolidation in the above $250,000 product space over the last three years. I think I mentioned we've taken 1,300 basis points of share, have over 50% of the most valuable storage market. The challenges that we had, which we've talked about in numerous of these calls is midrange, which is the largest single portion of the marketplace and PowerStore is the vehicle that we built. We launched in May and have been ramping through the year to begin to change our growth trajectory in that business. I'm pleased to say midrange grew 8% in fiscal Q4. Again the first time we've grown midrange in nine quarters. It's all on the back of PowerStore. The product is being received well by our customers. Again, over Q3, we grew four times. We tripled the amount of competitive takeouts. 20% of the customers are new to our storage business just for PowerStore alone. It is clearly the vehicle that we intend to take share with in fiscal 2022. Your last question, what's our market share? If memory serves me right it's right at 29% from the last reported quarter from IDC, which was Q3.

Yes. Thank you. Last year about 12 months ago you had expected fiscal 2021 to look like fiscal 2019 from an op margin rate perspective instead it turned out to be quite different for obvious reasons. As we look at fiscal 2022, maybe can you draw a similar comparison looking back at prior years whether it's fiscal 2019, 2020 or 2021 and talk about how we should think about the profile of fiscal 2022? And if you can comment on order visibility trends relative to three months ago that would be helpful too? Thank you.

Hey, Wamsi, it's Tom. Let me provide some context. Fiscal Year 2021 had many unexpected changes due to the pandemic, significant growth in the CSG business, and the work-from-home environment. The supply and demand dynamics resulted in relatively stable pricing, which benefited our margins. As we look ahead to 2022, we expect our operating margin to decrease for a couple of reasons. First, consider the standalone guidance from VMware, which shows a decline in their operating margin. Additionally, we will have increased operating expenses due to employee benefits and other investments. Therefore, we anticipate that our operating margin percentage will be lower than it was in FY 2021. Compared to FY 2020, I expect it to be even lower. This is important to keep in mind, especially regarding how VMware's situation influences our overall performance.

Thanks for taking my question. I guess my question really going back to the free cash flow discussion. Really impressive free cash flow generation this quarter, I think, you're back within your target leverage you've talked about. So, I guess, I'm trying to understand how should we think about fiscal 2022 free cash flow what are kind of the puts and takes for consideration? And then do we expect to shift your capital allocation given all your macro commentary and the fact that leverage was in the target range now?

Yes, Amit. We don't provide a specific cash flow forecast. Our cash flow generation will partly depend on our business performance. However, we are optimistic about our cash flow and the business as we progress through the year. Our capital allocation policy will remain mostly stable, focusing on reducing debt. We have been consistent in this approach, and achieving an investment-grade rating will allow us to rethink our capital allocation policy. We will consider how much capital to allocate to debt repayment versus a shareholder return program, along with continuing investments in the business.

Thank you very much. I was curious given this is about the time when you look at your comp plans and maybe your channel strategy. What you're focused on for the coming year? And what kind of changes you've made to both our channel strategy as well as your comp plans? Thanks.

Hey Shannon, it's Tom and then Jeff can jump in here as well. We haven't made significant changes to our comp plans or channel strategy. We continue to refine them focused on incentivizing the behaviors we want around driving our higher-value products and services and capabilities and making sure that our programs both from an inside seller and Dell and team member compensation framework and our channel frameworks are consistent. So, not a lot of change to be honest right? We've adjusted certain payout structures based upon focus and emphasis which you might imagine we continue to be focused on the ISG portfolio to a heavy extent. We continue to be focused on our solution capabilities with VMware and we're incentivizing those appropriately.

Thank you very much for fitting me in. Tom, you gave some really good commentaries on overall in your different business segments. I'd just like to ask one follow-up question on the storage business. You talked about how you've done a lot of consolidating of your products and you feel like your portfolio is in really good shape. If we compare though your recent results to say NetApp and some of the other ones that just recently came out though your year-over-year sales decline is still lagging the others. So, can you help me bridge the difference between your comments of the portfolio realignment and where you're positioning with the midrange or is it simply a lot of that positioning is yet to come in the future? Thank you.

I believe part of the answer is that we have a very extensive and diverse portfolio that covers all areas of the storage market, with all segments growing at a similar pace. I previously mentioned the progress we've made at the high end, where we've seen significant advancements. However, the high-end segment has experienced a slowdown both quarter-over-quarter and year-over-year. Our stake in that segment, which represents half of the market share, particularly affects Dell's performance. On the other hand, we are currently seeing growth in the HCI and midrange segments. Our success with HCI has continued and we are optimistic about its future. We have discussed the challenges we've faced in the midrange but are encouraged by the positive momentum we had at the end of Q4 in that area. While there's still work to do, we believe our products are competitive and performing well. Notably, our competitive takeouts have tripled quarter-over-quarter, and the number of new customers for PowerStore has doubled, indicating that one in five customers are new to Dell's storage offerings, which is four times larger than the previous quarter. We clearly have momentum to build on as we move into FY 2022.

Thanks, Tom. We will now move to Q&A. We ask that each participant ask one question to allow us to get to as many of you as possible. Katherine, can you please introduce the first question?

Our first question comes from the line of Aaron Rakers with Wells Fargo. Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.