Dell Technologies Reports Fiscal Year 2017 Third Quarter Financial Results

These tables present information about the Company’s non-GAAP product net revenue, non-GAAP services net revenue, non-GAAP net revenue, non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income from continuing operations, EBITDA, and adjusted EBITDA, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with generally accepted accounting principles in the United States of America (“GAAP”). A detailed discussion of Dell Technologies' reasons for including the non-GAAP financial measures, the limitations associated with those measures, the items excluded from non-GAAP metrics, and our reason for excluding those items are presented in "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" in Dell Technologies' quarterly report on Form 10-Q for the quarterly period ended October 28, 2016. Dell Technologies encourages investors to review the non-GAAP discussion in conjunction with the presentation of non-GAAP financial measures.

 
 
DELL TECHNOLOGIES INC.
Reconciliation of Non-GAAP Financial Measures
(in millions, except percentages; unaudited; continued on next page)
             
Three Months Ended

% Growth Rates
Yr. to Yr.

Nine Months Ended

% Growth Rates
Yr. to Yr.

October 28,
2016

October 30,
2015

October 28,
2016

October 30,
2015

 
Product net revenue $ 12,366 $ 10,638 16 % $ 33,510 $ 32,100 4 %
Non-GAAP adjustments:
Impact of purchase accounting   261     (6 )   260     (20 )
Non-GAAP product net revenue $ 12,627   $ 10,632   19 % $ 33,770   $ 32,080   5 %
 
Services net revenue $ 3,881 $ 2,036 91 % $ 8,058 $ 6,132 31 %
Non-GAAP adjustments:
Impact of purchase accounting   269     113     413     390  
Non-GAAP services net revenue $ 4,150   $ 2,149   93 % $ 8,471   $ 6,522   30 %
 
Net revenue $ 16,247 $ 12,674 28 % $ 41,568 $ 38,232 9 %
Non-GAAP adjustments:
Impact of purchase accounting   530     107     673     370  
Non-GAAP net revenue $ 16,777   $ 12,781   31 % $ 42,241   $ 38,602   9 %
 
Product gross margin $ 1,804 $ 1,310 38 % $ 4,654 $ 3,745 24 %
Non-GAAP adjustments:
Impact of purchase accounting 437 12 461 22
Amortization of intangibles 604 98 806 295
Transaction-related expenses 18 - 16 1
Other corporate expenses   10     3     14     6  
Non-GAAP product gross margin $ 2,873   $ 1,423   102 % $ 5,951   $ 4,069   46 %
 
Services gross margin $ 2,095 $ 822 155 % $ 3,774 $ 2,388 58 %
Non-GAAP adjustments:
Impact of purchase accounting 292 112 436 386
Amortization of intangibles - - - -
Transaction-related expenses 12 2 9 5
Other corporate expenses   52     -     54     1  
Non-GAAP services gross margin $ 2,451   $ 936   162 % $ 4,273   $ 2,780   54 %
 
Gross margin $ 3,899 $ 2,132 83 % $ 8,428 $ 6,133 37 %
Non-GAAP adjustments:
Impact of purchase accounting 729 124 897 408
Amortization of intangibles 604 98 806 295
Transaction-related expenses 30 2 25 6
Other corporate expenses   62     3     68     7  
Non-GAAP gross margin $ 5,324   $ 2,359   126 % $ 10,224   $ 6,849   49 %
 
Operating expenses $ 5,411 $ 2,210 145 % $ 10,012 $ 6,621 51 %
Non-GAAP adjustments:
Impact of purchase accounting (121 ) (25 ) (157 ) (67 )
Amortization of intangibles (560 ) (394 ) (1,340 ) (1,183 )
Transaction-related expenses (1,170 ) (25 ) (1,304 ) (61 )
Other corporate expenses   (211 )   (14 )   (257 )   (31 )
Non-GAAP operating expenses $ 3,349   $ 1,752   91 % $ 6,954   $ 5,279   32 %
             
 
DELL TECHNOLOGIES INC.
Reconciliation of Non-GAAP Financial Measures
(continued; in millions, except percentages; unaudited)
 
Three Months Ended

 

Nine Months Ended

 

October 28,
2016

October 30,
2015

% Growth Rates
Yr. to Yr.

October 28,
2016

October 30,
2015

% Growth Rates
Yr. to Yr.

 
Operating loss $ (1,512 ) $ (78 ) NM $ (1,584 ) $ (488 ) (225 %)
Non-GAAP adjustments:
Impact of purchase accounting 850 149 1,054 475
Amortization of intangibles 1,164 492 2,146 1,478
Transaction-related expenses 1,200 27 1,329 67
Other corporate expenses   273     17     325     38  
Non-GAAP operating income $ 1,975   $ 607   225 % $ 3,270   $ 1,570   108 %
 
Net loss from continuing operations $ (1,637 ) $ (264 ) (520 %) $ (2,323 ) $ (1,000 ) (132 %)
Non-GAAP adjustments:
Impact of purchase accounting 850 149 1,054 475
Amortization of intangibles 1,164 492 2,146 1,478
Transaction-related expenses 1,200 21 1,326 41
Other corporate expenses 273 23 325 58
Aggregate adjustment for income taxes   (880 )   (127 )   (932 )   (381 )
Non-GAAP net income from continuing operations $ 970   $ 294   230 % $ 1,596   $ 671   138 %
 
Net loss from continuing operations $ (1,637 ) $ (264 ) (520 %) $ (2,323 ) $ (1,000 ) (132 %)
Adjustments:
Interest and other, net 794 203 1,362 600
Income tax benefit (669 ) (17 ) (623 ) (88 )
Depreciation and amortization   1,576     627     2,799     1,871  
EBITDA $ 64   $ 549   (88 %) $ 1,215   $ 1,383   (12 %)
 
EBITDA $ 64 $ 549 (88 %) $ 1,215 $ 1,383 (12 %)
Adjustments:
Stock based compensation expense 144 17 177 46
Impact of purchase accounting 693 118 851 392
Transaction-related expenses 1,200 21 1,366 41
Other corporate expenses   129     6     148     18  
Adjusted EBITDA $ 2,230   $ 711   214 % $ 3,757   $ 1,880   100 %
             
 
DELL TECHNOLOGIES INC.
Segment Information
(in millions, except percentages; unaudited)
 
Three Months Ended

% Growth

Nine Months Ended

% Growth

October 28, October 30, Rates October 28, October 30, Rates
2016 2015 Yr. to Yr. 2016 2015 Yr. to Yr.

Client Solutions Group (CSG):

Net Revenue:
Commercial $ 6,400 $ 6,437 (1 %) $ 19,343 $ 19,778 (2 %)
Consumer   2,787     2,499   12 %   7,635     7,262   5 %
Total CSG net revenue $ 9,187   $ 8,936   3 % $ 26,978   $ 27,040   0 %
 
Operating Income:        
CSG operating income $ 634   $ 384   65 % $ 1,503   $ 926   62 %
% of CSG net revenue 6.9 % 4.3 % 5.6 % 3.4 %
% of total segment operating income 30.5 % 59.9 % 43.7 % 54.4 %
 

Infrastructure Solutions Group (ISG):

Net Revenue:
Servers and networking $ 2,910 $ 3,163 (8 %) $ 9,222 $ 9,527 (3 %)
Storage   3,079     548   462 %   4,159     1,655   151 %
Total ISG net revenue $ 5,989   $ 3,711   61 % $ 13,381   $ 11,182   20 %
 
Operating Income:        
ISG operating income $ 897   $ 257   249 % $ 1,389   $ 776   79 %
% of ISG net revenue 15.0 % 6.9 % 10.4 % 6.9 %
% of total segment operating income 43.1 % 40.1 % 40.4 % 45.6 %
 

VMware:

       
Total VMware net revenue $ 1,289   $ -   NA $ 1,289   $ -   NA
 
Operating Income:        
VMware operating income $ 548   $ -   NA $ 548   $ -   NA
% of VMware net revenue 42.5 % NA 42.5 % NA
% of total segment operating income 26.4 % NA 15.9 % NA
 

Reconciliation to consolidated net revenue:

Reportable segment net revenue $ 16,465 $ 12,647 $ 41,648 $ 38,222
Other businesses (a) 312 104 530 279
Unallocated transactions (b) - 30 63 101
Impact of purchase accounting (c)   (530 )   (107 )   (673 )   (370 )
Total consolidated net revenue $ 16,247   $ 12,674   $ 41,568   $ 38,232  
 

Reconciliation to consolidated operating income (loss):

Reportable segment operating income $ 2,079 $ 641 $ 3,440 $ 1,702
Other businesses (a) (13 ) (15 ) (48 ) (50 )
Unallocated transactions (b) (91 ) (19 ) (122 ) (82 )
Impact of purchase accounting (c) (850 ) (149 ) (1,054 ) (475 )
Amortization of intangibles (1,164 ) (492 ) (2,146 ) (1,478 )
Transaction-related expenses (d) (1,200 ) (27 ) (1,329 ) (67 )
Other corporate expenses (e)   (273 )   (17 )   (325 )   (38 )
Total operating loss $ (1,512 ) $ (78 ) $ (1,584 ) $ (488 )
_________________
(a) Other businesses consist of RSA Information Security, SecureWorks, Pivotal, and Boomi offerings, and do not constitute reportable segments.
(b) Unallocated transactions includes long-term incentives, certain short-term incentive compensation expenses, and other corporate items that are not allocated to Dell Technologies' reportable segments.
(c) Impact of purchase accounting includes non-cash purchase accounting adjustments related to the EMC merger transaction, as well as the going-private transaction.
(d) Transaction-related expenses includes acquisition and integration related costs.
(e) Other corporate expenses includes severance and facility action costs as well as stock-based compensation expense.

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