Dell Technologies Inc. (DELL) Earnings Call Transcript & Summary

Good morning, and welcome to the Dell Technologies Inc. 2020 Annual Meeting of Stockholders. I'd now like to turn the call over to Rob Williams, Senior Vice President of Investor Relations. Mr. Williams, you may begin.

Thanks, Cole. With me on the call today are Michael Dell, our Chairman and CEO; Tom Sweet, our Chief Financial Officer; Rich Rothberg, our General Counsel and Secretary; and members of our Board of Directors. Also in attendance is Rich Puccio from PricewaterhouseCoopers, or PwC, our independent auditor. Dell Technologies 2020 Annual Meeting of Stockholders is ready to begin. I'd like to remind you that all statements made during this meeting 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 Form 10-K for the fiscal year ended January 31, 2020. We assume no obligation to update our forward-looking statements. If you have questions that you would like to ask during the meeting, please submit your questions in the box located in the lower-left corner of the online portal. Following the formal portion of the meeting, we will answer appropriate questions that have been submitted by stockholders via the web portal. The company will endeavor to provide responses to all stockholder questions following the conclusion of today's meeting. We intend to post these responses on our Investor Relations website, accessible via investor.delltechnologies.com or to follow-up directly with the inquiring stockholder. If you have a question that is not related to the proposals presented at today's meeting, please e-mail your questions directly to [email protected]. Now let me turn the call over to Rich Rothberg.

Thanks, Rob. I will serve as Chairman of the Meeting and now call this meeting to order. We have received an affidavit from Broadridge Financial Solutions, Inc. certifying that written notice of this meeting, along with related proxy materials, were timely mailed or made available to Dell Technologies stockholders of record as of May 4, 2020. Therefore, this meeting has been duly called. A list of the holders of the company's common stock as of the record date for this meeting is available for examination by any stockholder or any holder of a proxy representing a stockholder and may be accessed on the virtual meeting website via the link marked Registered Shareholder List. As of the record date for this meeting, a total of 739,842,194 shares of Dell Technologies common stock are outstanding and entitled to vote at the meeting. These shares include 384,538,823 shares of Class A common stock, 101,685,217 shares of Class B common stock and 253,618,154 shares of Class C common stock. Shares of each outstanding class of Dell Technologies common stock are entitled to the following votes: Each share of Class A common stock and each share of Class B common stock is entitled to 10 votes per share, and each share of Class C common stock is entitled to 1 vote per share. Natalie Hairston, on behalf of American Election Services, is serving as the inspector of election for today's meeting, has taken the oath of office. Ms. Hairston has indicated that over 695 million outstanding shares of Dell Technologies common stock, representing approximately 94% of the voting power of all issued and outstanding shares of common stock entitled to vote at the meeting, are present or represented by proxy at the meeting. Over 383 million outstanding shares of Class A common stock, representing approximately 99% of the voting power of all issued and outstanding shares of Class A common stock, are present or represented by proxy at the meeting. Over 101 million outstanding shares of Class B common stock, representing 99% of the voting power of all issued and outstanding shares of Class B common stock, are present or represented by proxy at the meeting. And over 209 million outstanding shares of Class C common stock, representing 83% of the voting power of all issued and outstanding shares of Class C common stock, are present or represented by proxy at the meeting. Therefore, a quorum is present. It is 10:06 a.m. Central Time on June 29, 2020, and the polls are now open for each matter upon which stockholders will vote. If you have not voted your shares, please cast your vote electronically in accordance with the instructions posted on the website. If you have already voted online or by submitting a proxy card or voting instructions, there is no need for you to vote again unless you wish to change the proxy or instructions you've already provided. The proxy holders will vote your shares as indicated on your proxy card or voting instructions. If you are a registered or record holder of Dell Technologies common stock and you signed and submitted a proxy card but did not indicate any voting instructions, your shares will be voted as described in the proxy statement. At this time, we will consider the items of business on the agenda. We have 3 proposals to vote on today. Proposal 1, election of directors. Our Board currently consists of 7 directors. This annual meeting is the first Annual Meeting of Stockholders at which holders of Dell Technologies Class C common stock, voting separately as a series, will elect a Group IV director. Of the 7 director nominees for election at this meeting, 6 nominees will be elected as Group I directors by the holders of the shares of all outstanding series of Dell Technologies common stock voting together as a single class. The remaining director nominee will be elected as a Group IV director by the holders of Dell Technologies outstanding Class C common stock voting separately as a series. The Board of Directors is asking you to vote for the following individuals it has nominated for election as Group I directors. The 6 nominees for these positions are: Michael S. Dell, David W. Dorman, Egon Durban, William D. Green, Simon Patterson and Lynn M. Vojvodich. In addition, the Board of Directors is asking the holders of Dell Technologies Class C common stock the vote for the election of Ellen J. Kullman to the Board as a Group IV director. Information about each nominee is set forth in the proxy statement. Each of the 6 Group I director nominees was elected to the Board of Directors at the 2019 Annual Meeting of Stockholders and is currently serving as a Group I director. Group IV Director nominee was also elected to the Board of Directors at the 2019 Annual Meeting of stockholders and is currently serving as a Group I director. Each director nominee is currently serving as a member of our Board of Directors. Holders of all series of Dell Technologies common stock will vote together as a single class in the election of the Group I directors. Holders of Dell Technologies Class C common stock will vote separately as a series on the election of the Group IV director. The Board of Directors unanimously recommends that stockholders vote for each of the foregoing nominees. Proposal 2, ratification of independent registered public accounting firm. The Audit Committee has selected PwC to serve as Dell Technologies' independent registered public accounting firm for the fiscal year ending January 29, 2021, and the Board is asking you to ratify that selection. The Board of Directors unanimously recommends that stockholders vote for ratification of the appointment of PwC. Proposal 3, advisory vote to approve named executive officer compensation. In accordance with Section 14A of the Exchange Act and SEC rules, the Board of Directors is asking you to vote, on a nonbinding advisory basis, for the approval of the compensation of Dell Technologies' named executive officers as disclosed in our proxy statement for this annual meeting. Board of Directors unanimously recommends that stockholders vote for the approval of the compensation of our named executive officers as disclosed in our proxy statement. The election of each nominee to the Board requires a plurality of votes cast with respect to shares present and entitled to vote on the election of directors. The approval of each of proposals 2 and 3 requires the affirmative vote of holders of shares representing a majority of voting power of shares present and entitled to vote on the proposal. It is 10:10 a.m. Central Time on June 29, 2020. The polls, including electronic voting via the online portal, are now closed as to each matter presented for stockholder vote. The inspector of election has informed me of the preliminary voting results on each of the proposals. The final results will be reported in a Form 8-K filed with the Securities and Exchange Commission. With respect to proposal 1, election of directors. The number of votes for each nominee constituted at least the plurality of votes cast with respect to shares present and entitled to vote on the election of directors. Therefore, each of the nominees for Group I director and the nominee for Group IV director has been elected to serve on the Board until the earlier of next year's Annual Meeting and his or her successor is elected and qualified or his or her term otherwise ends. With respect to proposal 2, ratification of independent registered public accounting firm. The number of shares voted for the proposal represented approximately 99% of the voting power of the shares present and entitled to vote on the proposal. Therefore, the stockholders have ratified the selection of PwC as Dell Technologies' independent registered public accounting firm for the current fiscal year. With respect to proposal 3, advisory vote on named executive officer compensation. The number of shares voted for the proposal represented approximately 99% of the voting power of the shares present and entitled to vote on the proposal. Therefore, the stockholders have approved named executive officer compensation on a nonbinding advisory basis. That completes our official business, and I now declare the meeting to be adjourned.

We will now answer questions that have been submitted via the web portal. [Operator Instructions] We will take questions for approximately 10 minutes. Stockholders of record who would like to ask a question may do so by electronically submitting your question in the box located in the lower-left hand corner of the online portal. We'll now go to our first question. Tom, the first question is for you. How has your company reduced expenses and increased technology for the company during this pandemic? And as a follow-up, Tom, how are U.S.-China tensions affecting Dell Technologies?

Thanks, Rob. I'm happy to answer both of those elements of that question. On the first part of that question around how we increased technology for the company during the pandemic, I think it's, first, we should say that Dell Technologies has had a philosophy of a very flexible workforce in place for the last 10 years. And so as we pivoted to a work-from-home environment in early March, we already had the capability, much of that, in place. We have implemented video conferencing capabilities, such as Microsoft Team and Zoom. Our VPN capability was quite strong. Our infrastructure was in place. So the technology backbone to allow our team members to work effectively from a remote or work-from-home situation was in place, and we've continued to enhance it. And we'll continue to look for ways to enable our team members to be productive and serve our customers effectively as we navigate through the pandemic. As it relates to how are we positioning the company relative to the navigation through the pandemic? It's been a very dynamic environment. Obviously, we saw a very interesting demand pattern in Q1, where the work-from-home demand from our customers as they implemented their BCRPs was quite strong. And as we said in our earnings release a number of weeks ago, we also saw softness in our infrastructure space. As a result of that, and given the macro dynamics we're seeing around the macro GDP, U.S. GDP and how countries are navigating through the COVID crisis in terms of the stay-at-home orders and how they've limited economic activity, we've taken a number of steps to ensure that the company is well positioned to navigate what is an uncertain demand environment. Those actions included a hiring freeze. Those actions included limiting travel and entertainment, given the dynamics of the environment. We also limited employee movement in promotions and merit, just in the spirit of making sure that our capabilities were in place. And we've also limited or suspended our 401(k) match. We will continue to navigate through this to make sure that our cost framework is appropriate. In addition to the cost actions, though, we've also taken steps to ensure that the liquidity profile makes sense relative to the environment. We issued $2.25 billion of bonds in early April to be used to repay debt at a future date. But that was all-around ensuring that our liquidity profile, relative to the maturity stack of our debt, was appropriate. So we've taken a number of actions to ensure the company is well positioned to move forward as we navigate through the COVID pandemic. As it relates to the U.S.-China tension, our perspective is China's an extraordinarily important country for us. It's our largest -- it's our second-largest market. It makes up roughly sort of mid-single digits in terms of our total sales mix. And we've got a long-standing relationship with our Chinese customers, our suppliers and our partners in China. We have navigated through what has been a pretty interesting dynamic over the last 2 to 3 years with the China-U.S. relationship. Our focus is that from a trade tension perspective, we'd like the governments to work together. We're proponents of free and fair trade. We're continuing to monitor developments from a -- in terms of how we ensure our supply chain continuity framework remains in place as we work to serve our customers. And so we're navigating through the environment, serving our customers, ensuring that we can fulfill our commitment. So Rob, that's essentially the answers for that particular question.

Okay. Great. Thanks, Tom. We have another question for you here. What steps will Dell take to increase shareholder value?

Hey, great question. We've always talked about shareholder value is -- our focus has been on increasing shareholder value over the long term. So it's all about value creation over the long term. We've got a number of -- our strategy essentially is this. One is all-around consolidation of the end market. So if you think about the markets we play in, our PC space, where we're #2 commercial PC in the globe, we're #1 from an overall revenue and profitability perspective over the long term, we have a #1 share in mainstream server revenue, we're #1 in external storage, we're #1 in HCI, we're #1 in private cloud infrastructure and I could go on with the list. But the point is, is that we serve very large end user markets, and those markets have a significant TAM. And our focus on is to continue to consolidate to grow faster than the competitors, faster than the relative market, continue to take share as we expand our footprint. We're also very focused on innovation in terms of how we drive value creation with unique integrated solutions as we harness the power of Dell Technologies. And you've seen that recently with the number of new solution releases over the last number of days -- or weeks, I should say, with the PowerStore, our new midrange external storage array; PowerScale, scale, our new unstructured solution that just rolled last week; the various solutions rolling out of VMware, all focused on how we drive innovation and capability. And I would remind everybody that we spend roughly $4.5 billion to $5 billion a year on R&D. And so that innovation engine is quite strong. We're also very focused from a value creation on our capital structure and optimizing our capital structure. All of us who are on this call know that we did put a fair amount of debt on the balance sheet when we did the EMC merger a number of years ago, and we've been very focused on paying down debt and delevering the balance sheet as we move towards investment grade, which is a focus of ours. And so optimizing our capital structure, ensuring that we're maximizing cash flow, and as we do that, positioning the company from a shareholder return perspective over the long term. So that's our value creation strategy in a summary fashion, Rob.

All right. Thanks, Tom. The next question is why do you need all the different classes of stock? And I'd be happy to address that question. I believe the shareholder in this case, or stockholder in this case, is referring to our Class A, B and C common stock. And as Rich Rothberg pointed out, there are different voting structures. We call this a dual-class voting structure. The Board continues to believe that this dual-class structure is appropriate at this time as it allows the Board and the management team to focus on long-term value creation for the benefit of all of our aligned shareholders. And as you all know, that is a recurring theme in all of our external communications, our focused on long-term value creation. The current structure, we believe, provides stability in the leadership and the management. It allows us to commit to and execute over a very long-term horizon and over a multiyear long-term strategy, which we've articulated in a number of our external events over the course of the last 1.5 years. And additionally, the interest of Michael Dell and Silver Lake are aligned, as I mentioned before, for the creation of sustainable long-term value. Through his leadership and vision, Michael has been and will continue to be an important part of the company's long-term success. And we believe that he remains highly incentivized, given his ownership, to create value for, again, all aligned shareholders. So hopefully, that gives you a sense of why we have that structure in place. And we'll move to the next question. See here, I see one last question that I think would be better if we answer it offline. So we will prepare a response to that question and then post it on our website. And in due course of time, I think that will be the best way to handle this last question. So with that, I see no further questions, and I do appreciate, and we all appreciate, everyone's attendance today. This concludes our question-and-answer session and our call. We thank you for participating in today's Annual Meeting. We invite you to visit our Investor Relations website for additional information or for a replay of this meeting. We will file the final results based on the final vote tally in the days following the meeting. Thanks, everyone.

Ladies and gentlemen, this concludes the 2020 Annual Meeting of Stockholders of Dell Technologies. You may now disconnect.