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

Good morning, afternoon or evening, everyone. Thanks for joining us. Welcome to our first environmental, social and governance, or ESG-focused call for our investor community. My name is Karen Litzler-Hollier, and I'm a Director on the Dell Technologies Investor Relations team. We've posted the web deck for today's discussion on our Investor Relations website. The slides are intended to follow today's discussion. Our FY '20 social impact and FY '20 diversity and inclusion report were both published last week. These can also be accessed through the IR website, and I encourage you to review these documents in conjunction with this call. Before we jump into the agenda, let me cover a few housekeeping items. On July 15, we announced we are exploring a potential spin-off of our 81% ownership of VMware, and we will report our FY '21 second quarter results on Thursday, August 27. Today's call is intended to discuss our approach to ESG and our social impact strategy. And as such, we will not address nor will we take questions related to the July 15 announcement or our financial results. Next, 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 report. We assume no obligation to update our forward-looking statements. For today's call, we will first share some prepared remarks before taking questions. If you have a question at any time, please submit it online through the Ask a Question function on the webcast page. Our speakers today are Dell Technologies Chief Responsibility Officer, Chris Fraser; our Chief Diversity and Inclusion Officer, Brian Reaves; and our Head of Investor Relations, Rob Williams. Brian leads our Diversity Inclusion initiatives, reporting into our Vice Chairman and Chief Operating Officer, Jeff Clarke; and our Human Resources Officer, Steve Price. Chris has been driving our Corporate Social Responsibility or CSR efforts for the last 2 years and will soon be moving to a leadership role within our Telco business. Senior Vice President of Communications, J.J. Davis, will assume a new responsibility of leading the CSR organization, along with Global Communications. With that, let me now turn the call over to Chris Fraser to get us started. Chris?

Thank you, Karen, and hello to everyone. We are very happy to be with you today and taking the opportunity to provide an overview of our social impact strategy, which we refer to as Progress Made Real. And we are looking to share some of the highlights from the report that we launched last Tuesday, July 21. Let me first start by saying we strongly recognize the increased need for companies to view ESG as a key component in representing our full value to our stakeholders. As a complement to our financial disclosures, ESG's disclosures provide an opportunity for us to transparently and proactively share important ESG elements of our business. And we do this in 2 ways. The first way is that we develop disclosure vehicles ourselves, like our Progress Made Real report, our diversity and inclusion report, and we'll be sharing the Progress Made Real today. The second way we do this is by participating in external disclosures, ratings or ranking vehicles, like CDP or GRI, that are directly aligned to our business and to our stakeholder needs. As the value of having a robust ESG reporting strategy evolves, we are in the process of selecting additional external disclosures to fully represent our ESG efforts. There are over 600 ESG vehicles currently in market. And with that, Dell is committed to helping shape the ESG disclosure strategies in our industry as well. An active example of that work is that which we have recently done with the World Economic Forums, International Business Council and their efforts to develop common metrics and disclosures. Progress Made Real 2030 aligns to our company purpose, which is to create technologies that drive human progress. And it lays out our commitment to lasting change through what we believe to be ambitious goals we are looking to achieve in the next 10 years. We believe we have the biggest impact in achieving those through 3 important advantages: our global reach, our end-to-end technology offerings and the 165,000 team members who share a commitment to serving their communities. Given the critical issues that we're currently facing as a society today, impact from the global pandemic, socioeconomic disparities, racial inequality and more, it's more important than ever to reflect on the role responsible businesses can and should play in addressing these immediate challenges with widespread impact. As a result, our strategy has not fundamentally changed in light of these. It has been accelerated. So shortly after we announced our vision in November, the COVID-19 changed nearly every aspect of our lives around the globe. We responded to the immediate health and safety needs of our team members and their families first. That was our top priority, but we also responded to the needs of our communities and to the frontline organizations by providing technology, professional expertise and charitable dollars. Our advanced computing clusters are being used to understand how viruses like COVID-19 are spreading and how best to track them. Our technology donations are enabling rapid genomic sequencing and analysis of the virus to inform biomedical research in the hunt for new treatments and for vaccines. Our team members have united to support those disproportionately affected by the virus through virtual volunteering and personal fundraising. They have undertaken initiatives such as designing and 3D printing visors for first responders, all the way through to raising thousands of dollars to provide meals to those in needs. To date, our team members have contributed over 30,000 volunteer hours and more than $1.7 million in charitable contributions to those most affected by COVID-19. More recently, the murders of George Floyd, Rayshard Brooks, Breonna Taylor and countless others have spotlighted long-standing racial injustice in the U.S. and in other parts of the world. For that, I'd like to turn it over to Brian to talk through this.

Thank you, Chris, and hello, everyone. Weeks leading up to the publishing of our social impact and diversity and inclusion reports have been incredibly difficult. In early June, Michael Dell shared a note to our team members that we must consider our role to collectively do better. We established our Standing Strong Together community and task force, and we took the time to have tough conversations as a company, listening and identifying with intention the key areas where we can make the biggest impact. In our discussions, our Black team members, current and future, have been our focus. These listening sessions and conversations will continue. We have since shared with our team members the first phase of actions we'll take to create a truly inclusive culture here at Dell Technologies as well as to provide community support to solve racial inequities and to improve access to technology, education and economic opportunity for all. We pulled together leaders from across our business, all with the goal of identifying where we have room to build on our long-standing commitment to diversity and inclusion, be a more inclusive company and address one of the root causes of systemic racism, socioeconomic disparity. Our executive leadership will remain accountable for these commitments, ensuring diverse hiring, retention, development and promotion as well as the inclusion of diverse team members in succession planning. We identified 5 causes with a proven track record of positive impact and measurable change. Those causes are: Black Lives Matter, the National Urban League, the NAACP's legal defense fund, Amnesty International and 100 Black Men of America. Dell Technologies will match donations our team members make to these organizations dollar for dollar, up to USD 10,000 per team member. Our goal is to contribute USD 1 million in support of these change-making organizations. Widespread socioeconomic disparity continues to reveal itself as one of the root causes for the most devastating impacts we see in our society. As we look ahead, we must advocate for systemic change in bridge access to technology, education and jobs, starting with closing the digital divide. We are currently looking to take part in large-scale programs that give access to health care, education and economic opportunity and help solve major gaps in our society by bringing together technology solutions, more aggressive financing and broadband connectivity. Our commitment to addressing today's biggest problems remains rooted in the commitments we have made for the next decade. I'll share more about our broader diversity and including efforts later. But for now, let me turn it back over to Chris to take us through 3 of our 4 social impact pillars.

Thank you, Brian. I'd like to begin by providing a little bit of background on how we approach the development of our broader social impact strategy and how we drive oversight to ensure progress against our goals. In developing our goals for 2030, we started first with materiality and stakeholder engagement. Those were the most critical inputs. We began by capturing input internally, meeting with our executive leadership team and more than 80 key leaders across the business to understand their ESG goals and initiatives. In addition, we gathered feedback from our global team members through an all-employee survey. These conversations were important steps to aligning on our ESG priorities, and they were evidence of the deep commitment we have across all levels of the company. As a second piece of this, we engage with Ceres for their recommendation to meet the expectations of our diverse stakeholder groups and to help inform and improve our sustainability goals, our transparency around those goals and our stakeholder engagement process. In 2019, in conjunction with the consulting firm SustainAbility, we conducted an analysis to identify the material societal issues where Dell Technologies can play the most meaningful role. This included an external review and peer benchmarking analysis of corporate sustainability, philanthropy, ethics, privacy and diversity frameworks and trends, and customer requests for proposal to identify trends and topics they cared about. All of this helped us identify our key issues, which we prioritize based on 3 important criteria. The first, societal and environmental impact. This is our stakeholder view on Dell's ability to significantly impact the issue. Second was business impact and issues potential for significant impact on Dell Technologies. And third is our degree of influence, the scale of our potential impact on the issue. Collectively, these engagements helped to inform our definition of our 2030 goals, they outline -- that are outlined in our Progress Made Real plan, which we announced last November. We also believe that technology will play a key role in many of the UN Sustainability Goals, STGs. And we see the potential to contribute to at least 11 of the 17 STGs, which align with our commitments to create a positive impact. Success in achieving our goals is rooted in driving clear ownership and accountability across various levels of the organization. What you're seeing in this graphic is our high level governance structure that shows the depth of organizational commitment to achieving our goals, from the individual business units to our most senior executive leadership team. We have project managers and counsels in place to oversee the operational plan and executive ownership with oversight of the overall plan in each of the 4 pillars. In addition, the Board receives updates on ESG-related topics at meetings throughout the year. A recent example of that was that the Board was updated on our COVID-19 response and planning as well as our actions and planning on diversity and inclusion, particularly around our Standing Strong Together actions. So Progress Made Real is our comprehensive plan for how we'll have the greatest impact in 2030, and we look to do that by doing the following: prioritize environmentally sound and sustainable business practices, build an empathetic and inclusive workforce that advances underrepresented minorities and enables all team members to succeed, use our technology, our talent and our global scale for the greatest impact and hold ourselves and those with whom we do business to the highest ethical standards. We set 22 bold goals as part of our 2030 program, and they are designed to be the driving force for measurable progress. Our most ambitious moonshot goals represents the areas where we feel we can make the biggest impact. In this, our inaugural Progress Made Real report, we focus on thoroughly explaining our methodology and the data that show our baseline for each of the 2030 goals and out -- where available reflects the progress thus far on our long-standing initiatives. Beginning with next year's report, we will be providing year-over-year progress on each of the 2030 goals. So let's talk a little bit about our social impact pillars and the goals. In the interest of time, we'll primarily focus our commitment today on our moonshot goals. But you will find more details on all 22 of the goals in our social impact and DNI reports, which we have linked on the final slide of today's web deck. So let's begin with advancing sustainability. We have a responsibility to protect and enrich our planet, together with our customers, our suppliers and our communities. It is a core part of our business and we embed sustainability and ethical practices into all that we do. Our moonshot goal for the sustainability pillar is about driving the circular economy, which is especially important focus of our customers. We will take back an equivalent product for each product we sell. It's the first of our 3-part moonshot goal in this area. This calls for disruptive change in reshaping modern life and looks for ways we can design prospects out of waste, maximize value from the resources we use or avoid using certain resources at all. While there are many ways we are bringing circularity to global systems, we have structured this goal around 2 areas that form the backbone of our circular approach: Recycling, and creating our products and packaging from recycled or renewable materials. For the recycling component of the goal, we are strategically focused on improving accessibility, awareness and transparency of our programs. We're also committed to making progress on our packaging. This goal has us committed to having half of the material used to make our products come from recycled or renewable resources and 100% of our packaging from recycled or renewable materials by the year 2030. On this next slide, you see some of the ways we use and reuse innovative materials in the design of our products. I'd like to talk to 2 specific examples. The first, we've worked with the aerospace industry to identify sources of scrap fiber -- carbon fiber we can reclaim and then repurpose in select laptops, including our 25th anniversary Latitude. We've also worked with our suppliers, Seagate and Teleplan, to change the way rare-earth magnets are recycled and repurposed as new magnets in new Seagate hard drives across the industry, benefiting all electronic manufacturers. We're going to continue to evolve our approach and make progress on our goals through continuous innovation like -- innovations like these. Now let's talk about the Transforming Lives pillar. We believe Dell's scale and the support and innovative application of our portfolio can make a significant difference, especially as we look at health, education and economic opportunities. Our moonshot for the Transforming Lives pillar is to develop enduring results in these areas for 1 billion people. We have made a shift from traditional philanthropic efforts to a more collaborative model, joining forces with nonprofit partners, our customers and other companies to tackle and target very regional specific outcomes. We'll get to the 1 billion transform lives by tracking those who benefit from our Dell giving programs and initiatives, including through Dell Technology programs such as strategic giving and social innovation. It's probably good to give a couple of examples here. Earlier this year, we announced All for Progress. This is an internal campaign that taps into our technology and leverages the collective contribution of our 165,000 team members around the globe. It enables all of us to come together and make a significant impact on a common global cause. Our first campaign is focused on our communities, very specifically on supporting organizations that are helping those most affected by COVID-19. A focus area for us is to bring people into the digital economy. We have opened 21 solar learning labs, which are classrooms built from shipping containers and then equipped with solar panels and Dell Technology products. These labs provide digital access to thousands of people in parts of the world that lack reliable electronic grids. By 2030, our goal is to build 100 of these labs around the world. Lastly, let me touch on the foundational pillar of our Progress Made Real plan. Ethics and privacy play a critical role in our efforts to drive positive social impact and we are committed to continuing to be a leader in these areas. At Dell, we are not just focused on what we do, but equally important, how we do it. We are very honored to be included on the Ethisphere Institute's World's Most Ethical Companies list for the past 7 consecutive years. With upholding the highest standards of integrity, we are focused on transparency, integrity and responsibility. Our privacy moonshot goal for 2030 is that we will fully automate our data control process to make it easy -- easier for our customers to control their personal data. Earlier this year in January, we launched a new automated data control feature that allows customers to deactivate and reactivate their My Account data. Dell's privacy commitment also extends externally. We will continue to work with members of the Business Roundtable Chief Privacy Officers Counsel to advocate for U.S. federal consumer privacy law as part of our commitment to upholding our customers' right to privacy. A few examples where we're driving integrity and commitment to our values criteria include: we have a soft launch of our new ethics help line QR code to help our team members report suspected misconduct on the go externally to ensure that we continue to drive a high ethical standard in our partner ecosystem. Last year we launched the international digital partner initiative. And this enables our Dell partner program participants to assess and enhance their anticorruption compliance programs. Last but certainly not least, we have enhanced Dell's code of conduct for partners and launched a new code of conduct for our authorized marketing agencies that outlines Dell's ethical standard and compliance expectations. Now I'll turn it back to Brian to discuss our diversity and inclusion efforts.

Thanks, Chris. Of the 22 Progress Made Real goals that Chris spoke about, 2 in particular will propel us forward in the area of diversity and inclusion. First, by 2030, 50% of our global workforce and 40% of our global people leaders will be those who identify as women. Second, by 2030, 25% of our U.S. work force and 15% of our U.S. people leaders will be Black, African-American and Hispanic Latino minorities. Here at Dell Technologies and around our industry, we know we have work to do. Today, our senior leadership does not reflect the diversity of the people we serve. We must increase the diversity of our leadership and our workforce overall by attracting, developing and retaining diverse talent. Diversity and inclusion empower creativity, which leads to stronger customer connections. Let's first talk about how we'll build and attract a future workforce. We are committed to growing our pipeline through programs that enable us to maintain connections with diverse talent regardless of what we're facing in this environment. An example of that is Project Immersion. The Project Immersion initiative partners with select historically black colleges and universities or HBCUs, minority serving institutions or MSIs, and Hispanic serving institutions or HSIs. Through the partnership, we curate classes, workshops, seminars and develop and deliver curriculum that prepare students with the skills most desired by the tech industry and needed to thrive in the future digital experience. As of February 2020, more than 300 STEM, or science, technology, engineering and math as well as business students at various diverse colleges and universities have participated in Project Immersion. These efforts have contributed to our most diverse intern class to date with 27% of our 2020 North America interns being Black or Hispanic. We are also extremely committed to seeing our current employees develop and grow, ensuring every team member has equal opportunity for career advancement. A couple of examples include our new Diversity Leadership Acceleration Program or DLAP, which is a 9-month coaching and sponsorship program to help high-performing women advance their careers at Dell Technologies. Another key program is Releasing Female Potential or RFP, which is a development opportunity for early- to mid-career professionals at Dell to help them navigate career or life challenges and reach their full potential. After the 2019 cohort completed RFP, 26% of that cohort received a promotion. Finally, it's important to scale our programs for maximum impact. One way we're doing this internally is by creating a new collaborative council called the Diversity Action Council, or DAC. This collaborative council approach includes enhanced communications between our long-standing global diversity council, which Michael Dell chairs as well as D&I and HR, and provides mechanisms to prioritize activities and enable long-term planning of our D&I initiatives. We're also partnering with nonprofits and nongovernmental agencies that help us deeply understand community needs and advocate public policy change. One of these partnerships is with Management Leadership for Tomorrow, or MLT. MLT supports diverse, highly talented candidates from underrepresented communities by offering training, career coaching, job search and networking events to help students find early- to mid-career opportunities. Also, ongoing relationship with partners like Catalyst, an organization dedicated to pioneering research and solutions that advance more women into leadership, allows us to compare our representation data against that of our competitors, develop research-based programs and continue collaborating with other industry leaders on solutions. We're also working to break down bias by creating space for honest conversation, both with our team members and even some of our customers. Through our many advocating real chains or marked foundational learning, we educate employees on topics including unconscious bias, privilege, insider-outsider dynamics and gender role conditioning and how they impact inclusion. This year, we are expanding this learning to include anti-racism content. Diversity inclusion is not a nice to have at Dell Technologies. It's an enduring part of our business and culture. Now let me turn the call over to Rob to discuss governance and then take us into Q&A. Rob?

Thanks, Brian. We'll start Q&A in a few minutes. So a quick reminder to submit your questions online using the webcast page. Before we turn to your questions, I do want to cover a few governance-related topics. Let me start by acknowledging we are a controlled company with a majority owner and founder. We recognize that the multi-class voting structure in place at Dell Technologies raises questions for many shareholders and we understand the broad shareholder preference is one share, one vote. We are listening. We have taken steps to address governance topics that are important to our shareholders and will continue to engage going forward. Our Board of Directors is comprised of experience -- of an experienced set of directors that provide diverse perspectives and strong oversight over management's execution of our long-term strategy. The combination of the various skill sets across our directors positions the Board to have a unique insight into the strategic direction of Dell Technologies, including industry expertise, financial literacy, international business experience, operational perspective and public company CEO experience. Additionally, at this year's annual meeting, our Class C shareholders elected 1 director to the Board, Ellen Kullman. Our Board viewed this as an important aspect of our go-forward governance plan and enhancements. Ellen brings great perspective from her extensive experience as a senior executive, including as a CEO, and her Board and committee service as an independent Director of Dell Technologies and at other major public companies. In addition to the Class C Director election, we made a number of other positive stockholder-friendly changes informed largely by feedback received from investors when reemerging into the public equity markets at the end of 2018. These enhancements include a declassified board; adding a fourth independent director, thereby creating a majority independent Board of Dell Technologies; establishing a nominating and governance committee; terminating certain consent rights held by Michael Dell and Silver Lake; and further aligning the economic interest of all shareholders. Through our robust shareholder engagement program, we are able to gather feedback from our top investors on these Board and governance matters as well as input on ESG frameworks and disclosure preferences. In each of the past 2 years, we have engaged with corporate stewardship leaders at holders representing approximately 60% of our Class C shares and engage with nearly 50% around both the 2019 and the 2020 annual meetings. The topics we discussed at these biannual meetings with investors and their feedback were shared with our management team and the Board, and we will continue to be -- and that will continue to be the case going forward. In closing, our Board and management team are focused on sustainable, long-term value creation, and we will continue to evaluate our governance practices as we evolve as a public company. With that, I'd like to turn it back over to Karen to start Q&A. Karen?

[Operator Instructions] So Chris, let me start with you for the first question that we have. What is your next area of focus for continuing to deepen reporting on ESG issues? Are there any consideration to disclosure and alignment with either the SASB or the TCFD framework?

Thank you, Karen. So as I mentioned earlier, we recognize that having the most robust ESG reporting strategy is critically important to our stakeholders. And because of that, I also mentioned that we are in the process of evaluating, extending what we're currently doing. I spoke to the 2 reports that we're speaking about today, the Progress Made Real, and Brian's mentioned of the diversity and inclusion report. There are other disclosures that we publish ourselves, and they include supply chain sustainability, responsible mineral sourcing report. We also are, as I mentioned, involved in full disclosures with the CDP climate change and CDP wire security, but there are increasing pressures on all businesses to provide the highest level of transparency and to reflect that in the disclosures that are most aligned to our business strategy. For us, that is -- has us assessing new disclosures, such as the SASB and the TCFD framework that Karen just mentioned. And I mentioned also that we have several leaders across the business who are involved in helping with the West IBC common metrics and disclosures. So we have more work to do, but it is a very active initiative for us to ensure that our ESG strategy is comprehensive, transparent and fully reflective of the initiatives that Dell is undertaking in this area.

That's great. And Brian, I think the second one is a great question for you. Can you expand on the diversity hiring goals that we've talked about today and how we'll actually be able to hit these lofty goals, especially at the executive level?

That would be a good thing. Yes. Here at Dell and around our industry, we know we have a lot of work to do, and I mentioned that earlier. Today, our senior leadership definitely does not reflect the diversity for the people and customers we serve. So our focus, as I shared earlier, really is on how do we engage all the institutions that we need to engage to be successful in expanding our talent pool while at the same time, ensuring upward mobility of our employees within because we know all of those things inure benefit with regards to customer connections and positive business outcomes. We are -- we know we can't do it alone. We're part of a number of coalitions and initiatives, some of which I spoke about earlier, but I can double-click on a couple here to help us build and attract that more diversed workforce over the next decade. That said, we're very, very humble and know that just changing the narrative on bringing in more underrepresented talent is not a silver bullet kind of challenge. And we've actually shaped our programs and initiatives to strategically chip away at that lack of diversity. I'll give a couple of examples. I mean one thing that's very, very important is once we get that talent in of having that upward mobility, and I spoke about our many advocating real change initiatives in DLAP. Another one is around Project Immersion. Though I spoke about it at a high level, I think it is a game changer for us to be in the classrooms with the exceptional talent at HBCUs and minority serving institution and even majority institutions that have a focus on diverse talent. And inside of the organization, our investments are certainly with regards to guests lecturing on curriculum topics, such as cybersecurity, supply chain. We set up a technical presales unit this past year in design thinking. And all of those things help us engage with that talent and give that talent, quite honestly, the advantage they need to be successful. Programs like that, we also are going externally or outside of the U.S. The Project Immersion initiative this upcoming semester will be launched in Brazil at a university that also has a significant diverse population. So to net it all out, I mean we really look at this as a journey, but we are accelerating. We recognize areas where we need to improve. But in Dell, as you will know, what gets measured gets done, and those goals go lofty. We expect to do everything we can to meet them within this 10-year period.

That's great. And Brian, I think I have a follow-up from the comments you made on the call, and then I've got another question I think you can weigh in on as well as Chris here. So first off, could you share again the 5 causes that we've identified as the areas for Dell's support for the Standing Strong Together?

Absolutely. So they are Black Lives Matter; the National Urban League; the NAACP legal defense fund, also known as LDF; Amnesty International; and 100 Black Men of America.

Perfect. And Chris and Brian, I think you can both weigh in on this one. Can you give some examples of how we are implementing the initiatives across the 3 pillars and regions outside of the United States? And maybe some examples of the organizations that you're partnering with outside of the U.S.?

Sure. Maybe I'll start and then Brian can add some additional examples. So I think first, just to have a level setting of understanding. The way that these goals have been constructed has each of the business leaders considering how to develop and execute a plan that supports achieving those goals by considering the fact that we are a global company. And so when you look at the goals, they are not limited to resolution in the U.S.; they're looked at, at the business level by the leaders in support of all activities around the globe. To give an example of an initiative that is happening outside of the U.S., maybe I'll talk to our digital life care initiative. And it falls under the pillar of Transforming Lives, but it actually deals with a couple of issues that are related to health, socioeconomic situations and the application of technology to solve really complex issues. So let me step back and -- the digital life care solution is a solution that we built in conjunction with a partner of ours in India, Tata Trust, and with the Ministry of Health, the India Ministry of Health. The situation that we're helping to solve is that millions of Indian citizens live in rural communities that have limited access to health care. The implications of that is that completely treatable conditions like high blood pressure, diabetes, cancer screenings, they can go largely unchecked because of the limited access to healthcare. Together with Tata Trust and with the India government, we built an application that is a cloud-based application. It leverages the full Dell Technologies portfolio of solutions, and it allows a health care worker to go into a rural community and work with the citizens to register for a patient record and to receive health care screenings. The implications of that are certainly health-related in preserving an individual's good health. But they also have an impact on the economics of families. And so for caregivers or for primary providers in families, the health of those individuals is critically important. And the economic health of those individuals is also a direct result of their physical health. So that's an example of -- with under the Transforming Lives pillar, it's intended to provide support outside of the U.S., very specifically in India. We're actually looking at opportunities to leverage that in other parts of the world. It is specifically intended to address access to health care through the leverage of technology. It certainly has an impact on economic situations for families. And to date, through the individuals registering for the health record and for screenings, we have already been able to touch tens of millions of Indians' medicines. So hopefully, that's a good example. And maybe, Brian, you could offer one?