Q1 2021 Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily.
And your lines will again be placed on musicals. Thank you for your patience.
[music].
Good afternoon, and welcome to the fiscal year 2021 first quarter results conference call for Delta can only do you think I'd like to inform all participants. This call is being recorded at the request the Dell technologies.
This broadcast as the copyrighted property of Dell Technologies, Inc.
Any rebroadcast of this information in home or part without the prior written permission of Dell technologies is prohibited.
Following prepared remarks, we will conduct the question didn't answer session. If you have a question simply press Star then one on your telephone keypad at anytime during the presentation.
I'd like to turn the call live Richard Roth, William Head of Investor Relations Mr. Williams you may begin.
Thanks, Eric and thanks, everyone for joining us with me today, our Vice Chairman and Chief Operating Officer, Jeff Clark, Our CFO, Tom Suite, and our Treasurer Tyler Johnson.
Listen to our press release financial tables, and web deck, beginning with Q1 edited prepared remarks, and additionally materials are now available before the call on our IR website. The gotten section will be covered on today's call.
During this call unless we indicate otherwise all references to financial measures refer to non-GAAP financial measures, including non-GAAP revenue gross margin operating expenses operating income net income EBITDA adjusted EBITDA and adjusted free cash flow.
A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release.
Please also note that all girls percentages refer to year over year change unless otherwise specified and that Vmware historical segment results have been recaps to include preliminary results.
Finally, I'd like to remind you that all statements made during this call that relate to future events and result in it.
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 in FCC reports, we assume no obligation to update forward looking statements now I'll turn it over to Jeff.
Thanks, Rob.
We're all living and working an extraordinary times, let me upfront on the back half of the Dell technologies team send our thoughts and best wishes to the global community.
The lead are starting to see positive signs around the globe with regard to the pandemic, we understand the unimagined scope and scale of what it is at its core humanitarian crisis.
We know that lives in our world isn't untouched.
On a personal level, what keeps me going it's staying connected killed. It 19 has challenged every convention of our lives.
I am finishing up gauge 78, working from home and suddenly going into a normal I'm remote yet more connected there never was a deeper sense of unity I'm not traveling but I'm visiting with more customers partners suppliers and team members.
And on busier than ever yet to have more time for my family than I had two years and as I reflect on the past quarter. Several truce have been reinforced through the pandemic. One technology has never been more importantly, it plays a key role in fighting the virus on the front line.
It's essentially the development of vaccine and will be a catalyst in the recovery.
As a result digital transformation will accelerate us into the fourth industrial Revolution.
And then lastly, Dell technologies broad portfolio businesses and capabilities enabled us to work through the crisis and deliver differentiated results for our customers and our company.
[noise] over Q1 through today and into the future.
This has been and will be on one or people to our customers and three our business.
Let me start with our team members the safety and health of our team members of their families and the communities, where we live and work is job one we restricted global travel and move to virtual fully events, 90% over 165000 team members worldwide.
Live to work from home over one weekend and they are successfully supporting our customers and partners school, mostly.
And we are protecting our assumption employees, whose jobs require them to be on site or with customers that new pandemic specific protocols.
Next our customers consumers to small businesses from multinational corporations were forced to implement work from home learn from home strategies, and we established business continuity literally overnight.
We saw a flight to quality, where customers leaned on technology partners, who had the flexibility in agility to provide solutions at scale across all of the right she needs and deliver services quickly and globally consider New York City as an example.
Our team helped their department and information technology and communication support the city's health care professionals in first responders securing critical technology ranging from Pcs to servers storage nvme were all in a centralized manner with Swift implementation.
As government issued their shelter in place orders no one was that receiving docs to get the media technology. So we shipped notebooks monitors and accessories directly to People's homes always set up drive-thrus with proper social discontinued P. P. M. P. P E in place to get the people equipment they needed to be for.
Doctors and connected.
We rolled out our payment flexibility program. So customers can access the technology. They need now scale. They use a july tea and preserve cash. This program includes zero percent interest rates and up to 180 day payment deferral, and we're also making $9 billion and financing available this year.
Yes.
Yes, we added a one year term toward Dell technologies on demand offerings, which can be used adult technologies cloud platform to rapidly consumer hybrid cloud infrastructure.
And third the business.
We saw unprecedented demand dynamics over the course of the quarter.
They'll be facing in certain environment as we look ahead and made a series of prudent in quarter decisions to manage costs in the city. We did so with the intent to accelerate through and beyond this crisis.
All actions were in line with our strategy, which remains unchanged. We are focused on gaining share integrating and innovating across our portfolio and creating long term value for all stakeholders. Despite uncertainty we are in a position of strength, we have a unique opportunity to perform differentially no matter the environment.
Let me move to a few operational comments for the first quarter you get more specific on demand. We saw high single digit order growth for commercial client and double digit orders growth for notebooks. For example orders growth for our latitude notebooks family grew 37% year over year and 45% sequence.
Finally.
This growth came primarily from large commercial and government customers, which did put some pressure on profitability.
We were the only vendor in the top five to have positive year over year PC unit growth for calendar Q1, and a 40 to I'd see.
We had our highest share position to date for worldwide Pcs at 19.4% and its commercial PC still move to number two worldwide with 26.2% mature.
That's customer shifted stem to remote solutions and be CRP. They did so at the extensive infrastructure spending resulting in lower I asked you demand, but there were some highlights.
Well down we saw improved server performance and expect to gain unit and revenue share for mainstream servers when ITC Xeighty six results come out next month.
And though we expect our external storage share to be roughly flat in calendar Q1, we expect share growth and high end purpose built backup appliances and unstructured arrays.
From a customer standpoint, we saw order strength in banking and financial services government healthcare and life Sciences, each up 15% to 20% in Q1.
We also saw very strong double digit demand in consumer direct and solid high single digit demand and small business for small and medium business. However, demand did soften as the quarter progress given the shelter in place orders of various government, we solved demand drop over the quarter and the most impacted sectors, including.
Retail manufacturing energy and transportation.
[noise] throughout this time, we have been advantage fire agility, our breadth and our scale, we can quickly pivot and lean into the opportunities that exist with unmatched capabilities, including our direct global sales force.
Huxtable consumption models and online leadership these are truly differentiators for us.
Our teams had to be nimble and quickly embraced and named sales motion, we successfully pivoted to all virtual engagement with hundreds of thousands or virtual customer interactions in the quarter.
Any our E commerce business sets us apart in April site visits to Dell technologies Dot com were up 77% driven largely by interest than most remote work offerings and learnings ranging from PC solutions and services Quickstart bundles for VDI and F.C., we aim for home access to take the.
A stress corporate networks.
Another strength is our global supply chain scale, and resiliency, which enabled the needed flexibility the managed through the many different challenges over the past several years, we've used our global footprint and partnerships to fulfill orders as quickly as possible exploring all sourcing production and logistic strategies to meet our customers.
Needs.
We continue to drive innovation and excellence in engineering, well, they largely remote workers are engineers and product teams delivered several critical solutions in the past couple of months all from home.
Our store is now shipping and as a step level improvement.
In the market, it's up to seven times faster and three times more responsive than our previous or raise the feedback from our customers has been fantastic and we're seeing unprecedented and interest. The pipeline is building. This is a game changer for us and mid range storage.
Last week, we launched several Dell technologies cloud investments, including Dell technologies cloud one fs for Google Cloud. This combined scalability and performance of Iceland, with Google Cloud analytics, and compute services to help customers simplify management of private and public cloud storage.
And in March then were introduced new software solutions that links of squarely at the center of our customers multi cloud world.
It releases featured Vmware Chenzhou, a portfolio of products and services that transform the way enterprise build run and manage application software.
Also included were major updates to the core portfolio across again with cloud foundation, including the largest evolution of these here in a decade NSX T V C and D realized operations cloud, which continue to bring innovation to our leading infrastructure PSEG Power's on premise environment and public cloud.
Across the world.
These are just a few examples of how we're delivering on our customers' needs in executing our strategy.
As the world starts to pivot from response to recovery I see it in three phases phase one but rapid response this faces largely behind US organizations have moved to work from home kids are learning from home and you're seeing hopeful signs including possible vaccine.
Phase to the new normal.
As a society, we are realizing that work isn't a destination rather it's something many of us can do anywhere anytime you're solving customer issues remotely with great success and customer conversations have changed from what do we do now.
How do we plan for the future and then into the third phase new opportunities.
Hi volumes of virtual online businesses and accelerated digital Ics existence, making an automated intelligence is secure supply chain Paramount to business continuity.
Artificial intelligence and machine learning played a big roll, particularly meaningful business insights from the vast amounts of data this digital existence will create.
Dealt technologies is uniquely positioned to win in this involving backdrop and our Q1 performance again highlights our differentiation and the resiliency so to summarize.
Our breadth of solutions, our scale and our strengths have never been more important lets customers increasingly turning to us as a deep and trusted partner when they need help most.
Thanks to our customers are incredible to backwards, we've been able to execute our strategy and emerge from this and an even stronger competitive position.
Just pandemic has challenged excuse me. This pandemic has changed everything with unprecedented speed and scope billions of People's lives of ended in a matter of weeks, but there is also tremendous innovation in collaboration tourism and humanity.
As a lot to be hopeful for and there's a lot of opportunity ahead now I'll turn it over to Tom for deeper look at our financials.
Thanks, Jeff the global effect to cope with 19 created a challenging environment to navigate but I am proud of our team members and partners around the globe. They continue to support our customers are many frontline organization battling this pandemic.
While also managing their own personal needs and responsibility.
Demand was strong for work can learn from home solution and business continuity solution, especially during the first two month of the quarter.
Revenue for the first quarter was 21.9 billion, which was flat year over year.
FX movement, particularly into Euro zone, Brazil, and China created a headwind this quarter can pecking growth by approximately 170 basis points.
Gross margin was down 1% to 7.3 billion or 33.4% of revenue.
Overall gross margin was lower due to the strong CSG pro forma.
Along with the mix shift to large commercial and government customers that Jeff mentioned.
Given the environment, we proactively took cost action during the quarter to protect and position. The company. These measures included a global hiring freeze reduction in consulting and come to contractor call.
Global travel restrictions and most recently the decision to suspend or for a one k. match.
The majority of our costs are variable, allowing us to quickly a job.
Our rapid cost actions helped drive operating expenses down 1% year over year and down 8% sequentially to 5.2 billion.
We continue to evaluate the business and are prepared to take additional action if necessary.
Operating income was down 2% to 2.2 billion or 9.8% of revenue.
[noise] profitability was slightly lower because we managed through multiple impact in the quarter.
Supply chain related cost for certain components and expedite cost per moving products in this environment were higher in the quarter.
Were also impacted by mix dynamics related to strong demand for work from Paul a higher mix of large commercial and government karen's actions and the impact from a strong dollar even as we adjusted pricing.
Profitability was also impacted by the application of the new currently expected credit law firm Cecil accounting standard as we recorded increased receivable reserves of approximately $100 million.
Our consolidated net income was 1.1 billion down, 5% and EPS was $1.34 cents down 8%.
Adjusted EBITDA was 2.6 billion or 11.9% of revenue and 11.8 billion for the trailing 12 month.
Shifting to our business unit result, quite solutions group delivered revenue of 11.1 billion up 2%.
Commercial revenue was 8.6 billion up 4%, including double digit order growth in commercial notebooks and mobile workstations.
Consumer revenue was 2.5 billion down 5% as we shift to supply to direct from retail.
Consumer direct orders were up nearly 40% well consumer retail orders were down 37%.
The strong demand for remote work and learning solutions drove the strong commercial client and notebook performance.
The teams did a nice job working through supply chain impacts.
We saw extended lead time, particularly for mobile solution, but these are now turning back to more normal levels.
CST operating income was 592 million or 5.3% of revenue.
A few profitability was impacted by a higher mix of large commercial and government customers.
Legendary component costs compared to a year ago.
I see revenue was 7.6 billion down 8%.
George revenue was 3.8 billion down 5%.
We saw double digit demand growth in VX rail and in our high end power Mac solution.
And solid demand in unstructured storage.
Offset by softness in other areas of course storage.
Servers and networking <unk>, there was 3.8 billion down 10% Harper we did see improved orders results for mainstream servers and expect to gain share in this category.
I guess, she operating income was 732 million or 9.7% of revenue, which was down 60 basis points.
First quarter is typically our lightest quarter for ice tea, particularly storage that's it historically build throughout the year.
Our be aware business unit had a strong quarter delivering revenue up 2.8 billion up 12% in operating income of 773 million or 28.1% of revenue.
Based on DM, where Standalone result, subscription and as a service revenue grew 39% with the strongest revenue performance from end user computing carbon black and Belo cloud offerings, as well as being more cloud and ADW us, which had a triple digit revenue growth rate.
Well, NSX and Vsan product bookings grew over 20%.
Turning to our balance sheet and capital structure. We ended the quarter was 13.2 billion of cash and investment.
This concludes the cash for the 2.25 billion of note issued by guilt technologies, and 2 billion issued by being somewhere in the first quarter.
As announced the primary use of proceeds from these offerings if the repayment of debt.
Earlier this month DM were did pay down 1.25 drilling of the note due in August 2020.
At the Deltek level, we expect to use the 2.25 billion in proceeds to pay down debt in the coming month.
Our total debt balance ended the quarter at 57.3 billion code that ended the quarter at 36.6 billion.
Court that excludes 9.1 billion of do you have to us related debt.
Majority of which is non recourse to the company is backed by high quality receivables.
We are focused on ensuring do affect is properly capitalized to support our customers as evidenced by the 1.1 billion asset back fixed term securitization, we did in the quarter.
We are effectively managing working capital in this challenging environment, we had a use of cash flow from operations of approximately 800 million.
Impacted by our normal annual bonus payout.
No seasonality.
Proximately 900 million of cobot impact to working capital principally related to timing of accounts receivable collection and higher inventory, which we expect to normalize in the coming quarters.
Adjusted free cash flow in Q1, with a negative 1.2 billion coming off of a very strong fourth quarter.
Our first quarter tends to be our weakest in regards to cash generation given normal seasonality impacts.
On a trailing 12 month basis.
Adjusted free cash flow was 7.6 billion.
We have suspended the share repurchase program announced on the Q4 call in the first quarter, we did repurchase approximately 6 million shares for approximately $240 million.
[noise], our liquidity position is strong with excess cash on the balance sheet and 5.5 billion of Undrawn revolver capacity after repaying partial draw in Q1.
We are comfortable with our capital structure, including our ability to support DFS growth.
We have worked to smooth out or debt maturity towers with only 600 million do this June plus approximately 200 million of dynamic as nation for the year.
Yes, I was struck on current results from future opportunities I'm reminded that we are a different companies and we won't just three years ago and most certainly different than we were in any of the prior economic slowdown.
Today, we have assembled a broad set of capabilities that are differentiated within the industry and driving attractive financial model.
We have broad diversification across our portfolio software and service solutions hybrid cloud technologies and traditional infrastructure all of which are multibillion dollar businesses.
Similarly, we have a broad diversification across our customer base, which allows us the buda customer behavior in demand trends given our direct model.
We have a software security business, that's more than 15 billion with strong as a service and recurring revenue characteristics that cricket stable revenue base, particularly during volatile time.
Our total deferred revenue was 27.6 billion up 14% year over year, our recurring revenue, which includes deferred revenue amortization utility and as a service model is now approximately $6 billion or corner up 16% year over year.
We are focused on our commitment to maximize long term value creation for all aligned shareholders are growing faster than competitors.
Growing faster than revenue generating strong cash flow.
Overtime.
Now, let me touch on how we're thinking about the rest of the year.
As you know we withdrew previously issued fiscal 21 financial guidance during the first quarter.
We saw strong demand in February and March, but we did see demand softened in the last month of the quarter, given our direct model and end user relationships.
As a result, we expect Q2 revenue to be seasonably lower than prior years, which has typically been up to 60%.
Sequentially for the from the first quarter.
The latest data is pointing to a challenging environment with global GDP is expected to decline between 3% to 5% in 2020, and IP spending excluding telecom to be down 5% to 10%.
Well, it's a difficult the shape of the slowdown and the recovery and the resulting impact on our spending our job is to prudently manage our business that we are strong position on the other side of this crisis.
We remain committed to de levering and achieving investment grade rating.
Our intent remains to reduce core debt by approximately 5.5 billion in fiscal 2001. In addition to the debt repayment associated with the Q1 issuance.
This may be influenced by the macro and related business performance.
So to close these are unprecedented time, but Dell technologies as well position. We are moving forward, we need the consolidation integrating and innovating across Dell technologies to create the future of technology infrastructure, creating long term value for all stakeholders. This is our strategy.
And focus.
In the world that's increasingly looking for resiliency reliability and innovation, we are uniquely positioned to emerge from this time, that's the essential technology company for the different area.
With that or turn it back to Rob to begin culinary.
Thanks, Tom let's get to queuing <unk>, we ask that each participant ask one question to allow us to get to as many of you as possible Erica could you. Please introduce the first question.
Well take our first question.
Aaron Rakers with Wells Fargo.
Yeah. Thanks for taking the question just real quickly kind of thinking about the demand environment, particularly around the server space can you talk about how you saw demand pull forward in this last quarter, what maybe the pipeline and activity looks like thus far in may and how you're currently.
He is seeing and characterizing the component pricing environment. Thank you.
Sure a Aaron a couple of things if I look at the server and environment one of the things that you'll see from us is or that we saw during the quarter I should say, it's our pinedale performance was marked down minus 10% as you saw and we commented on but from an order spaces in the manger.
Dreams space. It was minus one from our perspective, we saw an improvement from last years numbers are last year's performance to Q1, we saw demand and large business and government for server products and that demand was all throughout the quarter.
The same segments that we mentioned earlier.
They were impacted in the third month as both Tom and I referenced earlier.
And then I think lastly, you had the financial services side, the healthcare side the life Sciences side have demand throughout the quarter as well that we saw I wouldn't say, we saw any indications Tom of a hole in the demand.
We certainly saw the demand up and the demand strength and the areas that I referenced the sequential improvement of our business I'll, let Tom add some color to that and then I'll ask answer about the a custom Berman.
Yeah, Hey, Aaron its Tom I would I would echo what Jeff said I wouldn't characterize it as Poland or anything of that obviously this was more a quarter of the work from home learnt from home framework and customer focus and so as we said on our talking points. There was you know we did see overall.
You know weakness or softness and I asked you know more than we would have anticipated coming into the quarter.
I'd also add that jeffs comment on the minus one from a demand perspective is that that's a global demand ex China. So I just wanted to make sure you're clear on that for servers for servers, yes for servers and job, but look I think the team navigated well the environment from a pricing perspective was.
I'll say slightly more rational than what we've seen in the past, but still you know, it's still very competitive and do I thought the team did a nice job sort of navigating through due to the demand environment. This quarter, Jeff you want to comment on component cost.
Component cost environment, we saw Q1 a deflationary.
Our outlook is Q2 moves to an inflationary environment than we think its inflationary from the balance of the year.
Perfect. Okay. Just a reminder, a one question for each person if you don't mind and a air cooled moves the next question.
Well take our next question from Toni Sacconaghi with Bernstein.
Yes. Thank you I just wanted to follow up on the linearity question. What did you what have you seen so far.
In may and it sounds like Youre planning for demand to to get worse, you you highlighted that no spendings kind of correlated with.
With GDP GDP is going to be down I T spend is gonna be down 5% to 10%. That's how much it was down during the financial crisis and your revenues fell more.
Then 10% turning that during that period is that the framework that youre thinking about now or are the changes to your business that you highlight suggest.
That that you should do better so I guess, one really long winded question around linearity around April and May and then if I if I interpret your comments it it sounds like you actually think growth, particularly in enterprise could could get worse before it gets better given your outlook on on GDP and I T spend.
Well, Hey, Tony It's Tom Let me start I mean, we're obviously not immune to the global macro environment and you know what we tried to do is give your perspective on what we saw from for demand as we came through the quarter.
It's really early in May so I don't really want to comment on the demand trends in may at this point, just given where we are in the quarter, but look you know if you look at what I do see is forecasting in terms of of storage and server growth. It's clearly softening our saw a weaker in Q2, they do forecasted to get stronger in the back.
After the year and then actually.
Back to positive growth in calendar 21 as of right now with their forecast.
So yeah, we're trying to be prudent as we think our way through you know the framework that we're navigating through businesses are <unk> and customers across the globe or just coming back to work in some instances and other instances are still on a work from home environment.
So as we think about it or your comment around the financial crisis of 2008 2009 I get your point, we are different company from from then till now given our broad set of diverse stricter spikes diversified solutions, our recurring revenue streams, but.
But look I mean, I think their guidance, we tried to give you wish to give you some perspective on how we thought about the demand environment as we navigate through the through the second quarter.
Jeff you want to comment maybe one thing that Tom I think whatever that demand environment is the way we're running the business driving is relative share taking share.
Well the markets segments performed.
I think we've done that in Q1.
That will be certainly the task we have at hand in Q2 running the business to take relative share in those segments that we operated.
You're going to.
Right.
No I think we're good next question please.
Well take our next question from on it there and omni with Evercore.
Tom Thanks for taking my question guys up I think it's Tom I Hope you towards the end because commentary talking about July quarter being up less than 6% to 8% of historical number I think it do we decided it should still be up but perhaps a lot more muted what's sort of seen historically is other wipe it to interpret what you said and then in terms of March.
And maybe how do we think about op margin than fee cashless specifically.
Is the expectation for fiscal 21 margins being comparable to fiscal 19, it's not the right way to think about a dozen today.
Oh, Hey, I'm goods as Tom So look I cant I'm not going to parse the guidance I would tell you that we do expect you know the guidance. We gave you absorb is our best view right now how we think about the quarter.
From a margin perspective, I would tell you that look I don't part of this is going to depend upon what happens with component cost as we go through the year and what the pricing environment in demand environment looks like right now we see the component cost environment as inflation areas. We stepped through the rest of the year, we'll see how that holds up relative to the.
Overall demand environment and whether that changes.
And then the other part of the their margin framework is going to just be the mix dynamic within the business and so.
As of right now I you know I, you know I think that our margin dynamics as we go forward, we'll have to sort of those seasonal impacts that we typically have had given that as you go through the year I as GE business is typically ramped with the strength in Q4. So you ought to think about that and contemplation to the margin dynamics out.
That we're looking at [laughter]. So I mean, I think so again I again, I'm not going to get into specifics on how we see Q2 other than the tell you that.
Yeah, we do expect it to be.
You know a little bit softer than historical norms, you know and so that's how we're thinking about the business right now from a piano revenue perspective.
Alright. Thanks.
Thank you.
Well take our next question from a lumpy with bank of America.
Yes. Thank you Tom how should we think about your Opex trajectory you noted a bunch of initiatives around cost saves can you maybe help us size the totality of that magnitude of cost saving efforts and how much has sort of already flowing through in the quarter, if any and how much is left to be realized.
Yeah, Hey, Wamsi, I like where I would think about it its book what we're trying to do it and is to protect the so think about liquidity protective business make prudent thoughtful moves relative to the uncertainty in the demand environment, well, making sure that we're taking care of our you know our customers in our business and our team members.
The actions today around global hiring freeze reduction reduction of consulting spend and all those other items that I listed.
Hello.
Had positive impact in Q1, but clearly wasn't a full quarter impact as you think about you know most of those things were put into place mid to late March all into early April and so you would expect goes off ducs savings to build as you go through the year.
And what we're trying to make sure of is that we protect also the EBITDA generation of the company at a consolidated level.
And so well I'm not going to frame or give you. The overall impact of the opex levers that we're calling what I want to convey is that we ought to be thoughtful stewards of the business make sure we positioned the business properly.
And protect liquidity and cash well also making sure that we make the necessary investments to position the company properly coming out of this crisis and so I feel good about the did you know these are hard decisions I think we've made the appropriate decisions with what we know today and we'll continue to look at the business and we have available other.
Double leverage if we need to yeah. Those decisions have protected the things that we've invested in the past coverage right to build out of our storage R&D and innovation, which is that showcase now with our power star launch on made assessed.
And it is aligned with our strategy, which is to consolidate.
Core businesses that we operate in and to drive innovation and integration across the Dell technologies.
Companies to build differentiated solutions.
Okay, all right. Thanks Wamsi.
Well take our next question from Katy Huberty with Morgan Stanley.
Thank you, Jeff Dell, clearly youve managed to supply chain better than than peers I'd love to hear how you think that opened up any cross selling opportunities across the portfolio and do you think the share gains that you saw in the first quarter are sustainable even as competitors.
Catch up with their own backlog and supply chain disruption.
Oh, thanks to the question Kt. It look one of the things that we solve during the quarter.
Which I think is representative of the scaling capability of this company I coined it and at our remarks around this flight to quality. We saw customers really moved to partners, who can provide the end to end capabilities and services they need across all ranges of products, we saw that from smaller.
Companies to the largest multinational companies around the globe and that's flight to quality I think served us well it really reinforces the breadth of our portfolio and then.
The superior execution of our supply chain, we were able to navigate.
Other did very difficult.
And environment, I think quite well.
The speed at which we made decisions and pivoting supply in pivoting to facilities could operate in the assessments that we made into our second level third level of the supply chain component base.
Turning quickly I think its demonstrated in our Q1 PC performance, we're the only OEM to grow in Q1.
Oh, we think we'll gain share as we mentioned in servers units in revenue in mainstream.
And I think that continues.
Into Q2 in through the year I think that is a source of differentiation for us the things that we've done to position our supply chain in a very differentiated way well. We've taken this notion of digital supply chain in the very digital transformation that we talk about across lots of our customers and ticket to heart inside our supply chain where weve.
Automated across our planning our procurement manufacturing logistics side, where the data transparency, where we can look at an end to end of visibility of how our supply chain is performing and then we've introduced predictive analytics that allow us to anticipate the movements, we've made and the very quickly and I think that again served us well I.
I think that's sustainable I think its differentiated and I believe that will serve all of our business is quite well going forward.
Great all right. Thanks Katy.
[noise] well take our next question from Jerry all along with Deutsche Bank.
Yes. Thanks, So I'm asked the question I understand it's tough to predict the future in terms of future revenue trends, but I do want to hark back the Opex line a line that you guys. Good control over for the latest quarter it was down.
Total operating expenses down about 1% year on year I'm, just wondering whether that that leverage that you guys are generating a molecule sustain to address the year and your sense of where opex trends our fiscal year. Thanks.
Israel, It's Tom I'm look I do think that we obviously opex is something that we can control and are being very thoughtful about it I do think that there is leveraging the piano related to our opex. The actions that we take have that we have taken today.
Along with the recent decision on the four I want to K Max suspension.
You know obviously you know, we're obviously modeling different scenarios around demand trends and the impacts of the PNM filed within ranges.
And we feel good about the actions today relative to ensuring that we're protecting the liquidity and in EBITDA generation.
For the for the them with what we know today. So I think the leverage is there I think we're continuing to see efficiency in the in the PNM now.
And you don't like if the demand environment turns out to be very different than how we're thinking about it then we'll take the appropriate actions to position the business properly and making sure that we're serving our customers walk serving in predicting the capabilities of the business. So.
Jeff I don't know, if you'd add anything but spot on.
Thanks drew.
Well take our next question from Rod Hall with Goldman Sachs.
Yeah, Hi, Thanks for the question Tom I, just wanted to see if you could dig into the working capital changed from Kobe. The 900 million that you called out or that the cash flow change to be more specific I know, you're saying accounts receivable as well as inventory we feed a 100 million dollar accounting change on the receivables but.
Just wondering how did the receivables change become more of a structural thing as you allow people to pay a little bit slower through the year or is that more of a one off and then on the inventory is that components can you dig into that the composition of that inventory at all for us. Thanks.
Hey, Ryan let me start and all that Tyler also jump in.
On the cold weather related items I wanted to make sure we called out they.
Just that impact your working capital because it was unusual this quarter and we saw that principally in our collections activity and then in the inventory.
And from our perspective, I think the team did a really nice job of being proactive reaching out to customers. Capturing you know quite frankly, where were you know where were they in their disbursing cycles. Given the fact that many of them had we're working from home their businesses is shut down our aren't that many of the government agencies that we were dealing with that.
You know we're in a work from home situation, which did not allow them to processing dispersants. So yeah. We kept doing so that's long winded way of saying I think we did a pretty good job we've put in our hands around you know what we thought through the receivable dynamics look like as we ended the quarter I don't expect it to be strong.
Actual.
And in fact, we made good progress on that 600 million in May but I do expect that we'll continue to see some impact of Covance I mean, I think it'd be unrealistic to think that we won't I don't expect that to turn into a significant bad debt dynamic, but I do think it turns into a time slower payment and we saw a little bit of with our aging creep as Rick.
Finished.
As we finished the quarter. So it's not structural in my opinion on the yet on the receivable side.
You know and then on the on the inventory side it was more around having supply available FERC.
To make sure that we satisfied our customers demand in that we'll work our way through that as we go through the second quarter and then Tyler maybe you could address maybe the broader worked a cash question, that's really rod to ask in the sense of cash flow generation and how we think about that yeah. I mean look I think Tom said it in terms of the working capital on back to me and we saw.
It was important to call that out as well as as you are thinking about you know our debt pay down to 5.5 billion and that we're still focused on paying out right. So so like I think I think the good news is from a cash perspective, we started the year you know with excess cash if you focus more on a full year cash.
Cash versus just a quarter cash you know will that working capital benefit back I'm. Obviously, we have already say, they're proceeds will come in later later in the end the year. So then if you look at what's left over in end of free cash flow generation necessary to pay down that debt. You know, we we feel good where we are so I'm sorry.
I think that was really the main point of really calling that out yeah that are I remember that Q1, a seasonally our lowest cash generation quarter right and it has historically been that way given that some of the payoffs were related to bonus.
The piano or the revenues typically sequentially down Q4 to Q1, which we saw again this quarter and we generally build cash as we go through the year. So you know so there's some seasonality dynamics that you need to think about as well from a cash generation perspective, and maybe just one final point as you're thinking about looking at the year over year compare you know just as or.
Hi, Andrew we were going into Q1 last year. You know we were we we had talked about working capital improvements and we saw pretty dramatic benefit from working capital Q1 last year. So obviously, we're seeing a little bit of the opposite this year. So so that definitely impacts the year over year compare.
Great. Okay. Thank you yeah. Thanks, Rob.
Well take out or next question from Shannon Cross with Cross research.
Thank you very much I'm, Jeff that's a power stores now out can you talk a bit about initial customer feedback or you think it's going to roll through you know share opportunity anything and give us. Thank you.
Sure.
Efforts and talk about powers for Shannon, we're pretty excited about it the reception has exceeded our high expectations.
We've seen some really great reviews, some assessment of where the product is on a relative basis. The one that stands out in my mind is it's being touted as the most important development and data storage hardware setting the new benchmark for the industry.
Hi point is growing rapidly we have over 70% of our storage specialists that already have had pipeline for power store and recall. We just started term we turned on the sales force in April started shipping in April we formally launched in May the death, and 70% of our store specialists already have pipeline.
For me it really indicates that the this demand that we're seeing from our customers with the product is very differentiated we're excited what weve built out there isn't anything like it in the marketplace. It has three main features in my mind that differentiated differentiates it from the rest of the marketplace.
We said time and time to getting you've heard me talked about this on our assessed sessions at the data centric architecture. We clearly had built this around a container based architecture that optimizes system performance scalability and storage efficiency.
For Us it's got seven times the.
Hopson three times, the lower latency than our previous product, which it makes it the performance later in the marketplace today. It does scale out scale up ultimate flexibility, while guaranteeing a four to one day did a reduction rate we've built in automation into this or intelligence. So M&A I engine in the very similar to what we've done on the power.
Max a range of products.
And then lastly, we think that's really going to drive isn't biggest form of differentiation is this flexible architecture in the adaptability and to really run applications on the rate itself. It takes that and you put around the our wrap around it our future proof offer around anytime upgrade seamless migraine.
Question, you capture that with a broad end to end portfolio that we have that we now have the entire portfolio simplified modernized next month unstructured Dot next the last of the powering up of the portfolio will be delivered.
It has a second we have a second to none position and external storage in the marketplace and then if I take an another couple of minutes you add to what we've done the Dell technology on demand the ability to work this as a service and various consumption models, we have a very very modern way to consume and digest ITC.
With the very best products in the marketplace. So we're pretty excited about the prospects to regain mid range share.
Right.
Thanks, Jeff Thanks, Shannon <unk> next question.
Well take our next question from Jeff Kvaal wasn't Nomura.
Yes, thank you very much gentlemen.
I certainly appreciate your.
Caution about offering much quantitative view abound.
Where business maybe headed in the in the upcoming.
Quarter that makes sense I think maybe another way to help guide us and understand what we might expect new might be to help.
With the the trajectory of the business through February and March and then compare that little bit more specifically to equal.
You're able to share with us anything about the about the softness that that you previously characterized I would certainly be grateful.
Hey, Jeff It's Tom So look I look.
We are trying to be obviously as transparent as we think is appropriate I would tell you that we saw still the good for quarter started like most normal quarters do and then accelerate its accelerated on a sort of in the.
Last week of February early March for a period of two or three to four weeks, where you know what's the covered crisis literally hits, the European and North America, you know and accelerated.
In the various companies and governments and businesses around the globe just made decisions to shut down and work from home, that's generally where we saw the acceleration in our.
Our demand environment, principally in our CSG business.
Go until there was a a pretty significant surge of demand in that.
You know.
Month to March I'll say that generally from the fulfilling work from home orders for filling learned from distance learning those dynamics.
We stepped in April what we saw was we got to that initial surge where quite frankly companies were just trying to get people up and operating from a work from home environment.
And the focus and continued to be on how do you optimize that environment and that will continue.
But what we saw was again the CSG surge sort of softened a little bit and April and then the infrastructure spend you know, there's typical seasonality with linearity within a quarter where tends to ramp you know quite a bit in April it did ramp in April but not that adds historical norms and so those are sort of.
The dynamics, we saw as we went through the quarter and so our comments to you today are just director that we don't have great visibility in or what the demand profile looks like as we go through the quarter and into the back after the year. We think it's you know we do think as we think about seasonality of our business a normal sequential is that.
As we look at it today as you know it we don't believe that historical Sequentials from a revenue perspective Q1 to Q2 are going to hold and we want you to be a bit thoughtful about what you. How you think about that right. So that's her comment to you or that's our guidance to you you know and.
We'll continue to run the business prudently, but you don't jump I don't know if you'd add anything on the demand environment that I, just sort of highlighted but not in their near term I think you hit all the high points.
What I would extend as.
We still see digital transformation occurring in fact accelerating through an after.
This crisis.
We see a movement to hybrid multi cloud continuing to accelerate through an after this crisis.
We continue to see this path towards a fourth industrial Revolution, where we see the immense amount of data coming in the need for more automation the more artificial intelligence the more machine learning more autonomous outcomes as a result of that I think in the work from home Tom just.
As mentioned again I can't speak to what the demand will be next quarter. We don't know what I do know this fundamentally changed how people work.
And as result of that she changing how people who work in a world where people do work, it's going to create tremendous opportunity. We think there will be opportunity and how we educate our used going forward, we think theres going to be changes in a way of how medicine and will be provided our health care will be provided.
In the future.
We think about how people are working today, where you have the PC installed base of 1.7 billion units you have roughly half of those units and capable of running at ace numerous skype or a team section of any high quality.
Those are all opportunities in time that bode well long term.
But Tom said about the near term was spot on but the characteristics of technology the need for technology bode very well.
All right. Thanks, Thanks, Jeff.
Erica one one last question.
We'll take our final question from Jim Suva with Citigroup.
Hey, Thanks, so much guys first fit me and I'm not the smartest guy but.
Maybe the most handsome looking guy I'm joking.
With that being said the capital program that you've laid out goal to get investment grade rating or the metrics of it seems like it isn't changed but then your removed or suspended your stock buyback can you help us understand about the timing it sounds like you'd mentioned 5.5 billion debt pay down.
But then depend upon a market.
In the stock buyback is to spend it can you just kind of talk about overall what are the features you're looking at for variables to turned back on the stock buyback program. In the 5.5 is is there. Some hesitancy is now behind or just capital deployment overall and returns. Thank you.
Hey, Jim It's Tom and now that Tyler jump and look our intention around investment grade and in the March back to investment grade hasn't changed.
Obviously again you know we're trying to be thoughtful we still are committed to the 5.5 billion.
There is some dependency on how the business performs in the back end it for the remainder of the years you might imagine given cash generation, but in terms of how we're thinking about capital usage or capital use in how we want to structure. The capital framework nothing has really changed we did.
Suspend our share buyback, we thought that was prudent just given the uncertainty in the environment and wanting to make sure we be preserved all liquidity and that we were refocused liquidity refocus it on debt debt pay down is the principal source.
But look I don't think anything has changed from our perspective, but you are hearing US say, hey look we're gonna have to navigate through some uncertainty as we come through the coming quarters and work, but we are committed to being back to investment grade and as you and I have talked Jim Yeah, that's going to be the decision of the various rating agencies, so our job to sort of put the businesses.
<unk> position, where they can make that decision.
Yeah, I mean look I'm not sure I have more to add other than you know there there's no hesitancy in terms of the commitment.
And we continue to have those conversations with the rating agencies. We just obviously have to see kind of how the business.
Also over the over the coming quarters.
But as I as I said earlier, you know at this point I feel good about our ability to pay down the 5.5, yes, Jim remember Tyler earlier in the call outs are outlined how we're thinking about cash generation and with the our assays sale in some of the other inputs of cash you know.
I mean, the 5.5 scenes books realistic to us at this point, we'll just have to work towards that's that's the framework for the year all right Hey, Thanks, Jim. Thanks for the question. Thanks, everyone for joining us a just a quick reminder, next week, Michael will be virtually participating in the bank of America Technology Conference and he will be doing it.
You know to 12 35 central daylight time.
We've also got our leaders of the various segments of our business a solution segments of our business participating in events throughout the June timeframe. We've also got Tom and Jeff and events in mid month and later this month. So we look forward to connecting with all of you virtually in a number of activities throughout the June timeframe. Thanks again.
This concludes today's conference call.
Participation you may now disconnect.
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