These tables present information about the Company’s non-GAAP product net revenue, non-GAAP services net revenue, non-GAAP net revenue, non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income from continuing operations, EBITDA, and adjusted EBITDA, which are non-GAAP financial measures provided as a supplement to the results provided in accordance with generally accepted accounting principles in the United States of America (“GAAP”). A detailed discussion of Dell Technologies' reasons for including the non-GAAP financial measures, the limitations associated with those measures, the items excluded from non-GAAP metrics, and our reason for excluding those items are presented in "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures" in Dell Technologies' quarterly report on Form 10-Q for the quarterly period ended October 28, 2016. Dell Technologies encourages investors to review the non-GAAP discussion in conjunction with the presentation of non-GAAP financial measures.
DELL TECHNOLOGIES INC. | |||||||||||||||||||||||
Reconciliation of Non-GAAP Financial Measures | |||||||||||||||||||||||
(in millions, except percentages; unaudited; continued on next page) | |||||||||||||||||||||||
Three Months Ended |
% Growth Rates
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Nine Months Ended |
% Growth Rates
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October 28,
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October 30,
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October 28,
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October 30,
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Product net revenue | $ | 12,366 | $ | 10,638 | 16 | % | $ | 33,510 | $ | 32,100 | 4 | % | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | 261 | (6 | ) | 260 | (20 | ) | |||||||||||||||||
Non-GAAP product net revenue | $ | 12,627 | $ | 10,632 | 19 | % | $ | 33,770 | $ | 32,080 | 5 | % | |||||||||||
Services net revenue | $ | 3,881 | $ | 2,036 | 91 | % | $ | 8,058 | $ | 6,132 | 31 | % | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | 269 | 113 | 413 | 390 | |||||||||||||||||||
Non-GAAP services net revenue | $ | 4,150 | $ | 2,149 | 93 | % | $ | 8,471 | $ | 6,522 | 30 | % | |||||||||||
Net revenue | $ | 16,247 | $ | 12,674 | 28 | % | $ | 41,568 | $ | 38,232 | 9 | % | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | 530 | 107 | 673 | 370 | |||||||||||||||||||
Non-GAAP net revenue | $ | 16,777 | $ | 12,781 | 31 | % | $ | 42,241 | $ | 38,602 | 9 | % | |||||||||||
Product gross margin | $ | 1,804 | $ | 1,310 | 38 | % | $ | 4,654 | $ | 3,745 | 24 | % | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | 437 | 12 | 461 | 22 | |||||||||||||||||||
Amortization of intangibles | 604 | 98 | 806 | 295 | |||||||||||||||||||
Transaction-related expenses | 18 | - | 16 | 1 | |||||||||||||||||||
Other corporate expenses | 10 | 3 | 14 | 6 | |||||||||||||||||||
Non-GAAP product gross margin | $ | 2,873 | $ | 1,423 | 102 | % | $ | 5,951 | $ | 4,069 | 46 | % | |||||||||||
Services gross margin | $ | 2,095 | $ | 822 | 155 | % | $ | 3,774 | $ | 2,388 | 58 | % | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | 292 | 112 | 436 | 386 | |||||||||||||||||||
Amortization of intangibles | - | - | - | - | |||||||||||||||||||
Transaction-related expenses | 12 | 2 | 9 | 5 | |||||||||||||||||||
Other corporate expenses | 52 | - | 54 | 1 | |||||||||||||||||||
Non-GAAP services gross margin | $ | 2,451 | $ | 936 | 162 | % | $ | 4,273 | $ | 2,780 | 54 | % | |||||||||||
Gross margin | $ | 3,899 | $ | 2,132 | 83 | % | $ | 8,428 | $ | 6,133 | 37 | % | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | 729 | 124 | 897 | 408 | |||||||||||||||||||
Amortization of intangibles | 604 | 98 | 806 | 295 | |||||||||||||||||||
Transaction-related expenses | 30 | 2 | 25 | 6 | |||||||||||||||||||
Other corporate expenses | 62 | 3 | 68 | 7 | |||||||||||||||||||
Non-GAAP gross margin | $ | 5,324 | $ | 2,359 | 126 | % | $ | 10,224 | $ | 6,849 | 49 | % | |||||||||||
Operating expenses | $ | 5,411 | $ | 2,210 | 145 | % | $ | 10,012 | $ | 6,621 | 51 | % | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | (121 | ) | (25 | ) | (157 | ) | (67 | ) | |||||||||||||||
Amortization of intangibles | (560 | ) | (394 | ) | (1,340 | ) | (1,183 | ) | |||||||||||||||
Transaction-related expenses | (1,170 | ) | (25 | ) | (1,304 | ) | (61 | ) | |||||||||||||||
Other corporate expenses | (211 | ) | (14 | ) | (257 | ) | (31 | ) | |||||||||||||||
Non-GAAP operating expenses | $ | 3,349 | $ | 1,752 | 91 | % | $ | 6,954 | $ | 5,279 | 32 | % |
DELL TECHNOLOGIES INC. | |||||||||||||||||||||||
Reconciliation of Non-GAAP Financial Measures | |||||||||||||||||||||||
(continued; in millions, except percentages; unaudited) | |||||||||||||||||||||||
Three Months Ended |
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Nine Months Ended |
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October 28,
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October 30,
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% Growth Rates
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October 28,
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October 30,
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% Growth Rates
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Operating loss | $ | (1,512 | ) | $ | (78 | ) | NM | $ | (1,584 | ) | $ | (488 | ) | (225 | %) | ||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | 850 | 149 | 1,054 | 475 | |||||||||||||||||||
Amortization of intangibles | 1,164 | 492 | 2,146 | 1,478 | |||||||||||||||||||
Transaction-related expenses | 1,200 | 27 | 1,329 | 67 | |||||||||||||||||||
Other corporate expenses | 273 | 17 | 325 | 38 | |||||||||||||||||||
Non-GAAP operating income | $ | 1,975 | $ | 607 | 225 | % | $ | 3,270 | $ | 1,570 | 108 | % | |||||||||||
Net loss from continuing operations | $ | (1,637 | ) | $ | (264 | ) | (520 | %) | $ | (2,323 | ) | $ | (1,000 | ) | (132 | %) | |||||||
Non-GAAP adjustments: | |||||||||||||||||||||||
Impact of purchase accounting | 850 | 149 | 1,054 | 475 | |||||||||||||||||||
Amortization of intangibles | 1,164 | 492 | 2,146 | 1,478 | |||||||||||||||||||
Transaction-related expenses | 1,200 | 21 | 1,326 | 41 | |||||||||||||||||||
Other corporate expenses | 273 | 23 | 325 | 58 | |||||||||||||||||||
Aggregate adjustment for income taxes | (880 | ) | (127 | ) | (932 | ) | (381 | ) | |||||||||||||||
Non-GAAP net income from continuing operations | $ | 970 | $ | 294 | 230 | % | $ | 1,596 | $ | 671 | 138 | % | |||||||||||
Net loss from continuing operations | $ | (1,637 | ) | $ | (264 | ) | (520 | %) | $ | (2,323 | ) | $ | (1,000 | ) | (132 | %) | |||||||
Adjustments: | |||||||||||||||||||||||
Interest and other, net | 794 | 203 | 1,362 | 600 | |||||||||||||||||||
Income tax benefit | (669 | ) | (17 | ) | (623 | ) | (88 | ) | |||||||||||||||
Depreciation and amortization | 1,576 | 627 | 2,799 | 1,871 | |||||||||||||||||||
EBITDA | $ | 64 | $ | 549 | (88 | %) | $ | 1,215 | $ | 1,383 | (12 | %) | |||||||||||
EBITDA | $ | 64 | $ | 549 | (88 | %) | $ | 1,215 | $ | 1,383 | (12 | %) | |||||||||||
Adjustments: | |||||||||||||||||||||||
Stock based compensation expense | 144 | 17 | 177 | 46 | |||||||||||||||||||
Impact of purchase accounting | 693 | 118 | 851 | 392 | |||||||||||||||||||
Transaction-related expenses | 1,200 | 21 | 1,366 | 41 | |||||||||||||||||||
Other corporate expenses | 129 | 6 | 148 | 18 | |||||||||||||||||||
Adjusted EBITDA | $ | 2,230 | $ | 711 | 214 | % | $ | 3,757 | $ | 1,880 | 100 | % |
DELL TECHNOLOGIES INC. | |||||||||||||||||||||||
Segment Information | |||||||||||||||||||||||
(in millions, except percentages; unaudited) | |||||||||||||||||||||||
Three Months Ended |
% Growth |
Nine Months Ended |
% Growth |
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October 28, | October 30, | Rates | October 28, | October 30, | Rates | ||||||||||||||||||
2016 | 2015 | Yr. to Yr. | 2016 | 2015 | Yr. to Yr. | ||||||||||||||||||
Client Solutions Group (CSG): |
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Net Revenue: | |||||||||||||||||||||||
Commercial | $ | 6,400 | $ | 6,437 | (1 | %) | $ | 19,343 | $ | 19,778 | (2 | %) | |||||||||||
Consumer | 2,787 | 2,499 | 12 | % | 7,635 | 7,262 | 5 | % | |||||||||||||||
Total CSG net revenue | $ | 9,187 | $ | 8,936 | 3 | % | $ | 26,978 | $ | 27,040 | 0 | % | |||||||||||
Operating Income: | |||||||||||||||||||||||
CSG operating income | $ | 634 | $ | 384 | 65 | % | $ | 1,503 | $ | 926 | 62 | % | |||||||||||
% of CSG net revenue | 6.9 | % | 4.3 | % | 5.6 | % | 3.4 | % | |||||||||||||||
% of total segment operating income | 30.5 | % | 59.9 | % | 43.7 | % | 54.4 | % | |||||||||||||||
Infrastructure Solutions Group (ISG): |
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Net Revenue: | |||||||||||||||||||||||
Servers and networking | $ | 2,910 | $ | 3,163 | (8 | %) | $ | 9,222 | $ | 9,527 | (3 | %) | |||||||||||
Storage | 3,079 | 548 | 462 | % | 4,159 | 1,655 | 151 | % | |||||||||||||||
Total ISG net revenue | $ | 5,989 | $ | 3,711 | 61 | % | $ | 13,381 | $ | 11,182 | 20 | % | |||||||||||
Operating Income: | |||||||||||||||||||||||
ISG operating income | $ | 897 | $ | 257 | 249 | % | $ | 1,389 | $ | 776 | 79 | % | |||||||||||
% of ISG net revenue | 15.0 | % | 6.9 | % | 10.4 | % | 6.9 | % | |||||||||||||||
% of total segment operating income | 43.1 | % | 40.1 | % | 40.4 | % | 45.6 | % | |||||||||||||||
VMware: |
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Total VMware net revenue | $ | 1,289 | $ | - | NA | $ | 1,289 | $ | - | NA | |||||||||||||
Operating Income: | |||||||||||||||||||||||
VMware operating income | $ | 548 | $ | - | NA | $ | 548 | $ | - | NA | |||||||||||||
% of VMware net revenue | 42.5 | % | NA | 42.5 | % | NA | |||||||||||||||||
% of total segment operating income | 26.4 | % | NA | 15.9 | % | NA | |||||||||||||||||
Reconciliation to consolidated net revenue: |
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Reportable segment net revenue | $ | 16,465 | $ | 12,647 | $ | 41,648 | $ | 38,222 | |||||||||||||||
Other businesses (a) | 312 | 104 | 530 | 279 | |||||||||||||||||||
Unallocated transactions (b) | - | 30 | 63 | 101 | |||||||||||||||||||
Impact of purchase accounting (c) | (530 | ) | (107 | ) | (673 | ) | (370 | ) | |||||||||||||||
Total consolidated net revenue | $ | 16,247 | $ | 12,674 | $ | 41,568 | $ | 38,232 | |||||||||||||||
Reconciliation to consolidated operating income (loss): |
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Reportable segment operating income | $ | 2,079 | $ | 641 | $ | 3,440 | $ | 1,702 | |||||||||||||||
Other businesses (a) | (13 | ) | (15 | ) | (48 | ) | (50 | ) | |||||||||||||||
Unallocated transactions (b) | (91 | ) | (19 | ) | (122 | ) | (82 | ) | |||||||||||||||
Impact of purchase accounting (c) | (850 | ) | (149 | ) | (1,054 | ) | (475 | ) | |||||||||||||||
Amortization of intangibles | (1,164 | ) | (492 | ) | (2,146 | ) | (1,478 | ) | |||||||||||||||
Transaction-related expenses (d) | (1,200 | ) | (27 | ) | (1,329 | ) | (67 | ) | |||||||||||||||
Other corporate expenses (e) | (273 | ) | (17 | ) | (325 | ) | (38 | ) | |||||||||||||||
Total operating loss | $ | (1,512 | ) | $ | (78 | ) | $ | (1,584 | ) | $ | (488 | ) |
_________________ |
(a) Other businesses consist of RSA Information Security, SecureWorks, Pivotal, and Boomi offerings, and do not constitute reportable segments. |
(b) Unallocated transactions includes long-term incentives, certain short-term incentive compensation expenses, and other corporate items that are not allocated to Dell Technologies' reportable segments. |
(c) Impact of purchase accounting includes non-cash purchase accounting adjustments related to the EMC merger transaction, as well as the going-private transaction. |
(d) Transaction-related expenses includes acquisition and integration related costs. |
(e) Other corporate expenses includes severance and facility action costs as well as stock-based compensation expense. |