Dell Technologies(DELL) - 2026 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited Q1 FY26/FY25 financials detail position, income, cash flows, and equity, reflecting revenue and operating income growth, Secureworks sale, and prior-year revisions Q1 FY2026 Key Financial Highlights (vs. Q1 FY2025) | Financial Metric | Q1 FY2026 (ended May 2, 2025) | Q1 FY2025 (ended May 3, 2024) | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Revenue | $23,378 million | $22,244 million | +5.1% | | Gross Margin | $4,937 million | $4,851 million | +1.8% | | Operating Income | $1,165 million | $965 million | +20.7% | | Net Income | $965 million | $992 million | -2.7% | | Diluted EPS | $1.37 | $1.37 | 0.0% | | Cash Flow from Operations | $2,796 million | $1,043 million | +168.1% | - Total assets increased to $86.9 billion as of May 2, 2025, from $79.7 billion as of January 31, 2025. Total liabilities also increased to $89.9 billion from $81.1 billion, resulting in a wider total stockholders' deficit of $(3.0) billion[15] - The sale of Secureworks was completed on February 3, 2025, for a purchase price of approximately $0.9 billion, resulting in a gain on sale of $0.2 billion[42] - Previously issued financial statements for the three months ended May 3, 2024, were revised to correct for unrecorded supplier credits, increasing the previously reported operating income by $45 million and net income by $37 million[39][191][193] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 FY26 financial performance, key business trends, and outlook, including segment results, liquidity, and capital resources Introduction & Business Trends Dell Technologies saw strong Q1 FY26 results from AI server demand and PC refresh, with full-year revenue growth expected despite anticipated margin pressure and VMware agreement termination - The company expects net revenue growth for the full fiscal year, primarily driven by ISG net revenue from servers and networking, and to a lesser extent, CSG net revenue from the PC refresh cycle[207] - Strong demand for AI-optimized servers led to a significant increase in backlog levels compared to the prior quarter, though this also creates variability in revenue timing[210] - The Commercial Framework Agreement with VMware was terminated on March 25, 2024; Dell no longer acts as a distributor for standalone VMware products but continues to integrate VMware products with its VxRail solution[212] - The company anticipates a modest decline in input costs during Fiscal 2026, primarily from deflation in component costs[208] Consolidated Results of Operations Q1 FY26 saw total net revenue and operating income growth, driven by product revenue and cost management, offsetting gross margin pressure from competitive pricing and product mix shifts Q1 FY2026 Consolidated Performance | Metric | Q1 FY2026 | YoY Change | | :--- | :--- | :--- | | Total Net Revenue | $23.4 billion | +5% | | Product Revenue | $17.6 billion | +9% | | Services Revenue | $5.8 billion | -6% | | Operating Income | $1.2 billion | +21% | | Non-GAAP Operating Income | $1.7 billion | +10% | | Operating Margin | 5.0% | +70 bps | | Non-GAAP Operating Margin | 7.1% | +30 bps | - The 6% decrease in services revenue was primarily due to the decline in Corporate and other services net revenue, as Dell no longer acts as a distributor of standalone VMware offerings[245] - Gross margin percentage decreased by 70 bps to 21.1%, driven by a competitive CSG pricing environment and a product mix shift within ISG[248] - Operating expenses decreased 3% YoY, driven by a 5% reduction in SG&A from lower headcount and disciplined cost management[251][256] Business Unit Results ISG revenue and operating income grew significantly, driven by AI server demand, while CSG revenue increased but operating income declined due to a competitive pricing environment Q1 FY2026 Segment Performance | Segment | Net Revenue (million) | YoY Change | Operating Income (million) | YoY Change | Operating Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | ISG | $10,317 M | +12% | $998 M | +36% | 9.7% | | - Servers & Networking | $6,321 M | +16% | | | | | - Storage | $3,996 M | +6% | | | | | CSG | $12,509 M | +5% | $653 M | -16% | 5.2% | | - Commercial | $11,046 M | +9% | | | | | - Consumer | $1,463 M | -19% | | | | - ISG's operating margin increased by 170 basis points to 9.7%, driven by strong revenue growth and disciplined cost management, which offset a lower gross margin rate from product and geographic mix shifts[269] - CSG's operating margin decreased by 130 basis points to 5.2%, primarily due to a decline in gross margin rate resulting from a competitive pricing environment[272] Liquidity and Capital Resources Liquidity strengthened with increased cash and strong operating cash flow, while total debt principal rose due to new Senior Notes, and capital was returned to shareholders via repurchases and dividends - Cash and cash equivalents increased by $4.1 billion during the quarter to $7.7 billion, supported by strong operating cash flow of $2.8 billion and proceeds from debt issuance and the sale of Secureworks[286][296] - Total debt principal increased by $4.2 billion to $29.0 billion as of May 2, 2025, primarily due to a $4.0 billion issuance of new Senior Notes[290] - The company returned significant capital to shareholders, including $2.0 billion in share repurchases and $0.4 billion in dividend payments during the quarter[303][304] Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk exposure has not materially changed from disclosures in the prior fiscal year's Annual Report on Form 10-K - There has been no material change in the company's exposure to market risks since the disclosures in its Annual Report on Form 10-K for the fiscal year ended January 31, 2025[320] Item 4. Controls and Procedures Disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting related to supplier credits, with remediation ongoing - Management concluded that as of May 2, 2025, the company's disclosure controls and procedures were not effective at a reasonable assurance level[323] - The ineffectiveness is due to a previously disclosed material weakness in internal control over financial reporting concerning non-recurring credits from certain suppliers[324] - As part of its remediation efforts, the company has designed and implemented a new control over non-recurring credits from certain suppliers[325][328] PART II — OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings information is referenced from Note 10, with no anticipated material adverse effect on financial condition - Information on legal proceedings is incorporated by reference from Note 10 of the financial statements[331] - The company does not currently anticipate that any of its ongoing legal proceedings will have a material adverse effect on its business, financial condition, results of operations, or cash flows[139] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the prior fiscal year - The company refers to the risk factors section of its Annual Report on Form 10-K for the fiscal year ended January 31, 2025, indicating no material changes[332] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased shares in Q1 FY26, with an additional $10 billion authorized for the stock repurchase program Share Repurchases in Q1 FY2026 | Period | Total Shares Purchased (millions) | Weighted Avg. Price per Share | | :--- | :--- | :--- | | Feb 1 - Feb 28, 2025 | 3.1 | $108.93 | | Mar 1 - Mar 28, 2025 | 6.3 | $95.58 | | Mar 29 - May 2, 2025 | 12.7 | $82.48 | | Total | 22.1 | | - On February 27, 2025, the Board of Directors authorized an additional $10 billion for the stock repurchase program[334] - Following the February 27, 2025 authorization, the company had approximately $11.5 billion of authorized shares remaining under the program[302][334] Item 5. Other Information Company officer Richard Rothberg adopted a Rule 10b5-1 trading plan for the sale of Class C Common Stock shares - Company officer Richard Rothberg adopted a written plan under Rule 10b5-1(c) on March 4, 2025, for the sale of up to 70,165 shares of Class C Common Stock[336] Item 6. Exhibits This section lists filed exhibits, including supplemental indentures for new senior notes, CEO/CFO certifications, and XBRL data files - Lists filed exhibits, including supplemental indentures for new 4.750% Senior Notes due 2028, 5.000% Senior Notes due 2030, 5.300% Senior Notes due 2032, and 5.500% Senior Notes due 2035[338] - Includes required CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[338]