Last week, we hosted 900 market experts and investors for a Dell Technologies Securities Analyst Meeting. It was our opportunity to give this important set of stakeholders a deeper look at the company we’ve built since we became public again in December 2018.
The short story is we’ve created a new company all together—one positioned to be at the center of the multi-cloud world. One with the broadest solutions portfolio and durable competitive advantages that include the world’s largest direct sales force and expert partner ecosystem, modern services capabilities, and a flexible global supply chain.
We also had another objective for our time with the analysts—to define the long-term growth opportunity we see for core Dell Technologies following the VMware spin-off, and the long-term value we will create for Dell Technologies shareholders.
Strong track record¹
First, we spoke about our proven track record of growth and profitability. Since fiscal year 2018, we’ve delivered:
Compounded annual revenue growth of 7%
Operating income growth of 12%
Increased operating margin rate annually
Diluted earnings per share (EPS) growth faster than operating income
These numbers include performance by VMware, so we recently released an expanded set of ex-VMware pro forma financials. Our ex-VMware revenue grew 6% from fiscal 2018 to 2021 and diluted EPS grew 16% from fiscal 2019 to 2021, delivering roughly $6 billion estimated adjusted free cash flow annually. This underscores the strength of our core businesses to grow and to deliver value to stakeholders.
Room to grow
That’s our track record, but let’s talk about our future. Through our fiscal year 2026, we believe the business can deliver:
Compounded annual non-GAAP revenue growth of 3%-4% due to our unmatched solutions portfolio, the modernization of our core businesses, and by capitalizing on our durable competitive advantages as we lean into new and emerging growth opportunities.
Compounded annual growth in diluted non-GAAP EPS of 6% or better via ongoing solutions innovation and business mix, disciplined cost management, supply chain excellence and P&L scale.
Net income to adjusted free cash flow conversion of 100% or better given the growth we expect to see in the business, compounded EPS growth, and our cash conversion cycle.
Return to shareholders
We’ve been focused on de-leveraging over the past several years and, since the EMC transaction, our strong execution and cash flow have enabled us to paydown roughly $25 billion in debt. This has put us on the path to an investment grade (IG) corporate family credit rating. In fact, Fitch recently upgraded us to IG, and we expect the other agencies to follow shortly after completion of the VMware spin-off later this year. That milestone will trigger a transition to a more balanced capital allocation strategy with return to shareholders.
First, we are committed to an IG rating and we are targeting a 1.5x core leverage ratio. We will continue to invest in our people, organic innovation and growth, and we’ll pursue targeted M&A aligned to our long-term strategy.
Beyond that, we are targeting 40-60% of adjusted free cash flow return to shareholders via share repurchase and a quarterly dividend. The board of directors has authorized a $5 billion share repurchase program, which will commence following the completion of the VMware spin.
We also expect to initiate a quarterly dividend in the first quarter of next fiscal year with an attractive yield, subject to approval by our board at that time. Based on what we see today, we are targeting a $1 billion annual dividend.
We built Dell Technologies to grow and win in the multi-cloud world, and we like what we’re seeing. We believe the technology trends that have accelerated over the last few years will continue long term—and we are at the center of it all. We’ve got the right strategy and portfolio, durable competitive advantages, and a track record of growth in any environment and IT spending cycle.
We’re looking forward to the next chapter in our story and to sharing our success with existing and future shareholders who believe in the promise of Dell Technologies.
1 All measures are non-GAAP. Refer to the associated GAAP measures in the 8-K filing.
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