HPE Reports Q1 Results

Continued progress against strategic priorities in dynamic environment

Q1 2020 Financial Highlights:

  • Revenue: $6.9 billion with growth in areas of investment, including Intelligent Edge and as-a-Service offerings
  • Annualized revenue run-rate (ARR): $511 million, up 19% from the prior-year period
  • Gross margin: GAAP of 32.8%, up 170 basis points from the prior-year period and Non-GAAP of 33.2%, up 210 basis points from the prior-year period
  • Diluted net earnings per share:
    • GAAP of $0.25, compared to $0.13 and up 92% from the prior-year period and above the previously provided outlook of $0.20 to $0.24 per share
    • Non-GAAP of $0.44, up 5% from the prior-year period and in-line with the previously provided outlook of $0.42 to $0.46 per share

FY 2020 Outlook:

  • Earnings Per Share: Maintains GAAP diluted net earnings per share outlook of $1.01 to $1.17 and non-GAAP diluted net earnings per share outlook of $1.78 to $1.94
  • Free Cash Flow1: Revises free cash flow outlook to $1.6 to $1.8 billion to account for current supply chain disruption impacting short-term cash conversion cycles

SAN JOSE, Calif. — (BUSINESS WIRE) — March 3, 2020 — Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for its fiscal 2020 first quarter, ended Jan. 31, 2020.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20200303005982/en/

“HPE’s first quarter results demonstrate continued progress against our strategic priorities to shift our company to higher-margin and more recurring revenues against a dynamic market backdrop,” said Antonio Neri, president and CEO of Hewlett Packard Enterprise. “While our overall revenue declined for the quarter, primarily due to our Compute business, we grew our ARR by 19 percent and saw profitable growth in key areas of investment, including Intelligent Edge, High Performance Compute, Hyperconverged Infrastructure, Big Data Storage and Operational Services orders.”

“We delivered EPS and gross margin improvement, while making important investments for future innovation,” Neri continued. “Faced with continued macro uncertainty, I am confident we are managing our business with discipline and focus, taking the right actions, and advancing our pivot to deliver unique edge-to-cloud experiences as a service. We believe the combination will drive long-term profitable growth and strong returns on investment.”

First Quarter Fiscal Year 2020 Results

Net revenue of $6.9 billion, down 8% from the prior-year period and 7% from the prior-year period when adjusted for currency. Market uncertainty, supply constraints, and North America manufacturing capacity constraints impacted revenue in Q1, particularly in Compute.

Annualized revenue run-rate (ARR) of $511 million, up 19% from the prior-year period. GreenLake services orders finished the quarter with 48% year over year growth.

GAAP gross margin of 32.8%, up 170 basis points from the prior-year period and Non-GAAP gross margin of 33.2%, up 210 basis points from the prior-year period.

GAAP diluted net earnings per share (“EPS”) was $0.25, compared to $0.13 in the prior-year period and above the previously provided outlook of $0.20 to $0.24 per share.

Non-GAAP diluted net EPS was $0.44, compared to $0.42 in the prior-year period and in-line with the previously provided outlook of $0.42 to $0.46 per share. First quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $242 million and $0.19 per diluted share, respectively, primarily related to amortization of intangible assets and transformation costs.

Cash flow from operations of ($79) million compared to $382 million in the prior-year period.

Free cash flow of ($185) million compared to ($190) million in the prior-year period.

Segment Results

Hewlett Packard Enterprise brings a broad, differentiated portfolio of products and services to address digital transformation, while prioritizing key segments to drive profitable growth.

Intelligent Edge returned to growth with revenue of $720 million, up 4% year over year when adjusted for currency, with 9.7% operating margin, up 630 basis points from the prior-year period. Enhancements to North America sales leadership and go-to-market segmentation are paying off with double-digit growth in North America and 13% growth when adjusted for currency in overall WLAN product.

Compute revenue was $3.0 billion, down 15% year over year when adjusted for currency, with 9.5% operating margin, flat from the prior-year period. Revenue was pressured this quarter due to a more uneven business environment, component supply constraints and North America manufacturing capacity constraints.

High Performance Compute & Mission Critical Systems (HPC & MCS) revenue was $823 million, up 6% year over year when adjusted for currency, with 6.0% operating margin, down 660 basis points from the prior-year period. HPC business continues to gain momentum with over $2.0 billion of awarded business expected to be delivered by FY23.

Storage revenue was $1.3 billion, down 7% year over year when adjusted for currency, with 18.1% operating margin, down 60 basis points from the prior-year period. Hyperconverged Infrastructure showing continued momentum, up 6% year over year when adjusted for currency and Big Data, up 45% year over year when adjusted for currency.

Advisory & Professional Services (A&PS) revenue was $243 million, flat year over year when adjusted for currency, with (0.8%) operating margin, up 12.5 points from the prior-year period. A&PS is a strategic business that pulls through significant infrastructure and operational services sales.

Financial Services revenue was $859 million, down 6% year over year when adjusted for currency, with 8.5% operating margin, up 10 basis points from the prior-year period. Net portfolio assets were up 2% year over year when adjusted for currency, and financing volume was up 2% year over year when adjusted for currency. The business delivered return on equity of 14.8%, down 90 basis points from the prior-year period.

Fiscal 2020 Outlook:

Hewlett Packard Enterprise maintains GAAP diluted net EPS outlook of $1.01 to $1.17 and non-GAAP diluted net EPS outlook of $1.78 to $1.94. Fiscal 2020 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.77 per share, primarily related to transformation costs and the amortization of intangible assets.

Revises free cash flow1 outlook range from $1.9 to $2.1 billion to $1.6 to $1.8 billion to account for current supply chain disruption impacting short-term cash conversion cycles.

1Hewlett Packard Enterprise provides certain guidance on a non-GAAP basis, as the company cannot predict some elements that are included in reported GAAP results. Refer to the discussion of non-GAAP financial measures below for more information.

About Hewlett Packard Enterprise

Hewlett Packard Enterprise is the global edge-to-cloud platform-as-a-service company that helps organizations accelerate outcomes by unlocking value from all of their data, everywhere. Built on decades of reimagining the future and innovating to advance the way we live and work, HPE delivers unique, open and intelligent technology solutions, with a consistent experience across all clouds and edges, to help customers develop new business models, engage in new ways, and increase operational performance. For more information, visit: www.hpe.com.

Use of non-GAAP financial information

To supplement Hewlett Packard Enterprise’s condensed consolidated financial statement information presented on a generally accepted accounting principles (GAAP) basis, Hewlett Packard Enterprise provides revenue on a constant currency basis as well as non-GAAP gross margin, non-GAAP operating expense, non-GAAP operating profit, non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net earnings, non-GAAP diluted net earnings per share, gross cash, free cash flow, net capital expenditures, net debt, net cash, operating company net debt and operating company net cash financial measures. Hewlett Packard Enterprise also provides forecasts of non-GAAP diluted net earnings per share and free cash flow. A reconciliation of adjustments to GAAP financial measures for this quarter and prior periods is included in the tables below or elsewhere in the materials accompanying this news release. In addition, an explanation of the ways in which Hewlett Packard Enterprise’s management uses these non-GAAP measures to evaluate its business, the substance behind Hewlett Packard Enterprise’s decision to use these non-GAAP measures, the material limitations associated with the use of these non-GAAP measures, the manner in which Hewlett Packard Enterprise’s management compensates for those limitations, and the substantive reasons why Hewlett Packard Enterprise’s management believes that these non-GAAP measures provide useful information to investors is included under “Use of non-GAAP financial measures” further below. This additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for revenue, gross margin, operating profit, operating margin, net earnings, diluted net earnings per share, cash, cash equivalents and restricted cash, cash flow from operations, investments in property, plant and equipment, or total company debt prepared in accordance with GAAP.

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