HPE Reports Q3 Results

Q3 2020 Finan­cial Highlights:

  • Reve­nue: $6.8 bil­li­on, up 13% sequen­ti­al­ly or 14% when adjus­ted for currency
  • Gross Pro­fit: $2.1 bil­li­on, up 8% sequentially
  • Ope­ra­ting Pro­fit: GAAP of $12 mil­li­on, up 101% sequen­ti­al­ly and Non-GAAP of $484 mil­li­on, up 33% sequentially
  • Annua­li­zed reve­nue run-rate (ARR): $528 mil­li­on, up 11% from the pri­or-year period
  • Dilu­t­ed net ear­nings per share:
  • GAAP of $0.01 due to the acce­le­ra­ti­on of trans­for­ma­ti­on pro­gram, com­pa­red to ($0.02) from the pri­or-year period
  • Non-GAAP of $0.32, com­pa­red to $0.45 from the pri­or-year period
  • Cash flow from Ope­ra­ti­ons of $1.5 bil­li­on, up 23% from the pri­or-year period
  • Free Cash Flow of $924 mil­li­on, up 43% from the pri­or-year period
  • Q4 FY20 divi­dend of $0.12 a share, paya­ble on Octo­ber 7, 2020

Q3 2020 Key Highlights:

  • Redu­ced our Q2 FY20 back­log by more than $500 mil­li­on through impro­ved sup­ply chain execution
  • Gai­ned momen­tum in key invest­ment are­as: HPE Green­La­ke ser­vices orders grew a record 80% from the pri­or-year peri­od or 82% when adjus­ted for currency
  • Announ­ced intent to acqui­re SD-WAN lea­der Sil­ver Peak
  • Laun­ched next-genera­ti­on HPE Green­La­ke cloud ser­vices, HPE Ezme­ral soft­ware port­fo­lio and the Aru­ba Edge Ser­vices Platform

FY 2020 Outlook:

  • Ear­nings per Share: Q4 2020 GAAP dilu­t­ed net ear­nings per share of $0.02 to $0.06 and non-GAAP dilu­t­ed net ear­nings per share of $0.32 to $0.36. FY 2020 GAAP dilu­t­ed net loss per share of $0.35 to $0.31. FY 2020 non-GAAP dilu­t­ed net ear­nings per share of $1.30 to $1.34.

Our Q3 results are mar­ked by strong exe­cu­ti­on and sequen­ti­al growth,” said Anto­nio Neri, pre­si­dent and CEO of Hew­lett Packard Enter­pri­se. “We signi­fi­cant­ly impro­ved ope­ra­tio­nal and sup­ply chain exe­cu­ti­on and advan­ced our inno­va­ti­on agen­da with the intro­duc­tion of HPE Green­La­ke cloud ser­vices solu­ti­ons, our new HPE Ezme­ral soft­ware port­fo­lio, and our plan­ned acqui­si­ti­on of SD-WAN lea­der Sil­ver Peak.”

We gai­ned momen­tum in key are­as of dif­fe­ren­tia­ti­on and acce­le­ra­ted our as-a-ser­vice pivot with strong ARR growth and a record num­ber of HPE Green­La­ke ser­vices orders,” he con­ti­nued. “Navi­ga­ting through the pan­de­mic and plan­ning for a post-COVID world have incre­a­sed cus­to­mers’ needs for as-a-ser­vice offe­rings, secu­re con­nec­ti­vi­ty, remo­te work capa­bi­li­ties and ana­ly­tics to unlock insights from data that are ali­gned to our stra­te­gy. We see a tre­men­dous oppor­tu­ni­ty to help our cus­to­mers dri­ve digi­tal trans­for­ma­ti­ons as they con­ti­nue to adapt to ope­ra­te in a new world.”

Third Quar­ter Fis­cal Year 2020 Results

Net reve­nue of $6.8 bil­li­on, down 6% from the pri­or-year peri­od or 4% when adjus­ted for cur­ren­cy. Reve­nue grew 13% sequen­ti­al­ly or 14% when adjus­ted for cur­ren­cy dri­ven by solid exe­cu­ti­on in clea­ring his­to­ric back­log by appro­xi­mate­ly $500 mil­li­on during the quarter.

Annua­li­zed reve­nue run-rate (ARR) of $528 mil­li­on, up 11% from the pri­or-year peri­od. We are rei­tera­ting our 2019 Secu­ri­ties Ana­lyst Mee­ting ARR gui­d­ance of 30–40% Com­po­un­ded Annu­al Growth Rate from fis­cal year 2019 to fis­cal year 2022.

Gross Pro­fit of $2.1 bil­li­on, up 8% sequen­ti­al­ly due to strong ope­ra­ti­on execution.

GAAP gross pro­fit mar­gin of 30.3%, com­pa­red to 33.9% from the pri­or-year peri­od and Non-GAAP gross pro­fit mar­gin of 30.4%, com­pa­red to 33.9% from the pri­or-year period.

GAAP Ope­ra­ting Pro­fit of $12 mil­li­on, up 101% sequen­ti­al­ly and Non-GAAP ope­ra­ting pro­fit of $484 mil­li­on, up 33% sequentially.

GAAP ope­ra­ting pro­fit mar­gin of 0.2%, com­pa­red to (1.1%) from the pri­or-year peri­od and Non-GAAP ope­ra­ting pro­fit mar­gin of 7.1%, com­pa­red to 9.9% from the pri­or-year period.

GAAP dilu­t­ed net ear­nings per share (“EPS”) was $0.01 due to the acce­le­ra­ti­on of trans­for­ma­ti­on pro­gram, com­pa­red to ($0.02) in the pri­or-year period.

Non-GAAP dilu­t­ed net EPS was $0.32, com­pa­red to $0.45 in the pri­or-year peri­od. Third quar­ter non-GAAP net ear­nings and non-GAAP dilu­t­ed net EPS exclu­de after-tax adjus­t­ments of $410 mil­li­on and $0.31 per dilu­t­ed ear­nings per share, respec­tively, pri­ma­ri­ly rela­ted to trans­for­ma­ti­on cos­ts and amor­tiz­a­ti­on of purcha­sed intan­gi­ble assets.

Cash flow from ope­ra­ti­ons of $1.5 bil­li­on, com­pa­red to $1.2 bil­li­on in the pri­or-year period.

Free cash flow of $924 mil­li­on, com­pa­red to $648 mil­li­on in the pri­or-year period.

Seg­ment Results

Intel­li­gent Edge reve­nue was $684 mil­li­on, down 12% year over year or 11% when adjus­ted for cur­ren­cy, with 8.6% ope­ra­ting pro­fit mar­gin, com­pa­red to 6.8% from the pri­or-year peri­od. Reve­nue grew 3% sequen­ti­al­ly demons­tra­ting con­ti­nued momentum.

Com­pu­te reve­nue was $3.4 bil­li­on, flat year over year or up 1% when adjus­ted for cur­ren­cy, with 8.5% ope­ra­ting pro­fit mar­gin, com­pa­red to 12.9% from the pri­or-year peri­od. Reve­nue grew 28% sequen­ti­al­ly or 29% when adjus­ted for cur­ren­cy as we exe­cu­t­ed against the back­log and impro­ved our sup­ply chain execution.

High Per­for­mance Com­pu­te & Mis­si­on Cri­ti­cal Sys­tems (HPC & MCS) reve­nue was $649 mil­li­on, up 3% year over year, with 5.5% ope­ra­ting pro­fit mar­gin, com­pa­red to 8.1% from the pri­or-year peri­od. Reve­nue grew 10% sequen­ti­al­ly as instal­la­ti­ons and cus­to­mer accep­t­ance of sys­tems improved.

Sto­rage reve­nue was $1.1 bil­li­on, down 10% year over year or 9% when adjus­ted for cur­ren­cy, with 12.9% ope­ra­ting pro­fit mar­gin, com­pa­red to 16.5% from the pri­or-year peri­od. Reve­nue grew 4% sequen­ti­al­ly dri­ven by impro­ved ope­ra­tio­nal exe­cu­ti­on and reduc­tion of backlog.

Advi­so­ry & Pro­fes­sio­nal Ser­vices (A&PS) reve­nue was $226 mil­li­on, down 7% year over year or 5% when adjus­ted for cur­ren­cy, with (1.8%) ope­ra­ting pro­fit mar­gin, com­pa­red to (3.7%) from the pri­or-year peri­od. Reve­nue was down 5% sequen­ti­al­ly or 4% when adjus­ted for cur­ren­cy as COVID-19 impac­ted con­sul­ting acti­vi­ties of our team mem­bers. A&PS is a stra­te­gic busi­ness that pulls through signi­fi­cant infra­st­ruc­tu­re and ope­ra­tio­nal ser­vices sales.

Finan­cial Ser­vices reve­nue was $811 mil­li­on, down 9% year over year or 6% when adjus­ted for cur­ren­cy and down 3% sequen­ti­al­ly or 2% when adjus­ted for cur­ren­cy, with 8.0% ope­ra­ting pro­fit mar­gin, com­pa­red to 8.7% from the pri­or-year peri­od. Net port­fo­lio assets were up 3% year over year and up 4% sequen­ti­al­ly or 1% when adjus­ted for cur­ren­cy, and finan­cing volu­me was down 12% year over year or 9% when adjus­ted for cur­ren­cy and flat sequen­ti­al­ly or up 1% when adjus­ted for cur­ren­cy des­pi­te the impact of COVID-19. The busi­ness deli­ve­r­ed return on equi­ty of 12.8%, down 3.0 points from the pri­or-year period.

Q4 2020 Dividend

Board of Direc­tors have decla­red a regu­lar cash divi­dend of $0.12 per share on the company’s com­mon stock. This divi­dend, the fourth in Hew­lett Packard Enterprise’s fis­cal year 2020, is paya­ble on Octo­ber 7, 2020, to stock­hol­ders of record as of the clo­se of busi­ness on Sep­tem­ber 9, 2020.

FY 2020 Outlook

For the fis­cal 2020 fourth quar­ter, Hew­lett Packard Enter­pri­se esti­ma­tes GAAP dilu­t­ed net EPS to be in the ran­ge of $0.02 to $0.06. For fis­cal 2020 full-year Hew­lett Packard Enter­pri­se esti­ma­tes GAAP dilu­t­ed net loss per share of $0.35 to $0.31.

For the fis­cal 2020 fourth quar­ter, Hew­lett Packard Enter­pri­se esti­ma­tes non-GAAP dilu­t­ed net EPS to be in the ran­ge of $0.32 to $0.36. Fis­cal 2020 fourth quar­ter non-GAAP dilu­t­ed net EPS esti­ma­tes exclu­de after-tax cos­ts of appro­xi­mate­ly $0.30 per dilu­t­ed share, pri­ma­ri­ly rela­ted to trans­for­ma­ti­on cos­ts and the amor­tiz­a­ti­on of intan­gi­ble assets.

For fis­cal 2020 full-year, Hew­lett Packard Enter­pri­se esti­ma­tes non-GAAP dilu­t­ed net EPS to be in the ran­ge of $1.30 to $1.34. Fis­cal 2020 non-GAAP dilu­t­ed net EPS esti­ma­tes exclu­de after-tax cos­ts of appro­xi­mate­ly $1.65 per dilu­t­ed share, pri­ma­ri­ly rela­ted to good­will impairment, trans­for­ma­ti­on cos­ts, amor­tiz­a­ti­on of intan­gi­ble assets, and acqui­si­ti­on, dis­po­si­ti­on and other rela­ted charges.

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 pro­fit mar­gin, non-GAAP ope­ra­ting pro­fit (non-GAAP ear­nings from ope­ra­ti­ons), non-GAAP ope­ra­ting pro­fit mar­gin, non-GAAP inco­me tax rate, non-GAAP net ear­nings, non-GAAP dilu­t­ed net ear­nings per share, gross cash, free cash flow, 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 pro­fit mar­gin, ope­ra­ting pro­fit (ear­nings from ope­ra­ti­ons), ope­ra­ting pro­fit 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.

For­ward-loo­king statements

This press release con­tains for­ward-loo­king state­ments wit­hin the mea­ning of the safe har­bor pro­vi­si­ons of the Pri­va­te Secu­ri­ties Liti­ga­ti­on Reform Act of 1995. Such state­ments invol­ve risks, uncer­tain­ties and assump­ti­ons. If the risks or uncer­tain­ties ever mate­ria­li­ze or the assump­ti­ons pro­ve incor­rect, the results of Hew­lett Packard Enter­pri­se and its con­so­li­da­ted sub­si­dia­ries may dif­fer mate­ri­al­ly from tho­se expres­sed or implied by such for­ward-loo­king state­ments and assump­ti­ons. The words “belie­ve,” “expect,” “anti­ci­pa­te,” “opti­mistic,” “intend,” “aim,” “will,” “should” and simi­lar expres­si­ons are inten­ded to iden­ti­fy such for­ward-loo­king state­ments. All state­ments other than state­ments of his­to­ri­cal fact are state­ments that could be deemed for­ward-loo­king state­ments, inclu­ding but not limi­ted to the scope and dura­ti­on of the novel coro­na­vi­rus pan­de­mic (“COVID-19”) and its impact on our busi­ness, ope­ra­ti­ons, liqui­di­ty and capi­tal resour­ces, employees, cus­to­mers, part­ners, sup­ply chain, finan­cial results and the world eco­no­my; any pro­jec­tions of reve­nue, mar­gins, expen­ses, effec­ti­ve tax rates, the impact of the U.S. Tax Cuts and Jobs Act of 2017, net ear­nings, net ear­nings per share, cash flows, back­log, bene­fit plan fun­ding, defer­red tax assets, share repurcha­ses, cur­ren­cy exchan­ge rates or other finan­cial items; any pro­jec­tions of the amount, timing or impact of cost savings, rest­ruc­tu­ring char­ges, or other trans­for­ma­ti­on actions; any state­ments of the plans, stra­te­gies and objec­ti­ves of manage­ment for future ope­ra­ti­ons, as well as the exe­cu­ti­on of cor­po­ra­te tran­sac­tions or con­tem­pla­ted acqui­si­ti­ons, trans­for­ma­ti­on and rest­ruc­tu­ring plans and any resul­ting bene­fit, cost savings or rest­ruc­tu­ring char­ges, reve­nue or pro­fi­ta­bi­li­ty impro­ve­ments; any state­ments con­cer­ning the expec­ted deve­lo­p­ment, per­for­mance, mar­ket share or com­pe­ti­ti­ve per­for­mance rela­ting to pro­ducts or ser­vices; any state­ments regar­ding cur­rent or future macroeco­no­mic trends or events and the impact of tho­se trends and events on Hew­lett Packard Enter­pri­se and its finan­cial per­for­mance; any state­ments regar­ding pen­ding inves­ti­ga­ti­ons, claims or dis­pu­tes; any state­ments of expec­ta­ti­on or belief; and any state­ments or assump­ti­ons under­ly­ing any of the foregoing.

Risks, uncer­tain­ties and assump­ti­ons inclu­de the need to address the many chal­len­ges facing Hew­lett Packard Enterprise’s busi­nes­ses; the com­pe­ti­ti­ve pres­su­res faced by Hew­lett Packard Enterprise’s busi­nes­ses; risks asso­cia­ted with exe­cu­ting Hew­lett Packard Enterprise’s stra­te­gy; the impact of macroeco­no­mic and geo­po­li­ti­cal trends and events; the need to mana­ge third-par­ty sup­pliers and the dis­tri­bu­ti­on of Hew­lett Packard Enterprise’s pro­ducts and the deli­very of Hew­lett Packard Enterprise’s ser­vices effec­tively; the pro­tec­tion of Hew­lett Packard Enterprise’s intel­lec­tu­al pro­per­ty assets, inclu­ding intel­lec­tu­al pro­per­ty licen­sed from third par­ties and intel­lec­tu­al pro­per­ty shared with its for­mer parent; risks asso­cia­ted with Hew­lett Packard Enterprise’s inter­na­tio­nal ope­ra­ti­ons (inclu­ding pan­de­mics and public health pro­blems, such as the out­break of COVID-19); the deve­lo­p­ment and tran­si­ti­on of new pro­ducts and ser­vices and the enhan­ce­ment of exis­ting pro­ducts and ser­vices to meet cus­to­mer needs and respond to emer­ging tech­no­lo­gi­cal trends; the exe­cu­ti­on and per­for­mance of con­tracts by Hew­lett Packard Enter­pri­se and its sup­pliers, cus­to­mers, cli­ents and part­ners, inclu­ding any impact the­re­on resul­ting from events such as the COVID-19 pan­de­mic; the hiring and reten­ti­on of key employees; exe­cu­ti­on, inte­gra­ti­on and other risks asso­cia­ted with busi­ness com­bi­na­ti­on and invest­ment tran­sac­tions; the exe­cu­ti­on, timing and results of any trans­for­ma­ti­on or rest­ruc­tu­ring plans, inclu­ding esti­ma­tes and assump­ti­ons rela­ted to the cos­ts and anti­ci­pa­ted bene­fits of imple­men­ting the trans­for­ma­ti­on and rest­ruc­tu­ring plans; the effects of the U.S. Tax Cuts and Jobs Act and rela­ted gui­d­ance and regu­la­ti­ons that may be imple­men­ted; the reso­lu­ti­on of pen­ding inves­ti­ga­ti­ons, claims and dis­pu­tes; and other risks that are descri­bed in Hew­lett Packard Enterprise’s other filings with the Secu­ri­ties and Exchan­ge Com­mis­si­on, inclu­ding but not limi­ted to the risks descri­bed in Hew­lett Packard Enterprise’s Annu­al Report on Form 10‑K for the fis­cal year ended Octo­ber 31, 2019, Hew­lett Packard Enterprise’s Quar­ter­ly Reports on Form 10‑Q for the fis­cal quar­ters ended Janu­a­ry 31, 2020 and April 30, 2020, Cur­rent Reports on Form 8‑K, and in other filings made by Hew­lett Packard Enter­pri­se from time to time with the Secu­ri­ties and Exchan­ge Commission.

As in pri­or peri­ods, the finan­cial infor­ma­ti­on set forth in this press release, inclu­ding tax-rela­ted items, reflects esti­ma­tes based on infor­ma­ti­on avail­ab­le at this time. While Hew­lett Packard Enter­pri­se belie­ves the­se esti­ma­tes to be rea­son­ab­le, the­se amounts could dif­fer mate­ri­al­ly from repor­ted amounts in the Hew­lett Packard Enter­pri­se Quar­ter­ly Report on Form 10‑Q for the third quar­ter ended July 31, 2020. Hew­lett Packard Enter­pri­se assu­mes no obli­ga­ti­on and does not intend to update the­se for­ward-loo­king statements.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unau­di­ted)
(In mil­li­ons, except per share amounts)

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