Hewlett Packard Enterprise Company (HPE) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and welcome to the First Quarter 2021 Hewlett Packard Enterprise Earnings Conference Call. My name is Cole and I will be your conference moderator for today’s call. And as a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. Andrew Simanek, Vice President of Investor Relations. Please proceed. Andrew Simanek: Great. Thank you. Good afternoon, everyone. I am Andy Simanek, Head of Investor Relations for Hewlett Packard Enterprise. I would like to welcome you to our fiscal 2021 first quarter earnings conference call with Antonio Neri, HPE’s President and Chief Executive Officer and Tarek Robbiati, HPE’s Executive Vice President and Chief Financial Officer. Antonio Neri: Well, thanks, Andy, and good afternoon, everyone. Thank you for joining us today, and I hope you and your families continue to be safe and healthy. It is hard to comprehend everything that has transpired around the world over the last year. The world we knew pre-pandemic has changed forever, and the need to use innovative technologies to advance the way people live and business operate has never been greater. Improving the health of our communities from educating our children to digitizing our economy and enable its recovery creates an enormous opportunity. I believe we are entering a new year, the age of insight, fueled by the amount of data around us. The arrival of safe and effective COVID-19 vaccines is a marvel of innovation and good news for us all, bringing hope and optimism for what lies ahead. I am personally very excited about the future of innovation and the impact it will have. Tarek Robbiati: Thank you very much, Antonio. I will start with a summary of our financial results for the first quarter of fiscal year ‘21. As usual, I will be referencing the slides from our earnings presentation to guide you through our performance in the quarter. Antonio discussed the key highlights for this quarter on Slide 1 and now let me discuss our financial performance and KPIs, starting with Slide 2. I am delighted to report that our Q1 results were marked by continued momentum in revenue, substantial gross and operating margin expansion and robust cash generation. We delivered Q1 revenues of $6.8 billion, down 3% from the prior year period, but better than our typical historical sequential seasonality when normalizing for Q4 backlog. I am particularly proud of the fact that our non-GAAP gross margin returned to above pre-pandemic levels and was up 30 basis points from the prior year period and up 300 basis points sequentially. This was driven by strong pricing discipline, the absence of backlog-related headwinds, cost takeouts and an ongoing favorable mix shift towards higher-margin software-rich offerings. Our operating expenses decreased year-over-year, thanks to our ongoing structural efficiency measures as well as some timing-related benefits related to hiring in key selected areas, which have been pushed out. Our non-GAAP operating margin was 11.3%, up 130 basis points from the prior year, which translates to an 11% year-over-year increase in operating profit. As a result of our strong execution, we ended the quarter with non-GAAP EPS of $0.52, which was up 4% from the prior year and significantly above the higher end of our outlook range. Q1 cash flow from operations was close to $1 billion, driven by better profitability and strong operational discipline as well as working capital timing benefits. Q1 free cash flow was $563 million, which was up approximately $750 million from the prior year and a record level for any first HPE first quarter. Finally, we paid $155 million of dividends in the quarter and are declaring a Q2 dividend today of $0.12 per share payable in April 2021. Now let’s turn to our segment highlights on Slide 3. In Intelligent Edge, we accelerated our momentum with rich software capabilities, delivering 11% year-over-year growth, our third consecutive quarter of sequential growth. Switching was up 5% year-over-year with double-digit growth in North America. And wireless LAN was up 11% year-over-year with double-digit growth in both North America and APJ. Additionally, the Aruba SaaS offering was up triple digits year-over-year and is now a significant contributor to HPE overall ARR. Based on our solid performance, we expect to take share again this quarter in both campus switching and wireless LAN. We are also seeing the significant operating profit potential of this business with operating margins in Q1 of 18.9%, up 680 basis points year-over-year as we drove greater productivity from past investments and operational leverage benefits kick in. Finally, I am pleased to say we recognized our first full quarter of revenue from the acquisition of Silver Peak, the premium growth SD-WAN leader, which contributed approximately 500 basis points to the Intelligent Edge top line growth. In HPC and MCS, revenue declined 9% year-over-year, primarily due to the inherent lumpiness of the business, which is linked to the timing of deals and customer acceptance milestones. We remain very confident in the near-term and longer-term outlook for this business and are reaffirming our full year and 3-year revenue growth CAGR target of 8% to 12%, respectively, as highlighted at SAM. We have an extremely strong order book of over $2 billion worth of awarded exascale contracts with another $5-plus billion of market opportunity over the next 3 years. Finally, we announced the launch of our HPC as-a-Service offer, which we expect to gain traction later this year and become a further contributor to our overall growing ARR profile. In Compute, revenue stabilized to a 2% year-over-year decline, but was up low single digits sequentially when normalizing for Q4 backlog, which attest of a strong order momentum in the quarter. Gross and operating margins were up meaningfully quarter-over-quarter due to the absence of any backlog-related margin impact, improved supply chain execution and the rightsizing of the cost structure of this segment. We ended the quarter with an operating profit margin of 11.5%, up 80 basis points from prior year period and at the high end of our long-term margin guidance for this segment provided at SAM. Within Storage, revenue declined 6% year-over-year, driven by difficult prior year compare, but with strong growth in software-defined offerings. We are extremely well positioned in Storage with Primera and Nimble dHCI. Our most software rich platforms, they are both growing triple digits year-over-year. They are absolute winners in the market, and Primera is on track to surpass 3PAR sales as early as next quarter. We also saw notable strength in overall Nimble, up 31% year-over-year, and total all-flash arrays were up 5% year-over-year. The mix shift towards our more software-rich platforms helped drive storage operating profit margins to 19.7%, well above our long-term outlook for this segment presented at SAM last October. With respect to Pointnext operational services, including Nimble services, revenue stabilized and was flat year-over-year, driven by the increased focus of our BU segments on selling products and services as bundles, improved services intensity and are growing as-a-service business, which I remind you, involves service attach rates of 100%. This is very important to note because all of our services – all of our OS revenue is recurring with 3-year average contract length, and OS remains the highest operating margin contributor to our segments. Within HPE Financial Services, revenue stabilized and was slightly down 1% year-over-year. As expected, we are seeing sequential improvements in our bad debt loss ratios, ending this quarter at approximately 0.9%, which continues to be best-in-class within the industry. We have also seen strong cash collections well above pre-COVID levels. As a result, our non-GAAP operating margin was 9.8%, up 110 basis points on the prior year. And our return on equity is back to a pre-pandemic high-teens level of 16.5%. Slide 4 highlights key metrics of our growing as-a-service business. Similar to last quarter, we are making great strides in our as-a-service offering this quarter with over 70 new GreenLake logos added in Q1. I am very pleased to report that our Q1 21 ARR came in at $649 million, representing 27% year-over-year reported growth. Total as-a-service orders were up 26% year-over-year, driven by very strong performance in Europe and Japan. Our HPE Aruba Central SaaS platform also contributed to grow revenues strong triple digits year-over-year. Based on strong customer demand and recent wins, I am very happy with how this business is executing and progressing towards achieving its ARR growth targets of 30% to 40% CAGR from fiscal year ‘20 to fiscal year ‘23, which I am reiterating today. Slide 5 highlights our revenue and EPS performance to date, where you can clearly see the strong rebound from our Q2 trough. Revenue returned back to near pre-pandemic levels last quarter. And with the operational execution of our cost optimization and resource allocation program, we have nearly doubled EPS from the trough and are now growing year-over-year. Turning to Slide 6, we delivered a non-GAAP gross margin rate in Q1 of 33.7% of revenues, which was up 300 basis points sequentially and 30 basis points from the prior year period. This was driven by strong pricing discipline, the absence of backlog-related headwinds we had in the second half of last year, operational services, margin expansion from cost takeout and automation and a positive mix shift towards high-margin software-rich businesses like the Intelligent Edge and Storage. Moving to Slide 7, you can also see we have expanded non-GAAP operating profit margins, which is up 280 basis points sequentially and 130 basis points from the prior year period. We have done this by driving further productivity benefits while simultaneously maintaining our investment levels in R&D and field selling costs, which are critical to fuel our innovation engine and revenue growth targets. Q1 operating expenses also benefited from delayed hiring and a push-out of select investments that we will be making to drive further growth. Turning to Slide 8, we generated record levels of first quarter cash flows. Cash flow from operations was approximately $1 billion, and free cash flow was $563 million for the quarter, up approximately $750 million from the prior year period. This was primarily driven by the increased profitability, strong operational discipline and some working capital in year timing related benefits. Now moving on to Slide 9, let me remind everyone about the strength of our diversified balance sheet, liquidity position, which are a competitive advantage in the current environment. As of our January 31 quarter end, we had approximately $4.2 billion of cash on hand. Together with an undrawn revolving credit facility of $4.75 billion at our disposal, we currently have approximately $9 billion of liquidity. Finally, I would like to reiterate that we remain committed to maintaining our investment-grade credit rating, which was recently reaffirmed by the rating agencies. Bottom line, our improved free cash flow outlook and cash position ensures we have ample liquidity to run our operations, continue to invest in our business to drive growth and execute on our strategy. Now turning to outlook on Slide 10, at our October 2020 Securities Analyst Meeting, we provided our outlook for fiscal year ‘21, which we raised by $0.03 at the midpoint to $1.60 to $1.78 in our last earnings release. Today, I’m pleased to announce that we are raising our fiscal year guidance for fiscal year ‘21 once again to reflect our strong operational performance to date and confidence in our outlook. We now expect to grow our fiscal year ‘21 non-GAAP operating profit by over 20% and expect to deliver fiscal year ‘21 non-GAAP diluted net earnings per share between $1.70 to $1.88, which is a $0.10 per share improvement on the midpoint of our prior EPS guidance of $1.60 to $1.78. From a top line perspective, we are pleased with the momentum we saw in Q1. And whilst we continue to see gradual improvement, we remain prudent as we and the rest of the world continue to navigate the pandemic and related macro uncertainties. More specifically for Q2 ‘21, we expect revenue to be slightly better than in line with our normal sequential seasonality of down mid-single digits from Q1. This still represents double-digit year-over-year growth from the $6 billion trough of Q2 of fiscal year ‘20. Now with respect to supply chain, I would like to remind everyone that we exited Q4 of fiscal year ‘20 with higher levels of inventory to protect against the risk of a short-term supply squeeze and address improved customer demand. With these actions and other proactive steps that we’ve taken in Q1, we do not expect any meaningful impacts on our supply chain in the near-term. We are now turning our attention to working on strengthening our inventory supply for the second half of fiscal year ‘21 as we see improved levels of demand, recognizing also that we have entered an inflationary environment for memory components. For Q2 ‘21, we expect GAAP diluted net EPS of $0.02 to $0.08 and non-GAAP diluted net EPS of $0.38 to $0.44. Additionally, given our record levels of cash flow this quarter and raised earnings outlook, I am very pleased to announce that we are also raising fiscal year ‘21 free cash flow guidance from our SAM guidance of $900 million to $1.1 billion to a revised outlook of $1.1 billion to $1.4 billion, a $250 million increase at the midpoint. So overall, Antonio and I are proud of these results. We have navigated well through unprecedented challenges in the last fiscal year and have started the new fiscal year strong out of the gate. We saw significant acceleration and customer demand in our Intelligent Edge business and the order pipeline in our HPC MCS business remains robust. Our core business of Compute and Storage revenues are stabilizing with improved margins, and our as-a-service ARR continues to show strong momentum aligned to our outlook. As a result of our cost optimization and resource allocation program, we are emerging from an unprecedented crisis as a different company, one that is much leaner, better-resourced and positioned to capitalize on the gradual economic recovery currently at play. We are already seeing the benefits of our actions in our improved margin profile and free cash flow outlook. Now, with that, let’s open it up for questions. Andy? Andrew Simanek: Great. Thanks, Tarek. First question, please. Thank you. Operator: Certainly. Our first question today will come from Shannon Cross with Cross Research. Please go ahead. Shannon Cross: Thank you very much for taking my question. I’m curious, everyone is talking about digital transformations, and they seem to have really gained traction early in COVID with the need for remote work. But now could you talk a bit about how customer priorities and purchase decisions are changing as we’re moving past COVID? And I’m wondering if it’s an opportunity for more consultative sales and higher ASPs margin. If you could talk about it maybe by segment, that would be helpful because I assume it may vary across your business lines? Thank you. Andrew Simanek: Thanks, Shannon. Yes. Antonio Neri: Well, thanks, Shannon. Yes. I will take that, Andy. Well, we definitely still see the tailwind of what we saw in 2020. Obviously, we work in a much more distributed environment. We talked about this all the time about the fact that many employees will never return to the office, and they need access to data and services in a very connected way. And so that’s why we believe our Aruba business, it is a digital transformation engine for our customers. It is not just about access to a Wi-Fi port, but it’s also the fact that provides that edge-to-cloud connectivity for all the apps and data, wherever they live. So what we see though is an acceleration for definitely the access to data, the analytics side. We see AI machine learning taking holding every segment of the market because data insights is necessary to compete in this new digital economy. We see, obviously, the need to improve IT resiliency based on the learnings we had in 2020. We see also the need to deploy cloud everywhere. And remember, our definition of the cloud is an experience, not a destination. And that’s why we are very bullish about our HPE GreenLake cloud services. The pipeline, the size of the deal, the need to engage in a consultative application-driven conversation is increasing. And that’s where we have aligned our advisory and professional services to that part of the business. So I think there is going to be a mix of things, Shannon. But ultimately, digital transformation is no longer a priority. It is a strategic imperative. And those who move fast around the data insights and digitizing everything will be the winners. No question. Andrew Simanek: Perfect. Great, thank you, Shannon. Operator, can we go to the question, please? Operator: And our next question will come from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Hi. Yes, thank you and congrats on the nice execution, and especially the strong cash flow performance. Antonio, you noted some solid order linearity. I was wondering if you can talk about any meaningful changes that you’re seeing in your customer conversations around recovery and enterprise demand. And what are some of the key assumptions around the upside to the EPS and cash flow guide? Thank you. Antonio Neri: Well, maybe I’ll start, and then I would like Tarek to talk about the EPS upside. Listen, I spent more than 50% of my time talking to customers and partners, and I see a renewed focus on making sure the businesses are positioned for success. Definitely, there is a need to modernize their infrastructure and deploy these new technologies across the board. Our order linear intake, Wamsi, it was very solid every single week of the quarter. There was no one week that was higher than others. Honestly, I was very pleasantly surprised about that. The way I manage the business with my team, a quarter has 13 weeks because when you go into a quarter, you already have a week of backlog and then you drive your linearity from there. And it was very consistent. It was across all businesses. As Tarek said, our Compute business saw sequential growth in our order intake, the same in our areas of the Storage portfolio, where we are pivoting, particularly everything that’s software-defined. Aruba was very strong out of the gate, and we see the momentum going through 2021. GreenLake the same thing, but ultimately, their vision of edge-to-cloud is paying off because ultimately, customers need that architecture and a set of services that they can deliver what they need in this digital transformation. So we feel very confident about that. And that’s why we are confident in raising the outlook, which Tarek gave you the insights about the EPS upside. So maybe, Tarek, you want to talk about that? Tarek Robbiati: Sure, Antonio. Wamsi, thanks for the question. We feel very good about our guidance for the second quarter and the full year ‘21. We did express in our scripts that we see our non-GAAP operating profit growing by over 20% year-over-year, and our guidance reflect that. Now when you look at our margins for this quarter and the need to proceed with select investments, we feel that the guidance that we have on an EPS level is achievable, particularly when you look at the improvement quarter-over-quarter in Q2 and for the rest of the year, as Q3 and Q4 are usually strong quarters for our businesses such as the Intelligent Edge and also Storage. With respect to cash flow, our guidance has improved by $250 million at the midpoint, and it’s a reflection of the improved outlook on operating profit. I am very pleased to put forward the guidance of $1.1 billion to $1.4 billion in free cash flow and we will see as the year progresses, how this guidance will translate in actual results. Andrew Simanek: Great. Thanks, Wamsi. Can you go to the next question, please? Operator: And our next question will come from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yes, thanks for taking the question and also congrats on the quarter from me as well. I want to ask about the margin profile. Tarek, when you think about the performance that we’ve seen this last quarter and you think about the mix of the business going forward, I guess, how do you think about the continued upward levers on gross margin? And can you just remind us of where we stand on the $800 million net savings initiatives from an OpEx perspective? Where we stand at now and what’s left in terms of that target by the exit of fiscal ‘22? Thank you. Tarek Robbiati: Sure, Aaron. Thank you for the question. So let’s pick up gross margin first, and then we’ll talk about our cost optimization, resource allocation program. On gross margin, we feel very good that now that we’ve put behind us all the effects from backlog in Q3, Q4 of last year. We’re now operating the business in the context where we have normal business flows between orders and supply chain delivery. And we do acknowledge, like we said before, that there is an inflationary environment on some commodities such as DRAM. But we feel that we have the right levers around pricing and also purchases to navigate the upcoming quarters. We feel very good about our supply chain position in terms of inventory levels for the short-term. As a reminder, at the end of last year, we stocked up in anticipation of two things a resurgence in customer demand, which we saw happening; and also a potential squeeze in some commodities that we were anticipating back then, which is proving true now. But we are very well positioned to drive that. So we will navigate the short-term supply-demand equation reasonably well, pulling on pricing levers as needed in our core. In addition to this, you have a mix effect from software rich revenues. These are coming from storage and of course, the Intelligent Edge. Aruba is performing extremely well. It’s a very high gross margin business. We see continued growth in Aruba. We’ve demonstrated three quarters of consecutive growth. This is set to continue. The products are in very hot demand everywhere globally. And the mix effect will also play on the gross margin front. I think I’ve given you sufficient color there. So maybe it’s time we turn to the cost optimization and resource allocation program. The bottom line on this one is we’re on track and the reason why you see our operating margins up to the levels that you’ve seen north of 11% overall for the company is because of that program. And so what’s very, very important for us is that we keep that expense discipline to sustain this level of operating profit growth moving forward and drive productivity, meaning having higher revenue over the same cost base to continue to drive operating profit growth and, therefore, translating into free cash flow growth moving forward. The $800 million net run rate benefits, as a reminder, would be felt for the most part in fiscal year ‘21. You started seeing some of that. We’re incurring restructuring costs to that effect. And the program will be over by fiscal year ‘22. And we’re well on track, and I’m very pleased with how it’s tracking as we speak. Andrew Simanek: Great. Thank you. Antonio Neri: My other comment on the – sorry, Andy, my comment on what Tarek said, what we announced last year in Q2 was the right thing to do. It gave – we have enough experience in this company to tell us to take actions immediately and now proven to be very, very fruitful for us. As Tarek said in his remarks, right, we are becoming a different company, more leaner, more agile and allows us to prioritize investment in the areas of growth. So very pleased that we took that action at the time. Andrew Simanek: Yes, good point, Antonio. Thanks, Aaron, for the question. Operator, can we go to the next one please? Operator: And our next question will come from Katy Huberty with Morgan Stanley. Please go ahead. Katy Huberty: Thank you. My congrats on the quarter as well. Question for Tarek, you beat the first quarter by about $0.11 versus consensus, you guided up the full year by $0.10. So the guidance implies that you don’t operationally beat the next three quarters. Is that just prudence as we await full visibility into the pace of demand recovery? Or is that tied to some of the delayed OpEx investments that you mentioned? And maybe if you can detail what some of those investments are just so that we can understand what those are? Thank you. Tarek Robbiati: Sure. So, we pretty much, Katy, passed on to the full year guidance the entire beat in Q1. A couple of points on the investment front, you could see from some of the slides that we put forward, our investment in R&D and FSC, this has to continue, and we’ll find adequate sources to fund investments in FSCs and R&D because we have to continue to fuel growth. And this is part of our story, which is to rethink our cost structure in terms of back-office and front-of-house to drive growth and innovation by way of software. So I feel pretty good about that. With respect to also your modeling of EPS on a full year basis, I want to take the opportunity to highlight what’s going on at the OI&E level. OI&E was a positive contributor to EPS in this quarter. This is just simply due to timing, particularly the contribution of economic interest from HPC. For the full year, we still see overall in OI&E $100 million expense. And this is why you may think that the guidance is flat H1 on H2. But don’t forget the effect of OI&E coming in, in the second half of the year as an expense. Andrew Simanek: Great. Thanks, Katy for the question. Can we go to the next one, please? Operator: And our next question will come from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Thanks for taking my question. And I’ll extend my congratulations as well. I wanted to talk a little bit on Aruba, fairly strong double-digit growth over here. And I think that’s fairly impressive given peers like Cisco and Juniper are probably seeing low to mid single-digit growth. I know Silver Peak got some element to this. But I’d love to get a sense from a share gain perspective, where are you seeing the share gains on the products and vertical side? Some color there would be helpful. And then the durability of this growth, that would be helpful to understand as well. Antonio Neri: Well, thanks, Amit. Well, listen, we believe Aruba is a winner, simply put. It is a software asset that delivers mobile-first class first experience that provides ubiquitous secure connectivity in a platform-oriented approach. So for us, it’s not a surprise to see the momentum in that business, which is not just revenue as Tarek said three consecutive quarters of growth, but also five quarters of growth and margin expansion in that business. And as we commented early on, our SaaS revenue, which is the subscription to the platform is up three triple-digits, right, on that part of the business. We expect to gain both shares in campus switching and wireless LAN, whether is – we’ll see how the market does. But some of our competitors don’t disclose numbers. So it’s hard to understand what was down versus up. But I think the market was not as positive as people portray, but we outperformed that market quite significantly. So whether it’s 100 basis points, 200 basis points, all we see soon. But I’ve remained very bullish. I remain very bullish about the business. This business will continue to grow for the balance of the year, also because now we have Silver Peak in our portfolio, which is a completely differentiated experience for the SD-WAN. And remember what I said early on, in an edge-to-cloud architecture, you have to connect all your edges and all your cloud. And the only way to do it at scale is through software. And Silver Peak brings a SaaS solution and also an on-prem solution that allows customers to connect all their edges on the cloud in a fully automated and autonomous way. And that’s a big opportunity for us. And that’s why I’m really bullish because ultimately, we are integrating that solution into the same platform. And then there are multiple drivers of growth as we think about the next 12, 24, 36 months, which includes edge computing and 5G. So that’s why I’m very, very confident in our ability to deliver against that market. Andrew Simanek: Great, thank you. Thanks, Amit for the question. Can we go to the next one, please? Operator: And our next question will come from Simon Leopold with Raymond James. Please go ahead. Simon Leopold: Thanks for taking the question. I wanted to see if maybe you could help us understand where you see your market in terms of enterprises coming out of the pandemic or recovery? And really, the root of this question is Intelligent Edge looks like it’s recovered with the year-over-year growth, whereas the other segments, maybe we can expect more of a recovery pattern later this year. So I’m looking for maybe a bridge between what’s execution and what’s kind of macro recovery by segment. Thank you. Antonio Neri: Yes. I mean, I think the market, in general, is recovering. As I said early on, Simon, is my point about the order linearity was steady and consistent throughout the quarter, which give us the confidence that we will see gradual continued improvement in that demand. And it’s not one business. I think it’s across all businesses. And I think it’s a combination of our execution because of our strategy and the emphasis on the innovation that we bring to the market. And obviously, as the market gets better, we should take advantage of that, but remember, we have a unique value proposition. We are a company that has unique portfolio from edge-to-cloud. Our competitors don’t have all of that. Some have in one area, some have in another area. And what customers want is an integrated experience more and more. And obviously, the shift to a consumption-driven model is in our favor because once we land a customer in GreenLake, basically, they get what they want, whether it’s at the edge or what is in the core or whether it’s in the managed services for the hybrid model that they are all adopting. So I think Compute, I think there are new technologies coming online with NVMe and more options that can be attached. Storage, obviously, is all the software-defined that Tarek talked about it. Data is exploding. And HPC, I’m very bullish about HPC because ultimately, the data sets we see in customer sites continue to grow. And they all need AI machine learning at one point in time. Not just few customers. So whether it’s large public sector, education also is going to be very good because we expect our children to get back to school at some point in time, obviously, transportation with autonomous vehicles and 5G deployments. So I see multiple growth going forward and obviously, it’s in our hand to innovate and deliver against that opportunity. Tarek Robbiati: Antonio, if I can add color to compute business, I think it’s important we let everyone on the call know, that when you look at the underlying performance of compute and particularly when you normalize for Q4 backlog impacts, both AUP and units were up sequentially. So there is a real recovery in Compute if you strip out the impact of backlog in Q4. AUP was up high single digits, and units were up approximately 10% quarter-on-quarter once you do that normalization. It’s very hard for analysts outside the company to do the normalization, but that’s why I wanted to make the point. So hopefully, that will resonate with the analyst community on this earnings announcement. Andrew Simanek: Yes. Thanks, Tarek and thank you, Simon for the question. So we are just about at the top of the hour now. Operator, can we have the last questions, please? Operator: And our last question today will come from Paul Coster with JPMorgan. Please go ahead. Paul Coster: Not a very exciting question to finish up on, but it looks like you’re pushing the upper boundary of your expected operating margin range for the core businesses. And I’m wondering – and it sounds like they could get better yet. So are you going to change the range of expectations around operating margins or is this just sort of unsustainable what we’re seeing at the moment? Antonio Neri: Tarek, you want to take that? Tarek Robbiati: Yes, I will take it. Paul, this is a very exciting question. It’s a very exciting question for me. It’s essential. So don’t be shy about it. I would simply say, look, we have to keep the expense discipline and drive productivity. We feel that the upper boundary has yet to be tested. And I would say that this is always, in a company like this, not a short-term endeavor, but something that has to be done on the sustainable business – on a sustainable basis moving forward. But remember also that what drives the operating margin is the continuous expansion into software. Margin risk software offerings and our ARR will start to shine as it continues to accelerate into fiscal year ‘21 and ‘22. Andrew Simanek: Great. Thanks, Paul, for the question. Antonio, maybe I’ll turn it over to you for any final comments you have before we close the call. Antonio Neri: Well, thank you, Tarek, and thank you, everyone, for joining us today. I know there are more questions, but I know Tarek and the team will get off-line with you on the one-on-one follow-up calls. Now, I mean, I just want to reiterate this is a very solid start for our company for fiscal year ‘21. Obviously, we remain committed to driving shareholder value. I’m particularly pleased with our results in profitability, in free cash flow, which was record-breaking. The fact that we are confident in the demand recovery and our own execution that allows us to raise guidance for the full year in both non-GAAP EPS and free cash flow, we see tremendous momentum in our areas of innovations and focus, Intelligent Edge and even HPC business, remember with our lumpiness of the business, confident to deliver that 8% to 12% growth and in the pivot to as-a-service. So because all of that, we believe this is going to be a good year in balance. And obviously, we’re all watching the trends with the COVID. But I think customers realize that this is the year they need to make the investments to digitize everything in the company. So again, thank you for joining us today and I hope you continue to stay safe and healthy. Talk to you next quarter. Thank you. Operator: And ladies and gentlemen, this concludes our call for today. Thank you. And at this time, you may now disconnect.
BofA Upgrades HP Enterprise to Buy, Shares Gain 4%
Hewlett Packard Enterprise Company (NYSE:HPE) shares rose more than 4% intra-day today after BofA Securities analysts upgraded the company from Neutral to Buy, raising the price target to $24 from $21.
The upgrade reflects several key factors that make HP Enterprise shares attractive. The analysts highlighted potential significant cost reductions under the guidance of new CFO Marie Myers, who has a strong track record from her time at HP. Additionally, the company is poised to benefit from a cyclical recovery in servers, storage, and networking. The upcoming acquisition of Juniper is expected to generate both revenue growth and cost synergies.
The analysts also anticipate a rebound in margins for the High Performance Compute (HPC) segment, which has been under pressure. Furthermore, as demand for AI solutions in enterprise and sovereign sectors grows, HP Enterprise is well-positioned to capitalize on these opportunities.
Hewlett Packard Enterprise Shares Jump 11% Following Q2 Beat
Hewlett Packard Enterprise (NYSE:HPE) experienced a surge of over 11% pre-market today following the release of earnings results that surpassed expectations. The high demand for AI systems provided by companies like HPE, which power data centers for generative AI technology, has been a significant factor in this performance.
For Q2, the company reported EPS of $0.42, exceeding the forecasted $0.39. Revenue for the quarter was $7.2 billion, beating the expected $6.83 billion.
Looking forward, HPE provided an optimistic outlook for fiscal 2024, forecasting an EPS range of $1.85 to $1.95, compared to the Street estimate of $1.88. For Q3/24, it expects an EPS range of $0.43 to $0.48, compared to the consensus estimate of $0.47, and anticipates revenue between $7.4 billion and $7.8 billion, compared to the projected $7.46 billion.
Hewlett-Packard Enterprise Co. Surpasses Earnings Estimates
- Hewlett-Packard Enterprise Co. reported an EPS of $0.42, beating the estimated EPS of $0.3899 and the Zacks Consensus Estimate of $0.38.
- The company announced a revenue of approximately $7.2 billion, exceeding the estimated revenue of roughly $6.82 billion, driven by increased demand for AI computer servers.
- HPE's financial health is highlighted by a P/E ratio of approximately 12.77 and a debt-to-equity (D/E) ratio of about 0.52, indicating a stable financial structure and investor confidence.
On Tuesday, June 4, 2024, Hewlett Packard Enterprise Co. (NYSE:HPE) reported its earnings after the market closed, revealing an earnings per share (EPS) of $0.42, which surpassed the estimated EPS of $0.3899. This performance exceeded the Zacks Consensus Estimate of $0.38 per share and marked a significant achievement compared to the earnings of $0.52 per share reported a year ago. Additionally, HPE announced a revenue of approximately $7.2 billion, exceeding the estimated revenue of roughly $6.82 billion. This financial achievement underscores HPE's operational and financial strength, as it continues to outperform expectations.
HPE, a leading company in the technology sector, specializes in providing enterprise IT solutions, including AI computer servers, which have seen increased demand. This demand for AI technology has been a driving force behind the company's recent success. Following the announcement of its fiscal second-quarter earnings, HPE experienced a notable rise in its stock price. This positive market reaction was primarily driven by the company's substantial revenue beat, which was fueled by the momentum in artificial-intelligence servers, marking a return to growth for HPE.
The company's financial health is further highlighted by its price-to-earnings (P/E) ratio of approximately 12.77, indicating investors' willingness to pay for each dollar of earnings. The price-to-sales (P/S) ratio stands at roughly 0.81, reflecting the value investors place on each dollar of the company's sales. Additionally, HPE's enterprise value to sales (EV/Sales) ratio of about 1.11 and its enterprise value to operating cash flow (EV/OCF) ratio of approximately 5.69 provide insights into the company's valuation in relation to its sales and operating cash flow, respectively.
Moreover, HPE's earnings yield of around 7.83% offers an insight into the potential return on investment for shareholders. The company's debt-to-equity (D/E) ratio of about 0.52 indicates a balanced approach to debt financing relative to its equity, showcasing a stable financial structure. The current ratio of approximately 0.90 suggests HPE's capability to cover its short-term liabilities with its short-term assets, further emphasizing the company's solid financial position.
In summary, HPE's recent earnings report not only surpassed analysts' expectations but also highlighted the company's strong financial health and operational efficiency. The increased demand for AI computer servers has played a significant role in this success, contributing to HPE's growth and positive market performance. With solid financial ratios and a return to growth, HPE continues to demonstrate its strength in the competitive technology sector.
Hewlett-Packard Enterprise Co. Quarterly Earnings Preview
- Wall Street anticipates earnings of $0.38 per share and revenues of $6.82 billion for the quarter.
- Focus on growth in cloud services and the adoption of HPE GreenLake solution.
- Financial metrics reveal a P/E ratio of 12.08, a P/S ratio of 0.82, and potential liquidity challenges with a current ratio of 0.89.
Hewlett Packard Enterprise Co. (NYSE:HPE) is on the brink of revealing its quarterly earnings report on Tuesday, June 4, 2024, after the market closes. This event is highly anticipated by investors and analysts alike, with Wall Street setting the bar with expectations of earnings at $0.38 per share and projecting revenues to hit around $6.82 billion for the quarter. HPE, a major player in the technology sector, specializes in providing enterprise-level solutions, including cloud services and data center technologies, competing with giants like IBM and Cisco.
The upcoming earnings report is expected to showcase HPE's growth, particularly in its cloud services and the adoption of its HPE GreenLake solution. These areas are anticipated to be significant contributors to the company's performance for the quarter ending in April 2024. The focus on these growth areas, as highlighted by Zacks Investment Research, underscores the evolving demand for cloud solutions and as-a-service offerings, which have become increasingly important in today's digital economy.
Financial metrics provide a deeper insight into HPE's valuation and financial health ahead of its earnings release. With a price-to-earnings (P/E) ratio of approximately 12.08, investors seem to have a moderate expectation of the company's future earnings growth. The price-to-sales (P/S) ratio of about 0.82 suggests that the market may be undervaluing HPE's sales, potentially indicating an investment opportunity if the company continues to grow its revenue streams, especially from its cloud services and solutions like HPE GreenLake.
Moreover, the company's enterprise value (EV) to sales ratio stands at 1.17, offering a broader perspective on HPE's overall valuation in comparison to its sales. The EV-to-operating cash flow ratio, at approximately 6.18, further highlights the company's efficiency in generating cash from its operations, a crucial factor for sustaining growth and meeting financial obligations. However, the current ratio of 0.89 points towards potential liquidity challenges, indicating that HPE might face difficulties in covering its short-term liabilities with its current assets.
In summary, as HPE gears up to release its second-quarter earnings, the focus is not only on meeting Wall Street's top-and-bottom-line estimates but also on demonstrating the company's strategic growth areas, particularly in cloud services and the adoption of the HPE GreenLake solution. The financial metrics, including the company's valuation ratios and liquidity position, provide a comprehensive view of HPE's financial health and investment potential, setting the stage for what could be a pivotal earnings announcement.
Hewlett Packard Enterprise Reports Weak Guidance
Hewlett Packard Enterprise (NYSE:HPE) disclosed its first-quarter results and softer-than-expected guidance, highlighting challenges in its networking sector.
For Q1, HPE reported an adjusted EPS of $0.48 on revenues of $6.76 billion, compared to the anticipated $0.45 EPS and $7.10 billion revenue. The revenue shortfall is attributed to a weakening networking market and the timing of GPU deals.
For Q2, HPE anticipates adjusted earnings per share (EPS) between $0.36 and $0.41, with revenue estimates ranging from $6.6 billion to $7.0 billion. This projection falls below Wall Street's expectations of $0.45 EPS on $7.13 billion in revenue.
Looking into fiscal 2024, HPE projects an EPS between $1.82 and $1.92, with expected revenue growth ranging from flat to a 2% increase.
Bernstein Slashes HP Enterprise’s Rating to Market Perform
Bernstein analysts downgraded HP Enterprise (NYSE:HPE) from Outperform to Market Perform, with a revised price target of $17.00, down from $20.00. The analysts' comments reflect concerns about HPE's growth strategy and its recent acquisition of Juniper Networks.
The initial investment thesis for HPE was based on its low valuation and potential for value creation through cash returns to shareholders or strategic moves to unlock portfolio value. However, the analysts believe the acquisition of Juniper Networks compromises these opportunities.
They noted that this acquisition puts HPE in a net debt position and commits it to a significant integration process over the next one to two years. The analysts expressed skepticism about the acquisition's impact on HPE's growth profile, which they identify as the main barrier to improving the company's stock multiple. They suggest that HPE would have been better served by acquiring smaller, high-growth assets, similar to IBM's strategy and HPE's previous acquisitions like Aruba and SilverPeak, rather than opting for Juniper Networks, which has shown less than 2% revenue growth over the past ten years.
The analysts also positioned their revenue and EPS forecasts for HPE below the consensus for 2024. They highlighted the company's optimistic guidance, which seems heavily reliant on performance in the latter half of the year, and questioned the feasibility of the targets set for Aruba.
Hewlett Packard Stock Plunges 9% on $13 Billion Acquisition of Juniper Networks
Hewlett Packard Enterprise (NYSE:HPE) is reportedly close to finalizing a deal to acquire Juniper Networks (NYSE:JNPR) for about $13 billion, as per The Wall Street Journal.
This acquisition is part of HPE's strategy to strengthen its position in the rapidly evolving field of artificial intelligence (AI). The Wall Street Journal indicates that an official announcement about the acquisition might be released as early as this week.
Following the news, HPE's stock experienced a nearly 9% drop on Tuesday, while Juniper's shares saw more than a 21% increase.
