Exceeds profitability expectations and continues to scale
recurring revenue, advancing long-term strategy
Hewlett Packard Enterprise (NYSE: HPE) today announced financial
results for the first quarter ended January 31, 2024.
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"HPE exceeded our profitability expectations and drove
near-record year-over-year growth in our recurring revenue in the
face of market headwinds, demonstrating the relevance of our
strategy,” said Antonio Neri, president and CEO of Hewlett Packard
Enterprise. “Despite a mixed quarter, I remain very confident that
our focus on customer-centric innovation and our track record of
operational discipline will allow us to capitalize on the
significant market opportunities in AI as well as across edge and
hybrid cloud and to deliver value to our shareholders.”
“HPE drove momentum in annualized revenue run-rate and gross
margins in Q1 despite challenges brought by the softening of the
networking market and GPU deal timing,” said Marie Myers, executive
vice president and CFO of Hewlett Packard Enterprise. “The
fundamentals of our business are strong, we are controlling what we
can control, and we are optimistic about delivering strong
shareholder returns over the remainder of the fiscal year.”
First Quarter Fiscal 2024 Financial Results
- Revenue: $6.8 billion, down 14% from the prior-year
period in actual dollars and in constant currency(1)
- Annualized revenue run-rate (“ARR”)(2): $1.4 billion, up
42% from the prior-year period and 41% in constant currency(1)
- Gross margins:
- GAAP of 36.4%, up 240 basis points from the prior-year period
and up 160 basis points sequentially
- Non-GAAP(1) of 36.2%, up 200 basis points from the prior-year
period and up 140 basis points sequentially
- Diluted net earnings per share (“EPS”):
- GAAP of $0.29, down 24% from the prior-year period, and down
41% sequentially, above the midpoint of our guidance range of $0.24
to $0.32
- Non-GAAP(1) of $0.48, down 24% from the prior-year period and
down 8% sequentially, at the high end of our guidance range of
$0.42 to $0.50
- Cash flow from operations: $64 million, an increase of
$893 million from the prior-year period
- Free cash flow (“FCF”)(1)(3): $(482) million, an
increase of $844 million from the prior-year period
- Capital returns to shareholders: $172 million in the
form of dividends and share repurchases
First Quarter Fiscal 2024 Segment Results
- Server revenue was $3.4 billion, down 23% from the prior-year
period in actual dollars and in constant currency(1), with 11.4%
operating profit margin, compared to 15.7% from the prior-year
period. The Server business segment combines the previously
separately reported Compute and HPC & AI business segments,
with adjustments for certain product lines that are now reported in
Hybrid Cloud. The merged Server segment more accurately reflects
HPE’s position in the market as well as recent organizational and
leadership changes that were implemented in Q1 FY24.
- Intelligent Edge revenue was $1.2 billion, up 3% from the
prior-year period in actual dollars and 2% in constant currency(1),
with 29.4% operating profit margin, compared to 19.4% in the
prior-year period.
- Hybrid Cloud revenue was $1.2 billion, down 10% from the
prior-year period in actual dollars and in constant currency(1),
with 3.8% operating profit margin, compared to 5.8% from the
prior-year period.
- Financial Services revenue was $873 million, flat from the
prior-year period in actual dollars and down 2% in constant
currency(1), with 8.5% operating profit margin, compared to 7.2%
from the prior-year period. Net portfolio assets of $13.2 billion,
up 0.3% from the prior-year period in actual dollars and up 0.7% in
constant currency(1). The business delivered return on equity of
15.4%, down 2.4 points from the prior-year period.
Dividend
The HPE Board of Directors declared a regular cash dividend of
$0.13 per share on the company’s common stock, payable on April 12,
2024, to stockholders of record as of the close of business on
March 15, 2024.
Fiscal 2024 Second Quarter Outlook
HPE estimates revenue to be in the range of $6.6 billion to $7.0
billion. HPE estimates GAAP diluted net EPS to be in the range of
$0.20 to $0.25 and non-GAAP diluted net EPS(1) to be in the range
of $0.36 to $0.41. Fiscal 2024 second quarter non-GAAP diluted net
EPS estimates exclude net after-tax adjustments of approximately
$0.16 per diluted share, primarily related to stock-based
compensation expense and amortization of intangible assets.
Fiscal 2024 Outlook
HPE estimates fiscal 2024 revenue growth to be flat to 2%, in
constant currency(1)(5), and fiscal 2024 GAAP operating profit
growth to be in the range of 7% to 11% and non-GAAP operating
profit(1)(4) growth to be flat to 2%. HPE estimates GAAP diluted
net EPS to be in the range of $1.81 and $1.91 and non-GAAP diluted
net EPS(1) to be in the range of $1.82 and $1.92. Fiscal 2024
non-GAAP diluted net EPS estimates exclude net after-tax
adjustments of approximately $0.01 per diluted share, primarily
related to stock-based compensation expense, amortization of
intangible assets, transformation costs, acquisition, disposition
and other related charges, structural tax-rate adjustments, H3C
income, and adjustments related to the sale of H3C. HPE estimates
free cash flow(1)(3)(5) to be at least $1.9 billion.
1
A description of HPE’s use of
non-GAAP financial information is provided below under “Use of
non-GAAP financial information and key performance metrics.”
2
Annualized Revenue Run-Rate
(“ARR”) is a financial metric used to assess the growth of the
Consumption Services offerings. ARR represents the annualized
revenue of all net HPE GreenLake edge-to-cloud platform services
revenue, related financial services revenue (which includes rental
income from operating leases and interest income from finance
leases), and software-as-a-Service, software consumption revenue,
and other as-a-Service offerings, recognized during a quarter and
multiplied by four. We use ARR as a performance metric. ARR should
be viewed independently of net revenue and is not intended to be
combined with it.
3
FCF represents cash flow from
operations, less net capital expenditures (investments in property,
plant & equipment (“PP&E”) less proceeds from the sale of
PP&E), and adjusted for the effect of exchange rate
fluctuations on cash, cash equivalents, and restricted cash.
4
FY24 non-GAAP operating profit
excludes costs of approximately $1.0 billion primarily related to
stock-based compensation expense, amortization of intangible
assets, transformation costs, and acquisition, disposition and
other related charges.
5
Hewlett Packard Enterprise
provides certain guidance on a non-GAAP basis. In reliance on the
exception provided by Item 10(e)(1)(i)(B) of Regulation S-K,
Hewlett Packard Enterprise is unable to provide a reconciliation to
the most directly comparable GAAP financial measure without
unreasonable efforts, as the Company cannot predict some elements
that are included in such directly comparable GAAP financial
measure. These elements could have a material impact on the
Company’s reported GAAP results for the guidance period. Refer to
the discussion of non-GAAP financial measures below for more
information.
About Hewlett Packard Enterprise
Hewlett Packard Enterprise (NYSE: HPE) is the global
edge-to-cloud 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
people live and work, HPE delivers unique, open and intelligent
technology solutions as a service. With offerings spanning Cloud
Services, Server, Intelligent Edge, Software, and Hybrid Cloud, HPE
provides a consistent experience across all clouds and edges,
helping 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 and key performance
metrics
To supplement Hewlett Packard Enterprise’s condensed
consolidated financial statement information presented on a
generally accepted accounting principles (“GAAP”) basis, Hewlett
Packard Enterprise provides financial measures, including revenue
on a constant currency basis (including at the business segment
level), non-GAAP gross profit, non-GAAP gross profit margin,
non-GAAP operating profit (non-GAAP earnings from operations),
non-GAAP operating profit margin (non-GAAP earnings from operations
as a percentage of net revenue), non-GAAP income tax rate, non-GAAP
net earnings, non-GAAP diluted net earnings per share and free cash
flow (“FCF”). Hewlett Packard Enterprise also provides forecasts of
revenue growth on a constant currency basis, non-GAAP diluted net
earnings per share, non-GAAP operating profit growth, and FCF.
Reconciliations of each of these non-GAAP financial measures to
their most directly comparable GAAP measures for this quarter and
prior periods are 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
supplemental useful information to investors is included further
below. This additional non-GAAP financial information is not meant
to be considered in isolation or as a substitute for revenue, gross
profit, gross profit margin, operating profit (earnings from
operations), operating profit margin (earnings from operations as a
percentage of net revenue), net earnings, diluted net earnings per
share, and cash flow from operations prepared in accordance with
GAAP.
In addition to the supplemental non-GAAP financial information,
Hewlett Packard Enterprise also presents annualized revenue
run-rate (“ARR”) and as-a-Service (“AAS”) orders as performance
metrics. ARR is a financial metric used to assess the growth of the
Consumption Services offerings. ARR represents the annualized
revenue of all net HPE GreenLake edge-to-cloud platform services
revenue, related financial services revenue (which includes rental
income for operating leases and interest income from finance
leases), and software-as-a-service (“SaaS”), software consumption
revenue, and other as-a-service offerings, recognized during a
quarter and multiplied by four. AAS orders are an overlay across
all business segments contributing to HPE's consumption-based
services (both recurring and non-recurring revenues), and includes
hardware, as well as HPE GreenLake as-a-Service, Aruba SaaS,
storage SaaS, and other software assets. ARR & AAS orders
should be viewed independently of net revenue and deferred revenue
and are not intended to be combined with any of these items.
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 Company and its consolidated
subsidiaries ("Hewlett Packard Enterprise") may differ materially
from those expressed or implied by such forward-looking statements
and assumptions. The words "believe", "expect", "anticipate",
"optimistic", "intend", "guides", "will", "estimates", "may",
"could", "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 any
anticipated financial or operational benefits associated with the
recent segment realignment; any projections, estimations, or
expectations of addressable markets and their sizes, revenue
(including annualized revenue run rate), margins, expenses
(including stock-based compensation expenses), investments,
effective tax rates, interest rates, investments, net earnings, net
earnings per share, cash flows, liquidity and capital resources,
inventory, order backlog, share repurchases, dividends, currency
exchange rates, repayments of debts, amortization of intangible
assets, or other financial items; any projections or estimations of
future orders, including as-a-service orders; any statements of the
plans, strategies, and objectives of management for future
operations, as well as the execution and consummation of corporate
transactions or contemplated acquisitions (including our proposed
acquisition of Juniper Networks, Inc.) and dispositions (including
disposition of our H3C shares and the receipt of proceeds
therefrom), research and development expenditures, and any
resulting benefit, cost savings, charges, or revenue or
profitability improvements; any statements concerning the expected
development, performance, market share, or competitive performance
relating to products or services; any statements concerning
technological and market trends, the pace of technological
innovation, and adoption of new technologies, including artificial
intelligence and other products and services offered by Hewlett
Packard Enterprise; any statements regarding current or future
macroeconomic trends or events and the impact of those trends and
events on Hewlett Packard Enterprise and our financial performance,
including but not limited to demand for our products and services;
any statements of expectation or belief, including those relating
to future guidance and the financial performance of Hewlett Packard
Enterprise; and any statements of 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, including but not limited to supply chain
constraints, the use and development of artificial intelligence,
the inflationary environment, the ongoing conflicts between Russia
and Ukraine and in the Middle East, and the relationship between
China and the U.S.; the need to effectively manage third-party
suppliers and distribute Hewlett Packard Enterprise's products and
services; 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 public health
crises, such as pandemics or epidemics, and geopolitical events,
such as, but not limited to, those mentioned above); the
development of and transition to new products and services and the
enhancement of existing products and services to meet customer
needs and respond to emerging technological trends (including the
desirability of a unified hybrid cloud offering); the execution of
Hewlett Packard Enterprise’s ongoing transformation and mix shift
of its portfolio of offerings; the execution and performance of
contracts by Hewlett Packard Enterprise and its suppliers,
customers, clients, and partners, including any impact thereon
resulting from macroeconomic or geopolitical events, such as, but
not limited to, those mentioned above; the prospect of a shutdown
of the U.S. federal government; the hiring and retention of key
employees; the execution, integration, consummation, and other
risks associated with business combination, disposition, and
investment transactions, including but not limited to the risks
associated with the completion of our proposed acquisition of
Juniper Networks, Inc. and our ability to integrate and implement
our plans, forecasts, and other expectations with respect to the
consolidated business; the impact of changes to privacy,
cybersecurity, environmental, global trade, and other governmental
regulations; changes in our product, lease, intellectual property,
or real estate portfolio; the payment or non-payment of a dividend
for any period; the efficacy of using non-GAAP, rather than GAAP,
financial measures in business projections and planning; the
judgments required in connection with determining revenue
recognition; impact of company policies and related compliance;
utility of segment realignments; allowances for recovery of
receivables and warranty obligations; provisions for, and
resolution of, pending investigations, claims, and disputes; the
impacts of tax law changes and related guidance or regulations; and
other risks that are described herein, 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, 2023, Quarterly
Reports on Form 10-Q, 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 filings made
by Hewlett Packard Enterprise from time to time with the Securities
and Exchange Commission. Hewlett Packard Enterprise assumes no
obligation and does not intend to update these forward-looking
statements, except as required by applicable law.
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Condensed Consolidated
Statements of Earnings
(Unaudited)
For the three months
ended
January 31, 2024
October 31, 2023
January 31, 2023
In millions, except per share
amounts
Net revenue
$
6,755
$
7,351
$
7,809
Costs and Expenses:
Cost of sales
4,298
4,792
5,151
Research and development
582
578
623
Selling, general and administrative
1,216
1,332
1,257
Amortization of intangible assets
71
72
73
Transformation costs
20
56
102
Disaster (recovery) charges
—
(4
)
1
Acquisition, disposition and other related
charges
43
18
11
Total costs and expenses
6,230
6,844
7,218
Earnings from operations
525
507
591
Interest and other, net(1)
(88
)
(23
)
(26
)
Earnings from equity interests
46
65
58
Earnings before provision for taxes
483
549
623
(Provision) benefit for taxes
(96
)
93
(122
)
Net earnings
$
387
$
642
$
501
Net Earnings Per Share:
Basic
$
0.30
$
0.50
$
0.39
Diluted
$
0.29
$
0.49
$
0.38
Cash dividends declared per share
$
0.13
$
0.12
$
0.12
Weighted-average Shares Used to Compute
Net Earnings Per Share:
Basic
1,301
1,295
1,298
Diluted
1,316
1,315
1,315
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Reconciliation of GAAP to
Non-GAAP measures
(Unaudited)
For the three months
ended
January 31, 2024
October 31, 2023
January 31, 2023
Dollars in millions
GAAP net revenue
$
6,755
$
7,351
$
7,809
GAAP cost of sales
4,298
4,792
5,151
GAAP gross profit
2,457
2,559
2,658
Non-GAAP Adjustments
Stock-based compensation expense
16
9
16
Disaster recovery
(25
)
(10
)
—
Non-GAAP gross profit
$
2,448
$
2,558
$
2,674
GAAP gross profit margin
36.4
%
34.8
%
34.0
%
Non-GAAP adjustments
(0.2
)%
—
%
0.2
%
Non-GAAP gross profit margin
36.2
%
34.8
%
34.2
%
For the three months
ended
January 31, 2024
October 31, 2023
January 31, 2023
Dollars in millions
GAAP earnings from operations
$
525
$
507
$
591
Non-GAAP Adjustments
Amortization of intangible assets
71
72
73
Transformation costs
20
56
102
Disaster (recovery) charges
(25
)
(14
)
1
Stock-based compensation expense
141
71
140
Acquisition, disposition and other related
charges
43
18
11
Non-GAAP earnings from
operations
$
775
$
710
$
918
GAAP operating profit margin
7.8
%
6.9
%
7.6
%
Non-GAAP adjustments
3.7
%
2.8
%
4.2
%
Non-GAAP operating profit
margin
11.5
%
9.7
%
11.8
%
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Reconciliation of GAAP to
Non-GAAP measures
(Unaudited)
For the three months
ended
January 31, 2024
Diluted net earnings per
share
October 31, 2023
Diluted net earnings per
share
January 31, 2023
Diluted net earnings per
share
Dollars in millions, except
per share amounts
GAAP net earnings
$
387
$
0.29
$
642
$
0.49
$
501
$
0.38
Non-GAAP Adjustments:
Amortization of intangible assets
71
0.05
72
0.05
73
0.06
Transformation costs
20
0.02
56
0.05
102
0.07
Disaster (recovery) charges
(25
)
(0.02
)
(14
)
(0.01
)
1
—
Stock-based compensation expense
141
0.11
71
0.05
140
0.11
Acquisition, disposition and other related
charges
43
0.03
18
0.01
11
0.01
Earnings from equity interests(2)
(46
)
(0.03
)
2
—
12
0.01
Loss on equity investments, net
61
0.05
40
0.03
—
—
Adjustments for taxes
(16
)
(0.02
)
(203
)
(0.15
)
(13
)
(0.01
)
Other adjustments(3)
2
—
(4
)
—
1
—
Non-GAAP net earnings
$
638
$
0.48
$
680
$
0.52
$
828
$
0.63
For the three months
ended
January 31, 2024
October 31, 2023
January 31, 2023
In millions
Net cash provided by (used in)
operating activities
$
64
$
2,843
$
(829
)
Investment in property, plant and
equipment
(656
)
(675
)
(794
)
Proceeds from sale of property, plant and
equipment
96
255
159
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
14
(102
)
138
Free cash flow
$
(482
)
$
2,321
$
(1,326
)
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance
Sheets
As of
January 31, 2024
October 31, 2023
(Unaudited)
(Audited)
In millions, except par
value
ASSETS
Current Assets:
Cash and cash equivalents
$
3,758
$
4,270
Accounts receivable, net of allowances
3,781
3,481
Financing receivables, net of
allowances
3,629
3,543
Inventory
6,049
4,607
Other current assets
3,027
3,047
Total current assets
20,244
18,948
Property, plant and equipment, net
5,997
5,989
Long-term financing receivables and other
assets
11,542
11,377
Investments in equity interests
2,249
2,197
Goodwill and intangible assets
18,570
18,642
Total assets
$
58,602
$
57,153
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities:
Notes payable and short-term
borrowings
$
4,957
$
4,868
Accounts payable
8,125
7,136
Employee compensation and benefits
1,027
1,724
Taxes on earnings
182
155
Deferred revenue
3,718
3,658
Accrued restructuring
121
180
Other accrued liabilities
4,505
4,161
Total current liabilities
22,635
21,882
Long-term debt
7,840
7,487
Other non-current liabilities
6,659
6,546
Stockholders’ Equity
Common stock, $0.01 par value (9,600
shares authorized; 1,300 and 1,283 shares issued and outstanding as
of January 31, 2024 and October 31, 2023, respectively)
13
13
Additional paid-in capital
28,239
28,199
Accumulated deficit
(3,728
)
(3,946
)
Accumulated other comprehensive loss
(3,108
)
(3,084
)
Total HPE stockholders’ equity
21,416
21,182
Non-controlling interests
52
56
Total stockholders’ equity
21,468
21,238
Total liabilities and stockholders’
equity
$
58,602
$
57,153
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
For the three months
ended
January 31, 2024
January 31, 2023
In millions
Cash Flows from Operating Activities:
Net earnings
$
387
$
501
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and amortization
657
656
Stock-based compensation expense
141
140
Provision for inventory and credit
losses
32
45
Restructuring charges
7
72
Deferred taxes on earnings
(22
)
20
Earnings from equity interests
(46
)
(58
)
Other, net
72
(60
)
Changes in Operating Assets and
Liabilities, Net of Acquisitions:
Accounts receivable
(310
)
(112
)
Financing receivables
(190
)
(523
)
Inventory
(1,461
)
495
Accounts payable
1,041
(2,195
)
Taxes on earnings
67
46
Restructuring
(78
)
(96
)
Other assets and liabilities
(233
)
240
Net cash provided by (used in) operating
activities
64
(829
)
Cash Flows from Investing Activities:
Investment in property, plant and
equipment
(656
)
(794
)
Proceeds from sale of property, plant and
equipment
96
159
Purchases of investments
(16
)
—
Proceeds from maturities and sales of
investments
4
4
Financial collateral posted
(439
)
(682
)
Financial collateral received
271
108
Payments made in connection with business
acquisitions, net of cash acquired
—
(32
)
Net cash used in investing activities
(740
)
(1,237
)
Cash Flows from Financing Activities:
Short-term borrowings with original
maturities less than 90 days, net
(17
)
745
Proceeds from debt, net of issuance
costs
859
261
Payment of debt
(515
)
(661
)
Net payments related to stock-based award
activities
(94
)
(107
)
Repurchase of common stock
(3
)
(73
)
Cash dividends paid to non-controlling
interests, net of contributions
(8
)
—
Cash dividends paid to shareholders
(169
)
(156
)
Net cash provided by financing
activities
53
9
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
14
138
Decrease in cash, cash equivalents and
restricted cash
(609
)
(1,919
)
Cash, cash equivalents and restricted cash
at beginning of period
4,581
4,763
Cash, cash equivalents and restricted cash
at end of period
$
3,972
$
2,844
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Segment Information
(Unaudited)
For the three months
ended
January 31, 2024
October 31, 2023
January 31, 2023
In millions
Net Revenue:
Server(4)
$
3,352
$
3,574
$
4,332
Hybrid Cloud(4)
1,248
1,341
1,384
Intelligent Edge(4)
1,201
1,410
1,169
Financial Services
873
876
873
Corporate Investments and other(4)
238
263
234
Total segment net revenue
6,912
7,464
7,992
Elimination of intersegment net
revenue
(157
)
(113
)
(183
)
Total consolidated net revenue
$
6,755
$
7,351
$
7,809
Earnings Before Taxes(4):
Server
$
383
$
360
$
678
Hybrid Cloud
47
51
80
Intelligent Edge
353
382
227
Financial Services
74
70
63
Corporate Investments and other
(10
)
(16
)
(22
)
Total segment earnings from operations
847
847
1,026
Unallocated corporate costs and
eliminations
(72
)
(137
)
(108
)
Stock-based compensation expense
(141
)
(71
)
(140
)
Amortization of intangible assets
(71
)
(72
)
(73
)
Transformation costs
(20
)
(56
)
(102
)
Disaster recovery (charges)
25
14
(1
)
Acquisition, disposition and other related
charges
(43
)
(18
)
(11
)
Interest and other, net(1)
(88
)
(23
)
(26
)
Earnings from equity interests
46
65
58
Total pretax earnings
$
483
$
549
$
623
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Segment Information
(Unaudited)
For the three months
ended
Change (%)
January 31, 2024
October 31, 2023
January 31, 2023
Q/Q
Y/Y
Dollars in millions
Net Revenue:
Server(4)
$
3,352
$
3,574
$
4,332
(6%)
(23%)
Hybrid Cloud(4)
1,248
1,341
1,384
(7)
(10)
Intelligent Edge(4)
1,201
1,410
1,169
(15)
3
Financial Services
873
876
873
—
—
Corporate Investments and other(4)
238
263
234
(10)
2
Total segment net revenue
6,912
7,464
7,992
(7)
(14)
Elimination of intersegment net
revenue
(157
)
(113
)
(183
)
39
(14)
Total consolidated net revenue
$
6,755
$
7,351
$
7,809
(8%)
(14%)
For the three months
ended
Change in operating profit
margin (pts)
January 31, 2024
October 31, 2023
January 31, 2023
Q/Q
Y/Y
Segment Operating Profit Margin(4):
Server
11.4
%
10.1
%
15.7
%
1.3
(4.3
)
Hybrid Cloud
3.8
%
3.8
%
5.8
%
—
(2.0
)
Intelligent Edge
29.4
%
27.1
%
19.4
%
2.3
10.0
Financial Services
8.5
%
8.0
%
7.2
%
0.5
1.3
Corporate Investments and other
(4.2
%)
(6.1
%)
(9.4
%)
1.9
5.2
Total segment operating profit margin
12.3
%
11.3
%
12.8
%
1.0
(0.5
)
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Calculation of Diluted Net
Earnings Per Share
(Unaudited)
For the three months
ended
January 31, 2024
October 31, 2023
January 31, 2023
In millions, except per share
amounts
Numerator:
GAAP net earnings
$
387
$
642
$
501
Non-GAAP net earnings
$
638
$
680
$
828
Denominator:
Weighted-average shares used to compute
basic net earnings per share
1,301
1,295
1,298
Dilutive effect of employee stock
plans
15
20
17
Weighted-average shares used to compute
diluted net earnings per share
1,316
1,315
1,315
GAAP Net Earnings Per Share
Basic
$
0.30
$
0.50
$
0.39
Diluted
$
0.29
$
0.49
$
0.38
Non-GAAP Net Earnings Per Share
Basic
$
0.49
$
0.53
$
0.64
Diluted
$
0.48
$
0.52
$
0.63
________________
(1)
Interest and other, net includes
tax indemnification and other adjustments, non-service net periodic
benefit cost, and interest and other, net.
(2)
For the three months ended
January 31, 2024, includes the equity in earnings from H3C equity
method investment and all periods include the amortization of the
basis difference in the Company’s investment.
(3)
Other adjustments includes
non-service net periodic benefit cost and tax indemnification and
other adjustments.
(4)
As previously disclosed,
effective as of the beginning of the first quarter of fiscal 2024,
in order to align the segment financial reporting more closely with
its business structure, the Company established two new reportable
segments, Hybrid Cloud and Server. Hybrid Cloud includes the
historical Storage segment, HPE GreenLake Flex Solutions (which
provides flexible as-a-service IT infrastructure through the HPE
GreenLake edge-to-cloud platform and was previously reported under
the Compute and the High Performance Computing & Artificial
Intelligence ("HPC & AI") segments), Private Cloud, and
Software (previously reported under the Corporate Investments and
Other segment). The Server segment combines the previously
separately reported Compute and HPC & AI segments, with
adjustments for certain product lines that are now reported in
Hybrid Cloud. Additionally, certain products and services
previously reported in the financial results for the HPC & AI
segment were moved to be reported in the Hybrid Cloud segment, and
the Athonet business and certain components of the Communications
and Media Solutions business, both previously reported in the
financial results for Corporate Investments and Other, moved to be
reported in the Intelligent Edge segment.
As a result, the Company’s new
organizational structure consists of the following segments: (i)
Server; (ii) Hybrid Cloud; (iii) Intelligent Edge; (iv) Financial
Services; and (v) Corporate Investments and Other. The Company is
reporting under this re-aligned segment structure beginning with
the results of the first quarter of fiscal 2024.
The Company has reflected these
changes to its segment information retrospectively to the earliest
period presented, which primarily resulted in the realignment of
net revenue and operating profit for each of the segments as
described above. These changes had no impact on Hewlett Packard
Enterprise’s previously reported consolidated net revenue, net
earnings, net earnings per share or total assets.
Use of non-GAAP financial measures
To supplement Hewlett Packard Enterprise’s condensed
consolidated financial statement information presented on a GAAP
basis, Hewlett Packard Enterprise provides non-GAAP financial
measures including revenue on a constant currency basis (including
at the business segment level), non-GAAP gross profit, non-GAAP
gross profit margin, non-GAAP operating profit (non-GAAP earnings
from operations), non-GAAP operating profit margin (non-GAAP
earnings from operations as a percentage of net revenue), non-GAAP
income tax rate, non-GAAP net earnings, non-GAAP diluted net
earnings per share, and FCF. Hewlett Packard Enterprise also
provides forecasts of revenue growth on a constant currency basis,
non-GAAP diluted net earnings per share, non-GAAP operating profit
growth, and FCF.
These non-GAAP financial measures are not computed in accordance
with, or as an alternative to, GAAP in the United States. The GAAP
measure most directly comparable to net revenue on a constant
currency basis is net revenue. The GAAP measure most directly
comparable to non-GAAP gross profit is gross profit. The GAAP
measure most directly comparable to non-GAAP gross profit margin is
gross profit margin. The GAAP measure most directly comparable to
non-GAAP operating profit (non-GAAP earnings from operations) is
earnings from operations. The GAAP measure most directly comparable
to non-GAAP operating profit margin (non-GAAP earnings from
operations as a percentage of net revenue) is operating profit
margin (earnings from operations as a percentage of net revenue).
The GAAP measure most directly comparable to non-GAAP income tax
rate is income tax rate. The GAAP measure most directly comparable
to non-GAAP net earnings is net earnings. The GAAP measure most
directly comparable to non-GAAP diluted net earnings per share is
diluted net earnings per share. The GAAP measure most directly
comparable to FCF is cash flow from operations. Reconciliations of
each of these non-GAAP financial measures to their most directly
comparable GAAP measures for this quarter and prior periods are
included in the tables above or elsewhere in the materials
accompanying this news release.
Usefulness of non-GAAP financial measures to
investors
Hewlett Packard Enterprise believes that providing the non-GAAP
financial measures stated above, in addition to the related GAAP
measures provides investors with greater transparency to the
information used by Hewlett Packard Enterprise’s management in its
financial and operational decision making and allows investors to
see Hewlett Packard Enterprise’s results “through the eyes” of
management. Hewlett Packard Enterprise further believes that
providing this information provides Hewlett Packard Enterprise’s
investors with a supplemental view to understand the Company’s
historical and prospective operating performance and to evaluate
the efficacy of the methodology and information used by Hewlett
Packard Enterprise’s management to evaluate and measure such
performance. Disclosure of these non-GAAP financial measures also
facilitates the comparisons of Hewlett Packard Enterprise’s
operating performance with the performance of other companies in
the same industry that supplement their GAAP results with non-GAAP
financial measures that may be calculated in a similar manner.
Economic substance of and material limitations associated
with non-GAAP financial measures used by Hewlett Packard
Enterprise
Net revenue on a constant currency basis assumes no change to
the foreign exchange rate utilized in the comparable prior-year
period. This measure assists investors with evaluating the
Company’s past and future performance, without the impact of
foreign exchange rates, as more than half of our revenue is
generated outside of the U.S. Non-GAAP gross profit and non-GAAP
gross profit margin are defined to exclude charges relating to the
stock-based compensation expense, and disaster (recovery) charges.
Non-GAAP operating profit (non-GAAP earnings from operations) and
non-GAAP operating profit margin (non-GAAP earnings from operations
as a percentage of net revenue) consist of earnings from operations
or earnings from operations as a percentage of net revenue
excluding the items mentioned above and charges relating to the
amortization of intangible assets, transformation costs, and
acquisition, disposition and other related charges. Non-GAAP net
earnings and non-GAAP diluted net earnings per share consist of net
earnings or diluted net earnings per share excluding the charges
previously stated, as well as earnings from equity interests, gain
or loss on equity investments, other adjustments, and adjustments
for taxes. The Adjustments for taxes line item includes certain
income tax valuation allowances and separation taxes, the impact of
tax reform, structural rate adjustment, excess tax benefit from
stock-based compensation, and adjustments for additional taxes or
tax benefits associated with each non-GAAP item.
Hewlett Packard Enterprise believes that excluding the items
mentioned above from the non-GAAP financial measures provides a
supplemental view to management and investors of its consolidated
financial performance and presents the financial results of the
business without costs that Hewlett Packard Enterprise’s management
does not believe to be reflective of ongoing operating results.
Exclusion of these items can have a material impact on the
equivalent GAAP measure and cash flows thus limiting their use as
analytical tools. These limitations are discussed below or
elsewhere in the materials accompanying this news release. More
specifically, Hewlett Packard Enterprise’s management excludes each
of those items mentioned above for the following reasons:
- Hewlett Packard Enterprise incurs charges relating to the
amortization of intangible assets and excludes these charges for
purposes of calculating these non-GAAP measures. Such charges are
significantly impacted by the timing and magnitude of Hewlett
Packard Enterprise’s acquisitions. Hewlett Packard Enterprise
excludes these charges for the purpose of calculating these
non-GAAP measures, primarily because they are non-cash expenses and
the Company’s internal benchmarking analyses evidence that many
industry participants and peers present non-GAAP financial measures
excluding intangible asset amortization. Although this does not
directly affect Hewlett Packard Enterprise’s cash position, the
loss in value of intangible assets over time can have a material
impact on the equivalent GAAP earnings measure.
- Transformation costs represent net costs related to the (i) HPE
Next Plan and (ii) Cost Optimization and Prioritization Plan and
include restructuring charges, program design and execution costs,
costs incurred to transform the Company’s IT infrastructure, net
gains from the sale of real estate and any impairment charges on
real estate identified as part of the initiatives. Hewlett Packard
Enterprise excludes these costs as they are discrete costs related
to two specific transformation programs that were announced in 2017
and 2020, respectively, as multi-year programs necessary to
transform the business and IT infrastructure following material
divestiture transactions in 2017 and in response to COVID-19 and an
evolving product portfolio in fiscal 2020. The HPE Next Plan and
the Cost Optimization and Prioritization Plan are substantially
complete. The exclusion of the transformation program costs from
the non-GAAP financial measures, as stated above, is to provide a
supplemental measure of the Company’s operating results that do not
include material HPE Next Plan and the Cost Optimization and
Prioritization Plan costs as the Company’s management does not
believe such costs to be reflective of its ongoing operating cost
structure. Further, the transformation costs for these plans have
materially fluctuated since 2017, have been materially declining
since 2021 and the Company does not expect these costs to be
material. Hewlett Packard Enterprise's management believes non-GAAP
measures excluding these costs are useful to management and
investors for comparing operating performance across multiple
periods.
- Disaster (recovery) charges are primarily related to the exit
of the Company’s businesses in Russia and Belarus, and include
credit losses of financing and trade receivables, employee
severance and abandoned assets. Disaster charges also include
direct costs or recovery of these costs related to COVID-19 as a
result of Hewlett Packard Enterprise-hosted, co-hosted, or
sponsored event cancellations and subsequent shift to a virtual
format. Hewlett Packard Enterprise excludes Disaster (recovery)
charges from these non-GAAP measures as the specific charges are
non-recurring charges and not indicative of the operational
performance of the Company’s business.
- Stock-based compensation expense consists of equity awards
granted based on the estimated fair value of those awards at grant
date. Although stock-based compensation is a key incentive offered
to employees, Hewlett Packard Enterprise excludes these charges for
the purpose of calculating these non-GAAP measures, primarily
because they are non-cash expenses, and the Company’s internal
benchmarking analyses evidence that many industry participants and
peers present non-GAAP financial measures excluding stock-based
compensation expense.
- Hewlett Packard Enterprise incurs costs related to its
acquisition, disposition and other related charges. The charges are
direct expenses, such as professional fees and retention costs,
most of which are treated as non-cash or non-capitalized expenses.
For the first quarter of 2024, these charges were driven by costs
associated with the pending acquisition of Juniper Networks, in
addition to prior acquisitions of Axis and Athonet. For the first
quarter of 2023, these charges were driven by acquisitions of Zerto
and Determined AI. Charges may also include expenses associated
with disposal activities including legal and arbitration
settlements in connection with certain dispositions. Hewlett
Packard Enterprise’s management considers these acquisitions and
divestitures to be discrete events. The Company excludes these
costs as these expenses are inconsistent in amount and frequency
and are significantly impacted by the timing and nature of its
acquisitions and divestitures. In addition, the Company’s internal
benchmarking analyses evidence that many industry participants and
peers present non-GAAP financial measures excluding these
charges.
- For the first fiscal quarter of 2024 and prospectively, the
adjustment to earnings from equity interests includes the equity in
earnings from the H3C investment. In connection with the planned
divestiture of the H3C investment, the Company stopped reporting
H3C earnings in the non-GAAP results as the Company no longer
receives dividends from this investment due to the Put Share
Purchase Agreement described in Note 20 “Equity Method Investments”
to the Consolidated Financial Statements in Item 8 of Part II of
the Company Annual Report on Form 10-K for the fiscal year ended
October 31, 2023. All periods presented include the amortization of
the basis difference in this investment. For the first fiscal
quarter of 2023, this adjustment also included the Company’s
portion of intangible asset impairment charges from H3C. The
Company believes that eliminating these amounts for purposes of
calculating non-GAAP financial measures facilitates the evaluation
of the current operating performance.
- Hewlett Packard Enterprise excludes gains and losses (including
impairments) on its non-marketable equity investments because the
Company does not believe they are reflective of normal continuing
business operations. These adjustments are reflected in Interest
and other, net in the Condensed Consolidated Statements of
Earnings. The Company believes eliminating these adjustments for
the purposes of calculating non-GAAP measures facilitates the
evaluation of its current operating performance.
- Hewlett Packard Enterprise utilizes a structural long-term
projected non-GAAP income tax rate in order to provide consistency
across the interim reporting periods and to eliminate the effects
of items not directly related to the Company’s operating structure
that can vary in size and frequency. When projecting this long-term
rate, Hewlett Packard Enterprise evaluated a three-year financial
projection. The projected rate assumes no incremental acquisitions
in the three-year projection period and considers other factors
including Hewlett Packard Enterprise’s expected tax structure, its
tax positions in various jurisdictions and current impacts from key
legislation implemented in major jurisdictions where Hewlett
Packard Enterprise operates. For fiscal 2024, the Company will use
a projected non-GAAP income tax rate of 15%, which reflects
currently available information as well as other factors and
assumptions. The non-GAAP income tax rate could be subject to
change for a variety of reasons, including the rapidly evolving
global tax environment, significant changes in Hewlett Packard
Enterprise’s geographic earnings mix including due to acquisition
activity, or other changes to the Company’s strategy or business
operations. The Company will re-evaluate its long-term rate as
appropriate. For fiscal 2023, the Company had a non-GAAP tax rate
of 14%. Hewlett Packard Enterprise’s management believes that
making these adjustments for purposes of calculating non-GAAP
measures, facilitates a supplemental evaluation of the Company’s
current operating performance and comparisons to past operating
results.
- FCF is defined as cash flow from operations, less net capital
expenditures (investments in property, plant & equipment
(“PP&E”) less proceeds from the sale of PP&E), and adjusted
for the effect of exchange rate fluctuations on cash, cash
equivalents, and restricted cash. FCF does not represent the total
increase or decrease in cash for the period. Hewlett Packard
Enterprise’s management and investors can use FCF for the purpose
of determining the amount of cash available for investment in the
Company’s businesses, repurchasing stock and other purposes as well
as evaluating its historical and prospective liquidity.
Compensation for material limitations with use of non-GAAP
financial measures
These non-GAAP financial measures have limitations as analytical
tools, and these measures should not be considered in isolation or
as a substitute for analysis of Hewlett Packard Enterprise’s
results as reported under GAAP. Some of the limitations in relying
on these non-GAAP financial measures are that they can have a
material impact on the equivalent GAAP earnings measures and cash
flows, they may be calculated differently by other companies
(limiting the usefulness of those measures for comparative
purposes) and may not reflect the full economic effect of the loss
in value of certain assets. Hewlett Packard Enterprise compensates
for these limitations on the use of non-GAAP financial measures by
relying primarily on its GAAP results and using non-GAAP financial
measures only as a supplement. Hewlett Packard Enterprise also
provides a reconciliation of each non-GAAP financial measure to its
most directly comparable GAAP financial measure for this quarter
and prior periods within this news release and in other written
materials that include these non-GAAP financial measures, and
Hewlett Packard Enterprise encourages investors to review those
reconciliations carefully.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240229327637/en/
Media Contact: Laura Keller Laura.Keller@hpe.com
Investor Contact: Jeff Kvaal investor.relations@hpe.com
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