Hewlett Packard Enterprise (NYSE:HPE) today held its annual
Securities Analyst Meeting and provided strategy and financial
updates from CEO Meg Whitman, President Antonio Neri, Executive
Vice President and CFO Tim Stonesifer and other business
leaders. The webcast and presentations can be found on the
HPE Investor Relations Website: investors.hpe.com/SAM2017
HPE Strategy & Market Opportunity
HPE CEO Meg Whitman discussed the progress the company has made
since launching in November 2015 and the company’s vision, strategy
and market opportunity going forward.
“The progress we’ve made during the past two years has created a
company that is more nimble and more focused on the solutions our
customers want. We are delivering cutting-edge innovation faster
than our competitors. And, we have improved our financial
profile and increased shareholder value by more than 90% since we
launched,” said Meg Whitman, CEO of HPE. “Going forward, we
will accelerate profitable growth through a focus on higher margin
services and solutions. We will redesign our company to deliver
Hybrid IT and Edge innovations tailored to our services
strengths.”
HPE’s strategy remains focused on three key pillars.
First, to make Hybrid IT simple through its data center technology,
systems software, private cloud and public cloud
partnerships. Second, to power the Intelligent Edge through
offerings from Aruba in campus and branch networking, and the
Industrial Internet of Things with products like Edgeline and the
Universal IOT software platform. Third, to provide Advisory,
Professional and Operational Services capabilities, including
giving customers financial flexibility through consumption-based
models.
HPE Next
HPE President Antonio Neri gave additional detail on an
initiative called HPE Next. Through HPE Next, the company will
simplify the organizational structure, redesign business processes
and prioritize investments in growth areas. The company will
also right-size its end-to-end cost structure.
“The goal of HPE Next is to simplify our operations, strengthen
our execution and shift our investments in innovation towards high
growth and higher margin solutions and services,” said Antonio
Neri, President of HPE. “Ultimately, HPE Next will create a
fit-for-purpose company and deliver the next wave of shareholder
value.”
The HPE Next program will drive significant net savings with an
attractive return on investment. Over the next three years,
the program will drive gross cost savings of $1.5 billion. HPE will
reinvest about $700 million of that back into the company in the
form of go-to-market, operational and R&D investments in key
growth areas. Net cost savings will be approximately $800
million on a run rate basis exiting fiscal year 2020.
In order to achieve this level of cost savings, HPE expects
approximately $1.1 billion in cash funding payments over the
duration of the program. Approximately two thirds of the
funding will be utilized to optimize the workforce. The
remainder will be used to upgrade and simplify IT systems, in
addition to other non-labor actions. These payments will be
partially offset by real estate sales, which should generate
approximately $300 million in cash over the next three
years.
Financial Update
Tim Stonesifer, Executive Vice President and CFO, provided a
financial update, including an outlook for FY18.
FY17 expectationsRevenue in FY17 is expected to grow 5%
year-over-year, when adjusted for divestitures, currency and sales
to tier-1 service providers. As provided on its third quarter
earnings call, non-GAAP diluted EPS is expected to be approximately
$1.00 for the company as it stands today, including its Enterprise
Group and Financial Services segments.
HPE expects to return $3 billion in cash to shareholders in FY17
through $2.6 billion of share repurchases and $400 million in
dividend payments.
FY18 OutlookHPE provided its outlook for FY18. The company
expects modest revenue growth when adjusted for sales to tier-1
service providers.
HPE expects its non-GAAP operating margin to be approximately
9.5%. With OI&E expense of approximately $300 million, a
non-GAAP tax rate of 20-22% and a share count of 1.60 billion to
1.62 billion shares outstanding, it expects non-GAAP diluted EPS of
$1.15 to $1.25. GAAP diluted EPS is expected to be
approximately $0.43 to $0.53.
On a normalized basis, free cash flow is expected to be
approximately $2 billion, in line with non-GAAP net earnings.
However, in FY18, the company will have $200 million of legacy
restructuring and separation payments, $300 million of payments for
tax settlements, and $600 million of funding for HPE Next.
This will be offset by $100 million of real estate sales.
After these payments, as-reported free cash flow is expected to be
approximately $1 billion.
Given HPE’s strong net cash position today and the underlying
strength of its normalized free cash flow engine, HPE is committed
to returning approximately $2.5 billion in total to shareholders in
FY18, consisting of $2.0 billion in share repurchases and
approximately $500 million in dividends. The company approved
a 15% increase in its regular cash dividend to $0.075 per share, up
from its prior $0.065, and also increased its share repurchase
authorization by $5 billion. Over time, the company plans to
return at least 75% of normalized free cash flow to shareholders,
up from its prior commitment of 50%.
Long-Term Financial ProfileHPE provided its long-term financial
model. The company expects to drive modest revenue growth of
around 0-1% organically. The company expects operating profit
to grow approximately 4-5% annually, driven by an optimized
operating model, reduced cost structure and favorable mix
shift. EPS is expected to grow at a higher rate of
approximately 7-9% annually driven by share count reductions over
time. Cash flow is expected to trend towards normalized
levels in FY19 and track earnings over time.
Webcast details
A webcast of today’s event, along with management presentations
and other materials, are available on the Investor Relations
website at investors.hpe.com.
This press release contains only a summary of some of the
information presented at today’s event and should be read in
conjunction with the management presentations and other materials
made available on that website.
About Hewlett Packard Enterprise
Hewlett Packard Enterprise is an industry leading technology
company that enables customers to go further, faster. With the
industry’s most comprehensive portfolio, spanning the cloud to the
data center to the intelligent edge, our technology and services
help customers around the world make IT more efficient, more
productive and more secure.
Use of non-GAAP financial information
To supplement Hewlett Packard Enterprise’s financial information
presented on a generally accepted accounting principles (GAAP)
basis, Hewlett Packard Enterprise provides forecasts of revenue
adjusted for tier-1, divestitures and currency, as well as non-GAAP
operating margin, non-GAAP measure of earnings/loss from equity
interests, non-GAAP income tax rate, non-GAAP diluted net earnings
per share, free cash flow and normalized free cash flow financial
measures. Reconciliations of these non-GAAP financial measures to
the most directly comparable GAAP financial measures are included
in the slides presented at the 2017 Securities Analyst Meeting,
which will be available for a period of one year thereafter at
http://hpe.com/investor/sam2017. In addition, an explanation
of the ways in which Hewlett Packard Enterprise’s management uses
these non-GAAP measures to evaluate its business, the substance
behind Hewlett Packard Enterprise’s decision to use these non-GAAP
measures, the material limitations associated with the use of these
non-GAAP measures, the manner in which Hewlett Packard Enterprise’s
management compensates for those limitations, and the substantive
reasons why Hewlett Packard Enterprise’s management believes that
these non-GAAP measures provide useful information to investors is
included under “Use and economic substance of non-GAAP financial
measures used by Hewlett Packard Enterprise” below. This additional
non-GAAP financial information is not meant to be considered in
isolation or as a substitute for revenue, operating margin, diluted
net earnings per share, cash flow from operations in accordance
with GAAP.
Use and economic substance of non-GAAP financial
measures used by Hewlett Packard Enterprise
Hewlett Packard Enterprise’s management uses these non-GAAP
financial measures for purposes of evaluating Hewlett Packard
Enterprise’s historical and prospective financial performance, as
well as Hewlett Packard Enterprise’s performance relative to its
competitors. Hewlett Packard Enterprise’s management also uses
these non-GAAP measures to further its own understanding of Hewlett
Packard Enterprise’s segment operating performance. Hewlett Packard
Enterprise believes that excluding the items mentioned above from
these non-GAAP financial measures allows Hewlett Packard
Enterprise’s management to better understand Hewlett Packard
Enterprise’s consolidated financial performance in relation to the
operating results of Hewlett Packard Enterprise’s segments, as
Hewlett Packard Enterprise’s management does not believe that the
excluded items are reflective of ongoing operating results.
Material limitations associated 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.
Compensation for limitations associated with use of
non-GAAP financial measures
Hewlett Packard Enterprise compensates for the limitations on
its use of non-GAAP financial measures by relying primarily on its
GAAP results and using non-GAAP financial measures only as
supplement. Hewlett Packard Enterprise also provides a
reconciliation of certain non-GAAP financial measures to its most
directly comparable GAAP measure in other written materials that
include these non-GAAP financial measures accompanying this news
release, and Hewlett Packard Enterprise encourages investors to
review carefully those reconciliations.
Usefulness of non-GAAP financial measures to
investors
Hewlett Packard Enterprise believes that providing forecasts of
revenue adjusted for tier-1, divestitures and currency, non-GAAP
operating margin, non-GAAP measure of earnings/loss from equity
interests, non-GAAP income tax rate, non-GAAP diluted net earnings
per share, free cash flow and normalized free cash flow financial
measures to investors in addition to certain 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 better enables Hewlett Packard Enterprise’s investors
to understand Hewlett Packard Enterprise’s 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 comparisons of Hewlett Packard
Enterprise’s operating performance with the performance of other
companies in Hewlett Packard Enterprise’s industry that supplement
their GAAP results with non-GAAP financial measures that may be
calculated in a similar manner.
Forward-Looking Statements
The information included in 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 may
differ materially from those expressed or implied by such
forward-looking statements and assumptions. All statements other
than statements of historical fact are statements that could be
deemed forward-looking statements, including any projections of
revenue, margins, expenses, effective tax rates, net earnings, net
earnings per share, cash flows, benefit plan funding, share
repurchases, currency exchange rates or other financial items; any
projections of the amount, timing or impact of cost savings or
restructuring charges; any statements of the plans, strategies and
objectives of management for future operations, including the
recently completed divestiture transactions and the implementation
of HPE Next, the execution of restructuring plans and any resulting
cost savings or revenue or profitability improvements 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, including HPE Next; the results of the
divestiture transactions or restructuring plans, including
estimates and assumptions related to the cost and the anticipated
benefits of the transactions or of implementing the restructuring
plans; the development and transition of new products and services
and the enhancement of existing products and services to meet
customer needs and respond to emerging technological trends; the
execution and performance of contracts by Hewlett Packard
Enterprise and its suppliers, customers and partners; integration
and other risks associated with business combination and investment
transactions; and other risks that are described in Hewlett Packard
Enterprise’s filings with the Securities and Exchange Commission,
including but not limited to the risks described in Hewlett Packard
Enterprise’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2016 and Hewlett Packard Enterprise’s Quarterly Reports
on Form 10-Q for the fiscal quarters ended January 31, April 30 and
July 31, 2017. Hewlett Packard Enterprise assumes no obligation and
does not intend to update these forward-looking statements.
Editorial contact:
Kate Holderness,
HPEcorpmediarelations@hpe.com
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