Q1 marked by strong profitability and cash flow; raising FY21
EPS and FCF outlook
Q1 2021 Financial Highlights:
- Revenue: $6.8 billion exceeded Q1 outlook with stronger than
normal sequential seasonality
- Intelligent Edge revenue: $806 million, up 11% from the
prior-year period when adjusted for currency
- Annualized revenue run-rate (ARR): $649 million, up 27% from
the prior-year period
- Core businesses delivered strong profitability and cash
flow
- Diluted net earnings per share (“EPS”):
- GAAP of $0.17, above the previously provided outlook of $0.02
to $0.06 per share
- Non-GAAP of $0.52, above the previously provided outlook of
$0.40 to $0.44 per share
- Cash flow from operations of approximately $1.0 billion, up
$1.0 billion from the prior-year period
- Generated record free cash flow of $563 million, up $748
million from the prior-year period
Dividend: declared a regular cash dividend of $0.12 per
share, payable on April 7, 2021
Outlook:
- Fiscal 2021 Second quarter: Estimates GAAP diluted net EPS to
be in the range of $0.02 to $0.08 and non-GAAP diluted net EPS to
be in the range of $0.38 to $0.44
- Fiscal 2021: Raises GAAP diluted net EPS outlook to $0.48 to
$0.66 and non-GAAP diluted net EPS outlook to $1.70 to $1.88
- Fiscal 2021 free cash flow1: Raises free cash flow guidance to
$1.1 to $1.4 billion
Hewlett Packard Enterprise (NYSE: HPE) today announced financial
results for the first quarter, ended January 31, 2021.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20210302005461/en/
“We delivered a strong Q1 performance,” said Antonio Neri,
president and CEO of Hewlett Packard Enterprise. “Our revenue
exceeded our outlook and we significantly expanded our gross and
operating margins to drive strong profitability across most of our
businesses. Our non-GAAP EPS exceeded the high-end of our guidance
and free cash flow was a record Q1 performance. These results give
us confidence to raise our FY21 outlook.”
“The global pandemic has brought a renewed focus on digital
transformation as businesses are rethinking everything from remote
work and collaboration to business continuity and data insight,“ he
continued. “As the world heads to recovery, our customers are
looking for the agility and simplicity of the cloud native world
with the flexibility and control of a hybrid business model – and
this is where we have a unique and differentiated value
proposition.”
“Our dedicated, passionate and resilient team members are
laser-focused on delivering for our customers and executing our
strategy to strengthen our core businesses, double down in areas of
growth, and accelerate our pivot to as-a-service to drive long-term
sustainable, profitable growth,” said Neri.
First Quarter Fiscal Year 2021 Results
Net revenue of $6.8 billion, down 2% from the prior-year
period or 3% when adjusted for currency, marked by stronger than
normal sequential seasonality.
Annualized revenue run-rate (ARR) of $649 million, up 27%
from the prior-year period. Based on strong customer demand and
recent wins, we are reiterating our 2019 Securities Analyst Meeting
ARR guidance of 30-40% Compounded Annual Growth Rate from fiscal
year 2019 to fiscal year 2022.
GAAP gross margins of 33.5%, up 70 basis points from the
prior-year period and Non-GAAP gross margins of 33.7%, up 30 basis
points from the prior-year period.
GAAP diluted net earnings per share (“EPS”) was $0.17,
compared to $0.25 in the prior-year period and above the previously
provided outlook of $0.02 to $0.06 per share.
Non-GAAP diluted net EPS was $0.52, compared to $0.50 in
the prior-year period and above the previously provided outlook of
$0.40 to $0.44 per share. First quarter non-GAAP net earnings and
non-GAAP diluted net EPS exclude after-tax adjustments of $456
million and $0.35 per diluted share, respectively, primarily
related to transformation costs, stock-based compensation expense
and the amortization of intangible assets.
Cash flow from operations of approximately $1.0 billion,
up $1.0 billion from the prior-year period.
Free cash flow of $563 million, up $748 million from the
prior-year period.
Segment Results
- Intelligent Edge revenue was $806 million, up 12% year over
year or 11% when adjusted for currency, with 18.9% operating profit
margin, compared to 12.1% from the prior-year period. Rich software
capabilities combined with greater operational productivity helped
accelerate revenue and profits. Based on the solid performance, the
Company expects to continue to take share in both campus switching
and WLAN.
- High Performance Compute & Mission Critical Systems (HPC
& MCS) revenue was $762 million, down 9% year over year, with
5.6% operating profit margin, compared to 7.5% from the prior-year
period. Despite inherent uneven nature of the business, the Company
remains confident in the near-term and longer-term outlook for this
business.
- Compute revenue was $3.0 billion, down 1% year over year or
down 2% when adjusted for currency, with 11.5% operating profit
margin, compared to 10.7% from the prior-year period.
- Storage revenue was $1.2 billion, down 5% year over year or
down 6% when adjusted for currency, with 19.7% operating profit
margin, compared to 20.0% from the prior-year period. Notable
strength in software-defined solutions, including Nimble, up 31%
from the prior-year period when adjusted for currency and All Flash
Array Storage, up 5% from the prior-year period, driven by
increased adoption of Primera All Flash.
- Financial Services revenue was $860 million, flat year over
year or down 1% when adjusted for currency, with 9.8% operating
profit margin, compared to 8.7% from the prior-year period. Net
portfolio assets were up 3% year over year or flat when adjusted
for currency. The business delivered return on equity of 16.5%, up
1.3 points from the prior-year period.
Dividend
Board of Directors have declared a regular cash dividend of
$0.12 per share on the company's common stock. This dividend, the
second in Hewlett Packard Enterprise's fiscal year 2021, is payable
on April 7, 2021, to stockholders of record as of the close of
business on March 10, 2021.
Fiscal 2021 second quarter outlook:
Hewlett Packard Enterprise estimates GAAP diluted net EPS to be
in the range of $0.02 to $0.08 and non-GAAP diluted net EPS to be
in the range of $0.38 to $0.44. Fiscal 2021 second quarter non-GAAP
diluted net EPS estimates exclude after-tax adjustments of
approximately $0.36 per diluted share, primarily related to
transformation costs, stock-based compensation expense and the
amortization of intangible assets.
Fiscal 2021 outlook:
Hewlett Packard Enterprise raises GAAP diluted net EPS outlook
to $0.48 to $0.66 from $0.38 to $0.56 and non-GAAP diluted net EPS
outlook to $1.70 to $1.88 from $1.60 to $1.78. Fiscal 2021 non-GAAP
diluted net EPS estimates exclude after-tax adjustments of
approximately $1.22 per diluted share, primarily related to
transformation costs, stock-based compensation expense and the
amortization of intangible assets.
Raises free cash flow1 guidance range to $1.1 to $1.4 billion
from $0.9 to $1.1 billion.
1Hewlett Packard Enterprise provides certain guidance on a
non-GAAP basis, as the company cannot predict some elements that
are included in reported GAAP results. Refer to the discussion of
non-GAAP financial measures below for more information.
About Hewlett Packard Enterprise
Hewlett Packard Enterprise is the global edge-to-cloud platform
as-a-service company that helps organizations accelerate outcomes
by unlocking value from all of their data, everywhere. Built on
decades of reimagining the future and innovating to advance the way
people live and work, HPE delivers unique, open and intelligent
technology solutions, with a consistent experience across all
clouds and edges, to help customers develop new business models,
engage in new ways, and increase operational performance. For more
information, visit: www.hpe.com.
Use of non-GAAP financial information
To supplement Hewlett Packard Enterprise’s condensed
consolidated financial statement information presented on a
generally accepted accounting principles (GAAP) basis, Hewlett
Packard Enterprise provides revenue on a constant currency basis,
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 income tax rate, non-GAAP net
earnings, non-GAAP diluted net earnings per share, gross cash, free
cash flow, net debt, net cash, operating company net debt and
operating company net cash financial measures. Hewlett Packard
Enterprise also provides forecasts of non-GAAP diluted net earnings
per share and free cash flow. A reconciliation of adjustments to
GAAP financial measures for this quarter and prior periods is
included in the tables below or elsewhere in the materials
accompanying this news release. In addition, an explanation of the
ways in which Hewlett Packard Enterprise’s management uses these
non-GAAP measures to evaluate its business, the substance behind
Hewlett Packard Enterprise’s decision to use these non-GAAP
measures, the material limitations associated with the use of these
non-GAAP measures, the manner in which Hewlett Packard Enterprise’s
management compensates for those limitations, and the substantive
reasons why Hewlett Packard Enterprise’s management believes that
these non-GAAP measures provide useful information to investors is
included under “Use of non-GAAP financial measures” further below.
This additional non-GAAP financial information is not meant to be
considered in isolation or as a substitute for revenue, gross
profit, gross profit margin, operating profit (earnings from
operations), operating profit margin, net earnings, diluted net
earnings per share, cash, cash equivalents and restricted cash,
cash flow from operations, investments in property, plant and
equipment, or total company debt prepared in accordance with
GAAP.
Forward-looking statements
This press release contains forward-looking statements within
the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements involve risks,
uncertainties and assumptions. If the risks or uncertainties ever
materialize or the assumptions prove incorrect, the results of
Hewlett Packard Enterprise 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", "aim", "will", "should" and similar
expressions are intended to identify such forward-looking
statements. All statements other than statements of historical fact
are statements that could be deemed forward-looking statements,
including but not limited to the scope and duration of the novel
coronavirus pandemic ("COVID-19") and its impact on our business,
operations, liquidity and capital resources, employees, customers,
partners, supply chain, financial results and the world economy;
any projections of revenue, margins, expenses, investments,
effective tax rates, interest rates, the impact of the U.S. Tax
Cuts and Jobs Act of 2017 and related guidance or regulations, net
earnings, net earnings per share, cash flows, liquidity and capital
resources, inventory, goodwill, impairment charges, hedges and
derivatives and related offsets, order backlog, benefit plan
funding, deferred tax assets, share repurchases, currency exchange
rates, repayments of debts including our asset-backed debt
securities, or other financial items; the projections, execution,
timing and results of any transformation or restructuring plans,
including estimates and assumptions related to the anticipated
benefits, cost savings or charges of implementing the
transformation and restructuring plans; any statements of the
plans, strategies and objectives of management for future
operations, as well as the execution of corporate transactions or
contemplated acquisitions, 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 regarding current
or future macroeconomic trends or events and the impact of those
trends and events on Hewlett Packard Enterprise and its financial
performance; any statements regarding pending investigations,
claims or disputes; any statements of expectation or belief; and
any statements 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; the need to manage third-party suppliers and the
distribution of Hewlett Packard Enterprise's products and the
delivery of Hewlett Packard Enterprise's services effectively; the
protection of Hewlett Packard Enterprise's intellectual property
assets, including intellectual property licensed from third parties
and intellectual property shared with its former parent; risks
associated with Hewlett Packard Enterprise's international
operations (including pandemics and public health problems, such as
the outbreak of COVID-19); the development and transition of new
products and services and the enhancement of existing products and
services to meet customer needs and respond to emerging
technological trends; the execution and performance of contracts by
Hewlett Packard Enterprise and its suppliers, customers, clients
and partners, including any impact thereon resulting from events
such as the COVID-19 pandemic; the hiring and retention of key
employees; the execution, integration and risks associated with
business combination and investment transactions; the impact of
changes to 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; 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, 2020, Current
Reports on Form 8-K, and in other filings made by Hewlett Packard
Enterprise from time to time with the Securities and Exchange
Commission.
As in prior periods, the financial information set forth in this
press release, including tax-related items, reflects estimates
based on information available at this time. While Hewlett Packard
Enterprise believes these estimates to be reasonable, these amounts
could differ materially from reported amounts in the Hewlett
Packard Enterprise Quarterly Report on Form 10-Q for the fiscal
quarter ended January 31, 2021. Hewlett Packard Enterprise assumes
no obligation and does not intend to update these forward-looking
statements.
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS
OF EARNINGS (Unaudited) (In millions, except per
share amounts)
Three months ended
January 31,
2021
October 31,
2020
January 31,
2020
Net revenue
$
6,833
$
7,208
$
6,949
Costs and expenses:
Cost of sales
4,545
5,002
4,667
Research and development
468
484
485
Selling, general and administrative
1,159
1,166
1,218
Amortization of intangible assets
110
80
120
Transformation costs
311
304
89
Acquisition, disposition and other related
charges
18
27
22
Total costs and expenses
6,611
7,063
6,601
Earnings from operations
222
145
348
Interest and other, net
(44
)
(57
)
(19
)
Tax indemnification adjustments
(16
)
(15
)
(21
)
Non-service net periodic benefit
credit
17
35
37
Earnings from equity interests
26
17
33
Earnings before taxes
205
125
378
(Provision) benefit from taxes
18
32
(45
)
Net earnings
$
223
$
157
$
333
Net earnings per share:
Basic
$
0.17
$
0.12
$
0.26
Diluted
$
0.17
$
0.12
$
0.25
Cash dividends declared per share
$
0.12
$
0.12
$
0.12
Weighted-average shares used to compute
net earnings per share:
Basic
1,300
1,293
1,300
Diluted
1,315
1,306
1,315
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP
MEASURES (Unaudited) (In millions, except percentages
and per share amounts)
Three months ended January 31,
2021
Diluted net earnings
per share
Three months ended October 31,
2020
Diluted net earnings per
share
Three months ended January 31,
2020
Diluted net earnings per
share
GAAP net earnings
$
223
$
0.17
$
157
$
0.12
$
333
$
0.25
Non-GAAP adjustments:
Amortization of initial direct costs
2
—
1
—
3
—
Amortization of intangible assets
110
0.08
80
0.06
120
0.09
Transformation costs
311
0.23
304
0.23
89
0.07
Stock-based compensation expense(a)
110
0.08
59
0.05
93
0.07
Acquisition, disposition and other related
charges
18
0.01
27
0.02
42
0.03
Tax indemnification adjustments
16
0.02
15
0.02
21
0.02
Non-service net periodic benefit
credit
(17
)
(0.01
)
(35
)
(0.03
)
(37
)
(0.03
)
Earnings from equity interests(b)
34
0.03
35
0.03
37
0.03
Adjustments for taxes
(128
)
(0.09
)
(106
)
(0.09
)
(44
)
(0.03
)
Non-GAAP net earnings
$
679
$
0.52
$
537
$
0.41
$
657
$
0.50
GAAP earnings from operations
$
222
$
145
$
348
Non-GAAP adjustments
Amortization of initial direct costs
2
1
3
Amortization of intangible assets
110
80
120
Transformation costs
311
304
89
Stock-based compensation expense(a)
110
59
93
Acquisition, disposition and other related
charges
18
27
42
Non-GAAP earnings from
operations
$
773
$
616
$
695
GAAP operating profit margin
3.2
%
2.0
%
5.0
%
Non-GAAP adjustments
8.1
%
6.5
%
5.0
%
Non-GAAP operating profit
margin
11.3
%
8.5
%
10.0
%
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP
MEASURES (Unaudited) (In millions, except percentages
and per share amounts)
Three months ended January 31,
2021
Three months ended October 31,
2020
Three months ended January 31,
2020
GAAP net revenue
$
6,833
$
7,208
$
6,949
GAAP cost of sales
4,545
5,002
4,667
GAAP gross profit
$
2,288
$
2,206
$
2,282
Non-GAAP adjustments
Amortization of initial direct costs
$
2
$
1
$
3
Acquisition, disposition and other related
charges(c)
—
—
20
Stock-based compensation expense(a)
$
13
$
7
$
13
Non-GAAP gross profit
$
2,303
$
2,214
$
2,318
GAAP gross profit margin
33.5
%
30.6
%
32.8
%
Non-GAAP adjustments
0.2
%
0.1
%
0.6
%
Non-GAAP gross profit margin
33.7
%
30.7
%
33.4
%
Net cash provided by (used in)
operating activities
$
963
$
747
$
(79
)
Investment in property, plant and
equipment
(513
)
(604
)
(568
)
Proceeds from sale of property, plant and
equipment
113
80
462
Free cash flow
$
563
$
223
$
(185
)
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE
SHEETS (Unaudited) (In millions, except par
value)
As of
January 31, 2021
October 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
4,165
$
4,233
Accounts receivable, net of allowances
2,933
3,386
Financing receivables, net of
allowances
3,883
3,794
Inventory
2,791
2,674
Assets held for sale
34
77
Other current assets
2,266
2,392
Total current assets
16,072
16,556
Property, plant and equipment
5,573
5,625
Long-term financing receivables and other
assets
10,585
10,544
Investments in equity interests
2,211
2,170
Goodwill and intangible assets
19,010
19,120
Total assets
$
53,451
$
54,015
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Notes payable and short-term
borrowings
$
3,727
$
3,755
Accounts payable
5,196
5,383
Employee compensation and benefits
1,149
1,391
Taxes on earnings
119
148
Deferred revenue
3,440
3,430
Accrued restructuring
241
366
Other accrued liabilities
4,059
4,265
Total current liabilities
17,931
18,738
Long-term debt
11,963
12,186
Other non-current liabilities
7,298
6,995
Stockholders’ equity
HPE stockholders’ equity:
Preferred stock, $0.01 par value (300
shares authorized; none issued)
—
—
Common stock, $0.01 par value (9,600
shares authorized; 1,300 and 1,287 shares issued and outstanding at
January 31, 2021 and October 31, 2020, respectively)
13
13
Additional paid-in capital
28,427
28,350
Accumulated deficit
(8,332
)
(8,375
)
Accumulated other comprehensive loss
(3,896
)
(3,939
)
Total HPE stockholders’ equity
16,212
16,049
Non-controlling interests
47
47
Total stockholders’ equity
16,259
16,096
Total liabilities and stockholders’
equity
$
53,451
$
54,015
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (Unaudited) (In millions)
Three months ended January 31,
2021
Three months ended January 31,
2020
Cash flows from operating activities:
Net earnings
$
223
$
333
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization
674
690
Stock-based compensation expense
113
93
Provision for doubtful accounts and
inventory
52
41
Restructuring charges
232
84
Deferred taxes on earnings
(71
)
(28
)
Earnings from equity interests
(26
)
(33
)
Other, net
65
(36
)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
446
82
Financing receivables
(120
)
(104
)
Inventory
(148
)
(204
)
Accounts payable
(161
)
(250
)
Taxes on earnings
(34
)
(27
)
Restructuring
(220
)
(87
)
Other assets and liabilities
(62
)
(633
)
Net cash provided by (used in) operating
activities
963
(79
)
Cash flows from investing activities:
Investment in property, plant and
equipment
(513
)
(568
)
Proceeds from sale of property, plant and
equipment
113
462
Purchases of available-for-sale securities
and other investments
(7
)
(59
)
Maturities and sales of available-for-sale
securities and other investments
1
8
Financial collateral posted
(266
)
(48
)
Financial collateral received
20
147
Payments made in connection with business
acquisitions, net of cash acquired
—
(6
)
Net cash used in investing activities
(652
)
(64
)
Cash flows from financing activities:
Short-term borrowings with original
maturities less than 90 days, net
26
127
Proceeds from debt, net of issuance
costs
323
340
Payment of debt
(611
)
(450
)
Net proceeds related to stock-based award
activities
(34
)
(43
)
Repurchase of common stock
—
(204
)
Cash dividends paid to non-controlling
interests
(8
)
—
Contributions from non-controlling
interests
—
1
Cash dividends paid
(155
)
(156
)
Net cash used in financing activities
(459
)
(385
)
Increase in cash, cash equivalents and
restricted cash
(148
)
(528
)
Cash, cash equivalents and restricted cash
at beginning of period
4,621
4,076
Cash, cash equivalents and restricted cash
at end of period
$
4,473
$
3,548
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES SEGMENT INFORMATION
(Unaudited) (In millions)
Three months ended
January 31,
2021
October 31,
2020
January 31,
2020
Net revenue:(d)
Compute
$
2,986
$
3,191
$
3,030
HPC & MCS
762
992
839
Storage
1,193
1,215
1,252
Intelligent Edge
806
786
720
Financial Services
860
849
859
Corporate Investments and Other
321
340
327
Total segment net revenue
6,928
7,373
7,027
Elimination of intersegment net
revenue
(95
)
(165
)
(78
)
Total Hewlett Packard Enterprise
consolidated net revenue
$
6,833
$
7,208
$
6,949
Earnings before taxes:(a)(d)
Compute
$
342
$
210
$
324
HPC & MCS
43
129
63
Storage
235
221
251
Intelligent Edge
152
97
87
Financial Services
84
66
75
Corporate Investments and Other
(31
)
(34
)
(53
)
Total segment earnings from operations
825
689
747
Unallocated corporate costs and
eliminations
(52
)
(73
)
(52
)
Stock-based compensation expense(a)
(110
)
(59
)
(93
)
Amortization of initial direct costs
(2
)
(1
)
(3
)
Amortization of intangible assets
(110
)
(80
)
(120
)
Transformation costs
(311
)
(304
)
(89
)
Acquisition, disposition and other related
charges
(18
)
(27
)
(42
)
Interest and other, net
(44
)
(57
)
(19
)
Tax indemnification adjustments
(16
)
(15
)
(21
)
Non-service net periodic benefit
credit
17
35
37
Earnings from equity interests
26
17
33
Total Hewlett Packard Enterprise
consolidated earnings before taxes
$
205
$
125
$
378
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES SEGMENT INFORMATION
(Unaudited) (In millions, except percentages)
Three months ended
Change (%)
January 31, 2021
October 31,
2020
January 31, 2020
Q/Q
Y/Y
Net revenue:(d)
Compute
$
2,986
$
3,191
$
3,030
(6
%)
(1
%)
HPC & MCS
762
992
839
(23
%)
(9
%)
Storage
1,193
1,215
1,252
(2
%)
(5
%)
Intelligent Edge
806
786
720
3
%
12
%
Financial Services
860
849
859
1
%
—
%
Corporate Investments and Other
321
340
327
(6
%)
(2
%)
Total segment net revenue
6,928
7,373
7,027
(6
%)
(1
%)
Elimination of intersegment net
revenue
(95)
(165)
(78)
(42
%)
22
%
Total Hewlett Packard Enterprise
consolidated net revenue
$
6,833
$
7,208
$
6,949
(5
%)
(2
%)
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES SEGMENT OPERATING MARGIN SUMMARY
DATA (Unaudited)
Three months ended
Change in Operating Profit
Margin (pts)
January 31, 2021
Q/Q
Y/Y
Segment operating profit margin:(a)(d)
Compute
11.5
%
4.9
0.8
HPC & MCS
5.6
%
-7.4
-1.9
Storage
19.7
%
1.5
-0.3
Intelligent Edge
18.9
%
6.6
6.8
Financial Services
9.8
%
2.0
1.1
Corporate Investments and Other
(9.7
%)
0.3
6.5
Total segment operating profit margin
11.9
%
2.6
1.3
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES CALCULATION OF DILUTED NET EARNINGS
(LOSS) PER SHARE (Unaudited) (In millions, except per
share amounts)
Three months ended
January 31,
2021
October 31, 2020
January 31,
2020
Numerator:
GAAP net earnings
$
223
$
157
$
333
Non-GAAP net earnings
$
679
$
537
$
657
Denominator:
Weighted-average shares used to compute
basic net earnings per share
1,300
1,293
1,300
Dilutive effect of employee stock
plans
15
13
15
Weighted-average shares used to compute
diluted net earnings per share
1,315
1,306
1,315
GAAP net earnings per share
Basic
$
0.17
$
0.12
$
0.26
Diluted
$
0.17
$
0.12
$
0.25
Non-GAAP net earnings per share
Basic
$
0.52
$
0.42
$
0.51
Diluted
$
0.52
$
0.41
$
0.50
(a)
Effective at the beginning of the first
quarter of fiscal 2021, Hewlett Packard Enterprise Company ("the
Company") excluded stock-based compensation expense ("Non-GAAP
Stock-Based Compensation Adjustment") from its segment earnings
from operations and excluded stock-based compensation expense from
consolidated non-GAAP gross profit, non-GAAP gross profit margin,
non-GAAP earnings from operations, non-GAAP operating profit
margin, non-GAAP net earnings and non-GAAP net earnings per share.
The Company reflected the Non-GAAP Stock-Based Compensation
Adjustment to the earliest period presented. This change had no
impact on the Company's previously reported consolidated GAAP
results.
(b)
Represents the amortization of basis
difference adjustments related to the H3C divestiture.
(c)
For the periods presented, amounts
represent Acquisition, disposition and other related charges
related to a non-cash inventory fair value adjustment in connection
with the acquisition of Cray, Inc., which was included in Cost of
sales.
(d)
Effective at the beginning of the first
quarter of fiscal 2021, the Company implemented certain
organizational changes to align its segment financial reporting
more closely with its current business structure. These
organizational changes are: (i) the transfer of the lifecycle event
services business, previously reported within the Advisory and
Professional Services ("A & PS") reportable segment to Compute,
Storage and HPC & MCS reportable segments; (ii) the transfer of
certain software and related services business, previously reported
within the Compute, Storage and A & PS reportable segments, to
the Corporate Investments and Other reportable segment, to form a
new Software operating segment; and (iii) the transfer of the
remaining A & PS operating segment, previously reported as a
separate reportable segment, to the Corporate Investments and Other
reportable segment. As a result of these changes, the Corporate
Investments and Other Segment now includes the A & PS operating
segment, the Communications and Media Solutions operating segment,
the Software operating segment, and Hewlett Packard Enterprise Labs
which is responsible for research and development.
The Company reflected these changes to its
segment information retrospectively to the earliest period
presented, which primarily resulted in the transfer of net revenue
and operating profit for each of the businesses as described above.
These changes had no impact on the Company's previously reported
consolidated results.
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 revenue on a constant
currency basis, 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 income tax
rate, non-GAAP net earnings, non-GAAP diluted net earnings per
share, gross cash, free cash flow, net debt, net cash, operating
company net debt and operating company net cash financial measures.
Hewlett Packard Enterprise also provides forecasts of non-GAAP
diluted net earnings per share and free cash flow.
These non-GAAP financial measures are not computed in accordance
with, or as an alternative to, generally accepted accounting
principles in the United States. The GAAP measure most directly
comparable to revenue on a constant currency basis is 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 operating profit (earnings from operations).
The GAAP measure most directly comparable to non-GAAP operating
profit margin is operating profit margin. 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 gross cash is
cash and cash equivalents. The GAAP measure most directly
comparable to free cash flow is cash flow from operations. The GAAP
measure most directly comparable to net debt and operating company
net debt is total company debt. The GAAP measure most directly
comparable to each of net cash and operating company net cash is
cash and cash equivalents. Reconciliations of each of these
non-GAAP financial measures to GAAP information are included in the
tables above or elsewhere in the materials accompanying this news
release.
Use and economic substance of non-GAAP financial measures
used by Hewlett Packard Enterprise
Revenue on a constant currency basis assumes no change in the
foreign exchange rate from the prior-year period. Non-GAAP gross
profit and non-GAAP gross profit margin is defined to exclude
charges relating to the amortization of initial direct costs,
certain acquisition, disposition and other related charges and
stock-based compensation expenses. Non-GAAP operating profit
(non-GAAP earnings from operations), and non-GAAP operating profit
margin are defined to exclude any charges relating to the
amortization of intangible assets, amortization of initial direct
costs, impairment of goodwill, transformation costs, stock-based
compensation expenses 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 those same charges, as well as an adjustment to
earnings in equity interests, non-service net periodic benefit
credit, tax indemnification adjustments, certain income tax
valuation allowances and separation taxes, the impact of U.S. tax
reform and excess tax benefit from stock-based compensation. In
addition, non-GAAP net earnings and non-GAAP diluted net earnings
per share are adjusted by the amount of additional taxes or tax
benefits associated with each non-GAAP item.
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. More
specifically, Hewlett Packard Enterprise’s management excludes each
of those items mentioned above for the following reasons:
- Amortization of initial direct costs represents the portion of
lease origination costs incurred in prior fiscal years that do not
qualify for capitalization under the new leasing standard. Hewlett
Packard Enterprise excludes these costs as the Company elected the
practical expedient under the new leasing standard. As a result,
the company did not adjust these historical costs to accumulated
deficit. We believe that most financing companies did not elect
this practical expedient and therefore we excluded these costs to
facilitate a more meaningful evaluation of our current operating
performance and comparisons to our peers.
- 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 and any related impairment
charges. Consequently, Hewlett Packard Enterprise excludes these
charges for purposes of calculating these non-GAAP measures to
facilitate a more meaningful evaluation of Hewlett Packard
Enterprise’s current operating performance and comparisons to
Hewlett Packard Enterprise’s operating performance in other
periods.
- In the second quarter of fiscal 2020, Hewlett Packard
Enterprise recorded an impairment charge for the goodwill
associated with its HPC & MCS reporting unit following an
impairment review. Hewlett Packard Enterprise excludes these
charges for purposes of calculating these non-GAAP measures to
facilitate a more meaningful evaluation of Hewlett Packard
Enterprise’s current operating performance and comparisons to
Hewlett Packard Enterprise’s operating performance in other
periods.
- Transformation costs represent net costs related to the Cost
Optimization and Prioritization Plan and HPE Next initiative and
include restructuring charges, program design and execution costs,
costs incurred to transform Hewlett Packard Enterprise's IT
infrastructure and gains from the sale of real-estate identified as
part of the initiative as well as any impairment charges on
real-estate assets identified as part of the initiative. Hewlett
Packard Enterprise believes that eliminating such expenses and
gains for purposes of calculating these non-GAAP measures
facilitates a more meaningful evaluation of Hewlett Packard
Enterprise’s current operating performance and comparisons to
Hewlett Packard Enterprise’s past operating performance.
- 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 our employees, Hewlett Packard Enterprise excludes these charges
for purposes of calculating these non-GAAP measures, primarily
because they are non-cash expense and such exclusion facilitate a
more meaningful evaluation of Hewlett Packard Enterprise’s current
operating performance and comparisons to Hewlett Packard
Enterprise’s operating performance in other periods.
- Hewlett Packard Enterprise incurs costs related to its
acquisitions, disposition and other related charges, most of which
are treated as non-cash or non-capitalized expenses. The charges
are direct expenses such as professional fees and retention costs,
as well as non-cash adjustments to the fair value of certain
acquired assets such as inventory. Charges may also include
expenses associated with disposal activities including legal and
arbitration settlements in connection with certain dispositions.
Because non-cash or non-capitalized acquisition-related expenses
are inconsistent in amount and frequency and are significantly
impacted by the timing and nature of Hewlett Packard Enterprise’s
acquisitions and divestitures, Hewlett Packard Enterprise believes
that eliminating such expenses for purposes of calculating these
non-GAAP measures facilitates a more meaningful evaluation of
Hewlett Packard Enterprise’s current operating performance and
comparisons to Hewlett Packard Enterprise’s past operating
performance.
- Adjustment to earnings from equity interests includes the
amortization of the basis difference in relation to the H3C
divestiture and the resulting equity method investment in H3C.
Hewlett Packard Enterprise believes that eliminating this amount
for purposes of calculating non-GAAP net earnings facilitates a
more meaningful evaluation of Hewlett Packard Enterprise’s current
operating performance and comparisons to Hewlett Packard
Enterprise’s operating performance in other periods.
- Non-service net periodic benefit credit includes certain
market-related factors such as (i) interest cost, (ii) expected
return on plan assets, (iii) amortization of prior plan amendments,
(iv) amortized actuarial gains or losses, (v) the impacts of any
plan settlements/curtailments and (vi) impacts from other
market-related factors associated with Hewlett Packard Enterprise's
defined benefit pension and post-retirement benefit plans. These
market-driven retirement-related adjustments are primarily due to
the change in pension plan assets and liabilities which are tied to
financial market performance. Hewlett Packard Enterprise excludes
these adjustments and considers them to be outside the operational
performance of the business.
- Tax indemnification adjustments are related to changes in the
indemnification positions between Hewlett Packard Enterprise and HP
Inc., DXC and Micro Focus that are recorded by Hewlett Packard
Enterprise as pre-tax income or expense and not considered tax
expense. Hewlett Packard Enterprise excludes these income or
charges and the associated tax impact for the purpose of
calculating these non-GAAP measures to facilitate a more meaningful
evaluation of Hewlett Packard Enterprise’s current operating
performance and comparisons to Hewlett Packard Enterprise’s
operating performance in other periods.
- Hewlett Packard Enterprise utilizes a structural long-term
projected non-GAAP tax rate in order to provide better 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 2021, the Company will use
a projected non-GAAP tax rate of 14%, which reflects currently
available information, as well as other factors and assumptions.
The non-GAAP 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 2020, the Company had a non-GAAP tax rate of 12%. Hewlett
Packard Enterprise believes that making these adjustments
facilitates a better evaluation of our current operating
performance and comparisons to past 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. Some of the limitations in relying
on these non-GAAP financial measures are:
- Amortization of initial direct cost is excluded from 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 net earnings and non-GAAP diluted net
earnings per share can have an impact on the equivalent GAAP
earnings measure and HPE Financial Services Segment results.
- Amortization of intangible assets, though not directly
affecting Hewlett Packard Enterprise’s cash position, represent the
loss in value of intangible assets over time. The expense
associated with this loss in value is excluded from non-GAAP
operating profit (non-GAAP earnings from operations), non-GAAP
operating profit margin, non-GAAP net earnings and non-GAAP diluted
net earnings per share and can have a material impact on the
equivalent GAAP earnings measure.
- Items such as impairment of goodwill, transformation costs,
stock-based compensation expense and acquisition, and disposition
and other related costs that are excluded from non-GAAP gross
profit, non-GAAP gross profit margin, non-GAAP operating expenses,
non-GAAP operating profit (non-GAAP earnings from operations),
non-GAAP operating profit margin, non-GAAP net earnings and
non-GAAP diluted net earnings per share can have a material impact
on the equivalent GAAP earnings measure.
- Items such as adjustment to earnings from equity interests and
non-service net periodic benefit credit that are excluded from
non-GAAP net earnings, and non-GAAP diluted net earnings per share
can have a material impact on the equivalent GAAP earnings
measure.
- Items such as tax indemnification adjustments, certain income
tax valuation allowances and separation taxes, the impact of U.S.
tax reform, excess tax benefits from stock-based compensation and
the related tax impacts from other non-GAAP measures that are
excluded from the non-GAAP tax rate, non-GAAP net earnings and
non-GAAP diluted net earnings per share can also have a material
impact on the equivalent GAAP earnings measures.
- Hewlett Packard Enterprise may not be able to immediately
liquidate the short-term and long-term investments included in
gross cash, which may limit the usefulness of gross cash as a
liquidity measure.
- Other companies may calculate revenue on a constant currency
basis, 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 net earnings and
non-GAAP diluted net earnings per share differently than Hewlett
Packard Enterprise does, limiting the usefulness of those measures
for comparative purposes.
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 a
supplement. Hewlett Packard Enterprise also provides a
reconciliation of each non-GAAP financial measure to its most
directly comparable GAAP measure within this news release and in
other written materials that include these non-GAAP financial
measures, 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 revenue on a
constant currency basis, 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 income tax
rate, non-GAAP net earnings, non-GAAP diluted net earnings per
share, gross cash, free cash flow, net debt, net cash, operating
company net debt and operating company net cash financial measures
to investors 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 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210302005461/en/
Editorial contact Stefanie Notaney, HPE
stefanie.notaney@hpe.com
Investor contact Andrew Simanek
investor.relations@hpe.com
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