HPE delivers record-setting Q1 performance and raises fiscal
2023 guidance
First Quarter Fiscal 2023 Financial Results:
- Revenue of $7.8 billion was up 12% and up 18% adjusted
for currency(1) from the prior-year period, above our Q1 guidance.
Revenue was the highest first-quarter performance for the company
since 2016
- Annualized revenue run-rate (“ARR”)(2) for the first
time exceeded $1 billion and was up 26% and up 31% adjusted for
currency(1) from the prior-year period
- Gross margins:
- GAAP of 34.0% was up 30 basis points from the prior-year period
and up 110 basis points sequentially
- Non-GAAP of 34.2% established a Q1 record and was up 30 basis
points from the prior-year period and up 110 basis points
sequentially
- Diluted net earnings per share (“EPS”):
- GAAP of $0.38 was down 3% from the prior-year period and up
265% sequentially
- Non-GAAP of $0.63 was up 19% from the prior-year period and up
11% sequentially, exceeding our guidance range of $0.50-$0.58 and
marking a quarterly record for the company
- Cash flow from operations: ($829) million, a decrease of
$753 million from the prior-year period
- Free cash flow(3) of ($1.3) billion was down $749
million from the prior-year period
- Capital returns to shareholders: $229 million in the
form of dividends and share repurchases
Outlook:
- Revenue: Estimates Q2 fiscal 2023 revenue to be in the
range of $7.1 billion to $7.5 billion, and raises fiscal 2023
revenue growth estimate to be in the range of 5%-7% adjusted for
currency(1)
- ARR(2): Reiterates our 2022 HPE Securities
Analyst Meeting ARR guidance of 35%-45% Compounded Annual Growth
Rate from fiscal 2022 to fiscal 2025
- Diluted net EPS:
- Estimates Q2 fiscal 2023 GAAP diluted net EPS to be in the
range of $0.27 to $0.35 and non-GAAP diluted net EPS to be in the
range of $0.44 to $0.52
- Raises guidance of fiscal 2023 GAAP diluted net EPS to be in
the range of $1.40 to $1.48 and non-GAAP diluted net EPS to be in
the range of $2.02 to $2.10
- Free cash flow (3)(4): Reiterates guidance of
$1.9 billion to $2.1 billion
Hewlett Packard Enterprise (NYSE: HPE) today announced financial
results for the first quarter ended January 31, 2023.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20230302005338/en/
“HPE delivered exceptional results in Q1, posting our highest
first quarter revenue since 2016 and best-ever non-GAAP operating
profit margin,” said Antonio Neri, president and CEO of Hewlett
Packard Enterprise. “Powered by our market-leading hybrid cloud
platform HPE GreenLake, we unlocked an impressive run rate of $1
billion in annualized revenue for the first time. These results,
combined with a winning strategy and proven execution, position us
well for FY23, and give us confidence to raise our financial
outlook for the full year.”
“In Q1 we continued to out-execute our competition despite
uneven market demand and produced more revenues in every one of our
key segments, with our Edge business Aruba being a standout,” said
Tarek Robbiati, executive vice president and CFO of Hewlett Packard
Enterprise. “We are now focusing our attention and are investing to
carry our momentum well into the second half of FY23 and FY24.”
First Quarter Fiscal 2023 Segment Results:
- Intelligent Edge revenue was $1.1 billion, up 25% from the
prior-year period in actual dollars and 31% when adjusted for
currency(1), with 21.9% operating profit margin, compared to 17.4%
in the prior-year period. Revenue performance hit a quarterly
record, and the business exceeded the Rule of 40 for the
quarter
- High Performance Computing & Artificial Intelligence (“HPC
& AI”) revenue was $1.1 billion, up 34% from the prior-year
period in actual dollars and 37% when adjusted for currency(1),
with 0.1% operating profit margin, compared to (0.9%) from the
prior-year period. Revenue for the quarter marked a new record for
the business
- Compute revenue was $3.5 billion, up 14% from the prior-year
period in actual dollars and 19% when adjusted for currency(1),
with 17.6% operating profit margin, compared to 14.0% from the
prior-year period
- Storage revenue was $1.2 billion, up 5% from the prior-year
period in actual dollars and 10% when adjusted for currency(1),
with 12.0% operating profit margin, compared to 13.9% from the
prior-year period. HPE Alletra revenue growth was up triple-digits
from the prior-year
- Financial Services revenue was $873 million, up 4% from the
prior-year period in actual dollars and up 8% when adjusted for
currency(1), with 9.4% operating profit margin, compared to 12.4%
from the prior-year period. Net portfolio assets of $13.2 billion,
up 2% from the prior-year period and up 4% when adjusted for
currency(1). The business delivered return on equity of 16.7%, down
3.1 points from the prior-year period
Dividend:
The HPE Board of Directors declares a regular cash dividend of
$0.12 per share on the company’s common stock, payable on April 14,
2023, to stockholders of record as of the close of business on
March 17, 2023.
Fiscal 2023 Second Quarter Outlook:
HPE estimates revenue to be in the range of $7.1 billion to $7.5
billion. HPE estimates GAAP diluted net EPS to be in the range of
$0.27 to $0.35 and non-GAAP diluted net EPS to be in the range of
$0.44 to $0.52. Fiscal 2023 second quarter non-GAAP diluted net EPS
estimates exclude after-tax adjustments of $0.17 per diluted share,
primarily related to stock-based compensation expense,
transformation costs, and amortization of intangible assets.
Fiscal 2023 Outlook:
HPE raises guidance of GAAP diluted net EPS to be in the range
of $1.40 and $1.48 and non-GAAP diluted net EPS to be in the range
of $2.02 and $2.10. Fiscal 2023 non-GAAP diluted net EPS estimates
exclude after-tax adjustments of $0.62 per diluted share, primarily
related to stock-based compensation expense, amortization of
intangible assets, and transformation costs.
Fiscal 2023 free cash flow (3)(4): Reiterates
guidance of $1.9 billion to $2.1 billion.
Fiscal 2023 capital returns to shareholders: Returning
approximately 60% of free cash flow to shareholders in dividends
and share repurchases.
1 Adjusted to eliminate the effects of currency. A description
of HPE’s use of non-GAAP financial information is provided below
under “Use of non-GAAP financial information.”
2 Annualized Revenue Run-Rate (“ARR”) is a financial metric used
to assess the growth of the Consumption Services (“CS”) 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 Free cash flow 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 Hewlett 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 (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, Compute, HPC & AI, Intelligent Edge, Software, and
Storage, 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, 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 and free cash flow. 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 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 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.
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, CMS
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", "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 projections or
expectations of revenue, margins, expenses (including stock-based
compensation expenses), investments, net earnings, net earnings per
share, cash flows, liquidity and capital resources, inventory,
order backlog, share repurchases, currency exchange rates, or other
financial items; any projections of the amount, execution, timing,
and results of any transformation or impact of cost savings or
restructuring plans, including estimates and assumptions related to
the anticipated benefits, cost savings, or charges of implementing
such transformation and restructuring plans; any statements of the
plans, strategies, and objectives of management for future
operations, 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 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 inflationary environment, and the ongoing conflict
between Russia and Ukraine; 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 pandemics
and public health problems, such as the outbreak and continued
impacts of COVID-19, and geopolitical events, such as the ongoing
conflict between Russia and Ukraine and tensions between China and
the U.S.); 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;
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 and the ongoing conflict between Russia and
Ukraine; the hiring and retention of key employees; the execution,
integration, and other 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; the impacts of the Inflation
Reduction Act of 2022 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, 2022, 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 Hewlett
Packard Enterprise Quarterly Report on Form 10-Q for the fiscal
quarter ended January 31, 2023. 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, 2023
October 31, 2022
January 31, 2022
In millions, except per share
amounts
Net revenue
$
7,809
$
7,871
$
6,961
Costs and expenses:
Cost of sales
5,151
5,278
4,617
Research and development
623
515
504
Selling, general and administrative
1,257
1,262
1,201
Amortization of intangible assets
73
73
73
Impairment of goodwill
—
905
—
Transformation costs
102
184
111
Disaster charges (recovery)
1
(1
)
(1
)
Acquisition, disposition and other related
charges (recoveries)
11
(6
)
8
Total costs and expenses
7,218
8,210
6,513
Earnings (loss) from operations
591
(339
)
448
Interest and other, net
(25
)
(109
)
(5
)
Tax indemnification and related
adjustments
(1
)
(20
)
(17
)
Non-service net periodic benefit
credit
—
28
36
Earnings from equity interests
58
83
31
Earnings (loss) before provision for
taxes
623
(357
)
493
(Provision) benefit for taxes
(122
)
53
20
Net earnings (loss)
$
501
$
(304
)
$
513
Net earnings (loss) per share:
Basic
$
0.39
$
(0.23
)
$
0.39
Diluted
$
0.38
$
(0.23
)
$
0.39
Cash dividends declared per share
$
0.12
$
0.12
$
0.12
Weighted-average shares used to compute
net earnings per share:
Basic
1,298
1,296
1,304
Diluted
1,315
1,296
1,325
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Reconciliation of GAAP to
Non-GAAP measures
(Unaudited)
For the three months
ended
January 31, 2023
October 31, 2022
January 31, 2022
Dollars in millions
GAAP net revenue
$
7,809
$
7,871
$
6,961
GAAP cost of sales
5,151
5,278
4,617
GAAP gross profit
2,658
2,593
2,344
Non-GAAP adjustments
Amortization of initial direct costs
—
1
1
Stock-based compensation expense
16
8
15
Non-GAAP gross profit
$
2,674
$
2,602
$
2,360
GAAP gross profit margin
34.0
%
32.9
%
33.7
%
Non-GAAP adjustments
0.2
%
0.2
%
0.2
%
Non-GAAP gross profit margin
34.2
%
33.1
%
33.9
%
For the three months
ended
January 31, 2023
October 31, 2022
January 31, 2022
Dollars in millions
GAAP earnings (loss) from
operations
$
591
$
(339
)
$
448
Non-GAAP adjustments
Amortization of initial direct costs
—
1
1
Amortization of intangible assets
73
73
73
Impairment of goodwill
—
905
—
Transformation costs
102
184
111
Disaster charges (recovery)
1
(1
)
(1
)
Stock-based compensation expense
140
85
128
Acquisition, disposition and other related
charges (recoveries)
11
(6
)
8
Non-GAAP earnings from
operations
$
918
$
902
$
768
GAAP operating profit (loss)
margin
7.6
%
(4.3
%)
6.4
%
Non-GAAP adjustments
4.2
%
15.8
%
4.6
%
Non-GAAP operating profit
margin
11.8
%
11.5
%
11.0
%
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Reconciliation of GAAP to
Non-GAAP measures
(Unaudited)
For the three months
ended
January 31, 2023
Diluted net earnings per
share
October 31, 2022
Diluted net earnings per
share
January 31, 2022
Diluted net earnings per
share
Dollars in millions, except
per share amounts
GAAP net earnings (loss)
$
501
$
0.38
$
(304
)
$
(0.23
)
$
513
$
0.39
Non-GAAP adjustments:
Amortization of initial direct costs
—
—
1
—
1
—
Amortization of intangible assets
73
0.06
73
0.06
73
0.06
Impairment of goodwill
—
—
905
0.68
—
—
Transformation costs
102
0.07
184
0.14
111
0.08
Disaster charges (recovery)
1
—
(1
)
—
(1
)
—
Stock-based compensation expense
140
0.11
85
0.07
128
0.10
Acquisition, disposition and other related
charges (recoveries)
11
0.01
(6
)
—
8
0.01
Tax indemnification and related
adjustments
1
—
20
0.02
17
0.01
Non-service net periodic benefit
credit
—
—
(28
)
(0.02
)
(36
)
(0.03
)
Earnings from equity interests(a)
12
0.01
3
—
17
0.01
Adjustments for taxes
(13
)
(0.01
)
(177
)
(0.15
)
(134
)
(0.10
)
Non-GAAP net earnings
$
828
$
0.63
$
755
$
0.57
$
697
$
0.53
For the three months
ended
January 31, 2023
October 31, 2022
January 31, 2022
In millions
Net cash (used in) provided by
operating activities
$
(829
)
$
3,036
$
(76
)
Investment in property, plant and
equipment
(794
)
(1,000
)
(624
)
Proceeds from sale of property, plant and
equipment
159
238
123
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
138
(279
)
—
Free cash flow
$
(1,326
)
$
1,995
$
(577
)
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance
Sheets
As of
January 31, 2023
October 31, 2022
(Unaudited)
(Audited)
In millions, except par
value
ASSETS
Current assets:
Cash and cash equivalents
$
2,530
$
4,163
Accounts receivable, net of allowances
4,201
4,101
Financing receivables, net of
allowances
3,726
3,522
Inventory
4,644
5,161
Other current assets
3,133
3,559
Total current assets
18,234
20,506
Property, plant and equipment
5,990
5,784
Long-term financing receivables and other
assets
11,046
10,537
Investments in equity interests
2,225
2,160
Goodwill and intangible assets
18,096
18,136
Total assets
$
55,591
$
57,123
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Notes payable and short-term
borrowings
$
5,349
$
4,612
Accounts payable
6,535
8,717
Employee compensation and benefits
1,284
1,401
Taxes on earnings
210
176
Deferred revenue
3,533
3,451
Accrued restructuring
185
192
Other accrued liabilities
4,380
4,625
Total current liabilities
21,476
23,174
Long-term debt
7,577
7,853
Other non-current liabilities
6,475
6,187
Stockholders’ equity
HPE stockholders’ equity:
Common stock, $0.01 par value (9,600
shares authorized; 1,297 and 1,281 shares issued and outstanding at
January 31, 2023 and October 31, 2022, respectively)
13
13
Additional paid-in capital
28,259
28,299
Accumulated deficit
(5,005
)
(5,350
)
Accumulated other comprehensive loss
(3,256
)
(3,098
)
Total HPE stockholders’ equity
20,011
19,864
Non-controlling interests
52
45
Total stockholders’ equity
20,063
19,909
Total liabilities and stockholders’
equity
$
55,591
$
57,123
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
For the three months
ended
January 31, 2023
January 31, 2022
In millions
Cash flows from operating activities:
Net earnings
$
501
$
513
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization
656
621
Stock-based compensation expense
140
128
Provision for doubtful accounts and
inventory
45
46
Restructuring charges
72
37
Deferred taxes on earnings
20
37
Earnings from equity interests
(58
)
(31
)
Other, net
(60
)
(27
)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
(112
)
543
Financing receivables
(523
)
181
Inventory
495
(834
)
Accounts payable
(2,195
)
(438
)
Taxes on earnings
46
(111
)
Restructuring
(96
)
(114
)
Other assets and liabilities
240
(627
)
Net cash used in operating activities
(829
)
(76
)
Cash flows from investing activities:
Investment in property, plant and
equipment
(794
)
(624
)
Proceeds from sale of property, plant and
equipment
159
123
Purchases of investments
—
(21
)
Proceeds from maturities and sales of
investments
4
44
Financial collateral posted
(682
)
(10
)
Financial collateral received
108
153
Payments made in connection with business
acquisitions, net of cash acquired
(32
)
—
Net cash used in investing activities
(1,237
)
(335
)
Cash flows from financing activities:
Short-term borrowings with original
maturities less than 90 days, net
745
53
Proceeds from debt, net of issuance
costs
261
1,276
Payment of debt
(661
)
(633
)
Net payments related to stock-based award
activities
(107
)
(57
)
Repurchase of common stock
(73
)
(129
)
Cash dividends paid to shareholders
(156
)
(155
)
Net cash provided by financing
activities
9
355
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
138
—
Decrease in cash, cash equivalents and
restricted cash
(1,919
)
(56
)
Cash, cash equivalents and restricted cash
at beginning of period
4,763
4,332
Cash, cash equivalents and restricted cash
at end of period
$
2,844
$
4,276
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Segment Information
(Unaudited)
For the three months
ended
January 31, 2023
October 31, 2022
January 31, 2022
In millions
Net revenue:
Compute(b)
$
3,456
$
3,768
$
3,044
High Performance Computing &
Artificial Intelligence
1,056
862
790
Storage(b)
1,187
1,274
1,128
Intelligent Edge
1,127
965
901
Financial Services
873
857
842
Corporate Investments and Other
293
303
325
Total segment net revenue
7,992
8,029
7,030
Elimination of intersegment net
revenue
(183
)
(158
)
(69
)
Total consolidated net revenue
$
7,809
$
7,871
$
6,961
Earnings before taxes:
Compute(b)
$
609
$
560
$
427
High Performance Computing &
Artificial Intelligence
1
30
(7
)
Storage(b)
142
196
157
Intelligent Edge
247
128
157
Financial Services
82
95
104
Corporate Investments and Other
(55
)
(26
)
(11
)
Total segment earnings from operations
1,026
983
827
Unallocated corporate costs and
eliminations
(108
)
(81
)
(59
)
Stock-based compensation expense
(140
)
(85
)
(128
)
Amortization of initial direct costs
—
(1
)
(1
)
Amortization of intangible assets
(73
)
(73
)
(73
)
Impairment of goodwill
—
(905
)
—
Transformation costs
(102
)
(184
)
(111
)
Disaster (charges) recovery
(1
)
1
1
Acquisition, disposition and other related
charges (recoveries)
(11
)
6
(8
)
Interest and other, net
(25
)
(109
)
(5
)
Tax indemnification and related
adjustments
(1
)
(20
)
(17
)
Non-service net periodic benefit
credit
—
28
36
Earnings from equity interests
58
83
31
Total pretax earnings (loss)
$
623
$
(357
)
$
493
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Segment Information
(Unaudited)
For the three months
ended
Change (%)
January 31, 2023
October 31, 2022
January 31, 2022
Q/Q
Y/Y
Dollars in millions
Net revenue:
Compute(b)
$
3,456
$
3,768
$
3,044
(8
%)
14
%
High Performance Computing &
Artificial Intelligence
1,056
862
790
23
34
Storage(b)
1,187
1,274
1,128
(7
)
5
Intelligent Edge
1,127
965
901
17
25
Financial Services
873
857
842
2
4
Corporate Investments and Other
293
303
325
(3
)
(10
)
Total segment net revenue
7,992
8,029
7,030
—
14
Elimination of intersegment net
revenue
(183
)
(158
)
(69
)
16
165
Total consolidated net revenue
$
7,809
$
7,871
$
6,961
(1
%)
12
%
For the three months
ended
Change in Operating
Profit
Margin (pts)
January 31, 2023
October 31, 2022
January 31, 2022
Q/Q
Y/Y
Segment operating profit margin:
Compute(b)
17.6
%
14.9
%
14.0
%
2.7
3.6
High Performance Computing &
Artificial Intelligence
0.1
%
3.5
%
(0.9
)%
(3.4
)
1.0
Storage(b)
12.0
%
15.4
%
13.9
%
(3.4
)
(1.9
)
Intelligent Edge
21.9
%
13.3
%
17.4
%
8.6
4.5
Financial Services
9.4
%
11.1
%
12.4
%
(1.7
)
(3.0
)
Corporate Investments and Other
(18.8
%)
(8.6
%)
(3.4
%)
(10.2
)
(15.4
)
Total segment operating profit margin
12.8
%
12.2
%
11.8
%
0.6
1.0
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
Calculation of Diluted Net
Earnings Per Share
(Unaudited)
For the three months
ended
January 31, 2023
October 31, 2022
January 31, 2022
In millions, except per share
amounts
Numerator:
GAAP net earnings (loss)
$
501
$
(304
)
$
513
Non-GAAP net earnings
$
828
$
755
$
697
Denominator:
Weighted-average shares used to compute
basic net earnings per share
1,298
1,296
1,304
Dilutive effect of employee stock
plans
17
18
21
Weighted-average shares used to compute
diluted net earnings per share
1,315
1,314
1,325
GAAP net earnings (loss) per share
Basic
$
0.39
$
(0.23
)
$
0.39
Diluted
$
0.38
$
(0.23
)
$
0.39
Non-GAAP net earnings per share
Basic
$
0.64
$
0.58
$
0.53
Diluted
$
0.63
$
0.57
$
0.53
______________________
(a)
Represents the amortization of basis
difference adjustments related to H3C. The three months ended
January 31, 2023 includes the Company's portion of intangible asset
impairment charges from H3C of $8 million.
(b)
Effective at the beginning of the first
quarter of fiscal 2023, the Company implemented certain
organizational changes to align its segment financial reporting
more closely with its current business structure. This resulted in
the transfer of certain storage networking products, previously
reported within the Storage reportable segment, to the Compute
reportable segment. 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 financial measures
including 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, and free cash flow. 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, GAAP 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 free cash flow is cash flow from operations.
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
Net 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 are defined to
exclude charges relating to the amortization of initial direct
costs, stock-based compensation expense and disaster charges
(recovery). 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, disaster charges (recovery),
stock-based compensation expense and acquisition, disposition and
other related charges (recovery). 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 from equity interests,
non-service net periodic benefit credit, tax indemnification and
related adjustments, certain income tax valuation allowances and
separation taxes, the impact of tax reform and excess tax benefit
from stock-based compensation. 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. Hewlett Packard Enterprise believes that most financing
companies did not elect this practical expedient and therefore the
Company excludes these costs to facilitate a more meaningful
evaluation of its current operating performance and comparisons to
its 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 fourth quarter of fiscal 2022, Hewlett Packard
Enterprise recorded an impairment charge for the goodwill
associated with its HPC & AI and Software reporting units
following the annual goodwill 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, net gains from the sale of real-estate and any
impairment charges on real-estate 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.
- Disaster charges (recovery) are primarily related to the exit
of the Company’s businesses in Russia and Belarus, and include
credit losses of financing receivables and trade receivables,
employee severance and abandoned assets. Disaster charges
(recovery) also include direct costs or recovery related to
COVID-19 as a result of Hewlett Packard Enterprise-hosted,
co-hosted, or sponsored event cancellations and shift to a virtual
format. Hewlett Packard Enterprise believes that eliminating these
amounts for purposes of calculating non-GAAP measures 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.
- 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 the purpose of calculating these non-GAAP measures, primarily
because they are non-cash expenses, and such an exclusion
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.
- Hewlett Packard Enterprise incurs costs related to its
acquisition, disposition and other related charges (recovery), most
of which are treated as non-cash or non-capitalized expenses. The
charges are direct expenses such as professional fees and retention
costs. 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.
- Tax indemnification and related adjustments are primarily
related to changes to certain pre-separation and pre-divestiture
tax liabilities and tax receivables for which Hewlett Packard
Enterprise remains liable on behalf of the separated or divested
business, but which may not be subject to indemnification. Hewlett
Packard Enterprise excludes these income or charges and the
associated tax impact for the purpose of calculating 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.
- 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 for purposes of calculating non-GAAP measures and
considers them to be outside the operational performance of the
business.
- 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. In
the first fiscal quarter of 2023, this adjustment also included the
Company's portion of intangible asset impairment charges from H3C.
Hewlett Packard Enterprise believes that eliminating this amount
for purposes of calculating non-GAAP measures 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.
- Hewlett Packard Enterprise utilizes a structural long-term
projected non-GAAP income 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 2023, the Company will use a projected non-GAAP income
tax rate of 14%, 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 2022, the Company had a non-GAAP
tax rate of 14%. Hewlett Packard Enterprise believes that making
these adjustments for purposes of calculating non-GAAP measures,
facilitates a better evaluation of our current operating
performance and comparisons to past operating results.
- Free cash flow is a non-GAAP measure that 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. HPE’s
management uses free cash flow for the purpose of determining the
amount of cash available for investment in HPE’s businesses,
repurchasing stock and other purposes. HPE’s management also uses
free cash flow to evaluate HPE’s historical and prospective
liquidity. Because free cash flow represents cash flow from
operations less net capital expenditures (investments in 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, HPE believes that free cash flow provides a more
accurate and complete assessment of HPE’s liquidity and capital
resources.
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 costs and disaster charges
(recovery) are 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, which can
have an impact on the equivalent GAAP earnings measure and HPE
Financial Services segment results.
- Items such as stock-based compensation expense that is 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.
- Amortization of intangible assets, though not directly
affecting Hewlett Packard Enterprise’s cash position, represents
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, and
acquisition, disposition and other related charges (recovery) that
are excluded from 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 measures and cash flow.
- Items such as adjustment to non-service net periodic benefit
credit, tax indemnification and related charges and earnings from
equity interests 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 certain income tax valuation allowances and
separation taxes, the impact of 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 income
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.
- Free cash flow does not represent the total increase or
decrease in cash for the period.
- 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, non-GAAP
diluted net earnings per share, and free cash flow 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 those reconciliations carefully.
Usefulness of non-GAAP financial measures to
investors
Hewlett Packard Enterprise believes that providing financial
measures including 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, and free cash flow 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/20230302005338/en/
Media Contact: Laura Keller Laura.Keller@hpe.com
Investor Contact: Jeff Kvaal
investor.relations@hpe.com
Grafico Azioni Hewlett Packard Enterprise (NYSE:HPE)
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