Revenue and margins grow with enduring demand

Q3 2022 Financial Highlights:

• Revenue: $7.0 billion, up 1% and 4% adjusted for currency⁽¹⁾ from the prior-year period, above Q3 guidance
• Gross margins remain resilient despite ongoing supply chain constraints and inflationary environment
  • GAAP of 34.5%, flat from the prior-year period and up 210 basis points sequentially
  • Non-GAAP of 34.7%, flat from the prior-year period and up 50 basis points sequentially
• Diluted net earnings per share (“EPS”):
  • GAAP of $0.31, up 7% from the prior-year period and up 63% sequentially
  • Non-GAAP of $0.48, up 2% from the prior-year period and up 9% sequentially
• Cash flow from operations of $1.3 billion and free cash flow of $587 million, in line with normal seasonality

Capital Returns:

• Returned $353 million to shareholders in the form of dividends and share repurchases
• Declared a regular cash dividend of $0.12 per share, payable on October 7, 2022

Outlook:

• Reiterates fiscal 2022 revenue growth of 3-4% adjusted for currency
• Fourth quarter fiscal 2022 GAAP diluted net EPS to be in the range of $0.32 to $0.40 and non-GAAP diluted net EPS to be in the range of $0.52 to $0.60
• Fiscal 2022 GAAP diluted net EPS to be in the range of $1.20 to $1.28 and non-GAAP diluted net EPS to be in the range of $1.96 to $2.04, reflecting the unfavorable currency movements and constrained supply environment
• Fiscal 2022 free cash flow⁽²⁾ guidance to be in the range of $1.7 to $1.9 billion

Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for the third quarter, ended July 31, 2022.

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“Our continued innovation and focus on execution resulted in revenue and profit growth, which are particularly noteworthy in such a dynamic market. Our growth in recurring revenue this fiscal year is evidence of customers’ strong response to our HPE GreenLake platform,” said Antonio Neri, president, and CEO of Hewlett Packard Enterprise. “Customers continue to prioritize investments in IT and are finding HPE’s industry-leading edge-to-cloud portfolio to be particularly relevant in today’s complex macroeconomic environment, where technology innovation is critical to accelerate business transformation and deliver important business outcomes.”

“We executed well in Q3, delivering revenue above our guidance while growing backlog sequentially to another record level,” said Tarek Robbiati, EVP and CFO of Hewlett Packard Enterprise. “We are also pleased with the expansion of our gross margins despite the inflationary headwinds and challenged supply environment. We are driving operating leverage expansion through strong pricing discipline and shifting our mix towards higher-margin, software-rich offerings through the HPE GreenLake platform.”

Third Quarter Fiscal Year 2022 Results

Net revenue of $7.0 billion, up 1% and 4% adjusted for currency⁽¹⁾ from the prior-year period, above Q3 guidance.

Annualized revenue run-rate (“ARR”)⁽³⁾ of $858 million, up 22% and 28% adjusted for currency⁽¹⁾ from the prior-year period and total as-a-Service orders⁽⁴⁾ were up 39% from the prior-year period, and up 86% year-to-date. We remain confident in delivering our 2021 Securities Analyst Meeting ARR guidance of 35%-45% Compounded Annual Growth Rate from fiscal year 2021 to fiscal year 2024.

GAAP gross margin of 34.5%, flat from the prior-year period and up 210 basis points sequentially, and non-GAAP gross margin of 34.7%, flat from the prior-year period and up 50 basis points sequentially, driven by favorable mix shift and strategic pricing actions.

GAAP diluted net EPS was $0.31, up 7% from the prior-year period and up 63% sequentially.

Hewlett Packard Enterprise announced in June that the company would proceed with an orderly, managed exit of its remaining business in Russia and Belarus. During the third quarter of 2022, we recorded an additional pre-tax charge of $36 million related to our exit.

Non-GAAP diluted net EPS was $0.48, up 2% from the prior-year period and up 9% sequentially. Third quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $220 million and $0.17 per diluted share, respectively, primarily for transformation costs, stock-based compensation expense, and the amortization of intangible assets.

Cash flow from operations of $1.3 billion, up $124 million from the prior-year period.

Free cash flow of $587 million, up $61 million from the prior-year period.

Capital returns to shareholders of $353 million in the form of share repurchases and dividends.

Segment Results

• Intelligent Edge revenue was $941 million, up 8% from the prior-year period in actual dollars and 12% when adjusted for currency, with 16.5% operating profit margin, compared to 16.1% in the prior-year period. Aruba Services revenue was up double-digits from the prior-year period and Intelligent Edge as-a-Service ARR⁽³⁾ was up more than 60% from the prior-year period.
• High Performance Computing & Artificial Intelligence (“HPC & AI”) revenue was $830 million, up 12% from the prior-year period in actual dollars and 15% when adjusted for currency, with 3.4% operating profit margin, compared to 3.8% from the prior-year period. HPC market share expanded to 39% and includes four of the global top 10 supercomputers.
• Compute revenue was $3.0 billion, down 3% from the prior-year period in actual dollars and down 1% when adjusted for currency, with 13.3% operating profit margin, compared to 11.2% from the prior-year period. Margin expansion was driven by strategic pricing actions, more than offsetting input cost increases.
• Storage revenue was $1.2 billion, down 2% from the prior-year period in actual dollars and up 1% when adjusted for currency, with 14.7% operating profit margin, compared to 15.1% from the prior-year period, and up 210 basis points sequentially, with favorable mix shift.
• Financial Services revenue was $817 million, down 3% from the prior-year period in actual dollars and up 1% when adjusted for currency, with 11.8% operating profit margin, compared to 11.1% from the prior-year period. Net portfolio assets of approximately $12.6 billion, down 4% from the prior-year period or up 2% when adjusted for currency. Return on equity was 19.5%, up 1.3 points from the prior-year period, and well above the target set at SAM 2021.

Dividend

Board of Directors has declared a regular cash dividend of $0.12 per share on the company’s common stock, payable on October 7, 2022, to stockholders of record as of the close of business on September 12, 2022.

Fiscal 2022 fourth quarter outlook:

Hewlett Packard Enterprise GAAP diluted net EPS to be in the range of $0.32 to $0.40 and non-GAAP diluted net EPS to be in the range of $0.52 to $0.60. Fiscal 2022 fourth quarter non-GAAP diluted net EPS excludes after-tax adjustments of $0.20 per diluted share, primarily related to, transformation costs, stock-based compensation expense and the amortization of intangible assets.

Fiscal 2022 outlook:

Hewlett Packard Enterprise GAAP diluted net EPS outlook of $1.20 - $1.28 and FY22 non-GAAP diluted net EPS outlook of $1.96 to $2.04. Fiscal 2022 non-GAAP diluted net EPS excludes after-tax adjustments of $0.76 per diluted share, primarily related to transformation costs, stock-based compensation expense, the amortization of intangible assets, and exiting from Russia and Belarus.

Free cash flow⁽²⁾ guidance of $1.7 to $1.9 billion, due to exiting our Russia and Belarus business, and unfavorable currency movements.

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 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.

³ 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 services revenue, related financial services revenue (which includes rental income from operating leases and interest income for capital 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.

⁴ As-a-Service (“AAS”) orders are an overlay across all business segments contributing to HPE’s consumption-based services (both recurring and non-recurring), and includes hardware, as well as GreenLake as-a-Service, Aruba SaaS, CMS SaaS, and other Software assets.

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, High Performance Computing & 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 research & development (“R&D”) and field selling costs (“FSC”) as a percentage of net revenue, 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, R&D and selling, general and administrative (“SG&A”) expenses as a percentage of net revenue, 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 ("CS") offerings. ARR represents the annualized revenue of all recurring net HPE GreenLake services revenue, related financial services revenue (which includes rental income for operating leases and interest income for capital 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", “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 the scope and duration of the novel coronavirus pandemic (“COVID-19”) and the ongoing conflict between Russia and Ukraine, our actions in response thereto, and their impacts 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 tax law changes and related guidance and 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; any projections of the amount, execution, timing, and results of any transformation or impact of cost savings, 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, 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, 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 of COVID-19, and geopolitical events, such as the ongoing conflict between Russia and Ukraine); 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; 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, 2021, 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 July 31, 2022. Hewlett Packard Enterprise assumes no obligation and does not intend to update these forward-looking statements, except as required by applicable law.

(1) The three months ended April 30, 2022 include pre-tax charges of $105 million, primarily related to expected financing receivable credit losses due to the Company’s exit from Russia and Belarus.

(a) During the three and nine months ended July 31, 2022, the Company recorded total pre-tax charges of $36 million and $162 million, respectively, primarily related to the Company's exit from its Russia and Belarus business. For the three months ended July 31, 2022, the charges primarily related to employee severance and abandoned assets, $6 million of which was included in Cost of services and $30 million in Disaster charges in the Condensed Consolidated Statements of Earnings. For the nine months ended July 31, 2022, the charges primarily related to expected credit losses of financing and trade receivables, employee severance and abandoned assets, $99 million of which was included in Financing cost, $12 million in Cost of services, and $51 million in Disaster charges in the Condensed Consolidated Statements of Earnings. During the nine months ended July 31, 2022, Disaster charges also included a recovery of $2 million, related to COVID-19.

(b) Represents the amortization of basis difference adjustments related to the H3C divestiture.