Raising FY22 EPS outlook due to robust demand and profitability

Q1 2022 Financial Highlights:

• Orders: Strong customer demand drives order growth up 20% from the prior year period, the third consecutive quarter of more than 20% order growth
  • As-a-Service orders¹ increased 136% from the prior year period
• Revenue: $7.0 billion, up 2% from the prior-year period and in-line with our Q1 outlook
• Gross margins drive improved quality of earnings despite ongoing supply chain constraints
  • GAAP of 33.7%, up 80 basis points sequentially and 20 basis points from the prior year period
  • Non-GAAP of 33.9%, up 90 basis points sequentially and 20 basis points from the prior year period
• Diluted net earnings per share (“EPS”):
  • GAAP of $0.39, above the previously provided outlook of $0.19 to $0.27 per share
  • Non-GAAP of $0.53, above the previously provided outlook of $0.42 to $0.50 per share
• Cash flow from operations of ($76) million and free cash flow of ($577) million, reflecting normal seasonality and strategic inventory actions due to strong customer demand

Capital Returns:

• Returned $284 million to shareholders in the form of share repurchases and dividends
• Declared a regular cash dividend of $0.12 per share, payable on April 8, 2022

Outlook:

• Reiterates fiscal 2022 revenue growth of 3-4% adjusted for currency
• Second quarter Fiscal 2022: Estimates GAAP diluted net EPS to be in the range of $0.18 to $0.26 and non-GAAP diluted net EPS to be in the range of $0.41 to $0.49
• Fiscal 2022: Raises both GAAP and non-GAAP diluted net EPS to be in the range of $1.36 to $1.50 and $2.03 to $2.17, respectively
• Fiscal 2022 free cash flow²: Reiterates free cash flow guidance to be in the range of $1.8 to $2.0 billion

HOUSTON — (BUSINESS WIRE) — March 1, 2022 — Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for the first quarter, ended January 31, 2022.

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Hewlett Packard Enterprise reports Q1 FY22 results (Graphic: Business Wire)

“The quarter was characterized by robust customer demand and profitability, demonstrating the strength of our differentiated edge-to-cloud strategy and portfolio innovation,” said Antonio Neri, president and CEO of Hewlett Packard Enterprise. “It is clear from strong customer feedback and momentum across our businesses that we are increasingly well positioned to capitalize on the significant megatrends through our HPE GreenLake platform.”

“We are off to a strong start delivering against our FY22 commitments with our third quarter in a row of more than 20% year-over-year order growth bolstering our confidence for sustained revenue growth,” said Tarek Robbiati, EVP and CFO of Hewlett Packard Enterprise. “We are also delivering a better quality of earnings demonstrated by our improved gross margin despite ongoing supply chain constraints that enabled us to deliver Q1 EPS well above our outlook range and raise our outlook for the full year.”

First Quarter Fiscal Year 2022 Results

Net revenue of $7.0 billion, down 5% sequentially and up 2% from the prior-year period which is in-line with normal sequential seasonality.

Annualized revenue run-rate (“ARR”)³ of $798 million, up 23% from the prior-year period and total as-a-Service orders¹ were up 136% from the prior-year period. Based on strong customer demand and growth in orders, we reiterate our 2021 Securities Analyst Meeting ARR guidance of 35-45% Compounded Annual Growth Rate from fiscal year 2021 to fiscal year 2024.

GAAP gross margins of 33.7%, up 80 basis points sequentially and 20 basis points from the prior-year period, and non-GAAP gross margins of 33.9%, up 90 basis points sequentially and 20 basis points from the prior-year period.

GAAP diluted net EPS was $0.39, compared to $0.17 in the prior-year period and above the previously provided outlook of $0.19 to $0.27 per share.

Non-GAAP diluted net EPS was $0.53, compared to $0.52 in the prior-year period and above the previously provided outlook of $0.42 to $0.50 per share. First quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $184 million and $0.14 per diluted share, respectively, primarily related to stock-based compensation expense, transformation costs, and the amortization of intangible assets.

Cash flow from operations of ($76) million, down $1.0 billion from the prior-year period.

Free cash flow of ($577) million, down $1.1 billion from the prior year reflecting normal seasonality and strategic working capital actions due to strong customer demand.

Capital returns to shareholders of $284 million in the form of share repurchases and dividends.

Segment Results

• Intelligent Edge revenue was $901 million, up 11% from the prior-year period in actual dollars and when adjusted for currency, with 17.4% operating profit margin, compared to 19.0% in the prior-year period. Aruba Services revenue was up double-digits from the prior-year period and Intelligent Edge as-a-Service ARR³ was up strong double-digits from the prior-year period.
• High Performance Computing & Artificial Intelligence (“HPC & AI”) revenue was $790 million, up 4% from the prior-year period in actual dollars and when adjusted for currency, with (0.9%) operating profit margin, compared to 5.7% from the prior-year period. The slight operating loss was driven by delayed customer acceptances and supply chain constraints. We remain on track to exceed the expected 11% market CAGR from FY21-24.
• Compute revenue was $3.0 billion, up 1% from the prior-year period or flat when adjusted for currency, with 13.8% operating profit margin, compared to 11.4% from the prior-year period. Margin expansion was driven by strategic pricing actions more than offsetting rising input costs.
• Storage revenue was $1.2 billion, down 3% from the prior-year period in actual dollars and when adjusted for currency, with 14.5% operating profit margin, compared to 19.6% from the prior-year period reflecting supply chain constraints, particularly in HPE-owned IP offerings.
• Financial Services revenue was $842 million, down 2% from the prior-year period or 1% when adjusted for currency, with 12.4% operating profit margin, compared to 9.8% from the prior-year period. Net portfolio assets of approximately $13.0 billion, down 3% from the prior-year period or flat when adjusted for currency. The business delivered return on equity of 19.7%, up 3.2 points from the prior-year period.

Dividend

Board of Directors has declared a regular cash dividend of $0.12 per share on the company’s common stock, payable on April 8, 2022, to stockholders of record as of the close of business on March 11, 2022.

Fiscal 2022 second quarter outlook:

Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $0.18 to $0.26 and non-GAAP diluted net EPS to be in the range of $0.41 to $0.49. Fiscal 2022 second quarter non-GAAP diluted net EPS estimates exclude after-tax adjustments of approximately $0.23 per diluted share, primarily related to transformation costs, stock-based compensation expense and the amortization of intangible assets.

Fiscal 2022 outlook:

Hewlett Packard Enterprise raises GAAP diluted net EPS outlook of $1.36 to $1.50 and non-GAAP diluted net EPS outlook of $2.03 to $2.17. Fiscal 2022 non-GAAP diluted net EPS estimates exclude after-tax adjustments of approximately $0.67 per diluted share, primarily related to transformation costs, stock-based compensation expense and the amortization of intangible assets.

Reiterates free cash flow² guidance of $1.8 to $2.0 billion.

¹ 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.