HPE Delivers Q1 Results & Raises FY19 EPS Outlook

Information about HPE’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below.

Financial Summary

First quarter net revenue of $7.6 billion, in-line with guidance, down 2% from the prior-year period, and down 1% when adjusted for currency. First quarter net revenue was up 1% from the prior-year period, excluding Tier-1 server sales.

First quarter GAAP operating profit of $456 million, up 100% from the prior-year period.

First quarter non-GAAP operating profit of $669 million, up 19% from the prior-year period driven by 280 bps of gross margin expansion and cost reductions from HPE Next.

First quarter GAAP diluted net earnings per share (“EPS”) from continuing operations was $0.13, down from GAAP diluted net EPS from continuing operations of $0.92 in the prior-year period primarily due to one-time, non-cash adjustments related to U.S. tax reform.

First quarter non-GAAP diluted net EPS from continuing operations was $0.42, up from non-GAAP diluted net EPS from continuing operations of $0.32 in the prior-year period. First quarter non-GAAP net earnings from continuing operations and non-GAAP diluted net EPS from continuing operations exclude after-tax adjustments of $413 million and $0.29 per diluted share, respectively, primarily related to the impact of U.S. tax reform, tax indemnification adjustments, transformation costs, amortization of intangible assets, acquisition, disposition and other related charges and an adjustment to earnings from equity interests.

First quarter cash flow from operations of $382 million and free cash flow of ($190) million, was up $240 million and $222 million from the prior-year period, respectively.

Segment Results

HPE delivered strong performance in the key areas of the portfolio.

  • Intelligent Edge delivered robust growth in this strategically important segment. Revenue was $686 million, up 5% year over year, with 1.3% operating margin. HPE Aruba Product revenue was up 3% with balanced growth across wired and WLAN. HPE Aruba Services revenue was up 20%.
  • Hybrid IT continued to drive profit growth with revenue of $6.0 billion, down 3% year over year with 11.3% operating margin that was up 200 bps year over year. Compute revenue was down 3%. Excluding the impact from the company’s intentional exit of certain Tier-1 customer segments, Compute revenue grew 3% and HPE’s high-margin Value Compute portfolio grew approximately 20% driven by strength in high-performance compute, hyper-converged and composable. Storage revenue was up 3%, with particular strength in All-Flash Arrays, which grew 20%. HPE Pointnext revenue was down 6%, primarily due to the company’s intentional exit of certain geographies, and a strong book to bill of 110% indicates a strong pipeline of recurring revenue and profits.
  • Financial Services revenue was $919 million, up 3% year over year and up 6% when adjusted for currency, net portfolio assets were down 2% year over year and up 2% when adjusted for currency, and financing volume was down 3% year over year and flat when adjusted for currency. The business delivered an operating margin of 8.4%.

Raised FY 2019 Outlook

For the fiscal 2019 second quarter, Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $0.19 to $0.23 and non-GAAP diluted net EPS to be in the range of $0.34 to $0.38. Fiscal 2019 second quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.15 per diluted share, primarily related to transformation costs and the amortization of intangible assets.

For fiscal 2019 full-year, Hewlett Packard Enterprise now estimates GAAP diluted net EPS to be in the range of $0.88 to $0.98 and the non-GAAP diluted net EPS to be in the range of $1.56 to $1.66. Fiscal 2019 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.68 per diluted share, primarily related to transformation costs, the amortization of intangible assets, and an adjustment to earnings from equity interests.

For fiscal 2019 full-year, Hewlett Packard Enterprise reiterates free cash flow guidance range of $1.4 to $1.6 billion, up over 35% from the prior year.

About Hewlett Packard Enterprise

Hewlett Packard Enterprise is a global technology leader focused on developing intelligent solutions that allow customers to capture, analyze and act upon data seamlessly from edge to cloud. HPE enables customers to accelerate business outcomes by driving new business models, creating new customer and employee experiences, and increasing operational efficiency today and into the future.

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 as well as non-GAAP operating expense, non-GAAP operating profit, non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net earnings from continuing operations, non-GAAP net earnings from discontinued operations, non-GAAP diluted net earnings per share from continuing operations, non-GAAP diluted net earnings per share from discontinued operations, gross cash, free cash flow, net capital expenditures, 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, operating profit, operating margin, net earnings from continuing operations, net earnings from discontinued operations, diluted net earnings per share from continuing operations, diluted net earnings per share from discontinued operations, 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.

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