Hewlett Packard : Q1 2022 Earnings Press Release

Hewlett Packard Enterprise

1701 E. Mossy Oaks Road

Spring, TX 77389-1767

hpe.com

News Release

Hewlett Packard Enterprise Reports

Fiscal 2022 First Quarter Results

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-Serviceorders1 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-GAAPof 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-GAAPof $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, Texas - March 1, 2022 - Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for the first quarter, ended January 31, 2022.

"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-GAAPdiluted 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.
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.

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

Editorial contact

Laura Keller

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Investor contact

Andrew Simanek

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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, cash flow from operations, and free cash flow, each excluding litigation judgment, net of taxes paid. 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, or investments in property, plant and equipment 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 value 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", "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"), our actions in response thereto, and its 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 income 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 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 and the ongoing conflict between Ukraine and Russia; the need to effectively manage third-party suppliers, distribute Hewlett Packard Enterprise's products, and deliver Hewlett Packard Enterprise's 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); 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; 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, 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, 2022. Hewlett Packard Enterprise assumes no obligation and does not intend to update these forward-looking statements, except as required by applicable law.