HPE Moves HQ to Houston - Tops Forecasts

December 3, 2020

HPE has made the decision to relocate its headquarters from San Jose, California, to Houston, Texas. HPE’s largest U.S. employment hub, Houston is an attractive market to recruit and retain future diverse talent, and is where the company is currently constructing a state-of-the-art new campus. The Bay Area will continue to be a strategic hub for HPE innovation, and the company will consolidate a number of sites in the Bay Area to its San Jose campus. No layoffs are associated with this move.

Hewlett Packard Enterprise also reported financial results for the fourth quarter, ended October 31, 2020.

The firm had adjusted earnings were 37 cents a share with flat revenue of $7.2 billion. Wall Street was looking for HPE earnings of 34 cents on sales of $6.88 billion.

“Hewlett Packard Enterprise finished the year with a very strong performance,” said Antonio Neri, president and CEO of Hewlett Packard Enterprise. “In Q4 we saw a notable rebound in our overall revenue, with particular acceleration in key growth areas of our business.”

“The global pandemic has forced businesses to rethink everything from remote work and collaboration to business continuity and data insight,” he continued. “Over the last several months, customers have increasingly turned to HPE for our unique capabilities from edge to cloud that help them empower their workforces, deploy resilient new IT solutions and extract insights from critical data, while consuming these solutions more flexibly as a service.”

“Our focused strategy and disciplined execution are delivering results,” said Tarek Robbiati, EVP and CFO of Hewlett Packard Enterprise. “Based on the strong finish to FY20 and increased confidence in profitability going into Q1, we are raising our FY21 EPS guidance.”

Fourth Quarter Fiscal Year 2020 Results

Net revenue of $7.2 billion, flat from the prior-year period. Revenue grew 6% sequentially or 5% when adjusted for currency to pre-pandemic levels as our growth businesses of HPC & MCS and Intelligent Edge executed strongly.

Annualized revenue run-rate (ARR) of $585 million, up 30% from the prior-year period. Based on strong customer demand and recent wins, we are reiterating our 2019 Securities Analyst Meeting ARR guidance of 30-40% Compounded Annual Growth Rate from fiscal year 2019 to fiscal year 2022.

GAAP gross margins of 30.6%, down 260 basis points from the prior-year period and Non-GAAP of 30.6%, down 270 basis points from the prior-year period.

GAAP diluted net earnings per share (“EPS”) was $0.12, compared to $0.36 in the prior-year period and above the previously provided outlook of $0.02 to $0.06 per share.

Non-GAAP diluted net EPS was $0.37, compared to $0.49 in the prior-year period and above the previously provided outlook of $0.32 to $0.36 per share. Fourth quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $329 million and $0.25 per diluted share, respectively, primarily related to transformation costs and amortization of purchased intangible assets.

Cash flow from operations of $747 million, down $685 million from the prior-year period.

Free cash flow of $223 million, down $655 million from the prior-year period and in-line with our guidance.

Segment Results

Intelligent Edge revenue was $786 million, up 6% year over year or 5% when adjusted for currency, with 10.1% operating profit margin, compared to 6.2% from the prior-year period. Revenue grew 15% sequentially or 14% when adjusted for currency. Intelligent Edge best-in-class portfolio was recognized as a leader for the 15^th year in the Gartner Magic Quadrant for wired and WLAN access infrastructure. The Company also expects to take share in both campus switching and WLAN.
High Performance Compute & Mission Critical Systems (HPC & MCS) revenue was $975 million, up 25% year over year, with 12.2% operating profit margin, compared to 10.2% from the prior-year period. Revenue grew 50% sequentially driven by strong performance in Cray, HPC-Apollo and MCS.
Compute revenue was $3.2 billion, down 5% year over year or down 4% when adjusted for currency, with 6.1% operating profit margin, compared to 13.9% from the prior-year period. Revenue was down 6% sequentially or 7% when adjusted for currency but was up low single-digits when adjusted for backlog conversion.
Storage revenue was $1.2 billion, down 3% year over year, with 16.7% operating profit margin, compared to 17.4% from the prior-year period. Revenue grew 8% sequentially or 7% when adjusted for currency driven by strong operational execution, reduction of backlog and momentum in key areas of the portfolio.
Advisory & Professional Services (A&PS) revenue was $245 million, down 9% year over year or 10% when adjusted for currency, with (0.4%) operating profit margin, compared to 0.4% from the prior-year period. Revenue was up 8% sequentially or 6% when adjusted for currency even as COVID-19 impacted consulting activities and chargeability levels of our team members. A&PS is a strategic business that pulls through significant infrastructure and operational services sales.
Financial Services revenue was $849 million, down 3% year over year or 4% when adjusted for currency. Revenue grew 5% sequentially or 2% when adjusted for currency, with 7.7% operating profit margin, compared to 8.4% from the prior-year period. Net portfolio assets were up 2% year over year and flat sequentially. Financing volume was down 6% year over year and up 8% sequentially or up 6% when adjusted for currency despite the impact of COVID-19. The business delivered return on equity of 12.6%, down 2.7 points from the prior-year period.

Dividend

Board of Directors have declared a regular cash dividend of $0.12 per share on the company's common stock. This dividend, the first in Hewlett Packard Enterprise's fiscal year 2021, is payable on January 6, 2021, to stockholders of record as of the close of business on December 9, 2020.

Fiscal 2021 first quarter outlook:

Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $0.02 to $0.06 and non-GAAP diluted net EPS to be in the range of $0.40 to $0.44. Fiscal 2021 first quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.38 per diluted share, primarily related to transformation costs, stock-based compensation and the amortization of intangible assets.

Fiscal 2021 outlook:

Hewlett Packard Enterprise raises GAAP diluted net earnings per share outlook to $0.38 to $0.56 from $0.34 to $0.54 and non-GAAP diluted net earnings per share outlook to $1.60 to $1.78 from $1.56 to $1.76. Fiscal 2021 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $1.22 per diluted share, primarily related to transformation costs, stock-based compensation and the amortization of intangible assets.

Reiterates free cash flow guidance range of $0.9 to $1.1 billion.