Hewlett Packard Enterprise Company

Good day and welcome to the fourth quarter 2020 Hewlett Packard Enterprise Earnings Conference Call. My name is Cole and I'll be your conference moderator for today's call. At this time, all participants will be in a listen-only mode. We'll be facilitating a question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. And as a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Andrew Simonak. Vice President of Investor Relations. Please proceed.

Great. Thanks, Cole. Good afternoon, everyone. I'm Andy Simonik of Investor Relations for Hewlett Packard Enterprise. I'd like to welcome you to our fiscal 2020 fourth quarter earnings conference call with Antonio Neri, HPE's President and Chief Executive Officer, and Tarek Robyadi, HPE's Executive Vice President and Chief Financial Officer. Before handing the call over to Antonio, let me remind you that this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately one year. We posted the press release and the slide presentation accompanying today's earnings release on our HPE investor relations webpage at investors.hpe.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, Please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. For discussion of some of these risks, uncertainties, and assumptions, please refer to HPE's filings with the SEC, including its most recent Form 10-K and Form 10-Q. HPE assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HPE's annual report on Form 10-K for the fiscal year ended October 31, 2020. Also, for financial information that has been expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website. please refer to the tables and slide presentation accompanying today's earnings release on our website for details. Throughout this conference call, all revenue growth rates, unless noted otherwise, are presented on a year-over-year basis and adjusted to exclude the impact of currency. Finally, please note that after Antonio provides his high-level remarks, Tarek will be referencing the slides and our earnings presentation throughout his prepared remarks. As mentioned, the earnings presentation can be found posted to our website and is also embedded within the webcast player for this audience call. With that, let me turn it over to Antonio.

Well, thanks, Andy, and good afternoon, everyone. Thank you for joining us today, and I hope everyone is staying safe and healthy. Hewlett Packard Enterprise finished the year with a very strong performance. In Q4, we saw a notable rebound in our overall revenue, with particular acceleration in key growth areas of our business. As we reviewed at the last month's Securities Analyst Meeting, we are focused on a set of strategic priorities to drive long-term sustainable profitable growth and accelerating sustainable profitable growth. This includes stabilization of our core businesses, doubling down in areas of growth, and accelerating our pivot towards the service, while taking decisive action to strengthen our financial foundation and become a more agile company. We executed with precision on these strategic priorities, and I'm proud of the results in what has been a very challenging fiscal year 20. Let me review a few Q4 highlights. First, our total revenue of $7.2 billion returned to pre-pandemic levels, up 5% sequentially and flat on a year-over-year basis. We saw increased new orders momentum across all business segments of our company. As I stated in our Q3 earnings, we expect continued gradual performance improvement moving forward. As expected, we return our backlog to normalized levels this quarter. In compute, revenue declined 7% sequentially, but was up low single digits when normalized for backlog over the last two quarters. We are encouraged by new orders intake that point to stabilization in this business, taking into account the typical Q1 seasonality. Most importantly, if you look at the combined server view across compute and HPC MCS businesses, which is how the market tracks server performance, our total net revenue in the server market will be up 3% sequentially and up 1% year over year. As a result, we believe we gain share in total server for the second consecutive quarter. In storage, revenue grew 7% sequentially to $1.2 billion. We also expanded our operating profit to 16.7%, an improvement of 380 basis points sequentially. And within the target profitability range of 16 to 18%, we discuss a sum. In both compute and storage, we draw a higher level of operational services intensity consistent with prior quarter performance. In Q4, we accelerated our business performance in key growth businesses. In Intelligent Edge, revenue rebounded to $786 million, up 14% sequentially and 5% year over year. This business performed exceptionally well against the market backdrop. High-performance compute and mission-critical system had an outstanding quarter, recording revenue of $975 million. This business grew 50% sequentially and 25% year over year. Our Pivot2 as a service continues its strong momentum. Our annualized revenue run rate of $585 million was up 11% sequentially and 30% year over year. The on-premises as a service market is growing rapidly, especially in the hybrid environment, and remains a significant long-term value driver for us and our shareholders. Through strong operational execution, we delivered non-GAAP earnings per share of $0.37, up 16% sequentially and above the high end of our guidance. Free cash flow of $223 million was in line with our Q3 and some guidance. Additionally, we declared our Q1 dividend today, which will be paid on January 6th. As we have said in the past, dividends remain an important part of our capital allocation framework that consists of capital returns to shareholders and strategic investments that together drive long-term shareholder value. Based on the strong finish to fiscal year 20 and increased confidence in profitability going into Q1, we are raising our fiscal year 21 non-GAAP EPS guidance by 3 cents at the midpoint. Tarek will review our financial performance and outlook in greater detail, but I will first provide some context around our execution and customer reactions to our approach and offerings. The global pandemic has forced businesses to rethink everything from remote work and collaboration to business continuity and data insight. Over the last several months, we have seen growing momentum in our businesses as customers increasingly turn to HPE for capabilities from edge to cloud. A unique set of capabilities help our customers empower their workforces, deploy new resilient IT solutions, and extract insights from critical data while leveraging and consuming these solutions more flexibly as a service. We continue to strengthen our core businesses in compute and storage, which provide critical capabilities to customers and are foundational to our edge-to-cloud platform as a service strategy. In Compute, the team did an outstanding job of driving supply chain efficiencies and clearing the historical levels of backlog. We will continue our focus on streamlining processes to enhance productivity in this high volume business. We are a market leader in Compute, and we are being deliberate in our focus on gaining market share in profitable market segments. This quarter, we became the first company to embed silicon-based security into our industry standard servers being manufactured through our HP trusted supply chain in the United States. This security is critical to a growing number of U.S. customers across federal, public, banking, and finance and healthcare verticals. We also launched a new HP inference solution on HP ProLiant servers in conjunction with Red Hat and NVIDIA to accelerate machine learning directed at the AI and containers market. In storage, we have been on a multi-year journey to create an intelligent data platform from edge to cloud and pivot to software as a service data storage solutions, which enable higher level of operational services attached and margin expansion. And our strategy is getting traction. Our portfolio is well-positioned in high-growth areas like all-flash array, which grew 29% year-over-year, big data storage, which had its sixth consecutive quarter of growth, up 41% year-over-year, and hyper-converged infrastructure, where Nimble DHCI, a new hyper-converged solution, continued momentum and gained share, growing 280% year-over-year. We also committed to doubling down in growth businesses and investing to fuel future growth. The intelligent edge is a critical segment where we declare the opportunity early on and are increasingly differentiated. At the edge, customers need secure, seamless connectivity to bridge the digital physical worlds and the ability to generate actionable analytics where the data is created. This is why Aruba is seeing traction and gaining market share with a leading high and highly differentiated portfolio of solutions such as our cloud native Aruba Edge Services platform, which also contributes to ARR growth. For example, the Pentagon is modernizing both its classified and unclassified networks to support tens of thousands of devices daily using Aruba ESP-based architecture. Comcast also chose our Aruba ESP to power its new Comcast Business Teleworker VPN. The service supports and secures multiple endpoints in a remote work site, including laptops, desktops, voice over IP phones, and printers. And partners can centrally manage remote workers and all its infrastructure from a single Aruba ESP cloud console. This quarter, we expect to take share in both campus switching and wireless LAN with our best-in-class portfolio. which was just recognized as a leader for the 15th year in the Gartner Magic Quadrant for wire and wireless LAN infrastructure. Finally, toward the end of Q4, we closed the acquisition of Silver Peak, which will accelerate Aruba SD-WAN growth in an attractive market growing over 20% and enable our edge-to-cloud platform as a service vision. Silver Peak brings industry-leading technology and was named a leader in the Gartner 2020 Magic Quadrant for one edge infrastructure. We believe the explosion of devices, applications, and data at the edge will continue to drive demand for secure connectivity, cloud computing capabilities, and analytics, especially in a post-COVID world. Another high-growth segment where we are extremely well-positioned is in high-performance computing. In Q4, we performed exceptionally well across the portfolio with growth in Cray products, mission-critical systems, operational support services, and HP Apollo. The team did an outstanding job in converting the existing backlog and new orders to drive the record quarter-breaking nearly billion-dollar revenue. Q4 marked our first full quarter of Cray operational activity integrated into HP systems. And the combination of Cray and HPE is driving increased revenue and cost synergies. We signed several large customer deals during the quarter, including pre-extrascale system design wins that will use the HPE Cray EX supercomputers. These wins include a $34 million contract with a POSI supercomputer center in Australia and a $160 million contract with a European high-performance joint undertaking initiative to deliver one of the world's fastest supercomputers that will be used by 10 European countries. We extended our number one market position on HPC with 37% market share as of calendar Q2 data, which is 10 points above the next closest competitor. According to the list of the top 500 supercomputers released two weeks ago, HPE and Cray systems make 39 of the top 100 systems more than any other company. In addition, our HPE Apollo systems had its highest revenue quarter ever. As an example of the traction we are seeing with our Apollo value proposition, Mercedes-Benz Grand Prix, constructor of the Mercedes-AMG patronized Formula One team, signed a deal for the new Apollo system. Modeling and simulations are about gaining a competitive advantage on the track, and our HPE technology is critical to this team's race strategy. Going forward, we are working to bring high-performance computing power to everyday enterprise environments. Stay tuned for more announcement on this front in the coming few weeks. Consumption-based solutions provide an attractive alternative for customers looking to drive innovation and modernize infrastructure without the capital and operational expenses tied to over-provisioning. We are a leader in on-premises as a service, and have been investing in our HP software platform and HP GreenLake managed services offerings to enable a true consumption-based experience that is unique. Customers are recognizing our differentiated products and services, which can be seen in our other service order growth of 20% year over year. This quarter, we continue to expand our offerings and introduce HP GreenLake VDI cloud services. Building on the success, of our ready-to-go virtual desktop infrastructure solutions launched early in the year to help customers with immediate connectivity needs. This new solution provides configurations that are optimized for each type of remote worker. Customers can easily scale usage up and down, which is a compelling and critical capability in today's environment. By leveraging expanded partnership with Citrix, Nutanix, NVIDIA, VMware, and Wipro, we can offer comprehensive solutions to an expanded customer base. Our advanced capabilities are driving strong customer demand across diverse markets and industry. We recently announced several new customers. Nokia software is using HP GreenLake Cloud services to embed further cost and energy savings into its data storage portfolio. MicroGen, a leading precision medicine and biotechnology company, selected HP GreenLake to modernize its IT operations to analyze large-scale medical data on-premises. YF Life Insurance, a fast-growing fintech company based in Hong Kong, also selected HP GreenLake to strengthen its online sales platform, applications, and fintech support systems. The momentum we are realizing in each of these areas is possible because of our focus strategy and discipline execution. By innovating and investing in the most impactful areas and optimizing how we manage our own business, we are ensuring we are in the best possible position to help our customers manage theirs. Early in the pandemic, we recognized there was no going back to what used to be, only preparing for and building what comes next. This is one of the reasons we have made the recent decision to relocate HPE's headquarters to Houston. We have listened to our team members' preferences about the future of work and reimagined our real estate site to optimize and improve how both physical and virtual office spaces are used in this new area. Houston has long been HPE's largest U.S. employment hub, and we are currently constructing a state-of-the-art new campus. Obviously, we intend to maintain our innovation tech hub in San Jose, California. Our Aruba headquarters will be housed within our digitally-enabled San Jose site, so storage and software. There will be no layoff associated with this move and consolidation. We are committed to both markets as critical parts of our talent and real estate strategy in a post-pandemic world. As we have been transforming how we work, we have also recognized that we have an enormous opportunity to help customers transform and digitize their business to adapt and operate in a new world. Business continuity and success depend on solutions that advance IT resiliency, empower more workforces securely, extend connectivity, reinvigorate customer engagement, and enable business model evolution. Against this backdrop, HP has delivered despite the challenges challenging circumstances. We have brought new capabilities and experiences to our customers to meet their emerging needs. We have invested in both organic innovation and M&A that strengthen and differentiate our position in the market. We have acted quickly to protect our financial foundation and become a more agile company. And we have remained committed to our culture. We have asked a lot to our team. this year and I am personally immensely proud and grateful for the significant courageous contribution. There is no question there is more work to be done, but our customers have validated our vision and we have demonstrated in Q4 and throughout 2020 that we have the right team and the right strategies in place to execute on that vision. While there is remains continue uncertainty in the world, there is also a great deal of promise and optimism. The HPE we created five years ago has an important role to play in the world's recovery from an unprecedented pandemic. That presents an opportunity for our company and for our investors. I am confident we will continue to rise to the occasion and deliver in bold new ways. With that, let me turn it over to Tarek to review the quarter's results.