Hewlett Packard Enterprise Company

Good afternoon and welcome to the fourth quarter fiscal 2021 Hewlett Packard Enterprise earnings conference call. My name is Gary and I'll be your conference moderator for today's call. At this time, all participants will be in listen only mode. We will be facilitating a question and answer session towards the end of the conference. Should you need assistance during the call, please signal the conference specialist by pressing the star key followed by zero. As a reminder, This conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Andrew Siminek, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone. I'm actually Jeff Qual of Investor Relations. I'm filling in for Andy today. I'd like to welcome you all to our fiscal 2021 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 a discussion of some of these risks, uncertainties, and assumptions, please refer to HPE's filings with the SEC, including its most recent Forms 10-K and Form 10-Q. HPE assumes no obligation and does not intend to update any such forward statements. We also know 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 quarterly report on Form 10Q for the fiscal quarter ended January 31st, 2021. Also, for financial information that has been expressed on a non-GAAP basis, we have provided reconciliations to the comparable gap 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 otherwise noted, are presented on a year over year basis and are adjusted to exclude the impact of currency. Finally, we will be referencing the slides and our earnings presentation throughout our prepared remarks. As mentioned, the earnings presentation can be found posted to our website and is also embedded within the webcast player for this earnings call. With that, let me turn it over to you, Antonio.

Well, thanks, Jeff, and good afternoon, everyone. Thank you for joining our call today. And for those of you who attended our virtual security analyst meeting last month, thank you. We appreciate the opportunity to discuss how our edge-to-class strategy positioned us to capture an expanded market opportunity and accelerate shareholder value creation. HP ended fiscal year 2021 with strong momentum. Customers are responding to our H2 Cloud value proposition as evidenced by the record demand for our solutions. Demand accelerated in the second half of the year, driving fiscal year 2021 orders growth of 16% year over year. Revenue of $27.8 billion in fiscal year 21 grew in line with our long-term outlook up 1% year over year. In fiscal year 2021, we executed very well, which enabled us to exceed our commitments across all financial metrics, even with a substantial order backlog. Our as-a-service annualized revenue run rate, or AIR, of $796 million was up 36% year over year. We significantly improved our gross and operating margins, which increased our fiscal year 2021 revenues non-GAAP operating profit by 25% year-over-year. We delivered fiscal year 21 non-GAAP diluted net earnings per share of $1.96 up 27% year-over-year. And we generated fiscal year 2021 free cash flow of $1.6 billion up $1 billion year-over-year, which translates to growth of 177%. This was a very strong performance, and it was particularly impressive against the backdrop of industry-wide supply constraints, which continue to challenge our ability to convert orders to revenue as quickly as we would like. We have a world-class global operations team that continues to work closely with a long-standing, diverse network of suppliers. We continue to take proactive inventory measures to better position us to deliver against this robust customer demand. Our resulting Q4 strengthened the momentum we have as we enter fiscal year 22. Increased demand in the quarter drove orders growth of 28% year-over-year, with particular strength in our as-a-service orders, which grew an impressive 114% year-over-year, including a large network as-a-service win. We also saw record levels of orders in key growth areas, including intelligent edge, high-performance computing, and artificial intelligence businesses. We delivered $7.4 billion in total Q4 revenue, which was up 7% sequentially and above normal sequential seasonality. We expanded our gross and operating margins, increasing our Q4 non-GAAP diluted net earnings per share by 27% year-over-year. And we generate a Q4 free cash flow of $94 million in line with the outflow we provide at the end of Q3. Tarek will take you through our quarterly results in detail, but I would like to spend a little more time putting a full fiscal year in context for you. Our fiscal year 2021 results prove the relevance of our strategy to customers and the traction of our transformation to become the edge-to-cloud company. As we discussed at our security analyst meeting last month, HPE is at the center of several compelling megatrends. The explosion of data at the edge, the mandate for a cloud experience everywhere, and the need to extract value from data to generate insights. HPE's differentiated edge-to-cloud strategy uniquely positioned us to capitalize on these trends and capture growing profitable markets. Our solutions and services help customers overcome the challenges of multi-generation IT and enable them to access, control, and maximize the value of all the workloads and data everywhere. We are executing with focus and speed delivered against our vision and strategy. We are making strategic investments and taking deliberate steps to continue to shift our business. And as I have said previously, this transformation is my number one priority and I'm proud of the progress we have made in fiscal year 21. Our Intelligent Edge business grew fiscal year 21 revenue 13% year-over-year with orders exceeding, for the first time, $4 billion. Customer demand was up strong double digits year-over-year as more customers looked for ways to create new digital experiences at the edge and capitalize on the data generated there. But the industry-wide component shortages kept us from converting our full order momentum to revenue in Q4. and we ended fiscal year 2022 with record levels of backlog. Our market leadership at the edge remained very strong. HPE was positioned as one of the leaders in the magic quadrant Gartner provides for wireless access network edge infrastructure, which is notable because HPE is only one of the two companies to be positioned in the leader quadrant four years in a row. We continue to drive strong innovation in this business. In Q4, we introduced the industry-first distributed services switch, which brings software-defined services and security right where the data is created and processed. Developed in partnership with Pensando, this solution eliminates legacy appliances and hosts software needed to build the hybrid cloud demand demanded by modern applications and IT organizations. In Q4, we closed the largest network as a service deal in HP history to help a large U.S. retailer enhance its customer and employee experience throughout its stores. In addition, the Major League Soccer franchise FC Cincinnati standardized on Aruba at the TQL Stadium to deliver next-generation digital cashless, contentless, fun, and event experiences. The franchise deployed a name-to-end Aruba Edge Services platform network at its new 26,000-seat stadium to power this game day and special event experiences. Orders of HPE's high-performance computing and AI offerings were also up strong double digits year over year. This record level of demand has generated an order book of awarded contracts now at $2.7 billion, excluding the important $2 billion win with the U.S. National Security Agency. HPE expanded our number one market position in HPC with 37% market share as of calendar Q2 data, which is more than 14 points above the closest competitor. And according to the list of the top 500 supercomputers released just two weeks ago, 33 of the top 100 most powerful supercomputers in the world were built by HPE. This is more than any company. At the end of Q4, the National Energy Research Scientific Computing Center, NERSC, at Berkeley's lab, accepted the first phase of the Permuter supercomputer. Powered by the HPE Cray EX system, Permuter introduced a new generation of supercomputing capabilities to more than 8,000 scientists performing research for the U.S. Department of Energy Office of Science. HP is uniquely positioned to bring the AI, deep learning, and data analytics capabilities of our most advanced supercomputers to mainstream enterprises through the HP GreenLake platform. In Q4, we announced that ENI, a global energy company, selected HP GreenLake to upgrade its existing HP supercomputer. Through HP GreenLake, ENI can accelerate discovery of new energy sources with more accurate modeling and simulations, as well as become more sustainable by monitoring utilization and energy consumption within an as-a-service solution. We continue to strengthen our compute and storage businesses, where we saw strong orders and profitability in fiscal year 2021. In compute, orders increased more than 10% in fiscal year 21, and we deliver operating margins of 10.8% at 260 basis points year-over-year. We are making bold moves to transform our storage business into a cloud-native data services business, which resulted in a high single-digit order growth and gross margin expansion, up 130 basis points year-over-year. And we continue to see high services attach rate, helping enable HP Point Next orders to increase mid-single digits in fiscal year 21. This contributed to the overall performance of HP Point Next, which ended fiscal year 21 with a book-to-bill ratio of 1.15 of revenues, highlighting the potential for future revenue growth in fiscal year 22 and beyond. In fiscal year 2021, we generated strong momentum in our transformation to an as-a-service company. Our company as-a-service orders increased 61% year-over-year, with HP GreenLake orders increasing 46% year-over-year. Our as-a-service annualized revenue run rate, or AIR, of $796 million was up 36% year over year. The growth of our AIR is particularly noteworthy because this recurring revenue stream is high quality and high margin. During our security analyst meeting last month, Tarek shared that more than 60% of our AIR mix is software and services. and we believe that Portia will grow to more than three quarters in the next three years. Our AIR gross margins are well above our corporate average gross margins today, and the addition of high-value software content will drive margins even higher. Our Pivot to Analysis Service Company is enabled by HP Financial Services, which increased fiscal year 2021 financing volume 3% year-over-year, driven by strong growth within HP GreenLake. We continue to advance our leadership in our HP GreenLake offering. In September, we introduced HP GreenLake for data protection, which are cloud services designed to protect data across edge to cloud, overcome ransomware attacks, and deliver rapid data recovery. This new set of solutions marks our entry into the growing data protection as a service market. Our acquisition of Zerto enabled us to add market-leading data protection to our cloud services portfolio to help enterprises take cyber threats and ransomware attacks head on. We also launched HPE GreenLake for data analytics, which includes the industry-first unified modern hybrid analytics and data lake platform. This strategically important solution positions HPE in the growing unified analytics market and helps customers accelerate modernization initiatives for all data across edge to cloud. We continue to see incredible response to our HP GreenLake offering. We added more than 300 new GreenLake customers during fiscal year 21, bringing our customer count to more than 1,250. New GreenLake logos represent an increasing share of orders, with approximately one quarter of Q4 GreenLake orders coming from new customers. Today, more than 900 partners sell HP GreenLake, one of the largest partner ecosystems selling as-a-service offerings in the industry. We added more than $1.5 billion of GreenLake total control value over the last year, bringing the total to more than $5.7 billion. Examples of new GreenLake logos include Trinqueiro Family Estates, the second largest family-owned winery in the world, which adopted HP GreenLake through our channel partner PKA Technologies to add flexibility and scale its capacity to meet the increasing demand of automation. The HP GreenLake solution powers the wine industry automated warehouse, where approximately 60 different types of wines are produced, bubbled, packaged, and prepared for shipping while reducing overall IT costs. We also want to deal with ONGC, India's largest oil and natural gas company. which is using the HPE GreenLake platform to make one of the largest SAP implementations in the world more manageable and flexible. Our Q4 rounded out an impressive year for HPE, and I'm proud of all we have accomplished. We have made incredible progress in transforming to become the edge to cloud leader, executing our strategy to help customers in truly differentiated ways, and position ourselves for sustainable, profitable growth for shareholders. At the same time, we have advanced our ESG initiatives, which in Q4 earn us a position on the highly competitive Dow Jones Sustainability World Index, placing in the 98th percentile. We exceeded our commitments in fiscal year 21, and our momentum is strong as we enter fiscal year 22 with a strategy more relevant to customers than ever before and a sharp focus on execution. With that, I will turn it over to Tarek to share additional details about the quarter. Tarek, over to you.