Hewlett Packard Enterprise Company

Good day, and welcome to the first quarter fiscal 2022 Hewlett-Packard Enterprise Earnings Conference Call. My name is Chuck, and I'll be your conference moderator for today's call. At this time, all participants will be in a listen-only mode. We will be facilitating a question and answer session towards the end of our conference. Should you need assistance during the call, please signal a 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 conference over to your host for today's call, Mr. Andrew Simonik, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon. I'm Andy Simonik of Investor Relations for Hewlett Packard Enterprise. I'd like to welcome you to our fiscal 2022 first quarter earnings conference call with Antonio Neri, HPE's President and Chief Executive Officer, and Tarek Robiotti, 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 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 quarterly report on Form 10Q for the fiscal quarter ended January 31, 2022. Also, for financial information that has been expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our websites. 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, 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 earnings call. With that, let me turn it over to Antonio.

Thanks, Andy, and good afternoon, everyone. Thank you for joining us today. Before I discuss our results, I would like to address the evolving situation in Ukraine and how we are responding. Our first priority in the region is the safety of our team members, our contingent workers, and their immediate families. We are conducting regular, proactive outreach to our workforce in Ukraine to offer emergency assistance, making our security team available 24 by 7 to help. The HPE Foundation has established a special giving campaign for our team members to support humanitarian efforts in Ukraine, which has already raised $150,000 in just over 24 hours. And we are expanding the time off we offer team members to volunteer so those in the regions can care for their families and participate in humanitarian relief activities. From the business perspective, we have suspended all shipments into Russia at this time and will continue to adhere to all relevant sanctions and export controls. Now, let me review our results for the first quarter of fiscal 2022. Hewlett Packard Enterprise delivered a solid performance. The quarter was characterized by robust customer demand and profitability, demonstrating the strength of our differentiated edge-to-cloud strategy and our portfolio innovation. Our business pivot is further strengthening our growth and operating margins. As a result of our overall performance this quarter, we are increasing our outlook for non-GAAP diluted net earnings per share for the full fiscal year 2022. In Q1, we saw order growth of 20% from the prior year period, including a 136% rise in other service orders. We increased total HP revenue by 2% year-over-year to $7 billion, despite continued industry-wide supply constraints, which slowed our ability to convert orders and record-breaking backlog to revenue. We generated non-GAAP gross profit margins of 33.9%, higher than the prior quarter and prior year. I'm particularly pleased that we delivered 11% non-GAAP operating margins. Free cash flow was negative $577 million in the quarter, reflecting normal seasonality and proactive actions we continue to take to further buffer inventories in order to meet robust customer demand and forward-looking growth. The performance we delivered this quarter was noteworthy in a microenvironment that continues to be defined industry-wide by supply shortages and overloaded logistic channels. Our global operations team is mitigating the impact by prudently building inventory where appropriate and leaning on our long-standing supply relationships. We continue to utilize our world-class supply chain engineering capabilities to adjust the type of components we use, shifting to those that are more readily available. We are not seeing any noticeable order cancellations from customers due to elongated delivery times. and will continue to take pricing actions in this inflationary environment. As we discussed previously, we expect supply constraints will likely last well into the second half of calendar year 2022. Demand for our differentiated edge-to-cloud products and solutions continues to be very strong. With Q1 marking the third consecutive quarter, we have generated year-over-year order growth above 20%. This was also the second conservative quarter that our asset service orders more than doubled year over year. Customers are turning to HP for a differentiated portfolio, adopting our solutions to drive their transformation at a faster and faster pace. Several key technology trends that are shaping the IT industry are aligned directly with our strategy to become the S2 Club company through our HP GreenLake platform offerings. The Edge is creating new sources of data. Our customers need secure connectivity to power the emerging distributed enterprise with remote workforces while delivering new digital experience to their shareholders. The world is hybrid. Cloud is an experience that customers increasingly expect to have wherever their workloads live. The result is a growing demand for multi-cloud experiences, including clouds that live on-premises, at the Edge, in co-locations, or in a public cloud. We have entered the age of insight, and data is the most precious asset. Digital transformation is creating new possibilities for enterprises, and customers need solutions to extract insights from the data to accelerate business outcomes. And when customers tell us they want to address this market shift, they are increasingly looking to do so through a flexible as-a-service consumption model that enables them to pay only for the IT they use. Customers seeking to capitalize on these market trend opportunities are turning to HP GreenLake as the platform of choice. As always, Tarek will provide details about the business results for each of our segments. I will note a few highlights that underscore our performance this quarter, as well as our innovation interaction with customers. Customers' requirement for a unified operating experience across edge to cloud and the desire to consume IT in a flexible way is fueling the tremendous orders growth of our HP GreenLake H2 Cloud Platform, which saw record demand in Q1, with other service orders up 136% year-over-year. During the quarter, we added more than 100 new HP GreenLake customers, bringing the total count to more than now 1,350 customers who have adopted the HP GreenLake platform because of its compelling value proposition. Among the new HP GreenLake customers we announced in Q1 was Barclays, which is using HP GreenLake to deliver its private cloud platform as a part of the bank's hybrid multi-cloud strategy and digital transformation across its global banking businesses. The traction we are seeing in the market for HP GreenLake is driving us to further accelerate the transformation of HP into an H2 Cloud company. On March 22nd, we will unveil significant new innovations and enhancements to our HPE GreenLake platform to help customers manage their hybrid clouds more easily, protect and get more value from their data, and securely connect at the edge. Our as-a-service transformation is my number one priority, and it is already delivering results for our shareholders as evidence in our Q1 performance and increased non-GAAP diluted net turnover share guidance for the full fiscal year 2022. Our Azure Service pivot is accelerating our momentum in key growth businesses. Our Intelligent Edge business segment grew revenues 11% year-over-year, and for the fourth consecutive quarter, saw year-over-year orders growth of over 35%, driven by the very strong demand in secure connectivity from Edge to Cloud. Our Aruba Edge Cloud offerings continue to garner new customers. The Aruba Central Cloud native platform now manages more than 120,000 customers and more than 1.9 million network devices. In Q1, we announced that our Aruba Cloud Managed Branch offering is being adopted by Brasfield & Gorey, one of the largest privately held construction companies in the United States. The company is using our networking portfolio to elevate their construction site innovation with impressive tools, like virtual reality views of projects before they are built. Also, in the quarter, we introduced the Aruba Edge Connect microbranch, an industry-leading home office cloud-based networking solution that lets remote personnel work seamlessly and securely wherever they are located. Our high-performance computing and AI business also generates a noteworthy product order growth of more than 20% year over year. which has increased our total order book to a record of approximately $2.7 billion. During the quarter, we announced a win with the United States Department of Energy National Renewable Energy Laboratory to build a new supercomputer that will advance R&D for tomorrow's clean energy systems. Our computer storage businesses experience robust order growth and outstanding profitability. In Q1, nearly 10% of compute and storage orders were sold as a service. Compute generated more than 20% order growth year-over-year, expanded gross margins, and attractive operating margins, up 240 basis points year-over-year, driven by strong pricing discipline. Storage dropped product order growth of more than 15% year-over-year for the fourth consecutive quarter. Innovation is unrelenting. as we transform this segment into a data services business. For example, in Q1, our venture arm, Hewlett Packard Pathfinder, invested in BigID. This is a leading data intelligent platform to help organizations realize detailed insights in their sensitive, personal, and critical data, and then act on it. RHP.x services team is helping customers navigate through their multi-generational IT journey while modernizing, building, and running the new hybrid IT estates. In Q1, HP.x services orders increased mid-single digits year-over-year. Turning to our workforce, we reopened all of our United States offices last month to those who wish to return after careful analysis of information and guidance from the public health officials. I was very pleased to meet team members in person at our new cutting-edge Houston headquarters. You may have caught a glimpse of a Houston campus innovation in the video that ran before this call. We look forward to the official grand opening in April. Alongside advancing a rewarding workplace, I also believe HP has a responsibility to become a more climate resilient company. And we know it is a priority for our customers and shareholders. HP Financial Services plays an important role in our sustainability strategy, providing assets upcycling to customers which means reuse of millions of technology assets while freeing up capital for customers to reinvest in their businesses. Customers are choosing HP in part because of our portfolio sustainability attributes. In fact, in fiscal year 2021, we drove nearly $900 million in revenue from sustainability-related customers' engagements. I am proud of our team members, not just for bringing breakthrough customer-centric innovation, but for how they are bringing it to market. They are making bold moves to maximize what we can do for our customers and shareholders. It is this type of collaboration and engagement that is propelling our business transformation. It is clear from strong customer feedback and momentum across our businesses that HPE is increasingly well-positioned to capitalize on the edge-to-cloud megatrends that define our IT industry. HPE GreenLake is at the center of our strategy to pivot the company, and it is generating record-breaking demand with impressive profitability across our business. These continue to be uncertain times. As we monitor the dynamic global stage, I am more confident than ever about our future and our ability to drive long-term, sustainable, profitable growth for our shareholders because of our strategy and differentiated innovation. Now, I would like Tarek to talk you through the quarter's performance in detail.