Hewlett Packard Enterprise Company

Good afternoon and welcome to the second quarter fiscal 2024 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 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 presentation over to your host for today's call, Jeff Cavall, Head of Investor Relations. Please proceed.

Good afternoon. Welcome to our second quarter fiscal 2024 earnings conference call with Antonio Neri, HPE's President and CEO, and Marie Myers, HPE's CFO. Let me remind you that this call is being webcast. A replay of the webcast will be available shortly after the call concludes. We have posted the press release and the slide presentation accompanying the release on our Investor Relations webpage. Elements of the financial information referenced on this call are forward-looking and are based on our best view of the world and our businesses as we see them today. 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 the information available at this time and could differ materially from the amounts ultimately reported in HPE's quarterly report on Form 10-Q for the fiscal quarter ended April 30th, 2024. For more detailed information, Please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. Please refer to HPE's SEC filings for a discussion of these risks. For financial information we have 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 presentations accompanying today's earnings release on our website for details. Throughout the call, all revenue growth rates are presented on a year-over-year basis and adjusted to exclude the impact of currency unless otherwise noted. Finally, Antonio and Marie will reference our earnings presentation in their prepared remarks. With that, Antonio.

Good afternoon, and thank you for joining us today. HPE delivered a very solid performance in the second quarter, with revenue and non-GAAP diluted net earnings per share exceeding our outlook range. driven by AI systems revenue more than doubling from our first quarter. I am very optimistic about where we are headed. AI demand continues to accelerate, with cumulative AI systems orders reaching $4.6 billion this quarter. We have a robust pipeline in this business, though large AI orders can cause fluctuations during the quarter. We anticipate continued revenue growth driven by increased AI systems demand, continued adoption of HP GreenLake, and ongoing improvement in the traditional infrastructure market, including servers, storage, and networking. Due to our confidence in the second half of fiscal year 2024, we are raising our full year revenue and non-GAAP earnings per share guidance and reiterating free cash flow guidance. Marie will provide more specifics in her remarks. While we focus on translating strong AI customer demand to revenue growth, we continue to drive cost discipline to operate more efficiently and to preserve the ability to make targeted investments, which will sustain our growth into the future. We are being prudent with our spending and reduce operating expenses in the first half as compared to the prior year period. We're also driving business process simplification across the company, including through digitization and automation with AI. Demand for HPE's AI systems is accelerating at a faster pace, and our solid execution enabled us to more than double our AI systems revenue sequentially to over $900 million, helped by supply chain conversion through improved GPU availability. Our lead time to deliver NVIDIA H100 solutions is now between 6 and 12 weeks, depending on order size and complexity. We expect this will provide a lift to our revenues in the second half of the year. Enterprise customer interest in AI is rapidly growing, and our sellers are seeing a higher level of engagement. Enterprise orders now comprise more than 15% of our cumulative AI systems orders, with the number of enterprise AI customers nearly tripling year over year. As these engagements continue to progress from exploration and discovery phase, we anticipate additional acceleration in enterprise AI systems orders through the end of the fiscal year. We're winning in AI for several reasons. Our leadership in AI at scale and across the entire AI lifecycle, from training to fine tuning to inferencing, continues to attract new customers. These customers range from new generative AI model builders, to broader service providers, to sovereign states, to traditional enterprise customers, to large hyperscalers. For example, in partnership with Microsoft, we're extending the Azure AI platform to HPE infrastructure, which provides Microsoft with additional capacity to serve even more customers, including OpenAI. HP has decades of experience in the design, manufacture, and management of air and liquid cool systems, including the data center infrastructure, to reliably deliver the highest levels of computing performance. Customers appreciate our AI at scale expertise and intellectual property, as well as unique liquid cooling manufacturing and services capabilities. As accelerated computing silicon innovation advances, higher power density demand direct liquid cooling technologies. Building direct liquid cooling AI systems is complex and requires manufacturing expertise and infrastructure, including power, cooling, and water. With more than 300 HPE patents in direct liquid cooling, proven expertise, and significant manufacturing capacity for this kind of systems, HPE is well positioned to help customers meet the power demands for current and future accelerated compute silicon designs. Our leadership in AI was once again validated in May, when the latest top 500 list of the world's most powerful supercomputers was released. HP now has four of the top 10 world's fastest supercomputers, all of which are direct liquid cooled. Two of these systems are exoscale supercomputers, with Frontier still the world's fastest and Aurora now breaking the exoscale barrier. I'm also proud that we have built seven of the world's top ten energy-efficient systems, according to the latest Green 500 list. This experience makes us an attractive partner to sovereign states and governments pursuing AI strategies. HPE benefits from a strong ecosystem of AI partners, including NVIDIA. We introduced co-engineered enterprise solutions with NVIDIA last year to streamline the model development process, as well as to enable enterprises to fine-tune large language models with their private data to accelerate inferencing. I'm excited that NVIDIA CEO Jensen Huang will join me at HPE Discover Las Vegas in just two weeks. Together, we will unveil new, exciting, and differentiated innovations that will simplify and accelerate enterprise AI adoption and deployment. Enterprise customers are already responding to our unique AI portfolio. For example, Cubox, a facial and image recognition company in Korea, is developing new generative AI models using HPE AI systems to enhance identity verifications, at locations such as the Incheon International Airport in South Korea. JT Group, based in Japan, operates a pharmaceutical business and is planning to use our HPE AI systems to support AI model training and simulations to accelerate drug discovery. And we just announced that we will power Scaleway's AI cloud service offering using our HPE AI systems. The new service will make powerful computing accessible to companies to support their various AI workloads and use cases. As we capitalize on the AI growth opportunity, we also see indications of the market recovery in traditional and cloud infrastructure markets. Orders for traditional service grew sequentially and year over year, driven by enterprise public sector and SMB customers in North America and Europe. We are seeing no indication of cannibalization from accelerated computing demand. And revenue grew sequentially as customers transitioned to higher AOP, HPE ProLiant Gen11 servers. Differentiate the customer-centric innovation positions as well to capture this market recovery. For example, our leading HPE GreenLake hybrid cloud is attracting new customers. In the second quarter of fiscal 2024, the number of customer organizations using HP GreenLake increased sequentially by almost 9% to 34,000. And our as-a-service lifetime total contract value grew to more than $15 billion in Q2, with our annualized revenue run rate, or AIR, growing 39% year over year. Demand is increasing for our HP GreenLake on-premise private cloud solutions. The Defense Information Systems Agency, a combat support agency of the United States Department of Defense, selected HPE to develop a distributed hybrid multi-cloud platform prototype on HPE GreenLake as part of an effort to simplify the organization's management of disparate IT infrastructure and resources across public and private clouds. In storage, we accelerated the transition of our portfolio in Q2 to meet the needs of hybrid cloud and AI. Several weeks ago, HPE introduced significant new functionality to our HPE Electra storage offerings. We rounded out our block offering by extending the hybrid capabilities of HPE Electra block storage to AWS, doubling its capacity to address more customers and enhancing its automation capabilities with generative AI. Earlier this quarter, we introduced new HPE GreenLake for file storage capabilities with options specifically targeting the unstructured data demands of AI. We have also added significant specialty sales capacity in recent months. While it takes time to activate new sellers and bring them to full productivity in a market with long sales cycles, we expect increased order-to-revenue conversion in the future. The enhancement to our winning portfolio complemented by a more focused sales force position HP to strengthen the already robust customer adoption of HP Alletra. More than 1,000 new HP Alletra MP systems have been deployed to date, which is the fastest product ramp in the history of our company. In networking, the market remained in transition during the quarter as customers continued to work through their current inventory. As demand in this segment gradually returns, we believe our broad portfolio positions as well. We expect modest sequential network and demand improvement driven by the state and local purchasing season in the United States. We announced significant new innovations during the quarter to align with the HPE's broader AI strategy. These solutions include generative AI capabilities to improve AI ops and Wi-Fi 7 access points that capture edge data for AI inferencing. In addition, last month, we launched new security and AI observability tools to help fight AI cyber risks. And just yesterday, we expanded the most complete private 5G and Wi-Fi portfolio in the market with the launch of HP Aruba Networking Enterprise Private 5G. All of this will be delivered through our HP GreenLake Cloud Platform. Customers are responding to our networking innovation. In the last few months, customers ranging from Houston Airport to Batista Health Group to Mercedes-Benz Stadium to the University of Maryland have turned to HPE to enhance the experience for their visitors, residents, and employees. As we look to our future in networking, we continue to be very enthusiastic about the proposed acquisition of Juniper Networks. We are currently in the regulatory process for this transaction and expect to close by the end of 2024 or early 2025. As I mentioned earlier, we continue to invest in innovation while we drive operational and cost discipline to continue to improve our cost structure. We are focused on reducing complexity in our business processes, as well as implementing automation and AI across the company to enhance customer service, R&D productivity, and team member overall experience. I also want to note that we recently announced we have restructured the sale of our stake in H3C. Since the transaction is large and complex, the required regulatory approvals will take longer than previously anticipated. So we agreed to restructure the sale with UNIS. The updated agreement provides HPE with the opportunity to sell a significant portion of the shares in the coming months. The new payment structure has no impact on the pending Juniper Networks transaction as the structure of the deal financing does not rely on any of the H3C proceeds. Finally, You likely saw that we announced in May that we have agreed to divest our communications technology group to enhance our strategic focus in high growth, high margin parts of the market, including the service provider and enterprise markets. In closing, I want to reiterate that I'm proud of the very solid performance in Q2. It shows the alignment of our strategy and innovation to major market opportunities. We have greater optimism about the second half of the year, leading us to raise our full year revenue and non-gap earnings per share guidance. AI is creating growing demand across our portfolio, and we see significant opportunities across customer and business segments. Our competitive advantages, from deep expertise in standing up AI systems to our differentiated HP GreenLake Cloud to our networking and storage offerings position as well. We have an excellent team, and I'm confident in our ability to continue executing with discipline to take advantage of incredible opportunities presented by this era of innovation. I am looking forward to sharing with you our latest breakthrough innovation and partnerships across AI, hybrid cloud, and networking later this month at HP Discover Las Vegas. We are very excited to be the first corporate keynote at Sphere, and I hope to see many of you there. I would like now to hand it over to Marie, who will talk about the details of our segments and our outlook. Marie, over to you.