Hewlett Packard Enterprise Company

Good afternoon and welcome to the Fiscal 2025 Second Quarter Hewlett Packard Enterprise Earnings Conference 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 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, Paul Glazer, Head of Investor Relations.

Please go ahead, sir. Good afternoon. I am Paul Glazer, Head of Investor Relations for Hewlett Packard Enterprise. I would like to welcome you to our fiscal 2025 second quarter earnings conference call with Antonio Neri, HPE's President and Chief Executive Officer, and Marie Myers, HPE's Chief Financial Officer. Before handing the call to Antonio, 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 HPE 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 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 30, 2025. 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 filings with the SEC 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 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. Antonio and Marie will refer to our earnings presentation in their preferred comments. Finally, I would like to announce that we will hold our Security Analyst Meeting on October 15, 2025. We will provide more details as the date gets closer. With that, let me turn it over to Antonio.

Thank you, Paul. Good afternoon, everyone. In Q2, HPE delivered solid results. We executed well and delivered both revenue and non-GAAP diluted net earnings per share above the high end of guidance. Through focused and disciplined execution, we have addressed the operational challenges we experienced in our service segment last quarter. We expect these actions will contribute to margin improvement through fiscal year end. In the second quarter, we saw a very dynamic macro and trade policy environment. The IT industry continues to navigate significant uncertainty brought on by tariffs, the AI diffusion policy withdrawal, and broad macroeconomic concerns. While this led to uneven demand during the quarter, we did not benefit from significant order pull-ins. We ended Q2 with a stronger pipeline compared to Q1, reinforcing that our strategy is the right one. Q2 revenue was $7.6 billion, up 7% year-over-year and just above the high end of our previously provided guidance. We saw year-over-year revenue growth in every product segment. The results were led by higher AI system revenue conversion in server, solid performance in Intelligent Edge, and stronger than expected performance in our hybrid cloud segment, which was driven by our HP Alletra MP storage transition and the continued adoption of HP GreenLake Cloud subscription services. Q2 operating profit grew year-over-year in hybrid cloud, Intelligent Edge, and HP Financial Services. As we said in our Q1 earnings, we expect that server operating profit to decline quarter over quarter, although our server revenue and operating margin were near the high end of our Q2 guide. We remain laser focused on execution in our server segment. Since our last update, we have closely monitored the changes implemented to improve profitability. These include the rollout of new pricing analytics, increased discount scrutiny, and inventory management. As we said in our last call, it will take a couple of quarters to realize the full benefit of these measures. And we expect our service segment operating margin will recover to approximately 10% exiting Q4. We delivered non-GAAP diluted net earnings per share of 38 cents above the high end of a previously provided guidance. We benefited from lower than anticipated tariff impact and more favorable OINE. Net of these items, non-GAAP EPS was still at the high end of our outlook, driven by solid revenue performance and cost management. As we move into the second half, we have improved line of sight to timing of our AI revenue conversion. As such, we are tightening our revenue outlook to be up 7% to 9% year over year. In addition, we are raising the low end of our non-GAAP diluted net earnings per share range by $0.08. We continue to capitalize on the mega trends reshaping the IT industry across networking, AI, and hybrid cloud. In networking, the market continues to recover. Year over year, our business achieved its third consecutive quarter of orders growth and return to revenue growth. In AI, we signed $1.1 billion of net new orders, with enterprise accounted for one-third. We converted more than $1 billion into revenue, up from $900 million last quarter. And we exited with $3.2 billion of backlog in AI systems. Our pipeline remains multiples of our backlog. In our hybrid cloud segment, we saw another solid quarter of storage revenue performance with our Alletra portfolio growing high double digits year over year. The transition to a subscription business model is a revenue headwind in the near term, or more accretive to profitability long term. Orders for Alletra MP have grown more than 75% year over year for four consecutive quarters, contributed to a growing deferred software revenue balance. This demonstrates the value of our disaggregated architecture with multi-protocol support and the flexibility of our offering. Finally, GreenLake continues to deliver strong results. We are growing customer count, which now totals approximately 42,000, generating over $2.2 billion of annualized revenue run rate. This is up 47% year over year and above our 35% to 45% CAGR commitment. Software and services continue to be more than 70% of our AIR, demonstrating a portfolio shift to higher growth and higher margin areas of the stack. Marie will provide more details on Q2 and our fiscal year outlook. But first, I would like to highlight several recent product launches that further reinforce our strategy. Last month, we launched the industry's most advanced private cloud portfolio. Morpheus and our HPE virtualization software have been integrated into our HPE private cloud portfolio. Through this integration, we can lower customers' virtualization costs by up to 90% on a core basis and unify management of their entire multi-cloud and multi-vendor IT estate. Customer interest in VM Essentials has been very strong. Notably, Danfoss is planning to replace 75% of its virtual estate with VM Essentials within HP GreenLake for private cloud enterprise. In networking, we introduced new capabilities with HP Aruba Networking Central to expand universal zero-trust network access solutions to help enterprises bolster cybersecurity. HPE Aruba Networking Central is now also available to deploy as an on-premises option. This is particularly helpful for customers prioritizing data sovereignty. Aruba Networking Central now manages over 5 million devices and is contributing to strong AIR subscription growth within Intelligent Edge. We are maintaining a rapid pace of AI innovation in our deep and long-standing partnership with NVIDIA. One of the cluster build-outs we are working on right now with NVIDIA is a large deployment of NVIDIA's Grace Blackwell NVL72 systems. We are nearing completion and appreciate the continued partnership that pairs our capabilities. Most recently, at GTC Taipei Computex, we announced several enhanced storage and server platforms targeting all customer segments. In 2025, we integrated NVIDIA's latest GPUs into our server portfolio, which delivered record-breaking performance for generative AI inferencing. We announced advancements in storage to unify enterprise data management to create context-rich AI-ready object data with built-in intelligence. And we launched the HP Alletra Storage MPX 10,000 SDK solution for the NVIDIA AI data platform, bringing enterprise data into an intelligent orchestrated pipeline within the NVIDIA AI ecosystem. All these new innovations are aligned to our strategy to continue to move upstack to areas of higher growth with higher margins. We continue to help enterprises accelerate their business transformation across networking, hybrid cloud, and AI. And we will unveil even more exciting breakthrough innovations at the HPE Discover later this month. Finally, I want to reinforce our commitment to closing the Juniper Networks transaction. We expect the proposed transaction will deliver at least $450 million in annual run rate synergies to our shareholders within 36 months of closing the transaction. The deal will help both companies deliver a modern, secure AI-driven edge-to-cloud portfolio of networking products and services. We continue to expect to close the transaction before the end of fiscal year 2025. In closing, in Q2, we deliver solid results through focused and disciplined execution. As we committed, we have addressed the server execution challenges. Our leadership team and I took accountability and swift action despite the challenges of a fluid micro environment. We remain focused on executing against our goals and becoming a more agile and nimble company. to continue to increase our profitability and enhance shareholder value. I remain excited about the profitable growth opportunities HP has ahead, including the anticipated closure of the Juniper Network transaction. We have the right strategy and the right team to continue to accelerate value for our shareholders. With that, let me turn it over to Marie. Marie.