Hewlett Packard Enterprise Company

Good afternoon and welcome to the fiscal 2025 fourth quarter Hewlett Packard Enterprise Earnings Conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Paul Glazer, Head of Investor Relations. Please go ahead.

Good afternoon. I am Paul Glazer, Head of Investor Relations for Hewlett Packard Enterprise. I would like to welcome you to our Fiscal 2025 Fourth 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 annual report on Form 10-K for the fiscal quarter ended October 31, 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 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 be referencing our earnings presentation and their prepared comments. With that, let me turn it over to Antonio.

Thank you, Paul. Good afternoon, everyone. HP finished a transformative year with a record quarter of profitable growth and disciplined execution. Q4 revenue of $9.7 billion increased 14% year-over-year, with non-GAAP operating profits growing faster, up 26% year-over-year. Non-GAAP operating margin was a record high at 12.2%, including server around 10% and networking at 23%, matching the high end of our expectations. Non-GAAP diluted net earnings per share of 62 cents exceeded the high end of our guidance. Stronger profitability also resulted in higher than expected free cash flow of $1.9 billion for the quarter, capping a solid fiscal year 25 performance. The underlying demand environment was strong throughout the quarter, with orders growing faster than revenues. We saw an acceleration in orders in the last weeks of the quarter, signaling solid demand for our portfolio. The strong finish coupled with the steps we have taken throughout the year to transform our company positions us well in 2026. Reflecting our continued confidence and ongoing technology leadership, we are raising our fiscal year 26 non-GAAP diluted net earnings per share guidance and the midpoint of free cash flow guidance. Marie will provide more details about our Q4 financial results and our new fiscal year 26 outlook in a moment. We intend to capture the opportunity in 2026 and beyond by pursuing the key priorities we outlined at the Securities Analyst Meeting in October. These are building a new networking industry leader, profitably capturing the AI infrastructure build-out opportunity, accelerating our high-margin software and services growth through our Greenlight Cloud, capitalizing on the unstructured data market growth with our leading Alletra MP storage offerings and driving the transition to our next-generation server platforms. This strategy underpins our long-term financial framework. By fiscal year 28, we are committed to generating at least $3 in non-GAAP diluted net earnings per share and more than $3.5 billion in free cash flow with improved cash conversion cycles. I also want to highlight that we recently announced agreements regarding our H3C stake in China. We will sell our remaining 19% stake for approximately $1.4 billion, which we expect to close during the first half of calendar year 2026. These transactions support our plan to reduce our net leverage to around two times by the end of fiscal year 2027. Looking back at fiscal year 25, I am proud of what a transformative year it was for our company. We celebrated our 10-year anniversary, a decade of focus, innovation, and technology leadership. We completed the acquisition of Juniper Networks, strengthening our position in the networking market to create a new industry leader. We scaled our GreenLake Cloud, hybrid cloud software, Electra MP storage, and AI businesses to new heights. and we continue to improve our cost structure through our catalyst initiatives to operate more efficiently. Overall, HPE delivered full-year revenue of $34.3 billion, a 14% increase year-over-year. Our revenue growth reflects solid performance across our three largest business segments and the addition of Juniper Networks. We exceeded our full-year outlook for non-GAAP diluted net earnings per share and free cash flow, delivering $1.94 and $986 million, respectively. Networking played a pivotal role in our success. Segment revenue increased 51% in fiscal year 25, achieving $6.9 billion, with addition of four months of Juniper results. Orders for the new combined networking segment grew at a faster rate than revenues in fiscal year 25 as the market recovered. We saw strong double-digit order and revenue growth across our key segments of the networking market on us a reported basis. Regarding the integration of Juniper, I am pleased with the significant progress we have made in forming a new unified leader in networking. In the five months since closing the transaction, we have brought together our teams, technologies, and go-to-market strategies and the response from our employees, customers, partners, and the industry at large has been overwhelmingly positive. They are already seeing the benefits of our combined portfolio, the innovation we are driving, and the cohesive customer experience we now deliver. Across the industry, stakeholders have expressed enthusiasm for combined company ability to accelerate innovation, deliver greater value, and help organizations build secure, modern, and high-performance networks for the future. The new combined networking team is performing exceptionally well. We increased orders and revenues on a pro forma basis during the first full quarter as one team. As a combined company, we are able to better compete with our comprehensive industry-leading networking portfolio. we saw good traction with our core customer segments, enterprise and service provider. As we integrate Juniper Networks and HP Aruba Networking, we are building a modern, secure, AI native networking portfolio, one that encompasses campus and branch, data center switching, routing and security. By combining our unique strengths in AIOps, agentic AI, silicon IP, and go-to-market scale, we are positioning HP to capture greater market share and revenue synergies, Our networks for AI solutions grew in fiscal year 25 where we saw notable strength in both WAN and data center switching. We are on track to achieve networking for AI cumulative to order target of $1.5 billion by the end of fiscal year 26. The campus and branch business had a strong performance in fiscal year 25 with revenue up double digits with orders growing above revenues. Our AI for network solutions leverage both missed AI large experience models and Aruba agentic AI models, driving clear differentiation that is resonating with our customers. In our server segment, fiscal year 25 revenue grew 10% year over year. We signed $6.8 billion in new AI system orders in fiscal year 25. Sovereign and enterprise bookings now account for more than 60% of the cumulative orders since Q1 of fiscal year 23, demonstrating our strategy to prioritize profitable AI infrastructure build-out opportunities. In traditional servers, Revenue grew double digits year over year, benefiting from a refreshed cycle as customers upgrade to the latest generation 11 and 12 servers. These support greater workload performance with quantum proof security, higher density and lower power consumption. I am pleased that we have returned server operating margin to approximately 10% in Q4. As we look to 2026, we will draw on our supply chain expertise to secure critical commodity supply and exercise our pricing management discipline. We expect DRAM and NAND costs to continue to increase in 2026, the majority of which we expect to pass to the market while monitoring demand. Hybrid cloud revenue grew 5% in fiscal year 25. We added approximately 7,000 new customers to GreenLake, ending the year with approximately 46,000 customers. Total company AIR was $3.2 billion, up 62% year over year, with additional Juniper. We continue to differentiate ourselves in a market with unique cloud-native software, AIOps, and services, which together represented over 80% of AIR. In storage, we continue to make excellent progress in shifting our portfolio to our own IP. We closed the year with strong demand for HP Alletra MP with four consecutive quarters of double-digit growth in both orders and revenue. We have now shipped over 7,400 Alletra MP storage arrays, more than doubling year over year. We added more than 1,300 new customers in fiscal year 2025. further solidifying our leadership in this space. Demand for a newer differentiated private cloud solutions, private cloud AI and private cloud for virtualization with our HP Morpheus VM essential software ramped throughout the year. We set new milestones, including approximately 100 new PC AI customers. Total orders for our private cloud solutions, which also includes private cloud business edition and private cloud enterprise offerings, increased more than 20% year over year. HPE is proud to have been named a leader in the 2025 Gartner Magic Quadrant for Infrastructure Platform Consumption Services, positioned highest in execution and furthest in vision. These acknowledgement spotlights are innovative cloud native software and services experience, which help customers accelerate transformation and drive operational efficiency across their hybrid IT environments. This week, more than 5,000 attendees participated in our HP Discover Barcelona customer and partner event. we introduced new innovations and demonstrated the considerable progress we have made in bringing together HPE and Juniper in a short period of time. For example, in AI for Networks, we announced new AIOps capabilities and common infrastructure products that deliver a consistent self-driving experience across both HPE Aruba Networking Central and HPE Juniper Networking Mist cloud platforms. This is an important milestone in achieving a unified experience across campus and branch and demonstrates our commitment to quickly cross-pollinating our platforms and driving common infrastructure products for investment protection. In Networks for AI, we announced the first OEM switch to leverage Broadcom, Tomahawk 6 Silicon. To address performance-hungry computing for AI inferencing, our new HP Juniper networking data center switch connects GPUs within data centers with the world's highest-performance ultra-Ethernet transport-ready switch, delivering 102.4 terabits per second total capacity. And our new HP Juniper multi-service edge router brings AI inferencing closer to the source of data generation, with performance up to 1.6 terabits per second with full-duplex 400 gigabits per second connectivity. Also in Barcelona, we extended the NVIDIA AI Computing by HP portfolio, introducing new solutions for AI factoring scale and performance. In HP's AI factoring networking solutions, we introduced the new HP Juniper Networking Edge on-ramp and long-haul data center interconnect with our HP Juniper Networking MX and PTX high-speed routing platforms. Integrating our Juniper routing solutions with NVIDIA Spectrum X Ethernet networking and NVIDIA Bluefield 3 DPUs enables high-speed, secure, and efficient edge on-ramp and AI data center interconnect use cases. We also announced the first AMD Helios AI rack scale architecture, with integrated HPE Juniper Scale-Up Ethernet networking. The solution leverages purpose-built HPE Juniper networking data center infrastructure and software to accelerate performance and deployment of at-scale AI training and inferencing for cloud service providers and sovereign clouds. In storage, we announced new solutions to accelerate AI data pipelines. The new HPE Alletra Storage AMP X10,000 data intelligent nodes transform the X10,000 into an active data layer that enriches data in real time for AI pipelines. Finally, last month at Supercomputer 2025, we demonstrated our next generation LiquidCool Cray GX and supercomputing platform at data center scale. We have already won contracts to build five large sovereign systems utilizing this technology, including a second generation exascale AI supercomputer for the United States Department of Energy. These announcements highlight the strength of our innovation to deliver the best network in AI and cloud solutions for our customers and partners. As I reflect on the past year, I want to highlight a few critical milestones we have achieved as a company. First, we repositioned our business, creating a new networking leader by combining the strength of HBR Uber Networking and Juniper Networks. Second, we scaled our AI business with focus on sovereign and enterprise customers, representing more than 60% of our bookings. Third, we advance our cloud business with innovative offerings such as our own Electra MP Storage for both structured and unstructured data, cloud op suite software, HP Morpheus Enterprise, VM Essentials, and Private Cloud AI, which are all underpinned by our GreenLake cloud scale and experience. And lastly, we continue to improve our cost structure through our catalyst initiatives to operate more efficiently by leveraging automation and new AI technologies. We enter fiscal 26 with a world-class portfolio and a stronger market position. Networking, cloud, and AI remain the three pillars of our strategy. Our organic investments are focused on higher margin opportunities, and with a disciplined approach to the Juniper integration, we are positioned to accelerate value for shareholders. On behalf of the HPE management team, I want to thank our customers, partners, and team members for their dedication this year. Your support has been instrumental in making fiscal 25 a transformative year for HPE. We look forward to successfully executing our strategy to achieve our fiscal 26 and long-term plan commitments to our shareholders. With that, I will hand it over to Marie for a detailed review of Q4 financial results and our outlook for Q1 and the full fiscal year 2026.