Hewlett Packard Enterprise Company

Good day and welcome to the fiscal 2026 second 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 touchstone phone. To withdraw your question, please press star and 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, sir.

Good afternoon. Hi, I'm Paul Glazer, Head of Investor Relations for Hewlett Packard Enterprise. I would like to welcome you to our fiscal 2026 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 our business and the external factors affecting us 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, 2026. Figures used in verbal remarks are rounded for ease of discussion. For more detailed information, please see the earnings materials, as well as disclaimers relating to forward-looking statements that involve risks, uncertainties, and assumptions. Please refer to HPE's filings with the SEC for more detailed discussion of these risks. For financial information that we are showing 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. Unless otherwise noted, all financial metrics and growth rates discussed today are non-GAAP, and EPS refers to non-GAAP diluted net earnings per share. Certain financial information featured in the presentation today has been normalized to include Juniper Network's results as of the beginning of HPE's fiscal 2025. Antonio and Marie will reference our earnings presentation in their prepared comments. With that, let me turn it over to Antonio.

Thank you, Paul. Good afternoon, everyone. HPE delivered an exceptional quarter with record-breaking results, disciplined execution, and clear proof that our strategy is working. We made excellent progress in our Juniper integration and in our Catalyst initiative, with both running ahead of schedule. Revenue in the quarter reached $10.7 billion, up 40%. non-GAAP earnings per share of 79 cents increased 108%, significantly above the high end of our outlook. We generated $915 million in free cash flow, an improvement of $1.8 billion driven by strong cash from operations and improved cash conversion cycle performance. Demand was even stronger than revenue growth. Orders more than doubled, significantly outpacing revenue, resulting in a record company backlog. Customer investments in agentic AI and AI inferencing accelerated. We also saw broad-based demand strength across the portfolio, driven by ongoing investment in compute infrastructure modernization, unstructured storage data growth, and private cloud adoption for AI. Last year, at our Security Analyst Meeting in New York, we laid out our strategy and fiscal 2028 financial commitments. Based on our strong first half 2026 results, our record backlog, and our visibility into the second half demand, we now expect to deliver $3.40 in non-GAAP earnings per share at the midpoint and at least $3.5 billion in free cash flow in fiscal 2026. That is two years ahead of our committed long-term plan. Marie will provide more detail on our third quarter and full year fiscal 2026 outlook, as well as our fiscal 2027 framework, which is grounded on durable customer demand and the profitability of both business segments. Now, let me turn to our business segment highlights, starting with networking. I am particularly pleased with the progress we are making on the Juniper integration. We are ahead of our integration milestones and synergies commitments, and the unified portfolio and Salesforce are already strengthening our market position and growth momentum. Our combined networking portfolio and vision for self-driving networks is resonating with customers and that enthusiasm, together with strong go-to-market execution, is reflected in our results. Networking delivered revenue of $2.7 billion, up double digits on a normalized basis, with orders growing significantly faster than revenue. We saw increased demand in campus and branch, networks for AI, and security. I am pleased with the strong demand we saw from enterprise customers for our networking portfolio. Campus and branch orders reached a new record high, growing in the upper 20% range on a normalized basis. We won multi-million dollar deals across multiple verticals, including retail, automotive, government, and technology. Wi-Fi's seven access points cells increased more than seven times, reflecting a clear shift toward network modernization. HPE, for the 20th time in a row, was named a leader in the Gartner Magic Quadrant for enterprise wire and wireless LAN infrastructure. We believe this independent industry analyst validation reinforces how far ahead we are in enterprise networking beyond even incumbents. Customers trust us with our most critical networking infrastructure decisions as they expand their digital initiatives and AI investments. One customer taking advantage of the power of our combined campus and branch networking portfolio is Lowe's. With over 1,750 stores across North America, Lowe's chose HPE to deliver the network foundation for a major technology transformation to support its digital on-ramp and AI-enabled operations. The solution is built on our HPE Mist AI platform for wire and wireless networking infrastructure, alongside our HPE EdgeConnect SD-WAN solution. Last month, we reached a milestone with the launch of new autonomous agents powered by agentic AI for optimizing networking performance. The self-driving network is no longer a concept. It is a reality. The UK Ministry of Justice is an early adopter example. It was able to reduce the number of incidents seen by its network operation center by approximately 75% after deploying a suite of solutions that included our new HPE self-driving network capabilities. In enterprise data center switching, orders increased nearly 20% on a normalized basis. Our data center switching pipeline remains strong. Cross-portfolio product integration and sales across server storage and networking are driving deeper customer engagement and larger deals. Security orders grew in the mid-teens on a normalized basis. We continue to make the network a first line of defense that responds to threats in real time. This quarter, we launched the HPE Juniper SRX400 series, bringing carrier-grade firewall protection to the branch for large distributed environments. We see significant runway as more customers consolidate networking and security with a single vendor, forcing convergence all the way to the silicon layer of the stack, where HPE will have further differentiation. In our service provider customer segment, revenue increased double digits on a normalized basis. We're routing orders growing significantly faster than revenue. Routing orders increase nearly 30% on a normalized basis, driven by data center interconnect deployments in large cloud service providers. Customers are choosing HPE because we help them scale in every dimension. Scale up by increasing the performance and density of individual platforms for the most demanding AI workloads. Scale out by expanding the networking fabric to connect thousands of GPUs and accelerators within a single data center. And scale across by extending high bandwidth interconnectivity between data centers across campuses and into the wide area network so AI services can run wherever they are needed. HPE is developing a scale-up Ethernet switch and software designed specifically for the AMD Helios AI rack scale architecture, which we expect will be introduced in the fall. In scale-out, we lead with our AI-driven QFX switching fabric. HPE is the first OEM to productize a Tomahawk 6-based 100% liquid cool switch with industry-leading performance and power efficient for AI infrastructure. In addition, our leading fabric management and AI ops capabilities reduce congestion, latency, as well as operational complexity. We expect a roadmap to extend this leadership through co-packaged optics, resulting in lower overall power consumption. In scale across, the Juniper PTX series delivers 800 gigabit density with exceptional power efficiency, leveraging our distinct express silicon and simplified AI native automation. Because of our leading innovation and market momentum in networks for AI, we are raising our cumulative fiscal 2026 networks for AI order target to at least $2 billion. We are laser focused on building the best networking business in the industry. Our priorities are clear. Extend AI-driven automation across the portfolio, help customers scale modern AI infrastructure with secure, high-performance networking, and lead in the convergence of networking and security. We have the team, the capabilities, and the momentum to convert the opportunity in this segment into durable shareholder value. In our cloud and AI business segment, we executed with strong discipline across all business lines. Revenue was $7.7 billion, up 23%, driven by exceptional traditional server orders and very strong demand in AI systems, Aletra MP Storage, Private Cloud, and GreenLake Software and Services. Traditional server orders increased triple digits as customers continue to modernize their compute infrastructure and invest in AI inferencing. We are working very closely with our silicon and memory partners to continue to secure supply, which we factor into our new fiscal 2026 guide. We're also engaging customers and channel partners on lead times and configuration options to help them plan effectively. We saw strong demand in AI training throughout the quarter. We booked $1.8 billion in new AI systems orders, bringing cumulative AI systems bookings to $16.4 billion. We entered Q3 with $5.9 billion in backlog, primarily composed of enterprise and sovereign orders. We are seeing a broad pattern across industries. Enterprises want the flexibility of choosing multiple AI models with the governance and control of on-premises. We will continue to manage AI systems opportunities with a focus on profitable growth and prudent working capital management. Storage had an outstanding quarter. Aletra MP storage orders increased triple digits, the sixth consecutive quarter of strong growth. Several weeks ago, we expanded the platform with new file storage and agentic AIOps capabilities. This extends Aletra MP into the growing unstructured data market. Our HPE Morpheus Enterprise and HPE VM Essential Software offerings continue to build momentum. Revenue grew sequentially for the fourth consecutive quarter. VM Essentials customer count increased 43% in the first half with a notable rise in net new logos. Private Cloud AI orders increased again this quarter with a growing base of new customer wins. We recently launched our second-generation PC AI offering designed for enterprise AI inferencing and cloud-gapped sovereign environments, which position us for continued growth. More broadly, we are embedding agentic AI capabilities across our storage and data protection portfolio to help customers automate AI data pipelines and operations. We continue to add new cloud and AI agentic services to our GreenLake Cloud platform, acquiring new customers and increasing the net retention rates for our GreenLake services business, which remains near 110%. We exit the Q2 with approximately 50,000 customers operating their IT in our GreenLake Cloud, managing more than 6.7 million systems up from 5.3 million a year ago. One win that brings the power of the full HPE portfolio together is the Dallas Cowboys, the most valuable sports franchise in the world. They came to HPE with a clear objective, modernize their infrastructure, simplify operations, and build the right secure foundation for AI. We delivered a comprehensive solution anchored on our HPE GreenLake Private Cloud offering, spanning ProLiant servers, Aletra MP Storage, and HPE Morpheus Enterprise. The Cowboys are also adopting HPE VM Essentials as their preferred virtualization layer. This is a strong example of the value customers can unlock when they choose HPE as an end-to-end technology partner. Lastly, HPE Financial Services delivered another outstanding quarter with record return on equity. Financial Services deepens customer relationships, supports our GreenLake Cloud adoption, and remains a meaningful competitive advantage as customers ramp their investment in AI. Before I close, I want to highlight two important upcoming events. In two weeks, we are hosting HPE Discover in Las Vegas. We will share updates on our networking cloud and AI strategies, including major product announcements, along with a live Q&A for investors and analysts. I hope to see you there. Then later this fall, we will host a dedicated networking investor day. In closing, HPE delivered an exceptional quarter. Our results demonstrate that our strategy continues to pay off. We now expect to significantly exceed our original fiscal 2028 non-GAAP earnings per share target and generate at least $3.5 billion in free cash flow in fiscal 2026, two years ahead the plan. The market trends driving our performance remain strong and well aligned to our strategy. We expect demand strength to continue into fiscal 2027 and beyond, which will accelerate durable shareholder value as we continue to scale profitably. We are executing with strong discipline, creating meaningful value from the Juniper acquisition and strengthening our position at the intersection of networking, cloud and AI. With the combined strength of HP and Juniper, we have the portfolio, the talent, and the go-to-market scale to lead in the market. I want to thank our team members for their focus and strong execution. With that, let me turn it to Marie to take you through the financial results and our 2026 and 2027 outlook. Marie.