Hewlett Packard Enterprise (HPE) Provides Outlook to Further Accelerate Shareholder Value

Hewlett Packard Enterprise (NYSE: HPE) today hosted its Securities Analyst Meeting (“SAM”) at the New York Stock Exchange, where Antonio Neri, HPE president and CEO, and Jeremy Cox, senior vice president and interim CFO, provided the financial outlook for fiscal year 2024. Together with other members of the management team, they illustrated how the expansion of the software- and services-rich portions of HPE’s portfolio will continue to accelerate value for shareholders over the next three years.

Neri detailed the company’s winning strategy and financial progress, which has established HPE as the leading edge-to-cloud company.

“With a growing addressable market, a proven strategy, and a differentiated portfolio, HPE is in a strong competitive position,” said Antonio Neri, president and CEO. “HPE’s strategy is aligned to significant market trends around edge, hybrid cloud and AI – all of which create profitable market expansion opportunities that we expect will fuel our growth. As we unlock greater growth from these markets, our investors are poised to share in higher returns.”

HPE is successfully shifting its portfolio to higher-growth, higher-margin businesses, increasing its long-term profitability potential. When combined, HPE’s largest growth businesses – Intelligent Edge, HPC & AI, and the company’s future Hybrid Cloud segment – are expected to exceed 50% of the company’s total segment revenue by fiscal year 2026. The company is continuing to invest in these areas to increase recurring revenue and further expand margins. HPE expects to increase its total addressable market1 by nearly $100 billion over a four-year period to more than $340 billion, led by a larger market in AI.

Sustaining HPE’s Momentum at the Edge and in Networking

HPE’s Intelligent Edge segment is a critical part of the company’s portfolio. Nearly $6 billion has been invested in the HPE Aruba Networking business since Neri became CEO in 2018. The company continues to grow its offerings in security, private 5G, and data-center networking.

On track to be a $5 billion annual business in HPE’s fiscal year 2023, Intelligent Edge is primed to have the highest profitability of any HPE business segment. HPE seeks to sustain growth in this segment by gaining market share in key high-growth, margin-rich areas, ultimately accelerating shareholder value.

Scaling Leading Hybrid Cloud Offering to Become Large, Enduring Growth Engine

HPE elaborated on its forthcoming Hybrid Cloud segment, which was previously announced in September and will become operative starting on November 1, 2023. The new segment will enable greater focus, faster execution, and more efficiencies when it combines all Storage and Compute aaS offerings, inclusive of HPE GreenLake Private Cloud and Software solutions. The simplified operating model will also deliver a superior, cloud-native experience for HPE’s customers and partners.

Customers are adopting HPE’s market-leading offerings as the company’s portfolio continues to grow, expanding beyond infrastructure into new, higher-growth markets such as infrastructure software. HPE offers one of the most differentiated customer value propositions among its competitors, including cloud providers.

This year, the company added new cloud-native offerings and capabilities to its HPE GreenLake platform. HPE GreenLake is helping to expand gross margins, with software and services comprising nearly 70% of the ARR2 mix as of the end of fiscal year 2023's third quarter. Proving a viable alternative to public cloud, HPE plans to be the world’s top provider of hybrid cloud as HPE GreenLake accelerates its growth momentum.

Capturing AI Market Growth Opportunity with Differentiated, Margin-Rich Solutions

HPE is seeing a huge demand shift in AI as customers realize the fundamental potential of the technology to deliver business transformation. The company recognizes the AI market will be driven by compute, data-intensive workloads, and the need for specialized architecture, and thus, is targeting three areas: supercomputing, AI infrastructure, and AI platform software.

HPE believes it is differentiated from its competition in the ability to capture significant value from the growing AI market through its IP, trusted expertise, and long-term sustained market leadership in supercomputing.

With strategic investments in AI, including HPE’s full-stack AI-native architecture, the company anticipates profitable growth in the next fiscal year as its AI business scales.

Bringing value across HPE portfolio to customers and shareholders through Compute

HPE’s strong competitive position in the Compute market produces cash flow to invest in the business and deliver capital return to shareholders. Demand for Compute includes cloud repatriation, new edge workloads, telco sector and service provider needs, and the emerging and growing call for AI-inferencing.

Gaining competitive advantage with HPE Financial Services

HPE Financial Services creates smarter IT lifecycle solutions through offerings that combine insights, financial expertise, and a deep-rooted focus on sustainable IT. The company expects higher demand from customers as they put more emphasis on finding ways to accelerate sustainability goals through HPE services and circular economy solutions.

Long-Term Financial Profile

HPE provided its long-term financial model for fiscal year 2024 through fiscal year 2026. HPE projects revenue growth of 2% to 4% in constant currency and a compounded annual growth rate for annualized revenue run-rate of 35% to 45%.

The company will continue to follow a disciplined, returns-based capital allocation framework, which balances capital returns to shareholders and share repurchases with balanced investments for growth while retaining its investment-grade credit rating.

The company also expressed its intent to target returning 65% to 75% of free cash flow to shareholders over the next three years. HPE’s recent historical target return rate has been between 50% and 60%.

FY24 Outlook

HPE expects fiscal year 2024 financial results to continue the momentum from fiscal year 2023 and deliver sustainable, profitable growth. The company forecasts its revenue growth to be 2% to 4%, in constant currency, with the effects of foreign exchange expected to be a 50-to-100-basis-point headwind. GAAP operating profit growth is forecasted to be 15% to 21%, and non-GAAP operating profit growth is forecasted to be approximately 3% to 5% year-over-year. This excludes costs of approximately $0.8 billion primarily related to stock-based compensation expense, transformation costs, amortization of intangible assets, and acquisition, disposition, and other related charges.

The company expects non-GAAP other income & expense of approximately $300 million to be a net expense for the full year, excluding any contributions from H3C. The company expects a structural non-GAAP tax rate of 15% based on current tax laws.

HPE is expecting fiscal year 2024 GAAP diluted net earnings per share (“EPS”) of $1.83 to $2.03 and non-GAAP diluted net EPS of between $1.82 and $2.02. The non-GAAP diluted net EPS outlook excludes after-tax costs of approximately one cent per share related primarily to stock-based compensation, amortization of intangible assets, acquisition, disposition and other related charges, structural tax rate adjustment, transformation costs, and adjustments for the sale of H3C. HPE expects fiscal year 2024 free cash flow to be $1.9 billion to $2.1 billion.3

The company is targeting an 8% increase in its dividend per share for fiscal 2024.4

FY23 Expectations

HPE forecasts revenue to grow 4% to 6%, in constant currency, with the effects of foreign exchange expected to be approximately a 300-basis-point headwind for the year. Fiscal 2023 GAAP operating profit growth is to be approximately 163% and non-GAAP operating profit growth is to be approximately 4%. This excludes costs of approximately $1.1 billion primarily related to stock-based compensation, transformation costs, amortization of intangible assets, and acquisition, disposition, and other related charges. Both operating profit growth forecasts are below earlier expectations.

Fiscal year 2023 GAAP diluted net EPS is forecasted to be in the range of $1.35 to $1.39, and non-GAAP diluted net EPS is forecasted to be in the range of $2.11 and $2.15. Fiscal 2023 non-GAAP diluted net EPS excludes after-tax costs of approximately $0.76 per share primarily related to stock-based compensation expense, transformation costs, amortization of intangible assets, acquisition, disposition and other related charges, and structural tax rate adjustments. Fiscal year 2023 free cash flow is expected to be between $1.9 billion and $2.1 billion.3

Webcast Details

A recording of today’s SAM webcast event, along with executives’ presentations and related materials, will be available on the HPE Investor Relations website at https://www.hpe.com/investor/SAM2023.

This press release contains only a summary of some of the information presented at today’s event and should be read in conjunction with the management presentations and related materials made available on that website.

1 HPE’s total addressable market (“TAM”) opportunity spans the impacts of the mega-trends we believe are shaping the IT industry, including at the edge, hybrid cloud, and artificial intelligence. For more information, please refer to the 2023 Securities Analyst Meeting presentation.

2 Annualized Revenue Run-Rate (“ARR”) is a financial metric used to assess the growth of the Consumption Services offerings. ARR represents the annualized revenue of all net HPE GreenLake edge-to-cloud platform services revenue, related financial services revenue (which includes rental income from operating leases and interest income from finance leases), and software-as-a-Service, software consumption revenue, and other as-a-Service offerings, recognized during a quarter and multiplied by four. We use ARR as a performance metric. ARR should be viewed independently of net revenue and is not intended to be combined with it.

3 Hewlett Packard Enterprise provides certain guidance on a non-GAAP basis. Hewlett Packard Enterprise is unable to provide a reconciliation to the most directly comparable GAAP financial measure without unreasonable efforts, as the Company cannot predict some elements that are included in such directly comparable GAAP financial measure. These elements could have a material impact on the Company’s reported GAAP results for the guidance period.

4 Subject to HPE Board of Directors approval.

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