HPE Reports Q1 Results

Forward-looking statements

This press release contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Hewlett Packard Enterprise may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to any projections of revenue, margins, expenses, effective tax rates, the impact of the U.S. Tax Cuts and Jobs Act of 2017, net earnings, net earnings per share, cash flows, benefit plan funding, deferred tax assets, share repurchases, currency exchange rates or other financial items; any projections of the amount, timing or impact of cost savings or restructuring charges; any statements of the plans, strategies and objectives of management for future operations, as well as the execution of corporate transactions or contemplated acquisitions, transformation and restructuring plans and any resulting benefit, cost savings or restructuring charges, revenue or profitability improvements; any statements concerning the expected development, performance, market share or competitive performance relating to products or services; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Hewlett Packard Enterprise and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements or assumptions underlying any of the foregoing.

Risks, uncertainties and assumptions include the need to address the many challenges facing Hewlett Packard Enterprise’s businesses; the competitive pressures faced by Hewlett Packard Enterprise’s businesses; risks associated with executing Hewlett Packard Enterprise’s strategy; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of Hewlett Packard Enterprise’s products and the delivery of Hewlett Packard Enterprise’s services effectively; the protection of Hewlett Packard Enterprise’s intellectual property assets, including intellectual property licensed from third parties and intellectual property shared with its former Parent; risks associated with Hewlett Packard Enterprise’s international operations (including pandemics and public health problems, such as the outbreak of novel coronavirus (COVID-19)); the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; the execution and performance of contracts by Hewlett Packard Enterprise and its suppliers, customers, clients and partners, including any impact thereon resulting from events such as the coronavirus; the hiring and retention of key employees; execution, integration and other risks associated with business combination and investment transactions; and the execution, timing and results of any transformation or restructuring plans, including estimates and assumptions related to the cost (including any possible disruption of Hewlett Packard Enterprise's business) and the anticipated benefits of the transformation and restructuring plans; the effects of the U.S. Tax Cuts and Jobs Act and related guidance and regulations; the resolution of pending investigations, claims and disputes; and other risks that are described in Hewlett Packard Enterprise’s Annual Report on Form 10-K for the fiscal year ended October 31, 2019.

As in prior periods, the financial information set forth in this press release, including tax-related items, reflects estimates based on information available at this time. While Hewlett Packard Enterprise believes these estimates to be reasonable, these amounts could differ materially from reported amounts in the Hewlett Packard Enterprise Quarterly Report on Form 10-Q for the first quarter ended January 31, 2020. Hewlett Packard Enterprise assumes no obligation and does not intend to update these forward-looking statements.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)

 

 

 

Three months ended

 

January 31,
2020

 

October 31,
2019

 

January 31,
2019

Net revenue

$

6,949

 

 

$

7,215

 

 

$

7,553

 

Costs and expenses:

 

 

 

 

 

Cost of sales

4,667

 

 

4,822

 

 

5,207

 

Research and development

485

 

 

438

 

 

466

 

Selling, general and administrative

1,218

 

 

1,229

 

 

1,211

 

Amortization of intangible assets

120

 

 

68

 

 

72

 

Transformation costs

89

 

 

151

 

 

78

 

Acquisition, disposition and other related charges

22

 

 

47

 

 

63

 

Total costs and expenses

6,601

 

 

6,755

 

 

7,097

 

Earnings from operations

348

 

 

460

 

 

456

 

Interest and other, net

(19

)

 

(38

)

 

(51

)

Tax indemnification adjustments (a)

(21

)

 

288

 

 

219

 

Non-service net periodic benefit credit

37

 

 

14

 

 

16

 

Earnings (loss) from equity interests

33

 

 

(1

)

 

15

 

Earnings before taxes

378

 

 

723

 

 

655

 

Provision for taxes (b)

(45

)

 

(243

)

 

(478

)

Net earnings

$

333

 

 

$

480

 

 

$

177

 

Net earnings per share:

 

 

 

 

 

Basic

$

0.26

 

 

$

0.37

 

 

$

0.13

 

Diluted

$

0.25

 

 

$

0.36

 

 

$

0.13

 

Cash dividends declared per share

$

0.1200

 

 

$

0.1200

 

 

$

0.1125

 

Weighted-average shares used to compute net earnings per share:

 

 

 

 

 

Basic

1,300

 

 

1,308

 

 

1,401

 

Diluted

1,315

 

 

1,323

 

1,412

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS,
OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except percentages and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months

ended January

31, 2020

 

Diluted net

earnings

per share

 

Three months

ended
October 31,

2019

 

Diluted net

earnings

per share

 

Three months

ended January

31, 2019

 

Diluted net

earnings

per share

GAAP net earnings

$

333

 

 

$

0.25

 

 

$

480

 

 

$

0.36

 

 

$

177

 

 

$

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

 

 

 

Amortization of initial direct costs

3

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

120

 

 

0.09

 

 

68

 

 

0.05

 

 

72

 

 

0.05

 

Transformation costs

89

 

 

0.07

 

 

151

 

 

0.11

 

 

78

 

 

0.06

 

Acquisition, disposition and other related charges

42

 

 

0.03

 

 

54

 

 

0.04

 

 

63

 

 

0.04

 

Tax indemnification adjustments (a)

21

 

 

0.02

 

 

(288

)

 

(0.22

)

 

(219

)

 

(0.16

)

Non-service net periodic benefit credit

(37

)

 

(0.03

)

 

(14

)

 

(0.01

)

 

(16

)

 

(0.01

)

Loss from equity interests (c)

37

 

 

0.03

 

 

38

 

 

0.03

 

 

38

 

 

0.03

 

Adjustments for taxes (b)(d)

(33

)

 

(0.02

)

 

155

 

 

0.13

 

 

397

 

 

0.28

 

Non-GAAP net earnings

$

575

 

 

$

0.44

 

 

$

644

 

 

$

0.49

 

 

$

590

 

 

$

0.42

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP earnings from operations

$

348

 

 

 

 

$

460

 

 

 

 

$

456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP adjustments

 

 

 

 

 

 

 

 

 

 

 

Amortization of initial direct costs

3

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

120

 

 

 

 

68

 

 

 

 

72

 

 

 

Transformation costs

89

 

 

 

 

151

 

 

 

 

78

 

 

 

Acquisition, disposition and other related charges

42

 

 

 

 

54

 

 

 

 

63

 

 

 

Non-GAAP earnings from operations

$

602

 

 

 

 

$

733

 

 

 

 

$

669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating margin

5

%

 

 

 

6

%

 

 

 

6

%

 

 

Non-GAAP adjustments

4

%

 

 

 

4

%

 

 

 

3

%

 

 

Non-GAAP operating margin

9

%

 

 

 

10

%

 

 

 

9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except par value)

 

 

 

As of

 

January 31, 2020

 

October 31, 2019

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

3,171

 

 

$

3,753

 

Accounts receivable, net of allowance for doubtful accounts

2,864

 

 

2,957

 

Financing receivables, net of allowance for doubtful accounts

3,591

 

 

3,572

 

Inventory

2,560

 

 

2,387

 

Assets held for sale

12

 

 

46

 

Other current assets

2,553

 

 

2,428

 

Total current assets

14,751

 

 

15,143

 

Property, plant and equipment

5,711

 

 

6,054

 

Long-term financing receivables and other assets (e)

10,179

 

 

8,918

 

Investments in equity interests

2,290

 

 

2,254

 

Goodwill and intangible assets

19,313

 

 

19,434

 

Total assets

$

52,244

 

 

$

51,803

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Notes payable and short-term borrowings

$

4,510

 

 

$

4,425

 

Accounts payable

5,332

 

 

5,595

 

Employee compensation and benefits

1,009

 

 

1,522

 

Taxes on earnings

173

 

 

186

 

Deferred revenue

3,267

 

 

3,234

 

Accrued restructuring

184

 

 

195

 

Other accrued liabilities (e)

4,279

 

 

4,002

 

Total current liabilities

18,754

 

 

19,159

 

Long-term debt

9,362

 

 

9,395

 

Other non-current liabilities (e)

6,885

 

 

6,100

 

Stockholders’ equity

 

 

 

HPE stockholders’ equity:

 

 

 

Preferred stock, $0.01 par value (300 shares authorized; none issued)

 

 

 

Common stock, $0.01 par value (9,600 shares authorized; 1,293 and 1,294 shares issued and outstanding at January 31, 2020 and October 31, 2019, respectively)

13

 

 

13

 

Additional paid-in capital

28,287

 

 

28,444

 

Accumulated deficit (f)

(7,411

)

 

(7,632

)

Accumulated other comprehensive loss (f)

(3,700

)

 

(3,727

)

Total HPE stockholders’ equity

17,189

 

 

17,098

 

Non-controlling interests

54

 

 

51

 

Total stockholders’ equity

17,243

 

 

17,149

 

Total liabilities and stockholders’ equity

$

52,244

 

$

51,803

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)

 

Three months ended

January 31, 2020

 

Three months ended

January 31, 2019

Cash flows from operating activities:

 

 

 

Net earnings

$

333

 

 

$

177

 

Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:

 

 

 

Depreciation and amortization

690

 

 

639

 

Stock-based compensation expense

93

 

 

75

 

Provision for doubtful accounts and inventory

41

 

 

42

 

Restructuring charges

84

 

 

33

 

Deferred taxes on earnings

(28

)

 

370

 

Earnings from equity interests

(33

)

 

(15

)

Other, net

(36

)

 

46

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

Accounts receivable

82

 

 

113

 

Financing receivables

(104

)

 

(156

)

Inventory

(204

)

 

99

 

Accounts payable

(250

)

 

(256

)

Taxes on earnings

(27

)

 

(107

)

Restructuring

(87

)

 

(110

)

Other assets and liabilities

(633

)

 

(568

)

Net cash (used in) provided by operating activities

(79

)

 

382

 

Cash flows from investing activities:

 

 

 

Investment in property, plant and equipment

(568

)

 

(729

)

Proceeds from sale of property, plant and equipment

462

 

 

157

 

Purchases of available-for-sale securities and other investments

(59

)

 

(5

)

Maturities and sales of available-for-sale securities and other investments

8

 

 

1

 

Financial collateral posted

(48

)

 

(245

)

Financial collateral returned

147

 

 

281

 

Payments made in connection with business acquisitions, net of cash acquired

(6

)

 

(76

)

Net cash used in investing activities

(64

)

 

(616

)

Cash flows from financing activities:

 

 

 

Short-term borrowings with original maturities less than 90 days, net

127

 

 

(12

)

Proceeds from debt, net of issuance costs

340

 

 

389

 

Payment of debt

(450

)

 

(334

)

Net proceeds related to stock-based award activities

(43

)

 

(17

)

Repurchase of common stock

(204

)

 

(814

)

Contributions from non-controlling interests

1

 

Cash dividends paid

(156

)

 

(157

)

Net cash used in financing activities

(385

)

 

(945

)

Decrease in cash, cash equivalents and restricted cash

(528

)

 

(1,179

)

Cash, cash equivalents and restricted cash at beginning of period

4,076

 

 

5,084

 

Cash, cash equivalents and restricted cash at end of period

$

3,548

 

$

3,905

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

(In millions)

 

 

 

 

 

Three months ended

 

 

January 31,
2020

 

October 31,
2019

 

January 31,
2019

Net revenue: (g)

 

 

 

 

 

 

Compute

 

$

3,011

 

 

$

3,349

 

 

$

3,575

 

HPC & MCS

 

823

 

 

777

 

 

779

 

Storage

 

1,250

 

 

1,256

 

 

1,356

 

A & PS

 

243

 

 

269

 

 

241

 

Intelligent Edge

 

720

 

 

742

 

 

705

 

Financial Services

 

859

 

 

878

 

 

919

 

Corporate Investments

 

121

 

 

134

 

 

118

 

Total segment net revenue

 

7,027

 

 

7,405

 

 

7,693

 

Elimination of intersegment net revenue and other

 

(78

)

 

(190

)

 

(140

)

Total Hewlett Packard Enterprise consolidated net revenue

 

$

6,949

 

 

$

7,215

 

 

$

7,553

 

 

 

 

 

 

 

 

Earnings before taxes: (g)

 

 

 

 

 

 

Compute

 

$

286

 

 

$

464

 

 

$

340

 

HPC & MCS

 

49

 

 

79

 

 

98

 

Storage

 

226

 

 

219

 

 

254

 

A & PS

 

(2

)

 

1

 

 

(32

)

Intelligent Edge

 

70

 

 

46

 

 

24

 

Financial Services

 

73

 

 

74

 

 

77

 

Corporate Investments

 

(27

)

 

(26

)

 

(28

)

Total segment earnings from operations

 

675

 

 

857

 

 

733

 

 

 

 

 

 

 

 

Unallocated corporate costs and eliminations

 

(52

)

 

(107

)

 

(50

)

Unallocated stock-based compensation expense

 

(21

)

 

(17

)

 

(14

)

Amortization of initial direct costs

 

(3

)

 

 

 

 

Amortization of intangible assets

 

(120

)

 

(68

)

 

(72

)

Transformation costs

 

(89

)

 

(151

)

 

(78

)

Acquisition, disposition and other related charges

 

(42

)

 

(54

)

 

(63

)

Interest and other, net

 

(19

)

 

(38

)

 

(51

)

Tax indemnification adjustments (a)

 

(21

)

 

288

 

 

219

 

Non-service net periodic benefit credit

 

37

 

 

14

 

 

16

 

Earnings (loss) from equity interests

 

33

 

 

(1

)

 

15

 

Total Hewlett Packard Enterprise consolidated earnings before taxes

 

$

378

 

 

$

723

 

 

$

655

 

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions, except percentages)

 

 

 

 

 

Three months ended

 

Change (%)

 

January 31,

2020

 

October 31,

2019

 

January 31,

2019

 

Q/Q

 

Y/Y

Net revenue: (g)

 

 

 

 

 

 

 

 

 

Compute

$

3,011

 

 

$

3,349

 

 

$

3,575

 

 

(10

%)

 

(16

%)

HPC & MCS

823

 

 

777

 

 

779

 

 

6

%

 

6

%

Storage

1,250

 

 

1,256

 

 

1,356

 

 

%

 

(8

%)

A & PS

243

 

 

269

 

 

241

 

 

(10

%)

 

1

%

Intelligent Edge

720

 

 

742

 

 

705

 

 

(3

%)

 

2

%

Financial Services

859

 

 

878

 

 

919

 

 

(2

%)

 

(7

%)

Corporate Investments

121

 

 

134

 

 

118

 

 

(10

%)

 

3

%

Total segment net revenue

7,027

 

 

7,405

 

 

7,693

 

 

(5

%)

 

(9

%)

Elimination of intersegment net revenue and other

(78

)

 

(190

)

 

(140

)

 

(59

%)

 

(44

%)

Total Hewlett Packard Enterprise consolidated net revenue

$

6,949

 

 

$

7,215

 

 

$

7,553

 

 

(4

%)

 

(8

%)

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY DATA
(Unaudited)

 

 

 

 

 

 

 

Three months ended

 

Change in Operating
Margin (pts)

 

 

January 31, 2020

 

Q/Q

 

Y/Y

Segment operating margin: (g)

 

 

 

 

 

 

Compute

 

9.5

%

 

-4.4 pts.

 

0.0 pts.

HPC & MCS

 

6.0

%

 

-4.2 pts.

 

-6.6 pts.

Storage

 

18.1

%

 

0.7 pts.

 

-0.6 pts.

A & PS

 

(0.8

)%

 

-1.2 pts.

 

12.5 pts.

Intelligent Edge

 

9.7

%

 

3.5 pts.

 

6.3 pts.

Financial Services

 

8.5

%

 

0.1 pts.

 

0.1 pts.

Corporate Investments

 

(22.3

)%

 

-2.9 pts

 

1.4 pts.

Total segment operating margin

 

9.6

%

 

-2.0 pts

 

0.1 pts.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS (LOSS) PER SHARE
(Unaudited)
(In millions, except per share amounts)

 

 

 

Three months ended

 

January 31,
2020

 

October 31,
2019

 

January 31,
2019

Numerator:

 

 

 

 

 

GAAP net earnings

$

333

 

$

480

 

$

177

Non-GAAP net earnings

$

575

 

$

644

 

$

590

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Weighted-average shares used to compute basic net earnings per share

1,300

 

1,308

 

1,401

Dilutive effect of employee stock plans (h)

15

 

15

 

11

Weighted-average shares used to compute diluted net earnings per share

1,315

 

1,323

 

1,412

 

 

 

 

 

 

GAAP net earnings per share

 

 

 

 

 

Basic

$

0.26

 

$

0.37

 

$

0.13

Diluted (h)

$

0.25

 

$

0.36

 

$

0.13

 

 

 

 

 

 

Non-GAAP net earnings per share

 

 

 

 

 

Basic

$

0.44

 

$

0.49

 

$

0.42

Diluted (h)

$

0.44

 

$

0.49

 

$

0.42

 

 

 

 

 

 

(a)

For the three months ended October 31, 2019, the amount was due primarily to the termination of the Tax Matters Agreement with HP Inc. For the three months ended January 31, 2019, the amount primarily includes the effects of U.S. tax reform on tax attributes related to fiscal periods prior to the Separation.

 

 

(b)

The three months ended October 31, 2019 and January 31, 2019, include $123 million and $419 million of net income tax charges related to changes in U.S. federal and state valuation allowances as a result of impacts of the Tax Cuts and Jobs Act of 2017 (the "Tax Act").

 

 

(c)

Represents the amortization of basis difference adjustments related to the H3C divestiture.

 

 

(d)

Effective the first quarter of fiscal 2019, the Company uses a structural tax rate based on long-term non-GAAP financial projections.

 

 

(e)

The Company adopted the new accounting standard for leases in the first quarter of fiscal 2020 which requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset for the lease term. The Company elected the modified retrospective transition method whereby prior comparative periods are not restated. Adoption of the new lease standard resulted in the recognition of $1.0 billion of ROU assets and $1.1 billion of lease liabilities on the Company’s Condensed Consolidated Balance Sheet.

 

 

(f)

The Company adopted an accounting standard update in the first quarter of fiscal 2020 that allowed it to reclassify $43 million of stranded tax effects resulting from U.S. tax reform from accumulated other comprehensive loss into accumulated deficit.

 

 

(g)

Effective at the beginning of the first quarter of fiscal 2020, Hewlett Packard Enterprise Company ("HPE") implemented certain organizational changes to align its segment financial reporting more closely with its current business structure. As a result of these organizational changes, HPE replaced the Hybrid IT reportable segment (and the Compute, Storage and HPE Pointnext business units within it) with four new financial reporting segments: Compute, High Performance Compute & Mission-Critical Systems ("HPC & MCS"), Storage, and Advisory and Profession Services ("A & PS").

 

 

 

In addition, the HPE Aruba Services business unit of the Intelligent Edge segment now includes the Data Center Networking ("DC Networking") operational services business that was previously a part of the Hybrid IT-HPE Pointnext business unit. The DC Networking business, other than operational services, had been transferred to the Intelligent Edge segment in a prior realignment.

 

 

 

The Company reflected these changes to its segment information retrospectively to the earliest period presented, which primarily resulted in the transfer of net revenue and operating profit for each of the businesses as described above. These changes had no impact on Hewlett Packard Enterprise’s previously reported consolidated net revenue, net earnings or net earnings per share ("EPS").

 

 

(h)

Diluted net earnings per share reflects any dilutive effect of restricted stock awards, stock options and performance-based awards.


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