10-QPeriod: Q1 FY2016

Hewlett Packard Enterprise Co Quarterly Report for Q1 Ended Jan 31, 2016

Filed March 10, 2016For Securities:HPEHPE-PC

Summary

Hewlett Packard Enterprise (HPE) reported its first quarter fiscal year 2016 results, ending January 31, 2016, following its separation from HP Inc. on November 1, 2015. Total net revenue for the quarter was $12.72 billion, a decrease of 2.5% (3.8% on a constant currency basis) compared to the prior year period. This decline was primarily driven by unfavorable currency impacts and revenue shortfalls in the Enterprise Services (ES) and Software segments, partially offset by growth in the Enterprise Group (EG) segment, particularly in Networking. Net earnings for the quarter were $267 million, or $0.15 per diluted share, down from $547 million, or $0.30 per diluted share, in the prior year. The decrease in profitability was influenced by higher operating expenses related to restructuring charges, separation costs, and amortization of intangible assets, despite an improvement in gross margin driven by service delivery efficiencies in ES. HPE continues to navigate market shifts towards cloud computing and competitive pressures, while also undertaking significant restructuring efforts, including a new plan announced in September 2015 expecting approximately 30,000 employee exits by the end of 2018.

Financial Highlights

52 data points
Beta

Revenue

$12.72B

74.0% Gross Margin

Net Income

$267.00M

2.1% Net Margin

EPS (Diluted)

$0.15

Total Assets

$77.35B

Cash & Equivalents

$8.51B

Free Cash Flow

-$75.00M

Financial Statements
Beta
Revenue$12.72B
Cost of Revenue$3.31B
Gross Profit$9.41B
R&D Expenses$585.00M
SG&A Expenses$2.00B
Operating Expenses$12.34B
Operating Income$384.00M
Interest Expense$138.00M
Net Income$267.00M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)1.76B
Shares Outstanding (Diluted)1.78B

Key Highlights

  • 1Total net revenue for Q1 FY16 was $12.72 billion, a 2.5% decrease year-over-year (3.8% increase on a constant currency basis).
  • 2Net earnings were $267 million, or $0.15 per diluted share, down from $547 million ($0.30/share) in Q1 FY15.
  • 3Enterprise Group (EG) revenue increased 1.0% driven by Networking, partially offset by declines in Technology Services and Storage.
  • 4Enterprise Services (ES) revenue decreased 6.1% due to unfavorable currency and revenue runoff, though gross margin improved due to efficiencies.
  • 5Software revenue declined 10.3% due to market shifts to SaaS and business divestitures.
  • 6The company incurred significant restructuring charges ($311 million) and separation costs ($79 million) related to ongoing restructuring plans and the recent spin-off.
  • 7HPE completed $1.2 billion in share repurchases during the quarter, including an accelerated share repurchase agreement.

Frequently Asked Questions

In its first reported quarter as an independent company (ending January 31, 2016), HPE saw a 2.5% year-over-year decline in net revenue to $12.72 billion. Net earnings also decreased significantly to $267 million ($0.15/share) from $547 million ($0.30/share) in the prior year. This performance reflects ongoing market challenges, currency headwinds, and significant investments in restructuring and separation activities.

The primary drivers for the revenue decline were unfavorable currency impacts (though the constant currency growth was positive at 3.8%), a decrease in revenue within the Enterprise Services (ES) segment due to revenue runoff, and declines in the Software segment. The Enterprise Group (EG) segment showed some growth, particularly in Networking, which partially offset these declines.

HPE is actively engaged in restructuring initiatives, including a significant plan announced in September 2015 aimed at streamlining operations and expecting around 30,000 employee exits by the end of 2018. The company is focusing on innovation in areas like cloud, big data, and security, while also working to improve operational efficiencies and sales execution to navigate evolving market trends and competitive pressures.

As of January 31, 2016, HPE had $8.5 billion in cash and cash equivalents. The company generated negative cash flow from operations ($75 million) during the quarter, largely due to working capital changes and lower earnings, but also completed $1.2 billion in share repurchases. HPE has a $4.0 billion revolving credit facility and significant commercial paper programs available for liquidity if needed.