10-QPeriod: Q3 FY2017

Hewlett Packard Enterprise Co Quarterly Report for Q3 Ended Jul 31, 2017

Filed September 7, 2017For Securities:HPEHPE-PC

Summary

Hewlett Packard Enterprise (HPE) reported net revenue of $8.21 billion for the third quarter of fiscal year 2017, a 2.5% increase year-over-year, driven by growth in Networking and Financial Services. However, net revenue for the first nine months of the year decreased by 7.3% to $23.21 billion, impacted by declines in the Server and Networking businesses, partly due to the prior year's H3C divestiture. The company experienced a significant drop in net earnings from continuing operations to $0.25 billion in Q3 FY17 from $2.46 billion in Q3 FY16, and a net loss of $180 million for the first nine months of FY17 compared to a net earning of $2.86 billion in the same period last year. This was heavily influenced by substantial restructuring, separation, and acquisition-related costs, as well as a significant gain from the H3C divestiture in the prior year. Significant corporate actions during the period include the completion of the Enterprise Services business separation and merger with CSC (forming DXC Technology) and progress towards the Software segment separation and merger with Micro Focus. These strategic moves aim to streamline HPE's portfolio, though they also contributed to the increased costs and complexities reported in the financial statements. The company maintained a strong cash position, ending the quarter with $7.76 billion in cash and cash equivalents, though this was a decrease from the previous quarter due to debt payments, share repurchases, and acquisition spending.

Financial Highlights

50 data points
Beta

Revenue

$7.50B

29.3% Gross Margin

Net Income

$165.00M

2.2% Net Margin

EPS (Diluted)

$0.10

Total Assets

$70.93B

Cash & Equivalents

$7.76B

Free Cash Flow

$955.00M

Financial Statements
Beta
Revenue$7.50B
Cost of Revenue$5.31B
Gross Profit$2.19B
R&D Expenses$390.00M
SG&A Expenses$1.28B
Operating Expenses$7.30B
Operating Income$201.00M
Interest Expense$164.00M
Net Income$165.00M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)1.64B
Shares Outstanding (Diluted)1.67B

Key Highlights

  • 1Net revenue increased 2.5% to $8.21 billion in Q3 FY17 compared to the prior year, driven by strong performance in Networking and Financial Services.
  • 2Net earnings from continuing operations significantly decreased to $0.25 billion in Q3 FY17 from $2.46 billion in Q3 FY16, and the company reported a net loss of $180 million for the first nine months of FY17.
  • 3The company incurred substantial restructuring, separation, and acquisition-related costs, impacting profitability.
  • 4Completed the separation and merger of its Enterprise Services business with CSC (forming DXC Technology) on April 1, 2017.
  • 5Progressed with the separation and merger of its Software segment with Micro Focus, completed on September 1, 2017.
  • 6Cash and cash equivalents ended the quarter at $7.76 billion, a decrease from $12.99 billion at the end of FY16, attributed to debt payments, share repurchases, and acquisition spending.
  • 7Enterprise Group revenue saw a modest increase in Q3 FY17 but declined year-over-year for the first nine months, primarily due to challenges in Servers and Networking.

Frequently Asked Questions

HPE showed a modest increase in net revenue in the third quarter of fiscal year 2017, driven by specific segments like Networking and Financial Services. However, the company reported a significant decline in net earnings and a net loss for the nine-month period, largely due to substantial restructuring and separation costs, as well as the impact of divestitures and acquisitions.

HPE completed the separation and merger of its Enterprise Services business with CSC, forming DXC Technology. They also proceeded with the separation and merger of their Software segment with Micro Focus. These are significant strategic moves aimed at portfolio optimization and operational focus.

HPE's cash and cash equivalents decreased significantly from the previous fiscal year-end to $7.76 billion at July 31, 2017. This reduction was primarily due to debt repayments, share repurchases, and acquisition expenditures. Despite the decrease, the company maintained substantial cash reserves and access to credit facilities.

Management identified key challenges including market shifts towards cloud computing and SaaS models, intense competition, and the need to improve go-to-market execution. Specifically within the Enterprise Group, they noted challenges in Servers and Storage due to cloud migration and competitive pricing. The Software segment faces pressure from the SaaS shift and transition-related disruptions.