10-QPeriod: Q3 FY2020

Hewlett Packard Enterprise Co Quarterly Report for Q3 Ended Jul 31, 2020

Filed September 3, 2020For Securities:HPEHPE-PC

Summary

Hewlett Packard Enterprise (HPE) reported its third-quarter fiscal year 2020 results, showing a decline in net revenue and a net loss. The company experienced a significant decrease in revenue across most segments, largely attributed to the ongoing impact of the COVID-19 pandemic on global demand and supply chain disruptions. Despite the revenue challenges, HPE is actively managing costs and has initiated a cost optimization and prioritization plan. The company also reported a goodwill impairment charge of $865 million related to the HPC & MCS segment. HPE's liquidity position remains strong, with a substantial increase in cash and cash equivalents driven by debt issuances and operating activities. The company has taken actions to manage expenses, including suspending share repurchases and implementing temporary salary adjustments for some employees. Looking ahead, HPE anticipates continued impacts from COVID-19 but sees opportunities to leverage its edge-to-cloud, as-a-service strategy to meet evolving customer needs.

Financial Highlights

50 data points
Beta

Revenue

$6.82B

30.3% Gross Margin

Net Income

$9.00M

0.1% Net Margin

EPS (Diluted)

$0.01

Total Assets

$58.24B

Cash & Equivalents

$8.46B

Free Cash Flow

$1.47B

Financial Statements
Beta
Revenue$6.82B
Cost of Revenue$4.75B
Gross Profit$2.07B
R&D Expenses$455.00M
SG&A Expenses$1.13B
Operating Expenses$6.80B
Operating Income$12.00M
Net Income$9.00M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)1.29B
Shares Outstanding (Diluted)1.30B

Key Highlights

  • 1Net revenue for the third quarter of fiscal year 2020 decreased by 5.6% year-over-year to $6.8 billion, impacted by COVID-19 and global demand challenges.
  • 2The company reported a net loss of $479 million for the nine months ended July 31, 2020, a significant decline from a net earning of $569 million in the prior year period.
  • 3A goodwill impairment charge of $865 million was recorded in the second quarter of fiscal 2020 for the HPC & MCS reporting unit, primarily due to the macroeconomic impacts of COVID-19.
  • 4HPE initiated a cost optimization and prioritization plan aimed at achieving at least $1.0 billion in gross savings by fiscal year 2022.
  • 5Cash, cash equivalents, and restricted cash increased by approximately $4.8 billion to $8.9 billion as of July 31, 2020, driven by debt issuances and operating activities.
  • 6The company suspended its share repurchase program in April 2020 due to economic uncertainty related to COVID-19.

Frequently Asked Questions

The primary driver of the revenue decline was the ongoing impact of the COVID-19 pandemic. This led to a weak and uncertain global demand environment, supply chain disruptions, and lockdown restrictions, which affected sales across most of HPE's business segments.

The goodwill impairment charge of $865 million relates to the HPC & MCS reporting unit. It indicates that the fair value of this unit fell below its carrying value, primarily due to the macroeconomic impacts of COVID-19 on projected revenue growth and profitability. This reflects a substantial decrease in the perceived value of that segment of the business.

HPE is focusing on cost management through a cost optimization and prioritization plan aimed at significant savings. They have also suspended share repurchases, implemented temporary cost-saving measures for employees, and maintained a strong liquidity position with increased cash reserves. The company believes its as-a-service strategy is well-aligned with customer needs in the current environment.

HPE expects continued impacts from COVID-19 but also sees opportunities to support customers navigating digital transformations. The company is actively monitoring the situation and its effect on operations and demand. The full extent of the impact remains uncertain and dependent on various external factors related to the pandemic's duration and economic consequences.