10-QPeriod: Q3 FY2023

Hewlett Packard Enterprise Co Quarterly Report for Q3 Ended Jul 31, 2023

Filed September 1, 2023For Securities:HPEHPE-PC

Summary

Hewlett Packard Enterprise (HPE) reported solid results for the third quarter and first nine months of fiscal year 2023. Total net revenue saw a modest increase of 0.7% year-over-year for the quarter, reaching $7.0 billion, and a more substantial 5.6% increase to $21.8 billion for the nine-month period. This growth was primarily driven by strong performance in the Intelligent Edge segment and higher average unit prices across several segments. Gross profit margin improved by 1.3 percentage points in the quarter and 1.8 percentage points for the nine-month period, reflecting higher-margin revenue, improved supply chain costs, and favorable pricing. The company also demonstrated significant operational leverage, with earnings from operations increasing by 1.1% for the quarter and a notable 41.1% for the nine-month period. Diluted earnings per share saw a corresponding increase to $0.35 for the quarter and $1.05 for the nine months. HPE continues to focus on its 'as-a-service' offerings, highlighted by a substantial 48% year-over-year increase in Annualized Revenue Run-rate (ARR) to $1.27 billion, indicating strong growth in its GreenLake platform. Free cash flow also showed improvement, increasing to $955 million for the quarter, though it remained negative for the year-to-date period at $(83) million.

Financial Highlights

48 data points
Beta

Revenue

$7.00B

Net Income

$464.00M

6.6% Net Margin

EPS (Diluted)

$0.35

Total Assets

$56.41B

Cash & Equivalents

$2.92B

Free Cash Flow

$1.52B

Financial Statements
Beta
Revenue$7.00B
R&D Expenses$578.00M
SG&A Expenses$1.30B
Operating Expenses$6.53B
Operating Income$471.00M
Net Income$464.00M
EPS (Basic)$0.36
EPS (Diluted)$0.35
Shares Outstanding (Basic)1.30B
Shares Outstanding (Diluted)1.32B

Key Highlights

  • 1Net revenue increased by 0.7% to $7.0 billion for the third quarter and 5.6% to $21.8 billion for the nine months ended July 31, 2023.
  • 2Gross profit margin improved by 1.3 percentage points to 35.8% for the quarter and 1.8 percentage points to 35.3% for the nine-month period.
  • 3Earnings from operations increased by 1.1% to $471 million for the quarter and 41.1% to $1.6 billion for the nine-month period.
  • 4Diluted Earnings Per Share (EPS) rose to $0.35 for the quarter and $1.05 for the nine months, up from $0.31 and $0.88 respectively in the prior year.
  • 5Annualized Revenue Run-rate (ARR) surged by 48% year-over-year to $1.27 billion, driven by the HPE GreenLake platform.
  • 6Free Cash Flow improved significantly, reaching $955 million for the quarter, though it was $(83) million for the nine-month period.
  • 7Intelligent Edge segment showed robust growth, with net revenue up 50.4% for the quarter and 42.0% for the nine months.

Frequently Asked Questions

HPE demonstrated positive financial performance in Q3 FY23. Net revenue grew slightly year-over-year to $7.0 billion, driven by strong performance in the Intelligent Edge segment and increased average unit prices. Profitability metrics improved, with gross profit margin and earnings from operations showing increases. The company also saw significant growth in its Annualized Revenue Run-rate (ARR), indicating strong momentum in its 'as-a-service' offerings.

The Intelligent Edge segment was a standout performer, with net revenue increasing by 50.4% year-over-year, primarily due to higher average unit prices and improved supply chain conditions. The Compute segment experienced a revenue decline, largely due to lower server unit volumes, while HPC & AI and Storage segments saw modest changes. Financial Services revenue grew due to higher rental revenue and finance income.

HPE's outlook suggests continued focus on 'as-a-service' offerings and the GreenLake platform, as evidenced by the significant ARR growth. Despite a mixed macroeconomic environment with some customer conservatism, the company anticipates moderating revenue growth in the near term. However, improved gross margins, cost optimization efforts, and operational efficiencies are expected to support profitability. The company also highlighted ongoing investments in R&D, particularly for Intelligent Edge and HPC & AI, to drive future innovation.

HPE continues to return capital to shareholders through quarterly dividends. The company also has an ongoing share repurchase program, with $1.0 billion remaining authorization as of July 31, 2023. The company also plans to use proceeds from the H3C share sale, which is expected to bring in $3.5 billion, for various capital allocation activities including strategic investments, debt repayment, and returning capital to shareholders.