01—Abstract
Summary
Summary of the 8-K filed February 29, 2024. Cited figures are marked; the original filing is the authoritative source.
Hewlett Packard Enterprise (HPE) reported fiscal Q1 2024 results (quarter ended January 31, 2024) that were mixed: profitability beat expectations, but top-line revenue fell sharply.
Revenue was $6.8 billiona, down 14% year over year in both actual and constant currency terms, driven by a 23% decline in Server revenue and a 10% decline in Hybrid Cloud, partly offset by a 3% increase in Intelligent Edge. Management attributed the weakness to a softening networking market and timing of GPU deals. GAAP diluted EPS was $0.29 (down 24% year over year) and non-GAAP diluted EPS was $0.48 (down 24%), both at or above the midpoint or high end of guidance.
Gross margins improved, with GAAP gross margin up 240 basis points to 36.4% and non-GAAP gross margin at 36.2%. Cash generation was weak in the quarter. Operating cash flow was $64 millionb, and free cash flow was negative $482 million, although both improved substantially from the prior-year period.
Inventory rose to $6.0 billionc from $4.6 billion at fiscal year-end, and accounts payable increased, which weighed on cash. Annualized revenue run-rate (ARR), the company's key recurring-revenue metric, grew 42% year over year to $1.4 billion, signaling continued progress in its as-a-service strategy. Capital returns totaled $172 million through dividends and buybacks.
Looking ahead, HPE guided fiscal Q2 revenue to $6.6 to $7.0 billiond and non-GAAP EPS to $0.36 to $0.41. For full-year fiscal 2024, it expects revenue growth of flat to 2% in constant currency, non-GAAP operating profit growth of flat to 2%, non-GAAP EPS of $1.82 to $1.92, and free cash flow of at least $1.9 billion. The company also declared a $0.13 quarterly dividend, and the filing references the pending acquisition of Juniper Networks, which carries integration and completion risk.
02—Key points
Key Highlights
- Revenue fell 14% year over year to $6.8 billion, led by a 23% drop in Server revenue to $3.4 billion, while Intelligent Edge grew 3% to $1.2 billion.
- Profitability beat expectations: non-GAAP diluted EPS of $0.48 landed at the high end of the $0.42 to $0.50 guidance range, and GAAP EPS of $0.29 exceeded the guidance midpoint.
- Gross margin expanded, with GAAP gross margin up 240 bps year over year to 36.4% and non-GAAP gross margin at 36.2%.
- Free cash flow was negative $482 million in the quarter, though this was an $844 million improvement from the prior-year period; inventory build of about $1.4 billion weighed on cash.
- Annualized revenue run-rate (ARR) rose 42% year over year to $1.4 billion, reflecting continued growth in recurring as-a-service revenue.
- Fiscal 2024 outlook calls for flat to 2% constant-currency revenue growth, non-GAAP EPS of $1.82 to $1.92, and free cash flow of at least $1.9 billion.
- The Board declared a regular quarterly dividend of $0.13 per share, payable April 12, 2024, to holders of record on March 15, 2024.
03—Questions
Frequently Asked Questions
Why did HPE's revenue decline so sharply this quarter?
Revenue fell 14% year over year to $6.8 billion. Management cited a softening networking market and the timing of GPU deals, with Server revenue down 23% and Hybrid Cloud down 10%. Intelligent Edge, which grew 3%, was the only major segment to increase.
Did HPE meet its earnings expectations despite the revenue decline?
Yes. Non-GAAP diluted EPS of $0.48 was at the high end of the $0.42 to $0.50 guidance range, and GAAP EPS of $0.29 was above the midpoint of its $0.24 to $0.32 range. Margin improvement, particularly in gross margin and Intelligent Edge profitability, supported the results.
Why was free cash flow negative, and is it expected to recover?
Free cash flow was negative $482 million, largely due to a roughly $1.4 billion inventory build and capital expenditures. HPE still expects full-year fiscal 2024 free cash flow of at least $1.9 billion, which implies a substantial cash generation rebound in the remaining quarters.
What does the guidance imply for the rest of fiscal 2024?
For fiscal Q2, HPE guided revenue of $6.6 to $7.0 billion and non-GAAP EPS of $0.36 to $0.41. For the full year, it expects flat to 2% constant-currency revenue growth and non-GAAP EPS of $1.82 to $1.92, reflecting limited top-line growth but steady profitability.
What risks does the filing highlight for investors?
Key risks include macroeconomic and geopolitical pressures, supply chain constraints, competitive pressure, execution of the transformation toward as-a-service offerings, and the completion and integration of the pending Juniper Networks acquisition. The filing also flags the possibility of a U.S. federal government shutdown and ongoing conflicts affecting demand and operations.
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