Q3 marked by strong orders, profitability and free cash flow
Raising FY21 EPS and FCF outlook; Reinstating share repurchases

Q3 2021 Financial Highlights:

• Orders: Strengthening demand accelerates growth, up strong double-digits from the prior-year period and year-to-date up 11% from the prior-year period
• Revenue: $6.9 billion, up 3% sequentially and in-line with Q3 outlook of normal sequential seasonality; up 1% from the prior-year period
  • Intelligent Edge revenue: $867 million, up 27% from the prior-year period
  • HPC & MCS revenue: $741 million, up 11% from the prior-year period
  • Annualized revenue run-rate (ARR): $705 million, up 33% from the prior-year period
• Diluted net earnings per share (“EPS”):
  • GAAP of $0.29, above the previously provided outlook of $0.04 to $0.10 per share
  • Non-GAAP of $0.47, up 31% from the prior-year period and above the previously provided outlook of $0.38 to $0.44 per share
• Cash flow from operations year-to-date: $2.9 billion, up $1.4 billion from the prior-year period
• Free cash flow year-to-date: $1.5 billion, up $1.1 billion from the prior-year period

Capital Returns:

• Declared a regular cash dividend of $0.12 per share, payable on October 6, 2021
• Reinstating share repurchase program and targeting share repurchases of up to $250 million in Q4 FY21

Outlook:

• Fourth quarter Fiscal 2021: Estimates GAAP diluted net EPS to be in the range of $0.14 to $0.22 and non-GAAP diluted net EPS to be in the range of $0.44 to $0.52
• Fiscal 2021: Raises GAAP diluted net EPS outlook to $0.80 to $0.88 and non-GAAP diluted net EPS outlook to $1.88 to $1.96
• Fiscal 2021 free cash flow¹: Raises free cash flow guidance to $1.5 to $1.7 billion

HOUSTON — (BUSINESS WIRE) — September 2, 2021 — Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for the third quarter, ended July 31, 2021.

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HPE Reports Q3 FY21 Results Infographic

“We delivered a very impressive Q3 performance, marked by strong order growth, expanded margins and record free cash flow,” said Antonio Neri, president and CEO of Hewlett Packard Enterprise. “I am pleased to see how our differentiated portfolio is resonating with the market, and our edge-to-cloud strategy is driving improved momentum across our businesses.”

“The impacts of the pandemic continue to accelerate the shift we predicted years ago to an edge-centric, cloud-enabled and data-driven world,” he continued. “Now, more than ever, companies need secure connectivity, faster insights from data, and a cloud experience everywhere. We expect those trends to continue. Digital transformation is no longer a priority but a strategic imperative.”

“We are once again raising our full-year guidance to reflect the continued momentum in the demand environment and our strong execution,” said Tarek Robbiati, EVP and CFO of Hewlett Packard Enterprise. “This marks the fourth increase in our outlook since our Securities Analyst Meeting in October 2020.”

Third Quarter Fiscal Year 2021 Results

Net revenue of $6.9 billion, up 3% sequentially and in-line with Q3 outlook of normal sequential seasonality; up 1% from the prior-year period or down 2% when adjusted for currency.

Annualized revenue run-rate (ARR) of $705 million, up 33% from the prior-year period and total as-a-Service orders were up 46% from the prior-year period. Based on strong customer demand and recent wins, we reiterate our 2020 Securities Analyst Meeting ARR guidance of 30-40% Compounded Annual Growth Rate from fiscal year 2020 to fiscal year 2023.

GAAP gross margins of 34.5%, up 420 basis points from the prior-year period and Non-GAAP gross margins of 34.7%, up 420 basis points from the prior-year period.

GAAP diluted net earnings per share (“EPS”) was $0.29, compared to $0.01 in the prior-year period and above the previously provided outlook of $0.04 to $0.10 per share.

Non-GAAP diluted net EPS was $0.47, compared to $0.36 in the prior-year period and above the previously provided outlook of $0.38 to $0.44 per share. Third quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $231 million or $0.18 per diluted share, respectively, primarily related to transformation costs, stock-based compensation expense and the amortization of intangible assets.

Cash flow from operations of approximately $1,130 million, down $342 million from the prior-year period.

Free cash flow of $526 million, down $398 million from the prior-year period.

Segment Results

• Intelligent Edge revenue was $867 million, up 27% from the prior-year period or 23% when adjusted for currency, with 15.8% operating profit margin, compared to 10.4% from the prior-year period. Switching was up over 20% from the prior-year period when adjusted for currency, WLAN was up mid-single digits percentage from the prior-year period when adjusted for currency, and Aruba SaaS offering was up triple-digits from the prior-year period.
• High Performance Compute & Mission Critical Systems (HPC & MCS) revenue was $741 million, up 11% from the prior-year period or 9% when adjusted for currency, with 3.9% operating profit margin, compared to 7.0% from the prior-year period. We remain on track to achieve our full year and 3-year revenue growth CAGR target of 8% to 12%.
• Compute revenue was $3.1 billion, down 9% from the prior-year period or down 12% when adjusted for currency, with 11.2% operating profit margin, compared to 9.3% from the prior-year period. Revenue was up 4% from the prior-quarter period and 4% from the prior-quarter period when adjusted for currency, and in-line with normal sequential seasonality.
• Storage revenue was $1.2 billion, up 4% from the prior-year period or up 1% when adjusted for currency, with 15.1% operating profit margin, compared to 15.0% from the prior-year period. Notable strength in software-defined solutions, including Nimble, up 10% from the prior-year period when adjusted for currency with strong momentum in dHCI growing double-digits. All flash Arrays grew over 30% from the prior-year period led by Primera, up strong double-digits from the prior-year period.
• Financial Services revenue was $844 million, up 4% from the prior-year period or flat when adjusted for currency, with 11.1% operating profit margin, compared to 8.1% from the prior-year period. Net portfolio assets were down 2% from the prior-year period or down 3% when adjusted for currency. The business delivered return on equity of 18.3%, up 5.2 points from the prior-year period.

Dividend

Board of Directors have declared a regular cash dividend of $0.12 per share on the company's common stock. This dividend, the fourth in Hewlett Packard Enterprise's fiscal year 2021, is payable on October 6, 2021, to stockholders of record as of the close of business on September 13, 2021.

Fiscal 2021 fourth quarter outlook:

Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $0.14 to $0.22 and non-GAAP diluted net EPS to be in the range of $0.44 to $0.52. Fiscal 2021 fourth quarter non-GAAP diluted net EPS estimates exclude after-tax adjustments of approximately $0.30 per diluted share, primarily related to transformation costs, stock-based compensation expense and the amortization of intangible assets.

Fiscal 2021 outlook:

Hewlett Packard Enterprise raises GAAP diluted net EPS outlook to $0.80 to $0.88 from $0.60 to $0.72 and non-GAAP diluted net EPS outlook to $1.88 to $1.96 from $1.82 to $1.94. Fiscal 2021 non-GAAP diluted net EPS estimates exclude after-tax adjustments of approximately $1.08 per diluted share, primarily related to transformation costs, stock-based compensation expense and the amortization of intangible assets.