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Hewlett Packard Enterprise Company (HPE)

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Hewlett Packard Enterprise (HPE)

Q1 2018 Earnings Conference Call

February 22, 2018 04:30 PM ET

Executives

Andrew Simanek - Head of Investor Relations

Antonio Neri - President and Chief Executive Officer

Tim Stonesifer - EVP, Chief Financial Officer

Analysts

Katy Huberty - Morgan Stanley

Toni Sacconaghi - Bernstein

Sherri Scribner - Deutsche Bank

Jim Suva - Citigroup

Steve Milunovich - UBS

Rod Hall - Goldman Sachs

Shannon Cross - Cross Research

Lou Miscioscia - Pivotal Research

Ananda Baruah - Loop Capital

Wamsi Mohan - Bank of America Merrill Lynch

Amit Daryanani - RBC Capital Markets

Presentation

Operator

Good afternoon. And welcome to the First Quarter Fiscal Year 2018 Hewlett Packard Enterprise Earnings Conference Call. My name is Denise, and I will be your conference moderator for today’s call. At this time, all participants will be in listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Mr. Andrew Simanek, Head of Investor Relations. Please proceed.

Andrew Simanek

Good afternoon. I am Andy Simanek, Head of Investor Relations for Hewlett Packard Enterprise. And I would like to welcome you to our fiscal 2018 first quarter earnings conference call with Antonio Neri, HPE’s Chief Executive Officer and Tim Stonesifer, HPE’s Executive Vice President and Chief Financial Officer.

Before handing the call over to Antonio, let me remind you that this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately one year. We posted the press release and the slide presentation accompanying today’s earnings release on our HPE Investor Relations webpage at investors.hpe.com.

As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these of risks, uncertainties and assumptions, please refer to HPE’s filings with the SEC, including its most recent Form 10-K. HPE assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HPE’s quarterly report on Form 10-Q for the fiscal quarter ended January 31, 2018.

Finally, for financial information that has been expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our Web site. Please refer to the tables and slide presentation accompanying today’s earnings release on our Web site for details.

With that, let me turn the call over to Antonio.

Antonio Neri

Thanks, Andy. And thanks to everyone for joining us on the call today. As you all know, February 1st marked my first day as the CEO of Hewlett Packard Enterprise. As a 23 years veteran of the company, I am honored to take on this role and excited about the opportunities ahead. Many of those opportunities exist, thanks to Meg Whitman's tremendous leadership during past six and a half years. Meg set us on the current path and together we developed a strategy to take this company well into the future.

I look forward to executing on that plan and I am very grateful that Meg remains on our Board. Our strong Q1 performance is proof that we have the right strategy and improved execution. We have good revenue growth across every business segment, continued to execute HPE Next with no disruption to the business and delivered strong shareholder return in the form of share repurchases and dividends.

Overall revenue of $7.7 billion was up 11% from the prior year, driven by growth across each of our business segments. From a macro perspective, we are seeing some improvement in market conditions and a higher average unit prices, as pricing catches up to increases in DRAM costs. In addition, we have strengthened our execution across a number of fronts and are driving better attachment of core industry standard server business. While we don't expect these rates of growth to continue given tougher compares in the second half of the year, the go to market changes we have made in our [indiscernible] portfolio mix have put us in a strong position. I will talk more about the business segment performance in a minute.

From an overall profitability perspective, we are making great progress on HPE Next, which is running cost savings as planned. The actions we have taken are helping us offset the continue margin impact from elevated DRAM cost and competitive pricing pressure. Overall, non-GAAP operating margin for the quarter was 7.7%. And we remain on track to achieve our fiscal year '18 margin outlook of approximately 9.5%.

Looking forward, we expect HPE Next to deliver the results we laid out in October. We have completed several critical parts of the program, including the sales force transformation, which significantly reduce the spans and layers between the CEO and the frontline and streamline a number of sales compensation plans. The fact that we were able to deliver the results we did in Q1 is evidence of our ability to execute HPE Next without disrupting the business.

In addition to our strong revenue performance and continued cost discipline, we have a number of favorable onetime items that impacted our EPS, including benefits from tax reform. Tim will provide the details on those in a minute.

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