HPE Reports Fiscal 2016 Third Quarter Results

Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for its fiscal 2016 third quarter, ended July 31, 2016.

Third quarter net revenue of $12.2 billion was down 6% from the prior-year period, down 1% when adjusted for divestitures and currency.

Third quarter GAAP diluted net earnings per share (EPS) was $1.32, up from $0.13 in the prior-year period, and above its previously provided outlook of $1.10 to $1.14. Third quarter non-GAAP diluted net EPS was $0.49, up from adjusted non-GAAP diluted net EPS of $0.45 in the prior-year period, and above its previously provided outlook of $0.42 to $0.46. Third quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $1.4 billion and $0.83 per diluted share, respectively, related to a gain on the H3C divestiture, restructuring charges, amortization of intangible assets, separation costs, acquisition and other related charges, tax indemnification adjustments and an adjustment to loss from equity interests.

“Overall, I am very pleased with our progress in executing the strategy we laid out when we launched HPE,” said Meg Whitman, President and CEO of Hewlett Packard Enterprise. “While executing key changes to our portfolio, we delivered earnings at the top of our guidance range, delivered about $1 billion in free cash flow, returned more than $1.5 billion to shareholders, and improved margins in both Enterprise Group and Enterprise Services.”

“Today’s announced spin-merge of our non-core software assets with Micro Focus is another important step in our strategy to unlock a faster growing, higher margin, stronger cash flow company,” continued Whitman. “As we said in the Enterprise Services announcement last quarter, both software and services remain key enablers of our go-forward strategy, and we are focused on building the right portfolio to win in our target markets. We believe the portfolio changes we’ve made over the past year are setting up HPE for long-term success while unlocking tremendous value for our shareholders.”

Hewlett Packard Enterprise also announced plans for a spin-off and merger of its non-core software assets with Micro Focus in a transaction valued at approximately $8.8 billion. For more information, click here.

HPE fiscal 2016 third quarter financial performance

             
    Q3 FY16   Q3 FY15   Y/Y
GAAP net revenue ($B)   $12.2   $13.1   (6%)
GAAP operating margin   20.5%   1.9%   18.6 pts
GAAP net earnings ($B)   $2.3   $0.2   914%
GAAP diluted net earnings per share   $1.32   $0.13   915%
Non-GAAP operating margin   8.8%   8.5%   0.3 pts.
Non-GAAP net earnings ($B)   $0.8   $0.9   (4%)
Non-GAAP diluted net earnings per share   $0.49   $0.45*   9%*
Cash flow from operations ($B)   $1.7   $1.6*   10%*
             

*Q3 FY15 Non-GAAP diluted net earnings per share (EPS) and Cash flow from operations contain adjustments to give effect to the separation of the Company from HP Inc. (formerly known as Hewlett-Packard Company). The adjusted figures provide a more useful representation, as if the Company had been a stand-alone company during fiscal 2015.

Information about HPE’s use of non-GAAP financial information is provided under “Use of non-GAAP financial information” below. 

Outlook
For the fiscal 2016 fourth quarter, Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $0.44 to $0.49 and non-GAAP diluted net EPS to be in the range of $0.58 to $0.63. Fiscal 2016 fourth quarter non-GAAP diluted net EPS estimates exclude an after-tax gain on the divestiture of Mphasis and other of approximately $0.23, and after-tax costs of approximately $0.37 per share, related to restructuring charges, separation costs, the amortization of intangible assets, loss from equity interests, acquisition and other related charges and tax indemnification adjustments.

For fiscal 2016, Hewlett Packard Enterprise estimates GAAP diluted net EPS to be in the range of $2.09 to $2.14 and non-GAAP diluted net EPS to be in the range of $1.90 to $1.95. Fiscal 2016 non-GAAP diluted net EPS estimates exclude an after-tax gain on the divestiture of H3C, Mphasis and other of approximately $1.42, and after-tax costs of approximately $1.23 per share, related to restructuring charges, the amortization of intangible assets, separation costs, acquisition and other related charges, loss from equity interests and tax indemnification adjustments.

Fiscal 2016 third quarter segment results

  • Enterprise Group revenue was $6.5 billion, down 8% year over year, flat when adjusted for divestitures and currency, with a 12.6% operating margin. Servers revenue was down 4%, down 2% when adjusted for divestitures and currency, Storage revenue was down 8%, down 5% when adjusted for divestitures and currency, Networking revenue was down 22%, up 12% when adjusted for divestitures and currency, and Technology Services revenue was down 7%, up 1% when adjusted for divestitures and currency. 
  • Enterprise Services revenue was $4.7 billion, down 5% year over year, down 3% when adjusted for divestitures and currency, with an 8.3% operating margin. Infrastructure Technology Outsourcing revenue was down 6%, down 3% when adjusted for divestitures and currency, and Application and Business Services revenue was down 4%, down 3% when adjusted for divestitures and currency.
  • Software revenue was $738 million, down 18% year over year, down 3% when adjusted for divestitures and currency, with a 17.8% operating margin. License revenue was down 28%, down 17% adjusted for divestitures and currency, support revenue was down 17%, flat when adjusted for divestitures and currency, professional services revenue was down 8%, up 1% adjusted for divestitures and currency, and software-as-a-service (SaaS) revenue was down 5%, up 17% adjusted for divestitures and currency. 
  • Financial Services revenue was $812 million, up 1% year over year, net portfolio assets were up 7%, and financing volume was down 6%. The business delivered an operating margin of 9.9%. 

Revenue adjusted for divestitures and currency excludes revenue resulting from businesses divestitures in fiscal 2016, 2015 and 2014 and also assumes no change in the foreign exchange rate from the prior-year period. A reconciliation of GAAP revenue to revenue adjusted for divestiture and currency is provided in the materials elsewhere accompanying this news release.

 

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