Q2 2020 Financial Highlights:
- Revenue: $6.0 billion with momentum in our strategy to
pivot to as a service
- Annualized revenue run-rate (ARR): $520 million, up 17%
from the prior-year period
- Gross profit margin: GAAP of 31.9%, down 30 basis points
from the prior-year period and Non-GAAP of 32.0%, down 20 basis
points from the prior-year period
- Diluted net earnings per share:
- GAAP of ($0.64), compared to $0.30 from the prior-year period,
includes non-cash write-down of legacy goodwill
- Non-GAAP of $0.22, compared to $0.42 from the prior-year
period
HPE Board of Directors approved a Cost Optimization and
Prioritization Plan to prioritize investments and realign
resources to areas of growth:
- Three year plan, to be implemented through fiscal year
2022
- Estimated gross savings of at least $1.0 billion and annualized
net run-rate savings of at least $800 million
- Expected cash funding payments of $1.0 billion to $1.3
billion
Hewlett Packard Enterprise (NYSE: HPE) today announced financial
results for its fiscal 2020 second quarter, ended April 30,
2020.
“The global economic lockdowns since February significantly
impacted our fiscal Q2 financial performance,” said Antonio Neri,
president and CEO of HPE. “We exited Q2 with $1.5 billion dollars
in orders across the portfolio, representing two times the average
historical backlog1.”
“Despite challenging circumstances, HPE GreenLake, our
as-a-service offering, gained traction with 17% ARR growth and our
Intelligent Edge business grew 12% in North America outperforming
the market while expanding margins,” added Neri.
“We are taking decisive steps to navigate the near term
uncertainty, while ensuring we align resources to priority growth
areas so that we are well positioned to accelerate our
edge-to-cloud strategy and address the needs of our customers in a
post-COVID-19 world,” Neri said.
Second Quarter Fiscal Year 2020 Results
Net revenue of $6.0 billion, down 16% from the prior-year
period and 15% from the prior-year period when adjusted for
currency, driven primarily by supply chain constraints and delays
in customer acceptance, which resulted in significantly higher
levels of backlog, particularly in Compute, HPC & MCS, and
Storage.
Annualized revenue run-rate (ARR) of $520 million, up 17%
from the prior-year period. We are reiterating our 2019 Securities
Analyst Meeting ARR guidance of 30-40% Compounded Annual Growth
Rate from fiscal year 2019 to fiscal year 2022.
GAAP gross profit margin of 31.9%, compared to 32.2% from
the prior-year period and Non-GAAP gross profit margin of 32.0%,
compared to 32.2% from the prior-year period.
GAAP operating profit margin of (13.9%), compared to 6.1%
from the prior-year period and Non-GAAP operating profit margin of
6.1%, compared to 8.9% from the prior-year period.
GAAP diluted net earnings per share (“EPS”) was ($0.64),
compared to $0.30 in the prior-year period, includes non-cash
write-down of legacy goodwill impacting GAAP EPS by $0.67.
Non-GAAP diluted net EPS was $0.22, compared to $0.42 in
the prior-year period. Second quarter non-GAAP net earnings and
non-GAAP diluted net EPS exclude after-tax adjustments of $1.1
billion and $0.86 per diluted earnings per share, respectively,
primarily related to impairment of goodwill, transformation costs
and amortization of purchased intangible assets.
Cash flow from operations of $100 million, compared to
$987 million in the prior-year period.
Free cash flow of ($402) million, compared to $402
million in the prior-year period.
Segment Results
Intelligent Edge revenue was $665 million, down 2% year
over year when adjusted for currency, with 11.0% operating profit
margin, compared to 5.3% from the prior-year period. Enhancements
to North America sales leadership and go-to-market segmentation are
paying off with 12% year over year growth in North America. Despite
the challenging business environment, we are gaining market share
in both campus switching and WLAN markets, while significantly
improving profit margins.
Compute revenue was $2.6 billion, down 19% year over year
when adjusted for currency, with 4.7% operating profit margin,
compared to 9.3% from the prior-year period. Revenue in the quarter
was pressured primarily by component shortages and supply chain
disruptions related to the COVID-19 pandemic that impacted our
ability to fulfill customer demand.
High Performance Compute & Mission Critical Systems (HPC
& MCS) revenue was $589 million, down 18% year over year
when adjusted for currency, with 5.6% operating profit margin,
compared to 12.8% from the prior-year period. Revenue was impacted
by COVID-19-related delays in installations and customer acceptance
resulting in elevated backlog that should flow into the second half
of the year. Our HPC business has been actively involved in
COVID-19-related research activity and is providing COVID-19
researchers worldwide with access to the world’s most powerful HPC
resources to advance the pace of scientific discovery in the fight
to stop the virus.
Storage revenue was $1.1 billion, down 16% year over year
when adjusted for currency, with 13.4% operating profit margin,
compared to 18.5% from the prior-year period. Revenue in the
quarter was pressured primarily by component shortages and supply
chain disruptions related to the COVID-19 pandemic that impacted
our ability to fulfill customer demand. Big Data showed continued
momentum, up 61% year over year when adjusted for currency and
Nimble Services revenue grew 20% year over year with services
intensity at record highs as customers added high-margin
value-added services.
Advisory & Professional Services (A&PS) revenue
was $237 million, down 8% year over year when adjusted for
currency, with 0.8% operating profit margin, compared to (5.4%)
from the prior-year period. A&PS is a strategic business that
pulls through significant infrastructure and operational services
sales.
Financial Services revenue was $833 million, down 5% year
over year when adjusted for currency, with 9.0% operating profit
margin, compared to 8.6% from the prior-year period. Net portfolio
assets were up 4% year over year when adjusted for currency, and
financing volume was up 10% year over year when adjusted for
currency, despite the impact of COVID-19. The business delivered
return on equity of 15.3%, down 30 basis points from the prior-year
period.
Immediate Actions to Reduce Operating Expenses
In response to the impact and uncertainty caused by the COVID-19
pandemic, on May 19, 2020, the Board of Directors of HPE approved
certain base salary adjustments for the period beginning on July 1,
2020 through the remainder of fiscal year 2020, as follows: the
base salaries of the Chief Executive Officer, and of each executive
officer at the Executive Vice President level, will be reduced by
25%, and the base salary of each executive officer at the Senior
Vice President level will be reduced by 20%. The Board also agreed
to reduce by 25% the portion of the annual $100,000 cash retainer
to which each director is entitled for the period beginning on July
1, 2020 through the remainder of fiscal 2020.
Cost Optimization and Prioritization Plan
On May 19, 2020, the Board of Directors also approved a cost
optimization and prioritization plan in order to focus HPE’s
investments and realign the workforce to areas of growth, including
measures to simplify and evolve its product portfolio strategy,
go-to-market configurations, supply chain structures, digital
customer support model and marketing experiences, and real estate
strategies. HPE expects that the plan will be implemented through
fiscal year 2022 and estimates it will include gross savings as a
result of changes to the company’s workforce, real estate model and
business process improvements of at least $1.0 billion, with the
plan expected to deliver annualized net run-rate savings of at
least $800 million by fiscal year 2022-end, in both cases relative
to HPE’s fiscal year 2019 exit.
In order to achieve this level of cost savings, HPE estimates
cash funding payments between $1.0 billion to $1.3 billion over the
next three years.
Fiscal Year 2020 Outlook
On April 6, 2020, HPE filed an 8K to withdraw fiscal year 2020
guidance due to increased level of uncertainty in which the global
COVID-19 pandemic may adversely impact business operations,
financial performance and results of operations. Consistent with
that filing, HPE will not be providing fiscal year 2020 third
quarter or full year guidance.
1Backlog represents the price of firm orders related to fiscal
2020 second quarter and prior quarters for which work has not been
performed or goods have not been delivered as of April, 30
2020.
About Hewlett Packard Enterprise
Hewlett Packard Enterprise is the global edge-to-cloud
platform-as-a-service company that helps organizations accelerate
outcomes by unlocking value from all of their data, everywhere.
Built on decades of reimagining the future and innovating to
advance the way we live and work, HPE delivers unique, open and
intelligent technology solutions, with a consistent experience
across all clouds and edges, to help customers develop new business
models, engage in new ways, and increase operational performance.
For more information, visit: www.hpe.com.
Use of non-GAAP financial information
To supplement Hewlett Packard Enterprise’s condensed
consolidated financial statement information presented on a
generally accepted accounting principles (GAAP) basis, Hewlett
Packard Enterprise provides revenue on a constant currency basis as
well as non-GAAP gross profit margin, non-GAAP operating expense,
non-GAAP operating profit (Non-GAAP earnings from operations),
non-GAAP operating profit margin, non-GAAP income tax rate,
non-GAAP net earnings, non-GAAP diluted net earnings per share,
gross cash, free cash flow, net capital expenditures, net debt, net
cash, operating company net debt and operating company net cash
financial measures. Hewlett Packard Enterprise also provides
forecasts of non-GAAP diluted net earnings per share and free cash
flow. A reconciliation of adjustments to GAAP financial measures
for this quarter and prior periods is included in the tables below
or elsewhere in the materials accompanying this news release. In
addition, an explanation of the ways in which Hewlett Packard
Enterprise’s management uses these non-GAAP measures to evaluate
its business, the substance behind Hewlett Packard Enterprise’s
decision to use these non-GAAP measures, the material limitations
associated with the use of these non-GAAP measures, the manner in
which Hewlett Packard Enterprise’s management compensates for those
limitations, and the substantive reasons why Hewlett Packard
Enterprise’s management believes that these non-GAAP measures
provide useful information to investors is included under “Use of
non-GAAP financial measures” further below. This additional
non-GAAP financial information is not meant to be considered in
isolation or as a substitute for revenue, gross profit margin,
operating profit (earnings from operations), operating profit
margin, net earnings, diluted net earnings per share, cash, cash
equivalents and restricted cash, cash flow from operations,
investments in property, plant and equipment, or total company debt
prepared in accordance with GAAP.
Forward-looking statements
This press release contains forward-looking statements that
involve risks, uncertainties and assumptions. If the risks or
uncertainties ever materialize or the assumptions prove incorrect,
the results of Hewlett Packard Enterprise may differ materially
from those expressed or implied by such forward-looking statements
and assumptions. All statements other than statements of historical
fact are statements that could be deemed forward-looking
statements, including but not limited to the scope and duration of
the novel coronavirus (“COVID-19”) pandemic and its impact on our
business operations, liquidity and capital resources, employees,
customers, supply chain, financial results and the world economy,
any projections of revenue, margins, expenses, effective tax rates,
the impact of the U.S. Tax Cuts and Jobs Act of 2017, net earnings,
net earnings per share, cash flows, backlog, benefit plan funding,
deferred tax assets, share repurchases, currency exchange rates or
other financial items; any projections of the amount, timing or
impact of cost savings, restructuring charges, or other
transformation actions; any statements of the plans, strategies and
objectives of management for future operations, as well as the
execution of corporate transactions or contemplated acquisitions,
transformation and restructuring plans and any resulting benefit,
cost savings or restructuring charges, revenue or profitability
improvements; any statements concerning the expected development,
performance, market share or competitive performance relating to
products or services; any statements regarding current or future
macroeconomic trends or events and the impact of those trends and
events on Hewlett Packard Enterprise and its financial performance;
any statements regarding pending investigations, claims or
disputes; any statements of expectation or belief; and any
statements or assumptions underlying any of the foregoing.
Risks, uncertainties and assumptions include the need to address
the many challenges facing Hewlett Packard Enterprise’s businesses;
the competitive pressures faced by Hewlett Packard Enterprise’s
businesses; risks associated with executing Hewlett Packard
Enterprise’s strategy; the impact of macroeconomic and geopolitical
trends and events; the need to manage third-party suppliers and the
distribution of Hewlett Packard Enterprise’s products and the
delivery of Hewlett Packard Enterprise’s services effectively; the
protection of Hewlett Packard Enterprise’s intellectual property
assets, including intellectual property licensed from third parties
and intellectual property shared with its former Parent; risks
associated with Hewlett Packard Enterprise’s international
operations (including pandemics and public health problems, such as
the outbreak of COVID-19); the development and transition of new
products and services and the enhancement of existing products and
services to meet customer needs and respond to emerging
technological trends; the execution and performance of contracts by
Hewlett Packard Enterprise and its suppliers, customers, clients
and partners, including any impact thereon resulting from events
such as the COVID-19 pandemic; the hiring and retention of key
employees; execution, integration and other risks associated with
business combination and investment transactions; and the
execution, timing and results of any transformation or
restructuring plans, including estimates and assumptions related to
the cost (including any possible disruption of Hewlett Packard
Enterprise's business) and the anticipated benefits of the
transformation and restructuring plans; the effects of the U.S. Tax
Cuts and Jobs Act and related guidance and regulations; the
resolution of pending investigations, claims and disputes; and
other risks that are described in Hewlett Packard Enterprise’s
Annual Report on Form 10-K for the fiscal year ended October 31,
2019, subsequent Quarterly Reports on Form 10-Q, and Current
Reports on Form 8-K, as applicable.
As in prior periods, the financial information set forth in this
press release, including tax-related items, reflects estimates
based on information available at this time. While Hewlett Packard
Enterprise believes these estimates to be reasonable, these amounts
could differ materially from reported amounts in the Hewlett
Packard Enterprise Quarterly Report on Form 10-Q for the second
quarter ended April 30, 2020. Hewlett Packard Enterprise assumes no
obligation and does not intend to update these forward-looking
statements.
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share
amounts)
Three months ended
April 30, 2020
January 31, 2020
April 30, 2019
Net revenue
$
6,009
$
6,949
$
7,150
Costs and expenses:
Cost of sales
4,095
4,667
4,845
Research and development
450
485
457
Selling, general and administrative
1,109
1,218
1,214
Amortization of intangible assets
84
120
69
Impairment of goodwill(a)
865
—
—
Transformation costs
200
89
54
Disaster charges (recovery)(b)
22
—
(7
)
Acquisition, disposition and other related
charges
18
22
84
Total costs and expenses
6,843
6,601
6,716
(Loss) earnings from operations
(834
)
348
434
Interest and other, net
(68
)
(19
)
(18
)
Tax indemnification adjustments
(35
)
(21
)
4
Non-service net periodic benefit
credit
36
37
17
(Loss) earnings from equity interests
(10
)
33
3
(Loss) earnings before taxes
(911
)
378
440
Benefit (provision) for taxes
90
(45
)
(21
)
Net (loss) earnings
$
(821
)
$
333
$
419
Net (loss) earnings per share:
Basic
$
(0.64
)
$
0.26
$
0.31
Diluted(h)
$
(0.64
)
$
0.25
$
0.30
Cash dividends declared per share
$
0.1200
$
0.1200
$
0.1125
Weighted-average shares used to compute
net (loss) earnings per share:
Basic
1,291
1,300
1,367
Diluted(h)
1,291
1,315
1,382
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share
amounts)
Six months ended April
30,
2020
2019
Net revenue
$
12,958
$
14,703
Costs and expenses:
Cost of sales
8,762
10,052
Research and development
935
923
Selling, general and administrative
2,327
2,425
Amortization of intangible assets
204
141
Impairment of goodwill(a)
865
—
Transformation costs
289
132
Disaster charges (recovery)(b)
22
(7
)
Acquisition, disposition and other related
charges
40
147
Total costs and expenses
13,444
13,813
(Loss) earnings from operations
(486
)
890
Interest and other, net
(87
)
(69
)
Tax indemnification adjustments
(56
)
223
Non-service net periodic benefit
credit
73
33
Earnings from equity interests
23
18
(Loss) earnings before taxes
(533
)
1,095
Benefit (provision) for taxes
45
(499
)
Net (loss) earnings
$
(488
)
$
596
Net (loss) earnings per share:
Basic
$
(0.38
)
$
0.43
Diluted(h)
$
(0.38
)
$
0.43
Cash dividends declared per share
$
0.2400
$
0.2250
Weighted-average shares used to compute
net (loss) earnings per share:
Basic
1,295
1,384
Diluted(h)
1,295
1,397
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
(Unaudited)
(In millions, except
percentages and per share amounts)
Three months ended April 30,
2020
Diluted net earnings per
share
Three months ended
January 31, 2020
Diluted net earnings per
share
Three months ended April 30,
2019
Diluted net earnings per
share
GAAP net (loss) earnings
$
(821
)
$
(0.64
)
333
$
0.25
$
419
$
0.30
Non-GAAP adjustments:
Amortization of initial direct costs
3
—
3
—
—
—
Amortization of intangible assets
84
0.07
120
0.09
69
0.05
Impairment of goodwill(a)
865
0.67
—
—
—
—
Transformation costs
200
0.15
89
0.07
54
0.04
Disaster charges (recovery)(b)
22
0.02
—
—
(7
)
(0.01
)
Acquisition, disposition and other related
charges
25
0.02
42
0.03
84
0.06
Tax indemnification adjustments
35
0.03
21
0.02
(4
)
—
Non-service net periodic benefit
credit
(36
)
(0.03
)
(37
)
(0.03
)
(17
)
(0.01
)
Loss from equity interests(c)
37
0.03
37
0.03
38
0.03
Adjustments for taxes
$
(129
)
(0.10
)
(33
)
(0.02
)
(57
)
(0.04
)
Non-GAAP net earnings
$
285
$
0.22
$
575
$
0.44
$
579
$
0.42
GAAP (loss) earnings from
operations
$
(834
)
$
348
$
434
Non-GAAP adjustments
Amortization of initial direct costs
3
3
—
Amortization of intangible assets
84
120
69
Impairment of goodwill(a)
865
—
—
Transformation costs
200
89
54
Disaster charges (recovery)(b)
22
—
(7
)
Acquisition, disposition and other related
charges
25
42
84
Non-GAAP earnings from
operations
$
365
$
602
$
634
GAAP operating profit margin
(13.9
)%
5.0
%
6.1
%
Non-GAAP adjustments
20.0
%
3.7
%
2.8
%
Non-GAAP operating profit
margin
6.1
%
8.7
%
8.9
%
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
(Unaudited)
(In millions, except
percentages and per share amounts)
Three months ended April 30,
2020
Three months ended
January 31, 2020
Three months ended April 30,
2019
GAAP net revenue
$
6,009
$
6,949
$
7,150
GAAP cost of sales
4,095
4,667
4,845
GAAP gross profit
$
1,914
$
2,282
$
2,305
Non-GAAP adjustments
Amortization of initial direct costs
$
3
$
3
$
—
Acquisition, disposition and other related
charges(d)
7
20
—
Non-GAAP gross profit
$
1,924
$
2,305
$
2,305
GAAP gross profit margin
31.9
%
32.8
%
32.2
%
Non-GAAP adjustments
0.1
%
0.4
%
—
%
Non-GAAP gross profit margin
32.0
%
33.2
%
32.2
%
Net cash provided (used in) by
operating activities
$
100
$
(79
)
$
987
Investment in property, plant and
equipment
(591
)
(568
)
(799
)
Proceeds from sale of property, plant and
equipment
89
462
214
Free cash flow
$
(402
)
$
(185
)
$
402
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
(Unaudited)
(In millions, except
percentages and per share amounts)
Six months ended April 30,
2020
Diluted net earnings per
share
Six months ended April 30,
2019
Diluted net earnings per
share
GAAP net (loss) earnings
$
(488
)
$
(0.38
)
$
596
$
0.43
Non-GAAP adjustments:
Amortization of initial direct costs
6
—
—
—
Amortization of intangible assets
204
0.17
141
0.11
Impairment of goodwill(a)
865
0.67
—
—
Transformation costs
289
0.22
132
0.09
Disaster charges (recovery)(b)
22
0.02
(7
)
(0.01
)
Acquisition, disposition and other related
charges
67
0.05
147
0.11
Tax indemnification adjustments
56
0.04
(223
)
(0.16
)
Non-service net periodic benefit
credit
(73
)
(0.06
)
(33
)
(0.02
)
Loss from equity interests(c)
74
0.06
76
0.05
Adjustments for taxes
(162
)
(0.13
)
340
0.24
Non-GAAP net earnings
$
860
$
0.66
$
1,169
$
0.84
GAAP (loss) earnings from
operations
$
(486
)
$
890
Non-GAAP adjustments
Amortization of initial direct costs
6
—
Amortization of intangible assets
204
141
Impairment of goodwill(a)
865
—
Transformation costs
289
132
Disaster charges (recovery)(b)
22
(7
)
Acquisition, disposition and other related
charges
67
147
Non-GAAP earnings from
operations
$
967
$
1,303
GAAP operating profit margin
(3.8
)%
6.1
%
Non-GAAP adjustments
11.3
%
2.8
%
Non-GAAP operating profit
margin
7.5
%
8.9
%
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES
(Unaudited)
(In millions, except
percentages and per share amounts)
Six months ended April 30,
2020
Six months ended April 30,
2019
GAAP net revenue
$
12,958
$
14,703
GAAP cost of sales
8,762
10,052
GAAP gross profit
$
4,196
$
4,651
Non-GAAP adjustments
Amortization of initial direct costs
$
6
$
—
Acquisition, disposition and other related
charges(d)
27
—
Non-GAAP gross profit
$
4,229
$
4,651
GAAP gross profit margin
32.4
%
31.6
%
Non-GAAP adjustments
0.2
%
—
%
Non-GAAP gross profit margin
32.6
%
31.6
%
Net cash provided by operating
activities
$
21
$
1,369
Investment in property, plant and
equipment
(1,159
)
(1,528
)
Proceeds from sale of property, plant and
equipment
551
371
Free cash flow
$
(587
)
$
212
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(In millions, except par
value)
As of
April 30, 2020
October 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
5,131
$
3,753
Accounts receivable, net of allowance for
doubtful accounts
2,610
2,957
Financing receivables, net of allowance
for doubtful accounts
3,630
3,572
Inventory
3,476
2,387
Assets held for sale
6
46
Other current assets
3,130
2,428
Total current assets
17,983
15,143
Property, plant and equipment
5,588
6,054
Long-term financing receivables and other
assets(e)
10,295
8,918
Investments in equity interests
2,276
2,254
Goodwill and intangible assets
18,373
19,434
Total assets
$
54,515
$
51,803
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Notes payable and short-term
borrowings
$
5,162
$
4,425
Accounts payable
5,482
5,595
Employee compensation and benefits
968
1,522
Taxes on earnings
202
186
Deferred revenue
3,268
3,234
Accrued restructuring
198
195
Other accrued liabilities(e)
4,917
4,002
Total current liabilities
20,197
19,159
Long-term debt
11,553
9,395
Other non-current liabilities(e)
6,507
6,100
Stockholders’ equity
HPE stockholders’ equity:
Preferred stock, $0.01 par value (300
shares authorized; none issued)
—
—
Common stock, $0.01 par value (9,600
shares authorized; 1,282 and 1,294 shares issued and outstanding at
April 30, 2020 and October 31, 2019, respectively)
13
13
Additional paid-in capital
28,207
28,444
Accumulated deficit(f)
(8,385
)
(7,632
)
Accumulated other comprehensive
loss(f)
(3,625
)
(3,727
)
Total HPE stockholders’ equity
16,210
17,098
Non-controlling interests
48
51
Total stockholders’ equity
16,258
17,149
Total liabilities and stockholders’
equity
$
54,515
$
51,803
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three months ended April 30,
2020
Six months ended April 30,
2020
Cash flows from operating activities:
Net loss
$
(821
)
$
(488
)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization
641
1,331
Impairment of goodwill
865
865
Stock-based compensation expense
67
160
Provision for doubtful accounts and
inventory
87
128
Restructuring charges
164
248
Deferred taxes on earnings
(75
)
(103
)
Loss (earnings) from equity interests
10
(23
)
Other, net
44
8
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
241
323
Financing receivables
31
(73
)
Inventory
(992
)
(1,196
)
Accounts payable
177
(73
)
Taxes on earnings
(98
)
(125
)
Restructuring
(157
)
(244
)
Other assets and liabilities
(84
)
(717
)
Net cash provided by operating
activities
100
21
Cash flows from investing activities:
Investment in property, plant and
equipment
(591
)
(1,159
)
Proceeds from sale of property, plant and
equipment
89
551
Purchases of available-for-sale securities
and other investments
(14
)
(73
)
Maturities and sales of available-for-sale
securities and other investments
20
28
Financial collateral posted
(3
)
(51
)
Financial collateral received
466
613
Payments made in connection with business
acquisitions, net of cash acquired
(7
)
(13
)
Net cash used in investing activities
(40
)
(104
)
Cash flows from financing activities:
Short-term borrowings with original
maturities less than 90 days, net
(45
)
82
Proceeds from debt, net of issuance
costs
3,225
3,565
Payment of debt
(481
)
(931
)
Net proceeds related to stock-based award
activities
(4
)
(47
)
Repurchase of common stock
(151
)
(355
)
Cash dividends paid to non-controlling
interests
(8
)
(8
)
Contributions from non-controlling
interests
—
1
Cash dividends paid
(154
)
(310
)
Net cash provided by financing
activities
2,382
1,997
Increase in cash, cash equivalents and
restricted cash
2,442
1,914
Cash, cash equivalents and restricted cash
at beginning of period
3,548
4,076
Cash, cash equivalents and restricted cash
at end of period
$
5,990
$
5,990
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Three months ended
April 30, 2020
January 31, 2020
April 30, 2019
Net revenue:(g)
Compute
$
2,640
$
3,011
$
3,318
HPC & MCS
589
823
721
Storage
1,086
1,250
1,318
A & PS
237
243
260
Intelligent Edge
665
720
685
Financial Services
833
859
896
Corporate Investments
124
121
125
Total segment net revenue
6,174
7,027
7,323
Elimination of intersegment net
revenue
(165
)
(78
)
(173
)
Total Hewlett Packard Enterprise
consolidated net revenue
$
6,009
$
6,949
$
7,150
Earnings before taxes:(g)
Compute
$
125
$
286
$
307
HPC & MCS
33
49
92
Storage
145
226
244
A & PS
2
(2
)
(14
)
Intelligent Edge
73
70
36
Financial Services
75
73
77
Corporate Investments
(28
)
(27
)
(29
)
Total segment earnings from operations
425
675
713
Unallocated corporate costs and
eliminations
(48
)
(52
)
(64
)
Unallocated stock-based compensation
expense
(12
)
(21
)
(15
)
Amortization of initial direct costs
(3
)
(3
)
—
Amortization of intangible assets
(84
)
(120
)
(69
)
Impairment of goodwill(a)
(865
)
—
—
Transformation costs
(200
)
(89
)
(54
)
Disaster (charges) recovery(b)
(22
)
—
7
Acquisition, disposition and other related
charges
(25
)
(42
)
(84
)
Interest and other, net
(68
)
(19
)
(18
)
Tax indemnification adjustments
(35
)
(21
)
4
Non-service net periodic benefit
credit
36
37
17
(Loss) earnings from equity interests
(10
)
33
3
Total Hewlett Packard Enterprise
consolidated (loss) earnings before taxes
$
(911
)
$
378
$
440
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions)
Six months ended April
30,
2020
2019
Net revenue:(g)
Compute
$
5,651
$
6,893
HPC & MCS
1,412
1,500
Storage
2,336
2,674
A & PS
480
501
Intelligent Edge
1,385
1,390
Financial Services
1,692
1,815
Corporate Investments
245
243
Total segment net revenue
13,201
15,016
Elimination of intersegment net
revenue
(243
)
(313
)
Total Hewlett Packard Enterprise
consolidated net revenue
$
12,958
$
14,703
Earnings before taxes:(g)
Compute
411
647
HPC & MCS
82
190
Storage
371
498
A & PS
—
(46
)
Intelligent Edge
143
60
Financial Services
148
154
Corporate Investments
(55
)
(57
)
Total segment earnings from operations
1,100
1,446
Unallocated corporate costs and
eliminations
(100
)
(114
)
Unallocated stock-based compensation
expense
(33
)
(29
)
Amortization of initial direct costs
(6
)
—
Amortization of intangible assets
(204
)
(141
)
Impairment of goodwill(a)
(865
)
—
Transformation costs
(289
)
(132
)
Disaster (charges) recovery(b)
(22
)
7
Acquisition, disposition and other related
charges
(67
)
(147
)
Interest and other, net
(87
)
(69
)
Tax indemnification adjustments
(56
)
223
Non-service net periodic benefit
credit
73
33
Earnings from equity interests
23
18
Total Hewlett Packard Enterprise
consolidated (loss) earnings before taxes
$
(533
)
$
1,095
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
SEGMENT INFORMATION
(Unaudited)
(In millions, except
percentages)
Three months ended
Change (%)
April 30, 2020
January 31, 2020
April 30, 2019
Q/Q
Y/Y
Net revenue:(g)
Compute
$
2,640
$
3,011
$
3,318
(12
%)
(20
%)
HPC & MCS
589
823
721
(28
%)
(18
%)
Storage
1,086
1,250
1,318
(13
%)
(18
%)
A & PS
237
243
260
(2
%)
(9
%)
Intelligent Edge
665
720
685
(8
%)
(3
%)
Financial Services
833
859
896
(3
%)
(7
%)
Corporate Investments
124
121
125
2
%
(1
%)
Total segment net revenue
6,174
7,027
7,323
(12
%)
(16
%)
Elimination of intersegment net
revenue
(165
)
(78
)
(173
)
112
%
(5
%)
Total Hewlett Packard Enterprise
consolidated net revenue
$
6,009
$
6,949
$
7,150
(14
%)
(16
%)
Six months ended April
30,
2020
2019
Y/Y
Net revenue:(g)
Compute
$
5,651
$
6,893
(18
%)
HPC & MCS
1,412
1,500
(6
%)
Storage
2,336
2,674
(13
%)
A&PS
480
501
(4
%)
Intelligent Edge
1,385
1,390
—
%
Financial Services
1,692
1,815
(7
%)
Corporate Investments
245
243
1
%
Total segment net revenue
13,201
15,016
(12
%)
Elimination of intersegment net
revenue
(243
)
(313
)
(22
%)
Total Hewlett Packard Enterprise
consolidated net revenue
$
12,958
$
14,703
(12
%)
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
SEGMENT OPERATING MARGIN
SUMMARY DATA
(Unaudited)
Three months ended
Change in Operating
Margin (pts)
April 30, 2020
Q/Q
Y/Y
Segment operating profit margin:(g)
Compute
4.7
%
-4.8 pts.
-4.6 pts.
HPC & MCS
5.6
%
-0.4 pts.
-7.2 pts.
Storage
13.4
%
-4.7 pts.
-5.1 pts.
A & PS
0.8
%
1.6 pts.
6.2 pts.
Intelligent Edge
11.0
%
1.3 pts.
5.7 pts.
Financial Services
9.0
%
0.5 pts.
0.4 pts.
Corporate Investments
(22.6
)%
-0.3 pts.
0.6 pts.
Total segment operating profit margin
6.9
%
-2.7 pts.
-2.8 pts.
HEWLETT PACKARD ENTERPRISE
COMPANY AND SUBSIDIARIES
CALCULATION OF DILUTED NET
EARNINGS (LOSS) PER SHARE
(Unaudited)
(In millions, except per share
amounts)
Three months ended
April 30, 2020
January 31,
2020
April 30, 2019
Numerator:
GAAP net (loss) earnings
$
(821
)
$
333
$
419
Non-GAAP net earnings
$
285
$
575
$
579
Denominator:
Weighted-average shares used to compute
basic net (loss) earnings per share
1,291
1,300
1,367
Dilutive effect of employee stock
plans(h)
7
15
15
Weighted-average shares used to compute
diluted net (loss) earnings per share
1,298
1,315
1,382
GAAP net (loss) earnings per share
Basic
$
(0.64
)
$
0.26
$
0.31
Diluted(h)
$
(0.64
)
$
0.25
$
0.30
Non-GAAP net earnings per share
Basic
$
0.22
$
0.44
$
0.42
Diluted(h)
$
0.22
$
0.44
$
0.42
Six months ended April
30,
2020
2019
Numerator:
GAAP net (loss) earnings
$
(488
)
$
596
Non-GAAP net earnings
$
860
$
1,169
Denominator:
Weighted-average shares used to compute
basic net (loss) earnings per share
1,295
1,384
Dilutive effect of employee stock
plans(h)
11
13
Weighted-average shares used to compute
diluted net (loss) earnings per share
1,306
1,397
GAAP net earnings (loss) per share
Basic
$
(0.38
)
$
0.43
Diluted(h)
$
(0.38
)
$
0.43
Non-GAAP net earnings per share
Basic
$
0.66
$
0.84
Diluted(h)
$
0.66
$
0.84
(a)
The Company recorded $865 million of
partial goodwill impairment charge in the second quarter of fiscal
2020 as it was determined that the fair value of the HPC & MCS
reporting unit was below the carrying value of its net assets.
(b)
Disaster charges (recovery) for the three
and six months ended April 30, 2020 primarily include direct costs
resulting from COVID-19, as a result of HPE hosted, co-hosted, or
sponsored event cancellations and shift to a virtual format. For
the three and six months ended April 30, 2019, represents insurance
recoveries in relation to damage to our facilities in Houston,
Texas due to Hurricane Harvey in fiscal 2017.
(c)
Represents the amortization of basis
difference adjustments related to the H3C divestiture.
(d)
For the periods presented, amounts
represent Acquisition, disposition and other related charges
related to a non-cash inventory fair value adjustment in connection
with the acquisition of Cray, Inc., which was included in Cost of
Sales.
(e)
The Company adopted the new accounting
standard for leases in the first quarter of fiscal 2020 which
requires lessees to recognize a lease liability and a right-of-use
(“ROU”) asset for the lease term. The Company elected the modified
retrospective transition method whereby prior comparative periods
are not restated. Adoption of the new lease standard resulted in
the recognition of $1.0 billion of ROU assets and $1.1 billion of
lease liabilities on the Company’s Condensed Consolidated Balance
Sheet at November 1, 2019.
(f)
The Company adopted an accounting standard
update in the first quarter of fiscal 2020 that allowed it to
reclassify $43 million of stranded tax effects resulting from U.S.
tax reform from accumulated other comprehensive loss into
accumulated deficit.
(g)
Effective at the beginning of the first
quarter of fiscal 2020, Hewlett Packard Enterprise Company ("HPE")
implemented certain organizational changes to align its segment
financial reporting more closely with its current business
structure. As a result of these organizational changes, HPE
replaced the Hybrid IT reportable segment (and the Compute, Storage
and HPE Pointnext business units within it) with four new financial
reporting segments: Compute, High Performance Compute &
Mission-Critical Systems ("HPC & MCS"), Storage, and Advisory
and Profession Services ("A & PS").
In addition, the Intelligent Edge segment
now includes the Data Center Networking ("DC Networking")
operational services business that was previously a part of the
Hybrid IT Segment. The DC Networking business, other than
operational services, had been transferred to the Intelligent Edge
segment in a prior realignment.
The Company reflected these changes to its
segment information retrospectively to the earliest period
presented, which primarily resulted in the transfer of net revenue
and operating profit for each of the businesses as described above.
These changes had no impact on Hewlett Packard Enterprise’s
previously reported consolidated net revenue, net earnings or net
earnings per share ("EPS").
(h)
Diluted net earnings per share reflects
any dilutive effect of restricted stock awards, stock options and
performance-based awards, but the effect is excluded when
calculating GAAP diluted net (loss) per share because it would be
anti-dilutive.
Use of non-GAAP financial measures
To supplement Hewlett Packard Enterprise’s condensed
consolidated financial statement information presented on a GAAP
basis, Hewlett Packard Enterprise provides revenue on a constant
currency basis, non-GAAP gross profit margin, non-GAAP operating
expenses, non-GAAP operating profit (Non-GAAP earnings from
operations), non-GAAP operating profit margin, non-GAAP income tax
rate, non-GAAP net earnings, non-GAAP diluted net earnings per
share, gross cash, free cash flow, net capital expenditures, net
debt, net cash, operating company net debt and operating company
net cash financial measures. Hewlett Packard Enterprise also
provides forecasts of non-GAAP diluted net earnings per share and
free cash flow.
These non-GAAP financial measures are not computed in accordance
with, or as an alternative to, generally accepted accounting
principles in the United States. The GAAP measure most directly
comparable to revenue on a constant currency basis is revenue. The
GAAP measure most directly comparable to non-GAAP gross profit
margin is gross profit margin. The GAAP measure most directly
comparable to non-GAAP operating expense is total costs and
expenses. The GAAP measure most directly comparable to non-GAAP
operating profit (Non-GAAP earnings from operations) is operating
profit (earnings from operations). The GAAP measure most directly
comparable to non-GAAP operating profit margin is operating profit
margin. The GAAP measure most directly comparable to non-GAAP
income tax rate is income tax rate. The GAAP measure most directly
comparable to non-GAAP net earnings is net earnings. The GAAP
measure most directly comparable to non-GAAP diluted net earnings
per share is diluted net earnings per share. The GAAP measure most
directly comparable to gross cash is cash and cash equivalents. The
GAAP measure most directly comparable to free cash flow is cash
flow from operations. The GAAP measure most directly comparable to
net capital expenditures is investment in property, plant and
equipment. The GAAP measure most directly comparable to net debt
and operating company net debt is total company debt. The GAAP
measure most directly comparable to each of net cash and operating
company net cash is cash and cash equivalents. Reconciliations of
each of these non-GAAP financial measures to GAAP information are
included in the tables above or elsewhere in the materials
accompanying this news release.
Use and economic substance of non-GAAP financial measures
used by Hewlett Packard Enterprise
Revenue on a constant currency basis assumes no change in the
foreign exchange rate from the prior-year period. Non-GAAP gross
profit margin is defined to exclude charges relating to the
amortization of initial direct costs and certain acquisition,
disposition and other related charges. Non-GAAP operating expenses,
non-GAAP operating profit (Non-GAAP earnings from operations), and
non-GAAP operating profit margin are defined to exclude any charges
relating to the amortization of intangible assets, amortization of
initial direct costs, impairment of goodwill, transformation costs,
disaster charges (recovery) and acquisition, disposition and other
related charges. Non-GAAP net earnings and non-GAAP diluted net
earnings per share consist of net earnings or diluted net earnings
per share excluding those same charges, as well as an adjustment to
earnings in equity interests, non-service net periodic benefit
credit, tax indemnification adjustments, certain income tax
valuation allowances and separation taxes, the impact of U.S. tax
reform and excess tax benefit from stock-based compensation. In
addition, non-GAAP net earnings and non-GAAP diluted net earnings
per share are adjusted by the amount of additional taxes or tax
benefits associated with each non-GAAP item.
Hewlett Packard Enterprise’s management uses these non-GAAP
financial measures for purposes of evaluating Hewlett Packard
Enterprise’s historical and prospective financial performance, as
well as Hewlett Packard Enterprise’s performance relative to its
competitors. Hewlett Packard Enterprise’s management also uses
these non-GAAP measures to further its own understanding of Hewlett
Packard Enterprise’s segment operating performance. Hewlett Packard
Enterprise believes that excluding the items mentioned above from
these non-GAAP financial measures allows Hewlett Packard
Enterprise’s management to better understand Hewlett Packard
Enterprise’s consolidated financial performance in relation to the
operating results of Hewlett Packard Enterprise’s segments, as
Hewlett Packard Enterprise’s management does not believe that the
excluded items are reflective of ongoing operating results. More
specifically, Hewlett Packard Enterprise’s management excludes each
of those items mentioned above for the following reasons:
- Amortization of initial direct costs represents the portion of
lease origination costs incurred in prior fiscal years that do not
quality for capitalization under the new leasing standard. Hewlett
Packard Enterprise excludes these costs as the Company elected the
practical expedient under the new leasing standard. As a result,
the company did not adjust these historical costs to accumulated
deficit. We believe that most financing companies did not elect
this practical expedient and therefore we excluded these costs to
facilitate a more meaningful evaluation of our current operating
performance and comparisons to our peers.
- Hewlett Packard Enterprise incurs charges relating to the
amortization of intangible assets. Those charges are included in
Hewlett Packard Enterprise’s GAAP earnings, operating profit
margin, net earnings and diluted net earnings per share. Such
charges are significantly impacted by the timing and magnitude of
Hewlett Packard Enterprise’s acquisitions and any related
impairment charges. Consequently, Hewlett Packard Enterprise
excludes these charges for purposes of calculating these non-GAAP
measures to facilitate a more meaningful evaluation of Hewlett
Packard Enterprise’s current operating performance and comparisons
to Hewlett Packard Enterprise’s operating performance in other
periods.
- In the second quarter of fiscal 2020, Hewlett Packard
Enterprise recorded an impairment charge for the goodwill
associated with its HPC & MCS reporting unit following an
impairment review. Hewlett Packard Enterprise excludes these
charges for purposes of calculating these non-GAAP measures to
facilitate a more meaningful evaluation of Hewlett Packard
Enterprise’s current operating performance and comparisons to
Hewlett Packard Enterprise’s operating performance in other
periods
- Transformation costs represent net costs related to the HPE
Next initiative and include restructuring charges, program design
and execution costs, costs incurred to transform Hewlett Packard
Enterprise's IT infrastructure and gains from the sale of
real-estate identified as part of the initiative as well as any
impairment charges on real-estate assets identified as part of the
initiative. Hewlett Packard Enterprise believes that eliminating
such expenses and gains for purposes of calculating these non-GAAP
measures facilitates a more meaningful evaluation of Hewlett
Packard Enterprise’s current operating performance and comparisons
to Hewlett Packard Enterprise’s past operating performance.
- Disaster charges (recovery) for the three and six months ended
April 30, 2020 primarily include direct costs resulting from
COVID-19, as a result of HPE hosted, co-hosted, or sponsored event
cancellations and shift to a virtual format. For the three and six
months ended April 30, 2019, represents insurance recoveries in
relation to damage to our facilities in Houston, Texas due to
Hurricane Harvey in fiscal 2017. Hewlett Packard Enterprise
believes that eliminating these amounts for purposes of calculating
non-GAAP operating profit (Non-GAAP earnings from
operations)facilitates a more meaningful evaluation of Hewlett
Packard Enterprise’s current operating performance and comparisons
to Hewlett Packard Enterprise’s operating performance in other
periods.
- Hewlett Packard Enterprise incurs costs related to its
acquisitions, disposition and other related charges, most of which
are treated as non-cash or non-capitalized expenses. The charges
are direct expenses such as professional fees and retention costs,
as well as non-cash adjustments to the fair value of certain
acquired assets such as inventory. Charges may also include
expenses associated with disposal activities including legal and
arbitration settlements in connection with certain dispositions.
Because non-cash or non-capitalized acquisition-related expenses
are inconsistent in amount and frequency and are significantly
impacted by the timing and nature of Hewlett Packard Enterprise’s
acquisitions and divestitures, Hewlett Packard Enterprise believes
that eliminating such expenses for purposes of calculating these
non-GAAP measures facilitates a more meaningful evaluation of
Hewlett Packard Enterprise’s current operating performance and
comparisons to Hewlett Packard Enterprise’s past operating
performance.
- Adjustment to earnings from equity interests includes the
amortization of the basis difference in relation to the H3C
divestiture and the resulting equity method investment in H3C.
Hewlett Packard Enterprise believes that eliminating this amount
for purposes of calculating non-GAAP operating profit (Non-GAAP
earnings from operations) facilitates a more meaningful evaluation
of Hewlett Packard Enterprise’s current operating performance and
comparisons to Hewlett Packard Enterprise’s operating performance
in other periods.
- Non-service net periodic benefit credit includes certain
market-related factors such as (i) interest cost, (ii) expected
return on plan assets, (iii) amortization of prior plan amendments,
(iv) amortized actuarial gains or losses, (v) the impacts of any
plan settlements/curtailments and (vi) impacts from other
market-related factors associated with Hewlett Packard Enterprise's
defined benefit pension and post-retirement benefit plans. These
market-driven retirement-related adjustments are primarily due to
the change in pension plan assets and liabilities which are tied to
financial market performance. Hewlett Packard Enterprise excludes
these adjustments and considers them to be outside the operational
performance of the business.
- Tax indemnification adjustments are related to changes in the
indemnification positions between Hewlett Packard Enterprise and HP
Inc., DXC and Micro Focus that are recorded by Hewlett Packard
Enterprise as pre-tax income or expense and not considered tax
expense. Hewlett Packard Enterprise excludes these income or
charges and the associated tax impact for the purpose of
calculating these non-GAAP measures to facilitate a more meaningful
evaluation of Hewlett Packard Enterprise’s current operating
performance and comparisons to Hewlett Packard Enterprise’s
operating performance in other periods.
- Hewlett Packard Enterprise utilizes a structural long-term
projected non-GAAP tax rate in order to provide better consistency
across the interim reporting periods and to eliminate the effects
of items not directly related to the Company’s operating structure
that can vary in size and frequency. When projecting this long-term
rate, Hewlett Packard Enterprise evaluated a three-year financial
projection. The projected rate assumes no incremental acquisitions
in the three-year projection period, and considers other factors
including Hewlett Packard Enterprise’s expected tax structure, its
tax positions in various jurisdictions and current impacts from key
legislation implemented in major jurisdictions where Hewlett
Packard Enterprise operates. For fiscal 2020, the Company will use
a projected non-GAAP tax rate of 12%, which reflects currently
available information, including the impact of the Tax Act and
interpretations thereof, as well as other factors and assumptions.
The non-GAAP tax rate could be subject to change for a variety of
reasons, including the rapidly evolving global tax environment,
significant changes in Hewlett Packard Enterprise’s geographic
earnings mix including due to acquisition activity, or other
changes to the Company’s strategy or business operations. The
Company will re-evaluate its long-term rate as appropriate. Hewlett
Packard Enterprise believes that making these adjustments
facilitates a better evaluation of our current operating
performance and comparisons to past operating results.
Material limitations associated with use of non-GAAP
financial measures
These non-GAAP financial measures have limitations as analytical
tools, and these measures should not be considered in isolation or
as a substitute for analysis of Hewlett Packard Enterprise’s
results as reported under GAAP. Some of the limitations in relying
on these non-GAAP financial measures are:
- Amortization of initial direct cost is excluded from non-GAAP
gross profit margin, non-GAAP operating expenses, non-GAAP
operating profit (Non-GAAP earnings from operations), non-GAAP
operating profit margin, non-GAAP net earnings and non-GAAP diluted
net earnings per share can have an impact on the equivalent GAAP
earnings measure and HPE Financial Services Segment results.
- Amortization of intangible assets, though not directly
affecting Hewlett Packard Enterprise’s cash position, represent the
loss in value of intangible assets over time. The expense
associated with this loss in value is not included in non-GAAP
operating expenses, non-GAAP operating profit (Non-GAAP earnings
from operations), non-GAAP operating profit margin, non-GAAP net
earnings and non-GAAP diluted net earnings per share, and therefore
does not reflect the full economic effect of the loss in value of
those intangible assets.
- Items such as impairment of goodwill, transformation costs,
disaster charges (recovery) and acquisition, and disposition and
other related costs that are excluded from non-GAAP gross profit
margin, non-GAAP operating expenses, non-GAAP operating profit
(Non-GAAP earnings from operations), non-GAAP operating profit
margin, non-GAAP net earnings and non-GAAP diluted net earnings per
share can have a material impact on the equivalent GAAP earnings
measure.
- Items such as adjustment to earnings from equity interests and
non-service net periodic benefit credit that are excluded from
non-GAAP net earnings, and non-GAAP diluted net earnings per share
can have a material impact on the equivalent GAAP earnings
measure.
- Items such as tax indemnification adjustments, certain income
tax valuation allowances and separation taxes, the impact of U.S.
tax reform, excess tax benefits from stock-based compensation and
the related tax impacts from other non-GAAP measures that are
excluded from the non-GAAP tax rate, non-GAAP net earnings and
non-GAAP diluted net earnings per share can also have a material
impact on the equivalent GAAP earnings measures.
- Hewlett Packard Enterprise may not be able to immediately
liquidate the short-term and long-term investments included in
gross cash, which may limit the usefulness of gross cash as a
liquidity measure.
- Other companies may calculate revenue on a constant currency
basis, non-GAAP gross profit margin, non-GAAP operating profit
(Non-GAAP earnings from operations), non-GAAP operating profit
margin, non-GAAP net earnings and non-GAAP diluted net earnings per
share differently than Hewlett Packard Enterprise does, limiting
the usefulness of those measures for comparative purposes.
Compensation for limitations associated with use of non-GAAP
financial measures
Hewlett Packard Enterprise compensates for the limitations on
its use of non-GAAP financial measures by relying primarily on its
GAAP results and using non-GAAP financial measures only as a
supplement. Hewlett Packard Enterprise also provides a
reconciliation of each non-GAAP financial measure to its most
directly comparable GAAP measure within this news release and in
other written materials that include these non-GAAP financial
measures, and Hewlett Packard Enterprise encourages investors to
review carefully those reconciliations.
Usefulness of non-GAAP financial measures to
investors
Hewlett Packard Enterprise believes that providing revenue on a
constant currency basis, non-GAAP gross profit margin, non-GAAP
operating expenses, non-GAAP operating profit (Non-GAAP earnings
from operations), non-GAAP operating profit margin, non-GAAP income
tax rate, non-GAAP net earnings, non-GAAP diluted net earnings per
share, gross cash, free cash flow, net capital expenditures, net
debt, net cash, operating company net debt and operating company
net cash financial measures to investors in addition to the related
GAAP measures provides investors with greater transparency to the
information used by Hewlett Packard Enterprise’s management in its
financial and operational decision making and allows investors to
see Hewlett Packard Enterprise’s results “through the eyes” of
management. Hewlett Packard Enterprise further believes that
providing this information better enables Hewlett Packard
Enterprise’s investors to understand Hewlett Packard Enterprise’s
operating performance and to evaluate the efficacy of the
methodology and information used by Hewlett Packard Enterprise’s
management to evaluate and measure such performance. Disclosure of
these non-GAAP financial measures also facilitates comparisons of
Hewlett Packard Enterprise’s operating performance with the
performance of other companies in Hewlett Packard Enterprise’s
industry that supplement their GAAP results with non-GAAP financial
measures that may be calculated in a similar manner.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200521005568/en/
Editorial contact Stefanie Notaney
stefanie.notaney@hpe.com
Investor contact Sonalee Parekh
investor.relations@hpe.com
Hewlett Packard Enterprise (NYSE:HPE)
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