Hewlett Packard Enterprise (NYSE: HPE) today announced financial results
for its fiscal 2019 second quarter, ended April 30, 2019.
“In Q2 we demonstrated traction in critical areas for our customers that
delivered strong margin improvement, EPS above our outlook and solid
cash flow,” said Antonio Neri, President and CEO of HPE. “We continue to
make important strategic moves that further enhance our competitive
position and ability to better serve our customers in a hybrid world. I
remain confident that our edge-to-core strategy backed by the important
investments we’ve been making will generate positive shareholder returns
in the near and longer term.”
Second Quarter Fiscal Year 2019
|
HPE fiscal 2019 second quarter continuing operations financial |
||||||
|
Q2 FY19 |
Q2 FY18 |
Y/Y |
||||
| GAAP net revenue ($B) | $7.2 | $7.5 | (4.3%) | |||
| GAAP operating margin | 6.1% | 4.9% | 1.2 pts. | |||
| GAAP net earnings ($B) | $0.4 | $0.9 | (50.7%) | |||
| GAAP diluted net earnings per share | $0.30 | $0.54 | (44.4%) | |||
| Non-GAAP operating margin | 8.9% | 8.2% | 0.7 pts. | |||
| Non-GAAP net earnings ($B) | $0.6 | $0.5 | 14.4% | |||
| Non-GAAP diluted net earnings per share | $0.42 | $0.32 | 31.3% | |||
| Cash flow from operations ($M) | $987 | $247 | 299.6% | |||
Information about HPE’s use of non-GAAP financial information is
provided under “Use of non-GAAP financial information” below.
Financial Summary
Second quarter net revenue of $7.2 billion, down 4% from the
prior-year period, and down 2% when adjusted for currency. Second
quarter net revenue was up 1% from the prior-year period, excluding Tier
1 server sales, when adjusted for currency.
Second quarter GAAP diluted net earnings per share (“EPS”) from
continuing operations was $0.30, down from GAAP diluted net EPS from
continuing operations of $0.54 in the prior-year period primarily due to
one-time, non-cash adjustments related to U.S. tax reform in the
prior-year period.
Second quarter non-GAAP diluted net EPS from continuing
operations was $0.42, up from non-GAAP diluted net EPS from continuing
operations of $0.32 in the prior-year period. Second quarter non-GAAP
net earnings from continuing operations and non-GAAP diluted net EPS
from continuing operations exclude after-tax adjustments of $160 million
and $0.12 per diluted share, respectively, primarily related to the
impact of acquisition, disposition and other related charges,
amortization of intangible assets, transformation costs, an adjustment
to earnings from equity interests and the impact of U.S. tax reform.
Second quarter cash flow from operations of $987 million and free
cash flow of $402 million, was up $740 million and $671 million from
the prior-year period, respectively.
Segment Results
-
Intelligent Edge revenue was $666 million, down 6% year over
year and down 5% when adjusted for currency, with 3.0% operating
margin. HPE Aruba Product revenue was down 8% year over year and down
7% when adjusted for currency and HPE Aruba Services revenue was up
16% year over year and up 18% when adjusted for currency. -
Hybrid IT continued to drive profitable growth with revenue of
$5.6 billion, down 4% year over year and down 3% when adjusted for
currency with 11.4% operating margin that was up 140 bps year over
year. Compute revenue was down 5% year over year and down 4% when
adjusted for currency. Excluding the impact from the company’s
intentional exit of certain Tier 1 customer segments, Compute revenue
was up 4% when adjusted for currency and HPE’s higher-margin Value
Compute portfolio grew approximately 8% when adjusted for currency,
driven by strength in high-performance compute, hyper-converged and
composable cloud. Storage revenue was up 3% year over year and up 5%
when adjusted for currency, with particular strength in Nimble, XP and
Entry Storage. HPE Pointnext revenue was down 7% year over year and
down 3% when adjusted for currency. HPE Pointnext operational services
orders, including Nimble services was up 1% when adjusted for currency. -
Financial Services revenue was $896 million, down 2% year over
year and up 2% when adjusted for currency, net portfolio assets were
down 2% year over year and up 1% when adjusted for currency, and
financing volume was down 10% year over year and down 6% when adjusted
for currency. The business delivered an operating margin of 8.6%.
Raised FY 2019 Outlook
For the fiscal 2019 third quarter, Hewlett Packard Enterprise estimates
GAAP diluted net EPS to be in the range of $0.29 to $0.33 and non-GAAP
diluted net EPS to be in the range of $0.40 to $0.44. Fiscal 2019 third
quarter non-GAAP diluted net EPS estimates exclude after-tax costs of
approximately $0.11 per diluted share, primarily related to
transformation costs and the amortization of intangible assets.
For fiscal 2019 full-year, Hewlett Packard Enterprise now estimates GAAP
diluted net EPS to be in the range of $0.98 to $1.08 and the non-GAAP
diluted net EPS to be in the range of $1.62 to $1.72. Fiscal 2019
non-GAAP diluted net EPS estimates exclude after-tax costs of
approximately $0.64 per diluted share, primarily related to
transformation costs, the amortization of intangible assets, and an
adjustment to earnings from equity interests.
For fiscal 2019 full-year, Hewlett Packard Enterprise reiterates free
cash flow guidance range of $1.4 to $1.6 billion, up over 35% from the
prior year.
About Hewlett Packard Enterprise
Hewlett Packard Enterprise is a global technology leader focused on
developing intelligent solutions that allow customers to capture,
analyze and act upon data seamlessly from edge to cloud. HPE enables
customers to accelerate business outcomes by driving new business
models, creating new customer and employee experiences, and increasing
operational efficiency today and into the future.
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 operating
expense, non-GAAP operating profit, non-GAAP operating margin, non-GAAP
income tax rate, non-GAAP net earnings from continuing operations,
non-GAAP net earnings from discontinued operations, non-GAAP diluted net
earnings per share from continuing operations, non-GAAP diluted net
earnings per share from discontinued operations, 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, operating profit, operating margin, net earnings
from continuing operations, net earnings from discontinued operations,
diluted net earnings per share from continuing operations, diluted net
earnings per share from discontinued operations, 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 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, 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 or
restructuring charges; any statements of the plans, strategies and
objectives of management for future operations, as well as the execution
of transformation and restructuring plans and any resulting cost
savings, 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; 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; the hiring and retention of
key employees; 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 that
may be implemented; 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, 2018.
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,
2019. 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, | January 31, | April 30, | ||||||||||
| 2019 | 2019 | 2018 | ||||||||||
| Net revenue(a) | $ | 7,150 | $ | 7,553 | $ | 7,468 | ||||||
| Costs and expenses: | ||||||||||||
| Cost of sales | 4,845 | 5,207 | 5,210 | |||||||||
| Research and development | 457 | 466 | 403 | |||||||||
| Selling, general and administrative | 1,214 | 1,211 | 1,245 | |||||||||
| Amortization of intangible assets | 69 | 72 | 72 | |||||||||
| Restructuring charges | — | — | 10 | |||||||||
| Transformation costs | 54 | 78 | 120 | |||||||||
| Disaster charges | (7 | ) | — | — | ||||||||
| Acquisition, disposition and other related charges | 84 | 63 | 16 | |||||||||
| Separation costs | — | — | 26 | |||||||||
| Total costs and expenses | 6,716 | 7,097 | 7,102 | |||||||||
| Earnings from continuing operations | 434 | 456 | 366 | |||||||||
| Interest and other, net | (18 | ) | (51 | ) | (78 | ) | ||||||
| Tax indemnification adjustments(b) | 4 | 219 | (425 | ) | ||||||||
| Non-service net periodic benefit credit(c) | 17 | 16 | 31 | |||||||||
| Earnings (loss) from equity interests | 3 | 15 | (10 | ) | ||||||||
| Earnings (loss) from continuing operations before taxes | 440 | 655 | (116 | ) | ||||||||
| (Provision) benefit for taxes(d) | (21 | ) | (478 | ) | 966 | |||||||
| Net earnings from continuing operations | 419 | 177 | 850 | |||||||||
| Net loss from discontinued operations | — | — | (72 | ) | ||||||||
| Net earnings | $ | 419 | $ | 177 | $ | 778 | ||||||
| Net earnings (loss) per share: | ||||||||||||
| Basic | ||||||||||||
| Continuing operations | $ | 0.31 | $ | 0.13 | $ | 0.55 | ||||||
| Discontinued operations | — | — | (0.05 | ) | ||||||||
| Total basic net earnings per share | $ | 0.31 | $ | 0.13 | $ | 0.50 | ||||||
| Diluted | ||||||||||||
| Continuing operations | $ | 0.30 | $ | 0.13 | $ | 0.54 | ||||||
| Discontinued operations | — | — | (0.05 | ) | ||||||||
| Total diluted net earnings per share | $ | 0.30 | $ | 0.13 | $ | 0.49 | ||||||
| Cash dividends declared per share | $ | 0.1125 | $ | 0.1125 | $ | 0.1125 | ||||||
| Weighted-average shares used to compute net earnings per share: | ||||||||||||
| Basic | 1,367 | 1,401 | 1,552 | |||||||||
| Diluted | 1,382 | 1,412 | 1,582 | |||||||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS | ||||||||
| (Unaudited) | ||||||||
| (In millions, except per share amounts) | ||||||||
| Six Months Ended April 30, | ||||||||
| 2019 | 2018 | |||||||
| Net revenue(a) | $ | 14,703 | $ | 15,142 | ||||
| Costs and expenses: | ||||||||
| Cost of sales | 10,052 | 10,715 | ||||||
| Research and development | 923 | 792 | ||||||
| Selling, general and administrative | 2,425 | 2,463 | ||||||
| Amortization of intangible assets | 141 | 150 | ||||||
| Restructuring charges | — | 15 | ||||||
| Transformation costs | 132 | 365 | ||||||
| Disaster charges | (7 | ) | — | |||||
| Acquisition, disposition and other related charges | 147 | 46 | ||||||
| Separation costs | — | 2 | ||||||
| Total costs and expenses | 13,813 | 14,548 | ||||||
| Earnings from continuing operations | 890 | 594 | ||||||
| Interest and other, net | (69 | ) | (99 | ) | ||||
| Tax indemnification adjustments(b) | 223 | (1,344 | ) | |||||
| Non-service net periodic benefit credit(c) | 33 | 64 | ||||||
| Earnings from equity interests | 18 | 12 | ||||||
| Earnings (loss) from continuing operations before taxes | 1,095 | (773 | ) | |||||
| (Provision) benefit for taxes(d) | (499 | ) | 3,105 | |||||
| Net earnings from continuing operations | 596 | 2,332 | ||||||
| Net loss from discontinued operations | — | (118 | ) | |||||
| Net earnings | $ | 596 | $ | 2,214 | ||||
| Net earnings (loss) per share: | ||||||||
| Basic | ||||||||
| Continuing operations | $ | 0.43 | $ | 1.48 | ||||
| Discontinued operations | — | (0.07 | ) | |||||
| Total basic net earnings per share | $ | 0.43 | $ | 1.41 | ||||
| Diluted | ||||||||
| Continuing operations | $ | 0.43 | $ | 1.46 | ||||
| Discontinued operations | — | (0.08 | ) | |||||
| Total diluted net earnings per share | $ | 0.43 | $ | 1.38 | ||||
| Cash dividends declared per share | $ | 0.2250 | $ | 0.2625 | ||||
| Weighted-average shares used to compute net earnings per share: | ||||||||
| Basic | 1,384 | 1,571 | ||||||
| Diluted | 1,397 | 1,601 | ||||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | ||||||||||||||||||||||||
| ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS, | ||||||||||||||||||||||||
| OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE | ||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||
| (In millions, except percentages and per share amounts) | ||||||||||||||||||||||||
| Three months | ||||||||||||||||||||||||
| Three months | Diluted net | ended | Diluted net | Three months | Diluted net | |||||||||||||||||||
| ended April | earnings | January 31, | earnings | ended April | earnings | |||||||||||||||||||
| 30, 2019 | per share | 2019 | per share | 30, 2018 | per share | |||||||||||||||||||
| GAAP net earnings from continuing operations | $ | 419 | $ | 0.30 | $ | 177 | $ | 0.13 | $ | 850 | $ | 0.54 | ||||||||||||
| Non-GAAP adjustments: | ||||||||||||||||||||||||
| Amortization of intangible assets | 69 | 0.05 | 72 | 0.05 | 72 | 0.05 | ||||||||||||||||||
| Restructuring charges(c) | — | — | — | — | 10 | 0.01 | ||||||||||||||||||
| Transformation costs(c) | 54 | 0.04 | 78 | 0.06 | 120 | 0.08 | ||||||||||||||||||
| Disaster charges | (7 | ) | (0.01 | ) | — | — | — | — | ||||||||||||||||
| Acquisition, disposition and other related charges | 84 | 0.06 | 63 | 0.04 | 16 | 0.01 | ||||||||||||||||||
| Separation costs(c) | — | — | — | — | 26 | 0.02 | ||||||||||||||||||
| Tax indemnification adjustments(b) | (4 | ) | — | (219 | ) | (0.16 | ) | 425 | 0.26 | |||||||||||||||
| Non-service net periodic benefit credit(c) | (17 | ) | (0.01 | ) | (16 | ) | (0.01 | ) | (31 | ) | (0.02 | ) | ||||||||||||
| Loss from equity interests(e) | 38 | 0.03 | 38 | 0.03 | 38 | 0.02 | ||||||||||||||||||
| Adjustments for taxes(d)(f) | (57 | ) | (0.04 | ) | 397 | 0.28 | (1,020 | ) | (0.65 | ) | ||||||||||||||
| Non-GAAP net earnings from continuing operations | $ | 579 | $ | 0.42 | $ | 590 | $ | 0.42 | $ | 506 | $ | 0.32 | ||||||||||||
| GAAP earnings from continuing operations | $ | 434 | $ | 456 | $ | 366 | ||||||||||||||||||
| Non-GAAP adjustments related to continuing operations: | ||||||||||||||||||||||||
| Amortization of intangible assets | 69 | 72 | 72 | |||||||||||||||||||||
| Restructuring charges(c) | — | — | 10 | |||||||||||||||||||||
| Transformation costs(c) | 54 | 78 | 120 | |||||||||||||||||||||
| Disaster charges | (7 | ) | — | — | ||||||||||||||||||||
| Acquisition, disposition and other related charges | 84 | 63 | 16 | |||||||||||||||||||||
| Separation costs(c) | — | — | 26 | |||||||||||||||||||||
| Non-GAAP earnings from continuing operations | $ | 634 | $ | 669 | $ | 610 | ||||||||||||||||||
| GAAP operating margin from continuing operations | 6 | % | 6 | % | 5 | % | ||||||||||||||||||
| Non-GAAP adjustments from continuing operations | 3 | % | 3 | % | 3 | % | ||||||||||||||||||
| Non-GAAP operating margin from continuing operations | 9 | % | 9 | % | 8 | % | ||||||||||||||||||
| GAAP net loss from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | (72 | ) |
$ |
(0.05 |
) |
||||||||||
| Non-GAAP adjustments related to discontinued operations: | ||||||||||||||||||||||||
| Tax indemnification adjustments(b) | — | — | — | — | 72 |
0.05 |
||||||||||||||||||
| Non-GAAP net earnings from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Total GAAP net earnings | $ | 419 | $ | 0.30 | $ | 177 | $ | 0.13 | $ | 778 | $ | 0.49 | ||||||||||||
| Total Non-GAAP net earnings | $ | 579 | $ | 0.42 | $ | 590 | $ | 0.42 | $ | 506 | $ | 0.32 | ||||||||||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | ||||||||||||||||
| ADJUSTMENTS TO GAAP NET EARNINGS, EARNINGS FROM OPERATIONS, | ||||||||||||||||
| OPERATING MARGIN AND DILUTED NET EARNINGS PER SHARE | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| (In millions, except percentages and per share amounts) | ||||||||||||||||
| Six months | Diluted net | Six months | Diluted net | |||||||||||||
| ended April | earnings per | ended April | earnings per | |||||||||||||
| 30, 2019 | share | 30, 2018 | share | |||||||||||||
| GAAP net earnings from continuing operations | $ | 596 | $ | 0.43 | $ | 2,332 | $ | 1.46 | ||||||||
| Non-GAAP adjustments: | ||||||||||||||||
| Amortization of intangible assets | 141 | 0.11 | 150 | 0.09 | ||||||||||||
| Restructuring charges(c) | — | — | 15 | 0.01 | ||||||||||||
| Transformation costs(c) | 132 | 0.09 | 365 | 0.23 | ||||||||||||
| Disaster charges | (7 | ) | (0.01 | ) | — | — | ||||||||||
| Acquisition, disposition and other related charges | 147 | 0.11 | 46 | 0.03 | ||||||||||||
| Separation costs(c) | — | — | 2 | — | ||||||||||||
| Tax indemnification adjustments(b) | (223 | ) | (0.16 | ) | 1,344 | 0.84 | ||||||||||
| Non-service net periodic benefit credit(c) | (33 | ) | (0.02 | ) | (64 | ) | (0.04 | ) | ||||||||
| Loss from equity interests(e) | 76 | 0.05 | 75 | 0.05 | ||||||||||||
| Adjustments for taxes(d)(f) | 340 | 0.24 | (3,239 | ) | (2.03 | ) | ||||||||||
| Non-GAAP net earnings from continuing operations | $ | 1,169 | $ | 0.84 | $ | 1,026 | $ | 0.64 | ||||||||
| GAAP earnings from continuing operations | $ | 890 | $ | 594 | ||||||||||||
| Non-GAAP adjustments related to continuing operations: | ||||||||||||||||
| Amortization of intangible assets | 141 | 150 | ||||||||||||||
| Restructuring charges(c) | — | 15 | ||||||||||||||
| Transformation costs(c) | 132 | 365 | ||||||||||||||
| Disaster charges | (7 | ) | — | |||||||||||||
| Acquisition, disposition and other related charges | 147 | 46 | ||||||||||||||
| Separation costs(c) | — | 2 | ||||||||||||||
| Non-GAAP earnings from continuing operations | $ | 1,303 | $ | 1,172 | ||||||||||||
| GAAP operating margin from continuing operations | 6 | % | 4 | % | ||||||||||||
| Non-GAAP adjustments from continuing operations | 3 | % | 4 | % | ||||||||||||
| Non-GAAP operating margin from continuing operations | 9 | % | 8 | % | ||||||||||||
| GAAP net loss from discontinued operations | $ | — | $ | — | $ | (118 | ) | $ | (0.08 | ) | ||||||
| Non-GAAP adjustments related to discontinued operations: | ||||||||||||||||
| Separation costs | — | — | 51 | 0.03 | ||||||||||||
| Tax indemnification adjustments(b) | — | — | 68 | 0.05 | ||||||||||||
| Adjustments for taxes | — | — | (1 | ) | — | |||||||||||
| Non-GAAP net earnings from discontinued operations | $ | — | $ | — | $ | — | $ | — | ||||||||
| Total GAAP net earnings | $ | 596 | $ | 0.43 | $ | 2,214 | $ | 1.38 | ||||||||
| Total Non-GAAP net earnings | $ | 1,169 | $ | 0.84 | $ | 1,026 | $ | 0.64 | ||||||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (Unaudited) | ||||||||
| (In millions, except par value) | ||||||||
| As of | ||||||||
| April 30, 2019 | October 31, 2018 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,585 | $ | 4,880 | ||||
| Accounts receivable | 3,143 | 3,263 | ||||||
| Financing receivables | 3,453 | 3,396 | ||||||
| Inventory | 2,182 | 2,447 | ||||||
| Assets held for sale | 1 | 6 | ||||||
| Other current assets(g) | 2,636 | 3,280 | ||||||
| Total current assets | 15,000 | 17,272 | ||||||
| Property, plant and equipment | 6,138 | 6,138 | ||||||
| Long-term financing receivables and other assets | 9,317 | 11,359 | ||||||
| Investments in equity interests | 2,421 | 2,398 | ||||||
| Goodwill and intangible assets | 18,264 | 18,326 | ||||||
| Total assets | $ | 51,140 | $ | 55,493 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Notes payable and short-term borrowings | $ | 2,114 | $ | 2,005 | ||||
| Accounts payable | 5,483 | 6,092 | ||||||
| Employee compensation and benefits | 1,263 | 1,412 | ||||||
| Taxes on earnings | 236 | 378 | ||||||
| Deferred revenue | 3,141 | 3,177 | ||||||
| Accrued restructuring | 192 | 294 | ||||||
| Other accrued liabilities | 3,648 | 3,840 | ||||||
| Total current liabilities | 16,077 | 17,198 | ||||||
| Long-term debt | 10,332 | 10,136 | ||||||
| Other non-current liabilities | 6,490 | 6,885 | ||||||
| Stockholders’ equity | ||||||||
| HPE stockholders’ equity: | ||||||||
|
Preferred stock, $0.01 par value (300 shares authorized; none issued and outstanding at April 30, 2019) |
— | — | ||||||
|
Common stock, $0.01 par value (9,600 shares authorized; 1,346 and 1,423 shares issued and outstanding at April 30, 2019 and October 31, 2018, respectively) |
13 | 14 | ||||||
| Additional paid-in capital | 29,130 | 30,342 | ||||||
| Accumulated deficit(i) | (7,765 | ) | (5,899 | ) | ||||
| Accumulated other comprehensive loss | (3,180 | ) | (3,218 | ) | ||||
| Total HPE stockholders’ equity | 18,198 | 21,239 | ||||||
| Non-controlling interests | 43 | 35 | ||||||
| Total stockholders’ equity | 18,241 | 21,274 | ||||||
| Total liabilities and stockholders’ equity | $ | 51,140 | $ | 55,493 | ||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited) | ||||||||
| (In millions) | ||||||||
| Three months ended | Six months ended | |||||||
| April 30, 2019 | April 30, 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net earnings | $ | 419 | $ | 596 | ||||
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
| Depreciation and amortization | 648 | 1,287 | ||||||
| Stock-based compensation expense | 74 | 149 | ||||||
| Provision for doubtful accounts and inventory | 76 | 118 | ||||||
| Restructuring charges | 19 | 52 | ||||||
| Deferred taxes on earnings | (26 | ) | 344 | |||||
| Earnings from equity interests | (3 | ) | (18 | ) | ||||
| Other, net | (1 | ) | 45 | |||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | 30 | 143 | ||||||
| Financing receivables | 124 | (32 | ) | |||||
| Inventory | 54 | 153 | ||||||
| Accounts payable | (309 | ) | (565 | ) | ||||
| Taxes on earnings | (78 | ) | (185 | ) | ||||
| Restructuring | (88 | ) | (198 | ) | ||||
| Other assets and liabilities | 48 | (520 | ) | |||||
| Net cash provided by operating activities | 987 | 1,369 | ||||||
| Cash flows from investing activities: | ||||||||
| Investment in property, plant and equipment | (799 | ) | (1,528 | ) | ||||
| Proceeds from sale of property, plant and equipment | 214 | 371 | ||||||
| Purchases of available-for-sale securities and other investments |
(20 |
) | (25 | ) | ||||
|
Maturities and sales of available-for-sale securities and other investments |
1 |
|
2 | |||||
| Financial collateral posted | (70 | ) | (315 | ) | ||||
| Financial collateral returned | 226 | 507 | ||||||
|
Payments made in connection with business acquisitions, net of cash acquired |
— | (76 | ) | |||||
| Net cash used in investing activities | (448 | ) | (1,064 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Short-term borrowings with original maturities less than 90 days, net | 37 | 25 | ||||||
| Proceeds from debt, net of issuance costs | 236 | 625 | ||||||
| Payment of debt | (226 | ) | (560 | ) | ||||
| Net proceeds related to stock-based award activities | 26 | 9 | ||||||
| Repurchase of common stock | (574 | ) | (1,388 | ) | ||||
| Cash dividends paid | (154 | ) | (311 | ) | ||||
| Net cash used in financing activities | (655 | ) | (1,600 | ) | ||||
| Decrease in cash, cash equivalents and restricted cash(g) | (116 | ) | (1,295 | ) | ||||
| Cash, cash equivalents and restricted cash at beginning of period(g) | 3,905 | 5,084 | ||||||
| Cash, cash equivalents and restricted cash at end of period(g) | $ | 3,789 | $ | 3,789 | ||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | ||||||||||||
| SEGMENT INFORMATION | ||||||||||||
| (Unaudited) | ||||||||||||
| (In millions) | ||||||||||||
| Three months ended | ||||||||||||
| April 30, | January 31, | April 30, | ||||||||||
| 2019 | 2019 | 2018 | ||||||||||
| Net revenue:(a)(h) | ||||||||||||
| Hybrid IT | $ | 5,636 | $ | 5,970 | $ | 5,893 | ||||||
| Intelligent Edge | 666 | 686 | 706 | |||||||||
| Financial Services | 896 | 919 | 916 | |||||||||
| Corporate Investments | 125 | 118 | 134 | |||||||||
| Total segment net revenue | 7,323 | 7,693 | 7,649 | |||||||||
| Elimination of intersegment net revenue and other | (173 | ) | (140 | ) | (181 | ) | ||||||
| Total Hewlett Packard Enterprise consolidated net revenue | $ | 7,150 | $ | 7,553 | $ | 7,468 | ||||||
| Earnings from continuing operations before taxes:(c)(h) | ||||||||||||
| Hybrid IT | $ | 645 | $ | 675 | $ | 591 | ||||||
| Intelligent Edge | 20 | 9 | 56 | |||||||||
| Financial Services | 77 | 77 | 72 | |||||||||
| Corporate Investments | (29 | ) | (28 | ) | (28 | ) | ||||||
| Total segment earnings from operations | 713 | 733 | 691 | |||||||||
| Unallocated corporate costs and eliminations(c) | (64 | ) | (50 | ) | (61 | ) | ||||||
| Unallocated stock-based compensation expense | (15 | ) | (14 | ) | (20 | ) | ||||||
| Amortization of intangible assets | (69 | ) | (72 | ) | (72 | ) | ||||||
| Restructuring charges(c) | — | — | (10 | ) | ||||||||
| Transformation costs(c) | (54 | ) | (78 | ) | (120 | ) | ||||||
| Disaster charges | 7 | — | — | |||||||||
| Acquisition, disposition and other related charges | (84 | ) | (63 | ) | (16 | ) | ||||||
| Separation costs(c) | — | — | (26 | ) | ||||||||
| Interest and other, net | (18 | ) | (51 | ) | (78 | ) | ||||||
| Tax indemnification adjustments(b) | 4 | 219 | (425 | ) | ||||||||
| Non-service net periodic benefit credit(c) | 17 | 16 | 31 | |||||||||
| Earnings (loss) from equity interests | 3 | 15 | (10 | ) | ||||||||
|
Total Hewlett Packard Enterprise consolidated earnings (loss) from continuing operations before taxes |
$ | 440 | $ | 655 | $ | (116 | ) | |||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | ||||||||
| SEGMENT INFORMATION | ||||||||
| (Unaudited) | ||||||||
| (In millions) | ||||||||
| Six Months Ended April 30, | ||||||||
| 2019 | 2018 | |||||||
| Net revenue:(a)(h) | ||||||||
| Hybrid IT | $ | 11,606 | $ | 12,051 | ||||
| Intelligent Edge | 1,352 | 1,362 | ||||||
| Financial Services | 1,815 | 1,804 | ||||||
| Corporate Investments | 243 | 270 | ||||||
| Total segment net revenue | 15,016 | 15,487 | ||||||
| Elimination of intersegment net revenue and other | (313 | ) | (345 | ) | ||||
| Total Hewlett Packard Enterprise consolidated net revenue | $ | 14,703 | $ | 15,142 | ||||
| Earnings from continuing operations before taxes:(c)(h) | ||||||||
| Hybrid IT | $ | 1,320 | $ | 1,163 | ||||
| Intelligent Edge | 29 | 90 | ||||||
| Financial Services | 154 | 143 | ||||||
| Corporate Investments | (57 | ) | (54 | ) | ||||
| Total segment earnings from operations | 1,446 | 1,342 | ||||||
| Unallocated corporate costs and eliminations(c) | (114 | ) | (120 | ) | ||||
| Unallocated stock-based compensation expense | (29 | ) | (50 | ) | ||||
| Amortization of intangible assets | (141 | ) | (150 | ) | ||||
| Restructuring charges(c) | — | (15 | ) | |||||
| Transformation costs(c) | (132 | ) | (365 | ) | ||||
| Disaster charges | 7 | — | ||||||
| Acquisition, disposition and other related charges | (147 | ) | (46 | ) | ||||
| Separation costs | — | (2 | ) | |||||
| Interest and other, net | (69 | ) | (99 | ) | ||||
| Tax indemnification adjustments(b) | 223 | (1,344 | ) | |||||
| Non-service net periodic benefit credit(c) | 33 | 64 | ||||||
| Earnings from equity interests | 18 | 12 | ||||||
|
Total Hewlett Packard Enterprise consolidated earnings (loss) from continuing operations before taxes |
$ | 1,095 | $ | (773 | ) | |||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | |||||||||||||||||||
| SEGMENT/BUSINESS UNIT INFORMATION | |||||||||||||||||||
| (Unaudited) | |||||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||
| Three months ended | Change (%) | ||||||||||||||||||
| April 30, | January 31, | April 30, | |||||||||||||||||
| 2019 | 2019 | 2018 | Q/Q | Y/Y | |||||||||||||||
| Net revenue:(a)(h) | |||||||||||||||||||
| Hybrid IT | |||||||||||||||||||
| Hybrid IT Product | |||||||||||||||||||
| Compute | $ | 3,093 | $ | 3,402 | $ | 3,263 | (9 | %) | (5 | %) | |||||||||
| Storage | 942 | 975 | 912 | (3 | %) | 3 | % | ||||||||||||
| Total Hybrid IT Product | 4,035 | 4,377 | 4,175 | (8 | %) | (3 | %) | ||||||||||||
| HPE Pointnext | 1,601 | 1,593 | 1,718 | 1 | % | (7 | %) | ||||||||||||
| Total Hybrid IT | 5,636 | 5,970 | 5,893 | (6 | %) | (4 | %) | ||||||||||||
| Intelligent Edge | |||||||||||||||||||
| HPE Aruba Product | 577 | 597 | 629 | (3 | %) | (8 | %) | ||||||||||||
| HPE Aruba Services | 89 | 89 | 77 | — | % | 16 | % | ||||||||||||
| Total Intelligent Edge | 666 | 686 | 706 | (3 | %) | (6 | %) | ||||||||||||
| Financial Services | 896 | 919 | 916 | (3 | %) | (2 | %) | ||||||||||||
| Corporate Investments | 125 | 118 | 134 | 6 | % | (7 | %) | ||||||||||||
| Total segment net revenue | 7,323 | 7,693 | 7,649 | (5 | %) | (4 | %) | ||||||||||||
| Elimination of intersegment net revenue and other | (173 | ) | (140 | ) | (181 | ) | 24 | % | (4 | %) | |||||||||
| Total Hewlett Packard Enterprise consolidated net revenue | $ | 7,150 | $ | 7,553 | $ | 7,468 | (5 | %) | (4 | %) | |||||||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | |||||||||||
| SEGMENT/BUSINESS UNIT INFORMATION | |||||||||||
| (Unaudited) | |||||||||||
| (In millions, except percentages) | |||||||||||
| Six Months Ended April 30, | |||||||||||
| 2019 | 2018 | Y/Y | |||||||||
| Net revenue:(a)(h) | |||||||||||
| Hybrid IT | |||||||||||
| Hybrid IT Product | |||||||||||
| Compute | $ | 6,495 | $ | 6,781 | (4 | %) | |||||
| Storage | 1,917 | 1,860 | 3 | % | |||||||
| Total Hybrid IT Product | 8,412 | 8,641 | (3 | %) | |||||||
| HPE Pointnext | 3,194 | 3,410 | (6 | %) | |||||||
| Total Hybrid IT | 11,606 | 12,051 | (4 | %) | |||||||
| Intelligent Edge | |||||||||||
| HPE Aruba Product | 1,174 | 1,211 | (3 | %) | |||||||
| HPE Aruba Services | 178 | 151 | 18 | % | |||||||
| Total Intelligent Edge | 1,352 | 1,362 | (1 | %) | |||||||
| Financial Services | 1,815 | 1,804 | 1 | % | |||||||
| Corporate Investments | 243 | 270 | (10 | %) | |||||||
| Total segment net revenue | 15,016 | 15,487 | (3 | %) | |||||||
| Elimination of intersegment net revenue and other | (313 | ) | (345 | ) | (9 | %) | |||||
| Total Hewlett Packard Enterprise consolidated net revenue | $ | 14,703 | $ | 15,142 | (3 | %) | |||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | |||||||
| SEGMENT OPERATING MARGIN SUMMARY DATA | |||||||
| (Unaudited) | |||||||
| Change in Operating | |||||||
| Three months ended | Margin (pts) | ||||||
| April 30, 2019 | Q/Q | Y/Y | |||||
| Segment operating margin:(c)(h) | |||||||
| Hybrid IT | 11.4 | % | 0.1 pts | 1.4 pts | |||
| Intelligent Edge | 3.0 | % | 1.7 pts | (4.9) pts | |||
| Financial Services | 8.6 | % | 0.2 pts | 0.7 pts | |||
| Corporate Investments | (23.2 | )% | 0.5 pts | (2.3) pts | |||
| Total segment operating margin | 9.7 | % | 0.2 pts | 0.7 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, | January 31, | April 30, | ||||||||||
| 2019 | 2019 | 2018 | ||||||||||
| Numerator: | ||||||||||||
| GAAP net earnings from continuing operations | $ | 419 | $ | 177 | $ | 850 | ||||||
| GAAP net loss from discontinued operations | $ | — | $ | — | $ | (72 | ) | |||||
| Non-GAAP net earnings from continuing operations | $ | 579 | $ | 590 | $ | 506 | ||||||
| Non-GAAP net earnings from discontinued operations | $ | — | $ | — | $ | — | ||||||
| Denominator: | ||||||||||||
| Weighted-average shares used to compute basic net earnings per share | 1,367 | 1,401 | 1,552 | |||||||||
| Dilutive effect of employee stock plans(j) | 15 | 11 | 30 | |||||||||
|
Weighted-average shares used to compute diluted net earnings per share |
1,382 | 1,412 | 1,582 | |||||||||
| GAAP net earnings per share from continuing operations | ||||||||||||
| Basic | $ | 0.31 | $ | 0.13 | $ | 0.55 | ||||||
| Diluted(j) | $ | 0.30 | $ | 0.13 | $ | 0.54 | ||||||
| GAAP net loss per share from discontinued operations(l) | ||||||||||||
| Basic | $ | — | $ | — | $ | (0.05 | ) | |||||
| Diluted(j) | $ | — | $ | — | $ | (0.05 | ) | |||||
| Non-GAAP net earnings per share from continuing operations | ||||||||||||
| Basic | $ | 0.42 | $ | 0.42 | $ | 0.33 | ||||||
| Diluted(k) | $ | 0.42 | $ | 0.42 | $ | 0.32 | ||||||
| Non-GAAP net earnings per share from discontinued operations | ||||||||||||
| Basic | $ | — | $ | — | $ | — | ||||||
| Diluted | $ | — | $ | — | $ | — | ||||||
| Total Hewlett Packard Enterprise GAAP basic net earnings per share | $ | 0.31 | $ | 0.13 | $ | 0.50 | ||||||
| Total Hewlett Packard Enterprise GAAP diluted net earnings per share | $ | 0.30 | $ | 0.13 | $ | 0.49 | ||||||
|
Total Hewlett Packard Enterprise Non-GAAP basic net earnings per share |
$ | 0.42 | $ | 0.42 | $ | 0.33 | ||||||
|
Total Hewlett Packard Enterprise Non-GAAP diluted net earnings per share |
$ | 0.42 | $ | 0.42 | $ | 0.32 | ||||||
| HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES | ||||||||
| CALCULATION OF DILUTED NET EARNINGS (LOSS) PER SHARE | ||||||||
| (Unaudited) | ||||||||
| (In millions, except per share amounts) | ||||||||
| Six Months Ended April 30, | ||||||||
| 2019 | 2018 | |||||||
| Numerator: | ||||||||
| GAAP net earnings from continuing operations | $ | 596 | $ | 2,332 | ||||
| GAAP net loss from discontinued operations | $ | — | $ | (118 | ) | |||
| Non-GAAP net earnings from continuing operations | $ | 1,169 | $ | 1,026 | ||||
| Non-GAAP net earnings from discontinued operations | $ | — | $ | — | ||||
| Denominator: | ||||||||
| Weighted-average shares used to compute basic net earnings per share | 1,384 | 1,571 | ||||||
| Dilutive effect of employee stock plans(j) | 13 | 30 | ||||||
|
Weighted-average shares used to compute diluted net earnings per share |
1,397 | 1,601 | ||||||
| GAAP net earnings per share from continuing operations | ||||||||
| Basic | $ | 0.43 | $ | 1.48 | ||||
| Diluted(j) | $ | 0.43 | $ | 1.46 | ||||
| GAAP net loss per share from discontinued operations(l) | ||||||||
| Basic | $ | — | $ | (0.07 | ) | |||
| Diluted(j) | $ | — | $ | (0.08 | ) | |||
| Non-GAAP net earnings per share from continuing operations | ||||||||
| Basic | $ | 0.84 | $ | 0.65 | ||||
| Diluted(k) | $ | 0.84 | $ | 0.64 | ||||
| Non-GAAP net earnings per share from discontinued operations | ||||||||
| Basic | $ | — | $ | — | ||||
| Diluted | $ | — | $ | — | ||||
| Total Hewlett Packard Enterprise GAAP basic net earnings per share | $ | 0.43 | $ | 1.41 | ||||
| Total Hewlett Packard Enterprise GAAP diluted net earnings per share | $ | 0.43 | $ | 1.38 | ||||
|
Total Hewlett Packard Enterprise Non-GAAP basic net earnings per share |
$ | 0.84 | $ | 0.65 | ||||
|
Total Hewlett Packard Enterprise Non-GAAP diluted net earnings per share |
$ | 0.84 | $ | 0.64 | ||||
| (a) |
The Company adopted the new revenue recognition accounting standard (ASC 606) on a modified retrospective basis effective the first quarter of fiscal 2019. Fiscal 2019 results are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the prior revenue recognition accounting standard (ASC 605). |
|
| (b) |
For the three months ended January 31, 2019 and the six months |
|
|
For the three and six months ended April 30, 2018 this amount primarily represents the settlement of certain pre-separation Hewlett-Packard Company income tax liabilities indemnified through the Tax Matters Agreement with HP Inc. |
||
| (c) |
Effective at the beginning of the first quarter of fiscal 2019, subsequent to the adoption of the accounting standards update for retirement benefits (Topic 715), the Company reclassified its non-service net periodic benefit credit from operating expense to other income and expense in its Condensed Consolidated Statements of Earnings. The Company reflected these changes retrospectively, by transferring the non-service net periodic benefit credit, a portion of which was previously allocated to the segments, and the remainder of which was reported within Unallocated corporate costs and eliminations, Transformation costs, Restructuring charges and Separation costs, to Non-service net periodic benefit credit as other income and expense for periods in fiscal 2018. |
|
|
These changes had no impact on Hewlett Packard Enterprise’s previously reported condensed consolidated GAAP net earnings or GAAP net earnings per share. |
||
| (d) |
For the three months ended January 31, 2019, and the six months ended April 30, 2019, the amounts primarily include $419 million and $398 million of tax expense, respectively, as a result of the impact of U.S. tax reform. |
|
|
For the three months ended April 30, 2018 the amount primarily includes $1.1 billion benefit following the closure of pre-separation Hewlett-Packard Company audits for fiscal years 2009 through 2012, partially offset by $140 million of tax expense as a result of the U.S. tax reform. |
||
|
For the six months ended April 30, 2018, this amount includes a |
||
|
In connection with the adoption of ASU 2016-09, which requires the excess tax benefits or tax deficiencies associated with stock-based compensation to be recognized as a component of the provision for income taxes in the Statement of Earnings rather than additional paid-in capital in the Balance Sheet, this amount includes $28 million and $42 million, for the three and six months ended April 30, 2018, respectively. |
||
| (e) |
Represents the amortization of basis difference adjustments related to the H3C divestiture. |
|
| (f) |
Effective the first quarter of fiscal 2019, the Company uses a structural tax rate based on long-term non-GAAP financial projections. |
|
| (g) |
The Company adopted the guidance for the classification and |
|
| (h) |
Effective at the beginning of the first quarter of fiscal 2019, the Company implemented organizational changes to align its segment financial reporting more closely with its current business structure. These organizational changes primarily include: (i) the transfer of the data center networking (“DC Networking”) business, which was previously reported within the Hybrid IT Product business unit in the Hybrid IT segment, to the HPE Aruba Product and HPE Aruba Services business units within the Intelligent Edge segment; (ii) the transfer of the edge compute business, which was previously reported within the HPE Aruba Product business unit in the Intelligent Edge segment, to the Hybrid IT Product business unit within the Hybrid IT segment; and (iii) the transfer of the Communications and Media Solutions (“CMS”) business, which was previously reported within the HPE Pointnext business unit in the Hybrid IT segment, to the Corporate Investments segment. |
|
|
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, earnings from operations, net earnings or net earnings per share. |
||
| (i) |
The Company adopted the accounting standard update for income taxes related to intra-entity transfers of assets other than inventory, using the modified retrospective method. As a result, the Company recognized $2.3 billion of income taxes as an adjustment to retained earnings in the first quarter of fiscal 2019. |
|
| (j) |
GAAP 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 when it would be anti-dilutive. |
|
| (k) |
Non-GAAP diluted net earnings per share reflects any dilutive effect of restricted stock awards, stock options and performance-based awards. |
|
| (l) |
Earnings per share for discontinued operations was calculated by deducting the earnings per share from continuing operations from the total earnings per share. |
|
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 operating expenses, non-GAAP operating profit, non-GAAP
operating margin, non-GAAP income tax rate, non-GAAP net earnings from
continuing operations, non-GAAP net earnings from discontinued
operations, non-GAAP diluted net earnings per share from continuing
operations, non-GAAP diluted net earnings per share from discontinued
operations, 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 operating expense is total costs and expenses.
The GAAP measure most directly comparable to non-GAAP operating profit
is earnings from operations. The GAAP measure most directly comparable
to non-GAAP operating margin is operating 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 from
continuing operations is net earnings from continuing operations. The
GAAP measure most directly comparable to non-GAAP net earnings from
discontinued operations is net earnings from discontinued operations.
The GAAP measure most directly comparable to non-GAAP diluted net
earnings per share from continuing operations is diluted net earnings
per share from continuing operations. The GAAP measure most directly
comparable to non-GAAP diluted net earnings per share from discontinued
operations is diluted net earnings per share from discontinued
operations. 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 operating expenses,
non-GAAP operating profit, and non-GAAP operating margin are defined to
exclude any charges relating to the amortization of intangible assets,
impairment of goodwill, restructuring charges, charges relating to the
separation transactions, transformation costs, disaster charges and
acquisition, disposition and other related charges. Non-GAAP net
earnings from continuing operations and non-GAAP diluted net earnings
per share from continuing operations 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, income tax valuation
allowances and separation taxes, the impact of U.S. tax reform and
excess tax benefit from stock-based compensation. Non-GAAP net earnings
from discontinued operations and non-GAAP diluted net earnings per share
from discontinued operations consist of net earnings from discontinued
operations or diluted net earnings per share from discontinued
operations excluding those same charges, as applicable to discontinued
operations. In addition, non-GAAP net earnings from continuing
operations, non-GAAP net earnings from discontinued operations, non-GAAP
diluted net earnings per share from continuing operations and non-GAAP
diluted net earnings per share from discontinued operations 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:
-
Hewlett Packard Enterprise incurs charges relating to the amortization
of intangible assets. Those charges are included in Hewlett Packard
Enterprise’s GAAP earnings from operations, operating 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. -
Restructuring charges are costs associated with a formal restructuring
plan and are primarily related to (i) employee termination costs and
benefits (ii) costs to vacate duplicative facilities and (iii) an
accelerated employee stock compensation program. Hewlett Packard
Enterprise excludes these restructuring costs (and any reversals of
charges recorded in prior periods) for purposes of calculating these
non-GAAP measures because it believes that these historical costs do
not reflect expected future operating expenses and do not contribute
to a meaningful evaluation of Hewlett Packard Enterprise’s current
operating performance or comparisons to Hewlett Packard Enterprise’s
operating performance in other periods. -
Separation costs are expenses associated with HP Inc.’s (formerly
known as “Hewlett-Packard Company” or “HP Co.”) separation into two
independent publicly-traded companies and the spin-off and merger
transactions of the Enterprise Services business with CSC (“Everett
Transaction”) and the Software business with Micro Focus (“Seattle
Transaction”). The charges are primarily related to third-party
consulting, contractor fees and other incremental costs incurred to
complete the transactions. Hewlett Packard Enterprise excludes these
separation costs 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. 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 represent costs related to the damages sustained as a
result of Hurricane Harvey in Houston, Texas, which includes the
deductible related to the Company’s insurance program as well as an
impairment of the Company’s facilities. It also includes gains as a
result of final insurance settlements received in connection with the
damages sustained. Hewlett Packard Enterprise believes that
eliminating these amounts for purposes of calculating non-GAAP
operating profit 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
and divestitures, 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.
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 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 the Company 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. -
Beginning the first quarter of fiscal 2019, the company utilizes a
structural long-term projected non-GAAP tax rate in order to provide
better consistency across the interim reporting periods and eliminates
the effects of items such as changes in tax valuation allowance and
tax effects of acquisitions and disposition related costs and
transformation costs since each of these can vary in size and
frequency. When projecting this long-term rate, the company evaluated
a three-year financial projection that excludes the direct impact of
the following non-cash items: amortization of purchased intangibles
and adjustments related to equity method investments. The projected
rate is not expected to change with the recently announced acquisition
of Cray Inc. in fiscal 2020 and also assumes no incremental
acquisitions in the three-year projection period, and considers other
factors including the company’s expected tax structure, its tax
positions in various jurisdictions and current impacts from key
legislation implemented in major jurisdictions where the company
operates. For fiscal 2019, 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 the company’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. The
company believes that making these adjustments facilitates a better
evaluation of our current operating performance and comparisons to
past operating results. -
For periods presented in fiscal 2018, valuation allowances and
separation taxes represent tax amounts in connection with the spin-off
of the enterprise services business, Everett SpinCo, Inc., and the
software business, Seattle SpinCo, Inc. Since these charges do not
represent ongoing expenses, Hewlett Packard Enterprise excludes these
charges 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. -
As a result of the U.S. tax reform, during the first quarter of fiscal
2018, Hewlett Packard Enterprise recorded an estimated tax benefit
from the provisional application of the new tax rules including a
lower federal tax rate to deferred tax assets and liabilities,
partially offset by a provisional estimate for transition tax expense
on accumulated non-U.S. undistributed earnings, and a benefit as a
result of the liquidation of an insolvent non U.S. subsidiary. During
subsequent quarters, the Company recorded adjustments under SAB118
(which was completed in the first quarter of fiscal 2019) in
connection with U.S. tax reform primarily related to transition tax
and valuation allowances on certain U.S. tax credits. Since these
adjustments represent a one-time charge and do not represent ongoing
expenses, Hewlett Packard Enterprise excludes the charge for the
purpose of calculating these non-GAAP measures to facilitate a more
meaningful evaluation of the Company’s current operating performance
and comparisons to Hewlett Packard Enterprise’s operating performance
in other periods. -
During the first quarter of fiscal 2018, the Company adopted ASU
2016-09 on a prospective basis, except for the statement of cash flows
for which the statement was retrospectively adopted for the prior
comparative periods. This standard requires excess tax benefits or tax
deficiencies associated with stock-based compensation to be recognized
as a component of the provision for income taxes in the Statement of
Earnings rather than additional paid-in capital in the Balance Sheet.
Since the benefit or deficiency is the outcome of Hewlett Packard
Enterprise’s stock price at the time an award is converted to a share
of Hewlett Packard Enterprise’s stock, Hewlett Packard Enterprise
excludes these benefits or deficiencies 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.
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 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 operating margin, non-GAAP net earnings
from continuing operations, non-GAAP net earnings from discontinued
operations, non-GAAP diluted net earnings per share from continuing
operations and non-GAAP diluted net earnings per share from
discontinued operations, and therefore does not reflect the full
economic effect of the loss in value of those intangible assets. -
Items such as restructuring charges, separation costs, transformation
costs and disaster charges that are excluded from non-GAAP operating
expenses, non-GAAP operating profit, non-GAAP operating margin,
non-GAAP net earnings from continuing operations, non-GAAP net
earnings from discontinued operations, non-GAAP diluted net earnings
per share from continuing operations and non-GAAP diluted net earnings
per share from discontinued operations can have a material impact on
the equivalent GAAP earnings measure and cash flows. -
Items such as adjustment to earnings from equity interests and
non-service net periodic benefit credit that are excluded from
non-GAAP net earnings from continuing operations, non-GAAP net
earnings from discontinued operations, non-GAAP diluted net earnings
per share from continuing operations and non-GAAP diluted net earnings
per share from discontinued operations can have a material impact on
the equivalent GAAP earnings measure and cash flows. -
Items such as tax indemnification adjustments, 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 from continuing operations, non-GAAP
earnings from discontinued operations, non-GAAP diluted net earnings
per share from continuing operations and non-GAAP diluted net earnings
per share from discontinued operations can also have a material impact
on the equivalent GAAP earnings measures and cash flows. -
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 operating profit, non-GAAP operating margin, non-GAAP net
earnings from continuing operations, non-GAAP net earnings from
discontinued operations, non-GAAP diluted net earnings per share from
continuing operations and non-GAAP diluted net earnings per share from
discontinued operations 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 operating expenses, non-GAAP operating profit,
non-GAAP operating margin, non-GAAP income tax rate, non-GAAP net
earnings from continuing operations, non-GAAP net earnings from
discontinued operations, non-GAAP diluted net earnings per share from
continuing operations, adjusted non-GAAP diluted net earnings per share
and non-GAAP diluted net earnings per share from discontinued
operations, 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/20190523005774/en/