HPE(HPE) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total HPE revenue increased 4% year-over-year to $7 billion, exceeding sequential outlook [8][21] - Non-GAAP gross margin reached 34.7%, up 0.5 points sequentially, matching the highest since the as-a-service business began [9][22] - Non-GAAP operating margin improved to 10.5%, up 120 basis points sequentially and 70 basis points year-over-year [10][23] - Non-GAAP diluted net earnings per share was $0.48, a 9% sequential rise and 2% year-over-year [10][23] - Cash flow from operations was $1.3 billion, with free cash flow of $587 million [10][24] Business Line Data and Key Metrics Changes - HPE GreenLake saw a 39% year-over-year increase in total as-a-service orders, with year-to-date orders growth at 86% [9][25] - Intelligent Edge revenue grew 12% year-over-year, with orders increasing for the seventh consecutive quarter [14][26] - HPC and AI revenue grew 15% year-over-year, with a backlog of awarded contracts just under $3 billion [26][27] - Compute revenue was down 1% due to supply constraints, but backlog grew sequentially to record levels [27] - Storage revenue was up 1%, with operating margins improving to 14.7% [28] Market Data and Key Metrics Changes - HPE's backlog reached record levels, up 96% year-over-year, with no meaningful cancellations [20][21] - The company expects currency to be a 2.5-point headwind to revenue for the full year [21] - Demand remains strong across various segments, with significant order growth in Edge and HPC [26][56] Company Strategy and Development Direction - HPE is focused on expanding its as-a-service offerings through the GreenLake platform, which is central to its strategy [9][61] - The company aims to achieve a three-year ARR CAGR target of 35% to 45% from fiscal year 2021 to fiscal year 2024 [25][61] - HPE is enhancing its partner ecosystem to adapt to evolving customer requirements [12] Management's Comments on Operating Environment and Future Outlook - Management noted enduring customer demand and a strong sales pipeline despite supply chain challenges [8][41] - The company anticipates supply chain issues to persist into next year, but expects some easing signs [11][41] - Management expressed confidence in achieving fiscal year 2022 revenue growth of 3% to 4% adjusted for currency [21][35] Other Important Information - HPE is committed to achieving net zero carbon emissions by 2040, accelerating its target by 10 years [17] - The company is strategically building inventory to navigate the supply chain environment [34] Q&A Session Summary Question: Discussion on backlog and guidance - Management highlighted record backlog levels and strong demand momentum, indicating confidence in revenue guidance despite currency headwinds [39][40][44] Question: OpEx and EPS commentary - Management acknowledged FX as a headwind to revenue but a potential tailwind to OpEx, maintaining discipline in cost management [47][49] Question: Order linearity and backlog quantification - Management confirmed backlog is close to double last year's levels, with sustained demand across segments [54][56] Question: As-a-service and ARR growth sustainability - Management emphasized the importance of the GreenLake platform in driving as-a-service growth, with confidence in achieving long-term targets [59][61] Question: October quarter guidance and margin expansion - Management expects revenue growth of at least 5% in Q4, with margin expansion driven by a favorable mix and disciplined cost management [66][68] Question: Operating margin sustainability in the compute segment - Management indicated that while operating margins may return to historical ranges, pricing discipline and backlog management will support profitability [70][72]