Hewlett Packard Enterprise

3000 Hanover Street

Palo Alto, CA 94304

hpe.com

News Release

HPE Reports Fiscal 2016 First Quarter Results

·            Delivers third consecutive quarter of year over year revenue growth in constant currency

·            Increases commitment to return at least 100% of FY16 free cash flow outlook to shareholders

·       First quarter net revenue of $12.7 billion, up 4% from the prior-year period on a constant currency basis and down 3% as reported

·       First quarter non-GAAP diluted net earnings per share of $0.41, at the top end of the previously provided outlook of $0.37 to $0.41 per share

·       First quarter GAAP diluted net earnings per share of $0.15, above the previously provided outlook of $0.09 to $0.13 per share

·       $1.3 billion to shareholders in the form of share repurchases and dividends

·       Maintains FY16 free cash flow guidance of $2.0 to $2.2 billion

Editorial contact

Kait Conetta,

Hewlett Packard Enterprise

+1 650 258 6471

corpmediarelations@hpe.com

HPE Investor Relations

Investor.relations@hpe.com

PALO ALTO, Calif., March 3, 2016 – Hewlett Packard Enterprise (NYSE: HPE) today announced financial results for its fiscal 2016 first quarter, ended January 31, 2016.

First quarter net revenue of $12.7 billion was down 3% from the prior-year period and up 4% on a constant currency basis.

First quarter GAAP diluted net earnings per share (EPS) was $0.15, down from $0.30 in the prior-year period, and above its previously provided outlook of $0.09 to $0.13. First quarter non-GAAP diluted net EPS was $0.41, down from adjusted non-GAAP diluted net EPS of $0.44 in the prior-year period, and at the top end of its previously provided outlook of $0.37 to $0.41.  First quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax costs of $464 million and $0.26 per diluted share, respectively, related to restructuring charges, the amortization of intangible assets, separation costs, acquisition and other related charges and tax indemnification adjustments.

“During our first quarter as an independent company, we saw the progress that comes from being more focused and nimble,” said Meg Whitman, president and chief executive officer, Hewlett Packard Enterprise. “We delivered a third consecutive quarter of year-over-year constant currency revenue growth, and excluding the impact of recent M&A activity, we saw revenue growth in constant currency across every business segment for the first time since 2010.”

HPE fiscal 2016 first quarter financial performance

Q1 FY16

Q1 FY15

Y/Y

GAAP net revenue ($B)

$12.7

$13.1

(3%)

GAAP operating margin

3.0%

5.6%

(2.6 pts.)

GAAP net earnings ($B)

$0.3

$0.5

(51%)

GAAP diluted net earnings per share

$0.15

$0.30

(50%)

Non-GAAP operating margin

8.1%

8.5%

(0.4 pts.)

Non-GAAP net earnings ($B)

$0.7

$0.9

(15%)

Non-GAAP diluted net earnings per share

$0.41

$0.44*

(7%)*

Cash flow from operations ($B)

($0.1)

$0.3*

(130%)*

*Q1 FY15 Non-GAAP diluted net earnings per share (EPS) and Cash flow from operations contain adjustments to give effect to the separation of the Company from HP Inc. (formerly known as Hewlett-Packard Company). The adjusted figures provide a more useful representation, as if the Company had been a stand-alone company during fiscal 2015.

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

Outlook

For the fiscal 2016 second quarter, Hewlett Packard Enterprise estimates non-GAAP diluted net EPS to be in the range of $0.39 to $0.43 and GAAP diluted net EPS to be in the range of $0.13 to $0.17. Fiscal 2016 second quarter non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $0.26 per share, related to restructuring charges, the amortization of intangible assets, separation costs and acquisition and other related charges.

For fiscal 2016, Hewlett Packard Enterprise estimates non-GAAP diluted net EPS to be in the range of $1.85 to $1.95 and GAAP diluted net EPS to be in the range of $0.75 to $0.85. Fiscal 2016 non-GAAP diluted net EPS estimates exclude after-tax costs of approximately $1.10 per share, related to restructuring charges, the amortization of intangible assets, separation costs, acquisition and other related charges and tax indemnification adjustments.

“After returning $1.3 billion in capital to our shareholders, HPE is increasing our commitment to return at least 100% of our free cash flow outlook to shareholders in FY16,” said Tim Stonesifer, chief financial officer, Hewlett Packard Enterprise. “In addition, when the Tsinghua transaction closes, we plan to use the majority of approximately $2 billion received to repurchase shares.”

Fiscal 2016 first quarter segment results

·       Enterprise Group revenue was $7.1 billion, up 1% year over year, up 7% in constant currency, with a 13.4% operating margin. Servers revenue was down 1%, up 5% in constant currency, Storage revenue was down 3%, up 3% in constant currency, Networking revenue was up 54%, up 62% in constant currency, and Technology Services revenue was down 9%, down 3% in constant currency.

·       Enterprise Services revenue was $4.7 billion, down 6% year over year, flat in constant currency, with a 5.1% operating margin. Infrastructure Technology Outsourcing revenue was down 8%, down 2% in constant currency, and Application and Business Services revenue was down 3%, up 3% in constant currency.

·       Software revenue was $780 million, down 10% year over year, down 6% in constant currency, with a 17.4% operating margin. License revenue was down 6%, down 2% in constant currency, support revenue was down 13%, down 9% in constant currency, professional services revenue was down 7%, down 2% in constant currency, and software-as-a-service (SaaS) revenue was down 9%, down 7% in constant currency.

·       Financial Services revenue was $776 million, down 3% year over year, up 3% in constant currency, net portfolio assets were up 4%, up 9% in constant currency, and financing volume was down 4%, up 3% in constant currency. The business delivered an operating margin of 12.9%.

About Hewlett Packard Enterprise

Hewlett Packard Enterprise (HPE) is an industry leading technology company that enables customers to go further, faster. With the industry’s most comprehensive portfolio, spanning the cloud to the data center to workplace applications, our technology and services help customers around the world make IT more efficient, more productive and more secure.

Use of non-GAAP financial information

To supplement Hewlett Packard Enterprise’s condensed consolidated and combined 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, 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, operating profit, operating margin, net earnings, diluted net earnings per share, cash and cash equivalents, cash flow from operations, investments in property, plant and equipment, or total company debt prepared in accordance with GAAP.

In addition, for fiscal 2015, Hewlett Packard Enterprise provides adjusted non-GAAP diluted net earnings per share, adjusted cash flow from operations and adjusted free cash flow. A reconciliation of these adjustments to GAAP financial measures for prior periods is included elsewhere in the materials accompanying this news release. An explanation of the ways in which Hewlett Packard Enterprise’s management uses these adjusted non-GAAP measures to evaluate its business, the substance behind Hewlett Packard Enterprise’s decision to use these adjusted non-GAAP measures, the material limitations associated with the use of these adjusted 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 adjusted non-GAAP measures provide useful information to investors is included under “Use of adjusted non-GAAP financial measures” further below.

Forward-looking statements

This news 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, net earnings, net earnings per share, cash flows, benefit plan funding, 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, including the recently completed separation transaction, the execution of restructuring plans and any resulting cost savings or 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; 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 and partners; the hiring and retention of key employees; integration and other risks associated with business combination and investment transactions; the results of the separation transaction 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 separation or of implementing the restructuring plans; 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, 2015, and Hewlett Packard Enterprise’s other filings with the Securities and Exchange Commission.

As in prior periods, the financial information set forth in this 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 fiscal quarter ended January 31, 2016. Hewlett Packard Enterprise assumes no obligation and does not intend to update these forward-looking statements.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS

(Unaudited)

(In millions, except per share and share amounts)

Three months ended

January 31,
2016

October 31,
2015

January 31,
2015

Net revenue

$

12,724

$

13,448

$

13,053

Costs and expenses:

Cost of sales

9,112

9,463

9,433

Research and development

585

652

532

Selling, general and administrative

1,998

2,038

1,973

Amortization of intangible assets

218

220

203

Restructuring charges

311

550

132

Acquisition and other related charges

37

20

4

Separation costs

79

339

44

Defined benefit plan settlement charges

-

47

-

Total costs and expenses

12,340

13,329

12,321

Earnings from operations

384

119

732

Interest and other, net

(65

)

(9

)

(18

)

Earnings before taxes

319

110

714

(Provision) benefit for taxes

(52

)

1,275

(167

)

Net earnings

$

267

$

1,385

$

547

Net earnings per share:(a)

Basic

$

0.15

$

0.76

$

0.30

Diluted

$

0.15

$

0.75

$

0.30

Cash dividends declared per share

$

0.11

$

-

$

-

Weighted-average shares used to compute net earnings per share:(a)

Basic

1,761

1,804

1,804

Diluted

1,778

1,834

1,834

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 ended
January 31, 2016

Diluted
net earnings
per share

Three months ended
October 31, 2015

Diluted
net earnings
per share

Three months ended
January 31, 2015

Diluted
net earnings
per share

GAAP net earnings

$

267

$

0.15

$

1,385

$

0.75

$

547

$

0.30

Non-GAAP adjustments:

Amortization of intangible assets

218

0.12

220

0.12

203

0.11

Restructuring charges

311

0.17

550

0.30

132

0.07

Acquisition and other related charges

37

0.02

20

0.01

4

-

Separation costs

79

0.04

339

0.18

44

0.02

Defined benefit plan settlement charges

-

-

47

0.03

-

-

Separation costs in interest and other, net(a)

-

-

4

-

-

-

Valuation allowances, net, and separation taxes

-

-

(1,251

)

(0.67

)

-

-

Tax indemnification adjustments

(15

)

(0.01

)

-

-

-

-

Adjustments for taxes

(166

)

(0.08

)

(306

)

(0.17

)

(71

)

(0.03

)

Non-GAAP net earnings

$

731

$

0.41

$

1,008

$

0.55

$

859

$

0.47

GAAP earnings from operations

$

384

$

119

$

732

Non-GAAP adjustments:

Amortization of intangible assets

218

220

203

Restructuring charges

311

550

132

Acquisition and other related charges

37

20

4

Separation costs

79

339

44

Defined benefit plan settlement charges

-

47

-

Non-GAAP earnings from operations

$

1,029

$

1,295

$

1,115

GAAP operating margin

3%

1%

6%

Non-GAAP adjustments

5%

9%

3%

Non-GAAP operating margin

8%

10%

9%

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

As of

January 31, 2016

October 31, 2015

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

8,505

$

9,842

Accounts receivable

7,898

8,538

Financing receivables

2,948

2,918

Inventory

2,345

2,198

Other current assets (a)

6,060

6,468

Total current assets

27,756

29,964

Property, plant and equipment

9,700

9,886

Long-term financing receivables and other assets (a)

10,730

10,875

Goodwill and intangible assets

29,166

29,191

Total assets(a)

$

77,352

$

79,916

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Notes payable and short-term borrowings

$

910

$

691

Accounts payable

4,908

5,828

Employee compensation and benefits

2,066

2,902

Taxes on earnings(a)

397

476

Deferred revenue

5,154

5,154

Other accrued liabilities

6,916

6,942

Total current liabilities

20,351

21,993

Long-term debt

15,229

15,103

Other liabilities(a)

10,138

8,902

Stockholders’ equity:

HPE stockholders’ equity:

Preferred stock, $0.01 par value (300 shares authorized; none issued and outstanding)

-

-

Common stock, $0.01 par value (9,600 shares authorized; 1,733 issued and outstanding at January 31, 2016)

17

-

Additional paid-in capital

36,238

-

Retained earnings

86

-

Former Parent Company investment

-

38,550

Accumulated other comprehensive loss

(5,092

)

(5,015

)

Total HPE stockholders’ equity

31,249

33,535

Non-controlling interests

385

383

Total stockholders’ equity

31,634

33,918

Total liabilities and stockholders’ equity(a)

$

77,352

$

79,916

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

(In millions)

Three months ended January 31,

2016

2015

Cash flows from operating activities:

Net earnings

$

267

$

547

Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:

Depreciation and amortization

989

997

Stock-based compensation expense

165

139

Provision for doubtful accounts and inventory

39

21

Restructuring charges

311

132

Deferred taxes on earnings

245

(1,107

)

Excess tax benefit from stock-based compensation

(2

)

(81

)

Other, net

44

(66

)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

612

682

Financing receivables

60

(63

)

Inventory

(182

)

(134

)

Accounts payable

(788

)

(467

)

Taxes on earnings

(440

)

1,333

Restructuring

(285

)

(389

)

Other assets and liabilities

(1,110

)

(976

)

Net cash (used in) provided by operating activities

(75

)

568

Cash flows from investing activities:

Investment in property, plant and equipment

(832

)

(786

)

Proceeds from sale of property, plant and equipment

76

98

Purchases of available-for-sale securities and other investments

(144

)

(48

)

Maturities and sales of available-for-sale securities and other investments

143

27

Payments made in connection with business acquisitions, net of cash acquired

-

(1

)

Proceeds from business divestitures, net

65

-

Net cash used in investing activities

(692

)

(710

)

Cash flows from financing activities:

Short-term borrowings with original maturities less than 90 days, net

2

70

Issuance of debt

300

286

Payment of debt

(109

)

(237

)

Settlement of cash flow hedge

(8

)

-

Issuance of common stock under employee stock plans

4

-

Repurchase of common stock

(1,197

)

-

Net transfer from former Parent

532

145

Excess tax benefit from stock-based compensation

2

81

Cash dividends paid

(96

)

(10

)

Net cash (used in) provided by financing activities

(570

)

335

(Decrease) Increase in cash and cash equivalents

(1,337

)

193

Cash and cash equivalents at beginning of period

9,842

2,319

Cash and cash equivalents at end of period

$

8,505

$

2,512

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

SEGMENT INFORMATION

(Unaudited)

(In millions)

Three months ended

January 31,
2016

October 31,
2015

January 31,
2015

Net revenue:(a)

Enterprise Group

$

7,051

$

7,358

$

6,982

Enterprise Services

4,688

5,020

4,993

Software

780

959

870

Financial Services

776

801

803

Corporate Investments

1

1

4

Total segments

13,296

14,139

13,652

Elimination of intersegment net revenue and other

(572

)

(691

)

(599

)

Total Hewlett Packard Enterprise consolidated and combined net revenue

$

12,724

$

13,448

$

13,053

Earnings before taxes:(a)

Enterprise Group

$

944

$

1,000

$

1,058

Enterprise Services

238

412

150

Software

136

287

157

Financial Services

100

87

90

Corporate Investments

(99

)

(115

)

(91

)

Total segment earnings from operations

1,319

1,671

1,364

Corporate and unallocated costs and eliminations

(125

)

(164

)

(110

)

Stock-based compensation expense

(165

)

(212

)

(139

)

Amortization of intangible assets

(218

)

(220

)

(203

)

Restructuring charges

(311

)

(550

)

(132

)

Acquisition and other related charges

(37

)

(20

)

(4

)

Separation costs

(79

)

(339

)

(44

)

Defined benefit plan settlement charges

-

(47

)

-

Interest and other, net

(65

)

(9

)

(18

)

Total Hewlett Packard Enterprise consolidated and combined earnings before taxes

$

319

$

110

$

714

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

SEGMENT/BUSINESS UNIT INFORMATION

(Unaudited)

(In millions, except percentages)

Three months ended

Change (%)

January 31,
2016

October 31,
2015

January 31,
2015

Q/Q

Y/Y

Net revenue:(a)

Enterprise Group

Servers

$

3,568

$

3,772

$

3,595

(5%)

(1%)

Technology Services

1,810

1,862 

1,988

(3%)

(9%)

Storage

810

819 

837

(1%)

(3%)

Networking

863

905 

562

(5%)