Hewlett Packard Enterprise Company (NYSE:HPE) Q1 2020 Earnings Conference Call - Final Transcript

Mar 03, 2020 • 05:00 pm ET

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Hewlett Packard Enterprise Company (NYSE:HPE) Q1 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
Antonio Neri

momentum. Our annualized revenue run rate grew 19% year-over-year. We started reporting this new metric last quarter to provide more transparency into the recurring and higher margin benefits of shifting to our as-a-Service model.

We grew HPE GreenLake services orders 48% year-over-year. HPE GreenLake gained 65 new logos in Q1 and has surpassed 100 total customers. We returned to growth in our Intelligent Edge business, with revenue up 4% year-over-year. And we continued to see profitable growth in areas of investment, including High Performance Compute, Hyperconverged Infrastructure, Big Data Storage and Operational Services orders, with continued improvements in our services attach intensity.

Our Q1 revenues were impacted by a number of factors. First, like many of our peers, we continued to see uneven and unpredictable demand due to macro uncertainty. This has resulted in longer sales cycles and delayed customer decisions. Second, component supply constraints disrupted our ability to meet our customers' demand this quarter, particularly in our Compute, and High Performance Compute businesses. Additionally, the outbreak of the coronavirus at the end of January impacted component manufacturing, resulting in higher quarter-end backlog. In both of these cases, we have established specific mitigation and recovery plans with each of our suppliers.

Finally, we encountered a challenge in consolidating our manufacturing site in North America. We have a plan in place to address the Q1 issue and are confident that our efforts will result in increased efficiency and agility as we move forward. It is important to note that even with the revenue shortfall, we improved our non-GAAP gross margin by 210 basis points year-over-year to 33.2%. We drove non-GAAP earnings per share of $0.44, up 5% year-over-year, and in line with our outlook, while also investing for future innovation. And we delivered improved free cash flow compared to last year's level and in line with Q1 normal seasonality.

While market uncertainty continues and new global developments like the coronavirus have emerged, we are taking the right actions to mitigate against these evolving dynamics. Some of these actions include further cost take-out in our back-end operations, as a part of our HPE Next program, which has been a key enabler of our gross and operating margin improvement. We have extended the program through fiscal year 2021 and expect incremental savings, while maintaining the original net cash impact. As Tarek will cover in more detail, because of the actions we have taken to address the uncertainty and the expected recovery of supply chain constraints over time, we are comfortable in maintaining our fiscal year '20 non-GAAP EPS outlook.

But there are too many unknowns at this point to provide second quarter guidance. Also, we do feel it is prudent to revise our fiscal year '20 free cash flow outlook from $1.9 billion to $2.1 billion to $1.6 billion to $1.8 billion, given that we expect some impact from cash conversion cycles, driven by the ongoing recovery from supply constraints and impact of the coronavirus. These are the right pragmatic actions to take,