Good afternoon, and welcome to the Fourth Quarter Fiscal 2021 Hewlett Packard Enterprise Earnings Conference Call. My name is Gary, and I'll be your conference moderator for today’s call. At this time, all participants will be in listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. Andrew Simanek, Vice President of Investor Relations. Please go ahead.

Good afternoon, everyone. I'm actually Jeff Kvaal of Investor Relations. I'm filling in for Andy today. I'd like to welcome you to our fiscal 2021 fourth quarter earnings conference call with Antonio Neri, HPE’s President and Chief Executive Officer; and Tarek Robbiati, HPE’s Executive Vice President and Chief Financial Officer. Before handing the call over to Antonio, let me remind you that, this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately one year. We posted the press release and the slide presentation accompanying today’s earnings release on our HPE Investor Relations web page at investors.hpe.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. For a discussion of some of these risks, uncertainties, and assumptions, please refer to HPE's filings with the SEC, including its most recent Forms 10-K and Form 10-Q. HPE assumes no obligation and does not intend to update any such forward-looking statements. We also note that, the financial information discussed on this call reflects estimates based on information available at this time, and could differ materially from the amounts ultimately reported in HPE's quarterly report on Form 10-Q for the fiscal quarter ended January 31, 2021. Also, for financial information that has been expressed on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information on our website. Please refer to the tables and slide presentation accompanying today's earnings release on our website for details. Throughout this conference call, all revenue growth rates, unless otherwise noted, are presented on a year-over-year basis and are adjusted to exclude the impact of currency. Finally, we will be referencing the slides and our earnings presentation throughout our prepared remarks. As mentioned, the earnings presentation can be found posted to our website and is also embedded within the webcast player for this earnings call. With that, let me turn it over to you, Antonio.

Well, thanks, Jeff, and good afternoon, everyone. Thank you for joining our call today. And for those of you who attended our virtual Security Analyst Meeting last month, thank you. We appreciate the opportunity to discuss how our edge-to-cloud strategy position us to capture an expanded market opportunity and accelerate shareholder value creation. HPE ended fiscal year 2021 with strong momentum. Customers are responding to our edge-to-cloud value proposition as evidenced by the record demand for our solutions. Demand accelerated in the second half of the year, driving fiscal year 2021 orders growth of 16% year-over-year. Revenue of $27.8 billion in fiscal year 2021 grew in line with our long-term outlook, up 1% year-over-year. In fiscal year 2021, we executed very well, which enabled us to exceed our commitments across all financial metrics, even with a substantial order backlog. Our as-a-Service Annualized Revenue Run Rate or ARR of $796 million was up 36% year-over-year. We significantly improved our gross and operating margins, which increased our fiscal year 2021 non-GAAP operating profit by 25% year-over-year. We delivered fiscal year 2021 non-GAAP diluted net earnings per share of $1.96, up 27% year-over-year. And we generated the fiscal year 2021 free cash flow of $1.6 billion, up $1 billion year-over-year, which translates to growth of 177%. This was a very strong performance, and it was particularly impressive against the backdrop of industry-wide supply constraints, which continue to challenge our ability to convert orders to revenue as quickly as we would like. We have a world-class global operations team that continues to work closely with a long-standing diverse network of suppliers. We continue to take proactive inventory measures to better position us to deliver against this robust customer demand. Our results in Q4 strengthened the momentum we have as we enter fiscal year 2022.…

Thank you very much, Antonio. I'll start with a summary of our financial results for the fourth quarter of fiscal year 2021. And as usual, I'll be referencing the slides from our earnings presentation to guide you through our performance in the quarter. Antonio discussed the key fiscal year 2021 highlights on Slides 1 and 2, so now let me discuss our Q4 performance, starting with Slide 3. I am very pleased to report that we continue to see unprecedented demand across all our businesses with robust order growth, up 28% year-over-year. Building on the strength from the last quarter, we delivered Q4 revenues of $7.4 billion, up 7% from the prior quarter above normal sequential seasonality and this despite increased supply chain challenges that we foreshadowed at SAM last month. It's also worth highlighting that $7.4 billion of revenue represents the highest level since Q1 of fiscal year 2019, well before the pandemic. Our non-GAAP gross margin was 33%, which was up 230 basis points from the prior year. And this was driven by our deliberate actions to shift towards higher-margin software-rich offerings, strong pricing discipline and cost takeout. As previously indicated, gross margins were pressured from prior quarter levels due to an increasing industry-wide shortages of certain components that have resulted in extended lead times and higher commodity costs underpinning backlogged orders. We continue to take proactive inventory measures and display healthy price discipline to minimize the impact of recent disruptions. We expect this dynamic supply chain situation to last well into calendar year 2022. We also continue to invest in high gross margin-rich areas of our portfolio. We've made investments in our overall go-to-market to accelerate our growth and our shift to an as-a-Service model. Even with these investments, our non-GAAP operating margin was 9.7%, up 120…

We will now begin the question-and-answer session. Our first question is from Shannon Cross with Cross Research. Please go ahead.

Thank you very much. I wanted to dig a little bit more into the as-a-Service performance. Obviously, orders are extremely strong during the quarter. How much of that was from the one-time - not one-time, but from the large contract signed, how should we think about the longer-term growth potential, how it flows through the model as we look to the next year or two? And I don't know maybe if you can give a little bit more on the composition of the as-a-Service, is there any one product, or service that's really driving that business at this point in time? Thank you.

Well, thank you, Shannon. I will start, and obviously, I would like Tarek to comment on the model in itself. Listen, we are super proud of the momentum we have in the market with HPE GreenLake. We believe it's truly differentiated in the market. And as we show you some, two-thirds of that is already in the software and services, and we believe in three years, will be more than 75% of it, which obviously come with high margin and more durable revenue in many ways. What customers like about the model is the ability to procure everything from Edge to cloud from one integrated platform. And it's not just what I call Infrastructure as-a-Service or hardware as-a-Service on premises in a colo or at the Edge is the fact that they can consume anything from network as-a-Service, subscription to Aruba products to what I call private cloud to data services, which is part of the transformation we are driving in our storage portfolio. And as we said, $5.7 billion already in total contract value and in Q4, the growth was accelerated by a number of new logos, which again, we added 300 in fiscal year 2021, which drove the order growth to 114%, okay? So when you think about this, we have been delivering 40, 50, 60 and in Q4 it was 114%. And Aruba is one key component of that. But what we see now, Shannon, is also the Storage part of it is growing very rapidly. And that's why I'm excited about next year because we're also adding new capabilities to that platform, particularly in the early part of 2022. So overall, I will say this has been a home run. We believe we have years of advantage. We are disclosing all our numbers, as you see, versus some of our competitors are not sharing anything as far as I can see. And what I'm really pleased is that we have now 900 partners selling with us, co-selling, and you will see their offers in our platform here soon because that's the way we drive, fully push from both sides, direct and indirect. So Tarek, do you want to talk about the modeling?

So yes, Sharon, I mean, Antonio said already quite a few things. So first and foremost is one - the first - this first and largest network as-a-Service contract contributed to orders in Q4 substantially, but did not contribute to the ARR because the revenue will be recognized over time. But notwithstanding that, the ARR, if you really look at our ARR progression quarter-after-quarter in fiscal year 2021, it's outstanding. We did $649 million in Q1 of ARR, grew that to $678 million in Q2, $705 million in Q3 and now approaching $800 million, $796 million to be precise in Q4. So the momentum in this business is extremely strong, and there isn't a particular business unit that is contributing. We're executing an integrated strategy that is about edge, cloud and data. Right now, the main contributors are the various parts of the organization that fit these three pillars. Aruba is one of them. The Storage business unit is another one. We will also continue to expand our as-a-Service offerings in HPC and AI because we see a tremendous opportunity there. And the future will tell us how big that opportunity will be for us. But we firmly believe in it.

Thank you, Shannon. Operator, next question, please.

The next question is from Wamsi Mohan with Bank of America Merrill Lynch. Please go ahead.

Yes. Thank you. Antonio, I'm trying to reconcile your comments around strong backlog, which you guys have been very consistent about. Relative to what happened in the quarter and the guide here for - in the near-term, it sounds like component shortages were a major reason for that, but you're maintaining your full year guide. So just trying to understand like what gives you the confidence that these will resolve itself? And what gives you the confidence that this is - this back-end loaded year is going to pan out as you're seeing it now?

Sure. Well, I mean, if you look at our results, right, once - right, so we grew orders. Total company orders 16% year-over-year, but our revenue in actual dollars was up 3%. Obviously, there is a big divergence there between 16% and 3%, right? And that's driven by the supply availability. Despite the fact that we continue, I think, do a great job navigating through the challenge. And the one area I'm really particularly pleased, one say is the fact that linearity in the business in the way we approach customers that book orders is now more front end and back end in the quarter itself. I always talk about quarters having 13 weeks and what is amazing to me in the last couple of quarters, the bookings have been more on the front end than the back end, which allows us, actually. It's a little bit counterintuitive if you think about it. The more orders are - bring early on, the more I can convert despite the supply chain challenges because I have more time and more velocity, if you will. So listen, as Tarek said, and I said in my remarks, short-term, we're going continue to navigate. This is an industry-wide challenge. But we're very confident with the actions we are taking ourselves. And the fact of the matter is that that backlog is very durable. People asked me early on, have you seen cancellation? I can tell you right now, zero, no cancellations whatsoever. And the orders coming in every day, every week is incredibly strong. So, we have to navigate the next quarter or two. And then based on our understanding and the work we have done with our suppliers, the second half will be better. And then also remember, we have, I think, world-class capabilities,…

Thank you, Wamsi. Operator?

The next question is from Simon Leopold with Raymond James. Please go ahead.

Thanks for taking the question. On this 28% order growth, I'm wondering if you could unpack maybe some of the factors that contributed to it. And what I'm thinking about is, is there an aspect here of customers trying to get in ahead of price increases or an aspect of customers placing orders earlier because of extended lead-times. If you could just help us understand what you see contributing to that massive number? Thank you.

Well, glad you call it massive because we agree with you. It's a strong momentum and clearly was stronger in Q3 and Q4 than the first half of the year. I think it's a combination, Simon. I think that obviously, there is a market demand out there driven by the recovery in the economy. I think customers also worry about the impact of the supply that we'll have in the short, mid-term. But on the same time, we should not underestimate the power of our portfolio because I got this question earlier on, you take this double-bookings? Perhaps in the commodity space, but not on the value space. We believe Aruba is unique and differentiated. This is not something you can swap by somebody else. And that business, it's a true mobile-first cloud-native approach, which drives a unique experience at the edge. And that's - the momentum has happened for a number of quarters now despite the short-term challenge of supply. HPC, we are the clear number one leader with 35% market share and 14 points advantage against the second competitor. And then the supercomputer, I don't think there's anybody that can match us. 35% of the top 100 supercomputers are all back and enterprise, and we're going to deliver the extra scale in 2022. And GreenLake, again, the question about GreenLake is a true hybrid differentiated offerings from edge to cloud. And I think that has been in the making now for a number of years, and the pipeline is just amazing to me. And now we are getting better and better in closing deals faster and deploying the solution, which, remember, it's not just deploying it, it's also driving usage. And so it's a combination of growth in the current installed base and new logos, which I commented 300 new logos. So we believe there may be some in the commodity space, but the rest is because of our edge-to-cloud offering, which is resonating in the market, and we believe that's going to accelerate in 2022.

The next question is from Kyle McNealy with Jefferies. Please go ahead.

Thanks for the question. I was wondering if you could drill down a bit more in the areas that are driving your Compute segment results? They were a bit higher than we expected and certainly the consensus, I get that there's some FX in there. You quantified that. But are there segments of the market that have been stronger for you that you can contextualize? And can you give us a sense for unit growth for Compute? And maybe a split of how much ASP growth comes from memory versus product mix versus general price increases? Thanks.

Go ahead, Tarek, and then I will comment on the end, on the back end.

Sure, Kyle. So in terms of customer segments, the demand remains very strong across the board and large enterprise customers, SaaS companies, telcos, and we see very robust demand from all these customers. With respect to unit growth, units have been roughly flat quarter-on-quarter, but the right comparison is a normalized year-over-year comparison. If you normalize for Q4 2020 units that were sold, but for orders that were generated in Q1 and Q2, you remember the dynamics of fiscal year 2020, units have grown 13% Q4 2021 over normalized Q4 2020. Which is an excellent result for us. We're very pleased with it. And this comes together with very strong disciplines from our management team there in the compute space. We've executed a number of price increases ahead of price hikes of commodities and logistics costs coming up by way of expedite fees and container costs that have been rising quite dramatically, as you know. The AUP have risen overall at about 3%. When you think about this on a normalized basis, and we feel pretty good about our performance in Compute, both on the P, the price and the quantity. We feel that there is still strong demand moving forward, particularly in fiscal year 2022 with the order book that we have been able to generate and the backlog that we have in that segment. But that comment that I just made is true and very true for Aruba where we feel a very strong order demand in Aruba and also in storage. So we feel pretty good about fiscal year 2022, as Antonio commented a moment ago.

Yes. Just to add a few comments. In simple terms, this is the way to think about it. So first of all, our compute orders were up more than 10% in 2021. Our units normalized for - remember, the 2020 backlog, if you remember, when the COVID started, we had a $750 million backlog which we cleared $500 million in Q3 2020 and $250 million in Q4. When you normalize for that, units are up. Obviously, AUPs are up for two reasons; number one, cost; and number two, structural changes. As we introduce the next-generation of our Compute platform, call it, Gen 10.5 and 11 you're going to see more options and more density in those platform, which drives structural changes, which are - we believe those structural changes are sustainable, irrespective of the changes of the commodity cost. And then if you listen to what we said in 2020 and 2021 are pivot to different segments of the market, we said we want to focus on growing segments of the market, while enterprise is still super important. SaaS, Telco and Edge are three growing markets where we have been benefit from. Telco obviously with a 5G deployment our Intelligent Edge Solutions at the Edge, particularly in retail, manufacturing and hospitality, and then obviously, the focus on the SaaS, which is not the big cloud providers, but Software-as-a-Service companies, which are driving quite significant growth. And then we have our own value of built into the platform with silicon root of trust and manageability. And all of this, by the way, is all now being delivered to HPE GreenLake as well. So GreenLake is a force multiplier for the growth in Compute, because the more we sell as-a-Service, the more recurring revenue in Compute we're going to have over time. So I hope that answers the question.

The next question is from Katy Huberty with Morgan Stanley. Please go ahead.

Yes. Thank you. Antonio, how should we reconcile your commentary on incredibly strong order growth in just about every business and orders up 16% in fiscal 2021 with the 3% revenue growth that you reported last year, and the similar 3% to 4% revenue growth for fiscal 2022? Is there a point that these really strong orders convert to a meaningful acceleration in revenue growth? And if so, which quarter of fiscal 2022, do you think we could see that backlog flush?

Yes, I'll let Tarek start, and then I will add a few comments.

Yes. So Katy, the most important comment I would make to you with respect to orders is that the acceleration of orders manifested itself very strongly in the second half of fiscal year 2021. And it's continuing from here on, the demand remains very strong. We're getting orders every day, and the linearity is better even this quarter than it was in the prior quarter last year. The trough for our business was hit in the second quarter of 2020 ever since revenue has been edging up. And we're now at a point in Q4 2021, where we hit the revenue that is at the high watermark that is on the par with the first quarter of fiscal year 2019 roughly. We do see the acceleration of the revenue growth year-over-year manifesting itself on a full year basis. But timing-wise, we did say in my script and hopefully, it was understood that, the fiscal year 2022 is going to be back-end loaded. Why is that? It's because we still have to navigate supply chain constraints and those supply chain constraints are probably not going to abate before the end of fiscal year 2022 and most likely calendar year 2022. Specifically for Q1, we're comfortable with current consensus levels on revenue and which also imply, as I said in my script, a seasonal decline of mid-single digits. But when you really look at the overall trend, year-over-year from now on, we do expect an acceleration of revenue that will be dampened a little bit by supply chain constraint that we're navigating day-after-day, month-after-month and quarter-after-quarter.

Yes. Katy, I think in addition to what Tarek, first of all, I don't see the demand abating anytime soon. I actually see that continue to accelerate. And what is amazing to me is that in the areas where we place a particular focus, we see amazing growth. And what excites me is that I - knowing what I know about our new offerings and acceleration of innovation particularly in the first calendar quarter, we believe that's going to be a turbocharge. Now as you can imagine, I spend a lot of time with our global supply team - driving the day-to-day operations with Tarek here. And obviously, we have to move at the first two quarters of the year. But I feel pretty good about accelerating that in the back half, a combination of supply availability and customer acceptances. But again, when you normalize the growth for everything I said earlier to Wamsi, which is including the as-a-Service pivot, you should think about not three to four, but more like six to seven because that's the way we should think about it. And then in that, remember, the growth of the ARR is going to continue to accelerate 35% to 45%. And hopefully, in 2022, we're going to get the credit for the transformation we drive in this business.

The next question is from Amit Daryanani with Evercore. Please go ahead.

I guess, maybe I want to talk a little bit on the Intelligent Edge side. And Tarek, maybe you could just talk about what's driving out just the revenue deceleration, but also the margin declines over there. The margin drop seemed fairly material. So I would love to understand kind of what's happening there. How do you see that business ramp up through fiscal 2022? And then, Antonio, I want to touch this with you, which is you've talked a fair bit about the conviction in the orders that you have and how good they are and I think you've said about a lack of cancellation being a pretty big driver for it, therefore your confidence. I would imagine cancellations will only happen when supply chain issues alleviate versus right now. Is that fair? If so, are there other things you're looking at in your business that gives you confidence that these orders will convert?

Tarek, you want to talk about the - the Aruba piece of it which obviously the Network-as-a-Service was a big component of that?

Yes, yes. So let me take that, Antonio. Thank you. So Amit, as we shared in our scripts, we signed a very substantial Network-as-a-Service contract for the first time with a large US retailer. And this had a headwind on revenue growth in Aruba of about 800 basis points and a headwind on operating margins of about 500 basis points. So if you were to normalize for it, you still realize - you would realize that the double-digit growth in Aruba and high-teens margins are still there. And we're very comfortable they're there for us. Aruba is at 40% business meaning we do see the top-line growth to be in the high-teens and the margins to be in the high-teens as well, approaching a sum of 40% overall. Nothing has changed. We feel very comfortable, particularly knowing that the order book remains very strong. If anything, there was one part of our company that suffered a little bit more of supply chain constraints in Q4, it is Aruba. But it's just simply deferring revenue that could have been realized in Q4 into Q1 and Q2 of fiscal year 2022. The order story remains incredibly strong, and the demand there is super solid. So we're very confident about the prospects of Aruba for fiscal year 2022.

Yes. I mean, I think that we covered pretty much everything. Remember what the net $800 million at this time. So very pleased with that, which makes us a more lean and agile company. And part of that is also the ability to execute faster. One of the big changes we made also was the way we compensate our sales force on orders, and this is what you see. We are now confident based on our systems implementation. If you recall, we started three years ago. And we are also getting close to that completion, allowed us to make some changes here in the way we drive the business going forward. And I think this is all about operational excellence and execution. On the inventory side, I think the team has done a remarkable job driving working capital and - but also at the same time, making the right long-term bets on this inventory, which give us not just the ability to convert but pricing power. And as I said in the Security Analyst Meeting, we tend to be the market leader in changing prices. And we will continue to do so, because it's the right thing to do at the right time. And so we will continue to manage that inventory as needed for our customers and for delivering of numbers.

And our final question will be from Samik Chatterjee with JPMorgan. Please go ahead.

Thanks for squeezing me in here. I guess I wanted to get your thoughts on H3C. You had a strong year with plus growth in equity income. How should we think about kind of fiscal 2022 there? And what's your visibility into H3C navigating the supply chain constraints as well? And through the conference call today, you've mentioned multiple times about a back-end loaded year. So just wanted to see if that's consistent with how should we think about, H3C equity income as well? Thank you.

Yes. Well, Tarek and I felt it was important to share with you how H3C contributes to our financial performance. You saw that slide that shows the equity interest of 49% and what value drives for our shareholders, which is pretty significant. And H3C is an independent entity, which operates in China, obviously. And they manage the business day-to-day. And they have done a remarkable job. I mean they continue to grow their business in China. They are positioned extremely well, in the, what they call the ICT business, the support telco, the support enterprise customers and SMB. They have a unique value proposition and set of products, which are very well received. And we expect that business to continue to grow double-digits. And the report is incredibly accretive to what we do. But also, at the same time, as Tarek said, is a unique setup, which no other multinational really has been able to achieve in a country, obviously, which is going to a lot of changes here. And it's the second largest market on the planet, okay? So if you believe that market will continue to grow, and they are very well positioned, this will continue to accrete to our shareholders. Now as we said in previous quarters, are put expire at the May timeframe.

That's right.

And as always, we will do what is the right thing for our shareholders, what is the best return for our shareholders. And we will make that decision at the right time.

And Antonio said it very well. I would simply add that the interesting data point on the slide, and hopefully, you all take away is that, we're not in a rush. The value of our stake continues to accrete. And we feel very, very good about our position in H3C.

Okay. Well, thank you, everyone. Thank you, Jeff. We appreciate you making the time to talk to us today. I hope you walk away with a clear view of how we are performing. I'm particularly pleased with the momentum we have as we enter 2022. Our strategy could not be more on point. I think the demand is strong, not only because of the market, but because of our solutions. And I'm very excited about the ability to create and accelerate our shareholder value in 2022. And then we have some amazing things coming down the pipeline in terms of innovation that's going to differentiate us even further. And so I'm looking forward to 2022, while we navigate this short-term challenge of supply, but we are very confident on the current guidance and the consensus out there. And we hope to exceed that as we execute in the next quarter. If I don't speak to you in the next month or so, thank you very much. Be well. Happy Holidays to everyone and to prosper 2022. Thank you very much.

Ladies and gentlemen, this concludes our call for today. Thank you.