Good afternoon. And welcome to the Fiscal 2025 Third Quarter Hewlett Packard Enterprise Earnings Conference Call. All participants will be in a listen-only mode. Please note that today's event is being recorded. I would now like to turn the conference over to Paul Glaser, Head of Investor Relations. Please go ahead, sir.

Good afternoon. I am Paul Glaser, head of investor relations for Hewlett Packard Enterprise. I would like to welcome you to our fiscal 2025 third quarter earnings conference call with Antonio Neri, HPE's president and chief executive officer, and Marie Myers, HPE's chief financial officer. Before handing the call to Antonio, let me remind you that this call is being webcast. A replay of the webcast will be available shortly after the call concludes. We have posted the press release and the slide presentation accompanying the release on our HPE Investor Relations webpage. Elements of the financial information referenced on this call are forward-looking and are based on our best view of the world and our businesses as we see them today. 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 July 31, 2025. For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. Please refer to HPE's filings with the SEC for a discussion of these risks. For financial information, we have 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 noted otherwise, are presented on a year-over-year basis and adjusted to exclude the impact of currency. Antonio and Marie will reference our earnings presentation in their prepared comments. Finally, I would like to clarify that in the discussion today, any mention of HPE Intelligent Edge will refer to HPE's prior business segment and network will refer to the combination of Intelligent Edge and Juniper Networks. With that, let me turn it over to Antonio.

Thank you, Paul. Good afternoon, everyone. In Q3, we delivered solid results and completed a major milestone. Closing our acquisition of Juniper Networks. Together with Juniper, we will accelerate our momentum across our three strategic business pillars. Networking, cloud, and AI, building a stronger, leaner, and more profitable HPE. In Q3, HPE achieved record-breaking revenue with and without Juniper. Revenue was $9.1 billion, up 18% year over year fueled by strong momentum across AI, networking, and hybrid cloud. We grew revenues year over year across our three largest business segments. Demand was broad-based across our products and services. We increased sequential operating profit dollars in server hybrid cloud and both Intelligent Edge and the new combined networking segment. We also grew operating profit dollars in financial services on a year-over-year basis. The new combined networking segment accounted for nearly 50% of HPE's non-GAAP consolidated operating profit. We also improved sequential operating profit margins in server, and hybrid cloud. Our improved profitability flowed through to non-GAAP diluted net earnings per share of $0.44. Free cash flow was $719 million as we significantly lowered our inventory driven by higher AI backlog conversion to revenue and strong supply chain execution. We continue to transform our business through Catalyst, the structural cost-saving program we announced last quarter, including enhancing operational efficiency, simplifying our portfolio, adopting AI, and optimizing our workforce. In Q3, customers continued to demonstrate strong demand for our AI portfolio. We nearly doubled our AI orders sequentially, driven by sovereign opportunities up approximately 250%. Cumulative orders since Q1 2023 for sovereign and enterprise now account for more than 50% of total AI systems net orders. We exited the quarter with record AI backlog at $3.7 billion. Marie will provide more details on the quarter and our Q4 fiscal year 2025 guide. But…

Thank you, Antonio, and good afternoon. I'm pleased with our performance this quarter while navigating an evolving market environment. Regarding our results, first, all segments of our business performed well. Our server business has moved past the pricing and discounting issues we reported earlier this year in compute. Hybrid cloud posted its fourth consecutive quarter of year-over-year top-line growth and operating margin expansion. And revenue growth in our Intelligent Edge business is improving as the networking market recovery continues. Second, I'm pleased that we completed our acquisition of Juniper, which will shift our revenue mix towards a higher growth higher margin networking business. We continue to expect the acquisition to be accretive to our non-GAAP results in year one, enhancing our profitability as we capture synergies and drive new market opportunities with our increased scale. And finally, we made solid progress on our cost reduction initiatives announced last quarter. I'm looking forward to sharing more about the next chapter of our company at our security analyst meeting next month. Let's talk about the details of the quarter. Third-quarter revenue of $9.1 billion which included Juniper, was up 18% year over year and quarter over quarter. And up 11% excluding Juniper revenue of $480 million. Excluding Juniper, total revenue of $8.7 billion exceeded the high end of our outlook range. Demand was strong this quarter, and we did not see material demand pull in. Our reported annualized recurring revenue run rate was $3.1 billion including $590 million contributed by Juniper. Reported ARR was up 75% year over year or up 40% excluding Juniper. Software and services ARR, including Juniper, doubled year over year as the mix of this higher margin revenue improves sequentially by 640 basis points to over 81%. Including Juniper, non-GAAP gross margin was 29.9%, down 190 basis points…

Thank you. We will now begin the question and answer session. And your first question today will come from Aaron Rakers with Wells Fargo. Please go ahead. Yes. Thanks for taking the question and congrats on the close of the Juniper acquisition.

I guess I want to just dive a little bit deeper into the server margin profile that you guys see. I think Antonio, in your prepared comments, you said that we've returned to more of a normalized operating margin on the traditional server line. I guess if I look back, I would assume that's kind of in that low double-digit, let's call it, 11% to 13% range I I guess if I'm to do that math, it it leads me to question the profitability of the AI server business. And so I guess, you know, as you think about that 10%, maybe you can unpack the drivers of getting to that level. And and I you know, how how should we think about that AI server you know, margin profile? Thank you.

Thank you, Aaron, for the question. First, we are very pleased with the progression we made between Q1 to Q2 to Q3 based on the challenges we experienced in Q1 with price and discounting and as you said, we resolved those issues and the traditional server is back to historical levels around 10-12% as you talked about it. We believe that's consistent with we see going forward. Remember there is a mix shift in addition to those pricing and discount changes. To GEN-eleven and GEN-twelve the structural of those products is different than gen 10 or gen 10 and a half. Obviously, it has higher AUP, different attach rates and the like. And that's gonna be a core foundation as we enter Q4. For delivering at the total server segment the around 10% for the quarter. Now this quarter obviously the mix of AI and in particular one deal and the work we did on inventory had a short term impact that ultimately took that what I call the overall server down to the 6.4% but as we exit that which already recognized then you're going to get the natural lift into that higher single digit to close to 10%. And then therefore also you have the mix of sovereign and enterprise in the AI revenue conversion. Because as we move from more a server provider centric revenue conversion to more a sovereign and enterprise revenue conversion in AI obviously we're going to convert less in aggregate numbers it's gonna have a different margin profile. And that's why Maria and I the team are very confident that in Q4, the total server operating margin will be around 10%. So that's the walk. Aaron.

I'd just add, Aaron, we also have a robust internal framework that guides us in how we evaluate these AI related deals and prioritize them as well.

Very good. Thank you, Aaron. Operator, next question please.

Your next question today will come from Wamsi Mohan with Bank of America. Please go ahead.

Yes. Thank you so much. Now that Jennifer is closed, can you maybe just talk about some of the early progress on integration and go to market changes that we should expect? And any top line synergies and early customer feedback And Marie, maybe if you could talk about just the longer term opportunity for HPE in AI or Antonio. Just relative to networking versus servers, where do you see the larger opportunity for AI both from a revenue TAM and from a margin or profitability standpoint? Thank you so much.

Thank you, Wamsi. So first, we are incredibly pleased we closed the transaction of Juniper I think it was closed at the right time because obviously market recovery is taking place but also we see demand across sub segment of the networking market. And as we commented during my remarks and and Marie's remark, every subsegment on networking had a very strong performance. Whether it was HPE Intelligent Edge standalone or Juniper standalone and obviously on a combined basis, it's even very, very strong. If you look at Compass and Branch, both companies are doing very well. Both company growing double digits, so that's very strong. In data center switching and we talked about this during the July 9 call. Juniper had that record breaking performance in data center switches and also a very good performance in routing which we call it the automated one Security was also up in the single digit year over year revenue growth driven by SASE. Then progress we have made is that is very strong, meaning integration is progressing really well. We have a series of milestones which we call it the employee day one, which is onboarding the employees into our systems. That's a combination of benefits and other things that have to take place. And then we have the the harmonization of the Salesforce which we call it sales day one and that takes place at the end of this calendar year We already are incentivizing both sales forces to sell both products. And I can tell you the channel community is super excited to be able to sell both products. Because the combination of both products allows them to cover every vertical, every use case in every geography. And the fact of the matter is that the complementarity of the two…

Next question please.

Your next question today will come from Samik Chatterjee with JPMorgan. Please go ahead.

Yes. Hi, thanks for taking my question. Antonio, you talked about just following up here on the Juniper sort of line of topics. Your networking overall margins are taking a bit of a step down to the sort of low 20 range. Where the segment historically has been about mid-twenties. How should we think about with the synergy road map that you have when the segment gets back to that sort of mid-twenties level? Because some of the back of the envelope math and the synergies would suggest you could actually probably go north of that as well long term. But maybe just lay out the road map for us in terms of how to think about the progress on the margin front from the new set of level that you have post consolidation of Juniper? And, Murray, if I can quickly squeeze in one on cash, get the headwinds terms of closing Juniper on the cash flow this year, but how should we think about of the impact in on next year's cash flow in relation to any closing costs or integration costs?

So I will pass it to Marie because I think will be able to answer both questions.

Yeah, no worries. Thanks Antonio. Hey Sami, good afternoon. So Just to preface my answer before I get started, I'm going to answer both questions in the context of Q4 and full year '25 guide. We will provide longer-term update to your questions, particularly around cash as we get into security analyst meeting in early October. So let me unpack first of all, the networking margin rate. So in the quarter, as you recall, we integrated a month of Juniper's results and our intelligent edge business. We combine them now into one segment called the networking segment. And the combined operating margins were twenty point eight. If you look I think your question was focused specifically at the edge business. Edge margin, actually, I disclosed in my prepared remarks, was 22.7, and we did see a a sequential reduction, and that was really due to two primary factors. One's variable comp expense, and the other one product related costs. And I did guide the Q4 op range to the low twenties as we get into the quarter. And the reason for that Samik, is obviously Juniper's rate was a few points below our Intelligent Ed business. So just bear that in mind as you think forward to the networking margin rates. Now with respect to your question on cash flow, you know, we're confident in our guide for the year. And I would just say, you think about cash, there's puts and takes. Now, obviously, you brought up Juniper costs, and we will give more clarity on that as we get through to Sam. Even as we get into Q4, there's obviously costs that I believe are commented on in Q3 and Q4 and also the increase in OI and E. So all of that taken into account when you think about cash flow. And I just add, look. You know, we are absolutely focused on free cash flow. We'll give you a lot more detail as we head to security analysts. As you know, our leverage has gone up, and so free cash flow generation is is paramount for us.

Thanks. I want to reinforce the last point. Because of the integration of Juniper, the ability to generate earnings but also pay down the debt. Our main focus going forward in addition to drive the right balance of growth and operating margins is really free cash flow generation. And so we will be able to talk more about this at at some.

Thank you for the question, Samik. Operator, next question please.

And your next question today will come from Amit Daryanani with Evercore. Please go ahead.

Good afternoon. Thanks for taking my question. I guess, Antonio, I wanted to get sort of go back to the networking discussion. It sounds like, know, both Intelligent Edge and also Juniper are doing fairly well from a revenue basis. Guess simplistically, do you think about the growth rates for the combined business as we go forward, if you think networking market grows five, 6% a year, how do you think HPE plus Juniper can do And then, you know, really over time, how do you think about product integration on a campus side between Aruba and Mist? Do you think we need to Mist to Aruba, or and have a single product? Or you think you can have both the products support in the marketplace simultaneously? Thank you.

Yeah. Thanks, Amit. Rami and I and the team are very pleased with the momentum both businesses have in the market. That's a reflection that both offers are very strong. And let's remind ourselves that that's true for campus and branch but when you go to data center switching and, obviously, the one business that's 100% Juniper Then in the security space, we have a robust security portfolio because we need to lead with a secure network approach and that's inclusive of Juniper firewalls, and the secure access service edge or the SSC which both company have very strong offerings. As you recall, in 2020, we acquired Silver Peak. To drive the convergence between SD WAN and security. But as I think going forward, our goal is to build the best network in business. And that means we're gonna grow above market. And that's the reality. We're gonna explain how that's gonna be the case over the next three years. And we have an opportunity across AI and cloud and across the infrastructure itself. When I think about the Campos and Branch question, we were very clear with Rami. We're gonna thoughtfully integrate the Juniper platform and the Aruba Central platform because you need to think about that layer Everything below that, is very straightforward. There is no confusion because the reality is that we have a very strong robust campus switching portfolio which obviously has a lot of that has the wire piece which is Aruba silicon then Wi Fi access points. I don't think that's too complicated, and we're gonna show what that looks like. And then finally, is the extension into IoT probably five gs which obviously HPE has unique offers. That integration of the cloud and AI ops is where that experience will evolve. But we are not going to leave any customer behind. We're going to sell both products and you're gonna see an integration that suddenly happen over time through the AI ops layer. And that's the opportunity we have here. And the good news customers want both today and we can serve every market vertical and we can also deploy any type of solution whether it's cloud based virtual private cloud, meaning sovereign and then on prem. And that's the opportunity we have ahead of us. And then last but not least on the data center switching side, in addition to networking for AI, we are also working integration in the private cloud, portfolio with the software defined networking components that Juniper brings. Through Fidelma's hybrid cloud ops suite And then obviously in our storage and server business which require the switch along the way.

Very good. Thank you, Amit. Operator, next question please.

Your next question today will come from David Vaught with UBS. Please go ahead.

Great. Thanks guys for taking the question. So Antonio, I want to go back to the networking piece and maybe Marie can chime in on this. I think you talked about the traction that Juniper is getting with some these AI model builders and sort of that part of the network. How much of sort of the opportunity to grow is predicated on traction with those customers? And then maybe along those lines, I think Marie mentioned some product related costs. Was that mix in the networking section? To more, you know, AI centric offerings? And how do we think about that mix shift going forward from a more enterprise campus centric model to one more hopefully, one more towards an AI model building sort of cloud model going forward? Thank you. Yeah. Thank you.

No, the AI opportunity is across all the three segments I mentioned earlier. Right, in networking, which is the service provider where we have the vision to lead with networking there because there is unique value proposition performance, cost, simplicity, lifecycle management. And AI driven capabilities. When you go to the sovereign space, same thesis. That's even more important because you now drive rack scale integration with the rest of the server business. And then at the enterprise layer, course, we want to integrate the Juniper switch in everything we do in cloud and AI going forward by giving customers choice and flexibility. So the opportunity for networking in AI is across all three segments. Now in the service provider space, obviously once you lay down the simple analogy I made, you laid the pipes inside the data center and you connect the data center to the rest of the the interconnect process then obviously you become the standard And then from that, that solution, hang these amount of GPUs that comes with those deployments. And so this is why the opportunity is significant and the benefit for Juniper which already had good traction is access to a very a larger number of customers that were not able to access before because we are strategic in many deals Remember, we cover 172 countries and also our heritage in countries and geographies where our mix is shifted to those example Europe and Asia versus North America. There is an opportunity here as we integrate the Salesforce but also integrate the architecture.

And then, David, just to add on to your question around the product cost that was actually in the Intelligent Edge business that I mentioned that was on a sequential basis. And it was related to a platform transition. Thank you.

Thank you, David. Operator, next question please.

Your next question today will come from Eric Woodring with Morgan Stanley. Please go ahead.

Hey, guys. Thanks so much for taking my question. Antonio, was wondering if you could maybe just take a step back and share some details on you're hearing from customers, what you're seeing in the pipeline as it relates to kind of end market growth for your three core end markets, networking, server, and end And really, what I'm trying to understand is, there are some maybe concerns that the markets could be rolling over. There's a lot of age infrastructure that can be refreshed. What are you hearing from your customers about prioritizing those types of upgrades? And from the HPE perspective, you know, if we put network into the side because you've talked ad nauseam there, just where do you see the biggest opportunity to take share with the core HPE portfolio in those respective end markets? Thanks so much.

Well, you, Eric, and welcome. I know you are starting the coverage of our our company just few weeks ago. So we appreciate you spending time with us. My view is that the market is robust We saw that throughout the Q3 order linearity was very consistent. There was nothing unnatural despite sometimes the true tariffs, no tariffs, but Marie commented on that that the net impact of that is very minimal for us. At this point in time. And I will say on the server side, let's start with that. On the traditional server side. There is a refresh going on We saw double digits year over year revenue growth in traditional servers. Customers are refreshing edge infrastructure with more richly configured servers because they can reduce space and cooling on an aggregate basis. So with introduction on Gen 12 servers, we demonstrate that we can replace seven gen 11 servers and 14 Gen10 servers. And at the same time reducing the power consumption by 65% in addition to increase the security in their because now we support our own internal aisle of seven, which is basically the quantum proof encryption. And so that's an example of what we see. And that was consistent across all three geos. Now, there we participate with discipline, and ultimately, it's a question of volume and margins we demonstrated in Q3 that we can do after the challenge we had in Q1. That's one example and we believe over time, we believe we are poised to potentially gain share in enterprise. In the hybrid cloud space, huge opportunity through the transition of the virtualization layer. One of the areas people are focused on AI obviously for good reasons, but I can tell you one of the most exciting areas we see is the…

Very good. Thank you, Eric. Welcome. Last question please, operator.

And your final question today will come from Simon Leopold with Raymond James. Please go ahead.

Thanks for taking the question. I wanted to see if you could revisit the topic of Juniper's position in AI. On the call you hosted in July, Rami had indicated that Juniper had landed some deals in the back end. I'm wondering if you could unpack and give us a little bit more detail on that particular part of the business. Thank you.

Yeah. Simon, I I think Ron and team have done a great job in lending several customers to become the reference in the networking space above the deployment of NVIDIA Spectrum So obviously inside the rack you have Spectrum SpectrumX all the way down to the NBLINK. With the the NVIDIA Blackwell GPUs and the Grace Hopper GPUs. But above that, we have become the standard in some of these very large deployments And we are in a number of conversations with Neo Clouds and other service providers where we want to become the standard in that space. That's why we believe is a big opportunity in leading with networking for AI in that particular couple of segments. And so that's our strategy going forward. And then obviously that will make our servers more more attractive because also we will have more integration of the rack scale the sovereign space. And Juniper when the transaction closed had a very nice backlog that they built prior to the acquisition and we expect to unwind up back and new orders as we go forward. And so Rami will be able to explain more about this as we go to the security analyst meeting from a pure architecture perspective and how we are approaching that from a sales perspective. So thank you. Yeah, sorry we're running out of time but we appreciate your time today. I hope you take away that we are executing with precision. That we have a clear vision for the company, I am and the management team is very excited about the next chapter of HPE after the closing of the Jouvert transaction. You see the results of Juniper in our numbers with just one month and we're excited to share more about this when we get at the security analyst meeting in New York, which I know everybody's wanting to get a framework for twenty six, twenty seven, twenty eight. But beyond that, I'm excited to share our vision and the strategy for the company with this amazing portfolio we built. Thank you very much for your time.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.