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Hewlett Packard Enterprise (HPE) hosted its virtual Securities Analyst Meeting (“SAM”), where Antonio Neri, president and CEO, and Tarek Robbiati, executive vice president and chief financial officer, provided the financial outlook for fiscal year 2022 as well as details on the company’s strategy, customer trends, and long-term growth opportunities.
“In 2021, HPE has significantly advanced our strategy to become the edge-to-cloud company,” said Neri. “HPE is at the center of compelling megatrends that are driving new customer expectations and presenting new profitable growth opportunities. We are accelerating our market leadership, as customers respond to our uniquely integrated portfolio. I am proud of our progress, confident in our position, and excited about the value we will continue to deliver for our shareholders.”
In his remarks at SAM, Neri highlighted three distinct trends that have gained traction as the world continues to recover and evolve from pandemic-related impacts, including: 1) the continued explosion of data at the edge, driven by the proliferation of devices and things, which requires secure connectivity; 2) the mandate for a cloud-everywhere experience that allows customers to manage data and workloads across a distributed enterprise; and 3) the growing need to quickly extract value from data to generate insights and build new business models.
“Each of these market trends, as well as increased customer demand for consuming IT as a service, represents a significant area of addressable growth for HPE,” said Neri. “We are particularly focused on the segments that will deliver the most profitable growth, and we are actively investing in both organic and inorganic innovation to ensure we capitalize on these margin-rich opportunities.”
Neri reviewed HPE’s market leadership, innovation, and results in each of the megatrend areas, placing particular emphasis on the company’s momentum with the HPE GreenLake edge-to-cloud platform. With more than 1,100 enterprise customers, HPE GreenLake is making significant contributions to the company’s 33 percent year over year growth in Annualized Recurring Revenue (ARR) as of Q3 2021 and 46 percent as-a-service order growth.
“I would argue that no other company is positioned as strongly as we are to address the market opportunity before us,” said Neri.
Financial update
Tarek Robbiati, executive vice president and CFO, provided a financial update including an outlook for FY22.
“We have the right edge-to-cloud strategy aligned to dominant market trends with the right financial architecture,” said Robbiati. “Our long-term financial model delivers 15-20% free cash flow growth that enables balanced investments for growth with substantial capital returns to maximize value for shareholders.”
FY22 outlook
HPE expects FY22 financial results to continue the momentum from FY21. The company expects its revenue growth to be 3-4% in constant currency and non-GAAP operating profit growth of approximately 10-15% year-over-year. This excludes costs of approximately $1.2 billion primarily related to transformation costs, stock compensation expense and amortization of intangible assets.
The company expects non-GAAP Other Income & Expense of approximately $20-40 million to be an expense, excluding income of approximately $48 million primarily from non-service net periodic benefit credits. The company expects a non-GAAP tax rate of 14% based on current tax laws.
HPE expects non-GAAP diluted net earnings per share of $1.96-$2.10. The company expects FY22 GAAP diluted net earnings per share of $1.24-$1.38. The GAAP net EPS outlook includes after-tax costs of approximately $0.72 related primarily to transformation costs, stock-based compensation expense and amortization of intangible assets. HPE expects FY22 free cash flow to be $1.8-$2.0 billion.
The company expects to return at least 60% of free cash flow to shareholders in FY22. HPE expects this to include approximately $625 million in dividends and at least $500 million in share repurchases.
Long-term financial profile
HPE provided its long-term financial model for FY22-FY24. The company expects a compound annual revenue growth rate of 2-4%, adjusted for currency. The prior three-year view was 1-3%. The company expects the growth drivers to be Edge, High Performance Compute & Artificial Intelligence, and the as-a-Service businesses. The company expects as-a-Service ARR growth to accelerate to 35-45% to more than $2.3 billion in FY24 revenue.
The company expects its progress on its strategic imperatives will translate into a stronger financial architecture including sustainable, profitable growth and increasing recurring revenue at higher gross margins over time. The company expects compound annual non-GAAP operating profit growth rate of 8-10% driven by investments in key growth areas and an optimized operating model, which will be slightly offset by Other Income and Expense. HPE expects non-GAAP diluted net EPS to grow at a compound annual growth rate of 7-9%.
HPE expects a free cash flow compound annual growth rate of 15-20% from the mid-point of our current FY21 outlook to deliver cumulative free cash flow from FY22-FY24 of $6.5-$7.0 billion.
The company will balance long term revenue and free cash flow growth with consistent returns to shareholders, including both dividends and significant share repurchases.
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