Hewlett Packard Enterprise Company 2026 Q3 Earnings Call

I'm Shannon Cross, Chief Strategy Officer for HPE. I'd like to welcome you to our fiscal 2026 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 our business and the external factors affecting us 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 31st, 2026. Figures used in verbal remarks are rounded for ease of discussion. For more detailed information, please see the earnings materials, as well as disclaimers relating to forward-looking statements that involve risk, uncertainties, and assumptions. Please refer to HPE's filings with the SEC for more detailed discussion of these risks. For financial information that we are showing on a non-GAAP basis, we have provided reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release on our investor relations website for details. Throughout this conference call, all revenue growth rates, unless noted otherwise, are presented on a year-over-year basis.

Unless otherwise noted, all financial metrics and growth rates discussed today are non-GAAP, and EPS refers to non-GAAP diluted net earnings per share. Certain financial information featured in the presentation today has been normalized to include Juniper Network's results as of the beginning of HPE's fiscal year 2025. Antonio and Marie will reference our earnings presentation in their prepared comments. We will also be disclosing records for certain financial metrics during the presentation. Please refer to our endnotes in the presentation while reading these statements. With that, let me turn it over to Antonio.

Thank you, Shannon. Good afternoon, everyone. Our strategy is proving itself again this quarter. We deliver another set of record financial results, which demonstrates the durability of our profitable growth momentum and disciplined execution across the company. We exceeded all our company-wide financial commitments, achieving record results across revenue, gross margin, non-GAAP operating profit, and earnings per share. AI has become a multi-year growth driver, expanding demand across our HPE portfolio. Customer demand in the quarter accelerated across both business segments, with orders growing faster than revenues. We booked more orders than any prior quarter in our history, resulting in a record-breaking backlog for the company. Supply constraints continue to affect our ability to fulfill the increased customer demand. We are collaborating very closely with our partners to secure additional multi-year supply agreements.

We are also providing our customers with alternative product configurations and deeper planning interlocks to better forecast supply availability. In fiscal Q3, HPE delivered record revenue of $12.2 billion, up 34% from a year ago. Our HPE revenue growth year to date has risen about twice as fast as it did over the same period last year. HPE non-GAAP gross margin was a record of 40%. We generated record non-GAAP operating profit of $2 billion, two and a half times more than a year ago. Non-GAAP earnings per share was $1.11, another record, and the first time we achieved more than $1 in non-GAAP EPS in a single quarter. Our outstanding operating results translated directly into stronger cash generation, resulting in our highest free cash flow ever for a third quarter at $958 million. Last quarter, we updated our fiscal 2026 outlook and introduced our initial fiscal 2027 growth framework.

Thanks to our record results, record orders, and record backlog, we are raising our outlook for both fiscal 2026 and fiscal 2027. Marie will discuss the details shortly. Before I hand over the call to Marie, I want to provide some observations about the market and our business segment performance. I also want to note an important milestone regarding our Juniper Networks acquisition. In August, a U.S. federal court approved our settlement with the Department of Justice, saying it serves the public interest. We are pleased with the outcome, which reinforces our confidence in the long-term value of bringing these two great networking portfolios together. A year after closing the Juniper Networks acquisition, our integration plan and cost synergies remain ahead of schedule. The business performance continues to strengthen through expanded innovation and strong execution.

The enhanced ability to compete is already driving more innovative networking solutions for customers and higher profitable growth for shareholders. Order bookings and revenue for our networking products and services reached record levels despite supply constraints, which limited our ability to convert the higher demand into revenue in the quarter. Campus and branch had record revenue as customers modernized aging edge infrastructure and deploy AI-driven network operations. Orders were ahead of revenue, demonstrating the differentiation of our self-driving networks and the versatility across multiple cloud deployment models. Routing and data center switching demand accelerated in the quarter, with orders substantially ahead of revenue and our backlog at its highest ever. Our backlog reflects strong customer demand from hyperscalers and neo clouds for our routers, switching, and AI-driven operation software as they continue to increase their AI cloud CapEx infrastructure investments.

Growth in our backlog shows strong customer demand is running ahead of available supply. We expect to convert more orders into revenue in Q4, which give us even greater confidence in sustaining our networking growth in fiscal 2027. Today, we announced an expanded collaboration with Oracle to accelerate gigawatt-scale AI infrastructure. Oracle will deploy HPE Juniper Networking routers and switches across one of the largest AI cloud infrastructure build-outs. HPE is uniquely positioned to support Oracle with a network for AI portfolio, which is one of the most comprehensive in the industry. SASE and security also contributed to our growth. Our strong performance in firewall, SD-Branch, and Branch SRX reflects growing customer demand for networking and security that operate as one converged solution.

I hope you will attend our upcoming Networking Investor Day later this month to hear more about how our networking strategy, innovation, and business momentum are giving us even greater confidence in the opportunity ahead. While our networking segment continues to strengthen through our thoughtful integration, our cloud and AI segment continues to perform exceptionally well in a very supply-constrained environment. We delivered record revenue, operating profit, and operating margin. AI is beginning to inflect beyond early proof-of-concept training deployments into a broader enterprise workflow transformation opportunity. Customers are increasingly investing in new agentic AI applications and AI inferencing, requiring accelerated computing infrastructure, secure data storage access, and enterprise-grade cloud management. Our comprehensive cloud and AI portfolio is perfectly positioned for this market inflection. We continued to experience strong demand across traditional servers, AI systems, storage, private cloud solutions, and GreenLake cloud services.

The server product category drove the outperformance with high demand for traditional servers and AI systems. We saw strong demand from large enterprises, neo cloud service providers, and sovereign customers. We expect demand to remain exceptionally high as our pipeline remains multiples of our backlog. A fundamental shift in the server business is becoming quite clear. The way customers value their IT infrastructure is changing. Their focus is not just whether a server can run AI workloads, but also how it can enable entirely new business workflows using new AI applications. We are seeing AI-related enterprise initiatives receive higher levels of investment than traditional IT projects. There is more top-level executive engagement in making those investment decisions, including company boards, which are championing AI technology to unlock further business transformation potential. Storage had a standout quarter with record revenue.

It benefited from our decision to focus on our own IP offerings by delivering a modern multi-data protocol platform for the AI era. Customers are beginning to evaluate whether the AI workloads can be run most efficiently with the best secure data management and the lowest cost per token. Organizations are still in the process of modernizing data storage environments while preparing for the next generation of AI-driven workloads and applications. They want data to be close to their AI infrastructure, and they want control over sensitive information. These trends are driving strong demand for our HPE Alletra Storage MP storage solutions. We are confident our comprehensive data storage value proposition will continue to accelerate this momentum in our storage business. Our Private Cloud AI platform allows customers to manage enterprise AI applications and AI agents while keeping control of data governance, security, and operations.

Demand for PCAI is strong from enterprise customers that want to optimize the token economics of large-scale AI deployments on premises. That is rapidly scaling our order bookings and the size of our customer base. HPE GreenLake remains one of our greatest differentiators because it allows customers to manage infrastructure and software through a secure hybrid cloud operating model regardless of where traditional and new AI workloads reside. Customers are broadening their utilization of our HPE GreenLake cloud services, expanding their existing usage by consuming our new software and intelligent cloud services, which increases our net retention rates. in Q3, the number of HPE GreenLake customers grew 18% to 52,000, up from 44,000 a year ago. HPE Financial Services continues to deepen our customer relationships and offer a meaningful competitive advantage, which is becoming especially important as more customers look for financing options to help with their AI investments.

As a result, HPEFS generated third-quarter records in financing volumes, residual value, and return on equity. In closing, HPE delivered another outstanding quarter, exceeding our company-wide commitments and demonstrating the ongoing differentiation in our strategy and its execution. As we look ahead, the same underlying drivers of our performance give us confidence in continuing to deliver higher profitable growth, higher cash flow generation, and higher capital returns for shareholders. I want to thank our team members for their focus and strong execution so far this year. Our amazing talent and culture have set our performance apart this quarter and in fiscal 2026 to date. With that, let me turn the call over to Marie.