HPE achieved record financial results and raised future guidance due to sustained high demand for AI infrastructure and networking solutions.

Good day and welcome to the 2026 Hewlett Packard Enterprise Q3 Earnings Conference.

I'm Shannon Cross, Chief Strategy Officer at HPE. Welcome to the third quarter earnings conference call for fiscal year 2026 with Antonio Neri, President and CEO of HPE, and Mary Myers, Chief Financial Officer of the company.

We have posted the press release and accompanying slideshow on HPE's investor relations page. The financial information referred to in this call is forward-looking and is based on our view of our business and external factors affecting us at the present time.

HPE assumes no obligation and does not intend to update any of these forward-looking statements.

We would also like to point out that the financial information discussed in this call reflects estimates based on currently available information and may differ materially from the amounts to be definitively reported in HPE's quarterly report pursuant to Form 10-Q for the fiscal quarter ended July 31, 2026.

Please refer to HP's filings with the Securities and Exchange Commission for a more detailed discussion of these risks.

Certain financial information presented today has been aligned to include results for Juniper Networks as of the beginning of HPE's fiscal year 2025. Our strategy is proving successful again this quarter.

We have achieved another set of record financial results, demonstrating the sustainability of our profitable growth momentum and disciplined execution across the company. We have exceeded all of our corporate-level financial commitments, achieving record results in revenue, gross margin, non-GAAP operating profit, and earnings per share.

Artificial intelligence has been a growth driver for many years, expanding demand across our HPE portfolio. Customer demand accelerated during the quarter in both business sectors, with orders growing at a faster pace than revenues.

We recorded more orders than in any previous quarter in our history, resulting in a record backlog of orders at the company.

Supply constraints continue to affect our ability to meet increasing customer demand. We are working very closely with our partners to secure additional supply agreements for several years.

We also provide our customers with alternative product configurations and deeper planning coordination to improve supply availability forecasting.

In the third quarter of the fiscal year, HPE achieved record revenues of $12.2 billion, a 34% increase over last year. HPE's revenue growth since the beginning of the year has increased by approximately twice its rate during the same period last year.

The total non-GAAP margin for HPE reached a record high of 40%. We achieved a record non-GAAP operating profit of $2 billion, two and a half times what it was a year ago. Non-GAAP earnings per share reached $1.11, another record high, and the first time we have earned more than $1 in a single quarter.

Our outstanding operating results translated directly into stronger cash flow generation, resulting in our highest ever free cash flow in the third quarter, at $958 million.

In the last quarter, we updated our outlook for fiscal year 2026 and presented our initial growth framework for fiscal year 2027. Thanks to our record results, record orders, and record backlog, we are raising our outlook for fiscal years 2026 and 2027.

Before I hand the call over to Mary, I'd like to make a few observations about the market and the performance of our business segment. I would also like to point out an important achievement with regard to our acquisition of Juniper Networks.

In August, a U.S. federal court approved our settlement with the Justice Department, saying it served the public interest. We are pleased with the result, which reinforces our confidence in the long-term value of combining these two excellent network portfolios.

One year after closing the acquisition of Juniper Networks, our integration and cost synergies plan remains ahead of schedule. Business performance continues to be strong through extensive innovation and robust execution.

Our enhanced competitiveness is already driving more innovative networking solutions for customers and achieving higher profitability growth for shareholders.

Order bookings and revenue from our networking products and services reached record levels, despite supply constraints that limited our ability to convert high demand into revenue during the quarter.

The campus and branch segments achieved record revenues as customers upgraded legacy edge infrastructure and deployed AI-powered network operations. Orders exceeded revenue levels, highlighting the excellence and versatility of our autonomous networks across multiple cloud deployment models.

Demand for routing and data center switching accelerated this quarter, with orders significantly exceeding revenues and our order backlog reaching an all-time high. Our order backlog reflects strong demand from major cloud service providers and emerging cloud companies for AI-powered routers, switches, and operating systems, as they continue to increase their capital investments in AI-enabled cloud infrastructure.

The growth in our order backlog shows that strong customer demand exceeds available supply.

We expect to convert more orders into revenue in the fourth quarter, giving us greater confidence in maintaining the growth of our networks in fiscal year 2027. Oracle will deploy HPE Juniper network routers and switches across one of the largest AI cloud infrastructure builds.

HPE is uniquely positioned to support Oracle through its AI networking portfolio, which is one of the most comprehensive in the industry.

Sassy's services and security have also contributed to our growth. Our strong performance in firewalls, SD branches, and SRX branches reflects the growing customer demand for networking and security solutions that operate as a single converged solution.

While our networking business continues to strengthen its position through our thoughtful integration, our cloud and AI business continues to deliver exceptional performance in a severely constrained supply environment.

We have achieved record revenues, operating profits and operating profit margins.

Artificial intelligence has begun to shift from the early proof-of-concept stage to a broader opportunity to transform workflows in organizations. Customers are increasingly investing in new proxy AI applications and AI inference, which require accelerated computing infrastructure, secure access to data storage, and enterprise-level cloud management.

Our comprehensive portfolio of cloud and artificial intelligence is ideally positioned for this market shift. We continued to experience strong demand across traditional servers, AI systems, storage, private cloud solutions, and GreenLake cloud services.

The ProLiant server category led this superior performance with high demand for traditional servers and artificial intelligence systems. We have seen strong demand from large enterprises, near cloud service providers, and sovereign clients.

We expect demand to remain exceptionally high as our project backlog continues to double the size of our order backlog. The fundamental shift in server operations has become quite evident.

The way customers evaluate their IT infrastructure is changing. Their focus is not only on the server's ability to run AI workloads, but also on how it can enable an entirely new business workflow using new AI applications.

We see that corporate AI initiatives are receiving higher levels of investment than traditional IT projects. There is greater involvement from senior management in making those investment decisions, including corporate boards of directors, which are supporting AI technology to unlock more business transformation potential.

The storage sector experienced an exceptional quarter with record revenues. The industry has benefited from our decision to focus on our intellectual property offerings by providing a modern, multi-protocol data platform for the AI era.

Customers began evaluating whether AI workloads could be run with the highest efficiency, best secure data management, and lowest cost per token. Organizations are still in the process of updating their data storage environments as they prepare for the next generation of AI-driven workloads and applications.

They want the data to be close to their AI infrastructure and they want to control sensitive information.

These trends are driving strong demand for our HPE Alletra MP storage solutions. We are confident that our overall value proposition for data storage will continue to accelerate this momentum in our storage business.

Our AI private cloud platform allows customers to manage enterprise AI applications and AI agents while maintaining control over data, governance, security, and operations. Demand for AI in the private cloud is strong from enterprise customers who want to improve the tokenization economics of large-scale, in-company AI deployments.

This leads to a rapid expansion of our order bookings and customer base size.

GreenLake remains one of our biggest 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 are located.

Customers are expanding their use of GreenLake's cloud services, increasing their consumption of our new software and smart cloud services, which is raising our net profit retention rates.

In the third quarter, GreenLake's customer base grew by 18% to 52,000, up from 44,000 a year earlier.

HPE Financial Services continues to deepen our relationships with clients and provide an important competitive advantage, which has become especially important as more clients seek financing options to help with their AI investments.

As a result, HPEFS achieved record numbers in the third quarter in financing volumes, residual value and return on equity.

In conclusion, HPE delivered another outstanding quarter, exceeding our company-wide commitments and demonstrating continued excellence in our strategy and execution. As we look ahead, the same fundamental drivers of our performance give us confidence to continue delivering higher profitable growth, generating higher cash flow, and higher capital returns for shareholders.

Thank you, Antonio, and good evening to you all. We delivered another strong quarter, reflecting accelerating demand for artificial intelligence and strong momentum in networking, along with disciplined execution across the company.

The demand environment remains strong as orders continue to exceed revenues. Investment in AI infrastructure is increasing at a rapid pace, with enterprise spending focused on AI proxy workloads and AI inference.

Importantly, this opportunity expands across use cases, customer segments, and geographies, enhancing the value of HPE’s expanded portfolio and our ability to provide customers with integrated solutions across the enterprise technology suite.

We focus on meeting strong customer demand, dealing with a dynamic supply environment, managing the mix and input costs, while enhancing operational efficiency. This discipline is reflected in our financial performance, which supports sustainable and profitable growth in the fiscal years 2026 and 2027.

Revenue of $12.2 billion rose 34%, exceeding the upper limit of our guidance range, with orders growing 42% on an adjusted basis, driven by demand for traditional services, AI systems, and networks.

Gross profit margin exceeded 40%, driven by disciplined pricing in traditional services and an increased network mix. We expect that in the future, the gross profit margin will moderate towards more historical levels, driven by the growth of artificial intelligence systems and normalization in traditional services, balanced by the growth of the network mix.

Operating expenses rose by 17% quarter-on-quarter due to higher variable compensation reflecting our record financial results. We expect operating expenses to decrease in fiscal year 2027 as variable compensation normalizes and we see the continued benefits from Catalyst's transformation efficiencies and Juniper's integration.

Operating profit reached $2 billion, an increase of nearly 40% on a quarterly basis. Operating margin expanded by 16.2%, or 290 basis points, on a quarterly basis, driven by an expansion in gross profit margin and operating leverage.

Earnings per share reached $1.11, which is well above the upper limit of our guidance. Earnings per share according to Generally Accepted Accounting Principles (GAAP) amounted to $1.06.

We achieved free cash flow of $958 million in the third quarter, driven by strong operating profit and collections.

Network revenues of $2.9 billion rose 10% on an adjusted basis, in line with those expectations. Orders increased by 36%, which is about three and a half times faster than revenues.

Demand growth was broad across the portfolio, driven by AI-related infrastructure investments in transforming and routing data centers, and strong demand for autonomous networks at universities and branches.

Demand for artificial intelligence networks accelerated in the third quarter, with applications reaching a new record high of $700 million, a triple-digit increase. Our portfolio and competitive position in vertical, horizontal and range expansion have been strengthened by our recent launch of the liquid-cooled "Tomahawk 6" direct-drive switch, and our

Our business lines continue to grow, with expectations of even greater acceleration once the "Helios" platform is launched in the markets. We expect AI-focused networks to become a key driver of growth for the company.

Cumulative orders for AI networks reached $2.2 billion, exceeding our target for fiscal year 2026.

As a result, we have raised our year-end target to between $2.5 and $3 billion. To meet the growth in these demands, we more than doubled our network-specific purchasing commitments compared to the previous quarter.

In the networking sector, branch and campus revenues grew by 8% on a standard basis. Routing revenue growth accelerated to 23% as we benefited from increased demand for our AI network infrastructure.

The security sector grew by 12%, while data center network revenues declined by 6% due to shipment timing resulting from supply constraints.

The demand momentum was much stronger across most product categories, with data center conversion and routing orders rising by double-digit percentages, and campus and branch orders growing by lower percentages.

We are constantly focused on improving order conversion to drive faster revenue growth and achieve greater scale. Across customer verticals, enterprise revenues grew by 12% and service providers by 5% on a benchmark basis.

The growth of the enterprise sector was driven by strong demand from large global accounts that prioritize upgrading networks in branches and campuses and transforming data centers.

The operating margin for the networks came in at 22%, in line with expectations, reflecting disciplined execution and early realization of synergies with Juniper, which was partially offset by an increase in variable compensation.

Moving into cloud and artificial intelligence, we generated $9 billion in revenue in the fiscal third quarter, a 25% increase that exceeded our expectations, reflecting the strength of traditional services while higher average selling prices drove server revenue to a record high.

Our disciplined pricing policy and increased range have driven operating profits to over $1.5 billion. We were pleased to see the acceleration in operating profit growth, up 61% quarter-on-quarter and triple-digit year-on-year.

Our operating margin increased by 17%, a rise of 460 basis points on a quarterly basis, demonstrating our ability to scale our business profitably. Server revenue growth accelerated by 35% quarter-on-quarter, as strong growth in average selling prices for traditional services offset lower supply-constrained unit volumes.

Orders increased by strong double-digit percentages year-on-year, reflecting strong demand from large institutions and sovereign and cloud service providers. Our supplier agreements, which in some cases have become multi-year, guarantee the capacity allocations we need to reduce wait times, improve conversion, and drive new order growth, backed by our highest-ever level of purchasing commitments.

We see organizations increasingly moving from AI experiments to production deployments, using traditional servers for AI proxy and inference workloads. Examples include a global financial services firm that leverages AI in market analytics and trading insights, and a large retail client that deploys proxy AI workloads on-premises to reduce the costs of AI tokens in the public cloud.

As evidence of strong growth, we are pleased to announce that, following the end of the quarter, HPE won a multi-billion dollar server deal with a cloud giant customer specifically designed for inference, supporting our view that demand for AI-driven inference workloads is increasing.

Orders for AI systems totaling $2.4 billion rose by more than 30% quarter-on-quarter, reflecting widespread demand across customer segments. Demand from institutions has more than doubled, reflecting increased public spending on infrastructure as AI initiatives become board-level priorities.

Our AI systems order backlog rose 14% quarter-on-quarter to a new record high, and our operational plan still has many times the backlog of orders. Revenue from artificial intelligence systems for this quarter exceeded $1.6 billion.

We expect AI systems revenue to improve quarter-on-quarter in the fourth quarter due to the timing of the conversion of backlogged orders.

Storage revenues rose by 10%, driven by strong order growth, higher average selling prices, and a positive mix towards higher-value intellectual property and private cloud.

PCIA orders rose by triple digits in the third quarter as customers embrace our AI Factory platform to support proxy AI and inference initiatives. Electra MP's orders and revenues rose by strong double-digit percentages year-on-year.

We see strong growth potential for our X10K file and object system, expanding our portfolio of AI solutions to address the rapidly growing unstructured data market.

Finally, financial services revenues remained almost flat year-on-year, and the business continued to generate a return on equity exceeding 20%.

Moving on to our integration and transformation initiatives. We are making strong progress in building a more efficient company, exceeding the plan in multiple projects to reduce sales costs and operating expenses.

Juniper's synergy remains on track to meet our goal of delivering $600 million in annual investment by the end of fiscal year 28, with integration costs being better controlled than planned.

Last quarter, we highlighted the growing contribution of AI-driven process simplification within Catalyst. Since then, we have expanded our efforts in artificial intelligence and streamlined processes across the entire organization.

HPE is now deploying an internal proxy AI platform built on our open-source, open-weighted cloud models, leveraging intelligent routing that sends each workload request to the most cost-effective AI model.

According to our internal analysis, our PCA offerings can reduce token costs compared to the public cloud by up to 60%.

Routine tasks remain at the workplace while leading models are reserved for more complex work. Turning to cash, we generated operating cash flows of $1.6 billion. Free cash flow was $958 million in the third quarter.

As a result, we are raising our free cash flow target to at least $3.75 billion for fiscal year 26. Our cash conversion cycle improved by one day over the second quarter, driven primarily by a decrease in accounts receivable days due to improved invoicing linearity during the quarter, along with strong collections.

This was offset by an increase in inventory days due to a rise in purchases in anticipation of future shipments. Inventory at the end of the quarter reached 11.8 billion, up year-over-year and quarter-over-quarter, reflecting higher commodity costs and purchases aimed at supporting increased demand and backlogs of work.

In the third quarter, we returned $324 million to common shareholders, including $189 million in dividends and $135 million through share buybacks. We received total revenue of approximately $1.4 billion after completing the H3C transactions and used the available cash to repay our term loan.

Accordingly, we ended the third quarter with a net leverage ratio of 1.8 times, which is less than our target of twice.

We completed the sale of our communications solutions business last month and intend to repay $1.25 billion in maturing bonds later this month. We plan to return at least 75% of our free cash flow to shareholders in the fourth quarter.

Turning to the outlook, we are raising our outlook based on the strength of the third quarter results and our confidence in the sustainability of demand. We expect fourth-quarter revenue to range between $13.9 billion and $14.8 billion, reflecting continued strong demand across both sectors.

We expect network revenues to grow by 11 to 13%, driven by strong demand and improved conversion in the supply chain.

We expect network operating margins to improve modestly on a quarterly basis, driven by revenue growth and Juniper's operational synergies. In the cloud and AI sector, we expect revenue growth of 60 to 72%, reflecting continued demand, rising average selling prices for traditional servers, and improved AI revenue conversion.

We expect the operating margin to decline on a quarterly basis to reach the average level of the twenties. We expect total operating expenses for the fourth quarter to decline slightly by a single digit on a quarterly basis, due to lower variable compensation expenses, increased product shift efficiency, and Juniper synergies.

We expect our operating margin to decline quarter-on-quarter, driven mainly by the rising mix of AI systems in the cloud, AI, and pricing.

As a result, we expect earnings per share between $1.20 and $1.30, and GAAP earnings per share between $1.12 and $1.22. Based on the third quarter results and fourth quarter outlook, we are raising our fiscal year 2026 earnings per share forecast range to between $3.75 and $3.85.

We are also raising our GAAP earnings per share forecast range to between $2.93 and $3.03. We now expect free cash flow for fiscal year 2026 to be at least $3.75 billion.

Given the strength of demand and the backlog of work at the end of the third quarter, along with some large deals that we signed after the quarter closed, we are updating our fiscal year 2027 framework and now expect consolidated revenue growth of 13 to 17%.

Network revenues grew by 14 to 17%. Cloud and AI revenue growth of 14 to 18%. The company's operating profit grew by 14 to 18%. The company's operating margin is between 14 and 15%, supported by a slight decrease in operating expenses.

Network operating margins are in the mid to upper twenties percent range. The margin for operating cloud and artificial intelligence is approximately 13%. Earnings per share are between $4.40 and $4.60, which represents growth of 16% to 20% compared to the middle of our earnings per share forecast for fiscal year 2026. And a free cash flow of no less than 5 billion.

Importantly, this framework builds on our high guidance for fiscal year 2026, indicating a significant improvement in our outlook for fiscal year 2027. In conclusion, the third quarter was an exceptional quarter for HPE.

We have achieved strong financial results, increased our commitments for fiscal years 26 and 27, and achieved our leverage target more than a year ahead of our original plan.

Demand continues to outpace revenue, our order book is a record high, and Juniper and Catalyst integration initiatives are exceeding our plan for fiscal year 2026.

As we head into the final quarter of fiscal year 2026 and look ahead to fiscal year 2027, we are conducting our business from a position of strength.

It was encouraging to see the momentum across the overall portfolio with the record orders I mentioned in the quarter, as well as the high FY27 outlook of 13% to 17% growth.

First, can you talk about what gives you confidence that current demand represents a sustainable infrastructure cycle rather than customers bringing forward their spending? Then, as a follow-up question, can you quantify how much of the high expectations for fiscal year 2027 are related to the large-scale divestment deals and Oracle transactions you highlighted versus the improved outlook for the rest of the business?

Look, our guidance is based on what we see in the market, and the market is telling us that demand remains exceptionally strong. So, there are still large AI cloud building projects underway, and we are clearly involved in them with a very disciplined approach.

Nevertheless, in the networking area, we continue to see strong demand for our routers and data center switches. We achieved record orders of 700 million in this particular quarter.

The entire "AMD Helios" opportunity, which will begin to escalate sometime from the end of this calendar year and 2027. So, the demand is exceptional. And extremely powerful.

With regard to cloud and artificial intelligence, what gives us confidence is the acceleration in the corporate sector. The companies have clearly reached a tipping point. This point is driven by the dissemination of generative artificial intelligence and artificial intelligence inference.

What we see is that this is due to the number of use cases, and we see this for ourselves. To give perspective, we have over 1,200 use cases in our company, with over 300 of them in production, and we continue to learn how to do this and accelerate the pace.

We are now seeing this in the broader corporate market across multiple sectors. In fact, this will benefit our traditional server and storage business and our cloud suite because they do not need huge amounts of GPUs, or it ultimately allows them to do what they need to do.

Secondly, regarding the hyperscale deal, I think HPE has been very clear in the past about being opportunistic in AI opportunities and probably with some of the biggest hyperscale companies . Has this changed strategically at all?

look, as we said in our notes, the warehousing business grew at twice the rate of the revenue we recorded this quarter. Yes, not only that, Mark, but we have actually raised our 2017 cloud and AI revenue forecast to a range of 14 to 18%.

So, I think this illustrates the strength of the demand we are seeing there.

certainly. No, we see no hesitation. I would say that at the beginning of this excessive cost cycle, they were clearly in a bit of a shock, and were trying to cope with this timing by focusing on understanding trends and looking at the spot market and the like.

Once they understood that, and realized that I needed to move faster, they concluded that waiting was not an option. But they've become smarter about where to direct their budgets and how to improve the economics of these tokens, which Mary talked about.

Look, when we do this internally and share the numbers, we can see cost benefits of up to 60% on a token basis . So, no, I don't see any hesitation at the moment, and that's why demand remains exceptionally strong. This, this, this is very clear.

Regarding the budget, look, budgets are generally on the rise. Look, in our case, you can talk about that. You know, of course, there are priorities set within the budget. Should I replace that old infrastructure in order to invest more in artificial intelligence?

It's a balanced approach, but in our case, we're increasing the budget to consume more tokens because we're very aggressive in deploying AI as part of the catalytic transformation .

Obviously, we do this with governance, accuracy, return on invested capital, and all those things. But, in the end, it's an addition, okay? It is not a proposal for anything else.

So, I was speaking to a large client yesterday, in the financial sector, and he told me, "Yes , we're going all in. We've done the math, and we think it would be more appropriate for us to build an AI factory in-house so we can improve the flexibility of AI deployment with cost and controls, especially in financial services with compliance, right ?

That's what regulates this sector. So, we see this momentum continuing, and I think 2027 will be a stronger year for companies as they become more confident in what they're doing, and one win leads to another, right ?

That's how it works. Because ultimately, this business transformation is a transformation of workloads. It's not just technology for technology's sake.

Obviously, we're very excited about the Juniper acquisition. It's been a huge success, and we're just getting started.

You've seen some of the wins we've just announced. The road ahead is massive." Absolutely. Whether it's new wins related to Tim's earlier question, additional clients, or even the Helios opportunity, the fact is everyone was concerned about integration, and it was executed very carefully.

The fact that we're growing three and a half times faster in revenue shows we have the right portfolio at the right time with the right talent. And with regard to cloud AI, I think we're achieving operational efficiency.

I mean, the execution there has been excellent. But our strategy is very deliberate. We're driving the business through networks . We're essentially transforming into a network company.

The rest of the portfolio is there to serve customer needs by driving profitability and, ultimately, generating more cash, which has been incredibly successful so far and will be even more successful in 2027.