HPE Q2 2026 Earnings Call Transcript

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Date

Monday, June 1, 2026 at 5 p.m. ET

Call participants

• President & Chief Executive Officer — Antonio Fabio Neri
• Chief Financial Officer — Marie E. Myers
• Head of Investor Relations — Paul Glaser

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Takeaways

• Revenue -- $10.7 billion, up 40%, exceeding the high end of guidance amid broad-based demand in compute, storage, and AI systems.
• Non-GAAP EPS -- $0.79, rising 108%, and surpassing outlook.
• Free cash flow -- $915 million, representing a $1.8 billion improvement, supported by enhanced cash from operations and a two-day cash conversion cycle improvement.
• Backlog -- Company backlog reached a record high, with orders more than doubling and far outpacing revenue growth.
• Networking revenue -- $2.7 billion, grew 10% on a normalized basis, with double-digit gains and “orders growing significantly faster than revenue.”
• Campus and branch orders -- Achieved a new record high with over 20% growth on a normalized basis, and multimillion-dollar deals across several verticals.
• Wi-Fi 7 access points sales -- Increased over sevenfold as customers modernized networks.
• Enterprise data center switching orders -- Grew nearly 20% on a normalized basis, with a strong forward pipeline noted.
• Security orders -- Increased in the 15%-19% range on a normalized basis, with the launch of HPE Juniper SRX 400 Series expanding security offerings.
• Routing orders (service provider) -- Rose nearly 30% on a normalized basis, driven by cloud service provider deployments.
• Network operating margin -- 21.6%, matching guidance, despite sequential margin decline attributed to prior one-time benefits and higher variable compensation expenses.
• Networks for AI order target -- Guidance raised to at least $2 billion cumulative by fiscal year-end, reflecting accelerated demand.
• Cloud and AI revenue -- $7.7 billion, up 23%, fueled by triple-digit traditional server order growth and robust AI systems demand.
• AI systems bookings -- $1.8 billion in new orders, bringing cumulative bookings to $16.4 billion; entered Q3 with $5.9 billion in AI systems backlog.
• GreenLake customer base -- Exited the quarter with approximately 15,000 customers, managing 6.7 million systems, up from 5.3 million.
• Alletra MP storage orders -- Up triple digits for the sixth straight quarter; recent platform expansion included file and agentic AIOps features.
• Private cloud AI orders -- Continued to increase, aided by the second generation PCAI solution launch targeting enterprise inferencing and sovereign needs.
• Financial services revenue -- Up 6%, with record return on equity exceeding 30%.
• Operating profit -- $1.4 billion, with a 13.3% operating margin and strong sequential and year-over-year expansion.
• Catalyst cost savings & Juniper synergies -- Both ahead of schedule, driving operating margin improvement, and a workforce reduction of over 9% since program initiation.
• Cash conversion cycle -- Improved by 2 days, due to changes in payables and higher inventory for future AI shipments.
• Shareholder returns -- $343 million returned to shareholders via dividends, and repurchases; $2 billion of debt refinanced, and net leverage ratio reduced to 2.3x.
• Q3 guidance -- Revenue of $11.5 billion to $12.1 billion, EPS of $0.88 to $0.93 (non-GAAP), and projected networking revenue growth of 73%-78% on a reported basis or near 10% normalized.
• Full-year 2026 guidance -- EPS range increased to $3.35 to $3.45; full-year revenue growth forecast raised to 29%-33% reported (high teens normalized); free cash flow outlook increased to at least $3.5 billion.
• 2027 framework -- Revenue growth outlook of 8%-12%, EPS growth of 12%-16%, operating margin guidance of 12%-16%, and free cash flow of at least $4.5 billion; networking operating margin expected in the mid to high 20% range.

Summary

Hewlett Packard Enterprise (NYSE:HPE) reported substantial order acceleration across all business units, with demand for agentic AI, private cloud, storage, and networking outpacing revenue growth and resulting in a historic company backlog. Management emphasized that the Juniper Networks integration and Catalyst cost initiatives are both progressing ahead of schedule, supporting increased operating profitability and an updated two-year-early achievement of long-term EPS and cash flow targets. The company’s updated guidance reflects confidence in supply procurement, continued AI inferencing expansion, and extensive cloud and enterprise AI system backlogs—while explicitly noting that order and revenue momentum is being constrained mainly by component availability, rather than demand softness or order pulling.

• Antonio Fabio Neri said, "we have not seen any pull in We do not see a cliff And in many ways, I think customers are prioritizing getting access to technology now faster than ever before."
• Marie E. Myers highlighted, "Workforce transformation continues to drive the majority of our savings, and GenAI enabled process simplification now represents nearly 20% of our fiscal 26 initiative savings."
• The Q3 and fiscal 2026 outlooks include higher full-year revenue, margin, EPS, and free cash flow targets, with stronger-than-expected pricing, disciplined cost control, and improved visibility cited as drivers.
• No evidence of double bookings or cancellations in the order pipeline was cited; pipeline remains multiples of current backlog, according to company remarks.
• Management stated that any further revenue acceleration is contingent on increased supply availability, with current scenarios already factoring in locked-in procurement agreements and known capacity constraints.
• Enterprise and sovereign customers are contributing disproportionately to AI-related margin mix versus service provider business, per Myers’ commentary.
• Planned capital returns will accelerate further post achievement of the two-times net leverage ratio, now expected by year-end 2026.

Industry glossary

• Agentic AI: Artificial intelligence approaches designed to automate decision-making with minimal human intervention, often applied to network and IT infrastructure optimization.
• GreenLake: HPE’s as-a-service IT consumption and cloud platform, offering hybrid multi-cloud and on-premises services with usage-based billing.
• Alletra MP: Next-generation HPE storage platform engineered for block, file, and object storage supporting AI and data-centric workloads.
• PCAI: Private Cloud AI—HPE’s offering for on-premises enterprise AI infrastructure, with compliance for data governance and sovereign requirements.
• Catalyst initiative: HPE’s internal cost optimization and operational efficiency program, focused on workforce transformation, process automation, and leveraging GenAI.

Full Conference Call Transcript

Operator: Good day. And welcome to the fiscal 26 second quarter Hewlett Packard Enterprise Earnings Conference Call. All participants will be in a listen only mode. Please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch tone phone. To withdraw your question, please press star and 2. Please note this event is being recorded. I would now like to turn the conference over to Paul Glaser, Head of Investor Relations. Please go ahead, sir.

Paul Glaser: Good afternoon. I am Paul Glaser, head of investor relations for Hewlett Packard Enterprise. I would like to welcome you to our fiscal 26 second quarter earnings conference call. With Antonio Neri, HPE's president and chief executive officer and Marie E. 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 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 04/30/2026. 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 risks 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 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. 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 Networks results as of the beginning of HPE's fiscal 25. Antonio and Marie will reference our earnings presentation in their prepared comments. With that, let me turn it over to Antonio.

Antonio Fabio Neri: Thank you, Paul. Good afternoon, everyone. HPE delivered an exceptional quarter. With record breaking results, disciplined execution, and clear proof that our strategy is working. We made excellent progress in our Juniper integration and in our Catalyst initiative with both running ahead of schedule. Revenue in the quarter reached $10.7 billion up 40%. Non GAAP earnings per share of $0.79 increased 108% significantly above the high end of our outlook. We generated $915 million in free cash flow an improvement of $1.8 billion driven by strong cash from operations and improved cash conversion cycle performance. Demand was even stronger than revenue growth. Orders more than doubled significantly outpacing revenue, resulting in a record company backlog.

Customer investments in Agentic AI and AI inferencing accelerated. We also saw broad based demand strength across the portfolio driven by ongoing investment in compute infrastructure modernization and structure storage data growth and private cloud adoption for AI. Last year, at the security analyst meeting in New York, we laid out our strategy in fiscal 28 financial commitments. Based on our strong first half 26 results, our record backlog and our visibility into the second half demand, we now expect to deliver $3.4 in non GAAP earnings per share at the midpoint and at least $3.5 billion in free cash flow in fiscal 26. That is 2 years ahead of our committed long term plan.

Marie will provide more detail on our third quarter and full year fiscal 26 outlook as well as our fiscal 27 framework. Which is grounded on durable customer demand and the profitability of both business segments. Now let me turn to our business segment highlights starting with networking. I am particularly pleased with the progress we are making on the Juniper integration. We are ahead of our integration milestones and synergies commitments. And the unified portfolio and sales force are already strengthening our market position and growth momentum. Our combined networking portfolio and vision for self driving networks is resonating with customers and that enthusiasm together with strong go to market execution is reflected in our results.

Networking delivered revenue of $2.7 billion up double digits on a normalized basis with orders growing significantly faster than revenue. We saw increased demand in campus and branch, network for AI, and security. I am pleased with the strong demand we saw from enterprise customers for our networking portfolio. Campus and branch orders reached a new record high growing in the upper 20% range on a normalized basis. We won multimillion dollar deals across multiple verticals including retail, automotive, government, and technology. Wi-Fi 7 access points sales increased more than 7x reflecting a clear shift toward network modernization.

HPE for the 20th time in a row was named a leader in the Gartner Magic Quadrant for Enterprise wire and wireless LAN infrastructure. We believe this independent industry analyst validation reinforces how far ahead we are in enterprise networking beyond even incumbents. Customers trust us with their most critical network and infrastructure decisions as they expand their digital initiatives and AI investments. 1 customer taking advantage of the power of our combined cap and branch networking portfolio is Lowe's. With over 1.75 thousand stores across North America, Lowe's chose HPE to deliver the network foundation for a major technology transformation to support its digital on ramp in AI enabled operations.

The solution is built on our HPE Mist AI platform for wired and wireless network and infrastructure, alongside our HPE EdgeConnect SD WAN solution. Last month, we reached a milestone with the launch of new autonomous agents powered by Agentic AI for optimizing networking performance. The self driving network is no longer a concept. It is a reality. The UK Ministry of Justice is an early adopter example. It was able to reduce the number of incidents seen by its network operation center by approximately 75% after deploying a suite of solutions that included our new HPE self driving network capabilities. In enterprise data center switching orders increased nearly 20% on a normalized basis.

Our data center switching pipeline remains strong. Cross portfolio product integration and sales across server storage and networking are driving deeper customer engagement and larger deals. Security orders grew in the mid teens on a normalized basis. We continue to make the network a first line of defense responds to threats in real time. This quarter, we launched the HP Juniper SRX 400 series bringing carrier grade firewall protection to the branch for large distributed environments. We see significant runway as more customers consolidate networking and security with a single vendor. Forcing convergence all the way to the silicon layer of the stack where HPE will have further differentiation.

In our service provider customer segment, revenue increased double digits on a normalized basis. With routing orders growing significantly faster than revenue. Routing orders increased nearly 30% on a normalized basis, driven by data center interconnect deployments in large cloud service providers. Customers are choosing HPE because we help them scale in every dimension. Scale up by increasing the performance and density of individual platforms for the most demanding AI workloads. Scale out by expanding the networking fabric to connect thousands of GPUs and accelerators within a single data center. Scale across by extending high bandwidth interconnectivity between data centers across campuses and into the wide area network so AI services can run wherever they are needed.

HPE is developing a scale up Ethernet switch and specifically for the AMD Helios AI rack scale architecture which we expect will be introduced in the fall. In scale out, we lead with our AI driven QFX switching fabric. HPE is the first OEM to productize a Tomahawk 6 based 100% liquid cool switch with industry leading performance and power efficient for AI infrastructure. In addition, our leading fabric management and AI op capabilities reduce congestion and latency as well as operational complexity. We expect a road map to extend this leadership through co package optics resulting in lower overall power consumption. In scale across the Juniper PTX series delivers 800 gigabit density with exceptional power efficiency.

Leveraging our distinct Express Silicon and simplified AI native automation. Because of our leading innovation and market momentum in networks for AI, we are raising our cumulative fiscal 26 Networks for AI order target to at least $2 billion. We are laser focused on building the best networking business in the industry. Our priorities are clear. Extend AI driven automation across the portfolio help customers scale modern AI infrastructure with secure high performance networking, and lead in the convergence of networking and security. We have the team, the capabilities and the momentum to convert the opportunity into durable, shareholder value. In our Cloud and AI business segment, we executed with strong discipline across all business lines.

Revenue was $7.7 billion up 23% driven by exceptional traditional servers orders and very strong demand in AI systems. Alletra MP storage, private cloud and GreenLake software and services. Traditional server orders increased triple digits as customers continue to modernize their compute infrastructure and invest in AI inferencing. We are working very closely with our silicon and memory partners to continue to secure supply, which we factor into our new fiscal 26 guide. We are also engaging customers and channel partners on lead times and configuration options to help them plan effectively. We saw strong demand in AI training throughout the quarter. We booked $1.8 billion in new AI systems orders bringing Cumulative AI systems bookings to $16.4 billion.

We entered Q3 with $5.9 billion in backlog, primarily composed of enterprise and sovereign orders. We are seeing a broad pattern across industries. Enterprise is 1, the flexibility of choosing multiple AI models with the governance and control of on premises. We will continue to manage AI systems opportunities with a focus on profitable growth and prudent working capital management. Storage had an outstanding quarter. Alletra MP storage orders increased triple digits the 6th consecutive quarter of strong growth. Several weeks ago, we expanded the platform with new file storage and agentic AIOps capabilities. This extends Alletra MP into the growing unstructured data market Our HPE Morpheus Enterprise and HPE VM Essentials Software offerings continue to build momentum.

Revenue grew sequentially for the 4th consecutive quarter. VM Essentials customer count increased 43% in the first half with a notable rise in net new logos. Private cloud AI orders increased again this quarter with a growing base of new customer wins. Recently launched our 2nd generation PCAI offering designed for enterprise AI inferencing and cloud GAAP sovereign environments. Which position us for continued growth. More broadly, we are embedding agentic AI capabilities across our storage and data protection portfolio to help customers automate AI data pipelines and operations. We continue to add new cloud and AI agent tech services to our GreenLake cloud platform. Acquiring new customers and increasing the net retention rates for our GreenLake services business.

Which remains near 110%. We exited Q2 with approximately 15 thousand customers operating their IT in our GreenLake cloud managing more than 6.7 million systems up from 5.3 million a year ago. 1 win that brings the power of the full HP portfolio together is the Dallas Cowboys. The most valuable sports franchise in the world. They came to HPE with a clear objective, modernize their infrastructure, simplify operations, and build the right secure foundation for AI. Delivered a comprehensive solution anchored on our HPE GreenLake private cloud offering, spanning ProLiant servers, Aletra MP storage, and HPE Morpheus Enterprise. The cowboys are also adopting HPE VM Essentials as their preferred virtualization layer.

This is a strong example of the value customers can unlock when they chose HPE as an end to end technology partner. Lastly, HPE Financial Services delivered another outstanding quarter with record return on equity. Financial services deepens customer relationships supports our GreenLake cloud adoption and remains a meaningful competitive advantage as customers ramp their investment in AI. Before I close, I want to highlight 2 important upcoming events. In 2 weeks, we are hosting HP Discover Las Vegas. We will share updates on our networking cloud and AI strategies including major product announcements along with a live Q&A for investors and analysts. I hope to see you there.

Then later this fall, we will host a dedicated network and investor day. In closing, HPE delivered an exceptional quarter. Our results demonstrate that our strategy continues to pay off. We now expect to significantly exceed our original fiscal 28 non GAAP earnings per share target and generate at least $3.5 billion in free cash flow in fiscal 26. 2 years ahead of plan. The market trends driving our performance remain strong and well aligned to our strategy. We expect demand strength to continue into fiscal 27 and beyond, which will accelerate durable shareholder value as we continue to scale profitably. We are executing with strong discipline.

Creating meaningful value from the Juniper acquisition and strengthening our position at the intersection of networking, cloud and AI. With the combined strength of HPE and Juniper, we have the portfolio the talent and the go to market scale to lead in the market. I want to thank our team members for their focus and strong execution. With that, let me turn it to Marie to take you through the financial results and our 2026 and 2027 outlook. Marie?

Marie E. Myers: Thank you, Antonio, and good afternoon, everyone. I am pleased with our outstanding second quarter results. We exceeded our commitments delivering record revenue and EPS, driven by disciplined execution and a strong demand environment. A large backlog favorable industry tailwinds, and improved demand visibility support a higher growth outlook. In addition, we are achieving catalyst cost savings and Juniper synergies ahead of schedule. As a result, we are increasing our fiscal 26 EPS outlook by over 40%. I will address the drivers behind the strong EPS and free cash flow outlook shortly. But first, let's take a look at our Q2 performance. Revenue of 10.7 billion was above the high end of our guidance range.

Led by traditional server as customers accelerated investments in Agentic AI inferencing. And by networking where we saw broad based growth across the portfolio. Sequentially, revenue grew 15%, reflecting higher average selling prices within our server business driven by ongoing DRAM and NAND inflationary costs and supply constraints. We continue to work with our partners to secure long term agreements while executing the pricing actions we discussed last quarter. Gross margin improved to 36.9% driven by mix as we shape demand to higher margin products. Catalyst savings and Juniper related synergies also contributed to improvement on a year over year basis. Operating profit was $1.4 billion above expectations, representing a 13.3% operating margin.

As the company scales and we continue to cap accelerated catalyst cost savings and Juniper synergies, we expect operating profit growth to continue to outpace our top line. EPS was $0.79 well above the high end of our guidance. GAAP EPS was $0.44 We delivered Q2 free cash flow of $915 million fueled by strong operating profit. Now let's turn to our segment results. Networking delivered another solid quarter. Revenue of $2.7 billion was up 10% on a normalized basis as growth accelerated. Our backlog continues to grow given elevated demand and supply constraints, and this is reflected in the greater than 40% sequential growth we saw in our purchase commitments.

We continue to see strong demand for our Networks for AI portfolio and now expect cumulative orders to reach at least 2 billion by fiscal year end 26. Within our product categories, campus and branch normalized revenue growth accelerated to 10% anchored by large deals across multiple industries. Security growth inflected positively to 18%, benefiting from improved backlog conversion and solid in quarter demand. Data center networking and routing grew 69%, respectively, reflecting robust networks for AI demand. We are optimistic about the demand momentum we seeing based on our growing pipeline. Across customer verticals, service provider revenue grew 13% and enterprise grew 9% on a normalized basis.

Our AI native self driving network solution is clearly resonating as customers prioritize AI use cases and simplify their network operations. Network operating margin of 21.6% was in line with guidance, reflecting improved operating leverage as Juniper synergies continued to ramp. The sequential decline in margin reflected 2 factors: First, Q1 benefited from certain onetime items. And second, Q2 absorbed higher variable compensation expense. We remain focused on disciplined execution, operational efficiencies, and synergy realization to improve profitability and expand margins in the second half and beyond. Moving to cloud and AI. Delivered revenue of 7.7 billion, up 23% as strong order activity and pass through of high costs of new orders, a traditional server, and storage drove the upside.

Partially offset by supply constraints and timing of AI server shipments. Financial services continues to perform well. Scale benefits drove operating profit of nearly $1 billion, up 48% sequentially and triple digits year over year, pushing operating to 12.4%, up 220 basis points sequentially. Server revenue increased 33% as growth in traditional server more than offset supply constrained unit volumes. Demand remained broad based, as orders more than doubled year over year and increased strong double digits sequentially. We see accelerating demand in high memory configured service targeted Agentic AI workloads, supporting our expectation of sustainable growth. AI systems orders of 1.8 billion were more balanced and broad based this quarter.

Demand is expanding beyond AI server into broader AI workloads like orchestration, data movement, and agentic AI. Service provider orders exceeded the combined total of its prior 4 quarters, underscoring the inherently lumpy nature of our large scale AI deals. Our backlog increased nearly 20% sequentially to a new high and our pipeline remains multiples of our backlog. We continue to expect AI revenue to improve in the back half of the year now peaking in Q4. Storage revenue grew 2% driven by strong orders the ongoing mix shift towards high value owned IP, and disciplined pricing execution. Alletra MP customer migration momentum accelerated sequentially, driving triple digit year over year growth in both orders and revenue.

Continued demand strength in private cloud and our expanding backlog are driving improved revenue visibility. Lastly, Financial Services revenue was up 6% and generated an all time high in return on equity exceeding 30%. Turning to our catalyst initiatives and Juniper synergies. I am pleased that we are running ahead of plan. As we work on a range of programs to reduce cost of sales and OpEx across our business. As a result of these programs, at quarter end, we reported an employee base of just over 65 thousand the lowest level at which we have operated as a combined company and reflecting an over 9% decline since both programs began.

With Juniper Synergies, we continue to focus on the 4 pillars we laid out at SAM, Phase 1 of the integration, which we completed in focused on reducing overlap in corporate functions and optimizing sales and service organizations. As our Mist And Aruba portfolios converge, we expect to optimize our R&D spend. In addition, we plan to continue to leverage overall HPE scale to improve commodity prices and consolidate our vendor footprint to drive savings through supply chain integration. Finally, regarding customer support, we intend to leverage scale and digital capabilities inherited from Juniper to further improve efficiency and the customer experience. We expect to exceed our annual target of $200 million by the end of fiscal year 26.

I am pleased with our progress on Catalyst, and we are ahead of plan. Workforce transformation continues to drive the majority of our savings, and GenAI enabled process simplification now represents nearly 20% of our fiscal 26 initiative savings. We are leaning into GenAI to increase productivity and reduce costs across the organization, including customer support HR, and marketing. Our teams are driving greater automation, redefining work and reducing costs. We are also rationalizing our global lab footprint. By more than 2/3 and reducing our base and supply chain customer service by over 90% through targeted consolidation. Taken together, we are building a leaner, more efficient organization and delivering meaningful benefit to our operating margin. Turning to free cash flow.

We delivered operating cash flow of $1.4 billion Free cash flow totaled $915 million in Q2, bringing our first half fiscal 20 total to 1.6 billion, about 75% above our prior comparable period high reported in fiscal 21. Our cash conversion cycle improved by 2 days from Q1 driven primarily by an increase in days payable due to higher purchases to support future shipments. This was offset by an increase in days of inventory due to higher inventory in anticipation of second half AI service shipments. Days receivable increased by 5 days from the prior quarter due to strong revenue performance towards the end of the quarter.

Inventory ended the quarter at £9 billion up year over year and supporting second half AI installations and targeted commodity purchases. We remain committed to our capital allocation strategy During Q2, we returned $343 million to shareholders, including 189 million in common dividends and $154 million via repurchases. We refinanced $2 billion of debt, received gross proceeds of approximately 1.4 billion after closing our previously announced H3C transactions last month and used cash on hand to retire our term loan. We expect the net impact will reduce annual net interest expense by approximately 75 million Importantly, we improved our pro forma net leverage ratio to 2.3x at quarter end, down from 2.6x last quarter. Turning to guidance.

We are taking up our outlook on the back of Q2 results and greater visibility into the second half demand environment. Starting with Q3, we expect total revenue will be between 11.5 billion and $12.1 billion driven by strong demand. For networking, we expect revenue to grow 73 to 78% year over year and on a reported basis or approaching 10% on a normalized basis. We expect revenue performance and synergy realization to help offset the impact of inflationary component costs driving an operating margin rate in line with our full year guidance. In Cloud and AI, we expect revenue to grow in the high teens, reflecting demand durability, elevated pricing, and improved AI systems revenue.

We expect operating margins to be in the low to mid teens. On a consolidated basis, we expect Q3 total operating expense to increase sequentially, supporting seasonal marketing expense and networking R&D investments. We expect our operating margin rate to be up on a sequential basis, driven by improved operating leverage. Consequently, we expect EPS between $0.88 and $0.93 and GAAP EPS between $0.84 and $0.89 For fiscal year 26, we are raising our EPS range to $3.35 to $3.45 We are also raising our GAAP EPS range to $2.42 to $2.52. We are making the following updates to our outlook.

We are raising our full year consolidated revenue growth to 29% to 33% on a reported basis or high teens on a normalized basis. We are also raising our full year consolidated operating profit growth outlook to 80% to 85% on a reported basis. For Cloud and AI, we expect server demand in pricing to remain durable, driving sustainable revenue growth. Consequently, we are raising our full year cloud and AI revenue growth to the low 20% range from our prior mid to high single digit range, driven by higher AIS ASPs in our traditional server business and improved AI systems revenue. We are also raising our operating margin rate outlook to low to mid teens.

We are raising our full year networking revenue growth to 72% to 75% on a reported basis or approaching 10% on a normalized basis, reflecting accelerated business performance as our integration efforts take hold. We are lowering our OI&E outlook to a range of $420 million to $460 million reflecting lower net interest expense expectations. Lastly, we are increasing our free cash flow outlook to at least $3.5 billion up from our prior outlook of at least 2 billion We are confident in our new fiscal 20 outlook as we see continued order momentum in the business, thus far in Q3.

Based on the durability of demand we are seeing in our results, we are providing an initial framework for fiscal 27. We see sustained secular tailwinds driving consolidated revenue growth of 8% to 12%, with a similar range for both of our networking and cloud and AI segments. Our outlook assumes an acceleration in AI systems revenue growth. We see improved operating margins of 12 to 16% for the company and expect to see a year over year reduction in operating expense.

We forecast networking margin in the mid to high 20% range, driven by scale mix and synergies, with cloud and AI operating margin in the range of 10 to 15% depending on the mix of AI business and the pace of Catalyst savings. We expect revenue growth and operating leverage to deliver EPS growth of 12% to 16% and free cash flow of at least 4.5 billion Our outlook is expected to enable faster debt pay down. As a result, we now expect to reach our 2x net leverage goal by the end of fiscal year 26. 1 year ahead of schedule.

Once we reach our leverage target, we expect to return at least 75% of free cash flow to our shareholders via dividends, and share repurchases. To close, Q2 was an outstanding quarter for HPE. We scale the business, expanded margins and generated significant free cash flow. We raised our outlook and are building a stronger, more profitable HPE. I am confident in our ability to create long term value for our shareholders. With that, I will turn the call back to the operator to begin the Q and A.

Operator: Thank you. We will now begin the question and answer session. Star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. In the interest of time, please limit yourself to 1 question. We will now pause momentarily to assemble the roster. The first question will come from Asiya Merchant with Citi. Please go ahead.

Asiya Merchant: Great. Thank you for taking my question and outstanding results and guidance. Marie and Antonio, I guess, folks are kind of talking about enterprise budgets. Just given the price inflation that you guys are seeing through and being passed through, where do you see enterprise budgets still sustaining And obviously your guide, you are now into fiscal year 27. Thank you very much for that as well. Many people are concerned that there is some kind of like demand cliff that you could see even past the more near term outlooks and growth forecast that you are seeing?

What gives you this confidence to now provide fiscal year 27 guide If you could help us understand I see it is between networking as well as cloud and AI. What gives you the confidence that you are seeing in being able to provide an early outlook into 2027? That would be great. Thank you.

Antonio Fabio Neri: Well, thank you, Asiya for the question. I think it is multiple factors. Victor number 1 and probably the most important 1 is the durability of the demand based on what my conversations are with customers and the large pipeline, which remains multiples of the current backlog. And when you look at that demand and the pipeline is driven by the used cases we see with deployment of AI or the build outs of new data centers for AI obviously. And then the modernization taking place in enterprise. And so it is a combination of multiple things. That ultimately give us the confidence to not only provide the new guide for 2026, but an early view of 2027.

So when you think about our results in the first half, and the backlog we have, and the supply that we have on hand and what is coming that solidifies the 26 And then in 2027, the momentum we have in it is working is outstanding. Across all customer segments and as well product segments. We talked about some of the demand that we see today in Campus and Branch, upper 20% and cloud networking which is in the 30% and so forth. And customers, when you think about budgets, obviously they are challenged because of the price increases we have seen driven by the cost of commodity.

But I can tell you, we have not seen any pull in We do not see a cliff And in many ways, I think customers are prioritizing getting access to technology now faster than ever before. Because nobody wants to be left behind when it comes down to deploying AI. I give an example in our own company. We have 1.2 thousand use cases in AI Marie, which is next to me here is 1 of the early adopters and I will say aggressive adopter. We have more than 52 use cases, mostly agentic AI. Which has been already deployed.

And now we see this across the entire spectrum I was last week in Chicago, I met with a number of customers and partners and they see this. When you go through that motion, then AI inference is growing. And so we expect that AI inference is going to be an accelerator of our demand as we go forward. And therefore, points to be durable in our demand, in our ability to convert that. Thank you, Asiya.

Operator: Next question please. The next question will come from Wamsi Mohan with Bank of America. Please go ahead.

Wamsi Mohan: Yes, thank you. Really impressive set of results here and guide. Antonio, can you give us maybe some rough mix of the opportunity that you see? You mentioned scale up, scale out, scale across. Is especially as you look into fiscal 27. Do you see that evolve? And if I could, Marie, the growth in free flow is well in excess of EPS for 27%. You might be able to share some color on the drivers of that Well, thank you, Wamsi.

Antonio Fabio Neri: I think it is fairly balanced the 4 product segments, Wamsi. I mean, let's start with Campus and Branch, which has been and is the lion's share of our network it makes. I think the self driving network vision and now the execution of it is absolutely resonating with customers. We announced our roadmap last December at the HP Discovery in Barcelona. You will see new announcements here in 2 weeks. Our ability to support Aruba switches with Mist and cross pollinate in the 2 platforms But ultimately, that AI driven experience is resonating and I mentioned 1 of the customers as an example taking advantage of that. When I think about data center networking, we grew 20% in enterprise.

That obviously is driving with the rest of the portfolio because now we have a full conversation with customers across server, storage and networking. We are introducing in the fall the new switch with HelioStack reference architecture. that is the first time to market. Tomahawk 6, 1.6 terabits. That will be a tailwind as 2027 start adopting that footprint in large service providers. And then obviously scale across the PTX platform is I will say the reference when it comes down for data center interconnect. And the PTX 10 thousand is resonating to drive data center interconnect. So it is fairly balanced, I will say and we are early. Early in the process.

You have to win the reference architecture and the kind of the discussion with the customers at that level. But then it is going to be synergies across the rest of the portfolio with compute. So I feel very good about the momentum. And kudos to the team who has executed flawlessly And when you think about an integration of this scale, Don is so fast because you put in perspective we integrated R and D teams, we announced the roadmap, We did not miss a bit on network innovation. We integrated the Salesforce in January, and we are ahead of the integration milestones of synergy.

I think this is a reference for how to do large acquisitions in the market.

Marie E. Myers: So Marie, want to talk Yes. Wamsi, I will answer your question on the strong free cash flow guide. 2027, and it is pretty simple. it is really just based around the expectations that we have of the operating profit growth. And, obviously, that supports higher profitability, and that is translating, frankly, into cash flow. And just 1 other thing just to bear in mind, our 2026 baseline actually has the charges associated with the Juniper synergies. Which obviously you are not going to see that level of magnitude repeated in 2027. So that is also 1 of the benefits that is playing as well into the free cash flow guide.

Just to close, as I said in my prepared remarks, that will get us to 2x leverage by the end of 2026, and I think I mentioned that we will you know, pull in our share repo now into early 27 as well. So just close with that comment.

Operator: Very good. Let's please limit questions to 1 per analyst. Next question, please. The next question will come from Amit Daryanani with Evercore. Please go ahead.

Amit Daryanani: I cannot ask a multipart question. I apologize called us out on that, I guess, now. Marie I will stick to 1. And, Antonio, this may sound like a bit of a silly question, but given these numbers are so strong, especially when I look at the fiscal 27 guide, can you just talk about what is the bigger gating factor to growth as you go forward? Is it customer demand? Or is it more component availability? And I am really trying to understand, you know, whether the outlook level of demand you are actually seeing today?

Or is there actually additional demand that could be served if component supply and availability becomes a bit more easier to just love to understand just on the component side, what is going on. Thank you.

Antonio Fabio Neri: Well, thank you, Amit. I think demand to me equals bookings or orders. And so, we expect that demand to be strong and durable well into 2027. I think we have an amazing portfolio perfectly aligned to the inflection point that we see today across network cloud and AI. And so we are uniquely positioned when it comes to demand and bookings. And as I said in my prepared remarks, the pipeline remains multiples of the current backlog, which is record breaking at the company level. When it comes down to potential upside on the revenue and the ability to convert that, it really comes down to availability of supply.

And what we factor both in 2026 and 2027 first is the allocation that we already got in our supply for 2026. I will say our teams have got much more proficient By the way, using AI to really do a better supply matching with the demand that we have versus the supply that we have in terms of what type of mix you want to drive based on the capacity you have got allocated. So that is why with Marie, we provide that new revenue guidance. Is no incremental supply in 2026. At this point in time, unless somebody cancels something and then we are able to get that.

In 2027, as you know, we have long term agreements where we lock capacity and we divide that capacity every quarter based on the mix of orders and backlog and what we see in the pipeline. And so all of that, Amit, has been factored in our guide. If supply improves in 2027 with the momentum and demand that we have, we may have an upside But I will tell you, I do not expect the supply availability change in 2027 that much. Neither the cost will continue to be elevated until these new factories will provide the yields to compensate for the incredible demand that we see across the portfolio. Thank you, Amit.

Operator: Next question, please. The next question will come from Catherine Murphy with Goldman Sachs. Please go ahead.

Analyst (Catherine Murphy): Thank you for the question. Can you talk more about the improved AI systems outlook that you talked to? And if there is anything you can share on the demand outlook across customer types? And if expectations for AI Systems profitability are improved to 90 days ago. Thank you.

Antonio Fabio Neri: Thank you, Catherine. Will start and then Marie, if you want to add something. Look, we have been very deliberate in our strategy. To focus on the markets related to the AI where each can drive value and can drive the portfolio that we have. Not just pursuing just revenue for the sake of revenue. And those are markets has been 3. 1 is enterprise, you can see the momentum in enterprise and in particular with our AI factor for enterprise, we is private cloud AI. By the way, deep, deep integration with NVIDIA.

And you are going to see more of that in a in a couple of weeks, which includes a lot related to software. it is not just taking the GPUs and distributors in a server. By the way, that now includes storage, which is the first platform to be fully certified by an NVIDIA. When it comes down to the file. Kind of structural data. Second, part obviously is sovereign and those are long cycles. When you think about sovereign, I do not think about just large 1 gigawatt factory. Think about deployments that act as a sovereign and ultimately are governed under the sovereign law or air gapped to meet the sovereign requirements.

Then they are large pursuits in a large scale that may take longer to achieve. But what we see right now, Catherine, is a huge growth in inferencing. Inferencing clearly is accelerating. And that is a combination of both GPUs and CPUs. And this is why we see the momentum also on the traditional server because a lot of these inferencing deployments will be done on CPUs and it will be done in locations that where the customer felt confident in terms of governance, data privacy and so forth. that is why I think we all need to realize there is a new market there. it is not the traditional market that we know or have been used to.

This gives us the confidence that we have the right portfolio, at the right time to capture this market. I believe by the end of the decade, much of the demand will be in the inferencing space. And that is why combination with networking and compute and storage and memory by the way, give us the ability to be more competitive and honestly harvest more of the value of the gross margin as we go forward.

Marie E. Myers: And maybe I will just add a comment, Catherine, on the margin. So we typically do not break out AI systems margins. But as Antonio alluded to, you know, we do see enterprise and sovereign typically being a more profitable sort of part of the mix compared to say your classic service provider or model So that is just some context to how to think about margins.

Antonio Fabio Neri: And last, what we will say, on the service provider, we play selectively in that market and we have been prioritizing prudent working capital management And this is 1 of the reason together with the cash conversion cycle, which obviously is slower on the AI system side compared to the traditional business side. The fact that we have now sold 100% of the H3C stake that we can pay down that debt faster to return to the 2x leverage commitment that we gave. 1 year earlier and that will allow us to make the right investment and return approximately 75% of capital in 2027. Thank you, Catherine.

Operator: Next question please. The next question will come from Samik Chatterjee with JPMorgan. Please go ahead.

Samik Chatterjee: Hi. Thanks for taking my question. And congrats on the strong results and outlook here. Antonio, if I can just on the growth outlook that you have this year and trying to compare that to next year, This year, you are expecting cloud and AI to accelerate rate it to networking, but when we get to your guidance for next year, you are expecting similar growth rates or the growth rates to converge. I am just wondering, is that more function you think about individual drivers being slightly different in terms of timing with your customers? Or is there more of a supply component in there as the growth rates converge next year?

If you can sort of help me out in terms of what changes in the drivers. Thank you.

Antonio Fabio Neri: Yeah. I think, you know, in the cloud and AI outlook, there is the usual lumpiness I will say of the AI system conversion. And so that is 1 aspect. But then across both segments, is the timing of supply availability. Look, if you think about networking for a moment, and you think about on an average, grew 10% this past quarter, but we grew 2x or 3x the orders, the bookings in some of the product segments. That tells you we are growing much faster than revenue. Then on the Cloud AI, obviously, have a very large backlog in servers and then you have the lumpiness of the AI systems.

And also we have constraints on the NAND side of the equation for storage. So it is a combination of many things. There is no 1 specific number. But as memory becomes available, then we should see an acceleration of conversion. But again, do not expect that to happen early on in the cycle in 2017. If anything, maybe at the end of 37. But once again, we factor all of that in our 8% to 12% guide for 2027. Thank you, Rami.

Operator: Next question please. The next question will come from David Vaught with UBS. Please go ahead.

David Vaught: Great. Thanks guys for all the details. Really appreciate it. Marie and Antonio, can we touch on networking for a second? So obviously strong results there, really strong orders. But just trying to get a sense for how we think about how those orders flow into the business because you guided approaching kind of double digit normalized growth for this year and effectively double digit growth at the midpoint for next year. Is there a reason why we are not seeing an acceleration? And then along those lines, what is driving the margin uplift next year in fiscal 27 in the networking business, particularly given the supply chain constraints and cost inflation that you have mentioned earlier? Thanks.

Antonio Fabio Neri: Yes. Thanks, David. Look, it is all about supply chain. Supply chain is the name of the game in networking. You know, some of these products have DDR4 some have DDR5, some have other components that are constrained by the wafer capacity We continue to work with our suppliers By the way, we believe now we are the largest OEM partner of Broadcom in the networking space. And also combined with the rest of the business. So it is all about the supply availability in that moment in time to convert these orders. I think that is the opportunity, I will say. I think 1 end is a challenge, on the other hand is an opportunity.

Something unlocks there, then it will be faster conversion of this amazing momentum we have in networking intra revenue. So that is what it is. And Marie, you want to talk about the Yes. On the op margin themselves, David, what you are seeing in 2027 is actually the full year benefit of the Juniper synergies program, which you recall we started when we closed the deal.

Marie E. Myers: So all of that, we expect it is going to flow on a full year basis from 2026 into 2027, and frankly, that is what is driving the margins. And I might add it actually also helps us on cost of sales as well. So as we sort of buffer some of the impact that we have discussed here today on commodity costs, we are seeing some of those benefits help us out on gross margin as well.

Antonio Fabio Neri: that is right. Thank you, David. Operator, next question please.

Operator: The next question will come from Erik Woodring with Morgan Stanley. Please go ahead.

Erik Woodring: Hey, guys. Thank you for taking my questions and echo the congrats on the quarter and the outlook. Antonio, when you take a step back, can you just help us better understand exactly what has happened over the last 90 days in cloud and AI? And what I really mean by that is, your significant price hikes were already well known last quarter. So that is not a surprise. But now you are looking obviously at low 20% year over year cloud and AI revenue growth versus 90 days you thought it would be mid to high single digits So exactly what changed so abruptly in the last 90 days?

And can you help us understand what customer base cohort did this inflection come from?

Antonio Fabio Neri: Yes. Thanks, Erik. Well, I will say at the core is demand acceleration And I think that demand acceleration was manifested on a number of categories in the cloud AI business. Obviously, the traditional server, I talked before about the concern to get access to products and do not wait for things to improve. I think that was very clear. Second is the agentic AI. Definitely, definitely that has been a key driver of demand acceleration. I think on the storage side, obviously we have our own benefits because we are forcing a transition to our Alletra MP because also we are end of life in legacy products.

And then we introduced new data platforms with object which we expect to accelerate now with introduction of file. I think there is a combination of virtualization modernization because customers with the new commercial firms were very concerned about cost. When you modernize your software virtualization state, by definition, you are modernizing the infrastructure that sits underneath that is a combination of our Morpheus dragging the private cloud business edition for virtualization. And as we grow private cloud AI, call it AI factor for enterprise, that infrastructure and software is pretty much the same. The only really changes is the GPUs in the server and the Alletra X10 thousand in the storage.

But then GreenLake also is a driver of additional adoption of technology because once you are on the platform, as I said earlier, we have a net retention rate of near 110% Obviously, as budget gets constrained, we expect obviously the consumption model to grow over the next few quarters because you have moved to more an OpEx model. So it is a combination of many things. But the pipeline and the customer engagement are super strong. And then obviously the networking provides a core foundation to drive cross synergies as we go forward. Very good. Thank you, Erik.

Operator: Next question please. The next question will come from Matthew Niknam with Truist. Please go ahead.

Analyst (Matthew Niknam): Hey, guys. I will echo the congrats. Everyone has relayed as well. Phenomenal results. Antonio, you mentioned cross portfolio sales. And I am wondering how prevalent these are right now? And is it in the context of more security and networking among enterprise customers, or are you seeing more cross portfolio purchasing across server storage? And networking product sets to really bring some of these Juniper revenue synergies to fruition. Thanks.

Antonio Fabio Neri: Well, thank you. I think it is the latter and I will say it is early. Even because as I said in my opening remarks, our enterprise data center switching orders grew 20%. And that is very early very early in the process. We see now larger deals and larger engagement because we have the scale of our sales force where the networking sales force can get access to customers that in the past they were not able to get to. Then there is a product integration. Give a sense of the product integration we are integrating what is called the Apstra lifecycle management or intent based provisioning for data center switching with Morpheus.

What that allows us to do is to provide a full hybrid control plan for server storage and networking and also integrating the software defined networking into the VM essential stack. That also will drive the data center switching inside the private cloud. Reference architecture. Eventually, when we move into the ethernet based storage, as the speeds continue to grow, that is going to be of course a Juniper switch at the 1.6 terabits. So I will say we are early Now network and security, that is a more insulated with a networking because obviously if you think about the edge deploying a SASE or a secure service edge, will drive convergence between network and security.

But there, we are not thinking about driving security convergence just to the software level. We are taking a bold approach, which is to drive it at the silicon level. And you are going to see more of that as we go forward with Rami and team. Thank you, Matt.

Operator: Next question please. The next question will come from Aaron Rakers with Wells Fargo. Please go ahead.

Aaron Rakers: Yes. Thanks for taking the Also, congrats on the results. Very impressive. I guess my question, some of it has been a little bit asked, but I want to go back to the traditional server business 40+ percent year on year growth. Very impressive. But I am curious if you could unpack how much we are seeing in terms of the ability to price through some of the inflationary component costs relative to underlying unit demand? And, you know, I guess when we look forward, you know, does the guidance reflect a continued expectation of price increases to mitigate any impact? Any kind of color of what you have done on the pricing strategy would be helpful. Thank you.

Antonio Fabio Neri: Yes. Thank you, Aaron. Look, units are up. And we expect units to increase as we go forward because as prices normalize, obviously, the UPM units will rebalance, but units were up slightly. This quarter. The second part of this is that, the pricing, we have been very disciplined, right? And obviously we have seen significant dislocation on the cost. We expect that to moderate in the second half and eventually normalize. But I will say on that, that cost environment and pricing environment will continue to be very elevated in 2027. But the units will rebalance and as we said earlier, we expect that demand to continue to be very strong. As we look into 2027.

Especially the context is going to change because of agentic AI deployment.

Marie E. Myers: And maybe just add a couple of comments just on the margin durability. We do also see the impact of our Catalyst program helping us out both on gross and operating margins. And I think I commented in my prepared remarks, we are slightly ahead. So that is giving us confidence around the durability of those margins. And we do expect that to see some improvement in unit volumes in the back half of the year as well.

Antonio Fabio Neri: Question, Aaron.

Operator: Next question, please. The next question will come from Timothy Long with Barclays. Please go ahead.

Timothy Long: Thank you. I was hoping to touch on storage, for a minute here. Marie just if you could just talk a little bit about kind of the, seeing the outside growth in server but not in storage. What you would think about kind of pull through there? And I would assume you are I know there is a lot of ASP increase in service because of DRAM, but I think also some in storage because of NAND. So maybe could you touch on, you know, that dynamic around the storage business? Thank you.

Antonio Fabio Neri: Yeah. Sure. Look, Alethra and P block customer migration accelerated. We talk about driving triple digits year over year growth on the Alletra MP, which is a go forward platform. In both orders and revenue. Marie talked about that. Obviously, that takes time to see in the total number, but because we have all the stuff in the storage, But overall, the storage was up 2% But the Alletra MP, which is the platform that has both block file with object is growing triple digits both revenue and orders. Remember that revenue is also somewhat impacted by the fact that we are deferring a portion of the revenue over a longer period of time. Why that is the case?

Because our software is a SaaS based solution on that CapEx which is the hardware. But the takeaway our go forward platform is growing triple digits, both orders and revenue. Over time, that is going to fuel the growth in the total storage just becomes the biggest part of the portfolio. Okay. Thank you. Timothy, operator, this will be the last question please.

Operator: Okay. The final question will come from Simon Leopold with Raymond James. Please go ahead.

Simon Leopold: Hi, I think most of the questions have been asked. I guess, we have heard some contradictory commentary from some of your peers regarding pull through orders. Just curious what is giving you the confidence that the strength this quarter does not reflect any of that? And what is giving you confidence in the sustainability going forward?

Antonio Fabio Neri: Yes. So I mean, we have no evidence in our orders or backlog of any pulls in. And honestly, unlike COVID where people maybe were also doing double booking, we do not see that at all. And we have no cancellations. So that is the answer related to that question. And because of the pipeline that we have, we feel confident about the durability of that demand which will drive this sustained momentum. And that is why Marie and I went on and we provided a guidance for 2026 as we did and the financial framework for 2027. that is what we see. Well, good. I know there is more questions, but I know the team will follow-up with you.

I just want to wrap by saying we delivered an exceptional quarter with record breaking results Those results were driven by the strong demand that we see in the market strong disciplined execution and honestly our strategy, because our strategy is more encompassed when it comes down to networking cloud and AI. The Juniper acquisition in my mind has been a home run and it is proven to be a big source of shareholder value creation. And therefore, we believe the strategy is working. I think our portfolio is the strongest it has ever been you are going to see more of that here in 2 weeks.

Because I will encourage you to log in either the Keynote or to be in person there We are gonna have 7 acres of technology on display just to put in perspective. You are going to see the synergies across the portfolio. As we were talking about it. And the most important part is that we are building durable momentum for the future. These results is not a 1 time thing. it is the combination of the quality of earnings that we are driving across the portfolio And my view is that we are just unlocking the value that was always here in the company. And I think there is more to be done.

But I am very proud of what the team has delivered this quarter and the guide that we provided. As we think about 2026 and 2027. So thank you again for your time. Hope to see you soon or at HP Discover.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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