HPE Q3 FY2026 Earnings Call Transcript

Image source: The Motley Fool. DATE Wednesday, Sept. 2, 2026 at 4:30 p.m. ET CALL PARTICIPANTS Chief Strategy Officer - Shannon Cross President and Chief Executive Officer - Antonio Neri Chief Financial Officer - Marie Myers TAKEAWAYS Revenue -- totaled $12.2 billion, representing a 34% year-over-year increase and exceeding the high end of management's guidance. Non-GAAP EPS -- reached a record $1.11, marking the first time the company exceeded $1.00 in non-GAAP diluted net earnings per share in a single quarter. Non-GAAP Gross Margin -- hit a record 40.4%, driven by disciplined pricing in traditional servers and a higher mix of networking products. Non-GAAP Operating Profit -- grew 155% year over year to $2 billion, resulting in an operating margin of 16.2%. Free Cash Flow -- reached $958 million, a third-quarter record supported by strong operating profit and improved collections. Networking Revenue -- reached $2.9 billion, representing a 10% increase on a normalized basis despite ongoing supply constraints. Networking Order Growth -- increased 36% in the quarter, growing 3.5 times faster than segment revenue. Networking AI Orders -- reached a new high of $700 million, bringing cumulative orders for the segment to $2.2 billion. Networking AI Order Target -- was increased to a range of $2.5 billion to $3 billion for the end of the fiscal year. Cloud & AI Revenue -- grew 25% year over year to $9.0 billion, reflecting strength in traditional servers and artificial intelligence systems. Server Revenue -- rose 35% to $6.8 billion, driven by record average selling prices and high demand for traditional and AI-specific systems. Storage Revenue -- increased 10% to $1.3 billion, benefiting from customer modernization of data environments and demand for HPE Alletra MP solutions. AI Systems Orders -- rose 30% sequentially to $2.4 billion, driven by demand from sovereign customers, cloud providers, and large enterprises. AI Systems Revenue -- reached nearly $1.6 billion for the quarter, with management expecting sequential improvement in the final quarter. AI Systems Backlog -- grew 14% sequentially to a record high, with the sales pipeline remaining multiples of the current backlog. GreenLake Customer Base -- expanded 18% year over year to 52,000 customers. Inventory -- reached $11.8 billion, reflecting higher commodity costs and targeted purchases to support record backlog levels. Shareholder Returns -- totaled $324 million, consisting of $189 million in dividends and $135 million in share repurchases. H3C Divestiture -- resulted in a gain of $444 million and approximately $1.4 billion in gross proceeds after closing the transaction. Q4 Guidance -- projects revenue between $13.9 billion and $14.8 billion and non-GAAP EPS between $1.20 and $1.30. FY26 Guidance -- was raised to a non-GAAP EPS range of $3.75 to $3.85 and free cash flow of at least $3.75 billion. FY27 Revenue Growth Guidance -- was increased to a range of 13% to 17% consolidated growth. FY27 Free Cash Flow Guidance -- was raised to at least $5 billion. Hyperscaler Inferencing Deal -- involves a multibillion-dollar server contract announced post-quarter for internal enterprise AI usage. Juniper Integration Synergies -- remain on track to achieve a $600 million annual run rate savings target by the end of fiscal 2028. Need a quote from a Motley Fool analyst? Email [[email protected]](fool.com) RISKS Neri stated, "Supply constraints continue to affect our ability to fulfill the increased customer demand," noting specific challenges related to DDR5, NAND, and wafer capacity. Myers stated, "Going forward, we expect our gross margin to moderate toward more historical levels driven by the growth in AI systems and the normalization in traditional servers, offset by the growing mix of networking." SUMMARY Hewlett Packard Enterprise Company(HPE-4.72%) reported record quarterly results as demand for artificial intelligence infrastructure accelerated across its portfolio. Management indicated that artificial intelligence has become a multiyear growth driver, leading to a record-breaking order backlog and expanded guidance for the fiscal 2026 and 2027 periods. The company is focusing on the integration of Juniper Networks and the expansion of networking solutions to support large-scale AI build-outs. Executives stated that customer interest is shifting toward production-level deployments, including agentic AI applications and inferencing workflows. CEO Neri stated, "AI is beginning to inflect beyond early proof-of-concept training deployments into a broader enterprise workflow transformation opportunity." Management announced an expanded collaboration with Oracle to deploy networking routers and switches for a gigawatt-scale AI cloud infrastructure build-out. CFO Myers noted that the company's internal agentic AI platform can reduce token costs by up to 60% compared to public cloud alternatives. The company noted that fiscal 2027 revenue guidance does not include the potential ramp of the AMD Helios platform scheduled for the end of the calendar year. Management reported that the enterprise AI pipeline has reached an inflection point, with more than 1,200 use cases identified and over 300 in production within the company. Integration of Juniper Networks is tracking ahead of schedule, with networking revenue expected to grow 14% to 17% in fiscal 2027. Net leverage exited the quarter at 1.8 times, reaching the company's target of 2 times more than one year ahead of the original plan. INDUSTRY GLOSSARY Private Cloud AI (PCAI): A co-engineered solution with NVIDIA designed to manage enterprise AI applications and agents on-premises. Agentic AI: AI applications capable of performing complex, multi-step tasks and workflows autonomously. Token Economics: The cost analysis associated with the generation of units of text, or tokens, by large language models. Tomahawk 6: A high-performance network switch silicon designed to handle the high-speed data transfer required for AI workloads. GreenLake: A hybrid cloud platform providing infrastructure and software as a service through a consumption-based model. Neo-cloud Service Providers: New cloud computing companies specializing in high-performance infrastructure for AI training and inferencing. Helios Platform: An infrastructure solution developed in partnership with AMD for large-scale artificial intelligence deployments. Catalyst: An internal business transformation program aimed at improving operational efficiency and reducing structural costs. Full Conference Call Transcript Operator: Good day, and welcome to the Third Quarter 2026 Hewlett Packard Enterprise Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Shannon Cross, Chief Strategy Officer. Please go ahead. Shannon Cross: Good afternoon. I'm Shannon Cross, Chief Strategy Officer for HPE. I'd like to welcome you to our fiscal 2026 third quarter earnings conference call with Antonio Neri, HPE's President and Chief Executive Officer; and Marie Myers, HPE's Chief Financial Officer. Before handing the call to Antonio, let me remind you that this call is being webcast. A replay of the webcast will be available shortly after the call concludes. We have posted the press release and the slide presentation accompanying the release on our HPE Investor Relations web page. 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 fisca