Hewlett Packard Enterprise Company (NYSE:HPE) Q4 2022 Earnings Call Transcript

Hewlett Packard Enterprise Company (NYSE:HPE) Q4 2022 Earnings Call Transcript November 29, 2022

Hewlett Packard Enterprise Company beats earnings expectations. Reported EPS is $0.57, expectations were $0.56.

Operator: Good day, and welcome to the Fourth Quarter Fiscal 2022 Hewlett Packard Enterprise Earnings Conference Call. My name is Chuck, and I’ll be your conference moderator for today’s call. At this time, all participants will be in a listen-only mode. We will be facilitating a question-and-answer session towards the end of our conference. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. Jeff Kvaal, Vice President of Investor Relations. Please go ahead, sir.

Jeff Kvaal: Good afternoon and thank you Chuck. I’m Jeff Kvaal, Head of Investor Relations for Hewlett Packard Enterprise. I’d like to welcome you to our fiscal 2022 fourth quarter earnings conference call with Antonio Neri, HPE’s President and Chief Executive Officer; and Tarek Robbiati, HPE’s Executive Vice President and Chief Financial Officer. Before handing the call over to Antonio, let me remind you that this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately one year. We posted the press release and the slide presentation accompanying today’s earnings release on our HPE Investor Relations webpage at investors.hpe.com. Elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today.

For more detailed information, please see the disclaimers on the earnings materials relating to forward-looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these risks, uncertainties and assumptions, please refer to HPE’s filings with the SEC, including its most recent Form 10-K and Form 10-Q. HPE assumes no obligation and does not intend to update 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 annual report on Form 10-K for the fiscal quarter ended October 31, 2022. For financial information that has been expressed 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 call, all revenue growth rates, unless noted otherwise, are presented on a year-over-year basis and are adjusted to exclude the impact of currency. Finally, after Antonio provides his high-level remarks, Tarek will be referencing the slides and our earnings presentation throughout his prepared remarks. The earnings presentation is also embedded within the webcast player on our website for this earnings call. With that, let me turn it over to you, Antonio.

Antonio Neri: Well, thank you, Jeff, and good afternoon and thank you for joining our call today. HPE had an impressive fourth quarter, delivering outstanding performance across our key performance metrics. Q4 was HPE’s most profitable quarter on a non-GAAP continuing operations basis since 2017, with our second highest quarterly revenue and record quarterly free cash flow. In 2018, we introduced a clear strategy to deliver sustainable long-term value for shareholders. And in 2019, we began our pivot to prioritize recurring revenue through our HPE GreenLake edge-to-cloud platform. We have refocused our portfolio and our customer value proposition to a high growth and higher gross margin solutions. We also improved our operating leverage across the Company.

We are now seeing these strategic actions paying off. In Q4, orders remained steady, showing continued interest in our differentiated edge-to-cloud solutions across industries from enterprises, large and small. Demand over the course of the year was enduring and proved to be better than we anticipated. We closed this fiscal year with a significantly larger order book that we had at the start of the year. I am very proud of our performance in the quarter and in fiscal year 2022. Faced with ongoing macroeconomic challenges, supply constraints and adverse foreign exchange, HPE executed exceptionally well. During the fourth quarter, total HPE revenue climbed 4% year-over-year on a constant currency basis to almost $8 billion, which was above our sequential outlook as we started to see a slight improvement to ongoing supply constraints.

Our Compute and Intelligent Edge businesses had particularly strong revenue growth, each rising more than 20%. Even on these higher revenue base, we grew our non-GAAP operating margin. Non-GAAP operating margin rose to 11.5%, up 180 basis points year-over-year, one of the highest quarterly levels in HPE’s history. Non-GAAP gross margin was just above 33%, a 10 basis points improvement year-over-year, reflecting ongoing pricing discipline. As customers continue to turn to our edge-to-cloud solutions, we saw increased demand for our HPE GreenLake platform. Annualized revenue run rate rose 25% year-over-year even with supply constraints as a headwind. Total as-a-service orders again increased more than 30% from a year ago, helping us close the fiscal year with the as-a-service order growth of 68%.

In the final quarter of the fiscal year as-a-service orders represented approximately 12% of the total company bookings. Non-GAAP profit in the quarter was a standout. We achieved record quarterly profit, despite the continued unfavorable effects from foreign exchange. Our non-GAAP diluted net earnings per share was $0.57, a 19% sequential rise and 10% increase year-over-year. Free cash flow in the final quarter was just shy of $2 billion, our best ever for a quarter. Free cash flow improved in the second half of the fiscal year 2022, as expected, following better supply chain conversion and working capital actions as we took to increase cash flow from operations. As we look at our full fiscal year ’22 performance, it is clear the HPE GreenLake platform has enhanced our financial profile with more resilient, recurring revenue.

Our portfolio is steadily becoming richer in software and services. We continue to shift our next to higher growth markets and more IP-rich offerings. And we continue to invest in our go-to-market capabilities that — they are solution-led and outcome-based. Since we began our as-a-service pivot in 2019, our AIR has more than doubled to $963 million. We exited fiscal year 2022 with more than $8.3 billion in HPE GreenLake total contract value, more than twice what it was just two years ago. In fiscal year 2022, we produced $28.5 billion of revenue, 5% compared to 2021 and above the 3% to 4% outlook we provided at Securities Analysts Meeting 2021. We achieved this revenue despite not yet having booked all revenue from our Frontier exascale system, which was delayed because our customer needed to extend the acceptance timeframe.

Through a combination of pricing actions, portfolio mix shift and cost discipline, we sustained our margins in fiscal year 2022, even in the face of supply constraints, and higher components and logistic costs. We increased our operating margin moving 210 basis points from about 8.5% two years ago to 10.6% for fiscal year 2022. Overall, in fiscal 2022, our operational performance resulted in a record non-GAAP diluted net earnings per share of $2.02, which came in above the midpoint of the guidance we gave at SAM 2022 in Houston last month, despite ongoing supply impacts, foreign exchange challenges and our exit from Russia and Belarus. We generated the second highest free cash flow in the fiscal year, a total of $1.8 billion, 3 times what it was in fiscal year 2020.

We exited fiscal year 2022 with free cash flow at the midpoint of the target we guided at SAM 2022. Our fourth quarter and year-end results position us for continued, durable, profitable growth in fiscal year 2023, and we are confident in the guidance targets we gave last month at SAM. Going into next quarter, we are optimistic demand will sustain globally. It is clear that customers view their data first digital transformation critical to their success and are prioritizing hybrid cloud solutions to propel them forward, particularly in these dynamic times. As we look ahead for the next fiscal year, after many quarters of supply constraint in our market, we are beginning to see some improvements. Demand from the consumer sector is slowing, allowing some substrate capacity to shift to enterprise IT technologies.

As a result, we have been able to reduce anticipated lead times for some products. We are continuing to take proactive measures to mitigate supply chain challenges and we are working through our large order book, which has experienced no material cancellations. Over the course of 2023, we expect to see greater easing but not an end to supply shortages. Despite supply constraints, the momentum we have generated with customers for our HPE GreenLake platform has been evident across our financial metrics. HPE GreenLake offers customers a unified and automated secure hybrid cloud experience, integrated across the edge data center colocations and public clouds. It is open, so customers can take advantage of the choice in architecture, but also benefit from the consistent cloud operating model HPE GreenLake provides for all workloads and applications across hybrid IT estates.

With a true cloud metering capability, HPE GreenLake enables customers to flex capacity up and down, based on their business needs while benefiting from a wide range of cloud services to protect and analyze their data. Our market-leading differentiators helped us attract more new customers to our platform during the fourth quarter than any other quarter before, leading to twice as many new HPE GreenLake logos to end fiscal year 2022 than we had a year prior. Also, customers are consuming more HPE GreenLake services, increasing usage above their original contract commitments. Our partners are also seeing the relevance of HPE GreenLake with our customers. Partners booked more HPE GreenLake orders during the fourth quarter than they ever did before, extending their streak of orders growth to 22 consecutive quarters.

During the fourth quarter, we also saw a greater share of partners booking multiple HPE GreenLake deals. Next week, we will meet face-to-face with several-thousand customers and partners at HPE Discover Frankfurt to discuss hybrid cloud transformation strategies, ways to drive value from the data across the edge-to-cloud, and how to bring the cloud experience to applications and data with HPE GreenLake. At the event, we will unveil important updates to our HPE GreenLake platform. One European customer who has recently adopted the HPE GreenLake platform is SPAR. SPAR is the supermarket you see everywhere in Europe from micro roadside convenience stores to massive one-stop hypermarkets. SPAR has decided to build its own hybrid cloud on HPE GreenLake to run the Company’s core business.

Our platform is running all major applications of SPAR’s innovation engine as the retailer pursues its ambition to create the future of grocery and retail shopping. The HPE GreenLake platform also helps SPAR use data to make strategic decisions on everything from warehousing and logistics to in-store experiences to advance its business. HPE GreenLake is playing an increasingly important role in customers’ IT strategies and in addressing all their needs with one unified edge-to-cloud experience. This fiscal year, we performed remarkably well for our customers, our shareholders and our HPE team members. We helped our customers use technology to accelerate the business outcomes while navigating in dynamic environment. Our expanding market leadership demonstrates the trust that customers place in us and the value defined in the differentiated edge-to-cloud portfolio that only we can deliver.

Demand for our HPE solution has been enduring throughout 2022 and continue to be steady as we move into fiscal year 2023. For our shareholders, by executing our strategy, we have pivoted HPE to a richer mix of software and services that is delivering recurring profitable growth. In fiscal year 2022, we posted strong revenue growth, record-breaking non-GAAP earnings per share and outstanding free cash flow. I am so proud of our team members around the world who have made these results and our transformation possible through their ingenuity and engagement. In fact, this year, HPE achieved one of the highest employee engagement scores in the history of our company, up 20 points over the last five years. Our culture has attracted some of the brightest, most innovative talent in tech.

HPE’s team members are bringing their energy and ideas to write HPE’s next chapter and cement us as the edge-to-cloud market leader. With our team engaged, our strategy taking flight and our market-leading solutions playing critical roles in customers’ business, we enter fiscal year 2023 with incredible momentum on all fronts. And I look forward to advancing our strategy and leadership even further in the next year. And with that, I would like now to pass it over to Tarek to make his comments and provide a little bit more details about our financial performance. So, Tarek, over to you.

See also 12 Low Float Stocks with High Volume and 12 Best Canadian Stocks To Buy and Hold.

Tarek Robbiati: Thank you very much, Antonio. Q4 was, no question, an outstanding quarter for HPE. As usual, I will reference slides from our earnings presentation to guide you through our performance. Antonio discussed key highlights for Q4 ’22 and fiscal year ’22 on slides 4 and 5. Let me discuss our Q4 performance details, starting with slide 6. Sustained demand continues to be a core attribute of our differentiated edge-to-cloud portfolio, which is translated to record or near-record results. As expected, year-over-year order growth continued to moderate in Q4 ’22 to down 16% year-over-year as we lap challenging compares. Having said that, our sequential order growth was flat relative to Q3 ’22, which illustrates that demand for our products and services is steady.

The key takeaway here is that we are entering fiscal year ’23 with an order book that is even higher than the order book we entered fiscal year ’22 with, which attests to our momentum for fiscal year 2023. Now that we have closed fiscal year ’22, we will again turn our attention to focus on revenues rather than orders as we have been flagging. This is because of timing differences, orders and backlog are not traditionally good indicators of quarterly revenue in normal times. We will continue to disclose orders for our as-a-service and HPE Pointnext OS business. While the supply environment is improving, it is not quite back to pre-pandemic levels. Our large order book contributes to our confidence in our fiscal year ’23 revenue outlook of 2% to 4% growth adjusted for currency, and the longer term 2% to 4% revenue CAGR outlook over the fiscal year ’22 to ’25 period we provided at our 2022 Securities Analyst Meeting in Houston last October.

We delivered Q4 revenue of $7.9 billion, which is up 12% annually and 15% sequentially adjusted for currency. This is the second highest revenue figure since our separation transactions in 2017. It would easily have been the highest had revenue recognition from the Frontier deal not slipped into fiscal year ’23. The Q4 sequential revenue growth is well above our prior outlook for at least 5% sequential growth. We have had healthy demand throughout the past two years. We now also have improving supply as supply capacity in the consumer electronics markets is redirected towards enterprise markets where demand for digital transformation continues unabated. We closed fiscal year ’22 with full year revenue growth of 3% as reported. Currency and our exit from Russia and Belarus represented a 300 basis points headwind to revenue for the full year, which means we ended the year solidly above our initial guidance for 3% to 4% revenue growth adjusted for currency.

Our non-GAAP gross margins remain resilient, thanks to the pricing actions we have taken. Our 33.1% non-GAAP gross margin in Q4 is up 10 basis points year-over-year, reflecting a very strong Compute quarter and higher logistics costs in the Edge business. We retain our pricing discipline and continue to shift our mix of business towards higher-margin, software-intensive as-a-service offerings. Non-GAAP operating margins reached a record 11.5%, which represented a 100 basis points increase sequentially and a 180 basis points increase year-over-year. This result would not have been possible without the strategic actions we have taken back in fiscal year ’20 to reallocate resources and optimize our cost structure. These actions have put us in the position to benefit from an enhanced operating leverage for several quarters over the past three years, and this will continue in fiscal year ’23 and beyond as Antonio and I remain determined to maintain our focus on productivity.

Our cost optimization and resource allocation program announced during the pandemic of 2020 and which is now substantially finished, has achieved annual savings of $875 million, well above our initial target of $800 million. As a result, we are now rightsized and we are entering a very different phase of the Company, one where the combination of our enhanced cost structure and substantial order book is expected to deliver profitable growth that is increasingly recurring at higher margins as our as-a-service transformation continues to unfold. Thanks to revenue growth above our guidance, we delivered Q4 non-GAAP diluted net earnings per share of $0.57, which exceeded the midpoint of our guidance range. This is the highest quarterly non-GAAP net diluted EPS figure since our 2017 separations.

Our full year non-GAAP net diluted EPS of $2.02 was at the upper end of our guidance range of $1.96 to $2.04 post Russia and FX and near the midpoint of our SAM 2021 guidance. Again, we estimate FX impacts and our Russia exit combined for a $0.17 EPS headwind in fiscal year ’22. Our GAAP P&L reflects a noncash write-down of goodwill in our HPC, AI and software businesses. Macro trends, including contracting market multiples and higher discount rates used in our impairment test for HPC, AI and software, respectively, significantly impacted this outcome. We continue, nonetheless, to be bullish on the HPC, AI segment given our clear number one position in the market, and our outlook for this segment is consistent with what we said at SAM 2022, and software remains a critical component of our HPE GreenLake strategy.

I am particularly pleased with our free cash flow performance in Q4 ’22, where we generated $3 billion in cash flow from operations and free cash flow of $2 billion as we work through our substantial orders and reduce our inventory. As Antonio mentioned, this brought our full year free cash flow to $1.8 billion. This is triple our free cash flow in 2020. For the year, free cash flow met the midpoint of our guidance. In fact, our full year free cash flow met our initial pre-Russia and FX guidance from SAM 2021. Finally, we are continuing to return substantial capital to our shareholders. We returned over $1.1 billion in capital to shareholders this year, which represents over 60% of our free cash flow. We paid $154 million in dividends this quarter and repurchased $128 million in stock.

That brought our buyback plan to $512 million for the year, above our $500 million target. Our as-a-Service business momentum remains strong and this business is lifting our mix of higher margin recurring revenue. Total as-a-service orders remain robust. Orders grew 33% in Q4 despite lapping 104% growth in Q4 ’21. On a constant currency basis, orders grew 43% in Q4 and our full year as-a-service orders grew 68%. This indicates the long-term health of our as-a-service portfolio and further strengthens our confidence in our three-year ARR target of a 35% to 45% CAGR from fiscal year ’22 to fiscal year ’25. Our ARR of $936 million represented 17% growth as reported and 25% growth in constant currency. For much of fiscal year ’22, the industry supply constraints have limited shipments and weighed on our growth rate.

We expect the improved supply environment to accelerate our ARR growth moving forward. We also continue to expand our as-a-service’s margin as our mix of software and services increased to 66% in Q4, up 4 points year-over-year, thanks to our cloud and SaaS offerings, particularly in Edge and Storage. As a result, the gross margins in our as-a-service business remain meaningfully above our corporate gross margins. Let’s now turn to our segment highlights on the next slide. All revenue growth rates on this slide are in constant currency. In the Intelligent Edge, we delivered a record quarterly revenue number. We grew our revenues 23% year-over-year. We are outgrowing our main competitors and are taking share across wireless LAN, enterprise switching and SD-WAN including in some of the largest enterprise customers.

Customers are increasingly adopting our Edge services platform and automation software suite. Our operating margin of 13.3% was up 2.4% annually, though down 3.2% sequentially with FX being the biggest contributor to the sequential decline. We continue to expect our Edge business to grow and perform like a Rule of 40 business moving forward. In HPC & AI, revenue fell 11% year-over-year, solely as a result of the Frontier deal slipping into fiscal year ’23, which also impacted our operating margin in this segment. We are on track to close that deal in Q1 and have factored that into our guidance. We continue to have orders for HPC & AI solutions of about $3 billion to be delivered in upcoming quarters. Compute revenues grew 22% year-over-year to a near record of $3.7 billion.

The segment benefited from the multi-sourcing and demand steering initiatives we have discussed in prior calls, as well as steadily improving supply availability. We have clearly outperformed the competition in fiscal year ’22 and our dynamic pricing strategy has helped us navigate a volatile supply climate while maintaining a healthy margin profile. Our Compute operating margin of 14.7% remains well above our long-term outlook for 11% to 13%, which attest of the best-in-class performance delivered by our Compute business. In Storage, we are very pleased to report 6% revenue growth led by all-flash array and HCI. Alletra is one of our fastest ramping new products ever and grew revenue 100% sequentially. In total, revenue from our own IP, margin-rich products rose strong double digits in Q4 and contributed to an annual operating margin of 15.9%, which represents a year-over-year gain of 210 basis points and a sequential gain of 120 basis points.

Our storage transformation is now in full swing, as you can see. And we expect our storage business to deliver revenue growth in line with market with our own IP products growing above market. With respect to Pointnext operational services, combined with storage services, orders grew sequentially and for the year rose mid-single digits in constant currency despite the exit of our Russia and Belarus business. Finally, HPE Financial Services expanded its financial volume 3% year-over-year, and revenue rose 6%. Our operating margins fell 3 percentage points year-over-year as we adjust our prices for a higher interest rate climate. It is worth reiterating that our leasing profit dollars are well insulated from a higher rate environment over time as we price on a spread and that our business is resilient in a downturn.

Throughout the pandemic, our annual loss ratio never exceeded 1%. Our loss ratio is currently nearing pre-pandemic levels of approximately 0.5%. As a result, our fiscal year ’22 HPEFS return on equity remained well above the 18% target we reiterated at SAM 2022. Slide 9 highlights our revenue and non-GAAP net diluted EPS performance. Antonio and I are very pleased that our strategic focus on both the top and bottom lines is evident in these results. Our revenue and EPS continue to grow despite the volatile supply environment, the exit from our Russia and Belarus businesses and increasing headwinds from currency. As mentioned earlier, during fiscal year ’22, we experienced a headwind of $0.12 from currency and $0.05 from exiting Russia and Belarus.

In spite of these headwinds, we met our SAM ’21 non-GAAP guidance for fiscal year ’22 and delivered a better mix of higher-margin earnings across our portfolio as we continue to execute our Edge-to-Cloud strategy. This improvement can be seen on slide 10, where we delivered non-GAAP gross margins in Q4 of 33.1%. This is a 10 basis points year-over-year improvement despite a significant revenue mix shift to Compute this quarter. Our growing gross profit and margin are a testament to the success of our strategic pricing actions through the supply challenges and the favorable mix shift we are driving towards higher-margin products across our portfolio. Moving to slide 11, you can observe that we have delivered an 11.5% non-GAAP operating margin for the Company.

This is not only up 180 basis points year-over-year and 100 basis points sequentially, but it is the highest operating margin in the history of the Company since our 2017 separations. Our very strong Q4 revenue performance and our resilient gross margins are certainly leading contributors to the operating margin expansion. And again, as I mentioned at SAM, this performance would not have been possible without the foundation provided by our resource allocation and cost optimization plan that we launched at the start of the 2020 pandemic. On slide 12, let’s discuss our setup in China through H3C. As disclosed at SAM, we have extended our existing put option that is struck at 15 time trailing 12-month earnings through to December 31, 2022. We did this to allow our partners time to finalize their engagement with their stakeholders and make our final decision regarding our stake in H3C.

Through our commercial contracts and equity interest, H3C has contributed a substantial amount to our EPS and free cash flow and our shareholder value in fiscal year ’22. We will balance the strategic and financial benefits of a continuous involvement in China with rising risks, including geopolitical risk. We will keep you up to date as we arrive at a longer-term solution for this asset. Our cash flow story on slide 13, a test of our outstanding execution. Our Q4 cash flow from operations and free cash flow were $3 billion and $2 billion, respectively. This is aligned to our normal pre-pandemic seasonality and our expectations of working capital tailwinds in the second half. We have been strategically building inventory ahead of the competition throughout fiscal year ’21 and fiscal year ’22 to navigate the supply chain environment.

Our inventory balances have now peaked and are beginning to decline as we enter fiscal year ’23 and deliver on our substantial order book. Our strong Q4 cash flow brought full year ’22 cash flow from operations to $4.6 billion and our free cash flow to $1.8 billion. The $1.8 billion is triple what we delivered in fiscal year ’20. It is also at the midpoint of our guidance range of $1.7 billion to $1.9 billion, despite the negative impact of Russia and FX that we estimate to be approximately $250 million. Now turning to our outlook on slide 14. As we discussed, demand for our products and services portfolio remained steady in Q4 relative to Q3. Our view remains one of enduring market demand given the mega trends of digital transformation and the explosion of data.

We also believe our own portfolio differentiation will allow market share gains. Let me reiterate that our guidance incorporates our current thinking on the macroeconomic picture, inflationary pressure and FX risk. I would like to remind all of you that approximately 55% of our revenue is generated in foreign currencies. For Q1 ’23, we expect revenue to be in the range of $7.2 billion to $7.6 billion, which at the midpoint, implies a mid-single-digit seasonal decline that we typically experience in Q1 relative to Q4 of each year. We expect GAAP diluted net EPS of $0.32 to $0.40 and non-GAAP diluted EPS of $0.50 to $0.58. While we are pleased with our Q1 outlook, we are cognizant given the macroeconomic environment and FX headwinds that it is too early at this stage to rethink our fiscal year ’23 guidance.

Given the points above, we consider it prudent to assume our year may be more weighted to the first half than is typical. We are, therefore, reiterating our full year ’23 guidance. This includes revenue growth of 2% to 4% adjusted for currency, non-GAAP operating profit growth of 4% to 5%, GAAP diluted net EPS of $1.38 to $1.46, non-GAAP diluted net EPS of $1.96 to $2.04, and free cash flow of $1.9 billion to $2.1 billion. In terms of capital returns, we are maintaining our dividends and expect to buy back at least $500 million worth of shares in fiscal year ’23, just like we did in fiscal year ’22. So to conclude, our results speak for themselves and a test of our outstanding execution in a quarter that can be characterized by enduring demand for our differentiated portfolio of products and services.

We look forward to continuing our execution momentum in fiscal year ’23. Now with that, let’s open it up for questions.

Q&A Session

Operator: And the first question will come from Wamsi Mohan with Bank of America. Please go ahead.

Wamsi Mohan: Yes. Thank you. And congrats on good results. I was wondering if you can comment a little bit about what the demand trends look like by region? It seems like a lot of companies are citing more of a slowdown, like NetApp just now and Dell last week. I’m curious to get your thoughts on how IT budgets are shaping up for calendar ’23? Most companies we’re speaking with are more cautious about the near term, maybe the first half of ’23 and optimistic more of a recovery in ’23. And I think, Tarek, you just said that for you, you’re expecting, if I heard that right, like more confidence in sort of the first half. So, any color there would be helpful. Thank you so much.

Antonio Neri: Yes. Thanks, Wamsi, for the question. As we said in our commentary, we exited 2022 with a significant larger book than we entered 2022. And that demand was enduring, honestly, was better than we anticipated and remains steady, because when you look at the quarter-over-quarter, Tarek mentioned, was flat. But I think we have a point of differentiation compared to others. I think it’s important to recognize. First, we have a diversity of portfolio from edge-to-cloud. And you can see some of the results in the Edge, which obviously are outstanding. I think our HPE GreenLake is unique because it delivers a true hybrid experience that you can consume as-a-service, and that’s also dragging the entire portfolio. And when I talk about customers, what we see, customers continue to prioritize digital transformations.

And a lot of that is driven by the need to automate, simplify, be more efficient in everything they do and also prioritize that data. The data insights to me, are an important aspect of what customers are looking for. And so, I think demand is there. I think in our case, probably it’s better balanced. You asked a question about the geos. I think the performance of the geo has been even, I mean, even across all the 10 geos that we have, and across the segments. I got this question early on, if this is just an enterprise or a small business? No, it is the 10 geos and all the segments from large to small, medium business. In terms of budget, just a month or so ago, we hosted what we call the Board of Advisory, and we have 25 customers that represent multiple industries.

And the sentiment there is that they need to continue to digitize and they need to continue to ensure technology plays a vital role. And again, these are technologies in the edge, connectivity being one important aspect. The other one is obviously cloud, but cloud as an experience, not just putting data in one place is a true hybrid approach. And then these data, data-driven insights. And so we are, I think, very uniquely positioned to capture that opportunity.

Operator: The next question will come from Kyle McNealy with Jefferies. Please go ahead.

Kyle McNealy: This one is for the Compute business. We assume a big part of it was driven by the supply improvement that you talked about, but units were only up 4% year-over-year. So, there may not have been an incredible amount of backlog consumption. So, can we talk a bit more about the AUPs? They’re still growing at about teens year-over-year. It was high-teens this quarter based on the pace of your price increases and the momentum of richer configs that you called out. How long do you think that this growth will continue? And what does the durability of the AUP trajectory look like for you guys?