Hewlett Packard Enterprise Company (HPE) Earnings Call Transcript & Summary

Well, folks, thank you for joining us. This is Simon Leopold, Raymond James data infrastructure analyst. As part of the institutional investor conference, we've got a session kicking off next with HP Enterprise. And I'm pleased to be joined by the company's CFO, Tarek Robbiati; as well as from the Investor Relations department, Nancy Lee. We're going to have a fireside chat-type format. [Operator Instructions] But hopefully, I'm prepared and hopefully, I updated my questions appropriately based on the fact that the company just reported results last night. You can see our research on that out last night as well. But before we dive into it, Nancy, you wanted to make sure we had the safe harbor?

Thanks, Simon. So before we start, let me take a moment to read our disclosures. You will hear some forward-looking statements in today's discussion. These are based on risks and assumptions that are described in our annual report on Form 10-K and Form 10-Q. Our actual results could differ significantly, and we assume no obligation to update. More details can be found on our website, investors.hpe.com, and our recent Q1 earnings announcement press release dated March 2. So with that, let me turn it back to you.

Great. So Tarek, this conference tends to be a little bit different than many of the others that we participate in and, I imagine, you participate in, in that we get a broad audience. We have folks who are deeply steeped and very familiar with the company, but we also may have generalists, people who are new to the story, portfolio managers who are looking at it at a higher level. So with that in mind, how do you like to introduce HP Enterprise to a new prospective investor?

Well, Simon -- well, first of all, let me thank you for hosting us at the Raymond James conference. We're very happy to be here with you and with your client base. To introduce HPE, I would introduce HPE by saying we are the leading provider of digital transformation solutions, catering to large corporations and mid-market companies worldwide. The solutions we provide can be bought or can be consumed as a service. And the range of solutions we offer involve computer servers, large, sophisticated supercomputers, storage solution and edge connectivity.

And so one of the things that I still feel like people maybe get a bit confused is a little bit of a history of how we got here. So there's still some questions we get that are appropriate for HP Inc., and you're HPE. Just help us understand maybe a little bit of the back story of how we got to the HP Enterprise.

It's a great question. It also helps clarify the confusion, as you say, that still exists. I mean, yesterday, when we reported earnings, one of the media outlets has used the HP Inc. logo to describe Hewlett Packard Enterprise. And that is an indication of the confusion you're referring to. So let's go back in time to 2015 or thereabouts. 5 years ago, you had HP Corp., and HP Corp. was a very large company that you all knew. And it provided a number of solutions, including the ones we currently provide, plus printing, PCs, and also enterprise services. And so HP Corp., under the leadership of Meg Whitman, proceeded with a series of spin-offs. One spin-off that to this day is still live in its current form is our sister company, HP Inc., who provides printers and PCs mainly to businesses and consumers worldwide. So it's a B2C play -- or B2B2C play. And also, another one of the spin-offs is the Enterprise Services business that we used to have as part of HP Corp, that was spun out and merged in -- with CSC to create DXC. And also a final piece of the puzzle was the sale of our software business to Micro Focus. Since those spin-offs and asset sales, we are operating as Hewlett Packard Enterprise. We are the only company who can use the name Hewlett Packard. We are Hewlett Packard Enterprise. HP Inc. is -- can use HP as a name but not Hewlett Packard Enterprise. It's a sister company. We still have good relations with them and friends across the fence, but we are entirely separate.

Great. And you did report your first fiscal quarter last night. So for folks who might have missed that, just if you could give us a brief synopsis as well as putting some emphasis on what might be considered surprises and talk a little bit about your outlook.

Sure. So thank you. So we reported our first quarter results yesterday. So our fiscal year is a little bit atypical. It starts on November 1. And therefore, the quarter is a quarter that ended January 31. And it's typically a quarter where you have a shift in our customers' budgets as they end up their calendar year, which, typically, representing their budgeting cycle, and moving to the new calendar year. Now this year was peculiar because for all of us in 2020 -- I'm sure you know 2020 was a year like no other with the global pandemic of COVID, with a lot of disruption across all industry sectors, some industry sectors suffering really badly like airline and hospitality. But on the whole, what COVID has taught to us is that digital transformation is no longer something that can be done at one's elected pace. It has become a strategic imperative across all sectors. And this is truly -- the proof point of this is the fact that the real winners of the pandemic are those companies who had a digital business model. And you saw the market caps of the large tech companies in Silicon Valley really rallying steeply as a result of that because digital transformation enables a very different, more resilient business model across our customer base. And so fundamentally, the question, as we ran into the earnings announcement was, is there a pickup on demand related to digital transformation? And how are you -- are we, HPE, doing with that backdrop? And we did see a pretty substantial uptick in demand as a result of this new impetus on digital transformation across the board in our business. Now our business is structured according to 5 main business segment, plus a sixth, corporate segment. But the main business segments are Compute, where we sell servers for enterprises and mid-market companies worldwide; our HPC or high-performance compute and mission-critical systems business, which is higher-end computer servers and supercomputers like Cray systems that are very much in demand by governments and the private sector worldwide. The third segment is our storage business. And this one is subject to very interesting trends. As more business digitized, there is a proliferation of data. That data needs to be stored and processed and analyzed. Companies realizing that as they digitize their business, their data is becoming the most precious asset that they have. So we are very well positioned with our Storage business there to help the data be stored and managed. And then the fourth segment that we have is what we call our edge segment, which is Aruba. Aruba is 100% owned company by HPE. And it is a networking company that caters for campuses and branches of companies worldwide. And this is a business that benefits also from the trends we've seen in COVID. As we're all working from home, businesses and their footprint tend to be more distributed. As a result of the footprint being more distributed, you need more networking gear to connect it all, better platforms to manage that network infrastructure, and more software connections from your home. Your home has become your new office, and Aruba has benefited from that trend. Finally, the fifth business unit segment that we have is our HPE Financial Services business, which finances the purchases of equipment for our company but also for our sister company, HP Inc., on a worldwide basis. And it's performing -- HP Financial Services is performing extremely well. So hopefully, that gives you an overview of our business and the trends at play and the questions that investors were asking as we ran into the earnings announcement fundamentally: What is this new digital transformation impetus meaning for HPE across segments, compute, HPC, MCS and storage, Aruba and HPE Financial Services? Where do you see the demand growing and coming from? And how are you performing? And so the answers to those questions were, I hope, clearly articulated in our earnings announcement. The earnings announcement is available on our website. And Simon has written an extensive report about our performance last night. I encourage everyone to read it. And essentially, what we've seen is our Compute business stabilizing and coming back to very respectable operating profit margins. The same story with our Storage business. Our Storage business revenue declined 6%. But largely, this is due to our own choice points that we have made to shift the portfolio from more hardware-centric offerings to more software-defined offerings with products and -- like Primera and distributed hyperconverged Nimble solutions. These software-defined solutions are higher margins, and Storage has been an exceptionally solid operating profit margin story. We have a business that generates roughly $5 billion of revenue a year. And the margins in the first quarter were 19.5% at the operating profit level. So this is actually a very solid performance, and it's very much comparable with other companies that are neck to neck with us such as NetApp. The shining star in our results was Aruba and the edge business, which delivered a 11% top line growth. Some of that 11% top line growth was fueled by the recent acquisition of Silver Peak, which is a provider of software-defined wide area network connectivity solutions. 500 basis points of the 11% were driven by Silver Peak consolidation. Nonetheless, the performance of Aruba has been very, very solid, and we're taking share from other players in the market across the board. And Aruba also delivered very solid operating profit margins. We finished the quarter with an 18.5% operating profit margin at Aruba, which is a 680 basis points improvement year-over-year on margins. When you take all of these effects into consideration, this has prompted us to improve our guidance substantially. We upped our EPS guidance for the full year by $0.10. We essentially beat the first quarter by $0.10. Consensus was at $0.41 per share. We delivered $0.52 per share. We pushed and passed on this whole first quarter outperformance and upped our full year guidance to $1.70 to $1.88. That is a $0.10 improvement relative to the prior guidance we gave at the end of Q4. And we also, as a result of this very strong operating performance result in Q1, increased our free cash flow guidance for the year from a range that was $900 million to $1.1 billion to a new range that is $1.1 billion to $1.4 billion as a result of the positive trends that we've seen. So hopefully, that gives you, Simon, and the audience a overview of what we walked into in the earning announcement and what's we delivered, and our outlook for fiscal year '20.

Great. No, I appreciate that. And I guess, first off, I want to get a better understanding of where the industry is in terms of the -- where are we in the recovery? So what you've outlined to us, thinking about some of these data points, Storage was down 6% year-over-year, yet Aruba was up year-over-year, even adjusting for the acquisition. And if I think about what you've suggested for your April quarter, where you said you have a decline sequentially but less than seasonal, that still translates into mid- to high-single-digit year-over-year growth. So what I'm interpreting here is there's a trajectory of recovery. We're not recovered. There's some catch-up. But how do you see the cadence in the process of your customers' purchasing patterns recovering from the pandemic?

Yes. So no question, fiscal year 2020 was unprecedented by all accounts. And put it simply, the tide level had come down relative to fiscal year '19, the prior year. And so typically, HPE is a company that generates about $7.2 billion of revenue a quarter. That's the watermark level. And on a good quarter, we are at $7.5 billion, $7.7 billion. And a really, really bad quarter is a quarter like we had in the second quarter last year at $6 billion, and that is the trough. And we don't feel that this is where we should be, and we're unlikely to go back to that low level. I'm pretty confident we're not. So demand is recovering from last year, and specifically for the second quarter that ends up in April of 2021, we are forecasting a lower-than-historic seasonal decline between Q2 and -- of each year and Q1 of each year. Typically, we observe 3% to 5% decline between those quarters. We'll probably end up around the midpoint of 3% to 4%. But if you do 3% to 4% decline of $6.8 billion that we posted in Q1, that leads you to a double-digit revenue growth year-over-year for Q2, right? Double-digit revenue growth year-over-year for Q2 as demand is steadying up. And we continue to see gradual improvement in that demand quarter after quarter as the economy opens up. We're very encouraged to see the vaccination programs gaining steam. I'm particularly pleased with the progress made and the latest announcement with Merck and J&J teaming up in the U.S., for instance. But everywhere in the world, the vaccination programs will help our business and -- because it does help our customers' business. So we're very pleased to see the progress there.

Now the other dimension that the pandemic has, let's say, interfered with is on the supply chain. So one of the questions that we're discussing with companies like yourself that make equipment is what are you experiencing or seeing in terms of the constraints on components, particularly things like semiconductors. This is -- we hear this from my colleagues who follow that space. We've heard it on the news. And I'm hearing very varied answers from companies in my sector that I talked to. What are you seeing?

So I mean, fundamentally, we did believe that a recovery was at play all the way back in September when our third quarter ended. And we stocked up inventory in Q3 and Q4 in anticipation of a resurgence in demand because we needed to make sure that we were ready and not caught asleep at the wheel, so to speak, as the demand were -- was to materialize in Q4 of last year and strengthened in Q1 of this year. And so our inventory levels were running hot back then, and we kept our inventory levels high. You can still see it in Q1. Because we didn't want to be facing a shortage of components. So we feel very good about our short-term picture in terms of the supply of components. Obviously, the economic machine is cranking up, and manufacturing capacity worldwide was disrupted. But what we have understood is that, that disruption would end and demand would resume. And therefore, it was important for us to ratchet up our inventory levels to be safe in the short term, which we did. We are now working on Q3 and Q4 solutions for making sure that we're not short of components. And we also -- as part of the recovery story, we do expect that some components will have price hikes -- inflationary price hikes, particularly in the DRAM space, which we will offset by way of strategic purchases that we have done and will continue to do, but also price hikes. So that's to answer your question on the supply side.

So another macro topic, which I feel may have been amplified by the pandemic, is this concept of public cloud adoption. So your customers, essentially moving workloads to public cloud, theoretically, spending less on equipment they buy from you. And so the narrative is that the pandemic accelerated the melting iceberg. And so how do you think about this particular threat, both from the intermediate term but also longer term?

Sure. So we really don't feel that the world is all going to be dominated by solutions running in the cloud. We believe the world will be hybrid. And that's why in the introduction this morning, I said we are a provider of digital transformation solution that can be bought or consumed. And we have learned a lesson from cloud providers, which is this: They have provided a very simple experience that is flexible in the way companies consume those IT solutions. And we think that, therefore, there is a tremendous opportunity for us to really reap the benefits of providing such an experience on-premises, on the premises of our customers wherever they are with the notion of on-premises being loosely defined, either it's really the headquarters of the company in question or it's a colocation, where we install the equipment for our customers and manage it on their behalf. And so we have pivoted the company as a service before the pandemic. We embarked on that journey 2 years ago, back in May of 2019. And our CEO, Antonio Neri, announced that we would be pivoting a large chunk of our portfolio, making it available as solutions that customers consume by 2022. In fact, everything that you can buy from HPE can be consumed or will be provided in a consumption as a service contract by 2022 made available that way. So we track internally our progress towards this with our as-a-service metrics, and the most important metric is our ARR, which is our annualized run rate of revenues, which is an all-encompassing metric across all the segments that I've described to you earlier on. And we're doing very well. We're intending to grow this at a 30% to 40% CAGR between fiscal year '19 and fiscal year '23. We gave a guidance from fiscal year '19 to fiscal year '22. We kept that same guidance of a 30% to 40% CAGR unchanged and extended it by 1 year all the way on to fiscal year '23 from fiscal year '20. We did a 30% CAGR in fiscal year '20 relative to '19. In the first quarter, we showed a 27% growth rate. And we're still getting a substantial amount of new orders as customers are increasingly adopting service contract to solve for their digital transformation needs with HPE. We're unique in that sense. No other company in our space does what we do the way we do it because you truly pay for what you consume. Now this is the difference between providing a lease and providing real flex capacity consumption. We provide flex capacity consumption, meaning you can acquire a service contract that provides for certain capacity on a server or a storage solution. You pay for that capacity. Should that capacity need increase, you can augment the payment. We monitor the consumption of the resources, CPU power, storage, et cetera, on your behalf. And we charge you as a customer solely for what you truly consume. And we saw very strong adoption of this model, very different from a lease. Of course, there is a financial wrap, and this is why our HPE Financial Services business is doing very well. But this is not what the competitors are doing. They're essentially recouping over time the cost of the hardware. That is not what we do. What we do is real flexible consumption, flexible capacity.

So I wanted to just have one last kind of macro question and then drill into the businesses. But the other thing we're observing is just a weaker U.S. dollar. And you've got a very global company with sales and expenses in different currencies. Could you put a little context around what this means to you?

Yes. So when we report our results, we always talk in constant currency basis. And that is precisely to just help investors navigate through those FX pitfalls. So our reported revenue on a constant currency basis, in total, declined 3%, which was less than what we anticipated walking into Q1. And when you look at the reported basis, on a reported basis, the actual dollars declined 2%, meaning FX was favorable given our geographical footprint by about 80 basis points. So that's with the rounding, the movement from minus 3% to minus 2%. So we didn't really benefit tremendously from FX rates. We had a comprehensive hedging program that we run in my treasury team. And effectively, all the FX impacts are provided and catered for in the guidance we provide. We're not counting on FX tailwinds to achieve our guidance for the full year given our hedging program and the diversification -- geographic diversification of our revenue mix.

Great. So among the metrics that investors want to talk about, top line growth is clearly on the top of this list. And you forecast that you're returning to growth 3-year CAGR 1% to 3%. So maybe help unpack that a little bit in terms of what are the different businesses doing.

Yes. So first, I'll give you a picture on an overall company basis. So remember, the disruption that COVID triggered in fiscal year '20 was most felt around Q2 of last year, which was the trough. So Q2-on-Q2 will have an easy compare year-over-year because, like I said, we will be growing double-digit rates this second quarter. We feel comfortable about that. What has happened last year is that revenues that were meant to be booked in the first half of the year ended up being booked in the second half of the year. So we had a shift of $750 million from H1 to H2 as a result of an elevated backlog of orders that we did receive in the first half of the year but we couldn't execute on because the world was shut down due to COVID. And so we -- luckily, and after really hard work -- a lot of hard work, not just luck, we were able to fulfill those backlog orders in Q3 and Q4 of last year. So we reduced our backlog by $750 million in H2. We typically have $750 million of orders in any 1 quarter. We had $1.5 billion that we worked through. And so we reduced it by half: $500 million in Q3, $250 million in Q4. So when you do year-over-year compares quarter-on-quarter, please be mindful of the backlog impact in the baselines that are used to compute your equation on growth at the baseline in fiscal year '20. With respect to the segments on revenue guidance, we don't guide your revenue by segments. I think what I want to leave you with is that we believe that for -- specifically for Aruba, that growth rate that you've seen in Q1 will continue. We feel very good about the growth rate in Aruba in the second, third and fourth quarter. It's a business that is humming and gaining share. Specifically with Storage, I'd say to you that the portfolio mix effect that -- between the new generation of products that are software-rich versus the old generation of product, will subside. Meaning, the new generation of products, Primera in particular, will overtake the old generation 3PAR as of the second quarter. We feel very good about that. So that's good for margins and it's good for revenue, too. Compute will continue on its trajectory. We see durable demand there, like I said on the earnings announcement. If you normalize for the $250 million of backlog that we had in Q4 of last year, Q1-on-Q4 growth for Compute was positive. This growth came by way of an increase in average unit price of 6%, and also by way of an increase in quantity in units that grew 10% sequentially. So I feel very, very good about where the business is at in Aruba, in Storage and in Compute. And with respect to HPC, MCS, we did guide for the high-performance compute and supercomputing segment that we will be growing at 8% to 10% per year for the next 3 years. That holds true for this year as well. But please bear in mind, Simon, that it's a lumpy business with very large contracts that involve very sophisticated computers -- supercomputers built on-premise of customers. And customers have to accept the performance of the computer. And once they accept the performance of the machine, we can actually recognize the revenue. That is a lumpiness that is inherent to that business that we understand and manage on a day-to-day basis. So overall, I think the point to take away is this year, we feel comfortable with the 1% to 3% top line growth across the company.

So I guess this sort of leads this puzzle and a debate, I think, not unique to HP Enterprise but around your peer group, is why isn't growth faster than -- some of the market researchers talk about the post-pandemic environment. IT spending growing kind of mid-single digits is sort of this bogey. And we get a sense that the equipment suppliers are a little bit more cautious. And so your 1% to 3% is not outrageous, but that's not 5%. What's the difference between what sort of the Gartners and IDCs of the world are expecting and maybe what you're expecting?

There could be errors in what they're expecting or there could be errors in what we are expecting. Look, the reality is that the recovery, we feel, is going to be gradual, okay? It's a confidence issue in the economy. The GDP has to recover. IT spend, it correlates extremely well with GDP, and it's across economic cycles. And so what you're going to see is the economic recovery taking hold and look at that recovery with a lens that IT spend will be a function of that economic recovery, possibly with some acceleration. This is where the debate is. Possibly with some acceleration as customers are learning the lesson that they need to digitize their businesses more. But that is a margin of error. It's really hinting -- hinging, excuse me, hinging on the -- whether or not customers are really embracing digitization very, very hard. We see that it's a strategic imperative. We see it from our customers. But it may not be the same for every company worldwide. It may not be felt the same way by some of our competitors who are also operating in our space.

So when you think about how you look at the full year, do you have in mind a bull case? Everything goes right. A bear case? Hey, these risks that we're worried about really manifest themselves. What's kind of the boundary conditions around your forecast?

There is a bull case and there is a bear case. But we're only at the first quarter of this year, and so that's why we say we prefer to remain prudent. And like I said to our team internally yesterday with Antonio, our CEO, we said, "Look, never waste the opportunity that a crisis presents." And we were quick on the mark in the second quarter. We did restructure the company to take advantage of this to emerge a leaner, more agile and faster company out of the crisis. This is now what you're seeing in the first quarter. Equally, we shouldn't be very gung ho about how we go about spend, how we go about losing focus. We still have to hold it steady for the upcoming quarters moving forward to deliver upside to our plan. So I personally feel good of where we stand right now. There is room, potentially, during the course of the year to up guidance even further. I mean we've upped free cash flow guidance from $900 million to $1.1 billion to a new range of $1.1 billion to $1.4 billion. That's quite a big jump in free cash, considering that last year, we were in the $500 million range of free cash flow, right? So the growth in free cash flow that we would be witnessing this year at the midpoint of the $1.1 billion to $1.4 billion range is more than double. And so that's a pretty solid performance. Knowing also that we are incurring restructuring costs and that, that guidance of $1.1 billion to $1.4 billion is after incurring $700 million of restructuring costs in fiscal year '21 as part of our restructuring program. So when you normalize this, this bodes very, very well for fiscal year '22 in terms of free cash flow growth, if the economy continues to strengthen and the recovery continues its momentum.

And that nicely leads into, really, the next metric I want to talk about, was free cash flow. I think it's interesting that prior to your report, investors we spoke to challenged the assumptions on free cash flow. So the pushback we were hearing was, they're not going to make it. They're going to come in below $900 million. Look at component pricing. Look at the environment. They're going to miss it. So 24 hours later, you put up a very strong free cash flow quarter. You took the full year forecast up, but you took it up by basically the degree of the upside to the quarter. So now what we're hearing as well, there's no follow-through. These are timing issues. My argument is it's a burden to hand. I'd rather have that cash on the balance sheet than wait for it later in the year. But I want to hear from you a little bit about what drove the upside in this quarter. And why would you not sort of have more follow-through in the back half of the year?

Well, I love to -- first of all, I love to prove the pundits wrong, and that's my job. And we did that in Q1, and we'll continue to do that. This is really -- I take a great pleasure at doing so. I think if you really look at our free cash flow guidance and the performance on free cash flow in Q1, it's a function of 3 factors. First of all, yes, you're absolutely right. Operating profit was essentially the main driver. We beat consensus by $151 million at the operating profit level. That translated into free cash flow improvement. That is sustainable to the extent that, again, the revenue comes, which we believe we will, and we keep a lid down expense spending. The second driver is our cash flow conversion cycle. Our cash flow conversion cycle improved. It was minus 7 days in Q4, and it's minus 9 days in Q1. So 2 days of cash flow conversion cycle improvement on a business that is $6.8 billion of revenue, that's a lot of cash. And we feel that there is further upside in our cash conversion cycle. So now let me dissect this for you. On the accounts receivable front, we generated a pretty decent improvement 3 days quarter-on-quarter. The vast majority of our receivables are current. I cannot ask more from my team. 99.3% of our receivables are current in our core business and in HPFS, which has had historically high collections, which attest of the quality of their portfolio. So the receivables are -- you can't really do much better than that. Payables also improved by 6 days to 103 days, and we feel very good about our payables and the way we manage our suppliers. There may be some upside there, but these 9 days of improvement are also to account for 7 days of increase in inventory days. And that is because we want to make sure that we are ready from an inventory standpoint to withstand a new demand that comes our way, and we want to capitalize on that demand. So working capital will improve its contribution over the upcoming quarters, not just this fiscal year but beyond, as the activity resumes to a more steady flow of business between the supply side and the demand side of the equation. And finally, the third driver was the volume level. The level of underwritten business in HPFS was a little bit lower than what we were expecting, but for a good reason. We didn't want to change the underwriting criteria at HPFS. We want them to write the right type of volume, the right type of business and not necessarily chase volume for the sake of chasing it. And so when you take that into account, this actually means lower CapEx than originally anticipated. And the 3 effects of better operating profit, better cash flow conversion cycle and lower volumes have driven free cash flow to the levels you've seen in Q1. It's a historic high. We never had a positive free cash flow in the first quarter of the fiscal year. This attest of the work we've done at the end of fiscal year '20 with our restructuring program. And at the same time, it bodes very well for the subsequent quarters in fiscal year '21 and beyond. So I feel very comfortable about this. $1.1 billion to $1.4 billion is perfectly doable. And those voices that you heard from Gremlins saying we won't achieve the $900 million will probably fade away.

Well, I appreciate that. Believe it or not, we're just about out of time, just a tad over. There's a lot more I wanted to talk to you about, but I always like to close with the following question: What do you think is the least appreciated aspect of HPE's story?

Thank you for giving me that opportunity, Simon, to answer this question. Look, a lot of people criticize compute because they say, it's a cyclical business, it's low margin, et cetera. Wait a minute, we're making 11% operating profit margins in Compute. Now if you really look at a business that is commoditizing, that is generating 11% operating profit margins, not many are out there, number one. Number two, even if you compare us to other players in the industry like Dell, our business is profitable. Dell is not. So there is something that we're doing right. You can triangulate the profitability of Dell's CSG group, remove PCs and printers to compare it on a like-for-like basis. The vast majority of the profit comes out of their storage side, not the compute side. So I think the work that we've done on Compute is underappreciated, to answer your question. There's more to come. And also on Storage, there will be more to come. We have a business there that is, size-wise, on the par with NetApp and also generating 19-plus percent operating profit margins. And so our goal is to continue to drive scale and extract margin out of the scales from the core. That story has yet to be fully grasped by the market. As we extract cash from the core, we are pivoting more as a service to create the foundation for a more sustainable profitable growth profile for years to come.

Great. Well, I thank you for your time today, Tarek, Nancy as well. Folks, thanks for joining us. This is Simon Leopold with Raymond James signing out of our session with Hewlett Packard Enterprise. Thanks a lot, guys.

Thank you, Simon.