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

Good morning, and welcome. I'm Pat Russo, Chair of the Board of Hewlett Packard Enterprise. Thank you for joining us for HPE's 2022 Annual Shareholder Meeting. The meeting is now called to order. Our virtual meeting format is accessible to all of our shareholders around the world and allows you to participate in the meeting, submit questions and vote your shares online prior to the polls closing. I'm here at the new Houston, Texas, headquarters and joined today by Antonio Neri, our President and Chief Executive Officer, who also serves with me as a director; as well as Rishi Varma, our General Counsel and Secretary; and my fellow board members. The company's other executive officers as well as representatives from our registered public accounting firm, Ernst & Young, are participating in the meeting and are available to answer questions as appropriate. The annual meeting is an important event for shareholders to hear directly from the Board and management. I will share brief comments about the Board's view of the progress HPE has made to advance the company's strategy and as a service transformation, as well as its purpose-driven ESG initiatives. Then I'll turn it over to Rishi to review the rules and conduct of the meeting as well as the administrative items. We'll then hear from Antonio, who will provide an update on the business, the market opportunity and how HPE is well positioned to help customers digitally transform. We have received a number of questions that were submitted prior to today's meeting, and you may also submit your questions throughout the meeting through a text box on your screen. Your questions are all important and we'll answer as many as we can today during the session and we'll post responses to all the questions on the Investor Relations website following the meeting. So before I hand it over to Rishi, let me share some thoughts on the past year at HPE. Over the past year, governments and companies all over the world continue to navigate incredibly turbulent times as we address the global pandemic and related business disruption and uncertainty. The HPE Board is proud of how the company, its leaders and our 60,000 team members worldwide have performed during these trying times, bringing technology and expertise to our customers, partners and communities. We're also pleased with the progress the company has made in executing its edge-to-cloud strategy and accelerating its as-a-service transformation. The Board believes that HPE is well positioned to execute on its vision successfully with strong leadership and an unmatched portfolio that uniquely addresses customer needs. The company exceeded commitments across all financial metrics in 2021 and entered fiscal year 2022 with solid momentum and a relentless focus on execution. The first quarter performance showed order growth of 20% from the prior year period, including 136% rise in as-a-service orders. Antonio and the leadership team are taking deliberate steps to accelerate the company's transformation with a focus on creating long-term value for our shareholders. HPE recognizes that its continued customer traction relies on differentiated innovation. The company's portfolio has been strengthened through organic and inorganic innovation. In 2021, the company brought to market compelling new solutions aligned to the emerging needs of our customers and HPE made strategic acquisitions such as Ampool, Determined AI and Zerto that enabled the company to expand capabilities in relevant and profitable markets. At this pivotal moment, the company continues to be guided by its purpose. HPE has a responsibility and a commitment to imagine new digital transformation strategies that support ESG goals, leading to better business results and societal impact. The HPE Board is actively involved in providing oversight of ESG issues and ensuring that the risks and opportunities are integrated into our long-term strategy. We're proud of the steps we've taken and the progress we're making to build a more diverse and equitable company. We're committed to being unconditionally inclusive to capture the perspectives, the fuel innovation and enable our workforce, customers and communities to succeed. These efforts start from the top, and that includes with the Board that is 50% diverse by ethnicity and gender. The company is also engaging with customers on sustainability-related needs to drive new revenue opportunities and accelerate sustainable IT. For example, HPE GreenLake's offerings help customers optimize sustainability in their IT estates. Our ESG leadership is integrated into many aspects of our operations, enhancing HPE's competitiveness, resilience and relationships with stakeholders in countless ways. HPE is recognized as an industry leader in ESG issues, management and disclosure, driving the competitiveness of our business. Let me close by saying again that the HPE Board is confident in the company's strategy and the leadership team's ability to execute. With robust demand across the portfolio, the company is well positioned for success in serving as a trusted partner to customers around the globe. We believe that the company will continue delivering strong returns for our shareholders. We value your support as HPE accelerates its edge to cloud transformation. And so on behalf of the entire board, thank you for your ongoing support as a shareholder of HPE and for joining us today. Now I'll turn it over to Rishi Varma. Rishi?

Thanks, Pat. Welcome, everyone. This morning, I'll walk you through the meeting logistics and the proposals to be voted on, and then you'll hear from Antonio, followed by a Q&A session. HPE's agents have certified that notice of the meeting was provided starting on February 16, 2022, to all shareholders of record as of the record date for the meeting. Copies of those certifications are in the possession of the Secretary. I therefore declare that legal notice of the meeting has been duly given. Today's meeting may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties, including those described in our Form 10-K for fiscal 2021. In addition, the information presented at this meeting may include references to amounts that are expressed on a non-GAAP basis. A reconciliation of such non-GAAP amounts to GAAP and other information relating to these non-GAAP measures is available on our Investor Relations website. The company has appointed [ Chris Veeco of the Veeco Group ] to serve as our Inspector of Election for this meeting. She is participating in the meeting live online today and, as required by law, has taken and signed an oath as Inspector of Election. This document is also filed with the minutes of this meeting. We will conduct a question-and-answer session later in the meeting prior to the official closing of the polls. You should be able to see that on the virtual meeting portal there is a text box where you may submit questions. Please feel free to submit questions at any time prior to the end of the Q&A session. We will answer questions that we received in connection with today's meeting. And in the interest of time, we will address all unanswered questions on our Investor Relations website after the meeting. The inspector of elections has informed us that a majority of the outstanding shares held of record and entitled to vote as of the close of business on the record date, February 4, 2022, are represented at the meeting. We therefore declare that there is a quorum present and that we may proceed with the business of the meeting. Please remember that you may vote your shares online any time during this meeting prior to the closing of the polls. This morning, we have 5 proposals for you to consider, which were all described in the proxy statement for today's meeting. The first item is the election of directors. The following 11 people have been nominated to serve on the Board of Directors and will be voted upon today. Dan Ammann, Pamela Carter, Jean Hobby, George Kurtz, Ray Lane, Ann Livermore, Antonio Neri, Charles Noski, Raymond Ozzie, Gary Reiner, and Pat Russo. The biographies of the 11 directors are available in the proxy statement for today's meeting, if you'd like to review them in detail. The Board recommends a vote for each of them. The second item is the ratification of the appointment of Ernst & Young as HPE's independent registered public accounting firm for fiscal 2022. The Board also recommends a vote for this proposal. At this time, I'd like to acknowledge Linda Hill, Sarah MacDonald, Constant Djacga and Brad Rowland, representatives of Ernst & Young, who are participating in today's meeting online. The third item is the approval of the increase of shares reserved under the HPE 2021 Stock Incentive Plan. The Board recommends a vote for this proposal. The fourth item is an advisory vote on HPE's executive compensation. The Board recommends a vote for this proposal. The fifth item is a stockholder proposal entitled Special Shareholder Meeting Improvement. John Chevedden, stockholder proponent has joined the meeting and will now briefly present the stockholder proposal. Mr. Chevedden, you will be live for 5 minutes to present your proposal.

This is John Chevedden. Can you hear me okay?

Yes, we can. Please continue.

Proposal 5, special shareholder meeting improvement. Shareholders ask our Board to take the steps necessary to amend the governing documents to give the owners of a combined 15% of our outstanding common stock the power to call a special shareholder meeting. HPE currently has one of the highest stock ownership thresholds to call a special shareholder meeting, 25% of shares. This 25% of shares translates into more than 32% of the HPE shares that normally vote at our annual meeting. It will be hopeless to think that shareholders who do not have the time to vote would have the time to take the special procedural steps to ask for a special shareholder meeting. Plus there are 300 words on our bylaws that describe shares that are owned by shareholders, but are shares that do not qualify to formally participate in the calling of a special shareholder meeting. Hence a group of shareholders could determine that when they combine all their shares to meet the 25% of shares to call a special meeting that are not excluded by the 300 words in our bylaws, that they actually have an ownership right on 40% of the shares that vote at the annual meeting. Thus for practical purposes, a theoretical 25% stock ownership can translate into a real 40% stock ownership. Not much for management to brag about as far as empowering shareholders as was claimed in the 2019 annual meeting proxy. HP Inc. provides 15% of shares to call a special shareholder meeting. And HP Inc.'s stock is up 105% in a recent 5-year period compared to a measly 19% for HPE stock. Plus HPE shareholders gave 46% support to a shareholder right deck by written consent at our 2019 Annual Meeting. This likely equals majority approval from the shares that have access to independent proxy voting advice. And we still have no right deck by written consent. Since management will not give shareholders a right deck by written consent, we need the right for 15% of shares to be able to call a special shareholder meeting. Southwest Airlines and Target are companies that do not provide for shareholder written consent and yet provide for 10% of shares to call for a special shareholder meeting. A special shareholder meeting can elect a new director. At our 2021 Annual Meeting, Mr. Raymond Lane received 109 million negative votes, and Ms. Mary Agnes Wilderotter, Audit Committee Chair, not standing for reelection today, received 107 million negative votes. Please vote yes for special shareholder meeting improvement, Proposal 5.

Thank you, Mr. Chevedden. As described in the proxy statement, HPE opposes this proposal. The Board recommends a vote against this proposal. A summary of our statement and opposition to this proposal can be found in our proxy statement. We will address questions during the Q&A session later in the meeting. And in the meantime, I encourage you and all shareholders to submit any questions online in the box on your screen. Now that you've heard about the 5 items that you've been asked to vote on, we will proceed to voting on those items. It is 11:14 a.m. and the polls are open for voting on each of the 5 items. If you've not yet voted or wish to change your vote, you may do so by clicking on the voting button on your screen and following the instructions there. Shareholders who have sent in proxies or voted via telephone or Internet, who do not want to change their vote, do not need to take any further action. As you're making your voting decisions, I will turn it over to Antonio to provide some highlights of the past year at HPE as well as an overview of our go-forward strategy. Antonio?

Well, thank you, Rishi, and good morning, good afternoon, everyone. I'm glad you could join us today. As Pat mentioned, we are speaking to you from HPE's new corporate headquarters in Houston, Texas. We have been eagerly awaiting the opening of this state-of-the-art new space and the opportunity to bring our teams together to collaborate and innovate for our customers and partners. Our purpose to advance the way people live and work guides us at HPE. And it's incredibly important during these challenging times we live. The war and humanitarian crisis in Ukraine continues to escalate and the toll has been devastating. The HPE executive team and I are in constant contact with our teams in the region. I know how difficult the situation has become for our team members, our customers and their families. Our focus remains on their safety and well-being and on continuing to find ways we can help alleviate the current situation. From a business perspective, we have suspended all shipments and sales in Russia and Belarus at this time. We have no direct operations in the Ukraine. I am proud of and grateful for our team members and the relentless dedication during these trying times. They enable the company to execute on our strategic vision, delivering value for our customers, for society and for you, our shareholders. Today, I will discuss how our differentiated edge-to-cloud strategy is at the center of market megatrends, driving significant growth opportunities for our company. I will also detail how our market leadership is intensifying, adding value for our shareholders, as customers respond to our value proposition. Let's start with the megatrends that are shaping the enterprise technology. First is the explosion of connected devices and things at the edge generate an enormous amount of data. Second is the need for a cloud experience everywhere. Third, persistent data growth creates a need for more insights and an urgency to extract them. Cutting across these trends, is the shift on how enterprises want to consume technology, increasingly through a flexible as-a-service consumption model. The pandemic has created a new and different world that has accelerated these trends. Customers now need to connect and engage in different ways and technology plays a critical role in improving the health of our communities and digitizing our economy as it recovers and evolves. We have positioned HPE at the center of this strength through our edge-to-cloud platform, HPE GreenLake. HPE GreenLake is uniquely designed to help customers drive their digital transformations through a data-first modernization approach by harnessing the power of the data. As enterprises increasingly adopt hybrid multi-cloud strategies, HPE is leading a new edge-to-cloud category to enable customers to derive value from all their data, no matter where it lives. Over the last few years, we have made tremendous progress in realizing our vision to be the edge-to-cloud company. In 2018, we said that the edge will be the next frontier, and we backed that vision with a commitment to invest $4 billion over the course of 4 years in our edge business. The next year, in 2019, we announced that we'll make all our offerings available as a service within the next 3 years. Today, those strategic decisions and others are paying off. You are seeing our differentiated edge-to-cloud strategy yield greater returns, while positioning our company into the future and delivering sustainable, profitable growth for our shareholders. In fiscal year 2021, we exceeded our commitments on all financial metrics, even as we faced global supply constraints during the year, which continue to persist. Our edge-to-cloud strategy has helped lead us to higher revenue and free cash flow at higher gross margins. And to put it in perspective, our fiscal year '21 results, we generated our highest profit ever on a non-GAAP earnings per share basis the most since the separation of Hewlett Packard based on continuing operations. Non-GAAP EPS of $1.96 increased fiscal year '21 almost 30% from the prior year. Our profitability boost came partially through our continued strategic investment in high-growth margin reach areas of our portfolio. We aligned strategic priorities in fiscal year '18 to drive sustainable, profitable growth, and we have been following through. In fiscal year '21, orders growth rose to a record 16%, demonstrating an acceleration of our business momentum. Revenue of $27.8 billion in fiscal year '21 increased 3%. We believe our long-term financial profile is healthy, underpinned by a sustained revenue growth rate of 2% to 4%, adjusted for constant currency through fiscal year '24. Our drive to higher recurring revenue streams has been intentional. Our annualized revenue run rate or ARR in Q4 '21 rose 36% from the prior year period. We view this as a long-term value driver, and we expect our ARR will grow between 35% and 45% and exceed $2.3 billion by the end of fiscal year '24. We are nearing the end of a cost optimization and prioritization plan we started in May 2020, which will allow HP to deliver more than $800 million in net annualized run rate savings. Our mix of unique assets, strategic investments and execution of the cost optimization and resource allocation program are driving strong free cash flow along with profit. Our fiscal year '21 efforts resulted in free cash flow of $1.6 billion, almost 3x more than fiscal year '20. Over the next 3 fiscal years, we expect HPE to produce between $6.5 billion and $7 billion of cumulative free cash flow. We have prioritized investments to drive future growth of our business and remain committed to shareholder distribution of profits. Dividend distributions in fiscal year '21 were $625 million. Dividends are a fixed component of our capital allocation framework. In addition, we plan to repurchase at least $500 million in shares in fiscal year '22. The benefits of our strategy for both customers and shareholders are continuing to play out in fiscal year '22, demonstrated through a very solid Q1 performance. Our sharp focus on execution resulted in higher revenue and profitability, not worth it against the backdrop of industry-wide supply shortages and overloaded logistics channels. And the source of much of this momentum is HPE GreenLake, which, as I mentioned, is at the center of our strategy. It allows us to bring unique value to customers, cloud strategies, helping them to navigate today's multi-cloud era. This differentiated platform enables customers to modernize all their applications and data across edge-to-cloud. Customers appreciate that it provides a unified cloud service experience to access control and maximize the value of all their work loads and data wherever they live. HPE GreenLake is generating record-breaking demand with impressive profitability across our businesses. We are quickly accelerating our HPE GreenLake roadmap to continue to build and differentiate the services and experience customers receive under the leadership of our Chief Technology Officer, Fidelma Russo. Hundreds of notable enterprises and organizations like Barclays, BMW, and the United States National Security Agency now entrust HPE GreenLake with the most important business outcomes. And just 2 weeks ago, we unveiled a unified simplified experience for HPE GreenLake now with more than 50 cloud services and an expanded partner ecosystem. Our Aruba Edge networking cloud services has converged now with HPE GreenLake, allowing 120,000 customers coming from the Aruba networking space, and more than 100,000 partners to access the HPE GreenLake platform. The success and momentum we have seen in the market makes me more committed than ever to our edge-to-cloud vision, as it directly addresses evolving customer needs and positions us to deliver long-term sustainable, profitable growth for you, our shareholders. Our strategy is driving compelling results and societal impact. At HPE, our purpose is to advance the way people live and work. And we view our business and ESG strategies as inextricably linked. Pat already discussed how ESG focus enhances our competitiveness in the market, and that is exactly what we are seeing in the business. More and more customers are choosing HPE, in part because of our portfolios, sustainability attributes and our commitment to contributing to the circular economy. In fiscal year '21, we gained nearly $900 million in revenue from sustainability-related customer engagements. Our sustainability agenda goes hand-in-hand with our transition to an as-a-service company. We can help customers drive more sustainable digital transformations by enabling them to flexibly scale IT to meet their needs, reducing IT inefficiencies and the carbon footprint that harm the planet. In fact, customers moving to our HPE GreenLake platform from traditional CapEx models can achieve more than 30% reduction in their carbon footprint. HPE Financial Services plays an important role in sustainability strategy for us. This business segment provides asset upcycling to customers, which means reuse of millions of technology assets, while freeing up capital that companies can reinvest in their businesses. We're also committed to developing our human capital and improving our communities. We recognize that what we do is not possible without the right talent. We have invested significantly in the culture of our company, working to help our entire workforce to understand what part they play in our strategy and in our success. I was glad to welcome team members from around the globe for a virtual first look at the new Houston headquarters yesterday in yesterday's All Team Members meeting as a part of our official grand opening of the campus. We reopened all our U.S. offices last month, the team members who wished to return, following careful analysis of information and guidance from the public health officials. Our 60,000 team members are highly engaged with our company. Our engagement scores were, again, at the highest level ever in an annual workforce study. Voluntary retention in fiscal year '21 was 93%, with more than 2/3 of team members reporting HP encourages them to pursue their career advancement at the company. At HPE, we believe our business success is tied to diversity. We are committed to being unconditionally inclusive to capture diverse ideas and perspectives that fuel innovation. We have been making great progress on our goals to improve diversity throughout our company and help team members advance in their careers. For example, in 2021, our promotion rate for women more than doubled from 2020. You have heard today about how our unmatched edge-to-cloud strategy is being validated by our customers. In 2021, we successfully navigated through another year of COVID-19 pandemic and its supply challenges. Guided by an experienced leadership team and our HPE team culture, we deliver another year of shareholder value creation. We are well on our way to pivot in HPE to realize our full potential as the edge-to-cloud company that innovates for customers and executes with precision. We are focused on continuing to shift the HP portfolio into higher-growth margin-rich offerings. We're also driving greater demand for our as-a-service offerings, particularly high-value software and services, which leads to faster AI growth and higher margins. And we have designed a capital allocation framework that prioritizes investments that drive further long-term revenue and free cash flow growth with consistent capital returns to shareholders. I am very confident that we will again execute on our strategic plan during 2022 to support a long-term vision of creating sustainable value for our shareholders. Thank you again for joining us today, and thank you for your investment in HPE. Now, I would like to hand it back to Rishi.

Thank you, Antonio. Let's now move on to the question-and-answer portion of this meeting. [Operator Instructions] I'll turn the Q&A over to Andy Simanek. Andy?

Great. Thank you, Rishi. So we've received a number of questions regarding HPE's growth and strategy. For example, 1 shareholder writes, what is management proposing to do to significantly enhance business performance and strategic value to the shareholder? Antonio, maybe, that's a good one for you.

Sure. Well, thank you for the question. We are constantly seeking to maximize shareholder value. That's our job, and we have made incredible progress in transforming the company to become that edge-to-cloud leader that we want to be, executing on our strategy to help customers in what we call a truly differentiated way that positions us for the long-term sustainable, profitable growth we want to drive for our shareholders. When I think about the customer feedback, and I spent 50% of my time talking to customers every day. What they're telling us is that HPE can become more relevant in what they do, but it's important that we execute against the megatrends I covered at the beginning of my prepared remarks. And all of that we are bringing into our platform approach, which we call HPE GreenLake. That's the platform at the center of our strategy. And as you saw in some of our numbers, we have delivered record-breaking results. And in fact, in the last 5 quarters, you see an increased momentum with Q1 2022 exiting with that 136% year-over-year growth. So we believe we are not only positioned to drive long-term growth, improved high gross margin and as well, at the same time, drive that ratable revenue, which obviously is important because we are moving to what I call a customer lifetime value. So again, we are very excited with the momentum we have in the market. We believe our strategy is winning in the market and that will continue to be the case that we execute over the next 4 to 6 quarters.

Great. Perfect. Thanks, Antonio. So several shareholders have also asked about HPE's dividend and whether it will increase. Tarek, I believe you're on the line. Do you want to take that one?

Yes. Thank you, Andy. Dividends are one important element of HPE's overall value creation framework. We always follow a disciplined returns-based capital allocation framework, with a rigorous investment evaluation process to maximize shareholder value. It's crucial for us to balance current capital returns while making investments in high ROI growth areas to drive the long-term health of the business. This balancing act is critical to capture the edge-to-cloud opportunity, while consistently returning capital to our shareholders. We remain committed to dividends and expect to pay roughly $625 million to shareholders in fiscal year '22 and are currently yielding near 3% in the top decile of our peer group.

Great. Thanks, Tarek. So along the same lines, 1 shareholder asks, is the management team exploring M&A or other innovative ways to improve shareholder value? Antonio, maybe, that's another good one for you.

Yes. As I said earlier, I think HPE is in a prime position to capitalize on the trends we discussed earlier. But I think about innovation 3 forms, right? I think about organic innovation. HPE GreenLake is a great example of that. I think about partnerships where it plays an important role. Let's remind ourselves that partners today drive more than 70% of our business, and partners is a broader ecosystem of solution integrators, distributors, value-added resellers, new start-up companies. We have a promo called HPE Pathfinder that scouts for those early start-ups that we can bring into our solutions. And sometimes, we make investments to grow with them as well. But at the same time, inorganic plays are important. And as I think about, reflect the last 5 years, I have done now 25 acquisitions, and all of them have been important in the context to drive our strategy, to accelerate our strategy through a couple of plays. Number 1 is intellectual property, obviously, its talent, and then scale that to our solutions in our go-to-market, which I think is one of our crown jewels. So M&A plays an important role, but we hold ourselves to an incredible discipline return-based process. And that's our commitment to you. When we look and assess what our potential opportunities are out in the market, we kind of analyze all the aspects of the return on invested capital, and we will continue to do so. But at the same time, it's important that we continue to make the right acquisitions to accelerate what I believe is a winning strategy today.

Great. Thank you. So the next question we have is, would it make sense, while borrowing, our interest rates are so low, to borrow money to fund share buybacks? Tarek, another capital allocation question for you.

Thank you, Andrew. Another great question. So share repurchases are another important element, similar to dividends and M&A, of HPE's overall value creation framework that must account for our capital structure and debt levels. We regularly review our optimal capital structure and take into account interest rates with the cost of debt and equity when assessing investments like share repurchases and acquisitions. It is crucial for us to balance the current capital returns while making investments in high ROI growth areas to drive the long-term health of the business. Specifically, to share repurchases, we reinstated our share buyback program in Q4 of last year, given that we see good value in repurchasing shares at current levels and our confidence of robust future cash flow generation. We will also target buybacks of $500 million in fiscal year '22, possibly more, depending on the successful pace of execution of our as-a-service strategy. In total, with dividends at our target levels, we will be returning about 60% of free cash flow to shareholders in fiscal year '22. Beyond fiscal year '22, and as the execution of our edge-to-cloud strategy gains further traction, our capital allocation will continue to be a rigorous balancing act between investments to drive long-term revenue and free cash flow growth, with consistent returns to maximize shareholder value. Andy?

Thank you, Tarek. So we received a number of questions regarding our share price performance and why it may have underperformed during certain time periods. Tarek, maybe that's another good one for you.

Thank you, Andy. So we've made tremendous progress realizing our vision to be the edge-to-cloud company and executing against our long-term financial architecture, where we exceeded all of our commitments that we stated for fiscal year '21. We are driving more sustainable growth with a higher level of recurring revenue at better profit margins that is generating greater levels of cash flow. We are on track to deliver $6.5 billion to $7 billion of free cash flow over the next 3 years. This is what Antonio shared with you in the slides, and this is being increasingly rewarded by the market. Since the global financial crisis, there has been an extended period of extreme low interest rates that has caused the market to disproportionately favor high growth and often, unprofitable stocks over more value-oriented stocks with robust cash generation, like HPE. However, this secular underperformance of value stocks is starting to reverse as interest rates rise and inflation takes off causing growth stocks to derate in favor of value stocks that historically outperformed over the long term, like HPE, due to their strong profitability. Following our Q1 earnings that was characterized by robust demand and strong profitability, our share price rose 10.3% the day after the announcement. This, as a result of our continued strong execution and more recent market rotation, you could see that HPE has outperformed the market by up to 10% year-to-date versus the market, which is down 10% over the same period.

Great. Thank you, Tarek. So we've received a couple of live questions about the situation in Russia and Ukraine. Can you clarify, if you still do business in Russia and what humanitarian aid HPE is providing to Ukraine? Antonio, maybe, it's for you.

Yes, of course. And as I said in my remarks, we have suspended all our business at this point in time in Russia, meaning we are not shipping, and we are not selling at this time. We are taking care of the Russian employees, which basically what we have done is prepay them for 90 days as we hope the situation evolves. In Ukraine, we don't have direct operations. We work with a specific partner. And what we're doing is helping all the contractors, because we have several contractors that work in our business, which are amazing software engineers, coders, and we are treating them not different than they were HPE full-time employees at this point in time. So we are helping them relocate families. We are opening our sites in Poland and Romania, where we have very large sites, so they can come and work. And then we are matching their skills to open requisitions we have in the system that ultimately, we can relocate in other parts of the world. And this is what I said. We are really proud of how we show up. It's part of our culture, and again, tied to our purpose. So obviously, there is more to be done, but that's where we are at this point in time.

Great. Thank you, Antonio. So we've received a number of questions regarding ESG at HPE. For example, what sort of programs and initiatives does HPE spearhead or support to protect the environment. So maybe Pat, we can start with you just outlining HPE's philosophy around ESG, and then we could pass it to Brian Tippens, who's our Chief Sustainability Officer, to give us a few more specifics. But Pat, maybe, if you want to start.

Sure. Thanks, Andy. And I referenced this in my earlier comments. But just to recount, HPE's sustainable business strategy, we have called Living Progress. And that really addresses the environmental, social and governance issues that are most relevant and significant to our business. That strategy is one that's not just focused on compliance and making sure we're doing all the mandatory disclosures, but as I said earlier, it really is about ensuring, and the Board oversees this, that ESG considerations are fully integrated with HPE's overall business strategy as part of the company's ongoing commitment to communities around the globe and the company's commitment to use its strength in ESG, really, as a point of competitive differentiation in the market. And we have seen ESG's leadership and capabilities has really had a demonstrably positive effect on our bottom line. Antonio mentioned earlier, $900 million of revenue tied to sustainability contracts, if you will, where we win business and attract investment by demonstrating the benefits of the sustainability of our portfolio, as well as HPE's reputation and leadership projected to our customers and obviously, investors. So that's sort of a kind of a macro view. And Brian, why don't I throw it over to you and you can add a little bit more detail.

Yes. Thanks for that, Pat, and thanks also to the investors who provided questions about our ESG approach. I'll just add some detail on the progress of some of our initiatives in this space. First, we at HP have a number of science-based emissions reduction targets across our value chain, including a commitment to Net Zero, which is aligned to the latest climate science. And importantly, given that approximately 2/3 of our environmental impacts are generated from our customers' use of our solutions, our business practices are driven in large part by the need to minimize the environmental footprint of our products and services. And I'll add to that, our approach to customer engagement around ESG topics is fairly unique across industry. To support that differentiation that Pat just mentioned, we have, inside HPE, a team of sustainability technologists who engage directly with our customers to co-develop sustainable IT strategies and to demonstrate how our IT efficiency and our circularity capabilities can benefit through operations, while at the same time delivering cost savings for them. So for example, and Pat, you touched on this a bit in your opening remarks, we highlight with customers how our HPE GreenLake solutions can help them eliminate inefficiencies in their IT estates, while at the same time, reducing the environmental impacts of their infrastructure. And we also highlight with customers how at the end of life, our HPE asset upcycling services through HPE Financial Services can take back their IT assets regardless of manufacturer and refurbish and repurpose them for a second life. And as Antonio mentioned, these uniquely customized customer engagements contributed to almost $900 million in new net revenue for fiscal year 2021, which was an increase of more than 185% since 2018. So to underscore Pat's comments, we truly do win business and attract investment by demonstrating the benefits of sustainability and have HPE sustainability leadership to our customers and our investors. And I'll say, finally, we've got a history of transparency in this space. Our ESG performance is reported through our annual reporting and also through our annual Living Progress report, which highlights our positions, our policies and our progress on the ESG issues most relevant to our business.

That's great. Thank you, Brian. Appreciate it, and Pat as well. So the next question we have is we've received several about level of executive compensation. So for example, 1 shareholder asks whether we can pay higher dividends by reducing executive compensation. So maybe, I could ask Pam Carter, who is Chair of our HR and Compensation Committee, to take this one. Pam?

Thank you, Andy, and thank you for the questions. Our success depends upon our ability to attract, develop, support and retain a highly talented workforce that's dedicated to achieving our strategies and goals. We believe in a strong pay for performance, shareholder aligned approach to compensation, and we believe employees at all levels should share in the value that they help create. Our Total Rewards program is designed to link market competitive pay through our annual and long-term performance; two, the achievement of financial and business strategies and objectives; and to align with our shareholders. HPE's executive compensation is performance-based and commensurate with other companies of our size in the industry. And as such, we continually evaluate our compensation for our executive leaders as well as all of our team members to ensure our strategies are competitive, fair and focused on developing and retaining the top talent we need to execute our strategy and build and sustain long-term growth at HPE. To that end, a significant portion of executive compensation is performance based. And more than 3/4 of our senior management targeted Total Rewards program is at risk, which means it is contingent on reaching the performance-based goals and metrics.

Great. Thank you. So we got another live question that just came in. If you have not already covered it during the meeting, who will chair the Audit Committee going forward? Whom have you selected to take the place of Ms. Wilderotter on the committee? Maybe Pat, give that one.

Yes, sure. Thanks. Good question. Well, I am just delighted to share that Gene Hobby, who has an incredible experience with PwC, has agreed to chair the Audit Committee, and in addition, -- and so we're really happy that she'll be doing that. She brings an incredible depth and breadth of experience and perspective. And as well, Chuck Noski, who has a phenomenal level of experience as CFOs of many companies and lots of Board experience, has also agreed to join the Audit Committee. So I feel really good about the depth, the caliber, the capabilities and the experience of the team that's on the Audit Committee, which also includes Pam Carter. So thanks for the question.

Excellent. Okay. So we've received a couple of questions regarding operations in China, particularly given the current geopolitical climate. So 1 shareholder writes, what is the company doing to protect from overreliance on China production? Antonio, maybe, for you?

Yes. I mean, it's a very important question. Obviously, we live in a very turbulent time from the geopolitical perspective, which is very fluid. And we, as an organization, in fact, here at the Board, we continue to assess the risk and what else we need to do to make sure we have a resilient set of supply chain capabilities. And as we go along, obviously, the pandemic, right, has changed a lot of things. So we believe, to our strategic approach, with our suppliers, our global footprint, we are better positioned to be able to deal with these changes and the shocks in many ways. Today, the biggest challenge we have is the availability of components, right? If you think about what I just said in 2021, we grew our orders booking, the customer demand was up 16%, but our revenue was 3% up year-over-year. You can see the divergence there, right? And we believe that the current backlog has now peaked, because the demand continues to be incredibly strong, and in particular, for the areas of the portfolio covered. So with our supply chain team, with our global operations team, with our enterprise risk management framework, we continue to assess and take deliberate actions to diversify where we do work, and also, with our amazing engineering capabilities. Because it's not just where we build the products, it's also how we build the products. And we have the ability to swap components at different times of the life cycle, which will give us more optionality. But this is going to be a journey that never ends. That's the reality, that's the new reality. And now, with the transformation of the back end of the company, particularly from the IT perspective, which is something I initiated in 2018, and we just completed, by the way, 5 days ago. We have now a very robust IT modernized set of platforms, which allows us to move work wherever we need it. So in the end, we have to innovate, and we have to continue to make diversification choices as we go along the way. But ultimately, we're going to compete and win with the best innovation.

Great. Makes sense. Perfect. Thank you. So we've received a couple of questions regarding diversity at the executive levels, with 1 shareholder asking, why is HPE's executive leadership team all men? I appreciate the Board of Directors diversity, but the lack of women leading HPE makes me sad that our company needs more women leading. Pat, maybe, that's a good one for you to take.

Sure. Thanks. It's also something I have some passion about. Let me start with, it's clear to everyone at HPE and certainly, the Board and the leadership team that business success is tied to your ability to have a diverse, equitable and inclusive environment. And I think on that front, we've made great progress. Of course, there is always more work to do, let me be clear about that. But I should say that today, the executive committee actually does include 2 female leaders, Jennifer Temple, who is our Chief Communications Officer; and Fidelma Russo, no relation, is our Chief Technology Officer. Look, we recognize that diverse representation in leadership positions will lead to increased retention of diverse team members, which we view as critical to propelling the success of the business. We have been making progress on our goals. Antonio, along with the Board, has set specific goals and objectives to improve diversity throughout the company and help team members advance in their careers. And I think it was noted earlier, in 2021, our promotion rate for women more than doubled from 2020. Now, we have to keep that up with women, with underrepresented groups, in order to create the level of diversity that we know we need. The HPE Board and, in particular, the HR and Compensation Committee that Pam Carter chairs, regularly monitors the company's progress on diversity, equity and inclusion, and have actually established a portion of our executives' variable pay is tied to diversity goals. As you noted in your question, the Board is one of the most diverse in our industry, which we do believe makes us more capable of representing HPE's workforce and its stakeholders. We're proud about that, but recognize there's always more to do.

Yes. Great. Thank you, Pat. So I think we've got time for one last question here. We've actually received a couple along this line regarding innovation. So 1 shareholder writes, what can you tell shareholders about the depth and breadth of your research and development teams? Can you talk a bit about innovation in R&D at HPE. Antonio, it's probably a great one for you.

Well, this is something that's in our heritage for decades. And this company never stops innovating. And it's not just technology innovation, it's business model innovation. If you think about HPE GreenLake, it's a combination of technology innovation using software and our assets, plus the business model innovation to offer everything as a service. And I think we have decades of proven leadership here. And our goal is to continue their journey and do it faster. How we go further and faster, not only just to advance the business, but the communities we work? In this particular site, and I will encourage our shareholders to come and visit any time, you have a massive cloud that we built just in a few weeks as we move into this new site. We do a lot of DevOps, a lot of innovation across the entire portfolio. And for us, we believe that the next wave of innovation is going to be all around bringing the cloud experience everywhere, including the edge, to make connectivity equitable and an essential service that everybody can get access to, because the on ramp to digital transformation starts by being connected. And last but not least, is all about extracting insights from the data at the pace we have not seen before. If you look today, some of the companies and the brands that are doing that work better are actually winning the marketplace. And our job is to position them to do that job much faster than ever before. And then, we're able to navigate through this multigenerational IT and offer everything as a service. That's where the innovation is all aligned to. And that's why, in our plans, we have increased our investments in R&D, both organic and obviously, to the question asked before, through the inorganic aspects, because we compete with the best technology innovation and the best people, and that's what we are focused on.

Great. Excellent. Well, I think that was the last question. So that will conclude our question-and-answer session. Thank you, everybody, for your participation. And for those questions that we were unable to cover, please check our Investor Relations website in the next few days, where we'll be posting copies of all the questions we received along with our responses. So with that, let me pass it back to Rishi. Rishi?

Great. Thank you, Andy. We'll be closing the polls shortly. So if you have not already voted and wish to, please do so now. Therefore, I ask that you complete your voting at this time. The Inspector of Election will not accept votes submitted after the closing of the polls. Any votes submitted during the meeting today will be subject to final verification by the Inspector of Election. I hereby declare that it is 11:54 a.m., and the polls are now closed for voting on the items of the business. I will now announce the preliminary results of the vote. Please note, the results need to be announced are based on the preliminary tally provided by our Inspector of Election. All votes are subject to the final count certified by the inspector. Let's start with the votes cast for the election of directors. [ Chris ]?

Each of the 11 director nominees has received the requisite number of votes required for election.

Right. Thank you, [ Chris ]. Based on the vote, I declare that all 11 director nominees have been elected to serve for the next year to hold office until their successors are duly elected and qualified. Now the results of the vote on the ratification of Ernst & Young as HPE's independent registered public accounting firm.

The proposal for the ratification of Ernst & Young as HPE's independent registered public accounting firm has received the affirmative vote of 99% of the shares voted.

Based on the vote, I declare that the appointment of Ernst & Young as HPE's independent registered public accounting firm has been ratified. Now for the results of the vote on approval of amendment number one, to the HPE 2021 Stock Incentive Plan.

The proposal for approval of the increase of shares reserved under the Hewlett Packard Enterprise 2021 Stock Incentive Plan has received the affirmative vote of 97% of the shares voted.

Based on the vote, I declare that the amendment of the HPE 2021 Stock Incentive Plan has been approved. Next, the results of the advisory vote regarding executive compensation.

The proposal for approving, on an advisory basis, executive compensation, has received the affirmative vote of 90% of the shares voted.

Based on the vote, I declare that approval on an advisory basis of executive compensation has been approved. Finally, the results of the vote on the stockholder proposal entitled Special Shareholder Meeting Improvement.

The stockholder proposal entitled Special Shareholder Meeting Improvement has received the affirmative vote of 49% of the shares voted.

Based on the preliminary results of the vote, I declare that the stockholder proposal has not been approved. Thank you, [ Chris ], and I will now turn the meeting over to Pat Russo to close.

It's now 11:56 a.m. Central Time, and I declare that the business of today's meeting is concluded and the meeting is now adjourned. Thanks again for joining us today. We're sincerely grateful for your interest in HPE and invite you to visit our Investor Relations website for additional information or for a replay of this meeting. We will file the final results based on the final vote tally in the days following the meeting. Thank you.