Andrew Simanek - Head, IR Meg Whitman - President and CEO Tim Stonesifer - EVP and CFO Mike Lawrie - Chairman and CEO, CSC Chris Hsu - COO

Maynard Um - Wells Fargo Toni Sacconaghi - Bernstein Sherri Scribner - Deutsche Bank Katy Huberty - Morgan Stanley Brian Alexander - Raymond James Kulbinder Garcha - Credit Suisse Rod Hall - J.P. Morgan Steve Milunovich - UBS Amit Daryanani - RBC Capital Markets Ittai Kidron - Oppenheimer Jim Suva - Citi Wamsi Mohan - Bank of America Merrill Lynch Simona Jankowski - Goldman Sachs

Good afternoon, and welcome to the Second Quarter 2016 Hewlett Packard Enterprise’s Earnings Conference Call. My name is Annie and I’ll be your conference moderator for today’s call. At this time, all participants will be in listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. Andrew Simanek, Head of Investor Relations. Please proceed.

Good afternoon. I’m Andy Simanek, Head of Investor Relations for Hewlett Packard Enterprise. And I’d like to welcome you to our Fiscal 2016 second quarter earnings conference call with Meg Whitman, HPE’s President and Chief Executive Officer; Tim Stonesifer, HPE’s Executive Vice President and Chief Financial Officer; and joining later Mike Lawrie, Chairman and Chief Executive Officer of CSC. Before handing the call over to Meg, 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 releases and the slide presentations accompanying today’s earnings release on our HPE Investor Relations webpage at www.hpe.com. As always, 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 and transaction materials relating to forward-looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these of risks, uncertainties and assumptions, please refer to HPE’s SEC reports, including its most recent Form 10-K. HPE assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HPE’s quarterly report on Form 10-Q for the fiscal quarter ended April 30, 2016. Finally, for financial information that has been expressed on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today’s earnings release. With that, let me turn it over to Meg.

Thanks, Andy. And thank you to everyone on the call for joining us today. Hewlett Packard Enterprise completed our second full quarter as an independent company, and I have to say that we have delivered the best performance since I joined. In Q2, we saw our first quarter of as reported year-over-year revenue growth since 2011 for the Hewlett Packard Enterprise businesses. We also saw our fourth consecutive quarter of year-over-year constant currency revenue growth. We delivered revenue of $12.7 billion, up more than 1% as reported and 5% in constant currency, driven by excellent performance in servers, storage, networking and converged infrastructure, as well as outstanding performance in enterprise services. Enterprise Group had a fabulous quarter, delivering 7% revenue growth on an as reported basis and 10% in constant currency. In fact, we grew on an as reported basis in every one of EG’s hardware business units and in every region. ES grew revenue year-over-year in constant currency for the second consecutive quarter and expanded operating margins more than three points over the prior year. That’s the eighth consecutive quarter of year-over-year margin expansion. Our Software business also delivered a strong quarter. When adjusted for divestitures and acquisitions, Software delivered its third consecutive quarter of constant currency growth. And in Financial Services, we saw double digit volume growth over the prior year. So, with strong performance across every one of our business segments, HPE delivered non-GAAP EPS of $0.42, at the high end of our previously provided outlook. Free cash flow improved in the second quarter to $511 million due to careful management of our working capital. Tim will walk through the drivers of our cash flow and outlook shortly. And we are seeing the benefits of our increased R&D and more focused product roadmaps as we take share from our competitors. In storage, HPE is the only major vendor to gain share in external disk over the last two years, while EMC, NetApp, IBM and Dell lost share year-over-year. Revenue in our 3PAR all-flash business grew nearly triple digits, about two times faster than the market, and is once again expected to be larger and faster growing and pure. In networking, we are seeing an acceleration of our business, particularly since our acquisition of Aruba and our game changing partnership with Unisplendour, a subsidiary of Tsinghua in China. And our results are in stark contrast with the results Cisco reported last week. In switching, HPE grew 18% year-over-year versus Cisco that was down 3%. And we are getting credit from the industry for our innovation, capturing the leading position in Gartner’s most recent Magic Quadrant for Wired and Wireless offsetting Cisco’s long standing run in the top spot. That is an addition to our leading positions in servers, storage and integrated systems, and we are not taking our foot off the pedal. Next month at Discover Las Vegas, you’ll be hearing more about some significant new innovations across our cloud, IoT and compostable infrastructure product lines as well as an update on the machine. Last but certainly not least, earlier today, we made a major announcement that we are planning a tax-free spin-off and merger of our enterprise services business with CSC, which is expected to create a pure play global IT services powerhouse with annual revenue of more than $26 billion. The new company will have more than 5,000 customers in 70 countries and employees in every region around the world. The transaction is expected to deliver approximately $8.5 billion to HPE’s shareholders on an after tax basis. This includes an equity stake in the newly combined company valued at more than $4.5 billion, which represents approximately 50% ownership, a cash dividend of $1.5 billion and the assumption of $2.5 billion of debt and other liabilities. We also expect the merger of the two businesses to produce first year synergies of approximately $1 billion post close with the run rate of $1.5 billion by the end of year one. There is also an opportunity for additional synergies in subsequent years. As owners earn approximately 50% of the merged company, HPE shareholders will share and value of the synergies as well as future growth in earnings. The cost to separate ES from HPE will be offset by lower cost associated with the previously announced fiscal year 2015 restructuring program. So, there will be no incremental one-time cash payments beyond what we’ve already communicated. I will serve on the Board of the new company and HPE’s Board of Directors will nominate half of the new company’s Board. Mike Lawrie, the current Head of CSC will become Chairman and CEO of the new company and Mike Nefkens, the current EVP and General Manager of our Enterprise Services business will become a key part of the new company’s executive team and partner closely with Mike Lawrie on building the new organization. Other executives and directors as well as the name of the company will be announced at a later date. The transaction is currently targeted to be completed by March 31, 2017. For the combined CSC and Enterprise Services, this will create a new company that will be a pure-play global IT services leader. For customers, this means global access to world class offerings in cloud, mobility, application development and modernization, business process services, IT services, big data and analytics, and securities. This is combined with deep industry experience in sectors that include financial services, transportation, consumer products, healthcare and insurance. HPE and this new company will be closely connected moving forward with agreements that will keep the two companies aligned for current customers and grow new business opportunities over time. For the remaining Hewlett Packard Enterprise, this transaction creates significant incremental value by unlocking a faster growing, higher margin and stronger free cash flow business. HPE will now have $33 billion in annual revenue and will focus on secure next generation software defined infrastructure that leverages a world class portfolio of servers, storage, networking, converged infrastructure as well as our Helion cloud platform and software assets. By bringing together leadership positions in these key datacenter technologies, we will help customers run their traditional IT better while building a bridge to multi-cloud environments. Beyond the datacenter, HPE is redefining IT at the edge with our next generation of Aruba and computing products for campus, branch and IoT applications. In addition, through our Technology Services division, we can deliver consulting and support to customers while HPE Financial Services offers financial flexibilities to customers to maximize their investments. Finally, we will continue to leverage our portfolio of operations, securities and big data software assets that deliver machine learning and deep analytics capabilities to customers. Mike Lawrie has joined our call today and will have much more to say about the deal in a moment. But first, Tim is going to walk us through HPE’s financial performance in detail.

Thanks, Meg. Overall, we had a great quarter. We grew revenue as reported and in constant currency, generated healthy cash flow, and delivered non-GAAP diluted net EPS at the high end of our guided range. Revenue of $12.7 billion was up 1.3% year-over-year and grew 4.9% in constant currency, our fourth consecutive quarter of constant currency growth. And as Meg mentioned, HPE businesses reported absolute revenue growth for the first time in five years. We saw revenue growth in constant currency in every region and outright growth in the Americas and APJ. Our Americas performance continues to support cautious optimism for the remainder of the year, amongst an uneven macroeconomic environment. In EMEA, we were still significantly impacted by currency. However, we’re seeing encouraging momentum in enterprise hardware. And in APJ, China networking drove strong performance. The top-line currency impact to revenue was 4 points year-over-year, primarily due to hedging gains from the prior year. Going forward, we expect the currency impact to significantly moderate throughout the second half of the year. And we continue to anticipate an impact to revenue of approximately 3 points for the full year, as rates are now roughly in line with where they were when we originally guided the year. Margins were largely stable in the quarter with gross margin of 28.7%, up 10 basis points year-over-year and 30 basis points sequentially. And non-GAAP operating profit margin was 7.9%, down 50 basis points year-over-year and 20 basis points sequentially. Total non-GAAP operating expenses of $2.6 billion were up 4.7% year-over-year, primarily due to increased FSC [ph] and R&D investments. We delivered non-GAAP diluted net earnings per share of $0.42, at the high end of our guided range. This primarily excludes $201 million for amortization of intangible assets, a $161 million for restructuring, and $91 million of separation charges. We delivered GAAP diluted net earnings per share of $0.18, a penny above our previously guided range. Now, turning to the business results. The Enterprise Group had a strong quarter with excellent top line performance. Our sales motion is hitting its stride aided by the seamless launch of the HPE brand and our marketing efforts. Revenue was up 7% year-over-year or 10% in constant currency and grew in all product groups. For the remainder of the year, revenue growth will likely moderate as we will not have the benefit of H3C and begin to face tougher compares. Profitability in the quarter was 11.7%, down 240 basis points year-on-year. This was primarily due to foreign exchange, heavier Tier 1 mix and to a lesser degree incremental R&D investments. A deal that exemplifies the strength of the Enterprise Group is the recently won project with Woolworths Limited, Australia’s largest retail company. Our solution, based on the ConvergedSystem 900 for SAP HANA provides access to real time data, enabling critical business decisions to be made immediately. This competitive win against Lenovo, Fujitsu and Dimension Data with Cisco UCS also displays as the current outsource provider with pro and further secures HPE’s relationship with Woolworths. Service revenue grew 7% year-on-year or 10% in constant currency, primarily driven by strong Tier 1 sales in the Americas and core servers in APJ. Based on our performance, we believe we took share in servers overall, density optimized servers and rack. From a regional perspective we took share in the Americas and EMEA. And this quarter, we started shipping our Hyper Converged HC 380 which enables midsized and remote office enterprises to easily deploy, manage and support virtual machines in a few clicks. We continue to see servers as a growth drivers, given the strength of our portfolio and anticipate healthy demand for compute through the remainder of the year. In storage, we grew revenue 2% year-over-year and 5% in constant currency. Converged storage continued its strong growth trend, growing 19% year-over-year in constant currency and comprising 54% of the total portfolio. 3PAR all-flash revenue grew near triple-digits and continues to drive mid range share gains. We estimate that we gain market share in the external disk for the tenth consecutive quarter and expect storage to gain shares throughout the remainder of the year on the strength of the 3PAR portfolio and new logo wins as we take advantage of the uncertainties surrounding the Dell-EMC merger. Networking revenue grew 57% year-over-year as reported or 62% in constant currency. And when adjusted for a Aruba, networking was still up 17% in constant currency. We had strong execution with growth across all regions. While Aruba continues to drive growth in wireless share, we also expect to take share in switching and routing on the strength of H3C and Aruba campus switching pull-through. Leading up to the transaction closed with Tsinghua, H3C grew more than 50% year-over-year, validating the strategic moves we made to collaborate with a strong local partner. In Technology Services, revenue did decline 6% year-on-year or 2% in constant currency. However, it was only down 1% in constant currency when adjusted for the discontinuation of HP Inc. attach, which remains in the fiscal year 2015 results. TS support, the most profitable and largest segment of Technology Services, grew orders in constant currency. Based on this and the order growth we saw last year, we continue to expect TS revenue to return to growth in constant currency, towards the end of the year. Enterprise Services had another great quarter as we continue to see the benefits of our restructuring cost actions and improving sales motion. A great example of the deals we are winning is our recent selection from five other competitors for a 10-year $0.5 billion contract to provide IT services including infrastructure, mission critical systems, and applications to the U.S. Strategic Command. Revenue declined 2% year-over-year but grew 1% in constant currency. When adjusted for the Deutsche Bank win last year, both new business TCV and total TCV grew year-over-year. Strategic Enterprise Services is gaining strength in both overall revenue and mix, delivering mid double-digit growth year-on-year. ABS continues to improve with the third consecutive quarter of year-on-year constant currency revenue growth and ITO also grew in constant currency, the first time since the first quarter of 2012. Operating profit improved 310 basis points year-over-year to 6.7%, as the team continues to execute productivity improvements in delivery and sales. We’re also seeing the benefits from improving location mix as well as increasing sold margins and healthy add-on sales. We continue to track well against our longer term goal of 60-40 low cost, high cost headcount mix, and completed the quarter with 47% of our headcount in low cost centers. The progress made on cost improvements, sales strength and normal quarterly seasonality, provides us with confidence that operating profit margins for the full year will now be towards the high-end of our original 6% to 7% outlook. Software declined 13% year-over-year as reported or 10% in constant currency. However, was up 2% in constant currency when adjusted for acquisitions and divestitures. Sales strength in security and big data was partially offset by declines in IT Management. On a product level, we had encouraging results in Voltage, Fortify and IDOL. The team continues to focus on disciplined cost control, decreasing OpEx dollars year-over-year and growing operating profit dollars. Operating profit margin expanded 7 points year-over-year. However, the largest contributor to OpEx and margin improvement was a one-time benefit from the TippingPoint divestiture. HPE Financial Services revenue decline 2% year-over-year, but grew 1% on constant currency. Operating profit declined 130 basis points year-over-year to 9.3% as lower residual sales pressured margin rates. Financing volume grew 15% or 19% in constant currency, primarily due to favorable movement in our cost of fund which has enabled us to price more competitively. Return on equity was down 230 basis points year-on-year to 12.7%. Cash flow was strong in the quarter due to judicious working capital management. Cash flow from operations was $1.1 billion, up 101% year-over-year on an adjusted basis. Free cash flow was $511 million, up from negative $106 million last year, again on an adjusted basis. When adjusted for the sale of H3C, the cash conversion cycle was 27 days, down 4 days, quarter-over-quarter. The largest contributor to cash conversion cycle improvement was DPO, which increased five days sequentially, adjusted for H3C, as we continue to improve payment terms with our vendors. This was partly offset by DSO, which increased two days sequentially, while DOI was flat through the quarter. Given the momentum in our working capital initiatives, we now expect our cash conversion cycle will reach the low 20-day range by the year-end. Now, let’s turn to capital allocation. In the quarter, we returned $109 million of cash to shareholders. Due to the ES CSC transaction, we were largely prohibited from repurchasing shares and only bought back $15 million of shares. We also paid $94 million as part of our normal dividend. We continue to see our shares as very attractively priced and will be back in the market this month. Along those lines, our Board of Directors recently increased our share repurchase authorization by $3 billion, which now stands at $4.8 billion remaining. During our Q1 earnings call, we committed approximately $2 billion of the proceeds from H3C transaction to share repurchases. We now expect to complete roughly half of those this fiscal year with the remainder to be completed in fiscal year ‘17. As you recall, share repurchases resulting from the H3C transaction are in addition to our commitment to return 100% of our original fiscal year ‘16 free cash flow outlook to shareholders. Now, I’d like to provide an update on recent M&A activity. First, we announced the sale of our majority stake in Mphasis to Blackstone, as we continue to refine our capital strategy and make improvements to our go-to-market model. We expect this transaction to close in the fourth quarter of this year. In addition, during the quarter, we closed the sale of 51% of H3C to Tsinghua at the beginning of May. Remember that our prior guidance did not include the impact of this transaction. We now think that we can offset the EPS impact with the share repurchases we completed in the first quarter and the incremental share repurchases to be completed later this year. Going forward, we will recognize only 49% of H3C earnings and receive a corresponding cash payment. This will reduce cash flow by approximately $200 million on the second half of fiscal year ‘16. However, roughly half of that will be received as a cash payment in fiscal year ‘17. Finally, I’d like to discuss the cash impact of the ES CSC transaction to HPE. There will be no incremental one-time uses of cash beyond what we’ve already communicated, around $900 million with $300 million in fiscal year ‘16 and the reminder in fiscal year ‘17. As an offset, we will reduce the $2.6 billion of restructuring payments associated with our 2015 restructuring plan by roughly $1 billion as we are achieving our targeted savings more efficiently and will no longer need to fund ES actions after the transaction closes. We have gained valuable experience in HPE, HPI separation that gives us confidence in executing the spin quickly and efficiently. In total, the fiscal year 2016 free cash flow will be reduced by $300 million due to the H3C divestiture and current year ES separation payments that will be partly offset by working capital improvements. Let’s go to guidance. We expect non-GAAP diluted net earnings per share to be $0.42 to $0.46 in Q3 of 2016 and continue to expect full year fiscal 2016 non-GAAP diluted net earnings per share of $1.85 to $1.95. We expect GAAP diluted net earnings per share to be $1.10 to $1.14 in Q3 of 2016 and now expect full year fiscal 2016 GAAP diluted net earnings per share of $1.68 to $1.78, reflecting the new ES separation charges and gain on sale of H3C. And we now expect full year fiscal 2016 free cash flow of $1.7 billion to $1.9 billion. With that I’ll turn it back over to Meg.

Thanks Tim. Now, I’d like to go into more detail on the deal we announced today with CSC, which I think will be very beneficial to customers, employees and shareholders of both companies. As today’s results confirm, Enterprise Services is a stronger and more robust business than has been in many years. As a result of customer diversification efforts and other improvements, ES delivered stable constant currency revenue for the first two quarters of fiscal 2016, which were the first quarters of year-over-year constant currency revenue growth since fiscal 2012. Overall, ES is on track to achieve its long-term goal of a market competitive cost structure and operating margins. So, by bringing together the best of these two organizations, we will create a pure-play services leader ready to compete and win against all the current players. The new company will have greater agility, focus, and the ability to drive faster outcome for our customers. It will also have a top notch management team, quite literally the best in the business, and that management will be a 100% focused on ensuring a smooth transition with no disruption for ES and CSC customers. With that, let me turn it over to Mike Lawrie. Mike and I’ve gotten to know each other quite well, and I can tell you he is a world class CEO with incredible talent and unbridled passion for his business. Once the deal closes, I look forward to working with him to build our new company. Mike?

Thank you, Meg. I’m excited about the great potential this merger brings to our people, to our clients, to our partners, and investors, both at CSC and HPE’s Enterprise Services division. And let me tell you why. Over the past few years, our two organizations have been embarked on critical turnarounds and broad-based transformations. Not everyone is aware of this but Meg and I joined our respective companies within about six months of each other. And I’m pleased to be able to say that recent years, both our organizations have been on upward trajectories with significant improvements in financial performance and in client satisfaction scores, and the progress has been real and it has been measurable. Both of our companies separated last year, within a month of one another into more client-focused pure-play entities, aimed at specific markets and core industries. And today’s announcement, the coming together of these two organizations is the next logical step, building on their progress to-date and significantly accelerating their transformation. The new company will be a global top three leader in IT services, one that’s uniquely positioned to lead clients in their digital transformations. Our organizations are highly complementary. HPE Enterprise Services has a proud legacy and brings focus and agility and the ability to drive faster outcomes for clients, along with the first rate sales organization. The CSC brings deep industry expertise, innovation and next generation technologies and an exceptional partner network among other strengths. And together, as an agile, technology independent services pure-play, we will be better positioned to innovate and compete and win against both emerging and established players. We will have substantial scale to serve customers more efficiently and effectively worldwide. We will have a highly competitive cost structure to take advantage of our distinct growth opportunities, resulting in the capital capacity to invest and grow, both organically and inorganically. We will strengthen and grow client relationships to cover more than three quarters of the Fortune 500 with less than 50% overlap across our top accounts. We will leverage a combined portfolio that will include leading solutions in areas like managed securities, cloud IT, enterprise applications, and big data and analytics, along with combined BPO leadership in healthcare, in insurance, in banking and capital markets. But most importantly, this great leap forward in our transformation will enable our people to better innovate to compete and adapt to an ever-changing marketplace. Employees will become part of a very strong and focused global enterprise that is positioned for success, one that enables them to take advantage of the diverse career development and growth opportunities of a larger global enterprise. And as a pure-play services leader, our new company will be able to operate independent of any single hardware provider, establishing the right partnerships for success. And at the same time, CSC and HPE will have long-term agreements in place to ensure that current customer commitments continue to be met and our relationship will be stronger and our collaboration deeper. Now before I hand it back to Meg, I’d just like to take a moment to thank the teams at both companies for their hard work and resilience in driving our respective transformations. Through your efforts, we are in a place where we can bring our two great organizations together. That includes our team at CSC and also the HPE Enterprise Services team under Mike Nefkens. And I’m pleased that Mike has agreed to stay with the company in a senior position, reporting to me and that he will be playing a crucial role in helping build and grow our new company. And I’m looking forward to working with Meg as a member of the new company’s Board. So, let me just reiterate my excitement about our two organizations coming together to better serve clients around the world and deliver value for our shareholders. We recognize that we’re just at the beginning of this process with a lot of work to do. By staying laser focused and working in the same collaborative spirit that has gotten us to this point, we can get to the finish line faster and in a great position to launch the new company. My colleagues at CSC and I look forward to working with everyone at HP Enterprise Services. So, now, let me hand it back to you, Meg.

Thank you, Mike. I look forward to a close relationship and what I believe will be a game changing new company in the global IT services market. Mike will stay with us during the Q&A portion of the call. Now, I’ll open it up to questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Maynard Um at Wells Fargo.

Meg, Can you just talk about the remaining portions of your business? It seems it’s definitely more transactional. Do you anticipate that we should think about more transactions happening here, whether it’s accelerated M&A or spinoffs or sale; how should we think about that? And then I have a follow-up.

Well, thanks, Maynard. So, we are actually very excited about what would become a standalone Hewlett Packard Enterprise. Our focus is going to be on next gen software defined infrastructure with a world class portfolio of servers, storage, networking, converged infrastructure, hyper-converged, Helion -- our Helion cloud platform and our software assets. And you probably have guessed by now that I am now a devotee [ph] of focus. And this is going to be a laser light focused company that as I think you know is higher growth, higher margin with more robust free cash flows. And it’s going to be well-capitalized. So, we don’t necessarily think there is a need for acquisitions. But, if we find the right companies, we certainly will move. And let me just recap the kind of acquisitions that have worked well for this company in the past. Complimentary technologies that we can put through our excellent distribution and support system, so think 3PAR; 3Com; Aruba, all three of those acquisitions have been fantastic for Hewlett Packard Enterprise. And so, we will keep our eyes out for those kinds of acquisitions. Unfortunately there aren’t a lot of those around, but to the extent we see them, we won’t hesitate to move. And as Tim said, remember, our capital allocation strategy is returns based. Right now, we really think there is incredible value in our stock price. And Tim announced, we’re going to be buying back -- using a 100% of our free cash flow, in addition to half of the H3C proceeds. And we just got an increase and authorization of share buyback from our Board.

And then, just on the margin outlook for ES and servers, how should we be thinking -- should we be thinking more along the lines of 7% to 9% margins now for the ES business and low teens digits on the server side? Thank you. Sorry, the EG Group. Thanks.

Yes, sure. I would say on ES, as we talked about, we feel much more comfortable at the 7% range for this year. Again, we have a lot of momentum in that business, a lot of the activities that the team has done through the transformation are starting to see through to the P&L. So, 7% and 9% is what we would have; it may be conservative. But again, we need to get some, continue to execute and there is more work to do there. So, we’re prudent at the 7% to 9%. On the EG front, margins were down about 240 basis points. That’s primarily driven by foreign exchange, some Tier 1 mix and to a lesser degree the R&D investments we’ve made. We are a little bit heavy in Tier 1 right now. If you recall, we launched the cloud line, product line where we’re seeing a lot of momentum; we launched that in the second half of last year. So, we’re a little bit heavier weighted in Tier 1; we expect that to normalize in the second half. I think margins there will be stable in the near term. And if you look longer term, we may even see some expansion or we would expect to see some expansion, as you think about further growth in Aruba, converged storage and those types of areas.

And then, Maynard, don’t forget about when we get to March 31st of 2017, the combined company of CSC and our Enterprise Services division, we announced $1.5 billion of synergies in -- on an ongoing basis, and we are really confident of that. And Mike, I might just ask you to comment on what you think in terms of the synergies of the new company.

Yes. We’ve taken a pretty deep look at this and have categorized this. So, we feel that we really have got a very actionable plan that we could begin to execute, once we close the transaction at the end of the March. So Meg, I think that number is a very strong number.

The next question is from Toni Sacconaghi at Bernstein

Yes, thank you. I have a couple of questions related to services and transaction. I guess the first question is why now Meg. The business has a lot of momentum in terms of profit improvement. I understand the $8.5 billion consideration, but this business is going to earn over a $1 billion in net income this year, could be closer to a $1.3 billion a $1.4 billion going forward. So, you are ascribing a value of 6.5 to 8 times to that business when operating profit under your previous plan would have been growing pretty healthily. So, I guess the question is why now, when you are kind of at the cusp of improvement, and arguably could have gotten paid for that in your stock price and how did you determine the value? And I have a follow-up please.

Yes, sure. So, we are actually very pleased with the turnaround that we have executed in Enterprise Services. And I would say the time is right now, because we believe this industry actually will consolidate. And it’s better to be on the front end of the consolidation play than the bank end of the consolidation play. And while there is more margin expansion here, we actually think the ability to accelerate the turnaround of ES will happen in the combined entity of CSC and ES. And recall that our shareholders will own 50% of this new entity, so they will be party to that 50% of the synergies, 50% of the operational improvements, 50% of the synergy improvement. So, in some ways, the shareholders get the best of both worlds. They get to maintain a position in Hewlett Packard Enterprise in a more focused software defined data center and edge strategy, and they get to ride the upside, half the upside that they would have gotten had it stayed with us. And my view is the upside will be bigger with CSC and ES together. And I guess the other reason is why now is the business in a good position, two years ago, we were struggling in this business; we’ve diversified the revenue; we’ve taken cost out; revenue has stabilize; we’ve developed some new product lines. And I think combined with CSC, it’s going to be a powerhouse IT services company.

And just a follow-up along those lines, Meg. So, I’m trying to understand what would really be incremental from the merger. So, you would outline 30,000-person headcount reduction as part of your original ES plan and gross savings of $2.7 billion. And so, I’d like to understand when the deal is consummated, how much of that will have been captured. And then is the $1.5 billion you’re talking about just the continuation of what was already in the plan or is it truly incremental? Because at least by my math, a lot of it doesn’t feel like it’s incremental, because I don’t think you’re going to be done with your original restructuring plan by March 31, 2017?

So, we will not be done with the entire restructuring plan, but will be done with a big chunk of it, basically probably, I would say 60% of it, maybe almost 70% of it. And that $1.5 billion of synergy is incremental. And if things like -- between the two companies 95 datacenters. Okay, we definitely do not need 95 datacenters. Multiple offshore locations and delivery centers; we will be able to consolidate delivery centers and leverage our position in India and China and Costa Rica and other places. We will be able to leverage our selling teams that will be able to I think do more in the context of this combined entity. So, our estimate is this $1.5 billion of synergies is completely incremental and we’re probably 60% to 70% of the way through the transformation and the cost reduction.

The next question is from Sherri Scribner at Deutsche Bank.

Hi, thanks. I was hoping a little more detail on the impact of the H3C divestiture on the second half results. Primarily is it going to show up in terms of lower revenue in the networking number or should we also see an impact to servers and storage from that divestiture?

Yes, sure. You’ll see that in the second half. It’s about $0.05. We’re estimating most of that is from operating profit. There is some standard costs that we need to take out now that the deal is close. You will see most of that show up in the networking and a little bit in TS as well.

Okay. But on the revenue side will mostly be on the networking?

Correct.

And then…

Will be much impact at all to servers or storage or converged infrastructure or the Helion cloud platform or our software or frankly ES.

Okay, perfect. And then thinking about the divestiture of the services business, how will you structure your private cloud solutions going forward; will they sit on the HPE side; will they sit on the new business side; and how will you offer those solutions to your customers?

Yes. So, the Helion cloud platform as whole will sit on the Hewlett Packard Enterprise side. So for example, private cloud, we’re the world’s leader in private cloud in our Helion cloud system platform that is built on open stack. And then of course the software business around CSA and other products in terms of one point of [indiscernible] to manage a multi-cloud environment, will sit with Hewlett Packard Enterprise. However, virtual private cloud and managed private cloud is today delivered by ES and in the future will be delivered by CSC ES. And we’re going to be working very closely together to make sure that there is a seamless offering in the marketplace when someone wants a private cloud plus VPC or MPC. And then obviously, we have a relationship with Azure, and CSC has relationship with AWS. So, the new company will be able to offer both to customers, which I think is going to be a real benefit. Mike, do you want add anything to that?

I think that’s the real benefit as we’re going to be able to provide to our clients a wide range of solutions. I’m anxious to be able to get access to some of the investments that Meg, you and the Company have made over the last couple of years, because you’ve got some leading solutions and that all can be brought now to our customers through the sales force and the delivery forces that we have as a result of the combined companies.

The next question is from Katy Huberty at Morgan Stanley.

Tim, can you just clarify the free cash flow guidance for this year; should subtract the $300 million from the $2 billion to $2.2 billion range or do you expect to offset some of that $300 million hit? And then, what is the normalized free cash flow with all the divestitures in comparison to that $3.7 billion number that you talked about at the Analyst Day? And I have a follow-up.

Yes, sure. So, we are reducing the guide from 2 to 2.2, down to 1.7 to 1.9, so that is a new guide for the year. And if you think about that, it’s really three components. There is $200 million of pressure from the H3C divestiture, so that does not show up in our free cash flow. There is about $300 million that are related to the separation cost now for the ES transaction. And then those will be partially offset by working capital improvement. So, we continue to see a momentum, particularly if you look at extended payment terms, if you look at just being a little bit more disciplined around payment exceptions and things of that nature. So, net-net, we will reduce the guide by $300 million. I think about it as primarily driven by the H3C divestiture. From a normalized perspective, I would say normalized would probably be around maybe 3.5, north of 3.5, 3.8, something like that.

And then, Meg, one of the reasons HP originally purchased EDS [ph] was the potential of revenue synergies as that business pulled more HP systems and software. As you look to separate those businesses, are there revenue dissynergies that we should now think about? Thanks.

We don’t believe that that will be the case. You are right, one of the predicates of the EDS acquisitions was pull through of our infrastructure business as well as our software business. And by the way that has been realized. So, we’ve got a commercial agreement with the new company CSC ES that will keep those level of pull-through the same for three years. Now, we hope we will actually be able to do more with CSC because we haven’t really had access to their book of business, and they’ve got a very strong business. And as Mike said, they are interested in our products and software, and we have to go in and earn that business. But that’s one of the things that we intend to do. So, at a very minimum, base line will be maintained and there is an upside in terms of earning more business with CSC.

The next question is from Brian Alexander of Raymond James.

Could you just clarify whether you are still expecting constant currency revenue growth for all of fiscal ‘16, adjusting for the H3C divestiture? And if so, how do you think the second half will compare to the first half? Thanks.

Sure, yes. We do still expect to see revenue growth for the total year in constant currency. The one thing that I would say is that the growth rates will be a little bit more normalized, if you will; in the second half, there would be less FX pressure as an example. Because again, if you look at the second quarter, most of that FX pressure was driven by the hedge gains that we received in the second quarter of last year that didn’t repeat this year. So that will tend to normalize. So, we expect to grow, but it would be a little bit more muted I would say versus the first half because again the compares get a little bit tougher too as well in the second half.

The next question is from Kulbinder Garcha at Credit Suisse.

My question is for Meg. Meg, you mentioned early on that you are devotee I think of focus, and we’ve seen HP go from being a $100 billion business to a $50 billion business, now a $33 billion business. My question would be then why would the remaining assets, do they really belong together, have any thought been given around optimizing the remaining portfolio further? For example, I think most people would understand that you have a reasonably sub scale software business; does that really belong with HP Enterprise. Have you thought about tuning even further going forward or do you think this is really the asset base and technology base at HP Enterprise required to thrive long-term?

Yes. So, we are happy with the performance of the overall portfolio. You saw the growth in EG, Software grew in constant currency when you normalize for M&A. And when you think about the software defined datacenter, I’m really quite happy with the performance of the assets. So, obviously over time, we continue to ensure that we’ve got the right set of assets. Someone earlier on the call asked whether we would do M&A or some divestiture. So, we are going to continue to optimize the set of assets that we have but we are really happy with the current portfolio.

The next question is from Rod Hall with J.P. Morgan.

I guess I have two. One, I wanted to see if you guys could walk us through that -- you said 4.5 billion of equity values, I think for 50% in the new entity. Can you just walk us through your contemplation on that; how you’re getting there? And then the second question, I wanted to go back to the synergies question. And whether you think there will be any revenue dissynergy, is there overlap in revenues that would create some dissynergy there that we should be netting against the $1.5 billion incremental? Thank you.

Yes. So, I’ll get Mike Lawrie to address the revenue dissynergies. I mean, he mentioned that -- we have a very small overlap of customers, only 15%, but he might talk about that.

Yes, we just don’t see that much dissynergy here with the -- when we went through the top 200 accounts with less than 15% overlap. So, it’s really two different customers. And so when we think about it, it makes a lot of sense because many of our losses were HPE gains and vice versa, was mostly losses on our side. So, when you think about it, it really is truly a new market opportunity for us, and that’s why we don’t think there will be many revenue dissynergies and why there is such an opportunity to expand the business that we’re doing together.

And then, let me walk you through at a high level the deal mechanics, and then I’ll ask Chris Hsu who is our Chief Operating Officer, who helped negotiated this deal, to give a bit more detail. So, we started out with what is the value of the enterprise services asset. And as you saw from the release, the headline value there is $8.5 billion. Now, we wanted to make sure that we did a 50-50 merger of equals tax-free spin merge of Enterprise Services into this new entity. And so, obviously, we made some -- we negotiated some adjustments to that. So first of all, the new company, and I’m sort of calling it for short hand CSCES, will pay Hewlett Packard Enterprise, the future standalone Hewlett Packard Enterprise $1.5 billion of cash, after the deal closes, and will assume $2.5 billion of liability, pension liability as well as old EDS [ph] $300 million bond. And then ES or Hewlett Packard Enterprise will actually subsidize some of that pension liability with offshore cash. So, Chris, do you want to add any more detail to that?

Sure, Meg. Meg you hit the most of the high point. We started with negotiating, like Meg said, $8.5 billion. And at the time that we did the value, the equity value of CSC was about $4.6 billion, and we then developed in order to get the 50-50 merger of equals to make this tax free spin under an RMT [p] structure. We then developed a set of upfront considerations that Meg went through, with the cash dividend and then some transfer of liabilities. So that was roughly $3.9 billion. So, the two components of $3.9 billion of upfront consideration, plus $4.6 billion of equity considerations in CSC stock, essentially makes up the $8.5 billion in total valuation. Now the equity considerations that CSC will essentially issue stock at the time of the transaction and that stock will essentially result in the company being 50-50. And price or the total value at the time of the close will depend on where CSC is trading at that point in time.

The next question is from Steve Milunovich at UBS.

I wanted to go back to this question about the pull-through. I’d think that ES -- well some of it’s very independent, would have pulled through a fair amount of your EG business, particularly as we move more to cloud. And I’d like you to talk a bit more about the commitments that you have. Are you the favorite hardware supplier for the new company? And I guess part of the point of being a pure services company is that they are fairly agnostic. And so, do you lose that over time? So, it’s not obvious to me that you absolutely maintain what you have and it’s just a question if it gets better. I’m a little worried obviously about whether it could get worse. And then, conversely, what is getting rid of the services business or half of it, do for you on the HPE side, what can you do now that you weren’t able to do previously?

Sure. So, actually, we’re very -- this was a very important part of the deal because the last thing I wanted to do was combine CSC with ES and then lose the infrastructure pull-through. That would not have been a value to Hewlett Packard Enterprise. So, we’ve negotiated a deal that I think is very fair. It allows CSC to continue to work with people they’ve worked with in the past, but we’ve also got a commitment from them for the next three years. Beyond that, I am very confident that the work we will do in Hewlett Packard Enterprise will earn our way to that commitment. I mean think about our server lineup, our storage lineup, our networking lineup, our wired, wireless LAN lineup, our converged infrastructure, hyper converged and Helion cloud platform, but we do have, if you will, a safety net for the next three years. But, I also -- one of the benefits of a pure-play services company is to be able to work with best of breed. And I know Mike wants to continue to do that. So, I think we’ve struck a good thing that protects us in the near term but gives Mike the flexibility he needs to do solutions that are right for his customers. On the other side of it is, we do business today with some of ES’s competitors, think about Deloitte or Accenture or Capgemini or the Indian players, and we want to continue to grow that. And they are just like -- for Mike, there is a benefit to being a pure play that will be benefit for us in terms of being, primarily a software-defined infrastructure company and software company. So, we imagine growing the business with those players as well. And by the way, this interestingly happened with the HPE, HP Inc. split. When HP Inc. became a separate company, all of a sudden, a lot of competitors who used to think they were competitors to some degree with our company, all of a sudden were very interested in the HP Inc. offering. So, we think that could happen to us as well.

The next question is from Amit Daryanani at RBC Capital Markets.

I guess, Meg, the biggest question we’re getting right now is what drove the transaction at this point for you guys. And really broadly as you look at HPE post this transaction and after March 31st, what do you think your revenue growth and EPS targets would look like relative to IT spend over time?

Yes. So, listen, I mean part of the benefit of this transaction is focused on a smaller number of businesses that I think play into a sweet spot in IT spend. So, the objective of standalone HPE will be all about helping customers optimize and modernize their traditional IT spend, which by the way is still 88% of the spend in the marketplace, and transition to a multi-cloud environment and also deploy obviously the software assets. So, we are not giving revenue guidance and EPS guidance for the standalone company; I’m certain we will closer to March 31st. But, we expect to go at or above the market rate, as we did this quarter. I think it’s important to look at our results this quarter for Enterprise Group and Software I think they are the best indication that we’ve got a winning company here. We outgrew the market, we outgrew every single competitor, gained share in every single one of our -- against our infrastructure competitors. And I think what you have now is the Enterprise Group and Software on a roll. And the investments that we have made in R&D, the investments we’ve made in a fire in the belly sales force. I mean we have done a transformation of our sales force around not only our channel but also direct selling. And then, if you think about how we’ve optimized marketing spend over the last couple of years, we’re doing better in demand [indiscernible] digital marketing than we’ve ever done. So I think you’ve got a little power house in software defined infrastructure and software.

The next question is from Ittai Kidron at Oppenheimer.

This is Ittai, a question for Tim. Tim, I wanted to drill down a little bit into your third quarter guidance, especially on the EPS, which is below the Street, by about $0.04. How much of this is the H3C transaction? I think you talked about a $0.05 loss and is that also the reason you’re looking for very fourth quarter weighted EPS upside; can you walk us through some of the elements for that variability?

Sure. So, if you take our third quarter guide, we’re at the midpoint about $0.44. The primary delta versus consensus right now is really driven by the H3C transaction to your point. That’s probably about say $0.03 or $0.04. So that implies a ramp in the fourth quarter. And that’s really think about it in three ways, one, it’s typical seasonality. So, when you look at our ES business and our Software business, those businesses tend to be back-end loaded, so that will drive a lot of the improvement. The second component is around the H3C transaction from stranded cost perspective. So now that the deal is closed, there is some overhead costs that we need to take out of the system that generally takes a little bit of time, not too dissimilar to the dissynergy story we had around the separation. And then the third component is driven by the share repurchases. So, there is more of an impact in Q4 versus Q3 on the share repurchase front. So, those are really the key drivers to the ramp in the fourth quarter. But we’ve got clear plan. For sure, we need to go out and execute, but we feel good about the total year, and that’s why we held our total year guide of $1.85 to $1.95.

That’s great. And as a follow-up on EG margins, for two quarters in a row now, they’re down on a year-over-year basis. And I understand that FX is a part of that. But how do we think about the timeline by which we go back towards the 15% range; is that even possible given the mix of solutions? And maybe you can kind of walk us through that and when does TS start contributing for this from a growth standpoint, revenue, not just margin?

Sure. I would say from a margin perspective, for sure, FX has had a factor, has been a factor, particularly if you look at the first half of the year. And that will tend to have less of an impact going forward. We do have a heavy mix of Tier 1 right now. Again, we launched cloud line in the second half of last year. So right now, when you look at our total mix from a Tier 1 perspective, it’s a little bit heavy. Again, that will tend to normalize. So, I would expect the margins in EG to be stable. And I’m not going to give margin guidance here. But again, as we continue to grow Aruba, as we continue to grow storage, that’s going to help the margin front. On the TS front, that business will also stabilize. So, we had -- we were down in revenue 1% in constant currency when you adjust for HPI transaction. But we do expect revenue growth in the latter part of the year. And the way to think about that is obviously that’s an annuity type business given the contracts. So, what we’re going to start seeing in the second half is that those negative growth orders that we had in ‘14; that’s replaced by positive growth that we saw in ‘15, that’s sees our 2016 revenue. So, we do expect TS revenue to be flat on a year-over-year basis for the total year and that will also help from a margin perspective as well.

The next question is from Jim Suva at Citi.

Thank you and congratulations on a lot of work and the big surprise. Regarding the divestiture of H3C, aside just from the pure mechanics of selling 51% and what goes on and what the equity transactions and how accounts and financing. From a pure sales perspective, was there an impact in this quarter and impact in the next quarter as far as transactions whether there will be accelerated or deferred or anything we should think about as far as closing the transactions around the H3C transaction?

I wouldn’t think so, if I’m understanding your question correctly. Remember now, H3C is 51% -- in China, it’s 51% owned by Unisplendour, a subsidiary of Tsinghua. So, the CEO is a great guy by the name of Tony Yu, who is running the business -- or we have the Chairman and the CFO. But, it’s really going to depend on the momentum in that H3C business in the China market. And what I will tell you is the momentum is really good. We had a very good second quarter there, even though the transaction hadn’t closed. And I was just in China two weeks ago, and I will tell you Tsinghua is incredibly committed to this. The management team is fired up. They feel like they control their own destiny in China. And so, I can’t predict what the revenue will do there, but I’m feeling really good about our 49% ownership of business that I think there is a lot of commitment on behalf of Tsinghua and the management team to make successful.

And as a follow-up, regarding the pull-through of the -- I think you mentioned a three-year agreements with CSC. Is that just on the HP services that goes to CSC or CSC also with their other existing businesses can have in a agreement to refer HP for their products?

It’s really around -- so, we sell a certain amount. The Enterprise Group and Software, mostly the Enterprise Group sells a lot of their products to Enterprise Services in an intercompany transfer today. And we want to make sure that that business stays for the next three years, and we have a chance to earn more business. So, think about it as servers, storage, networking, converged infrastructure, the Helion cloud platform and TS, as well as Software. So that is how the agreement is structured. Does that answer your question?

Yes, it does. Thank you very much.

The other thing I would add is they are playing in a $2.5 billion ITO market today that we do not participate in. So, it may will be a growth opportunity for HPE.

The next question is from Wamsi Mohan at Bank of America Merrill Lynch.

Apart from the separation cost associated with this ES transaction, can you talk about any potential cost dissynergies or stranded costs associated with this deal? And I have a follow-up.

Yes, sure. So, the overall separation cost will be $900 million, again $300 million of that will be incurred in 2016 and $600 million of that will be incurred -- roughly $600 million will be incurred in 2017. Again, there is no incremental onetime cash cost associated with this. We will reduce the 2015 restructuring plan by about $1 billion and that will offset the cost for here. As far as the stranded cost number, we will work those costs out through the system. I think the good news is what we’ve learned in the last separation was how to do this and do it efficiently. So, I would just say on the stranded cost piece, if I look at project planning and what have you, we have that much more clearly defined. We know who owns it and we know how that’s going to come out at the system and when that comes out of the system.

Yes. I’ll also add, I think there is a real benefit to having done one separation. The first time you do it you get the best advice you can and you learn how to do it. This time we have this thing down to a science. And so, I think a number of the same people are going to work on this separation, and I’m highly confident we are going to be able to work off the stranded cost probably faster than we did in the version 1.0.

Okay, great. As my follow-up, Tim, on normalized free cash flow, given the higher transactional nature of the business post ES, I’m a little surprised, you have a fairly tight range of 3.5 to 3.8 if I heard you right. How should we think about the volatility of that number, and then just longer term, normalized CapEx spend for HPE in a post ES world? Thanks.

Yes, let me just clarify. The 3.5 to 3.8; that was ‘16 with ES. And so, if you are looking to pull ES out from a normalized perspective, that’s not what I was talking about. I was talking about sort of our current guide with current separation, current restructuring, what have you. In general, if you strip out ES, I think about obviously ES has more CapEx than the other businesses from a normalized CapEx perspective. I think you could see our CapEx go down by $500 million or $600 million. That’s what we typically use for ES. So, that’s sort of how I think about it from a normalized perspective. Again, we’ll give some more color when we do SAM in October, but I think CapEx is the big driver.

As I said, I think what we are doing by the announcements we made today is unlocking the value of these two companies. And remember EG, plus Software, plus our Financial Services business is a faster growing higher margin more robust free cash flow business. And I think now that with a super focused mission, we’re going to see some real benefits there. And then, obviously by consolidating CSC with ES, I think we are going to get real cost synergies there.

The next question is from Simona Jankowski at Goldman Sachs.

Thank you very much, maybe just the last question then on the fundamentals that you’re seeing out there. It sounded like you attribute the strong performance in EG mostly to share gains, but can you also comment on the demand environment? And then, just relative to those share gains, you touched a little bit on what drove that such as retooling the sales force et cetera. Can you just comment in a little bit more detail on any other factors driving your success there, whether it’s related to solution selling or pricing or products, anything of that nature? Thank you.

Sure. So, listen, it is an uneven macroeconomic environment, I think Tim said that out first. And so, different countries sort of go up and down, different regions. But overall, I think we feel very comfortable with our position in the traditional IT market and then in our ability to provide solutions in a multi-cloud environment. So, I think demand can go up and down but our objective is in whatever the market is doing, we want to make sure we at least hold our gain share and we did that in the last quarter. And I don’t think there is anything new to add as to why. First of all, I think the R&D investments that we’ve made over the last four years are paying off. So, the development cycle in servers, storage, networking, those kind of things, hyper converge, these are long term investments. What you started three years ago actually comes to market now or even next year. So, that investment in R&D is paying off. And I would tell you, a dollar spent on internal R&D is the best dollar we spend at HP, it’s fantastic. Second is, when you retool a sales force that takes some time as well. And I would say, we’re much farther along that we have been, and there is more work to do. And then, as I said, marketing, we’ve retooled on our entire demand generation, we’ve retooled -- and by the way, the launch of Hewlett Packard Enterprise gave us a chance to tell people the story of the enterprise side of this business, because prior to that if you had asked man on the street what is HP, they’d say printing and PC company. So, I think that’s actually been beneficial. And then, turn around could take five years; it’s that when I started and we’re rounding the bend into the end of the fifth year. And so it’s gratifying that we saw as reported growth for the first time in five years.

Great. Thank you, Simona. I think that wraps up today’s call.

Thank you very much.

Ladies and gentlemen, this concludes our call for today. Thank you.