CHICAGO – Fitch Ratings has affirmed the ratings for Hewlett Packard Enterprise Company (HPE), including the 'A-/F2' Long- and Short-Term Issuer Default Ratings (IDR) , on HPE's spin-merger of its software businesses (SW). Fitch's actions affect $20.5 billion of total debt, including the undrawn $4 billion revolving credit facility (RCF). The Rating Outlook is Stable. A full list of ratings follows at the end of this release.
Fitch believes the SW spinoff further reduces scale and diversification, particularly within the context of HPE's pending spinoff of the Enterprise Services (ES) segment announced May 25, 2016 and HPE's focus on accelerating Technology Solutions (TS) business amidst a lower growth hardware demand environment. Nonetheless, pro forma for both SW and ES transactions, HPE's scale will remain significant with approximately $28 billion of annual revenue, higher operating EBITDA margins and only modestly lower annual free cash flow (FCF).
HPE's SW portfolio consists mainly of disparate on-premise offerings with secular new license growth headwinds but solid maintenance and support recurring revenue and cash flow. Nonetheless, Fitch believes filling product gaps, achieving scale and building a significant as-a-service (aaS) business would require significant investments and likely debt-financed acquisitions adversely impacting HPE's credit profile. HPE will spinoff the Applications Delivery Management, Big Data, Enterprise Security, Information Management & Governance and IT Operations Management businesses and retain assets related to the software-defined and cloud business, including OneView and Helion cloud platform.
The spinoffs enable HPE to focus on its strategy of optimizing customers' hybrid cloud environments but Fitch believes the transactions reduce HPE's headroom for operational shortfalls. The company's strategy is underpinned by the TS business, which grew organically in the quarter ended July 31, 2016 for the first time since 2012. HPE is holding share in industry standard servers (ISS), although demand within non-hyperscale markets is muted. HPE's smaller but fast growing all-flash array and software-defined storage (SDS) are providing some offset to the continuation of secular decline for traditional storage solutions. The company's Aruba acquisition continues driving growth in networking, as HPE gains share in campus branch and emerging edge markets. Pro forma for the separations, Fitch expects profitability will remain consistent with growth in higher margin TS and restructuring initiatives offsetting competitive pricing in hardware markets, particularly servers.
On Sep. 7, 2016, HPE announced it will spinoff the SW businesses (SpinCo) and subsequently merge SpinCo into U.K. software provider, Micro Focus. The total transaction value is approximately $8.8 billion. HPE shareholders will retain a 50.1% ownership in the new combined company, valued at approximately $6.3 billion, and SpinCo will make a $2.5 billion cash payment in the U.S. to HPE in connection with the spinoff. HPE will incur $700 million of separation costs related to the SW spinoff, the vast majority of which will be incurred in fiscal 2017. HPE expects to complete the transaction by the second half of fiscal 2017, pending customary regulatory approvals.
HPE also recently closed the sale of Mphasis for approximately $825 million of pre-tax proceeds and will use the vast majority of proceeds for share repurchases. Fitch also expects HPE will use the majority of proceeds from the SW and Services spinoffs, $2.5 billion and more than $1 billion of cash and debt transfers, respectively, for share repurchases. Fitch expects debt levels will decrease by $1.9 billion in connection with the Services spinoff and core leverage (which excludes debt and profitability related to HP Financial Services) should remain roughly at 0.6x - 0.7x, versus 0.6x for the trailing-12-months (TTM) ended July 31, 2016.
KEY RATING DRIVERS
Intensified Hardware Exposure: Fitch believes HPE's transactions increase concentration to slower growing and, in certain cases, commoditizing hardware markets. Pro forma for the spinoffs, hardware sales will represent roughly two-thirds of total revenue but less than 25% of operating profit. Fitch expects ISS to remain a mixed demand market with meaningful pricing pressures. Fitch expects secular headwinds for legacy storage products will continue, constraining growth and profit margins. Networking remains a bright spot with secular campus branch and edge growth, although Fitch expects intensifying competition from a variety of players, including networking market leader, Cisco Systems, Inc.
Recurring revenue and FCF: Fitch expects significant recurring revenue and FCF, pro forma for the spinoffs. Maintenance and support sales represent approximately 30% of total revenue and 60% of operating profit, resulting in substantial recurring FCF. Execution on HPE's optimizing customers' hybrid cloud environments will drive a higher mix of TS sales and recurring revenue growth and cash flow.
Significant Shareholder Returns: Fitch expects shareholder returns will remain significant, particularly considering the vast majority of cash and majority of cash flow (a Fitch estimated two-thirds) is offshore and would give rise to tax liabilities upon repatriation. Fitch expects HPE will continue returning at least 100% of pre-dividend FCF to shareholders. The company will fund nearer-term shareholder returns with domestic cash flow, proceeds from spinoffs and other divestitures and some tax efficient repatriation. Over the longer-term, however, Fitch believes HPE will need to borrow to sustain similar shareholder return levels.
Conservative Leverage: Fitch expects HPE's core leverage will remain conservative through the intermediate-term. Fitch expects core leverage below 1x through the nearer-term forecast period and that management will curtail shareholder returns to maintain core leverage below 1.5x through the intermediate-term.
Significant Installed Based: Fitch expects HPE's significant installed base will provide the aforementioned maintenance and support streams but also growth opportunities. TS's advisory and consulting practices should enable customers to migrate workloads across on-premise and cloud environments, both public and private, and attach additional HPE hardware and maintenance and support services. TS' revenue will represent roughly 25% of total revenue and was approximately $7.7 billion for fiscal 2015 with $2.5 billion of operating profit and meaningfully higher than corporate-wide 33% operating profit margins.
Potential Debt-Financed Acquisitions: Fitch expects ongoing acquisitions to strengthen HPE's hybrid cloud environment strategy. Given Fitch's expectations for the continuation of shareholder returns equal to 100% of pre-dividend FCF and that a Fitch estimated two-thirds of pre-dividend FCF is offshore, Fitch believes acquisitions likely will be debt financed, potentially straining credit protection measures through the subsequent intermediate-term.
Fitch's key assumptions within the rating case for HPE include:
--HPE completes the spinoffs of the Services and SW businesses in fiscal 2017;
--Low-single digit organic constant currency revenue growth through the intermediate-term;
--Operating EBITDA margin expands to the high teens from the spinoffs, restructuring and growth in higher margin TS;
--HPE separates $1.9 billion of debt and $3.2 billion of operating leases and pension liabilities in connection with the Services spinoff;
--HPE will use $4 billion cash dividends from the spinoffs ($1.5 billion from Services and $2.5 billion from SW) to support domestic liquidity, likely emphasizing share repurchases.
The ratings could be downgraded if Fitch expects:
--Negative constant currency organic revenue growth, likely from weaker than expected performance in TS or share losses or intensified pricing pressures in HPE's hardware businesses;
--HPE will not sustain operating EBITDA margin in the high teens, pressuring FCF and core leverage; or
--Shareholder returns intensify, requiring incremental debt to support domestic liquidity and resulting in core leverage above 1.5x.
The ratings are unlikely to be upgraded in the absence of Fitch's expectations for:
--Sustained positive low single digit or greater organic constant currency revenue growth, driven by clear technology leadership;
--Annual FCF will more than double and become less transactional in nature, providing the company with greater visibility and enhanced financial flexibility to fund acquisitions and invest in next generation offerings and
--Commitment to maintaining core leverage below 1x.
Fitch believes HPE's liquidity is strong as of July 31, 2016 and supported by:
--$10.1 billion of cash and investments, excluding cash related to HPFS. The vast majority of HPE's cash is located outside the U.S.;
--An undrawn $4 billion RCF that fully backstops CP programs in the U.S. and Europe.
More than $1.5 billion of annual FCF also supports liquidity.
Total debt was $16.1 billion at July 31, 2016 but core debt, which excludes excluding debt associated with FS, was roughly $8 billion.
Fitch affirms the following:
Hewlett Packard Enterprise Co.
--Long-Term IDR 'A-';
--Short-Term IDR 'F2';
--Commercial Paper (CP) Rating 'F2;
--Senior unsecured RCF rating 'A-';
--Senior unsecured debt rating 'A-'.
Hewlett-Packard International Bank PLC
--Short-Term IDR 'F2';
--CP at 'F2'.
Electronic Data Systems LLC
--Long-Term IDR 'A-';
--Senior unsecured debt 'A-'.
Date of Relevant Rating Committee: Sept. 7, 2016
Summary of Financial Statement Adjustments - Fitch backs out profitability and debt, representing a 7:1 leverage ratio of finance assets, related to the HPFS to calculate core EBITDA and core debt, ultimately arriving at core leverage. This reflects Fitch's focus on HPE's true operating results that are comparable across its peer group.
Additional information is available on www.fitchratings.com.
MOUNTAIN VIEW, Calif. – Veritas, the leader in information management, and Red Hat, Inc. (NYSE: RHT), the world’s leading provider of open source solutions, today announced a collaboration aimed at supporting business critical enterprise applications on OpenStack. Building on their long history of technology collaboration focused on business continuity, storage management and data protection solutions for Red Hat Enterprise Linux and Red Hat Virtualization, the two companies plan to work together to offer predictable quality of service to OpenStack applications and workloads, regardless of scale.
“Red Hat OpenStack Platform is a leading production-ready OpenStack distribution for enterprises for their private cloud infrastructure. We are working with Red Hat so that organizations can confidently adopt OpenStack for their most demanding enterprise workloads”Tweet this
Red Hat OpenStack Platform is a highly scalable Infrastructure-as-a-Service (IaaS) solution that enhances OpenStack with advanced features needed for cloud environments. It is a co-engineered solution that integrates the proven foundation of Red Hat Enterprise Linux with Red Hat's OpenStack technology to form a stable, high-performing and production-ready cloud environment. Veritas has selected Red Hat OpenStack Platform to build OpenStack solutions that provide a highly predictable quality of service to meet the requirements of business critical workloads with cost-effective direct-attached storage (DAS) using Veritas storage management technologies. Through the collaboration, Veritas aims to bring the ability to execute data protection tasks through integration with backup software without impacting production operations to Red Hat OpenStack Platform environments.
“Red Hat OpenStack Platform is a leading production-ready OpenStack distribution for enterprises for their private cloud infrastructure. We are working with Red Hat so that organizations can confidently adopt OpenStack for their most demanding enterprise workloads,” said Mike Palmer, Senior Vice President, Solutions for Data Insight and Orchestration, Veritas.
OpenStack has quickly gained traction as a cloud platform framework of choice for customers seeking agile, cost-effective and open source solutions. Indeed, the platform has seen increased penetration, with the 2016 OpenStack User Survey indicating production use of OpenStack at 65%, up from 33% two years ago. Yet organizations can still face challenges when it comes to executing their traditional, Mode 1 enterprise workloads on OpenStack due to the high performance and reliability requirements. Effective storage management that offers the necessary quality of service—regardless of scale—is a key part of successfully adopting OpenStack for these enterprise production workloads.
“Red Hat OpenStack Platform is in production across hundreds of customers, spanning multiple verticals. We are delighted to collaborate with Veritas to bring enterprise customers more choice and draw on their long legacy of enterprise storage management, resiliency and data protection to help our customers address the performance and reliability requirements of traditional tier 1 workloads running on Red Hat OpenStack Platform,” commented Radhesh Balakrishnan, General Manager, OpenStack, Red Hat.
“The quality of service or ‘noisy neighbor’ challenge is one of the key issues enterprises face as they look to deploy workloads on OpenStack. Veritas’s ability to address this can give customers the confidence to deploy their mode 1 apps on OpenStack knowing that they can have the performance and resiliency they need,” Scott Sinclair, Senior Analyst, ESG.
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About Red Hat, Inc.
Red Hat is the world's leading provider of open source software solutions, using a community-powered approach to provide reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As a connective hub in a global network of enterprises, partners, and open source communities, Red Hat helps create relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT. Learn more at http://www.redhat.com.
About Veritas Technologies
Veritas Technologies enables organizations to harness the power of their information, with information management solutions serving the world’s largest and most complex environments. Veritas works with organizations of all sizes, including 86 percent of global Fortune 500 companies, improving data availability and revealing insights to drive competitive advantage. www.veritas.com
Veritas, the Veritas logo, and NetBackup are trademarks or registered trademarks of Veritas Technologies LLC or its affiliates in the U.S. and other countries. © 2016 Veritas Technologies. All rights reserved.
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AVON, Ohio – Jenne, Inc., a leading value-added distributor of technology products and solutions focusing on voice, video, data networking, premise security and the cloud, is partnering with TelAgility, a leading provider of hosted platforms, to bring a new Avaya cloud offering to its value-added resellers. Hosted UC-Powered by Avaya IP Office is a Unified Communications as a Service (UCaaS) solution that delivers all of the tools necessary for a reseller to leverage the capabilities of Avaya IP Office and IP Office Contact Center but with the ease of a monthly subscription.
Jenne,and @TelAgility, have partnered to bring a new Hosted UC-Powered by Avaya IPOffice cloud solution to resellersTweet this
Hosted UC-Powered by Avaya IP Office is a turnkey solution that provides end-users the opportunity to migrate to an operating expense (OpEx) model. It also includes detailed compliance and taxation functionality which is attractive to solution providers as a value-added service as they bundle in their own services for delivering a comprehensive solution to their customers.
“Our Jenne Avaya Partners look for diverse offerings for their end users, and we are excited to bring a new solution to their portfolio,” said John Kruszka, director of Avaya solutions at Jenne, Inc. “This offer will allow partners to have a CapEx or OpEx option for an industry leading product. TelAgility’s cloud solution is a strong alternative to the traditional IP Office and IP Office Contact Center products.”
“I couldn’t be happier about partnering with Jenne,” said Adam Cole, CEO of TelAgility. “TelAgility has developed a unique product which will redefine the future for telecom resellers. With Jenne’s commitment to excellence in distribution, service, training and support, this partnership will allow us to bring economic sustainability to resellers, enabling them to thrive in the UCaaS marketplace with a highly profitable, recurring revenue stream.”
For more information on this product, contact Jenne Sales at 800-422-6191.
TelAgility, located in Annapolis, Md., makes UCaaS delivery profitable. The company was founded by telecom reseller who sought to create a level playing field in the UCaaS delivery model. With a team of telecom engineers and two years in research and development, TelAgility’s product was finalized with the potential of unlimited profitability for resellers. It is currently deployed with partners and resellers across North America. Through simplification of the delivery process and enabling its partners to overcome the complexity, cost and risk challenges associated with delivering UCaaS, TelAgility is redefining the future for telecom resellers.
About Jenne, Inc.
Jenne, Inc., headquartered in Avon, Ohio, is a leading value-added distributor of technology products and solutions focusing on voice, video, data networking, premise security and the cloud, including equipment and software for the Enterprise and SMB markets. Since the company's founding in 1986, Jenne has been committed to providing value added resellers with a broad product selection, competitive pricing, on-time accurate delivery, outstanding technical support plus ongoing sales and technical training through Jenne University. More than 165 major manufacturers partner with Jenne including Avaya, ADTRAN, Digium, Extreme Networks, Konftel, Mitel, Lifesize, Panasonic, Plantronics, Spectralink, VTech and Yealink.
RIT Repairs Legacy Components Not Possible with Other Restoration Methods
CHICAGO – Optomec, a leading global supplier of production grade additive manufacturing systems for 3D printed metals today announced that the Center for Remanufacturing and Resources Recovery (C3R) at Rochester Institute of Technology (RIT) is restoring legacy components with their LENS 3D Hybrid Vertical Milling Center (VMC) system. The hybrid system at C3R utilizes LENS 3D printing technology integrated within a conventional CNC vertical mill providing additive and subtractive capabilities in a single machine tool. C3R is successfully restoring metal components with their LENS 3D Hybrid VMC not possible with other repair methods such as thermal spray. Optomec will display a video highlighting C3R capabilities and sample parts restored using their LENS Hybrid process at IMTS in the North Hall (Booth # N73).
C3R is considered one of the world’s leaders in remanufacturing, which involves restoring worn or damaged in-service parts to extend their useful life. At the end of their life, complex components within modern machinery contain significant value in the form of raw materials, material processing, logistics management, and intricate machining. Remanufacturing of components provides a method of capturing the intrinsic value of a part and sometimes an entire machine if parts cannot be sourced. C3R is employing the LENS 3D Hybrid VMC as a way to remanufacture complex components for industry and government equipment. The LENS process combined with a traditional mill allows parts to have damaged material removed, surface prepped, structure restored, and function machined back into the part, all within a single setup. Current projects at C3R are investigating the use of the LENS system for restoring the original capability of cast iron and steel parts for another life cycle. Preliminary results have shown minimal modification of the substrates’ subsurface microstructure, low porosity, and quality adhesion.
The LENS process can either fully build 3D metal parts, when replacement parts are no longer available, or selectively and precisely add materials onto an existing metal component of almost any 3-dimensional shape - making it ideally suited to perform repair/remanufacturing operations. The process leverages LENS Directed Energy Deposition technology, which is an industrial proven method to add metal directly onto an existing metal part. The LENS print head delivers powdered metal and a highly focused laser beam to the damaged part area enabling repair of components in a way not possible with traditional repair methods such as welding and thermal spray. The highly focused heat input of the LENS process minimizes the Heat Affected Zone (HAZ) in the part under repair, and reduces the chance of distortion while also improving adhesion.
The Center for Remanufacturing and Resource Recovery (C3R®) at Rochester Institute of Technology is internationally recognized as the leading center for research and development in the remanufacturing field. The Center was established as a partnership between industry, academia, and the government to support industry advancement. Since 1991, C3R has worked to develop, test, and implement efficient and cost-effective remanufacturing processes while also promoting the design of products that have minimal negative environmental impacts. C3R is one of several research units located at the Golisano Institute for Sustainability (GIS).
The Center conducts independent research on remanufacturing technologies, design for remanufacturing, logistics and policy, and business operations. The Center is closely tied and aligned with the Remanufacturing Industries Council and functions as its research and development arm, both nationally and internationally. More information can be found at http://www.rit.edu/gis/remanufacturing/
Optomec is a privately-held, rapidly growing supplier of Additive Manufacturing systems. Optomec’s patented Aerosol Jet Systems for printed electronics and LENS 3D Printers for metal components are used by industry to reduce product cost and improve performance. Together, these unique printing solutions work with the broadest spectrum of functional materials, ranging from electronic inks to structural metals and even biological matter. Optomec has more than 200 marquee customers around the world, targeting production applications in the electronics, energy, life sciences, and aerospace industries. For more information about Optomec, visit http://optomec.com.
LENS (Laser Engineered Net Shaping) is a registered trademark of Sandia National Laboratories. Aerosol Jet and Optomec are registered trademarks of Optomec Inc.
HERNDON, Va. – Greensmith Energy, one of the largest providers of energy storage software and integration services, announced today that American Electric Power (NYSE: AEP) has selected Greensmith as the software provider for a 2 megawatt/14 megawatt hour energy storage system in West Virginia. For the last five years, this battery system has been used as backup system for AEP’s distribution network in the region. Leveraging Greensmith’s industry-leading software, AEP will expand the use of this system into a revenue generating asset—performing Frequency Regulation in the PJM market.
“This installation is a milestone for the industry and demonstrates the value of leveraging Greensmith’s purpose-built software”Tweet this
“Greensmith’s software and services will allow us to enhance the benefits of this energy storage system for our Appalachian Power customers,” said Ram Sastry, AEP’s Vice President, Infrastructure and Business Continuity. “This battery system was installed to help extend the life of the distribution equipment in this area. With the addition of Greensmith software and system expertise, we will have the flexibility to use this energy storage system to generate revenue that will benefit our Appalachian Power customers.”
The GEMS platform is the most widely-deployed energy storage software solution—enabling the most-advanced and proven energy storage systems in the world. With its robust, yet flexible feature functionality, GEMS continues to set the standard for grid-scale, behind-the-meter and microgrid storage control architecture. Backed by world-class technical expertise and software innovation, Greensmith has demonstrated solutions for some of the most critical challenges facing utilities.
“This installation is a milestone for the industry and demonstrates the value of leveraging Greensmith’s purpose-built software,” said John Jung, President and CEO of Greensmith Energy. “Without swapping out a single piece of hardware, Greensmith will enable AEP to take an existing storage asset and turn it into a revenue stream. We are excited to partner with a progressive company like AEP to deliver this project as well as future systems.”
This site will be participating in the PJM energy storage market by October 2016. AEP made a strategic investment in Greensmith in August 2015.
American Electric Power is one of the largest electric utilities in the United States, delivering electricity and custom energy solutions to nearly 5.4 million customers in 11 states. AEP owns the nation’s largest electricity transmission system, a more than 40,000-mile network that includes more 765-kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined. AEP also operates 224,000 miles of distribution lines. AEP ranks among the nation’s largest generators of electricity, owning approximately 31,000 megawatts of generating capacity in the U.S.
As one of the largest providers of energy storage software and integration services, Greensmith's mission is to make energy storage a fundamental part of a cleaner, more intelligent and distributed energy infrastructure. Now in its fifth generation, Greensmith's GEMS software platform optimizes the performance of energy storage by lowering costs and maximizing system return on investment throughout life. In 2014, Greensmith delivered over one-third of all energy storage capacity installed in the United States and in 2015, was selected as the fastest growing energy storage company by Inc 5000. GEMS is currently used by more than 30 major customers globally. Learn more at www.greensmithenergy.com.