Tarek Robbiati
Chief Financial Officer at Hewlett Packard Enterprise
Thank you very much, Antonio. I'll start with a summary of our financial results for the fourth quarter of fiscal year '21. And as usual, I'll be referencing the slides from our earnings presentation to guide you through our performance in the quarter.
Antonio discussed the key fiscal year '21 highlights on Slides 1 and 2, so now let me discuss our Q4 performance starting with Slide 3. I am very pleased to report that we continue to see unprecedented demand across all our businesses with robust order growth, up 28% year-over-year. Building on the strength from the last quarter, we delivered Q4 revenues of $7.4 billion, up 7% from the prior quarter, above normal sequential seasonality and this despite increased supply chain challenges that we foreshadowed at SAM last month.
It's also worth highlighting that $7.4 billion of revenue represents the highest level since Q1 of fiscal year '19, well before the pandemic. Our non-GAAP gross margin was 33%, which was up 230 basis points from the prior year. And this was driven by our deliberate actions to shift towards higher-margin software-rich offerings, strong pricing discipline and cost takeout.
As previously indicated, gross margins were pressured from prior quarter levels due to an increasing industry-wide shortages of certain components that have resulted in extended lead times and higher commodity costs underpinning backlogged orders. We continue to take proactive inventory measures and display healthy price discipline to minimize the impact of recent disruptions. We expect this dynamic supply chain situation to last well into calendar year 2022.
We also continue to invest in high gross margin-rich areas of our portfolio. We've made investments in our overall go-to-market to accelerate our growth and our shift to an as-a-Service model. Even with these investments, our non-GAAP operating margin was 9.7%, up 120 basis points from the prior year, which translates to a 16% year-over-year increase in operating profit.
Within other income and expense, we benefited from further strong gains related to increased valuations in our Pathfinder venture portfolio, an outstanding operational performance in H3C that I will address in more detail later.
With strong execution across the business, we ended the quarter with non-GAAP EPS of $0.52, up 27% from the prior year and at the high end of our outlook range for Q4. Excluding $2.2 billion of after-tax proceeds received from Oracle's satisfaction of the judgment in the Itanium litigation, Q4 cash flow from operation was $784 million and free cash flow was $94 million.
For fiscal year '21, this brings our total cash flow from operations to $3.7 billion, up $1.5 billion from the prior year and our free cash flow to $1.6 billion, up $1 billion from the prior year, driven primarily by an increase in earnings. Our strong execution in cost optimization and resource allocation program has effectively put us one year ahead of schedule with respect to delivering our previous free cash flow targets.
Finally, the strength of our cash flow has positioned us to return substantial capital to our shareholders. We paid $157 million of dividends in the current quarter and are declaring a Q1 dividend today of $0.12 per share payable in January. We also reinstated our share repurchase program in Q4 buying $213 million in shares, reflecting our confidence in future cash flow generation and our view that the stock is undervalued.
Slide 4 highlights key metrics of our accelerating as-a-Service business. We have made significant progress over the last year by adding over 300 new enterprise GreenLake customers to over 1,250 today and increasing our TCV by over $1.5 billion to our current lifetime TCV of over $5.7 billion. For Q4 specifically, our ARR was $796 million, which was up 36% year-over-year as reported and total as-a-Service orders were up 114% year-over-year, which represents an acceleration from Q3, demonstrating the strong momentum we are experiencing in this business.
It's also important to remember the incremental disclosure we provided at SAM 2021, highlighting the significant proportion of software and services in our offerings that together make up more than 60% of the ARR mix today. We expect this mix percentage to expand to more than 75% by fiscal year '24 as we add more software capabilities driving further gross margin improvement. Overall, based on strong momentum this year, I'm very happy with how this business is progressing, which gives us confidence to increase our ARR growth targets by 5 points to a 35% to 45% CAGR from fiscal year '21 to fiscal year '24.
Let's now turn to our segment highlights on Slide 5. Our growth businesses, which now represent nearly 25% of our total company revenue, generated record levels of orders, up strong double-digits. In the Intelligent Edge, revenue grew 2% year-over-year in Q4 and for fiscal year '21 was up 13%. Demand continued unabated in Q4 with order growth up over 50% year-over-year, but the component shortages we foreshadowed at SAM were more pronounced in our Aruba business.
Additionally, our Edge-as-a-Service offerings were up triple digits year-over-year, significantly contributing to our ARR. We delivered a multimillion-dollar NaaS, Network-as-a-Service, deal in Q4 for a large US customer, which represented more than 800 basis points headwind in the short-term to Aruba revenue in Q4, but will help our long-term financial profile in the business. Aruba Services also continued to grow strongly, up high single-digits. Looking forward, we expect it will take some time for supply chain challenges to ease, but we finished fiscal year '21 with over $4 billion in orders, which will give us strong momentum through fiscal year '22.
In HPC & AI, demand strengthened even further with another record level of orders. Revenue grew 35% sequentially and was flat year-over-year with a difficult compare. We did have customer acceptances of some large contracts get pushed out into fiscal year '22. And we now have $2.7 billion of awarded contracts in addition to the $2 billion contract awarded by the NSA, giving us confidence for next year and beyond. We expect robust revenue growth in fiscal year '22 to get us back within the range of our original long-term 8% to 12% CAGR outlook.
In Compute, order growth was up strong double-digits. Revenue grew 4% quarter-over-quarter, reflecting above-normal sequential seasonality and was up double digits year-over-year when normalizing for the Q4 FY '20 backlog. Operating margins of 9.4% were up 280 basis points from prior year due to disciplined pricing and the rightsizing of the cost structure in this segment.
Within Storage, order growth accelerated and was up double-digits year-over-year. Revenue grew 2% year-over-year and 7% quarter-over-quarter, ahead of normal sequential seasonality, driven by strong growth in software-defined offerings. All-flash arrays grew 7% year-over-year, led by Primera, up strong double-digits. Nimble grew 4% year-over-year, with ongoing strong dHCI momentum, growing double-digits year-over-year. Storage operating profit margin was 13.8%, reflecting opex investments to continue driving product mix shift towards more software-rich platforms, including our cloud data services.
With respect to Pointnext operational services, including Nimble services, orders accelerated and were up high single-digits in Q4 and up mid-single digits for fiscal year '21. Most importantly, revenue also grew as reported overall for fiscal year '21, the first time in several years. This is, again, very important, as we enter fiscal year '22 with strong momentum in our most profitable business.
Within HPE Financial Services, volume increased 18% year-over-year, driven by strong double-digit growth in GreenLake. Revenue was up 3% sequentially and flat year-over-year. Our profitability is also benefiting from higher residual values realization and lower borrowing costs as we continue to securitize our US portfolio via the ABS market. Our operating margin was 14.1%, up 630 basis points from the prior year and our return on equity at 23.8% is well above the 18%-plus target set at SAM 2021.
Slide 6 highlights our revenue and EPS performance where you can clearly see the strong rebound from last year and sustained momentum throughout fiscal year '21. As mentioned previously, Q4 revenue of $7.4 billion is the highest level we've delivered since Q1 '19. With a strong demand environment, our strategic business mix shift and execution of our cost optimization and resource allocation program, we increased our Q4 non-GAAP EPS to $0.52, up 27% year-over-year.
Turning to Slide 7, we delivered non-GAAP gross margins in Q4 of 33%. While rates were impacted as expected sequentially from the supply chain challenges previously discussed, we expanded gross margins up 230 basis points from the prior year. This was driven by strong pricing discipline and a positive mix shift towards high margin software-rich businesses. In total, in fiscal year '21, we delivered nearly $900 million of incremental gross profit.
Moving forward, we will face lingering supply chain challenges in the near-term, but longer term, structural gross margins will improve from continuous mix shift towards Intelligent Edge, own IP storage, GreenLake and all of our as-a-Service offerings.
Moving to Slide 8, you can see we have utilized some of the incremental gross profit to make targeted growth investments while simultaneously expanding non-GAAP operating profit margins. We have increased our investment levels in R&D to fuel our long-term innovation engine and fuel selling costs to accelerate our growth and higher shift to our as-a-Service pivot. Even with these investments to drive long-term growth, we delivered operating margins in Q4 of 9.7%, up 120 basis points from the prior year.
On Slide 9, we want to highlight our unique setup in China through our investment in H3C that has and continues to generate tremendous value for our shareholders. Our investments and commercial agreement gives us a route to market in the second largest, fastest-growing IT market in the world. As you know, we do not consolidate revenue and operating profit from H3C, but recognize our 49% share of H3C's earnings through the equity interest statement line on our P&L as part of other income and expense.
H3C has delivered outstanding operational performance throughout the year and generated $257 million of equity interest in fiscal year '21, which was up 21% from the prior year. This makes our business in China a very large contributor to our P&L, one that no other multinational has been able to replicate.
Turning to Slide 10, we finished fiscal year '21 generating $3.7 billion of cash flow from operations and $1.6 billion of free cash flow, and this excluding obviously the $2.2 billion of after-tax cash received from Oracle satisfaction of the Itanium litigation. Free cash flow was up $1 billion year-over-year and is $600 million more than the midpoint of our outlook at the start of fiscal year '20, primarily driven by increased earnings. Our cash flow profile is becoming more predictable and aligned to profitability as our restructuring costs diminish and we grow our as-a-Service business beginning to recognize more deferred revenues from software and services.
Moving on to Slide 11, we have made further progress enhancing our balance sheet strength with a strong free cash flow and payment from Oracle. Following the receipt of the cash from the Itanium litigation, we redeemed early our $1 billion 4.65% coupon outstanding 2024 notes and this in a positive NPV transaction that is net debt-neutral.
The make-whole premium paid was a GAAP-only expense in Q4 and we will realize meaningful interest expense savings over the next three years. We are now in an operating company net cash position of $1.8 billion. Bottom line, our improved free cash flow outlook and cash position ensure we have ample liquidity available to balance long-term growth investments with consistent return of capital to our shareholders.
Now, turning to our outlook on Slide 12. At our Securities Analyst Meeting last month, we provided our outlook for fiscal year '22, and I would like to encourage you to review my presentation for a more detailed discussion of that outlook. Having said that, let me reiterate the drill down into a few key components. We expect fiscal year '22 revenue growth in constant currency of 3% to 4%. As discussed, the supply chain environments remains very dynamic and we expect component shortages with increased commodity costs, expedite and shipping fees to last for the next few quarters impacting near-term revenue and gross margins.
In a nutshell, we expect to have more of a back-end loaded year in fiscal year '22 with the supply chain risk that we discussed reflected in our fiscal year '22 guidance. We expect non-GAAP EPS to be $1.96 to $2.10 and free cash flow to be $1.8 billion to $2 billion. We expect free cash flow to be more in line with historical seasonality where the second half is a stronger generator of cash than the first half.
Now, specific to Q1 revenue, given the very strong backlog balanced by supply chain constraints, we expect revenue to be in line with normal sequential seasonality of down mid-single digits from Q4 of fiscal year '21 and are comfortable with current consensus levels. We also expect gross margins to be pressured in the short-term given supply chain. As a result, for Q1 '22, we expect GAAP diluted net EPS of $0.19 to $0.27 and non-GAAP diluted net EPS of $0.42 to $0.50. So, overall, I'm very proud of our progress throughout our strong fiscal year '21.
As Antonio said, we exceeded all our key financial targets in fiscal year '21, often by a significant margin. The demand environment has been incredibly strong across our business with acceleration in the second half of fiscal year '21, demonstrating that our edge-to-cloud strategy is working well and that we are entering fiscal year '22 with strong momentum. We are now well-positioned to capitalize on the opportunity in front of us and deliver against our fiscal year '22 outlook.
Now with that, let's open it up for questions.
