What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-03-03 compared with 2021-09-03 · 324 added, 441 removed, 259 unchanged (75% of the section changed)

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is organized as follows:

For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section, we use the terms "Hewlett Packard Enterprise", "HPE", the "Company", "we", "us" and "our" to refer to Hewlett Packard Enterprise Company.

References in the MD&A section to "former Parent" refer to HP Inc.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our Condensed Consolidated Financial Statements, changes in certain key items in these financial statements from period-to-period and the primary factors that accounted for these changes, as well as how certain accounting principles, policies and estimates affect our Condensed Consolidated Financial Statements.

This discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document.

The financial discussion and analysis in the following MD&A compares the three months ended January 31, 2022 to the comparable prior-year period and where appropriate, as of January 31, 2022, unless otherwise noted.

This MD&A is organized as follows:

• Trends and Uncertainties .

A discussion of material events and uncertainties known to management, such as an update to our COVID-19 response and other events.

• Executive Overview.

A discussion of our business and summary analysis of financial and other highlights, including non-GAAP financial measures, affecting the Company in order to provide context to the remainder of the MD&A.

A discussion of our business and a summary analysis of our financial performance and other highlights, including non-GAAP financial measures, affecting the Company in order to provide context to the remainder of the MD&A.

• Critical Accounting Policies and Estimates.

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• Results of Operations.

An analysis of our financial results comparing the three and nine months ended July 31, 2021 to the prior-year periods.

A discussion of the results of operations at the consolidated level is followed by a discussion of the results of operations at the segment level.

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An analysis of changes in our cash flows and a discussion of our financial condition and liquidity.

• Contractual and Other Obligations.

An overview of contractual obligations, retirement benefit plan funding, restructuring plans, uncertain tax positions, and off-balance sheet arrangements.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our Condensed Consolidated Financial Statements, the changes in certain key items in those financial statements from period-to-period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Condensed Consolidated Financial Statements.

This discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document.

The following Executive Overview, Results of Operations and Liquidity discussions and analysis compare the three and nine months ended July 31, 2021 to the prior-year periods, unless otherwise noted.

The Capital Resources and Contractual and Other Obligations discussions present information as of July 31, 2021, unless otherwise noted.

For purposes of this MD&A section, we use the terms "Hewlett Packard Enterprise", "HPE", the "Company", "we", "us" and "our" to refer to Hewlett Packard Enterprise Company.

• Contractual Cash and Other Obligations.

An overview of contractual cash obligations, retirement and post-retirement benefit plan funding, restructuring plans, uncertain tax positions, and off-balance sheet arrangements.

• GAAP to Non-GAAP Reconciliations .

Each non-GAAP financial measure has been reconciled to the most directly comparable GAAP financial measure therein.

This section also includes a discussion of the usefulness of non-GAAP financial measures, and material limitations associated with the use of non-GAAP financial measures.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

TRENDS AND UNCERTAINTIES

The overall demand environment continues to improve but remains impacted by ongoing industry-wide supply chain constraints, which moderated our revenue growth, elevated costs, and delayed certain unit shipments, resulting in a higher level of backlog and related inventory at the end of the period.

We expect this trend to continue in the near term.

COVID-19 Update

Our vaccination policy remains in effect;

however, there have been modifications to our U.S.

vaccine policy since first announced, as a result of the nationwide temporary injunction prohibiting enforcement of the U.S.

Federal Executive Order requiring contractors and subcontractors performing work on or in connection with certain federal contracts to be fully vaccinated against COVID-19.

As a result of this injunction, we will not be making vaccination a standard condition of employment in the U.S.

at this time.

However, vaccination will be required for entering our sites, working at customer and third-party sites, and for travel and events, unless team members have an approved exemption through human resources and undergo routine testing.

Outside of the U.S., we have implemented vaccination/risk strategies where legally permissible and where vaccines are readily available.

Such strategies differ from location to location, based on local requirements, and can take the form of mandatory vaccinations and/or testing requirements;

vaccine passports or related certificates;

government reports indicating vaccination rates of company employees;

or other government-mandated risk strategies.

At least 12 countries in which we operate have already implemented, or are in the process of implementing, their pandemic risk strategy.

After careful analysis of information and guidance provided by public health and government authorities regarding the pandemic, and due to the efforts we have taken to mitigate risk through our workplace vaccination policy, effective February 14, 2022, our sites in the U.S.

reopened for employees who are fully vaccinated, with exemptions allowed in certain instances including routine testing as advised.

Employees electing to return to the office do so on a voluntary basis and must follow all local health regulations with regards to masking and physical distancing.

EXECUTIVE OVERVIEW

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We enable customers to accelerate business outcomes by driving new business models, creating new customer and employee experiences, and increasing operational efficiency today and into the future.

Our customers range from small-and-medium size businesses to large global enterprises and governmental entities.

Our legacy dates to a partnership founded in 1939 by William R.

Hewlett and David Packard, and we strive every day to uphold and enhance that legacy through our dedication to providing innovative technological solutions to our customers.

The global pandemic brought a renewed focus on digital transformation as businesses had to rethink everything from remote work and collaboration to business continuity and data insight.

Businesses are starting to look ahead, beyond the immediate demands of COVID-19, and treating digital transformation as a strategic imperative.

The overall demand environment is improving and we are seeing traction across our portfolio.

Customers are looking for secure connectivity, faster insights from data, and a cloud experience everywhere.

Our edge-to-cloud platform and services help customers transform their businesses, optimize their applications, and extract insight from their data across an increasingly distributed world, so they are prepared for tomorrow’s challenges.

Our operations are organized into six reportable segments for financial reporting purposes:

High Performance Computing & Mission-Critical Solutions ("HPC & MCS");

Intelligent Edge;

HPE Financial Services ("FS");

and Corporate Investments and Other.

Our Fiscal 2021 third quarter total net revenue of $6.9 billion was up 1.2% or down 1.9% when adjusted for currency compared to prior-year period, primarily due to improvement in the overall demand environment and favorable foreign currency fluctuations, partially offset by decrease in unit shipments resulting from material constraints.

Compute, High Performance Computing and Artificial Intelligence ("HPC & AI"), Storage, Intelligent Edge, HPE Financial Services ("FS"), and Corporate Investments and Other.

The global pandemic has brought a renewed focus on digital transformation as businesses rethink everything from remote work and collaboration to business continuity and data insights.

Businesses are looking ahead, beyond the demands of the pandemic, and treating digital transformation as a strategic imperative.

Additionally, the pandemic has accelerated several trends relevant to the company:

the exponential increase of data at the edge;

the need for a cloud experience everywhere to manage the growth of data at the edge;

and the need to quickly extract value from the captured data.

Enterprises have embraced multi-cloud strategies for different cloud environments for different types of data and workloads.

Increasingly, customers want to digitally transform, while preserving capital and eliminating operating expense, by paying only for the IT they use.

In response, we are accelerating in our areas of strategic focus, including the Intelligent Edge and HPC & AI businesses, while at the same time, strengthening our core Compute and Storage businesses, investing in key areas of growth and accelerating our as-a-service pivot to become the edge-to-cloud platform as-a-service choice for our customers and partners with our HPE GreenLake Cloud platform.

Three months ended January 31, 2022 compared with the three months ended January 31, 2021

Net revenue of $7.0 billion represented an increase of 1.9% (also increased 1.9% on a constant currency basis) due primarily to a combination of strong demand reflected by double-digit revenue growth in networking products, effective pricing management in server products and growth in the Apollo product category.

The gross profit margin of 33.7% (or $2.3 billion) represents an increase of 0.2 percentage points due primarily to pricing discipline coupled with strong cost management in server products, a mix-shift towards higher-margin software offerings, and lower depreciation expense in FS, moderated by the

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

We delivered strong gross profit margin and operating profit margin during the third quarter of fiscal 2021.

Our GAAP gross margin was 34.5%, up 4.2 percentage points and non-GAAP gross profit margin was 34.7%, up 4.2 percentage points compared to the prior-year period, primarily due to pricing discipline, cost savings from our transformation programs, and continued mix shift towards higher-margin software-rich offerings.

Our GAAP operating profit margin was 4.1%, up 3.9 percentage points compared to prior-year period and our non-GAAP operating profit margin was 9.8%, up 1.9 percentage points from the prior-year period, primarily due to strong operational execution during the current year period.

For the nine months ended July 31, 2021, we generated $2.9 billion of cash flow from operations and $1.5 billion of free cash flows through disciplined execution, strong expense management and working capital benefits.

Financial Results

The following table summarizes our consolidated GAAP financial results:

Three Months Ended July 31, Nine Months Ended July 31,

2021 2020 Change 2021 2020 Change

In millions, except per share amounts In millions, except per share amounts

impact of ongoing supply chain constraints.

The operating profit margin was 6.4%, up 3.2 percentage points due primarily to a decrease in transformation costs.

We used $76 million of cash flow from operations and $577 million of free cash flows primarily due to unfavorable net working capital management resulting in part from the ongoing supply chain constraints.

The following table summarizes our condensed consolidated GAAP financial results for the periods presented:

For the three months ended January 31,

2022 2021 Change

Dollars in millions, except per share amounts

Net revenue $ 6,961 $ 6,833 1.9%

Gross profit $ 2,344 $ 2,288 2.4%

Gross profit margin 34.5 % 30.3 % 4.2pts 34.1 % 31.7 % 2.4pts

Earnings (loss) from operations $ 282 $ 12 2,250% $ 782 $ (474) 265%

Operating profit margin 4.1 % 0.2 % 3.9pts 3.8 % (2.4) % 6.2pts

Net earnings (loss) $ 392 $ 9 4,255.6% $ 874 $ (479) 282.5%

Diluted net earnings (loss) per share $ 0.29 $ 0.01 $0.28 $ 0.66 $ (0.37) $1.03

Cash flow from operations $ 1,130 $ 1,472 $(342) $ 2,915 $ 1,493 $1,422

The following table summarizes our consolidated Non-GAAP financial results:

Three Months Ended July 31, Nine Months Ended July 31,

2021 2020 Change 2021 2020 Change

In millions, except per share amounts In millions, except per share amounts

Gross profit margin 33.7 % 33.5 % 0.2pts

Earnings from operations $ 448 $ 222 101.8%

Operating profit margin 6.4 % 3.2 % 3.2pts

Net earnings $ 513 $ 223 130.0%

Diluted net earnings per share $ 0.39 $ 0.17 $0.22

Cash flow (used in) from operations $ (76) $ 963 $(1,039)

The following table summarizes our condensed consolidated non-GAAP financial results for the periods presented:

For the three months ended January 31,

2022 2021 Change

Dollars in millions, except per share amounts

Net revenue adjusted for currency $ 6,964 $ 6,833 1.9%

Non-GAAP gross profit $ 2,360 $ 2,303 2.5%

Non-GAAP gross profit margin 34.7 % 30.5 % 4.2pts 34.2 % 32.0 % 2.2pts

Non-GAAP gross profit margin 33.9 % 33.7 % 0.2pts

Non-GAAP earnings from operations $ 768 $ 773 (0.6)%

Non-GAAP operating profit margin 9.8 % 7.9 % 1.9pts 10.4 % 8.4 % 2.0pts

Non-GAAP operating profit margin 11.0 % 11.3 % (0.3)pts

Non-GAAP net earnings $ 697 $ 679 2.7%

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Free cash flow $ (577) $ 563 $(1,140)

Each non-GAAP measure has been reconciled to the most directly comparable GAAP measure herein.

Please refer to the section "GAAP to Non-GAAP Reconciliations" included in this MD&A for these reconciliations, usefulness of non-GAAP financial measures, and material limitations associated with the use of non-GAAP financial measures.

Returning capital to our shareholders remains an important part of capital allocation framework that consist of capital returns to shareholders and strategic investments.

During the third quarter of fiscal 2021, we paid a quarterly dividend of $0.12 per share to our shareholders.

On September 2, 2021 we declared our fiscal 2021 fourth quarterly dividend of $0.12 per share, payable on or about October 6, 2021, to stockholders of record as of the close of business on September 13, 2021.

We temporarily suspended our share repurchases due to global economic uncertainty created by COVID-19, and as such, no purchases were made during the nine months ended July 31, 2021.

However, we expect to resume share repurchase activity in the fourth quarter of fiscal 2021.

As of July 31, 2021, we had a remaining authorization of $2.1 billion for future share repurchases.

Each non-GAAP financial measure has been reconciled to the most directly comparable GAAP financial measure herein.

Please refer to the section "GAAP to Non-GAAP Reconciliations" at the end of this MD&A for these reconciliations, along with a discussion of the usefulness of these non-GAAP financial measures, and material limitations associated with the use of these non-GAAP financial measures.

Annualized revenue run-rate ("ARR")

ARR represents the annualized revenue of all net HPE GreenLake services revenue, related financial services revenue (which includes rental income from operating leases and interest income from capital leases) and software-as-a-service, software consumption revenue, and other as-a-service offerings, recognized during a quarter and multiplied by four.

We use ARR as a performance metric.

ARR should be viewed independently of net revenue and is not intended to be combined with it.

The following presents our ARR performance for the period:

For the three months ended January 31,

Dollars in millions

year-over-year growth rate

The 23% increase in ARR was due to growth across our HPE GreenLake as-a-service platforms and related financial services due to an expanding customer installed base.

The increase was limited by supply constraints in certain installations.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

We believe our existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, are sufficient to satisfy our working capital needs, capital asset purchases, dividends, debt repayments and other liquidity requirements associated with our existing operations.

As of July 31, 2021, our cash, cash equivalents and restricted cash were $5.7 billion, compared to the October 31, 2020 balance of $4.6 billion.

We maintain a $4.75 billion five year senior unsecured committed credit facility that was entered into in August 2019.

As of July 31, 2021 no borrowings were outstanding under this credit facility.

Trends and Uncertainties

We are in the process of addressing many challenges facing our business, including effects of COVID-19, a discussion of which is available in sections entitled "Risk Factors" in Item 1A of Part I and "Trends and Uncertainties" in Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

Updates to the COVID-19 response included in 10-K for the fiscal year ended October 31, 2020

COVID-19 vaccines are now broadly distributed and administered, and starting October 4, 2021, in the U.S., HPE will require proof of vaccination for team members, contingent workers, and guests returning to HPE sites, where permitted by local laws and regulations.

This policy also applies to HPE-sponsored and third-party events.

HPE is committed to help support costs for the vaccine through HPE health benefits or other programs, to the extent not covered by government programs, medical plans or other sources.

the segment level, ARR growth was led by strength in Storage as-a-service including Zerto and Intelligent Edge as-a-service activity.

Returning capital to our shareholders remains an important part of our capital allocation framework that consists of capital returns to shareholders and strategic investments.

During the first quarter of fiscal 2022, we paid a quarterly dividend of $0.12 per share to our shareholders.

On March 1, 2022, we declared our fiscal 2022 second quarterly dividend of $0.12 per share, payable on April 8, 2022, to stockholders of record as of the close of business on March 11, 2022.

As of January 31, 2022, we had a remaining authorization of $1.8 billion for future share repurchases.

We believe our existing balance of cash and cash equivalents, along with commercial paper and other short-term liquidity arrangements, are sufficient to satisfy our working capital needs, capital asset purchases, dividends, debt repayments, and other liquidity requirements associated with our existing operations.

As of January 31, 2022 and October 31, 2021, our cash, cash equivalents and restricted cash were $4.3 billion.

In December 2021, we terminated our prior senior unsecured revolving credit facility and entered into a new senior unsecured revolving credit facility with an aggregate lending commitment of $4.75 billion for a period of five years.

As of January 31, 2022, no borrowings were outstanding under this credit facility.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with United States ("U.S.") Generally Accepted Accounting Principles ("GAAP").

The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, and disclosure of contingent liabilities.

Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that COVID-19 could have on our significant accounting estimates.

Significant estimates that are based on a forecast include inventory reserves, provision for taxes, valuation allowance for deferred taxes, and impairment assessment of goodwill, intangible assets and other long-lived assets.

The Company believes that these estimates, judgements and assumptions are reasonable under the circumstances, and are subject to significant uncertainties, some of which are beyond the Company’s control.

Should any of these estimates change, it could adversely affect Company’s results of operations.

Additionally, as the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates, judgements and assumptions may evolve as conditions change.

Management believes that there have been no significant changes during the nine months ended July 31, 2021, with the exception of certain accounting policies that were updated resulting from our adoption of the Current Expected Credit Losses standard (See Note 1 in Item 1, "Overview and Summary of Significant Accounting Policies"), to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

ACCOUNTING PRONOUNCEMENTS

For a summary of recent accounting pronouncements applicable to our Condensed Consolidated Financial Statements, see Note 1 in Item 1, "Overview and Summary of Significant Accounting Policies".

Our Consolidated Financial Statements are prepared in accordance with U.S.

Generally Accepted Accounting Principles ("GAAP"), which requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, net revenue, and expenses, and the disclosure of contingent liabilities.

An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to a material level of judgment related to matters that are highly uncertain, and changes in those estimates and assumptions are reasonably likely to materially impact our Condensed Consolidated Financial Statements.

Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances.

Estimates and judgments may vary under different assumptions or conditions.

We evaluate our estimates and judgments on an ongoing basis.

Accounting policies that are critical in the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, or complex judgements include revenue recognition, taxes on earnings, business combinations, impairment assessment of goodwill and intangible assets and contingencies.

Management believes that there have been no significant changes during the three months ended January 31, 2022, to the items that we disclosed as our "Critical Accounting Policies and Estimates" in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

A summary of significant accounting policies and a summary of recent accounting pronouncements applicable to our Condensed Consolidated Financial Statements are included in Note 1, "Overview and Summary of Significant Accounting Policies", to the Condensed Consolidated Financial Statements in Item 1 of Part I.

RESULTS OF OPERATIONS

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This information is provided so that revenue can be viewed without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our revenue results and trends.

This constant currency disclosure is provided in addition to, and not as a

This constant currency disclosure is provided in addition to, and not as a substitute for, the year-over-year percentage change in revenue on a GAAP basis.

Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

substitute for, the year-over-year percentage change in revenue on a GAAP basis.

Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.

Results of operations in dollars and as a percentage of net revenue were as follows:

Three Months Ended July 31, Nine Months Ended July 31,

2021 2020 2021 2020

Revenue Dollars % of

For the three months ended January 31,

Dollars % of Revenue Dollars % of Revenue

Dollars in millions

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Amortization of intangible assets 73 1.1 110 1.6

Impairment of goodwill — — — — — — 865 4.4

Transformation costs 111 1.6 311 4.6

Disaster charges 5 0.1 2 — 6 — 24 0.1

Acquisition, disposition and other related charges 7 0.1 18 0.3

Earnings (loss) from operations 282 4.1 12 0.2 782 3.8 (474) (2.4)

Earnings from operations 448 6.4 222 3.2

Interest and other, net (5) — (44) (0.7)

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Earnings from equity interests 31 0.4 26 0.4

Earnings (loss) before taxes 406 5.9 (34) (0.5) 899 4.4 (567) (2.9)

(Provision) benefit for taxes (14) (0.2) 43 0.6 (25) (0.1) 88 0.5

Net earnings (loss) $ 392 5.7 % $ 9 0.1 % $ 874 4.3 % $ (479) (2.4) %

Earnings before benefit for taxes 493 7.1 205 3.0

Benefit for taxes 20 0.3 18 0.3

Net earnings $ 513 7.4 % $ 223 3.3 %

Stock-based compensation expense is included within costs and expenses presented in the table above as follows:

Three Months Ended July 31, Nine Months Ended July 31,

2021 2020 2021 2020

For the three months ended January 31,

Cost of sales $ 15 $ 13

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The maximum number of shares that may be delivered to the participants under the 2021 Plan shall not exceed 7 million shares, plus 35.8 million shares that were available for grant under the 2015 Plan as of the Approval Date and any awards granted under the 2015 Plan prior to the Approval Date that were cash-settled, forfeited, terminated or lapsed after the Approval Date.

As of July 31, 2021, the Company had remaining authorization of 42.7 million shares under the 2021 Plan.

As of January 31, 2022, the Company had remaining authorization of 23.1 million shares under the 2021 Plan.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

For the three months ended July 31, 2021, total net revenue was $6.9 billion, increased by $81 million, or 1.2% (decreased 1.9% on a constant currency basis), as compared to the prior-year period.

net revenue decreased by $125 million, or 5.3%, to $2.2 billion, and net revenue from outside of the U.S.

increased by $206 million, or 4.6%, to $4.7 billion.

For the nine months ended July 31, 2021, total net revenue was $20.4 billion, increased by $656 million, or 3.3% (increased 1.2% on a constant currency basis), as compared to the prior-year period.

net revenue decreased by $153 million, or 2.3%, to $6.4 billion, and net revenue from outside of the U.S.

increased by $809 million, or 6.1%, to $14.0 billion.

The net revenue increase for the three and nine months ended July 31, 2021, as compared to the prior-year periods, was due to multiple factors which include strong momentum of revenue growth in our Switching product offerings, additional revenue from the Silver Peak acquisition, favorable demand environment, achievement of more customer acceptance milestones and growth in software-defined offerings, partially offset by decrease in unit shipments resulting from material constraints.

Additionally, the general weakening of the U.S.

dollar relative to certain foreign currencies during the three and nine months ended July 31, 2021 compared to prior-year periods, had a favorable impact on net revenue.

From a segment perspective, for the three months ended July 31, 2021, as compared to the prior-year period, we experienced net revenue increase in all the segments except Compute, primarily led by Intelligent Edge and HPC & MCS segments.

The net revenue increase for the nine months ended July 31, 2021, as compared to the prior-year period was driven by all segments, except Compute which declined slightly year over year.

Three months ended January 31, 2022 compared with the three months ended January 31, 2021

Total net revenue of $7.0 billion represented an increase of $128 million, or 1.9% (increased 1.9% on a constant currency basis).

net revenue increased by $140 million, or 6.4%, to $2.3 billion, and net revenue from outside of the U.S.

decreased by $12 million, or 0.3%, to $4.7 billion.

From a segment perspective, net revenue increased across many of our segments due to the improved demand environment led by revenue growth of 11% in Intelligent Edge, 4% in HPC & AI, and 1% in Compute and Corporate Investments and Other.

Net revenue declined by 3% and 2% in Storage and Financial Services, respectively.

The components of the weighted net revenue change by segment were as follows:

Three Months Ended July 31, 2021 Nine Months Ended July 31, 2021

For the three months ended January 31, 2022

Percentage points

Compute (4.5) (0.1)

HPC & MCS 1.1 0.4

Storage (0.5)

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Financial Services (0.3)

Corporate Investments and Other 0.4 0.2

Corporate Investments 0.1

Total Segment 1.5

Elimination of Intersegment net revenue 0.3 0.4

Elimination of Intersegment net revenue and Other 0.4

Total HPE 1.9

Please refer to the section "Segment Information" below for the discussion of the segment result on each of our reportable segments.

For the three and nine months ended July 31, 2021, as compared to the prior-year periods, total gross profit margin increased 4.2 and 2.4 percentage points respectively.

The gross profit margin increase for both periods were due primarily to disciplined pricing, lower supply chain overhead costs, and favorable currency fluctuations, partially offset by higher variable compensation expense.

Research and Development

R&D expense increased by $51 million, or 11% for the three months ended July 31, 2021, as compared to the prior-year period, due primarily to on-going expenses from business acquisitions and higher employee compensation expense in the current year period.

R&D expense increased by $87 million, or 6% for the nine months ended July 31, 2021, as compared to the prior-year period, due primarily to higher employee compensation expense and on-going expenses from business acquisitions, partially offset by the cost savings achieved as we rationalize our R&D through transformation programs by focusing investment in growth areas.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Please refer to the section "Segment Information" further below for a discussion of our results of operations for each reportable segment.

Our gross profit margin of 33.7% represents an increase of 0.2 percentage points due primarily to pricing discipline coupled with strong cost management in server products, a mix-shift to higher-margin software offerings, and lower depreciation expense in FS.

These increases to gross margin were moderated by the impact of industry-wide ongoing supply chain constraints, such as increased logistics costs.

Operating expenses

Research and development ("R&D")

R&D expense increased by $36 million, or 8% due primarily to higher employee compensation expense (which included increased headcount) which contributed 6.6 percentage points to the change, as each of our segments focuses on developing an end-to-end cloud-native infrastructure to serve as the foundation for our as-a-service or consumption service delivery models which are integrated into or further enhancing our overall HPE GreenLake platform .

Selling, general and administrative

Selling, general and administrative expense increased by $160 million, or 14%, and by $191 million, or 6%, for the three and nine months ended July 31, 2021, respectively, as compared to the prior-year periods, due primarily to higher investment in sales and marketing, unfavorable currency fluctuations, on-going expenses from business acquisitions, and higher employee compensation expense, partially offset by cost savings achieved through our transformation programs.

For the nine months ended July 31, 2021, the increase in expense is also partially offset by lower travel expenses as compared to the prior-year period.

Selling, general and administrative expense increased by $42 million, or 4% due primarily to higher employee compensation ex pense which contributed 3.4 percentage points to the change.

Amortization of intangible assets

Amortization of intangible assets decreased by $13 million, or 14%, and by $23 million, or 8%, for the three and nine months ended July 31, 2020, respectively, as compared to the prior-year periods, due to certain intangible assets associated with prior acquisitions reaching the end of their amortization period and higher write-off of certain intangible assets in the prior-year period, partially offset by an increase in the amortization of intangible assets from recent acquisitions.

Impairment of Goodwill

Impairment of goodwill for the nine months ended July 31, 2020, represents a partial goodwill impairment charge of $865 million in the second quarter of fiscal 2020, as it was determined that the fair value of the HPC & MCS reporting unit was below the carrying value of its net assets.

We performed an interim quantitative goodwill impairment test for all of our reporting units as of November 1, 2020, which did not result in any goodwill impairment charges.

The fair value of all reporting units continued to exceed the carrying value of their net assets and did not result in impairment.

The excess of fair value over carrying value for our reporting units ranged from approximately 8% to 37% of the respective carrying values.

In order to evaluate the sensitivity of the estimated fair value of our reporting units in the goodwill impairment test, we applied a hypothetical 10% decrease to the fair value of each reporting unit.

Based on the results of this hypothetical 10% decrease all of the reporting units had an excess of fair value over carrying value, with the exception of the HPC & MCS reporting unit.

Should economic conditions deteriorate, estimates of future cash flows for each of our reporting units may be insufficient to support the carrying value and the goodwill assigned to them, requiring impairment charges.

Further impairment charges, if any, may be material to the results of operations and financial position.

We will continue to evaluate the recoverability of goodwill on an annual basis as of the beginning of its fourth fiscal quarter and whenever events or changes in circumstances indicate there may be a potential impairment.

Transformation Costs

Transformation programs are comprised of the cost optimization and prioritization plan we introduced in May 2020, and the HPE Next Initiative.

Transformation costs decreased by $144 million, or 40%, for the three months ended July 31, 2021, as compared to the prior-year period, due primarily to lower restructuring charges recorded in the current year period, partially offset by higher IT costs in the current year period.

Transformation costs increased by $87 million or 13%, for the nine months ended July 31, 2021, as compared to the prior-year period, due primarily to higher IT costs and program management charges recorded in the current year, and lower gains on real estate sales, partially offset by lower restructuring charges.

See Note 3, "Transformation Programs", for discussion on the Transformation Costs.

Disaster Charges

Disaster charges decreased by $18 million, or 75%, for the nine months ended July 31, 2021, as compared with the prior-year period, due primarily to higher direct costs resulting from COVID-19 for HPE hosted, co-hosted, or sponsored events which were converted to a virtual format or cancelled in the prior-year period.

Acquisition, Disposition and Other Related Charges

Acquisition, disposition and other related charges decreased by $12 million, or 80%, and by $21 million, or 38%, for the three and nine months ended July 31, 2021, respectively, as compared with the prior-year periods, due primarily to lower business acquisition costs related to retention bonuses and integration activities in the current year periods.

Amortization of intangible assets decreased by $37 million, or 34% due to higher write-offs of certain intangible assets in the prior-year period and certain intangible assets associated with prior acquisitions reaching the end of their amortization periods.

The decrease was moderated by an increase in amortization expense in the current period resulting from recent acquisitions.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

Transformation programs and costs

Our transformation programs consist of the cost optimization and prioritization plan (launched in 2020) and the HPE Next initiative (launched in 2017).

Transformation costs decreased by $200 million, or 64% due primarily to lower restructuring charges recorded in the current period.

For a further discussion, refer to Note 3, "Transformation Programs" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Interest and other, net

Interest and other, net expense decreased by $21 million for the three months ended July 31, 2021, as compared to the prior-year period, due primarily to lower interest expense from lower average borrowings, higher gain on the sale of certain assets and interest income on the recovery of two Brazilian social contribution taxes, partially offset by unfavorable currency fluctuations in the current period.

Interest and other, net expense decreased by $53 million for the nine months ended July 31, 2021, as compared to the prior-year period, due primarily to higher gains from equity investments, lower unfavorable currency fluctuations, lower interest expense from lower average borrowings, and interest income on the recovery of two Brazilian social contribution taxes, partially offset by lower gain on the sale of certain assets in the current year period.

Interest and other, net expense decreased by $39 million due primarily to higher gains from equity investments, lower interest expense from lower average borrowings, and higher gains on the sale of certain assets in the current period.

The decrease was partially moderated by unfavorable currency fluctuations in the current period.

Tax indemnification and related adjustments

We recorded changes in certain pre-Separation tax liabilities for which we shared joint and several liability with HP Inc.

and for which we were indemnified under the Termination and Mutual Release Agreement within Tax Indemnification and related Adjustments.

We also record changes to certain pre-Separation and pre-divestiture tax liabilities and tax receivables for which we remain liable on behalf of the separated or divested business, but which may not be subject to indemnification.

We recorded tax indemnification income of $76 million and tax indemnification expense of $30 million for the three months ended July 31, 2021 and 2020, respectively, and tax indemnification income of $60 million and tax indemnification expense of $86 million for the nine months ended July 31, 2021 and 2020, respectively.

For the three and nine months ended July 31, 2021, the amount primarily included the impacts of a Brazilian Supreme Court decision received regarding the base on which PIS and COFINS are imposed.

As a result of this decision, the Company is entitled to recover credits and associated interest related to the overpayment of these transaction taxes imposed between 2005 and 2019 to be used to offset future Brazilian tax liabilities.

As such, we have recorded benefits of $16 million and $72 million, both net of taxes, for the recovery of PIS and COFINS, respectively, during the third quarter of fiscal 2021, of which $26 million was included in Net revenue, $12 million related to interest income was included in Interest and other, net, and $78 million related to pre-Separation liabilities was included in Tax indemnification and related adjustments.

The corresponding income taxes of $28 million as a result of this recovery were included in (Provision) benefit for taxes in the Condensed Consolidated Statement of Earnings.

For the nine months ended July 31, 2021 and 2020, these amounts also resulted from changes in certain pre-Separation tax liabilities for which we share joint and several liability with HP Inc.

and for which we are indemnified under the Termination and Mutual Release Agreement and changes to certain pre-Separation and pre-divestiture tax liabilities and tax receivables.

Non-service Net Periodic Benefit

Non-service net periodic benefit credit decreased by $9 million and $48 million for the three and nine months ended July 31, 2021, as compared to the prior-year periods, due primarily to lower expected returns on plan assets.

We recorded tax indemnification expense of $17 million and $16 million, which included changes in certain pre-divestiture tax liabilities for the three months ended January 31, 2022 and 2021, respectively.

For the three months ended January 31, 2021, the amount also included changes in tax liabilities for which we shared joint and several liability with HP Inc.

and for which we were indemnified by HP Inc.

Non-service net periodic benefit credit

Non-service net periodic benefit credit represents the components of net periodic pension benefit credit and costs, other than service cost, for the Hewlett Packard Enterprise defined benefit pension and post-retirement benefit plans, such as interest cost, expected return on plan assets, and the amortization of prior plan amendments and actuarial gains or losses.

The credit also includes the impact of any plan settlements, curtailments, or special termination benefits.

Non-service net periodic benefit credit increased by $19 million due primarily to lower amortized actuarial losses, partially offset by higher interest cost due to higher discount rates.

Earnings from equity interests

Earnings from equity interests primarily represents our 49% interest in H3C Technologies' ("H3C") earnings and the amortization of our interest in a basis difference.

For the three and nine months ended July 31, 2021, earnings from equity interests increased by $52 million and $59 million, respectively, as compared to the prior-year periods, due to higher net income earned by H3C and gains from certain venture investments.

Earnings from equity interests primarily represents our 49% interest in H3C Technologies and the amortization of our interest in basis difference.

Earnings from equity interests increased by $5 million, due primarily to a decrease in amortization expense from basis difference in the current period partially offset by lower net income earned by H3C.

(Provision) benefit for taxes

For the three and nine months ended July 31, 2021, we recorded income tax expense of $14 million and $25 million, respectively, which reflect an effective tax rate of 3.4% and 2.8%, respectively.

For the three and nine months ended July 31, 2020, the Company recorded income tax benefit of $43 million and $88 million, respectively, which reflect an effective tax rate of 126.5% and 15.5%, respectively.

For the three months ended January 31, 2022 and 2021, we recorded income tax benefit of $20 million and $18 million, respectively, which reflect an effective tax rate of (4.1)% and (8.8)%, respectively.

Our effective tax rate generally differs from the U.S.

federal statutory rate of 21% due to favorable tax rates associated with certain earnings from our operations in lower tax jurisdictions throughout the world but may also be materially impacted by discrete tax adjustments during the fiscal year.

The effective tax rate for the nine months ended July 31, 2020 also included the effects of the non-deductible goodwill impairment.

See Note 5, "Taxes on Earnings", for discussion on provision for taxes.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

federal statutory rate of 21% due to favorable tax rates associated with certain earnings from our operations in lower tax jurisdictions throughout the world but are also impacted by discrete tax adjustments during each fiscal period.

For further discussion, refer to Note 5, "Taxes on Earnings" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Segment Information

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The segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results.

As described in Item 1, Note 1, "Overview and Summary of Significant Accounting Policies", effective at the beginning of the first quarter of fiscal 2021, we (a) excluded stock-based compensation expense from our segment earnings from operations;

and (b) implemented certain organizational changes to align our segment financial reporting more closely with our current business structure.

As a result of these organizational changes, our operations are now organized into six segments for financial reporting purposes:

Compute, HPC & MCS, Storage, Intelligent Edge, FS, and Corporate Investments and Other.

The Corporate Investments and Other Segment now includes the A & PS operating segment, the Communications and Media Solutions operating segment, the Software operating segment, and the Hewlett Packard Enterprise Labs which is responsible for research and development.

We reflected these changes in our segment information retrospectively to the earliest period presented, which primarily resulted in the realignment of net revenue and operating profit for each of the segments.

These changes had no impact on Hewlett Packard Enterprise's previously reported consolidated results.

Segment Results

The following provides an overview of our key financial metrics by segment for the three months ended July 31, 2021, as compared to the prior-year period:

Compute HPC & MCS Storage Intelligent Edge Financial Services Corporate Investments and Other HPE Consolidated

Net revenue (1)

$ 3,104 $ 741 $ 1,176 $ 867 $ 844 $ 332 $ 6,897

Year-over-year change % (8.9) % 11.1 % 3.9 % 26.8 % 4.1 % 9.6 % 1.2 %

Earnings (loss) from operations (2)

$ 347 $ 29 $ 178 $ 137 $ 94 $ (28) $ 282

Earnings (loss) from operations as a % of net revenue 11.2 % 3.9 % 15.1 % 15.8 % 11.1 % (8.4) % 4.1 %

Year-over-year change percentage points 1.9 pts (3.1) pts 0.1 pts 5.4 pts 3.0 pts 14.0 pts 3.9 pts

The following provides an overview of our key financial metrics by segment for the nine months ended July 31, 2021, as compared to the prior-year period:

Compute HPC & MCS Storage Intelligent Edge Financial Services Corporate Investments and Other HPE Consolidated

Net revenue (1)

$ 9,066 $ 2,188 $ 3,506 $ 2,472 $ 2,543 $ 1,003 $ 20,430

Year-over-year change % (0.3) % 3.5 % 1.0 % 19.5 % 1.6 % 4.7 % 3.3 %

Earnings (loss) from operations (2)

$ 1,024 $ 91 $ 604 $ 413 $ 269 $ (84) $ 782

Earnings (loss) from operations as a % of net revenue 11.3 % 4.2 % 17.2 % 16.7 % 10.6 % (8.4) % 3.8 %

Year-over-year change percentage points 2.5 pts (3.2) pts 0.1 pts 5.1 pts 1.9 pts 9.6 pts 6.2 pts

(1) HPE consolidated net revenue excludes intersegment net revenue.

(2) Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense, amortization of initial direct costs, amortization of intangible assets, transformation costs, disaster charges and acquisition, disposition and other related charges.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Three Months Ended July 31, 2021

2021 2020 % Change

Dollars in millions

Net revenue $ 3,104 $ 3,409 (8.9) %

Earnings from operations $ 347 $ 318 9.1 %

Earnings from operations as a % of net revenue 11.2 % 9.3 %

Nine Months Ended July 31, 2021

2021 2020 % Change

Dollars in millions

Net revenue $ 9,066 $ 9,094 (0.3) %

Earnings from operations $ 1,024 $ 797 28.5 %

Earnings from operations as a % of net revenue 11.3 % 8.8 %

Three months ended July 31, 2021 compared with three months ended July 31, 2020

Compute net revenue decreased by $305 million, or 8.9% (decreased 11.8% on a constant currency basis), for the three months ended July 31, 2021 as compared to the prior-year period.

Net revenue in Compute decreased primarily due to a decrease in unit shipments resulting from material constraints partially offset by higher average unit prices and favorable currency fluctuations.

Prior year period also included the impact of additional unit shipments due to elevated backlog entering the quarter.

Compute earnings from operations as a percentage of net revenue increased 1.9 percentage points for the three months ended July 31, 2021, as compared to the prior-year period, due to a decrease in costs of products and services as a percentage of net revenue partially offset by an increase in operating expense as a percentage of net revenue.

The decrease in costs of products and services as a percentage of net revenue was primarily due to favorable currency fluctuations, disciplined pricing, lower supply chain overhead costs and favorable product mix partially offset by higher variable compensation expense.

The increase in operating expense as a percentage of net revenue was primarily due to strategic investments and higher variable compensation expense.

Nine months ended July 31, 2021 compared with nine months ended July 31, 2020

Compute net revenue decreased by $28 million, or 0.3% (decreased 2.3% on a constant currency basis), for the nine months ended July 31, 2021 as compared to the prior-year period.

Net revenue in Compute decreased primarily due to a decrease in unit shipments resulting from material constraints.

This was partially offset by higher average unit prices and favorable currency fluctuations.

In additional prior year third quarter also reflected higher unit shipments as a result of elevated backlog entering the quarter.

Compute earnings from operations as a percentage of net revenue increased 2.5 percentage points for the nine months ended July 31, 2021, as compared to the prior-year period, due to decreases in costs of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The decrease in costs of products and services as a percentage of net revenue was primarily due to lower supply chain overhead costs, favorable currency fluctuations and disciplined pricing partially offset by variable compensation expense.

The decrease in operating expense as a percentage of net revenue was primarily due to cost savings from our transformation programs partially offset by higher variable compensation expense.

A description of the products and services for each segment, along with other pertinent information related to our segments can be found in Note 2, "Segment Information", to the Condensed Consolidated Financial Statements in Item 1 of Part I.

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Financial Condition and Results of Operations (Continued)

Three Months Ended July 31,

2021 2020 % Change

Segment Results

The following table and ensuing discussion provide an overview of our key financial metrics by segment for the three months ended January 31, 2022, as compared to the prior-year period:

HPE Consolidated Compute HPC & AI Storage Intelligent Edge Financial Services Corporate Investments

Dollars in millions

Net revenue (1) (3)

$ 6,961 $ 3,016 $ 790 $ 1,156 $ 901 $ 842 $ 325

Year-over-year change % 1.9 % 1.1 % 3.8 % (3.0) % 11.2 % (2.1) % 1.2 %

Earnings from operations (2) (3)

$ 448 $ 416 $ (7) $ 168 $ 157 $ 104 $ (11)

Earnings from operations as a % of net revenue 6.4 % 13.8 % (0.9) % 14.5 % 17.4 % 12.4 % (3.4) %

Nine Months Ended July 31,

Year-over-year change percentage points 3.2 pts 2.4 pts (6.6) pts (5.1) pts (1.6) pts 2.6 pts 6.3 pts

(1) HPE consolidated net revenue excludes intersegment net revenue.

(2) Segment earnings from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense, amortization of initial direct costs, amortization of intangible assets, transformation costs and acquisition, disposition and other related charges.

(3) Effective at the beginning of the first quarter of fiscal 2022, we implemented minor organizational changes to align our segment financial reporting more closely with our current business structure resulting in immaterial changes to certain prior period segment revenue and earnings from operations amounts.

These changes had no impact to HPE’s previously reported consolidated GAAP results.

For the three months ended January 31,

2022 2021 % Change

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Earnings from operations as a % of net revenue 13.8 % 11.4 %

Three months ended July 31, 2021 compared with three months ended July 31, 2020

HPC & MCS net revenue increased by $74 million, or 11.1% (increased 9.4% on a constant currency basis), for the three months ended July 31, 2021, as compared to the prior-year period, primarily due to favorable demand environment, eased competitive pricing pressures, favorable foreign currency fluctuations and as we achieved more customer acceptance milestones.

HPC & MCS earnings from operations as a percentage of net revenue decreased 3.1 percentage points for the three months ended July 31, 2021, as compared to the prior-year period, primarily due to increases in cost of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was primarily due to lower mix of revenue from services and high-margin MCS products partially offset by lower competitive pricing pressures and savings from our transformation programs.

The increase in operating expenses as a percentage of net revenue was primarily due to higher field selling costs partially offset by cost savings from our transformation programs.

Nine months ended July 31, 2021 compared with nine months ended July 31, 2020

HPC & MCS net revenue increased by $75 million or 3.5% (increased 2.7% on a constant currency basis), for the nine months ended July 31, 2021, as compared to the prior-year period, as we achieved more customer acceptance milestones.

HPC & MCS earnings from operations as a percentage of net revenue decreased 3.2 percentage points for the nine months ended July 31, 2021, as compared to the prior-year period, primarily due to increases in cost of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was primarily due to competitive pricing pressures during the first half of fiscal 2021, higher variable compensation expense along with lower mix of revenue from services and high-margin MCS products partially offset by cost savings from our transformation programs.

The increase in operating expenses as a percentage of net revenue was primarily due to higher field selling costs and variable compensation expense partially offset by cost savings from our transformation programs.

Compute net revenue increased by $32 million, or 1.1% (increased 0.5% on a constant currency basis), due primarily to higher average unit prices resulting from disciplined pricing actions and favorable currency fluctuations moderated by lower unit shipments.

The decline in unit shipments resulted from continued material constraints due to a challenging supply chain environment.

As a result, Compute ended the period with a significantly higher level of order backlog.

From a product perspective, Compute experienced revenue growth in the rack server category moderated by a revenue decline due to certain products approaching their end-of-life.

Services net revenue declined due to lower unit attachments and delayed hardware shipments.

Compute earnings from operations as a percentage of net revenue increased 2.4 percentage points due to decreases in costs of products and services as a percentage of net revenue and operating expense as a percentage of net revenue.

The decrease in costs of products and services as a percentage of net revenue was primarily due to pricing discipline coupled with strong cost management and favorable currency fluctuations moderated by a lower mix of higher margin services.

The decrease in operating expense as a percentage of net revenue was primarily due to lower variable compensation expense.

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Financial Condition and Results of Operations (Continued)

Three Months Ended July 31,

For the three months ended January 31,

2022 2021 % Change

3 unchanged sentences

Earnings from operations as a % of net revenue (0.9) % 5.7 %

Nine Months Ended July 31,

HPC & AI net revenue increased by $29 million, or 3.8% (increased 3.6% on a constant currency basis) due primarily to an improved demand environment with growth in HPC products led by the Apollo and Edge Compute product categories.

This increase was moderated by a decline in net revenue from Cray products as a result of delays in receiving customer acceptance on certain deals, and a decline in services revenue due primarily to lower support services as a result of an unfavorable portfolio mix of lower attachments from end-of-life products.

HPC & AI earnings from operations as a percentage of net revenue decreased 6.6 percentage points due to increases in cost of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was due primarily to the impact of fixed overhead costs as a result of the shift in timing of revenue recognition on certain deals, and a lower mix of revenue from services and higher-margin products.

The increase in operating expenses as a percentage of net revenue was primarily due to higher investments in research and development that are focused on high-performance computing solutions, both on-premise and in the cloud, while integrating such portfolio into our HPE GreenLake platform.

For the three months ended January 31,

2022 2021 % Change

3 unchanged sentences

Earnings from operations as a % of net revenue 14.5 % 19.6 %

Three months ended July 31, 2021 compared with three months ended July 31, 2020

Storage net revenue increased by $44 million or 3.9% (increased 1.1% on a constant currency basis), for the three months ended July 31, 2021 as compared to the prior-year period due primarily to favorable currency fluctuations and revenue growth in HPE Primera products and Storage Services, partially offset by revenue decline in HPE 3PAR products as we continue our transition to more software-rich products in the hyperconverged portfolio and primary storage market.

The increase in Storage net revenue was also favorably impacted by a large deal in Traditional Storage.

Storage earnings from operations as a percentage of net revenue increased 0.1 percentage point for the three months ended July 31, 2021, as compared to the prior-year period, due to a decrease in cost of products and services as a percentage of net revenue, partially offset by an increase in operating expenses as a percentage of net revenue.

The decrease in cost of products and services as a percentage of net revenue was due primarily to a higher margin large deal for HPE Primera and favorable currency fluctuations, the effects of which were partially offset by higher competitive pricing pressures and customer satisfaction settlement.

The increase in operating expenses as a percentage of net revenue was due primarily to higher variable compensation expense and field selling costs.

Nine months ended July 31, 2021 compared with nine months ended July 31, 2020

Storage net revenue increased by $36 million or 1.0% (decreased 0.8% on a constant currency basis), for the nine months ended July 31, 2021 as compared to the prior-year period due primarily to favorable currency fluctuations and growth in HPE Primera products, Nimble Storage, and Storage Services, partially offset by revenue decline in HPE 3PAR and Simplivity products as we continue our transition to more software-rich products in the hyperconverged portfolio and primary storage market respectively.

Storage net revenue in the first nine months of fiscal 2021 was also favorably impacted by a large deal in Traditional Storage.

Storage earnings from operations as a percentage of net revenue increased 0.1 percentage point for the nine months ended July 31, 2021, as compared to the prior-year period, due to a decrease in cost of products and services as a percentage of net revenue, partially offset by an increase in operating expenses as a percentage of net revenue.

The decrease in cost of products and services as a percentage of net revenue was due primarily to favorable currency fluctuations, lower supply chain overhead costs, higher margin large deal for HPE Primera, and lower delivery cost in storage service, the effects of which were partially offset by higher variable compensation expense.

The increase in operating expenses as a percentage of net revenue was due primarily to higher variable compensation expense.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Storage net revenue decreased by $36 million or 3.0% (decreased 3.4% on a constant currency basis) due primarily to supply chain constraints, particularly with our owned intellectual property products, which can contain certain unique components.

Net revenue declined in Storage products moderated by an increase in Storage services.

The decline in Storage products was led by declines in HPE 3PAR, Nimble Storage, and the Hyperconverged product portfolio.

The increase in Storage services was led by Zerto and Nimble Services as we continue our transition to more services, and software-rich offerings.

Storage earnings from operations as a percentage of net revenue decreased 5.1 percentage point due to increases in cost of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was due primarily to supply chain constraints which unfavorably impacted our higher-margin product mix, partially offset by higher margin product from Zerto.

The incre ase in operating expenses as a percentage of net revenue was due primarily to higher investments in research and development related as-a-service offerings.

Intelligent Edge

Three Months Ended July 31,

2021 2020 % Change

Dollars in millions

Net revenue $ 867 $ 684 26.8 %

Earnings from operations $ 137 $ 71 93.0 %

Earnings from operations as a % of net revenue 15.8 % 10.4 %

Nine Months Ended July 31,

2021 2020 % Change

Dollars in millions

Net revenue $ 2,472 $ 2,069 19.5 %

Earnings from operations $ 413 $ 240 72.1 %

Earnings from operations as a % of net revenue 16.7 % 11.6 %

Three months ended July 31, 2021 compared with three months ended July 31, 2020

Intelligent Edge net revenue increased by $183 million, or 26.8% (increased 23.0% on a constant currency basis), for the three months ended July 31, 2021, as compared to the prior-year period primarily due to revenue growth in switching products, additional revenue from the Silver Peak acquisition, and favorable foreign currency fluctuations.

Intelligent Edge earnings from operations as a percentage of net revenue increased 5.4 percentage points for the three months ended July 31, 2021 as compared to the prior year period due primarily to a decrease in cost of products and services as a percentage of net revenue while operating expenses as a percentage of net revenue remained relatively flat.

The decrease in cost of product and services as a percentage of net revenue was primarily due to lower cost of Switching products, favorable supply chain costs and impact of the Silver Peak acquisition partially offset by lower mix of revenue from services and higher variable compensation expense.

Operating expenses as a percentage of net revenue remained relatively flat primarily due to improved operational efficiencies including cost savings from transformation programs offset by higher variable compensation expense, additional expenses from the Silver Peak acquisition and a legal settlement.

Nine months ended July 31, 2021 compared with nine months ended July 31, 2020

Intelligent Edge net revenue increased by $403 million, or 19.5% (increased 16.8% on a constant currency basis), for the nine months ended July 31, 2021, as compared to the prior-year period primarily due to revenue growth in Switching and WLAN products, additional revenue from the Silver Peak acquisition, and favorable foreign currency fluctuations.

Intelligent Edge earnings from operations as a percentage of net revenue increased 5.1 percentage points for the nine months ended July 31, 2021 as compared to the prior year period due primarily to decreases in operating expenses as a percentage of net revenue and cost of products and services as a percentage of net revenue.

The decrease in cost of product and services as a percentage of net revenue was primarily due to lower cost of Switching and WLAN products, and the favorable impact of the Silver Peak acquisition partially offset by higher variable compensation expense and logistics expense.

The decrease in operating expenses as a percentage of net revenue was primarily due to improved operational efficiencies including cost savings from transformation programs partially offset by higher variable compensation expense and the addition of expenses from the Silver Peak acquisition.

Financial Services

Three Months Ended July 31,

For the three months ended January 31,

2022 2021 % Change

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Earnings from operations as a % of net revenue 17.4 % 19.0 %

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Financial Condition and Results of Operations (Continued)

Nine Months Ended July 31,

Intelligent Edge net revenue increased by $91 million, or 11.2% (increased 11.4% on a constant currency basis) from growth in product and services revenue due to an improving demand environment despite continued supply chain constraints.

The increase in product revenue was led by the Switching and WLAN product categories.

The increase in services revenue was led by attached support services and our as-a-service offerings.

Intelligent Edge earnings from operations as a percentage of net revenue decreased 1.6 percentage points due primarily to an increase in cost of products and services as a percentage of net revenue, partially offset by a decrease in operating expenses as a percentage of net revenue .

The increase in cost of product and s ervices as a percentage of net revenue was primarily due to higher supply chain costs.

Operating expenses as a percentage of net revenue decreased primarily due to lower variable compensation expense.

Financial Services

For the three months ended January 31,

2022 2021 % Change

3 unchanged sentences

Earnings from operations as a % of net revenue 12.4 % 9.8 %

Three months ended July 31, 2021 compared with three months ended July 31, 2020

FS net revenue increased by $33 million, or 4.1% (decreased 0.2% on a constant currency basis), for the three months ended July 31, 2021, as compared to the prior-year period.

The increase in net revenue was due primarily to favorable currency fluctuations, partially offset by a decrease in rental revenue due to lower average operating lease assets.

FS earnings from operations as a percentage of net revenue increased 3.0 percentage points for the three months ended July 31, 2021, as compared to the prior-year period, due primarily to lower cost of services as a percentage of net revenue.

The decrease to cost of services as a percentage of net revenue resulted primarily from lower borrowing costs, partially offset by higher bad debt expense.

The operating expenses as a percentage of net revenue remained relatively flat.

Nine months ended July 31, 2021 compared with nine months ended July 31, 2020

FS net revenue increased by $40 million, or 1.6% (decreased 1.3% on a constant currency basis), for the nine months ended July 31, 2021, as compared to the prior-year period.

The increase in net revenue was due primarily to favorable currency fluctuations, partially offset by a decrease in rental revenue due to lower average operating lease assets, along with lower asset management revenue from lease buyouts.

FS earnings from operations as a percentage of net revenue increased 1.9 percentage points for the nine months ended July 31, 2021, as compared to the prior-year period, due primarily to lower cost of services as a percentage of net revenue.

The decrease to cost of services as a percentage of net revenue resulted from lower borrowing costs and lower depreciation expense, partially offset by higher bad debt expense.

The operating expenses as a percentage of net revenue remained relatively flat.

FS net revenue decreased by $18 million, or 2.1% (decreased 0.6% on a constant currency basis) due primarily to unfavorable currency fluctuations, along with a decrease in rental revenue due to lower average operating leases, partially offset by higher asset management revenue from pre-owned equipment sales and lease buyouts.

FS earnings from operations as a percentage of net revenue increase d 2.6 percen tage points due primarily to lower cost of services as a percentage of net revenue.

The decrease to cost of services as a percentage of net revenue resulted primarily from a combination of lower depreciation expense, borrowing costs, and bad debt expense.

Operating expenses as a percentage of net revenue remained relatively flat.

Financing Volume

Three Months Ended July 31, Nine Months Ended July 31,

2021 2020 2021 2020

For the three months ended January 31,

Financing volume $ 1,388 $ 1,245

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, increased by 5.6% and decreased by 2.8% for the three and nine months ended July 31, 2021 respectively, as compared to the prior-year periods.

For the three months ended July 31, 2021, the increase was primarily driven by favorable currency fluctuations.

For the nine months ended July 31, 2021, the decrease was primarily related to lower financing associated with both third-party and HPE product sales and related service offerings, partially offset by favorable currency fluctuations.

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, increased by 11.5% due primarily to higher financing of third-party product sales and services, partially offset by unfavorable currency fluctuations.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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The portfolio assets and ratios derived from the segment balance sheets for FS were as follows:

July 31, 2021 October 31, 2020

January 31, 2022 October 31, 2021

Dollars in millions

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(3) Debt benefiting FS consists of intercompany equity that is treated as debt for segment reporting purposes, intercompany debt, and borrowing- and funding-related activity associated with FS and its subsidiaries.

Debt benefiting FS totaled $11.7 billion at both July 31, 2021 and October 31, 2020, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies.

FS equity at both July 31, 2021 and October 31, 2020 was $1.7 billion.

As of July 31, 2021 and October 31, 2020, FS net cash and cash equivalents balances were approximately $976 million and $729 million, respectively.

Net portfolio assets as of July 31, 2021 decreased 1.8% from October 31, 2020.

The decrease generally resulted from portfolio runoff exceeding new financing volume during the period, partially offset by favorable currency fluctuations.

Debt benefiting FS totaled $11.9 billion at both January 31, 2022 and October 31, 2021, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies.

FS equity at both January 31, 2022 and October 31, 2021 was $1.7 billion.

As of January 31, 2022 and October 31, 2021, FS net cash and cash equivalents balances were approximately $995 million and $898 million, respectively.

Net portfolio assets as of January 31, 2022 decreased 2.6% from October 31, 2021.

The decrease generally resulted from portfolio runoff exceeding new financing volume during the period, along with unfavorable currency fluctuations.

FS bad debt expense includes charges to general reserves, specific reserves, and write-offs for sales-type, direct-financing, and operating leases.

For the three and nine months ended July 31, 2021, FS recorded net bad debt expense of $30 million and $89 million, respectively.

For the three and nine months ended July 31, 2020, FS recorded net bad debt expense of $25 million and $58 million, respectively.

As of July 31, 2021, FS experienced a decrease in billed finance receivables compared to October 31, 2020, which included limited impact to collections from customers as a result of COVID-19.

For the three months ended January 31, 2022 and 2021, FS recorded net bad debt expense of $23 million and $28 million, respectively.

As of January 31, 2022, FS experienced a decrease in billed finance receivables compared to October 31, 2021, which included limited impact to collections from customers as a result of COVID-19.

We are currently unable to fully predict the extent to which COVID-19 may adversely impact future collections of our receivables.

Corporate Investments and Other

Three Months Ended July 31,

Corporate Investments

For the three months ended January 31,

2022 2021 % Change

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Loss from operations as a % of net revenue (3.4) % (9.7) %

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Nine Months Ended July 31,

2021 2020 % Change

Dollars in millions

Net revenue $ 1,003 $ 958 4.7 %

Loss from operations $ (84) $ (172) 51.2 %

Loss from operations as a % of net revenue (8.4) % (18.0) %

Three months ended July 31, 2021 compared with three months ended July 31, 2020

Corporate Investments and Other net revenue increased by $29 million, or 9.6% (increased 6.9% on a constant currency basis), for the three months ended July 31, 2021 as compared to the prior-year period.

The increase in net revenue was due primarily to revenue growth from A & PS, Software and Communications and Media Solutions ("CMS") and favorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased 14.0 percentage points for the three months ended July 31, 2021, as compared to the prior-year period.

The decrease was due to lower cost of services as a percentage of net revenue and a decrease in operating expenses as a percentage of net revenue.

The decrease in cost of services as a percentage of net revenue was primarily due to overhead efficiencies achieved through our transformation programs.

The decrease in operating expenses as a percentage of net revenue was primarily due to cost savings from transformation programs.

Nine months ended July 31, 2021 compared with nine months ended July 31, 2020

Corporate Investments and Other net revenue increased by $45 million, or 4.7% (increased 2.1% on a constant currency basis), for the nine months ended July 31, 2021 as compared to the prior-year period primarily due to favorable currency fluctuations and revenue growth from Software and CMS.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased 9.6 percentage points for the nine months ended July 31, 2021, as compared to the prior-year period.

The decrease was due to lower cost of services as a percentage of net revenue and a decrease in operating expenses as a percentage of net revenue, primarily due to cost savings from transformation programs.

Corporate Investments and Other net revenue increased by $4 million, or 1.2% (increased 5.6% on a constant currency basis) due primarily to revenue growth from A & PS partially offset by unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased 6.3 percentage points due to decreases in cost of services as a percentage of net revenue while operating expenses as a percentage of net revenue remained relatively unchanged.

The decrease in cost of services as a percentage of net revenue was primarily due to improved service delivery efficiencies.

LIQUIDITY AND CAPITAL RESOURCES

Current Overview

We use cash generated by operations as our primary source of liquidity.

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However, our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market, and economic conditions.

We anticipate that the funds made available and cash generated from operations along with our access to capital markets will be sufficient to meet our liquidity requirements for at least the next twelve months and for the foreseeable future thereafter.

We continue to monitor the severity and duration of the COVID-19 pandemic and its impact on the U.S.

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Our liquidity is subject to various risks including the risks identified in the section entitled "Risk Factors" in Item 1A of Part II and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 3 of Part I.

Our cash and cash equivalent balances are held in numerous locations throughout the world, with a majority of the amount held outside the U.S.

Our cash balances are held in numerous locations throughout the world, with a substantial amount held outside the U.S.

as of January 31, 2022.

We utilize a variety of planning and financing strategies in an effort to ensure that our worldwide cash is available when and where it is needed.

Our cash position is strong and we expect that our cash and cash equivalent balances, anticipated cash flow generated from operations and access to capital markets will be sufficient to cover our expected near-term cash outlays.

Amounts held outside of the U.S.

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and to meet liquidity needs through ongoing cash flows, external borrowings, or both.

We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S.

to have a material effect on our overall liquidity, financial condition, or results of operations.

In connection with the share repurchase program previously authorized by our Board of Directors, during the first three months of fiscal 2022, we repurchased and settled an aggregate amount of $129 million.

As of January 31, 2022, we had a remaining authorization of $1.8 billion for future share repurchases.

For more information on our share repurchase program, refer to the section entitled "Unregistered Sales of Equity Securities and Use of Proceeds" in Item 2 of Part II.

Our cash, cash equivalents, restricted cash, total debt and available borrowing resources were as follows:

January 31, 2022 October 31, 2021

Cash, cash equivalents and restricted cash $ 4,276 $ 4,332

Total debt $ 14,072 $ 13,448

Available borrowing resources

Commercial paper programs $ 5,057 $ 5,045

Uncommitted lines of credit $ 949 $ 972

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S.

to have a material effect on our overall liquidity, financial condition or results of operations.

As a result of increased uncertainty due to COVID-19, purchases under our share repurchase program previously authorized by our Board of Directors, were temporarily suspended and as such, no purchases were made during the nine months ended July 31, 2021.

However, we expect to resume share repurchase activity in the fourth quarter of fiscal 2021.

As of July 31, 2021, we had a remaining authorization of $2.1 billion for future share repurchases.

Our cash flow metrics were as follows:

Nine Months Ended July 31,

Net cash provided by operating activities $ 2,915 $ 1,493

The tables below represent the way in which management reviews cash flows:

For the three months ended January 31,

Net cash (used in) provided by operating activities $ (76) $ 963

Net cash used in investing activities (335) (652)

Net cash (used in) provided by financing activities (167) 4,522

Net increase in cash, cash equivalents and restricted cash $ 1,031 $ 4,861

Net cash provided by (used in) financing activities 355 (459)

Net decrease in cash, cash equivalents and restricted cash $ (56) $ (148)

Operating Activities

For the nine months ended July 31, 2021, net cash from operating activities increased by $1.4 billion, as compared to the corresponding period in fiscal 2020.

The increase was primarily due to higher cash generated from working capital and higher earnings.

For the three months ended January 31, 2022, net cash from operating activities decreased by $1.0 billion, as compared to the corresponding period in fiscal 2021.

The decrease was primarily due to unfavorable net working capital management driven by supply chain constraints, as compared to the prior-year period.

Our working capital metrics and cash conversion impacts were as follows:

July 31, 2021 October 31, 2020 Change July 31, 2020 October 31, 2019 Change Y/Y Change

January 31, 2022 October 31, 2021 Change January 31, 2021 October 31, 2020 Change Y/Y Change

Days of sales outstanding in accounts receivable ("DSO") 44 49 (5) 39 42 (3) 5

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DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average of net revenue.

Compared to the corresponding three month period in fiscal 2020, the increase in DSO in the current period was primarily due to lower customer participation in early payment programs and factoring.

Compared to the corresponding three month period in fiscal 2021, the increase in DSO in the current period was primarily due to unfavorable billings linearity.

DOS measures the average number of days from procurement to sale of our products.

DOS is calculated by dividing ending inventory by a 90-day average of cost of goods sold.

Compared to the corresponding three month period in fiscal 2020, the increase in DOS in the current period was primarily due to higher purchases of inventory as we position inventory to fulfill planned future shipments and strategic purchases of certain key components.

Compared to the corresponding three month period in fiscal 2021, the increase in DOS in the current period was primarily due to higher levels of inventory resulting from a combination of supply chain constraints, positioning of inventory to fulfill planned future shipments and strategic purchases of certain key components.

DPO measures the average number of days our accounts payable balances are outstanding.

DPO is calculated by dividing ending accounts payable by a 90-day average of cost of goods sold.

Compared to the corresponding three month period in fiscal 2020, the increase in DPO was primarily due to lower vendor payments in the current period.

Compared to the corresponding three month period in fiscal 2021, the increase in DPO was primarily due to higher inventory purchases in the current period for planned future shipments.

Investing Activities

For the three months ended January 31, 2022, net cash used in investing activities decreased by $0.3 billion, as compared to the corresponding period in fiscal 2021.

The decrease was primarily due to lower cash utilized in net financial collateral activities of $0.4 billion and higher cash utilized for investment in property, plant and equipment, net of sales proceeds of $0.1 billion, as compared to the prior-year period.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Investing Activities

For the nine months ended July 31, 2021, net cash used in investing activities increased by $0.6 billion, as compared to the corresponding period in fiscal 2020.

The increase was primarily due to higher cash utilized for investment in property, plant and equipment, net of sales proceeds of $0.3 billion, higher cash utilized in net financial collateral activities of $0.2 billion and higher payments made in connection with business acquisitions, net of $0.1 billion as compared to the prior year period.

Financing Activities

For the nine months ended July 31, 2021, net cash generated from financing activities decreased by $4.7 billion, as compared to the corresponding period in fiscal 2020.

The decrease was primarily due to lower proceeds from debt issuance of $4.1 billion, higher cash utilized for debt repayment of $1.0 billion and cash utilized for share repurchases of $0.4 billion in the prior year period.

For the three months ended January 31, 2022, net cash generated from financing activities increased by $0.8 billion, as compared to the corresponding period in fiscal 2021.

The increase was primarily due to higher proceeds from debt, net of issuance costs of $1.0 billion and higher cash utilized for share repurchases and stock-based award activities of $0.2 billion, as compared to the prior-year period.

Free Cash Flow

For the three months ended January 31,

Net cash (used in) provided by operating activities $ (76) $ 963

Investment in property, plant and equipment (624) (513)

Proceeds from sale of property, plant and equipment 123 113

Free Cash Flow $ (577) $ 563

Free cash flow is defined as cash flow from operations less investments in property, plant and equipment net of proceeds from the sale of property, plant and equipment.

For the nine months ended July 31, 2021, free cash flow increased by $1.1 billion, as compared to the corresponding period in fiscal 2020.

The increase was due to higher cash generated from operations of $1.4 billion as compared to the prior year period, partially offset by higher cash utilized for investment in property, plant and equipment, net of sales proceeds of $0.3 billion.

For the three months ended January 31, 2022, free cash flow decreased by $1.1 billion, as compared to the corresponding period in fiscal 2021.

The decrease was due to lower cash generated from operations of $1.0 billion and higher cash utilized for investment in property, plant and equipment, net of sales proceeds of $0.1 billion, as compared to the prior-year period.

For more information on the impact of operating assets and liabilities to our cash flows, see Note 6, "Balance Sheet Details", to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Capital Resources

We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), share repurchase activities, our cost of capital, and targeted capital structure.

In June 2021, the Company issued $753 million of asset-backed debt securities in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 0.58%, payable monthly from August 2021 with a stated final maturity date of March 2029.

In March 2021, the Company repaid $500 million of three-month USD LIBOR plus 0.68% Senior Notes on their original maturity date.

In March 2021, the Company issued $1.0 billion of asset-backed debt securities in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 0.49%, payable monthly from April 2021 with a stated final maturity date of March 2031.

In December 2020, we filed a shelf registration statement with the Securities and Exchange Commission that allows us to sell, at any time and from time to time, in one or more offerings, debt securities, preferred stock, common stock, warrants, depository shares, purchase contracts, guarantees or units consisting of any of these securities.

Commercial Paper

We maintain two commercial paper programs, "the Parent Programs", and a wholly-owned subsidiary maintains a third program.

program provides for the issuance of U.S.

dollar-denominated commercial paper up to a maximum aggregate principal amount of $4.75 billion.

Our euro commercial paper program provides for the issuance of commercial paper outside of the U.S.

denominated in U.S.

dollars, euros or British pounds up to a maximum aggregate principal amount of $3.0 billion or the equivalent in those alternative currencies.

The combined aggregate principal amount of commercial paper outstanding under those two programs at any one time cannot exceed $4.75 billion.

In addition, our subsidiary's euro Commercial Paper/Certificate of Deposit Program provides for the issuance of commercial paper in various currencies of up to a maximum aggregate principal amount of $1.0 billion.

As of July 31, 2021 and October 31, 2020, no borrowings were outstanding under the Parent Programs, and $694 million and $677 million, respectively, were outstanding under our subsidiary’s program.

During the first nine months of fiscal 2021, we issued $584 million and repaid $582 million of commercial paper.

We maintain a revolving credit facility and two commercial paper programs, "the Parent Programs," and a wholly-owned subsidiary maintains a third program.

In December 2021, we terminated our prior senior unsecured revolving credit facility and entered into a new senior unsecured revolving credit facility with an aggregate commitment of $4.75 billion for a period of five years.

There have been no changes to our commercial paper and shelf registration statement since October 31, 2021.

For further information on our capital resources, see Note 11, "Borrowings" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

In January 2022, we issued $1.0 billion of asset-backed debt securities ("ABS") in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 1.51%, payable monthly from March 2022 with a stated final maturity date of November 2029.

As of January 31, 2022 and October 31, 2021, no borrowings were outstanding under our revolving credit facility.

As of January 31, 2022 and October 31, 2021, no borrowings were outstanding under the Parent Programs, and $693 million and $705 million, respectively, were outstanding under our subsidiary’s program.

During the first three months of fiscal 2022, we issued $205 million and repaid $194 million of commercial paper.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

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Financial Condition and Results of Operations (Continued)

Revolving Credit Facility

We maintain a $4.75 billion five year senior unsecured committed credit facility that was entered into in August 2019.

Loans under the revolving credit facility may be used for general corporate purposes, including support of the commercial paper program.

Commitments under the Credit Agreement are available for a period of five years, which period may be extended, subject to the satisfaction of certain conditions, by up to two, one-year periods.

Commitment fees, interest rates and other terms of borrowing under the credit facility vary based on Hewlett Packard Enterprise's external credit rating.

As of July 31, 2021 and October 31, 2020, no borrowings were outstanding under the Credit Agreement.

Available Borrowing Resources

We had the following additional liquidity resources available if needed:

July 31, 2021

Commercial paper programs $ 5,056

Uncommitted lines of credit $ 1,034

CONTRACTUAL AND OTHER OBLIGATIONS

CONTRACTUAL CASH AND OTHER OBLIGATIONS

Contractual Obligations

On September 7, 2021, the Company expects to redeem all $500 million aggregate principal amount of its outstanding 3.5% Notes due October 2021, and all $800 million aggregate principal amount of its outstanding Floating Rate Notes due October 2021.

On July 1, 2021, the Company entered into a definitive agreement to acquire Zerto, an industry leader in cloud data management and protection, in a transaction valued at $374 million.

The transaction closed on August 31, 2021.

In March 2021, we repaid $500 million of three-month USD LIBOR plus 0.68% Senior Notes on their original maturity date.

In March 2021, we issued $1.0 billion of asset-backed debt securities in six tranches at a weighted average price of 99.99% and a weighted average interest rate of 0.49%, payable monthly from April 2021 with a stated final maturity date of March 2031.

Other than the above, our contractual obligations have not changed materially since October 31, 2020.

For further information see "Contractual and Other Obligations" in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.

Other than the previously mentioned issuance of ABS in January 2022, our contractual obligations have not changed materially since October 31, 2021.

For further information see "Contractual Cash and Other Obligations" in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Retirement Benefit Plan Funding

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Restructuring Plans

As of July 31, 2021, we expect to make future cash payments of approximately $870 million in connection with our approved restructuring plans, which includes $140 million expected to be paid through the remainder of fiscal 2021 and $730 million expected to be paid thereafter.

For more information on our restructuring activities, see Note 3, "Transformation Programs".

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

As of January 31, 2022, we expect to make future cash payments of approximately $650 million in connection with our approved restructuring plans, which includes $330 million expected to be paid through the remainder of fiscal 2022 and $320 million expected to be paid thereafter.

For more information on our restructuring activities, see Note 3, "Transformation Programs" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Uncertain Tax Positions

As of July 31, 2021, we had approximately $438 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

As of January 31, 2022, we had approximately $330 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

These liabilities and related interest and penalties include $30 million expected to be paid within one year.

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Payments of these obligations would result from settlements with tax authorities.

For more information on our uncertain tax positions, see Note 5, "Taxes on Earnings".

For more information on our uncertain tax positions, see Note 5, "Taxes on Earnings" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Off-Balance Sheet Arrangements

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We have third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers.

For more information on our third-party revolving short-term financing arrangements, see Note 6, "Balance Sheet Details", to the Consolidated Financial Statements in Item 1 of Part I, which is incorporated herein by reference.

For more information on our third-party revolving short-term financing arrangements, see Note 6, "Balance Sheet Details", to the Condensed Consolidated Financial Statements in Item 1 of Part I.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

GAAP to non-GAAP Reconciliations

Effective at the beginning of the first quarter of fiscal 2021, the Company excluded stock-based compensation expense from its segment earnings from operations results and excluded stock-based compensation expense from non-GAAP results.

The Company has reflected this change retrospectively to its financial results for the earliest period presented.

This change had no impact on Hewlett Packard Enterprise's previously reported consolidated GAAP results.

However, the Company reflected the change resulting from the reclassification of its stock-based compensation expense by restating its consolidated non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP operating profit margin, non-GAAP net earnings and non-GAAP net earnings per share.

The following tables provide reconciliation of GAAP to non-GAAP measures for the three and nine months ended July 31, 2021 and 2020:

Reconciliation of GAAP net earnings and diluted net earnings per share to non-GAAP net earnings and diluted net earnings per share.

Three Months Ended July 31, Nine Months Ended July 31,

2021 2020 2021 2020

Dollars in millions Diluted net earnings per share Dollars in millions Diluted net earnings per share Dollars in millions Diluted net earnings per share Dollars in millions Diluted net earnings per share

GAAP net earnings (loss) $ 392 $ 0.29 $ 9 $ 0.01 $ 874 $ 0.66 $ (479) $ (0.37)

The following tables provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure for the periods presented:

Reconciliation of GAAP gross profit and gross profit margin to non-GAAP gross profit and gross profit margin.

For the three months ended January 31,

Revenue Dollars % of

Dollars in millions

GAAP Net revenue $ 6,961 100 % $ 6,833 100 %

GAAP Cost of sales 4,617 66.3 % 4,545 66.5 %

GAAP Gross profit $ 2,344 33.7 % $ 2,288 33.5 %

Non-GAAP adjustments

Amortization of initial direct costs 1 — % 2 — %

Amortization of intangible assets 82 0.06 95 0.07 276 0.21 299 0.23

Impairment of goodwill — — — — — — 865 0.67

Transformation costs 213 0.16 357 0.27 733 0.56 646 0.49

Disaster charges 5 — 2 — 6 0.01 24 0.02

Stock-based compensation expense 15 0.2 % 13 0.2 %

Acquisition, disposition and other related charges 3 — 15 0.01 34 0.02 82 0.06

Tax indemnification and related adjustments (76) (0.05) 30 0.03 (60) (0.05) 86 0.07

Non-service net periodic benefit credit (19) (0.01) (28) (0.02) (53) (0.04) (101) (0.08)

Earnings from equity interests (1)

23 0.02 36 0.03 91 0.07 110 0.09

Adjustments for taxes (88) (0.06) (107) (0.08) (287) (0.22) (288) (0.23)

Non-GAAP net earnings $ 623 $ 0.47 $ 467 $ 0.36 $ 1,914 $ 1.44 $ 1,468 $ 1.13

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

(1) Represents the amortization of basis difference adjustments related to the H3C divestiture.

Non-GAAP Gross Profit $ 2,360 33.9 % $ 2,303 33.7 %

Reconciliation of GAAP earnings from operations and operating profit margin to non-GAAP earnings from operations and operating profit margin.

Three Months Ended July 31, Nine Months Ended July 31,

2021 2020 2021 2020

Revenue Dollars % of

For the three months ended January 31,

Revenue Dollars % of

In millions In millions

GAAP earnings (loss) from operations $ 282 4.1 % $ 12 0.2 % $ 782 3.8 % $ (474) (2.4) %

Dollars in millions

GAAP earnings from operations $ 448 6.4 % $ 222 3.2 %

Non-GAAP adjustments:

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Amortization of intangible assets 73 1.0 % 110 1.6 %

Impairment of goodwill — — % — — % — — % 865 4.4 %

Transformation costs 111 1.6 % 311 4.6 %

Disaster charges 5 0.1 % 2 — % 6 — % 24 0.1 %

Stock-based compensation expense 128 1.8 % 110 1.6 %

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Non-GAAP earnings from operations $ 768 11.0 % $ 773 11.3 %

Reconciliation of GAAP gross profit and gross profit margin to non-GAAP gross profit and gross profit margin.

Three Months Ended July 31, Nine Months Ended July 31,

2021 2020 2021 2020

Revenue Dollars % of

In millions In millions

GAAP Net revenue $ 6,897 100 % $ 6,816 100 % $ 20,430 100 % $ 19,774 100 %

GAAP Cost of sales 4,515 65.5 % 4,749 69.7 % 13,473 65.9 % 13,511 68.3 %

GAAP Gross profit $ 2,382 34.5 % $ 2,067 30.3 % $ 6,957 34.1 % $ 6,263 31.7 %

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Reconciliation of GAAP net earnings and diluted net earnings per share to non-GAAP net earnings and diluted net earnings per share.

For the three months ended January 31,

Dollars Diluted net earnings per share Dollars Diluted net earnings per share

Dollars in millions

GAAP net earnings $ 513 $ 0.39 $ 223 $ 0.17

Non-GAAP adjustments:

Amortization of initial direct costs 1 — 2 —

Amortization of intangible assets 73 0.06 110 0.08

Transformation costs 111 0.08 311 0.23

Stock-based compensation expense 128 0.10 110 0.08

Acquisition, disposition and other related charges 7 0.01 18 0.01

— — % — — % — — % 27 0.1 %

Non-GAAP Gross Profit $ 2,393 34.7 % $ 2,078 30.5 % $ 6,996 34.2 % $ 6,329 32.0 %

(1) Represent charges related to a non-cash inventory fair value adjustment in connection with the acquisition of Cray, which was included in Cost of Sales.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Reconciliation of net cash provided by operating activities to free cash flow.

Three Months Ended July 31, Nine Months Ended July 31,

Tax indemnification and related adjustments 17 0.01 16 0.02

Non-service net periodic benefit credit (36) (0.03) (17) (0.01)

Earnings from equity interests (1)

17 0.01 34 0.03

In millions In millions

Net cash provided by operating activities $ 1,130 $ 1,472 $ 2,915 $ 1,493

Adjustments for taxes (134) (0.10) (128) (0.09)

Non-GAAP net earnings $ 697 $ 0.53 $ 679 $ 0.52

(1) Represents the amortization of basis difference adjustments related to the H3C divestiture.

Reconciliation of net cash (used in) provided by operating activities to free cash flow.

For the three months ended January 31,

Net cash (used in) provided by operating activities $ (76) $ 963

Investment in property, plant and equipment (624) (513)

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Free cash flow $ (577) $ 563

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Non-GAAP financial measures

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Net revenue on a constant currency basis assumes no change in the foreign exchange rate from the prior-year period.

Non-GAAP gross profit and non-GAAP gross profit margin is defined to exclude charges related to the amortization of initial direct costs, stock-based compensation expense and certain acquisition, disposition and other related charges.

Non-GAAP earnings from operations and non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue) consist of earnings from operations excluding any charges related to the amortization of initial direct costs, amortization of intangible assets, impairment of goodwill, transformation costs, disaster charges, stock-based compensation expense and acquisition, disposition and other related charges.

Non-GAAP net earnings and Non-GAAP diluted net earnings per share consist of net earnings or diluted net earnings per share excluding those same charges, as well as items such as tax indemnification and related adjustments, non-service net periodic benefit credit, loss from equity interests, certain income tax valuation allowances and separation taxes, the impact of U.S.

Non-GAAP gross profit and non-GAAP gross profit margin are defined to exclude charges related to the amortization of initial direct costs and stock-based compensation expense.

Non-GAAP earnings from operations and non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue) consist of earnings from operations excluding any charges related to the amortization of initial direct costs, amortization of intangible assets, transformation costs, stock-based compensation expense and acquisition, disposition and other related charges.

Non-GAAP net earnings and Non-GAAP diluted net earnings per share consist of net earnings or diluted net earnings per share excluding those same charges, as well as items such as tax indemnification and related adjustments, non-service net periodic benefit credit, earnings from equity interests, certain income tax valuation allowances and separation taxes, the impact of U.S.

tax reform, structural rate adjustment and excess tax benefit from stock-based compensation.

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These non-GAAP financial measures have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

Some of the limitations in relying on these non-GAAP financial measures are that they can have a material impact on the equivalent GAAP earnings measures, they may be calculated differently by other companies and may not reflect the full economic effect of the loss in value of certain assets.

Some of the limitations in relying on these non-GAAP financial measures are that they can have a material impact on the equivalent GAAP earnings measures and cash flows, they may be calculated differently by other companies and may not reflect the full economic effect of the loss in value of certain assets.

We compensate for these limitations on the use of non-GAAP financial measures by relying primarily on our GAAP results and using non-GAAP financial measures only as a supplement.

We also provide a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP measure.

We believe that providing net revenue on a constant currency basis, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP operating profit margin, non-GAAP net earnings and non-GAAP diluted net earnings per share in addition to the related GAAP measures provides greater transparency to the information used in our financial and operational decision making and allows the reader of our Condensed Consolidated Financial Statements to see our financial results “through the eyes” of management.

We believe that providing net revenue on a constant currency basis, non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP operating profit margin, non-GAAP net earnings, non-GAAP diluted net earnings per share, and free cash flow, in addition to the related GAAP measures provides greater transparency to the information used in our financial and operational decision making and allows the reader of our Condensed Consolidated Financial Statements to see our financial results “through the eyes” of management.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis