What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-12-22 compared with 2022-12-08 · 355 added, 302 removed, 471 unchanged (58% of the section changed)

1 unchanged sentence

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.

This section of this Form 10-K generally discusses fiscal 2023 and fiscal 2022 items and year-to-year comparisons between fiscal 2023 and fiscal 2022.

Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and fiscal 2020 that are not included in this Form 10-K can be found in "Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2021, as filed with the SEC on December 10, 2021, which is available on the SEC's website at www.sec.gov.

Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021 that are not included in this Form 10-K can be found in “Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the fiscal year October 31, 2022, as filed with the SEC on December 8, 2022, which is available on the SEC's website at www.sec.gov.

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 Consolidated Financial Statements, changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Consolidated Financial Statements.

2 unchanged sentences

• Trends and Uncertainties.

A discussion of material events and uncertainties known to management, such as the ongoing macroeconomic environment of supply chain constraints and inflationary pressures, our managed exit from Russia and Belarus, recent tax legislation, and other events.

A discussion of material events and uncertainties known to management, such as the mixed macroeconomic environment, supply chain constraints (though easing), uneven demand across our portfolio, increased demand for and adoption of new technologies, conservative customer spending environment, inflationary trend and foreign exchange pressures, and recent tax developments.

• Executive Overview.

7 unchanged sentences

• GAAP to Non-GAAP Reconciliation .

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.

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

This section also includes a discussion of the use, usefulness and economic substance of the non-GAAP financial measures, along with a discussion of material limitations, and compensation for those limitations, associated with the use of non-GAAP financial measures.

TRENDS AND UNCERTAINTIES

The elevated order book levels we experienced in fiscal 2022 have generally declined throughout fiscal 2023, as supply chain constraints eased (though challenges still remain) and demand softened unevenly across our portfolio (as a result of improving supply chain dynamics and as customers have been digesting their prior larger orders).

Meanwhile, demand for and adoption of new technologies, such as AI, hybrid cloud, and edge computing, have increased.

We have observed, and expect to continue seeing, customers of various segments and sizes pursue such new technologies.

As noted above, we have continued to see elongated sales cycles, as customers work through prior orders and adopt a more conservative approach to spending in a mixed macroeconomic environment.

This has been particularly true of certain of our hardware businesses, as customers have focused investments on modernizing infrastructure, such as migrating to cloud-based offerings.

We expect such mixed macroeconomic environment to continue to moderate our revenue growth in the near term.

As referenced above, mild improvements to industry-wide supply constraints have helped to ease certain supply chain challenges we encountered in the recent past, including the increased availability of supply and lower material and logistics costs.

Material cost trends are dependent on the strength or weakness of actual end-user demand and supply dynamics, which will continue to evolve and ultimately impact the translation of the cost environment to our pricing actions and, consequently, our operating results.

Logistics costs continued to decrease from previously elevated levels as a result of declines in both expedited shipments and overall rate costs in the freight network.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

TRENDS AND UNCERTAINTIES

The overall demand environment continues to improve but remains impacted by industry-wide supply constraints, which contributed to a challenging supply chain environment, and inflationary pressures, both of which have been driving up material, logistics, and overall costs.

The pandemic-related lockdowns in China we experienced in the first half of the fiscal period alleviated somewhat in the second half of the fiscal period.

The challenging supply chain environment moderated our full-year revenue growth, elevated costs, and delayed certain unit shipments, resulting in part in a higher level of backlog and related inventory at the end of the current period as compared to the end of the prior-year period.

To address the challenging supply chain environment, we are taking proactive measures such as guiding certain customer demand to specific products, enhancing component engineering design, and multi-sourcing with indirect procurement.

We expect the supply chain environment to continue to present challenges in the near term.

Additionally, we are experiencing a challenging foreign exchange environment, which has moderated our revenue and earnings growth.

Additionally, we continue to experience a challenging foreign exchange environment, which has increased costs of products and services and moderated our revenue and earnings growth.

We have a large global presence, with more than half of our revenue generated outside of the U.S.

As a result, our financial results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates.

Furthermore, inflationary pressures persist, keeping not only material and logistics costs, but also labor costs, somewhat elevated compared to pre-COVID-19 pandemic levels.

We expect the unfavorable foreign exchange effects and inflationary trend to continue in the longer term.

We expect the substantial completion of our HPE Next and cost optimization and prioritization restructuring plans coupled with related cost reduction measures, and operational efficiencies, to moderate the impact of unfavorable foreign exchange effects and inflationary pressures in fiscal 2023.

Russia/Ukraine Conflict

T he conflict between Russia and Ukraine and the related sanctions imposed by the U.S., European Union ("EU"), and other countries in response have negatively impacted our operations in both countries and increased economic and political uncertainty across the world.

In response to the sanctions imposed, in February 2022, we suspended all new sales and shipments to Russia and Belarus and implemented compliance measures to address the continuously changing regulatory landscape.

Based on a further assessment of business risks and needs, in June 2022, we determined that it is no longer tenable to maintain operations in Russia and Belarus and have been proceeding with an orderly, managed exit of our remaining business in these countries.

In fiscal 2021, our operations in Russia and Belarus accounted for approximately 2% of our total net revenue.

During fiscal 2022, we recorded total pre-tax charges of $161 million primarily related to expected credit losses of financing and trade receivables, employee severance, and abandoned assets, $99 million of which was included in Financing cost, $12 million in Cost of services, and $50 million in Disaster charges in the Consolidated Statements of Earnings.

We will continue monitoring the social, political, regulatory, and economic environment in Russia and Ukraine, and will consider further actions as appropriate.

More broadly, there could be additional adverse impacts to our net revenues, earnings, and cash flows should the situation continue or escalate geopolitical tensions and the impacts of recession, inflation, and supply chain pressures, both regionally and globally.

Tax Legislation

Recent Tax Developments

The Organisation for Economic Co-operation and Development, an international association of 38 countries including the United States, has proposed changes to numerous long-standing tax principles, namely, its Pillar Two framework, which imposes a global minimum corporate tax rate of 15%.

In December 2022, the EU member states adopted a directive that implements the Pillar Two framework, which is expected to be enacted into the national laws of the EU member states by December 31, 2023.

Certain countries in which we operate have enacted legislation to adopt the Pillar Two framework (e.g., United Kingdom and Korea), and several other countries are also considering changes to their tax laws to implement this framework.

The first component of the Pillar Two framework is expected to be effective for us in fiscal 2025 with a second component expected to be effective in fiscal 2026.

When and how this framework is adopted or enacted by the various countries in which we do business could increase tax complexity and uncertainty and may adversely affect our provision for income taxes in the U.S.

jurisdictions.

On August 16, 2022, the U.S.

2 unchanged sentences

The Corporate AMT is effective for the Company beginning in fiscal 2024.

We are evaluating the Corporate AMT and its potential impact on our future U.S.

tax expense, cash taxes, and effective tax rate.

We expect U.S.

cash tax to increase in the short term as a result of the Corporate AMT but do not expect the effective tax rate to be impacted as the Corporate AMT is expected to be recovered as a credit in future years.

The realizability of any deferred tax asset associated with the Corporate AMT will be determined through our annual valuation allowance analysis.

Additionally, the Inflation Reduction Act imposes an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022.

The impact of this provision will be dependent on the extent of share repurchases made in future periods.

The Internal Revenue Service (“IRS”) is conducting audits of our fiscal 2017 through 2022 U.S.

federal income tax returns.

During the fourth quarter of fiscal 2023, the IRS issued notices of proposed adjustments (“NOPAs”) for fiscal 2017, 2018, and 2019 relating to our intercompany transfer pricing.

After the close of fiscal 2023, the IRS issued a Revenue Agent Report (“RAR”) finalizing their position on the NOPAs for the same issues and same fiscal years.

The IRS is seeking to increase taxable income across the three fiscal years by $904 million.

As of the balance sheet date, we have sufficient tax credit carryforwards to offset any incremental tax liability from the adjustments in the RAR.

However, we disagree with the IRS’ adjustments and believe the positions taken on our tax returns are more likely than not to prevail on technical merits, and we will defend these positions through the IRS administrative processes, as necessary.

Accordingly, no changes have been made to our reserves for uncertain tax positions in fiscal 2023 relating to the IRS’ adjustments.

Russia/Ukraine Conflict

The conflict between Russia and Ukraine and the related sanctions imposed by the U.S., European Union and other countries in response have negatively impacted our operations in both countries and increased economic and political uncertainty across the world.

Based on a further assessment of business risks and needs, in June 2022, we determined that it was no longer tenable to maintain our operations in Russia and Belarus and have been proceeding with an orderly, managed exit of our remaining business in these countries.

Other Trends and Uncertainties

We are in the process of addressing many challenges facing our business.

One set of challenges include dynamic and accelerating market trends, such as the market shift of workloads to cloud-related information technology ("IT") infrastructure business models, emergence of software-defined architectures and converged infrastructure functionality, and growth in IT consumption models.

Certain of our legacy hardware server and storage businesses face challenges as customers migrate to cloud-based offerings and reduce their purchases of hardware products.

Therefore, the demand environment for traditional server and storage products is challenging, and lower traditional compute and storage unit volume is impacting support attach opportunities within the associated services organization.

We have observed market trends and demand gravitating towards AI, hybrid cloud, and edge computing, and data securities capabilities, and offerings.

The volume of data at the edge continues to grow, driven by the proliferation of more devices, which has led to the need for enhanced security at the edge, as well.

The need for a unified cloud experience everywhere has grown, as well, in order to manage the growth of data at the edge.

With the abundance of data, there are opportunities to develop AI tools with powerful computational abilities to extract insights and value from the captured data.

We expect these market dynamics and trends to continue in the longer term.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

Another set of challenges relates to changes in the competitive landscape.

Our major competitors are expanding their product and service offerings with integrated products and solutions, our business-specific competitors are exerting increased competitive pressure in targeted areas and are entering new markets, our emerging competitors are introducing new technologies and business models, and our alliance partners in some businesses are increasingly becoming our competitors.

A third set of challenges relates to business model changes and our go-to-market execution.

We provide our customers with a choice between traditional consumption models or software consumption-based, pay-per-use and as-a-service offerings across our entire portfolio of HPE products and services.

Additionally, the global pandemic has accelerated several trends relevant to the Company.

First, the exponential increase of data at the edge driven by the proliferation of devices.

Second, the need for a cloud experience everywhere to manage the growth of data at the edge.

Third, data growth is creating new opportunities with the need to quickly extract value from the captured data.

Enterprises have embraced multi-cloud strategies, as they recognize the need 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 to the aforementioned challenges, we are accelerating our development and innovation efforts in the areas of our strategic focus, including the Intelligent Edge and HPC & AI businesses, while at the same time, strengthening our core Compute and Storage businesses, by investing in key areas of growth and accelerating our as-a-service pivot to become the edge-to-cloud company for our customers and partners with our HPE GreenLake edge-to-cloud platform.

During the fiscal period, we announced significant advancements to our HPE GreenLake edge-to-cloud platform, our flagship hybrid offering that enables organizations to modernize all their applications and data, from edge to cloud and supports multi-cloud experiences everywhere – including clouds that live on-premises, at the edge, in a colocation facility, and in a public cloud.

The platform advancements included a unified operating experience with one view of all services edge to cloud along with convergence with the Aruba Central cloud service, twelve new cloud services including network as-a-service, data services, high performance computing functions, compute operations management, and availability of the HPE GreenLake edge-to-cloud platform in the online marketplaces of several leading distributors.

We also launched HPE GreenLake for Private Cloud Enterprise, which is a private cloud experience for traditional and cloud-native workloads.

These updates strengthen the HPE GreenLake edge-to-cloud platform and help customers drive their data modernization needs.

Observing these dynamics, we have accelerated our investment and innovation efforts in these areas that we see as critical to our long-term strategy and growth, including in pivoting our go-to-market motion and sales function.

At the same time, we continue to strengthen our core Compute and Storage-oriented offerings and expand our offerings on the HPE GreenLake edge-to-cloud platform, to enable execution of our aaS pivot to become the edge-to-cloud company for our customers and partners.

Furthermore, as noted elsewhere in this report, effective November 1, 2023, we have realigned our financial reporting segments to align with these key market trends.

It is uncertain whether we will successfully execute this shift in strategic focus, realize the anticipated benefits of doing so, or capture the anticipated shares of the AI, hybrid cloud, and edge markets.

The following Executive Overview, Results of Operations and Liquidity discussions and analysis compare fiscal 2023 to fiscal 2022 , unless otherwise noted.

1 unchanged sentence

EXECUTIVE OVERVIEW

Net revenue of $28.5 billion represented an increase of 2.6% (increased 5.1% on a constant currency basis) as robust demand reflected by a high order backlog was moderated by a combination of unfavorable currency fluctuations, ongoing supply chain constraints, and lower revenue from Russia.

The net revenue increase was led by effective pricing management in server products and strong demand for networking products.

The gross profit margin of 33.4% (or $9.5 billion) represents a decrease of 0.3 percentage points and was primarily driven by a combination of supply chain constraints and related cost increases, higher costs in HPC & AI, and unfavorable currency fluctuations.

Moderating the gross profit decrease was pricing discipline and strong cost management in server products.

The operating profit margin of 2.7%, represents a decrease of 1.4 percentage points primarily due to goodwill impairment charges for the HPC & AI and Software businesses.

The decrease in o perating profit margin was primarily moderated by lower transformation costs.

We generated $4.6 billion of cash flow from operations and $1.8 billion of free cash flows primarily due to improved working capital management.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Net revenue of $29.1 billion represented an increase of 2.2% (increased 5.5% on a constant currency basis) primarily due to higher average unit prices (“AUPs”) in the Intelligent Edge and Compute segments, and higher customer acceptances in the High Performance Computing & Artificial Intelligence (“HPC & AI”) segment.

The increase in net revenue was moderated by a decline in server unit volume in the Compute segment and unfavorable currency fluctuations.

The gross profit margin of 35.1% (or $10.2 billion) represents an increase of 1.7 percentage points from the prior-year period due to the impact of higher-margin networking revenue, higher AUPs in Intelligent Edge and Compute, and lower supply chain and commodity costs.

T he operating profit margin of 7.2%, repre sents an increase of 4.5 percentage points primarily due to the aforementioned gross margin improvement, goodwill impairment charges for the HPC & AI and Software businesses in the prior-year period, and lower transformation expenses in the current period.

The increase in operating profit margin was moderated by higher planned investments in research and development in the current period.

Financial Results

15 unchanged sentences

In millions, except per share amounts

Net revenue adjusted for currency $ 29,213 $ 27,784 5.1%

Net revenue in constant currency $ 30,077 $ 28,496 5.5%

Non-GAAP gross profit $ 10,273 $ 9,667 6.3%

5 unchanged sentences

Free cash flow $ 2,238 $ 1,794 $444

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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" 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.

Please refer to the section “GAAP to non-GAAP Reconciliations” included in this MD&A for these reconciliations, a discussion of the use, usefulness and economic substance of the non-GAAP financial measures, along with a discussion of material limitations, and compensation for those limitations, associated with the use of non-GAAP financial measures.

Annualized Revenue Run-rate (“ARR”)

Our pivot to as-a-service continues its strong momentum with the addition of HPE GreenLake Cloud Services.

Our pivot to aaS continues its strong momentum with the addition of HPE GreenLake Cloud Services.

Our mix of ARR is becoming more software-rich as we build our HPE GreenLake edge-to-cloud platform, which is improving our margin profile.

2 unchanged sentences

We will continue to invest aggressively in HPE GreenLake Cloud Services to provide a true cloud experience and operating model, whether at the edge, on-premises or across multiple clouds.

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

We believe that ARR is a metric that allows management to better understand and highlight the potential future performance of our aaS business.

We also believe ARR provides investors with greater transparency to our financial information and of the performance metric used in our financial and operational decision making and allows investors to see our results “through the eyes of management.” We use ARR as a performance metric.

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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies.

ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

The following presents our ARR as of October 31, 2023 and 2022:

For the fiscal years ended October 31,

Dollars in millions

ARR $ 1,304 $ 936

Year-over-year growth rate 39 % 17 %

The 17% year over year increase in ARR represents growth from our HPE GreenLake edge-to-cloud platform and related financial services.

The growth in the HPE GreenLake edge-to-cloud platform was due to an expanding customer installed base moderated by unfavorable currency fluctuations, supply chain constraints and related installation delays.

At the segment level, the growth is led by Storage as-a-service including Zerto and Intelligent Edge as-a-service activity.

The 39% year over year increase in ARR was due primarily to growth in our HPE GreenLake edge-to-cloud platform, which was due to an expanding customer installed base and expanded range of offerings on the HPE GreenLake edge-to-cloud platform.

At the segment level, the growth was led by Intelligent Edge aaS and Storage aaS activity.

Returning capital to our shareholders remains an important part of our capital allocation framework, which also consists of strategic investments.

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 October 31, 2022, our cash, cash equivalents and restricted cash were $4.76 billion, compared to $4.33 billion as of October 31, 2021, representing an increase of $0.43 billion.

As of October 31, 2023, our cash, cash equivalents and restricted cash were $4.6 billion, compared to $4.8 billion as of October 31, 2022, representing a decrease of $0.2 billion.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

10 unchanged sentences

The majority of our revenue is derived from sales of products and services and the associated support and maintenance, and such revenue is recognized when, or as, control of promised products or services is transferred to the customer at the transaction price.

Transaction price is adjusted for variable consideration which may be offered in contracts with customers, partners, and distributors and may include rebates, volume-based discounts, cooperative marketing, price protection, and other incentive programs.

Significant judgment is applied in determining the transaction price as we may be required to estimate variable consideration at the time of revenue recognition.

2 unchanged sentences

We also consider the customers' right of return in determining the transaction price, where applicable.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

To recognize revenue for the products and services for which control has been transferred, we allocate the transaction price for the contract among the performance obligations on a relative standalone selling price (“SSP”) basis.

We establish SSP for most of our products and services based on the observable price of the products or services when sold separately in similar circumstances to similar customers.

When the SSP is not directly observable, we estimate SSP based on management judgment by considering available data, such as internal margin objectives, pricing strategies, market/competitive conditions, historical profitability data, as well as other observable inputs.

We establish SSP ranges for our products and services and reassesses them periodically.

For products and services sold as a bundle, the SSP is generally not directly observable and requires the Company to estimate SSP based on management judgment by considering available data such as internal margin objectives, pricing strategies, market/competitive conditions, historical profitability data, as well as other observable inputs.

For certain products and services, the Company establishes SSP based on the observable price when sold separately in similar circumstances to similar customers.

The Company establishes SSP ranges for its products and services and reassesses them periodically.

Taxes on Earnings

4 unchanged sentences

In determining the need for a valuation allowance, we consider future market growth, forecasted earnings, future sources of taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies.

In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in the jurisdictions in which the deferred tax assets are located.

In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income, of the appropriate character, in the jurisdictions in which the deferred tax assets are located, prior to their expiration under applicable tax laws.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Our effective tax rate includes the impact of certain undistributed foreign earnings and basis differences for which we have not provided for U.S.

8 unchanged sentences

Determining the income tax provision for these potential assessments and recording the related effects requires management judgments and estimates.

The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our (Provision) benefit for taxes, Net earnings (loss) and cash flows.

Our accrual for uncertain tax positions is attributable primarily to uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions, intercompany transactions and related interest, and uncertain tax positions from acquired companies.

2 unchanged sentences

We are permitted to conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test.

As of October 31, 2022, our reporting units with goodwill are consistent with the reportable segments identified in Note 2, "Segment Information" to the Consolidated Financial Statements in Item 8 of Part II, with the exception of Corporate Investments and Other which contains three reporting units, Software, CMS and A & PS.

As of October 31, 2023, our reporting units with goodwill are consistent with the reportable segments identified in Note 2, “Segment Information” to the Consolidated Financial Statements in Item 8 of Part II, with the exception of Corporate Investments and Other which contains five reporting units:

Advisory and Professional Services, Athonet, legacy Communications and Media Solutions business, OpsRamp and Software.

When performing the goodwill impairment test, we compare the fair value of each reporting unit to its carrying amount.

An impairment exists if the fair value of the reporting unit is less than its carrying amount.

For two of our reporting units, Athonet and OpsRamp, we perform a qualitative assessment to determine whether it is more likely than not that the fair value is less than the carrying amount.

The qualitative assessment requires management judgement in assessing factors including, but not limited to, the macroeconomic and industry environment as well as Company-specific factors.

The assessments for Athonet and OpsRamp as of our test date indicated that it is not more likely than not that the fair values of these two reporting units are less than their carrying amounts.

For all of our other reporting units, we conduct a quantitative assessment.

Estimating the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions.

We estimate the fair value of our reporting units using a weighting of fair values derived mostly from the income approach and, to a lesser extent, the market approach, with the exception of the Software reporting unit which uses a weighting derived mostly from the market approach.

Under the income approach, the fair value of a reporting unit is based on discounted cash flow analysis of management's short-term and long-term forecast of operating performance.

This analysis includes significant assumptions

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

regarding revenue growth rates, expected operating margins, and timing of expected future cash flows based on market conditions and customer acceptances.

This analysis includes significant assumptions regarding revenue growth rates, expected operating margins, and timing of expected future cash flows based on market conditions and customer acceptances.

The discount rate used is based on the weighted-average cost of capital of comparable public companies adjusted for the relevant risk associated with business specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows.

3 unchanged sentences

In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.

Our annual goodwill impairment analysis, which we performed as of the first day of the fourth quarter of fiscal 2023, did not result in any impairment charges.

The excess of fair value over carrying amount for our reporting units ranged from approximately 5% to 218% of the respective carrying amounts.

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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Based on the results of this hypothetical 10% decrease all of the reporting units had an excess of fair value over carrying amount, except for Compute.

The Compute reporting unit has goodwill of $7.7 billion as of October 31, 2023, and excess of fair value over carrying value of 5% as of the annual test date.

The Compute business is facing challenges reflected in the results for October 31, 2023.

The Compute business is cyclical in nature.

Over the last several years, digital transformation drove increased investment to modernize infrastructure.

However, in the current macroeconomic and inflationary environment, customers have slowed their investments resulting in lower server demand and competitive pricing.

These dynamics are further compounded by higher supply chain costs.

During this cycle, the Compute business continues to focus on capturing market share while maintaining operating margin.

The HPC & AI reporting unit has goodwill of $2.9 billion as of October 31, 2023, and excess of fair value over carrying value of 12% as of the annual test date.

The HPC & AI business continues to face challenges related to supply chain constraints of key components and other operational challenges impacting our ability to achieve certain customer acceptance milestones required for revenue recognition and resulting cost increases associated with fulfilling contracts over longer than originally anticipated timelines.

We currently believe these challenges will be successfully addressed as the supply chain constraints continue to improve.

In addition, effective November 1, 2023 (fiscal 2024), there were organizational changes impacting the composition of our reporting units.

These changes will require us to perform an interim impairment assessment as of that date.

If the global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or projected operating margins are not achieved, weighted average cost of capital increases, or if we have a significant sustained decline in our stock price, it is possible our estimates about the Compute, HPC & AI, or our other reporting units’ ability to successfully address the current challenges may change, which could result in the carrying value for our reporting units exceeding their estimated fair value resulting in potential impairment charges.

Our fiscal 2022 annual goodwill impairment analysis resulted in impairment charges for goodwill related to the HPC & AI and Software reporting units.

There was no impairment of goodwill for our other reporting units.

The decline in the fair value of the HPC & AI reporting unit below its carrying value resulted from changes in expected future cash flows as compared to our fiscal 2021 long-term plan due to the continuation of supply chain constraints, and other operational challenges as well as an increase in cost of capital.

Prior to the quantitative goodwill impairment test, we tested the recoverability of long-lived assets and other assets of the HPC & AI reporting unit and concluded that such assets were not impaired.

As a result, we recorded a goodwill impairment charge of $815 million in the fourth quarter of fiscal 2022.

The HPC & AI reporting unit has remaining goodwill allocated of $2.9 billion as of October 31, 2022 and an excess of fair value over carrying value of net assets of 0% as of the annual test date.

The HPC & AI business is facing challenges reflected in the results for the year ended October 31, 2022.

The challenges are primarily related to supply chain constraints and other operational challenges impacting our ability to achieve certain customer acceptance milestones required for revenue recognition and resulting cost increases associated with fulfilling contracts over longer than originally anticipated timelines.

We currently believe these challenges will be successfully addressed when supply chain constraints ease.

If the global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or operating margins decline, weighted average cost of capital increases, or if we have significant or sustained decline in our stock price, it is possible our estimates about the HPC & AI reporting unit's ability to successfully address the current challenges may change, which could result in the carrying value of the HPC & AI reporting unit exceeding its estimated fair value and potential impairment charges.

The decline in the fair value of the Software reporting unit resulted primarily from a decline in market multiples.

Prior to the quantitative goodwill impairment test, we tested the recoverability of long-lived assets and other assets of the Software reporting unit and concluded that such assets were not impaired.

As a result, we recorded a goodwill impairment charge of $90 million in the fourth quarter of fiscal 2022.

The Software reporting unit has remaining goodwill allocated of $123 million as of October 31, 2022 and an excess of fair value over carrying value of net assets of 0% as of the annual test date.

As noted above, the Software reporting unit relies significantly on the market approach, which is impacted by market volatility.

If global macroeconomic or geopolitical conditions worsen and cause a further decline in equity market or if revenue expectations are not met, this could result in the carrying value of the Software reporting unit exceeding its estimated fair value and potential impairment charges.

The excess of fair value over carrying amount for our reporting units, excluding HPC & AI and Software, ranged from approximately 22% to 142% of the respective carrying amounts.

In order to evaluate the sensitivity of the estimated fair value of our other 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 other reporting units had an excess of fair value over carrying amount.

The decline in the fair value of the HPC & AI reporting unit in fiscal 2022 below its carrying value resulted from changes in expected future cash flows due to the continuation of supply chain constraints, and other operational challenges as well as an increase in cost of capital.

As a result, a goodwill impairment charge of $815 million was recorded in the fourth quarter of fiscal 2022.

The decline in the fair value of the Software reporting unit in fiscal 2022 resulted primarily from a decline in market multiples.

As a result, a goodwill impairment charge of $90 million was recorded in the fourth quarter of fiscal 2022.

Contingencies

3 unchanged sentences

We review these matters at least quarterly and adjust these liabilities to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other updated information and events, pertaining to a particular case.

Based on our experience, we believe that any damage amounts claimed in the specific litigation and contingency matters further discussed in Note 17, "Litigation and Contingencies", to the Consolidated Financial Statements in Item 8 of Part II, are

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

not a meaningful indicator of our potential liability.

Based on our experience, we believe that any damage amounts claimed in the specific litigation and contingency matters further discussed in Note 17, “Litigation and Contingencies,” to the Consolidated Financial Statements in Item 8 of Part II, are not a meaningful indicator of our potential liability.

Litigation is inherently unpredictable.

2 unchanged sentences

We believe we have recorded adequate provisions for any such matters and, as of October 31, 2023, it was not reasonably possible that a material loss had been incurred in connection with such matters in excess of the amounts recognized in our financial statements.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

RESULTS OF OPERATIONS

22 unchanged sentences

Acquisition, disposition and other related charges 69 0.1 % 19 0.1 % 36 0.1 %

Earnings (loss) from operations 782 2.7 % 1,132 4.1 % (329) (1.2) %

Earnings from operations 2,089 7.2 % 782 2.7 % 1,132 4.1 %

Interest and other, net (156) (0.5) % (188) (0.7) % (211) (0.8) %

Tax indemnification and related adjustments (67) (0.2) % 65 0.2 % (101) (0.4) %

Non-service net periodic benefit credit 134 0.5 % 70 0.3 % 136 0.5 %

Tax indemnification and other adjustments 55 0.2 % (67) (0.2) % 65 0.2 %

Non-service net periodic benefit (cost) credit (3) — % 134 0.5 % 70 0.3 %

Litigation judgment — — % — — % 2,351 8.5 %

Earnings from equity interests 245 0.8 % 215 0.8 % 180 0.6 %

Earnings (loss) before taxes 876 3.1 % 3,587 12.9 % (442) (1.6) %

(Provision) benefit for taxes (8) (0.1) % (160) (0.6) % 120 0.4 %

Net earnings (loss) $ 868 3.0 % $ 3,427 12.3 % $ (322) (1.2) %

Earnings before taxes 2,230 7.7 % 876 3.1 % 3,587 12.9 %

Provision for taxes (205) (0.7) % (8) (0.1) % (160) (0.6) %

Net earnings $ 2,025 7.0 % $ 868 3.0 % $ 3,427 12.3 %

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

2 unchanged sentences

Fiscal 2023 compared with fiscal 2022

In fiscal 2022, total net revenue of $28.5 billion, increased by $0.7 billion, or 2.6% (increased 5.1% on a constant currency basis).

net revenue increased by $0.6 billion or 6.5% to $9.4 billion, while net revenue from outside of the U.S.

increased by $0.1 billion or 0.7% to $19.1 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%, 4%, and 0.3% in Intelligent Edge, Compute, and HPC & AI, respectively, and decreased 7%, 2%, 1% in Corporate Investments and Other, Financial Services, and Storage, respectively.

In fiscal 2023, total net revenue of $29.1 billion represented an increase of $639 million, or 2.2% (increased 5.5% on a constant currency basis).

net revenue increased by $944 million, or 10.0% to $10.4 billion, and net revenue from outside of the U.S.

decreased by $305 million, or 1.6%, to $18.7 billion.

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

8 unchanged sentences

Total segment 2.8 2.3

Elimination of intersegment net revenue 0.3 0.4

Elimination of intersegment net revenue and other (0.6) 0.3

Total HPE 2.2 2.6

For the twelve months ended October 31, 2022, the total gross profit margin of 33.4%, represents a decrease of 0.3 percentage points compared to the prior-year period.

The decrease was primarily driven by a combination of supply chain constraints and related cost increases, higher costs in HPC & AI, and unfavorable currency fluctuations, with costs from expected credit losses related to exiting our Russia and Belarus businesses adding to the overall decline.

Moderating the gross profit decrease was pricing discipline and strong cost management in server products.

Fiscal 2023 compared with fiscal 2022

From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:

• Compute net revenue decrease of $1,414 million, or 11.0%, primarily due to a decline in server unit volume and unfavorable currency fluctuations moderated by higher AUPs

• HPC & AI net revenue increase of $721 million, or 22.6%, primarily due to higher customer acceptances

• Storage net revenue decrease of $188 million, or 4.1%, primarily due to unfavorable currency fluctuations

• Intelligent Edge net revenue increase of $1,530 million, or 41.6%, primarily due to increased AUPs and volume and product mix effect

• Financial Services net revenue increase of $141 million, or 4.2%, primarily due to higher rental revenue from higher average operating leases and higher finance income on finance leases due to an increasing interest rate environment

• Corporate Investments and Other net revenue decrease of $5 million, or 0.4%, primarily due to unfavorable currency fluctuations

Fiscal 2023 total gross profit margin of 35.1% represents an increase of 1.7 percentage points as compared to the respective prior year period.

The increase was due to the impact of higher-margin networking revenue, higher AUPs in Intelligent Edge and Compute, and lower supply chain and commodity costs.

Additionally, the increase was partially offset by lower gross profit from support services.

Operating expenses

Research and development (“R&D”)

R&D expense increased by $66 million, or 3% due primarily to higher overall employee compensation expense, which contributed 1.8 percentage points to the change, and a combination of higher facilities expense, training and travel expenses, and software expenditures, which in total contributed 1.3 percentage points to the change.

Selling, general and administrative ("SG&A")

SG&A expense increased by $12 million, or 0.2% due primarily to higher travel expense as the economy reopens and COVID-19 restrictions ease, higher software expenditures, and the release of bad debt reserves in the prior-year period, which contributed 1.2 percentage points, 0.5 percentage points and 0.3 percentage points to the change, respectively.

The increase was partially offset by a combination of lower employee cost driven by lower variable compensatio n expense and cost savings from our transformation programs which in total contributed 1.9 percentage points to the change.

Additionally, the overall increase in SG&A expense was moderated across various expense categories by favorable currency fluctuations.

Amortization of intangible assets

Amortization expense decreased by $61 million, or 17% due to certain intangible assets associated with prior acquisitions reaching the end of their amortization periods moderated by an increase in amortization expense in the current period resulting

R&D expense increased by $304 million, or 14.9%, led by Intelligent Edge, HPC & AI and Storage.

The increase was driven by higher employee costs due to an increase in software engineers to pursue our strategic goals, which contributed 15.6 percentage points to the change.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

from recent acquisitions.

Additionally, the decrease in the current fiscal period was due to certain write-offs taken in the prior fiscal period.

Selling, general and administrative (“SG&A”)

SG&A expense increased by $219 million, or 4.4%, due primarily to higher travel and marketing expenses by 1.8 percentage points;

increased employee costs by 1.7 percentage points;

factoring fees, charitable donations, other general expenses and higher software expenditures, all of which contributed 1.9 percentage points to the change.

The increase was partially offset by a combination of lower consulting costs and cost savings from our transformation programs.

Impairment of goodwill

Impairment of goodwill for fiscal 2022 represents a partial goodwill impairment charge of $905 million recorded in the fourth quarter of fiscal 2022, as it was determined that the fair value of the HPC & AI and Software reporting units was below the carrying value of their net assets.

Refer to Note 11, "Goodwill and Intangible Assets" to the Consolidated Financial Statements in Item 8 of Part II for more information.

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 $457 million, or 49% due primarily to lower restructuring charges recorded in the current fiscal period as restructuring actions related to employee severance, infrastructure, and other under the cost optimization and prioritization plan are approaching completion primarily in fiscal 2023.

For a further discussion, refer to Note 3, “Transformation Programs" to the Consolidated Financial Statements in Item 8 of Part II.

Our transformation programs consist of the Cost Optimization and Prioritization Plan (launched in 2020) and the HPE Next Plan (launched in 2017).

Transformation costs decreased by $190 million, or 40.2%, due to lower charges incurred in the current period as these plans approach completion.

Refer to Note 3, “Transformation Programs” to the Consolidated Financial Statements in Item 8 of Part II for further discussion.

Disaster charges

Disaster charges decreased by $47 million or 97.9% due to charges recorded in fiscal 2022 driven by the Company’s exit from its Russia and Belarus businesses.

Interest and other, net

Interest and other, net expense decreased by $23 million due primarily to early debt redemption costs incurred in the prior-year period, while in the current-year period a combination of higher gains from the sale of certain assets, lower interest expense from lower average borrowings, and increased interest income from higher interest rates contributed to the net expense decline.

This decline was moderated by the current period containing lower gains from equity investments and unfavorable currency fluctuations.

Tax indemnification and related adjustments

We record 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 and related adjustments expense of $67 million and income of $65 million in fiscal 2022 and 2021, respectively.

Tax indemnification and related adjustments in fiscal 2022 resulted from changes in certain pre-separation tax liabilities, for which we partially shared joint and several liability with HP Inc.

Interest and other, net expense decreased by $32 million, due to favorable currency fluctuations and an increase in net interest income from higher interest rates, partially offset by an increase in impairments recorded on equity investments in fiscal 2023.

Tax indemnification and other adjustments

We record changes in 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 and other adjustments income of $55 million and expense of $67 million in fiscal 2023 and 2022, respectively.

In fiscal 2023, Tax indemnification and other adjustments included the favorable settlement of tax indemnification liabilities for certain pre-divestiture tax liabilities.

In fiscal 2022, Tax indemnification and other adjustments resulted from changes in certain pre-separation tax liabilities, for which we partially shared joint and several liability with HP Inc.

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

Tax indemnification and related adjustments in fiscal 2021 primarily included the impacts of a Brazilian Supreme Court decision received regarding the base on which two social contribution taxes in Brazil ("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 $17 million and $80 million, both net of taxes, for the recovery of PIS and COFINS, respectively, during fiscal 2021, of which $25 million was included in Net revenue, $10 million related to interest income was included in Interest and other, net, and $80 million related to pre-separation liabilities was included in Tax indemnification and related adjustments.

The corresponding income taxes of $18 million as a result of this recovery were included in (Provision) benefit for taxes in the Consolidated Statement of Earnings.

Non-service net periodic benefit credit

Non-service net periodic benefit credit represents the components of net periodic pension benefit 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 (cost) credit

Non-service net periodic benefit (cost) credit represents the components of net periodic pension benefit 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 benefit (cost) credit also includes the impact of any plan settlements, curtailments, or special termination benefits.

In fiscal 2023, Non-service net periodic benefit (cost) credit decreased by $137 million resulting in non-service net periodic benefit cost of $3 million in the current period, as compared to non-service net periodic benefit credit of $134 million in fiscal 2022.

The change was primarily due to higher interest cost as a result of higher discount rates, partially offset by higher expected returns on assets and lower amortized actuarial losses in the current period.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

Non-service net periodic benefit credit increased by $64 million due primarily to lower amortized actuarial losses, partially offset by higher interest cost due to higher discount rates and lower expected returns on assets in the current period.

Litigation judgment

Litigation judgment represents the $2.35 billion settlement we received in October 2021 in relation to the Itanium litigation judgment.

The gain was recognized as other income and presented as a Litigation judgment in the Consolidated Statements of Earnings in the prior-year perio d.

For further discussion, refer to Note 17, “Litigation and Contingencies" to the Consolidated Financial Statements in Item 8 of Part II.

Earnings from equity interests

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

Earnings from equity interests increased by $35 million due primarily to lower amortization expense from basis difference and higher net income earned by H3C in the current period, partially offset by gains from certain venture investments in the prior-year period.

(Provision) benefit for taxes

Earnings from equity interests primarily represents our 49% interest in H3C Technologies Co., Limited (“H3C”) and the amortization of our interest in a basis difference.

In fiscal 2023, Earnings from equity interests increased by $30 million due primarily to lower amortization expense from basis difference in the current period.

Provision for taxes

For fiscal 2023 and 2022, we recorded income tax expense of $205 million and $8 million, respectively, which reflect effective tax rates of 9.2% and 0.9%, respectively.

5 unchanged sentences

These amounts primarily included:

• $104 million of income tax benefits related to transformation costs and acquisition, disposition and other related charges and

• $19 million of net excess tax benefits related to stock-based compensation.

In fiscal 2022, we recorded $454 million of net income tax benefits related to items discrete to the year.

These amounts primarily included:

• $150 million of income tax benefits related to releases of foreign valuation allowances,

4 unchanged sentences

passive foreign tax credit valuation allowance,

• $30 million of income tax benefits related to the change in pre-separation tax liabilities, primarily those for which the Company shared joint and several liability with HP Inc.

and for which the Company was indemnified by HP Inc.

• $30 million of income tax benefits related to the change in pre-separation tax liabilities, primarily those for which we shared joint and several liability with, and for which we were indemnified by, HP Inc.,

• $27 million of income tax benefits related to the utilization of capital losses which had a full valuation allowance,

2 unchanged sentences

• $11 million of net income tax benefits related to settlements and ongoing discussions in foreign tax audit matters.

In fiscal 2021, we recorded $294 million of net income tax benefits related to items discrete to the year.

These amounts primarily included:

• $180 million of income tax benefits related to transformation costs and acquisition, disposition and other related charges,

• $157 million of income tax benefits related to releases of foreign valuation allowances,

• $39 million of income tax benefits related to tax rate changes on deferred taxes,

• $32 million of income tax benefits related to the change in pre-separation tax liabilities, primarily those for which we shared joint and several liability with HP Inc.

and for which we were indemnified by HP Inc.

• These benefits were partially offset by $337 million of net income tax charges associated with income from the Itanium litigation judgment, against which $244 million of income tax attributes previously subject to a valuation allowance were utilized, resulting in a net tax expense of $93 million.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Segment Information

Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker ("CODM"), who is the Chief Executive Officer ("CEO"), uses to evaluate, view and run our business operations, which include, but are not limited to, customer base and homogeneity of products and technology.

Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker (“CODM”), who is the CEO, uses to evaluate, view, and run our business operations, which include, but are not limited to, customer base and homogeneity of products and technology.

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

2 unchanged sentences

The following provides an overview of our key financial metrics by segment for fiscal 2023 as compared to fiscal 2022:

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Consolidated Compute HPC & AI Storage Intelligent Edge Financial Services Corporate

12 unchanged sentences

2023 2022 2021 2023 vs 2022

% Change 2021 vs 2020 % Change

Dollars in millions

3 unchanged sentences

Fiscal 2023 compared with fiscal 2022

Compute net revenue increased by $458 million, or 3.7% (increased 6.0% on a constant currency basis) primarily due to higher average unit prices resulting from a combination of increased sales of server configurations with more complex component architectures in our next generation products and disciplined pricing actions.

The net revenue increase was moderated by unfavorable currency fluctuations and lower unit shipments resulting from supply constraints due to the challenging supply chain environment.

As a result, we ended the period with a high level of order backlog.

Compute experienced product revenue growth in the rack and synergy server categories moderated by a revenue decline due to certain products approaching their end-of-life.

Services net revenue declined primarily due to lower revenue from Russia and the impact of delayed hardware shipments on services contracts.

Compute earnings from operations as a percentage of net revenue increased 3.2 percentage po ints 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 pricing discipline and strong cost management partially offset by unfavorable currency fluctuations and the impact of supply chain constraints and related costs.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

The decrease in operating expenses as a percentage of net revenue was primarily due to cost reduction measures and lower variable compensation expense.

Compute net revenue decreased by $1,414 million, or 11.0% (decreased 7.1% on a constant currency basis), primarily due to a $1,424 million, or 14.3%, decrease in product revenue.

The decline in product revenue was primarily due to lower server unit volume of $1,889 million, or 18.9%, and unfavorable currency fluctuations of $399 million.

The product revenue decline was moderated by an increase in AUPs of $864 million, or 8.7%, led by higher sales of server configurations with more complex component architectures in our next generation products.

Compute earnings from operations as a percentage of net revenue decreased 0.5 percentage points primarily due to an increase in operating expenses as a percentage of net revenue partially offset by a decrease in the cost of products and services as a percentage of net revenue.

The increase in operating expenses as a percentage of net revenue was primarily due to the scale of the net revenue decline.

The decrease in costs of products and services as a percentage of net revenue was primarily due to higher AUPs moderated by unfavorable currency fluctuations and higher supply chain costs.

For the fiscal years ended October 31,

2023 2022 2021 2023 vs 2022

% Change 2021 vs 2020 % Change

Dollars in millions

3 unchanged sentences

Fiscal 2023 compared with fiscal 2022

HPC & AI net revenue increased by $8 million or 0.3% (increased 1.9% on a constant currency basis) as a result of growth in HPC led by Converged Edge Systems (formerly known as Edge Compute) and in Data Solutions.

The increase was moderated by a decline in net revenue from HPE Cray products as a result of supply chain constraints and other operational challenges impacting the achievement of certain customer acceptance milestones required for revenue recognition.

The increase in net revenue was also moderated by lower services revenue due primarily to an unfavorable portfolio mix of service offerings and unfavorable currency fluctuations.

HPC & AI earnings from operations as a percentage of net revenue decrease d 7.0 per centage points 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 due primarily to higher operational costs, supply chain constraints and related cost increases, and lower revenue from higher-margin services.

The increase in operating expenses as a percentage of net revenue was primarily due to higher investments in research and development which focus on high-performance computing and AI solutions, including integrating such solutions into our HPE GreenLake edge-to-cloud platform, partially offset by lower variable compensation expense.

HPC & AI net revenue increased by $721 million, or 22.6% (increased 25.2% on a constant currency basis), primarily due to a $759 million, or 33.6%, increase in product revenue.

The product revenue increase was led by the HPE Cray Supercomputing product portfolio, as operational and supply improvements addressed challenges with achieving certain

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

customer acceptance milestones for revenue recognition.

HPE Cray Supercomputing experienced a deal volume increase of $991 million, or 43.9 %, moderated by lower AUPs of $358 million, or 15.8%.

The product revenue was also impacted by unfavorable currency fluctuation of $69 million.

Services revenue declined by $38 million, or 4.1%, primarily due to unfavorable portfolio mix of service offerings.

HPC & AI earnings from operations as a percentage of net revenue remained relatively flat, driven by a decrease in operating expenses as a percentage of net revenue partially offset by an increase in costs of products and services as a percentage of net revenue.

For the fiscal years ended October 31,

2023 2022 2021 2023 vs 2022

% Change 2021 vs 2020

Dollars in millions

3 unchanged sentences

Fiscal 2023 compared with fiscal 2022

Storage net revenue decreased by $49 million, or 1.0% (increased 0.5% on a constant currency basis) due primarily to unfavorable currency fluctuations and supply chain constraints.

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, as we transition to its next generation of product platforms, such as HPE Alletra and HPE Primera products, and lower traditional storage revenue.

The increase in Storage services was led by Zerto Services and higher subscription services as we continue our transition to more services-intensive, and software-rich offerings, partially offset by lower support services revenue.

Storage earnings from operations as a percentage of net revenue decr eased 1.8 perce ntage points as cost of products and services as a percentage of net revenue remained unchanged and operating expenses as a percentage of net revenue increased.

Cost of products and services as a percentage of net revenue remained unchanged as the impact of increased sales of higher- margin Zerto products was moderated by supply chain constraints and related costs, which unfavorably impacted the mix of certain higher-margin products, and unfavorable currency fluctuations.

The increase in operating expenses as a percentage of net revenue was due primarily to higher investments in research and development and SG&A, focused on as-a-service offerings, partially offset by lower 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 $188 million, or 4.1% (decreased 0.7% on a constant currency basis) primarily due to unfavorable currency fluctuations and a decrease in AUPs.

Storage product revenue decreased by $187 million, or 6.9%, primarily due to unfavorable currency fluctuations of $122 million, a decrease in AUPs of $21 million, or 0.8%, led by HPE Alletra Storage portfolio and big data, a unit volume decrease of $25 million, or 0.9%, led by HPE Alletra Storage portfolio and moderated by big data, and lower revenue from Russia of $20 million.

Storage services revenue remained relatively flat.

Storage earnings from operations as a percentage of net revenue decr eased 4.2 perce ntage 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 unfavorable currency fluctuations partially offset by lower supply chain costs.

The increase in operating expenses as a percentage of net revenue was due primarily to incremental investments in R&D and field selling costs.

Intelligent Edge

1 unchanged sentence

2023 2022 2021 2023 vs 2022

% Change 2021 vs 2020

Dollars in millions

3 unchanged sentences

Fiscal 2023 compared with fiscal 2022

Intelligent Edge net revenue increased by $372 million, or 11.3% (increased 14.0% on a constant currency basis) primarily due to a robust demand environment, reflected in a high backlog, which continues to be impacted by supply constraints resulting from a challenging supply chain environment.

Net revenue increased in both Intelligent Edge products and services but was moderated by unfavorable currency fluctuations.

The increase in product revenue was primarily driven by the wireless local area network ("WLAN") business, partially offset by declines in the Switching business due to material constraints.

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

Intelligent Edge earnings from operations as a percentage of net revenue decreased 0.5 percentage points primarily due 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 services as a percentage of net revenue was primarily due to supply chain constraints and related costs and unfavorable currency fluctuations.

Operating expenses as a percentage of net revenue decreased primarily due to lower variable compensation expense and an increase in the scale of net revenue.

Intelligent Edge net revenue increased by $1,530 million, or 41.6% (increased 44.9% on a constant currency basis).

Product revenue increased by $1,387 million, or 46.5%, led by higher AUPs of $1,257 million, or 42.2%, and a volume and product mix effect of $236 million, or 7.9%, moderated by unfavorable currency fluctuations of $106 million.

The product revenue increase was led by switching and wireless local area network products, which benefited from improvements in the supply availability, and elevated order book levels at the beginning of the period.

Services net revenue increased $143 million, or 20.6%, primarily led by our aaS and attached support service offerings.

Intelligent Edge earnings from operations as a percentage of net revenue increased 12.4 percentage points primarily due to decreases in cost of products and services as a percentage of net revenue and operating expenses 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 supply chain costs, moderating the decrease was a lower mix of higher-margin support services revenue.

Operating expenses as a percentage of net revenue decreased primarily due to our cost containment measures.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Financial Services

1 unchanged sentence

2023 2022 2021 2023 vs 2022

% Change 2021 vs 2020

Dollars in millions

3 unchanged sentences

Fiscal 2023 compared with fiscal 2022

FS net revenue decreased by $62 million, or 1.8% (increased 1.7% on a constant currency basis) due primarily to unfavorable currency fluctuations, partially offset by higher asset management revenue from pre-owned equipment sales, lease buyouts, and remarketing equipment sales.

FS earnings from operations as a percentage of net revenue increased 0.4 percentage points due primarily to lower cost of services as a percentage of net revenue and operating expenses 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 and bad debt.

The decrease in operating expenses as a percentage of net revenue was due primarily to lower employee cost driven by lower variable compensation expense.

The provision for expected credit losses due to the Company's exit from its Russia and Belarus businesses for the year ended October 31, 2022, was excluded from segment operating results.

FS net revenue increased by $141 million, or 4.2% (increased 5.4% on a constant currency basis) due primarily to higher rental revenue from higher average operating leases and higher finance income on finance leases due to an increasing interest rate environment, partially offset by lower asset management revenue primarily from lower pre-owned asset sales and unfavorable currency fluctuations.

FS earnings from operations as a percentage of net revenue decreased 2.8 percentage points due primarily to an increase in cost of services as a percentage of net revenue, while operating expenses as a percentage of net revenue were relatively flat.

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

Financing Volume

1 unchanged sentence

2023 2022 2021

Dollars in millions

Financing volume $ 6,412 $ 6,252 $ 6,168

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, increased by 2.6% in fiscal 2023 as compared to the prior-year period.

The increase was primarily driven by higher financing associated with third-party product sales and related service offerings, partially offset by unfavorable currency fluctuations and lower financing of HPE product sales and related service offerings.

The increase was primarily driven by higher financing of HPE product sales and services, partially offset by lower financing of third-party product sales and services and unfavorable currency fluctuations.

Portfolio Assets and Ratios

2 unchanged sentences

However, intercompany loans and certain accounts that are reflected in the segment balances are eliminated in our Consolidated Financial Statements.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

17 unchanged sentences

FS equity at October 31, 2023 and 2022, was $1.7 billion and $1.6 billion, respectively.

As of October 31, 2022 and 2021, FS net cash and cash equivalents were $923 million and $898 million, respectively.

Net portfolio assets as of October 31, 2022 decreased 5.8% from October 31, 2021.

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

As of October 31, 2023 and 2022 , FS net cash and cash equivalents balances were $700 million and $923 million, respectively.

Net portfolio assets as of October 31, 2023 increased 4.3% from October 31, 2022.

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

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

FS recorded net bad debt expense of $59 million, $82 million and $95 million in fiscal 2023, 2022 and 2021, respectively.

As of October 31, 2022, FS experienced a decrease in billed finance receivables compared to October 31, 2021, which included a limited impact to collections from customers as a result of the pandemic, and customers from Russia.

We are currently unable to fully predict the extent to which the pandemic and our exit from Russia and Belarus businesses may adversely impact future collections of our receivables.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Corporate Investments and Other

1 unchanged sentence

2023 2022 2021 2023 vs 2022

% Change 2021 vs 2020

Dollars in millions

3 unchanged sentences

Fiscal 2023 compared with fiscal 2022

Corporate Investments and Other net revenue decreased by $101 million, or 7.4% (decreased 0.4% on a constant currency basis) due to unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue increased 0.3 percentage points due primarily to lower cost of services as a percentage of net revenue and an increase in operating expenses as a percentage of net revenue.

The decrease in cost of services as a percentage of net revenue was due primarily to improved service delivery efficiencies in A & PS and lower variable compensation expense largely offset by a lower mix of higher margin license revenue in Software .

The increase in operating expenses as a percentage of net revenue was due primarily to the scale of the net revenue decline partially offset by lower variable compensation expense.

Corporate Investments and Other net revenue decreased by $5 million, or 0.4% (increased 3.3% on a constant currency basis) primarily due to unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue increased 6.5 percenta ge points primarily due to an increase in cost of services and operating expense as a percentage of net revenue.

The increase in cost of services as a percentage of net revenue was primarily due to unfavorable currency fluctuations, higher services delivery costs and higher variable compensation expense.

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

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

LIQUIDITY AND CAPITAL RESOURCES

5 unchanged sentences

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.

and other global economies, the capital markets, consumer behavior, our businesses, results of operations, financial condition and cash flows.

Our liquidity is subject to various risks including the risks identified in the section entitled “Risk Factors” in Item 1A and market risks identified in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A.

Our cash balances are held in numerous locations throughout the world, with a substantial amount held outside the U.S as of October 31, 2023.

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.

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

Amounts held outside of the U.S.

2 unchanged sentences

Repatriations of amounts held outside the U.S.

generally will not be taxable from a U.S.

generally should not be taxable from a U.S.

federal tax perspective, but may be subject to state income or foreign withholding tax.

4 unchanged sentences

In connection with the share repurchase program previously authorized by our Board of Directors, during fiscal 2023, we repurchased and settled an aggregate amount of $0.4 billion.

As of October 31, 2022, we had a remaining authorization of $1.4 billion for future share repurchases.

As of October 31, 2023, we had a remaining authorization of approximately $1.0 billion for future share repurchases.

For more information on our share repurchase program, refer to Note 15, “Stockholders' Equity,” to the Consolidated Financial Statements in Item 8 of Part II.

Pursuant to the Shareholders' Agreement among our relevant subsidiaries, Unisplendour International Technology Limited (“UNIS”), and H3C dated as of May 1, 2016, as amended from time to time, and most recently on October 28, 2022, we delivered a notice to UNIS on December 30, 2022, to exercise our right to put to UNIS, for cash consideration, all of the H3C shares held by us, which represent 49% of the total issued share capital of H3C.

On May 26, 2023, our relevant subsidiaries entered into a Put Share Purchase Agreement with UNIS, whereby UNIS has agreed to purchase all of the H3C shares held by us, through our subsidiaries, for a total pre-tax cash consideration of $3.5 billion.

We intend to consider a range of allocation activities, in line with our practice of pursuing a balanced, returns-based approach for capital allocation decisions, including but not limited to organic and strategic investments, return of capital to shareholders, repayment and/or redemption of outstanding debt, and general corporate purposes.

The disposition remains subject to obtaining required regulatory approvals and completion of certain conditions necessary for closing.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

On April 22, 2022, we entered into an amendment with Unisplendour Corporation (“UNIS”) and H3C Technologies Co.

Limited (“H3C”) to the Shareholder Agreement previously entered into between the parties as of May 1, 2016.

The amendment extended the Shareholder Agreement to October 31, 2022, the latest date upon which we could put to UNIS all or part of the H3C shares held by us, at a price of 15.0 times the last twelve months net income of H3C.

On October 28, 2022, we entered into a subsequent amendment to the aforementioned Shareholder Agreement to further extend to December 31, 2022, the latest date upon which we may put to UNIS all or part of the H3C shares held by us, at a price of 15.0 times the last twelve months (measured from April 30, 2022) net income of H3C.

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

7 unchanged sentences

Uncommitted lines of credit (2)

$ 1,517 $ 953 $ 972

(1) The maximum aggregate borrowing amount of the commercial paper programs and revolving credit facility is $5.75 billion.

(2) The maximum aggregate capacity under the uncommitted lines of credit is $1.8 billion of which $0.3 billion was primarily utilized towards issuances of bank guarantees.

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

3 unchanged sentences

Net cash used in investing activities (3,284) (2,087) (2,796)

Net cash (used in) provided by financing activities (1,796) (3,364) 883

Net cash used in financing activities (1,362) (1,796) (3,364)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 36 (279) —

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 431 $ (289) $ 545

Net (decrease) increase in cash, cash equivalents and restricted cash $ (182) $ 431 $ (289)

Free Cash Flow $ 2,238 $ 1,794 $ 1,551

Operating Activities

Net cash provided by operating activities decrease d by $1.3 billion for fiscal 2022, as compared to fiscal 2021.

The decrease was primarily due to $2.2 billion of after-tax cash resulting from a litigation judgment in the prior-year period, lower variable compensation accruals, and favorable hedging positions moderated by improved working capital and a decrease in financing receivables, as compared to the prior-year period.

Net cash provided by operating activities decrease d by $165 million for fiscal 2023, as compared to fiscal 2022.

The decrease was primarily due to unfavorable working capital primarily resulting from higher vendor payments and an increase in financing receivables, moderated by unfavorable hedging positions, lower cash payouts for variable compensation, and favorable impacts from other assets and liabilities during the current period.

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

6 unchanged sentences

The cash conversion cycle is the sum of DSO and DOS less DPO.

Items which may cause the cash conversion cycle in a particular period to differ include, but are not limited to, changes in business mix, changes in payment terms (including extended payment terms to customers or from suppliers), early or late invoice payments from customers or to suppliers, the extent of receivables factoring, seasonal trends, the timing of revenue recognition and inventory purchases within the period, the impact of commodity costs and acquisition activity.

DSO measures the average number of days our receivables are outstanding.

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 three-month

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

1 unchanged sentence

Financial Condition and Results of Operations (Continued)

extent of receivables factoring, seasonal trends, the timing of sales and inventory purchases within the period, the impact of commodity costs and acquisition activity.

DSO measures the average number of days our receivables are outstanding.

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

For the three-month period ending October 31, 2022, as compared to the corresponding prior-year period, DSO decreased by 2 days due primarily to favorable billings linearity, higher early collections and receivables factoring, partially offset by extended payment terms.

period ending October 31, 2022, the decrease in DSO by 4 days in the current period was primarily due to higher early collections and receivables factoring.

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

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

For the three-month period ending October 31, 2022, as compared to the corresponding prior-year period, DOS in creased by 6 days due primarily 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.

Compared to the corresponding three-month period ending October 31, 2022, the DOS remained relatively flat.

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.

For the three-month period ending October 31, 2022, as compared to the corresponding prior-year period, DPO increased by 21 days due primarily to proactive measures we have taken to secure key materials for future shipments and a larger proportion of vendors with longer payment terms.

Compared to the corresponding three-month period ending October 31, 2022, the decrease in DPO by 15 days in the current period was primarily due to lower inventory purchases during the current period.

Investing Activities

Net cash used in investing activities decreased by $0.7 billion in fiscal 2022, as compared to fiscal 2021.

The change was primarily due to a combinaton of lower payments in connection with business acquisitions of $0.5 billion, lower cash utilized in net financial collateral activities of $0.3 billion and higher proceeds from the sale of investments, net of purchases of $0.3 billion, partially offset by higher cash utilized for investment in property, plant and equipment, net of sales proceeds of $0.4 billion, as compared to the prior-year period.

Net cash used in investing activities increased by $1.2 billion in fiscal 2023, as compared to fiscal 2022.

The increase was primarily due to payments made in connection with business acquisitions of $0.8 billion, higher cash utilized in net financial collateral activities of $0.5 billion, lower proceeds from maturities and sales of investments, net of purchases of $0.2 billion, offset by lower investment in property, plant and equipment of $0.3 billion, as compared to the prior-year period.

Financing Activities

Net cash used in financing activities decreased by $0.4 billion in fiscal 2023, as compared to fiscal 2022.

The decrease was due primarily to lower net debt repayments of $1.9 billion and higher cash utilized for share repurchases of $0.3 billion, as compared to the prior-year period.

Free Cash Flow

For the fiscal years ended October 31,

2022 2021 2020

Net cash provided by operating activities $ 4,593 $ 5,871 $ 2,240

Litigation judgment, net of taxes paid — (2,172) —

Net cash provided by operating activities, excluding litigation judgment, net of taxes paid 4,593 3,699 2,240

Investment in property, plant and equipment (3,122) (2,502) (2,383)

Proceeds from sale of property, plant and equipment 602 354 703

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (279) — —

The decrease was primarily due to an increase in proceeds from debt, net of issuance costs of $1.4 billion, offset by higher repayments of debt and short-term borrowings of $1.0 billion, as compared to the prior-year period.

Free Cash Flow

Free cash flow represents cash flow from operations, excluding the impact of $2.2 billion in proceeds received in the fourth quarter of fiscal 2021 from a one-time Itanium litigation judgment, less net capital expenditures (investments in property, plant and equipment (“PP&E”) less proceeds from the sale of PP&E), and adjusted for the effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash.

Free cash flow increased by $0.2 billion in fiscal 2022, as compared to fiscal 2021, due to higher cash generated from operating activities (excluding a one-time litigation judgment) led by improved net working capital management, moderated by increased cash used for investments in property, plant and equipment, net of sales proceeds.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Our improved free cash flow and cash position help to ensure we have ample liquidity to run operations, continuing to invest in our business to drive growth and return capital to shareholders.

Free cash flow (“FCF”) represents cash flow from operations, less net capital expenditures (investments in property, plant and equipment (“PP&E”) less proceeds from the sale of PP&E), and adjusted for the effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash.

FCF increased by $0.4 billion in fiscal 2023, as compared to fiscal 2022, due to a favorable currency impact on cash, cash equivalents, and restricted cash, lower cash utilized for investments in PP&E, moderated by lower cash provided from operations, as compared to the prior-year period.

For more information on our FCF, refer to the section entitled “GAAP to non-GAAP Reconciliations” included in this MD&A.

For more information on the impact from operating assets and liabilities to cash flows, see Note 7, “Balance Sheet Details,” to the Consolidated Financial Statements in Item 8 of Part II.

2 unchanged sentences

2023 2022 2021

Dollars in millions

Short-term debt $ 4,868 $ 4,612 $ 3,552

3 unchanged sentences

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 programs since October 31, 2021.

There have been no changes to our commercial paper programs and revolving credit facility since October 31, 2022.

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.

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

As of October 31, 2022 and 2021, no borrowings were outstanding under the Parent Programs, and $542 million and $705 million, respectively, were outstanding under our subsidiary’s program.

During fiscal 2022, we issued $3.2 billion and repaid $3.2 billion of commercial paper.

The shelf registration statement expired in December 2023, and we expect to file a new shelf registration statement around the time of the filing of this report.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Significant funding and liquidity activities for fiscal 2023 were as follows:

Debt Issuances:

• In March 2023 and June 2023, we issued $1.3 billion and $250 million, respectively, of 5.90% Senior Notes due October 1, 2024

• In March 2023, we issued $400 million of 6.102% Senior Notes due April 1, 2026

• In March and April 2023, we issued $643 million of asset-backed debt securities in five tranches with a weighted average interest rate of 5.59% and final maturity date of April 20, 2028

• In June 2023, we issued $550 million of 5.25% Senior Notes due July 1, 2028

• In September 2023, we issued $612 million of asset-backed debt securities in six tranches with a weighted average interest rate of 6.40% and final maturity date of July 21, 2031 .

Debt Repayments:

• In April 2023, we repaid $1.0 billion of 2.25% fixed rate Senior Notes

• In October 2023, we repaid $1.25 billion of 4.45% Senior Notes

• During fiscal 2023, we repaid $1.7 billion of the outstanding asset-backed debt securities.

Our weighted-average interest rate reflects the average effective rate on our borrowings prevailing during the period and reflects the impact of interest rate swaps.

9 unchanged sentences

The impact of our outstanding interest rate swaps as of October 31, 2023 was factored into the calculation of the future interest payments on long-term debt.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Operating lease obligations

8 unchanged sentences

For more information on our unconditional purchase obligations, see Note 19, “Commitments,” to the Consolidated Financial Statements in Item 8 of Part II.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Retirement Benefit Plan Funding

32 unchanged sentences

Stock-based compensation expense 47 0.2 % 46 0.1 %

Disaster charges (1)

111 0.4 % — — %

Disaster (recovery) charges (13) — % 111 0.4 %

Non-GAAP gross profit $ 10,273 35.3 % $ 9,667 33.9 %

8 unchanged sentences

Transformation costs 283 1.0 % 473 1.6 %

Disaster charges (1)

159 0.6 % 16 0.1 %

Disaster (recovery) charges (12) — % 159 0.6 %

Stock-based compensation expense 428 1.5 % 391 1.4 %

14 unchanged sentences

Transformation costs 283 0.22 473 0.36

Disaster charges (1)

159 0.12 16 0.01

Disaster (recovery) charges (12) (0.01) 159 0.12

Stock-based compensation expense 428 0.33 391 0.30

Acquisition, disposition and other related charges 69 0.05 19 0.01

Tax indemnification and related adjustments 67 0.05 (65) (0.05)

Non-service net periodic benefit credit (134) (0.10) (70) (0.05)

Litigation judgment — — (2,351) (1.78)

Early debt redemption costs — — 100 0.08

Tax indemnification and other adjustments (55) (0.04) 67 0.05

Non-service net periodic benefit cost (credit) 3 — (134) (0.10)

Earnings from equity interests (1)

18 0.01 45 0.03

Impairment of investment 40 0.03 — —

Adjustments for taxes (255) (0.20) (426) (0.32)

Non-GAAP net earnings $ 2,832 $ 2.15 $ 2,664 $ 2.02

(1) During fiscal year ended 2022, the Company recorded total pre-tax charges of $161 million, primarily related to the Company's exit from its Russia and Belarus businesses.

Additionally, in fiscal 2022, Disaster charges included a recovery of $2 million related to COVID-19.

Refer to Note 1, "Overview and Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Item 8 of Part II, for further information.

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

Fiscal 2023 included the Company's portion of intangible asset impairment charges from H3C of $8 million.

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

For the fiscal years ended October 31,

2023 2022 2021

Net cash provided by operating activities $ 4,428 $ 4,593 $ 5,871

8 unchanged sentences

Financial Condition and Results of Operations (Continued)

Non-GAAP financial measures

The non-GAAP financial measures presented are 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 earnings from operations as a percentage of net revenue), non-GAAP net earnings, non-GAAP diluted net earnings per share, and free cash flow.

These non-GAAP financial measures are used by management for purposes of evaluating our historical and prospective financial performance, as well as evaluating our performance relative to our competitors.

Use of Non-GAAP Financial Measures

The non-GAAP financial measures presented are net revenue on a constant currency basis (including at the business segment level), non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP tax rate, non-GAAP net earnings, non-GAAP diluted net earnings per share, and FCF.

These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States.

4 unchanged sentences

The GAAP measure most directly comparable to non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue) is operating profit margin (earnings from operations as a percentage of net revenue).

The GAAP measure most directly comparable to non-GAAP income tax rate is income tax rate.

The GAAP measure most directly comparable to non-GAAP net earnings is net earnings.

The GAAP measure most directly comparable to non-GAAP diluted net earnings per share is diluted net earnings per share.

The GAAP measure most directly comparable to free cash flow is cash flow from operations.

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 disaster 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, litigation judgment, early debt redemption costs, earnings from equity interests, certain income tax valuation allowances and separation taxes, the impact of tax reform, structural rate adjustment and excess tax benefit from stock-based compensation.

In addition, non-GAAP net earnings and non-GAAP diluted net earnings per share are adjusted by the amount of additional taxes or tax benefits associated with each non-GAAP item.

We believe that excluding the items mentioned above from these non-GAAP financial measures allows management to better understand our consolidated financial performance in relation to the operating results of our segments.

Management believes excluding these items facilitates a more meaningful evaluation of our current operating performance in comparison to our peers.

The GAAP measure most directly comparable to FCF is cash flow from operations.

We believe that providing the non-GAAP measures stated above, 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 further believe that providing this information provides investors with a supplemental view to understand our historical and prospective

operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

Disclosure of these non-GAAP financial measures also facilitates comparisons of our operating performance with the performance of other companies in the same industry that supplement their GAAP results with non-GAAP financial measures that may be calculated in a similar manner.

Economic Substance of non-GAAP Financial Measures

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

This measure assists investors with evaluating our past and future performance, without the impact of foreign exchange rates, as more than half of our revenue is generated outside of the U.S.

We believe that excluding the items mentioned below from the non-GAAP financial measures provides a supplemental view to management and our investors of our consolidated financial performance and presents the financial results of the business without costs that we do not believe to be reflective of our ongoing operating results.

Exclusion of these items can have a material impact on the equivalent GAAP measure and cash flows thus limiting the use of such non-GAAP financial measures as analytic tools.

See “Compensation for Limitations With Use of Non-GAAP Financial Measures” section below for further information.

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

See below for the reasons management excludes each item:

• Amortization of initial direct costs represents the portion of lease origination costs incurred in prior fiscal years that do not qualify for capitalization under the new leasing standard.

We exclude these costs as we elected the practical expedient under the new leasing standard.

As a result, we did not adjust these historical costs to accumulated deficit.

We believe that most financing companies did not elect this practical expedient and therefore we exclude these costs.

This can have an impact on the equivalent GAAP measures and Financial Services segment results.

• Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date.

Although stock-based compensation is a key incentive offered to our employees, we exclude these charges for the purpose of calculating these non-GAAP measures, primarily because they are non-cash expenses and our internal benchmarking analyses evidence that many industry participants and peers present non-GAAP financial measures excluding stock-based compensation expense.

• Disaster (recovery) charges are primarily related to the exit of our businesses in Russia and Belarus, and include credit losses of financing and trade receivables, employee severance and abandoned assets.

Disaster (recovery) charges also include direct costs or recovery of these costs related to COVID-19 as a result of Hewlett Packard Enterprise-hosted, co-hosted, or sponsored event cancellations and subsequent shift to a virtual format.

While we present various items as

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Disaster charges (recovery), we exclude Disaster charges (recovery) from these non-GAAP measures as the specific charges are non-recurring charges and not indicative of the operational performance of our business.

Non-GAAP earnings from operations and non-GAAP operating profit margin consist of earnings from operations or earnings from operations as a percentage of net revenue excluding the items mentioned above and charges relating to the amortization of intangible assets, goodwill impairment, transformation costs and acquisition, disposition and other related charges.

In addition to the items previously explained above, management excludes these items for the following reasons:

• We incur charges relating to the amortization of intangible assets and exclude these charges for purposes of calculating these non-GAAP measures.

Such charges are significantly impacted by the timing and magnitude of our acquisitions.

We exclude these charges for the purpose of calculating these non-GAAP measures, primarily because they are noncash expenses and our internal benchmarking analyses evidence that many industry participants and peers present non-GAAP financial measures excluding intangible asset amortization.

Although this does not directly affect our cash position, the loss in value of intangible assets over time can have a material impact on the equivalent GAAP earnings measure.

• In the fourth quarter of fiscal 2022, Hewlett Packard Enterprise recorded an impairment charge for the goodwill associated with its HPC & AI and Software reporting units following the annual goodwill impairment review.

Hewlett Packard Enterprise excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of current operating performance and comparisons to operating performance in other periods.

• Transformation costs represent net costs related to the (i) HPE Next Plan and (ii) Cost Optimization and Prioritization Plan and include restructuring charges, program design and execution costs, costs incurred to transform our IT infrastructure, net gains from the sale of real estate and any impairment charges on real estate identified as part of the initiatives.

We exclude these costs as they are discrete costs related to two specific transformation programs that were announced in 2017 and 2020, respectively, as multi-year programs necessary to transform the business and IT infrastructure following material divestiture transactions in 2017 and in response to COVID-19 and an evolving product portfolio in fiscal 2020.

The primary elements of the HPE Next and the Cost Optimization and Prioritization Plan have been substantially completed by October 31, 2023.

The exclusion of the transformation program costs from our non-GAAP financial measures as stated above is to provide a supplemental measure of our operating results that does not include material HPE Next Plan and Cost Optimization and Prioritization Plan costs as we do not believe such costs to be reflective of our ongoing operating cost structure.

Further as our transformation costs for these plans have materially fluctuated since 2017, have been materially declining since 2021 and we do not expect to incur material transformation costs related to these programs beyond fiscal 2023, we believe non-GAAP measures excluding these costs are useful to management and investors for comparing operating performance across multiple periods.

• We incur costs related to our acquisition, disposition and other related charges.

The charges are direct expenses, such as professional fees and retention costs, most of which are treated as non-cash or non-capitalized expenses.

Charges may also include expenses associated with disposal activities including legal and arbitration settlements in connection with certain dispositions.

We exclude these costs as these expenses are inconsistent in amount and frequency and are significantly impacted by the timing and nature of our acquisitions and divestitures.

In addition, our internal benchmarking analyses evidence that many industry participants and peers present non-GAAP financial measures excluding these 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 mentioned above, as well as other items such as tax indemnification and other adjustments, non-service net periodic benefit cost (credit), earnings from equity interests, impairment of investment, and adjustments for taxes.

The Adjustments for taxes line item includes certain income tax valuation allowances and separation taxes, the impact of tax reform, structural rate adjustment, excess tax benefit from stock-based compensation, and adjustments for additional taxes or tax benefits associated with each non-GAAP item.

In addition to the items previously explained, management excludes these items for the following reasons:

• Tax indemnification and other adjustments are primarily related to 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 exclude these income or charges and the associated tax impact for the purpose of calculating non-GAAP measures to facilitate an evaluation of our current operating performance and comparisons to operating performance in prior periods.

HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

• Non-service net periodic benefit cost (credit) includes certain market-related factors such as (i) interest cost, (ii) expected return on plan assets, (iii) amortization of prior plan amendments, (iv) amortized actuarial gains or losses, (v) the impacts of any plan settlements/curtailments and (vi) impacts from other market-related factors associated with our defined benefit pension and post-retirement benefit plans.

These market-driven retirement-related adjustments are primarily due to the change in pension plan assets and liabilities which are tied to financial market performance.

We exclude these adjustments for purposes of calculating non-GAAP measures and consider them to be outside the operational performance of the business.

• Adjustment to earnings from equity interests includes the amortization of the basis difference in relation to the H3C divestiture and the resulting equity method investment in H3C.

In the first fiscal quarter of 2023, this adjustment also included our portion of intangible asset impairment charges from H3C.

We believe that eliminating this amount for purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance and comparisons to operating performance in prior periods.

• In the fourth quarter of fiscal 2023, HPE recorded an impairment charge for an equity investment resulting from a permanent reduction of the investee’s assets.

This adjustment was reflected in Interest and other, net in the Consolidated Statements of Earnings.

We believe eliminating impairment of investment for the purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance and comparisons to operating performance in prior periods.

• We utilize a structural long-term projected non-GAAP income tax rate in order to provide consistency across the interim reporting periods and to eliminate the effects of items not directly related to our operating structure that can vary in size and frequency.

When projecting this long-term rate, we evaluated a three-year financial projection.

The projected rate assumes no incremental acquisitions in the three-year projection period and considers other factors including our expected tax structure, our tax positions in various jurisdictions and current impacts from key legislation implemented in major jurisdictions where we operate.

For fiscal 2023 and 2022, we used a non-GAAP income tax rate of 14%.

The non-GAAP income tax rate could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix including due to acquisition activity, or other changes to our strategy or business operations.

We will re-evaluate its long-term rate as appropriate.

We believe that making these adjustments for purposes of calculating non-GAAP measures, facilitates a supplemental evaluation of our current operating performance and comparisons to past operating results.

FCF is a non-GAAP measure that is defined as cash flow from operations, excluding the impact of proceeds received in the fourth quarter of fiscal 2021 from a one-time Itanium litigation judgment, less net capital expenditures (investments in PP&E less proceeds from the sale of PP&E), and adjusted for the effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash.

FCF does not represent the total increase or decrease in cash for the period.

Our management and investors can use FCF for the purpose of determining the amount of cash available for investment in our businesses, repurchasing stock and other purposes as well as evaluating our historical and prospective liquidity.

Compensation for Limitations With Use of Non-GAAP Financial Measures

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 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.

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 (limiting the usefulness of those measures for comparative purposes) 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, 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 Consolidated Financial Statements to see our financial results “through the eyes” of management.

We also provide a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure for this fiscal year and prior periods, and we encourage investors to review those reconciliations carefully.

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-K

Item 7. Management’s Discussion and Analysis