What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-03-05 compared with 2023-09-01 · 243 added, 365 removed, 386 unchanged (61% of the section changed)

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

The financial discussion and analysis in the following MD&A compares the three and nine months ended July 31, 2023 to the comparable prior-year periods and where appropriate, as of July 31, 2023, unless otherwise noted.

The financial discussion and analysis in the following MD&A compares the three months ended January 31, 2024 to the comparable prior-year period and where appropriate, as of January 31, 2024, unless otherwise noted.

This MD&A is organized as follows:

• Trends and Uncertainties.

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

A discussion of material events and uncertainties known to management, such as the mixed macroeconomic environment of 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.

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

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

• Results of Operations.

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TRENDS AND UNCERTAINTIES

The elevated order book levels we experienced in fiscal 2022 have generally been declining throughout fiscal 2023, as supply chain constraints eased, though challenges still remain.

Meanwhile, demand for and adoption of new technologies, such as AI, have increased.

We have observed, and expect to continue seeing, customers of various segments and sizes pursue such new technologies, including AI computing capabilities and solutions.

At the same time, we have continued to see elongated sales cycles and customers adopting a more conservative approach to spending in a mixed macroeconomic environment.

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

The dynamics we have experienced throughout fiscal 2023 continue.

We have seen supply chain constraints continue to ease (though challenges still remain) and demand soften unevenly across our portfolio and geographies (as a result of the aforementioned improving supply chain conditions and as customers have been taking longer than anticipated to digest their prior larger orders).

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

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, including our own.

We expect such mixed macroeconomic environment to continue to limit 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.

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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.

Additionally, we are experiencing 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.

Additionally, 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 Plan and Cost Optimization and Prioritization Plan, coupled with pricing actions we implemented in response to an inflationary trend, related cost reduction measures and operational efficiencies, may moderate the impact of unfavorable foreign exchange effects in fiscal 2023.

Tax Legislation

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 (the "Inflation Reduction Act") into law.

The Inflation Reduction Act includes a new corporate alternative minimum tax (the "Corporate AMT") of 15% on the adjusted financial statement income ("AFSI") of corporations with average AFSI exceeding $1.0 billion over a three-year period.

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.

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, 202 2.

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

Also, the impacts of trade protection measures, including increases in tariffs and trade barriers, changes in government policies and international trade arrangements, geopolitical volatility (including ongoing conflict in the Middle East), and global macroeconomic challenges (including the relationship between China and the U.S.), may impact our ability to conduct business in some non-U.S.

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

Recent Tax Developments

The Organisation for Economic Co-operation and Development (“OECD”), 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%.

To date, 29 countries have enacted portions, or all, of the OECD proposal and a further 23 countries have drafted, or have announced an intent to draft, legislation enacting the proposed rules.

Where enacted, the rules begin to be effective for us in fiscal 2025.

Under US GAAP, the OECD Pillar Two rules are considered an alternative minimum tax and therefore deferred taxes would not be recognized or adjusted for the estimated effects of the future minimum tax.

As a result, no impact to our fiscal 2024 results is expected.

The adoption and effective dates of these rules may vary by country and could increase tax complexity and uncertainty and may adversely affect our provision for income taxes.

Other Trends and Uncertainties

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

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 deliver our entire portfolio as-a-service (“aaS”) and 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.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

EXECUTIVE OVERVIEW

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

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

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

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

Server, Hybrid Cloud, Intelligent Edge, Financial Services ("FS"), and Corporate Investments and Other.

Financial Results

The following table summarizes our condensed consolidated GAAP financial results:

For the three months ended July 31, For the nine months ended July 31,

2023 2022 Change 2023 2022 Change

For the three months ended January 31,

2024 2023 Change

Dollars in millions, except per share amounts

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Gross profit $ 2,457 $ 2,658 (7.6)%

Gross profit margin 35.8 % 34.5 % 1.3pts 35.3 % 33.5 % 1.8pts

Gross profit margin 36.4 % 34.0 % 2.4pts

Earnings from operations $ 525 $ 591 (11.2)%

Operating profit margin 6.7 % 6.7 % —pts 7.3 % 5.4 % 1.9pts

Operating profit margin 7.8 % 7.6 % 0.2pts

Net earnings $ 387 $ 501 (22.8)%

Diluted net earnings per share $ 0.29 $ 0.38 $(0.09)

Cash flow provided by operations $ 1,525 $ 1,254 $271 $ 1,585 $ 1,557 $28

Three months ended July 31, 2023 compared with three months ended July 31, 2022

Net revenue of $7.0 billion represented an increase of 0.7% (increased 3.5% on a constant currency basis) primarily due to higher average unit prices (“AUPs”) in the Intelligent Edge segment, moderated by a decline in server unit volume in the Compute segment and unfavorable currency fluctuations.

The gross profit margin of 35.8%, (or $2.5 billion), represents an increase of 1.3 percentage points from the prior-year period led by the impact of higher-margin networking revenue, higher AUPs in Intelligent Edge, lower supply chain and commodity costs, and the impact of charges in the prior period from expected credit losses resulting from our exit from Russia and Belarus.

The operating profit margin of 6.7% remained flat.

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

Net revenue of $21.8 billion represented an increase of 5.6% (increased 10.0% on a constant currency basis) primarily due to higher AUPs in the Intelligent Edge segment and higher customer acceptances in the HPC & AI segment, moderated by a decline in server unit volume in the Compute segment and unfavorable currency fluctuations.

The gross profit margin of 35.3% (or $7.7 billion) represents an increase of 1.8 percentage points from the prior-year period due to the impact of higher-margin networking revenue, higher AUPs in Intelligent Edge and Compute, lower supply chain and commodity costs, and the impact of charges in the prior period from expected credit losses resulting from our exit from Russia and Belarus.

The operating profit margin of 7.3% represents an increase of 1.9 percentage points primarily due to the aforementioned gross margin improvement and lower transformation expenses moderated by higher planned investments in research and development.

Cash flow provided by (used in) operations

$ 64 $ (829) $893

Three months ended January 31, 2024 compared with three months ended January 31, 2023

Net revenue of $6.8 billion represented a decrease of 13.5% (decreased 13.8% on a constant currency basis) primarily due to a decline in server unit volume in the Server segment, and lower average unit prices (“AUPs”) in the Server and Hybrid Cloud segments.

The gross profit margin of 36.4%, (or $2.5 billion), represents an increase of 2.4 percentage points from the prior-year period due to favorable revenue mix in the Intelligent Edge segment, cost recoveries in connection with our exit from Russia and Belarus, and lower supply chain costs.

The increase was moderated by lower AUPs in the Server segment.

The operating profit margin of 7.8% remained relatively flat.

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The following table summarizes our condensed consolidated non-GAAP financial results:

For the three months ended July 31, For the nine months ended July 31,

2023 2022 Change 2023 2022 Change

For the three months ended January 31,

2024 2023 Change

Dollars in millions, except per share amounts

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Non-GAAP gross profit $ 2,448 $ 2,674 (8.5)%

Non-GAAP gross profit margin 35.9 % 34.7 % 1.2pts 35.4 % 34.3 % 1.1pts

Non-GAAP gross profit margin 36.2 % 34.2 % 2.0pts

Non-GAAP earnings from operations $ 775 $ 918 (15.6)%

Non-GAAP operating profit margin 10.3 % 10.5 % (0.2)pts 11.2 % 10.3 % 0.9pts

Non-GAAP operating profit margin 11.5 % 11.8 % (0.3)pts

Non-GAAP net earnings $ 638 $ 828 (22.9)%

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Annualized Revenue Run-rate ("ARR")

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 (“aaS”) offerings, recognized during a quarter and multiplied by four.

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.

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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 calculated as of July 31, 2023 and 2022:

As of July 31,

The following presents our ARR calculated as of January 31, 2024 and 2023:

As of January 31,

Dollars in millions

Year-over-year growth rate 42% 26%

The 48% 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.

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

The 42% year-over year increase in ARR was primarily due to growth in our Hybrid Cloud and Intelligent Edge segments, which was due to an expanding customer installed base, an expanded range of HPE GreenLake Flex Solutions, and Intelligent Edge aaS activity.

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

During the third quarter of fiscal 2023, we paid a quarterly dividend of $0.12 per share to our shareholders.

On August 29, 2023, we declared a regular cash dividend of $0.12 per share on our common stock, payable on October 13, 2023, to our shareholders of record as of the close of business on September 14, 2023.

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

During the first quarter of fiscal 2024, we paid a quarterly dividend of $0.13 per share to our shareholders.

On February 29, 2024, we declared a regular cash dividend of $0.13 per share on our common stock, payable on or about April 12, 2024, to our shareholders of record as of the close of business on March 15, 2024.

As of January 31, 2024, we had a remaining authorization of approximately $1.0 billion for future share repurchases.

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

For the three months ended July 31, For the nine months ended July 31,

2023 2022 2023 2022

Dollars % of Revenue Dollars % of Revenue Dollars % of

Revenue Dollars % of

For the three months ended January 31,

Dollars % of Revenue Dollars % of Revenue

Dollars in millions

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Interest and other, net (88) (1.3) (26) (0.3)

Tax indemnification and related adjustments 45 0.6 (30) (0.4) 50 0.2 (47) (0.2)

Non-service net periodic benefit (cost) credit (3) — 34 0.5 (2) — 106 0.5

Earnings from equity interests 46 0.7 58 0.7

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Net earnings $ 387 5.7 % $ 501 6.4 %

Three and nine months ended July 31, 2023 compared with the three and nine months ended July 31, 2022

For the three months ended July 31, 2023, total net revenue of $7.0 billion represented an increase of $51 million, or 0.7% (increased 3.5% on a constant currency basis).

net revenue increased by $172 million, or 7.6% to $2.4 billion, and net revenue from outside of the U.S.

Three months ended January 31, 2024 compared with the three months ended January 31, 2023

For the three months ended January 31, 2024, total net revenue of $6.8 billion represented a decrease of $1.1 billion, or 13.5% (decreased 13.8% on a constant currency basis).

net revenue decreased by $591 million, or 20.5% to $2.3 billion, and net revenue from outside of the U.S.

decreased by $463 million, or 9.4%, to $4.5 billion.

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Financial Condition and Results of Operations (Continued)

For the nine months ended July 31, 2023, total net revenue of $21.8 billion represented an increase of $1,159 million, or 5.6% (increased 10.0% on a constant currency basis).

net revenue increased by $976 million, or 14.5% to $7.7 billion, and net revenue from outside of the U.S.

increased by $183 million, or 1.3%, to $14.1 billion.

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

For the three months ended July 31, 2023 For the nine months ended July 31, 2023

For the three months ended January 31, 2024

Percentage Points

Compute (5.8) (1.2)

HPC & AI 0.1 1.9

Storage (0.8) (0.1)

Server (12.6)

Hybrid Cloud (1.7)

Intelligent Edge 0.4

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Total HPE (13.5)

Three months ended July 31, 2023 compared with three months ended July 31, 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 $403 million, or 13.3%, primarily due to a decline in server unit volume

• HPC & AI net revenue increase of $6 million, or 0.7%, primarily due to increased AUPs

• Storage net revenue decrease of $55 million, or 4.9%, primarily due to unfavorable currency fluctuations and decreased AUPs

• Intelligent Edge net revenue increase of $474 million, or 50.4%, primarily due to increased AUPs, volume and product mix effect

• Financial Services net revenue increase of $56 million, or 6.9%, 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 increase of $18 million, or 6.0%, primarily due to orders strength and the recent acquisition of OpsRamp

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

Three months ended January 31, 2024 compared with three months ended January 31, 2023

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

• Compute net revenue decrease of $241 million, or 2.7%, primarily due to a decline in server unit volume and unfavorable currency fluctuations

• HPC & AI net revenue increase of $402 million, or 17.3%, primarily due to higher customer acceptances

• Storage net revenue decrease of $25 million, or 0.8%, primarily due to unfavorable currency fluctuations

• Intelligent Edge net revenue increase of $1,137 million, or 42.0%, primarily due to increased AUPs, volume and product mix effect

• Financial Services net revenue increase of $122 million, or 4.9%, 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 $45 million, or 4.7%, primarily due to unfavorable currency fluctuations

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

• Server net revenue decreased $980 million, or 22.6%, primarily due to a decline in server unit volume and lower AUPs

• Hybrid Cloud net revenue decreased $136 million, or 9.8%, primarily due to lower AUPs

• Intelligent Edge net revenue increased $32 million, or 2.7%, primarily due to higher service revenue

• Financial Services net revenue was flat

• Corporate Investments and Other net revenue was relatively flat

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

For the three and nine months ended July 31, 2023, the total gross profit margin of 35.8% and 35.3%, respectively, represents an increase of 1.3 and 1.8 percentage points, respectively, as compared to the respective prior year periods.

The increase in both periods was due to the impact of higher-margin networking revenue, higher AUPs in Intelligent Edge and Compute, lower supply chain and commodity costs, and the impact of charges in prior periods from expected credit losses resulting from our exit from Russia and Belarus.

The increase in the total gross profit for the nine months ended July 31, 2023, was partially offset by lower gross profit from support services.

For the three months ended January 31, 2024, the total gross profit margin of 36.4% represents an increase of 2.4 percentage points as compared to the prior year period.

The increase was due to favorable revenue mix in the Intelligent Edge segment, higher revenue from support services, cost recoveries in connection with our exit from Russia and Belarus, and lower supply chain costs.

The increase was moderated by lower AUPs in the Server segment.

Operating expenses

Research and development ("R&D")

For the three months ended July 31, 2023, R&D expense increased by $69 million, or 13.6%, led by Intelligent Edge, HPC & AI and Storage.

The increase was primarily driven by higher employee costs due to an increase in software engineers to pursue our strategic goals, which contributed 15.7 percentage points to the change.

For the nine months ended July 31, 2023, R&D expense increased by $241 million, or 15.8%, 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 15.7 percentage points to the change.

For the three months ended January 31, 2024, R&D expense decreased by $41 million, or 6.6%.

The decrease was primarily due to lower employee costs which contributed 5.0 percentage points to the change.

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

For the three months ended July 31, 2023, SG&A expense increased by $73 million, or 5.9%, due primarily to increased employee costs and higher travel and marketing expenses, which contributed 3.7 and 1.9 percentage points, respectively, to the change.

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

For the nine months ended July 31, 2023, SG&A expense increased by $149 million, or 4.1%, due primarily to increased employee costs by 2.1 percentage points;

higher travel and marketing expenses by 1.6 percentage points;

factoring fees, charitable donations, other general expenses and higher software expenditures, all of which contributed 2.1 percentage points to the change.

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

For the three months ended January 31, 2024, SG&A expense decreased by $41 million, or 3.3%, primarily due to lower employee costs and lower consulting costs which contributed 2.4 and 1.7 percentage points, respectively, to the change.

The decrease was partially offset by higher marketing expenses.

Transformation programs and costs

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

For the three and nine months ended July 31, 2023, transformation costs decreased by $15 million, or 18.8%, and $62 million, or 21.5%, respectively, due to lower charges incurred in the current period as these plans approach completion through fiscal 2023.

For the three months ended January 31, 2024, transformation costs decreased by $82 million, or 80.4%, due to lower charges incurred in the current period as the primary elements of these plans have been substantially completed by the end of fiscal 2023.

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

Disaster charges

For the three and nine months ended July 31, 2023, disaster charges decreased by $29 million or 96.7% and $44 million or 89.8%, respectively, due to charges recorded in the prior year periods driven by the Company’s exit from its Russia and Belarus businesses.

Interest and other, net

For the three months ended July 31, 2023, interest and other, net expense decreased by $24 million, due primarily to the impact of the prior period containing losses from equity investments.

For the nine months ended July 31, 2023, interest and other, net expense increased by $50 million, due primarily to the impact of the prior period containing both gains from equity investments and the sale of certain assets.

This increase was moderated by favorable currency fluctuations and increased net interest income from higher interest rates in the current period.

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Financial Condition and Results of Operations (Continued)

Tax indemnification and related adjustments

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

We recorded tax indemnification income of $45 million and tax indemnification expense of $30 million for the three months ended July 31, 2023 and 2022, respectively and tax indemnification income of $50 million and tax indemnification expense of $47 million for the nine months ended July 31, 2023 and 2022, respectively.

For the three and nine months ended July 31, 2023, the amount primarily included the favorable settlement of tax indemnification liabilities and audit settlement.

For the three and nine months ended July 31, 2022, the amount primarily related to changes in tax liabilities for which we shared joint and several liability with HP Inc., for which we were indemnified by HP Inc.

Non-service net periodic benefit (cost) credit

For the three and nine months ended July 31, 2023, non-service net periodic benefit credit decreased by $37 million and $108 million, respectively, resulting in non-service net periodic benefit cost in the current periods as compared to non-service net periodic benefit credit in the prior-year period.

The decrease was due primarily to increased interest cost resulting from higher discount rates, partially offset by higher expected returns on assets and lower amortized actuarial losses in the current periods.

Acquisition, disposition and other related charges

For the three months ended January 31, 2024, acquisition, disposition and other related charges increased by $32 million or 290.9%, primarily due to costs incurred in relation to the pending acquisition of Juniper Networks, Inc.

(“Juniper Networks”).

Interest and other, net

For the three months ended January 31, 2024, interest and other, net expense increased by $62 million, primarily due to increase in loss on equity investments.

Earnings from equity interests

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

For the three months ended July 31, 2023, earnings from equity interests increased by $5 million due primarily to lower amortization expense from basis difference.

For the nine months ended July 31, 2023, earnings from equity interests increased by $48 million due primarily to lower amortization expense from basis difference and higher net income earned by H3C in the current period.

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

For the three months ended January 31, 2024, earnings from equity interests decreased by $12 million primarily due to lower net income earned by H3C partially offset by lower amortization expense from basis difference in the current period.

Provision for taxes

For the three months ended July 31, 2023 and 2022, we recorded income tax expense of $72 million and $55 million, respectively, which reflects an effective tax rate of 13.4% and 11.9%, respectively.

For the nine months ended July 31, 2023 and 2022, we recorded income tax expense of $298 million and $61 million, respectively, which reflect an effective tax rate of 17.7% and 5.0%, respectively.

For the three months ended January 31, 2024 and 2023, we recorded income tax expense of $96 million and $122 million, respectively, which reflects an effective tax rate of 19.9% and 19.6%, respectively.

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

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

As described in Note 1, "Overview and Summary of Significant Accounting Policies," effective as of the beginning of the first quarter of fiscal 2023, HPE implemented an organizational change to align its segment financial reporting more closely with its current business structure resulting in changes to the previously reported segment net revenue and earnings from operations of the Compute and Storage segments.

As described in Note 1, "Overview and Summary of Significant Accounting Policies," effective as of the beginning of the first quarter of fiscal 2024, in order to align the Company’s segment financial reporting more closely with its current business structure, the Company realigned its six reportable segments to five reportable segments.

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

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

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Segment Results

The following table and ensuing discussion provide an overview of our key financial metrics by segment for the three months ended July 31, 2023, as compared to the prior-year period:

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

Dollars in millions

Net revenue (1)

$ 7,002 $ 2,624 $ 836 $ 1,074 $ 1,415 $ 873 $ 318

Year-over-year change % 0.7 % (13.3) % 0.7 % (4.9) % 50.4 % 6.9 % 6.0 %

Earnings (loss) from operations (2)

$ 471 $ 285 $ (7) $ 115 $ 420 $ 73 $ (38)

Earnings (loss) from operations as a % of net revenue 6.7 % 10.9 % (0.8) % 10.7 % 29.7 % 8.4 % (11.9) %

Year-over-year change percentage points — pts (2.6) pts (4.2) pts (3.6) pts 13.2 pts (3.4) pts (1.6) pts

The following table and ensuing discussion provide an overview of our key financial metrics by segment for the nine months ended July 31, 2023, as compared to the prior-year period:

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

The following table and ensuing discussion provide an overview of our key financial metrics by segment for the three months ended January 31, 2024, as compared to the prior-year period:

HPE Consolidated Server

Intelligent Edge Financial Services Corporate Investments and Other

Dollars in millions

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Earnings (loss) from operations as a % of net revenue 7.8 % 11.4 % 3.8 % 29.4 % 8.5 % (4.2) %

Year-over-year change percentage points 1.9 pts 1.0 pts 0.5 pts (3.1) pts 11.0 pts (3.0) pts (8.5) pts

Year-over-year change percentage points 0.2 pts (4.3) pts (2.0) pts 10.0 pts 1.3 pts 5.2 pts

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

Segment net revenues include intersegment net revenue.

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

For the three months ended July 31, For the nine months ended July 31,

2023 2022 % Change 2023 2022 % Change

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

For the three months ended January 31,

2024 2023 % Change

Dollars in millions

2 unchanged sentences

Earnings from operations as a % of net revenue 11.4 % 15.7 %

Three months ended July 31, 2023 compared with three months ended July 31, 2022

Compute net revenue decreased by $403 million, or 13.3% (decreased 9.6% on a constant currency basis), primarily due to a $418 million, or 18.0%, decrease in product revenue.

The decline in product revenue was primarily due to lower server unit volume of $396 million, or 17.1%, and unfavorable currency fluctuations of $96 million.

The product revenue decline was moderated by an increase in AUPs of $74 million, or 3.2%, led by higher sales of server configurations with more complex component architectures in our next generation products.

Services net revenue increased by $15 million, or 2.1%, due to an increase in contract volume moderated by unfavorable currency fluctuations.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Compute earnings from operations as a percentage of net revenue decreased 2.6 percentage points due to an increase in costs of products and services and operating expenses as a percentage of net revenue.

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

The increase in operating expenses as a percentage of net revenue was primarily due to the scale of the net revenue decline relative to the decrease in total operating expenses driven by our cost containment measures.

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

Compute net revenue decreased by $241 million, or 2.7% (increased 2.3% on a constant currency basis), primarily due to a $248 million, or 3.6%, decrease in product revenue.

The decline in product revenue was primarily due to lower server unit volume of $841 million, or 12.1%, and unfavorable currency fluctuations of $353 million.

The product revenue decline was moderated by an increase in AUPs of $946 million, or 13.7%, 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 increased 1.0 percentage point primarily due to a decrease in costs of products and services as a percentage of net revenue.

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

For the three months ended July 31, For the nine months ended July 31,

2023 2022 % Change 2023 2022 % Change

Three months ended January 31, 2024 compared with three months ended January 31, 2023

Server net revenue decreased by $980 million, or 22.6% (decreased 22.7% on a constant currency basis), primarily due to a $961 million, or 27.8%, decrease in product revenue.

The decline in product revenue was primarily due to lower server unit volume of $739 million, or 21.3%, as customers absorbed prior orders and decrease in AUPs of $138 million, or 4.0% resulting from competitive pricing measures.

Services net revenue decreased by $19 million, or 2.2%, due to lower contract volume.

Server earnings from operations as a percentage of net revenue decreased 4.3 percentage points due to an increase in costs of products and services and operating expenses as a percentage of net revenue.

The increase in costs of products and services as a percentage of net revenue was primarily due to lower AUPs partially offset by favorable mix of higher-margin revenues and lower employee costs.

For the three months ended January 31,

2024 2023 % Change

Dollars in millions

Net revenue $ 1,248 $ 1,384 (9.8) %

(Loss)/earnings from operations $ (7) $ 28 (125.0) % $ (8) $ (19) 57.9 %

(Loss)/earnings from operations as a % of net revenue (0.8) % 3.4 % (0.3) % (0.8) %

Three months ended July 31, 2023 compared with three months ended July 31, 2022

HPC & AI net revenue increased by $6 million, or 0.7% (increased 3.0% on a constant currency basis), primarily due to a $24 million, or 4.1%, in crease in product revenue.

The product revenue increase was led by the HPE Cray XD (formerly known as HPE Apollo) product portfolio due to higher AUPs of $197 million, or 33.3%, moderated by a decrease in unit volume of $58 million, or 9.8%.

This revenue increase was partially offset by a decline in revenue in the HPE Cray Supercomputing product portfolio.

The product revenue was also impacted by unfavorable currency fluctuation of $17 million.

Services revenue declined by $18 million, or 7.6%, primarily due to unfavorable portfolio mix of service offerings.

HPC & AI earnings from operations as a percentage of net revenue decreased 4.2 percentage points due to increases in cost of products and services and operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was primarily due to unfavorable currency fluctuations, partially offset by lower supply chain costs.

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

HPC & AI net revenue increased by $402 million, or 17.3% (increased 20.5% on a constant currency basis), primarily due to a $444 million, or 27.3%, 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 customer acceptance milestones for revenue recognition.

HPE Cray Supercomputing experienced a deal volume increase of $822 million, or 50.5%, moderated by lower AUPs of $487 million, or 29.9%.

The product revenue increase was moderated by unfavorable currency fluctuations of $60 million.

Service revenue declined by $42 million, or 6.0%, primarily due to unfavorable currency fluctuations and an unfavorable portfolio mix of service offerings.

HPC & AI earnings from operations as a percentage of net revenue remained relatively flat, driven by 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.

Earnings from operations $ 47 $ 80 (41.3) %

Earnings from operations as a % of net revenue 3.8 % 5.8 %

Three months ended January 31, 2024 compared with three months ended January 31, 2023

Hybrid Cloud net revenue decreased by $136 million, or 9.8% (decreased 10.0% on a constant currency basis), primarily due to a decrease in AUPs, partially offset by an increase in unit volume.

Hybrid Cloud product revenue decreased by $173 million, or 20.1%, primarily due to a decrease in AUPs of $154 million, or 18%, led by storage products.

Hybrid Cloud services revenue increased by $37 million, or 7.0%, primarily due to a unit volume increase of $60 million, or 11.5%, led by private cloud and infrastructure software-as-a-service (“SaaS”).

This increase was partially offset by lower AUPs of $25 million, or 4.7%.

Hybrid Cloud earnings from operations as a percentage of net revenue decreased 2.0 percentage points primarily due to an increase in operating expenses as a percentage of net revenue moderated by a decrease in 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 net revenue decline and the related impact of fixed overhead costs.

The decrease in cost of products and services as a percentage of net revenue was primarily due to higher margin GreenLake Flex Solutions deals, upsides in storage subscription revenue, and upsides to revenue from infrastructure SaaS.

This was moderated by a decrease in AUPs for storage products.

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Financial Condition and Results of Operations (Continued)

For the three months ended July 31, For the nine months ended July 31,

2023 2022 % Change 2023 2022 % Change

Dollars in millions

Net revenue $ 1,074 $ 1,129 (4.9) % $ 3,304 $ 3,329 (0.8) %

Earnings from operations $ 115 $ 161 (28.6) % $ 339 $ 445 (23.8) %

Earnings from operations as a % of net revenue 10.7 % 14.3 % 10.3 % 13.4 %

Three months ended July 31, 2023 compared with three months ended July 31, 2022

Storage net revenue decreased by $55 million, or 4.9% (decreased 1.9% on a constant currency basis), primarily due to unfavorable currency fluctuations and a decrease in AUPs.

Storage product revenue decreased by $59 million, or 8.8%, primarily due to a decrease in AUPs of $33 million, or 4.9%, led by traditional storage products and unfavorable currency fluctuations of $27 million.

Sales volume remained relatively flat.

Storage services revenue increased by $4 million, or 0.9%, primarily due to an increase in AUPs of $10 million, or 2.1%, led by subscription services, partially offset by unfavorable currency fluctuations of $7 million.

Storage earnings from operations as a percentage of net revenue decreased 3.6 percentage points as cost of products and services as a percentage of net revenue remained relatively flat and operating expenses as a percentage of net revenue increased.

The cost of products and services as a percentage of net revenue remained relatively flat, as the impact of increased sales of higher-margin subscription services was moderated by unfavorable currency fluctuations.

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

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

Storage net revenue decreased by $25 million, or 0.8%, (increased 3.5% on a constant currency basis), primarily due to unfavorable currency fluctuations, partially offset by improvements in the supply environment.

The increase in Storage product revenue of $6 million, or 0.3%, was primarily due to an increase in AUPs of $82 million, or 4.3%, led by traditional storage, HPE Alletra Storage and Zerto products and a unit volume increase of $52 million, or 2.7%, led by big data and hyperconverged products.

Moderating factors to the product revenue increase were unfavorable currency fluctuations of $108 million and lower revenue from Russia of $20 million.

Storage services revenue declined by $31 million, or 2.2%, primarily due to lower AUPs of $49 million, or 3.4%, led by subscription services, unfavorable currency fluctuations of $35 million, and lower revenue from Russia of $16 million.

This decline was moderated by higher sales volume of $68 million, or 4.8%, led by higher subscription service as we continue our transition to more services-intensive, software-rich offerings.

Storage earnings from operations as a percentage of net revenue decreased 3.1 percentage points due to increases in cost of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The increase in cost of products and services as a percentage of net revenue was due primarily to unfavorable currency fluctuations, and lower revenue from Storage support services as we continue our transition to more software-rich products.

These impacts were partially offset by lower supply chain costs to expedite product delivery and favorable mix of higher margin products.

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

Intelligent Edge

For the three months ended July 31, For the nine months ended July 31,

2023 2022 % Change 2023 2022 % Change

For the three months ended January 31,

2024 2023 % Change

Dollars in millions

2 unchanged sentences

Earnings from operations as a % of net revenue 29.4 % 19.4 %

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Three months ended July 31, 2023 compared with three months ended July 31, 2022

Three months ended January 31, 2024 compared with three months ended January 31, 2023

Intelligent Edge net revenue increased by $32 million, or 2.7% (increased 2.3% on a constant currency basis).

Product revenue increased by $427 million, or 55.5%, led by higher AUPs of $359 million, or 46.7%, and a volume and product mix effect of $87 million, or 11.3%, moderated by unfavorable currency fluctuations of $19 million.

The product revenue increase was primarily led by Switching products, which benefited from improvements in the supply environment, and high order book levels at the beginning of the period.

Services net revenue increased $56 million, or 24.9%, primarily led by attached support service and our aaS offerings.

Intelligent Edge earnings from operations as a percentage of net revenue increased 13.2 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 and higher AUPs, moderated by 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.

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

Intelligent Edge net revenue increased by $1,137 million, or 42.0% (increased 46.5% on a constant currency basis).

Product revenue increased by $1,038 million, or 47.2%, led by higher AUPs of $933 million, or 42.4%, and a volume and product mix effect of $216 million, or 9.8%, moderated by unfavorable currency fluctuations of $111 million.

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

Services net revenue increased $99 million, or 19.4%, primarily led by our aaS offerings.

Product revenue decreased by $24 million, or 2.5%, led by lower volume and product mix effect of $132 million, or 14.0%, moderated by higher AUPs of $101 million, or 10.7% and favorable currency fluctuations of $7 million.

The product revenue decrease was primarily led by wireless local area network products due to softened demand, partially offset by an increase in switching products.

Intelligent Edge earnings from operations as a percentage of net revenue increased 10.0 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.

The decrease in cost of product and services as a percentage of net revenue was primarily due to favorable revenue mix and lower supply chain costs.

Operating expenses as a percentage of net revenue decreased primarily due to lower employee costs.

Financial Services

For the three months ended July 31, For the nine months ended July 31,

2023 2022 % Change 2023 2022 % Change

For the three months ended January 31,

2024 2023 % Change

Dollars in millions

2 unchanged sentences

Earnings from operations as a % of net revenue 8.5 % 7.2 %

Three months ended July 31, 2023 compared with three months ended July 31, 2022

FS net revenue increased by $56 million, or 6.9% (increased 7.0% 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 a rising interest rate environment.

FS earnings from operations as a percentage of net revenue decreased 3.4 percentage points due 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.

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

FS net revenue increased by $122 million, or 4.9% (increased 7.3% 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, along with higher asset management revenue from lease buyouts, partially offset by unfavorable currency fluctuations.

Three months ended January 31, 2024 compared with three months ended January 31, 2023

FS net revenue was flat (decreased 1.8% on a constant currency basis).

FS earnings from operations as a percentage of net revenue increased 1.3 percentage points largely due to a decrease in operating expenses as a percentage of net revenue while cost of services as a percentage of net revenue was relatively flat.

The decrease in operating expenses as a percentage of net revenue was due primarily to lower employee costs.

Financing Volume

For the three months ended January 31,

Financing volume $ 1,363 $ 1,600

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, decreased by 14.8% for the three months ended January 31, 2024, as compared to the prior-year period, primarily due to lower financing of third-party product and HPE product sales and services, partially offset by favorable currency fluctuations.

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Financial Condition and Results of Operations (Continued)

FS earnings from operations as a percentage of net revenue decreased 3.0 percentage points due 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

For the three months ended July 31, For the nine months ended July 31,

2023 2022 2023 2022

Financing volume $ 1,655 $ 1,559 $ 4,923 $ 4,420

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, increased by 6.2% and 11.4% for the three and nine months ended July 31, 2023, respectively, as compared to the corresponding prior-year periods, due primarily to 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

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

July 31, 2023 October 31, 2022

January 31, 2024 October 31, 2023

Dollars in millions

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

Debt benefiting FS totaled $11.9 billion and $11.5 billion as of July 31, 2023 and October 31, 2022, respectively, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies.

FS equity as of July 31, 2023 and October 31, 2022 was $1.7 billion and $1.6 billion, respectively.

As of July 31, 2023 and October 31, 2022, FS net cash and cash equivalents balances were approximately $0.7 billion and $0.9 billion, respectively.

Net portfolio assets as of July 31, 2023 increased 7.8% from October 31, 2022.

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

Debt benefiting FS totaled $11.7 billion and $11.6 billion as of January 31, 2024 and October 31, 2023, respectively, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies.

FS equity as of both January 31, 2024 and October 31, 2023 was $1.7 billion.

As of January 31, 2024 and October 31, 2023, FS net cash and cash equivalents balances were approximately $772 million and $700 million, respectively.

Net portfolio assets as of January 31, 2024 increased 1.2% from October 31, 2023.

The increase generally resulted from 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.

For the three and nine months ended July 31, 2023, FS recorded net bad debt expense of $16 million and $46 million, respectively.

For the three and nine months ended July 31, 2022, Financial Services recorded net bad debt expense of $17 million and $62 million, respectively.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

As of July 31, 2023, FS experienced an increase in billed finance receivables compared to October 31, 2022, which included a limited impact to collections from customers in Russia.

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

For the three months ended January 31, 2024 and 2023, FS recorded net bad debt expense of $12 million and $19 million, respectively.

Corporate Investments and Other

For the three months ended July 31, For the nine months ended July 31,

2023 2022 % Change 2023 2022 % Change

For the three months ended January 31,

2024 2023 % Change

Dollars in millions

2 unchanged sentences

Loss from operations as a % of net revenue (4.2) % (9.4) %

Three months ended July 31, 2023 compared with three months ended July 31, 2022

Corporate Investments and Other net revenue increased by $18 million, or 6.0% (increased 7.3% on a constant currency basis), due to Advisory and Professional Services orders strength and the recent acquisition of OpsRamp.

Corporate Investments and Other loss from operations as a percentage of net revenue increased by 1.6 percentage points primarily due to increases in cost of services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The increase in cost of services as a percentage of net revenue was primarily due to higher services delivery costs.

The increase in operating expenses as a percentage of net revenue was primarily due to the recent acquisition of OpsRamp.

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

Corporate Investments and Other net revenue decreased by $45 million, or 4.7% (decreased 0.6% 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 by 8.5 percentage points due primarily to increases in cost of services as a percentage of net revenue and operating expenses as a percentage of net revenue.

The increase in cost of services as a percentage of net revenue was primarily due to the scale of the net revenue decline driven by 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.

Three months ended January 31, 2024 compared with three months ended January 31, 2023

Corporate Investments and Other net revenue remained relatively flat.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased by 5.2 percentage points primarily due to decreases in cost of services as a percentage of net revenue resulting from our cost containment measures while cost of operating expenses as a percentage of net revenue remained relatively flat.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

As of July 31, 2023, there have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

As of January 31, 2024, there have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

LIQUIDITY AND CAPITAL RESOURCES

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

We believe that internally generated cash flows will be generally sufficient to support our operating businesses, capital expenditures, product development initiatives, acquisitions, and disposal activities including legal settlements, restructuring activities, transformation costs, indemnifications, maturing debt, interest payments, and income tax payments, in addition to any future investments, share repurchases, and shareholder dividend payments.

We believe that internally generated cash flows will be generally sufficient to support our operating businesses, capital expenditures, product development initiatives, and disposal activities including legal settlements, restructuring activities, transformation costs, indemnifications, maturing debt, interest payments, and income tax payments, in addition to any future investments, share repurchases, and shareholder dividend payments.

We expect to supplement this short-term liquidity, if necessary, by accessing the capital markets, issuing commercial paper, and borrowing under credit facilities made available by various domestic and foreign financial institutions.

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

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

We anticipate that the funds made available, including committed debt funding related to the pending merger with Juniper Networks, 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.

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

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

as of July 31, 2023.

as of January 31, 2024.

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.

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

In connection with the share repurchase program previously authorized by our Board of Directors, we repurchased and settled an aggregate amount of $366 million during the first nine months of fiscal 2023.

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

In connection with the share repurchase program previously authorized by our Board of Directors, during the first three months of fiscal 2024, we settled an aggregate amount of $3 million in relation to shares that were unsettled open market repurchases as of October 31, 2023.

We did not repurchase or settle any additional shares during the three months ended January 31, 2024.

As of January 31, 2024, we had a remaining authorization of approximately $1.0 billion for future share repurchases.

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

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.

On January 9, 2024, we entered into a definitive merger agreement under which HPE will acquire Juniper Networks in an all-cash transaction for $40.00 per share, representing an equity value of approximately $14 billion.

The transaction was unanimously approved by the boards of directors of both companies.

The transaction is expected to be funded based on financing commitments for $14 billion in term loans.

Such financing will ultimately be replaced, in part, with a combination of

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Financial Condition and Results of Operations (Continued)

new debt, mandatory convertible preferred securities, and cash on the balance sheet.

The closing of the transaction remains subject to receipt of regulatory approvals, approval of the transaction by Juniper Networks shareholders, and satisfaction of other customary closing conditions.

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

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

July 31, 2023 October 31, 2022

January 31, 2024 October 31, 2023

Cash, cash equivalents and restricted cash $ 3,972 $ 4,581

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Uncommitted lines of credit (3)

(1) Excludes the financing commitment for the Juniper Networks acquisition.

The maximum aggregate commitment under this facility is $14.0 billion, however, no balances were outstanding under this facility as of January 31, 2024.

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

(3) The maximum aggregate capacity under the uncommitted lines of credit is $1.98 billion of which $0.4 billion was primarily utilized towards issuances of bank guarantees.

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

For the nine months ended July 31,

Net cash provided by operating activities $ 1,585 $ 1,557

For the three months ended January 31,

Net cash provided by (used in) operating activities $ 64 $ (829)

Net cash used in investing activities (740) (1,237)

Net cash used in financing activities (168) (216)

Net cash provided by financing activities 53 9

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 14 138

Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,631) $ 117

Net decrease in cash, cash equivalents and restricted cash $ (609) $ (1,919)

Free cash flow $ (482) $ (1,326)

Operating Activities

For the nine months ended July 31, 2023, net cash provided by operating activities increased by $28 million, as compared to the corresponding period in fiscal 2022.

The increase was primarily due to unfavorable hedging positions, the prior-year period containing higher cash payouts for variable compensation, favorable impacts from other assets and liabilities, and higher cash generated from earnings, moderated by unfavorable working capital primarily resulting from higher vendor payments and an increase in financing receivables.

For the three months ended January 31, 2024, net cash provided by operating activities increased by $893 million, as compared to the corresponding period in fiscal 2023.

The increase was primarily due to favorable working capital and favorable impacts from financing receivables.

The increase was moderated by favorable hedging positions, as compared to the prior-year period.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

July 31, 2023 October 31, 2022 Change July 31, 2022 October 31, 2021 Change Y/Y Change

January 31, 2024 October 31, 2023 Change January 31, 2023 October 31, 2022 Change Y/Y Change

Days of sales outstanding in accounts receivable ("DSO") 50 43 7 48 47 1 2

4 unchanged sentences

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 the revenue recognition and inventory purchases within the period, the impact of commodity costs, and acquisition activity.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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 corresponding three-month period in fiscal 2022, the DSO remained flat.

Compared to the corresponding three-month period in fiscal 2023, the increase in DSO in the current period was primarily due to unfavorable billings linearity and lower early collections.

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

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

Compared to the corresponding three-month period in fiscal 2022, the decrease in DOS in the current period was primarily due to lower levels of inventory resulting from a reduction in our order book positions and a lower replenishment of materials.

Compared to the corresponding three-month period in fiscal 2023, the increase in DOS in the current period was primarily due to higher inventory levels caused by strategic purchases of key components and higher ending inventory pending customer acceptances.

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

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

Compared to the corresponding three-month period in fiscal 2022, the decrease in DPO in the current period was primarily due to lower inventory purchases during the current period.

Compared to the corresponding three-month period in fiscal 2023, the increase in DPO in the current period was primarily due to higher inventory purchases, and lower vendor payments during the current period.

Investing Activities

For the nine months ended July 31, 2023, net cash used in investing activities increased by $2.0 billion, as compared to the corresponding period in fiscal 2022.

The increase was primarily due to higher cash utilized in net financial collateral activities of $1.0 billion, payments made in connection with business acquisitions of $0.8 billion, and lower proceeds from maturities and sales of investments, net of purchases of $0.2 billion, as compared to the prior-year period.

For the three months ended January 31, 2024, net cash used in investing activities decreased by $497 million, as compared to the corresponding period in fiscal 2023.

The decrease was primarily due to lower cash utilized in net financial collateral activities of $406 million, as compared to the prior-year period.

Financing Activities

For the nine months ended July 31, 2023, net cash used in financing activities decreased by $48 million, as compared to the corresponding period in fiscal 2022.

This 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 $1.3 billion, as compared to the prior-year period.

For the three months ended January 31, 2024, net cash provided by financing activities increased by $44 million, as compared to the corresponding period in fiscal 2023.

This was primarily due to lower repayments of debt of $146 million, lower share repurchases of $70 million, offset by lower proceeds from debt, net of issuance costs and short-term borrowings of $164 million, as compared to the prior-year period.

Free Cash Flow

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.

For the nine months ended July 31, 2023, FCF increased by $118 million, as compared to the corresponding period in fiscal 2022.

The increase was due to a favorable currency impact on cash, cash equivalents, and restricted cash, as compared to the prior-year period.

For the three months ended January 31, 2024, FCF increased by $0.8 billion, as compared to the corresponding period in fiscal 2023.

This was primarily due to higher cash provided by 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 of operating assets and liabilities to our cash flows, see Note 6, "Balance Sheet Details" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Capital Resources

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

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

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

Significant funding and liquidity activities for the nine months ended July 31, 2023 were as follows:

Debt Issuances:

• In March 2023 and June 2023, we issued $1.3 billion and $250 million, respectively, of 5.9% Senior Notes due October 1, 2024

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Financial Condition and Results of Operations (Continued)

• 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 5.593% and final maturity date of April 2028

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

Debt Repayments:

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

• During the nine months ended July 31, 2023, we repaid $1.3 billion of the outstanding asset-backed debt securities.

As of July 31, 2023 and October 31, 2022, no borrowings were outstanding under our $4.75 billion revolving credit facility.

For the nine months ended July 31, 2023, we drew and repaid $0.4 billion under the revolving credit facility.

As of July 31, 2023 and October 31, 2022, no borrowings were outstanding under the Parent Programs.

As of July 31, 2023 and October 31, 2022, $651 million and $542 million, respectively, were outstanding under our subsidiary’s program.

For the nine months ended July 31, 2023, we issued $6.0 billion and repaid $5.9 billion of commercial paper.

For further information on our capital resources, see Note 12, "Borrowings" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Capital Resources

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

There have been no changes to our commercial paper programs and revolving credit facility since October 31, 2023.

In December 2023, 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.

Significant funding and liquidity activities for the three months ended January 31, 2024 were as follows:

Debt Issuances

In January 2024, we issued $796 million of asset-backed debt securities in six tranches with a weighted average interest rate of 5.476% and final maturity date of November 2031.

Cash Requirements and Commitments

Contractual Obligations

Other than the previously mentioned issuance and repayment of unsecured senior notes and issuance and redemption of asset-backed debt securities, our contractual obligations have not changed materially outside of the normal course of business since October 31, 2022.

Other than the previously mentioned issuance of asset-backed debt securities, our contractual obligations have not changed materially outside of the normal course of business since October 31, 2023.

For further information see "Cash Requirements and Commitments" in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

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Restructuring Plans

As of July 31, 2023, we expect to make future cash payments of approximately $310 million in connection with our approved restructuring plans, which includes $170 million expected to be paid through the remainder of fiscal 2023 and $140 million expected to be paid thereafter.

As of January 31, 2024, we expect to make future cash payments of approximately $260 million in connection with our approved restructuring plans, which includes $150 million expected to be paid through the remainder of fiscal 2024 and $110 million expected to be paid thereafter.

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

Uncertain Tax Positions

As of July 31, 2023, we had approximately $292 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

As of January 31, 2024, we had approximately $243 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

These liabilities and related interest and penalties include $2 million expected to be paid within one year.

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

For the three months ended July 31, For the nine months ended July 31,

2023 2022 2023 2022

Revenue Dollars % of

For the three months ended January 31,

Revenue Dollars % of

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Non-GAAP adjustments

Amortization of initial direct costs — — % 1 — % — — % 3 — %

Stock-based compensation expense 16 0.2 % 16 0.2 %

Disaster (recovery) charges

(25) (0.4) % — — %

Non-GAAP gross profit $ 2,448 36.2 % $ 2,674 34.2 %

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

For the three months ended July 31, For the nine months ended July 31,

2023 2022 2023 2022

Revenue Dollars % of

For the three months ended January 31,

Revenue Dollars % of

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Non-GAAP Adjustments:

Amortization of initial direct costs — — % 1 — % — — % 3 — %

Amortization of intangible assets 71 1.1 % 73 0.9 %

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Disaster (recovery) charges

(25) (0.4) % 1 — %

Stock-based compensation expense 141 2.1 % 140 1.8 %

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

For the three months ended July 31, For the nine months ended July 31,

2023 2022 2023 2022

Dollars Diluted Net Earnings per Share Dollars Diluted Net Earnings per Share Dollars Diluted Net Earnings per Share Dollars Diluted Net Earnings per Share

For the three months ended January 31,

Dollars Diluted Net Earnings per Share Dollars Diluted Net Earnings per Share

Dollars in millions

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Non-GAAP Adjustments:

Amortization of initial direct costs — — 1 — — — 3 —

Amortization of intangible assets 71 0.05 73 0.06

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Disaster (recovery) charges

(25) (0.02) 1 —

Stock-based compensation expense 141 0.11 140 0.11

Acquisition, disposition and other related charges 43 0.03 11 0.01

Tax indemnification and related adjustments (45) (0.03) 30 0.02 (50) (0.04) 47 0.04

Non-service net periodic benefit cost (credit) 3 — (34) (0.03) 2 — (106) (0.08)

Earnings from equity interests (1)

(46) (0.03) 12 0.01

Loss on equity investments, net

Other adjustments (2)

Adjustments for taxes (16) (0.02) (13) (0.01)

Non-GAAP net earnings $ 638 $ 0.48 $ 828 $ 0.63

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

For the nine months ended July 31, 2023, the Company's portion of intangible asset impairment charges from H3C of $8 million are also included.

(1) For the three months ended January 31, 2024, includes the equity in earnings from H3C equity method investment and both periods include the amortization of the basis difference in our investment.

(2) Other adjustments includes non-service net periodic benefit cost and tax indemnification and other adjustments.

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

For the three months ended July 31, For the nine months ended July 31,

2023 2022 2023 2022

Net cash provided by operating activities $ 1,525 $ 1,254 $ 1,585 $ 1,557

For the three months ended January 31,

Net cash provided by (used in) operating activities $ 64 $ (829)

Investment in property, plant and equipment (656) (794)

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Free cash flow

$ (482) $ (1,326)

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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.

Non-GAAP gross profit and non-GAAP gross profit margin are defined to exclude charges related to the stock-based compensation expense, and disaster (recovery) 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.

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• 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

Disaster 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.

We exclude Disaster (recovery) charges 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, 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:

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Financial Condition and Results of Operations (Continued)

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

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.

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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 HPE Next Plan is substantially complete and we expect the Cost Optimization and Prioritization Plan to be substantially complete by October 31, 2023.

The HPE Next Plan and Cost Optimization and Prioritization Plan are substantially complete.

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.

Further as our transformation costs for these plans have materially fluctuated since 2017, have been materially declining since 2021 and we do not expect these costs to be material.

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.

For the first quarter of 2024, these charges were driven by costs associated with the pending acquisition of Juniper Networks, in addition to prior acquisitions of Axis and Athonet.

For the first quarter of 2023, these charges were driven by acquisitions of Zerto and Determined AI.

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

We consider these acquisitions and divestitures to be discrete events.

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 related adjustments, non-service net periodic benefit cost (credit), earnings from equity interests, and adjustments for taxes.

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 earnings from equity interests, gain or loss on equity investments, other adjustments, 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 related 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.

• 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.

• For the first fiscal quarter of 2024 and prospectively, the adjustment to earnings from equity interests includes the equity in earnings from the H3C investment.

In connection with the planned divestiture of the H3C investment, we stopped reporting H3C earnings in our non-GAAP results as we no longer receive dividends from this investment due to the Put Share Purchase Agreement described in Note 16 “Equity Method Investments” to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Both periods presented include the amortization of the basis difference in our investment.

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

We believe that eliminating these amounts for purposes of calculating non-GAAP financial measures facilitates the evaluation of our current operating performance.

• We exclude gains and losses (including impairments) on our non-marketable equity investments because we do not believe they are reflective of normal continuing business operations.

These adjustments are reflected in Interest and other, net in the Condensed Consolidated Statements of Earnings.

We believe eliminating these adjustments for the purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance.

• 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

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Financial Condition and Results of Operations (Continued)

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.

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.

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 2024, we will use a projected non-GAAP income tax rate of 15%, which reflects currently available information as well as other factors and assumptions.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis