What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-06-05 compared with 2024-03-05 · 278 added, 175 removed, 454 unchanged (50% 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 months ended January 31, 2024 to the comparable prior-year period and where appropriate, as of January 31, 2024, unless otherwise noted.

The financial discussion and analysis in the following MD&A compares the three and six months ended April 30, 2024 to the comparable prior-year period and where appropriate, as of April 30, 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), 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.

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, persistent inflation, foreign exchange pressures, recent tax developments, and pending merger with Juniper Networks, Inc.

• Executive Overview.

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TRENDS AND UNCERTAINTIES

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.

During the first six months of fiscal 2024, the effects of the evolving macroeconomic environment on demand persisted and certain significant developments impacted the environment in which we operate.

Such developments, and their impact on our operations, were as follows:

Technological Advancements:

We have observed market trends and demand (of customers of various segments and sizes) gravitating towards AI, hybrid cloud, edge computing, data security capabilities, and related offerings.

The volume of data at the edge continues to grow, driven by the proliferation of more devices.

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.

Macroeconomic Uncertainty:

The effect of the evolving macroeconomic environment continued to impact industry-wide demand, as customers take longer to work through prior orders and have been adopting a more conservative approach to discretionary IT spending.

This has resulted in demand softening unevenly across our portfolio and geographies, particularly for certain of our hardware offerings, 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.

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

Supply Chain:

We have seen supply chain constraints for certain components, including graphics processing units, ease (though challenges still remain).

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.

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

We have experienced, and expect to continue experiencing, rising input component costs, principally driven by inflation.

While we have been able to pass on such increased costs to customers, the pricing environment has been, and we believe will continue to remain, competitive, which may impact our financial results.

We plan to mitigate the impact of these dynamics through continued disciplined cost management.

Furthermore, during fiscal 2024, we have been experiencing higher-than-normal inventory levels, primarily due to longer cycle times for us to deliver (and/or for customers to accept) certain AI-related orders;

we expect this trend to continue.

Recurring Revenue and Consumption Models:

We continue to strengthen our core server 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.

We expect that such flexible consumption model will continue to strengthen our customer relationships and contribute to growth in recurring revenue.

Foreign Currency Exposure :

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.

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.

We utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time, and we adjust pricing when possible to further minimize foreign currency impacts.

Recent Tax Developments:

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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.

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

We monitor and seek to mitigate these risks with adjustments to our manufacturing, supply chain, and distribution networks.

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Financial Condition and Results of Operations (Continued)

Pending Merger with Juniper Networks, Inc:

On January 9, 2024 , we entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) under which we will acquire Juniper Networks, Inc.

(“Juniper Networks”) in an all-cash transaction for $40.00 per share (the “Merger”), representing an equity value of approximately $14 billion.

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

On April 2, 2024, Juniper Networks shareholders approved the transaction.

The closing of the transaction remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.

For further information about the Merger, refer to Note 8, “ Acquisitions ” in Item 1 of Part I of this Quarterly Report, and for further discussion about the risks related to the Merger, see the section titled “Risk Factors” in Item 1A of Part II of the Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2024.

The foregoing summary of the Merger, the adoption of the Merger Agreement, and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which is filed as Exhibit 2.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 10, 2024.

EXECUTIVE OVERVIEW

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The following table summarizes our condensed consolidated GAAP financial results:

For the three months ended January 31,

2024 2023 Change

For the three months ended April 30, For the six months ended April 30,

2024 2023 Change 2024 2023 Change

Dollars in millions, except per share amounts

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Gross profit $ 2,376 $ 2,512 (5.4)% $ 4,833 $ 5,170 (6.5)%

Gross profit margin 36.4 % 34.0 % 2.4pts

Gross profit margin 33.0 % 36.0 % (3.0)pts 34.6 % 35.0 % (0.4)pts

Earnings from operations $ 425 $ 520 (18.3)% $ 950 $ 1,111 (14.5)%

Operating profit margin 7.8 % 7.6 % 0.2pts

Operating profit margin 5.9 % 7.5 % (1.6)pts 6.8 % 7.5 % (0.7)pts

Net earnings $ 314 $ 418 (24.9)% $ 701 $ 919 (23.7)%

Diluted net earnings per share $ 0.24 $ 0.32 $(0.08) $ 0.53 $ 0.70 $(0.17)

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.

Cash flow provided by operations $ 1,093 $ 889 $204 $ 1,157 $ 60 $1,097

Three months ended April 30, 2024 compared with three months ended April 30, 2023

Net revenue of $7.2 billion represented an increase of 3.3% (increased 3.5% on a constant currency basis) primarily due to higher average unit prices (“AUPs”) in the Server segment, moderated by lower volume and product mix effect in the Intelligent Edge segment.

The gross profit margin of 33.0% (or $2.4 billion), represents a decrease of 3.0 percentage points from the prior-year period primarily due to higher mix of lower margin products and services revenue in the Intelligent Edge and Server segments, partially offset by cost recoveries in connection with our exit from Russia and Belarus.

The operating profit margin of 5.9% represents a decrease of 1.6 percentage points from the prior-year period primarily due to the aforementioned gross margin decline moderated by lower operating expenses.

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Financial Condition and Results of Operations (Continued)

Six months ended April 30, 2024 compared with six months ended April 30, 2023

Net revenue of $14.0 billion represented a decrease of 5.6% (decreased 5.7% on a constant currency basis) primarily due to lower unit volume in the Server segment, lower AUPs in the Hybrid Cloud segment, and lower volume and product mix effect in the Intelligent Edge segment.

This decrease was moderated by increase in AUPs in the Server segment.

The gross profit margin of 34.6% (or $4.8 billion) represents a decrease of 0.4 percentage points from the prior-year period which was relatively flat.

The operating profit margin of 6.8% represents a decrease of 0.7 percentage points from the prior-year period primarily due to lower gross profit moderated by lower operating expenses.

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

For the three months ended January 31,

2024 2023 Change

For the three months ended April 30, For the six months ended April 30,

2024 2023 Change 2024 2023 Change

Dollars in millions, except per share amounts

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Non-GAAP gross profit $ 2,383 $ 2,525 (5.6)% $ 4,831 $ 5,199 (7.1)%

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

Non-GAAP gross profit margin 33.1 % 36.2 % (3.1)pts 34.6 % 35.2 % (0.6)pts

Non-GAAP earnings from operations $ 684 $ 799 (14.4)% $ 1,459 $ 1,717 (15.0)%

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

Non-GAAP operating profit margin 9.5 % 11.5 % (2.0)pts 10.5 % 11.6 % (1.1)pts

Non-GAAP net earnings $ 561 $ 685 (18.1)% $ 1,199 $ 1,513 (20.8)%

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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 January 31, 2024 and 2023:

As of January 31,

The following presents our ARR calculated as of April 30, 2024 and 2023:

As of April 30,

Dollars in millions

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The 37% 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 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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Financial Condition and Results of Operations (Continued)

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

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

On June 4, 2024, we declared a regular cash dividend of $0.13 per share on our common stock, payable on or about July 18, 2024, to our shareholders of record as of the close of business on June 19, 2024.

As of April 30, 2024, we had a remaining authorization of approximately $0.9 billion for future share repurchases.

RESULTS OF OPERATIONS

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

For the three months ended January 31,

Dollars % of Revenue Dollars % of Revenue

For the three months ended April 30, For the six months ended April 30,

2024 2023 2024 2023

Dollars % of Revenue Dollars % of Revenue Dollars % of

Revenue Dollars % of

Dollars in millions

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Net earnings $ 314 4.4 % $ 418 6.0 % $ 701 5.0 % $ 919 6.2 %

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)

Three and six months ended April 30, 2024 compared with the three and six months ended April 30, 2023

For the three months ended April 30, 2024, total net revenue of $7.2 billion represented an increase of $231 million, or 3.3% (increased 3.5% on a constant currency basis).

net revenue increased by $189 million, or 7.9%, to $2.6 billion, and net revenue from outside of the U.S.

increased by $42 million, or 0.9%, to $4.6 billion.

For the six months ended April 30, 2024, total net revenue of $14.0 billion represented a decrease of $823 million, or 5.6% (decreased 5.7% on a constant currency basis).

net revenue decreased by $402 million, or 7.6%, to $4.9 billion, and net revenue from outside of the U.S.

decreased by $421 million, or 4.4%, to $9.1 billion.

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

For the three months ended January 31, 2024

For the three months ended April 30, 2024 For the six months ended April 30, 2024

Percentage Points

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Total HPE 3.3 (5.6)

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

Three months ended April 30, 2024 compared with three months ended April 30, 2023

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

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

• Server net revenue increased $580 million, or 17.6%, primarily due to higher AUPs

• Hybrid Cloud net revenue decreased $115 million, or 8.4%, 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

• Intelligent Edge net revenue decreased $258 million, or 19.2%, primarily due to lower volume and product mix effect

• Financial Services net revenue increased $9 million, or 1.0%, primarily due to higher finance income

• Corporate Investments and Other net revenue increased $10 million, or 4.1%, primarily due to revenue growth from Advisory and Professional Services (“A&PS”)

Six months ended April 30, 2024 compared with six months ended April 30, 2023

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

• Server net revenue decreased $400 million, or 5.3%, primarily due to lower unit volume

• Hybrid Cloud net revenue decreased $251 million, or 9.1%, primarily due to lower AUPs

• Intelligent Edge net revenue decreased $226 million, or 9.0%, primarily due to lower volume and product mix effect

• Financial Services net revenue increased $9 million, or 0.5%, primarily due to higher finance income

• Corporate Investments and Other net revenue increased $14 million, or 2.9%, primarily due to revenue growth from A&PS

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

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.

For the three and six months ended April 30, 2024, the total gross profit margin of 33.0% and 34.6%, respectively, represents a decrease of 3.0 and 0.4 percentage points, respectively, as compared to the respective prior year periods.

The decrease for the three months ended April 30, 2024, was due to higher mix of lower margin products and services revenue in the Intelligent Edge and Server segments, partially offset by cost recoveries in connection with our exit from Russia and Belarus.

For the six months ended April 30, 2024, the change in gross profit margin was relatively flat.

Operating expenses

Research and development ("R&D")

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.

For the three months ended April 30, 2024, R&D expense increased by $20 million, or 3.5%.

The increase was primarily due to higher employee costs driven by higher planned investments in R&D, which contributed 3.8 percentage points to the change.

For the six months ended April 30, 2024, R&D expense decreased by $21 million, or 1.8%.

The decrease was primarily due to lower costs as a result of higher grants for R&D received in the current period by 1.1 percentage points and lower employee costs, partially offset by higher planned investments in R&D, which contributed 0.8 percentage points to the change.

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

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.

For the three months ended April 30, 2024, SG&A expense decreased by $54 million, or 4.3%, primarily due to lower employee costs, and lower travel and marketing expenses, which contributed 2.1 and 1.3 percentage points, respectively, to the change.

For the six months ended April 30, 2024, SG&A expense decreased by $95 million, or 3.8%, primarily due to lower employee costs by 2.3 percentage points, lower consulting costs and lower marketing expenses, both of which contributed 0.7 percentage points to the change.

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 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 the three and six months ended April 30, 2024, transformation costs decreased by $27 million, or 45.0%, and $109 million, or 67.3%, respectively, 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.

Acquisition, disposition and other related charges

For the three and six months ended April 30, 2024, acquisition, disposition and other related charges increased by $27 million or 142.1%, and $59 million, or 196.7%, respectively, primarily due to costs incurred in relation to the pending acquisition of Juniper Networks.

Interest and other, net

For the three months ended April 30, 2024, interest and other, net expense decreased by $25 million, primarily due to a gain from the sale of certain investments.

For the six months ended April 30, 2024, interest and other, net expense increased by $37 million, primarily due to increase in loss on equity investments and unfavorable currency fluctuations.

The increase was partially offset by a decrease in net interest expense and gain from the sale of certain investments.

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Financial Condition and Results of Operations (Continued)

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 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.

For the three and six months ended April 30, 2024, earnings from equity interests decreased by $7 million and $19 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 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.

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

For the three months ended April 30, 2024 and 2023, we recorded income tax expense of $131 million and $104 million, respectively, which reflects an effective tax rate of 29.4% and 19.9%, respectively.

For the six months ended April 30, 2024 and 2023, we recorded income tax expense of $227 million and $226 million, respectively, which reflect an effective tax rate of 24.5% and 19.7%, respectively.

For the three and six months ended April 30, 2024, our effective tax rate differed from the U.S.

federal statutory rate of 21% due to our geographic mix of forecasted earnings and net unfavorable permanent differences from U.S.

income tax on non-U.S.

For the three and six months ended April 30, 2023, our effective tax rate differed from the U.S.

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

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

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Segment Results

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

The following table and ensuing discussion provide an overview of our key financial metrics by segment for the three months ended April 30, 2024, as compared to the prior-year period:

HPE Consolidated Server

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Financial Condition and Results of Operations (Continued)

The following table and ensuing discussion provide an overview of our key financial metrics by segment for the six months ended April 30, 2024, as compared to the prior-year period:

HPE Consolidated Server Hybrid Cloud

Intelligent Edge Financial Services Corporate Investments and Other

Dollars in millions

Net revenue (1)

$ 13,959 $ 7,219 $ 2,504 $ 2,287 $ 1,740 $ 490

Year-over-year change % (5.6) % (5.3) % (9.1) % (9.0) % 0.5 % 2.9 %

Earnings (loss) from operations (2)

$ 950 $ 809 $ 57 $ 590 $ 155 $ (19)

Earnings (loss) from operations as a % of net revenue 6.8 % 11.2 % 2.3 % 25.8 % 8.9 % (3.9) %

Year-over-year change percentage points (0.7) pts (3.9) pts (1.5) pts 3.6 pts 0.9 pts 4.7 pts

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

Segment net revenues include intersegment net revenue.

(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

(2) Segment earnings (loss) 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 April 30, For the six months ended April 30,

2024 2023 % Change 2024 2023 % Change

Dollars in millions

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Earnings from operations as a % of net revenue 11.0 % 14.4 % 11.2 % 15.1 %

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

Three months ended April 30, 2024 compared with three months ended April 30, 2023

Server net revenue increased by $580 million, or 17.6% (increased 17.9% on a constant currency basis), primarily due to a $586 million, or 24.3%, increase in product revenue.

The increase in product revenue was primarily due to higher net AUPs of $366 million, or 15.2%, and an increase in net unit volume of $218 million, or 9.0%.

Server earnings from operations as a percentage of net revenue decreased 3.4 percentage points due to an increase in costs of products and services as a percentage of net revenue, moderated by a decrease in 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 higher mix of lower margin products and services revenue, partially offset by lower supply chain costs.

The decrease in operating expenses as a percentage of net revenue was primarily due to lower total operating expenses as a result of cost containment measures.

Six months ended April 30, 2024 compared with six months ended April 30, 2023

Server net revenue decreased by $400 million, or 5.3% (decreased 5.2% on a constant currency basis), primarily due to a $375 million, or 6.4%, 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.

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 lower employee costs.

For the three months ended January 31,

2024 2023 % Change

The decrease in product revenue was primarily due to lower net unit volume of $595 million, or 10.1%, as customers absorbed prior orders.

This decrease was partially offset by higher net AUPs of $216 million, or 3.7%.

Server earnings from operations as a percentage of net revenue decreased 3.9 percentage points due to an increase in costs of products and services as a percentage of net revenue, moderated by a decrease in operating expenses as a percentage of net revenue.

The decrease in operating expenses as a percentage of net revenue was primarily due to lower total operating expenses as a result of cost containment measures .

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

For the three months ended April 30, For the six months ended April 30,

2024 2023 % Change 2024 2023 % Change

Dollars in millions

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Earnings from operations as a % of net revenue 0.8 % 1.9 % 2.3 % 3.8 %

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

Three months ended April 30, 2024 compared with three months ended April 30, 2023

Hybrid Cloud net revenue decreased by $115 million, or 8.4% (decreased 8.5% 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 product revenue decreased by $171 million, or 20.5%, primarily due to a decrease in AUPs of $267 million, or 32.0%, partially offset by a unit volume increase of $86 million or 10.4%, both of which were led by private cloud and storage products.

Hybrid Cloud services revenue increased by $56 million, or 10.4%, primarily due to a unit volume increase of $72 million, or 13.5%, led by private cloud and infrastructure software-as-a-service (“SaaS”).

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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.

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

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

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Six months ended April 30, 2024 compared with six months ended April 30, 2023

Hybrid Cloud net revenue decreased by $251 million, or 9.1%, (decreased 9.3% 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 $344 million, or 20.3%, primarily due to a decrease in AUPs of $421 million, or 24.9%, led by storage and private cloud products, partially offset by a unit volume increase of $66 million or 3.9%, led by storage products.

Hybrid Cloud services revenue increased by $93 million, or 8.7%, primarily due to a unit volume increase of $132 million, or 12.4%, led by private cloud and infrastructure software-as-a-service (“SaaS”).

This increase was partially offset by lower AUPs of $43 million, or 4.0%.

Hybrid Cloud earnings from operations as a percentage of net revenue decreased 1.5 percentage points 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.

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

Intelligent Edge

For the three months ended January 31,

2024 2023 % Change

For the three months ended April 30, For the six months ended April 30,

2024 2023 % Change 2024 2023 % Change

Dollars in millions

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Earnings from operations as a % of net revenue 21.8 % 24.7 % 25.8 % 22.2 %

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).

Three months ended April 30, 2024 compared with three months ended April 30, 2023

Intelligent Edge net revenue decreased by $258 million, or 19.2% (decreased 19.1% on a constant currency basis).

Product revenue decreased by $309 million, or 28.0%, led by lower volume and product mix effect of $259 million, or 23.5%, and lower AUPs of $51 million, or 4.6%.

The product revenue decrease was primarily led by switching products and wireless local area network products due to softened demand.

Services net revenue increased $51 million, or 21.3%, primarily led by attached support service and our aaS offerings.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Intelligent Edge earnings from operations as a percentage of net revenue decreased 2.9 percentage points primarily due to an increase in operating expenses as a percentage of net revenue, partially offset by a decrease in cost of products and services as a percentage of net revenue.

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

Operating expenses as a percentage of net revenue increased primarily due to higher employee costs related to acquisitions.

Six months ended April 30, 2024 compared with six months ended April 30, 2023

Intelligent Edge net revenue decreased by $226 million, or 9.0% (decreased 9.2% on a constant currency basis).

Product revenue decreased by $333 million, or 16.3%, led by lower volume and product mix effect of $391 million, or 19.1%, moderated by higher AUPs of $50 million, or 2.4%, and favorable currency fluctuations of $8 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 product revenue decrease was primarily led by wireless local area network products and switching products due to softened demand.

Services net revenue increased $107 million, or 23.0%, primarily led by attached support service and our aaS offerings.

Intelligent Edge earnings from operations as a percentage of net revenue increased 3.6 percentage points primarily due to decreases in cost of products and services as a percentage of net revenue, partially offset by an increase in operating expenses as a percentage of net revenue.

The decrease in cost of 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.

Operating expenses as a percentage of net revenue increased primarily due to higher employee costs related to acquisitions.

Financial Services

For the three months ended January 31,

2024 2023 % Change

For the three months ended April 30, For the six months ended April 30,

2024 2023 % Change 2024 2023 % Change

Dollars in millions

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Earnings from operations as a % of net revenue 9.3 % 8.9 % 8.9 % 8.0 %

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.

Three months ended April 30, 2024 compared with three months ended April 30, 2023

FS net revenue increased by $9 million, or 1.0% (increased 1.1% on a constant currency basis) due primarily to higher finance income on higher average finance leases in an increasing interest rate environment.

FS earnings from operations as a percentage of net revenue increased 0.4 percentage points due to operating expenses as a percentage of net revenue and cost of services as a percentage of net revenue were relatively flat.

Six months ended April 30, 2024 compared with six months ended April 30, 2023

FS net revenue was increased by $9 million, or 0.5% (decreased 0.4% on a constant currency basis) due primarily to higher finance income on higher average finance leases in an increasing interest rate environment.

FS earnings from operations as a percentage of net revenue increased 0.9% percentage points largely due to operating expenses as a percentage of net revenue and cost of services as a percentage of net revenue were relatively flat.

Financing Volume

For the three months ended January 31,

For the three months ended April 30, For the six months ended April 30,

2024 2023 2024 2023

Financing volume $ 1,672 $ 1,668 $ 3,035 $ 3,268

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.

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, was relatively flat and decreased 7.1% for the three and six months ended April 30, 2024, as compared to the prior-year period.

The decrease for the six months ended April 30, 2024, was primarily due to lower financing of third-party product and services, partially offset by higher financing of HPE product sales and services.

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

January 31, 2024 October 31, 2023

April 30, 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 $11.7 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.

Debt benefiting FS totaled $11.5 billion and $11.6 billion as of April 30, 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 at April 30, 2024 and October 31, 2023 was $1.6 billion and$1.7 billion, respectively.

As of April 30, 2024 and October 31, 2023, FS net cash and cash equivalents balances were approximately $552 million and $700 million, respectively.

Net portfolio assets as of April 30, 2024 increased 0.7% 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 months ended January 31, 2024 and 2023, FS recorded net bad debt expense of $12 million and $19 million, respectively.

For the three and six months ended April 30, 2024, FS recorded net bad debt expense of $10 million and $22 million, respectively.

For the three and six months ended April 30, 2023, FS recorded net bad debt expense of $11 million and $30 million, respectively.

Corporate Investments and Other

For the three months ended January 31,

2024 2023 % Change

For the three months ended April 30, For the six months ended April 30,

2024 2023 % Change 2024 2023 % Change

Dollars in millions

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Loss from operations as a % of net revenue (3.6) % (7.9) % (3.9) % (8.6) %

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.

Three months ended April 30, 2024 compared with three months ended April 30, 2023

Corporate Investments and Other net revenue increased by $10 million, or 4.1% (increased 7.9% on a constant currency basis), primarily due to revenue growth from A&PS, partially offset by unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased by 4.3 percentage points primarily due to the scale of net revenue growth.

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Financial Condition and Results of Operations (Continued)

Six months ended April 30, 2024 compared with six months ended April 30, 2023

Corporate Investments and Other net revenue increased by $14 million, or 2.9% (increased 4.6% on a constant currency basis), primarily due to revenue growth from A&PS, partially offset by unfavorable currency fluctuations.

Corporate Investments and Other loss from operations as a percentage of net revenue decreased by 4.7 percentage points primarily due to decreases in cost of services as a percentage of net revenue resulting from our cost containment measures, while operating expenses as a percentage of net revenue increased due to higher total operating expenses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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We evaluate our estimates and judgments on an ongoing basis.

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

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.

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 judgments include revenue recognition, taxes on earnings, impairment assessment of goodwill and intangible assets, and contingencies.

As of April 30, 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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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, 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.

We anticipate that the funds made available, including committed debt funding related to the pending merger with Juniper Networks and anticipated proceeds from the sale of H3C shares held by us, 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 January 31, 2024.

as of April 30, 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, 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.

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

In connection with the share repurchase program previously authorized by our Board of Directors, we repurchased and settled an aggregate amount of $48 million, during the first six months of fiscal 2024.

As of April 30, 2024, we had a remaining

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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.

authorization of approximately $0.9 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.

On January 9, 2024, we entered into a definitive Agreement and Plan of Merger 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 new debt, mandatory convertible preferred securities, and cash on the balance sheet.

On April 2, 2024, Juniper Networks shareholders approved the transaction.

The closing of the transaction remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.

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 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.

On May 24, 2024, our relevant subsidiaries entered into (i) an Amended and Restated Put Share Purchase Agreement with UNIS, whereby our relevant subsidiaries shall sell to UNIS 30% of the total issued share capital of H3C for pre-tax cash consideration of approximately $2.1 billion by August 31, 2024 (the “Sale Transaction”), and (ii) an Agreement on Subsequent Arrangements with UNIS, whereby upon closing of the Sale Transaction, our relevant subsidiary shall have a put option to sell to UNIS and UNIS shall have a call option to purchase from our relevant subsidiary 19% of the total issued share capital of H3C for pre-tax cash consideration of approximately $1.4 billion between the 16 th month and until the 36 th month after the Sale Transaction.

The transactions referenced in clauses (i) and (ii) above, taken together, revise the arrangements governing the aforementioned sale of all of the H3C shares held by us, through our subsidiaries and are subject to certain grace periods and regulatory approvals.

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

January 31, 2024 October 31, 2023

April 30, 2024 October 31, 2023

Cash, cash equivalents and restricted cash $ 2,924 $ 4,581

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(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.

The maximum aggregate commitment under this facility is $14.0 billion, however, no balances were outstanding under this facility as of April 30, 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 $1.63 billion of which $0.4 billion was primarily utilized towards issuances of bank guarantees.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

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

For the three months ended January 31,

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

For the six months ended April 30,

Net cash provided by operating activities $ 1,157 $ 60

Net cash used in investing activities (1,107) (2,170)

Net cash provided by financing activities 53 9

Net cash (used in) provided by financing activities (1,676) 163

Effect of exchange rate changes on cash, cash equivalents, and restricted cash (31) 139

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Operating Activities

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.

For the six months ended April 30, 2024, net cash provided by operating activities increased by $1.1 billion, 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)

The increase was moderated by higher cash payouts for variable compensation and unfavorable impacts from other assets and liabilities, as compared to the prior-year period.

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

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

April 30, 2024 October 31, 2023 Change April 30, 2023 October 31, 2022 Change Y/Y Change

Days of sales outstanding in accounts receivable ("DSO") 48 43 5 48 47 1 —

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

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

Compared to the corresponding three-month period in fiscal 2023, DSO remained flat.

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

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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.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Investing Activities

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.

For the six months ended April 30, 2024, net cash used in investing activities decreased by $1.1 billion, as compared to the corresponding period in fiscal 2023.

The decrease was primarily due to lower cash utilized in net financial collateral activities of $0.4 billion and the prior-year period containing higher net payments made in connection with business acquisitions of $0.4 billion.

Financing Activities

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.

For the six months ended April 30, 2024, net cash used in financing activities increased by $1.8 billion, as compared to the corresponding period in fiscal 2023.

This was primarily due to lower proceeds from debt, net of issuance costs and short-term borrowings of $2.2 billion, offset by lower repayments of debt of $0.2 billion and lower share repurchases of $0.1 billion, 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 three months ended January 31, 2024, FCF increased by $0.8 billion, as compared to the corresponding period in fiscal 2023.

For the six months ended April 30, 2024, FCF increased by $1.2 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.

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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.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Capital Resources

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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:

Significant funding and liquidity activities for the six months ended April 30, 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.

Debt Repayments:

• In April 2024, the Company repaid $1.0 billion of 1.45% Senior Notes on their original maturity date.

• During the six months ended April 30, 2024, we repaid $834 million of the outstanding asset-backed debt securities.

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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES

Management's Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Cash Requirements and Commitments

Contractual Obligations

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.

Other than the previously mentioned 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, 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 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.

As of April 30, 2024, we expect to make future cash payments of approximately $210 million in connection with our approved restructuring plans, which includes $60 million expected to be paid through the remainder of fiscal 2024 and $150 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 January 31, 2024, we had approximately $243 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

As of April 30, 2024, we had approximately $241 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 January 31,

For the three months ended April 30, For the six months ended April 30,

2024 2023 2024 2023

Revenue Dollars % of

Dollars in millions

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Stock-based compensation expense 14 0.2 % 13 0.2 % 30 0.2 % 29 0.2 %

Disaster (recovery) charges

(25) (0.4) % — — %

Disaster recovery (7) (0.1) % — — % (32) (0.2) % — — %

Non-GAAP gross profit $ 2,383 33.1 % $ 2,525 36.2 % $ 4,831 34.6 % $ 5,199 35.2 %

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 January 31,

For the three months ended April 30, For the six months ended April 30,

2024 2023 2024 2023

Revenue Dollars % of

Dollars in millions

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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 January 31,

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

For the three months ended April 30, For the six months ended April 30,

2024 2023 2024 2023

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

Dollars in millions

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Loss on equity investments, net

— — — — 61 0.05 — —

Other adjustments (2)

(1) (0.01) (7) — 1 — (6) —

Adjustments for taxes 31 0.02 (7) (0.01) 15 0.01 (20) (0.02)

Non-GAAP net earnings $ 561 $ 0.42 $ 685 $ 0.52 $ 1,199 $ 0.91 $ 1,513 $ 1.15

(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.

(1) For the three and six months ended April 30, 2024, includes the equity in earnings from H3C equity method investment and all 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 January 31,

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

For the three months ended April 30, For the six months ended April 30,

2024 2023 2024 2023

Net cash provided by operating activities $ 1,093 $ 889 $ 1,157 $ 60

Investment in property, plant and equipment (560) (688) (1,216) (1,482)

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Free cash flow $ 610 $ 288 $ 128 $ (1,038)

$ (482) $ (1,326)

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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.

For the three and six months ended April 30, 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 three and six months ended April 30, 2023, these charges were driven by acquisitions of Axis, Zerto and Athonet.

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

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

• 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.

• For the three and six months ended April 30, 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.

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

For the six months ended April 30, 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.

24 unchanged sentences

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