Hewlett Packard Enterprise Co.
06/04/2025 | Press release | Distributed by Public on 06/04/2025 06:35
Quarterly Report for Quarter Ending April 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section, we use the terms "Hewlett Packard Enterprise", "HPE", the "Company", "we", "us" and "our" to refer to Hewlett Packard Enterprise Company.
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our Condensed Consolidated Financial Statements, changes in certain key items in these financial statements from period-to-period and the primary factors that accounted for these changes, as well as how certain accounting principles, policies, and estimates affect our Condensed Consolidated Financial Statements. This discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document.
The financial discussion and analysis in the following MD&A compares the three and six months ended April 30, 2025 to the comparable prior-year period and where appropriate, as of April 30, 2025, 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) and heightening global trade restrictions, uneven demand across our portfolio, increased demand for and adoption of new technologies, conservative customer spending environment (though recovering), persistent inflation, foreign exchange pressures, recent tax developments, competitive pricing pressures, and proposed acquisition of Juniper Networks, Inc. ("Juniper Networks").
•Executive Overview. 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. A discussion of the results of operations at the consolidated level is followed by a discussion of the results of operations at the segment level.
•Critical Accounting Policies and Estimates. A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.
•Liquidity and Capital Resources. An analysis of changes in our cash flows, financial condition, liquidity, and cash requirements and commitments.
•GAAP to Non-GAAP Reconciliations. Each non-GAAP financial measure has been reconciled to the most directly comparable GAAP financial measure. This section also includes a discussion of the use, usefulness and economic substance of the non-GAAP financial measures, along with a discussion of material limitations, and compensation for those limitations, associated with the use of non-GAAP financial measures.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
TRENDS AND UNCERTAINTIES
During the first six months of fiscal 2025, the effects of the evolving macroeconomic environment on demand persisted and certain significant developments impacted our operations, as follows:
Technological Advancements: We have observed market trends and demand (of customers of various segments and sizes) gravitating towards artificial intelligence ("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. Increasing demand for AI is also contributing to changes in the competitive landscape. Our major competitors and emerging competitors are expanding their product and service offerings with integrated products and solutions and exerting increased competitive pressure. We expect these market dynamics and trends to continue in the longer term.
Macroeconomic Uncertainty: The evolving macroeconomic environment has impacted industry-wide demand, as customers take longer to work through prior orders and have been adopting a more strategic approach to discretionary IT spending. This has resulted in uneven demand 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. Additionally, there is growing uncertainty surrounding the tariff environment and import/export regulations, which has resulted in trading partners enacting reciprocally restrictive trade policies and measures. These have enhanced global trade uncertainty and contributed to higher prices of components and end products and services. We expect such mixed macroeconomic environment to largely continue and possibly limit revenue and margin growth in the near term.
Supply Chain: We experienced supply chain constraints for certain components, including graphics processing units, ("GPUs") and accelerated processing units. Though, they have since eased, in part due to increased availability of supply and lower material and logistics costs, the future remains uncertain due to continuous shifts in U.S. trade policy, which have thus far impacted our ability to import and export components and finished products and the costs of doing so. Additionally, logistics costs may rise with the aforementioned changes in trade policies. We have been experiencing higher-than-normal inventory levels, primarily due to customers transitioning to the next generation of GPUs, our securing supply ahead of demand, and longer customer acceptance timelines on AI-related orders; we expect this trend to continue in the medium term. We have experienced, and expect to continue experiencing, rising input component costs due to the global trade uncertainties referenced above and a competitive pricing environment, all of which may impact our financial results. We plan to mitigate the impact of these dynamics through continued disciplined cost and pricing management and supply chain diversification.
Recurring Revenue and Consumption Models: We continue to strengthen our core server and storage-oriented offerings and expand our offerings on the HPE GreenLake cloud, 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. 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.
Public Sector: We have a number of engagements with various public sector entities, including the U.S. federal government and its agencies, as direct or indirect customers of our IT services and hardware. Significant staffing and resource reductions at certain public sector entities create an uncertain environment and as a result, our financial results may be impacted in the near 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, 59 countries have enacted portions, or all, of the OECD proposal and a further 6 countries have drafted, or have announced an intent to draft, legislation enacting the proposed rules. Where enacted, the rules are 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. 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. We do not expect a material impact to our fiscal 2025 results.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The Internal Revenue Service ("IRS") is conducting audits of our fiscal 2020 through 2022 U.S. federal income tax returns. In the second quarter of fiscal 2025, the IRS issued a Revenue Agent Report ("RAR") regarding the audit of our fiscal 2017 through 2019 U.S. federal income tax returns with which we agreed. The audit cycle for fiscal 2017 through 2019 is now considered effectively settled, resulting in a reduction of existing unrecognized tax benefits of approximately $340 million, which did not result in a material impact to our Condensed Consolidated Statement of Earnings and our Condensed Consolidated Balance Sheet. The resolution of the audit resulted in the release of tax reserves that were predominantly related either to adjustments to foreign tax credits that carried a full valuation allowance or to the timing of intercompany royalty revenue recognition, neither of which affected our effective tax rate.
Other Trends and Uncertainties: The impacts of geopolitical volatility (including the ongoing conflict in the Middle East and in Ukraine and the relationship between China and the U.S.) may impact our operations, financial performance, and ability to conduct business in some non-U.S. markets. We have, in the past, entered into contracts for the sale of certain products and services that reflect heavier-than-normal discounting due to competitive pressures, which have resulted in lower margins than expected, and we expect will continue to negatively impact our margins in the near term. We are monitoring and seeking to mitigate these risks with adjustments to our manufacturing, supply chain, and distribution networks, as well as our pricing and discounting practices. We remain focused on executing our key strategic priorities, building long-term value creation for our stakeholders, and addressing our customers' needs while continuing to make prudent decisions in response to the environment.
Proposed Acquisition of 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 in an all-cash transaction for $40.00 per share (the "Merger"), representing an equity value of approximately $14 billion. On April 2, 2024, Juniper Networks stockholders approved the transaction. The transaction is expected to be funded based on senior unsecured delayed draw term loans from a syndicate of banks, the post-tax proceeds from our sale to Unisplendour International Technology Limited ("UNIS") of 30% of the total issued share capital of H3C Technologies Co., Limited ("H3C"), the net proceeds (including after repayments of maturing debt) of our September 2024 issuances of senior unsecured notes and the 7.625% Series C Mandatory Convertible Preferred Stock (the "Preferred Stock"), and cash on the balance sheet. The closing of the transaction remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions. On January 30 2025, the Antitrust Division of the United States Department of Justice (the "DOJ") filed a complaint in the United States District Court for the Northern District of California, seeking to enjoin the closing of the Merger, alleging that the Merger is likely to substantially lessen competition in violation of Section 7 of the Clayton Act. On February 10, 2025, HPE and Juniper Networks filed answers to the DOJ's complaint, disputing these claims. Trial is scheduled to begin on July 9, 2025. While we intend to vigorously defend the litigation, an unfavorable ruling could ultimately prevent the closing of the Merger, thereby adversely impacting our ability to achieve the intended benefits of the Merger, which could, in turn, have an adverse impact on our business, financial condition, and results of operations.
For further information about the Merger, refer to Note 8, "Acquisitions and Dispositions" to the Consolidated Financial Statements 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 I of the Annual Report on Form 10-K for the fiscal year ended October 31, 2024, as modified by the risk statements in 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, 2025.
The foregoing summary of the Merger, the adoption of theMerger 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
We are a global technology leader focused on developing intelligent solutions that allow customers to capture, analyze, and act upon data seamlessly from edge-to-cloud. We enable customers to accelerate business outcomes by driving new business models, creating new customer and employee experiences, and increasing operational efficiency today and into the future. Our customers range from small-and-medium size businesses to large global enterprises and governmental entities. Our legacy dates to a partnership founded in 1939 by William R. Hewlett and David Packard, and we strive every day to uphold and enhance that legacy through our dedication to providing innovative technological solutions to our customers.
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. Effective at the beginning of the first quarter
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
of fiscal 2025, in order to align its segment financial reporting more closely with its current business structure, HPE implemented an organizational change with the transfer of certain managed services, previously reported within the Server reportable segment, to the Hybrid Cloud reportable segment.
Cost Reduction Program
On March 6, 2025, the Board of Directors approved a cost reduction program (the "Program") intended to reduce structural operating costs and continue advancing our ongoing commitment to profitable growth. The Program is expected to be implemented through fiscal year 2026 and deliver gross savings of approximately $350 million by fiscal year 2027 through reductions in our workforce.
The estimates of the duration of the Program, the charges and expenditures that we expect to incur in connection therewith, and the timing thereof are subject to a number of assumptions, including local law requirements in various jurisdictions, and actual amounts may differ materially from estimates. In addition, we may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the Program. In connection with the Program, we incurred charges of $146 million for the three and six months ended April 30, 2025.
Three months ended April 30, 2025compared with three months ended April 30, 2024
Net revenue of $7.6 billion represented an increase of 5.9% (increased 7.1% on a constant currency basis) primarily due to higher average unit prices ("AUPs") in the Server segment and higher unit volume and AUPs in the Hybrid Cloud segment. The gross profit margin of 28.4% (or $2.2 billion), represents a decrease of 4.6 percentage points from the prior-year period primarily due to an increase in cost of sales in the Server, Hybrid Cloud and Intelligent Edge segments. The operating profit margin of (14.5)% represents a decrease of 20.4 percentage points from the prior-year period primarily due to the impairment of goodwill.
Six months ended April 30, 2025 compared with six months ended April 30, 2024
Net revenue of $15.5 billion represented an increase of 10.9% (increased 12.0% on a constant currency basis) primarily due to higher AUPs in the Server segment and higher unit volume in the Hybrid Cloud segment. The gross profit margin of 28.8% (or $4.5 billion), represents a decrease of 5.8 percentage points from the prior-year period primarily due to an increase in cost of sales in the Server, Intelligent Edge and Hybrid Cloud segments. The operating profit margin of (4.4)% represents a decrease of 11.2 percentage points from the prior-year period primarily due to the impairment of goodwill.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Financial Results
The following table summarizes our condensed consolidated GAAP financial results:
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||
| Dollars in millions, except per share amounts | |||||||||||||||||||||||||||||||||||
| Net revenue | $ | 7,627 | $ | 7,204 | 5.9% | $ | 15,481 | $ | 13,959 | 10.9% | |||||||||||||||||||||||||
| Gross profit | $ | 2,169 | $ | 2,376 | (8.7)% | $ | 4,464 | $ | 4,833 | (7.6)% | |||||||||||||||||||||||||
| Gross profit margin | 28.4 | % | 33.0 | % | (4.6)pts | 28.8 | % | 34.6 | % | (5.8)pts | |||||||||||||||||||||||||
| (Loss) earnings from operations | $ | (1,109) | $ | 425 | (360.9)% | $ | (676) | $ | 950 | (171.2)% | |||||||||||||||||||||||||
| Operating profit margin | (14.5) | % | 5.9 | % | (20.4)pts | (4.4) | % | 6.8 | % | (11.2)pts | |||||||||||||||||||||||||
| Net (loss) earnings attributable to HPE | $ | (1,050) | $ | 314 | (434.4)% | $ | (423) | $ | 701 | (160.3)% | |||||||||||||||||||||||||
| Net (loss) earnings attributable to common stockholders | $ | (1,079) | $ | 314 | (443.6)% | $ | (481) | $ | 701 | (168.6)% | |||||||||||||||||||||||||
|
Diluted net (loss) earnings per share attributable to common stockholders(1)
|
$ | (0.82) | $ | 0.24 | $(1.06) | $ | (0.36) | $ | 0.53 | $(0.89) | |||||||||||||||||||||||||
| Cash flow (used in) provided by operations | $ | (461) | $ | 1,093 | $(1,554) | $ | (851) | $ | 1,157 | $(2,008) | |||||||||||||||||||||||||
The following table summarizes our condensed consolidated non-GAAP financial results:
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||||||||||||||
| Dollars in millions, except per share amounts | |||||||||||||||||||||||||||||||||||
| Net revenue in constant currency | $ | 7,719 | $ | 7,204 | 7.1% | $ | 15,633 | $ | 13,959 | 12.0% | |||||||||||||||||||||||||
| Non-GAAP gross profit | $ | 2,244 | $ | 2,383 | (5.8)% | $ | 4,554 | $ | 4,831 | (5.7)% | |||||||||||||||||||||||||
| Non-GAAP gross profit margin | 29.4 | % | 33.1 | % | (3.7)pts | 29.4 | % | 34.6 | % | (5.2)pts | |||||||||||||||||||||||||
| Non-GAAP earnings from operations | $ | 613 | $ | 684 | (10.4)% | $ | 1,393 | $ | 1,459 | (4.5)% | |||||||||||||||||||||||||
| Non-GAAP operating profit margin | 8.0 | % | 9.5 | % | (1.5)pts | 9.0 | % | 10.5 | % | (1.5)pts | |||||||||||||||||||||||||
| Non-GAAP net earnings attributable to HPE | $ | 545 | $ | 561 | (2.9)% | $ | 1,229 | $ | 1,199 | 2.5% | |||||||||||||||||||||||||
| Non-GAAP net earnings attributable to common stockholders | $ | 516 | $ | 561 | (8.0)% | $ | 1,171 | $ | 1,199 | (2.3)% | |||||||||||||||||||||||||
|
Non-GAAP diluted net earnings per share attributable to common stockholders(1)
|
$ | 0.38 | $ | 0.42 | $(0.04) | $ | 0.87 | $ | 0.91 | $(0.04) | |||||||||||||||||||||||||
| Free cash flow | $ | (847) | $ | 610 | ($1,457) | $ | (1,724) | $ | 128 | $(1,852) | |||||||||||||||||||||||||
(1)For purposes of calculating diluted net (loss) earnings per share ("EPS"), the preferred stock dividends are added back to the net (loss) earnings attributable to common stockholders and the diluted weighted average share calculation assumes the preferred stock was converted at issuance or as of the beginning of the reporting period. For GAAP diluted net EPS, the effect of employee stock plans and preferred stock is excluded when calculating diluted net loss per share as it would be anti-dilutive.
Each non-GAAP financial measure has been reconciled to the most directly comparable GAAP financial measure herein. Please refer to the section "GAAP to non-GAAP Reconciliations" included in this MD&A for these reconciliations, a discussion of the use, usefulness and economic substance of the non-GAAP financial measures, along with a discussion of material limitations, and compensation for those limitations, associated with the use of non-GAAP financial measures.
Annualized Revenue Run-rate ("ARR")
ARR represents the annualized revenue of all net HPE GreenLake cloud 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
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
business. We also believe ARR provides investors with greater transparency to our financial information and of the performance metric used in our financial and operational decision making and allows investors to see our results "through the eyes of management." We use ARR as a performance metric. ARR should be viewed independently of net revenue and is not intended to be combined with it.
ARR does not have any standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
The following presents our ARR calculated as of April 30, 2025 and 2024:
| As of April 30, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||
|
ARR
|
$
|
2,228 |
$
|
1,531 | |||||||||||||||||||
| Year-over-year growth rate | 46% | 37% | |||||||||||||||||||||
The 46% year-over year increase in ARR was primarily due to growth in our Hybrid Cloud, Server and Intelligent Edge segments, which was due to an expanding customer installed base, an expanded range of HPE GreenLake Flex Solutions, Server aaS and Intelligent Edge aaS activity.
Dividends and Share Repurchase Program
Returning capital to our stockholders remains an important part of our capital allocation framework, which also consists of strategic investments. The holders of HPE common stock are entitled to receive dividends when and as declared by the Board of Directors. Our ability to pay dividends will depend on many factors, such as its financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in its debt, industry practice, legal requirements, regulatory constraints, and other factors that the Board of Directors deems relevant. Furthermore, so long as any share of our Preferred Stock remains outstanding, no dividend on shares of common stock (or any other class of stock junior to the Preferred Stock) shall be declared or paid unless all accumulated and unpaid dividends for all preceding dividend periods for the Preferred Stock have been declared and paid in full in cash, shares of the Company's common stock or a combination thereof, or a sufficient sum of cash or number of shares of its common stock has been set apart for the payment of such dividends, on all outstanding shares of the Preferred Stock. During the second quarter of fiscal 2025, we paid a quarterly dividend of $0.13 per share of common stock. On June 3, 2025, we declared a regular cash dividend of $0.13 per share of our common stock, payable on or about July 17, 2025, to our holders of record as of the close of business on June 18, 2025. We also declared a cash dividend of $0.953125 per share of our 7.625% Series C Mandatory Convertible Preferred Stock, which was paid on June 1, 2025, to holders of record as of the close of business on May 15, 2025.
As of April 30, 2025, we had a remaining authorization of approximately $0.7 billion for future share repurchases.
RESULTS OF OPERATIONS
Revenue from our international operations has historically represented, and we expect will continue to represent, a majority of our overall net revenue. As a result, our revenue growth has been impacted, and we expect will continue to be impacted, by fluctuations in foreign currency exchange rates. In order to provide a framework for assessing performance excluding the impact of foreign currency fluctuations, we present the year-over-year percentage change in revenue on a constant currency basis, which assumes no change in foreign currency exchange rates from the prior-year period and does not adjust for any repricing or demand impacts from changes in foreign currency exchange rates. This change in revenue on a constant currency basis is calculated as the quotient of (a) current year revenue converted to U.S. dollars using the prior-year period's foreign currency exchange rates divided by (b) the prior-year period revenue. This information is provided so that revenue can be viewed without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our revenue results and trends. This constant currency disclosure is provided in addition to, and not as a substitute for, the year-over-year percentage change in revenue on a GAAP basis. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Results of operations in dollars and as a percentage of net revenue were as follows:
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Dollars | % of Revenue | Dollars | % of Revenue | Dollars |
% of Revenue |
Dollars |
% of Revenue |
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| Dollars in millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 7,627 | 100.0 | % | $ | 7,204 | 100.0 | % | $ | 15,481 | 100.0 | % | $ | 13,959 | 100.0 | % | |||||||||||||||||||||||||||||||
| Cost of sales (exclusive of amortization shown separately below) | 5,458 | 71.6 | 4,828 | 67.0 | 11,017 | 71.2 | 9,126 | 65.4 | |||||||||||||||||||||||||||||||||||||||
| Gross profit | 2,169 | 28.4 | 2,376 | 33.0 | 4,464 | 28.8 | 4,833 | 34.6 | |||||||||||||||||||||||||||||||||||||||
| Research and development | 540 | 7.1 | 590 | 8.2 | 1,015 | 6.6 | 1,172 | 8.4 | |||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 1,298 | 17.0 | 1,215 | 16.9 | 2,566 | 16.6 | 2,431 | 17.4 | |||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 37 | 0.5 | 67 | 0.9 | 75 | 0.5 | 138 | 1.0 | |||||||||||||||||||||||||||||||||||||||
| Impairment of goodwill | 1,361 | 17.8 | - | - | 1,361 | 8.8 | - | - | |||||||||||||||||||||||||||||||||||||||
| Transformation (credit) costs | (13) | (0.2) | 33 | 0.5 | 2 | - | 53 | 0.4 | |||||||||||||||||||||||||||||||||||||||
| Acquisition, disposition and other charges | 55 | 0.7 | 46 | 0.6 | 121 | 0.8 | 89 | 0.6 | |||||||||||||||||||||||||||||||||||||||
| (Loss) earnings from operations | (1,109) | (14.5) | 425 | 5.9 | (676) | (4.4) | 950 | 6.8 | |||||||||||||||||||||||||||||||||||||||
| Gain on sale of a business | - | - | - | - | 244 | 1.6 | - | - | |||||||||||||||||||||||||||||||||||||||
| Interest and other, net | 39 | 0.5 | (22) | (0.3) | 78 | 0.5 | (110) | (0.8) | |||||||||||||||||||||||||||||||||||||||
| Earnings from equity interests | 25 | 0.3 | 42 | 0.6 | 42 | 0.3 | 88 | 0.6 | |||||||||||||||||||||||||||||||||||||||
| (Loss) earnings before provision for taxes | (1,045) | (13.7) | 445 | 6.2 | (312) | (2.0) | 928 | 6.6 | |||||||||||||||||||||||||||||||||||||||
| Provision for taxes | (5) | (0.1) | (131) | (1.8) | (111) | (0.7) | (227) | (1.6) | |||||||||||||||||||||||||||||||||||||||
| Net (loss) earnings attributable to HPE | (1,050) | (13.8) | 314 | 4.4 | (423) | (2.7) | 701 | 5.0 | |||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | (29) | (0.4) | - | - | (58) | (0.4) | - | - | |||||||||||||||||||||||||||||||||||||||
| Net (loss) earnings attributable to common stockholders | $ | (1,079) | (14.2) | % | $ | 314 | 4.4 | % | $ | (481) | (3.1) | % | $ | 701 | 5.0 | % | |||||||||||||||||||||||||||||||
Three and six months ended April 30, 2025 compared with the three and six months ended April 30, 2024
Net revenue
For the three months ended April 30, 2025, total net revenue of $7.6 billion represented an increase of $0.4 billion, or 5.9% (increased 7.1% on a constant currency basis). U.S. net revenue increased by $155 million, or 6.0%, to $2.7 billion, and net revenue from outside of the U.S. increased by $268 million, or 5.8%, to $4.9 billion.
For the six months ended April 30, 2025, total net revenue of $15.5 billion represented an increase of $1.5 billion, or 10.9% (increased 12.0% on a constant currency basis). U.S. net revenue increased by $379 million, or 7.8%, to $5.3 billion, and net revenue from outside of the U.S. increased by $1.1 billion, or 12.6%, to $10.2 billion.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The components of the weighted net revenue change by segment were as follows:
| For the three months ended April 30, 2025 | For the six months ended April 30, 2025 | ||||||||||
| Percentage Points | |||||||||||
| Server | 3.0 | 8.5 | |||||||||
| Hybrid Cloud | 2.4 | 2.1 | |||||||||
| Intelligent Edge | 1.1 | 0.2 | |||||||||
| Financial Services | (0.2) | (0.1) | |||||||||
| Corporate Investments and Other | (0.8) | (0.7) | |||||||||
| Total segment | 5.5 | 10.0 | |||||||||
| Elimination of intersegment net revenue and other | 0.4 | 0.9 | |||||||||
| Total HPE | 5.9 | 10.9 | |||||||||
Three months ended April 30, 2025 compared with three months ended April 30, 2024
From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:
•Server net revenue increased $217 million, or 5.6%, primarily due to higher AUPs
•Hybrid Cloud net revenue increased $171 million, or 13.3%, primarily due to increase in unit volume and AUPs
•Intelligent Edge net revenue increased $76 million, or 7.0%, primarily due to higher volume and product mix
•Financial Services net revenue decreased $11 million, or 1.3%, primarily due to lower rental revenue on lower average operating leases and unfavorable currency fluctuations
•Corporate Investments and Other net revenue decreased $58 million, or 23.0%, primarily due to the divestiture of the Communications Technology Group ("CTG") business
Six months ended April 30, 2025 compared with six months ended April 30, 2024
From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:
•Server net revenue increased $1,180 million, or 16.5%, primarily due to higher AUPs
•Hybrid Cloud net revenue increased $303 million, or 11.9%, primarily due to an increase in unit volume
•Intelligent Edge net revenue increased $21 million, or 0.9%, primarily due to an increase in our aaS offerings
•Financial Services net revenue decreased $11 million, or 0.6%, primarily due to lower rental revenue on lower average operating leases and unfavorable currency fluctuations
•Corporate Investments and Other net revenue decreased $99 million, or 20.2%, primarily due to the divestiture of CTG
Please refer to the section "Segment Information" further below for a discussion of our results of operations for each reportable segment.
Gross profit
For the three and six months ended April 30, 2025, the total gross profit margin of 28.4% and 28.8%, respectively, represents a decrease of 4.6 and 5.8 percentage points, respectively, as compared to the respective prior year periods. The decrease for the three and six months ended April 30, 2025, was primarily due to an increase in cost of sales in the Server, Hybrid Cloud and Intelligent Edge segments.
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Operating expenses
Research and development ("R&D")
For the three months ended April 30, 2025, R&D expense decreased by $50 million, or 8.5%, primarily due to higher mix of capital versus expense investment, which contributed 12.9 percentage points to the change. The decrease was partially offset by the cost reduction program, which contributed 4.1 percentage points to the change.
For the six months ended April 30, 2025, R&D expense decreased by $157 million, or 13.4%, primarily due to higher mix of capital versus expense investment, which contributed 11.9 percentage points to the change.
Selling, general and administrative ("SG&A")
For the three and six months ended April 30, 2025, SG&A expense increased by $83 million, or 6.8%, and $135 million, or 5.6%, respectively, primarily due to the cost reduction program, which contributed 7.0 and 6.1 percentage points, respectively.
Impairment of goodwill
Impairment of goodwill for the three and six months ended April 30, 2025 represents a partial goodwill impairment charge of $1.4 billion, as it was determined that the fair value of the Hybrid Cloud reporting unit was below the carrying value of its net assets. The decline in the fair value was primarily driven by an increase in the discount rate used in the discounted cash flows analysis, driven by heightened macroeconomic uncertainty. Refer to Note 9, "Goodwill" to the Condensed Consolidated Financial Statements in Item 1 of Part I for more information.
Acquisition, disposition and other charges
For the three months ended April 30, 2025, acquisition, disposition and other charges increased by $9 million or 19.6%, primarily due to costs incurred in connection with the proposed acquisition of Juniper Networks.
For the six months ended April 30, 2025, acquisition, disposition and other charges increased by $32 million, or 36.0%, primarily due to costs incurred in connection with the divestiture of CTG and the proposed acquisition of Juniper Networks.
Gain on sale of a business
On December 1, 2024, we completed the disposition of CTG. We received net proceeds of $210 million and recognized a gain of $244 million.
Interest and other, net
For the three months ended April 30, 2025, interest and other, net income increased by $61 million, or 277.3%, primarily due to an increase in net interest income and an increase in the non-service net periodic benefit credit.
For the six months ended April 30, 2025, interest and other, net income increased by $188 million, or 170.9%, primarily due to an increase in net interest income, a gain on equity investments recognized in the current period compared to a loss on equity investments in the prior-year period, and an increase in the non-service net periodic benefit credit.
Earnings from equity interests
For the three and six months ended April 30, 2025, earnings from equity interests decreased $17 million, or 40.5%, and $46 million, or 52.3%, respectively, primarily due to lower earnings from our equity interest in H3C as a result of the disposition of 30% of the total issued share capital of H3C.
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Provision for taxes
For the three months ended April 30, 2025 and 2024, we recorded income tax expense of $5 million and $131 million, respectively, which reflects an effective tax rate of (0.5)% and 29.4%, respectively. For the six months ended April 30, 2025 and 2024, we recorded income tax expense of $111 million and $227 million, respectively, which reflects an effective tax rate of (35.6)% and 24.5%, respectively. For the three and six months ended April 30, 2025, 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 and the effects of the non-deductible goodwill impairment. For the three and six months ended April 30, 2024, our effective tax rate differs from the U.S. federal statutory rate of 21% due to the geographic mix of forecasted earnings and net unfavorable permanent differences from U.S. income tax on non-U.S. earnings.
For further discussion, refer to Note 5, "Taxes on Earnings" to the Condensed Consolidated Financial Statements in Item 1 of Part I.
Segment Information
Hewlett Packard Enterprise's organizational structure is based on a number of factors that the Chief Operating Decision Maker, who is the Chief Executive Officer, uses to evaluate, view, and run our business operations, which include, but are not limited to, customer base and homogeneity of products and technology. The segments are based on this organizational structure and information reviewed by Hewlett Packard Enterprise's management to evaluate segment results.
A description of the products and services for each segment, along with other pertinent information related to segments can be found in Note 2, "Segment Information" to the Condensed Consolidated Financial Statements in Item 1 of Part I.
Segment Results
The following table and ensuing discussion provide an overview of our key financial metrics by segment for the three months ended April 30, 2025, 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)
|
$ | 7,627 | $ | 4,058 | $ | 1,453 | $ | 1,162 | $ | 856 | $ | 194 | |||||||||||||||||||||||
| Year-over-year change % | 5.9 | % | 5.6 | % | 13.3 | % | 7.0 | % | (1.3) | % | (23.0) | % | |||||||||||||||||||||||
|
(Loss) earnings from operations(2)
|
$ | (1,109) | $ | 241 | $ | 78 | $ | 274 | $ | 89 | $ | (10) | |||||||||||||||||||||||
| (Loss) earnings from operations as a % of net revenue | (14.5) | % | 5.9 | % | 5.4 | % | 23.6 | % | 10.4 | % | (5.2) | % | |||||||||||||||||||||||
| Year-over-year change percentage points | (20.4) | pts | (5.1) | pts | 4.4 | pts | 1.8 | pts | 1.1 | pts | (1.6) | pts | |||||||||||||||||||||||
The following table and ensuing discussion provide an overview of our key financial metrics by segment for the six months ended April 30, 2025, 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)
|
$ | 15,481 | $ | 8,348 | $ | 2,858 | $ | 2,308 | $ | 1,729 | $ | 391 | |||||||||||||||||||||||
| Year-over-year change % | 10.9 | % | 16.5 | % | 11.9 | % | 0.9 | % | (0.6) | % | (20.2) | % | |||||||||||||||||||||||
|
(Loss) earnings from operations(2)
|
$ | (676) | $ | 589 | $ | 177 | $ | 588 | $ | 171 | $ | (12) | |||||||||||||||||||||||
| (Loss) earnings from operations as a % of net revenue | (4.4) | % | 7.1 | % | 6.2 | % | 25.5 | % | 9.9 | % | (3.1) | % | |||||||||||||||||||||||
| Year-over-year change percentage points | (11.2) | pts | (4.1) | pts | 3.7 | pts | (0.3) | pts | 1.0 | pts | 0.8 | pts | |||||||||||||||||||||||
Table of Content
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 (loss) from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense, amortization of intangible assets, transformation (credit) costs, H3C divestiture related severance costs, severance costs related to the cost reduction program, acquisition, disposition and other charges and impairment of goodwill.
Server
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||||||||||||||
| Net revenue | $ | 4,058 | $ | 3,841 | 5.6 | % | $ | 8,348 | $ | 7,168 | 16.5 | % | |||||||||||||||||||||||
| Earnings from operations | $ | 241 | $ | 423 | (43.0) | % | $ | 589 | $ | 802 | (26.6) | % | |||||||||||||||||||||||
| Earnings from operations as a % of net revenue | 5.9 | % | 11.0 | % | 7.1 | % | 11.2 | % | |||||||||||||||||||||||||||
Three months ended April 30, 2025 compared with three months ended April 30, 2024
Server net revenue increasedby $217 million, or 5.6% (increased 6.8% on a constant currency basis), primarily due to a $235 million, or 7.9%, increase in product revenue. The increase in product revenue was primarily due to higher net AUPs of $601 million, or 20.1%, partially offset by a decrease in net unit volume of $348 million, or 11.6%.
Server earnings from operations as a percentage of net revenue decreased 5.1 percentage points due to an increase in cost of products as a percentage of net revenue resulting from input cost increases and competitive pricing pressure. Operating expenses as a percentage of net revenue remained relatively flat as compared to the prior-year period.
Six months ended April 30, 2025 compared with six months ended April 30, 2024
Server net revenue increasedby $1,180 million, or 16.5% (increased 17.5% on a constant currency basis), primarily due to a $1,180 million, or 21.5%, increase in product revenue. The increase in product revenue was primarily due to higher net AUPs of $1,607 million, or 29.3%, partially offset by a decrease in net unit volume of $377 million, or 6.9%, and unfavorable currency fluctuations of $50 million, or 0.9%.
Server earnings from operations as a percentage of net revenue decreased 4.1 percentage points due to an increase in costs of products as a percentage of net revenue, moderated by a decrease in operating expenses as a percentage of net revenue. The increase in cost of products as a percentage of net revenue was primarily due to competitive pricing pressure, input cost increases, and higher mix of lower margin products. The decrease in operating expenses as a percentage of net revenue was primarily due to the scale of the net revenue increase while total operating expenses remained relatively flat.
Hybrid Cloud
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||||||||||||||
| Net revenue | $ | 1,453 | $ | 1,282 | 13.3 | % | $ | 2,858 | $ | 2,555 | 11.9 | % | |||||||||||||||||||||||
| Earnings from operations | $ | 78 | $ | 13 | 500.0 | % | $ | 177 | $ | 64 | 176.6 | % | |||||||||||||||||||||||
| Earnings from operations as a % of net revenue | 5.4 | % | 1.0 | % | 6.2 | % | 2.5 | % | |||||||||||||||||||||||||||
Three months ended April 30, 2025 compared with three months ended April 30, 2024
Hybrid Cloud net revenue increased by $171 million, or 13.3% (increased 14.6% on a constant currency basis), primarily due to increases in unit volume and AUPs. Hybrid Cloud product revenue increased by $106 million, or 15.9%, primarily due to a unit volume increase of $96 million, or 14.4%, led by private cloud products. Hybrid Cloud services revenue increased by $65 million, or 10.6%, primarily driven by higher services contribution from private cloud products and storage subscription services.
Hybrid Cloud earnings from operations as a percentage of net revenue increased 4.4 percentage points, due to a decrease in operating expenses as a percentage of net revenue. Operating expenses decreased due to capitalization of software costs and cost containment measures. Cost of products and services as a percentage of net revenue increased due to a higher contribution
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
from our products portfolio, as we transition to a more software-defined platform with HPE Alletra.
Six months ended April 30, 2025 compared with six months ended April 30, 2024
Hybrid Cloud net revenue increased by $303 million, or 11.9%, (increased 12.8% on a constant currency basis) primarily due to an increase in unit volume. Hybrid Cloud product revenue increased by $159 million, or 11.7%, primarily due to a unit volume increase of $132 million, or 9.7%, led by private cloud products. Hybrid Cloud services revenue increased by $144 million, or 12.0%, primarily driven by higher services contribution from private cloud products and storage subscription services.
Hybrid Cloud earnings from operations as a percentage of net revenue increased 3.7 percentage points, due to a decrease in operating expenses as a percentage of net revenue, primarily driven by capitalization of software costs and cost containment measures. Cost of products and services as a percentage of net revenue increased due to a higher contribution from our products portfolio, as we transition to a more software-defined platform with HPE Alletra.
Intelligent Edge
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||||||||||||||
| Net revenue | $ | 1,162 | $ | 1,086 | 7.0 | % | $ | 2,308 | $ | 2,287 | 0.9 | % | |||||||||||||||||||||||
| Earnings from operations | $ | 274 | $ | 237 | 15.6 | % | $ | 588 | $ | 590 | (0.3) | % | |||||||||||||||||||||||
| Earnings from operations as a % of net revenue | 23.6 | % | 21.8 | % | 25.5 | % | 25.8 | % | |||||||||||||||||||||||||||
Three months ended April 30, 2025 compared with three months ended April 30, 2024
Intelligent Edge net revenue increased by $76 million, or 7.0% (increased 8.0% on a constant currency basis). Product revenue increased by $43 million, or 5.4%, primarily led by higher volume and product mix effect of $52 million, or 6.5%. The product revenue increase was primarily led by switching products due to increased demand. Services net revenue increased $33 million, or 11.3%, primarily led by our aaS offerings.
Intelligent Edge earnings from operations as a percentage of net revenue increased 1.8 percentage points primarily due to a decrease in operating expenses as a percentage of net revenue, partially offset by an increase in cost of products and services as a percentage of net revenue. The increase in cost of product and services as a percentage of net revenue was primarily due to competitive pricing pressure. The decrease in operating expenses as a percentage of net revenue primarily due to our cost containment measures.
Six months ended April 30, 2025 compared with six months ended April 30, 2024
Intelligent Edge net revenue increased by $21 million, or 0.9% (increased 1.5% on a constant currency basis). Services net revenue increased $73 million, or 12.8%, primarily led by our aaS offerings. Product revenue decreased by $52 million, or 3.0%, led by lower AUPs of $172 million, or 10.0%, partially offset by higher volume and product mix effect of $128 million, or 7.5%. The product revenue decrease was primarily led by switching products due to higher backlog reduction in prior-year period, partially offset by an increase in wireless local area network products.
Intelligent Edge earnings from operations as a percentage of net revenue remained relatively flat.
Financial Services
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||||||||||||||
| Net revenue | $ | 856 | $ | 867 | (1.3) | % | $ | 1,729 | $ | 1,740 | (0.6) | % | |||||||||||||||||||||||
| Earnings from operations | $ | 89 | $ | 81 | 9.9 | % | $ | 171 | $ | 155 | 10.3 | % | |||||||||||||||||||||||
| Earnings from operations as a % of net revenue | 10.4 | % | 9.3 | % | 9.9 | % | 8.9 | % | |||||||||||||||||||||||||||
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Three months ended April 30, 2025compared with three months ended April 30, 2024
FS net revenue decreased by $11 million, or 1.3% (increased 0.8% on a constant currency basis) primarily due to lower rental revenue on lower average operating leases and unfavorable currency fluctuations, partially offset by higher finance income from higher average finance leases, along with higher asset management remarketing revenue and asset recovery services revenue.
FS earnings from operations as a percentage of net revenue increased 1.1 percentage points due to a decrease in cost of services as a percentage of net revenue, while operating expenses as a percentage of net revenue were relatively flat. The decrease in cost of services as a percentage of net revenue resulted primarily from lower depreciation expense, partially offset by higher bad debt expense.
Six months ended April 30, 2025compared with six months ended April 30, 2024
FS net revenue decreased by $11 million, or 0.6% (increased 1.2% on a constant currency basis) primarily due to lower rental revenue on lower average operating leases and unfavorable currency fluctuations, partially offset by higher finance income from higher average finance leases, along with higher asset management remarketing revenue and asset recovery services revenue.
FS earnings from operations as a percentage of net revenue increased 1.0 percentage points due to a decrease in cost of services as a percentage of net revenue, while operating expenses as a percentage of net revenue were flat. The decrease in cost of services as a percentage of net revenue resulted primarily from lower depreciation expense, partially offset by higher bad debt expense and higher borrowing costs.
Financing Volume
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Financing volume | $ | 1,305 | $ | 1,672 | $ | 2,461 | $ | 3,035 | |||||||||||||||
Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, decreased 21.9% and 18.9% for the three and six months ended April 30, 2025, as compared to the prior-year period. The decrease for the three and six months ended April 30, 2025, was primarily driven by lower financing of both HPE and third-party product sales and services.
Portfolio Assets and Ratios
The portfolio assets and ratios derived from the segment balance sheets for FS were as follows:
| As of | |||||||||||
| April 30, 2025 | October 31, 2024 | ||||||||||
| Dollars in millions | |||||||||||
| Financing receivables, gross | $ | 9,602 | $ | 9,647 | |||||||
| Net equipment under operating leases | 3,352 | 3,632 | |||||||||
|
Capitalized profit on intercompany equipment transactions(1)
|
437 | 396 | |||||||||
|
Intercompany leases(1)
|
123 | 119 | |||||||||
| Gross portfolio assets | 13,514 | 13,794 | |||||||||
|
Allowance for doubtful accounts(2)
|
196 | 177 | |||||||||
| Operating lease equipment reserve | 33 | 30 | |||||||||
| Total reserves | 229 | 207 | |||||||||
| Net portfolio assets | $ | 13,285 | $ | 13,587 | |||||||
| Reserve coverage | 1.7 | % | 1.5 | % | |||||||
|
Debt-to-equity ratio(3)
|
7.0x | 7.0x | |||||||||
(1)Intercompany activity is eliminated in consolidation.
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(2)Allowance for credit losses for financing receivables includes both the short- and long-term portions.
(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 $11.6 billion and $11.8 billion as of April 30, 2025 and October 31, 2024, 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 both April 30, 2025 and October 31, 2024 was $1.7 billion.
As of April 30, 2025 and October 31, 2024, FS net cash and cash equivalents balances were approximately $670 million and $533 million, respectively.
Net portfolio assets as of April 30, 2025 decreased 2.2% from October 31, 2024. The decrease generally resulted from portfolio runoff exceeding new financing volume during the period, partially offset by 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 six months ended April 30, 2025, FS recorded net bad debt expense of $25 million and $50 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.
Corporate Investments and Other
| For the three months ended April 30, | For the six months ended April 30, | |||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | % Change | 2025 | 2024 | % Change | |||||||||||||||||||||||||||||||||
| Dollars in millions | ||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 194 | $ | 252 | (23.0) | % | $ | 391 | $ | 490 | (20.2) | % | ||||||||||||||||||||||||||
| Loss from operations | $ | (10) | $ | (9) | (11.1) | % | $ | (12) | $ | (19) | 36.8 | % | ||||||||||||||||||||||||||
| Loss from operations as a % of net revenue | (5.2) | % | (3.6) | % | (3.1) | % | (3.9) | % | ||||||||||||||||||||||||||||||
Three months ended April 30, 2025compared with three months ended April 30, 2024
Corporate Investments and Other net revenue decreased by $58 million, or 23.0% (decreased 21.4% on a constant currency basis), primarily due to the divestiture of the CTG business effective December 1, 2024.
Corporate Investments and Other loss from operations remained relatively flat.
Six months ended April 30, 2025 compared with six months ended April 30, 2024
Corporate Investments and Other net revenue decreased by $99 million, or 20.2% (decreased 18.6% on a constant currency basis), primarily due to the divestiture of the CTG business effective December 1, 2024.
Corporate Investments and Other loss from operations as a percentage of net revenue decreased by 0.8 percentage points primarily due decreases in cost of services and operating expenses as a percentage of net revenue due to the divestiture of the CTG business effective December 1, 2024.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), which requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, net revenue, and expenses, and the disclosure of contingent liabilities. An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to a material level of judgment related to matters that are highly uncertain, and changes in those estimates and assumptions are reasonably likely to materially impact our Condensed Consolidated Financial Statements.
Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Accounting policies that are critical in the portrayal of our financial condition and results of operations and require management's most difficult, subjective, or complex judgments include revenue recognition, taxes on earnings, impairment assessment of goodwill and intangible assets, and contingencies.
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
As of April 30, 2025, 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, 2024, except for estimates used in our goodwill impairment analysis.
Goodwill
We review goodwill for impairment at the reporting unit level annually on the first day of the fourth quarter, or whenever events or circumstances indicate the carrying amount of goodwill may not be recoverable. We are permitted to conduct a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. We performed interim goodwill impairment tests as of November 1, 2024 and April 30, 2025.
As of April 30, 2025, our reporting units with goodwill are consistent with the reportable segments identified in Note 2, "Segment Information" to the Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report, with the exception of Corporate Investments and Other which contains one reporting unit: Advisory and Professional Services.
When performing the goodwill impairment test, we compare the fair value of each reporting unit to its carrying amount. An impairment exists if the fair value of the reporting unit is less than its carrying amount.
Estimating the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. We estimate the fair value of our reporting units using a weighting of fair values derived mostly from the income approach and, to a lesser extent, the market approach. Under the income approach, the fair value of a reporting unit is based on discounted cash flow analysis of management's short-term and long-term forecast of operating performance. This analysis includes significant assumptions regarding revenue growth rates, expected operating margins, and timing of expected future cash flows based on market conditions and customer acceptances. The discount rate used is based on the weighted-average cost of capital of comparable public companies adjusted for the relevant risk associated with business specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. Under the market approach, the fair value is based on market multiples of revenue and earnings derived from comparable publicly traded companies with operating and investment characteristics similar to the reporting unit. We weight the fair value derived from the market approach commensurate with the level of comparability of these publicly traded companies to the reporting unit. When market comparables are not meaningful or not available, we estimate the fair value of a reporting unit using the income approach. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to individual reporting units to determine the carrying amount of each reporting unit.
November 1, 2024 Interim Impairment Test
An interim impairment test was performed as of November 1, 2024 based on organizational changes impacting the Hybrid Cloud and Server reporting units. The interim impairment test did not result in an impairment of goodwill.
April 30, 2025 Interim Impairment Test
During the second quarter of fiscal 2025, the macroeconomic environment experienced a rapid deterioration, primarily driven by the announcement and subsequent modifications of international tariffs, an escalation in global trade tensions, and increasing geopolitical uncertainty. These events have contributed to significant movement in inputs used to determine the weighted-average cost of capital. As of April 30, 2025, we determined that an indicator of potential impairment existed to require an interim quantitative goodwill impairment test for its reporting units.
Based on the results of the interim quantitative impairment test performed as of April 30, 2025, the fair value of the Hybrid Cloud reporting unit was below the carrying value assigned to Hybrid Cloud. The decline in the fair value of the Hybrid Cloud reporting unit was primarily driven by an increase in the discount rate used in the discounted cash flows analysis, which reflected heightened macroeconomic uncertainty and changes in market conditions. The fair value of the Hybrid Cloud reporting unit was based on a weighting of fair values derived most significantly from the income approach, and to a lesser extent, the market approach. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows which we consider to be a level 3 unobservable input in the fair value hierarchy.
Prior to the quantitative goodwill impairment test, we tested the recoverability of long-lived assets and other assets of the Hybrid Cloud reporting unit and concluded that such assets were not impaired. The quantitative goodwill impairment test indicated that the carrying value of the Hybrid Cloud reporting unit exceeded its fair value by $1.4 billion. As a result, we recorded a goodwill impairment charge of $1.4 billion in the second quarter of fiscal 2025.
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Subsequent to the impairment of Hybrid Cloud reporting unit, the indicated fair values of the reporting units exceeded their respective carrying amounts by a range of 0% to 112%. In order to evaluate the sensitivity of the estimated fair value of our reporting units in the goodwill impairment test, we applied a hypothetical 10% decrease to the fair value of each reporting unit. Based on the results of this hypothetical 10% decrease all of the reporting units had an excess of fair value over carrying amount, except Server and Hybrid Cloud.
The Hybrid Cloud reporting unit has remaining goodwill of $3.5 billion as of April 30, 2025 and an excess of fair value over carrying value of net assets of 0% as of the interim test date. Hybrid Cloud business is transitioning to a more cloud-native, software-defined platform with HPE Alletra. Translating this growth to revenue and operating income will take time because a greater mix of high margin business, such as ratable software and services, are deferred and recognized in future periods.
The excess of fair value over carrying amount for the Server reporting unit was 3%. The fair value of the Server reporting unit was also impacted by an increase in the discount rate used in the discounted cash flow analysis, driven by heightened macroeconomic uncertainty. The Server reporting unit has a goodwill balance of $10.2 billion as of April 30, 2025. In the current macroeconomic and inflationary environment, customers have invested selectively, resulting in moderate unit growth and competitive pricing in the traditional servers business. While the AI servers business is growing at a faster pace, because graphics processing units represent a large portion of the solutions, the pricing is very competitive and margins are limited. The Server business continues to focus on capturing market share in both traditional and AI servers, while maintaining operating margin and leveraging its strong portfolio of products.
If the global macroeconomic or geopolitical conditions worsen, projected revenue growth rates or operating margins decline, weighted average cost of capital increases, or if we have a significant or sustained decline in our stock price, it is possible the estimates about our Hybrid Cloud and Server reporting units' ability to successfully address the current challenges may change, which could result in the carrying value of the Hybrid Cloud and Server reporting units exceeding their estimated fair value and potential impairment charges.
LIQUIDITY AND CAPITAL RESOURCES
Current Overview
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 (credit) costs, indemnifications, maturing debt, interest payments, and income tax payments, in addition to any future investments, share repurchases, and stockholder 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, including the debt funding related to the proposed acquisition of Juniper Networks, proceeds from issuance of the Preferred Stock and proceeds from the sale of 30% of the total issued share capital of H3C, and cash generated from our operations, along with our access to capital markets, will be sufficient to meet our liquidity requirements for at least the next twelve months (including for the payment of consideration to consummate the Juniper Networks transaction) 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 I of the Annual Report on Form 10-K for the fiscal year ended October 31, 2024, as modified by the risk statements in the section titled "Risk Factors" in Item 1A of Part II of this Quarterly Report, and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 3 of Part I of this Quarterly Report.
Our cash balances are held in numerous locations throughout the world, with a substantial amount held in the U.S. as of April 30, 2025. 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.
Amounts held outside of the U.S. are generally utilized to support our non-U.S. liquidity needs. Repatriations of amounts held outside the U.S. generally will not be taxable from a U.S. federal tax perspective, but may be subject to state income or foreign withholding tax. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to keep cash balances outside of the U.S. and to meet liquidity needs through ongoing cash flows, external borrowings, or both. We do not expect restrictions or potential taxes incurred on repatriation of amounts held outside of the U.S. to have a material effect on our overall liquidity, financial condition, or results of operations.
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
In connection with the share repurchase program previously authorized by our Board of Directors, we repurchased and settled an aggregate amount of $102 million, during the first six months of fiscal 2025. As of April 30, 2025, we had a remaining authorization of approximately $0.7 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 May 23, 2024, we announced plans to divest our CTG business to HCLTech. CTG was included in our Communications and Media Solutions business, which was reported in the Corporate Investments and Other segment. This divestiture includes the platform-based software solutions portions of the CTG portfolio, including systems integration, network applications, data intelligence, and the business support systems groups. On December 1, 2024, we completed the disposition of CTG. We received net proceeds of $210 million and recognized a gain of $244 million included in Gain on sale of a business in the Condensed Consolidated Statements of Earnings.
In September 2024, we issued $9.0 billion of senior unsecured notes and $1.5 billion of Preferred Stock, the net proceeds of which we intend to use to fund a portion of the consideration for the acquisition of Juniper Networks and for other general corporate purposes. If the transaction is terminated, the senior unsecured notes and Preferred Stock will be treated as follows:
•If (i) the proposed acquisition of Juniper Networks does not close on or before the later of (a) the date that is five business days after October 9, 2025 and (b) the date that is five business days after any later date to which Juniper Networks and HPE may agree to extend the "End Date" (as defined in the Merger Agreement) or (ii) HPE notifies the trustee of such notes that HPE will not pursue the consummation of the proposed acquisition of Juniper Networks, we shall be required to redeem $6.5 billion of these senior unsecured notes.
•If (i) the proposed acquisition of Juniper Networks does not close on or before the later of (a) the date that is five business days after October 9, 2025 and (b) the date that is five business days after any later date to which Juniper Networks and HPE may agree to extend the "End Date" (as defined in the Merger Agreement) or (ii) HPE notifies the holders of the Preferred Stock in writing that HPE will not pursue the consummation of the proposed acquisition of Juniper Networks, we may, at our option, redeem the Preferred Stock, in whole but not in part.
Liquidity
Our cash, cash equivalents, restricted cash, total debt, and available borrowing resources were as follows:
| As of | |||||||||||
| April 30, 2025 | October 31, 2024 | ||||||||||
| In millions | |||||||||||
| Cash, cash equivalents and restricted cash | $ | 11,788 | $ | 15,105 | |||||||
| Total debt | 17,530 | 18,246 | |||||||||
|
Available borrowing resources(1)
|
5,975 | 6,009 | |||||||||
|
Commercial paper programs(2)
|
5,088 | 5,101 | |||||||||
|
Uncommitted lines of credit(3)
|
$ | 887 | $ | 908 | |||||||
(1) Excludes the financing commitment for the Juniper Networks acquisition. The maximum aggregate commitment under this facility is $4.0 billion, however, no balances were outstanding under this facility as of April 30, 2025.
(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 $1.3 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 six months ended April 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| In millions | |||||||||||
| Net cash (used in) provided by operating activities | $ | (851) | $ | 1,157 | |||||||
| Net cash used in investing activities | (1,012) | (1,107) | |||||||||
| Net cash used in financing activities | (1,492) | (1,676) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 38 | (31) | |||||||||
| Change in cash, cash equivalents and restricted cash | $ | (3,317) | $ | (1,657) | |||||||
| Free cash flow | $ | (1,724) | $ | 128 | |||||||
Operating Activities
For the six months ended April 30, 2025, net cash used in operating activities increased by $2.0 billion, as compared to the corresponding period in fiscal 2024. The increase was primarily due to unfavorable working capital changes driven by the timing of payments, moderated by an increase in collection from financing receivables, as compared to the prior-year period.
Our working capital metrics and cash conversion impacts were as follows:
| As of | As of | ||||||||||||||||||||||||||||||||||||||||
| April 30, 2025 | October 31, 2024 | Change | April 30, 2024 | October 31, 2023 | Change | Y/Y Change | |||||||||||||||||||||||||||||||||||
| Days of sales outstanding in accounts receivable ("DSO") | 46 | 38 | 8 | 48 | 43 | 5 | (2) | ||||||||||||||||||||||||||||||||||
| Days of supply in inventory ("DOS") | 134 | 120 | 14 | 137 | 87 | 50 | (3) | ||||||||||||||||||||||||||||||||||
| Days of purchases outstanding in accounts payable ("DPO") | (154) | (170) | 16 | (189) | (134) | (55) | 35 | ||||||||||||||||||||||||||||||||||
| Cash conversion cycle | 26 | (12) | 38 | (4) | (4) | - | 30 | ||||||||||||||||||||||||||||||||||
The cash conversion cycle is the sum of DSO and DOS less DPO. Items which may cause the cash conversion cycle in a particular period to differ include, but are not limited to, changes in business mix, changes in payment terms (including extended payment terms to customers or from suppliers), early or late invoice payments from customers or to suppliers, the extent of receivables factoring, seasonal trends, the timing of the revenue recognition and inventory purchases within the period, the impact of commodity costs, and acquisition activity.
DSO measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average of net revenue. Compared to the corresponding three-month period in fiscal 2024, the decrease in DSO in the current period was primarily due to higher 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 2024, the decrease in DOS in the current period was primarily due to higher shipments.
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 2024, the decrease in DPO in the current period was primarily due to higher vendor payments for planned AI systems, and lower inventory purchases.
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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 six months ended April 30, 2025, net cash used in investing activities decreased by $0.1 billion, as compared to the corresponding period in fiscal 2024. The decrease was primarily due to proceeds from the divestiture of our CTG business received in the current period of $0.2 billion, lower investments in property, plant and equipment and software assets, net of sales proceeds of $0.1 billion, partially offset by higher cash utilized in net financial collateral activities of $0.2 billion, as compared to the prior-year period.
Financing Activities
For the six months ended April 30, 2025, net cash used in financing activities decreased by $0.2 billion, as compared to the corresponding period in fiscal 2024. This decrease was primarily due to lower repayments of debt of $1.2 billion, partially offset by lower proceeds from debt, net of issuance costs of $0.8 billion, and higher cash utilized for share repurchases and stock-based award activities 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") and software assets 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 six months ended April 30, 2025, FCF decreased by $1.9 billion, as compared to the corresponding period in fiscal 2024. This was primarily due to higher cash used in operating activities, 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 and revolving credit facility since October 31, 2024.
As noted above, we are also party to two senior unsecured delayed draw term loan facilities, comprised of a $1.0 billion 364-day tranche and a $3.0 billion three-year tranche, subject to customary conditions. Unless previously terminated, commitments under both the 364-day term loan and the three-year term loan will terminate upon the earliest of (i) five business days after the Juniper Outside Date (as defined in such term loan agreements), (ii) the occurrence of the closing of the acquisition of Juniper Networks without the funding of any borrowings under either of the term loan agreements, and (iii) the termination of the Merger Agreement by HPE in writing in accordance with its terms.
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 six months ended April 30, 2025 were as follows:
Debt Repayments:
•During the six months ended April 30, 2025, we repaid $0.8 billion of the outstanding asset-backed debt securities.
Cash Requirements and Commitments
Contractual Obligations
Other than the previously mentioned repayment of asset-backed debt securities, our contractual obligations have not changed materially outside of the normal course of business since October 31, 2024. For further information see "Cash
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Requirements and Commitments" in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2024.
Retirement Benefit Plan Funding
For the remainder of fiscal 2025, we anticipate making contributions of approximately $102 million to our non-U.S. pension plans. Our policy is to fund our pension plans so that we meet at least the minimum contribution requirements, as established by various authorities including local government and tax authorities.
Restructuring Plans
As of April 30, 2025, we expect to make future cash payments of approximately $140 million in connection with our approved restructuring plans, which includes $28 million expected to be paid through the remainder of fiscal 2025 and $112 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.
Cost Reduction Program
The Program is expected to be implemented through fiscal year 2026. The estimates of the duration of the Program, the charges and expenditures that we expect to incur in connection therewith, and the timing thereof are subject to a number of assumptions, including local law requirements in various jurisdictions, and actual amounts may differ materially from estimates. As of April 30, 2025, we expect to make future cash payments of approximately $350 million in connection with the Program, which includes $140 million expected to be paid through the remainder of fiscal 2025 and $210 million expected to be paid thereafter.
Uncertain Tax Positions
As of April 30, 2025, we had approximately $152 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. For the remaining amount, we are unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters. Payments of these obligations would result from settlements with taxing authorities. For more information on our uncertain tax positions, see Note 5, "Taxes on Earnings" to the Condensed Consolidated Financial Statements in Item 1 of Part I.
Off-Balance Sheet Arrangements
As part of our ongoing business, we have not participated in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
We have third-party revolving short-term financing arrangements intended to facilitate the working capital requirements of certain customers. For more information on our third-party revolving short-term financing arrangements, see Note 6, "Balance Sheet Details", to the Condensed Consolidated Financial Statements in Item 1 of Part I.
GAAP to non-GAAP Reconciliations
The following tables provide a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure for the periods presented:
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Reconciliation of GAAP gross profit and gross profit margin to non-GAAP gross profit and gross profit margin.
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Dollars |
% of Revenue |
Dollars |
% of Revenue |
Dollars |
% of Revenue |
Dollars |
% of Revenue |
||||||||||||||||||||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||||||||||||||||||||||||||
| GAAP net revenue | $ | 7,627 | 100 | % | $ | 7,204 | 100 | % | $ | 15,481 | 100 | % | $ | 13,959 | 100 | % | |||||||||||||||||||||||||||||||
| GAAP cost of sales | 5,458 | 71.6 | % | 4,828 | 67.0 | % | 11,017 | 71.2 | % | 9,126 | 65.4 | % | |||||||||||||||||||||||||||||||||||
| GAAP gross profit | 2,169 | 28.4 | % | 2,376 | 33.0 | % | $ | 4,464 | 28.8 | % | 4,833 | 34.6 | % | ||||||||||||||||||||||||||||||||||
| Non-GAAP adjustments | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 13 | 0.2 | % | 14 | 0.2 | % | 30 | 0.2 | % | 30 | 0.2 | % | |||||||||||||||||||||||||||||||||||
|
Acquisition, disposition and other charges(1)
|
- | - | % | (7) | (0.1) | % | (3) | - | % | (32) | (0.2) | % | |||||||||||||||||||||||||||||||||||
| Cost reduction program | 46 | 0.6 | % | - | - | % | 46 | 0.3 | % | - | - | % | |||||||||||||||||||||||||||||||||||
| H3C divestiture related severance costs | 16 | 0.2 | % | - | - | % | 17 | 0.1 | % | - | - | % | |||||||||||||||||||||||||||||||||||
| Non-GAAP gross profit | $ | 2,244 | 29.4 | % | $ | 2,383 | 33.1 | % | $ | 4,554 | 29.4 | % | $ | 4,831 | 34.6 | % | |||||||||||||||||||||||||||||||
(1) Includes divestiture recovery.
Reconciliation of GAAP (loss) earnings from operations and operating profit margin to non-GAAP earnings from operations and operating profit margin.
| For the three months ended April 30, | For the six months ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Dollars |
% of Revenue |
Dollars |
% of Revenue |
Dollars |
% of Revenue |
Dollars |
% of Revenue |
||||||||||||||||||||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||||||||||||||||||||||||||
| GAAP (loss) earnings from operations | $ | (1,109) | (14.5) | % | $ | 425 | 5.9 | % | $ | (676) | (4.4) | % | $ | 950 | 6.8 | % | |||||||||||||||||||||||||||||||
| Non-GAAP Adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 37 | 0.5 | % | 67 | 0.9 | % | 75 | 0.5 | % | 138 | 1.0 | % | |||||||||||||||||||||||||||||||||||
| Impairment of goodwill | 1,361 | 17.8 | % | - | - | % | 1,361 | 8.8 | % | - | - | % | |||||||||||||||||||||||||||||||||||
| Transformation (credit) costs | (13) | (0.2) | % | 33 | 0.5 | % | 2 | - | % | 53 | 0.4 | % | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 116 | 1.5 | % | 120 | 1.7 | % | 270 | 1.7 | % | 261 | 1.9 | % | |||||||||||||||||||||||||||||||||||
| H3C divestiture related severance costs | 20 | 0.3 | % | - | - | % | 97 | 0.6 | % | - | - | % | |||||||||||||||||||||||||||||||||||
| Cost reduction program | 146 | 1.9 | % | - | - | % | 146 | 0.9 | % | - | - | % | |||||||||||||||||||||||||||||||||||
| Acquisition, disposition and other charges | 55 | 0.7 | % | 39 | 0.5 | % | 118 | 0.8 | % | 57 | 0.4 | % | |||||||||||||||||||||||||||||||||||
| Non-GAAP earnings from operations | $ | 613 | 8.0 | % | $ | 684 | 9.5 | % | $ | 1,393 | 9.0 | % | $ | 1,459 | 10.5 | % | |||||||||||||||||||||||||||||||
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Reconciliation of GAAP net (loss) earnings and diluted net EPS to non-GAAP net earnings and diluted net EPS.
| For the three months ended April 30, | Six months ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Dollars |
Diluted Net EPS(1)
|
Dollars | Diluted Net EPS | Dollars |
Diluted Net EPS(1)
|
Dollars | Diluted Net EPS | ||||||||||||||||||||||||||||||||||||||||
| Dollars in millions except per share amounts | |||||||||||||||||||||||||||||||||||||||||||||||
| GAAP net (loss) earnings | $ | (1,050) | $ | (0.82) | $ | 314 | $ | 0.24 | (423) | (0.36) | $ | 701 | 0.53 | ||||||||||||||||||||||||||||||||||
| Non-GAAP Adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 37 | 0.03 | 67 | 0.05 | 75 | 0.06 | 138 | 0.10 | |||||||||||||||||||||||||||||||||||||||
| Impairment of goodwill | 1,361 | 1.03 | - | - | 1,361 | 1.03 | - | - | |||||||||||||||||||||||||||||||||||||||
| Transformation (credit) costs | (13) | (0.01) | 33 | 0.03 | 2 | - | 53 | 0.04 | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 116 | 0.09 | 120 | 0.09 | 270 | 0.20 | 261 | 0.20 | |||||||||||||||||||||||||||||||||||||||
| Gain on sale of a business | - | - | - | - | (244) | (0.18) | - | - | |||||||||||||||||||||||||||||||||||||||
| H3C divestiture related severance costs | 20 | 0.02 | - | - | 97 | 0.07 | - | - | |||||||||||||||||||||||||||||||||||||||
| Cost reduction program | 146 | 0.11 | - | - | 146 | 0.11 | - | - | |||||||||||||||||||||||||||||||||||||||
| Acquisition, disposition and other charges | 55 | 0.04 | 39 | 0.03 | 118 | 0.08 | 57 | 0.05 | |||||||||||||||||||||||||||||||||||||||
| Adjustments for equity interests | - | - | (42) | (0.03) | - | - | (88) | (0.07) | |||||||||||||||||||||||||||||||||||||||
| (Gain) loss on equity investments, net | (7) | (0.01) | - | - | (9) | (0.01) | 61 | 0.05 | |||||||||||||||||||||||||||||||||||||||
|
Other adjustments(2)
|
(29) | (0.02) | (1) | (0.01) | (58) | (0.04) | 1 | - | |||||||||||||||||||||||||||||||||||||||
| Adjustments for taxes | (91) | (0.08) | 31 | 0.02 | (106) | (0.09) | 15 | 0.01 | |||||||||||||||||||||||||||||||||||||||
|
Non-GAAP net earnings attributable to HPE(3)
|
545 | $ | 0.38 | 561 | $ | 0.42 | 1,229 | $ | 0.87 | 1,199 | $ | 0.91 | |||||||||||||||||||||||||||||||||||
| Preferred stock dividends | (29) | - | (58) | - | |||||||||||||||||||||||||||||||||||||||||||
| Non-GAAP net earnings attributable to common stockholders | $ | 516 | $ | 561 | $ | 1,171 | $ | 1,199 | |||||||||||||||||||||||||||||||||||||||
(1) Non-GAAP diluted net EPS reflects any dilutive effect of outstanding convertible preferred stock and employee stock plans, but that effect is excluded when calculating GAAP diluted net EPS as that would be anti-dilutive. See Note 14 "Net (Loss) Earnings Per Share", to the Condensed Consolidated Financial Statements in Item 1 of Part I for further information.
(2) Other adjustments includes non-service net periodic benefit cost and tax indemnification and other adjustments.
Table of Content
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(3) For purposes of calculating Non-GAAP diluted net EPS, the preferred stock dividends are added back to the Non-GAAP net earnings attributable to common stockholders and the diluted weighted average share calculation assumes the preferred stock was converted at issuance or as of the beginning of the reporting period. See the table below for the shares used to calculate Non-GAAP diluted net EPS.
Shares used to calculate Non-GAAP diluted net EPS.
| For the three months ended April 30, | For the six months ended April 30, 2025 | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Weighted-average shares used to compute basic net EPS | 1,322 | 1,311 | 1,319 | 1,306 | |||||||||||||||||||
| Dilutive effect of employee stock plans | 10 | 14 | 14 | 14 | |||||||||||||||||||
|
Dilutive effect of 7.625% Series C mandatory convertible preferred stock
|
87 | - | 76 | - | |||||||||||||||||||
| Weighted-average shares used to compute Non-GAAP diluted net EPS | 1,419 | 1,325 | 1,409 | 1,320 | |||||||||||||||||||
Reconciliation of net cash provided by operating activities to free cash flow.
| For the three months ended April 30, | For the six months ended April 30, 2025 | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| In millions | |||||||||||||||||||||||
| Net cash (used in) provided by operating activities | $ | (461) | $ | 1,093 | $ | (851) | $ | 1,157 | |||||||||||||||
| Investment in property, plant and equipment and software assets | (547) | (560) | (1,075) | (1,216) | |||||||||||||||||||
| Proceeds from sale of property, plant and equipment | 80 | 122 | 164 | 218 | |||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 81 | (45) | 38 | (31) | |||||||||||||||||||
| Free cash flow | $ | (847) | $ | 610 | $ | (1,724) | $ | 128 | |||||||||||||||
Use of Non-GAAP Financial Measures
The non-GAAP financial measures presented are net revenue on a constant currency basis (including at the business segment level), non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP earnings from operations, non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue), non-GAAP tax rate, non-GAAP net earnings attributable to HPE, non-GAAP net earnings attributable to common stockholders, non-GAAP diluted net earnings per share attributable to common stockholders, and FCF. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to net revenue on a constant currency basis is net revenue. The GAAP measure most directly comparable to non-GAAP gross profit is gross profit. The GAAP measure most directly comparable to non-GAAP gross profit margin is gross profit margin. The GAAP measure most directly comparable to non-GAAP earnings from operations is earnings from operations. The GAAP measure most directly comparable to non-GAAP operating profit margin (non-GAAP earnings from operations as a percentage of net revenue) is operating profit margin (earnings from operations as a percentage of net revenue). The GAAP measure most directly comparable to non-GAAP income tax rate is income tax rate. The GAAP measure most directly comparable to non-GAAP net earnings attributable to HPE and non-GAAP net earnings attributable to common stockholders is net earnings. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
attributable to common stockholders is diluted net earnings per share attributable to common stockholders. The GAAP measure most directly comparable to FCF is cash flow from operations.
We believe that providing the non-GAAP measures stated above, in addition to the related GAAP measures provides greater transparency to the information used in our financial and operational decision making and allows the reader of our Condensed Consolidated Financial Statements to see our financial results "through the eyes" of management. We further believe that providing this information provides investors with a supplemental view to understand our historical and prospective operating performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of our operating performance with the performance of other companies in the same industry that supplement their GAAP results with non-GAAP financial measures that may be calculated in a similar manner.
Economic Substance of non-GAAP Financial Measures
Net revenue on a constant currency basis assumes no change to the foreign exchange rate utilized in the comparable prior-year period. This measure assists investors with evaluating our past and future performance, without the impact of foreign exchange rates, as more than half of our revenue is generated outside of the U.S.
We believe that excluding the items mentioned below from the non-GAAP financial measures provides a supplemental view to management and our investors of our consolidated financial performance and presents the financial results of the business without costs that we do not believe to be reflective of our ongoing operating results. Exclusion of these items can have a material impact on the equivalent GAAP measure and cash flows thus limiting the use of such non-GAAP financial measures as analytic tools. See "Compensation for Limitations With Use of Non-GAAP Financial Measures" section below for further information.
Non-GAAP gross profit and non-GAAP gross profit margin are defined to exclude charges related to the stock-based compensation expense, acquisition, disposition and other charges, severance costs associated with the cost reduction program, and H3C divestiture related severance costs. See below for the reasons management excludes each item:
•Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date. Although stock-based compensation is a key incentive offered to our employees, we exclude these charges for the purpose of calculating these non-GAAP measures, primarily because they are non-cash expenses and our internal benchmarking analyses evidence that many industry participants and peers present non-GAAP financial measures excluding stock-based compensation expense.
•We incur costs related to our acquisition, disposition and other charges. Charges include expenses associated with acquisitions, disposal activities, and disaster (recovery) charges. We exclude these costs because we consider these charges to be discrete events and do not believe they are reflective of normal continuing business operations. For the three and six months ended April 30, 2025, acquisition charges were driven by costs associated with the proposed acquisition of Juniper Networks and miscellaneous disposition related charges. For the three and six months ended April 30, 2024, acquisition charges were driven by the proposed acquisition of Juniper Networks, in addition to prior acquisitions of Axis and Athonet.
•We incurred severance and other charges pursuant to cost management initiatives. We exclude these charges because we do not believe they are reflective of normal continuing business operations. We believe eliminating these adjustments for the purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance.
•We incurred H3C divestiture related severance costs in connection with the disposition of total issued share capital of H3C. On September 4, 2024, we divested 30% of the total issued share capital of H3C and received proceeds of $2.1 billion of pre-tax consideration ($2.0 billion post-tax). The divestiture resulted in decreased future investment earnings and cash dividend inflows resulting in a decision to implement offsetting cost savings measures. These measures include severance for certain of the Company's employees. The non-GAAP adjustment represents our costs to execute these related exit actions to offset the loss in equity earnings and related cash flows. We expect future annualized cost savings of approximately $120 million following the completion of these actions.
Non-GAAP earnings from operations and non-GAAP operating profit margin consist of (loss) earnings from operations or (loss) earnings from operations as a percentage of net revenue excluding the items mentioned above and charges relating to the amortization of intangible assets, impairment of goodwill, transformation (credit) costs, gain on sale of a business, and
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
acquisition, disposition and other charges. In addition to the items previously explained above, management excludes these items for the following reasons:
•We incur charges relating to the amortization of intangible assets and exclude these charges for purposes of calculating these non-GAAP measures. Such charges are significantly impacted by the timing and magnitude of our acquisitions. We exclude these charges for the purpose of calculating these non-GAAP measures, primarily because they are noncash expenses and our internal benchmarking analyses evidence that many industry participants and peers present non-GAAP financial measures excluding intangible asset amortization. Although this does not directly affect our cash position, the loss in value of intangible assets over time can have a material impact on the equivalent GAAP earnings measure.
•In the second quarter of fiscal 2025, we recorded a non-cash impairment charge for the goodwill associated with our Hybrid Cloud reporting unit. HPE believes that this non-cash charge does not reflect the Company's operating results and is not indicative of the underlying performance of the business. HPE excludes these charges for purposes of calculating these non-GAAP measures to facilitate a more meaningful evaluation of HPE's current operating performance and comparisons to HPE's operating performance in other periods. Although this does not directly affect our cash position, the loss in value of goodwill over time can have a material impact on the equivalent GAAP earnings measure.
•Transformation (credit) costs represent net costs related to the (i) HPE Next Plan and (ii) Cost Optimization and Prioritization Plan. 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. The primary elements of the HPE Next and the Cost Optimization and Prioritization Plan have been substantially completed by October 31, 2024. 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.
•Gain on sale of a business represents the gain associated with certain disposal activities. On December 1, 2024, we completed the disposition of CTG which resulted in a gain of $244 million. We consider this divestiture to be a discrete event and believe eliminating this adjustment for the purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance.
Non-GAAP net earnings attributable to HPE, non-GAAP net earnings attributable to common stockholders, and non-GAAP diluted net earnings per share attributable to common stockholders consist of net (loss) earnings or diluted net (loss) earnings per share excluding those same charges mentioned above, as well as other items such as adjustments for equity interests, gain or loss on equity investments, other adjustments, and adjustments for taxes. Non-GAAP net earnings attributable to HPE and non-GAAP diluted net earnings per share attributable to common stockholders includes preferred stock dividends added back to non-GAAP net earnings attributable to HPE. 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:
•During the six months ended April 30, 2024, we stopped reporting H3C earnings in our non-GAAP results due to the planned divestiture of the H3C investment. Per the terms of the original Put Share Purchase Agreement, we weren't anticipating receiving dividends from this investment prospectively. However, on May 24, 2024, we entered into an Amended and Restated Put Share Purchase Agreement and an Agreement on Subsequent Arrangements, both with UNIS, which, taken together, revise the arrangements governing the aforementioned sale as previously set forth in the original Put Share Purchase Agreement. On September 4, 2024, we divested 30% of the total issued share capital of H3C. We continue to possess the option to sell the remaining 19% of the total issued share capital of H3C at a later date. 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
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HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
vary in size, frequency and timing. When projecting this long-term rate, we evaluated a three-year financial projection. The projected rate assumes no incremental acquisitions in the three-year projection period and considers other factors including our expected tax structure, our tax positions in various jurisdictions and current impacts from key legislation implemented in major jurisdictions where we operate. For fiscal 2025, we will use a projected non-GAAP income tax rate of 15%, which reflects currently available information as well as other factors and assumptions. The non-GAAP income tax rate could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix including due to acquisition activity, or other changes to our strategy or business operations. We will re-evaluate its long-term rate as appropriate. For fiscal 2024, we had a non-GAAP tax rate of 15%. We believe that making these adjustments for purposes of calculating non-GAAP measures, facilitates a supplemental evaluation of our current operating performance and comparisons to past operating results.
FCF is defined as cash flow from operations, less net capital expenditures (investments in PP&E and software assets less proceeds from the sale of PP&E), and adjusted for the effect of exchange rate fluctuations on cash, cash equivalents, and restricted cash. FCF does not represent the total increase or decrease in cash for the period. Our management and investors can use FCF for the purpose of determining the amount of cash available for investment in our businesses, repurchasing stock and other purposes as well as evaluating our historical and prospective liquidity.
Compensation for Limitations With Use of Non-GAAP Financial Measures
These non-GAAP financial measures have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations in relying on these non-GAAP financial measures are that they can have a material impact on the equivalent GAAP earnings measures and cash flows, they may be calculated differently by other companies (limiting the usefulness of those measures for comparative purposes) and may not reflect the full economic effect of the loss in value of certain assets.
We compensate for these limitations on the use of non-GAAP financial measures by relying primarily on our GAAP results and using non-GAAP financial measures only as a supplement. We also provide a reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure for this quarter and prior periods, and we encourage investors to review those reconciliations carefully.
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