Hewlett Packard Enterprise Co.

12/18/2025 | Press release | Distributed by Public on 12/18/2025 07:24

Annual Report for Fiscal Year Ending October 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
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.
This section of this Form 10-K generally discusses fiscal 2025 and fiscal 2024 items and year-to-year comparisons between fiscal 2025 and fiscal 2024. Discussions of fiscal 2023 items and year-to-year comparisons between fiscal 2024 and fiscal 2023 that are not included in this Form 10-K can be found in "Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Annual Report on Form 10-K for the fiscal year October 31, 2024, as filed with the SEC on December 19, 2024, which is available on the SEC's website at www.sec.gov.
We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our Consolidated Financial Statements, changes in certain key items in these financial statements from year to year, and the primary factors that accounted for these changes, as well as how certain accounting principles, policies and estimates affect our Consolidated Financial Statements. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes that appear elsewhere in this document.
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 and heightening global trade restrictions, uneven demand across our portfolio, increased demand for and adoption of new technologies, increased inventory levels, conservative customer spending environment (though recovering), persistent inflation, foreign exchange pressures, recent tax developments, and competitive pricing pressures.
•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.
•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.
•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.
•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.
TRENDS AND UNCERTAINTIES
During 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 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. Increasing demand for AI is also contributing to changes in the competitive landscape. 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. Secure networking that is purpose-built for AI workloads is the foundation that enables users to seamlessly connect and apply AI learnings to such data that lives in various ecosystems. While we believe our recent acquisition of Juniper Networks positions us to capitalize on the growing market opportunities across AI-accelerated computing, data, cloud and networking, 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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Macroeconomic Uncertainty:The evolving macroeconomic environment has impacted industry-wide demand, as customers have been taking longer to work through prior orders and, to this day, have been adopting a more strategic approach to discretionary IT spending. While this dynamic has been easing, 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 continues to be significant uncertainty surrounding the tariff environment and import/export regulations due to numerous factors, including but not limited to tariff imposition delays, changes to tariff rates and policies, and enactment of reciprocally restrictive trade policies and measures around the world. These have enhanced global trade uncertainty and contributed to higher prices of components and end products and services. While we have sought to mitigate these adverse impacts by relying on our global supply chain and implementing pricing measures, we expect such a 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 eased at times during the fiscal year, we are once again experiencing such constraints and expect such dynamics to continue in the medium term. The future remains uncertain due to the macroeconomic dynamics discussed above, which have thus far impacted our ability to import and export components and finished products and the costs of doing so. Additionally, logistics costs have been, and may continue to remain, high with such changes in trade policies. We have been experiencing higher-than-normal inventory levels, primarily due to frequent component part updates, customers transitioning to the next generation of GPUs, our securing supply ahead of demand, and longer customer acceptance timelines on AI-related orders. While we have been working to reduce inventory, any or all of the aforementioned factors could contribute to sustained higher-than-normal levels and further uncertainty. We have experienced, and expect to continue experiencing, rising input component costs due to various factors, including but not limited 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; however, such actions may not be successful.
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 have been, and may continue to be, impacted in the near term.
Recent Tax Developments: Proposals to reform U.S. and foreign tax laws could significantly impact how U.S. multinational corporations are taxed on foreign earnings and could increase the U.S. corporate tax rate. Several of the proposals currently being considered, if enacted into law, could have an adverse impact on our effective tax rate, income tax expense, and cash flows. Our future effective tax rate may also be impacted by judicial decisions, changes in interpretation of regulations, as well as additional legislation and guidance. Further, 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, 60 countries have enacted portions, or all, of the OECD proposal. Where enacted, the rules are effective for us in fiscal 2025. 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. There was not a material impact to our fiscal 2025 results from Pillar Two legislation. While we do not anticipate a material adverse impact to our financial position in fiscal 2026, additional changes to global tax laws are likely to occur. For instance, some countries have enacted, and others have proposed, taxes based on gross receipts applicable to digital services, regardless of profitability. Such changes may adversely affect our tax liability.
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
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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 Consolidated Statement of Earnings and our 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.
On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act ("OB3") into law. OB3 introduces several changes to tax regulations, including the permanent restoration of 100% depreciation and the permanent restoration of immediate deductibility of costs associated with research and development activities performed in the United States. There was not a material impact of OB3 to our fiscal 2025 results, and we do not expect a material impact in fiscal 2026, but we will continue to evaluate the full impact of these changes on our future results.
Other Trends and Uncertainties: The impacts of geopolitical volatility (including the continued instability in the Middle East, the ongoing conflict 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 have been 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.
The following "Executive Overview," "Results of Operations," and "Liquidity" discussions and analysis compare fiscal 2025to fiscal 2024, unless otherwise noted. The "Capital Resources" and "Cash Requirements and Commitments" sections present information as of October 31, 2025, unless otherwise noted.
EXECUTIVE OVERVIEW
Acquisition of Juniper Networks
On July 2, 2025, we completed the Juniper Networks merger (the "Merger"). Under the terms of the Agreement and Plan of Merger, dated January 9, 2024, by and among Juniper Networks, HPE and Jasmine Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of HPE (the "Merger Agreement"), HPE agreed to pay $40.00 per share of Juniper Networks common stock, issued and outstanding as of July 2, 2025, representing cash consideration of approximately $13.4 billion. The results of operations of Juniper Networks are included in the Consolidated Financial Statements commencing on July 2, 2025. See Note 10, "Acquisitions and Dispositions," to the Consolidated Financial Statements for additional information.
Pending Divestiture of H3C Technologies Co., Limited Shares
On November 17, 2025, our subsidiary, H3C Holdings Limited ("H3C Holdings"), entered into (i) share purchase agreements with five counterparties, including Unisplendour International Technology Limited ("UNIS"), whereby such counterparties, in the aggregate, agreed to purchase 10% of the total issued share capital of H3C Technologies Co., Limited ("H3C") for cash consideration of approximately $714 million and (ii) a side letter with UNIS, amending the Agreement on Subsequent Arrangements that was previously entered into on May 24, 2024, whereby, among other things, H3C Holdings and UNIS shall retain their put option and call option, respectively, relating to the remaining issued share capital of H3C held by H3C Holdings and have the right to exercise their respective option rights in respect of such shares up to three times, subject to the timing and terms as set forth therein. The agreement referenced in clause (ii) above revises the arrangements governing the sale of all of the remaining issued share capital of H3C held by us through H3C Holdings. On November 28, 2025, H3C Holdings entered into three additional share purchase agreements, including one with UNIS, whereby such counterparties, in the aggregate, agreed to purchase the remaining 9% of the total issued share capital of H3C for cash consideration of approximately $643 million. Such transactions and the transactions referenced in clause (i) remain subject to regulatory approvals.
Cost Savings Actions
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
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
implemented through fiscal year 2026 and deliver gross savings of approximately $350 million by fiscal year 2027 through reductions in our workforce. The Program has since become a part of Catalyst, a set of broader company-wide actions to reduce costs and enhance efficiency throughout the Company.
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 $275 million in fiscal 2025.
In addition, the Company expects to achieve at least $600 million in cost savings from synergies by fiscal 2028, related to the integration of Juniper Networks. These synergies will require approximately $800 million of investment, primarily tied to headcount, supply chain optimization, and portfolio rationalization.
Fiscal 2025 compared with fiscal 2024
Net revenue of $34.3 billion represented an increase of 13.8%, primarily due to higher revenue in the Networking segment from the Merger and higher average unit prices ("AUPs") in the Server segment. The gross profit margin of 30.3% (or $10.4 billion) represents a decrease of 2.5 percentage points from the prior-year period, primarily due to an increase in cost of sales in the Server, Networking, and Hybrid Cloud segments. The operating profit margin of (1.3)%, represents a decrease of 8.6 percentage points from the prior-year period, primarily due to the impairment of goodwill and costs associated with the Merger.
Financial Results
The following table summarizes our consolidated GAAP financial results:
For the fiscal years ended October 31,
2025 2024 Change
In millions, except per share amounts
Net revenue $ 34,296 $ 30,127 13.8%
Gross profit $ 10,377 $ 9,878 5.1%
Gross profit margin 30.3 % 32.8 % (2.5)pts
(Loss) earnings from operations
$ (437) $ 2,190 (120.0)%
Operating profit margin (1.3) % 7.3 % (8.6)pts
Net earnings attributable to HPE
$ 57 $ 2,579 (97.8)%
Net (loss) earnings attributable to common stockholders
$ (59) $ 2,554 (102.3)%
Diluted net (loss) earnings per share attributable to common stockholders(1)
$ (0.04) $ 1.93 $(1.97)
Cash flow provided by operations
$ 2,919 $ 4,341 $(1,422)
The following table summarizes our consolidated non-GAAP financial results:
For the fiscal years ended October 31,
2025 2024 Change
In millions, except per share amounts
Non-GAAP gross profit $ 10,805 $ 9,893 9.2%
Non-GAAP gross profit margin 31.5 % 32.8 % (1.3)pts
Non-GAAP earnings from operations $ 3,353 $ 3,168 5.8%
Non-GAAP operating profit margin 9.8 % 10.5 % (0.7)pts
Non-GAAP net earnings attributable to HPE
$ 2,753 $ 2,655 3.7%
Non-GAAP net earnings attributable to common stockholders
$ 2,637 $ 2,630 0.3%
Non-GAAP diluted net earnings per share attributable to common stockholders(1)
$ 1.94 $ 1.99 $(0.05)
Free cash flow $ 986 $ 2,297 $(1,311)
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(1)For purposes of calculating diluted net earnings (loss) per share ("EPS"), the 7.625% Series C mandatory convertible preferred stock ("Preferred Stock") dividends are added back to the net earnings (loss) 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, by taking such revenue recognized during a quarter and multiplying by four. To better align the calculation of ARR with Juniper Networks' business and offerings, beginning with the quarter ended July 31, 2025, we also included revenue from software licenses support and maintenance in our ARR calculation, and will continue to do so going forward. The impact of this change was not material to the current and prior periods presented. We believe that ARR is a metric that allows management to better understand and highlight the potential future performance of our aaS business. We also believe ARR provides investors with greater transparency to our financial information and of the performance metric used in our financial and operational decision making and allows investors to see our results "through the eyes of management." We use ARR as a performance metric. ARR should be viewed independently of net revenue and is not intended to be combined with it.
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 table presents our ARR:
For the fiscal years ended October 31,
2025 2024
Dollars in millions
ARR $ 3,151 $ 1,938
Year-over-year growth rate 63 % 49 %
The 63% year over year increase in ARR was primarily due to growth in the Networking segment due to the Merger and an expanding customer installed base. The ARR attributed to the Hybrid Cloud and Server segments increased due to an expanded range of HPE GreenLake Flex Solutions and increased Server aaS activity.
Capital Returns to Stockholders
Returning capital to our stockholders remains an important part of our capital allocation framework, which also consists of strategic investments. We believe our existing balance of cash and cash equivalents, along with commercial paper and other short-term liquidity arrangements, are sufficient to satisfy our working capital needs, capital asset purchases, dividends, debt repayments, and other liquidity requirements associated with our existing operations. As of October 31, 2025, our cash, cash equivalents and restricted cash were $5.9 billion, compared to $15.1 billion as of October 31, 2024, representing a decrease of $9.2 billion.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), which requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent liabilities. A summary of significant accounting policies and a summary of recent accounting pronouncements applicable to our Consolidated Financial Statements are included in Note 1, "Overview and Summary of Significant Accounting Policies," to the Consolidated Financial Statements in Item 8 of Part II. An accounting policy is deemed to be critical if the nature of the estimate or assumption it incorporates is subject to 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 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.
We believe the accounting policies below are critical in the portrayal of our financial condition and results of operations and require management's most difficult, subjective, or complex judgments.
Revenue Recognition
We enter into contracts with customers that may include combinations of products and services, resulting in arrangements containing multiple performance obligations for hardware and software products and/or various services.
The majority of our revenue is derived from sales of products and services and the associated support and maintenance, and such revenue is recognized when, or as, control of promised products or services is transferred to the customer at the transaction price. Transaction price is adjusted for variable consideration, including rebates, which may be offered in contracts with customers, partners, and distributors.
Significant judgment is applied in determining the transaction price as we may be required to estimate variable consideration at the time of revenue recognition. When determining the amount of revenue to recognize, we estimate the expected usage of these programs, applying the expected value or most likely estimate and update the estimate at each reporting period as actual utilization becomes available. Variable consideration is recognized only to the extent that it is probable that a significant reversal of revenue will not occur. We also consider the customers' right of return in determining the transaction price, where applicable.
To recognize revenue for the products and services for which control has been transferred, we allocate the transaction price for the contract among the performance obligations on a relative standalone selling price ("SSP") basis. For products and services sold as a bundle, the SSP is generally not directly observable and requires the Company to estimate SSP based on management judgment by considering available data such as internal margin objectives, pricing strategies, market/competitive conditions, historical profitability data, as well as other observable inputs. For certain products and services, the Company establishes SSP based on the observable price when sold separately in similar circumstances to similar customers. The Company establishes SSP ranges for its products and services and reassesses them periodically.
Business Combinations
We account for acquired businesses using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair values of identifiable assets and liabilities requires significant judgment in determining critical estimates and assumptions. Critical estimates in valuing intangible assets include the projected revenues, technology obsolescence rate, royalty rates, and discount rates for developed technology and IPR&D; the projected revenues, customer retention rate, forecasted growth in earnings before interest, taxes, depreciation & amortization, and discount rate for the customer contracts, customer lists and distribution agreements. Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the intangible assets acquired. Third-party valuation specialists are utilized for certain estimates.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Taxes on Earnings
We are subject to income taxes in the U.S. and approximately 75 other countries. Significant judgment is required in determining the consolidated provision for income taxes.
We record a valuation allowance to reduce deferred tax assets to the amount that we are more likely than not to realize. In determining the need for a valuation allowance, we consider future market growth, forecasted earnings, future sources of taxable income, the mix of earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income, of the appropriate character, in the jurisdictions in which the deferred tax assets are located, prior to their expiration under applicable tax laws.
We are subject to routine corporate income tax audits in the U.S. and numerous foreign jurisdictions. We believe that positions taken on our tax returns are fully supported, but tax authorities may challenge these positions, which may not be fully sustained on examination by the relevant tax authorities. Accordingly, our income tax provision includes amounts intended to satisfy assessments that may result from these challenges. Determining the income tax provision for these potential assessments and recording the related effects requires management judgments and estimates. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our Benefit (provision) for taxes, Net earnings and cash flows. Our accrual for uncertain tax positions is attributable primarily to uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions, intercompany transactions and related interest, and uncertain tax positions from acquired companies. For further discussion on taxes on earnings, refer to Note 6, "Taxes on Earnings," to the Consolidated Financial Statements in Item 8 of Part II.
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 and our annual impairment test as of August 1, 2025.
As of October 31, 2025, our reporting units with goodwill are consistent with the reportable segments identified in Note 2, "Segment Information," to the Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K, with the exception of Networking and Corporate Investments and Other segments. The Networking segment contains two reporting units: Intelligent Edge and Juniper Networks. The Corporate Investments and Other segment contains the A & PS reporting unit.
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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
2025 Interim and Annual Goodwill Impairment Reviews
During fiscal 2025, we performed the following goodwill impairment tests, two of which resulted in goodwill impairment:
•Impairment test performed as of November 1, 2024 based on organizational changes impacting the composition of reporting units as of that date did not result in an impairment;
•Interim test performed as of April 30, 2025 due to indicators of potential impairment resulted in the Hybrid Cloud reporting unit being impaired; and
•Annual impairment test, which was performed as of August 1, 2025, resulted in the Hybrid Cloud reporting unit being impaired.
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 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.
August 1, 2025 Annual Impairment Test
Based on the results of the annual quantitative impairment test performed as of August 1, 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 a strategic shift away from the Non-IP storage business. 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 $0.2 billion. As a result, we recorded a goodwill impairment charge of $0.2 billion in the fourth quarter of fiscal 2025.
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 240%. 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 $3.3 billion as of October 31, 2025 and an excess of fair value over carrying value of 0% as of the annual 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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
The excess of fair value over carrying amount for the Server reporting unit was 11%. The Server reporting unit has a goodwill balance of $10.2 billion as of October 31, 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 for 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.
RESULTS OF OPERATIONS
Results of operations in dollars and as a percentage of net revenue were as follows:
For the fiscal years ended October 31,
2025 2024 2023
Dollars % of Revenue Dollars % of Revenue Dollars % of Revenue
Dollars in millions
Net revenue $ 34,296 100.0 % $ 30,127 100.0 % $ 29,135 100.0 %
Cost of sales (exclusive of amortization shown separately below) 23,919 69.7 20,249 67.2 18,896 64.9
Gross profit 10,377 30.3 9,878 32.8 10,239 35.1
Research and development 2,518 7.3 2,246 7.5 2,349 8.1
Selling, general and administrative 5,704 16.6 4,871 16.2 5,160 17.7
Amortization of intangible assets 511 1.5 267 0.9 288 1.0
Impairment charges
1,621 4.7 - - - -
Transformation costs 2 - 93 0.3 283 1.0
Acquisition, disposition and other charges
458 1.3 211 0.7 70 0.2
(Loss) earnings from operations
(437) (1.3) 2,190 7.3 2,089 7.2
Interest and other, net (175) (0.5) (117) (0.4) (104) (0.4)
Gain on sale of equity interest - - 733 2.4 - -
Gain on sale of a business
248 0.7 - - - -
Earnings from equity interests 79 0.2 147 0.5 245 0.8
(Loss) earnings before provision for taxes
(285) (0.9) 2,953 9.8 2,230 7.6
Benefit (provision) for taxes
342 1.0 (374) (1.2) (205) (0.7)
Net earnings attributable to HPE 57 0.2 2,579 8.6 2,025 7.0
Preferred stock dividends (116) (0.3) (25) (0.1) - -
Net (loss) earnings attributable to common stockholders
$ (59) (0.2) % $ 2,554 8.5 % $ 2,025 7.0 %
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Fiscal 2025 compared with fiscal 2024
Net revenue
In fiscal 2025, total net revenue of $34.3 billion represented an increase of $4.2 billion, or 13.8%. U.S. net revenue increased by $2.5 billion, or 23.1% to $13.4 billion, and net revenue from outside of the U.S. increased by $1.7 billion, or 8.6%, to $20.9 billion.
The components of the weighted net revenue change by segment were as follows:
For the fiscal years ended October 31,
2025 2024
Percentage Points
Server 5.4 6.3
Hybrid Cloud 0.9 (0.3)
Networking 7.7 (2.9)
Financial Services - 0.1
Corporate Investments and Other (0.8) 0.1
Total segment 13.2 3.3
Elimination of intersegment net revenue and other 0.6 0.1
Total HPE 13.8 3.4
Fiscal 2025 compared with fiscal 2024
From a segment perspective, the primary factors contributing to the change in total net revenue are summarized as follows:
•Server net revenue increased $1,641 million, or 10.2%, primarily due to higher net AUPs
•Hybrid Cloud net revenue increased $267 million, or 4.9%, primarily due to higher Hybrid Cloud service revenue
•Networking net revenue increased $2,318 million, or 51.1%, primarily due to revenue attributable to Juniper Networks
•Financial Services net revenue decreased $8 million, or 0.2%, primarily due to lower rental revenue on lower average operating leases
•Corporate Investments and Other net revenue decreased $238 million, or 23.5%, primarily due to the divestiture of the Communications Technology Group ("CTG") business
Gross profit
Fiscal 2025 total gross profit margin of 30.3% represents a decrease of 2.5 percentage points as compared to the respective prior year period. The decrease was primarily due to an increase in cost of sales in the Server, Networking, and Hybrid Cloud segments.
Operating expenses
Research and development ("R&D")
R&D expense increased by $272 million, or 12.1%, primarily due to operating expenses associated with Juniper Networks, which contributed 17.3 percentage points to the change. The increase was partially offset by lower operating expenses due to higher mix of capital versus expense investment, which contributed 8.6 percentage points to the change.
Selling, general and administrative ("SG&A")
SG&A expense increased by $833 million, or 17.1%, primarily due to increased operating expenses associated with Juniper Networks and higher employee costs, which contributed 14.1 percentage points to the change, and the expenses incurred related to the cost reduction program, which contributed 3.1 percentage points to the change.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Amortization of intangible assets
Amortization of intangible assets increased by $244 million, or 91%, primarily due to the amortization expense of the acquired intangibles as a result of the Merger. The increase was partially offset by certain intangible assets associated with prior acquisitions reaching the end of their amortization periods.
Impairment charges
In fiscal 2025, we recorded goodwill impairment charges and the impairment of certain fixed assets of $1.6 billion. 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 11, "Goodwill and Intangible Assets," to the Consolidated Financial Statements in Item 8 of Part II for more information.
Acquisition, disposition and other charges
Acquisition, disposition and other charges increased by $247 million, or 117.1%, primarily due to the Merger.
Interest and other, net
Interest and other, net expense increased by $58 million, or 49.6%, primarily due to higher loss on equity investments of $122 million in the current fiscal year and increase in net interest expense of $114 million. The increase was partially offset by an increase in the non-service net periodic benefit credit of $104 million and the gain of $52 million from the settlement to resolve claims solely against Sushovan Hussain in the ongoing Autonomy litigation.
Gain on sale of equity interest
On September 4, 2024, the Company divested 30% of the total issued share capital of H3C to UNIS. In connection with this sale, we recorded a gain on sale of equity interest of $733 million in fiscal 2024.
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 $248 million.
Earnings from equity interests
In fiscal 2025, Earnings from equity interests decreased by $68 million, or 46.3%, 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 in fiscal 2024.
Benefit (provision) for taxes
For fiscal 2025 and 2024, we recorded income tax benefit of $342 million and income tax expense of $374 million, respectively, which reflect effective tax rates of 120.0% and 12.7%, respectively. Our effective tax rate generally differs from the U.S. federal statutory rate of 21% due to favorable tax rates associated with certain earnings from our operations in lower tax jurisdictions throughout the world but is also impacted by discrete tax adjustments during the fiscal year. The effective tax rate for fiscal 2025 also included the effects of the non-deductible goodwill impairment.
In fiscal 2025, we recorded $693 million of net income tax benefits related to various items discrete to the year. These amounts primarily included:
•$402 million of net income tax benefits related to costs incurred as a result of the Merger which was inclusive of a $327 million net income tax benefit from the tax impact of integration transactions,
•$76 million of net income tax benefits related to the release of certain state valuation allowances due to changes in tax law,
•$61 million of net income tax benefits related to the reduction in uncertain tax positions due to statute of limitations expirations, and
•$55 million of net income tax benefits related to the cost reduction program.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
In fiscal 2024, we recorded $43 million of net income tax charges related to various items discrete to the year. These amounts primarily included:
•$104 million of net income tax charges resulting from the gain on the H3C divestiture, which includes $215 million of U.S. and foreign income tax charges offset by $111 million of income tax benefit for the release of an uncertain tax benefit related to the prior divestiture, partially offset by
•$54 million of income tax benefits related to transformation costs, and acquisition, disposition and other charges and
•$11 million of net excess tax benefits related to stock-based compensation.
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 Consolidated Financial Statements in Item 8 of Part II.
Segment Results
The following provides an overview of our key financial metrics by segment for fiscal 2025 as compared to fiscal 2024:
HPE
Consolidated 		Server Hybrid Cloud Networking Financial Services
Corporate
Investments and Other
Dollars in millions, except for per share amounts
Net revenue(1)
$ 34,296 $ 17,745 $ 5,754 $ 6,850 $ 3,504 $ 776
Year-over-year change % 13.8% 10.2% 4.9% 51.1% (0.2)% (23.5)%
Gross Profit as a % of net revenue
30.3% 20.9% 37.0% 59.8% 18.5% 22.9%
(Loss) earnings from operations(2)
$ (437) $ 1,343 $ 335 $ 1,596 $ 361 $ (32)
(Loss) earnings from operations as a % of net revenue
(1.3)% 7.6% 5.8% 23.3% 10.3% (4.1)%
Year-over-year change percentage points (8.6) pts (3.6) pts 1.1 pts (1.3) pts 1.3 pts (1.6) pts
(1)HPE consolidated net revenue excludes inter-segment net revenue.
(2)Segment earnings (loss) from operations exclude certain unallocated corporate costs and eliminations, stock-based compensation expense, amortization of intangible assets, impairment charges, transformation costs, H3C divestiture related severance costs, severance costs related to the cost reduction program, and acquisition, disposition and other charges.
Server
For the fiscal years ended October 31,
2025 2024 2023
2025 vs 2024
% Change
Dollars in millions
Net revenue $ 17,745 $ 16,104 $ 14,266 10.2 %
Cost of sales 14,038 12,060 10,071 16.4 %
Gross profit
3,707 4,044 4,195 (8.3) %
Operating expenses
2,364 2,240 2,380 5.5 %
Earnings from operations $ 1,343 $ 1,804 $ 1,815 (25.6) %
Earnings from operations as a % of net revenue 7.6 % 11.2 % 12.7 %
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Fiscal 2025 compared with fiscal 2024
Server net revenue increased by $1,641 million, or 10.2%, primarily due to a $1,691 million, or 13.3%, increase in product revenue. The increase in product revenue was primarily due to higher net AUPs of $2,556 million, or 20.1%, partially offset by a decrease in net unit volume of $827 million, or 6.5%.
Server gross profit decreased by $337 million, or 8.3%, primarily driven by an increase in cost of sales by $1,978 million, or 16.4%, due to the input cost increases and higher mix of lower margin products.
Earnings from operations decreased by $461 million, or 25.6%, primarily driven by lower gross profit and an increase in operating expenses by $124 million, or 5.5%, due to higher SG&A expenses.
Hybrid Cloud
For the fiscal years ended October 31,
2025 2024 2023
2025 vs 2024
% Change
Dollars in millions
Net revenue $ 5,754 $ 5,487 $ 5,588 4.9 %
Cost of sales
3,624 3,302 3,314 9.8 %
Gross profit
2,130 2,185 2,274 (2.5) %
Operating expenses
1,795 1,926 2,027 (6.8) %
Earnings from operations $ 335 $ 259 $ 247 29.3 %
Earnings from operations as a % of net revenue 5.8 % 4.7 % 4.4 %
Fiscal 2025 compared with fiscal 2024
Hybrid Cloud net revenue increased by $267 million, or 4.9%, due to an increase in Hybrid Cloud service revenue by $285 million, or 11.7%. The increase was primarily driven by higher services contribution from private cloud solutions. Hybrid Cloud product revenue was relatively flat.
Hybrid Cloud gross profit decreased by $55 million, or 2.5%, primarily driven by an increase in cost of products as we transition to a more software-defined platform with HPE Alletra.
Hybrid Cloud earnings from operations increased by $76 million, or 29.3%, due to a decrease in operating expenses by $131 million, or 6.8%, primarily driven by capitalization of software costs and cost containment measures, partially offset by a decrease in gross profit as mentioned above.
Networking
For the fiscal years ended October 31,
2025 2024 2023
2025 vs 2024
% Change
Dollars in millions
Net revenue $ 6,850 $ 4,532 $ 5,379 51.1 %
Cost of sales
2,756 1,706 2,228 61.5 %
Gross profit
4,094 2,826 3,151 44.9 %
Operating expenses
2,498 1,711 1,808 46.0 %
Earnings from operations $ 1,596 $ 1,115 $ 1,343 43.1 %
Earnings from operations as a % of net revenue 23.3 % 24.6 % 25.0 %
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Fiscal 2025 compared with fiscal 2024
Networking net revenue increased by $2,318 million, or 51.1%, primarily due to a $1,444 million, or 43.2%, increase in product revenue, and $874 million, or 73.6%, increase in service revenue. The increase in product revenue was primarily led by revenue attributable to Juniper Networks of $1,367 million, or 40.9%, higher volume and product mix effect of $152 million, or 4.5%, partially offset by lower AUPs of $72 million, or 2.2%. The increase in service revenue was primarily led by revenue attributable to Juniper Networks of $729 million, or 61.4%, and increased services net revenue primarily from our aaS offerings of $144 million, or 12.1%.
Networking gross profit increased by $1,268 million, or 44.9%, primarily driven by increased net revenue as mentioned above. The increase was partially offset by higher cost of sales of $1,050 million, or 61.5%, which was primarily attributable to Juniper Networks and higher input cost.
Networking earnings from operations increased by $481 million, or 43.1%, primarily due to higher gross profit, which was partially offset by an increase in operating expenses of $787 million, or 46.0%. The increase in operating expenses was primarily attributable to Juniper Networks.
Financial Services
For the fiscal years ended October 31,
2025 2024 2023
2025 vs 2024
% Change
Dollars in millions
Net revenue $ 3,504 $ 3,512 $ 3,480 (0.2) %
Cost of sales
2,856 2,923 2,919 (2.3) %
Gross profit
648 589 561 10.0 %
Operating expenses
287 273 280 5.1 %
Earnings from operations $ 361 $ 316 $ 281 14.2 %
Earnings from operations as a % of net revenue 10.3 % 9.0 % 8.1 %
Fiscal 2025 compared with fiscal 2024
FS net revenue decreased by $8 million, or 0.2%, primarily due to lower rental revenue on lower average operating leases, largely offset by higher finance income from higher average finance leases, higher asset management remarketing revenue, and asset recovery services revenue.
FS gross profit increased by $59 million, or 10.0%, primarily driven by a decrease in cost of sales of $67 million, or 2.3%, largely due to lower depreciation expense, partially offset by higher bad debt expense.
FS earnings from operations increased by $45 million, or 14.2%, primarily due to higher gross profits, partially offset by an increase in operating expenses by $14 million, or 5.1% resulting from higher SG&A expenses.
Financing Volume
For the fiscal years ended October 31,
2025 2024 2023
In millions
Financing volume $ 5,475 $ 6,616 $ 6,412
Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, decreased by 17.2% in fiscal 2025 as compared to the prior-year period. The decrease was primarily driven by lower financing of both HPE and third-party product sales and services.
Portfolio Assets and Ratios
The FS business model is asset intensive and uses certain internal metrics to measure its performance against other financial services companies, including a segment balance sheet that is derived from our internal management reporting system. The accounting policies used to derive FS amounts are substantially the same as those used by the Company. However,
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
intercompany loans and certain accounts that are reflected in the segment balances are eliminated in our Consolidated Financial Statements.
The portfolio assets and ratios derived from the segment balance sheets for FS were as follows:
As of October 31
2025 2024
Dollars in millions
Financing receivables, gross $ 9,740 $ 9,647
Net equipment under operating leases 3,159 3,632
Capitalized profit on intercompany equipment transactions(1)
388 396
Intercompany leases(1)
134 119
Gross portfolio assets 13,421 13,794
Allowance for doubtful accounts(2)
189 177
Operating lease equipment reserve 51 30
Total reserves 240 207
Net portfolio assets $ 13,181 $ 13,587
Reserve coverage 1.8 % 1.5 %
Debt-to-equity ratio(3)
7.0x 7.0x
(1)Intercompany activity is eliminated in consolidation.
(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 at October 31, 2025 and 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 October 31, 2025 and 2024, was $1.7 billion.
As of October 31, 2025 and 2024, FS net cash and cash equivalents balances were $727 million and $533 million, respectively.
Net portfolio assets as of October 31, 2025 decreased 3.0% from October 31, 2024. The decrease generally resulted from portfolio runoff exceeding new financing volume during the period.
FS bad debt expense includes charges to general reserves, specific reserves and write-offs for sales-type, direct-financing and operating leases. FS recorded net bad debt expense of $96 million, $57 million and $59 million in fiscal 2025, 2024 and 2023, respectively.
Corporate Investments and Other
For the fiscal years ended October 31,
2025 2024 2023 2025 vs 2024
% Change
Dollars in millions
Net revenue $ 776 $ 1,014 $ 985 (23.5) %
Cost of sales
598 795 808 (24.8) %
Gross profit
178 219 177 (18.7) %
Operating expenses
210 244 254 (13.9) %
Loss from operations $ (32) $ (25) $ (77) (28.0) %
Loss from operations as a % of net revenue (4.1) % (2.5) % (7.8) %
Fiscal 2025 compared with fiscal 2024
Corporate Investments and Other net revenue decreased by $238 million, or 23.5%, primarily due to the divestiture of the CTG business effective December 1, 2024.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Gross profit decreased by $41 million, or 18.7%, primarily due to lower net revenue driven by the divestiture of the CTG business, partially offset by a decrease in cost of sales.
Loss from operations increased by $7 million, or 28.0%, primarily driven by lower gross profit, partially offset by a decrease in operating expenses due to the divestiture of the CTG business.
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, and disposal activities including legal settlements, restructuring activities, transformation costs, indemnifications, maturing debt, interest payments, and income tax payments, in addition to any future investments, share repurchases, and 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 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 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 and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 7A.
Our cash balances are held in numerous locations throughout the world, with a substantial amount held outside the U.S. as of October 31, 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.
In connection with the share repurchase program previously authorized by our Board of Directors, during fiscal 2025, we repurchased and settled an aggregate amount of $202 million. As of October 31, 2025, we had a remaining authorization of approximately $3.6 billion for future share repurchases. For more information on our share repurchase program, refer to Note 15, "Stockholders' Equity," to the Consolidated Financial Statements in Item 8 of Part II.
On November 17, 2025 and November 28, 2025, we announced plans to divest our remaining investment in H3C's issued share capital for approximately $1.4 billion. For more information on the pending divestiture of H3C shares, refer to Note 19, "Equity Interests," to the Consolidated Financial Statements in Item 8 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 $248 million included in Gain on sale of a business in the Consolidated Statements of Earnings.
HPE funded the aggregate consideration for the Merger through a combination of cash from its balance sheet, commercial paper issuances, and borrowings pursuant to the three-year delayed-draw term loan credit facility of $3.0 billion and the 364-day delayed-draw term loan credit facility of $1.0 billion entered into in September 2024. As of October 31, 2025, $2.0 billion was outstanding against the three-year delayed-draw term loan credit facility while no balances were outstanding against the 364-day delayed-draw term loan credit facility.
For more information on the drawdown term loan facility, see Note 14, "Borrowings," to the Consolidated Financial Statements in Item 8 of Part II.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Liquidity
Our cash, cash equivalents, restricted cash, total debt and available borrowing resources were as follows:
As of October 31,
2025 2024 2023
In millions
Cash, cash equivalents and restricted cash $ 5,859 $ 15,105 $ 4,581
Total debt 22,365 18,246 12,355
Available borrowing resources(1)
6,122 6,009 6,588
Commercial paper programs(2)
5,069 5,101 5,071
Uncommitted lines of credit(3)
$ 1,053 $ 908 $ 1,517
(1)The fiscal 2024 period excludes the financing commitment for the Merger. The maximum aggregate commitment under those facilities was $4.0 billion, however, no balances were outstanding under these facilities as of October 31, 2024. These facilities were not available as of the end of fiscal 2023.
(2) The maximum borrowing amounts available under the commercial paper programs and revolving credit facility are $5.75 billion and $5.25 billion, respectively, as at October 31, 2025. The combined borrowings between both sources cannot exceed $5.75 billion.
(3) The maximum aggregate capacity under the uncommitted lines of credit is $1.4 billion of which $0.4 billion was primarily utilized towards issuances of bank guarantees as of October 31, 2025.
The following tables represent the way in which management reviews cash flows:
For the fiscal years ended October 31,
2025 2024 2023
In millions
Net cash provided by operating activities $ 2,919 $ 4,341 $ 4,428
Net cash used in investing activities (13,190) (53) (3,284)
Net cash provided by (used in) financing activities 1,046 6,283 (1,362)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (21) (47) 36
Change in cash, cash equivalents and restricted cash $ (9,246) $ 10,524 $ (182)
Free cash flow $ 986 $ 2,297 $ 2,238
Operating Activities
Net cash provided by operating activities decreased by $1.4 billion for fiscal 2025, as compared to fiscal 2024. The decrease was primarily due to unfavorable working capital, largely resulting from timing of vendor payments moderated by lower inventory purchases. The decrease was partially offset by lower financing lease volume and higher net cash generated from operations in the current period.
Our working capital metrics and cash conversion impacts were as follows:
As of October 31,
2025 2024 2023
Days of sales outstanding in accounts receivable ("DSO") 49 38 43
Days of supply in inventory ("DOS") 89 120 87
Days of purchases outstanding in accounts payable ("DPO")
(108) (170) (134)
Cash conversion cycle 30 (12) (4)
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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
DSO measures the average number of days our receivables are outstanding. DSO is calculated by dividing ending accounts receivable, net of allowance for doubtful accounts, by a 90-day average of net revenue. Compared to the corresponding three-month period in fiscal 2024, the increase in DSO by 11 days in the current period was primarily due to a decrease in early payments, along with the impact of incremental receivables as a result of the Merger.
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 by 31 days in the current period was primarily due to higher shipments for large deals and lower purchases due to seasonality.
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 by 62 days in the current period was primarily due to lower purchases, along with higher payments to outsourced manufacturers.
Investing Activities
Net cash used in investing activities increased by $13.1 billion in fiscal 2025, as compared to fiscal 2024. The increase was primarily due to a payment of $12.3 billion (net of cash acquired) made during the current period for the Merger, and proceeds of $2.1 billion from the prior-year sale of 30% of the total issued share capital of H3C. The increase was moderated by higher proceeds from the sale of available-for-sale securities of $0.9 billion and proceeds from the divestiture of our CTG business for $0.2 billion during the current period, as compared to the prior-year period.
Financing Activities
Net cash provided by financing activities decreased by $5.2 billion in fiscal 2025, as compared to fiscal 2024. This decrease was primarily due to lower proceeds from debt of $2.1 billion (net of issuance costs), higher repayments of debt of $1.4 billion, and higher cash utilized for stock-based award activities of $0.2 billion during the current period, as compared to the prior-year period. In addition, the prior-year period included proceeds from the issuance of the Preferred Stock (net of issuance costs) of $1.5 billion.
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. FCF decreased by $1.3 billion in fiscal 2025, as compared to fiscal 2024, primarily due to lower cash provided by operating activities. 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 7, "Balance Sheet Details," to the Consolidated Financial Statements in Item 8 of Part II.
Capital Resources
Debt Levels
As of October 31,
2025 2024 2023
Dollars in millions
Short-term debt $ 4,609 $ 4,742 $ 4,868
Long-term debt $ 17,756 $ 13,504 $ 7,487
Weighted-average interest rate 4.8 % 5.4 % 5.4 %
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
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. In September 2024, we terminated our prior senior unsecured revolving credit facility that was entered into in December 2021, and entered into a new senior unsecured revolving credit facility with an aggregate lending commitment of $5.25 billion for a period of five years. The commitment initially comprised of (i) $4.75 billion of commitments available immediately and (ii) $500 million of commitments available from and subject to the closing of the Merger and refinancing of Juniper Networks' credit agreement. With the completion of the Merger and the associated refinancing, the full $5.25 billion commitment under the new facility is now available to us. There have been no changes to our commercial paper programs since October 31, 2024.
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 fiscal 2025 were as follows:
Debt Issuances:
•In October 2025, we issued $660 million of asset-backed debt securities in six tranches at a weighted-average interest rate of 4.314% and a final maturity date of May 2033.
•In September 2025, we issued (i) $900 million of 4.05% Senior Notes due September 15, 2027, (ii) $300 million of Floating Rate Notes due September 15, 2028, (iii) $850 million of 4.15% Senior Notes due September 15, 2028, and (iv) $850 million of 4.40% Senior Notes due October 15, 2030.
•In July 2025, we assumed fixed-rate Senior Notes of Juniper Networks with par value of $1.7 billion as a part of the Merger. For further information see Note 10, "Acquisitions and Dispositions," to the Consolidated Financial Statements in Item 8 of Part II.
•In July 2025, to support the funding of the Merger, we drew $3.0 billion under the three-year delayed-draw term loan credit facility and $1.0 billion under the 364-day delayed-draw term loan credit facility. The 364-day loan is scheduled for full repayment on July 1, 2026. The three-year loan is subject to quarterly amortization at 1.25%, with the remaining balance due at maturity on June 30, 2028.
•In July 2025, we issued $900 million of asset-backed debt securities in six tranches at a weighted-average interest rate of 4.673% and a final maturity date of March 2033.
Debt Repayments:
•In October 2025, we prepaid $1 billion against the $3.0 billion we initially borrowed under the three-year delayed-draw term loan credit facility. The repayment was made at par, along with accrued interest.
•In September 2025, we repaid the entire $1 billion under the 364-day delayed-draw term loan credit facility. The repayment was made at par, along with accrued interest.
•In September 2025, we redeemed the entire $2.5 billion aggregate principal amount of its outstanding 4.900% Notes with an original maturity date of October 15, 2025. The Notes were redeemed at par, plus accrued and unpaid interest up to, but not including, the redemption date of September 17, 2025.
•During fiscal 2025, we repaid $1.5 billion of the outstanding asset-backed debt securities.
Our weighted-average interest rate reflects the average effective rate on our borrowings prevailing during the period and reflects the impact of interest rate swaps. For more information on our interest rate swaps, see Note 13, "Financial Instruments," to the Consolidated Financial Statements in Item 8 of Part II.
For more information on our available borrowing resources and the impact of operating assets and liabilities to cash flows, see Note 14, "Borrowings," and Note 7, "Balance Sheet Details," respectively, to the Consolidated Financial Statements in Item 8 of Part II.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Cash Requirements and Commitments
Long-term debt and interest payments on debt
As of October 31, 2025, future principal payment obligations on our long-term debt including asset-backed debt securities totaled $21.7 billion of which $3.8 billion is due within one year. As of October 31, 2025, our finance lease obligations, including interest, was $35 million, of which $7 million is to be due within one year. For more information on our debt, see Note 14, "Borrowings," to the Consolidated Financial Statements in Item 8 of Part II.
As of October 31, 2025, future interest payments relating to our long-term debt is estimated to be approximately $8.1 billion, of which $1.0 billion is expected to be due within one year. We use interest rate swaps to mitigate the exposure of our fixed rate debt to changes in fair value resulting from changes in interest rates, or hedge the variability of cash flows in the interest payments associated with our variable-rate debt. The impact of our outstanding interest rate swaps as of October 31, 2025 was factored into the calculation of the future interest payments on long-term debt.
Operating lease obligations
We enter into various leases as a lessee for assets including office buildings, data centers, vehicles, and aviation. As of October 31, 2025, operating lease obligations, net of sublease rental income totaled $1.8 billion, of which $342 million is due within one year. For more information on our leases, see Note 8, "Accounting for Leases as a Lessee," to the Consolidated Financial Statements in Item 8 of Part II.
Unconditional purchase obligations
Our unconditional purchase obligations are related principally to inventory purchases, software maintenance and support services and other items. Unconditional purchase obligations exclude agreements that are cancellable without penalty. As of October 31, 2025, unconditional purchase obligations totaled $3.3 billion, of which $2.0 billion is due within one year. In connection with the Merger, our unconditional purchase obligations increased by $1.5 billion. For more information on our unconditional purchase obligations, see Note 17, "Litigation, Contingencies, and Commitments," to the Consolidated Financial Statements in Item 8 of Part II.
Retirement Benefit Plan Funding
In fiscal 2026, we anticipate making contributions of $220 million to our non-U.S. pension plans. Our policy is to fund pension plans to meet at least the minimum contribution requirements, as established by various authorities including local government and taxing authorities. Expected contributions and payments to our pension and post-retirement benefit plans are not considered as contractual obligations because they do not represent contractual cash outflows, as they are dependent on numerous factors which may result in a wide range of outcomes. For more information on our retirement and post-retirement benefit plans, see Note 4, "Retirement and Post-Retirement Benefit Plans," to the Consolidated Financial Statements in Item 8 of Part II.
Restructuring Plans
As of October 31, 2025, we expect to make future cash payments of approximately $112 million in connection with our approved restructuring plans, which includes $28 million expected to be paid in fiscal 2026 and $84 million expected to be paid thereafter. Payments for restructuring activities are not considered as contractual obligations, because they do not represent contractual cash outflows and there is uncertainty as to the timing of these payments. For more information on our restructuring activities, see Note 3, "Transformation Programs," to the Consolidated Financial Statements in Item 8 of Part II.
Cost Savings Plans
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. In connection with the integration of Juniper Networks, we expect to incur costs over the next three fiscal years to achieve synergies, actual costs incurred may differ from estimates. As of October 31, 2025, we expect to make future cash payments of approximately $1.1 billion in connection with these cost savings plans, which includes $690 million expected to be paid through the remainder of fiscal 2026 and $420 million expected to be paid thereafter.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Uncertain Tax Positions
As of October 31, 2025, we had approximately $194 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 6, "Taxes on Earnings," to the Consolidated Financial Statements in Item 8 of Part II.
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 7, "Balance Sheet Details," to the Consolidated Financial Statements in Item 8 of Part II.
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:
Reconciliation of GAAP gross profit and gross profit margin to non-GAAP gross profit and gross profit margin.
For the fiscal years ended October 31,
2025 2024
Dollars % of
Revenue 		Dollars % of
Revenue
Dollars In millions
GAAP net revenue $ 34,296 100.0 % $ 30,127 100.0 %
GAAP cost of sales 23,919 69.7 % 20,249 67.2 %
GAAP gross profit 10,377 30.3 % 9,878 32.8 %
Non-GAAP adjustments
Stock-based compensation expense 49 0.1 % 49 0.2 %
Acquisition, disposition and other charges(1)
236 0.7 % (34) (0.1) %
Cost reduction program 126 0.4 % - - %
H3C divestiture related severance costs 17 - % - - %
Non-GAAP gross profit $ 10,805 31.5 % $ 9,893 32.8 %
(1) Includes disaster recovery and divestiture related exit costs. For fiscal 2025, Acquisition, disposition and other charges include non-cash amortization of fair value adjustment for inventory in connection with the Merger, which was recorded in cost of sales.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Reconciliation of GAAP earnings (loss) from operations and operating profit margin to non-GAAP earnings from operations and operating profit margin.
For the fiscal years ended October 31,
2025 2024
Dollars % of
Revenue 		Dollars % of
Revenue
Dollars In millions
GAAP (loss) earnings from operations
$ (437) (1.3) % $ 2,190 7.3 %
Non-GAAP adjustments:
Amortization of intangible assets 511 1.5 % 267 0.9 %
Impairment charges
1,621 4.7 % - - %
Transformation costs 2 - % 93 0.3 %
Stock-based compensation expense 643 1.9 % 430 1.4 %
H3C divestiture related severance costs 97 0.3 % - - %
Cost reduction program 275 0.8 % - - %
Acquisition, disposition and other charges(1)
641 1.9 % 188 0.6 %
Non-GAAP earnings from operations $ 3,353 9.8 % $ 3,168 10.5 %
(1) Includes disaster recovery and divestiture related exit costs. For fiscal 2025, Acquisition, disposition and other charges include non-cash amortization of fair value adjustment for inventory in connection with the Merger, which was recorded in cost of sales.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Reconciliation of GAAP net earnings and diluted net earnings per share to non-GAAP net earnings and diluted net earnings per share.
For the fiscal years ended October 31,
2025 2024
Dollars
Diluted Net EPS(1)
Dollars
Diluted Net EPS
Dollars in millions except per share amounts
GAAP net (loss) earnings attributable to common stockholders $ (59) $ (0.04) $ 2,554 $ 1.93
Preferred stock dividends 116 25
GAAP net earnings attributable to HPE 57 $ (0.04) 2,579 $ 1.93
Non-GAAP adjustments:
Amortization of intangible assets 511 0.39 267 0.20
Impairment charges
1,621 1.22 - -
Transformation costs 2 - 93 0.07
Stock-based compensation expense 643 0.49 430 0.32
Gain on sale of a business (248) (0.19) - -
H3C divestiture related severance costs 97 0.07 - -
Cost reduction program 275 0.21 - -
Acquisition, disposition and other charges(2)
641 0.49 188 0.15
Litigation judgment (52) (0.04) - -
Gain on sale of equity interest - - (733) (0.55)
Loss on equity investments, net 140 0.10 (94) (0.07)
Adjustments for taxes (828) (0.64) (95) (0.07)
Other adjustments(3)(4)
(106) (0.12) 20 0.01
Non-GAAP net earnings attributable to HPE(5)
2,753 1.94 2,655 1.99
Preferred stock dividends (116) (25)
Non-GAAP net earnings attributable to common stockholders $ 2,637 $ 2,630
(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 16 "Net (Loss) Earnings Per Share," to the Condensed Consolidated Financial Statements in Item 1 of Part I for further information.
(2) Includes disaster recovery and divestiture related exit costs. For fiscal 2025, Acquisition, disposition and other charges include non-cash amortization of fair value adjustment for inventory in connection with the Merger, which was recorded in cost of sales.
(3) Other adjustments includes non-service net periodic benefit credit and tax indemnification and other adjustments.
(4) For fiscal 2025, the diluted net EPS adjustment includes the impact to Non-GAAP net earnings attributable to HPE for the dilutive effect of preferred stock and the employee stock plans.
(5) 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.
Shares used to calculate Non-GAAP diluted net EPS.
For the fiscal years ended October 31,
2025 2024
In millions
Weighted-average shares used to compute basic net EPS 1,324 1,309
Dilutive effect of employee stock plans 18 18
Dilutive effect of 7.625% Series C mandatory convertible preferred stock
76 10
Weighted-average shares used to compute Non-GAAP diluted net EPS 1,418 1,337
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Reconciliation of net cash provided by operating activities to free cash flow.
For the fiscal years ended October 31,
2025 2024 2023
In millions
Net cash provided by operating activities $ 2,919 $ 4,341 $ 4,428
Investment in property, plant and equipment and software assets (2,292) (2,367) (2,828)
Proceeds from sale of property, plant and equipment 380 370 602
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (21) (47) 36
Free cash flow $ 986 $ 2,297 $ 2,238
Use of non-GAAP Financial Measures
The non-GAAP financial measures presented are 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 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 attributable to HPE and net earnings attributable to common stockholders. The GAAP measure most directly comparable to non-GAAP diluted net earnings per share 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 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
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 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.
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
•We incur costs related to our acquisition, disposition and other charges. Charges include expenses associated with acquisitions, non-cash amortization of fair value adjustment for inventory in connection with the Merger, exit costs associated with 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 fiscal 2025, acquisition charges were driven by costs associated with the Merger and miscellaneous disposition related charges. For fiscal 2024, acquisition charges were driven by the Merger and 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 issued share capital of H3C held by HPE. 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 earnings from operations or earnings from operations as a percentage of net revenue excluding the items mentioned above and charges relating to the amortization of intangible assets, impairment charges, and transformation costs. 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 fiscal 2025, we recorded non-cash impairment charges for the goodwill associated with our Hybrid Cloud reporting unit and the impairment of certain fixed assets. HPE believes that these non-cash charges do 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 supplemental evaluation of the Company's current operating performance and comparisons to past operating results. 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 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.
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 earnings or diluted net earnings per share excluding those same charges mentioned above, as well as other items such as gain on sale of a business, 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 law changes, 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:
HEWLETT PACKARD ENTERPRISE COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
•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 $248 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.
•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. As of October 31, 2025, we continued to possess the option to sell the remaining 19% of the total issued share capital of H3C. Subsequent to fiscal year end, however, we entered into share purchase agreements to divest all of the remaining issued share capital of H3C held by HPE through its subsidiaries. We believe that eliminating these amounts for purposes of calculating non-GAAP financial measures facilitates the evaluation of our current operating performance.
•In the third quarter of fiscal 2025, Hewlett Packard Enterprise received $52 million from a settlement to resolve claims solely against Sushovan Hussain, in the ongoing Autonomy litigation. We exclude the litigation judgment for purposes of calculating non-GAAP measures to facilitate a supplemental evaluation of the Company's current operating performance and comparisons to past operating results.
•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 Consolidated Statements of Earnings. We believe eliminating these adjustments for the purposes of calculating non-GAAP measures facilitates the evaluation of our current operating performance.
•We utilize a structural long-term projected non-GAAP income tax rate in order to provide consistency across the interim reporting periods and to eliminate the effects of items not directly related to our operating structure that can vary in size, 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 and 2024, we used 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. 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 fiscal year and prior periods, and we encourage investors to review those reconciliations carefully.
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