HPE(HPE) - 2025 Q3 - Quarterly Report

FORM 10-Q Filing Information Filing Details This document is a Quarterly Report on Form 10-Q for Hewlett Packard Enterprise Company (HPE) for the quarterly period ended July 31, 2025, with HPE classified as a large accelerated filer - The report is a Quarterly Report on Form 10-Q for the period ended July 31, 2025[2] - Hewlett Packard Enterprise Company (HPE) is the registrant, incorporated in Delaware, with commission file number 001-37483[2] - HPE is classified as a large accelerated filer and has complied with all filing requirements[4][5] Table of Contents Forward-Looking Statements Forward-Looking Statements Disclosure This section outlines forward-looking statements in the 10-Q, emphasizing that actual results may differ due to various risks and uncertainties, and the company does not intend to update these statements unless legally required - The report contains forward-looking statements subject to risks, uncertainties, and assumptions, which could cause actual results to differ materially[10] - Key factors influencing future results include the integration of Juniper Networks, projections of revenue, margins, expenses, cash flows, and the impact of macroeconomic and geopolitical trends[10] - The company assumes no obligation to update these forward-looking statements, except as required by applicable law[11] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents HPE's unaudited condensed consolidated financial statements, including earnings, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed explanatory notes Condensed Consolidated Statements of Earnings For the three months ended July 31, 2025, HPE reported increased total net revenue but decreased net earnings and diluted EPS, while the nine-month period saw a net loss primarily due to goodwill impairment Condensed Consolidated Statements of Earnings (3 Months Ended July 31) | Metric | 2025 (Millions) | 2024 (Millions) | Change (%) | | :----------------------------------- | :-------------- | :-------------- | :--------- | | Total net revenue | $9,136 | $7,710 | 18.5% | | Earnings (loss) from operations | $247 | $547 | (54.8)% | | Net earnings (loss) attributable to HPE | $305 | $512 | (40.4)% | | Diluted EPS | $0.21 | $0.38 | (44.7)% | Condensed Consolidated Statements of Earnings (9 Months Ended July 31) | Metric | 2025 (Millions) | 2024 (Millions) | Change (%) | | :----------------------------------- | :-------------- | :-------------- | :--------- | | Total net revenue | $24,617 | $21,669 | 13.6% | | Earnings (loss) from operations | $(429) | $1,497 | (128.7)% | | Net earnings (loss) attributable to HPE | $(118) | $1,213 | (109.7)% | | Diluted EPS | $(0.16) | $0.92 | (117.4)% | - Impairment of goodwill for the nine months ended July 31, 2025, was $1,361 million, significantly impacting earnings[16] Condensed Consolidated Statements of Comprehensive Income Comprehensive income decreased for the three months ended July 31, 2025, and the nine-month period resulted in a comprehensive loss, primarily driven by the net loss attributable to HPE Condensed Consolidated Statements of Comprehensive Income (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net earnings (loss) attributable to HPE | $305 | $512 | $(118) | $1,213 | | Other Comprehensive Income (Loss), Net of Taxes | $70 | $1 | $(47) | $27 | | Comprehensive Income (Loss) | $375 | $513 | $(165) | $1,240 | Condensed Consolidated Balance Sheets As of July 31, 2025, total assets increased due to the Juniper Networks acquisition, while cash and cash equivalents decreased significantly, and total liabilities rose due to increased debt Condensed Consolidated Balance Sheets (As of July 31, 2025 vs. October 31, 2024) | Metric | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Cash and cash equivalents | $4,571 | $14,846 | | Total current assets | $26,002 | $33,457 | | Goodwill | $23,767 | $18,086 | | Intangible assets, net | $6,637 | $510 | | Total assets | $77,340 | $71,262 | | Notes payable and short-term borrowings | $6,799 | $4,742 | | Total current liabilities | $27,347 | $25,973 | | Long-term debt | $16,854 | $13,504 | | Total liabilities and stockholders' equity | $77,340 | $71,262 | - Goodwill increased significantly to $23,767 million as of July 31, 2025, from $18,086 million as of October 31, 2024, primarily due to the Juniper Networks acquisition[21] - Cash and cash equivalents decreased from $14,846 million to $4,571 million, reflecting the cash consideration paid for the Juniper Networks merger[21] Condensed Consolidated Statements of Cash Flows For the nine months ended July 31, 2025, net cash from operating activities decreased, while net cash used in investing activities surged due to the Juniper Networks acquisition, and financing activities increased to fund it Condensed Consolidated Statements of Cash Flows (9 Months Ended July 31) | Metric | 2025 (Millions) | 2024 (Millions) | Change (Millions) | | :----------------------------------- | :-------------- | :-------------- | :---------------- | | Net cash provided by operating activities | $454 | $2,311 | $(1,857) | | Net cash used in investing activities | $(13,614) | $(1,580) | $(12,034) | | Net cash provided by (used in) financing activities | $2,743 | $(1,372) | $4,115 | | Change in cash, cash equivalents and restricted cash | $(10,408) | $(676) | $(9,732) | - Payments made in connection with business acquisitions, net of cash acquired, totaled $12,278 million for the nine months ended July 31, 2025[23] - Proceeds from debt, net of issuance costs, were $5,333 million for the nine months ended July 31, 2025, up from $2,156 million in the prior year[23] Condensed Consolidated Statements of Stockholders' Equity Total HPE stockholders' equity decreased as of July 31, 2025, influenced by a net loss, preferred stock dividends, and common stock repurchases, partially offset by equity award consideration Condensed Consolidated Statements of Stockholders' Equity (As of July 31, 2025 vs. October 31, 2024) | Metric | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Total HPE stockholders' equity | $24,402 | $24,816 | | Accumulated deficit | $(2,786) | $(2,068) | | Additional paid-in capital | $30,199 | $29,848 | | Net (loss) earnings attributable to HPE (9 months) | $(118) | $1,213 | | Preferred stock dividends (9 months) | $(87) | $0 | | Repurchases of common stock (9 months) | $(100) | $(100) | - Consideration for replacement of Juniper Networks Inc.'s equity awards added $239 million to additional paid-in capital for the nine months ended July 31, 2025[27] - Cash dividends declared for common stockholders totaled $513 million for the nine months ended July 31, 2025[27] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of financial statement figures, covering accounting policies, segment performance, acquisitions, debt, equity, and contingencies, including the Juniper Networks acquisition and a goodwill impairment charge Note 1: Overview and Summary of Significant Accounting Policies This note outlines HPE's business, details the $13.4 billion Juniper Networks merger completed on July 2, 2025, and describes the basis of presentation and significant accounting policies - HPE completed the acquisition of Juniper Networks, Inc. on July 2, 2025, for approximately $13.4 billion in cash consideration[31][95] - The results of operations of Juniper Networks are included in the financial statements commencing July 2, 2025[31] - The company is evaluating the impact of recently issued FASB guidance on expected credit losses, disaggregated expense disclosures, and income tax disclosures, with no material impact expected for income tax disclosures[35][36][37] Note 2: Segment Information HPE's operations are organized into five segments, with Networking revenue surging due to the Juniper acquisition, while Server and Hybrid Cloud also saw revenue increases, and Corporate Investments decreased due to divestiture - HPE's segments are Server, Hybrid Cloud, Networking (formerly Intelligent Edge), Financial Services, and Corporate Investments and Other[39] - Juniper Networks' results are included in the Networking segment from July 2, 2025[39] Segment Net Revenue and Operating Results (3 Months Ended July 31, 2025 vs. 2024) | Segment | Net Revenue 2025 (Millions) | Net Revenue 2024 (Millions) | YoY Change (%) | Segment Earnings (Loss) from Operations 2025 (Millions) | Segment Earnings (Loss) from Operations 2024 (Millions) | | :---------------------- | :-------------------------- | :-------------------------- | :------------- | :------------------------------------------------------ | :------------------------------------------------------ | | Server | $4,903 | $4,192 | 16.9% | $317 | $461 | | Hybrid Cloud | $1,422 | $1,269 | 12.1% | $87 | $69 | | Networking | $1,732 | $1,110 | 56.0% | $360 | $251 | | Financial Services | $887 | $877 | 1.1% | $88 | $79 | | Corporate Investments and Other | $192 | $262 | (26.8)% | $(14) | $(4) | | Total Net Revenue | $9,136 | $7,710 | 18.5% | | | Note 3: Transformation Programs HPE's transformation programs were largely completed by fiscal 2024, with significantly reduced charges for the nine months ended July 31, 2025, and remaining restructuring liabilities primarily for employee severance and infrastructure - Transformation charges for the nine months ended July 31, 2025, were $2 million, a substantial decrease from $70 million in the prior year[52] Restructuring Liability as of July 31, 2025 | Plan | Employee Severance (Millions) | Infrastructure and Other (Millions) | | :----------------------------------- | :---------------------------- | :-------------------------------- | | Cost Optimization and Prioritization Plan | $43 | $66 | | HPE Next Plan | — | $15 | | Total | $43 | $81 | - The primary elements of both transformation plans were completed by the end of fiscal 2024[50] Note 4: Retirement Benefit Plans For the nine months ended July 31, 2025, HPE recognized a net periodic benefit credit, a shift from a cost in the prior year, driven by higher expected returns on plan assets and lower interest costs Net Pension Benefit (Credit) Cost for Defined Benefit Plans (9 Months Ended July 31) | Metric | 2025 (Millions) | 2024 (Millions) | | :----------------------------------- | :-------------- | :-------------- | | Service cost | $37 | $36 | | Interest cost | $274 | $304 | | Expected return on plan assets | $(452) | $(410) | | Net periodic benefit (credit) cost | $(48) | $35 | | Total net benefit (credit) cost | $(41) | $38 | Note 5: Taxes on Earnings For the nine months ended July 31, 2025, HPE recorded an income tax expense with a significantly negative effective tax rate due to non-deductible goodwill impairment, and unrecognized tax benefits decreased due to a U.S. IRS audit settlement Benefit (Provision) for Taxes (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Benefit (provision) for taxes | $17 | $(96) | $(94) | $(323) | | Effective tax rate | (6.5)% | 15.8% | (359.9)% | 21.0% | - The effective tax rate for the nine months ended July 31, 2025, was significantly impacted by the non-deductible goodwill impairment[56] - Unrecognized tax benefits decreased to $485 million as of July 31, 2025, from $724 million as of October 31, 2024, primarily due to the effective settlement of a U.S. IRS audit for fiscal years 2017-2019[59] Note 6: Balance Sheet Details Cash and cash equivalents decreased substantially as of July 31, 2025, while accounts receivable increased, and deferred revenue also rose, with a net provision for excess inventory recorded Key Balance Sheet Details (As of July 31, 2025 vs. October 31, 2024) | Metric | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Cash and cash equivalents | $4,571 | $14,846 | | Inventory | $7,163 | $7,810 | | Accounts receivable, net | $5,656 | $3,550 | | Total severance charges (9 months) | $256 | N/A | - The company recorded a net provision for excess or obsolete inventory of $271 million for the nine months ended July 31, 2025[64] - Deferred revenue increased to $10,148 million as of July 31, 2025, from $7,482 million at October 31, 2024, with approximately $3.0 billion recognized from prior contract liabilities[77] Note 7: Accounting for Leases as a Lessor HPE's financing receivables remained stable, with a majority classified as low to moderate risk, and the company consolidates a Variable Interest Entity for asset-backed debt securities Financing Receivables, Net (As of July 31, 2025 vs. October 31, 2024) | Metric | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Financing receivables, net | $9,422 | $9,453 | | Allowance for credit losses | $206 | $194 | | Total lease income (9 months) | $2,196 | $2,257 | - For the nine months ended July 31, 2025, HPE sold $164 million of financing receivables[81] - The company consolidates a Variable Interest Entity (VIE) for asset-backed debt securities, holding $1,944 million in financing receivables and $1,068 million in long-term debt as of July 31, 2025[94] Note 8: Acquisitions and Dispositions HPE completed the $13.4 billion Juniper Networks acquisition on July 2, 2025, contributing $480 million in revenue for July, and divested its CTG business for $210 million, recognizing a $245 million gain - HPE acquired Juniper Networks on July 2, 2025, for approximately $13.4 billion in cash, with the goal of strengthening its networking business and shifting its portfolio towards higher-growth solutions[95][96] Preliminary Purchase Price Allocation for Juniper Networks Acquisition | Asset/Liability | Amount (Millions) | | :----------------------------------- | :-------------- | | Cash and cash equivalents | $1,098 | | Inventory | $1,060 | | Goodwill | $7,042 | | Intangible assets | $6,211 | | Total assets acquired | $19,024 | | Total liabilities assumed | $5,399 | | Total purchase consideration | $13,625 | - Juniper Networks contributed $480 million in total revenue and $76 million in earnings from operations for the period from July 2, 2025, through July 31, 2025[105] - HPE divested its Communications Technology Group (CTG) business on December 1, 2024, for $210 million in net proceeds, recognizing a gain of $245 million[108] Note 9: Goodwill Goodwill totaled $23,767 million as of July 31, 2025, with a $1.4 billion impairment charge for the Hybrid Cloud reporting unit due to an increased discount rate, indicating sensitivity to future market changes Goodwill by Segment (As of July 31, 2025 vs. October 31, 2024) | Segment | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :---------------------- | :----------------------- | :-------------------------- | | Server | $10,194 | $10,194 | | Hybrid Cloud | $3,478 | $4,839 | | Networking | $9,951 | $2,909 | | Financial Services | $144 | $144 | | Corporate Investments and Other | $0 | $0 | | Total | $23,767 | $18,086 | - A goodwill impairment charge of $1.4 billion was recorded in the second quarter of fiscal 2025 for the Hybrid Cloud reporting unit, driven by an increase in the discount rate due to macroeconomic uncertainty[117] - As of July 31, 2025, the Hybrid Cloud reporting unit has remaining goodwill of $3.5 billion with a 0% excess of fair value over carrying value, and the Server reporting unit has $10.2 billion goodwill with a 3% excess, indicating potential future impairment risk[119][122][123] Note 10: Fair Value Total assets measured at fair value decreased significantly to $3,567 million as of July 31, 2025, primarily due to a reduction in money market funds, and the $1.4 billion goodwill impairment was a non-recurring fair value measurement Assets Measured at Fair Value on a Recurring Basis (As of July 31, 2025 vs. October 31, 2024) | Asset Category | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Total cash equivalents | $2,361 | $13,240 | | Total available-for-sale debt investments | $893 | $117 | | Total equity investments | $116 | $88 | | Derivatives Instruments (assets) | $197 | $299 | | Total assets | $3,567 | $13,744 | - The $1.4 billion goodwill impairment charge for the Hybrid Cloud reporting unit in the second quarter of fiscal 2025 was a non-recurring fair value measurement, classified in Level 3 of the fair value hierarchy[133] - As of July 31, 2025, the estimated fair value and carrying value of the Company's short-term and long-term debt was $23.6 billion and $23.7 billion, respectively[129] Note 11: Financial Instruments Total cash equivalents and available-for-sale investments decreased substantially, and HPE uses derivative instruments with a gross notional amount of $18,831 million to manage interest rate and foreign currency exposures Cash Equivalents and Available-for-Sale Debt Investments (As of July 31, 2025 vs. October 31, 2024) | Category | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Total cash equivalents | $2,361 | $13,240 | | Total available-for-sale investments | $955 | $117 | | Total | $3,316 | $13,357 | Fair Value of Derivative Instruments (As of July 31, 2025 vs. October 31, 2024) | Category | Gross Notional 2025 (Millions) | Total Derivatives Assets 2025 (Millions) | Total Derivatives Liabilities 2025 (Millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | :------------------------------ | | Derivatives Designated as Hedging Instruments | $12,716 | $126 | $333 | | Derivatives Not Designated as Hedging Instruments | $6,115 | $71 | $42 | | Total derivatives | $18,831 | $197 | $375 | - For the nine months ended July 31, 2025, derivatives in cash flow hedging relationships resulted in a $189 million loss recognized in OCI[147] Note 12: Borrowings Total borrowings increased to $23,653 million as of July 31, 2025, primarily due to financing for the Juniper Networks acquisition, including assumed senior notes and drawn term loan facilities, and new asset-backed debt securities Notes Payable, Short-Term Borrowings and Long-Term Debt (As of July 31, 2025 vs. October 31, 2024) | Metric | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Current portion of long-term debt | $5,050 | $3,969 | | Commercial paper | $625 | $649 | | Notes payable to banks, lines of credit and other | $1,124 | $124 | | Total notes payable and short-term borrowings | $6,799 | $4,742 | | Long-term debt | $16,854 | $13,504 | | Total | $23,653 | $18,246 | - HPE assumed $1.7 billion of Juniper Networks fixed-rate Senior Notes and drew $4.0 billion from delayed-draw term loan facilities to fund the acquisition[155][156][336] - The company issued $900 million of asset-backed debt securities in July 2025[151][336] Note 13: Stockholders' Equity Accumulated other comprehensive loss increased as of July 31, 2025, and for the nine months, HPE repurchased 5.7 million shares for $100 million, with approximately $0.7 billion remaining authorization Components of Accumulated Other Comprehensive Loss (As of July 31, 2025 vs. October 31, 2024) | Component | July 31, 2025 (Millions) | October 31, 2024 (Millions) | | :----------------------------------- | :----------------------- | :-------------------------- | | Net unrealized gains on available-for-sale securities | $3 | $8 | | Net unrealized (losses) gains on cash flow hedges | $(102) | $(16) | | Unrealized components of defined benefit plans | $(2,270) | $(2,342) | | Cumulative translation adjustment | $(655) | $(627) | | Total accumulated other comprehensive loss | $(3,024) | $(2,977) | - For the nine months ended July 31, 2025, HPE repurchased 5.7 million shares for $100 million[163] - As of July 31, 2025, the company had approximately $0.7 billion remaining authorization for future share repurchases[163] Note 14: Net Earnings (Loss) Per Share For the three months ended July 31, 2025, diluted EPS was $0.21, while for the nine months, it was $(0.16) due to a net loss, with anti-dilutive effects excluded from the calculation Net Earnings (Loss) Per Share (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 | 3 Months 2024 | 9 Months 2025 | 9 Months 2024 | | :----------------------------------- | :------------ | :------------ | :------------ | :------------ | | Net earnings (loss) attributable to common stockholders - Basic | $276 | $512 | $(205) | $1,213 | | Basic EPS | $0.21 | $0.39 | $(0.16) | $0.93 | | Diluted EPS | $0.21 | $0.38 | $(0.16) | $0.92 | | Weighted-average Shares Used to Compute Diluted EPS (Millions) | 1,421 | 1,332 | 1,321 | 1,325 | - The dilutive effect of employee stock plans and 7.625% Series C mandatory convertible preferred stock is excluded when calculating diluted net loss per share as it would be anti-dilutive[167] Note 15: Litigation, Contingencies, and Commitments HPE settled a DOJ action regarding the Juniper Networks acquisition, faces ongoing litigation including Autonomy-related claims with a £740 million ruling, and has $3.0 billion in unconditional purchase obligations - HPE settled the DOJ action regarding the Juniper Networks acquisition by agreeing to divest its global InstantOn campus and branch business and grant up to two licenses to the Mist AIOps source code[171] - In the Autonomy-related legal proceedings, a court ruled on July 22, 2025, that the Lynch estate owed £740 million in damages[175] - As of July 31, 2025, HPE had unconditional purchase obligations of approximately $3.0 billion, with $463 million due within fiscal 2025[179][334] - The maximum potential future payments under performance guarantees and financing arrangements was $320 million as of July 31, 2025[183] Note 16: Subsequent Events Subsequent to quarter-end, HPE elected to redeem $2.5 billion of 4.900% Notes due 2025 and sold approximately $739 million of available-for-sale investments, recognizing a $2 million realized gain - On August 18, 2025, HPE elected to redeem its $2.5 billion aggregate principal amount of 4.900% Notes due 2025[185][332] - Subsequent to the quarter end, the company sold approximately $739 million of available-for-sale investments, recognizing a realized gain of approximately $2 million[185][332] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on HPE's financial condition and results, covering key trends, the Juniper Networks acquisition, cost reduction programs, segment performance, critical accounting policies, liquidity, and GAAP to non-GAAP reconciliations TRENDS AND UNCERTAINTIES HPE identifies increasing demand for AI, hybrid cloud, and edge computing, alongside macroeconomic uncertainty, global trade tensions, and supply chain constraints, as key trends and uncertainties impacting its business - Market demand is gravitating towards AI, hybrid cloud, edge computing, and data security, intensifying competitive pressure[192] - Macroeconomic uncertainty, global trade tensions, and supply chain constraints (e.g., GPUs) continue to impact demand, component costs, and logistics[193][194] - HPE is strengthening its recurring revenue and consumption models through HPE GreenLake[195] - Recent tax developments, including the OECD Pillar Two framework and the U.S. OB3 Act, are being evaluated, with no material impact expected for fiscal 2025[199][201] EXECUTIVE OVERVIEW HPE completed the Juniper Networks merger for $13.4 billion, initiated a cost reduction program targeting $350 million in savings, and reported an 18.5% net revenue increase but a 40.4% GAAP net earnings decrease for the three months ended July 31, 2025 - HPE completed the Juniper Networks merger on July 2, 2025, for approximately $13.4 billion, with Juniper's operations included in the Networking segment[206] - A cost reduction program was approved in March 2025, aiming for $350 million in gross savings by fiscal 2027, with $148 million in charges incurred for the nine months ended July 31, 2025[207][208] Key Financial Results (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net revenue | $9,136 | $7,710 | $24,617 | $21,669 | | Gross profit margin | 29.2% | 31.6% | 29.0% | 33.6% | | Operating profit margin | 2.7% | 7.1% | (1.7)% | 6.9% | | Net earnings (loss) attributable to HPE | $305 | $512 | $(118) | $1,213 | | Diluted net EPS | $0.21 | $0.38 | $(0.16) | $0.92 | Annualized Revenue Run-rate (ARR) Growth | Metric | As of July 31, 2025 (Millions) | As of July 31, 2024 (Millions) | | :----------------------------------- | :----------------------------- | :----------------------------- | | ARR | $3,053 | $1,723 | | Year-over-year growth rate | 77% | 35% | RESULTS OF OPERATIONS HPE's total net revenue increased by 18.5% for the three months ended July 31, 2025, driven by Server and Networking segments, while gross profit margin decreased, and a $1.4 billion goodwill impairment significantly impacted nine-month operating results Consolidated Net Revenue and Profit Margins (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 | 3 Months 2024 | 9 Months 2025 | 9 Months 2024 | | :----------------------------------- | :------------ | :------------ | :------------ | :------------ | | Net revenue | $9,136 | $7,710 | $24,617 | $21,669 | | Gross profit margin | 29.2% | 31.6% | 29.0% | 33.6% | | Operating profit margin | 2.7% | 7.1% | (1.7)% | 6.9% | - Server net revenue increased by 16.1% for the three months ended July 31, 2025, primarily due to higher average unit prices (AUPs)[231] - Networking net revenue increased by 54.3% for the three months ended July 31, 2025, primarily due to the Juniper Networks merger[231] - A $1.4 billion goodwill impairment charge was recorded for the nine months ended July 31, 2025, related to the Hybrid Cloud reporting unit[237] - The disposition of CTG on December 1, 2024, resulted in a $245 million gain[241] Server Segment Results For the three months ended July 31, 2025, Server segment net revenue increased by 16.1% due to higher AUPs, but operating earnings margin decreased due to a higher mix of lower-margin products and increased input costs Server Segment Performance (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net revenue | $4,940 | $4,255 | $13,288 | $11,423 | | Earnings from operations | $317 | $461 | $906 | $1,263 | | Earnings from operations as a % of net revenue | 6.4% | 10.8% | 6.8% | 11.1% | - The decrease in Server segment operating margin for the three months was due to a higher mix of lower margin products and input cost increases[253] Hybrid Cloud Segment Results Hybrid Cloud segment net revenue increased by 12.0% for the three months ended July 31, 2025, driven by increased unit volume in private cloud and storage products, with operating earnings margin also improving Hybrid Cloud Segment Performance (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net revenue | $1,484 | $1,325 | $4,342 | $3,880 | | Earnings from operations | $87 | $69 | $264 | $133 | | Earnings from operations as a % of net revenue | 5.9% | 5.2% | 6.1% | 3.4% | - Hybrid Cloud product revenue increased by 8.5% for the three months, driven by a 35.5% increase in unit volume, primarily from private cloud and storage products[257] Networking Segment Results Networking segment net revenue surged by 54.3% for the three months ended July 31, 2025, primarily due to the Juniper Networks acquisition, though operating earnings margin decreased due to competitive pricing pressure Networking Segment Performance (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net revenue | $1,730 | $1,121 | $4,038 | $3,408 | | Earnings from operations | $360 | $251 | $948 | $841 | | Earnings from operations as a % of net revenue | 20.8% | 22.4% | 23.5% | 24.7% | - Juniper Networks contributed $303 million to product revenue and $177 million to services revenue for the three months ended July 31, 2025[264] Financial Services Segment Results Financial Services segment net revenue increased by 0.8% for the three months ended July 31, 2025, driven by favorable currency and higher finance income, with operating earnings margin improving due to lower depreciation expense Financial Services Segment Performance (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net revenue | $886 | $879 | $2,615 | $2,619 | | Earnings from operations | $88 | $79 | $259 | $234 | | Earnings from operations as a % of net revenue | 9.9% | 9.0% | 9.9% | 8.9% | Financing Volume (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Financing volume | $1,513 | $1,483 | $3,974 | $4,518 | - Net portfolio assets decreased by 2.6% to $13,239 million as of July 31, 2025, from October 31, 2024[279] Corporate Investments and Other Segment Results Corporate Investments and Other segment net revenue decreased by 26.0% for the three months ended July 31, 2025, primarily due to the CTG business divestiture, leading to an increased loss from operations as a percentage of net revenue Corporate Investments and Other Segment Performance (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net revenue | $194 | $262 | $585 | $752 | | Loss from operations | $(14) | $(4) | $(26) | $(23) | | Loss from operations as a % of net revenue | (7.2)% | (1.5)% | (4.4)% | (3.1)% | - The decrease in net revenue was primarily due to the divestiture of the CTG business effective December 1, 2024[282] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section details HPE's critical accounting policies, including revenue recognition, taxes, impairment of goodwill and intangibles, and contingencies, highlighting the $1.4 billion goodwill impairment for Hybrid Cloud due to macroeconomic factors - Critical accounting policies include revenue recognition, taxes on earnings, impairment assessment of goodwill and intangible assets, and contingencies[287] - Business combinations require significant judgment in determining fair values of identifiable assets and liabilities, using income and market approaches[289] - A $1.4 billion goodwill impairment charge was recorded for the Hybrid Cloud reporting unit in Q2 2025, driven by an increased discount rate due to macroeconomic uncertainty[301] - The Hybrid Cloud and Server reporting units remain sensitive to future macroeconomic conditions, with potential for further impairment charges[307] LIQUIDITY AND CAPITAL RESOURCES HPE's cash and cash equivalents significantly decreased due to the Juniper Networks acquisition, resulting in negative free cash flow for the nine months ended July 31, 2025, with substantial unconditional purchase obligations and future cost reduction program payments - Cash, cash equivalents, and restricted cash decreased to $4,697 million as of July 31, 2025, from $15,105 million at October 31, 2024[316] Cash Flow Summary (9 Months Ended July 31) | Metric | 2025 (Millions) | 2024 (Millions) | | :----------------------------------- | :-------------- | :-------------- | | Net cash provided by operating activities | $454 | $2,311 | | Net cash used in investing activities | $(13,614) | $(1,580) | | Net cash provided by (used in) financing activities | $2,743 | $(1,372) | | Free cash flow | $(934) | $797 | - The decrease in operating cash flow was primarily due to unfavorable working capital changes and other assets/liabilities, partially offset by increased collections from financing receivables[319] - Unconditional purchase obligations totaled $3.0 billion as of July 31, 2025, and future cash payments for the cost reduction program are estimated at $327 million[334][339] GAAP to non-GAAP Reconciliations This section provides detailed reconciliations of HPE's non-GAAP financial measures to GAAP, excluding items like stock-based compensation, amortization, and goodwill impairment, to offer greater transparency into operational performance GAAP to Non-GAAP Gross Profit Reconciliation (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | GAAP gross profit | $2,672 | $2,439 | $7,136 | $7,272 | | Non-GAAP adjustments | $60 | $11 | $110 | $9 | | Non-GAAP gross profit | $2,732 | $2,450 | $7,286 | $7,281 | GAAP to Non-GAAP Earnings from Operations Reconciliation (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | GAAP earnings (loss) from operations | $247 | $547 | $(429) | $1,497 | | Non-GAAP adjustments | $530 | $224 | $2,599 | $733 | | Non-GAAP earnings from operations | $777 | $771 | $2,170 | $2,230 | GAAP to Non-GAAP Net Earnings and Diluted EPS Reconciliation (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | GAAP net earnings (loss) | $305 | $512 | $(118) | $1,213 | | Non-GAAP adjustments | $326 | $149 | $1,978 | $647 | | Non-GAAP net earnings attributable to HPE | $631 | $661 | $1,860 | $1,860 | | Non-GAAP diluted net EPS | $0.44 | $0.50 | $1.32 | $1.40 | Net Cash Provided by Operating Activities to Free Cash Flow Reconciliation (3 & 9 Months Ended July 31) | Metric | 3 Months 2025 (Millions) | 3 Months 2024 (Millions) | 9 Months 2025 (Millions) | 9 Months 2024 (Millions) | | :----------------------------------- | :----------------------- | :----------------------- | :----------------------- | :----------------------- | | Net cash provided by operating activities | $1,305 | $1,154 | $454 | $2,311 | | Net capital expenditures | $(486) | $(481) | $(1,397) | $(1,479) | | Effect of exchange rate changes on cash | $(29) | $(4) | $9 | $(35) | | Free cash flow | $790 | $669 | $(934) | $797 | PART II. OTHER INFORMATION Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section refers to the Annual Report on Form 10-K for market risk disclosures, confirming no material changes in market risk exposures since October 31, 2024 - No material changes in market risk exposures have occurred since October 31, 2024[374] Item 4. Controls and Procedures. HPE's management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of July 31, 2025, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of July 31, 2025[375] - No material changes to internal control over financial reporting occurred during the quarter ended July 31, 2025[376] Item 1. Legal Proceedings. This item refers to Note 15, 'Litigation, Contingencies, and Commitments' for information on legal proceedings - Information on legal proceedings is detailed in Note 15, 'Litigation, Contingencies, and Commitments'[378] Item 1A. Risk Factors. This item refers to the 'Risk Factors' section in the Annual Report on Form 10-K for the fiscal year ended October 31, 2024, and subsequent Quarterly Reports on Form 10-Q for a comprehensive discussion of risks and uncertainties - Risk factors are detailed in the Annual Report on Form 10-K for fiscal year ended October 31, 2024, and subsequent Quarterly Reports on Form 10-Q[379] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. There were no unregistered sales of equity securities during the quarter ended July 31, 2025, and the company did not repurchase any shares during May, June, or July 2025, but had approximately $0.7 billion remaining authorization for future share repurchases - No unregistered sales of equity securities occurred during the period[380] Issuer Purchases of Equity Securities (3 Months Ended July 31, 2025) | Period | Total Number of Shares Purchased and Settled (Thousands) | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased (Millions) | | :----------------------------------- | :------------------------------------------------- | :--------------------------- | :------------------------------------------------------------------- | | Month 1 (May 2025) | — | — | $711.6 | | Month 2 (June 2025) | — | — | $711.6 | | Month 3 (July 2025) | — | — | $711.6 | | Total | — | — | | - As of July 31, 2025, approximately $0.7 billion remained authorized for future share repurchases[381] Item 5. Other Information This section discloses trading plans adopted or terminated by directors and officers during the quarter, and provides Exchange Act Section 13(r) disclosures regarding dealings with sanctioned entities, with no identifiable gross revenues or net profits from these activities for the reporting period - Several directors and officers adopted or terminated Rule 10b5-1 Trading Arrangements during the quarter[382][386] - HPE Russia continues wind-down activities with the Russian Federal Security Service (FSB) under General License 1B, with no direct gross revenues or net profits[384] - HPE had dealings with Positive Technologies prior to its designation under Executive Order 14024 and is winding down its relationship, with no identifiable gross revenues or net profits for this reporting period[385][387] - HPL, a UK subsidiary, had transactions with Persia International Bank PLC (a blocked entity) for approximately £28,129.84 (approx. $34,055.50) in gross revenue, with no further transactions intended[388] Item 6. Exhibits. This section lists all exhibits filed as part of the 10-Q report, including various agreements, certificates, indentures, stock incentive plans, and certifications, many of which are incorporated by reference from previous filings, and new exhibits related to the Juniper Networks acquisition and recent credit agreements - The exhibit index lists various agreements, certificates, indentures, and stock plans, including those related to the Juniper Networks acquisition and recent credit facilities[392][396][397] SIGNATURE Signature The report was signed by Marie Myers, Executive Vice President and Chief Financial Officer of Hewlett Packard Enterprise Company, on September 4, 2025 - The report was signed by Marie Myers, Executive Vice President and Chief Financial Officer, on September 4, 2025[401]