Hewlett Packard Enterprise Co

Previous wording

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

Current wording

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

Previous wording

•Trends and Uncertainties. A discussion of material events and uncertainties known to management, such as the mixed macroeconomic environment of supply chain constraints (though easing), uneven demand across our portfolio, increased demand for and adoption of new technologies, conservative customer spending environment, inflationary trend and foreign exchange pressures, and recent tax developments.

Current wording

•Trends and Uncertainties. A discussion of material events and uncertainties known to management, such as the mixed macroeconomic environment of supply chain constraints (though easing), uneven demand across our portfolio, increased demand for and adoption of new technologies, conservative customer spending environment, persistent inflation, foreign exchange pressures, recent tax developments, and pending merger with Juniper Networks, Inc.

Previous wording

We have observed market trends and demand gravitating towards AI, hybrid cloud, and edge computing, and data security capabilities, and related offerings. The volume of data at the edge continues to grow, driven by the proliferation of more devices, which has led to the need for enhanced security at the edge, as well. The need for a unified cloud experience everywhere has grown, as well, in order to manage the growth of data at the edge. With the abundance of data, there are opportunities to develop AI tools with powerful computational abilities to extract insights and value from the captured data. We expect these market dynamics and trends to continue in the longer term.

Current wording

Technological Advancements: We have observed market trends and demand (of customers of various segments and sizes) gravitating towards AI, hybrid cloud, edge computing, data security capabilities, and related offerings. The volume of data at the edge continues to grow, driven by the proliferation of more devices. The need for a unified cloud experience everywhere has grown, as well, in order to manage the growth of data at the edge. With the abundance of data, there are opportunities to develop AI tools with powerful computational abilities to extract insights and value from the captured data. We expect these market dynamics and trends to continue in the longer term.

Previous wording

The dynamics we have experienced throughout fiscal 2023 continue. We have seen supply chain constraints continue to ease (though challenges still remain) and demand soften unevenly across our portfolio and geographies (as a result of the aforementioned improving supply chain conditions and as customers have been taking longer than anticipated to digest their prior larger orders). We have observed, and expect to continue seeing, customers of various segments and sizes pursue new technologies, such as AI. As noted above, we have continued to see elongated sales cycles, as customers work through prior orders and adopt a more conservative approach to spending in a mixed macroeconomic environment. This has been particularly true of certain of our hardware businesses, as customers have focused investments on modernizing infrastructure, such as migrating to cloud-based offerings, including our own. We expect such mixed macroeconomic environment to continue to limit our revenue growth in the near term.

Current wording

Macroeconomic Uncertainty: The effect of the evolving macroeconomic environment continued to impact industry-wide demand, as customers take longer to work through prior orders and have been adopting a more conservative approach to discretionary IT spending. This has resulted in demand softening unevenly across our portfolio and geographies, particularly for certain of our hardware offerings, as customers have focused investments on modernizing infrastructure, such as migrating to cloud-based offerings, including our own. We expect such mixed macroeconomic environment to continue to limit our revenue growth in the near term.

Previous wording

As referenced above, mild improvements to industry-wide supply constraints have helped to ease certain supply chain challenges we encountered in the recent past, including the increased availability of supply and lower material and logistics costs. Material cost trends are dependent on the strength or weakness of actual end-user demand and supply dynamics, which will continue to evolve and ultimately impact the translation of the cost environment to our pricing actions and, consequently, our operating results. Logistics costs continued to decrease from previously elevated levels as a result of declines in both expedited shipments and overall rate costs in the freight network.

Current wording

Supply Chain: We have seen supply chain constraints for certain components, including graphics processing units, ease (though challenges still remain). Mild improvements to industry-wide supply constraints have helped to ease certain supply chain challenges we encountered in the recent past, including the increased availability of supply and lower material and logistics costs. Logistics costs continued to decrease from previously elevated levels as a result of declines in both expedited shipments and overall rate costs in the freight network. We have experienced, and expect to continue experiencing, rising input component costs, principally driven by inflation. While we have been able to pass on such increased costs to customers, the pricing environment has been, and we believe will continue to remain, competitive, which may impact our financial results. We plan to mitigate the impact of these dynamics through continued disciplined cost management. Furthermore, during fiscal 2024, we have been experiencing higher-than-normal inventory levels, primarily due to longer cycle times for us to deliver (and/or for customers to accept) certain AI-related orders; we expect this trend to continue.

Previous wording

Observing these dynamics, we have accelerated our investment and innovation efforts in these areas that we see as critical to our long-term strategy and growth, including in pivoting our go-to-market motion and sales function. At the same time, we continue to strengthen our core compute and storage-oriented offerings and expand our offerings on the HPE GreenLake edge-to-cloud platform, to deliver our entire portfolio as-a-service (“aaS”) and become the edge-to-cloud company for our customers and partners. Furthermore, as noted elsewhere in this report, effective November 1, 2023, we have realigned our financial reporting segments to align with these key market trends. It is uncertain whether we will successfully execute this shift in strategic focus, realize the anticipated benefits of doing so, or capture the anticipated shares of the AI, hybrid cloud, and edge markets.

Current wording

Recurring Revenue and Consumption Models: We continue to strengthen our core server and storage-oriented offerings and expand our offerings on the HPE GreenLake edge-to-cloud platform, to deliver our entire portfolio as-a-service (“aaS”) and become the edge-to-cloud company for our customers and partners. We expect that such flexible consumption model will continue to strengthen our customer relationships and contribute to growth in recurring revenue.

Previous wording

Additionally, we have a large global presence, with more than half of our revenue generated outside of the U.S. As a result, our financial results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates. Furthermore, inflationary pressures persist, keeping not only material and logistics costs, but also labor costs, somewhat elevated compared to pre-COVID-19 pandemic levels. Also, the impacts of trade protection measures, including increases in tariffs and trade barriers, changes in government policies and international trade arrangements, geopolitical volatility (including ongoing conflict in the Middle East), and global macroeconomic challenges (including the relationship between China and the U.S.), may impact our ability to conduct business in some non-U.S. markets. We expect the unfavorable foreign exchange effects, inflationary trend, and the aforementioned international challenges to continue in the longer term.

Current wording

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.

Previous wording

The Organisation for Economic Co-operation and Development (“OECD”), an international association of 38 countries including the United States, has proposed changes to numerous long-standing tax principles, namely, its Pillar Two framework, which imposes a global minimum corporate tax rate of 15%. To date, 29 countries have enacted portions, or all, of the OECD proposal and a further 23 countries have drafted, or have announced an intent to draft, legislation enacting the proposed rules. Where enacted, the rules begin to be effective for us in fiscal 2025. Under US GAAP, the OECD Pillar Two rules are considered an alternative minimum tax and therefore deferred taxes would not be recognized or adjusted for the estimated effects of the future minimum tax. As a result, no impact to our fiscal 2024 results is expected. The adoption and effective dates of these rules may vary by country and could increase tax complexity and uncertainty and may adversely affect our provision for income taxes.

Current wording

Recent Tax Developments: The Organisation for Economic Co-operation and Development (“OECD”), an international association of 38 countries including the United States, has proposed changes to numerous long-standing tax principles, namely, its Pillar Two framework, which imposes a global minimum corporate tax rate of 15%. To date, 29 countries have enacted portions, or all, of the OECD proposal and a further 23 countries have drafted, or have announced an intent to draft, legislation enacting the proposed rules. Where enacted, the rules begin to be effective for us in fiscal 2025. Under US GAAP, the OECD Pillar Two rules are considered an alternative minimum tax and therefore deferred taxes would not be recognized or adjusted for the estimated effects of the future minimum tax. As a result, no impact to our fiscal 2024 results is expected. The adoption and effective dates of these rules may vary by country and could increase tax complexity and uncertainty and may adversely affect our provision for income taxes.

Previous wording

Net revenue of $6.8 billion represented a decrease of 13.5% (decreased 13.8% on a constant currency basis) primarily due to a decline in server unit volume in the Server segment, and lower average unit prices (“AUPs”) in the Server and Hybrid Cloud segments. The gross profit margin of 36.4%, (or $2.5 billion), represents an increase of 2.4 percentage points from the prior-year period due to favorable revenue mix in the Intelligent Edge segment, cost recoveries in connection with our exit from Russia and Belarus, and lower supply chain costs. The increase was moderated by lower AUPs in the Server segment. The operating profit margin of 7.8% remained relatively flat.

Current wording

Net revenue of $7.2 billion represented an increase of 3.3% (increased 3.5% on a constant currency basis) primarily due to higher average unit prices (“AUPs”) in the Server segment, moderated by lower volume and product mix effect in the Intelligent Edge segment. The gross profit margin of 33.0% (or $2.4 billion), represents a decrease of 3.0 percentage points from the prior-year period primarily due to higher mix of lower margin products and services revenue in the Intelligent Edge and Server segments, partially offset by cost recoveries in connection with our exit from Russia and Belarus. The operating profit margin of 5.9% represents a decrease of 1.6 percentage points from the prior-year period primarily due to the aforementioned gross margin decline moderated by lower operating expenses.

Previous wording

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

Current wording

The 37% year-over year increase in ARR was primarily due to growth in our Hybrid Cloud and Intelligent Edge segments, which was due to an expanding customer installed base, an expanded range of HPE GreenLake Flex Solutions, and Intelligent Edge aaS activity.

Previous wording

Returning capital to our shareholders remains an important part of our capital allocation framework, which also consists of strategic investments. During the first quarter of fiscal 2024, we paid a quarterly dividend of $0.13 per share to our shareholders. On February 29, 2024, we declared a regular cash dividend of $0.13 per share on our common stock, payable on or about April 12, 2024, to our shareholders of record as of the close of business on March 15, 2024. As of January 31, 2024, we had a remaining authorization of approximately $1.0 billion for future share repurchases.

Current wording

Returning capital to our shareholders remains an important part of our capital allocation framework, which also consists of strategic investments. During the second quarter of fiscal 2024, we paid a quarterly dividend of $0.13 per share to our shareholders. On June 4, 2024, we declared a regular cash dividend of $0.13 per share on our common stock, payable on or about July 18, 2024, to our shareholders of record as of the close of business on June 19, 2024. As of April 30, 2024, we had a remaining authorization of approximately $0.9 billion for future share repurchases.

Previous wording

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

Current wording

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

Previous wording

For the three months ended January 31, 2024, total net revenue of $6.8 billion represented a decrease of $1.1 billion, or 13.5% (decreased 13.8% on a constant currency basis). U.S. net revenue decreased by $591 million, or 20.5% to $2.3 billion, and net revenue from outside of the U.S. decreased by $463 million, or 9.4%, to $4.5 billion.

Current wording

For the six months ended April 30, 2024, total net revenue of $14.0 billion represented a decrease of $823 million, or 5.6% (decreased 5.7% on a constant currency basis). U.S. net revenue decreased by $402 million, or 7.6%, to $4.9 billion, and net revenue from outside of the U.S. decreased by $421 million, or 4.4%, to $9.1 billion.

Previous wording

•Financial Services net revenue was flat

Current wording

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

Previous wording

For the three months ended January 31, 2024, the total gross profit margin of 36.4% represents an increase of 2.4 percentage points as compared to the prior year period. The increase was due to favorable revenue mix in the Intelligent Edge segment, higher revenue from support services, cost recoveries in connection with our exit from Russia and Belarus, and lower supply chain costs. The increase was moderated by lower AUPs in the Server segment.

Current wording

For the three and six months ended April 30, 2024, the total gross profit margin of 33.0% and 34.6%, respectively, represents a decrease of 3.0 and 0.4 percentage points, respectively, as compared to the respective prior year periods. The decrease for the three months ended April 30, 2024, was due to higher mix of lower margin products and services revenue in the Intelligent Edge and Server segments, partially offset by cost recoveries in connection with our exit from Russia and Belarus. For the six months ended April 30, 2024, the change in gross profit margin was relatively flat.

Previous wording

For thethree months ended January 31, 2024, R&D expense decreased by $41 million, or 6.6%. The decrease was primarily due to lower employee costs which contributed 5.0 percentage points to the change.

Current wording

For thethree months ended April 30, 2024, R&D expense increased by $20 million, or 3.5%. The increase was primarily due to higher employee costs driven by higher planned investments in R&D, which contributed 3.8 percentage points to the change.

Previous wording

For thethree months ended January 31, 2024, SG&A expense decreased by $41 million, or 3.3%, primarily due to lower employee costs and lower consulting costs which contributed 2.4 and 1.7 percentage points, respectively, to the change. The decrease was partially offset by higher marketing expenses.

Current wording

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

Previous wording

For the three months ended January 31, 2024, transformation costs decreased by $82 million, or 80.4%, due to lower charges incurred in the current period as the primary elements of these plans have been substantially completed by the end of fiscal 2023. For a further discussion, refer to Note 3, "Transformation Programs" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Current wording

For the three and six months ended April 30, 2024, transformation costs decreased by $27 million, or 45.0%, and $109 million, or 67.3%, respectively, due to lower charges incurred in the current period as the primary elements of these plans have been substantially completed by the end of fiscal 2023. For a further discussion, refer to Note 3, "Transformation Programs" to the Condensed Consolidated Financial Statements in Item 1 of Part I.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Earnings from equity interests primarily represents our 49% interest in H3C Technologies Co., Limited ("H3C") and the amortization of our basis difference. For thethree months ended January 31, 2024, earnings from equity interests decreased by $12 million primarily due to lower net income earned by H3C partially offset by lower amortization expense from basis difference in the current period.

Current wording

Earnings from equity interests primarily represents our 49% interest in H3C Technologies Co., Limited ("H3C") and the amortization of our basis difference. For thethree and six months ended April 30, 2024, earnings from equity interests decreased by $7 million and $19 million primarily due to lower net income earned by H3C partially offset by lower amortization expense from basis difference in the current period.

Previous wording

For the three months ended January 31, 2024 and 2023, we recorded income tax expense of $96 million and $122 million, respectively, which reflects an effective tax rate of 19.9% and 19.6%, respectively. Our effective tax rate generally differs from the U.S. federal statutory rate of 21% due to favorable tax rates associated with certain earnings from our operations in lower tax jurisdictions throughout the world but are also impacted by discrete tax adjustments during each fiscal period.

Current wording

For the three months ended April 30, 2024 and 2023, we recorded income tax expense of $131 million and $104 million, respectively, which reflects an effective tax rate of 29.4% and 19.9%, respectively. For the six months ended April 30, 2024 and 2023, we recorded income tax expense of $227 million and $226 million, respectively, which reflect an effective tax rate of 24.5% and 19.7%, respectively. For the three and six months ended April 30, 2024, our effective tax rate differed from the U.S. federal statutory rate of 21% due to our geographic mix of forecasted earnings and net unfavorable permanent differences from U.S. income tax on non-U.S. earnings. For the three and six months ended April 30, 2023, our effective tax rate differed from the U.S. federal statutory rate of 21% due to favorable tax rates associated with certain earnings from our operations in lower tax jurisdictions throughout the world but is also impacted by discrete tax adjustments during each fiscal period.

Previous wording

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

Current wording

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

Previous wording

Server net revenue decreased by $980 million, or 22.6% (decreased 22.7% on a constant currency basis), primarily due to a $961 million, or 27.8%, decrease in product revenue. The decline in product revenue was primarily due to lower server unit volume of $739 million, or 21.3%, as customers absorbed prior orders and decrease in AUPs of $138 million, or 4.0% resulting from competitive pricing measures. Services net revenue decreased by $19 million, or 2.2%, due to lower contract volume.

Current wording

Server net revenue decreased by $400 million, or 5.3% (decreased 5.2% on a constant currency basis), primarily due to a $375 million, or 6.4%, decrease in product revenue. The decrease in product revenue was primarily due to lower net unit volume of $595 million, or 10.1%, as customers absorbed prior orders. This decrease was partially offset by higher net AUPs of $216 million, or 3.7%.

Previous wording

Server earnings from operations as a percentage of net revenue decreased 4.3 percentage points due to an increase in costs of products and services and operating expenses as a percentage of net revenue. The increase in costs of products and services as a percentage of net revenue was primarily due to lower AUPs partially offset by favorable mix of higher-margin revenues and lower employee costs. The increase in operating expenses as a percentage of net revenue was primarily due to the scale of the net revenue decline relative to the decrease in total operating expenses driven by lower employee costs.

Current wording

Server earnings from operations as a percentage of net revenue decreased 3.9 percentage points due to an increase in costs of products and services as a percentage of net revenue, moderated by a decrease in operating expenses as a percentage of net revenue. The increase in costs of products and services as a percentage of net revenue was primarily due to higher mix of lower margin products and services revenue, partially offset by lower supply chain and employee costs. The decrease in operating expenses as a percentage of net revenue was primarily due to lower total operating expenses as a result of cost containment measures.

Previous wording

Hybrid Cloud net revenue decreased by $136 million, or 9.8% (decreased 10.0% on a constant currency basis), primarily due to a decrease in AUPs, partially offset by an increase in unit volume. Hybrid Cloud product revenue decreased by $173 million, or 20.1%, primarily due to a decrease in AUPs of $154 million, or 18%, led by storage products. Hybrid Cloud services revenue increased by $37 million, or 7.0%, primarily due to a unit volume increase of $60 million, or 11.5%, led by private cloud and infrastructure software-as-a-service (“SaaS”). This increase was partially offset by lower AUPs of $25 million, or 4.7%.

Current wording

Hybrid Cloud net revenue decreased by $115 million, or 8.4% (decreased 8.5% on a constant currency basis), primarily due to a decrease in AUPs, partially offset by an increase in unit volume. Hybrid Cloud product revenue decreased by $171 million, or 20.5%, primarily due to a decrease in AUPs of $267 million, or 32.0%, partially offset by a unit volume increase of $86 million or 10.4%, both of which were led by private cloud and storage products. Hybrid Cloud services revenue increased by $56 million, or 10.4%, primarily due to a unit volume increase of $72 million, or 13.5%, led by private cloud and infrastructure software-as-a-service (“SaaS”). This increase was partially offset by lower AUPs of $18 million, or 3.3%.

Previous wording

Hybrid Cloud earnings from operations as a percentage of net revenue decreased 2.0 percentage points primarily due to an increase in operating expenses as a percentage of net revenue moderated by a decrease in cost of products and services as a percentage of net revenue. The increase in operating expenses as a percentage of net revenue was primarily due to the scale of net revenue decline and the related impact of fixed overhead costs. The decrease in cost of products and services as a percentage of net revenue was primarily due to higher margin GreenLake Flex Solutions deals, upsides in storage subscription revenue, and upsides to revenue from infrastructure SaaS. This was moderated by a decrease in AUPs for storage products.

Current wording

Hybrid Cloud earnings from operations as a percentage of net revenue decreased 1.1 percentage points primarily due to an increase in operating expenses as a percentage of net revenue moderated by a decrease in cost of products and services as a percentage of net revenue. The increase in operating expenses as a percentage of net revenue was primarily due to the scale of net revenue decline and the related impact of fixed overhead costs. The decrease in cost of products and services as a percentage of net revenue was primarily due to higher margin GreenLake Flex Solutions deals and increase in storage subscription and infrastructure SaaS revenues. This was moderated by a decrease in AUPs for storage products.

Previous wording

Intelligent Edge net revenue increased by $32 million, or 2.7% (increased 2.3% on a constant currency basis). Services net revenue increased $56 million, or 24.9%, primarily led by attached support service and our aaS offerings. Product revenue decreased by $24 million, or 2.5%, led by lower volume and product mix effect of $132 million, or 14.0%, moderated by higher AUPs of $101 million, or 10.7% and favorable currency fluctuations of $7 million. The product revenue decrease was primarily led by wireless local area network products due to softened demand, partially offset by an increase in switching products.

Current wording

Intelligent Edge net revenue decreased by $226 million, or 9.0% (decreased 9.2% on a constant currency basis). Product revenue decreased by $333 million, or 16.3%, led by lower volume and product mix effect of $391 million, or 19.1%, moderated by higher AUPs of $50 million, or 2.4%, and favorable currency fluctuations of $8 million. The product revenue decrease was primarily led by wireless local area network products and switching products due to softened demand. Services net revenue increased $107 million, or 23.0%, primarily led by attached support service and our aaS offerings.

Previous wording

Intelligent Edge earnings from operations as a percentage of net revenue increased 10.0 percentage points primarily due to decreases in cost of products and services as a percentage of net revenue and operating expenses as a percentage of net revenue. The decrease in cost of product and services as a percentage of net revenue was primarily due to favorable revenue mix and lower supply chain costs. Operating expenses as a percentage of net revenue decreased primarily due to lower employee costs.

Current wording

Intelligent Edge earnings from operations as a percentage of net revenue increased 3.6 percentage points primarily due to decreases in cost of products and services as a percentage of net revenue, partially offset by an increase in operating expenses as a percentage of net revenue. The decrease in cost of product and services as a percentage of net revenue was primarily due to favorable revenue mix and lower supply chain costs. Operating expenses as a percentage of net revenue increased primarily due to higher employee costs related to acquisitions.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

Financing volume, which represents the amount of financing provided to customers for equipment and related software and services, including intercompany activity, was relatively flat and decreased 7.1% for the three and six months ended April 30, 2024, as compared to the prior-year period. The decrease for the six months ended April 30, 2024, was primarily due to lower financing of third-party product and services, partially offset by higher financing of HPE product sales and services.

Previous wording

(3)Debt benefiting FS consists of intercompany equity that is treated as debt for segment reporting purposes, intercompany debt, and borrowing- and funding-related activity associated with FS and its subsidiaries. Debt benefiting FS totaled $11.7 billion and $11.6 billion as of January 31, 2024 and October 31, 2023, respectively, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies. FS equity as of both January 31, 2024 and October 31, 2023 was $1.7 billion.

Current wording

(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 $11.5 billion and $11.6 billion as of April 30, 2024 and October 31, 2023, respectively, and was determined by applying an assumed debt-to-equity ratio, which management believes to be comparable to that of other similar financing companies. FS equity at April 30, 2024 and October 31, 2023 was $1.6 billion and$1.7 billion, respectively.

Previous wording

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

Current wording

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

Previous wording

Net portfolio assets as of January 31, 2024 increased 1.2% from October 31, 2023. The increase generally resulted from favorable currency fluctuations.

Current wording

Net portfolio assets as of April 30, 2024 increased 0.7% from October 31, 2023. The increase generally resulted from favorable currency fluctuations.

Previous wording

FS bad debt expense includes charges to general reserves, specific reserves, and write-offs for sales-type, direct-financing, and operating leases. For the three months ended January 31, 2024 and 2023, FS recorded net bad debt expense of $12 million and $19 million, respectively.

Current wording

FS bad debt expense includes charges to general reserves, specific reserves, and write-offs for sales-type, direct-financing, and operating leases. For the three and six months ended April 30, 2024, FS recorded net bad debt expense of $10 million and $22 million, respectively. For the three and six months ended April 30, 2023, FS recorded net bad debt expense of $11 million and $30 million, respectively.

Previous wording

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

Current wording

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

Previous wording

Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Accounting policies that are critical in the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, or complex judgements include revenue recognition, taxes on earnings, business combinations, impairment assessment of goodwill and intangible assets, and contingencies.

Current wording

Estimates and judgments are based on historical experience, forecasted events, and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Accounting policies that are critical in the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, or complex judgments include revenue recognition, taxes on earnings, impairment assessment of goodwill and intangible assets, and contingencies.

Previous wording

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 shareholder dividend payments. We expect to supplement this short-term liquidity, if necessary, by accessing the capital markets, issuing commercial paper, and borrowing under credit facilities made available by various domestic and foreign financial institutions. However, our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market, and economic conditions. We anticipate that the funds made available, including committed debt funding related to the pending merger with Juniper Networks, and cash generated from operations, along with our access to capital markets, will be sufficient to meet our liquidity requirements for at least the next twelve months and for the foreseeable future thereafter. Our liquidity is subject to various risks including the risks identified in the section entitled "Risk Factors" in Item 1A of Part II and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 3 of Part I.

Current wording

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 shareholder dividend payments. We expect to supplement this short-term liquidity, if necessary, by accessing the capital markets, issuing commercial paper, and borrowing under credit facilities made available by various domestic and foreign financial institutions. However, our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market, and economic conditions. We anticipate that the funds made available, including committed debt funding related to the pending merger with Juniper Networks and anticipated proceeds from the sale of H3C shares held by us, and cash generated from operations, along with our access to capital markets, will be sufficient to meet our liquidity requirements for at least the next twelve months and for the foreseeable future thereafter. Our liquidity is subject to various risks including the risks identified in the section entitled "Risk Factors" in Item 1A of Part II and market risks identified in the section entitled "Quantitative and Qualitative Disclosures about Market Risk" in Item 3 of Part I.

Previous wording

In connection with the share repurchase program previously authorized by our Board of Directors, during the first three months of fiscal 2024, we settled an aggregate amount of $3 million in relation to shares that were unsettled open market repurchases as of October 31, 2023. We did not repurchase or settle any additional shares during the three months ended January 31, 2024. As of January 31, 2024, we had a remaining authorization of approximately $1.0 billion for future share repurchases. For more information on our share repurchase program, refer to the section entitled "Unregistered Sales of Equity Securities and Use of Proceeds" in Item 2 of Part II.

Current wording

In connection with the share repurchase program previously authorized by our Board of Directors, we repurchased and settled an aggregate amount of $48 million, during the first six months of fiscal 2024. As of April 30, 2024, we had a remaining authorization of approximately $0.9 billion for future share repurchases. For more information on our share repurchase program, refer to the section entitled "Unregistered Sales of Equity Securities and Use of Proceeds" in Item 2 of Part II.

Previous wording

On January 9, 2024, we entered into a definitive merger agreement under which HPE will acquire Juniper Networks in an all-cash transaction for $40.00 per share, representing an equity value of approximately $14 billion. The transaction was unanimously approved by the boards of directors of both companies. The transaction is expected to be funded based on financing commitments for $14 billion in term loans. Such financing will ultimately be replaced, in part, with a combination of new debt, mandatory convertible preferred securities, and cash on the balance sheet. The closing of the transaction remains subject to receipt of regulatory approvals, approval of the transaction by Juniper Networks shareholders, and satisfaction of other customary closing conditions.

Current wording

On January 9, 2024, we entered into a definitive Agreement and Plan of Merger under which HPE will acquire Juniper Networks in an all-cash transaction for $40.00 per share, representing an equity value of approximately $14 billion. The transaction was unanimously approved by the boards of directors of both companies. The transaction is expected to be funded based on financing commitments for $14 billion in term loans. Such financing will ultimately be replaced, in part, with a combination of new debt, mandatory convertible preferred securities, and cash on the balance sheet. On April 2, 2024, Juniper Networks shareholders approved the transaction. The closing of the transaction remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.