HP (NYSE: HPQ)
- Third quarter GAAP diluted net earnings per share ("EPS") of
$1.08, above the previously provided outlook of $0.91 to $0.96
per share
- Third quarter non-GAAP diluted net EPS of $1.04, within the
previously provided outlook of $1.03 to $1.08 per share
- Third quarter net revenue of $14.7 billion, down 4.1% from the
prior-year period
- Third quarter net cash provided by operating activities of $0.4
billion, free cash flow of $0.3 billion
- Third quarter returned $1.3 billion to shareholders in the form
of share repurchases and dividends
HP Inc.'s
fiscal 2022 third quarter financial performance |
|
|
|
|
|
Q3 FY22 |
|
|
Q3 FY21 |
|
Y/Y |
|
GAAP net revenue ($B) |
$ |
14.7 |
|
$ |
15.3 |
|
(4.1)% |
|
GAAP operating
margin |
|
8.7% |
|
|
9.0% |
|
(0.3) pts |
|
GAAP net earnings
($B) |
$ |
1.1 |
|
$ |
1.1 |
|
1% |
|
GAAP diluted net
EPS |
$ |
1.08 |
|
$ |
0.92 |
|
17% |
|
Non-GAAP operating
margin |
|
9.5% |
|
|
9.8% |
|
(0.3) pts |
|
Non-GAAP net
earnings ($B) |
$ |
1.1 |
|
$ |
1.2 |
|
(10)% |
|
Non-GAAP diluted
net EPS |
$ |
1.04 |
|
$ |
1.00 |
|
4% |
|
Net cash provided
by operating activities ($B) |
$ |
0.4 |
|
$ |
1.1 |
|
(64)% |
|
Free cash flow
($B) |
$ |
0.3 |
|
$ |
1.0 |
|
(72)% |
|
Notes to tableInformation about HP Inc.'s use of non-GAAP
financial information is provided under "Use of non-GAAP financial
information" below.
Net revenue and EPS results
HP Inc. and its subsidiaries (“HP”) announced fiscal 2022 third
quarter net revenue of $14.7 billion, down 4.1% (down 1.9% in
constant currency) from the prior-year period.
“Disciplined pricing and cost management, combined with
continued momentum in our key growth businesses, enabled us to
deliver solid non-GAAP EPS growth while returning $1.3 billion to
shareholders in Q3,” said Enrique Lores, HP President and CEO. “We
are taking clear actions to mitigate near-term market headwinds and
further strengthen our business for the future. I’m confident in
our ability to execute against our priorities to drive long-term
sustainable growth and value creation.”Third quarter GAAP diluted
net EPS was $1.08, up from $0.92 in the prior-year period and above
the previously provided outlook of $0.91 to $0.96. Third quarter
non-GAAP diluted net EPS was $1.04, up from $1.00 in the prior-year
period and within the previously provided outlook of $1.03 to
$1.08. Third quarter non-GAAP net earnings and non-GAAP diluted net
EPS exclude after-tax adjustments of $40 million, or $0.04 per
diluted share, related to restructuring and other charges,
acquisition-related charges, amortization of intangible assets,
Russia exit charges, non-operating retirement-related
(credits)/charges, and tax adjustments.
Asset management
HP's net cash provided by operating activities in the third
quarter of fiscal 2022 was $0.4 billion. Accounts receivable ended
the quarter at $4.4 billion, down 2 days quarter over quarter to 27
days. Inventory ended the quarter at $8.2 billion, up 2 days
quarter over quarter to 63 days. Accounts payable ended the quarter
at $15.5 billion, up 3 days quarter over quarter to 119 days.
HP generated $0.3 billion of free cash flow in the third
quarter. Free cash flow includes net cash provided by operating
activities of $0.4 billion adjusted for net investments in leases
of $53 million and net investments in property, plant and equipment
of $170 million.
HP’s dividend payment of $0.25 per share in the third quarter
resulted in cash usage of $0.3 billion. HP also utilized $1.0
billion of cash during the quarter to repurchase approximately 29.3
million shares of common stock in the open market. As a result, HP
returned 464% of its third quarter free cash flow to shareholders.
HP exited the quarter with $5.4 billion in gross cash, which
includes cash and cash equivalents and short-term investments of $5
million.
Fiscal 2022 third quarter segment results
- Personal Systems net revenue was $10.1 billion, down 3% year
over year (flat in constant currency) with a 6.9% operating margin.
Consumer net revenue decreased 20% and Commercial net revenue
increased 7%. Total units were down 25% with Notebooks units down
32% and Desktops units up 1%.
- Printing net revenue was $4.6 billion, down 6% year over year
(down 5% in constant currency) with a 19.9% operating margin.
Consumer net revenue was up 1% and Commercial net revenue was down
3%. Supplies net revenue was down 9% (down 9% in constant
currency). Total hardware units were down 3% with
Consumer units down 1% and Commercial units down 15%.
OutlookFor the fiscal 2022 fourth quarter, HP
estimates GAAP diluted net EPS to be in the range of $0.44 to
$0.54, which includes a GAAP-only charge of approximately $0.27
towards acquisition-related charges for Poly, and non-GAAP diluted
net EPS to be in the range of $0.79 to $0.89, which includes an
incremental approximate $0.05 headwind driven by Poly’s
debt-related expenses and other deal-related costs. Fiscal 2022
fourth quarter non-GAAP diluted net EPS estimates exclude $0.35 per
diluted share, primarily related to restructuring and other
charges, acquisition-related charges including charges related to
Poly noted above, amortization of intangible assets, non-operating
retirement-related (credits)/charges, tax adjustments and the
related tax impact on these items.
For the fiscal year 2022, HP estimates GAAP diluted net EPS to
be in the range of $3.46 to $3.56, which includes a GAAP-only
charge of approximately $0.27 towards acquisition-related charges
for Poly, and non-GAAP diluted net EPS to be in the range of $4.02
to $4.12, which includes an incremental approximate $0.05 headwind
driven by Poly’s debt-related expenses and other deal-related
costs. Fiscal 2022 non-GAAP diluted net EPS estimates exclude $0.56
per diluted share, primarily related to restructuring and other
charges, acquisition-related charges including charges related to
Poly noted above, Russia exit charges, amortization of intangible
assets, non-operating retirement-related (credits)/charges, tax
adjustments and the related tax impact on these items. For fiscal
2022, HP anticipates generating free cash flow in the range of $3.2
billion to $3.7 billion, inclusive of an approximately $0.3 billion
headwind related to Poly acquisition costs.
More information on HP's earnings, including additional
financial analysis and an earnings overview presentation, is
available on HP's Investor Relations website at
investor.hp.com.
HP's FY22 Q3 earnings conference call is accessible via audio
webcast at www.hp.com/investor/2022Q3Webcast.
About HP Inc.HP Inc. (NYSE: HPQ) is a
technology company that believes one thoughtful idea has the power
to change the world. Its product and service portfolio of personal
systems, printers, and 3D printing solutions helps bring these
ideas to life. Visit http://www.hp.com.
Use of non-GAAP financial informationTo
supplement HP’s consolidated condensed financial statements
presented on a generally accepted accounting principles (“GAAP”)
basis, HP provides net revenue on a constant currency basis,
non-GAAP total operating expense, non-GAAP operating profit,
non-GAAP operating margin, non-GAAP tax rate, non-GAAP net
earnings, non-GAAP diluted net EPS, free cash flow, gross cash and
net cash (debt) financial measures. HP also provides forecasts of
non-GAAP diluted net EPS and free cash flow. Reconciliations of
these non-GAAP financial measures to the most directly comparable
GAAP financial measures are included in the tables below or
elsewhere in the materials accompanying this news release. In
addition, an explanation of the ways in which HP’s management uses
these non-GAAP measures to evaluate its business, the substance
behind HP’s decision to use these non-GAAP measures, the material
limitations associated with the use of these non-GAAP measures, the
manner in which HP’s management compensates for those limitations,
and the substantive reasons why HP’s management believes that these
non-GAAP measures provide useful information to investors is
included under “Use of non-GAAP financial measures” after the
tables below. This additional non-GAAP financial information is not
meant to be considered in isolation or as a substitute for net
revenue, operating expense, operating profit, operating margin, tax
rate, net earnings, diluted net EPS, cash provided by operating
activities or cash and cash equivalents prepared in accordance with
GAAP.
Forward-looking statementsThis document
contains forward-looking statements based on current expectations
and assumptions that involve risks and uncertainties. If the risks
or uncertainties ever materialize or the assumptions prove
incorrect, the results of HP Inc. and its consolidated subsidiaries
may differ materially from those expressed or implied by such
forward-looking statements and assumptions.
All statements other than statements of historical fact are
statements that could be deemed forward-looking statements,
including, but not limited to, any statements regarding the
potential impact of the COVID-19 pandemic and the actions by
governments, businesses and individuals in response to the
situation; projections of net revenue, margins, expenses, effective
tax rates, net earnings, net earnings per share, cash flows,
benefit plan funding, deferred taxes, share repurchases, foreign
currency exchange rates or other financial items; any projections
of the amount, timing or impact of cost savings or restructuring
and other charges, planned structural cost reductions and
productivity initiatives; any statements of the plans, strategies
and objectives of management for future operations, including, but
not limited to, our business model and transformation, our
sustainability goals, our go-to-market strategy, the execution of
restructuring plans and any resulting cost savings, net revenue or
profitability improvements or other financial impacts; any
statements concerning the expected development, demand,
performance, market share or competitive performance relating to
products or services; any statements concerning potential supply
constraints, component shortages, manufacturing disruptions or
logistics challenges; any statements regarding current or future
macroeconomic trends or events and the impact of those trends and
events on HP and its financial performance; any statements
regarding pending investigations, claims, disputes or other
litigation matters; any statements of expectation or belief,
including with respect to the timing and expected benefits of
acquisitions and other business combination and investment
transactions (including statements regarding the transaction
between HP and Poly); and any statements of assumptions underlying
any of the foregoing. Forward-looking statements can also generally
be identified by words such as “future,” “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,”
“will,” “would,” “could,” “should,” “can,” “may,” and similar
terms.
Risks, uncertainties and assumptions include factors relating to
the effects of the COVID-19 pandemic and the actions by
governments, businesses and individuals in response to the
situation, the effects of which may give rise to or amplify the
risks associated with many of these factors listed here; the need
to manage (and reliance on) third-party suppliers, including with
respect to component shortages, and the need to manage HP’s global,
multi-tier distribution network, limit potential misuse of pricing
programs by HP’s channel partners, adapt to new or changing
marketplaces and effectively deliver HP’s services; HP’s ability to
execute on its strategic plan, including the previously announced
initiatives, business model changes and transformation; execution
of planned structural cost reductions and productivity initiatives;
HP’s ability to complete any contemplated share repurchases, other
capital return programs or other strategic transactions; the
competitive pressures faced by HP’s businesses; risks associated
with executing HP’s strategy and business model changes and
transformation; successfully innovating, developing and executing
HP’s go-to-market strategy, including online, omnichannel and
contractual sales, in an evolving distribution, reseller and
customer landscape; the development and transition of new products
and services and the enhancement of existing products and services
to meet evolving customer needs and respond to emerging
technological trends; successfully competing and maintaining the
value proposition of HP’s products, including supplies; challenges
to HP’s ability to accurately forecast inventories, demand and
pricing, which may be due to HP’s multi-tiered channel, sales of
HP’s products to unauthorized resellers or unauthorized resale of
HP’s products or our uneven sales cycle; integration and other
risks associated with business combination and investment
transactions (including the risk that cost savings, any revenue
synergies and other anticipated benefits of the transaction between
HP and Poly may not be realized or may take longer than anticipated
to be realized, including as a result of the impact of, or problems
arising from, the integration of the two companies); the results of
our restructuring plans, including estimates and assumptions
related to the cost (including any possible disruption of HP’s
business) and the anticipated benefits of the restructuring plans;
the protection of HP’s intellectual property assets, including
intellectual property licensed from third parties; the hiring and
retention of key employees; the impact of macroeconomic and
geopolitical trends, changes and events, including the Russian
invasion of Ukraine and its regional and global ramifications and
the effects of inflation; risks associated with HP’s international
operations; the execution and performance of contracts by HP and
its suppliers, customers, clients and partners, including
logistical challenges with respect to such execution and
performance; changes in estimates and assumptions HP makes in
connection with the preparation of its financial statements;
disruptions in operations from system security risks, data
protection breaches, cyberattacks, extreme weather conditions or
other effects of climate change, medical epidemics or pandemics
such as the COVID-19 pandemic, and other natural or manmade
disasters or catastrophic events; the impact of changes to federal,
state, local and foreign laws and regulations, including
environmental regulations and tax laws; potential impacts,
liabilities and costs from pending or potential investigations,
claims and disputes; and other risks that are described in HP’s
Annual Report on Form 10-K for the fiscal year ended October 31,
2021 and HP’s other filings with the Securities and Exchange
Commission.
As in prior periods, the financial information set forth in this
document, including any tax-related items, reflects estimates based
on information available at this time. While HP believes these
estimates to be reasonable, these amounts could differ materially
from reported amounts in HP’s Quarterly Report on Form 10-Q for the
fiscal quarter ended July 31, 2022, Annual Report on Form 10-K for
the fiscal year ended October 31, 2022, and HP’s other filings with
the Securities and Exchange Commission. The forward-looking
statements in this document are made as of the date of this
document and HP assumes no obligation and does not intend to update
these forward-looking statements.
HP’s Investor Relations website at investor.hp.com contains
a significant amount of information about HP, including financial
and other information for investors. HP encourages investors to
visit its website from time to time, as information is updated, and
new information is posted. The content of HP’s website
is not incorporated by reference into this document or in any other
report or document HP files with the SEC, and any references to
HP’s website are intended to be inactive textual references
only.
HP INC.AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
EARNINGS(Unaudited)(In millions, except per share
amounts) |
|
|
Three months ended |
|
July 31, 2022 |
|
April 30, 2022 |
|
July 31, 2021 |
Net revenue |
$ |
14,664 |
|
|
$ |
16,490 |
|
|
$ |
15,289 |
|
Costs and expenses: |
|
|
|
|
|
Cost of revenue |
|
11,764 |
|
|
|
13,157 |
|
|
|
11,901 |
|
Research and development |
|
368 |
|
|
|
425 |
|
|
|
477 |
|
Selling, general and administrative |
|
1,143 |
|
|
|
1,464 |
|
|
|
1,408 |
|
Restructuring and other charges |
|
13 |
|
|
|
82 |
|
|
|
56 |
|
Acquisition-related charges |
|
31 |
|
|
|
32 |
|
|
|
24 |
|
Amortization of intangible assets |
|
50 |
|
|
|
52 |
|
|
|
42 |
|
Russia exit charges |
|
23 |
|
|
|
— |
|
|
|
— |
|
Total costs and expenses |
|
13,392 |
|
|
|
15,212 |
|
|
|
13,908 |
|
Earnings from operations |
|
1,272 |
|
|
|
1,278 |
|
|
|
1,381 |
|
Interest and other, net |
|
(70 |
) |
|
|
(39 |
) |
|
|
(55 |
) |
Earnings before taxes |
|
1,202 |
|
|
|
1,239 |
|
|
|
1,326 |
|
Provision for taxes |
|
(83 |
) |
|
|
(239 |
) |
|
|
(218 |
) |
Net earnings |
$ |
1,119 |
|
|
$ |
1,000 |
|
|
$ |
1,108 |
|
|
|
|
|
|
|
Net earnings per share: |
|
|
|
|
|
Basic |
$ |
1.09 |
|
|
$ |
0.95 |
|
|
$ |
0.94 |
|
Diluted |
$ |
1.08 |
|
|
$ |
0.94 |
|
|
$ |
0.92 |
|
|
|
|
|
|
|
Cash dividends declared per
share |
$ |
0.50 |
|
|
$ |
— |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
Weighted-average shares used
to compute net earnings per share: |
|
|
|
|
|
Basic |
|
1,024 |
|
|
|
1,050 |
|
|
|
1,185 |
|
Diluted |
|
1,035 |
|
|
|
1,062 |
|
|
|
1,199 |
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
EARNINGS(Unaudited)(In millions, except per share amounts) |
|
|
Nine months ended |
|
July 31, 2022 |
|
July 31, 2021 |
Net revenue |
$ |
48,182 |
|
|
$ |
46,812 |
|
Costs and expenses: |
|
|
|
Cost of revenue |
|
38,564 |
|
|
|
36,660 |
|
Research and development |
|
1,211 |
|
|
|
1,462 |
|
Selling, general and administrative |
|
4,075 |
|
|
|
4,267 |
|
Restructuring and other charges |
|
163 |
|
|
|
216 |
|
Acquisition-related charges |
|
83 |
|
|
|
40 |
|
Amortization of intangible assets |
|
154 |
|
|
|
103 |
|
Russia exit charges |
|
23 |
|
|
|
— |
|
Total costs and expenses |
|
44,273 |
|
|
|
42,748 |
|
Earnings from operations |
|
3,909 |
|
|
|
4,064 |
|
Interest and other, net |
|
(141 |
) |
|
|
(106 |
) |
Earnings before taxes |
|
3,768 |
|
|
|
3,958 |
|
Provision for taxes |
|
(563 |
) |
|
|
(554 |
) |
Net earnings |
$ |
3,205 |
|
|
$ |
3,404 |
|
|
|
|
|
Net earnings per share: |
|
|
|
Basic |
$ |
3.05 |
|
|
$ |
2.76 |
|
Diluted |
$ |
3.01 |
|
|
$ |
2.73 |
|
|
|
|
|
Cash dividends declared per
share |
$ |
1.00 |
|
|
$ |
0.78 |
|
|
|
|
|
Weighted-average shares used
to compute net earnings per share: |
|
|
|
Basic |
|
1,052 |
|
|
|
1,235 |
|
Diluted |
|
1,064 |
|
|
|
1,247 |
|
HP INC. AND SUBSIDIARIESADJUSTMENTS TO GAAP NET EARNINGS,
EARNINGS FROM OPERATIONS,OPERATING MARGIN AND DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
|
|
Three months ended |
|
July 31, 2022 |
|
April 30, 2022 |
|
July 31, 2021 |
|
Amounts |
|
Dilutednet earningsper
share |
|
Amounts |
|
Dilutednet earningsper
share |
|
Amounts |
|
Dilutednet earningsper
share |
GAAP net earnings |
$ |
1,119 |
|
|
$ |
1.08 |
|
|
$ |
1,000 |
|
|
$ |
0.94 |
|
|
$ |
1,108 |
|
|
$ |
0.92 |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
|
13 |
|
|
|
0.01 |
|
|
|
82 |
|
|
|
0.07 |
|
|
|
56 |
|
|
|
0.04 |
|
Acquisition-related charges |
|
31 |
|
|
|
0.03 |
|
|
|
32 |
|
|
|
0.03 |
|
|
|
24 |
|
|
|
0.02 |
|
Amortization of intangible assets |
|
50 |
|
|
|
0.05 |
|
|
|
52 |
|
|
|
0.05 |
|
|
|
42 |
|
|
|
0.04 |
|
Russia exit charges |
|
23 |
|
|
|
0.02 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Debt extinguishment costs |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
0.01 |
|
Non-operating retirement-related credits |
|
(33 |
) |
|
|
(0.03 |
) |
|
|
(35 |
) |
|
|
(0.03 |
) |
|
|
(39 |
) |
|
|
(0.03 |
) |
Tax adjustments(a) |
|
(124 |
) |
|
|
(0.12 |
) |
|
|
21 |
|
|
|
0.02 |
|
|
|
(9 |
) |
|
|
— |
|
Non-GAAP net earnings |
$ |
1,079 |
|
|
$ |
1.04 |
|
|
$ |
1,152 |
|
|
$ |
1.08 |
|
|
$ |
1,198 |
|
|
$ |
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP earnings from
operations |
$ |
1,272 |
|
|
|
|
$ |
1,278 |
|
|
|
|
$ |
1,381 |
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
|
13 |
|
|
|
|
|
82 |
|
|
|
|
|
56 |
|
|
|
Acquisition-related charges |
|
31 |
|
|
|
|
|
32 |
|
|
|
|
|
24 |
|
|
|
Amortization of intangible assets |
|
50 |
|
|
|
|
|
52 |
|
|
|
|
|
42 |
|
|
|
Russia exit charges |
|
23 |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
Non-GAAP earnings from
operations |
$ |
1,389 |
|
|
|
|
$ |
1,444 |
|
|
|
|
$ |
1,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin |
|
8.7 |
% |
|
|
|
|
7.8 |
% |
|
|
|
|
9.0 |
% |
|
|
Non-GAAP adjustments |
|
0.8 |
% |
|
|
|
|
1.0 |
% |
|
|
|
|
0.8 |
% |
|
|
Non-GAAP operating margin |
|
9.5 |
% |
|
|
|
|
8.8 |
% |
|
|
|
|
9.8 |
% |
|
|
(a) Includes tax impact on non-GAAP
adjustments.
HP INC. AND SUBSIDIARIESADJUSTMENTS TO GAAP NET EARNINGS,
EARNINGS FROM OPERATIONS,OPERATING MARGIN AND DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
|
|
Nine months ended |
|
July 31, 2022 |
|
July 31, 2021 |
|
Amounts |
|
Dilutednet earningsper
share |
|
Amounts |
|
Dilutednet earningsper
share |
GAAP net earnings |
$ |
3,205 |
|
|
$ |
3.01 |
|
|
$ |
3,404 |
|
|
$ |
2.73 |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
Restructuring and other charges |
|
163 |
|
|
|
0.16 |
|
|
|
216 |
|
|
|
0.18 |
|
Acquisition-related charges |
|
83 |
|
|
|
0.08 |
|
|
|
40 |
|
|
|
0.03 |
|
Amortization of intangible assets |
|
154 |
|
|
|
0.14 |
|
|
|
103 |
|
|
|
0.08 |
|
Russia exit charges |
|
23 |
|
|
|
0.02 |
|
|
|
— |
|
|
|
— |
|
Debt extinguishment costs |
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
0.01 |
|
Non-operating retirement-related credits |
|
(102 |
) |
|
|
(0.10 |
) |
|
|
(115 |
) |
|
|
(0.09 |
) |
Tax adjustments(a) |
|
(92 |
) |
|
|
(0.08 |
) |
|
|
(120 |
) |
|
|
(0.10 |
) |
Non-GAAP net earnings |
$ |
3,434 |
|
|
$ |
3.23 |
|
|
$ |
3,544 |
|
|
$ |
2.84 |
|
|
|
|
|
|
|
|
|
GAAP earnings from
operations |
$ |
3,909 |
|
|
|
|
$ |
4,064 |
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
Restructuring and other charges |
|
163 |
|
|
|
|
|
216 |
|
|
|
Acquisition-related charges |
|
83 |
|
|
|
|
|
40 |
|
|
|
Amortization of intangible assets |
|
154 |
|
|
|
|
|
103 |
|
|
|
Russia exit charges |
|
23 |
|
|
|
|
|
— |
|
|
|
Non-GAAP earnings from
operations |
$ |
4,332 |
|
|
|
|
$ |
4,423 |
|
|
|
|
|
|
|
|
|
|
|
GAAP operating margin |
|
8.1 |
% |
|
|
|
|
8.7 |
% |
|
|
Non-GAAP adjustments |
|
0.9 |
% |
|
|
|
|
0.7 |
% |
|
|
Non-GAAP operating margin |
|
9.0 |
% |
|
|
|
|
9.4 |
% |
|
|
(a) Includes tax impact on non-GAAP
adjustments.
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED BALANCE
SHEETS(Unaudited)(In millions) |
|
|
As of |
|
July 31, 2022 |
|
October 31, 2021 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
5,386 |
|
|
$ |
4,299 |
|
Accounts receivable, net |
|
4,427 |
|
|
|
5,511 |
|
Inventory |
|
8,192 |
|
|
|
7,930 |
|
Other current assets |
|
4,991 |
|
|
|
4,430 |
|
Total current assets |
|
22,996 |
|
|
|
22,170 |
|
Property, plant and equipment,
net |
|
2,626 |
|
|
|
2,546 |
|
Goodwill |
|
6,809 |
|
|
|
6,803 |
|
Other non-current assets |
|
6,816 |
|
|
|
7,091 |
|
Total assets |
$ |
39,247 |
|
|
$ |
38,610 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
Current liabilities: |
|
|
|
Notes payable and short-term borrowings |
$ |
705 |
|
|
$ |
1,106 |
|
Accounts payable |
|
15,514 |
|
|
|
16,075 |
|
Other current liabilities |
|
10,590 |
|
|
|
11,915 |
|
Total current liabilities |
|
26,809 |
|
|
|
29,096 |
|
Long-term debt |
|
10,294 |
|
|
|
6,386 |
|
Other non-current
liabilities |
|
4,462 |
|
|
|
4,778 |
|
Stockholders' deficit |
|
(2,318 |
) |
|
|
(1,650 |
) |
Total liabilities and
stockholders' deficit |
$ |
39,247 |
|
|
$ |
38,610 |
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS(Unaudited)(In millions) |
|
|
Three months ended |
|
July 31, 2022 |
|
July 31, 2021 |
Cash flows from operating
activities: |
|
|
|
Net earnings |
$ |
1,119 |
|
|
$ |
1,108 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
|
181 |
|
|
|
196 |
|
Stock-based compensation expense |
|
70 |
|
|
|
69 |
|
Restructuring and other charges |
|
13 |
|
|
|
56 |
|
Deferred taxes on earnings |
|
52 |
|
|
|
(143 |
) |
Other, net |
|
57 |
|
|
|
153 |
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
Accounts receivable |
|
985 |
|
|
|
168 |
|
Inventory |
|
700 |
|
|
|
(670 |
) |
Accounts payable |
|
(1,472 |
) |
|
|
625 |
|
Net investment in leases |
|
(53 |
) |
|
|
(40 |
) |
Taxes on earnings |
|
(97 |
) |
|
|
118 |
|
Restructuring and other |
|
(39 |
) |
|
|
(51 |
) |
Other assets and liabilities |
|
(1,122 |
) |
|
|
(496 |
) |
Net cash provided by operating activities |
|
394 |
|
|
|
1,093 |
|
Cash flows from investing
activities: |
|
|
|
Investment in property, plant and equipment |
|
(195 |
) |
|
|
(158 |
) |
Proceeds from the sale of property, plant and equipment |
|
25 |
|
|
|
— |
|
Purchases of available-for-sale securities and other
investments |
|
(42 |
) |
|
|
(11 |
) |
Maturities and sales of available-for-sale securities and other
investments |
|
1 |
|
|
|
9 |
|
Collateral posted for derivative instruments |
|
— |
|
|
|
275 |
|
Payment made in connection with business acquisition, net of cash
acquired |
|
— |
|
|
|
(412 |
) |
Net cash used in investing activities |
|
(211 |
) |
|
|
(297 |
) |
Cash flows from financing
activities: |
|
|
|
Proceeds from debt, net of issuance costs |
|
2,026 |
|
|
|
2,014 |
|
Payment of debt |
|
(45 |
) |
|
|
(1,066 |
) |
Stock-based award activities and others |
|
9 |
|
|
|
8 |
|
Repurchase of common stock |
|
(1,029 |
) |
|
|
(1,507 |
) |
Cash dividends paid |
|
(255 |
) |
|
|
(230 |
) |
Settlement of cash flow hedges |
|
20 |
|
|
|
— |
|
Net cash provided by (used in) financing activities |
|
726 |
|
|
|
(781 |
) |
Increase in cash and cash
equivalent |
|
909 |
|
|
|
15 |
|
Cash and cash equivalents at
beginning of period |
|
4,477 |
|
|
|
3,424 |
|
Cash and cash equivalents at
end of period |
$ |
5,386 |
|
|
$ |
3,439 |
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS(Unaudited)(In millions) |
|
Nine months ended |
|
July 31, 2022 |
|
July 31, 2021 |
Cash flows from
operating activities: |
|
|
|
Net earnings |
$ |
3,205 |
|
|
$ |
3,404 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
|
571 |
|
|
|
585 |
|
Stock-based compensation expense |
|
273 |
|
|
|
260 |
|
Restructuring and other charges |
|
163 |
|
|
|
216 |
|
Deferred taxes on earnings |
|
47 |
|
|
|
(93 |
) |
Other, net |
|
361 |
|
|
|
254 |
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
Accounts receivable |
|
1,076 |
|
|
|
503 |
|
Inventory |
|
(570 |
) |
|
|
(2,225 |
) |
Accounts payable |
|
(491 |
) |
|
|
1,140 |
|
Net investment in leases |
|
(94 |
) |
|
|
(78 |
) |
Taxes on earnings |
|
(120 |
) |
|
|
19 |
|
Restructuring and other |
|
(185 |
) |
|
|
(166 |
) |
Other assets and liabilities |
|
(1,677 |
) |
|
|
(258 |
) |
Net cash provided by operating activities |
|
2,559 |
|
|
|
3,561 |
|
Cash flows from
investing activities: |
|
|
|
Investment in property, plant and equipment |
|
(647 |
) |
|
|
(410 |
) |
Proceeds from the sale of property, plant and equipment |
|
26 |
|
|
|
— |
|
Purchases of available-for-sale securities and other
investments |
|
(50 |
) |
|
|
(24 |
) |
Maturities and sales of available-for-sale securities and other
investments |
|
8 |
|
|
|
283 |
|
Collateral posted for derivative instruments |
|
14 |
|
|
|
121 |
|
Payment made in connection with business acquisitions, net of cash
acquired |
|
(24 |
) |
|
|
(582 |
) |
Net cash used in investing activities |
|
(673 |
) |
|
|
(612 |
) |
Cash flows from
financing activities: |
|
|
|
Payment of
short-term borrowings with original maturities less than
90 days, net |
|
(400 |
) |
|
|
— |
|
Proceeds from
debt, net of issuance costs |
|
4,086 |
|
|
|
2,074 |
|
Payment of
debt |
|
(141 |
) |
|
|
(1,192 |
) |
Stock-based award
activities and others |
|
(88 |
) |
|
|
(42 |
) |
Repurchase of
common stock |
|
(3,547 |
) |
|
|
(4,495 |
) |
Cash dividends
paid |
|
(788 |
) |
|
|
(719 |
) |
Settlement of cash
flow hedges |
|
79 |
|
|
|
— |
|
Net cash used in financing activities |
|
(799 |
) |
|
|
(4,374 |
) |
Increase
(decrease) in cash and cash equivalent |
|
1,087 |
|
|
|
(1,425 |
) |
Cash and cash
equivalents at beginning of period |
|
4,299 |
|
|
|
4,864 |
|
Cash and cash
equivalents at end of period |
$ |
5,386 |
|
|
$ |
3,439 |
|
HP INC. AND SUBSIDIARIESSEGMENT/BUSINESS UNIT
INFORMATION(Unaudited)(In millions) |
|
|
Three months ended |
|
Change (%) |
|
July 31, 2022 |
|
April 30, 2022 |
|
July 31, 2021 |
|
Q/Q |
|
Y/Y |
Net revenue: |
|
|
|
|
|
|
|
|
|
Notebooks |
$ |
6,574 |
|
|
$ |
7,734 |
|
|
$ |
7,328 |
|
|
(15)% |
|
(10)% |
Desktops |
|
2,537 |
|
|
|
2,855 |
|
|
|
2,246 |
|
|
(11)% |
|
13 |
% |
Workstations |
|
537 |
|
|
|
494 |
|
|
|
388 |
|
|
9 |
% |
|
38 |
% |
Other |
|
441 |
|
|
|
449 |
|
|
|
444 |
|
|
(2)% |
|
(1)% |
Personal Systems |
|
10,089 |
|
|
|
11,532 |
|
|
|
10,406 |
|
|
(13)% |
|
(3)% |
Supplies |
|
2,814 |
|
|
|
3,131 |
|
|
|
3,092 |
|
|
(10)% |
|
(9)% |
Commercial |
|
1,036 |
|
|
|
1,042 |
|
|
|
1,070 |
|
|
(1)% |
|
(3)% |
Consumer |
|
725 |
|
|
|
790 |
|
|
|
720 |
|
|
(8)% |
|
1 |
% |
Printing |
|
4,575 |
|
|
|
4,963 |
|
|
|
4,882 |
|
|
(8)% |
|
(6)% |
Corporate Investments(a) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
NM |
|
NM |
Total segment net revenue |
|
14,664 |
|
|
|
16,495 |
|
|
|
15,288 |
|
|
(11)% |
|
(4)% |
Other(a) |
|
— |
|
|
|
(5 |
) |
|
|
1 |
|
|
NM |
|
NM |
Total net revenue |
$ |
14,664 |
|
|
$ |
16,490 |
|
|
$ |
15,289 |
|
|
(11)% |
|
(4)% |
|
|
|
|
|
|
|
|
|
|
Earnings before taxes: |
|
|
|
|
|
|
|
|
|
Personal Systems |
$ |
695 |
|
|
$ |
798 |
|
|
$ |
869 |
|
|
|
|
|
Printing |
|
911 |
|
|
|
958 |
|
|
|
857 |
|
|
|
|
|
Corporate Investments |
|
(58 |
) |
|
|
(52 |
) |
|
|
(20 |
) |
|
|
|
|
Total segment earnings from operations |
|
1,548 |
|
|
|
1,704 |
|
|
|
1,706 |
|
|
|
|
|
Corporate and unallocated cost
and other |
|
(89 |
) |
|
|
(190 |
) |
|
|
(134 |
) |
|
|
|
|
Stock-based compensation
expense |
|
(70 |
) |
|
|
(70 |
) |
|
|
(69 |
) |
|
|
|
|
Restructuring and other
charges |
|
(13 |
) |
|
|
(82 |
) |
|
|
(56 |
) |
|
|
|
|
Acquisition-related
charges |
|
(31 |
) |
|
|
(32 |
) |
|
|
(24 |
) |
|
|
|
|
Amortization of intangible
assets |
|
(50 |
) |
|
|
(52 |
) |
|
|
(42 |
) |
|
|
|
|
Russia exit charges |
|
(23 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
Interest and other, net |
|
(70 |
) |
|
|
(39 |
) |
|
|
(55 |
) |
|
|
|
|
Total earnings before taxes |
$ |
1,202 |
|
|
$ |
1,239 |
|
|
$ |
1,326 |
|
|
|
|
|
(a) "NM" represents not meaningful.
HP INC. AND SUBSIDIARIESSEGMENT/BUSINESS UNIT
INFORMATION(Unaudited)(In millions) |
|
|
Nine months ended |
|
Change (%) |
|
July 31, 2022 |
|
July 31, 2021 |
|
Y/Y |
Net revenue: |
|
|
|
|
|
Notebooks |
$ |
22,729 |
|
|
$ |
22,183 |
|
|
2 |
% |
Desktops |
|
8,199 |
|
|
|
6,871 |
|
|
19 |
% |
Workstations |
|
1,565 |
|
|
|
1,177 |
|
|
33 |
% |
Other |
|
1,324 |
|
|
|
1,333 |
|
|
(1)% |
Personal Systems |
|
33,817 |
|
|
|
31,564 |
|
|
7 |
% |
Supplies |
|
9,013 |
|
|
|
9,575 |
|
|
(6)% |
Commercial |
|
3,117 |
|
|
|
3,112 |
|
|
— |
% |
Consumer |
|
2,239 |
|
|
|
2,562 |
|
|
(13)% |
Printing |
|
14,369 |
|
|
|
15,249 |
|
|
(6)% |
Corporate Investments(a) |
|
1 |
|
|
|
1 |
|
|
NM |
Total segment |
|
48,187 |
|
|
|
46,814 |
|
|
3 |
% |
Other(a) |
|
(5 |
) |
|
|
(2 |
) |
|
NM |
Total net revenue |
$ |
48,182 |
|
|
$ |
46,812 |
|
|
3 |
% |
|
|
|
|
|
|
Earnings before taxes: |
|
|
|
|
|
Personal Systems |
$ |
2,450 |
|
|
$ |
2,337 |
|
|
|
Printing |
|
2,748 |
|
|
|
2,806 |
|
|
|
Corporate Investments |
|
(184 |
) |
|
|
(82 |
) |
|
|
Total segment earnings from operations |
|
5,014 |
|
|
|
5,061 |
|
|
|
Corporate and unallocated cost
and other |
|
(409 |
) |
|
|
(378 |
) |
|
|
Stock-based compensation
expense |
|
(273 |
) |
|
|
(260 |
) |
|
|
Restructuring and other
charges |
|
(163 |
) |
|
|
(216 |
) |
|
|
Acquisition-related
charges |
|
(83 |
) |
|
|
(40 |
) |
|
|
Amortization of intangible
assets |
|
(154 |
) |
|
|
(103 |
) |
|
|
Russia exit charges |
|
(23 |
) |
|
|
— |
|
|
|
Interest and other, net |
|
(141 |
) |
|
|
(106 |
) |
|
|
Total earnings before taxes |
$ |
3,768 |
|
|
$ |
3,958 |
|
|
|
- "NM" represents not meaningful.
HP INC. AND SUBSIDIARIESSEGMENT OPERATING MARGIN
SUMMARY(Unaudited) |
|
|
Three months ended |
|
Change (pts) |
|
July 31, 2022 |
|
April 30, 2022 |
|
July 31, 2021 |
|
Q/Q |
|
Y/Y |
Segment operating margin: |
|
|
|
|
|
|
|
|
|
Personal Systems |
6.9 |
% |
|
6.9 |
% |
|
8.4 |
% |
|
— |
|
(1.5)pts |
Printing |
19.9 |
% |
|
19.3 |
% |
|
17.6 |
% |
|
0.6 pts |
|
2.3 pts |
Corporate Investments(a) |
NM |
|
NM |
|
NM |
|
NM |
|
NM |
Total segment |
10.6 |
% |
|
10.3 |
% |
|
11.2 |
% |
|
0.3 pts |
|
(0.6)pts |
- "NM" represents not
meaningful.
HP INC. AND SUBSIDIARIESCALCULATION OF DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
|
|
Three months ended |
|
July 31, 2022 |
|
April 30, 2022 |
|
July 31, 2021 |
Numerator: |
|
|
|
|
|
GAAP net earnings |
$ |
1,119 |
|
$ |
1,000 |
|
$ |
1,108 |
Non-GAAP net earnings |
$ |
1,079 |
|
$ |
1,152 |
|
$ |
1,198 |
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
|
1,024 |
|
|
1,050 |
|
|
1,185 |
Dilutive effect of employee stock plans(a) |
|
11 |
|
|
12 |
|
|
14 |
Weighted-average shares used to compute diluted net earnings per
share |
|
1,035 |
|
|
1,062 |
|
|
1,199 |
|
|
|
|
|
|
GAAP diluted net earnings per
share |
$ |
1.08 |
|
$ |
0.94 |
|
$ |
0.92 |
Non-GAAP diluted net earnings
per share |
$ |
1.04 |
|
$ |
1.08 |
|
$ |
1.00 |
- Includes any dilutive effect of restricted stock units, stock
options and performance-based awards.
HP INC. AND SUBSIDIARIESCALCULATION OF DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
|
|
Nine months ended |
|
July 31, 2022 |
|
July 31, 2021 |
Numerator: |
|
|
|
GAAP net earnings |
$ |
3,205 |
|
$ |
3,404 |
Non-GAAP net earnings |
$ |
3,434 |
|
$ |
3,544 |
|
|
|
|
Denominator: |
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
|
1,052 |
|
|
1,235 |
Dilutive effect of employee stock plans(a) |
|
12 |
|
|
12 |
Weighted-average shares used to compute diluted net earnings per
share |
|
1,064 |
|
|
1,247 |
|
|
|
|
GAAP diluted net earnings per
share |
$ |
3.01 |
|
$ |
2.73 |
Non-GAAP diluted net earnings
per share |
$ |
3.23 |
|
$ |
2.84 |
- Includes any dilutive effect of restricted stock units, stock
options and performance-based awards
Use of non-GAAP financial measuresTo supplement
HP’s consolidated condensed financial statements presented on a
GAAP basis, HP provides net revenue on a constant currency basis,
non-GAAP total operating expense, non-GAAP operating profit,
non-GAAP operating margin, non-GAAP tax rate, non-GAAP net
earnings, non-GAAP diluted net EPS, free cash flow, gross cash and
net cash (debt). HP also provides forecasts of non-GAAP diluted net
EPS and free cash flow.
These non-GAAP financial measures are not computed in accordance
with, or as an alternative to, GAAP in the United States.
Reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures are included in the
tables above or elsewhere in the materials accompanying this news
release.
Use and economic substance of non-GAAP financial
measuresNet revenue on a constant currency basis excludes
the effect of foreign currency exchange fluctuations calculated by
translating current period revenues using monthly exchange rates
from the comparative period and excluding any hedging impact
recognized in the current period. Non-GAAP operating margin is
defined to exclude the effects of any amounts relating to
restructuring and other charges, acquisition-related charges,
amortization of intangible assets and Russia exit charges. Non-GAAP
net earnings and non-GAAP diluted net EPS consist of net earnings
or diluted net EPS excluding those same charges, defined benefit
plan settlement charges, non-operating retirement related
(credits)/charges, debt extinguishment costs, tax adjustments and
the amount of additional taxes or tax benefits associated with each
non-GAAP item.
HP’s management uses these non-GAAP financial measures for
purposes of evaluating HP’s historical and prospective financial
performance, as well as HP’s performance relative to its
competitors. HP’s management also uses these non-GAAP measures to
further its own understanding of HP’s segment operating
performance. HP believes that excluding the items mentioned above
for these non-GAAP financial measures allows HP’s management to
better understand HP’s consolidated financial performance in
relation to the operating results of HP’s segments, as HP’s
management does not believe that the excluded items are reflective
of ongoing operating results. More specifically, HP’s management
excludes each of those items mentioned above for the following
reasons:
- Restructuring and other charges are (i) costs associated with a
formal restructuring plan and are primarily related to employee
separation from service and early retirement costs and related
benefits, costs of real estate consolidation and other non-labor
charges; and (ii) other charges, which include non-recurring costs
that are distinct from ongoing operational costs. HP excludes these
restructuring and other charges (and any reversals of charges
recorded in prior periods) for purposes of calculating these
non-GAAP measures because HP believes that these costs do not
reflect expected future operating expenses and do not contribute to
a meaningful evaluation of HP's current operating performance or
comparisons to operating performance in other periods.
- HP incurs cost related to its acquisitions, which it would not
have otherwise incurred as part of its operations. The charges are
direct expenses such as third-party professional and legal fees,
and integration-related costs, as well as non-cash adjustments to
the fair value of certain acquired assets such as inventory. These
charges related to acquisitions are inconsistent in amount and
frequency and are significantly impacted by the timing and nature
of HP's acquisitions. HP believes that eliminating such expenses
for purposes of calculating these non-GAAP measures facilitates a
more meaningful evaluation of HP’s current operating performance
and comparisons to operating performance in other periods.
- HP incurs charges relating to the amortization of intangible
assets. Those charges are included in HP’s GAAP earnings, operating
margin, net earnings and diluted net EPS. Such charges are
significantly impacted by the timing and magnitude of HP’s
acquisitions and any related impairment charges. Consequently, HP
excludes these charges for purposes of calculating these non-GAAP
measures to facilitate a more meaningful evaluation of HP’s current
operating performance and comparisons to operating performance in
other periods.
- Russia exit charges relating to HP’s decision to wind down its
business operations in Russia. These charges include costs related
to severance, cancellation of contracts, inventory write-downs and
other related one-time exit costs. HP excludes these adjustments
for the purposes of calculating these non-GAAP measures to
facilitate a more meaningful evaluation of HP's current operating
performance and comparisons to operating performance in other
periods.
- Non-operating retirement-related (credits)/charges includes
certain market-related factors such as interest cost, expected
return on plan assets, amortized actuarial gains or losses,
associated with HP’s defined benefit pension and post-retirement
benefit plans. The market-driven retirement-related adjustments are
primarily due to the changes in the value of pension plan assets
and liabilities which are tied to financial market performance and
HP considers these adjustments to be outside the operational
performance of the business. Non-operating retirement-related
(credits)/charges also include certain plan curtailments,
settlements and special termination benefits related to HP’s
defined benefit pension and post-retirement benefit plans. HP
believes that eliminating such adjustments for purposes of
calculating non-GAAP measures facilitates a more meaningful
evaluation of HP's current operating performance and comparisons to
operating performance in other periods.
- HP incurs defined benefit plan settlement charges relating to
HP pension plans. The charges are associated with the net
settlement and remeasurement resulting from voluntary lump sum
payments offered to certain vested participants and transfer of
certain pension obligations. HP excludes these charges for the
purposes of calculating these non-GAAP measures to facilitate a
more meaningful evaluation of HP’s current operating performance
and comparisons to operating performance in other periods.
- HP incurs debt extinguishment costs relating to repurchase of
certain of its outstanding U.S. dollar global notes or termination
of commitments under revolving credit facilities. These costs
primarily included bond repurchase premiums partly offset by gains
from fair value hedges. HP excludes these costs for the purposes of
calculating these non-GAAP measures to facilitate a more meaningful
evaluation of HP's current operating performance and comparisons to
operating performance in other periods.
- HP recorded tax adjustments including tax benefits and expenses
related to the realizability of certain deferred tax assets,
various tax rate and regulatory changes and tax settlements across
various jurisdictions. HP excludes these adjustments for the
purposes of calculating these non-GAAP measures to facilitate a
more meaningful evaluation of HP's current operating performance
and comparisons to operating performance in other periods.
Free cash flow is a non-GAAP measure that is defined as cash
flow from operations adjusted for net investment in leases and net
investments in property, plant, and equipment. Gross cash is a
non-GAAP measure that is defined as cash and cash equivalents plus
short-term investments and certain long-term investments that may
be liquidated within 90 days pursuant to the terms of existing put
options or similar rights. HP’s management uses free cash flow and
gross cash for the purpose of determining the amount of cash
available for investment in HP’s businesses, repurchasing stock and
other purposes. HP’s management also uses free cash flow and gross
cash to evaluate HP’s historical and prospective liquidity. Because
gross cash includes liquid assets that are not included in cash and
cash equivalents, HP believes that gross cash provides a helpful
assessment of HP’s liquidity. Because free cash flow includes net
cash provided by operating activities adjusted for net investment
in leases and, net investments in property, plant and equipment, HP
believes that free cash flow provides a more accurate and complete
assessment of HP’s liquidity and capital resources. Net cash (debt)
is defined as gross cash less gross debt after adjusting the effect
of unamortized premium/discount on debt issuance, debt issuance
costs and gains/losses on interest rate swaps.
Material limitations associated with use of non-GAAP
financial measuresThese non-GAAP financial measures may
have limitations as analytical tools, and these measures should not
be considered in isolation or as a substitute for analysis of HP’s
results as reported under GAAP. Some of the limitations in relying
on these non-GAAP financial measures are:
- Items such as amortization of intangible assets, though not
directly affecting HP’s cash position, represent the loss in value
of intangible assets over time. The expense associated with this
change in value is not included in non-GAAP operating margin,
non-GAAP net earnings and non-GAAP diluted net EPS, and therefore
does not reflect the full economic effect of the change in value of
those intangible assets.
- Items such as restructuring and other charges,
acquisition-related charges, amortization of intangible assets, and
Russia exit charges are excluded from non-GAAP operating margin. In
addition, non-operating retirement-related (credits)/charges,
defined benefit plan settlement charges, debt extinguishment costs
and tax adjustments are excluded from non-GAAP net earnings and
non-GAAP diluted net EPS. These items can have a material impact on
the equivalent GAAP earnings measure and cash flows.
- HP may not be able to immediately liquidate the short-term and
certain long-term investments included in gross cash, which may
limit the usefulness of gross cash as a liquidity measure.
Other companies may calculate the non-GAAP financial measures
differently than HP, limiting the usefulness of those measures for
comparative purposes.
Compensation for limitations associated with use of
non-GAAP financial measuresHP accounts for the limitations
on its use of non-GAAP financial measures by relying primarily on
its GAAP results and using non-GAAP financial measures only
supplementally. HP also provides reconciliations of each non-GAAP
financial measure to its most directly comparable GAAP measure
within this news release and in other written materials that
include these non-GAAP financial measures, and HP encourages
investors to review those reconciliations carefully.
Usefulness of non-GAAP financial measures to
investorsHP believes that providing net revenue on a
constant currency basis, non-GAAP total operating expense, non-GAAP
operating profit, non-GAAP operating margin, non-GAAP tax rate,
non-GAAP net earnings, non-GAAP diluted net EPS, free cash flow,
gross cash and net cash (debt) to investors in addition to the
related GAAP financial measures provides investors with greater
transparency to the information used by HP’s management in its
financial and operational decision making and allows investors to
see HP’s results “through the eyes” of management. HP further
believes that providing this information better enables HP’s
investors to understand HP’s operating performance and financial
condition and to evaluate the efficacy of the methodology and
information used by HP’s management to evaluate and measure such
performance and financial condition. Disclosure of these non-GAAP
financial measures also facilitates comparisons of HP’s operating
performance with the performance of other companies in HP’s
industry that supplement their GAAP results with non-GAAP financial
measures that may be calculated in a similar manner.
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