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HP Inc. Reports Fiscal 2022 Third Quarter Results

PALO ALTO, Calif., Aug. 30, 2022 (GLOBE NEWSWIRE) -- HP (NYSE: HPQ)

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 table
Information 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

Outlook
For 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 information
To 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 statements
This 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 SUBSIDIARIES
CONSOLIDATED 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 SUBSIDIARIES
CONSOLIDATED 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 SUBSIDIARIES
ADJUSTMENTS 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

 Diluted
net earnings
per share
 Amounts

 Diluted
net earnings
per share
 Amounts

 Diluted
net earnings
per 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 SUBSIDIARIES
ADJUSTMENTS 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

 Diluted
net earnings
per share
 Amounts

 Diluted
net earnings
per 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 SUBSIDIARIES
CONSOLIDATED 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 SUBSIDIARIES
CONSOLIDATED 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 SUBSIDIARIES
CONSOLIDATED 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 SUBSIDIARIES
SEGMENT/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 SUBSIDIARIES
SEGMENT/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   
HP INC. AND SUBSIDIARIES
SEGMENT 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 Systems6.9 % 6.9 % 8.4 %  (1.5)pts
Printing19.9 % 19.3 % 17.6 % 0.6 pts 2.3 pts
Corporate Investments(a)NM NM NM NM NM
Total segment10.6 % 10.3 % 11.2 % 0.3 pts (0.6)pts
HP INC. AND SUBSIDIARIES
CALCULATION 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
HP INC. AND SUBSIDIARIES
CALCULATION 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

Use of non-GAAP financial measures
To 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 measures
Net 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:

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 measures
These 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:

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 measures
HP 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 investors
HP 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.

Editorial contacts

HP Inc. Media Relations
MediaRelations@hp.com

HP Inc. Investor Relations
InvestorRelations@hp.com


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