HP Inc. Reports Fiscal 2020 Third Quarter Results
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HP Inc. Reports Fiscal 2020 Third Quarter Results

PALO ALTO, Calif., Aug. 27, 2020 (GLOBE NEWSWIRE) -- HP (NYSE: HPQ)

HP Inc. fiscal 2020 third quarter financial performance 
  Q3 FY20 Q3 FY19 Y/Y 
GAAP net revenue ($B) $14.3  $14.6  (2.1)% 
GAAP operating margin 5.4%  7.4%  (2.0) pts 
GAAP net earnings ($B) $0.7  $1.2  (37.7)% 
GAAP diluted net EPS $0.52  $0.78  (33.3)% 
Non-GAAP operating margin 6.1%  7.6%  (1.5) pts 
Non-GAAP net earnings ($B) $0.7  $0.9  (20.2)% 
Non-GAAP diluted net EPS $0.49  $0.58  (15.5)% 
Net cash provided by operating activities ($B) $1.7  $2.3  (28.9)% 
Free cash flow ($B) $1.6  $2.2  (27.4)% 

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 2020 third quarter net revenue of $14.3 billion, down 2.1% (down 0.2% in constant currency) from the prior-year period.

Third quarter GAAP diluted net EPS was $0.52, down from $0.78 in the prior-year period and above the previously provided outlook of $0.35 to $0.41. Third quarter non-GAAP diluted net EPS was $0.49, down from $0.58 in the prior-year period and above the previously provided outlook of $0.39 to $0.45. Third quarter non-GAAP net earnings and non-GAAP diluted net EPS exclude after-tax adjustments of $32 million, or $0.03 per diluted share, related to restructuring and other charges, acquisition-related charges (credits), amortization of intangible assets, non-operating retirement-related (credits)/charges, debt extinguishment costs and tax adjustments.

"Our strong Q3 results and solid beat for the quarter, in the face of unprecedented uncertainty, reflects the agility of our teams and the strength of our portfolio," said Enrique Lores, HP's President and CEO. "We're leveraging our leadership across consumer and commercial markets to capitalize on opportunities - from the essential role of the PC in an era of remote work and school to the rise of subscription-based business models to enable greater flexibility. Our diverse portfolio and disciplined execution are powering our performance and we're well positioned to drive continued value creation."

Asset management
HP's net cash provided by operating activities in the third quarter of fiscal 2020 was $1.7 billion. Accounts receivable ended the quarter at $5.3 billion, down 4 days quarter over quarter to 33 days. Inventory ended the quarter at $5.9 billion, down 12 days quarter over quarter to 45 days. Accounts payable ended the quarter at $14.3 billion, down 20 days quarter over quarter to 108 days.

HP generated $1.6 billion of free cash flow in the third quarter. Free cash flow includes net cash provided by operating activities of $1.7 billion adjusted for net investment in leases of $27 million and net investment in property, plant & equipment of $117 million.

HP's dividend payment of $0.1762 per share in the third quarter resulted in cash usage of $251 million. HP also utilized $953 million of cash during the quarter to repurchase approximately 56 million shares of common stock in the open market. HP exited the quarter with $4.9 billion in gross cash, which includes cash and cash equivalents and short-term investments of $0.2 billion included in other current assets.

Fiscal 2020 Third quarter segment results

Outlook
For the fiscal 2020 fourth quarter, HP estimates GAAP diluted net EPS to be in the range of $0.32 to $0.36 and non-GAAP diluted net EPS to be in the range of $0.50 to $0.54. Fiscal 2020 Fourth quarter non-GAAP diluted net EPS estimates exclude $0.18 per diluted share, primarily related to restructuring and other charges, acquisition-related charges, defined benefit plan settlement charges, amortization of intangible assets, non-operating retirement-related (credits)/charges, tax adjustments and the related tax impact on these items.

For fiscal 2020, HP estimates GAAP diluted net EPS to be in the range of $1.83 to $1.87 and non-GAAP diluted net EPS to be in the range of $2.16 to $2.20.  Fiscal 2020 non-GAAP diluted net EPS estimates exclude $0.33 per diluted share, primarily related to restructuring and other charges, acquisition-related charges, defined benefit plan settlement charges, amortization of intangible assets, non-operating retirement-related (credits)/charges, debt extinguishment costs, tax adjustments and the related tax impact on these items. HP also estimates fiscal 2020 free cash flow to be in the range of $2.5 to $3.0 billion.

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 FY20 Q3 earnings conference call is accessible via an audio webcast at www.hp.com/investor/2020Q3Webcast.

About HP Inc.
HP Inc. (NYSE: HPQ) creates technology that makes life better for everyone, everywhere. Through our product and service portfolio of personal systems, printers and 3D printing solutions, we engineer experiences that amaze. More information about HP Inc. is available at 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 (used in)/ 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, performance, market share or competitive performance relating to products or services; 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 or disputes; any statements of expectation or belief, including with respect to the timing and expected benefits of acquisitions and other business combination and investment transactions; 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," "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; HP's ability to execute on its strategic plan, including the recently 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 need to address the many challenges facing HP's businesses; 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 and reseller landscape; the development and transition of new products and services and the enhancement of existing products and services to meet customer needs and respond to emerging technological trends; successfully competing and maintaining the value proposition of HP's products, including supplies; the need to manage third-party suppliers, 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; 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; integration and other risks associated with business combination and investment transactions; the results of the 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 and events; risks associated with HP's international operations; the execution and performance of contracts by HP and its suppliers, customers, clients and partners; disruptions in operations from system security risks, data protection breaches, cyberattacks, extreme weather conditions, medical epidemics or pandemics such as the COVID-19 pandemic, and other natural or manmade disasters or catastrophic events; the impact of changes in tax laws; potential 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, 2019, HP's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2020, 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 Reports on Form 10-Q for the fiscal quarter ended July 31, 2020, Annual Report on Form 10-K for the fiscal year ended October 31, 2020 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, 2020 April 30, 2020 July 31, 2019
Net revenue$14,294  $12,469  $14,603 
Costs and expenses:     
Cost of revenue11,901  9,976  11,698 
Research and development359  338  413 
Selling, general and administrative1,156  1,216  1,376 
Restructuring and other charges59  81  17 
Acquisition-related charges (credits)11  3  (9)
Amortization of intangible assets29  29  29 
Total costs and expenses13,515  11,643  13,524 
      
Earnings from operations779  826  1,079 
Interest and other, net(28)   (831)
Earnings before taxes751  826  248 
(Provision for) benefit from taxes(17) (62) 931 
Net earnings$734  $764  $1,179 
      
Net earnings per share:     
Basic$0.52  $0.53  $0.79 
Diluted$0.52  $0.53  $0.78 
      
Cash dividends declared per share$0.35  $  $0.32 
      
Weighted-average shares used to compute net earnings per share:     
Basic1,417  1,435  1,499 
Diluted1,423  1,440  1,508 


HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except per share amounts)
 Nine months ended
 July 31, 2020 July 31, 2019
Net revenue$41,381   $43,349 
Costs and expenses:   
Cost of revenue33,623   35,103 
Research and development1,097   1,110 
Selling, general and administrative3,662   3,963 
Restructuring and other charges431   141 
Acquisition-related charges14   12 
Amortization of intangible assets84   87 
Total costs and expenses38,911   40,416 
    
Earnings from operations2,470   2,933 
Interest and other, net(15)  (902)
Earnings before taxes2,455   2,031 
(Provision for) benefit from taxes(279)  733 
Net earnings$2,176   $2,764 
    
Net earnings per share:   
Basic$1.52   $1.81 
Diluted$1.51   $1.80 
    
Cash dividends declared per share$0.70   $0.64 
    
Weighted-average shares used to compute net earnings per share:   
Basic1,435   1,528 
Diluted1,441   1,537 


 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, 2020 April 30, 2020 July 31, 2019
 Amounts Diluted
net earnings
per share
 Amounts Diluted
net earnings
per share
 Amounts Diluted
net earnings
per share
GAAP net earnings$734   $0.52   $764   $0.53   $1,179   $0.78  
Non-GAAP adjustments:           
Restructuring and other charges59   0.04   81   0.06   17   0.02  
Acquisition-related charges (credits)11   0.01   3      (9)  (0.01) 
Amortization of intangible assets29   0.02   29   0.02   29   0.02  
Non-operating retirement-related credits (55)  (0.04)  (56)  (0.04)  (21)  (0.01) 
Debt extinguishment costs40   0.03              
Tax adjustments(a)(116)  (0.09)  (80)  (0.06)  (315)  (0.22) 
Non-GAAP net earnings$702   $0.49   $741   $0.51   $880   $0.58  
            
GAAP earnings from operations$779     $826     $1,079    
Non-GAAP adjustments:           
Restructuring and other charges59     81     17    
Acquisition-related charges (credits)11     3     (9)   
Amortization of intangible assets29     29     29    
Non-GAAP earnings from operations $878     $939     $1,116    
            
GAAP operating margin5 %   7 %   7 %  
Non-GAAP adjustments1 %   1 %   1 %  
Non-GAAP operating margin6 %   8 %   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, 2020 July 31, 2019
 Amounts Diluted
net earnings
per share
 Amounts Diluted
net earnings
per share
GAAP net earnings$2,176   $1.51   $2,764   $1.80  
Non-GAAP adjustments:       
Restructuring and other charges431   0.30   141   0.09  
Acquisition-related charges14   0.01   12   0.01  
Amortization of intangible assets84   0.06   87   0.06  
Non-operating retirement-related credits(168)  (0.12)  (43)  (0.03) 
Debt extinguishment costs40   0.03        
Tax adjustments(a)(178)  (0.13)  (451)  (0.30) 
Non-GAAP net earnings$2,399   $1.66   $2,510   $1.63  
        
GAAP earnings from operations$2,470     $2,933    
Non-GAAP adjustments:       
Restructuring and other charges431     141    
Acquisition-related charges14     12    
Amortization of intangible assets84     87    
Non-GAAP earnings from operations$2,999     $3,173    
        
GAAP operating margin6 %   7 %  
Non-GAAP adjustments1 %   0 %  
Non-GAAP operating margin7 %   7 %  

(a) Includes tax impact on non-GAAP adjustments.



 HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In millions) 
 As of
 July 31, 2020 October 31, 2019
ASSETS   
Current assets:   
Cash and cash equivalents$4,679  $4,537 
Accounts receivable, net5,269  6,031 
Inventory5,896  5,734 
Other current assets4,425  3,875 
Total current assets20,269  20,177 
Property, plant and equipment, net2,658  2,794 
Goodwill6,386  6,372 
Other non-current assets4,931  4,124 
Total assets$34,244  $33,467 
    
LIABILITIES AND STOCKHOLDERS' DEFICIT   
Current liabilities:   
Notes payable and short-term borrowings$276  $357 
Accounts payable14,276  14,793 
Other current liabilities10,474  10,143 
Total current liabilities25,026  25,293 
Long-term debt5,981  4,780 
Other non-current liabilities5,223  4,587 
Stockholders' deficit(1,986) (1,193)
Total liabilities and stockholders' deficit$34,244  $33,467 



HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 Three months ended
 July 31, 2020 July 31, 2019
    
Cash flows from operating activities:   
Net earnings$734  $1,179 
Adjustments to reconcile net earnings to net cash provided by operating activities:   
Depreciation and amortization197  190 
Stock-based compensation expense49  60 
Restructuring and other charges59  17 
Deferred taxes on earnings32  207 
Other, net128  63 
Changes in operating assets and liabilities, net of acquisitions:   
Accounts receivable(157) 81 
Inventory398  (386)
Accounts payable85  825 
Net investment in leases(27)  
Taxes on earnings(89) (1,123)
Restructuring and other(75) (43)
Other assets and liabilities333  1,273 
Net cash provided by operating activities1,667  2,343 
Cash flows from investing activities:   
Investment in property, plant and equipment(117) (172)
Purchases of available-for-sale securities and other investments(230) (11)
Maturities and sales of available-for-sale securities and other investments  17 
Collateral posted for derivative instruments(240)  
Payment made in connection with business acquisition, net of cash acquired  (23)
Net cash used in investing activities(587) (189)
Cash flows from financing activities:   
Payment of short-term borrowings with original maturities less than 90 days, net(613)  
Proceed from short-term borrowings with original maturities greater than 90 days8   
Proceeds from debt, net of issuance costs2,993  30 
Payment of debt(1,662) (66)
Stock-based award activities and others23  18 
Repurchase of common stock(953) (533)
Cash dividends paid(251) (240)
Net cash used in financing activities(455) (791)
Increase in cash and cash equivalents625  1,363 
Cash and cash equivalents at beginning of period4,054  3,556 
Cash and cash equivalents at end of period$4,679  $4,919 


HP INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 Nine months ended
 July 31, 2020 July 31, 2019
    
Cash flows from operating activities:   
Net earnings$2,176   $2,764 
Adjustments to reconcile net earnings to net cash provided by operating activities:   
Depreciation and amortization593   539 
Stock-based compensation expense221   233 
Restructuring and other charges431   141 
Deferred taxes on earnings146   325 
Other, net281   176 
Changes in operating assets and liabilities, net of acquisitions:   
Accounts receivable699   (22)
Inventory(247)  (24)
Accounts payable(433)  (138)
Net investment in leases(112)   
Taxes on earnings(238)  (1,123)
Restructuring and other(412)  (122)
Other assets and liabilities(663)  1,317 
Net cash provided by operating activities2,442   4,066 
Cash flows from investing activities:   
Investment in property, plant and equipment(464)  (475)
Proceeds from the sale of property, plant and equipment3    
Purchases of available-for-sale securities and other investments(533)  (80)
Maturities and sales of available-for-sale securities and other investments303   771 
Collateral posted for derivative instruments(240)  (32)
Collateral returned for derivative instruments   32 
Payment made in connection with business acquisitions, net of cash acquired   (427)
Net cash used in investing activities(931)  (211)
Cash flows from financing activities:   
Payment of short-term borrowings with original maturities less than 90 days, net   (856)
Proceed from short-term borrowings with original maturities greater than 90 days19    
Proceeds from debt, net of issuance costs3,051   94 
Payment of debt(1,788)  (604)
Stock-based award activities and others(125)  (58)
Repurchase of common stock(1,767)  (1,944)
Cash dividends paid(759)  (734)
Net cash used in financing activities(1,369)  (4,102)
Increase (decrease) in cash and cash equivalents142   (247)
Cash and cash equivalents at beginning of period4,537   5,166 
Cash and cash equivalents at end of period$4,679   $4,919 



 HP INC. AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions) 

  
 Three months ended        Change (%)    
 July 31, 2020 April 30, 2020 July 31, 2019 Q/Q Y/Y
Net revenue:         
Notebooks$7,304   $5,083   $5,630   44 % 30 %
Desktops2,221   2,409   3,111   (8)% (29)%
Workstations428   439   609   (3)% (30)%
Other407   382   340   7 % 20 %
Personal Systems10,360   8,313   9,690   25 % 7 %
Supplies2,573   2,841   3,164   (9)% (19)%
Commercial Hardware732   808   1,160   (9)% (37)%
Consumer Hardware628   509   588   23 % 7 %
Printing3,933   4,158   4,912   (5)% (20)%
Corporate Investments(a)1      1   NM NM
Total segment net revenue14,294   12,471   14,603   15 % (2)%
Other(a)   (2)     NM NM
Total net revenue$14,294   $12,469   $14,603   15 % (2)%
          
Earnings before taxes:         
Personal Systems$570   $552   $547      
Printing480   548   765      
Corporate Investments(15)  (14)  (23)     
Total segment earnings from operations1,035   1,086   1,289      
Corporate and unallocated cost and other(108)  (84)  (113)     
Stock-based compensation expense(49)  (63)  (60)     
Restructuring and other charges(59)  (81)  (17)     
Acquisition-related (charges) credits(11)  (3)  9      
Amortization of intangible assets(29)  (29)  (29)     
Interest and other, net(28)     (831)     
Total earnings before taxes$751   $826   $248      

(a) "NM" represents not meaningful.


HP INC. AND SUBSIDIARIES
SEGMENT/BUSINESS UNIT INFORMATION
(Unaudited)
(In millions)
 

   
 Nine months ended        Change (%)
 July 31, 2020 July 31, 2019 Y/Y
Net revenue:     
Notebooks$18,361   $16,648   10 %
Desktops7,553   8,908   (15)%
Workstations1,461   1,740   (16)%
Other1,190   972   22 %
Personal Systems28,565   28,268   1 %
Supplies8,455   9,762   (13)%
Commercial Hardware2,616   3,429   (24)%
Consumer Hardware1,744   1,893   (8)%
Printing12,815   15,084   (15)%
Corporate Investments(a)2   2   NM
Total segment net revenue41,382   43,354   (5)%
Other(a)(1)  (5)  NM
Total net revenue$41,381   $43,349   (5)%
      
Earnings before taxes:     
Personal Systems$1,784   $1,342    
Printing1,782   2,425    
Corporate Investments(42)  (71)   
Total segment earnings from operations3,524   3,696    
Corporate and unallocated cost and other(304)  (290)   
Stock-based compensation expense(221)  (233)   
Restructuring and other charges(431)  (141)   
Acquisition-related charges(14)  (12)   
Amortization of intangible assets(84)  (87)   
Interest and other, net(15)  (902)   
Total earnings before taxes$2,455   $2,031    

(a) "NM" represents not meaningful.


HP INC. AND SUBSIDIARIES
SEGMENT OPERATING MARGIN SUMMARY
(Unaudited)

 Three months ended Change (pts) 
 July 31, 2020 April 30, 2020 July 31, 2019 Q/Q Y/Y 
Segment operating margin:          
Personal Systems5.5% 6.6% 5.6% (1.1)pts (0.1)pts 
Printing12.2% 13.2% 15.6% (1.0)pts (3.4)pts 
Corporate Investments(a)NM NM NM NM NM 
Total segment7.2% 8.7% 8.8% (1.5)pts (1.6)pts 

(a)  "NM" represents not meaningful. 



 HP INC. AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts) 
 Three months ended
 July 31, 2020 April 30, 2020 July 31, 2019
Numerator:     
GAAP net earnings$734  $764  $1,179 
Non-GAAP net earnings$702  $741  $880 
      
Denominator:     
Weighted-average shares used to compute basic net earnings per share1,417  1,435  1,499 
Dilutive effect of employee stock plans(a)6  5  9 
Weighted-average shares used to compute diluted net earnings per share1,423  1,440  1,508 
      
GAAP diluted net earnings per share$0.52  $0.53  $0.78 
Non-GAAP diluted net earnings per share$0.49  $0.51  $0.58 

(a) Includes any dilutive effect of restricted stock units, stock options and performance-based awards.  

 HP INC. AND SUBSIDIARIES
CALCULATION OF DILUTED NET EARNINGS PER SHARE
(Unaudited)
(In millions, except per share amounts) 

 Nine months ended  
 July 31, 2020 July 31, 2019
Numerator:   
GAAP net earnings$2,176  $2,764 
Non-GAAP net earnings$2,399  $2,510 
    
Denominator:   
Weighted-average shares used to compute basic net earnings per share1,435  1,528 
Dilutive effect of employee stock plans(a)6  9 
Weighted-average shares used to compute diluted net earnings per share1,441  1,537 
    
GAAP diluted net earnings per share$1.51  $1.80 
Non-GAAP diluted net earnings per share$1.66  $1.63 

(a) Includes any dilutive effect of restricted stock units, stock options and performance-based awards.  

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 average 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. 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 (used in)/ 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 compensates 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 robust and detailed 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
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HP Inc. Investor Relations
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