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Item 2. Management’s Discussion and Analysis

2024-02-28 compared with 2023-09-11 · 128 added, 226 removed, 169 unchanged (68% of the section changed)

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Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is organized as follows:

A discussion of our business and other highlights affecting the Company to provide context for the remainder of this MD&A.

• Critical Accounting Policies and Estimates.

A discussion of accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

• Results of Operations.

An analysis of our financial results comparing the three and nine months ended July 31, 2023 to the prior-year period.

A discussion of the results of operations is followed by a more detailed discussion of the results of operations by segment.

• Liquidity and Capital Resources.

An analysis of changes in our cash flows and a discussion of our liquidity and financial condition.

• Contractual and Other Obligations.

An overview of contractual obligations, retirement and post-retirement benefit plan contributions, cost-saving plans, uncertain tax positions and off-balance sheet arrangements of our operations.

The discussion of financial condition and results of our operations that follows provides information that will assist the reader in understanding our Consolidated Condensed Financial Statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our Consolidated Condensed Financial Statements.

This discussion should be read in conjunction with our Consolidated Condensed Financial Statements and the related notes that appear elsewhere in this document.

Our prior period financial statements have been revised to reflect the correction of immaterial errors as described in Note 1, “Basis of Presentation” and Note 14, “Revision of Prior Period Financial Statements”, to the Consolidated Condensed Financial Statement in Item 1 of Part I of this report, which is incorporated herein by reference.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

We are a leading global provider of personal computing and other access devices, imaging and printing products, and related technologies, solutions, and services.

We are a leading global provider of personal computing and other digital access devices, imaging and printing products, and related technologies, solutions, and services.

We sell to individual consumers, SMBs and large enterprises, including customers in the government, health, and education sectors.

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Personal Systems, Printing, and Corporate Investments.

The Personal Systems segment offers commercial and consumer desktops and notebooks, workstations, thin clients, commercial mobility devices, retail POS systems, displays, hybrid systems (includes video conferencing solutions, cameras, headsets, voice, and related software capabilities), software, support, and services.

The Personal Systems segment offers commercial and consumer desktops and notebooks, detachables and convertibles, workstations, thin clients, commercial mobility devices, retail POS systems, displays, hybrid systems, software, solutions, and services.

The Printing segment provides consumer and commercial printer hardware, supplies, solutions and services.

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◦ investing in endpoint services and solutions.

We are focused on services, including Device as a Service, as the market begins to shift to contractual solutions, and accelerating in attractive adjacencies such as hybrid systems;

◦ driving innovation to enable productivity and collaboration with the PCs becoming essential for hybrid work, learn and play.

We are focused on services, including Device as a Service, as the market shifts to contractual solutions, and accelerating in attractive adjacencies such as hybrid systems;

◦ driving innovation to enable productivity and collaboration with PCs becoming essential for hybrid work, learning and play.

We believe that we are well positioned due to our competitive product lineup along with our recent acquisitions enhancing our portfolio of hybrid systems and remote-computing solutions.

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◦ offering innovative printing solutions and contractual solutions to serve consumers, SMBs and large enterprises through our Instant Ink Services, HP+ and Managed Print Services solutions;

◦ providing digital printing solutions for graphics segments and applications including commercial publishing, labels, packaging, and textiles;

◦ providing digital printing solutions for industrial graphics segments and applications including commercial publishing, labels, packaging, and textiles;

◦ expanding our footprint in 3D printing across digital manufacturing and strategic applications.

In addition to growing our subscription business, we are also focused on rebalancing system profitability through our product offerings including HP+ and profit upfront Big Tank.

We are committed to growing our hybrid systems, gaming, workforce services and solutions, consumer subscriptions, 3D and industrial graphics businesses at a rate faster than our core business with accretive margins in the longer term.

Certain aspects of our business are identified as key growth areas, and we are committed to growing these at a rate faster than our core business with accretive margins in the longer term.

The key growth areas are comprised of;

• Hybrid Systems:

Video conferencing solutions, cameras, headsets, voice, and related software capabilities

Gaming PCs, HyperX and gaming accessories

• Workforce Solutions:

Managed services (Managed Print Service and Device-as-a-Service), digital services and lifecycle services

• Consumer Subscriptions:

Instant Ink, other consumer subscriptions and consumer digital services

• Industrial Graphics:

Large Format Industrial, Page Wide Press (PWP), Indigo and Page Wide Industrial packaging solutions and supplies

• 3D & Personalization:

Portfolio of additive manufacturing solutions and supplies including end-to-end solutions such as molded fiber, footwear and orthotics

We believe our ability to innovate will help us gain momentum in growth areas like hybrid systems and gaming, and we see significant opportunities to drive greater recurring revenues across Personal Systems and Printing.

Our acquisition of Poly adds to our growth portfolio by bringing industry-leading video conferencing solutions, cameras, headsets, voice and software capabilities.

To drive more integration across our commercial services, software and security portfolio, we have created a new Workforce Services and Solutions organization.

Our Workforce Solutions organization drives integration across our commercial services, software and security portfolio.

We continue to build on strong portfolios like Instant Ink to grow our Consumer Subscription business.

In Industrial Graphics, we are driving the shift from analog to digital in segments like labels and packaging.

In 3D and Personalization, we are creating end-to-end solutions that can capture more value with our differentiated technology.

In 3D and Personalization, we are creating end-to-end solutions that we believe can capture more value with our differentiated technology.

We continue to experience challenges that are representative of the trends and uncertainties that may affect our industry, generally, and our business and financial results, specifically, and we expect these challenges to continue in the short-term.

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A third set of challenges relates to business model changes and our go-to-market execution in an evolving distribution and reseller landscape, with increasing online and omnichannel presence.

Additional challenges we face at the segment level, and that we expect to continue facing in the short-term, are set forth below.

• In Personal Systems, we face challenges with decline in Personal Systems market due to the competitive pricing environment and demand softness.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

• In Printing, we face challenges from non-original supplies (which includes imitation, refill, or remanufactured alternatives) and competitors with a favorable foreign currency environment.

We also obtain many Printing components from single source due to technology, availability, price, quality, or other considerations.

For instance, we source the majority of our A4 and a portion of our A3 portfolio of laser printer engines and laser toner cartridges from Canon.

Any decision by either party to not renew our agreement with Canon or to limit or reduce the scope of the agreement could adversely affect our net revenue from LaserJet products;

however, we have a long-standing business relationship with Canon and anticipate renewal of this agreement.

Additional challenges we face at the segment level are set forth below.

• In Personal Systems, we face challenges with a competitive pricing environment and demand softness.

• In Printing, we face challenges from our competitors with a favorable foreign currency environment and non-original supplies (which includes imitation, refill, or remanufactured alternatives).

We also obtain many Printing components from single source suppliers due to technology, availability, price, quality, or other considerations.

To address these challenges, we continue to pursue innovation with a view towards developing new products and services aligned with generating market demand and meeting the needs of our customers and partners.

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Macroeconomic Environment

Our business and financial performance also depend significantly on worldwide economic conditions.

We face global macroeconomic challenges, particularly in light of the effects of the ongoing geopolitical conflicts in Ukraine, tensions across the Taiwan Strait, tariff-driven headwinds, uncertainty in the markets, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment.

During the nine months ended July 31, 2023, we observed continued market uncertainty, cautious spending by large enterprise on information technology hardware, lower discretionary consumer spending, inflationary pressures, and foreign currency fluctuations.

These market pressures, which we expect to continue in the short-term, have created new and different demand dynamics and have had significant impacts on our financial results.

Geographically, we observed these macroeconomic dynamics negatively impacting certain markets, particularly China.

However, in the third quarter of fiscal 2023 we also observed uneven recovery in other markets.

During the nine months ended July 31, 2023, we continued to experience overall demand weakness and elevated industry wide reseller inventory due to a challenging macroeconomic environment.

The decline in Personal Systems revenue is in line with market trends and we expect this to continue in the short-term.

In Printing, we continued to see gradual and uneven recovery in Commercial Printing, driven by the slow return of workers to the office.

In the short term, we continued to experience a competitive pricing environment across Personal Systems and Printing.

These markets declined in the first nine months of fiscal 2023 compared to the corresponding fiscal 2022 period, and we expect this to be the case for the full fiscal year 2023 compared to fiscal 2022.

Our business and financial performance depend significantly on worldwide economic conditions.

We face global macroeconomic challenges such as ongoing geopolitical conflicts (including the Russian invasion of Ukraine, tensions across the Taiwan Strait, the Israel-Hamas conflict and other hostilities in the Middle East), uncertainty in the markets, volatility in exchange rates, inflationary trends and evolving dynamics in the global trade environment.

We also experience seasonality in the sale of our products and services which may be affected by general economic conditions.

During the three months ended January 31, 2024, we experienced continued market uncertainty, overall demand weakness due to cautious commercial spending on information technology hardware, reduced discretionary consumer spending and a competitive pricing environment across both Personal Systems and Printing, and we anticipate these trends to persist in the short-term.

These market pressures created new and different demand dynamics which adversely impacted certain regional markets, specifically China.

Despite the overall macroeconomic challenges, in Personal Systems we outperformed the market in units while maintaining profitability and in Printing we continue to execute on our strategy of optimizing the geographic and product mix.

Our revenue declines continued to slow sequentially, consistent with the stabilizing trends we expected heading into the year.

We are exposed to fluctuations in foreign currency exchange rates.

We have a large global presence, with approximately 65% of our net revenue coming from outside the United States.

We have a large global presence, with more than 65% of our net revenue coming from outside the United States.

As a result, our financial results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates.

We expect foreign currency fluctuations to continue to negatively impact our financial results in fiscal 2023.

On May 31, 2022, we announced our decision to wind down business operations in Russia having already suspended all new shipments and paused our marketing and advertising activities in February 2022.

In the third quarter of fiscal 2022, we recognized a charge of $23 million towards severance, cancellation of contracts, inventory write-downs and other one-time exit charges related to our decision.

We typically experience higher net revenues in our fourth fiscal quarter compared to other quarters in our fiscal year due, in part, to seasonal holiday demand.

Historical seasonal patterns may not continue in the future and have been impacted by supply constraints, shifts in customer behavior, continuing impacts of the macroeconomic challenges and different demand dynamics.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Item 1A of Part II of this report as well as in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31 2022.

While the foreign currency fluctuations were favorable to our financial results in Q1’24, we expect these fluctuations to have a minimal impact to our financial results in fiscal 2024.

For a further discussion of trends, uncertainties and other factors that could impact our operating results, see the section entitled “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

Transformation Update

In November 2022, we announced our Future Ready Plan (the “Fiscal 2023 Plan”) to become a more digitally enabled company, focus investments on key growth opportunities and simplify our operating model.

The new Fiscal 2023 plan is expected to run for three years through end of fiscal 2025.

The Fiscal 2023 Plan is expected to run through end of fiscal year 2025.

The three key elements of our Fiscal 2023 Plan are digital transformation, portfolio optimization, and operational efficiency.

We expect to invest some of the savings from these efforts across our businesses to be more efficient and advance our positions in Personal Systems and Printing, while also disrupting

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

new industries where we see attractive growth opportunities.

We also plan to use some of these savings to partially offset headwinds we expect to continue to see across our businesses in fiscal 2023 as a result of macroeconomic factors.

We are on-track to achieve our targeted gross annual run-rate structural cost savings by the end of fiscal 2023.

We continue to leverage artificial intelligence (“AI”) to positively impact both our products and solutions.

During the nine months ended July 31, 2023, we enhanced our digital capabilities in Workforce Services and Solutions.

Additionally, we are reducing portfolio complexity, improving continuity of supply, and increasing our forecast accuracy across Personal Systems and Printing to drive reduction in our cost of sales and operating expenses.

We also continued to reduce our structural cost through headcount reductions and executed a significant portion of the early retirement program in second quarter of fiscal 2023 and are on track to achieve our overall headcount reduction goal.

For more information on our Fiscal 2023 Plan, see Note 3, “Restructuring and Other Charges,” and Note 4, “Retirement and Post-Retirement Benefit Plans,” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

We are on track to achieve our gross annual run-rate structural cost savings target for fiscal year 2024 as well as the overall goal exiting fiscal year 2025.

We enhanced our digital capabilities in Workforce Solutions and continued to leverage AI to positively impact both our products and solutions.

Additionally, we are reducing portfolio complexity, improving continuity of supply, and increasing our forecast accuracy across our business to drive reduction in our cost of sales and operating expenses.

We also continued to reduce our structural cost through headcount reductions and are on track to achieve our overall headcount reduction goal.

We expect to continue to invest some of the savings into our growth areas and our people.

See “Risk Factors—We may not achieve some or all of the expected benefits of our restructuring plans and our restructuring may adversely affect our business” in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

For more information on our Fiscal 2023 Plan, see Note 3, “Restructuring and Other Charges,” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue and expenses, and the disclosure of contingent liabilities.

As of July 31, 2023, the impact of current macroeconomic factors on our business continued to unfold.

As a result, many of our estimates and assumptions required increased judgment and may carry a higher degree of variability and volatility.

As events continue to evolve and additional information becomes available, our estimates may change in future periods.

Management believes that there have been no significant changes during the nine months ended July 31, 2023 to the items that we disclosed as our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, except as mentioned in Note 1, “Basis of Presentation”.

Management believes that there have been no significant changes during the three months ended January 31, 2024 to the items that we disclosed as our critical accounting policies and estimates in MD&A in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

ACCOUNTING PRONOUNCEMENTS

For a summary of recent accounting pronouncements applicable to our Consolidated Condensed Financial Statements see Note 1, “Basis of Presentation”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

RESULTS OF OPERATIONS

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Results of operations in dollars and as a percentage of net revenue were as follows:

Three months ended July 31 Nine months ended July 31

2023 2022 2023 2022

Dollars % of Net Revenue Dollars % of Net Revenue Dollars % of Net Revenue Dollars % of Net Revenue

Three months ended January 31

Dollars % of Net Revenue Dollars % of Net Revenue

Dollars in millions

Net revenue $ 13,196 100.0 % $ 14,648 100.0 % $ 39,901 100.0 % $ 48,136 100.0 %

Cost of revenue 10,374 78.6 % 11,764 80.3 % 31,378 78.6 % 38,564 80.1 %

Gross profit 2,822 21.4 % 2,884 19.7 % 8,523 21.4 % 9,572 19.9 %

$ 12,419 94.2 % $ 13,044 94.5 %

Services 766 5.8 % 754 5.5 %

Total net revenue 13,185 100.0 % 13,798 100.0 %

Cost of net revenue:

9,871 79.5 % 10,589 81.2 %

426 55.6 % 422 56.0 %

Total cost of net revenue 10,297 78.1 % 11,011 79.8 %

Gross Margin 2,888 21.9 % 2,787 20.2 %

Research and development 399 3.0 % 403 2.9 %

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Amortization of intangible assets 81 0.6 % 85 0.6 %

Russia exit charges — — % 23 0.2 % — — % 23 — %

Total operating expenses 1,953 14.8 % 2,044 14.8 %

Earnings from operations 935 7.1 % 743 5.4 %

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Earnings before taxes 793 6.0 % 562 4.1 %

(Provision for) benefit from taxes (170) (1.3) % (64) (0.4) % 204 0.5 % (522) (1.0) %

Provision for taxes (171) (1.3) % (93) (0.7) %

Net earnings $ 622 4.7 % $ 469 3.4 %

For the three months ended July 31, 2023, net revenue decreased 9.9% (decreased 7.4% on a constant currency basis) as compared to the prior-year period.

net revenue decreased 6.7% to $4.8 billion, and net revenue from international operations decreased 11.7% to $8.4 billion.

The decrease in net revenue was primarily driven by lower average selling prices (“ASPs”) in Personal Systems and Printing as well as foreign currency impacts.

For the nine months ended July 31, 2023, total net revenue decreased 17.1% (decreased 13.6% on a constant currency basis) as compared to the prior-year period.

(1) Products cost of net revenue as a percentage of net revenue is calculated as a percentage of product net revenue.

(2) Services cost of net revenue as a percentage of net revenue is calculated as a percentage of services net revenue.

Products net revenue includes revenue from the sale of hardware, supplies, subscriptions and software licenses.

Services net revenue includes revenue from our service offerings and support on hardware devices.

For the three months ended January 31, 2024, net revenue decreased 4.4% (decreased 4.9% on a constant currency basis) as compared to the prior-year period.

net revenue decreased 7.0% to $4.4 billion, and net revenue from international operations decreased 3.1% to $8.8 billion.

The decrease in net revenue was primarily driven by demand softness and lower ASPs in both Personal Systems and Printing as well as foreign currency impacts.

The decrease in net revenue was primarily driven by demand softness and competitive pricing in products, partially offset by favorable foreign currency impacts while services increased nominally.

A detailed discussion of the factors contributing to the changes in segment net revenue is included in “Segment Information” below.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

For the three months ended July 31, 2023, gross margin increased by 1.7 percentage points, primarily driven by lower commodity and logistics cost in Personal Systems and mix shift towards Printing, partially offset by competitive pricing and foreign currency impacts.

For the nine months ended July 31, 2023, gross margin increased by 1.5 percentage points, primarily driven by mix shift towards Printing, and lower commodity and logistics cost in Personal Systems, partially offset by foreign currency impacts and competitive pricing in Personal Systems.

For the three months ended January 31, 2024, gross margin increased by 1.7 percentage points primarily driven by products gross margin due to lower commodity and logistics costs, favorable foreign currency impacts and cost savings, partially offset by competitive pricing while services gross margin increased nominally.

A detailed discussion of the factors contributing to the changes in segment gross margins is included under “Segment Information” below.

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Research and Development (“R&D”)

R&D expense decreased 3.8% for the three months ended July 31, 2023, primarily due to disciplined cost management, partially offset by the Poly acquisition.

R&D expense decreased 8.2% for the nine months ended July 31, 2023, primarily due to disciplined cost management, and lower variable compensation, partially offset by the Poly acquisition.

R&D expense decreased 1.0% for the three months ended January 31, 2024, primarily due to lower variable compensation and disciplined cost management, partially offset by higher R&D partner funding received in the prior period.

Selling, General and Administrative (“SG&A”)

SG&A expense increased 13.9% for the three months ended July 31, 2023, primarily due to the Poly acquisition.

SG&A expense decreased 1.1% for the nine months ended July 31, 2023, primarily due to disciplined cost management including Future Ready transformation savings, and variable compensation, partially offset by the Poly acquisition.

SG&A expense increased 3.9% for the three months ended January 31, 2024 primarily due to higher go-to market initiatives, partially offset by lower variable compensation and disciplined cost management including Future Ready transformation savings.

Restructuring and Other Charges

Restructuring and other charges for the three and nine months ended July 31, 2023 relate primarily to the Fiscal 2023 Plan.

Restructuring and other charges for the three months ended January 31, 2024 primarily relate to the Fiscal 2023 Plan.

For more information, see Note 3, “Restructuring and other charges”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

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Acquisition and divestiture charges primarily include direct third-party professional and legal fees, integration and divestiture-related costs, non-cash adjustments to the fair value of certain acquired assets, such as inventory, and certain compensation charges related to cash settlement of restricted stock units and performance-based restricted stock units from acquisitions.

Acquisition and divestiture charges for the three and nine months ended July 31, 2023 increased by $17 million and $122 million, respectively, primarily due to the Poly acquisition.

Acquisition and divestiture charges for the three months ended January 31, 2024 decreased by $57 million primarily due to the fiscal year 2022 Poly acquisition and continuing integration progress.

Amortization of Intangible Assets

Amortization of intangible assets for the three and nine months ended July 31, 2023 relates primarily to intangible assets resulting from prior acquisitions.

Amortization of intangible assets increased by $41 million and $108 million for the three and nine months ended July 31, 2023, respectively, primarily due to the Poly acquisition.

Amortization of intangible assets for the three months ended January 31, 2024 primarily relate to intangible assets resulting from prior acquisitions and remained flat.

Interest and Other, Net

Interest and other, net expense decreased $54 million for the three months ended July 31, 2023, primarily due to the net gain on extinguishment of debt, partially offset by higher interest expense on debt and factoring costs.

Interest and other, net expense increased $216 million for the nine months ended July 31, 2023, primarily due to higher interest expense on debt and factoring costs, partially offset by the net gain on extinguishment of debt.

Interest and other, net expense decreased $39 million for the three months ended January 31, 2024 primarily due to lower interest expense on debt.

Provision for Taxes

Our effective tax rate was 18.2% for the three months ended July 31, 2023 and (9.8)% for the nine months ended July 31, 2023.

The difference between the U.S.

federal statutory tax rate of 21% and our effective tax rate for the three months ended July 31, 2023 was primarily due to favorable tax rates associated with certain earnings from our operations in lower-tax jurisdictions throughout the world.

For the nine months ended July 31, 2023, the difference was primarily due to tax effects of internal reorganization.

During the three and nine months ended July 31, 2023, we recorded $32 million and $724 million, respectively, of net income tax benefits related to discrete items in the provision for taxes.

The nine months ended July 31, 2023 included benefits of $697 million related to tax effects of internal reorganization, The three and nine months ended July 31, 2023 also included benefits of $16 million and $82 million related to restructuring charges, $51 million and $15 million related to the filing of tax returns in various jurisdictions, and $10 million and $37 million related to acquisition and divestiture charges, respectively.

These benefits were partially offset by income tax charges of $2 million and $60 million related to audit settlements in various

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

jurisdictions, $17 million and $32 million of uncertain tax position charges, and $27 million and $25 million related to extinguishment of debt for the three and nine months ended July 31, 2023, respectively.

During the three and nine months ended July 31, 2023, discrete items in the provision for taxes and excess tax benefits associated with stock options, restricted stock units and performance-adjusted restricted stock units were immaterial.

HP’s effective tax rate was 21.6 % for the three months ended January 31, 2024, which did not materially differ from the U.S.

federal statutory tax rate of 21%.

In December 2021, the Organization for Economic Cooperation and Development (“OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting, legislation on this.

We are in the process of assessing the tax effects of Pillar Two legislation for when it comes into effect, and we plan to treat the tax as a period cost.

Due to the complexities in applying the legislation, the quantitative impact of the enacted or substantively enacted legislation is not yet reasonably estimable.

Segment Information

A description of the products and services for each segment can be found in Note 2, “Segment Information” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

During the first quarter of fiscal year 2024, HP realigned its business unit financial reporting more closely with its customer market segmentation.

A description of the products and services for each segment and the business unit realignment can be found in Note 2, “Segment Information” to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Future changes to this organizational structure may result in changes to the segments disclosed.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Personal Systems

Three months ended July 31 Nine months ended July 31

2023 2022 % Change 2023 2022 % Change

Three months ended January 31

2024 2023 % Change

Dollars in millions

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The components of net revenue and the weighted net revenue change by business unit were as follows:

Three months ended July 31 Nine months ended July 31

Net Revenue Weighted Net Revenue Change (1)

Three months ended January 31

Net Revenue Weighted Net Revenue Change (1)

2023 2022 2023 2022

Dollars in millions Percentage Points Dollars in millions Percentage Points

Dollars in millions Percentage Points

Commercial PS $ 6,045 $ 6,382 (3.7)

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It is calculated by dividing the change in revenue of each business unit from the prior-year period by total segment revenue for the prior-year period.

Three months ended July 31, 2023 compared with three months ended July 31, 2022

Personal Systems net revenue decreased 11.3% (decreased 8.3% on a constant currency basis) for the three months ended July 31, 2023.

The net revenue decrease was primarily due to decline in average selling prices (“ASPs”) by 16.8%, partially offset by an increase in revenue driven by the Poly acquisition and 3.0% increase in PCs unit volume primarily driven by higher consumer notebooks.

The decline in ASPs was primarily due to competitive pricing, unfavorable mix shift and foreign currency impacts.

Commercial PS net revenue decreased 10.9% primarily driven by lower ASPs, partially offset by an increase in hybrid systems revenue driven by the Poly acquisition.

The lower ASPs were driven by unfavorable mix shift and foreign currency impacts.

Consumer PS net revenue decreased 12.4% driven by lower ASPs, partially offset by unit increase in notebooks.

The lower ASPs were driven by competitive pricing and foreign currency impacts.

Personal Systems earnings from operations as a percentage of net revenue decreased by 0.1 percentage points.

The decrease was driven by an increase in operating expenses as a percentage of revenue, partially offset by an increase in gross margin.

Gross margin increased primarily due to lower commodity and logistics cost, partially offset by foreign currency impacts and competitive pricing.

Operating expenses as a percentage of revenue increased primarily driven by the acquisition of Poly, partially offset by disciplined cost management including Future Ready transformation savings.

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

Personal Systems net revenue decreased 22.2% (decreased 18.1% on a constant currency basis) for the nine months ended July 31, 2023.

The net revenue decrease was primarily due to a 18.9% decrease in commercial and consumer client PCs unit volume and a decline in ASPs by 7.8%, partially offset by an increase in revenue driven by the Poly acquisition.

The decline in unit volume was due to demand softness and elevated industry-wide reseller inventory.

The decline in ASPs was primarily due to foreign currency impacts, unfavorable mix shift and competitive pricing.

Commercial PS net revenue decreased 18.1% primarily driven by unit decline due to demand softness and lower ASPs, partially offset by an increase in hybrid systems revenue driven by the Poly acquisition.

The lower ASPs were driven by unfavorable mix shift and foreign currency impacts.

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Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Consumer PS net revenue decreased 30.3% driven by unit decline due to demand softness and lower ASPs.

The lower ASPs were driven by competitive pricing and foreign currency impacts, partially offset by favorable mix shifts.

Personal Systems earnings from operations as a percentage of net revenue decreased by 1.2 percentage points.

The decrease was driven by an increase in operating expenses as a percentage of revenue, partially offset by an increase in gross margin.

Gross margin increased primarily due to lower commodity and logistics cost and favorable mix shift, partially offset by foreign currency impacts and competitive pricing.

Operating expenses as a percentage of revenue increased primarily driven by the acquisition of Poly, partially offset by disciplined cost management including Future Ready transformation savings and lower variable compensation.

Three months ended July 31 Nine months ended July 31

2023 2022 % Change 2023 2022 % Change

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

Personal Systems net revenue decreased 4.1% (decreased 4.9% on a constant currency basis) for the three months ended January 31, 2024.

The net revenue decrease was primarily due to a decline in average selling price (“ASPs”) by 7.5%, offset by a 5.1% increase in commercial and consumer client PCs unit volume as we outperformed the market in units while maintaining profitability.

The decline in ASPs is primarily due to competitive pricing and unfavorable mix shifts, partially offset by favorable currency impacts.

Consequently, Commercial PS net revenue decreased 5.3% primarily due to a 5.1% decline in ASPs, partially offset by a 1.9% increase in units and Consumer PS net revenue decreased 1.4% primarily due to a 10.4% decline in ASPs, partially offset by a 9.8% increase in units.

Personal Systems earnings from operations as a percentage of net revenue increased by 0.9 percentage points.

The increase was primarily driven by an increase in gross margin, partially offset by an increase in operating expenses as a percentage of revenue.

Gross margin increased primarily due to lower commodity and logistics costs, favorable foreign currency impacts and cost savings, partially offset by competitive pricing.

Operating expenses as a percentage of revenue increased due to higher go-to market initiatives and higher R&D partner funding received in the prior year, partially offset by lower variable compensation and disciplined cost management including Future Ready transformation savings.

Three months ended January 31

2024 2023 % Change

Dollars in millions

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The components of net revenue and the weighted net revenue change by business unit were as follows:

Three Months Ended July 31 Nine months ended July 31

Net Revenue Weighted Net Revenue Change (1)

Three months ended January 31

Net Revenue Weighted Net Revenue Change (1)

2023 2022 2023 2022

Dollars in millions Percentage Points Dollars in millions Percentage Points

Dollars in millions Percentage Points

Supplies $ 2,863 $ 2,857 0.1

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It is calculated by dividing the change in revenue of each business unit from the prior-year period by total segment revenue for the prior-year period.

Three months ended July 31, 2023 compared with three months ended July 31, 2022

Printing net revenue decreased 6.8% (decreased 5.4% on a constant currency basis) for the three months ended July 31, 2023 .

The decrease in net revenue was driven by Consumer Printing, Commercial Printing and Supplies as well as foreign currency impacts .

Net revenue for Supplies decreased 1.6%, primarily due to decline in the installed base and usage.

Printer unit volume decreased 18.7% and hardware ASPs decreased 2.4%.

The decrease in printer unit volume was primarily driven by overall demand weakness.

Print hardware ASPs decreased primarily due to competitive pricing and foreign currency impacts, partially offset by mix shift.

Net revenue for Commercial Printing decreased 6.0%, primarily due to 8.0% decrease in printer unit volume and 4.4% decrease in ASPs.

The decrease in ASPs was primarily driven by competitive pricing and foreign currency impacts, partially offset by mix shift.

Net revenue for Consumer Printing decreased 28.1 % , primarily due to 20.3% decrease in printer unit volume and 10.3% decrease in ASPs.

The decrease in ASPs was primarily driven by competitive pricing and foreign currency impacts, partially offset by mix shift.

Printing earnings from operations as a percentage of net revenue decreased by 1.2 percentage points, primarily due to a decline in gross margin and higher operating expenses as a percentage of revenue.

The decrease in gross margin was primarily due to pricing pressure and foreign currency impacts, partially offset by favorable mix shift.

Operating expenses as a percentage of revenue increased primarily due to lower net revenue.

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Nine months ended July 31, 2023 compared with nine months ended July 31, 2022

Printing net revenue decreased 5.3% (decreased 3.3% on a constant currency basis) for the nine months ended July 31, 2023 .

The decrease in net revenue was driven by Consumer Printing, Supplies as well as foreign currency impacts, partially offset by Commercial Printing .

Net revenue f or Supplies decreased 4.2%, primarily due to decline in the installed base and usage.

Printer unit volume decreased 7.2% and hardware ASPs decreased 1.5%.

The decrease in printer unit volume was primarily driven by overall demand weakness.

Print hardware ASPs decreased primarily due to foreign currency impacts, partially offset by pricing optimization in Commercial Printing and mix shifts.

Net revenue for Commercial Printing increased by 0.1%, primarily due to 6.4% increase in ASPs, partially offset by 5.3% decrease in printer unit volume.

The increase in ASPs was primarily driven by mix shift and pricing optimization, partially offset by foreign currency impacts.

Net revenue for Consumer Printing decreased 16.9 % , primarily due to 7.6% decrease in printer unit volume and 10.2% decrease in ASPs.

The decrease in ASPs was primarily driven by competitive pricing and foreign currency impacts, partially offset by mix shift.

Printing earnings from operations as a percentage of net revenue decreased by 0.2 percentage points.

The decrease was driven by decline in gross margin, partially offset by lower operating expenses as a percentage of revenue.

The decline in gross margin was primarily driven by pricing pressure, and foreign currency impacts, partially offset by favorable mix shift.

Operating expenses as a percentage of revenue decreased primarily due to lower variable compensation and disciplined cost management including Future Ready transformation savings.

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

Printing net revenue decreased 5.1% (decreased 4.8% on a constant currency basis) for the three months ended January 31, 2024 .

The decrease in net revenue was driven by Commercial Printing and Consumer Printing , while Supplies net reve nue increased nominally.

Printer unit volume decreased 16.5% primarily due to demand softness and Print hardware ASPs decreased 2.8% primarily due to competitive pricing and unfavorable mix shifts.

Net revenue for Commercial Printing decreased by 11.6% primarily due to a 18.3% decrease in printer unit volume due to demand softness, partially offset by a 1.0% increase in ASPs.

The increase in ASPs was primarily driven by mix shifts, partially offset by competitive pricing.

Net revenue for Consumer Printing decreased 22.3%, primarily due to a 9.0% decrease in ASPs and 15.4% decrease in printer unit volume.

The decrease in printer unit volume was primarily due to demand softness and the decrease in ASPs was primarily driven by competitive pricing, partially offset by favorable mix shifts.

Printing earnings from operations as a percentage of net revenue increased by 1.0 percentage point, primarily due to a increase in gross margin, partially offset by higher operating expenses as a percentage of revenue.

The increase in gross margin is primarily due to lower printer unit volume, lower commodity and logistics costs, as well as cost savings.

Operating expenses as a percentage of revenue increased primarily due to go-to market initiatives, partially offset by lower variable compensation and disciplined cost management including Future Ready transformation savings.

Corporate Investments

The loss from operations in Corporate Investments for the three and nine months ended July 31, 2023 was primarily due to expenses associated with our incubation projects and investments in digital enablement.

The loss from operations in Corporate Investments for the three months ended January 31, 2024 was primarily due to expenses associated with our incubation projects and investments in digital enablement.

LIQUIDITY AND CAPITAL RESOURCES

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While our access to capital markets may be constrained and our cost of borrowing may increase under certain business, market and economic conditions, our access to a variety of funding sources to meet our liquidity needs is designed to facilitate continued access to capital resources under all such conditions.

Our liquidity is subject to various risks including the risks identified in the section entitled “Risk Factors” in Item 1A of Part II of this report as well as Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022 and the market risks identified in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Item 3 of Part I of this report.

Our liquidity is subject to various risks including the risks identified in the section entitled “Risk Factors” in Item 1A of Part I in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023 and the market risks identified in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Item 3 of Part I of this report.

Amounts held outside of the U.S.

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Our cash, cash equivalents and restricted cash and total debt were as follows:

July 31, 2023 October 31, 2022

January 31, 2024 October 31, 2023

Cash and cash equivalents $ 2,263 $ 3,107

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Total debt $ 9,660 $ 9,484

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Our key cash flow metrics were as follows:

Nine months ended July 31

Net cash provided by operating activities $ 1,596 $ 2,559

Three months ended January 31

Net cash provided by (used in) operating activities

Net cash used in investing activities (228) (435)

Net cash used in financing activities (708) (925)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,427) $ 1,087

Net decrease in cash, cash equivalents and restricted cash

$ (815) $ (1,376)

Operating Activities

Compared to the corresponding period in fiscal year 2022, net cash provided by operating activities decreased by $1.0 billion for the nine months ended July 31, 2023, primarily due to lower net earnings and working capital movements including changes in receivables from contract manufacturers, partially offset by lower variable compensation and changes in sales and marketing program liabilities.

Compared to the corresponding period in fiscal year 2023, net cash provided by operating activities increased by $0.1 billion for the three months ended January 31, 2024, primarily due to higher net earnings and favorable working capital impacts, partially offset by amounts collected and held on behalf of a third party for trade receivables previously sold and higher variable compensation payout in the current period for fiscal year 2023.

Key Working Capital Metrics

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Our working capital metrics and cash conversion cycle impacts were as follows:

July 31, 2023 October 31, 2022 Change July 31, 2022 October 31, 2021 Change Y/Y Change

January 31, 2024 October 31, 2023 Change January 31, 2023 October 31, 2022 Change Y/Y Change

Days of sales outstanding in accounts receivable (“DSO”) 26 28 (2) 28 28 — (2)

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Cash conversion cycle (29) (32) 3 (22) (29) 7 (7)

July 31, 2023 as compared to July 31, 2022

January 31, 2024 as compared to January 31, 2023

The cash conversion cycle is the sum of days of DSO and DOS less DPO.

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DSO is calculated by dividing ending accounts receivable, net of allowance for credit losses, by a 90-day average net revenue.

The increase in DSO was primarily due to unfavorable revenue linearity and a marginal increase in extended payment terms.

The decrease in DSO was primarily driven by favorable revenue linearity and improved collections.

DOS measures the average number of days from procurement to sale of our product.

DOS is calculated by dividing ending inventory by a 90-day average cost of goods sold.

The decrease in DOS was primarily due to supply chain improvements in Printing.

The increase in DOS is primarily due to strategic buys in Personal Systems and higher in-transit sea shipments, offset by inventory reduction in Print.

DPO measures the average number of days our accounts payable balances are outstanding.

DPO is calculated by dividing ending accounts payable by a 90-day average cost of goods sold.

The increase in DPO was primarily driven by sequentially higher manufacturing volumes in Personal Systems in the current period as compared to a decline in the prior year period.

The increase in DPO was primarily driven by favorable payment terms with vendors.

Investing Activities

Compared to the corresponding period in fiscal year 2022, net cash used in investing activities decreased by $0.1 billion for the nine months ended July 31, 2023, primarily due to a decrease in net investment in property, plant and equipment of $0.2 billion, partially offset by higher collateral posted for derivative instruments of $0.1 billion.

Compared to the corresponding period in fiscal year 2023, net cash used in investing decreased by $0.2 billion for the three months ended January 31, 2024, primarily due to lower collateral posted for derivative instruments.

Financing Activities

Compared to the corresponding period in fiscal year 2022, net cash used in financing activities increased by $1.7 billion for the nine months ended July 31, 2023, primarily due to net debt repayment of $0.9 billion and $0.2 billion of collateral

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

posted for derivative instruments in the current year period, compared to issuance of senior unsecured notes of $3.9 billion and share repurchases of $3.4 billion in the prior year period.

Compared to the corresponding period in fiscal year 2023, net cash used in financing activities decreased by $0.2 billion for the three months ended January 31, 2024, primarily due the lower net payment of debt of $0.4 billion and collateral returned for derivative instruments of $0.2 billion in the prior period, partially offset by a $0.4 billion increase in share repurchases.

Share Repurchases and Dividends

During the nine months ended July 31, 2023, HP returned $0.9 billion to shareholders in the form of cash dividends of $0.8 billion and share repurchases of $0.1 billion.

As of July 31, 2023, HP had approximately $2.0 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors.

During the three months ended January 31, 2024, HP returned $0.8 billion to the shareholders in the form of cash dividends of $0.3 billion and share repurchases of $0.5 billion.

As of January 31, 2024, HP had approximately $1.5 billion remaining under the share repurchase authorizations approved by HP’s Board of Directors.

For more information on our share repurchases, see Note 10, “Stockholders’ Deficit”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

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Depending on these factors, we may, from time to time, incur additional indebtedness or repay or refinance existing indebtedness.

Outstanding borrowings decreased to $9.7 billion as of July 31, 2023 as compared to $11.0 billion as of October 31, 2022, bearing weighted-average interest rates of 4.2% and 3.7% for July 31, 2023 and October 31, 2022, respectively.

Outstanding borrowings increased to $9.7 billion as of January 31, 2024 as compared to $9.5 billion as of October 31, 2023, bearing weighted-average interest rates of 4.2% for both January 31, 2024 and October 31, 2023.

Our weighted-average interest rate reflects the effective rate on our borrowings prevailing during the period and reflects the effect of interest rate swaps.

For more information on our interest rate swaps, see Note 8, “Financial Instruments”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

As of July 31, 2023, we maintained a 5-year sustainability-linked senior unsecured committed revolving credit facility with aggregate lending commitments of $5.0 billion which will be available until May 26, 2026.

As of January 31, 2024, we maintained a 5-year sustainability-linked senior unsecured committed revolving credit facility with aggregate lending commitments of $5.0 billion which will be available until May 26, 2026.

In March 2023, we also entered into a $1.0 billion senior unsecured committed revolving credit facility with a 364-day maturity.

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Available Borrowing Resources

As of July 31, 2023, we had available borrowing resources of $1.2 billion from uncommitted lines of credit in addition to the revolving credit facilities.

In December 2022, we filed a non-automatic shelf registration statement (the “2022 Shelf Registration Statement”) with the SEC.

The 2022 Shelf Registration Statement was declared effective by the SEC on March 1, 2023 and enables us to offer for sale, from time to time, in one or more offerings, up to $3.0 billion, in the aggregate, of debt securities, common stock, preferred stock, depository shares and warrants.

As of January 31, 2024, we had available borrowing resources of $1.0 billion from uncommitted lines of credit in addition to the full capacity of the revolving credit facilities.

For more information on our borrowings, see Note 9, “Borrowings”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

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Retirement and Post-Retirement Benefit Plan Contributions

As of July 31, 2023, we anticipate making contributions for the remainder of fiscal year 2023 of approximately $9 million to our non-U.S.

pension plans and $12 million to cover benefit payments to U.S.

non-qualified pension plan participants.

As of January 31, 2024, we anticipate making contributions for the remainder of fiscal year 2024 of approximately $34 million to our non-U.S.

pension plans, $25 million to cover benefit payments to U.S.

non-qualified pension plan participants and $1 million to cover benefit claims for our post-retirement benefit plans.

Our policy is to fund our pension plans so that we meet the minimum contribution required by local government, funding and taxing authorities.

For more information on our retirement and post-retirement benefit plans, see Note 4, “Retirement and Post-

AND SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations (Continued)

Retirement Benefit Plans”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

For more information on our retirement and post-retirement benefit plans, see Note 4, “Retirement and Post-Retirement Benefit Plans”, to the Consolidated Condensed Financial Statements in Item 1 of Part I of this report, which is incorporated herein by reference.

Cost Savings Plan

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Uncertain Tax Positions

As of July 31, 2023, we had approximately $938 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

As of January 31, 2024, we had approximately $943 million of recorded liabilities and related interest and penalties pertaining to uncertain tax positions.

We are unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis