Securities Analyst Meeting 2017 PRINTING Enrique Lores President, Imaging and Printing Business
Forward-looking statements Today s presentations contain forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of HP Inc. and its consolidated subsidiaries ( HP ) 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 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; any statements of the plans, strategies and objectives of management for future operations, including the execution of restructuring plans and any resulting cost savings, net revenue or profitability improvements; 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 combinations and investment transactions; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include 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; the impact of macroeconomic and geopolitical trends and events; the need to manage third-party suppliers and the distribution of HP s products and the delivery of HP s services effectively; the protection of HP s intellectual property assets, including intellectual property licensed from third parties; risks associated with HP s international operations; 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; the execution and performance of contracts by HP and its suppliers, customers, clients and partners; the hiring and retention of key employees; 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 resolution of pending 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, 2016 and HP s other filings with the Securities and Exchange Commission. As in prior periods, the financial information set forth in today s presentations, 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 Annual Reports on Form 10-K for the fiscal years ending October 31, 2017 and October 31, 2018. HP assumes no obligation and does not intend to update these forward-looking statements. HP s Investor Relations website at http://www.hp.com/investor/home 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.
Use of non-gaap financial information HP has included non-gaap financial measures in today s presentations to supplement HP s consolidated financial statements presented on a GAAP basis. Definitions of these non-gaap financial measures and reconciliations of these non-gaap financial measures to the most directly comparable GAAP financial measures are included elsewhere in today s presentations. HP s management uses net revenue on a constant currency basis, non-gaap total operating expense, non-gaap operating profit, non-gaap tax rate, non-gaap net earnings, and non-gaap diluted net earnings per share to evaluate and forecast HP s performance before gains, losses or other charges that are considered by HP s management to be outside of HP s core business segment operating results. Gross cash, net cash (debt), and free cash flow are liquidity measures that provide useful information to management about the amount of cash available for investment in HP s businesses, funding acquisitions, repurchasing stock and other purposes. Net cash (debt) provides useful information to management about the state of HP s consolidated balance sheet. 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. For example, items such as amortization of intangible assets, though not directly affecting HP s cash position, represent the loss in value of intangible assets over time. The expense associated with this change in value is not included in non-gaap operating profit, non-gaap tax rate, non-gaap net earnings, and non-gaap diluted net earnings per share and therefore does not reflect the full economic effect of the change in value of those intangible assets. In addition, items such as restructuring and other charges, acquisition-related charges, non-operating retirement-related credits/(charges), defined benefit plan settlement charges, tax indemnifications, and net valuation allowance, separation taxes and adjustments that are excluded from non-gaap operating expense, non-gaap operating profit, non-gaap tax rate, non-gaap net earnings and non-gaap diluted net earnings per share can have a material impact on the equivalent GAAP earnings financial measures and cash flow. HP may not be able to immediately liquidate the short-term and long-term investments included in gross cash, which may limit the usefulness of gross cash as a liquidity measure. In addition, free cash flow, which includes net capital expenditures, does not represent the total increase or decrease in cash for the period. The non-gaap financial information that we provide also may differ from the non-gaap information provided by other companies. We compensate for the limitations on our use of these non-gaap financial measures by relying primarily on our GAAP financial statements and using non-gaap financial measures only supplementally. We also provide robust and detailed reconciliations of each non-gaap financial measure to the most directly comparable GAAP measure, and weencourage investors to review those reconciliations carefully. We believe that providing these non-gaap financial measures in addition to the related GAAP 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. We further believe that providing this information better enables investors to understand HP s operating performance and financial condition and to evaluate the efficacy of the methodology and information used byhp s management to evaluate and measure such performance and financial condition. HP s Investor Relations website at http://www.hp.com/investor/home 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.
ESTABLISHED SOLID FOUNDATION FOR DELIVERING RESULTS EXECUTING A WINNING STRATEGY PIVOTING TO PROFITABLE GROWTH ~1% CC revenue growth FY17 YTD 1,3 Stabilized supplies Q3 FY17 1 ~4% Reignite the home Disrupt the office >$500M FY17 cost savings 2 HW unit growth FY17 YTD 4 Transform graphics (1) Adjusted for change in supplies sales model and in constant currency; (2) Forecast for FY17; (3) CC = constant currency; adjusted to eliminate the effects of foreign exchange fluctuations; (4) Ink, laser, and graphics units.
ACHIEVED SUPPLIES STABILIZATION AHEAD OF PLAN 4 BOX IN LINE WITH EXPECTATIONS OR BETTER SUPPLIES SALES MODEL CHANGE TOTAL PRINT SUPPLIES REVENUE, Y/Y (CC) 1,2 Installed base Usage Share Pricing Channel Inventory + + Channel Discounts Q116 Q216 Q316 Q416 Q117 Q217 Q317 + = Outperformed expectation = In line with expectation Linearity (1) CC = constant currency; adjusted to eliminate the effects of foreign exchange fluctuations; (2) Adjusted for change in supplies sales model.
WE BELIEVE IN CONSUMERS SHARE THEIR FEELINGS PROFESSIONALS COMMUNICATE THEIR IDEAS BRANDS CONNECT WITH THEIR CUSTOMERS
MEGATRENDS SHAPING THE LIFESTYLE & WORKSTYLE MOBILITY & COLLABORATION SECURITY & ENVIRONMENT AS A SERVICE PERSONALIZATION
LARGE MARKET WITH POCKETS OF Media 213 20 TOTAL PRINT TAM BY CATEGORY ($B) 2017-20 CAGR 1 215 215 217 217 20 20 20 20 0.4% -0.2% Graphics 2,3 49 51 52 54 55 2.9% 2-3X Digital vs. analog growth 6 Office 4,5 101 102 103 104 104 0.7% ~$55B A3 TAM 7 Home 2,5 43 42 40 39 38-3.5% +10% Mobile page growth 6 2016 2017 2018 2019 Note: Effective at the beginning of its first quarter of fiscal year 2017, HP implemented an organizational change to align its business unit financial reporting more closely with its current business structure. The organizational change resulted in transfer of a portion of LaserJet printers from Office to Home within the Printing segment. HP reflected this change to its business unit information in prior reporting periods on an as-if basis which resulted in reclassification of revenues between the Commercial and Consumer business units of Printing. Commercial Hardware consists of Office Printing Solutions, Graphics Solutions and 3D Printing, excluding supplies; Consumer Hardware includes Home Printing Solutions, excluding supplies. The reporting change had no impact to previously reported segment net revenue, consolidated net revenue, earnings from continuing operations, net earnings or net earnings per share. (1) 2017-20 data are projections based on currently available data and estimates; (2) Home and Graphics include segment-relevant services; (3) Includes textiles; (4) Includes office services such as services portion of Managed Print Services, hardware support, doc process outsourcing, doc consulting and scanning; also includes software such as security management, device management, capture, mobile and pull print; (5) Includes ink/laser hardware and supplies for Office or Home as relevant; Office includes scanners; (6)2017 to 2020, Digital/analog CAGR compares TAM growth, Mobile CAGR based on total pages; (7) A3 TAM refers to estimate for 2017; Source: HP internal. 2020
STRATEGY TO CORE Reignite the home Grow profitable office share SUPPLIES GROWTH GROWTH Disrupt copier market Transform graphics industries FUTURE Lead 3D printing TECHNOLOGY AND INNOVATION LEADING COST STRUCTURE AND QUALITY PEOPLE AND KNOW HOW BIG DATA AND ANALYTICS BRAND AND GTM COVERAGE
STORYTELLING TO BUILD STRONG EMOTIONAL PRINT YOU PRINT JOY PRINT SECURELY PRINT ANYWHERE PRINT SUSTAINABLY
SUPPLIES GIVE US POWER TO OPTIMIZE OPPORTUNITIES GEOGRAPHIC-BASED PROGRAMS 1 STORE-LEVEL PROFIT EXECUTION 1 OPTIMIZATION Profitability by customer 1 Ideal Actual Low print volume High print volume (1) Charts are illustrative and directional.
IMPROVED FUNDAMENTALS SUPPORT SUPPLIES FY18 4-BOX DRIVER TRENDS 1 INK / LASER UNIT MIX BY LIFETIME GM$ 1,2 HP PRINT REVENUE MIX 1 Installed base Usage Share Pricing Unit Value Index 100 105 117 120 100% ~15% ~25% ~40% Home Office Graphics = = = Contractual Transactional Mix Usage quality per unit = Directional trend FY15 FY16 FY17 FY18 FY15 FY17 FY19 FY21 FY23 FY25 (1) Data are projections based on currently available data and estimates; (2) Based on mix of unit shipments, shows value relative to FY15. Source: HP internal.
IMPROVED FUNDAMENTALS SUPPORT SUPPLIES FY18 4-BOX DRIVER TRENDS 1 INK / LASER UNIT MIX BY LIFETIME GM$ 1,2 HP PRINT REVENUE MIX 1 Home Office Graphics Installed base Usage Share FY18 4-BOX DRIVER = TRENDS 1 = Pricing = Unit Value Index 100 105 117 120 100% ~15% ~25% ~40% Contractual Transactional Mix Usage quality per unit = Directional trend FY15 FY16 FY17 FY18 FY15 FY17 FY19 FY21 FY23 FY25 (1) Data are projections based on currently available data and estimates; (2) Based on mix of unit shipments, shows value relative to FY15. Source: HP internal.
IMPROVED FUNDAMENTALS SUPPORT SUPPLIES FY18 4-BOX DRIVER TRENDS 1 INK / LASER UNIT MIX BY LIFETIME GM$ 1,2 HP PRINT REVENUE MIX 1 Home Office Graphics Installed Usage Share base INK / LASER UNIT MIX BY LIFETIME = GM$ 1,2 = Pricing = Unit Value Index 100 105 117 120 100% ~15% +6 pts ~25% Increase in mix for ~40% top bands FY15-18 Contractual Transactional Mix Usage quality per unit = Directional trend FY15 FY16 FY17 FY18 FY15 FY17-8 pts FY19 Decrease in mix for bottom band FY15-18 FY21 FY23 FY25 (1) Data are projections based on currently available data and estimates; (2) Based on mix of unit shipments, shows value relative to FY15. Source: HP internal.
IMPROVED FUNDAMENTALS SUPPORT SUPPLIES FY18 4-BOX DRIVER TRENDS 1 INK / LASER UNIT MIX BY LIFETIME GM$ 1,2 HP PRINT REVENUE MIX 1 Home Office Installed base Usage Share HP PRINT REVENUE MIX 1 Graphics = = Pricing = Unit Value Index 100 105 117 120 100% ~15% ~25% ~40% Contractual Transactional Mix Usage quality per unit = Directional trend FY15 FY16 FY17 FY18 FY15 FY17 FY19 FY21 FY23 FY25 (1) Data are projections based on currently available data and estimates; (2) Based on mix of unit shipments, shows value relative to FY15. Source: HP internal.
REIGNITE CORE DESIGN AND EXPERIENCE INNOVATION REINVENT SERVICE AND BUSINESS MODELS CREATE NEW EXPERIENCES
INNOVATING BUSINESS MODELS TO CORE INSTANT INK IN DEVELOPED MARKETS INK TANK 1 IN EMERGING MARKETS >25% Y/Y growth in total enrollees 2 New geographies New plans New service models +8 pts Y/Y HP Ink Tank 1 share 3 in Emerging Markets Differentiated product Powerful brand Targeted marketing (1) Refers to Continuous Ink Supply System (CISS) product category; (2) Forecast for FY17; (3) CQ2 2017 vs. CQ2 2016. Source: HP internal estimates; IDC Worldwide Quarterly HCPT for Ink and Laser.
SPROCKET IS BUILDING THE NEXT GENERATION OF CORE FINDING NEW CUSTOMERS CREATING NEW PRINTS GROWING THE CATEGORY
DISRUPT CORE/GROWTH DIFFERENTIATE WITH SECURITY CAPTURE COPIER PAGES INNOVATE FOR EVOLVING WORKPLACE INTEGRATE AND LEVERAGE SAMSUNG PRINTER CAPABILITIES
WORLD S MOST CORE/GROWTH SECURE THE DEVICE SECURE THE DATA SECURE THE DOCUMENT Connection Inspector Endpoint Security (Microsoft SCCM) Sure start (BIOS protection) Whitelisting Run-time intrusion detection Encrypted hard drives Encrypted communications Security monitoring and management HP Roam Mobile Print Solution Access control Counterfeit and fraud deterrent (1) HP s most advanced embedded security features are available on HP Enterprise-class devices with FutureSmart firmware 3.7 or above and is based on HP review of 2016 published embedded security features of competitive in-class printers. Only HP offers a combination of security features for integrity checking down to the BIOS with self-healing capabilities. For a list of compatible products, visit: http://h20195.www2.hp.com/v2/getdocument.aspx?docname=4aa6-1178enw. For more information, visit: www.hp.com/go/printersecurityclaims.
JONATHAN BANKS 21
POISED TO GROW IN A GROWTH (1) A3 TAM refers to estimate for 2017 Source: HP internal EXECUTION ON TRACK EXPANDING PORTFOLIO DIFFERENTIATED OFFERING
SAMSUNG PRINTER ACQUISITION GROWTH STRATEGIC RATIONALE Accelerate copier disruption Strengthen laser leadership Invest in IP and technology INTEGRATION APPROACH Portfolio simplification Discipline in unit placement and supplies management Technology leverage: A3 and HP Roam ON TRACK TO CLOSE IN CALENDAR Q4 2017
GROWTH INDUSTRIES TO DIGITAL DISRUPT APPLICATIONS WITH BREAKTHROUGH TECHNOLOGY PARTNER WITH BRANDS REINVENT PSP 1 OPERATIONS (1) Print Service Provider.
DISRUPT APPLICATIONS WITH GROWTH DESIGN AND TECHNICAL PRODUCTION SIGNAGE AND DECORATION GENERAL COMMERCIAL AND PUBLISHING LABELS PACKAGING TEXTILES ACCELERATE IN CURRENT MARKETS EXPAND TO NEW MARKETS
WELL-POSITIONED TO LEAD GROWTH Only digital press manufacturer to offer complete portfolio for pre/post-print Only digital technology compliant with highest food packaging standards Our customers are global packaging market leaders
HP DIGITAL PRINTING IS CHANGING HOW WE GROWTH
THEM THEM
PROGRESSING ON Build the foundation Supplies stabilization Profitable growth 2016 2017 2018+
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