HP : 2021 Annual Meeting Q&A (opens in new window)

2021 HP Annual Meeting Q&A

April 13, 2021

All questions received, both during and prior to the meeting, are presented as submitted, uncensored and unedited with the exception of protecting personal details. We may have received several questions generally asking the same thing or very similar things - we may group such questions together and provide a single response to avoid repetition. All responses are as of April 13, 2021 unless otherwise noted. HP assumes no obligation and does not intend to update its responses below.

If you have any questions or concerns please feel free to contact HP Investor Relations at [e-mail].

Question 1 - Answered Live by Enrique Lores

How will you build on the current stock price rise and continue to build shareholder value?

Enrique Lores: As we said in our Q1 earning calls, we remain committed to returning significant capital to our shareholders, including earnings and enhanced share repurchase plan. In Q1 alone, we repurchased almost 5% of our outstanding shares during the quarter. In the near-term, we are committed to quarterly share repurchases at elevated levels of $1 billion at a minimum in the coming quarters unless higher return opportunities arise. We believe this strategy is prudent and responsible and in the best interest of HP shareholders and all our stakeholders.

Question 2 - Answered Live by Enrique Lores

What is HP's M&A strategy?

Enrique Lores: We will remain thoughtful and disciplined and ensure that all opportunities for uses of cash, including M&A, are compelling and create value for our shareholders. HP continues to evaluate both organic and inorganic investments for value creation through a disciplined returns based framework. Our M&A strategy includes three key pillars: operational, strategic and financial fit. Any M&A will need to meet these three criteria for us to consider executing.

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Question 3 - Answered Live by Charles "Chip" Bergh

Could you tell us about the process for selecting directors for HP?

Chip Bergh: Each year the Board performs a full Board and committee performance assessment to ensure the ongoing effectiveness of the Board and the individuals serving as Directors. We review relevant skills and qualifications of our Board to make sure we continue to have the right fit for HP as it evolves. Our proactive refreshment process is driven by an in-depth skills assessment that helps us identify the characteristics we need in our Directors in order to continue to have successful oversight of the business and strategy over the next three to five years.

We also seek to maintain a Board with diversity of perspectives. And perhaps the best way to bring this to life is to talk about our most recent Board appointment. The most recent appointment we wanted someone with expertise in geopolitics. And we named Jami Miscik to the Board. Jami held the most senior analytical post at the Central Intelligence Agency, where she worked for over 20 years. She's now the CEO of Kissinger Associates, a strategic international consulting firm. She brings a vast understanding of geopolitical and macroeconomic landscapes and deep expertise in international affairs, intelligence and risk assessment.

Question 4 - Answered Live by Enrique Lores and Chip Bergh

Could you tell us more about how management and the Board think about issues of diversity, equity and inclusion?

Enrique Lores: From a management perspective, I believe HP's continued success and innovation depends on an inclusive approach that celebrates diversity, a name for equity at all levels. Our commitment to corporate citizenship has been part of our values since our founding and was part of our first corporate objectives in 1957.

Diversity, equity and inclusion are key part of leadership discussions and standard on leadership quarterly business reviews. Our executive leadership team members are evaluated, including as part of our management by objectives program on their actions to support diversity, equity and inclusion.

And in 2020, we took several actions to deepen our commitment to social justice and racial equality, including announcing a new goal to double the number of black and African American executives by 2025, and launching HP Racial Equality and Social Justice Task Force to do our part to end systemic racism.

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Chip Bergh: And from a Board point of view, the Board continues to be amongst the most diverse of any of US technology company. Five of our directors are female and 45% of our Board is racially or ethnically diverse. We place a great value on diversity of background, skills and viewpoints, gender and ethnicity in the recruitment and nomination of new Directors. Our Board, including through the HR and Compensation Committee, oversees HP's key human capital management strategies and programs.

The HR and Compensation Committee provides guidance and direction to our talent recruitment and retention strategies, with a focus on ensuring our leadership represents the diversity of our workforce and customers worldwide.

Question 5 - Answered Live by Enrique Lores

Where is the direction of 3D printing going and are you able to scale up this part of the business sooner than later?

Enrique Lores: We are focused on leveraging our differentiated 3D hardware and software capabilities to create high-valuehigh-growth businesses evolving our current 3D transactional business model. This includes: developing personalized products and customer experiences through disruptive end-to-end models in specific verticals that are right for personalization adoption at scale; expanding value creation and value capture with scalable and repeatable high potential B2B opportunities that will have continuing to build on HP's differentiated capabilities.

We have begun with our molded fiber disruptive B2B play. Our 3D commercial business remains very important of our strategy with a focus on our ability to capture more of the value that we create.

Question 6

What is the company's plan to reduce and/or pay off debt?

Answer:

Consistent with the principles of our value creation plan announced in February of 2020, we have a revised leverage target of 1.5 to 2.0 times and maintaining an investment grade credit rating. In the near-term we expect to stay on the low-end of our leverage target to preserve flexibility as we navigate through the COVID-19 pandemic.

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Question 7

How does the company plan to drive sustainable long term yearly earnings growth? 3D printing?

Answer:

As we said in our Q1 earnings call, we think that many of the underlying trends that are driving demand are going to stay in the coming quarters. We think the COVID-19 pandemic has made technology clearly necessary for people to work, to learn, to entertain, to live and this is going to continue to drive demand for PCs and for home printers, but especially for PCs. We also think that the hybrid model of working between office and home opens new opportunities for us on the Printing side to offer new services for this hybrid work environment.

Question 8

• In lieu of the ramifications of COVID-19 on businesses and employees, shouldn't there be a smaller or no increase in compensation of officers? They appear to be doing very well as is.
• Dear Board Members, Due to the ongoing Covid-19 Pandemic, I would like to recommend for the next 2 years that all Board and senior management have their total compensation restricted to a maximum of 45 times the Lowest HP employees compensation.
  Multimillion $$$ compensation is not really justifiable during this time for a while! In order to build up a larger Capital reserve for future new designs and R&D., This would be fair to all persons employed within HP Worldwide. for the Next 2 years and also allows recovery of lost income/profits due to this Pandemic [Which will not end this year due to the recent new variants being discovered in the EU and the Far East]

Answer:

As disclosed in our proxy statement, in response to the impact of the COVID-19 pandemic, our CEO agreed to a 25% reduction in paid base salary and members of the Executive Leadership team, including our named executive officers, agreed to 15% reductions in their paid base salaries, respectively, for the period from July 1, 2020 through October 31, 2020. The Board approved a reduction of 25% of the annual cash retainer paid to non-employee Directors for their service from June 1, 2020 through October 31, 2020. Board members have also waived their fees from additional Board meetings.

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Question 9

On the balance sheet a large negative number is shown for Shareholder's Equity, and this negative number has been growing by roughly the same amount as your stock buy-backs. What is your plan for this negative shareholder's equity - do you plan to bring it back into positive territory or will it continue to become more and more negative with each quarterly batch of share repurchases?

Answer:

Regarding negative shareholder's equity, some of this is a result of the Separation as strategic capital structures were decided based on capital needed to operate and target credit ratings rather than on an accounting definition of equity which we view as less meaningful.

Also, HP has a very favorable cash conversion cycle, especially within the PC business. The result of this is that working capital is negative as payables exceed inventory + receivables.

Regarding capital allocation, we plan to continue to deliver on the disciplined capital allocation policy we've outlined, which is anchored in a returns-based framework where we allocate excess cash to the optimal return opportunities. We expect to continue buying back shares at elevated levels of at least $1 billion per quarter in the coming quarters unless higher return opportunities emerge.

Question 10

• What is the company doing to insulate against potential Chinese supply line disruptions?
• Would you commit to buy components, parts, systems, materials from other countries except China, Russia, and Iran if available from elsewhere, before completing your purchasing agreement?
• Does HP have any plans to move manufacturing back to the USA?

Answer:

HP has a geographically diverse global supply chain, and we continually explore ways to further enhance our supply chain flexibility and resilience. All HP Inc. business activities are conducted in full compliance with all applicable global trade regulations and requirements.

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