Rating Action: Moody's affirms HP Inc's Baa2 senior unsecured rating following announced acquisition of Plantronics, Inc.; outlook stableGlobal Credit Research - 28 Mar 2022New York, March 28, 2022 -- Moody's Investors Service ("Moody's") affirmed HP Inc.'s ("HP") Baa2 senior unsecured rating and the Prime-2 short-term rating for commercial paper following HP's announcement that it agreed to acquire Plantronics, Inc. ("Plantronics") in an all-cash transaction for approximately $1.8 billion in equity value. Both boards of directors have approved the transaction. Subject to customary closing conditions, Plantronics' shareholder approval, and completion of regulatory review, the deal is expected to close by the end of calendar 2022. The outlook is stable.The acquisition of Plantronics, based in Santa Cruz, California, is a leading provider of several audio, voice and video enterprise communications devices. The company "appears to be a reasonable compliment to HP's printing and PC end markets that sell into a hybrid office work environment globally", said Moody's Richard Lane. Despite the shift to a more remote workforce and rapid acceptance of video as the preferred communications medium, Lane said "Plantronics has been challenged to grow revenue and to contend with ongoing supply chain challenges, areas where HP's scale and execution may be able to add value over time." With $1.7 billion of trailing twelve month revenue, Plantronics is small compared to HP's $64.9 billion of revenue.RATINGS RATIONALEHP's Baa2 senior unsecured rating is supported by strong to leading market positions in printing and personal computers, global presence, and modest leverage that is supported by a strong liquidity profile. Balancing good demand with ongoing supply chain challenges and developing economic uncertainty, Moody's expects HP will generate low single digit revenue growth in 2021 with stable-to-higher profit margins and strong cash flow. The company has significant scale, with projected revenue of about $66 billion and adjusted EBITDA of $7 billion this year. Despite these strengths, ongoing secular growth challenges in both the printing and PC markets will persist and will generally require market share gains or served available market expansion to grow revenue over the longer term. Moody's expects that despite always competitive pricing, effective execution and selectively targeting more profitable market segments of printing and PC's will drive adjusted EBITDA margins toward 11% this year, up from 10.4% last year and 8.9% the prior year. Moody's expects HP will maintain a conservative financial policy with moderate leverage and excellent liquidity. Assuming HP funds the acquisition with debt, Moody's projects adjusted gross debt to EBITDA will remain below 2x, while free cash flow to adjusted gross debt exceeds 40% as HP generates over $5 billion in free cash flow after dividends in fiscal 2022.Moody's expects that following the PC industry's strongest unit growth in a decade in 2021, worldwide PC units will be flattish in 2022 due to ongoing component shortages, supply chain constraints, and developing economic uncertainty. Over time, a continuation of a work, learn and play from anywhere environment will drive steady demand. While HPI's PC unit growth has declined in each of the last two quarters, revenue has increased in the double digits as mix has skewed to the higher priced and more profitable commercial segment. PC segment operating margins of 7.3% for the trailing twelve months ended January 2022 have more than doubled from four years ago, reflecting steady execution in a variety of difficult operating environments.The printing segment continues to show strong profitability with operating margins of 18.2% at the high end of the company's target range. As a result of component shortages and logistic disruptions, printing revenue declined 4% in the January quarter (up 11% on a trailing twelve-month basis) but, reflecting overall solid demand, backlog increased sequentially. Overall, demand from corporate, industrial, and 3D printing is solid while consumer markets are softer.HP maintains an excellent liquidity profile, with $3.4 billion of cash and access to an unused $5 billion unsecured revolving credit facility that matures in May 2026 that supports a similarly sized commercial paper program (zero outstanding as of January 2022). Moody's expects HP will generate over $5 billion of free cash flow after dividends in 2022.The stable outlook reflects Moody's expectation that HP will maintain a conservative leverage profile and robust liquidity while the company generates 4% to 5% revenue growth in fiscal 2022 with EBITDA approximating $7 billion and free cash flow after dividends over $5 billion.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's would consider an upgrade to HP's ratings if HP is positioned to achieve and sustain revenue growth while maintaining or expanding profitability. Also, the company would need to sustain EBITDA margins above 10%, adjusted debt to EBITDA of less than 1.75x and free cash flow to adjusted debt in excess of 20% while maintaining conservative financial policies and robust liquidity.Moody's would consider a downgrade to HP's rating if HP revenue sustains declines that are indicative of poor execution or competitive positioning, if the company fails to maintain EBITDA margins above 7%, or if HP adopts a more aggressive capital structure such that adjusted debt to EBITDA stays above 2.75x or free cash flow to adjusted debt falls below 15% for an extended period.The principal methodology used in these ratings was Diversified Technology published in February 2022 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1278817. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.HP Inc. is the world's largest printer manufacturer and second largest personal computer maker. We expect HP will generate over $66 billion of revenue this fiscal year.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Richard J. Lane Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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