HP Inc.

Good day, everyone, and welcome to the second quarter 2019 HP Inc. Earnings Conference Call. My name is William, and I'll be your conference moderator for today's call. At this time, all participants will be in listen-only mode. We will be facilitating a question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. And as a reminder, this conference is being recorded for replay purposes. And I would now like to turn the call over to Beth Howe, Head of Investor Relations. Please go ahead.

Good afternoon. I'm Beth Howe, Head of Investor Relations for HP, Inc., and I'd like to welcome you to the Fiscal 2019 Second Quarter Earnings Conference Call with Dion Weissler, HP's President and Chief Executive Officer, and Steve Feiler, HP's Chief Financial Officer. Before handing the call over to Dion, let me remind you that this call is being webcast. A replay of the webcast will be made available on our website shortly after the call for approximately one year. We posted the earnings release and the accompanying slide presentation on our investor relations web page at investor.hp.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. For a discussion of some of these risks, uncertainties, and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K and Form 10-Q. HP assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in HP's Form 10-Q for the fiscal quarter ended April 30, 2019, and HP's other SEC filings. During the webcast, unless otherwise specifically noted, all comparisons are year-over-year comparisons with the corresponding year-ago period. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentations accompanying today's earnings release for those reconciliations. And now I'll turn it over to Dion.

Thanks, Beth. Good afternoon, and thank you for joining us. In Q2, as you can see from our results, we are delivering on our plans, demonstrating strong execution and progress on our priorities. Our strategy remains consistent. The engineer experiences that amaze while driving profitable growth. We are striking the right balance between driving results for today and investing for the long term. We're leading in our core PC and print markets, while extending our portfolio of services and solutions in our growth and future categories. In the second quarter, revenue was $14 billion, up 2% in constant currency. Non-GAAP diluted EPS was 53 cents, up 10%, and at the high end of our outlook range. Free cash flow was strong at $747 million, and we returned $936 million to shareholders in the form of stock repurchases and dividends. We continue to operate in a dynamic environment that includes ongoing industry component constraints as well as macroeconomic, geopolitical and tariff uncertainties. But we have a highly experienced team and know how to navigate through complex market conditions. Despite industry-wide issues, we will stay laser-focused on our strategy to drive long-term sustainable performance build trust in our brand and create shareholder value. Let me provide a few highlights and colour on each of our businesses. We continue to execute well in personal systems. Revenue grew 5% in constant currency with strong operating margins of 4.3%. Innovation and design are setting our product mix apart and we're making disciplined investments in solutions and demand generation. We continue to drive profitable growth through a relentless focus on customer insights and by aggressively pursuing targeted opportunities to go after the heat in the market. While PC growth across the industry was more subdued this quarter, HP continued to outperform the market and gain profitable share. Our commercial portfolio remains strong with growth in both commercial desktops and notebooks. As IT decision makers look to create the office of the future, they are turning to HP to support their requirements for both manageability and security. For small and medium-sized businesses, we expanded our AMD portfolio with the launch of HP ProBooks, incorporating premium design and versatility. We also expanded on our premium offerings with the new Intel-based EliteBook 800, which bring robust security to mainstream business users. This includes HP SureSense, our new software that harnesses AI to detect and prevent malware threats. We also continue to raise the bar for gamers with new OMEN devices, software, displays and accessories. As any gamer will tell you, gaming is all about immersion, experience and competition. We are growing our ecosystem and setting new benchmarks for esports, including last week's launch of the Omen X2S, the world's first dual-screen gaming laptop. What makes this system special is that it enables multitasking for gamers to message, watch a Twitch stream, or run other apps without ever having to take their eyes off the game. While we're growing our core, we're continuing to gain momentum in strategic growth areas including devices of service and retail solutions. This quarter, we announced HP DAS Proactive Security, a significant extension to HP's award-winning DAS solution, providing the world's most advanced Windows 10 security service for files and browsing. And in our retail solutions business, HP Engage, our retail point-of-sale solution, was selected to power roughly 2,000 stores for one of the world's largest office product retailers. Shifting to printing, we again outperformed the market in a challenging environment. Total revenue declined 2% and, as expected, supplies declined 3%. In supplies, we are take-it-action. We have made and continue to make improvements in our business management systems and to enhance our measurements of the market and our performance. We are simplifying and strengthening our pricing discipline to achieve consistency of our value proposition. Also in Q2, we increased both our brand protection activities and our online marketing with a focus on search and demand generation. Finally, growing our contractual businesses and evolving our business models remain key strategic initiatives. In hardware, revenue growth in commercial was offset by weaker consumer demand. Not all hardware is created equal, and we are focused on shifting the install base to more productive and profitable units. In Q2, we saw commercial revenue growth in A3 and A4 enterprise. We also introduced a new generation of OfficeJet Pro products and re-imagine the print experience for the way small and medium-sized businesses and employees are printing. A design team connected with thousands of small business owners across the globe to create a product that meets their unique needs. Built with sustainability in mind, it incorporates best-in-class security and a new smart task workflow solution into a printer that is 39% smaller than the previous generation. This was the insight required to fit into today's smaller and more versatile workspaces. Turning towards the contractual market, including A3, we continue to make progress and are leveraging our differentiated technology and IP to capture opportunities. In Q2, we won several large management service contracts, including a multi-million dollar deal with Petrobras. to provide a comprehensive portfolio of solutions and services, including our A3, DesignJet and PageWide products. And in graphics printing, we extended the business into a natural adjacency, opening an entirely new market for us with the launch of the HP Stitch portfolio. These digital textile printers are specifically designed for sportswear, interior decor and soft signage applications. HP Stitch builds on HP's leadership in inkjet technology with precise color matching and cost-efficient streamlined production capabilities. Turning to 3D printing, this month we expanded our portfolio with the introduction of our most advanced multi-jet fusion system to date, the Jet Fusion 5200. By bringing together innovations in systems, data intelligence, software, and material science, we are able to deliver new levels of manufacturing predictability and applications potential. And we are excited that companies like Jaguar Land Rover are early users of this new system. Of course, transformation of large manufacturing industries doesn't happen in isolation. Our customers are looking for complete solutions that integrate into their long-term manufacturing roadmaps and existing processes. This month we announced industrial alliances with Siemens and BASF. We will deliver an end-to-end digital manufacturing solution that integrates HP's 3D printing portfolio with Siemens Digital Industries offerings, from 3D design to simulation, production, factory planning and analytics. Together, we will be working with automotive and industrial companies to transform their manufacturing with existing customers, including Volkswagen. Finally, I want to spend a moment on an exciting announcement we made just this week. HP and Smile Direct Club, the leader in teledentistry, announced a milestone partnership to reinvent the orthodontics industry. To keep up with demand and accelerate their growth, Smile Direct Club will be deploying a fleet of 49 HP 3D printing systems to produce more than 50,000 unique molds per day, one of the largest 3D printing projects in the United States. This is truly industrial scale 3D production. Together, these are all significant steps for our 3D printing business, our expanded portfolio, Materials and industrial alliances enable us to serve a growing range of customers with a diverse range of manufacturing needs. We are well positioned within the digital manufacturing industry and are helping to ignite the fourth industrial revolution. Overall, I'm pleased with our Q2 results. We will remain focused on driving great innovation, disciplined execution and prudent cost management. We remain agile and adaptable in the face of volatility and an ever-changing landscape. We will continue to execute today while we invest in our growth and future businesses. With that context, I'm going to turn it over to Steve for a closer look at the numbers.