HP Inc.

Good day, everyone, and welcome to the third quarter 2020 HP Inc. Earnings Conference Call. My name is Cole, and I'll be your conference moderator for today's call. At this time, all participants will be in listen-only mode. We'll 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. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to Beth Howe, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's third quarter 2020 earnings conference call. With me today are Enrique Lores, HP's president and chief executive officer, and Steve Feiler, HP's chief financial officer. Before handing the call over to Enrique, 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 webpage 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 foreign-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-K for the year ended October 31, 2020, and HP's other SEC filings. During this webcast, unless otherwise specifically noted, all comparisons are year-over-year comparisons with a 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 presentation accompanying today's earnings release for those reconciliations. And now I'll turn it over to Enrique.

Thank you, Beth, and thank you, everyone, for joining the call today. I truly hope you and your families are safe and well. Our strong Q3 results in the face of unprecedented uncertainty reflect the agility of our teams and the strength of our portfolio. Our people have done a tremendous job rapidly adapting to changing market conditions and driving discipline execution and cost management. As a result, for the quarter, we delivered beyond our expectations on revenue, earnings, and cash flow. and we repurchased $1 billion of shares well ahead of prior levels. Importantly, we are navigating the environment well and capitalizing on new opportunities. We are positioning ourselves to meet the evolving needs of our customers, from the essential role of the PC in an era of dispersed workforces and classrooms, to the rise of subscription-based business models and more personalized solutions. I consistently tell our teams that times like these are when strong companies get stronger. These quarter results give me confidence in where we are headed. The strength of our strategy and operational capabilities will enable us to continue leading in both the print and PC categories. Today, I'd like to cover three topics with you. A summary on our third quarter performance. The progress we are making against our advanced disrupt-transform strategy and our value plan. And finally, our current expectations for how the pandemic and other market dynamics will impact our business. In Q3, we delivered revenue of $14.3 billion and flat year-on-year, and up 16% quarter-on-quarter in constant currency. Non-GAAP EPS was $0.49, and we generated free cash flow of $1.6 billion. Importantly, non-GAAP operating expenses were down over a quarter of a billion dollars, driven by our ongoing cost reductions and lower discretionary spend. These are excellent results in the current environment. We continue to advance our leadership in personal systems and print. In personal systems, we deliver growth in revenue, profit, and share, and we deliver record unit shipments in Q3. The PC is more central to daily life than ever. and PCUs is up more than 20% since COVID emerged. We are empowering remote workers and students with the ultimate office and learning experiences at home. This is fueled by a range of innovations that are keeping people connected, collaborative, and secure. For example, in the quarter, we launched a broad new lineup of commercial elite books and a new line of ergonomic monitors. Beyond work, nearly two-thirds of people say the PC is one of the main ways they stay entertained. And this quarter, we expanded our lineup of Omen and Pavilion gaming PCs, displays, and accessories. Turning to print, the business performed better than we expected. Unit performance improved sequentially as we addressed the supply chain impacts of the factory closures we discussed on the Q2 call. More broadly, we remain uniquely well positioned given our leadership across both consumer and commercial print, a strength that's a clear advantage in the current environment. The shift to remote work and learning drove an uptick in home printing. We saw an increase of ink usage versus our original target. And we saw strong growth in HP Smart App users with mobile downloads up 70% year over year. We also launched a new lineup of HP Envy printers with a family-centric feature set. We also continue to evolve our business model. We expanded our Instant Ink subscription business, growing subscribers double digits. We expect to surpass 8 million subscribers by the end of the fiscal year. And we are connecting our Instant Ink and managed print service systems to take advantage of the work-from-home trend. In Q3, we began rolling out the first phase of centralized billing for commercial employees printing from home. In the coming quarters, we will be expanding this offering to enable frictionless print from anywhere for customers whose employees are not in the office full-time. Importantly, in commercial printing, we did see some improvement as the quarter progressed. In managed frame services, July page volume was down roughly 25%, an improvement from April, where we saw a decline of roughly 40%. While there remains much uncertainty about the phase in and phase of recovery, this is an early indication of office usage heading in the right direction. At the same time, we are making progress against our plans to disrupt industries with our technology, solutions, and IT. Across our industrial businesses, we continue to see attractive opportunities to drive medium to long-term value creation. The benefits of 3D printing and the strength of our ecosystem have been clear throughout the pandemic. HP and its partners have produced more than 4 million 3D printed parts for the healthcare sector. We also introduced a new 3D printing material and established an alliance with Osler, one of the industry's largest 3D parts manufacturers. While commercial business segments such as graphics have been challenged due to business closures, we did see attractive pockets of growth. Labels and packaging, for example, saw impressions increase 14% year over year. Moving forward, we will continue to capitalize on opportunities to create value for HP and our customers by delivering new end-to-end applications that enable highly personalized products and solutions. And as we advance and disrupt, we are transforming the way we work. Our focus is to unlock value and become a leaner, more digitally enabled company. We are well ahead of our cost reduction plans for the year, and we are making progress against the many initiatives we have lined last fall. We have extended our geographic simplification initiative beyond our sales organization to supply chain and customer support. And to adapt our channel program to today's digital realities, we launched a new partner program called Amplify in Q3. The program will enable enhanced data analytics and provide partners with the capabilities, tools, and insights required to capitalize on opportunities across the portfolio. Overall, our Q3 results demonstrate the progress we are making against our strategy. Supporting this strategy is a set of financial principles that we outlined in our value creation plan. These principles include the multiple levels we have to drive profitability, including our structural cost reduction program. Our revised leverage target of 1.5 to 2 times maintaining an investment-grade credit rating and our commitment to return to shareholders 100% of free cash flow and excess cash over the long term unless higher return on investment opportunities emerge. In the third quarter, we increased our share buyback, repurchasing approximately $1 billion in stock. This is the highest level in a single quarter since separation. In the quarters ahead, we expect to maintain similar levels at a minimum. We remain fully committed to the principles of our value plan and are demonstrating concrete progress toward our goals. This leads me to the next topic, the trends we see in our business. In the home and consumer segments, we expect continued strength through at least the end of the year. Even as countries reopen, people will continue to spend more time at home. The commercial market will likely remain dynamic. In commercial PCs, we expect the accelerated mix shift from desktops to notebooks to continue, driven by strength in Chromebooks, particularly in education. In office and commercial print, as I mentioned earlier, we have seen signs of improvement. We anticipate the reopening of businesses will gradually increase the demand for printing and related services. That said, the facing and pace of the recovery remains dynamic. I want to close on HP's culture. In tough times like this, it matters more than ever. Not only a high-performance culture that drives innovation as well as shareholder value, but a purpose-driven culture that creates value for society. And most of all, a culture that unites employees with not only a shared purpose, but also a commitment to doing what is right. In the face of a global pandemic and a long overdue reckoning with racial inequality, this has never been more important. And I am proud of the way our people and partners are stepping up and taking action to drive systemic change. During a time with so much strife in the world, we have seen our employee engagement scores reach all-time highs. The HP culture is a source of strength that is guiding us forward. You will continue to see us take actions to drive a more sustainable, equitable, and just future. It is not just the right thing to do. It is good for our shareholders. In 2019, our sustainable impact work helped drive more than $1.6 billion in new sales. Our results this quarter, the commitment of our people and the strength of our culture give me confidence in where we are heading. While we have lots of work to do, we see significant opportunity to drive long-term value creation. Our structural advantages, disciplined cost management and unwavering focus on the customer position us well to navigate current headwinds. And our leadership in both consumer and commercial uniquely positions HP to capitalize on opportunities across the business. With that, I will turn the call over to Steve to take you through the financial details.