HP Inc.

Fourth Quarter 2020 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. 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 fourth quarter 2020 earnings conference call. With me today are Enrique Lores, HP's President and Chief Executive Officer, and Marie Myers, HP's Acting Chief Financial Officer. Before handing the call over to Enrique, let me remind you that this call is being webcast. A replay of this 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 related to forward-looking statements that involve risks, uncertainties, and assumptions. For 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-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 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 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. It remains a difficult time for so many across the world. I hope you and your families are safe and healthy. Today, I will recap our strong Q4 and full-year financial results, and I will discuss the significant progress against our advanced, disrupt, and transform strategies. Let me start with the strength of Q4, where we drove improvement relative to the third quarter in revenue, operating profit, non-GAAP EPS, and cash flow. We are encouraged by the signs of improvement in our business as we continue to navigate a dynamic macro environment. For the quarter, we delivered revenue of $15.3 billion, flat year-over-year in constant currency. Non-GAAP EPS of $0.62, up 3% year-on-year. And we generated free cash flow of $1.8 billion. For fiscal 20, despite the pandemic, we delivered on the full year non-GAAP EPS and cash flow outlook we gave at our analyst day last year. For the full fiscal year, we delivered revenue of $56.6 billion and non-GAAP EPS of $2.28. In addition, we generated strong free cash flow of $3.9 billion. and we return $4.1 billion to shareholders through share repurchases and dividends while making appropriate investments in the business. Looking at our performance, two themes stand out that are consistent across both print and personal systems. HP's broad and differentiated portfolio and leadership across consumer and commercial markets makes our company more resilient across business cycles. And secondly, our operational execution, including our discipline pricing, strategic cost reductions, and supply chain agility, help us navigate in a very dynamic environment. Underpinning it all is a purpose-driven culture built on strong corporate values. Our founders used to say that the greatest competitive advantage is doing the right thing at the worst time. And our teams have lived up to this ideal through a tremendously difficult year, consistently stepping up to do the right things for our business, our customers, and our communities around the world. This is who we are as a company, and I could not be more proud. Now, let me turn to our business and review the progress we have made against our strategy. We are advancing our leadership in our core markets and expanding our reach into profitable adjacencies. We are positioning ourselves to disrupt new markets where our technologies and IP present significant opportunities to create and scale new businesses over time. And we are transforming the way we operate across the company with a focus on building out our cloud infrastructure and our digital capabilities while reducing our cost structure. Our progress can be seen in each of our business units. It was another strong quarter for personal systems with revenue of $10.4 billion and a record 19 million units shipped. We grew consumer revenue 24%, with consumer premium up 29%, and consumer displays and accessories up 59%. Chromebook revenue and units more than doubled. We exited the quarter with an elevated backlog and continued to operate with component supply shortages, which are expected to constrain our growth through the first half of 2021. The PC is more essential to daily life than ever before, and demand for our innovation remains strong. We launched a range of new products in our core compute categories last quarter. To meet the needs of professional creators and others that require uncompromising mobile computing performance, we unveiled our new D-book Fury Mobile Workstations. We also announced a new lineup of HP ProBook and HP Spectre 360, and we expanded our Chromebook and mobile thin client portfolios. And as PC gaming continues to surge in popularity, we debuted a range of new OMEN accessories, including the OMEN Frequency Wireless Headset, OMEN Vector Wireless Mouse, and OMEN Spacer Wireless Keyboard. This momentum in gaming accessories reflects our broader focus on innovating and important adjacencies, including peripherals and services. During the second half of this year, we introduced a number of new monitors to improve a work-from-home experience, including always-on low blue light to reduce eye strain and displays with increased touch capability. And we expanded our services offerings, including a new device as a service bundle specifically designed to simplify life for small and medium businesses. We expect to see continued PC unit growth in 2021, which we anticipate will create additional opportunities for us to drive profitable growth, as well as grow the lifetime value of our installed base by broadening our ecosystem of peripherals and services. Turning to print, I am very pleased with the sequential growth in revenue, profit, supplies, and unit shipments. In Q4, the printing business generated revenue of $4.8 billion and operating profit of $713 million. We delivered a strong quarter relative to the market conditions. COVID-related effects on both supply and demand have continued to impact our printing results. From a demand perspective, ongoing demand for consumer hardware and supplies, combined with disciplined pricing, substantially offset the decline in commercial print. And from a supply perspective, while we began to replenish stock at our partners, we anticipate continued supply constraints on some consumer hardware and supplies SKUs. HP is outperforming its peers and remains uniquely well positioned given our leadership across both consumer and commercial print. Our strong consumer business is a clear advantage for us as the shift to remote work and school continues to create momentum in home printing. We also saw some progress in commercial print driven by the SMB sector. We expect a gradual recovery in the overall commercial print market. The recovery may be uneven, given the varying pace of economic recovery and the resurgence of COVID-19 cases in some counties. And we expect that the strength in home will gradually subside when more offices and schools reopen. We continue to evolve our print business models with a drive towards services and a rebalance of profitability between hardware and supply. Our instant ink subscription business continues to see rapid growth, with subscribers up double digits, surpassing our target of 8 million enrollees. We are making progress on rebalancing the business model between hardware and supply. We are expanding profit upfront with 69% unit growth on SIS or Big Inc. We have improved consumer hardware ARU year-over-year through selective price increases, new product innovations, and lower discounts. And earlier this month, we began the rollout of our much-anticipated end-to-end platform strategy that we discussed at SAM last year. HP+, our end-to-end system, provides a differentiated value proposition for our loyal customers. We plan to extend HP+, across most of our home and small office portfolio in developed markets, as we roll out new products. Together, we expect these actions will help us to optimize the business by reducing the number of unprofitable customers. We are also making progress against our plans to disrupt industries with our technology, solutions, and IP to drive medium to long-term value creation. While the industrial businesses of graphics and 3D continue to be impacted by lower business activity due to the pandemic, we saw sequential improvement in both businesses as well as growth in strategic markets. In labels and packaging, for example, we had significant new systems wins at ePack for flexible packaging and Boxmaker for corrugated boxes, and impressions and square meters increased double digits year over year. In 3D, we continue to shift our focus toward more end-to-end solutions and higher value applications. For example, this quarter we launched a new tooling solution to disrupt the molded fiber packaging sector. Molded fiber packaging covers thousands of products ranging from food and beverage containers to packaging for household goods and consumer electronics. We are excited for the disruptive potential in this sector as our innovative technology opens up entirely new possibilities. We are doing all of this while transforming the way we work to unlock value and become a leaner, more digitally enabled company. We have delivered on the foundational milestones that we outlined previously, and we are well ahead of our cost savings target this year. We have significantly reduced structural costs, driven productivity savings, and enabled enhanced digitization. Marie will go into more detail in a few minutes. And we are still in the early days of our transformation. The progress we made in fiscal year 20 is indicative of the opportunities we see in fiscal 21 and beyond. This will remain a big area of focus as we continue to drive digital transformation and efficiency across the organization to position the business for growth. Let me sum up by reiterating the strength of our position as we enter fiscal 2021. A powerful blend of innovation and execution is driving our business forward. We have a diverse and resilient business model, are leading in our core market, investing appropriately in attractive growth opportunities, and taking the steps necessary to transform for the future. We remain committed to generating strong cash flow and to value creating capital allocation. This includes our robust share repurchase and dividend program and discipline organic and inorganic investments. We will continue to lead with our values of making a sustainable impact in the world, including stepped-up efforts to support diversity, equity and inclusion, as well as to reduce our environmental footprint and mitigate the growing threats of climate change. These are business imperatives where we have a deep and unwavering commitment. Before turning the call over to Marie, let me share some details on her background. Marie is both our Chief Transformation Officer and our Acting CFO. She is a veteran of HP, having held a number of leadership positions at the company, including as our Controller. Prior to returning to HP earlier this year, she was CFO at UA Path. And as Chief Transformation Officer, her leadership has been integral to the cost savings we have delivered over the past year. I'm really grateful to have her leading finance through this transition. I will now pass it to Marie to review the financials.