HP Inc.

Good day, everyone, and welcome to the first quarter 2021 HP, Inc. Earnings Conference Call. My name is Ilie, 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 toward 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 is being recorded for replay purposes. I would now like to turn the call over to Beth Howe, Head of Investor Relations.

Please go ahead. Good afternoon, everyone, and welcome to HP's first quarter 2021 earnings conference call. With me today are Enrique Lórez, HP's President and Chief Executive Officer, and Marie Myers, 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 this webcast will be made available on our website shortly after the call for approximately one year. Earlier today, we issued our earnings release, and we have posted the 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 these risks, uncertainties, and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K. 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 January 31, 2021, 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 periods. 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 hope you and your families are safe and well. HP had an exceptional start to the year with strong revenue and profit growth in Q1. We are benefiting from the strength of our portfolio and the diversity of our businesses. We continue to evolve our business models to meet changing customer needs while expanding into adjacencies to grow our addressable markets. and we are driving an aggressive transformation agenda by regularly managing our costs while investing to drive future growth. Simply put, we are doing what we said we would do, and our strategy is working. Our Q1 results are impressive across many dimensions. We deliver strong top-line growth with net revenue up 7% to $15.6 billion and balanced growth across personal systems and print. We deliver strong bottom-line growth with $295 million in non-GAAP operating profit dollar flow-through and double-digit profit growth in both personal systems and print. We deliver non-GAAP net earnings of $1.2 billion, up 24%, with $0.92 of non-GAAP diluted net earnings per share. This is up $0.27 compared to Q1 of last year. And finally, we deliver $908 million of free cash flow in the quarter. We also remain committed to significant return of capital. We return $1.6 billion to shareholders, including $1.4 billion in share repurchases and $250 million in dividends. Over the last three quarters, we have returned $4.4 billion to shareholders and repurchased approximately 13% of our shares. At the onset of the pandemic, I told our teams that this is a time when strong companies find ways to emerge stronger. And last quarter's results show that's exactly what we are doing. HP's broad and differentiated portfolio and leadership across consumer and commercial markets make us more resilient across business cycles. We continue to capitalize on the strong demand for our offering, particularly in consumer, to drive profitable growth. Yet, the impact of the pandemic is ongoing and the pace of the economic recovery remains uneven. We are continuing to manage our business in a disciplined and prudent manner while remaining agile in the face of change. This means capitalizing on opportunities when they arise while also managing volatility when it occurs. As we balance all of these dynamics, we have stayed focused on executing against our strategy to advance our leadership in personal systems and print by optimizing our core and expanding into attractive adjacencies. They wrap industries with our technology to create new businesses in areas like 3D, industrial print, and microfluidics, and transform the way we work to be more digitally enabled and cost efficient. Our continued progress against these strategic priorities is reflected in the strong revenue and profit growth, free cash flow, and capital returns we deliver in Q1. and in the positive momentum in each of our businesses. I will start with personal systems, which had another strong quarter with revenue of $10.6 billion. We shipped more than 18 million units and generated operating margins of 7.1%. Consumer revenue growth accelerated to 34%, with consumer premium up 34%, gaming up 29%, and consumer accessories up 22%. And on top of this, Chromebook revenue quadrupled. We exited the quarter with a record backlog as we continue to operate with component supply shortages that are expected to constrain our growth through at least Q3. It's clear we have entered a new era of innovation and growth for PCs. They have become an essential part of how people work, learn, and play, and we continue to innovate to create new experiences. It's funny to say, but the PC is personal once again. And we are seeing this in the awards we are receiving. At last month's Consumer Electronics Show, we introduced new devices and solutions to power hybrid work environments and personal creative studios. And we were recognized with over 70 awards for our latest launches, including our new 5G-enabled products. Looking ahead, we expect to see continued PC unit growth through 2021, which we anticipate will create additional opportunities for us to drive profitable growth. We are also accelerating in attractive adjacencies such as gaming and peripherals. And with every market in which we play, our goal is to be a leader in this space. This week, we announced the acquisition of HyperX, the market leader in gaming headsets. The addition of HyperX expands our presence in the growing peripherals market with a brand that is trusted by gamers around the world. Our existing strength in gaming hardware, combined with HyperX portfolios spanning gaming headsets, microphones, and other peripherals, will further expand our ecosystem and create another growth engine in personal systems. Much like personal systems, print is off to a terrific start to the year. This quarter demonstrated the power of print to help people learn, create, and perform, with 7% revenue growth, 16% unit growth, and 32% profit growth. In Q1, our printing business generated revenue of $5 billion and operating profit of $1 billion. Similar to the personal systems business, we remain supply constrained, particularly in consumer printer hardware and supplies. While the COVID-19 related impacts on our manufacturing and supply chain have diminished, we anticipate these constraints to continue into the third quarter. HP is outperforming its printing peers and remains uniquely well positioned given our leadership across both consumer and commercial print. Our strong consumer business is a clear competitive advantage as hybrid work and school becomes the norm. We have seen that people who didn't have home printers went and bought them, and people signed up for InstaInk in record numbers, accelerating and already growing part of our business. In InstaInk, we added 1 million new subscribers, surpassing 9 million enrollees in the first quarter. Commercial print improved in Q1 with most product categories showing sequential revenue growth. In CQ4, total print market units grew 6%. We continue to expect a gradual recovery in the overall commercial print market, though the pace might be uneven given the varying pace of economic recovery. And we expect that the strength in consumer will gradually subside as more schools and offices reopen. We continue to execute on our strategy to modernize print and evolve our print business models. In Q1, we roll out our end-to-end platform strategy called HP+, that combines convenient Instant Ink and HP Smart App services with innovative hardware. It's early days, but we are already seeing positive adoption. In the coming quarters, we will be rolling HP+, out more broadly across multiple markets and product lines. New value propositions like HP+, are indicative of the opportunities ahead as we continue to innovate to meet evolving customer needs. This also applies to our contractual businesses, such as managed print services, where we see attractive opportunities to deliver services designed for the hybrid workforce of the future. One example is our HP Flex Worker Service. This service can be added to accompany existing NPS contract to help remote workers maintain their productivity. This means being able to seamlessly print, scan, and copy securely, all while working from home. With leadership in both consumer and commercial, and a strong track record of innovation, HP is positioned to define and lead the future of printing in a post-pandemic world. In 3D printing and industrial graphics, we continue to innovate across the portfolio to position ourselves for future growth. Customers continue to use multi-jet fusion for production-grade output, and we are seeing more than 30% growth in the number of 3D printed parts across our customer base. We are also seeing strong early traction in our new molded fiber business that leverages our 3D printing technology to create an end-to-end service for quick, customized, and environmentally sustainable packaging. In industrial printing, we continue to see growth in digital labels and packaging with double digit growth in impressions and square meters printed. Georgia Pacific, one of the world's largest packaging and paper goods providers, is deploying their third inkjet web press to expand their digital printing business. This is a great milestone and validation of our technology. We are excited for the disruptive potential in this sector as our innovative technology opens up entirely new possibilities in personalization and digital manufacturing. We are doing all this while continuing to transform the company to unlock value and become a leaner, more digitally enabled company. Our transformation journey continues to be ahead of plan. We have significantly reduced structural costs and driven productivity savings. At the same time, we are enabling enhanced digitization and we are shifting investments to attractive growth areas where we see opportunities for us to continue driving innovation and long-term sustainable growth. We are focused on both reducing structural costs and accelerating investments for the future. Recently, we announced several new appointments to further strengthen HP's innovation capabilities and support its long-term growth strategy. Tavi Baveja joined as our Chief Strategy and Incubation Officer, and Tolga Cortoglu has joined HP as Chief Technology Officer. In these roles, They will drive cutting-edge research and incubate new business opportunities working together with the leadership team. And last week, we named Marie Myers as our chief financial officer. Marie is a veteran of HP, having held a number of leadership positions at the company, including as our controller and most recently as our chief transformation officer. Maria and I have worked together for many years and she's a truly outstanding leader. I know you will all enjoy getting to know her better. Overall, I am very pleased with the way we have started the year. We built on our momentum from the end of 2020 and our teams are performing at a very high level. And on top of delivering strong results, we are also staying true to HP's values. Last quarter, HP was recognized by Newsweek as America's most responsible company for the second straight year. And we appear on the Barron's list of 100 most sustainable companies for the third straight year. In December, we were named one of the 10 best managed companies by the Wall Street Journal. These accolades simply mean that we continue to ensure that making a sustainable impact remains an integrated part of our business strategy. Let me close by saying Q1 was a strong quarter that increases our confidence about the opportunities ahead. we have a diverse and resilient business model. We are leading in our core print and personal systems markets while taking the steps necessary to create and scale new businesses for the future. And our strong cash flow generation provides us flexibility to return significant capital to shareholders and reinvest in businesses while also exploring discipline M&As. We believe this is a time when strong, successful companies like HP can get stronger. We are not running our business to achieve incremental improvements. We are driving a much bolder transformation agenda that will expand our portfolio, fuel innovation, and unlock attractive new sources of long-term growth and value creation. That is our ambition. With that, I will turn the call over to Marie, who will take you through the details of the quarter and our fiscal year outlook. Marie, over to you.