HP Inc.

Good day, everyone, and welcome to the second quarter 2021 HP, Inc. Earnings Conference Call. My name is Eilee, 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 second quarter fiscal 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 was 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. 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, 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 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. With that, I'd like to turn it over to Enrique.

Thanks, Beth. Good afternoon, everyone, and thank you for joining the call. I want to start by acknowledging the state of the pandemic, particularly in countries such as India. We are doing everything we can for our employees, customers and partners during this difficult time. While some parts of the world are beginning to improve and reopen, there is much more work to do. Turning to our results, it was another exceptional quarter of double digit top and bottom line growth in which we deliver well above our guided range. Our performance reflects the relevance of our technology in an increasingly hybrid world, the resilience of our business model, and the operational excellence of our team. In addition to summarizing our results, I also want to highlight secular trends driving sustained demand across our portfolio. HP technology and services are at the heart of hybrid work. we are accelerating our strategy to drive long-term sustainable growth. This includes continuing to transform the way we operate and deploy our substantial cash flow to maximize value creation. But let me start with the quarter. In Q2, we saw exceptional demand for our products and delivered record revenue of $15.9 billion, an increase of 27% with balanced growth across print and personal systems. Our non-GAAP net earnings increased 56% to $1.2 billion. And we generated $1.3 billion of free cash flow, returning $1.8 billion to shareholders. These results reflect continued strong growth in consumers as well as improvement in our commercial businesses as economic activity increased. In our consumer segments, we delivered 72% growth in personal systems and 77% growth in print. Commercial PC revenue grew 10% and commercial print was up 34%, including 45% growth in our industrial printing businesses. It is important to note that these results are against the backdrop of industry-wide component shortages and supply chain challenges. Currently, there is not enough supply to keep up with the robust demand, and the resurgence of COVID in Southeast Asia is creating additional pressures on our supply chain. We expect supply constraints to continue at least through the end of 2021. Although the environment will likely remain dynamic, we are taking actions to navigate through the challenges, enabling us to deliver strong results and increase our outlook for the second half. As we remain focused on delivering in the short term, we are equally focused on capitalizing on the attractive long-term opportunities. It is clear that the world will not simply go back to the way it was prior to COVID. There has been a fundamental shift in the way people work, learn, play and create, and this shift is here to stay. The future of work and education will be more hybrid. According to recent surveys, more than 60% of employees want flexibility in where and how they work. As this future emerges, it will open the opportunity to create new products and services for our customers. And as consumers and businesses see greater mobility, convenience, and value, this supports our strategy to accelerate new business models geared toward more services and subscriptions, enabled by the integration of our hardware and software. Underpinning all of this is the growing importance of cybersecurity. 88% of IT decision makers tell us they worry their cyber risk has increased during the pandemic. This presents a huge opportunity for us to expand our security offerings and deliver the most secure and resilient PCs and printers. With our broad, differentiated portfolio, HP is uniquely positioned to capitalize on these secular trends. And as I have said, this is a time for strong companies to get stronger. and we are innovating across our portfolio to strengthen and grow our businesses. In personal systems, our innovation is driving growth in key segments, including remote work, education, and gaming. The PC continues to be essential in daily life. We're already capitalizing on this trend in a number of ways. Our latest award-winning PCs include features purpose-built for hybrid work. And we are developing new services like HP Provisioning Connect that make it easier for IT teams to set up and support devices in employees' homes as well as in the office. In the education market, where HP is the number one vendor, PC sales have more than doubled due to remote learning. At the same time, however, The number of PCs per 100 students remains in the single digits. As an industry, we still have a long way to go to close this digital divide. And as a company, we have a big opportunity to be part of the solution. The importance of the PC extends far beyond work and school. In many cases, it has become the entertainment center of the home. from streaming and content creation to the rise of gaming and esports. In Q2, revenue growth in gaming outpaced overall consumer PC growth. We are building on these strengths to expand into attractive adjacencies, including peripherals. We are on track to close the HyperX acquisition in Q3, which we expect to be accretive in year one. In printing, We are leveraging our leadership across consumer and commercial markets to provide innovative solutions needed in today's hybrid world. This includes accelerating the evolution of our business model and subscription services. We recently announced the expansion of HP Plus and InstaNink, which are now in 35 countries across North America and Europe. We believe HP Plus will help us to optimize system profitability and provide a better customer experience. Additionally, employers are looking for more distributed printing environments, which plays to HP's strengths in A4 printers. The new LaserJet Enterprise 400 series is designed to deliver seamless remote management for both hybrid workers and new office configurations geared toward collaboration. At the same time, greater workforce mobility is a catalyst for our print services portfolio. Within our managed print services, we have introduced HP Flex Worker Service to incorporate remote workers and branch offices into a company's NPS contract. This is allowing companies such as General Motors to have better visibility and manageability across their printer fleet. In our industrial businesses, new innovation is enabling production to be more agile and more personalized. In industrial graphics, we are seeing improvements in the market and growth in hardware installations. Among the customer wins this quarter was the installation of the 100th Indigo Press at CCL, a world leader in label security and packaging solutions. We also continue to see consistent double-digit growth in print impressions and square meters. In 3D, we are creating more vertical go-to-market solutions spanning equipment, software, and services across industries, from industrial tooling to automotive to health and wellness. For example, our molded fiber tooling solution has strong customer engagement and adoption, including numerous repeat purchases as we enable them to achieve significant process and cost efficiency. In addition, we are partnering with Ford Motor Company to extend the life of already used 3D printed parts by turning them into auto components for their F250 trucks, creating a closed loop on waste. With our strong and diverse portfolio, we also continue to generate meaningful free cash flow. And we remain focused on deploying our cash to maximize value creation. We have the flexibility to return significant capital to shareholders and reinvest in our businesses while also exploring discipline M&A. We will continue to look for opportunities to strengthen our core, expand into attractive adjacencies and create additional growth engines. As always, we will take a rigorous approach to evaluating M&A, requiring strategic fit, attractive financial returns that exceed those of buying our own stock, and a strong operational plan to execute on the value proposition. And an important enabler of our strategy is continuing to transform the company to become leaner and more digitally enabled. For HP, there is a continued focus on both reducing structural costs and reinvesting for the future. To help us accelerate our progress, we announced three new leadership appointments. Didier Deltort is joining HP as the President of Personalization and 3D Printing. Greg Baxter will be our next Chief Transformation Officer. And Christian Ludgate is joining HP as our Chief People Officer. Working together with our leadership team, they will strengthen our innovation capabilities and help drive our long-term strategy. And a key part of our strategy is to deliver strong results while staying true to HP's values. Last month, we announced an ambitious set of climate action goals. By 2025, we aim to achieve carbon neutrality, zero waste in HP operations, and zero deforestation for HP paper and paper-based packaging. We are also committed to achieving net zero carbon emissions across our entire value chain by 2040. And last week, we announced a new set of diversity and inclusion goals. This includes a pledge to achieve 50-50 gender equality in HP leadership by 2030, making us the first Fortune 100 tech company to make such a commitment. I am proud to say our partners are joining us in this effort. Today, over 1,400 partners have signed the Amplify Impact Pledge to set their own long-term objectives to drive a sustainable impact. This is where the size and scale of HP's ecosystem truly shines. Overall, I am very pleased with our performance this quarter and excited for what lies ahead. We continue to drive a relentless focus on execution, while taking decisive actions to capitalize on attractive opportunities to advance our leadership in personal systems and print, expand into attractive adjacencies, disrupt new markets, and transform the way we operate. And I am confident that our strategy will continue to create significant shareholder value. I know I speak for our more than 50,000 employees when I say we are not content simply maintaining our current position. We have a much bigger ambition. And with that, I will turn the call over to Marie, who will take you through the details of our quarter and our fiscal year outlook. Marie, over to you.