HP Inc.

Good day, everyone, and welcome to the third quarter 2023 HP Inc. Earnings Conference Call. My name is Sarah, and I will be your conference moderator for today's call. At this time, all participants will be in a 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. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Arit Keenan-Nahoon, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's third quarter 2023 earnings conference call. With me today are Enrique Loris, 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 a webcast and a replay will be available on our website shortly after the call for approximately one year. We posted the earnings release and 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 SEC filings. During this webcast, unless otherwise specifically noted, all comparisons are year-over-year comparisons with the corresponding year-ago period. In addition, unless otherwise noted, references to HP channel inventory refer to Tier 1 channel inventory. 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 now like to turn the call over to Enrique.

Thank you, Orit, and thank you everyone for joining the call today. When we spoke last quarter, We said that our second half performance would be stronger than the first half. We outlined a clear plan to drive sequential improvement. And this is exactly what we delivered in Q3. We grew net revenue, non-GAAP operating profits, non-GAAP EPS, and free cash flow quarter over quarter in a tough market environment. And our future ready plan is enabling continued progress against our long-term growth priorities while driving structural cost savings. Today, I'm going to spend a few minutes recapping Q3. I will then talk about the market dynamics we see in each of our business units. And I will close by sharing my thoughts on the external environment heading into Q4 before handing the call to Marie. Starting with our results, net revenue was $13.2 billion. That's down 10% year over year, or 7% in constant currency. Even so, third quarter net revenue was up 2% sequentially, despite macro headwinds continuing to impact demand across the industry. We also made good progress in our key growth area. While these businesses are not immune to current market challenges, collectively they deliver solid sequential growth in the quarter. This reflects the power of the portfolio we are building to meet a wider range of customers' needs. And we are continuing to invest in these areas to strengthen our position and accelerate our momentum. We remain on track to deliver at least 40% of our three-year structural cost savings target by the end of this fiscal year. And I want to thank all of our teams for driving discipline execution and cost management across the business. Because of their work, we delivered non-GAAP EPS of 86 cents. This is at the midpoint of our previously provided guidance and was up 9% sequentially. As we reduce our structural costs, it's enabling sustained investment and innovation aligned with our long-term growth priorities. At SIGGRAPH, we launched our new D4 RAC workstation for data scientists, content creators, and engineers. With the option of our HP Anywhere Remote Computing software, Users can access the high-performance power of the Z4 from any device. At Computex, we introduced our next-gen HyperX Cloud 3 gaming headset, which creates immersive audio experiences for gamers. We unveiled our new Poly Studio video solution for hybrid meeting rooms. It runs on AI-driven software. that automatically detects and frames participants to enable a better experience between people in the room and colleagues connecting remotely. And we launched HP Site Print, an innovative robotic solution that empowers workers to print the most complex construction site layouts with pinpoint accuracy while achieving 10 times their productivity. I am even more excited about the progress we are making with our silicon and software partners to co-engineer new platforms that run generative AI at the edge. As I mentioned last quarter, this is a massive opportunity for PC reinvention. Being able to run AI applications locally enables lower latency, as well as more robust security and privacy protection. I am very pleased with pipeline of innovation our teams are building and we view this as a significant driver of PC refresh in 2024 and beyond. We will be unveiling a wide range of new products and services at our first ever HP Imagine event on October 5th. This is a moment for us to showcase innovation across our portfolio And I invite you all to watch the livestream. Last quarter, we also released our annual sustainable impact report. It outlines the progress we have made against our climate action, human rights, and digital equity goals. We have now reduced our absolute carbon footprint by 18% since 2019. And we achieved our goal to enable better learning outcomes for 100 million people three years ahead of plan. I hope many of you were able to watch our webcast on these topics earlier this month. This work has a positive impact on our communities and helps us to win business. Let me now turn to our business unit performance. Starting at the macro level, we continue to navigate an uneven environment, including FX headwinds. From a customer segment perspective, the picture is somewhat mixed. We are seeing enterprise spending remain cautious, with the rising cost of capital being a notable factor. The SMB segment is showing resilience, and in consumer, We continue to see softness in discretionary spending. Geographically, we see various dynamics playing out in different parts of the world. Most markets are experiencing some weakness, although at different levels. For example, we saw a downturn in the China market, where demand is not even yet backing the lower GDP recovery. Personal systems revenue was $8.9 billion in the quarter. That's down 11% year-over-year or 8% in constant currency. Even so, we saw a significant improvement this quarter, with peers' revenue up 9% sequentially. This reflects back-to-school demand as well as higher unit volume resulting in share gains. Our P.S. operating margin was strong at 6.6%. Operating profit dollars grew sequentially, driven by higher volume, our disciplined cost management, and structural cost reduction. We also gained share in both commercial and consumer, while still focusing on profitable share. Year over year, we gained 2.9 share points. while retaining our number one position in commercial. Gaming saw a significant recovery with double-digit sequential growth. And PS Services' TCD grew strong double digits sequentially and year over year. Earning to print revenue was $4.3 billion. That's down 7% year over year, or 5% in constant currency. We continue to see soft demand, particularly in China, as well as aggressive pricing in the consumer print market and delayed enterprise spending in the industrial space. Supplies revenue was roughly flat year over year in constant currency, in line with our expectations. We delivered print operating margin of 18.6%. This reflects our discipline cost management, as well the work we are doing to rebalance overall system profitability. For example, this quarter, about 60% of our shaped units were HP Plus-enabled or profit upfront big tank printers. And Instant Ink once again grew revenue on new enrollees year over year. We also see opportunities to improve our print performance. We are specifically focused on regaining profitable share and improving our performance in office through step-up execution. And given the competitive environment in home printing, we need to improve our cost structure to maintain long-term profitability. Turning to our industrial business, The graphics and 3D markets continue to be impacted by macro environments and delayed ordering cycles. That said, they remain important parts of our plan to drive long-term growth and value creation, and we continue to innovate to strengthen our position. I also want to acknowledge the continued progress we are making in our workforce, services, and solutions business. solid growth in the quarter, both year over year and sequentially. And we are building a strong funnel as we spend time introducing our newly integrated portfolio of services with customers. We are very encouraged by the opportunities to grow this business moving forward. Overall, Q3 was a solid quarter given current market conditions. Our future ready plan is on track. We are investing in innovation and making good progress against our long-term growth priorities. And we are doubling down on execution across every facet of our business. This is important as we expect the market to remain challenging in Q4. The macro situation is not improving as quickly as anticipated. And while we expect to deliver another quarter of sequential growth, We are moderating our expectations for Q4 and the full year, consistent with a revised market outlook. This outlook is largely driven by the continued aggressive pricing environment in PCs, sluggish demand in China, and enterprise demand after. Notwithstanding the actions we are taking to mitigate these headwinds, we believe it's proven to lower our outlook based on near-term market reality. Let me be clear. We will use this moment as an opportunity to double down on the things we can control. We have already begun identifying additional opportunities to further reduce our cost structure where we believe we can over-deliver on our cost-saving target. This is certainly not the first time We have had to adapt to market volatility. It's something we have been doing consistently over the past few years. We know how to manage the business through this situation. And we have a strong track record taking actions that protect our profitability and free cash flow, which is what you can continue to expect from us. And while we clearly have some additional work to do in the near term, we remain confident in our long-term trajectory. We have consistently said that progress won't always be linear, but we are focused on what we can control and driving discipline execution to unlock value. We will also continue to execute the capital allocation strategy we have shared previously. we are committed to returning 100% of free cash flow to shareholders over time unless opportunities with a better return on investment arise. And as long as our gross leverage ratio remains under two times EBITDA. I'm looking forward to seeing many of you in Palo Alto in October for our securities analyst meeting. As many of you know, This was an event we hosted each fall prior to 2020. We hosted it virtually in 2021, and it will be great to be back together in person. We will use the meeting to share more detail on the progress we are making against our future ready plan, including some of the opportunities we see to accelerate our digital transformation and structural cost reduction. We will also highlight exciting innovation across the HPE portfolio. And we will talk a lot about the significant long-term opportunities we see to deliver long-term sustainable growth and value creation. With that, let me stop here and turn the call over to Marie to discuss our results and outlook in more detail.