HP Inc.

Good day, everyone, and welcome to the first quarter 2024 HP Incorporated Earnings Conference Call. My name is Krista, and I'll 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 will now turn the call over to Arit Kinan Nahon, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's first quarter 2024 earnings conference call. With me today are Enrique Lores, HP's President and Chief Executive Officer, and Tim Brown, HP's Interim 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 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 all for joining today's call. Let me begin by saying it was a solid start to the year. We deliver non-GAAP operating profit and non-GAAP EPS growth year over year, and our future-ready plan is positioning us well to deliver on our long-term growth targets. I'm going to focus my remarks today on our first quarter performance, our progress against key strategic priorities, and our expectations for the market for the balance of 2024. I will then turn the call over to Tim for a deeper dive into our financials and outlook. Starting with our results, we are managing through a volatile external environment that continues to impact demand across our industry. This is reflected in our top line, with net revenue down 4% year over year. It's worth noting that the rate of revenue decline slowed for the third quarter, which we see as an encouraging sign of market stabilization. We continue to make progress in our key growth areas. We're maintaining our investments in a down market to strengthen our competitive position. And there are several bright spots this quarter. We grew revenue and market share year-over-year in gaming. Workforce Solutions delivered solid revenue growth and won several new accounts, including large global companies in the energy, retail, and telecommunication sectors. And we drove continued momentum in consumer subscriptions, with Instant Inc., delivering another quarter of revenue and net subscriber growth year over year. Alongside the progress we are making in our growth areas, we are also driving discipline execution across the business. Non-GAAP operating profit dollars grew 5% year over year, and we delivered 11% non-GAAP EPS growth, which was right at the midpoint of our last quarter's guide. This reflects our focus on managing our mix, reducing our costs, and maximizing operational efficiencies. And we remain well on track to deliver on our three-year gross annual run rate structural cost savings target of $1.6 billion by fiscal year 2025. Q1 was also a quarter of strong innovation across our portfolio. I'm particularly pleased with the progress we are making on the company-wide AI strategy we shared with you previously. As you will recall, we are focused on creating new product categories, expanding our digital services and solutions, and driving internal productivity. We took a big step forward this quarter at CES, where we launched our first laptops using Intel's new Core Ultra processors. This launch helped us to win over 100 innovation awards at CES. More importantly, this is just the start of what will be an exciting year for AI PC innovation, as we bring new products to market with our silicon and software partners in the coming quarters. Alongside the PC opportunity, we continue to develop new AI applications to run on top of our installed base of more than 200 million commercial devices. The best example of this is a workforce central platform we have discussed with you previously. We have since expanded and renamed the offering, which we now refer to as the HP Workforce Experience Platform. It integrates data and telemetry from our PC, printer, and poly devices into a single dashboard to improve productivity, security, and collaboration. And it is now available to all of our managed solution customers. We're also shifting more of our offerings to subscriptions in consumer segments. This week, we will be launching our HP all-in subscription plan, which we previewed with you at our Investor Day last October. For a monthly fee, consumers will receive a printer, ink delivery, premium 24x7 support, and an option to upgrade their hardware every two years. This has tested extremely well in our pilots, with customer satisfaction exceeding InstaNinks' already high scores. All of this gives us great momentum heading into our Amplify Partner Conference next week. Amplify is our largest channel event of the year, drawing our top 1,500 commercial resellers from around the world. We will have several of our top silicon and software partners with us to discuss the AIPC opportunity. And we will be launching a range of new innovations across personal systems, print, and workforce solutions. In addition to our innovation, I'm really excited about the work we are doing to elevate the HP brand. To lead this work, I am pleased that Antonio Lucio rejoined HP last month as our Chief Marketing and Corporate Affairs Officer. Antonio was our first CMO following the creation of HP Inc. in 2015. Under his leadership, we strengthened our reputation as one of the world's most trusted brands. and you will see us launching new brand campaigns that are globally scalable and locally relevant. For example, earlier this month, we announced a multi-year deal with Real Madrid Football Club. With millions of fans and more than half a billion followers on social media, Real Madrid is one of the most loved brands. And as the club's newest technology partner, we will be collaborating to create new fan experiences. We also recently announced our global collaboration with Riot Games, one of the world's top game developers, and we will be working with them to develop future gaming products, technical innovations, and co-branded marketing campaigns. Underpinning all of this, we are continuing to advance our sustainable impact strategy. which continues to drive innovation and help us to win new deals. I was proud to see HP ranked number 13 on this year's list of America's most just companies, from Just Capital and CNBC. This was our fifth straight year on the list and our highest ever ranking, up 34 spots year over year and putting us in the top 2% of companies measured. Let me now provide some additional color on our business unit performance. The external environment remains dynamic. In consumer, we anticipated a post-holiday slowdown, and this was a bit more pronounced than initially expected. Commercial customers remain cautious. While we saw signs of stabilization in the SMB and education markets, we saw a slowdown in U.S. enterprise and federal sales, especially in the month of January. We also continue to see demand weakness in China due to challenging economic conditions partially offset by strength in India. Personal systems net revenue was $8.8 billion in the quarter. That's down 4% year-over-year or 5% in constant currency, reflecting market dynamics and seasonality. Consistent with the industry estimates, we continue to expect the PC market to grow low single digits in 2024, and we expect to grow at least in line with the market. Our PS team continued to show resilience and operational rigor, delivering operating profit of 6.1%, which was solely within our long-term target range, though slightly below our expectations. Importantly, we once again gained PC share in calendar Q4, both year-over-year and quarter-over-quarter. This shows that HP innovation is winning in the market and we are winning in the right areas with a focus on high value segments such as premium workstations and gaming. PS services revenue was up year over year with strong growth in digital services. And while hybrid systems remains impacted by the current enterprise spending environment, we are investing in the portfolio for the eventual market recovery and long-term growth opportunity. Turning to print, net revenue was $4.4 billion. That's down 5% year over year, reflecting market headwinds. China's softness and the aggressive pricing environment. And I am pleased with the progress we are making on pricing and share gains in supplies. We continue to effectively manage our costs and mix between consumer and commercial with operating profit of 19.9%. We're also making progress on our efforts to regain profitable share. We gain share in big tanks, both year over year and sequentially. And we grow sequential share gains in office in parts of Europe, India, and China. We are also pleased with our progress in industrial graphics and 3D, both of which grew revenue year over year in Q1. We also saw continuous recovery in labels and packaging. And we are ramping up for Drupal in May. Held every four years, this is the world's largest printing event, where we will launch a range of new innovations to accelerate our momentum in the market. Consistent with the capital allocation strategy we have shared with you previously, we resume share repurchases in Q1, and we plan to remain active in the market for the remainder of the year. Let me now close by providing some insight into how we see the market for the balance of the year. Despite pockets of softness in Q1, we saw signs of improvement overall. While we expect the pace of recovery to be uneven across different segments, we remain confident in our ability to deliver on our full-year non-GAAP EPS and free cash flow targets. And as we said before, we expect performance in the second half of fiscal year 24 to be to be seasonally stronger than the first half. By remaining focused on things we can control and investing in our future, we have proven our ability to navigate current market dynamics while capitalizing on long-term growth opportunities. This is exactly what we did in Q1, and it's what you can expect from us moving forward as we drive progress against our future credit plan. I now want to introduce Tim Brown. As you know, he took over as our interim CFO in January. For those of you that don't know, Tim is one of HP's most successful and respected financial executives. He has over 30 years of HP experience, including a CFO of print and personal systems. and he is a steady hand on the wheel while we complete our CFO search process. Tim, thank you for your leadership. Over to you.