HP Inc.

Good day, everyone, and welcome to the second quarter 2024 HP Incorporated Earnings Conference Call. My name is Eric, 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 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 Ori Keenan-Nahan, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's second quarter 2024 earnings conference call. With me today are Enrique Loris, 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 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 all for joining today's call. When we started the fiscal year, we committed to very specific goals. Drive profitable growth in our core, accelerating key growth areas, and deliver operational efficiency. I am pleased to say we accomplished this and delivered a solid quarter and first half. The focus of our teams and actions we have taken continue to drive results and build momentum. We delivered non-GAAP operating profit and non-GAAP EPS growth on a sequential and year-over-year basis. We made good progress against our future-ready plan, and we continue to invest in innovative technologies with a strong emphasis on AI and hybrid. Today, I will cover our second quarter results, including the recovery we are starting to see in commercial PCs. Progress against our strategic priorities, key innovations we are bringing to market, and our expectations for the remainder of fiscal year 2024. Then I will turn the call over to Tim for a deeper dive into our financials and outlook. I will start with our results. We continue to navigate well dynamic and competitive environment. While our net revenue was down 1%, the rate of decline slowed for the fourth third quarter. Personal systems also returned to growth for the first time in eight quarters. This is a good indicator of overall market stabilization and solid execution. Non-GAAP operating profit grew 2% and non-GAAP EPS was up 4% year-over-year, which was slightly above the midpoint of our last quarter's guide. In terms of new innovations, Q2 was one of our most significant quarters. At our Amplify partner conference in March, we showcased over 100 AI-enabled solutions redefining productivity and collaboration. This event is our largest annual channel conference attracting over 1,500 of our top partners from 95 countries. It inspired our partners and will help us to drive long-term sustained growth. Let me share some of the key innovations we announced. For the more than half a million data scientists who are using our workstation solutions to create AI models that improve company workflows, we had a lot to share. We announced the HP AI Creation Center, the world's most comprehensive workstation solutions for AI development. And we unveiled a strategic collaboration with NVIDIA to integrate their pre-trained models and software into our AI Studio set of tools. They will allow customers to access share, and edit their data science workflows more easily from anywhere. At the same time, we launched the industry's largest portfolio of AI PCs, the first to deliver the benefits of running AI locally on the device for improved performance, efficiency, and privacy. In print, we shared how AI will unlock opportunities to make printing smarter, more efficient, and more personalized. And we unveiled our new color laser jet series optimized for small and medium businesses. We also stepped up in our key growth areas. In hybrid systems, we expanded our portfolio of room solutions with a Poly Studio 360-degree camera enabling more immersive meeting experiences. In Workforce Solutions, we introduced an enhanced workforce experience platform, providing CIOs with an AI-enabled digital experience to unlock the full potential of their teams. In addition, we are enabling our partners and sales teams to capitalize on the AI opportunity. We have introduced the industry's first-ever role-based AI master class training and certification program. Doubling down on our momentum, last week at the Microsoft Co-Pilot Plus PC event, we introduced the world's most powerful ultra-mobile next-gen AI PCs. Designed from the ground up, they enable on-the-go leaders and freelancers to harness the most powerful AI technologies available. We also showcase our new AI Helix logo that helps you easily identify and select this new category of devices. Initial reaction has been overwhelmingly positive, with our next-gen devices being recognized as some of the most premium announced and having beyond cutting-edge hardware. We are already helping customers unlock tangible value from their AI PCs. For example, collaborating with Deloitte Consulting, together we have created an on-device assistant to drive efficiency around common IT support challenges. The solution has the potential to return close to 100,000 hours of productivity to their practitioners. This is a powerful example of the positive impact of AI PCs. One of HP's most important assets is the strength of our brand, and we continue to invest in it to build even greater value. This quarter, we announced a historic title partnership with Scuderia Ferrari. This is an opportunity to elevate our brand and reach new audiences and geographies. particularly younger and premium customers. It also improves the effectiveness and efficiency of our marketing spend. And we are excited to work with Scuderia Ferrari, leveraging the latest HP innovations to help them drive their competitive advantage. HP is a trusted brand. We are a company that stands for more than just the products we make. For the fifth year in a row, HP has earned a triple A rating from CDP. Next month, we will release our annual sustainable impact report, outlining the progress we are making towards our climate action, human rights, and digital equity goals. Let me now share in more detail what we saw in each of our businesses in Q2. In personal systems, We executed our strategy, driving both revenue growth and increasing profitability year over year. The PS revenue was $8.4 billion. That's up 3% year over year, driven mainly by market growth and signs of commercial recovery. Our PS operating profit was 6%, in line with our expectations and solidly within our long-term target range. Our teams continue to show their focus by driving profitable PC share in calendar Q1 in high-value categories like commercial premium and mobile workstations. Importantly, we continue to invest and grow in high-value and key growth areas. In gaming, we grew revenue year-over-year again this quarter. PS Services was up with strong growth in managed services. And in hybrid systems, we saw signs of recovery. Here we drove sequential growth and strong performance in video collaboration. We remain confident that this evolving market will be a long-term growth opportunity. In the second half, We expect to see the introduction of AI PCs accelerate demand over and above the anticipated PC refresh cycle and Windows 11 rollout. We believe the AI opportunity in front of us will help drive higher ASPs and premium mix. We have a comprehensive portfolio of AI-enabled devices from consumer, commercial, gaming, accessories, room solutions, to advance workstation solutions. We're innovating beyond hardware with software and security solutions like HP AI Companion and HP WoS Security that uses deep learning, behavior analysis, and AI-based protection against malware and deep fakes. With a rich history and proven track record of integrating meaningful AI technologies such as noise removal and gesture controls, together with our strong innovation pipeline, we are well positioned to capture the opportunity and lead the industry. Turning to print, results were in line with what we expected. Revenue was $4.4 billion, down 8% year-over-year and flat quarter-over-quarter. We continue to see soft demand, particularly in China and some parts of Europe. The pricing environment remains competitive in consumer with intensifying pressure in commercial. We continue to make progress on pricing and share gains in supplies with revenue results as expected. We delivered print operating profit of 19% in line with our guidance. Once again, we demonstrated disciplined cost management in proof makes and the benefits of the strong innovations we have brought to market. Our focus in print remains on regaining profitable share, and we are making progress. We grew share quarter over quarter in home and in office. Importantly, we gained share year over year and sequentially in big tanks and business Inc. We also grew in key growth areas like consumer services. We saw growth in revenue and in subscriber numbers across instant ink and our new all-in plans. In industrial graphics, we continue to accelerate the adoption of digital technologies. In Q2, we grew year over year and for the third straight quarter. We also expanded our portfolio, adding new end-to-end automation processes leveraging AI and robotics. These are on full display right now at Drupal 2024, the largest trade fair for the printing and graphics industry worldwide. 3D continues to be impacted by elongated purchasing cycles in Q2, reflecting constraints on capital spending. The decline in hardware was partially offset by growth in services and supplies. Overall, in Q2, we made good progress against our future-ready strategy. We continue to execute according to plan, and we are on track to deliver on our three-year annual gross brand rate structural cost savings target of $1.6 billion by the end of fiscal year 2025. We remain committed to our capital allocation strategy and expect to return approximately 100% of our free cash flow to shareholders in fiscal year 2024 and over time, as long as our gross leverage ratio remains below two times and unless higher ROI opportunities arise. Looking forward to Q3 and the second half of fiscal year 24, We expect the demand environment will remain dynamic and that our market will continue to be very competitive. That said, we're encouraged by the progress we have made delivering a solid first half, and we expect a stronger second half. The anticipated commercial PC refresh, as well as early gains from the AIPC, together with our plans to gain share in print, gives us confidence we are well positioned to drive growth in our core businesses. At the same time, we see significant opportunities to accelerate in our key growth areas. As you have seen repeatedly, we are delivering to expectations and will continue to maintain our focus as we enter the second half. We remain confident in our strategy and will continue to execute on our plan. Let me now turn it over to Tim.