HP Inc.

Good day everyone and welcome to the third quarter 2024 HP, Inc. Earnings Conference Call. My name is Desiree 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 Arit Kinan Mahon, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's Third Quarter 2024 Earnings Conference Call. With me today are Enrique Loris, HP's President and Chief Executive Officer, Karen Parkhill, HP's Chief Financial Officer, and Tim Brown, who was the 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. Let me start by welcoming our new CFO, Karen Parkhill, who joined HP earlier this month. Her expertise and background are a great addition to our leadership team, and we are delighted to have her on board. And a big thank you to Tim Brown for stepping in as Interim CFO over the last three quarters. Today, I will cover our third quarter results, a few of the new innovative experiences we have introduced. how we are tracking against our strategic priorities and our expectations for Q4. Karen will provide additional details on our financials and outlook. Starting with our results, let me first focus on revenue. I am pleased to share we are building solid momentum. The company returned to revenue growth for the first time in nine quarters. up 2% year over year. This was driven by strong performance in personal systems and our key growth areas. Commercial PC recovery was strong, in line with our expectations, and a signal of ongoing market stabilization. That said, the recovery of the print market was slower than expected, which impacted print revenue. Non-GAAP operating profit was down 7%, and Non-GAAP EPS was within our previously provided outlook range, but below our expectations. We have been taking decisive actions to address this. We see an immediate opportunity to drive additional structural cost savings in Q4 as part of our Future Ready program. We are accelerating our plan raising our exit goal for fiscal year 24. We expect to reach 80% of the three-year structural cost framerate target by the end of this year. We will also keep executing our plan to strengthen momentum and drive long-term profitable growth. This includes investments in support of our growth businesses. And these combined efforts will help us win in the market drive profitable growth, and build a stronger HP. Turning to new innovations, Q3 was another strong quarter. We continue to deliver industry-leading experiences by putting our customers at the center of everything we do. In the AI PC category, we are charging ahead. Our next-gen AI PCs are empowering everyone from knowledge workers to data scientists to unlock the power of AI. In May, we launched our first generation using the latest Qualcomm processor. As the world's thinnest next-gen AI PCs with the longest battery life, they are made for mobility. And in July, we introduced a new premium model powered by the latest AMD processor. It is the most powerful AI PC in the industry, with up to 55 tops of NPU performance. It delivers personalized experiences like real-time translation, personal communication coaching, and quick professional video creation. And to help protect against AI-assisted cyberattacks, The new Omnibook Ultra includes the industry-leading protections and capabilities of HP Wolf Security. We are doing even more to raise the bar for data scientists and AI developers. Our HP AI Studio is the world's most comprehensive workstation solution for AI development. In Q3, we made it even stronger by being the first and only to build GenAI Trust into our solution. This means developers can more effectively detect, correct, and monitor inaccurate outputs from AI models, making it faster and safer for companies to deploy AI-powered applications. In Workforce Solutions, Our proprietary workforce experience platform is exceeding our expectations. Customers are now leveraging our AI capabilities to manage over 250,000 devices and growing. We also recently added several managed devices wins and deployments, including larger companies like Eaton. Our continued partnership with this global intelligent power management company will help support the IT journey in serving more than 90,000 employees around the world. We set a new standard for industrial printing at Drupal, introducing advanced digital presses and intelligent automation solutions. These included autonomous mobile robots that save up to two hours of production a day per press. We also enhanced our print OS platform, giving customers the ability to monitor their entire production floor from job submission to delivery. We were honored to take home more best of awards than any other exhibitor at the show. We also announced a new partnership with Canva. Their 185 million monthly users can now seamlessly design and create online, and print locally. We also secured major deals with print and digital industry leaders, like RR Donnelly, All4Labels and Simpress. We are excited about what's ahead. In September, we will host our second annual HP Imagine event. Here, we will unveil even more new experiences that help our customers drive growth and professional fulfillment. In Q3, we further invested in our long-term success. We acquired CyberCore Technologies, a leading provider of secure supply chain management and cyber solutions for the U.S. federal government. The addition of CyberCore to the H3 family will help further strengthen our security expertise and enhance our offerings. And just yesterday, we announced we have received a $50 million award from the U.S. Department of Commerce. This funding from the Chips and Science Act will help modernize and expand our microfluidics semiconductor fab in Corvallis, Oregon. It will also help us further explore the potential of our microfluidics technology in new areas such as life sciences. In Q3, we released our annual sustainable impact report, highlighting the important progress we have made. In 2023, our initiatives helped us reach a 27% reduction in value chain greenhouse gas emissions. We continue to roll out easily recyclable packaging created from recycled content. In 2023, we reached a 62% reduction in single-use plastic packaging. And our digital equity efforts have reached 45 million people since 2021. We know there is always more that can be done, but we are proud of our progress. And we are honored to be ranked first in our industry on Time Magazine's World's Most Sustainable Companies list. Now, let me share more details on the performance of each of our businesses in the third quarter. In personal systems, revenue was up 5% year over year, the second consecutive quarter of year over year growth. Operating profit was 6.4%, in line with our expectations. Globally, our PC share was flat year over year, but up 1.3 points quarter over quarter. This was driven by growth in high-value categories, including workstations and consumer premium. We continue to see strong progress in key growth areas, with revenue up year over year in personal system services and in hybrid systems, driven by strong demand for video collaboration. and we grew gaming revenue quarter over quarter in line with normal seasonality. We remain very excited about the AI PC's opportunity. Shipments are ramping and initial reactions are overwhelmingly positive. We have a strong portfolio with an unprecedented level of HP engineering. Our growing ecosystem of developers and AI software providers are a huge competitive advantage. Forbes declared HP won the AIPC crown, and they are right. Our focus is on delivering new AI experiences for our customers. Overall, our AIPC expectations across shipments, higher ASPs, and premium mix remains on track with our expectations for the second half. Shifting to print, net revenue was down 3% year over year. We delivered print operating profit of 17.3%, which was below our expectations. We saw a softer demand, unfavorable geo mix, and a more aggressive pricing environment. Even in this type of challenging environment, I expect us to do better. And as I said earlier, we are taking actions to accelerate our structural cost savings for this year. We have made progress on gaining profitable share with growth year over year and quarter over quarter in home and in office when excluding China. We gain share in our strategic areas, especially in big banks, A3 and A4 values. Key growth areas in print continue to make progress. Consumer services revenue and subscribers grew year over year. Industrial graphics did as well, and we have strong momentum coming out of Drupal. And supplies continue to perform as expected. Overall, we generated strong free cash flow of $1.3 billion in the quarter on return $0.9 billion to shareholders. We remain committed to our capital allocation strategy. Our Board of Directors encourages to increase the total share repurchase authorization to $10 billion. This reaffirms our commitment to deliver strong and sustained capital return to our shareholders. Looking forward to Q4, we expect the demand environment will remain dynamic and that our market will continue to be competitive. We expect the PC commercial momentum to continue and our key growth areas to make progress. At the same time, the competitive pricing environment will remain in Q4 and the print market recovery will continue to be slower. As a result, we decided to moderate our expectations for Q4 and the full year. We will maintain investments and progress in high value and key growth areas and accelerate our cost reduction plans. We are confident in our strategy and well equipped to drive meaningful progress as we round out fiscal year 24. Across our entire portfolio, leveraging AI, and enabling hybrid work experiences will remain central to creating solutions that deliver growth and fulfillment for all HP customers. I will pause here and turn it over to Karen.