HP Inc.

Good day everyone and welcome to the fourth quarter 2024 HPE earnings conference call. My name is Lisa 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 this 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 Orit Keenan-Anhon, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's fourth quarter 2024 earnings conference call. With me today are Enrique Loris, HP's President and Chief Executive Officer, and Karen Parkhill, 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 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. and market share references are based on calendar quarter information. 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. Today we will cover our Q4 performance and 2024 full year results. We will also discuss expectations for the year ahead and how we are sharpening our strategic focus to lead the future of work. Let's start with our Q4 results. For the second consecutive quarter, revenue was up 2% year over year. Both personal systems and print demonstrated steady progress. In personal systems, commercial units and share gains were strong contributors to revenue growth. In print, we drove revenue growth for the first time since fiscal year 21. Our growth businesses also performed well, significantly contributing to our growth in the quarter. Non-GAAP EPS grew 3% to $0.93 in line with outlook. We accelerated our future-ready structural cost-saving plans while continuing to invest in our growth businesses. In short, we did what we said we would do. Q4 also capped off an exceptional year of innovation. At our annual HP Imagine event in September, We showcase breakthrough experiences and platforms with new AI-powered capabilities. Our expanded AI PC portfolio is now equipped with HP AI Companion, a bespoke application. The app uses generative AI to help analyze private files, create content, or respond quickly to key tasks. Through partnerships with a growing number of software companies, we are bringing to life even more experiences for our customers. For example, we are collaborating with Zoom to power AI Companion with on-device capabilities that can streamline meeting preparation, quickly locate relevant documents, and automating key tasks based on in-meeting decisions. These types of experiences illustrate how powerful next-gen AI compute will be in the workforce. We also launched HP Boost, a solution that allows data scientists and AI developers to share GPUs remotely. And we continue to enhance our workforce experience platform, adding the ability to monitor and manage printers and integrating popular business applications from Microsoft and ServiceNow. Our recent acquisition of IOPTA, a provider of collaboration management solutions, will strengthen the platform. It will offer customers comprehensive control over their digital ecosystems from a single dashboard. In the AI PC category, we continue to lead with performance and security. We are delivering powerful experiences, industry-leading battery life, and flexible form factors. Building on our consumer launches last quarter, we introduced the most powerful next-gen AI business notebook. The EliteBook X is ideal for tech experts and business consultants who run large applications for analysis. by an industry-leading 55 tops of MPU performance. At the same time, it offers AI-enhanced protection to secure the most sensitive data. Freelancers and creators can also power their work with the Omnibook Ultra Flip, our first two-in-one AI PC. With it, they have the ability to design with AI whether sketching, editing, or collaborating. And with the power of HP Wolf Security, they can keep data secure and protected. Beyond the PC, we showed how we are making printing smarter with HP Print AI. It is the industry's first AI-powered intelligent print experience that simplifies and enhances printing. The perfect output feature uses AI to deliver the perfect print, solving universal frustrations like spreadsheet and tables printing over multiple pages. Our innovations this quarter underscore our commitment to delivering impactful, customer-driven solutions to define the future of work. Before I continue, I want to take a moment to acknowledge the incredible teams across HP delivering these experiences. Your commitment to innovate for our customers, partners, and the planet is inspiring. Let me now turn to business unit performance. For the third consecutive quarter, revenue in personal systems was up year over year with 2% growth driven by strength in commercial. We saw continued pressure on commodity cost, which impacted operating profit. And we will continue to take actions on pricing and cost to mitigate this over time. We saw gains in worldwide PC market share year over year, particularly in high-value categories, including commercial and consumer premiums. We believe There is more opportunity here, and we will continue to prioritize these categories. AI PC units this quarter were more than 15% of our shipments. In fact, as recently published by Canalys, we have the number one market share of AI PCs in the Windows ecosystem, and we intend to maintain this position. Looking ahead, the power of AI coupled with the strength of our portfolio will enable us to deliver new levels of efficiency and security critical to the future of work. We expect AI PC penetration to continue to further strengthen our commercial leadership. And since the Windows 11 refresh has ramped lower than previous industry transitions, We expect to see the impact of the upgrade to be more pronounced in 2025. In the growth areas, hybrid systems and PS services deliver strong performance with revenue up year over year. And we grew gaming revenue quarter over quarter in line with normal seasonality. Turning to print, revenue grew 1% year over year. The increase was fueled by strong performance in supplies and industrial graphics, offset in part by a competitive pricing environment. In both home and office, we gained share year over year. In home, we continue to gain share across all categories, especially in big tanks. And we delivered on our commitment to regain share in office. In growth areas, consumer services and industrial perform strongly with revenue growth year over year. We believe sustainability is core to our long-term growth, and we continue to operate with a sense of purpose and intentionality. For example, in Q4, our HP Renew Solutions team received industry recognition for making it easier for customers to purchase high-performing pre-forbished hardware. We were also recognized on Newsweek's World's Most Trustworthy Companies list. Let me now talk about the full year performance. Revenue was flat year over year, and non-GAAP EPS grew 3%. While the market recovery was slow, especially in the first half, We had a strong second half recovery with positive momentum going into the new fiscal year. We are pleased with our key growth areas, which collectively grew faster than the rest of the portfolio and drove approximately 20% of our total company revenue for the year. We generated strong free cash flow aligned with our annual guidance. We return nearly 100% of our free cash flow to shareholders in line with our long-term commitment. Over the past year, we have continued to drive solid progress with our future-ready strategy. We said we would invest in innovation, focusing our portfolio on growth and integrating new AI capabilities. And we have done that. We have successfully implemented new business models as we shifted more offerings to subscriptions and solutions, increasing value per customer. We told you we were continuing to improve our operational capabilities. Here, we have taken steps to ensure a more resilient supply chain, improve our order-to-delivery time, and reduce customer call time using AI. Overall, fiscal year 24 was a year of steady progress. We know our plans are working, and we are well positioned to capitalize on new opportunities that drive sustained growth. We are looking ahead with a clear focus on leading the future of work. With the proliferation of AI and flexible work, customer expectations have continued to evolve. Employers want to drive growth while employees are seeking professional fulfillment. At this intersection is an attractive opportunity for HP. With our powerful portfolio of solutions and the right team in place, we believe we have what it takes to lead the next era. Here is how. First, we are investing and innovating aggressively in new AI-powered capabilities and software. We will focus on delivering a cutting-edge AI-powered tech stack. This is an exciting shift for our customers everywhere. It will provide them with new insights and automation, personalized experiences, and foster team collaboration. Our recently established technology and innovation organization, DIO, brings together all our software resources into a single team. The TIO will accelerate our move from a transactional hardware company to a more experience-led organization. Second, we are leveraging the power of our portfolio to capture growth opportunities in commercial and solution. Commercial segments are growing faster than consumer segments. and we are prioritizing accordingly. In personal systems, for example, commercial TAM is expected to grow three times faster than consumer. And in print, contractual office and industrial TAM are expected to perform better than consumer and transactional office. Thirdly, we are maintaining our focus on capturing profitable growth in premium consumer and gaming. For example, we are taking measures to increase growth in consumer services, building on the success of programs like our HP all-in subscription plans. And in operations, we will continue to evolve our supply chain capabilities to support our future of work strategy, while ensuring supply chain resiliency end-to-end process automation, and continuous improvement in our cost structure. Looking forward to fiscal year 25, we assume that the PC market will grow faster than in fiscal year 24, fueled by multiple catalysts for refresh, including AI. And we expect the print market to decline low single digits. We expect revenue for both personal systems and print to perform at least in line with the respective market. We have significant opportunities to accelerate in our key growth areas, especially in commercial, where the market is growing faster than consumer. We also remain committed to returning approximately 100% of free cash flow over time, unless opportunities with a higher return on investment arise, and as long as our gross leverage ratio remains under two times EBITDA. We are confident our strategic focus and operational capabilities will enable us to deliver solid growth in fiscal year 25 across revenue, non-GAAP earnings and EPS, and free cash flow. I will pause here and turn it over to Karen.