HP Inc.

Good day, everyone, and welcome to the first quarter 2025 HP, Inc. Earnings Conference Call. My name is Regina, and I will 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 toward 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 Orit Pena-Nahon, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's first quarter 2025 earnings conference call. With me today are Enrique Lores, 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 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. 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 to everyone for joining today's call. Q1 was a strong start to the year. We delivered top-line revenue growth, increased momentum across our key growth areas, and maintained our focus on positioning HP for long-term success. Today, I will focus on three main areas. First, our Q1 results and key innovation highlights second a deeper dive on our business unit performance and finally i will share our outlook for the year ahead including the actions we are taking to respond to evolving market conditions while continuing to fuel our long-term growth let me now turn to our q1 results overall We delivered revenue growth for the third consecutive quarter up 2% year over year. This was largely driven by growth in our personal systems, commercial business, and key growth areas. Non-GAAP earnings per share of $0.74 was slightly above the midpoint of our guide. Operating profit margins for both print and personal systems were in line with our expectations. These results demonstrate our ability to deliver on our commitments and execute our strategy to build a stronger HP. Last quarter, I outlined our ambition to lead the future of Quark. We know companies need highly productive workforces to drive growth, and employees are seeking fulfillment in the work they do. With our robust portfolio of PCs, printers, peripherals, and more, we not only have a unique competitive advantage, but we sit at the intersection of these opportunities. I am pleased to report we are making solid progress against our strategy. We are doubling down on our efforts in the commercial segment and aggressively investing and innovating in new AI and software capabilities. As an example of that, we recently entered into an agreement to acquire strategic assets from Humane. Once completed, we will benefit from their AI-powered platform, Cosmos, highly skilled technical team, and hundreds of patents. With this acquisition, we will accelerate our plans to build an intelligent ecosystem across all HP devices, from AI PCs to smart printers and connected conference rooms. We look forward to boosting our technology and innovation organization by integrating the humane team to HP. We're also realigning our key growth areas to reflect the shift of our investment focus on the future of work. In addition to hybrid systems, workforce solutions, consumer subscriptions, industrial graphics and 3D, we are now including AI PCs and advanced compute solutions, such as workstations and retail solutions. Gaming will no longer be one of the key growth areas, and will instead be managed as part of our core portfolio, because even though it will continue to be a very important business for us, it is not directly related to the future of work. Collectively, we expect these realigned key growth areas to continue to grow faster than the core and to be accretive to our margins over time. Turning to our innovation highlights. In Q1, our vision for the future of work was brought to life at CES with AI-powered innovations. For example, we announced several new models of AI PCs. We are empowering professionals with faster decision-making and effective collaboration with the EliteBook Ultra. Adapting to how and where people work best, our EliteBook X offers flexibility and enhanced security protection. And these new PCs now bring HP's award-winning AI companion to our Intel platforms. And for product designers and data scientists, the ZBook Ultra, recognized with the best laptop award at CES, can help manage complex projects and data sets with ease. We are strengthening the end-to-end experience of hybrid workers with Thunderbolt Docks. With a quick connect docking experience, employees are instantly connected to their workspace before they even sit down at their desk. In gaming, we introduced OMEN AI Beta, a groundbreaking software innovation that automatically adjusts or optimizes performance. Our customer-centric approach also extends our print innovation. To meet the growing demand for convenience, we recently added Mark Tank printers to our HP all-in subscription plans. This all-inclusive print program has strongly resonated with our customers. In industrial, We're empowering print providers with new equipment and capabilities. With the introduction of two game-changing HP page-wide presses, we are delivering high-speed, high-quality print production. As we continue to innovate, we remain committed to technology that fosters connection, improves access, and supports sustainability. In 2024, HP reached nearly 20 million people through digital equity programs and partnerships. And I am proud to share earlier this month, HP jumped to the number two spot on America's most just companies list. Our progress was driven in large part by how we invest in our employees, support our communities, and treat our customers. who were recognized as the leader in our industry for all three. In a few weeks, we will host Amplify, our flagship conference to engage with customers and partners. This event provides an opportunity to share our vision and the progress we have made, including how we are delivering AI-powered innovation and technology experiences. This past quarter, HP led the way in shaping the future of work, thanks to the dedication of our talented team. And I want to take the opportunity to thank all of them. Let me now turn to personal assistance performance for the quarter. Revenue was up 5% year over year, with commercial continuing to power the growth more than offsetting a declining consumer and continued softness in China. We drove share gains in the PC commercial Windows market, particularly in high value categories, such as commercial premiums. However, we lost sharing consumer with units down year over year. While our strategy is not to gain share for the sake of gaining share, you should expect us to improve our performance through the year in this segment, especially in the premium category. Worldwide PC commercial revenue grew 10% year over year, fueled in part by the growing adoption of AI PCs and the positive impact of the Windows 11 refresh cycle. The AI PC market experienced remarkable momentum achieving a sequential growth rate of 25% in calendar quarter four, and we continued to gain share in this market. We believe the refresh cycle combined with an increasing mix of AIPCs will further propel our commercial growth through fiscal year 2025 and beyond. Internally, we are empowering our teams with enhanced AI tools. Going forward, All new PCs we purchase will be AI PCs, giving our teams greater insights and helping them better address customer needs. In our growth areas, hybrid systems, advanced compute and AI PCs delivered strong performance with revenue up year over year. We believe there is more opportunity here and will continue to prioritize investments in these categories. Shifting to print, we saw strong unit growth and share gains in home and specifically big tanks. In office, we maintain our share overall and importantly gain share in our strategic area, A4 value and A3. We continue to see a competitive price in marketing office and weak demand in China. that will continue to push us to improve our operational execution. For the print business, revenue declined 1% in constant currency year over year, in line with our expectations. In growth areas, consumer subscription revenue and subscribers grew year over year. This quarter, we achieved a milestone of 1 million instant paper subscribers. with double-digit revenue growth. And we continue to drive revenue growth in industrial graphics. In workforce solutions, momentum continues with revenue growth year over year. We had several new managed print wins during the quarter, including Prime Healthcare. This new customer in a growing industry enables us to support the IT journey covering 44 hospitals, and more than 45,000 employees. And we saw notable wins in managed device services in multiple verticals, which include automotive, industrial, banking, agriculture, and pharmaceuticals in multiple geographies. The range of deals demonstrates our ability to close and manage diverse customer deals around the globe. Before I close, it's important that I take a moment to share the efforts underway to address the evolving external environment. We have been tracking geopolitical developments and are well prepared to respond to these shifting dynamics. Over the past few years, we have taken proactive measures to ensure manufacturing resiliency. We have built a globally diverse supply chain. And we are continuing to expand our footprint across multiple countries to meet growing customer demand and bolster multi-source production. We have made significant progress. And by the end of fiscal year 2025, we expect more than 90% of HP products sold in North America will be built outside of China. will continue to be an important manufacturing hub for the rest of the world. As we look ahead, we are managing the current tariff increases on China and have included them in our outlook. Should additional tariffs be implemented, we would manage them the same way we have with China, leveraging the flexibility of our global supply chain network along with cost improvements and pricing actions as needed. Depending on the scope, while some of our mitigating actions can take a few months lead time, we would be focused on fully offsetting overtime. During the first two years of our Future Ready plan, we have made excellent progress across process efficiency, automation, portfolio optimization, and operational excellence. This has given us visibility into additional opportunities aligned to our future of work strategy. There is even more we can do to reduce our structural costs, and we now plan to deliver $1.9 billion in gross annual run rate structural savings by the end of fiscal year 25. These incremental structural savings will help mitigate macro and geopolitical uncertainty while continuing to support investments in strategic areas. Karen will share more details about this shortly. I will close by reiterating our confidence in our full-year outlook and our ability to deliver on our strategy to lead the future of work. As demonstrated in Q1, We have continued to build strong momentum while taking the measures necessary to mitigate risks, navigate policy changes, and importantly, invest in our long-term growth. Let me now turn it over to Karen.