HP Inc.

Good day, everyone, and welcome to the second quarter 2025 HP Incorporated earnings conference call. My name is Tina, and I will be your conference moderator for today's call. At this time, all participant lines will be in a 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 star, 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 Kina Nahon, Head of Investor Relations.

Please go ahead. Good afternoon, everyone, and welcome to HP's second 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. Against the backdrop of a highly dynamic landscape, we delivered another quarter of solid top line growth driven by continued momentum in the personal systems commercial business. However, due to additional tariff costs that could not be fully mitigated in the quarter, our non-GAAP operating profit fell short of expectations. Today, we will take a deeper dive into Q2 performance, the evolving external environment, and our outlook. I will also highlight new innovations we introduced to drive our momentum forward. Let me start with our Q2 results. Overall, we delivered revenue growth for the fourth consecutive quarter. with a 5% increase in constant currency year over year. We saw strong growth in personal assistance, particularly in commercial and high-value categories, driving momentum in our key growth areas. These meaningful results show that our future of work strategy is working. Nonetheless, the rapidly changing external landscape including shifting trade policies and additional tariffs, had a net impact of approximately 100 basis points on our non-GAAP operating profit, mainly in April and primarily impacting personal assistance. This resulted in a roughly 12 cent impact on our non-GAAP earnings per share. By net impact, we are referring to all tariff-related impacts after taking into account the mitigation actions. We swiftly responded to these changing market dynamics and were able to partially offset them in the quarter through cost actions, pricing, and accelerating the transition of our manufacturing footprint. We continue to diversify our manufacturing locations so that we can best respond to geopolitical changes with agility. We have expanded our manufacturing footprint for both PCs and printers to different locations. And we recently increased our production coming from Vietnam, Thailand, India, Mexico, and the US. By the end of June, we now expect nearly all of our products sold in North America will be built outside of China, significantly accelerating our previous plan. However, it takes time and investment to fully mitigate such impacts. Let me now share more color on our business unit performance. In personal systems, revenue grew 8% in constant currency, above our expectations, driven by strong commercial performance. PC commercial revenue grew 9% year over year, including strong growth in North America and Asia. As expected, we saw continued strength in AI PC demand and the Windows 11 refresh, and we believe that momentum will carry forward. We drove share games year over year in commercial PC, particularly in premium, workstations, AI PCs, and gaming. We drove growth in services, with several new wins in healthcare, financial services, and retail. Personal systems operating margin came in below our guidance, largely due to higher tariffs that were not fully offset by our actions in the quarter. We expect to successfully mitigate this cost and return to our long-term target range of 5% to 7% next quarter. In print, revenue declined 3% in constant currency, in line with our expectations. We saw revenue growth across home and office in Europe, helping to offset a slowdown in North America and continued weak demand in China. And we continued to drive momentum in home, with units up 2%, fueled by strong big tank growth. We grew share year over year in developed markets, optimizing profitable share, mainly in Office A4 value and A3. In our key growth areas for print, we saw continued growth in consumer subscriptions and workforce solutions. And we drove another quarter of growth in industrial graphics, supported by the portfolio launched at Drupal confirming the high adoption of our new product introductions. Our focus remains on what we can control, executing with discipline, supporting our customers, and making strategic decisions that position HP for the long term. Now let's turn to the significant strides we made in innovation. This quarter, we advanced our strategy to lead the future of work by delivering experiences that help businesses grow and employees find greater professional fulfillment. At our global Amplify conference in March, we deepened relationships with over 1,100 partners and customers. We unveiled more than 80 new products and services, and the positive reactions from attendees reaffirmed our direction. A key highlight was the global rollout of the HP Workforce Experience Platform. Combining AI with real-time insights, this software solution enables CIOs to boost productivity and address issues before they disrupt work. Feedback from our early adopters has been incredibly positive, highlighting the platform's impact on workplace efficiency and its role in improving employee satisfaction. To accelerate the adoption of AI and bring its benefits to the mainstream, we introduced one of the most comprehensive AI PC portfolios in the industry. This portfolio features the redesigned HP EliteBook and EliteDesk engineered to help people work smarter and faster while keeping their data secure. To enhance advanced workflows for data scientists and AI developers, we teamed up with NVIDIA to launch the HP ZGX AI station, a high-performance workstation powered by Blackwell and designed to accelerate productivity and enhance security. In print, we are leading the way in security with our new laserjet enterprise devices the first printers in the world designed to guard against quantum computer attacks and our industrial printing received five prestigious european digital press awards recognizing our bold vision to lead the industry for automation productivity and sustainability in april We brought our latest generation of latest technology to life, engineered to simplify production and optimize printing processes. Paired with our print hub software, print shops can now drive greater efficiency and control from a single platform. This innovation played a pivotal role in our recent collaboration with Scuderia Ferrari, where we co-engineered a high-performance car wrap that's up to 14% lighter and 17% thinner, translating breakthrough technology into real-world speed. The advancements across our entire portfolio this quarter demonstrate our leadership in creating a secure and powerful AI stack that connects devices, data, and workflows to drive meaningful productivity. In Q2, we acted quickly to address tariff-related headwinds, taking decisive steps like accelerating our manufacturing rebalancing, redesigning our logistics network, shifting sourcing and qualifying new product configurations. These efforts both strengthened our operational agility and laid the foundation for continued resilience. We will carry this momentum into Q3 and Q4 as we further reinforce our supply chain and operational capabilities. Additionally, we have implemented price increases to help offset cost pressures. While these decisions are never taken lightly, they are essential to maintaining our financial discipline. Looking ahead, the remainder of fiscal 2025 will be shaped by a range of factors, some of which remain uncertain. We have planned for today's tariff landscape, and if it changes, we will respond swiftly as we did in Q2. We continue to expect the PC market will grow in 2025, but softer than originally planned, driven by increased macro uncertainty. That said, We remain confident in our ability to grow faster than the market and gain share. In print, we continue to expect the market to decline low single digits for calendar year 2025. We expect the actions we are taking to gain full traction in the second half, leading to sequential operating profit improvements. We are making progress with execution of the future ready accelerated plan that we announced last quarter. And we are now expecting to exceed our goal and deliver at least $2 billion in gross annual run rate structural savings by the end of fiscal year 25. This incremental structural savings will help mitigate macro and geopolitical uncertainties while continuing to support investments in strategic areas. We are confident in our ability to navigate an evolving market. We have always excelled in managing complex environments. We have an incredible team capable of optimizing processes, implementing best practices, and achieving global efficiency. As we move forward, We remain committed to delivering sustainable growth and creating long-term value for our shareholders. Our focus on harnessing the power of AI to make work more personal, productive, and fulfilling will drive our success now and into the future. Let me now hand it over to Karen.