HP Inc.

market than it was during the last memory cycle. Over a third of the PS gross profit comes from services and peripherals. We expect to mitigate the impact of these cost headwinds in the first half of our fiscal year with our inventory on hand and a set of actions across our portfolio and basket of commodities. For the second half of the year, we expect personal system margins to be impacted. Therefore, we are taking a prudent approach to our guide while implementing aggressive actions to mitigate this. They include qualifying lower-cost suppliers and redesigning the portfolio for reduced memory configurations, accelerating our AI-enabled transformation to drive further cost savings, and raising prices in close partnerships with our channel and direct customers. From a supply perspective, we are in a good position due to our strong relationships and long-term contracts with key suppliers. Moving to fiscal year 26, our plan is built on four pillars. First, in personal systems, we expect the revenue market to be up low single digit with Windows 11 refresh, AI PCs, and pricing as catalyst. We also expect to see a positive impact from the growth of premium devices, including workstations, and an increase of attached rate from services and peripherals. Our goal is to perform better than market. Second, in print, We expect to grow slightly faster than industry projections of low single digit market decline. We intend to take share by doubling down on big tanks. We are increasing our marketing investments, driving new product and solution introductions, and expanding globally our successful all-in subscription offering. We also intend to grow share in office with new products and solutions designed for SMB and enterprise customers, reinforcing HP's leadership in manageability, security, and AI. And we intend to strengthen our leadership in 3D printing and further build on the momentum from labels and packaging to maintain our lead in industrial printing. Third, in workforce solutions, We are focused on growing recovering revenue by expanding our software, security, and services businesses. We are also scaling our workforce experience platform in key verticals, building on the strong momentum generated in fiscal 25. Fourth, driving an improved cost structure remains a top priority. We have demonstrated our ability to execute major transformations as part of our future ready program over delivering on our initial expectations. And as we look ahead, we see a significant opportunity to embed AI into HP to accelerate product innovation, improve customer satisfaction, and boost productivity. We have launched a company-wide program led by an executive reporting directly to me. And we have a line of sight to drive approximately $1 billion of gross front-rate savings over three years across product development, customer service and support, and many of our operational processes. This will result in workforce reductions of 4,000 to 6,000 people over the next year. These are some of the most difficult decisions we need to make, and we are committed to treating our colleagues with care and respect. We are planning to hold our Investor Day on April 23rd, where we will share the full plan on how AI is transforming HP. We remain confident in our ability to lead the future of work through technology. With a clear strategy and discipline execution, we are focused on driving long-term value while managing short-term headwinds. I will now turn it over to Karen.

Thank you, Enrique, and good afternoon, everyone. We are pleased with our results in Q4, delivering another quarter of solid performance to close out the fiscal year. Our teams executed well driving better than expected top line growth fueled by continued momentum and personal systems and in our key growth areas. We delivered operating margins within our expected ranges for both businesses and non gap EPS slightly above the midpoint of our guidance range underscoring our ability to meet or exceed our financial commitments. We are also proud of the results we delivered with our multi-year future ready cost plan. We surpassed our original $1.4 billion savings target, ultimately delivering $2.2 billion in cumulative gross annualized savings. And on $1.2 billion of restructuring spend, we delivered a savings to charge ratio of almost 1.8 times, well above our initially projected ratio of 1.4 times. On the quarter, we delivered revenue growth of 4% year-over-year, both nominally and in constant currency. In constant currency, EMEA grew 6% and APJ was up 9% on strong personal systems performance. America's revenue is flat in constant currency, reflecting demand softness in North America, particularly in commercial. Our gross margin at 20.2% was impacted by a higher mix from personal systems and increased trade-related costs, which we partly offset with pricing actions and cost reduction. Contributions from our Future Ready Cost Program and continued strong expense management drove operating expenses down as a percent of revenue year over year. These efforts also enabled our investment in key strategic and go-to-market initiatives aligned with our Future of Work strategy. All in, our non-GAAP operating margin was 8%, down year over year, but improving almost one point sequentially, in line with our expectations. And our non-GAAP diluted net earnings per share was 93 cents, representing a sequential increase of 24%. Now let's turn to segment performance. We delivered better than expected top line growth in personal systems. with revenue up 8% on increased ASPs and 7% unit growth. We outperformed the market in both consumer and commercial and continued to shift mix toward premium categories while maintaining disciplined pricing to help mitigate cost increases. Key growth areas performed well, including in AIPCs where we doubled revenue year over year. In commercial, we drove revenue in units up 7% on continued momentum from Win 11 Refresh and AIPC adoption. We also delivered strong performance in consumer, growing revenue 10% on 8% unit growth. We drove higher ASPs and share gains in consumer premium, in line with our strategy to rebalance our portfolio to a more profitable mix. And with holiday seasonality in consumer, we delivered revenue and unit growth of 17% sequentially. As we had signaled, the actions we started earlier in the year to leverage supply chain flexibility, reduce costs, and maintain pricing discipline gained traction in the second half. As a result, we drove sequential improvement in our PS operating margins, reaching 5.8% in Q4, in line with our guidance. In print, Our results reflect a pricing environment that remains competitive despite higher industry costs and continued market softness globally as customers delay printer hardware refresh decisions. Against this backdrop, we continue to focus on profitable long-term unit placement, increasing lifetime value per customer, and cost reduction actions. We also drove solid growth in key growth areas in the quarter. Looking at the details, print revenue declined 4% on lower supplies volume and market-driven hardware declines in both consumer and commercial. Consumer revenue was down 9% year-over-year and commercial revenue down 4% as higher ASPs were offset by lower volumes. Supplies performed as expected, down 3% year-over-year in constant currency. We continue to drive market share gains with favorable pricing that partially offset installed base and usage headwinds. For the year, supplies revenue declined 2% in constant currency, in line with our long-term range. And we delivered operating margin of 18.9%, in line with our guidance and at the top end of our range. Now let me move to cash flow and capital allocation. We generated $1.6 billion in cash from operations and roughly $1.5 billion in free cash flow on the strength of the sequential growth in personal systems. Free cash flow for the fiscal year was $2.9 billion, consistent with our outlook, and we improved our cash conversion cycle quarter over quarter, driving days payable up through higher manufacturing activity. On capital allocation, we remain committed to returning approximately 100% of our free cash flow to shareholders as long as our gross leverage remains below two times and there aren't better return opportunities. In Q4, we returned close to $800 million to shareholders through both dividends and share repurchase and returned more than $1.9 billion for the fiscal year. While we finished the quarter slightly above our target leverage ratio, we increased our cash balances, reserving sufficient funds to pay down 2026 debt maturities, which enabled us to buy back shares in the quarter. And if needed, as we move through the year, we can operate with higher cash balances in fiscal 26 to further reduce leverage with maturities in fiscal 27. Our Q4 and FY25 results reflect strong execution against challenging trade dynamics, with continued sequential improvement as promised in the back half of the year. Looking ahead, our guidance reflects the increasing inflationary pressures predicted for memory costs, which we expect at this point to have an impact as we move into the back half of our fiscal year. That said, we have a proven track record of managing challenges. and this one will be no different. We are prudently including these pressures in our outlook, yet we remain confident in the strength of our organization and partnerships we've built with our suppliers to deliver the best possible outcome for our shareholders. We are also continuing to invest in driving transformation within the company, and we see a significant opportunity ahead to embed AI into almost all that we do to improve productivity, accelerate innovation, and improve customer experiences. As Enrique said, we have already made excellent progress in identifying key focus areas that are expected to generate approximately $1 billion in gross run rate savings by the end of our fiscal year 2028. And we expect approximately $300 million of those savings to be achieved by the end of fiscal 2026. We estimate associated restructuring charges of around $650 million over the three-year period, which include roughly $250 million in charges to be incurred in FY26. We continue to identify additional opportunities as part of this initiative, and we'll share those with you at our upcoming Investor Day. Now turning to our segment outlook for FY26. In personal systems, we are aligned with industry experts projecting the PC unit TAM to decline in units, but the revenue TAM to grow low single digit. Against that backdrop, we expect to gain share in premium categories, including AIPCs, workstations, and new device categories, and increase our attach of higher margin offerings, all leading to revenue share gains. And we anticipate revenue to be stronger in the second half of the year, driven by normal seasonality and pricing as needed against rising costs. On operating margin, we expect the PSOP rate to stay in the 5 to 6 percent range in the first half of the year. And as Enrique said, we are already taking decisive steps to manage commodity inflation. However, with higher memory cost increases impacting our back half, we estimate our OP rate for the full year could be at the low end of our long-term 5% to 7% range. In print, we anticipate a low single-digit decrease in the hardware market in 2026, with growth in big tank and industrial markets offset by declines in traditional hardware. We expect to outperform the market as we execute our plans to gain share in big tank and higher value office categories through new products and solutions. and to expand our subscription business and deliver continued growth in industrial. We also anticipate supplies revenue to be down low single digits and constant currency within our long-term guidance range with favorable pricing and continued share gains. And we expect print revenue by quarter to be generally in line with historical seasonality. We expect print operating margins for the year to be in the upper half of our 16 to 19% range. while we continue to focus on profitable unit placement and discipline cost management. Beyond the segments, we expect corporate other and OINE to be roughly flat year over year. And as is typical, we expect corporate other expense to be more heavily weighted in Q1 due to the timing of our stock compensation expense. With all of this, and including an estimated 30 cent impact from projected memory cost increases net of mitigations, we expect FY26 non-GAAP diluted net earnings per share to be in the range of $2.90 to $3.20, and FY26 GAAP diluted net earnings per share to be in the range of $247 to $277. For Q1, we expect non-GAAP diluted net earnings per share to be in the range of $0.73 to $0.81, and first quarter GAAP diluted net earnings per share to be in the range of 58 to 66 cents. On FY26 free cash flow, we expect to deliver between $2.8 to $3 billion. As typical, we expect the second half to be stronger than the first, consistent with our earnings, and recognizing that our first quarter is typically lower given the timing of our incentive comp payment. Before closing, over the past year since joining HP, I have had the opportunity to not only learn and understand our businesses more deeply, but also reflect on key drivers of growth and value ahead. Across both print and personal systems, we have a relatively small but growing base of services, subscriptions, software, and products as a service that are contractual in nature. And as we look to the future, We intend to drive greater growth in this important base of higher margin, more stable recurring revenue. So expect us to highlight this even more for you as we continue to focus on strengthening our company and increasing the value we offer to our investors. Lastly, we are pleased to announce today that we are raising our quarterly dividend to 30 cents per share. This is the 10th consecutive annual increase since our separation in 2015. and reflects the confidence we and our board have in our long-term outlook ahead. With that, I would like to hand it back to the operator and open the call for your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star 1 again. We also ask that you please limit yourself to one question and a single follow-up. We'll take our first question from the line of Wamsi Mohan from B of A. Please go ahead.