The operator welcomes everyone to the First Quarter 2024 HP Incorporated Earnings Conference Call and introduces Orit Keinan-Nahon, Head of Investor Relations. Orit reminds listeners that the call is being recorded and will be available for replay. She also mentions that the presentation and earnings release can be found on the investor relations webpage. Orit cautions that the presentation contains forward-looking statements and refers listeners to the disclaimers for more information. She also notes that the financial information discussed is based on current estimates and may differ from the amounts reported in HP's SEC filings. All comparisons made during the call are year-over-year.

The first quarter of the year was a solid start for HP, with non-GAAP operating profit and EPS growth. The company is managing through a volatile external environment, which has impacted demand in the industry. Revenue declined by 4%, but the rate of decline has slowed for the third straight quarter. HP is still investing in key growth areas and saw revenue and market share growth in gaming, as well as new account wins in Orco Solutions and continued momentum in consumer subscriptions.

HP is focused on disciplined execution and driving growth in their key areas. They have seen a 5% increase in non-GAAP operating profit and 11% growth in non-GAAP EPS. The company is on track to meet their three-year cost savings target and has made strong progress in their AI strategy, launching new products and winning awards at CES. They are also developing new AI applications for their installed base of devices and have expanded their workforce experience platform. In addition, HP is shifting towards more subscription-based offerings in the consumer segment.

HP will be launching a new all-in subscription plan for consumers, which has received positive feedback in pilot tests. They will also be hosting their Amplify Partner Conference, where they will showcase new innovations and discuss opportunities with their top partners. Additionally, the company is focused on elevating the HP brand and has hired a new Chief Marketing and Corporate Affairs Officer, Antonio Lucio. They have also announced partnerships with popular brands such as Real Madrid and Riot Games to create new experiences and products.

HP is focused on advancing their sustainable impact strategy, which has helped them win new deals and receive recognition as one of America's most just companies. However, the external environment remains dynamic and there has been a slowdown in the post-holiday season for consumer sales and cautiousness among commercial customers. Personal Systems net revenue was down, but HP gained PC market share in the fourth quarter and continues to focus on high-value segments such as premium work stations and gaming. Peers services revenue has also seen strong growth.

In the first quarter, hybrid systems were impacted by the current enterprise spending environment, but the company is investing in the portfolio for future growth. Print revenue was down due to market headwinds, but the company is making progress on pricing and share gains. They also gained share in big tanks and saw growth in industrial graphics and 3D. The company is preparing for Drupa in May, where they will launch new innovations. They have resumed share repurchases and expect the pace of recovery to be uneven, but remain confident in their ability to meet their full year targets. The second half of fiscal year '24 is expected to be stronger than the first half.

The company has shown its ability to navigate current market dynamics and capitalize on long-term growth opportunities. The interim CFO, Tim Brown, has over 30 years of experience with the company and is leading the financial progress. The company is on track with its future-ready plan to achieve cost savings and reinvest in growth areas. Top line results were impacted by lower market demand, but the company remains focused on executing each quarter and driving long-term shareholder value.

In the first quarter, the company saw a decrease in net revenue due to declines in each region. However, gross margin increased due to cost savings. Operating expenses increased due to investments in growth initiatives and higher marketing expenses, but this was partially offset by lower variable compensation and structural cost reductions. Non-GAAP operating profit and net earnings per share both increased. Non-GAAP diluted net earnings per share excludes certain expenses, resulting in a GAAP diluted net earnings per share of $0.62.

In the first quarter, Personal Systems revenue decreased due to soft demand and an unfavorable mix shift, but there were market share gains in both consumer and commercial categories. Total units increased, with consumer up 10% and commercial up 2%. Operating profit was $537 million with a margin of 6.1%. In Print, revenue decreased by 5% due to declines in hardware, specifically in China and Greater Asia, and share loss to Japanese competitors. Hardware units decreased by 17%. The company remains focused on driving profitable revenue and share growth in both consumer and commercial markets.

Industrial Graphics saw an increase in revenue due to sales of hardware, supplies, and services. However, commercial and consumer revenue decreased, with units down in both segments. The market for big tank printers is growing, but traditional home ink demand is soft. Instant Ink revenue and subscribers continue to grow. Supplies revenue remained flat, but increased in constant currency due to pricing actions and share gains. Print operating profit was essentially flat, with a slight increase in operating margin. The company is on track to meet their cost savings goals and has made progress in their three-year plan. They have benefited from portfolio simplification, digital transformation, and cost reductions across their business.

The company expects to incur $1 billion in restructuring costs, with $0.3 billion in cash charges in fiscal year '24. Cash flow and capital allocation were impacted by seasonality and lower volumes in Personal Systems. The company returned $775 million to shareholders and plans to return 100% of its FY '24 free cash flow to shareholders. They expect a challenging macro and demand environment and will focus on managing costs, improving performance, and investing in growth.

The company is preparing for different outcomes in the challenging macro environment and expects a strong second-half of fiscal year 2024. They anticipate OI&E expenses to be $0.7 billion and free cash flow to be $3.1 billion to $3.6 billion, including restructuring costs. The overall PC market is expected to recover, causing a decline in Personal Systems revenue in Q2. However, margins are expected to be within the long-term target range due to cost management and pricing actions. In the Print business, consumer demand is expected to remain soft and competition will continue to impact commercial print. Cost and mix management will help offset these trends, but supplies revenue is expected to decline for the year. Quarterly results may vary.

The company expects print margins to be at the high end of their range for Q2 and FY '24, due to new business models and cost management. They provide an outlook for Q2 and FY '24, with non-GAAP diluted net earnings per share in the range of $0.76 to $0.86 for Q2 and $3.25 to $3.65 for FY '24. They are confident in their strategy and remain focused on disciplined execution and cost management. The company expects a strong second half to drive their full year guidance, but did not specify which areas or markets they expect to be stronger.

Enrique Lores, responding to a question about the company's expected performance in the second half of the year, stated that they are anticipating a stronger performance due to multiple factors such as recovery in the commercial space, traditional seasonality, and cost reduction efforts. He also mentioned that they expect to see an impact from their winter reference and a recovery in the print space, particularly in the commercial and industrial sectors. In response to a question about share gains in the front end, Lores attributed it to the completion of their portfolio in the big tank market and operational improvements in the office market.

The speaker, Tim Brown, responds to a question about the company's second-half strength, stating that they expect printing margins to fall considerably due to hardware weakness and lower supplies growth. However, they remain optimistic and expect revenues to grow in fiscal year 2024. They anticipate being at the high end of the range for the second quarter and maintaining a range of 16-19% for the year, driven by an increase in hardware sales and a decrease in supplies.

The speaker discusses the potential for growth in the second half of the year, with an expected increase in PS and low single digit growth in print. They clarify that they manage the company to grow operating profit dollars, not solely to meet margin projections. The questioner asks about the key drivers and milestones for AI-enabled PCs to gain traction with commercial customers, and the speaker emphasizes the potential benefits in terms of security, latency, and cost. They mention three potential angles for milestones in this area.

The company is working on delivering hardware to support new models and ensuring that applications are compatible. They are also providing training for customers and sales teams. The projected impact of AI PCs on sales is expected to be gradual, with a bigger impact in 2025 and 2026. The question was asked about the four-box model and the factors impacting supply performance, as well as the expected decline in supply for the rest of the year.

The speaker's answer to a question about the health of the Supplies business is similar to their answer from the previous quarter. They explain that looking at quarter-on-quarter comparisons is not the best way to understand the business, and their long-term projections for supplies remain the same. They attribute the positive performance in the quarter to managing share and making pricing adjustments, but note negative impacts from usage and a shrinking installed base. They also mention that channel inventory is in a healthy position. In response to a question about the recovery in the commercial space, the speaker expresses confidence but acknowledges pockets of weakness in Q1.

The speaker acknowledges that their projections for the industry are shared by industry analysts and other players. They expect a positive impact from the Windows refresh cycle and pricing and mix. They have seen stability in the SMB and education sectors, as well as growth in Europe. They believe the overall market will improve in the second half, despite weaknesses in China and the federal business in the US. The speaker also mentions that peripherals have been impacted by the cautiousness in the commercial market, but they expect them to recover as the market improves.

HP has been investing in innovation in categories with long-term growth potential, confirmed by customers and resellers. The Workforce Solutions and Consumer Services businesses grew in Q1, signifying recovery. They will be launching a subscription with hardware included, in line with their goal to offer their full portfolio as a subscription. In Q1, Personal Systems pricing was driven by improved commercial mix and unfavorable consumer mix. The outlook for ASP for the full year is uncertain, but HP is focused on driving profitable growth.

In Q1, PC prices were stable with a slight increase in commercial prices due to a shift in mix towards consumer. However, rates were down due to price pressure in the low end of the portfolio, particularly in the consumer market. This is likely due to softness in consumer markets. Going forward, as commodity costs increase and the mix shifts towards commercial, overall PC prices are expected to increase. In terms of the print business, pressure is mostly seen in the consumer side due to exchange rates, but the company has chosen not to pursue unprofitable customers in this space.

The speaker thanks the audience for joining the call and summarizes three main points: the first quarter was solid, operating profit and EPS grew, and the outlook for the rest of the year remains positive with a stronger second half expected.

The speaker expresses confidence in the long-term future of the company, citing the potential of hybrid work and AI. They thank the audience for joining the call and look forward to future discussions. The operator then concludes the call.

This summary was generated with AI and may contain some inaccuracies.