The operator introduces the Third Quarter 2024 HP Inc. Earnings Conference Call and reminds participants that the call will be recorded. Orit Keinan-Nahon, Head of Investor Relations, welcomes everyone and introduces the speakers for the call. She also mentions that the call is being webcast and a replay will be available. She reminds the audience that some statements are forward-looking and may involve risks and uncertainties. She also notes that the financial information discussed is based on current estimates and may differ from the final amounts reported in SEC filings.

The webcast discussed the third-quarter results for HP, including year-over-year comparisons and references to non-GAAP financial information. The company returned to revenue growth after nine quarters, driven by strong performance in Personal Systems. However, the print market recovery was slower than expected, leading to a decrease in non-GAAP operating profit and EPS. The company is taking actions to address this.

HP is focused on driving cost savings through their Future Ready program and expects to reach 80% of their three-year target by the end of the year. They are also investing in their growth businesses to drive long-term profitability. In terms of innovation, they have launched next-gen AI PCs powered by Qualcomm and AMD processors, with industry-leading features such as long battery life and advanced security measures. They are also focused on supporting data scientists and AI developers through their HP AI studio, which includes Gen AI trust to improve the accuracy and safety of AI-powered applications.

HP's Workforce Solutions platform has been successful, with customers using AI to manage thousands of devices. They also gained new partnerships and deals, and will be hosting an event to unveil new experiences for customers. The company has also made investments to strengthen their security expertise and received a large funding award from the US Department of Commerce.

In the third quarter, the company released their Annual Sustainable Impact Report, showing progress in reducing greenhouse gas emissions and single-use plastic packaging. They were also ranked first on Time Magazine's World's Most Sustainable Companies list. In terms of business performance, their Personal Systems revenue increased by 5% and operating profit was in line with expectations. The company saw growth in high-value categories such as workstations and consumer premium, as well as in Personal Systems Services and Hybrid Systems. Gaming revenue also grew in line with normal seasonality. The company is excited about the potential of AI PCs, with shipments ramping and positive initial reactions. They have a strong portfolio and growing ecosystem of developers and AI software providers. Their focus is on delivering new AI experiences for customers.

The company's AI PC expectations for the second half of the year are on track, but Print revenue was down due to softer demand and a more aggressive pricing environment. The company is taking actions to accelerate cost-savings and has seen growth in strategic areas such as home and office. They also generated strong free-cash flow and returned $0.9 billion to shareholders. The company expects the demand environment to remain dynamic and competitive in the fourth quarter, so they have moderated their expectations for the full year. They will continue to invest in high-value and key growth areas and accelerate cost-reduction plans.

In the paragraph, HP's CEO Enrique Lores expresses confidence in the company's strategy and its ability to drive progress in the upcoming fiscal year. He also mentions the importance of leveraging AI and enabling hybrid work experiences to deliver growth and fulfillment for customers. The new CFO, Karen Parkhill, also shares her excitement to work with the company's leadership team and highlights the company's return to revenue growth in the third quarter. However, she notes that the print market was softer than expected and there was pressure on margins due to a dynamic pricing environment and investments for long-term growth. As a result, the company is accelerating its Future Ready plan to deliver savings sooner than expected.

The company's plan to achieve $1.6 billion in cost-savings by the end of fiscal year 2025 has been accelerated, with $1.3 billion expected to be achieved by the end of this fiscal year. Net revenue increased by 2% and gross margin remained steady, thanks to cost-saving efforts. Non-GAAP operating expenses were up due to continued investment in key initiatives and people. Non-GAAP operating profit decreased by 7% and non-GAAP net OI&E was down, but diluted net earnings per share remained at $0.83. Personal Systems revenue increased by 5%, driven by higher commercial volumes and increased ASPs.

In the second quarter, the company's revenue and units increased, driven by seasonal strength and share gains. Hybrid systems revenue and video collaboration saw strong growth, while consumer revenue and units were slightly down. Commercial revenue and units were up, with improved pricing and a shift to premium products. The company's focus remains on driving profitable revenue and share growth in both consumer and commercial markets. Operating margin in personal systems was down slightly due to higher commodity costs and strategic investments. In the print segment, revenue decreased due to a slower market recovery and aggressive pricing from competitors benefiting from a weaker yen. However, total print market share increased and industrial graphics saw continued growth. Commercial revenue and units declined, while consumer revenue returned to growth.

In the third quarter, HP saw a 5% increase in hardware units and a 2% decrease in supplies revenue. Print operating margin was down due to pricing and increased investments. The company is focused on improving efficiency through its Future Ready transformation plan, using AI and streamlining processes. They also generated $1.4 billion in cash from operations and returned $870 million to shareholders. Looking ahead, they are prepared to navigate a changing environment and have planned for multiple scenarios.

In the fourth quarter, Personal Systems revenue is expected to increase slightly, with a focus on commercial market strength. Print revenue is also expected to increase, but at a slower pace due to competitive pricing pressure. Overall, the company is moderating its outlook for the fourth quarter and fiscal year 2024, with a narrowed non-GAAP EPS range. Free cash flow is expected to be in the range of $3.1 billion to $3.6 billion for FY 2024. The company is now opening up the lines for questions.

The speaker expresses gratitude to their HP colleagues for their help during their onboarding process. They specifically thank Tim Brown for his leadership and assistance. The first questioner on the call asks about print margins in fiscal 2024 and the speaker explains that the Q3 print margin was below expectations due to aggressive pricing and a challenging market environment in China. They also mention investments in key growth areas and plans to drive margin improvement in Q4 through the Future Ready plan and other cost-cutting measures.

HP is confident in their ability to deliver print margins near the top of their target range. They have seen positive momentum with the launch of AI PCs and expect it to make a bigger impact in the coming quarters, particularly in the consumer segment. They have just started to launch next-generation AI PCs with Qualcomm and AMD, but have not yet seen a significant impact on their results. The reaction to these products has been positive, but their impact on results has been small so far.

The speaker discusses the adoption of AI technology and predicts that it will have a greater impact on consumer adoption in the short term due to the longer evaluation process in commercial settings. They maintain their projections for future growth and expect AI PCs to represent 50% of shipments in 2027. The speaker also addresses challenges in the print market, noting a decline in the office category but positive growth in the home space.

The speaker, Karen, previously mentioned that supplies have performed as expected and usage is a good predictor of future performance. They believe the slower recovery is temporary and expect to see changes going forward. The demand for office space has driven this trend. Competitors are taking advantage of the weak yen to be more aggressive with pricing, but the company has been working to reduce costs and maintain profitability. On the PC side, there has been a recovery in the commercial/enterprise sector, but it is unclear if there will be a large refresh cycle in the future. The speaker will now address this topic.

The speaker discusses the recovery of the PC market, which is mainly driven by the commercial sector. They saw significant growth in enterprise, government, SMB, and education. This growth is supported by aging technology and the announcement of Windows 11. The company plans to continue cost-saving initiatives and balance drop-through versus reinvestment for long-term growth.

The company's savings are reflected in their ability to meet or exceed their margin targets despite a challenging macro backdrop. These savings are reinvested, resulting in a shift in their P&L with higher gross profit offset by higher operating expenses. The company plans to continue driving these savings to offset headwinds and invest in growth drivers. The speaker also addresses a question about the company's full-year revenue growth and operating profit, stating that they expect seasonal growth in Q4 and are focused on making investments through their Future Ready plan.

HP is expecting slower growth in consumer demand and continued pricing pressure in the print market. They anticipate low-to-mid-single digit revenue growth in print, driven by seasonal strength and the industrial DRUPA event. The company is focused on driving savings to offset headwinds and maintaining investments for the longer-term. Year-to-date, they have seen operating profit growth in Personal Systems but not in print due to a smaller market and aggressive competition driven by the weakness in yen. HP sees these factors as temporary and not structural changes. As a new CFO, Karen will have to make important decisions regarding capital allocation.

The speaker, Karen Parkhill, is answering a question about HP's recent increase in authorization to $10 billion. She clarifies that this is not a significant change and that the company remains committed to returning 100% of its free cash flow to shareholders. Enrique Lores also emphasizes this commitment and states that the $10 billion number is not significant and will take several years to reach. Another analyst asks about HP's recent revenue acceleration over the past three quarters.

The speaker discusses the recent deceleration and decline in EPS growth, attributing it to competitive pricing and a weak yen. They mention that Print PCs are growing operating profit, but the print business is struggling due to softness in the office space. However, the home business is recovering and supplies are performing as expected. Despite the challenges, the company expects EPS to grow this year, although slightly lower than expected. The speaker looks forward to working with Karen, presumably to address these issues.

During a Q&A session, an analyst asks about the company's free cash flow and the impact of the Future Ready program. CFO Karen Parkhill responds that the free cash flow for the quarter exceeded expectations and is expected to continue to improve due to projected revenue growth. The company's full-year free cash flow outlook remains unchanged and the impact of the program on cash flow is expected to be minimal. CEO Enrique Lores adds that the cash outlays for the program are expected to be around $300 million.

During a conference call, an operator introduces Michael Ng from Goldman Sachs who asks about the company's strategy for placing more hardware at print and the impact on margins. Enrique Lores, the CEO, responds that their strategy remains the same and they have been able to be more aggressive in the second half due to cost reductions at the hardware level. This has led to market share growth in the home, A3, and A4 value spaces. Lores also mentions that their business model changes, such as Instant Ink and all-in subscriptions, are continuing to grow. In terms of profit, they are still in the 50% range for front units. Ng also asks about the seasonality of Personal Systems revenue, to which Lores responds that there are some lingering headwinds in the Consumer sector, but nothing has worsened sequentially.

Enrique Lores, CEO of HP, discusses the softness in consumer PC demand and the company's expectations for a stronger Q4 but lower growth compared to previous years. He also mentions that recent price increases in the personal systems segment may not be fully reflected due to contracts and competitive pressures, but the company will continue to adjust prices. Lores also provides an update on the Federal Government customer vertical.

Enrique Lores, CEO of HP, discusses the company's federal business growth and how budget discussions affected it in the first half of the year. He mentions that the federal segment saw the strongest growth at 6-7% and is expected to continue in the second half. He also mentions a deal signed with NASA for workstations and notebooks. In regards to the commercial refresh cycle, Lores expects the majority of the refresh to occur in the next year leading up to the Windows 10 end-of-life deadline. He also addresses the potential impact of Intel's new Lunar Lake on customer purchases.

The company's current cycle is starting slower than previous ones, but is gaining momentum. The funnel of opportunities is growing, and there is good momentum in the commercial sector. The CEO thanks the team and welcomes a new member. The company is pleased to see growth after nine quarters, but acknowledges a difficult competitive environment and is taking cost actions. The company remains confident in its long-term opportunities, especially in integrating AI and redefining the future of work. The CEO thanks everyone and looks forward to future interactions.

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