HP Inc. (NYSE:HPQ) Q4 2023 Earnings Call Transcript

HP Inc. (NYSE:HPQ) Q4 2023 Earnings Call Transcript November 21, 2023

Operator: Good day, everyone, and welcome to the Fourth Quarter 2023 HP Incorporated Earnings Conference Call. My name is Krista, and I’ll be your conference moderator for today. At this time, all participants will be in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Orit Keinan-Nahon, Head of Investor Relations. Please go ahead.

Orit Keinan-Nahon: Good afternoon, everyone, and welcome to HP’s fourth quarter 2023 earnings conference call. With me today are Enrique Lores, HP’s President and Chief Executive Officer; and Marie Myers, 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. 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.

Enrique Lores: Thank you, Orit, and thank you, everyone, for joining our final earnings call of 2023. It was great to host many of you for our Securities Analyst Meeting last month. As I said at the time, we have made significant progress against our strategic priorities. And we see attractive opportunities ahead. Our Future Ready plan, combined with our relentless focus on the things we can control, enable us to make steady progress against our plan in fiscal year ’23. We are very pleased with our Q4 results, and we have finished the year in a much stronger position than we began. We knew from the start that it could be a tough year. The challenging external environment constrained demand across the industry, and this is reflected in our full-year results.

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Q&A Session

Net revenue was $53.7 billion, down 15% year-over-year, and non-GAAP operating profit was $4.6 billion, down 14%. We executed well in the face of these market dynamics, growing non-GAAP operating profit and non-GAAP EPS sequentially throughout the year. And our second-half results were significantly stronger than the first. We also made good progress in our key growth areas, which grew mid-single digits and drove approximately 20% of our total company revenue for the year. Our plan is designed to grow these businesses to at least $15 billion in revenue by the end of fiscal year ’26. And we over-delivered on our gross annualized structural cost savings plan, putting us well on-track to achieve our recently increased three-year target of $1.6 billion.

Our results reinforce our confidence in the financial outlook we shared with you in October. And I want to say a big thank you to our entire HP team for paving the way toward our next phase of growth. I’m going to use my time today to summarize our Q4 performance, provide insight into each of our segments and reiterate some of the thoughts I shared last month about the market in 2024. Let me start with Q4. Net revenue was $13.8 billion, that was down 6% year-over-year due to the expected market dynamics we discussed last quarter. Revenue grew 5% sequentially, reflecting our progress. I want to mention our key growth areas. Collectively, they grew 10% sequentially or 2 times faster than our total company growth. We delivered non-GAAP EPS of $0.90, up 5% sequentially and 10% year-over-year.

And free cash flow was strong at $1.9 billion, enabling us to meet our full-year target of approximately $3 billion. I’m particularly pleased with the strength of our innovation. It was on display at our HP Imagine event last month, where we gathered media and industry analysts from around the world to showcase more than 20 new products and services. This included the Spectre Fold, a device that reflects HP’s culture of innovation at its best. Seamlessly transforming from laptop to tablet to desktop, it has widespread recognition as one of the most innovative form factors the industry has seen. And it recently received by Red Dot Design Award, one of the highest honors in industrial design. We also continue to build momentum in AI. We are the first company to offer dedicated workstation solutions with NVIDIA’s AI Enterprise software.

And more broadly, we’re advancing our work to create the AI PC category. We have built the widest range of client product based on Intel’s next-generation of processors, Intel Core Ultra. Giving us a strong foundation on which to build, but we co-engineer and commercialize new AI architectures next year. And I am very encouraged by the work underway with all of our silicon and software partners. The emergence of the AI PC in 2024 will start a new cycle of market expansion and refresh. As I shared last month, we believe this can double the overall PC category growth rate over the next three years. In Print, we have refreshed our entire A3 and A4 portfolio, making devices smaller, more modular and easier to manage and secure. We also continue to leverage our IP to create new categories.

This includes our SitePrint construction solution, which has already laid out more than 1 million square feet at construction site in North America and the U.K., and is launching in new geographies. We expanded our Poly solutions for large conference rooms and small hidden spaces. We also launched a new conference room as-a-service subscription to help customers optimize usage and create better employee experiences. And we launched HP Workforce Central, which integrates data for more than 60 service tools across PCs, printers and Poly devices into a single platform. These will drive simplicity, productivity and security for IT departments. We’re in beta with over 2,000 customers and we’ll be rolling it out to all managed solution accounts. As we innovate across our portfolio, we remain equally focused on our sustainable impact priorities.

A great example is our recently announced HP Renew solutions. By enhancing our refurbishing capabilities, we are now able to extend the life of devices and drive peculiarity upscale. In addition to supporting our sustainability goals, this reduces total cost of ownership and create an accretive business. We have launched in India and we’ll be expanding into other markets during fiscal year ’24. We’re also playing an active role to support our communities. Right now, we are particularly focused on the needs of those suffering in Israel and Gaza. Since the attacks of October 7, our number one priority has been the safety and well-being of our employees in the region. I want to take a moment to recognize the incredible work our team is doing to keep our business in Israel fully operational in the face to an extremely difficult situation.

HP Foundation has committed $1 million to humanitarian relief partners in the region. We will continue doing everything we can to support our local teams. Let me now turn to our business unit performance. The external environment remains consistent with what we discussed at our Securities Analyst Meeting. Our baseline scenario of market stabilization across fiscal year ’24 has not changed. And our markets largely behave as we expected in Q4. Consumer showed a more typical seasonal uptick. Commercial customers remain cautious, but we saw some signs of stabilization especially in Personal Systems. And we continue to see demand weakness in China due to challenging economic conditions. Personal Systems net revenue was $9.4 billion in the quarter, that’s down 8% year-over-year or 7% in constant currency.