Q4 2021 HP Inc Earnings Call
Speaker 1: CDC reports, including our most recent Form 10-K .
We see reports, including our most recent Form 10-K.
Speaker 1: HPE assumes no obligation and does not intend to update any such forward-looking statement.
HP assumes no obligation and does not intend to update any such forward looking statements.
Speaker 1: 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 Form 10-K for the fiscal year ended October 31, 2021, and HP's other SEC filing.
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 Form 10-K for the fiscal year ended October 31, 2021, and Hp's other SEC filings.
Speaker 1: During this webcast, unless otherwise specifically noted, all comparisons are year-over-year comparisons with the corresponding year-ago period.
During this webcast unless otherwise specifically noted all comparisons are year over year comparisons with the corresponding year ago period.
Speaker 1: For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP 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.
Speaker 1: 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
With that I'd now like to turn the call over to Enrique.
Thanks, Laurie and thank you all for joining today's call.
Speaker 2: At our Security Analyst Meeting last month, we shared our plans to continue building a stronger HR.
At our Securities Analyst meeting last month, we shared our plan to continue building a stronger H P.
Speaker 2: One that delivers sustained revenue, operating profit, EPS and free cash flow growth.
One deliver sustained revenue operating profit EPS and free cash flow growth.
Speaker 2: These quarter results reflect our continued momentum against these plants, and they give us great confidence in our future.
These quarterly results reflect our continued momentum against this plan.
And they gave us great confidence in our future.
Let me talk through that detail.
In Q4.
Speaker 2: Revenue grew 9% to $16.7 billion.
Revenue grew 9% to $16 $7 billion.
Speaker 2: non-GAAP EPS grew 52% to 94%.
Non-GAAP EPS grew 52% to 94 cents.
Speaker 2: And we generated more than $900 million of free cash flow, while returning $2 billion to shareholders through share repurchases and dividends.
And we generated more than $900 million of free cash flow, while returning $2 billion to shareholders through share repurchases and dividend.
Our Q4 results, but a great finish to an exceptional year.
Speaker 2: Our Q4 results are a great finish to an exceptional year.
Speaker 2: For the full year, we grew revenue 12% to $63.5 billion and generated $1.7 billion of incremental non-GAAP operating profit.
For the full year, we grew revenue, 12% to $63 $5 billion and generated $1 $7 billion of incremental non-GAAP operating profit.
Speaker 2: non-GAAP EPS grew 66%.
Non-GAAP EPS grew 66%.
Speaker 2: This means that we exceeded our value creation plan target for non-GAAP operating profit and EPS a full year ahead of plan.
This means but we exceeded our value creation plan target for non-GAAP operating profit and EPS, our full year ahead of plan.
Speaker 2: And we return a record $7.2 billion to shareholders while continuing to invest in strategic growth opportunities across the business.
And we returned a record $7 $2 billion to shareholders, while continuing to invest in strategic growth opportunities across our business.
Speaker 2: Our Q4 and full-year performance shows a company on its front foot and hitting its stride.
Our Q4 and full year performance shows a company on his phone food I'm hitting it right.
Speaker 2: long-term secular trends such as hybrids play to our competitors' strengths.
Long term secular trends such as hybrid play to our competitive things.
Speaker 2: Our leadership across our market and the innovation agenda we are driving are enabling us to turn this trend into tailwind.
Our leadership across our market and the innovation agenda, we're driving are enabling us to return these trends into tailwind.
Speaker 2: We are making organic and inorganic investment to drive profitable growth.
We are making organic and inorganic investments to drive profitable growth.
Speaker 2: And we are accelerating our transformation, building new digital capabilities while also reducing structural costs and driving efficiency.
And we are accelerating our transformation building, new digital capabilities, while also reducing structural costs and driving efficiency.
Speaker 2: The progress we are making against our priorities is creating a more growth-oriented portfolio.
The progress, we're making against our priority is creating a more growth oriented portfolio.
Speaker 2: At our analyst day, I shared that we expect our five key growth areas to grow double digits and generate over $10 billion in revenue in fiscal 2020.
At our analyst day, I shared that we expect our five key growth areas to grow double digits and generated over $10 billion in revenue in fiscal 'twenty two.
Speaker 2: These businesses collectively grew 12% this quarter.
These businesses collectively grew 12% this quarter.
Speaker 2: This includes more than 30% growth for our instant ink business, as well as more than 20% growth for our industrial graphics portfolio.
This includes more than 30% growth for our instant ink business hardware like more than 20% growth for our industrial graphics portfolio.
Speaker 2: we see our key growth area becoming a bigger part of overall revenue and profit mix moving forward.
We see our key growth areas, becoming a bigger part of overall revenue and profit mix moving forward.
Yeah.
Speaker 2: We are driving this growth even as we continue to navigate a complex and dynamic operational environment that includes robust demand and persistent supply constraints.
We are driving this growth even as we continue to navigate a complex and dynamic operational environment that include robust demand and persistent supply constraints.
Speaker 2: The actions we have been taking to mitigate industry-wide headwinds are paying off.
The actions, we have been taking to mitigate industry wide headwinds.
Paying off.
Speaker 2: There is no quick fix, but we are strengthening our operational execution and making continued progress quarter by quarter.
There is no quick fix hardware strengthening our operational execution, and making continued progress quarter by quarter.
Speaker 2: And I just want to say how proud I am of the way our teams are stepping up.
And I just want to say how proud I am of the way our teams are stepping up.
Speaker 2: It has not been easy, but the challenges we have faced have not deterred us from driving our business forward.
It has not been easy, but the challenges we have faced have not deter us from driving our business forward.
Speaker 2: and the fact that we delivered double-digit revenue and profit growth for the year gives us confidence as we enter 2021.
And the fact that we delivered double digit revenue and profit growth for the year gives us confidence as we enter 2022.
Speaker 2: Let me now talk about the strengths we see across each of our businesses.
Let me now talk about the strength, we see across each of our business units.
Speaker 2: In personal systems, there continues to be very strong demand.
In personal systems.
<unk> to be very strong demand.
Speaker 2: Year Revenue and Operating Profit each grew double digits in Q4.
Yes revenue and operating profit each grew double digits in Q4.
Speaker 2: And our discipline execution and pricing strategy allowed us to effectively manage cost and components headway.
And our disciplined execution and pricing strategy allowed us to effectively manage costs and components headwinds.
A big part of our success either improve Mig we are driving given our leadership in the commercial PC market.
Speaker 2: A big part of our success is the improved mix we are driving given our leadership in the commercial PC market.
Speaker 2: As more offices reopened, we led a shift toward Windows-based commercial products where we saw the strongest demand and highest profitability.
Uh-huh offices reopen we let our shift toward windows based commercial products, where we saw the strongest demand and highest profitability.
Speaker 2: we continue to see a significantly elevated order back.
We continue to see a significantly elevated order backlog.
Speaker 2: As I shared last month, we expect component shortages, particularly in IECs, to persist into at least the first half of 2021.
As I shared last month, we expect component shortages, particularly in IC to persist into at least the first half of 'twenty two.
Speaker 2: The operational actions we outlined in our Q3 call are generating positive results.
The operational actions, we outlined in our Q3 call are generating positive results.
Speaker 2: We continue to increase our direct engagement with Tier 2 and Tier 3 suppliers.
We continue to increase our direct engagement with tier two and tier three suppliers.
Speaker 2: we have expanded long-term agreements to secure capacity.
We have expanded long term agreements to secure capacity.
Speaker 2: and our digital transformation initiatives are enabling greater real-time visibility to optimize our speed, agility, and...
And our digital transformation initiative.
Great real time visibility to optimize our speed agility and mix.
Speaker 2: This work remains a daily priority and we expect our trajectory to continue.
This work remains a daily priority and we expect our trajectory to continue to improve.
Speaker 2: We are also creating important innovation as we design for all things hybrid.
We're also creating important innovation that we design for all things hybrid.
Speaker 2: This includes a new lineup of Windows 11 devices that enable premium computing experiences for work and home.
These include a new lineup of Windows 11 devices that enable premium computing experiences for work at home.
We are also expanding into valuable adjacencies.
Speaker 2: Last quarter, we introduced HP Presents, the world's most advanced video conferencing
Last quarter, we introduced HP persons the worlds most advanced video conferencing system.
Speaker 2: This is a large opportunity that will continue to grow as our digital and physical worlds converge.
This is a large opportunity that will continue to grow as our digital and physical worlds converge.
Speaker 2: Seven out of 10 companies are already investing in technologies that improve hybrid work experience for their employees.
Seven out of 10 companies are already investing in technologies that improve hybrid work experience for their employees.
H P person combined our hardware software imaging capabilities.
Speaker 2: HPE Presents combines our hardware, software, imaging, and peripheral capabilities to create a more immersive experience so that distributed teams can truly feel they are in the same room, even if they are not.
Capabilities to create a more immersive experience. So that these people their teams can truly feels they are in the same room, even if they are not.
Speaker 2: You will see us continuing to innovate and expand our presence in the growing hybrid collaboration.
You will see us continuing to innovate and expand our presence in the growing high res collaboration space.
Speaker 2: We also delivered another quarter of double-digit device-as-a-service revenue growth. This included the launch of new digital services to help commercial customers simplify the complexity of hybrid IT environments.
We also delivered another quarter of double digit device as a service revenue growth.
This included the launch of new digital services to help commercial customer simplify the complexity of hybrid I T and vitamins.
Speaker 2: And following the close of our Teradici acquisition, we launched a lineup of new Z by HP Teradici and NVIDIA Omniverse subscription offers to enable high-performance remote collaboration.
And following the close of our two that each acquisition, we launched our lineup of new Z by HP, Tara I D E and Nvidia only their subscription offer to enable high performance remote collaboration.
Speaker 2: Turning to print, we grew revenue 1% in the quarter.
Turning to print we grew revenue 1% in the quarter.
Speaker 2: This was primarily driven by our discipline pricing strategy.
This was primarily driven by our disciplined pricing strategy.
Speaker 2: as well as our continued growth in services and subscriptions which offset expected volume decline driven by limited supply.
As well as our continued growth in services and subscriptions, which offset expected volume declines driven by limited supply.
Speaker 2: Like others in the industry, we continue to operate in a supply-constrained environment driven by COVID-related disruptions and broader logistics.
Like others in the industry, we continue to operate in a supply constrained environment, driven by Covid related disruptions umbrella logistics issues.
Speaker 2: Against this backdrop, demand for our print hardware and supplies remains strong.
Against this backdrop demand for our printer hardware and supply remains strong.
Speaker 2: The fact is we had more hardware orders that we could fulfill in the court.
The fact is we had more hardware order that we could fulfill in the quarter.
Speaker 2: And as we said last month, we expect this to impact spring growth in fiscal year 2020.
And as we said last month, we expect these two impacting growth in fiscal year 'twenty two.
Speaker 2: But this is not stopping us from advancing our strategic priorities.
But this is not stopping us from advancing our strategic priorities.
Speaker 2: We continue to grow our HP Plus portfolio globally, including a rollout to our Envy Inspire 7000 series that is designed for families working, learning, and creating new memories from home.
We continue to grow our HP plus portfolio globally, including a rollout to our NV inspire 7000 series that is designed for families working learning and creating new memories from coal.
Speaker 2: Importantly, it is built with sustainability in mind and made from over 45% recycled plastic content.
Importantly, it is built with sustainability in mind and main from over 45% recycled plastic content.
Speaker 2: We are also growing our digital services to enable hybrid office printing.
We're also growing our digital services to enable hybrid office printing.
Speaker 2: A great example is this quarter's launch of HP Managed Print Flex, a new cloud-first NPS subscription plan for hybrid work environments.
A great example is this quarter's launch of HB managed print flex our new cloud first M. P S subscription plan or hybrid work environment.
Speaker 2: In Q4, we drove double-digit growth of NPF revenue and total contract value.
In Q4, we drove double digit growth of M. P F revenue and total contract value.
Speaker 2: And this supports our workforce solution momentum.
And they support our workforce solutions momentum.
Speaker 2: We're increasingly integrating our offerings across print and personal systems to meet new customers' needs and unlock new growth opportunities.
Increasingly integrating our offerings across print and personal systems to meet new customer needs and unlock new growth opportunities.
Speaker 2: Our recently launched HP Work from Home service is a great example of how we are leveraging our diverse portfolio to win in the hybrid offering.
Our recently launched H P work from home service is a great example of how we are leveraging our diverse portfolio to win in the hybrid offering.
Speaker 2: As I mentioned earlier, we are also driving industrial graphics and 3D printing growth.
As I mentioned earlier, we're also driving industrial graphics, and three D printing growth.
I mean, that's where all the graphics, we drove double digit revenue growth in the quarter and have built a healthy backlog of industrial presence.
Speaker 2: This continues the positive recovery trend from prior quarters.
This continues the positive recovery trend from prior quarters.
Speaker 2: We also continue to see a makeshift towards more productive industrial process with significant growth in labels and packaging.
We also continue to see a mix shift towards more proactive industrial presses with significant growth in labels and packaging.
And in C. D. Our focus on high value end to end application is paving the way for an entirely new growth businesses.
Speaker 2: And in 3D, our focus on high-value end-to-end applications is paving the way for entirely new growth.
Speaker 2: Our molded fiber, foodware, and orthotics initiatives are on track.
Our molded fiber footwear and athletic initiatives are on track.
Speaker 2: Our progress against our strategic priorities is also driving strong cash flows.
Speaker 2: and we continue to be disciplined stewards of capital.
And we continue to be disciplined stewards of capital.
Speaker 2: We have a robust returns-based approach that we are applying to every aspect of our capital allocation.
We have a robot.
Turns based approach that we are applying to every aspect of our capital allocation.
Speaker 2: We will continue to invest in areas where we see growth opportunities while continuing to return capital to our shareholders. We believe our shares remain...
We will continue to invest in areas, where do we see growth opportunities, while continuing to return capital to our shareholders.
We believe our shares remain under vacuum hardware.
Speaker 2: And we are committed to aggressive re-purchase levels of at least $4 billion in fiscal year 2021.
And we are committed to aggressive repurchase levels of at least $4 billion in fiscal year 'twenty two.
Speaker 2: We also expect M&A will continue to play an important role. Specifically, we plan to pursue deals that accelerate our strategies and drive profitable growth.
We also expect M&A will continue to play an important role.
Specifically, we plan to pursue deals that accelerate our strategy and drive profitable growth.
Speaker 2: and we are making ongoing progress against our sustainable impact agenda.
And we are making ongoing progress against our sustainable impact agenda.
Speaker 2: ESG is a driver of long-term value creation for all stakeholders and we continue to pursue
Yes Chi is a driver of long term value creation for all stakeholders.
And we continue to pursue an ambitious agenda.
Speaker 2: The latest example is our expanded partnership with World Wildlife Fund.
The latest example is our expanded partnership with World Wildlife Fund.
Speaker 2: We are working to restore, protect, and improve the management of nearly one million acres of forest land.
We are working to restore protect and improve the management of nearly 1 million acres of forest landscape.
Speaker 2: We support our focus on making every page printed for a positive impact.
We support our focus on making every page printed porous party.
Speaker 2: To sum up, our portfolio is innovative and resilient.
To sum up our portfolio is innovative and resilience.
Speaker 2: Our strategy is driving sustained revenue, operating profit, EPS and free cash flow growth.
Our strategy is driving sustained revenue operating profit EPS and free cash flow growth.
Speaker 2: We are returning highly attractive levels of capital to shareholders.
We are returning highly attractive levels of capital to shareholders.
And we are confident in the fiscal year 'twenty two guidance that we shared at our analyst day.
Speaker 2: And we are confident in the fiscal year 22 guidance that we shared at our analysis.
Speaker 2: We are entering the new year from a position of great strength, and I look forward to continuing.
We are entering the new year from a position of great strength.
And I look forward to continuing to share our progress let.
Speaker 2: Let me now turn the call over to Marie, who will take you through the details of the quarter and our fiscal Q1 outlook.
Let me now turn the call over to Marty who will take you through the details of the quarter and our fiscal Q1 outlook.
Over to you.
Speaker 1: Thanks, Enrique. And hello, everyone. It's good to be back together, and it was great to connect with so many of you following your Analyst Day.
Thanks, Enrique and Hello, everyone. It's good to be back together and it was great to connect with so many abuse, calling out analyst day.
I want to stop by building on something and we gave you a moment ago.
Speaker 1: Q4 was a strong finish to a very strong finish.
Keith pool with a strong finish to a very strong year.
Speaker 1: It builds on our proven track record of meeting or exceeding the goals.
It builds on our proven track record of meeting or exceeding the goals we set.
Speaker 1: and underscores our confidence in our FY22 and long-term financial outlook.
Underscores our confidence in our book.
Slide 22, and long term financial outlook.
Speaker 1: Let me begin by providing some additional color on our results.
Let me begin by providing some additional color on our results starting.
Starting with the full year.
Speaker 1: Revenue was $63.5 billion, up 12%.
Revenue was $63 $5 billion up 12%.
Speaker 1: non-GAAP operating profit was $5.8 billion, up 42%.
Non-GAAP operating profit was $5 $8 billion up 42%.
Speaker 1: We grew non-GAAP EPS even faster, up 66% to $3.79.
We grew non-GAAP EPS, even cost 66% to $3 79.
Speaker 1: This continues our trend of growing non-gap EPS every year since separation.
This continues our trend of growing non-GAAP EPS every year since separation.
Speaker 1: Our $4.2 billion of free cash flow was consistent with our full year guidance and adjusting for the net article litigation.
A $4 $2 billion of free cash flow was consistent with our full year guidance and adjusting for the Oracle litigation proceeds and we returned a record $7 $2 billion to shareholders.
Speaker 1: and we returned a record $7.2 billion to shareholders.
Speaker 1: That's 172% of free cash.
<unk> hundred 72% of free cash flow.
Speaker 1: What's especially important to note is how well-balanced our performance is.
What's an especially potent to note how well balanced outperformance.
Speaker 1: We are growing our top and bottom line. We are returning capital to shareholders and investing in the business. We are accelerating new growth businesses and driving.
We are growing our top and bottom line, we are returning capital to shareholders.
And the business, we are accelerating newco businesses and driving efficiencies.
Speaker 1: This reflects a company geared towards both short and long-term value creation as we enter a new period of growth for HP. This is supported by
This reflects the company geared towards but short and long term value creation as we enter a new period of quotes to H P.
This is supported by our Q4 numbers.
Speaker 3: Net revenue was $16.7 billion in the quarter, up 9% nominally and 7% in constant currency.
Revenue was $16 $7 billion in the quarter up 9% nominally and 7% in constant currency.
Speaker 3: Regionally, in constant currency, Americas declined 4%, EMEA increased 15%, and APJ increased.
Regionally in constant currency Americas declined, 2% EMEA increased 15% and eight P J increased 18%.
Speaker 3: As Enrique mentioned, supply chain constraints continue to impact both print and personal systems revenue.
Ricky mentioned supply chain constraints continue to impact the crude.
In personal systems revenue.
Speaker 3: And this was particularly impactful to our print hardware results this quarter.
This was particularly impactful to our print hardware results this quarter.
Speaker 3: That said, demand remains strong as hybrid work creates sustained tailwind.
That said demand remains strong.
Hi, good work create sustained tailwind.
Gross margin was 19, 6% in the quarter up two points year on year. The increase was primarily driven by continued favorable pricing, including currency, partially offset by higher costs.
Speaker 3: non-GAAP operating expenses were $1.9 billion or 11.5% of revenue.
Non-GAAP operating expenses were $1 $9 billion or 11, 5% of revenue the increase in operating expenses was primarily driven by increased investments in go to market and innovation.
Speaker 3: non-GAAP operating profit was $1.3 billion, up 28%, and non-GAAP net OI&E expense was $64 billion for the quarter.
Non-GAAP operating profit was $1 $3 billion up 28% and non-GAAP <unk> expense was $64 million for the quarter.
Non-GAAP diluted net earnings per share increased 32 cents of 52% to 94 cents with a diluted share count of approximately $1 1 billion shares.
Speaker 3: non-GAAP diluted net earnings per share excludes oracle litigation games, defined benefit plan settlement games.
Non-GAAP diluted net earnings per share exclude <unk>.
Alright, Cool litigation games defined benefit plan settlement gains non operating retirement related credits, partially offset by restructuring and other charges amortization of intangibles acquisition related charges and other tax adjustments.
Speaker 3: non-operating retirement-related credits, partially offset by restructuring and other charges, amortization of intangibles, acquisition-related charges, other tax adjustments.
As a result.
Speaker 3: Q4, Gap diluted that earnings per share was $2.71.
Q4, GAAP diluted earnings per share was $2 71.
Now, let's turn to segment performance.
Speaker 3: In Q4, personal systems revenue was $11.8 billion, up 13% year on year.
In Q4 personal systems revenue was $11.8 billion 13.
13% year on year.
Speaker 3: Total units were down 9% given the expected supply chain challenges and lower chromium.
Total units were down 9%, given the expected supply chain challenges and lower crime Nyx.
Speaker 3: The fact we still grew revenue double digits in this environment reflected the strength of demand and positive impact of our mixed shift towards mainstream and premium commercial.
In fact, we still grew revenue double digits. This environment reflected the strength of demand and positive impact of our mix shifts towards mainstream and premium commercial.
Speaker 3: Drilling into the details, consumer revenue was down 3% and commercial was up 25%.
Drilling into the details consumer revenue was down 3% and commercial was up 25% by product category revenue was up 13% for notebooks, 11% desktop and 39% for workstations.
Speaker 3: By product category, revenue was up 13% for notebooks, 11% for desktops, and 39% for workstations.
Speaker 3: We also continue to drive double-digit growth across peripherals and services.
We also continue to drive double digit growth across peripherals and services.
Speaker 3: Personal Systems delivered $764 million in operating profit, with operating margins of $6.5 billion.
Personal systems delivered $764 million in operating profit with operating margins of six 5%.
Speaker 3: Our margin improved 1.4 points primarily due to continued favorable pricing, product mix, and currency, partially offset by higher costs including commodity costs and investments in innovation and go-to-market.
Our margin improved one four points, primarily due to continued favorable pricing product mix and currency, partially offset by higher costs, including commodity costs and investments in innovation and go to market.
Speaker 3: In print, our results reflected continued focus on execution and the strength of our portfolio as we navigated the supply chain environment.
In print our results reflected continued focus on execution and the strength of our portfolio as we navigated the supply chain environment.
Speaker 3: Q4 total print revenue was $4.9 billion, up 1%, driven by favorable pricing in hardware and growth in services, partially offset by a decline in supplies. Total hardware
Q4, total print revenue was $4 $9 billion up 1% driven by favorable pricing in hardware and growth in services, partially offset by a decline in supplies.
Total hardware units declined 26% due to consumer replenishment last year in Q4 and increased manufacturing and component constraints.
Speaker 3: replenishment last year in Q4 and increased manufacturing and components.
Speaker 3: We expect these print hardware constraints to extend at least into the first half of 2020.
We expect these could hardware constraints to extend at least into the first half of 2022.
Speaker 3: By customer segment, consumer revenue was down 6%, with units down 28%.
By customer segment consumer revenue was down 6% with units down 28%.
Speaker 3: Commercial revenue grew 19% with units down 12%.
Revenue grew 19% with units down 12%.
Speaker 3: Consumer demand remained solid, however, revenue across both home and office was constrained by the current supply and factory environment.
Consumer demand remained solid however revenue across but holding that office was constrained by the current supply and factory environment.
Speaker 3: The commercial recovery showed further progress with double-digit hardware revenue growth with triple-digit increases in industrial printing hardware.
The commercial recoveries should go to the progress with the double digit hardware revenue growth with triple digit increases in industrial printing hardware.
Speaker 3: We expect to see a continued gradual and uneven recovery in commercial extending into FY20.
We expect to see a continued gradual and even recovery in commercial extending into FY 'twenty two.
Speaker 3: Supplier's revenue was $3.1 billion, declining 2% year-on-year, driven primarily by prior year channel inventory replenishment.
Supplies revenue was $3.1 billion declining 2% year on year, driven primarily by prior year channel inventory replenishment.
Speaker 3: We also saw steady normalization of ink and toner mix, partially offset by favorable pricing. We saw continued-
We also saw steady normalization of ink and toner mix, partially offset by favorable pricing.
So continued momentum in our contractual business as we discussed at our analyst day. This is a key part of our broader services strategy.
Speaker 3: As we discussed at our analyst day, this is a key part of our broader services strategy.
Speaker 3: Instant Ink delivered double-digit increases in both cumulative subscriber growth and revenue.
Instant ink delivered double digit increases in both cumulative subscriber growth in Medicaid.
Speaker 3: We also drove growth in managed print services revenue and total contract value with strength in both renewals and new TCVs.
So drug group and managed print services revenue.
Total contract value with strength in both renewals and new T. C V bookings.
Speaker 3: Print operating profit increased $117 million to $830 million at operating margins with $75 million.
Print operating profit increased $117 million to $813 million.
Operating margins were 17%.
Speaker 3: operating margin grew 2.2 points, driven primarily by stable pricing and improved performance in industrial, including graphics and 3D, partially offset by unfavorable mix and higher costs, including commodity costs and investments in innovation and go-to-market. Now let's
Operating margin grew 2.2 points, driven primarily by favorable pricing and improved performance industrial including graphics, and three D, partially offset by unfavorable mix and higher costs, including commodity costs and investments in innovation and go to market.
Now, let me turn to our transformation efforts.
Speaker 3: As we completed the second year of our cost savings program, we have now delivered more than 80% of our $1.2 billion gross run rate structural cost reduction plan, and we continue to look at new cost savings.
As we completed the second year of our cost savings program. We have now delivered more than 80% about $1.2 billion gross run rate structural cost reduction plan and we continue to look at new cost savings opportunities.
Speaker 3: Transformation is not only about cost savings, but about also creating new capabilities and long-term value creation.
Transformation is not only about cost savings, but also creating new capabilities and long term value creation.
Speaker 3: One example I'd like to highlight is our ongoing digital transformation.
One example, I'd like to highlight is our ongoing digital transformation.
By leveraging our new digital platforms, we are enhancing our capabilities and transforming the way we operate to deliver new solutions to our customers.
Speaker 3: By leveraging our new digital platforms, we are enhancing our capabilities and transforming the way we operate to deliver new solutions to our customers.
Speaker 3: With this capability, we recently launched Wolf Pro Security, a new subscription service that enables customers to digitally manage their software on an annual subscription basis.
With this capability, we recently launched <unk> Pro security and your subscription service that enables customers to digitally manage their software on an annual subscription basis.
Speaker 3: Structural cost savings with our transformation efforts are enabling us to invest in these types of strategic growth drivers.
The structural cost savings without transformation efforts are enabling us to invest in these types of strategic growth drivers.
Speaker 3: And we see many more opportunities like this to drive business enablement through additional software, services, and solutions offered.
How do we see many more opportunities like this to drive business enablement to additional software services and solutions offerings.
Speaker 3: Let me now move to cash flow and capital allocation.
Let me now move to cash flow and capital allocation.
Q4 cash flow from operations was $2 $8 billion and free cash flow was zero point $9 billion. After the additional adjustment cause net Oracle litigation proceeds of $1 8 billion.
Speaker 1: Q4 cash flow from operations was $2.8 billion and free cash flow was $0.9 billion after the additional adjustment for the net article litigation proceeds of $1.8 billion.
Speaker 3: The cash conversion cycle was minus 25 days in the quarter. This deteriorated four days sequentially as lower days payable outstanding and higher days sales outstanding was only partially upset by the decrease in days of interest.
The cash conversion cycle was minus 25 days in the quarter. This deteriorated go days sequentially as lower days payable outstanding and higher days sales outstanding was only partially offset by the decrease in days of inventory.
Speaker 1: For the quarter, we returned a total of $2 billion to shareholders, which represented 210% of free cash.
For the quarter, we returned a total of $2 billion to shareholders, which represented 210% of free cash flow.
Speaker 3: This included $1.75 billion in share repurchases and $219 million in cash donations.
This included $1 $75 billion in share repurchases and $219 million in cash dividends.
Speaker 3: For FY21, we returned a record $7.2 billion to shareholders, or 172% of free cash flow.
Graph by 'twenty, one we returned a record $7 $2 billion to shareholders or 172% of free cash flow.
Looking ahead to FY 'twenty two.
Speaker 3: We expect to continue aggressively buying back shares at elevated levels of at least $4 billion.
We expect to continue aggressively buying back shares at elevated levels of at least $4 billion.
Speaker 3: Our share repurchase program, combined with our recently increased annual dividend of $1 per share, has us on track to exceed our $16 billion return of capital target set in our value creation plan.
Our share repurchase program combined with our recently increased annual dividend of a dollar per share has us on track to exceed our $16 billion return of capital target sits in our value creation plan.
Looking forward to Q1, and FY 'twenty, two we continue to navigate supply availability logistics constraints pricing dynamics and the pace of the economic recovery.
Speaker 4: Looking forward to Q1 and FY22, we continue to navigate supply availability, logistics constraints, pricing dynamics, and the pace of the economic recovery.
In particular keep the following in mind related to our Q1 and overall fiscal 2022 financial outlook.
Speaker 4: In particular, keep the following in mind related to our Q1 and overall fiscal 2022 financial outlook.
So personal systems.
Speaker 4: continue to see strong demand for our PCs, particularly in commercial, as well as favorable prices.
We continue to see strong demand for P CS, particularly in commercial as well as favorable pricing.
Speaker 4: We expect solid PS revenue growth to continue into fiscal 22 with a shift to higher growth categories including commercial, premium and peripheral.
We expect solid P. S revenue growth to continue into fiscal 'twenty, two with the shift to higher growth categories, including commercial premium and peripherals we.
Speaker 4: We expect PS margins to be toward the high end about 5 to 7% long-term.
We expect P S margins to be toward the high end of about 5% to 7% long term range.
Speaker 4: In print, we expect solid demand in consumer.
In print, we expect solid demand in consumer a continued normalization in mix as commercial gradually improve through 2022 and disciplined cost management.
Speaker 4: normalization and mix as commercial gradually improves through 2022 and disciplined costs
Speaker 4: We expect print margins to be towards the high end, about 16 to 18 percent longer.
We expect margins to be towards the high end about 16% to 18% long term range.
Speaker 4: For personal systems, we expect that component shortages as well as manufacturing port and transit disruptions will continue to constrain revenue due to the ongoing pandemic in many parts of the world.
For personal systems, we expect the component shortages as well as manufacturing Port and transit disruptions will continue to constrained revenue due to the ongoing pandemic in many parts of the world.
Speaker 4: In print, we expect similar but more acute challenges, particularly with regard to factory disruptions and component shortages.
In print, we expect similar but more acute challenges, particularly with regard to factory disruptions and component shortages.
Speaker 4: We expect these challenges across PSM print to persist at least through the first half of 2020.
We expect these challenges across Pearson print to persist at least through the first half of 2022.
Speaker 4: Furthermore, normal sequential seasonality doesn't apply for FY20.
So the more normal sequential seasonality doesn't apply for FY 'twenty two.
Speaker 4: and we expect our revenue performance to be more linear by quarter, particularly driven by peer.
We expect our revenue performance to be more linear by quarter.
Particularly driven by P S.
Speaker 4: In addition, we expect a slight headwind year-on-year, approximately $20 million per quarter, from corporate investors.
In addition, we expect a slight headwind year on year, approximately 20 million per quarter from corporate investments and other.
Speaker 3: Taking these considerations into account, we are providing the following.
Taking these considerations into account we are providing the following outlook. We expect first quarter non-GAAP diluted net earnings per share to be in the range of 99 cents to one dollar and five cents and first quarter GAAP diluted net earnings per share to be in the range of 92 to 98 six.
Speaker 4: We expect first quarter non-gap diluted net earnings per share to be in the range of $0.99 to $1.05.
Speaker 4: and first quarter GAAP diluted net earnings per share to be in the range of 92 cents to 98.
We expect full year non-GAAP diluted net earnings per share to be in the range of $4.07 to $2.27 and FY 'twenty two GAAP diluted net earnings per share to be in the range of $3 86 to $4 six.
Speaker 4: We expect full-year non-GAAP diluted net earnings per share to be in the range of $4.07 to
Speaker 3: and FY22 GAAP diluted net earnings per share to be in the range of $3.86.
Speaker 4: For FY22 we expect free cash flows to be at least $4.5 billion.
For FY 'twenty, two we expect free cash flows to be at least $4 $5 billion.
Speaker 5: Overall, I feel very good about our performance and our outcome.
Overall, I feel very good about our performance and outlook.
Speaker 5: I am confident in our ability to deliver consistent, long-term, sustainable growth. And we look forward to taking your questions.
I am confident in our ability to deliver consistent long term sustainable growth.
And we look forward to taking your questions. So let me hand, it back to the operator.
Speaker 6: Thank you, and we will now begin the question and answer session.
Thank you and we will now begin the question and answer session.
Speaker 6: To ask a question, you may press star, then 1 on your touchtone phone.
To ask a question you May Press Star then one on your Touchtone phone.
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Speaker 6: To withdraw your question, please press star then 2.
To withdraw your question. Please press Star then two.
Speaker 6: We also ask that you please limit yourself to one question and a single follow-up.
Speaker 6: The first question is from Amit Daryanani with Evercore. Please go ahead.
The first question is from Amit <unk> with Evercore. Please go ahead.
Speaker 7: Thanks a lot. Good afternoon. Congrats on a nice quarter over here. I guess my first question really is on the PCs, on the personal systems side. You know, a very impressive, I think, reversal on the growth profile versus last quarter ago. It looks like it's heavily driven by ASPs. If my math is right, maybe ASPs are up close to 20%. So I'd love to understand, when I look at the ASP uplift, how much of that is just mixed because you perhaps have less Chromebooks versus...
Thanks, a lot good afternoon, congrats on a nice quarter over year.
I guess my first question really is on the Pcs all on the personal systems side, you know a very impressive I think reversal on the growth profile versus last quarter ago.
It looks like it's heavily driven by Asp's. If my math is right. It may be a speed it up closer to 20%. So I'd love to understand when I look at the S. B uplift how much of that is just mix because you perhaps had less chromebooks versus just apples to apples price increases and then how should we think about the durability of that ASP increase as you go forward into the next fiscal year.
Speaker 7: Apple's to Apple's price increases and then how should we think about the durability of that ASP increases you go forward into the next fiscal year
Speaker 2: Hi Amit, thank you for the question. Let me start and then Marie will provide more detail. So first of all, as you said, we are very pleased with the performance of the PC business this quarter. It is really a consequence of the strong demand that we continue to see.
Let me Hi, I mean, thank you for the question, let me start and then he will provide more detail. So first of all we as you said we are very pleased with the performance of the PC business. This quarter. It is really a consequence of the strong demand that we continue to see.
Speaker 2: both across consumer, but especially in commercial, and the way we have been managing both mix and pricing, as you were saying.
Both are good consumer about especially in commercial and the way we have been managing both mix and pricing as you were saying we have been very effectively managing both driving the component that we have towards the categories, where we saw the highest value for the company, which in general the commercial categories and how are you.
Speaker 2: We have been very effectively managing both, driving the component that we have towards the categories where we saw the highest value for the company, which in general are the commercial categories and the high end of the consumer side. And this has really been driving the performance that you saw.
And if they come in they can.
Hi, Andy.
Is it really been driving the performance that you're so no matter, who will comment on pricing.
Speaker 5: I know Marie will comment on pricing. Sure. Good afternoon, Amit. So, first of all, just to give you some context around ASPs, they're actually up 24% year-on-year and 17% queue-on-queue. And what's driving that is really a combination of favorable pricing, including some currency. But as you said, there's that favorable mix.
Good afternoon, and it's so first of all just to give you some context around a S piece, they were actually up 24% year on year, and 17% Q on Q and what's driving that it's really a combination of favorable pricing, including some currency, but as you said does that favorable mix into higher commercial is.
Speaker 5: into a higher commercial as well as even a mix shift inside commercial to both premium and mainstream so we've got less
Well, it's even a mix shift inside commercial to both premium and mainstream so we've got less a low end and that favorable mix shift within consumer in terms of year on year consumers up 11% driven predominantly by pricing and commercial is up 31.7, which is a combination of both mix and pricing and as we said earlier.
Speaker 4: low-end and that favorable mix shift within consumer. In terms of year-on-year, consumers up 11 percent.
Speaker 4: driven predominantly by pricing and commercials up 31.7, which is a combination of both mix and pricing. And as we've said earlier, and I think in our security analyst meeting, we do expect to see some of that favorable mix shift continue into the following year as well.
And I think in in at our security Analyst meeting, we do expect to see some of that a favorable mix shift to continue into into the into the following year as well.
Speaker 7: And if I could just follow up, Enrique, I think everyone is sort of used to thinking
Perfect and if I could just follow up you know and Ricky I think everyone's sort of used to thinking as supply revenues go down our print margins will be under pressure until you think what you're seeing right now what you're guiding for a more important in fiscal 'twenty two would say, even if supply start to decline margins should hold up in that you know 17 18.
Speaker 7: As supply revenues go down, print margins will be under pressure, and certainly I think what you're seeing right now, what you're guiding for, more importantly, in Fiscal 22, would say even if supplies start to decline, margins should hold up in that.
Speaker 7: you know, 17, 18% kind of range. So I'd love to kind of get your perspective. What are the two or three big things or, you know, vectors that investors should think about that is enabling print margins to expand even as supplies revenues might be a little bit more down?
For some kind of range, so I'd love to get kind of get your perspective, what are the two or three big things are and you know that.
Cause that investors should think about that is enabling print margins should expand even our supplies revenues might be a little bit more down next year.
Speaker 2: Thank you and this is really consistent to what we, the strategy that we started to execute two years ago when we are driving the change of profitability from both from supplies more into hardware. And as we shared during an analyst meeting, we have been making very good progress driving that strategy. We have increased the mix of products that
Thank you and this is really consistent with what we tell you that.
We've started to execute two years ago, when we were driving the change of profitability from both from supplies more into hardware.
How do we shared with you in analyst meeting, we have been making very good progress driving that strategy. We have increased the mix of products that.
Speaker 2: include supplies when customers buy them, what we call profit up front products. We have also increased the percentage of end-to-end systems, what we call now HP plans.
Include supply when customers pay them, what we call profit upfront product. We have also increased the percentage of end to end systems, where we can now H b plus.
Speaker 2: And we have also been driving a transition towards subscription and service-oriented businesses that is also contributing very positively from a profitability perspective. So what you see happening is what we said two years ago we were going to drive. We have been making good progress and this makes us confident in the guide that we provided for fiscal year 22 in our analysis day and about the guide that we have provided today for Q1.
And we have also been driving that transition towards the towards subscription and service oriented businesses that is also contributing very positively from a profitability perspective, So where do you see happening is what we said two years ago, we were going to drive we have been making good progress and this makes us confidence in the guide that we provided for.
Fiscal year 'twenty two in our analyst day, I know about the guy that we have provided today for Q1.
Speaker 5: And also just to keep in mind, and I'm sure you know this, that we're lapping some tough compares. So what we're really focused on is driving incremental OP dollars over time and driving more OP dollars outside of supply. And it's exactly what Enrique said, to really shifting the business model.
Also just to keep in mind that I'm sure you noticed that where we're lapping some tough compares so what we're really focused on is driving incremental O P dollars over time and driving more O P dollars outside of supply and that's exactly what Enrique said through really shifting the business model.
Speaker 6: The next question is from Ananda Barua with Loop Capital. Please go ahead.
The next question is from Ananda Baruah with loop capital. Please go ahead.
Speaker 8: Hey, good afternoon guys. Thanks for taking the question and congrats on the strong results.
Hey, Yeah. Good afternoon, guys. Thanks for taking the question and congrats on the strong results.
Speaker 8: Yeah, just two if I could, Enrique, any new anecdotes, if you guys clearly continue to sound, you know, as net positive on demand as you did five weeks ago at the Analytics Day, but any new context over the last five weeks with regards to what you're seeing, customer conversation, you know, conversion, anything like that you've picked up over the last five weeks would be super helpful, and then I have a quick follow-up.
Yeah, just two if I could Enrique India, any any new Andy because you guys clearly continuing sound.
As net positive on demand as you did five weeks ago at the analyst day.
But but any new contract, which will go over the last five weeks with regards to what you're seeing customer conversation.
No conversion anything like that and you picked up in the last five weeks would be Super helpful. And then I'll have a quick follow up.
Speaker 2: What we have seen is, I'm sorry to disappoint you, it's very consistent to what we discussed in our analyst day. We continue to see strong demands, especially from commercial customers, as we share their office, as companies are reopening offices, getting employees back to work, they're investing to improve their experiences, and therefore they're investing in PCs, they're investing in notebooks and desktops. We also are seeing strong consumer.
Where do we have seen is I'm sorry to disappoint you is very consistent to what we discussed in our analyst day, we continue to see strong demand, especially from commercial customers and we share their office companies have reopening offices getting employees back to work there to improve their investing to improve the XP.
Uh huh.
And therefore, there improve investing in Pcs and notebooks.
Notebooks and desktops, we also have seen strong consumer demand.
Speaker 2: As the holiday season comes, we are seeing demand behaving as per plan, so no deviations from what we discussed a few weeks ago.
Oh the holiday season. It comes we are seeing demand behavior Master plan. So no deviation from what we discussed a few weeks ago.
Speaker 5: Okay, great. And then... With backlog, too. So, our backlog still remains...
Take rate.
With backlog too so our backlog still remains elevated.
Yeah. Thanks for that and then I guess the follow up is on the commercial side any distinction to make like Youre seeing between you know truly enterprise and small medium business small medium business is that a.
Speaker 8: Thanks, Marie, for that. And then I guess the follow-up is, on the commercial side, any distinction to make what you're seeing between true enterprise and small-medium business? Small-medium business has been a good chunk of your business for a while. And so any distinction to make there between the tenor of demand between those two?
A good chunk of your business for a while and so any any distinction to make there between the tenor of demand between basis. Thanks.
Speaker 2: No, I wouldn't make any big distinction. We see growth across the board, both for large enterprises and for SMBs. We have a very strong business in both areas and we see demand in the two customer segments. So no major deviations on that.
I wouldn't make any big distinction, we see growth across the board both for large enterprises and for Smbs.
Have a very strong business in both areas and we see demand in.
In the two in the two customer segments. So no major deviations from that.
Thank you.
The next question is from Toni <unk> with Bernstein. Please go ahead.
Speaker 6: The next question is from Tony Sakonagi with Bernstein. Please go ahead.
Speaker 9: Yes, thank you for taking the question. I was wondering if you could maybe just provide a little more detail on your backlog. I think last quarter, you said that your backlog in PCs was about 13 weeks.
Yes. Thank you for taking the question I was wondering if you could maybe just provide a little more detail on your backlog.
Think last quarter, you said that your backlog in Pcs was about 13 weeks.
Speaker 9: Can you provide an update on that? And you mentioned that print hardware was probably the most supply constrained. So perhaps you can dimension the backlog and how much it may have changed in the quarter. And then I have a follow-up.
Can you provide an update on that and.
And you mentioned that print hardware was probably the most supply constrained so.
Perhaps you can dimension the backlog and how much it.
They have changed in the quarter and then I have a follow up please.
Speaker 2: So, in terms of PC backlog, it remains at a very elevated level, very similar to where we were a quarter ago. So, no major changes. It continues to be similar to what you saw, despite all the strong business that we have created this quarter.
Sure. So in terms of P feedback loop, if you mean sort of very elevated.
Very similar to where we were a quarter ago. So no major changes it continues to be similar to what you saw despite the Cortez film business that we have created this quarter.
Speaker 2: And then in terms of print, you are correct, print hardware is where we have seen the major supply chain limitations, mostly because the factory lockdowns in many Southeast Asia countries, which is what we shared during the last week, so no news here.
Then in terms of print the yard correct.
Hardware is where we have seen the major supply chain limitations, mostly because it's hard to the lockdowns in many southeast Asia countries, which is what we shared during the last week. So no news here.
Speaker 9: And backup is also elevated, but it is lower than what we have on PCs. OK. And then.
And so to me, it's also elevated but he is lower than what we have been busy.
Okay.
And then.
Speaker 9: Just to follow up, you talked about the strength in pricing.
Just a follow up you talked about the strength in pricing.
Speaker 9: Prices were up 17% sequentially in PCs, yet your operating margins in PC
<unk> prices were up 17% sequentially and P. CS yet your operating margins in D. C were the lowest they were all year.
Speaker 9: were the lowest they were all year. I know there were some incremental supply chain costs, but that kind of price leverage.
I know there were some incremental supply chain costs, but that kind of price leverage why did you not see a greater operating profit leverage and then somewhat related to that.
Speaker 9: Why did you not see a greater operating profit leverage? And then somewhat related to that.
Speaker 9: You know, I think, Marie, you basically said we should sort of ignore traditional seasonality and kind of think of flattish growth throughout the year. But if you're actually going to make any progress in drawing down your backlog and demand remains strong, your seasonality actually should be above normal seasonality because demand's continuing at the same rate, but you're getting a tailwind from backlog ultimately if you're able to draw that down. So maybe you could just help.
Hugh I think Mary you basically they said, we should sort of ignore traditional seasonality and kind of think of flattish growth throughout the year, but if you're actually going to make any progress and drawing down your backlog and demand remains strong.
Seasonality actually should be above.
Above normal seasonality because demand is continuing at the same rate, but youre getting a tailwind from backlog ultimately if youre able to draw that down. So maybe you could just help.
Speaker 9: provide some color on both of those things, you know, potential inconsistencies, and set me straight, thank you.
Provide some color on both of those things yeah potentially consistency.
And set me straight thank you.
Speaker 5: No worries, Tony, and good afternoon. So why don't I talk first about seasonality. And I'd say that, first out, that we've seen that strength in the quarter in PS, and we do expect that to continue into 22. So as a result, we do expect revenue linearity in the year to be more linear across the quarters.
Yeah, no worries plenty and good afternoon. So why do I talk first about seasonality and you know I'd say that first out that we've seen that strength in the quarter and P. S and we do expect that to continue into 'twenty. Two so as a result, we do expect revenue linearity in the year to be more linear.
Across the quarters, and that's more timing than what we've seen in the last few years. So our sequential revenue growth and 22 is there going to be more consistent quarter to quarter and I just reiterate like I did I think at the Sam meeting that we don't expect normal seasonality and then with respect to the P. S.
Speaker 5: more so, Tony, than what we've seen in the last few years. So, as the credential revenue growth in 22 is therefore going to be more consistent quarter to quarter, and I just reiterate, like I did, I think, at the SAM meeting, that we don't expect normal seasonality. And then, with respect to the PS operating margins in the quarter.
Operating margins in the quarter a P. S was actually the rate was actually down slightly quarter on quarter and that was just really due to you might recall the material change the change in estimate that we had back in Q3 and also you know you saw just the strength of the business that we actually had so you know we did take the opportunity to make some onetime investments that.
Speaker 5: P.S. was actually, the rate was actually down slightly quarter on quarter and that was just really due to, you might recall, the material change in estimate that we had back in Q3. And also, you saw just the strength of the business that we actually had, so we did take the opportunity to make some one-time investments that we don't expect that they are probably going to make.
We you know we don't expect that they are probably going to repeat in in 'twenty two.
Speaker 6: The next question is from Shannon Cross with Cross Research. Please go ahead.
The next question is from Shannon Cross with Cross Research. Please go ahead.
Speaker 10: Thank you very much. Enrique, could you talk a bit about your peripherals initiative and what we should look for in terms of proof points and what you've done internally to try to improve that business so that it can contribute in fiscal 2022? And then I have a follow-up.
Thank you very much and making it could you talk a bit about your peripherals initiative and you know how what what we should look for in terms of our proof points and and you know what you've done internally to try to improve that business. So that it can contribute in fiscal 2022, and then I have a follow up.
Speaker 2: Thank you, Shannon. So, as we said in our analyst day, Peripherals is one of the five growth areas of the company and we think that really it's going to be contributing to the sustained growth that we expect to see in person.
Yeah sure things behind them, so as we said in our analyst day.
The first is one of the five growth areas of the company and we think that really is going to be contributing to the sustained growth that we expect to see in personal systems.
Speaker 2: We have done a lot of changes internally to manage the business better. We, in the past, if you remember, we were calling it attached. And when you call a business attached, you don't put the best engineers, you don't put the investment that the business requires, and you don't have the organizational focus. And we have changed all that. We have a dedicated organization to peripherals. We have put some of the strongest leaders in the company to drive that initiative. We are increasing internal investment. We are.
We we have done a lot of changes internally to manage their business better we did in the past. If you remember we were calling it at that and when you call a business or that you don't put their best Engineers, you don't put in English means that the business requires and you don't have the organizational focus and we have changed all that we have a dedicated organization.
Two preferreds, we have put some of the strongest leaders in the company to drive that initiative. We are increasing internal investment we are moving some of our best engineers to that group and we have also invested in inorganic acquisitions, either the acquisition, we did with hyperlinks to reinforce our approach.
Speaker 2: moving some of our best engineers to the group and we have also invested in inorganic in acquisitions as the acquisition we did with HyperX to reinforce our position in some specific areas like in the case of HyperX in peripherals for gaming.
Tissue and in some specific areas like indications of hybrid axiom pretty transfer of gaming.
Speaker 2: What you will see us doing in the future is to continue to invest in this space. We think we have a great opportunity to continue to grow going forward and we will be providing regular updates of the progress that we are going to see in that category going forward.
Well you will see us doing in the future is to continue to invest in this space. We think we have a great opportunity to continue to grow it going forward and we will be providing regular updates on the progress that we are gonna see in that category going forward.
And just to close this quarter, we have double digit growth in these categories. So we're really pleased with where the growth in British pounds.
Speaker 10: Thank you. I was wondering if you could give us an update on 3D printing, what kind of contribution you're seeing. I know you're not going to give us specific numbers, but how that's going coming out of the pandemic and where you're seeing strong
Okay. Thank you and then I was wondering if you could give us an update on three D printing.
You know what kind of contribution you're seeing I know, you're not going to give us specific numbers, but you know what we're that's how that's going coming out of the pandemic and and where you're seeing a strong demand. Thank you. Thank you.
Speaker 2: Thank you. So let me cover 3D printing from two angles. First is, after the pandemic, we are seeing very strong growth in what I would call the traditional 3D printing, basically selling printers, selling supplies, and selling services around those. Very strong growth. We are seeing really a peak
Let me cover three D printing from two angles first is after the pandemic. We are seeing very strong growth in what I would call. The traditional three D printing basically selling printers and supplies I'm selling services around those really strong growth, we have seen really a pickup of demand.
Speaker 2: but also we shared during our investor day that we have complemented that part of the business with the investment in three specific end-to-end
But also we shared during our Investor day that we have complemented that parts of the business with the investment in three specific into and we call it applications or be misheard. What do we think we have the opportunity of capturing more value because we don't know just selling the printers, we are designing their parts.
And in some cases, we are also selling the parts to their consumers or to the end users and we shared in our Investor day that we were working on molded fiber and sustainable packaging.
Speaker 2: And we shared in our investor day that we were working on molded fiber and sustainable packaging and on orthotics and on footwear. Three areas where of businesses in the 8 to 12 billion dollars where we can really drive a strong disruption because we think 3D printing is really going to help us to grow and to transform those industries.
So these are known food were three areas, where businesses and then $8 billion to $12 billion, where we can really drive a strong disruption because within three D. Printing is really going to help us to go and to transform those industries. So great progress. We are on track to who's going to discuss a few weeks ago and during 2000.
Speaker 2: So, great progress. We are on track, this is what we discussed a few weeks ago. And during 2022, we will continue to provide updates on where we see this business going.
And 'twenty two we will continue to provide updates on where do we see this business growing.
Speaker 6: The next question is from Katie Huberty with Morgan Stanley . Please go ahead.
The next question is from Katy Huberty with Morgan Stanley. Please go ahead.
Speaker 10: Yes, thank you. Good afternoon. There's a pretty wide dispersion in revenue growth across the regions this quarter with America's down 4% and double-digit positive growth in EMEA and Asia Pacific. What explains that dispersion? Some of it is year-on-year comps, but that's not nearly all of it. Are prices passing through in different rates?
Yes. Thank you good afternoon, there's a pretty wide dispersion in revenue growth across the regions this quarter with Americas down, 4% and double digit positive growth in EMEA and Asia Pacific.
What explains that dispersion some of it is year on year comps, but that's not nearly all of that yeah, our prices passing through in in indifferent right rates across the regions is there are differences in how the distribution channels are rebuilding inventory coming out of coming out of the downturn.
Speaker 11: across the regions? Is there differences in how the distribution channels are rebuilding inventory coming out of the downturn? Just any context around the pretty wide dispersion and in geographic growth and then I have a follow up.
Just any context around that the pretty wide dispersion and in geographic routes and then I have a follow up.
Speaker 2: I think the dispersion is really driven by what have we been prioritizing and where we have seen growth. If you think about a year ago, we saw very strong growth on the consumer business in North America. And as we have shared, we are now driving our business more towards higher premium categories, mostly in commercial. And therefore, this has implications on the year-on-year comparison. This is really what is driving the delta case.
I think the dispersion is really driven by what have we been prioritizing where we have seen growth. If you think about a year ago. We saw very strong growth on the consumer business in North America and as we have shared we are now driving our business more towards higher premium categories, mostly in commercial and therefore this has implications.
On the year over year comparison does it.
Really what is driving the delta there Craig.
Speaker 11: OK, and then as a follow up, maybe for Marie inventory was a use of cash over the past year. It did come down in the 4th quarter. Should we assume that your balance sheet inventory gradually normalizes as you as you move through fiscal 22?
Okay, and then as a follow up maybe for Murray inventory was a use of cash over the past year. It did come down in the fourth quarter should we assume that your balance sheet inventory gradually normalizes as you as you move through fiscal 'twenty two.
Speaker 4: Yeah, no, you know, we expect, basically, for our inventory levels to remain somewhat elevated while we're through this supply chain constrained environment. However, you know, we do expect to moderate our components depending on the supply and the demand that we see around the components, but certainly as we look forward into the first half of 2022, you know, we still expect to see those levels somewhat elevated.
Yeah, No we expect basically probably inventory levels to remain somewhat elevated huawei through the supply chain a constrained environment. However, we do expect to moderate our components, depending on the supply and the demand that we see around the components, but certainly as we look forward into the first half of 'twenty. Two you know we we still are.
Expect to see those levels somewhat elevated would you say it is like what we were seeing if we look at components, where availability has improved we don't need to maintain those levels of inventory and therefore, we are correcting that.
Speaker 2: What you said, Katie, is like, if we look at components where availability has improved, we don't need to maintain those levels of inventory, and therefore we are correcting that. But as Marie was saying, since we expect to continue to be in a supply-constrained environment at least to the third half, inventory will stay at high levels.
What he was saying is we expect to continue to be in a supply constrained environment at least through the first half inventory would play out high 11th.
Speaker 6: The next question is from Sameek Chatterjee with J.P. Morgan. Please go ahead.
The next question is from Sami Chatterji with J P. Morgan. Please go ahead.
Hi, This is Angela Zhao on for Sonic Chatterji, just had one question I wanted to dig in a little and to the margin here on I think someone mentioned earlier that you had 17% price increase and P. C.
Speaker 12: Hi, this is Angela Jin for Sonic Catergy. Just had one question, wanted to dig in a little into the margins here. I think someone mentioned earlier that you had 17% price increase in PCs.
Speaker 12: And so just thinking about moving forward, assuming you have sort of favorable pricing into fiscal year 22 and that the supply situation at least starts to seem to be stabilizing or maybe easing a bit, should we expect to see margins sort of remain at that elevated level even beyond your first quarter guidance?
And so just thinking about moving forward and assuming you have sort of favorable pricing until fiscal year 'twenty two.
And that the supply situation at least starts to seem to be stabilizing or maybe easing a bit should we expect to see margin kind of remain at that elevated level, even beyond your first quarter guidance.
Speaker 5: Yeah, no, sure, and good afternoon. So we are very much on track towards the high end of our long-term SAM range, which we gave it at Analyst A for PS.
Yeah, No sure and good afternoon. So we are very much on track towards the high end about long term Sam range, which we gave at our analyst day for P. S. So you know we continue to see that strong demand for our P. CS, particularly in commercial and we expect to see that favorable pricing as well.
Speaker 4: So we continue to see that strong demand for our PCs, particularly in commercial, and we expect to see that favorable pricing as well. And that's how we think about our guide for Q1. I would just add, I think I mentioned it with Tony, that we were down slightly Q on Q, and that was really driven by the material change in estimate we had last quarter. But going forward, we absolutely expect our PS margins to continue to be at the high end of our long term.
You know how we we think about our guide for Q1 I would just add I think I mentioned it was Tony that we were down slightly.
Q on Q and that was really driven by the material change in estimate we had last quarter, but going forward. We absolutely expect our P. S margins to continue to be at the high end of our long term range.
Speaker 2: And just a brief reminder, we increased our long-term range a few weeks ago. So what we are saying is we are going to stay at the high end of the new ranges that we just provided.
Just a brief reminder, we increased our long term range a few weeks ago. What we're saying is we're gonna stay or the high end of the new ranges that we just provided.
Great. Thank you.
Speaker 6: The next question is from Sidney Ho with Deutsche Bank. Please go ahead.
The next question is from Sidney Ho with Deutsche Bank. Please go ahead.
Okay.
Speaker 8: Hi. Thanks for taking my question. I got two questions. First one is, you mentioned your backlog is staying at elevated level. Now that you have another quarter observing this dynamics, can you talk about how you monitor to make sure the orders are real, and how confident are you that once supply constraints start to ease, you don't see a sharp decline in, I mean, sharp increase in cancellation rate or decline in this backlog? And I'll follow up.
Hi, Thanks for taking my question I've got two questions first one is.
You mentioned your backlog is staying at elevated level now that you have another quarter of observing this dynamics can you talk about how you monitor to make sure their orders are real and how confident are you that one supply constraints start to ease you don't see a sharp decline in sharp increase in cancellation rate or a decline in this backlog.
Oh, yeah. Thank you. So we have shared in the past. This is really something that we pay a lot of attention to and we constantly monitor all the orders that we get the quality of the order and what cancellations are happening.
Speaker 2: Yes, thank you. So, as we have shared in the past, this is really something that we pay a lot of attention to, and we constantly monitor all the orders that we get, the quality of the orders, and what cancellations are happening. And as we have shared before, the percentage of cancellations is very, very low. It's very, very small. So, we are not seeing any cancellation.
As we have shared before their percentage of cancellations is very very slow it's very very small so we have not seen any cancellations.
Speaker 2: Also, as we look at the composition of the backlog, the majority of the backlog now is coming from commercial customers, given that this is where we continue to see the strongest demand. Usually, there is an end user, or in many cases, there is an end user associated with that backlog. So it means the probabilities of double booking or cancellations even lower.
Also as we look at the competition of the backlog and my duty the other backlog now he's coming from commercial customers given that this is there where we continue to see the strongest demand.
Surely there is an end user and in many cases it is sending due to associated to that backlog. So it means that the probability of double booking or cancellations, even lower but.
Speaker 2: we rest assured this is something we monitor constantly and we don't see any cancellations. Now, of course, our goal is to over time to reduce the amount of backlog that we have because and we expect that the supply will get normalized during the next quarter, we will be reducing the amount of backlog that we
We rest assured this is something we monitor constantly and we.
We don't see any cancellations no of course, our goal is to over time to reduce the amount of backlog that we have because we expect that the supply will get normalized during the next quarter, we will be reducing the amount of backlog that we have.
Speaker 8: Great, that's helpful. Maybe my follow-up question is on the free cash flow for Fisco 22 of more than $4.5 billion. How should we think about the profile of that going to look like as we go through the year? Typically, you see the lowest free cash flow in Fisco's second quarter and highest in Fisco's third quarter. But this year could be different. But any other factors we should be thinking about and kind of related to that, how may that change the amount of share buyback as we go through the year? Thanks.
Great. That's helpful. Maybe as my follow up question is on the free cash flow for fiscal 'twenty two of more than $4 $5 billion well, how should we think about the profile of that going.
Going to look like as we go through the year typically you see the lowest free cash flow in fiscal second quarter and highest in fiscal third quarter, but this year it could be different but any other factors, we should be thinking about and kind of related that how may that change the amount of share buyback as we go through the year. Thanks.
Speaker 5: So maybe I'll hit up cash flow and then we'll go to the buyback. So first of all, we guide cash flow on an annual basis. And as we mentioned at SAM, we're confident in our guide of at least 4.5. A couple of things to bear in mind, obviously cash flow is driven by revenue and operating profit growth. And then secondly, I think we did comment that we did expect to see some.
Yeah, So maybe I'll help cash flow and then we'll go to the buybacks. The festival, we guide cash flow on an annual basis and as we mentioned at Sam you know, where we're confident in our guide of at least $4 five a couple of things to bear in mind, you know, obviously cash flows driven by revenue and operating profit growth and then secondly.
I think we did comment that we did expect to see some favorable working capital as we start to see those inventory levels potentially moderate in the second half. So that's how we're thinking about we built that all into out into our guide basically intensive free cash flow.
Speaker 5: favourable working capital as we start to see those inventory levels potentially moderate in the second half. So that's how we're thinking about it. We've built that all into our guide, basically, in terms of free cash flow. With respect to our buybacks, we remain committed to repurchase at least $1.5 billion.
With respect to our buybacks, we remain committed to repurchase at least 4 billion about shares and yes. You you probably recently so analysts reports analyst meeting as well you know we're expecting to pay out a dividend of a dull appreciate it. So I think you know really a meaningful.
Speaker 5: 4 billion of our shares and as you probably recently saw in our analyst reports, analyst meeting as well, we're expecting to pay out a dividend of a dollar per share. So I think really a meaningful
Speaker 3: plan there with respect to our buyback, starting return of capital to a shareholder.
Planned out with respect to out a buyback starting in return of capital to our shareholders.
The next question is from David vote with UBS. Please go ahead.
Speaker 6: The next question is from David Vogt with UBS. Please go ahead.
Speaker 13: Great. Thank you for taking my question. I just have one question. It's more of a financial philosophical question and trying to think through your long-term financial framework that sort of underpins the high single digit EPS growth that you laid out at SAM. And if I just take sort of your framework at face value as operating profit grows and your dividend grows along with up-profit and or earnings.
Great. Thank you for taking my question I just have one question, it's more of a financial philosophical question and I'm trying to think through your long term financial framework that sort of underpins the high single digit EPS growth that you laid out at Sam.
If I just take sort of your framework I face value as operating profit crews and your dividend grows along with our profit and our earnings.
Speaker 13: What are the parameters that you're using to think about the buyback in terms of how much you want to use? As the stock appreciates and let's say the multiple expands and you're no longer undervalued or maybe even less value, I would imagine that you might ratchet down or maybe pull back on the buyback. That seems to be a pretty important part of the longer term EPS growth that you've laid out at the SAM. I just want to get a better understanding of how you're thinking about it over the longer term.
One is sort of the parameters that you're using to think about the buyback in terms of how much you want to use because you know as.
As the stock appreciates and let's say the multiple expansion you no longer critical undervalued or maybe even less value I would imagine that you might ratchet down or maybe pull back on the buyback.
And that seems to be a pretty important part of the longer term EPS growth that you've laid out of a tam. So just trying to get a better understanding how youre thinking about it over the longer term. Thanks.
Speaker 5: Yeah, maybe I'll just start out by commenting firstly that Al...
Yeah, maybe I'll just start out by commenting personally that out FY 'twenty. Two guidance is is a combination of both operational flow through and the results of a share buyback now addressing your question specifically about how we're sitting thinking about your philosophical question around the buybacks.
Speaker 5: FY22 guidance is a combination of both operational flow-through and the results of shared buyback. Now addressing your question specifically around how we're thinning, thinking about your philosophical question around the buybacks.
I would just say that we're absolutely committed to the capital allocation strategy that we've outlined at Sam and yeah. Those ingredients nothing's changed there and a big part of that is a return of capital to shareholders. So you know we're on track to continue to buy back shares at elevated levels at least 4 billion and in fact, I think we're going to support you know what we said we do back of the value plan of at least.
16, so that's how we're thinking about it and our commitment really hasnt changed.
Two to complement a little what Marty was saying what we have committed is that we will be returning and I'm talking now about the long term, 100% of free cash flow unless other better opportunities right and we have also committed to increase our leverage ratio to two points.
Speaker 2: and we will be doing this over time, so both will be sources of cash that we will be using to return capital to shareholders or potentially to M&A if M&A will bring better returns.
And we would be doing this over time. So both will be sources of cash that we will be using to return capital to shareholders or potentially through M&A easily if in my neighborhood, bringing better returns.
Great and maybe just as a quick follow up Enrique So does that imply that the dividend effectively sort of a sort of marching in law in lock step with sort of earnings growth and then the flexible use of cash flow between M&A will be you know the castle will be between M&A and buybacks a little longer term.
At least we believe that the shares are undervalued.
This is clearly the situation today. So this is what you should expect us to do became Elisa, while we all would see that delta.
Speaker 6: The next question is from Wamsi Mohan with Bank of America. Please go ahead.
The next question is from lumpy Mohan with Bank of America. Please go ahead.
Oh, yes. Thank you in your prepared commentary Enrique you mentioned and then you also called out M&A as an important lever and I was curious just given.
Speaker 14: Yes. Thank you. In your prepared commentary, Enrique, you mentioned that you also called out MNA as an important lever and I was curious.
Speaker 14: just given the strong cash flow, free cash flow that you'd be generating, plus the...
Strong cash flow, our free cash flow that you'd be generating plus the.
Speaker 14: uh... payment from oracle uh... you have a sizable
Payment from Oracle.
The sizable.
Speaker 14: uh... war chest for m and a so any fighting parameters uh... anything that you can share with us and and what you're looking to be expect similar to what you've done here in the recent past uh... or or something large
<unk> chest for M&A, so any sizing parameters.
Anything that you can share with us and what Youre looking should we expect similar to what you've done here in the recent past or or something larger.
Speaker 2: Yes, so let me kind of remind what we have been discussing during the last weeks. First is we have shared that M&A is an important part of our plan. Second, we have identified five
Yeah. So let me kind of remind what would we have been discussing during the last weeks first days, we have shared that M&A is an important part of our plan second we have identified five key growth areas for the company, where we think M&A could help us to grow profitably.
Speaker 2: key growth areas for the company, where we think M&A could help us to grow profitably in a faster way, and that we are scanning opportunities to
The fact that away and hardware cutting opportunities to do that at the same time. We have also said that we're gonna be very rigorous stewards of capital, but any opportunity we take vessels the strategy versus the operational ability that we need to have to deliver on the financial goals and then of course.
Speaker 2: At the same time, we have also said that we are going to be very rigorous stewards of capital, that any opportunity we take versus the strategy, versus the operational ability that we need to have to deliver on the financial goals, and then, of course, it needs to have attractive returns, better than return by the buyback shares, which is a fairly high threshold, given that we believe that shares are undervalued.
We need to have attractive returns better the return, but ish and buy back shares which is a fairly high draft will be given that we believe the shares are undervalued in.
Speaker 2: In terms of the specific side, I don't think we have any, we haven't made any commitments on that space. They really need to deliver strong financial research and be aligned with the strategies. But we are not going to do anything different because of the Oracle cash that we got. We are going to continue to manage capital with the framework that we have been discussing until now and with the same framework. Okay, thanks, Enrique.
In terms of the specific side I don't think we have any any we haven't made any commitments commitments when that space, where you really need to deliver strong financial returns and base and that'd be align with their strategies, but we have nothing to do anything different because of the Oracle carriage that we got we are going to continue to manage capital.
With a framework that we have been discussing them now and with the same particular.
Okay. Thanks, Enrique if I, if I have a follow up.
Speaker 14: A few people have asked about the ASB and its sustainability, and clearly you talk about strong demand backlog and this ASB strength to sustain in fiscal 22.
Yeah, a few people have asked about the ESPN is sustainability and clearly you talk about strong demand backlog and this asb's trying to sustain in fiscal 'twenty, two but if I could ask it maybe a little differently how much of this ASP increase would you attribute to the tightness in the market, which is driving favorable pricing.
Speaker 14: But if I could ask it maybe a little differently, how much of this ASB increase would you attribute to the tightness in the market, which is driving favorable pricing, versus potentially as, you know, supply improves over the course of the next few quarters, you know, do you still anticipate the mix can drive these sort of elevated levels of ASB growth? Thank you.
Worse as potentially as as you know supply improves over the course of the next few quarters.
Do you do you still anticipate the Mexican drive.
These sort of elevated levels of ASP growth. Thank you.
Speaker 2: Yeah, I think that the key thing really is what is going to be the cost margin that we will be delivering or the operating profit margins. And as Marie was saying, we increased our guidance a few weeks ago, and we expect to continue to be at the high end of the range through 2022.
Yeah, I think the key thing really east coast, He's gonna be that gross margin that we would be delivering or the operating profit margins and that's what he was saying we increased our guidance a few weeks ago and we expect to continue to be at the higher end of the range through 2022, what we think will companies eventually.
Speaker 2: What we think will happen is eventually the price availability will reduce as volumes will increase. But as volumes will increase, we will also see additional business. So one will compensate the other. So we will stay within the high end of the range through 2022.
They're probably forbid ability will reduce our volumes will increase but the volume will increase we also see additional business to one will compensate the other so we will stay within the high end of our range through 2022 and I'd. Just add you know we are still in that it's a bit like the laws of economics, while you're in a supply constrained environment.
Speaker 4: that you know we are still in that it's a bit like the laws of economics while you're in a supply-constrained environment you're favorable pricing really possessed but in addition demand is strong so together that really contributes to what we
Favorable pricing really persist, but in addition demand is strong so together that really contributes to what we've seen in terms of the favorable pricing dynamic, which we do expect.
Speaker 4: favorable pricing dynamic, which we do expect will continue through 2022, but we do expect some normalization as the year goes on.
We will continue to a 22, but we do expect some normalization as the year goes on as well.
Speaker 6: The next question is from Aaron Rakers with Wells Fargo. Please go ahead.
The next question is from Aaron Rakers with Wells Fargo. Please go ahead hi.
Speaker 15: Hi, this is Jake on for Aaron. Congrats on the great quarter. Just really quick. I was wondering if you could talk a little bit more about what you're seeing in the graphics market and then kind of just how you're thinking about that business heading into 2022.
This is Jake on for Aaron Congrats on the great quarter I'm, just really quick I was wondering if you could talk a little bit more about what you're seeing in the graphics market.
Then tenders, how youre thinking about that business heading into 2022.
Speaker 2: Yes, so we are seeing a strong recovery of the overall industrial graphics business, mostly driven by the more industrial side, driven by labels and packaging. We have seen nice growth in Q4 and we expect to see very nice growth in 2022. So really good progress and really a contributor of growth for the company in 2022.
Yes, so we are seeing a strong recovery of the overall industrial the graphics business.
Totally driven by the more industrial side, driven by labels and packaging, we have seen nice growth in Q4, and we expect to see very nice growth in 2022, So really good progress on really a contributor of growth for the company in 2022.
And just as kind of a follow up onto that is that the market you guys would be targeting for M&A with just how fragmented. It is is that something you're focused on.
Speaker 15: And just as kind of a follow up onto that, is that a market you guys would be targeting for M&A with just how fragmented it is? Is that something you're focused on?
Speaker 2: Well, we have a very strong portfolio in that category that is a combination of both internal development of M&A that we have done over the years. We have done several acquisitions in that space, both in printing technologies and also in software. And we have identified this as one of the key five growth areas of the company. And as I said, M&A is part of our plan. We expect to continue to do that in 2022.
Well, we we we have a very strong portfolio in that category.
A combination of both internal development.
We have done over the years, we have done several acquisitions in that space. Both in printing technology and also in software and we have identified this had one of the key five growth areas of the company and as I said M&A is part of our plan, we expect to to continue to do that in too.
'twenty two.
Speaker 2: And as we also shared, we have room to do that, while at the same time, we return aggressive capital to shareholders through both share repurchases and dividends. And as I said before, over time, we will be increasing our ratio to 1.5 to 2, which will be also another source of capital.
And as.
We also shared we have room to do that while at the same time, we return our aggressive in capital to shareholders through both share repurchases and dividend.
As I said before overtime, we will be increasing our ratio to one five to two which will be also another source of capital.
Great. Thank you.
Speaker 2: And I think it's now time to wrap up. So let me close the call by saying that we really feel strong about the quarter that we have. It's a great proof point of the ability that we have to deliver value to our shareholders and shows the strong momentum that we have entering fiscal year 22. And this is why we provided the guide that we provided for Q1 that shows the strength that we see in our business.
And I think it's now time to wrap up so let me close the call by saying that we really feel strong about the quarter that we have is a great proof point of the ability that we have to deliver value to our shareholders and shows there's still momentum that we have entered in fiscal year 'twenty two and this is why we provide.
The guide that we provided for the for Q1 that shows the thing that we see in our.
Our business.
Speaker 2: So thank you, everybody, for the call today. And we wish all of you a great Thanksgiving with your families. Thank you.
So thank you everybody for the call today, and we wish all of you a great times, giving with your families. Thank you.
Speaker 6: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.