Q1 2024 HP Inc Earnings Call

Operator: Good day, everyone, and welcome to the first quarter 2024 HP Incorporated Earnings Conference Call. My name is Krista, and I'll be your conference moderator for today's call. At this time, all participants will be in a listen-only mode.

Good day, everyone and welcome to the first quarter 'twenty 'twenty four H P incorporated earnings Conference call. My name is Krista and I'll be your conference moderator for today's call. At this time, all participants will be in a listen only mode.

Orit Keinan: We will be facilitating a question-and-answer session towards the end of the call. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded for replay purposes. I will now turn the call over to Orit Keinan-Nahon, head of Infestor Relations. Please go ahead.

We'll be.

Rich: Be facilitating a question and answer session towards the end of the conference should you need assistance during the call. Please signal a conference specialist by pressing the star key followed by zero as a reminder, this conference is being recorded for replay purposes, I will now turn the call over to our rich Cana in the hall.

Rich Cana: <unk> head of Investor Relations. Please go ahead.

Orit Keinan: Good afternoon, everyone, and welcome to HPE's first quarter 2024 earnings conference call. With me today are Enrique Lores, HPE's President and Chief Executive Officer, and Tim Brown, HPE's Interim Chief Financial Officer. Before handing the call over to Enrique, let me remind you that this call is a webcast, and a replay will be available on our website shortly after the call for approximately one year.

Rich Cana: Good afternoon, everyone.

Rich Cana: Welcome to H B is the first quarter of 2024 earnings conference call.

Rich Cana: With me today, and retailers H bass, President and Chief Executive Officer, and Tim Brown, <unk> interim Chief Financial Officer before handing the call over to Enrique Let me remind you that this call is a webcast and a replay will be available on our website. Shortly after the call for approximately one year.

Orit Keinan: We posted the earnings release and accompanying slide presentation on our investor relations webpage at investor.hp.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions.

Rich Cana: We posted the earnings release and accompanying slide presentation on our Investor Relations webpage at Investor, though the H B dot com as always elements of this presentation are forward looking and are based on our best view of the world and our businesses as we see them today.

Rich Cana: For more detailed information please see disclaimers in the earnings materials relating to forward looking statements that involve risks uncertainties and assumptions.

Orit Keinan: For a discussion of some of these risks, uncertainties, and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K. HP assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in HP's SEC filing. During this webcast, unless otherwise specifically noted, all comparisons are year-over-year comparisons with the corresponding year-ago period. In addition, unless otherwise noted, references to HP channel inventory refer to Tier 1 channel inventory.

Rich Cana: For a discussion of some of this risks uncertainties and assumptions. Please refer to Hp's SEC reports, including our most recent Form 10-K.

Rich Cana: HP assumes no obligation.

Rich Cana: And does not intend to update any such forward looking statements.

Rich Cana: We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in Hp's SEC filings.

Rich Cana: During this webcast unless otherwise specifically noted all comparisons are year over year comparisons with the corresponding year ago period.

Rich Cana: In addition, unless otherwise noted references to H B channel inventory refer to tier one channel inventory.

Orit Keinan: For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations. With that, I'd now like to turn the call over to Enrique.

Rich Cana: For financial information that has been expressed on a non-GAAP basis. We've included reconciliations to the comparable GAAP information.

Rich Cana: Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations.

Rich Cana: With that I'd now like to turn the call over to Enrique.

Enrique Lores: Thank you, Orit, and thank you all for joining today's call. Let me begin by saying it was a solid start to the year. We delivered non-GAAP operating profit and non-GAAP EPS growth year over year, and our future-ready plan is positioning us well to deliver on our long-term growth targets. I'm going to focus my remarks today on our first quarter performance, our progress against key strategic priorities, and our expectations for the market for the balance of 2024. I will then turn the call over to Tim for a deeper dive into our financials and outlook.

Thank you Lori and thank you all for joining today's call.

Speaker Change: Let me begin by saying it was a solid start to the year.

Enrique: We delivered non-GAAP operating profit a non-GAAP EPS growth year over year, and our future already plan is positioning us well to deliver on our long term growth targets.

Enrique: I'm going to focus my remarks today on our first quarter performance.

Enrique: Our progress against key strategic priorities and our expectations for the market for the balance of 2024.

Enrique: I will then turn the call over to Tim for a deeper dive into our financials and outlook.

Enrique Lores: Starting with our results, we are managing through a volatile external environment that continues to impact demand across our industry. This is reflected in our top line, with net revenue down 4% year over year. It's worth noting that the rate of revenue decline slowed for the third straight quarter, which we see as an encouraging sign of market stabilization. We continue to make progress in our key growth areas. We're maintaining our investment in a down market to strengthen our competitive position, and there are several bright spots this quarter.

Enrique: Starting with our results we are managing through a volatile external environment that continues to impact demand across our industry.

Tim Brown: This is reflected in our top line with revenue down 4% year over year.

Tim Brown: It's worth noting that the rate of revenue decline slowed for the third straight quarter, where do we see.

Enrique: Encouraging signs of market stabilization.

Enrique: We continue to make progress in our key growth areas.

Enrique: Maintaining our investment in a down market to strengthen our competitive position.

Enrique: There are several bright spots this quarter.

Enrique Lores: We grew revenue and market share year-over-year in gaming. Workforce Solutions delivered solid revenue growth and won several new accounts, including large global companies in the energy, retail, and telecommunications sectors. And we drove continued momentum in consumer subscription, with Instant Ink delivering another quarter of revenue and net subscriber growth year over year. Alongside the progress we are making in our growth areas, we are also driving disciplined execution across the business. Non-GAAP operating profit dollars grew 5% year over year, and we delivered 11% non-GAAP EPS growth, which was right at the midpoint of our last quarter's guide. This reflects our focus on managing our mix, reducing our costs, and maximizing operational efficiency. And we remain well on track to deliver on our three-year gross annual run rate structural cost savings target of $1.6 billion by fiscal year 25.

Enrique: We grew revenue and market share year over year in gaming.

Enrique: Workforce solutions delivered solid revenue growth and one seven in New York Island, including large global companies.

Enrique: Free time and telecommunication sectors.

Enrique: And we drove continued momentum in consumer subscriptions with instant ink delivering another quarter of revenue and net subscriber growth year over year.

Enrique: Alongside the progress we are making in our growth areas. We are also driving disciplined execution across the business.

Enrique: non-GAAP operating profit dollars grew 5% year over year.

Enrique: And we delivered 11% non-GAAP EPS growth.

Enrique: We're right at the midpoint of our last quarter's guide.

Enrique: This reflects our focus on managing our mix producing our cost and maximizing operational efficiencies.

Enrique: And we remain well on track to deliver on our three year gross annual run rate structural cost savings target of $1 $6 billion by fiscal year 'twenty five.

Enrique Lores: Q1 was also a quarter of strong innovation across our portfolio. I'm particularly pleased with the progress we are making on the company-wide AI strategy we shared with you previously. As you will recall, we are focused on creating new product categories, expanding our digital services and solutions, and driving internal productivity. We took a big step forward this quarter at CES, where we launched our first laptops using Intel's new Core Ultra processor. This launch helped us to win over 100 innovation awards at CES.

Enrique: Q1 was also a quarter of strong innovation across our portfolio.

Enrique: I'm, particularly pleased with the progress we are making on our company wide strategy, we shared with you previously.

Enrique: As you will recall, we are focused on creating new product categories.

Enrique: <unk>, our digital services and solutions.

Enrique: Driving internal productivity.

Enrique: We took a big step forward this quarter at sea as well.

Enrique: Our first laptops, using Intel's new core ultra processors.

Enrique: These loans help us to win over 100 innovation awards at CES.

Enrique Lores: More importantly, this is just the start of what will be an exciting year for AI-PC innovation as we bring new products to market with our silicon and software partners in the coming quarter. Alongside the PC opportunity, we continue to develop new AI applications to run on top of our installed base of more than 200 million commercial devices. The best example of this is the Workforce Central platform we discussed with you previously.

Enrique: More importantly, this is just the start of what will be an exciting year for <unk> innovation as we bring new products to market with our silicone and software partners in the coming quarter.

Enrique: Alongside the PC opportunity, we continue to develop new AI applications to run on top of our installed base of more than 200 million commercial devices.

Enrique: The Best example of this is their workforce central platform, we have discussed with you previously.

Enrique Lores: We have since expanded and renamed the offering, which we now refer to as the HP Workforce Experience Platform. It integrates data and telemetry from our PC, printer, and poly devices into a single dashboard to improve productivity, security, and collaboration, and it is now available to all of our managed solution customers. We're also shifting more of our offerings to subscriptions in the consumer sector. This week, we will be launching our HP All-in subscription plan, which we previewed with you at our Investor Day last October. For a monthly fee, consumers will receive a printer, ink delivery, premium 24x7 support, and an option to upgrade their hardware every two years. This has tested extremely well in our pilot, with customer satisfaction exceeding Instant Ink's already high scores.

Enrique: We have since expanded and renamed the offering which we now refer to as the HP workforce expedience platform.

Enrique: It integrates data and telemetry from our PC.

Enrique: Poorly devices into a single dashboard to improve productivity security and collaboration.

Enrique: And it is now available to all of our managed solution customers.

Enrique: We're also shifting more of our offerings to subscriptions and consumer segments.

Enrique: This week, we will be launching our HP all in subscription plan, which we previewed with you at our Investor Day last October.

Enrique: For a monthly fee consumers will receive a printer ink delivery premium 24 by seven support and an option to upgrade their hardware every two years.

Enrique: This has tested extremely well in our pilots with customer satisfaction exceeding <unk> already highest course.

Enrique Lores: All of this gives us great momentum heading into our Amplify Partner Conference next week. Amplify is our largest channel event of the year, drawing our top 1,500 commercial resellers from around the world. We will have several of our top silicon and software partners with us to discuss the AIPC opportunity. And we will be launching a range of new innovations across personal systems, print, and workforce solutions. In addition to our innovation, I'm really excited about the work we are doing to elevate the HP brand. To lead this work, I am pleased that Antonio Lucio rejoined HP last month as our Chief Marketing and Corporate Affairs Officer. He was our first CMO following the creation of HP Inc. in 2015.

Enrique: All of this gives us great momentum heading into our amplify partner Conference next week.

Enrique: Amplify is our largest channel event of the year throwing our top 1500 commercial resilience from around the world.

Enrique: We'll have several of our top silicon and software partners with us to discuss the APC opportunity.

Enrique: We will be launching a range of new innovations across personal systems printing and workforce solutions.

Enrique: In addition to our innovation I'm really excited about the work we are doing to elevate the HP brand.

Enrique: To lead this work I am pleased that Antonio Lucio rejoin HP last month, as our chief marketing and corporate Affairs Officer.

Enrique: Antonio was our first CMO following the creation of HP, Inc. In 2015.

Enrique Lores: Under his leadership, we will strengthen our reputation as one of the world's most trusted brands, and you will see us launching new brand campaigns that are globally scalable and locally relevant. For example, earlier this month, we announced a multi-year deal with Real Madrid Football Club. With millions of fans and more than half a billion followers on social media, Real Madrid is one of the most loved brands.

Enrique: Under his leadership, we strengthen our reputation as one of the world's most trusted brands.

Enrique: And you will see us launch new brand campaigns that are globally scalable and locally relevant.

Enrique: For example earlier this month, we announced a multiyear deal with real Madrid Football club.

Enrique: With millions of fund and more than half a billion followers on social media real Madrid, He's one of the most loved brands.

Enrique Lores: And as the club's newest technology partner, we will be collaborating to create new fun experiences. We have also recently announced our global collaboration with Riot Games, one of the world's top game developers. And we will be working with them to develop future gaming products, technical innovations, and co-branded marketing campaigns. Underpinning all of this, we are continuing to advance our sustainable impact strategy, which continues to drive innovation and help us to win new deals. I was proud to see HP ranked number 13 on this year's list of America's Most Just Companies from Just Capital and CNBC.

Enrique: And as the clubs newest technology partner, we will be collaborating to create new fan experiences.

Enrique: We also recently announced a global collaboration with riot games, one of the worlds top game developers and we will be working with them to develop future gaming products technical innovations and co branded marketing campaigns.

Enrique: Underpinning all of these we are continuing to advance our sustainable impact strategy, which continues to drive innovation and help us to win new deals.

Enrique: I was proud to see HP ranked number 13 on this year's list of America's most just companies from Jeff's capital and CNBC.

Enrique Lores: This was our fifth straight year on the list and our highest ever ranking, up 34 spots year over year and putting us in the top 2% of companies measured. Let me now provide some additional color on our business unit performance. The external environment remains dynamic.

Enrique: This was our fifth straight year from the least.

Enrique: Our highest ever ranking up 34 spot year over year, and putting us in the top 2% of companies measure.

Enrique: Let me now provide some additional color on our business unit performance.

Enrique: The external environment remains dynamic.

Enrique Lores: In consumer, we anticipated a post-holiday slowdown, and this was a bit more pronounced than initially expected. However, commercial customers remain cautious. While we saw signs of stabilization in the SMB and education markets, we saw a slowdown in U.S. enterprise and federal sales, especially in the month of January. We also continue to see demand weakness in China due to challenging economic conditions partially offset by strength in India. Personal systems net revenue was $8.8 billion in the quarter. That's down 4% year-over-year or 5% in constant currency, reflecting market dynamics and seasonality. Consistent with industry estimates, we continue to expect the PC market to grow in low single digits in 2024, and we expect it to grow at least in line with the market. Our P.S.

Enrique: In consumer we anticipated a post holiday slowdown and this was a bit more pronounced than initially expected.

Enrique: Commercial customers remain cautious.

Enrique: While we saw signs of stabilization in the SMB and education markets, we saw a slowdown in the U S enterprise and federal sales, especially in the month of January.

Enrique: We also continue to see demand weakness in China due to challenging economic conditions, partially offset by strength in India.

Enrique: Personal systems net revenue was $8 $8 billion in the quarter.

Enrique: It's down 4% year over year or 5% in constant currency, reflecting market dynamics and seasonality.

Enrique: Consistent with the industry estimate we continue to expect the PC market to grow low single digits in 2024.

Enrique: And we expect to grow at least in line with the market.

Enrique: Our Pes team continued to show resilience and operational rigor delivering operating profit of six 1%, which was solidly within our long term target range, so slightly below our expectations.

Enrique Lores: The team continued to show resilience and operational rigor, delivering operating profit of 6.1 percent, which was solidly within our long-term target range, though slightly below our expectations. Importantly, we once again gained PC share in calendar Q4, both year over year and quarter over quarter. This shows that HP innovation is winning in the market, and we are winning in the right areas with a focus on high-value segments such as premium workstations and gaming. Peer services revenue was up year over year, with strong growth in digital services.

Enrique: Importantly, we once again gained share in calendar Q4.

Enrique: Both year over year and quarter over quarter.

Enrique: These shows that HP innovation is winning in the market and we are winning in the right areas with a focus on high value segments, such as premium workstations and gaming.

Enrique: Services revenue was up year over year with strong growth in digital services.

Enrique Lores: And while hybrid systems remain impacted by the current enterprise spending environment, we are investing in the portfolio for eventual market recovery and long-term growth opportunities. Turning to print, net revenue was $4.4 billion. That's down 5% year over year, reflecting market headwinds such as China's softness and the aggressive pricing environment. And I am pleased with the progress we are making on pricing and share gains in supply. We continue to effectively manage our costs and mix between consumer and commercial, with an operating profit of 19.9%. We're also making progress on our efforts to regain profitable shares. We gain share in big tanks both year over year and sequentially. And we draw sequential shared games in the office in parts of Europe, India, and China.

Enrique: And while hybrid systems remains impacted by the current enterprise spending environment, we are investing in the portfolio for the eventual market recovery.

Enrique: Long term growth opportunity.

Enrique: Turning to print revenue was $4 4 billion.

Enrique: That's down 5% year over year, reflecting market headwinds.

Enrique: Our inner softness and the aggressive pricing environment.

Enrique: And I am pleased with the progress, we're making on pricing and share gains in supply.

Enrique: We continue to effectively manage our costs and mix between consumer and commercial with operating profit of 19, 9%.

Enrique: We're also making progress on our efforts to regain profitable share.

Enrique: We gained share in big tanks, both year over year and sequentially.

Enrique Lores: We're also pleased with our progress in industrial graphics and 3D, both of which grew revenue year over year in Q1. We also saw continued recovery in labels and packaging. And we are ramping up for Drupal in May. Held every four years, this is the world's largest printing event where we will launch a range of new innovations to accelerate our momentum in the market. Consistent with the capital allocation strategy we have shared with you previously, we resume share repurchases in Q1, and we plan to remain active in the market for the remainder of the year. Let me now close by providing some insight into how we see the market for the balance of the year. Despite pockets of softness in Q1, we saw signs of improvement overall.

Enrique: And we drove sequential share gains in office in parts of Europe, India and China.

Enrique: We're also pleased with our progress in industrial graphics, and <unk>, both of which grew revenue year over year in Q1.

Enrique: We also saw continued recovery in labels and packaging.

Enrique: And we are ramping up for Dubai may held.

Enrique: Held every four years. This is the world's largest printing event, where we will launch a range of new innovations to accelerate our momentum in the market.

Enrique: Consistent with our capital allocation strategy, we have shared with you previously.

Enrique: We resumed share repurchases in Q1.

Enrique Lores: While we expect the pace of recovery to be uneven across different segments, we remain confident in our ability to deliver on our full-year non-GAAP EPS and free cash flow targets. And, as we said before, we expect performance in the second half of fiscal year 24 to be seasonally stronger than the first half. By remaining focused on things we can control and investing in our future, we have proven our ability to navigate current market dynamics while capitalizing on long-term growth opportunities. This is exactly what we did in Q1. And that's what you can expect from us moving forward as we drive progress against our future treaty plan. I now want to introduce Tim Brown.

Enrique: And we plan to remain active in the market for the remainder of the year.

Enrique: Let me now close by providing some insight into how we see the market for the balance of the year.

Enrique: Despite pockets of softness in Q1, we saw signs of improvement overall.

Enrique: While we expect the pace of recovery to be uneven across different segments.

Enrique: We remain confident in our ability to deliver on our full year, non-GAAP EPS and free cash flow targets.

Enrique: And as we said before we expect performance in the second half of fiscal year 'twenty four to be seasonally stronger than the first half.

Enrique Lores: As you know, he took over as our interim CFO in January. For those of you that don't know, Tim is one of HP's most successful and respected financial executives. He has over 30 years of HP experience, including as CFO of print and personal systems. And he is a steady hand on the wheel while we complete our CFO search process. Team, thank you for your leadership; over to you. Thank you, Enrique, for the kind introduction. It's great to be with you all today.

Enrique: By remaining focused on things, we can control and investing in our future. We have proven our ability to navigate current market dynamics, while capitalizing on long term growth opportunities.

Enrique: This is exactly what we did in Q1.

Enrique: It needs what you can expect from US moving forward as we drive progress against our future trading plan.

Enrique: I now want to introduce team Brown as you know he took over as our interim CFO in January.

Timothy J. Brown: We are pleased with the progress we made during Q1 toward delivering on our financial commitments this year. On a year-on-year basis, our revenue declines continued to slow sequentially, consistent with the stabilizing trends we expected heading into the year. Non-GAAP operating profit dollars grew, margins expanded in both personal systems and print, and non-GAAP EPS grew double digits. We remain on track with our future-ready plan to achieve our gross annual run rate structural cost savings target for this year and continue to reinvest these savings in our growth areas. We also returned a significant amount of capital to shareholders as we actively repurchased shares during the quarter.

Brown: For those of you that don't know team is one of Hp's, most successful and respected financial executives.

Team Brown: He has over 30 years of HP experience, including as CFO of print and personal systems.

Team Brown: And he is a steady hand on the wheel, while we complete our CFO search process.

Speaker Change: Thank you for your leadership over to you.

Team Brown: Thank you Enrique for the kind introduction, it's great to be with you all today.

Speaker Change: We are pleased with the progress we made during Q1 toward delivering on our financial commitments. This year on a year on year basis, our revenue declines continued to slow sequentially consistent with the stabilizing trends, we expected heading into the year non-GAAP operating profit dollars grew margins expanded in both personal systems and print and <unk>.

Timothy J. Brown: Top-line results were impacted by lower market TAMs in both personal systems and print. We saw cautious commercial demand as macro challenges persisted and a bit more pronounced slowdown than initially expected in consumer following Q4. As Enrique said, HP remains focused on executing each quarter while also driving long-term shareholder value. Our overall results reflect discipline, financial management, and investment for sustainable, profitable growth, all while navigating a dynamic and competitive environment in the near term. We will continue to manage our business prudently while seizing opportunities to improve our market position as we continue to execute on our plan to deliver on our fiscal year commitment. Now, let me give you a closer look at the details.

Speaker Change: non-GAAP EPS grew double digits, we remain on track with our future ready plan to achieve our gross annual run rate structural cost savings target for this year and continue to reinvest these savings in our growth areas.

Team Brown: We also returned a significant amount of capital to shareholders as we actively repurchased shares during the quarter.

Team Brown: Top line results were impacted by lower market Tam in both personal systems and print.

Team Brown: We saw cautious commercial demand as macro challenges persisted and a bit more pronounced slowdown than initially expected in consumer following Q4.

Team Brown: As Enrique said HBO remains focused on executing each quarter, while also driving long term shareholder value.

Team Brown: Our overall results reflect disciplined financial management and investment for sustainable profitable growth.

Timothy J. Brown: Net revenue was $13.2 billion in the quarter, down 4% nominally and 5% in constant currency, driven by declines across each of our regions. In constant currency, Americas declined 7%, EMEA declined 2%, and APJ declined 7%. APJ was impacted as soft demand in China continued. Gross margin was 21.9% in the quarter, up 1.7 points year-on-year, primarily due to improved commodity and logistics costs and cost savings, partially offset by competitive prices. Non-GAAP operating expenses were $1.8 billion, or 13.5% of revenue. The year-over-year increase in operating expenses was driven primarily by investments and growth initiatives and higher marketing expenses, partially offset by lower variable compensation and structural cost reduction. Non-GAAP operating profit was $1.1 billion, up 5%.

Team Brown: All while navigating a dynamic and competitive environment in the near term, we will continue to manage our business prudently, while seizing opportunities to improve our market position as we continue to execute on our plan to deliver our fiscal year commitments.

Speaker Change: Now, let me give you a closer look at the details.

Speaker Change: Net revenue was $13 $2 billion in the quarter down, 4% nominally and 5% in constant currency driven by declines across each of our regions.

Speaker Change: Constant currency Americas declined, 7% EMEA declined 2% and APG declined 7% <unk> was impacted as soft demand in China continued.

Speaker Change: Gross margin was 21, 9% in the quarter up one seven points year on year, primarily due to improved commodity and logistics costs and cost savings, partially offset by competitive pricing.

Speaker Change: non-GAAP operating expenses were $1 8 million or 13, 5% of revenue.

Speaker Change: The year over year increase in operating expenses was driven primarily by investments in growth initiatives and higher marketing expenses, partially offset by lower variable compensation and structural cost reductions.

Speaker Change: non-GAAP operating profit was $1 1 billion up 5% non-GAAP net <unk> was $144 million down primarily due to lower interest expense driven by a decrease in debt outstanding.

Timothy J. Brown: Non-GAAP net OI&E was $144 million, down primarily due to lower interest expense driven by a decrease in debt outstanding. Non-GAAP diluted net earnings per share increased 8 cents or 11% to 81 cents with a diluted share count of approximately 1 billion shares. Non-GAAP diluted net earnings per share excludes a net expense totaling $186 million, primarily related to amortization of intangibles, restructuring on other charges, acquisition and divestiture-related charges, and other tax adjustments. As a result, Q1 GAAP diluted net earnings per share was $0.62.

Speaker Change: non-GAAP diluted net earnings per share increased <unk>, <unk> or 11% to 81.

Speaker Change: With a diluted share count of approximately 1 billion shares.

Speaker Change: non-GAAP diluted net earnings per share excludes a net expense totaling $186 million, primarily related to amortization of intangibles restructuring and other charges acquisition and divestiture related charges and other tax adjustments.

Speaker Change: As a result, Q1 GAAP diluted net earnings per share was <unk> 62.

Timothy J. Brown: Now let's turn to segment performance. In Q1, personal systems revenue was $8.8 billion, down 4% or 5% in constant currency. Driven by soft demand and an unfavorable mix, the shift was partially offset by market share gains in both consumer and commercial, including categories such as premium notebooks and workstations. Total units were up 5%, with consumer up 10% and commercial up 2%. Year-over-year growth rates for units and revenue improved sequentially in both consumer and commercial as stabilizing trends continued, consistent with our outlook for a PC market recovery this year. However, drilling into the details, commercial revenue was down 5% and consumer revenue was down 1%.

Speaker Change: Now, let's turn to segment performance in Q1 personal systems revenue was $8 8 billion down 4% or 5% in constant currency driven by soft demand and an unfavorable mix shift partially offset by market share gains in both consumer and commercial <unk>.

Speaker Change: <unk> categories, such as premium notebooks and workstations.

Speaker Change: Total units were up 5% with consumer up 10% and commercial up 2% year over year growth rates for units and revenue improved sequentially in both consumer and commercial and stabilizing trends continued consistent with our outlook for a PC market recovery this year.

Speaker Change: Drilling into the details commercial revenue was down 5% and consumer down 1%.

Timothy J. Brown: ASPs were flat quarter over quarter, driven by a favorable mix, including an improved commercial premium mix, offset primarily by an unfavorable mix shift in consumers. We remain focused on driving profitable revenue and share growth in both our consumer and commercial markets. Personal systems delivered $537 million of operating profit with operating margins of 6.1%.

Speaker Change: Asps were flat quarter over quarter, driven by a favorable mix, including improved commercial premium mix offset primarily by an unfavorable mix shift in consumer.

Speaker Change: We remain focused on driving profitable revenue and share growth in both our consumer and commercial markets.

Speaker Change: Personal systems delivered $537 million of operating profit with operating margins of six 1% our margin increased 0.9 points year over year, primarily due to lower commodity and logistics costs and cost savings. This was partially offset by pricing and investments in growth areas sequentially our operating.

Timothy J. Brown: Our margin increased 0.9 points year over year, primarily due to lower commodity and logistics costs and cost savings. This was partially offset by pricing and investments in growth areas. sequentially, our operating margin declined, primarily due to higher commodity costs and marketing expenses offset in part by a favorable mix towards our commercial business segment. In print, we remain focused on improving our execution and driving rigorous cost management as we navigate a challenging and competitive print market. In Q1, total print revenue was $4.4 billion, down 5% both nominally and in constant currency.

Speaker Change: Margin declined primarily due to higher commodity costs and marketing expenses offset in part by favorable mix towards our commercial business segment.

Speaker Change: In print, we remain focused on improving our execution and driving rigorous cost management as we navigate a challenging and competitive market.

Speaker Change: In Q1 total print revenue was $4 4 billion down 5%, both nominally and in constant currency. The decline was driven by declines in hardware hardware revenue was down 19% driven by lower volumes attributable primarily to continued weak demand in China, and greater Asia and share loss largely due to.

Timothy J. Brown: The decline was driven by declines in hardware revenue. Hardware revenue was down 19%, driven by lower volumes attributable primarily to continued weak demand in China and greater Asia, and share losses were largely due to aggressive pricing by our Japanese competitors. Total hardware units decreased 17% year over year.

Speaker Change: Aggressive pricing by our Japanese competitors.

Speaker Change: Total hardware units decreased 17% year over year.

Timothy J. Brown: Industrial graphics grew revenue again this quarter, driven by hardware, supplies, and services. By customer segment, commercial revenue decreased 12 percent with units down 18 percent, and consumer revenue decreased 22 percent with units down 15 percent.

Speaker Change: Industrial graphics grew revenue again, this quarter driven by hardware supplies and services by.

Speaker Change: By customer segment commercial revenue decreased 12% with units down 18%.

Speaker Change: Consumer revenue decreased 22% with units down 15% the market for big tank printers continue to increase sequentially, partially offsetting continued soft demand and aggressive pricing in the traditional home ink market.

Timothy J. Brown: The market for big tank printers continued to increase sequentially, partially offsetting continued soft demand and aggressive pricing in the traditional home ink market. In consumer services, Instant Ink revenue and subscribers continue to grow year-over-year. Total subscribers now exceed 13 million, including more than 700,000 subscribers to our Instant Paper add-on service.

Speaker Change: In consumer services instant ink revenue and subscribers continued to grow year over year.

Speaker Change: Total subscribers now exceed $13 million, including more than 700000 subscribers to our instant paper add on service.

Timothy J. Brown: The Supply's revenue was $2.9 billion, flat on a reported basis and up 1% in constant currency, primarily driven by favorable pricing actions, share gains, and an easy comparison, partially offset by a lower installed base. Print operating profit was $872 million, essentially flat year-over-year, and operating margin was 19.9%. Operating margin increased one point, driven by lower hardware volumes, cost improvements, including lower variable compensation, and supplies pricing partially offset by hardware pricing headwinds. Regarding our structural cost savings initiatives, we continued the momentum we had exiting FY23, making progress in Q1 against our Year 2 goals of our three-year plan. We are on track to deliver on our $1.6 billion gross annual run rate structural cost savings goal by exiting 2025, including achieving approximately 30 percent of those savings in FY24.

Speaker Change: Supplies revenue was $2 $9 billion flat on a reported basis and up 1% in constant currency, primarily driven by favorable pricing actions share gains and an easy compare partially offset by a lower installed base.

Speaker Change: Print operating profit was $872 million essentially flat year over year and operating margin was 19, 9% operating margin increased one point driven by lower hardware volumes cost improvements, including lower variable compensation and supplies pricing, partially offset by hardware pricing headwinds.

Speaker Change: Regarding our structural cost savings initiatives. We continued the momentum we had exiting FY2023 making progress in Q1 against our year two goals of our three year plan. We are on track to deliver on our $1 $6 billion gross annual run rate structural cost savings goal exit.

Speaker Change: 2025, including achieving approximately 30% of those savings in FY 'twenty four.

Timothy J. Brown: Recall that we expect to generate these savings across both our cost of sales and OPEX line items, enhancing our margin performance and enabling investments in our key growth areas. Consistent with previous quarters, we continue to benefit from portfolio simplification initiatives in both personal systems and print, digital transformation, automation, and process improvements leveraging our AI capabilities. Structural Cost Reductions Across Our Business. We still expect to incur one-time restructuring costs of approximately $1 billion over the term of our plan, including approximately $0.3 billion of primarily cash charges in fiscal year 24. Now let me move to cash flow and capital allocation. In Q1, cash flow from operations was approximately $120 million, and free cash flow was $25 million. Our results were impacted by normal seasonality associated with the timing of variable compensation payments and sequentially lower volumes in personal systems. The cash conversion cycle was minus 29 days in the quarter.

Speaker Change: Recall that we expect to generate these savings across both our cost of sales and Opex line items, enhancing our margin performance and enabling investments in our key growth areas.

Speaker Change: Consistent with previous quarters, we continued to benefit from portfolio simplification initiatives in both personal systems and print digital transformation automation and process improvements leveraging our AI capabilities and structural cost reductions across our business, we still expect to incur one time restructuring.

Speaker Change: Cost of approximately $1 billion over the term of our plan, including approximately <unk> three.

Speaker Change: $3 billion of primarily cash charges in our fiscal year 'twenty four.

Speaker Change: Now, let me move to cash flow and capital allocation.

Speaker Change: Q1 cash flow from operations was approximately $120 million and free cash flow was $25 million.

Speaker Change: Our results were impacted by normal seasonality associated with the timing of variable compensation payments and sequentially lower volumes in personal systems. The.

Speaker Change: The cash conversion cycle was minus 29 days in the quarter. This increased three days sequentially due to days inventory, increasing four days days payable decreasing one day and days receivable decreasing two days the increase in DIY was driven primarily by an increase in strategic buys and sea shipments.

Timothy J. Brown: This increased three days sequentially due to days of inventory increasing four days, days payable decreasing one day, and days receivable decreasing two days. The increase in DOI was driven primarily by an increase in strategic buys and C shipments during the quarter, partially offset by our progress in optimizing our operational inventory, as we have discussed in the past. In Q1, we returned approximately $775 million to shareholders, including $500 million in share repurchases and $275 million in cash dividends.

Speaker Change: During the quarter, partially offset by our progress in optimizing our operational inventory as we have discussed in the past in Q1, we returned approximately $775 million to shareholders, including $500 million in share repurchases and $275 million in cash dividends, we continue to prudently manage.

Timothy J. Brown: We continue to prudently manage our leverage ratio and finish the quarter within our target leverage range. We resume share repurchases in Q1, and we expect to return 100% of our FY24 free cash flow to shareholders. As we have previously stated, we are committed to returning 100% of our free cash flow to shareholders over time as long as our gross debt to EBITDA ratio remains below two times and unless higher ROI opportunities arise.

Speaker Change: Our leverage ratio and finished the quarter within our target leverage range we.

Speaker Change: We resumed share repurchases in Q1, and we expect to return 100% of our FY 'twenty for free cash flow to shareholders.

Speaker Change: As we have previously stated we are committed to returning 100% of our free cash flow to shareholders over time as long as our gross debt to EBITDA ratio remains below two times and unless higher ROI opportunities arise.

Timothy J. Brown: Looking forward to Q2 and the rest of FY24, we expect the macro and demand environments will remain challenged, and that our customers and markets will continue to be very competitive. We remain focused on rigorously managing costs, improving our performance, and investing in growth. Specifically, keep the following in mind related to our FY24 and Q2 financial outlook. Given the challenging macroenvironment, we are modeling multiple scenarios based on several assumptions.

Speaker Change: Looking forward to Q2, and the rest of FY 'twenty four we expect the macro and demand environments, who will remain challenged and that our customer end markets will continue to be very competitive we remain focused on rigorously managing cost improving our performance and investing in growth.

Speaker Change: Specifically keep the following in mind related to our FY 'twenty four in Q2 financial outlook.

Speaker Change: Given the challenging macro environment, we are modeling multiple scenarios based on several assumptions for FY 'twenty four we continue to see a wide range of potential outcomes, which are reflected in our outlook ranges consistent with the view we shared in November we expect performance in the second half of fiscal 'twenty, four will be seasonally stronger than the <unk>.

Timothy J. Brown: For FY24, we continue to see a wide range of potential outcomes, which are reflected in our outlook ranges. Consistent with the view we shared in November, we expect performance in the second half of Fiscal 24 will be seasonally stronger than the first half. Regarding OI&E expense, we continue to expect it to be approximately $0.7 billion in FY24.

Speaker Change: First half regarding <unk> expense, we continue to expect it to be approximately <unk> seven.

Speaker Change: $7 billion in FY 'twenty four.

Timothy J. Brown: We continue to expect free cash flow to be in the range of 3.1 to 3.6 billion dollars in FY24, with the second half of the year being stronger than the first. However, our free cash flow outlook does include approximately $300 million of restructuring cash outflows. Turning to personal systems, we continue to expect the overall PC market unit TAN to recover over the course of this year, increasing by a low single-digit percent. Specifically, for Q2, we expect personal systems revenue to decline sequentially by a high single-digit percent in line with typical seasonality. We expect personal systems margins to be solidly within our long-term target range in Q2 as the PC market continues to recover and as strong cost management and pricing actions help to offset rising commodity costs. For FY24, we expect margins to be solidly within our long-term target range, driven by improved PC market demand, a seasonally stronger second half of the year, continued mix improvements, partially offset by higher commodity costs. In print, we expect consumer demand will remain soft and pricing competitive while market uncertainty continues to impact our commercial print business.

Speaker Change: We continue to expect free cash flow to be in the range of $3, 1% to $3 $6 billion in FY 'twenty four with the second half of the year stronger than the first our free cash flow outlook does include approximately $300 million.

Speaker Change: Restructuring cash outflows.

Speaker Change: Turning to personal systems, we continue to expect the overall PC market unit Tam to recover over the course of this year, increasing by a low single digit percent.

Speaker Change: Specifically for Q2, we expect personal systems revenue will decline sequentially by a high single digit in line with typical seasonality, we expect personal systems margins to be solidly within our long term target range in Q2 as the PC market continues to recover and as strong cost management and pricing actions helped to offset.

Speaker Change: <unk> rising commodity costs for.

Speaker Change: For FY 'twenty far we expect margins to be solidly within our long term target range driven by improved PC market demand a seasonally stronger second half of the year continued mix improvements, partially offset by higher commodity costs.

Speaker Change: In print, we expect consumer demand will remain soft and pricing competitive while market uncertainty continues to impact our commercial print business disciplined cost and mix management should help to partially offset these trends driving flattish revenue sequentially in Q U below typical seasonality.

Timothy J. Brown: Disciplined cost and mixed management should help to partially offset these trends, driving flattish revenues sequentially in Q2 below typical seasonality. We expect Q2 supplies revenue to be down mid-single digit in constant currency, and we still expect supplies revenue to decline low to mid-single digits for the year. Quarterly results can vary. For Q2, we expect print margins to be at the high end of our 16% to 19% range and solidly within the range for FY24.

Speaker Change: We expect Q2 supplies revenue to be down mid single digit in constant currency and we still expect supplies revenue will decline low to mid single digits for the year quarterly results can vary.

Speaker Change: For Q2, we expect print margins to be at the high end of our 16% to 19% range and solidly within the range for FY 'twenty four we continued to focus on driving print operating profit dollars through new business models, and rigorous cost management, including future ready transformation savings.

Timothy J. Brown: We continue to focus on driving print operating profit dollars through new business models and rigorous cost management, including future-ready transformation savings. Taking these considerations into account, we are providing the following outlook for Q2 and fiscal year 2024. We expect second quarter non-GAAP diluted net earnings per share to be in the range of 76 cents to 86 cents and second quarter GAAP diluted net earnings per share to be in the range of 58 cents to 68 cents. We expect FY24 non-GAAP diluted net earnings per share to be in the range of $3.25 to $3.65, and FY24 GAAP diluted net earnings per share to be in the range of $2.61 and $3.01.

Speaker Change: Taking these considerations into account we are providing the following outlook for Q2 and fiscal year 2024.

Speaker Change: We expect second quarter non-GAAP diluted net earnings per share to be in the range of 76 to 86.

Speaker Change: And second quarter GAAP diluted net earnings per share to be in the range of 58 to 68.

Speaker Change: We expect FY 'twenty four non-GAAP diluted net earnings per share to be in the range of $3 25 to.

Speaker Change: The $3 65 and.

Speaker Change: In FY 'twenty for GAAP diluted net earnings per share to be in the range of $2 61.

Speaker Change: And $3 <unk>.

Operator: In closing, we started off our new fiscal year making solid progress against our strategic objectives and full-year commitments while managing through demand and competitive challenges that have persisted in the current dynamic environment. We remain focused on disciplined execution and cost management and are confident that we have the right people, the right assets, and the right strategy to deliver for both our customers and our shareholders for the long term. I'll stop here so we can open the lines for your questions. Thank you, and we will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone.

Speaker Change: In closing, we started off our new fiscal year, making solid progress against our strategic objectives and full year commitments, while managing through demand and competitive challenges that are persistent and the current dynamic environment. We remain focused on disciplined execution and cost management and are confident that we have the right people the right assets in the rates.

Speaker Change: Strategy to deliver for both our customers and our shareholders for the long term.

Speaker Change: I'll stop here. So we can open the lines for your questions.

Speaker Change: Thank you and we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Operator: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then one. We also ask that you please limit yourself to one question. And our first questioner today will be Samik Chatterjee from J.B. Morgan. Please go ahead. Hi. Thanks for taking my question. Sorry, I'm having an echo, but sorry if that's coming across at your end as well.

Speaker Change: If you if you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then one we also ask that you. Please limit yourself to one question.

Speaker Change: And our first questioner today will be from Shaun.

Shaun: Chatter from JMP.

Shaun: Please go ahead go ahead.

Shaun: Hi, Thanks for taking my questions.

Shaun: I'm, having a little bit.

Samik Chatterjee: Maybe just to talk about the expectations for the year here. You are outlining a seasonally stronger second half to be the driver for your guidance. Maybe you can flesh that out in terms of either geography or market price and humor or whatever you want to say, where you expect that seasonally stronger second half to stem from. Thank you. Thanks for taking my question. Of course. Thank you, Samik, for the question. Let me take that one.

Speaker Change: Thank you.

Shaun: Yeah.

Shaun: Yes.

Shaun: Talk about below expectations for the year.

Shaun: You all are planning season.

Shaun: Yes.

Shaun: Maybe you guys set out.

Shaun: Yes.

Shaun: Market.

Shaun: Okay.

Shaun: Thank you Tom.

Speaker Change: Thank you. Thanks for taking the question session of course. Thank you. If I may quickly question, let me take that one so as you say and as we see it in our prepared remarks, we are expecting us stronger saco and carve them first half of the year and there are multiple drivers for that first of all we expect some recovery in the commercial space.

Enrique Lores: So, as you say and as we said in our prepared remarks, we are expecting a stronger second half than the first half of the year, and there are multiple drivers for that. First of all, we expect some recovery in the commercial space. Second, also, traditional seasonality; the consumer is stronger in the second half than in the first half.

Speaker Change: Second also traditional seasonality consumer is stronger in the second half than in the first half and then internally we will see more impact from all of our cost reduction effort that we will also be having a bigger impact in the second half.

Enrique Lores: And then internally, we will see more impact from all of our cost reduction efforts that will also have a bigger impact in the second half. As for the different segments, especially in the PC space, we also expect to see an impact from the winter refresh that, as you know, will be happening in the coming quarters, and this will have an impact. And then in the print space, mostly commercial and industrial, we also expect to see some recovery. Thank you. Your next question comes from the line of Wamsi Mohan from Bank of America. Please go ahead.

Speaker Change: <unk> for the different segments, especially in the PC space. We also expect to see an impact from the window referenced that as you know will be happening in the coming quarters and these will be will have an impact and then on the prime space, mostly on commercial and industrial we also expect to see some recovery.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of <unk> from Bank of America. Please go ahead go ahead.

Wamsi Mohan: Yes, thank you. Enrique, the share gains you noted in print, both in BigTank and also in Office, what would you attribute that to, given you noted a very aggressive pricing environment and also a weak period for print hardware? What are some of the levers you're using for some of these share gains? Sure. They are slightly different, Wamsi.

Speaker Change: Yes. Thank you Enrique the share gains you noted earlier that Quinn Bolton.

Speaker Change: What isn't baked in and also in the office.

Quinn Bolton: Would you attribute that to given you noted a very aggressive pricing environment and also a weak period footprint hardware, what what are some of the levers that you're using for some lift some of the share gain.

Speaker Change: Sure.

Speaker Change: There are slightly different warranty on the being big tank side. During the last months, we have completed our portfolio. We have now a very complete lineup of products on the low end to programs that will also be working on the home side and as we have completed that that we are launching that into.

Enrique Lores: On the big-tank side, during the last month, we have completed our portfolio. We now have a very complete lineup of products from the low-end to products that will also be working on the home-office side. And as we have completed that, and as we are launching it into different markets, we are starting to see the impact of the innovation that we brought to market. On the office side, as we highlighted a few quarters ago, we acknowledge that we have some operational work to do to address and be able to regain some of the shares that we have lost. We have been actively working on that, and we have started to make progress. We are starting to see that in the progress that we are making quarter after quarter, that has been more relevant in some regions like Europe, China, and India.

Speaker Change: The different markets, we are starting to see the impact so the innovation that we brought to market.

Speaker Change: On the LC side as we highlighted a few quarters ago. We acknowledged that we have some operational work to do to others and to be able to regain some of the shifts that we have closed we have been actively working on that we have started to make progress. We are starting to see that in the progress that we're making quarter over quarter.

Speaker Change: Be more relevant in some regions like Europe, China, India, but we will continue to work on that because our goal is to continue to regain share in both categories.

Enrique Lores: But we will continue to work on that because our goal is to continue to regain share in both categories. Thank you. Your next question comes from the line of Tony Saganagi from Bernstein. Please go ahead. Yes, thank you. I just wanted to follow up on the question about second half brain, um, It sounds like you expect your printing margins to fall pretty significantly in the second half. You were at 20% this quarter. You're expecting to be at the high end of the range in the second quarter. You're going to be solidly in the range for the second half.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Next question comes from the line of Toni <unk> from Bernstein. Please go ahead.

Toni: Yes. Thank you I just wanted to follow up on the question.

Toni: About second half strength.

Speaker Change:

Toni: It sounds like.

Toni: Do you expect your printing margin to fall pretty notably in the second half you were 20% this quarter, we're expecting to be at the high end of the range in the second quarter order the debate.

Toni: The range for the second half that would imply.

Tony Saganagi: That would imply printing margins falling considerably, and that's probably possible given that hardware weakness has been pretty strong the last few quarters, and that may translate into weakening supply growth and therefore lower margins. So I'm just trying to reconcile if 65% of your profits are going to have lower margins, perhaps notably lower margins in the second half of the year, per your guidance. And if I just roll out normal seasonality right now, it points to a 4% decline in revenues. Are you expecting revenues to grow in fiscal 24? Yeah, so let me take that, Tony.

Toni: Printing margins fall considerably.

Speaker Change: That's probably possible given that.

Speaker Change: Hardware weakness has been pretty strong the last few quarters and that may translate into weakening supplies growth and therefore lower margin.

Speaker Change: So I'm just trying to reconcile if 65% of your profits are going to have lower margins.

Speaker Change: Perhaps some notably lower margins in the second half of the year per your guidance.

Speaker Change: Why are you optimistic and if.

Speaker Change: Yes, my desk rollout normal seasonality right now I'd point to 4% decline in revenues.

Speaker Change: Are you expecting revenues to grow in fiscal 2004.

Speaker Change: Yes, So let me take that Tony first of all just from a general perspective on print we do expect to be as you said at the high end of the range in Q2.

Timothy J. Brown: First of all, just from a general perspective on print, we do expect to be, as you said, at the high end of the range in Q2, kind of solidly in the range of 16, 19% for the year. And part of that is driven by what you said, where we're trying to drive our mix from our hardware perspective up. That does change the rate a little bit.

Speaker Change: Kind of solidly in the range of 16% to 19% for the year and part of that is driven by what you said, where we're trying to drive our mix from a hardware perspective up that does change the rate a little bit.

Timothy J. Brown: And we aren't changing really what we expect from a supplies perspective, where we expect Q2, as I noted in the prepared remarks, to be down mid-single digits in constant currency and then low to mid-single digits for the year. So I think that mix is really what's kind of driving the potential for that rate to move back a little bit through the course of the year. From an overall perspective, we expect PS, as we said, to be seasonally stronger in the second half, and that will drive and be in the middle point of the range there. And then from a growth perspective, we do expect PS to grow in the low single digits, kind of the 2% to 4% range, and print to be flattish to down for the course of the year. And, Tony, I think another clarification: when we look at H1-24 versus H1-23, and H2-24 versus H2-23, EPS will be growing around 7% in the first half. If you look at the midpoint of our guide, it will be growing 4% at the midpoint of our guide.

Speaker Change: And we arent changing really what we expect from a supplies perspective, we expect Q2s as I noted in the prepared remarks to be down mid single digits in constant currency and then low to mid single digits for the year. So I think that mix is really what's.

Speaker Change: Kind of driving the potential for that rate to move back a little bit through the course of the year.

Speaker Change: From an overall.

Speaker Change: Perspective.

Speaker Change: We expect PFS as we said to be seasonally stronger in the second half and that will drive and will be in the middle point of the range there.

Speaker Change: And then from a growth perspective, we do expect.

Speaker Change: <unk> to grow in low single digits kind of the 2% to 4% range and print will be flattish to down for the course of the year.

Speaker Change: Tony I think another clarification when we look at page 124 vessels age one to 23, <unk> 24 versus <unk> to 'twenty, three EPS will be growing around 7% in the first half. If you look at the midpoint of our guidance it will be growing 4% in the midpoint of our guidance. So we would have expected.

Enrique Lores: So we are expecting growth, but the growth will be slightly slower with the projections that we're making today for the second half. And as we have said before, we manage the company to grow operating profit dollars. We don't manage it to deliver on the margin guide we provide.

Speaker Change: Acting growth, but they go will be slightly lower with the projections that we're making today in the second half.

Speaker Change: And as we have said before we manage the company to grow operating profit dollars, we don't manage it to deliver on the on the guide margin guide we provide we provide it because we know it's important for modeling, but this is not the way we manage the company internally.

Enrique Lores: We provide it because we know it's important for modeling, but this is not the way we manage the company internally. Thank you. Thank you. Your next question comes from the line of Brian Luke from UBS. Please go ahead. Hey, thank you for taking the question. This is Brian, Luke, and David.

Speaker Change: Thank you. Thank you. Thank you.

Speaker Change: Your next question comes from the line of Brian Luke from UBS. Please go ahead.

Speaker Change: Hey, Thank you for taking the question is Brian Luke in for Neil.

Brian Luke: So, in your view, what are the key drivers and milestones for AI-enabled PCs to get traction with commercial customers? Are customers currently in possession of devices today based on the potential benefits of more robust PCs? Thank you. So, first of all, let me say that we remain extremely excited about the opportunity that AI PCs will bring in terms of both the customer value they will deliver in terms of security, in terms of latency, in terms of cost, and also the impact they will have over time on the company. I think that milestones come from three different angles.

Brian Luke: So in your view what are the quality.

Brian Luke: The drivers and milestones for AIG mlps to get traction with commercial customers are customers currently in possession of devices by day studying the potential benefit of more robust.

Speaker Change: Thank you. So first of all let me say that we remain extremely excited about the opportunity that <unk> will bring in terms of both the customer value that they will deliver in terms of security in terms of latency in terms of cost.

Speaker Change: So the impact it will have over time in the company I.

Speaker Change: <unk> milestones come from three different angles first of all we need to deliver the hardware to be able to support these new models and we are working on that.

Enrique Lores: First of all, we need to deliver the hardware to be able to support the new models, and we are working on that with the key silicon providers to make sure that we have a wide range of products and a very solid portfolio. Second, we need to make sure that the applications support that, and we are working with all the key companies again to make sure they understand the new capabilities and that they build them into their applications. And third, training, both in terms of our customers but also in terms of the sales teams, either HP or the resellers that will be selling this, and we are working on all fronts. The impact will be bigger in 2025, and the impact will be bigger in 2026, but really, from both an innovation and customer value perspective, this is going to be very significant for our portfolio. Your next question comes from the line of Erik Woodring from Morgan Stanley. Please go ahead.

Speaker Change: The key silicon providers to make sure that we have.

Speaker Change: Wide range of products on a very solid portfolio second we need to make sure that the applications support that and we are working with all the keys of our company's again to make sure they understand the new capabilities that they build them into their applications.

Speaker Change: Third is training.

Speaker Change: In terms of our customers, but also in terms of the sales teams.

Speaker Change: HP or the resellers that we'll be selling that and we are working on all fronts.

Speaker Change: Our projections continue to be that Cvs has <unk> the penetration of <unk> will be somewhere between 40 and 60% of.

Speaker Change: The total sales that we will be making and that growth is going to be gathering there will be some impacting in 'twenty for the synergies will be at the end of the year fiscal year for us the impact will be modest today impact will be bigger in 'twenty, five and the impact will be bigger in 'twenty, six but really from both an innovation.

Speaker Change: On customer value of these youre going to be very significant for our portfolio.

Speaker Change: Your next question comes from the line of Eric <unk> from Morgan Stanley. Please go ahead.

Erik William Richard Woodring: Great. Thank you so much for taking my question. Enrique, you know, again, nice performance on the supplies side. You outperformed expectations for a second consecutive quarter. I'm going to ask you the same question I asked you last quarter, which is just if you can talk about the four box model and kind of the different factors that are impacting supply performance.

Eric: Great. Thank you so much for taking my question.

Eric: Okay.

Eric: Performance on the supply side, you outperformed expectations for a second consecutive quarter.

Eric: I'm going to ask that same question I asked you last quarter, we discussed.

Eric: You can talk about the four box model and kind of the different factors that are impacting supplies performance and then if we kind of port that over to the rest of the year.

Enrique Lores: And then if we kind of port that over to the rest of the year, you know, you've been flat growing over the last quarters on the supply side. What are the factors that are driving the deceleration to low to mid single-digit declines for the entirety of the year, implying the rest of the year deteriorates from here? Thanks so much.

Eric: <unk> been flat to growing over the last five quarters on the supply side.

Eric: What are the factors that are driving the deceleration to low to mid single digit declines for the entirety of the year, implying the rest of the year deteriorates from here. Thanks, so much.

Enrique Lores: Thank you, Erik. And my answer is going to be very similar to the answer I gave you last quarter. So first of all, let me also share that, as we have said many times, looking at quarter-on-quarter comparisons is not the best way to understand the health of the projections for the supply business because each quarter many things happen that have an impact on the growth comparisons quarter on quarter. And second, we are not changing the long-term projections for supplies of a low to mid single-digit decline nor the projections that we have for 24 that also we So there are no changes in our projection.

Speaker Change: And my answer is going to be very similar to the answer I gave you last quarter.

Eric: First of all let me also share that as we have said many time.

Eric: Looking at quarter on quarter comparison is not a bad way to understand the sales or the projections put the supplies business because each quarter or many things happened.

Eric: Kind of an impact on the growth comparisons quarter on quarter.

Eric: And second what we.

Eric: We are not changing the long term projections for supplies of low to mid single digit decline nor the projections that we have for 24 that also we expect it to be low single.

Eric: Low to mid single digit so no changes in our project.

Enrique Lores: In terms of what the performance this quarter, there are, as always, multiple factors. First of all, we continue to manage well share and to gain share of supplies. This always has a positive impact. Second, pricing; we have made some pricing adjustments that are having a positive impact. And also, for last quarter, we need to acknowledge that the comparison is easy because supplies were declining in Q1-23. So that comparison is also positive.

Eric: In terms of what drove the performance this quarter.

Eric: As always multiple factors first of all we.

Eric: Continue to manage well share and to gain share of supplies. This has always had a positive impact.

Eric: On pricing, we have made some pricing adjustments.

Eric: Having positive impact and also at last quarter, we need to acknowledge that the compare is easy because suppliers were declining in Q1 'twenty three so that comparison is also positive.

Enrique Lores: On the other hand, again, similar to what we discussed last quarter, we continue to see negative impact from usage and negative impact from the size of the installed base that has been drinking. And then, maybe, to close, a comment on channel inventory that I know is something of interest. Channel inventory for supplies and actually for the rest of the business stays in a very healthy position, so we are in a good position there. Thank you. Your next question comes from the line of Amit Daryanani from Evercore ISI. Please go ahead. Hi, this is Lauren on behalf of Amit.

Eric: The other side again similar to what we discussed last quarter, we continue to see negative impact from <unk> and negative <unk> negative impact from the size of installed base that has been has been shrinking and then maybe to close a comment on channel inventory that I know is something of interest.

Eric: Channel inventory for supplies and actually for the rest of the business stays in very healthy very healthy position. So we are in good position there.

Speaker Change: Thank you.

Eric: Your next question comes from the line of Avnet, Gary <unk> from Evercore ISI. Please go ahead.

Eric: Hi, This is Lauren on for Amit I was wondering if you guys can talk a bit about.

Amit Jawaharlaz Daryanani: I was wondering if you guys could talk a bit about what gives you conviction about the recovery in the commercial space, given the pockets of weakness that you guys saw in Q1. Thank you. So, first of all, I think I would like to start by acknowledging that this is not only our projection, but it's really the projection that we see from industry analysts and also from the rest of the key players in the industry. And there are multiple factors.

Lauren: What gives you conviction for the recovery in the commercial space given the pockets of weakness that you guys saw in Q1.

Speaker Change: Thank you. So first of all I think we I would like to start by acknowledging that this not only our prediction, particularly the predictions that we see from industry analysts and also from the rest of the key players in the industry and there are there are multiple factors I mentioned before the fact.

Enrique Lores: I mentioned before the fact that we expect to see more impact from the Windows refresh cycle that is starting, and this will have a bigger impact on the second half. We also expect to see positive impact from pricing and mix, given that we expect component cost to increase, but this will also have a positive impact. And then when we look at what we saw this quarter, we have seen more stability in the SMB space. We have also seen more stability in the education space.

Speaker Change: We expect to see more impact from the <unk>.

Eric: Windows refresh cycle that is starting and this will have a bigger impact on the second half. We also expect to see positive impact from pricing and mix given that we expect component component cost to increase but it will also have a positive impact and then when we look at what we saw this quarter.

Eric: We have seen more stability on the SMB space, we have seen orders for more stability in the education space, We started to see growth in Europe on the PC side that had not happened in a long time. So while we continue to see some areas of weakness like China or for example, the federal business in the U S.

Enrique Lores: We started to see growth in Europe on the PC side that had not happened in a long time. So, while we continue to see some areas of weakness like China or, for example, the federal business in the U.S., where we saw softness in January, we continue to believe that the overall market will improve in the second half. Thank you. Your next question comes from the line of Ayesha Merchant from Citigroup. Please go ahead.

Eric: We saw softness in January we continue to believe that the overall market will be improving in the cycle.

Speaker Change: Thank you.

Eric: Sure.

Speaker Change: Your next question comes from the line of Asia emerging from Citigroup. Please go ahead.

Asiya Merchant: Great, thank you for taking my question. If I may just, you know, given the conviction that you have that commercials will be improvements, maybe you could talk a little bit about the peripheral side of your business, how that tracked, and overall, how did the growth portion of your business do as you started the year in 24 in fiscal 20? Thank you. Thank you, Aisha. So, let's see.

Asia emerging: Great. Thank you for taking my question.

Asia emerging: Just given the conviction that you have that commercial.

Asia: Maybe you can if you could talk a little bit about the peripheral side of your business how that track.

Asia emerging: And overall housing growth portion of your business do you as you started the year in 2004 in fiscal 'twenty for sure. Thank you. Thank you.

Speaker Change: Let's see in terms of preference.

Eric: You are indicating that it has been impacted by the.

Speaker Change: <unk> that we have seen on the commercial side and the commercial market will recover we expect them they will be recovering as well and this is why we have continued to invest in innovation in these categories. Because we think that long term is.

Speaker Change: A great growth opportunity for us and this is confirmed both by our customers our clients and also by by resellers.

Enrique Lores: In terms of peripherals, as you are indicating, they have been impacted by the... Thank you very much. In terms of the growth areas in Q1, several of them started to grow, which was really a very positive sign. For example, we, and for me personally, the fact that both services businesses, both our workforce solutions business and our consumer services business, grew in Q1 is a very important sign of recovery, also because of the strategic importance that these businesses have for the medium and long term for the company. And I think something I would like to highlight to close is that tomorrow, on the consumer services side, we are going to be launching the first subscription where we will be integrating hardware into the plan. It's something that we shared at our investor day. Finally, we will be releasing that tomorrow.

Speaker Change: In terms of the growth areas in Q1, we have several of them started to grow which was really a very positive sign.

Eric: We for example, we for me personally the fact that both services businesses, both our workforce solutions business and our consumer services business grew in Q1 is a very important sign of recovery also because of the strategic importance that these business have effort.

Eric: The medium and long term for the company.

Eric: So you're seeing something I would like to highlight two close is tomorrow, we are going to be launching in the consumer services side.

Eric: First subscription, where we will be integrating hardware into the plan is something that we shared.

Eric: At our Investor day, primarily we would be releasing that tomorrow and again. This is an important step because you know that one of the key directions. We have for the long term is to offer our full portfolio of subscription and this will be the first time, we are offering for consumers our hardware as well and you will see us expanding the line overtime.

Enrique Lores: And again, it's an important step because one of the key directions we have for the long term is to offer our full portfolio as a subscription, and this will be the first time we are offering our hardware to consumers as well. And you will see us expanding this line over time. Your next question comes from Mike Ng from Goldman Sachs. Please go ahead. Hey, good afternoon.

Eric: Your next question comes from the line of Mike <unk> from Goldman Sachs. Please go ahead.

Mike: Hey, good afternoon. Thank you very much for the question.

Michael Ng: Thank you very much for the question. I just wanted to follow up on the commentary around personal systems pricing. What drove some of the pricing dynamics in the quarter? I know you guys called out improved commercial mix, but there was also an unfavorable mix shift in consumers. Could you provide a little bit more color there?

Mike: I just wanted to follow up on the commentary around personal systems pricing.

Mike: What drove some of the pricing dynamics in the quarter I know you guys called out improved commercial mix, but there was also an unfavorable mix shift in consumer.

Mike: You provide a little bit more color there.

Enrique Lores: And maybe just talk a little bit more about your outlook for ASP for the full year, whether for the industry or for HP. Thank you. Sure, so let me start and maybe Tim will make additional comments. When we look at Q1 performance, quarter over quarter, which we think is the best indicator to look at to monitor progress, PC prices were flattish, driven by commercial. Commercial prices were up, and the mix moved a bit to consumer, which means that from a mixed perspective, we saw a positive impact, but at the same time, rates were down, mostly driven by price pressure that we saw in the low end of the portfolio, especially on the consumer side. And we think that this is a consequence of some of the softness that we saw in some of the consumer markets during the last quarter. But going forward, as commodity costs will increase and also as price, as mix will evolve more towards commercial, we expect to see an overall increase in PC prices.

Mike: And maybe just talk a little bit more about.

Mike: Your outlook for for Asps.

Mike: For the full year weather for the industry, our former HP. Thank you.

Speaker Change: Sure. So let me let me start and then maybe Tim will be bank came out additional comment when we look at Q1 performance quarter over quarter, which we think is the best indicator to look at to monitor progress PVC prices were flattish driven by commercial commercial prices went up.

Timothy J. Brown: And that mix moved a bit too to consumer.

Speaker Change: Quinn, which means that from a mix perspective, we saw a positive impact.

Timothy J. Brown: At the same site at the same time grades were down mostly driven by price pressure pressure that we saw in the low end of our portfolio, especially in the consumer side and we think that this is a consequence of some of the softness that we saw in some of the consumer markets during the last quarter.

Timothy J. Brown: But going forward commodity costs will increase and also.

Timothy J. Brown: This mix will evolve more towards commission, we expect to see an overall increase of Tcs on OCC prices.

Timothy J. Brown: Okay.

Krish Sankar: Your next question comes from the line of Krish Sankar from TD Cowan. Please go ahead. Hi, thanks for taking my question. This is Stephen calling on behalf of Krish. Enrique, I wanted to ask you about the print business. In terms of the pressures that you have coming from your Japanese peers, I was wondering if you're also seeing that applied to the commercial and supply hardware and also supply portion of your commercial business, especially within the context of any long-term managed contracts and workforce solutions.

Timothy J. Brown: Your next question comes from the line of Chris Sakai from TD Cowen. Please go ahead.

Chris Sakai: Hi, Thanks for taking my question.

Chris Sakai: This is keeping on behalf of Krish.

Chris Sakai: I wanted to ask you about the print business.

Speaker Change: Terms of.

Speaker Change: Yes sure.

Speaker Change: Your Japanese peers.

Timothy J. Brown: Mr is also seeing that applied.

Timothy J. Brown: Commercial and supply is hardware agnostic where supply portion of that.

Timothy J. Brown: Commercial business.

Timothy J. Brown: Especially within the context of any long term managed contract.

Enrique Lores: Thank you. Thank you. So, so far, the pressure that we are seeing is mostly on the consumer side, and this is very similar to the trend that we explained last quarter, where we, given where the exchange rate between the dollar and the yen is, clearly this is giving a strong advantage to some of our competitors in that space, and we are seeing that in the prices that they are going after. And this is why, on the consumer side, you have seen us, especially in the more traditional categories, we have decided not to go after certain deals because these will be unprofitable customers that we are not interested in targeting.

Speaker Change: <unk> solutions. Thank you.

Speaker Change: So so far the pressure that we're seeing is mostly on the consumer side and this is very similar to the trend that we fixed.

Speaker Change: As I explained last quarter, where we given where the.

Speaker Change: Exchange rate between between dollar in journeys and uterine Germany. Clearly this is giving a strong advantage to some of our competitors in that space and we're seeing that in the prices that they are going after and this is why in the consumer side, you have seen us, especially on the more traditional categories. We have.

Timothy J. Brown: Decided not to go after certain deals because these will be unprofitable customers that we are not interested in targeting on the commercial side, we have seen more stability there might be some risk of stabilization. We have some of that in our modeling, but all of this is built into the guide that we that we have provided today.

Enrique Lores: On the commercial side, we have seen more stability. There might be some risk of stabilization. We have some of that in our modeling, but all of this is built into the guide that we. Thank you so much. Your next question comes from the line of Aaron Rakers from Wells Fargo. Please go ahead. Aaron, your line is open. Hi, sorry about that. This is Jake on for Aaron.

Speaker Change: Thank you so much.

Speaker Change: Your next question comes from the line of hearing loss.

Dave Shull: Wells Fargo. Please go ahead.

Speaker Change: Aaron Your line is open.

Speaker Change: Sorry about that this is jake on for Aaron.

Aaron Christopher Rakers: I was just hoping to get some additional color on your industrial graphics business. It seems like over the past few quarters, you're seeing a little bit more momentum there, so I was just hoping to see how you did that throughout the remainder of the year. Thanks.

Jake: I was just hoping to get some additional color on our industrial graphics business. It seems like over the past few quarters youre seeing a little bit more momentum there. So I was just hoping to see.

Jake: How you viewed it throughout the remainder of the year. Thanks.

Enrique Lores: So you said it well, we have started to see some momentum in that part of the business, especially on the labels and packaging side; we have seen some good recovery. And you know that on May 24, there is this big show called Drupal, which is like the print, a major printing event. And it happens every four years. We have prepared a lot of new products and services that we will be launching then. And they usually have a fairly positive impact the quarters after that.

Speaker Change: Yes. Thank you.

Speaker Change: You said it well we have started to see some momentum in.

Speaker Change: That part of the business, especially in the labels from purchasing side, we have seen some time.

Speaker Change: Good recovery.

Speaker Change: And we you know that we in two in May 24 days. This week show called <unk>, which is like the print major printing event.

Speaker Change: I'm compensated for years.

Speaker Change: We have prepared a lot of new products and services that we will be launching them and these usually have a fairly positive impact the quarters. After that so we are expecting to see that happening in 2004, but good recovery.

Enrique Lores: So we are expecting to see that happening in 24. But good recovery and very good expectations for 24 as Drupal, as we will be launching a new set of products and solutions there. That concludes the question and answer session today. I will now turn the call back over to Enrique Lores for closing remarks.

Speaker Change: Very good expectations for 'twenty, Florida, Cooper, and we will be launching a new set of products and solutions.

Speaker Change: That concludes the question and answer session today, I will now turn the call back over to Enrique Lewis for closing remarks perfect. Thank you. So thank you all for joining today.

Enrique Lores: Thank you. So, thank you all for joining us today. And I'd like to close with three messages.

Enrique Lores: To close with three messages first of all as you. So Q1 was a solid quarter and a solid way to start the year.

Enrique Lores: First of all, as you saw, Q1 was a solid quarter and a solid way to start the year, where we grew both operating profit and EPS. We remain positive about the outlook that we provided a few quarters, a few months ago about the rest of the year. And as we said, we expect and continue to expect a stronger second half than the first half. And we also remain very confident in the long term, especially driven by the opportunities that both hybrid work and AI are bringing to us as a company and the innovation that we are gonna be launching around that. So again, thank you for joining us today. I'm looking forward to continuing to talk in the future. Thank you. This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Enrique Lores: Or do we grew both operating profit and EPS, we remain positive about the outlook that we provided a few quarters or a few months ago about the rest of the year.

Enrique Lores: We expect continue to expect a stronger second half the first half and we also remain very confident in the long term, especially driven by the opportunities are both hybrid work and.

Enrique Lores: Or bringing to us as a company and the innovation that we're going to be launching around that so again. Thank you for joining us today I'm looking forward to continue to look in the future. Thank you.

Speaker Change: This concludes today's conference call. Thank you for your participation.

Speaker Change: <unk> connect.

Speaker Change: Yeah.

Speaker Change: Yeah.

Enrique Lores: Yeah.