HPQ
#Thank you, <UNK>
Good afternoon, everyone, and thank you for joining us today
It was great to see so many of you at our recent Security Analyst Meeting here in Palo Alto
Our results today echo what you heard from us, HP is strong and getting stronger
And my message to all of you is we’re just getting started
As I look at our performance in the quarter and for the full fiscal year, I’m pleased with our consistent execution, ability to grow revenue, generate cash flow, and invest in our future to create sustainable growth over time
It’s results like these that give us confidence in the trajectory of our business moving forward
It was just two years ago that we began our reinvention journey
We committed to compete and win in our core, into new growth markets and natural adjacencies, and invest in our future where we can disrupt industries and create new categories
We’re also committed to a relentless focus on productivity, to take cost out of the business
We did what we said we’d do, and I’m proud of the substantial progress we have made
There is more work to do, but we’ve never been more competitive, more fixated on the customer, more innovative, and more focused on operational excellence than we’re today
Let me review the highlights
We drove impressive topline growth with net revenue up 11% year-over-year to $13.9 billion including double-digit growth and share gains across the Americas, EMEA, and APJ
Both, Personal Systems and Printing grew year-over-year, together for the third consecutive quarter
We grew non-GAAP diluted net earnings per share year-over-year, delivering $0.44 for the quarter
We delivered $0.5 billion of free cash flow in the quarter, taking us to $3.3 billion for the full year
And we returned 69% of our FY17 free cash flow to shareholders through share repurchases and dividends
Now, let me turn to segment performance
In quarter four, Personal Systems had another stellar quarter, driving growth, gaining profitable share, and delivering impressive innovations
This team is hitting their stride with truly outstanding performance
Personal Systems net revenue grew 13% year-over-year, which came on top of last year’s 4% growth in quarter four
For the full year we grew 11% year-over-year with double-digit growth in each of the past four quarters
Growth in Personal Systems continued to be broad-based with double-digit year-over-year revenue gains in consumer and commercial and across all three regions
We also saw consistent growth across product categories led by notebooks, and strong performance in desktops and workstations
Our regional leaders and sales partners are doing an incredible job of driving growth and delivering value for our customers
In calendar quarter three, the overall PC market returned to year-over-year growth both in units and revenue
We once again outperformed the PC unit market growth and increased our market share to 22.5%, up 1.2 points year-over-year
We saw year-over-year share gains continuing in each region in both consumer and commercial
In quarter four, we continue to surprise and delight the market with innovation
We announced our biggest premium launch across consumer and commercial, introduced the world’s most powerful and first detachable PC workstation, unleashed our most powerful OMEN X laptop for gaming athletes
And as you heard from us at SAM, we are doubling down on security with the world’s most secure and manageable commercial PCs
Security is built into our systems from the BIOS level and up, securing at, below, and above the operating system
As customer demands to services grows and the market transitions towards an on-demand based economy, we are gaining steady traction with enhanced devices or service offerings for the fleet management
We are seeing strong wins by our channel partners and a healthy pipeline for the future
Shifting to Printing
This business continues to make significant progress with year-over-year growth in revenue, operating profit and market share
In quarter four, total revenue was up 7% year-over-year with growth across all three geographic regions
We delivered year-over-year revenue increases in consumer hardware, commercial hardware and supplies
Quarter four supplies revenue grew again, demonstrating the huge progress we’ve made with this business during the year
Hardware units grew both year-over-year and sequentially, driven by consumer
This is our fifth consecutive quarter of year-over-year unit growth
Total print unit market share was 40% in calendar quarter three, and we gained share in both our office and home businesses
The graphics business continues to grow, even without the positive uplift that we experienced last year from the industry-wide drupa event
And as highlighted at the Security Analyst Meeting, we signed the single largest deal in our graphics history with Lightning Source
It’s a multimillion dollar, multiyear deal to deploy 24 PageWide digital presses to five printing sites on three continents
Lightning Source prints roughly 40% of the books sold through Amazon and this deal is going to help transform the distribution and sales model for book publishers all over the world
In A3, we continued to onboard new partners and gain market share, both year-over-year and sequentially
And I’m excited that on November the 1st, we closed the acquisition of Samsung’s Printing business
This creates a combined team, focused on innovation, acceleration and print excellence
Together, we are building on more than 30 years of print leadership and innovation, and now we have an unmatched portfolio and amazing technologies that will enable us to drive growth over time
As our two teams become one, we will preserve the best, the best talent, the best culture and the best technology to become better, stronger and faster
We’ve gained critical IP and now have a broad portfolio of laser and ink offerings that better positions us to attack the overall $55 billion A3 growth opportunity
And that also strengthens our A4 business
2017 was a great year for 3D
We turned out 3D printing initiative into a business with global reach, repeat customer orders and expanding partner and materials ecosystem and revenue
This quarter, we continued to grow our business with new customers such as Medtronic, one of the largest medical device and service companies in the world
As previously highlighted, we As previously highlighted, we added more than 20 new partners including Henkel, our first worldwide reseller, and announced partnerships with Deloitte and Siemens to digitally transform manufacturing
Looking to 2018, we plan to introduce a new, lower cost full color system, allowing us to expand into new markets
We believe that Multi Jet Fusion will be the only 3D printing technology in the industry that can make mechanically robust, fully functional, color parts
Not only, are we leaders in polymers but we’re going to disrupt 3D printing with metals
Stay tuned for more news about this in the coming year
Overall, we’ve done what we said we would do
We’re growing the business, top line and bottom line, and generating strong cash flow
We’re delivering returns for our shareholders and investing in the future to create long-term value
I’m very pleased with our Q4 and FY17 results, but we always have more work to do for our customers, partners, employees and investors
Our markets remain highly competitive and our year-over-year compares are now much tougher, but we’re ready for it
I’m optimistic about our future and excited that we’re just getting started
I will now turn the call over to Cathie to provide more details on our performance and our financial outlook
Second question was around margins over time
And Katy just to reiterate the point that Cathie made to <UNK>’s question, the rate was slightly down this quarter but we did place sequentially many more units than we ordinarily would
And of course that bring the razorblade business model, generates returns over time, positive NPV units and a good deal for our investors
I think it’s always important to remember, <UNK>, we’re executing across our entire strategy, which is to cross three pillars of our core business
It generates the vast majority of our revenue and operating profit today
The growth initiatives around A3, our graphics business, everything is a service which will obviously provide growth opportunities for us over the next two to three years and then further out into the future over the next five to ten years, the work we’re doing around the most of computing and 3D printing, really crates an opportunity for long-term growth for our shareholders
Well, let me start sort of long-term, and Cathie might want to weigh in a little more than that
I’d still remind everybody this is still a $333 billion market that one in five machines got an HP logo on it, means four out of five don’t; that represents opportunity for us
I’ve said consistently that the market is consolidating; the top four grew 3.5%
We grew at 2.5-point premium to that
So, certainly, the big is getting bigger and we are growing much faster than the big four
And that’s really off the back of strong innovation to this lineup, I think we have ever had, we are getting incredibly positive reviews consistently
It’s a continuous transformation of the business to more profitable subcategories, finding where the heat is into the market and where we can get value for the innovation that we are creating
And in quarter four, that paid off yet again
We saw topline ---+ strong topline growth, sequential growth in operating profit
We saw year-over-year share gains
But those share gains, I’ll remind everyone and not an objective but rather an outcome of all of this work
There is no single magic pill that was all categories, all regions
The channel inventory was well under control
We aged inventory was well-managed
I think really kudos to the team both regionally within the business units, the supply chains and the functions
I think we are in a very good position to compete as we go forward in this market
Why don’t I sort of stop, because I know, we’ve got some new investors that have come into the stock and I think it’s important to reiterate and recall why this transaction was important to us, given that we’ve just closed the transaction, and then Cathie can talk specifically to those numbers
First of all, we welcome the Samsung print team to our family
And for our new investors, we bought this business for three primary reasons
Firstly, the A3 market is a $55 billion market and we are underpenetrated in that market relative to the A4 market where we have very strong market leadership
The traditional A3 players operate very complex machines, if you were to break those machines down, they would ---+ you would see thousands of parts on the ground
The Samsung technology really disrupts those traditional copiers with copier level performance but significantly less complex machine, the thousands of parts, when you were to break a Samsung down would be hundreds of parts
And this lowers the cost to operate and that translates to increased margins for our partners and/or lower cost per page for our customers
So, we have an extremely strong portfolio when you put our technology together with the Samsung technology now, HP technology in both the A4 and A3 spaces in Ink, in PageWide, and in Laser, the second reason is that we integrated it, the A3 and the A4 portfolio which really increases our managed print services capability, there’re certain customers and tenders that would come out, that had a requirement for a mixed deployment of both A3 and A4 and were often excluded from those A4 deals
Now having a very full portfolio, actually opens up A4, new A4 opportunities for us
And the third is, we now have incredible thing, we inherited more than a 1,000 top class engineers, industry-leading R&D team in laser space, includes go-to-market capability more than 6,500 patents being added to our core
And I think this newly combined team is increasingly diverse and industry-leading
And so with that we have a lot of confidence in our ability to attract at least 12 points ---+ or 12% of A3 market share in the next three years
The other thing to remember Toni on Samsung is that still the largest portion of the composition of the revenue today is A4. You’ll recall that we acquired these assets, so the A3 capability which was still largely in an investment mode
And so, as we move more and more into the A3 market and we shift the business from transactional to contractual, that generally comes with the higher supplies attraction
And so the composition of supplies over time is indeed going to change
Thanks, <UNK>
Of course, we were competitors up until that sort of 20 days ago
And so, you can imagine, this is somewhat of a tricky acquisition in terms of exactly how much information that we had leading into the closure
I would say, still very early days
The integration is going incredibly well; the team is incredibly focused on our customers, doing all the right things
But, we’re learning every day as we get under the covers of this business
We would expect that as our team looks at best industry practice that’s got us to the position where we are today that there will indeed be opportunities to capture those synergies
But, I would just say, it’s a little too early, not more than 20 days into the acquisition, to give you a lot of specifics around that
Well, I think you’ve actually summarized it really well
We focus incredibly on cost, it’s table stakes
You have to be in the right cost position
If you’re not on the right cost position, you don’t have the opportunity to make investments
As it relates to investments, we feel good about the investment choices ahead of us
We believe we can create significant shareholder value
As we outlined at the Security Analyst Meeting, we have confidence in our ability to execute and hope that we’ve dropped $1 or $2 in the trust bank over the course of the last couple of years to demonstrate that we can execute
I would say that our investment thesis and process that we follow is that we identify investment opportunities across the business, we weigh them all against one another
We’re very targeted to ensure that the investments that we do make advance our strategy, so that we don’t surprise anyone with the investments that we’re making
We’re very disciplined about establishing and hitting the milestones that we lay out
And ultimately, generating profitable growth is what it’s all about
Growth for just growth sake is not particularly fascinating
I think segment by segment, we’re demonstrating that those investments are good choices, investment systems, broadly in premium and specifically in gaming are great examples of investments that we made that are paying dividends right now
Same is true for graphics and the very targeted unit placements that Cathie talked about, NPV positive units and print
3D printing has gone from a business that was nonexistent a year ago to a real business today, 65 channel partners around the globe in every single region and ecosystem that we’ve developed, partners in Deloitte and Siemens, more than 50 materials partners that are starting to look at making materials for the platform, plus the technology announcements that we made at the Security and Analyst Meeting around a lower cost color platform and the technology announcements we’ll make around metals in 2018. So, we’re feeling good about our ability to execute in the core, in the growth areas that we outlined, as well as the future
We don’t break it down at a segment level
And I think there are better sources of data to look at how much share we’ve taken in that particular space
And I wouldn’t want to make our analysts redundant
I would just say that this has been a material business for us that’s grown up over the last 18 months from nothing to a sizable portion, not only in terms of revenue but the gross margin that it drives, as well as the halo effect that it has on the overall brand, which I think is lifting our premium segment as well as every other segment that we had within the PC business
This is an incredible franchise; it’s a growing franchise; the airier is growing
And there is more people that are tuning in to these battlegrounds than game 7 of the NBA
So, we like being in this business and we see the growth continuing
I think it’s really worth reiterating why we acquired this asset
It was not to buy revenue
And I’m being pretty clear about that as is Cathie
We don’t chase share for share’s sake
And whilst the revenue is interesting, it’s not fascinating
What’s fascinating for us is the incredible disruptive technology that this team invented to take on a pretty unconsolidated A3 $55 billion copier market with a better mousetrap that enables our partners to earn more money and enables a lower cost per page for our customers with a very different value proposition from a servicing perspective
More than a 1,000 engineers of very rich portfolio of patents
It’s all of those reasons that we’ll pay dividends over time that we’re incredibly interested in and why we acquired this asset and we’re just kind of getting started in this space
So, with that, I want to take the opportunity to thank you all
I have been Americanized and I understand, it is a season of Thanksgiving, and we’re between you and a turkey
So, I want to thank you for following us through the course of our reinvention journey
Our results give us real confidence in the trajectory of our business going forward
We’re leading in our core markets, we’re entering new growth markets and natural adjacencies and at the same time investing in the future
We’ve never been more competitive
We remain humble and focused
We’re proud of the results that we’re delivering and proud that we’ve been very open and transparent and dependable
We think it’s been a great year of reinvention and we’re just getting started
Have a great Thanksgiving
