Perfect. Good morning, everyone. I guess before we get started, I've got to read the disclosure statement. So today's discussions include forward-looking statements that involve risk, uncertainties, and assumptions, which are further described in HP's SEC filings, including HP Form 10K and 10Q. HP assumes no obligation and does not intend to update any such forward-looking statements. For more information, please refer to HP's investor relations webpage at investor.hp.com. I did a great job with that. Thank you.

Thank you.

Well, good morning, everyone. Thanks a lot for being here. Really delighted to have with us Karen Parkhill, CFO of HP Inc. You know, going to keep this fairly interactive for the next 40 minutes. If anyone has questions, feel free to raise your hand. I guess maybe just to kick this off, Karen, you folks reported numbers last week. It was a lot better than expected, I think, from a lot, at least from the buy side perspective, a Southside perspective, the $2.8 to $3 billion free cash flows at least to me stand out, but maybe just spend a little bit of time on just recapping earnings and touching on what you folks are embedding and thinking about the back half of the year from a PC demand perspective, and then we'll take it for some more questions from there.

Yeah, perfect. Thanks, Amit. I'm thrilled to be here. Yes, we did have a really strong quarter. We're pleased with the performance there. We did announce earnings significantly better than expected above our guidance range and with over 20% year-over-year growth. We also raised our guide for the year. Last quarter, at the early stages of the memory cycle, we were prudently pointing to the low end of our range. and now with the strong execution in the second quarter we believe that we'll be solidly within our range of 290 to 310 for the for the full year as we think about you know the the inputs to our guide particularly for the back half in PS we do we are aligned with industry experts out there expecting TAM units to be down in the high teens for the rest of the calendar year amidst that we expect to still grow revenue though at a slightly moderated pace from what you saw this past quarter and you know part of that's due to the fact that we had we believe we had some pull-ins in the quarter but we were focused on from a From a margin perspective, we believe we've got continued rising memory and storage and input costs, though at a slightly lesser rate than what we had seen in the second quarter. And we're focused on our mitigation playbook against that. But we do expect margins to be below our long-term range for the back half in PS. We did have the benefit in the first half of lower costed inventory that was working its way in through the P&L, and we'll lose that benefit, but we are gaining traction on our mitigation playbook, and you saw that in spades in the second quarter.

Perfect. And I have a bunch of questions I want to ask you about just the back half and margins and everything else, but there's also, you know, a fair amount of announcement at Computex with NVIDIA with, you know, Spark and I think HP announced a couple of laptops that are going to come out and desktop. So then maybe just spend a minute or two on just kind of what those announcements entail and what kind of HP product looks like from that basis.

Yeah. So we think the announcement yesterday really strengthened our thesis all along that more and more AI is going to be done at the edge. It is safer, more secure. It's a lot cheaper. It doesn't use the tokens that you need for the cloud. It's better for the environment. And so we just think more and more is going to be done at the edge. And NVIDIA's announcement of the Windows platform for AI locally, RTX Spark, is exactly just that. So along with that, we did say that we're going to be introducing laptops, desktops, and workstations that can run this platform locally for customers and coming soon.

Perfect. I tried to ask Alok about pricing on that, but he sees that's a little bit more TBD. we'll wait for that pricing is TBD okay if I just go back to the earnings call for a minute I think one of the things that surprised a lot of folks a lot one of the questions I got a fair amount was just you folks had it you know talked about hey PSG the print PSG the PC side operating module kind of trough out in Q4 and they should start to improve from there as you go into the next year maybe just dig into like what what sort of visibility or what are you see that It gives you conviction that margins will drop in Q4 and start to improve. Just talk about the puts and takes around that.

So part of it is what I already talked about with the benefit of the lower-costed inventory, you know, with that tapering off and continued rising memory costs. Of course, we're working our strong playbook to mitigate. If we can do better, we will. But we've been, you know, focused on prudently guiding. And we believe at this point that our margins will be below our long-term range for the back half, reaching a trough in Q4 and improving sequentially into FY27 from there. You know, what gives us confidence is that our playbook is continuing to take traction and we'll have the full year run rate of the actions that we've taken this year to help us next year. And we're also continuing to see a higher mix of premium products, particularly AIPCs. We talked about the fact that AIPCs were up from 35 percent of our shipments the prior quarter to 44 percent this quarter. and we expect them to be 60 to 70 percent of our shipments as we look ahead into FY27.

Maybe spend a bit of time on just the cost mitigation efforts, the playbook that you folks have. What are the different tools that you are focused on to exercise to offset the memory headwinds that we have right now?

Yeah, so there's been four pillars to our mitigation efforts on the memory and storage challenges. The first is that we're focused on securing the supply that we need to ensure that we can deliver on the demand that we've got. And we feel really confident that we've got that strong supply through both our long-term relationships and, you know, the fact that we've got strong relationships with our customers. The second is working to strengthen our operations from the supply chain side all the way to the front line to enable us to align the supply that we've got with the demand that we have and reconfigure devices to shape what the customer really needs. And we've been improving our processes to align that better, and we've been introducing new tools to align that better. And, you know, that started to take good traction toward the end of last quarter, and we expect that to continue. The third is to reduce costs everywhere that we can. And we've been driving our AI transformation across the company. We also announced an early retirement program that's friendly to employees last quarter. We saw some traction on that. And then the fourth is repricing. And clearly, we've been focused on increasing prices to compensate for the remainder of what we can't handle through our other actions. And that's taking good traction, too. Got it.

Just on the memory side, some companies will come and say, hey, we have LTAs in place and give us visibility on this on a fairly extended basis. How do you folks look at LTAs and how much kind of visibility do you have on components and the pricing that you have to pay for these things?

Yeah. So we have these long-term agreements that give us the assurance of the supply and give us confidence that we've got the supply that we need. And that gives us the confidence that we have the supply we need for this year and we're already working on next year. In terms of pricing with those agreements we focus on you know locking in the price a quarter in advance so that we at least know how we should be pricing for our customers but we don't want to lock it in so far in advance that we're at a disadvantage when prices stabilize and start to move down.

That would be a fascinating time when they start to move down at some point you know I'd say I think a lot of the discussions I have the focus has always been on what's happening with memory what are the mitigation efforts how you folks dealing with it you know as you were talking about all these mitigation efforts a lot of them seem to be structural versus transient if that's a way to define them it's I'm just wondering like to the extent the scenario plays out that memory just flattens out maybe not even go down how should we think about the longer-term PSG margins and if some of these initiatives are more structural then, is there a different framework to think about them as you go forward versus what you folks have talked about in the past?

Yeah, so you're right that much of this mitigation is structural and you know our goal and focus is to be improving our margins over time. You know right now we've given you the near-term view that we expect them to be under the long-term range in the back half and improve from there into FY27, but we'll continue to focus on improving them. We're not going to change our long-term range at this point yet, but, you know, over time, we're going to focus on continuing to improve.

And then, you know, just the customer perspective, right? I mean, price of PCs and other things have gone up pretty dramatically in the last six months. What are you seeing from your enterprise channel partner perspective in terms of their purchasing behavior?

And I think one of the fears everyone has is things are good so far, but how much of this is really a pull-in versus demand is just better? yeah so um you know we we do recognize that there's there's some elasticity here and that's one of the reasons why we're aligned with the industry experts that we expect unit unit volume to decline you know that said we're very focused on the premium side here and there is less price sensitivity sensitivity when you're talking about premium devices particularly ai pcs and we're increasing our shipments on that you know on the competitive side right how is competition kind of stacking up in in the PC world right now

and I imagine the element of maybe some of the smaller companies that are subscale are not playing as much so I'd love to just get us into what the competitive environment looks at on PCs yeah clearly we've got some good competitors that we watch closely and our focus is on is on gaining share against those competitors.

We did gain share in the premium space last quarter, and we intend to regain share overall as we look ahead. And part of that was making sure we worked out the kinks that I talked about of matching our demand and supply and putting in place new processes and tools, which we have in place now. But, you know, it's a competitive environment, but we believe we're incredibly well positioned.

On AI PCs I'd love to just kind of understand how you folks look at it from HP's perspective and you know to the extent you see I think you've talked about hey well over thought I think at this point of PCs that you ship are AI enabled you know just talk about like what is driving the growth because I think a lot of times we'll sit back and say like what is the application that makes you want to go and do this maybe RT spark would be one over time But when you hear customers say we want to buy AIPCs, what are the reasons they want to choose it for?

Yeah, I would say, you know, a couple of years ago when we were talking to CIOs about refreshing their fleet with AIPCs, it was to stay ahead of what is to come. And the reality is what is to come is now here and just gaining momentum every day. There are more and more applications being developed to be used at the edge. We've been working with hundreds of ISVs to enable that. And you're seeing things like the NVIDIA announcement yesterday. So there will be a future where there will be significantly more AI applications done at the edge. And we intend to lead there. There will always be a need for cloud, but there's a growing need now for AI at the edge at the same time.

Got it. And do you find customers that are adopting it are almost more wanting to future-proof the fleet versus actually have use cases today for it?

There are use cases today. You know, I'd say two years ago it was future-proofing. Today there are use cases and they're growing. So you know, some may view it as future-proofing because it is still growing, but there's plenty of use cases today.

In the past, folks have talked about AI PCs have a better margin profile than traditional PCs. It's a higher ASP for sure, right? Is that still the case or is memory inflation changed that equation a little bit? I'd love to just understand margin profile for AI PCs versus the rest of the fleet.

Yeah, it is still the case. So AI PCs are premium products. They do carry higher price and they do have higher margin.

Any framework on how ASPs are in AI PCs versus traditional laptops because that that's a nice little tailwind as well that you folks are.

Yeah so you've seen you know our ASPs increase quite a bit last quarter we expect that to continue and part of that is the repricing that we're doing because of the higher input costs and part of that is the mix shift to more premium products, which includes AIPCs.

Let's shift gears a bit on the print side. Last one, you guys had 18.2, 18.3% margins on print. I think the guide sort of said, hey, this will go back to the lower end of the 16 to 19% range that you have longer term. Just talk about what's happening in the print margins driving the down tick, and how much of that is perhaps a transient thing because of oil issues or straight harm was being closed versus something else. So just talk about just that margin trajectory on the print side.

Sure, sure. So we talked about our print margins being toward the lower end of our long-term range in Q3 and that's really due to three things. First, Q3 is typically our lowest quarter. Less supplies and typically the lowest quarter. And so you've got that that's not transient. But on top of that we are dealing with a little bit of impact from the Middle East situation and the increased oil prices that we're working to mitigate and so that I would say is definitely transient and then third we're focused on taking advantage of opportunities to place long-term profitable units that you know are a bit of a drag run as you place them but are long-term profitable for us and you know we're going to be placing more units in Q3 and likely Q4 too. While we said that our margins will be toward the low end of our range in Q3, we expect them to be back solidly in the range in Q4 and solidly in the range for the full year.

Got it, perfect. What's the right way to think about the supply's trajectory as you go forward? It's always been kind of I think down low single digits give overtake. I'm curious, what's the right way to think about that model as you go forward?

Yeah, we did see supplies roughly flat in the second quarter, and that's a lot due to the fact that we had increased pricing due to tariffs last year, and we're seeing the benefit of the couple times that we increased price last year. But for this year, we do expect supplies to be down low single digits that hasn't changed and as we look longer term for supplies we do expect in constant currency supplies to be down low to mid single digits but overall in print we're focused on working to offset that drag for us through through a keen focus on increasing subscriptions which are good recurring revenue increasing in industrial and 3d which you've seen strong double-digit growth over several quarters in those key growth areas and also focused on placing some more big tank units with profit up front.

Perfect. I want to come back to that stuff in a bit but on the hardware side, right, I mean we've seen hardware units and print decline I think for several quarters and you folks obviously making us, you know, the statement, hey we're going to go after a bit more hardware installation as you go forward.

What's driving the decision to change that into the shift of wanting to place more hardware units versus starkly yeah so I don't know if there's really a shift we look at opportunities to place the long-term profitable units and we believe we've got some opportunities in the back half to do that so that's what we're going to be focused on doing yeah it's been a competitive environment in print, and we're going to focus on doing the right, placing long-term profitable units, and not just placing units for share's sake.

You know, Karen, the competition in print, especially on the hardware side, has been a lot of the Japanese companies that I think have used the weaker yen to some degree to go after market share. Is that starting to change a little bit as well, which perhaps has given you a bit more of an entryway to say we can place at least place incremental hardware units, or?

It's still a competitive environment out there. Our Japanese competitors do still have the benefit of the yen. That said, we're seeing some good trends out there. For example, the office decline that we had seen is improving. Still declining, but declining at a less rate.

We're also seeing, you know, good stable usage trends of print out there so we do believe that over time we'll see more and more refresh happening and then you know in supplies you kind of talked about hey the three different growth vectors of things you can focus on like the big tank subscription and then 3d printing and the materials there as you think of those kind of growthier piece of the bucket are those generally margin creative to your print margins or not? And then off those three which ones you know maybe is a way to think about how big these opportunities are and which ones are you more focused on right now?

Yeah so subscriptions for example are all-in subscriptions are a better long-term profitability than traditional unit placement and so those those are strong for us. You know we don't disclose our margins in industrial and 3D but we like the growth that we've been driving there and we do think that helps offset and we've you know you've seen us operate at the high end of our long-term ranges in print for many many quarters and you know while while we're we're not planning to in the back half you've seen us do that and part of that is us continuing to take out structural costs in print and continue to operate as effectively and efficiently as we should.

Got it. And then subscription, by the way, I mean it grew double digits last quarter in Q1, I think. Was there something unique that helped you drive that kind of growth or is that sort of the right thing to think about the subscription piece at least going as you go forward?

Yeah, I mean we've been talking about subscription. We've been placing concerted effort on it, so we're really pleased with the growth we had there. Our subscription revenue was nearly a billion dollars at the end of last fiscal year so it shows you the the strength of it and all in in particular we've we've been marketing just in the US and we're focused on taking that outside the US so we've got plenty of opportunity to continue to grow there.

You know one of the things that maybe it's maybe a little bit more back on the PC side has been And the ability to sell incremental accessories along with the PC seals that you folks have And poly certainly is a very big asset that you folks have there. Just talk about how is that kind of attach rate working as you go forward? And I would imagine it's very reasonable to assume that those incremental accessories, the headsets and everything else is much better margin than the traditional margins are.

It's true. So, our attach business is higher margin and it is something that we've been focused on on driving even more of and we've got plenty of opportunity if you look at our attach rate right now for for many of our customers particularly enterprise customers it's low and and we've been focused on attacking that in fact we've got a program with our sales force that's called attach attack and it drives greater sales incentives for that we've also changed some of our sales incentives to have our incentives focus not just on revenue dollars but also on gross margin and as we focus our frontline on gross margin to that in sense and to not just focus on the increased price that we need to drive but also the mix and attach as part of that mix in this poly fitted to that as well or is that is that attached more around keyboards and displays and all Polly fits into it, too. It all fits into it. Yeah.

And is there a space where, you know, Polly had this kind of narrative about trying to go after, you know, office and make it more video conferencing ready. And Huddled Rooms, I think, was the product that they would have. Is that still a narrative that HP can leverage and focus on or is Polly more of a on-desk thing?

No, absolutely. As we drive what we're calling the future of work, we've been creating HPIQ platforms to enable all of our devices to talk seamlessly to each other and recognize things like when you walk into a room with your PC, it automatically knows who you are, pulls up your conference call, pulls up the presentation that you need. So it makes it very seamless for the worker.

You know, one of the things you talked about when you talked about all the mitigation efforts and, you know, you folks also have like this AI-enabled savings program that HB is trying to go after. Just talk about the cost reduction initiatives the company has and how big can this get on a gross on a net basis and what are the different vectors you're looking at?

Yeah, so we have been focused on driving some cost savings and transformation through AI enablement across our whole company, and we've been seeing good traction on that. You know, some examples are that, you know, in our supply chain, we've been scaling AI agents that enable us to automate order entry and returns. We also have a digital teammate for our channel partners where they can ask questions, they can get guidance on next steps, and we've been using AI in our software development area to help boost the productivity of our developers. And those are just three examples. We're working on scaling it quite a lot across the company. That program is intended to drive a billion dollars in gross annual run rate savings by its third year, by FY28. We're well on track there, and we're excited about what AI can do for us from a productivity perspective inside HP.

Thanks, Karen. Just from my side, how does the AI-enabled savings program differ from the future-ready? Because I think those are two different kind of buckets you talk about. And then maybe the second part of this is, when I think about a billion dollar gross savings, is there a rule of thumb to think about what could be the net on that? Or is that more dependent on what does the top line look like?

Yeah, yeah. So it differs from Future Ready. Future Ready was our program prior to this. And Future Ready was before the ability of AI to enable us. And so that was really a lot focused on, you know, driving traditional type cost savings across the company. And we successfully exceeded our expectations on Future Ready. But with the advent of AI, it enables us to do so much more. And that's why we've announced this AI-enabled transformation. Your second part of the question?

Billion dollars of gross savings. Is there a rule of thumb to think about what does that net look like? or is that more contingent or what top line ends up being?

Yep, so for all of these savings programs that we've done, they enable us to ensure that we're able to invest for the longer term while still driving a good bottom line. And so rule of thumb, I think a lot depends on the kind of headwinds that we're facing that we need to offset and the investment needs that we see ahead.

Just on free cash flow, right, if I think about the guide for this year of 2.8 to 3 billion, it sort of implies that it will do about a billion a quarter in Q3, Q4. I think that would be the math, right? Seems to be a nice step up in fairness to what you've done in the first step. Now some of that is normal. You always have a better back half. Just talk about like what is enabling this kind of step up in free cash in the back half. And then maybe if I just extend that a bit, like how do you think about longer term free cash generation for the company?

Yeah, thanks for the question. So we're really pleased to have delivered about a billion in free cash flow just in our first half. And seasonally, you're right. Our first half is much lower than our back half typically. You know, a lot of that has been driven by the strength of our P.S. business, which we expect to continue. That has a negative cash conversion cycle and clearly helps. We've also driven some improvement in our working capital position in the first half. And yes, we're confident about what we intend to deliver in the back half, and that put our guidance, we increased our guidance along with increasing it on EPS and free cash flow to put us solidly in that 2.8 to 3 billion range for the year.

This is kind of beyond this year, right? I mean, what's the way to think about free cash flow generation for the company? Is there, you know, you target 90%, 100% of net income. Just talk about just longer term, how do you think about free cash flow generation? And maybe especially in the context of memory is taking up more working capital as you go forward, I feel.

Yep. Yep. But that said, we are focused on driving continued free cash flow growth. We know it's important for our shareholders. We know earnings are important. We know free cash flow is important. And so we're going to be focused on continuing to improve it from here.

Will you spend a minute or two on just capital allocation? How do you folks look at that? And, you know, what do you think about dividends versus buybacks versus? tuck in or whatever I mean you would look at.

Yeah, yeah. So I would start with just in general, our capital allocation policy has remained the same for a long period of time. And for those of you who don't know it, it's a policy that we intend to return roughly 100% of our free cash flow to our shareholders over time, as long as our leverage remains under two times and there aren't better ROI opportunities. And you've seen us do just that over a long period of time. In fact, just in the first half, we returned roughly a billion to shareholders. We generated roughly a billion. And in terms of dividends and share repurchases, we like them both. And what you've seen is us growing our dividend over time. We know that's important to our shareholders, so we believe in a growing dividend. And then we like to supplement the share return with share repurchase.

Got it. There's been a lot of focus on memory in the last six months, last nine months clearly. One of the things that clearly seems to be happening is there seems to be a wider array of components that are getting to be in short supply or supply chain challenges starting to persist.

I was wondering if you're starting to see that as well where this is not just a memory issue it's becoming a broader issue and if that's the case maybe the part I want to go to is like does that put more headwind on working capital as you go forward because you perhaps have to allocate dollars not just for memory but maybe processors and power amplifiers and all kinds of different things yeah so we have seen input cost rise in general initially we had higher rise on memory right now we're seeing a higher rise on storage and we had talked about both memory and storage being 35 of our bomb for the year that that was the average for the year so it will be higher in the back half That didn't include CPUs, but CPUs were obviously included in our outlook, too. But in general, we're going to be focused on where we have rising costs, making sure that we offset it. Again, through our four-pillar mitigation playbook, the last of which is increasing price.

Terrace, maybe on the other side, seem to become less of a headwind, potentially, and get rebates potentially down the road. Maybe any perspectives on where tariffs are as a headwind and then, you know, how you look at the framework of potentially getting some of the discredits back?

Yeah. So we dealt a decent amount with tariffs last fiscal year. You saw his work to offset that. And should more come our way, we'll be doing the same. Right now, the tariffs have been impacting our print business and they've been roughly about 10 percent. The administration may announce something in July around tariffs, but whatever that is, we'll be focused on mitigating. In terms of refunds, we're a complex multinational company, and the government isn't yet ready to process refunds for complex companies like us, but as soon as they're ready, we'll be applying. got it um any update any um you want to share on just on the ceo search the time frame timeline on that yeah so our board has been you know actively working on on uh the ceo search we're not going to give a time frame um these things always could take longer than you expect anyway um but i'd say the board remains focused on finding the right next leader for hp with a proven track record of of leading complex global companies like ourselves. But in the meantime, I would say we are not skipping a beat with Bruce at the helm. He has done a fabulous job as interim CEO. He's just a really terrific seasoned leader and we are continuing all momentum under his leadership.

Upon my questions, but maybe I'll turn this back to you. Any closing comments, anything we did not touch on you want to flag our way. You've been at HP a couple of years now?

Yeah, just under two years.

Just under two years. Love any thoughts from your side on the whole thing.

Yeah. So, you know, HP obviously is the founder of Silicon Valley. And, you know, we've had our ups and downs over the years. But one of the key reasons why I was so excited to join this company is because we're an iconic company in the midst of a significant technology transformation with AI and I think from an investor standpoint you're just seeing the beginning of this you know with our stock price movement just over the last week but you know I would say we are going to be very focused on leading and driving this AI transformation at the edge leading and driving the future of work our future of work strategy we are investing behind it and we are focused on on ensuring that we take HP into its next best era thank you very much