Good afternoon, and welcome to the First Quarter 2017 HP Inc. Earnings Conference Call. My name is Denise, and I'll be your operator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Diana Sroka, Head of Investor Relations. Please proceed.

Good afternoon. I'm Diana Sroka, Head of Investor Relations for HP Inc., and I'd like to welcome you to the Fiscal 2017 First Quarter Earnings Conference Call with Dion Weisler, HP's President and Chief Executive Officer; and Cathie Lesjak, HP's Chief Financial Officer. Before handing the call over to Dion, let me remind you that this call is being webcast. A replay of the webcast will be made available shortly after the call for approximately 1 year. We posted the earnings release and the accompanying slide presentation on our Investor Relations web page at www.hp.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these risks, uncertainties and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K. HP assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available at this time and could differ materially from the amounts ultimately reported in HP's Form 10-Q for this fiscal quarter ended January 31, 2017, and HP's other SEC filings. 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. And now I will hand it over to Dion.

Thank you, Diana. Good afternoon, everyone, and thank you for joining us today. Let me start by saying I'm very pleased with our performance this quarter. As a more nimble company, we've been able to accelerate our strategy, and we're now firing on all cylinders. With the strong start to our 2017 fiscal year, we continue to build on our track record of delivering on all of our financial commitments with discipline, focus and execution. We've also made solid progress in positioning the business for long-term growth. And we accomplished this amidst a market backdrop that remained highly competitive. Let me take a moment to share the notable highlights for the quarter. We delivered non-GAAP diluted net earnings per share of $0.38, at the high end of our outlook range. We exceeded free cash flow expectations, delivering more than $700 million and returning more than $600 million to shareholders through share repurchases and dividends. And we grew net revenue by 4% year-over-year to $12.7 billion with double-digit growth in Personal Systems. We are delivering strong results because we are executing on our reinvention and driving our strategy to protect our core, prioritize growth and invest in the future. We are doing this with a relentless focus on innovation and engineering technologies that consistently amaze our partners and customers. A perfect demonstration of this is in Personal Systems, where, yet again for the third consecutive quarter, the team delivered exceptional results. This is a story of innovation and execution delivering revenue, margin expansion and market share growth year-over-year. Personal Systems' revenue grew 10% year-over-year with operating profit improvement. The last time we saw this level of revenue growth was in 2014 triggered by the XP refresh cycle. In contrast, this growth was triggered by HP's innovation engine and ability to outperform…

Thanks, Dion. Overall, I'm also very pleased with our performance in the first quarter. We delivered net revenue of $12.7 billion, up 4% year-over-year as reported and up 5% in constant currency. We saw strong momentum globally with each region delivering top line growth year-over-year. Gross margin of 17.7% was down 1 point year-over-year, driven by unfavorable segment mix and commodity costs in Personal Systems. Sequentially, gross margin was down 0.6 points as Personal Systems rate was pressured with incremental cost of components, which was only partially offset by supplies mix in Printing. Non-GAAP operating expenses of $1.3 billion were down 2% year-over-year with savings in SG&A more than offsetting an increase in R&D as we continued to invest in innovation and drive productivity improvement. With a net expense of $90 million in OI&E, a non-GAAP tax rate of 20.5% and a diluted share count of approximately 1.7 billion shares, we delivered non-GAAP diluted net earnings per share of $0.38. Non-GAAP diluted net earnings per share primarily excludes, net of tax, restructuring and other charges of $63 million and acquisition-related charges of $16 million, partially offset by non-operating retirement-related credits of $32 million and tax indemnification credits of $9 million. In Q1, GAAP diluted net earnings per share from continuing operations was $0.36. Turning to the segments. Personal Systems performance was strong across all dimensions, achieving 10% revenue growth year-over-year as reported or 11% in constant currency. We saw momentum across both customer segments with Consumer and Commercial year-over-year revenue growth of 15% and 7%, respectively. While share performance is not our first priority, our disciplined focus on market segmentation and innovation enabled meaningful year-over-year share gains in calendar Q4 across Consumer and Commercial, notebook and desktops in every region. PC average selling prices were up both year-over-year and sequentially,…

[Operator Instructions] The first question will be from Katy Huberty of Morgan Stanley.

Cathie, question on free cash flow. You're starting the year up, $900 million year-on-year, so I'm struggling to understand why you'd end up, even at the high end of the range, down versus last year. Were there any onetime items this quarter? Or are there any headwinds that you see hitting as you move through the year?

Sure. Katy, thanks for the question. So we're really pleased with the Q1 cash flow, and it really came on the back of 2 things. One was the incredible strength in Personal Systems, where we saw sequential growth, which is atypical for Q4 to Q1 where we typically would see a decline, but we also saw much better linearity in the quarter, much more linear. And so that helped basically bring in revenue earlier, and therefore, we could collect it. So some of that is timing, but it's not all timing. So the supplies sales model change that we made in the second half last year, one of the benefits we expected to see was more linear sell-out, which means there's more linear sell-in. And we think that, that is, in fact, structural. And therefore, the uptick that we saw in Q1 as a result of that will stick to our fingers in the year, and that's why we have confidence in the -- going to the higher end of our outlook of $2.3 billion to $2.6 billion. Specifically now though looking at Q2, what we see is that given the incredible strength in Personal Systems, especially around Black Friday and the holiday season, is that we think we'll have a much lower -- sorry, much higher sequential decline than what we typically see. That, combined with the fact that print typically would go up sequentially, is going to be a bit of a headwind on Q2 free cash flow. But for the year, good confidence that we could be at the higher end of our outlook range.

And then just as a follow-up, the supplies declined 2% constant currency. As you said, that was better than you expected. And you arguably had a difficult compare because of the inventory build in the year prior. So as comps ease, why wouldn't you get to that stabilizing supplies growth earlier than the fiscal fourth quarter?

Yes, thanks, Katy. Let me tackle it. Listen, as we mentioned in the prepared remarks, we remain confident that supplies revenue growth in constant currency will stabilize by the end of 2017 consistent with our Four Box Model analytics that we see. Actual performance continues to meet and at sometimes beat the Four Box Model forecast, which means that we firmly believe that the strategy that we're executing to is the right strategy and that you've seen those metrics play out inside the business results. So it gives us increased confidence as we head towards the end of '17 that we will stabilize in constant currency, and that's what we said we would do.

And Katy, that's really what the -- kind of the Four Box Model...

Had predicted.

Yes, had predicted and is predicting for the rest of the year. And so that's really the basis on which we feel confident that we will get there by the end of the year, and we feel good about the performance in Q1.

The next question will be from Toni Sacconaghi of Bernstein.

I'm wondering if you can comment a little bit on Printing operating margin dynamics. Operating margins for the Printing segment were at 16%, and arguably, you had a more favorable mix than you had envisioned. I think you had forecast that supplies would be down mid-single digits. They were only down 2% at constant currency. So I'm just wondering, was there anything -- and if I look at hardware unit growth, it was good year-over-year, but that was a really easy comp. Sequentially, it was actually the lowest in the last 7 years in terms of hardware revenue on a sequential basis. So my question is, is the 16%, which I think is a decline from what we saw in Q3 and Q4 on an adjusted normalized basis -- what drove that 16%? And is that sort of the right normalized level to think about? Or what dynamics impacted that?

So let's first talk about the 16% in Q1, and then we can talk a little bit about what we expect for the rest of the year. So specifically around the 16%, which was a 1 point decline on a year-over-year basis, was really a combination of unfavorable currency and the hardware mix that we had combined with the fact that we are investing in go to market. The biggest piece of that go-to-market investment is in marketing. So what we told you we would do as a result of the change in the sales model for supplies is that we were going to take the contra that we were going to save or the discounts that we were going to save in the top line, the net off of revenue, and we were going to reinvest it into marketing demand gen to drive print relevancy and usage. And that's what we're doing. And so that's -- those are the things that put pressure on it. Now what's offsetting that is that we are continuing to make -- have savings from productivity, but those were a bit higher than the productivity savings that we saw in Q1. In terms of kind of the rest of the year and how to think about it, what I said on the Q4 earnings call is still true on the Q1 earnings call, and that's that we don't target a particular rate for print from an operating profit perspective, but we do expect that in '17 that it'll be in kind of that mid-teens, kind of 16% to 18%. And the variability in that range is largely going to be driven by units that we place. And we're -- we've got a cost structure now that we think is quite competitive and allows -- has allowed us to open up some TAM for more positive NPV units, and when they're available, we want to go ahead and take advantage of them. And so that's what we did this quarter, and we look forward to doing that the rest of the year as well.

The market was a little higher than the analysts had predicted, and we took advantage of that with that lower cost structure that Cathie is talking about. And then you're seeing that show up in the units at positive 6% versus last year and negative 16%. There's like a 22 point spread there.

And the market was better in the kind of Deskjet lower -- kind of Consumer space. And so while they were still NPV positive and therefore of interest to us, they were at the lower end.

Okay. And then just as a follow-up, please. Can you just comment on channel inventory both for PCs and for Printing on a sequential basis? Did you have any change in inventory in either of those businesses in the channel inventory?

So in both -- for print -- let me start with PC, sorry. For PC channel inventory, we did have some channel inventory reductions sequentially. On the print side, in total, we were down a bit. In supplies, we were obviously down materially year-over-year as a result of the change in the sales model, and we were also down a bit sequentially.

The next question will be from Kulbinder Garcha of Crédit Suisse.

Just a couple of questions. Maybe for Dion first. When I look at the actual numbers, revenues grew for the first time across the company, 4% year-on-year. You beat estimates by around $800 million, $900 million on the top line. There wasn't as much of a bottom line flow through in operating income. In fact, it was down like-for-like year-on-year. Was this a quarter just across the company a very high level of investment? I hear what Cathie said about the NPV units you took advantage of. But whether it's on 3D Printing or whether it's on other things you are doing on the PC side or channel initiatives, did you reinvest or invest relatively heavily, would you say, this quarter, and why we didn't see that leverage? My second question is just on supplies. You're still talking about stability by year-end. But given the units you're now placing, once we move beyond the end of the year compared to, let's say, 3 or 6 months ago, what's your confidence that into the following year we might see a year in which supplies actually starts growing?

Okay. I'll start and then I'm sure Cathie will, no doubt, chime in here. I think Cathie answered the question on print pretty substantially, so I'm not sure there's much additional information to add there. We obviously invested in marketing. We invested in units, and there was some currency. We also had currency in Personal Systems. But we also faced some fairly competitive or increased prices for components, and that was a headwind to the quarter, which we overcame by effectively growing out of the problem because our cost structure was much more in line with where we needed to be from a competitive situation. The innovation portfolio is as strong as it's ever been, more than 23 awards that we won at CES. We were leaning into that innovation from a customer's perspective but a lot of demand for our products. So even against that cost headwind from a component-level perspective, we were able to substantially improve our performance from a top line perspective. And you saw, obviously, Personal Systems up 10% year-over-year as reported or 11% in constant currency.

And Kulbinder, in terms of kind of a longer-term view of supplies, we haven't really provided an outlook out beyond '17. But what I will say, as we have now a very substantial kind of evidence point of down just 2% in constant currency for supplies year-over-year in Q1 -- I'm sorry -- yes, in Q1, we are on that march to get it stabilized in constant currency by the end of the year. And then, of course, we are at the same time focusing on making sure that we're placing the right units, the positive NPV units and making the right investments across A3 and graphics as well as 3D for longer term so that, over time, we will drive supplies back to growth.

The next question will be from Steve Milunovich of UBS.

Cathie, you talked about currency hurting the printer margin, but I would have thought the weak yen would have really been a help in terms of Canon's supply from you, and then maybe there would be an offset at revenue in terms of competition. And then second on Printing, I also was curious. There seem to be about a $1 billion reclassification from Commercial to Consumer hardware. Can you explain what that was about?

Sure. So on the yen, the contract that we have with Canon does not adjust every day. It has a certain band around it, and as a result, we, in fact, have not seen a benefit from the weakening yen in our cost of sales yet. So it was still an overall headwind for print. And currency was an overall headwind for print both on the top line because of the strength of the dollar as well as on cost of sales because we haven't seen that snap back yet. In terms of the reclass, at the beginning of November, Enrique reorganized his business, and he basically now has a more aligned along Consumer -- I'm sorry, Consumer -- I'm sorry, not Consumer -- business lines, customer segments. So he's got a Consumer or a home division. He's got an office division, and he's got basically graphics. And then we just realigned the units and all of the revenue to line up with that new customer segment view. So what ended up happening is the personal lasers moved from the Commercial category to the home/small, medium business category. And that's the adjustment that you see. Everything's been adjusted so that you can get a good apples-to-apples view. It doesn't totally change anything at the segment level or the HP Co. level for revenue or profit.

And that makes all sorts of sense from our perspective because we're trying to look always through the lens of a customer. And a customer-centric approach means that we try to develop technologies that make sense for a customer, whether they happen to be laser or ink-based or whatever else we have in our kit bag as opposed to being driven by technology lines. And that's why we made that alignment change.

The next question will be from Shannon Cross of Cross Research.

The first one, Dion, can you talk a bit more about the PC market? I mean, you talked about strength in PCs that you guys saw but also noted outperforming the market pretty substantially. So I'm just curious how you see -- how sustainable you see the growth in PCs. You know, you've got Windows 10, aging installed base, stability of processors. But what are you sort of seeing out there? And I'm curious as to whether or not you're also feeling a pickup in business following the election or what you're -- what you think is sort of behind some of the growth you're seeing? And then I have a follow-up.

Great. I think it's always helpful to answer this question in 2 parts. There's the short-term view of the market, and I'll get Cathie to tackle that. And then I'll give you a long-term view of how we see the PC market, and then we'll sort of close out with the rest of your question.

Thanks, Shannon. So yes, we've definitely seen the PC market improve. And in addition to kind of a unit view, we're also seeing a positive mix shift. So while units were down year-on-year in calendar Q4, 1.7%, the IDC PC category revenue was actually up 2%. And what we're -- we're really kind of leaning in to that mix shift. We've seen it through kind of premium, gaming, convertibles, detachables, even the notebooks being kind of thinner, lighter, better battery life as well as the discontinuation of the Windows 10 kind of free upgrade. Those are all the things that are helping the market but also things that we are taking advantage of. If you look out for '17, our view is pretty consistent with IDC that units will be down kind of low to mid-single digits but that revenue for the market will again still have this mix shift benefit and will be flat. But one of the things to keep in mind also in '17 is that there's a fair amount of uncertainty in the PC ecosystem when you think about kind of commodity availability as well as commodity pricing. And as a result of that, we've taken pricing and a lot of our competition has taken pricing as well, and we've got to really kind of see how that impacts demand. We've obviously modeled what we think the impact would be, but we'll have to see whether or not in fact the demand impact is lesser or greater than what we've already modeled into our outlook.

And more broadly speaking, if I helicopter up a little bit, I don't think our views have fundamentally changed on this business. It's still a very large business. I always like to remind everyone it's a $333 billion market. It's very competitive, and it continues to consolidate. So when we take share faster than our competitors 3 quarters in a row and we're executing the way we're executing but not taking share for share's sake, which we're committed to not doing, what we end up with is a business that's firing on all cylinders. More broadly, we think it's all about innovation, and as I mentioned in my initial remarks, the growth that we saw in the PC business wasn't as a result of one kind of event. It's wasn't like an XP refresh cycle. It was off the back of really strong innovation right across the portfolio, the values that the customer sees and the little sprinkles of magic that Ron and the team are adding to the product portfolio. We have to be excellent in the core. We have to continue to search for those pockets of growth as we segment the market, like commercial mobility, create categories like Sprout and x3. All of it has to be anchored in megatrends that we see changing in the market. Services and solutions make a big part of that $333 billion market. About half the market is not the core of what you think about as desktops and notebooks. It's a lot of services and solutions and attach and other devices and workstations and thin clients. There's megatrends around Consumer and Commercial, this one life, millennials, mobility and security. So doing that segmentation, operating, continuing to take cost out of the system means that we're playing our own game and we're being rewarded for it.

And then can you talk a bit about your copier strategy. I know it's about to launch. I'm just curious, as you've gone through and you're working through the Samsung transaction and talking to potential channel partners, if you can talk about the reception and what you're hearing.

Look, the reception has been broadly positive on a number of dimensions, firstly, off the back of our own home-grown innovation with the PageWide Array and the abilities to take that into the A3 line of products. But in addition to that, obviously, the line that we're initially OEM-ing from Samsung but then once we complete the Samsung acquisition by the end of this year, we'll round out the portfolio. So I think across the globe, a lot of very detailed plans at a partner level down at the customer level. I spend personal time all around the world working with the teams on the go-to-market strategy, which is every bit as important as having a fantastic product portfolio. And then we marry that together with the marketing work that Antonio and his team are driving, some terrific new marketing campaigns anchored around security, which is really resonating with our Customer Advisory Council and other customers and partners. You put all that together, we're really looking forward to the launch of these products, which, as you mentioned, is coming up pretty quickly here.

The next question will come from Jim Suva of Citi.

Thus far, a lot of the questions have been on the Printing side, which makes sense given the profitability there. So I guess I'll ask a question on the PCs. You mentioned that you increased pricing. Just curious, was that due mostly to FX? Or is it also are you seeing component price increasing? And if so, is the addition of the ASPs enough to offset component pricing? Or should we just be mindful of that as I believe some of the component costs, especially storage, have been recently increasing? So just kind of thinking about the profitability of that.

So Jim, consistent with our expectations, both the commodity supply environment but also pricing tightened up in Q1. And that was absolutely a headwind to Personal Systems OP that we were able to jump over with some pricing but also with incredible tight management from an expense perspective and reducing non-revenue generating costs. We expect that into Q2 this is going to continue, and in some categories, we do expect that the price will continue to increase. And so this continues to be a headwind for us. But if I kind of take it all the way up to the top level, as Dion talked about, it's really all about making sure you got a great cost structure, the leanest you can have and then innovate -- understanding your markets really well and innovating into those markets. And I think that Ron and his team have really proven this quarter, if not, the previous few quarters that they know how to execute and they know how to execute in tough environments. And we should -- would definitely say this is a tougher commodity environment for us.

The next question will come from Wamsi Mohan of Bank of America.

So 2 questions. One, the Printing supplies revenues were down 2%, was somewhat better than expected relative to your comments, I think, last quarter, mid-single-digit decline based on the Four Box Model. Can you address what drove the upside in the quarter in that context of the Four Box Model specifically? And then I have a follow-up.

So we don't break it down in that much detail, but I would reiterate the fact that the -- we did better than what the Four Box Model was suggesting. And certainly, we will continue to drive all of the different initiatives that we've got going against each of the boxes because it is -- it continues to be true and our fundamental belief it'll continue to be so that those are the key levers that are going to drive supplies revenue, both to stabilization in constant currency by the end of the year and then ultimately to growth beyond that.

As my follow-up, can you address like specifically within the tighter component environment, like how much longer do you think, a, that'll persist? And how are you addressing that including any large strategic buys maybe that you did within the quarter or that you're looking to do and leverage your balance sheet to do that?

Yes. Look, when we think about Personal Systems commodities, it is really 3 commodities that are under pressure. It's memory, which includes random access memory as well as STD. In addition to that, there's batteries and LCDs. And we take a very long-term approach with our supplier base. We have long-term agreements with many of them. We do seek to leverage the balance sheet wherever it makes sense economically for us to do that. How long will this last? It's a little bit difficult to completely forecast that, but I would say from previous experience, it takes a long time to change factory output levels. And for example, what's affecting memory at the moment is the doubling in density across most of the mobile phone market as well as the mobile phones are selling many more in absolute units, but the fact that they all doubled their density puts pressure on that memory market. So if you want to really adjust that, what you have to do is add capacity, and we're talking about billions of dollars of investments from the memory manufacturers. That doesn't happen overnight. So these cycles can often last quite some time, and it varies by commodity. But that should be the way you should be thinking about it.

And then to the specific question about leveraging -- using our balance sheet, we are absolutely using our balance sheet. We talked about it, I believe it was on the Q3 earnings call, about the fact that we were anticipating this. And therefore in Q4, we were going to build some strategic inventory, and we have continued to do that. In fact, if you look at our working capital -- the elements of our working capital, days of inventory is basically higher than it otherwise would be because of the strategic buys that we're doing. We have that capability, and we think it's a competitive advantage.

The next question will be from Maynard Um of Wells Fargo.

On your cash return, you returned almost 1/4 of the high end of your annual free cash flow guide in the fourth quarter. So it looks like it -- this might put you ahead of the 50% to 75% of the free cash flow return target. Should we expect a deceleration in share repurchases? Or do you think you can return greater than that 50% to 75%? And I guess, any commentary if -- around your expectation for cash repatriation holiday, if that's supporting any confidence there. And then I have a follow-up.

So maybe I'll start with the second one on kind of our view on tax -- or cash repatriation from overseas and a tax holiday. At this point, that is unknown what exactly is going to happen. And so that's really not playing into what we're doing at all at this point in time. We're still committed to returning 50% to 75%. And what we said in FY '17 is that we would be at the higher end of that, and that continues to be our commitment.

Okay. And then can you just talk about the Samsung acquisition charges, I guess, more specifically why they're being brought in? And maybe just talk about what specifically they are.

So the Samsung integration expenses kind of run the gamut from kind of transaction costs, legal costs and then very specifically around integration. And whenever you put this together, it's always a little bit difficult to know exactly what the timing's going to be. In total, we still expect that the Samsung integration costs are going to be in the $150 million to $200 million range and that we will take those on a GAAP-only basis and basically call them out each quarter. So I don't think there's anything particularly special about the fact that the timing's changed a bit, just a better assessment of when the costs are going to be incurred.

The next question will be from Sherri Scribner of Deutsche Bank.

Cathie, I think you said that the Personal Systems Group should be down more than typical. When I think about that segment, I think about it being down about 10% sequentially in 2Q for you. Is that sort of the right way to think about what the normal is? And maybe it'll be a little bit lower than that. And also, do you expect to see some growth in that segment in the second quarter?

So Sherri, what is typical for us in terms of normal seasonality for Personal Systems is probably closer to 6%, not your 10%. But we do expect to be worse than that as a result of the strength that we saw in Q1. And as you know, we don't guide revenue and certainly don't guide revenue at the segment level. But we have the right cost structure. We are innovating and bringing to market great value propositions for our customers. And so we will continue to fight the good fight with our competition, and we'll see how we work out -- how it works out in Q2.

Great. Super. And then just the supplies model change that you made, we're roughly 3 quarters into that now. How do you feel about that change? Is it working? I assume you're going to say that it is working but maybe some more detail in retrospect about how that's working out for you.

Sure. Sherri, I'm very pleased with how it's working out. We basically believe that by getting to closer to global pricing consistency that there would be a number of benefits. One was going to be just much more linear supplies performance. As I've said, we've had linear sales out that then therefore, we would have more linear sales in. And we're absolutely seeing that. And as I said, that's what gives us some confidence that we will get some permanent linearity benefit this year. But it is also great from a partner perspective because, of course, they're carrying lower channel inventory, and therefore, that's their working capital. Our channel inventory levels are healthy. They are below the top end of the newly lowered and narrowed ranges, so we're feeling good about that as well. And then we're also seeing in the quarter improvement in terms of discounting. And as I mentioned, we're taking that in lower discounts and basically -- and reinvesting them back into marketing to drive print relevancy and usage. And it's very important that we do that because we do not want to be selling supplies on promo. We want to drive the value to help our customers understand the value of using HP-branded ink and toner, and marketing's going to be important to that.

Again, looking through the eyes of a customer, it increases customer satisfaction when there's not enormous price volatility in the market, that encourages gray imports and all of the issues associated with that and the frustrations associated with that. So we've seen the gray marketing activity significantly reduced. We're seeing much more stable prices in the market, which is a benefit for customers, channel partners and our business performance.

The next question will be from Rod Hall of JPMorgan.

I just wanted to come back to this question of printing margins. I think one of the questions a lot of people leave the call with is the fact you delivered 16% margins here. And Cathie, you're saying it ranges 16% to 18%, but I guess people are going to continue to wonder whether the new normal is 16% or whether we should get back up into the middle of that range you're talking about. And I wonder if you could just give us a little bit more color on what was abnormal about this quarter or things about this quarter that won't manifest themselves in future quarters and will let those margins expand back toward the middle of your range. And I have a follow-up.

So Rod, I guess it's all in the eye of the beholder. I love 16%. I love 16% when we put units out, positive NPV units out there, and we grow units 6%. And if that was the opportunity that existed throughout the rest of the year, I'd be okay with it. And I would hope that you'd be okay with it because it's going to drive great supplies connect over the long term. Now I think that we probably will get higher in the range, but honestly, if there are opportunities to place more NPV-positive units, we should do that all day long.

Okay. So just to clarify that, your -- the margin would tend toward the low end of the range only because of unit placement. There's nothing else going on in those margins.

I mean, we've got currency impacts. You've got productivity savings. There's lots of things that are going on in the margins, but the biggest driver for us to be at the lower end of that range is going to be placing positive NPV units.

Okay. And then my follow-up was just on Printing supplies growth. It looks to me with these numbers that you may actually be growing revenues on a year-over-year basis for this full year. Is that a possibility? Do you think that's a likelihood in your plan?

We're confident in stabilizing supplies by the end of '17.

In constant currency.

And the last question will be from Aaron Rakers of Stifel.

First question is on -- you've talked a lot about the alignment of your cost structure, and I'm curious if you can give us an update of where you stand on the incremental headcount reduction that you had announced at the Analyst Day. I think it was 3,000 to 4,000 headcount and how we should think about the rate of reinvestments relative to the $1 billion of incremental savings you were expected to generate through the exit of fiscal 2018. And what I'm really trying to get at is how do we think about the operating margin and the drivers of trending it towards the higher end of your 8% to 10% range that you laid out.

Sure. Well, let's talk first about kind of the restructuring. In Q1, we had roughly 350 employees leave under the plan, and as you said, for the year, our target is 1,500 to 2,500. And again, we gave that range because we were assessing different outsourcing opportunities, and there's still a bit of a range based on that. I would say we're on track from a restructuring perspective. Restructuring is just a part of the overall $1 billion in productivity savings that we're targeting for the year. And that is -- it comes over the course of the year and is a little bit back-end loaded. But we're feeling confident that we will be delivering on those productivity savings as well.

And relative to that 8% to 10% operating margin long-term target model, I don't think The Street is really fully reflective of anything close to the higher end of that range. I'm just -- is that purely a function of product mix beyond that? Or how do we think about that higher end of that long-term model range?

So first, the 8% to 10% is really a long-term kind of operating margin view, and it -- we have always said that we'd be at the lower end of that range if there were good opportunities to place positive NPV units. So there's kind of a theme here. It really makes a difference because of the upfront investment that you need to make on units. Certainly, to get in that range, we also need to get supplies in more in a growth mode.

And in addition to that, it would be the full execution of our strategy not only in the core but as well as the growth. There's A3. Think about that $55 billion market where we have less than 4% market share today, continuing our ramp of graphics and Commercial mobility. And we've only just begun on 3D Printing where we placed those first units and revenue rec-ed them, which is even more exciting. And the fact that our customers are telling us that the printers are performing as per our promise on speed, quality and cost is really important. And that strategy is anchored in time horizons. The core is the here and now. Growth is the next 2 to 3 years, and future is sort of 3- to 10-year time frame. And that's how we think about this business. I thank you all for taking the time out of your busy schedules to tune in today. I think this quarter can best be characterized as relentless execution and innovation that delivered really strong results. It's a consecutive quarter of growth, so this is the second quarter in a row of growth and solid performance. Innovation is at the heart of driving the meaningful share gains that we had. We're the pillar of stability right now in the industry, whether it's on the security dimension or innovation dimension regardless of the market conditions. We have increased confidence in our ability to deliver on the commitments that we laid out at the Security Analyst Meeting. And I remain convinced as does the rest of our entire organization that our most innovative days lie ahead of us. Thanks very much.

Thanks a lot.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.