Good day, everyone, and welcome to the Fourth Quarter 2025 HP Inc. Earnings Conference Call. My name is Regina, and I will be your conference moderator for today's call. At this time, all participants will be in listen-only mode. We will be facilitating a question and answer session toward the end of the conference. Should you need assistance during the call, please signal the conference specialist. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Alok Juhyol, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and welcome to HP's Fourth Quarter 2025 Earnings Conference Call. With me today are Enrique Lores, HP's President and Chief Executive Officer, and Karen Parkhill, HP's 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. 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 business 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 now and could differ materially from the amounts ultimately reported in SEC filings. 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 one channel inventory, and market share references are based on calendar quarter information. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations. With that, I will now turn the call over to Enrique. Thank you, Alok, and a special welcome to your first earnings call.

And thank you to everyone for joining today's call. Today, we will cover our Q4 performance and 2025 full-year results. We will also highlight the opportunities ahead of us, expectations for fiscal year 2026, and how we are continuing to advance our company strategy. I want to begin by saying how proud I am of the progress we have made across our priorities, especially as we have navigated a challenging external landscape. We have driven sequential profit improvement the last two quarters, demonstrating our ability to quickly respond to the challenging trade environment we began to face in Q2. We also invested in our supply chain, making it more resilient to mitigate future risks, which is core to the future-ready plan we laid out three years ago. Our performance, both for the quarter and the full year, underscores the strength of our strategy, the power of our portfolio, and the tenacity of our team. Let's start our Q4 results. I am pleased to report that HP delivered its sixth consecutive quarter of revenue growth, up 4% year over year, largely driven by personal systems gains in commercial and consumer. In print, the market remained soft, but we delivered revenue in line with our expectations. Collectively, key growth areas grew double-digit year over year and delivered gross margin above our core business. Non-GAAP EPS came above the midpoint of our guidance. We continue to execute our future of work strategy. We are accelerating innovation with AI-powered devices that harness AI at the edge and create better together experiences across our portfolio. We are also empowering CIOs with the tools they need to drive transformation, and we are leveraging the power of customer data to deliver meaningful insights. These priorities guide our innovation. For example, we introduced a new edge class device,…

Thank you, Enrique, and good afternoon, everyone. We are pleased with our results in Q4, delivering another quarter of solid performance to close out the fiscal year. Our teams executed well, driving better-than-expected top-line growth fueled by continued momentum in Personal Systems and in our key growth areas. We delivered operating margins within our expected ranges for both businesses and non-GAAP EPS slightly above the midpoint of our guidance range, underscoring our ability to meet or exceed our financial commitments. We are also proud of the results we delivered with our multi-year future-ready cost plan. We surpassed our original $1.4 billion savings target, ultimately delivering $2.2 billion in cumulative gross annualized savings. And on $1.2 billion of restructuring spend, we delivered a savings to charge ratio of almost 1.8 times, well above our initially projected ratio of 1.4 times. On the quarter, we delivered revenue growth of 4% year over year, both nominally and in constant currency. In constant currency, EMEA grew 6% and APJ was up 9% on strong personal systems performance. Americas revenue was flat in constant currency, reflecting demand softness in North America, particularly in commercial. Our gross margin at 20.2% was impacted by a higher mix from personal systems and increased trade-related costs, which we partly offset with pricing actions and cost reduction. Contributions from our future-ready cost program and continued strong expense management drove operating expenses down as a percent of revenue year over year. These efforts also enabled our investment in key strategic and go-to-market initiatives aligned with our future of work strategy. All in, our non-GAAP operating margin was 8%, down year over year, but improving almost one point sequentially, in line with our expectations. And our non-GAAP diluted net earnings per share was $0.93, representing a sequential increase of 24%. Now let's…

Thank you. We will now begin the question and answer session. We'll take our first question from the line of Wamsi Mohan from BofA. Please go ahead.

Yes. Thank you so much. Guess to start, your free cash flow guide for next year is flat year on year despite the margin pressures you alluded to from increased memory pricing. What are some of the elements offsetting these headwinds in cash flows? And does the $2.9 billion in free cash flow include any cash restructuring charges? And I have a follow-up.

Yes. Thanks, Wamsi, for your question. We obviously remain focused on driving value to our shareholders through strong free cash flow. And like we're doing with our earnings guide, we're taking a prudent approach to our expectations there, particularly the recently projected increase in memory cost. So at this point, we expect our free cash flow to be relatively flat, as you said, with slightly lower earnings, and that's offset by improvements in working capital, primarily due to the favorable cash conversion cycle we have with the expectation of our growing PS business. We also expect CapEx and restructuring costs to be down slightly year over year. And I would just say on free cash flow, as always, if we can do better, we will.

And yes, it includes the restructuring funds for the restructuring activities.

Yes. And we expect for the year the restructuring cost to be roughly $250 million.

Okay. Okay. Great. And then maybe Enrique, like, we've seen plenty of memory cycles in the past. This one, you know, is fairly unprecedented in rate and pace of change. I'm just wondering, as you think about the various strategies you're going to deploy to navigate this, how do you think about price elasticity in a somewhat weaker consumer market? How do you think about despeccing and any other sort of strategies that HP could deploy in terms of being able to raise price without sort of impacting the demand elasticity, if that's at all possible? Like what are some of the things that you're looking at executing to limit this impact to what you quantified about $0.30 or so? Thank you.

Thank you. So as you said, this is not the first time we go through a situation like that. So the team has plenty of experience handling these situations. I think the first thing that helps us in this situation is our scale. And by using our scale, we have today a good supply position, thanks to the long-term agreements and the relationships we have with many suppliers. And we are using that also to qualify additional suppliers to mitigate this even further. We also can use the breadth of our portfolio to make sure that customers get the right configuration and to de-scale in those cases where it's possible to balance company profitability with experience from customers. Something unique that we have this time is something that I have been mentioning before, which is the workforce experience platform. This is a tool that we deploy to our commercial customers that allows CIOs to monitor the performance of individual users. And by using telemetry data that we have been capturing over time, we can make recommendations for what is the optimum configuration per customer. But this will help us significantly for those customers that when we deploy the tool, to make sure that they get the right solution and the right memory configuration. And then what we have seen in the past in these situations from a demand perspective, are usually the more low-end categories, those that are impacted. And by managing our portfolio and shifting demand to the areas where we think we will have more products available and better configurations, is an important way for us to manage that. And then finally, of course, pricing will be another tool to mitigate the impact, and we will use this as soon as we can, given the contracts and the different relationships that we have.

Our next question will come from the line of David Voith with UBS. Please go ahead.

Hey guys, thanks for taking the question. This is Brian Luke on for David. Just on the topic of higher memory prices, you talked about a number of actions you could take. Staying on the topic of pricing, now would you consider price increases across the entire portfolio, or would you consider them more tactical in nature? And would you be able to quantify any price increases you'd be considering going forward? And then I have a follow-up. Thank you.

Yeah. I would say we are gonna be looking at it case by case, country by country, category by category. But the impact on memory cost is significant. I would say it's gonna happen across the board, but more selectively or higher or lower depending on the specific situation.

Got it. That's helpful. And then in regards to the Windows 11 refresh, talked about us being roughly 60% of the way through, according to our checks, that's roughly in line, and you expect it to be a tailwind going forward in fiscal year 2026. Do you expect it to be a tailwind for longer than that time period? And would you expect, you know, tariff considerations to be having an impact going forward? Thank you.

Yes. So usually, right, we estimate that about 60% of the installed base have moved to Windows 11. We have seen the conversion happening faster in the enterprise space and also in North America. The biggest opportunity now is going to be in SMB, and in Europe and in Asia. This is very consistent with previous processes. In terms of the tailwind, if you think about what has been the conversion during the last quarter, it has been about 10 points, but this can give you a prediction of for how long we think this is going to last. For sure, for the first half of the year, but probably beyond that.

We also have the catalyst of AIPCs being a continued uptick as we look ahead to we had about 30% or more than 30% of our shipments being AIPCs in the fourth quarter. We expect that to be higher next year, 40% to 50%.

Our next question will come from the line of Amit Daryanani with Evercore ISI. Please go ahead.

Hi. Thank you for the question. This is Irvin Liu dialing in for Amit. I wanted to understand the rationale behind the company cost savings initiative that was announced today. Since you recently completed the you already recently completed the Future Ready program. Was this new initiative more of a response to higher memory cost? Or should we view this as kind of a broader cost savings program in nature?

Yes. We I actually started to talk about this in the last earnings call, so this was way before the memory cycle started. And this is really driven by the opportunity that we think AI is going to bring us to accelerate product development, improve customer satisfaction, and also boost productivity. Two years ago, we started to do some pilots on how AI could help us to drive these things. And during the last two quarters, we have been shifting from pilots to specific initiatives in areas where we can have significant impact. What we have learned is that we need to start from redesigning the process. And once the process once we know how the process could be redone, using AI, using agentic AI can really have a very significant impact. And this is why we think that really over the next few years, this can have a very significant impact across areas I mentioned before, faster product development, customer satisfaction, and also productivity. And we have quantified productivity around $1 billion over the next three years. And this is really what we have deployed now and what we are working with the teams to deliver on.

Our next question will come from the line of Samik Chatterjee from JPMorgan. Please go ahead.

Hey, good afternoon. Thanks for the question. This is Joe Cardoso on for Samik. Maybe just wanted to follow-up on kind of the PC PS momentum or PC momentum you're you're thinking about or seeing going into 2026. I was curious if you could just flush out the conviction here, particularly as we're cycling past the bulk of the Win 11 refresh. I know, Antonio, you talked about, you know, 60% or 50% plus of the installed base moved over, and so there's some, header there to continue. But interestingly enough, when you guys talked about the forecast for next year, it seemed like pricing was a bigger contributor for the next year relative to this year. Where I think units were bigger. So I'm just curious, like, where you guys are seeing that dynamic play out and what's kind of the conviction behind it? Then I have a follow-up. Thank you.

Yes. So the conviction comes from the same drivers that we have seen driving demand during the last few quarters. We have an aged installed base of PCs that need to be refreshed. Of all the PCs that were bought four, five years ago, we have the opportunity driven by the change to Windows 11, and we have seen that tailwind helping us during the last quarters. As you said, the conversion has been done to 60% of the installed base. So we have still close to 40% of the installed base to be converted, especially in SMB and especially outside of North America, and this will be a tailwind now for several quarters. And we also see the opportunity to continue to improve the mix of AIPCs that has exceeded expectations that we had for the year. So all these will be positive drivers. On top of that, our strategy is going to continue to be focused on premium categories as it has been during the last few quarters where we have made very significant progress both in commercial customers, consumer customers, and workstations. We also have an opportunity to continue to drive attach of peripherals, attach of services, all these kind of will help us to drive revenue growth faster than unit growth in 2026.

Got it. And then maybe follow-up for Karen. So just curious, if you could share any thoughts on how you're thinking about seasonality for next year. Seems like a lot of moving pieces with the company cycling past the tariffs of this year, maybe the bulk of the Windows 11 refresh this year. And then kind of entering a dynamic memory pricing environment just to kind of name a few of the things that are going on, obviously. Anything we should keep on top of mind relative to maybe first half second half dynamics relative to revenues? I know you talked about the margin implications as kind of cycle past some of the inventory that you built on the memory side, but any other moving pieces we should think about as we're thinking about our models for next year?

Thanks, Joe. Happy to talk about that. So I did mention that we anticipate our revenue to be stronger in the second half of the year. And that's really just driven by normal seasonality as well as pricing as needed against the tariffs and the rising costs. When I say when you when you look at our margins, we expect our print operating margins to be in line with seasonality where we see Q3 typically lower seasonally than the rest. And on PS, as we talked about, we expect our PS operating profit rate to stay in the 5% to 6% range in the first half of the year. But then with higher memory cost increases in our back half, we expect we said we expected our full year rate to be at the low end of our long-term 5% to 7% range. So given that, we could see Q3 and Q4 temporarily below that 5% range. But as you know, we're working to minimize that and ultimately mitigate the full impact. So if we can do better, we will. When you think about it from an EPS perspective, we typically have EPS, more stronger in the back half. But with the impact of memory in the back half of this year, you can think about EPS being more evenly weighted through the year. Hopefully, that helps.

And maybe let me add a couple of comments on the memory side. As we said in our prepared remarks, we expect a major impact of the memory cost increases to impact the second half of the year. In fact, almost no impact in the first half given the inventories on hand that we have. I think it's important to have in mind that we are one of the first companies that are guiding for the full year. And the impact we really see on the second half, we don't see it in the first half.

Our next question will come from the line of Michael Ng with Goldman Sachs. Please go ahead.

Hey, good afternoon. Thanks for the question. I was wondering, and Enrique, if you could just expand a little bit about the comment around the growing base of services, subscriptions, and software that are more contractual in nature. You know, was that a comment more about, you know, workforce solutions or print subscriptions? You know, appreciate the highlight. Just if you could expand on anything that you're thinking about in the future, that would be helpful and how you would work to grow that type of business. Thank you.

Yes. It's coming across the board. So we have seen very solid growth, for example, in the consumer subscriptions side of instant ink and on in. We mentioned that business is approaching $1 billion, which is really a significant milestone for these types of businesses. We have also seen very solid growth in the workforce solutions space, in PCs. In PCs as a Service, that has driven very significant growth during 2025 and that we expect to continue to see in 2026. And also our software businesses are having very strong performance. And I will let Karen make a few comments.

Yeah. I would just add that we're excited to drive even greater growth and value in the future with revenue that is less cyclical and more stable and higher margins. It's really an important focus for us at the company, and it means that as we innovate products and develop new business models around them, we'll be focused on driving more recurring revenue. And when we think about doing our capital allocation too, this is gonna be a priority focus for us. But I would say it's not something that's gonna change, you know, rapidly overnight. We see this as an important gradual transition, and we'll just continue to highlight it for investors.

Great. Thank you. And if I could just follow-up around the headwind from memory of $0.3 on EPS net of mitigations. What do you think gross impact is? And what's your confidence level on the mitigations? Could it be better or worse? And then just as a quick follow-up, are you also seeing similar kind of tightness on PCV and kind of inflation related to that? Thank you.

Sure. So let me start on the quantification. We have here enough numbers that you can calculate. We have shared that the cost of memory is between 15-18% of PCs, but from there, you can calculate the gross impact that you will see is significantly bigger than the $0.3 that we are quantifying. And we have fairly high confidence in the actions that we have put in place. In fact, we mentioned that we have been conservative in the guide for the full year. And that based on the actions I described before, if we can do better, we will be better. But given that we are guiding the full year, and we expect to see the majority of the impact in the second half, we thought it was important to be prudent at this point. In terms of other components, when we this is the area where we see the biggest impact, memories, and storage. The rest of the space, are confident, and we don't see any shortages at this point. And as I said before, even in the memory and storage space, we are in a good position from a supply perspective given the relationships and the contracts we have with our suppliers.

Our next question will come from the line of Assia Merchant with Citigroup. Please go ahead.

Hi, good afternoon. This is Mike Cadiz on behalf of Assia Merchant at Citi. So my question is on AI PC penetration. So, despite you hitting the 25 to 30% penetration excuse me, penetration ahead of schedule, how do you think that tariffs and now the elevated commodity costs have affected the expected trajectory towards the 50% in the coming years that you that you telegraphed?

So we continue to be very optimistic about the penetration of AI PCs. And as I mentioned before, as we will be prioritizing premium categories, into as we will actually, we will be working on the memory situation next year. The penetration of AIPCs as I said before, is above 30% today at the end of the quarter. Easily driven by the additional value this is being compared to the installed base and the fact that our customers want to be ready as soon as applications start taking advantage of other capabilities of these products. Last quarter, I mentioned the work that we are doing with software companies to leverage those, and this work has continued, and we have continued to make progress. With the announcements that Microsoft made last week on the consumer side, the ability to manage PCs with voice, think are going to be exciting very exciting for our consumers. They have improved the tools that they have for other companies to take advantage of GPUs and NPUs in the devices. We have made progress with other software companies like Adobe in leveraging those assets. With more local vendors like Rakuten or in Japan to take their models and the systems that they have in the cloud and bring them today, an announcement we made a few weeks ago. And we have also worked with smaller companies that drive very specific value example, in helping sales teams to be more efficient, or in helping product managers to present better. All these are really helping to drive adoption. And something very we think very relevant is as we have deployed these solutions internally in HP, with not only the PCs, but with a curated set of applications, we have seen up to 17% of productivity improvement. And this is a very important value proposition for us. But also for our customers.

Thank you for that. And then as my follow-up, for both PC and print, would you mind talking about the customer and market reception to the pricing actions that you've taken whether or not it's different between consumer and commercial and how you perhaps balance that with maintaining margins and share as well? Thank you.

Sure. The majority of I mean, if I look at print, we have done price actions both in the consumer and commercial space. In the commercial space, probably because our most of our competitors are Japanese, and they continue to have a very significant help from yen. We didn't see these changes happening across the board. And this is why we lost Sam's share in Q4. It didn't happen in consumer. It didn't have any supplies where we grew our share, especially supplies where we grow our share. And in the PC space, our price increases have been smaller because the impact of tariffs so far has been smaller. And therefore, we haven't seen a strong reaction one way or another. Prices had grown year on year quarter on quarter but less than what we have seen in other spaces.

And even with this pricing environment, you're seeing us have strong revenue performance. Both last quarter and for the full year. We expect that to continue.

Our next question will come from the line of Eric Woodring with Morgan Stanley. Please go ahead.

Hi, thank you. This is Maya Newman on for Eric Woodring. You know, maybe just to start to build on some of your comments regarding your mitigation tactics for the memory cycle and your supplier relationships. Could you quantify how many weeks of memory inventory you have on hand? And you know, are suppliers willing to sign long-term agreements? And kind of just overall, where do you believe HP is most differentiated within the supply chain or has the greatest competitive differentiation versus peers to weather this memory cycle? Thank you. And then I have a follow-up.

Sure. I'm not gonna share the specifics of the weeks of inventory we had. But I said before that given the inventory we have today, we are fairly well in a fairly good situation for the first half of the year. So this helps you to understand that it's not gonna have a short-term impact. In terms of long-term agreements, have long-term agreements with our key suppliers. And the scale, the depth of our relationships are key assets when we go through situations like this. As you know also, after COVID, we made a lot of work to improve our operational processes within the supply chain. Both in terms of supply-demand matching in terms of forecasting, and they will be very useful now as we need to go through this situation. It's not only about getting the memory, it's also about getting other supplies that will work with memory like processors, and it's about aligning demand to that. We did a lot of work during the last quarters of COVID to improve that. And the team is very experienced now in how to manage this situation.

Got it. Thank you very much. And then last question for me. If we take a step back and think about your overarching strategy and print, how should we think about it going forward? I understand we'll probably get more details at the analyst day, but it's obviously a secularly declining business. But you're also seeing yeah, operating income decline in print as well on a dollar basis. I know a lot of actions around pricing, big ink, toner subscriptions, the graphics market, are meant to protect. Is this a business where we should expect operating income growth? And if so, how do we get there on a sustainable basis?

Yeah. We said we will talk a little more about this in our Investor Day in a few months. But the strategy that we have been executing during the last years is not changing. Our goal continues to be to capture more value per customer and reduce the number of unprofitable customers, which we have been doing during the last year. Our shift or our doubling down on big ink is a consequence of that strategy as well. We see a big opportunity to grow profitable units in that space. While at the same time continue to accelerate and continue to drive the transition into subscriptions in this space. And we have been making very good progress both on the supply side and now also integrating printers in our all-in program. In the office space, we see an opportunity to grow our share in profitable units, and the new portfolio that we will be launching during 2026 and the work that we continue to do in cost will help us to achieve that goal. And then finally, on the industrial space, both especially in the graphic side, it's a business that has been growing during the last nine quarters, and we expect it to continue to grow during 2026.

Our final question will come from the line of Mark Newman with Bernstein. Please go ahead. Mark, you might be on mute.

Apologies. Apologies. Thanks for taking my question. Yes, yes, just following up a bit on the memory price environment. Thanks very much for the clarity on the $0.30 impact. Just curious though, you mentioned that's mostly on the back half. So presumably, it's if you think if you just do the math, 30¢ on $3 or so annual earnings. So your impact is more than 10% on the back half. Considering, of course, you can pass through a lot of that with pricing, it seems like that it should be less given you have quite a few months to correct pricing. So just wondering if anything I'm thinking about wrong there. This seems like it may be conservative from you on the 30¢, but let me let me know if I'm thinking about that wrong. And I also wanted to ask does it have an impact on mix? Given how significant memory prices have moved? I mean, cut specs change average specs of what you what you sell change, could that also impact the AI PC dynamic considering the AI PCs typically have higher specs? Thanks very much.

Yes. Thanks for the question, Mark. And let me just talk about the $0.30 in the guide. You know, I would just say we remain focused on taking a prudent approach to our guidance. And particularly as we start a new year, we're setting our guidance at a level that we have a high confidence in meeting and hopefully exceeding. You know, I would say we're taking that same prudent approach this year with the rising cost of memory, but we've already been implementing actions to mitigate. And I would note that we have a proven track record of managing challenges like this, and we are confident in the strength of our organizations and the partnerships that we've built to deliver the best possible outcomes. So while we have included that 30¢ in the guide, if we can do better, we certainly will. And your math is roughly right.

And then finally, in terms of configurations, as I said before, we are gonna be prioritizing those units where we see more margin for the company. And what we have seen in other cases is where volumes are more impacted as more in the entry space, whereas customers are usually more sensitive to price. And as Karen said before, we decided to take a conservative approach. We are guiding now the full year. We think the impact will be mostly on the second half. We are taking a lot of actions to mitigate that impact. But given how fast things have unfolded during the last few weeks, at this stage, again, we thought it was better to be prudent.

And that will conclude our question and answer session. I'll turn the call back over to Enrique for any closing comments.

Perfect. And thank you, everybody, for joining today's call. We remain confident in our ability to lead the future of work through technology, and I'm really proud of the progress we have made across our priorities. We finished 2025 strong, growing profit from the first half to the second. In 2026, we intend to grow faster than the market. We have a significant opportunity to embed AI in everything we do and transform the company. The memory headwinds that we have been talking about today, while material, are also temporary. And we're taking action, and we have managed, as we said also, such challenges before, and we have a lot of experience on how to handle that. So with a clear strategy and disciplined execution, we are focused on driving long-term value while managing these headwinds. Again, thank you for joining today. And for those of you in the U.S., we wish you a very happy Thanksgiving holiday. Thank you.

This concludes today's call. Thank you all for joining. You may now disconnect.