HP Inc. (NYSE:HPQ) UBS Global Technology Conference Call November 29, 2023 11:35 AM ET

Company Participants

Marie Myers - Chief Financial Officer

Conference Call Participants

David Vogt - UBS

David Vogt

Good morning, everyone. I think we're going to get started. Thank you for joining UBS today. My name is David Vogt. I'm the enterprise hardware and networking analyst here, and we're excited to have HP Inc. With us, Marie Myers, Chief Financial Officer.

Before we get into the questions, the company has asked me to read their quick disclosure. So I'm going to read it. Hopefully, I don't butcher it. So today's discussion includes forward-looking statements that involve risks, uncertainties and assumptions which are further described in HP's SEC filings, including HP Form 10-K and 10-Q.

HP assumes no obligation and does not intend to update any such forward-looking statements. For more information, please visit HP's Investor Relations website at investor.hp.com.

So with that out of the way, we'll get going. Marie, thank you again for joining us today.

Marie Myers

Thank you very much, David. Pleasure to be here.

Question-and-Answer Session

Q - David Vogt

So I thought maybe we would just start at a high level by talking about each of the segments because that's where we get the most inbound question from clients. I'm sure you do as well. And you just hosted an investor meeting a couple of weeks ago, a little bit more than a couple of weeks ago and reported earnings. And so I think the feedback that we've been getting is feels like PCs are bottoming. You talked about it, units haven't really started to recover yet. But maybe can you kind of just remind us how the market typically operates, whether it's commercial, consumer and kind of what are you looking at from a demand perspective as we move through the balance of this year into calendar '24 to start?

Marie Myers

Thanks very much. And so as you just said, we just actually did earnings before Thanksgiving. So I think we kept off a solid quarter in a challenging backdrop in terms of the year, as you said. So I think you saw our revenue, our margins, et cetera, are right in terms of targets. As we think about just the outlook and PCs, I'll sort of frame it up in terms of long term and then near term. Definitely, from a long-term perspective, we expect that our Personal Systems business will grow in line with market. And I think that the outlook out in the market today is for '24 from mid to single-digits. Certainly, what we see in terms of the guide in the way we put our PS guide together was that we'll see the revenue improving throughout the year. As we look at sort of coming off Q4, there was certainly some buildup with seasonal. We saw that particularly on the consumer side of the house. I would say on commercial, we're still seeing a cautious outlook that if you look at the enterprise customers they're still being sort of very conservative in terms of their spend. So what we saw in terms of Q4 was more of the holiday seasonal buildup as we go into '24, I do expect that we'll sort of see mid to single-digits in terms of just the size of the PS market. But it will take -- it will grow sequentially throughout the year.

David Vogt

And so your comments on PCs are interesting because I think it's consistent on the commercial side. It's consistent with other companies in different end markets that have similar types of exposure with enterprise and commercial customers. You saw it first. I think you guys were telegraphed this sort of slowdown before many companies. Can you maybe characterize the types of conversations you think are happening with customers right now? Is it just budgetary pressure into the end of the year, macro customers really not willing to make a refresh? And does any sort of catalyst, whether it's like a Windows 11 potential refresh next year kind of color your view about maybe next year?

Marie Myers

Yes, sure. And I think in terms of just what enterprise customers are thinking now sort of like behavior. I'd say it's very much just it's tied to the macro. There is just no doubt about it, the companies have still been going through layoffs. You've seen that out there in the market, the inflation, et cetera, in the economy. So until I think we see the macro stabilize, there's definitely going to be a caution out there with enterprise spend. But if you look, I think the flip to that is that the drivers for the PC business, particularly for the commercial side of the business are really strong, David. I mean I think there are if you just look at a couple of key facts. First of all, the installed base on personal systems and on PCs is much larger than it was prior to the pandemic. So I think today, we're at around about 400 million to 600 million units. So there's a lot of PCs out of the market. Secondly, they're getting aged. As we did a lot of that sort of pandemic, prepandemic buying, we're getting right now into the four-year anniversary of a lot of those PCs. So you're going to see them age and they're going to have to be refreshed. And then you mentioned Win 11. So typically, Win 11 should be a significant driver as well of the refresh. And if you sort of think about the timing around that, in the '25 is when we see the flip from 10% to 11%, you sort of roll that forward, roll that back three, five quarters, you should start to see some of that emerge in the back half of '24. And then finally, I think you've heard Enrique talk about this we are optimistic about the impact that AI will have on the PC category itself. I think what we've said, we see it as an early adopter sort of stage in the latter half of '24 becoming more substantial in '25 and then really being significant in '26. But if you look at those drivers alone, I think that gives you confidence that the PS market will grow here over time.

David Vogt

Right. So maybe just on AI for a second, I know Alex talked about it at the investor meeting where I think he framed an opportunity where maybe ASPs could be 5%, 10% higher, which helps the sort of compute component within your professional systems business grow maybe faster than historically. But just as a reminder, that's not baked into your current expectations for next year and beyond. That would be potentially additive to the numbers that you guided to last week. Is that correct?

Marie Myers

In terms of like the longer-term outlook, absolutely. In terms of what's in our guide for the year, in the guide that we gave at Security Analyst Meeting, we did comprehend the introduction of the AI PC in the back half of '24. So we do have that introduction and the ASP uplift, which we said was around 5% to 10% is in the guide. But the '25 and '26, as you heard correctly, that's not in the outlook that we described.

David Vogt

And I know this is a challenging question and it's more of informational from my perspective is I was fortunate enough, I got to see a workstation with GPUs when I was out in your headquarters. How do you think the AI PC -- how do you think that shows up in the commercial environment, meaning, is it necessary to run Copilot or is it going to be more -- we want to replicate a much more robust environment? Like is it software-driven, hardware driven? Just maybe at a high level, anything that you can share with us, I think, because people are confused on what AI PC could mean in '24, '25 and '26.

Marie Myers

First of all, thanks for coming to our Security Analyst Meeting. I think when you get a chance to see the product that makes a tremendous difference. And I think you actually had a use case with our Workstation ZBook. I kind of use that as one of the better analogies of what an application of an AI PC might look like. And so for those of you who aren't familiar, our Workstation ZBook is a very high-powered performance compute. It's typically used by a lot of our data scientists. In fact, the folks on my team that do a lot of the LLM work, use those ZBooks because they've got the compute power. In terms of how to answer your question on where do we see the application of an AI PC, the one that I think Alex has spoken most about is really where we see the for local inferencing. And so the drivers of that type of environment would be we want to -- you want to make sure you've got security, data privacy, this cost in terms of just going up into the cloud and then finally speed. So we believe that David, there is going to be use cases that are clear in terms of local edge compute that will drive AI PCs. And honestly, we're at such an early stage of the inflection curve of AI. There's going to be multiple use cases that will evolve. But if you think about it in terms of the ZBook and just today, a specialized sort of group of folks who are data scientists are using ZBooks if you expand that and think about you and I that are going to be using AI, I mean, large language models, and you're going to need to have that extra compute power, whether it's in the CPU, the GPU, the memory, all of that together, then sort of levels up what's inside the PC. And as you know, when you level up, then that also drives better ASPs as well. And GPUs, as you know. Yeah, exactly. Yeah, thank you very much.

David Vogt

So along those lines, maybe as we transition over a multiyear period from traditional compute to more AI-enabled compute, let me start today. Pricing has actually been a little bit more resilient than I would have expected on PCs. Why do you think that is today? And how do you think, I know you just gave guidance for next year and kind of reiterated your margin targets for next year and there's some puts and takes in there from components. But why do you think that is from a behavioral perspective at this point in the cycle, where multiple years past COVID, is it just consumers and commercial customers want to have that replicated environment that they have in the office? Is that still kind of the driver where feature sets, important, screen, all the bells and whistles are relevant at this point still?

Marie Myers

So I think a couple of things to sort of bear in mind. First of all, the amount of commercial and our mix has increased. If you look over the last three quarters, we've taken share on commercial. And so if you look inside commercial inside the category, there is a sort of a bifurcation of categories inside commercial itself. What's important is the feature set, to your point, today, when you can use compute, you need a better quality experience. So either you need better cameras, right? So this AI built into that camera plus you need better audio, you need more compute power if you're a data scientist. So all those drivers have helped to, I think, create a more richer configuration inside the PC itself. So certainly, that is one of the drivers of what we've seen in terms of just what's been able to sort of support the pricing that we've seen. The other piece, as you know, really well in terms of just the channel has certainly started to normalize. So that's out there. But as we think about the category and looking forward to our margins and why we've said, we believe we'll be solidly in the range in '24. It's a combination of moving up the stack in terms of the mix. And moreover, David, also remember, we just bought Poly a little while ago as well. So we've added into our mix, a broader portfolio. So today, we've got the PC category. We've added in a hybrid that includes a little about peripherals. Don't forget gaming. That's another really important and there's going to be AI impact on gaming as well. So all of that together gives me personally a lot of confidence in the margins and also supporting the sort of the rate that we've guided to.

David Vogt

We get that question a lot. So within the PSG segment, now you have a much bigger gaming business, a must bigger Polycom related peripheral business. So does that give you confidence why that 6% to 7% range is structurally the right range versus prior to COVID, PS margins were several hundred basis points lower? Is that kind of the underpinning of how you're thinking about the next call it three, four, five years and why margins can stay in that range? .

Marie Myers

Yes. I mean that's honestly why I think in SAM when we talked about what's the outlook and what gives us confidence in the PS range. By the way, we didn't raise the PS range. We held the PS range.

David Vogt

I'm sorry, but from many, many years.

Marie Myers

Yeah, from many, many years. You're correct that in terms of what's helping give that confidence is absolutely the quality of the hybrid portfolio that we acquired with Poly and the gaming. And then obviously, we've got rooms as well. I don't think we hit on the rooms and the video and audio that we bought with the rooms with Poly. We see that as another significant opportunity. Clearly, it's -- we've been impacted by the macro here. We talked about just the whole enterprise spend atmosphere. There's a lot more caution in IT departments. But the needs, for example, even like today, I mean, in terms of the audio visual and connectivity and employee productivity haven't gone away. In fact, both hybrid secular trends I think we can all say quite confidently they're here to stay, David. So I think our portfolio is incredibly unique and is very different from many of our sort of traditional PC competitors.

David Vogt

Got it. And so when I just pull it all together, so I think about the PSG business, historically, it was primarily heavy compute.

Marie Myers

Exactly.

David Vogt

Now, we're compute peripherals, more gaming, more centric, more rooms meetings that are faster-growing categories over the next three years.

Marie Myers

Double-digit margins.

David Vogt

Structurally better margin. So you have a --

Marie Myers

Exactly. Double-digit growth.

David Vogt

Right. So the HP of five years ago looks different versus the HP for the next five years.

Marie Myers

And I think we said it's SAM that our expectation is that these growth categories, and by the way, we have them both in Personal Systems, and we have growth categories in our print business. We expect them to be double-digit growers to be a substantial part of our revenue going forward. And moreover, it's not just the size, the sort of the volume in terms of revenue, but also data what's different is we're building in subscription. So we'll have a richer mix of software services in that business model going forward and subscription. So there's a big shift inside the sort of product strategy to software services and subscription and then also lifting up in terms of the higher profit margin businesses as well.

David Vogt

Got it. I mean this is not a hard question, but I don't want to ask it. It's going to be tough to answer. So we get a lot of questions on components. You've been very clear that you've made strategic purchases depressed NAND prices, DRAM prices have been a huge tailwind for the industry in other end markets. How are you thinking about that part of the business? I know you don't disclose how much components you've taken in that are on your balance sheet. But just maybe help frame effectively, what '24, '25 kind of is in your thought process or in terms of your long-term planning forecast without getting the specific numbers.

Marie Myers

Yeah, absolutely.

David Vogt

So that you don't give it, but just kind of how you're thinking about it.

Marie Myers

So first of all, start up by saying I think it's very clear that there's going to be headwinds in commodities. We sort of hit the peak, right, in terms of commodity pricing, and we've seen the inflection point, particularly on memory CPUs, et cetera. So going into '24, what we've calibrated into the guide that we are definitely going to have headwinds on commodities. I think I've been really transparent in our earnings calls that we have made strategic buys. We do that when we believe it makes economic sense, and you've seen some of those benefits flow through as well. And obviously, we'll continue to do that if it makes economic and prudent sense, financial sense, absolutely, David, we'll continue to do so.

David Vogt

Is there given the supply chain constraints that we went through, I mean, have you thought about maybe how much component inventory you're willing to hold versus maybe prior to COVID. Has that changed philosophically right? You're willing to where it makes strategic sense to hold more today than maybe you might have five years ago? Has that changed? Or do you think the cycle is back to normal where just-in-time inventory matters, capital conversion matters more for you and inventory is obviously a use of cash and maybe it doesn't necessarily make sense to hold more inventory.

Marie Myers

So a couple of things. First of all, I think the supply chain constraint environment would pass that thankfully. So I think that's good. And secondly, you would see just in terms of our inventory management, you've sort of seen a natural decline, right, in terms of the level of owned inventory that we held. In fact, our last quarter, we hit probably one of the biggest loads in the last three years of about $6.8 billion. So we expect that going forward. Those levels will continue to come down. To your point, over the last couple of years, given the state of commodities, both in terms of just supply constraints and in pricing, we took advantage of strategic buys. And I think going forward, we want to maintain that flexibility, but it's got to make economic and financial sense. Otherwise, we're just simply not going to do it.

David Vogt

Got it. Okay. So maybe if we can pivot to print.

Marie Myers

That's good. We have a print business as well. Got to remind people from time to time.

David Vogt

Yes, you have a very big print business. At the Analyst Meeting, I think, Tuan talked about opportunities to drive margin, to drive cash flow. You've done a really good job. You had recently taken at the Analyst Meeting, had taken your margin range higher in that segment from 16 to 18 to 16 to 19. You've been operating towards the upper end. Can you maybe walk through some of the initiatives from a cost reduction perspective or maybe a margin-focused cash flow-focused strategy that's enabled you to kind of maintain strong margins in light of sort of the economic challenges that the business has faced over the last couple of years.

Marie Myers

Yes, absolutely. First of all, I'm just really proud to say that we were able to raise the range on our print margins, and you've seen us operating above those ranges throughout a lot of -- last year or so. I think that's a testament to a combination of both. It's both strategy and execution. I think on the strategy side, you've seen us over the pandemic really start to make bold moves and shifting model. And by that what I mean, we've moved to more profit upfront. So we've got HP Plus, Big Tanks. We're shipping more than 60% of our today in that model. Similarly, what we saw through the pandemic is also we got great growth in our Instant Ink model, which is back to what I said earlier about a subscription model. We've added in new services like Instant Paper. So once again, those are very sticky, more annuity type sort of businesses as well. So that's part of the model shift that's going on. Second is that in terms of just execution as we recently announced at the Security Analyst Meeting, we opt our program, our future-ready transformation to $1.6 billion over three years. Part of the confidence to do that was really what we saw the opportunity in our print cost structure, particularly in our consumer and home business. So we expect to continue to drive significant transformation in that business in terms of platform reduction. All of that is really underpinning the rates that you've seen us deliver and frankly, gave us the confidence to continue to do so going forward. I would sort of preface that by saying, as we look into '24, we do expect to be back solidly in the range for print margins. There are headwinds out there that we do, just like on the Personal Systems business, commodities, maybe one quarter or so will wait, but then the commodity headwinds that you see in personal systems will also come into the print business. So that will put some deflationary pressure plus we've been very consistent with our guide on supplies. We do expect supplies continue to be sort of low to mid-single-digit declines, and you saw that now last year as well. So that will be another headwind as well just to bear in mind. But I think we've demonstrated that we've shifted the model. We've been focused on our strategy. And we've also been focused on suppliers, frankly, on growing share and pricing very effectively. All of that has played into the results that you've seen from a margin perspective.

David Vogt

So you brought up supply. So I think a lot of investors were surprised by the last quarter's performance and your commitment to low to mid-single-digit decline in supplies in light of maybe some of the commercial hardware and consumer hardware challenges that the industry has faced. Can you kind of talk through. I know it's hard to model supplies on a quarter-by-quarter basis. So maybe on an annual basis, you mentioned share gains and pricing discipline. Is there anything else that maybe you can share with us that's been helping sort of maintain that glide path effectively on supplies in light of the hardware headwinds that we've been facing.

Marie Myers

Yes. First of all, I'll comment that on commercial hardware, particularly, it is our ambition to gain back share. And so I think Enrique made that very clear in the last earnings announcement that we are going to gain share back in commercial. So let me just start out there with that comment. On supplies, you've got to look at it over the long term. I think sometimes when we get into these quarter-to-quarter comps, it's not a good way to look at the long term. And frankly, the last quarter, if you go back a year prior to that, we had a pretty easy compare quarter on from a year-on-year perspective. So if you look at the annual guide on supplies, I think we've been consistent. We said low to mid-single. We ended up, I think, a 1.3% decline in terms of constant currencies. So it's right inside that range. We don't expect to change that. I think what's different sort of post-pandemic to pre-pandemic is our ability to manage pricing and also the share that we've gained. We've got a lot of telemetry in that business, to be honest with you, David, that we didn't have many years ago. Today, we get a lot of telemetry from our printers, so we can sort of see what's happening in terms of usage patterns much more clearly, and that helps us to understand and how to model those numbers going forward. Plus, I think we've been very disciplined around our priding as well. And you saw that most recently in the last quarter in our results of supplies.

David Vogt

Does the subscription model kind of migration help on supplies, right? So whether it's instant paper printer in a box effectively that gets shipped to a consumer more people. I think you have referenced certain cohorts are very far along in terms of subscription services on the ink side. Does that help the supply sort of trajectory over the longer term. Is that better today?

Marie Myers

Yes. We absolutely see when you move a customer say from that pure transactional model to the model you just described, whether it's Instant Ink plus adding on that paper, we sort of see a 20% uplift on the value of that customer because you're locking that person committing to a longer-term relationship and more annuity stream in terms of predictability. So absolutely, we see that uplift that I mentioned, and that's clearly a part of our business shift as well.

David Vogt

Got it. And then we had a loosely defined competitor here yesterday. Obviously, the yen has been hurting portions of the market, the weekend. It's been hurting pricing on hardware. How are you thinking about that as that's contemplated in your outlook for next year? Is it based on sort of a more stable US dollar yen sort of climate? Or have you taken precautionary steps in case maybe the yen impact becomes slightly worse going forward?

Marie Myers

Yes. First of all, I think we all know the yen has hit pretty much all-time historic lows right now. And we've seen that quite clearly in the consumer pricing that we've had in the market. I would say that going forward, a couple of things to bear in mind, consumer has probably stabilized. If you look sequentially in the last couple of quarters, we've seen consumers sort of ebb out as the yen has probably also deteriorated a little bit somewhat stabilized. Is that a new law. I would say on commercial, there's still potentially an opportunity for more normalization of pricing. The outlook that we put together for next year, it's comprehended in the guide. So I want to leave you with that surety. What I would say in terms of just capacity and how we're linking about it, that's frankly why we enlarged our future-ready plan, and we took it to $1.6 billion because we knew that we'd have to do some further structural cost adjustments, which is exactly what we've covered and we're doing that. So that gives us some capacity to manage some of those headwinds there into next year.

David Vogt

Are those incremental future ready plan contemplated cost savings targeted more at the printing side. Have you kind of -- I don't know -- I don't think I've heard you talk about where those might be targeted? Or is it more on the PSG side? Or is it just broadly defined across the entire portfolio?

Marie Myers

So first of all, it's a combination of initiatives that we have that are both operational. Some of them are digital. And then we've got a whole category of portfolio optimization. The portfolio piece actually covers both Personal Systems and Print. When we first put the plan together, what we had really comprehended was really the Personal Systems piece because we had seen SKU proliferation, as you can imagine, throughout the pandemic. Yes, you were just trying to meet customer demand, meet customers where they were at, so you're practically putting out new SKUs as we sort of matured through the first year of the program, and then obviously, with the combination of the yen pressure, we saw a similar opportunity on the print side. So that's why we're saying that confidence that we gave in terms of the outlook, really a piece of that was driven by print. So it was always in the baseline. We did have the restructuring of some of our Print businesses in the original guide that we gave. But as we saw the opportunities sort of unfold, particularly in consumer, we decided to increase the future ready.

David Vogt

And that incremental cost savings.

Marie Myers

Not all of it is print by the way.

David Vogt

Right. So that incremental cost savings, though, to your point, is supportive of margins in fiscal '24. And is supportive of sort of your bridge, your EPS bridge that you've given where the base business on an operating profit dollars should grow in '24.

Marie Myers

Exactly. But also the other thing to bear in mind with print just like our Personal Systems business, where we talked about the impact of core and growth. There are growth businesses inside print as well that also gives us the confidence around the margins as well. So I don't want to leave you without having that thought in mind. And then we also expect offers to improve. We expect our industrial business to improve in '24 as well. So all of that just bear that in mind as you think through.

David Vogt

Got you. And not to get nitty-gritty on print, but when you look at the new product introductions, that you've talked about. Is there anything that you think is near-term more commercial ready in terms of something that you're excited about within the Print business? I know there was like a host slew of office equipment, construction equipment, which I thought was kind of interesting.

Marie Myers

Yeah, site print. Yeah, that was awesome.

David Vogt

The site print was pretty interesting.

Marie Myers

You picked up one that was facinating, that's the one I'm really excited about.

David Vogt

So maybe we can do that too. That seems like a pretty large TAM that seems unaddressed at this point.

Marie Myers

Exactly.

David Vogt

Are those products generally available right now? I know there were conversations with distribution.

Marie Myers

So we just launched and I don't think it's a great example of innovation where we're using both print capability, but we're hitting a whole new market segment. So really, it helps within Industrial Design. We just launched it, you saw at our Analyst Day when you came into town. And we've seen that the product take off, and I think it's really exciting. It's basically a robot that helps to sort of map out sites that it's using a combination to the technology we have in our print portfolio to really sort of disrupt that market segment. And I think there's other opportunities out there, but that's one I'm really excited about. Because I think it's relevant, it's digital and it's really breaking and using our capability in a market that we haven't really addressed in the past, David. So a great example, and we'll do more of that in the future. .

David Vogt

Got it. So since you are the CFO, I want to come back to cash flow allocation.

Marie Myers

Yes, we can't have a call without talking about that.

David Vogt

Right. So over the last couple of years, there's been a pretty consistent strategy where the company has been targeting leverage ratios and then viewing excess cash flow or free cash flow being deployed to shareholders in the form of buybacks dividends and in the case of a strategic M&A where it makes sense in the case of Polycom. So as we kind of come out of this most recent fiscal year, leverage is manageable sub two turns of gross, if I'm not mistaken, and so you've committed to returning, I think, in '24 100% of free cash flow. In the past, just out of curiosity, there was this desire when the stock might have been trading cheaper and maybe spend a little bit more than 100% of free cash flow. If I just think back during COVID, right, in '22, exactly. So is that off the table longer term? Or is it just opportunistic as long as you're below the threshold and you feel confident in the growth trajectory or should we think about the long-term strategy as I think Enrique said like at least he has said, I think, repeatedly at least 100%. So how should investors kind of interpret that statement from Enrique.

Marie Myers

What I said in SAM was we would return 100%.

David Vogt

Right. For this year, I think, it was clear, it's 100%.

Marie Myers

I think we're committed to 100%. So maybe I'll just go back and we talked about '22. We didn't talk about '23. So in '23, as you know, we did tip out 2x, so we're out of the market, plus we had MNPI in Q4, so that also precluded us from being in the market. So the way you should think about '24, it's 100% of free cash flow. Our intention is to get into the market in Q1 and to be active throughout the year. And so that's very much --

David Vogt

And the reminder, the guide is $3.1 billion to $3.6 billion.

Marie Myers

You got it.

David Vogt

Fully loaded with restructuring dividends consumes about $1 billion roughly. So that leaves you slightly north of $2 billion for buybacks.

Marie Myers

And as I said, at the Security Analyst Meetings nothing's changed. Our intention outside of the MNPI we had in Q4, we want to be active in the market in Q1 and remain active throughout the rest of the fiscal year '24. So I think our intention is very much aligned with returning 100% of free cash flow, unless better ROI opportunities arise, as you pointed out, with an example like Poly

David Vogt

Is there any seasonality in cash flow that would be severe enough? I know there is seasonality quarter-to-quarter. But in terms of managing that sort of program during the year, should investors think about it being sort of ratable on a quarterly basis? Or is it really reflective of the actual cash flow generation within a given quarter where you can be more aggressive in maybe certain quarters maybe less aggressive just from a timing perspective?

Marie Myers

Yes. No, look, our cash flow does have seasonality. Obviously, you just saw in our last Q4 results, the sort of cash flow that we generated in Q4 $1.93 billion cash flow. So definitely, the cash linearity and seasonality is important to take into account. I did say in the most recent earning announcement that actually, we do expect Q1 to have impact in terms of just stock comp. It is the time of the year where we pay out our annual bonus. We actually accrue the bonus in the prior year because we're on October 31 year-end, and then we pay out that bonus in Q1, obviously take that into account as you through cash flow modeling. And then if you look, like I said at our Q4 seasonality. So I think our seasonality on cash flow is pretty standard, David. So that should give you a good sign. The way to think about it.

David Vogt

So in the interest of time, we're running out of time. I want to give you an opportunity to maybe touch on anything that we didn't think about that you think maybe is relevant domain or maybe misunderstood from either the report last week or your SAM a month ago or so. Anything kind of out there that in your conversations that you think maybe the investment community is maybe missing at this point.

Marie Myers

Now first of all, thank you for the opportunity, David, and thank you, everybody, for being here. I just want to reiterate two things as we close out. First of all, I think that clearly, we delivered a very solid quarter, and we reiterated our guide for '24. And I think most importantly, as you think about the long-term for HP is really the big shift that I think you hit on earlier, what the kind of company we are today versus the pandemic. We have made intentional deliberate efforts to grow our growth businesses, and we have those both in the print business and in the Personal Systems business. As we said at the Security Analyst Meeting, we expect those businesses to grow significantly over the course of the next three years and to contribute more than 15% of our revenue of the company which I think is going to be $15 billion, sorry. And then moreover, is just the shift in terms of the type of revenue. We do expect to have a much larger contribution of software services and subscription-like models and we expect those to be 30% actually of those growth businesses. And I think that is potentially the real opportunity that we go in to unlock for HP. And then finally, I would just add that in terms of Personal Systems, the hybrid trends, the secular trends that we've spoken about over the last couple of years at here to stay. And then moreover, we do see an opportunity as AI becomes clearly a driver of Personal Systems going forward as well. But thank you very much, David. I appreciate the chance to be here.

David Vogt

Great. Thanks, Marie. Thank you, everyone, for joining and we'll talk soon.

Marie Myers

Thank you.

David Vogt

Have a great day.