Good afternoon, and welcome to the Second Quarter 2016 HP Inc. Earnings Conference Call. My name is Amy, and I'll be your conference moderator 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 am Diana Sroka, Head of Investor Relations for HP Inc., and I'd like to welcome you to the Fiscal 2016 Second 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 and Form 10-Q. 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 the fiscal quarter ended April 30, 2016. 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, and good afternoon, everyone, and thank you for joining us today. I am pleased with our second quarter results. We did what we set out to do. Non-GAAP diluted net earnings per share were $0.41, above our previously provided outlook range. Free cash flow was strong at $1.5 billion. We took action to improve our cash conversion cycle and are on track to deliver our full year outlook, and we returned more than $0.5 billion of capital to shareholders through dividends and share buybacks. Amidst difficult market conditions, net revenue was in line with our expectations, down 11% year-over-year as reported or down 5% in constant currency. And in APJ for the second quarter in a row, we delivered constant currency revenue growth, with strength in Personal Systems across much of the region. I will not be completely satisfied with company performance until we return to sustained growth. Delivering our financial commitments is evidence of the solid progress we're making against our strategy to protect our core, deliver on growth and invest in our future. Let me take a moment to remind you of our objectives when we started the year. First, we said the markets were going to be tough for at least several quarters. We are on track to reduce our cost structure by more than $1 billion in FY '16 through productivity initiatives and an acceleration of our 3-year restructuring plan into this year. We executed a number of cost actions, including a reduction of approximately 1,200 headcount year-to-date and are on track to achieve our savings objective by year-end. I continue to believe we have even more opportunity. Second, we said we would be rational in how we price in our core competitive markets. In Q2, we achieved another quarter of sequential ASP…

Thanks, Dion. Q2 results were solid and in line operationally with our expectations. Net revenue was $11.6 billion, down 11% year-over-year as reported or down 5% in constant currency. Gross margin of 19.4% was down 0.3 points year-over-year, driven by unfavorable currency and competitive pricing, partially offset by cost improvements and favorable mix. Gross margin was up 0.7 points quarter-over-quarter largely in line with normal seasonality. Non-GAAP operating expenses of $1.3 billion were down 16% year-over-year, primarily in SG&A. As a reminder, due to the use of discontinued operations basis of accounting, some historical expenses, primarily in admin, were fully allocated to the parent company, which was HP Inc. in the U.S. Also in Q2 '16, we recorded a gain in SG&A from the sale of certain marketing optimization software assets. Further, we had year-over-year savings from reduction in our overall cost structure. Non-GAAP OI&E was a net expense of $13 million, lower-than-normal run rate due to a onetime benefit from a legal settlement benefiting net EPS by about $0.03. Although timing was unknown when we set our FY '16 annual financial plan, the settlement was modeled in our full-year earnings outlook and was fully booked in Q2. With a non-GAAP tax rate of 21.5% and a diluted share count of approximately 1.7 billion shares, we delivered non-GAAP diluted net earnings per share of $0.41. GAAP diluted net earnings per share from continuing operations of $0.38, primarily excluded restructuring charges of $100 million, only partially offset by nonoperating retirement-related credits of $40 million. Non-GAAP results also excluded an $8 million net tax indemnification credit related to the tax matters agreement with Hewlett Packard Enterprise company. We expect that certain tax matters and the related indemnification effect will continue to change each quarter and will be recorded as adjustments in GAAP-only…

[Operator Instructions] The first question is from Katy Huberty at Morgan Stanley.

Cathie, how should we think about the yen influence on Printing margins through the remainder of the year?

So thanks, Shannon (sic) [ Katy ]. From a -- from the yen benefit perspective, we do expect a little bit of a benefit. We saw a little bit in Q2 as well, but that benefit is significantly coming down as the yen has appreciated a bit.

And then as you think about PCs in the back half, maybe Dion, we are hearing from distributors that inventories have come down. You seem to cite that as well. Would you expect a meaningful improvement in unit growth as we go into the back half of the year?

And Katy, was that for Printing or Personal Systems?

For PCs.

For PCs, I would say that we have consistently remained very vigilant in our control over inventory. I think it's a mixed bag in terms of inventory out in the channel. There are some vendors that still have high levels of inventory and in some where inventory has come down. I think all of it points to sort of broadly speaking, we don't largely disagree with what the major analysts are predicting for the second half of the year that whilst the markets will continue to be pressured, it will abate somewhat in the second half of the year. Our inventory is well in control and so is our aged inventory, 2 very important metrics that we watch very closely.

And Katy, sorry about that. I'm so used to Shannon asking the questions about the yen.

It's okay.

I went immediately to Shannon, I apologize.

It's okay.

The next question is from Rod Hall at JPMorgan.

So my question, I guess, it's along similar lines but broader that you guys have such a broad impact and kind of an outsized impact from currency, especially from the strong dollar. And it looks like the interest rate [indiscernible] most people are expecting [indiscernible]. How stress-tested is your earnings guidance for the full year against a stronger dollar? What sort of assumptions are you making? Could you just give us some idea on that?

Well, it -- Rod, if you actually look at where currencies are today, they're not that different than where we started the beginning of the year when we provided our first outlook. On top of that, we obviously put hedges in over time. And so we believe -- we feel pretty confident in our outlook given where the dollar is now, even if it were to get a little bit stronger.

Okay. So you assume a little bit of an interest rate rise, but not much more than that, Cathie. Is that correct?

So I look at it more from a currency perspective. I understand it's the interest rate rise drives the currency, so we look at it more and we've modeled the different levels of the dollar.

And can I ask to you one follow-up, which is your interest expense was quite a bit lower than last quarter. I just wonder if you could give us any color on what drove that?

Sure. The biggest difference wasn't interest rates, it was this legal settlement that we had that benefited EPS by about $0.03. That was -- it showed primarily up in OI&E.

The next question is from James Kisner at Jefferies LLC.

I just want to clarify your comments in supplies. I believe you said that while the decline was worse year-over-year, it had a pretty significant headwind from inventory adjustments. And I'm just kind of wondering if you could talk about how that impact from inventory affected last quarter's constant currency growth. And just in general, what kind of market decline you were modeling for supplies or assuming for supply -- the supplies market to stabilize the revenue by the end of '17?

So I think the way to think about this is probably to go back to the Four Box Model and how we think about supplies in terms of us being on the trajectory that leads to stabilization in constant currency supplies revenue by the end of '17. And I believe Dion said it in his prepared remarks that when we started the quarter, we have an expectation of what the Four Box -- the different elements of the Four Box Model are going to do, and then -- based on the models that we have. And then we look at the end of the quarter to see how they responded in actuality. And they were largely in line with what we were expecting. And that says that our model is predicting in the quarter -- within a quarter, is doing a good job of predicting what's going to happen to supplies. So we are on track with that. In terms of the channel inventory correction, off the top of the -- my head, I don't remember what the impact was last quarter. We did have some -- we definitely had some channel inventory corrections last quarter as well, but this quarter was larger and it was 7 points of the headwind. So if you look at the -- if you look at this, you look at supplies growth of -- or decline of about 16%, you take off about 6 points of currency, 7 points of channel inventory. If you look at kind of the real demand, it's basically down about 3%, again, in line with what we were expecting.

And just to give you my perspective on this, what I'm most happy about is we did exactly what we said we would do. And what has happened in the market and what we thought would happen in the market has actually transpired. We said we needed to adjust to what I call the new normal, and that was a sort of combination of further market contraction that was driving an increased competitive price market. We said that we saw weakness in emerging markets and we did indeed see that continue. Currency continued as a headwind and that we were expecting tough macroeconomic conditions worldwide. We actually adapted to this new normal. And you'll remember on our fourth quarter earning call and our first quarter earning call, we talked about having to not only deliver on the $1 billion of productivity improvements, but actually that wasn't going to be enough and that we were going to need to do more. And we are on track to doing more than our $1 billion. We also said that we needed to accelerate our restructuring. And in Cathie's prepared remarks, she said we are also on track to doing that, and that we needed to persist with our efforts to drive price stability in the market. So all of that is actually working out. Supplies trajectory improved, but it was somewhat masked by the channel inventory reductions that we had. Supplies inventory is now back within the ranges globally, and that's obviously where we want it to be. So we -- with all of those productivity improvements, continue to reshape the installed base, we're focusing on high-value units. That's evidenced through the continued growth in value multifunction laser. We said we needed to continue to refresh the product lineup. We did that 15 new devices launched last quarter, JetIntelligence, PageWide Array and OfficeJet Pro. And we said we needed to continue to grow in our graphics business and we did for the 11th consecutive quarter in a row as we did with Instant Ink. So as Cathie mentioned, all of that translates to what we're seeing transpire as we planned it out to be. And therefore, with all of that, we expect to stabilize our supplies revenue trajectory by the end of FY -- by the end of '17.

Quick follow-up on that. I mean, it sounds like you're on track from your restructuring and your supplies growth long term. So I guess wondering why you're lowering the higher end of guidance here.

Yes. So what happened in Q2 and what we are expecting will be true in Q3 and Q4 as well, is that with the cost reductions that we've made, we actually have, in effect, opened up more positive MPV TAM in printer units. So we took advantage of that in Q2, and we gained 2 points of share sequentially while maintaining our price rationality. And we expect that in the back half of the year, we will also be able to take advantage of placing additional units, which is, from my perspective and Dion's perspective, the right thing to do for the business to maximize the area under the curve. And so that took the top end of our previous guidance down a bit, but for the long-term value for the company.

Your next the question is from Sherri Scribner with Deutsche Bank.

Adrienne Colby for Sherri. I was hoping you could update us on your expectations for the cash conversion cycle. You obviously, saw some impressive improvement, but how should we think about working capital over the balance for the year?

Well, let me just say that I was very pleased with the improvements in each of the cash conversion metrics that we closely track and monitor. Our goal was, as you remember, to reduce our cash conversion cycle by several days from our quarter 1 exit. We got there plus a little bit more. And this was an actually an enormous enterprise-wide effort, and we've made some permanent changes to our processes and to our business management system. I think the team rallied exceptionally well together to focus on all the levers that we have available to us. So we expect to exit FY '16 with the cash conversion cycle several days improved over FY '15. And that will enable us to achieve our full year free cash flow outlook of $2.3 billion to $2.6 billion for the full year.

The next question is from Toni Sacconaghi of Bernstein.

Cathie, you talked about the legal gain helping $0.03. You also mentioned that there was a gain on sales of marketing optimization software. How big was that? And that -- was that completely captured in the Imaging -- Printing and Imaging Group? And I have a follow-up.

Yes, Toni. It was completely captured within the Printing OP. And while we're not specifically sizing it, I think what we did was we used that opportunity to fund the incremental unit placements that we had as a result of cost reductions that we've done. We placed more units. We were able to gain that share I mentioned. And then, we also -- we took our channel -- our supplies channel inventory levels down even a bit further than what we had originally intended because we believe that managing -- having a tight handle on the channel inventory levels is good for our business.

Okay. And just a follow-up, I mean, it sounds like you're saying you're going to invest in trying to take more share, yet you also said to expect double-digit declines in units for the remainder of the year. And I know I probably asked some form of this question every call, but 100% of your profits are driven by supplies. And your assertion that supplies should stabilize next year is still not transparent to me. And so if we look at last 5 quarters, hardware revenue has been down double digits. Hardware revenue has been down 19 out of the last 20 quarters. So if I'm looking at that box in the Four Box Model that says, what's happening to my installed base, it's down, and it's probably down mid-single digits. So to stabilize, what's the key thing that changes? Are you expecting much better capture rate on reman? Are you expecting people to start printing more given their printers? But the only thing that we really see is what's happening to your installed base, and that's declining. So I appreciate that your model tells you and it's been accurate, but it would be really helpful if we could understand what you think happens in the model to go from what's been closer to mid-single digit declines in supplies to 0 given the backdrop that we see, which is hardware units continues to be negative.

So Toni, really, what I said was that the printer unit declines would be low double digits in Q3. Q3 is a relatively tough compare, because if you will remember last year, we did some incremental what we called insurance policy because of the split that we were going through. So it is a tough compare. But we went from minus 20% declines in Q1 to minus 16%, and then it's going to come down further as well in Q3 of '16. And I think what's important is that we've captured -- it's not like this is a surprise to us. We've captured it within the modeling that we have done. Our models are holding up and our models basically show that supplies revenue in constant currency will stabilize by the end of '17.

And I think, Toni, what you're really highlighting here is the complexity of the business. And there is no single magic pill that changes the supplies trajectory. So what we need to do is to continue to focus on all areas of the Four Box Model, the installed base being one metric. But remember that the installed base is a function of every kind of category and segment of business that we do, from those printers that produce less supplies to those that produce a lot of supplies. And we are placing more MPV-positive units enabled by the costs that we're taking out of the business. And we're innovating and we're introducing new products and new series of printers that are really very much focused on the business side of the ledger. And these new platforms generally come with higher supplies attach because the aftermarket alternatives have not yet made their way into the market. Usage is another part of the Four Box Model. Not all printers are created equally. And even the same printer placed in a different location or a different ZIP code produce a different amount of supplies. So reshaping that installed base to higher-usage of printers is kind of job number one. The other major shift that's happening is the move from transactional to contractual, and as that shift happens, we move to 100% supplies attach. And the final area in terms of usage is the work we're doing around marketing to stimulate printing demand. We're shifting our marketing efforts from marketing printers to marketing printing. And that sort of takes care of box number two. On the third box, the aftermarket share, you have these newer platforms that come with higher attach. You've got work we're doing around the omni-channel. It's very comprehensive, covering online coverage in marketing as well as the innovation that we're driving our ink formulas and new toner technology resulting in a much better printed page when you're using original HP supplies. And the fourth lever, of course, is pricing which remains flat and consistent with our expectations. So all these factors drive supplies consumption, not just the installed base. And the model would suggest that we are on track to that stabilization by the end of '17 in constant currency.

And we have initiatives in every one of those boxes.

The next question is from Wamsi Mohan at Bank of America Merrill Lynch.

Dion, you mentioned more rational pricing. How much do you attribute to the recent moves in the yen? Are you seeing any difference in the competitive behavior? And I have a follow-up.

Well, I think it's a little hard to speculate because I don't necessarily understand the hedging strategies of each of our Japanese competitors. I would say in the long term, if the yen remains where it is, that ultimately is good news for us. But I think we've been very disciplined in the market in terms of not dragging the market down in price, selling the value of our products shifting away from spending contra-dollars on discounting to marketing and sales, and that's resulted in higher ASPs. So we're very focused on our activities. And I think we're starting to see some signs of market stabilization.

Okay. Great. And as my follow-up. It sounds like you regained some share in the aftermarket supplies. Can you talk about where that was, how much it was, whether it was commercial or consumer? And was it like related primarily to the new printer introductions in the quarter?

So I don't believe that we've made any statements specifically about aftermarket share for supplies improving. Now, we are -- as part of going after the Four Box Model, we are working on increasing our aftermarket supply share. And we're starting to make some progress specifically in the omni-channel space, which is what Dion mentioned, I believe, in his prepared remarks.

So I think I would expect that aftermarket share would come up as we release these newer platforms, those newer platforms come with almost 100% supplies attach. I would expect our aftermarket share as we move from transactional to contractual, where that comes with 100% supplies attach, to drive up our aftermarket share. I would expect the work we're doing around omni-channel, as Cathie mentioned, which is some very comprehensive work around online coverage and marketing to also improve our aftermarket share and the innovation that we're driving in ink formulas and toner would also do that.

The next question is from Maynard Um at Wells Fargo.

I have a question that looks out a little bit further. You have a number of drivers in 2017, including 3D printing, the A3 market, a number of new other products. But can you help us identify what the mile markers are to judge success? I mean, what should we be looking for as we enter 2017 that points us to this materializing as growth drivers for you? And how long does it take for these products to ramp to a level that's material enough that it can actually have an impact on revenue and profit? Is it 2, 3 quarters?

Thanks, Maynard. So let me say that everything we've spoken about so far has really been focused on the core, and we're really incredibly focused on our traditional franchises of Print and Personal Systems. But as part of our overall strategy for the company, we do have certain growth areas that are incredibly important to us. You mentioned a couple of them. Our A3 product work remains on track, and our portfolio will come out towards the middle of next year. That is on time and on track and we're doing a lot of work around preparing, not only for the products, but for the go-to-market that is required in order to be successful in this marketplace. Another part of our growth engine is graphics. Graphics grew for the 11th consecutive quarter, and we're just about to walk into Drupa next week, which is the Olympics of the graphics business. It happens every 4 years and we're very excited about some of the products that we will be announcing at Drupa. And the third area is commercial mobility, and our commercial mobility practice continues to grow. We're excited by the work we're doing there. We made some really interesting category creating product announcements with the Elite x3 during the course of the quarter at Mobile World Congress to rave reviews. So lots of positive signals from the market from a product respective and the pipeline that we're building. And then, of course, only last week, we announced our 3D printing products. And we have really breakthrough innovation here, solving the problems of speed, quality and cost. We said we would release them in the second half of this year. And a proof point of that is the announcements that we made last week. And the strategic announcements that we made with Nike, with BMW, with Johnson & Johnson and Jabil, a very important player in this space. So I think there's a lot of markers out there that point to the execution of this team. We do what we say we're going to do, whether it's product, whether it's go-to-market or business model readiness.

The next question is from Jim Suva at Citigroup.

Congratulations to you and your team there at HP. I have one question for Dion and one for Cathie, so I'll just pass them both at the same time. First, for Dion, your sister company, HP Enterprise, last night announced that they're -- they'd break out part of their business, naming the -- namely the services. Have you considered splitting up or would you? And does that actually make any sense? And then for Cathie, the operating profit margins in Printing, I believe was down year-over-year and I think you'd mentioned the litigation helped that. So it would have been down even more year-over-year. Is the correct way to think about it is to stabilize it? Is it top line? Is it mix? Is it cost cutting? And how should we think about stabilizing the operating margins of the Printing business that is so profitable for your company?

Well, thank you, Jim, and thank you for the congratulations. And first, let me extend my congratulations to Meg and the Hewlett Packard Enterprise team on a spectacular earnings, and on a very successful announcement of the spin merger they're doing with CSC. I think what that demonstrates is that the separation and the focus of the organizations on the markets that are moving at top speed is really working. It's produced better results for Hewlett Packard Enterprise. It's producing solid results for us as well as fueling the innovation engines of both companies. So I don't want to comment much further on Hewlett Packard Enterprise's announcement, but I will say that we are really committed to the long-term success of HP. I'm very happy with the assets that we have in both Printing and Personal Systems. They're both an important -- play a very important role within our portfolio as the sort of broad things. We obviously always continue to look and reevaluate the markets as they change and measure all of our assets relative to the strategy and sometimes that results in a divestiture, and we made a divestiture this quarter and some marketing optimization assets. That's an ongoing process. But as far as our major franchises go, we're very committed to both portfolios.

Operating profit [indiscernible] down 50 basis points as you mentioned, and that's really driven by currency and the very competitive pricing environment we saw. It was partially offset by the productivity initiatives that we've got and the broader non-revenue-generating cost reductions as well as the favorable hardware mix. And then we had some benefit from the divestiture gains. It wasn't litigation, it was divestiture of the marketing optimization assets. But as I told you, we made the conscious decision to invest that gain back into placing incremental MPV-positive units. And you can see the impact of that, frankly, in the share gains that we had quarter-on-quarter as well as basically bringing our channel inventory levels for supplies in a bit more. From a quarter-on-quarter perspective, the increase was really driven by cost improvements as well as the divestiture gain and that was partially offset by competitive pricing, currency and some investments that we made in go-to-market and R&D.

The next question is from Shannon Cross at Cross Research.

Dion, I wanted to dig a little bit more into the 3D printing initiative from your standpoint. I'm curious what sort of feedback you've heard from beta customers, some of the partners. How are you thinking about this initiative over the next year or 2? And then I have a follow-up.

I'm super excited by it. I think the feedback from potential channel partners, from end customers and from analysts and those that follow the industry closely, understand what a breathtaking breakthrough we've made towards really pulling 3D printing into the mainstream. We released the first production -- short run production 3D printing systems. They're 10x faster than other products that are out on the marketplace, unbelievable quality and most importantly, at half the cost. And when you get those 3 things right, you start to tap into specific applications that are better to be done by digital 3D printing than they are in an analog fashion. And the best example I can give you is our 3D printers themselves. 50% of the bill of materials of our 3D printers are printed by our 3D printers, so our printers are printing themselves. And it's a perfect example in short run manufacturing of the great business case. We're not doing this to make a point. We're doing this because it's more economically advantageous to us to print these products in 3D than it is to use traditional manufacturing. So we're very bullish. We have a long and complex, and I like complexity here, roadmap. This is not easy to duplicate. We're leveraging more than 5,000 patents from our core, leveraging 30 years of innovation that we've had in our Printing business. And we're bringing it to bear into a market that really hasn't had a very large mainstream player with the brand that HP has and reputation that we have. So we're really excited by the market. We're happy with the ramp we're doing on our partners and our certified channel partners. We're incredibly excited by really impressive ecosystem co-innovators with us, Nike, BMW, Johnson & Johnson, Siemens, Jabil. The list goes on, both in the materials as well as end customers.

Great. And then my second question's just on PCs. I'm curious what kind of trends you're seeing. How you're thinking about the market? Clearly, it's been pretty weak. And how you're also thinking about some of these future products like the x3 and leveraging continuum, because it sort of a -- it's not a phone, it's not a computer. How do you see this market developing both near term and then in the next couple of years with some of these new technologies?

Yes. Look, we're not surprised by the PC market. I think we were one of the earliest to predict that these markets will continue to be challenged for quite some time. And as a result of that, we needed to just take immediate action to get our costs in line with where the markets were. But over the long term, we sort of genuinely broadly agree with the analysts and where they expect things to land. We see continued declines in calendar quarter 2. The market is projecting that it will improve in calendar quarter 3 and 4, and we tend to disagree. Now whether it's low single digits or mid-single digits, I guess, that's up for debate and no one's is perfect at making those predictions. But I think things are getting better. To your sort of second point on some of these new categories, I think as the technology improves as we're able to fit more power into smaller platforms, we get to have this continuous evolution of the continuum all the way from mobile up to workstation. And these lines are beginning to blur and that enables us to create new products and new categories like Elite x3. That technology is not going to slow down. It's only going to accelerate. So I think we've got to start looking as an industry at the entire spectrum, all the way from phones to workstations. Think about that market. Think about how those hard lines were characterized in the past and how those hard lines will begin to break down in the future. And as leaders, it's incumbent on us to reinvent what the category is capable of, whether that be the success we're having with our x2 or the new category trend in products like x3. It's all about changing that continuum. So we continue to have a very highly disciplined approach to this business. We segment, we segment again. We navigate the heat in the market and we predict where we think the heat's going to be. We're constantly challenging ourselves on price, function, value for our customers. We're always taking costs out of the system and we have to be a massive innovator, and I think we're doing all of that as well.

Thank you, Shannon. I think we have time for one more question, please?

Our next question is from Kulbinder Garcha at Crédit Suisse.

Just a couple of clarifications for me. In terms of the supplies, I understand as you've said many times today and before, this is going to stabilize by the end of '17. But specifically, Cathie or Dion, the year-over-year decline 10% constant currency this quarter, does that year-over-year decline stack better from here given the lower channel inventories that you talked about and the initiatives you put into place? Or could it be uneven for the next few quarters? Just I'm trying to understand whether things -- just the decline gets a little bit easier. And then on free cash flow, was there anything onetime in nature that drove that free cash flow number this quarter that helped you?

Thanks, Kulbinder. On the supplies, I think the right way to think about it is a 16% decline in supplies revenue. The fact that there was 6 points of currency, so you're down to -- down 10% constant currency, but you've got 7 points of channel inventory correction that, our belief is, you don't continue to correct channel inventory on a go-forward basis. So really, when you're looking at, I guess, we sometimes refer to as real supplies growth or decline, we're at about minus 3. And we -- obviously, as we go through '17, we expect that, that will continue to improve so that it stabilizes by the end of '17, but again, largely in line with what we expected. And then from a free cash flow perspective, a couple of things. First off, where we saw particularly strong performance was in the cash conversion cycle. If you look back to Q1, our cash conversion cycle was minus 15 days and we're now at minus 24. And we basically hit on every one of those metrics. Dion mentioned it. It was a company-wide initiative in which we educated and helped people become even more conscious about cash flow. We enlisted the help of our sales reps in getting collections done. It was an incredible team effort and something in many ways we've instituted now kind of permanent changes and permanent initiatives around that free cash flow and the cash conversion cycle. I also just really briefly want to mention the fact that it -- our free cash flow, on a year-to-date basis, also includes about $170 million of separation cash outflows, which obviously, are one -- more onetime in nature.

Thank you. Thank you all for joining us today. I hope you will agree, we delivered really solid results here and we did exactly what we said we would do, and that's important to us as a leadership team. We do know how to execute regardless of market conditions. We don't stick our head in the sands here. We understand what's going on in the market and how to adjust our organization accordingly. We're delivering on our financial commitments. We've made solid progress. More work to do. We're executing across core growth and the future and lots of proof points there. We're shifting to higher-margin growth product segments and we're setting this company up for long-term success. So thank you very much.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.