TD SYNNEX Corp. Q3 FY2024 earnings call

Key Points

• Patrick Zammit began by highlighting TD SYNNEX's role in the IT ecosystem, emphasizing global reach, end-to-end portfolio, and customer-centric culture.
• Business priorities include revenue growth through geographical expansion and vendor franchise expansion; pricing and margin management by enhancing value proposition; managing cost to gross profit percentage via operational discipline; and disciplined capital allocation.
• Q3 performance was strong with significant growth across geographic segments and in Endpoint and Advanced Solutions businesses. Gross billings grew 9% above the high end of the range, but there was year-over-year margin decline driven by product mix and Hyve's tough compares. Cost to gross profit percentage remained consistent.

In Q3, total gross billings were $20.3 billion, up 9% year-over-year. Endpoint Solutions grew 5% driven by PCs, components, mobile and services. Advanced Solutions grew 12% driven by Hyve, Hybrid Cloud, Software and Services. Endpoint Solutions contributed a certain percentage to gross billings, and Advanced Solutions contributed another percentage, with gross billings growth above the high end of the guidance range.

Fiscal Fourth Quarter Guidance

• Expected non-GAAP gross billings in range of $20.5 billion to $21.5 billion, representing 6% growth at midpoint.
• Reported revenue expected to be $14.9 billion to $15.7 billion with a gross net percentage adjustment of approximately 27.2%.
• Non-GAAP net income expected in range of $239 million to $282 million, and non-GAAP diluted EPS in range of $2.80 to $3.30 per diluted share.
• Expect to generate approximately $1 billion in free cash flow for the fiscal year and continue returning excess free cash flow to stockholders.

Risks

• Hyve had margin headwinds due to prior year's good profitability and current year investments, which is expected to continue into Q4.
• Working capital needs may increase due to growth in certain segments like Hyve and potential large strategic buys.
• Market recovery uncertainties, including potential slower than expected recovery in some regions like North America.

Q: David Vogt asked about cash flow, working capital, and the mix going into next year, specifically regarding Hyve's impact on working capital.

A: Marshall Witt responded that Hyve is a swing factor in working capital, and while they aim for a cash conversion cycle around 20 days, growth could increase working capital needs.

Q: Keith Housum inquired about Hyve business color and its impact on gross margins.

A: Marshall Witt explained Hyve's prior year margin benefits from cost recoveries and aged inventory sales, and current year investments for growth, with Patrick Zammit adding Hyve's growth will positively impact mix and results.

Q: David Paige asked about growth in Strategic Technologies and fiscal '25 outlook.

A: Patrick Zammit noted Strategic Technologies (cloud, security, AI) is growing due to hyperscalers' massive AI investments, with acceleration expected.

Q: Adam Tindle asked about focus on growth vs. margins.

A: Patrick Zammit stated they focus on profitable growth, expecting margin improvement due to geographic mix (Europe/APJ growing faster than NA) and service mix increase.

Q: Joseph Cardoso asked about confidence in IT spending recovery vs. VAR partners' mixed view.

A: Patrick Zammit cited PC market recovery, networking normalization, and geographic growth (Europe/APJ faster) as drivers of confidence.

Q: Ruplu Bhattacharya asked about investments, portal enhancement, and AI line card.

A: Patrick Zammit mentioned investments in technology platforms, continued portal enhancement, and being well-positioned in AI with Destination AI initiative. Marshall Witt added Hyve's growing partnership with NVIDIA.

Q: George Wang asked about Hyve new logos, design wins, and assembly line utilization.

A: Marshall Witt said a newly landed customer expanded in Q3 and will continue, with focus on customer diversification and onshore capabilities.

Q: Alek Valero asked about impact from large customers in Q3/Q4.

A: Patrick Zammit stated North American large customer segment is muted, with demand acceleration expected next year.

Q: George Wang followed up on PC and AI PC impact.

A: Patrick Zammit said AI PC adoption is ramping up slower than expected but will accelerate with new product launches.

Q: Alek Valero asked about impact from large customers in Q3/Q4.

A: Patrick Zammit and Marshall Witt responded there's no significant revenue impact from large customers in Q3/Q4.

Q: Ruplu Bhattacharya asked about M&A and capital allocation.

A: Patrick Zammit said M&A is an opportunity for growth with discipline, and Marshall Witt discussed share repurchase, dividends, and leverage being in target range.