Q4 2021 TD Synnex Corp Earnings Call
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[music].
Okay.
Yeah.
Good morning, My name is Victoria, and I'll be a conference call operator today.
Like to welcome everyone to <unk> fourth quarter.
2021 on this call today.
Today's call is being recorded and all lines have been placed on mute to prevent any background noise.
I'll just speak his remarks there'll be a question and answer session. At this time for opening remarks, I would like to pass the call over to American morality head of Investor Relations. Ma'am you may begin thank you and good morning, everyone.
Thank you for joining us for today's call.
With me today are rich Hume, CEO and Marshall Witt CFO .
Before we continue let me remind everyone that today's discussion contains forward looking statements within the meaning of the federal securities laws.
Including predictions estimates projections or other statements about future events, including statements about integration progress strategy free cash flow capital distribution.
Average supply and investments.
Actual results may differ materially from those mentioned in these forward looking statements.
As a result of risks and uncertainties discussed in today's earnings release.
In the form 8-K, we filed today and in the risk factors section of our Form 10-K , and our other reports and filings with the SEC.
We do not intend to update any forward looking statements.
Also during this call we will reference certain non-GAAP financial information.
Reconciliations of GAAP to non-GAAP results are included in our earnings press release, and the related form 8-K available on our Investor Relations website.
<unk> Dot <unk> dot com.
This conference call is the property of <unk> and may not be recorded or rebroadcast without our permission.
I will now turn the call over to rich rich.
Thank you Liz.
Good morning, everyone and happy new year, it's exciting to be with you. This morning reporting our first quarterly results as TD Center.
These results represent only our very first 90 days together and I'm delighted with what the team has already been able to accomplish.
Just that short amount of time.
Let me share a bit more about what we've accomplished relative to our strategy and integration having.
Having made excellent progress in both areas.
First we define our go forward strategy with the overarching goal of keeping our customers and vendors at the center of everything we do.
We're making significant investments, which will solidify our position for the future and continue to accelerate our participation in the high growth next generation technology areas like cloud security analytics, Iot and <unk>.
Anything as a service.
And we are committed to continuing our journey to digitally transform the company, allowing us to create an enhanced engagement with our customers and vendor partners with improved deficiency.
To provide further details on these topics, we will be having our first investor day as TD Center too.
To be held virtually after we report our first quarter results.
At that event, we will share with you our multiyear strategy growth opportunities and financial performance.
From an integration perspective, we are on track and the team is executing very well on our plans.
We rolled out our complete organizational structure, ensuring that all co workers are clear on their roles and responsibilities.
We have also been spending a lot of time with our customers and vendor partners, who continue to be very supportive of our company and the plans that we've outlined.
Another critical area that we've been focused on is our systems infrastructure.
We completed our assessment of our current ERP systems and after a deep and thorough analysis made the decision to consolidate our Americas business onto Cif.
ERP system custom built for the IC distribution business.
<unk> has a great track record is highly responsive and flexible and provides us with the ability to move quickly with an attractive cost basis.
All other geographic regions will remain on their existing ERP systems.
Lastly, we are on track with our cost optimization and synergy attainment gold.
And though there is much work ahead.
We are well on schedule relative to our ambitious integration planning.
Moving forward to our fiscal fourth quarter.
We had a good performance despite the anticipated challenging supply chain environment.
The change that came with our merger and the new fiscal year and for much of the company.
Overall, our core distribution business performed in line with what we communicated last quarter and the supply that we received was consistent with our expectations.
Strong operational execution by the teams allowed us to optimize our result to the higher end of our guided revenue range.
Our advanced solutions products and services business saw a continued improvement in the quarter and grew year over year, assuming the merger had occurred in the prior year.
And point solutions, those slightly down year over year performed well and in line with our expectations. Despite the challenging industry supply conditions and a tough prior year comparison.
All three geographic regions performed well in the Americas demand was solid in the enterprise space did well as corporations prioritize infrastructure and security projects.
In the government segment, there was a bit of a slowdown in spending which is not unusual in the first year of a new administration in the education segment was flat year over year.
In Europe demand for next generation solutions was healthy and we outgrew the market in the Asia Pacific region, We had a very strong end to the year and made positive traction across multiple countries and products segments.
Both from the core legacy Tech data business as well as from the <unk> business, which was acquired more than a year ago.
Additionally for many of our vendors, combining Japan and Asia Pacific provides the opportunity for expansion and incremental value creation.
From an integration perspective, we continued to do well in identifying and capturing cost optimization opportunities and are tracking ahead of expectations.
As Marshall will discuss in a moment, we are now tracking to a 30% non-GAAP EPS accretion.
Which is above the 25% that we've previously targeted.
As we begin 2022 I'm encouraged by the solid demand drivers across the technology landscape and the opportunities in front of us as we bring our expanded set of products and services to the market.
Our enhanced breadth and scale provide us with an even greater ability to bring value and choice to our customers.
As an example post merger we have more than doubled the number of vendor partners in the security space available to legacy Tech data customers.
Emily we are also significantly broaden the datacenter offerings available to legacy <unk> customers.
Customers and vendors continue to increase their levels of investment in digital transformation, enabling and equipping users everywhere to connect collaborate and <unk>.
Work more effectively and securely.
Specific to the PC ecosystem, we remain cautiously optimistic given the opportunities in the commercial space with the Windows 11 refresh cycle and upgrade for advanced security features.
Offsetting by some moderation in the consumer segment.
Together, we believe this result in an opportunity to grow our top line in fiscal 2022.
This view considered current industry supply constraints that we expect to continue through fiscal year.
Before I hand, it over to Marshall, Let me pause to express my gratitude to all TD <unk> co workers for their hard work and contributions during fiscal 2021.
Because of your efforts, we had an excellent year and I'm thankful for your continued dedication and expertise as we strive to deliver superior service to our customers and vendor partners.
I couldnt be more excited.
All of that will accomplish in 2022.
I'll now pass it over to Marshall, who will provide additional details on our financial performance Marshall.
Thanks, Rich and thank you to everyone joining us for today's call, we performed well in our first quarter together with results at or better than our expectations across the board and despite a continued difficult supply chain environment.
I am proud of our teams who collaborated well executed flawlessly and adjusted to many changes in our first 90 days together.
In particular I'd like to express my gratitude to the global Finance organization for their dedication and hard work and reporting combined company results for the first time.
Now turning to our results for the fiscal fourth quarter.
Total worldwide revenue came in at $15 6 billion down 2% from the prior year.
This comparison assumes the merger with tech data occurred on September one of 2020.
We are pleased with this result give.
Given the tough comparison to prior year supply chain constraints and newness of operating as one company as well as an approximate 1% FX headwind due to the euro weakening against the dollar.
Gross profit was $943 million and gross margin was 6%, reflecting solid execution by the team and a continued favorable mix of products and services.
Total adjusted SG&A expense was $559 million, representing three 6% of revenue and in line with our expectations.
non-GAAP operating income was $408 million and non-GAAP operating margin was two 6%.
non-GAAP interest expense and finance charges were $42 million and the non-GAAP effective tax rate was 24%.
Total non-GAAP income from continuing operations was $276 million and non-GAAP diluted EPS from continuing operations was $2 86.
Now turning to the balance sheet.
We ended the quarter with cash and cash equivalents of $994 million and debt of $4 1 billion.
Our gross leverage ratio was two six times and net leverage was two times.
This ratio assumed the merger with tech data occurred on September one 2020.
Accounts receivable totaled $8 3 billion and inventories totaled $6 6 billion, our net working capital at the end of the fourth quarter was $2 7 billion.
And our cash conversion cycle for the fourth quarter was 14 days, which was in line with our expectations cash.
Cash provided from operations was approximately $561 million in the quarter.
As we began fiscal 2022 I'd like to share some thoughts on capital allocation.
Given the numerous positive drivers for the company, we remain on course, delivering approximately $1 billion of free cash flow by the end of fiscal 2023.
Our long term capital allocation strategy over the next two to three years is to distribute approximately 50% of our free cash flow to our shareholders in the form of dividends and share repurchases.
Our remaining investment grade optimizing our cost of capital and balancing organic investments with M&A opportunities or some of the key priorities. We are focusing on as we enter fiscal 'twenty two and beyond.
For the current quarter, our board of Directors has approved a quarterly cash dividend of <unk> 30 per common share.
The dividend is expected to be paid on January 28, 2022 to stockholders of record as of the close of business on January 21 2022.
Let me now provide you with the modeling thoughts about fiscal 2022 and Q1.
As Richard mentioned, we remain confident about the variety of growth drivers for it spending this year.
Driven by both traditional and next generation technologies like most others in the industry. We also believe that we will remain in a supply constrained environment through fiscal 2022.
Against that backdrop, we expect to grow revenue in the mid single digits in fiscal 2022.
Negatively impacting these growth expectations are FX, which is expected to impact us by approximately $1 1 billion.
And gross versus net revenue adjustments of $1 2 billion, which is the result of aligning policies between the two companies.
Net of these headwinds revenue is expected to grow low single digits.
We made very good progress in fiscal Q4 on productivity initiatives as well as deal related synergies.
Given this progress and the view regarding fiscal 2022, we now expect to realize a 30% accretion to non-GAAP EPS in fiscal 2022 compared to fiscal 'twenty, one legacy <unk> Standalone results.
This represents an improvement from our initial target of 25% accretion.
For fiscal 'twenty, two we expect non-GAAP EPS to be between $10 80, and $11 20 per diluted share.
This also assumes a negative $22 million headwind to non-GAAP net income or <unk> 18 per share primarily associated with the weakening of the euro since the date, we first performed our merger accretion assessment.
Now, let me share some thoughts for fiscal Q1, we expect total revenue to be in the range of $14 75 to $15 75 billion, which when adjusted.
Adjusted for FX of approximately $450 million in gross versus net adjustments of approximately $300 million represents an expected year over year growth rate in the mid single digits. This comparison assumes the merger with tech data occurred on September one 2020.
Our backlog level continues to be elevated and we estimate the impact to fiscal Q1 revenue could be approximately.
35% non.
non-GAAP net income is expected to be in the range of 245 million to 275 million and non-GAAP diluted EPS is expected to be in the range of $2 55 to $2 85 per diluted share.
Based on weighted average shares outstanding of approximately $96 million.
Interest expense is expected to be approximately $38 million and we expect non-GAAP tax rate to be approximately 24%.
Note that these statements regarding our expectations for our fiscal first quarter 2022 and for the full year of 2022 are forward looking and that our actual results may differ materially we will now take your questions operator.
Great. Thank you so much.
We will now start our Q&A session.
To ask a question please press <unk>.
Thank you Pat.
And your question and one follow up.
Ken. Please go ahead your line is open.
Okay.
Thank you so much for the details I have two questions.
Firstly can you maybe just help US bridge the difference about what was the major upside there.
<unk>.
This industry has had some struggles wind entities have switched.
Can you, let us know kind of a timeline and are you going to run dual ERP for a little bit of while there is some associated costs with that.
Eventually go away. Thank you.
Well. Thank you Jim this is rich so I'm going to handle your second question first and then we'll go back to <unk>. So.
The way, we're thinking about our ERP implementation is and I'll use the words, rolling Thunder, where we'll be transitioning customers and vendors.
Over a timeline.
So it's certainly a way of.
<unk> requesting what.
It might be characterized as a light switch flip we've got it well planned.
The overwhelming majority of those transitions will happen over approximately an 18 month timeframe plus or minus but we.
How confident based on the way we built the schedule and we have confidence based on the fact that.
Both legacy companies have done large.
Transitions in their previous history.
So we feel really good about where we're headed so I'll hand, it to Marshall on the accretion question.
Hey, Jim Nice hearing from you again on the the accretion increased from 25% to 30% it really represent an improvement from expectations from both the <unk> initiative and the deal synergies.
Both we committed to a $50 million.
Synergy run rate in the first year. The first full 12 months post close in both of those areas, we are running better than expected, but because of that and what we've captured to date gives us that confidence of achieving the 30% accretion target.
Thank you so much for the details it's greatly appreciated.
Thank you Jim Thank you Jim.
Yeah.
Yeah.
Thank you Jim for your question.
Our next question comes from.
From Northcoast Research group. Please go ahead.
Good morning, guys. Good to talk to you again rich thanks for the results and congratulations.
Hey, rich at Tech data, even one of the things that you were.
However, the last few years, so it's really optimizing the profitability of selecting some business in order to help drive up operating margins can you talk about are you taking a similar path here with the combined companies or whats your strategy for operating margins going forward.
Yes.
Good Great question, Keith Thanks, and welcome back into the coverage are really happy to have a relationship with you again moving forward.
Leave you with.
Two thoughts the first one is that largely speaking the legacy Tech data entity had had completed.
Largely speaking what it wanted to.
As it related to optimization in the past and then maybe a little bit unique but when youre in a supply constrained environment that gives you the.
Opportunity to decide where you're placing your offerings obviously with.
Making sure that you are focused on customer stat as well.
That allowed us to.
Have a natural sort of realignment and cleanup if you will of sort of lower margin areas.
As we have all come through the supply constrained evolution. So the portfolio is in really good shape I feel great about it and we're really looking forward to.
Working with customers and vendors to accelerate growth moving forward.
Great and then if I could just do my follow up question Marshall how has the highest business do this quarter for the company.
Keith Thanks for the question just to remind you we guided in Q4 to the lower end of about comes in we ended up exceeding those expectations. So.
It did well and hybrid well in three areas one just the normal manufacturing assets.
Datacenter customers and second is the assembly.
Part of our business and where we really saw an uptick is in what we call distribution like services. Those typically represent a strategic part spare part lose for our data center customers around the world, where they have a need to continue to keep their their data centers up and running and our ability to have a global network. This is <unk>.
Fill those needs is where we saw a lot of demand in Q4.
Great. Thanks, Good luck guys.
Thank you thank you Keith.
Okay.
Thank you. Thank you for your question and our next question comes from Adam Tindle from Raymond James. Please go ahead.
Okay. Thanks, Good morning, Marshall I, just wanted to start by clarifying in an earlier answer I think you said $50 million on synergies I thought the number was 100 million per synergy that we still had $100 million expected synergies for this coming fiscal year and the timing for that.
Yes, Adam Thanks for the clarifying question it is $15 million for.
Deal synergies and 50 million for <unk> in the first year for a total of 100 and then in the second year post close as an incremental 100. So we will exit the second full year at a 200 million run rate.
Perfect Okay.
So that leads me into the second question, if I look at your fiscal 'twenty two guidance and.
You'll have to correct me if I'm wrong I did some quick math trying to back into the operating profit dollars that you're implying on a year over year basis for the combined entity on a like to like and I think it's about $50 million incremental operating profit dollars implied in our full year guidance, but if you got $100 million in synergies coming through.
Why would we only have an incremental $50 million.
Operating profit is there assumptions embedded for pipe or vendor changes or macro.
Help me with the thinking that through.
Yes, Adam Thanks for the question.
When we give our overall guidance for any quarter or year, we certainly are going to start with <unk>.
Conservative perspective on that not only with high but on the distribution business, but we do expect that.
All in operating income dollars operating profit dollars.
We'll grow.
That reflects not only scale in the business for which we are doing collectively but also issued relative reflect the incremental synergies related to <unk> and the deal synergies as well.
It could be just the way that your model is rolling up that we can.
We can address offline, but we should see accretion and growth both in operating profit dollars and an operating margin in 2002.
Got it okay, maybe just one on cash flow and capital allocation. The 50% return maybe Marshall you could touch on the decision to go to that level, which I think is higher than <unk> in the past and rich. If you wanted to maybe dovetail onto this question because the other two.
50% is for investments in that optimization, but pretty close to an optimal capital structure. So maybe rich you can touch on what investments entails. The key metrics you will be looking for to determine appropriate investments. Thank you.
Adam I'll go first and then hand, it over to rich so as.
As you saw and heard in our in my prepared remarks.
We feel that the right capital allocation strategy is to achieve and to reach a 50% payout ratio in the form of repurchases share repurchases and dividends. We also accept to not acknowledge that that will probably take two to three years to achieve so if you think about the dividend, we just announced a <unk> 30 per share and you annualize that.
That's about $120 million.
We're also expecting to do about $100 million of share buybacks. If you look at where we exited fiscal 'twenty one at about $750 million of free cash that's around 29%, 30% payout ratio. So we think thats the right starting point and then as we exit and go towards two years from today, which we think we're going to be at that one.
And a free cash flow.
<unk>.
We think thats, the right cadence to step in and over time get that 50% payout.
Yes, Adam.
Couple of thoughts on the inverse side, so first Vince in the business to drive we always call. The next generation technologies in their investments.
Platforms and investments in new skill groups et cetera, et cetera in order to support that in addition to that we.
Art.
A segment that acquisition is always considered.
And certainly we'll consider acquisition moving forward.
I would say that certainly.
Really nothing on the radar to the extent of <unk>.
Bringing these two companies together.
Yeah.
We have.
The opportunity to look at expansion in some of the markets, namely Asia Pacific, Japan, where we might have.
Bit of a lower market position and then in addition to that we're always looking to that.
Strategically build stronger capabilities moving into the future. So we will consider that.
We are really comfortable with the capital allocation model that we have articulated and as all of you know.
Yes.
Is it something that as stated on a continuum, meaning that if youre doing a large acquisition at a point in time.
It might be heavier up towards the.
Investments in the company a little bit lighter on the other side or the reverse is true as well, but in the steady state.
We're really comfortable with that.
That's a step in the right direction. Thank you.
Thank you Adam.
Great question.
Our next question comes from Ananda Baruah from loop capital. Please go ahead.
Hey, good morning, guys happy new year and happy.
Happy New year question.
Happy new year, congrats on the results.
Yes, two for me.
If I take the first one is you guys had mentioned in the prepared.
The market looking.
And I understand the snake demo paraphrasing, but looking at the <unk> transformed the company quickly, yes sort of.
To put a lot of detail initiatives.
Align the company.
With that the marketplace, there with customers and so I was just wondering.
What all you're looking at doing there and then I have a quick follow up.
Yes, So let me take that one first happy new year to you and thanks for joining.
Obviously digital transformation has been something thats been discussed.
For five plus years now.
Once that first.
Verify that excuse me both companies have been sort of on that transformation and transition to better capability and if I were to prioritize to you are our focus.
First is to make sure that we are making the investments.
Both.
To.
Continually.
Their experience.
Yes.
This industry as you know.
So <unk> has <unk>.
<unk> distribution.
Live on a bit of a thinner margin profile, but it always requires more and more productivity, which lends well.
Well to automation and process redesign so.
A lot of that has been done, but a lot more to come in.
Whole transition.
Two.
A new standard of ERP.
<unk>.
In the Americas in particular gives us a chance.
Revisit our entire edge tool inventory to make sure that we have state of the art capabilities then of course.
It makes its way through the entire organization.
Thereby there.
And our.
From our logistics centers, all the way through our.
Financial and accounting process.
The legal processes to HR processes.
So it's sort of end to end journey.
But I want to be clear that the top priority is <unk>.
Excellent experiences for our primary stakeholders.
Okay.
Poultry shape yet.
And then the quick follow up just.
Just with regards to hot.
With all of the all.
All these digital initiatives.
To amplify.
Over the last year and have continued to be amplified out in the marketplace.
I was just wondering if you guys think that there is any opportunity.
Hi, This is obviously a part of that to your customers is there any opportunity.
Given given the SaaS for the Digitization last year and a half.
Hi, Steve.
<unk> coming years.
Yes.
Let's see.
What's the right way to think about that potential.
Good question this is Marshall.
Yes, I think that that hive has continued to transform its overall delivery and capabilities to become an end to end.
ODM hyperscale provider and solution.
Two to its customers. So as I said earlier, all three aspects of design manufacturing Assembly and distribution like services are all important in essence, a full stop one stop solutions.
Hi.
<unk> for the end markets and our customers because we're we're progressing so I think the market itself continues to put a lot of incremental opportunities that at the feet of a five and I think our capabilities have been able to respond to that are we there yet on our journey now, but we do feel good about where we're heading over the next two to three years.
Okay, Great I appreciate that Washington, Thanks, a lot guys.
Thank you.
Thanks for your question. Our next question comes from repeat but the China from Bank of America. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Rich I was wondering if you can talk about your combined cloud practice.
Cloud billings trending I believe tech data, if im not mistaken a couple of years ago had a 1 billion plus cloud business and.
And so how should we be thinking about the annual run rate of this business and can you also update us on stream one I think tech data invested a lot in that platform is that at a point, where it can handle the entire line card for both companies.
Thanks for the question so first of all.
Let me start at the top when we think about <unk>.
Cloud in particular, the growth rates in cloud within our business are substantially higher than the core of the business.
<unk>.
Actually running higher than the average of the growth rates of cloud over the continuum. So we're really pleased with the.
The progress were making overall that next generation category, which.
<unk> cloud as well as business analytics, Iot security is becoming a meaningful part of the overall portfolio now as you know there is.
Netting that goes on with a lot of.
The cloud revenue, but if you take our growth view of the revenue.
We're starting to enter double digit range relative to the size.
As of the portfolio.
As it relates to our platforms going forward I had commented earlier that we've started.
The ERP and we have two very good platforms right now in market with stream, one as well as stellar.
And we're.
We have not yet completed the plans as to exactly what that strategy will be but we're close.
And kind of think about this as the best of both.
Is the the approach that we're taking both have really strong capabilities.
That are suited for different means actually so.
We have once again the opportunity to.
Take advantage of both of those capabilities moving forward and I think that when we when we get to the end it'll be something of a mix of both would be.
My judgment got it no. Thanks, thanks for the details on that.
One thing you mentioned in your prepared remarks with respect to endpoint solutions I think you said that.
Youre expecting.
Continuing its strong PC environment at least on the commercial side I just wanted to ask a conceptual question I mean, I know endpoint solutions in Pcs have been a strong point for tech data, but as you look at the combined company.
How dependent do you think <unk> is on the PC cycle and if if PC demand were to wane in the back half of the year do you still think that you can make the revenue number. So I mean would you say that the combined company is less dependent on the PC cycle or is it still.
How is it dependent on the PC cycle as it was as a standalone.
David.
Yes, I'd like to share a couple of thoughts with you.
Just based on my six years of experience.
We have the benefit of having a.
And what my experience has been.
Covid being a good example, as you know we have.
Add up.
We have a pretty big advanced solutions business overall.
The organization.
And the people within the organization.
Seem to move towards where the demand is within the <unk> spend.
And so.
If there are cycles that has to be overcome in data center or in PC ecosystem.
The agility of the model and the organization is.
Very well tuned to moving to where the demand is in the market to answer your specific question.
Depending on which side you are coming from.
Either legacy <unk> legacy TD.
Yeah.
Dependency is not growing I would say that it's fairly consistent.
Consistent with.
Our past profiles and we do feel pretty good about some of the things going on.
In the commercial space I'd also comment that we believe that that there'll be a moderation in the consumer space looking forward.
There is plenty of.
The backlog that needs to be worked down as we move through at minimum in the first half of the year. So.
Those are generally my thoughts.
Last one if I can just sneak one more in Marshall for the highest business do you still expect the large customer transition to a consignment model at some point this year and if so when and what would be the impact on a quarterly basis.
Yes, thanks for the question.
Right now still don't know the timing of that transition to consignment.
The the dollars impacted right now we don't have any reason to believe it is going to change from what we historically had said.
And then our commitment is as we learn more we'll share more of it right now nothing in terms of when that will start in fiscal 'twenty two if at all.
Okay. Thanks for all the details and congrats on the strong execution.
Thank you.
Thank you. Thank you might pay for your question and our next question comes from Shannon Cross from Cross Research. Please go ahead.
Thank you very much that your customers are saying with regard to demand how there. Thank you.
And about how well demand for it just.
How theyre looking at life in.
Youre radically post pandemic world that we're kind of moving into.
What areas are you seeing the most demand.
Given where you sit in the supply chain it would be helpful. Thank you.
Yes.
Ill share my my personal thoughts.
Nothing nothing more than that but it is informed by reading about are our industry right. So.
A couple of thoughts if I were to represent the customers right now they would say we need more product.
Clearly the backlog continues to grow I make that statement, but I also want to.
And function.
And then.
No.
Chairman systems catch up to start placing orders based on lead times.
We clearly are now in that or in that sort of range, where the backlog represents certainly current needs and current demand, but it's also representing.
Now customers, putting up orders based on lead times. So there clearly is future orders I would allege in anyone's backlog as they talk about that right now. So I think that's an important point customers would say we need more now.
My view.
Is that.
Three thoughts number one is the next generation technology areas will have strong growth and that is kind of where the future is cloud analytics Iot security, we know them well. In addition to that you could add in everything as a service.
New innovations around the edge that go into the PC ecosystem et cetera.
The second thing that I would tell you my hypothesis is that we clearly have two years of pent up demand within what I would call the infrastructure traditional infrastructure space.
I think that that plays out as more and more and more people.
People get back to work more and more projects get deployed so I would say that there is we did talk about the backlog in the peak.
The question earlier I believe that the.
The growth within fees.
D C overtime will moderate and again it will be.
More profound in the consumer side versus the commercial side. The commercial side does have some transitions going on.
Next generation technologies.
High growth good growth within the infrastructure space moderating growth within the PC ecosystem spaces, the way I would summarize it for you.
Okay. Thank you.
And then Im wondering given the billion dollar cost.
Range that you provided for revenue for next for the current quarter.
What would you say are the biggest swing factors as you looked at it I mean, historically companies have been pretty conservative, but I'm just wondering what what puts and takes one into your thoughts.
Hi, Shannon good questions, Vince Marshall I'll start and then rich can chime in as well.
Certainly the assumption of a 5% constrained constrained from supply chain is a factor to that.
The the overall assessment of what each region will do relative to those constraints.
We build up our forecast based on what each one of the operators then and leaders of the business fee within their own niche, whether that's product side or sell side.
Outside of that it also could just be a matter of the ebbs and flows of what's happening in regards to how fast markets open up which rich spoke to earlier.
We're living in and this ebb and flow dynamic of open and close I think it's now the new normal.
But we still see probably a steady state of both.
Work from home learn from home consumed from home continue as well as a lot of these as opportunities that rich mentioned continue to be opportunities. So I think those these serve as other potential upsides to that mid single digit growth rate targets.
Discussed in Q1, yes, Shannon I'd, just like to provide a thought it emphasized.
But I think the biggest differences how much supply will get we had.
In our prepared comments talked about the fact that supply was relatively consistent with our expectation and I would say the life of our business leaders have changed a little bit.
We were to go to higher Covid, we were almost like I'd say there was always some constraints, but we're almost an unconstrained supply environment and now we have to spend as much time as leaders to try to estimate our best judgments on what supply we're going to get in the <unk>.
Order and that becomes a bigger factor as anything else and in terms of trying to provide.
Our view of.
The business performance so.
I think that I'd answer your question more single threaded to say.
If you can tell me what supply we're going to get I can tell you where we'd be out within that range.
Okay. Thank you that's helpful and just my last question I apologize if you addressed it but I'm wondering.
John has spread.
If you have seen any changes in behavior or availability.
Just your kind of the first Tech company, we can talk to you.
We are just ugly head. So I'm just wondering if you can point to anything thank you.
So for me I would say that there hasnt been anything profoundly different.
I think it is fair to say that in fact I know that.
Every time, we speak with you the backlog is bigger and Thats the case now.
But then I also.
As I stated earlier, we kept to begin to recognize that future orders are absolutely entering that backlog now based on.
A better understanding of lead times.
I don't think Theres anything measurably different.
That has come to our attention with the OMA Crunch journey.
Okay, great well. Thank you so much for taking the questions.
Thank you Shannon.
Please go ahead.
Okay.
Yes, thanks, and good morning, everyone.
Just wanted to.
Just ask about your guidance, which you've been talking about.
About some of the supply demand is.
And it sounds like backlog is very strong.
Yes, you did beat your revenue guide significantly.
So are you seeing.
Any signs of sort of a pickup in terms of supply or were you just able to out execute competitors in terms of being able to meet the higher end of your forecast and as you guided I think youre guiding down two 3% sequentially for the February quarter could we get a sense of kind of a pro forma basis.
<unk> seasonality.
For the combined business and are you guiding more conservatively than seasonal because of the constraints that you're seeing just a little bit more color there would be great.
So maybe I'll start and then hand it over to Marshall I think it's going to be important for Marshall to.
Talk about two things relative to the topline. The first one is we clearly have a euro headwind.
And the second one is there are some 606 adjustments.
For net accounting that hill.
He'll also described to you and kind of give you a view as to what that means for the quarter. So.
When you take those two things into account at a constant currency and then not adjusted for 606.
More.
Revenue if you will.
Then.
Then before as a generalization and we kind of talk about this Matt.
Youre asking about the sequential but as a generalization you might recall that.
Our year ends we are different.
And so as we came together as a combined company what's interesting is that.
<unk> starts to look a lot like <unk> now from a financial profile perspective, because we were heavier up in the December January time, and they were heavier up in and their legacy October .
October November time.
So.
I would tell you that that profile has shifted a little bit based on on.
What I just described so I'll turn it over to Marshall for any other clarity.
Yes, so Matt rich brings up a good point just to clarify the gross to net adjustment.
Got it.
Apple versus an oriented policy alignment that take about one to $1 2 billion in revenue out of the full 22 and about 300.
Million out of Q1, and we can't go back and adjust prior year. So it just stands on its own thats the headwind back to Richard's comment the seasonality they are different.
If you looked at legacy Phenix seasonality.
Coming out of Q4 into Q1.
It typically is down in that 10% to 15% range and if you look at the legacy.
The tech it could be up.
5%. So when you blend those together it does create kind of a new seasonal relationship and then the final thing which.
As important but we'll work through it this year is.
In distribution quarter end matter and so theres a lot of rhythm around that quarter end and so aligning these.
Fiscal two so one common quarter the comparisons could be a little bit out of stores as we work our way through 'twenty, two but going into 'twenty three we're going to have a decent rhythm and pattern that we can speak to.
Okay. Marshall do you mean, the quarter and also for some of your big OEM suppliers as well.
Yes, a lot of that is dependent upon just the timing of when they fall versus when we fall and on any given year itself, probably nothing but within the quarter that can behave a little bit different each quarter.
And then I think the other point is.
Sure.
Legacy Tech data folks.
<unk>.
Primarily in the sales organizations are also adjusting to the new quarter.
Quarter end.
Obviously, you have done from our point of view quite well in Q.
Q4.
But very quickly have the opportunity to get.
Incentives realign for the right quarter ends et cetera et cetera. So.
Worked through some of that is part of our integration.
Okay. Thanks for that.
And then their own rising costs, along or at least pricing less aggressively.
Big deals are you seeing that is that flowing through your income statement and youre guiding packing in demand at all.
Yes, so I'll comment and then ask Marshall to so.
As a generalization over the continuum.
Pricing.
For most of the content is probably up somewhere between five and 10% overall.
As you know, Matt we've talked about this many times in the past.
Our price changes with.
A vendor we pretty quickly apply it so.
We.
Generally speaking it.
Unusual for us to get hurt from incremental pricing changes so that doesn't occur.
Very much if at all than what I would tell you is certainly we see.
Our shipping costs going up and as we see shipping costs going up they get generally passed through to customers but.
The overwhelming part of our cost of goods sold is product in the dynamic that I first described as kind of the way it works though.
We from our model perspective, really have not historically had a lot of exposure to incremental prices.
Yes.
Comparing our growth Matt.
Our gross margins.
Showed showed while in Q4, we expect them to play play out well in Q.
Okay, alright, thanks, a lot.
Thank you Matt.
Right.
Thank you Matt for your question and our final question comes from Vince Colicchio from Barrington Research. Please go ahead.
Yeah, Rich I was curious.
Have you experienced.
Yeah.
What are you what are your updated thoughts on potential loss of revenue from client diversification.
Yes so.
I would tell you first that.
From where I sit I have not been aware of any <unk>.
Negative revenue synergy to use that term in fact.
Knock on wood.
The customer experience feedback that I have received.
Since day, one has been really excellent and very very supportive.
My my speculation is that we'll see more opportunity from revenue.
Synergy as opposed to.
Impact.
And the way to think about this if you go back to the script for one moment, if you look at the securities portfolio.
If you're sort of on the tech data sales side, you now have greater than 50% more security vendors in the portfolio that you can take to market to your customers and then if they are on legacy <unk> sales side, you have a much larger and robust.
Restructures its portfolio to take the your customer set and right now candidly with the systems still being separated we make that happen through some.
I'll call. It a collaborative manual intervention as we move through time and then.
Align customers on a common ERP and vendors on a common ERP the rolling Thunder approach that I talked about earlier.
Then that becomes very highly automated and we should be able to.
Actually get better advance moving into the future.
And then I was curious about remain under other systems or will they eventually.
Be consolidated.
At the same system.
U S.
The plan right now is for the foreseeable future.
Will be maintained on their systems.
And then.
The Americas will actually move to the CNS.
Yeah.
Thanks for answering my questions strong quarter. Congrats no. Thank you very much I appreciate it thank you Vince.
Thank you very much for your question at this time there are no more questions and now I would like to thank everybody for joining US today's call. You may now disconnect your lines.
Thank you everyone. Good day.
Okay.
Yeah.
Okay.
Okay.
Okay.
Okay.