Q1 2024 TD SYNNEX Corp Earnings Call
Operator: Good morning. My name is Mandeep, and I'll be your conference operator. I would like to welcome everyone to the TD SYNNEX First Quarter Fiscal 2024 Earnings call. Today's call is being recorded, and all lines are being placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At this time, for opening remarks, I would like to pass the call over to Liz Morali, Head of Investor Relations. Liz, you may begin.
Good morning, My name is Martin deep and I'll be your conference operator today.
I would like to welcome everyone to the T V Phoenix first quarter fiscal 'twenty 'twenty four earnings call. Today's call is being recorded and all why it's been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question answer session.
At this time for opening remarks, I would like to pass the call over to Liz Murali.
Liz Morali: Bester Relations list you may begin.
Liz Murali: Okay.
Liz Morali: Thank you. Good morning, everyone, and thank you for joining us on today's call. With me today are Rich Hume, our CEO, and Marshall Witt, our CFO. Before we continue, let me remind you 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 demand, cash flow, our debt structure, and shareholder return, as well as our expectations for future fiscal periods. Actual results may differ materially from those mentioned in these forward-looking statements as a result of the risks and uncertainties discussed in today's earnings release, in the Form 8K we filed today, and in the risk factors section of our Form 10K and our other reports and filings with the SEC. We do not intend to update any forward-looking statements.
Liz Morali: Thank you good morning, everyone and thank you for joining us for today's call with me today are rich Hume, our CEO and Marshall Witt our CFO.
Liz Morali: Before we continue let me remind you that today's discussion contains forward looking statements within the meaning of the federal Securities laws.
Liz Morali: <unk> predictions estimates projections or other statements about future events, including statements about demand cash flow, our debt structure and shareholder return as well as our expectations for future fiscal periods.
Liz Morali: 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.
Liz Morali: We do not intend to update any forward looking statements.
Liz Morali: 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 8K, available on our investor relations website, ir.tdsynnex.com. This conference call is the property of TD SYNNEX and may not be recorded or rebroadcast without our permission.
Also during this call we will reference certain non-GAAP financial information.
Liz Morali: Conciliations 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, IR Dot <unk> Dot com.
Liz Morali: This conference call is the property of <unk> and may not be recorded or rebroadcast without our permission.
Liz Morali: I will now turn the call over to rich rich.
Richard T. Hume: Thank you, Liz. Good morning, everyone, and thank you for joining us today. We had a strong start to the fiscal year with an improving IT spending environment generating record margins, EPS at the upper end of our expectations, healthy free cash flow, and continued strong capital returns to shareholders. Across the organization, we are poised to capitalize on a stabilizing demand environment for our core business, while continuing to advance our strategy to expand our capabilities in strategic technology areas. Importantly, we believe that the IT spending environment will continue to improve throughout the year and believe we will return to positive year-over-year gross billings growth next quarter, bolstered in part by the introduction and growth of infrastructure, components, and services to support escalating AI- We remain committed to returning excess free cash flow beyond dividends and M&As to shareholders via share repurchase, while also managing our leverage ratio. And today, we announced that our board of directors has approved a new additional two billion share repurchase authorization.
Richard T. Hume: Thank you Liz good morning, everyone and thank you for joining us today.
Richard T. Hume: We had a strong start to the fiscal year with an improving it spending environment generating record margins EPS at the upper end of our expectations healthy free cash flow and continued strong capital returns to shareholders.
Richard T. Hume: Across the organization, we are poised to capitalize on a stabilizing demand environment for our core business, while continuing to advance our strategy to expand our capabilities and strategic technology areas.
Richard T. Hume: Importantly, we believe that the it spending environment will continue to improve throughout the year and believe we will return to positive year over year gross billings growth next quarter.
Richard T. Hume: Bolstered in part by the introduction and growth of infrastructure components and services to support escalating AI enabled workloads and applications.
Richard T. Hume: We remain committed to returning excess free cash flow beyond dividends and M&A to shareholders via share repurchases, while also managing our leverage ratio and today, we announced that our board of directors has approved a new additional $2 billion share repurchase authorization.
Richard T. Hume: For our first fiscal quarter, revenue and gross billings were largely in line with our guidance range, with the backdrop of a recovering market and continued progress on our strategic portfolio diversification and Global Line Card Expanded. From a regional perspective, trends in our markets played out as we had expected. In the Americas, we saw improving year-over-year trends in PCs and a record quarter in Latin America. Europe similarly experienced positive momentum in the PC market but faced challenging year-over-year comparisons in advanced solutions given last year's record performance. Asia-Pacific Japan continues to experience year-over-year growth in constant currency fueled by strength and advanced solutions across multiple countries, including emerging markets.
Richard T. Hume: For our first fiscal quarter revenue and gross billings were largely in line with our guidance ranges with the backdrop of a recovering market and continued progress on our strategic portfolio diversification and global line card expansion efforts.
Richard T. Hume: From a regional perspective trends in our markets played out as we had expected.
Richard T. Hume: In the Americas, we saw improving year over year trend in Pcs and a record quarter in Latin America.
Richard T. Hume: Europe, Similarly experienced positive momentum in the PC market, let's face challenging year over year comparisons and advanced solutions given last year's record performance.
Richard T. Hume: Asia Pacific, Japan continued to experience year over year growth in constant currency fueled by strength in advanced solutions across multiple countries, including emerging markets.
Richard T. Hume: Looking at our results by technology, within endpoint solutions, as anticipated, we saw slight growth on a year-over-year basis in PCs. We anticipate seeing continued improvement in the PC market as 2024 progresses, in line with what several OEMs and industry participants have described as a second half weighted spending pattern. We believe this will be driven by several factors, including new mid-year launches of AI-enabled PCs, more customary refresh cycles associated with aged devices, and operating system updates. This should also drive increased demand for some of our other PC-adjacent categories like Peripheral and Endpoint Software. Strength in the PC market was offset by softness in demand for mobile devices and some components, which weighted down our results overall in endpoint solutions.
Richard T. Hume: Looking at our results by technology.
Richard T. Hume: Then endpoint solution as anticipated we saw slight growth on a year over year basis in Pcs.
Richard T. Hume: We anticipate seeing continued improvement in the PC market as 2024 progresses.
Richard T. Hume: Line with what several Oems and industry participants have described as a second half weighted spending pattern.
Richard T. Hume: We believe this will be driven by several factors, including the new mid year launches of AI enabled Pcs, where customary refresh cycles associated with AIDS devices and operating system upgrades.
Richard T. Hume: This should also drive increased demand for some of our other PC adjacent categories like peripherals and endpoint software.
Richard T. Hume: Strength in the PC market was offset by softness in demand for mobile devices, and some components, which weighted down our results overall and endpoint solutions.
Richard T. Hume: Consistent with expectations, advanced solutions year-over-year comparisons were challenged given the elevated demand and backlog drawdown dynamics we saw in the first half of 2023. Regardless, we had a solid quarter in advanced solutions. In addition, we see the beginnings of AI offerings emerging in the portfolio. As an example, we had a very successful launch of Microsoft CoPilot, where we enabled more than 2,000 partners with our launch campaign.
Richard T. Hume: Consistent with expectations advanced solutions year over year comparisons were challenged given the elevated demand and backlog drawdown dynamics, we saw in the first half of 2023.
Richard T. Hume: Regardless, we had a solid quarter and advanced solutions and.
Richard T. Hume: In addition, we see the beginnings of AI offerings emerging in the portfolio. As an example, we had a very successful launch of Microsoft Co pilot, where we enabled more than 2000 partners with our launch campaign.
Richard T. Hume: Overall, we are well positioned to take advantage of the fast-growing AI market. Our Strategic Vendor Partnerships and Enablement Programs are helping us to create industry-leading, aggregated solutions and serve as a destination for AI solutions in the channel. Momentum is clearly evident in building in this area. Last month, we announced an expanded collaboration with NVIDIA in North America, where we are distributing their full line of products, including GPUs, helping users and partners to access AI-augmented applications. Model Training and Development, Professional Graphics, Engineering, and Digital Twin Applications
Richard T. Hume: Overall, we are well positioned to take advantage of the fast growing AI market.
Richard T. Hume: Our strategic vendor partnerships and enablement programs are helping us to create industry, leading aggregated solutions and serve as the destination for AI solutions in the channel.
Momentum is clearly evident and building in this area.
Richard T. Hume: Last month, we announced an expanded collaboration with Nvidia in North America.
Richard T. Hume: Where we are distributing their full line of products, including Gpus, helping users and partners to access AI augmented applications model training and development professional graphics engineering and digital twin applications.
Richard T. Hume: We were also honored to be recognized last week by the NVIDIA Partner Network as the Distribution Partner of the Year in the Americas and look forward to our continued partnership. Additionally, we showcased our next generation AI lifecycle solutions from Hive at NVIDIA's GTC AI Conference in San Jose last year. These products are tailored to the demands of AI data centers, hybrid cloud, and edge deployments, and include the design of liquid-cooled servers and racks.
Richard T. Hume: We were also honored to be recognized last week by the Nvidia partner network as the distribution partner of the year in the Americas and look forward to our continued partnership.
Richard T. Hume: Additionally, we showcased our next generation AI lifecycle solutions from high at Nvidia GTC AI conference in San Jose last week.
Richard T. Hume: These products are tailored to the demands of AI data centers hybrid cloud and edge deployment and include the design of liquid cooled servers and racks.
Richard T. Hume: Beyond these accomplishments, we continue to execute on our goals to expand in strategic technology areas and increase the value we bring to our partners. In our strategic technology areas, we experience solid year-over-year growth in data, AI, IoT, cloud, and security. Including Hive, these technologies represented 23% of our total growth billings in Q1. Underpinning these strong results are a multitude of programs and offerings designed to help our partners. To highlight a couple, first, we launched TD SYNNEX CloudLabs as a solution aimed at accelerating the go-to-market process for our vendors. This virtualized environment facilitates proof-of-concept demonstrations that are flexible, scalable, and cost-efficient.
Richard T. Hume: Beyond these accomplishments, we continued to execute on our goal to expand and the strategic technology areas and increase the value we bring to our partners.
And our strategic technology areas, we experienced solid year over year growth in data AI, Iot cloud and security <unk>.
Richard T. Hume: Including Hi, These technologies represented 23% of our total gross billings in Q1.
Richard T. Hume: Underpinning. These strong results are a multitude of programs that offering designed to help our partners.
Richard T. Hume: To highlight a couple first we launched <unk> cloud labs as a solution aimed at accelerating the go to market process for our vendors.
Richard T. Hume: This virtualized environment facilitates proof of concept demonstration that our flexible scalable and cost efficient.
Richard T. Hume: This helps our vendors to bring solutions to market faster and more effectively. Second, we continue to invest in our Stream 1 platform, adding several new application programming interfaces, or APIs, and launching new professional services automation, or PSA, connectors, particularly used by managed service providers, and which provide an increased ease and synchronization of products, customers, and order changes. We believe now, more than ever, that our organization is well positioned across both our core and strategic technology portfolio. The Challenge Market Environment over the past year has provided us with an opportunity to showcase the strength and resilience of our business model, portfolio, and capabilities. Despite the headwinds in the market, we've pivoted to areas of growth and improved our business and margin mix towards strategic technologies, and we have also generated significant free cash flow, the majority of which we have returned to shareholders.
Richard T. Hume: This helps our vendors to bring solutions to market faster and more effectively.
Richard T. Hume: Second we continue to invest in our stream one platform, adding several new application programming interfaces or Apis.
Richard T. Hume: And launched new professional services automation or PSA connectors, particularly used by managed service providers, and which provide an increased ease and synchronization of products customers and order changes.
Richard T. Hume: We believe now more than ever that our organization is well positioned across both our core and strategic technology portfolios.
Richard T. Hume: The challenged market environment over the past year has provided us an opportunity to showcase the strength and resilience of our business model portfolio and capabilities.
Richard T. Hume: Despite the headwinds in the market, we've pivoted to areas of growth and improved our business and margin mix towards strategic technologies and have also generated significant free cash flow the majority of which we have returned to shareholders.
Richard T. Hume: We believe we have emerged even stronger from this period of market volatility and look forward to capitalizing on an improving IT spending environment, which we believe will allow us to deliver revenue growth, increased earnings per share, and significant free cash flow generation, driving strong returns for our shareholders. I will now pass this over to Marshall so that he can provide additional details on our financial performance and outlook.
Richard T. Hume: We believe we have emerge even stronger from this period of market volatility and look forward to capitalizing on an improving spending environment, which we believe will allow us to deliver revenue growth increased earnings per share and significant free cash flow generation driving.
<unk> returns for our shareholders.
Richard T. Hume: I will now pass it over to Marshall So that he can provide additional details on our financial performance and outlook Marshall.
Marshall W. Witt: Thanks, Rich, and good morning to everyone on today's call. As Rich mentioned, we were encouraged to see an improving market environment, with revenue and growth billings in line with our guided ranges. Additionally, our broad portfolio and progress on expanding in strategic technology allowed us to further improve our profitability, with strong margins, healthy Free Cash Flow, EPS Growth at the Upper End of our Expectations, and Robust Returns to Shareholders. Moving to our fiscal first quarter performance, fiscal Q1 total gross billings were 19.3 billion, down 5% year-over-year and in line with expectations, driven by a 7% decline in endpoint solutions and a 3% decline in advance. Net revenue was $14 billion, down 7.6% year-over-year.
Marshall W. Witt: Thanks, Rich and good morning to everyone on today's call as Rich mentioned, we were encouraged to see an improving market environment with.
Marshall W. Witt: With revenue and gross billings in line with our guided ranges.
Marshall W. Witt: Additionally, our broad portfolio and progress on expanding in strategic technologies.
Marshall W. Witt: Loud us to further improve our profitability.
Marshall W. Witt: With strong margins healthy free cash flow EPS growth at the upper end of our expectations and robust returns to shareholders.
Marshall W. Witt: Moving to our fiscal first quarter performance.
Marshall W. Witt: Fiscal Q1 total gross billings were $19 3 billion down.
Marshall W. Witt: Down 5% year over year and in line with expectations.
Marshall W. Witt: Driven by a 7% decline in endpoint solutions and a 3% decline in advanced solutions.
Marshall W. Witt: Net revenue was 14 billion down seven 6% year over year.
Marshall W. Witt: Growth to net revenue adjustments increased year over year due to the ongoing shift in our business mix and migration of a portion of Hive's business to a consignment model. This negatively impacted our net revenue by 3% on a year-over-year basis but improved our gross margins by 23%. As we previously announced, starting this quarter, we are providing some enhanced data disclosures in our investor presentation. First, we are providing gross billings, net revenue, and gross profit for the technology categories of endpoint solutions, which include PCs, Mobile Devices, Printers, and Peripherals, and Advanced Solutions, which includes cloud, servers, networking, storage, software, and hyperscale infrastructure via our Hive business. In addition, we are providing gross billings for our strategic technologies, which are cloud, security, data, AI, IoT, and Hyperscale Infrastructure.
Marshall W. Witt: Growth to net revenue adjustments increased year over year due to the ongoing shift in our business mix and migration of a portion of highest business to a consignment model.
Marshall W. Witt: This negatively impacted our net revenue by 3% on a year over year basis, but improved our gross margins by 23 basis points.
Marshall W. Witt: As we previously announced starting this quarter, we are providing some enhanced data disclosures and our investor presentation.
Marshall W. Witt: First we are providing gross billings net revenue and gross profit for the technology categories of endpoint solutions, which includes Pcs mobile devices printers and peripherals.
Marshall W. Witt: And advanced solutions, which includes cloud servers networking storage software and Hyperscale infrastructure via our highest business.
Marshall W. Witt: In addition, we are providing gross billings for our strategic technologies, which are cloud security.
Marshall W. Witt: Data AI Iot and Hyperscale infrastructure strategic technologies are primarily found in advanced solutions, but some categories are split into both endpoint and advanced solutions.
Marshall W. Witt: Strategic technologies are primarily found in advanced solutions, but some categories are split into both endpoint and advanced solutions. For Q1, from a technology perspective, approximately 72% of Q1 gross billings were from hardware, 21% from software, and 7% from service. As Rich mentioned, we were encouraged to see year-over-year growth in PCs as the market continues to stabilize. Non-gap gross profit was $1 billion, and non-gap gross margin was 7.2%, up 52 basis points year-over-year, due to a more profitable product mix and continued expansion in strategic technology areas, which also have higher growth-to-net adjustments. Total adjusted SG&A expense was $581 million, up $13 million year-over-year, as we continue to make balanced strategic investments supporting expected growth for the rest of Fiscal 24. SG&A expense was down $11 million quarter over quarter. Non-GAAP operating income was $425 million, and non-GAAP operating margin was 3.04%, representing a year-over-year improvement of 11 basis points. Interest expense and finance charges were $76 million, $10 million worse than our outlook due to higher than expected borrowing. The non-GAAP effective tax rate was approximately 23% and was in line with our forecast.
Marshall W. Witt: For Q1 from a technology perspective, approximately 72% of.
Marshall W. Witt: Q1, gross billings were from hardware, 21% from software and 7% from services.
As rich mentioned, we were encouraged to see year over year growth in Pcs as the market continues to stabilize.
non-GAAP gross profit was $1 billion and non-GAAP gross margin was seven 2%.
Marshall W. Witt: Up 52 basis points year over year due to a more profitable product mix and continued expansion and strategic technology areas, which also have higher gross to net adjustments totaled.
Marshall W. Witt: Total adjusted SG&A expense was $581 million up $13 million year over year as we continued to make balanced strategic investments supporting expected growth for the rest of fiscal 'twenty four.
Marshall W. Witt: SG&A expense was down $11 million quarter over quarter.
Marshall W. Witt: non-GAAP operating income was 425 million and non-GAAP operating margin was three <unk> percent, representing a year over year improvement of 11 basis points.
Marshall W. Witt: Interest expense and finance charges were $76 million 10 million worse than our outlook due to higher than expected borrowings the.
Marshall W. Witt: The non-GAAP effective tax rate was approximately 23% and in line with our forecast total.
Marshall W. Witt: Total non-GAAP net income was $266 million, and non-GAAP diluted EPS was $2.99, at the upper end of our guidance range, driven primarily by outperformance on margins due to improved mix. Now, turning to the balance sheet. We ended the quarter with cash and cash equivalents of approximately $1 billion, and debt of $4 billion.
Marshall W. Witt: Total non-GAAP net income was 266 million and non-GAAP diluted EPS was $2 99.
Marshall W. Witt: At the upper end of our guidance range, driven primarily by outperformance on margins due to improved mix now.
Marshall W. Witt: Now turning to the balance sheet.
Marshall W. Witt: We ended the quarter with cash and cash equivalents of approximately 1 billion and debt of $4 billion are.
Marshall W. Witt: Our gross leverage ratio was 2.3 times, and net leverage was 1.7 times, in line with our investment grade credit. We are currently assessing our debt structure ahead of our upcoming $700 million senior note maturity in August of this year, and our current intention is to refinance some or all of that debt prior to its maturity. Accounts receivable totaled $8.9 billion, down from $10.3 billion in the prior quarter.
Marshall W. Witt: Our gross leverage ratio was two three times and net leverage was one seven times in line with our investment grade credit rating.
Marshall W. Witt: We are currently assessing our debt structure ahead of our upcoming 700 million senior note maturity in August of this year.
Marshall W. Witt: Our current intention is to refinance some or all of that debt prior to its maturity.
Marshall W. Witt: Accounts receivable totaled $8 9 billion down from $10 3 billion in the prior quarter and inventories totaled $7 1 billion down slightly from the prior quarter.
Marshall W. Witt: And inventories totaled $7.1 billion, down slightly from the prior quarter. For the first quarter, net working capital was $3.2 billion, down from $3.3 billion in quarter four, and the cash conversion cycle was 21 days, down two days from quarter four, cash from operations in the quarter with $385 million and free cash flow with $344 million. We returned approximately 68% of free cash flow to shareholders in the quarter through $199 million of share repurchases and $36 million in dividend payments. As Rich mentioned, with our newly announced share repurchase authorization at $2 billion, we now have $2.2 billion authorized for further share repurchase. For the current quarter, our Board of Directors has approved a dividend of $0.40 per common share, representing a 14% increase on a year-over-year basis, which will be payable on April 26th, 2024 to stockholders of record as of the close of business on April 12th, 2024.
Marshall W. Witt: For the first quarter net working capital was $3 2 billion down from $3 3 billion in quarter four and the cash conversion cycle was 21 days down two days from quarter for cash.
Marshall W. Witt: Cash from operations in the quarter with $385 million and free cash flow was $344 million.
Marshall W. Witt: We returned approximately 68% of free cash flow to shareholders in the quarter through $199 million of share repurchases and $36 million in dividend payments.
Marshall W. Witt: As rich mentioned with our newly announced share repurchase authorization of $2 billion. We now have $2 2 billion authorized for further share repurchases for.
Marshall W. Witt: For the current quarter, our board of Directors has approved a dividend of <unk> 40 per common share representing a 14% increase on a year over year basis, which will be payable on April 26th 2024 to stockholders of record as of the close of business on April 12 2024.
Marshall W. Witt: Now moving to our outlook for fiscal second quarter, we expect non-GAAP gross billings of $18.4 billion to $19.6 billion, representing a growth of 1.5% on a year-over-year basis at the midpoint. We expect total revenue to be in the range of $13.3 billion to $14.9 billion, flat on a year-over-year basis at the midpoint. Our guidance is based on a euro to dollar exchange rate of 1.09. Non-GAAP net income is expected to be in the range of $219 million to $263 million, and non-GAAP diluted EPS is expected to be in the range of $2.50 to $3 per diluted share, based on weighted average shares outstanding of approximately 86.8 million.
Now moving to our outlook for fiscal second quarter, we expect non-GAAP gross billings of $18 4 billion to $19 6 billion, representing a growth of one 5% on a year over year basis at the midpoint.
We expect total revenue to be in the range of $13 3 billion to $14 9 billion flat on a year over year basis at the midpoint.
Marshall W. Witt: Our guidance is based on a euro to dollar exchange rate of $1 <unk>.
Marshall W. Witt: non-GAAP net income is expected to be in the range of $219 million to 263 million and non-GAAP diluted EPS is expected to be in the range of $2 50 to $3 per diluted share.
Marshall W. Witt: Based on weighted average shares outstanding of approximately $86 8 million.
Operator: Our non-GAAP tax rate is expected to be approximately 23 percent, interest expense is expected to be approximately $75 million, and includes approximately $3 million of one-time interest expense and accelerated deferred costs associated with our anticipated debt refinancing. Looking forward to the third and fourth quarters of fiscal 2024, we would expect interest expense of $70 million in quarter three and $75 million in quarter four. These estimates include the impact of our anticipated debt refinancing and expected working capital requirements. From a growth building perspective, we continue to expect mid to high single-digit growth in the second half of the fiscal year, driven by further improvement in the market environment. We expect to generate approximately $1.2 billion of free cash flow for the fiscal year and remain committed to our medium-term capital allocation target of returning 50% of free cash flow to shareholders via both dividends and share repurchases while remaining opportunistic on buybacks depending on market conditions.
Marshall W. Witt: Our non-GAAP tax rate is expected to be approximately 23% interest expense is expected to be approximately $75 million and includes approximately 3 million of one time interest expense and accelerated deferred cost associated with our anticipated debt refinancing.
Marshall W. Witt: Looking forward to the third and fourth quarters of fiscal 2024, we would expect interest expense of $70 million in quarter, three and $75 million in quarter. Four. These estimates include the impact of our anticipated debt refinancing and expected working capital requirements from a gross billings perspective, we continue to expect mid to <unk>.
Marshall W. Witt: High single digit growth in the second half of the fiscal year driven by further improvement in the market environment.
Marshall W. Witt: We expect to generate approximately $1 2 billion of free cash flow for the fiscal year and remain committed to our medium term capital allocation target of returning 50% of free cash flow to shareholders via both dividends and share repurchases, while remaining opportunistic on buybacks depending on market conditions.
Operator: In closing, our financial profile is strong, and our resilient business model has enabled us to weather volatile market conditions over the past several quarters while continuing to generate strong free cash flow and robust returns to shareholders. We are working closely with our OEMs and vendors across both traditional and emerging technology growth areas and are seeing the benefits of our efforts to deliver enhanced solutions to our customers, positioning us as well to capitalize on improving market demand over the next several quarters. We are now ready to begin the Q&A portion of the call. Operator. The floor is now open for your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.
In closing our financial profile is strong and our resilient business model has enabled us to weather the volatile market conditions over the past several quarters, while continuing to generate strong free cash flow and robust returns to shareholders. We.
Marshall W. Witt: We are working closely with our Oems and vendors across both traditional and emerging technology growth areas and our.
Marshall W. Witt: We're seeing the benefits of our efforts to deliver enhanced solutions to our customers.
Marshall W. Witt: <unk> us well to capitalize on improving market demand over the next several quarters. We are now ready to begin the Q&A portion of the call operator.
Speaker Change: The floor is now opened for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.
Operator: We request that you limit yourself to one question to allow time for other participants to ask the request. If there is remaining time, you are welcome to requeue with additional questions. We'll now take a moment to compile our run. Our first question comes from the line of Adam Tindle with Raymond James. Please go ahead. Okay, thanks. Good morning.
Speaker Change: We request that you limit yourself to one question to allow time for other participants to ask their questions.
Speaker Change: Is there a remaining time you are welcome to re queue with additional questions.
Speaker Change: We will now take a moment to compile our roster.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Our first question comes from the line of Adam Tindle with Raymond James. Please go ahead.
Adam Tyler Tindle: Okay. Thanks, Good morning, I wanted to start on the comments on PC optimism for the back half of the year and maybe the question would be how that might manifest itself in our results. So I think if I was to look at the past couple of years the earnings weighting from the first half to the second half tends to be like 48% first half, 52% second half wondering if this year might be a little bit.
Adam Tyler Tindle: I wanted to start on the comments on PC optimism for the back half of the year, and maybe the question would be how that might manifest itself in results. I think if I were to look at the past couple years, the earnings waiting from the first half to the second half tend to be like 48% first half, 52% second half. I'm wondering if this year might be a little bit north of that 52% in the back half, given the commentary in PCs.
Adam Tyler Tindle: North of that 52% in the back half given that.
Adam Tyler Tindle: Commentary on.
Adam Tyler Tindle: Pcs and then secondly, just an update on the cost optimization I think you had identified $50 million.
Marshall W. Witt: And then secondly, just an update on the cost optimization. I think you identified $50 million a couple quarters ago. Just an update on the timing of what's reflected in results now. Thanks. Hey Adam, it's Marshall.
Adam Tyler Tindle: Couple of quarters ago, just update on the timing whats reflected in results now thanks.
Adam Tyler Tindle: Hey, Adam It's Marshall. Thank you for the question.
Marshall W. Witt: Thank you for the question. In regards to the historical relation of first half, second half, and your observation of it being 48%, 52%, I think that's still fairly recent and reasonable for this year. It may be a little bit heavier in the second half based on how we're forecasting acceleration and growth related to ES and AS in the second half of the year. On cost optimization on the $50 million, that did translate and take care of itself through quarter one of 24, so we were able to capture that $50 million, and it's embedded in our run rates going forward. I got it.
Marshall W. Witt: In regards to the historical relation that first half second half.
Marshall W. Witt: Your observation of being 48% 52, I think that's still fairly reason.
Marshall W. Witt: Reasonable for this year it may be.
Marshall W. Witt: Little bit heavier in the second half based on how we're forecasting acceleration and growth related to <unk>.
Marshall W. Witt: In the second half of the year.
Marshall W. Witt: On costs on the optimization on the $50 million that did.
Late and take care of it fell through quarter. One of 24, so we're able to capture that $50 million and it's embedded in our run rates going forward.
Marshall W. Witt: Okay. Maybe just a follow-up on the share repurchase authorization. You knew I would ask one about that, and congratulations on it.
Speaker Change: Got it okay, and maybe just a follow up on the share repurchase authorization you knew I would ask one on that and congratulations on it I think that 2 billion. If I went through my notes is about double the last authorization. So could you just speak to the discussion on the size of the repurchase and how to think about timing of deployment.
Marshall W. Witt: I think that $2 billion, if I went through my notes, is about double the last authorization. So could you just speak to the discussion on the size of the repurchase and how to think about the timing of deployment? I understand the long-term framework, but wonder if that allows you to be a little bit more opportunistic. Yeah, thinking about our medium term cash flow objective of reaching 1.2 billion or 1.5 billion in pre-tax cash flow. And then looking at our capital strategy in terms of returns. About 50% of our free cash flow, we anticipate returning to shareholders in the form of repurchases and dividends. So, Adam, if you think about what that looks like per year, it's around $500 to $525 million.
Speaker Change: Realize the long term framework, but wonder if it that allows us to be a little bit more opportunistic.
Speaker Change: Yes Im thinking.
Speaker Change: Thinking about our our medium term cash flow objective of reaching one 2 billion or $1 5 billion in free cash flow.
Speaker Change: And then looking at our capital strategy in terms of return about 50% of our free cash flow, we anticipate returning back to shareholders in the form of repurchases and dividends.
Speaker Change: I mean, if you think about what that looks like per year, it's around $500 million to $525 million.
Operator: So, thinking about the $2 billion authorization or reauthorization gives us adequate coverage. For the next two to three years, it does allow us to be opportunistic, and in Rich's prepared remarks, he did mention that, in addition to our free cash flow and our M&A and our reinvestment back into the business, our dividends, and our mindfulness of leverage, if we find after that that we have discretionary free cash flow to put back into repurchases, we may choose to do that. Our next question comes from the line of George Wang with Barclays. Please go ahead. Oh, hey, hey, how are you?
Speaker Change: About $2 billion authorization and reauthorization gives us adequate coverage for the next two to three years that does allow us to be opportunistic in rich's prepared remarks, we did he did mention that in addition to our free cash flow in our M&A and our reinvestment back into business and our dividends and our <unk>.
Speaker Change: Influence of leverage if we find after that that we have discretionary free cash flow to put back into repurchases, we may choose to do so.
Speaker Change: Our next question comes from the line of George Wang with Barclays. Please go ahead.
Dong Wang: Oh, Hey, Thanks for taking my question and I'd be remiss not to ask the question.
Operator: Thanks for taking my question. I'd be remiss not to ask the questions about AI. So, two parts. Firstly, maybe you can double-click on the kind of full AI data center related build out with the hyperscalers, specifically the hive segment.
Dong Wang: So two parts swiftly.
Dong Wang: And double click on that kind of AI data center related deals.
Dong Wang: Build out with the Hyperscale is specifically the hydro segment.
Dong Wang: You know, maybe you can talk a little bit more about how that's progressing and, you know, what sort of outlook we have for the next few quarters on the hive segment. Sure. This is Rich.
Dong Wang: Maybe you can talk a little bit more how that's progressing and what sort of outlook going forward ill put next few quarters are the highest segments.
Dong Wang: Sure.
Richard T. Hume: Good morning. Thank you for the question. I'm going to go a little bit more broadly. So when we think about AI as an opportunity for our business, we would anticipate that it's going to be positive in every segment, from the AIPC to, you know, a traditional infrastructure with infused AI capabilities, you know, obviously to the software portfolio, which we're already seeing today with, you know, deployments of Microsoft Copilot as an example, and then certainly within our Hive organization as And as you know, we've had traditional data center deployments, but we do see a mighty shift, if you will, towards AI-oriented build out. So we would anticipate that moving forward, you know, a good part of the mix in Hive will shift into that AI sort of classification. So we're confident with regard to our organizational capabilities and really see it as a great opportunity, you know, as we move through the, you know, the next five plus years. Okay, great.
Richard T. Hume: This is rich good morning, Thanks for the question I'm going to go a little bit more broadly so when we think about AI as an opportunity for our business.
Richard T. Hume: We would anticipate that it's going to.
Be a positive in every segment from the IPC too.
Traditional infrastructure with infuse AI capabilities.
Richard T. Hume: Obviously to the software portfolio, which we're already seeing today with the deployments of Microsoft Co pilot as an example, and then certainly.
Richard T. Hume: Within our hive.
Richard T. Hume: Organization as well.
Richard T. Hume: As you know we've had traditional data center deployments, but we do see.
Richard T. Hume: But a mighty shift if you will towards AI oriented buildout. So we would anticipate that moving forward.
Richard T. Hume: Our award.
Richard T. Hume: A good part of the mix and high will shift into that AI.
Richard T. Hume: Sort of classification, so we're confident with regards to our organizational capabilities and really see it as a great opportunity as we move through.
Richard T. Hume: The next five plus years.
Okay, Great and just a quick follow up on the ITC, you kind of alluded to.
Richard T. Hume: Just a quick follow up on the AIPC. You kind of alluded to shipment starting from mid-year. You know, just maybe you can give a little bit of color just in terms of your expectations for the ASP uplift associated with the AIPC. Also, you know, how would you anticipate the AIPC shipment to grow as a percentage of the total kind of, you know, shipment within your portfolio? Maybe you can kind of give them some color on those.
Speaker Change: As shipments starting from midyear.
Speaker Change: Just maybe you can give a little color just in terms of your expectation for that.
Speaker Change: Lift associated with the AIP also.
Speaker Change: Ambition IPC.
Speaker Change: IPC shipment to grow as a percentage of the total.
Speaker Change: Okay.
Shipments within your portfolio, maybe you can kind of give some color on those potential.
Richard T. Hume: Yeah, sure. So, as we understand in the marketplace, you know, the PC vendors will be emerging with their AI offerings in the mid of this year into the back half of this year. You know, certainly we would think that, you know, that sort of element alone will be a net gain as it relates to the ASPs for the PC segment. We anticipate, you know, AI-enabled offerings to be, you know, more expensive from an ASP perspective. And then, in the last,
Speaker Change: Yes sure so.
Speaker Change: As we understand in the marketplace.
Speaker Change: The PC vendors will be emerging with their AI offerings at the mid of this year into the back half of this year, certainly we would think that the.
Speaker Change: That sort of elements alone will be.
Net up as it relates to the Asp's for the PC segment.
Speaker Change: We anticipate.
Speaker Change: AI enabled offerings to be.
Speaker Change: More expensive from an ASP perspective, and then in the last quarter.
Richard T. Hume: This quarter, I had talked about AIPCs maybe being a single-digit percentage of the total PC market in the back half of this year versus total PCs, but then growing quite mightily as we move through 2025 and 2026. Okay, great. I will go back to that.
Speaker Change: Quarter I had talked about.
Speaker Change: <unk>, maybe being a single digit percentage of the market of the total PC market in the back half of this year versus total PC, but then growing quite nicely as we move through 'twenty five 'twenty six.
Speaker Change: Okay, Great I will go back to the queue.
Operator: Thank you. Our next question comes from the line of Joseph Cardoso with JP Morgan. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Joseph Cardoso with J P. Morgan. Please go ahead.
Joseph Lima Cardoso: Hey, gentlemen. Thanks for the question. I guess the first one for me is just another quarter of gross margin expansion. Really impressive. I think it's seven now in a row on a sequential basis, and that's despite expectations for MIX to be a bit of a headwind.
Joseph Lima Cardoso: Hey, gentlemen, thanks for the question I guess just first one for me is just another quarter of gross margin expansion really impressive I think seven now in a row on a sequential basis and thats despite expectations for mix to be a bit of a headwind can you maybe just dig into that a little bit further around our margin outperformance, particularly.
Joseph Lima Cardoso: Can you maybe just dig into that a little bit further around the margin outperformance? Particularly, like, what was the surprise this quarter? And then, you know, as we look forward, particularly with PCs expected to recover, like, how should we think about the potential pressures there on the margin side for the remainder of the year? And, like, what are the potential offsets that maybe we're not thinking of? And then maybe I'll just throw in a quick follow-up. Can we just get an update on the new large customer in HIVE? I think there was a delay last quarter.
Joseph Lima Cardoso: Like what was the surprise this quarter and then as we look forward, particularly with PC is expected to recover or like how should we think about the potential pressures there on the margin side for the remainder of the year and like what are the potential offsets that maybe we're not thinking of and then maybe I'll just throw in a quick follow up can we just get an up.
Joseph Lima Cardoso: Data around the new large customer in high but I think there was a delayed last quarter. Just curious in terms of how that ramp is tracking and how we should think about the ramp in magnitude through the course of fiscal 'twenty four thanks for the questions.
Joseph Lima Cardoso: Just curious in terms of how that ramp is tracking and how we should think about the ramp in magnitude through the course of fiscal 24. Thanks for the question. Bye. Joe.
Speaker Change: But Joe good morning. Thank you. Thanks for the question. Our question, let me, let me try and unbundled them.
Richard T. Hume: Thank you. Thank you for the questions. Let me try and unbundle them one at a time.
Richard T. Hume: When we think about our margin profile improving as we sort of have moved through time, I'd like to offer a couple of thoughts. So the first one is, you know, when we think about our management system, we have the sellers across the organization really sort of aligned on delivering profitability. So, you know, the sales incentives that we have in place, the systems that we have in place, really afford us the opportunity to make sure that, you know, the whole organization is focusing on what's important. The second thought that I would give you, and we've been transparent and will continue to be so on this fact, as we move through time, we're moving more towards products which are netting. So we get a natural uplift in the margin profile. I think Marshall, in his prepared remarks, said it was worth 23 basis points. You know, this past quarter.
Speaker Change: One at a time when we think about our margin profile improving as we sort of have moved through time.
Speaker Change: To offer a couple of thoughts the first one is.
Speaker Change: When we think about our management system.
Speaker Change: Have the sellers across the organization.
Speaker Change: Really sort of aligned on delivering profitability. So.
Speaker Change: Are the sales incentives that we have in place the systems that we have in place.
Speaker Change: Really afford us the opportunity to make sure that.
Speaker Change: The whole organization.
Speaker Change: Is is focusing on what's important the second thought that I would give you and we've been transparent and we will continue to be so on this fact.
Speaker Change: As we move through time.
Speaker Change: Moving more.
Speaker Change: Towards products, which are netting so we get a natural uplift in the margin profile I think Marshall and his prepared remarks that it was worth 23 basis points.
Richard T. Hume: So, you know, that's something that exists because of the accounting situation. And it's another reason why we want everybody to be focused on gross billings as we move through time, because we would anticipate that that netting is going to continue moving forward. As you know, we've got a big, big focus on strategic technologies, and, you know, a good lion's share of that portfolio gets netted. On the customer question that you had overall, or let me back up. I missed one.
Speaker Change: This past quarter so.
Speaker Change: That's something that that.
Speaker Change: Just because of the accounting situation and it's another reason why we want everybody to.
Sure.
The focus on gross billings as we move through time, because we would anticipate that that nothing is going to continue.
Speaker Change: Moving forward as you know, we've got a big big focus on <unk>.
Speaker Change: Strategic technologies.
Speaker Change: Good lion's share of that portfolio.
Speaker Change: Yes.
Speaker Change: Then.
Speaker Change: On the customer question that you had overall, let me let me back up.
Richard T. Hume: On what we should anticipate going forward, Yeah, we've had the benefit of heavier advanced solutions, and you can see in the segmented results that we had, the pro forma results that we had included in the financial information, that advanced solutions had a more attractive gross profit margin. So we will see a remixing of the portfolio moving through time, and almost by just the math, it would say that we'll trade off some margin as we have a heavier weight in the portfolio towards endpoint solutions. And obviously, the guides that we provide going forward have an expectation relative to what that mix would be.
Speaker Change: This one.
And what we should anticipate going forward.
Speaker Change: Yes.
Speaker Change: Had the benefit of a heavier advanced solutions and you can see in the segmented results that we had the pro forma results that we had included in the financial information that advanced solutions.
Speaker Change: A more attractive gross profit margins. So we will see a remixing of the portfolio moving through time and it almost by just the math would say that.
Speaker Change: We will trade off some margin as we have.
Speaker Change: Heavier weight in the portfolio towards endpoint solutions and obviously the.
Speaker Change: The guidance that we provide going forward.
Speaker Change: A an expectation relative to what that mix would be and then lastly.
Marshall W. Witt: And then lastly, the new customer at Hive is up and running, and things are executing as anticipated. Joe, I just want to add a little bit of color to where we saw some goodness in the quarter, and you'll see this in our press release. We'll break down the regional results.
Speaker Change: The.
Speaker Change: The new customer and hive is up and ramping and things are executing as anticipated.
Speaker Change: Joe I, just add a little bit of color to where we saw some goodness in the quarter and Youll see this in our press release, we breakdown the regional results.
Marshall W. Witt: Europe had quite a bit of strength in its OI margin and OI profile on a non-gap basis. You can see both Americas and Europe from a gross billing perspective were down about 5%, but the margin profile was quite strong. So there were some suppliers and partners that performed or outperformed our expectations, and then strategic technologies, in general, performed well in the quarter.
Europe had quite a bit of strength in their OE margin and OE profile on a non-GAAP basis, you can see both Americas and Europe on a gross billing perspective were down about 5%, but the margin profile was quite strong. So there is some suppliers and partners that performed or outperformed our expectation and then a strategic technologies in general.
Speaker Change: <unk> performed well in the quarter.
Joseph Lima Cardoso: Thanks, Richard, Marshall. I appreciate you guys tackling all of that. Our next question comes from a line from Matt Sheerin with Stiefel. Please go ahead. Yes, thank you, and good morning, everyone.
Speaker Change: Got it thanks, very much and I appreciate you guys tackling all of that.
Speaker Change: Our next question comes from the line of Matt Sheerin with Stifel. Please go ahead.
Matthew John Sheerin: Yes, Thank you and good morning, everyone.
Matthew John Sheerin: Rich, I wanted to follow up on the PC commentary. I'm hoping that you can help us understand which end markets are starting to see year over year of strength and which ones are lagging, for instance, SMB versus public sector versus enterprise, and how you see that playing out. In the second part, on the demand front, on the advanced solutions, I know you're up against tough comps last quarter and this quarter. You had a lot of backlog that you worked down, and the concern is that this is a digestion period, and we're going to be in tougher year-over-year comps for the next couple quarters or so. So how do you see that playing out as well? Thank you. I'm going to go first.
Matthew John Sheerin: Rich I wanted to just follow up on the PC commentary I'm, hoping that you can.
Matthew John Sheerin: Help us understand which end markets are you seeing starting to see year over year.
Matthew John Sheerin: And which ones are lagging for instance, SMB versus public sector versus enterprise and how you see that playing out in.
Matthew John Sheerin: And the second part on the demand front on the advanced solutions I know you're up against tough comps last quarter. This quarter you had a lot of backlog that you've worked down and the concern is that.
Matthew John Sheerin: Digestion period, and we're going to be.
Matthew John Sheerin: And that top.
Matthew John Sheerin: Tougher year over year comps for the next couple of quarters or so so how do you how do you see that playing out as well. Thank you.
Matthew John Sheerin: I'm going to go first hi, this is Marshall and Matt. Thanks for the questions I'll handle the second question about demand and let rich talk about the PC side of things, but on demand Youre right, we called out that quarter, one was going to be a tough year over year comparisons specifically.
Marshall W. Witt: Hi, this is Marshall and Matt. Thanks for the questions. I'll handle the second question about demand and let Rich talk about the PC side of things. But on demand, you're right.
Marshall W. Witt: We called out that quarter one was going to be a tough year-over-year comparison, specifically in Europe, as there was quite a bit of backlog that did play through. In quarter two, we start to see it lighten up a little bit. I think March might be the last big month. But April and May, I think we're going to see some better comparisons. So I think that the backlog is at profile. I think it's been there for a few months, maybe even a couple of quarters now.
Matthew John Sheerin: In Europe as there was quite a bit of backlog that did play through quarter. Two we start to see lighten up a little bit I think march might be the last big months.
Matthew John Sheerin: But April and May I think we're going to see some some better compare so I think that the backlog is at profile I think it's been there for a few months, maybe even a couple of quarters now.
Matthew John Sheerin: So the digestion is through that and I would say the growth rates and how they manifest themselves going forward, probably in Q2 and beyond will will be less impacted by backlog.
Marshall W. Witt: So the digestion is through that, and I would say the growth rates and how they manifest themselves going forward, probably in Q2 and beyond, will be less impacted by the backlog. With that all said, I wouldn't be surprised to see some working capital needs as we get in front of some of the buys that we expect that we're going to need to ensure that our vendors and our customers are taken care of in the second quarter. Yeah, Matt, on the PC question.
Matthew John Sheerin: With that all said I think as we start to see growth I wouldn't be surprised to see some working capital needs as we get in front of some of the buys that we expect that we're going to need to ensure that our vendors and our customers are taken care of in the second half of the year.
Speaker Change: Yes, Matt on the PC question.
Matthew John Sheerin: Remember we.
Matthew John Sheerin: We had a very modest growth in Q1, as we think about quarters, two three and four we see that growth expanding as we had said in our.
Richard T. Hume: Remember, we had very modest growth in Q1. As we think about quarters 2, 3, and 4, we see that growth expanding, as we had said in our previous dialogue. I kind of see it as an all boats rising right now when I think about the different dimensions of commercial, SMB, public sector, and retail. There is no one area that is sort of outpacing the other in a significant way but rather a rising tide across the portfolio. Now, obviously, that might change moving forward, but that's kind of what we're seeing right now. Okay, very helpful. Thank you. Thanks, Matt. Our next question comes from the line of David Vogt with UBS. Please go ahead.
Matthew John Sheerin: Our previous.
Matthew John Sheerin: Dialogue and I kind of see it as an all boats rising right now when I think about the different dimensions of.
Matthew John Sheerin: Commercial SMB.
Matthew John Sheerin: Public sector retail.
Matthew John Sheerin: There.
Matthew John Sheerin: There is no one area that is sort of outpacing the other in a significant way, but rather sort of a rising tide across the portfolio, obviously that might change moving forward, but that's kind of what we're seeing right now.
Speaker Change: Okay very helpful. Thank you.
Speaker Change: Thanks, Matt.
Our next question comes from the line of David <unk> with UBS. Please go ahead.
David Vogt: Great. Thanks, Rich. Thanks, Marshall, for taking my question. You spend a lot of time on PCs.
David: Great. Thanks, Rich Thanks, Marshall for taking my question.
David: You spent a lot of time on Pcs, maybe can we pivot to sort of the more AI centric product categories going forward as well as server storage and networking how are you seeing the demand environment. Today, obviously, a lot of companies have posted relatively soft results and how do we think about that in the context of your second half billings commentary regarding <unk>.
David Vogt: Maybe we can pivot to sort of the more AI-centric product categories going forward as well, such as server storage and networking? How are you seeing the demand environment today? Obviously, a lot of companies have posted relatively soft results. And how should we think about that in the context of your second-half billings commentary regarding mid-single digits to double-digit growth? And then I just have a follow-up question. On the model, should we expect sort of the same dynamic from a margin spread perspective on these products if they are AI-centric or AI-enabled products versus where we are today from more of a traditional legacy data center footprint perspective? Thanks.
David: Mid single digits to double digit growth and then I just have a follow up question on the model should we expect sort of the same dynamic from a margin spread perspective on these products. If they are AI sort of centric or AI enabled.
David: Products versus where we are today from more of a traditional legacy data center footprint perspective. Thanks.
Speaker Change: Yes sure so.
Speaker Change: Obviously early days in AI, but maybe I'll double back on some comments on where we see things emerging.
Richard T. Hume: Yeah, sure. So, obviously, early days in AI, but, you know, maybe I'll double back on some comments on where we see things emerging. So, first of all, on Microsoft Copilot.
Speaker Change: First of all.
Speaker Change: On the Microsoft co pilot on our launch week.
Richard T. Hume: On our launch week, we had more than 2,000 partners engaged. And, you know, if I fast forward to today, that has dramatically more than doubled. So, you know, I'll call it the software category is off and running. We've had a great launch. There's a lot of market excitement, you know, around AI software and Copilot in particular. The second, you know, we talked about being sort of a full service distributor for NVIDIA, and we were fortunate to be named their distribution partner of the year in the Americas. So there is a components aspect that is beginning to emerge that is also, you know, quite interesting. Third, from some of the more traditional OEMs that focus within the server category, we see the emergence of, you know, some larger deployments, larger than normal in all of the markets throughout the world. So, you know, this might be an end-user customer who has an oversized demand for servers with GPUs in them.
Speaker Change: We had more than 2000 partners engaged in.
Speaker Change: Fast forward the current day that is more.
Speaker Change: Dramatically more than doubled so.
Speaker Change: That I'll call. It the software category is often running we've got.
Speaker Change: Had a great launch there is a lot of market excitement.
Around.
Speaker Change: AI software and co pilot in particular, the second we talked about being sort of a full service.
Speaker Change: Distributor for Nvidia and we were fortunate to be named their distribution partner of the year in the Americas. So there is a components aspect that is beginning to emerge that is also.
Speaker Change: Quite interesting.
Speaker Change: Third from some of the more traditional.
Speaker Change: Oems.
Speaker Change: The focus within the server category.
Speaker Change: We see the emergence of some larger deployments to the larger than normal.
Speaker Change: In all of the markets throughout the world. So this might be.
Speaker Change: And end user customer who has a.
Speaker Change: Oversized demand of us.
Speaker Change: Servers with Gpus in them.
Richard T. Hume: So we see that, you know, beginning to emerge. And then, of course, as we said earlier, in our Hive business, which serves the hyperscalers, there's going to be a natural transition in that content, less traditional data center, more towards, More towards the AI sort of configured system. So, you know, all of this is sort of building. At the same time, you know, I think that we're going to be very focused on making sure that we provide clear definitions for how we think about AI and what counts when we articulate particular sales numbers, et cetera. So that's work to do in the coming quarter or two, which we'll make sure we provide.
Speaker Change: So we see that.
Speaker Change: Beginning to emerge.
Speaker Change: And then of course, as we said earlier in our highest business, which serves the hyperscale or theres going to be a natural transition and that content less traditional.
Speaker Change: Data Center board towards.
Speaker Change: More.
Speaker Change: More towards the.
Speaker Change: The AI sort of <unk>.
Speaker Change: Configure systems.
Speaker Change: So all of this is sort of building at the same time.
Speaker Change: Think that we're going to be.
Speaker Change: Very focused on making sure we provide clear definitions for how we think about AI and what what counts when we articulate particular sales numbers et cetera, So thats work to do in the coming quarter or two.
Speaker Change: We'll make sure we.
Speaker Change: I'll provide then the last part is.
Richard T. Hume: Then the last part is more of a general statement in terms of what we've experienced in the past with new technology. Typically, new technologies come into the channel with a higher margin profile than our average. And that's largely because the OEMs or the vendors want to help lead us to where they think is strategically important. So they typically enhance the margin profile, but they also recognize that within that, we're going to have to be building skills and capabilities and services, which, you know, have some incremental costs and expenses associated with them. So at this point, it's the early innings on AI; I can only talk about what we've seen in the past with new technologies, and that's kind of the way we think about it. Great. Thanks. Very helpful.
Speaker Change: More of a general.
Speaker Change: Shipments in terms of what we've experienced in the past with new.
Speaker Change: Knowledges.
Speaker Change: Typically new technologies come in to the channel with a higher margin profile than our average.
Speaker Change: And that's largely because the Oems are the vendors want to help lead us to where they what they think is strategically important.
Speaker Change: Typically enhanced margin.
Speaker Change: Profile.
Speaker Change: They also recognize that within there we're going to have to be building skills and capabilities and services, which have some incremental costs and expenses associated with them. So that at this point. It's early innings on AI I can only talk about what we've seen in the past with new technology.
And Thats kind of the way, we think about it.
Speaker Change: Great. Thanks very helpful.
David Vogt: Thank you. Our next question comes from the line of Vincent Colicchio with Barrington Research. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Vincent Colicchio.
Vincent Alexander Colicchio: Barrington Research. Please go ahead.
Vincent Alexander Colicchio: Yeah, Rich, most of my questions have been answered. I'm curious about your expectation for acquisition and revenue synergies for the year. Has there been any change there? Yeah, let me talk about the acquisition, and I'll let Marshall talk about the revenue synergies in a moment. So, from an acquisition perspective, we continue to work on a wide and robust pipeline of areas that we are interested in. Ideally, we look for opportunities that will allow us to enhance or accelerate our strategic focus areas.
Vincent Alexander Colicchio: Yeah, Richard most of my questions have been answered.
Vincent Alexander Colicchio: Curious about your expectation for acquisition revenue synergies for the year has there been any change there.
Richard: Yes, let me talk about the acquisition and I'll, let Marshall talk about the revenue synergies here in a moment. So from an acquisition perspective, we continue to work a wide and robust pipeline of areas that we.
Are interested in.
Ideally, we look for opportunities that will allow us to do.
Richard: Enhance or accelerate our strategic focus areas.
Richard T. Hume: We've talked in the past about the fact that, within Europe and Asia Pacific, and Japan, our market position is a little bit lighter than it is within North America, in particular. So, you know, those are attractive areas to us as well. We're patient. We look for the right, right match and Marshall, over to you.
Richard: We've talked in the past about the fact that.
Richard: Within Europe, and Asia Pacific, Japan, our market position is a little bit lighter than it is within North America in particular.
Richard: So.
Richard: Those are attractive areas to us as well.
Richard: We are patient we look for the right right match.
Richard: That could come in the form of what we.
Richard: The market, sometimes calls tuck in acquisitions, but.
Marshall W. Witt: On the revenue synergies, Vince, a few things just to think about. So certainly, cross selling is underway, as you know, the Common Platform in North America or in Americas regarding CIS is predominantly completed, so that's very helpful. It's difficult for us to quantify this early in the cycle, but certainly, we're seeing TAM associated with the vendors and customers who were complementary to the merge.
Richard: We do see opportunities to improve our portfolio going forward, so marshall over to you.
Marshall W. Witt: On the revenue synergies Vince a few things to think about so certainly cross selling is underway as you know the.
Marshall W. Witt: The common platform in North America or in Americas regarding Cif is.
Marshall W. Witt: Predominantly completed so thats very helpful.
Marshall W. Witt: It's difficult for us to quantify this early in the cycle.
Marshall W. Witt: But certainly we're seeing Tam associated with the vendors and customers who were complementary to emerge.
Marshall W. Witt: Begin to show benefit and gain traction. So we're seeing a lot of expansion in these complementary vendors.
Marshall W. Witt: We're seeing a lot of expansion in these complementary vendors, but it's still somewhat early to isolate and call that out. What we will do is, as we can see that market expansion grow in those vendors, we'll speak to it where it's meaningful. I think the other thing to keep in mind, too, is that with our global footprint, we are starting to see complementary vendors and vendors that were common across both organizations utilize the global footprint to expand beyond what they currently had with the separate entities. And then maybe, thanks for that, and maybe one more question: how rapidly do you expect the expanded relationship with NVIDIA to ramp up? It's really hard to tell.
Marshall W. Witt: But it's still somewhat early to isolate and call that out.
Marshall W. Witt: We will do is as we can see that margin or excuse me that market expansion growing those vendors will will speak to it where it's meaningful I think the other thing to keep in mind too is with our global footprint. We are starting to see a complementary vendors and vendors that were common across both organizations.
Marshall W. Witt: Utilize the global footprint to expand beyond what they currently had with the separate entities.
And then maybe thanks for that and maybe one more.
Speaker Change: How rapidly do you expect the expanded relationship with the video to ramp.
Speaker Change: Okay.
Speaker Change: So it's really hard to tell.
Richard T. Hume: You know, obviously, it's an area that is very robust in the market. So we would intend, as we always do, to get our fair share, if not more, and we will feel really good about what we have to offer in terms of our capabilities and our specialization within those spaces. And, you know, we're optimistic that this is going to be a great, great market for the foreseeable future. Thanks, guys. Our next question comes from the line of Michael Ng with Goldman Sachs. Please go ahead.
Speaker Change: Obviously.
Speaker Change: It's an area that is very robust in the market. So.
We would intend as we always do to get our fair share if not more we will feel really good about what we have to offer in terms of our capabilities and our specialization within those spaces and.
Speaker Change: Yes.
Speaker Change: We're optimistic that this is going to be a great great market for the foreseeable future.
Speaker Change: Thanks, guys.
Speaker Change: Our next question comes from the line of Michael <unk> with Goldman Sachs. Please go ahead.
Michael Ng: Hey, good afternoon, Rich and Marshall. Thank you for your time. Just two for me.
Michael: Hey, good afternoon, Richard Marshall. Thank you for the time just two for me.
Michael Ng: First, thank you for the new disclosures on endpoint and advance. My question was around gross margins. Are the 5% and 9% a good way to think about the gross margins for those respective categories? Are there certain things that you would call out that might cause that gross margin to deviate, and do you have any qualitative color on the year-over-year performance on gross profit? And then I have a quick follow-up. Hey, Mike.
Michael: First thank you for the new disclosures on endpoint in advance my question was around the gross margins.
Michael: Are the five 9% a good way to think about the gross margins for those respective categories.
Michael: Are there certain things that you would call out that might cause that gross margin to deviate and.
Michael: Do you have any qualitative color on the year over year performance on gross profit and then I have a quick follow up.
Marshall W. Witt: This is Marshall. Yeah, certainly, we're happy to provide these disclosures. Keep in mind that that's on a net basis, so there's quite a bit of netting that happens, certainly, in the AS portfolio. There's a little bit in the ES.
Michael: Hey, Mike. This is Marshall, Yes, certainly we are happy to provide these disclosures keep in mind that that's on a net.
Marshall W. Witt: So theres quite a bit of netting that happened certainly in the <unk> portfolio. There is a little bit in the in the Es. When you when you think about it on a gross basis, it's more around 6% gross margin for Aaas and 4%.
Marshall W. Witt: When you think about it on a gross basis, it's more around 6% gross margin for AS and 4%. We try to show gross relationships from a billing perspective because it ignores and removes the netting down. As we think about the portfolio, and specifically into quarter one, we were quite surprised about the strength of our margins on a gross billing perspective, and we talked about some of the reasons why that's the case. As we go forward, and we talked about this in our prepared remarks, as ES continues to show signs of acceleration and the expectation that that should continue in Q2 and beyond, that should have some gross margin headwinds or some reductions in the area of 15 bits, maybe 20 bits, that is on gross margin and also on off margin when you compare it to gross billing.
Marshall W. Witt: We try to show growth.
Marshall W. Witt: <unk> shipped from a billing perspective, just because it ignores and removes the netting down.
Marshall W. Witt: As we think about the portfolio and specific into quarter. One we were quite surprised about the strength of our margin on a gross billings perspective.
Marshall W. Witt: And we've talked about some of the reasons why that's the case.
Marshall W. Witt: As we go forward and we talked about this in our prepared remarks as E. F continues to show signs of acceleration in expectation that that should continue in Q2 and beyond that should have some gross margin headwinds or some reductions in the area of call. It 15 bps, maybe 20 bps.
Marshall W. Witt: Is on gross margin and also on op margin.
Marshall W. Witt: So, I know we're throwing gross and net around a lot, but the takeaway is that endpoint solutions in quarter two probably had a little bit of a mixed shift that should dampen some of our gross margin attributes. The last thing I'd say about that, Mike, is that, as you know, when we look at our margin profiles, we also look at our return on working capital, and both AS and ES support the investments we make, and the returns are quite healthy. They just have different attributes.
Marshall W. Witt: When you compare it to Brook billings. So I know, we are darn gross and net around there are lot, but takeaway is that.
Marshall W. Witt: Endpoint solutions in quarter, two probably has a little bit of a mix shift that should dampen some of our gross gross margin attributes.
Marshall W. Witt: The last thing I'd say about that Mike is that as.
Marshall W. Witt: As you know when we look at our margin profiles, we often look at our return on on working capital in both Aaas in Es.
Marshall W. Witt: The investments, we make and the returns are quite healthy. They just have different attributes you think about <unk>, it's a little bit of a lighter inventory tested a lot of it is.
Marshall W. Witt: If you think about AS, it's a little bit of a lighter inventory touch because a lot of it is dropped shipped to the customer site. Endpoint is a little bit heavier on the shelf. So, we have to make sure that our working capital dynamics are supportive of that. Net and net both make sense, but it does play out a little bit to a decline in our margin profile as we head into Q2 and into the second half. Thank you, Marshall.
Marshall W. Witt: Drop shipped into the end to the customer site endpoint is little bit heavier on the shelf. So we have to make sure that our working capital dynamics are supportive of that net net both makes sense, but it does play out a little bit to a decline in our margin profile as we as we head into Q2 and in the second half of the year.
Michael Ng: That's very clear. And then, as a quick follow-up, I also really appreciate the disclosures around billing by category. Any kind of high-level thoughts around, you know, the long-term mix or the mid-term mix of, you know, billings by product category? And just as a point of clarification, does netting kind of solely fit in software and services, or does it come through other categories as well? Thank you. Yeah, I'll start. So broadly speaking across the portfolio circle, everything has a little bit of netting.
Speaker Change: Thank you Marshall Thats very clear and then as a quick follow up.
Speaker Change: I also really appreciate the disclosures around billings by category.
Speaker Change: Any kind of high level thoughts around.
Speaker Change: Long term mix or midterm mix of billings by product category and just as a point of clarification does netting kind of solely fit in software and services or does it come through other categories as well. Thank you.
Speaker Change: Yeah I'll start so broadly.
Speaker Change: <unk> across the portfolio circle.
Speaker Change: Everything has a little bit of netting <unk> had more than <unk>, but even esa as some some netting to it.
Ruplu Bhattacharya: AS Corp has more than ES, but even ES has some netting to it. If you think about the categories that we've called out, software continues to show, we'll call it decent at or better than growth attributes. Services certainly are growing year on year. I'd say the rest of those categories are where we're seeing the decline, and I'll call it the support of the reduction in the year on year decline in revenue growth. Thank you so much, Marshall. Our next question comes from the line of Ruplu Bhattacharya, with Bank of America. Please go ahead.
Speaker Change: If you think about the categories that we've called out software continued to show decent.
Speaker Change: Decent at or better than growth attribute of services certainly is growing year on year I'd say the rest of those categories is where we're seeing the decline.
Speaker Change: And I'll call it the supporting of the reduction in the year on year decline in revenue growth.
Speaker Change: Great. Thank you so much Marshall.
Speaker Change: Our next question comes from the line of fruit Blue bottle charter yet.
With Bank of America. Please go ahead.
Ruplu Bhattacharya: Hi, thanks for taking my questions, and thank you for the additional disclosures on billings and margins by product category. My first question is on billings. It looks like for endpoint solutions, billings were down 7% year-on-year. Was this as per your expectations?
Fruit Blue: Hi, Thanks for taking my questions and thank you for the additional disclosures on billings and margins by product category.
My first question is on billings.
Speaker Change: It looks like for endpoint solutions billings were down 7% year on year, whereas this as per your expectations, if Pcs improved or other items in this category down meaningfully from a billing standpoint, and Marshall I think you had expected first half of 'twenty for billings to be flat year on year. It looks like it's going to be down one and a half to two.
Ruplu Bhattacharya: If PCs improved, were other items in this category down meaningfully from a billing standpoint? And, Marshall, I think you had expected the first half of 24 billings to be flat year-on-year. Looks like it's going to be down 1.5% to 2% year-on-year. So, the question is, has anything changed in your expectation for full-year billings, and should we still expect netted-down items to impact 25%, 26% for the full year? Hi Ruplu, so I'll address the second question first and then let Rich talk about the billing and the AAS features. So you're right, that's pretty close.
Speaker Change: <unk> percent year on year. So the question is has anything changed on your expectation for full year billings and should we still expect netted down items to impact 25%, 26% for the full year.
Speaker Change: <unk>.
Marshall W. Witt: I'll address the second question first and then let.
Marshall W. Witt: Let rich talk about the billings and the Aaas features so you're right that's pretty close we.
Marshall W. Witt: We were still within our range of outcomes for quarter one, but towards the lower end of that. So with that outcome, if you think about what we guided, we were roughly about 2% below the midpoint of expectations. And playing that through to quarter one, we were about 2% below what we originally thought. So you play that out for the first half.
We were still within our range of outcomes for quarter, one but towards the lower end of that so with that outcome. If you think about what we guided we're roughly about 2% below the.
Marshall W. Witt: The midpoint of expectations and playing that through to quarter. One we're about 2% below what we originally thought so you play that out for the first half, yes, it's about 1% to 2%.
Marshall W. Witt: Yeah, it's about a 1 to 2% overall decline in revenue, but still pretty close to where we had expected. So I wouldn't call it any meaningful shift. Now it's a matter of just how the recovery plays out.
Marshall W. Witt: Overall decline in revenue.
Marshall W. Witt: But still pretty close to where we had expected so I wouldn't call. It any meaningful shift now it's a matter of just how the recovery plays out quite possible, we could end up catching up to that.
Marshall W. Witt: It is quite possible that we could end up catching up to that, but certainly the expectation for the second half growth attributes for ES and AS, we still feel quite confident. So Ruplu, within the category, the other segments would be mobile, components, and peripherals. They were down, and I would tell you that, relative to our expectation, some of the softness versus the midpoint manifested itself in mobile and components. Okay. Thanks for that, Rich.
Marshall W. Witt: <unk>.
Marshall W. Witt: The expectation for the second half growth attributes for <unk>, we still feel quite confident about.
Marshall W. Witt: So we're blue within the category.
Marshall W. Witt: The.
Marshall W. Witt: <unk>.
Marshall W. Witt: Other segments would be mobile components and peripherals, they were down and I would tell you that relative to our expectation some of the softness versus the mid point Manny.
Marshall W. Witt: Manifested itself in mobile and components.
Speaker Change: Okay. Thanks for that Rich you also talked about starting to see AI related demand I guess my question to you would be do you think spending on AI related items like AI servers could have a cannibalizing impact on on some of the non <unk> related products have you I mean.
Ruplu Bhattacharya: You also talked about starting to see AI-related demand. I guess my question to you would be, do you think spending on AI-related items like AI servers could have a cannibalizing impact on some of the non-AI-related products? Have you, I mean, what's your thought on that?
Richard T. Hume: I mean, do you think AI is a separate category and a separate spend, or do you think the overall spend remains the same, and one cannibalizes the other? Thank you. So, this is a personal opinion, and I need to characterize it as that, you know, AI will not be just the total increment in the IT camp. I believe that there are tradeoffs that are made when new technologies emerge because budgets don't immediately increase to handle this new category. I think that there can be some tradeoffs, Ruplu, between AI infrastructure and other components of infrastructure. Cannibalization is a very strong word, so I wouldn't state that, but I'd leave it at logical tradeoffs.
Speaker Change: What's your thought on that I mean, do you think the AI as a separate category and a separate spend or do you think the overall spend remains the same and one cannibalize the other thank you.
Speaker Change: So.
Speaker Change: This is a personal opinion.
Speaker Change: <unk> characterized it as that.
Speaker Change: I will not be just the total increment up on the.
Speaker Change: Tim.
Speaker Change: I believe that there are trade offs that are made when when new technologies emerge budget.
Speaker Change: Budgets don't immediately increments to handle.
Speaker Change: This new category.
Speaker Change: I think that there can be some.
Speaker Change: Trade off route blue between AI infrastructure and other components of infrastructure.
Cannibalization is a very strong words, so I wouldn't I wouldn't state that but I would leave it at logical tradeoffs everybody needs to run their enterprises and they need to make sure that they have.
Ruplu Bhattacharya: Everybody needs to run their enterprises, and they need to make sure that they have an up-to-date and solid infrastructure to support that business. And then, in addition to that, taking a look at new value props within their enterprises for AI productivity. And that's the way I would think. Okay, thank you for all the details.
Up to date and solid infrastructure to support that business and then in addition to that.
Speaker Change: Taking a look at new value props associated within their enterprises for AI.
Speaker Change: AI productivity and Thats the way I would think about it.
Speaker Change: Okay. Thank you for all the details appreciate it.
Ananda Prosad Baruah: Appreciate it. Our next question comes from the line of Ananda Baruah with Loop Capital. Please go ahead.
Speaker Change: Our next question comes from the line of a non Dup Brewer.
Dup Brewer: With loop capital. Please go ahead.
Ananda Prosad Baruah: Hey, thanks, guys, for taking the questions. I guess, Rich, what's your view or what do you see as the potential for... The AR participation, foundational impact, the company's revenue growth rate in the coming years? And can you even, as a part of that context, speak to the potential for ASP mix-up from Hive, since I think in a lot of cases those servers can be meaningfully more expensive than traditional cloud servers.
Dup Brewer: Hey, Yeah, Thanks, guys for taking the question.
Dup Brewer: I guess.
Dup Brewer: Rich.
Dup Brewer: Your view or where do you see as the potential for.
Speaker Change: The AI participation.
Speaker Change: Foundational impact the company's revenue growth rate.
Richard T. Hume: In coming years.
Richard T. Hume: And can you even there I guess is a part of that context speak to the potential for ASP mix up.
Richard T. Hume: Hi.
Speaker Change: I think in.
Speaker Change: And a lot of cases, they servers can be meaningfully more expensive.
Speaker Change: Than traditional cloud Cerro Verde, but also yes, we are hearing your enthusiasm around the eventual relationships a GPU Pam Craig.
Richard T. Hume: But also, you know, hearing your enthusiasm around the NVIDIA relationship, the GPU TAM for NVIDIA is pretty tremendous also. I mean, I would have thought maybe just the AI-enabled PC ASP uplift could impact you guys, but it sounds like you're working a handful of angles here sort of as well. So, just would love your thoughts there. Thanks.
Speaker Change: Is pretty tremendous also.
Speaker Change: I mean, I would have thought maybe.
Speaker Change: AIP.
Speaker Change: Enable PC ASC uplift could impact you guys, but it sounds like Youre working a handful of angles here is sort of as well. So just would love your thoughts there. Thanks.
Richard T. Hume: Yeah, so again, it's a personal judgment because it is the early innings, but I think you're right, Ananda. When we think about this AI category and start to superimpose it on the traditional segments of, of, you know, IT, it's, I think it's fair to conclude, at least at this point, that the configurations are going to be richer, you know, by definition, the cost of some of the GPU And so, you know, therefore, and oh, by the way, you know, when we think about a configuration to support an AI server, to use that as an example, it is generally more richer in the market today. So, yeah, look, I agree with you.
Speaker Change: So again, it's a personal judgment because it is early innings, but I think youre right when.
Speaker Change: When we think about.
Speaker Change:
Speaker Change: This AI category and we start to super pose it on the traditional segments of.
Speaker Change: <unk>.
Speaker Change: Okay.
I think it's fair to conclude at least at this point that the configurations are going to be richer.
By definition the cost of some of the Gpus, which our end market are are fairly material.
Speaker Change: So therefore, and Oh by the way when we think about.
Speaker Change: A configuration to support an AI server to use that as an example, it generally is richer in market today. So yes.
Look I agree with you I think the IPC the.
Richard T. Hume: I think the AIPC, the, you know, the infrastructure categories of AI will all provide an increment within the ASP for some period of time. And the same would be true for software. Higher level ASPs. That's great content.
Speaker Change: The infrastructure categories of AI will all provide an increment within the ASP for some period of time and the same would be true for software. If you take a look at traditional software that was in market now the AI enabled versions.
Ananda Prosad Baruah: I'll leave it there. Appreciate it. Thank you. Our next question comes from the line of Keith Housum with North Coast Research. Please go ahead.
Speaker Change: The ASB, if we use that word for software is higher.
No.
Speaker Change: Think that.
Speaker Change: Is that whole AI category provide some growth in market. It is fair to say that relative to the legacy things that.
Keith Michael Housum: Good morning, guys, and thanks for the opportunity here. And I appreciate the detail as well, with endpoint devices and advanced solutions. As we look at the growth-spilling split, roughly 40-60 this quarter, you know, you can use this to give a little bit of historical perspective. How does that usually range, I guess, as we kind of think about the business? Historically, it's been more of a 50-50 mix or more trending to where we're at now, and how can we expect it to trend over the next year or two? Yeah, I'm going to offer a thought while Marshall in the background is calculating in his mind how to respond to your question. So, you know, if you take a look at our balanced end-to-end portfolio where we show our different segments, you know, when we were on this call about a year ago, we were talking about PCs being low, 20% right of our portfolio. Now it sits at 16.
Speaker Change: <unk> been characterized for the they will clearly help with.
Higher level Asp's.
That's great guys. Thanks, I'll leave it there thanks.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Keith House to House them with Northcoast Research. Please go ahead.
Keith Michael Housum: Good morning, guys.
Keith Michael Housum: The opportunity here.
Keith Michael Housum: I appreciate the details well, which endpoint devices advanced solutions.
Keith Michael Housum: As we look at the gross billing split roughly 40 60 this quarter.
Keith Michael Housum: This is a little historical perspective, how does that usually range I guess.
Keith Michael Housum: As we kind of think about the businesses.
We had a good bit more of a 50 50 mix or that are more trending to where we're at now and how can we expect it to trend over the next year or two.
Speaker Change: Yes, I'm going to I'm going to offer a thought while Marshall and the background is calculating in his mind.
Speaker Change: To your question. So if you take a look at our our balanced end to end.
Speaker Change: Portfolio, where we show our different segments.
Speaker Change: Here on this call about a year ago, we were talking about Pcs being low.
Speaker Change: 20% of our portfolio now sits at <unk>.
Richard T. Hume: You know, so there'll be some recovery, you know, in that particular category, for sure, as we move through time. And this is why, well, Marshall talks about sort of a bit of a remixing of the margin and the portfolio as we move to the back half of the year. My own personal speculation is that it's not going to sit at 16.
Speaker Change: So there'll be some recovery in.
Speaker Change: In that particular category for sure as we move through time and this is why well Marshall talks about sort of.
Speaker Change: A bit of a remixing of the margin.
Speaker Change: And the portfolio as we move to the back half of the year my own personal speculation is that it's not going to sit at 16. It probably is going to increment based on the recovery within that category.
Richard T. Hume: It probably is going to increment, you know, based on the recovery within that category. And so, therefore, there will be some rebalancing of, you know, the end point at advanced and total. But, Marshall, maybe you can provide a... Yeah, Keith, I just want to make sure.
Speaker Change: And so therefore.
Speaker Change: There will be some rebalancing of Av.
Speaker Change: The the endpoint that advanced in total, but partial maybe you can provide us Keith I just want to make sure. The question was how does <unk> mix going forward, yes, yes.
Keith Michael Housum: The question was, how does AS and ES mix going forward? Yeah. Yeah, it's 40-60. Historically, has it been 50-50? And, you know, can it go up to 70-30?
Speaker Change: <unk> historically has been 50 50 and can it go up is it 70, 30 or they're usually pretty range bound.
Keith Michael Housum: Or is it usually, you know, pretty range-bound? Yeah, so it's definitely region dependent. If you think about America, they tend to be a little bit heavier weighted towards AS, and Europe a little bit more weighted towards ES. Again, that's kind of a historical commentary.
Keith Michael Housum: Yes, so it's definitely region dependent if you think about.
America's they tend to be a little bit more heavily or weighted towards <unk>.
Keith Michael Housum: Europe, a little bit more weighted towards yes, again, thats kind of a historical commentary <unk> tends to be kind of down the middle sometimes a little bit more heavier weighted to AI.
Marshall W. Witt: APJ tends to be kind of down the middle. Sometimes they're a little bit heavier weighted to AS, so it does depend on the region and it does depend on the trends, but currently, the mix is a little bit more in favor of AS today. But we shouldn't expect ES to get to like 60% even at the height of PCs, right? Really hard to tell, Keith.
Keith Michael Housum: It does depend on the region and it does depend on the trends, but currently the mix is a little bit more in favor of Aaas today.
But we shouldn't expect es to get to that 60% even at the height of PC, It's really hard to tell Keith a lot of it is dependent on this acceleration and how we think how the second half will play.
Keith Michael Housum: A lot of it is dependent on this acceleration and how we think that the second half will play. You know, our take is that we like both. And we know that our vendors and customers need both. And we provide both in many different ways to all our customer base. So kind of it all matters.
Keith Michael Housum: Our take is we like bolt and we know that our vendors and customers need bulk and we solutions bolt in many different ways to all our customer base, so kind of it all matters.
Keith Michael Housum: Okay, if I can just ask one more follow-up question. You guys have used the word stable as well as improved when referring to IT market demand. I don't want to parse words too closely, but it's kind of what we do, right?
Speaker Change: Okay. If I can just ask one more follow up question.
Speaker Change: You guys said, we use the word stable as well as improving the referring to the market demand.
Speaker Change: I don't want to parse words too closely but it's kind of what we do right. So as you kind of look at the rest of the year you talked about improving demand I guess.
Richard T. Hume: So as you kind of look at the rest of the year and you talk about improving demand, what are some of the, I guess, two or three factors that give you confidence that the market really, truly is improving? Well, I think the first thing to say is if you take a look at our sequential sort of year-on-year declines, they've been narrowing as we've moved through the last couple of quarters. That would be number one. Number two is, you know, obviously, we are going to start to lap on those tough comparisons where there was a lot of backlog and rundown that propped up AS last year and, you know, we get the wrap on the PC category. So I would just say that the cycles sort of provide an opportunity to catch-up.
Speaker Change: I guess, two or three factors that give you confidence that the market really truly is improving.
Speaker Change: Okay.
Speaker Change: Well I think first is if you take a look at our sequential sort of year on year declines they've been narrowing as we've moved through the last couple of quarters.
Speaker Change: That would be number one number two is.
Speaker Change: Obviously, we.
Speaker Change: We are going to.
Speaker Change: Start to.
Speaker Change: Lap on those tough compares where there was a lot of backlog rundown.
Speaker Change: That propped up.
As last year.
Speaker Change: We get the wrap on the PC category. So I would just say that the cycles.
Speaker Change: Sort of provide an opportunity or catch up third would be.
Keith Michael Housum: Thirdly, AI, as we talked earlier, is, you know, going to offer new demand in the market that, you know, hopefully, we'll be able to, you know, take advantage of moving forward. And so those are some thoughts. I, you know, I would tell you that there's still some volatility relative to our expectations and categories. Obviously, when we take a look at Q1, it was a little bit softer than we thought at the midpoint, and, you know, gross billings and revenue came, you know, towards the lower end of our expectations. So I feel comfortable that the market is going to continue to improve moving forward, you know, but I'm sure there'll be some shorts and longs along the way. Great. Thank you. Our final question comes from the line of Ashish Sabadra with RBC Capital Markets. Please go ahead.
Speaker Change: AI as we talked earlier.
We've got on offer.
Speaker Change: Demand in the market that hopefully we'll be able to.
Speaker Change: Take advantage of moving forward.
Speaker Change: So those are some of the thoughts.
Speaker Change: I would tell you that.
Speaker Change: There is still has some volatility relative to our expectations and categories. Obviously.
Speaker Change: When we take a look at Q1, it was a little bit softer than we thought at the midpoint and <unk>.
<unk> billings.
Speaker Change: And revenue came towards the lower end of our expectation so.
Speaker Change: I'm.
Speaker Change: <unk> feel comfortable that the market is going to continue to improve moving forward.
Speaker Change: So, but I'm sure there'll be some shorts and long as along the way.
Speaker Change: Okay.
Speaker Change: Great. Thank you.
Speaker Change: Our final question comes from an aligned Ashish <unk> with RBC capital markets. Please go ahead.
Ashish Sabadra: Thanks for taking my question. Just to follow up on a few questions that were asked before around demand, I was thinking about more from a spending environment, like how much of the mid to high single-digit gross billing growth in the back half of the year is contingent upon IT spending increasing versus some of the company-specific dynamics, some of those which you laid out earlier in response to earlier questions, but also the headwind from the consignment model coming off possibly by the third quarter of this year. So, how much of it is potentially you winning a greater wallet share of the IT spend versus the IT spend actually improving as we get? Yeah, so first, again, I'm going to repeat a comment that I had stated earlier: as we think about our future and, you know, having a potentially a larger percentage of our portfolio of things which are netted, you know, gross billings are what we track and think about when we think about our productivity So that's an important feature.
ashish: Thanks for taking my question just to follow up on a few questions that were asked before around the demand I was thinking about more from a spending environment.
ashish: How much of the mid to high single digit gross billing growth in the back half of the year is contingent upon the IP spending increasing will assist some of the company specific dynamics some of those switching need out in response to all of your questions, but also the headwind from the confinement module coming off possibly by quarter on this year.
ashish: So how much of it is.
ashish: Potentially you are winning updated wallet channeled spanglish has actually.
ashish: Actually improving as we get to them.
ashish: Yes.
Speaker Change: So first.
Speaker Change: Again, I'm going to repeat a comment that I had stated earlier as we as we think about our future and having a.
Speaker Change: Potentially a larger percentage of our portfolio of things which are netted.
Speaker Change: Gross billings.
Speaker Change: What we track and think about when we think about our productivity et cetera.
Speaker Change: So that's an important feature second is.
Richard T. Hume: Second, our stated strategy has always been to grow a little bit greater than the market. So, you know, we would anticipate that as we move forward, we can maintain that sort of objective and hopefully be successful in executing against it.
Speaker Change: Our stated strategy has always been to grow a little bit greater than the market.
Speaker Change: So.
Speaker Change: We would anticipate that as we move forward that.
Speaker Change: We can maintain that sort of objective.
Speaker Change: And hopefully be successful executing against that so.
Marshall W. Witt: You know, we're, The net of the question is we hope to outgrow the market to some degree in the back half of the year. And I would just add to that, Ashish, to Rich's comment about gross billings being a really important data point for us, and your comment about consignment. We expect that gross versus net, which is highly correlated to our advanced solutions and strategic portfolio, will probably continue. And so with that, it's very difficult to gauge accurately where net revenue may play out.
Speaker Change: Sure.
Speaker Change: No.
Speaker Change: The net of the question is we hope to outgrow the market to some degree in the back half of the year.
Speaker Change: I would just add to that Ashish.
ashish: To Richard's comment about gross billings being a really important data point for us and your comment about consignment, we expect that gross versus net which is high.
ashish: Highly correlated to our advanced solutions and strategic portfolio.
ashish: We will probably continue and so with that it's very difficult to.
ashish: To gauge accurately where net revenue may play out.
Marshall W. Witt: We certainly report to it, so it's a meaningful gap number, but gross billings is why we continue to make that a focus point for us in terms of its growth rate and its relationships to SG&A and other income. That's where you have to look. Thank you. I would now like to turn the call over to management for closing remarks. Yeah, first, thanks to everyone joining today. We really appreciate your interest in TD SYNNEX. We're proud of the quarter that we just delivered, and I want to say thank you to our co-workers across the world who really made it a reality. They are on the ground every day executing and, you know, are focused on making sure that they provide the best service to our primary stakeholders of customers and vendors.
ashish: We certainly report to.
ashish: So it's a meaningful GAAP number but the gross billings is why we continue to make that a focus point for us in terms of its growth rate and its relationships to SG&A in op income et cetera.
Speaker Change: That's very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
I would now like to turn the call over to management for closing remarks.
Yes first thanks for everyone joining us today, we really appreciate your interest in <unk>.
Speaker Change: We're proud of the quarter that we had just delivered in.
Speaker Change: I want to say, thank you to our coworkers across the world, who really made it a reality they are on the ground everyday executing in our.
Speaker Change: We are focused on making sure that they provide the best service to our primary stakeholders of customers and vendors. So thanks to all of our coworkers and I wish you all a great day. Thank you.
Richard T. Hume: So, thanks to all of our co-workers, and I wish you all a great day. Thank you. That concludes today's conference call. You may now disconnect. Have a nice day.
Speaker Change: That concludes today's conference call you may now disconnect have a nice day.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: