Q3 2024 TD SYNNEX Corp Earnings Call

Yes.

Audra: Good morning, my name is Audra, and I will be your conference operator today. I would like to welcome everyone to the TD SYNNEX 3rd quarter fiscal 2024 earnings call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise.

Good morning, My name is Audrey and I will be your conference operator today.

Speaker Change: I would like to welcome everyone to the Tvs that makes third quarter fiscal 2024 earnings call.

Speaker Change: Today's call is being recorded in all lines have been placed on mute to prevent any background noise.

Audra: After the speaker's remarks, there will be a question-and-answer session.

Speaker Change: After the Speakers' remarks, there will be a question and answer session.

David Jordan: At this time for opening remarks, I would like to pass the call over to David Jordan, CFO of the Americas, and have Investor Relations at TD SYNNEX.

Speaker Change: At this time for opening remarks, I would like to pass the call over to David Jordan CFO of the Americas and head of Investor Relations at TD Phenix, David you may begin.

David Jordan: David, you may begin. Thank you. Good morning, everyone, and thank you for joining us for today's call. With me today is Patrick Zammit, CEO, and Marshall Witt, CFO.

Speaker Change: Thank you good morning, everyone and thank you for joining us for today's call with me today is Patrick Zammit, CEO Marshall Witt CFO.

David Jordan: 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 our strategy, demand, plans and positioning, growth, cash flow, capital allocation, and stockholder return, as well as our expectations for future fiscal periods. Actual results made different 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 in the risk factor section of our form 10-K and other reports and filings with the SEC.

Speaker Change: 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 our strategy demand plans and positioning growth cash.

Flow capital allocation and stockholder return as well as our expectations for future fiscal periods.

Speaker Change: 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 and the form 8-K, we filed today and the risk factors section of our Form 10-K, and other reports and filings with the SEC, we do not intend to update any forward looking statements.

David Jordan: We do not intend to update any forward-looking statements.

Speaker Change: Also during this call we will reference certain non-GAAP financial information, including gross billings reconciliations of GAAP to non-GAAP results are included in our earnings press release and the related form 8-K available on our Investor Relations website, IR Dot <unk> Dot com.

David Jordan: Also, during this call, we will reference certain non-GAAP financial information, including gross billings. Reconciliation of gap-to-non-gap results are included in our earnings press release and the related Form 8-K available on our investor relations website, ir.tdsynx.com.

David Jordan: This conference call is the property of TDSynx and may not be reported or rebroadcast without our permission.

This conference call is the property of <unk> and May not be recorded or rebroadcast without our permission I will now turn the call over to Patrick Patrick.

Patrick Zammit: I will now turn the call over to Patrick.

Patrick Zammit: Patrick? Thank you, David. Good morning, everyone, and thank you for joining us today to discuss our third quarter operating results.

Patrick Zammit: Thank you David.

Patrick Zammit: Good morning, everyone and thank you for joining us today to discuss our third quarter operating results.

Patrick Zammit: I'm honored and very excited to address you today for the first time as the CEO of tdsynx. Before I begin, I would like to thank our Tdsynx co-workers for their dedication and passion for our business, our partners and vendors for their trust and confidence in us, and for the collaboration we fostered together to take advantage of the business opportunities ahead.

Patrick Zammit: I'm honored and very excited to address you today for the first time as the CEO of TD snakes.

Speaker Change: Before I begin I would like to thank our GDT next school workers for their dedication and passion for our business, our partners and vendors for their trust and confidence in us and for the collaboration we fostered together to take advantage of the business opportunities ahead.

Patrick Zammit: I start the call today by providing a few thoughts on the role we play in the broader IT ecosystem, key priorities for our business as we move forward, along with a brief update on our Q3 business performance. We remain a vital link in the IT ecosystem, helping vendors across the world access 150,000 IT solution providers who service everyone from the Fortune 100 to small and medium-sized businesses. What differentiates us is our global reach and to end portfolio and our specialized go-to-market approach. We have customized value propositions by technology that enable our vendors to increase their reach, recruit and enable partners, and provide a full suite of go-to-market services to accelerate growth.

Speaker Change: I'll start the call today by providing a few thoughts on the role we play in the broader ecosystem.

Speaker Change: Priorities for our business as we move forward along with a brief update on our Q3 business performance.

Speaker Change: We remain a vital link in the it ecosystem, helping vendors across the world excess 150000 solution.

Speaker Change: Providers, who service everyone from the fortune 100 to small and medium sized businesses.

Speaker Change: What differentiates US is our global reach end to end portfolio and our specialized go to market approach.

Speaker Change: We have customized value propositions by technology, but enable our vendors to increase their reach recruit and enabled partners and provide a full suite of go to market services to accelerate growth.

Patrick Zammit: All of this is driven by an exceptional team of passionate people but are grounded in a customer-centric culture. Additionally, we are fortunate to have high-quality and trusted relationships across the IT ecosystem and are committed to continuing to be a partner of choice around the globe.

Speaker Change: All of this is driven by an exceptional team of passionate people.

Speaker Change: Grounded in a customer centric culture.

Speaker Change: Additionally, we are fortunate to have a high quality and trusted relationships across the ecosystem and are committed to continuing to be a partner of choice around the globe.

Patrick Zammit: Moving on to our business priorities. We have a long track record of delivering profitable growth and a stable free cash flow. And we expect that will continue.

Speaker Change: Moving on to our business priorities.

Speaker Change: We have a long track record of delivering profitable growth.

Speaker Change: Stable free cash flow and.

And we expect that will continue.

Patrick Zammit: As we move forward, our teams are focused on four major business priorities. The first area of focus is revenue growth, which will be delivered through geographical expansion, ensuring we cover both endpoint and advanced solutions technologies, expanding existing vendor franchises, as well as emerging vendors, and ensuring we meet the needs of our customers. The second priority is being focused on pricing and margin management. We expect to achieve this by continuing to enhance our value proposition, improving our portfolio services, and remaining disciplined in our execution to enable returns to meet or exceed our expectations. The third area of focus is managing our cost-to-gross-profit percentage, which is a comparison of non-GAAP-SG&A to gross profit.

Speaker Change: As we move forward our teams are focused on four major business priorities.

Speaker Change: The first area of focus is revenue growth.

Speaker Change: Which will be delivered through geographical expansion.

Speaker Change: Ensuring we cover both endpoint and advanced solutions technologies, expanding existing vendor franchises as well as emerging vendors and ensuring we meet the needs of our customers.

Speaker Change: The second priority is being focused on pricing and margin management, we expect.

Speaker Change: To achieve this by continuing to enhance our value proposition improving our portfolio of services.

And remaining disciplined in our execution to enable returns to meet or exceed our expectations.

Speaker Change: The third area of focus is managing our cost to gross profit percentage, which is a comparison of non-GAAP SG&A to gross profit.

Patrick Zammit: It is a key metric and helps to ensure we drive profitable growth. We expect to improve our cost-to-gross-profit percentage through operational discipline, embracing technology and automation, and investing in our people who ultimately make the decisions on opportunities we choose to push you.

Speaker Change: This is a key metric and helps to ensure we drive profitable growth we.

Speaker Change: We expect to improve our cost of gross profit percentage through operational discipline, embracing technology and automation and investing in our people, who ultimately make the decisions on opportunities we choose to pursue.

Patrick Zammit: The fourth priority is capital allocation. It is critical to remain disciplined around working capital management and free cash flow generation. We are committed to creating value for stock orders by focusing on investments at a creative return and returning excess cash to stock orders.

Speaker Change: The fourth priority is capital allocation.

Speaker Change: It is critical we remain disciplined around working capital management and free cash flow generation.

Speaker Change: We are committed to creating value for stockholders by focusing on investments at accretive returns and returning excess cash to stockholders.

Patrick Zammit: Moving on to our Q3 performance. We continue to be optimistic around the IT market recovery. Q3 was a strong quarter, reinforcing our optimism regarding IT market recovery. In particular, we thought significant growth across geographic segments and in both our endpoints and advanced solutions businesses. Additionally, gross billings in Q3 grew 9%, coming in above the iron of our range. These results on the score that our growth, global reach, extensive line card, and effective execution of our strategy are helping us grow slightly ahead of market. Within the quarter, we experience year-over-year margin decline driven by product mix and cost-compairs in high.

Speaker Change: Moving on to our Q3 performance.

Speaker Change: We continue to be optimistic around the market recovery.

Q3 was a strong quarter reinforcing our optimism regarding market recovery.

Speaker Change: In particular, we saw significant growth across geographic segments and in both our endpoints and advanced solutions businesses.

Additionally, gross billings in Q3 grew 9% coming in above the high end of our range.

Speaker Change: These results underscore that our broad global reach extensive line card and effective execution of our strategy are helping us grow slightly ahead of market.

Speaker Change: Within the quarter, we experienced year over year margin decline driven by product mix and tough compares and hive.

Patrick Zammit: Our costs to gross profit percentage remain consistent, demonstrating our ability to control our costs while focusing on profitable growth.

Speaker Change: Our cost of gross profit percentage remained consistent demonstrating our ability to control our costs, while focusing on profitable growth.

Patrick Zammit: Looking ahead, I'm excited about the trajectory of TDC next. Based on our two-three results on two-four expectations, we believe the market is returning to growth, and we are uniquely positioned to expand our coverage and services and deliver value-added solutions to our customers.

Speaker Change: Looking ahead I'm excited about the trajectory of <unk> based.

Speaker Change: Based on our Q3 results and Q4 expectations. We believe the market is returning to growth.

We are uniquely positioned to expand our coverage and services and deliver value added solutions to our customers.

Speaker Change: Lastly, I want to reiterate my gratitude to our team for everything you do to make us the partner of choice in distribution.

Patrick Zammit: Lastly, I want to reiterate my gratitude to our team for everything you do to make us the partner of choice in IT distribution. Our people and all our culture are what differentiates us in the industry.

Speaker Change: Our people and our culture and what differentiates us in the industry.

Marshall Witt: I will now pass it over to Marshall so that he can provide additional details on our financial performance and also.

Marshall Witt: I will now pass it over to Marshall So that he can provide additional details on our financial performance and outlook Marshall.

Marshall Witt: Marshall? Thanks, Patrick, and good morning to everyone on today's call. We had a good performance in Cisco Q3 with gross buildings ahead of expectations and backlog increasing year-over-year. Total gross buildings were $20.3 billion, up 9% year-over-year, which is above the high end of our guidance range. We were pleased to see growth across both endpoint and advanced solutions in the quarter, which supports our thesis that the IT market has returned to growth and re-grew it as light premium to the market. In Q3, there was a 27.6% reduction from gross buildings to net revenue, which was consistent with expectations and a slightly higher difference between the two majors year-over-year, driven by the mix of software and as-of-service offerings, which are recorded on a net basis.

Marshall: Thanks, Patrick and good morning to everyone on today's call. We had a good performance in fiscal Q3 with gross billings ahead of expectations and backlog increasing year over year.

Marshall: Total gross billings were $20 3 billion up 9% year over year.

Speaker Change: Which is above the high end of our guidance range.

Speaker Change: We were pleased to see growth across both endpoint and advanced solutions in the quarter, which supports our thesis that the market has returned to growth.

We grew at a slight premium to the market.

Speaker Change: In Q3, there was a 27, 6% reduction from gross billings to net revenue, which was consistent with expectations and a slightly higher difference between the two measures year over year, driven by the mix of software and as a service offerings, which are recorded on a net basis.

Marshall Witt: From a technology perspective, endpoint solutions grew 5%, driven by PCs, components, mobile, and services. Advanced solutions grew 12%, driven by Hive, hybrid cloud, software, and services. Non-GAAP gross profit was 961 million or 4.7% of gross buildings, down 1% year-over-year for 50 basis points, primarily driven by tough year-over-year compares in Hive and business mix. As we commented in the prior quarter, Hive, which sits within Advanced Solutions, experienced elevated margins in the prior year due to cost recoveries and incremental recognition of inventory carrying costs as we sold through age inventory in 2023. Non-GAAP SG&A expense was 568 million or 2.8% of non-GAAP gross buildings, which represented a 30 basis point improvement from the prior year.

Speaker Change: From a technology perspective endpoint solutions grew 5% driven by Pcs component mobile and services.

Speaker Change: <unk> solutions grew 12% driven by hive hybrid cloud software and services.

Speaker Change: non-GAAP gross profit was $961 million or four 7% of gross billings down 1% year over year or 50 basis points, primarily driven by tough year over year compares in high end business mix as we commented in the prior quarter high which sits within advanced solutions.

Speaker Change: <unk> elevated margins in the prior year due to cost recoveries and incremental recognition of inventory carrying costs as we sold through <unk> inventory in 2023.

Speaker Change: non-GAAP SG&A expense was $568 million or two 8% of non-GAAP gross billings, which represented a 30 basis point improvement from the prior year.

Marshall Witt: As Patrick discussed, we are introducing a new metric comparing non-GAAP SG&A expense to gross profit. As we believe gross profit is a better metric to compare than reported revenue, as more of our business is being netted down. The cost to gross profit percentage in Q3 was 59.1%, representing a flight improvement year-over-year, driven by discipline cost management, while continuing to balance investments in strategic growth areas. Our cost to gross profit percentage will be an important metric and focus as we grow our business. Non-GAAP operating income was 393 million, down 1% year-over-year. Non-GAAP operating margin was 1.9% of gross billing, down 20 basis points year-over-year, which was consistent with expectations.

Speaker Change: As Patrick discussed we are introducing a new metric comparing non-GAAP SG&A expense to gross profit as we believe gross profit is a better metric to compare than reported revenue as more of our business is being netted down.

Patrick Zammit: The cost the gross profit percentage in Q3 was 59, 1% representing a slight improvement year over year, driven by disciplined cost management, while continuing to balance investments in strategic growth areas.

Our cost of growth gross profit percentage will be an important metric and focus as we grow our business.

Patrick Zammit: non-GAAP operating income was $393 million down 1% year over year.

Patrick Zammit: non-GAAP operating margin was one 9% of gross billings down 20 basis points year over year, which was consistent with expectations.

Marshall Witt: The decline was primarily due to the Hive headwind, which we previously discussed, and the next flip-and-out distribution. On a reported revenue basis, non-GAAP operating margin with 2.68% down 16 basis points from the prior year and consistent with expectations. Interest expense and finance charges were 80 million, and the non-GAAP effective tax rate was approximately 21%. Our effective tax rate was lower than expected due to favorable discrete items and mix. Total non-GAAP net income with 245 million, and non-GAAP diluted DPS was $2.86, which was slightly above the midpoint of our guidance range. Now turning to the balance sheet, for Q3, networking capital with 3.5 billion, down 39 million from Q2, and the cash conversion cycle based on net revenue was 21 days.

Patrick Zammit: The decline was primarily due to the highest headwinds, which we previously discussed and the mix within our distribution business.

Patrick Zammit: On a reported revenue basis non-GAAP operating margin was 268% down 16 basis points from the prior year and consistent with expectations.

Patrick Zammit: Interest expense and finance charges were $80 million and the non-GAAP effective tax rate was approximately 21% our effective tax rate was lower than expected due to favorable discrete items and mix.

Patrick Zammit: Total non-GAAP net income was $245 million and non-GAAP diluted EPS was $2 86.

Patrick Zammit: Which was slightly above the midpoint of our guidance range.

Patrick Zammit: Now turning to the balance sheet for Q3 net working capital was $3 5 billion down $39 million from Q2.

Patrick Zammit: And the cash conversion cycle based on net revenue was 21 days. This represented an improvement of two days year over year and quarter over quarter.

Marshall Witt: This represented an improvement of two days year-over-year and quarter-over-quarter. As a result of our strong working capital management, free cash flow was approximately 309 million for the quarter. We returned 91 million to stockholders in quarter three, with 57 million of share repurchases and 34 million of dividend payments. Year-to-date, we have generated 530 million of free cash flow and returned 614 million to stockholders in the form of buybacks and dividends. Similarly, since fiscal 22, we have repurchased 1.25 billion shares and paid 315 million of dividends, totaling 1.6 billion, or 100 percent of our free cash flow.

Patrick Zammit: As a result of our strong working capital management free cash flow was approximately $339 million for the quarter, we returned $91 million to stockholders in quarter, three with $57 million of share repurchases and $34 million of dividend payments year to date, we have generated $530 million of free cash flow and returned 600.

Third 14 million to stockholders in the form of buybacks and dividends.

Patrick Zammit: Similarly.

Patrick Zammit: <unk> 2002, we have repurchased 125 billion shares and paid $350 million of dividends totaling $1 6 billion or 100% of our free cash flow.

Marshall Witt: For quarter-four, on a sequential basis, we expect to slightly increase our capital allocation towards share repurchases. For the current quarter, our border directors have approved a dividend of 40 cents per common share, which will be payable on October 25, 2024, to stockholders of record, as is the close of business on October 11, 2024. We ended the quarter with 854 million of cash and cash equivalents and debt of 4.1 billion. Our growth leverage ratio was 2.3 times, and net leverage was 1.8 times, which is within our target range. In Q3, we also paid off 700 million of senior notes that matured in August at 1.25 percent.

Patrick Zammit: For quarter four on a sequential basis, we expect to slightly increase our capital allocation towards share repurchases.

Patrick Zammit: For the current quarter, our board of Directors has approved a dividend of <unk> 40 per common share, which will be payable on October 25, 2024 to stockholders of record as of the close of business on October 11th 2024.

Patrick Zammit: We ended the quarter with $854 million of cash and cash equivalents and debt of $4 1 billion. Our gross leverage ratio was two three times and net leverage was one eight times, which is within our target range.

Patrick Zammit: In Q3, we also paid off $700 million of senior notes that matured in August at one 5%.

Marshall Witt: Now moving to our outlook for the fiscal fourth quarter. For Q4, we expect non-GAAP growth billings to be in the range of 20.5 billion to 21.5 billion, representing growth of 6 percent at the midpoint. We expect our growth to net percentage adjustment to be approximately 27.2 percent, which translates to 14.9 billion to 15.7 billion of reported revenue. Our guidance is based on a euro to dollar exchange rate of 1.1. Non-GAAP net income is expected to be in the range of 203.9 million to 282 million, and non-GAAP diluted EPS is expected to be a range of $2.80 per diluted share to $3.30 per diluted share, which is based on weighted average shares outstanding of approximately 84.5 million.

Patrick Zammit: Now moving to our outlook for the fiscal fourth quarter.

Patrick Zammit: For Q4, we expect non-GAAP gross billings to be in the range of 25 billion to $21 5 billion representing growth of 6% at the midpoint.

Patrick Zammit: We expect our growth to net percentage adjustment to be approximately 27, 2%.

Patrick Zammit: Which translates to $14 9 billion to $15 7 billion of reported revenue.

Patrick Zammit: Our guidance is based on a euro to dollar exchange rate of one one.

Patrick Zammit: non-GAAP net income is expected to be in the range of $239 million to 282 million and non-GAAP diluted EPS is expected to be a range of $2 80 per diluted share to $3 <unk> per diluted share.

Patrick Zammit: Which is based on weighted average shares outstanding of approximately $84 5 million are.

Marshall Witt: Our non-GAAP tax rate is expected to be approximately 23 percent, and interest expense is expected to be 80 million. As we close out Q4, we expect to generate approximately 1 billion in free cash flow for the fiscal year and are committed to returning excess free cash flow to stockholders, keeping in mind investments needed to strategically grow our business. We expect IP spend demand will continue to expand in Q4 and into fiscal 25, which will result in increased working capital, and also an increase in cash days, but is expected to result in a creative return as these investments sell through in fiscal 25.

Patrick Zammit: Our non-GAAP tax rate is expected to be approximately 23% and interest expense is expected to be $80 million.

Patrick Zammit: As we close out Q4, we expect to generate approximately $1 billion in free cash flow for the fiscal year and are committed to returning excess free cash flow to stockholders keeping in mind investments needed to strategically grow our business. We expect <unk> spend demand will continue to expand in Q4 and into fiscal 'twenty five.

Patrick Zammit: Which will result in increased working capital and also an increase in cash days, but is expected to result in accretive returns as these investments sell through in fiscal 'twenty five in closing, we believe we remain well positioned to benefit from the market recovery and have a strong balance sheet to fund our unique capabilities, allowing STB.

Marshall Witt: In closing, we believe we remain well positioned to benefit from the IT market recovery, and of a strong balance sheet to fund our unique capabilities, allowing us to be the global partner of choice in IT distribution.

The global partner of choice and at distribution, we are now ready to begin the Q&A portion of the call operator.

Audra: We are now ready to begin the Q&A portion of the call.

Audra: Operator? Thank you.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star one again.

Audra: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We request that you limit yourself to one question to allow time for the other participants to ask their questions. If there is remaining time, you are welcome to recue with additional questions.

Speaker Change: Request that you limit yourself to one question to allow time for the other participants to ask their questions. If there is a remaining timing are welcome to re queue with additional questions.

David Boat: We will take our first question from David Boat at UBS. Great guys, thanks again for taking my question.

Speaker Change: We will take our first question from David vote at UBS.

David vote: Great guys. Thanks again for taking my question.

Marshall Witt: Maybe question from Marshall. When you talk about sort of the capital return policy of the business and the casual generation this year, when we think about the mix going into next year and the recovery at IT, which I would imagine is sort of in your preliminary expectations, how should we think about cash flow working capital and what the business looks like for maybe a cash conversion cycle over the intermediate term. I know you've talked about getting to a billion five over the long term, but given that we're coming out of this sort of weekend backdrop over the last couple of quarters, we just kind of love to hear your thoughts on how we should think about cash flow next year going forward.

David vote: Maybe question for Marshall when you talk about sort of the capital return policy of the business and the cash flow generation. This year, when we think about the mix going into next year and the recovery.

Speaker Change: Which I would imagine is sort of between your sort of preliminary expectations. How should we think about cash flow working capital and what the business looks like for maybe a cash conversion cycle over the intermediate term I know you've talked about getting to $1 billion five over the long term, but given that we're coming out of this sort of weekend backdrop over the last couple of quarters with just kind of loves to think loved.

Speaker Change: To hear your thoughts on how we should think about cash flow next year going forward. Thanks.

Marshall Witt: Thanks. Yeah, thanks for the question, David. So our medium-term outlook is 1.5 billion in pre-cash flow. We still believe that we can attain that, but you're right. Given the recovery out of 23 and into 24, and what we expect to be continued growth, that will increase our need for working capital. You bring up a good point about the blend and the mix of the business as you know, the model on Hive has a requirement for longer carrying costs or longer carrying days in regards to their working capital needs. So if that continues to expand, we do think that that will increase our overall working capital.

Speaker Change: Yeah. Thanks for the question, David So our medium term outlook $1 5 billion in free cash flow, we still believe that we can attain that.

Speaker Change: Youre right given the recovery out of 'twenty, three and into 'twenty four and what we expect to be continued growth that will continue to increase our need for working capital you bring up a good point about the blend and the mix of the business as you know the <unk>.

Speaker Change: Model on Hive has required for longer carrying costs are longer carrying days in regards to their working capital needs. So if that continues to expand we do think that that will increase our overall working capital stepping back and looking at our cash conversion cycle for quarter, three and beyond we're right around that 20 days.

Marshall Witt: Stepping back and looking at our cash conversion cycle for quarter three and beyond, we're right around that 20 days. We still think that that's probably the right target as we go into next year. And then, if we do see exponential growth beyond, we'll call it the typical five percentish growth range. And I'm not giving that as a target, just more as a proxy. We still think that 20 to 21, maybe 22 days, is appropriate.

Speaker Change: Still think that that's probably the right target as we go into next year.

Speaker Change: Then if we do see exponential growth beyond we'll call it the typical 5% ish.

Speaker Change: Growth range, and I'm, not giving that as a target just more as a proxy.

Still think that 20% to 21, maybe 'twenty two days as appropriate and we haven't yet modeled out our fiscal 'twenty five expectations.

Marshall Witt: And we haven't yet modeled out our fiscal 25 expectations, but given the comments we said about where we expect to finish for 24 or around a billion, our expectation is that we'd be north of that for fiscal 25.

Speaker Change: But given the comments, we said about where we expect to finish for 24 of around $1 billion. Our expectation is that we'd be north of that for fiscal 'twenty five alright. So just maybe to paraphrase Marshall centric. So high is the big sort of swing factor in terms of working capital cash flow could look like next year, given sort of the growth.

Marshall Witt: Great. So just maybe the paraphrase Marshall Sonsik. So hive is the big sort of swing factor in terms of working cap and what cash flow could look like next year, given sort of the growth. You know, that's the different vectors. That is correct. You know, keeping in mind, we've spoken in the past that when we do kind of come out of recovery positions within distribution, we at times do what we call large strategic five. There are certainly not as big as the swing factor for hive, but that also can contribute as well.

Marshall: After that the different vectors that is correct keeping in mind, we've spoken in the past that when we do kind of come out of recovery.

Speaker Change: Physicians within distribution, we've at times do what we call large strategic buys.

Speaker Change: We're certainly not as big as the swing factor for high but that also can contribute as well.

David Boat: Great.

Speaker Change: Great. Thank you guys. Thank you David.

David Boat: Thank you, guys. Thank you, David.

Okay.

Keith Housum: Well, next to Keith, how's the Mid-North Coast research?

Speaker Change: We'll go next to Keith <unk> Northcoast research.

Keith Housum: Good morning, guys. Appreciate it. It's outstanding.

Keith: Good morning, guys I appreciate it.

Keith: In terms of the high business, perhaps can you provide a bit more color on that and I think if I look back the last quarter, you guys could spend a little bit extra mine building up there.

Marshall Witt: In terms of the hive, is frustrating for a little bit more color on that. And I think if I look back to the last quarter, you guys have spent a little bit extra money building up the looking capital and investing in training and whatnot for the large customer you're adding. Can you perhaps also speak to the impact that having gross margins this quarter? Yeah, thanks for the question, Keith. You're right. The customer we spoke to that ramped in quarter to continue to show good strength in quarter three. And our expectation is that will continue in quarter four and beyond.

Speaker Change: <unk> capital or investing in trading and whatnot for that large customer you are adding can you. Perhaps also speak to the impact that had on gross margins this quarter.

Yes. Thanks for the question Keith Youre right the customer we spoke to that ramped in quarter. Two continued to show good strength in quarter, three and our expectation is that will continue in quarter four and beyond so the good news is that is.

Marshall Witt: So the good news is that that continues to build. As we mentioned, that has some margin headwinds that we saw in the quarter, but also expected to be a headwind going into Q4 and into next year. You're right. There is investments we continue to make in building out the capabilities. And the end-to-end solutions for high and ensuring that we've got the right resources, capital, and footprint to address and get to where we need to be to meet the needs of the business. More specifically, just on the high impact on the quarter. As you remember in the prior year for Q3 and Q4, high experience to benefits to gross profit.

Speaker Change: That continues to build as we mentioned that has some margin headwinds that we saw in the quarter, but also expect it to be a headwind going into Q4 and into next year.

Speaker Change: Youre right. There is investments we continue to make in building out the capabilities in the end to end solutions for for <unk>.

Speaker Change: Ensuring that we've got the right.

<unk> capital and footprint to address and get to where we need to be to meet the needs of the business.

Speaker Change: More specifically just on the high impact on the quarter.

Speaker Change: As you remember in the prior year for Q3, and Q4 five experienced two benefits to gross profit line as we carry quite a bit of inventory coming out of fiscal 'twenty two.

Marshall Witt: One is we carried quite a bit of inventory coming out of fiscal 22. And as that aged out and we sold it, through our customer, pays us to carry that and also gives us a margin markup. So that had significant benefit to us in Q3 of last year and Q4. And then we also had some cost recovery programs. They're one off the nature. They came through in the second half of last year.

Speaker Change: And as that aged out and we sold it through our customer pays us to carry that and also gives us a margin markup. So that had significant benefit to us in Q3 of last year in Q4, and then we also had some cost recovery programs. There are one off in nature. They came through in the second half of last year. So if you just step back and think about where do the majority of it.

Marshall Witt: So if you just step back and think about where to the majority of the decline and overall profitability come from in terms of our performance in Q3 year and year, it was due to those good strengths in profit last year and then investments are making this year to grow the business.

Speaker Change: The decline in overall profitability come from in terms of our performance in Q3 year on year. It was due to those good strength in profit last year and then the investments we're making this year to grow the business.

And.

Patrick Zammit: And just would like to add one thing. I mean, I've enjoyed higher margins. So as we grow with hype, it would have a positive impact on our mix and it would be critical to our results. Great. Thank you. Appreciate it.

Speaker Change: Just would like to add one thing I mean hive enjoying a higher margin. So as we grow behind it will have a positive impact on our mix and will be accretive to our results.

Speaker Change: Great. Thank you I appreciate it.

Ashish Sabadra: Thank you. Next we'll move to a sheet of Sabadra at RBC Capital Markets. Hi, this is David Page on for a sheet. Thanks for taking my question. I just had a quick one regarding the strength and strategic technologies, which seems to be continually growing very strongly.

Speaker Change: Keith.

Speaker Change: Next we'll move to Ashish Sabedra at RBC capital markets.

Speaker Change: Hi, This is David page on for Ashish. Thanks for taking my question.

David Page: I had a quick one regarding the strength in strategic technologies, which.

Speaker Change: It seems to be continually growing very strongly maybe you could just.

Patrick Zammit: Maybe you could just give a little bit more color, always driving the growth in strategic technologies during the quarter, and then if you can, maybe an early read into fiscal 25. Thank you. Yeah. So strategic technologies, specifically it's cloud, it's security and AI, it includes also high and clearly those markets continue to enjoy nice growth. And as you know, the AI market in particular, the hyperscalers have announced that they will continue to invest massively. This year, they will roughly invest 250 billion. I mean, thanks to high and participate also in that market. So that's, I mean, besides the growth which we see in distribution in hybrid cloud and security and AI, I mean, the acceleration of the investments of the hyperscalers will continue to drive that growth rate up.

Speaker Change: Probably a little bit more color what was driving the growth in strategic technologies during the quarter and then if you can maybe an early read into fiscal 'twenty five thank you.

Speaker Change: Yes.

Speaker Change: So the strategic technologies, specifically, it's cloud, it's security and AI.

Speaker Change: It includes also highs and clearly.

Speaker Change: Those markets continued to enjoy nice growth.

Speaker Change: And as you know the market in particular.

Speaker Change: The Hyperscale guys.

Speaker Change: Those of us that will continue to invest massively.

Speaker Change: This.

Speaker Change: It was roughly invested longer than 60 billion fixed.

Speaker Change: Thanks to a heightened participate also invest market so thats.

Speaker Change: Besides the growth, which we see in distribution in hybrid cloud and security and AI I mean, the acceleration of the investments of the Hyperscale as well will continue to drive that growth.

Speaker Change: Growth rates up.

Okay.

Adam Tindle: We'll move next to Adam Tendell at Raymond Jean. Okay, thank you.

Adam Tindle: Well move next to Adam Tindle Raymond James.

Adam Tindle: Okay. Thank you good morning, Patrick I, just wanted to start on just kind of a philosophical question on running the business. Obviously, what we're seeing here is very strong growth in gross billings, but margins were down working capital intensity increased understand some of the explanation on high but that's going to continue into Q4, So I'm just wondering it.

Adam Tindle: Good morning, Patrick. I just wanted to start on just kind of a philosophical question on running the business. The people we're seeing here is very strong growth and gross buildings, but margins were down, working capital intensity increased. Understand some of the explanation on high, but that's going to continue into Q4. I'm just wondering if, you know, if you look at Q3 and Q4, is this sort of a precursor for what investors should expect under your leadership, where we're going to focus a little bit more on growth and a little bit less on those other two areas or potentially sacrifice those two areas in order to grow.

Speaker Change: If you look at Q3, and Q4 or is this sort of a precursor for what investors should expect under your leadership, where we're going to focus a little bit more on growth and a little bit less on those other two areas or potentially sacrifice those two areas in order to grow and if so why.

Adam Tindle: And if so, you know, why would that be the right strategy? You've been in the industry a long time. We've seen kind of this play out in component distribution, for example, which I know you lived through a part of, and that didn't really help either of those two players or shareholders. So just kind of curious on the focus on revenue growth and growth generally speaking, given that was the first priority that you mentioned.

Would that be the right strategy.

Speaker Change: <unk> been in the industry a long time, we've seen this play out in component distribution for example, which I know you've lived through part of.

And that didn't really help either of those two players or shareholders. So just kind of curious on the focus on revenue growth and growth generally speaking given that was the first priority that you mentioned.

Patrick Zammit: Yeah, now thanks a lot for the question. So, I mean, clearly, we are focused on profitable growth and cash for generation. So, of course, when you look at the results of this quarter, you see that we had a very nice, safe growth exceeding, by the way, our expectations. And the margin being a little bit more muted. Again, as Marshall explained, the vast majority of the GM percent decline is related to high and then related to the mix. Going forward, I mean, I think we are going to see an improvement on the GM percent. Two reasons.

Speaker Change: Yes, Thanks, a lot for the question so.

Speaker Change: Clearly.

Speaker Change: We are focused on profitable growth and cash flow generation. So of course, when you look at the results of this quarter.

Speaker Change: You see that.

Speaker Change: We had.

Speaker Change: The very nice sales growth exceed.

Speaker Change: Exceeding by the way all expectations.

Speaker Change: And the margin being a little bit more muted again as Marshall explains.

Speaker Change: The vast majority of the.

<unk> percent decline is related to two.

Speaker Change: Too high and then.

Speaker Change: <unk> to the mix going forwards.

Speaker Change: I think we are going to see an improvement on the GM percent two reasons. So the first one is when you look from a geographic standpoint at what is driving the recovery of the sales increase we see that Europe and ACG are growing faster than North America and in North America, we enjoy.

Patrick Zammit: So, the first one is when you look from a geographic standpoint at what is driving the recovery or the safe increase, we see that Europe and APJ are growing faster than North America. In North America, we enjoy better operating margins. So, as the North American market accelerates its recovery, it's going to have a positive impact on mix. The second reason is, I mean, at the moment, we benefited from some large deals, which again, where I treat it, I mean, we have the right return on those deals, but the margins are higher in the mid-segment. And so, again, as the mid-segment recovers, we should again see an improvement of the margins.

Speaker Change: Better operating margins, so as the North American market accelerates its recovery is going to have a positive impact on mix. The second reason is.

Speaker Change: I mean at the moment.

Speaker Change: We benefited from some large deals.

Speaker Change: Gateway accretive I mean, we have the right return on those deals but.

Speaker Change: The margins are higher in the mid segment and so again as the mid segment recovers, we should again see an improvement of the margins.

Patrick Zammit: The last point I want to insist on is its services. I mean, if we want to improve our GM percent and make it sustainable, we need to increase our mix of services, which is going to be at the core of the strategy. So, you are referring to the component business. If you look at my track record there, I always focused not only on the growth, but also growth at the right margin quality. And I intend to do the same here. If we go for large deals with lower margin, we will make sure that the return is right.

Speaker Change: Last point.

Speaker Change: I want to insist on its services.

If we want to improve.

Speaker Change: The GM percent and make it sustainable we need to increase our mix of services, which is going to be at the core of the strategy.

Speaker Change: So you are referring to the component business if you look at.

Speaker Change: My track record there.

Speaker Change: I'd always focused not only on the growth, but also growth at the right margin quality and I intend to do the same here.

Speaker Change: If we go for.

Speaker Change: Large deals with lower margin, we want to make sure that the return is right, but again the target is really profitable growth and growing GP at least at the same pace assays if not faster.

Patrick Zammit: But, again, the target is really profitable growth and growing GP, at least at the same pace as sales, if not faster.

Speaker Change: Thank you.

Adam Tindle: Thank you.

Peter: Thanks Peter.

Adam Tindle: Thanks, Adam.

Michael <unk>: We'll go next to Michael <unk> at Goldman Sachs.

Michael Ng: We'll move next to Michael Aing at Goldman Sachs. Hey, good morning. Thank you for the question. I just have one endpoint. I was just wondering if you could talk a little bit more specifically around what you're seeing on PCs. Are there any benefits from AI PCs showing up in the quarter?

Michael <unk>: Hey, good morning. Thank you for the question I just have one on endpoint I was just wondering if you could.

Michael <unk>: Talk a little bit more specifically around what youre seeing on Pcs are there any benefits from AI.

Speaker Change: AIP sees showing up in the quarter and if you.

Patrick Zammit: And if you could also just comment on endpoint margins, we've obviously talked a lot about Hive, but endpoint solutions also saw a little bit of a gross margin, finally sequentially. Thank you. Yes. Thanks, Adam, for the question, Mike. So I would take what we see in the PC market. So the PC market is back to growth, and we see that in all the regions. Now the pace of recovery is slightly more muted than expected. We were expecting me to, yeah, higher single digit growth, and we were more in low single digit growth. Now, I think that going forward, the tailwinds we've talked about in particular, so AI PCs, but not only the refresh of the PCs both during the pandemic and the refresh required with Windows 10 being replaced by Windows 11.

Speaker Change: Also just comment on endpoint margins.

You, obviously talked a lot about hive.

Speaker Change: Solutions also saw a little bit of a gross margin decline sequentially. Thank you.

Speaker Change: Yes, Thanks a lot.

For the question Mike.

Speaker Change: I will take the.

Speaker Change: What we've seen in the PC market. So the PC market is back to growth and we see that in all the regions now.

Speaker Change: This of recovery is slightly more muted than expected.

Speaker Change: We're expecting mid to.

Speaker Change: High single digit growth and we were more in the <unk>.

Speaker Change: Low single digit growth now I think thats.

Speaker Change: Going forward.

Speaker Change: The tailwind we've talked about in <unk>.

Speaker Change: Particular, atc's, but not all need the refresh of the FCC's bolstering the pandemics and.

Speaker Change: And the refresh required with.

Speaker Change: Windows 10.

Being ripped.

Speaker Change: Replacement Windows 11, I think that story holds and we should see an acceleration of the PC growth.

Patrick Zammit: I think that story holds, and we should see an acceleration of the PC growth. AI PCs very rapidly. So the way of AI PCs in the total PC resell at the moment continues to be relatively low. One of the reasons being that the new AI PCs are just coming into the market. So I think customers have been waiting a little bit, especially to see the mid-range PCs coming. We had a series of launches at the beginning of the quarter that would be more by the end of the quarter.

Atc's very rapidly so the.

Again, the weight of Adcs in the total PC sale at the moment continues to be relatively low one of the reason being that the new <unk>.

<unk>.

Speaker Change: Just coming into the market. So I think customers have been waiting a little bit, especially to see the mid to HCC is coming.

We have a series of launches at the beginning of the quarter that would be more by the end of the quarter and so I think that we will see an acceleration again in the first half of next year.

Marshall Witt: And so I think that we will see an acceleration again in the first time for next year. On the margin, you want to... Good. You covered it.

Speaker Change: On the margin you're going to.

Speaker Change: You covered it.

Okay.

Speaker Change: We'll go next to Joseph Cardoso at J P. Morgan.

Joseph Cardoso: We'll go next to Joseph Cardoso at JP Morgan. Hi. Good morning, everyone. And thanks for the question here. So, yeah, just one for me. You know, it sounds like you're pretty, you're feeling pretty confident around the recovery and the broader IT spending market heading into the second half of this year and into next. Thanks. You know, which is maybe a bit different than what we're hearing from some of your VR partners who are seeing more of a, let's say, a mixed environment. You're just curious what is driving your confidence around the recovery here. And perhaps maybe you can flesh out that a bit, either by a product area or customer vertical, where you're feeling the most confident versus other areas that perhaps are still, you know, public sluggish.

Hi, good morning, everyone and thanks for the question here.

Joseph Cardoso: So just one from me it sounds like Youre pretty youre, feeling pretty confident around the recovery in the broader it spending market heading into the second half of this year and into next.

Speaker Change: Which is maybe a bit different than what we're hearing from some of your var partners, who are you seeing more of a let's say a mixed environment. Just curious what is driving your confidence around a recovery here and perhaps maybe you can flesh out that a bit either by product area or customer vertical where you are feeling the most confident versus other areas that perhaps are still polich a sluggish.

Patrick Zammit: Thanks for the question, guys. Yeah, so thanks a lot. So, I mean, when you look at the market, as I talked about the PC market, again, the recovery, we are back to growth, but the recovery in the second half of this year is a little bit below expectation. And we should see an acceleration next year. The other technology I want to bring to the table today is networking. We know that we have tough compares last year. We had huge backloads, which got shipped in the second half, which explains why the market year is down double digits.

Speaker Change: Thanks for the question guys.

Speaker Change: Yes, so thanks, a lot so I mean.

When you look at the markets.

Speaker Change: Talked about the PC market again, the recovery, we are back to growth, but the recovery in the second half of this year is a little bit below expectation and we should see an acceleration next year.

Speaker Change: Technology I want to bring to the table today is networking.

Speaker Change: We know that I mean, we are soft compared last year, we had a huge.

Speaker Change: Backlogs, which got shipped in the second half.

Speaker Change: Which explains why the market year on year is down double digits.

Patrick Zammit: But that again is normalizing. So I think in Q4 we should be at the end of the tough compare, and so next year we will again have a normal compare and we should see the positive.

Speaker Change: That again is normalizing so.

Speaker Change: I think again in Q4, we should be at the end of the tough compare and so next year, we will again have the normal compare and we should see the positive.

Patrick Zammit: I want also to insist on the geographical aspect. Europe is recovering faster. What we see in the market is mid-single digit growth. In Europe, specifically, the distributors are serving also the B2C market, and we see a record coming from the B2C market. The B2B market is a little bit more muted, but again we should see some acceleration. APJ again is doing well. North America is really well for the moment. The market is flat. I would say slightly down, but I mean 1% down. And here again, I mean we expect the market to come back, driven by PCs, driven by networking, and all the other technologies are doing much better too.

Speaker Change: I want also to insist on the geographical.

Speaker Change: Aspect I mean Europe and.

Europe is recovering faster I mean, what we've seen the market is mid.

Speaker Change: Mid single digit growth.

Speaker Change: It's driven.

Speaker Change: So in Europe, specifically.

The distribution.

The distributors are serving also this the BTC market and we see a recovery coming from the <unk> market. The <unk> market is a little bit more muted, but again, we should see some acceleration APG.

Speaker Change: He is doing well North America is really left for the moment the market is flat.

I would say slightly down but.

Speaker Change: I mean, one 1% down and here again.

Speaker Change: We expect the market to come back driven by Pcs driven by.

Speaker Change: Networking and all the other technologies are doing.

Speaker Change: Much better too so.

Patrick Zammit: So next year, because of that, we believe that we should have a good, we should see an acceleration of the goals.

Speaker Change: Jim because of that we believe that we should have a good.

Speaker Change: We should see.

Speaker Change: Exploration of the Gulf.

Joseph Cardoso: Thanks, Patrick. Appreciate all the color. Thanks.

Speaker Change: Thanks, Patrick I appreciate all the color.

Jeff: Thanks, Jeff.

Ruplu Bhattacharya: We'll move to our next question from Ruplo Bacharya at Bank of America. Hi. Thank you for taking my questions.

Speaker Change: We will move to our next question from your floor that Sharia at Bank of America Hi.

Sharia: Hi, Thank you for taking my questions I have two.

Patrick Zammit: I have two first one for Patrick. Patrick, where do you see your investments over the next year? Are you happy with the portal? Is that something you want to enhance? And then, as we think about the impact of AI, do you think you need to enhance your line card or make any investments in that area to take advantage of that? So just your thoughts on where you need to invest to drive further growth over the next year?

Speaker Change: First one for Patrick Patrick.

Sharia: Patrick where do you see your investments over the next year are you happy with the portal is that something you want to enhance and then as we think about the impact of AI do you think you'll need to enhance our line card to make any investments in that area to take advantage of that so just your thoughts on where you need to invest to drive further growth over the next year.

Speaker Change: So.

Patrick Zammit: So I want to start. So investment in technology is going to be key for us. On the ERP, the good news is that in both North America and in Europe, we've completed our conversions and so we are now on one system. And so I expect there the investments to come back to normal when it comes to platforms, in particular to support as a service. Here we will continue to invest the market for the weight of software and other service in our total mix is increasing and we need to continue to enhance our value proposition there.

I want to stop so.

Speaker Change: And technology is going to be key for us.

Speaker Change: On the ERP.

Speaker Change: The good news is that in both North America and in Europe, We've completed our.

<unk> and so we are now on one system and so I expect that the investments to come back to normal when it comes to platforms in particular to support as a service.

Speaker Change: Here, we will continue to invest.

Speaker Change: The market so the weight of soft.

Software as a service in our total mix is increasing and we need to continue to enhance our value proposition value. So yes more investments in our platform cloud platform in particular.

Patrick Zammit: So yes, more investments in our platform, platform in particular. So on AI again, I mean we see an acceleration of the demand. So, as you know, we've developed a specific go-to-market and program called Destination AI. which is covering all our technologies, because we believe that AI will benefit not only to the software category but also to the endpoint category, to the server category, the networking category. If you look at our line count today, we are, in fact, on all of those technologies very well positioned. We have, I mean, we believe already the leaders which will enable us to win in the market.

Speaker Change: Okay.

Paul: Thanks, Paul.

Speaker Change: Yes, sorry.

Jordan: AI Jordan cover and yes, so on the AI again.

We we see an acceleration.

Speaker Change: <unk> of the demand.

Speaker Change: So as you know we've developed a specific go to market and program called destination AI.

Speaker Change: Which is covering all our technologies because we believe that the AI will benefit not only to the software category, but also to the endpoint category to the server.

Category the networking category. If you look at our lineup today, we are in fact on almost technologies very well positioned we have I mean, we believe already.

Speaker Change: The leaders, which will enable us to win in the market. So yes, we constantly look at new partners to make sure that our product portfolio and our value proposition remains competitive, but again I mean today. We think we are already very well positioned in that space.

Patrick Zammit: So yes, we constantly look at new partners to make sure that our product portfolio and our value proposition remains competitive. But again, I mean, today we think we are already very well positioned in that space.

Marshall Witt: And Ruplu, just one thing to add on AI in regards to Hive, and we've mentioned this in previous discussions. They continue to experience a growing partnership with Nvidia. That business continues to expand and has an opportunity to be significant for us as we go into 2025. Okay, thanks for all the details there.

Speaker Change: Just one thing to add on AI in regards to hive and we've mentioned this in previous discussions they continued to experience a growing partnership with Nvidia that business continues to expand and has an opportunity to be significant for us as we go into 2025.

Speaker Change: Okay. Thanks for all the details there Marshall if I can follow up on capital allocation priorities I mean, how are you looking at.

Ruplu Bhattacharya: Marshall, if I can follow up on capital allocation priorities, I mean, how are you looking at any potential M&A in this space and LiveAx? So can you help us or dead reductions? Can you help us disprioritize these things? Thank you.

Speaker Change: Any potential M&A in this space.

Speaker Change: Buybacks. So can you help us our debt reductions, but can you help us.

Patrick Zammit: Prioritize these things. Thank you sure sure Rick will have Patrick first speak to M&A and his thoughts. There then I will close this yes, so M&A.

Patrick Zammit: Sure. Ruplu, I have Patrick first speak to M&A, and he has passed there; then I'll close it. Yes. So M&A continues to be an opportunity for us to accelerate growth in specific geographies or to acquire specific technologies or to acquire capabilities. And the second thing I would mention is that when you look at our M&A policy, we've always been very disciplined. So we will only go for M&A's where we know that the return is going to meet our financial expectations. And the third thing I want to add is we have a very successful track record of M&A and integration.

Patrick Zammit: Continues to be an opportunity for us to accelerate growth.

Patrick Zammit: In specific geographies or to acquire specific technologies or to acquire capabilities.

And the second thing I would mention is that.

Patrick Zammit: When you look at our M&A.

Patrick Zammit: The policy, we have always been very disciplined so we will only go for M&a's, where we know that the return is going to.

Patrick Zammit: To meet our financial expectations and assessing them off too I wanted to add is we have a very successful track records.

M&A and integration you look at the acquisition of Avnet Demurrage.

Patrick Zammit: You look at the acquisition of M&A, the merge between Tech Data and T-Next. Again, all those acquisitions or merges have been accreted. We have a true expertise integrating companies. And so M&A, because of that, we would continue to be part of the strategy.

Patrick Zammit: Between take data on <unk> again all of those.

Patrick Zammit: All of those acquisitions or mergers have been accretive.

Patrick Zammit: The true expertise integrating companies and so M&A because of that will continue to be part of the strategy.

Marshall Witt: And then Ruplu just done the share repurchase and buyback, excuse me, in the dividends. Certainly holding to our 50-50 allocation that we set out a couple of years ago. And looking at our overall share repurchase since the fiscal of 22, we repurchased over 1.25 billion of shares and returned dividends of 350 million. So that totals about 1.6 billion, which is 100% of our free cash flows. So back to that pivoting where the M&A wasn't there, we filled it in with returning back to our shareholders. In the prepared remarks, we plan to continue to repurchase shares in Q4.

And then briefly just on the.

Share repurchase.

Patrick Zammit: And buyback excuse me.

Patrick Zammit: Dividends.

Patrick Zammit: Certainly holding to our 50 50 allocation that we set out a couple of years ago.

Patrick Zammit: And looking at our overall <unk>.

Patrick Zammit: Share repurchase since the fiscal 'twenty two.

Patrick Zammit: We've repurchased over 100.

Patrick Zammit: <unk> two 5 billion of shares and returned dividends of $350 million. So that totals about $1 6 billion, which is 100% of our free cash flow so back to that pivoting, where the M&A wasn't there we filled that in with returning back to our shareholders in the prepared remarks, we plan to continue to repurchase.

Shares in Q4 from a leverage standpoint, we're happy with where we're at we're at two three times gross and one eight times net so feel comfortable that we're at the right target range.

Marshall Witt: From a leverage standpoint, we're happy with where we're at. We're at 2.3 times growth and 1.8 times net. So feel comfortable that we're at the right target. Range. Okay, thanks for all the details. Appreciate it.

Speaker Change: Okay. Thanks for all the details appreciate it thank.

Ruplu Bhattacharya: Thank you.

Speaker Change: Thank you.

George Wang: We'll go next to George Wang at Barclays. Again, guys, thanks for taking my question. I have just two quick questions.

We'll go next to George Wang of Barclays.

George Wang: Hey, guys. Thanks for taking my question I just have just two quick questions Firstly.

George Wang: Firstly, I just want to kind of honing on the hype, again, ground your assets for you guys. And just curious for one, are you seeing expansion of new logos? You know, previously there might be some, you know, customer concentration with a couple of hyperscalers. Just curious, if you have new design links, you know, on the assembly side. But also, you know, curious kind of how is the utilization going for the assembly lines? Yeah, thanks for the question. So we have spoken about a new landing customer in the prior quarter that continue to expand in quarter three.

George Wang: I just want to kind of holding the highest again crown jewel assets for you guys.

George Wang: Just curious for one.

Speaker Change: Are you seeing expansion of new logos.

There might be some.

Speaker Change: Customer concentration with a couple of Hyperscale just curious.

Speaker Change: If you have two new design wins.

Speaker Change: The assembly side, but also in all curious to kind of full Hollywood <unk>.

Speaker Change: They should go.

Speaker Change: <unk> for the Assembly lines.

Speaker Change: Yeah. Thanks for the question so we have.

<unk> spoken about our newly landed customer in the prior quarter that continued to expand in quarter three and we expect that will continue to grow in quarter 400 into 'twenty five we.

Patrick Zammit: And we expect that will continue to grow in quarter four hundred into twenty five. We do focus quite a bit on customer diversification. That's one of our key strategies, both the hyperscalers and the next tier of customer opportunities, and have done a really good job of building out our capabilities. And specifically, our onshore capabilities have been quite a bit of an attribute or a strength for us, getting quite a bit of attention and interest in those capabilities. One of the aspects of onboarding a customer, it's long. It can take 12 to 18 months at a minimum.

We do focus quite a bit on customer diversification. That's one of our key strategies. Both of the Hyperscale is then the next tier of customer opportunities and have done a really good job of building out our capabilities.

Speaker Change: And specifically our onshore capabilities has been quite a bit of.

Speaker Change: And attribute our strength for us getting quite a bit of attention and interest in those capabilities.

Speaker Change: One of the aspects of <unk>.

Speaker Change: On boarding a customer its long it can take 12 to 18 months at a minimum so that part tends to be what slows us down, but nevertheless, we do like what I'll call a pipeline.

Marshall Witt: So that part tends to be what slows us down.

Marshall Witt: But nevertheless, we do like what I'll call a pipeline of prospects, a pipeline of close to land, and some customers that we're going to start onboarding as we go into next year.

Speaker Change: <unk> is a pipeline of.

Speaker Change: Close to land and some customers that were going to start onboarding as we go into next year.

Marshall Witt: Okay, just click follow up on the utilization. Just curious if you guys can talk about if there's any change in the utilization. Previously, you guys talked about you have some access capacity. Just curious whether the current increasing demand is going to backfill some of the capacity. Yeah, we have enough capacity to handle the business today and where we expected to go over the next couple of years.

Speaker Change: Okay, just a quick follow up although utilization just curious if you guys can talk Paul yes, so thats any changing.

Paul: Utilization of previously.

Speaker Change: You guys have some excess capacity just curious whether the current.

Paul: Increasing demand is going to backfill some of that.

Speaker Change: Capacity.

Paul: Yes, we have enough capacity to handle the business today, and where we expect it to go over the next couple of years.

Speaker Change: Okay great.

Patrick Zammit: Okay, great.

Patrick Zammit: Just quickly, if I can screen things just on the PC, I think that just continue to sort of AIPC, you can see that them just curious if you have any changes in terms of when they're flowing to the PNL. But also, have you seen any sort of near-term kind of liations from the AIPC on the traditional PCs? Some of your competitor, talk about, you know, in the Imperial, like you might have some uncertainty on the public spend just because you have impending sort of a wave of AIPC. Just curious if you have seen any change in the customer survey behavior dynamics over the last three months.

Speaker Change: Quickly if I can squeeze in just on the PC.

Speaker Change: No.

Speaker Change: Got it.

Speaker Change: Just continuing with AIP. It seems that I'm, just curious if you're halfway need any changes in terms of when they'd flow into the P&L, but also have you seen any so the.

Speaker Change: Kind of near term cannibalization from the ITC and the traditional Pvs some of your competitor Paul.

So they did.

Speaker Change: Imperial like you might have some uncertainty on the pulp is spend that just because you have the impending.

Speaker Change: A wave of the IPC just curious if you had seen any changing customer.

Speaker Change: Customers have a behavioral dynamics over the last three months.

Patrick Zammit: So the wave of AIPC is rumping up. So we see it. It is happening a little bit later than expected. And again, as I was explaining, I think one of the opportunities is the launch of the new AIPC. I mean, we have just seen, I mean, as you know, the first AIPCs were launched with Qualcomm. I mean, so we have the AIDC coming now. Intel AIDCs are going to come, and so with the increase in the product offering, especially in the mid-range, we should see an acceleration of the adoption of AIDCs. And thank you for taking my question.

Speaker Change: Okay.

Speaker Change: The weight of the <unk> is ramping up so we see it.

Speaker Change: It is.

It is happening a little bit slower than expected and again as I was explaining I think one of the.

Speaker Change: <unk> opportunity is the launch of the new <unk> I mean, we we address C. I mean as you know the firstly apc's were launched with Qualcomm.

Speaker Change:

Speaker Change: So we have the A&D APC is coming now into the ITC is going to come and so with the increase in the product offering, especially in the mid range, we should see an acceleration of the adoption of <unk>.

Speaker Change: Okay great.

Speaker Change: Thank you.

Speaker Change: And next we'll move to Alex Valero at loop capital.

Alex Valero: Hey, guys.

Alex Valero: Thank you for taking my question I have a non Jenny I question are you guys seeing any sort of pickup in normal.

Patrick Zammit: I have a non-genieic question. Are you guys seeing any sort of pickup in normal non-generic server demand? So, constantly we don't have yet enough statistics on it. What we know is, what we see is that still, I would say enterprises are looking at how to utilize Gen AI and take advantage of the new technology. So our destination AI initiative aims at helping our resellers to position a Gen AI with end users and identify the right use cases. But that's taking a little bit of time. So again, I mean we are very confident, but Gen AI will have a positive impact on the server market.

Speaker Change: Don journey ice server demand.

Alex Valero: So.

Alex Valero: Yes.

Speaker Change: Constantly we don't have yet.

Speaker Change: Statistics on this what we know is what we see is that.

Speaker Change: Still I would say enterprises are looking at how to utilize Gen AI.

Speaker Change: And take advantage of the new technology so.

Speaker Change: Yes.

Speaker Change: Our destination destination AI.

<unk>.

Speaker Change: <unk> aims to helping our resellers to position.

Speaker Change: Ginny ice with the end users and identify the right use cases, that's taking a little bit of time. So again I mean, we are very confident but G&A I will have a positive impact on the server market, but I think we're going to see the benefit.

Patrick Zammit: But I think we're going to see the benefit probably more next year in the second half of next year, not in the shorter. So, got it. Thank you for that.

Speaker Change: Probably more next year in the second half of next year.

Speaker Change: Not in the short term.

Speaker Change: Got it thank you for that just a quick.

Alex: Just a quick, slightly different question. Are you guys seeing any impact 3Q or 4Q from web changes at large customers? Alex, can you just repeat that again? I heard that you have seen the impact. Did you say on large customers in Q3 and Q4? Yeah, that's right. Yeah, any revenue impact on large customers to 3Q or Q4? So now for the moment, I mean that segment of the market, so in particular in North America, continues to be a little bit more muted. So we are not seeing yet an acceleration of the demand. Yeah, that's the status as of today.

Slightly different question are you guys seeing any impact.

Three Q or <unk> from Bryan changes at large customers.

Alex Valero: Alex can you just repeat that again I heard that have you seen any impact did you say unlock from large customers in Q3 and Q4.

Speaker Change: Yes, that's right, yes, any revenue impact from large customers.

Speaker Change: Two three Q over Q4.

Speaker Change: So for the moment I mean that segment.

Speaker Change: Some of the markets and in particular in North America continues to be a little bit more muted. Okay. So we are not seeing yet and acceleration of the demand.

Speaker Change: Yes.

Alex Valero: The status as of today, and then just to clarify Alex. It. The question is a broader did we see any large corporate activity in the quarter I think Patrick referenced there are a couple of larger deals that had lower margin.

Alex: And then just to clarify, Alex, the question is broader: do we see any large corporate activity in the court? I think Patrick referenced there are a couple larger deals that had lower margin impacts, but great returns given the cash day. So those come and go, but outside of that, not much. Okay, that's perfect, guys. Thank you for that. We appreciate it. Thank you.

Speaker Change #100: Impacts, but great returns given the cash there so those come and go but outside of that not much.

Speaker Change #101: Okay. No that's perfect guys. Thank you for that I appreciate it. Thank you.

Okay.

Patrick Zammit: And that concludes our Q&A session.

Speaker Change #101: And that concludes our Q&A session I will now turn the conference back over to Patrick for closing remarks.

Patrick Zammit: I will now turn the conference back over to Patrick for closing remarks. Yeah, thanks very much. So before we wrap the call, I just want to acknowledge our 23,000 co-workers across the globe for their dedication to serving our customers, vendors, and the technology marketplace at large.

Patrick Zammit: Yes, thanks, very much so before we wrap the call I just want to acknowledge our <unk> 3000 co workers across the globe for their dedication to serving our customers vendors and the technology marketplace at large thank.

Patrick Zammit: Thank you to everyone for attending today's call, and we look forward to reconnecting next water. Have a good day.

Thank you to everyone for attending today's call and we look forward to reconnecting next quarter.

Patrick Zammit: Have a good day.

Audra: And this concludes today's conference call. Again, thank you for your participation. You may now disconnect.

Patrick Zammit: And this concludes today's conference call again, Thank you for your participation you may now disconnect.

Patrick Zammit: Yeah.

Speaker Change #102: Thank you.

Speaker Change #102: Okay.

Speaker Change #102: Okay.

Speaker Change #102: Yeah.

Speaker Change #102: Yeah.