Q4 2024 TD SYNNEX Corp Earnings Call
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 about TD <unk> Dot com.
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Patrick: I'll now turn the call over to Patrick Patrick.
Josh: Josh <unk>.
Speaker Change: Good morning, everyone and thank you for joining us I am pleased to share our fourth quarter results and how we are well positioned for the year ahead.
Revenue grew by 10% year over year and gross billings grew by 7%.
Speaker Change: We generated free cash flow of $513 million in Q4.
Speaker Change: Meeting our targets of 1 billion for the full year.
Speaker Change: Demonstrating our commitment to delivering opportunistic value to shareholders. We returned 72% of our free cash flow in buybacks and dividends during fiscal year 'twenty four.
Speaker Change: Let me share three factors behind our Q4 performance.
Speaker Change: First we saw good momentum in distribution grew.
Speaker Change: Gross billings and endpoint solutions grew by 3% year over year led by strength in Pcs.
Advanced solutions, excluding hive showed broad strength across all geographic segments.
Speaker Change: Our cloud cyber security.
Speaker Change: And data and analytics portfolios all grew by double digits in Q4.
Ross: Ross all of our geographic segments.
Gross profit.
Ross: Endpoint and advanced solutions showed solid growth year over year as we continue to focus on profitable growth.
Ross: Second, we particularly saw strong top line performance and hive.
Ross: In Q4, <unk> revenue grew by double digits, reflecting its improved end to end capabilities.
Marshall: As Marshall will discuss the tough year over year compare from hive impacted gross and operating margins.
Marshall: And third our Q4 results reflect the strength and resilience of our business model and then evolving macro environment.
Marshall: Our diversified product portfolio and our global scale allow us to capture a wide range of it spend and our continued operational excellence enabled us to deliver consistent margins and free cash flow.
Marshall: Having been in the CEO role for over 100 days.
Marshall: I'd like to share a few observations from my conversations with many of our partners and vendors.
Marshall: Digitization is increasingly critical for enterprises seeking efficiency and growth.
The rapid evolution of the it ecosystem driven further by the integration of technologies like AI is creating new complexities as enterprises look to meet the evolving needs of their end users.
Marshall: These challenges are creating lots of opportunities for <unk>.
Marshall: Our global leader at the center of many of <unk>, most powerful tales and customers and vendors are increasingly relying on us as a trusted strategic partner to navigate this complexity growth of our business and deliver turnkey solutions that integrate.
Marshall: Software hardware cyber security AI and other emerging technologies.
Marshall: Let me share a few recent examples of how our unique strengths.
Marshall: <unk>, our vendors expand their business.
Marshall: Two of our top 10 global vendors choose us to expand their business to India.
Marshall: Our specialized expertise across all major technologies, and Nike and strong management team and India combined with our financial strength and commitment to up all the regulatory and compliance requirements.
Marshall: Is helping them to efficiently and sustainably scalable business.
Marshall: In another example, a large cyber security software vendor chose us as the exclusive distributor for Japan.
Marshall: Our market, leading cyber capabilities in Asia Pacific combined with our strong market presence in Japan played a significant role in our ability to expand with these leading vendors.
Marshall: With more major franchises in place our market relevance continues to increase in Asia Pacific, where we grew gross billings by 31% year over year in Q4.
Okay.
Marshall: Momentum is also strong with customers around the world.
Marshall: For example.
Marshall: The large reseller customer chose us to transition part of their business totaled one tier to a two tier model.
With our broad capabilities and financial strength.
We are delivering comprehensive and customized supply chain and enablement services that significantly reduce their operating cost, while enabling new avenues of growth for them.
Marshall: In another example, a large global solutions provider chose us to manage the AWS business.
Marshall: Recognizing our leadership in the AWS ecosystem and the value of our cloud platforms managed services. We are enabling these customers end users to manage cloud workloads at scale and at low cost.
Marshall: Vendors and customers increasingly choose us for four key reasons.
Marshall: First.
Marshall: Our end to end portfolio is unmatched.
Marshall: This creates deep partnerships with vendors and enables our customers to expand their technology and solutions offerings.
Marshall: Second <unk>.
Marshall: Especially as go to market approach with expertise across all major technologies in it.
Marshall: Following an enablement engine that helps our customers grow and reduce their operating costs.
Marshall: We enable our customers to deliver high growth technologies like cyber security NII and integrated multi vendor solutions at the heart of it is our culture that fosters innovation collaboration and a relentless commitment to our partner's success.
Marshall: Third our large global reach enabling partners to deploy multi country solutions grew across geographies and enter new market verticals, while trusting us to ensure they meet compliance and regulatory requirements.
And fourth we are collection of specialists, followed by technology and committed to operational excellence.
Our cloud platforms. Three one is a great example of how we simplify the complex.
Marshall: Customers are using our platform as a central hub to management anything as a service business.
Marshall: We integrate with key vendors and the whole of hyper scaler marketplaces, giving us the ability to provide customers with access to thousands of vendors.
Marshall: Our platform provides powerful capabilities like real time reporting and billing on infrastructure as a service consumption.
Marshall: <unk> capabilities setups capabilities pre built white labeled store fronts automation with PSA connectors, and our open API architecture and end to end connectivity.
Marshall: We recently announced market based syndication with Microsoft Azure, and AWS, simplifying procurement and lifecycle management of Hyperscale of catalogs.
Marshall: While customers are embracing our platform, leading nextgen vendors are partnering with us because we enable them to scale efficiently to reach our large customer base.
Marshall: And as our partners grow so do we.
Marshall: Moving onto hive.
Marshall: Our hyperscale infrastructure business.
Marshall: We have certain cloud adoption and AI driven demand Hyperscale is continue to invest heavily in data centers, creating opportunity for <unk> to continue to expand its services and offerings to address areas such as liquid cooling and power management.
Marshall: <unk> operating margins accretive to our results and significant potential high continues to be a key driver of our growth.
Marshall: In the year ahead, we will build on our momentum by strengthening our position.
Marshall: The vital link connecting the ecosystem.
Marshall: We believe that the it spending environment will continue to improve throughout the year.
Marshall: We are well positioned to capture opportunities as the demand environment stabilizes, while also continuing to expand in new areas.
Marshall: We believe we grew ahead of the market this quarter.
Marshall: And we will continue to Opportunistically look for white space opportunities across geographies product categories and customer segments to service a greater portion of the overall <unk>.
Marshall: Market.
Marshall: Additionally, we are building enablement solutions for higher margin services business to help our customers meet the increasing demand for the specializations and certifications that are needed to deliver more complex technologies.
Marshall: We remain intensely committed to profitable growth delivering sustainable free cash flow and continued disciplined capital allocation.
Marshall: Any decision, we make whether internal investments acquisitions or returning cash to shareholders will be forcefully and carefully evaluated to ensure we prioritize high impact investments.
Marshall: And create meaningful value for our customers and shareholders.
Marshall: Now I will pass it to Marshall for our financial performance and outlook Marshall.
Marshall: Thanks, Patrick and good morning to everyone. We had a good performance in the fourth quarter with gross billings and net revenue exceeding expectations.
Marshall: Total gross billings were $21 2 billion up seven 4% year over year and above the midpoint of our guidance range.
Marshall: As we began the year, we anticipated that revenue growth, which show signs of recovery and gained momentum throughout the year.
Marshall: Gross billings growth was roughly flat in the first half and roughly 8% in the second half aligning to the sequential growth that we were anticipating.
Marshall: In Q4, there was an approximate 25% reduction from gross billings to net revenue, which was lower than expected and down from quarter three primarily.
Marshall: Primarily due to a higher mix of endpoint solutions and high business mix.
Marshall: Net revenue was $15 8 billion up 10% year over year and exceeding the high end of our guidance range.
Marshall: Our endpoint solutions portfolio grew 3% year over year.
Marshall: Driven by Pcs and peripherals, our advanced solutions portfolio grew 11% year over year, driven by higher hybrid cloud and software we.
Marshall: We were pleased to see growth across both endpoint and advanced solutions in the quarter.
Marshall: Supports our thesis that the market has returned to growth.
Marshall: Gross profit was $1 billion or $4, 91% of gross billings, representing a 25 basis point decline year over year, primarily driven by a tough compare in hive.
As a reminder, in the fourth quarter of last year high which is part of our advanced solutions portfolio experienced elevated margins from cost recoveries and recognition of inventory carrying costs as we sold through aged inventory in 2023.
Marshall: Sequentially margins as a percentage of gross billings were up 17 basis points gross profit and distribution showed solid growth year over year as we continue to focus on profitable growth.
Marshall: non-GAAP SG&A expense was $619 million or $2, 92% of gross billings, representing an eight basis point improvement year over year.
The cost to gross profit percentage, which we define as the ratio of non-GAAP SG&A expense to gross profit was 59, 5% in Q4 and consistent with expectations are.
Marshall: Our cost to gross profit percentage will be an important metric as we look to profitably grow our business and continue to focus on operational excellence and leveraging our resources to improve profitability.
Marshall: non-GAAP operating income was $422 million or $1, 99% of gross billings, representing a 17 basis point decline year over year, which was consistent with expectations.
Marshall: The decline primarily was driven by high of headwinds that we previously discussed.
Marshall: Interest expense and finance charges were $86 million higher than expected due to higher average borrowings throughout the quarter.
Marshall: The non-GAAP effective tax rate was approximately 21%.
Marshall: Our effective tax rate was lower than expected due to favorable discrete items and mix.
Marshall: non-GAAP net income was 263 million and non-GAAP diluted earnings per share was $3 nine.
Marshall: Both above the midpoint of our guidance range.
Marshall: Turning to the balance sheet.
Marshall: Our quarter for networking capital was $3 2 billion down $312 million from quarter three.
Marshall: Cash conversion cycle was 18 days down year over year and sequentially.
Free cash flow was $513 million for the quarter, we returned $136 million to stockholders in quarter, four with $102 million of share repurchases and $34 million of dividend payments.
Marshall: For the full year of 2024, we generated just over $1 billion in free cash flow, which was consistent with our expectations and returned $750 million to stockholders in the form of buybacks and dividends, representing roughly 72% of free cash flow in fiscal 'twenty four.
Marshall: For the current quarter, our board of Directors has approved a 10% increase to our cash dividend and 44 per common share, which will be payable on January 31, 2025 to stockholders of record as of the close of business on January 24 2025.
Marshall: We ended the quarter with $1 6 billion of cash and cash equivalents and debt of $3 9 billion. Our gross leverage ratio was two two times and our net leverage ratio was one six times.
Marshall: Now moving onto our outlook. These numbers are all non-GAAP and for the first quarter. We expect that gross billings will be in the range of 19, 7% to $20 7 billion, representing a growth of approximately 5% at the midpoint and 6% in constant currency.
Marshall: Net revenue will be in the range of $14 4 billion to $15 2 billion, which translates to an anticipated gross to net adjustment of approximately 27%.
Marshall: Our outlook is based on a euro to dollar exchange rate of $1 <unk>.
Marshall: Net income will be in the range of 224 million to $266 million.
Marshall: Diluted earnings per share will be in the range of $2 65 to $3 15 per diluted share.
Marshall: Which is based on weighted average shares outstanding of approximately $84 million.
Marshall: As I've mentioned before <unk> had an elevated margin in quarter one of fiscal 'twenty four and is the primary driver for the expected decline in margin on a year over year basis, with an approximate 20 basis point impact on margin in quarter one.
We expect these headwinds will substantially lapped by the end of quarter one of fiscal 'twenty.
Marshall: We expect the tax rate of approximately 23% and interest expense of $78 million.
Marshall: As we think about full fiscal year 'twenty five we currently expect gross billings to grow in the mid single digit percentage on a year over year basis.
Marshall: As we continue to expect a PC and server refresh cycle, an easier compare in networking, which should turn back to growth and continued growth in endpoint solutions and advanced solutions, particularly our cloud security and data and analytics portfolio benefiting from AI.
Marshall: We expect to generate approximately $1 1 billion in free cash flow for the fiscal year and remain committed to disciplined capital allocation <unk>.
Marshall: Including returning free cash flow to shareholders with a focus on share repurchases and we have $1 8 billion remaining on our stock repurchase authorization.
Marshall: All the while keeping in mind investments need to strategically grow our business.
Marshall: We plan to host an Investor day on April 10th where we will provide more detail on our medium term targets.
Marshall: 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.
Marshall: <unk> us to be the global partner of choice in distribution with that we'll open it up for questions operator.
Speaker Change: Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
We request that you limit yourself to one question to allow time for questions.
Speaker Change: And to ask their questions. If there is remaining time youre welcome to re queue with additional questions.
Our first question comes from Adam Tindle from Raymond James. Please go ahead. Your line is open.
Adam Tindle: Okay. Thank you good morning.
Speaker Change: Patrick I just wanted to start we've got two quarters under your tenure and our Q1 guide here and understand the qualitative narrative around profitable growth, but it's not as evident in the current results that we're seeing strong growth, but margins are declining in Q1 implies more of the same I wonder if you might just doubleclick and revisit that philosophy.
Speaker Change: Growth versus profitability balance and how you plan to manage the business over the medium and long term going forward and as a part of that I imagine youre going to talk a little bit about what's going on in hive.
Speaker Change: Weighing on margins I Wonder if you could take a step back as you've analyzed that business.
Speaker Change: The covers how youre thinking about the decision to put incremental investment there given the margin trends that we're seeing right now and why thanks.
Speaker Change: Yes. Good morning, Thanks, a lot for the question. So again, so when you look at.
Speaker Change: The quarter.
Speaker Change: So we are very pleased with the growth both in distribution and hive.
Speaker Change: If you look at distribution only.
Speaker Change: The margin in fact was stable year on year on the margin quality, which means that we had a good drop through from I mean.
Speaker Change: Sales growth GP growth operating income growth.
Speaker Change: All that was very positive.
Speaker Change: Hive.
Speaker Change: If you exclude the one off of last year and again.
Speaker Change: Marshall is going to explain maybe a little bit more in detail what caused it.
Speaker Change: If you exclude that one off in fact hive had a very nice growth to again not only from a top line from the GP and from an operating income.
Speaker Change: If you will with tough compare which is skewing the pictures.
Speaker Change: Pro forma I can promise useful we are committed to profitable growth and indeed, we are seeing the drop through if you exclude those one off.
Speaker Change: So just rebuilding on the second question you ask so high this is really having in the market a series of Differentiators with justified the double digit high double digit growth.
Speaker Change: Their margins are accretive.
Speaker Change: To our overall portfolio and the return on investment is also exceeding.
Speaker Change: Cost of weighted capital.
Speaker Change: So because of that we believe that its a per.
Speaker Change: Appreciate to continue to invest in that business.
Speaker Change: For the long run.
Speaker Change: And Marshall, maybe you want to comment on the one off so just to put it in perspective, yes.
Speaker Change: And in quarter one.
Speaker Change: In the prior year highest had some strong <unk>.
Speaker Change: Around selling through inventory and some recruitment in projects and programs that did not repeat this year and just to reiterate what Patrick said, five which is part of our strategic portfolio that bundle.
Speaker Change: Revenue and margins are growing faster than the company average both in revenue.
Speaker Change: And in margins and we do expect and anticipate to further increase our investment in hive not only in terms of skill sets and engineering capability, but in terms of manufacturing footprint, whether it's expansion of existing base for new space, primarily to address liquid cooling and power need and then final logistics centers and facilities.
Speaker Change: To support the fulfillment side of the business. So we still believe it is an important element of our AF evolution of our portfolio.
And believe that as we think through beyond just any one given year as we said in the past five can be lumpy and somewhat unpredictable, but over the last two to three years.
Speaker Change: Has performed quite well for the organization.
Speaker Change: I want just to add one more thing, which is we have one more quarter of tough compare which would be Q1. After that things will be normal day basis, everything will be comparable and <unk>.
Speaker Change: Then youre going to see.
Speaker Change: The drop through.
Speaker Change: The normal drop throughs.
Speaker Change: Because again the team is focused not only on generating growth, but also on making sure that the GP is increasing.
Speaker Change: At least in line with states.
Speaker Change: Yeah.
Speaker Change: Our next question comes from David Buck from UBS. Please go ahead. Your line is open.
Speaker Change: Great. Thank you and thank you Patrick Marshall.
Patrick I don't think I heard you reference kind of the macro impact of what's going on in Europe out there whether its from the environment or from maybe the swings in the U S currency I know Marshall gave a guide that contemplated where the euro was just <unk>.
Can you kind of unpack a little bit what youre seeing in that particular market.
Speaker Change: Whether it's from a billings perspective, or a revenue perspective on how you're thinking about that plays out in 'twenty five and then I have a follow up.
Speaker Change: Yes, so what we saw in.
Speaker Change: In Q4, so we have statistics from above the distribution market the market grew 2%.
In the last quarter, so a little bit slowly, but in Q3, but it continues to grow obviously, we outperformed the market.
Speaker Change: And so it is true that the macro environment. If you look at not only the macroeconomic environment, but the whole political instability is creating.
Speaker Change: I would say some uncertainty.
Speaker Change: In the market now I mean, what we are observing is that the demand is there and distribution from our customer base.
Speaker Change: And we continue we are very well positioned in that market and we continue to take advantage of the opportunities of the market, but it is true that you have a level of uncertainty in Europe, but it's not today materializing in the market dynamics in sorry in the market growth.
Speaker Change: Got it and just my follow up would be maybe Marshall can chime in on this as well is the European market distribution market is growing at two and you are taking share and youre guiding full year preliminary guidance of mid single digit billings number or we do expect that Europe is going to remain relatively.
Speaker Change: Status quo as we move through your fiscal 'twenty five could you just talk about a recovery in PC and server and is that more obviously Americas and EMEA APAC centric at this point.
Hey, David I'll give you.
Less Europe response in more of a broader organization response from a company perspective as Patrick has said that once we get past Q1 and that mid single digit expectation and growth rate is.
Speaker Change: As expected to play out.
Speaker Change: Really consistently for Q2, three and four as we think about what our seasonal patterns that look like we typically see.
Speaker Change: Slight improvement in revenue in quarters, two and three slightly they tend to mirror each other and look pretty similar in terms of revenue and margin profile and then we do expect just like we finished step quarter four that there will be.
Speaker Change: An improvement in revenue and margin quality in quarter four a lot of that is just due to the to the strength of the quarter itself.
Speaker Change: Patrick has mentioned we try to balance the way that we build out our forecast with the overall uncertainty in the economies that we do business in and.
Speaker Change: Certainly realized and believe that this is potentially the second year of recovery spend but it's going to be difficult to understand how that evolves through the year.
Speaker Change: Our next question comes from Michael <unk> from Goldman Sachs. Please go ahead. Your line is open.
Michael: Hi, Good morning. Thank you very much for the question I just had.
Speaker Change: One for Patrick and just a quick follow up for Marshall.
Speaker Change: Patrick I was just wondering if you could talk about the.
Speaker Change: The pace of recovery I think this quarter. There were some particular strengthen peripherals I was wondering if you could provide some qualitative color on that.
Speaker Change: Are you seeing any kind of reseller stocking ahead of any potential tariffs next year.
Speaker Change: Then Marshall I was just wondering if you could.
Marshall: Talk about weather.
Speaker Change: Youre going to be able to achieve the midterm free cash flow outlook.
Marshall: Next year and any thoughts around the cost to gross profit percentage for next year. Thank you.
Mike: So Mike Thanks, a lot.
Marshall: No.
Concerning the PC.
Marshall: Already in Q3, we saw a recovery and we saw it again in Q4, we grew.
Marshall: High single digits in that category.
Marshall: Tough to comment if.
Marshall: The reason for the growth is coming.
Marshall: In anticipation of a tariff increase is a lot of uncertainty in the market about it so really I would be very cautious.
Marshall: Using it as a reason for the growth.
Marshall: What is clearly driving the recovery in demand is the need to prepare for the Windows 10.
Marshall: Fresh and the fact that you had this.
Marshall: H.
Marshall: PC base coming from the pandemic so those two.
Marshall: Clearly driving the demand.
Marshall: I would add to that.
Marshall: Again, if you look at the overall market, it's the commercial segment, which is driving the growth.
Marshall: The consumer segment continues to suffer.
We made the decision to focus on the commercial segment for Pcs across the world and so <unk>.
Marshall: Commercial growing faster.
Marshall: That gives us an advantage.
Marshall: So that's about the PC question and Marshall.
Mike on the questions in regard to free cash flow not only for the.
Marshall: Year, but your comment about over the medium term. So we do expect free cash flow of about $1 1 billion and 25%, that's primarily driven by our earnings.
Growth in earnings outcome for the year, we do expect about a days improvement in our cash conversion cycle.
Marshall: To allow us to get to that expected $1 1 billion.
Marshall: For the longer term or medium term, we've referenced $1 5 billion as our as our aspiration, we still hold onto that and believe that that's appropriate.
Marshall: Targets are set we are underway I think we've shared with you last quarter that.
Marshall: We're building out a four to five year strategic plan.
Marshall: Delighted that we're going to be able to share that with you at analyst day, and I think with that will come from.
Marshall: Further refinement and understanding around that medium term charter for cash flow regards to your other question around cost of GP. We came in around 59% expectation is that will probably stay around 59% for the first half of the year and.
Marshall: And we should expect to see some slight improvements in the second half.
Marshall: Our operational efficiency projects and the way we do business remains an important focus for our organization. We're quite confident that this will lead to sustainable improvement going forward.
Speaker Change: Our next question comes from Joseph Cardoso from J P. Morgan. Please go ahead. Your line is open.
Joseph Cardoso: Hi, good morning, Thanks for the question.
Speaker Change: So we're seeing a lot of investments from your peers in the high space areas like liquid cooling power optics, and you guys talked about as an area of focus our focus of investments for you as well, which is curious if you could just provide a bit more color around your footprint here in your portfolio here and how you view it stacks up against some of the peers in the space and then any more color on where you are.
Speaker Change: We're looking to invest and this is more of an organic shift or are you looking to do some potential M&A here and how does that pipeline.
Speaker Change: Yes.
Patrick: Our first and then Patrick please the one where we're needed.
Patrick: You heard in my comments on the previous response, we expect to continue to make investments in manufacturing capacity and capabilities and engineering skill set and that is around continuing to build out our ability to have our own design.
Patrick: Joe as you know, we do design work ourselves we co design, we build out the designs of others in all three of those elements and aspects we want to continue to do.
Patrick: We provide.
Patrick: The right skill sets and the right footprint and right capacity for that.
Patrick: In regard to our peers.
Patrick: We act and behave in an ODM in it.
Patrick: The world, but I would think about those competitors.
And when we go to market and go to bed with those opportunities. Those are are facing competitors. We feel like we are doing quite well in the markets, we serve and the customers that.
Patrick: That we have and as you know, we're continuing to expand our customer base and feel that thats going to continue to be.
Patrick: An important aspect of our growth in the next two to three years.
Patrick: And then just thinking about the overall.
Patrick: Question around is this going to be.
Patrick: Internal versus.
Patrick: Inorganic opportunities for now.
Patrick: All the discussions we've had and what I shared with you as more of an organic game plan that we have.
Speaker Change: Our next question comes from Patrick <unk> from Bank of America. Please go ahead. Your line is open.
Patrick: Hi, Thanks for taking my questions Marshall you talked about mid single digit growth in billings for fiscal 'twenty five and I think you said mid single digits for every quarter from <unk> to <unk>.
Patrick: I look at this year in fiscal 'twenty four it looks like endpoints grew 1% and advanced solutions grew 7%.
Patrick: Now in fiscal 'twenty, five youre going to have both segments grow hopefully like PC recover and in <unk>.
Patrick: Advanced solutions, and higher should do well as well.
Adam Tindle: So can you give us your thoughts on that relative growth in billings between endpoint solutions and advanced solutions, how should we think about that relative growth in fiscal 'twenty five.
Patrick: Yeah, I'll start and then Patrick has some comments as well.
Patrick: We do not yet guide byproduct portfolio in terms of the ESN.
Patrick: But you are right our expectations is that both should grow and relative perspective to the 5% growth.
And then just to put in context on your comment about five.
Patrick: We build out our forecast as we look at the whole range of outcomes than and we are informed by the forecast demand delivered and given to us by our customers.
Patrick: From that we look at the range of outcomes in default or tend to go towards more of a conservative side of those outcomes just given some of the unpredictability of how that volume fall and Patrick.
Patrick: So.
Patrick: The fact is that when you look at the older technologies, we take to market.
Patrick: I mean, most of them have today.
Patrick: I was talking to either have or will have a good momentum if you think about the aaas.
Patrick: In particular networking has been suffering last year the tough compares behind us So we should see recovery in <unk>.
Patrick: Networking also by the way in Q4, I mean, we had.
Patrick: No single digit growth despite.
Steve: Steve a tough compare with last year.
Steve: Now to put things in perspective for the whole year.
Steve: You have the macro uncertainties geopolitical macroeconomic in particular in Europe.
Steve: The tariffs what would be the impact on demand. So we are trying to find a balanced view between.
Steve: Some of the tailwind some of the dynamics.
Steve: In the market and some of the risks, which are creating uncertainties on the overall dynamic and so the guidance. We've provided is taking that into account we are comfortable with our guidance.
Steve: Despite this uncertain environment.
Steve: Yes.
Steve: Hollywood.
Steve: <unk> quantified for the moment.
Our next question comes from Ashish <unk> from RBC capital markets. Please go ahead. Your line is open.
ashish: Thanks for taking my question I, just wanted to focus on the impact of mix shift as we think about not only the first quarter.
Steve: Software he clarified as well.
Steve: Thanks.
Steve: Okay.
Steve: So.
Steve: Yes.
Steve: If you look at <unk>.
Steve: Endpoint solution.
We continue to so the PC market should have a positive impact on the growth.
Steve: There is another category, which is quite important in our portfolio, which is mobile and yet the demand is going to be for the moment. What we see is going to be probably a little bit more muted that's more European statement by the way most of our mobile business comes from Europe. So.
Steve: I mean.
Steve: So thats, how we see the.
Steve: The market on the endpoint.
Steve: When you look at advanced solution.
Again, specifically for distribution, we see that compute should continue too.
Steve: <unk>.
Steve: To recover by the way not only AI compute for the moment the demand for AI servers, what we've seen in the enterprise space.
Steve: <unk>.
Steve: Enterprise customers are looking for their use cases, so it's not really driving the demand yet except for a very specific category of customers which are the.
Steve: Tier twos tsp's, but traditional servers is recovering I talked about networking.
Steve: Software cloud and security should continue to do well.
Steve: Based on that I think that probably aes should progress that it's a bit faster than endpoint.
Steve: We have based on what we see at this very moment.
Steve: A lot will depend again on what mobile will do next year, but as of today, that's what we see.
Speaker Change: Our next question comes from Keith <unk> from Northcoast Research. Please go ahead. Your line is open.
Speaker Change: Good morning, guys I appreciate it in terms of just kind of unpack the growth a little bit more and you saw the quarter, obviously, a solid core for that it does sound like you guys had some strategic wins with some vendor.
Speaker Change: Your company is wanting to take.
Speaker Change: Two other geographies can you, perhaps unpack that growth in terms of how much of your growth was more end market driven versus expansionary relationships from your existing <unk>.
Anders.
Speaker Change: Okay.
Yes, we.
Speaker Change: We don't look at we don't quantify it what we see is.
Speaker Change: Two fold. So indeed, you have the dynamics of the market.
Speaker Change: We continue to leverage.
Speaker Change: Our global relationships to expand to win the franchises in in all our key markets and we see some good success doing so.
Speaker Change: For the franchisees I referred to for India, Obviously, we don't see yet the impact in our results but.
Speaker Change: That's going to position us well for the future.
Speaker Change: Yes, so short term I think it's two things it's.
Speaker Change: Market dynamics in the countries, we play and in addition, I mean, all value proposition our go to market differentiating us in the market and enable us to grow faster than what we said.
Speaker Change: The demand in the market and Keith I would just add on your end market question. It feels pretty stable just in terms of our end market, where you're comparing us to Q3 or prior year Q4, it feels fairly stable at just in terms of the percentage relationship.
Speaker Change: Our next question comes from George Wang from Barclays. Please go ahead. Your line is open.
George Wang: Oh, Hey, guys. Thanks for taking my questions. Firstly can you kind of unpack on that peripherals.
Speaker Change: Interesting you guys called out.
Speaker Change: And the endpoint, including some peripheral swaps.
Speaker Change: Quarter, but also just kind of shifting to storage.
Speaker Change: You haven't talked too much on storage.
Syed poised for growth as well so maybe can you kind of double click on some troops sub segments. If you can.
Speaker Change: Yeah on peripheral also we see demand coming back.
Speaker Change: For the moment, it's low single digit growth in that space.
Speaker Change: But all the strategy is as much as possible to bundle.
Speaker Change: If it holds with the sale of Pcs for example, so I mean, we hope that as the dynamic.
Speaker Change: Continues on Pcs that we'd have success in bundling peripheral stool to the Pcs.
Speaker Change: The storage I mean, it's it's.
Speaker Change: It's the segment last quarter, where we.
Speaker Change: That market segment of the market Didnt grow last quarter.
Speaker Change: But what I mean, it's very common when you have a recovery in the data center. It comes first from the compute and then storage photos and so we are quite confident for the coming quarters.
Speaker Change: The fact about yes in last quarter storage was relatively muted.
Speaker Change: Our next question comes from Matt Sheerin from Stifel. Please go ahead. Your line is open.
Matt Sheerin: Yes. Thank you good morning, two quick ones for me one Marshall just thinking about.
Speaker Change: You've talked a lot about the mix of business what.
What should we think about gross margins youre running around mid six.
Speaker Change: 656, 6% given that mix.
Speaker Change: Stability Youre talking about through the year is that is that the right number to model or is it going to be any changes in the second half that would move that higher.
Matt Sheerin: Hey, Matt Thanks for the question, but we don't guide on gross margin, but we'll we'll refer to the comments I made earlier around op margin stability as we exit.
Speaker Change: Quarter, one being.
Speaker Change: Our.
Speaker Change: Selling growth of 5% should have a commensurate fall through to operating income. So we do think op margins will stabilize and as I said earlier, Matt we think that the normal seasonality show some recruitment in growth and operating margin in quarter four.
Speaker Change: Okay and relative to the high business I know you've had very strong growth there and I know part of that was due to the ramp up of a second major customer could you tell us where you are.
Speaker Change: In terms of that ramp and opportunities for other customers.
Speaker Change: Sure, Yes, we continued to see strong performance with that customer in quarter four expected. Another good strong performance in quarter one.
Speaker Change: And as I said earlier, we are working towards expansion of other services and capabilities for that customer typically with Ivan and our partnerships, we're able to bring on more services and capabilities as it relates to growth and then just the other comment about further expansion of our customer base.
Speaker Change: We are excited and believe theres going to be opportunity to expand that as we move through this year and into 2000.
Speaker Change: Our next question comes from Alex <unk> from Loop capital. Please go ahead. Your line is open.
Hey, guys. Thank you for taking my questions. This is Alan Carr Fernanda.
We have another highest question for you guys. So.
Speaker Change: Jenny I demand what do you guys view as the greatest leverage this year and how do you expect them to play out throughout the year.
Speaker Change: Yeah.
Speaker Change: So hive in fact is active on not on young compute is also strong on networking.
Speaker Change: So.
Speaker Change: And as you know this is a business which is project based.
So we are working on several projects.
Speaker Change: Yes on compute so today we are.
Speaker Change: Have you on traditional compute.
Speaker Change: And we will see some opportunities on AI compute and again networking is also.
Speaker Change: Good demand in that space.
Speaker Change: If you have any additional questions. Please press star followed by one.
Speaker Change: Our next question comes from Grupo <unk> from Bank of America. Please go ahead. Your line is open.
Speaker Change: Hi, I just wanted to ask a clarifying question on the Pi margins, you talked about a year on year headwind.
Speaker Change: The current quarter or even in the first quarter.
Speaker Change: Is there any headwind from ramping of the second customer or any other future customers and does that.
Speaker Change: When you get a new customer or is there some upfront investment you have to do that impacts margins and then for Patrick.
Speaker Change: Software and services have higher margins is there any plan to increase the mix of software and services billing and <unk>.
Speaker Change: Ganic growth and M&A. Thank you.
Speaker Change: Yes.
Speaker Change: Marshall you start with.
Speaker Change: Services and software.
Speaker Change: On the customer that that ramped in 'twenty four and continues to perform well, we're close to where we hope those margins should be but theres still some investment we're doing within that second customer, but nothing out of the ordinary and I expect that to normalize and get somewhat mature.
Speaker Change: Do you want to just touch back on the investments, we're making in <unk> and that is for.
Speaker Change: Sure.
Speaker Change: It will serve as some SG&A headwind, it's a margin headwind around what we're doing to build out as I said earlier the skills, the manufacturing footprint and logistics requirements.
Speaker Change: Yes.
Speaker Change: Software and services is an opportunity for growth.
Speaker Change: That's an area, where we've been consistently growing.
Speaker Change: On software again, it's I mean, we see software as we look at the different technologies and by segment, we are investing in differentiated value propositions to grow.
Speaker Change: To grow faster than the market.
Speaker Change: And we think that we are very well positioned in general there may be some countries, where we are missing franchises and we are working on the game getting both franchises.
Speaker Change: To be competitive in those countries. So most of it is going to happened organically. If we can find an acquisition which accelerates.
Speaker Change: And getting us the functions and the capabilities, we will do.
Speaker Change: If again the acquisition.
Speaker Change: Meats.
Speaker Change: Our requirements on services, you would get an update at analyst day, it's clearly an opportunity for us where we want to accelerate.
Speaker Change: But again I prefer to wait for the analyst day to give you more detail to share more details.
On what is going to be our strategy to accelerate and vet space.
Speaker Change: Okay.
Our next question comes from Alex Valero from Loop capital. Please go ahead. Your line is open.
Speaker Change: Hey, guys a quick follow up.
Speaker Change: On networking can you guys provide any color on kind of networking inventory in our system and demand and do you think the industry has over the inventory bump.
Speaker Change: Yes so.
On networking, we are expecting growth this year.
Speaker Change: Last year.
Speaker Change: I mean, we had the very tough compare because 2023 was inflated by the release of the backlogs when you look at it from a technology standpoint.
Speaker Change: Wi Fi seven is going to bring a lot of demand.
Speaker Change: We also know that we have in front of us the upgrades of the data centers in terms of switching so to support.
Speaker Change: The.
Speaker Change: The AI.
Speaker Change: Technology. So I mean, we feel confident because of the underlying demand, but also because of the tough compares is behind us.
Speaker Change: We have no further questions I would like to turn the call back over to Patrick Shannon for closing remarks.
Patrick Shannon: Thank you everyone for joining us I want to take a moment to thank our customers partners and our investors for their support and importantly, although outstanding team of over 23000 coworkers around the globe for their dedication to serving our customers.
Speaker Change: We look forward to reconnecting next quarter.
You have a good 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: Yeah.
Speaker Change: Okay.