Q4 2024 Ingram Micro Holding Corp Earnings Call
Since please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded its now my pleasure to introduce will make men men Vice President Investor Relations. Thank you you may begin thank.
Speaker Change: Thank you operator, I'm here today with Paul Bay, Ingram Micro CEO and my Silas our CFO before I turn the call over to Paul 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.
Operator: Welcome to Ingram Micro fourth quarter and fiscal 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: Statements about our strategy demand plans and positioning gross cash flow capital allocation and stockholder return as well as our expectations for future fiscal periods.
Willa McManmon: It is now my pleasure to introduce Willa McManmon, Vice President, Investor Relations. Thank you. You may begin. Thank you, Operator.
Actual results may differ materially from those mentioned in these forward looking statements because of risks and uncertainties discussed in today's earnings release and in our filings with the SEC, we do not intend to update any forward looking statements. During this call we will reference certain non-GAAP financial information reconciliations of <unk>.
Paul Bay: I'm here today with Paul Bay, Ingram Micro's CEO, and Mike Zilis, our CFO. Before I turn the call over to Paul, 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, 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 may differ materially from those mentioned in these forward-looking statements because of risks and uncertainties discussed in today's earnings release and in our filings with the SEC.
Speaker Change: non-GAAP results to GAAP results are included in our earnings press release, and the related form 8-K available on the Sec's website or on our Investor Relations website with that I'll turn the call over to Paul.
Paul Bay: Good afternoon, and thank you for joining today's call. Despite the macroeconomic challenges we saw throughout 2024, we exited Q4 with a return to year over year top line growth of nearly three and a out percent on an FX neutral basis within our guidance range. We saw particular strength in Asia Pacific.
Paul Bay: We do not intend to update any forward-looking statements. During this call, we will reference certain non-GAAP financial information.
Paul Bay: Reconciliations of non-GAAP results to GAAP results are included in our earnings press release and the related Form 8K, available on the SEC's website or on our Investor Relations website.
Paul Bay: Latin America, both up over 7% on an FX neutral basis, and I'm excited but North America returned to year over year growth from a mix perspective, we continue to see robust performance in cloud and in client and endpoint solutions, which both grew over year over year and quarter over quarter.
Paul Bay: With that, I'll turn the call over to Paul. Good afternoon and thank you for joining today's call. Despite the macroeconomic challenges we saw throughout 2024, we exited Q4 with a return to year-over-year top-line growth of nearly 3.5% on an FX-neutral basis. Within our guidance... We saw particular strength in Asia-Pacific and Latin America, both up over 7% on an FX-neutral basis, and I'm excited that North America returned to year-over-year growth. From a mixed perspective, we continue to see robust performance in cloud and in client and endpoint solutions, which both grew over year-over-year and quarter-over-quarter. Advanced solutions was impacted by slowness in networking, but server and storage were each up double digits versus the prior year and sequentially.
Paul Bay: Advanced solutions was impacted by slowness in networking, but server and storage were each up double digits versus the prior year and sequentially.
Paul Bay: In terms of the customer category, we saw strength in sales to large enterprise customers, while small and medium sized businesses along with public sector remain softer.
Paul Bay: So during these dynamics, we believe but returned to topline growth. We saw in Q4 will sustain in 2025 claimed an endpoint solution sales improve consistent with the growth. We are now seeing in desktop and notebook categories. We also expect to see networking continued to rebound from the challenging year over year comparisons.
Paul Bay: That continued throughout 2024 lastly.
Paul Bay: In terms of the customer category, we saw strength in sales to large and enterprise customers, while small and medium-sized businesses, along with public sector, remained softer. Considering these dynamics, we believe the return to top-line growth we saw in Q4 will sustain in 2025. Client and endpoint solution sales improved, consistent with the growth we are now seeing in desktop and notebook categories. We also expect to see networking continue to rebound from the challenging year-over-year comparisons that continued throughout 2024. Lastly, we see more end-users and vendors sharpening their focus on evolving automation use cases, including the use of AI, where we are helping our customers and partners navigate a rapidly changing IT landscape.
Paul Bay: Lastly, we see more end users and vendors sharpening their focus on evolving the automation use cases, including including the use of AI, where we're helping our customers and partners navigate a rapidly changing landscape. We will continue to forge a path with AI and automation and.
Paul Bay: And we look forward to sharing the data with you in the coming quarters that demonstrates our progress as we become increasingly digital.
Speaker Change: 2024 was a pivotal year for Ingram micro we celebrated a return to the public markets in October but more importantly, we also do so with a different company than we were when we went private in 2016.
Speaker Change: Since that time, we have made strong progress on our cloud and digital strategy and since the divestiture of our Congress and lifecycle business. In 2022, we are even more focused on technology solutions and related value added services.
Paul Bay: We will continue to forge the path with AI and automation. And we look forward to sharing the data with you in the coming quarters that demonstrates our progress as we become increasingly digital.
Speaker Change: Since our founding in 45 years ago Ingram Micro has created a technology infrastructure that enables our over 1500 vendor partners and more than 160000 customers across 57 countries to connect communicate and grow.
Paul Bay: 2024 was a pivotal year for Ingram Micro. We celebrated our return to the public markets in October. But more importantly, we also do so as a different company than we were when we went private in 2016. Since that time, we have made strong progress on our cloud and digital strategy, and since the divestiture of our commerce and lifecycle business in 2022, we are even more focused on technology solutions and related value-added services. Since our founding 45 years ago, Ingram Micro has created a technology infrastructure that enables our over 1,500 vendor partners and more than 160,000 customers across 57 countries to connect, communicate, and grow.
Speaker Change: Today, we have taken this foundational infrastructure and digitized it with the goal of becoming a leading business platform for the global technology ecosystem.
Speaker Change: To do this we have invested more than $600 million over roughly a decade in building our capabilities and technologies and cloud.
Speaker Change: This was the foundation for our AI driven digital experience platform X package, where we have now been investing for the last two years ex vantage is built upon more than 29 million lines of code 20, intelligent engine, all surrounded by more than 30 patents pending.
Paul Bay: Today, we have taken this foundational infrastructure and digitized it with the goal of becoming a leading business-to-business platform for the global technology ecosystem. To do this, we have invested more than $600 million over roughly a decade in building our capabilities and technologies in cloud. This was the foundation for our AI-driven digital experience platform, xVantage, where we have now been investing for the last two years. xVantage is built upon more than 29 million lines of code, 20 intelligent engines, all surrounded by more than 30 patents. We have rolled out the xVantage platform in 16 countries, with further deployments still to come.
Speaker Change: We have rolled out expanded the vantage platform in 16 countries with further deployments still to come.
Speaker Change: In addition to enabling real time interaction frictionless, quoting and data insights into a single platform X vantage allows for more seamless provisioning up Ingram micros, one more profitable service offering coupled with product sales as a result of bringing together a complete solution, including hardware software services and cloud.
Speaker Change: Ex vantage creates value for both our customers and our vendor partners. One example, with a large customer of ours is in the transformation, we have enabled with a leading cyber security vendor.
Speaker Change: Using our advantage the technology solutions provider was able to reduce its operational cycle time by over 80% decreasing the average time required to create a ready to order complex cyber security quote from more than two hours down to 10 minutes or less they were able to redeploy half of the team dedicated.
Paul Bay: In addition to enabling real-time interactions, frictionless quoting, and data insights into a single platform, XVantage allows for more seamless provisioning of Ingram Micro's own more profitable service offering, coupled with product sales, as a result of bringing together a complete solution, including hardware, software, services, and cloud. Xvantage creates value for both our customers and our vendor partners. One example with a large customer of ours is in the transformation we have enabled with a leading cybersecurity vendor. Using Xvantage, the technology solutions provider was able to reduce its operational cycle time by over 80%, decreasing the average time required to create a ready-to-order complex cybersecurity quote from more than two hours down to 10 minutes or less.
Speaker Change: So those cyber security solutions to proactive sales activities, including cross and Upselling as well as renewal and growth initiatives related to subscriptions and licenses.
Speaker Change: Ingram micro was also empowering small and medium businesses such as a managed service provider Jorge MSP that is using our platform to adopt self for quoting and ordering helped transform a decades old sales processes and better manage their opportunity pipeline.
Paul Bay: They were able to redeploy half of the team dedicated to those cybersecurity solutions to proactive sales, activities including cross and upselling, as well as renewal and growth initiatives related to subscriptions and licensing. Ingram Micro is also empowering small and medium businesses such as a managed service provider or MSP that is using our platform to adopt self-supporting and ordering to help transform their decades-old sales processes and better manage their opportunity pipeline. The time savings and ease of use we provide through improved service level agreements with their end users have provided the MSP with the ability to shift resources to proactive sales and business development activities.
Speaker Change: Time savings and ease of use we provide drove improved service level agreements with their end users are provided the MSP with the ability to shift resources to proactive sales and business development activities with the help of our platform the customer was able to separate sales and operational path and achieve more than a.
Speaker Change: 60% increase in sales activities without hiring additional resources.
Speaker Change: Industry analysts are also noticing the value of Ingram micro apps vantage platform.
In a recent article I D C vicepresident for channels and alliances summarize what works and what doesn't and partner programs.
Speaker Change: The article described Ingram micros ability do help IP provider standout from the crowd, noting that vendors that figure out how to personalize their portals and content like Ingram micros ex vantage platform will have a distinct advantage.
Paul Bay: With the help of our platform, the customer is able to separate sales and operational tasks and achieve more than a 60% increase in sales activity without hiring additional resources. Industry analysts are also noticing the value of Ingram Micro at Vantage Platform. In a recent article, IDC's Vice President for Channels and Alliances summarized what works and what doesn't in partner programs. The article describes Ingram Micro's ability to help IT providers stand out from the crowd, noting that vendors that figure out how to personalize their portals and content by Ingram Micro's Xvantage platform will have a distinct advantage.
In 2024, we won over 100 industry awards, including AWS global partner of the year and AWS innovation partner of the year for lap for the Latam region.
Speaker Change: For helping empower thousands of channel partners to create more value on AWS. We were also named Hps global distributor of the year for the second year in a row.
Speaker Change: During 2024, we also saw continued success with our global sustainability efforts ranking in the top 1% percent for sustainability, how you provide us for the second year in a row. These external recognitions underscore our commitment to optimizing the human touch when we become increasingly digital.
Paul Bay: In 2024, we won over 100 industry awards, including AWS Global Partner of the Year and AWS Innovation Partner of the Year for the LATAM region. for helping empower thousands of channel partners to create more value on AWS. We were also named HPE's Global Distributor of the Year for the second year in a row. During 2024, we also saw continued success with our global sustainability efforts, ranking in the top 1% for sustainability by Ecovadas for the second year in a row. These external recognitions underscore our commitment to optimizing the human touch when we become increasingly digital.
Speaker Change: Turning to 2025 aligning the company around continued progress on four guiding principles, let me walk you through each one briefly.
Speaker Change: The first is to be a leader in digital which has been the center of our ongoing transformation internally and with our vendor partners and our customers. We are standardizing a modernized modernizing the way we all work serve and support the industry through improved in human enable processes.
Speaker Change: The vantage platform driving innovation in our supply chain backbone, providing strength and stability.
Speaker Change: It is accelerating the growth in the high margin and more complex solutions that sit in our advanced solutions and cloud businesses, along with expanding recurring revenue the path to success here is growing profitable operating income through sales focus and execution.
Paul Bay: Turning to 2025, aligning the company around continued progress on SOAR guiding principles. Let me walk you through each one briefly. The first is to be a leader in digital, which has been the center of our ongoing transformation. Internally, with our vendor partners and our customers, we are standardizing and modernizing the way we all work, serve, and support the industry through improved and human-enabled processes. With the X-Vantage platform driving innovation and our supply chain backbone providing strength and stability. Second, is accelerating the growth in the high margin and more complex solutions that sit in our advanced solutions and cloud businesses, along with expanding recurring revenue.
Speaker Change: Third is driving operational excellence to create efficiencies through targeted investments in automation simplification and modernization of our internal go to market and business processes operations and supply chain solutions and digital technologies to create a high performing global platform operating model.
Speaker Change: And for.
Speaker Change: Building being or micro team of the future by developing at our current talent pool, and providing associates with a path to expand their skill sets and provide the best solutions user experience and return on investment to our partners and our customers.
Paul Bay: The path to success here is growing profitable operating income through sales, focus, and execution. Third is driving operational excellence to create efficiencies through targeted investments in automation, the simplification and modernization of our internal go-to-market and business processes, operations and supply chain solutions, and digital technologies to create a high-performing global platform operating model. And fourth, building the Ingram Micro team of the future by developing our current talent pool and providing associates with paths to expand their skill sets and provide the best solutions, user experience, and return on investment to our partners and our customers. Entering 2025, these four guiding principles are driving continued innovation and differentiation on the platform.
Speaker Change: Entering 2025 before guiding principles are driving continued innovation and differentiation on the platform.
Speaker Change: Looking to the year, we are excited about the return to growth on the top line, which we believe is sustainable in 2025. We are confident we are taking the right and necessary steps to address the challenges in India that Mike will discuss here shortly.
Speaker Change: At the at the global level, the technology and operational investments, we have made position us and our customer and vendor partners to gain efficiencies and drive growth as well as we as we continue to rollout X vantage globally and as always we remain committed to driving quality of revenue optimizing working capital and free cash flow and achieving.
Paul Bay: Looking to the year, we are excited about the return to growth on the top line, which we believe is sustainable in 2025. We are confident we are taking the right and necessary steps to address the challenges in India that Mike will discuss here shortly. At the global level, the technology and operational investments we have made position us and our customer and vendor partners to gain efficiencies and drive growth, as well as we continue to roll out Xvantage globally. And as always, we remain committed to driving quality of revenue, optimizing working capital and free cash flow, and achieving operational efficiencies during the year.
Operational efficiency, a turn a year.
Mike: There's a lot to look forward to this year with that I'll turn the call over to Mike Mike.
Thank you Paul and thanks to everyone on the call.
Speaker Change: I'd like to reiterate how pleased we are at our return to growth to close the year and our progress with tax advantage.
Speaker Change: Now, let me touch on a few fiscal 2024 highlights with a bit deeper dive on the fourth quarter.
Speaker Change: And then I will provide our guidance for the first quarter of 2025.
Speaker Change: Note that I will be focusing primarily on our non-GAAP numbers in this overview.
Speaker Change: Fiscal year 2024, net sales were $48 $8 billion, roughly flat versus 2023, and 0.3% on an FX neutral basis.
Paul Bay: There's a lot to look forward to this year.
Michael Zilis: With that, I'll turn the call over to Mike. Thank you, Paul, and thanks to everyone on the call. I'd like to reiterate how pleased we are at our return to growth to close the year and our progress with Xvantage. Now let me touch on a few fiscal 2024 highlights, with a bit deeper dive on the fourth quarter.
Discuss 2024 was impacted by macro headwinds, which we believe are beginning to shift as we look to 2025.
Speaker Change: Full year 2024 gross profit came in at $344 billion or 718% of net sales down 20 basis points from the same period last year due primarily to a line of business product and geographic mix, along with a stronger competitive environment in general.
Michael Zilis: And then I will provide our guidance for the first quarter of 2025. Note that I will be focusing primarily on our non-GAAP numbers. Fiscal year 2024 net sales were $48.0 billion roughly flat versus 2023 and up 0.3% on an FX neutral basis. As discussed, 2024 was impacted by macro headwinds, which we believe are beginning to shift as we look to 2025. Full year 2024 gross profit came in at $3.44 billion, or 7.18% of net sales, down 20 basis points from the same period last year, due primarily to line of business, product, and geographic mix, along with a stronger competitive environment in general.
Speaker Change: Full year operating expenses were $2 $45 billion or $5, one 1% of net sales essentially flat from $2 23.
Speaker Change: However, these opex levels continues to contain an elevated level of opex associated primarily with our investments in digital that's all just discussed.
Speaker Change: These heightened expenses totaled $114 $9 million or 24 basis points of net sales and $2 24, compared to $69 8 million or 15 basis points of net sales in 2023.
Michael Zilis: All your operating expenses were $2.45 billion or 5.10% of net sales, essentially flat from 2023. However, these OPEX levels continue to contain an elevated level of OPEX associated primarily with our investments in digital that Paul just discussed. These heightened expenses totaled $114.9 million, or 24 basis points of net sales, in 2024, compared to $69.8 million, or 15 basis points of net sales, in 2023. While we expect in 2025 to incur a relatively consistent level of investment into 2024, these costs will reduce over time as we complete our wider deployment of xVantage and move to a steady state.
Speaker Change: While we expect in 2025 to incur a relatively consistent level of investment in 2024.
Speaker Change: These costs will reduce over time as we complete our wider deployment of X vantage and moved to a steady state.
Speaker Change: Thus on a longer term basis, we expect our annual run rate of Opex as a percent of net sales will land below 5% as we not only move to a more steady state as I. Just noted, but also increasingly benefit from efficiencies from X vantage restructuring initiatives, we've taken in the past year plus continue.
Speaker Change: Continued focus on operational improvements and business processes and operations any.
Speaker Change: Any mix shift towards cloud and advanced solutions products.
Speaker Change: During fiscal year 2024, we also recorded restructuring costs equal and eight basis points of net sales versus four basis points impact of restructuring charges in fiscal 2023.
Michael Zilis: Thus, on a longer term basis, we expect our annual run rate of OPEX as a percent of net sales will land below 5%, as we not only move to a more steady state, as I just noted, but also increasingly benefit from efficiencies from xVantage, restructuring initiatives we've taken in the past year plus. Continued focus on operational improvements in business processes and operations. and a mixed shift towards cloud and advanced solutions products. During fiscal year 2024, we also recorded restructuring costs equaling eight basis points of net sales versus four basis points impact of restructuring charges in fiscal 2020.
Speaker Change: The 2024 actions reflect our efforts to enhance organizational efficiency and strengthen customer service capabilities.
And they include organizational changes and head count reductions recorded during our first and fourth quarters of 2024.
Speaker Change: Collectively the 2020 for restructuring initiatives are expected to deliver annualized cost reductions in the range of $85 million to $95 million, although the impact of actions taken in the first quarter of fiscal 2024, which represent approximately half of the range of annual run rate savings I. Just noted have largely already been <unk>.
Michael Zilis: The 2024 actions reflect our efforts to enhance organizational efficiency and strengthen customer service capability. and may include organizational changes and headcount reductions recorded during our first and fourth quarters of 2024. Collectively, the 2024 restructuring initiatives are expected to deliver annualized cost reductions in the range of $85 to $95 million, although the impact of actions taken in the first quarter of fiscal 2024, which represent approximately half of the range of annual run rate savings I just noted, have largely already been achieved beginning in the third quarter of fiscal year 2020. Our fiscal year 2024 results also include $34.1 million of expense, or seven basis points of net sales, representing the value of restricted stock units that immediately vested in connection with our IPO in October.
Speaker Change: Huge beginning in the third quarter of fiscal year 2024.
Speaker Change: Our fiscal year 2024. Our results also include $34 1 million of expense or seven basis points of net sales representing the value of restricted stock units that immediately vested in connection with our IPO in October.
Speaker Change: non-GAAP net income for the year was $627 9 million and non-GAAP diluted EPS was $2 79.
Speaker Change: Adjusted EBITDA in 2024 was 1.32 billion compared to $135 billion in 2023.
Speaker Change: Moving to the fourth quarter net sales were $13 three 4 billion up two 5% year over year in U S dollars and up three 3% on an FX neutral basis, driven primarily by strength across geographies and client and endpoint solutions, which saw sequential growth for the past three quarters.
Michael Zilis: Non-GAAP net income for the year was $627.9 million and non-GAAP diluted EPS was $2.79. Adjusted EBITDA in 2024 was $1.32 billion compared to $1.35 billion in 2020. Moving to the fourth quarter, net sales were $13.34 billion, up 2.5% year-over-year in U.S. dollars, and up 3.3% on an FX-neutral basis, driven primarily by strength across geographies in client and endpoint solutions, which saw sequential growth for the past three quarters. This was offset by weakness in advanced solutions, where we had solid momentum in server and storage, but another soft quarter in networking. On a more positive note, networking is gradually improving from a low in the first quarter of 2020.
Speaker Change: This was offset by weakness in advanced solutions, where we had solid momentum in server and storage, but another soft quarter in networking.
Speaker Change: On a more positive note networking is gradually improving from a low in the first quarter of 2024.
Speaker Change: As a reminder, CES has a lower profit margin.
Speaker Change: <unk> advanced solutions, which contributed in part to lower overall gross margins in the fourth quarter of 7.01% down 51 basis points versus prior year.
Speaker Change: Also contributing to this year over year margin trend or a higher mix of sales, particularly in the U S towards enterprise customers, where we don't provide as much attached value added services as we do for instance, in SMB, where demand remains more muted.
Speaker Change: Final contributing factor was a higher growth rate in our lower margin lower cost to serve Asia Pacific region.
Michael Zilis: As a reminder, CEF has a lower profit margin. then Advanced Solutions, which contributed in part to lower overall gross margins in the fourth quarter of 7.01%, down 51 basis points versus prior year. Also contributing to this year-over-year margin trend are a higher mix of sales, particularly in the U.S., towards enterprise customers, where we don't provide as much attached value-added services as we do, for instance, in SMB, where demand remains more muted. A final contributing factor is a higher growth rate in our lower margin, lower cost to serve Asia-Pacific. While I expect our long term product mix will skew more towards higher margin advanced solutions and cloud products, the anticipated growth from the PC refresh driving CES sales may impact margins in the short term, depending on the solutions and geographical mix within a given quarter and region.
While we expect our long term product mix will skew more towards higher margin advanced solutions and cloud products. The anticipated growth from the PC refresh driving CES sales may impact margins in the short term, depending on the solutions and geographical mix within a given quarter and region.
Speaker Change: We remain committed to above market growth in higher margin advanced solutions and cloud, while we also hold our associates accountable for quality of revenues and.
Speaker Change: An accretive return to shareholders across the whole of the business.
Speaker Change: From a regional perspective in the fourth quarter North America net sales were $4 $767 billion up 3.0% in U S dollars and up three 3% on an FX neutral basis versus the prior year fourth quarter, driven by strength across all lines of business, but particular strength as I know.
Speaker Change: Earlier in sales to enterprise customers.
Michael Zilis: We remain committed to above market growth and higher margin advanced solutions in cloud while we also hold our associates accountable for quality of revenue. and a creative return to shareholders across the whole of From a regional perspective, in the fourth quarter, North American net sales were $4.67 billion, up 3.0% in U.S. dollars, and up 3.3% on an FX neutral basis, versus the prior year fourth quarter, driven by strength across all lines of business. but particular strength, as I noted earlier, in sales to enterprise. Amia net sales of $4.07 billion were down 1.5% year over year and down 1.3% on an FX neutral basis, primarily due to weakness in advanced solutions versus prior use.
Speaker Change: EMEA net sales of 4.07 billion.
Speaker Change: We're down one 5% year over year and down one 3% on an FX neutral basis, primarily due to weakness in advance solutions versus prior year.
Speaker Change: <unk> levels in general have remained more muted, particularly in western European market.
Speaker Change: Net sales in Asia Pacific were $360 billion up seven 8% over the same quarter in 2023 in U S dollars and up seven 7% on an FX neutral basis, driven by strength in CES sales offset partially by weakness in advanced solutions.
Speaker Change: Certain countries within APAC was strong, but we are seeing a very competitive market in India impacting both sales and margin as we are remaining appropriately selective on the business we pursue there.
Michael Zilis: Demand levels in general have remained more muted, particularly in Western European markets. Net sales in Asia Pacific were $3.60 billion, up 7.8% over the same quarter in 2023 in U.S. dollars, and up 7.7% on an FX neutral basis. Driven by strength in CES sales, offset partially by weakness in advanced solutions. Certain countries within AIPAC were strong, but we are seeing a very competitive market in India, impacting both sales and margin, as we are remaining appropriately selective on the business we pursue there. This is a trend that continues into the early part of 2025 as well.
Speaker Change: This is a trend that continues into the early part of 2025 as well.
Speaker Change: Finally, net sales in Latin America over $1.01 billion down 0.9% in U S dollars, but up seven 5% in constant currency as most local currencies weakened notably since 2023.
Speaker Change: The stronger FX neutral sales in Latam reflected solid growth trends across all product categories.
Speaker Change: Fourth quarter gross profit came in at $936 1 million or 7.0% to 1% of net sales down 51 basis points from the same period last year.
Michael Zilis: Finally, net sales in Latin America were $1.01 billion, down 0.9% in U.S. dollars, but up 7.5% in constant currency, as most local currencies weakened notably since 2020. The stronger FX neutral sales in Latham reflected solid growth trends across all product categories. Fourth quarter gross profit came in at $936.1 million or 7.01% of net sales, down 51 basis points from the same period last year. The year-over-year decrease in gross margin was driven primarily by the mixed factors I've already noted, but also reflective of a heightened competitive environment across most markets, and particularly in India, as I just mentioned.
Speaker Change: Year over year decrease in gross margin was driven primarily by the mixed factors I've already noted, but also reflective of a heightened competitive environment across most markets and particularly in India as I just mentioned.
Q4, operating expenses were $638 million or $4, 73% of net sales compared to compared to $4 six 5% in the same period last year.
Speaker Change: In Q4, we had discrete charges that related to our previously disclosed fraud matter in our India operation.
Speaker Change: These charges impacted gross profit and operating expenses as well as related margins.
Speaker Change: The first charge impacting gross profit related to inventory write offs associated with the professional services business totaling $9 1 million or seven basis points of net sales.
Michael Zilis: Q4 operating expenses were $630.8 million, or 4.73% of net sales compared to 4.65%. same period last. In Q4, we had discrete charges that related to our previously disclosed fraud matter in our India operation. These charges impacted gross profit and operating expenses, as well as related margins. The first charge impacting gross profit related to inventory write-offs associated with the professional services business totaling $9.1 million for seven basis points of net sale. The second charge impacted operating expenses and related to goods and services tax or GST and professional fees associated with the completion of our investigation into this matter.
Speaker Change: The second charge impacted operating expenses and related to goods and services tax or GST and professional fees associated with the completion of our investigation into this matter.
Speaker Change: Specifically, the GST charges connected to true ups related to adjustments. We recorded earlier in 2024 on this matter as we file GST returns at the end of the calendar year.
Speaker Change: And the professional costs relate to our pursuit of settlements and recovery efforts with the parties involved in this matter.
Speaker Change: These operating expense impacts totaled $11 2 million or eight basis points of net sales.
Speaker Change: Our Q4 2024 results also include the impact of $34 1 million or 26 basis points of net sales related to the stock based compensation charge in connection with our IPO in October.
Michael Zilis: Specifically, the GST charge is connected to true-ups related to adjustments we recorded earlier in 2024 on this matter, as we filed GST returns at the end of the calendar year. And the professional costs relate to our pursuit of settlements and recovery efforts with the parties involved in this matter. These operating expense impacts total $11.2 million or 8 basis points of net sales. Our Q4 2024 results also include the impact of $34.1 million or 26 basis points of net sales related to the stock based compensation charge in connection with our IPO in October. The combined impact of the discrete charges in India and the stock compensation charge is $54.4 million or 41 basis points of net sales in the fourth quarter of 2020.
Speaker Change: The combined impact of the discrete charges in India down the stock compensation charge is $54 4 million or <unk> 41 basis points of net sales in the fourth quarter of 2024.
Speaker Change: During the quarter adjusted income from operations, which included the aforementioned charges totaled $305 $2 million and adjusted income from operations margin came in at 229% compared to $2 eight 6% in the same period last year.
Speaker Change: Our non-GAAP net income for the quarter was $213 $1 million compared to $229 million in the comparable period last year.
Speaker Change: Fourth quarter non-GAAP diluted EPS was <unk> 92.
Speaker Change: Excluding the two discrete items in India that I, just noted our non-GAAP diluted EPS in the fourth quarter would have been 99 cents above the high end of our guidance range.
Michael Zilis: During the quarter, adjusted income from operations, which included the aforementioned charges, totaled $305.2 million, and adjusted income from operations margin came in at 2.29 percent compared to 2.86 percent in the same period last year. Our non-GAAP net income for the quarter was $213.1 million compared to $220.9 million in the comparable period last year. Fourth quarter non-gap diluted EPS was $0.92. Excluding the two discrete items in India that I just noted, our non-gapped eluded EPS in the fourth quarter would have been 99%. above the high end of our guidance. Fourth quarter adjusted EBITDA was $418.1 million compared to $435.4 million in the comparable period last year.
Speaker Change: Fourth quarter, adjusted EBITDA was $418 1 million compared to $435 $4 million in the comparable period last year.
Speaker Change: Turning to our balance sheet at the end of Q4 networking capital was $4 1 billion compared to $4 $4 billion to close the same period last year.
Speaker Change: We maintain a strong focus on working capital management to maximize returns on investment and cash provided by operations to improve our debt levels.
Speaker Change: This discipline allowed us to improve our year.
Speaker Change: Our year, our annual net debt to adjusted EBITDA leverage ratio by more than four times since our third quarter.
Speaker Change: Adjusted free cash flow was strong in the quarter at $337 $2 million, our adjusted free cash flow for the full year was $443 $3 million.
Michael Zilis: Turning to our balance sheet, at the end of Q4, networking capital was $4.1 billion compared to $4.4 billion to close the same period last year. We maintain a strong focus on working capital management to maximize returns on investment and cash provided by operations to improve our debt level. This discipline allowed us to improve our year. Our annual net debt to adjusted EBITDA leverage ratio by more than 0.4 times since our third quarter. Adjusted free cash flow was strong in the quarter at $337.2 million. Our adjusted free cash flow for the whole year was $443.3 million.
Speaker Change: As I've noted before our free cash flow is seasonally driven our goal over time is to drop 30% or more of EBITDA annually to free cash flow, but this will not necessarily be the case in each quarter due to this seasonality as well as the timing of investments we make in opportunities for profitable growth.
Speaker Change: As anticipated our board of directors has approved a quarterly cash dividend in the first quarter of 2025 of seven four cents per share or $17 5 million, which will be payable on March 25 to shareholders of record on March 11th 2025.
Michael Zilis: As I've noted before, our free cash flow is seasonally driven. Our goal over time is to drop 30% or more of EBITDA annually to free cash flow, but this will not necessarily be the case in each quarter due to this seasonality as well as the timely investments we make in opportunities for profitable growth.
Speaker Change: Our board of Directors also approved a one year share repurchase plan through which the company can purchase up to $75 million of the company's common stock in connection with one or more secondary offerings by our controlling stockholder when an independent committee of our board deems repurchases to be an appropriate use of our capital.
Michael Zilis: As anticipated, our Board of Directors has approved a quarterly cash dividend in the first quarter of 2025 of 7.4 cents per share, or $17.5 million, which will be payable on March 25th to shareholders of record on March 11th, 2025.
Speaker Change: During 2024, we paid down $483 million of our term loan balance, bringing our total repayment on term loans to $156 billion since the beginning of 2022.
Michael Zilis: Our board of directors also approved a one year share repurchase plan through which the company can purchase up to $75 million of the company's common stock in connection with one or more secondary offerings by our controlling stockholder, when an independent committee of our board deems repurchases to be an appropriate use of our capital. During 2024, we paid down $483 million of our term loan balance, bringing our total repayment on term loans to $1.56 billion since the beginning of 2022. With the cash flow generation I just mentioned, I am also pleased to note that we will repay an incremental $125 million of our term loan later this month.
Speaker Change: With the cash flow generation I, just mentioned I am also pleased to note that we will repay an incremental $125 million of our term loan later this month.
Speaker Change: During 2024, our interest expense was lower by $41 $8 million year over year, primarily as a result of our debt paydowns over the past couple of years.
Speaker Change: Last quarter, we noted our belief that the fourth quarter would demonstrate a gradual improvement in the demand environment and we are pleased that this is what has happened.
Speaker Change: As Paul said, we believe the return to year over year growth is sustainable that we expect quarterly volatility.
Speaker Change: That said as I now turn to guidance for the first quarter of 2025, we forecast net sales in the range of 11, four three to 11 eight 3 billion.
Michael Zilis: During 2024, our interest expense was lowered by $41.8 million year over year, primarily as a result of our debt paydowns over the past couple Last quarter, we noted our belief that the fourth quarter would demonstrate a gradual improvement in the demand environment, and we are pleased that this is what has happened. As Paul said, we believe the return to year-over-year growth is sustainable, though we expect quarterly volatility. That said, as I now turn to guidance for the first quarter of 2025, we forecast net sales in the range of $11.43 to $11.83 billion, representing year-over-year growth of 2.6% at the As I mentioned, as CES improves, it may have a short-term negative impact on gross margin, but we remain focused on quality of revenue and outsized growth in advanced solutions and cloud over time.
Speaker Change: Representing year over year growth of 262, 6% at the midpoint.
Speaker Change: As I mentioned at CES improves and May have a short term negative impact on gross margin, but we remain focused on quality of revenue and outsized growth in advanced solutions and cloud over time thus.
Speaker Change: Thus, we expect gross margins to expand over time as the mix changes.
Speaker Change: For the first quarter of 2025, we expect gross profit to be in the range of $785 million to $835 million.
Speaker Change: This guidance assumes we continue to see competitive and mixed factors on gross margin consistent with what we've discussed today for Q4 of 2024.
Speaker Change: But particularly in our India business, where we see some irrational competitive pricing pressures mainly on the bidding process on large contracts.
Speaker Change: As we exit as we see extremely aggressive pricing behaviors from global sub regional and local players in that market. We expect our own gross margin in India will be temporarily impacted.
Michael Zilis: Thus, we expect gross margins to expand over time as the mix changes. For the first quarter of 2025, we expect gross profit to be in the range of $785 to $835 million. This guidance assumes we continue to see competitive and mixed factors on gross margin consistent with what we've discussed today for Q4 of 2024. but particularly in our India business where we see some irrational competitive pricing pressures mainly on the bidding process on large contracts. As we see extremely aggressive pricing behaviors from global, sub-regional, and local players in that market, we expect our own gross margin in India will be temporarily impacted.
Speaker Change: We have invested in India for more than two decades and remain very committed to pursuing profitable growth in the India market.
Speaker Change: We expect non-GAAP diluted EPS to be in the range of 51 to.
To <unk> 61 per diluted share, which is based on weighted average shares outstanding of approximately $234 9 million.
Speaker Change: Our non-GAAP tax rate is expected to be approximately 30%.
Speaker Change: As I close out my comments, we are quite proud of our finish to fiscal 2024 as we saw growth in the topline, but also a solid profit results. Despite some unique P&L hits, we incurred in India.
Michael Zilis: We have invested in India for more than two decades and remain very committed to pursuing profitable growth in the India market. We expect non-gap diluted EPS to be in the range of $0.51 to $0.61 per diluted share, which is based on weighted average shares outstanding of approximately 234.9%. Our non-GAAP tax rate is expected to be approximately 30%.
Speaker Change: But we do so with strong management of the balance sheet as well generating solid cash flow that allowed us to repay debt and bring our net debt to EBITDA leverage south of two times to close the quarter.
Speaker Change: This gives us a nice momentum in Q1 of 2025, where we expect the second quarter of year over year growth. Despite some of the headwinds we've discussed and parts of EMEA.
Speaker Change: And in India.
Michael Zilis: As I close out my comments, we are quite proud of our finish to fiscal 2024, as we saw growth in the top line, but also a solid profit result, despite some unique P&L hits we incurred in But we did so with strong management of the balance sheet as well, generating solid cash flow that allowed us to repay debt and bring our net debt to EBITDA leverage south of two times to close the... This gives us nice momentum in Q1 of 2025, where we expect a second quarter of year-over-year growth despite some of the headwinds we've discussed in parts of EMEA and in We see a more solid environment in North America and Latin America while we continue to optimize our business and drive leverage over time in our operating system.
Speaker Change: We see a more solid environment in North America, and Latin America, while we continue to optimize our business and drive leverage over time in our operating expenses.
Speaker Change: And we are balancing the use of cash generated from operations with another repayment of debt in March while also commencing returned to shareholders in the form of a dividend in our first full quarter as a publicly traded company.
Speaker Change: With that operator, we are ready for the question and answer session.
Speaker Change: Thank you sorry for that technical difficulty if you would like to ask a.
Operator: And we are balancing the use of cash generated from operations with another repayment of debt in March, while also commencing a return to shareholders in the form of a dividend in our first full quarter as a publicly traded Without Operator, we are ready for the question and answer session. Thank you. Sorry for that technical difficulty.
Speaker Change: A question. Please press star one on your telephone keypad.
Speaker Change: <unk> Tomo indicate your line is in the question Kim You May Press Star two if he would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your headset diesel are pressing the star keys. We ask that you. Please ask one question and one follow up question and re queue for additional questions.
Speaker Change: Our next question is from Michael <unk> with Goldman Sachs. Please proceed.
Operator: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your headset before pressing the star key.
Speaker Change: Hey, good afternoon. Thank you for the question.
Speaker Change: I wanted to ask about the large enterprise momentum, which seemed like it was largely focused in North America could.
Speaker Change: Could you talk a little bit about you know by large enterprises outperforming.
Speaker Change: Are you seeing any sophisticated buying.
Operator: We ask that you please ask one question and one follow-up question and re-queue for additional questions.
Speaker Change: Ahead of tariffs is there is there a bit of a pull forward in and any comments on where you feel like we are on the PC cycle are you seeing green shoots on the refresh. Thank you.
Michael Nigg: Our next question is from Michael Nigg with Goldman Sachs, please proceed. Hey, good afternoon. Thank you for the question. I wanted to ask about the large enterprise momentum, which seemed like it was largely focused in North America. Could you talk a little bit about, you know, why large enterprise is outperforming? Are you seeing any sophisticated buying ahead of tariffs? Is there a bit of a pull forward? And any comments on, you know, where you feel like we are on the PC cycle? Are you seeing green shoots on the refresh? Thank you.
Speaker Change: Yes, Michael this is Paul good afternoon.
Speaker Change: So I would tell you that the purchasing when we mentioned car large enterprise business was actually across the board across all of the regions. So it wasn't just a North America North America was.
Speaker Change: One of those that experienced that also one of the things we did see actually in North America was actually growth in all three areas to client endpoint solutions advanced solutions and cloud, but the large customer comment was across.
Speaker Change: Across the board and across all of the four regions as it relates to your question around the refresh we have continued to see momentum around the notebook desktop refresh primarily around the windows refresh and H systems to you know a little bit of an extent some AIP.
Paul Bay: Yeah, Michael, this is Paul. Good afternoon. So I would tell you that the purchasing when we mentioned large enterprise business was actually across the board, across all of the regions. So it wasn't just a North America. North America was one of those that experienced that also. One of the things we did see actually in North America was actually growth in all three areas to client endpoint solutions, advanced solutions in cloud. But the large customer comment was across the board and across all of the four regions. As it relates to your question around the refresh, we have continued to see momentum around the notebook desktop refresh, primarily around Windows refresh and H systems to a little bit of an extent, some AI PCs, but really just being driven by the refresh coming up.
Speaker Change: Is that really just being driven by the refresh coming up so again large customer enterprise bigger customers across the board globally and also refreshed starting from a notebook desktop perspective.
Speaker Change: Great. Thanks, Paul.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Our next question is from Erik Woodring with Morgan Stanley. Please proceed.
Erik Woodring: Awesome. Thanks, so much for taking my questions Paul maybe if I just start.
Erik Woodring: Your comments on relative areas of spending strength versus weakness in line with a lot of what we're hearing in the market more broadly and Mike.
Paul Bay: So again, large customer enterprise, bigger customers across the board globally, and also refresh starting from a notebook desktop perspective. Thanks, Paul.
Erik Woodring: My question really is the world is uncertain and volatile today and just what are you hearing from your customers and what do you see in your pipeline that gives you enough confidence to say you can return to topline growth in.
Erik Woodring: In 2025, and then I will follow up thanks.
Eric Woodring: Our next question is from Eric Woodring with Morgan Stanley. Please proceed. Awesome. Thanks so much for taking my questions. Paul, maybe if I just start, your comments on relative areas of spending strength versus weakness align with a lot of what we're hearing in the market more broadly. And my question really is the world is uncertain volatile today. And just what are you hearing from your customers?
Erik Woodring: Oh.
Erik Woodring: So thank you for the question. So we've seen if you look at kind of how we exited the year and talking about the momentum we had.
Erik Woodring: Specific around endpoint client endpoint solutions I just mentioned, we continue to see strength there.
Erik Woodring: If we look at advanced solutions, one of the areas that we've focused on that we've had challenges through 2024 was around the networking business. So that was down in Q4 and full year by double digit and the.
Paul Bay: And what do you see in your pipeline that gives you enough confidence to say you can return to top line growth in 2025? And then I will follow up. So thank you for the question. So we've seen, if you look at kind of how we exited the year and talking about the momentum we had specifically around endpoint, client endpoint solutions, I just mentioned, we continue to see strength there. If we look at advanced solutions, one of the areas that we focused on that we've had challenges through 2024 was around the networking business. So that was down in Q4 and full year by double digit.
Erik Woodring: Expectation that that comes back so as we see slowly getting better throughout 2024 as I mentioned it was still down for full year 2024, if you look at I D. C 2025 base case.
Erik Woodring: They say that it's going to be up 8% coming off of a negative 6% in 2024 and I would also tell you that our leading indicators.
Erik Woodring: We're seeing from from our large vendors right now are showing signs of that improving and then continued strength around cloud and other areas that we saw good strength around server storage and again cyber security being one of those also so that's what gives us the confidence that we're going.
Paul Bay: And the expectation that that comes back. So as we see slowly getting better throughout 2024, as I mentioned, it was still down for full year 2024. If you look at IDC's 2025 base case, they say that it's going to be up 8% coming off of a negative 6% in 2024. And I would also tell you that our leading indicators we're seeing from our large vendors right now are showing signs of that improving. And then continued strength around cloud and other areas that we saw good strength around server storage and again, cybersecurity being one of those also.
Erik Woodring: We continue to see growth and again for the first time in many quarters and finally got to talk about the North America momentum that we saw exiting the year and really are continuing at the beginning parts of this year.
Paul Bay: Okay. That's helpful. Thank you Paul.
Erik Woodring: And then maybe my follow up.
Mike can.
Erik Woodring: Can you help me just understand if there are any one time costs embedded in your <unk> profitability guide because I believe if you kind of back into EPS and net income. It implies both are declining year over year in <unk>. Despite revenue growth and so really just trying to understand what some of the cost headwinds are.
Paul Bay: So that's what gives us the confidence that we're going to continue to see growth.
Paul Bay: And again, for the first time in many quarters, we finally got to talk about the North America momentum that we saw exiting the year and really continuing at the beginning parts of this year. Okay, that's helpful. Thank you, Paul.
I know you mentioned, India and mixed shifts, but outside of that what the cost headwinds would be in <unk> and how it kind of one time versus sustainable they might be as we think about the remainder of 2025. Thanks. So much.
Michael Zilis: And then maybe my follow-up, Mike, you know, can you help me just or us understand if there are any one-time costs embedded in your 1Q profitability guide? Because I believe, if you kind of back into EPS and net income, it implies both are declining year over year in 1Q despite revenue growth. And so really just trying to understand what some of the cost headwinds are.
Erik Woodring: Yes, so the guy Theres not anything notable one offs, it's mainly more of the margin factors. So we talked about India and Paul can elaborate on this for sure if he'd like but yeah. There's competitive factors are driving notable drops in margin, but we are seeing a heightened competitive.
Environment, I guess really almost everywhere in the world that's not probably uncommon when you have more of a down cycle, but again nothing nothing notable other than margin and and really driven by mix.
Michael Zilis: I know you mentioned India and makeshift, but outside of that, what the cost headwinds would be in 1Q and how kind of one-time versus sustainable they might be as we think about the remainder of 2025. Thanks so much.
Erik Woodring: And that heightened it a little bit in the India market by some of the factors there.
Michael Zilis: Yeah, so the guy, there's not anything notable runoffs, it's mainly more of the margin factors. So, you know, we talked about India and Paul can elaborate on this for sure, if you'd like, but, you know, those competitive factors are driving notable drops in margin, but we're seeing a heightened competitive environment, I guess, really almost everywhere in the world. It's not probably uncommon when you have more of a down cycle. But again, nothing, nothing notable other than margin and really driven by mix and then heightened a little bit in the India market by some of the factors there.
Erik Woodring: I guess I'm sorry, Eric.
Erik Woodring: Sorry, just one thing to add to that I mean, I think please please.
Speaker Change: I would add to that is we're still seeing continued momentum as we continue to optimize costs and you know we have a wraparound impact of further reductions we announced in early December as well for instance that really are taking hold entirely even in Q1, so that'll that'll get a little bit more momentum on the cost side as well as we go through the year.
Erik Woodring: Great. Thanks, so much for the color guys. Good luck.
Speaker Change: Our next question is from Sami <unk> with J P. Morgan Keith. Please proceed.
Paul Bay: I'm sorry, just one thing to add to that, the only thing I would add to that is we're still seeing continued momentum as we continue to optimize costs and we have a wraparound impact of further reductions we announced in early December as well, for instance, that really aren't taking hold entirely even in Q1, so that'll give a little bit more momentum on the cost side as well as we go through the year. Great. Thanks so much for the comment, guys. Goodbye.
Sami: Thank you. Thanks for taking my questions. Let me quickly close what Paul just more.
Speaker Change: Directly a deep data discussion.
Speaker Change: Wondering what you're hearing from your north to medical customers on that front in terms of how should we think about and obviously you've been through many cycles here, including previous status like what how are you thinking about and how are customers sort of relaying.
Speaker Change: What broadly teamed with in terms of demand.
Sameek Chatterjee: Our next question is from Sameek Chatterjee with J.P. Morgan Cheese. Please. Yep, thank you. Thanks for taking my questions.
Speaker Change: If that is sort of I.
Speaker Change: I guess status.
Speaker Change: So how are you thinking about sort of changes in demand profile between the product categories and how would you how comfortable you feel Boston through some of those sort of increased costs to go to customers and have a quick follow up to that.
Paul Bay: Maybe for the first one, Paul, just more directly at the tariff discussion, wondering what you're hearing from your North America customers on that front in terms of how should we think about and and it's obviously you've been through many cycles here, including previous tariffs, like how are you thinking about and how are customers sort of relaying what probably changed in terms of demand if tariffs were to sort of, I guess tariffs are now implemented, so how are you thinking about sort of changes in demand profile between the product categories and how would typically you how comfortable you feel passing through some of those sort of increased costs to your customers and I have a quick follow-up after that.
Speaker Change: Yes summit this fall so the tariff situation to state the obvious it's very fluid.
Speaker Change: As you pointed out were well versed and operating in a tariff environment we.
Speaker Change: Typically pass through those tariffs and we don't bear though its cost.
Speaker Change: Thank you know the one thing it will be is what's the impact.
Speaker Change: Potentially on the overall demand side, so really that's going to depend on I'll call. It the price elasticity and in the end consumption businesses, having the tolerance to absorb those the tariff impact.
Paul Bay: So the tariff situation, to state the obvious, is very fluid. As you pointed out, we're well-versed in operating in a tariff environment. We typically pass through those tariffs and we don't bear those costs. I think, you know, the one thing will be is what's the impact potentially on the overall demand side. So really, that's going to depend on, I'll call it the price elasticity and the end consumption, the end businesses having the tolerance to absorb those tariff impacts. Again, it's too early right now to say what the impacts will be. We're less impacted again because we're not manufacturing products.
Speaker Change: Again, it's too early right now to say what the impacts will be.
Speaker Change: We're less impacted again, because we're not manufacturing product, but with that said a couple of recent comments. So some of our vendors continue to focus on.
Speaker Change: Making their supply chain that works more resilient and creating mitigation plans and solvent that I was talking with you in the middle of last year are already working.
Speaker Change: For some time to diversify where their products are being manufactured.
Speaker Change: To minimize the yen paths spin.
Speaker Change: Specifically I would say there were some comments around that for the U S and how some of our large manufacturers are moving around the world to try and offset that I would also say this is a pretty recent comment I was at a customer event last night with our truck theft community.
Paul Bay: But with that said, a couple of recent comments. So some of our vendors continue to focus on making their supply chain networks more resilient and creating mitigation plans. And some that I was talking with in the middle of last year were already working for some time to diversify where their products are being manufactured to minimize the impacts. Specifically, I would say there's some comments around that for the U.S. and how some of our large manufacturers are moving around the world to try and offset that.
Speaker Change: Which is our powerful global community some of our top strategic customers and I actually asked them for real time feedback kind of how they're looking at tariffs with their end businesses that they're serving every day and one of the comments was that a.
Speaker Change: One of our customers are actually seeing deals and believes it may be a good offset is that theyre moving deals for maybe cash or a shorter term cycle two financing deals through our Ingram micro financial services. So he believes that if the end businesses. If it becomes too much of a price increase and theres going to be an opportunity to have to look at how they can.
Paul Bay: I would also say, this is a pretty recent comment, I was at a some of our top strategic customers, and I actually asked them for real-time feedback, kind of how they're looking at tariffs with their end businesses that they're serving every day. And one of the comments was that one of our customers is actually seeing deals and believes it may be a good offset, is that they're moving deals from maybe cash or shorter term cycles to financing deals through our microfinancial services. So he believes that if the end businesses, if it becomes too much of a price increase and there's going to be an opportunity, they have to look at how they can finance to really solve that business outcome.
Speaker Change: Finance to really solve that business outcomes. So again, that's how we're kind of looking at tariffs right now and as he mentioned it is a fluid situation a bit of uncertainty on where we're going to land on that could there be to your point could there be a potential pocket.
Speaker Change: <unk> benefit for the inventory that we carry on a global basis, yes, there could be.
Speaker Change: So we're looking at strategic opportunities that we looked at in Q4 to make sure that we have the right amount of inventory to help service, our 161000 customers on a global basis, but that'll be a point in time I think we will have to wait and see kind of where the water level.
Paul Bay: So again, that's how we're kind of looking at tariffs right now. And as you mentioned, it is a fluid situation and a bit uncertain where we're going to land on this. Could there be, to your point, could there be a potential pocket price benefit for the inventory that we carry on a opportunities that we looked at in Q4 to make sure that we have the right amount of inventory to help service our 161,000 customers on a global basis? But that would be a point in time. I think we'll have to wait and see kind of where the water level sets in a little bit longer term over the coming weeks and days.
Speaker Change: And a little bit longer term over the coming weeks and days.
Speaker Change: Okay interesting. Thank you. Thanks for the insights maybe for my follow up for Mike.
Speaker Change: Guiding the <unk> EPS to be year over year decline, despite the growth in revenue because of beef.
Speaker Change: The market environment that you, both <unk> and <unk>.
Speaker Change: So those sort of.
Speaker Change: Exhibiting the yield or the opportunity to get EPS back to growth.
Speaker Change: So just curious as well it seems like there is some sort of level. Some model enabled on the opex to pull to the remainder of the year, but how are you thinking about the opportunity to get us back to growth or what are the other additional levels. You can think of that would be available to the company to get back with you.
Sameek Chatterjee: Great, got it. Interesting. Thank you. Thanks for the insights.
Michael Zilis: Maybe for my follow-up for Mike, Mike, you're guiding the 1Q EPS to be a year-over-year decline despite the growth in revenue because of the competitive market environment that you are perceiving in 1Q. As you look through those sort of exiting the year or sort of the opportunity to get EPS back to a growth trajectory as well, seems like there's some sort of level, somewhat of a level on the to the remainder of the year. But how are you thinking about the opportunity to get EPS back to growth, or what are the other additional levels you can think of that would be available to the company to get EPS back to growth here?
Speaker Change: Yes, it's a good question.
Speaker Change: A couple of points I would make and this will just build off of what you. Just you just repeat it back I mean, it is really a margin story more than anything.
Speaker Change: Mix factor you know I guess, if I look at a couple of different mix factors that really drive rates as we talked about in our prepared remarks, one you would have a mix more towards cloud and endpoint solutions and specifically seeing some strength not only in just PC and desktop, but also in mobility devices and those do tend to.
Speaker Change: Lower margins are also lower cost.
Michael Zilis: Yeah, it's a good question. A couple points I would make, and this would just build off of what you just you just repeated back. I mean, it is really a margin story more than anything, and it's a mixed factor. You know, I guess if I look at a couple different mixed factors that really drive rates, as we talked about in our prepared remarks, 1, you have a mix more towards client and endpoint solutions and specifically seeing some strength, not only in just PC and desktop, but also in mobility devices. And those do tend to be lower margin.
Speaker Change: To serve and the product moves fast so it's a nice turning.
Speaker Change: Our environment from a working capital perspective, but it will dilute margins and if we see that strength of our PC notebook refresh continue for a handful of quarters that is going to have a dilutive impact on at least the gross margins that.
Speaker Change: And then you have.
Speaker Change: Customer mix and you know as we talked about also in our prepared remarks and some of the follow up here, we're seeing a predominance more towards the large enterprise or large customers and if you think about it that is a lower value add kind of relationship for us where are we.
Michael Zilis: They're also lower cost to serve, and the product moves fast. So it's a nice turning environment from a working capital perspective, but it will dilute margins. And if we see that strength of a PC notebook refresh continue for a handful of quarters, that is going to have a dilutive impact on at least the gross margin. Then you have customer mix, and as we talked about also in our prepared remarks and some of the follow-up here, we're seeing a predominance more towards the large enterprise or large customers. And if you think about it, that is a lower value-add kind of relationship for us.
Speaker Change: Make more margin is where we have more value add in the form of services value added pre engineering and post engineering support.
Speaker Change: Appointment skills as well as just the complexity of the products when we're selling more into S. M. D. As an example, and as we've talked about SMB has remained a little bit softer, but we're seeing signs where that would start to improve as long as we start to see the market stabilize a little bit in the form of inflation.
Speaker Change: And in.
Michael Zilis: Where we make more margin is where we have more value-add in the form of services, value-add, pre-engineering and post-engineering support, deployment skills, as well as just the complexity of the products when we're selling more into SMB as an example. And as we talked about, SMB has remained a little bit softer, but we're seeing signs where that would start to improve as long as we start to see the market stabilize a little bit in the form of inflation and in interest rate environments. And then lastly, you have the geographic mix. We've talked about this before where we're looking at north of 7% in our Asia-Pac region to close out the year, and that is a lower margin, lower cost-to-serve business.
Speaker Change: Todd.
Interest rate environments, and then lastly, you have the geographic mix.
Speaker Change: We've talked about this before where we're entering at north of 7% and our Asia Pac region to close out the year end.
Speaker Change: And that is a lower margin lower cost to serve business. A couple of our largest markets. There have more predominance of client and endpoint solutions business in their own right and so that too as a dilutive margin impact so as long as we now start to see more traction in North America.
Speaker Change: We see continued traction in in Latam, which has been solid and this is one of our most profitable regions and then we also start to see perhaps some of the economic headwinds that exist today in Europe, and particularly western European market start to subside all of those things are going to have the impact of driving.
Michael Zilis: A couple of our largest markets there have a more predominance of client and endpoint solutions business in their own right. And so that too has a dilutive margin impact. So as long as we now start to see more traction in North America, we see continued traction in LATAM, which has been solid and is one of our most profitable regions. And then we also start to see perhaps some of the economic headwinds that exist today in Europe, and particularly Western European markets, start to subside. All of those things are going to have the impact of driving an upward trend, generally speaking, on gross margins.
Speaker Change: And upward trend generally speaking on gross margins in the meantime, Opex does remain optimized as I just responded to Eric a minute ago. I think we are seeing still wraparound impact of some of the cost reduction efforts, but we do still have some of the heightened investment and our opex associated with our digital deployment.
Speaker Change: Vantage still rolling out and in various ways through 2025, and even into the early part of next year that causes some heightened opex. So as we said in our prepared remarks, we do see line of sight, where we would be bringing opex south of 5% I think that's probably as we get into next year that's fine.
Michael Zilis: In the meantime, OPEX does remain optimized. As I just responded to Eric a minute ago, I think we are seeing still wraparound impact of some of the cost-reduction efforts, but we do still have some of the heightened investment in our OPEX associated with our digital deployment advantage still rolling out in various ways through 2025 and even into the early part of next year that causes some heightened OPEX. So as we said in our prepared remarks, we do see line of sight where we would be bringing OPEX south of 5%. I think that's probably as we get into next year, that's 5% on that sales leverage perspective.
Speaker Change: Percent of net sales leverage perspective.
Speaker Change: And I think where we're optimizing that quite well to continue to capitalize on that.
Speaker Change: Great. Thank you thanks for taking my questions.
Speaker Change: We ask that you please limit to one question now.
Speaker Change: In consideration of time, our next question is from Oslo.
But that Sharia with bank of America. Please proceed.
Speaker Change: Hi, Thanks for taking my questions.
Speaker Change: Paul and Mike in your opinion, and what read as the overall distribution market growing and then ingram lose or gain share in the December quarter, I know you've talked about the tough pricing environment in India is that the only region and what is your strategy to deal with this is priced on the lever or tenders.
Michael Zilis: And I think we're optimizing that point well. We continue to capitalize on that.
Michael Zilis: Great. Thank you.
Operator: Thanks for taking my question. We ask that you please limit to one question now as in consideration of time.
Speaker Change: <unk> working capital in terms of you having to extend more credit. If you can just talk about the market and what your strategy is to deal with this environment.
Ruplu Bhattacharya: Our next question is from Ruplu Bhattacharya with Bank of America. Please proceed. Hi, thanks for taking my questions.
Speaker Change: Yes, Paul So I'll start <unk>. Thank you.
Paul Bay: Paul and Mike, in your opinion, at what rate is the overall IT distribution market growing and did Ingram lose or gain share in the December quarter? I know you talked about a tough pricing environment in India. Is that the only region and what is your strategy to deal with this? Is price the only lever or can this impact working capital in terms of you having to extend more credit? So if you can just talk about the and what your strategy is to deal with this environment.
Speaker Change: So I'll just touch again, North America definitely stabilizing and returning to growth as we mentioned we saw growth in all three lines of business our client endpoint solutions that they have solutions in cloud in Q4, and we expect to continue to see that momentum in Europe.
Speaker Change: I would say performing relatively well based off of expectations, the broader macroeconomic economic environment give us a little bit of headwinds there.
Speaker Change: But we're focused as we talk about quality of earnings and growth of what we're looking at and we've had a little bit of headwind specifically as you've heard Mike and I talk about Asia Pacific, which is still strong.
Michael Zilis: Yeah, let's also, I'll start Ruplu. Thank you. So I'll just touch again, you know, North America, definitely stabilizing and returning to growth. As we mentioned, we saw growth in all three lines of business, our client endpoint solutions, advanced solutions and cloud and Q4. And we expect to continue to see that momentum. In Europe, I would say performing relatively well, based off the expectations, the broader macro economic, economic environment, give us a little bit of head winds there. But we're focused as we talk about quality of earnings and growth of what we're looking at. And we've had a little bit of headwinds, specifically, as you've heard, Mike, and I talked about Asia Pacific, which is still strong, particularly in client endpoint solutions, business, but definitely a competitive environment that we haven't seen for quite some time in that market.
Speaker Change: Particular in client and endpoint solutions business, but definitely a competitive environment that we haven't seen for quite some time in that market specifically.
Speaker Change: There are deals that we actually walked away from that Didnt meet our profitability and ROI expectations that would have been at a profit loss. So you've heard me and Mike again say that we're focused on quality of revenue I think you show up see that show up and in our earnings. So what are we doing we're focused on as we came out of some of the challenges.
Speaker Change: For the back half of the year the fraud that Mike talked about in the prepared remarks, we're rebuilding the right teams, making sure we're operating with the right level of integrity and controls are hiring the appropriate talent, we're getting back to focusing on the customer I think some of that challenges that we had starting in Q2.
Paul Bay: Specifically, there are deals that we actually walked away from that didn't meet our profitability and ROI expectations, that would have been in a profit loss. So you've heard me and Mike, again, say that we're focused on quality of revenue, I think you show up, see that show up in, in our earnings. So what are we doing? We're focused on as we came out of some of the challenges for the back half of the year and the fraud that Mike talked about the prepared remarks, we're rebuilding the right teams, making sure we're operating with the right level integrity and controls.
Speaker Change: With the fraud and the investigation, we are a bit internally focused and now we're focused on our customers and vendors. We've also put some controls.
Speaker Change: Around kind of the marginal and transactional level to minimize negative margin impact and I'll go back to this is one of our largest countries as you know and we've been doing business and we're getting the team focus we've been doing business in India for the past two decades and being a leader there. So we're going to get back to what we know how to grow and continue to be a leader in that and that.
Paul Bay: We're hiring the appropriate talent. We're getting back to focusing on the customer. I think some of that challenges that we had starting in Q2, with the fraud and the investigation, we were a bit internally focused. And now we're focused on the customers and vendors. We've also put some controls and around kind of the marginal and transactional level to minimize negative margin impact. And I'll go back to this is one of our largest countries, as you know, and we've been doing business and we're getting a team focus. We've been doing business in India, for the past two decades and being a leader there.
Speaker Change: Business. If you look at Latin America, we continue to execute very well in Latin America, because of our reach and our depth that we have and the investments we've made throughout the years in that region.
Speaker Change: And so we expect to continue to see momentum there that would be kind of the overall environment, where we see really just what I. The only thing I would add to that is as.
Speaker Change: You've heard pretty clearly, India is probably where we're seeing more irrationality right now as far as pricing.
Paul Bay: So we're going to get back to what we know how to, to grow and continue to be a leader in that, in that business. If you look at Latin America, we continue to execute very well in Latin America, because of our reach and our depth that we have and the investments we've made throughout the years in that region. And so we expect to continue to see momentum there.
Speaker Change: But it is a competitive market everywhere to your question on balance sheet. Yes. We are seeing at times are lengthening of terms being granted.
Speaker Change: Although I don't think it's as notable other factor, we're seeing a bit of that and we need to make sure as we elect what deals we're going to participate in that it is with an appropriate return on invested capital and returned to shareholders, So, but I'm not as concerned about the balance sheet side of the equation.
Michael Zilis: That would be kind of the overall environment where we see. Yeah, Rupal, just what I, the only thing I would add to that is, is, you know, as you've heard pretty clearly, India is probably where we're seeing more irrationality right now, as far as pricing. But it is a competitive market everywhere. To your question on balance sheet, yes, we are seeing, at times, a lengthening of terms being granted. Although I don't think it's as notable of a factor, we're seeing a bit of that. And we need to make sure, as we elect what deals we're going to participate in, that it is with an appropriate return on invested capital and return to shareholders.
Speaker Change: Its more just making sure we're taking the deals that makes sense and that overall continuing to grow as we've always said as our strategy growing advanced solutions and cloud above market and over time, we've demonstrated that we've been doing that and growing client an endpoint, where you tend to have a little bit more of that.
Speaker Change: Therefore from a margin perspective.
Speaker Change: Can get a little bit more exacerbated growing that with market and being selective as to the nature of business, we want to pursue.
Paul Bay: So, but I'm not as concerned about the balance sheet side of the equation. It's more just making sure we're, we're, we're taking the deals that make sense. And then overall, continuing to grow, as we've always said, is our strategy, growing advanced solutions and cloud above market. And over time, we've demonstrated that we've been doing that, and growing client and end point, where you tend to have a little bit more of that turf war from a margin perspective, can get a little bit more exacerbated, you know, growing that with market and being selective as to the nature of business we want to pursue.
Speaker Change: The only last thing I would say real quick is if you look at vantage and the investments we've made.
Speaker Change: And as we've talked about over the last nine quarters, we've taken out upwards of $200 million worth of Opex.
Speaker Change: We've reinvested some of that back into at vantage, but it's been enabled internal efficiencies and the benefit. We have is we're showing up to provide our customers a single.
Speaker Change: Our experience around hardware software services and cloud and one area that they can transact with an ease of doing business.
Speaker Change: Ultimately for those businesses the millions that they're serving each and every day.
Paul Bay: Hey, Rupal, the only last thing I would say real quick is, if you look at Xvantage and the investments we made, and as we've talked about over the last nine quarters, we've taken out upwards of $200 million worth of OPEX, which we've reinvested some of that back into Xvantage. But it's been enabled internal efficiencies. And the benefit we have is we're showing up to provide our customers a singular experience around hardware, software services, and cloud in one area that they can transact with the needs of doing business, ultimately for those end businesses, the millions that they're serving each and every day.
Speaker Change: Thanks for that.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Our next question is from Surinder <unk> with Jefferies. Please proceed.
Speaker Change: Okay.
Speaker Change: About the SMB market and what Youre seeing there at this point is it fair to characterize that it's a bit weaker at this point in the cycle than you are anticipating just some any color around that would be helpful.
Speaker Change: And maybe your expectations as the year progresses.
Ruplu Bhattacharya: Thanks for all the details.
Speaker Change: This is Paul so thank you for the question, Yes, F&B was down as I mentioned.
Surrender Thind: Our next question is from Surrender Thind with Jeffries. Please proceed. about the SMB market and what you're seeing there.
Speaker Change: Double digit for most quarters that exiting the year and in Q4.
Speaker Change: Early indications are that we believe that is going to come back.
Speaker Change: And we're seeing early signs of that part of that I believe two are tied to the advanced solutions and the opportunity. We have is as areas like networking continued to or continue to make progress towards now.
Paul Bay: Is it fair to characterize that it's a bit weaker at this point in the cycle than you're anticipating? Just some any color around that would be helpful, and maybe your expectations as the Drew, this is Paul. Thank you for the question. Yes, SMB was down, as I mentioned, double-digit for most quarters at exiting the year in Q4. Early indications are that we believe that is going to come back, and we're seeing early signs of that. Part of that, I believe, too, is tied to the advanced solutions and the opportunity we have as areas like networking continue to make progress towards not having declines in 2024 going into 2025.
Not having.
Speaker Change: Declines in 2024 going into 2025, so wrapping our advanced solutions, our cloud and the endpoint solutions together, we think that there'll be some strength coming back into F. N b.
Maybe not as much in Q1, but the conversations we're having with customers that they see a pretty good back half of the year as they're building out their pipelines are relative to the end businesses, they're serving today.
Speaker Change: Thanks.
Speaker Change: Youre welcome.
Speaker Change: Okay.
Speaker Change: Our next question is from Matt Mcmahon with Deutsche Bank. Please proceed.
Paul Bay: So wrapping our advanced solutions, our cloud, and the endpoint solutions together, we think that there'll be some strength coming back into SMB. Maybe not as much in Q1, but the conversations we're having with customers as they see a pretty good back half of the year as they're observing today. Thanks.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Matt are you there.
Speaker Change: Hey, guys.
Speaker Change: And now we can yeah, we can hear you.
Speaker Change: Okay Awesome awesome.
Speaker Change: Two follow ups first on public sector.
Speaker Change: You referenced some softness I'm just wondering is that U S related is that related to the election, and hence more transitory in nature or is this expected to continue and then just on working cap and ocs.
Matt McNam: Our next question is from Matt McNam with Deutsche Bank. Please proceed. Matt, are you there? Hey, guys. Two follow-ups. First, on public sector, you referenced some softness. I'm just wondering, is that U.S.-related? Is that related to the election and, hence, more transitory in nature? Or is this expected to continue?
Speaker Change: Maybe if we can how youre thinking about working cap and operating cash flow in <unk> with the implied seasonal sales dip and maybe more of a mix shift towards client and endpoints.
Paul Bay: So this is Paul I'll answer the public sector, yes.
Speaker Change: The significant piece was.
Speaker Change: From a North America perspective that I would also say the other regions also were down too. So it's kind of a global public sector.
Speaker Change: Environment and you.
Paul Bay: And then, just on working cap and OCF, Mike, maybe if we can – how you're thinking about working cap and operating cash flow in one queue with the implied seasonal sales dip and maybe more of a mixed shift towards client and end So this is Paul.
Speaker Change: You know the expectation was prior to some of the decisions that were made here recently over the last 24 hours of that that we would see some return to growth in public sector, depending on which season. It is you know whether it's fed sled or education.
Paul Bay: I'll answer the public sector. Yes, the significant piece was from a North America perspective, but I would also say the other regions also were down too. So it's kind of a global public sector environment. And, you know, the expectation was prior to some of the decisions that were made here recently over the last 24 hours that we would see some return to growth in public sector, depending on which season it is, you know, whether it's Fed, SLED or education. But there may actually be some opportunity now too, I would say in the European markets as there's potentially some more preparing to how they're going to move forward.
Speaker Change: But there may actually be some opportunity now to I would say in the European markets out.
Speaker Change: Theres potentially some more preparing to how they are going to move forward. So there may be some some public sector opportunity there too, but the expectation is that yes, it would start to come back.
Speaker Change: This year, because it was down by double digits on a global basis for us.
Speaker Change: In Q4.
Speaker Change: So then just attack on the working capital question, Yes.
Speaker Change: I'll, just remind everybody we have a decent amount of seasonality to our business, where we invest in the second half of the year for the peak of sales going into Q4.
Speaker Change: Those sales are.
Speaker Change: <unk> were higher as we've talked about we saw a nice growth in Q4.
Paul Bay: So there may be some some public sector opportunities there too. But the expectation is that yes, it would start to come back this year, because it was down by double digits on a global basis for us in Q4.
Speaker Change: And therefore were more in the collection mode on the receivables that came out of Q4 as we get into Q1, but I would also point out we did have a very strong free cash flow fourth quarter and some of that was not only sell through very successfully of inventory levels and translating that into sales, but also.
Michael Zilis: So then just to tack on the working capital question, yeah, I'll just remind everybody we have a decent amount of seasonality to our business where we invest in the second half of the year for the peak of sales going into Q4. Those sales were higher as we talked about. We saw nice growth in Q4. And therefore, we're more in collection mode on the receivables that came out of Q4 as we get into Q1. But I would also point out we did have a very strong free cash flow fourth quarter. And some of that was not only sell-through very successfully of inventory levels and translating that into sales, but also some strategic work with our vendors and payables to extend that.
Some strategic work with our vendors and payables to extend that and obviously you can only do that so much on an ongoing basis. So we're more than collection mode. As we go into Q1 on the receivables, but we also see a typically a little bit more of a seasonal lull in Qs one and two as you would see in our normal.
Speaker Change: <unk> sales cycle so.
Speaker Change: What I would just say is over time, an end and I made this remark in my prepared remarks, yeah, we expect to generate consistent free cash flow over the annual periods as long as we bear through the seasonality factors and see some of that bear out throughout the year and it's our goal that on a consistent base.
Michael Zilis: And obviously, you can only do that so much on an ongoing basis. So we're more in collection mode as we go into Q1 on the receivables. We also see typically a little bit more of a seasonal lull in Q1 and Q2 as you would see in our normal sales cycle. So what I would just say is over time, and I made this remark in my prepared remarks, we expect to generate consistent free cash flow over the annual periods as long as we bear through those seasonality factors and see some of that bear out throughout the year.
Speaker Change: So we're driving a 30% or more of our EBITDA through to free cash flow, but if we start to see as we usually do with the counter cyclicality of the business quite a bit of growth opportunity that requires investment in working capital.
Speaker Change: And endpoint solutions requires less and advanced solutions to us. So if we start to see networking rebound in advanced solutions returned to more significant growth given the project based nature of that business that might require some investment in working capital, but rest assure we look at that is with an eye absolutely towards shareholder return and media.
Michael Zilis: And it's our goal that on a consistent basis, we're driving 30% or more of our EBITDA through the free cash flow. But if we start to see, as we usually do with the counter cyclicality of a business, quite a bit of growth opportunity, that requires investment and working capital. And then endpoint solutions requires less than advanced solutions does. So if we start to see networking rebound and advanced solutions return to more significant growth given the project-based nature of that business, that might require some investment in working capital. But rest assured, where we look at that is with an eye absolutely towards shareholder return and making sure we're balancing that with the profitability of the deals we're pursuing.
Speaker Change: Sure, we're balancing that with the profitability of the deals we're pursuing.
Speaker Change: Thank you.
Speaker Change: Our next question is from Adam Tindle with Raymond James. Please proceed with your question.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Operating income dollars are kind of a good proxy that neutralizes for all the mix impacts and trying to figure out what's going on Pcs versus infrastructure. If I look at that metric that was down almost 20% year over year in the quarter.
Speaker Change: Understand tough macro in India, and some of those other factors going on but your main competitor I think on that metric was down about 1% in your main customers, whether it's the CW et cetera were kind of flattish on that metric. So I guess, you know relative to the competitive competitors in your customers. It's just a big Delta.
Adam Tyndall: Thank you.
Michael Zilis: Our next question is from Adam Tyndall with Raymond James. Please proceed with your question. Operating income dollars are kind of a good proxy that neutralizes for all the mixed impacts and trying to figure out what's going on with PCs versus infrastructure. Now, if I look at that metric, it was down almost 20% year-over-year in the quarter. Understand tough macro in India and some of those other factors going on, but your main competitor, I think, on that metric was down about 1%, and your main customers, whether it's the CDW, et cetera, were kind of flattish on that metric.
Speaker Change: On the operating income dollar line I'm trying to figure out how to reconcile what's going on there and then for Mike. If you could just expand on your Q1 guidance. It's on gross profit dollars and EPS, because we don't have a lot of dollars.
Speaker Change: Hard to model the below the line items, but I think I'm getting to around 210 on EBIT dollars. If you could maybe just help us a little bit on what's implied for Q1 on the operating income dollar line that'd be helpful. Thank you guys.
Michael Zilis: So I guess relative to the competitors and your customers, it's just a big delta on the operating income dollar line. I'm trying to figure out how to reconcile what's going on there.
Speaker Change: Yeah. So let me let me hit on the trend in Q4 first yeah.
Speaker Change: Just to remind you that not only do we have the India charges, which were about $23 million, but we also have.
Michael Zilis: And then for Mike, if you could just expand on your Q1 guidance, it's on gross profit dollars and EPS, but we don't have the OI dollars. Hard to model the below-the-line items, but I think I'm getting to around 210 on EBIT dollars. If you could maybe just help us a little bit on what's implied for Q1 on the operating income dollar line, that'd be helpful. Thank you, guys.
Speaker Change: The stock based comp charge that goes through Opex down operating income we add back back when you get down into adjusted EBITDA and non-GAAP net income that it is not added back into adjusted operating income. So that's $54 million, it's 41 basis points of sales and I think that probably explains the.
Speaker Change: Most of what you're talking about.
Michael Zilis: Yeah, so let me let me hit on the trend in Q4 first. Yeah, I'll just remind you, not only do we have the India charges, which were about $20.3 million, but we also have the stock-based comp charge that goes through OPEX and operating income. We add that back when you get down into adjusted EBITDA and non-GAAP net income, but it is not added back into adjusted operating income. So that's $50.4 million. It's 41 basis points of sales, and I think that probably explains the bulk of what you're talking about relative to what you would see perhaps in some other markets on the operating income line item.
Speaker Change: Relative to what you would see perhaps than some other all the other markets on the operating income line item.
Speaker Change: And then on top of that as I've said is that a couple of times here I think we continue to.
Speaker Change: Find ways, where we can optimize sales and also as we see ex vantage driving some of the benefits we've talked about in previous discussions as well as today as.
Speaker Change: As weak returned to growth, we have the opportunity to grow without having to add back as much operating expense to serve that because we're now more automated than we were a year ago two years ago et cetera. So so those are really the more optimal benefits there.
Michael Zilis: And then on top of that, as I've said a couple of times here, I think we continue to find ways where we can optimize sales. And also, as we see advantage driving some of the benefits we've talked about in previous discussions as well as today, you know, as we return to growth, we have the opportunity to grow without having to add back as much operating expense to serve that because we're now more automated than we were a year ago, two years ago, etc. So those are really the more optimal benefits there.
Speaker Change: I'm sorry could you just repeat your second part of your question I know you were asking more on the EBITDA I think.
Speaker Change: Yes, it was mainly trying to get into Q1 to make sure. We don't Miss model. This in Q1 again, because it was such a big deviation in Q4 on the operating income dollar line.
Speaker Change: And I think you're implying just over $200 million of EBIT on the Q1 line, but any color you can give us in terms of modeling and we could take it offline if we need to but.
Speaker Change: Yeah, I can definitely get back to you with more specifics when we have some follow ons, but I think generally speaking.
Michael Zilis: I'm sorry, could you just repeat your second part of your question, though? You were asking more on EBITDA, I think. Yeah, I was mainly trying to get into Q1 to make sure we don't miss model this in Q1 again, because it was such a, you know, big deviation in Q4 on the operating income dollar line. And I think you're implying just over 200 million of EBIT on the Q1 line, but any color you can give us in terms of modeling, and we could take it offline if we need to, but... Yeah, I can definitely get back to you with more specifics when we have some follow-ons, but I think generally speaking, I think you're about right as far as what we would see, as far as trending.
Speaker Change: I I think I think you're about right as far as what we would see as far as trending we're seeing a little bit of on the operating income non-GAAP line again, because we have some of that heightened investment in it on a year over year basis in a X vantage and so forth youre seeing a little bit more muted.
Speaker Change: On a year over year basis, but but directionally, you're not too far off on an a on the EBIT I believe.
Mike: Okay that clarification is helpful. Thanks, Mike.
Speaker Change: Our next question is from David Page with RBC capital markets. Please proceed.
Michael Zilis: We're seeing a little bit of, on the operating income non-GAAP line, again, because we have some of that heightened investment on a year-over-year basis in advantage and so forth. You're seeing a little bit more muted number on a year-over-year basis, but directionally, you're not too far off on the EBIT, I believe. Okay, that clarification is helpful. Thanks, Mike.
David Page: Hi, Thank you for taking my question I was wondering if you could just maybe.
David Page: Maybe I'll, let Ian is well, it's around how youre leveraging the X vantage platform in 2025.
David Page: With respect to Hyperscale or as I think on the <unk> you had mentioned some momentum with AWS. So I was wondering how that was going and then hyperscale demand in general Thank you.
Speaker Change: Yeah. So thank you David So let me give you a couple of thoughts of how we're looking at.
David Page: Our next question is from David Page with RBC Capital Markets. Please proceed. Hi, thank you for taking my question.
Speaker Change: Maybe some of the platform metrics so as it relates to the Hyperscale or yes, we have actually created some integrations and ease of use and health technology wants to be deploy specifically with AWS. They mentioned that they revert conference.
Paul Bay: I was wondering if you could just give some maybe qualitative thoughts around how you're leveraging the xVantage platform in 2025, in particular, with respect to hyperscalers. I think on the 3Q call, you had mentioned some momentum with AWS. So I was wondering how that was going and then, you know, hyperscaler demand in general. Thank you. Yeah, so thank you, David.
Speaker Change: You probably saw our press release on up with what we're doing they integrate seamlessly with their marketplace and we will continue to.
Integrate and move forward with all the hyperscale or from a customer and really and ease of use standpoint, but let me give you a couple of thoughts that we had and these are year end full year kind of metrics that we look out there's really three different ways.
Paul Bay: So let me give you a couple of thoughts on how we're looking at maybe some of the platform metrics. So as it relates to the hyperscalers, yes, we have actually created some integrations and ease of use on how technology wants to be deployed, specifically with AWS. They mentioned at their re-event conference, and you probably saw a press release on what we're doing to integrate seamlessly with our marketplace. And we will continue to integrate and move forward with all the hyperscalers from a customer and really an ease of use standpoint.
Speaker Change: But we look at the metrics.
Speaker Change: With regard to the business so the first one.
Speaker Change: We would talk about end user engagement and how we're moving forward with end user engagement that would be things like searches and active users that was up over 50% year over year for the full year of 2020 for the second one is we call it as a customer and as we look at the customer one of the.
Paul Bay: But let me give you a couple of thoughts that we have. These are year-end, full-year kind of metrics that we look at. There's really three different ways that we look at the metrics with regard to the business. So the first one is we would talk about end-user engagement and how we're moving forward with end-user engagement. That would be things like searches and active users. That was up over 50% year-over-year for the full year of 2024. The second one, as we call it, is customer. And as we look at the customer, one of the metrics that we use is dormant customers, and a dormant customer is us.
Speaker Change: Metrics that we use is dormant customers anecdotal my customer is up for us as somebody that hasnt transacted with us in 12 months or more.
Speaker Change: We have reactivated over 8000, and those 8000, new dorm at customers that we've been working with have actually started to deliver meaningful revenue.
Speaker Change: Fourth for those net new customer of alcohol and the last one is financial and operational and one of the metrics that we use there.
Speaker Change: Self service orders and those have more than doubled which helps demonstrate if youre doing self service or the Atlas and demonstrate ease of use and a much more less touch and friction in the business. So those are a couple of different ways. We're looking at user engagement financial operational and customer and.
Paul Bay: For us, as somebody that hasn't transacted with us in 12 months or more, we have reactivated over 8,000. And those 8,000 new dormant customers that we've been working with have actually started to deliver meaningful revenue for those net new customers, I'll call them.
Speaker Change: I just gave you one metric that we use.
Speaker Change: Amongst many that we have so we're seeing good progress on our RF vantage adoption and ease of doing business is what we've expected and we feel good about where we're at right now.
Paul Bay: And the last one is financial and operational. And one of the metrics that we use there is self-service orders. And those have more than doubled, which helps demonstrate if you're doing self-service orders that's touchless, and it demonstrates ease of use and much more less touch and friction in the business. So those are a couple of different ways we're looking at user engagement, financial, operational, and customer. And I just gave you one metric that we use amongst many that we have. So we're seeing good progress on our advantage adoption and ease of doing business is what we've expected, and we feel good about where we're at right now.
Speaker Change: Great. Thank you.
David: Our next question is from David.
Speaker Change: And meat dairy and honey with Evercore ISI. Please proceed.
David: Thanks.
David: Thanks, a lot.
Speaker Change: I was just hoping you could talk a little bit about it.
Speaker Change: In December and March what are you folks were looking at about mid 2% two 5% topline growth.
Speaker Change: As we go through calendar 'twenty five I'll, just qualitatively do you expect that growth to accelerate as the year progressed, especially given some of the comments you made on the networking recovery from the endpoint do you have what I'm trying to understand do you think this growth accelerates a lot of the crosscurrents, we should be thinking about as it comes to twenty-five growth and then if you could just quantify how big is India for you folks right now that would be helpful.
David Daryanani: Great, thank you.
Paul Bay: Our next question is from David.
Paul Bay: and meet Daryanani with Evercore ISI. Please proceed. Thanks a lot. I was just hoping you could talk a little bit about, you know, in December and March, whether you folks are looking at about mid-2%, 2.5% top-line growth. As we go through calendar 25, just qualitatively, do you folks expect that growth to accelerate as the year progresses, especially given some of the comments you made on the networking recovery and some of the end-point dealings? I'm trying to understand, do you think this growth accelerates, or what are the cross-currents we should be thinking about as it comes to 2025 growth?
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: We don't give guidance for the year from a revenue standpoint, I think there's a couple of variables as we're seeing the net.
Speaker Change: Net net.
Speaker Change: Notebook desktop refresh I think that's gonna depend it's gonna be dependent on how quickly that happens again, we're seeing nice momentum exiting the year and really going into the first part of.
Speaker Change: Q1, so we're pleased with the momentum that we're seeing around that again, that's coming out of the windows refresh just H systems in general people looking for new technology to to refresh the business and again, if if if IDC is correct in kind of their thoughts in the business moving on networking from negative six.
Paul Bay: And then if you could just quantify how big is India for you folks right now, that would be helpful. Thank you. So we don't give guidance for the year from a revenue standpoint, I think there's a couple of variables. We're seeing the notebook desktop refresh, I think that's going to depend, it's going to be dependent on how quickly that happens. Again, we're seeing nice momentum exiting in the year and really going into the first part of Q1. So we're pleased with the momentum that we're seeing around that. Again, that's coming out of the Windows refresh and just age systems in general, people looking for new technology to refresh the business.
Speaker Change: Last year to somewhere high single digits. They call it 8% that will definitely impact that networking is one of our larger pieces of business within our advanced solutions business and continued momentum in cloud. So that's kind of how we see the makeup of what we're going to continue to invest India. I think your question you broke up a little bit of India and kind of the size of it.
Speaker Change: One of our largest.
Speaker Change: Businesses that we have from a company perspective, so with that Asia Pacific is a very large piece of the overall business.
Paul Bay: And again, if IDC is correct in kind of their thoughts and the business moving on networking from negative 6% last year to somewhere high single digits, they called 8%, that will definitely impact with networking as one of our larger pieces of business within our advanced solutions business and continue momentum in cloud. So that's kind of how we see the makeup of where we're going to continue to invest. India, I think your question is, you broke up a little bit of India and kind of the size of it, it's one of our largest businesses that we have from a company perspective.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: And our final question will be from Maggie Nolan with William Blair. Please proceed with your question.
Thank you.
Maggie Nolan: Is there a change in the expectation for the year.
Speaker Change: How are you going to drag on.
Speaker Change: Operating leverage just given some of the dynamics with pricing and advanced solutions.
Speaker Change: Are you going to need to be looking at more.
Paul Bay: Cost of solutions inefficiencies and no anything beyond this year as well that you would want to comment on is welcoming two yeah. Maggie. This is Paul so as we went through the budgeting process and looking at kind of what could be.
Paul Bay: So within Asia Pacific, it's a very large piece of the overall business. Thank you.
Paul Bay: And our final question will be from Maggie Nolan with William Blair. Please proceed with your question. Thank you. Is there a change in the expectation for the year of how you're going to drive operating leverage, just given some of the dynamics with pricing and advanced solutions? Are you going to need to be looking at more cost solutions and efficiencies and, you know, anything beyond this year as well that you would want to comment on as well? Yeah, Maggie, this is Paul. So, as we went through the budgeting process and looking at kind of, you know, what could be some of the headwinds or challenges, I think we saw maybe some of the potential headwinds in Europe as a potential, and, you know, how do we look at protecting that on a go-forward basis?
Paul Bay: Some of the headwinds or challenges I think we saw maybe some of the potential headwinds in Europe as a potential and you know how do we look at protecting that on a go forward basis as we mentioned exiting the year, which was late in the year, We announced we were taken out three 5% of Opex on a global basis and the expectation was.
Paul Bay: And we will continue to get the efficiencies as you heard me talk about advantage. So how do we get a better experience more touchless stated another way at lower Opex and so that's what we're really focused on is making sure. We're benefiting out of the investments. We've made in those 16 countries, where we have the <unk>.
Paul Bay: Vantage platform and so we continue to build additional competencies and capabilities that we're offering each of the countries and one of the benefits. We have as we've mentioned before which we think is a significant differentiator is that because of the way we've set up our architecture around X vantage at when we do development and create coda.
Paul Bay: As we mentioned, exiting the year, which was late in the year, we announced we're taking out 3.5% of offsets on a global basis, and the expectation was that we'll continue to get the efficiencies, as you heard me talk about, at Xvantage. So, how do we get a better experience, more touchless, stated another way, at lower offsets? And so, that's what we're really focused on, is making sure we're benefiting out of the investments we've made in those 16 countries where we have the Xvantage platform. And so, we continue to build additional competencies and capabilities that we're offering each of the countries, and one of the benefits we have, as we've mentioned before, which we think is a significant differentiator, is that because the way we've set up our architecture around Xvantage, that when we do development and create code around it, it goes to all 16 countries.
Paul Bay: Rounded it goes to all 16 country. So you live the way we like to say it is we create the data once we get to use it multiple times because it allows us to scale at a much lower cost in terms of innovation. So.
Paul Bay: And we're going to continue to focus on that for the half first half of the year and again, we were planning for kind of downside scenarios of what we thought exiting the year and going into the first half of 2025.
Paul Bay: Yeah.
Speaker Change: Thank you.
Paul Bay: We have reached the end of our question and answer session I would like to turn the call back over to Paul <unk> for closing remarks.
Paul Bay: So, the way we like to say it is we create the data once and we get to use it multiple times because it allows us to scale at a much lower cost in terms of innovation. So, we're going to continue to focus on that for the first half of the year. And again, we were planning for kind of downside scenarios of what we thought exiting the year and going into the first half of 2025. Thank you.
Thank you everyone for today's call and thank you to our 24000 team members for their commitment to innovation and to our vendor partners and customers.
We continue to evolve alongside US we hope to see many of you at the Morgan Stanley TMT Conference Tomorrow, as well as many of the other conferences in the coming months. Thanks for your interest and have a great rest of the day.
Paul Bay: Okay.
Paul Bay: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Paul Bay: We have reached the end of our question and answer session. I would like to turn the call back over to Paul Bay for closing remarks. Thank you everyone for today's call. Thank you to our 24,000 team members for their commitment to innovation and to our vendor partners and customers for continuing to evolve alongside us. We hope to see many of you at the Morgan Stanley TMT conference tomorrow as well as many of the other conferences in the coming months. Thanks for your interest and have a great rest of the day. Thank you. This will conclude today's conference.
Operator: You may disconnect your lines at this time and thank you for your participation.