Q1 2025 TD SYNNEX Corp Earnings Call
, David Jordan , David Jordan , David Jordan , David Jordan , David Jordan
Kate: Good morning, my name is Kate, and I will be your conference operator today. I would like to welcome everyone to the TD SYNNEX first quarter fiscal 2025 earnings call. Today's call is being recorded and online to have been placed on you to prevent any background noise. After the speaker is remarks, there will be a question and answer session. Thank you.
Speaker Change: At this time for opening remarks, I would like to pass the call over to David Jordan, America's CFO and Head of Investor Relations at T.D. SYNNEX. David, you may begin.
David Jordan: Thank you. Good morning everyone and thank you for joining us for today's call. With me today is Patrick Zammit, CEO and Marshall Witt, CFO .
David Jordan: Before we continue, let me remind you that today's discussions contain forward-looking statements within the meetings of the federal securities laws, including predictions, estimates, projections, or other statements about future events, including statements about our strategy, demand, plans, and positioning, growth.
David Jordan: Cash Flow, Capital Allocation, and Stockholder Return, as well as our financial expectations for future fiscal periods.
David Jordan: Actual results made different materially from those mentioned in these forward-looking statements as a result of risk and uncertainties discussed in today's earnings release.
David Jordan: In the form 8K we filed today in the Ritz Factor section of our form 10K and our other reports and filings with the SEC. We do not intend to update any forward looking statements. Also, during this call, we will reference certain non-GAAP financial information. In the form 8K, we will reference certain non-GAAP financial information. In the form 8K, we will reference certain non-GAAP financial information.
David Jordan: Disconference calls the property of TD SYNNEX and may not be recorded or re-broadcast without our permission. I will now turn the call over to Patrick. Patrick?
Patrick: Thank you, David. Good morning, everyone. Thank you for joining us today. I'm excited to report a strong start to fiscal year 2025.
Speaker Change: Let me begin by highlighting two key themes from this quarter.
Speaker Change: First, our Q1 results demonstrate strong momentum across the business, with all regions and major technologies contributing.
Speaker Change: Gross buildings grew by 7.5% year-over-year in Q1 and 9.5% in constant currency. Advanced solutions grew by 7% year-over-year reflecting continued demand for integrated IT solutions.
Speaker Change: Endpoint Solutions grew by 8% year of a year. We've grown across PCs and mobile.
Speaker Change: Second, in an evolving macroeconomic environment, we are executing with discipline and focus.
Speaker Change: With distribution, we saw solid growth in growth profit and operating income, reflecting our focus on profitable growth and operating efficiencies.
Speaker Change: As Marshall will discuss further, NQ1, Hive was below expectations due to a competent shipment delayed from Q1 to Q2 and the Mont short falls, which may last a few quarters.
Speaker Change: While the business is temporarily soft, we are confident the situation will normalize as the market conditions continue to be favorable.
Speaker Change: Finally, the strength of our business model allows us to grow ahead of the marketing Q1. Our end-to-end strategy, global reach, and especially go to market approach, continues to allow us to capture a wide range of IT spend.
Speaker Change: For example, within strategic technologies, all portfolios, including cloud, cyber security, data and analytics, and Hive, once again, grew by double digits in Q1, and across all audiographic
Speaker Change: InQ1, we expanded our reach to 30,000 active partners and 500,000 end-users, convacting through our cloud marketplace.
Speaker Change: Our ability to deliver local expertise with a global reach makes us a go-to partner for vendors looking to expand in higher growth markets.
Speaker Change: Latin America and APJ once again grew by double digits into one in constant currency.
Speaker Change: In these regions, we continue to build margin-acreative partnerships with leading innovative vendors, helping grow their business by vastly simplifying market complexity at the country level for both vendors and customers.
Speaker Change: The expansion of our line card also drives the expansion of our partner base as we continue to enrich our value proposition and product offering in those markets.
Speaker Change: These results demonstrate our position as the vital link in the global IT ecosystem.
as IT solutions become more complex.
Speaker Change: Driven by trends such as the convergence of hardware and software and the proliferation of technologies such as cloud, cyber security and AI.
Speaker Change: Our collection of specialists go to market, combined with our market leading depth of capabilities position us to be the partner of choice for our customers and vendors.
Speaker Change: Because of our specialized units and local knowledge, we solved some of their most challenging business problems, accelerate growth and reduce cost.
Speaker Change: For example, building on our past success with a major cybersecurity vendor, we recently won the US business with a large customer.
Speaker Change: Leveraging our best in class cyber security practice, we are helping this vendor deliver platform-wide solutions, but integrate hardware, software and AI.
Speaker Change: We are also providing enablement and support services, offering that expand our value proposition to our partners.
Speaker Change: Our broad range of specialists approach also positions us to be a natural extension of our vendors go to market across multiple specialties in IT, creating opportunities for us to add value with services and solutions.
Speaker Change: For example, this quota we significantly expanded our business with a leading infrastructure software provider across multiple countries around the world.
Speaker Change: By partnering with TDCNX, they rationalize their distribution footprint and leverage us for a variety of pre and post-stake services.
Speaker Change: Our broad geographic reach and in-country experts and knowledge were differentiators and gave them confidence to lean in with TDC NEX.
Speaker Change: As these wind demonstrates, new and existing partners are looking to us for assistance in delivering the next generation of technology solutions, all why helping them broaden their partner and use a reach in a cost-efficient way.
Speaker Change: Meanwhile, as more B2B bias become digital first, all purpose-built digital capabilities are making it easier than ever to transact with us.
Speaker Change: For example, this quarter will launch our digital bridge, Microsoft Teams app, the first of many connectors in development within the platform.
Speaker Change: This quarter, we were honored to be named distribution partner of the year for multiple industry leaders like AWS.
Speaker Change: The Alto networks insight enterprises and Nvidia.
Speaker Change: In North America, we were awarded best distributor of the year by channel through the recognition of our contributions to the MSP community.
Speaker Change: These are just a few examples.
Speaker Change: But almost <unk> in one direction.
From traditional <unk> distribution to accelerating adoption of the next generation of technology solutions.
Speaker Change: Capitalizing on conversion trends in it.
Speaker Change: And driving our long term sustainable leadership.
Speaker Change: We remain resilient in the face of uncertainty and we will lean on our broad technology and product portfolio and ecosystem to adapt to the continuously changing economic environment.
Speaker Change: Throughout all of this our north star continues to be profitable growth and free cash flow.
Speaker Change: We will forcefully and carefully allocate excess cash to the highest return opportunities to ensure sustainable value creation for customers and shareholders.
Speaker Change: We look forward to sharing more about our long term vision and how we'll get there at our Investor Day on April 10th in New York City.
Marshall: Now I will pass it to Marshall for financial performance and outlook Marshall.
Marshall: Thanks, Patrick and good morning, everyone.
Marshall: We had a solid performance in the first quarter with total gross billings of $20 7 billion up seven 5% year over year nine.
Marshall: Nine 5% in constant currency and at the high point of our guidance range we.
Marshall: We were pleased to see year over year growth across all major geographies and most product categories.
Marshall: In quarter, one there was an approximately 30% reduction from gross billings to net revenue, which was higher than expected and up from Q4, driven primarily by higher mix of infrastructure software business, which is part of our advanced solutions portfolio.
Marshall: Net revenue was $14 5 billion up 4% year over year and within our guidance range.
Marshall: Our endpoint solutions portfolio grew 8% year over year, driven by Pcs and mobile.
Marshall: Our advanced solutions portfolio grew 7% year over year, driven by software servers and storage and high.
Marshall: Gross profit was 1 billion or $4 eight 2% of gross billings, representing a nine basis point sequential decline.
Marshall: And a 40 basis point decline year over year.
Marshall: Most of the decline in profit margin year over year was driven by the expected tough compare and high.
Marshall: There was an additional 10 basis point impact within high attributed to investments in design and assembly as well as the impact of a temporary change in project composition.
Marshall: non-GAAP SG&A expense was $599 million or $2, 89% of gross billings representing.
Marshall: Representing a 13 basis point improvement year over year.
Marshall: The cost of gross profit percentage, which we define as the ratio of non-GAAP SG&A expense to gross profit was 60% in quarter one.
Marshall: And slightly below expectations due to high.
Marshall: From a distribution perspective, we dropped through 50% of gross profit growth demonstrating our commitment to profitable growth.
Marshall: non-GAAP operating income was $399 million or $1, 90% of gross billings, representing a seven basis point sequential decline and a 28 basis point decline year over year, primarily driven by higher.
Marshall: Interest expense and finance charges were $88 million higher than expected due to increased working capital to support highest largest customers the.
Marshall: The non-GAAP effective tax rate was approximately 23% which was in line with expectations.
Total non-GAAP net income was $237 million and non-GAAP diluted earnings per share was $2 80, both within our guidance range.
Marshall: Turning to the balance sheet for quarter, one net working capital was $4 3 billion approximately $1 billion, primarily due to the increase in <unk> inventory, which was previously discussed the timing of payables and the overall growth of the business.
Marshall: Okay.
Marshall: Free cash flow usage for the quarter was approximately $800 million, primarily due to higher working capital.
Marshall: We returned 138 million to stockholders in quarter, one with $101 million of share repurchases and $37 million of dividend payments.
Marshall: For the current quarter, our board of Directors has approved a cash dividend of 44 per common share that will be payable on April 25, 2025 to stockholders of record as of the close of business on April 11 2025.
Marshall: We ended the quarter with $542 million of cash and cash equivalents and debt of $4 3 billion. Our gross leverage ratio was two five times and our net leverage ratio was two two times.
Marshall: Moving onto our outlook. These numbers are all non-GAAP.
Marshall: For the second quarter, we expect gross billings in the range of 19, 7% to $20 7 billion representing growth of approximately 5% at the midpoint, we do not anticipate a material currency impact year over year. Our outlook is based on a euro to dollar exchange rate of one <unk>.
Marshall: Net revenue in the range of 13, 9% to $14 7 billion, which translates to an anticipated gross to net adjustment of approximately 29% non.
Marshall: non-GAAP net income in the range of $205 million to $247 million.
Marshall: Diluted earnings per share in the range of $2 45 to $2 95 per diluted share based on weighted average shares outstanding of approximately $83 million, we expect a tax rate of approximately 23% and interest expense of $86 million.
Marshall: We continue to assess the macroeconomic environment, including tariffs.
Marshall: And as of today, we are well positioned to outperform the it distribution market.
Marshall: In fiscal 'twenty five we continue to be committed to mid single digit growth billings growth and generating $1 1 billion of free cash flow. Our outlook is adjusted to reflect temporary shortfalls and high. However, we remain highly confident in the long term outlook.
Marshall: We plan to host an Investor day on April 10, where we will provide more detail on our strategy medium term targets and capital allocation framework with that we'll open it up for your questions operator.
Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad, we request that you limit yourself to one question to allow time for the other participants to ask your questions. If there is remaining time you are welcome to re.
Speaker Change: Queue with additional questions, we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of David <unk> with UBS. Please go ahead.
David Jordan: Great. Thanks, guys. Thanks, Patrick Thanks, Marshalls, So obviously I think the elephant in the room is can we maybe dig in a little bit more on hive. A couple of reasons. One what was the component shortages in the quarter and then you mentioned Marshall and Patrick sort of a softer than expected demand backdrop.
David Jordan: Can you kind of help us understand kind of what's attributing whats kind of driving that sort of outlook is it a product transition is it lack of components in it.
David Jordan: Just sort of a pause because I'm trying to think it through with regards to the gross billing commentary for the full year.
David Jordan: Being relatively solid and that sort of mid single digit range. So is it a timing issue or just how do we think about it in some.
David Jordan: Some more color and some more fiber out around what's going on at <unk>.
David Jordan: Yes. Good morning, Thanks, a lot for the question David.
David Jordan: Just would like to set the scene so we hand.
David Jordan: Overall, a very strong sales growth this quarter, driven by distribution and hive and hive again grew double digits year on year, but.
David Jordan: Unfortunately, slightly lower than expectation and Thats what we.
David Jordan: We will.
David Jordan: We will provide a little bit more color on it in a second just very rapidly on distribution just want to.
To make some some statements first we enjoyed.
David Jordan: Very nice growth, we think we grew faster than the market.
David Jordan: I mean with mid single digit growth.
David Jordan: Operating margins are stable and we were very pleased with the fact that we could.
David Jordan: <unk>.
David Jordan: Bring to the top to the bottom line more than 50% of the GP growth. So thats on distributions solid performance when you look at hive.
David Jordan: What happened is again double digit double digit growth.
David Jordan: But.
David Jordan: Some demand.
David Jordan: Not materializing. So indeed, we had we have on stock in fact, most confidence while in stock as you know for our customers. We also do strategic buys which we keep on stock we get preliminary rated for it and when they need the confidence then we ship them I mean, we had them in particular one very.
David Jordan: Large business before we would ship in Q1 that didn't materialize, we believe it's going to happen in Q2.
David Jordan: So its just temporary it's just the delay in the shipment, but unfortunately, it impacted our gross profit.
David Jordan: Our operating margin percent and obviously.
David Jordan: Our cash flow generation.
Marshall: Marshall do you want to add any color yeah. Thank you Patrick.
David Jordan: David to your question on softer demand.
David Jordan: I'll reference what we spoke to in terms of guidance for quarter two.
David Jordan: We have one customer that has some temporary demand.
David Jordan: Pause in their in their outlook and.
David Jordan: And so that's one of the reasons why we're seeing a little bit softer backdrop in quarter two related to high <unk>.
David Jordan: Thinking broader just in terms of the position we play the markets we serve the projects for participating in and also the upcoming customers that we are.
David Jordan: We're about two to onboard we feel really good about the demand environment and our ability to participate in growth.
Speaker Change: Your next question comes from the line of first a little bit to cargo with Bank of America. Please go ahead.
Speaker Change: In my questions.
Speaker Change: This quarter did you see any pull in or pre buying by customers to avoid any increase in tatters and Marshall you had last quarter guided.
Speaker Change: <unk> billings would grow mid single digits every quarter is that still your understanding for <unk> and <unk>.
Speaker Change: And how should we think about this.
Speaker Change: Shen from billings to revenue for the full year since I think you said software as a bigger part of the mix. So if you can give any color on pre buys on what youre thinking about.
Speaker Change: Orderly billings growth and the billings to revenue.
Speaker Change: Thank you.
Speaker Change: So good morning, <unk>. Thanks, a lot for the question.
Speaker Change: I will take the first one above the pre buys.
Speaker Change: In particular, when you when you think about PC, where pre buys could be an option.
Speaker Change: We had a very strong high single digit growth in <unk> this quarter.
Speaker Change: We believe that the impact of tariff has been relatively limited. Okay. So we believe that for the moment to growth is driven really by the refresh refresh of the base.
Speaker Change: Of the PC based both during the pandemic and Windows 11 refresh.
Speaker Change: So again limited impact for the moment.
Speaker Change: And then just on the theme of tariff for high just to cover that off we effectively pass through tariff related costs, we recoup those.
Speaker Change: So no impact to the high business and our position with five relative to the last time.
Speaker Change: Tariffs were introduced back in 2006 2017, we're much better positioned today with our onshore capabilities that we continue to provide high with a competitive advantage in the marketplace.
Speaker Change: Bye.
Speaker Change: To your question about the mid single digit growth for the full year, we still believe.
Speaker Change: And that we will be able to achieve mid single digit growth in quarter two.
Speaker Change: We think that distribution will be at mid single digit or a little bit higher.
Speaker Change: Hi will have.
Speaker Change: Slightly down year over year revenue performance, but we do expect that that mid single digit will play through for the second half of the year and then your last comment or question in regards to gross versus net we came in just around 30% that dimension that that was up about 300 bps from what we had expected.
Speaker Change: That continues to reflect a mix shift in the aas versus Es portfolio. We do think it's somewhat flattened out if we think about our es as balanced for the rest of this year, we think theyre going to be fairly equal in terms of their growth rate. So right. Now my expectation is that probably stays in that 20, 28% to 30% gross versus net four.
Speaker Change: The next.
Speaker Change: Three quarters.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Keith <unk> with Northcoast Research. Please go ahead.
Keith: Thanks, I appreciate the opportunity guys in terms of the price increases that youre seeing from your vendors, perhaps you can provide a little bit guidance about what youre seeing is perhaps the average price increases and if we're seeing them come into play yes, it's being effective and then is this enough to offset some perhaps demand challenges that may happen throughout the rest of the year as a result of the <unk>.
Speaker Change: So curious how you all think about how they work together.
Speaker Change: So good morning, Keith So we see some price decreases some vendors are starting to increase prices.
Speaker Change: It's not across the board is relatively limited for the moment, it's very specific.
Speaker Change: Clearly if indeed, we see an acceleration of the price increases as you know we are going to pass it through.
Speaker Change: Then to the to the channel.
Speaker Change: I mean, it would create a tailwind in the short term and.
Speaker Change: Of course, then the question will be what could be the impact on the volume, but again for the moment again based on what we see.
Speaker Change: It is relatively limited and.
Speaker Change: Where we have visibility we took it into account in our guidance.
Speaker Change: Your next question comes from the line of Adam Tindle.
With Raymond James Please go ahead.
Adam Tindle: Okay. Thanks, Good morning, I, just wanted to return to high for a second Marshall you talked about I think 10 basis points in Q1 impact.
The question wondering if you could maybe help quantify this issue and the timing to return what happens in Q2 and on a go forward basis and I am wondering if that is also impacting cash flow, which was very weak in the quarter. If you could maybe speak to what happens to cash flow for the rest of the year and your expectations on that and maybe <unk>.
Adam Tindle: And some capital allocation on that given the stocks starting to approach book value here and a great market.
Adam Tindle: Sure.
Speaker Change: I'll start and Patrick.
Adam Tindle: Please chime in in regards to the 10 basis points Adam.
Adam Tindle: It's around in quarter, one we referenced the portfolio temporary portfolio mix, that's really just the mix of the current projects underway and that has a slight <unk>.
Adam Tindle: Negative impact to gross profit our gross margin the.
Adam Tindle: The other piece is that as we're seeing this temporary pause in demand we're committed to keep our our specialized skilled resources onboard knowing that demand will return and expecting it to return. So that's the headwind we spoke to.
Adam Tindle: As we think about that now for quarter. Two those two same commitments are in place as well temporary project portfolio mix, bringing down the margins slightly and then the overall commitment for labor.
Adam Tindle: Comment that is playing out for fiscal 'twenty five Adam that we spoke to last call was the significant investments that we're making at hive around specialized skill sets, we recognize that in our design capabilities, we need to continue to enhance that and win new business. So we're onboarding a significant amount of technip.
Adam Tindle: Engineers to enable that to happen as you know in many situations the onboarding and the success of that can take 18 to 24 months to manifest itself. So we feel good about the investments that we know that the revenue may come.
Adam Tindle: In future quarters and.
Adam Tindle: In regards to the cash flow.
Adam Tindle: Usage in the quarter typically within our business will see some cash consumption within the distribution.
Adam Tindle: Behavior between quarter, four and quarter, one a lot of that has to do with the large quarter for some of that.
Adam Tindle: Carries into quarter, one and we usually see a cash usage the incremental amount is driven by high primarily due to two things one elevated inventory into quite a bit of payables that came out the door.
Adam Tindle: So that did hurt us as I think about how we recover that we expect to see a recovery of about two to three days per quarter that gets us back to around a 20 day cash conversion as we exit 'twenty five the last thing I'll remind you and the rest is that we were in a similar situation coming out of fiscal 'twenty one into 'twenty, two where we saw strong.
Adam Tindle: <unk> demand, but we saw inventory build within our high portfolio and it built for the first two to three quarters in 'twenty. Two we saw margin depression associated with carrying that but then we started to see it sell through we saw a strong recovery of our cost of capital and good margin profile for the inventory that we purchased on behalf of our customers, we expect that to be similar.
Adam Tindle: Pattern that will take place with hive.
Adam Tindle: This year and going into 'twenty, six and then finally.
Adam Tindle: Absolutely our position has been that we will be and remain opportunistic on our share buyback strategy, we repurchased $100 million in quarter. One we commented about 100 million in quarter. Two as you know in fiscal 'twenty, four we repurchased and also through dividend.
Adam Tindle: 82% of our free cash flow went to share buybacks and dividends and we expect that to be what we would do in 'twenty five given that that still remains a very good IRR and a very heavy and positive ROI.
Adam Tindle: Yes, just want to add a few comments the first one is.
Adam Tindle: Thanks to high we can play in this huge hyperscale market.
Adam Tindle: I mean $250 billion at least of investments and so we believe that that demand continues to be healthy.
Adam Tindle: The fact is that the demand in that space is really project driven and yes, we have a few projects where for the moment.
Adam Tindle: The demand is lower than expected, but again, we believe it's temporary and it's going to come back.
Adam Tindle: And it will help us consume some of the elevated elevated inventory.
Adam Tindle: Inventory is really for the moment from a cash flow standpoint, you issue, but again we are covered.
Adam Tindle: And it's a temporary situation. So we are very confident that we're going to address and fix it.
Adam Tindle: The next two quarters as Marshall mentioned from a cash flow standpoint, just want to add that on.
Adam Tindle: On the distribution side.
Adam Tindle: The cash days in fact are even lower than expected in Q1. So that's good so we have them.
Adam Tindle: A very healthy cash flow situation on distribution, which should help us also for the coming quarters.
Joseph Cardoso: Your next question comes from the line of Joseph Cardoso with J P. Morgan. Please go ahead.
Joseph Cardoso: Hey, good morning, Thanks for the questions, maybe just a quick kind of clarification questions I'll ask them kind of upfront here.
Joseph Cardoso: First one is just in terms of the ft, Q lower seasonality, maybe relative to your expectations heading into the fiscal year. It sounds like that's a bit of a high dynamic, but just wanted to be clear like anything else you are seeing contributing to the lower sequential decline or the sequential decline in the quarter beyond <unk> in the traditional distribution portfolio and then the <unk>.
Joseph Cardoso: Clarification question here is just in terms of the full year outlook any change in terms of how youre thinking about the contribution of EES and adds to the full year guide.
Joseph Cardoso: Including <unk> and then just.
Speaker Change: Thank you backing off of that just <unk> kind of tracking a little bit lower than you expected from a full year contribution standpoint, I guess, what are you seeing in Aaas portfolio.
Speaker Change: Offsetting that you're still expecting that to attract kind of in that mid single digit range. Thanks for the questions.
Drew: So good morning drew thanks, a lot for the question I would I will take.
Drew: The first question so for distribution again very solid Q1.
Drew: Mid single digit growth our guidance for Q2 assumes that the same will we will see the same pattern. We are cautiously optimistic about the market. We have a few technology is driving the demand at the moment.
Drew: Refreshes one.
Drew: Cloud continues to be very solid security continues to be very solid.
Drew: AI related products are ramping up.
Drew: And the enterprise it starts ramping up as fast as expected, but I mean quarter to quarter, we see the.
Drew: The weight of AI products increasing.
Drew: We are also expecting the networking.
Drew: Technology segment to recover.
Drew: And software continues to be very strong so lots of technologies segments in distribution justifying us to be cautiously optimistic.
Drew: On the margin side again as I mentioned.
Drew: Really beginning we see the margin stabilizing which is a positive and because of our cost management.
Drew: We are going to drop through.
Drew: Significant amount of the additional GPS so on the distribution side.
Drew: Jean.
Speaker Change: Positive cautiously optimistic but overall positive.
Joe: And just to add to that Joe on your question about.
Speaker Change: The growth expectations for the portfolio and how that plays out <unk> and how we sustain that at competence in Aes growth just what Patrick said security cloud data analytics, we put that in that stress Tek Strat technology portfolio that was growing for the quarter at over 20%. So it's a healthy growth rate debt.
Speaker Change: We'll kind of buoy some of the softness that we anticipate seeing in high for the rest of this year.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Mike <unk> with Goldman Sachs. Please go ahead.
Speaker Change: Hey, good morning, Thanks for the question I just have two.
Speaker Change: Clarification questions and hive.
Speaker Change: I guess first on the.
Speaker Change: On the on the on the customer that.
Speaker Change: <unk> had a temporary demand pause was that was that related to your.
Speaker Change: Historically, Maine.
Speaker Change: Large customer or is it the newer customer that ramped.
Speaker Change: Last year, and then second I just want to ask if I could.
Speaker Change: Get some clarification on if there was a specific business within <unk> that.
Speaker Change: Was the key driver of some of these issues was it was it primarily the strategic buy piece in and the reason why I ask is I think the strategic buy piece.
Speaker Change: Yes.
Speaker Change: That will have some revenue recognition once you ship those components, but.
Speaker Change: Any thoughts there would be would be great. Thank you.
Speaker Change: Sure, Yes, I'll start so the temporary pause was with the customer that we ramped last year.
Speaker Change: And.
Speaker Change: A lot of what we believe is taking place is that the.
Speaker Change: The demand precision and forecasting is what has caused that temporary pause.
Speaker Change: We felt that in quarter, one and we anticipate it to take place in quarter. Two our expectation is that have kind of returns back to its momentum as we go into quarter three.
Speaker Change: And then just back to the question around what business segments, If you will within high.
Mike: Were key drivers Youre right Mike.
Mike: Chairman is one of the four kind of major elements of what we do within <unk>, we made that.
Mike: Component purchased in 'twenty, four we thought it would get shipped in Q1.
Mike: It didn't so it moved into quarter. Two so you could say that part of our business showed.
Mike: So some softness within high.
Mike: Yeah.
Speaker Change: Your next question comes from the line of Ananda Baruah with loop capital. Please go ahead.
Ananda Baruah: Hey, Thanks, guys. Good morning, Thanks for taking the question.
Speaker Change: Yeah, actually just kind of staying on high there.
Ananda Baruah: Any any part of this.
Speaker Change: Picking up on the language you guys.
Speaker Change: Sort of in the prepared remarks.
Speaker Change: Does any part of this due to offer inventory buys the market has seen a dynamic works.
Speaker Change: <unk>.
Speaker Change: And yesterday basically customers, whether it is the largest CSP.
Speaker Change: And given the tier two guys buying laptop or.
Speaker Change: Our servers, yes.
Speaker Change: <unk> anticipated.
Speaker Change: Kind of through the fall into this year and so some folks have had more hopper inventory than they anticipated they might.
Speaker Change: Yeah definitely a general industry dynamic is any part of what you guys are experiencing.
Speaker Change: Getting caught up in that dynamic.
Speaker Change: Good question.
Speaker Change: Hey, Nandan thanks for the question.
Speaker Change: Let me just step up a little bit higher with that and not get specific on skus per se, but the majority if not all of the inventory that we repurchase on the behalf of our customers is to fulfill their demand forecast.
Speaker Change: And where we find there is a either an oversupply of certain components or skus that is where we have full protection.
Speaker Change: Recover the carrying cost associated with that and no obsolescence risk around that so.
Speaker Change: There could be some buildup of how they want their supply chain to be covered and the way that get satisfied in terms of how we built out their racks.
Speaker Change: Nothing specific around what elements of the skus are in more or less demand.
George Wang: Your next question comes from the line of George Wang.
Speaker Change: With Barclays. Please go ahead.
Speaker Change: Hey, guys. Thanks for taking my questions. Patrick can you tell us how Paul that the broad geographic exposure for TD six relative to some of the smaller players in the space, how does that translate into potential share gains, especially in this environment and then maybe to Marshall can you kind of talk about that.
Speaker Change: Dynamic in Europe.
Speaker Change: Noticed.
Speaker Change: <unk> basis, Europe was a bit softer.
Speaker Change: Based on gross billings in terms of year over year growth rate. So can you tell us trucked all.
Speaker Change: Puts and takes.
Speaker Change: And if I can squeeze a little more.
Speaker Change: Tend to fall off but just in terms of the operating expense efficiency. Marshall can you talk about the expectation for the SG&A kind of operating expense versus the gross billings kind of how sustainable into the second half. Thank you.
Speaker Change: Just on the SG&A question.
Speaker Change: Patrick has got quite a bit of good knowledge on Europe. So I'll, let him talk about that in terms of just the <unk>.
Speaker Change: <unk> that we experienced there on margin.
And then I think what you wanted was a better understanding of how our overall breadth and depth of capabilities is positioning us relative to our peers our competitors so with SG&A.
Speaker Change: In the prepared remarks, we said that the cost to serve was around 60%.
Speaker Change: Came in a little bit heavier than what we had expected primarily due to the to hive and hive element was two things that was a little bit more SG&A, but a lot less GP and so that combination is what caused that cost to serve.
Speaker Change: To come in at 60%, we expect that that will.
Speaker Change: Improve over time.
Speaker Change: If you look at the distribution side of the house extremely efficient in the prepared remarks thing.
Speaker Change: And at the GP fall through the bottom line is fantastic.
Speaker Change: A great representation in reflection of the hard work that the teams are doing to continue to build ways of supporting the growth of our business in a very profitable fall through.
Speaker Change: I'll say a couple of words on Europe.
Patrick: Pitch it over to Patrick but within our regional.
Patrick: Portfolio, we had mentioned in last quarter's call that we knew there was going to be headwinds in Europe due to vendor mix.
Patrick: And we saw that play out, but Patrick if you want to provide a little bit more color on Europe, and then the Geo competitive pressures, yes in Europe by the way I just want to mention the figures you see include high so again Im speaking only about distribution now.
Patrick: So in Europe market is growing we grew faster than the market.
And on the margin standpoint from a margin standpoint.
Patrick: As Marshall mentioned it it's a mix, it's a vendor mix, it's driven by the vendor mix.
Patrick: <unk>, which had an impact more specifically on the backend margin, but again the team does very well from a cost management standpoint, and so from an operating margin standpoint.
Patrick: They managed to keep it.
Patrick: Flat year on year, and so nice growth operating margin slot.
Patrick: Nice drop through to the bottom line, so Europe contributed nicely to the good performance of distribution.
Patrick: Now looking from a global standpoint.
Patrick: As you know in North America, and in Europe, we have a strong.
Patrick: <unk> market position.
Patrick: APG and Latin America.
Patrick: Really.
Patrick: Faster growing countries and our market share is.
Patrick: A much more modest so for us it's a very nice opportunity for profitable growth I want to insist on the fact that in both regions, we focus on the SMB market.
Patrick: <unk> drives higher margin.
Patrick: So not only we should continue to enjoy.
Patrick: I would say the faster growth than in Europe, and North America, but on top of it it should be it should have a very positive impact on our operating margins.
Patrick: The last point is obviously.
Patrick: I mean, we have strong relationships with the vendors.
Patrick: Thanks to our position in North America and in Europe.
Patrick: And we are clearly benefiting from it as we continue to expand in Latin America.
Patrick: America and a P. J so that explains the very good results in those two regions and the nice double digit growth in those regions.
Speaker Change: Your next question comes from the line of David Page with RBC capital markets. Please go ahead.
David Page: Hi, Good morning, Thank you for taking my question.
Speaker Change: I guess a more broader.
David Page: A question and initiatives at TD snacks.
Speaker Change: What is the.
Speaker Change: I guess the benefits over the long term.
Speaker Change: With initiatives like digital bridge, and streamline and how is that helping you navigate through I guess, just like a very uncertain macro environment.
Speaker Change: Yeah. So.
Speaker Change: When you think about our value proposition to the customer to our customers and again customers for us as partners.
Speaker Change: And vendors I mean, one we are here to accelerate that growth had been growing the market.
Speaker Change: The other dimension is obviously optimizing the operating models and basically reducing the cost of transacting in the market and Thats, where our platform and digital bridge player before so we have an excellent platform.
Speaker Change: And excellent digital platform, which basically provides our customers the opportunity to transact with us.
Four by seven.
Speaker Change: Automate transactions with us.
Speaker Change: And if you look at digital bridge, it's the same concept, but we think it's even more powerful because where when you think about it.
Speaker Change: When customers our customers interact through the platform <unk> to move all from there I would say.
Speaker Change: Applications to go into a platform with digital bridge, what we are doing is integrating our platform into their tools and that's the reason, it's so powerful and resonates very well, it's a tool we developed by the way with them.
Speaker Change: Our community solve and so all the customers.
Speaker Change: I mean basically they came to US we have a specification and together we've engineered solution, which is going to I think differentiates us very nicely in the market.
Speaker Change: Your next question comes from the line of Vincent Colicchio with Barrington Research. Please go ahead.
Speaker Change: Yes, it looks like despite the strength in Pcs peripherals werent overly strong what are your thoughts going forward for peripherals.
Speaker Change: Yes, so peripherals.
Speaker Change: Includes printing so the market for printing is continues to be.
Speaker Change: Challenged okay with low single digit decline.
Speaker Change: The main reason for the decline is in North America, we had one large business.
Speaker Change: Which was not profitable.
Speaker Change: I mean, we.
Speaker Change: Two bids.
Speaker Change: As you know we are absolutely focused on.
Speaker Change: Our strict financial discipline, we could not get the right return and so we have lost that business. So thats the reason for the decline.
Speaker Change: Two reasons for the decline on Perishables, we are now just want to insist on it so.
Speaker Change: What happens in both cases is obviously I mean.
Speaker Change: We are looking for.
Speaker Change: While new business more in the SMB segment, where the margins are.
Speaker Change: A higher and more sustainable for the long run.
Speaker Change: That's what we're working on.
Speaker Change: I will turn the call back over to management for closing remarks.
Speaker Change: So thank you everyone for joining us I want to take a moment to thank our customers partners and investors for their support this quarter. We were named as one of the world's most admired companies by fortune for the fourth consecutive year.
Speaker Change: This achievement reflects the culture fostered by our 23000 co workers worldwide.
Speaker Change: We are committed to delivering exceptional value to our customers.
Speaker Change: We look forward to reconnecting next quarter I Hope you have a good day.
Speaker Change: Okay.
Speaker Change: That concludes today's conference call you may now disconnect have a nice day.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: