- Gross Billings: $19.3 billion, up 3% year-over-year.
- Net Revenue: $13.9 billion, down less than 1% year-over-year.
- Non-GAAP Gross Profit: $974 million.
- Non-GAAP Gross Margin: 7%, up 9 basis points year-over-year.
- Non-GAAP Operating Income: $388 million.
- Non-GAAP Operating Margin: 2.78%, up 11 basis points year-over-year.
- Non-GAAP Net Income: $237 million.
- Non-GAAP Diluted EPS: $2.73.
- Cash and Cash Equivalents: $1.2 billion.
- Debt: $4.6 billion.
- Gross Leverage Ratio: 2.6 times.
- Net Leverage Ratio: 2 times.
- Accounts Receivable: $8.9 billion.
- Inventories: $7.1 billion.
- Net Working Capital: $3.6 billion.
- Cash Conversion Cycle: 23 days.
- Cash Used in Operations: $115 million.
- Free Cash Flow Generation: Approximately $190 million (excluding additional working capital requirements).
- Shareholder Returns: $288 million in Q2 ($254 million in share repurchases and $34 million in dividend payments).
- Dividend: $0.40 per common share, payable on July 26, 2024.
- Q3 Non-GAAP Gross Billings Guidance: $18.9 billion to $20.1 billion.
- Q3 Revenue Guidance: $13.3 billion to $14.9 billion.
- Q3 Non-GAAP Net Income Guidance: $219 million to $261 million.
- Q3 Non-GAAP Diluted EPS Guidance: $2.55 to $3.05.
- Q3 Interest Expense Guidance: Approximately $75 million.
Release Date: June 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TD Synnex Corp (SNX, Financial) reported a 3% year-over-year increase in gross billings, reaching the high end of their guidance range.
- The company delivered strong financial results with double-digit growth in non-GAAP earnings per share and robust capital returns to shareholders.
- TD Synnex Corp (SNX) returned over $520 million to shareholders in the first two quarters of the fiscal year, representing nearly 70% of the total return to shareholders in fiscal 2023.
- The company is well-positioned to benefit from the AI era, with significant potential for growth across components, devices, data center, cloud storage, networking, and related software.
- TD Synnex Corp (SNX) launched the IBM watsonx Gold 100 program to accelerate AI opportunities for partners, establishing Centers of Excellence in four global locations.
Negative Points
- Net revenue was down less than 1% year-over-year, impacted by increased gross-to-net revenue adjustments due to a higher proportion of software-as-a-service offerings.
- The networking segment remained soft, affecting overall gross margins as networking typically has a higher gross margin profile.
- The ramp-up of new customers in the Hyve business created margin pressure due to significant upfront investments, impacting short-term profitability.
- The company's gross leverage ratio increased to 2.6 times, with net leverage at 2 times, due to the timing of recent debt issuance.
- There is a potential short-term constraint on PC purchases as customers await the availability of more AI-enabled PCs, which could impact near-term revenue growth.
Q & A Highlights
Q: Can you expand on the increased customer interest in AI devices and AI PCs? When do you expect this to flow through, and what are your views on AI PCs as a share of total PCs and their pricing relative to general PCs?
A: (Patrick Zammit, COO) Currently, AI PCs are in the low single digits of the total PC market and are primarily high-end, ARM-based PCs. The price difference for these high-end PCs is about 5% to 10%. We expect the adoption rate to increase as PC manufacturers accelerate the launch of AI PCs.
Q: What are your top focus areas for the next 12 months, and is it more important for SYNNEX to focus on revenue growth or profitable growth?
A: (Patrick Zammit, COO) The focus is on growth, which will also generate more profits. Technologies driving growth will have a positive margin impact. We have opportunities to redeploy resources to fuel growth in high-growth categories while continuing to reduce our cost per GP.
Q: How should we think about Hyve revenue growth and its impact on inventory requirements and potential free cash flow?
A: (Richard Hume, CEO) Hyve experienced robust growth and we expect this to continue. There will be working capital needs due to growth, but this is healthy as it positions us for future opportunities. We remain committed to generating approximately $1.2 billion of free cash flow for the fiscal year.
Q: What is your overall vision for the company, particularly around capital allocation?
A: (Patrick Zammit, COO) We are positioned on critical technologies and see opportunities in services and specific geographies. We plan to return 50% of cash flow to shareholders and view M&A as an opportunity to accelerate growth plans, particularly in APJ, Latin America, and Europe.
Q: Can you discuss the magnitude of PC recovery in the second half and the role of AI PCs in this recovery?
A: (Patrick Zammit, COO) We expect sequential improvement in the PC market, driven by the refresh of PCs bought during the pandemic, Windows 11, and the ramp-up of AI PCs. The launch of new AI PCs at lower price points will benefit the market in the second half.
Q: How should we model gross margin and operating margin for the second half, considering the impact of netted down revenue and the mix of endpoint solutions?
A: (Marshall Witt, CFO) We expect gross margins to decline around 20 basis points due to a higher proportion of endpoint solutions. However, our strategic technology portfolio, which now represents 25% of gross billings, tends to have higher margin attributes and is growing faster than the core business.
Q: Can you provide more details on the demand drivers for advanced solutions and the impact of networking softness?
A: (Richard Hume, CEO) Networking was the only category with softness due to a prolonged backlog runoff. Other advanced technologies performed well. We expect networking to normalize by October or November.
Q: How should we think about the impact of GenAI on SYNNEX's revenue growth, margins, and cash conversion cycle?
A: (Patrick Zammit, COO) GenAI will drive upgrades across servers, switches, and storage, benefiting our technology sectors. We expect a positive impact on revenue growth and margins. The current terms and conditions for working capital are likely to continue.
Q: How did PC demand perform by vertical in the quarter, and what are the expectations for the second half?
A: (Richard Hume, CEO) Public sector, particularly federal, was slower due to budget approvals but is expected to catch up. Enterprise and SMB are driving demand, and we expect this trend to continue in the second half.
Q: Should we still expect the netted down revenue to be 25% to 26% for the full year, and what are the trends by geography?
A: (Marshall Witt, CFO) We expect netted down revenue to be around 27.5% for Q3 and slightly lower in Q4. North America and Europe are experiencing low single-digit growth, while APJ is seeing double-digit growth driven by data center investments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
