Ingram Micro Holding Corporation (INGM) Earnings

Management highlights

- Strategic and Operational Execution * Delivered the best Q2 performance in company history, with all regions, customer segments, and product lines achieving growth. * Gross profit grew faster than net revenue, and adjusted operating income grew nearly 40% year-over-year, outpacing top-line growth driven by operating leverage from the company's evolving proactive, data-driven go-to-market model. * Geographic diversification remains balanced; Latin America is the most profitable region by operating margin, and Asia Pacific is now the second-highest operating margin region and the largest by operating income. - Xvantage Digital Platform Progress * Xvantage has evolved into an intelligent operating system that leverages AI, automation, and data to drive efficiency and higher-value sales. Q2 metrics confirm scaling: time spent on the platform up 40% YoY, average order value up 12%, average revenue per customer up 23%, and 2.4 million self-service orders (up 12% YoY). * Key AI capabilities drove strong growth: email-to-order volumes up 43% YoY (processing ~$1.4 billion in revenue), and IDA, the intelligent digital assistant, generated ~$1 billion in net revenue (7% of total company revenue, on track to hit the year-end target of 10%+ contribution). IDA opportunities convert at 4x the rate of traditional quotes, driving a higher mix of advanced solutions and subscriptions. * Two additional patents were granted for core platform innovations, on top of four granted last quarter. The new patents cover a consumer-like end-user interface and an AI-powered proactive alert architecture. * New model context protocol (MCP) was launched to enable secure, standardized access for external AI agents to Xvantage data and workflows. MCP adoption grew 50% in June, and usage more than tripled, enabling automated end-to-end workflows across quoting, inventory, and ordering. * Xvantage is now deployed in 22 of 57 country markets, covering ~75% of the company's total revenue. The 10 most mature implementations saw double-digit YoY growth in gross profit and gross margin per go-to-market head, alongside lower operating expenses, confirming platform-driven leverage. - AI Enablement Initiative * The Enable AI program, launched to help customers move from AI planning to practical deployment, grew 60% quarter-over-quarter in engaged customers, with a nearly 100% increase in customers progressing to active AI business case deployment, with hundreds of customers currently participating. * New vertical extensions include Enable AI OEM Accelerate, a partnership with leading AI OEMs to enable mid-market MSPs to deliver and manage AI infrastructure, which has already built an active deal pipeline, and enterprise access to a leading Neo cloud for mission-critical AI training and inference workloads. * Management sees the largest long-term AI opportunity in mid-market and SMB segments, where customers require guidance and vendors require broad scale, which aligns with Ingram Micro's channel and platform strengths. - Partnership and Ecosystem Expansion * HPE recently named Ingram Micro one of two global distribution partners for its new unified distribution model, a move that validates the company's global scale, operational expertise, and platform capabilities. Management notes that an increasing number of OEM vendors are rationalizing their distribution ecosystems to partner with fewer, more capable global distributors, a trend that plays directly to Ingram Micro's strengths. * The company maintains deep strategic partnerships with leading cloud, hardware, and software vendors, including Google Cloud, which has publicly validated the Xvantage platform's ability to simplify AI distribution. - Sustainability and Corporate Citizenship * The company has delivered meaningful progress against its 10 to Zero sustainability goals: cumulative operational greenhouse gas emissions reduced 45% over three years, the 2030 target of 90% waste diversion from landfill was already achieved, and safety incidents reduced more than 70% since 2020. The full 2025 sustainable impact report will be released in the coming weeks.

Guidance

- Third quarter 2026 net revenue guidance is for a mid-teens year-over-year increase, representing the strongest quarterly guidance the company has issued to date. Guidance assumes a continued 2% to 3% net revenue impact from a mix of positive (ASP increases, demand pull-forward ahead of further price hikes) and negative (longer lead times from supply constraints, modest demand elasticity) factors, consistent with the assumption used for Q2. - Third quarter gross profit is guided to $910 to $955 million, representing a gross margin of approximately 6.8%, consistent with the sales mix trends seen in Q2. - Third quarter non-GAAP diluted EPS is guided to a range of 72 cents to 82 cents, assuming 231.9 million weighted average diluted shares outstanding and a 27% non-GAAP tax rate. The sequential midpoint step-down from Q2's 82 cents is driven by expected product mix shifts in the quarter, not a change in operating leverage trajectory. - Management expects continued solid top-line and bottom-line year-over-year growth driven by stable demand and strong execution, and maintains confidence in full-year 2026 operating momentum. Free cash flow is expected to return to a strong positive level in Q4, building on the $1.6 billion positive free cash flow delivered in Q4 2025, though formal full-year free cash flow guidance is not provided.

Segment performance

Ingram Micro reported Q2 2026 net revenue of $14.5 billion, growing 12.6% year-over-year on an FX-neutral basis, across three primary product segments: 1. Cloud: 44% FX-neutral year-over-year revenue growth, which is the fastest-growing segment. The growth was driven by strong infrastructure as a service and cybersecurity demand, even after an 11% headwind from the 2025 Q3 divestiture of Cloud Blue. 2. Advanced Solutions: 13% FX-neutral year-over-year revenue growth, with upside driven by GPU and AI infrastructure deals primarily concentrated in the Asia Pacific region. 3. Client and Endpoint Solutions: 13% FX-neutral year-over-year revenue growth, led by double-digit growth in PC notebooks (driven by the ongoing Windows 11 and AI PC refresh cycle), with high single-digit growth in smartphones and other consumer electronics components. By region geographic contribution to net revenue: North America 36%, Asia Pacific 30%, EMEA 26%, Latin America 8%. Q2 gross profit totaled $959 million, up from $839 million in the prior year (which included a $10.5 million non-core asset write-down). Operating expenses were $722 million (4.97% of net sales), down 47 basis points year-over-year. Adjusted income from operations was $280 million, up 40% year-over-year. Non-GAAP diluted EPS was 82 cents, up 34% year-over-year. Adjusted return on invested capital improved 240 basis points year-over-year.

Risks & headwinds

- Supply chain constraints continue to lengthen sales closing cycles for hardware products, and component price increases create modest demand elasticity, with some smaller customers breaking large projects into smaller phased purchases rather than canceling demand. - Asia Pacific, the fastest-growing region in Q2 at 28% year-over-year revenue growth, has a structural gross margin that is well below the company's global average, creating ongoing mix pressure on overall gross margin. - Forward-looking statements are inherently subject to known and unknown risks and uncertainties that could cause actual results to differ materially from guidance, as detailed in the company's SEC filings and earnings release.

Analyst Q&A

• Q: Asked to elaborate on the characteristics of Q2 GPU deals, and what ex-GPU demand trends look like for advanced solutions, including CPU and broader product refreshes. /

  A: Q2 upside in advanced solutions was driven by GPU and AI infrastructure deals for data center build-outs, concentrated in Asia Pacific, across storage, server, and networking categories. These large GPU deals tend to close late in the quarter when supply becomes available, and the Q3 guidance does not assume outsized growth in this category, though a healthy active pipeline remains. Outside of AI infrastructure, the company saw healthy broad-based growth across all geographies, customer segments, and product lines.

• Q: The analyst asked if Ingram Micro is seeing meaningful enterprise IT budget shifts from software to hardware (infrastructure) amid higher AI hardware pricing, and which segments are seeing the largest impact. /

  A: Management notes there is no material large-scale budget reallocation between software and hardware. Both categories still saw healthy growth: high single-digit growth for software, and healthy growth for hardware. Some mid-market and SMB customers are splitting large projects into smaller phases, but delayed projects from prior quarters are now starting to come to fruition, so overall demand remains stable across all customer segments.

• Q: Asked how prevalent OEM distribution ecosystem rationalization is, given HPE's recent decision to consolidate distribution to two global partners including Ingram Micro. /

  A: Management confirms this is a growing, broad trend across OEM partners. Vendors increasingly want to partner with fewer distributors that can deliver global scale, regional and local expertise, centers of excellence, broad certifications, end-to-end solution capabilities, and access to Ingram Micro's 165,000 global customers. These are multi-year strategic co-investment relationships that align with Ingram Micro's strengths, including the consistent global functionality of the Xvantage platform.

• Q: Asked if Xvantage's operational efficiencies can offset gross margin mix pressure from growing AI infrastructure sales, and if AI is changing working capital requirements. /

  A: AI and GPU deals are extremely working capital efficient: Ingram Micro does not carry much inventory of high-end AI hardware, and vendor terms offset customer payment terms, so this category was a major contributor to the 240 basis point improvement in adjusted ROIC. Xvantage's efficiency benefits apply across all product lines, including AI. Operating expense growth is far outpaced by top-line double-digit growth, as automation reduces the incremental investment required to support growth, sustaining operating leverage even as AI grows as a share of the business.

• Q: Asked what drove the $527 million Q2 free cash outflow, given the working capital efficiency of AI deals, and if full-year 2026 free cash flow can still be positive. /

  A: The cash outflow was driven primarily by inventory growth: 16% sequential inventory growth reflects higher average selling prices across hardware categories, plus strategic inventory investment to support growing demand for non-AI hardware categories. AI GPU deals were not a major driver of this inventory build. Management expects a strong positive free cash flow in Q4, consistent with historical Q4 seasonality, though no formal full-year guidance is provided.