TD SYNNEX Corporation Q4 FY2025 earnings call

• Record results achieved with business excluding HIVE growing gross billings in high single digits and HIVE growing gross billings double digits. • Four strategic pillars: Omnichannel engagement with a new AI assistant in Q4, awarded UK iCloud Marketplace of the Year; Specialized go-to-market with winning a global security RFP and Cisco naming TD SYNNEX distributor of the year; Delivering best-in-class enablement with the AI game plan workshop; Expanding brand visibility. • HIVE grew due to broad-based demand in cloud data center infrastructure from hyperscaler customers across regions.

For the full year, TD SYNNEX's business excluding HIVE increased gross billings in the high single digits year over year, while improving gross margin and operating margin. Hive grew gross billings double digits. In the fourth quarter, non-GAAP gross billings were $24.3 billion, a 15% year-over-year increase (13% in constant currency), and non-GAAP diluted earnings per share were $3.83, a 24% year-over-year increase. Excluding HIVE, gross billings increased 10% year over year, with gross profit and operating income each increasing double digits. Hive had gross billings growth over 50% year over year, and ODM Centimeters had 39% year-over-year growth. The endpoint solutions portfolio saw 12% year-over-year gross billings growth due to PC demand. The advanced solutions portfolio had 17% year-over-year gross billings growth (8% excluding HIVE) driven by cloud, security, software, etc. Net revenue was $17.4 billion, up 10% year over year. Gross profit was $1.2 billion, up 15% year over year. Non-GAAP operating income was $497 million, up 18% year over year. Free cash flow was $1.4 billion, and $209 million was returned to shareholders in the fourth quarter.

• For fiscal 2026, non-GAAP gross billings expected in the range of $22.7 billion to $23.7 billion (~12% midpoint increase). • Net revenue expected in the range of $15.1 billion to $15.9 billion (33% gross to net adjustment). • Non-GAAP net income expected in the range of $243 million to $283 million, non-GAAP diluted earnings per share in the range of $3 to $3.5 per diluted share. • Anticipate cash outflow in Q1 due to seasonality and timing, but cumulative free cash flow FY25-FY26 in line with 95% non-GAAP net income to free cash flow conversion.

Q: Good morning, gentlemen, and thanks for the opportunity here. Obviously, outstanding growth in Europe and Asia Pacific, especially Asia Pacific and Japan there. As we think about that growth here that's happening, guess, you talk about perhaps how much of it is market growth versus your ability to take market share and then second, how sustainable are some of these growth rates that we're seeing going forward?

A: Okay. Thanks, and good morning. So in FPGA, we for sure, we've experienced very nice, high double-digit growth. As you know, our share in the region is relatively low. So we are investing significantly in the region to gain share and grow of a market. So when you look at, the results, for sure, we gained significant share. We're also positioned in countries, especially India, where, as you know, the growth of the market is significantly above the average of the region. And the team is focused on product segments, vendors, and customer segments which should make the growth sustainable for the long run. So very, very pleased, very proud of the team. And very confident for the future. The only thing I would add is that it's not only the growth in sales. We're also experiencing an over-proportional growth in operating income in the region as the team is investing, but also keeping a good cost discipline.

Q: Hi. Thanks for taking my questions. Patrick, you reported strong 15% growth in billings for 4Q and are guiding 12% billings growth for 1Q. How are you handicapping any end market demand destruction from higher component costs like DRAM and NAND And one for David, can you just update us on the CapEx spend for year as well as any investments planned for HIVE for 2026? Thank you.

A: Yes. So good morning. Thanks a lot for the question. So again, the guidance for Q1 reflects what we see from the regions, from the BUs, I can confirm that the memory price have increased dramatically, and what we are seeing already is an increase in ASP on a series of product families, especially PCs, servers, storage, So the ASP increase is on one hand, the tailwind in the short term. What would be interesting to see is what will be the impact on the volume going forward But again, specifically for Q1, the guidance reflects the result of the bottom-up exercise with the regions and the forecast is done by technology by country. And, Ruplu, the only thing I would add is when you think about total CapEx, for TD SYNNEX, we're probably planning for a similar level of CapEx in '26 relative to '25. And that would include the investments needed to support Hive's continued growth.

Q: Hey, guys. Good morning. Thank you very much for taking my question. And Patrick, I'm going to stay on the same line questioning there as Ruplu, which is just, can you maybe ask it a different way? Can you maybe help us understand what you're seeing in terms of any potential pull forward in either the November or the January just with customers wanting to get ahead of future pricing increases for any of those kind of memory exposed products you just mentioned, PC servers, storage, smartphones, and just how you might think more broadly. I know you're not guiding to fiscal twenty-six, but just how you think that this dynamic could have an impact on either revenue or profit seasonality for the year? Thanks so much.

A: Okay. So let me start with the broad forwards. So it's difficult to assess, but very pretty confident that we haven't had any I would say, material brought forward in the last quarter. Now, again, what's going so the Q1 guidance reflects the what the countries are seeing in the read in their region, and, again, for PC servers, and storage, If I look at the overall year, so the tailwind for us is clearly the increase. As you know, I mean, when, the vendors increase, their prices, we usually pass it through to the market. So no concerns, on the margin quality. On the demand, tailwind related to the ASP increase, And then what's going to be interesting to watch is what will be the impact on the volume. And, as you know, the elasticity will be different by product category. And probably the category which is going to be the most sensitive is PCs, But we have a very, very low position on consumer PCs. We primarily focus on commercial PC So I'm relatively confident that here, the elasticity should be, relatively low So I continue to be relatively optimistic about the prospects of the PC market. Let's not forget that the refresh is not over. There is I mean, it started a little bit later than expected, so we should continue to benefit from it. In the next quarter. And then when you look at storage and server, I think here, again, the elasticity related to the price increase should be relatively low. So again, on the demand, I think the demand is going to be driven by other considerations, the need for customers to, embrace AI, upgrade their servers. I mean, there's a server refresh happening as we speak, and it's not over. Again, I think on the demand, relatively, I should say, cautiously optimistic. And then the ASP increase should, should help.

Q: Great. Thanks, guys. Maybe 1.5 for David. So David, you mentioned in your prepared remarks free cash flow cumulatively for 2025 and 2026 is going to be consistent with the long-term framework. Of 95% of net income. Given kind of the mix of business going into fiscal twenty twenty-six, it sounds like netted down is going to be a bigger portion of that based on the guide at least for Q1. Can you talk through kind of the mix of the revenue that drives that netted down effect? And then what sounds like a decline in free cash flow, even million of payments in Q4 that was pulled forward in '20 versus '25.

A: Sure. So good morning, David. When we in our prepared remarks, we said we expect cumulative free cash flow across '25 and '26 to be within the 95% Got it. Historically, our business consumes cash in the first half and generates cash in the second half. What you saw in Q4 is we had a really, really strong cash flow quarter. And so some of that will normalize as we go into Q1. So we still feel really good about generating cash for the full year, but we do expect an outflow in Q1 that will ultimately, be recouped as we work through the balance of the year. And it's not it's not as much mix driven per se as it's just the additional cash that we generated in Q1 that will be Normalized or sorry, that we generated in Q4 that will be normalized in Q1.

Q: Okay, thanks. Good morning. I wanna just acknowledge, Patrick, the strong return on capital, primarily great working capital management. But if I looked at the margin side of things, it does look like some of that is being a little bit suppressed, and you talk about investments in Hive. I wanted to ask about that. This has been an ongoing theme. I wonder if you could maybe just recap some of the prior investment decisions that you made in Hive and the outcomes that lead you to invest further, in Hive including, you know, any potential further new customers, for example. And for David, as we kind of, you know, look at this in the model, if you could maybe help us quantify or break out the investments in Hive. Is it you know, gonna increase throughout the year? Are we sort of at the right run rate? You know, what does this look like, you know, throughout, fiscal twenty-six? Thanks.

A: So maybe I can start, and Patrick, chime in. So in the prepared remarks, we talked about HIVE grew meaningfully both billings and profit. And so I wouldn't impute that there's a margin issue. In terms of investments in we continue to invest in HIVE. So Patrick talked about we've invested in leadership. We've invested in the engineering team. We've invested in some additional capabilities within the site. We have enough capacity to support our current demand. And we'll continue to make investments to ensure Hive can truly be an end-to-end go-to player for tier one hyperscalers and others. And so we feel very good about how the business is performing, the investments we've made, and the prospects going forward.

Q: Congrats on some really nice results here. Just a quick follow-up on Hive. The 50% growth. Is that come evenly split between ODM and Centimeters or both the customers? Or maybe just a little bit more details around the growth there? Thank you.

A: Yes. So good morning. So we had so as you know, we have our ODM Centimeters business. That one, grew very nicely. In line, if not slightly better than the pace of the market. And then we had a very strong, also quarter with, let's call it, supply chain, cut by division. As you know, this is a more lumpy opportunistic business. It's a service we render, so it highly dependent on what the customers are asking for. And in Q4, we had a very strong quarter. And, better than expected. So that's how I would summarize the sales growth for the quarter for Hive. Thank you.

Q: Maybe another follow-up on the Hive business. I just wanted to touch on, like, the progress that you're making with Hive relative to capturing additional share with your existing large customers there and perhaps what you're seeing from a portfolio or kind of the products that you're shipping there towards mix moving more towards AI servers networking racks, storage racks, and the opportunity to onboard potentially a new large customer beyond the two that you have today. Thank you.

A: Yes. Good morning. So again, I mean, we mentioned it at, in the prior calls. We continue to invest to expand the capabilities and capacity of Hive. And so we are very active in bidding on new programs, with our existing customers and potential new customers. I would say that, thanks to the investments we've made, especially in engineering, and some of the differentiators of HIVE in the market. Mean, we are seeing, we are making very good progress on, on winning some new programs and potentially new customers. I would say that, those programs take some time to ramp. So, again, when you look back at the our Q1 guidance, it reflects what we have as forecast for the next quarter. But going forward, yes, I would say we continue to make good progress and are confident about the prospects.

Q: Hey, guys. Thanks for taking the question. Just really quick, I guess, would love to understand how margins you view margins for Hive kind of going forward. Are they improving, normalizing as volume scales? And then lastly, how do you feel about the visibility for high programs today versus maybe this time last year?

A: So I can take that one. We feel pretty good about the overall margin profile of TD SYNNEX. When you think about what we laid out at Investor Day was a couple of things. We want to grow operating profit faster than billings, and so we're constantly looking for ways both within Hive and within our distribution business to focus where we can make additional margin. And so, again, we feel very good about that business. Patrick? Yeah. I would just add that, when I look at the pipeline and I compare it to where we were last year, I think we are in very healthy position. And, again, that's what is reflected in, in our Q1 guidance.

Q: Yeah, Patrick. Another good quarter on PCs. Just could you give us an update on your thinking in terms of what inning we're in here?

A: Yeah. So good morning. Thanks a lot. Yes. So as far as the game Q4, for PCs, broad-based, primarily driven, from commercial, So going forward, as I mentioned, I think that the refresh is not over. So, that tailwind should continue again in 2026. And we have also the weight of AIPCs who have a slightly higher ASP that should continue to be so there's still a lot of potential for upgrading the PCs and make them AI compatible in the market. So that should be a tailwind. We talked about the memory price increase impacting the ASP of the PCs, that should be gained a tailwind. And then you have the uncertainty related to the price on the demand. But, again, the fact that we are primarily focused on the commercial PCs, I mean, I think we are in a slightly better position than we would have a high weight of consumer PCs. So I would say for next year, I'm continuing to be confident about the prospects of the PC market. again, back to the guidance for Q1, I mean, the various assumptions have been taken into account. And are reflected in the guidance.

Q: And did AIPCs perform incrementally better this quarter?

A: to nicely increase. Yeah. It continues to the weight of AIPC continues So that's a positive.

Q: Hey guys, I just wanted to ask a follow-up, David. On the netted down impact, it looks like there's a big tick up in Q1. That's what I was trying to understand also. Is it mix driven? That's gonna be a bigger headwind to your revenue conversion, kind of can you talk about what's going on there from a netted down effect in the guide?

A: Yep. And sorry. I missed that part of your question. That's my fault. No worries. So all good. Gross to net gross to net increased in Q4, and we've got an increase in to Q1. There's a couple of dynamics. One, strategic technologies continues to become a bigger portion of our business. A lot of that business is software, which, as you know, is netted. Additionally, within Hive, there are a number of programs that are also net. And as the mix changes, that does influence that metric. And so if you think about how we set Q1, that's probably an assumption of kind of the run rate gross to net that we expect for FY '26. Hopefully, that helps.

Q: And that would suggest that software and Hive continues to grow as a portion the overall billings pie. That a reasonable takeaway?

A: Exactly right. You're right.