Ingram Micro Holding Corporation

Greetings and welcome to the Ingram Micro first quarter 2026 earnings results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the call over to Willa McMahon, Vice President of Investor Relations, for opening remarks. Please go ahead.

Good afternoon. Before we begin, I would like to remind you that today's presentation may include forward-looking statements within the meaning of applicable securities laws. These statements reflect our current views and expectations regarding future events, including but not limited to financial performance, strategic initiatives, market conditions, and regulatory developments. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. Actual results may differ materially from those expressed or implied in these statements due to a variety of factors, including changes in economic conditions, interest rates, competitive pressures, and other risks detailed in our most recent filings and public disclosures. We undertake no obligation to update or revise any forward-looking statements to reflect new information or future events, except as required by law. In addition, today's discussion may include certain non-GAAP financial measures, reconciliations to the most directly comparable GAAP measures can be found in our earnings materials, which are available on our investor relations website. With that, I will now turn the call over to Paul Bay, our CEO.

Thank you, Willa, and everyone who joined today's call. We delivered another strong first quarter in which we grew net revenue nearly 14% on top of a strong prior year comparable and delivered non-GAAP earnings per share of 75 cents. Gross profit rose by nearly 12% from last year, and operating leverage remained strong, resulting in over 20% growth in non-GAAP net income. All of these results were at or above the high end of our guidance. Advanced solutions in cloud led the growth. Driven in part by large GPU and AI infrastructure deals, we captured in North America and Asia Pacific in the back half of the quarter. We also had another quarter of strong growth in networking and servers. Cloud again grew double digits with particular strength in infrastructure as a service, and client and endpoint solutions also grew with continued strong sales of PCs. Regionally, Asia-Pacific grew at double digits and was our second largest region by net revenue. As I mentioned in prior quarters, India continued to make progress and performed a plan in the first quarter. including healthy top line and margin growth, while Latin America continued to deliver outsized margins, both powered by our X-Vantage platform. North America's double-digit growth was driven by cloud and advanced solutions, which included large GPU and AI infrastructure sales. The growth across all four of our regions underscores our unique global reach, where we have the ability to serve more than 90% of the world's populations. underpinned by a unified platform strategy at global scale. I am encouraged by our performance this quarter and the momentum we see ahead. Our investment in our XVantage digital B2B platform is increasingly becoming a competitive moat. We made this investment ahead of the curve because we anticipated the shift now taking place across the market where B2B customers increasingly expect the same speed, simplicity, and personalization they experience in B2C environments. We began the XVantage journey by bringing together talent from some of the world's largest leading platform companies and combining that expertise with our deep industry knowledge. We then built a real-time data mesh and deployed more than 400 AI and machine learning models designed across the end-to-end customer journey. We have progressed from building the foundation to automating workflows and reducing friction, to now scaling intelligence through capabilities like Intelligent Digital Assistant, or IDA, to improve conversion, optimize pricing, and enable more proactive selling. Over time, we see further opportunity for AI to enhance margin quality, lifecycle monetization, and operating leverage. XVantage is not a tool or a marketplace. It is the operating system for B2B. It's a global real-time intelligence layer powering end-to-end B2B execution as we transform from a traditional IT distributor into a platform company. XVantage's differentiation begins with its architecture and the proprietary technology underneath it. We are pleased that four of our 35 plus patent pending applications have been granted, recognizing and protecting the innovation already delivering value across our platform today. Our IP strategy is centered on solving the fragmented sales and fulfillment processes that define B2B commerce. Let me recap what these granted patents encompass. First, our vendor agnostic framework uses our AI-driven architecture to integrate with vendors at scale, regardless of the format or underlying systems. This helps solve one of the most persistent challenges in B2B commerce by enabling real-time integration around inventory, pricing, and product data across a highly fragmented ecosystem. Second, our dynamic SKU generation capabilities simplify historically complex solution configuration, pricing, and transaction workflows. What once took days or weeks can now be completed in minutes or even seconds, improving the speed, accuracy, scalability, and customer responsiveness. Third, we were granted a patent for our configure and quote to order. Configure to order expands funnel creation through automation of complex, configurable solutions that were once manual, generating high quote volume, allowing us to touchlessly convert orders through our automated quote to order capabilities. This powerful integration of AI throughout the sales lifecycle is helping drive materially stronger quote to conversion performance. Last, our email-to-order patent uses generative AI to convert unstructured customer emails and attachments into structured transactions. In the first quarter alone, it processed approximately 230,000 emails into orders, up 78% year over year, enabling more than $1 billion in sales with significantly lower manual touch. We are now leveraging this patent IP to enable other functionality for automating end-to-end workflow, like email to quote, further improving speed, responsiveness, and overall customer experience. Taken together, the technology behind these patents is helping improve customer experience while lowering processing costs and increasing operating leverage across the channel. These innovations extend beyond individual capabilities and reflect how we are digitizing the full transaction lifecycle. from automating vendor catalog injection, configuration and pricing, to quoting and order execution through a unified AI-driven platform. With the rapid evolution of the AI market, we believe these investments position us well to navigate change and respond more quickly to capitalize on market dynamics. We are increasingly applying intelligence across core business processes as our AI models continue to learn, improve, and scale. As an example, AIDA and other AI capabilities delivered more than 153,000 proactive engagements in the quarter, helping customers convert more than 800 million in AI-led net sales during the quarter. Importantly, code-to-conversion performance continues to accelerate with AIDA-driven opportunities converting at nearly four times our standard baseline. XVantage is driving stronger engagement, improving the customer and associate experience and supporting better financial outcomes. And we are already seeing that translate into measurable results. We continue to see strong adoption of our self-service capabilities with more than 2 million self-service orders in the quarter, contributing to over 20% growth in average revenue per customer versus the prior year. We are also realizing meaningful productivity gains with both revenue and margin per go-to-market resource increasing as automation enables associates to redirect time towards higher value activities. We believe this is a strong indicator that the digital adoption, automation, and AI-enabled selling are driving greater efficiency and increasing operating leverage across the platform. Geographically, we continue to see proof points across markets. These examples reinforce that xVantage is not limited to one region. It is a global operating model. We have moved from proving the model to scaling the model with further future expansion opportunities. In the first quarter, India and Latin America provided clear evidence that we are moving from adoption to performance. Through X-Vantage-enabled capabilities, LATPAM delivered the highest gross margin across our regions, up 69 basis points year over year. By shifting high-velocity F&B demand to self-service and automated quoting and embedding intelligence, Our business in the region is scaling efficiently with improved outcomes. In India, X-Vantage is providing more pipeline, increased proactive customer engagement, stronger revenue generation, higher quote-to-order conversion, and more predictable performance utilizing the platform. In India, AIDA revenue grew more than 200% quarter-over-quarter. innovating across the company in other ways as we invest in our partners and build advanced AI competencies. On the vendor side, I am proud to say that we just achieved the specialization for AI apps with Microsoft. Using Azure AI services, we built AI power capabilities that help partners close customer deals through increased automation, including streamlining the statement of work generation and accelerating sales productivity. The specialization recognizes our professional service expertise in designing and developing AI solutions using Microsoft AI app and data platforms, which we can leverage on behalf of our partners to deliver more AI projects at scale. One of our key partners, Hans Meis, president of Data41, said about the designation, and I quote, Ingram Micro feels like an extension of our AI practice. They're specialized in validated expertise helps us guide our customers through the full journey, from initial assessment to working proof of value and production deployment, end quote. This specialization speaks strongly to how we are expanding our advanced services capabilities, including our ability to leverage AI with our partners to deliver technology outcomes to the millions of end businesses they serve each and every day. With this quarter's results and the continued momentum I just spoke about, as I look at the remainder of the year, I am confident that Ingram Micro will continue executing both our short and long-term strategy by further differentiating as a platform company, regardless of the uncertainty. Our customers are at the center of everything we do, and we are grateful for them. And as always, I am impressed by the talent and drive of our team, who continues to deliver. With XVantage enabling faster innovation, our patents securing our technology edge, and AI delivery measurable outcomes, we are moving from proving the platform model to scaling it. It's an exciting time for technology, and Ingram Micro's role in the ecosystem continues to expand as we embrace the opportunities ahead in this unprecedented era. And with that, I'll turn the call over to Mike. Mike?

Thank you, Paul, and good afternoon, everyone. I want to start by reiterating Performance was widespread geographically, with each of our four regions seeing double-digit year-over-year top-line growth in U.S. dollars, but also with solid global growth in our three primary lines of business. Looking at the quarter in more detail, net sales of $13.96 billion were up 13.7% year-over-year in U.S. dollars and up 10% on an FX-neutral basis. solutions. Cloud grew 25% year-over-year on an FX-neutral basis, and that growth was actually 34%, adjusting for the cloud blue divestiture that closed in Q3 of last year. Advanced solutions grew 14% year-over-year on an FX-neutral basis, driven by strength in server and networking. This also included continued large-scale enterprise deals in GPU and AI infrastructure product sets. some of which came in late in the quarter. As we've discussed in past orders, these deals come at a low margin but are low cost to serve. We don't typically stock for these deals, which provides for a strong return on working capital. Turning to client and endpoint solutions, or CES, we saw nearly 8% growth on an FX-neutral basis, with strong demand for notebooks and desktops, penetration grows. As a note, this 8% growth is on top of what has been solid double-digit growth for CES in Q1 and all other quarters last year. Geographically, we had FX-neutral growth across all four of our regions, led by just over 12% growth in both APAC and North America. North American net sales came in at $5.0 billion. and APAC was our second largest region with net sales of $4.1 billion for the quarter. Both North America and APAC sales were driven by strength in cloud, and both regions also benefited from large enterprise GPU and AI infrastructure projects I just mentioned. EMEA net sales of $3.9 billion were up 3.8% on an FX-neutral basis, with growth across both client and endpoint solutions and advanced solutions. But EMEA generated its strongest growth in cloud-based solutions. And this was achieved while navigating around the challenges of the Middle Eastern conflict that started in the final month of the quarter. Finally, net sales in Latin America were up 10.1% on an FX-neutral basis, driven by growth in client and endpoint solutions, notably notebooks and desktops, as well as strength in advanced solutions and cloud-based solutions. Before I get into more details on our results, I'd like to touch on memory supply constraints and their impact, which is a key ongoing factor in the IT industry. We are seeing increases in average selling prices, or ASPs, on certain products ranging from single digit percentage points well into double digit percentage points. Also, while it is understandably more difficult for us to quantify with precision But there are other factors to consider as well. First, supply constraints are creating more extended lead times and backlog to get products. While more limited in frequency, we saw a few instances where projects are being indefinitely deferred simply because the product is not available. Second, in some limited cases for end users that have greater price sensitivity, decisions are being made to alter project scope or delay spending. Combined, we estimate the net positive impact of all of these factors on our year-over-year net sales comparison for Q1 to be approximately 2% to 3%. Back to my earlier point regarding pull forward of demand, we have ongoing discussions with many of our vendors affected by supply constraints about potentially using our balance sheet for opportunistic inventory buy-in deals. While we have done some such deals, opportunities going forward, the impact of buy-ins in our first quarter results has not been material. Now getting into some further specifics on our first quarter results, gross profit came in at $926 million, up 12% year-over-year, and gross margin came at 6.63% of net sales, down 12 basis points year-over-year. The mixed shift towards lower margins compared to only about five basis points in the first quarter of 2025. Thus, excluding these deals, our Q1 2026 gross margins would have been roughly 7%. This margin performance was a function of growth in our higher margin cloud and advanced solutions offerings, which surpassed the growth of client and endpoint solutions in this comparison. Q1 operating expenses. the same period last year. Looking more specifically at our ongoing selling general and administrative, or SG&A, expenses, our leverage improved year-over-year by 12 basis points. This year-over-year improvement in SG&A leverage was driven by operating efficiencies from cost reductions over the past year, the continued impact of ExVantage in driving leverage and productivity gains, as well as mixed factors associated with lower cost-to-serve categories. And while we continue to invest in XManage and in the business, particularly in areas like cloud and advanced solutions, we expect our continued optimization efforts will allow us to keep our SG&A expenses less than 5% of net sales for fiscal 2026. Adjusted income from operations was $262 million, up 14% year-over-year, driven by our strong top-line performance, and continued operating leverage discipline. Adjusted income from operations margin was 1.88% compared to 1.87% in the first quarter of 2025, as the lower gross margin from mix of sales was offset by the OpEx leverage improvements I just discussed. Non-GAAP net income in the quarter of 22%, reflective of not only the strong growth I just noted in adjusted income from operations, but also reflective of reduced interest expense from our pay down of debt and more favorable foreign exchange impacts. First quarter non-GAAP diluted EPS came in at the high end of our guidance range at 75 cents, an increase of 23% from our prior year quarter. Moving on to our balance sheet, we ended the first quarter with networking capital of $4.4 billion compared to $4.3 billion to close the same period last year. This increase of only a bit over 2% is far less than the 13.7% increase in net sales year over year, as our Q1 networking capital days came in at 23 compared to 29 days in the same period of 2025. This improvement in cash cycle reflects discipline management of our terms with and payments to vendors, our efforts to optimize inventory levels, and leveraging the capabilities of the X-Vantage platform, which together more than offset a slight increase in collection days. As we mentioned in our earnings call in early March, we finished year-end 2025 with an extraordinarily low level of networking capital and therefore experienced this year. So, adjusted free cash flow was an outflow of $962 million, which reflects the factors I just noted, including the natural investment in working capital to fund double-digit net sales growth. While we don't formally guide on free cash flow, we expect free cash flow trends over the next one to two quarters to be more in line with seasonal norms. I am also very pleased to note that in early March, we successfully completed a secondary offering of our stock, which further moved the ownership stake of our majority owner into public flow and included us repurchasing $75 million of stock directly from our majority owner. And today we announced we are further expanding the repurchase program for future use. We also returned $19 million to stockholders through dividends paid during the quarter and today announced an increase in the next quarterly dividend of 2.4% sequentially and 10.5% over the prior year. We ended the quarter with $916 million in cash and cash equivalents and debt of $3.3 billion, bringing our net debt to adjusted EBITDA ratio to 1.7 times to close the quarter, which has improved notably from 2.0 times in the first quarter reduction of debt, including the $200 million of term loan we repaid during Q1. Going forward, we will continue to balance our overall capital allocation to ensure we are making necessary investments in the business and providing return to our stockholders. And to the extent we see opportunities to also continue improving our debt leverage, we will evaluate accordingly. Now shifting to our guidance for Q2 2026. We are guiding net sales of $13.6 billion to $14.0 billion, which represents year-over-year growth of 8% at the midpoint, and is notable given the strong Q2 we had last year, in which we saw more than 10% year-over-year growth. From a category perspective, we expect cloud to continue to lead the way with healthy double-digit year-over-year growth, with particular strength in infrastructure as a service offerings. But we expect advances servers, storage, and cybersecurity. While we are not necessarily projecting outside GPU and AI infrastructure projects in our guide, we will continue to participate in these projects. Client and endpoint solutions is also still in growth mode, with notebook desktop refresh continuing. But overall, we see year-over-year growth for CES at a more moderate, lower single-digit pace. Finally, we have assumed the impact of broader memory supply constraints to have a similar impact in Q2 to what I noted earlier for Q1. We expect these growth trends to yield second quarter gross profit of $905 million to $950 million, which represents year-over-year growth in gross profit dollars of 8% to 13%, and also represents gross margin growth both sequentially and year-over-year. We expect non-GAAP diluted EPS to be in the range of 68 cents to 78 cents per diluted share. Included in this guide is a potential negative impact of 1 to 3 cents per diluted share on our overall results from the volatile situation in the Middle East, where we have a relatively small but nicely profitable business. Even with this impact incorporated, our guidance calls for growth in non-GAAP diluted EPS between 11 to 28 percent. reflecting solid profit leverage in a continuing growth environment. Our APS guidance assumes 232.7 million weighted average shares outstanding and a non-GAAP tax rate of 27% for the quarter. In closing, I'm very pleased with our execution in Q1, and we expect to continue our trend of strong year-over-year net sales growth in Q2. While memory shortages, rising ASPs, the supply-demand dynamics, and the geopolitical environment are all fluid, we have a track record of navigating through uncertainty. Our broad geographic reach and breadth and scale of offerings, combined with our long-term partner relationships, uniquely position us to perform during such times. We've proven this in the past, and we are even better positioned today with With that operator, we can now open up the call to take questions.

Thank you. We'll now be conducting a question and answer session. 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 to remove your question from the queue. For participants using Streaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Catherine Murphy with Goldman Sachs.

Thank you for the question. You highlighted some headwinds related to projects either being deferred or some more price-sensitive customers altering the scope as it relates to the current cost environment. I was wondering if you could provide some more color on either the types of products or the types of projects that are being most impacted here, and then I have a quick follow-up. Thank you very much.

Yeah, Catherine, this is Mike. I can start and Paul will add. I think, you know, we're seeing this probably across a mix of products, but it tends to be more project-based, a little bit more in the advanced solutions area, and probably a little bit more geared towards smaller customers where there is a little bit more of that price sensitivity. Large enterprise continues to do, you know, generally continues to invest. So, you know, it And, you know, I think as we talked about where we're seeing ranges of price increases, probably the price increases from an ASP perspective have certainly been elevated on the PC space, but we also see that happening across server and storage and some of the components, the GPUs themselves, to a lesser degree when you get into networking and some other categories. So, you know, that also gives you a little bit of a flavor where there would be more of that sensitivity.

Yeah, Captain, that's all I'd say. We've seen it in pockets. There was one instance in a smaller country in Europe where they needed a specific configuration around PCs and the supply is not there for that specific rollout. It will eventually come. The question is, when is it going to come? We thought it was going to happen in Q1. It looks like it may be a quarter or two out.

That's very helpful. And knowing that you only guide one quarter out, is there anything you can share based on these customer conversations given this demand backdrop about what the back half of the year may look like from a overall enterprise IT demand environment?

Yeah, so this is Paul. So again, as you know, we only guide one quarter at a time. You know, we're optimistic where we sit today and based off of our guidance that we've given for Q2 to reiterate You know, our expectations are our client and endpoint solutions business will grow at market, advanced solutions, and cloud above market. And we saw that in Q1. We built that into our guide in Q2. You know, some of the potential, I would say, tailwinds or opportunities is the AI use cases, and I called out one of those in my prepared remarks, is driving growth and some of the benefits we're getting. If you look at it from a customer perspective, we did see some pull forwards as Mike had mentioned. It's more around enterprise and mid-market companies. SMB is still responding, and they're more near-term. But what I would say is we haven't seen a significant amount of pull-forwards at SMB specifically, too, and we're still seeing resiliency in the business as we sit here today. So the back half of the year, we did see, again, continued growth and and refresh around PCs and AI PCs. So we feel pretty good about where we are and hope that that continues to the back half of the year.

Thank you very much.

Our next question is from Maggie Nolan with William Blair.

Hi, team. This is Matt on for Maggie at William Blair. Thanks for taking the questions. I guess given the current environment, I'm wondering if you can provide some more color on what you're seeing change in terms of lead times and order dynamics that you alluded to with clients and how they're evolving budgets, if at all, or shifting mid-year given the rise in memory prices and inflation.

Yeah, I can start on that. I think it's – this is Mike. So I think the – You know, we sort of answered that a little bit in the last question. I think if you have a budget going into the year, there's going to be a certain amount of spend. And so as prices go up, we're seeing some reallocation where perhaps it's just a shift in scope to something a little bit less, downshift into maybe a lesser product category and so forth. So that's sort of the demand dynamic. But some of that is also dependent on just how long it takes to get there. Certainly, the situation in the Middle East is exacerbating this with shipping delays anywhere impacted by that part of the world and branching out. And then on top of that, the allocation of product sets by the OEMs into the higher potential products that are serving the AI demand and some of the things that are driving the constraint in the first place. So it is definitely very dynamic depending on the category of product, the category of customer, and that gives you maybe a little bit more flavor of what we're seeing.

Got it. Thanks for that color. As a follow-up, in terms of X-Vantage, congrats on all the progress there. I know you've alluded to the three phases, the OPEX, the ManGen, and then we're starting to get into profitable organic growth. But can you update us on progress in phase three and how that's progressing so far in 2026? And maybe what's the true margin delta for a deal that is sourced and completed in X-Vantage versus one of your traditional deals?

Yeah, thanks, Matt, for the question. This is Paul. So as we called out, we continue to talk about, you're right, three phases. And really, now it's about applying the intelligence across the business. I called out a couple of points where we saw significant growth, where we're using our intelligence. And we've been training our 400-plus models for over a year now. So they're getting better, and they're improving every single day. They continue to learn. And so we point back to Ida, our intelligent digital assistant, and the active engagements we had. That was up 60% year over year. And what we did, and we've talked about it in the prior quarter earnings calls, what we're doing is we're fine-tuning those opportunities to be more driven around margins. So when you look at some of the growth we see coming out of cloud, and we had a very good cloud quarter, and you look at what we're doing around advanced solutions, a lot of that is being fed through the IDA, getting into that third phase of what we're able to offer. And, you know, one of the questions we get is how much revenue is going through IDA. And I talked about it in our prior quarter, which is mid-single digits for those that are on advantage of the countries, the 21 countries that are on advantage are going through IDA. So we have a lot of headroom to be able to roll out more IDA. And our expectations and our commitment, and we're well on our way, is to have that be double digits by the end of the year of the revenue for those expanded countries being able to deliver through IDA. So we feel very comfortable where we're at today and the investments that we've made and the proof points that we're seeing coming out of the quarter and as we sit here in the current quarter.

Thank you. Our next question is Eric Woodring with Morgan Stanley.

Hi, thank you. This is Maya on for Eric today. I have two questions, maybe just to start, you know, given the degree of pricing increases we're seeing in the market today, you know, is there any risk to your kind of historical cost plus pricing model? And could we see any like for like margin compression, just given the degree of inflation throughout the overall device ecosystem, especially on the compute side? And then I have a follow up.

Yeah, I mean, this is Mike. I think just as a general dynamic, price increases, just like what we've talked about in the past with tariffs and other factors, that's a pass-through for us. But I get your question, and I think there is certainly an elasticity of demand that exists. But from our perspective, as we continue to distribute the products and the services that we do, we're going to be pricing accordingly off of the prices in the market. So it's really more a question of Where does the demand reside? But we're not necessarily going to be conceding margin to try and capture sales. It's about an RWC equation for us and driving the right returns and profit metrics whenever we do any sale, honestly.

Maya, this is Paul. So let me just add a little color to that. I mean, we've been through these cycles before. We've been through shortages. We've been through macroeconomic headwinds. Based off our, a couple of thoughts here, based on our broad vendor and product portfolio, we're able to offer alternatives. So we're helping, you know, mitigate price increases that may be constrained. We're working with our vendors to provide bundling solutions, and we're doing that from an automated way. Being able to look at vendors saying, if you have multiple products, maybe you have a PC, You're buying a microphone, a camera, a display, a headset, along with that PC. Vendors are willing to provide maybe a better margin profile if you're bundled together. So we're putting some programs around that also. And with the X-Vantage Intelligence, as I talk about the models, we can better recommend substitute configuration, bundle product solutions, alternative vendor suppliers. And then the last thing I think which is important also is that we are starting to see some movement to from on-prem solutions to actually cloud. And we're starting to see that and we expect that to happen going into Q2 too. And so what I'd say is our goal is to help customers solve the business needs regardless of the product availability. And that's what's great about Ingram Micro and our business model. It's global, it's resilient, and we can participate in whichever direction the market goes. We're trying to provide tools and resources and alternatives based off of our business, so our solution providers, customers can go out and deliver the expectations and outcomes to their end businesses they serve every day.

Great. Thank you. And that partially answers my second question, just on kind of, you know, given the persistence of pricing inflation and the strength in agentic AI, how do you think about that shift from on-prem to the cloud? in terms of like a long-term risk to Ingram's kind of business model?

I actually think it's a benefit to Ingram's business model. If you look at the investments we've made, actually our advantage platform is built off of the 600 plus million dollars that we built. We were investing ahead of the curve in the early days of cloud a dozen years ago. And so we've really built a platform where you can buy hardware, software, and cloud and services all in one transaction. So as we see that, And you notice by our performance as Mike called out, minus the cloud balloon divestiture, we're up 34% and we're guiding towards very strong cloud business in Q2 also. So that solution, which may have originally been scoped on-prem, now they're getting predictability, they're getting space, they're able to move that. And I'd also say that our deployments still make up six different products and services. So it's not just about one solution that you're delivering. It's about bundling and bringing that full solution together for that business outcome. So I actually think it's an opportunity because it's an area that we continue to invest in, and we have very strong partnerships with each of the hyperscalers where we can provide that service whichever direction our customers and ultimately those end businesses want to go.

Got it. Thank you very much.

Thank you.

Our next question is from David Page with RBC Capital.

Hi. Thank you for taking my question. I wanted to double-click on the 2Q net sales guide. Maybe if you could just parse out what you're expecting by region, because it looks like there's been momentum sequentially across every region. So I just want to think, how should we think about growth within regions? Thank you.

Yeah, David, this is Mike. So I think, yeah, we're pretty happy with the fact that on a U.S. dollar basis, all four of our regions grew double digits in Q1. So you're right, we did see it fairly widespread. As we look to Q2, I think we would see a little bit of the same sorts of trends. You know, I think we're seeing strength just really continue in Asia Pacific for quite some time now. And that's coupled with our India business really returning to stability and growth in a more normal way, which is good to see now for a couple of quarters running. So APAC probably does stand the chance to lead the way. We still see a little bit more to the extent we do have any of the GPU or AI infrastructure deals. Those are still tending to be either in the North America or APAC region. So if we do see something more than our guide there, you know, that might create some outsized growth in those markets. And then the only other thing I would say, and we called this out at the tail end of my guidance remarks, you know, our EPS assumption is assuming, you know, potentially a little bit of negative impact in the Middle East part of the world. And therefore that does create a little bit of overhang just more generally on the EMEA region, but we still see growth there as well.

That's very helpful. Thanks, Mike. And then just one other thing. I think you'd mentioned for CES low single-digit growth for 2Q. I was wondering if you could parse out network, notebooks, and mobile or smartphone.

Thank you. Yeah. So, networks and networking, for instance, would be an advanced solution. So, within CES, that low single-digit growth, the two – we don't break out the subcomponents, but the two biggest – Some pieces of it, just more qualitatively, are PC and desktops and then mobility devices. So, yeah, we're still seeing runway, as Paul said in answer to an earlier question, and it was baked a little bit into our prepared remarks as well, on the PC refresh. And AI PCs are growing, but there's still roughly a quarter of our overall PC base So we're still seeing growth there in some runway. We see probably a little bit harder compare, which we alluded to even in our guide on the mobility side, because we saw quite a bit of mobility sales in the first half, actually, of last year, but certainly in Q2 of last year. So that compare becomes a little bit harder. That was centered a little bit more in the Asia-Pac region, to be clear, last year. But that would probably create a little bit of that headwind that normalizes to that lower single-digit kind of growth rate.

Thank you. Congrats on the great results.

Thank you.

Our next question is from Adam Tindall with Raymond James.

Okay, thanks. Good afternoon. I wanted to double click in the Americas region. You mentioned the AI infrastructure projects that are driving growth. You know, this is obviously a business that has gotten a lot of attention from your primary competitor and investors are, you know, particularly interested in this. Maybe, you know, a good forum to take a step back and talk about your capabilities around AI infrastructure. Remind us of this business to the extent that you can, you know, provide any size on it would be helpful. and any aspiration over time to be more ODM-like, you know, a hive-like business, or does it make more sense to kind of stay in the supply chain lane? Thanks.

Yeah, I'll start off. Thanks, Adam. This is Paul. So to start off with your last point of your question, to be ODM-like, that is not in our plans today. What we're doing is looking at our partners and where the technology opportunities are. So A lot of it, if you look out from an AI infrastructure standpoint and GPU chips, so it's GPUs, it's AI infrastructure product, which touch server networking storage product sets. And many of these large ones are going for proof of concepts and or are specific builds for very, very large enterprises. So we're able to help facilitate that. I think over time, you know, I hope that this melts into, we're just talking about categories and product sets because everything's going to be AI enabled, but we know it's important on this journey to show how we're participating. So again, to Mike's kind of points that he said before, which is this is very low cost to serve business and it's very good ROWC business for us. And so we're fulfilling a lot of that product today. With that said, We really have a focus around how do we help our general 165,000 solution providers, partners on a global basis, and that's through our Enable AI program. So I've talked about it. We have three growth tracks around that. How do we prepare and give awareness? How do we provide execution and training? And that third one is driving outcomes, which I talked about in my prepared remarks this quarter, but also in the prior quarter where we're doing that. And we're encouraged. by what we're seeing in terms of how many partners are actually moving through those phases, which means that people are getting more to the deployment side of it. So working on those outcomes, and it's significantly up year over year, but more importantly, quarter over quarter. So that's where we think we can play a key role in. Again, this is about the total solution, the six different products or services, and what we're doing. And our goal is to continue to provide, you know, a B2B or B2C experience in a very fragmented B2B business through our intelligent digital experience platform and standards that we continue to focus on. And how do we extend that out?

I don't know. Adam, the only thing I would add, you asked about kind of size, you know, and we're, you know, just like we say with other subcomponents, we don't really break it out, but I'll just give a little bit of color here, I guess, maybe to help. So, The bulk of the GPU and AI infrastructure projects or product sales, I should say, fall in advanced solutions. There is a bit that straddles into our client endpoint in the form of components, but the bigger share is in advanced solutions. And, you know, as you can probably tell just from the margin impacts we've called out, it's been a pretty decent growth factor year over year, growing faster than the herd average of advanced solutions, as an example. But, you know, it's more about we want to continue to drive that transparency more about where the margin is and where that's driving, because it does have more of an impact there, honestly. And most importantly, drive home the fact that, as Paul just reiterated, this is nicely profitable business, even though it's dilutive from a gross margin perspective, just because of that low cost to serve. and also the really low working capital investment associated with it.

Got it. Okay. I mean, that's probably a good bridge into my follow-up question, just on overall business and operational trends, really. If you were to give me a quarter where Ingram Micro was growing top line 14%, I would say EBIT would grow faster than that. You typically get leverage in these models, but yet on the EBIT line, we're kind of growing in line with revenue. And if I look at it on a sequential basis, you know, revenues down mid-single digits, EBITs down 25% or so. And I hear, you know, Paul, a lot of the positives around automation, X vantage and stuff. And I would think that we would be getting better contribution margin, you know, especially given the strong growth. What are maybe the offsets or what am I missing? And how do we kind of get back to a point where we're generating more operating leverage in the model?

Yeah, and I think just talking a little bit more about the numbers, I mean, I think the mechanics of what you're getting at on the EBIT is really a function of where does the margin rate get offset by the operating efficiency. So the operating efficiencies are coming through, you know, as we talked about in my prepared remarks, and I'll just focus on the SG&A numbers. So you take out, you know, a little bit of restructuring as an example that we call out separately on the face of our income statement. but we're seeing double digit basis point leverage there. So we're offsetting the overall margin factor. And then on top of that, if it were not for the GPU and AI infrastructure projects, we actually have a year over year uptick of nearly 20 basis points in our gross margin as well. So it's really more of that factor and where is that leverage coming through on that growth? Now, what you can see And you can see this in our guide. And even as you look at our reported results, while it's not EBITDA, when you take into account some of the efficiencies of debt paydowns and other factors, we're seeing healthy growth, you know, one and a half, more than one and a half times the rate of growth, in fact, in net income and earnings per share on a non-GAAP basis as a ratio to what And we continue to see not only a little bit more of the mixed factors improving with the outsized growth of cloud, higher growth in advanced solutions than client and endpoint, but also the leverage still continuing from an OpEx perspective.

Okay. And just one last quick clarification. You talked about seasonal on free cash flow, and I'm just trying to put a finer point on that. We understand the dynamics in Q1 starting in about a billion-dollar hole. Do you think you get to kind of parity or positive free cash flow for the year? Is that what seasonal means? I just am not sure. I wanted to understand the parameters on what you were alluding to for free cash flow for the year. Thanks.

Yeah, we've definitely seen a little bit more just general seasonality of the cash flow than we historically did over the last two to three years. I think generally speaking, we're seeing outflows in the early quarters, especially Q1. we always have a little bit of an outflow in Q3 associated with some of the inventory buying for the higher sales level in Q4. And then we're seeing the larger inflow come in at the end of the year, as you saw last year. Now, I think last year was exceptional as far as where the balance sheet landed to close the year. So I wouldn't necessarily bank on that. But as I look at the rest of the year, and I would look at those last couple of years just directionally, but certainly modest in nature over the next couple of quarters is what we expect. And I would just reiterate what we said coming into this quarter and coming out of the end of last year. While we do expect coming out of last year having the balance sheet as low as it was and that cash flow that came in in Q4, that was an exceptional cash flow for the year. But we do still expect that the ratio of free cash flow to adjusted EBITDA for the two years combined will still be north of 30%. So you can kind of bank on that as well as far as what we expect as the year goes on here.

Our next question is from Rupalu Bhattacharya with Bank of America.

Hi, thanks for taking my questions. Mike, Paul, as you look into the rest of fiscal 26, can you talk about the relative growth of advanced solutions versus endpoints? Specifically in the endpoint solutions, what PC unit growth are you factoring in for the year? And as you look at demand from SMB versus larger enterprises, is it trending as you had expected or is anything weaker or stronger than you had expected? And same question on the advanced solution side, how are you seeing demand for servers, storage, networking trending? And I will follow up.

So I'll start. I mean, we saw good growth in all those categories you just mentioned in the quarter. And as we guide, we're looking for strength in all those categories too. I'm actually pleased with the continued momentum and the refresh from a PC standpoint. It was in, call it the mid to high teens for the quarter. So when we say double digit growth, it was good. And we think we're going to continue to see that. And again, that's coming off of very significant growth last year. Our desktop notebook was high double digits. So we continue to grow there and we are seeing continued networking server. I'd say also cybersecurity is we're seeing strengthened that also. So we see that and that's what we built in from a Q2 guide. Again, we're not really looking at from a back half of the year, and I go back to some of the ways we're helping mitigate and trying to keep the demand aspects of how we can help fulfill, and then some of the opportunities of looking at different solutions, looking at different bundles, how we can focus on if it's an impact moving from an on-prem to a cloud solution. Mike, I don't know if you have any other comments.

Yeah, Rufo, I would just reiterate what I said earlier on that CES piece where we're guiding to lower single digits it's still you know solid growth we don't really break into the units as you ask but we're still seeing solid growth when you blend sort of the mix of units and asp increases on the pc and desktop and still see some of the traction continuing to grow on the ai pcs as we've talked about but it's really more that smartphone compare that level is that number off a little bit um overall and remember not too unlike some other aspects of our business, smartphones are very low margin. They're low cost to serve as well and generally move pretty fast, but it is a lower margin business that we see down overall year over year. Networking, server, cybersecurity on the advanced solutions end, all decent growth categories, and then cloud, as we talked about, as a service.

Got it. Thanks for the details there. Mike, can I ask you to talk a little bit about OPEX and CAPEX? You've had good success with Xvantage. I mean, how do you see spending more, spending trending on Xvantage going forward, and how should we think about overall CAPEX? And then on the OPEX side, is there, do you have levers to drive OPEX lower? How should we think about that trending?

Yeah, so good question. I don't think much has changed on this front to answer that initially, and Paul can add to this. I think on the X vantage story, you know, what we see is probably another four to five quarters where we see a bit more of the where we see that kind of a timeline playing out here. And that's really more deployment now than it is design. There's always going to be design and development happening as we roll out new functionality. But as we said, we have 21 out of 57 countries deployed with the most significant functionality. So there is some tail there, which sort of segues to the second part of your question. We have deployed this in our largest countries. So a majority of our revenues now trade through ExVantage, but there is still that tail where we can still bring some of the automation and efficiency to some of those additional countries, and that deployment's happening over the coming quarters.

Thank you. This concludes our question and answer session. I would now like to turn the floor back over to Paul Bay for any closing remarks.

Thank you for joining us today and for your continued support. We are proud of our Q1 performance and results. We are executing across the business to deliver continued growth and innovation. Our patented XVantage platform is a clear differentiator, and our investments ahead of the curve align with the rapidly scaling AI market. We are positioned well to change the IT distribution market, and we are energized at what's ahead. We look forward to updating you on progress next quarter. Have a great day.

This concludes today's conference. You may disconnect your lines at this time.