TD SYNNEX Corporation

Good morning, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the TD Cinex second quarter fiscal 2023 earnings call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At this time, for opening remarks, I'd like to pass the call over to Liz Morelli, head of investor relations. Liz, you may begin.

Thank you. Good morning, everyone, and thank you for joining us for today's call. With me today are Rich Hume, CEO, and Marshall Witt, CFO. Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws. including predictions, estimates, projections, or other statements about future events, including statements about strategy, demand, plans and positioning, as well as our expectations for future fiscal periods. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties discussed in today's earnings release. In the Form 8-K we filed today, and in the Risk Factors section of our Form 10-K 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. Reconciliations of GAAP to non-GAAP results are included in our earnings press release and the related Form 8-K, available on our Investor Relations website, ir.tdsinex.com. This conference call is the property of TV Cinex and may not be recorded or rebroadcast without our permission. I will now turn the call over to Rich. Rich?

Thank you, Liz. Good morning, everyone, and thank you for joining us today. The second quarter proved out the resilient business model we've been highlighting over the last several quarters as we saw a continuation of many of the trends from the February quarter. Our unparalleled line card and diversified portfolio allowed us to realize growth in advanced solutions and high-growth technologies, while year-over-year growth rates for endpoint solutions were impacted by short-term weakness in the demand for PC products post-pandemic. We expect this PC demand decline to abate over time as customers upgrade an aging install base of devices allowing them to run the latest operating environments and leverage key security features. And we're encouraged by the improving macroeconomic sentiment and stable supply chain conditions that are mostly back to historical profile levels. Although the pace of the recovery remains uncertain, we believe that gross billings and net revenue in fiscal Q2 and the outlook for Q3 represent the trough levels for endpoint solutions. The breadth of our technology offerings again proved to be a differentiator for us as we were able to offset deeper than anticipated declines in endpoint solutions technology demand with growth in advanced solutions and high growth technologies. Our teams delivered solid execution, shifting to pockets of growth And on a year-to-year basis, we believe we maintained our overall market share position in the Americas while growing market share in Europe. The resilience of our business model, along with strategic investments that we have made, augment our capability in the fastest growing areas of the market and helped us to expand margins in the quarter. Working capital improved with lower revenues, which is a reflection of the countercyclicality of our business model. From a regional perspective, the Americas experienced the largest impact from the post-pandemic decline in demand with year-over-year declines for PC ecosystem products. America's advanced solutions saw continued growth, driven by demand for cloud and data center-related technologies. From a customer perspective, the clients are primarily in the largest customer segment while SMB and MST customer segments have grown. Europe continued to show resilience with smaller declines in the endpoint given our broad technology footprint and diverse product line, including mobile phones and a very strong growth in advanced solutions offerings and specialized solutions. The Asia Pacific Japan region also saw strength in high growth technologies and specialized solutions, partially offset by smaller declines in endpoint solutions. At a company level, we continue to see solid momentum across the high growth technology areas that we've chosen to focus on, which include cloud, security, data, AI, IoT, and hyperscale infrastructure. These areas continue to see growth in the low teens on a year-to-year basis. Our customers are prioritizing projects in these areas given the critical nature of these IT investments and their strategic importance in minimizing cyber attacks, enabling digital transformation, and driving cost optimization. Investing in these technologies is one of our four strategic pillars and foundational to our evolution from a traditional distribution partner to a solutions aggregation and orchestration partner. Let me take a moment to provide some perspective on the steps we've made towards our goals in this area. We are well into the solutions aggregation phase where we build, integrate, and facilitate edge to cloud IT solutions for our customers. Our role is to help our customers solve complex market challenges by aggregating multi-vendor solutions and delivering easily deployed business outcomes. We do this through our solutions factory methodology, where we build comprehensive repeatable solutions that include some combination of hardware, software, and cloud licenses. A recent example of this involved an IT solution provider and a consulting firm that wanted to provide a better backup solution for their clients. Maintaining warranty and software support on proprietary backup appliances can be costly for end users, and they wanted to begin recommending pure cloud backups where applicable. This provider was able to utilize the TD Cinex Solution Factory and our cloud-based click-to-run solutions along with provisioning a pre-configured cloud solution built by TD Cynics within minutes. This enabled the provider to deliver a solution to their end users more rapidly while reducing configuration and deployment process times by 75%. We have many examples like this and currently have over 7,500 of these solutions deployed, including offerings for software-defined data centers, hybrid cloud, hyper-converged infrastructures, analytics, and security. We look forward to continuing to share updates with you on this important work. Now, moving on to our merger integration efforts. As we approach the two-year mark since we became TD Cytics, I'm pleased to report that we have realized our goal to achieve $200 million in merger-related cost synergies ahead of schedule. This is an important milestone, and it is a result of much hard work and effort by the teams across the company. As we move forward, we expect to realize an additional $50 million in cost optimization over the next several quarters. From an ERP systems perspective, we have made additional progress toward the completion of transitioning the Americas business to one system. Approximately 80% of our Americas business is now on CIS, and we remain on track with our transition goals. Importantly, this progress opens the door to realizing merger-related revenue synergies and to continually enhance our business. While we know that some revenue synergies have already begun to be realized, we believe this remains a more significant opportunity toward the end of 2023 and into 2024. This month, we were honored to receive our updated Fortune 500 rating, being named number 64 on the list for 2023. This is a testament to the strong relationships that we maintain with our customers and vendors. During Q2, we were privileged to be recognized with several awards, including being named HP Partner of the Year, North America Distributor of the Year by Dell, HPE, and Veeam, in addition to other regional awards. We also had the distinction of having 19 of our leaders recognized by CRN as top women of the channel last month. a well-deserved achievement and recognition of their significant contributions to our company and industry. We are proud of their achievements and continue to be committed to gender diversity as part of our overall DE&I strategy with the goal of increasing representation of female core workers to 40% of leadership roles by 2030. We also closed on several new vendor partnerships during the quarter, including Gong, an AI-driven revenue intelligence platform, and GitLab via an exclusive partnership to address DevSecOps and application monetization in Asia-Pacific Japan. These wins are indicative of our investment and commitment to grow in new technology areas, enabling us to continue offering our customers the most complete portfolio in the industry. Since the beginning of the fiscal year, we have added nearly 100 new vendors to our line cart. In closing, as we contemplate fiscal Q3, while there remains some uncertainty in the macroeconomic environment, we are encouraged by the early signs of stabilization. With the resolution of the U.S. debt ceiling, reduced banking sector concerns, and a serviceable supply chain. We expect TC ecosystem demand declines to reduce following the past couple of years of intense buying by our customers and driven by the factors I mentioned earlier. We remain well positioned to navigate the demand environment as highlighted by our performance this quarter, and we believe that the long-term drivers of IT spending remain intact. I'll now turn it over to Marshall for some additional comments about Q2 and our Q3 outlook. Marshall, over to you.