TD SYNNEX Corporation

Thank you. Good morning, everyone, and thank you for joining us for today's call. With me today are Patrick Zamet, 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 our strategy, demand, plans and positioning, growth, cash flow, capital allocation, and stockholder return, 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, including gross billings. Reconciliations of GAAP to non-GAAP results are included in our earnings press release and the related Form 8K available on our investor relations website, ir.tdsenex.com. This conference call is the property of TD Senex and may not be recorded or rebroadcast without our permission. I will now turn the call over to Patrick.

Patrick? Thank you, Jack. Good morning, everyone, and thank you for joining us. I am pleased to share our fourth quarter results and how we are well positioned for the year ahead. Revenue grew by 10% year over year, and gross billings grew by 7%. We generated free cash flow of $513 million in Q4, meeting our target of $1 billion for the full year. Demonstrating our commitment to delivering opportunistic value to shareholders, we returned 72% of our free cash flow in buybacks and dividends during fiscal year 24. Let me share three factors behind our Q4 performance. First, we saw good momentum in distribution. Gross buildings and endpoint solutions grew by 3% year-over-year, led by strength in PCs. Advanced solutions, excluding HIVE, showed broad strength across our geographic segments. Our cloud, cybersecurity, and data and analytics portfolios all grew by double digits in Q4 across all of our geographic segments. Gross profit within endpoint and advanced solutions showed solid growth year over year as we continue to focus on profitable growth. Second, we particularly saw strong top-line performance in Hive. In Q4, Hive revenue grew by double digits, reflecting its improved end-to-end capabilities. As Marshall will discuss, a tough year-over-year compare from Hive impacted growth and operating margins. And third, our Q4 results reflect the strength and resilience of our business model in an evolving macro environment. Our diversified product portfolio and our global scale allow us to capture a wide range of IT spend, and our continued operational excellence enabled us to deliver consistent margins and free cash flow. Having been in the CEO role for over 100 days, I'd like to share a few observations from my conversations with many of our partners and vendors. Digitization is increasingly critical for enterprises seeking efficiency and growth. The rapid evolution of the IT ecosystem, driven further by the integration of technologies like AI, is creating new complexities as enterprises work to meet the evolving needs of their end users. These challenges are creating large opportunities for TDCnext. We are a global leader at the center of many of IT's most powerful tailwinds, and customers and vendors are increasingly relying on us as a trusted strategic partner to navigate this complexity, grow their business, and deliver turnkey solutions that integrate software, hardware, cybersecurity, AI, and other emerging technologies. Let me share a few recent examples of how our unique strengths are helping our vendors expand their business. Two of our top 10 global vendors choose us to expand their business to India. Our specialized expertise across all major technologies in IT and strong management team in India, combined with our financial strength and commitment to upholding regulatory and compliance requirements, is helping them to efficiently and sustainably scale their business. In another example, a large cybersecurity software vendor chose us as their exclusive distributor for Japan. Our market-leading cyber capabilities in Asia Pacific, combined with our strong market presence in Japan, played a significant role in our ability to expand with this leading vendor. With more major franchises in place, our market relevance continues to increase in Asia Pacific, where we grew gross billings by 31% year-over-year in Q4. Momentum is also strong with customers around the world. For example, a large reseller customer chooses to transition part of their business from a one-tier to a two-tier model. With our broad capabilities and financial strength, we are delivering comprehensive and customized supply chain and enablement services that significantly reduce their operating costs while enabling new avenues of growth for them. In another example, a large global solutions provider chose us to manage their AWS business. Recognizing our leadership in the AWS ecosystem and the value of our cloud platforms, managed field of services, we are enabling these customers and users to manage cloud workloads at scale and at low cost. Vendors and customers increasingly choose us for four key reasons. First, our end-to-end portfolio is unmatched. This creates deep partnerships with vendors and enables our customers to expand their technology and solutions offerings. Second, Our specialist go-to-market approach with expertise across all major technologies in IT, powering an enablement engine that helps our customers grow and reduce their operating costs. We enable our customers to deliver high growth technologies like cybersecurity and AI and integrated multi-vendor solutions. At the heart of it is our culture that fosters innovation, collaboration, and a relentless commitment to our partners' success. Third, our large global reach, enabling partners to deploy multi-country solutions, grow across geographies, and enter new market verticals while trusting us to ensure they meet compliance and regulatory requirements. And fourth, we are a collection of specialists powered by technology and committed to operational excellence. Our cloud platform, Stream1, is a great example of how we simplify the complex. Customers are using our platform as a central hub to manage their anything-as-a-service business. We integrate with key vendors and the whole hyperscaler marketplaces, giving us the ability to provide customers with access to thousands of vendors. Our platform provides powerful capabilities like real-time reporting and billing on infrastructure as a service consumption, FinOps capabilities, SecOps capabilities, prebuilt white-label storefronts, automation with PSA connectors, and our open API architecture and end-to-end connectivity. We recently announced marketplace syndication with Microsoft Azure and AWS, simplifying procurement and lifecycle management of hyperscaler catalogs. While customers are embracing our platform, leading next-gen vendors are partnering with us because we enable them to scale efficiently to reach our large customer base. And as our partners grow, so do we. Moving on to Hive, our hyperscale infrastructure business. With surging cloud adoption and AI-driven demand, Hyperscale has continued to invest heavily in data centers, creating opportunity for Hive to continue to expand its services and offerings to address areas such as liquid cooling and power management. With operating margins accretive to our results and significant potential, Hive continues to be a key driver of our growth. In the year ahead, we will build on our momentum by strengthening our position as the vital link connecting the IT ecosystem. We believe that the IT spending environment will continue to improve throughout the year, and that we are well positioned to capture opportunities as the demand environment stabilizes, while also continuing to expand in new areas. We believe we grew ahead of the market this quarter, and we will continue to opportunistically look for white space opportunities across geographies. product categories, and customer segments to service a greater portion of the overall IT market. Additionally, we are building enablement solutions for our higher margin services business to help our customers meet the increasing demand for the specializations and certifications that are needed to deliver more complex technologies. We remain intensely committed to profitable growth delivering sustainable free cash flow, and continued disciplined capital allocation. Any decision we make, whether internal investment, acquisition, or returning cash to shareholders, will be thoughtfully and carefully evaluated to ensure we prioritize high-impact investments and create meaningful value for our customers and shareholders. Now, I will pass it to Marshall for a financial performance and outlook. Marshall?

Thanks, Patrick, and good morning to everyone. We had a good performance in the fourth quarter with gross billings and net revenue exceeding expectations. Total gross billings were 21.2 billion, up 7.4% year-over-year, and above the midpoint of our guidance range. As we began the year, we anticipated that revenue growth would show signs of recovery and gain momentum throughout the year. Growth Billings growth was roughly flat in the first half and roughly 8% in the second half, aligning to the sequential growth that we were anticipating. In Q4, there was an approximate 25% reduction from Growth Billings to net revenue, which was lower than expected and down from Q3, primarily due to a higher mix of endpoint solutions and high business mix. Net revenue was 15.8 billion, up 10% year-over-year, and exceeding the high end of our guidance range. Our endpoint solutions portfolio grew 3% year-over-year, driven by PCs and peripherals. Our advanced solutions portfolio grew 11% year-over-year, driven by Hive, hybrid cloud, and software. We were pleased to see growth across both endpoint and advanced solutions in the quarter. which supports our thesis that the IT market has returned to growth. Growth profit was $1 billion, or 4.91% of gross billings, representing a 25 basis point decline year over year, primarily driven by a tough compare in HIVE. As a reminder, in the fourth quarter of last year, HIVE, which is part of our advanced solutions portfolio, experienced elevated margins from cost recoveries and recognition of inventory carrying costs, as we sold through aged inventory in 2023. Sequentially, margins as a percentage of gross billings were up 17 basis points. Gross profit and distribution showed solid growth year over year as we continued to focus on profitable growth. Non-GAAP SG&A expense was 619 million, or 2.92% of gross billings, representing an eight basis point improvement year over year. The cost to gross profit percentage, which we define as the ratio of non-GAAP SG&A expense to gross profit, was 59.5% in Q4 and consistent with expectations. Our cost to gross profit percentage will be an important metric as we look to profitably grow our business and continue to focus on operational excellence and leveraging our resources to improve profitability. Non-GAAP operating income was $422 million, or 1.99% of gross billing. representing a 17 basis point decline year over year, which was consistent with expectations. The decline primarily was driven by high headwinds that we previously discussed. Interest expense and finance charges were $86 million, higher than expected due to higher average borrowing throughout the quarter. The non-GAAP effective tax rate was approximately 21%. Our effective tax rate was lower than expected due to favorable discrete items and mix. Total non-GAAP net income was $263 million, and non-GAAP diluted earnings per share was $3.09, both above the midpoint of our guidance range. Turning to the balance sheet. For quarter four, networking capital was $3.2 billion, down $312 million from quarter three. Cash conversion cycle was 18 days, down year over year and sequentially. Free cash flow was $513 million for the quarter. We returned 136 million to stockholders in quarter four with 102 million of share repurchases and 34 million of dividend payments. For the full year of 2024, we generated just over $1 billion in free cash flow, which was consistent with our expectations and returned 750 million to stockholders in the form of buybacks and dividends representing roughly 72% of free cash flow in fiscal 24. For the current quarter, Our board of directors has approved a 10% increase to our cash dividend and 44 cents per common share, which will be payable on January 31st, 2025 to stockholders of record as of the close of business on January 24th, 2025. We ended the quarter with $1.06 billion of cash and cash equivalents and debt of $3.9 billion. Our gross leverage ratio was 2.2 times and our net leverage ratio was 1.6 times. Now, moving on to our outlook, these numbers are all non-GAAP, and for the first quarter, we expect that gross billings will be in the range of $19.7 to $20.7 billion, representing a growth of approximately 5% at the midpoint and 6% in constant currency. Net revenue will be in the range of $14.4 billion to $15.2 billion, which translates to an anticipated growth to net adjustment of approximately 27%. Our outlook is based on a Euro to dollar exchange rate of 1.05. Net income will be in the range of 224 million to 266 million. Diluted earnings per share will be in the range of $2.65 to $3.15 per diluted share, which is based on weighted average shares outstanding of approximately 84 million. As I've mentioned before, Hive had an elevated margin in quarter one of fiscal 24, and is the primary driver for the expected decline in margin on a year-over-year basis, with an approximate 20 basis point impact on margin in quarter one. We expect these headwinds will substantially lapse by the end of quarter one of fiscal 25. We expect a tax rate of approximately 23% and interest expense of $78 million. As we think about full fiscal year 25, we currently expect gross billings to grow in the mid-single-digit percentage on a year-over-year basis, as we continue to expect a PC and server refresh cycle, an easier compare in networking, which should turn back to growth, and continued growth in endpoint solutions and advanced solutions, particularly our cloud security and data and analytics portfolios benefiting from AI. We expect to generate approximately $1.1 billion in free cash flow for the fiscal year and remain committed to disciplined capital allocation. including returning free cash flow to shareholders with a focus on share repurchases, and we have $1.8 billion remaining on our stock repurchase authorization, all the while keeping in mind investments need to strategically grow our business. We plan to host an investor day on April 10th, where we will provide more detail on our medium-term targets. In closing, we believe we remain well-positioned to benefit from the IT market recovery and have a strong balance sheet to fund our unique capabilities allowing us to be the global partner of choice in IT distribution. With that, we'll open it up for questions. Operator?