TD SYNNEX Corporation

Good morning. My name is Tracy and I will be your conference operator today. I'd like to welcome everyone to the TD SYNNEX second quarter fiscal 2026 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 would like to pass the call over to Nate Fridell, head of investor relations at TD SYNNEX. Nate, you may begin.

Good morning, everyone, and welcome to TD Synnex's fiscal 2026 second quarter earnings call. Joining me on today's call are Chief Executive Officer Patrick Zammit and Chief Financial Officer David Jordan. 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 financial 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 8K we filed today, in the Risk Factors section of our Form 10K, and our other reports and filings with the FCC. 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 in the related form 8K available on our investor relations website, ir.tdsynnex.com. This conference call is the property of TD Synnex and may not be recorded or rebroadcast without our permission. I will now turn the call over to Patrick.

Thank you, Nate, and good morning, everyone. We delivered a record quarter with broad-based strength across distribution and HIVE, building on the momentum we have carried out of recent quarters. Our results reflect consistent execution against our strategy and deepening relationships within a macro environment that is becoming increasingly complex. Rising component costs, supply constraints, geopolitical uncertainty, and a once-in-a-generation AI build-out are challenging businesses to move faster and with more precision. That complexity is exactly where TD SYNNEX adds the most value, and you can see it in the demand across our business. AI is becoming a growing portion of our mix and is driving demand across both businesses from hyperscale infrastructure build-outs to enterprise data center modernization to AI-capable devices in our endpoint mix. And we are capturing that growth across technologies, regions, and customers. With that context, I start with our distribution performance. Distribution had an excellent quarter. Non-GAAP gross billings of $23.4 billion, up 22% year-over-year. Strength was broad-based across every region and the portfolio, with international growth and operating margin expansion as a real bright spot. We believe the combination of our global reach, end-to-end portfolio, and specialized go-to market is very difficult to replicate. This differentiated value proposition, coupled with strong execution against our strategy, has driven new customer wins, new expanded vendor partnerships, and a large share of wallet with our more strategic relationships, all of which have proven to be incremental growth drivers. Three pillars of our strategy are driving our growth. First, We meet our customers however they want to engage in a true omni-channel motion. Digital, when they want self-serve speed. Human, when they want expertise and enablement. And we move seamlessly between the two in real time. Our digital capabilities are enabled by Partner First, which we've built for depth and speed at scale to deliver a connected experience for our partners. As one of the world's largest distributors, we have the data and intelligence to support our partners in identifying demand opportunities. We're applying machine learning, generative and agentic AI to the data we gather across our ecosystem to personalize each partner's experience, their navigation, their dashboards, and customized recommendations and opportunities we surface. This reduces friction and drives higher conversion, stronger attachment, and faster cycle times. Second, we segment our commercial teams in groups of specialists. We break our customer base into strategic tiers, and in some cases, we reallocate resources monthly based on what each tier needs. We use the same discipline on the technology and vendor side. The impact shows up in the data. SMB customers are growing well above market, and some of our most strategic accounts have surfaced billions of dollars of untapped opportunity. Third, we invest in enablement. We accelerate our customers' time to market by equipping them with advanced training, certifications, and technical expertise tailored to each customer's technologies and segment. We provide labs to test the solutions. We believe that our partnership sharpens their capabilities and drives faster adoption of solutions. When we can help customers become more successful, they stay with us and grow with us. Europe is a clear proof point. Our EMEA team competes head to head against pure play specialists, runs digital and high touch motions in parallel, and is weighted toward high growth technologies and segments. The share gains there are structural and it's the same model we've extended across our entire distribution business globally. These are the reasons why earlier this quarter, HPE selected TD SYNNEX as one of just two global distribution partners across its full networking, cloud, and AI portfolio, including the assets from the Juniper acquisition. It unifies our reach and meaningfully expands our relationship with one of the most strategic vendors in the industry. These are the kinds of outcomes our model produces. Hive also had an excellent quarter. Non-GAAP gross billings of $5.5 billion, up 117% year over year, driven by new programs with existing customers. We have built a suite of services to support hyperscaleless digital infrastructure deployments, which is key to our success. Coupled with strong execution against core pillars of our strategy, we've earned expanded program opportunities with some of our most strategic relationships, which has driven the triple-digit growth we have experienced year-to-date. Hive's North Star is simple. to be the partner of choice that hyperscalers trust to design, build, and deploy their data center infrastructure globally. That starts with design and co-design, from board manufacturing to full rack integration and other key components, helping customers accelerate time to deployment. Beyond the build, we offer supply chain services that are designed to support our customers across the full data center lifecycle. Ahead of demand, we aim to secure key components to give our customers supply assurance in a complex environment. And throughout the lifecycle, we manage the spare parts and final components to help ensure our customers have what they need when they need it. As we mentioned last quarter, we have secured at least one program with each of the top five US-based hyperscalers. We have begun the early stages of the ramp with our third and the programs with the additional two hyperscalers are on track with ramp expected in late fiscal year 26 or early fiscal year 27. We also issued an equity warrant to Amazon, a long-standing customer of ours, structured to grow in value as our programs together expand. Across these partnerships, we are being selected as a manufacturing and supply chain partner for multiple aspects of our customers' digital infrastructure build-outs. To support the future growth and needs of our customers, we are in the process of expanding our manufacturing facilities by more than 1 million square feet in several locations throughout the US, with current plans to add more. Hyve is quickly becoming the go-to partner for US hyperscalers seeking a consolidated approach to the design and build of their digital infrastructure that is paired with full lifecycle supply chain services. This full set of capabilities is key to winning new programs and onboarding new customers, ultimately enabling Hyve to grow at a premium to market. In closing, there are three key things I'm focused on as we move through the year. First, partnering with vendors and our customers through the current demand environment. The macro backdrop creates complexity and challenges that we aim to solve. But the underlying demand signals currently remain solid. We believe the shift to AI capable devices is just beginning. Enterprises are prioritizing the modernization of their data centers, and AI is driving incremental investment across the stack. We are watching unit elasticity carefully, but the net revenue impact from higher ASPs has been positive. Second, our execution at Hive. We are bringing new capacity online, investing in engineering capabilities ahead of the ramp, and standing up new programs alongside expansion at existing customers. The bar I'm holding the team to is best-in-class service. That's what's gotten us here, and it's what wins the next program. Third, growing operating profit faster than billings. David will cover the details. But this is the metric that matters most to me. We aim to convert top-line growth into margin expansion and shareholder value. I now pass it to David to go over the financial performance and outlook.

Thanks, Patrick, and good morning, everyone. This was a record quarter for TD Synnex. What's encouraging is that both of our businesses continue to perform extremely well, extending the growth trajectory that we've been on. Starting with the top line, our non-GAAP gross billings for the second quarter was $28.9 billion, increasing 33% year-over-year or 32% year-over-year in constant currency and exceeding the high end of our guidance range. Non-GAAP operating income was $615 million, an increase of 49% year-over-year or 48% year-over-year in constant currency. Non-GAAP earnings per share was $4.85, an increase of 62% year-over-year and above the high end of our guidance range. GAAP operating income was $519 million, an increase of 58% year-over-year. GAAP earnings per share was $4.15, an increase of 88% year-over-year and above the high end of our guidance range. As we grow, we're focused on creating operating leverage so that earnings consistently grows faster than the top line. Driving that conversion is central to our strategy, how we allocate resources and manage costs. Turning to quarterly performance for each business. Distribution delivered non-gap gross billings of $23.4 billion, increasing 22% year-over-year and well ahead of plans. Our end-to-end portfolio is indexed toward faster-growing technologies, which is positioning us to grow at a premium to market. Endpoint Solutions gross billings increased 13% year-over-year, supported by strong growth in PCs, driven by higher ASPs coupled with mid-single-digit growth in units. Advanced Solutions gross billings increased 31% year-over-year, driven by continued strength in infrastructure and security. Distribution non-GAAP operating income was $434 million, increasing 36% year-over-year, and non-GAAP operating margin as a percentage of gross billings was 1.9%, an improvement of 19 basis points year-over-year. We estimate the distribution gross margins benefited by approximately 5 to 10 basis points during the quarter, driven by incremental profit from strategic inventory and purchasing. Turning to HODD. Hive generated non-GAAP gross billings of $5.5 billion, increasing 117% year-over-year and ahead of expectations, with both manufacturing and supply chain services contributing. Manufacturing represented approximately two-thirds of Hive in the quarter, and gross billings growth increased more than the total business, primarily driven by increased volumes with our existing customer base. Supply chain services represented approximately one-third of Hive in the quarter. and growth was driven by component demand supporting our customers infrastructure deployments. Margins and overall mix of supply chain services can vary quarter to quarter. High non-GAAP operating income was $181 million, increasing 89% year over year and non-GAAP operating margin as a percentage of gross billings was 3.3%, decreasing 50 basis points year over year, primarily driven by mix. We're laser focused on continuing to make investments in both businesses that will position them to continue to grow at a premium to market over time. Shifting to cash flow and capital allocation, free cash flow consumption for the quarter was approximately $330 million. Given the accelerated growth and high, we're continuing to invest in working capital to support the growth of both new customers and new programs with existing customers. We're prioritizing making incremental investments where we can generate the healthiest returns, and this is showing up directly in our improving return on equity. Networking capital closed at $4.9 billion with a gross cash conversion cycle of 17 days, an increase of one day sequentially and flat year over year, reflecting an increased mix of HIVE. Both businesses improved their cash stays year over year, but we do expect additional efficiencies from HIVE as new programs mature. We ended with $1.1 billion of cash and cash equivalents and net leverage of 1.6 times, modestly below our medium-term framework, which gives us ample capacity to continue to invest in the business while returning capital to shareholders. During the second quarter, we returned $112 million to shareholders through repurchases and an additional $39 million through dividends. Our board of directors approved a cash dividend of $0.48 per common share, payable on July 31, 2026, to shareholders of record as of the close of business on July 17, 2026. Turning to our outlook for the third quarter of fiscal 2026, we expect non-GAAP gross billings of approximately $27.7 billion, plus or minus $500 million, up approximately 22% at the midpoint, a gross to net adjustment of approximately 33%, revenue of approximately $18.6 billion, plus or minus $400 million, Non-GAAP net income of approximately $361 million, plus or minus $20 million Non-GAAP diluted earnings per share of approximately $4.50, plus or minus $0.25, up approximately 26% at the midpoint based on approximately 79.4 million diluted shares outstanding. Our Q3 guidance assumes no material contribution from Hive's newly onboarded customers which we are still expecting to ramp in late fiscal 2026 or early fiscal 2027. To close, we're extremely proud of our teams for the results they continue to deliver. We're entering the second half with forward momentum in both distribution and hive. With our global reach, differentiated capabilities, and broadening portfolio, we believe we're positioning ourselves to grow at a premium to market through time. With that, we'll open the call for questions. Operator?

We will now begin the question and answer session. We request that you limit yourself to one question and one short follow up to allow time for the other participants to ask their questions. If there is remaining time, you are welcome to re-queue with additional questions. To ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. Please pick up your handset when you're asking a question to allow for optimum sound quality. And if you are muted locally, remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from Ruplu Bhattacharya with Bank of America. Your line is open. Please go ahead.

Hi, thanks for taking my questions. Patrick, you've seen strong revenue growth and billings growth across all of your segments this quarter. The question I have is, have you seen any evidence of demand destruction or any weakening of demand given component cost increases? Are customers showing any hesitancy to purchase either endpoint solutions or advanced solutions? and likewise, if units are going to be down year on year, have you seen any change in channel incentives from the vendors? And I will follow up for David.

Okay, so hopefully, good morning. Thanks a lot for the question. Yeah, so, I mean, focusing on Q2, I mean, very strong quota both on distribution and Hive. And very transparently, we haven't seen The price increases are really starting to kick in and it's probably going to accelerate in Q3. On the other hand, we see underlying demand which continues to be healthy across the portfolio. I'm anticipating a question on maybe what happened on PCs. Even on PCs, we saw a unique growth. So for the moment, we don't see that phenomenon. I just add, and that has been one of our assumptions for the guidance, that on most of the categories, companies need to continue to invest, especially infrastructure, and combined with the ASP increase, I think the demand will continue to remain healthy, at least for what we can see for Q3.

And any change in channel incentives from the vendors?

No, not yet. Okay, a quick follow-up for David. Sorry, just to add, so we don't see changes or material changes from our vendors. I add that our margin quality for distribution stayed very healthy in the quarter, as you can see. So, yeah.

Okay, great. David, just quickly, inventory was up 30% almost sequentially. Can you talk about working capital and free cash flow and what is driving that inventory? And are you using the strength of your balance sheet to buy any components? Thanks for all the details.

Thanks, Rupal. So we've got a couple of pieces to cover here. So when you think about Cash flow and cash days. So cash days were flat year over year. I think the important point to make, though, is both of our businesses improve their cash days year over year. And you've got the mix of hive that caused the totality to be flat. Hive continues to experience a period of accelerated growth in that business given the cash conversion cycle takes capital to run. And so we continue to make those investments. When you start looking at inventory, I think ballpark, you know, the days are up, call it eight days or so year over year. And it's largely driven by some additional inventory that we've taken in Hive to help fund new programs, existing programs, and help make sure that our customers have adequate supply given the broader macro.

I just want to add one thing which is I mean we've been for the last quarters a little bit more aggressive on inventory levels because we've anticipated on the price increases I mean that gave us several advantages one it helped us move the impact of the price increase for our customers and that's very important it also helped our vendors Great guys, thanks for

Great, thanks for taking my questions. So Patrick, one for you and one for David. So Patrick, can you help us unpack how the incremental manufacturing facility square footage plays out this year and next? And is it basically designed to support the incremental programs that you laid out with your current and future programs with your hyperscalers? And is there kind of a rule of thumb to think about what that incremental capacity could mean for whether it's billings or revenue? and then I have one for David as well.

Yes, good morning. Thanks a lot for the question. So, I mean, as we mentioned, so we have now won programs with all five U.S.-based hyperscalers. We have now three hyperscalers where we have won more than one program. So what we see is a very nice pipeline of opportunities which are going to ramp up probably end of Thank you very much. We haven't yet established a correlation between investment and revenue. What I can tell you is that we are very comfortable with that expansion of capabilities and capacity that we are going to meet the demands we are seeing and be in a position to deliver the products with the right quality, which is the most important for us at the moment.

Okay, great. That's helpful. And David, I know this might be a tough question to answer, and I know there's some confidential kind of data here, but can you help us understand sort of the gross margin differentials within Hive, whether it's by, is it better to think about it relative to like ODM-CM margins versus supply chain margins, or is there a lot of variability between programs with existing hyperscalers or between actual hyperscalers themselves? Can you help us understand how to think about the margin profile of these programs, particularly as you start to ramp obviously new programs later this fiscal year into fiscal 27? Thanks.

It's a good question. So when you take a huge step back, Hive has two businesses, manufacturing and assembly and supply chain. On average, historically, the margin profiles have been relatively similar. I will tell you, as you start looking at things by program, There can be differences. So I'll give you a couple of examples. If you're building AI servers, that tends to have a slightly lower margin profile. If you are building complex networking racks, that tends to have a slightly higher margin profile, so on and so forth. Same thing on the supply chain side. Depending on what we're buying, how long we're holding it, and how complex it is, it does dictate the margin profile. But All in all, here's what I would anchor you to. We feel very good about the performance that Hive's been able to generate. We continue to make investments in new capabilities, new programs, new products that will allow Hive to continue to maintain, if not improve, its margin profile through time. We're super excited with what the team's been able to produce thus far.

Great.

Thanks, David.

Two more things. The first one is Similar to distribution, gross margin quality is very important. And I can tell you that the team is very focused on that. So that's point number one. Point number two is, obviously, as you ramp up a program, you have some inefficiencies which will disappear over time based on the learnings and the optimization. So again, Hypergroove, as we speak, lots of programs being launched, some impact on the GM quality because of that. But again, looking forward, it's a priority for us to optimize also the GM quality. Great.

Thanks, guys.

Your next question comes from the line of Keith Hosom with North Coast Research. Good morning, John.

Good morning. Good morning, gentlemen. Congratulations on a great quarter. If we think about the evolving business out there with memory, we're hearing more and more about supply constraints coming into place here. Are you guys seeing the supply constraints come into place right now, or is there concerns that you'll see some, perhaps limiting the amount of growth you can have for the rest of the year, maybe into FY27? But how are you thinking about the supply availability right now?

So, Keith, good morning. Thanks for the question. So, for Q2, we haven't felt it. But you're right, in our Q3 guidance, we took into account some risks with component availability. It's memory, obviously, is one of the categories. Some CPUs could come also, some challenges on delivery of CPUs could come also. So we factored it into our guidance. and we will see. But again, so far, it has been good. I would just add that when you look at Hive, it's our customers primarily who secure the supply and they have, I would say, some good arguments with the vendors. On the distribution side, so far, our key vendors have done a very good job with their supply. and all the guidance.

Okay. And if I could follow up on that. In terms of the HPE win, in terms of being one of two global distributors, have you seen that benefit completely in the quarter or is it still going to ramp up over time?

No, no. So we are going to see the ramp up over time. So what's happening, just to put things in context, so HPE has decided to rationalize its go-to-market strategy They are going to focus on two global distributors in certain areas. And the benefit takes some time. So we are going to probably see the benefit, I would say, first half of next year. We want some new countries. We're going to see the rationalization of the distribution network in some other countries. So it takes a little bit of time. But just to comment from a more strategic standpoint on the HPE win, It's very interesting that the fact that we are global has been one of the reasons for the win. What we see more and more from the vendors is that being global is becoming the differentiator when they rationalize their go-to markets. And so we think that probably there's more to come than other vendors are. are now looking at their global distribution landscape. And our strategy to expand in APGA in Latin America, potentially one day in the Middle East, is clearly positioning us well to benefit from that market trend.

Great. Thank you.

Your next question is from the line of Catherine Murphy with Goldman Sachs. Your line is open.

Thank you very much. Maybe switching gears here a little bit. The margin profile of the endpoint solution segment seems like a record high from what I can see at 5%. Can you talk about what drove the strength in the quarter and if there were any one-time benefits like the strategic inventory purchases you mentioned that benefited results in the quarter? And then to just quickly ask my follow-up now, are there any expectations for continued benefits from this strategic inventory build as we look into the back half of the year? and INTO27, so long as we continue to see increasing ASP environment. Thank you very much.

Good morning, Kat. A couple of comments. One, we put in the prepared remarks that on the distribution side we had five to ten basis points of additional margin from strategically purchasing inventory. A lot of that, you know, manifests itself in the endpoint business. Here's the way I would think about it. Thank you so much for joining us. Your next question comes from Eric Woodring with Morgan Stanley. Your line is open.

Awesome. Thank you. Thank you for taking my questions, guys. Congrats on the results. Patrick, I guess I'll combine my two questions because it's a three part question. So sorry. Sorry, but they're all related. And I'd love if you could just take a big step back and help us understand three things. So first, just. Again, help us understand the sustainability of hardware spending as we look through the second half and into next year, just given what you know today and the pipeline that you see. Second, just what products are showing to have greater inelasticity than others as you face these record price hikes? And then third, are there any products or segments as you look forward where you don't believe you can fully pass through the higher device costs and potentially see some margin pressure just if there is any customer pushback? I'll combine those and make those my two questions, even though it's a three-parter. So thank you, guys.

Thank you, Eric. Good morning. Let me start with the last one on the margin. So again, and it's true for both businesses, distribution and Hive. We are a cost-plus business, so if costs increase, we pass it to the customers. We have no other choice. We have a very good track record as an industry and as TD SYNNEX. You look at what happened last year with the tariffs, you look at We had already some categories where we saw the price increases and again, we were able to pass it. We had inventory to smooth the impact for our customers, but overall, no concerns there. In terms of product elasticity, The category I'm watching is PCs with some caveats. So consumer PCs, I think the elasticity will be relatively high, but we focus on B2B. So I'm expecting some impact of the ASP increase on the PC consumption. If you look at our Q2 results, we were able to mitigate the impact by gaining share. and also because we are positioned on B2B and the refresh is not over and you still have many enterprises or companies who have to upgrade their PCs. But that's probably the category where I am the most cautious. We are the most cautious in our outlook. If you look at infrastructure, if you look at networking, for the moment we see very solid demand. Networking very rapidly. The two last years were tough. So networking is back on the lower base. You have the refresh driven by Wi-Fi 7. And then you have the investments related to AI in that space. So I think that's sustainable. If you look at data centers or server and storage, I mean, this quote of... I mentioned last quarter that storage was starting to come back and I wanted a confirmation. We had a very strong storage quarter and I think it's going to last. The AI, I mean, drew first the compute upgrade and I think now storage is, and then switches and now I think storage is next. And then on compute, we see very, very solid demand and it's driven by... Several things. So obviously, ASP increase is driving the value up. But even in volume, what's happening is that you have still the refresh of the general compute servers happening. It's not over. So that's an opportunity. You have an acceleration of the purchase of general compute servers because they have become critical when you speak about the genetic AI. and then the cost of tokens is going to become a big topic. And if you want to mitigate the cost of tokens, I mean, running your workloads on premise is going to be a good solution. So I think that's going to drive demand and remain a tailwind. And then an accelerated compute I mean companies are starting enterprises in particular but also you have the sovereign clouds especially in Europe and APJ and the NEO clouds in North America they are investing heavily we are a source of supply for them and I see the demand remaining healthy here so in summary except on PCs where the units could be impacted by the ASP increase I think on the other categories, I think it's sustainable. Software was also a very strong quarter for us. So ASP increases less of a topic. I think it's going to be sustainable. Security, especially now that you have to manage the risk related to agents, is going to drive additional demand. So I continue to be cautiously optimistic across

Awesome. Thank you very much, Patrick, for all that detail.

Your next question comes from the line of Adam Tindall with Raymond James. And your line is open.

Hi, good morning. Patrick, I just wanted to start here taking a step back. If I look at the quarter, incredible growth and negative cash flow. I wonder if you might just talk about how to strike the right balance between pursuing growth versus generating cash. And more specifically, if I look at kind of where that cash is going, Thanks Adam for the question.

Let me distinguish between distribution and Hive very rapidly. Distribution continues to, I mean, cash days are down on both businesses, but cash days are really low on distribution. So the growth on distribution is generating free cash flow, significant free cash flow, which is true today. We are investing in Hive to fuel the Hive growth. Both Working capital and of course fixed assets. So one, Hive continues to have a very nice return. So if you look at our key ratios, it's not that we are financing a growth business at the expense of our key It's the other one. It's a credit for margin. It's a credit for our return on equity. So from that standpoint, we feel very comfortable. In terms of building fixed costs in case the market is going to correct. So it's true that the working capital will adjust immediately if the market goes down. So we have no concern. It's like distribution. If I can speak like that, the elasticity is high. So, I mean, as soon as the market goes down, we are going to see the working capital going down very rapidly. And so it will generate free cash flow. But from a fixed asset standpoint, Thank you very much. and the other costs for Hive are mostly variable. So again, in case of downturn, I think it's going to be something similar to what we see in distribution. You have a lot of cash flow generated because working capital goes down and then we are very good at reacting and adjusting our cost base to the new market reality. So I am not very concerned here. I can just finish with Thank you so much for joining us.

I will tell you, the team is incredibly prudent at how they manage Hive from a capacity perspective, and they've done a nice job, as Patrick said, on the cash flow. As you're ramping a new program, there is more working capital inefficiencies that ultimately unlock as things mature. And so we are aware of the cash consumption. We are pleased with the reduction in cash days year over year. But we do believe long term there are additional efficiencies that we'll look to achieve as well.

Great. And just a quick follow up. And by the way, I know that question.

Your next question comes from the line of Joe Cardoso with J.P. Morgan. Your line is open.

Hi, thank you for taking my question. This is MP on behalf of Joe Cardoso from J.P. Morgan. Can you please double click on the mix of high business between supply chain versus contract manufacturing during the quarter and particularly like how did it track relative to your expectations heading into the quarter? And also, how do you How do you expect it to track into the second half and any potential gross margin impacts from that? Thank you. And I have a follow up.

So good morning and thanks for joining. So we when you think about how we put in the prepared remarks, two thirds of it, two thirds of the business was manufacturing this quarter and about a third of it was supply chain. When you think about performance versus expectations, both businesses exceeded expectations. We don't. Thank you so much for joining us. I just want to add that

So our supply chain services is a service. So in today's environment where you have this big ASP increase and shortages, I mean, our customers have more needs than in environments which will normalize. So again, the team is first focused on winning programs Thank you. And for my follow-up, I just wanted to ask about pricing. Can you please comment how is the pricing environment right now? How do you think the pricing environment is right now versus 90 days ago?

and any particular product categories which you want to call out where the pricing pressures are more pronounced relative to others. Thank you.

Yes. So pricing is up and you had this inventory in the channel and that inventory has been shipped. So we're going to see the impact more and more. The category where the price increases are the most significant are obviously storage and servers because they are the most impacted by the memory price increases. But we see it also in PCs. By the way, we're expecting some new price increases in both categories in July. So the price increases are not over.

Your next question is from the line of Adam Tindall of Raymond James. Your line is open now.

Okay. I was just going to continue on that thread, Patrick. I know that question that I asked earlier about cash flow versus growth sounded challenging. I actually think you're doing the right strategy because your balance sheet is clean. You don't necessarily need to be generating cash right now. But on that thread, I wanted to ask the follow-up to David. The timing and magnitude to cash flow reversing, I think previously you had talked about 95% of non-GAAP net income for the combination of fiscal 25 and 26, but I think you'd need like two plus billion of free cash flow over the next two quarters to do that. And I wonder if we should sort of recalibrate our thinking. No, this is a tough question in a dynamic environment. Just any help for our models. Thanks.

Thank you so much for having me. The 95% net income to free cash flow conversion ratio is absolutely our North Star metric on a long-term basis, but in periods of accelerated growth, we will consume cash, but we believe it's a good use of capital and the incremental ROIC is good. So hopefully that helps give you a little bit of color around our optimism in Hive and some of the short-term cash impacts of making investments in that business. But we think it's a great investment to make.

We think it's a great investment.

Yeah, makes sense. Thank you. You're welcome.

And your next question is from the line of Guy Hardwick with Barclays. Your line is open.

Hi, good morning. It's a question on the follow-up question on the strategic inventory. Just wondering how much of the 13-day year-on-year increase related to strategic inventory purchases. And I assume in the Q3 guidance, you're also assuming This is a tough question to answer because it's very difficult to quantify, but what I would tell you is our teams are able to

Thank you for joining us. Thank you for having me. The I would tell you, we don't forecast and plan for a lot of these things. But when we do realize them, we tend to call them out in the quarter. But it is part of the reason that inventory is up on a year over year basis. But I would tell you the predominance of that increase was largely driven by the investments we've made in Hive due to new programs and expanded programs with existing customers.

So just to be clear, so the guidance of Key 3 does not include any margin benefit from strategic inventory?

It's hard to say. We don't have the teams break it down to that level of detail. What I would tell you is we do kind of a bottoms-up role based on our guidance, and the teams will factor a variety of risk and opportunities in there to quantify exactly whether it's in or out or what degree is a little difficult. To be candid with you, I would say there's probably a little, but as you've seen based on the Q2 results, it's It's relatively small, five to ten basis points. And so, you know, and it does tend to dwindle down through time. Thank you.

Your next question is from the line of David Page with RBC Capital Markets.

And your line is open. Good morning, Patrick. Good morning, Patrick, David. Thanks for taking my question. I want to start on the Amazon warrant. I was curious, what was the strategic rationale for that and how that warrant came to be? And is it something that we should expect maybe with some of the other hyperscalers that you're ramping up? Thank you.

Good morning, David. So first thing, the warrant concerns Hive. And Hive has had a long-term relationship, historical strong relationship with AWS. So the relationship has been very successful historically. The value proposition we delivered to Amazon has been very much valued. And so when they came to us to discuss the opportunity, we saw it as a big opportunity. And with the balance in place now, we think we have an agreement which is going to be mutually beneficial. and yeah, let's see how it materializes in the future. But we are very pleased with that agreement.

Great, that's helpful.

And just a quick follow up. I think in the past you have spoken about traditional compute versus accelerated compute. So if you could, could you provide some color on the mix A traditional versus accelerated that you had in the quarter or that you're expecting in late 4Q and early 2027. Thank you.

And I guess your question is for Hive specifically?

Yeah.

Yeah. So this quarter we had the ramp up of an accelerated compute program at Hive. Generally speaking, we think that When you look at our mix of programs, we believe that we are going to see more of networking, general compute and storage going forward. But we want to continue to maintain and develop our expertise in accelerated compute. But in terms of mix, so we have this nice ramp up. But when I look at the profile of the wins we are having, We will continue to see more of the other programs than the accelerated compute programs, I think, going forward.

Your next question comes from the line of Vincent Colicchio with Barrington Research. And your line is open.

Yeah, Patrick. If hardware demand moderates, would you expect software, cloud, and recurring revenue streams to offset some of that pressure?

So thanks for the question. So software, cloud, security continue to grow at double digits. And for sure that when you look at the underlying reason for that success, I think they're going to Thank you very much. Very interesting category again. Could be poised for very interesting growth. And AI could be really a game changer. It's a little bit too early to call it out, but there are some indicators that could speak well. As I said, I mentioned it before, the cost of the tokens is going to have an impact, I think, on some of the behaviors being Thank you.

Your next question comes from the line of Alec Valero with Loop Capital. Your line is open.

Hey guys, thank you for taking on my question. My question to you is, I don't know if you mentioned this earlier, but on the 1 million square feet that you're adding, any color on when we can see this capacity start to contribute to revenue?

Yeah, so thank you for the question. So again, we We have a strong pipeline, strong backlog. We see the ramp up of the programs we have won to start impacting our revenue in Q4 fiscal year 26 and most probably in Q1 fiscal year 27. So the capacity we are adding will convert into additional revenue potentially in Q4 and most probably in Q1 next year.

Got it. Thank you for that. Just a quick follow-up. On Hive, obviously you said manufacturing is now two-thirds of that. What can we expect that mix to look like throughout the year?

So, Alec, we don't... It's hard to give you an exact answer on that. Here's the way I would tell you to think about it. Over a long period of time, we expect manufacturing to increase as a mix of the total. But as Patrick said, in certain types of environments, our supply chain business becomes very critical to helping support our customers. And so it will ebb and flow. It's hard to tell you exactly quarter to quarter, year to year, what that might look like. But over a longer period of time, we expect to increase the percentage of hive associated with manufacturing.

Thank you all for joining us this morning.

I want to close by thanking our co-workers across the globe whose commitment and dedication drive everything we accomplish.

and our partners for the continued confidence they place in us. To everyone on today's call, we appreciate your ongoing interest in TD Synnex. Thank you and wishing you a great day.

That concludes today's conference call. You may now disconnect. Have a nice day.