Good afternoon and welcome to the SYNNEX Third Quarter Fiscal 2018 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 Ms. Mary Lai, Head of Investor Relations at SYNNEX Corporation. Miss, you may begin.

Thank you and welcome to the SYNNEX Corporation earnings call for the third quarter fiscal 2018 ended August 31, 2018. Joining me on today’s call is our President and CEO, Dennis Polk; our CFO, Marshall Witt; and our President, Concentrix, Chris Caldwell. The executive team will first review third quarter fiscal 2018 financial results, followed by an update to our pending acquisition of Convergys, which will close this Friday, October 5. After the prepared remarks, we will open the call to a Q&A session. As a reminder, today’s call is being webcast live and will be recorded. Please note that some of the information you will hear today consist of forward-looking statements within the meaning of the Federal Securities laws. Such statements may relate to, without limitation, market, production, demand, investments, growth, revenue, non-GAAP operating income, non-GAAP net income and diluted EPS, amortization of intangibles, acquisition-related integration expenses, margins, adjusted operating margins, costs, tax rates, seasonality, synergies, integration, accretion, benefits, timing and other aspects of the proposed acquisition, dividends and overall performance. Actual results or trends could differ materially from our expectations. For more information, please refer to the risk factors discussed in our Form 10-K for fiscal 2017 and the discussion of forward-looking statements in our earnings release and Form 8-K filed with the SEC today. SYNNEX assumes no obligation to update any forward-looking statements, which speak as of their respective dates. Also, during the call, we will reference certain non-GAAP financial information. Reconciliation of non-GAAP and GAAP reporting is included in today’s earnings release and the related Form 8-K available on our website at www.synnex.com. This conference call is the property of SYNNEX Corporation and may not be recorded or rebroadcasted without our specific written permission. With that, I will turn the call over to our CFO for the financial update. Marshall?

Thank you, Mary, and thank you all for joining us today. Before I walk through our third quarter results, I want to highlight that both SYNNEX and Convergys held our separate shareholder vote meetings this morning and both companies received approval for the acquisition of Convergys. We expect the transaction to close this October 5 and Dennis and Chris will provide additional thoughts on the pending transaction later in the call. First, I will review our third quarter results and key financial metrics and then conclude with guidance for the fourth quarter of fiscal 2018 before turning the call over to Dennis. Our third quarter revenue beat midpoint of our guidance and both non-GAAP net income and diluted EPS solidly beat the high end of our guidance. On a consolidated basis, total revenue was a third quarter record of $4.9 billion, up 15% compared to $4.3 billion in the same quarter last year. FX did not have a material impact on consolidated revenue growth. Technology Solutions revenue was $4.4 billion, representing an increase of 17% over the prior year period. Concentrix revenue was at $492 million, down 1% from $496 million in the prior year quarter. Adjusted for FX, Concentrix revenue was consistent with the prior year period. Now, turning to gross profit, our third quarter gross profit dollars totaled $433 million, up 16% or $58 million versus a year ago. The increase in gross profit dollars was primarily driven by positive contribution from the Westcon-Comstor acquisition and year-over-year revenue growth in the Technology Solutions segment. Our gross margin was 8.8%, an improvement of 6 basis points from the prior year quarter. Technology Solutions and Concentrix both reflected expansions in gross margins. The increase in our Technology Solutions gross margin was driven by the Westcon-Comstor acquisition and due to product…

Thank you, Marshall and thanks to everyone joining our call. We are very pleased with our third quarter results announced today. We saw continued momentum in both of our business segments resulting in new records for third quarter revenue, adjusted profits and EPS. We generated third quarter revenue of $4.9 billion, representing 15% growth from the prior year period. Along with this growth came outstanding execution and earnings leverage in our business resulting in our non-GAAP EPS of $2.57 per diluted share. We are focused on profitable growth and delivered in Q3. Some highlights from the quarter. Our Technology Solutions segment had a record third quarter revenue of $4.4 billion or a 17% increase from the prior year period. Solid execution in our core business and contribution from Westcon-Comstor drove the year-over-year growth. From a product standpoint, we saw growth in virtually all of the product and service categories we offer. In terms of customer end markets, we also saw growth in every major division, including SMB, enterprise, consumer and the public sector. From a geographic perspective, the U.S. market led the way with very strong growth and we have solid performance from our Latin America business as well. Regarding our Westcon-Comstor business, we are very proud to report that the results of this business exceeded our expectations in year one. We accomplished these results while integrating the North American business earlier than initial expectations and completed this with less than $10 million of total integration costs, a relatively small amount when considering the size of this acquisition. We asked a lot from our Westcon-Comstor team members in the first year and they delivered. I want to thank them for their efforts and dedication. I am also very pleased that we now have one full quarter completed under a single…

Thank you, Dennis. In the third quarter, we continued our focus of driving operating leverage in the business as we deployed RPA, digital and other technology solutions that resulted in some revenue erosion, but ultimately a better profit profile for our business. We also saw additional ramps in the quarter in new countries as we built out infrastructure to support the new wins. This resulted in revenues of $492 million and adjusted EBITDA of $60 million. Year-over-year our revenue growth was essentially flat, but our adjusted EBITDA grew nearly 9% year-over-year and our non-GAAP operating income expanded 92 basis points to 8.7%. Underneath the flat revenue, there is also a lot going on to position us for further growth. We've been very selective about the opportunities we are engaging in, but more importantly evaluating the portfolio of programs we intend to continue. On a year-over-year basis, that equates to about 9% of new revenue growth to stay flat. While we don't guide further than one quarter out, we are coming to an end of replacing some of the business and believe that we will again see revenues growing shortly on top of the acquisition of Convergys. As an example, year-to-date, we have signed 59 new clients, which is already ahead of where we were for all of fiscal 2017. We are very fortunate to be partnering with leading companies across all industries, and this past quarter, in particular, to be able to strengthen our position in key industries of automotive, banking and insurance. We were recognized in the quarter with many industry and client awards, but two awards in particular I'm very proud of. First, our team in India was recognized for Best Inclusion & Diversity Strategy. Having over 100,000 staff in five continents, it's important to attract, retain and…

Thanks, Chris. Now looking at our fourth quarter outlook. Within the Technology Solutions Distribution business, we expect to continue to benefit from the positive market conditions and as always, we will attempt to grow faster than our marketplace. The technology sector remains healthy and we are seeing solid demand for the technology products and solutions we offer. The IT channel is in a positive position as well, specifically according to NPD Industry Data, US distribution revenue reported its ninth consecutive quarter of channel growth year-over-year at the end of its calendar June quarter. For our Technology Solutions Hyve business, revenue will be down year-over-year. This was partially due to last year's Q4 being a very strong quarter, but we had pull in the curve and partially due to our focus to ensure we are taking profitable business with solid working capital returns. We are still focused on diversifying the customer base of Hyve and recorded a nice win in the quarter, but we will still have a concentration with our top customers. We continue to reiterate that this business has a project-based profile and remains difficult to forecast. This is not a reflection of the health of the business as we continue to have a strong customer relationship and also continued investment in the business for long-term growth. Lastly, as Marshall indicated, we have experienced a shift in our business over the past year where more products we sell qualify for net revenue treatment. While a headwind to our top client growth for Technology Solutions, there is no effect to our operating profit or bottom line. For Concentrix, as Chris indicated, our fourth quarter guidance reflects approximately 2 months of contributions from Convergys. Q4 will be an obvious quarter of transition and integration for the Concentrix business, but we do…

[Operator Instructions] Your first question comes from Frank Atkins with SunTrust. Your line is open.

Thank you for taking my questions. I wanted to ask first, can you highlight what drove the margin improvement on the Concentrix side and what are your expectations as you move into 2019 for margins with the combined entity, including Convergys?

It’s Chris. So a couple of things drove our margin expansion. One, as we mentioned we have been putting [more RPA] [ph] into our business and some more automation which has generally resulted in uptick in margin. We have also been getting more leverage out of the infrastructure that we have been building within the geos that we have launched back in last September. So we are starting to see some good margin additions from that. And then the last part of the margin has just been really to focus on the high value strategic verticals, getting the wins and they tend to have longer ramp times as you know. And so we are starting to see them become sort of at a maturity level where we are getting that consistent margin out of those that we started 7, 8, 9 months ago. Our expectation of this trend was going to continue into 2019 and as we bring the Convergys business together, clearly we saw the synergy numbers of about $75 million to take out, which will help our margin profile as well and the similar things that we are doing in the Concentrix business and have been doing this last year will be what we are doing with the Convergys business as that comes together with existing Concentrix business.

Okay, great. And for my follow-up, what was the impact from Westcon in the quarter and can you talk a little bit more about some of the net revenue shifting and the impact on revenue as we look forward to 2019 in the Technology Solutions business?

Yes, Frank, this is Marshall. So, we don’t break out the absolute dollars for Westcon-Comstor embedded in Dennis’ comments, certainly delighted with the results, exceeded our expectations. The full year which of course concluded for us at the end of August also exceed our expectations for the collective year, the cross-sell opportunities, now that we are on one system in North America puts us in a great position as we enter 2019. And then to answer your question on the net revenue, just to make sure I understood that. What we are seeing is a continued uptick in some of those sales related areas where net revenues required, Frank, you probably appreciate this in the IT sector, it’s a lot more prevalent than in the BPO customer care space where you serve as an agent, but you still handle a lot more the transactions, but it’s only the fee that you are allowed to record rather than the total revenue and the total cost.

Okay, thank you very much.

Thanks Frank.

Your next question comes from Adam Tindle with Raymond James. Your line is open.

Okay, thanks and good afternoon. I just wanted to start on Concentrix margins I was surprised to hear that you are still targeting the double-digit margin in fiscal ‘18 based on the EPS guidance. And I think Concentrix operating margin would need to be near 14% in Q4 for that math to work. So, maybe you could just help us understand why that uptick would happen to keep the 10% goal for the year intact? And I have just got a follow-up on that too.

Yes, sure, Adam. If you look at our business through the course of the year, we have added to our non-GAAP op income pretty significantly [indiscernible] quarter of sort of almost 92 basis points. If you look back at our last two Q4s, you have seen us in the mid 12% range. And so our expectation is that we are going to continue that trend through to Q4. And to your point, math is relatively easy to do that it’s within our expectations to be able to hit that double-digit for the whole year that we have been working on.

Okay. Maybe just sticking on the BPO subject, can you just talk about why you increased the synergy targets for Convergys I would have thought that you still need the deal to close to get a better look at the cost structure and opportunity there? So what led to increasing the synergy targets and how can we think about the accretion thereafter?

Yes, so for sure Adam. So clearly, we go through the due diligence process. We have our own opinions around what we think we can do from leveraging our infrastructure and getting rid of duplicate infrastructure. I think in the past period of time, we have now had sort of planning sessions with the Convergys team. The Convergys team has been really outstanding at coming forward with ideas of what they can leverage from our infrastructure and what additional ideas we can leverage from theirs. And that really gave us the confidence to come forward and say hey, we believe that we can increase us not only to $75 million in the first year, but also overachieve the $150 million over 3 years. So, it’s really been that combined of the two teams working together to make that happen.

Your next question comes from Jim Suva with Citi. Jim Suva, your line is open.

Hi, thank you so much for the details. Can you remind us of what the Concentrix year-over-year growth rate was in this past quarter and kind of what it attributes to that? And then I have a follow-up please.

Hey, Jim. You are slightly garbled, it’s Chris. I think your question was what was the growth rate sort of year-over-year? Effectively, it was flat. The comment that we made in our or my prepared remarks was that underneath that flat, we actually replaced 9% of our revenue that was net new business coming in as well as expansion of clients within our portfolio that replaced business that either automated or moved away. And the other further comments I made was that we expect this to be coming to an end at the end of Q4, where we're exceeding net revenue growth within Concentrix in line with the marketplace that we participated.

Okay. So, the difference between the markets and you were some of these transitions, is that the best way to think like that should be coming to the end kind of in the next quarter?

Yes, correct, Jim. So, we made a comment back in sort of Q1 of 2018 talking about this year we're going to replace a significant amount of business that was either low margin where we would automate it and drive a better margin profile of our business and/or – and those relationships. And we've been doing that through the course of the year and seen our increase in our non-GAAP op income fairly significantly through the course of the year to get to our double-digit goal by the end of Q4.

Okay. And then my last question, on your total company sales outlook, if we exclude the acquisition, what's the organic growth rate year-over-year?

Jim, let me try to take that in chunks and I think you said total consolidated SYNNEX Corporation.

Yes.

When you were – when you assess the impact associated with Q4, Hyve impact and also the net revenue which I spoke to, we're right in within seasonal norms.

No, no, year-over-year, I'm talking about year-over-year?

Yes. So, taking that out, we still are in seasonal norms for TS; on Concentrix with Chris's comment of being relatively flat.

Great. Thanks so much for the details. That’s great. We appreciate it.

Your next question comes from Matt Sheerin with Stifel. You line is open.

Yes. Thank you. A couple of questions for me. Just first on the distribution business, you talked about the headwinds on Hyve and then the netted down of revenue, which I think is around $220 million or so impact. And if you take that out, you're still going to be – it looks like down year-over-year. Is that primarily from Hyve? And what’s the – what is the ballpark growth rate in the core IT business not including Hyve for the component side?

Hi, Matt, this is Dennis. Yes, there is some – there’s a couple of headwinds we're facing, you've listed them. There are – it's the Hyve business and this net revenue accounting, let's call it. In total, that headwind is well north of $400 million year-over-year. So, if you back that out, call it the core distribution business without the net revenue accounting, it's growing that quite well as Marshall indicated earlier.

Is that – what does that mean growing well, it's mid single-digits or high single-digits?

Yes, not going to break out an exact percentage, but we think we're going faster than the market and the market generally grows in the low to mid single-digits and we think we're going faster than that.

Okay. So, normal seasonal trends. And then on the – just a question well a, on memory prices we saw and I guess this will apply both to the Hyve business and to the core business, the hardware business, where we've seen price hikes early this year, because the memory component price is going up, now memory is going the other way. Are you expecting that to be a revenue tail – headwind as well where there might be some pass-through of those lower memory costs?

Hi, Matt, this is Dennis again. Yes, right now the reductions from the peak have been relatively modest. So, the effect to our business should be similar, shouldn't be very much in the coming quarter. Obviously, if the prices move dramatically lower then we may see some headwinds from that. But at this point in time – but we’ll not factor anything major from a change in memory prices into our revenue guidance.

And on tariffs, what could you tell us about what you're seeing there in terms of potential headwind? Are your suppliers asking you to take some inventory ahead of particularly the next tariffs which would be the 25% number? Could you just tell us what you know about that and the impact on business?

Sure, Matt. A couple of things on tariffs. Overall, we've seen most – major vendors increase their pricing over the past few weeks since the announcement in one way or another. Obviously, in the end, it’s an increased cost and to similar to any rise in component costs like memory that we just discussed. Over the past year, that’s increased. It will be passed on to the market. So, we expect that to be continued. Short-term, it will drive some inefficiency in the market when it comes to deal negotiation, closing deals in the ultimate shipment and long-term to be determined, especially if the next rate increase occurs. We will have to play that out as it occurs later this year. As far as the current actions on inventory, there has been some movement there and nothing significant to note at this point in time.

Okay. Thanks a lot.

Thanks Matt.

Your next question comes from the line of Ananda Baruah with Loop Capital. Your line is open.

Hi, good afternoon. Thanks for taking the questions. Just the two for me. The first is just with regards to Hyve, Dennis you mentioned that what you are seeing continues to be just sort of normal course of business. Just wondering at this point if what you are seeing and the tying, I guess the sort of the time to sort of work through these normal courses of business is still aligned just what your expectations were in the spring when you first begin to speak to them in a way that impacted your expectations? And I have a follow-up also. Thanks.

Okay, Ananda. As far as your expectations for the Hyve business in Q4, they are playing out pretty much in line with what we expected call it the middle of Q3 when we started to get visibility to it. As we have talked about many times, this is a project-based, a bid business if you will. And when we go through the process to win bids, they can come up and go away very quickly. So the visibility is not too far forward, but as far as what we saw beginning of Q4 is played out – excuse me beginning of Q3 through the start of our Q4 is playing out to our expectations.

Okay, great. And so I guess what will be inherent in that view is that you guys aren’t either anticipating at this point a material change in the market outlook in the intermediate term either. Is that a safe assumption, accurate assumption?

As far as the market that we see, I think that’s an accurate assumption. I think the key thing to point out is that as we have been stating we are very focused on driving a profitable business within Hyve overall. There is as we have talked about before some level of business that’s higher volume low profit, we have tended to move away from that in recent periods to ensure we are driving the right profitability for our business and most important driving the right asset returns as well, but overall to answer your direct question day-to-day the market seems pretty consistent now versus the past few quarters.

Got it, got it. That’s great. That’s helpful. And then just a follow-up, this is super high-level analysis. So I had to say if you can call it that, but that’s kind of spirit of it. Are there any margin dynamics November quarter kind of fourth quarter versus third quarter that would service headwinds be it mix or anything else to your margins and I am just asking as you are guiding, you guided revenue in line with where Street is, the midpoint of your EPS guide is slightly below where Street is. And so that’s fairly unscientific analysis, but I thought it’s worth asking just to make that we are not missing anything on the margin side? Thanks.

Yes, Ananda, just to remind you that in that guide, it’s also $425 million of Convergys revenue. So you need to pull that out. And I think in your relationship would show a margin enhancement.

Okay, Marshall. Thanks a lot. Appreciate it.

You are welcome.

Thanks guys.

Thanks, Ananda. And operator, we have time for one more question.

Your next question comes from Sean Hannan with Needham & Company. Your line is open.

Yes, thanks for squeezing me in here. So, just coming back to Concentrix business if I look at the fourth quarter and interpret the commentary correctly that we have really what should be the end of managing and improving that mix. And then we are also taking on here what had at least in most scenario in terms of a revenue situation a specific set of customers at Convergys, when are we looking for at the combined entity in terms of the high confidence we have got an inflection point for year-on-year growth on a pro forma basis and given that you are then the number two player when you reflect the growth of the market from there more consistently?

Yes. So, Sean, I think what we mentioned at the beginning of when we announced the deal was that we expect that the combined business to grow next year at market and then the year after exceeds. And I think inflection point is coming pretty quickly where you will start to see that growth in the early quarters of 2019 to get us to the market growth for the end of the year. And we are seeing that. If you look at the commentary from the last press release of Convergys, they talked about having sort of marginal growth in Q4. We are talking about as well. So coming together we are both coming together with strength to start that growth path.

Okay. So that confidence is in place beginning of ‘19 here and effectively you should be seeing some degree of acceleration as you progress sequentially through the year in a general logic fashion?

Correct.

Okay. And then second question here coming back to Hyve, where do we stand in terms of getting more SKUs available for really into that Tier 1 customer base and what feedback do we have from them as a part of that effort design test acceptance, don’t know if there is any color that can be provided in terms of when we get a reflection around that as well as a return to growth. We are obviously even trying to resolve that SKU problem as well as recognize you folks are building business with the Tier 2s, but progress around that SKU broadening and design and acceptance would be helpful? Thanks.

Sure. This is Dennis. I think we are making very good progress in broadening our offering to all of our customer base including the larger ones. The head window is the fact that we have talked about we do have essentially two customers that makeup the bulk of our business. So to diversify our overall business be it through SKU or within the overall customer base, we need to ensure that the existing customers that we are doing business with as you indicated expand with our new offerings, but also more importantly we bring on new customers to expand with our offerings or we will still stay too over-indexed on a few customers and will probably end up in the same pricing dynamics that we are up today, which is not to the lower profitability. So the goal is to drive customer diversity first and foremost, split the new offerings that we are bringing to the market everyday.

Okay, that’s helpful although and I am sorry to push a little bit more here. But I think a lot of this outside of SYNNEX are really trying to get a better understanding of timing. And I realized that there is going to be some sensitivity in being able to provide that to us from your end, but as we started down this path earlier in ‘18 there were some perceptions of this could potentially be a 12-month resolution process? And my gut feeling might be the wrong take is that it sounds like it maybe a little bit longer than that. So can you help to just in some manner help to round out how should we be thinking about timing here, what’s realistic and what’s unrealistic?

As far as timing, obviously we are almost through hall of 2018 and we are still working to the customer concentration issues that have driven some of our profitability challenges in Hyve. The effort is there on a daily basis to drive additional business with new customer that will diversify us from our concentrated point right now. The fact that we have a couple of large customers is the major challenge and we have brought on recent customers came with the new design wins that we have been talking about, but to diversify away from the concentration that we have means that we have to drive a lot more business with those customers. And it does take time to get volume business with new customers, especially at an amount that will diversify the overall concentration that we have today. So the effort is there and we believe we have a pathway to gain the diversity in this business that we are looking for. So, it’s just taking a little longer than we expected again due to the size of the customers that makeup the top end of our business.

Fair enough. Okay, alright. Thanks so much for addressing the questions here.

Thanks, Sean.

You’re welcome. Thank you.

There are no further questions at this time. I will now turn the call back over to Ms. Mary Lai.

Thank you everyone for joining us today and we appreciate your time and we look forward to speaking with you next quarter. This concludes our call. Thank you.