Good afternoon. My name is Chantal, and I will be your conference operator today. I would like to welcome everyone to the SYNNEX Second Quarter Fiscal 2020 Earnings Call. Today’s call is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers’ 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. Miss, you may begin.

Thank you, Chantal, and good afternoon, everyone. Welcome to the SYNNEX second quarter fiscal 2020 earnings call. Joining me today to review our financial results are Dennis Polk, President and CEO; Marshall Witt, CFO; and Chris Caldwell, President of Concentrix. Before we continue, we remind everyone that today’s discussion contains forward-looking statements within the meaning of the federal securities laws, which statements include any predictions, estimates, projections or other statements about future events, including as to COVID-19 and related expenses, sales, CapEx, cash flow, profitability and the expected separation transaction. 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 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. A reconciliation of non-GAAP and GAAP reporting is included in our earnings press release and the related Form 8-K available under the IR section of our website. This conference call is a property of SYNNEX Corporation and may not be recorded or rebroadcasted without our permission. And now, I will turn the call over to our CFO, Marshall?

Thanks, Mary. The results I will discuss today reflect the agility and strength of our execution, our disciplined capital management, and strong balance sheet with ample liquidity. At the beginning of our fiscal second quarter in March, very little was known regarding the human and economic impact of COVID-19 around the world. Our focus then was to standby our associates and conserve capital with an anticipated return to pre-pandemic operating levels when circumstances allow. Consequently, while our performance was directly impacted by COVID-19, our results announced today have not been adjusted for COVID-19 costs. Where appropriate, we will reference the financial impact COVID-19 had on Q2 results. On a consolidated basis, total revenue was $5.5 billion, down 3% compared to $5.7 billion in the same quarter last year. On a constant currency basis, revenue was down 2% compared to the prior year quarter. Our consolidated gross profit dollars totaled $618 million, down 12% or $81 million versus a year ago, and gross margin was 11.2% compared to 12.2% a year ago. Total adjusted SG&A expense was $457 million or 8% of revenue, up $2 million compared to the year-ago quarter. Consolidated non-GAAP operating income was $162 million, down $83 million or 34% year-over-year. Non-GAAP operating margin of 2.9% was lower by 134 basis points compared to the prior year period. Now, shifting gears to Q2 operating performance by business segment. First, on Technology Solutions. Revenue was $4.5 billion, down 2% or $96 million lower than the prior year quarter. TS gross margin of 6.1% increased 23 basis points from the prior year quarter, primarily due to favorable product mix. Operating income of $88 million was down $24 million from a year ago. Non-GAAP operating income was $98 million, down 21% or $26 million compared to the prior year quarter. Non-GAAP…

Thank you, Marshall. And thank you to everyone for joining our call today. Before discussing our results, I would like to start out by noting our thoughts are with everyone and hope that you are taking care of yourself and loved ones during this pandemic. We have all been profoundly impacted by this health crisis in one way or another. And I would like to take this moment to thank all the essential workers on the front lines. As well, I want to thank all our associates, partners, and clients across the globe for their commitment and dedication to keeping our business running as we provide needed products and services. I'm immensely proud of the adaptability and resiliency of our associates in the face of this health crisis. From the onset of the pandemic, we moved quickly and executed well. Our associates were nimble and have shown the true entrepreneurial spirit of our Company. I can't express our appreciation enough. I also want to acknowledge what is top of mind for everyone in the U.S., the ongoing effort for social change. We were founded 40 years ago by an immigrant from Taiwan, Bob Huang. And over his years at SYNNEX, he built a business that valued diversity in the workplace, supported by one of our main core Company values, respect for the individual. When I met Bob approximately 20 years ago, we discussed stuff like creating value and opportunities for all our constituents, associates, customers, vendors and shareholders. We can create value and opportunity for our larger community, something I believed in then, and it still drives me to this day. And while we benefit from our history, have a more diverse company than many, do not tolerate racism or discrimination in any way. We do know we can do…

Thanks, Dennis. First, I just want to echo Dennis and offer my deep sympathy to those personally affected by the pandemic that has impacted so many lives around the world. Our Concentrix team and extended family has suffered losses that we are greatly saddened by. We clearly are all hopeful that this ends sooner than later. From a business perspective, as discussed on our March call, we anticipated a challenging quarter. As you see in our results, we executed extremely well under the circumstances and delivered a much improved performance than we originally had visibility to. The Second quarter revenue for Concentrix totaled $1.07 billion, an 8% year-over-year decrease on a reported basis and 6% decrease on a constant currency basis. The revenue decrease was all COVID-related and broke into two parts. Firstly, clients in our travel and transportation vertical saw business erode where they no longer needed our services, and second, the impact of quarantine and lockdown limiting our staff the ability to work, although demand was still there from the client side. Through the course of the quarter with very aggressive action, we were able to drive our performance by moving a significant portion of our staff to working from home and being productive, move staff from accounts no longer needing capacity to clients who saw increases and take advantage of a few opportunistic short-term deals where people needed capacity quickly. Our protocols we deployed have only strengthened our capabilities in every region. We have been able to extend work-at-home into countries for our clients that have never considered it. Our end-to-end platform allows virtual recruiting, onboarding, training, coaching and management of our staff no matter where they are located. To-date, operating metric attainment has been encouraging returning more to a pre-COVID level. As it stands, at the…

Thank you, Chris. Moving to our thoughts on Q3, our utmost priority remains the safety and health of our associates. Overall, we are seeing some positive signs of recovery and pick up in certain markets as the shelter-in-place restrictions and as economies begin to reopen,. We are still cautious about how smooth the rebound will be from Q2, given many geographies we operate in are still in tougher phases of the virus outbreak, or are not seeing case reductions to a point where business reopening are more predictable. Chris covered the Concentrix outlook very well. For TS Distribution, we expect continued solid mobile, cloud and security product sales. And what we currently see as the beginning of the recovery of office and enterprise products transactions. For TS Hyve, we expect Q3 to be similar to Q2 and down year-over-year from Q3 2019. The year-over-year decline is primarily due to mix, ASP and timing of orders from customers. Given the environment, the current assessment of Concentrix and TS is subject to rapid change. As Marshall and Chris both indicated, we have significant COVID-related expense during Q2. We expect these amounts to continue in Q3, but the less than Q2 and then trail off further in subsequent quarters. Some level of these necessary investments will become part of our fixed expense run rate. As always, we will look to find ways to offset these amounts in other areas while running the most efficient business possible. Before I close, I want to emphasize Marshall's comments about the spin of Concentrix. We are still very much committed to finalizing the spin and believe we are on a path to do so by the end of the year, as long as the macro environment accommodates. As I conclude my prepared remarks, on behalf of the entire management team, I want to again thank all our associates and business partners. We appreciate everything that you have done for SYNNEX during this challenging period. Our thoughts continue to be with those who have been affected by COVID-19. Please stay safe and healthy. With that, I would like to open the call up for questions.

[Operator Instructions] The first question comes from Vince Colicchio with Barrington Research.

Yes. Dennis, I was wondering if you could update us on sort of the supply chain impact of the pandemic, if that's easing and maybe you want to highlight where it's pain point is at its worst?

Hi, Vince. Thanks for the question. Yes, for sure, at this point in time, the supply chain is overall better than it was at the beginning of the quarter. And even in Q1, we had some supply chain challenges as well. But saying that it's not fully back to, call it, normal regular supply chain conditions. An example of that would be at the current time, something we don't talk about too much in our distribution business, which is our backlog. But at our current time, our backlog is as high as it's ever been. Traditionally in distribution, we take an order and ship it pretty quickly. But right now, we have a significant amount of orders that can’t ship due to supply chain challenges. So, that'll give you an idea that the supply chain is not fully back to normal, but we do see that happening over the coming quarter. And certainly by the end of our Q3 and start of our Q4, we hope to have things back to normal.

And then, Chris, I was curious, obviously, we're hearing that more and more clients are comfortable with Concentrix type services being -- with labor being done from home. Any sense on, if part of it -- the shift could be a permanent part of your model, which obviously will be less costly from a brick-and-mortar standpoint?

Hi, Vince. Yes. So, clearly, we're doing work at home just not at the type of scale of pre-COVID. The expectation is that our percentage of business will be dramatically increased work-at-home on a permanent basis, and while we do see that some of that costs are less on an onshore model, we do see those costs almost similarly because we have to provide more infrastructure to some of our staff working at home in offshore model. So, that will balance out, but overall you will see an increase in our work-at-home business going forward.

Okay. I'll go back to the queue. Nice job, guys.

Thank you.

Our next question comes from Tim Yang with Citi. Your line is open.

Hi. Thanks for taking my question, and congrats on the strong execution. Your largest competitor in the call center space mentioned they have roughly 60% of workers working remotely right now. Can you maybe just talk about how much percentage of your call center workers are able to work remotely at this point? And how should we think about share shift within this space given your peers are ramping this working remotely capabilities in a different pace? And then, I have follow-up.

Hey Tim, it’s Chris. So, our percentage is probably a little higher than 60% at the peak. We have had some countries that have effectively dealt with COVID very successfully like New Zealand, Australia, Vietnam, and a few others that more of our staff is now back in their locations, including China. So, we're down a little bit from that, but at peak, we were certainly over that. In terms of share shift, we’ve really seen clients who were dealing with sort of some, I'll call it players that couldn't be as nimble or as fast around moving people to work-at-home or didn't have the security in place to do work-at-home or infrastructure to support it and had delays, moved that volume to us. And so, we've been able to capture a lot of it that was offered to us. Albeit, you noticed in my prepared comments that I said we did have a lot of staff that were unable to work at home and unable to work at all. And so, certainly we had more demand than we could cater to for a big chunk of our staff that we're now working through as we go into Q3.

Got it. Thanks. On TS, before COVID-19, I think you mentioned the normalized growth rate for TS sector should be at roughly 4% to 6%. Obviously with -- I mean this range is hard to achieve this year given the virus. Can you maybe just talk about A, your view on IT distribution sector growth for this year; and then B, any structural change to that 4% to 6% growth rate post-COVID-19? Thanks.

Hi, Tim. This is Dennis. So, a couple of things there. Overall, just as a reminder, SYNNEX always strives to grow faster than the market that we're in by at least 2% to 4%. So, that has not changed in the current environment. So, whatever the growth rate is, we plan to grow faster. That's number one. Number two, as far as what the growth rate is currently, that's very hard to determine, given the environment that we're in. But, we're going to do our best once again to grow faster than whatever that number is. And the last thing I would say is, we believe and obviously the business that we're in, we know that technology invested right can improve businesses in great ways improving our efficiency and many other things. And we've seen to this pandemic that that's the case in so many ways. So, as companies deal with the pandemic and then come out of the pandemic, I expect to see more investments in technology to improve businesses across the board. And I think we’ll benefit from that because our place in the supply chain is very critical. That's been proven out in the last three months and our prospects and our ability to execute are also very high, and I think that will continue as well.

Great. Thank you.

Our next question comes from Matt Sheerin with Stifel.

First question for Chris on Concentrix. It sounds like you rebounded very well and it sounds like you've got more workers contributing this quarter. So, should that imply that sequentially you're going to be able to grow the business and then in turn, grow year-over-year this quarter?

So, in Q3, I don't think we're growing year-over-year. As we talked about, we still don't have our full production capabilities back and won’t get it until near the end of Q3. So, there will be some muted growth there. We also are continuing to outgrow the travel and transportation vertical that was down. But overall, your comments about getting more people working, absolutely. If you remember our comments at the beginning of Q2 -- sorry, at the beginning of Q2 that about 70,000 people not working, and that's now a much significantly lower number as we go into Q3.

Okay. Thank you for that. And then, on to TS, Dennis you did provide some color. You sounded relatively optimistic in terms of some of the demand trends that you're still seeing. But, could you comment on some concerns from investors that this work-from-home, surge in demand will peak at some point on setting up tougher comps in the second half? And the other concern that we are hearing and we've heard from several OEMs that enterprise projects, large complex IoT projects are getting pushed out. Could you just comment on what you're seeing there?

Sure, Matt. So, both of those things you described are the realities of what we're facing. We saw a clear burst in buying for the work-at-home environment, and when offices being closed, people sheltered in place, a lot of the major projects that the companies had going on, either were pushed out or delayed for an unknown period of time. That’s the reality of our business. And of course, we're dealing with that when you see the year-over-year growth rate or lack thereof that we're guiding to. But, I do think as economies open up and as businesses get back to the office, if you will, we'll see a lot of that come back, because it's necessary investments to once again make businesses more efficient and better off overall. I also think -- and I use our Company as an example, I also think businesses are going to need to acquire more equipment to enable not only the work-at-home that exists, but also return the office and have flexibility for the associate between the two locations. It's not as simple as just providing an associate with a notebook and say you can work easily from both your home and office. You also need to outfit them with a whole host of products around that. And, again, as an example, from a SYNNEX perspective, we're finding that way to acquire additional products to enable that capability. So, I do think that'll be a bit of a tailwind going forward to offset the headwinds that you talked about.

Our next question comes from Adam Tindle with Raymond James.

I just wanted to start on the COVID cost aspect. I think, if I were to adjust for those, operating profit dollars would have actually been up year-over-year. If I got those numbers correct. But that may not be appropriate, because I think Dennis you mentioned there's going to be a permanent part of the cost structure that's impacted here. So, I guess the question would be, at a very high level, and I know it's going to be hard to do, but is there any way that you could maybe help us think through what could be temporary versus a permanent structural change for each business, so for TS, the allowance for doubtful accounts, the health of the remaining portfolio and AR for Concentrix, what's permanently changed there would be helpful. Thanks.

Hi Adam, this is Marshall. I'll start and then Dennis will chime in. You did point out that it's very difficult to define this current environment. I call it almost COVID-related revenue and then the mix and margins are different in this current time. So, it is very much hard to compare. I look at it like an apple versus an orange. And then hand it over to Dennis to talk about some of the ongoing thoughts on run rates and COVID costs.

Sure. Thank you, Marshall. Yes. And Adam, just to emphasize what Marshall said, it's not as easy as adding back the COVID expenses and calling out our kind of normalized run rate, because there wasn't anything normal about the quarter, the mix of our business and everything around what we did in the TS distribution business. So, I really think you have to look at Q2 as kind of a standalone outlying quarter, if you will. As far as our expense run rate going forward, we are going to have a base of COVID-related expenses, primarily around payroll that are going to remain for the foreseeable future. Where we're going to try to reduce costs are, as you indicated in the bad debt area and other places. But how much of that occurs in Q3 and Q4, we’re not ready to disclose that number, but trust that we’ll try to keep that as low as possible.

And maybe if Chris could touch on Concentrix Marshall Witt costs?

So, Adam, it's similar to Dennis’, like right now we are working through kind of offsetting some of the, I'll call it structural COVID costs, such as, how we have to do the new cleaning of the facilities. And that's part of what we're changing the configuration of a lot of our facilities to support the new environment. So, I'm not sure we're ready to comment. But our goal is certainly to offset those costs on a run rate basis with other savings in other areas.

Okay. And Chris, maybe as a follow-up, you have obviously ramped a lot more work-from-home employees. I think you've mentioned that you're 90% productive now, which is quite impressive, given everything that you've gone through. But, I guess maybe you could talk what you've learned about the business impact. Is there kind of a simple way to think about how the unit economics of a work-from-home employee versus a call center employee have changed?

Yes. Adam, to be quite honest, we're going through that now with clients, right at the moment, there's a preconception that sometimes work-at-home is cheaper. What we have found is that work-at-home and in some countries that have historically never done work-at-home is very in line with what you had had within facilities. You are paying for extra, helping people with their electricity bills for air conditioning, you are having to provide high-speed internet infrastructure, because they might not necessarily have that in their own right. And you're providing additional equipment that they might need to be productive. So, I think we're working through that. I will tell you in sort of onshore markets, work-at-home is generally more cost effective, and that's already built into the model and clients already received a benefit of that in those markets. Thank you.

Our next question comes from Ruplu Bhattacharya with Bank of America. Your line is open.

Hi. Thanks for taking my questions and congrats on the quarter and on the strong guide. First question for Chris. Just to build on the last question. If in steady state, we say that the productivity of a staff member working from home is equal or better to that of somebody working on site, does that mean that in the longer term when you look at your geographic footprint, is there any chance that you could see some consolidation of sites and maybe reduce your geographic footprint and still be able to support your customers?

That's a great question. The reality is the opposite is happening. What COVID has taught a lot of the large enterprise clients we service is actually that they would like a larger footprint with less critical mass in certain locations. And so, we're working through that with clients right at the moment, because they are concerned about having mass amount of concentration, which really was the trend up until sort of pre-COVID level. So, I think you'll see some more bouncing out in geographies. You'll see sort of more redundancy built into some of the networks that people have gotten comfortable kind of getting down to two or three countries to support their work. And again, these are large enterprise clients. But, I don't see the sort of complete, continued consolidation happening for a while until things rebalance.

That makes sense. Thanks, Chris. Then, Dennis on the Technology Solutions side, I was wondering if you can give us a little bit more detail on some of the supply chain challenges you talked about? Is it more in terms of the logistics challenges that you're seeing or are you seeing any product shortages? So, any kind of detail there would be helpful. Thank you.

Yes sure. It’s less logistics and more on product shortages. And the product shortages are primarily related to sub component shortages that has occurred -- that did occur, excuse me throughout the quarter and were primarily related to challenges that our manufacturers had with their supply chain.

Okay. Thank you for taking my questions.

Our next question comes from Shannon Cross with Cross Research. Your line is open.

Thank you very much for taking my questions. I guess first, I understand it's a very fluid situation. But obviously, the initial guidance you gave and then the revised guidance you gave and then you applied [ph] to that. I'm just trying to understand what level of confidence you have in the quarterly guidance you provided. What may be some of the positive and negatives could be to the guidance just so we think about it, because obviously given the fluidity, numbers are moving around a lot. And I know consensus sort of never really got updated. So, hopefully, we can all kind of get on the same path with this quarter?

Hi, Shannon. This is Dennis, very fair question. So, when we provided our guidance in March, we basically had no visibility. We talked about at the time of that call, we questioned -- if it made sense to have the call. And that was specifically for the reason that we didn't have any visibility as to what was going to happen in the near term, because literally economies and countries were shutting down as we were speaking. Fortunately, again, the entrepreneurial spirit of our Company, we adapted to all these challenges and got our business to a point where we could understand and predict more of what was going to occur. So, in early May, we felt it was important to come out and give an update on what we were thinking. At that time, though, we still had good three to four weeks left in our quarter and there were still challenges in the marketplace and some things that we just wanted to be cautious about. So, that and the fact that we -- frankly speaking, we didn't want to come out and provide an update and then miss that a month and a half later, is why we were fairly conservative when we gave that update. We were pretty certain at the time that we would do better, but there were enough uncertainties that we wanted to be conservative in that update in May. That's the history. As far as the question about our current guide on Q3, we clearly have a better visibility to our business than we had at the same time in March. We understand now how this, call it, COVID world works, how it plays out to our customer base in both sides of our business, and how it has a little bit more predictability than it had back in early March when we came out regarding our Q1 results and our Q2 guide. So, from a confidence level, we have more confidence now clearly than we had back in March. As far as the risks, there clearly are many still, because we are in a COVID world. The headlines through today show that there are many countries that are still extremely challenged by the virus kind of in Phase 1. And then locally here in the U.S., you've seen the resurgence of many cases. So how that plays out could place more risks on our business and cause challenges to the guidance that we gave. Also, if any other supply chain challenges that are unforeseen today that play out in the coming quarter, that could cause risk in our guidance as well.

Chris, can you talk a bit about the current selling environment, what you're hearing from your customers? Are they more open to outsourcing opportunities, given some of what they've been through? How are -- any changes to sort of how they think about contracts bring their terms and what the pipeline looks like? Thank you.

So, Shannon, a couple of things there. In terms of the pipeline, it’s very healthy. We've actually -- we're pleasantly surprised going into Q3 about how healthy the pipeline is. And that's not only from existing clients who are looking to consolidate some capacity and volume, but also with net new opportunities where clients are either looking at figuring out how to reduce costs and so are new outsourcing and/or clients are figuring out new clients or new prospects or figuring out, which partner to go forward with. And so, we're very happy with what we're seeing out in the marketplace. In terms of sort of the new contracting and sort of new discussions, the tone is certainly more around how do you manage BCP, how you're going to look at COVID wave two, how are you able to kind of manage through the environment over the last 90 days and use that as proof case of how to support the new business. A lot more focused on just the redundancy of your capacity and your organization than probably what has been in the past. I would also say that overall the market is much more receptive to some of the higher value services that we're selling. So, a lot more digital transformation. So, some our target price services, some of our [indiscernible] customer services, our analytic services, our technology services where we had talked to clients for a long time about doing some transformation, and now they see it as being imperative to drive that transformation, which allows them to be more automated, need less headcount and frankly is better business for us. So, we're very encouraged by those trends as well.

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

Yes, two if I could. And, Chris, let's just say, very quick start, do you think there's an opportunity for Concentrix long-term growth rate to be helped by this? Do you see some vectors that could lead to higher growth -- sort of structural growth rate over time?

Yes. Ananda, what I'll tell you is a lot of the analysts are seeing overall decline for the next couple of quarters in the space where we see opportunities to grow with a really consolidation because we performed very well through it. And clients are appreciative of that. And we're winning share from other competitors and then that new clients going into it. In terms of longer term prospects, what we always go back to is our goal was to grow in market, at the time market was about 4.5%, 5%. So, our goal is to kind of get back to those rates, but I would hate to put a timeframe on that right at the moment.

So, there's nothing that just jumped as obvious to you guys that could have that 4% to 5% go up to like 5% to 6% long-term, something like that?

Ananda, our goal is always to go fast in the market. So, clearly, if the market expands and generally in down-cycles outsourcing does expand, we do have those opportunities for larger growth. But again, I wouldn't want to comment on the time horizon that we'd be looking at.

And then, on TS, Dennis, it sounds like -- I mean, there's puts and takes. It sounds like there -- it sounds that you feel comfortable structurally with demand. And so, how do you think that puts and takes sort of layer at in terms of sort of seasonality? And then also in that regard, it seems like we're going to be in a work from -- obviously, I understand that some business starting to open up. And also, it also beginning to still look like, folks are going to work-from-home at least in this country for longer as opposed to shorter. And if that ends up happening, let's say sort of into 2021, do you have an opinion on if you could actually see sort of like another wave of work-from-home demand? And so -- and sort of the high level question is how do the puts and takes -- how do you think they tease out in terms of seasonality through the fall? And then, if there is extended work-from-home, which seems like we're setting up for that, into '21, do you think you could get sort of like an echo effect due to follow up from that? Thanks.

Okay. I think there's two questions there, Ananda. As far as the seasonality of our business, currently, first of all, we are guiding to a lower year-over-year revenue number. But within that, yes, I do think there is somewhat normal seasonality playing out in our Q3. As far as for the rest of year, really guiding to Q3, it's very difficult due to lack of visibility to tell you what Q4 would look like but we're hopeful that the seasonality will continue and we'll get the normal increase in Q4 in both parts of our business. As far as the work-from-home being a benefit or a potential benefit again in the future, I don't know how that's going to play out, because I don't know what the environments going to be. And I think like you, we're all hopeful that we get a vaccine and we can get back to a more normal working environment. So, that's what we're really focused on from a planning perspective. But, if there is more of what we see today continuing on, again as I said, there's going to be I think additional buying to not only further enable the environment at work-at-home, but also, I believe there’d be some return to office and a hybrid of the two. And there's going to be a need to support that as well.

There are no further questions at this time. I'll now turn the call back to Dennis Polk for closing remarks.

Thank you. So, in closing, I want to thank the entire SYNNEX and Concentrix team for their ongoing efforts. I have high confidence in our business and our go forward opportunities. Stay well. Thank you, and good afternoon.

This concludes today's conference call. You may now disconnect.