Good morning. My name is Tiffany. I will be your conference operator today. I would like to welcome everyone to the TD SYNNEX Third Quarter Fiscal 2025 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 David Jordan, America's CFO and head of investor relations at TD SYNNEX. David? You may begin. Thank you.

Good morning, everyone, and thank you for joining us on today's call. With me today is Patrick Zammit, our CEO, and Marshall Witt, our CFO. Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws including predictions, estimates, projections, or other statements about future events, including statements about our strategy, demand, plans and positioning, growth, cash flow, capital allocation, and stockholder return, as well as our 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 8-Ks we filed today, in the risk factors section of our Form 10-K, and our other reports and filings with the SEC. We do not intend to update any forward-looking statements. Also, during this call, we will reference certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP results are included in our earnings press release and the related Form 8-Ks on our Investor Relations website ir.tdsynex.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. Patrick? Thank you, David. Good morning, everyone, and thank you for joining us today.

I'm excited to report that our third quarter non-GAAP gross billings and diluted earnings per share established new records for our company. Our performance is a clear result of our team's strong execution, a differentiated go-to-market strategy, and a global end-to-end portfolio of products and services that is unrivaled. Beginning with our financial performance for the quarter, consolidated gross billings were $22.7 billion, growing 12% in constant currency. And non-GAAP diluted earnings per share of $3.58 exceeded the high end of our guidance, representing a 25% increase year over year. Within TD SYNNEX, excluding HIVE, gross billings increased 9% year over year, with gross profit and operating income each increasing by double digits. Hive had a strong quarter, with gross billings increasing in the mid-thirties year over year, and ODM Centimeters gross billings increasing 57% year over year, fueled by continued strength in hyperscaler investments in cloud infrastructure. Hive total gross margins returned to historical levels, operating profit exceeded expectations. The majority of our technology products and services in endpoint and advanced solutions experienced an increase in gross billings year over year. Highlighting a few key areas, software continued to be a standout experiencing a 26% increase in gross billings, fueled by cybersecurity and infrastructure software. Additionally, we are still experiencing strong demand in PCs driven by a higher mix of AI PCs and the Windows 11 refresh cycle. We experienced healthy momentum across each of our regions, exceptionally dynamic performance in Latin America and Asia Pacific and Japan, each increasing strong double digits in gross billings in the quarter and exceeding expectations. Broad-based adoption of IT products and services continues to build in these geographies, validating the strength of our go-to-market strategy and positioning us to continue to capture profitable growth. Moving to our diversified customer end markets, we're…

Thanks, Patrick, and good morning, everyone. As Patrick highlighted, we're excited to report that we achieved 12% gross billings growth and 25% non-GAAP diluted EPS growth in the third quarter, which exceeded the high end of our guidance range. Our endpoint solutions portfolio increased gross billings 10% year over year driven by continued demand for PCs as the refresh cycle progresses. As well as a higher mix of AI PCs. Globally, PCs have increased double digits for three consecutive quarters, and we believe that we are in the mid to late innings of the refresh cycle. Advanced Solutions portfolio increased gross billings by 13% year over year, and 8% year over year when excluding the impact of Hive, driven by meaningful demand in cloud, security, software, and other high-growth technologies. Hive, which is reported within the advanced solutions portfolio, increased in the mid-thirties, primarily due to strength in programs associated with server and networking rack builds. Hive's capabilities, capacity, and US manufacturing footprint positions it to support the increased demand. In the quarter, there was an approximately 31% reduction from gross billings to net revenue, which was slightly higher than our expectations but consistent with previous quarters. Our net treatment as a percentage of billings continues to remain elevated versus the prior year, primarily driven by an increase in Hive transactions where we act as an agent and a higher mix of software within distribution. As a result, net revenue was $15.7 billion, up 7% year over year and above the high end of our guidance range. Gross profit increased 18% year over year to $1.1 billion. Gross margin as a percentage of gross billings was 5%, which increased 23 basis points year over year and improved sequentially. Notably, we expanded our gross margin profile in both distribution and Hive.…

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press 1 again. We request that you limit yourself to one question to allow time for the other participants to ask their questions. If there is time remaining, you are welcome to requeue with additional questions. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Eric Woodring with Morgan Stanley. Please go ahead.

Hi. Good morning, guys. This is Maya on for Eric. Last quarter, you talked about the potential for Hive potentially decline in the fiscal 4Q on tough compares. Given the strong results in the August and the November guide and the momentum we're seeing in cloud CapEx trends more broadly, should we think about, you know, Hive Dynamics in fiscal 4Q? And then, you know, any high-level color on as we look to next year. Thank you.

Yeah. Good morning, and thanks a lot for the question. So indeed that we were a little bit cautious quarter. As you know, I mean, HIVE is a lumpy business. But, I mean, the quarter did I mean, went extremely well as the distribution, by the way. So, what explains the overperformance? First, I mean, we saw growth, significant growth across all the programs and all the customers. So that's point number one. Point number two, we see our second customer demand come back and, we are confident by the way, for for next quarter too. It's the second thing. Then also, we saw more demand for supply chain services than expected. And, so the combination explains the other performance of HIVE. We believe that I mean, those dynamics will remain in Q4 and is reflected our guidance. And, Maya, this is Marshall. Just thinking about the the growth expectations being above what we initially had thought. As we said in previous discussions, we continue to make investments in skill sets, engineering capabilities, capacity, manufacturing, etcetera, to ensure that we stay ahead of capacity requirements.

Alright. Thank you.

Thank you.

Your next question comes from the line of David Paige with RBC. Please go ahead.

Hi. Good morning. Marshall. Thanks for taking my question. I guess I had two questions. Just any comments around the pull forward for PCs in the quarter? I believe last quarter anywhere from $100 million to $200 million. And if I could stick one other question in on free cash flow, should we still expect $1.1 billion for 2025? Thank you.

Perfect. Yeah. Good morning, David. Thanks for the questions. On the first one, so again, we looked at it. As as you know, it difficult to assess, but we think it's very limited. Mean, what we see is we continue to see very good momentum on PCs. Across the world. So all regions are contributing to to it. And, again, it's driven really by the refresh related to Windows 11, the refresh of the base, was built during the pandemic, we also see the start of some momentum on AIPC. So some customers coming to us, because they want an AI PC. Again, the vast majority is related to the refresh.

And, David, in regards to free cash flow expectations for the year, our expectation is that the free cash flow will be approximately $800 million for the year. Let me give you some some color behind that. As we were thinking about h two coming out of h one, we had given a miss single digit growth rate to the overall portfolio with distribution being a little bit above and and high being that flat to down. Clearly, the results for quarter '3 showed a 10% growth rate and expectations again for a 10% growth rate in Q4. So in essence, that has lifted the overall working capital requirement for the entire portfolio, both distribution and HIVE. As you know, HIVE has a little bit longer cash conversion cycle given what is required in terms of raw material to ultimately finish rack and how that fell through. And staying ahead of our customers' requirements in terms of ensuring they have a a smooth supply chain. If we think about quarter four, which ultimately is where this goes, we if you look at our our press release, you could see that our year to date free cash flow was zero. Coming into Q4 So how do we get there? And thinking about four cash flow, we think that's gonna be around free cash flow is maybe around $850 million. It's roughly divided evenly between earnings growth for the quarter and expected cash conversion improvement of two to three days. I will say with that and and thinking about what we had said at Investor Day, we still believe over the medium term, cycle that netting net income to free cash flow conversion should stay right around 95%.

Great. Thank you so much.

Thank you.

Your next question comes from the line of Keith Housum with Northcoast Research. Please go ahead.

Thank you. I apologize if my phone's breaking up. Hey guys, great quarter, obviously, in terms of better than expected. I guess, the question that may be asked here is, how sustainable do we see this being? Is there any pull forward that we saw from the, you know, fourth quarter fourth quarter and the third quarter?

Yeah. So so good morning. Again, I mean, if you look at what is driving the other performance, so if I I think about distribution, it's it's PCs, it's software, it's cybersecurity, it's compute, I mean, we believe that, that dynamic will continue into Q4. And then HIVE benefits from a very favorable environment, Hyperscalers are confirming or increasing their spend. And we are positioned on programs where the demand continues to be healthy.

Your next question comes from the line of Michael Ng with Goldman Sachs. Please go ahead.

Hey, good morning. Thank you for the question. I just have two quick ones on on Hive. First, I was just wondering if you could talk a little bit about the progress in onboarding, new customers beyond the the two main ones that you have? And then, you know, secondly, could you just talk about whether the growth in high volumes tend to be more from the traditional server side or AI server side. Thank you. Mike, I'll start, and then Patrick, please chime in. So we continue to make good progress in what we'll call programs as Patrick mentioned earlier. Programs to us is the way we define our ability to continue to to grow our presence in in Hive and ODMCM. And data center supply chain management. We do expect to continue to diversify our portfolio, our pipeline remains quite healthy and strong that continues to grow. We're we will continue to seek out more customers in the super six and beyond that. And so we feel good about where that's heading. Pat, do you wanna cover all of those? And so good morning.

Just adding that the growth is coming from networking, and compute, and more traditional compute. We have some GPU projects in in the pipe, but, when you look at Q3, the vast majority of Q4, again, the demand will come from networking and and traditional compute.

Great. Marshall. Thanks, Patrick.

Thank you.

That concludes our question and answer session. I will now turn the call back over to Patrick Zammit for closing remarks.

So thank you everyone for joining us. I want to close by reiterating that our goal isn't simply to perform today. It is to continue building a company that can do so reliably over the long term. That means continuing to invest in our people, in innovation, and in the systems that allow us to anticipate change, rather than react to it. Our approach has always been about building enduring capabilities. Deep customer and vendor relationships, operational discipline, and a culture that adapts quickly to change. These are the factors that we believe will allow all us to continue to deliver differentiated performance year after year regardless of the market cycle. Of course, none of this would be possible without our coworkers around the globe, who are the driving force behind our success. We are grateful for the trust of our vendors, customers, and shareholders place in us, and we remain focused on earning it every day. Thank you, and have a great day.

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