TD SYNNEX Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 26, 2023

There are 12 speakers on the call.

Operator

Morning. My name is Jael, and I will be your conference operator today. I would like to welcome everyone to the TSynix Third Quarter Fiscal 2023 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.

Operator

At this time. For opening remarks, I would like to pass the call over to Liz Morelli, Head of Investor Relations. Liz, you may begin.

Speaker 1

Thank you. Good morning, everyone, and thank you for joining us for today's call. With me today are Rich Hume, CEO And Marshall Witt, CFO. Before we continue, let me remind you that today's discussion contains forward looking statements within the meaning of the federal securities laws, including predictions, estimates, projections or other statements about future events, including statements about demand, cash flow and shareholder return as well as our expectations for future fiscal periods. Actual results may differ materially from those mentioned in these forward looking statements as a result of risks and uncertainties discussed in today's earnings release, in the Form 8 ks we filed today and in the Risk Factors section of our Form 10 ks and our other reports and filings with the SEC.

Speaker 1

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 available on our Investor Relations website, ir.tdsynex.com. This conference call is the property of TD SYNNEX recorded or rebroadcast without our permission. I will now turn the call over to Rich.

Speaker 1

Rich?

Speaker 2

Thank you, Liz. Good morning, everyone, and thank you for joining us today. The strength of our business model and our relentless focus services and solutions have enabled us to navigate the fluctuations in the post pandemic IT spending environment. Recorded. For another consecutive quarter, a greater portion of our business was generated from high growth technology categories deliver earnings per share above our guidance, generate strong free cash flow and increase capital return to our shareholders in the quarter.

Speaker 2

We were encouraged to see signs of stability in our endpoint business as the Americas experienced reduced year on year declines and grew quarter over quarter. In Advanced Solutions, the Americas saw decelerating growth driven by strength in advanced solutions, high growth technologies and momentum in India and the Australia, New Zealand region. In addition, the industry supply chain continues to be healthy with backlogs back to normal historical levels. This has allowed us to strategically reduce our inventory position, leading to significantly improved working capital to pursue an additional $50,000,000 in cost optimization over the next few quarters. We achieved our target for fiscal Q3 recorded and are on track to capture the remainder by fiscal Q1 of 2024.

Speaker 2

Our ERP systems migration efforts have proceeded well and we are now largely complete with significant milestones successfully achieved. There remain a few pieces to migrate, primarily within our Advanced Solutions business, recorded and we anticipate that this will be concluded in the first half of fiscal twenty twenty four. Recorded. As a company, we remain focused on partnering with our customers to maximize the value of their end users' IT investments by demonstrating business outcomes and unlocking growth opportunities through low cost and efficient delivery capabilities. This quarter, we launched 2 new solutions aimed at doing just that.

Speaker 2

1 is Partner Health and Fitness tool, enabling partners to understand where they stand in comparison to the broader TD SYNNEX partner landscape. Using the data to provide this type of actionable insight is one way we are providing distinctive value for our customers, helping to guide their decision making regarding portfolio diversification to capture growth. The second solution we launched is Destination AI, a comprehensive aggregation of resources to equip resellers with knowledge and connections to capture opportunities across AI, machine learning and advanced analytics. Including AI enabled independent software vendors, AI accelerators, core AI software platform providers an AI infrastructure firm. Our catalog of pre validated ready to deploy solutions combined with our ability to provide multi vendor offerings aggregating best of breed services, software and hardware in Edge Devices places us in a unique position with the business partner ecosystem to add value to our customers.

Speaker 2

Next week, we will be hosting 2 of our marquee ecosystem events, bringing together thousands of our customers and vendor partners to network and collaborate gaining critical knowledge and insights to further grow their businesses. Ahead of those events. We recently completed an expansive survey of our B2B channel partners from over 60 countries, asking them about their expectations over the next year and beyond. Channel Partners told us that they are remaining agile in this environment, adapting their business models to focus on emerging technologies but most clear was the continued importance of the channel in helping partners to navigate the rapidly changing technology landscape, providing technical expertise and helping to fill gaps in the talent pipeline. During the quarter, recorded.

Speaker 2

We were honored to be recognized with a silver medal by Ecovadis, a leading provider of business sustainability ratings in the top 25 percent of companies assessed by EcoVadis. Our European business was also awarded an environmental a sustainability specialization by Cisco, providing a framework for technology recycling and circular economy initiatives. We are proud of these achievements and of the progress that we have made on our environmental, social and governance goals. Recorded. As we begin the final quarter of the fiscal year, we believe that we have seen the trough of our endpoint solutions business and that we will continue to see smaller declines moving forward.

Speaker 2

It is an exciting time to be in the IT industry and we believe that in the long term, IT spending will continue to outpace GDP growth. We see a variety of drivers on the horizon, including AI enablement, which we believe we will see across the majority of our offering set as vendors bring these features and functionality related to our products and services over time. I will now turn the call over to Marshall for some additional comments about Q3 and our Q4 outlook. Marshall, over to you.

Speaker 3

Thanks, Rich, and good morning to everyone on today's call. As Rich mentioned, our Q3 results illustrate the progress we have made on our business strategy. Revenue in the strategic focus is in the low double digits on a year over year basis For fiscal Q3, total gross billings were $18,600,000 and net revenue was $14,000,000 both consistent with expectations. As Rich highlighted, although revenue declined year over year in the Americas, we saw signs of stabilization. Europe saw a decline during the quarter as we began to see impacts related to the challenging macroeconomic environment.

Speaker 3

And Asia Pacific Japan grew revenue by 10% year over year, driven by high growth technologies and strength in some emerging markets. Is performed better than expected in the quarter despite a tough year over year comparison due to the record revenue realized in Q3 of fiscal 2022. Non GAAP gross profit was $974,000,000 up 3% year over year and non GAAP gross margin was a record 7%, up 84 basis points year over year. The significant improvement in gross margin was driven by the continued mix shift to Advanced Solutions in High Growth Technologies as well as margin expansion in High Growth Technologies. Total adjusted SG and A expense was $577,000,000 down $16,000,000 from the prior quarter and representing 4.1% of net revenue and 3.1% of gross billings.

Speaker 3

As Rich discussed, we are proceeding well on the $50,000,000 cost savings program we announced last quarter and expect SG and A as a percentage of gross billings to remain in the 2.75% to 3.25% range that we have seen historically. Going forward, we will be citing SG and A as a percentage of gross billings given increased impact from gross to net adjustments as a greater proportion recorded in our financial results and financial results. Non GAAP operating income was 379,000,000 approximately flat year over year and non GAAP operating margin was 2.8%, up 25 basis points year over year. Q3 non GAAP interest expense and finance charges were $65,000,000 $7,000,000 better than our outlook due to working capital efficiencies, which resulted in less borrowing. The non GAAP effective tax rate was approximately 21%, better than our forecast of 24%, primarily due to our ability to utilize tax credits earned in certain jurisdictions.

Speaker 3

Total non GAAP net income was 2 $50,000,000 and non GAAP diluted EPS was $2.78 $0.08 above the high end of our guidance range up 1.5% year over year. Now turning to the balance sheet. We ended the quarter with cash and cash equivalents of $1,250,000,000 in debt of $4,100,000,000 Our gross leverage ratio was 2.2 times and net leverage was 1.6 times, in line with our investment grade credit rating and approaching our target of 2 times gross leverage ratio. Accounts receivable totaled $8,900,000,000 up from $8,400,000,000 in the prior quarter and inventories totaled $7,500,000,000 down from $7,800,000,000 in the prior quarter. Net working capital at the end of the Q3 was $3,300,000,000 down from $3,800,000 in quarter 2, primarily due to declines in inventory in increased accounts payable.

Speaker 3

The cash conversion cycle for the Q3 was 23 days, a one day improvement from quarter 2, primarily due to improvements in our inventory profile given the healthier supply chain environment. Cash from operations in the quarter was 592,000,000 We continue to prioritize shareholder returns during the quarter, returning $103,000,000 via share repurchases and $33,000,000 through dividend payments. Year to date, we now have repurchased $278,000,000 and have approximately $740,000,000 remaining under our current share repurchase authorization. Recorded. For the current quarter, our Board of Directors has approved a cash dividend of $0.35 per common share payable on October 27, 2023 to stockholders of record as of the close of business on October 13, 2023.

Speaker 3

Moving now to our outlook for our fiscal Q4. We expect gross billings of $18,500,000,000 to $19,700,000,000 representing a 3% sequential improvement from quarter 3 and a decline of 9% on a year over year basis at the midpoint. We expect total revenue to be in the range of $14,000,000,000 to $15,000,000,000 partially offset by improvements in the Americas. For the PC segment, as we discussed in June, we believe we have seen the low point for year over year declines and expect the recovery to continue in Q4. With smaller year over year declines, our guidance is based on a euro to dollar exchange at 1.08.

Speaker 3

Non GAAP net income is expected to be in the range of $223,000,000 to 269,000,000 expected to be in the range of $2.40 to $2.90 per diluted share based on weighted average shares outstanding of approximately 91,900,000. Non GAAP interest expense is expected to be approximately 70,000,000 a very strong year to date and have returned $377,000,000 to shareholders through share repurchases and dividends, putting us on track to reach the full year target discussed in June of $580,000,000 We are now expecting to generate approximately $1,300,000,000 free cash flow for the year, outperformed our original target of $1,000,000,000 for fiscal 2023. We will continue to be opportunistic regarding share repurchases, while adhering to the general framework we have previously communicated to the market. In closing, We remain confident in our ability to successfully navigate fluctuations in the demand environment as customers react to rapidly changing technology needs as we return to a more normalized spending environment. With that, we are now ready to take your questions.

Speaker 3

Operator?

Speaker 4

Recorded.

Operator

With additional questions. One moment please for your first question. Your first question comes from the line of Ananda Baruah of Loop Capital. Your line is open.

Speaker 5

Hey, thanks guys. Good morning. Yes, I appreciate taking the question and all the detail. I guess, Let me make my question the following. Do you guys have any view on the likelihood that you could has now you could now be at the bottom in rev dollar run rate.

Speaker 5

And I guess I'd love any context, I'm sure I'm not the only one, just sort of how you're viewing the European softness in the context of rev dollar run rate going forward? Thanks a lot. Appreciate it.

Speaker 2

Good morning, Ananda. I hope you're doing well. Thanks for the question. So let's take it by region first and then we'll talk about the major product areas and the dynamics that we are seeing. So first, you all might recall as we came through the first half of the year, we had talked about Europe being stronger than anticipated.

Speaker 2

We all know the headwinds that they had faced in Europe and Europe was performing better on the top line than the Americas. We had seen a changed in that cycle, if you will, in the Q3 where Europe began to look a lot like The Americas looked like in the first half and from memory here their overall top line performance was reasonably consistent At the same time, the Americas as we were talking about in our prior call had seen a declining dynamic in the endpoint business as we continue to see the trend of declining endpoint, lesser declines, if you will, over time and then a moderation of the growth within Advanced Solutions based on the fact that Those backlogs have been pretty well run down and the prior quarters for the industry as well as ourselves had benefited from the Advanced Solutions backlog runoff, sort of a late pre COVID emergence of So as it relates to looking forward, We'll address next year when we get to it. The trends are consistent with what we were stating for the last couple of quarters in terms of the PC dynamics and the AS dynamics, but we'll reserve a view as to Whether or not we're at the bottom for the next call when we get into our Q1 guidance.

Speaker 5

All right. Sounds great. Really appreciate it. Thanks for the context.

Operator

Open. Your next question comes from the line of Mike Ng of Goldman Sachs. Your line is open.

Speaker 6

Hey, good afternoon. Good morning.

Speaker 4

Thank you for the question. I just have one on PCs. It was encouraging to hear about the trough in endpoint solutions, smaller clients going forward. I Just wondering if you could just give a little bit more commentary to support that view. What are you seeing in terms of channel inventory, green shoots in demand levels on PCs and handsets and anything that you would call out this quarter as it relates into performance by vertical.

Speaker 4

I know it's a big education quarter. Thank you.

Speaker 7

Yes.

Speaker 2

So a couple of thoughts. So first of all, In our prior quarter, we had said that 2Q and 3Q should be the trough for the PC business. On a global basis, in fact, we saw that trend of, if you will, lesser declines moving through time. We would anticipate that Q4 would provide sort of the same dynamic of lesser declines moving through time. What I would also comment that globally, although there were lesser declines, PC as a category was a little bit weaker than that we had thought and the Advanced Solutions was a little bit stronger.

Speaker 2

As you know, The overall revenue came in at the midpoint of the guide. So there was some mix shift happening there. But the trend held lesser declines in PCs. But again, PCs softer relative to some of our forecast detail offset by Advanced Solutions. From a vertical perspective.

Speaker 2

The only one that I'd point out that had showed some strength is federal. And in addition to that, yes, the education piece got a bit of a boost because the chrome category Last year was very weak and we started to see Chrome emerge a bit within the education Domain in the prior quarter or they're actually our reported quarter. Sorry about that.

Speaker 4

Excellent. Thank you very much. I appreciate the thoughts.

Operator

Yes. Your your next question comes from the line of Adam Tindle of Raymond James. Your line is open.

Speaker 7

Okay, thanks. Good morning. I just wanted to start on guidance for Q4, particularly on an EPS basis. I understand last year had that $0.33 benefit from the Hyve recovery, but you still grew sequentially from Q3 to Q4 last year, ex that. And this year, if I look at the guidance, you are calling for sequential revenue growth from Q3 to Q4, but earnings appear to be down at the midpoint.

Speaker 7

Your accelerating share repurchase based on the commentary. So it just implies a lot of margin erosion. And I'm hoping for a little bit more color. I understand EMEA as a region, but what is driving the sequential margin erosion and why would EPS be down despite typically seasonally

Speaker 3

Hey, Adam, this is Marshall. Thanks for the question. You're right, sequentially between Q3 and Q4, we typically see about an 8 8% growth plus or minus 2% on either side. As you saw and heard from our prepared remarks, it's now about 3% to 4%. So the majority of the margin decline is primarily attributable to the reduction in revenue and typically the fall through.

Speaker 3

In normal quarter 4s, we do see quite a bit of fall through on the incremental revenue that takes place between the two quarters. That's the majority of the overall margin decline from what we have seen historically. You're right, we had that one time call out for Hyve last year That we wanted to make sure people are aware of. And then you commented about Europe, because of the softening we're seeing there in the portfolio. Their direct costs are still a little bit out of line in regards to where we need it to be, but expect that that will correct And then maybe a little bit more softer underneath that.

Speaker 3

In Asia and Americas, although good progress is being made on the optimization that we called out last quarter that plays out over Q3, Q4 and Q1. There still is a little bit of direct costs in relation to gross revenue that will continue to correct itself in the coming quarters.

Speaker 2

Yes. The only thing that I would add, Adam, and it's a bit repetitive, is Where on last quarter, we talked about a sequential at 8% and as Marshall says, it's now 3% to 4%. If you go to do the math and look at the flow through of, if you will, that sequential being lower than anticipated, You'd find out that it's sort of most of the shortfall relative to our comments in the prior call.

Speaker 7

Is Is there any way for us to kind of understand where that shortfall is coming from? It sounds like troughing endpoint solutions that's things are getting better there. What is the product category or vertical that's causing that shortfall?

Speaker 2

Always lots of moving parts, Adam. But I were to give you the big headlight, it would be a softer Europe relative to 90 days earlier.

Speaker 7

Okay. Because all that we think about on that business is being a little bit unique from the mobility piece. Is that maybe fair to characterize?

Speaker 2

So, what I would tell you is, I would think about it as more broad based than just one segment. It's Across the majority of the portfolio right now.

Speaker 7

Okay. Just last one, Marshall, Congrats on the cash flow year to date. You had, I think, previously talked about an annual goal of $1,000,000,000 in cash flow. Obviously, you're already there. So wondering if that's still the right way to think about it.

Speaker 7

I think Q4 is normally a positive free cash flow quarter, but I know it can be volatile. And looking forward, As you reflect on this year's cash flow performance, are there any pieces of this that might be a little bit more temporary, working capital benefit that don't repeat itself or do you think this is sort of a baseline to build off of?

Speaker 3

Yes. Thanks for the question, Adam. For the year to date cash flow of $1,100,000,000 We did see about $500,000,000 of working capital unwind. We expected that as we spoke to as we finished last We're still fairly confident about hitting a $1,300,000,000 target for this year. And then if I think about cash conversion and how that progresses over the medium term, we still feel confident about achieving that $1,500,000,000 over that medium term, which we're calling fiscal 2025 for 2026.

Operator

Thank you. Your next question comes from the line of Keith Housum of Northcoast Research. Your line is open.

Speaker 8

Good morning, guys. Marshall, with the interest rates where they are today and perhaps only one more increase to go, how are you guys thinking about debt pay down versus increasing your capital allocation toward returning to shareholders.

Speaker 3

Yes. Thanks for the question, Keith. Interest rates are high. Now the variable aspects right now is running at around 7%. So we'll remain fairly balanced in our outlook about where we are with our leverage.

Speaker 3

We're at the 2.2 times gross and 1.6 net. That might go up a little bit in Q4 primarily just due to the trailing 4 to 5 quarters of EBITDA. But other than tenure, we're not anticipating making any other incremental pay downs in debt, but being mindful of cash flow and how best to redeploy that within the options that we have.

Speaker 8

Great. And then if I look at the 4th or

Speaker 9

the last 4 points you

Speaker 8

guys had in your range, it does make sound like you guys will be increasing your share repurchases in the Q4. Is that the correct way to read that?

Speaker 3

It is. In my prepared remarks, we commented about where we were at for year to date through Q3 and all in for the full year at $580,000,000 that puts us in a repurchase of about $170,000,000 for the quarter. So that's where we do see some acceleration of share repurchases. And given the strength in our cash slow. We're going to remain opportunistic as well, and play that based on price and overall completion of the quarter.

Speaker 8

Great. And then one more if I can get it in here. I know it's relatively small, but the Asia Pacific and Japan area, another good quarter of growth there, is on the advanced positions in India and Australia driving that. Is that sustainable growth? I mean, are you guys able to sustain that growth going forward in that region?

Speaker 2

So Keith, I think you have to break it down a bit. I think that the region right now that seems to have Outsized opportunity is India. Obviously, there is a lot going on there relative to major vendors, resourcing, supply chains, etcetera. So my view is that maybe they're a little bit insulated from the economic cycles, But the rest of the region, I think, kind of has the dynamic of the rest of the world and will ebb and flow based That macro, that would be my view.

Operator

Your next question comes from the line Joseph Cardoso of JPMorgan. Your line is open.

Speaker 6

Hey, good morning, everyone. Thanks for the question. Yes. One question for me. Can you just touch on the better trends that you're seeing in North America?

Speaker 6

Curious if the better trends that you're seeing in the region are weighted towards any in particular customer verticals like public sector or are you seeing the recovery in the region more broadly? And has that recovery been linear through

Speaker 7

the quarter? Because I remember last quarter you suggested that

Speaker 6

there was choppiness as you kind of looking at it from

Speaker 7

a month by month basis. Curious if you can touch on that. Thanks.

Speaker 2

Yes. So the stronger performers have been a mixing offering sets here with verticals but stronger performers have been Advanced Solutions and that has been pretty consistent throughout the year. Pretty robust growth rates in that business. At the same time, from a vertical perspective, as stated earlier, the federal has been a stronger vertical overall. And then the benefit, if you will, moving through time of lesser declines in the endpoint.

Speaker 2

And again, we believe that that trend will continue as we move forward. Those would be the big changers and I think Marshall has something to add.

Speaker 3

Yes, Joe, just to your question around linearity and volatility. We're still seeing a little bit of bounce month to month. I'll call it a good month, a soft month, a good month. And so that necessarily hasn't gone away. Generally said as Rich said for Americas both AF still showing growth, ES showing declining or improvement of the declines on a year over year basis.

Speaker 3

And then we can't forget about our high growth technology services. Those continue to perform well as we said Cloud Security IoT Data Analytics grew more than 10%. And that's a comment beyond Americas, but it certainly did help Americas.

Speaker 7

Thanks guys. Appreciate the color.

Operator

Your next question comes from the line of Matt Sheerin of Stifel. Your line is open.

Speaker 10

Yes. Thank you and good morning everyone. I had another question just regarding your commentary on Advanced Solutions, which has been strong. But Rich, you mentioned that backlog has been coming down. Could you give us more details on what the backlog levels are And as we go forward and that growth slows and Endpoint Solutions starts to have favorable year over year comps, I would think that that could pressure gross margin.

Speaker 10

So how should we think about sort of drop through in that mix shift and what the operating margins might look like?

Speaker 2

Thank you, Matt. Good morning. I'll handle the first part of the questions and I'll turn it to Marshall for the back half of the question. So, I think we had started to make the statement in our last quarter that the backlog is beginning to near profile. And I think that if we were to represent where we are today, that's exactly what we'd say is we're near profile.

Speaker 2

Sort of a side comment here. We've been talking over many quarters here about is Our inventory being higher than normal because of the serviceability of the supply chain. And now you see with The reductions in inventory and inventory sort of nearing historical profiles that the serviceability of The overall business is becoming quite good. So, I would say that almost across the board right now product set wise, is We're at profile and serviceability has been restored. If there were one category that I'd call out that might have had some benefit in the quarter in terms of getting more closely aligned to profiles being networking.

Speaker 2

So that one would stand out, but the rest of them sort of kind of business as usual profiles at this point.

Speaker 3

Is And Matt, just commenting about the question on what the margin profile looks like. If I think about pricing, it remains competitive, But not irrational. So I don't think that's really changed. I know from quarter to quarter that can change a little bit based on just the competitive landscape. From an overall rebate and program perspective, again, competitive, but we continue to earn our fair share of back end margins.

Speaker 3

So top margin structurally sound. For us, we think that there's good upside as we think about being on fewer platforms, Specifically within the Americas as we move forward into 'twenty four and that should help with operating margins as well.

Speaker 10

Okay. Just as a follow-up though, If the mix shift changes and client devices endpoint solutions grows at a faster pace, would you see some gross margin pressure. And I guess my point is, on the operating line, would you be able to make that up with lower expenses or other things?

Speaker 3

Yes. I think if you typically in Q4, we have a normal balance, ES plays a little bit heavier. So we see the gross margin profile come down more towards, I call it, a 6.5%. But Matt, you're correct. We tend to see less SG and A required for that endpoint solution as AS.

Speaker 3

So the operating margin profiles still kind of hold in check. And it's a regional different. Americas have a different overall operating margin pro form a performance for AF and ES than Europe. It does kind of depend on the region itself,

Speaker 6

but I don't think that

Speaker 3

that necessarily plays to a decrease or structural decline in the operating margins based on the mix shift.

Speaker 10

Understood. Thanks a lot.

Operator

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

Speaker 11

Hi, good morning. Thanks for taking my questions. A very competitive environment. Do you think pricing sustains? And as part of that, are you seeing any benefit from AI based higher configurations in either PCs or servers, if you can touch on that.

Speaker 2

Yes. So Blue, what I would tell you is, as Marshall stated earlier, there's nothing That would say that there is a major trend in pricing within the market. If I were to maybe point to one area where is We cite a bit more of aggression is within Europe perhaps because of the fact that the pie is smaller. So as everybody fights for the smaller pie, they tend to get a bit more aggressive. And I would stated that would be within the endpoint segment and sort of isolate it, if you will, to a couple of markets over there.

Speaker 2

From an Advanced Solutions perspective, really nothing to report. It feels like as usual competitive pricing, but business is normal. And then, as it relates to AI, my view is in order to have a material impact. It's way early in the game. We really haven't seen on the endpoint side AI enabled offerings that make up any meaningful percentage of the shipments.

Speaker 2

And I think that as we think about the data center category, is Maybe this is just my point of view, but obviously AI has been around for a long time. The hype has sort of peaked with chat GPT. So I am sure that many of the vendors have the opportunity of sort of classifying now AI Machines which are being shipped and maybe even classifying some of what has historically been in the sales motion because it's not a new category, many, many years' worth of machine learning shipments, etcetera. So therefore, I would say that the opportunity for AI remains in front of us as opposed to emerging in the existing quarter. Maybe if you get into very, very large enterprises, there is sort of 1st of a kind, but that falls outside of our segment and the customer set we serve.

Speaker 11

Okay. Thanks for all the details there, Rich. For a follow-up, can I ask about the ERP integration? So since it's complete in North America, are you now seeing a meaningful revenue synergies? And If you look back in history, SYNNEX had significant revenue synergies in its acquisitions a couple of years into them.

Speaker 11

I know Europe is not going through an ERP integration, but do you think there could be revenue synergies there? What would drive that? And how should we think about these revenue synergies progressing in the Q4 and beyond? Thank you.

Speaker 2

Yes. So first, you are correct. The major milestones of our ERC implementation have been achieved. As I had commented on previous calls, there is a low percent of the business which is a longer tail which we'll proceed carefully with. It really doesn't create any material cost overhang to have that wind down occurring.

Speaker 2

Interesting that you talked about Revenue synergies with Europe. In fact, we do believe that the merger have had a positive effect on our global business even outside of the Americas. We had the opportunity of seeing some signings, bringing on some vendors in Europe that had taken place that we believe were supplemented or complemented by the merge occurring. And then as it relates to the Americas and the revenue synergies, we absolutely know that We are selling allow me to use legacy Tech Data line card into SYNNEX accounts and the reverse is true. Is starting to ramp, but it's not to the point where it's meaningful.

Speaker 2

I suspect we'll start to measure it more carefully moving forward. And then of course when the market is a little bit soft as it is today, It's a little bit harder to see it in the total giving the overlying market environment. So we'll start to, as I said, I think be more focused on that moving forward.

Operator

Your next question comes from the line of George Wong of Barclays. Your line is open.

Speaker 9

Hey, guys. Thanks again is I just have a question on the HIVE. Maybe you can double click on the HIVE. You talked about performed better than expected. Just versus last quarter you talked about today revenue declining due to tougher year over year compare.

Speaker 9

So can you give more color just in terms of the year over year growth rate you are seeing right now and so how do you think of this segment going forward?

Speaker 3

Hi, George, it's Marshall. Thanks for the question. Yes, we did speak to the tough compare that Hyve presented itself given the strong H2 of 2022 and that's still the case. The comments around Q3 doing better was that it was better than what we had expected, but still Hyve was down for quarter 3 and we expect it to be down for quarter 4. The actual revenue attribute, The revenue profiles and where we're getting the revenue from continues to be well balanced.

Speaker 3

The margin profile is structurally sound. And what I'd say is that we're really optimistic about where Hyve is going as an organization. There's a new customer that we're ramping in Q4 that we've been building for quite some time, so excited about that. And then going into 2024, we would expect to see some expanded or new product lines with existing customers. So well set as we exit 2024 from or 2023 from an expectation for Hyve, but year on year is still down just given the strong compare or the tough compare we had from prior year.

Speaker 9

Okay, great. Just a quick follow-up on the high. You guys put out a press release, so they added some manufacturing capacity in the U. S. In the kind of West Coast.

Speaker 9

Just curious any thoughts on the capacity ramped globally versus kind of utilization trends.

Speaker 2

Yes. Obviously, that market segment is a market a segment that has a reasonably strong growth attributes projected. So we're positioning ourselves to take advantage of that market. Is a big one and it's going to continue to grow pretty quickly. And then secure supply chain is an important aspect for our customers and Allowing ourselves to or actually having ourselves build that capability is a real value add for them.

Speaker 2

So we see it as, if you will, an expansion of our assets with the anticipation that the market over time will continue to grow.

Speaker 9

Okay, great. Thank you. I will go back to the queue.

Speaker 3

Thank you, George.

Operator

Your last question comes from the line of Ashish Subhadra of RBC Capital Markets. Your line is open.

Speaker 6

Hi, this is Patrick Jackson on from RBC. Thank you for taking the questions. For the last two quarters, the company grew overall market share in North America and Europe despite some of the industry softness in Europe. Has that share dynamic still continued this quarter? And has anything changed in the competitive environment?

Speaker 6

And secondly, in the prepared remarks, you mentioned the launch of the Partner Health and Fitness tool. I wanted to ask if you could share any details on the initial response to that rollout and how you're thinking about the cross sell opportunity from this? Thank you.

Speaker 2

Sure. Thanks for the question. Right now, our reports would say that we've maintained our share position in the Americas. In Europe, we lost a couple of tenths of points. So think about that in the rounding.

Speaker 2

And then when we get a little bit deeper in Europe, it would be within the endpoint area that had occurred. And is It was a matter I spoke earlier about a bit more of aggressive pricing environment. So we elected to sort of balance our financials along with our market position, but nothing to be alarming or concerned about. As is As it relates to our new tools, thanks for that question. In essence, we allow our partners to run custom algorithms to take a look at their portfolios versus the portfolios of folks who profile like them across the entirety of the channel and it allows them to think about areas of expansion.

Speaker 2

And yes, we had some really, really great engagement with partners on the tool. In fact, We released it in the North America and just days later we were getting lots of questions is from other markets throughout the world wondering when that tool will be enabled in their market. So there seems to be some pretty good feel Okay. Well, thank you very much for attending our call today. In closing, I want to thank our coworkers around the world We're very pleased as to what we've accomplished and we really look forward to our future and we appreciate your interest in TD SYNNEX.

Speaker 2

Thanks. Have a great

Operator

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

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Earnings Conference Call
TD SYNNEX Q3 2023
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