TD SYNNEX Corporation (NYSE:SNX) Q1 2026 Earnings Call Transcript

TD SYNNEX Corporation (NYSE:SNX) Q1 2026 Earnings Call Transcript March 31, 2026

TD SYNNEX Corporation beats earnings expectations. Reported EPS is $4.73, expectations were $3.29.

Operator: Good morning. My name is Warren, and I will be your conference operator today. I would like to welcome everyone to the TD SYNNEX Corporation First Quarter Fiscal 2026 Earnings Call. Today’s call is being recorded, and all lines have been placed on mute to prevent any background noise. After the 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 Nate Friedel, Head of Investor Relations at TD SYNNEX Corporation. Nate, you may begin.

Nate Friedel: Thank you. Good morning, everyone, and thank you for joining us for today’s call. Joining me on today’s call are Patrick Zammit, our CEO, and David Jordan, 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-K available on our Investor Relations website ir.tdsynnex.com. This conference call is the property of TD SYNNEX Corporation and may not be recorded or rebroadcast without our permission. I will now turn the call over to Patrick.

Patrick Zammit: Thank you, Nate, and good morning, everyone. Thank you for joining us today. We are very pleased with how we started fiscal year 2026. In the first quarter, we delivered record non-GAAP gross billings and non-GAAP earnings per share while continuing to expand profitability and build on the execution and momentum established over the past year. Our results reflect strong performance across both our distribution and Hive businesses, as well as the continued alignment between our strategy and the needs of our partners. Together, this reinforces the strength of our operating model and our ability to create long-term value for our shareholders. Before turning to our operating results in more detail, I want to start by discussing my rationale for updating our reportable segments.

These changes better reflect how I manage the business and allocate capital and resources. Going forward, we will primarily discuss our performance and strategies through two businesses: Distribution, comprised of our three regional distribution segments, and Hive. Each business has a distinct value proposition and operating model, with clear drivers of growth, profitability, and returns. We believe this structure provides clearer insight into how our businesses perform and how we create long-term shareholder value. With that context, I will start with our Distribution business. Within Distribution, we delivered a strong start to the year, with excellent results across all geographies and key technology categories. Performance was supported by continued customer investment in infrastructure, software, and security, as well as notable strength in infrastructure and PCs as we help partners navigate an inflationary cost environment and a dynamic supply chain.

Leveraging our global reach, diversified sourcing, and close vendor partnerships, we are helping our customers manage supply chain constraints, navigate pricing, improve availability, reduce uncertainty, and plan deployments with greater confidence while helping vendors efficiently extend their reach and activate demand across markets. Our accelerated growth was accompanied by expanding gross and operating margins driven by favorable geography and product mix and disciplined cost management. These results underscore the strength and value proposition of our global Distribution business, delivering attractive returns today while positioning us to capture opportunity tomorrow. Last quarter, we outlined four strategic pillars that define how we compete, create value across our portfolio, and differentiate ourselves in the channel, and these continue to shape where we invest and how we execute moving forward.

These pillars are omnichannel engagement, specialized go-to-market, best-in-class enablement, and expanding our brand visibility. I will highlight a couple of examples of how we are bringing this to life. Starting with omnichannel engagement, we are making it easier for customers to engage with TD SYNNEX Corporation in the ways that best fit their workflows. This approach is powered by our partner-first platform and suite of digital services that integrate billions of customer, vendor, and end-user data points to drive demand at scale, supporting continued growth within our SMB customer market globally. Our capabilities are translating into tangible results. By embedding predictive AI directly into our onboarding and go-to-market motions, we are meaningfully increasing the number of customers onboarding new vendor portfolios each quarter, helping vendors expand their reach within our ecosystem and accelerating profit-generating activity across the ecosystem.

Our agenting AI systems are now supporting customers and internal teams across complex workflows, from multi-vendor solutions aggregation to intelligent quoting and cross-sell recommendations, helping shorten deal cycles and improve attach rates. Paired with our relationship-driven model, this allows us to scale expertise and engagement globally without compromising the high-touch experience that differentiates TD SYNNEX Corporation. This quarter, our progress was reinforced by achieving Microsoft Frontier Distributor designation across all of our regions globally, a recognition of excellence in support, security, channel enablement, platform innovation, and technical delivery. This designation highlights our ability to bring technologies to market in a consistent, scalable way across regions and digital platforms, marketplaces, and high-touch engagement models, and to do so consistently as customers move from AI experimentation to deployment.

Building on that foundation, our specialized go-to-market strategy continues to deliver tangible results, particularly in security. Earlier this month, TD SYNNEX Corporation was named Palo Alto Networks fiscal year 2025 Distributor of the Year in North America, recognizing our ability to drive above-market growth while expanding customer participation and accelerating new customer acquisition. Importantly, this recognition reflects the value of our specialized distribution model. By combining deep market expertise by technology and customer segment with our global reach, we enable vendors to reach new customers, activate customers more effectively, and drive growth beyond what they can achieve on their own. Capabilities such as inventory management, seamless customer transitions, pre- and post-sales support, and higher levels of automation enable our vendors and customers to scale with speed and consistency, reinforcing the long-term benefits of leveraging the distribution channel.

Now turning to Hive. We delivered an impressive quarter, driven by continued demand for cloud- and AI-enabled data center infrastructure across our hyperscale customers. Growth was broad-based across our programs and customer base. Our integrated engineering, manufacturing, and supply chain capabilities enabled efficient deployment of sophisticated rack-level solutions at scale, which translated into meaningful year-over-year operating income growth. These results reinforce Hive’s strategic opportunities within this fast-growing market. Building on this momentum, Hive is focused on evolving its strategy over time toward more complete system-level solutions across traditional compute, accelerated compute, networking, and storage offerings.

Through targeted investments, engineering and manufacturing capabilities are helping customers simplify design, accelerate deployment, and reduce total cost of ownership. These ongoing investments have attracted a growing pipeline of opportunities, including signing programs with two new hyperscale customers in 2026, which we expect to contribute to results in future quarters. We have already started to ramp our third U.S.-based hyperscaler, and with these two wins, we now have at least one program secured with each of the top five U.S.-based hyperscalers. To close, we remain very confident in the long-term value creation opportunities across both Distribution and Hive. The addressable markets we serve are continuing to expand, and we believe our differentiated value proposition and strategy position us to capture a growing share of that opportunity while delivering attractive returns for shareholders.

Now I will pass it to David to go over the financial performance and outlook in more detail. David?

David Jordan: Thanks, Patrick, and good morning, everyone. We are pleased to report a strong start to our fiscal year with first-quarter results that exceeded our expectations across all key metrics. Walking through the numbers, our non-GAAP gross billings for the first quarter were $25.8 billion, increasing 24% year over year, or 20% year over year in constant currency, and exceeded the high end of our guidance range, driven by accelerated growth in both Distribution and Hive. Non-GAAP operating income was $590 million, an increase of 48% year over year, or 44% year over year in constant currency. Non-GAAP earnings per share were $4.73, an increase of 69% year over year, and above the high end of our guidance range. GAAP operating income was $489 million, an increase of 61% year over year, or 57% year over year in constant currency.

GAAP earnings per share were $4.04, an increase of 104% year over year, and also above the high end of our guidance range. Together, these results demonstrate our ability to convert strong top-line growth into operating leverage and meaningful shareholder value. Turning to quarterly performance for each of our businesses, Distribution generated non-GAAP gross billings of $22.0 billion, increasing 17% year over year and exceeding our expectations, driven by broad-based strength across both product categories and geographies. Endpoint Solutions increased 14% year over year, supported by ongoing PC refresh activity and strong demand for premium devices. Advanced Solutions increased 19% year over year, driven by continued strength in infrastructure, security, and software.

Distribution non-GAAP operating income was $431 million, increasing 42% year over year, and non-GAAP operating margin as a percentage of gross billings was 2%, an improvement of 34 basis points year over year. Overall, we estimate the Distribution gross margins benefited by approximately 10 to 15 basis points during the quarter, driven by incremental profit from strategic inventory purchasing. In addition, we estimate that approximately 2 percentage points of year-over-year gross billings growth were attributed to higher average selling prices and modest pull-forward activity, as we partnered with OEMs to pass through higher memory and component cost. Moving to Hive, Hive generated non-GAAP gross billings of $3.8 billion, increasing 95% year over year and exceeded expectations, driven by broad-based strength across both manufacturing and supply chain services.

Manufacturing and assembly increased in the mid-70% year over year on a gross billings basis, driven by demand increases from all major customers in each of the major programs we support. Supply chain services grew in excess of 100% year over year on a gross billings basis, driven by increased demand for components supporting our customers’ AI infrastructure deployments. Margins in this business can vary quarter to quarter depending on mix. Hive non-GAAP operating income was $159 million, increasing 66% year over year, and non-GAAP operating income margin as a percentage of gross billings was 4.2%, decreasing 72 basis points year over year, primarily driven by mix as discussed earlier. We are in a period of accelerated growth; however, we continue to remain disciplined in our cost management approach.

Our teams are focused on driving operating leverage while ensuring we make investments that position both Distribution and Hive for sustained long-term growth. Shifting to cash flow and capital allocation, free cash flow usage for the quarter was approximately $929 million, consistent with our first quarter in the prior fiscal year. Over the trailing twelve months, we have generated $1.2 billion of free cash flow and returned $723 million to shareholders, demonstrating the strength of our model and our disciplined approach to capital allocation. As the business grows, we are focused on ensuring we maximize net-income-to-free-cash-flow conversion on an annualized basis. Return on equity is also a key financial priority for us, and beginning this quarter, we are highlighting return on equity as a key metric that we are focused on improving over time.

During the first quarter, we returned $118 million through share repurchases and dividends. Net working capital ended the quarter at $4.2 billion, with a gross cash conversion cycle of 16 days, an improvement of 4 days year over year, reflecting our continued focus on strong cash conversion and efficient working capital management. We ended the quarter with $1.6 billion of cash and cash equivalents, and our leverage ratio finished at 1.5x, modestly below our medium-term framework, providing ample flexibility to invest in the business while continuing to return meaningful cash to shareholders. In addition, our Board of Directors approved a cash dividend of $0.48 per common share, payable on 04/29/2026 to shareholders of record as of the close of business on 04/15/2026.

Turning to our outlook for 2026, we expect non-GAAP gross billings of approximately $25.1 billion, plus or minus $500 million, representing a year-over-year increase of approximately 16% at the midpoint; a gross-to-net adjustment of approximately 34%; revenue of approximately $16.5 billion, plus or minus $400 million; non-GAAP net income of approximately $322 million, plus or minus $20 million; non-GAAP diluted earnings per share of approximately $4.00, plus or minus $0.25, based on approximately 79.8 million diluted shares outstanding, representing a year-over-year increase of approximately 34% at the midpoint; and share repurchases to increase from the amount purchased in our first quarter. To close, we are encouraged by our start to the year and believe we are well-positioned to execute on the opportunities in front of us.

Our global reach, differentiated capabilities, and expanding portfolio position us to perform well across IT market cycles and deliver long-term value to shareholders. With that, I will turn it over to the operator. Operator?

Q&A Session

Operator: We will now begin the question-and-answer session. We request that you limit yourself to one question and one short follow-up to allow time for the other participants to ask their questions. If there is remaining time, you are welcome to requeue with additional questions. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Paige with RBC Capital Markets. Your line is open. Please go ahead.

David Paige: Hi, good morning, and thank you for taking my question. Congrats on the really great results here. I was wondering if we could just double tap into the Hive solution growth. Billings were up 95%, so I was curious if that was concentrated in your two main customers or was it more broad-based across the five hyperscaler programs? And then just as a quick follow-up, I think you mentioned two new customers coming on board, one maybe in 2026. But I guess, could you just size that opportunity relative to your other two large customers? Thank you.

Patrick Zammit: Okay. Good morning, David. Thanks for the question. We are very pleased with the performance this quarter in Distribution and, of course, Hive. Yes, the growth came from the two main customers. As I mentioned, the diversification has started, but the ramp-up of the programs we won is going to take a little bit of time. We believe that we are going to see the impacts of the ramp-up more towards the end of fiscal year 2026 and in 2027.

David Paige: That is great. Thank you. Maybe if I could stick one more in. I know the first quarter seems a seasonally weaker free cash flow quarter, but cash conversion did get better. So I was just wondering what all-in or inventory build you were seeing in PCs might need to benefit from higher ASPs. But just, I guess, puts and takes on how you are seeing the PC demand market evolve throughout the year. Thank you.

David Jordan: Good morning, David. When you think about working capital and cash flow for Q1, there are a couple of dynamics. You rightfully pointed out that on a gross cash days basis year over year, we made significant improvements. With that being said, we also made sure in our first quarter that we had the right amount of inventory. We recognized that some products are on allocation and could potentially be short in supply, and so we went long on inventory to try and make sure we had adequate supply to support all of our customers on the Distribution side. On the Hive side, we are continuing to make investments in working capital as that business continues to grow. But overall, when you put the two together, we are quite pleased with the cash days that we were able to land given the growth rates in the business.

Patrick Zammit: And on the PC side, we had a strong quarter on PCs. For Q2, we continue to be reasonably optimistic about the PC dynamic. A few thoughts. We continue across the world in all the regions, including Latin America and across the other regions, to be very focused on continuing to grow faster than the market when it comes to PCs, and we are seeing clear success there. I also want to mention that we are focused primarily on B2B when it comes to PC, and that is important because in the coming quarters, we are going to see a strong tailwind coming from the ASP increases. Obviously, it raises the question about the impact on elasticity on volumes. We foresee some reduction in units, but we think the reduction in units should be significantly less than in the consumer space. All in all, PCs should continue to be a good category for us in the coming quarters.

David Paige: Thanks, Patrick. Thanks, David. Congrats again. Thanks.

Operator: Your next question comes from the line of Adam Tindle with Raymond James. Your line is open. Please go ahead.

Adam Tindle: Okay, thanks. Good morning. David, I just wanted to start, obviously, congrats on such a strong start to the year. As we think about the typical financial model for TD SYNNEX Corporation from an EPS progression standpoint, normally you kind of see sequential growth in earnings from here, but if we roll that out, we are going to be in the neighborhood of $18 or so of EPS for the year. I just do not want to get ahead of ourselves given the trajectory that you have been on. I guess the question would be maybe just helping to level set. I understand you are not seeking to give annual guidance, but maybe some color for us to think about our models, what might be similar or different this year from that normal EPS progression that we are used to, just so we can understand the models? And I have a follow-up after that. Thanks.

David Jordan: Great question, and thanks for asking. For Q1 and Q2, we have provided guidance for Q2. We are not providing guidance beyond that. What I would share, which I think will help, is that for the moment, demand remains strong in our business. However, we are cautiously optimistic for the second half, and we will just remind people that the second half of last year for us was very strong. Thinking about the second half on a longer-term basis using the Investor Day framework that we laid out is a good place to start. It is true for the moment: Hive and our Distribution businesses are performing quite well. But given the broader macro environment, we are cautiously optimistic for the second half, and we do believe both businesses will grow.

Adam Tindle: Okay, that is helpful. Patrick, just a follow-up. I am getting this question a lot, and it is related to core Distribution and the impact of inflation and memory costs and all those things to margins for the channel. There is a general fear from investors that the vendors will take margin away, and one of the big network vendors on their earnings call talked about changing contractual provisions with channel partners, and it kind of fired the gun on this fear. I thought this might be a good forum. I am looking at the Americas region results for Distribution, and there is clearly no evidence when I see gross and operating margin up meaningfully currently. But maybe just level set us on those comments that we are hearing from the vendors and what you are actually experiencing boots on the ground in the Distribution business?

Patrick Zammit: Thanks for the question. Indeed, in Q1, there was no impact on margin. I would add that we built inventory at the end of last fiscal year to be able to smooth the introduction of price increases for our customers. We worked very closely with both the vendors and our customers in order for them to be in a position to anticipate some of the price increases and reflect them in their quotes. Across the board, we believe that the price increases will not impact our margin because of this close collaboration with vendors and customers.

Adam Tindle: Thank you.

Operator: Your next question comes from the line of Eric Woodring with Morgan Stanley. Your line is open. Please go ahead.

Eric Woodring: Awesome. Thank you for taking my questions and congrats on a really strong quarter. More disclosures here. Patrick, I am unfortunately going to ask maybe a similar question that Adam just asked. My first-blush reaction to these results and guidance was it was almost too good to be true, right? Gross billings and revenue nearly 10% above the high end of your guide, growth accelerating across every technology category. Can you just help us understand how you ring-fence the risk around pull-forward? Because typically pull-forward and the ability to size that really is not clear until after the fact, and so when you talk about two points of benefit from ASPs and pull-forward, how do you come to that conclusion? What are you hearing from customers about their desire to accelerate purchases and whether that is a pricing dynamic or a supply dynamic?

If you could maybe marry those two together, that would be super helpful. And then just a quick follow-up, please.

Patrick Zammit: Good morning. Thanks a lot for the question. The approach we have taken is to look at seasonality in units. We compared, for example, sequentially between Q4 and Q1, how the units evolved for all our hardware categories and compared that with what we have seen in the past. That was the first indicator where we concluded that the seasonality was not skewed and was consistent with prior years. Second, we did a quick survey; we asked the teams to provide us some color, and we took it into account. Based on that, we believe that pull-forwards have been limited for Q1. The other thing I would add is to look at how fast the vendors are passing the increase of their component costs to the market, and today we have to deal with quote validity dates that are very short.

The market had to react and adjust very rapidly. I think that has had an impact on some of the behaviors at the end users. At the moment, based on what we can see from our data and the feedback we receive from customers and the teams, that is the best we can share on pull-forwards.

Eric Woodring: Okay, alright. Very fair. As my follow-up, Patrick, there is clear intent in breaking out Hive as a separate standalone. I am just curious: Today, Hive is 15% of gross billings; it is nearly 30% of operating income, at least in the last quarter. Is there a target that you have for either of those metrics if we think three years out—just the opportunity for growth and margin expansion at Hive? I am just curious, putting a longer-term hat on, how big do you think Hive can be for some of these key fundamental metrics? Thanks so much.

Patrick Zammit: The reason we discussed Hive separately this year is that my management system is to empower my business unit owners and have a lot of autonomy, and it was justified to disclose Hive separately. We think it improves significantly the quality of the financial understanding of how results are being formed. When it comes to Hive, you should assume that Hive is going to continue to grow faster than Distribution. The margins—at the moment, we continue to invest in both engineering and manufacturing capabilities to cope with the rapid increase in demand—and the margins for the moment are relatively stable in that context. As we get more mature, investments will likely start reducing a little bit. For the foreseeable future, the margins you are seeing are reasonable.

I should add that the operating expense for Hive is significantly lower than for Distribution structurally. The combination of that means the weight of Hive in the total business will continue to increase both on gross billings, revenue, and operating income.

Eric Woodring: Awesome. Thank you. Best of luck.

Operator: Your next question comes from the line of Joseph Cardoso with JPMorgan. Your line is open. Please go ahead.

Joseph Cardoso: Hey, good morning. Congrats on the results, and thank you for the questions here. For my first one, I wanted to follow up on customer behavior relative to the Distribution business, but maybe less on pull-forwards and more on what you are seeing from customers placing orders much earlier relative to what they expect from deliveries as they navigate cost, and whether that is driving better visibility than you would typically see. And then I have a follow-up.

Patrick Zammit: Backlog is increasing, so we are getting more visibility. Vendors have been very clear and explicit that price increases are going to continue over the year, driven in particular by both memory price increases and now also CPU price increases. Yes, we are getting more visibility. At the same time, end users have their budgets, and the timing of their budgets also has some influence on when they are going to place the orders. For the moment, we see very high activity in terms of quoting. We are trying to secure the prices as well as we can with some inventory to help our resellers serve their end users in the best possible way. Again, there is no indication of a major pull-forward at the moment when we look at our figures. It is not dramatic.

Joseph Cardoso: Got it. Thank you, Patrick. Appreciate that color there. In light of the new Hive disclosures, which I think everyone is happy to see for sure, I wanted to touch on the strong variance between gross billings and revenue this quarter. It seems like a big change quarter over quarter, year over year, and I wanted to better understand whether that is being driven by the change in mix that you alluded to. As a second part of that question, how do you expect that to trend going forward? Given that you talked about new customers, any implications from a mix perspective we should think about as those start to onboard in the latter part of this year going into next year? Thank you.

David Jordan: Joe, this is David. It is a good question, and I think you are thinking about it the right way. At a high level—and I am going to answer an additional question that you did not ask—when you look at Hive’s margins on a year-over-year basis, the decline was largely driven by mix. We put that in the transcript. The mix was related to some large GPU fulfillment deals that went through. A lot of those programs are recorded on a net basis, and so you have actually seen the opposite impact to margins on a net basis. For Hive, each one of the programs is set up slightly differently, and the gross versus net components can be different. That is why we have always looked at the business on a gross billings basis. Depending on how the mix will shift, you could have a higher margin on a net basis based on the relative weighting. We would likely expect as we move forward that some of these net programs are growing faster than the overall.

Joseph Cardoso: Got it. Thank you, David. Appreciate the color, gentlemen.

Operator: Your next question comes from the line of Catherine Murphy with Goldman Sachs. Your line is open. Please go ahead.

Catherine Murphy: Thank you for the question. To ask another one on Hive, in the deck, you disclosed that supply chain services grew in excess of 100% year over year in the quarter. It would be helpful if you could talk more about the strength here. In the prepared remarks, you also noted a strategy pivot to selling more complete solutions in Hive. Is there any impact we should think about on the supply chain services business as it stands today? Thank you very much.

Patrick Zammit: Good morning. Supply chain services is really a service we render to the customer. It is a relatively volatile business. The reason being that, taking into account the market environment, we may have more requests from our customers to support them in that space, buy inventory in advance, and store it. Clearly, there is a lot of demand at the moment driven by pricing volatility, and that explains why we had such growth in supply chain services. At the same time, you can see that our manufacturing activity is also growing extremely fast, and we believe faster than the market. I wanted to raise it here on the call.

Catherine Murphy: Thank you very much.

Patrick Zammit: I am sorry—and just to answer your second question, the growth through time. We are confident about the growth in manufacturing. It is more steady. You are talking about programs with better visibility. If the demand from the customer stays consistent, then we should continue to see stable growth in that space. Again, the supply chain segment is more volatile and really depends on the market environment. Here, I would be a little bit more cautious, and we will probably see more variations in the growth rates quarter by quarter, depending on the needs of the customers.

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

Keith Housum: Good morning, gentlemen. Appreciate it, and thanks for the additional color here. As we think about the quarter and looking forward, investors are struggling with trying to understand the magnitude of price increases and the impact of demand destruction. David, as you look at the second-quarter guidance, how much does that grow in terms of what you think the impact is from the increased prices? The second part of the question is, at what point do you think we start seeing demand destruction? Is it when you hit 15% or 20% price increases? We have already seen a lot more than that in some different product categories right now.

David Jordan: I will start and frame up the Q2 guidance, and then, Patrick, you can comment on unit elasticity. When we built the guidance for Q2, we did a full bottoms-up roll-up from the teams. What I can tell you is for the moment, demand remains strong. This is true both in the Distribution business and in Hive. One thing to think about as you consider price increases and how that makes its way into our P&L: we have a lot of revenue that is back-to-back, meaning it is billed, put into a backlog, and it might take two, three, four, five months to ship. You are not going to see a massive hockey stick into our P&L immediately from price increases. But we do expect as we move through the quarters to have price increases become slightly more meaningful than they were in the first quarter. Patrick, if you can provide a little bit of color on how you think about units and demand as it relates to the latter part of the year.

Patrick Zammit: Let me look at the four main hardware categories for us. First, PCs. The refresh is not over, and that continues to be a tailwind for us. The other aspect is that the weight of AI PCs continues to increase. One of the drivers is that you will have more and more AI applications running at the edge. Having an AI PC is going to become more important in companies. For general compute—general servers—there is a refresh cycle going through at the moment, so it should continue to be a tailwind. Similar to PC, we see an acceleration of the purchase of AI-enabled servers. End users have now defined their use cases. They are starting to build their AI factories, and that is driving demand in the market, which we are benefiting from.

For storage, this quarter we had a very good quarter. We believe that data center modernization has been a topic but not really materializing in previous quarters. Maybe we are going to see more of it going forward. Lastly, networking—after two very difficult years, networking is back. It is growing single to double digit depending on the regions, and I am quite optimistic when it comes to the networking category.

Keith Housum: What we are hearing from some of our contacts is some of the equipment that you are selling is seeing price increases well beyond 20% to 30%, sometimes 60%, 70%, 80%. It would seem natural that there has to be some demand destruction, and people just going to the refurb market or pushing things off entirely. Are you hearing this from customers yet, and what are your thoughts or any color you can provide on the remainder of the year?

Patrick Zammit: Based on what we see, and it is reflected in our guidance, our assumptions have been reflected. We have not seen demand destruction yet in Q1. We continue to be confident for Q2. For the rest of the year, I will leave you with this: there may be some demand disruption. Everyone is waiting to see how good or how bad the elasticity will be on volume. I shared some of the tailwinds which could mitigate the impact. From a revenue standpoint, when you have such ASP increases, the net between potential decline in units and the ASP increase should impact positively the growth in revenue.

Keith Housum: Okay. Thank you.

Operator: Your next question comes from the line of David Vogt with UBS. Your line is open. Please go ahead.

David Vogt: Great, thanks for taking the question. I have two also. Patrick, historically, Hive has been a more traditional compute and networking-centric business in terms of billings and revenue. Can you share with us how that is evolving as you onboard incremental hyperscaler customers? You talked about having at least one program at the top five. How is that mix changing going forward to a more accelerated compute and networking mix? I will give David my question as well. David, when we think about the price increases, I know everyone is talking about PCs, but we are seeing incredibly strong development for traditional CPU-based servers generally in the industry right now. Would love to get a sense for how you are thinking about that demand ex the price increases because we are seeing relatively strong demand or hard-to-get CPU-based products. I would love to get your perspective on that. Thanks.

Patrick Zammit: Good morning. Historically, Hive demand is driven by general compute and networking. Some of the wins will be accelerated compute wins, and we are going to start seeing that in the mix in the coming quarters. Zooming out, when you look at the Hive strategy for many quarters now—and we are starting to see the benefits—we had two objectives: diversify the customer base and go after the four main technologies we can serve, namely general compute, accelerated compute, networking, and storage. We have made investments in both our engineering and manufacturing capabilities to be well-positioned to go after those opportunities. Expect in the coming quarters to see a diversification of the customer base and diversification of the program types.

David Jordan: David, to provide a little color on your question around general compute: we have worked hand in hand with both vendors and customers to raise pricing on a variety of infrastructure products. As Patrick said, for the moment, demand remains quite strong. It is true in some of these categories the price increases are double digits. Our current thesis is that while there will be some elasticity around unit demand, the price increases will more than offset that. We will continue to give you updates, but for the moment, demand remains strong, and there is less elasticity around pricing than people would initially have thought.

David Vogt: Alright. Thank you.

Operator: Your next question comes from the line of Ruplu Bhattacharya with Bank of America. Your line is open. Please go ahead.

Ruplu Bhattacharya: Hi. Thank you for taking my question and thanks for all the details. Patrick, question on Hive. You mentioned that Hive has secured at least one program in the top five U.S. hyperscalers. Can you give us more details on what type of opportunities these are? Are they for full rack builds or for supply chain services? First, how should we think about CapEx for Hive? Do you have enough capacity to support these programs? Second, when I look at operating margin, it was 7.4% this quarter on a revenue basis. You said 4.2% on a billings basis. When we think about the AI server space and rack-building space, the industry itself is getting squeezed in terms of margins. Should we think that operating margin can take a dip initially as you ramp these new Hive programs, and what are you doing to offset some of that margin pressure? Thank you.

Patrick Zammit: Thanks, Ruplu. I will answer the first question; David will take the second one. The programs we won are full racks, so it is really for the manufacturing segment. We also won some supply chain, but as I mentioned, the supply chain opportunities are more volatile. When we refer to those program wins, it is really for our manufacturing activity.

Ruplu Bhattacharya: I was just going to follow up on that and ask about the CapEx question I had. Do you need capacity?

Patrick Zammit: Obviously, we are constantly looking at our capacity requirements, and we are investing in increasing our capacity as we speak to be in a good position to serve our customers. Yes, CapEx is required. As you look at the amounts at stake, it is very reasonable. I want to insist on the fact that both Distribution and Hive continue to do a great job of reducing the cash days and improving working capital velocity. That is enabling us not only to finance the growth without any issues but also to finance investments in capital expenditure. No concerns from that point of view either.

Ruplu Bhattacharya: Thanks. And then just on the margin side, David, do we expect any initial margin pressure from the ramp of these programs? How should we think about these margins going forward? Thanks for all the details.

David Jordan: At a high level, when you think about Hive’s operating margins, we feel pretty good about where they are. It is true as you ramp new customers, especially in the early innings, there can be a slight headwind in operating margins as we make investments to get the programs up to speed. Each of these will ramp on a different timeline, and we will continue to provide updates. We feel very good about the current operating margins at Hive, the programs that they have, and how that will play out as we move forward. Let me clarify one thing for you, Ruplu. You mentioned accelerated compute. While we do have some accelerated compute programs, it is not the majority of our portfolio. Some of the margin pressure that you may have seen from others will not play out to the same degree in Hive just given the overall mix in the programs that we have.

Ruplu Bhattacharya: Okay. That is helpful. Thanks, David.

Operator: Your next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open. Please go ahead.

Vincent Colicchio: Yes. Can you talk to the relative distribution strength in Europe? Do you have legs there, and has there been any change in sentiment given the geopolitical environment?

Patrick Zammit: Good morning, Vince. Thanks for the question. The market in Europe in Distribution grew mid-single digits in Q1. The market forecast for the rest of the year is between low- to mid-single-digit growth for the rest of the year. When you look at our results, we are growing at double digits. Market conditions continue to be positive, but most importantly, in that market environment, the team continues to grow much faster than the market. We have an end-to-end portfolio. We are very well-positioned on every technology, and we are well-positioned in all the key markets in Europe. We have a strong pan-European presence. We are taking advantage of some countries growing a little bit faster than the average in Europe.

For example, Poland is growing faster; Spain is growing faster. It is a favorable mix, and we are well-positioned in those countries. Net-net, it explains the double-digit growth and the fact that we are growing significantly faster than the market. We have done so now for several quarters, and I am confident for the quarters to come.

Vincent Colicchio: My follow-up is on acquisitions. What are your thoughts in terms of what you are looking at currently, and have the valuations come in with the more overall public markets?

Patrick Zammit: M&A is at the core of the strategy. For us, M&A is a way to accelerate the execution of our strategy by geography, by technology, or to acquire vendors we are missing in some countries. We are looking at several opportunities in basically all the regions. In terms of valuation, we are very strict. Our objective is that the price we would have to pay would have the right return within two years of the acquisition and after completion of the integration. That is our north star when it comes to M&A. With that in mind, we are working on the projects, sticking to our strong financial discipline, and we will see if some of the opportunities materialize in the coming quarters.

Vincent Colicchio: Thank you.

Operator: Your next question comes from the line of Ananda Baruah with Loop Capital. Your line is open. Please go ahead.

Ananda Baruah: Thanks, good morning. Thanks for taking the question. A couple if I could—apologies for any background noise here. First, Patrick, a few months ago, you talked about starting to see data center modernization. What customer base are you seeing that across? I would guess hyperscale, but also in non-hyperscale? Where are you seeing it as well—solo on-prem, other? Would love to get some context there, and then I have a quick follow-up as well.

Patrick Zammit: Obviously, I am talking on-prem. We see enterprise but also the higher end of the mid-segment. We saw very promising activities. I am a little bit cautious, because that was not what we had seen in prior quarters, but this quarter we saw very solid demand.

Ananda Baruah: Super helpful. The follow-up is just on Hive mix. Longer term, you are getting more into GPU-based. Is it as simple as saying over time, the mix begins to shift to include more of that, or would you also see more storage and networking as well given the resource requirements of AI builds? Also, just to add real quick, could Arm—given their announcement last week and the revenue ramp that they are talking about with CPU servers—become a Distribution partner of the company as well? That is it for me. Thanks.

Patrick Zammit: Let me start with Arm. When you have a vendor who is changing its strategy and is starting to produce its own products, we believe that distribution in particular is a fantastic partner to accelerate the go-to-market. Nothing to disclose today, but in principle, if there is an opportunity to partner, we will absolutely do it. Back to Hive, what is important is that our customers are looking for support across all four technologies: general compute, accelerated compute, storage, and networking. That is why it is important for us to have the capabilities and expertise to respond to their needs and requirements. We will have more accelerated compute wins in our portfolio, but I think that going forward, general compute, networking, and storage will represent the majority of our total business.

Ananda Baruah: Helpful context. I really appreciate it. Thank you.

Operator: There are no further questions at this time. I will now turn the call back to Patrick Zammit, CEO, for closing remarks.

Patrick Zammit: Thank you for joining us today. I want to close by thanking our coworkers around the world for their hard work and dedication, and our customers and vendors for the trust they place in us. To everyone on the call, thank you for your continued interest in TD SYNNEX Corporation. Have a great day.

Operator: That concludes today’s conference call. You may now disconnect. Have a nice day.