TD Synnex Corp (SNX) Earnings Call

Operator

Good morning. My name is Tracy, I will be your conference operator today. I'd like to welcome everyone to the TD SYNNEX second quarter fiscal 2026 earnings call.

Today's call is being recorded. After the speaker's remarks, there will be a question and answer session. I would like to pass the call over to Nate Friedel, Head of Investor Relations at TD SYNNEX.

Nate Friedel

Good morning, everyone. Welcome to TD SYNNEX's fiscal 2026 second quarter earnings call. Joining me on today's call are Chief Executive Officer, Patrick Zammit, and Chief Financial Officer, David Jordan.

Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws. 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, the Form 8-K we filed today, the Risk Factors section of our Form 10-K, and our other reports and filings with the SEC. 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. I will now turn the call over to Patrick.

Patrick Zammit

Thank you, Nate. Good morning, everyone. We delivered a record quarter with broad-based strength across distribution and Hyve, building on the momentum we have carried out of recent quarters.

Our results reflect consistent execution against our strategy and deepening relationships within a macro environment that is becoming increasingly complex. Rising component costs, supply constraints, geopolitical uncertainty, and a once-in-a-generation AI build-out are challenging businesses to move faster and with more precision. That complexity is exactly where TD SYNNEX adds the most value.

AI is becoming a growing portion of our mix and is driving demand across both businesses, from hyperscale infrastructure build-outs to enterprise data center modernization, to AI-capable devices in our endpoint mix. Distribution had an excellent quarter. Non-GAAP gross billings of $23.4 billion, up 22% year-over-year.

Strength was broad-based across every region and the portfolio, with international growth and operating margin expansion as a real bright spot. We believe the combination of our global reach, end-to-end portfolio, and specialized go-to-market is very difficult to replicate. Three pillars of our strategy are driving our growth.

First, we meet our customers however they want to engage in a true omnichannel motion — digital when they want self-serve speed, human when they want expertise and enablement, and we move seamlessly between the two in real time. Our digital capabilities are enabled by PartnerFirst, which we've built for depth and speed at scale. We're applying machine learning, generative, and agentic AI to the data we gather across our ecosystem to personalize each partner's experience through customized dashboards, recommendations, and opportunities, which reduces friction and drives higher conversion, stronger attachment, and faster cycle times.

Second, we segment our commercial teams into groups of specialists. We break our customer base into strategic tiers and in some cases reallocate resources monthly based on what each tier needs. The impact shows up in the data — SMB customers are growing well above market, and some of our most strategic accounts have surfaced billions of dollars of untapped opportunity.

Third, we invest in enablement. We accelerate our customers' time to market by equipping them with advanced training, certifications, and technical expertise tailored to each customer's technologies and segment. When we can help customers become more successful, they stay with us and grow with us.

Europe is a clear proof point — our EMEA team competes head-to-head against pure play specialists, runs digital and high-touch motions in parallel, and is weighted toward high-growth technologies and segments. The share gains there are structural, and it's the same model we've extended across our entire distribution business globally. These are the reasons why earlier this quarter, HP selected TD SYNNEX as one of just two global distribution partners across its full networking, cloud, and AI portfolio, including the assets from the Juniper acquisition.

It unifies our reach and meaningfully expands our relationship with one of the most strategic vendors in the industry. Hyve also had an excellent quarter. Non-GAAP gross billings of $5.5 billion, up 117% year-over-year, driven by new programs with existing customers.

Hyve's North Star is simple: to be the partner of choice that hyperscalers trust to design, build, and deploy their data center infrastructure globally. That starts with design and co-design, from board manufacturing to full rack integration and other key components, helping customers accelerate time to deployment. Beyond the build, we offer supply chain services designed to support our customers across the full data center lifecycle.

As we mentioned last quarter, we have secured at least one program with each of the top five U.S.-based hyperscalers. We have begun the early stages of the ramp with our third, and the programs with the additional two hyperscalers are on track with ramp expected in late fiscal year 2026 or early fiscal year 2027. We also issued an equity warrant to Amazon, a longstanding customer of ours, structured to grow in value as our programs together expand.

To support future growth, we're in the process of expanding our manufacturing facilities by more than 1 million square feet in several locations throughout the U.S., with current plans to add more. In closing, there are three key things I'm focused on as we move through the year. First, partnering with vendors and customers through the current demand environment — the underlying demand signals currently remain solid.

We believe the shift to AI-capable devices is just beginning. Second, our execution at Hyve — we are bringing new capacity online, investing in engineering capabilities ahead of the ramp, and standing up new programs alongside expansion at existing customers. The bar I'm holding the team to is best-in-class service.

Third, growing operating profit faster than billings. This is the metric that matters most to me. I now pass it to David.

David Jordan

Thanks, Patrick, and good morning, everyone. This was a record quarter for TD SYNNEX. Starting with the top line, our non-GAAP gross billings for the second quarter was $28.9 billion, increasing 33% year-over-year or 32% in constant currency, exceeding the high end of our guidance range.

Non-GAAP operating income was $615 million, an increase of 49% year-over-year or 48% in constant currency. Non-GAAP earnings per share was $4.85, an increase of 62% year-over-year and above the high end of our guidance range. GAAP operating income was $519 million, an increase of 58% year-over-year.

GAAP earnings per share was $4.15, an increase of 88% year-over-year and above the high end of our guidance range. Distribution delivered non-GAAP gross billings of $23.4 billion, increasing 22% year-over-year. Endpoint Solutions gross billings increased 13% year-over-year, supported by strong growth in PCs driven by higher ASPs, coupled with mid-single-digit growth in units.

Advanced Solutions gross billings increased 31% year-over-year, driven by continued strength in infrastructure and security. Distribution non-GAAP operating income was $434 million, increasing 36% year-over-year, and non-GAAP operating margin as a percentage of gross billings was 1.9%, an improvement of 19 basis points year-over-year. We estimate distribution gross margins benefited by approximately 5 to 10 basis points during the quarter from incremental profit from strategic inventory purchasing.

Hyve generated non-GAAP gross billings of $5.5 billion, increasing 117% year-over-year and ahead of expectations, with both manufacturing and supply chain services contributing. Manufacturing represented approximately two-thirds of Hyve in the quarter and grew faster than the total business, primarily driven by increased volumes with our existing customer base. Supply chain services represented approximately one-third of Hyve in the quarter, with growth driven by component demand supporting our customers' infrastructure deployments.

Hyve non-GAAP operating income was $181 million, increasing 89% year-over-year, and non-GAAP operating margin as a percentage of gross billings was 3.3%, decreasing 50 basis points year-over-year, primarily driven by mix. On cash flow and capital allocation — free cash flow consumption for the quarter was approximately $330 million. Given the accelerated growth in Hyve, we're continuing to invest in working capital to support the growth of both new customers and new programs with existing customers.

Net working capital closed at $4.9 billion with a gross cash conversion cycle of 17 days, an increase of one day sequentially and flat year-over-year, reflecting an increased mix of Hyve. We ended with $1.1 billion of cash and cash equivalents and net leverage of 1.6 times, modestly below our medium-term framework. During the second quarter, we returned $112 million to shareholders through repurchases and an additional $39 million through dividends.

Our board approved a cash dividend of $0.48 per common share, payable on July 31st, 2026, to shareholders of record as of July 17th, 2026. Turning to our outlook for the third quarter of fiscal 2026 — we expect non-GAAP gross billings of approximately $27.7 billion plus or minus $500 million, up approximately 22% at the midpoint. A gross to net adjustment of approximately 33%.

Revenue of approximately $18.6 billion plus or minus $400 million. Non-GAAP net income of approximately $361 million plus or minus $20 million. Non-GAAP diluted earnings per share of approximately $4.50 plus or minus $0.25, up approximately 26% at the midpoint, based on approximately 79.4 million diluted shares outstanding.

Our Q3 guidance assumes no material contribution from Hyve's newly onboarded customers, which we are still expecting to ramp in late fiscal 2026 or early fiscal 2027. With that, we'll open the call for questions.

Operator

Your first question comes from Ruplu Bhattacharya with Bank of America.

Ruplu Bhattacharya

Patrick, have you seen any evidence of demand destruction or weakening of demand given component cost increases? Are customers showing any hesitancy to purchase Endpoint Solutions or Advanced Solutions? And have you seen any change in channel incentives from vendors?

Patrick Zammit

Focusing on Q2, a very strong quarter on both distribution and Hyve. Very transparently, we haven't seen any demand destruction because of price increases. The price increases are really starting to kick in, and they'll probably accelerate in Q3.

On the other hand, underlying demand continues to be healthy across the portfolio. Even on PCs, we saw unit growth. For the moment, we don't see that phenomenon.

Our assumption for guidance is that on most categories, companies need to continue to invest, especially in infrastructure, and combined with the ASP increase, demand will continue to remain healthy at least for what we can see for Q3. On channel incentives, no material changes from our vendors, and our margin quality for distribution stayed very healthy in the quarter.

Ruplu Bhattacharya

Inventory was up almost 30% sequentially. Can you talk about working capital and free cash flow and what is driving that inventory?

David Jordan

Cash days were flat year-over-year overall, but importantly, both of our businesses improved their cash days year-over-year — it's the mix of Hyve that caused the totality to be flat. Hyve continues to experience accelerated growth, and given the cash conversion cycle takes capital to run, we continue to make those investments. On inventory, days are up roughly eight days or so year-over-year, largely driven by some additional inventory we've taken in Hyve to fund new programs and existing programs and help make sure customers have adequate supply given the broader macro.

Patrick Zammit

I'll add — we've been a little more aggressive on inventory levels over the last few quarters because we anticipated price increases. That gave us several advantages: it helped us smooth the impact of price increases for our customers, it helped our vendors, and it positions us well in the market. Demand is strong and we probably have one of the best inventory profiles in the industry.

That has helped us grow faster than the market overall.

Operator

Your next question comes from David Vogt with UBS.

David Vogt

Patrick, can you help us unpack how the incremental manufacturing facility square footage plays out this year and next? Is there a rule of thumb for what that incremental capacity could mean for billings or revenue?

Patrick Zammit

We now have programs with all five U.S.-based hyperscalers, and three hyperscalers where we have won more than one program. We have a very nice pipeline of opportunities ramping up, probably end of Q4 and beginning of Q1 fiscal year 2027. We have to invest in footprint, additional equipment, and liquid cooling to support the various programs we have won.

We haven't yet established a precise correlation between investment and revenue, but we are very comfortable that we're going to meet the demands we are seeing and be in a position to deliver products with the right quality, which is the most important thing for us at the moment.

David Vogt

Can you help us understand the gross margin differentials within Hyve — is it better to think about it relative to ODM/CM margins versus supply chain margins, or is there variability between programs?

David Jordan

When you take a big step back, Hyve has two businesses — manufacturing and assembly, and supply chain — and historically the margin profiles have been relatively similar on average. By program, there can be differences. AI servers tend to have a slightly lower margin profile.

Complex networking racks tend to have a slightly higher margin profile. On the supply chain side, depending on what we're buying, how long we're holding it, and how complex it is, that dictates the margin profile. We feel very good about the performance Hyve has been able to generate, and we continue to make investments in new capabilities, new programs, and new products that will allow Hyve to maintain if not improve its margin profile through time.

Patrick Zammit

Gross margin quality is very important, similar to distribution, and the team is very focused on that. As you ramp up a program, you have some inefficiencies that will disappear over time based on learnings and optimization. In this hypergrowth environment with lots of programs being launched, there's some impact on GM quality, but looking forward, optimizing GM quality is a priority for us.

Operator

Your next question is from Keith Housum with Northcoast Research.

Keith Housum

Are you seeing supply constraints come into place right now, and is there concern that it could limit growth for the rest of the year or into FY 2027?

Patrick Zammit

For Q2, we haven't felt it really. For Q3, you're right — we took into account some risk with component availability in our guidance. Memory is obviously one category.

Some CPUs could also present delivery challenges. We factored that into our guidance. On Hyve, it's primarily our customers who secure the supply, and they have good arguments with the vendors.

On the distribution side, our key vendors have done a very good job with their supply chain. Yes, we've been a little more cautious in our Q3 guidance because of that.

Keith Housum

On the HPE win as one of two global distributors — did you see that benefit completely in the quarter, or will it ramp up over time?

Patrick Zammit

No, we are going to see the ramp-up over time. HPE has decided to rationalize its go-to-market and focus on two global distributors in certain areas. The benefit takes time — we'll probably see it first half of next year.

We won some new countries and we're going to see the rationalization of the distribution network in some other countries. From a strategic standpoint, the fact that we are global was one of the main reasons for the win. What we see more and more from vendors is that being global is becoming the differentiator when they rationalize their go-to-market.

We think there's probably more to come, as other vendors are now looking at their global distribution landscape. Our strategy to expand in APJ, in Latin America, and potentially one day in the Middle East is clearly positioning us well to benefit from that market trend.

Operator

Your next question is from Michael Ng with Goldman Sachs.

Katherine Murphy

The margin profile of the Endpoint Solutions segment seems like a record high at around 5%. Can you talk about what drove that strength? Were there any one-time benefits like the strategic inventory purchases?

And should we expect continued benefits from strategic inventory in the back half of the year and into 2027?

David Jordan

We put in the prepared remarks that on the distribution side, we had 5 to 10 basis points of additional margin from strategically purchasing inventory, and a lot of that manifests itself in the Endpoint business. Our goal is to secure the right amount of supply to help our vendors smooth supply constraints and make sure there's proper availability. It is true that in a rising price world, we can benefit from that.

We also share some of these benefits with our customers to build better long-term partnerships. I would anticipate these types of benefits will be more one-time in nature and slowly dissipate, which is why we tried to call them out in the script.

Operator

Your next question comes from Erik Woodring with Morgan Stanley.

Erik Woodring

Can you help us understand three things: the sustainability of hardware spending through the second half and into next year; which products are showing greater price inelasticity; and are there any products or segments where you don't believe you can fully pass through higher device costs and might see margin pressure?

Patrick Zammit

On margins — we are a cost-plus business. If cost increases, we pass it to customers. We have no other choice and have a very good track record of doing so across the industry.

On product elasticity, the category I'm watching most carefully is PCs. Consumer PCs I think will have relatively high elasticity, but we focus on B2B. I'm expecting some impact from ASP increases on PC consumption, though in Q2 we were able to mitigate that by gaining share and because we are positioned on B2B where the refresh is not over.

On infrastructure and networking, demand continues to be very solid. Networking was tough for the last two years but is back — the refresh driven by Wi-Fi 7 and investments related to AI are driving it. On data centers, storage had a very strong quarter and I think it's going to last.

AI drove the compute upgrade first — now storage is next, and then switches. On compute, we see very solid demand driven by ASP increases, the ongoing refresh of general compute servers, acceleration from agentic AI making general compute more critical, and the cost of tokens making on-premise computing an increasingly attractive solution. That's going to drive demand as a tailwind.

We also see enterprises, sovereign clouds in Europe and APJ, and neoclouds in North America investing heavily. Software, security, and cloud continue to grow at double digits and that should be sustainable. In summary, except on PCs where units could be impacted by ASP increases, I think most other categories are sustainable.

I continue to be cautiously optimistic.

Operator

Your next question comes from Adam Tindle with Raymond James.

Adam Tindle

Taking a step back — incredible growth and negative cash flow. How do you strike the right balance between pursuing growth versus generating cash, and how do you protect against downside risk given the fixed investment build-out at Hyve?

Patrick Zammit

Let me distinguish between distribution and Hyve. Cash days are really low on distribution, and the growth on distribution is generating significant free cash flow. We are investing in Hyve to fuel its growth in both working capital and fixed assets.

Hyve continues to have a very nice return — it's accretive to our margin and to our return on equity. From that standpoint, we feel very comfortable. On the fixed cost question — for working capital, if the market goes down, that will adjust immediately and generate free cash flow, similar to distribution.

For fixed assets, we're going to invest roughly $100 million for Hyve this year, amortized over 5 to 6 years. The cost is absolutely bearable in case the market turns. The other costs for Hyve are mostly variable.

In case of downturn, I think it'll be similar to distribution — a lot of cash flow generated as working capital goes down, and we're very good at adjusting our cost base to new market reality. This is top of mind for us as we make investments.

David Jordan

I'd add two things: we ladder leases, which obviously helps if there's a change in demand, and we don't speculate on demand — we largely build and outfit facilities based on long-term programs once they're committed. The team is incredibly prudent at managing Hyve from a capacity perspective. As new programs mature, there are additional cash flow efficiencies we expect to achieve over time.

Operator

Your next question comes from Joseph Cardoso with JP Morgan.

Analyst

Can you double-click on the mix of Hyve business between supply chain versus contract manufacturing during the quarter and how you expect it to track into the second half?

David Jordan

Two-thirds of the business was manufacturing this quarter and about a third was supply chain, and both businesses exceeded expectations. Over a long period of time, we expect manufacturing to increase as a mix of the total. Our teams have done an excellent job winning new programs, and we're very focused on expanding our manufacturing business.

We also recognize that because we have an end-to-end offering, tying it all together is hugely advantageous for both our customers and for TD SYNNEX. Our hope is that long term we continue to increase manufacturing as a percentage of the total.

Patrick Zammit

Our supply chain services business is somewhat more volatile because in today's environment with the big ASP increases and shortages, customers have more needs than they would in a more normalized environment. The team is first focused on winning programs to grow the manufacturing business — that's really the core of the activity.

Analyst

Can you comment on the pricing environment right now versus 90 days ago, and any particular categories where pricing pressures are more pronounced?

Patrick Zammit

Pricing is up. The inventory that was in the channel has been shipped, so we're going to see the impact more and more. The categories where price increases are most significant are storage and servers, because they are the most impacted by memory price increases.

We see it also in PCs. We're expecting some new price increases in both categories in July — the price increases are not over.

Operator

Adam Tindle, your line is open again.

Adam Tindle

On the timing and magnitude of cash flow reversing — previously you had talked about 95% of non-GAAP net income conversion for the combination of fiscal year 2025 and 2026. Should we recalibrate our thinking?

David Jordan

You're thinking about it the right way. Hyve is in a period of accelerated growth. What we've reflected in Q3 outlook is continued momentum in both businesses.

The 95% net income to free cash flow conversion ratio is absolutely our north star metric on a long-term basis. In periods of accelerated growth, we will consume cash. We believe it's a good use of capital and the incremental ROIC is good.

We think Hyve is a great investment to make.

Operator

Your next question is from Guy Hardwick with Barclays.

Guy Hardwick

A follow-up on strategic inventory — how much of the 13-day year-on-year increase related to strategic inventory purchases, and does Q3 guidance assume further margin benefits from these purchases?

David Jordan

This is tough to quantify precisely. Our teams increase their days of supply around specific categories if they believe we need to hold additional stock to smooth supply chains. They're not trying to speculate on price changes.

When lead times extend, they might hold an extra couple of weeks of stock for certain categories, and they'll get benefits from that if prices go up. We don't forecast a lot of these benefits — we call them out when they come. The predominance of the inventory increase was largely driven by investments made in Hyve due to new and expanded programs with existing customers.

On Q3 guidance — it's hard to say exactly since we don't break it down to that level. There's probably a little in there, but as you've seen, it's relatively small at 5 to 10 basis points and does tend to dwindle down through time.

Operator

Your next question is from David Paige with RBC Capital Markets.

David Paige

What was the strategic rationale for the Amazon warrant, and is it something we should expect with some of the other hyperscalers you're ramping up?

Patrick Zammit

The warrant concerns Hyve specifically. Hyve has had a long-term, historical, and strong relationship with AWS. The value proposition we deliver to Amazon has been very much valued.

When they came to us to discuss the opportunity, we saw it as a big opportunity. With the warrant in place, we think we have an agreement that's going to be mutually beneficial. We are very pleased with that agreement.

David Paige

Can you provide color on the mix of traditional versus accelerated compute at Hyve?

Patrick Zammit

This quarter we had the ramp-up of an accelerated compute program at Hyve. Generally speaking, when I look at our mix of programs going forward, we believe we are going to see more of networking, general compute, and storage. We want to continue to maintain and develop our expertise in accelerated compute, but the profile of the wins we are having suggests we'll see more of the other programs than accelerated compute going forward.

Operator

Your next question comes from Vincent Colicchio with Barrington Research.

Vincent Colicchio

If hardware demand moderates, would you expect software, cloud, and recurring revenue streams to offset some of that pressure?

Patrick Zammit

Software, cloud, and security continue to grow at double digits, and the underlying reasons for that success are very sustainable. On hardware, I actually think AI is making it a very interesting category again. The cost of tokens is going to have an impact on behaviors.

Beyond latency and security and privacy, I think the cost of tokens could have a very positive impact on on-premise hardware, both in the data center and at the edge. It's a little early to call, but there are indicators that speak well to hardware's growth potential.

Operator

Your next question comes from Alek Valero with Loop Capital.

Alek Valero

On the 1 million square feet you're adding — when can we see this capacity start to contribute to revenue?

Patrick Zammit

We see the ramp-up of the programs we have won starting to impact our revenue in Q4 fiscal year 2026 and most probably in Q1 fiscal year 2027. The capacity we are adding will convert into additional revenue, potentially in Q4 and most probably in Q1 next year.

Alek Valero

What can we expect the manufacturing versus supply chain mix at Hyve to look like throughout the year?

David Jordan

It's hard to give an exact answer quarter to quarter. Over a longer period of time, we expect to increase the percentage of Hyve associated with manufacturing. As Patrick said, in certain types of environments our supply chain business becomes very critical to supporting our customers, so it will ebb and flow.

Our long-term direction is to grow manufacturing as a percentage of the total.

Operator

We've reached the end of the Q&A session. I would now like to turn the call back over to Patrick for closing remarks.

Patrick Zammit

Thank you all for joining us this morning. I want to close by thanking our coworkers across the globe, whose commitment and dedication drive everything we accomplish, and our partners for the continued confidence they place in us. We appreciate your ongoing interest in TD SYNNEX.

Thank you, and wishing you a great day.

Operator

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

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TD Synnex Corp Earnings Calls | SNX

Earnings Calls

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TD Synnex Corp Earnings Call Transcript - Q2 FY 2026

Operator

Nate Friedel

Patrick Zammit

David Jordan

Operator

Ruplu Bhattacharya

Patrick Zammit

Ruplu Bhattacharya

David Jordan

Patrick Zammit

Operator

David Vogt

Patrick Zammit

David Vogt

David Jordan

Patrick Zammit

Operator

Keith Housum

Patrick Zammit

Keith Housum

Patrick Zammit

Operator

Katherine Murphy

David Jordan

Operator

Erik Woodring

Patrick Zammit

Operator

Adam Tindle

Patrick Zammit

David Jordan

Operator

Analyst

David Jordan

Patrick Zammit

Analyst

Patrick Zammit

Operator

Adam Tindle

David Jordan

Operator

Guy Hardwick

David Jordan

Operator

David Paige

Patrick Zammit

David Paige

Patrick Zammit

Operator

Vincent Colicchio

Patrick Zammit

Operator

Alek Valero

Patrick Zammit

Alek Valero

David Jordan

Operator

Patrick Zammit

Operator

Operator

Nate Friedel

Patrick Zammit

David Jordan

Ruplu Bhattacharya

David Vogt

Keith Housum

Katherine Murphy

Erik Woodring

Adam Tindle

Analyst

Guy Hardwick

David Paige

Vincent Colicchio

Alek Valero