Image source: The Motley Fool. DATETuesday, June 24, 2025 at 9 a.
ETCALL PARTICIPANTSChief Executive Officer — Patrick ZammitChief Financial Officer — Marshall WittNeed a quote from one of our analysts.
[ tected]RISKSCFO Witt described “volatility” and “uncertainty” in the macroeconomic and global trade environments, with specific mention of tariffs and the situation in the Middle East as factors warranting a “prudent” outlook.
Gross to net revenue adjustment increased to 31% in Q2 FY2025, which was “slightly higher than our expectations.
” This was primarily due to a mix shift toward software and agent transactions, impacting reported net revenue. Hive gross margins declined sequentially due to “unrealized FX losses and gram mix.
” Partial recovery is expected later in the year. Management remains “cautiously optimistic” with CEO Zammit emphasizing difficulty forecasting future impacts from July tariffs and macro events.
TAKEAWAYSGross Billings: $21. 6 billion, up 12% (11% in constant currency) in Q2 FY2025; exceeded high end of internal guidance. Net Revenue: $14. 9 billion in net revenue, up 7% year over year in Q2.
Net revenue was above guidance. Gross fit: $1 billion in gross fit, up 7% year over year in Q2. Non-GAAP Diluted EPS: Non-GAAP diluted EPS was $2. 99, above the high end of guidance in Q2.
All Segment Growth: Both Endpoint Solutions and Advanced Solutions posted double-digit gross billings growth in Q2 FY2025; Endpoint Solutions grew gross billings 13% year over year.
Advanced Solutions grew gross billings 12% year over year (10% year over year excluding Hive).
Hive Performance: Grew gross billings in the “high teens” year over year, driven by server and network rack grams in Q2 FY2025; ODM/CM specifically grew 45%, led by the largest customer.
Software: Achieved 20% billings growth in software, pelled by cloud, cybersecurity, and infrastructure segments in Q2 FY2025.
PC Segment: Growth was supported by B2B refresh cycles attributed partly to Windows 11 and pandemic-era replacement in Q2.
Regional Developments: Europe grew 17% year over year in Q2 FY2025, with the APJ region led by India (B2B) and Japan (consumer); North America also grew.
Customer Segments: SMB, MSPs, and public sector all grew double digits.
Gross Margin: 5% of gross billings, flat sequentially, down 21 basis points year over year in Q2 FY2025; Hive margins declined due to FX and mix.
SG&A Expense: $632 million (3% of gross billings), imved 11 basis points year over year (non-GAAP) in Q2 FY2025. Operating Income: Non-GAAP operating income increased 7% to $414 million.
Non-GAAP operating margin was 2% of gross billings in Q2 FY2025, down 10 basis points year over year.
Cash Generation: Free cash flow was $543 million in Q2 FY2025; Net working capital was $4 billion, with a four-day cash conversion imvement sequentially.
Capital Returns: $186 million returned to holders ($149 million repurchase, $37 million dividend) in Q2 FY2025; Next dividend of $0. 44/ apved for Q2 2025, payable July 25, 2025.
Leverage: Q2 FY2025 with $767 million in cash, with $4. 1 billion in debt. Growth leverage ratio was 2. 4x, net leverage 1. 9x in Q2 FY2025.
Guidance for Q3: Anticipates non-GAAP gross billings of $21 billion–$22 billion (6% growth midpoint), net revenue of $14. 7 billion–$15.
5 billion, non-GAAP net income of $227 million–$268 million, and non-GAAP EPS of $2. 25 in Q3 FY2025; Assumes euro/dollar exchange of 1. 13 in Q3 FY2025.
Repurchase Guidance: The company expects to execute apximately $105 million of repurchases in Q3 FY2025. Free Cash Flow Outlook: The company is targeting $1.
1 billion in free cash flow for the full year, with a 95% net income to free cash flow conversion rate, supported by continued Hive working capital imvements.
Channel Recognition: Over 40 industry honors, including Distributor of the Year awards from HPE, Nvidia, CrowdStrike, Dell, Lenovo, NetApp, and Fortinet. SUMMARYTD SYNNEX (SNX 0.
67%) dered double-digit top-line and bottom-line growth on a non-GAAP basis in Q2 FY2025, surpassing internal forecasts, as management cited demand pull-forwards and broad participation across segments and geographies.
The company disclosed an incremental $100 million–$200 million revenue benefit and $10 million gross fit attributable to early orders, primarily in PCs, with strength anticipated from refresh cycles.
Gross margin as a percentage of gross billings remained stable sequentially but highlighted segment pressure, particularly in Hive, due to FX and gram shift, offset by strong margin mix from Endpoint and component.
Free cash flow and working capital saw significant imvement, pelling confidence in the annual $1. 1 billion free cash flow target, supported by robust operations in Hive and optimization initiatives.
Management’s outlook remains prudent due to high uncertainty around tariffs, macroeconomic factors, and the Middle East, with a muted growth trajectory factored into Q3 and full-year guidance.
CFO Witt confirmed that “demand will soften in the second half of the year,” ing the pull-forward and normalization of growth comparisons.
CEO Zammit stated, “We are in the middle of [the PC refresh cycle],” signaling tailwinds for Endpoint Solutions, while highlighting that networking returned to growth in Q2 2025 for the first time in several quarters.
Hive’s ODM/CM achieved 45% growth, primarily from its largest customer, but recovered demand from a key second customer was “slightly below our expectation.
”Management signaled caution related to July tariff decisions, with Zammit clarifying, “could be the impact. So again, so far no concerns. Everything is in line with the guidance.
”Investments in engineering and U.
SMT capabilities are aimed at increasing service complexity and customer diversification, including sovereign and “made in America” opportunities with hyperscalers, which may enhance future margin files.
INDUSTRY GLOSSARYGross Billings: Total invoiced sales before deductions, used as the primary top-line measure in distribution and agency-model es.
ODM/CM: Original Design Manufacturer/Contract Manufacturer; refers to custom hardware design and assembly for third-party brands, particularly in data center and hyperscaler verticals.
SMT: Surface Mount nology; advanced method for ducing electronic circuits, referenced for U. Manufacturing expansion.
SMB: Small and Medium-sized ; identified as a core customer segment growing by double digits. MSP: Managed Service vider; a recurring customer group with double-digit growth contribution.
APJ: Asia Pacific and Japan; a TD SYNNEX regional reporting segment. Hive: TD SYNNEX’s Advanced Solutions portfolio sub-segment involved in hyperscaler and data center duct dery.
Endpoint Solutions: duct group encompassing PCs, peripherals, and consumer-facing hardware segments.
Advanced Solutions: Includes data center, cloud, networking, and AI nology offerings distinct from Endpoint.
Gross to Net Adjustment: Metric reflecting the reduction from total gross billings to net revenue, influenced by agent transactions and duct mix; a higher ratio was cited as a headwind.
Public Sector: Government and related institutional customers, where SLED (State, Local, Education) and Fed were both cited as growing segments.
Full Conference Call TranscriptPatrick Zammit: Thank you, David. Good morning, everyone, and thank you for joining us today.
I'm excited to report on our strong second-quarter performance and vide an on the impacts we are seeing from the macroeconomic uncertainty.
Our Q2 results demonstrate the continued strength of the IT distribution and hyperscaler. Meanwhile, our strategy and the execution of our team are enabling us to grow ahead of market.
In Q2, gross billings grew 12%, 11% in constant currency, and non-GAAP diluted EPS exceeded the high end of our guidance, with all regions and major nologies contributing.
We believe the quarter benefited from some demand pull forward.
Within TDC Next, excluding Hive, gross billings grew 11% year over year and operating margins expanded, resulting in strong operating income growth.
From a nology perspective, we saw strong growth across both endpoint and advanced solutions. Hive, which is included within the Advanced Solutions portfolio, grew gross billings in the high teens.
High fit margins declined sequentially on which Marshall will vide more color. Within TD SYNNEX, all regions and major nologies experienced growth during the quarter.
Software continues to be a bright spot in our portfolio experiencing 20% billings growth fueled by cloud cybersecurity and infrastructure software.
Additionally, we continue to see strong growth in PCs driven by the refresh cycle, and we were also pleased to see growth in networking after multiple weak quarters.
We saw broad-based demand across all our major customer segments, specifically SMB MSPs and public sector, all of which grew double digits during the quarter.
At Investor Day, we d five strategic imperatives we believe will enable us to der above-market growth.
This includes unifying our reach, targeting new customers, distribution market expansion, diversifying our offerings, and accelerating on services.
The execution of our strategy is recognized by 40-plus honors we received in the channel during the quarter.
Additionally, HPE announced yesterday TD SYNNEX is their Global Distribution Partner of the Year.
Other highlights of Honors during the quarter include being named NVIDIA's Americas Distributor of the Year, CrowdStrike Americas Partner of the Year, Dell EMEA Distributor of the Year, Lenovo U.
Distributor of the Year, NetApp LATAM Distributor of the Year, and Fortinet Hong Kong Distributor of the Year, among others.
A key component of our strategy is targeting new customers and allowing them to scale through our digital capabilities.
For example, many customers invest a significant portion of their SG&A in operational overhead. And in the U. S, we held a new customer to address this with a specialized solution.
We partnered with our customer to develop a completely integrated and automated operational model that drove efficiencies through TD SYNNEX transactional APIs and custom workflows.
Everything from configuration to renewals. By fully leveraging our digital capabilities, our partner was able to make an outsized investment in sales, marketing, and engineering talent.
This has resulted in exponential sales growth at accretive margins for both our partner and TD SYNNEX. Additionally, we continue to make great strides with our dering services strategic imperative.
In a recent example with a leading advanced solutions OEM, we are deeply engaged in several important services initiatives.
Including building various data center solutions and deploying the AI infrastructure solutions.
We are certified to build solutions on their behalf, both for their direct and indirect channels, and this facilitates robust supply chain acceleration to significantly imve their time to cash and extend their overall capacity.
Between our multi-vendor nical expertise and our robust integration supply chain support and fessional services we are well positioned to connect OEMs with a network of nology vendors required for their AI infrastructure solutions.
Our North Star remains generating fitable growth and free cash flow while being a valued partner to our vendors and customers across the world.
We continue to allocate excess cash to high-return opportunities to ensure sustainable value creation for our holders. Now, I will pass it to Marshall for financial performance and outlook.
Marshall Witt: Thanks, Patrick, and good morning, everyone. We had a strong performance in the second quarter with gross billings of $21.
6 billion, up 12% year over year, 11% in constant currency, and above the high end of our guidance range. We were pleased to see year-over-year growth across all regions and major nologies.
Our teams continue to execute extremely well, and in addition to that, we believe we are modestly aided by our customers advancing their forecasted purchases in light of a volatile economic environment.
In Q2, there was apximately 31% reduction from gross billings to net revenue, which was slightly higher than our expectations.
This was primarily driven by an increase in high transactions where we act as an agent and a higher mix of software. Net revenue was $14.
9 billion, up 7% year over year and above the high end of our guidance range.
In Q2, our Endpoint Solutions portfolio grew gross billings 13% year over year, driven by the PC refresh cycle and customers modestly advancing their forecasted purchases.
Our Advanced Solutions portfolio grew gross billings 12% year over year, 10% year over year when excluding the impact of Hive, driven by accelerated demand for data center infrastructure and continued growth in cloud, security, AI, and other high-growth nologies.
HIVE, which is reported within the Advanced Solutions portfolio, grew in the high teens, primarily due to strength in grams associated with server and network rack builds.
Gross fit increased 7% year over year to $1 billion. Gross margin as a percentage of gross billings was 5%, which was consistent sequentially and a decline of 21 basis points year over year.
Excluding Hive, gross margins were relatively flat year over year. Hive gross margins declined from Q1 due to unrealized FX losses and gram mix.
We expect a portion of the unrealized FX losses will be recovered as we sell through the duct in the back half of the year.
Non-GAAP SG&A expense was $632 million or 3% of gross billings, representing an 11 basis point imvement year over year.
The cost-to-gross-fit percentage, which we define as the ratio of non-GAAP SG&A expense to gross fit, was 60% in Q2, consistent with quarter one. Non-GAAP operating income increased 7% to $414 million.
Non-GAAP operating margin as a percentage of gross billings was 2%, representing a 10 basis point decline year over year and consistent with Q1.
Interest expense and finance charges were $90 million, slightly higher than expectations and relatively consistent quarter over quarter.
The non-GAAP effective tax rate was apximately 23%, which was in line with expectations. Total non-GAAP net income was $251 million, and non-GAAP diluted earnings per was $2.
99, both above the upper end of our guidance range. Turning to the balance sheet for quarter two.
Net working capital was $4 billion, which is an imvement quarter over quarter despite the accelerated growth that we experienced throughout the.
We experienced a four-day imvement in our cash conversion cycle on a net quarter over quarter consistent with expectations. Free cash flow generation for the quarter was apximately $543 million.
We returned $186 million to stockholders in quarter two, with $149 million in repurchases and $37 million in dividend payments.
For the current quarter, our Board of Directors has apved a cash dividend of $0. 44 per common that will be.