Ingram Micro Holding Corp (INGM) Q2 2026 Earnings Call Transcript

Greetings and welcome to the Ingram Micro second quarter 2026 earnings results. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to your host Willa McMann-Munn. Please go ahead.

I'm here today with Paul Bay, Ingram Micro's CEO, and Mike Zilas, our CFO. Before I turn the call over to Paul, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal security laws. All of these statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For further details concerning these risks and uncertainties, please refer to today's earnings release, and our SEC filings. Our forward-looking statements are based on information currently available to us, and we do not intend to update these statements except as required by law. During this call, we will also reference certain non-GAAP financial information. Reconciliations of non-GAAP results to GAAP results are included in our earnings press release furnished to the SEC and available on our Investor Relations website. With that, I'll turn the call over to Paul.

Thank you, Willa, and good afternoon, everyone. I am extremely pleased with our second quarter performance, which combined with our first quarter results produced a very strong first half of 2026. In the second quarter, we delivered net revenue of approximately $14.5 billion, gross profit dollars of $959 million, and adjusted EPS of $0.82, results that came in significantly higher and above our guidance ranges. These results are the best second quarter we have ever delivered and reflect a disciplined execution across our global business, continued momentum with NextVantage, and the strength of our diversified portfolio, partner base, and global ecosystem. They also demonstrate the power of our operating model. Mike will walk through the financial performance, but I will begin by highlighting several themes that stood out in the quarter. First, we continue to demonstrate the compounding effect of our operating model. Gross profit dollars grew faster than revenue, and adjusted operating income grew nearly 40% year over year, while adjusted EBITDA and earnings, again, outpaced revenue growth. We are increasingly evolving from a reactive selling to a more proactive go-to-market strategy, leveraging data, automation, and platform intelligence to identify opportunities earlier, engage partners more effectively, and improve productivity across the business. Second, demand remains healthy. We saw double-digit revenue growth across our three primary lines of business. We also delivered revenue growth across all four regions and customer categories. Our net revenue by region remains balanced and well diversified, with North America contributing 36% of net revenue, Asia-Pacific 30%, EMEA 26%, and Latin America 8%. Asia Pacific is now our second highest operating margin region, while Latin America remains our most profitable region by operating margin. During the first half of the year, I traveled to a dozen countries across these regions to meet with partners and team members and saw consistent themes across the markets. Customers said that while some advanced solution deals are taking longer, pipelines remain healthy and they are very optimistic. AI is top of mind, and their end customers are moving from asking, what is AI, to how do we actually deploy it? This is where Advantage and Enable AI are beginning to pay dividends, which I will discuss shortly. The shift in the market is also driving an even greater push towards outcome-based selling to solve specific business problems with complex solutions driven by AI, automation, and security. We are helping our customers provide these solutions through every stage of their sales and deployment cycles, from helping them build use cases to providing access to our certified engineers. The market is evolving. We have invested ahead of the curve to evolve with it, and our role on the channel has never been more important. That leads me to my third theme, the continued evolution of our X-Vantage digital platform into an intelligent operating system. As AI accelerates changes across the industry, our customers and our vendors need a platform that simplifies complexity, connects data, and orchestrates workflows at scale. Our expanded strategy centers around embedded AI, automation, and data intelligence driving clear sources of value. This is demonstrated by reduced operating costs, accelerated growth, and expanded profitability. In Q2, the impact was visible in the data. Time spent on X-Vantage increased approximately 40% year-over-year. Average order value increased 12%, and average revenue per customer grew 23%, reinforcing that X-Vantage is scaling as a global platform. The 10 countries with the most mature X-Vantage implementation showed double-digit year-over-year increases in gross profit and gross margin per go-to-market head and delivered lower operating expenses, demonstrating the platform's leverage. We are seeing the same flywheel effect across our markets, including Asia Pacific, where India provides a strong proof point with nearly 50% year-over-year growth in average order value, average revenue per customer, which almost doubled, and measurable margin impact from strategic pricing and platform-led insights. Customers are using the platform as a valuable and integrated way to drive their business. And every quarter, we see more users, greater engagement, and higher sales on the platform. To illustrate this, self-service orders around the globe reached 2.4 million, up 12% year-over-year, increasing efficiency and allowing our team members to focus more on high-value solution selling and customer engagement. Email-to-order, our patented AI capability that ingests unstructured customer emails, turning them into touchless orders, saw volumes increase 43% year-over-year, representing approximately $1.4 billion in revenue process through our AI-enabled workflows that help partners move faster and operate more efficiently. For the third consecutive quarter, Ida, our intelligent digital assistant, continued to demonstrate measurable business value, generating approximately $1 billion in net revenue in Q2, nearly 7% of the company's net revenue, ahead of pace on our goal of double-digit revenue contribution by the end of the year. Opportunities supported by Ida converted at nearly four times the rate of traditional quotes and contributed to a higher mix of advanced solutions and subscription categories. These are not simply adoption metrics. They are business outcomes. As engagement of X-Vantage grows, the platform becomes more intelligent, automation improves, and our partners transact with greater speed, efficiency, and confidence. Last quarter, we discussed four patents that were granted for core innovations that bring greater consumer-like simplicity, personalization, notifications, and ease of use to complex B2B technology commerce. Since then, two additional patents have been granted, further reinforcing the platform's differentiation. One covers our consumer-like end-user interface, enabling resellers to seamlessly manage and transact with their end customers through X-Vantage, advancing our vision of a single pane of glass where you can order hardware, software, cloud, and services, which again is simplifying the B2B experience. The other covers an AI-powered alerts and notifications architecture, enabling X-Vantage to interpret real-time signals and proactively deliver personalized insights and recommendation actions, further differentiating us as X-Vantage evolves into Ingram Micro's intelligent operating system. We are extending that differentiation by continually meeting our customers where they are in their technology journey. Customers can integrate with X-Vantage in multiple ways. And most recently, we introduced Model Context Protocol, or MCP, which represents the next step in making xVantage even more intelligent and accessible mcp provides the standardized way for ai agents to securely access xvantages data services and workflows that foundation also enables more sophisticated agent to agent interactions or multiple ai agents can collaborate across customers and vendors to automate increasingly complex complex business processes by securely connecting AI agents to X-Vantage, MCP enables customers and vendors to automate workflows across quoting, inventory, ordering, and the technology lifecycle. The result is a faster, more seamless experience that reduces manual effort and allows our customers to focus on delivering greater value to their own clients while leveraging the full power of the X-Vantage platform. In June alone, adoption of MCP increased 50%. Usage grew more than threefold, and MCP-enabled customers are already automating multiple areas of their business. In short, MCP is providing another way to connect seamlessly with our platform, and customers are embracing it. Alongside the platform, we are helping customers and vendors move from AI interest to practical deployment through our Enable AI program. We are moving customers through the stages of assessing readiness and supporting repeatable use cases designed to deliver measurable outcomes. Hundreds of customers are in the program, with new customers joining at a rapid pace. Quarter over quarter, we have seen more than 60% growth in customers engaged in the program, with an almost 100% increase in those moving into AI business case deployment. The AI opportunity extends well beyond AI infrastructure. Moving from pilots to scalable outcomes requires modern infrastructure, clean and structured data, strong security, optimized cloud environments, and the ability to integrate multiple technologies into comprehensive solutions. That complexity plays directly into Ingram Micro Strength and is a reason we rolled out Enable AI at the beginning of the year. With the program, we are helping customers identify high-value use cases, build proof of concepts, accelerate deployment, and create specialized practices around AI. This is similar to the way we help scale the cloud opportunity, which is now a significant driver of gross profit. We believe Enable AI gives us an even larger long-term opportunity to monetize AI. On the enterprise side, earlier this year we partnered with key OEMs and the world's leading AI and accelerated computing company to launch a program across several of our key markets. We call this Enable AI OEM Accelerate. Our goal is to enable mid-market MSPs to confidently pitch, deliver, and manage AI factories that drive ROI. Since the launch, our team has helped customers create AI factory opportunities that are already translating into active pipelines. To also support larger enterprise customers, Enable AI now includes access to one of the world's leading NeoClouds, creating a direct path into mission-critical AI training and inference workloads. We are still early in AI adoption cycle, particularly with SMB. While GPU and AI infrastructure remains important on the enterprise side, the larger longer-term opportunity is helping our broad customer base deploy AI more effectively for their end customers. As adoption expands from large enterprise into the mid-market and SMB segments, our role becomes even more important. Customers need guidance and enablement. Vendors need reach and scale. And the ecosystem needs a digital platform capable of connecting it all together. We are working with vendors to do just that. Thomas Kurian, CEO of Google Cloud, validated this when he said, and I quote, Google Cloud and Ingram Micro are working together to remove the complexity from IT distribution with the X-Vantage platform. Through this unified platform, we are giving enterprises the ability to transform the way they service customers across every industry. Together, we look forward to partnering further to bring Gemini models and agentic AI to even more organizations, end quote. This type of partnership is why customers rely on us. Further than this, we are partnering with other leading vendors, including hardware providers, software companies, and hyperscalers, and the vendors are increasingly moving towards global distribution-led sales motions to reach both the enterprise and, even more, the SMB market. These types of global partnerships play to our strengths, including global and local presence, our COEs, or Centers of Excellence, extensive certifications across technologies, and more than 165,000 customers serving millions of end businesses. As an example, in May, HPE announced that Ingram Micro would become one of two global distribution partners as it moves to a unified distribution model designed to deliver greater simplicity and consistency for partners across lines of business and geographies. Vendor strategies like this validates the importance of dedicated enablement resources, strong operational support, and global scale. They also reinforce the value of Ingram Micro's reach and expertise as AI begins to monetize within SMB. Before I close, I want to highlight our continued commitment to responsible growth and corporate citizenship. Through our 10-0 goals, which represents our most ambitious sustainability goals, we made meaningful progress in 2025. We reduced operational greenhouse gas emissions by a cumulative 45% over the last three years. We achieved our 2030 target to divert more than 90% of waste from landfill. and we reduced safety incidents by more than 70 percent since 2020. We are proud of this progress and look forward to sharing more in our 2025 sustainable impact report that is coming out in a few weeks. This quarter, we delivered robust growth, exceeded our financial commitments, expanded profitability, and continue to advance the strategic initiatives that will drive long-term value creation. Just as importantly, we continue to see growing evidence that X Vantage is creating meaningful differentiation and positioning us to capitalize on the next generation of AI-enabled opportunities. The investments we have made in our platform, talent, and intellectual property set us up well for the future. With that momentum and confidence and our execution, we are providing our strongest quarterly guidance today. Mike will expand on this in more detail. None of this would be possible without the dedication of our team members across 57 countries. Throughout my travels this year, I have seen firsthand our team's tenacity, customer focus, and willingness to take on new challenges. We are building a stronger company that is sustainable and resilient, a more scalable operating model and a platform that will increasingly differentiate us. Looking to the back half of the year, we are confident in both our strategy and our ability to continue executing. The environment remains dynamic, but over nearly five decades, Ingram Micro has proven to be adaptable and capable of performing above market. With that, I'll turn the call over to Mike. Mike?

Thank you, Paul, and thanks everyone for joining us today. As Paul highlighted, we had a record second court with financial results that exceeded the high end of each of our guidance ranges. Our growth was widespread across all geographies, customer categories, and our three primary lines of business. In terms of operating leverage, our gross profit dollar growth in the double digits, combined with our focus on disciplined execution, operating efficiency, and quality of business, yielded growth in non-GAAP net income at a rate well over two times that of gross profit. As we look ahead to the third quarter, we see a continued solid demand environment driving further year-over-year top-line growth enabled by strong execution, which I'll cover more in our guidance discussion shortly. Now getting to the details of our second quarter, net sales of $14.53 billion We're up 13.6% year-over-year in U.S. dollars and up 12.6% on an FX-neutral basis. Cloud was our fastest-growing line of business at 44% FX-neutral growth year-over-year, bolstered by strength in infrastructure-as-a-service and cybersecurity. And this is despite an 11% year-over-year impact related to our previously disclosed divestiture of CloudBlue, which was completed in the third quarter of 2025. Net sales of advanced solutions grew 13% on an FX-neutral basis, driven by demand for GPU and AI infrastructure product sets, as well as storage and cybersecurity. We also saw continued momentum in client and endpoint solutions, with FX-neutral growth of 12%, driven by strong demand for notebooks, desktops, and components. Geographically, we saw growth across each of our four regions, once again led by Asia-Pacific, which grew 28% on an FX-neutral basis, so had strong double-digit growth of 19%. Both regions had robust growth in cloud, as well as client and endpoint solutions. North America net sales came in at $5.28 billion, up 6% over the prior year. Both Asia Pacific and North America benefited from sales of GPU and AI infrastructure product sets. As we saw, our consolidated sales of these products more than double year over year. Finally, net sales in EMEA were $3.75 billion, up 5% on an FX-neutral basis, with robust growth in cloud, but also growth in client and endpoint solutions and advanced solutions. Back in April, we discussed for our guidance for Q2 that we expected a combined benefit to net sales of approximately 2% to 3% from various factors related to supply constraints, including increased average selling prices and pull forward of orders ahead of ASP heights, offset partially by longer lead times to get products, and some demand elasticity brought on by pricing. While it is quite difficult to quantify precisely all of these impacts, we estimate that we landed closer to the high end of this 2% to 3% impact from these combined factors. The year-over-year growth in cloud worldwide and in GPU and AI infrastructure were the other primary factors driving our overachievement to our revenue guidance for 2-2. Second quarter gross profit came in at $959 million compared to $839 million last year. The prior year figure included the impact of a write-down of $10.5 million in connection with held-for-sale accounting for a group of non-core assets in our North America region. Excluding this write-down, we saw a gross profit growth of nearly 13%. Gross margin came at 6.60% for this year's second quarter, up four basis points year over year, and down slightly if we take into account the eight basis point negative impact from the prior year write-down I just discussed. However, the growth of GPU and AI infrastructure deals that I touched on earlier is also an important factor in our margin analysis. Excluding the impact of these deals, our Q2-2026 gross margins were 6.90%. which is more than 20 basis points higher than the prior year second quarter, also excluding any such deals. But as I've said in the past, while these deals tend to be lower margin fulfillment business, they also remain very low cost to serve and working capital efficient and are one of the more notable contributors to a year-over-year increase in adjusted return on invested capital of roughly 240 basis points. A final factor to touch on quickly related to gross margin is our geographic footprint. As I noted earlier, our Asia-Pacific region grew 28% in Q2 and now represents 30% of our total net sales. Our Asia-Pacific gross margins were 4.47% in the current year Q2, which is a solid year-over-year increase of 27 basis points for the region. However, this remains a margin rate that is well below the average of the rest of the world. To this point, the margin for just our combined North America, Amea, and LATAM business was 7.53% in the current year quarter. As we've discussed before, this growth in Asia Pacific is well served as we focus on quality of sales across the region. Additionally, our turnaround has been very successful in India from the challenges in that country in late 2024 through the first half of 2025. So I'm pleased to say that this lower cost to serve and very efficient region landed in Q2 as our second largest region in terms of both net sales and operating margin, but Asia Pacific was actually our largest region worldwide in terms of operating income. Now as I shift to our operating expenses, we landed Q2 2026 at $722 million or 4.97 percent of net sales compared to 5.44 percent in the same period last year. The year-over-year improvement in operating leverage of 47 basis points included a 26 basis point impact related to health for sale accounting on two divestitures that closed in the third quarter of 2025. The remaining 19 basis point improvement demonstrates our operating leverage and the continued benefits of optimization and automation from X-Vantage, as well as the mixed factors associated with a higher concentration of lower cost-to-serve sales in the APAC region, as well as GPU and AI infrastructure sales in APAC and North America. Adjusted income from operations was $280 million, up 40% year-over-year, including the held-for-sale accounting charge in the prior year, as growth in gross profit dollars and operating efficiencies are driving significant leverage in the business. Our non-GAAP diluted EPS was $0.82, up 34% from the prior year and well above the high end of our guidance for Q2. As you'll recall in our Q2 guidance, we discussed a potential $0.01 to $0.03 impact related to the conflict in the Middle East, and we believe that impact landed closer to the lower end of that range as our team there has continued to execute through this prolonged conflict. Turning to our balance sheet, we ended the quarter with net working capital of $4.9 billion compared to $4.6 billion to close the same period last year. The higher investment in working capital this year is driven by the increase in net sales and investment needed to capture these opportunities. In particular, we have done some strategic procurement of certain product categories to get out ahead of continued ASP increases and potential memory-related supply shortages. ASP increases themselves also inflate the value of all elements of working capital. But as we continue to push for efficiency in how we deploy working capital in this environment, on a day's basis, our net working capital of 26 days in Q2 2026 was three days better than the same period of 2025. And as I noted earlier, our adjusted ROIC improved by 240 basis points year-over-year. From the standpoint of adjusted free cash flow, these factors drove an outflow of $527 million in the second quarter. I will touch a bit more on free cash flow in the context of our guidance shortly. But before I turn to that, we also completed another secondary offering in early May for 14.5 million shares, shares, which included a repurchase of 1.2 million shares. Taking into account the two secondary offerings we have completed so far this year, as well as the smaller Rule 144 unregistered sale of shares by our majority shareholder in June, the ownership interest of platinum has been reduced by 13 percent since the beginning of March. We also returned $19 million to stockholders through dividends paid during the quarter and today announced a 2.4% sequential increase to our quarterly dividend to be paid in Q3. We ended the quarter with $809 million in cash and cash equivalents and debt of $3.8 billion. Our net debt to EBITDA leverage ratio was 2.0 times, which has improved approximately two-tenths of a term from the year-ago quarter as we balance the need to invest for growth with higher profit generation we saw in this year's Q2. Shifting now to guidance for Q3, we are guiding net sales of $13.55 billion to $13.95 billion, which represents year-over-year growth of more than 9% at the midpoint and nearly 11% at the high point. We expect third quarter gross profit of $910 to $955 million, which would represent gross margins in roughly the 6.8% range. This revenue and gross profit guidance is reflective of many of the same trends in sales mix across products, customers, and geographies that we saw in Q2. We expect non-GAAP diluted EPS to be in the range of $0.72 to $0.82 per diluted share. Our EPS guidance assumes approximately 231.9 million weighted average shares outstanding and a non-GAAP tax rate of 27 percent. This guidance also assumes again a roughly two to three percent net revenue benefit from supply constraint puts and takes along the same lines as we saw in Q2. And our EPS guidance assumes roughly one to two cents impact related to the continuing conflict in the Middle East. Lastly, while we don't guide on free cash flow, I want to point out that we need to invest to support the continuing growth we are forecasting. However, as our Q3 guide indicates, we are driving accretion in income generation. Furthermore, we expect our heightened inventory investment exiting Q2 to sell through in full as the year progresses. In closing, I'm extremely pleased with our record Q2 performance and where we stand today looking into Q3. We expect continued year-over-year growth in our top and bottom lines as we execute and scale our X-Vantage platform. With that, we can now open the line up for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. And our first question will come from Catherine Murphy with Goldman Sachs.

Thank you for the question. I wanted to ask more about the 13% FX neutral growth in the advanced solution segment in the quarter. Prior, you had guided to that segment growing high single digits, excluding any GPU fulfillment deals, and made clear that you had some of those both in APAC and the U.S. region this year. Can you talk about the characteristics of some of those GPU deals in the quarter and then also how we should think about the performance of the X-GPU demand, specifically CPU demand, and how you're participating in the broader refresh outside of the storage and security opportunities you talk to? Thank you very much.

Yeah, this is Paul. I'll start off, so thanks for the question. So, as we noted, part of the upside that we talked about in our overachievement came both in cloud, but really around GPU, AI infrastructure, and we had very good growth in that, came across the three categories, storage, server, really, networking to some extent, networking, we had a very large Q1, so some of that was timing. So we're absolutely participating in what we define as the AI infrastructure data center build-outs that are happening. A lot of that came in Asia Pacific, which was part of the results. If you peel back kind of the general outside of the GPU AI infrastructure, we saw good growth across the board. As we mentioned, we had growth across all lines of business, across all geographies, and then also across all customer segments, too. So a healthy business with a little bit of an uplift from what we define as AI, infrastructure, and GPU deals. Mike, I don't know if you have any other.

The only other thing I would add, because you asked about sort of the characteristic, which maybe you meant this, maybe you didn't, but it's more timing. I mean, I think as we've said in the past, a lot of those deals, one, they happen when the supply becomes available, which is part of the constraint, but they tend to end up being back end loaded. So we didn't guide to a significant outsized amount there, and we ended up seeing that happen with a lot of deals closing in the second half of the quarter. We similarly, in our guide for Q3, are not guiding to outsized growth, but there continues to be pipeline in that category of spend happening for sure.

Thank you both. Again, that is star one if you would like to ask a question. Also, please limit yourself to one question. And our next caller will come from Eric Woodring with Morgan Stanley.

Hi, thank you. This is Maya on for Eric. So maybe just one question for me. You know, there's been a lot of debate around whether enterprises are kind of reallocating IT budgets away from software towards infrastructure hardware in particular, given the higher prices. Based on what you're seeing across partners and end customers, are you observing any meaningful like software to hardware budget reprioritization today? And if so, which customer segments or product categories are seeing the biggest benefit there?

I'll start. This is Paul. And so as we look at kind of the pipeline and where the delivery came from, we are seeing a little bit of an effect of some customers, and I would say it's more kind of mid-market and SMB, that are breaking kind of their large project deals into smaller phases. And then we're actually seeing on the flip side some partners that are actually now seeing areas that were previously delayed projects come into fruition now. So as it relates to hardware and software, we still had good growth, high single-digit growth in software, and similarly in hardware from a category standpoint. So we're still seeing good strength, and part of that goes back to, again, as I mentioned on the prior question, the customer segments, and seeing healthy growth across all the customer segments. So, I think it varies if you get into kind of enterprise mid-market versus really the SMB market. So, nothing, I would say, material that we've seen shifting one way or the other.

Great. Thank you. We'll go next to Joseph Cardoso with J.P. Morgan.

Hi. Good afternoon, and thanks for the question. You know, I just wanted to touch on the HP disclosure or discussion point around them essentially rationalizing maybe their partner ecosystem. in terms of distribution, you know, like if we take a step back and we look at some of the other OEM partners just from a big picture standpoint, you know, how prevalent is that behavior that you're seeing in terms of rationalizing kind of the partner ecosystem here? Just curious in terms of how broadly we're seeing that and if that's a recurring trend maybe across your OEM partners. Thanks.

Yeah, thanks for the question. This is Paul, and I actually called it out in my prepared remarks, we're actually seeing quite a bit of activity, and I think there's a couple of reasons. One is we're seeing partners really want to do, vendor partners, the OEMs that you mentioned in the one I touched on, HP, that announced that, that want to do more with less. And so, you're able to really look at the resources. The way we look at it is we go global, regional, local, and one of our differentiators is we have centers of excellence in each of the four regions, thousands of certificates and you've heard Mike and I talk about previously our product sets are made up of six different products and services so we're able to wrap in really what's the business outcome or solution that people are looking for and then you have the access to 165,000 of our customers and again part of the reason is a co-invest so you get a little bit longer term view on a multi-year and the one we announced from an HPE is what are we going to do over the next couple of years? Where are we going to co-invest and how we're going to resource against that? And it allows us really to be more strategic as opposed to, you know, quarter by quarter or month by month as they look at that. And again, I think because of the capabilities and competencies we've built out along with our great geo presence of, you know, really good diversity all the way from North America, Asia Pacific, Latin America, and AMEA, it allows us to really have that reach in similar skill sets and competencies, and you wrap that around what we're doing with X-Vantage from a global perspective. And as we said, it's really one code base, and we are actually, what you get in North America, you can get the other 22 countries that we have X-Vantage launched into. So you get consistency and predictability, and we're able to really focus on long-term strategies.

Hey, Joseph, one other thing, all those breadth points and certainly the X-Vantage platform is a differentiator. I think one other thing that resonates with a lot of vendors, and I don't want to necessarily pin this purely on the HPE discussion, but just as a more general statement is business practices and how we operate around the world with that presence. Because that is definitely not true when you talk about some of the local and sub-regional players in some markets. So that becomes a very key value prop to a lot of the vendors as well.

Thank you. Appreciate the color.

And our next question will come from Ruplu Bhattacharya with Bank of America.

Hi, Paul, Mike. Thanks for taking my question. It relates to AI infrastructure impact on gross margin. Looks like it was a 30-bits headwind this quarter. Going forward, do you think operational benefits from X-Vantage can outweigh the mixed pressure? Do you think your business can sustainably operate at a higher gross margin level with sustainable higher operating leverage as AI becomes an increasing part of the mix? And, Mike, if you can throw in, like, are you seeing any changes in working capital requirements or financing requirements as AI becomes a bigger part of the mix? Thanks for taking the question.

Yeah, well, let me hit on that second part first. I mean, I think the AI and GPU, as we have said, is extremely working capital efficient. We're not really stocking that higher-end equipment. It's more when you get it, the projects close. So, you know, very low inventory. The terms and conditions on the vendor side are very much offsetting with the customer side. So, as I said in my prepared remarks, the AI GPU piece was a significant contributor to the 240 basis point year-over-year improvement we saw in adjusted ROIC as an example, and also a significant driver of our working capital days being three days better year-over-year. Now, as to the efficiency part of your question that you led with, and Paul may add to this, I mean, I think XVantage and the enablement we're driving around our entire ecosystem is true across every single product. It does absolutely apply across the AI GPU piece, and we continue to be very efficient. And that's why you see not only the leverage in a solid state, but even if you just look on absolute dollar growth of OpEx, you know, we have to invest a little bit in the business. We are investing into cloud and enablement and services and some of those areas, but we certainly aren't matching in any way the double-digit growth we've seen year-to-date from a top-line perspective, and that's significantly driven by the ability to operate in a far more efficient manner, and that remains extremely scalable. We will invest in some of those specialized skills, but we don't need to invest just simply to handle growth because we've built that much more automation around it.

Yeah, and this is Paul. So as I talked about in my prepared remarks around the 10 countries with maturity, we had double-digit gross profit and gross margin per go-to-market head and delivered lower OPEX driving leverage. And that wasn't really related to the AI deals that we're participating on. That's really on our core business, and we're going to continue to focus on the opportunities we have there. And that's also not just more efficient and more profitable, but it's also a better experience to the customers because we're using our intelligence and our data to actually bring those opportunities forward. And that's where I go back to being more proactive versus being reactive.

Okay. Thanks for all the details. Appreciate it.

We'll go next to David Page with RBC Capital Markets.

Hi, Mike. Thanks for taking my question. I want to ask on climate endpoint solutions, solid growth, 13% in the quarter. Would you be able to break out category growth, whether it be PCs, mobile, and anything in the CES category?

Yeah, PCs specifically? Yeah, well, I think you're just asking sort of the general breakout. I mean, we don't give the subcategories, but I think the across client and endpoint, certainly the PC notebook category remained very healthy, growing double digits. We did see solid single-digit, high single-digit growth in smartphones components, some of the consumer electronics categories also growing. So it was actually somewhat healthy across a lot of the CES categories, but PC notebooks and the continued growth we see there on the refresh cycle continuing was certainly a big driver there.

Yeah, the only thing I would add specifically to the PC comments that Mike made is we still think, as we're seeing the refresh cycle in Windows 11 happen, and as we mentioned, coming off of significant double-digit growth in Q2 of 2025, we think there's still room to run, particularly as AI PCs continue to gain traction. and we talk about that, AIPCs accounted for more than 30% of our revenue in Q2. So we believe this is consistent with what you'd hear from the other OEMs and analysts. So we continue to see solid demand, which would suggest that there's, you know, an extended cycle still with the PC refresh right now.

Yeah, thanks for the color. Go around for a good quarter. Thanks.

Moving next to Adam Tindall with Rabin James.

Okay, thanks. Good afternoon. This one might be for Mike. If I was to look at this quarter independently, obviously, you know, massive growth, almost 30% growth in APAC. Understand that that's a lower margin region, but very working capital efficient. So it tends to be good returns despite the lower margin. But then I look at the cash flow statement and used over half a billion of cash in the quarter. So I'm just wondering if you could maybe double click on the rationale for such a sizable cash use in the quarter, given such strong APAC, given the GPU stuff that's supposed to be capital efficient. I imagine there's some timing and stuff in here. If you could just talk about the trajectory of cash flow from here, do you still think we can reach positive cash flow for fiscal 26, or what does it look like for investors who are looking for more sustainable cash flow? Thanks.

Yeah. No, thanks, Adam. I think one thing I would point to that I did mention in our prepared remarks, you know, I think there's two factors that are driving a lot of that cash flow phenomenon. One, and I'm going to focus on inventory more than anything here, but it applies on the AR and even the AP side as well. One, the ASPs themselves are driving quite a bit of inflation in the dollar of the balance sheet. So if you think about, if you look at our inventory On a U.S. dollar basis, it's sequentially up about 16% from where we closed Q1. A significant portion of that 16% is just the ASPs themselves. But then on top of that, we have invested strategically, not only for the just general growth we see across the various categories. You're spot on. As we talked about, the AI and GPU piece isn't as much a driver of this. but the other hardware categories do require some investment as well as investment in other elements of the working capital. We are seeing, you know, just generally investing for growth and some opportunistic purchases to get out ahead of what continue to be ASP increases. We see the ASP increases in many of the categories starting to decrease in how rapidly they're going up, but they are still going up so we have sought that opportunity to make some purchases ahead and so that's another reason for where we see the uh inventory balance in particular a little bit heightened exiting q2 so as i look out over the rest of the quarter you know we don't guide formally on free cash flow but what i would leave you is is with this and hopefully it answers the last part of your question i i think we usually have a decent sized free cash outflow in q3 where we're stocking for the Q4 or even late Q3 kind of hockey stick in sales. That always happens. We still expect demand to be quite healthy through the end of the year, as we've talked about, but we've just pulled forward some of that stocking level. So that could drive a better than normal seasonal Q3. And even if it's not to the same degree as we saw last Q4, where we had $1.6 billion of free cash flow in that quarter alone, we certainly see, in all likelihood, a very solid Q. Thank you.

Moving on to Ellie Dyek with William Blair.

Hi, this is Ellie on for Maggie Nolan. Congrats on a quarter. My question is, EPS came in at $0.82 this quarter, and the midpoint of guidance implies a sequential step down to $0.77. So could you just expand a little bit on the drivers there and going forward for the next couple quarters, the ability to drive operating leverage?

Yeah, I can start on that. This is Mike. You know, there's a lot of different factors that go into that. I mean, certainly what's implied by, and I'll focus on even just the high end of the range for this purpose is a low double-digit revenue growth, a bit more growth on the EPS end of the spectrum. And some of this is just mixed factors. As we see how the mix evolves into the next quarter, we do see sequential margin accretion. You can see, again, our guide is implying a gross margin around 6.8%, but also a little bit different mix in how we're serving some of that business. And so the leverage is still there and certainly holding serve, but we are, and we have those same efficiencies, but we're seeing more of that mix of growth. What we see from a top line perspective, which we didn't really necessarily lay out specifically in our prepared remarks, but that top line growth in that guide is still seeing, you know, healthy double-digit growth in cloud, which is low cost to serve, very efficient, low working capital. But then we're also seeing, you know, probably upper single-digit growth in CES, particularly around the continued legs of a PC refresh that we just talked about. And then, you know, mid to maybe upper single-digit growth in the advanced solutions, but not assuming, you know, outsized GPU and AI infrastructure.

Thank you.

Thanks. We'll hear next from Alex Valero with Loop Capital Markets.

All right. Thank you for taking my question. Just real quick on gross. Can you expand on what the gross margin delta is between deals sourced through expandage versus traditional deals?

We don't this fall. We don't really break that out. What we do talk about is the leverage that we got off of it and the fact that average deals that are going through there are closing four times more than the ones that are not going through X-Vantage. And one of the key points that we made a comment about in our Q4 earnings call earlier this year was our expectations about how much can go through our intelligent digital assistant, our IDA piece of the platform, which generated approximately a billion dollars in net revenue for Q2. It was approximately 7%. Our commitment coming into this year was that we'd have double digit of our revenue going through IDA, which, again, is better business, more profitable, and the conversion rate for our sales organization is four times better than the average kind of opportunity that goes through there. So we don't really break out the difference publicly between, you know, the IDA or, excuse me, X-Vantage versus kind of the core business.

And, Alex, just one thing I would add, you know, as we did say, you know, in the countries that we have, you know, substantially more functionality of X-Vantage deployed, you know, the vast majority of their activity is going through X-Vantage now. So X-Vantage is really serving the whole of the business. It's not necessarily only serving pieces of it, but, you know, where, you know, things like Ida that Paul just touched on are allowing us also to calibrate our sales force through machine learning towards rebates and other structures going to potentially be beneficial. So there's different calibrations there that are also good opportunities that we're capitalizing on. And it is, again, part of the driver of the fact that when you exclude some of the noise of, you know, outside GPU and AI and the higher growth in Asia-Pac as examples, we actually are growing margin year over year and seeing some of that accretion happening.

Yeah, no, that makes total sense, and that's super helpful, by the way. And that actually brings me to my next question. So I'm assuming as you keep expanding the market share with XBantage, you're going to continue getting more deals at that rate. So last quarter you said you were in 21 of 57 countries had XBantage. What's the number today, if you guys disclose that?

Yeah, it's 22. So we're really focused and keep in mind, too, so you're right, 57 and we're in 22 countries. And to Mike's point, roughly 75% of our revenue for those countries are going through X advantage. But I want to reiterate that you've got to keep in mind each country is on a little bit of a separate rollout schedule, and so they're at different levels of maturity. And the ones that are more mature that Mike just pointed to, we're actually seeing that benefit out. We're at 22 countries. Most of the larger ones are on it and, again, are going through the rollout schedule and different levels of maturity.

Got it. Super helpful, guys.

And our next question will come from Carl Ackerman with B&P Paribas.

Thank you. Mike, thank you for providing color on segment revenue drivers for Q3. But could you unpack how much of your revenue guidance is a benefit from component cost pass-throughs that some of your vendors have implemented earlier this year across advanced solutions and client and endpoint solutions.

When you say component cost pass-through, can you elaborate what you mean by that?

Yeah. Some of those OEMs have certainly raised prices across the hardware aspect of their portfolios. And you spoke about how there's a 2% to 3% net revenue benefit from some constraints. I'm not sure if that is the same as the higher prices that we're benefiting, that you are benefiting from. So I just want to specify.

No, got it. I mean, I think first off, I mean, any rise in ASP is passed through by us. We're not eating that cost. You know, I think we do have some of the opportunistic buy-ins that happen, and it hasn't been material, but that can be an opportunity to get out ahead on some of that and create a little bit more margin. But all of that said, we're passing through that cost. Now, so again, I would go back to those different components that we call out in that 2% to 3% net revenue uplift. And as we said, we probably landed closer to the 3% level in our Q2 actual results. It is a combination of the ASP increases, but also any pull forward that may be happening on customer demand to get out ahead of the ASP increases. You know, those are two positive factors. And then there's two headwinds. One is just it takes longer to get the product. You know, supply constraints are causing longer lead times, and that's lengthening out the sales closure cycle. And then just any demand elasticity that Paul touched on earlier as far as where you may see buying decisions shift a little bit. So that's kind of the mix of all of those different factors that play into that 2% to 3% or what really landed around 3% in the quarter benefit to our top line.

Very clear. Thank you.

And our last question will come from Keith Halsam with North Coast Research.

Great. Thanks, guys. Appreciate it. Good quote over you. I appreciate it. In terms of the rest of the years you're looking out, obviously we're hearing a lot of different puts and takes out there in terms of the supply chain and potential product shortages. But what are you guys hearing when you talk to the vendors and you talk to some of your largest customers?

So, Keith, this is Paul. I'll kind of wrap in what Mike just went through. ASP increases, demand and price elasticity, pull forwards, supply chain challenges. And we guided the same in Q3 as we did, the 2% to 3% in Q2. As we mentioned, we were at the – and Mike noted in his prepared remarks that we were on the higher end of it. And so we have seen, you know, demand pull forwards. There's kind of all those puts and takes. But let me give you a little more color. What is different this quarter than when we got together last quarter? While prices are still going up that we just talked about, visibility and predictability actually have improved. So customers are getting a better insight on kind of future pricing and product availability. And some of this is coming because vendors, you've probably seen in the market, some have extended the duration of some of their price quotes and price validity, which gives customers a little bit more stability as they go through their own sales cycle. So, when you're talking about a handful of days and the uncertainty before, now we're looking for some that are, you know, as long as 30 days. So, it lets customers have, you know, better visibility. And I would say their pipelines are giving us feedback that their pipelines are healthy, too, as we're in Q3 and improved cost visibility. Still prices are going up, but there's better visibility. And here's what I would say generally kind of what I'm hearing from customers. Some customers, and I mentioned this before, breaking some of these large infrastructure products, probably more of the SMB market into smaller phases, which is good news, because that doesn't mean the demand's going away or they're canceling. It just means they're doing it in phases, while others, like I said, on a positive note, have actually seen stuff that was pushed out a quarter or two ago that are actually coming to fruition. So you kind of look at all the puts and takes. There's going to be some. We're continuing to see resiliency in a solid pipeline in Q3, which is reflected in the strongest guidance we've provided today.

Great. Thank you.

And this now concludes our question and answer session. I would like to turn the floor back over to Paul Bay for closing comments.

Thank you all for joining us today. I'd like to close by thanking our team members for their exceptional execution and delivering the best Q2 results in our company history, our customers for their continued trust and partnership, and our shareholders for your ongoing support. The technology market continues to evolve, and we're well-positioned to capitalize on the opportunities ahead. And our focus will remain on innovating for our customers, investing for the long-term growth, and delivering sustainable value. So thank you, everyone, and have a great day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.