Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. I would like to welcome everyone to the TD SYNNEX Fourth Quarter and Full Year Fiscal 2023 Earnings Call. At this time, for opening remarks, I would like to pass the call over to Liz Morali, Head of Investor Relations. Liz, you may begin.

Thank you. Good morning, everyone, and thank you for joining us for today's call. With me today are Rich Hume, CEO, and Marshall Witt, CFO. Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws, including predictions, estimates, projections, or other statements about future events, including statements about demand, cash flow, and shareholder return, as well as our expectations for future fiscal periods. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties discussed in today's earnings release in the Form 8-K we filed today and in the Risk Factors section of our Form 10-K and our other reports and filings with the SEC. We do not intend to update any forward-looking statements. Also during this call, we will reference certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP results are included in our earnings press release and the related Form 8-K available on our Investor Relations website, ir.tdsynnex.com. This conference call is the property of TD SYNNEX and may not be recorded or rebroadcast without our permission. I will now turn the call over to Rich.

Thank you, Liz. Good morning, everyone, and thank you for joining us today. We delivered solid fourth quarter results, with the gross billings at the high end of our outlook range and a significant EPS beat enabled by the continued execution of our business plan despite dynamic market conditions. Our strategic emphasis on high-growth technology areas, coupled with our broad technology portfolio, allowed us to pivot to margin-accretive areas of growth, and we saw signs of stabilization with healthy sequential improvement in revenue and gross billings in the fourth quarter. For the full fiscal year, we successfully navigated the business environment, growing our market share in both Americas and Europe, increasing our business mix of high-growth technologies, and expanding our non-GAAP operating margin to 2.85% through a combination of mix shift and full execution of merger synergies. Our business model, improved working capital management, and the healthier supply chain conditions enabled us to generate robust free cash flow of $1.3 billion, ahead of our original $1 billion target. From this, we returned over $750 million of capital to shareholders through dividends and share repurchases, representing approximately 60% of our free cash flow for the year. This exceeded our 50% target as we opportunistically increased our share repurchases. In total, we repurchased approximately 6.5 million shares, or 7% of shares outstanding. As Marshall will further discuss, we are also increasing our quarterly dividend in Q1 to $0.40 per share, or a 14% increase compared to the prior quarter. Balanced capital allocation and returning capital to shareholders continues to be a top priority for the company as we execute our strategy and drive value for our shareholders. Moving on to our fiscal fourth quarter results. From a gross billings perspective, the quarter played out at the high end of our expectations, with improving year-over-year declines in Endpoint Solutions. As expected, Advanced Solutions declined slightly on a year-over-year basis given the strong performance in FY '22 enabled by record backlog levels. From a regional perspective, the market environment in the Americas continued to show signs of stabilization, with improving year-over-year declines in Endpoint Solutions. Europe performed better than expected and improved sequentially despite a muted macroeconomic environment. In APJ, we continue to see traction in our portfolio build-out, helping to offset some of the softness in endpoint demand. We made excellent progress on our strategic efforts to strengthen our end-to-end portfolio via new vendor additions, including Workday and Meta, where we are the exclusive North American distributor for their new suite of business products. We also expanded our security portfolio in Europe, one of our key priorities, with the addition of Palo Alto Networks' full range of cybersecurity, hardware, and software products to our offerings in the region. Our strong pipeline of new vendors is bolstering our best-in-class portfolio of over 2,500 vendors, something which is becoming even more important as IT solutions are increasingly comprised of bundled multivendor offerings. As part of our focus on solutions aggregation, during the quarter, we launched our ISV acceleration program in North America, which is designed to help independent software vendors of all sizes to grow their businesses by accessing our extensive ecosystem, technical expertise, marketing, and sales resources. We were also honored to be recognized by several vendors with a variety of awards spanning the globe, including being named the global and North American Distribution Partner of the Year by Palo Alto Networks. We are proud of these distinctions and strive to continue elevating our offerings to help our partners grow their businesses. Our ESG goals and initiatives remained front and center during the fiscal year, and we recently achieved our second consecutive top score in the Corporate Equality Index, a leading benchmark survey and report measuring corporate policies related to LGBTQ+ workplace equality. In addition, we formalized our commitment to disability inclusion at the company through my signing of Disability:IN CEO Letter. We're looking forward to sharing additional insights regarding our ESG initiatives in progress in our second Corporate Citizenship Report, which we plan to publish in the first half of the year. As we begin our new fiscal year, I wanted to provide a bit more color regarding our recently announced executive changes for the organization. Last week, Patrick Zammit assumed the role of Chief Operating Officer for TD SYNNEX. As COO, Patrick continues to report to me and takes on the responsibility for leading our day-to-day distribution operations, executing our business strategy to further drive profitable growth across the company and accelerating our penetration in strategic technologies. This will also benefit us further by allowing me to focus on leading our strategic initiatives, identifying additional growth opportunities and focusing on relationships with key external stakeholders including vendors, partners, and shareholders. I'd also like to take a moment to thank Michael Urban, President, Americas, who has decided to leave the company effective March 1 for his efforts in bringing TD SYNNEX together over the past two years. He and his team delivered a very successful merger integration in the Americas, and we wish him well in his next career chapter. From a regional perspective, we are in a strong position with the continued leadership of Peter Larocque in North America, Otavio Lazarini in Latin America, and Jaideep Malhotra in APJ, all long-time industry veterans, and we look forward to announcing our next European leader in the very near future. With this highly skilled and experienced team, we entered 2024 well positioned to capitalize on the gradually improving IT spending market dynamics. Looking forward on our outlook for fiscal 2024, we are optimistic that the market headwinds we have experienced over the past several quarters will continue to abate as the year progresses. Early indications are that the gradual recovery in Endpoint Solutions will build throughout the year, fueled by the resumption of more normalized PC buying patterns. This will be balanced by tougher year-on-year compares for Advanced Solutions given the strong growth in the first half of 2023, but should position us well for returning to overall growth as we move through the year. Marshall will elaborate on this later. As we think about our strategic priorities for FY '24, a couple of areas of importance I want to touch on are our digital platform capability and advancements in AI. As software and services continue to represent a greater portion of the overall IT spending for the industry, we remain focused on augmenting our capabilities in these areas to help customers assemble the critical solutions that their end users require. To do this, we will continue investing in and building out our digital platform capabilities with the aim to provide customers with a one-stop-shop where they can easily access unified multi-vendor offerings. AI is another clear growth vector as we continue to look ahead in our industry. We have invested for several years in this space via our data analytics practice. This created the foundation for our AI strategy, and our decade-plus of experience in data analytics puts us in a leadership position relative to this new exciting market opportunity. We have built a state-of-the-art vendor portfolio, starting with leading providers in the on-prem and off-prem infrastructure area required to run and train AI models. Many of our leading software vendors have announced or released embedded AI capabilities in their product lines, and we are working with industry leaders for AI foundational models to accelerate the development of use cases across our ecosystem. In addition, we will leverage our strong relationships with PC OEMs to support and enable the introduction and growth of AI-enabled PCs over time as well as our relationships with key component suppliers and customers. In addition to our previously announced Destination AI program, we are partnering with others in the ecosystem, such as our collaboration with Microsoft, where we launched a global AI-enabled journey for Microsoft 365 copilot last month. We are also working with several other strategic vendors to capitalize on our Destination AI framework to accelerate the adoption and use of the new AI product set. In closing, we believe we have the right strategy and are well equipped to continue navigating the ever-changing IT landscape while positioning ourselves to capitalize on new and emerging growth opportunities. We are committed to continuing to create shareholder value with a keen focus on execution and healthy capital returns. Lastly, I want to take a moment to extend my sincere thanks to our customers and vendors who we are privileged to help achieve great outcomes with technology every day and to our 23,000 coworkers around the world who enable this important work. I will now turn the call over to Marshall so that he can provide additional details on our financial performance and outlook.

Thanks, Rich, and good morning to everyone on today's call. Our fiscal '23 full year results illustrate the power of our business model, broad technology portfolio, and the progress we've made in positioning ourselves as a leader in the high-growth technologies of cloud, security, data analytics, and AI. Despite a challenging market environment due to industry-wide reductions in demand for PC ecosystem products, we demonstrated continued strength across Advanced Solutions and high-growth technologies and grew both our gross and operating margins for the full year. The resiliency of our business model helped offset some of the pressure from the reduced revenue, and our businesses responded appropriately by acting to align our cost to the changes in volume and mix. This enabled significant free cash flow generation and capital return to shareholders. Moving to our fiscal fourth quarter performance. As Rich mentioned, we had strong gross billings in Q4, and importantly, saw early signs of stabilization in IT spending with lesser year-on-year declines in Endpoint Solutions. Advanced Solutions faced tougher compares given the strong performance last year, when backlog levels were still elevated. Fiscal Q4 total gross billings were $19.7 billion, down 6% year-over-year, and at the high end of our outlook range, driven by stabilization in the Americas and outperformance in Europe. Net revenue was $14.4 billion, down 11% year-over-year and near the midpoint of our outlook range. Gross to net revenue adjustments were larger than expected due to a shift in business mix and the migration of a Hyve customer to a consignment model. As a reminder, this migration is due to certain components transitioning to a customer-owned procurement model. While this has a negative impact on our net revenue, it does not materially impact operating profit. For the fiscal fourth quarter, this change impacted net revenue negatively by $270 million. Non-GAAP gross profit was $1.02 billion, and non-GAAP gross margin was 7.07%, up 44 basis points year-over-year, as we continue to see the positive effects of a richer product mix and our progress in expanding high-growth technologies, which continue to represent more than 20% of total gross billings for both the quarter and the full year. Total adjusted SG&A expense was $592 million, up $10 million year-over-year and up $15 million quarter-over-quarter, which was expected given the sequential growth in gross billings of $1 billion. Non-GAAP operating income was $427 million, and non-GAAP operating margin was approximately 3%. Non-GAAP interest expense and finance charges were $66 million, $4 million better than our outlook and approximately flat quarter-over-quarter. The non-GAAP effective tax rate was approximately 22%, better than our forecasted 24%, primarily due to the mix of our business within certain regions. Total non-GAAP net income was $286 million, and non-GAAP diluted EPS was $3.13, $0.23 above the high end of our guidance range, due to a combination of better-than-expected performance on gross billings, profitability, interest expense and taxes, as well as higher share repurchases. As a reminder, non-GAAP diluted EPS for the fourth quarter of fiscal year '22 was $3.44, but the year-over-year comparison for EPS is impacted by $0.33 of high-margin recoveries in fiscal fourth quarter of '22. Now turning to the balance sheet. We ended the quarter with cash and cash equivalents of $1 billion and debt of $4.1 billion. Our gross leverage ratio was 2.3x, and net leverage was 1.7x, in line with our investment-grade credit rating and approaching our target of 2x gross leverage ratio. Accounts receivable totaled $10.3 billion, up from $8.9 billion in the prior quarter. Inventories totaled $7.1 billion, down from $7.5 billion in the prior quarter. For the fourth quarter, net working capital was $3.3 billion, and the cash conversion cycle was 23 days, both flat from Q3. Cash from operations in the quarter was $211 million, and free cash flow was $168 million. In total, we generated approximately $1.3 billion in free cash flow in fiscal '23, ahead of the $1 billion target we guided to at the beginning of fiscal '23. We returned $374 million to shareholders in the quarter, including $343 million via share repurchases and $31 million through dividend payments. For the full fiscal year, we returned $751 million to shareholders, of which $621 million was through share repurchases, compared to $125 million in fiscal '22. We currently have approximately $396 million remaining under our share repurchase authorization. For the current quarter, our Board of Directors has approved a 14% increase to our cash dividend to $0.40 per common share, which will be payable on January 26, 2024, to stockholders of record as of the close of business on January 19, 2024. Moving now to our outlook for fiscal first quarter. We expect gross billings of $19 billion to $20 billion, representing a decline of 3% on a year-over-year basis at the midpoint. We expect total revenue to be in the range of $14 billion to $14.7 billion, representing a decline of 5% on a year-over-year basis at the midpoint. Our guidance is based on a euro to dollar exchange rate of 1.09. Non-GAAP net income is expected to be in the range of $232 million to $277 million. Non-GAAP diluted EPS is expected to be in the range of $2.60 to $3.10 per diluted share, based on weighted average shares outstanding of approximately 88.4 million. Interest expense is expected to be approximately $66 million, and we expect the non-GAAP tax rate to be approximately 23%. Additionally, I wanted to highlight that effective next quarter, we will begin providing some additional disclosures to enhance our reporting to investors and other stakeholders. Starting in fiscal Q1, we will provide more clarity regarding our gross billings, net revenue, and gross profit for Edge Solutions and Advanced Solutions. Edge Solutions, which we previously referred to as Endpoint Solutions, will include PCs, peripherals, mobile, print, and other devices, including AR/VR. Advanced Solutions will include hyperscale infrastructure, cloud, servers, networking, storage, and software. Our reportable segments will continue to be based on geographies of Americas, Europe, and APJ. As we think about the full fiscal year for 2024, we currently expect non-GAAP gross billings to be approximately flat year-over-year in the first half of the fiscal year, with expected growth of mid- to high-single-digits in the second half of the fiscal year. We expect to generate approximately $1.2 billion in free cash flow for the fiscal year and remain committed to our medium-term capital allocation target of returning 50% of free cash flow to shareholders via both dividends and share repurchases while remaining opportunistic depending on market conditions. In closing, we successfully navigated the volatile market conditions in fiscal '23 and are well positioned to capitalize on a return to growth in fiscal '24 with a focus on margin expansion, robust free cash flow generation and a commitment to continued healthy shareholder returns.

And we will take our first question from David Vogt with UBS. Your line is open.

Great. Thanks, guys, for taking the question. So maybe just a question for both of you. In terms of how you're thinking about fiscal '24, we appreciate the color on sort of the gross billings commentary for the first half and the second half. Can you kind of help us understand a little bit more how you're thinking about maybe at a higher level, sort of what's underpinning that spending pattern from an IT spending backdrop? Whether you want to talk about it from an Edge Solutions perspective, a new category, or Advanced Solutions, can you kind of help us think about how you're thinking about the broader market and your position and your ability to kind of grow faster than the market? I would assume it's kind of embedded in your outlook. So maybe we'll just start there, if that's okay. Thanks.

David, good morning, and thanks for the question. This is Rich. Yes. If you think about the evolution throughout and then the back end of COVID, obviously, last year at about this time, the PC ecosystem set of products really went into a pretty significant decline. At the same time, back into COVID, there was pent-up demand and backlog for Advanced Solutions products. So as we come into this fiscal, you have an easier compare within the PC ecosystem. You have a more difficult compare in the Advanced Solutions because of the cycles that had transpired in the past. So our point of view is when we think about the first half, that there will be some level of growth in the PC ecosystem, but the Advanced Solutions will face a bit of a more challenging compare. Then when we get to the back half of the year, we believe that most of the wraps, if you will, have concluded and that both of those major segments will have growth attributes. And that's what has led us to the guide of kind of flattish in the first half with mid-, high-single-digit in the second half. And yes, of course, it's always our intention to do better than the market. In fact, in the prepared remarks, we talked about in the Americas theater as well as, I'm sorry, the North America theater as well as the European theater that we had gained some market share. So Marshall, I don't know if you have anything to add.

Yes, David, just some more color. When we do our assessment for quarter one and for the full fiscal '24, we come at it from a bottoms-up perspective. So think about it for all the countries that we do business in, each one of those leaders looked at what that is for their territory. So there's a country assessment. And within that, there's certainly a vendor and a customer comparison as well as, call it third-party industry data, just to triangulate where we should land. And then with that, as Richard said, we certainly look at the GDP, the overall trajectory of what that looks like by market what IT spend correlation is expected to be relative to GDP and then our ability to outgrow that.

And can I just ask a follow-up? In the prepared remarks, you talked extensively about AI and obviously that being a contributor to the business. How should we think about AI across the business, let's say, over the next year or two? And how is that factored into your outlook this year, I guess? I mean, I would imagine there's a lot of discussion by chip makers, OEMs, et cetera, that, let's say, on the endpoint or edge solution market. You'll see stuff at the latter half of, I guess, 2024, calendar '24, I should say. I just would love to kind of get your thoughts on how you think that kind of shapes through the year from an AI perspective.

Yes, David, I would compare this to the cloud. There was a lot of hype at the beginning, and while it's clear that AI represents a significant technology with numerous benefits, there is a gap before its full impact is felt in the market. AI will be integrated into current offerings, and we expect extensive discussions on how to account for AI similar to how it was done with cloud technology. We will also see the development of new AI capabilities, such as AI servers. Currently, there are AI-enabled products available, and as time progresses, there will be even more. We have taken AI into account in our full-year forecast, but it is still in the early stages, and we anticipate stronger demand over time. However, I want to emphasize that this won't simply add to existing IT budgets. Companies will adjust their spending priorities within their budgets, leading to some realignment in how they allocate their IT expenditures. Overall, I believe AI will positively contribute to IT growth, but it won't be an entirely new segment that adds completely on top of existing spending.

Great, that's helpful, Rich. Thanks guys.

We will take our next question from Vince Colicchio with Barrington Research. Your line is open.

Yes, Rich, curious how you think your share position performed in all your geographies this quarter?

Yes. As we had reported in the past, when we think about share, we have really good insight relative to North America and Europe, but we really don't have visibility yet. There is a service that is emerging in Europe. As it relates to the quarter, our information would say we lost a couple of tenths of market share, tenths of 1%, if you will, on the aggregated basis, while having grown share for the full year.

And then could you provide a bit more color on what gives you confidence in the continued improvement of Endpoint Solutions throughout the year?

Yes. So as Marshall talked about the very comprehensive process that we go through, our indicators in talking to customers, vendors, and working with our own teams are that we will see growth moving forward in Endpoint. And in fact, within our Q1 guide, we anticipate some growth within the Endpoint. So we feel good about that. While we have a moderating situation in Advanced Solutions based on the commentary that I provided earlier.

When you talk about growth in Endpoint, you're talking about sequential, I suppose?

No, year-on-year.

Oh, really? That's good to hear. Thank you.

We'll take our next question from Ruplu Bhattacharya with Bank of America. Your line is open.

Good morning. Thanks for taking my questions. My congrats to Patrick on the new role. And thanks for giving guidance on billings. I was wondering if you can talk a little bit more about the impact of this mix shift to more netted down items? Specifically, what year-on-year impact to revenues and margins is embedded in your fiscal 1Q guidance? And if you can talk about how we should think about this for fiscal year '24. So as this shift happens, should we expect this difference between gross billings and revenue to continue to expand throughout the year?

Thank you for the question, Ruplu. For Q1, we provided guidance indicating that gross billings are expected to decline by about 3% while net revenue is projected to decrease by around 5%. If we examine the overall momentum between gross and net, we were at approximately 22% to 23% of netted revenue in fiscal '22, which has now increased to 25% to 26% in '23. I expect this trend to continue into '24. It's challenging to predict beyond the first quarter regarding these relationships. The shift in mix reflects how AS has performed relative to ES. Looking ahead to next year, with the anticipated improved performance of AS, we may see either a shift or stabilization in the gross versus net ratio, potentially maintaining around 26%. Given the current behavior, we forecast more balanced growth rates for both ES and AS moving forward. Previously, growth was primarily driven by ES, but now AS is expected to take a more prominent role. Therefore, I suggest using a 25% to 26% adjustment for '24. As we progress, we will keep you updated on the relevant trends. Additionally, it's worth mentioning the consignment program for Hyve, which had an impact of approximately $270 million on net revenue, but did not affect profits. We anticipate this program will generate about $250 million per quarter going forward, contingent on continued volume with this Hyve customer.

Okay, Marshall. Thanks for all the details there. Just for my follow-up, if I can ask, you guided free cash flow to $1.2 billion. And you maintained the shareholder return of 50% returns and 50% reinvestment in the business. So when we think about that reinvestment, 50%, how are you thinking about organic investments versus M&A, now that your integration with the two large companies is now more or less complete in North America? So is it now time for further M&A? So any thoughts there?

Ruplu, good morning, thank you for the question. This is Rich. So when we talk about our capital allocation strategy, as you know, it's 50% and 50% over the continuum. There could be periods where we're heavier weighted one way or the other. Obviously, Marshall talked about FY '23 in his prepared remarks, and we were, I think, at 60%-ish for return to shareholder in total. So as we kind of plot through the year, certainly, we have a pipeline of acquisition targets that we continue to look at and work. Those deals have to have a willing recipient on the other end, and they've got to work for us. And usually, we take a look at those acquisition targets and really want to make sure that they complement our strategy. So going forward, I would tell you that the 50-50 is sort of a good way to think about it. And again, things don't always go exactly as planned. So we adjust course as required based on the circumstance. So Marshall, anything you have to add?

Yes, Ruplu, I want to highlight one more point. When considering our first quarter, there will be a slight increase in SG&A due to ongoing investments, particularly in AS. Even as AS experiences a downturn, we plan to maintain our investment levels. This may result in a higher SG&A in the first half of '24. I wanted to make you aware that it might look like there’s an inconsistency between E and R on a gross billing basis, but this has been carefully considered. We believe there will be a chance for recovery in AS in the second half.

Okay, thank you for all the details. Appreciate it.

And we will take our next question from Michael Ng with Goldman Sachs. Your line is open.

Hi, good morning. Thank you very much for the questions. Marshall, maybe just a follow-up on the SG&A point that you just made. Is 2.75% to 3.25% of billings still the right way to think about that? And maybe you could just help us think about how SG&A evolves throughout the year? And then I just have a quick follow-up.

Sure. You're right, Mike. It's in the range of 2.75% to 3.25% regarding gross billings. We'll start at around 3% in the first quarter, and we expect that structure will help enhance growth in the portfolio, gradually bringing it down to something below 3%. Considering the year-over-year SG&A for the first quarter, there are two key factors. One is the AS investment, and the other, although subtle, is that at this time last year, we had already begun to see a decline in performance and started to reduce some provisions for variable pay. This year, we're optimistic about hitting our targets and growing, which means there will be somewhat higher bonus and variable pay in the first quarter. Additionally, the actual foreign exchange rates from the euro perspective are up, resulting in a headwind of about $10 million to $15 million. Lastly, the SG&A investment mentioned regarding AS is another crucial investment we believe is necessary. Overall, we feel confident in our position. We anticipate that 3% will likely be the upper limit for fiscal '24, with improvement expected as we progress through the quarters.

Great. Thank you. That's very clear, Marshall. And it was encouraging to hear about the new segment disclosures by product around billings, revenue, and I think you said gross profit as well. I was just wondering if you could give us a little bit of a preview of some of the potential revelations that we may have as you give out those new disclosures. Does the narrative kind of tighten up around the growth and margin outlook for those segments in the near midterm?

Yes, Mike, in response to that, Rich and I have discussed the margin characteristics of AS and ES as well as their growth aspects. This allows us to be more specific. I believe that the insights we can share about the actual performance within the portfolio will enhance our understanding of the mix and the profit margins of the business. We see it as an enhancement and a contributor to value. Additionally, it will provide clarity on our performance for the quarter and our expectations for the next quarter.

Yes. Just to add to that, I think the narrative we provide during the call is generally accurate in terms of what you'll see in the segmentation moving forward. We often discuss the segments, and you all seek insights regarding them. This will provide clear information in writing. Additionally, I want to note that you are quite skilled at modeling. Each time we gain insight related to models, we are impressed by how you think about the business and how you present it.

And we will take our next question from Alek Valero with Loop Capital. Your line is open.

Hi everyone, I'm stepping in today. Thank you for taking my question. My question is, do you think Hyve can get involved in generative AI server builds? We've heard from our work that this might be the case.

I'm sorry, can you repeat that? You broke up a little bit.

For sure. My question was, do you guys believe that Hyve can become involved in gen AI server builds?

Yes. If the question is do we believe Hyve will participate in AI server builds, absolutely. Remember that the big segment of Hyve is an ODM type of business. And so we end up building what our customers have an interest in. And certainly, we have full expectation that we will be participating in the AI builds moving forward.

As a follow-up, which key spending areas were weaker than you expected or weaker than typical seasonality? Also, could you discuss your expectations for PC seasonality in the February and May quarters?

Yes, I can. Regarding Q4, the pleasant surprise is that sales were largely in line with our expectations. Marshall mentioned some slightly better performance in Europe compared to what we anticipated, but it wasn't significantly different. Each of the segments also performed fairly consistently with our expectations. Looking ahead, we noted that due to the backlog decline last year in AS, we expect a more challenging year-on-year comparison. As we progress through the year, this comparison should become somewhat easier as the backlog has cleared. That would be our expectation. However, we foresee growth in both the Endpoint and Advanced segments in the second half of next year.

Awesome. Thank you, guys. Really appreciate it.

And we will take our next question from Adam Tindle with Raymond James. Your line is open.

Okay. Thanks. Good morning. I wanted to ask on trends and profit dollars for the business overall. And just observing that you finished fiscal '23 with non-GAAP net income just down, I think, over 8%, you executed on synergies during the year. So ex that, I would think non-GAAP net income down double digits. And if I look at the midpoint for Q1, based on your guidance, it looks like net income is going to be down close to 10%. And it looks like you've got some cost optimization that may be helping a little bit in the first half of the year. So probably north of 10%, ex that. So for investors that are seeing these double-digit net income declines, maybe you could touch on the drivers that are causing that trend and whether you think that's just kind of a structural aspect of the business at this point, and we're working on just optimization on that? Or is there a stake in the ground that you want to put on timing to return that to growth?

Adam, this is Marshall. I'll begin by discussing the overall revenue trends and our expectations for ES to show positive growth in the first quarter. This will likely result in a gross margin that is slightly lower than the AS margin, estimated around 20 basis points. Looking at the mix, we expect this to play out in the first quarter. Regarding costs, in the first quarter last year, we noticed a decline in our business volumes. We recognized some inefficiencies in the second and third quarters and acted on additional cost reduction opportunities. By the end of the year, we managed to recover those increased costs. As we look towards the first quarter, we anticipate better overall performance throughout the year. With that, we are aligning our variable compensation with last year, having already reduced those variable factors based on our business outlook. Additionally, we are making investments in AS, which come with higher costs and may contribute to some margin pressures. Inflation, particularly in healthcare, remains a concern, but historically, we find ways to enhance productivity to counterbalance this, even if it takes a couple of quarters. The margin comparison in the first quarter will be more challenging, but we believe we can improve the margin profiles for both AS and ES over the year. The mix and certain SG&A factors seem to be impacting the overall narrative a bit.

Got it. Okay. So to follow up on that, you contributed to the gross billings for the year, which were relatively flat in the first half and showed mid- to high-single-digit growth in the second half. For simplicity, let's consider it mid-single-digit growth for the year in total gross billings. Considering everything you just mentioned, would the growth in non-GAAP net income align closely with the growth in gross billings? And could you explain why or why not?

Yes, our expectation is that gross profit will likely remain flat or increase, and non-GAAP operating income will also be flat or increase. We will need to see how this develops, as we anticipate the growth profile in the second half to be in the mid- to high-single-digit range.

Yes. I think, Adam, just to maybe be a bit repetitive. The thing that we've got to work through is the mix shifts back now to more Endpoint. And as that happens, as Marshall said, there's probably a 20 basis point headwind that we need to work on and figure out how to improve upon. I would say that we're reasonably proud of the fact that when you take a look at the op income margin for FY '23, we've been able to hold that or we held that despite the revenue declines that we had faced. So we have some work to do going forward, but we kind of have our eye on it, and the execution engine will kind of focus on how do we drive improvement moving forward.

Okay. And maybe just a quick follow-up, Rich. You talked a lot about Hyve consignment. But I think on the last call, you mentioned a new customer ramp that you were expecting in fiscal '24. Could you provide us with any update on that and visibility into the timing and magnitude of that? Thanks.

Yes. So the customer ramp was just a little bit delayed due to timing of things, but we fully anticipate that we're clear to go moving forward.

Okay. Do you have an idea of the timing and scale of it yet?

Timing, we think the ramp should begin in quarter one and probably show itself a little bit more in quarter two. So at that point, hopefully, it will be meaningful enough for us to speak to.

Okay, thank you very much.

Thank you, Adam.

Thanks, Adam.

We'll take our next question from George Wang with Barclays. Your line is open.

Hey, guys, Richard and Marshall, I just have a question just on the AIPCs. I just want to double-click just especially in terms of the timeline and the kind of cadence for the ramp. Just curious if you have any more color to share, just kind of from your perspective? And also, we heard from the OEM and the kind of chip makers. Just curious, kind of what specification you can disclose to better so they contribute to the AIPC wave, if you will?

Yes. Thanks for the question. Good morning. Obviously, it's a new technology coming in. All indications that we have, it will be sort of at the high end of the premium price band going forward as one would anticipate or in the fiscal year coming, I should say. All of the intelligence that we have says that it will be sort of a single-digit percent of total of the entire PC population, and then, I think, becoming more meaningful in FY '25 and then into FY '26. So great opportunity going forward. Kind of best crystal ball estimate is sort of mid-single-digit back half of the year percent of total PC volume and then growing meaningfully after that.

Okay. Great. That's it from me. Thanks.

Well, thank you.

We will take our next question from Joseph Cardoso with JPMorgan. Your line is open.

Hi, good morning, and thanks for the question. Yes, just one for me. I just wanted to piggyback on some of the AS questions. First, can you just clarify if the year-over-year declines in AS were largely in line with your expectations 90 days ago? And then more specifically, can you just elaborate on the trends you're seeing across some of the product categories there like servers, networking as well as any others? And just curious if any of those are trending better or worse relative to your expectations. And then just the second part of that question, as you think about a recovery in the back half, is that broad-based across these product categories? Or are you thinking that it's more concentrated to a particular one? Thanks for the question, guys.

Joe, good morning, and thank you for the question. I believe the underlying demand for all these technologies is quite strong. To understand how these technologies have developed, it's important to consider when their backlogs recovered last year, as that influences the year-on-year comparisons and can skew the numbers. From my perspective, server and storage saw their backlog recover earlier, while networking experienced a later recovery. Therefore, when assessing the year-to-year recovery, I think server and storage are ahead of networking because the backlog for networking lingered longer, putting it later in the cycle. As we mentioned earlier, we expect that in the second half of the year, each of these categories should demonstrate growth potential. That's at least what we anticipate.

No, makes sense. Thanks, Rich. I appreciate all the color. Thanks, guys.

Thanks, Joe.

And we will take our next question from Keith Housum with Northcoast Research.

Good morning, guys. A question for you on the revenue synergies that were anticipated from the ERP integrations. I guess are those proceeding as you guys expected? And how are you expecting those to ramp up throughout the rest of the year, is that baked into your guidance?

So Keith, good morning. I hope everything is well. Yes, they're proceeding consistent with our expectations. We would anticipate as we think about this year that we're going to start to see meaningful progress relative to our cross-sell opportunities with our customers. When we think about our guide, we fundamentally believe that we've baked that opportunity into the guide and it will really kind of ramp up and hopefully be a bit more meaningful in the back half of the year. Do you have anything to add, Marshall?

No.

Appreciate it. If I could quickly mention the recent acquisition you announced, which I believe was Cokeva. Please correct me if I got the name wrong. It seems like a life cycle services company. Could you discuss the strategy behind making that investment now, especially considering that your largest competitor has exited that business? Is this a strategic shift, and do you see it as an opportunistic or competitive advantage over your competitors?

So first of all, let's talk about the primary capabilities that are offered with the acquisition. First is around repair and then test and refurbishment. We certainly participate in those businesses today. And really, we connect quite well relative to assisting our vendors in that regard. And we like the business. And obviously, it also offers a 220,000-square-foot piece of real estate, which will allow us to do more integration for customers as well. But we see good demand, solid demand for those services with our vendors, and they've been encouraging us to grow that footprint, which we are doing. The other thing I'd like for you to think about is there's more focus on these types of things, especially the refurb segment moving forward as sustainability comes front and center. So we also see sort of, if you will, a bit of a revival around refurb as the world tries to become more sustainable. So we think that there's going to be an extra ticker relative to these types of businesses moving forward based on that focus.

Great. Thank you.

And we'll take our last question from Ashish Sabadra with RBC Capital Markets. Your line is open.

Thanks for taking my question. There was a lot of discussion around AS dynamics near term, both the first half and the second half of '24. But as we get through some of that near-term volatility, I was wondering if you can talk about how should we think about the midterm growth for the AS solution as well as margin profile for this business over the midterm? Thanks.

Yes. I'll start, and Rich can add on. Regarding AS, as mentioned in our prepared remarks, we still have some backlog from a comparative standpoint, making this a challenging year-on-year comparison as we are in the first quarter. However, as we progress through fiscal '24, we anticipate a return to growth for both portfolios, ES and AS. The sequential momentum or predictability of that is still somewhat uncertain. But as we discussed previously, our forecast relies significantly on our country-level leaders to assess their AS relationships and determine the best approach for growth. Considering a low to mid-single-digit up to high-single-digit growth rate, I believe AS will perform within that range in the second half.

Maybe just to clarify, when we consider exiting at mid- to high-single-digit growth for AS in '24, is that the right growth profile? Or could we see a further acceleration there over the next three years, let's say, midterm?

Yes. So beyond the thoughts we gave, we don't provide guidance or thoughts around what it looks like in '25 and '26. Certainly, we go back to our strategic initiatives and how we position our investments and the commentary we made near term about what we're doing to lean into AS, SG&A and the skill sets and how important it is to retain those and grow those. So we're certainly confident in that market space. But beyond the commentary, not much more we can provide in terms of what that looks like.

Yes. I would like to add to Marshall's comments that we always aim to grow slightly faster than the market. Historically, we have been successful in this endeavor. We expect the same for 2025 and 2026, aspiring to exceed market growth expectations.

That's very helpful color. And maybe if I can ask a clarifying question. PC decline, obviously, was a big headwind in fiscal year '23. Have you quantified or is there a way to think about the total revenue headwinds from the PC decline in the fiscal year '23 last year?

So a specific number, no. It clearly was in the PC ecosystem, a negative contributor to the overall decline in our revenue portfolio. So it did have a meaningful impact. If I sit back and think about ES and AS, something ES had its moment in '21 and halfway through '22 and AS had its moment in '22 and '23. So we're happy that we've got such a broad and diverse portfolio. And yes, we have certain attributes that behave differently from time to time. But the benefit of our large portfolio allows us to have a balanced view when certain aspects of ES are down and certain aspects of AS could be up. But the complementary line card, I think, is what really benefits us.

Yes. Just a way of thinking about this is, last year, we knew AS had grown, and ES had declined. Those are the two major segments of our business. So if you take a look at the net change in revenue year-on-year, you're probably getting close to the answer.

That's very helpful color. Thank you. Thanks again.

Thank you, ladies and gentlemen, I will now turn the call back to Mr. Rich Hume for closing remarks.

Well, thanks, everyone, and thanks for participating in the call today. FY '23 certainly played out different than we all had anticipated as we had sat around the table this time last year. That being said, I'm very proud of what we've accomplished. I'm very proud of our relationships with our vendors and our customers. They are our primary stakeholders, and my congratulations to our 23,000 coworkers around the world for doing a great job executing in this more challenging environment than anticipated. With that, I wish you all a great day.

And ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may now disconnect.