Good morning. My name is Kate, and I will be your conference operator today. I would like to welcome everyone to the TD Cynics second quarter fiscal 2025 earnings call. Today's call is being recorded, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At this time, for opening remarks, I would like to pass the call over to David Jordan, America's CFO and Head of Investor Relations at TD Cynics. David, you may begin.

Good morning, everyone, and thank you for joining us for today's call. With me today is Patrick Zamet, our CEO, and Marshall Witt, our CFO. Before we continue, let me remind you that today's discussions contain forward-looking statements within the meaning of the federal securities laws, including predictions, estimates, projections, or other statements about future events, including statements about our strategy, demand, plans and positioning, growth, cash flow, capital allocation, and stockholder return, as well as our financial expectations for future fiscal periods. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risk and uncertainties discussed in today's earnings release. In the Form 8K we filed today, in the risk factors section of our Form 10-K and 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 the earnings press release and the related Form 8-K available on our investor relations website, ir.tdcenex.com.

This conference call is the property of TDCenex and may not be recorded or rebroadcast without our permission i will now turn the call over to patrick patrick thank you david good morning everyone and thank you for joining us today i'm excited to report on our strong second quarter performance and provide an update on the impacts we are seeing from the macroeconomic uncertainty our q2 results demonstrate the continued strength of the IT distribution and hyperscaler markets. Meanwhile, our strategy and the execution of our team are enabling us to grow ahead of markets. In Q2, gross billings grew 12%. 11% in constant currency and non-GAAP diluted EPS exceeded the high end of our guidance with all regions and major technologies contributing. We believe the quota benefited from some demand pull forward. Within TDCnex, excluding Hive, gross billings grew 11% year over year and operating margins expanded, resulting in strong operating income growth. From a technology perspective, we saw strong growth across both endpoint and advanced solutions. Hive, which is included within the advanced solutions portfolio, grew gross billings in the high teens. Hive profit margins declined sequentially, on which Marshall will provide more color. Within TDCnex, all regions and major technologies experience growth during the quarter. Software continues to be a bright spot in our portfolio, experiencing 20% billings growth, fueled by cloud, cybersecurity, and infrastructure software. Additionally, we continue to see strong growth in PCs, driven by the refresh cycle, and we were also pleased to see growth in networking after multiple week quarters. We saw broad-based demand across all our major customer segments, specifically SMB, MSPs, and public sector, all of which grew double digits during the quarter. At Investor Day, we shared five strategic imperatives we believe will enable us to deliver above market growth. These include unifying our reach, targeting new customers, distribution market expansion, diversifying our offerings, and accelerating on services. The execution of our strategy is recognized by 40 plus honors we received in the channel during the quarter. Additionally, HPE announced yesterday TDCnext is their global distribution Partner of the Year. Other highlights of honors during the quarter include being named Nvidia's America's Distributor of the Year, CrowdStrike America's Partner of the Year, Dell Emilia Distributor of the Year, Lenovo US Distributor of the Year, NetApp Latam Distributor of the Year, and Fortinet Hong Kong Distributor of the Year, among others. A key component of our strategy is targeting new customers and allowing them to scale through our digital capabilities. For example, many customers invest a significant portion of their SG&A in operational overhead. And in the US, we help a new customer to address this with a specialized solution. We partnered with our customer to develop a completely integrated and automated operational model that drove efficiency through TDCnext's transactional APIs and custom workflows, everything from configuration to renewals. By fully leveraging our digital capabilities, our partner was able to make an outsized investment in sales, marketing, and engineering talent. This has resulted in exponential sales growth at accretive margins for both our partner and TDCnex. Additionally, we continue to make great strides with our delivering services strategic imperative in a recent example with a leading advanced solutions oem we are deeply engaged in several important services initiatives including building various data center solutions and deploying the ai infrastructure solutions we are certified to build solutions on their behalf both further direct and indirect channels and this facilitates robust supply chain acceleration to significantly improve their time to cash and extend their overall capacity between our multi-vendor technical expertise and our robust integration supply chain support and professional services we are well positioned to connect oems with a network of technology vendors required for the ai infrastructure Our North Star remains generating profitable growth and free cash flow while being a valued partner to our vendors and customers across the world. We continue to allocate excess cash to high return opportunities to ensure sustainable value creation for our shareholders. Now, I will pass it to Marshall for financial performance and outlook.

Thanks, Patrick, and good morning, everyone. We had a strong performance in the second quarter, with gross billings of $21.6 billion, up 12% year-over-year, 11% in concurrency, and above the high end of our guidance range. We were pleased to see year-over-year growth across all regions and major technologies. Our teams continue to execute extremely well, and in addition to that, we believe we were modestly aided by our customers advancing their forecasted purchases in light of a volatile economic environment. In Q2, there was approximately 31% reduction from gross billings to net revenue, which was slightly higher than our expectations. This was primarily driven by an increase in high transactions where we act as an agent and a higher mix of software. Net revenue was $14.9 billion, up 7% year-over-year and above the high end of our guidance range. In Q2, our endpoint solutions portfolio grew gross billings 13% year-over-year, driven by the ongoing PC refresh cycle and customers modestly advancing their forecasted purchases. Our advanced solutions portfolio grew gross billings 12% year-over-year, 10% year-over-year when excluding the impact of Hive, driven by accelerated demand for data center infrastructure and continued growth in cloud, security, AI, and other high-growth technologies. Hive, which is reported within the advanced solutions portfolio, grew in the high teens, primarily due to strength in programs associated with server and network rack builds. Gross profit increased 7% year-over-year to $1 billion. Gross margin as a percentage of gross billings was 5%, which was consistent sequentially and a decline at 21 basis points year-over-year. Excluding HIVE, gross margins were relatively flat year-over-year. High gross margins declined from Q1 due to unrealized FX losses and program mix. We expect a portion of the unrealized FX losses will be recovered as we sell through the product in the back half of the year. Non-GAAP SG&A expense was $632 million, or 3% of gross billing, representing an 11 basis point improvement year over year. The cost to gross profit percentage, which we define as the ratio of non-GAAP SG&A expense to gross profit, was 60% in Q2, consistent with quarter one. Non-GAAP operating income increased 7% to $414 million. Non-GAAP operating margin as a percentage of gross buildings was 2%, representing a 10 basis point decline year over year and consistent with Q1. Interest expense and finance charges were $90 million, slightly higher than expectations, and relatively consistent quarter over quarter. The non-GAAP effective tax rate was approximately 23%, which was in line with expectations. Total non-GAAP net income was $251 million, and non-GAAP diluted earnings per share was $2.99, both above the upper end of our guidance range. Turning to the balance sheet for quarter two, networking capital was $4 billion, which is an improvement quarter over quarter despite the accelerated growth that we experienced throughout the business. We experienced a four-day improvement in our cash conversion cycle on a net basis quarter over quarter consistent with expectations. Free cash flow generation for the quarter was approximately $543 million. We returned $186 million to stockholders in quarter two with $149 million in share repurchases and $37 million in dividend payments. For the current quarter our board of directors has approved a cash dividend of 44 cents per common share that will be payable on july 25th 2025 to stockholders of record as of the close of business on july 11th 2025. we ended the quarter with 767 million in cash and cash equivalents and debt of 4.1 billion our growth leverage ratio was 2.4 times and our net leverage ratio was 1.9 titles moving on to our outlook i want to start by addressing the fact that we're in a volatile environment given the ongoing developments with respect to global trade i also want to acknowledge that this is our best view based on what we know today with that for the third quarter we expect non-gap gross billing in the range of 21 to 22 billion representing growth of approximately six percent at the midpoint our outlook is based on a euro to dollar exchange rate of 1.13 Net revenue in the range of $14.7 to $15.5 billion, which translates to an anticipated growth to net adjustment of 30%. Non-GAAP net income in the range of $227 to $268 million. Non-GAAP diluted earnings per share in the range of $2.75 to $3.25 per diluted share, based on weighted average shares outstanding of approximately $81.8 million. We expect a non-GAAP tax rate of approximately 23% and interest expense of $89 million. We expect to execute approximately $175 million of share repurchases during the quarter and will remain opportunistic in our strategy to return excess cash to our shareholders. In closing, we believe we are in a strong financial position heading into the second half of the year and are leveraging our strategy to ensure we remain the partner of choice in IT distribution.

With that, we'll open it up for your questions operator we request that you limit yourself to one question to allow time for the other participants to ask their questions if there is remaining time you are welcome to requeue with additional questions your first question comes from the line of catherine campana with golden sacks your line is open hi thank you for the question it would be helpful if we could get some more color on the demand pull forward that you noted in the prepared remarks were there any particular products that benefited?

Likely PCs is my guess, but would love to know more about the financial impact there. And is there any impacts we should be mindful of when we think about the ES and AS mix through the balance of the year because of this pull forward? Thank you.

Yes, good morning. Thanks a lot for the question. So first thing overall, I mean, we had a very strong quarter with sales and EPS at the high end of guidance and double digit growth. So we looked at any pull forward, so we saw a little bit of it in PCs. It's difficult to quantify, but we think that max, we benefited from 100 to 200 million in sales of pull-ins, no more than that. For the moment on PCs, we see the demand continuing to be strong, especially in B2B, And it's driven, again, by the refresh, refresh of the base purchase during the pandemic, and, of course, the Windows 11 refresh.

And, Catherine, this is Marshall, just to comment on, follow-up comment for what Patrick said. From an overall margin benefit for the quarter, we expect that that probably was around $10 million of gross profit. That was incremental to the quarter. And then thinking about your question on ESAS mix for the second half of the year, we do continue to expect there to be refreshed strength in the second half. So right now, we think it's probably equal in regards to ESAS mix for the portfolio for the second half.

Thank you very much.

Thank you.

Your next question comes from the line of Adam Tyndall with Raymond James. Your line is open.

Okay. I just wanted to talk about that pull-forward dynamic, Marshall. If I look at your guidance for Q3, it's similar to what you guided to last year, and we've got this pull-forward dynamic that you talked about. We also have typically a big public sector quarter in Q3, just two factors that might be a little different and cause Q3 to be sub-seasonal this year. So I guess the question would be, as you thought about Q3 guidance, why wouldn't we see a little bit more muted seasonality in that quarter this year versus last. And then secondly, if you could maybe just revisit, obviously you're tracking very well relative to the fiscal 2025 guidance that you gave at the analyst day, particularly on an earnings basis, that $11.50 to $12.

I wonder if that's something that we should be sort of reconsidering or maybe pushing the models towards the high end of that as we kind of think about shaping q4 thanks sure i'll cover the um the pull forward and its impact for potential impact in the second half i'll patrick talk about the public sector and then i'll talk about the analyst day comments about the second half so yeah we we uh as i said we did we did experience some some pull forward as patrick mentioned 100 to 200 million of revenues some margin benefits right now we're being fairly prudent in our thoughts for that continuing benefit in the second half of the year um again i think the overall thought for us is that demand will soften in the second half of the year which is pretty consistent with what we had said at analyst day um we we are expecting to be a little bit on the higher end of that range outcome for our guidance that we provided in quarter three and then just thinking about quarter four uh fairly similar to what what we shared at analyst day which is that three to four percent growth and the typical seasonality you would experience historically between quarter three and quarter four activities and relationships and patrick to public sector comment yeah so we we have a very strong quota for the public sector including fed i mean we saw also solid growth in the fed business for q3 again i mean the majority the vast majority of our public sector business comes from the sled and we continue to be

positive on on the prospects there i just add to to what marshall explained that for the moment what we see the underlying uh trends by technology continue to be relatively positive thinking about software pcs server networking is back to growth um a cloud but But there is also a macro environment. Tariff is one, but also the situation in the Middle East, which for the moment leads us to be cautiously optimistic and a little bit prudent in our outlooks.

Okay, maybe just a quick clarification for a follow-up, Marshall. You talked about free cash flow for the year, $1.1 billion, I think, was the target. Obviously, a much better quarter this quarter, but still negative year to date, and it's a pretty big climb in the back half of the year. So, just wanted you to maybe revisit your thoughts on free cash flow for the year. Is that something that should still stand? And if so, what would the levers be to get there?

Yeah, sure. So we still believe that we'll be able to attain the 1.1 billion in pre-cash flow. We were happy with the improvement in cash conversion and working capital in quarter two with a four-day improvement. As you know, when we were commenting last quarter, we expected that to happen. It did. The majority of the working capital improvement is with our HIVE organization. We entered the year a little bit heavy on working capital for the reasons we articulated in our quarter one call and expect that to unwind throughout the year so far is it's going as we had thought there is some additional optimization that we think we can garner out of high um so our expectations for quarter three and quarter four for cash days is probably two to three days in quarter three maybe one to two days in quarter four adam the other thing just to think about is we're talking about the the muted it uh spots for the second half of the year as you know, as growth rates decline, even though they are improving in terms of year over year, that does also aid and allow us to improve our working capital as overall growth rates decline. And then finally, as we mentioned in Analyst Day, we do expect the netting to cash flow conversion to be at 95% for the full year. So we still feel good about hitting our $1.1 billion chart.

Makes sense.

Thank you. your next question comes from the line of eric woodring with morgan stanley your line is open hey guys good morning thank you so much for uh for taking my question um you know patrick or marshall for either one of you i would love if you could just maybe give us a bit more detail on demand linearity in the quarter um and really what i'm trying to get at um is uh is april was a relatively challenging month we heard from some of the enterprise lvms And so obviously your May quarter kind of straddles that. So I'd love to just better understand a little bit how demand progressed, you know, from April into May and then May thus far into June. And anything that stood out for you guys, if you look at that by either AS or ES trends. Thanks so much.

Sure, Eric, I'll start. Within the quarter, we did see strength in March and April. call it mid-team growth rate. Then it softened a little bit in May, but still a good growth rate in terms of year over year. So it ended up being a very solid quarter for us. So far in June, it reflects what we're guiding, if you just think about our outlets. So we generally see fairly consistent behavior all in quarter two and quarter three from a gross billing perspective. You can see that in our guidance. And then just to comment briefly on high for quarter two, as you remember, when we came into the quarter, we thought that they would be slightly down, and Patrick's prepared remarks. I grew in the high teens, so they did exceptionally well during the quarter, showed great momentum. So in addition to the distribution intra-quarter behavior, we also saw strong growth in hives. And Patrick, anything on ES or AS you want to comment on?

Yeah, so very rapidly. I mean, if I look at the main product categories, you look at, so let me start with software. I mean, software continues to be really strong, especially in virtualization. We see very nice demand. As I mentioned, public cloud continues to grow, double digits, very solid growth, and no reason to see a slowdown there. Security is another bright spot. I mean, the need for defending against cyber attacks continues to be there, and so demand should remain healthy. PCs, we had a very strong quarter. We still believe that next quarter, the demand will be there, as I mentioned, because of the refresh cycle. That refresh cycle is not over. I mean, the good news, this quarter was networking. I mean, as we talked about in the previous quarters, there was a tough compare. But now we see this market also coming back, growing and becoming a tailwind overall. So that's positive. From a regional standpoint, Europe continues to be strong. APJ was very strong. And most important, North America, we see the market also enjoying solid growth. So from a geographic standpoint, I am cautiously optimistic.

Great. Thanks so much for the color, guys. Good luck.

Your next question comes from the line with Bank of America. Your line is open.

Hi, thank you for taking my questions. So last quarter, you talked about two issues in Hive. There was a demand shortfall, I think, from a customer, and there was an issue with inventory and working capital. So are you seeing improvement in both issues with respect to Hive? And then, Patrick, for my follow-up, I'd like to ask that if we look at your billings growth in 1Q, it was high single digits, about 8% year-on-year. 2Q, you just reported 12%. Europe seems to have grown very strong, 17% year-on-year. So what is it that is giving you pause to think or giving you cause to think that there's a pause in demand in fiscal 2Q, or are you just being conservative for the full year?

Thank you. I'm going to take the first part.

Yeah, so start with Hive.

Hey, Rupu. So yeah, you're right. The two items we discussed in quarter one around Hive, First of all, Hyde still had a great quarter in quarter one, another fantastic quarter in quarter two. I think quarter one, we said 23% growth, so pretty good. Quarter two, 19%, you know, Hyde seems pretty good. So the demand shortfall was relative or muted against the strong growth within the quarter for both quarters. We did comment about a component buy that we expected to see in quarter one. We expect that to sell through in the second half of this year. so we're good we're happy about that and then the comments around inventory and working capital i addressed this a little bit earlier with adam's question around the improvement that we saw in cash and then working capital which was primarily driven by the improvement uh in hive uh working capital as well and we would expect that to continue to unwind for the rest of the fiscal year yeah and just on the second question about the year-on-year growth rate for Q3.

So it's true that Q1, Q2, we were close to double digit or above double digit. So for Q3, I would say first, last year Q3, we started to see the recovery in distribution, and Hive had a very strong quarter. So a tougher base, if you will, in Q3 last year, which explains a little bit the growth rate or the forecasted growth rate for Q3. Second point is the macro uncertainty, which leads us to be, again, a little bit more cautious. But nevertheless, as I just explained before, good underlying tailwinds by technology and by region. So the blend of all that leads us to the guidance we provided, and we will see at the end of Q3.

And then briefly, just to follow up on the comment of your question on quarter one being 8%, quarter two being 12%. And as Patrick's prepared remarks, across the board, we just saw better than expected outcomes for the reasons that we articulated. So just a good performance, good position, and good outcomes for the business.

Sorry, just to clarify one thing, are you actually seeing any weakness right now in any region or any product line? Or is it your expectation that, you know, based on the political and the economic, you know, issues that are out there, there could be some weakness?

Or are you actually seeing any slowdown right now? so what we see in june is in line with the guidance we provided as you know july is when we will know more about tariffs and so difficult to forecast the impact so july august and august is um is is a month which is interesting so it's a vacation month for example in europe and and you have the middle east what could be the impact so again so far uh no concerns everything is in line with with with the guidance um okay thank you so much your next question comes from

the line of david vote with ubs your line is open great thank you thanks patrick thanks marshall um patrick can i just dive back into high for a second um you know i think you talked about strong billings of you know high teams but the margin mix was a little bit lower so can we infer from that comment that what you saw strength in this quarter is more on the cm side versus sort of the spare parts ODM side of the business and then how does that play into the comments again I think you touched on it briefly but last quarter you know there was some push out of orders are did we see those orders come back this quarter for that second customer that's ramping or is that still on the comments we go into the third and the fourth quarter and then I have a follow-up I'm

going to comment so thanks a lot and I'm going to comment on the top line and Marshall will give you more color on the margin. So if you look at the top line, again, very, very, very strong growth for the ODM-CM business, 45%, primarily driven by a largest customer. So really the largest customer drove that growth. The second customer, in fact, last quarter, the demand paused and we saw demand coming back this quarter, slightly below our expectation, but the demand is back, which is a positive.

Hey, David. Hey, Marshall. How's it going? So yeah, in regards to the overall margin profile, and in my prepared comments, I referenced unrealized FX that was a hit to our margin in hive, but we expect that to recover in the second half of the year. So that was one of the headwinds related to margins for hive. The other is within the CM-ODM mix itself, just the various programs, its profile for the quarter ended up being a little bit negative to the margins expectations for the quarter. We do expect those to unwind and for margins to improve for hive in quarter three. And then if you think about the overall range of the portfolio, ODM-CM is around 6% of total products. And then as we've said at Analyst Day, which is still consistent, is our spares, what we call a data center supply chain, ranges between 2% to 4% of total gross billing. The reason why we give that range is it's got a little bit of volatility and bumpiness quarter to quarter.

But we were a little bit more towards the higher end of that 2% to 4% in quarter two. but wanted to give you that context as well now that's actually I appreciate it just I'm sorry Patrick yeah I just wanted to add one thing which is that what we see is really the I mean exclude the unrealized effects the the margin for hive is really stabilizing now I mean when you look at the quota by quota to quota we see this stabilization which which is very encouraging sorry got it and then Marshall just one final question can you remind us again I guess in April when you kind of laid out the balance of this year kind of what was the underlying assumption for the tariff regime going forward you know as we're coming up to July not really

a comment about the demand profile now but just remind us again what were you kind of embedding do tariffs come back sort of on a 10% reciprocal basis across most of the markets that you serve kind of just how should we think about it just given the level of uncertainty maybe kind of the baseline?

Yeah, well, if you remember, we were living it live in April, and so it wasn't a ground-up assessment other than knowing that demand, based on kind of the last iteration that we saw in 18 and 19, did soften. I think that, to some extent, our ability to see that and forecast at a high level what that represented, and now we're laying out maybe a little bit stronger spot for quarter threes within that context. But back to Patrick's point, still a lot of uncertainty. It's really going to be difficult to know what happens on July 9th and its impact and where that ultimately settled. So it's a long way of telling you that it's still very uncertain as to what that demand outcome looks like as we finished up this year and going into next year.

Great. Thanks, Marshall. Thanks, Patrick.

Thank you. your next question comes from the line of david page with rbc capital markets your line is open hi good morning thank you for taking our question um i just want to circle back to pc refresh i was wondering if you could just in terms of innings where are we in terms of the refresh cycle or are we just starting in the middle towards the end um and that's it thanks hey good morning david and so according to me we are in the middle of it we are not at the start the we saw already the refresh starting at least one if not two quarters ago so we i think we are in

the middle of it um so uh yeah um yeah and that's the reason when you look at our guidance we continue to be positive uh on the contribution of pc to the overall growth thanks patrick appreciate Your next question comes from the line of Joseph Cardoso with J.P.

Morgan. Your line is open.

Hey, good morning. Thanks for the question. Maybe another follow-up question on PCs or ES, maybe more broadly. You've had a couple of quarters in a row of sequential margin improvement in this business. And I was just curious if you could walk us through what is driving this margin improvement, particularly maybe not an apples to apples comparison, but when I look at your OEM partners, They've obviously highlighted some margin pressure within their respective PC businesses. So just curious, you know, what's been driving the strength in the margins sequentially now for what it looks like four quarters or so? And how are you thinking about the sustainability of that as we think about going into the back half of this year?

Hey, Joe, it's Marshall. Typically, when we do see refresh, we've been through a few of these, there is increased With that does come a little bit of a stronger pricing environment in general. So we did mention in the call that we saw some of the momentum in the polling related to that strength and also the margin, increment of margin associated with the pricing associated with that. So there is a little bit of temporary aspect to that. But as Patrick said, middle of the game here, I still think there's probably benefits for us as we go forward. As you might know, in certain parts of our market, specifically in North America, we We do a lot of large vibes around the PC ecosystem that creates benefits for us that may continue going forward. Your question about, you know, what does it look like after the refresh kind of gets through its game, you know, we typically expect to fall back to normal IT spend plus our normal market share expectations for that. So sustainability, feel good about it, probably have a little more momentum behind us. Hard to know if that carries through the end of this year or if it extends into the next I just want to add one more thing.

It's also mix-related, product mix-related. PC has been driving the growth of the endpoint segment. Also, the component business has been very strong, and those two categories have better margins. relatively speaking the mobile category has grown much slower and there the margin is lower so again mix is also nicely contributing to the improvement of the of the margin very clear thanks for the color guys appreciate it thanks Joe your next question comes from the line of Vincent Collicchio with Barrington Research.

Your line is open.

Yeah, on APGA, what drove the strength there and is that sustainable?

Yeah, so good morning. So we had a very strong quote in APGA. More or less every country contributed, but specifically India and Japan. In Japan, it's driven by the consumer business. India, it's more the B2B business. We continue to be positive about the prospects of APJ. I mean, we have a low share in the region, so we have an aggressive growth plan. But most important, I mean, our growth plan is focused on the margin-rich customer segments and product segments. So we believe that we're going to continue to see solid growth, but also a solid gross profit generation and operating profit generation.

Thanks for the color.

Your next question comes from the line of Fernanda Berua with Loop Capital. Your line is open.

Hey, yeah. Good morning, guys. Thanks for taking the question. I guess going back to Hive, a couple, if I could, is there any distinction or what are the distinctions to be aware of between the 45% growth in the ODM-CM segment and the high-team growth in Hive? And then, Patrick, in your prepared remarks, you talked about, in some detail, working with hyperscalers to build out data center solutions and some of the work you're doing there. Is that sort of description, are we watching real time you expanding the complexities of your engagements and the complexity of the scope of the work you're doing with the hyperscalers? Could that be part of the reason the margins are starting to be more favorable as to your remarks a moment ago? And then just one last thing, it's a clarification. Did you say that networking, you were seeing networking improvement in Hive or that Hive was one of the drivers for the improvement in networking? And I'll stop there. Thanks, guys.

I'll go first and then pass it over to Patrick. Good question. So yeah, we did call out the ODM cm compare and the growth year-over-year is around 45 percent and you're right mid-team what's the difference supply chain was a little bit down um uh year-over-year so that that's why the the math works that way so we still as we acknowledge believe it's a good part of our business it's lumpy so it does move around quite a bit but that's how you get to that that mid-team overall growth for hive in regards to the complexity of engagements with our Hyperscale customers, I'll let Patrick speak to that. I'll let him speak to the pipeline, not only with existing customers, but potential new expansion as well. And then anything around how network might be driving Hive growth.

Yeah, so good morning, and thanks for the question. So I start with Hive, and then I will address the networking question. So, I mean, our strategy is clearly we want to move up the value chain. That's the reason we are investing in engineering capabilities to be more on the ODM side rather than CM. We're also investing in our SMT capabilities in the U.S. because we think that based on the environment, it's going to give us a competitive advantage. But also, we are diversifying our customer base, and we may do more in the future, for example, with sovereign customers, where we believe the margin should be slightly better. So yes, that's the reason margins are stabilizing and we hope that the outcome of all the actions I just talked about will in fact take us to even better margins going forward.

On networking, yes, Hive also had a strong quota on networking, but excluding Hive in distribution, networking got back to growth. modest growth i mean low single digit but um we are back to growth that's all super helpful quick follow-up if i could are you guys seeing any sort of increased conversation with regards to hive um from a made in america context with the hyperscalers and i know i know the customer based opportunity is more global than that with sovereign and neocloud but just with the Hyperscale is specifically, is there any sort of incremental made in America conversation that's going on? Thanks. That's it for me. Thanks.

Yeah, again, very high level. I mean, we have a very nice pipeline of opportunities. So with our existing customers, we are working on several programs and hopefully we're going to close some of them. Again, the design cycle is long, so we're never completely sure when that's going to close. but many many opportunities but i can confirm that there is also interest from other customers to work with us because of the expertise and the manufacturing capabilities and the service we are providing great thank you guys thanks another again if you would like to ask a question press star 1 on your telephone keypad i will turn the call back over to patrick for closing remarks Thanks. Thank you everyone for joining us. I want to take a moment to express gratitude to our customers, partners, and our investors for their support, and importantly, our outstanding team of over 23,000 co-workers around the globe for their dedication to serving our customers. We look forward to reconnecting next quarter. I hope you have a good day.

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