Td Synnex Corp (SNX) Q3 2026 Earnings Call Transcript

Good morning. My name is Rebecca and I will be your conference operator today. I would like to welcome everyone to the TD Cinex third quarter fiscal 2026 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 Nate Friedel, Head of Investor Relations at TD Synex. Nate, you may begin.

Good morning, everyone, and welcome to TD Synex's Fiscal 2026 Third Quarter Earnings Call. Joining me on today's call are Chief Executive Officer Patrick Zammett and Chief Financial Officer David Jordan. Before we continue, let me remind you that today's discussion contains forward-looking statements within the meaning of the federal securities laws, 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 risks and uncertainties discussed in today's earnings release, in the Form 8K we filed today, in the Risk Factors section of our Form 10K, and our other reports and filings with the FCC. 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 8K available on our investor relations website, ir.tdcynex.com. This conference call is the property of TDCINEX and may not be recorded or rebroadcast without our permission. I will now turn the call over to Patrick.

Thank you, Nate, and good morning, everyone. We delivered another record quarter with distribution and Hive, both performing above our expectations and growing above market within the quarter. Results were broad-based across geographies, technologies, customers, and programs, with notable strength in data center infrastructure. Our success securing opportunities with new and existing customers, particularly within Hive, required working capital investment to support these ramps. As David will discuss in more detail, those investments affected near-term cash flow during the quarter, but positioned us to support committed customer demand and future growth. Looking beyond the quarter, we continue to see encouraging developments across the technology landscape. Enterprise AI adoption is progressing toward broader production deployments. Data center modernization remains a priority as organizations prepare for next generation infrastructure requirements. While AI is driving new security, governance, and compliance requirements across technology environments. We believe these trends expand our opportunities across both distribution and Hive and reinforce our confidence in the long-term growth opportunity ahead. I will now begin with distribution. Distribution delivered strong growth during the quarter with non-GAAP gross billings reaching $24.8 billion, up 27% year-over-year, exceeding our expectations and growing above market across each of our regions. Our performance reflects a broader trend across the technology ecosystem. As technology environments become more complex, customers increasingly need help integrating, creating, deploying, securing, and managing solutions across multiple vendors and technologies. Vendors are looking for partners that can not only efficiently reach customers, but enable customer capabilities, activate demand, and execute consistently around the world. This is increasing the strategic importance of distribution. One area we are particularly encouraged by is the growing number of enterprises moving from AI experimentation towards production-scale centralized AI factory deployments. This quarter, TDCinex and Mark III Systems signed an agreement to support an NVIDIA AI AI Factory powered by Vera Rubin NVL72 systems. This is one of the largest enterprise AI Factory infrastructure deployments expected to be delivered through the channel, bringing together the design, integration, deployment, day to co-admin operations, financing, and supply chain capabilities needed to operationalize a sophisticated NVIDIA-based AI factory platform for a large enterprise. As enterprises evaluate next-generation platforms, we are seeing growing demand for partners that can simplify complexity and accelerate implementation through their enablement capabilities. AI factories have the potential to power transformative new products and services, but realizing that potential requires far more than access to compute. Organizations that ensure AI investments are secure, governed, cost-effective, and aligned with measurable business outcomes. Similar to the evolution of cloud computing, we believe disciplines such as financial operations and security operations will become increasingly important as AI becomes embedded in business critical processes. Organizations will need support selecting the right models for the right workloads, deploying them on the right infrastructure, and balancing performance, security, and governance across edge, private, hybrid, and public cloud environments. While still early in the adoption curve, deployments of this scale signal a market that is moving toward broader deployment. As AI becomes embedded across more users, workloads, and business processes, we believe the requirements to secure, govern, optimize, and support these environments will continue to expand. Customers are also seeking greater flexibility in how they engage with us. and have seen benefits from our digital strategy. Customers regularly engaging across our digital offerings have grown their spend with TDCnex at nearly twice the pace of similar customers with us. Through solutions such as Partner First and Digital Bridge, enhanced with AI agents embedded throughout the customer experience, we help customers identify opportunities opportunities, simplify purchasing decisions, and engage efficiently across a broad range of technologies and vendors. We view digital engagement as an extension of our broader enablement strategy. Whether customers engage through digital platforms, technical specialists, enablement programs, or a combination of all three, our objective remains the same, helping our customers build capabilities grow their business and better serve their end users the same capabilities creating value for customers are also important for vendors as technology portfolios expand and customer requirements become more specialized vendors are seeking partners that can combine global execution with expertise across technologies customer segments and geographies This is expanding the addressable market served through distribution. Earlier this quarter, IBM expanded its relationship with TDCnext into 20 additional countries across Europe, Asia Pacific, and Latin America. We believe this expansion reflects the strength of our go-to-market model and the confidence our vendors place in our ability to activate demand, execute consistently across end markets around the world, and accelerate growth. Collectively, over the last year, we've added multiple billion dollars of incremental gross billings into the portfolio through new customer wins and an expanded vendor line cut. More importantly, we believe these relationships deepen our role in the technology ecosystem and create additional opportunities for long-term profitable growth and potential earnings expansion. Turning to Hive, Hive delivered a strong quarter with non-GAAP gross billings of 7 billion up 117 percent year over year, exceeding our expectations as we saw continued increased demand from existing customers and programs our previously announced programs with new customers have progressed as planned with shipments expected to begin in our fiscal fourth quarter these programs improve visibility into future growth including maintaining a healthy pipeline of opportunities and support a broader customer and program mix of a type we believe increasingly sophisticated are elevating the importance of expertise in engineering, validation, manufacturing, and supply chain execution. As a result, customers are engaging Hive earlier in the development process, creating additional opportunities to expand our relationship with our current customer base and potential new customers. One example is our work with multiple customers on the design of advanced liquid-cooled networking racks that are expected to enter into production in the first half of fiscal year 27. At the same time, we remain focused on ensuring growth translates into attractive long-term returns. While customer demand and revenue growth remain robust during the quarter, profitability remains an important area of focus the business is working through a period of significant customer runs manufacturing expansion and elevated investment activity including engineering talent technical expertise and operating capabilities as we support multiple for large growth initiatives at the same time. Several opportunities in our pipeline are being awarded at margin profiles, but are neutral to the creative relative to our current operating performance. As previously awarded programs mature and newer programs ramp, we expect modest margin improvement over time, even as we continue investing to support future growth. Our manufacturing investments remain aligned with awarded customer programs, and our focus remains on deploying capital in ways that strengthen our competitive position and are expected to generate attractive returns over time. In closing, we believe both distribution and Hive continue to benefit from durable technology trends and expanding customer relationships. Within distribution, enterprise AI adoption, digitally enabled experiences paired with human expertise and growing technology complexity are increasing the value we provide to customers and vendors. Within Hive, sophisticated infrastructure architectures are driving deeper customer engagement and expanding opportunities across a broader set of customer programs. While we have deployed significant capital to support customer growth initiatives, particularly within Hive, we believe those investments strengthen our competitive position, support future growth, and increase the long-term earnings power of the company. As these programs mature, we expect free cash flow generation and conversion to improve, and we remain focused on demonstrating progress as we close fiscal year 26 and enter fiscal 27. With that, I'll turn it over to David to discuss our financial performance and outlook in greater detail. David?

Thank you, Patrick, and good morning, everyone. This was another strong quarter for TD Cinex. Both distribution and Hive grew above market and contributed meaningfully to earnings, while our operating income and earnings per share continue to grow faster than gross billings. Starting with the top line, our non-GAAP gross billings for the third quarter was $31.8 billion, increasing 40% year-over-year or 41% year-over-year in constant currency and exceeding the high end of our guidance range. Non-GAAP operating income was $736 million, an increase of 55% year-over-year or 56% year-over-year in constant currency. Non-GAAP earnings per share was $5.68, an increase of 59% year-over-year and above the high end of our guidance range. GAP operating income was $643 million, an increase of 68% year-over-year. GAAP earnings per share was $5.18, an increase of 89% year-over-year and above the high end of our guidance range. Turning to our quarterly performance for each business. Distribution non-GAAP gross billings increased 27% to $24.8 billion with double-digit growth across each region and most major technologies. Our end-to-end portfolio continues to position us well across technology cycles with healthy demand throughout the business and particular strength in data center infrastructure. Endpoint solutions gross billings increased 16%, supported by continued strength in PCs, including higher average selling prices and a modest decline in units. Advanced solutions gross billings increased 37%, driven by strength in infrastructure, software, and AI-related technologies. Distribution gross profit increased 22% to $1.15 billion. Distribution gross margins were slightly impacted by customer and product mix, which was more than offset by disciplined expense management. Non-GAAP operating income increased 55% to $483 million, and non-GAAP operating margin as a percentage of gross billings expanded 35 basis points year-over-year to 1.95%. Turning to Hive. Hive's gross billings increased 117% to $7 billion, with growth across both manufacturing and supply chain services. Manufacturing grew in excess of 130% and represented approximately two-thirds of Hive's gross billings, reflecting higher volumes and expanded programs with existing customers. Supply chain services grew in excess of 90%, supported by component demand associated with customer infrastructure deployments. Hive's gross profit increased 47% to $276 million, and non-GAAP operating income increased 56% to $253 million. Non-GAAP operating margin as a percentage of gross billings was 3.61% compared with 5.04% in the prior year period. As a reminder, our operating margins reflect the growing contribution from large AI rack programs that has been strategically important but diluted to Hive's operating margins, creating a mixed headwind, which we believe has stabilized. Our objective is to build a broader, more diversified Hive business that combines sustainable growth with improving profitability, stronger cash generation, and attractive returns on invested capital. Shifting to cash flow and capital allocation, free cash flow consumption for the quarter was approximately $1 billion, driven by increased inventory in Hive's supply chain business in addition to new customers and new programs with existing customers. Networking capital closed at $6.5 billion with a gross cash conversion cycle of 22 days, an increase of five days sequentially, and six days year-over-year, reflecting incremental mix of Hive. Year-to-date, we have made substantial investments in Hive's working capital and believe we now have a significant portion of the investments to support our expected growth now in place. Our focus is now on execution, cash conversion, and realizing the expected returns on our investments. We ended the quarter with $749 million of cash and cash equivalents and net leverage of 1.9 times. During the quarter, we returned $100 million through share repurchases and $38 million through dividends. Our board also approved a cash dividend of $0.48 per common share, payable on October 30, 2026, to shareholders of record as of the close of business on October 16, 2026. Turning to our fourth quarter outlook, we expect continued momentum across both businesses, translating to non-GAAP gross billings of approximately $31.9 billion plus or minus $500 million of approximately 31% year-over-year at the midpoint, a gross-to-net adjustment of approximately 30%, revenue of approximately $22.2 billion plus or minus $400 million, non-GAAP net income of approximately $474 million, plus or minus $20 million. Non-GAAP diluted earnings per share of approximately $5.90, plus or minus $0.25, up approximately 54% at the midpoint, based on approximately 79.2 million diluted shares outstanding. We expect Hive's non-GAAP gross billings will increase sequentially quarter over quarter as we continue to see further benefit from ramping programs across multiple new customers. We expect we will generate cash in the quarter as recently deployed working capital begins to normalize. Looking ahead to fiscal 2027, we expect further improvements in Hive's cash conversion as programs mature. In summary, we're extremely proud of our teams for the results they continue to deliver. Distribution from multiple quarters has delivered above market growth and broad-based growth, operating leverage, and cash flow. Hive continues to add new customers and new programs with existing customers. We expect each of our major programs to generate attractive returns, although some will not reach their full potential until the back half of fiscal 2027. With that, we'll open the call for questions. Operator?

We will now begin the question and answer session. 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 re-queue with additional questions. To ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. Please pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Joseph Cardoso with JPMorgan. Please go ahead.

This is NK on for Joseph Cardoso from JPMorgan. Thank you for taking my question. Great results. I think my question is, you stated several pipeline opportunities are being awarded at margins neutral to accretive relative to current performance. What is driving this improved margin discipline, and how sustainable is it as competition for AI infrastructure intensifies?

Thanks for your question. So just to provide, this is David, a little more clarity on Hive's operating margins and how the new customer programs are coming. What we put in the prepared remarks, and if you reflect on the commentary we provided on the call last quarter, Hive is ramping three new hyperscalers and multiple programs within each of those customers. And so as we look forward, one of the comments that we made is the new programs that we've won, which are predominantly manufacturing, are neutral to accretive to Hive. Additionally, some of the programs that we're ramping this year, as those programs mature, we continue to find ways to improve the margins within there. And so as we look forward, that's what gives us confidence that hives margins have stabilized and should improve as we move forward.

Your next question comes from Keith Wilson with North Coast Research. Please go ahead.

Good morning, guys. I appreciate the question, and I'll echo that. Great quarter for you guys. Hey, guys, we're kind of looking at the growth. Obviously, servers and storage were phenomenal for you guys this quarter, but strength was really broad-based. But I think there might be concern with some investors that you're getting more rumors about data centers perhaps peaking here, and I think there's rumors of Oracle even perhaps pulling back on data centers here. How are you guys thinking about the data center market for the next year or two? Any concerns that you might have a pullback here on spending or any constraints out there? But how are you thinking about the broader market?

Yes, Keith, good morning. Thanks a lot for the question. So, I mean, one, as you said, we are very pleased because the growth in the quarter has been broad-based by geo, distribution high, by technology. And by the way, our Q4 guidance reflects that. If you look at next year, so we're in the process of building our budget for next year and collecting all the data. We continue to be overall positive about the market prospects, and we expect to continue to grow a little bit faster than the market. Specifically to data center, when you look at what is driving the demand, you have, of course, I mean, with the hyperscalers, they have continued to support the frontier models with capacity for training. But, I mean, what we see, and that's confirmed by our OEMs, is that companies are now investing more and more, enterprises are investing more and more in agentic capabilities. And we know that agentic AI is going to be a fantastic driver for productivity gains and improving customer experience. I mean, we've mentioned one of the big wins this quarter from an enterprise, and we see that as clearly a trend accelerating. So, we continue to be positive about the prospects for next year. And specifically to Hive, as David just mentioned, we've won some new customers and we're going to benefit for the ramp up.

So, overall, we are cautiously optimistic. great and just as a follow-up to that like the business you win with hive is that cancelable if the market did go south by those customers or are these non-cancelable agreements that you guys enter into so go ahead and go ahead the way the the programs work are similar to distribution you could cancel contracts but these are these are longer term agreements both sides have potential cancellation rights that people don't perform, but when you go into one of these programs, it can take you a year to get up to speed, and what we're working on is we've won a category within a hyperscaler where we support kind of a multi-year piece of that. So in many cases, these programs can last a few years, but there is always the potential that volumes can move around, but we feel really good about where Hive sits within the customers that it supports, the value that it adds, and how we stack up relative to the competition. And so all of those items will provide a firm level of installation.

I just want to add two things. So one, when you look at the forecast we've received or the backlog we have, we don't see any sign of concern. today. That's point number one. Point number two is, it was interesting to watch the results of Q3, and clearly everybody referring to the fact that there is not enough capacity today in the data center to meet the demands. And so, again, the combination of the two makes me feel cautiously optimistic for next year. Great. Thank you, guys.

Your next question comes from Ruplu Bhattacharya with Bank of America. Please go ahead.

Hi. Good morning, Patrick and David. Thanks for taking my question. You've reported good results and guidance. Looks like gross margin overall declined 60 BIPs year on year. Can you elaborate more on what was that mix that impacted margins? And was there anything unique about the advanced solution side of the America's distribution business? Because it looks like that region had gross margins down the most, what, 120 bps. So any further color on what impacted margins? Thank you.

Sure. Thanks, Ruklu. When you look at the overall margins, if we just focus on distribution for a second. The mix that we're referring to is largely product related. So within North America, there was a few larger transactions specifically around infrastructure build outs. And some of those categories have slightly lower gross margins relative to the average. Within Hive, it's the same impact that we had commented on last quarter, which was we have ramped a large ai server program that's profitable but at margins that are slightly below the the average hive margin and that's what's caused the the year over year decline for hive but net net when you take a huge step back our teams both in distribution and hive have done a really nice job managing margin managing pricing and making sure that um you know within distribution when volume shifts between categories that they prudently manage their cost to continue to drive operating levers. So we feel very good about the performance that the teams put out for the quarter.

Okay, thanks for the details.

Your next question comes from Eric Woodring with Morgan Stanley. Please go ahead.

Super guys, thank you so much for taking my question. And I'm gonna ask something kind of similar to Rubellu there. Maybe try to be a little more specific, which is, you know, on that advanced solution side, you're talking about mix. I just want to make sure and clarify for everyone here. I think there's probably some concern there could be, you know, pricing issues with the cost plus model just because of where pricing is going. Can you just clarify for us that the advanced solutions margin, gross margin pressure that you saw was really just a function of mix in those deals? and that any like-for-like margins, we're not seeing pressure year-over-year this quarter? Thanks so much, guys.

Sure. No, Eric, thanks for the question. And you've read it correctly. When you look at the overall margins, if you really start to double-click them, they're relatively stable. And so as we've shared previously, our business, we make a percentage of the average selling price. And so what impacted the quarter is we had a couple of large transactions and larger orders tend to be slightly lower margin. And so the mix of that is what caused some of the margin impact, in addition to us selling a decent amount of AI infrastructure. It's all profitable business. It's all good ROIC business. But that is what impacted the margin specifically in advanced solutions year over year. So structurally, the margins remain highly resilient when you look at it from a category perspective. So we feel pretty good about that.

And Eric, good morning. I just want to add one thing. So talking a little bit about our management system. So every month we are reviewing our margins, of course, by geography, but most important by technology and by vendor and customer segment. And so we are monitoring that indeed, I mean, like for like, margins are stable or evolving, and then we look for the why and take corrective measures. So it's a very disciplined approach. And that's the reason when we talk about mix, it's either a customer segment who grew faster and has a lower margin or higher margin, or a geo who grew faster and has a higher margin or lower margin. So it's really mixed. otherwise very very strong discipline on on on margin reviews i mean to i mean anticipate any issues and take corrective actions very very rapidly but again um as as david mentioned today we have no issues awesome thank you so much good luck and and the other thing i would add just is and that's very important i mean we talked about i mean taking to the bottom line at least 50 of the gp growth and you can see that today that ratio is significantly better than that again the teams are doing a fabulous job managing cost um we are also obviously starting to leverage ai which um i mean basically is improving the productivity of the overall team so i mean operating margins have been consistently improving over the past quarters and it was true again in Q3.

Thank you, Patrick. The next question comes from David Vogt with UBS. Please go ahead.

Great. Thanks, guys. I'll just squeeze in one and just a little bit multi-part question for David. So, David, you touched on seeing free cash flow getting better in Q4 and seasonally Q4 is your better period of conversion, better conversion of working capital. Can you kind of help us think through kind of where you think the company's cash flow needs look like as we stretch out into 27 because the business you know structurally 50 bigger than it was you know effectively a year ago i'm just trying to get a sense for where your cash needs are today what you feel comfortable with with cash on your balance sheet and how you're thinking about all the different vectors and permutations particularly as hive should continue to grow pretty nicely next year thanks no it's a good question so thanks david when when you think about what we put in our prepared of remarks is we expect to generate cash in Q4.

You're right that seasonally we tend to generate more cash in the back half of the year. Here's the way we think about it. So we would expect a couple of days of improvement in gross cash days quarter over quarter. That is largely driven by two things, continued momentum across both distribution and high, and knowing that a lot of the cash consumption year to date has come from Hive, and we have to make investments in programs ahead of the ramp. And so as those programs ramp, we expect them to be cash generative. As you think about 2027 or more on the long or more beyond, we expect all of our businesses to be sustainable cash generators. And so we recognize that FY26 was a period of hyper growth.

But we also front-loaded a lot of working capital investments to enable that and so as we move forward we would expect those uh all of our businesses to become cash generative and we feel pretty good about where we are i just add one remark um when you when we look at our more mature programs at hive i mean indeed we see that um when when they reach maturity they are generating free cash flow. Okay, so no concerns from that standpoint. But the reality is that the team has done a very good job winning some new programs, expanding the customer base. And yes, so we are in an investment phase to ramp up all those programs. But again, when the program matures, it generates free cash flow.

Great.

Thanks, Patrick. your next question comes from katherine murphy with goldman sachs please go ahead thank you for the question maybe to stick on the hive manufacturing piece can you talk more about the mix of programs in the quarter you mentioned that the ai server business that you highlighted last quarter remains largely stable and as these new programs layer in mix should improve but But maybe talk more to the outlook for the traditional server networking storage programs in the new engagements, as well as the timing of when some of these legacy engagements may start to roll off or be less significant. Thank you very much.

Yes. So good morning. So, if you look at the quarter Q3, so we had this large GPU program, and networking continued to be very strong. If you look at the new programs we've won, they are primarily networking programs, okay, so again, at a good margin. we started seeing some of the ramp this quarter, and we're going to see an acceleration in Q4 and Q1.

Thank you. Your next question comes from Guy Hardwick with Barclays. Please go ahead.

Hi, good morning. I want to see if you guys could update us on the agreement with Amazon, whether that's had an impact on revenues in the quarter, and also whether it's also some of the revenues, the unvested portion or vested portions being netted off the revenues. And then a follow-up question on highs. Given there's more manufacturing growth and supply chain growth, I know you've kind of already answered the question. You would expect a positive mix on that, but you're saying within manufacturing there's a negative mix. Am I understanding that correctly?

Thanks for the question. So we'll try to cover both of them. when you we as you know we announced a warrant agreement with amazon um and and what we shared at that at that time is we we expect this to be mutually beneficial to both of us and so um you know the this is a an agreement that's seven years long and so you know we we would expect over the course of the agreement that that both sides to to benefit um i think it's too soon to to get into exact specifics on how how things played out in the quarter but what i can tell you is our relationships across all of our customers within Hive are very good, and we continue to invest in capabilities that add value to all of our partners. When you think about the mix within margins as it relates to Hive, you are correct that the AI server program that we've referenced, which has caused some of the margin decline year over year, is a manufacturing program. And then a lot of the new programs that we've won are also manufacturing. And so this has been a year where we've had somewhat of a headwind to gross margins. But as we look forward and as these new programs ramp, we feel very good about the trajectory of the margins as a lot of these new programs are neutral to accretive to high vento.

Thank you. Your next question comes from Dave. David Page with RBC Capital Markets. Please go ahead.

Good morning, Patrick. thanks for taking my question I want to ask on distribution and endpoint one of your closest competitors and noted that there's still 340 million unrefreshed to Windows 11 so it looks like you had good growth in PC and a quarter so I just wanted to get your thoughts I guess the demand environment the refresh cycle and what you see going forward thanks yeah thanks a lot so good morning so PC did overall well and grow double digit now if you peel the onion um units were down i mean we had

forecasted um the the pc units to go down mid to high single digit which is what happened this quarter and more than offset by price increases and mix so let me just provide some color here so indeed component price increase has driven an increase of average selling prices but another phenomenon which is very interesting is the fact that the market is buying more the mid-range and higher range type pcs rather than the low range why because also when our manufacturers get their allocations, they allocate them to the mid-range and the higher range of their portfolio. So some of the ASP increase is really due to components, but some of it is due to a change in mix. The refresh is not over, so we should still see some tailwinds because of that. Now the price increase as expected is having some impact on the volume it has less impact on b2b where we play and it will have it has more impact on b2c where we don't place we have a very small play in the market so pc continues to be overall in value a very good category and i just add that ai pcs continue to grow and represent now close to 50% of the total revenue for us. And AI PCs is potentially becoming an important part of the infrastructure to run AI workloads.

Thank you.

Your next question comes from Vincent Coliccio with Barrington Research. Please go ahead.

Yes. are you seeing customers consolidate their distribution relationships as technology becomes more complex and is the company gaining wallet share as a result?

So good morning. Thanks a lot for the question. I mean, as you have noticed, we grew faster than market and we've done that now consistently for many quarters. I think it's due to two things. So one, from a customer side, Indeed, I mean, we have this collection of specialist approach, which means that we have a very appealing value added value proposition by technology. And that puts our teams in a very good position to support customers who have to deliver business outcomes, which are more and more complex to deliver. So, yes, I believe that our approach makes us, I would say, probably very well differentiated to help our customers win the deals and grow. But we see at the same time in the vendor community a trend accelerating in terms of rationalizing the go-to market. So reducing the number of direct customers, direct resellers, and number of distributors. And because of our value prop, because of the relationships we've built over the years, I think we are going to continue to benefit from that trend. Thank you.

Your next question comes from Alec Valero with Loop Capital. Please go ahead.

Hey, guys. And thank you for taking my question. My first question is on enterprise. So you've mentioned that you're seeing more growth in enterprise. It sounds like this is something that's going to continue. Can you talk to the kinds of things that enterprise customers are prioritizing? And where are you best positioned to capture that spend?

Okay, so good morning. So I'm going to distinguish between compute and storage. On compute, two things. So you still have the refresh of the general compute server base. And as you know, the new generation has more cores and can replace several servers from the old generation. So what you see is a decline in unit, but an average value which is significantly higher. So we see very nice growth in general compute. And we also see, obviously, an increased demand when it comes to AI compute, driven by the fact that companies are absolutely building their factories to take advantage of agentic AI. And what we see is some very large deals coming from large enterprises, but we are starting to see also mid-sized companies investing in that space. On storage, what we see is a modernization, an acceleration of the modernization of the data center. I think AI will continue to play a key role. The important aspect, if you want to get the full benefit of your language models, you need to have the data in a good shape, and that means investing in storage. So, I mean, that's something we are seeing too. And here for storage, we see an increase in units and, of course, in value.

Got it. That's super helpful. Thank you for that. And just a quick follow-up on networking, actually. So I see networking grew 19% year-over-year. Although it was the slowest growing hardware category, what are the puts and takes there, any color that you can provide on networking?

Yeah, so networking, again, just want to put some context. If you just go back last year, it was a little bit a challenge category. Things have completely changed now. I mean, you have a need for massive refresh. I mean, Wi-Fi 7, switches to support AI. So you have a series of tailwinds in networking, which are driving a nice increase in units. And on top of it, so the magnitude is not comparable to what we see in compute or PCs. But we start seeing some price increases also. And so the combination of the two makes the category very strong. And I think it's going to continue for some time. So it's another category where we are very optimistic for the coming quarters. And yeah. Thank you.

We have reached the end of the Q&A session. I will now turn the call back to Patrick for closing remarks.

Thank you all for joining us this morning. As we conclude, I'd like to express my gratitude to our co-workers around the world, whose hard work, dedication and commitment make our success possible, as well as to our partners for their continued trust and support. To everyone on today's call, thank you for your ongoing interest in TDCnex, and I'm wishing you a great day.

This concludes today's conference call. You may now disconnect. Have a great day.