新聚思 (SNX) 2014 Q4 法說會逐字稿

Good afternoon. My name is Gabrielle, and I will be your conference operator today. At this time, I would like to welcome everyone to the SYNNEX 2014 Fourth Quarter Earnings Conference Call. All lines have been placed on a listen-only mode to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Today's conference is being recorded. If you have any objections, you may disconnect. Thank you. At this time, I would like to pass the call over to Dierdre Skolfield, Director of Investor Relations at SYNNEX Corporation. Miss Skolfield, you may begin your conference.

Thank you, Gabrielle. Good afternoon, and welcome to the SYNNEX Corporation Fiscal 2014 Fourth Quarter and Year-End Conference Call for the period ended November 30, 2014. Joining us on today's call are Kevin Murai, President and CEO; Dennis Polk, COO; Marshall Witt, CFO; and Chris Caldwell, EVP and President of Concentrix Corporation.

Please note that some of the information you'll hear today will consist of forward-looking statements, including without limitation those regarding revenue, net income, EPS, EBITDA, expenses, tax rates, ROIC, cash flows, growth, our ability to compete, vertical focus, demand, and shareholder value. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in our Form 10-Q for the FY14 third quarter and our Form 8-K filed with the SEC today, along with the Associated Press release. We assume no obligation to update any forward-looking statements, which speak as of their respective dates.

Also during this call we will reference certain non-GAAP financial information. Today's earnings release and the related Form 8-K available on our website at www.SYNNEX.com present the reconciliation between our non-GAAP and GAAP reporting. This conference call is the property of SYNNEX Corporation and may not be recorded or rebroadcast without our specific written permission. Now I'd like to turn the call over to Marshall for an update on our financial performance. Marshall?

Thank you, Dierdre. Good afternoon everyone, and thank you for joining our call today. I will summarize our results of operations in key financial metrics, and conclude with guidance for the first quarter of FY15 before turning the call over to Kevin.

Technology Solutions and Concentrix business segments delivered exceptional results in Q4 and for the entire fiscal year of 2014. Our Q4 revenues, non-GAAP net income, and diluted non-GAAP EPS all came in above the high end of the outlook provided on our Q3 call.

On a consolidated basis, total revenue was $3.82 billion, up 25% compared to $3.06 billion in the same quarter of the prior year. Our gross profit on Q4 revenues increased 74.4% to $314 million, or 8.2% of revenue, compared to $180 million, or 5.9% of revenues in Q4 of 2013. The increase in revenue and gross profit was largely due to the impact of the IBM CRM acquisition and growth in Technology Solutions.

Technology Solutions segment revenues grew 16% organically year over year, and Concentrix segment revenues were $342 million, up from $52 million in the year-ago quarter, due primarily to the acquisition of the IBM CRM business, and consistent with our expectations. Q4 total selling, general, and administrative expenses, excluding one-time acquisition and integration expenses and amortization costs, increased as a percentage of revenue to 4.95%, of $189 million. This compares with 3.35% of revenues, or $103 million, in the fourth quarter of FY13. The increase was due primarily to the impact of the IBM CRM acquisition.

We are effectively managing our costs as our business grows. We have made significant investments in people, systems, and infrastructure, which we believe enable us to effectively and efficiently manage our global network.

Q4 non-GAAP income before non-operating items, income taxes, and non-controlling interest increased by 62% to $124.9 million, or 3.27% of revenue, compared to $77.3 million, or 2.53% in the prior-year fourth quarter. At the segment level, Q4 Technology Solutions non-GAAP income before non-operating items, income taxes, and non-controlling interest was $95.6 million, or 2.74% of revenue, up 30% from the prior-year quarter result of $73.6 million, or 2.44% of revenue.

For Concentrix, non-GAAP income before non-operating items, income taxes, and non-controlling interest in the quarter was $29.1 million, or 8.52% of revenue. Momentum is good, and as we move forward, duplicate costs go away, as we migrate off the remaining IBM systems. Concentrix generated positive cash flow from operations in Q3 and Q4 2014, even with the burden of duplicative costs, and we are very optimistic about Concentrix margin growth in 2015.

For the full fiscal year, SYNNEX revenue was $13.8 billion, an increase of 28% from the prior year. For the full year, Technology Solutions segment revenues grew 20% organically year over year in a good demand environment to $12.8 billion; and Concentrix revenue grew $1.1 billion, from $189 million in 2013, due to our expansion of the scale and platform of product offering, and the transformational acquisition of IBM CRM business completed during the first half of 2014.

I'd like to point out that the IBM business total purchase price, which we had originally estimated in the September 2013 announcement at $505 million cash and stock, is now expected to be $418 million. The $418 million purchase price is still preliminary, as we complete final acquired asset reconciliations, but we do not expect any material changes at this point.

We're also pleased to report that the one-time acquisition-related expenses we had estimated in our February initial close announcement at $35 million to $45 million are currently at $43 million; however, $15 million of these expenses have been funded by IBM, so our net cash one-time items were approximately $28 million.

For the full fiscal year, non-GAAP income before non-operating items, income taxes, and non-controlling interest grew 58% to $406.7 million, or 2.94% of revenues in 2014, compared to $257.2 million, or 2.37% of revenues in 2013.

At the segment level, Technology Solutions non-GAAP income before non-operating items, income taxes, and non-controlling interest for FY14 was $309 million, or 2.42% of revenues, up 28% from the prior-year result of $241.2 million, or 2.26% of revenues. For Concentrix, non-GAAP income before non-operating items, income taxes, and non-controlling interest for the full fiscal year was $97.1 million, or 8.86% of revenue, up from the prior-year result of $15.7 million due to the IBM CRM acquisition.

Net total interest expense and finance charges for Q4 were $6.9 million, up from $3.8 million from the prior-year quarter. For the full year, our interest expense was $25.2 million, compared to $17.1 million in the prior year. The Q4 and full-year expense reflects the debt associated with the acquisition of the IBM CRM business and higher working capital needs to fund profitable business growth.

Net other expense was $1.3 million in the fourth quarter of 2014, down from net other income of $391,000 in the prior-year quarter. For the full year, net other income was $962,000, compared to $14.3 million in the prior year, which included $12.3 million received from a class-action legal settlement in Q3 of 2013.

The tax rate for the fourth quarter of FY14 was 37.6%, compared to 37.2% in the prior-year period. For the fiscal year, it was 36.6%, compared to 36% in 2013. For fiscal 2015 we anticipate the annual tax rate to be in the 35% to 36% range.

Our fourth-quarter non-GAAP net income was $72.7 million, or $1.83 per diluted share, representing 49% EPS growth over the prior-year quarter. The full year 2014 non-GAAP net income was $242.3 million, or $6.16 per diluted share, representing 44% EPS growth over the prior fiscal year. For comparative purposes, it's important to note that in 2013 we benefited from a pre-tax $12.3 million legal settlement recorded in other income net.

Turning to the balance sheet, our accounts receivable totaled $2.1 billion in November -- on November 30, 2014, for a DSO of 50 days, which was up two days from the prior-year quarter. Inventory totaled $1.4 billion, or 36 days, at the end of the fourth quarter, up one day from the fourth quarter of 2013. Days payable outstanding was 41 days, down two days from the prior-year fourth quarter; hence our overall cash conversion cycle for Q4 2014 was 45 days, down five days from Q3 2014, and up five days from Q4 of 2013, due to strong growth in Technology Solutions and the IBM CRM acquisition.

Our debt-to-capitalization ratio was at 37.2%, and it was slightly lower than Q3 2014, and consistent with our expectations. At the end of Q4, between our cash and credit facilities, SYNNEX had over $500 million available to fund growth.

Other financial data and metrics of note for the fourth quarter are as follows. Depreciation expense was $11.8 million. Amortization expense was $16.7 million. HP, at approximately 24% of sales, down from 29% a year ago, was the only vendor accounting for more than 10 percent of sales. The percentage decrease was the effect of the IBM CRM acquisition and other mix changes. HP revenue grew year over year.

Capital expenditure for the quarter was approximately $20.1 million, which was primarily related to Concentrix facility expansion due to business growth. Annualized ROIC in Q4 of 2014 was 9.5%, including the impact of our acquisition-related expenses. Trailing four-quarter ROIC was 8.3%, including the impact of our acquisition-related expenses. Excluding the impact of one-time acquisition and integration expenses and amortization, the current fiscal quarter's trailing ROIC was 10.7%.

Preliminary cash flow generated from operations was approximately $15 million for the fourth quarter, due to positive cash flow generated from Concentrix, and efficient Technology Solutions working capital management. For fiscal 2014, cash flow used in operations was $231 million. Strong growth in technology solutions and funding Concentrix working capital requirements during the first half of 2014 resulted in a net out-flow of cash.

We intend to utilize excess cash to invest in organic and strategic growth, pay down debt, and return a percentage of excess cash to shareholders via dividends and share repurchases. As described in our press release, the Board of Directors approved a regular quarterly cash dividend of $0.125 per common share due to be paid on January 30, 2015, to stockholders of record as of the close of business on January 16, 2015.

Now moving to our first quarter 2015 expectations. We expect revenue to be in the range of $3.375 billion to $3.475 billion. For non-GAAP net income, the forecast is expected to be in a range of $59.8 million to $61.8 million. Non-GAAP diluted EPS is anticipated to be in a range of $1.49 to $1.54. The non-GAAP diluted net income and non-GAAP EPS guidance excludes acquisition and integration-related expenses, and the after-tax cost of approximately $8.7 million, or $0.22 per share, related to the amortization of intangibles. Weighted average shares estimated per diluted EPS are 39.5 million.

Please note that these statements of Q1 expectations are forward looking, and actual results may differ materially. I will now turn the call over to Kevin Murai, President and Chief Executive Officer, for his perspective on the business and our quarterly results. Kevin?

Thank you, Marshall, and good afternoon, everyone. Thank you for joining our call today. I'm pleased to report a strong finish to the year, and I'm thrilled with the accomplishments and results the entire SYNNEX team delivered in 2014. We have a strong track record of delivering excellent results quarter after quarter, but equally important, we're realizing the benefits of our business strategy.

I'm very proud of these headlines for 2014. Our financial performance was exceptional. Revenue increased 28% to $13.8 billion. Non-GAAP net income increased 48% to $242 million. Non-GAAP earnings per share increased 44% to $6.16. Non-GAAP trailing four-quarter ROIC increased to 10.7%. We also announced the initiation of a quarterly dividend program in September.

The acquisition of the IBM CRM business has been a huge success, and we are on track to exceed our first 12-month EBITDA target of $120 million. The Technology Solutions division grew sales almost 20%, with operating income growing 29%. We have clearly entered a new era in our business profile and financial results. The acquisition of the IBM CRM business has transformed our Concentrix business into a global leader in customer care solutions, and is now a significant generator of cash for our Company.

As we complete the final stages of our integration work, our focus has shifted to building our sales pipeline, with an emphasis on higher-value work in key industry verticals such as health care, insurance, banking and financial services, and technology. Our goals are clear -- grow the business at or above market rate, and enhance the quality of the business to drive improved operating margin through higher value-add engagements and incremental efficiencies.

As we successfully integrated the IBM CRM business, we maintained our focus on the technology solutions business. Last year we grew faster than the overall market, with all of our geographies -- the US, Canada, and Japan -- contributing. This growth came from both market-share gains in core segments, as well as from emerging businesses in the communications, cloud, and software spaces. Our strategy of differentiating ourselves through deep technical and vertical industry knowledge is reaping benefits.

While the results we delivered in 2014 were partly aided by market dynamics such as Windows XP end of support and the consumption tax increase in Japan, we remain excited about our profitable growth opportunities in 2015 and beyond. I will now provide some highlights on our Q4 results before turning the call over to Chris Caldwell, who will provide additional color on the Concentrix business.

On a consolidated basis, we delivered strong growth of 25%, and even stronger growth of 27% in constant currency. Our adjusted operating income increased 62% to $125 million, or 3.27% of revenues, a 74-basis-point improvement. Our non-GAAP fourth-quarter ROIC was strong at almost 11%.

In technology solutions, the US led our regions with growth well into the double digits, aided by continued strong market demand. Within the commercial space, our growth was broad based, with notable strength in networking security, mobile devices, and PCs. The SMB market and public sector, including federal, were also noteworthy.

The holiday season was more robust this year, and our new-age electronics business benefited by having the products that were in demand, such as tablets, game consoles, and audio products. As I mentioned last quarter, the majority of the Beats business has been moving to Apple Direct, and going forward we expect this business to be much smaller. Our high solutions business was also a notable contributor, as we continued to capture growth in the ongoing build-out of the large scale data center market.

In our Canadian business, Q4 sales were slightly better than a year ago, and we believe we grew faster than the market. Finally in our Japanese business, our sales were flat from a year ago, despite the fact that the Japanese economy fell back into recession. More importantly, in both Canada and Japan, we achieved good growth in profitability year on year, which helped to drive a 31% increase in operating income for the Technology Solutions division.

Now turning to the Concentrix segment, Concentrix delivered $342 million in sales, in line with our expectation. Profitability was solid, with a non-GAAP operating income margin of 8.52%. As I mentioned earlier, our integration is well on track, and our focus in 2015 is enhancing the sales pipeline and capturing incremental efficiencies.

We believe our success in signing new logos, baseline expansion, and renewals will create sales and profit opportunities this year and beyond. For more color on the Concentrix business, I'll now turn the call over to Chris Caldwell.

Thank you, Kevin. We continue to be extremely pleased with the execution of our Concentrix business. We believe the strong platform we have built competes very effectively with any large global player, and we continue to receive a very positive market response to our nimble, client, and vertical focus.

Some highlights just in the past three months include: Concentrix and Cisco winning top honors at the recent Contact Center World's Global Best Conference for outstanding partnership on our distinctive engagement and long-term relationship; Gartner positioning Concentrix as a leader in its 2014 Magic Quadrant for North American life insurance policy administration systems, due in part to our investments we're making in the insurance vertical, that helps our clients respond effectively to rapidly changing markets; finally, winning Canada's -- China's prestigious 2014 Global Sound Award for best outsourcing customer contact center in the category of technical support.

With our execution and key wins within our ten verticals, this year our team passed the 55,000 mark. It's important to note, however, that some of this increase was driven by volume peaking in the December-January time frame for some of our clients that have seasonality to their business.

A year into this new Concentrix, and I'm happy to say the commercial terms for new contracts, expansion and renewals of existing contracts have not materially changed, demonstrating the value we deliver to our clients.

In our last call, I had mentioned this quarter our goal was to switch the remaining back-end systems from IBM to Concentrix as we finish off the integration of the IBM CRM business. As a reminder, the client-facing systems, facilities, and staff were seamlessly integrated day one. I'm happy to say we completed the remaining switch early in December, and are now in the process of wrapping up the remaining small items this quarter, which is on plan.

We do have duplicate expenses, as mentioned, during this time that will fade over the next three to four months. While a portion of the savings are being reinvested in sales, marketing, and subject matter experts to continue growing our key verticals, the remaining savings continue to support our goal of expanding our operating margins.

With the integration work largely behind us, we are focused on optimizing and continuing to grow our business. From a sales perspective, within our ten verticals we are especially focused on health care, banking, insurance, and technology, as Kevin had mentioned. These represent areas of superior growth opportunities and margin performance, requiring our technology platforms, analytics, as well as high-value processes. You'll see us make additional investments in these verticals in terms of staffing and infrastructure, as discussed.

What we are seeing driving continued demands are really around industry consolidation with client-seeking service providers who can take on additionally complex tasks and drive results and efficiencies on a consistent and measurable global delivery scale; our ability to demonstrate cost efficiencies around managing entire end-to-end processes, driving a high value and lower cost of operation than the client can achieve internally; and finally, our culture of being an extended partner to our clients, investing in their outcomes and success.

The sales cycle of our target verticals is a little longer, and the up-front costs are a little heavier in these deals, where we're taking over an entire process from start to finish; but the end result has the opportunity for a higher financial return once we go into full production.

It's been a very exciting time at Concentrix. We enter 2015 with a very robust portfolio of world-class clients under contract, and a strong pipeline of new opportunities to grow. We feel confident that we can grow at market while increasing our operating margin this year.

I'd like to thank our team members who have worked so diligently, and have been so committed to achieving these great results. We're all focused on building a stronger, bigger, and better Concentrix for all of our stakeholders. I'll now turn the call back to Kevin.

Thank you, Chris, and thank you for your leadership throughout the integration process. Now moving to our view on the current market environment and our first-quarter guidance.

In the Technology Solutions business, we expect to achieve continued strong sales and profit performance. Although we will not experience the same benefits we had a year ago with the Windows XP end of support, we have increased our line card with key vendors such as Dell, Lenovo X Series, and Avaya. The underlying IT demand in the US continues to be strong. We anticipate a more muted demand environment in Canada and Japan, and also expect foreign exchange head winds in our translation to US dollars.

We have a proud history of performing better than the overall market, and we expect to continue to do so. We believe that we have a superior business strategy, that we are invested in the right growth areas, and that we have the right partners in both our vendor and customer portfolios. We have a can-do attitude, deeply instilled in what I believe are the best people in the business. Regardless of what markets we face, we will set our goals high, and strive to exceed them.

In the Concentrix business, we expect our momentum to continue, with strong performance in revenue and profitability. On a consolidated basis, it's important to note that the seasonality of our business is changing, driven by acquisitions, shifts in the markets we serve, the success of our high solutions business, and a seasonally stronger Q4 and Q1 for Concentrix.

In closing, we are very proud of what we've accomplished, and are excited about our future. These are exciting changes -- there are exciting changes afoot in both the technology and services industries, and with our investments and strong execution, we believe we can capture much of these opportunities, which will result in increased shareholder value through cash generation, margin expansion and EPS growth.

This is an exciting time for SYNNEX, and I would like to acknowledge the hard work and dedication of all of our associates around the world, from both our Technology Solutions and Concentrix businesses. I also want to thank our vendors, customers, and shareholders for their continued partnership and support. With that, let's turn the call over to the operator for questions.

Thank you.

(Operator Instructions)

Our first question will come from Matt Sheerin with Stifel.

Yes, thanks, and good afternoon. First question, Kevin, regarding your guidance in talking about relative softer growth rates and head winds in both Japan and Canada. Could you elaborate on that? How much of that is concern on FX, versus overall demand and macro issues in those markets?

Slightly different stories in both countries, Matt. First of all, I just wanted to reiterate, overall demand in the US is very strong. In Canada, we do see a softer overall demand environment. That, combined with a very strong US dollar, will create some decline just from a US translation back to US dollars perspective.

In Japan, as you're probably aware, the country went back into recession just a few months ago, and we are seeing that in terms of softer overall demand. Now we performed very well in our Q4, and believe we actually made significant gains in market share, so we believe we'll continue to do so. However, that in combination with a very strong growth from a year ago, driven both by Windows XP expiration or end of support, as well as the increase in consumption tax -- add into that again FX head winds for Japan yen translation back to US dollars -- just creates a little bit more softness in our Japanese business, too.

Overall, when you kind of look at the overall technology market and the environment, translate that back to our business, we actually do see what I would consider to be normal seasonal change from Q4 to Q1, once you kind of navigate through all those different factors.

Okay. On the Concentrix business, talking about I know there's a 10% EBITDA margin target, and you're running at, I guess, EBIT margins of 8%. Walk us through the timing of getting to that -- to those targets, given that it also sounds like you're investing on building out some of the capabilities of that business to grow the business.

Hi, Matt, it's Chris. We haven't set sort of a firm target externally for when we're going to hit double-digit op income, but clearly that's what we're striving for as we go forward and as we get rid of the duplicate costs, and get some of our larger contracts into production. We see it as being in the horizon.

How far -- where are we in terms of the duplicate cost cut going away? I know most of the heavy lifting was last quarter.

Most of the heavy lifting was last quarter, although we had some of the tail end of it this quarter. As we talked about in the prepared remarks, it's really over the next three to four months that we'll see that wind down to relatively nothing.

Okay Operator, next question?

Our next question will come from Kevin McVeigh with Macquarie.

Great thanks, nice job. If you could give us a sense just relative to expectations, real strong margins in both businesses. Is any of that become some of the early synergies you're seeing as you cross sell, or is it just -- any thoughts around that would be helpful?

Yes, really the strong performance in profitability was driven by the success of each independent business. On the distribution side in Technology Solutions, with strong top-line growth we're able to carry a lot of that gross margin down to our bottom line -- that in addition to continued movement on business mix itself. In the Concentrix business, just very strong performance, being able to leverage some seasonal growth opportunity and drive more efficiency in that business, as well. That, in addition to the on-boarding of business in some of these higher-margin vertical segments that Chris had spoke to before.

Got it. Then just real quick on Concentrix, how have the renewal conversations gone as part of SYNNEX now as opposed to IBM? Are you seeing any vendor consolidation that you've been able to leverage as a result of the acquisition?

Kevin, it's Chris.

Hi, Chris.

The first conversation, the renewal conversations have gone incredibly positively, and frankly no surprises. Clearly, the clients have had almost a year to interact with us and see how we've executed for them and have seen a lot of value we brought to the table, and seen us invest pretty significantly in supporting their programs. It's been a very positive experience from a renewals perspective. In terms of the other question in regards to positive trends, we are seeing additional growth as part of the renewal conversations, which is also helping with us as we go.

Super. I'll get back in the queue, thanks.

Thank you.

Our next question will come from Lou Miscioscia with CLSA.

Okay, thanks. When we look at -- or you're looking at the US business, obviously you mentioned it was very strong. Any additional color you could possibly provide us? How much do you think is market-share gain, and how much do you think is just the end demand growth that you're seeing in the different sectors -- SMB, public sector, commercial, and so on?

Lou, we believe it was a combination of both. As I said, the underlying demand in the US is strong. As you probably know, the overall retail business through holiday buying season was better than a year ago. We were able to benefit from that by being in the right categories, having the right product. In addition to that, SMB continues to be strong. On the commercial side of the business, our overall public sector did very well, but we've also seen a return to growth in the federal business, as well. Combining all three together, plus in addition to that what we believe to be incremental market-share gains, really drove a good result for us.

Okay. Are you getting any visibility on Microsoft's Windows server that's going to expire on July 14? Also, you didn't mention storage. Maybe wrap those two together, if you could? Was that also in the good category, or did you see slowing there?

Starting off with Windows server refresh, a lot of discussion, a lot of activity going on in terms of that. We're starting to see some of that business start to flow through. I believe the larger portion of that benefit is going to happen in the first half of this year and perhaps even trail on a little bit longer than that. There is good activity happening there, in particular for Microsoft partners on the hardware side. Certainly many of them putting programs in place with us on further educating and also providing incremental programs to help drive that refresh. The second part of your question again, Lou, was?

Storage.

Oh, storage. Our footprint in storage is not as broad on the enterprise side; however, we did see growth in storage over the past quarter, as well.

Great. I'll get back in the queue, and good luck on the new year.

Thank you.

Operator?

Our next question will come from Jim Suva with Citi.

Thank you, and congratulations to your team at SYNNEX and your outlook. One thing on the conference call I wanted to follow up for was regarding the purchase price of the IBM CRM business. It went down. I think I heard you right to say $418 million versus $505 million. Maybe I got the numbers wrong or mixed up, but that looks like it's about $87 million less expensive, or 17%, which is great, don't get me wrong. But the question is why the delta? Was it cash collection of timing, or were there some contracts that didn't come in that were supposed to? What happened to the original purchase price versus what it looks like it's ending out to be?

Hi Jim, this is Marshall. As part of the $505 million, there was also $100 million of net tangible assets that were part of the deal. In that reconciliation process there were just certain assets that weren't needed and didn't come over, so it was primarily just reconciliation true-ups to reflect the reduction in the purchase price.

Jim, just to add on to it -- it's Chris. All the clients came over that were expected to come over. Really the health of the business of what we thought we were buying to what we bought was exactly as expected, and frankly turned out to be a little better from what we've moved across.

Great. My quick follow-up is now that you've had time with this under your watch as far as running the operations, I would assume you've had some contract renewals coming up, as well as visibility on future contract renewals. In this business it's pretty common for contracts to be renewed before the actual ending date, to ink them for another year or two before you actually hit the 12:00 hour.

Can you let us know about some of those occasions, not necessarily the customer, but more have you been able to re-extend them? Have you extended them on similar or favorable terms, or have you basically walked away and (inaudible)? Because I know in the past you've said there was some lying down of the businesses that we should think about. Have those occurred? Thank you.

Thank you, Jim. To answer your first question, I mean clearly we've had renewals since the business has come across. As mentioned earlier, we frankly renewed them as like-for-like material commercial terms, and in fact have seen some price increasing on some of them. Those have all gone well. We haven't walked away from any business that we didn't want to; and frankly, have seen good growth from it.

To follow up, Kevin had asked about vendor consolidation as part of this renewal process. We have been able to take share from some of the other vendors within the space. That sometimes is essentially done during renewals, when we sit down and look at what we can do for larger parts of the business. It's been quite favorable through the course of the year when we looked at the contracts coming up.

Thanks, and congratulations to you and your team at SYNNEX.

Thank you.

Our next question will come from Brian Alexander with Raymond James.

All right. Thanks, and nice results. Chris, I wanted to ask a question ability profitability and how should we think about the pace of margin expansion in 2015 from where you sit today? You guys have been around $27 million to $29 million of operating income the last three quarters; but once we get past the final stages of the integration this quarter, do you see a steady progression higher in terms of margins, or is there a step function change that will occur post integration and post reinvestment period? If you could just kind of give us a sense for timing and magnitude and ultimately, where you see the business longer term over the next few years?

Okay, Brian. The reality is that we're going to see -- our goal is obviously a continued progression. There's not a significant step change that's going to happen where you're going to see a large jump, because we are investing in the business, both in people and technology as we build out our service offerings for it. Based on our verticals that we're going after and the success we're having in those verticals, they tend to provide superior financial returns. That's really the catalyst for driving what we see as margin expansion.

Obviously as we go forward, we'll hopefully continue to see more leverage within our cost structure. As people have mentioned, we brought over the IBM business. We had not done any significant changes to that business, because our goal was stability for our client base. Now we'll start to be able to see some leverage through that as we add more sales on to the top line.

Don't really want to talk about guidance from a long-term perspective, but clearly we've invested in this area because we see the opportunities. We see a lot of vendor consolidation that's happening in the market place and a lot of transactions that are happening in the market place. With our strength of how well we've done this integration, we are frankly a safe port in the storm for many other clients who are similarly facing those challenges. Our expectation is that we can pick up some of that additional business.

Just to make sure we don't get ahead of ourselves, the 10% margin target, is that something you think is achievable this year, or is that something that's really more next year, as you reinvest in the business. Then I just have one question on Technology Solutions.

Brian, I wouldn't really comment on that. We continue to march forward towards the goal, but haven't put a public stake in the sand.

Okay. Kevin, the tougher comparisons that you have this year, and the issues you cited with currency and weakness in Canada and Japan -- your guidance for Q1 looks reasonably good. I think TS is expected to grow around 7%. What's your confidence level in growing above market in TS as we move beyond the first quarter? What specifically are the key drivers of that above-market growth this year? What has you excited in terms of product categories or divisions like Hive or New Age? Thanks.

Brian, I think either last quarter or when I saw you last, we had talked about the inherent head winds in Q1, and Q1 to Q2 and the tough compares. But as I said both in my script as well as when we spoke, we set bars high for ourselves. We do live in a what have you done for me lately world. Even though we take credit for the good things that we've accomplished, we are fully focused on what we're doing today and what we're doing going forward.

You're right. Our guidance is a net growth over a year ago in TS, and we fully expect to be able to get there. Part of that is through market share gains, but also we've enhanced our line card with some significant new business -- some with new partners and some with existing partners with net new categories that we believe are going to help us get there quite a bit.

Plus, there are a number of emerging categories that we've made a lot of investments in. Broadly speaking, it's around the Internet of Things. It's around mobility. It's around other parts of cloud build-out. But we do believe we're invested in the right places. With business models that are not necessarily the same as traditional business models, our expectation is that we will lead the pack and we will gain incremental share, because we have a better business model than the others -- really, again in those growth areas. My confidence level is high we're going to grow faster than market. As I said, we do set our bar high, and we do our best to exceed them.

Thank you.

Thanks, Brian.

Our next question will come from Osten Bernandez with Cross Research.

Hi, thanks for taking my questions. I guess my first question, if I may. Marshall, would you be able to give me some sort of line of sight as to your view on cash generation for 2015 after the year you had, with respect to the investments in TS and Concentrix, which were understandable?

Sure, Osten. Let me first just recap again for Q4. Very proud of the overall positive cash flow we generated. If you think back a year ago, the year-over-year cash flow from the operations improved around $100 million -- both segments doing quite well and contributing to that. We looked at Q1 and are optimistic about our ability to continue to generate cash flow. But certainly as you know, with our business and how fast we grow, we also know that takes investment and working capital. But it has resulted in profitable results and returns on our margin.

Okay. Operator, next question?

Our next question will come from David Ryzhik with Brean Capital.

Hi, guys. Thanks so much for taking the question. Dave Ryzhik for Ananda Baruah. Based on the commentary around Japan and Canada, and potentially seeing PCs perhaps slightly declining this year due to a tough compare, what does that mean for mix in Tech Solutions up for 2015. How can we think about that? Thank you.

Overall, we continue to manage our mix proactively. Obviously there are shifts that are happening, too. I did mention though that in Q4, at least from a SYNNEX perspective, PCs and other devices were actually a strong growth category for us. I don't attribute a lot of that necessarily to the tail end of the WinX PN support. I think there's just ongoing refresh, and in particular with new products on the consumer side, as well as the federal business strengthening again. That did tend to drive at least for us good growth in the PC segment overall.

In terms of overall mix change, for us as well as we continue to manage our portfolio, we have significant new partnerships in the enterprise space as well, both with the expanded Dell relationship as well as with Lenovo XP -- sorry, X Series -- coming on board. With that, we do expect to continue to manage our mix more and more into the higher margin tech categories. But again, we do expect ongoing growth for much of the broader line categories, as well -- in particular, devices and things that are driven around connectivity and the internet.

Great, and a quick one, if I may, for Marshall. You have the anti-dilutive buy-back program in place. Is there any -- can we expect that to become more than just anti-dilutive, perhaps even taking down share count, or you're comfortable with where you are right now?

David, we've got a $100-million, three-year program that we fully intend to use, and its intent and purpose is to be anti-dilutive.

Right. Great, thank you so much.

Thank you.

Next question will come from Rich Kugele with Needham & Company.

Hi, good afternoon. I'm sorry for the background noise. Just wanted, Chris, if you could just elaborate on the critical capabilities that the players that are ranked above you today in the Concentrix business, what critical capabilities can you add over the next 12, 18 months that can perhaps move you up in the rankings? Certainly you're winning share and doing right by the customers. I'm just interested in some of the features that we can expect?

Rich, I think the simplest way of putting it is that there's nothing from a capabilities perspective that we frankly currently lock within the realm of competitiveness. We are looking at continuing to make investments as branching out within those areas. For instance, health care, insurance, banking financial services, we perform multiple types of processes and tasks. Some of our competitors perform more of those and have a broader offering, and that's what we're in the process of building out across it. But the fundamental -- whether it be technology, analytics, process discipline -- we would rank ourselves as equal with anyone that we compete with in that space.

We should assume that that's the type of stuff that you can do organically just by investments that you wouldn't necessarily need to do M&A to enhance those capabilities?

Rich, I mean clearly, we're doing it organically and we'll continue to do it organically, but I would not rule out M&A. We are an acquirer that looks for value, and if we find value in order of buying it faster than building it and it drives the right financial returns then we will certainly look at speeding up the growth by doing that.

Okay. Lastly, Marshall comments on the inventory. Are you comfortable with heading into the seasonally softer period, or anything notable in there?

No issues and very comfortable.

Excellent. Well, great quarter and good outlook guys, thank you.

Thanks Rich.

Okay, thank you everyone for joining our call today. This concludes our call. Thank you.

With that, we conclude today's conference. Thank you for participating. You may disconnect your lines at this time.