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"Ingram Micro is a leader in technology distribution and supply-chain services, functioning as an intermediary between technology manufacturers and customers that include retailers, value-added resellers, and enterprises. The company’s core business revolves around the distribution of IT products and solutions, which include security, cloud infrastructure, business applications, communications, backup and disaster recovery, and managed services. Ingram Micro also offers a suite of services such as financing, marketing, life-cycle management, and technical support. The company’s digital platform, Xvantage, leverages artificial intelligence and machine learning to support the B2B customer experience. Ingram Micro’s global network serves more than 165,000 customers and 1,500 vendors worldwide.
 
 Founded in 1979 as Micro D Inc., Ingram Micro rapidly expanded through a series of mergers and 45 acquisitions, including the 2012 purchase of BrightPoint, a major provider of device life-cycle services."

Q2 2026

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Q4 2024

Ingram Micro Holding (INGM): Company Profile, Stock Price, News, Rankings

legacy

Ingram Micro Holding

ingram micro holding

Greetings. Welcome to Ingram Micro Fourth Quarter and Fiscal twenty twenty four Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded. It is now my pleasure to introduce Willa McManaman, Vice President, Investor Relations. Thank you. You may begin.

Thank you, operator. I'm here today with Paul Beig, Ingram Micro's CEO and Mike Silas, our CFO. Before I turn the call over to Paul, let me remind you that today's discussion contains forward looking statements within the meaning of the federal securities laws, including predictions, estimates, projections or other statements about future events statements about our strategy, demand, plans and positioning growth, cash flow, capital allocation and stockholder return as well as our expectations for future fiscal periods. Actual results may differ materially from those mentioned in these forward looking statements because of risks and uncertainties discussed in today's earnings release and in our filings with the SEC. We do not intend to update any forward looking statements.

During this call, we will reference certain non GAAP financial information. Reconciliations of non GAAP results to GAAP results are included in our earnings press release and the related Form eight K available on the SEC's website or on our Investor Relations website. With that, I'll turn the call over to Paul.

Good afternoon, and thank you for joining today's call. Despite the macroeconomic challenges we saw throughout 2024, we exited Q4 with a return to year over year top line growth of nearly 3.5% on an FX neutral basis within our guidance range. We saw particular strength in Asia Pacific and Latin America both up over 7% on an FX neutral basis and I'm excited that North America returns to year over year growth. From a mix perspective, we continue to see robust performance in cloud and in client and endpoint solutions, which both grew over year over year and quarter over quarter. Advanced solutions was impacted by slowness in networking, but server and storage were each up double digits versus the prior year and sequentially.

In terms of the customer category, we saw strength in sales to large and enterprise customers, while small and medium sized businesses along with public sector remain softer. Considering these dynamics, we believe the return to top line growth we saw in Q4 will sustain in 2025. Client and endpoint solution sales improved consistent with the growth we are now seeing in desktop and notebook categories. We also expect to see networking continue to rebound from the challenging year over year comparisons that continue throughout 2024. Lastly, we see more end users and vendors sharpening their focus on evolving automation use cases, of including the use of AI, where we are helping our customers and partners navigate a rapidly changing IT landscape.

We will continue to forge the path with AI and automation. And we look forward to sharing the data with you in the coming quarters that demonstrates our progress as we become increasingly digital. 2024 was a pivotal year for Ingram Micro. We celebrated our return to the public markets in October, but more importantly, we also do so as a different company than we were

when we went private in 2016. Since that time,

we have made strong progress in 2016. Since that time, we have made strong progress on our cloud and digital strategy. And since the divestiture of our commerce and lifecycle business in 2022, we are even more focused on technology solutions and related value added services. Since our founding forty five years ago, Inger Micro has created a technology infrastructure that enables our over 1,500 vendor partners and more than 160,000 customers across 57 countries to connect, communicate and grow. Today, we have taken this foundational infrastructure and digitized it with the goal of becoming a leading business to business platform for the global technology ecosystem.

To do this, we have invested more than $600,000,000 over roughly a decade in building our capabilities and technologies in cloud. This was the foundation for our AI driven digital experience platform Xvantage, where we have now been investing for the last two years. Xvantage is built upon more than 29,000,000 lines of code, 20 intelligent engines, all surrounded by more than 30 patents pending. We have rolled out Xvantage the Xvantage platform in 16 countries with further deployment still to come. In addition to enabling real time interactions, frictionless quoting and data insights into a single platform, Xvantage allows for more seamless provisioning of Ingram Micro's own more profitable service offering coupled with product sales as a result of bringing together a complete solution, including hardware, software, services and cloud.

Xvantage creates value for both our customers and our vendor partners. One example with a large customer of ours is in the transformation we have enabled with a leading cybersecurity vendor. Using Xvantage, the technology solutions provider was able to reduce its operational cycle time by over 80%, decreasing the average time required to create a ready to order complex cybersecurity quote from more than two hours down to ten minutes or less. They were able to redeploy half of the team dedicated to those cybersecurity solutions to proactive sales, activities including cross and upselling as well as renewal and growth initiatives related to subscriptions and licenses. Ingram Micro is also empowering small and medium businesses such as a managed service provider or MSP that is using our platform to adopt self serve quoting and ordering to help transform their decades old sales processes and better manage their opportunity pipeline.

The time savings and ease of use we provide drove improved service level agreements with their end users and provided the MSP with the ability to shift resources to proactive sales and business development activities. With the help of our platform, the customer was able to separate sales and operational path and achieve more than a 60% increase in sales activities without hiring additional resources. Industry analysts are also noticing the value of Inger Micro Xantage platform. In a recent article, IDC's Vice President for Channels and Alliances summarized what works and what doesn't in partner programs. The article describes Ingram Micro's ability to help IT providers stand out from the crowd, noting that vendors that figure out how to personalize their portals and content by Ingram Micro's Xfantage platform will have a distinct advantage.

In 2024, we won over 100 industry awards, including AWS Global Partner of the Year and AWS Innovation Partner of the Year for the LATAM region. For helping empower thousands of channel partners to create more value on AWS. We were also named HPE's Global Distributor of the Year for the second year in a row. During 2024, we also saw continued success with our global sustainability efforts ranking in the top 1% for sustainability by EcoVadis for the second year in a row. These external recognitions underscore our commitment to optimizing the human touch while we become increasingly digital.

Turning to 2025, aligning the company around continued progress on four guiding principles. Let me walk you through each one briefly. The first is to be a leader in digital, which has been the center of our ongoing transformation. Internally with our vendor partners and our customers, we are standardizing and modernizing the way we all work, serve and support the industry through improved and human enabled processes. With the Xtandis platform driving innovation and our supply chain backbone providing strength and stability.

Second is accelerating the growth in the high margin and more complex solutions that sit in our Advanced Solutions and Cloud businesses along with expanding recurring revenue. The past due success here is growing profitable operating income through sales focus and execution. Third is driving operational excellence to create efficiencies through targeted investments in automation, the simplification and modernization of our internal go to market and business processes, operations and supply chain solutions and digital technologies to create a high performing global platform operating model. And fourth, building the Anker Micro team in the future by developing our current talent pool and providing associates with the path to expand their skill sets and provide the best solutions, user experience and return on investment to our partners and our customers. Entering 2025, these four guiding principles are driving continued innovation and differentiation on the platform.

Looking to the year, we are excited about the return to growth on the top line, which we believe is sustainable in 2025. We are confident we are taking the right and necessary steps to address the challenges in India that Mike will discuss here shortly. At the global level, the technology and operational investments we have made position us and our customer and vendor partners to gain efficiencies and drive growth as well as we continue to roll out Xvantage globally. And as always, we remain committed to driving quality of revenue, optimizing working capital and free cash flow and achieving operational efficiencies during the year. There's a lot to look forward to this year.

With that, I'll turn the call over to Mike. Mike?

Thank you, Paul, and thanks to everyone on the call. I'd like to reiterate how pleased we are at our return to growth to close the year and our progress with Xvantage. Now let me touch on a few fiscal twenty twenty four highlights with a bit deeper dive on the fourth quarter and then I will provide our guidance for the first quarter of twenty twenty five.

Note that I will be focusing primarily on our non GAAP numbers in this overview. Fiscal year twenty twenty four net sales were $48,000,000,000 roughly flat versus 2023 and up 0.3% on an FX neutral basis. As discussed, 2024 was impacted by macro headwinds, which we believe are beginning to shift as we look to 2025. Full year 2024 gross profit came in at $3,440,000,000 or 7.18% of net sales, down 20 basis points from the same period last year due primarily to line of business, product and geographic mix along with a stronger competitive environment in general. Full year operating expenses were $2,450,000,000 or 5.1% of net sales, essentially flat from 2023.

However, these OpEx levels continue to contain an elevated level of OpEx associated primarily with our investments in digital that Paul just discussed. These heightened expenses totaled $114,900,000 or 24 basis points of net sales in 2024 compared to $69,800,000 or 15 basis points of net sales in 2023. While we expect in 2025 to incur a relatively consistent level of investment into 2024, these costs will reduce over time as we complete our wider deployment of X Vantage and move to a steady state. Thus, on a longer term basis, we expect our annual run rate of OpEx as a percent of net sales will land below 5% as we not only move to a more steady state as I just noted, but also increasingly benefit from efficiencies from Xvantage, restructuring initiatives we've taken in the past year plus, continued focus on operational improvements in business processes and operations and a mix shift towards cloud and advanced solutions products. During fiscal year twenty twenty four, we also recorded restructuring costs equaling eight basis points of net sales versus four basis points impact of restructuring charges in fiscal twenty twenty three.

The 2024 actions reflect our efforts to enhance organizational efficiency and strengthen customer service capabilities. And they include organizational changes and headcount reductions recorded during our first and fourth quarters of twenty twenty four. Collectively, the 2024 restructuring initiatives are expected to deliver annualized cost reductions in the range of $85,000,000 to $95,000,000 Although the impact of actions taken in the first quarter of fiscal twenty twenty four, which represent approximately half of the range of annual run rate savings I just noted have largely already been achieved beginning in the third quarter of fiscal year twenty twenty four. Our fiscal year twenty twenty four results also include $34,100,000 of expense or seven basis points of net sales representing the value of restricted stock units that immediately vested in connection with our IPO in October. Non GAAP net income for the year was $627,900,000 and non GAAP diluted EPS was $2.79 Adjusted EBITDA in 2024 was $1,320,000,000 compared to $1,350,000,000 in 2023.

Moving to the fourth quarter, net sales were 13,340,000,000 up 2.5% year over year in U. S. Dollars and up 3.3% on an FX neutral basis, driven primarily by strength across geographies in client and endpoint solutions, which saw sequential growth for the past three quarters. This was offset by weakness in Advanced Solutions where we had solid momentum in server and storage, but another soft quarter in networking. On a more positive note, networking is gradually improving from a low in the first quarter of twenty twenty four.

As a reminder, CES has a lower profit margin than Advanced Solutions, which contributed in part to lower overall gross margins in the fourth quarter of 7.01%, down 51 basis points versus prior year. Also contributing to this year over year margin trend are a higher mix of sales, particularly in The U. S. Towards enterprise customers where we don't provide as much attached value added services as we do for instance in SMB where demand remains more muted. A final contributing factor is a higher growth rate in our lower margin, lower cost to serve Asia Pacific region.

While we expect our long term product mix will skew more towards higher margin Advanced Solutions and cloud products, the anticipated growth from the PC refresh driving CES sales may impact margins in the short term depending on the solutions and geographical mix within a given quarter and region. We remain committed to above market growth in higher margin Advanced Solutions and Cloud while we also hold our associates accountable for quality of revenues and accretive return to shareholders across the whole of the business. From a regional perspective in the fourth quarter, North America net sales were $4,670,000,000 up three point zero percent in U. S. Dollars and up 3.3% on an FX neutral basis versus the prior year fourth quarter driven by strength across all lines of business, but particular strength as I noted earlier in sales to enterprise customers.

EMEA net sales of 4,070,000,000 were down 1.5% year over year and down 1.3% on an FX neutral basis, primarily due to weakness in Advanced Solutions versus prior year. Demand levels in general have remained more muted, particularly in Western European market. Net sales in Asia Pacific were $3,600,000,000 up 7.8% over the same quarter in 2023 in U. S. Dollars and up 7.7% on an FX neutral basis, driven by strength in CES sales, offset partially by weakness in Advanced Solutions.

Certain countries within APAC were strong, but we are seeing a very competitive market in India impacting both sales and margin as we are remaining appropriately selective on the business we pursue there. This is a trend that continues into the early part of '20 '20 '5 as well. Finally, net sales in Latin America were $1,010,000,000 down 0.9% in U. S. Dollars, but up 7.5% in constant currency as most local currencies weakened notably since 2023.

The stronger FX neutral sales in LatAm reflected solid growth trends across all product categories. Fourth quarter gross profit came in at $936,100,000 or 7.01% of net sales, down 51 basis points from the same period last year. The year over year decrease in gross margin was driven primarily by the mix factors I've already noted, but also reflective of a heightened competitive environment across most markets and particularly in India as I just mentioned. Q4 operating expenses were $630,800,000 or 4.73% of net sales compared to 4.65% in the same period last year. In Q4, we had discrete charges that related to our previously disclosed fraud matter in our India operation.

These charges impacted gross profit and operating expenses as well as related margins. The first charge impacting gross profit related to inventory write offs associated with the professional services business totaling $9,100,000 or seven basis points of net sales. The second charge impacted operating expenses and related to goods and services tax or GST and professional fees associated with the completion of our investigation into this matter. Specifically, the GST charges connected to true ups related to adjustments we recorded earlier in 2024 on this matter as we filed GST returns at the end of the calendar year. And the professional costs relate to our pursuit of settlements and recovery efforts with the parties involved in this matter.

These operating expense impacts totaled $11,200,000 or eight basis points of net sales. Our Q4 twenty twenty four results also include the impact of $34,100,000 or 26 basis points of net sales related to the stock based compensation charge in connection with our IPO in October. The combined impact of the discrete charges in India and the stock compensation charge is $54,400,000 or 41 basis points of net sales in the fourth quarter of twenty twenty four. During the quarter, adjusted income from operations, which included the aforementioned charges totaled $305,200,000 and adjusted income from operations margin came in at 2.29% compared to 2.86% in the same period last year. Our non GAAP net income for the quarter was $213,100,000 compared to $220,900,000 in the comparable period last year.

Fourth quarter non GAAP diluted EPS was $0.92 Excluding the two discrete items in India that I just noted, our non GAAP diluted EPS in the fourth quarter would have been $0.99 above the high end of our guidance range. Fourth quarter adjusted EBITDA was $418,100,000 compared to $435,400,000 in the comparable period last year. Turning to our balance sheet. At the end of Q4, net working capital was $4,100,000,000 compared to $4,400,000,000 to close the same period last year. We maintain a strong focus on working capital management to maximize returns on investment and cash provided by operations to improve our debt levels.

This discipline allowed us to improve our annual net debt to adjusted EBITDA leverage ratio by more than 0.4 times since our third quarter. Adjusted free cash flow was strong in the quarter at 337,200,000 Our adjusted free cash flow for the full year was $443,300,000 As I've noted before, our free cash flow is seasonally driven. Our goal over time is to drop 30% or more of EBITDA annually to free cash flow, but this will not necessarily be the case in each quarter due to this seasonality as well as the timely investments we make in opportunities for profitable growth. As anticipated, our Board of Directors has approved a quarterly cash dividend in the first quarter of twenty twenty five of $0.074 per share or $17,500,000 which will be payable on March 25 to shareholders of record on 03/11/2025. Our Board of Directors also approved a one year share repurchase plan through which the company can purchase up to $75,000,000 of the company's common stock in connection with one or more secondary offerings by our controlling stockholder when an independent committee of our Board deems repurchases to be an appropriate use of our capital.

During 2024, we paid down $483,000,000 of our term loan balance bringing our total repayment on term loans to $1,560,000,000 since the beginning of 2022. With the cash flow generation I just mentioned, I am also pleased to note that we will repay an incremental $125,000,000 of our term loan later this month. During 2024, our interest expense was lower by $41,800,000 year over year, primarily as a result of our debt pay downs over the past couple of years. Last quarter, we noted our belief that the fourth quarter would demonstrate a gradual improvement in the demand environment and we are pleased that this is what has happened. As Paul said, we believe the return to year over year growth is sustainable, though we expect quarterly volatility.

That said, as I now turn to guidance for the first quarter of twenty twenty five, we forecast net sales in the range of $11,430,000,000 to $11,830,000,000 representing year over year growth of 2.6% at the midpoint. As I mentioned as CES improves it may have a short term negative impact on gross margin, but we remain focused on quality of revenue and outsized growth in Advanced Solutions and Cloud over time. Thus, we expect gross margins to expand over time as the mix changes. For the first quarter of twenty five, we expect gross profit to be in the range of $785,000,000 to $835,000,000 This guidance assumes we continue to see competitive and mix factors on gross margin consistent with what we've discussed today for Q4 of twenty twenty four, but particularly in our India business where we see some irrational competitive pricing pressures mainly on the bidding process on large contracts. As we see extremely aggressive pricing behaviors from global, sub regional and local players in that market, we expect our own gross margin in India will be temporarily impacted.

We have invested in India for more than two decades and remain very committed to pursuing profitable growth in the India market. We expect non GAAP diluted EPS to be in the range of $0.51 to $0.61 per diluted share, which is based on weighted average shares outstanding of approximately $234,900,000 Our non GAAP tax rate is expected to be approximately 30%. As I close out my comments, we are quite proud of our finish to fiscal twenty twenty four as we saw growth in the top line, but also a solid profit result despite some unique P and L hits we incurred in India. But we did so with strong management of the balance sheet as well, generating solid cash flow that allowed us to repay debt and bring our net debt to EBITDA leverage south of two times to close the quarter. This gives us nice momentum in Q1 of twenty twenty five where we expect a second quarter of year over year growth despite some of the headwinds we've discussed in parts of EMEA and in India.

We see a more solid environment in North America and Latin America, while we continue to optimize our business and drive leverage over time in our operating expenses. And we are balancing the use of cash generated from operations with another repayment of debt in March, while also commencing a return to shareholders in the form of a dividend in our first full quarter as a publicly traded company. With that operator, we are ready for the question and answer session.

Thank you. Sorry for that technical difficulty. Our next question is from Michael Nagy with Goldman Sachs. Please proceed.

Hey, good afternoon. Thank you for the question. I wanted to ask about the large enterprise momentum, which seemed like it was largely focused in North America. Could you talk a little bit about why large enterprise is outperforming? Are you seeing any sophisticated buying ahead of tariffs?

Is there a bit of a pull forward? And any comments on where you feel like we are on the PC cycle? Are you seeing green shoots on the refresh? Thank you.

Yes, Michael, this is Paul. Good afternoon. So I would tell you that the purchasing when we mentioned our large enterprise business was actually across the board and across all over the regions. So it wasn't just a North America. North America was one of those that experienced that also.

One of the things we did see actually in North America was actually growth in all three areas to client endpoint solutions, advanced solutions and cloud. But the large customer comment was across the board and across all of the four regions. As it relates to your question around the refresh, we have continued to see momentum around the notebook desktop refresh, primarily around Windows refresh and H systems to a little bit of an extent some AI PCs, but really just being driven by the refresh coming up. So again, large customer enterprise, bigger customers across the board, globally and also refresh starting from a notebook desktop perspective.

Our next question is from Eric Woodring with Morgan Stanley. Please proceed.

Awesome. Thanks so much for taking my questions. Paul, maybe if I just start, your comments on relative areas of spending strength versus weakness align with a lot of what we're hearing in the market more broadly. And my question really is the world is uncertain and volatile today and just what are you hearing from your customers and what do you see in your pipeline that gives you enough confidence to say you can return to top line growth in 2025? And then I have a follow-up.

So thank you, Eric, for the question. So we've seen if you look at kind of how we exited the year and talking about the momentum we had, specific around endpoint client endpoint solutions, like I just mentioned, we continue to see strength there. If we look at Advanced Solutions, one of the areas that we focused on that we've had challenges through 2024 was around the networking business. So that was down in Q4 and full year by double digit and the expectation that that comes back. So as we see slowly getting better throughout 2024, as I mentioned it was still down for full year 2024.

If you look at IDC's twenty twenty five base case, they say that it's going to be up 8% coming off of a negative 6% in 2024. And I would also tell you that our leading indicators, we're seeing from our large vendors right now are showing signs of that improving and then continued strength around cloud and other areas that we saw good strength around server storage and again cybersecurity being one of those also. So that's what gives us the confidence that we're going to continue to see growth. And again for the first time in many quarters, we finally got to talk about the North America momentum that we saw exiting the year and really continuing at the beginning parts of this year.

And then maybe my follow-up. Mike, can you help me just understand if there are any one time costs embedded in your 1Q profitability guide? Because I believe if you kind of back into EPS and net income, it implies both are declining year over year in 1Q despite revenue growth. And so really just trying to understand what some of the cost headwinds are. I know you mentioned India and mix shift, but outside of that, what the cost headwinds would be in 1Q and how kind of one time versus sustainable they might be as we think about the remainder of 2025?

Yes. So the guidance there's not anything notable runoff. It's mainly more of the margin factors. So we talked about India and Paul can elaborate on this for sure if you'd like. But those competitive factors are driving notable drops in margin.

But we're seeing a heightened competitive environment, I guess, really almost everywhere in the world. It's not probably uncommon when you have more of a down cycle. But again, nothing notable other than margin and really driven by mix and then heightened a little bit in the India market by some of the factors there. I guess, sorry, Eric. Sorry, just one thing to add to that.

I mean, I think the only thing I would add to that is we're still seeing continued momentum as we continue to optimize costs and we have a wrap around impact of further reductions we announced in early December as well, for instance, that really aren't taking hold entirely even in Q1. So that will give a little bit more momentum on the cost side as well as we go through the year.

Great. Thanks so much for the color guys. Goodbye.

Our next question is from Sameek Chatterjee with JPMorgan Chase. Please proceed.

Yes. Thank you. Thanks for taking my questions. Let me first first one, Paul, just more directly at the tariff discussion. Wondering what you're hearing from your North America customers on that front in terms of how should we think about and it's obviously you've been through many cycles here including previous tariffs like what how are you thinking about and how are customers sort of relaying what probably changed in terms of demand if tariffs were to sort of and I guess tariffs are not So how are you thinking about sort of changes in demand profile between the product categories and how would typically you how comfortable you feel passing through some of those sort of increased costs to your customers?

Yes. Sameek, so this is Paul. So the tariff situation to state the obvious is very fluid. As you pointed out, we're well versed in operating in a tariff environment. We typically pass through those tariffs and we don't bear those costs.

I think the one thing will be is what's the impact potentially on the overall demand side. So really that's going to depend on, I'll call it the price elasticity and in the end consumption, the end businesses having the tolerance to absorb those tariff impacts. Again, it's too early right now to say what the impacts will be. We're less impacted again because we're not manufacturing products. But with that said, a couple of recent comments.

So some of our vendors continue to focus on making their supply chain networks more resilient and creating mitigation plans. And some that I was talking with in the middle of last year were already working for some time to diversify where their products are being manufactured to minimize the impacts. Specifically, I would say there's some comments around that for The U. S. And how some of our large manufacturers are moving around the world to try and offset that.

I would also say this is a pretty recent comment. I was at a customer event last night with our TrustSec community, which is our powerful global community of some of our top strategic customers. And I actually asked them for real time feedback, kind of how they're looking at tariffs with their end businesses that they're serving every day. And one of the comments was that one of our customers has actually seen deals and believes it may be a good offset is that they're moving deals from maybe cash or shorter term cycle to financing deals through our Inger Micro Financial Services. So he believes that if the end businesses, if it becomes too much of a price increase and there's going to be an opportunity they have to look at how they can finance to really solve that business outcome.

So, again, that's how we're kind of looking at tariffs right now. And as you mentioned, it is a fluid situation, a bit of uncertainty on where we're going to land on this. Could there be to your point, could there be a potential pocket price benefit for the inventory that we carry on a global basis? Yes, there could be. And so we are looking at strategic opportunities that we looked at in Q4 to make sure that we have the right amount of inventory to help service our 161,000 customers on a global basis.

But that will be a point in time. I think we'll have to wait and see kind of where the water level sets in a little bit longer term over the coming weeks and days.

Great. Got it. Interesting. Thank you. Thanks for the insights.

Maybe for my follow-up for Mike. Mike, you're guiding the 1Q EPS to be a year over year decline despite the growth in revenue because of the comparative market environment that you are perceiving in 1Q. As you look through the sort of exiting the year or sort of the opportunity to get EPS back to a growth trajectory as well, Seems like there's some sort of level, somewhat of level on the OpEx to pull through the remainder of the year, but how are you thinking about the option to get EPS back to growth or what are the other additional levels you can think of that would be available to the company to get EPS back to growth here?

Yes, it's a good question. The couple of points I would make and this would just build off of what you just repeated back. I mean, it is really a margin story more than anything and it's a mix factor. I guess if I look at a couple of different mix factors that really drive rates as we talked about in our prepared remarks, one, you have mix more towards client and endpoint solutions and specifically seeing some strength not only in just PC and desktop, but also in mobility devices. And those do tend to be lower margin.

They're also lower cost to serve and the product moves fast. So it's a nice turning environment from a working capital perspective, but it will dilute margins. And if we see that strength of a PC notebook refresh continue for a handful of quarters, that is going to have a dilutive impact on at least the gross margins. Then you have customer mix. And as we talked about also in our prepared remarks and some of the follow-up here, we're seeing a predominance more towards the large enterprise or large customers.

And if you think about it, that is a lower value add kind of relationship for us, where we make more margin is where we have more value add in the form of services, value add pre engineering and post engineering support, deployment skills, as well as just the complexity of the products when we're selling more into SMB as an example. And as we talked about SMB has remained a little bit softer, but we're seeing signs where that would start to improve as long as we start to see the market stabilize a little bit in the form of inflation and in interest rate environments. And then lastly, you have the geographic mix. We've talked about this before where we're driving at north of 7% in our Asia Pac region to close out the year, and that is a lower margin, lower cost to serve business. A couple of our largest markets there have a more predominance of client and endpoint solutions business in their own right.

And so that too has a dilutive margin impact. So as long as we now start to see more traction in North America, we see continued traction in LatAm, which has been solid and is one of our most profitable regions. And then we also start to see perhaps some of the economic headwinds that exist today in Europe and particularly Western European markets start to subside. All of those things are going to have the impact of driving an upward trend, generally speaking, on gross margins. In the meantime, OpEx does remain optimized.

As I just responded to Eric a minute ago, I think we are seeing still wraparound impact of some of the cost reduction efforts, but we do still have some of the heightened investment in our OpEx associated with our digital deployment XManage still rolling out in various ways through 2025 and even into the early part of next year that causes some heightened OpEx. So as we said in our prepared remarks, we do see line of sight where we would be bringing OpEx out of 5%. I think that's probably as we get into next year. That's 5% on net sales leverage perspective. And I think we're optimizing that quite well.

Great. Thank you. Thanks for taking my questions.

Our next question is from Rooplu Bhattacharya with Bank of America. Please proceed.

Hi. Thanks for taking my questions. Paul and Mike, in your opinion, at what rate is the overall IT distribution market growing? And did Ingram lose or gain share in the December? I know you talked about a tough pricing environment in India.

Is that the only region? And what is your strategy to deal with this? Is price only lever? Or can this impact working capital in terms of you having to extend more credit? So if you can just talk about the market and what your strategy is to deal with this environment?

Yes, that's Paul. So I'll start for Uplu. Thank you. So I'll just touch again. North America definitely stabilizing and returning to growth.

As we mentioned, we saw growth in all three lines of business, our client endpoint solutions, advanced solutions and cloud in Q4 and we expect to continue to see that momentum. In Europe, I would say performing relatively well based off expectations, the broader macroeconomic environment give us a little bit of headwinds there. But we're focused as we talk about quality of earnings and growth of what we're looking at. And we've had a little bit of headwinds specifically as you've heard Mike and I talk about Asia Pacific, which is still strong, particularly in Client and Endpoint Solutions business, but definitely a competitive environment that we haven't seen for quite some time in that market specifically. There are deals that we actually walked away from that didn't meet our profitability and ROI expectations that would have been in a profit loss.

So you've heard me and Mike again say that we're focused on quality of revenue and I think you show up see that show up in our earnings. So what are we doing? We're focused on as we came out of some of the challenges for the back half of the year and the fraud that Mike talked about in the prepared remarks. We're rebuilding the right teams, making sure we're operating with the right level integrity and controls. We're hiring the appropriate talent.

We're getting back to focusing on the customer. I think some of that challenges that we had starting in Q2 with the fraud and the investigation, we were a bit internally focused and now we're focused on the customers and vendors. We've also put some controls around kind of the marginal and transactional level to minimize negative margin impact. And I'll go back to this is one of our largest countries as you know, and we've been doing business and we're getting a team focus. We've been doing business in India for the past two decades and being a leader there.

So we're going to get back to what we know how to to grow and continue to be a leader in that business. If you look at Latin America, we continue to execute very well in Latin America because of our reach and our depth that we have and the investments we've made throughout the years in that region. And so we expect to continue to see momentum there. That would be kind of the overall environment where we see.

Ruth, just what I the only thing I would add to that is, as you've heard pretty clearly, India is probably where we're seeing

irrationality right now as far as pricing, but it is a competitive market everywhere. To your question on balance sheet, yes, we are seeing at times a lengthening of terms being granted, Although, I don't think it's as notable of a factor. We're seeing a bit of that and we need to make sure as we elect what deals we're going to participate in that it is with an appropriate return on invested capital and return to shareholders. So, but I'm not as concerned about the balance sheet side of the equation. It's more just making sure we're taking the deals that make sense.

And then overall continuing to grow as we've always said as our strategy, growing advanced solutions and cloud above market. And over time, we've demonstrated that we've been doing that and growing client and endpoint where you tend to have a little bit more of that turf war from a margin perspective can get a little bit more exacerbated, growing that with market and being selective as to the nature of business we want to pursue.

Hey, Rupert. The only last thing I would say real quick is if you look at Xvantage and the investments we've made, and as we've talked about over the last nine quarters, we've taken out upwards of $200,000,000 worth of OpEx, which we've reinvested some of that back into Xvantage, but it's been enabled internal efficiencies and the benefit we have is we're showing up to provide our customers a singular experience around hardware, software services and cloud in one area that they can transact with the needs of doing business, ultimately for those end businesses, the millions that they're serving each and every day.

Our next question is from Surinder Thind with Jefferies. Please proceed.

About the SMB market and what you're seeing there at this point, is it fair to characterize that it's a bit weaker at this point in the cycle than you're anticipating? Just some any color around that would be helpful and maybe your expectations as the year progresses.

Sure, Anur, this is Paul. So thank you for the question. Yes, SMB was down as I mentioned double digit for most quarters and exiting the year in Q4. Early indications is that we believe that is going to come back and we're seeing early signs of that. Part of that I believe too is tied to the advanced solutions and the opportunity we have as areas like networking continue to or continue to make progress towards not having declines in 2024 going into 2025.

So wrapping our advanced solutions, our cloud and the endpoint solutions together, we think that there'll be some strength coming back into SMB, maybe not as much in Q1, but the conversations we're having with customers as they see a pretty good back half of the year as they're building out their pipelines relative to the end businesses they're serving today.

Our next question is from Matt Niknam with Deutsche Bank. Please proceed.

Okay. Awesome. So two follow ups. First, on public sector, you referenced some softness. I'm just wondering is that U.

S. Related? Is that related to the election and hence more transitory in nature? Or is this expected to continue? And then just on working cap and OCF, Mike, maybe if we can how you're thinking about working cap and operating cash flow in 1Q with the implied seasonal sales dip and maybe more of a mix shift towards client and endpoint?

Ingram Micro Holding (INGM) Q4 2024 Earnings Call Transcript

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