Q3 2023 TD Synnex Corp Earnings Call

Participants

Liz Morali; Senior Manager of IR; TD SYNNEX Corporation

Marshall W. Witt; CFO; TD SYNNEX Corporation

Richard T. Hume; CEO, President & Director; TD SYNNEX Corporation

Adam Tyler Tindle; Senior Research Associate; Raymond James & Associates, Inc., Research Division

Ananda Prosad Baruah; MD; Loop Capital Markets LLC, Research Division

Dong Wang; Research Analyst; Barclays Bank PLC, Research Division

Joseph Lima Cardoso; Analyst; JPMorgan Chase & Co, Research Division

Keith Michael Housum; MD & Equity Research Analyst; Northcoast Research Partners, LLC

Matthew John Sheerin; MD & Senior Equity Research Analyst; Stifel, Nicolaus & Company, Incorporated, Research Division

Michael Ng; Research Analyst; Goldman Sachs Group, Inc., Research Division

Patrick Emil Jackson; Associate; RBC Capital Markets, Research Division

Ruplu Bhattacharya; Director & Research Analyst; BofA Securities, Research Division

Presentation

Operator

Good morning. My name is Jill, and I will be your conference operator today. I would like to welcome everyone to the TD SYNNEX Third Quarter Fiscal 2023 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 Liz Morali, Head of Investor tons. Liz, you may begin.

Liz Morali

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

Richard T. Hume

Thank you, Liz. Good morning, everyone. And thank you for joining us today. The strength of our business model and our relentless focus on execution were evident in our fiscal third quarter results. Our strategy is working and our expansive portfolio of products, services and solutions have enabled us to navigate the fluctuations in the post-pandemic IT spending environment. For another consecutive quarter, a greater portion of our business was generated from high-growth technology categories, and we saw improving performance in endpoint solutions.
The business mix helped us to expand margins, deliver earnings per share above our guidance generate strong free cash flow and increased capital return to our shareholders in the quarter. We were encouraged to see signs of stability in our Endpoint business as the Americas experienced reduced year-on-year declines and grew quarter-over-quarter. In Advanced Solutions, the Americas saw decelerating growth but also grew quarter-over-quarter.
In Europe, however, we began to see the impacts from the macroeconomic backdrop which led to a more challenging quarter. Asia Pacific, Japan grew in the quarter, driven by strength in Advanced Solutions, high-growth technologies and momentum in India and the Australia, New Zealand region. In addition, the industry supply chain continues to be healthy with backlogs back to normal historical levels.
This has allowed us to strategically reduce our inventory position, leading to significantly improved working capital and strong free cash flow generation for the quarter. Last quarter, we announced our goal to pursue an additional $50 million in cost optimization over the next few quarters.
We achieved our target for fiscal Q3 and are on track to capture the remainder by fiscal Q1 of '24. Our ERP systems migration efforts have proceeded well, and we are now largely complete with significant milestones successfully achieved.
There remain a few pieces to migrate primarily within our Advanced Solutions business, and we anticipate that this will be concluded in the first half of fiscal '24. We remain focused on ensuring a seamless customer and vendor experience and will proceed accordingly.
As a company, we remain focused on partnering with our customers to maximize the value of their end users' IT investments by demonstrating business outcomes and unlocking growth opportunities through low cost and efficient delivery capabilities.
This quarter, we launched two new solutions aimed at doing just that. One is partner health and fitness tool, which utilizes a custom algorithm to analyze a reseller's offerings across the advanced solutions high-growth technologies, enabling partners to understand where they stand in comparison to the broader TD SYNNEX partner landscape, using the data to provide this type of actionable insight is one way we are providing distinctive value for our customers, helping to guide their decision-making regarding portfolio diversification to capture growth.
The second solution we launched is Destination AI, a comprehensive aggregation of resources to equip resellers with knowledge and connections to capture opportunities across AI, machine learning and advanced analytics. As this marketplace rapidly evolves, TD Synnex is working with more than 40 vendors across the AI space, including AI-enabled independent software vendors, AI accelerators, core AI software platform providers and AI infrastructure firms.
Our catalog of prevalidated ready-to-deploy solutions, combined with our ability to provide multivendor offerings, aggregating best-of-breed services, software and hardware and edge devices places us in a unique position with the business partner ecosystem to add value to our customers.
Next week, we will be hosting two of our marquee ecosystem events, bringing together thousands of our customers and vendor partners to network and collaborate gaining critical knowledge and insights to further grow their businesses.
Ahead of those events, we recently completed an expensive survey of our B2B channel partners from over 60 countries asking them about their expectations over the next year and beyond.
Channel partners told us that they are remaining agile in this environment. adapting their business models to focus on emerging technologies and rebalancing their priorities and offerings to meet the evolving needs of their end users. There were many interesting findings in this survey but most clear was the continued importance of the channel in helping partners to navigate the rapidly changing technology landscape, providing technical expertise and helping to fill gaps in the talent pipeline.
During the quarter, we were honored to be recognized with a silver medal by EcoVadis, a leading provider of business sustainability ratings and an improvement from our prior year score of a bronze medal. Importantly, this places TD SYNNEX in the top 25% of companies assessed by EcoVadis.
Our European business was also awarded an environmental sustainability specialization by Cisco, providing a framework for technology recycling and circular economy initiatives. We are proud of these achievements and of the progress that we have made on our environmental, social and governance goals. As we begin the final quarter of the fiscal year, we believe that we have seen the trough of our endpoint solutions business and that we will continue to see smaller declines moving forward. It is an exciting time to be in the IT industry.
And we believe that in the long term, IT spending will continue to outpace GDP growth. We see a variety of drivers on the horizon, including AI enablement which we believe we will see across the majority of our offering set as vendors bring these features and functionality to their products and services over time. I will now turn the call over to Marshall for some additional comments about Q3 and our Q4 outlook. Marshall, over to you.

Marshall W. Witt

Thanks, Rich, and good morning to everyone on today's call. As Rich mentioned, our Q3 results illustrate the progress we have made on our business strategy, revenue in the strategic focus areas of cloud, security and data analytics grew in the low double digits on a year-over-year basis, and we saw smaller declines in endpoint solutions.
As a result, we expanded margins and grew non-GAAP earnings per share while our countercyclical model enabled us to generate significant free cash flow, leading us to increase our share repurchases in the quarter. For fiscal Q3, total gross billings were $18.6 billion and net revenue was $14 billion, both consistent with expectations. As Rich highlighted, although revenue declined year-over-year in the Americas, we saw signs of stabilization. Europe saw a decline during the quarter as we began to see impacts related to the challenging macroeconomic environment. And Asia Pacific, Japan grew revenue by 10% year-over-year. Driven by high-growth technologies and strength in some emerging markets. Hyve performed better than expected in the quarter despite a tough year-over-year comparison due to the record revenue realized in Q3 of fiscal '22.
Non-GAAP gross profit was $974 million, up 3% year-over-year, and non-GAAP gross margin was a record 7%, up 84 basis points year-over-year. The significant improvement in gross margin was driven by the continued mix shift to Advanced Solutions and high-growth technologies as well as margin expansion in high-growth technologies.
Total adjusted SG&A expense was $577 million, down $16 million from the prior quarter and representing 4.1% of net revenue and 3.1% of gross billings. As Rich discussed, we are proceeding well on the $50 million cost savings program we announced last quarter and exceeded the $10 million target for fiscal Q3.
We are well positioned to achieve our full target by early next year and expect SG&A as a percentage of gross billings to remain in the 2.75% to 3.25% range that we have seen historically. Going forward, we will be signing SG&A as a percentage to gross billings given the increased impact from gross to net adjustments as a greater proportion of our portfolio is in Advanced Solutions and high-growth technologies.
Non-GAAP operating income was $379 million, approximately flat year-over-year, and non-GAAP operating margin was 2.8%, up 25 basis points year-over-year. Q3 non-GAAP interest expense and finance charges were $65 million, $7 million better than our outlook due to working capital efficiencies, which resulted in less borrowing. The non-GAAP effective tax rate was approximately 21%, better than our forecast to 24%, primarily due to our ability to utilize tax credits earned in certain jurisdictions. Total non-GAAP net income was $260 million and non-GAAP diluted EPS was $2.78, $0.08 above the high end of our guidance range and up 1.5% year-over-year.
Now turning to the balance sheet. We ended the quarter with cash and cash equivalents of $1.25 billion and debt of $4.1 billion. Our gross leverage ratio was 2.2x and net leverage was 1.6x, in line with our investment-grade credit rating and approaching our target of 2x gross leverage ratio. Accounts receivable totaled $8.9 billion, up from $8.4 billion in the prior quarter, and inventories totaled $7.5 billion, down from $7.8 billion in the prior quarter.
Net working capital at the end of the third quarter was $3.3 billion, down from $3.8 billion in quarter 2, primarily due to declines in inventory and increased accounts payable. The cash conversion cycle for the third quarter was 23 days, a 1-day improvement from quarter 2 primarily due to improvements in our inventory profile given the healthier supply chain environment.
Cash from operations in the quarter was $592 million, and free cash flow was $552 million. We have generated approximately $1.1 billion in free cash flow year-to-date. We continue to prioritize shareholder returns during the quarter, returning $103 million via share repurchases and $33 million through dividend payments. Year-to-date, we now have repurchased $278 million and have approximately $740 million remaining under our current share repurchase authorization.
For the current quarter, our Board of Directors has approved a cash dividend of $0.35 per common share payable on October 27, 2023, to stockholders of record as of the close of business on October 13, 2023.
Moving now to our outlook for our fiscal fourth quarter. We expect gross billings of $18.5 billion to $19.7 billion, representing a 3% sequential improvement from quarter 3 and a decline of 9% on a year-over-year basis at the midpoint. We expect total revenue to be in the range of $14 billion to $15 billion, which equates to a 4% sequential improvement from quarter 3. And a decline of 11% on a year-over-year basis at the midpoint.
The expected sequential improvement from quarter 3 is slightly below our historical compares and is primarily driven by the market challenges in Europe, partially offset by improvements in the Americas.
For the PC segment, as we discussed in June, we believe we have seen the low point for year-over-year declines and expect the recovery to continue in Q4. We with smaller year-over-year declines.
Our guidance is based on a euro to dollar exchange of 1.08. Non-GAAP net income is expected to be in the range of $223 million to $269 million, and non-GAAP diluted EPS is expected to be in the range of $2.40 to $2.90 per diluted share based on weighted average shares outstanding of approximately 91.9 million. Non-GAAP interest expense is expected to be approximately $70 million, and we expect the non-GAAP tax rate to be approximately 24%.
Lastly, on shareholder returns, we have generated $1.1 billion of free cash flow year-to-date, and have returned $377 million to shareholders through share repurchases and dividends, putting us on track to reach the full year target discussed in June of $580 million.
We are now expecting to generate approximately $1.3 billion of free cash flow for the year, outperformed our original target of $1 billion for fiscal '23.
We will continue to be opportunistic regarding share repurchases, while adhering to the general framework we have previously communicated to the market. In closing, we remain confident in our ability to successfully navigate fluctuations in the demand environment as customers react to rapidly changing technology needs and we'll continue to lean on our strategic priorities to expand in high-growth technologies while also optimizing our core business as we return to a more normalized spending environment.
With that, we are now ready to take your questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Ananda Baruah of Luke Capital.

Ananda Prosad Baruah

Yes, appreciate taking the question and all the detail. I guess, let me make my question the following. Do you guys have any view on the likelihood that you could now be at the bottom in red dollar run rate. And I guess I'd love any context, I'm sure I'm not the only one. Just sort of how you're viewing the European softness in the context of rev dollar run rate going forward? Thanks a lot. Appreciate it.

Richard T. Hume

I hope you're doing well. Thanks for the question. So let's take it by region first, and then we'll talk about the major product areas and the dynamics that we're seeing.
So first, you all might recall as we came through the first half of the year, we had talked about Europe being stronger than anticipated. We all moved the headwinds that they had faced in Europe and Europe was performing better on the top line than the Americas. And we had seen a change in that cycle, if you will, in the third quarter, where Europe began to look a lot like the Americas looked like in the first half. And from memory here, their overall top line performance was reasonably consistent between the 2 and Q3. So that was something that had emerged as new.
At the same time, the Americas, as we were talking about in our prior call, had seen a declining dynamic in the endpoint business and had strength in Advanced Solutions. So as we move through time here, and as we continue forward, our anticipation is we continue to see the trend of declining endpoint, lesser declines, if you will, over time. And then a moderation of the growth within Advanced Solutions based on the fact that those backlogs have been pretty well run down and the prior quarters for the industry as well as ourselves, had benefited from the Advanced Solutions of backlog runoff sort of late pre-COVID emergence of strength in that advanced solutions business.
So as it relates to looking forward, we'll address next year when we get to it. The trends are consistent with what we were stating for the last couple of quarters in terms of the PC dynamics and the AS dynamics. But we'll reserve a view as to whether or not we're at the bottom for the next call when we get into our Q1 guidance.

Operator

Your next question comes from the line of Mike Ng of Goldman Sachs.

Michael Ng

I just had one on PC. It was encouraging to hear about the trough and endpoint solutions, smaller clients going forward. I was just wondering if you could just give a little bit more commentary to support that view. What are you seeing in terms of channel inventory, green shoots and demand levels on PCs and handsets. And anything that you would call out this quarter as it relates to performance by vertical. I know it's a big education quarter.

Richard T. Hume

Yes. So a couple of thoughts. So first of all, in our prior quarter, we had said that 2 and 3Q should be the trough for the PC business. On a global basis, in fact, we saw that trend of, if you will, lesser declines moving through time we would anticipate that Q4 would provide sort of the same dynamic of lesser declines moving through time. But I would also comment that globally, although there were lesser declines PC as a category was a little bit weaker than that we had thought. And the Advanced Solutions was a little bit stronger.
As you know, the overall revenue came in at the midpoint of the guide. So there was some mix shift happening there. But the trend held lesser declines in PCs, but again, PC softer relative to some of our forecast detail, offset by Advanced Solutions.
From a vertical perspective, the only one that I'd point out that had showed some strength is Federal. And in addition to that, you had the education piece got a bit of a boost because the Chrome category last year was very weak, and we started to see Chrome emerge a bit within the education domain in the prior quarter? Or they actually our reported quarters. Sorry about that.

Operator

Your next question comes from the line of Adam Tindle of Raymond James.

Adam Tyler Tindle

I just wanted to start on guidance for Q4, particularly on an EPS basis. I understand last year had that $0.33 benefit from the high recovery, but you still grew sequentially from Q3 to Q4 last year ex that.
And this year, if I look at the guidance, you are calling for sequential revenue growth from Q3 to Q4, but earnings appear to be down at the midpoint. You're accelerating share repurchase based on the commentary. So it just implies a lot of margin erosion. And I'm hoping for a little bit more color. I understand EMEA as a region, but what is driving the sequential margin erosion? And why would EPS be down despite typically seasonally?

Marshall W. Witt

Adam, this is Marshall. Thanks for the question. You're right, sequentially between Q3 and Q4, we typically see about an 8% growth, plus or minus 2% on either side. As you saw and heard from our prepared remarks, it's now about 3% to 4%.
So the majority of the margin decline is primarily attributable to the reduction in revenue and typically the fall-through in normal quarter 4 is we do see quite a bit of fall-through on the incremental revenue that takes place between the two quarters. That's the majority of the overall margin decline from what we have seen historically.
You're right. We had that onetime callout for Hyve last year that we wanted to make sure people are aware of. And then you commented about Europe because of the softening we're seeing there in the portfolio, their direct costs are still a little bit out of line in regards to where we need it to be, but expect that, that will correct itself over time. And then maybe a little bit more softer underneath that.
In Asia and Americas, although good progress is being made on the optimization that we called out last quarter that plays out over Q3, Q4 and in Q1. There still is a little bit of direct costs in relation to gross revenue that will continue to correct itself in the coming quarters.

Richard T. Hume

Yes. The only thing that I would add, Adam, and it's a bit repetitive. Were on last quarter, we talked about a sequential at 8%. And as Marshall said, it's now 3% to 4%. If you go to do the math and look at the flow-through of , if you will, that sequential being lower than anticipated, you'd find out that it's sort of most of the shortfall relative to our comments in the prior call.

Adam Tyler Tindle

Is there any way for us to kind of understand where that shortfall is coming from. It sounds like troughing endpoint solutions, that's -- things are getting better there. What is the product category or vertical that's causing that shortfall?

Richard T. Hume

Always lots of moving parts, Adam, but if I were to give you the big head light, it would be a softer Europe relative to 90 days earlier.

Adam Tyler Tindle

Okay. Because that we think about on that business is being a little bit unique from the mobility piece, is that maybe fair to characterize?

Richard T. Hume

So what I would tell you is I would think about it as more broad-based than just one segment. It's across the majority of the portfolio right now.

Adam Tyler Tindle

Okay. Just last one, Marshall, congrats on the cash flow year-to-date. You had, I think, previously talked about an annual goal of $1 billion in cash flow. Obviously, you're already there. So Wondering if that's still the right way to think about it. I think Q4 is normally a positive free cash flow quarter, but I know it can be volatile. And looking forward, as you reflect on this year's cash flow performance, are there any pieces of this that might be a little bit more temporary working capital benefits that don't repeat itself? Or do you think this is sort of a baseline to build off of?

Richard T. Hume

Yes. Thanks for the question, Adam. For the year-to-date cash flow of $1.1 billion, we did see about $0.5 billion of working capital unwind. We expected that as we spoke to, as we finished last year and had inventory elevations, we knew those would unwind. So $500 million or so of that $1.1 billion is working capital unwind. We're still fairly confident about hitting a $1.3 billion target for this year. And then if I think about cash conversion, and how that progresses over the medium term, we still feel confident about achieving that $1.5 billion over that medium term, which we're calling fiscal '25 or '26.

Operator

Your next question comes from the line of Keith Housum of Northcoast Research.

Keith Michael Housum

Marshall, with the interest rates where they are today and perhaps only one more increase to go. How are you guys thinking about debt paydown versus increasing your capital allocation toward return to shareholders?

Marshall W. Witt

Yes. Thanks for the question, Keith. Interest rates are high. The variable aspects right now is running at around 7%. So we'll remain fairly balanced in our outlook about where we are with our leverage. We're at 2.2x gross and 1.6 net. That might go up a little bit in Q4, primarily just due to the trailing 4 to 5 quarters of EBITDA. But other than tenor, we're not anticipating making any other incremental pay downs in debt but being mindful of cash flow and how best to redeploy that within the options that we have.

Keith Michael Housum

Great. And then if I look at the last four points you guys had in (inaudible) , it does sound like you guys will be increasing your share repurchases in the fourth quarter. Is that incorporated (inaudible) that?

Marshall W. Witt

It is. In my prepared remarks, we commented about where we were at for the -- for year-to-date through Q3 and all in for the full year at $580 million. That puts us in a repurchase expectation of about $170 million for the quarter. So that's where we do see some acceleration of share repurchases. And given the strength in our cash flow, we're going to remain opportunistic as well and play that based on price and overall completion of the quarter.

Keith Michael Housum

Great. And then one more if I can get in here. I know it's still relatively small, but the Asia Pacific and Japan area, another good quarter of growth there. It sounds like Advanced Solutions in India and Australia are driving that. Is that sustainable growth? I mean you guys are you guys able to sustain that growth going forward in that region?

Richard T. Hume

So Keith, I think you have to break it down a bit. I think that the region right now that seems to have outsized opportunity in India. Obviously, there's a lot going on there relative to major vendors, resourcing supply chains, et cetera. So my view is that maybe they're a little bit insulated from the economic cycles. But the rest of the region, I think, kind of has the dynamic of the rest of the world and will ebb and flow based on that macro. That would be my view.

Operator

Your next question comes from the line of Joseph Cardoso of JPMorgan.

Joseph Lima Cardoso

Thanks for the question. Yes, one question for me. Can you just touch on the better trends that you're seeing in North America. Curious if the better trends that you're seeing in the region are weighted towards any particular customer verticals like public sector. Or are you seeing the recovery in the region more broadly? And has that recovery been linear through the quarter? Because I remember last quarter, you suggested that there was choppiness as you're kind of looking at it from a month-by-month basis. Curious if you can touch on that.

Richard T. Hume

Yes. So the stronger performers have been a mixing offering sets here with verticals, but stronger performers have been advanced solutions, and that has been pretty consistent throughout the year, pretty robust growth rates in that business. At the same time, from a vertical perspective, as stated earlier, the Federal has been a stronger vertical overall. And then the benefit, if you will, moving through time of lesser declines in the end point. And again, we believe that, that trend will continue as we move forward. Those would be the big changes. And I think Marshall has something to add.

Marshall W. Witt

Yes, Joe, just to your question around linearity and volatility, we're still seeing a little bit about month-to-month I'll call it, a good month, a soft month, a good month, and so that necessarily hasn't gone away. But generally said, as Rich said, for Americas, both AS still showing growth, ES showing declining or improvement of the declines on a year-over-year basis. And then we can't forget about our high-growth technology services. Those continue to perform well. As we said, cloud security, IoT, data analytics grew more than 10%. And that's a comment beyond Americas, but it certainly did help Americas.

Operator

Your next question comes from the line of Matt Sheerin of Stifel.

Matthew John Sheerin

Yes. Thank you, and good morning, everyone. I had another question just regarding your commentary on Advanced Solutions, which has been strong. But Rich, you mentioned that backlog has been coming down. Could you give us more details on what the backlog levels are and drill down by product area, servers, storage, networking. And as we go forward and that growth slows and endpoint solutions starts to have favorable year-over-year comps, I would think that, that could pressure gross margin. So how should we think about sort of drop-through in that mix shift and what the operating margins might look like.

Richard T. Hume

Thank you, Matt. I'll handle the first part of the question, and I'll turn it to Marshall for the back half of the question. So I think we had started to make the statement in our last quarter that the backlog is beginning to near profile. And I think that if we were to represent where we are today, that's exactly what we'd say is we're near profile.
Sort of a side comment here, we've been talking over many quarters here about our inventory being higher than normal because of the serviceability of the supply chain. And now you see with the reductions in inventory and inventory sort of nearing historical profiles that the serviceability of the overall business is becoming quite good.
So I would say that almost across the board right now, product set wise, we're at profile and serviceability has been restored if there were one category that I'd call out that might have had some benefit in the quarter in terms of getting more closely aligns the profile to be networking. Sort of kind of business as usual profiles at this point.

Marshall W. Witt

And Matt, I'll just commenting about the question on what the margin profile looks like. If I think about pricing, it remains competitive, but not irrational. So I don't think that's really changed. I know from quarter-to-quarter, that can change a little bit based on just the competitive landscape.
From an overall rebate and program perspective, again, competitive, but we continue to earn our fair share of back-end margins. So op margins structurally sound for us. We think that there's a good upside as we think about being on fewer platforms, specifically within the Americas as we move forward into '24, and that should help with operating margins as well.

Matthew John Sheerin

Okay. Just as a follow-up, though, if the mix shift changes and client devices, endpoint solutions grows at a faster piece, would you see some gross margin pressure. And I guess my point is on the operating line, would you be able to make that up with lower expenses or other things?

Marshall W. Witt

Yes. I think if you -- typically, in Q4, we have a normal balance, ES plays a little bit heavier. So we see the gross margin profile come down more towards, call it, 6.5%.
But Matt, you're correct. We tend to see less SG&A required for that endpoint solution as AS. So the operating margin profile still kind of hold in check. And it's a regional different. Americas have a different overall operating margin pro forma performance for AS and ES than Europe.
So it does kind of depend on the region itself. But I don't think that, that necessarily plays to a decrease or structural decline in the operating margins based on the mix shift.

Operator

Your next question comes from the line of Ruplu Bhattacharya of Bank of America.

Ruplu Bhattacharya

Can you talk about the pricing environment in both Advanced Solutions and Endpoint solutions. If the macro is weak in a deflationary commodity cost environment, do you think pricing sustains? And as part of that, are you seeing any benefit from AI-based higher configurations in either PCs or servers if you can touch on that.

Richard T. Hume

Yes. So Ruplu, what I would tell you is, as Marshall stated earlier, there's nothing that would say that there is a major trend in pricing within the market. If I were to maybe point to one area where we cite a bit more of regression is within Europe perhaps because of the fact that the pie is smaller. So as everybody fights for the smaller pie, tend to get a bit more aggressive. And I would state that, that would be within the endpoint segment, and sort of isolate it, if you will, to a couple of markets over there.
From an Advanced Solutions perspective, really nothing to report. It feels like, as usual, competitive pricing, but business is normal. And then as it relates to AI, my view is in order to have a material impact, it's way early in the game. We really haven't seen on the endpoint side AI-enabled offerings that make up any meaningful percentage of the shipments.
And I think that as we think about the data center category. Maybe this is just my point of view. But obviously, AI has been around for a long time. The hype has sort of peaked with ChatGPT. So I'm sure that many of the vendors have the opportunity of sort of classifying now AI machines which are being shipped and maybe even classifying some of what has historically been in the sales motion because it's not a new category, many, many years' worth of machine learning, shipments, et cetera.
So therefore, I would say that the opportunity for AI remains in front of us as opposed to emerging in the existing quarter. Maybe if you get into very, very large enterprises. There's sort of first of a kind, but that falls outside of our segment and the customer set we serve.

Ruplu Bhattacharya

Okay. there, Rich. For a follow-up, can I ask about the ERP integration. So since it's complete in North America, are you now seeing a meaningful revenue synergies and if you look back in history, SYNNEX had significant revenue synergies and its acquisitions a couple of years into them. I know Europe is not going through an ERP integration, but do you think there could be revenue synergies there? What would drive that? And how should we think about these revenue synergies progressing in the fourth quarter and beyond?

Richard T. Hume

Yes. So first, you are correct. The major milestones of our ERP implementation have been achieved. As I had commented on previous calls, there is a low percent of the business, which is a longer tail, which will proceed carefully with. It really doesn't create any material cost overhang to have that wind down occurring. Interesting that you talked about revenue synergies with Europe.
In fact, we do believe that the merger have had a positive effect on our global business, even outside of the Americas. We had the opportunity of seeing some signings, bringing on some vendors in Europe that had taken place that we believe were supplemented or complemented by the merge occurring. And then as it relates to the Americas and the revenue synergies, we absolutely know that we are selling -- allow me to use legacy Tech Data Line Card into SYNNEX accounts and the reverse is true. It's starting to ramp, but it's not to the point where it's meaningful.
I suspect we'll start to measure it more carefully moving forward. And then, of course, when the market is a little bit soft as it is today, it's a little bit harder to see it in the total given the overlying market environment. So we'll start to, as I said, I think, be more focused on that moving forward.

Operator

Your next question comes from the line of George Wang of Barclays.

Dong Wang

Thanks I just have a question on the Hyve. Maybe you can double-click on the Hyve. You talked about performed better than expected. Just versus last quarter, you talked about a revenue declining due to tougher year-over-year compare. So can you give more color just in terms of the year-over-year growth rate you are seeing right now? And sort of how do you think of this segment going forward?

Marshall W. Witt

George, it's Marshall. Thanks for the question. Yes, we did speak to the tough compare that Hyve presented itself given the strong H2 of '22, and that's still the case. The comments around Q3 doing better was better than what we had expected, but still Hyve was down for quarter 3, and we expect it to be down for quarter 4.
The actual revenue attributes, the revenue profiles and where we're getting the revenue from continues to be well balanced. The margin profile is structurally sound. And what I'd say is that we're really optimistic about where Hyve is going as an organization. There's a new customer that we're ramping in Q4 that we've been building for quite some time. So excited about that.
And then going into '24, we would expect to see some expanded or new product lines with existing customers. So well set as we exit '24 from -- or '23 from an expectation for Hyve, but year-on-year is still down just given the strong compare or the tough compare we had from prior year.

Dong Wang

Okay. Great. Just a quick follow-up on the Hyve. You guys put out the press release, so they added some manufacturing capacity in the U.S. in the kind of West Coast. Just curious, any thoughts on the capacity ramp globally versus kind of utilization trends?

Richard T. Hume

Yes. Obviously, that market segment is a market segment that has growth reasonably strong growth attributes projected. So we're positioning ourselves to take advantage of that market. It's a big one, and it's going to continue to grow pretty quickly. And then secure supply chain is an important aspect for our customers and allowing ourselves to or actually having ourselves build that capability is a real value add for them. So we see it as a, if you will, an expansion of our assets with the anticipation that the market over time will continue to grow.

Operator

Your last question comes from the line of Ashish Sabadra of RBC Capital Markets.

Patrick Emil Jackson

This is Patrick Jackson on from RBC. For the last two quarters, the company grew overall market share in North America and Europe, despite some of the industry softness in Europe, has that share dynamic still continued this quarter? And has anything changed in the competitive environment?
And secondly, in the prepared remarks, you mentioned the launch of Partner Health and Fitness Tool. I wanted to ask if you could share any details on the initial response of that rollout and how you're thinking about the cross-sell opportunity from this?

Richard T. Hume

Sure. Thanks for the question. Right now, our reports would say that we've maintained our share position in the Americas. In Europe, we lost a couple of tens of points. So think about that in the rounding. And then when we get a little bit deeper in Europe, it would be within the endpoint area that had occurred. And it was a matter of -- I spoke earlier about a bit more of aggressive pricing environment. So we've elected to sort of balance our financials along with our market position but nothing to be alarming or concerned about. As I said, it was just a couple of tenths of 1%. So that's the overall share point of view.
As it relates to our new tools, thanks for that question. In essence, we allow our partners to run custom algorithms to take a look at their portfolios versus the portfolios of folks who profile like them across the entirety of the channel. And it allows them to think about areas of expansion. And yes, we had some really, really great engagement with partners on the tool. In fact, we released it in the North America.
And just days later, we were getting lots of questions from other markets throughout the world. Wondering when that tool will be enabled in their market. So there seems to be some pretty good a feel relative to our customers wanting to get those insights.
Okay. Well, thank you very much for attending our call today. In closing, I want to thank our coworkers around the world for their persistence and can-do attitude in staying focused on our success regardless of the market environment. We're very pleased as to what we've accomplished, and we really look forward to our future, and we appreciate your interest in TD SYNNEX. Thanks. Have a great day.

Operator

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