Can you explain the significant increase in inventory (up 30% sequentially) and its impact on working capital and free cash flow? Is the balance sheet being used to strategically buy components?

Cash days were flat year-over-year due to Hyve's accelerated growth, which requires significant working capital investment. Inventory increased primarily to fund new and existing Hyve programs and ensure supply. Strategic inventory purchases were made, benefiting margins, but are not the primary driver of the inventory increase. “our goal is to secure the right amount of supply. And as Patrick said, to help our vendors smooth supply chains, make sure there's proper availability. It is true when -- in a rising price world, we can benefit from that.”

How will the incremental 1 million square feet of manufacturing facility space impact the business, and what is its potential contribution to billings or revenue, especially for new hyperscaler programs?

The expansion supports programs with all five U.S.-based hyperscalers, with ramp-ups expected in late FY26 or early FY27. While no specific revenue correlation was provided, management is confident the added capacity will meet demand and deliver products with the required quality. “What I can tell you is that we are very comfortable with that expansion of capabilities and capacity that we are going to meet the demand we are seeing and be in a position to deliver the products with the right quality, which is the most important for us at the moment.”

Can you elaborate on the gross margin differentials within Hyve, distinguishing between manufacturing and supply chain services, and how margins vary across different hyperscaler programs?

Historically, manufacturing and supply chain services have had relatively similar margin profiles. However, margins can differ by program; for example, AI servers tend to have slightly lower margins, while complex networking racks have higher margins. Management is focused on improving Hyve's overall margin profile through investments. “If you're building AI servers, that tends to have a slightly lower margin profile. If you are building complex networking racks, we -- that tends to have a slightly higher margin profile, so on and so forth.”

SNX

TD Synnex (SNX) Q2 FY26 earnings call: guidance and Q&A

Earnings call· May 2026 (Q2 FY26)· Information Technology· Jun 25, 2026

Source: earnings call transcript

Executive summary

TD SYNNEX Q2 FY26 — Record Growth Driven by Distribution Strength and Hyve Hyperscaler Ramps

TD SYNNEX delivered a record quarter, exceeding guidance with strong performance across both Distribution and Hyve segments. The company is actively investing in working capital and capacity expansion to support accelerated growth, particularly within Hyve's hyperscaler programs. Management remains focused on converting top-line growth into margin expansion and shareholder value, while navigating increasing component costs and supply constraints.

Highlights

Non-GAAP gross billings reached $28.9 billion, an increase of 33% year-over-year.
Non-GAAP diluted earnings per share was $4.85, up 62% year-over-year.
Distribution non-GAAP gross billings grew 22% year-over-year to $23.4 billion.
Hyve non-GAAP gross billings surged 117% year-over-year to $5.5 billion.
HPE selected TD SYNNEX as one of two global distribution partners across its full portfolio.

Concerns

Free cash flow consumption was approximately $330 million for the quarter, driven by working capital investments for Hyve's growth.
Hyve's non-GAAP operating margin decreased 50 basis points year-over-year to 3.3%, primarily due to mix.
Inventory increased, contributing to a flat gross cash conversion cycle year-over-year, reflecting increased Hyve mix and strategic purchases.

Guidance & targets

Category	Target	Timeline	Confidence
Non-GAAP gross billings	$27.7 billion +/- $500 million high materiality	Q3 · FY26	High
Revenue	$18.6 billion +/- $400 million medium materiality	Q3 · FY26	High
Non-GAAP net income	$361 million +/- $20 million medium materiality	Q3 · FY26	High
Non-GAAP diluted earnings per share	$4.50 +/- $0.25 high materiality	Q3 · FY26	High
Hyve new customer ramp contribution	No material contribution medium materiality	Q3 · FY26	High
Hyve new customer ramp timing	Late fiscal 2026 or early fiscal 2027 medium materiality	FY26-FY27	High
Free cash flow conversion	95% of non-GAAP net income high materiality	Long-term	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Distribution Excellent quarter with broad-based strength across every region and the portfolio, with international growth and operating margin expansion. HPE selected TD SYNNEX as one of two global distribution partners. Non-GAAP gross billings: $23.4BNon-GAAP gross billings growth YoY: 22%Non-GAAP operating margin as % of gross billings: 1.9%Non-GAAP operating margin improvement YoY: 19 bps	—	—	—	$434M
Distribution - Endpoint Solutions Supported by strong growth in PCs driven by higher ASPs, coupled with mid-single-digit growth in units. Gross billings growth YoY: 13%	—	13%	—	—
Distribution - Advanced Solutions Driven by continued strength in infrastructure and security. Gross billings growth YoY: 31%	—	31%	—	—
Hyve Excellent quarter driven by new programs with existing customers. Manufacturing and supply chain services contributed to growth. Non-GAAP gross billings: $5.5BNon-GAAP gross billings growth YoY: 117%Non-GAAP gross billings growth YoY (constant currency): 117%Non-GAAP operating margin as % of gross billings: 3.3%Non-GAAP operating margin decrease YoY: 50 bps	—	—	—	$181M
Hyve - Manufacturing Gross billings growth increased more than the total business, primarily driven by increased volumes with existing customer base. Share of Hyve gross billings: ~2/3	—	—	—	—
Hyve - Supply Chain Services Growth driven by component demand, supporting customers' infrastructure deployments. Margins and overall mix can vary quarter-to-quarter. Share of Hyve gross billings: ~1/3	—	—	—	—

Orderbook & backlog

Hyve new hyperscaler programs ramp On track Q2 FY26

Ramp expected in late fiscal year '26 or early fiscal year '27 for programs with additional 2 hyperscalers.

Deals & partnerships

HPE Global distribution partnership

HPE selected TD SYNNEX as one of just two global distribution partners across its full networking, cloud, and AI portfolio, including assets from the Juniper acquisition. The global reach of TD SYNNEX was a key reason for the win.

Amazon Equity warrant

Issued an equity warrant to Amazon, a long-standing customer (AWS), structured to grow value as programs expand. This agreement is seen as mutually beneficial.

Capital programs

Hyve manufacturing facilities expansion underway

Period spend: $100M

Benefit:>1 million square feet

Expanding manufacturing facilities in several locations throughout the U.S. with current plans to add more, to support future growth and needs of customers. This year's investment for Hyve is roughly $100 million, amortized over 5-6 years.

Risks & headwinds

Rising component costs Q3 FY26 and beyond

Price increases are starting to kick in and are expected to accelerate in Q3. Most significant in storage, servers, and PCs, with new price increases expected in July.

Mitigation:Strategic inventory purchasing to smooth impact for customers; cost-plus business model allows passing costs to customers.

Supply constraints Q3 FY26

Q3 guidance took into account some risk with component availability, specifically memory and some CPUs.

Mitigation:Hyve customers primarily secure their own supply; Distribution vendors have managed their supply chains well so far.

Potential for PC unit elasticity due to ASP increases Ongoing

Consumer PCs are expected to have relatively high elasticity, and some impact of ASP increase on PC consumption is anticipated.

Mitigation:Focus on the B2B market where refresh cycles are ongoing; gaining market share.

Working capital consumption due to Hyve's accelerated growth Ongoing during periods of accelerated growth

Free cash flow consumption of approximately $330 million in Q2 FY26.

Mitigation:Viewed as a good investment with strong return on invested capital; working capital is elastic and adjusts rapidly in downturns; efficiencies expected as Hyve programs mature.

Q&A highlights

Has the company observed any demand destruction or weakening due to component cost increases, particularly in Endpoint or Advanced Solutions? Have channel incentives from vendors changed?

Management stated they have not seen demand destruction in Q2, with underlying demand remaining healthy despite rising prices. No material changes in channel incentives from vendors were noted, and Distribution's margin quality remained strong.

“very transparently, we haven't seen, for the moment, any distraction of demand because of the price increases. The price increases are really starting to kick in and it's probably going to accelerate in Q3.”

asked by Ruplu Bhattacharya · answered by Patrick Zammit

2 min read 5 chapters

Detailed narrative

Strategic Growth Pillars

TD SYNNEX's growth is driven by three strategic pillars: an omnichannel engagement model, segmented commercial teams, and investment in enablement. The omnichannel approach leverages digital platforms like Partner First for speed and human expertise for complex needs. Commercial teams are specialized and resources are reallocated monthly based on customer tier needs.

Enablement focuses on advanced training, certifications, and technical expertise, accelerating customer time to market and fostering long-term partnerships.

Hyve Hyperscaler Expansion and Strategy

Hyve's triple-digit growth is fueled by new programs with existing customers and securing programs with all top 5 U.S.-based hyperscalers. The company has begun early-stage ramps with its third hyperscaler, with additional ramps expected in late FY26 or early FY27.

To support this growth, Hyve is expanding its manufacturing facilities by over 1 million square feet in the U.S., investing in engineering capabilities, and aiming to be the partner of choice for hyperscalers' data center infrastructure design, build, and deployment.

AI Impact and Demand Trends

AI is a growing portion of TD SYNNEX's business, driving demand across hyperscale infrastructure, enterprise data center modernization, and AI-capable devices. While component costs are rising, underlying demand signals remain solid, with a positive net revenue impact from higher average selling prices (ASPs).

The company anticipates continued healthy demand in infrastructure, networking, and storage, driven by refresh cycles and AI-related investments, with PCs being the most watched category for price elasticity.

Inventory Management and Pricing Environment

TD SYNNEX has strategically managed inventory levels, purchasing ahead of anticipated price increases to smooth the impact for customers and ensure supply. This approach contributed 5 to 10 basis points to Distribution gross margins in Q2. Pricing is increasing, particularly for storage, servers, and PCs, with further increases expected in July.

The company operates on a cost-plus model, enabling it to pass increased costs to customers.

Operating Leverage and Capital Allocation

A key focus for TD SYNNEX is creating operating leverage, ensuring earnings grow faster than the top line. While the company experienced free cash flow consumption in Q2 due to significant working capital investments in Hyve's accelerated growth, these investments are considered accretive to margins and return on equity.

The company returned $112 million to shareholders through repurchases and $39 million through dividends in Q2, maintaining a net leverage of 1.6x.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.