Ingram Micro (INGM) Q1 2025 Earnings Call May 08, 2025 05:00 PM ET Speaker0 Thank you, operator. I'm here today with Paul Bay, 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 ...

There are a number of risks, uncertainties, and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this presentation. Such risks, uncertainties, and other important factors include, among others, the risks, uncertainties, and factors included within the filings we make with the SEC from time to time and the following: general economic conditions; our estimates of the size of the markets for our products and services; our ability ...

Core Insights - Kirby McInerney LLP is investigating potential claims against Ingram Micro Holding Corporation regarding possible violations of federal securities laws and unlawful business practices [1] Financial Performance - Ingram conducted its initial public offering on October 24, 2024, with shares priced at $22.00 each [3] - On March 4, 2025, Ingram reported its fourth quarter and full year 2024 financial results, indicating a material impact from two charges exceeding $20 million, including over $9 million for inventory write-offs [4] - Following the financial results announcement, Ingram's share price fell by $1.16, closing at $19.82 on March 5, 2025, down from $20.98 the previous day [4]

IPO and Financial Performance - The company completed an initial public offering (IPO) in October 2024, issuing 11,600,000 shares at a public offering price of $22.00 per share, with an additional 2,790,000 shares sold by the selling stockholder[23]. - For Fiscal Year 2024, 66% of consolidated net sales were generated from international operations, compared to 64% in Fiscal Year 2023 and 62% in Fiscal Year 2022[38]. - The company generated approximately 19% of consolidated net sales in Fiscal Year 2024 from products purchased from Apple Inc., and 10% from HP Inc.[28]. - The company categorizes its offerings into Technology Solutions, Cloud, and Other, with less than 5% of net sales coming from ITAD and reverse logistics solutions[33]. - The company has declared a quarterly cash dividend of $0.074 per share, to be paid on March 25, 2025[199]. - The company may change its dividend policy at any time, and there is no guarantee of future dividends[199]. - The stock price may experience significant volatility due to various factors, including operational results and market conditions[197]. Cloud and Technology Solutions - The company supports over 200 cloud solutions and manages more than 36 million seats through its cloud marketplace, with its CloudBlue platform managing over 52 million seats[29]. - The company has invested heavily in robotics and automation within its advanced logistics centers to enhance delivery capabilities and improve customer experience through its Ingram Micro Xvantage platform[25]. - The introduction of AI and ML capabilities into the company's Ingram Micro Xvantage platform aims to enhance competitive positioning, but faces risks from regulatory scrutiny and potential data breaches[176]. Operational and Market Challenges - The company recognizes seasonal fluctuations in demand, particularly lower demand in Europe during summer months and increased demand in the fourth quarter[39]. - The company faces competition from both global and local distributors, including TD Synnex and Arrow Electronics, but believes it is well-equipped to outperform competitors due to its comprehensive offerings and global reach[40]. - A significant percentage of the company's net sales is dependent on a few key vendors, and any adverse changes in vendor relationships could negatively impact operating margins and revenues[149]. - Vendor consolidation has resulted in fewer sources for products, increasing the bargaining power of larger vendors, which could adversely affect the company's revenues and operating results[153]. - The company faces risks related to supply shortages and customer order backlogs, which can significantly impact pricing and availability of products[151]. Workforce and Talent Development - As of December 28, 2024, the company had approximately 23,500 full-time associates and utilized about 5,250 full-time equivalent temporary or contract workers at peak[44]. - In 2024, approximately 77% of executive positions were filled with internal candidates, indicating a strong focus on internal talent development[50]. Sustainability and Compliance - The company aims to reduce absolute Scope 1 and 2 greenhouse gas emissions by 90% by 2030, using a 2022 base year[52]. - The company received a Platinum medal rating from EcoVadis, recognizing its sustainability efforts and placing it in the top 1% of over 125,000 assessed companies[54]. - The company has established targets for reducing waste in its operations as part of its sustainable impact program[52]. - The company is subject to various data privacy and protection laws, including the California Consumer Privacy Act and the General Data Protection Regulation (GDPR)[41]. - The company monitors changes in laws and regulations to ensure compliance, which may generate additional costs or impact financial condition[42]. Risk Management and Internal Controls - Material weaknesses in internal control over financial reporting have resulted in restatements of financial statements from 2021 to 2023[191]. - The company identified a material weakness in risk assessment processes, contributing to misstatements in financial statements[192]. - Remediation measures for material weaknesses include strengthening controllership functions and revising policies and procedures[195]. - The company may incur significant costs and management time to implement necessary changes to internal controls[195]. - Material weaknesses could lead to further misstatements and additional risks, including legal proceedings and reputational harm[194]. Cybersecurity and Data Protection - The company has implemented data security measures, including physical, technical, and administrative safeguards, to mitigate risks associated with cyberattacks, but cannot guarantee that breaches will not occur in the future[166]. - Compliance with new cybersecurity rules adopted by the SEC requires the company to disclose material cybersecurity incidents within four business days, effective December 18, 2023[174]. - The company faces increased compliance costs due to changing data transfer regulations, particularly regarding cross-border transfers of personal data under GDPR[169]. - The company is actively managing risks associated with third-party data processors through contractual arrangements, but cannot assure complete protection from potential violations[170]. Corporate Governance and Control - Platinum controls approximately 90% of the voting power of the outstanding Common Stock, allowing it to influence the election and removal of directors[180]. - Platinum has the right to nominate a majority of the board of directors as long as it owns at least 50% of the voting power of the outstanding stock[181]. - The company is classified as a "controlled company" under NYSE rules, which exempts it from certain corporate governance requirements[183]. - Anti-takeover provisions may delay or prevent a change of control, potentially affecting stockholder opportunities for premiums on shares[184]. Financial Risks and Liabilities - Each one-eighth percentage point change in interest rates would result in a change of approximately $5.53 million in annual interest expense on the company's variable rate indebtedness[139]. - The company transitioned from LIBOR to the Secured Overnight Financing Rate (SOFR) for its interest reference rate, establishing a 5.317% upper limit on the SOFR interest rate[139]. - The company has experienced credit risks from customers, including a loss of less than $10 million from a customer in receivership in 2022, highlighting potential vulnerabilities in customer payment obligations[156]. - The company is subject to indemnification claims that may reduce available funds for third-party claims, impacting financial stability[209].

Financial Data and Key Metrics Changes - In Q4 2024, the company achieved a year-over-year top-line growth of nearly 3.5% on an FX-neutral basis, with net sales of $13.34 billion, up 2.5% year-over-year in US dollars [6][32] - Full-year 2024 net sales were $48.0 billion, roughly flat versus 2023, and up 0.3% on an FX-neutral basis [25] - Non-GAAP net income for Q4 was $113.1 million, compared to $220.9 million in the same period last year, with non-GAAP diluted EPS at $0.92 [41][42] Business Line Data and Key Metrics Changes - Client and endpoint solutions saw growth both year-over-year and quarter-over-quarter, while Advanced Solutions was impacted by slowness in networking [7][9] - Advanced Solutions experienced solid momentum in server and storage, but networking remained soft [32] - The company recorded restructuring costs equaling 8 basis points of net sales in 2024, reflecting efforts to enhance organizational efficiency [28] Market Data and Key Metrics Changes - North America net sales were $4.767 billion, up 3.0% in US dollars, driven by strength across all lines of business [35] - EMEA net sales were down 1.5% year-over-year, primarily due to weakness in advanced solutions [36] - Asia Pacific net sales were $3.60 billion, up 7.8% year-over-year, driven by strength in client endpoint solutions [36] Company Strategy and Development Direction - The company aims to be a leader in digital transformation, focusing on high-margin and complex solutions in advanced solutions and cloud businesses [19][20] - Continued investment in the Xvantage platform, which has been rolled out in 16 countries, is a key part of the strategy to enhance customer experience and operational efficiency [13][14] - The company is committed to driving quality of revenue and optimizing working capital while achieving operational excellence [22][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining top-line growth in 2025, despite challenges in certain markets like India [22][47] - The company noted a competitive environment impacting margins, particularly in India, but remains focused on profitable growth [49][50] - Management highlighted the importance of adapting to macroeconomic conditions and maintaining a strong balance sheet [43][46] Other Important Information - The company plans to pay a quarterly cash dividend of $0.074 per share in Q1 2025 [45] - The board approved a one-year share repurchase plan for up to $75 million of common stock [45] - The company has repaid $483 million of its term loan balance in 2024, with a total repayment of $1.56 billion since early 2022 [46] Q&A Session Summary Question: What is driving the momentum in large enterprise sales? - Management indicated that growth in large enterprise sales was observed across all regions, not just North America, with a notable refresh cycle in notebooks and desktops [55][56] Question: What gives confidence for top-line growth in 2025? - Management cited strong momentum in endpoint solutions and signs of recovery in networking, along with positive indicators from large vendors [64][65] Question: Are there any one-time costs affecting Q1 profitability guidance? - Management clarified that the guidance reflects margin factors, particularly competitive pressures in India, rather than notable one-time costs [67][69] Question: How is the company addressing the competitive pricing environment in India? - Management emphasized a focus on quality of revenue and selective participation in deals that meet profitability expectations [101][106] Question: What is the outlook for the SMB market? - Management noted that the SMB market was down but expected a recovery as advanced solutions and networking improve [114][115] Question: What is the status of the public sector business? - Management indicated that public sector sales were down globally but expected a return to growth as conditions stabilize [123][124] Question: How is working capital expected to be managed in Q1? - Management highlighted a seasonal pattern in working capital, with a focus on collections from Q4 sales and maintaining free cash flow [125][128]

Financial Performance - Fourth quarter net sales reached $13.3 billion, a 2.5% increase year-over-year, with a 3.3% increase on an FX neutral basis[3] - Fourth quarter net income was $83.1 million, with non-GAAP net income of $213.1 million, resulting in diluted EPS of $0.36 and non-GAAP diluted EPS of $0.92[3] - Full year net sales totaled $48.0 billion, a slight decrease of 0.1% from the prior fiscal year, impacted by foreign currency translation[20] - Net sales for fiscal year 2024 were $47,983,671, a decrease of 2.2% compared to $48,040,364 in 2023[45] - Net income for fiscal year 2024 was $264,222, a decline of 25% from $352,712 in 2023[45] - Basic and diluted earnings per share for fiscal year 2024 were both $1.18, compared to $1.59 in 2023, representing a decrease of 26%[45] - The company reported a net income of $83,116,000 for the thirteen weeks ended December 28, 2024, down from $136,524,000 in the same period of 2023[55] Cash Flow and Capital Expenditures - Full year adjusted free cash flow was $443.3 million, with cash provided by operations totaling $333.8 million[3] - Cash provided by operations increased significantly to $333.8 million from $58.8 million in the prior fiscal year[25] - Capital expenditures for fiscal year 2024 were $142,703, down from $201,535 in 2023[48] - Capital expenditures for the fiscal year ended December 28, 2024, were $142,703,000, compared to $201,535,000 in 2023[57] Profitability Metrics - Gross profit for the fourth quarter was $936.1 million, with a gross margin of 7.01%, down from 7.52% in the prior year[6] - Income from operations for the fourth quarter was $248.5 million, with an income from operations margin of 1.86%, down from 2.54% in the prior year[6] - Adjusted EBITDA for the fourth quarter was $418.1 million, compared to $435.4 million in the prior year[6] - Adjusted EBITDA was $1,318.6 million, down from $1,353.1 million in the prior year[25] - Income from operations margin decreased to 1.70% from 1.97% in the prior fiscal year, primarily due to a shift towards lower-margin solutions[25] - Adjusted EBITDA for the fiscal year ended December 28, 2024, was $1,318,634,000, down 2.5% from $1,353,092,000 in the previous year[52] Regional Sales Performance - North America net sales increased to $4.7 billion, driven by strength in PCs, server, and storage, while EMEA net sales decreased by 1.5% to $4.1 billion[7][10] - Asia-Pacific net sales increased to $12.8 billion from $11.6 billion year-over-year, driven by growth in smartphones and consumer electronics[25] - Latin America net sales decreased to $3.6 billion from $3.8 billion, impacted by declines in advanced solutions[28] - Income from operations margin in Latin America improved to 3.33% from 2.47% due to stronger gross margins and effective expense management[30] Shareholder Returns - The company declared a cash dividend of $0.074 per share, payable on March 25, 2025[3] - A share repurchase plan of up to $75 million has been approved, expiring on February 26, 2026[33] Guidance and Future Outlook - Fiscal first quarter 2025 guidance for net sales is projected between $11,425 million and $11,825 million, with non-GAAP diluted EPS guidance of $0.51 to $0.61[31] - The company plans to focus on restructuring costs and integration initiatives to align its cost structure in certain markets moving forward[50] - The company is unable to provide a reconciliation of forward-looking GAAP diluted EPS to non-GAAP diluted EPS for fiscal first quarter 2025 due to unpredictability of certain information[60] - The forward-looking estimates of both GAAP and non-GAAP measures may differ materially from actual results, indicating potential volatility in future financial performance[60] Restructuring and Costs - The company incurred restructuring costs of $38,354,000 for the fiscal year ended December 28, 2024, compared to $18,797,000 in 2023[52] - Integration, transition, and operational improvement costs contributed $0.26 to GAAP EPS for the thirteen weeks ended December 28, 2024[58] - Tax impact of pre-tax adjustments reduced EPS by $0.14 for the thirteen weeks ended December 28, 2024[58] Foreign Currency Impact - The company reported a net foreign currency exchange loss of $22,901 in fiscal year 2024, compared to a loss of $42,070 in 2023[45] - The company reported a net foreign currency exchange loss of $0.03 for the thirteen weeks ended December 28, 2024[58]

Group 1 - Henson Group has been awarded the Ingram Micro Managed Services Provider of the Year at the 2024 Ingram Micro ONE Innovation Summit for its exceptional expertise and innovation across multiple solution areas [1][3] - The award recognizes Henson Group's commitment to customer satisfaction and its role as an industry leader in providing cloud solutions [3][5] - Henson Group serves various industries, including financial services, retail, manufacturing, healthcare, and technology, and has helped over 1,000 companies [5][6] Group 2 - The company offers comprehensive cloud solutions, including Azure Spend Management, Azure Environment Monitoring & Tuning, and Azure Optimization [4][8] - Henson Group is a six-time Microsoft Partner of the Year and holds multiple Microsoft-certified competencies, including the exclusive Azure Expert MSP certification [6][8] - The leadership team emphasizes the importance of strong partnerships and the relentless pursuit of excellence in delivering cloud solutions that drive significant value for clients [6][8]

Core Insights - Ingram Micro (NYSE: INGM) is a recent IPO that has not received significant attention but possesses substantial scale and free cash flow generation capabilities [1] - The company plays an essential role in the tech service industry and has a resilient working capital model, particularly in adverse macroeconomic conditions [1] Company Overview - Ingram Micro has a strong position in the tech service industry, indicating its importance in the supply chain and technology distribution [1] - The company’s ability to generate free cash flow is a key strength, suggesting financial stability and potential for reinvestment or shareholder returns [1] Market Position - The working capital model of Ingram Micro is highlighted as particularly resilient, which may provide a competitive advantage during economic downturns [1] - The company’s scale allows it to navigate challenges in the tech service sector effectively [1]

Financial Data and Key Metrics Changes - In Q3 2024, the company reported net sales of $11.76 billion, a decrease of 1.4% year-over-year, primarily due to lower sales in North America and Latin America, partially offset by growth in Asia-Pacific [17][22] - Gross profit was $845.5 million, representing 7.19% of net sales, an increase of 2 basis points from the previous year, driven by a shift towards higher-margin cloud-based solutions [26] - Non-GAAP net income for the quarter was $159.2 million, compared to $148.6 million in the same period last year, with Q3 non-GAAP diluted EPS at $0.72 [32] Business Line Data and Key Metrics Changes - Client and endpoint solutions and advanced solutions faced macro headwinds, while cloud and other categories experienced double-digit growth [20][21] - The cloud segment has grown to a double-digit share of global gross profit, indicating a strategic shift towards higher-margin products [19] Market Data and Key Metrics Changes - North America net sales were $4.3 billion, down from $4.6 billion year-over-year, primarily due to declines in client and endpoint solutions [22] - EMEA net sales totaled $3.5 billion, a slight decrease of 0.1% year-over-year, while Asia-Pacific net sales increased by 8.8% to $3.2 billion, driven by strong growth in mobility distribution [24] Company Strategy and Development Direction - The company aims to transform into a platform company, focusing on customer-centric solutions and leveraging investments in AI and cloud technologies [9][10] - A significant investment of over $600 million has been made in the cloud business and marketplace over the past decade, alongside more than 40 acquisitions to enhance technical resources and market expertise [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the stabilization of the IT market, anticipating a rebound in PC and networking spending in 2025 [38] - The company forecasts Q4 2024 net sales in the range of $13.0 billion to $13.5 billion, representing approximately 2% year-over-year growth at the midpoint [39] Other Important Information - Adjusted free cash flow was negative $254.6 million for the quarter, typical for Q3 due to inventory investments for seasonal sales [35] - The company plans to initiate a quarterly cash dividend beginning in Q1 2025, reflecting confidence in financial stability [36] Q&A Session Summary Question: Expectations for a rebound in PC spend and networking in 2025 - Management noted that networking is expected to improve, and the PC refresh cycle has shown consistent improvement throughout the year [44][45] Question: Thoughts on product mix for Q4 and 2025 - Management indicated that while advanced solutions faced headwinds, they expect growth in servers, storage, and cybersecurity, with cloud continuing to show good growth [48][49] Question: Update on geographic expansion since becoming a public company - The company has focused on extending geographic reach and capitalizing on scale, with significant growth in emerging markets [53][55] Question: Operating margin expectations going into 2025 - Management highlighted ongoing cost reductions and investments in growth areas, expecting continued improvement in operating margins over time [57][59] Question: Competitive pricing dynamics in the market - Management acknowledged pockets of pricing pressure but stated it is not impacting the company globally [61]

Financial Performance - Net sales for the thirteen weeks ended September 28, 2024, were $11,762,628, a decrease of 1.4% compared to $11,925,373 for the same period in 2023[9] - Gross profit for the thirteen weeks ended September 28, 2024, was $845,492, down from $854,844 in the prior year, reflecting a gross margin of approximately 7.2%[9] - Net income for the thirteen weeks ended September 28, 2024, was $76,969, a decrease of 11.3% from $86,783 in the same period last year[11] - Basic and diluted earnings per share for the thirteen weeks ended September 28, 2024, were $0.35, compared to $0.39 for the same period in 2023[9] - Operating expenses for the thirteen weeks ended September 28, 2024, were $627,318, slightly up from $623,352 in the prior year[9] - Income from operations for the thirteen weeks ended September 28, 2024, was $218,174, up from $212,402 in 2023, representing a 2.0% increase[82] Equity and Liabilities - Total stockholders' equity increased to $3,613,905 as of September 28, 2024, from $3,506,289 at December 30, 2023[7] - The company reported total liabilities and stockholders' equity of $18,562,723 as of September 28, 2024, compared to $18,420,314 at December 30, 2023[7] - Total debt decreased to $3,838,451 million from $3,923,608 million, with a significant repayment of $150,000 million on the Term Loan Credit Facility[65] Cash Flow and Capital Expenditures - Cash provided by operating activities for the quarter was $23,878,000, a decrease from $59,764,000 in the prior year, indicating a decline of approximately 60%[20] - Total capital expenditures for the quarter were $106,643,000, down from $164,986,000 in the same period last year, showing a reduction of about 35%[20] - Capital expenditures for the thirteen weeks ended September 28, 2024, totaled $36,972, a decrease of 39.2% from $60,779 in the same period of 2023[82] Foreign Currency and Adjustments - The company experienced a foreign currency translation adjustment gain of $85,371 for the thirteen weeks ended September 28, 2024, compared to a loss of $107,689 in the same period last year[11] - The company reported a foreign currency translation adjustment loss of $107,689,000 for the quarter ended September 30, 2023[16] - The company recorded a net foreign currency exchange loss of $9,322 for the thirteen weeks ended September 28, 2024, compared to a loss of $10,033 for the same period in 2023[51] Tax and Legal Matters - The effective tax rate for the Thirteen Weeks Ended September 28, 2024, was 35.4%, up from 27.9% for the same period in 2023[70] - The Brazilian subsidiary faces tax assessments totaling Brazilian Reais 40,606 ($7,460) in principal and penalties, with a reasonably possible loss of Brazilian Reais 764,917 ($140,530)[75] - The company has recorded a contingent liability related to a fine of €19,500 imposed by the French Competition Authority, with approximately $20,000 already paid[75] - The company is involved in various ongoing legal claims and investigations, which may materially affect its financial condition and results of operations[73] Market Strategy and Operations - The company plans to continue expanding its market presence and integrating new technologies into its platform[5] - The company is focused on retaining key personnel and adapting to industry changes, including supply constraints in technology categories[5] - The company operates in four geographic segments: North America, EMEA, Asia-Pacific, and Latin America, with segment profit measured by income from operations[78] Shareholder Returns - The company declared dividends of $10,462,000 in the previous year, which decreased to $6,174,000 in the current year, indicating a reduction of about 41%[20] - Cash dividends paid to minority interest stockholders were $6,174 for the thirty-nine weeks ended September 28, 2024, compared to $10,462 for the same period in 2023[34] Employee Compensation and Awards - The company recognized compensation expense for cash awards amounting to $6,087 for the thirteen weeks ended September 28, 2024, compared to $6,057 for the same period in 2023[44] - As of September 28, 2024, the unrecognized compensation costs related to cash awards were $39,328, expected to be recognized over a remaining weighted-average period of approximately 1.6 years[44] - Ingram Micro reported a total of 67,598 cash awards non-vested as of December 30, 2023, with 1,895 granted and 851 vested by March 30, 2024, resulting in 67,316 non-vested awards[43] Interest Rate Exposure - Company is exposed to interest rate changes on long-term debt, with a potential annual expense increase of approximately $8,817 or decrease of $12,600 for a 1% change in interest rates[143] - Each one-eighth percentage point change in interest rates would result in a change of approximately $5,825 in annual interest expense under the Term Loan Credit Facility and ABL Credit Facilities[143] - Company aims to finance its business at competitive interest rates while moderating exposure to interest cost volatility[143] - Following the cessation of LIBOR on June 30, 2023, the company amended agreements to establish a 5.317% upper limit on SOFR interest rates[143] Miscellaneous - The company revised its cash flow statement for the thirty-nine weeks ended September 30, 2023, to correct previously identified errors[39] - The company completed an IPO on October 25, 2024, issuing 11,600,000 shares at $22.00 per share, resulting in net proceeds of approximately $233,110 after expenses[87]