REVENUEBeat +13.0%
EPSBeat +19.2%
Actuals vs. estimates
| Metric | Actual | Consensus | Surprise |
|---|---|---|---|
| RevenueNet sales | $874.3M | $773.7M | ▲ Beat +13.0% |
| EPS(non-GAAP diluted, adjusted for severance expenses net of tax) | $1.24 | $1.04 | ▲ Beat +19.2% |
Highlights & what matters
- Net sales of $874,313 thousand beat the $773,737 thousand estimate by 13.0%; adjusted diluted EPS of $1.24 beat the $1.04 estimate by 19.2%.
- No guidance is given. The board declared a quarterly dividend of $0.20 per share.
- The beat is low-margin mix: servers/storage sales up 45%, networking up 43% and notebooks/desktops up 27%, while gross margin fell 110 basis points to 18.5% and Business Solutions gross margin fell 270 basis points to 23.8%.
- Operating leverage held anyway: SG&A fell to 13.8% of net sales from 15.3%, operating margin rose to 4.7% from 4.3%, and adjusted EBITDA rose 30% to $46,278 thousand.
- The one thing that matters: the 23% sales beat is low-margin hardware and it is consuming cash. Nine-month operating cash flow is negative $39,819 thousand against positive $38,020 thousand a year ago, with receivables at $789,590 thousand and inventory at $226,599 thousand.
Key metrics
| Metric | Reported | Prior year | Change |
|---|---|---|---|
| Gross profit | $161.9 million | $138.6 million | up 16.7% y/y |
| Gross margin | 18.5% | 19.6 % | down 110 basis points y/y |
| Operating margin | 4.7 % | 4.3 % | — |
| Adjusted EBITDA | $ 46,278 | $ 35,587 | 30 % |
| Business Solutions gross margin | 23.8% | 26.5 | decreased by 270 basis points |
| SG&A as a percentage of net sales | 13.8% | 15.3% | — |
Guidance changes
No financial guidance change disclosed.
Quality of earnings
- Earnings are clean but cash is not. Diluted EPS of $1.24 equals adjusted diluted EPS of $1.24, with no severance in the quarter, yet operating cash flow was $9,723 thousand against $64,149 thousand a year ago.
- The working-capital build is the whole gap. Receivables of $789,590 thousand against $648,020 thousand at year-end and inventory of $226,599 thousand against $143,567 thousand both grew faster than 23.3% sales growth, and inventory turns fell to 14 from 18.
- Interest income is fading as a prop, which makes the operating improvement cleaner: $2,467 thousand against $3,689 thousand a year ago, with cash and short-term investments down to $343.3 million from $406.7 million.
Gotchas & watch items
- The margin damage is concentrated, not broad: Business Solutions gross margin fell 270 basis points to 23.8% while Enterprise Solutions was almost flat at 14.8% from 14.9% and Public Sector fell 30 basis points to 16.9%.
- Gross billings grew more slowly than net sales — 19.4% to $1.3 billion against 23.3% net sales growth — so more of the quarter's volume was recognized gross rather than net.
- A named supply risk sits directly under the fastest-growing line: the release lists the global memory DRAM and NAND shortage among its risks while servers/storage sales grew 45%.
- The cost base is holding better than the headline margin: SG&A rose 11.5% to $120,881 thousand against 23.3% sales growth, which is why operating margin rose despite the 110 basis point gross margin decline.