TD SYNNEX Corporation (SNX) Q4 2013 Earnings Report, Transcript and Summary

Good afternoon. My name is Gabrielle and I will be your conference operator today. At this time, I would like to welcome everyone to the SYNNEX 2013 Fourth Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect. Thank you. At this time, I would like to pass the call over to Deirdre Skolfield, Director of Investor Relations at SYNNEX Corporation. Ms. Skolfield, you may begin your conference.

Thank you, Gabrielle. Good afternoon and welcome to the SYNNEX Corporation Fiscal 2013 Fourth Quarter and Year-End Conference Call for the period ended November 30, 2013. Joining us on today's call are Kevin Murai, President and Chief Executive Officer; Dennis Polk, Chief Operating Officer; Marshall Witt, Chief Financial Officer; and Chris Caldwell, President of Concentrix Corporation. Before we begin, I'd like to note that statements on today's call, which are not historical facts, may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements include, but are not limited to, statements regarding our strategy, including business, sales and profitability, growth, market share, investments in and growth of our GBS business, business trends, our liquidity, growth in shareholder value, expectation of our revenues, net income and diluted earnings per share for the first quarter of fiscal 2014, our expectations of our tax rate, anticipated benefits of and funding for the IBM CRM business acquisition, our performance, benefits of our business model, demand and pricing expectations, economy and market conditions and interest and operating expenses and margins. These are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in these forward-looking statements. Please refer to today's press release and documents filed with the Securities and Exchange Commission, specifically our most recent Form 10-Q, for information on risk factors that could cause actual results to differ materially from those discussed in these forward-looking statements. Also during this call, we will reference certain non-GAAP financial information. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the 2 for the periods reported in the release. Additionally, this conference call is the property of SYNNEX Corporation and may not be recorded or rebroadcast without specific written permission from the company. Now I'd like to turn the call over to Marshall for an update on our financial performance. Marshall?

Thank you, Deirdre. Good afternoon, everyone, and thank you for joining our call today. I'll begin with a few highlights and summarize our results of operations and key financial metrics, then I'll conclude with guidance for the first quarter of fiscal 2014. We are pleased with the strong growth and record revenues in our Distribution and GBS Concentrix businesses. Our Q4 revenues, non-GAAP net income, non-GAAP diluted EPS, all came in above the high end of the outlook provided from our Q3 call. Let me share some details behind our fiscal Q4 consolidated performance, starting with revenue. Total revenue was $3.06 billion, up 10.6% compared to $2.77 billion in the same quarter of the prior year. Distribution segment revenues were strong across all major geographies: U.S., Canada and Japan. Revenue was $3.01 billion, up 10.6% year-over-year, led by strong consumer demand, ongoing U.S. commercial momentum and the Supercom Canada acquisition. Distribution revenues in the quarter were negatively impacted by the translation effect of foreign currencies, primarily the yen, by $93 million. Q4 distribution revenues were up 14% on a constant currency basis, including Supercom. In our GBS segment, fourth quarter revenue grew to a record $61.0 million, up 11.1% year-over-year, benefiting from new customer contract wins and close to achieving our stated goal of a $250 million run rate by the end of 2013. Moving on to profitability, Q4 consolidated gross margin was 5.88% compared to 6.48% in Q4 of 2012 and 6.01% in Q3 of 2013. Business mix and normal puts and takes impacted the quarter. Q4 selling -- or Q4 total selling, general and administrative expenses were reduced as a percentage of revenues to 3.61% or $110.4 million. This compares with 3.78% of revenues or $104.4 million in the fourth quarter of fiscal 2012. SG&A expenses in Q4 2013 included $5.8 million related to the IBM acquisition and other integration costs. Excluding the $5.8 million, non-GAAP SG&A expense was $104.6 million or 3.42% of revenues, down 36 basis points from the prior year. We are pleased with our ability to manage costs as we continue to drive flexibility and efficiencies within our support structure as we grow our business and we continue to invest. Q4 consolidated operating income before nonoperating items, income taxes and noncontrolling interest was $69.4 million or 2.27% of revenues compared to $74.7 million or 2.70% in the prior year fourth quarter. Excluding the $5.8 million and IBM acquisition and other integration costs, adjusted operating income was $75.2 million or 2.46% of revenues. At the segment level, Q4 distribution income before nonoperating items, income taxes and noncontrolling interest was $71.5 million or 2.38% of distribution revenues compared to the prior year quarter result of $70.4 million or 2.59%. In the GBS segment, the loss from continuing operations before nonoperating items, income taxes and noncontrolling interest was $2.1 million or negative 3.38% of GBS revenues compared to $4.3 million of income or 7.89% of revenues in the prior year quarter. The Q4 loss includes $5.8 million in charges related to the IBM acquisition and other integration costs. Excluding this charge, income for GBS in the quarter was $3.7 million or 6.12% of revenues. For the full fiscal year, SYNNEX revenue was $10.8 billion, an increase of 5.4% from the prior year. Excluding the impact of changes in foreign currency exchange rates, distribution revenues were up nearly 8% year-over-year on a constant currency basis. For the full year, GBS revenue grew 13.3% compared to the 20.8% growth in 2012, which had been fueled in part from acquisitions. 2013 was a pivotal year for our GBS Concentrix business as we continue to expand the scale and platform of product offerings. Even more transformational is the announced acquisition of IBM CRM BPO business. For the full year, total SG&A expenses were $414.1 million or 3.82% of revenues compared to $401.7 million or 3.91% of revenues in fiscal 2012. Excluding the $7.5 million in charges related to the IBM acquisition and other integration costs, non-GAAP SG&A expense was $406.6 million or 3.75% of revenues in 2013. For the full fiscal year, our operating margin came in at 2.22% compared to 2.48% in fiscal 2012. Excluding the $8.4 million in IBM acquisition and other integration costs, non-GAAP operating income was $249 million or 2.3% of revenues in fiscal '13. Net total interest expense and finance charges for Q4 were $3.8 million, down $1.8 million from the prior year quarter, following the settlement of our convertible debt in our last fiscal quarter. For the full year, our interest expense was $17.1 million compared to $22.9 million in the prior year. The decrease was a result of the settlement of our convertible debt in August of 2013. Net other income was $391,000 in the fourth quarter of 2013, down from $1.9 million in the prior year quarter, which included a onetime gain of, approximately, $1 million from the sale of our interest in SB Pacific. For the full year, net other income was $14.3 million compared to $4.5 million in the prior year. Net other income for the current year included $12.3 million received from a class action legal settlement in Q3 of 2013. The tax rate for the fourth quarter of fiscal 2013 was 37.2% and for the fiscal year, it was 36%. The Q4 2013 tax rate is largely a factor of income earned by tax jurisdiction for fiscal 2013. For fiscal 2014, we anticipate the annual tax rate to be in the 35% to 36% range, excluding the impact of the IBM acquisition. On a GAAP basis, our fourth quarter net income was $41.5 million or $1.10 per diluted share. The full year 2013 GAAP net income was $152.2 million or $3.06 per diluted share. On a non-GAAP basis, our fourth quarter net income was $45.4 million or $1.20 per diluted share and the full year 2013 non-GAAP net income was $158.2 million or $4.19 per diluted share. Turning to the balance sheet. Our accounts receivable totaled $1.6 billion at November 30, 2013 for a DSO of 48 days, which was up 2 days from the prior year quarter. Inventory totaled $1.1 billion or 35 days at the end of the fourth quarter, up 2 days from the fourth quarter of 2012. Days payable outstanding was 43 days and up 4 days from the end of the prior year fourth quarter. Hence, our overall cash conversion cycle for Q4 of 2013 was 40 days, consistent with the same quarter of last year and down 1 day from Q3 of 2013. Our debt to capitalization ratio was 18% compared to 17% in Q4 of 2012. At the end of Q4, between our cash and credit facilities, the company had, approximately, $1 billion available to fund growth and the acquisition of the IBM CRM business. Other financial data and metrics of note for the fourth quarter are as follows: depreciation expense was $4.2 million; amortization expense was $2.0 million; HP at approximately 29% of sales, down from 36% a year ago, was the only vendor accounting for more than 10% of sales; cash capital expenditure for the quarter was approximately $13.6 million, which includes the purchase of another HQ facility in Fremont for approximately $7.8 million; annualized ROIC in Q4 of 2013 was 10.5%, including the impact of our acquisition-related expenses; trailing fourth quarter ROIC was 9.4%, including the impact of our acquisition-related expenses; preliminary year-to-date cash flow from operations was approximately $35.7 million. The $82.4 million of cash flow used in operations in Q4 was due to our growth in our distribution business. Now moving to our first quarter 2014 expectations. We expect revenue to be in the range of $2.675 billion to $2.775 billion. For net income, the forecast is expected to be in the range of $34.5 million to $36.2 million and corresponding diluted earnings per share is anticipated to be in the range of $0.91 to $0.95. Please note that this projection does not include the IBM CRM BPO acquisition, which is expected to close in Q1 calendar 2014. As a reminder, these statements of Q1 expectations are forward-looking and actual results may differ materially. I will now turn the call over to Kevin Murai, President and Chief Executive Officer, for his perspective on the business and our quarterly results. Kevin?

Thank you, Marshall. Good afternoon, everyone, and thank you for joining our call today. I'm proud of our fourth quarter results and our strong finish to 2013. We've had an excellent year and we've made meaningful progress in all 3 prongs of our corporate strategy of optimizing our core business, capturing opportunities in adjacent markets and differentiating our business through services. I'll begin my comments by reviewing some of the key highlights of 2013. Within our Distribution segment, we grew our business by almost 8% in constant currency, with strong growth in the U.S. and Japan and the acquisition of Supercom in Canada. We made notable improvements in our profitability in Japan and with the enhancements to process in our go-to-market strategy, we believe we're on track for continued improvement. Within the U.S., we stabilized the pressures on margin from a year ago and continued to grow our TSD business well into the double digits. Our Hyve Solutions business was a star performer, doubling in size from a year ago. In addition, we were recognized with a number of awards, including HP's Partner in Excellence Award for the fourth consecutive year, Red Hat North America Commercial Distributor of the Year and Symantec Distribution Partner of the Year. Within our GBS segment, we grew more than 13% from the prior year, well above market growth and attributed to the investments we've made in our sales capability and enhanced services offerings. Even with these investments, we grew our non-GAAP GBS operating income by over 20%, consistent with our goal of increasing the contribution of this segment to our overall business. And last but certainly not least was the announcement of the pending acquisition of IBM CRM BPO business. We believe this acquisition is transformational for SYNNEX for both our financial profile, as well as what this means for our Concentrix brand in the global BPO market. We've concluded a very successful year for SYNNEX and later, I will speak to our focus areas in 2014 and forward. Now turning to our fourth quarter results. We delivered strong growth of 10.6% and even stronger growth of 14% in constant currency. Our operating margins remained healthy at 2.46% before integration costs and our non-GAAP fourth quarter ROIC was strong at over 11%. Within our Distribution segment, all of our geographies performed well. Sales in the U.S. were strong, growing in the high single digits. Our consumer business was strong, with an overall good holiday season enhanced by our ability to represent the popular products that were in demand. The commercial segment also grew as we saw continued improvement in IT demand. We're particularly pleased with the traction we're seeing in our higher-end technology categories such as networking and security, enterprise mobility and our Hyve Solutions business. Our Japanese business performed very well, with revenues up almost 30% from last year in local currency, with growth in all markets but, in particular, strong in retail. In Japan, we've seen overall markets improving, driven by economics and government stimulus programs, as well as the near-term demand generated as the market anticipates planned increases in consumption taxes later this year. Most importantly, we had meaningful improvement to our profitability in Japan, which we expect to continue. Canada delivered solid results as we began to see slow but steady improvement in both the commercial and retail segments. We remain cautiously optimistic as the Canadian economy tends to benefit from strength in the U.S. economy. As Marshall mentioned, our margins for the quarter were affected by the change in mix and continued investments in growth technologies. However, we believe the market environment has stabilized and that we are now experiencing a normalized distribution margin environment. As we have discussed in detail, we continue to believe that execution of our strategy will improve our distribution margins over time. Our outstanding performance in our distribution business reflects our keen understanding of the IP market, our can-do culture and the quality of our evolving and diversified line card. We continue to make significant organic investments in our business, which have contributed to our vendor and reseller partner's success and, as a result, have enabled us to consistently grow faster than market with healthy profitability. Now turning to our GBS segment. We continued our trend of strong organic sales growth, delivering 11% revenue growth from the prior year quarter. Our profitability was somewhat softer than we expected, primarily due to ramping up for anticipated volumes that did not occur. However -- overall, however, I'm pleased with our execution and, in particular, I'm pleased with another successful quarter of new contract signings. Now looking at our first quarter guidance. We're expecting the underlying economies in the U.S., Canada and Japan to be stable. We expect that the growth we have been experiencing in IT demand in the U.S. and Japan will continue and that IT demand in Canada will slowly improve. We will continue to smartly invest in our strategic growth platforms related to TSD, Hyve Solutions, CLOUD and MOBILITY. A substantial amount of SYNNEX and Concentrix resources are focused on the IBM CRM integration and we expect that the Concentrix and IBM leadership teams will be prepared for a seamless integration beyond the initial close. Before we open the line for questions, I'd like to take a moment to share my views on 2014 and our strategic areas of focus. Our corporate goals remain unchanged: to increase shareholder value, attract and retain the best people in our respective industries and be a market leader in the markets in which we operate. And our 3-pronged strategy of optimization, growth in adjacent markets and differentiation through services also remains unchanged. The near-term focus is the close and successful integration of IBM CRM BPO business. The entire SYNNEX and IBM teams are excited about this truly transformational acquisition as we become a top 10 global player in the market. As we are in the middle of the planning and close process, we are not providing any updates to the information we already disclosed. We are on track to close the deal in the first calendar quarter of 2014 and we'll provide additional details at that time. Our strategic formula in our distribution business has helped us to improve our margin and grow faster than the market. There is still plenty of runway in our strategy and we will continue to execute on key strategic initiatives around third platform, which is cloud, mobility and big data. We will continue to invest in our proprietary platforms such as CLOUDSolv and MOBILITYSolv and we expect to see meaningful growth in 2014 in these businesses. We will enhance our TSD business by adding new vendors and products to our offering and enhance our professional services business through investment in new capabilities and new partnerships. We will also enhance our leverage of these investments in other markets such as Canada, where we have recently realigned the organization to create a North America structure for our go-to-market functions. Finally, we expect to capture further benefit from process improvements and enhanced programs in Japan that will translate into continued growth and improved operating margins. Before I conclude my comments, I would like to acknowledge the hard work and dedication of all of our associates around the world and also thank our vendors, customers and shareholders for their continued partnership and support. And with that, let's turn the call over to the operator for questions.

[Operator Instructions] Our first is going to come from Bill Shope with Goldman Sachs.

Could you talk a little bit about the federal government performance in the quarter? And do you think, as we look forward, the worst is over in that respect?

Yes. The -- kind of as expected, the federal business was a little bit soft. That said, though, our total government division is not just federal, it's also state, local and education. And I think the positive piece of our government business is that SLED was actually quite strong, certainly offsetting any kind of softness on the federal side. I think our teams did a great job in managing through not just the sequester but also the brief government shutdown. Going forward, there's still some expectation that the federal business is going to be somewhat soft. But, again, I think if you have the right programs and, in particular, with a focus on some of the key growth areas in state, local and education, overall, the government -- the total government business should be fine.

Okay. And then on the gross margin line, I just want to make sure I understood your forward commentary there. Could you give us a bit more color on the mix and other drivers here and, particularly, how you're thinking about that dynamic in terms of the near-term trajectory?

I'm sorry, Bill, I didn't understand the question.

On gross margin, just trying to think about how we think about the next several quarters in terms of this mix dynamic. Are you assuming that's constant? How should we think about the puts and takes there?

Okay. So, yes, I mean, the environment, the overall environment, is what I would call a normalized distribution environment now. So with the key factors that relate to that in terms of what's happening in the competitive market, what's happening with incentives, as well as overall mix, it's kind of at a normal stage. The opportunities that we see in improving gross margin going forward really are going to be driven by our ability to grow with vendors, as well as continuing to evolve the mix of business that we have.

Our next question will come from Ananda Baruah with Brean Capital.

Kevin, can you remind us what your initial comments were with regard to financial impact upon deal close of the IBM acquisition?

So referring back, Ananda, to what we said, I guess, back on September 10, was we really only talked about top line revenue and our view on EBITDA for the first year after close. The business is about a $1.2 billion business and the expectation was $120 million of EBITDA, first year.

Okay. Got it. Will you -- when it does close, will you provide any additional comments with regards to, I don't know, sort of like near-term accretion dilution, like in the press release, or will we sort of wait until the next earnings call?

Yes. So when we do close -- by the way, we do expect to close this calendar quarter. When we do that, we're going to provide with -- we'll provide you with additional details at that time.

Okay. Okay, that would be helpful if you did that. And then how's the 3D printing business ramping now that you have a little bit of time under your belt distributing those products? And then, I guess, any detail around your go-to-market and what you guys are doing would be useful as well.

Yes. So still, Ananda, early days in the relationship itself, but there's a number of different markets that we are focusing on. One, in particular, of course, is the professional printing market, where we've had a legacy presence with wide-format printers. So that is a market that is certainly excited about 3D printing. And then, obviously, when we look at end markets collectively, engineering, manufacturing, prototyping capability going into those markets, obviously, is a key growth factor. But right now, it's still a bit early days.

And then on the -- I guess, with regards to HP, they've had -- their revenue has been a little bit stronger. It's a little bit firmer than expected from an HP view the last couple of quarters. Are you -- how does that -- I mean, I'm supposing that there's been kind of like a positive impact on your business from that, as well, given they're your largest partner. But I just wanted to ask if you've actually noticeably seen anything, seen a noticeable benefit from the firmness in their -- I guess, in their revenue streams through the July quarter, October quarter.

Ananda, as you know, HP is our largest vendor partner and we always do well in the relationship with HP. And, in particular, when HP does well, we enjoy the benefit of that, too.

Got it. And can you just -- just last one for me. Just on the incentive front, given all the, I'll just call it agita, over the last 4, 6 quarters that's taking place, broadly through the channel, it's kind of more of a channel comment, what's -- I guess, what's the best way for us to think about what vendors have done to sort of reset incentives with you guys? And when would you -- when do you feel that -- what's the best way for us to think about when that process actually culminated? Was it this quarter or was it sometime prior this quarter, kind of as we went through the summer and this was, like, maybe the first full quarter? I just want to make sure we have time to complete.

Yes, I guess, the best way to characterize, there hasn't really been, I would say, a significant net change overall to the objective or makeup of the programs themselves. It was really more around adjustment of those programs to the market reality. So when we did see a more rapid decline in the overall market demand -- and this goes back, I guess, just over a year ago -- that's when there was a misalignment between the two. It really didn't take that long for that alignment to start to return back to normal. And if I -- I'd have to go back and refer to my comments back in Q1, Q2 and Q3, but that did happen. But bottom line is the objective of these programs is to reward partners for growth. And as we have grown faster than market, as we expect to continue to do that, that's where we see benefit. But, again, getting back to one of the higher-level statements that I made in my prepared remarks, we do view the overall environment to be kind of a normal distribution environment today.

Our next question comes from Matt Sheerin with Stifel. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Just back to the gross margin issue, Kevin, if I can. You're talking about a more stable environment and more stable margins, but the gross margin was at the lowest level in several quarters. Of course, SG&A, as a percentage, was at the lowest level, too, so good leverage there. But I'm just trying to get a feel for how much of that was mix-related because it sounds like, as you said in the previous question, we're seeing a return to more normal rebates, resetting some of those bars. So what are the puts and takes that get you -- that put you where you are now and get you back over the 6% range? Was it really just a mix issue at this point?

There's a number of different factors in this. Matt, I wish I had a very succinct answer where I could add up all of the different dots to get you a sum that makes sense, but there's going to be puts and takes quarter-to-quarter just through normal operations of business. There's mix, both in terms of the markets we sell into, the products we sell and some of that driven by seasonality, too, okay? But all that being said, kind of where we -- what we see today and moving forward is it's a normalized margin environment today. So there have been different puts and takes in Q4. But moving forward, I think our opportunity -- or I know our opportunity in order to increase gross margin and, overall, our operating margins, is we need to perform with our vendors. And as long as we're performing and growing their business, we'll be rewarded for doing that. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay, fair enough. And then a couple of other questions. On that Hyve Solutions business, which I understand is growing very rapidly for you, could you give us an idea of how big that is? And as that gets bigger, are you in a position of competing with some of your hardware vendors? And does that create conflicts or are you working with some of them?

Yes. So, Matt, we're not prepared at this point to disclose the size of the business. I think what I've said in the past, though, is that it's a good-sized business for us. Obviously, for competitive reasons, we don't want to give too much detail around it, but it is a growth area for us. It's a different business than what our OEM partners are selling into. This is more in the white box server, customized solution area. And in a lot of cases, it's really more about the services that we provide than the actual hardware that goes in. And so it's just a very, very different world. It's really not competitive with our vendor partners. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then I saw the other day, you made an announcement out of CES regarding adding Chromebook to your New Age retail distribution business. That sounds like a pretty significant move. And does that create -- as you see opportunities on the consumer side, what does that do in terms of your relationships with traditional PC vendors? I would think that might incentivize them to pay attention more to the channel and work with you more. Perhaps, that might help your margins. And then looking at the corporate side, do you see any opportunities to take those products to the corporate channel?

So to start off with -- it's our same Tier 1 vendors that are manufacturers of Chromebooks, okay? So it's not -- it's actually very complementary, not competitive, to the offerings that they have. The announcements that we made -- and by the way, thanks for noticing -- one was on Chromecast itself, which is not the Chromebook. The other one was on the Google Management Console. So in conjunction with the Chromebook devices, we see opportunities to take those devices into some key specific markets. One, in particular, of course, is K-12 education. So I think right now, it's a little bit unknown what the commercial opportunity may be in a Chromebook-type platform. Right now, we are still continuing to sell a lot of traditional notebooks into the commercial space just because it's very different. It's more the traditional platform with processing and a lot of that done locally. Chromebook, as you know, is very much dependent to be online and connected to the Internet. But where we see those opportunities are in those applications, though, where control of information and content is really an important factor in what happens and that's why education is one of those markets we're pursuing.

Our next question will come from Brian Alexander with Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Kevin, just to revisit the margins again. On the distribution side, I think this is the fifth out of the last 6 quarters where the operating margins are down year-over-year, despite the fact that your revenue growth has actually been accelerating. And your February guidance suggests that your distribution operating margins will be down again, maybe 10 basis points or so. So can you clarify what you mean by normalized operating margin environment? And how soon do you think you can start to see the distribution operating margins expand again?

Yes. So going back, I guess, to about a year ago, beginning of the year, Brian, we had talked about some tailwinds that we had in our business that were not permanent tailwinds but certainly would last through a number of quarters through 2013. We've become a lot more efficient in our business as time has gone on. And as a result of that, historically, we've been able to get the benefit of some lower reserves over time. That being said, moving forward, though, we still believe there's ample opportunity to improve not only our gross margins but, more importantly, our operating margins, which really is a key focus that we have. So with that said, I do believe that what we're looking at today in the overall market environment is a much more normal situation than we would have seen, say, a year ago. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: So do you think if the demand environment remains stable, that you can start to expand operating margins in the distribution business as early as the second quarter? Because it looks like Q1 is still going to be down. I'm just trying to get a sense for whether this is something you think you can achieve in 2014 or is it more longer-term.

Yes. Brian, it's -- we don't project beyond the current quarter, except to say that the strategy that we have in terms of continuing to manage our mix towards higher margin products and having the right kind of products that have more service level component to it and then growing specifically with our vendors is really the key formula in how we're going to improve our margins over time. And that's really what we've been able to do over the past few years. So if you take a look at the longer trend lines, that's where we see and why we're confident we'll be able to expand our margins in the long term. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: Okay. Just last one for me. If you could comment on the organic growth that you saw for distribution in constant currency. I'm coming up with maybe about 10% if I back out Supercom. So that's clearly well above market. You talked about growing 30% in Japan. So can you talk maybe a little bit more about the growth you saw in the U.S. and in Canada organically? And also, more color on the consumer versus the commercial environment within the U.S.

Sure. So Japan, as you said, was close to 30%. U.S. was high single digits. And organically, in Canada, we were right about market, which is relatively flattish to last year.

Our next question will come from Jim Suva with Citi.

I have 2 questions. They're on different topics, but I'll just give them both right now. The first is on other versus on PCs. The second is on traditional printing. So first, on PCs, can you talk a little bit about what you believe is the impact, if any, from the XP -- Windows XP expiration? And are you seeing companies upgrade because of that or simply employments getting better? And are they also buying the additional peripherals such as keyboards, monitors and things like that, or just replacing the boxes? And then second thing is, on printers, the traditional ones, not 3D, but traditional, can you give any commentary on inkjet and laser printer, kind of what you're seeing there as far as declines, stability? Are the declines accelerating, decelerating? Those kind of have been -- many people are thinking that printers are going to be dead and it looks like they're declining a little bit less than expected.

Sure. So to start off with PCs, I have actually a different answer, depending by country. In Japan, I think we have been enjoying -- most recently, we have been enjoying the growth in PC, in particular, notebook, in anticipation of support for XP going away early this year. And I do expect that probably to continue early into the year, in particular, with the -- I guess, with the added benefit of trying to get those purchases done before the consumption tax goes up. In North America, I think the story is a little bit different. There, I think that we've been seeing the normal replacement cycle of PCs, the refresh cycle, include the upgrade from XP. So although there may still be some air left in the balloon to drive a little bit more refresh before XP support goes away or even slightly beyond that, I think, for the most part, in North America, that's already been happening. On the printer side, on the traditional printer side, I can't speak specifically right now to any differences between laser and inkjet. However, the overall printing category for traditional printers has been a little bit soft, I think, as everybody knows. However, HP, in particular, has made a specific move to try to introduce their line of Officejet Pro x line to introduce more inkjet printing into the traditional laser environment. And I think they've been having some success there as well. But overall, in the printing area, where we see the growth opportunity there ourselves is moving that more to a managed print-type environment. And that particular segment of printing in the commercial sector is actually a growth market.

Our next question comes from Lou Miscioscia with CLSA.

I guess, a couple of questions, maybe a couple of clarifications. So when you look at your different categories, peripherals, IT systems, components, I know you already commented on networking, but any of the other ones that were, I guess, above or below the one that helped the stronger growth rate and, obviously, the one that detracted a bit?

Again, differences by geography. And sometimes I only just pick and choose beyond the higher-level categories and what we choose to highlight. But Japan was a very different characteristic over what we saw in North America. It was strength across the board. Tablets, very, very strong in Japan, but also, our PC business was strong as well. When we look at the North American business, PCs, certainly not as strong as what we would have seen in Japan, but tablets and other entertainment consumer electronics devices were very, very strong. And I think consistent with what we've seen pretty much over the past number of quarters, networking, security and those other categories in our technical solutions group continue to be relatively strong, including storage. The only notable, I think, that was either -- that was just kind of so-so, not necessarily a negative, was software was a little bit lower than what our average was.

Okay. You might have mentioned this earlier in the call, but obviously, there have been issues with the federal government. But now it seems like the budgets have been resolved. Some of the other November quarter companies actually had decent business coming in, in federal. Could you just re-comment on what you saw in federal and what you expect, I guess, going forward?

Yes. Federal, as I said, was as expected. I think it's pretty well-known, some of the challenges or some of the issues that federal spend was dealing with. For us, overall, I think we managed very, very well through that. Net-net, the federal spending side was a little bit off from last year. We expect it to be a little bit softer than what we had seen in the past moving forward, although it is a very large segment. And there are certainly key areas within federal that are right for growth as well. And I do believe it is creating some level of pent-up demand, too. So at what point that gets released or is allowed to be released, I think, remains to be seen.

Okay, great. And then last question, just on closing the IBM deal. I guess, initially, we thought maybe it was going to get done by year end. Was it regulatory things that are holding back or maybe a couple of things you could possibly point to? And obviously, best of luck with it when it closes.

Yes. So just a number of moving parts, obviously. One, of course, is regulatory approvals that need to be had. We worked those. We don't have them all yet and that, certainly, is one of the gating factors in our ability to close.

Our next question comes from Osten Bernardez with Cross Research.

Just a couple of questions. I guess, first, could you clarify for me what your comments were earlier pertaining to the mix that impacted your business? Was it related to particular product sets or customer base? And how does that relate to your comments on this being -- the market now being in the normalized setting for distribution?

So, Osten, just to be clear. First of all, when we refer to business mix, it's really all of the above, right? And in particular, in a quarter like our Q4 where holiday business is a big part of it, it does really change the mix and where we sell into and what kind of products we sell. At the end of the day, our Q4 was a great Q4. We grew a lot. Our overall profitability was very, very good. So I don't want to give the indication that mix drove a margin issue. Overall, I think our margins were good and, in particular, our operating margins were good. The comments really were just around when we try to explain just changes, in particular, on a year-on-year or quarter-to-quarter basis, what are the things that drive that. In the case of Q4, mix was one of those key drivers.

Okay. And then, I guess, secondly, a question more on the future as it pertains to the Concentrix business. Earlier this week, one of your competitors made an acquisition in that space and I was just wondering whether you, of course, would be willing to comment on what you think of this acquisition with respect to the competitive strength of CONVERGES versus the IBM BPO business, plus Concentrix, going forward. And, I guess, how should we -- remind me, I guess, how should we be thinking about future acquisitions for your Concentrix business after integrating the IBM asset?

So, Osten, it's Chris. Why don't I take that. So first thing is, you look at the business a little differently. The reason we were so attracted to the IBM business is the amount of technology involved, the rich analytics practice they have, the diversification of their verticals and their type of client base of all sort of well-branded name brands that, frankly, would have taken us an exceedingly long time to build organically. And so by making that acquisition, we really see us building a bigger platform for faster growth and better profitability and more diversity within our revenue flow. And certainly, it puts us in a league of our own versus some of the competitors who might be looking for bulk and just pure call center business. So we look at it from that perspective. And I think as we've said historically on M&A activity is that we'll continue to be opportunistic and look in the marketplace and find opportunities that will add value and increase our shareholder value as we go forward in both sides of the business. And we'll continue to pursue that philosophy.

And our next question comes from Rich Kugele with Needham & Company. Richard Kugele - Needham & Company, LLC, Research Division: Just a couple of questions. One, additional question on the GBS side, just a clarification. The deal that you thought didn't materialize, did they just get pushed out or is this similar to some recent quarters where you thought that some things were going to hit? And then I've got a couple of follow-ups for Marshall.

Okay. So, Rich, actually, just for clarification, what happened was, clearly, we work with our clients very closely on looking at what their volume is. And their volume transactions to us is driven by their sales and their marketing engagements. And frankly, we were in lockstep. And September was great, October was fantastic. In November, some of our clients had forecasted more robust growth in actually what they were able to deliver to us, which impacts us in some of the models where we are paid on a transactional pricing, where we have staff and don't have the work product for them. And that's really what we were commenting to. And then subsequently, from there, we make corrective action to get things in line to what the forecasted volume is. Richard Kugele - Needham & Company, LLC, Research Division: Okay. Is there a way of looking at your sales force or your headcount on that side for how much is kind of flex capacity in those situations, how much leeway you have to try and scale down if you have enough head start on a softer quarter?

So we're able to do that relatively quickly. Ramping up is actually a little harder just to do the training and skill set that you build in. So we made a comment about that in the last quarter by adding about a thousand people through the course of the quarter and getting them ramped up and turning them into revenue-producing staff. So a good chunk of those did, obviously, turn into revenue-producing staff and then some we have that are -- were not used up due to the volume that was coming in from clients. That being said, with our business that we have already signed this quarter, we're using those staff. And then the ones that we're not, we do continue to see actions by lowering our bottom performers out of the business. But this is something we do day-in and day-out and are very adept at managing. Richard Kugele - Needham & Company, LLC, Research Division: Okay. And then on the guidance, Marshall, the EPS guidance, in particular, does that incorporate the onetime charges associated with just even getting the IBM deal done? For example, should we assume that, perhaps, there could be another $0.10 of onetime items impacting that number, or is that a clean non-GAAP number?

Rich, that's excluding any onetime costs. Richard Kugele - Needham & Company, LLC, Research Division: Okay. And then lastly, Marshall, as you look at 2014, and you weigh debt paydown versus investing in the business versus additional acquisitions, can you just give us a sense on your choice with cash flow from operations and even your flexibility on the debt side? What are your priorities in 2014 from a cash flow perspective?

Yes. So, Rich, in my prepared remarks, we've gotten nearly $1 billion of liquidity available to us for the growth of our businesses, both in Concentrix, GBS and in Disti. So we've got a lot of flexibility to do a lot of things. And certainly, a piece of that is to bring on, successfully, the IBM acquisition.

[Operator Instructions] I'm showing no further questions.

Okay. Thank you, Gabrielle. And thank you, everyone, for your participation in our call. We look forward to speaking with you further during the quarter. This concludes our call. Thank you.

And with that, we'll conclude the conference. Thank you for your participation. You may disconnect at this time.