TD SYNNEX Corporation (SNX) Q4 2015 Earnings Report, Transcript and Summary

Good afternoon. My name is Laura, and I will be your conference operator today for the SYNNEX 2015 Fourth Quarter and Full Year Earnings Conference Call. All lines have been placed on listen-only mode to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. Thank you. At this time, I would like to pass the call over to Ms. Phyllis Proffer, Director of Investor Relations at SYNNEX Corporation. Ma'am, you may begin.

Thank you, Laura. Good afternoon, and welcome to the SYNNEX Corporation earnings conference call for the fiscal 2015 fourth quarter and fiscal year end, ended November 30, 2015. 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, Executive Vice President and President of Concentrix Corporation. Please note that some of the information you will hear today consists of forward-looking statements within the meaning of the Federal Securities Laws. Such statements may relate to, without limitation, demand, growth, IT market, profitability, revenue, non-GAAP net income and EPS margin, tax costs, shares, currency impact, tax rates, business plans, and opportunities, customers, contracts and dividends. Actual results or trends could differ materially from our expectations. For more information, please refer to the risk factors discussed on our Form 10-K for fiscal 2014 and the discussion of forward-looking statements in our earnings release and Form 8-K filed with the SEC today. SYNNEX assumes no obligation to update any forward-looking statements, which speak as of their respective dates. Also during this call, we will reference certain non-GAAP financial information. Reconciliation of non-GAAP and GAAP reporting is included in today's earnings release and the related Form 8-K available on our web site at www.synnex.com. This conference call is the property of SYNNEX Corporation and may not be recorded or rebroadcast without our specific written permission. Now I would like to turn the call over to Marshall.

Thank you, Phyllis. First, I will review the result of operations and key financial metrics, then conclude with guidance for the first quarter of fiscal 2016 before turning the call over to Kevin. Technology Solutions and Concentrix business segments delivered exceptional results in Q4. Revenue came in towards the high end of our outlook, and our non-GAAP net income and diluted non-GAAP EPS came in above the high end of the outlook provided on our Q3 call. On a consolidated basis, total revenue was $3.55 billion, down 7.2% compared with $3.82 billion in the same quarter of the prior year. Adjusting for FX of $109 million, revenue in constant currency decreased 4.3% year-over-year, which was primarily due to the loss of Beats, which was approximately $214 million. For the full fiscal year, SYNNEX revenue was $13.3 billion, a decrease of 3.6% from the prior year. Adjusting for FX of $439 million, revenue in constant currency was flat compared to the prior year. Before turning to our sales by segment, I wanted to highlight that for fiscal 2015, total services revenues was greater than 10%. We now have broken out product and services revenue in the consolidated income statement. Services revenue represents Concentrix and product revenue represents Technology Solutions. Gross margins move around quarter-to-quarter, based on customer mix and seasonality, so our focus and our remarks will continue to be on revenue and adjusted operating margins. Technology Solutions segment revenues were $3.18 billion, representing a decrease of 8.8% compared to the prior year. Technology Solution revenues were negatively impacted by the loss of Beats and FX of $89 million. On a constant currency basis, Technology Solutions segment revenues decreased approximately 6.2% year-over-year. Concentrix segment revenues were $374 million, up from $342 million in the year ago quarter. Adjusting for the negative impact of FX of $21 million, revenue in constant currency grew 15.3%. Consistent with our expectations, we improved our lossmaking contract, which Chris will speak to shortly. Now turning to gross profit, our gross profit on Q4 revenues was $313 million or 8.8% of revenues, compared with $314 million or 8.2% of revenues in Q4 of 2014. The increase in gross profit dollars was due to higher sales in our Concentrix business segment, partially offset by a loss of Beats and unfavorable FX impact. For the full year, gross profit dollars improved 8.4% to $1.19 billion and gross margin was 8.9% compared to 7.9% in the prior fiscal year. Q4 total selling, general, and administrative expenses, excluding one-time acquisition and other integration expenses and amortization costs, increased as a percentage of revenue to 5.44% or $193 million, compared to 4.95% of revenue or $189 million in the fourth quarter of fiscal 2014. The increase in operating expenses was due to growth in our Concentrix revenue. For the full year, our selling, general, and administrative expenses excluding one-time acquisition and other integration expense and amortization costs, increased at $773 million or 5.8% of revenue in fiscal 2015 compared to the $693 million or 5.01% of revenue in fiscal 2014. This increase was primarily due to full year operating costs from the IBM CRM acquisition and organic growth, partially offset by favorable FX impact. Q4 non-GAAP operating income was $120 million or 3.38% of revenues compared to $124.9 million or 3.27% of revenue in the prior year fourth quarter. At the segment level, Q4 Technology Solutions non-GAAP operating income was $81.1 million or 2.55% of revenue, down 15.2% from the prior year quarter results from $95.6 million or 2.74% of revenue, primarily due to lower sales into U.S. and Japan, offset partially by lower selling, general, and administrative expenses. For Concentrix, non-GAAP operating income in the quarter was $38.8 million or 10.38% of revenue, up from the prior year quarter results of $29.1 million or 8.52% of revenue, primarily due to higher sales and the resolution of our loss making contracts. For the full fiscal year, non-GAAP operating income grew 3.1% to $419 million or 3.14% of revenues in 2015 compared to $407 million or 2.94% of revenues in 2014. Net total interest expense and finance charges for Q4 were $7.2 million, up from $6.9 million from the current year quarter. For the full year, our interest expense was $26.3 million compared to $25.2 million in the prior year. The tax rate for the fourth quarter of fiscal 2015 was 36.7% compared to 37.6% in the prior year period, and for the fiscal year it was 36.2% compared to 36.6% in 2014. Our fourth quarter non-GAAP net income attributable to SYNNEX Corporation was $71.6 million or $1.80 per diluted share. The full year 2015 non-GAAP net income attributable to SYNNEX Corporation was $249.9 million or $6.28 per diluted share. Turning to the balance sheet, our cash receivables totaled $1.8 billion on November 30, 2015 for a DSO of 45 days, down five days in the prior year quarter. Inventories totaled $1.3 billion or 37 days at the end of the fourth quarter, up one day from the fourth quarter of 2014. Days sales outstanding was 41 days, consistent with the prior year fourth quarter. Hence our overall cash conversion cycle for Q4 of 2015 was 41 days representing an improvement of four days from Q4 of 2014. Our financial operations team did an outstanding job efficiently managing working capital. From a financing perspective, our debt-to-cap ratio this quarter was 29%. Preliminary cash flows generated from operations were approximately $102 million for the fourth quarter and approximately $659 million year-to-date. We renewed and extended our Japan term loan and revolving credit facility for three years, reducing margins on our TIBOR based interest rate from 1.4% to 0.7%. At the end of Q4, between our cash and credit facilities, SYNNEX had over $1.7 billion available to fund growth. Other financial data and metrics of note for the fourth quarter are as follows, depreciation expense was $13 million; amortization expense was $13 million. HP at approximately 24% of sales was the only vendor accounting for more than 10% of sales. This represents the combined HP businesses up through October 2015, and HP Inc. for the month of November 2015. For quarter four on a pro forma basis, HP Enterprise was approximately 8% of sales and HP Inc. was approximately 18% of sales. Capital expenditures for the quarter was approximately $29 million, primarily due to continued Concentrix facility expansion. Trailing four quarter ROIC was 9.2%, and excluding the impact of one time acquisition and other integration expenses and amortization, trailing four quarter's ROIC was 10.4%. As described in our earnings release, the Board of Directors approved a regular quarterly cash dividend of $0.20 per common share to be paid on January 29, 2016, to stockholders of record as of the close of business on January 15, 2016. Now moving to our first quarter 2016 expectations, we expect revenue to be in the range of $3.23 billion to $3.33 billion. For non-GAAP net income, the forecast is expected to be in the range of $53.6 million to $55.6 million. Non-GAAP diluted EPS is anticipated to be in the range of $1.34 to $1.39. Non-GAAP net income and non-GAAP diluted EPS guidance, excluding after-tax costs of approximately $7.7 million or $0.19 per share related to amortization of intangibles. Weighted average shares estimated for diluted EPS are 39.6 million. These expectations include an anticipated negative currency impact of approximately $55 million on revenue. Please note that these statements of Q1 expectations are forward-looking and actual results may differ materially. I will now turn the call over to Kevin.

Thank you, Marshall, and good afternoon to everyone on the call. I will begin my comments on our fourth quarter and discuss our full year 2015 results, before turning the call over to Chris. I will then discuss our views on the 2016 fiscal year. Overall, I am very pleased with our fourth quarter results. Our revenue at $3.55 billion was in line with our expectations and was stronger than the market in most segments. Our Concentrix business was a star performer, growing 9% over the same quarter last year, driven by increased seasonal demand, and also benefiting from new business wins over the past few quarters. Concentrix delivered record adjusted EBITDA of $49 million, and achieved non-GAAP operating margin of over 10%. Technology Solutions revenue was about flat to the same quarter last year, when factoring for currency exchange and Beats headwinds. The U.S. distribution business grew low single digits when factoring for Beats, and Canada grew almost double digits on local currency. Japan revenue declined by over 10% in local currency, with market demand improving in the commercial segment, but remaining soft in the consumer segment. Our profit was solid at approximately 3.4% non-GAAP operating margin and $1.80 non-GAAP diluted EPS, which demonstrates the quality of our business and our focus on higher margin product and service categories. Overall, a very strong performance. And we have a lot to celebrate with our full year 2015 performance; Concentrix had an outstanding year. Record revenue of $1.4 billion, which is 37% growth in constant currency. Record contract signings of about $1.7 billion, and record adjusted EBITDA of $150 million. In addition, we signed over 43 new logos during the year. And Technology Solutions had many successes as well. We continue to add vendors to our line card, including extending our relationship with Dell in Canada. We grew our Hyve business and engaged more clients and we continue to grow our operating margin. At the company, we received many accolades from our vendor and customer partners, as well as from third party recognition for Concentrix from HFS Research and Gartner. So despite the initial headwinds we faced at the beginning of the year, with the loss of the Beats contract, a problematic contract in Concentrix and unfavorable currency exchange, we delivered a solid year, generating over $650 million in operating cash flow and making progress towards our three year revenue and margin goals. So now, I will turn the call over to Chris for more color on the Concentrix business. Chris?

Thanks Kevin. This was a record quarter for Concentrix that capped a very successful year. Once again, our team has executed well, as we posted strong revenue and profit, while managing certain number of seasonal dynamics. Our revenue for the quarter was $374 million, which is up 9.3% on a year-over-year basis, while absorbing FX headwinds. In constant currency, we grew 15.3% and continued our trend of above market growth rates. We continue to show excellent traction on adding new clients to our portfolio, both in our more mature markets, as well as in some of our emerging markets. As a matter of fact, we added 11 new clients this quarter alone, and its not just about adding new clients, but the continued expansion of our relationships, and the trust our clients have in us, as we see strong organic growth and an excellent rate of renewing existing contracts. As an example of our continued focus to deliver high value offerings, one of the new clients we signed this quarter, was a major multinational consumer goods company, who hired us to provide digital content production and consulting services for their digital engagement globally. This will be delivered in the coming quarters at our four different centers around the world 24 by 7, 365 days a year. Another example, is that we have been selected to help a major Middle East telecom company launch a new set of services in the marketplace that will enrich their client's experience through a true 360 degree customer platform that we helped design and helped create. Both of these examples demonstrate the momentum we had in delivering high value offerings to our clients. In Q4, we were also very pleased, and placed well in the horses-for-sources analyst winning circle ranking for our healthcare offering, and won a Government Industry Gold Award for outstanding achievement in corporate social responsibility. I also want to take a moment to update you on the contract we have talked about in previous quarters that has weighed on our earnings. I am happy to report that we came to an agreement with our client on the new economics around the program, and while a smaller contract than originally expected, it will be profitable for us on a full year basis going forward. The contract now has an end in early 2017, if both parties aren't satisfied with the results. We did make a profit in Q4 on this contract ahead of our original plan. Now, going forward, this contract won't make money each quarter. In fact, it is expected to deliver a loss of approximately $5 million in the first quarter, but on a full year basis, we expect it to be positive. As we look forward to the first quarter, we expect a seasonal step-down from Q4, as Q1 tends to be our softest quarter, as we had mentioned in the past calls. We also expect a step-up in our depreciation expense this quarter, which will be more pronounced in its impact to our operating income, as we have made significant investments to our infrastructure, to house over 30,000 new staff members we have added to our business over the last year. The depreciation will be up 47% or $4 million on a year-on-year basis for the first quarter. I would like to thank the entire team around the world for another terrific quarter and a fantastic 2015. I'd also like to thank our clients for their confidence in Concentrix. Kevin, I will turn the call back to you.

Thank you, Chris. So now, looking forward into 2016, I am optimistic about our ability to drive shareholder value. Across our businesses, our markets continue to change and evolve. We believe we have been able to sustain our leadership position in the markets in which we compete, through our ability to anticipate these changes, identify new pools of value and invest in growth areas. In our Concentrix business, after coming off of a very successful year of growth, I expect that momentum to continue, with an enhanced focus on growing our business in key high growth, high value verticals, such as healthcare, insurance, banking and financial services, and technology. In addition, we continue to refine our back office processes, and as we are able to streamline and improve in these areas, we expect to achieve more efficiency. In our Technology Solutions business, I feel confident about the investments we have made in pursuing growth categories related to cloud, mobility and big data. We continue to onboard new products, that have differentiated offerings in this space. We have created and as a service business platform that we are transacting business on today and our high solutions business is a key differentiator. And legacy IP will continue to be a very large market. With our strong customer focus and execution excellence, we expect to be in a good position to increase our share in these markets. As we outlined in our Analyst Day back in July, we have established three year goals around revenue, growth and operating margin expansion. We have discreet plans against these goals, and we believe we are on track to achieve them. Our customer centric approach has guided our investments in technology and solutions within the past five years, and we have achieved many advances which will serve us well going forward. Organic revenue growth, faster, than the overall IT market. Solid growth in operating margin. Concentrix becoming a growing part of our margin and cash flow profile. Net income growing faster than revenue growth; and ROIC consistently higher than our weighted average cost of capital. So now, turning to our guidance for the first quarter of 2016, we expect to maintain our sales momentum in both our business segments and to maintain our strong profitability in Technology Solutions. In Concentrix, as Chris noted, we expect some profit headwinds, but still expect to deliver solid EBITDA consistent with our year ago quarter. I am encouraged by our sales momentum in our Concentrix business, and our ability to grow this business faster than the market, through 2016. In Technology Solutions, we expect the U.S. market to be stable, with opportunity driven by recent Federal budget approvals and anticipated improved availability for products using the Intel Skylink technology. This quarter, our tough year-on-year compares with Beats lapses with about $67 million on Beats revenue from Q1 of 2015. In Canada, we expect the market to continue to improve and in Japan, we also expect some improvement, although still somewhat soft. We are anticipating foreign exchange headwinds, although we expect this will subside later in the year. Our guidance reflects above market performance across both our business segments. I am proud of the results SYNNEX achieved in 2015. We have a culture of setting high goals for ourselves, and although we did not reach all of them, we delivered shareholder value and grew in our focused market. More importantly, we made good progress on continuing to evolve our company and prepare for the future. This could not have been accomplished without the hardwork, dedication and innovation of our leadership and our associates. So I want to thank all of our associates around the world for their individual and collective accomplishments. I also want to thank our business partners and shareholders for their continued support. And with that, operator, let's turn the call over for questions.

[Operator Instructions]. Our first question comes from Mr. Brian Alexander from Raymond James. Sir, your line is now open.

Thank you. This is Adam in for Brian today. Just wanted to ask on TS in the fourth quarter, the margin weakness that we saw there with below seasonal margin expansion sequentially. How much of this is from mix, competition, vendor incentives, and is there anything permanent that has changed from your confidence in TS margin of 2.5% to 2.9% per year?

Thanks Adam. Really, it’s a business mix equation. There really was nothing different around market competition. I'd say it has been relatively stable. But it’s really business mix driven. Also remember that, I made remarks regarding Japan and some of the shortfall that they had to our expectations in sales, and of course as we are not able to drive the kind of top line in Japan that we expect, we do have a bit of an impact on bottom line for that business as well. But overall, its really more of the same, but frankly going forward, we do expect some of the softer markets to continue to recover, and we do expect that margin does return back to where we have seen it.

Okay. And just one quick follow-up; if I look at the overall guide, I think it implies an operating margin of about 2.9% or so, which is down year-over-year, but revenue is up and the mix of Concentrix is better, understand you got the $5 million headwind that you mentioned there. But just trying to understand that implied margin guide to make sure that I am on track there, and if I add back that $5 million, I think I am getting to Concentrix's margins at about 9%. Is that a level that we are going to expect to continue going forward, any pace that you can give us on impact of lumpiness throughout the year?

So in addition to the $5 million that we called out, we also called out increased depreciation. If you are looking at a year-on-year basis for Q1, there is increased depreciation through the investments that we have made in infrastructure in Concentrix, and that's around $4 million year-on-year difference. But overall, I will tell you, the Concentrix business continues to be very strong. And in particular, with the strong sales that we have had through last year, I really view some of the costs that we have in Concentrix really as a short term -- really a short term impact. But the long term view, including the full year view in 2016 is very positive. And yes, we are confident, we are still on track to reach all of our margin and revenue targets over three years.

Okay. Thank you.

Thanks Adam.

Thank you. Our next question comes from Mr. Jim Suva. Sir, your line is now open.

Thank you and congratulations. On the Concentrix, I think I heard correctly. You said that you renegotiated that challenging contract. It may be profitable on an annual basis. But in the March quarter, it will not be profitable. Can you help me understand that, is that because they are asking you to do something different or is it more seasonality volume driven, or investments you have to put into place, just help me understand the dynamics around why you'd not be profitable each quarter?

Hey Jim, that's a great question. It’s really driven by seasonality, and we knew that there was always some seasonality within this contract, even when we first signed up with it, and the seasonality is driven by the volumes that the cycle of the decline goes through. Its not a retail type cycle, but it has similar kind of attributes in some ways. So we actually, based on a few quarters, and then get some fairly large payoffs in some quarters later in the year. And as we point out, we made money this quarter under the new economic arrangement, so we are confident that we will be able to do it again, and therefore know that it'd be -- expect it to be profitable on a yearly basis.

Okay. Then my follow-up is also on Concentrix; as that business is growing, is it more kind of growing with the same skillset and same attributes as your core business or is it kind of also reaching out to other service offerings kind of like with this challenging contract that had to be renegotiated? I am just trying to understand the risk profile of all these new wins as you grow going forward?

So Jim, it’s a bit of a combination. We have a number of wins, and probably the majority of wins that are within our domain expertise, that our business that we do and execute exceptionally well on, and you’ve seen that business ramp over the last sort of year, year and a half, effectively flawlessly within our business. And then, a part of our portfolio is also adding on new services that are enhancements to our portfolio of business that we’ve actually already replicated through the course of the year with other clients. And so, two, that we point out this quarter, one where we are putting a platform for a telecom player, effectively with enhancement of technology and enhancement of skillset that we already have that took us in a new direction to a higher value offering, and that's what we are doing across our portfolio of clients to really drive margin enhancements, stickier longer-term deals with our clients.

Okay. Then my last question, is that's regarding the outlook for both businesses. Are there any one-off contract renewals or supplier distribution relationships by the next 12 to 24 months that either are at risk of rolling over or going away, or going away from SYNNEX in totality? And again, both on the products as well as the services side, I know you had some contracts in the past, that rolled over at Beats. Just looking forward, anything we should be aware of or have on our radar screen for modeling purposes?

So Jim, on the distribution side, on the tech side of the business, that business model, I think you are well aware of, which is -- we do have contracts, but they are evergreen type contracts and that's primarily on the vendor side. So there is no change there, and there is no milestone coming up there. On the Concentrix side, where we do have pretty much all of the business under a longer term contract to the most of it anyway. In the past, I know Chris has talked about one particular contract that was sunsetting towards the end of 2015, which absolutely is happening. We didn't talk about that in our prepared remarks, but we will get basically zero revenue from that in Q1, but I also consider any other contract lapses and renewal as part of the regular churn of business that we have, and we are certainly expected to manage through those churns and grow the business on top of that.

Great. And can you help us quantify or understand that amount of [indiscernible] in Q1 maybe what it was a year ago, or in Q4, just look at organic?

Yeah Jim, it impacted us about $22 million in this quarter, sorry in Q1, that we had in Q1 of 2015. And specifically the reason we called that contract out was, one, due to the size, which you have seen us sort of grow through for the course of the last year and a half. And two, it was a contract that we acquired from the IBM acquisition and new at that time, but it would not be extending. So there is nothing we could do with it, when at sunset.

Thank you and congratulations to you and your team and happy new year.

Great. Thank you, Jim, and happy new year to you too.

Thank you. Our next question comes from Mr. Osten Bernardez from Cross Research. Sir, your line is now open.

Hi, good afternoon. Thanks for taking my questions. I believe in the -- your opening comments, Kevin, you noted that the TS business saw some softness a little bit during the quarter in the U.S., and I wanted to know if you could just highlight for us, sort of what you saw and when -- what the linearity was for certain end markets or technology groups if you could? And I understand that, you are calling for a normalized spending environment going forward. So what did you see or what are you seeing now that gives you that confidence that things are on the up and up for the U.S., when it comes to IT?

Sure. Hi Osten. So I didn't make any comments on softness in the U.S. through Q4. What I did say though is that, we believe in most of the segments that we operate in across all of the distribution. We believe that we did do better than overall market demand. Called out softness in Japan for sure. Although its an improving environment, the consumer market still tends to be a little bit soft. But I wouldn't describe the U.S., through Q4, as well as what we are seeing right now is stable and still growing. I think there are a couple of bright spots to point towards in the near term and going forward, which is with the Federal budgets being approved, there is now certainty to continue to spend and demand in public sector. And then in addition to that, with a lot of -- really with a lot of height in the marketplace towards the end of last year on the new sixth generation Intel Skylight processing family. With those products now available and coming to market, we also expect to get opportunity on increased demand for a number of the mobile devices, in particular in PC mobile devices.

Got it. Then Kevin, could you just sort of highlight for us touching on -- basically just your strategy within the mobility space, there was a small announcement made during the quarter over -- a few weeks ago about you distributing mobile phones for the first time, and for -- I believe, Lenovo, Motorola. And I am not sure, how much of that is just a function of a one-off opportunity versus SYNNEX looking to perhaps do a little bit more in the handset space?

Yes. And so that's a great question Osten, and to be clear, our focus in mobility is really around two key areas. Number one, its around enterprise mobility and that's really the connectivity and the solutions that drive into mobility. The other part is around devices itself, but more non-smartphone devices, more around tablets and PC. So as more and more devices are being connected, its really that infrastructure beyond just Wi-Fi, but on 3G, 4G, LTE networks, and having the right line card to be able to -- have the connectivity and the network to be able to support those, as well as security solutions. For the handset business that we do do, its not intended to be any kind of headline that we are going to be selling a significant number of handset type devices. However, if there is a trend that starts to grow, in the U.S., Canada or Japan where we operate in, where unlocked handsets become more prevalent, we already have a number of relationships, many that are legacy relationships on the PC side of the business, where we can certainly take advantage of the opportunity to roll that side of the business too. But its not a priority for us to be a big player selling smartphone handset.

Got it. Thank you very much.

Thanks Osten.

Thank you. Our next question comes from Mr. David Rold from Needham and Company. Sir, your line is now open.

Hi, thank you. Just to clarify on the Concentrix contract, when you say profitable, does that mean neutral relative to the other contracts, or should we expect that to be a drag, relative to the rest of the business? On an annual basis?

It will be in line with our portfolio of business on an annualized basis.

Okay. And then, could you elaborate a little bit on Hyve, what you saw during the quarter? I know the year-over-year expectations were a little low, just given the strength last year, but did the quarter come in as you expected, and could you talk a little bit about your outlook for the hyperscale service provider demand next year and linearity?

Hi David, this is Dennis. Overall, Hyve had a very good quarter. Revenue was in line to slightly better than our expectations. As far as go forward, can't talk much outside of our current quarter, but I can say that, the forecast we have for the current quarter, look solid as well. And we are especially encouraged by the pipeline of new customers that are moving through the system right now, and we hope to turn those into solid revenue going forward.

Okay. And then lastly on Canada, was the improvement you are expecting there weighted more towards commercial, consumer or even between the two?

We saw improvement in both segments. I think probably the one thing that was a little bit different in our fourth quarter -- our commercial business and the commercial market overall in Canada throughout the year, had been stronger than the overall consumer segment. But we did see more strength -- I think both in the market as well as in our own performance in consumer in Q4; in addition to continued strength on the commercial side of the business.

And then, just in terms of the outlook though, or is that more weighted towards either the two? Or should we expect both [indiscernible]?

Our expectation is both will continue. We are more heavily weighted on the commercial side of our business in Canada, so that's really where more the focus is on.

Okay. That's great. Thank you.

Thank you.

Thank you. Our next question comes from Mr. Lou Miscioscia. Sir, your line is now open.

Okay, great. Could you expand a little bit on Dell and their desire to move things forward with yourself and the channel in general, and will any of that change, I guess with, possibly the E&T deal coming up to close?

Yeah so, as we have come just beyond our first anniversary in our relationship with Dell, I can tell you that, everything is going at or above the plans that we -- we are tracking very well the expectation. We continue to see a lot of growth opportunity there. So its not just earning our fair share of business with Dell that was already legacy in the channel, but Dell has been making proactive movements to shift a lot of their business that had gone direct into the channel. So we have seen movement there, in particular on the PC side of the business, with increased focus on the enterprise side as well. So both present probably bigger growth opportunities to SYNNEX than it would to some others that had legacy relationships. So we do view that as kind of all upside, incremental growth opportunity for us, with EMC, because we were not an EMC partner, prior to the Dell relationship, that has also increased our incremental upside that we see. And that really does help us round out some of our overall enterprise offering as well. So we are optimistic on our relationship and growing our business with Dell.

Okay. On the $4 million higher depreciation, if we annualized that and taxed it, looks like it might come out about $0.25. Is that something that you think you can overcome in a different area, or do you think that that could just play through in our models, in comparison to maybe what we were thinking before on the full year 2016?

Yeah, this is Marshall. No, its fixed out in Q1 just because of the way the [indiscernible] plays to revenue, but we are going to overcome it and offset it in fall 2016.

Okay. Thank you.

Thanks Louis.

Thank you. [Operator Instructions]. At this time, speakers, there are no further questions in queue.

Okay. Thank you very much Laura. And again, I want to thank all of you for joining our call today. Happy New Year to all of you, and we look forward to engaging with you in the coming weeks.