Mike Vaishnav - SVP, Corporate Finance & Treasurer Marshall Witt - CFO Kevin Murai - President & CEO Chris Caldwell - EVP, President, Concentrix Corporation Dennis Polk - COO

Matt Sheerin - Stifel Nicolaus Brian Alexander - Raymond James Osten Bernardez - Cross Research Ananda Baruah - Brean Capital Richard Kugele - Needham & Company Garrett Hinds - CLSA

Thank you, Laura. Good afternoon and welcome to the SYNNEX Corporation earnings conference call for the FY '16 second quarter ended May 31, 2016.

Joining us on today's call are Kevin Murai, President and CEO; Dennis Polk, COO; Marshall Witt, CFO; and Chris Caldwell, EVP 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 market, demand, growth, non-GAAP net income and EPS, margin, profit, revenue, costs, share, tax rate, seasonality, site operations and staffing and dividends. Actual results or trends could differ materially from our expectations.

For more information, please refer to the risk factors discussed our Form 10-K for FY '15 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 statement which speaks as of their respective dates.

Also during this call, we will reference certain non-GAAP financial information. The reconciliation of non-GAAP and GAAP reporting is included in today's earnings release and the related Form 8-K available on our website 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 over the call to Marshall for an update on our financial performance.

Marshall?

Thanks, Mike. First, I will review our results of operation and key financial metrics and then conclude with guidance for the third quarter of FY '16, before turning the call over to Kevin.

Our Q2 revenue, non-GAAP net income and non-GAAP EPS all exceeded our expectations. On a consolidated basis total revenue was $3.4 billion, up 3.9% compared to $3.3 billion in the same quarter of the prior year.

Adjusting for FX of $5 million, revenue in constant currency was 4% higher, compared to the prior year quarter. Our gross profit on Q2 revenues was $294 million or 8.7% of revenue, compared to $300.1 million or 9.2% of revenue in Q2 of 2015.

Technology solutions segment revenues were $3 billion, representing an increase of 4.5% compared to the prior year quarter. The TS revenue increase was mainly due to improvements in Hyve, SMB and public sector.

On a constant currency basis, Technology Solutions segment revenues increased approximately 4.6% year-over-year. Concentrix revenues were $335.9 million, down 1.7% from $341.8 million in the year ago quarter, mainly due to the lapsing of a government contract we have previously discussed.

Adjusting for the negative impact of FX of $4.3 million, revenue in constant currency decreased 0.5%. Q2 total selling and general and administrative expenses excluding one-time acquisition and other integration expenses, restructuring costs and amortization costs was $202.8 million or 6% of our revenue.

It is consistent compared to 6.01% of revenue or $195.4 million in the second quarter of FY '15. Consolidated non-GAAP operating income was $91.7 million or 2.71% of revenue, compared to $104.9 million or 3.22% of revenue in the prior year second quarter.

At the segment level Q2 technology solutions non-GAAP operating income was $76.5 million or 2.51% of revenue, down 5.45% from the prior year quarter results of $80.9 million or 2.77% of revenue, primarily due to one-time foreign exchange - currency exchange and pricing benefits associated with our system design and integration solutions business which was recognized in the second quarter of FY '15. For Concentrix, non-GAAP operating income in the quarter was $15.1 million or 4.5% of revenue, down from the prior year quarter result of $23.9 million or 6.98% of revenue, primarily due to the additional depreciation and facility costs necessary to support our growing network and the impact of the government contract previously discussed.

Q2 2016 results included an approximate $4.8 million loss associated with the fraud detection and prevention contract we have noted in recent quarters. This loss was within our expectations.

Net total interest expense and finance charges for Q2 were $6.5 million, up from $5.8 million from the prior year quarter. Net other income was $0.9 million in the second quarter of 2016, up from $1.6 million net other expense in the prior year quarter, primarily due to foreign currency exchange gains.

The tax rate for the second quarter of FY '16 was 36.4%, compared to 36.7% in the prior year period. For the remainder of FY '16, we anticipate the annual tax rate to be in the range of 35% to 36%.

Our second quarter non-GAAP net income attributable to SYNNEX Corporation was $54.8 million or $1.37 per diluted share. Turning to the balance sheet, our accounts receivable totaled $1.5 billion on May 31, 2016, for a DSO of 41 days, down 7 days from the prior year quarter.

Inventories totaled $1.4 billion or 41 days at the end of the second quarter, up 2 days from the second quarter of 2015. Days payable outstanding was 41 days, up 3 days from the prior year second quarter.

Hence our overall cash conversion cycle for Q2 of 2016 was 41 days, representing an improvement of 8 days from Q2 of 2015. From a financing perspective, our debt-to-capitalization ratio this quarter was 27%.

Preliminary cash flows generated from operations were approximately $142 million for the second quarter. At the end of Q2, between our cash and credit facilities, SYNNEX had over $1.9 billion available to fund growth.

Other financial data and metrics of note for the second quarter are as follows. Depreciation expense was $17 million.

Amortization expense was $12 million. HP Inc at approximately 17% of sales, was the only vendor accounting for more than 10% of sales.

Capital expenditures for the quarter were $32 million, primarily due to continued Concentrix facility expansion. Trailing four quarters ROIC was 9.4%.

Excluding the impact of one-time acquisition and other integration expenses, restructuring charges and amortization, the trailing four quarters 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 July 29, 2016 to stockholders of record, as of the close of business on July 15, 2016.

Now, moving to our 2016 third quarter expectations, we expect revenue to be in the range of $3.4 billion to $3.53 billion. For non-GAAP net income, the forecast is expected to be in the range of $60.6 million to $62.6 million.

Non-GAAP diluted EPS is anticipated to be in the range of $1.52 to $1.57. Non-GAAP net income and non-GAAP diluted EPS guidance excludes the tax costs, the after-tax costs of approximately $7.7 million or $0.19 per share related to the amortization of intangibles.

Weighted average shares estimated for diluted EPS are 39.6 million. Please note that these statements of Q3 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 second quarter, before turning the call over to Chris Caldwell.

I'll then discuss our views on the markets specific to our third quarter, as well as provide an update on our 2017 goals. Our fiscal second quarter revenue exceeded our expectations in both our technology solutions and Concentrix business segments and we grew year-over-year about 4% to $3.4 billion.

Profitability also exceeded our expectations in technology solutions, driven by our higher revenue performance and solid execution. And in technology solutions, within the U.S.

market, the demand environment was flat but stable and we believe we outperformed the market with year-on-year growth in the mid single-digit range. The improvement in the U.S.

was primarily due to higher growth in SMB and public sector. Our Hyve solutions business was also a strong performer.

In Canada, we continued our strong growth from prior quarters, with growth across both the commercial and retail market. And finally in Japan, our revenue was down from the prior year, with a slight decline in our commercial markets and a sharper decline in the softer consumer market.

From a product perspective, we continued to experience solid growth in our higher end technology divisions, including communications, security and enterprise products, device sales including PCs and Chromebooks was also a solid performer. Commodity printers, consumables and retail products were softer than average demand.

Overall for our technology solutions division, I'm pleased with our results as we optimized our market position, regaining share from the first quarter. In our Concentrix segment, we delivered revenue above and profit at our expectations.

We exited the three U.S. facilities we spoke of last quarter within the cost and time frame that we planned.

During the quarter, we once again achieved strong contract signings which supports our confidence in growth and in our business going forward. For a more detailed discussion on the Concentrix business, I will now turn the call over to Chris Caldwell.

Thanks, Kevin. It has been a very busy quarter and I'm pleased with our performance.

We grew our second quarter revenue above 8% from last year in constant currency and when adjusting for the planned sunsetting of the government contract that we mentioned in the past. On this basis, we have outperformed the market organically for the fifth straight quarter and continue to see growth opportunities in our existing client base, while adding revenue from new logos we have won in prior quarters.

I mentioned in last quarter's earnings call, that we were going to rebalance our U.S. footprint in the second quarter.

And as Kevin mentioned, I'm happy to say we executed this plan and completed the actions successfully all within the quarter. This hasn't precluded us from continuing to grow our U.S.

business out of our remaining centers, while also continuing to grow our global footprint. During this quarter alone, we've added two significant new sites, as a response to clients requiring additional capacity.

These sites in India and the Philippines will continue to come on line during the second half of this year and we'll be ramping new staff through March 2017 to fill the sites. The business that we signed throughout 2015 is now contributing more significantly to our portfolio and we will continue to see the base growth in revenue over the coming quarters.

In the second quarter, we continued to be recognized by our clients, as well as industry analysts and associations for providing operational excellence, innovation and improving business outcomes for our clients. As we reflect on the last six months, we have won 36 awards for partnership, innovation, automation, operational excellence, industry leadership, as well as environmental and social responsibilities.

The number of awards is a significant increase over the same time period last year, demonstrating our continued differentiation in the market and thought leadership and our commitment to investing for the future growth of the business. This external recognition certainly helps when we engage with new business opportunities, as evident by a recent win a major software company.

They were looking to transform their customer's digital experience. We won this business through a highly competitive process, by showing how the client could benefit from our unique knowledge of the customer service experience, delivered through digital methods.

Late in the second quarter, we launched two digital Centers of Excellence located in the UK and the Philippines for this client and we're now providing advanced social media analytics, digital marketing to their customer base and customer care through social media and other non-voice channels. The demand for these types of services continues to increase and we see this as now being a showcase for other clients looking to expand their customer engagement with new methods.

As I look forward to the third quarter, we expect to see a seasonal uptick in the business, along with the momentum of our newer client base. We plan on adding approximately 8000 new staff in the quarter in our strategic vertical and some being in our strategic verticals of health care and financial services.

As we have mentioned in the past, ramping of these high value verticals generally take a little longer to contribute to our earnings, as the training period and transition period can stretch many months. The investments we have made in our business, our staff and our clients continue to show benefits, with our sales pipeline remaining healthy.

We look forward to again posting strong growth in the third quarter. I'd like to close by thanking all of our staff and clients around the globe for their commitment to excellence and passion that they demonstrated in the second quarter.

And I'll pass the call back to Kevin.

Thanks, Chris. Now I'd like to provide some highlights on our third quarter guidance.

Overall, we expect another solid quarter performance, coming off a strong Q2. Within the technology solutions segment, we expect normal seasonality driven by continued strong execution and improving demand in certain markets such as SMB and state, local and education.

Within our Concentrix segment, we expect to continue to grow our revenues faster than the market and also deliver a modest profit on the contract where we experienced losses in the past number of quarters. And looking beyond our third quarter, we remain committed to creating shareholder value by investing in the long-term growth and prosperity for SYNNEX.

The markets for both our businesses are undergoing rapid changes. The move to cloud computing and any time, anywhere access presents many opportunities for SYNNEX to gain share by creating new capabilities and business models that enable this shift, such as our MOBILITYSolv, CLOUDSolv and Hyve Solutions businesses.

And the consolidating BPO market presents many opportunities for Concentrix to enhance its position as one of the leaders in the global customer care market. I'm pleased with SYNNEX's strategic position and our outlook for Q3 and the second half of FY '16.

Technology solutions is gaining momentum, as we believe our investments are translating to improved sales, expanding margins and strong ROIC. Concentrix is well-positioned in the markets we serve, as we continue to receive strong customer and analyst recognition with the differentiated investments we've made in our key focused vertical markets.

At our Analyst day, in July last year, we shared our mid-term goals. We're making good progress towards our revenue goals and are confident in our ability to achieve our operating margin goals for both businesses.

I believe we have the best people in our respective businesses and I can't thank our leaders and employees enough for their incredible efforts and results. So with that, let's turn the call over to operator for questions.

Just a couple questions for me. First, Kevin, on the strength that you saw in tech solutions and that year-over-year growth and of course, the comps were a little bit easier now that the beats issue is behind you.

And you also talked last quarter about the fact that you walked away from business because of competitive pricing and it sounds like you reversed that course a little bit. Your gross margin was down, but certainly you had better profitability.

So how should we think about market share versus managing the margins and managing the profitability going forward?

Matt, so you're right. In prior quarters our performance was probably a little bit under where the market was and in our second quarter we certainly optimized our position and executed very, very well, but you know our focus on margin improvement continues to be the priority.

In certain parts of our business in particular more the commodity segment where competition is a little bit more aggressive it's really the higher value parts of our business and some of the specialty businesses that we have that really drive a higher level of growth as well as a much better margin profile and that's really our priority and it's really a focus on driving the right portfolio of business to come up with not only above market growth but also enhanced margin.

Okay. What accounts for the lower gross margin?

Was that a function of mix and a function of being more aggressive on pricing?

No, it's more a function of mix as well as from quarter to quarter there's always going to be puts and takes and so if you're comparing to a year ago quarter as Marshall mentioned we did have a pretty significant one-time benefit related to foreign exchange.

You talked about a strength in the Hyve business and I know that’s been somewhat volatile and lumpy, you had some growth and some recent quarters not much growth. Is that now growing and I know you've talked about adding additional customers beyond the top tier customers so how is that going?

Matt this is Dennis. Yes, the business is growing.

It did grow year-over-year and we're pleased to have it actually exceed our expectations in Q2. The business does have good momentum.

We talked about some wins of new customers over the past couple of quarters and the current quarter they produce some reasonable revenue run rates so that was encouraging as well we were able to win some share with existing customers which also contributed to our nice performance in the quarter.

And just lastly regarding Concentrix, it sounds like you've got a good pipeline and the year-over-year comps with that business, one government contract sun-setting should be favorable by the end of the year. My question is when should we expect to see actual year-over-year growth, can it come this year by the end of the year and then in terms of bridging the gap between the 4.5% operating margin last quarter and that 10% plus goal, what should we be thinking about in terms of time frame?

Matt so I don't really want to provide forward guidance. I think we continue to see us growing, you can see that growing at 8% and we've grown a little higher in the past and look forward to capitalizing on our strong sales in 2015 that will continue to push to be double the market growth rates for sort of the foreseeable future and that will soon overlap the government contract that sunset at the end of last year.

In terms of operating margin performance, clearly we stated our goals to get to double digit and Kevin's reiterated we're kind of seeing that on plan as we execute historically Q4 if you go back a year we were there. Now it's just continuing to make it sustainable which clearly as we're building as we're right at the moment makes it a little bit more challenging but we would rather take the share gains because that business as it operates is within the parameters to drive a double digit operating income, so I hope that provides a bit more color for you.

Just picking up on Matt's question, in terms of Q2 profitability for Concentrix, so the quarter that you just reported can you help us bridge the operating income in this Q2 to last Q2? It seems like there's a lot of puts and takes sun-setting contract, unprofitable contract which actually got better, duplicative cost depreciation.

How much did each of those factors impact the year-over-year change in operating income because profit dollars were down almost $9 million year-over-year but the unprofitable contract actually got better so I'm just trying to understand why our profit dollars are down so much and how are those factors going to change going forward such that you’re going to be improving the year-over-year trend in profit dollars?

So Brian I think the best way to look at it is almost $9 million was an increase in infrastructure within our depreciation and facilities that's being used to kind of drive the growth and as you know there's been really the laggard time that comes in before that comes to fruition. So you're seeing us growing the top line, you’re seeing us ramping the staff and we're effectively right sizing the depreciation and facilities for lack of better term as it fits into our business.

So that was a big chunk of it. We clearly had some duplicative costs within the second quarter as we shut down three sites and moved some out, that was a few million dollars and we executed very clean on that and that's really the most of it.

We did make improvements on obviously the contract that was lost and as Kevin pointed out that will turn to a profit within the Q3 time period as we talked about in the past as well. So that kind of gives you where some of the numbers are under the covers.

So almost 9 million is infrastructure and facility costs. I guess for the profit trends to meaningfully improve it sounds like it's very revenue dependent, you have to get a lot more leverage on incremental revenue and yet your revenue growth and constant currency actually decelerated from 12% last quarter to 8% this quarter, so how are you thinking about the revenue trajectory in constant currency terms and is it really revenue dependent or am I missing other factors that might help you drive the $9 million decline in profitability to growth in profit dollars going forward?

Yes, so Brian one of the things that you're maybe not looking at is when we look at the contract that sun-setted from the government perspective, that was a fully operational contract that effectively was dropping profitability to the bottom line which in essence, we have replaced with new business and new ramps that has slightly different footprint within it so we've got the costs of kind of making that move in and out for lack of a better term. While the bottom line is somewhat revenue dependent it's also somewhat driven by the growth we're projecting so to your point while growth has come down in Q2 from where it was in prior quarters, the reality is that we also moved out some of the U.S.

business as we talked about, we've moved out offshore so that will be a little smaller but our goal is to continue to grow faster than the market which puts that in the 8% to 10% range and so we don't look at 8% as being sort of the benchmark that we're shooting for.

What, I guess, just to get to the low end of your margin target of 9%, what kind of revenue does Concentrix need to be at, to get there?

Yes, Brian, I there's a mix to the business. So for instance, depending on the type of business we're talking about and we call out the fact that we're growing healthcare and financial service business has a much higher profile than some of the other businesses that we have.

We also have some technology solutions which we've obviously invested in, that are now starting to get some leverage in our insurance business, where we spent millions of dollars that have flown through our P&L, that effectively as you load customers on, continues to give you leverage. So it is really more complex than just a straight revenue calculation.

It's how we drive the business and the mix of business, as well as the delivery of country of the business that ties into it. So as we stated, we're on target for where we want to be from a double-digit operating perspective.

We're on target from a growth perspective and we're happy with the results.

Okay. Maybe just to switch gears, on the cash conversion cycle, significant improvement in cash cycle days down to 41, lower than your mid 40 day target, Marshall or Dennis.

I realize this is all based on quarter end balance sheet. But I'm just curious is there anything structurally different in your cash conversion cycle that we should consider as we're modeling cash flow?

And how are you thinking about cash flow, relative to net income going forward?

So nothing other than just a great quarter, in terms of financial operation performance. The team's did a great job in just driving efficiencies.

In terms of out, we still believe we're going to generate positive cash flow from an operating standpoint in the second half, with the growth we expect as well. And then, just in terms of targets, still we never try to put one specific target out there.

But certainly know, that the lower 40s is where we like to be.

If I heard correctly in the prepared remarks, you mentioned I think, Concentrix, the challenged contract showed or is expected to show a modest profit next quarter. Can you let me know if I heard that correctly?

And does that put you on track -- I believe your goal was that it would be profitable for the full year? And does that make it feel like Q4 is a very big, not necessarily a modest profit, but a very big profit for that contract?

Or have things changed in that?

So Jim, it's Chris. So you did hear correctly.

We do expect a modest profit within Q3. And as we talked about there is some backloading on that contract within Q3 and Q4.

And to your comments, we do expect that it will be again marginally profitable, when we look at the entire period of time for the fiscal year.

Second thing or question, different topic is, I believe HP is one of your largest OEMs. They had an announcement the other day, about changing their go-to-market strategy on their printer side.

Does that help you, hurt you, how should we think about those changes, as it is your largest OEM?

We perform a lot of supply chain and go-to-market services for our vendors. And, of course, HPI, on the printer business is certainly a good example of that.

Beyond inventory management, we've actually been working with HP Inc. over the past number of months to help them streamline their channel and optimize inventory.

So as a result of all of that, we don't expect any significant change to our business on the printer and supply side with HP.

Okay. And my last question, with one of your competitors, Ingram Micro going to a Chinese buyer, have you been able to quantify or lure in or talk about, are you getting more business say, from government or state companies?

Or is that impacting you or is it too early to tell or any changes in the competitive landscape from that change?

Yes, Jim, I would say it's too early to tell at this point.

I wanted to touch base on the TS side of the business, Kevin if you or Dennis or whoever wants to take it. With respect to your ability to regain some share, as noted earlier in the call, it sounded like perhaps that was mainly only on the SMB in the SLED segment.

Could you talk to whether you were able to regain share on some of your more traditional broad line products? And if so, how were you able to do that during the quarter?

Yes, first of all, when I look at where the growth in the business came from, it came from a number of different places. The ones that I pointed out by product, were really on some of the communication security, as well as enterprise product categories we have.

Hyve solutions was also a contributor to that. From a markets perspective, I highlighted strength in SMB and in public sector as well.

But overall, there was growth in most of the segments that we operate in. And when we talk about kind of optimizing our share position, that really comes from across the entire business.

Obviously, parts of that are going to be driven by the higher volume commodity products. But again, it really is a combination, Osten, between having the right products and capability, but also executing well on the market opportunities.

And that's really what we've done over the past quarter.

Okay. So if I understand you correctly, you're looking at it from a holistic view of share, as opposed to regaining some share in certain pockets that may or may not have been, I guess, where you previously did not pursue business perhaps for profit reasons.

Is that fair or am I putting words in your mouth?

Yes, that's fair. The business is really marbled through a number of different segments.

And then, turning to the Hyve business there, it sounds like some of the businesses, that some of the customers you had in the pipeline previously, where you might have been involved in a bake-off if you will, it sounds like those customers ended up choosing to go with you on the longer term basis? Would you be able to confirm that, A?

And then B, what's your take on the pipeline of the Hyve business, as you look into the rest of this year at least?

Yes, some of the customers, we delivered to in the second quarter were as a result of wins in prior quarters. Some were bake-off if you will and some were just good work by our sales team to convince the customer to move to us.

But overall, it's a solid quarter with new customers. As far as our pipeline, we've a very good pipeline.

But similar to the Concentrix business, it does take awhile to convert a customer from looking at our offerings, to buying them on a regular run rate business and at a high volume after that. So the pipeline is good and we're working through the various possibilities of converting customers over the next few quarters.

And then, just lastly on the Concentrix side, I understand it's still relatively early, but back to the fraud prevention and detection contract that is expected to reach profitability in the next quarter, could you highlight perhaps whether the volumes you're seeing there, are at a level that you think -- that will keep you interested maintaining that business beyond FY16?

Yes, Osten, at this point, after we recalibrated the contract, clearly, it's operating within our expectations. But it's not at an economic return that we would want to look at extending it, without some additional changes.

So at this point, I would probably say no.

I guess, just going back to TS, kind of Kevin, Dennis, how would you best characterize the environment that you've seen over the last handful of months? I think on the last call, you actually said, that the last two months of the quarter felt pretty stable.

It sounds like that was your experience this quarter as well. But you also said that or you feel like you gained some share.

So I would love to get your sense of kind of just what generally the environment feels like in your own words, in the context of you guys gaining share, if I'm actually interpreting your comments correctly? And I guess, I know you're guiding seasonal, do you think it's a seasonal environment or do you think that it's SYNNEX seasonal, given the share gains?

And then, I have a follow-up thanks.

So Ananda, just to answer your last question first, our Q3 guide is for typical seasonal. But answering the other part of your question, first, let me just break it down for you.

What I said about the U.S. market was flat, but stable.

And I'll talk about that a little bit more. Canada continues to be a little bit stronger than that.

And Japan, as we spoken of over the past few quarters is an improving environment, but it's still either flat or slightly down, depending on which markets we're talking about. It's really hard to paint any one market, especially a market the size of the U.S.

with just one brush. There are certain parts of the market that are soft and there are certain parts of the market that are growing.

And the way that we try to balance our focus in what we do, is by putting more resources and focus on the growth parts of the market. And that both translates into product as well as end customer segments as well.

But overall, we've seen SMB continue to be strong and growing. We do expect that state local education this current quarter is actually going to provide growth opportunity for us as well.

So that's kind of what we're seeing in the overall markets. But the U.S.

market which is the biggest market we have, it does move up and down a little bit. It's stable, but it's relatively flat right now overall.

And Kevin, to that end, I guess, the key growth mechanisms underpinning that, as you look out over the next six months? I can think of a handful off the top of my head, PCs will look better, maybe there's a refresh, sales moving into the channel, there's more demand for security, [indiscernible] has done well, things like that.

I'm putting words in your mouth, but just to give you examples. And I'd love to just get your take on that and anything else?

I guess, you can even maybe sort of speak to the guide and then philosophically where the trends set that you're looking for, as we go out kind of through the balance of the year? That would be great, thanks.

Yes, I mean, I think it's a lot of stuff that you do know, Ananda and that we spoke of. So there is certainly, a shift happening.

And a lot of the enabling parts of technology, like communications and security, are certainly a big growth area. Software, in particular segments of software that do support cloud and also cloud-based software takes some SaaS type applications as an example.

Those are all higher growth areas for us as well. So as we sit here today, unlike we've had in quarters in the past, where you can point to a specific operating system refresh or something like that, yes, certainly there will be some out on the horizon and probably over the next six months.

But really what it comes down to is executing on where we see the growth opportunities, both by market and by product and that's what we're doing.

I wanted to just focus on the debt-to-cap ratio and maybe your appetite for acquisitions. Is there, where are we target-wise on the debt-to-cap side?

And is there a way of accelerating the Hyve business through acquisition, especially given where some of these service providers are in their own data center expansion life? Hello?

Yes, so this is Marshall. The current debt-to-cap is right around 27%.

And as you know, we certainly have been as high as the low 40%s. And with the last IBM CRM deal, we're in the mid to high 30%s.

Kevin, I'll let you take the Hyve question.

Well, I mean, I think that it's broader than Hyve. Rich, as you know, we have been an acquisitive Company and that's certainly is part of our platform for growth.

Right now, we see opportunities pretty much across all segments in our business and we certainly continue to proactively look for them. When we do identify the right one based on a number of different factors, then we certainly will pursue those.

So we're in a good position right now, where we're very comfortable with where our debt-to-cap is. We have a lot of dry powder.

And when the right opportunity comes along, we'll certainly be interested doing that.

So you don't have a target out there, for what you would want the debt-to-cap ratio to kind of be maintained around or are you just going to keep to paying it down?

No, I mean, for us, let me answer that two ways. Number one, is we have a comfortable zone of where debt-to-cap is and we're in the middle of that right now.

And number two is we, based on the way that we operate our business, the success that we've had with acquisitions in the past, we do feel that we should be leveraged as a Company, because we can deliver better shareholder value.

This is Garrett Heinz in for Louis Miscioscia. Thanks for taking my questions.

Just wanted to clarify comments on the risk management contract, would that be below your target margin for the course of the year?

It would be below our target. Yes, Garret, it would be below our target margin.

And then, just one other clarification, the government contract which sunsetted, what was the linearity over the course of the year? Was it basically the same each quarter?

It wasn't. In the last year that we had it, it had sort of -- I'll call it, book-ended at the beginning of the two highest quarters were the first and fourth and it kind of had a little dip in sort of the third quarter.

So it wasn't completely linear in spending last year.

And then for 3D printing it seems like HP is getting a lot more active in that space and there is a lot of growth there. Is that a material opportunity for SYNNEX?

I think that it's hard to call if, it's material at this point. It's certainly an exciting technology.

And the relationship that we have with HP, certainly we hope to participate in that market with them. But I think it remains to be seen, Garrett, depending on what new industries or sub industries get launched, as a result of that capability, but we certainly would love to have a play in 3D printing.

Any other question/follow-up on that?

All right. Well listen, thank you very much everybody for joining the call.