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14: R3 Consolidated Balance Sheets (Parenthetical) HTML 42K
15: R4 Consolidated Statements of Operations HTML 95K
16: R5 Consolidated Statements of Comprehensive (Loss) HTML 58K
Income
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Income (Parenthetical)
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(Tables)
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Additional Information (Details)
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Additional Information (Details)
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Additional Information (Details)
48: R37 Acquisition, Integration and Restructuring Costs - HTML 39K
Restructuring and Related Costs (The Merger) -
(Details)
49: R38 Share-Based Compensation - Schedule of Share Based HTML 42K
Awards Granted TD Synnex (Details)
50: R39 Share-Based Compensation - Summary of Share-Based HTML 39K
Compensation Expense (Details)
51: R40 Share-Based Compensation - Schedule of Restricted HTML 32K
Stock Unit Activity Tech Data (Details)
52: R41 Share-Based Compensation - Additional Information HTML 48K
(Details)
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54: R43 Balance Sheet Components - Accounts Receivable, HTML 30K
Net (Details)
55: R44 Balance Sheet Components - Receivables from HTML 28K
Vendors, Net (Details)
56: R45 Balance Sheet Components - Allowance for Doubtful HTML 36K
Receivables (Details)
57: R46 Balance Sheet Components - Summary of Accumulated HTML 41K
Other Comprehensive Loss ("Aoci") (Details)
58: R47 Derivative Instruments - Additional Information HTML 38K
(Details)
59: R48 Derivative Instruments - Summary of Fair Values of HTML 50K
Derivative Instruments (Details)
60: R49 Derivative Instruments - Effect of Derivative HTML 57K
Instruments on AOCI and Consolidated Statements of
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61: R50 Fair Value Measurements - Schedule of Valuation of HTML 47K
Investments and Financial Instruments Measured at
Fair Value on Recurring Basis (Details)
62: R51 Fair Value Measurements - Additional Information HTML 30K
(Details)
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Securitization Arrangement (Details)
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Reporting Information, by Segment (Details)
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Beneficial Ownership of Company's Common Stock by
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(State
or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)
i44201 Nobel Drive, iFremont,
iCalifornia
i94538
(Address of principal executive offices)
(Zip
Code)
(i510) i656-3333
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock, par value $0.001 per share
iSNX
iThe
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesx No
o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesx No o
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
io
Emerging growth company
io
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes io
No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Preferred stock, $ii0.001/
par value, ii5,000/ shares authorized,
iiiino///
shares issued or outstanding
i—
i—
Common
stock, $ii0.001/ par value, ii200,000/
shares authorized, i98,991 and i98,696 shares issued as of May 31, 2023 and November 30, 2022,
respectively
Unrealized (losses) gains on cash flow hedges during the period, net of tax benefit (expense) of $i53
and ($i3,504) for the three months ended May 31, 2023 and 2022, respectively, and ($i235)
and ($i6,422) for the six months ended May 31, 2023 and 2022, respectively
(i164)
i10,728
i702
i19,630
Reclassification
of net (gains) losses on cash flow hedges to net income, net of tax expense (benefit) of $i602 and ($i2,225)
for the three months ended May 31, 2023 and 2022, respectively, and $i886 and ($i4,684)
for the six months ended May 31, 2023 and 2022, respectively
(i1,843)
i6,813
(i2,697)
i14,314
Total
change in unrealized (losses) gains on cash flow hedges, net of taxes
(i2,007)
i17,541
(i1,995)
i33,944
Foreign
currency translation adjustments and other, net of tax benefit (expense) of $i1,629 and ($i31)
for the three months ended May 31, 2023 and 2022, respectively, and $i3,548 and ($i106)
for the six months ended May 31, 2023 and 2022, respectively
i62,610
(i170,342)
i146,699
(i167,566)
Other
comprehensive income (loss)
i60,603
(i152,801)
i144,704
(i133,622)
Comprehensive
income (loss)
$
i193,690
$
(i3,884)
$
i444,811
$
i147,619
(Amounts
may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
(Except
per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 1—iORGANIZATION AND BASIS OF PRESENTATION:
TD SYNNEX Corporation (together with its subsidiaries,
herein referred to as “SYNNEX”, "TD SYNNEX" or the “Company”) is a leading global distributor and solutions aggregator for the information technology ("IT") ecosystem,headquartered in Fremont, California and Clearwater, Florida and has operations in North and South America, Europe and Asia-Pacific and Japan. The Company operates in ithree reportable segments based on its geographic regions: the Americas,
Europe and Asia-Pacific and Japan ("APJ").
On March 22, 2021, SYNNEX entered into an agreement and plan of merger (the “Merger Agreement”) which provided that legacy SYNNEX Corporation would acquire legacy Tech Data Corporation, a Florida corporation ("Tech Data") through a series of mergers, which would result in Tech Data becoming an indirect subsidiary of TD SYNNEX Corporation (collectively, the "Merger"). On September 1, 2021, pursuant to the terms of the Merger Agreement, the Company acquired all the outstanding shares of common stock of Tiger Parent (AP) Corporation, the parent corporation of Tech Data, for consideration
of $i1.6 billion in cash ($i1.1 billion in cash after giving effect to a $i500.0
million equity contribution by Tiger Parent Holdings, L.P., Tiger Parent (AP) Corporation's sole stockholder and an affiliate of Apollo Global Management, Inc., to Tiger Parent (AP) Corporation prior to the effective time of the Merger) and i44 million shares of common stock of SYNNEX valued at approximately $i5.6
billion. The combined company is referred to as TD SYNNEX.
The Consolidated Financial Statements include the accounts of the Company, its wholly-owned subsidiaries, majority-owned subsidiaries in which no substantive participating rights are held by minority stockholders and variable interest entities if the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated. The Company operates on a fiscal year that ends on November 30.
The
accompanying interim unaudited Consolidated Financial Statements as of May 31, 2023 and for the three and six months ended May 31, 2023 and 2022 have been prepared by the Company, without audit, in accordance with the rules and regulations of the United States ("U.S.") Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2022.
Interim results of operations are not necessarily indicative of financial results for a full year, and the Company makes no representations related thereto. Certain columns and rows may not add or compute due to the use of rounded numbers.
NOTE
2—iSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
For a discussion of the Company’s significant accounting policies, refer to the discussion in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2022. No significant new accounting pronouncements were adopted during the six months
ended May 31, 2023.
i
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. The Company evaluates these estimates on a regular basis and bases them on historical
experience and on various assumptions that the Company believes are reasonable. Actual results could differ from the estimates.
(Except per share amounts or as otherwise indicated, currency and share
amounts in thousands)
(unaudited)
i
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, accounts receivable, receivables from vendors and derivative instruments.
The
Company’s cash and cash equivalents and derivative instruments are transacted and maintained with financial institutions with high credit standing, and their compositions and maturities are regularly monitored by management. Through May 31, 2023, the Company has not experienced any material credit losses on such deposits and derivative instruments.
Accounts receivable include amounts due from customers, including related party customers. Receivables from vendors, net, includes amounts due from original equipment manufacturer ("OEM") vendors primarily in the technology industry. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit
extended when deemed necessary, but generally requires no collateral. The Company also maintains allowances for expected credit losses. In estimating the required allowances, the Company takes into consideration the overall quality and aging of its receivable portfolio, the existence of credit insurance and specifically identified customer and vendor risks.
i
The following table
provides revenue generated from products purchased from vendors that exceeded 10% of our consolidated revenue for the periods indicated (as a percent of consolidated revenue):
(1)
Revenue generated from products purchased from this vendor was less than 10% of consolidated revenue during the period presented.
/
One customer accounted for i12% and i11%
of the Company's total revenue during the three and six months ended May 31, 2023, respectively. No single customer accounted for more than 10% of the Company's total revenue during the three and six months ended May 31, 2022. As of May 31, 2023 and November 30, 2022, no single customer comprised more than 10% of the consolidated accounts receivable balance.
Accounts Receivable
The Company maintains
an allowance for doubtful accounts as an estimate to cover the future expected credit losses resulting from uncertainty regarding collections from customers or OEM vendors to make payments for outstanding balances. In estimating the required allowance, the Company takes into consideration historical credit losses, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made for differences in current conditions as well as changes in forecasted macroeconomic conditions, such as changes in unemployment rates or gross domestic product growth. Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model. Receivables that do not share risk characteristics are evaluated on an individual basis.
The
Company has uncommitted supply-chain financing programs with global financial institutions under which trade accounts receivable of certain customers and their affiliates may be acquired, without recourse, by the financial institutions. Available capacity under these programs is dependent on the level of the Company’s trade accounts receivable with these customers and the financial institutions’ willingness to purchase such receivables. In addition, certain of these programs also require that the Company continue to service, administer and collect the sold accounts receivable. As of May 31, 2023 and November 30, 2022, accounts receivable sold to and held by the financial institutions under these
programs were $i1.1 billion and $i1.4 billion, respectively. Discount fees
related to the sale of trade accounts receivable under these facilities are included in “Interest expense and finance charges, net” in the Consolidated Statements of Operations. Discount fees for these programs totaled $i12.0 million and $i23.7 million
in the three and six months ended May 31, 2023, respectively, and $i3.9 million and $i6.9 million
in the three and six months ended May 31, 2022, respectively.
(Except per share amounts or as otherwise indicated,
currency and share amounts in thousands)
(unaudited)
i
Seasonality
The Company's operating results are affected by the seasonality of the IT products industry. The Company has historically experienced slightly higher sales in the first and fourth fiscal quarters due to patterns in capital budgeting, federal government
spending and purchasing cycles of its customers and end-users. These historical patterns may not be repeated in subsequent periods.
i
Revenue Recognition
The Company generates revenue primarily from the sale of various IT products.
The Company recognizes revenues from the sale of IT hardware and software as control is transferred to
customers, which is at the point in time when the product is shipped or delivered. The Company accounts for a contract with a customer when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Binding purchase orders from customers together with agreement to the Company's terms and conditions of sale by way of an executed agreement or other signed documents are considered to be
the contract with a customer. Products sold by the Company are delivered via shipment from the Company’s facilities, drop-shipment directly from the vendor, or by electronic delivery of software products. In situations where arrangements include customer acceptance provisions, revenue is recognized when the Company can objectively verify the products comply with specifications underlying acceptance and the customer has control of the products. Revenue is presented net of taxes collected from customers and remitted to government authorities. The
Company generally invoices a customer upon shipment, or in accordance with specific contractual provisions. Payments are due as per contract terms and do not contain a significant financing component. Service revenues represents less than ii10/%
of the total revenue for the periods presented.
Provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. These provisions are reviewed and adjusted periodically by the Company. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers, which are considered variable consideration, at the time of sale based on an evaluation of the contract terms and historical experience.
The
Company recognizes revenue on a net basis on certain contracts, where the Company’s performance obligation is to arrange for the products or services to be provided by another party or the rendering of logistics services for the delivery of inventory for which the Company does not assume the risks and rewards of ownership, by recognizing the margins earned in revenue with no associated cost of revenue. Such arrangements include supplier service contracts, post-contract software support services, cloud computing and software
as a service arrangements, certain fulfillment contracts and extended warranty contracts.
The Company considers shipping and handling activities as costs to fulfill the sale of products. Shipping revenue is included in revenue when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of revenue.
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
Reclassifications
Certain
reclassifications have been made to prior period amounts in the Consolidated Financial Statements to conform to the current period presentation. These reclassifications did not have a material impact on previously reported amounts.
i
Recently Issued Accounting Pronouncements
In September 2022, the FASB issued an accounting standards update which will require new enhanced disclosures by the buyer in supplier finance programs. Disclosures will include key terms of the program, including payment terms, along with the
amount of related obligations, the financial statement caption that includes such obligations, and a rollforward of activity related to the obligations during the period. The new accounting standard must be adopted retrospectively to the earliest comparative period presented, except for the rollforward requirement, which should be adopted prospectively. The accounting standard is effective for the Company beginning with the quarter ending February 29, 2024, except for the rollforward requirement which is effective for the quarter ending February 28, 2025. Early adoption is permitted. While the new accounting standard is not expected to have an impact on the Company's financial condition, results of
operations or cash flows, the Company is currently evaluating the impact the new accounting standard will have on its disclosures in the notes to the consolidated financial statements. The Company is evaluating the terms of its arrangements with certain of its suppliers and currently estimates that approximately $i2 billion to $i3 billion
of balances included in "Accounts payable" on the Consolidated Balance Sheet may be within the scope of the standard.
In March 2020, the FASB issued optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022, which was extended through December 31,
2024 per an update the FASB issued in December 2022. On May 22, 2023, the TD SYNNEX Credit Agreement (as defined below) was amended to replace LIBOR with the Secured Overnight Financing Rate ("SOFR") as its benchmark rate (see Note 8 - Borrowings for further discussion of the TD SYNNEX Credit Agreement). The Company does not currently expect any material impacts from the adoption of this new guidance.
/
NOTE
3—iACQUISITION, INTEGRATION AND RESTRUCTURING COSTS:
Acquisition, integration and restructuring costs are primarily comprised of costs related to the Merger and costs related to the Global Business Optimization 2 Program initiated by Tech Data prior to the Merger (the “GBO 2 Program”).
The Merger
The
Company incurred acquisition, integration and restructuring costs related to the completion of the Merger, including professional services costs, personnel and other costs, long-lived assets charges and termination fees, and stock-based compensation expense. Professional services costs are primarily comprised of IT and other consulting services, as well as legal expenses. Personnel and other costs are primarily comprised of costs related to retention and other bonuses, severance and duplicative labor costs. Long-lived assets charges and termination fees are comprised of accelerated depreciation and amortization expense of $i5.3
million and $i11.5 million recorded during the three and six months ended May 31, 2023, respectively, and $i52.9
millionrecorded during the six months ended May 31, 2022 due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, as well as $i2.3 million and $i12.5
million recorded during the three and six months ended May 31, 2023 for termination fees related to certain IT systems. There were no long-lived assets charges and termination fees recorded during the three months ended May 31, 2022. Stock-based compensation expense primarily relates to costs associated with the conversion of certain Tech Data performance-based equity awards issued prior to the Merger into restricted shares of TD SYNNEX (refer to Note 4 - Share-Based Compensation for further information) and expenses for certain restricted stock awards issued in conjunction with the Merger.
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
i
During
the three and six months ended May 31, 2023 and 2022, acquisition and integration expenses related to the Merger were composed of the following:
Prior to the Merger, Tech Data implemented its GBO 2 Program that includes investments to optimize and standardize processes and apply data and analytics to be more agile in a rapidly evolving environment, increasing productivity, profitability and optimizing net-working capital. TD SYNNEX continued this program in conjunction with the Company’s integration activities. Acquisition, integration and restructuring expenses related to the GBO 2 Program are primarily comprised of restructuring costs and other costs. Restructuring costs are comprised of severance costs and other associated exit costs, including certain consulting costs. Other costs are primarily comprised of personnel costs, facilities costs and certain professional services fees not related to restructuring activities.
The
Company incurred acquisition, integration and restructuring costs under the GBO 2 Program of $i2.6 million and $i6.1
million during the three and six months ended May 31, 2023, respectively, and $i9.4 million and $i17.2
million during the three and six months ended May 31, 2022, respectively. The Company does not expect to incur material costs under the GBO 2 Program in future periods. Cash payments related to restructuring costs and accrued restructuring balances related to the GBO 2 Program are not material as of May 31, 2023.
NOTE 4—iSHARE-BASED
COMPENSATION:
Overview of TD SYNNEX Stock Incentive Plans
The Company recognizes share-based compensation expense for all share-based awards made to employees and directors, including employee stock options, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance-based RSUs and employee stock purchase rights, based on estimated fair values.
i
The
following tables summarize the Company's share-based awards activity for TD SYNNEX stock incentive plans during the six months ended May 31, 2023.
A summary of the changes in the Company's stock options is set forth below:
Acquisition,
integration and restructuring costs (on awards issued in connection with the Merger )
i1,486
i1,596
i2,978
i3,399
Total
share-based compensation expense
$
i9,134
$
i8,634
$
i23,700
$
i17,187
/
Tech
Data Equity Awards
Prior to the Merger, certain of Tech Data’s employees were granted performance-based equity awards in Tiger Parent Holdings L.P., a partnership entity that was the parent company of Tiger Parent (AP) Corporation and Tech Data, that were unvested at the time of the closing of the Merger. Upon closing of the Merger, the unvested performance-based equity awards were converted into restricted shares of TD SYNNEX that vest over itwo years.
i
The
following table summarizes the activity related to these restricted shares during the six months ended May 31, 2023:
The
restricted shares had a fair value of $i127.60 per share upon closing of the Merger which is being recorded as share-based compensation expense on a straight-line basis over the vesting period in “Acquisition, integration, and restructuring costs” in the Consolidated Statement of Operations. The
Company recorded $i9.5 million and $i19.6 million of share-based compensation expense related to these restricted
shares in “Acquisition, integration, and restructuring costs” during the three and six months ended May 31, 2023, respectively, and $i11.3 million and $i23.0
million during the three and six months ended May 31, 2022, respectively. As of May 31, 2023, there was $i9.6 million of total unamortized share-based compensation expense related to these restricted shares to be recognized over a weighted-average amortization period of i0.25
years.
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 5—iBALANCE SHEET COMPONENTS:
Cash, cash equivalents and restricted cash:
i
The
following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statements of Cash Flows:
(Except
per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 6—iDERIVATIVE INSTRUMENTS:
In the ordinary course of business, the Company is exposed to foreign currency risk, interest rate risk, equity risk, commodity price changes and credit
risk. The Company enters into transactions, and owns monetary assets and liabilities, that are denominated in currencies other than the legal entity’s functional currency. The Company may enter into forward contracts, option contracts, swaps, or other derivative instruments to offset a portion of the risk on expected future cash flows, earnings, net investments in certain international subsidiaries and certain existing assets and liabilities. However, the
Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates. The Company does not use derivative instruments to cover equity risk and credit risk. The Company’s hedging program is not used for trading or speculative purposes.
All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded in the Consolidated Statements of Operations, or as a component of AOCI in the Consolidated Balance Sheets,
as discussed below.
Cash Flow Hedges
The Company uses interest rate swap derivative contracts to economically convert a portion of its variable-rate debt to fixed-rate debt. Gains and losses on cash flow hedges are recorded in AOCI until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of interest payments are recognized in “Interest expense and finance charges, net” in the same period as the related expense is recognized. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month
time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into earnings in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are recorded in earnings unless they are re-designated as hedges of other transactions. The Company classifies cash flows related to the settlement of its cash flow hedges as operating activities in the Consolidated Statements of Cash Flows. The Company terminated its remaining interest rate swaps in May 2023 and had no interest rate swaps designated as cash flow hedges outstanding as of May 31, 2023.
Net Investment Hedges
The
Company has entered into foreign currency forward contracts to hedge a portion of its net investment in euro denominated foreign operations which are designated as net investment hedges. The Company entered into the net investment hedges to offset the risk of change in the U.S. dollar value of the Company's investment in a euro functional subsidiary due to fluctuating foreign exchange rates. Gains and losses on the net investment hedges have been recorded in AOCI and will remain in AOCI until the sale or substantial liquidation of the underlying assets of the Company's investment. The initial fair value of hedge components
excluded from the assessment of effectiveness is being recognized in the Consolidated Statements of Operations under a systematic and rational method over the life of the hedging instrument. The Company classifies cash flows related to the settlement of its net investment hedges as investing activities in the Consolidated Statements of Cash Flows.
Non-Designated Derivatives
The Company uses short-term forward contracts to offset the foreign exchange risk of assets and liabilities denominated in currencies other than the functional currency of the respective entities. These contracts,
which are not designated as hedging instruments, mature or settle within itwelve months. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.
The
Company terminated interest rate swaps with a notional value of $i400.0 million in December 2021 ("the December 2021 Terminations"). Cumulative losses from the December 2021 Terminations totaled $i16.0
million and are being reclassified from AOCI to “Interest expense and finance charges, net” over the period through September 2023. The Companyterminated the remaining interest rate swaps with a notional value of $i1.0 billion in May 2023 (the "May 2023 Terminations"). Cumulative gains from the May 2023 Terminations totaled $i10.0
million and are being reclassified from AOCI to "Interest expense and finance charges, net" over the period through October 2023.
Volume of Activity
The notional amounts of foreign exchange forward contracts represent the gross amounts of foreign currency, including, principally, the Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan, Czech koruna, Danish krone, Euro, Indian rupee, Indonesian rupiah, Japanese yen, Mexican peso, Norwegian krone, Philippine peso, Polish zloty, Singapore dollar, Swedish krona, Swiss franc and Turkish lira that will be bought or sold at maturity. The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the
Company’s exposure to credit or market loss. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change.
(Except per share amounts or as otherwise indicated,
currency and share amounts in thousands)
(unaudited)
The Effect of Derivative Instruments on AOCI and the Consolidated Statements of Operations
i
The following table shows the gains and losses, before taxes, of the Company’s derivative instruments designated as cash flow hedges and net investment
hedges in Other Comprehensive Income (“OCI”) and not designated as hedging instruments in the Consolidated Statements of Operations for the periods presented:
Derivative instruments not designated as hedging instruments:
(Losses)
gains recognized from foreign exchange contracts, net⁽¹⁾
Cost of revenue
$
(i7,611)
$
i14,013
$
(i24,512)
$
i4,118
Losses
recognized from foreign exchange contracts, net⁽¹⁾
Other expense, net
(i2,662)
(i949)
(i5,225)
(i1,159)
Total
$
(i10,273)
$
i13,064
$
(i29,737)
$
i2,959
Derivative
instruments designated as cash flow hedges:
(Losses) gains recognized in OCI on interest rate swaps
$
(i217)
$
i14,232
$
i937
$
i26,051
Gains
(losses) on interest rate swaps reclassified from AOCI into income
Interest expense and finance charges, net
$
i2,445
$
(i9,038)
$
i3,583
$
(i18,998)
Derivative
instruments designated as net investment hedges:
(Losses) recognized in OCI on foreign exchange forward contracts⁽²⁾
$
(i6,632)
$
i—
$
(i14,657)
$
i—
Gains
recognized in income (amount excluded from effectiveness testing)⁽²⁾
Interest expense and finance charges, net
$
i2,308
$
i—
$
i4,586
$
i—
____________________________
(1)
The gains and losses largely offset the currency gains and losses that resulted from changes in the assets and liabilities denominated in nonfunctional currencies.
(2)The Company had no net investment hedges outstanding during the three and six months ended May 31, 2022.
/
Except for the net investment hedge amount for fiscal 2023 shown above, there were no material gain or loss amounts excluded from the assessment of effectiveness. Existing net gains in AOCI that are expected to be reclassified into earnings in the normal course of
business within the next twelve months are $i7.1 million.
Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the Company’s obligations to the counterparties.
The Company manages the potential risk of credit losses through careful evaluation of counterparty credit standing and selection of counterparties from a limited group of financial institutions.
(Except
per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 7—iFAIR VALUE MEASUREMENTS:
The Company’s fair value measurements are classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
iThe
following table summarizes the valuation of the Company’s investments and financial instruments that are measured at fair value on a recurring basis:
Forward
foreign currency exchange contracts not designated as hedges
$
i14,548
$
i—
$
i14,548
$
i—
$
i9,597
$
i—
$
i9,597
$
i—
Interest
rate swaps
i—
i—
i—
i—
i17,222
i—
i17,222
i—
Liabilities:
Forward
foreign currency exchange contracts not designated as hedges
$
i6,123
$
i—
$
i6,123
$
i—
$
i16,085
$
i—
$
i16,085
$
i—
Forward
foreign currency exchange contracts designated as net investment hedges
i26,489
i—
i26,489
i—
i16,675
i—
i16,675
i—
/
The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Fair values of interest rate swaps are measured using standard valuation models using inputs that are readily available in public markets, or can be derived from observable market transactions, including spot and forward rates. There were no interest rate swaps outstanding as of May 31, 2023. The effect of nonperformance risk on the fair value of derivative instruments was not material as of May 31, 2023 and November 30, 2022.
The carrying values of accounts receivable, accounts payable and short-term debt approximate fair value
due to their short maturities and interest rates which are variable in nature. The carrying value of the Company’s term loans approximate their fair value since they bear interest rates that are similar to existing market rates. The estimated fair value of the Senior Notes was approximately $ii2.1/
billion as of both May 31, 2023 and November 30, 2022.
During the six months ended May 31, 2023, there were ino transfers between the fair value measurement category levels.
Committed and uncommitted revolving credit facilities and borrowings
$
i224,738
$
i193,128
Current
portion of TD SYNNEX term loan
i75,000
i75,000
Borrowings,
current
$
i299,738
$
i268,128
TD
SYNNEX term loan
$
i1,312,500
$
i1,350,000
TD
SYNNEX Senior Notes
i2,500,000
i2,500,000
Other
credit agreements and long-term debt
i13,616
i9,690
Long-term
borrowings, before unamortized debt discount and issuance costs
$
i3,826,116
$
i3,859,690
Less:
unamortized debt discount and issuance costs
(i20,742)
(i24,025)
Long-term
borrowings
$
i3,805,374
$
i3,835,665
/
TD
SYNNEX United States Accounts Receivable Securitization Arrangement
In the United States, the Company has an accounts receivable securitization program to provide additional capital for its operations (the “U.S. AR Arrangement”). Under the terms of the U.S. AR Arrangement, the Company and its subsidiaries that are party to the U.S. AR Arrangement can borrow up to a maximum of $i1.5
billion based upon eligible trade accounts receivable. The U.S. AR Arrangement has a maturity date of December 2024. The effective borrowing cost under the U.S. AR Arrangement is a blended rate based upon the composition of the lenders, that includes prevailing dealer commercial paper rates and a rate based upon SOFR. In addition, a program fee payable on the used portion of the lenders’ commitment accrues at i0.75% per annum. A facility fee is payable on the adjusted commitment of the lenders, to accrue
at different tiers ranging between i0.30% per annum and i0.40%
per annum depending on the amount of outstanding advances from time to time.
Under the terms of the U.S. AR Arrangement, the Company and certain of its U.S. subsidiaries sell, on a revolving basis, their receivables to a wholly-owned, bankruptcy-remote subsidiary. Such receivables, which are recorded in the Consolidated Balance Sheet, totaled approximately $i2.4
billion and $i2.9 billion as of May 31, 2023 and November 30, 2022, respectively. The borrowings are funded by pledging all of the rights, title and interest in the receivables acquired by the Company's bankruptcy-remote subsidiary as security. Any amounts received under the U.S. AR Arrangement are recorded as debt on the
Company's Consolidated Balance Sheets. There were no amounts outstanding under the U.S. AR Arrangement at May 31, 2023 or November 30, 2022.
TD SYNNEX Credit Agreement
The Company is party to a credit agreement, dated as of April 16, 2021 and amended May 22, 2023 (as amended, the “TD SYNNEX Credit Agreement”) with the lenders party thereto and Citibank, N.A., as agent, pursuant to which the Company received commitments for the extension of a senior unsecured revolving credit facility not to exceed an aggregate
principal amount of $i3.5 billion, which revolving credit facility (the “TD SYNNEX revolving credit facility”) may, at the request of the Company but subject to the lenders’ discretion, potentially be increased by up to an aggregate amount of $i500.0
million. There were no amounts outstanding under the TD SYNNEX revolving credit facility at May 31, 2023 or November 30, 2022. The TD SYNNEX Credit Agreement also includes a senior unsecured term loan (the “TD SYNNEX term loan” and, together with the TD SYNNEX revolving credit facility, the “TD SYNNEX credit facilities”) in an original aggregate principal amount of $i1.5 billion, that was fully funded in connection with
the closing of the Merger. The borrower under the TD SYNNEX Credit Agreement is the Company. There are no guarantors of the TD SYNNEX Credit Agreement. iThe maturity of the TD SYNNEX Credit Agreement is on the fifth anniversary of the September 2021 closing date, to occur in September 2026, subject in the case of the revolving credit facility, to itwoione-year extensions upon the Company’s prior notice to the lenders and the agreement of the lenders to extend such maturity date./
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
iThe outstanding principal amount
of the TD SYNNEX term loan is payable in quarterly installments in an amount equal to i1.25% of the original $i1.5
billion principal balance, with the outstanding principal amount of the term loans due in full on the maturity date./ Loans borrowed under the TD SYNNEX Credit Agreement bear interest, in the case of SOFR rate loans, at a per annum rate equal to the applicable SOFR rate, plus the applicable margin, which may range from i1.125% to i1.750%,
based on the Company’s public debt rating (as defined in the TD SYNNEX Credit Agreement). The applicable margin on base rate loans is i1.00% less than the corresponding margin on SOFR rate based loans. In addition to these borrowing rates, there is a commitment fee which ranges from i0.125%
to i0.300% on any unused commitment under the TD SYNNEX revolving credit facility based on the Company’s public debt rating. The effective interest rate for the TD SYNNEX term loan was i6.63%
and i5.46% as of May 31, 2023 and November 30, 2022, respectively. The Company used interest rate swap derivative contracts to economically convert a portion of the TD SYNNEX term loan to fixed-rate debt. The interest rate swaps were terminated in May 2023 (see Note
6 - Derivative Instruments for further discussion).
The TD SYNNEX Credit Agreement contains various loan covenants that are customary for similar facilities for similarly rated borrowers that restricts the ability of the Company and its subsidiaries to take certain actions. The TD SYNNEX Credit Agreement also contains financial covenants which require compliance with a maximum debt to EBITDA ratio and a minimum interest coverage ratio, in each case tested on the last day of each fiscal quarter. The TD SYNNEX Credit Agreement also contains various customary events of default, including with respect to a change of control of the Company.
TD
SYNNEX Senior Notes
On August 9, 2021, the Company completed its offering of $i2.5 billion aggregate principal amount of senior unsecured notes, consisting of $i700.0
million of i1.25% senior notes due iAugust 9, 2024, $i700.0
million of i1.75% senior notes due iAugust 9, 2026, $i600.0
million of i2.375% senior notes due iAugust 9, 2028, and $i500.0
million of i2.65% senior notes due iAugust 9, 2031 (collectively, the “Senior Notes,” and such offering, the “Senior Notes Offering”). The
Company incurred $i19.6 million towards issuance costs on the Senior Notes. The Company pays interest semi-annually on the notes on each of February 9 and August 9. The net proceeds from this offering were used to fund a portion of the aggregate cash consideration payable in connection with the Merger, refinance certain of the Company's existing indebtedness and pay related fees and expenses and for general
corporate purposes.
The interest rate payable on each series of the Senior Notes will be subject to adjustment from time to time if the credit rating assigned to such series of Senior Notes is downgraded (or downgraded and subsequently upgraded). iThe Company may redeem the Senior Notes, at any time in whole or from time to time in part, prior to (i) iAugust 9,
2022 (the “2024 Par Call Date”) in the case of the 2024 Senior Notes, (ii) iJuly 9, 2026 (the “2026 Par Call Date”) in the case of the 2026 Senior Notes, (iii) iJune 9,
2028 (the “2028 Par Call Date”) in the case of the 2028 Senior Notes, and (iv) iMay 9, 2031 in the case of the 2031 Senior Notes (the “2031 Par Call Date” and, together with the 2024 Par Call Date, the 2026 Par Call Date and the 2028 Par Call Date, each, a “Par Call Date” and together, the “Par Call Dates”), at a redemption price equal to the greater of (x) i100%
of the aggregate principal amount of the applicable Senior Notes to be redeemed and (y) the sum of the present values of the remaining scheduled payments of the principal and interest on the Senior Notes, discounted to the date of redemption on a semi-annual basis at a rate equal to the sum of the applicable treasury rate plus i15 basis points for the 2024 Senior Notes, i20
basis points for the 2026 Senior Notes and ii25/
basis points for the 2028 Senior Notes and 2031 Senior Notes, plus in each case, accrued and unpaid interest thereon to, but excluding, the redemption date. The Company may also redeem the Senior Notes of any series at its option, at any time in whole or from time to time in part, on or after the applicable Par Call Date, at a redemption price equal to i100% of the principal amount of the Senior Notes to be redeemed. /
On
June 14, 2022, the Company commenced an offer to exchange (the "Exchange Offer") its outstanding unregistered Senior Notes for new registered notes (the "Exchange Notes"). The purpose of the Exchange Offer was to fulfill the Company's obligations under the applicable registration rights agreement entered into in connection with the issuance of the Senior Notes. The Company did not receive any proceeds from the Exchange Offer, and the aggregate principal amount of Exchange Notes that were issued was equal to the aggregate principal amount of Senior Notes that were
surrendered pursuant to the Exchange Offer. The terms of the Exchange Notes are substantially identical to the terms of the respective series of the Senior Notes, except that the Exchange Notes are registered under the Securities Act, and certain transfer restrictions, registration rights, and additional interest provisions relating to the Senior Notes do not apply to the Exchange Notes. The Exchange Offer expired on July 14, 2022 and settlement occurred on July 15, 2022.
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Other Short-Term Borrowings
The Company has various other committed and uncommitted lines of credit with financial institutions, finance leases, short-term loans, term loans, credit facilities and book overdraft facilities, totaling approximately $i588.5
million in borrowing capacity as of May 31, 2023. Most of these facilities are provided on an unsecured, short-term basis and are reviewed periodically for renewal. Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. There was $i224.7 million outstanding on these facilities at May 31, 2023, at a weighted average interest rate of i6.54%,
and there was $i193.1 million outstanding at November 30, 2022, at a weighted average interest rate of i4.69%. Borrowings under certain of these lines of credit facilities are guaranteed by
the Company.
At May 31, 2023, the Company was also contingently liable for reimbursement obligations with respect to issued standby letters of credit in the aggregate outstanding amount of $i30.6 million. These letters of credit typically act as a guarantee of payment to certain third
parties in accordance with specified terms and conditions.
The maximum commitment amounts for local currency credit facilities have been translated into U.S. dollars at May 31, 2023 exchange rates.
Covenant Compliance
The Company's credit facilities have a number of covenants and restrictions that require the Company to maintain specified financial ratios. The covenants also limit the Company’s ability to incur additional debt, create liens, enter into agreements with affiliates, modify the nature of the
Company’s business, and merge or consolidate. As of May 31, 2023, the Company was in compliance with the financial covenant requirements for the above arrangements.
Weighted-average
number of common shares - diluted
i93,643
i95,742
i94,074
i95,784
Diluted
earnings per common share
$
i1.41
$
i1.55
$
i3.17
$
i2.92
Anti-dilutive
shares excluded from diluted earnings per share calculation
i304
i244
i271
i244
_________________________
(1)
RSAs granted by the Company are considered participating securities. Income available to participating securities was immaterial in all periods presented.
The Company has a business relationship with MiTAC Holdings Corporation (“MiTAC Holdings”), a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became one of the Company's primary investors through its affiliates. As of May 31, 2023
and November 30, 2022, MiTAC Holdings and its affiliates beneficially owned approximately i9.9% and i9.7% of the
Company’s outstanding common stock, respectively. Mr. Matthew Miau, Chairman Emeritus of the Company’s Board of Directors and a director, is the Chairman of MiTAC Holdings and a director or officer of MiTAC Holdings’ affiliates.
Beneficial Ownership of the Company’s Common Stock by MiTAC Holdings
i
As
noted above, MiTAC Holdings and its affiliates in the aggregate beneficially owned approximately i9.9% of the Company’s outstanding common stock as of May 31, 2023. These shares are owned by the following entities:
(1)
Shares are held as follows: i302 shares by Silver Star Developments Ltd. and i2,595 shares by MiTAC International
Corp., both of which are wholly-owned subsidiaries of MiTAC Holdings, along with i2,403 shares held directly by MiTAC Holdings. Excludes i196
shares held directly by Mr. Miau, i217 shares indirectly held by Mr. Miau through a charitable remainder trust, and i190 shares held by his spouse.
(2)
Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from the Company and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of i14.1% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of i15.7%
in Synnex Technology International. Neither MiTAC Holdings nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated.
Receivable from related parties
(included in Accounts receivable, net)
$
i4,423
$
i1,222
Payable
to related parties (included in Accounts payable)
i10,204
i30,317
/
NOTE
12—iEQUITY:
Share Repurchase Program
In June 2020, the Board of Directors authorized a ithree-year $i400.0
million share repurchase program, effective July 1, 2020. In January 2023, the Board of Directors authorized a new three-year $i1.0 billion share repurchase program, replacing the existing $i400.0
million share repurchase program, pursuant to which the Company may repurchase its outstanding common stock from time to time in the open market or through privately negotiated transactions.
On January 30, 2023, the Company announced the closing of a secondary public offering (the "Offering") of an aggregate of i5.2
million shares of its common stock that were sold by certain entities managed by affiliates of Apollo Global Management, Inc (the "Selling Stockholders"). All the shares in the Offering were sold by the Selling Stockholders. The Company did not receive any of the proceeds from the sale of shares by the Selling Stockholders in the Offering. Also pursuant to the related underwriting agreement, the Company repurchased i0.9
million shares of its common stock from the underwriters as part of the Offering, at the public offering price of $i97.00 per share, resulting in a purchase price of $i87.3 million (the "Concurrent Share Repurchase"). The
Concurrent Share Repurchase was made under the Company's existing $i1.0 billion share repurchase program, and is included within the caption "Shares of treasury stock purchased under share repurchase program" in the table below.
As of May 31, 2023, the Company had $i841.7
million available for future repurchases of its common stock under the authorized share repurchase program.
i
The Company's common share repurchase activity for the six months ended May 31, 2023 is summarized as follows:
(1)
Weighted-average price per share excludes broker's commissions and excise taxes. "Repurchases of common stock" in the Consolidated Statements of Cash Flows for the six months ended May 31, 2023 excludes $i1.4 million of accrued excise tax that is included in "Other current liabilities" and "Treasury stock" on the Consolidated Balance Sheets at May 31, 2023. Excise taxes when paid are classified as operating activities
in the Consolidated Statements of Cash Flows.
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Dividends
On iJune 27, 2023, the Company announced that its Board of Directors declared a quarterly cash dividend of $i0.35
per common share payable on iJuly 28, 2023 to stockholders of record as of the close of business on iJuly 14,
2023. Dividends are subject to continued capital availability and declaration by the Board of Directors that the dividend is in the best interest of the Company’s stockholders.
NOTE 13—iCOMMITMENTS AND CONTINGENCIES:
As is customary in the technology industry,
to encourage certain customers to purchase products from us, the Company also has other financing agreements with financial institutions to provide inventory financing facilities to the Company’s customers and allow certain customers of the Company to finance their purchases directly with the financial institutions. The Company is contingently liable to repurchase inventory sold under these agreements in the event of any default by its customers under the agreement and such inventory being repossessed by the financial institutions. As the Company
does not have access to information regarding the amount of inventory purchased from the Company still on hand with the customer at any point in time, the Company’s repurchase obligations relating to inventory cannot be reasonably estimated. Losses, if any, would be the difference between the repossession cost and the resale value of the inventory. Repurchases under these arrangements have been insignificant to date and the Company is not aware of any pending customer defaults or repossession obligations. The Company believes that, based on historical experience, the likelihood of a material loss pursuant to these inventory repurchase
obligations is remote.
The French Autorité de la Concurrence (“Competition Authority”) began in 2013 an investigation into the French market for certain products of Apple, Inc. ("Apple") for which the Company is a distributor. In March 2020, the Competition Authority imposed fines on Tech Data, on another distributor, and on Apple, finding that Tech Data entered into an anticompetitive agreement with Apple regarding volume allocations of Apple products. The initial fine imposed on Tech Data was €i76.1 million.
The Company appealed its determination to the French courts, seeking to set aside or reduce the fine. On October 6, 2022, the appeals court issued a ruling that reduced the fine imposed on the Company from €i76.1 million to €i24.9
million. As a result of the appeals court ruling, the Company determined that the best estimate of probable loss related to this matter is €i24.9 million (approximately $i26.7
million as of May 31, 2023), which has been paid in full. The Company continues to contest the arguments of the Competition Authority and has further appealed this matter. A civil lawsuit related to this matter, alleging anticompetitive actions in association with the established distribution networks for Apple, Tech Data and another distributor was filed by eBizcuss. The Company is currently evaluating this matter and cannot currently estimate the probability or amount of any potential loss.
From time to time, the Company receives notices from third parties, including customers and suppliers, seeking indemnification,
payment of money or other actions in connection with claims made against them. Also, from time to time, the Company has been involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. In addition, the Company is subject to various other claims, both asserted and unasserted, that arise in the ordinary course of business. The Company evaluates these claims and records the related liabilities. It is possible that the ultimate liabilities could differ from the amounts recorded.
On December 1,
2020, the Company completed the previously announced separation of its customer experience services business (the “Separation”), in a tax-free transaction for federal income tax purposes, which was accomplished by the distribution of ione hundred percent of the outstanding common stock of Concentrix Corporation (“Concentrix”). In connection with the Separation, the
Company and Concentrix entered into a separation and distribution agreement as well as various other agreements that provide a framework for the relationships between the parties going forward, including among others an employee matters agreement, a tax matters agreement, and a commercial agreement, pursuant to which Concentrix will continue to provide certain limited services to the Company following the Separation.
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Under the Separation and Distribution agreement with Concentrix that was entered into in connection with the Separation, SYNNEX agreed to indemnify Concentrix, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to SYNNEX as part of the Separation. Similarly, Concentrix agreed to indemnify
SYNNEX, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to Concentrix as part of the Separation. The Company expects Concentrix to fully perform under the terms of the Separation and Distribution agreement.
Under the Separation and Distribution agreement, SYNNEX and Concentrix agreed to cooperate with each other in managing litigation related to both companies' businesses. The Separation and Distribution agreement also included provisions that assign to each company responsibility for managing pending and future litigation related to the general corporate matters of SYNNEX arising prior
to the Separation.
The Company does not believe that the above commitments and contingencies will have a material adverse effect on the Company's results of operations, financial position or cash flows.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Report. Amounts in certain tables may not add or compute due to rounding.
When used in this Quarterly Report on Form 10-Q, or this “Report”, the words “anticipates,”“believes,”“estimates,”“expects,”“intends,”“allows,”“can,”“may,”“could,”“designed,”“will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about our business model and our services, our business and market strategy, future growth, our infrastructure, our investment in our information technology, or IT, systems, our employee hiring
and retention, the ownership interest of MiTAC Holdings Corporation or MiTAC Holdings, in us and its impact, the ownership interest of Apollo Global Management, Inc., or Apollo, in us and its impact, the impact of the Merger, our integration plans, our plans with respect to the GBO 2 Program, our revenue, sources of revenue, our gross margins, our operating costs and results, timing of payment, the value of our inventory, our competition, including with Synnex Technology International Corp., our future needs and sources for additional financing, contract terms, relationships with our suppliers, adequacy of our facilities, ability to meet demand, managing inventory and our shipping costs, our legal proceedings, our operations, foreign currency exchange rates and hedging activities, our strategic acquisitions including anticipated cost savings and other benefits, our goodwill, seasonality
of sales, adequacy of our cash resources, our debt and financing arrangements, including the impact of any change to our credit rating, interest rate risk and impact thereof, cash held by our international subsidiaries and repatriation, changes in fair value of derivative instruments, our tax liabilities, adequacy of our disclosure controls and procedures, cybersecurity, the replacement of LIBOR, impact of our pricing policies, impact of economic and industry trends, changes to the markets in which we compete, impact of accounting policies, our estimates and assumptions, impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, impact of any impairment of our goodwill and intangible assets, our share repurchase and dividend program, and our purchase accounting adjustments. Forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed herein and risks related to the risk that the legacy SYNNEX and legacy Tech Data businesses will not be integrated successfully or realize the anticipated benefits of the combined company, the buying patterns of our customers, concentration of sales to large customers, the loss or consolidation of one or more of our significant original equipment manufacturer ("OEM") suppliers or customers, market acceptance of the products we assemble and distribute, competitive conditions in our industry and their impact on our margins, pricing and other terms with our OEM suppliers, our ability to gain market share, variations in supplier-sponsored programs, changes in our costs and operating expenses, increased inflation, dependence upon and trends in capital spending
budgets in the IT industry, fluctuations in general economic conditions, changes in tax laws, risks associated with our international operations, uncertainties and variability in demand by our reseller and integration customers, supply shortages or delays, any termination or reduction in our floor plan financing arrangements, changes in value of foreign currencies and interest rates and other risk factors contained in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended November 30, 2022 andbelow under Part II, Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations
with regard thereto or any change in events, conditions or circumstances on which any such statement is based, unless otherwise required by law.
In the Management’s Discussion and Analysis of Financial Condition and Results of Operations, all references to “TD SYNNEX,”"SYNNEX,"“we,”“us,”“our” or the “Company” mean TD SYNNEX Corporation and its subsidiaries, except where it is made clear that the term means only the parent company or one of its segments.
TD SYNNEX, the TD SYNNEX Logo and all other TD SYNNEX company, product and services names and slogans are trademarks or registered trademarks of TD SYNNEX Corporation. Other names and marks are the property of their
respective owners.
Overview
We are a Fortune 100 corporation and a leading global distributor and solutions aggregator for the information technology ("IT") ecosystem. We serve a critical role, bringing products from the world's leading and emerging technology vendors to market, and helping our customers create solutions best suited to maximize business outcomes for their end-user customers.
On March
22, 2021, SYNNEX entered into an agreement and plan of merger (the “Merger Agreement”) which provided that legacy SYNNEX Corporation would acquire legacy Tech Data Corporation, a Florida corporation (“Tech Data”) through a series of mergers, which would result in Tech Data becoming an indirect subsidiary of TD SYNNEX Corporation (collectively, the "Merger"). On September 1, 2021, pursuant to the terms of the Merger Agreement, SYNNEX acquired all the outstanding shares of common stock of Tiger Parent (AP) Corporation, the parent corporation of Tech Data, for consideration of $1.6 billion in cash ($1.1 billion in cash after giving effect to a $500.0 million equity contribution by Tiger Parent Holdings, L.P., Tiger Parent (AP) Corporation's sole stockholder and an affiliate of Apollo Global Management, Inc.,
to Tiger Parent (AP) Corporation prior to the effective time of the Merger) and 44 million shares of common stock of SYNNEX, valued at approximately $5.6 billion.
Digital transformation and the migration to cloud computing is reshaping our industry, enabling businesses and consumers to evaluate, procure, acquire, and consume technology products and services in a variety of ways. Hybrid models of IT consumption, supporting both physical and virtual delivery methods are emerging, as hardware and software-based solutions become increasingly combined. As a result, customers are seeking greater integration of products, services and solutions that tie technologies together. Therefore, we believe it is important to provide a broad, end-to-end portfolio, with deep capabilities across the computing continuum to help customers manage the increasingly complex IT ecosystem and deliver the solutions and business outcomes the market desires.
Our vision for the future is to be the vital solutions aggregator and orchestrator that connects the IT ecosystem.
Our global strategy is to deliver higher value by focusing on the following strategic priorities:
•Invest in high-growth technologies such as hybrid cloud, security, analytics/Internet of Things ("IoT"), hyperscale infrastructure, and services.
•Strengthen our end-to-end portfolio of products, services and solutions, including technology-as-a-service and recurring revenue models.
•Transformour company digitally through greater automation and advanced
analytics, which we believe will enhance the customer experience, broaden our customer base, increase sales and augment our presence in high growth technologies.
•Expand our global footprint and enhance the operational excellence of our businesses around the world.
We offer a comprehensive catalog of technology products from original equipment manufacturers (“OEM”), suppliers of high-growth technologies such as converged and hyper-converged infrastructure, cloud, security, data/analytics/IoT and services. We purchase IT hardware, software, and systems including personal computing devices and peripherals, mobile phones and accessories, printers, server and datacenter infrastructure, networking, communications and storage solutions, and systems components from our suppliers and sell them to our reseller and retail customers. Our
reseller customers include value-added resellers, corporate resellers, government resellers, system integrators, direct marketers, retailers and managed service providers. We combine our core strengths in distribution with demand generation, supply chain management and design and integration solutions to help our customers achieve greater efficiencies in time to market, cost minimization, real-time linkages in the supply chain and aftermarket product support. We also provide comprehensive IT solutions in key vertical markets such as government and healthcare and we provide specialized service offerings that increase efficiencies in the areas of global computing components, logistics services and supply chain management. Additionally, we provide systems design and integration solutions for data center servers and networking solutions built specific to our customers’ workloads and data center environments.
Our business is characterized
by low gross profit as a percentage of revenue, or gross margin, and low operating income as a percentage of revenue, or operating margin. The market for IT products has generally been characterized by declining unit prices and short product life cycles, although unit prices for certain products have increased during certain periods due to factors such as supply chain constraints and inflation. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide.
We are highly dependent on the end-market demand for IT products, and on our partners’ strategic initiatives
and business models. This end-market demand is influenced by many factors including the introduction of new IT products and software by OEM suppliers, replacement cycles for existing IT products, trends toward cloud computing, overall economic growth and general business activity. A difficult and challenging economic environment, including due to the continued impacts of increased inflation, rising interest rates, increased risk in banking and financial institutions and Russia's invasion of Ukraine, may also lead to consolidation or decline in the IT industries and increased price-based competition. Our systems design and integration solutions business is highly dependent on the demand for cloud infrastructure, and the number of key customers and suppliers in the market. Our business includes operations in the Americas, Europe and Asia-Pacific and Japan ("APJ") so we are affected by demand for our products in those regions, and the weakening of local currencies
relative to the U.S. dollar which occurred during fiscal year 2022 may continue to adversely affect the operating results of our Europe and APJ segments.
Acquisitions
We continually seek to augment organic growth in our business with strategic acquisitions of businesses and assets that complement and expand our existing capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. We seek to acquire new OEM relationships, enhance our supply chain and integration capabilities, the services we provide to our customers and OEM suppliers, and expand our geographic footprint.
Results
of Operations
The following table sets forth, for the indicated periods, data as percentages of total revenue:
In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including:
•Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue for the three and six months ended May 31, 2023 in the billing currency using the comparable prior period currency conversion rate. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates will
be higher or lower than growth reported at actual exchange rates.
•Non-GAAP gross profit, which is gross profit, adjusted to exclude the portion of purchase accounting adjustments that affected cost of revenue.
•Non-GAAP gross margin, which is non-GAAP gross profit, as defined above, divided by revenue.
•Non-GAAP operating income, which is operating income, adjusted to exclude acquisition, integration and restructuring costs, amortization of intangible assets, share-based compensation expense and
purchase accounting adjustments.
•Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue.
•Non-GAAP net income, which is net income, adjusted to exclude acquisition, integration and restructuring costs, amortization of intangible assets, share-based compensation expense, purchase accounting adjustments, income taxes related to the aforementioned items, as well as a capital loss carryback benefit.
•Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share impact of acquisition, integration and restructuring costs, amortization of intangible assets, share-based compensation expense, purchase accounting adjustments, income taxes related to the aforementioned items, as well as a
capital loss carryback benefit.
Acquisition, integration and restructuring costs typically consist of acquisition, integration, restructuring and divestiture related costs and are expensed as incurred. These expenses primarily represent professional services costs for legal, banking, consulting and advisory services, severance and other personnel related costs, share-based compensation expense and debt extinguishment fees. From time to time, this category may also include transaction-related gains/losses on divestitures/spin-off of businesses, costs related to long-lived assets including impairment charges and accelerated depreciation and amortization expense due to changes in asset useful lives, as well as various other costs associated with the acquisition or divestiture.
Our acquisition activities have resulted in the recognition of finite-lived intangible assets which consist
primarily of customer relationships and vendor lists. Finite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in our statements of operations. Although intangible assets contribute to our revenue generation, the amortization of intangible assets does not directly relate to the sale of our products. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of our acquisition activity. Accordingly, we believe excluding the amortization of intangible assets, along with the other non-GAAP adjustments which neither relate to the ordinary course of our business nor reflect our underlying business performance, enhances our and our investors’ ability to compare our past financial performance with our current performance and to analyze underlying business performance
and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within our GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.
Share-based compensation expense is a non-cash expense arising from the grant of equity awards to employees based on the estimated fair value of those awards. Although share-based compensation is an important aspect of the compensation of our employees, the fair value of the share-based awards may bear little resemblance to the actual
value realized upon the vesting or future exercise of the related share-based awards and the expense can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Given the variety and timing of awards and the subjective assumptions that are necessary when calculating share-based compensation expense, we believe this additional information allows investors to make additional comparisons between our operating results from period to period.
Purchase accounting adjustments are primarily related to the impact of recognizing the acquired vendor and customer liabilities from the Merger at fair value. The Company expects the duration of these adjustments to benefit our non-GAAP operating income through a portion of fiscal 2023 based on historical settlement
patterns with our vendors and in accordance with the timing defined in our policy for releasing vendor and customer liabilities we deem remote to be paid.
We believe that providing this additional information is useful to the reader to better assess and understand our base operating performance, especially when comparing results with previous periods and for planning and forecasting in future periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes.
As these non-GAAP financial measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be used as a complement to, and in conjunction with data presented in accordance with GAAP.
During the three months ended May 31, 2023, consolidated revenue and revenue in constant currency decreased by $1.2 billion and $1.1 billion, respectively, as compared to the prior year period. During the six months ended May 31, 2023, consolidated revenue and revenue in constant currency decreased by $1.6 billion and $961.0 million, respectively, as compared to the prior year period. The decreases are primarily driven by a decline in our Endpoint Solutions portfolio as the industry experienced a post-pandemic decline in demand for personal computer ecosystem products. This decline was partially offset by increases in our Advanced Solutions portfolio and high-growth technologies. The shift in product mix resulted in a greater percentage of our revenues being presented on a net basis, which negatively impacted our revenue
compared to the prior three and six months ended May 31, 2022 by approximately 3%.
During the three months ended May 31, 2023, Americas revenue and revenue in constant currency decreased by $1.1 billion and $1.0 billion, respectively, as compared to the prior year period. During the six months ended May 31, 2023, Americas revenue and revenue in constant currency decreased by $1.5 billion and $1.4 billion, respectively, as compared to the prior
year period. The decreases are primarily due to a decline in our Endpoint Solutions portfolio in the region as the industry experienced a post-pandemic decline in demand for personal computer ecosystem products, partially offset by growth in our Advanced Solutions portfolio and high-growth technologies. The shift in product mix resulted in a greater percentage of our revenues being presented on a net basis, which negatively impacted our revenue by approximately 3% and 4% compared to the three and six months ended May 31, 2022, respectively.
Europe Commentary
During the three months ended May 31, 2023, Europe revenue and revenue in constant currency decreased by $191.2 million and $164.2 million, respectively, as compared to the prior year period. The decreases are primarily due to
a shift in product mix that resulted in a greater percentage of our revenues being presented on a net basis, which negatively impacted our revenue by approximately 4% compared to the three months ended May 31, 2022. The shift in product mix was primarily due to a decline in our Endpoint Solutions portfolio, which was offset by growth in our Advanced Solutions portfolio.
During the six months ended May 31, 2023, Europe revenue decreased by $250.5 million, as compared to the prior year period, primarily due to the impact of changes in foreign currencies. The impact of changes in foreign currencies is primarily due to the weakening of the euro against the U.S. dollar. During the six months ended May 31, 2023, Europe revenue in constant currency increased by $120.4 million, as compared
to the prior year period, primarily due to growth in our Advanced Solutions portfolio, partially offset by a decline in our Endpoint Solutions portfolio. The shift in product mix resulted in a greater percentage of our revenues being presented on a net basis, which negatively impacted our revenue by approximately 3% compared to the six months ended May 31, 2022.
APJ Commentary
During the three months ended May 31, 2023, APJ revenue and revenue in constant currency increased by $61.1 million and $98.6 million, respectively, as compared to the prior year period. During the six months ended May 31, 2023, APJ revenue and revenue in constant currency increased by $211.4 million and $309.5 million, respectively, as compared to the prior year
period. The increases are primarily driven by growth in high-growth technologies.
Our
gross margin is affected by a variety of factors, including competition, selling prices, mix of products, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, inventory losses and fluctuations in revenue due to factors such as shift in product mix that may result in additional revenues being presented on a net basis.
Our gross profit increased during the three and six months ended May 31, 2023, as compared to the prior year periods, primarily due to the impact of lower purchase accounting adjustments related to the Merger and our improved
gross margin, partially offset by the impact of a decline in revenues in our Endpoint Solutions portfolio. The increase in gross margin during the three and six months ended May 31, 2023, as compared to the prior year periods, is primarily due to product and customer mix, including an increase in revenue in our Advanced Solutions portfolio and high-growth technologies, as well as the impact of lower purchase accounting adjustments related to the Merger. The shift in product mix resulted in the presentation of additional revenues on a net basis, which positively impacted our gross margin during the three and six months ended May 31, 2023 by approximately 21 and 20 basis points, respectively.
During the three months ended May 31, 2023, non-GAAP gross profit decreased, as compared
to the prior year period, primarily due to the decrease in revenues in our Endpoint Solutions portfolio, partially offset by an improvement in gross margin. During the six months ended May 31, 2023, non-GAAP gross profit slightly increased, as compared to the prior year period, primarily due to an improvement in gross margin, partially offset by the decrease in revenues in our Endpoint Solutions portfolio. During the three and six months ended May 31, 2023, non-GAAP gross margin increased, as compared to the prior year period, primarily due to product and customer mix, including an increase in revenue in our Advanced Solutions portfolio and high-growth technologies, as well as the presentation of additional revenues on a net basis.
Our selling, general and administrative expenses consist primarily of personnel costs such as salaries, commissions, bonuses, share-based compensation and temporary personnel costs. Selling, general and administrative expenses also include cost of warehouses,
delivery centers and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of our intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.
During the three and six months ended May 31, 2023, selling, general and administrative expenses slightly increased, compared to the prior year period, primarily due to higher personnel costs. Selling, general and administrative expenses increased as a percentage of revenue, compared to the prior year period, primarily due to the decrease in revenue.
Acquisition, Integration and Restructuring Costs
Acquisition, integration and restructuring costs are primarily comprised of costs related to the Merger and
costs related to the Global Business Optimization 2 Program initiated by Tech Data prior to the Merger (the “GBO 2 Program”).
The Merger
We incurred acquisition, integration and restructuring costs related to the completion of the Merger, including professional services costs, personnel and other costs, long-lived assets charges and termination fees, and stock-based compensation expense. Professional services costs are primarily comprised of IT and other consulting services, as well as legal expenses. Personnel and other costs are primarily comprised of costs related to retention and other bonuses, severance and duplicative labor costs. Long-lived assets charges and termination fees are comprised of accelerated depreciation and amortization expense of $5.3 million and $11.5 million recorded during the three and six months ended May 31,
2023, respectively, and $52.9 million recorded during the six months ended May 31, 2022,due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, as well as $2.3 million and $12.5 million recorded during the three and six months ended May 31, 2023 for termination fees related to certain IT systems. There were no long-lived assets charges and termination fees recorded during the three months ended May 31, 2022. Stock-based compensation expense primarily relates to costs associated with the conversion of certain Tech Data performance-based equity awards issued prior to the Merger into restricted shares of TD SYNNEX (refer to Note
4 – Share-Based Compensation to the Consolidated Financial Statements in Part I, Item 1 of this Report for further information) and expenses for certain restricted stock awards issued in conjunction with the Merger.
During the three and six months ended May 31, 2023 and 2022, acquisition and integration expenses related to the Merger were composed of the following:
During
the three months ended May 31, 2023, acquisition and integration expenses related to the Merger increased, compared to the prior year period, due to long-lived assets charges and termination fees, as well as an increase in personnel and other costs primarily due to higher severance costs. During the six months ended May 31, 2023, acquisition and integration expenses related to the Merger decreased, compared to the prior year period, primarily due to the decrease in long-lived assets charges and termination fees.
GBO 2 Program
Prior to the Merger, Tech Data implemented its GBO 2 Program that includes investments to optimize and standardize processes and apply data and analytics to be more agile in a rapidly evolving environment, increasing productivity, profitability and optimizing
net-working capital. TD SYNNEX continued this program in conjunction with the Company’s integration activities. Acquisition, integration and restructuring expenses related to the GBO 2 Program are primarily comprised of restructuring costs and other costs. Restructuring costs are comprised of severance costs and other associated exit costs, including certain consulting costs. Other costs are primarily comprised of personnel costs, facilities costs and certain professional services fees not related to restructuring activities.
We incurred acquisition, integration and restructuring costs under the GBO 2 Program of $2.6 million and $9.4 million during the three months ended May 31, 2023 and 2022, respectively. We incurred acquisition, integration,
and restructuring costs under the GBO 2 Program of $6.1 million and $17.2 million during the six months ended May 31, 2023 and 2022, respectively. During the three and six months ended May 31, 2023, acquisition, integration and restructuring costs under the GBO 2 Program decreased, compared to the prior year period, due to the wind-down of activities as the program is not expected to incur material amounts in future periods.
The following tables provide
an analysis of operating income and non-GAAP operating income on a consolidated and regional basis as well as a reconciliation of operating income to non-GAAP operating income on a consolidated and regional basis for the three and six months ended May 31, 2023 and 2022:
Operating
Income and Operating Margin - Consolidated
(in thousands)
(in thousands)
Revenue
$
14,062,124
$
15,269,791
$
29,187,495
$
30,739,768
Operating
income
$
252,883
$
252,737
0.1
%
$
551,045
$
475,177
16.0
%
Acquisition, integration and restructuring costs
36,829
32,478
88,011
125,848
Amortization
of intangibles
73,519
74,676
146,542
150,812
Share-based compensation
7,648
7,038
20,722
13,788
Purchase
accounting adjustments
5,170
31,392
12,620
64,553
Non-GAAP operating income
$
376,049
$
398,321
(5.6)
%
$
818,940
$
830,178
(1.4)
%
Operating
margin
1.80
%
1.66
%
1.89
%
1.55
%
Non-GAAP operating margin
2.67
%
2.61
%
2.81
%
2.70
%
Consolidated
operating income was flat during the three months ended May 31, 2023, compared to the prior year period, primarily due to an improvement in gross margin due to product and customer mix and a decrease in purchase accounting adjustments related to the Merger, offset by the decline in revenues in our Endpoint Solutions portfolio. Consolidated operating income increased during the six months ended May 31, 2023, compared to the prior year period, primarily due to an improvement in gross margin due to product and customer mix and a decrease in purchase accounting adjustments related to the Merger, partially offset by the decline in revenues in our Endpoint Solutions portfolio. Consolidated operating margin increased during the three and six months ended May 31, 2023, compared to the prior year period, due to an increase in gross
margin due to product and customer mix and a decrease in purchase accounting adjustments related to the Merger, partially offset by higher selling, general and administrative expenses as a percentage of revenue due to the decrease in revenues.
Consolidated non-GAAP operating income decreased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to the decrease in revenue, partially offset by an increase in gross margin due to product and customer mix. Consolidated non-GAAP operating margin increased during the three and six months ended May 31,
2023, compared to the prior year period, primarily due to an increase in gross margin due to product and customer mix, partially offset by higher selling, general and administrative expenses as a percentage of revenue due to the decrease in revenues.
Americas
operating income decreased during the three months ended May 31, 2023, as compared to the prior year period, primarily due to the decrease in revenue in our Endpoint Solutions portfolio along with an increase in acquisition, integration, and restructuring costs, partially offset by increased gross margin in the region due to product and customer mix, as well as the impact of lower purchase accounting adjustments related to the Merger. Americas operating income increased during the six months ended May 31, 2023, as compared to the prior year period, primarily due to increased gross margin in the region due to product and customer mix and the impact of lower purchase accounting adjustments related to the Merger, partially offset by the decline in revenues in our Endpoint Solutions portfolio. Americas operating margin increased during the three and six months ended May
31, 2023, compared to the prior year period, primarily due to increased gross margin in the region due to product and customer mix as well as the impact of lower purchase accounting adjustments related to the Merger, partially offset by higher selling, general and administrative expenses as a percentage of revenue due to the decrease in revenues.
Americas non-GAAP operating income decreased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to the decrease in revenue in our Endpoint Solutions portfolio, partially offset by increased gross margin in the region due to product and customer mix. Americas non-GAAP operating margin increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to increased gross margin in the region
due to product and customer mix, partially offset by higher selling, general and administrative expenses as a percentage of revenue due to the decrease in revenues.
Europe
operating income slightly decreased during the three months ended May 31, 2023, compared to the prior year period, primarily due to the decline in revenues in our Endpoint Solutions portfolio and an increase in personnel costs, partially offset by an increase in gross margin in the region due to product and customer mix and the impact of lower purchase accounting adjustments related to the Merger. Europe operating income increased during the six months ended May 31, 2023, compared to the prior year period, primarily due to a decrease in acquisition, integration, and restructuring costs and the impact of lower purchase accounting adjustments related to the Merger, partially offset by the decline in revenues in our Endpoint Solutions portfolio and higher personnel costs. Europe operating margin increased during the three months ended May 31,
2023, compared to the prior year period, primarily due to an increase in gross margin in the region due to product and customer mix and the impact of lower purchase accounting adjustments related to the Merger, partially offset by an increase in personnel costs. Europe operating margin increased during the six months ended May 31, 2023, compared to the prior year period, primarily due to a decrease in acquisition, integration, and restructuring costs and the impact of lower purchase accounting adjustments related to the Merger, partially offset by an increase in personnel costs.
Europe non-GAAP operating income decreased during the three months ended May 31, 2023, compared to the prior year period, primarily due to the decline in revenues in our Endpoint Solutions portfolio and an increase in personnel costs, partially offset
by an increase in gross margin in the region due to product and customer mix. Europe non-GAAP operating income decreased during the six months ended May 31, 2023, compared to the prior year period, primarily due to the decline in revenues in our Endpoint Solutions portfolio and an increase in personnel costs. Europe non-GAAP operating margin decreased during the three months ended May 31, 2023, compared to the prior year period, primarily due to an increase in personnel costs partially offset by an increase in gross margin due to product and customer mix. Europe non-GAAP operating margin decreased during the six months ended May 31, 2023, compared to the prior year period, primarily due to an increase in personnel costs.
APJ
operating income increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to increased sales in the region due to high-growth technologies, and a decrease in acquisition, integration, and restructuring costs. APJ operating margin increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to regional selling, general and administrative expenses remaining consistent despite the increase in sales and a decrease in acquisition, integration and restructuring costs.
APJ non-GAAP operating income increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to increased sales in the region due to high-growth technologies. APJ non-GAAP
operating margin increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to regional selling, general and administrative expenses remaining consistent despite the increase in sales.
Amounts recorded in interest expense and finance charges, net, consist primarily of interest expense paid on our Senior Notes, our lines of credit, our accounts receivable securitization facility and our term loans, and fees associated with the sale of accounts receivable, partially
offset by income earned on our cash investments.
During the three and six months ended May 31, 2023, our interest expense and finance charges, net increased, compared to the prior year period, primarily due to higher average interest rates, along with increased costs associated with the sale of accounts receivable due to higher discount fees, which totaled $12.0 million and $23.7 million in the three and six months ended May 31, 2023, respectively, compared to $3.9 million and $6.9 million in the three and six months ended May 31, 2022, respectively.
Amounts recorded
as other expense, net include foreign currency transaction gains and losses on certain financing transactions and the related derivative instruments used to hedge such financing transactions, the cost of hedging, investment gains and losses, and other non-operating gains and losses, such as settlements received from class action lawsuits.
During the three and six months ended May 31, 2023, our other expense, net decreased, compared to the prior year period, primarily due to lower foreign currency transaction losses.
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions. Income taxes for the interim periods presented have been included in the accompanying Consolidated Financial Statements on the
basis of an estimated annual effective tax rate.
During the three months ended May 31, 2023, our income tax expense decreased compared to the prior year period, primarily due to lower income during the period. During the six months ended May 31, 2023, our income tax expense slightly decreased compared to the prior year period, primarily due to a lower effective tax rate. The effective tax rate was lower during the three and six months ended May 31, 2023 as compared to the three and six months ended May 31, 2022, primarily due to the relative mix of earnings and losses within the taxing jurisdictions in which we operate.
Net Income and Diluted EPS
The
following tables present net income and diluted EPS as well as a reconciliation of our most comparable GAAP measures to the related non-GAAP measures presented:
(1)
Diluted EPS is calculated using the two-class method. Unvested restricted stock awards granted to employees are considered participating securities. For purposes of calculating Diluted EPS, net income allocated to participating securities was approximately 0.8% of net income for the three and six months ended May 31, 2023, and was approximately 0.7% and 0.6% of net income for the three and six months ended May 31, 2022, respectively.
Our business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on term loans, sales of accounts receivable, our securitization program, our revolver programs and net trade credit from vendors for our working capital needs. We have financed our growth and cash needs to date primarily through cash generated from operations and financing activities. As a general rule, when sales volumes are increasing, our net investment in working capital dollars typically increases, which generally results in decreased cash flow generated from operating activities. Conversely, when sales volumes decrease, our net investment in working capital dollars typically decreases, which generally results in increases in cash flows generated from operating activities. We calculate CCC as days of
the last fiscal quarter’s revenue outstanding in accounts receivable plus days of supply on hand in inventory, less days of the last fiscal quarter’s cost of revenue outstanding in accounts payable. Our CCC was 24 days and 23 days as of May 31, 2023 and November 30, 2022, respectively. The increase was primarily due to our DSO, which was impacted by a shift in our product and customer mix to our Advanced Solutions portfolio and high-growth technologies which generally have a slightly longer cash conversion cycle. Our CCC was 24 days and 21 days as of May 31, 2023 and May 31, 2022, respectively. The increase was primarily due to our DSO, which was impacted by changes in product and customer mix and the timing of customer payments, partially offset by an increase in our DPO
due to the timing of payments.
To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions. We expect that any such expansions would require an initial investment in working capital, personnel, facilities and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, additional borrowings, or the issuance of securities.
Operating Activities
Net cash provided byoperating activities was $604.8 millionduring the six months ended May 31, 2023, compared to net cash used in operating activities of $284.5 million during the six months ended May 31,
2022. The increase in net cash provided by operating activities was primarily due to a decline in sales volumes which resulted in decreases in accounts receivable and inventories, partially offset by a decrease in accounts payable.
Investing Activities
Net cash used ininvesting activities during the six months ended May 31, 2023 and 2022 was $64.5 million and $46.7 million, respectively. The increase in cash used in investing activities is primarily due to an increase in integration related capital expenditures due to the Merger.
Financing Activities
Net cash used in financing activities during the six months ended May 31,
2023 and 2022 was$247.1 million and $130.0 million, respectively. The increase in cash used in financing activities is primarily due to an increase in repurchases of common stock under our share repurchase program, which totaled $174.8 million during the six months ended May 31, 2023 compared to $52.8 million during the six months ended May 31, 2022. In addition, we paid stockholder dividends of $66.2 million and $57.6 million during the six months ended May 31, 2023 and 2022, respectively.
Capital Resources
Our cash and cash equivalents totaled $852.1 million and $522.6 million as
of May 31, 2023 and November 30, 2022, respectively. Our cash and cash equivalents held by international subsidiaries are no longer subject to U.S. federal tax on repatriation into the United States. Repatriation of some foreign balances is restricted by local laws. Historically, we have fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future our intentions change, and we repatriate the cash back to the United States, we will report in our Consolidated Financial Statements the impact of state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital,
investment and other general corporate funding requirements.
We believe that our available cash and cash equivalents balances, cash flows from operations and our existing sources of liquidity, including available capacity under our borrowing facilities, will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months in all geographies. We also believe that our longer-term working capital, planned capital expenditures, anticipated stock repurchases, dividend payments and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.
In the United States, we have an accounts receivable securitization program to provide additional capital for our operations (the "U.S. AR Arrangement"). Under the terms of the U.S. AR Arrangement, we and our subsidiaries that are party to the U.S. AR Arrangement can borrow up to a maximum of $1.5 billion based upon eligible trade accounts receivable. The U.S. AR Arrangement has a maturity date of December 2024. We also have a credit agreement, dated as of April 16, 2021 and amended May 22, 2023 (as amended, the "TD SYNNEX Credit Agreement"), pursuant to which we received commitments for the extension of a senior unsecured
revolving credit facility not to exceed an aggregate principal amount of $3.5 billion, which revolving credit facility (the "TD SYNNEX revolving credit facility") may, at our request but subject to the lenders' discretion, potentially be increased by up to an aggregate amount of $500.0 million. The TD SYNNEX Credit Agreement also includes a $1.5 billion term loan facility that was fully funded in connection with the Merger. The TD SYNNEX Credit Agreement has a maturity date of September 2026, in the case of the TD SYNNEX revolving credit facility, subject to two one-year extensions upon our prior notice to the lenders and the agreement of the lenders to extend such maturity date. The outstanding amount of our borrowings under the U.S. AR Arrangement and the TD SYNNEX revolving credit facility may fluctuate in response to changes in our working capital and other liquidity requirements. There were no amounts outstanding under the U.S. AR Arrangement or the TD SYNNEX
revolving credit facility at May 31, 2023 or November 30, 2022.
We have various other committed and uncommitted lines of credit with financial institutions, finance leases, short-term loans, term loans, credit facilities and book overdraft facilities, totaling approximately $588.5 million in borrowing capacity as of May 31, 2023. Our borrowings on these facilities vary within the period primarily based on changes in our working capital. There was $224.7 million outstanding on these facilities at May 31, 2023, at a weighted average interest rate of 6.54%, and there was $193.1 million outstanding at November 30, 2022, at a weighted average interest rate of 4.69%.
Historically,
we have renewed our accounts receivable securitization program and our parent company credit facilities on, or prior to, their respective expiration dates. We have no reason to believe that these and other arrangements will not be renewed or replaced as we continue to be in good credit standing with the participating financial institutions. We have had similar borrowing arrangements with various financial institutions throughout our years as a public company.
We had total outstanding borrowings of approximately $4.1 billion as of May 31, 2023 and November 30, 2022. Our outstanding borrowings include Senior Notes of $2.5 billion at May 31, 2023 and November 30, 2022, and term loans under the term loan facility of the TD SYNNEX Credit
Agreement of approximately $1.4 billion at May 31, 2023 and November 30, 2022. For additional information on our borrowings, see Note 8 - Borrowings to the Consolidated Financial Statements included in Part I, Item 1 of this Report.
Accounts Receivable Purchase Agreements
We have uncommitted supply-chain financing programs under which trade accounts receivable owed by certain customers may be acquired, without recourse, by certain financial institutions. Available capacity under these programs is dependent upon the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase
such receivables. In addition, certain of these programs also require that we continue to service, administer and collect the sold accounts receivable. At May 31, 2023 and November 30, 2022, we had a total of $1.1 billion and $1.4 billion, respectively, of trade accounts receivable sold to and held by financial institutions under these programs. Discount fees for these programs totaled $12.0 million and $23.7 million in the three and six months ended May 31, 2023, respectively, and $3.9 million and $6.9 million in the three and six months ended May 31, 2022, respectively.
Covenant Compliance
Our credit facilities have a number of covenants and restrictions that require us to maintain
specified financial ratios. They also limit our ability to incur additional debt, create liens, enter into agreements with affiliates, modify the nature of our business, and merge or consolidate. As of May 31, 2023, we were in compliance with the financial covenant requirements for the above arrangements.
Related Party Transactions
For a summary of related party transactions, see Note 11 - Related Party Transactions to the Consolidated Financial Statements, which can be found under Part I, Item 1 of this Report.
During the six months ended May 31, 2023, there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022.
Recently Issued Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements, see Note 2
- Summary of Significant Accounting Policies to the Consolidated Financial Statements, which can be found under Part I, Item 1 of this Report.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
For a description of the Company’s market risks, see “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022.
No material changes have occurred in our market risks since November 30, 2022.
ITEM
4. Controls and Procedures
(a)Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) have
concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
(b)Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022. There have been no material changes to the risk factors disclosed in our 2022 Annual Report on Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities
and Use of Proceeds
In June 2020, our Board of Directors authorized a three-year $400.0 million share repurchase program, effective July 1, 2020. In January 2023, our Board of Directors authorized a new three-year $1.0 billion share repurchase program (the "new share repurchase program"), replacing the existing $400.0 million share repurchase program, pursuant to which we may repurchase our outstanding common stock from time to time in the open market or through privately negotiated transactions. The prior $400.0 million share repurchase program was terminated on January 4, 2023, when it was replaced by the new share repurchase program, which will expire on January 3, 2026.
The following table presents information with respect
to purchases of common stock by the Company under the share repurchase program during the quarter ended May 31, 2023:
Issuer Purchases of Equity Securities (amounts in thousands except for per
share amounts)
Period
Total number of shares purchased
Average price paid per share (1)
Total number of shares purchased as part of publicly announced plans or program
Maximum dollar value of shares that may yet be purchased under the plans or programs
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
Cover Page Interactive Data File
(formatted as inline XBRL and contained in Exhibit 101)
* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
+Schedules
(or similar attachments) and certain information have been omitted pursuant to Items 601(a)(5), 601(a)(6) and/or 601(b)(10)(iv) of Regulation S-K. TD SYNNEX hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the U.S. Securities and Exchange Commission upon request; provided, however, that TD SYNNEX may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
