TD SYNNEX Corporation — Q2 FY2024 Form 10-Q
Reporting period: Three and six months ended May 31, 2024; fiscal year ends November 30. The financial statements are unaudited. TD SYNNEX distributes IT products and provides technology solutions across the Americas, Europe, and Asia-Pacific and Japan (APJ).
Financial results and liquidity
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $13.95B | $14.06B | $27.92B | $29.19B |
| Gross profit / margin | $973.5M / 6.98% | $963.4M / 6.85% | $1.98B / 7.09% | $1.97B / 6.74% |
| Operating income / margin | $263.9M / 1.89% | $252.9M / 1.80% | $566.5M / 2.03% | $551.0M / 1.89% |
| Net income | $143.6M | $133.1M | $315.7M | $300.1M |
| Diluted EPS | $1.66 | $1.41 | $3.60 | $3.17 |
- Cash flow: Six-month operating cash flow was $270.0M, down from $604.8M. Investing used $100.8M, including $26.2M for an acquisition; financing used $17.5M. Cash increased $139.9M to $1.17B.
- Debt and liquidity: Borrowings totaled approximately $4.6B at May 31, versus $4.1B at November 30, 2023. Cash was $1.17B. The $3.5B revolving facility and $1.5B U.S. receivables securitization facility had no amounts outstanding. Management said cash, operating cash flow, and available credit should support operations and planned needs for at least 12 months, including repayment of $700M senior notes due August 2024. The company reported covenant compliance.
- Working capital: Cash conversion cycle was 23 days, unchanged from November 30, 2023. Accounts receivable were $8.85B, inventory $7.10B, and accounts payable $12.13B.
Changes versus the prior comparable period
- Reported revenue fell 0.8% in Q2 and 4.3% for the first six months. Management attributed much of the reported decline to presenting a greater portion of some arrangements on a net basis, reducing revenue by approximately $550M in Q2 and $1B for the six months. Constant-currency revenue declined 0.5% and 4.6%, respectively.
- Q2 gross profit, operating income, and net income increased despite lower reported revenue. Operating margin rose to 1.89% from 1.80%. For the six months, operating income rose 2.8%, while non-GAAP operating income decreased 0.8% to $812.6M.
- Q2 diluted EPS increased partly alongside a lower weighted-average diluted share count (85.9M versus 93.6M). The company repurchased $453.4M of shares in the first six months, versus $174.8M a year earlier.
- Regional revenue in Q2 declined 1.6% in the Americas and 0.8% in Europe, while APJ grew 6.9%. APJ operating income declined 20.6%; Europe operating income declined 14.2%. For the six months, Americas and Europe revenue declined, while APJ grew.
- Operating cash flow declined year over year, primarily reflecting a smaller inventory reduction than in the prior-year period.
Outlook, commentary, risks, and unusual items
- No specific revenue or earnings guidance is provided in the filing. Management cites demand sensitivity to IT spending, customer buying patterns, inflation and elevated interest rates, competition and pricing, supply availability, foreign exchange, and demand for cloud infrastructure and other technology products.
- Management says strategic priorities include hybrid cloud, security, analytics, AI, hyperscale infrastructure, services, digital transformation, and expanding global operations. It noted growth in Advanced Solutions in several regions and margin expansion in European strategic technologies.
- In April, the company issued $600M of 6.10% senior notes due 2034 and borrowed $750M under a term loan, using the latter proceeds to repay part of an existing term loan. Management intends to repay the $700M 1.25% notes due August 2024 using the new notes and other available funds.
- Acquisition, integration, and restructuring costs were $37.9M in Q2 and $69.5M for the six months. Six-month costs included $10.1M for a voluntary severance program; the company said it does not expect further costs under the legacy GBO 2 program.
- Receivables sold under uncommitted, without-recourse purchase agreements were $1.2B at May 31; related discount fees were $32.6M for the six months, versus $23.7M a year earlier. Supplier-finance obligations included in accounts payable were $2.5B.
- One customer represented 12% of revenue in both the three- and six-month periods. Apple represented 11% of Q2 revenue and 12% for the six months; HP represented 10% of Q2 revenue.
- The company continues to contest a French competition fine, previously reduced to €24.9M and paid in 2022, and says it cannot estimate the probability or amount of potential loss in a related civil lawsuit. It considers other disclosed commitments and contingencies unlikely to have a material adverse effect.
- The board authorized a new $2B share-repurchase program in March; $1.9B remained available at May 31. A $0.40-per-share dividend was declared in June. Secondary offerings by Apollo-affiliated holders generated no proceeds for the company; the company did repurchase shares in concurrent transactions.
Investor verification points
- Assess underlying demand and profitability apart from the substantial effect of net revenue presentation changes, and review the company’s non-GAAP reconciliations.
- Verify the August 2024 note repayment and the ongoing cost and maturity profile of the new 6.10% notes and term loans.
- Monitor working-capital cash flows, receivables-sale discount costs, customer and supplier concentration, and the $2.5B supplier-finance balance.
- Track regional operating performance, particularly APJ’s Q2 margin decline and Europe’s mixed quarterly and six-month results.
- Review developments in the French competition matter and related lawsuit, along with the pace of buybacks, dividends, and remaining repurchase authorization.