TD SYNNEX Corporation — Q1 FY2024 Form 10-Q
Reporting period: Three months ended February 29, 2024; unaudited. TD SYNNEX is a global IT distributor and solutions aggregator, reporting through the Americas, Europe, and Asia-Pacific and Japan (APJ) segments. Comparisons are with the three months ended February 28, 2023, unless stated otherwise. Dollar amounts below are in millions except per-share data.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $13,975 | $15,125 | Down 7.6% |
| Gross profit / margin | $1,006 / 7.20% | $1,004 / 6.63% | Profit up 0.2%; margin up 57 bps |
| Operating income / margin | $303 / 2.17% | $298 / 1.97% | Income up 1.5% |
| Net income | $172 | $167 | Up 3.1% |
| Diluted EPS | $1.93 | $1.75 | Up 10.3% |
| Operating cash flow | $385 provided | $103 used | Improved $487 |
Non-GAAP operating income was $425 million, down 4.1%; non-GAAP operating margin was 3.04%, up from 2.93%. Non-GAAP diluted EPS was $2.99 versus $2.93. These are company-defined non-GAAP measures and should be considered alongside GAAP results.
Segment revenue and operating income: Americas revenue was $7,903 million and operating income $160 million; Europe was $5,117 million and $108 million; APJ was $955 million and $35 million. Revenue declined in all three segments on a reported basis, while operating income increased in Europe and APJ and declined in the Americas.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $1,031 million at quarter-end, versus $1,034 million at November 30, 2023. Current assets were $18,581 million and current liabilities $15,255 million.
- Total borrowings were approximately $4.0 billion, down from approximately $4.1 billion at fiscal year-end. The balance included $2.5 billion of senior notes and approximately $1.3 billion of term loans. The company reported no amounts drawn under its $3.5 billion revolving credit facility or its U.S. receivables securitization program; it reported $151.8 million outstanding on other short-term facilities.
- TD SYNNEX has $700 million of 1.25% senior notes due August 9, 2024. Management said it is assessing its debt structure and currently intends to refinance some or all of the notes before maturity.
- Operating cash flow benefited principally from lower accounts receivable, reflecting cash-collection timing. Investing cash outflow was $68 million, including $28 million paid for an acquisition; financing cash outflow was $311 million, including $199 million of share repurchases and $36 million of dividends.
- The company repurchased approximately 2.0 million shares for $199 million during the quarter; $196.7 million remained under the existing authorization at February 29. In March, the board authorized an additional $2.0 billion repurchase program. The quarterly dividend declared in March was $0.40 per share.
Material changes and management commentary
- Reported revenue fell 7.6%; constant-currency revenue fell 8.3%. Management attributed the decline mainly to lower Advanced Solutions revenue versus the prior-year period, when demand and backlog conversion were strong, and to weakness in Endpoint Solutions. A greater share of revenue was presented net, reducing reported revenue by approximately $450 million, or 3%, year over year.
- Gross margin improved, which management attributed to expansion in strategic technologies and additional net presentation; the latter increased gross margin by approximately 23 basis points. Higher gross margin and lower merger-related costs helped GAAP operating income despite lower revenue and higher personnel costs.
- SG&A rose 2.6% to $672 million and increased to 4.81% of revenue from 4.32%, primarily due to higher personnel costs and lower revenue. Acquisition, integration and restructuring costs were $32 million, including $7.2 million for a voluntary severance program.
- Management stated that cash, operating cash flow and available credit should be sufficient for operations and planned needs for at least the next 12 months, including repayment of the August 2024 notes. The filing provides no specific revenue or earnings guidance.
Risks, contingencies and other notable items
- The company describes its business as working-capital intensive and dependent on customer demand, IT spending, OEM relationships, supplier programs, competition, product pricing and foreign exchange. It also cites potential supply delays, inflation and elevated interest rates among relevant risks.
- One customer represented 10% of quarterly revenue; Apple products represented 12% of revenue. Supplier finance program obligations were $2.7 billion at quarter-end, included in accounts payable. Receivables sold under uncommitted purchase agreements were $1.2 billion, up from $864.6 million at November 30, 2023.
- TD SYNNEX remains involved in litigation related to a French competition authority matter and a related civil lawsuit. The previously assessed €24.9 million fine was paid in fiscal 2022 and remains under appeal; the company says it cannot currently estimate the probability or amount of potential loss in the civil case. Management does not expect disclosed contingencies to materially adversely affect results, financial position or cash flows.
- After quarter-end, the company amended its U.S. receivables securitization facility. It also reported that the amendment restricts draws when the dilution trigger ratio exceeds 5.75%. Management reported compliance with financial covenants at February 29, 2024.
Most important facts for investors to verify
- Whether demand stabilizes in Advanced Solutions and Endpoint Solutions, and how much revenue trends reflect net-versus-gross presentation rather than underlying volumes.
- How the company refinances or repays the $700 million notes due August 2024, including resulting interest costs and liquidity effects.
- Whether margin improvement in strategic technologies persists while revenue is lower and personnel costs remain elevated.
- The sustainability and working-capital effects of receivables sales, supplier finance obligations, and cash flow driven by collection and payment timing.
- Progress and expense associated with merger integration and restructuring, and any material developments in the French competition-related litigation.