TD SYNNEX Corporation — Q1 FY2023 Form 10-Q
Reporting period: Three months ended February 28, 2023; comparisons are with the three months ended February 28, 2022 unless stated otherwise. TD SYNNEX is a global IT distributor and solutions aggregator operating in the Americas, Europe, and Asia-Pacific and Japan (APJ). Amounts below are U.S. dollars.
Financial performance and liquidity
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Revenue | $15.13 billion | $15.47 billion |
| Gross profit / gross margin | $1.00 billion / 6.63% | $968.7 million / 6.26% |
| Operating income / operating margin | $298.2 million / 1.97% | $222.4 million / 1.44% |
| Net income | $167.0 million | $132.3 million |
| Diluted EPS | $1.75 | $1.37 |
| Operating cash flow | $(102.8) million | $(1.32) billion |
- Revenue declined 2.2% as reported, but increased 0.7% in constant currency. Management attributed the difference primarily to foreign exchange, particularly euro weakness.
- Non-GAAP diluted EPS was $2.93 versus $3.03; non-GAAP net income was $279.2 million versus $292.4 million. These measures exclude specified items and are not GAAP results.
- Interest expense and finance charges rose 89% to $80.2 million, reflecting higher average rates and increased receivables-sale discount fees.
- At February 28, 2023, cash was $539.3 million; current assets were $20.0 billion and current liabilities were $15.8 billion. Total borrowings were approximately $4.39 billion, compared with approximately $4.10 billion at November 30, 2022. The company reported compliance with its financial covenants.
- Cash used in operations improved year over year, but remained negative. Working capital movements included inventory reductions and lower accounts payable; the cash conversion cycle was 26 days, versus 23 days at November 30, 2022.
Material changes and segment performance
- Americas revenue fell 4.8% as reported and 4.2% in constant currency; operating income increased to $179.5 million from $138.5 million.
- Europe revenue fell 1.1% as reported but rose 5.1% in constant currency; operating income increased to $88.2 million from $65.3 million.
- APJ revenue increased 18.4% as reported and 25.8% in constant currency; operating income rose to $30.5 million from $18.6 million.
- Management cited growth in Advanced Solutions and high-growth technologies, partly offset by weaker Endpoint Solutions demand, particularly for client devices. Product mix shifted some revenue to net presentation, reducing reported revenue growth while supporting gross margin.
- Acquisition, integration and restructuring costs decreased to $51.2 million from $93.4 million, primarily because merger-related accelerated depreciation and amortization charges were lower. Management said material future GBO 2 Program costs are not expected.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance is provided in the filing. Management believes cash, operating cash flows and available borrowing capacity will meet working-capital and investment needs for the next 12 months.
- Key exposures include changing IT demand and customer buying patterns, competition and thin distribution margins, supplier or customer concentration, supply constraints, inflation, interest rates, foreign currency movements, and reliance on working-capital financing. One customer represented 11% of quarterly revenue; Apple products represented 11%.
- Receivables sold under uncommitted programs were $1.1 billion at quarter-end, down from $1.4 billion at November 30, 2022. Related discount fees increased to $11.7 million from $3.0 million.
- The French competition fine was reduced on appeal to €24.9 million and has been paid; the company continues to appeal. A related civil lawsuit remains under evaluation, and the company cannot estimate the probability or amount of potential loss.
- The company repurchased $114.8 million of shares and declared $0.35 per share in dividends during the quarter. A new $1.0 billion, three-year repurchase authorization replaced the prior program; $901.7 million remained available at February 28.
Important facts for investors to verify
- Whether constant-currency growth and improving gross margin persist as Endpoint Solutions demand and product mix evolve.
- Whether operating cash flow turns positive and the cash conversion cycle, receivables, inventory, and payable levels remain manageable.
- How higher interest expense and receivables-sale fees affect earnings, and whether borrowing levels and covenant headroom remain adequate.
- Progress on merger integration and whether restructuring costs decline as management expects.
- Developments in the French civil litigation and any other contingencies, alongside customer and supplier concentration.
- Whether share repurchases and dividends remain consistent with liquidity needs and debt management.