TD SYNNEX Corporation — Q1 FY2022 Form 10-Q
Reporting period: Three months ended February 28, 2022; unaudited. TD SYNNEX distributes IT products and provides technology solutions globally. Results include Tech Data, acquired September 1, 2021; the prior-year comparison does not, so reported growth is not directly comparable. The filing attributes approximately $10 billion of current-quarter revenue to Tech Data.
Financial performance and position
| Metric | Q1 FY2022 | Prior comparable quarter |
|---|---|---|
| Revenue | $15.47 billion | $4.94 billion |
| Gross profit / margin | $968.7 million / 6.26% | $304.6 million / 6.17% |
| Operating income / margin | $222.4 million / 1.44% | $141.7 million / 2.87% |
| Net income | $132.3 million | $87.8 million |
| Diluted EPS | $1.37 | $1.69 |
| Operating cash flow | $(1.32) billion | $25.0 million |
- Revenue increased 213.2%, primarily due to the acquisition and broad-based technology demand. Gross margin edged higher, which management attributed mainly to product mix; operating margin fell as integration costs, acquired-asset amortization and employee expenses increased.
- Management-reported non-GAAP measures were $431.9 million operating income, 2.79% operating margin, $458.4 million Adjusted EBITDA, $292.4 million non-GAAP net income and $3.03 non-GAAP diluted EPS. These exclude specified acquisition, integration, restructuring, amortization, share-based compensation and purchase-accounting items, among other adjustments.
- Cash and cash equivalents were $510.2 million, down from $994.0 million at November 30, 2021. Current assets were $18.95 billion and current liabilities $15.21 billion. Borrowings totaled approximately $5.05 billion, versus $4.14 billion at fiscal year-end.
- Operating cash use reflected a $1.24 billion inventory increase and other working-capital needs. Inventory was $7.88 billion, up from $6.64 billion. The cash conversion cycle was 24 days, compared with 14 days at November 30, 2021 and 32 days a year earlier.
- The company drew $749 million on its $1.5 billion U.S. receivables securitization facility; its $3.5 billion revolving credit facility had no amount outstanding. It reported compliance with material financial covenants.
Changes, outlook and risks
- The September 2021 Tech Data merger substantially changed scale and geographic mix; the company now reports Americas, Europe and APJ segments. Prior-year results exclude Tech Data, and the filing cautions against direct period comparison. Pro forma prior-year revenue was $15.25 billion and net income $136.3 million, but these unaudited figures exclude potential cost savings and certain non-recurring costs.
- Merger-related and integration costs were $93.4 million for the quarter, including $52.9 million of accelerated depreciation and amortization associated with IT-system consolidation. The company continued Tech Data’s GBO 2 optimization program.
- No specific revenue, earnings or margin guidance is provided in the supplied filing text. Management said cash, operating cash flows and existing liquidity sources should meet working-capital and investment needs for the next 12 months; it also expects longer-term needs to be met through operating cash flow and, if necessary, borrowing facilities or capital-market activity.
- Risks include successful integration and realization of merger benefits, COVID-19 and supply-chain disruption, inflation and economic uncertainty, seasonality, demand and pricing pressure, and customer or OEM concentration. Russia’s invasion of Ukraine and related sanctions could affect regional sales, global economic conditions, currencies and costs.
- Apple represented 13% and HP 10% of current-quarter revenue by vendor-sourced products; no customer exceeded 10% of current-quarter revenue. A French competition-authority fine related to Tech Data’s Apple distribution remains under appeal: the estimated probable loss was €36 million (about $40 million), with a $24.4 million accrual after payments. A related civil lawsuit’s potential loss could not be estimated.
- Management concluded disclosure controls were effective at a reasonable-assurance level. Integration of legacy Tech Data into the control environment was ongoing, with completion expected during FY2022.
Investor verification points
- Separate acquisition-driven growth from organic performance; review comparable pro forma results and regional trends.
- Track inventory conversion, receivables, cash generation and short-term borrowing as working-capital investment evolves.
- Assess integration costs, purchase-accounting adjustments and whether reported non-GAAP improvements translate into sustainable GAAP profitability.
- Monitor merger integration and control remediation, supply-chain and geopolitical exposure, and the status and payments of the French fine and related litigation.