TD SYNNEX Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended November 30, 2021; this is an annual filing, not a standalone fourth-quarter report. The company distributes technology products and provides systems design, integration, logistics, cloud and related services. On September 1, 2021, it acquired Tech Data; on December 1, 2020, it had separated Concentrix, which is reported as discontinued operations in prior-year results.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $31.61 billion | $19.98 billion |
| Gross profit / gross margin | $1.89 billion / 5.98% | $1.19 billion / 5.98% |
| Operating income / operating margin | $623.2 million / 1.97% | $521.3 million / 2.61% |
| Continuing-operations income | $395.1 million | $334.5 million |
| Net income | $395.1 million | $529.2 million |
| Diluted EPS from continuing operations | $6.24 | $6.46 |
| Operating cash flow | $809.8 million | $1.83 billion |
Revenue rose 58.3%, primarily reflecting approximately $10 billion of post-acquisition Tech Data revenue and broad technology demand. Gross profit also rose 58.3%, while gross margin was unchanged. Operating income increased 19.5%, but operating margin narrowed as SG&A and acquisition, integration and restructuring costs rose. Net income declined because FY2020 included $194.6 million of Concentrix discontinued-operations income; continuing-operations income increased. FY2021’s $6.24 diluted continuing-operations EPS compares with $6.46 in FY2020; the company’s non-GAAP diluted continuing-operations EPS was $9.40 versus $7.38.
Liquidity, debt and cash flow
- Cash and cash equivalents were $994.0 million at year-end, down from $1.41 billion. Operating cash flow was $809.8 million; cash used in investing was $952.3 million, including $907.1 million net cash paid for the acquisition.
- Current assets were $17.73 billion and current liabilities $14.23 billion, implying working capital of approximately $3.50 billion and a current ratio of about 1.25.
- Balance-sheet borrowings totaled approximately $4.14 billion: $181.3 million current and $3.96 billion long-term. This includes $2.5 billion of senior notes and a $1.5 billion term loan, alongside other borrowings. The $3.5 billion revolving facility was undrawn in the reported borrowing balances; the filing reported $3.5 billion of unused commitments.
- Senior notes carry coupons of 1.25%–2.65% and mature in 2024, 2026, 2028 and 2031. The term loan’s effective rate was 1.49% at year-end. The company reported compliance with material debt covenants.
- Operating cash flow was lower year over year, with growth-related increases in receivables and inventory partly offset by a large increase in accounts payable. Cash conversion cycle improved to 14 days from 25 days, mainly reflecting payment timing.
- Management said cash, operating cash flow and available credit were sufficient for operating needs for at least the next 12 months. After year-end, the U.S. receivables facility was amended to extend to December 2024 and increase its commitment from $650 million to $1.5 billion.
Material changes and notable items
- The Tech Data merger materially expanded the company and changed its ownership and capital structure: consideration was approximately $7.22 billion, including $1.61 billion cash consideration (partly funded by a $500 million contribution) and 44 million shares valued at approximately $5.61 billion. The company issued $2.5 billion of senior notes and repaid most of Tech Data’s debt.
- Tech Data contributed an estimated $10.0 billion of revenue after acquisition through year-end. The acquisition-date purchase-price allocation was preliminary; acquired identifiable intangibles included $3.86 billion of customer relationships and $1.07 billion of trade name, and goodwill was $3.54 billion.
- Acquisition, integration and restructuring costs were $112.2 million, including a $22.2 million write-off of capitalized tdONE system costs. Interest expense and finance charges nearly doubled to $157.8 million, partly due to approximately $47 million of acquisition-related financing costs and higher borrowings.
- A one-time tax benefit of approximately $45 million from a capital-loss carryback contributed to the lower 15.3% effective tax rate, compared with 23.3% in FY2020.
- International operations generated approximately 37% of revenue, up from 24% in FY2020. One customer accounted for 17% of FY2021 revenue; HP Inc. products accounted for approximately 12%.
- The company reported a third-quarter 2021 cybersecurity incident involving access to a limited portion of its systems; its review found no access to material data. Management and the auditor concluded internal controls were effective, but the assessment excluded acquired Tech Data controls representing approximately 40% of assets and 32% of revenue.
Outlook, risks and contingencies
The filing provides no specific numerical revenue or earnings guidance. Management described liquidity as adequate for at least the next 12 months and said it expected to continue integration and efficiency initiatives, including Tech Data’s GBO 2 program. It cautioned that integration benefits, cost savings and timing are uncertain.
Principal risks include successful integration of Tech Data, supply constraints and COVID-19 effects, low distribution margins and competitive pricing, customer and supplier concentration, inventory obsolescence, working-capital and customer-credit requirements, debt service and variable interest rates, foreign exchange exposure, and reliance on IT systems and cybersecurity. A French competition fine against Tech Data was appealed; the company accrued €24.6 million ($27.7 million) at year-end against an estimated probable loss of €36 million. A related civil action’s potential loss could not be estimated. The company also has inventory repurchase obligations tied to customer floor-plan defaults that it cannot reasonably quantify, though it said historical repurchases were insignificant and a material loss was considered remote.
Important facts for investors to verify
- Reconcile acquisition-related revenue and earnings with pro forma results; the filing’s unaudited pro forma FY2021 revenue was $60.62 billion and continuing-operations income attributable to TD SYNNEX was $519.7 million.
- Track integration costs, realized synergies, system consolidation and the final purchase-price allocation for Tech Data.
- Monitor operating margin, cash conversion, receivables and inventory growth, and the extent to which cash flow depends on payment timing and financing programs.
- Review debt maturities, interest-rate and LIBOR-transition exposure, covenant headroom, and the availability and terms of revolving and receivables facilities.
- Follow the French fine appeal and related civil lawsuit, as well as any material changes in customer or supplier concentration, supply availability or cybersecurity exposure.