Business context and reporting period
The supplied filing identifies the issuer as SYNNEX Corporation, not TD SYNNEX Corp. This unaudited Form 10-Q covers the quarter and nine months ended August 31, 2015; comparisons are with the corresponding 2014 periods. SYNNEX operated Technology Solutions, an IT products distribution and integration business, and Concentrix, a customer-engagement and business-process services business. Amounts below are U.S. dollars.
Key financial results
| Metric | Three months ended Aug. 31, 2015 | Year-over-year | Nine months ended Aug. 31, 2015 | Year-over-year |
|---|---|---|---|---|
| Revenue | $3,332.5 million | Down 5.7% | $9,788.8 million | Down 2.3% |
| Gross profit / margin | $290.8 million / 8.73% | Down 3.0%; margin up from 8.48% | $879.1 million / 8.98% | Up 11.9%; margin up from 7.84% |
| Operating income / margin | $81.3 million / 2.44% | Up 3.1%; margin up from 2.23% | $249.6 million / 2.55% | Up 19.5%; margin up from 2.09% |
| Net income attributable to SYNNEX | $48.2 million | Up 7.1% | $146.4 million | Up 19.0% |
| Diluted EPS | $1.21 | Up from $1.14 | $3.68 | Up from $3.13 |
Operating margin and earnings improved despite lower consolidated sales. Nine-month gross profit benefited from the full-period contribution of the acquired IBM CRM business and favorable product and service mix. The nine-month effective tax rate was 36.0%, versus 36.2%.
Cash flow, debt and liquidity
- Operating cash flow was $557.4 million for the first nine months, compared with cash used of $246.6 million in 2014. Working-capital movements included a $481.2 million decrease in receivables and a $47.4 million decrease in inventory, partly offset by a $207.0 million decrease in accounts payable.
- Investing activities used $63.9 million, including $71.5 million of capital expenditures; financing activities used $348.2 million. Cash and cash equivalents ended at $308.1 million, versus $180.1 million at November 30, 2014. Restricted cash was $64.9 million.
- Total borrowings were $737.5 million, down from $980.5 million at November 30, 2014. Long-term borrowings rose to $647.6 million from $264.2 million, reflecting the amended U.S. term loan; short-term borrowings fell to $89.9 million from $716.3 million. The U.S. receivables securitization had no borrowings outstanding, versus $578.0 million at fiscal year-end.
- Management said available cash, operating cash flows and existing facilities should meet current and planned working-capital and investment needs for the next 12 months. $158.2 million of cash was held by foreign subsidiaries; repatriation could trigger U.S. federal income taxes and some balances were subject to local restrictions.
Material changes, outlook and risks
- Technology Solutions revenue declined 7.1% in the quarter and 5.5% year to date, due chiefly to the loss of a significant consumer-retail-products vendor after its acquisition by a third party and adverse currency translation. Concentrix revenue rose 7.7% in the quarter and 38.3% year to date, reflecting customer growth, expanded services and the IBM CRM acquisition; management reported constant-currency growth of 15.5% and 41.7%, respectively.
- Concentrix operating results improved, but one customer contract generated approximately $6.4 million of losses in the quarter and $24.1 million year to date. SYNNEX also recorded a $2.3 million expense for obligations associated with withdrawal from a Japanese multi-employer pension plan.
- In May 2015, the company increased its U.S. term loan to $625 million and entered into $400 million of interest-rate swaps to convert part of its variable-rate debt to fixed-rate debt. The U.S. credit agreement matures in May 2020. The company reported compliance with material debt covenants.
- The filing gives no quantitative revenue or earnings guidance. Management cautioned that results may vary with customer buying patterns, IT and consumer-electronics spending, competition, currency movements, acquisition integration and access to working-capital financing. It stated results for the quarter are not necessarily indicative of future periods.
- HP-sourced products represented approximately 27% of quarterly revenue and 25% of nine-month revenue. No customer represented 10% or more of revenue in the periods presented. The filing reports no material change in risk factors and no material proceedings; management did not expect disclosed commitments and contingencies to materially adversely affect results, financial position or cash flows.
- The company paid dividends of $0.38 per share during the first nine months and announced a further $0.20-per-share dividend after quarter-end. It had repurchased 120,000 shares for $8.7 million under its $100 million repurchase authorization.
Important facts for investors to verify
- Confirm issuer identity and ticker: the supplied 2015 filing is for SYNNEX Corporation.
- Track whether Technology Solutions stabilizes after the vendor loss and currency-related declines.
- Assess the profitability and execution of the Concentrix customer contract that produced significant losses, and the ongoing contribution and integration costs of the IBM CRM acquisition.
- Monitor cash conversion and working-capital needs, particularly receivables, inventory and accounts payable, alongside capital expenditures.
- Review debt repayment, interest-rate exposure, covenant headroom and continued availability of securitization and credit facilities.
- Consider supplier concentration, foreign-currency exposure, foreign-cash repatriation constraints, related-party relationships and contingent obligations under customer flooring arrangements.