TD SYNNEX Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended May 31, 2022. The financial statements are unaudited. TD SYNNEX distributes IT products and provides related solutions globally. The September 2021 Tech Data merger substantially changed the company’s scale; prior-year comparisons do not include Tech Data for the same periods and are therefore not directly comparable.
Key financial metrics
| Metric | Three months ended May 31, 2022 | Six months ended May 31, 2022 |
|---|---|---|
| Revenue | $15.27 billion, up 160.7% year over year | $30.74 billion, up 184.7% |
| Gross profit and margin | $955.8 million; 6.26% (prior year 5.62%) | $1.92 billion; 6.26% (prior year 5.87%) |
| Operating income and margin | $252.7 million; 1.66% (prior year 2.53%) | $475.2 million; 1.55% (prior year 2.68%) |
| Net income and diluted EPS | $148.9 million; $1.55 (prior year $93.1 million; $1.78) | $281.2 million; $2.92 (prior year $180.9 million; $3.46) |
| Adjusted EBITDA (non-GAAP) | $423.3 million | $881.6 million |
| Operating cash flow | Quarter-only figure not provided in the filing text | $(284.5) million, versus $304.3 million provided in the prior-year period |
For the six months, inventory growth drove the operating cash outflow: inventories absorbed $1.86 billion, partly offset by higher accounts payable. Capital expenditures were $46.7 million. Financing cash outflow was $130.0 million, including $57.6 million of dividends and $52.8 million of share repurchases.
At May 31, 2022, cash and cash equivalents were $521.5 million, down from $994.0 million at November 30, 2021. Current assets were $18.54 billion and current liabilities $14.66 billion (current ratio approximately 1.26). Borrowings totaled $4.11 billion, comprising $208.6 million current and $3.90 billion long term. The filing reports no borrowings under the $3.5 billion revolving facility or the $1.5 billion U.S. receivables arrangement; the company was in compliance with material financial covenants.
Material changes and management commentary
- Revenue growth primarily reflected the Tech Data acquisition and broad-based demand for technology equipment. Management estimates Tech Data contributed approximately $9 billion of second-quarter and $19 billion of first-half revenue.
- Gross margin improved year over year, which management attributed primarily to product mix. Operating margin nevertheless declined, as higher personnel costs, acquired-intangible amortization, and merger integration and restructuring costs offset growth.
- Reported diluted EPS declined despite higher net income, with the comparison affected by the significantly larger share count following the merger. Non-GAAP diluted EPS was $2.72 for the quarter and $5.75 for the six months; these measures exclude specified costs and should be considered alongside GAAP results.
- Days inventory outstanding rose to 54 days from 41 at November 30, 2021; the cash conversion cycle increased to 21 days from 14. Management said inventory was increased to support business growth.
- Management stated that available cash, operating cash flows, and borrowing capacity should be sufficient for working-capital and investment needs over the next 12 months. No numerical earnings or revenue guidance is provided in the supplied filing text.
Risks, contingencies, and unusual items
- Management cited continuing uncertainty from COVID-19, supply-chain disruption, inflation, geopolitical conditions including Russia’s invasion of Ukraine, currency and interest-rate movements, and changes in customer demand. The company cautioned that interim results may not indicate full-year performance.
- Merger integration remains ongoing. The company reported $125.8 million of acquisition, integration, and restructuring costs for the six months, including $52.9 million of accelerated depreciation and amortization associated with IT-system consolidation. Integration of legacy Tech Data controls was expected to continue through fiscal 2022.
- The French competition authority matter concerns a fine originally assessed at €76 million. The company’s probable-loss estimate was €36 million; after payments, an accrual of €20.4 million remained at May 31, 2022. The appeal is ongoing, and further payments could be required before it is resolved. A related civil lawsuit’s potential loss could not be estimated.
- Vendor exposure is notable: Apple represented 10% of second-quarter and 11% of first-half revenue; HP represented 11% and 10%, respectively. No customer exceeded 10% of revenue in the 2022 periods.
- Foreign-currency translation contributed to a $167.6 million loss in other comprehensive income for the six months. The company uses derivatives to hedge some currency and interest-rate exposure, but states hedging may offset only part of the impact.
- Management concluded disclosure controls were effective at a reasonable-assurance level. The filing reports no material changes in market risks since November 30, 2021.
Important facts for investors to verify
- Assess merger-adjusted performance: prior-year revenue and segment comparisons exclude the same Tech Data contribution, so reported growth is not a like-for-like measure.
- Monitor inventory, supplier availability, receivables, and cash conversion, given the inventory build and first-half operating cash outflow.
- Review margin trends and the size and duration of merger-related, restructuring, amortization, and purchase-accounting adjustments, including the company’s non-GAAP reconciliations.
- Track debt costs, borrowing capacity, covenant compliance, and interest-rate exposure as rates and financing costs change.
- Follow the French fine appeal and related civil litigation, including any change to the company’s loss estimate or required payments.