TD SYNNEX CORP quarterly report, Q1 FY2015

Business context and reporting period

SYNNEX Corporation’s unaudited Form 10-Q covers the three months ended February 28, 2015, compared with the three months ended February 28, 2014. The company operated Technology Solutions, an IT products distribution and integration business, and Concentrix, a business process and customer relationship management services business. Unless stated otherwise, dollar amounts below are in millions.

Financial performance and liquidity

At February 28, 2015, current assets were $3,297.5 and current liabilities were $2,093.8. Restricted cash was $37.7. Foreign subsidiaries held $162.7 of cash and cash equivalents; repatriating that cash could incur U.S. federal income taxes, and some balances were subject to local restrictions. The company reported compliance with material debt covenants.

Material changes versus the prior period

• Technology Solutions revenue was $2,864.3, down 1.3% reported, but up 1.3% on a constant-currency basis. Foreign exchange, lower U.S. and Japan retail sales, and a vendor’s change in distribution channel weighed on reported results. Higher systems design and integration demand helped on a constant-currency basis.
• Concentrix revenue rose 169.2% to $341.8, primarily reflecting the acquired IBM CRM business. The segment moved from an operating loss of $1.8 to operating income of $7.6.
• Management attributed the higher consolidated gross margin primarily to the IBM CRM acquisition. Gross profit increased 39.5%; management said it would have increased 45.5% excluding foreign currency translation.
• SG&A increased 44.6% to $209.3, primarily due to the acquired business. Intangible amortization was $14.6 versus $5.7, and IBM CRM acquisition-related and integration expenses were approximately $4.0 versus $8.9.
• Interest expense and finance charges, net, rose 43.2% to $6.4, primarily due to borrowing levels associated with the IBM CRM acquisition, working capital, and Technology Solutions investment. Prior-year other income included a $2.9 class-action settlement; current-period other income was $0.1.
• Operating cash flow improved to $208.2, mainly from lower accounts receivable and inventory, partly offset by lower accounts payable and accrued liabilities. Investing cash flow was $6.9, including $33.0 received from IBM post-closing adjustments and $22.4 of capital expenditures. Financing cash flow was $(219.6), including $136.7 of net repayments on securitization, revolver and term-loan borrowings and a $79.5 decrease in book overdraft.
• Accumulated other comprehensive loss increased to $22.5, primarily reflecting $16.1 of foreign-currency translation loss during the quarter.

Outlook, risks, contingencies and unusual items

No specific revenue or earnings guidance is provided in the supplied filing text. Management said it believed available cash, operating cash flows and existing liquidity sources would meet current and planned working-capital and investment needs for the next 12 months, and expected longer-term needs to be funded through operations and, if necessary, borrowing facilities or capital markets. Management cautioned that quarterly results are not necessarily indicative of full-year results.

• Management cited seasonality, customer concentration, IT and consumer-electronics industry spending, economic conditions, competition, pricing pressure, foreign exchange, and successful integration of IBM CRM as risks. HP products represented approximately 24% of revenue, while no single customer accounted for 10% of revenue; one customer represented 15% of consolidated accounts receivable at quarter-end.
• A delayed launch for one Concentrix customer adversely affected gross profit by $9.1 and operating income by $10.3, according to management. Concentrix operating results also included $17.9 of acquisition-related/integration expenses and intangible amortization, compared with $13.6 in the prior period.
• Total guarantees issued were $527.1, up from $353.4 at November 30, 2014. The company was contingently liable to repurchase certain customer inventory under floor-plan financing arrangements; it reported no repurchases or known pending customer defaults.
• The company received an FTC Civil Investigative Demand concerning an industry database program, responded in July 2014, and said no proceedings had been instituted. It said the matter was preliminary and its potential impact could not be predicted. The company reported no currently material proceedings and did not expect its disclosed commitments and contingencies to have a material adverse effect.
• The company was seeking regulatory approval to withdraw from a Japanese multi-employer pension plan; potential additional costs could arise if plan assets were insufficient for projected benefits attributable to its participation.
• The board had authorized a three-year, $100 million share repurchase program, but no purchases had been made under it as of the filing. The company paid a $0.125-per-share dividend in the quarter and announced another $0.125 dividend payable May 1, 2015, subject to board declaration.

Important facts for investors to verify

• The supplied filing identifies the registrant as SYNNEX Corporation; verify the issuer and security mapping to the requested company, TD SYNNEX CORP.
• Track whether Concentrix growth and margins persist after the IBM CRM acquisition, including the effects of customer program ramps and integration costs.
• Assess the sustainability of operating cash flow, which benefited from substantial working-capital movements, and monitor borrowing needs and covenant headroom.
• Review foreign-exchange exposure, the high share of cash held abroad, and customer and supplier concentration, including receivables exposure.
• Monitor the FTC inquiry, floor-plan repurchase exposure, guarantees, and the potential cost of the pension-plan withdrawal.