TD SYNNEX (SNX) - 2020 Q4 - Annual Report

PART I This section details SYNNEX's business operations, segments, products, customers, and human capital post-Concentrix separation, alongside risk factors, property, legal, and executive officer information Item 1. Business SYNNEX, a Fortune 200 company, provides technology distribution and integration solutions, focusing on its Technology Solutions segment after the tax-free separation of Concentrix - SYNNEX Corporation completed the separation of its customer experience services business, Concentrix Corporation, on December 1, 2020, making Concentrix an independent public company[16] - Post-separation, SYNNEX focuses on its Technology Solutions segment, distributing over 40,000 technology products from more than 500 OEM suppliers to over 25,000 resellers, system integrators, and retailers[19] - The company had approximately 280,000 employees worldwide as of November 30, 2020, which reduced to approximately 8,800 full-time and temporary employees worldwide after the Concentrix separation on December 1, 2020[24] Segment Consolidated Revenue | Segment | Consolidated Revenue (FY2020) | Consolidated Revenue (FY2019) | Consolidated Revenue (FY2018) | | :----------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Technology Solutions | 81% | 80% | 88% | | Concentrix | 19% | 20% | 12% | Company Overview and Separation SYNNEX completed the tax-free separation of Concentrix Corporation on December 1, 2020, making Concentrix an independent public company - SYNNEX Corporation is a Fortune 200 company providing distribution, systems design, and integration solutions for the technology industry[15] - On December 1, 2020, SYNNEX completed the tax-free separation of its customer experience services business, Concentrix Corporation, which is now an independent public company[16] - Post-separation, SYNNEX no longer consolidates Concentrix's financial results within its continuing operations[16] Business Segments SYNNEX operated with Technology Solutions and Concentrix segments, with Technology Solutions focusing on IT distribution and Concentrix on customer experience services before separation - As of November 30, 2020, SYNNEX operated with two reportable segments: Technology Solutions and Concentrix[17] - The Technology Solutions segment distributes peripherals, IT systems (including data center server and storage solutions), system components, software, networking, communications, security equipment, consumer electronics, and provides systems design and integration solutions[17][18] - The Concentrix segment offered technology-infused strategic solutions and end-to-end business services focused on customer experience, process optimization, technology innovation, front and back-office automation, and business transformation[18][22] Products and Suppliers The Technology Solutions segment distributes over 40,000 products from more than 500 OEM suppliers, including major tech companies - The Technology Solutions segment distributes over 40,000 technology products from more than 500 OEM suppliers[19][26] Technology Solutions Segment Product Mix by Category (FY2018-2020) | Product Category | Range | | :----------------------------------- | :---------- | | Peripherals | 21% - 25% | | IT Systems | 30% - 35% | | System Components and Integration Solutions | 9% - 14% | | Software | 16% - 20% | | Networking Equipment | 13% - 15% | - Key OEM suppliers include Alphabet Inc. (Google), ASUSTeK Computer Inc., Cisco Systems, Inc., HP Inc., Hewlett-Packard Enterprise Company, Intel Corporation, Lenovo Group Ltd, Microsoft Corporation, and Samsung Semiconductor, Inc[27] Revenue from HP Products and Services | Fiscal Year | % of Consolidated Revenue | | :---------- | :------------------------ | | 2020 | 12% | | 2019 | 12% | | 2018 | 13% | Customers Technology Solutions serves over 25,000 resellers and retailers, while Concentrix (pre-separation) served over 650 clients across diverse industry verticals - The Technology Solutions segment serves over 25,000 resellers, system integrators, and retailers, including value-added resellers, corporate resellers, government resellers, direct marketers, and national/regional retailers[19][31] - The Concentrix segment served over 650 clients across five primary industry verticals: banking, financial services and insurance; communications and media; healthcare; retail, travel and e-commerce; and technology and consumer electronics[32] Customer Concentration | Fiscal Year | % of Consolidated Revenue from One Customer | | :---------- | :------------------------------------------ | | 2020 | 19% | | 2019 | 19% | | 2018 | 17% | Services and Solutions Technology Solutions provides logistics, integration, cloud, and financing services, while Concentrix (pre-separation) offered customer lifecycle management and business process optimization - Technology Solutions offers pick, pack, and ship operations, systems design and integration (build-to-order, configure-to-order), logistics services, cloud services (proprietary platform for public, IaaS, PaaS, SaaS, Security, Mobility, IoT, hybrid solutions), online services (EDI, XML, web-based links, mobile apps), financing services, and marketing services for OEM suppliers[35][36][37][38][39][40][41] - Concentrix (pre-separation) provided customer lifecycle management, marketing solutions, third-party administration of insurance policies, enterprise mobile development, automation and process optimization, and licensed technology assets[43][44][46][47][48][49] Sales and Marketing Technology Solutions employs dedicated and regional sales teams, while Concentrix (pre-separation) focused on industry-specific sales and strategic client relationships - Technology Solutions uses dedicated sales professionals for large commercial, government, and retail customers, regional sales teams for smaller resellers/OEMs, and specialists for product management and business development[50] - Concentrix (pre-separation) marketed services through a sales force organized by industry vertical and geography, focusing on long-term strategic relationships and C-level engagement to drive client value and satisfaction[51][52][53] Operations Technology Solutions operates 63 facilities with automated IT systems, while Concentrix (pre-separation) had over 284 global delivery centers with certified technology - Technology Solutions operates approximately 63 distribution and administrative facilities in North/South America, Asia-Pacific, and China, utilizing highly automated IT systems for efficient order fulfillment, inventory management, and reduced shipping costs[54][55][56] - Concentrix (pre-separation) had global delivery capabilities with over 284 centers in 40 countries, leveraging proprietary technology for efficient and secure customer contact across multiple channels, with all delivery centers PCI DSS and ISO certified[58] International Operations International operations, contributing significantly to revenue, expose the company to foreign currency exchange rate risks International Revenue as % of Consolidated Revenue | Fiscal Year | % of Consolidated Revenue | | :---------- | :------------------------ | | 2020 | 34% | | 2019 | 34% | | 2018 | 28% | - International operations expose the company to risks from foreign currency exchange rate changes, particularly in regions like the Philippines and India where Concentrix had significant operations[61][62] Seasonality Both segments historically experienced higher sales in the fourth fiscal quarter due to capital budgeting and customer purchasing cycles - Both Technology Solutions and Concentrix segments historically experienced higher sales in the fourth fiscal quarter due to capital budgeting, federal government spending, and customer purchasing cycles[63][64] Purchasing Efficient purchasing is critical due to product costs and inventory investment, supported by proprietary systems for demand forecasting and supplier incentive optimization - Efficient purchasing operations are critical due to product cost being the largest expense and IT/CE product inventory being a major working capital investment[65] - The company uses proprietary information systems for forecasting demand, managing inventory levels, and optimizing OEM supplier incentive programs (rebates, price protection, discounts)[67][68] Financial Services Technology Solutions provides diverse customer financing options, including net terms and leasing, while actively managing credit risk - Technology Solutions offers various financing options to customers, including net terms, third-party leasing, floor plan financing, and direct end-user payment arrangements, while closely monitoring creditworthiness and utilizing credit insurance[69][70] Information Technology Technology Solutions uses scalable internal IT systems for order management, while Concentrix (pre-separation) invested in IT for workforce management and customer contact - The Technology Solutions segment's internally developed IT systems manage the entire order cycle, including processing, billing, and payment tracking, and are scalable for growth[71][72] - Concentrix (pre-separation) invested in IT systems, infrastructure, automation, and security to enhance workforce management and productivity, employing a broad range of technology for efficient customer contact and business intelligence[73] Competition The IT product industry is highly competitive, with Technology Solutions facing distributors and OEMs, and Concentrix (pre-separation) competing with global service providers - The IT product industry is highly competitive, based on product availability, credit terms, price, delivery speed, sales/marketing effectiveness, and technical support[74] - Major competitors in Technology Solutions include Arrow Electronics, Ingram Micro, ScanSource, and Tech Data Corporation, with additional competition from OEM suppliers selling directly[75] - The Concentrix segment (pre-separation) faced intense competition from regional and global companies like Accenture, Genpact, Teleperformance, and TTEC Holdings[77] Human Capital Resources SYNNEX, with approximately 270,000 associates (pre-separation), prioritizes diversity, pay equity, employee engagement, and health/safety, adapting to remote work during COVID-19 - As of November 30, 2020, SYNNEX had approximately 270,000 full-time and 7,900 temporary associates, with 7,500 full-time and 1,300 temporary associates in the Technology Solutions segment[79] - The company is committed to fostering a diverse and inclusive workplace, with women representing 25% of the board and 43% of the associate base[81] - SYNNEX ensures pay equity through market-competitive, performance-based total rewards, conducting annual pay equity analyses[82][83] - Employee engagement is measured through annual surveys (nearly 80% participation in 2020), and the company invests in training and development opportunities[84][85] - Health, safety, and wellness are prioritized, with a global injury/illness reporting system and a wellness program, adapting to COVID-19 with remote work and on-premise safety measures[86] Available Information SYNNEX provides public access to its SEC filings and Code of Ethical Business Conduct on its website - SYNNEX makes its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments available free of charge on its website (http://www.synnex.com) and the SEC's website (http://www.sec.gov)[87](index=87&type=chunk)[88] - A Code of Ethical Business Conduct, applicable to all employees including executive officers, is available on the company's investor relations webpage[87] Item 1A. Risk Factors SYNNEX faces risks from market fluctuations, supplier dependence, low margins, capital needs, customer credit, operational disruptions, Concentrix separation, macroeconomic factors, and regulatory changes - Operating results are subject to fluctuations due to factors like business acquisitions/dispositions, economic conditions, loss of major suppliers/customers, product mix, competition, and trends towards cloud computing[91][95] - High dependence on a limited number of OEM suppliers (e.g., HP accounted for 12% of consolidated revenue in FY2020) and short-term agreements pose risks of termination or changes in terms[95][96] - Low gross margins in the IT and CE products industry magnify the impact of revenue and cost variations, with limited protection from inventory value declines due to rapid technological change or price reductions[98][100] - The company has significant credit exposure to customers, with one customer accounting for 19% of consolidated revenue in FY2020, and negative trends in customer businesses could lead to credit losses[102][111] - The separation of Concentrix introduces risks related to the failure of either party to perform under transaction agreements and the potential non-realization of anticipated strategic, financial, or operational benefits[143][144] - The COVID-19 pandemic negatively impacted the global economy, supply chains, and workforce participation, adversely affecting SYNNEX's results of operations in fiscal year 2020[147] - International operations (34% of FY2020 revenue) expose the company to foreign currency exchange rate changes, and substantial operations in China carry economic, political, and social risks[149][153] Risks Related to Our Business and Operations Business and operational risks include revenue fluctuations, supplier dependence, low margins, inventory declines, customer concentration, acquisition challenges, capital access, credit exposure, IT system failures, and debt covenant compliance - Revenue and operating results are expected to fluctuate due to factors like business acquisitions, economic conditions, customer/supplier consolidation, product mix, competition, and trends towards cloud-based offerings[91][95] - Dependence on a limited number of OEM suppliers, with HP accounting for 12% of consolidated revenue in FY2020, and short-term agreements, poses risks of termination or adverse changes in terms[95][96] - Low gross margins in the IT and CE products industry magnify the impact of revenue and operating cost variations, making the company vulnerable to competitive price pressures[98] - Inventory value may decline due to rapid technological change or supplier price reductions, and existing OEM supplier protections may not adequately cover these losses[100] - Customer concentration (one customer accounted for 19% of FY2020 revenue) and intense competition could adversely impact revenue, especially in systems design and integration solutions[102] - Strategic acquisitions and investments in new markets carry risks related to integration difficulties, loss of key employees, diversion of capital, and potential failure to realize anticipated benefits[106][107] - The capital-intensive nature of the business requires continued access to capital, and inability to obtain financing on favorable terms could harm operations or expansion[109][110] - Significant credit exposure to customers, with a large portion of sales on credit terms, creates risk of credit loss and negative impact on cash flow and liquidity[111] - Dependence on IT and telecommunications systems and the Internet means failures, downtime, or security breaches could disrupt operations, harm customer relationships, and affect financial results[112][113] - Loss of key personnel, intellectual property disputes, and disruptions in international operations (e.g., natural disasters, technical difficulties) are additional risks[114][116][119] - Debt arrangements impose significant restrictions on operations and require maintenance of specified financial ratios, with non-compliance potentially leading to accelerated debt repayment[120][121] - Reliance on floor plan financing companies for a portion of revenue means termination or reduction of these arrangements could increase financing costs and harm business[129] Risks Related to Our Relationship with MiTAC Holdings Corporation Risks arise from MiTAC Holdings' 18% ownership, influencing control and creating potential conflicts of interest due to dual roles and a competing affiliate - MiTAC Holdings Corporation and its affiliates owned approximately 18% of SYNNEX's common stock as of November 30, 2020, allowing them to influence stockholder approval matters and potentially delay or prevent a change in control[131] - Potential conflicts of interest exist due to MiTAC Holdings' ownership and Matthew Miau's dual roles as SYNNEX Chairman Emeritus/Director and Chairman of MiTAC Holdings[132] - Synnex Technology International Corp., an affiliate of MiTAC Holdings, is a potential competitor, and there is a risk of confusion due to similar names and potential restrictions on SYNNEX's use of the name in certain geographies[133] Risks Related to Our Industry Industry risks include IT/CE market volatility, intense competition from providers and direct-selling OEMs, and the imperative to adapt to rapid technological changes like cloud migration - Volatility in the IT and CE industries, including cyclical demand, economic downturns, and the emergence of new technologies like cloud-based infrastructure, could adversely affect business and operating results[135] - Intense competition from regional, national, and international providers, as well as OEM suppliers selling directly, could lead to market share loss or price reductions[136][137][138] - OEM suppliers' strategies to consolidate business or increase direct sales could negatively affect SYNNEX's business opportunities and operating results[139][140] - Failure to adapt to rapidly changing technologies and process developments in the IT and CE industries, such as the migration to cloud-based IT infrastructure, could harm business[141] Risks Related to the Separation The Concentrix separation poses risks of non-performance under agreements, failure to achieve anticipated benefits, and substantial tax liabilities if tax-free status is not maintained - Risks include potential failure of SYNNEX or Concentrix to perform under transaction agreements (e.g., separation and distribution agreement, employee matters agreement), leading to operational difficulties or losses[143] - The separation may not achieve all anticipated benefits, and both companies, being smaller and less diversified, may be more vulnerable to market changes[144] - If the separation fails to qualify for tax-free treatment, it could result in substantial tax liability for SYNNEX and its stockholders[145] Risks Related to the Macro-Economic and Regulatory Environment Macroeconomic and regulatory risks include COVID-19 impacts, foreign currency fluctuations, supply chain disruptions, China operations, tax liabilities, cyberattacks, data privacy, geopolitical events, and internal control effectiveness - The COVID-19 pandemic negatively impacted the global economy, supply chains, and workforce, adversely affecting SYNNEX's results in FY2020, with ongoing uncertainty about future impacts[147] - Changes in foreign currency exchange rates (34% of FY2020 revenue from international operations) and limitations on currency convertibility (e.g., Chinese Renminbi) could adversely affect operating margins and business results[149][150] - Reliance on independent shipping companies exposes the company to risks of price increases or service interruptions, which could impact gross margins and operations[152] - Substantial operations in China expose the company to economic, political, and social risks, including government-controlled foreign exchange, extensive regulation, and an uncertain legal system[153][154] - Higher than anticipated tax liabilities could arise from changes in tax laws, interpretations, or audit outcomes across multiple jurisdictions[155] - Cyberattacks or improper disclosure of personal information could result in liability and harm reputation, especially with evolving data privacy regulations like GDPR and CCPA[156][157][158] - Global economic, political, and social conditions (e.g., trade negotiations, geopolitical turmoil, Brexit) may harm business, increase costs, and negatively affect stock price[160][166] - International expansion exposes the company to additional risks not present in the U.S., such as political instability, trade restrictions, and difficulties in collecting accounts receivable[161] - Inability to maintain effective internal control over financial reporting could adversely affect financial reporting timeliness and accuracy, potentially leading to a decline in stock price[163][164] Item 1B. Unresolved Staff Comments No unresolved staff comments are reported Item 2. Properties SYNNEX owns its Fremont headquarters, with Technology Solutions operating 63 facilities (6.1 million sq ft) and Concentrix (pre-separation) occupying 284 facilities (16.8 million sq ft) - SYNNEX's principal executive offices are owned and located in Fremont, California[168] - The Technology Solutions segment operates approximately 63 facilities, covering 6.1 million square feet, with 2.1 million square feet owned and the remainder leased[168] - The Concentrix segment (pre-separation) occupied approximately 284 facilities, totaling 16.8 million square feet, owning 1.3 million square feet and leasing the rest[169] Item 3. Legal Proceedings SYNNEX is involved in ordinary course legal proceedings, including bankruptcy actions, not expected to materially affect its financial position - SYNNEX is involved in legal proceedings in the ordinary course of business, including bankruptcy preference actions, but does not expect a material adverse effect on its financial results[171][172] Item 4. Mine Safety Disclosures This item is not applicable to SYNNEX Corporation Information About our Executive Officers This section lists SYNNEX's executive officers as of November 30, 2020, detailing their roles and ages Executive Officers as of November 30, 2020 | Name | Age | Position | | :---------------- | :-- | :------------------------------------------ | | Dennis Polk | 54 | President, Chief Executive Officer and a Director | | Michael Urban | 56 | President, Worldwide Technology Solutions Distribution | | Peter Larocque | 59 | President, North American Technology Solutions | | Marshall Witt | 55 | Chief Financial Officer | | Christopher Caldwell | 48 | Executive Vice President; President, Concentrix Corporation | | Simon Leung | 55 | Senior Vice President; General Counsel and Corporate Secretary | - Christopher Caldwell resigned from SYNNEX effective December 1, 2020, following the separation of Concentrix[178] PART II This section covers SYNNEX's common stock market, dividends, share repurchases, selected financial data, management's discussion and analysis, market risk, and audited financial statements Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities SYNNEX common stock trades on NYSE, with dividends reinstated in January 2021 after a COVID-19 suspension, and a $400 million share repurchase program authorized - SYNNEX common stock is traded on the New York Stock Exchange (NYSE) under the symbol "SNX"[181] - As of January 22, 2021, there were approximately 4,400 stockholders of record[181] Quarterly Cash Dividends Declared Per Share | Quarter | 2020 | 2019 | | :------------ | :---- | :---- | | First Quarter | $0.400 | $0.375 | | Second Quarter | $— | $0.375 | | Third Quarter | $— | $0.375 | | Fourth Quarter | $— | $0.375 | - The quarterly dividend was suspended on March 24, 2020, due to the COVID-19 pandemic, but reinstated at $0.20 per share on January 11, 2021, payable on January 29, 2021[185] - A three-year $400 million share repurchase program was authorized in June 2020, effective July 1, 2020, with no shares repurchased under this program as of November 30, 2020[186] - Under a previous $300 million program (expired June 2020), SYNNEX repurchased 35,000 shares for $3.4 million in FY2020, and a total of 874,517 shares for $84.6 million[187] Stock Price Performance Graph This section presents SYNNEX's cumulative total stockholder return compared to various indices over a five-year period Cumulative Total Stockholder Return (11/30/2015 - 11/30/2020) | Fiscal Years Ended | 11/30/2015 | 11/30/2016 | 11/30/2017 | 11/30/2018 | 11/30/2019 | 11/30/2020 | | :----------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | SYNNEX Corporation | $100.00 | $125.15 | $147.08 | $88.42 | $136.52 | $178.70 | | NYSE Composite Index | $100.00 | $107.09 | $128.06 | $129.69 | $144.98 | $153.61 | | S&P Midcap 400 Index | $100.00 | $113.23 | $134.21 | $134.86 | $146.80 | $161.04 | | Computers and Peripheral Equipment | $100.00 | $154.69 | $161.26 | $161.90 | $185.91 | $160.85 | | Concentrix Peer Group | $100.00 | $111.90 | $143.20 | $158.34 | $199.69 | $246.46 | - The closing price per share of SYNNEX common stock was $160.31 on November 30, 2020[182] Securities Authorized for Issuance under Equity Compensation Plans Information on securities authorized for issuance under equity compensation plans is incorporated by reference from Item 12 - Information regarding securities authorized for issuance under equity compensation plans is incorporated by reference from Item 12 of this Report[184] Dividends SYNNEX reinstated its quarterly cash dividend at $0.20 per share in January 2021, following a suspension in March 2020 due to the COVID-19 pandemic - SYNNEX initiated a quarterly cash dividend on September 29, 2014[185] Quarterly Cash Dividends Declared Per Share | Quarter | 2020 | 2019 | | :------------ | :---- | :---- | | First Quarter | $0.400 | $0.375 | | Second Quarter | $— | $0.375 | | Third Quarter | $— | $0.375 | | Fourth Quarter | $— | $0.375 | - The quarterly dividend was suspended on March 24, 2020, due to the unpredictable economic environment caused by the COVID-19 pandemic[185] - On January 11, 2021, the company announced the reinstatement of a quarterly cash dividend of $0.20 per share[185] Purchases of Equity Securities SYNNEX authorized a new $400 million share repurchase program in June 2020, with no repurchases under it as of November 30, 2020, while completing a previous $300 million program - In June 2020, the Board authorized a three-year $400 million share repurchase program, effective July 1, 2020; no shares were repurchased under this program as of November 30, 2020[186] - Under a previous $300 million program (June 2017 - June 2020), SYNNEX repurchased 35,000 shares for $3.4 million in FY2020, and a total of 874,517 shares for $84.6 million[187] Item 6. Selected Financial Data Selected consolidated financial data for FY2016-2020 shows revenue growth to $24.68 billion and net income to $529 million, with significant cash increase in 2020 Selected Consolidated Statements of Operations Data (in thousands, except per share amounts) | Fiscal Years Ended November 30, | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------------------ | :----------- | :----------- | :----------- | :----------- | :----------- | | Revenue | $24,675,563 | $23,757,293 | $19,767,945 | $16,771,128 | $14,061,837 | | Gross profit | 2,847,604 | 2,897,917 | 1,926,899 | 1,549,312 | 1,282,965 | | Operating income | 830,103 | 813,761 | 550,236 | 507,337 | 379,596 | | Net income | 529,160 | 500,712 | 299,981 | 300,240 | 235,005 | | Earnings per common share: | | | | | | | Basic | $10.28 | $9.79 | $7.21 | $7.52 | $5.91 | | Diluted | $10.21 | $9.74 | $7.17 | $7.48 | $5.88 | | Cash dividends declared per share | $0.40 | $1.50 | $1.40 | $1.05 | $0.85 | Selected Consolidated Balance Sheet Data (in thousands) | As of November 30, | 2020 | 2019 | 2018 | 2017 | 2016 | | :---------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Cash and cash equivalents | $1,564,672 | $225,529 | $454,694 | $550,688 | $380,717 | | Working capital | 3,139,035 | 2,845,870 | 2,209,190 | 1,703,249 | 1,518,498 | | Total assets | 13,468,590 | 11,697,960 | 11,543,498 | 7,756,343 | 5,215,281 | | Borrowings, current | 158,715 | 298,969 | 833,216 | 805,471 | 362,889 | | Long-term borrowings | 2,608,061 | 2,718,267 | 2,622,782 | 1,136,089 | 601,095 | | Total equity | 4,338,860 | 3,788,450 | 3,435,054 | 2,287,297 | 1,975,798 | Other Financial Data (in thousands) | Fiscal Years Ended November 30, | 2020 | 2019 | 2018 | 2017 | 2016 | | :------------------------------ | :--------- | :--------- | :--------- | :--------- | :--------- | | Depreciation and amortization | $341,637 | $372,108 | $225,287 | $159,886 | $121,293 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes SYNNEX's financial condition and operating results for FY2020-2018, covering revenue, margins, trends, accounting policies, and the impact of the Concentrix separation and COVID-19 - The discussion focuses on fiscal years 2020 and 2019, with comparisons to 2018, and should be read with the business description and consolidated financial statements[193] - Forward-looking statements are identified, covering market trends, business strategy, financial performance, and risks, with a disclaimer against public updates[194] - The separation of SYNNEX and Concentrix is a key factor influencing future results, with Concentrix's services revenue and costs being discontinued from SYNNEX's financial results post-separation[194][216] Revenue and Cost of Revenue Revenue sources include IT product distribution for Technology Solutions and business outsourcing for Concentrix (pre-separation), with international operations and foreign currency impacting growth - Technology Solutions revenue is primarily from distributing IT products and providing systems design/integration solutions, while Concentrix revenue (pre-separation) was from high-value business outsourcing services[195] - Approximately 34% of consolidated revenue and 24% of Technology Solutions revenue in FY2020 and FY2019 were generated from international operations, impacting growth due to foreign currency fluctuations[196] - The IT market is characterized by declining unit prices and short product life cycles, with sales prices based on market supply/demand and influenced by OEM incentive/rebate programs[197] - Cost of Technology Solutions revenue includes product purchase price (net of incentives), inventory provisions, freight, and royalties; Concentrix cost of revenue primarily consists of personnel costs for service delivery[198] Margins Technology Solutions maintains low margins influenced by product mix and competition, while Concentrix (pre-separation) had higher margins affected by resource location and client mix - Technology Solutions operates with low gross and operating margins, influenced by product mix, customer base, OEM incentives, competition, seasonality, and inventory obsolescence[201] - Concentrix gross margins (pre-separation) were higher but impacted by resource location, client mix, pricing, and initial setup costs[201] - Overall operating margin fluctuated based on economies of scale, operating expense management, segment revenue mix, and timing of acquisitions/investments[201] Economic and Industry Trends Technology Solutions revenue depends on IT/CE market demand and cloud trends, while the customer experience industry (pre-separation) was competitive, with COVID-19 causing $131 million in incremental costs in FY2020 - Technology Solutions revenue is highly dependent on end-market demand for IT and CE products, influenced by new product introductions, replacement cycles, cloud computing trends, and economic growth[202] - The customer experience services industry (Concentrix pre-separation) was competitive, with performance based on pricing and service quality, and impacted by economic conditions in key geographies[203] - The COVID-19 pandemic negatively impacted the global economy, supply chains, and workforce, leading to $131 million in net incremental costs in FY2020 ($86 million for Concentrix, $45 million for Technology Solutions)[204] Critical Accounting Policies and Estimates Financial statement preparation involves significant estimates, especially for revenue recognition in Technology Solutions (transfer of control) and Concentrix (service delivery), and for business combinations - The preparation of financial statements requires significant estimates and assumptions, particularly affected by the COVID-19 pandemic, leading to increased judgment and variability[205][206] - Revenue Recognition: For Technology Solutions, revenue is recognized when control of IT hardware/software is transferred (shipment/delivery)[207][208] - For Concentrix (pre-separation), service revenue is recognized over time as services are delivered, based on fixed price or unit-price transactions[212] - Business Combinations: Purchase consideration is allocated to acquired assets, liabilities, and noncontrolling interests at fair value, with any excess recorded as goodwill[214] - Significant estimates are made for intangible assets[214] Results of Operations SYNNEX aims for growth through acquisitions and divestitures, with Concentrix's post-separation discontinuation expected to decrease consolidated gross profit, operating income, and margins - SYNNEX continually seeks to augment organic growth with strategic acquisitions and divest businesses no longer strategic[215] - Post-separation, Concentrix's services revenue and costs will be discontinued, leading to a decrease in consolidated gross profit, operating income, and net income, and a decrease in gross and operating margins due to the discontinuance of higher-margin Concentrix business[216] - A $1.2 billion decrease in products revenue is expected in the second half of 2021 due to a customer moving to a consignment model for integration services[217] Consolidated Statements of Operations Data as % of Total Revenue | Statements of Operations Data: | 2020 | 2019 | | :----------------------------- | :------ | :------ | | Products revenue | 80.96% | 80.27% | | Services revenue | 19.04% | 19.73% | | Total revenue | 100.00% | 100.00% | | Cost of products revenue | (76.12%) | (75.40%) | | Cost of services revenue | (12.34%) | (12.40%) | | Gross profit | 11.54% | 12.20% | | Selling, general and administrative expenses | (8.18%) | (8.77%) | | Operating income | 3.36% | 3.43% | | Interest expense and finance charges, net | (0.52%) | (0.70%) | | Other income (expense), net | 0.01% | 0.13% | | Income before income taxes | 2.85% | 2.86% | | Provision for income taxes | (0.71%) | (0.74%) | | Net income | 2.14% | 2.11% | Revenue (in thousands) | Segment | 2020 | 2019 | Percent Change | | :------------------ | :----------- | :----------- | :------------- | | Total Revenue | $24,675,563 | $23,757,293 | 3.9% | | Technology Solutions | $19,977,150 | $19,069,970 | 4.8% | | Concentrix | $4,719,534 | $4,707,912 | 0.2% | - Technology Solutions revenue increased by 4.8% (5.2% on a constant currency basis) in FY2020, driven by increased demand for technology equipment due to COVID-19 related remote work and learning solutions[227] - Concentrix revenue increased slightly by 0.2% in FY2020, with growth from technology, retail, and e-commerce clients offset by lower demand from media, communications, travel, tourism, and automotive clients, and impacted by COVID-19 restrictions[228] Gross Profit (in thousands) | Segment | 2020 | 2019 | Percent Change | | :------------------ | :----------- | :----------- | :------------- | | Total Gross Profit | $2,847,604 | $2,897,917 | -1.7% | | Total Gross Margin | 11.54% | 12.20% | | | Technology Solutions Gross Profit | $1,193,858 | $1,157,258 | 3.2% | | Technology Solutions Gross Margin | 5.98% | 6.07% | | | Concentrix Gross Profit | $1,661,525 | $1,748,448 | -5.0% | | Concentrix Gross Margin | 35.21% | 37.14% | | - Technology Solutions gross profit increased by 3.2% in FY2020 due to strong demand, partially offset by lower margins from product mix and $10.4 million in COVID-19 related costs[231] - Concentrix gross profit and margin decreased by 5.0% in FY2020 due to $76.0 million in COVID-19 related non-productive workforce and other costs[232] Selling, General and Administrative Expenses (in thousands) | Segment | 2020 | 2019 | Percent Change | | :------------------ | :----------- | :----------- | :------------- | | Total SG&A Expenses | $2,017,502 | $2,084,156 | -3.2% | | Total SG&A % of Revenue | 8.18% | 8.77% | | | Technology Solutions SG&A Expenses | $672,516 | $637,829 | 5.4% | | Technology Solutions SG&A % of Revenue | 3.37% | 3.34% | | | Concentrix SG&A Expenses | $1,352,764 | $1,454,116 | -7.0% | | Concentrix SG&A % of Revenue | 28.66% | 30.89% | | - Technology Solutions SG&A increased by 5.4% in FY2020 due to higher allowance for doubtful accounts, increased salaries/employee expenses (including $33 million COVID-19 related costs), and $7.4 million in Concentrix separation transaction costs, partially offset by lower amortization of intangible assets[234] - Concentrix SG&A decreased by 7.0% in FY2020 due to lower facility/employee costs from integration and rationalization, reduced variable operating expenses/discretionary spend due to COVID-19 remote work, and lower amortization of intangible assets and transaction-related expenses, partially offset by $10.0 million in COVID-19 related technology and health/safety costs[235][236] Operating Income (in thousands) | Segment | 2020 | 2019 | Percent Change | | :------------------ | :----------- | :----------- | :------------- | | Total Operating Income | $830,103 | $813,761 | 2.0% | | Total Operating Margin | 3.36% | 3.43% | | | Technology Solutions Operating Income | $521,341 | $519,429 | 0.4% | | Technology Solutions Operating Margin | 2.61% | 2.72% | | | Concentrix Operating Income | $308,761 | $294,332 | 4.9% | | Concentrix Operating Margin | 6.54% | 6.25% | | - Technology Solutions operating income increased by 0.4% in FY2020 due to broad-based growth, lower amortization of intangible assets, and reduced transaction-related expenses, partially offset by COVID-19 related costs[237] - Concentrix operating income and margin increased by 4.9% in FY2020 due to lower transaction-related and integration expenses and reduced amortization of intangible assets, partially offset by COVID-19 related incremental costs[238] Interest Expense and Finance Charges, Net (in thousands) | Item | 2020 | 2019 | Percent Change | | :---------------------------------- | :----------- | :----------- | :------------- | | Interest expense and finance charges, net | $127,336 | $166,421 | -23.5% | | Percentage of revenue | 0.52% | 0.70% | | - Interest expense and finance charges decreased by 23.5% in FY2020 due to a $700 million reduction in average borrowings and a lower interest rate environment[240] Other Income (Expense), Net (in thousands) | Item | 2020 | 2019 | Percent Change | | :------------------------ | :--------- | :--------- | :------------- | | Other income (expense), net | $1,276 | $30,363 | -96% | | Percentage of revenue | 0.01% | 0.13% | | - Other income (expense), net decreased by 96% in FY2020, primarily due to a $19.0 million gain from contingent consideration settlement and an $11.1 million gain from contingent sales-tax assets in FY2019, partially offset by a $3.5 million gain from tax indemnification provisions reversal in FY2020[243] Provision for Income Taxes (in thousands) | Item | 2020 | 2019 | Percent Change | | :---------------------------- | :--------- | :--------- | :------------- | | Provision for income taxes | $174,882 | $176,991 | -1.2% | | Percentage of income before income taxes | 24.84% | 26.05% | | - Income tax expense decreased by 1.2% in FY2020 due to a lower effective tax rate (24.84% vs. 26.05%), benefiting from employee stock option exercises and reversal of uncertain tax positions[245] Non-GAAP Financial Information Non-GAAP financial measures, including constant currency revenue and Adjusted EBITDA, provide additional insights into core operating performance by excluding specific non-recurring items - Non-GAAP financial measures are disclosed to provide additional insights into base operating performance, excluding transaction-related expenses, restructuring costs, and amortization of intangible assets[218][222] - Non-GAAP metrics include revenue in constant currency, non-GAAP operating income/margin, Adjusted EBITDA, and non-GAAP diluted EPS[218][223] Consolidated Non-GAAP Financial Information (in thousands, except per share amounts) | Item | 2020 | 2019 | | :---------------------------------------- | :----------- | :----------- | | Revenue | $24,675,563 | $23,757,293 | | Foreign currency translation | 108,546 | — | | Revenue in constant currency | $24,784,109 | $23,757,293 | | Operating income | $830,103 | $813,761 | | Transaction-related and integration expenses | 44,879 | 71,454 | | Amortization of intangibles | 187,431 | 210,481 | | Non-GAAP operating income | $1,062,413 | $1,095,696 | | Operating margin | 3.36% | 3.43% | | Non-GAAP operating margin | 4.31% | 4.61% | | Adjusted EBITDA | $1,218,713 | $1,252,973 | | Diluted EPS | $10.21 | $9.74 | | Non-GAAP diluted EPS | $13.68 | $13.26 | Technology Solutions Non-GAAP Financial Information (in thousands, except per share amounts) | Item | 2020 | 2019 | | :---------------------------------------- | :----------- | :----------- | | Revenue | $19,977,150 | $19,069,970 | | Foreign currency translation | 87,806 | — | | Revenue in constant currency | $20,064,956 | $19,069,970 | | Operating income | $521,341 | $519,429 | | Transaction-related and integration expenses | 7,414 | 981 | | Amortization of intangibles | 40,148 | 43,875 | | Non-GAAP operating income | $568,903 | $564,285 | | Operating margin | 2.61% | 2.72% | | Non-GAAP operating margin | 2.85% | 2.96% | | Adjusted EBITDA | $596,080 | $586,739 | Concentrix Non-GAAP Financial Information (in thousands, except per share amounts) | Item | 2020 | 2019 | | :---------------------------------------- | :----------- | :----------- | | Revenue | $4,719,534 | $4,707,912 | | Foreign currency translation | 20,740 | — | | Revenue in constant currency | $4,740,274 | $4,707,912 | | Operating income | $308,761 | $294,332 | | Transaction-related and integration expenses | 37,465 | 70,473 | | Amortization of intangibles | 147,283 | 166,606 | | Non-GAAP operating income | $493,509 | $531,411 | | Operating margin | 6.54% | 6.25% | | Non-GAAP operating margin | 10.46% | 11.29% | | Adjusted EBITDA | $622,634 | $666,234 | Liquidity and Capital Resources Technology Solutions is working capital intensive, with FY2020 operating cash flow at $1.834 billion and cash and equivalents at $1.565 billion, deemed sufficient for future operations - The Technology Solutions business is working capital intensive, relying on term loans, accounts receivable arrangements, securitization programs, and revolver programs[249] Cash Conversion Cycle (CCC) (in days) | Item | November 30, 2020 | November 30, 2019 | | :---------------------------------- | :---------------- | :---------------- | | Consolidated CCC | 31 | 44 | | Technology Solutions CCC | 25 | 41 | - The decrease in CCC in FY2020 was primarily due to efficient accounts receivable collections and faster inventory turnover in Technology Solutions, and favorable timing of accounts payable payments[250] - Net cash provided by operating activities was $1.834 billion in FY2020, driven by net income, non-cash adjustments, decreases in accounts receivable/vendor receivables, and increases in accounts payable[252] - Net cash used in investing activities was $209.5 million in FY2020, primarily for capital expenditures related to infrastructure investments[254] - Net cash used in financing activities was $291.7 million in FY2020, mainly due to net repayments of $262.6 million under borrowing arrangements, and dividend payments[257] - Cash and cash equivalents totaled $1.565 billion as of November 30, 2020, with $570.8 million held by international subsidiaries, which are no longer subject to U.S. federal tax on repatriation[260] - The company believes current cash balances and credit availability are sufficient to support operating activities for at least the next twelve months[259][261] On-Balance Sheet Arrangements SYNNEX utilizes various on-balance sheet arrangements, including U.S. and Canadian accounts receivable securitization programs, a Japanese credit agreement, and U.S. term loans, with Concentrix's borrowings no longer consolidated post-separation - SYNNEX has a U.S. accounts receivable securitization program with a maximum borrowing of $650.0 million (maturity May 2022), with no outstanding borrowings as of November 30, 2020[263][265] - SYNNEX Canada has an accounts receivable securitization program for up to CAD100.0 million ($76.9 million), renewed through May 2023, with no outstanding balance as of November 30, 2020[266] - SYNNEX Japan has a credit agreement for JPY15.0 billion ($143.8 million), comprising a JPY7.0 billion term loan and a JPY8.0 billion revolving credit facility, expiring November 2021[267] - A U.S. senior secured credit agreement includes a $600.0 million revolving credit facility and a $1.2 billion term loan (matures September 2022), with $0.5 billion outstanding on the term loan as of November 30, 2020[268] - A secured term loan credit agreement (U.S. Term Loan Credit Agreement) for $1.8 billion (matures October 2023) had $1.0 billion outstanding as of November 30, 2020[269][270] - Concentrix (pre-separation) had its own borrowing arrangements, including a $600.0 million revolving loan and a $900.0 million term loan, and a $350.0 million accounts receivable securitization facility, which are no longer part of SYNNEX's arrangements post-separation[273] Off-Balance Sheet Arrangements SYNNEX engages in off-balance sheet supply-chain financing programs in the U.S. and Japan by selling trade accounts receivable without recourse - SYNNEX has supply-chain financing programs in the U.S. and Japan where trade accounts receivable are sold to financial institutions without recourse[275] Trade Accounts Receivable Sold to Financial Institutions (in thousands) | As of November 30, | Amount (in thousands) | | :----------------- | :-------------------- | | 2020 | $22,500 | | 2019 | $35,300 | Covenant Compliance SYNNEX's credit facilities contain covenants requiring financial ratio maintenance and limiting certain actions, with the company in compliance as of November 30, 2020 - SYNNEX's credit facilities include covenants and restrictions requiring maintenance of specified financial ratios and tests, and limiting actions such as incurring additional debt, paying dividends, and making acquisitions[276] - As of November 30, 2020, the company was in compliance with all material covenants for its borrowing arrangements[276] Contractual Obligations SYNNEX's contractual obligations exclude Concentrix's post-separation borrowings, with contingent liabilities for repossessed inventory and a $60.4 million reserve for unrecognized tax benefits Contractual Obligations as of November 30, 2020 (in thousands) | Contractual Obligations: | Total | Less than 1 Year | 1 - 3 Years | 3 - 5 Years | > 5 Years | | :----------------------------------- | :----------- | :--------------- | :----------- | :----------- | :----------- | | Principal debt payments under SYNNEX borrowing arrangements | $1,625,049 | $124,964 | $1,500,085 | $— | $— | | Principal debt payments under Concentrix borrowing arrangements | 1,150,000 | 33,750 | 340,000 | 776,250 | — | | Principal debt payments - Consolidated | 2,775,049 | 158,714 | 1,840,085 | 776,250 | — | | Interest on debt | 168,237 | 67,784 | 100,453 | — | — | | Repatriation tax under the TCJA | 40,461 | — | 2,475 | 37,987 | — | | Non-cancellable operating leases | 694,703 | 216,224 | 299,579 | 138,972 | 39,928 | | Total | $3,678,450 | $442,722 | $2,242,592 | $953,209 | $39,928 | - Post-separation, Concentrix borrowing arrangements are no longer part of SYNNEX's contractual obligations[278] - SYNNEX is contingently liable to repurchase repossessed inventory from flooring companies due to customer defaults, but no material losses are expected based on historical experience[279] - A reserve of $60.4 million for unrecognized tax benefits is established as of November 30, 2020, excluded from the table due to uncertain timing of settlement[280] Related Party Transactions MiTAC Holdings, owning 18% of SYNNEX, influences stockholder matters and engages in related party transactions, with an affiliate also acting as a potential competitor - MiTAC Holdings Corporation and its affiliates beneficially owned approximately 18% of SYNNEX's outstanding common stock as of November 30, 2020, giving them influence over stockholder matters[281][284] Transactions with MiTAC Holdings and Affiliates (in thousands) | Item | 2020 | 2019 | | :------------------------------------ | :--------- | :--------- | | Purchases of inventories and services | $211,858 | $173,390 | | Sale of products | $1,071 | $761 | | Reimbursements (net) | $(129) | $(41) | Receivable from and Payable to MiTAC Holdings and Affiliates (in thousands) | Item | As of November 30, 2020 | As of November 30, 2019 | | :------------------------------------ | :---------------------- | :---------------------- | | Receivable from related parties | $26,154 | $4,405 | | Payable to related parties | $49,603 | $23,179 | - Business relationships are informal, with pricing and terms negotiated case-by-case, and material transactions with related parties require Audit Committee approval[286] - Synnex Technology International Corp., an affiliate of MiTAC Holdings, is a potential competitor and is not restricted from competing with SYNNEX[287] Recently Issued Accounting Pronouncements A summary of recent accounting pronouncements and their anticipated effects is provided in Note 2 of Item 8 - For a summary of recent accounting pronouncements and their anticipated effects, refer to Note 2 – Summary of Significant Accounting Policies in Item 8[288] Item 7A. Quantitative and Qualitative Disclosures about Market Risk SYNNEX manages foreign currency, interest rate, and equity price risks using non-speculative derivative instruments, with Concentrix-related derivatives no longer a risk post-separation - SYNNEX is exposed to foreign currency risk, interest rate risk, and equity price risk[289][293][298] - The company uses forward contracts to manage cash flow exposures for major countries and the foreign currency impact of assets and liabilities, primarily hedging Philippine Peso, Indian Rupee, Euro, Canadian Dollar, Japanese Yen, British Pound, and Chinese Yuan[289] Hypothetical Changes in Fair Values of Foreign Currency Derivative Instruments (in thousands) | Item | Loss (15% Weakening) | Loss (10% Weakening) | Loss (5% Weakening) | No Change | Gain (5% Strengthening) | Gain (10% Strengthening) | Gain (15% Strengthening) | | :------------------------------------ | :------------------- | :------------------- | :------------------ | :-------- | :---------------------- | :----------------------- | :----------------------- | | Forward contracts at Nov 30, 2020 | $262,969 | $187,375 | $119,730 | $58,842 | $3,747 | $(46,345) | $(90,519) | | Forward contracts at Nov 30, 2019 | $231,880 | $156,971 | $89,117 | $27,256 | $(29,477) | $(81,785) | $(129,773) | - All long-term forward contracts were related to the Concentrix segment and no longer represent a risk to SYNNEX post-separation[291] - Interest rate risk is managed using interest rate swaps to convert a portion of variable-rate debt to fixed-rate debt, with $1.6 billion notional amount as of November 30, 2020[294] Hypothetical Interest Expense with Variable Interest Rates (in thousands) | Item | 15% Decrease | 10% Decrease | 5% Decrease | Act