TD SYNNEX (SNX) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited Consolidated Financial Statements for the quarter ended May 31, 2021, including the impact of Concentrix's separation as discontinued operations Consolidated Balance Sheets Total assets decreased from $13.47 billion to $8.16 billion due to the Concentrix separation, impacting both assets and liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2021 | November 30, 2020 | | :--- | :--- | :--- | | Total current assets | $7,239,756 | $8,769,127 | | Total assets | $8,159,898 | $13,468,590 | | Total current liabilities | $4,270,330 | $5,630,092 | | Total liabilities | $5,904,230 | $9,129,730 | | Total stockholders' equity | $2,255,668 | $4,338,860 | - The November 30, 2020 balance sheet includes $1.42 billion in current assets and $3.75 billion in noncurrent assets from discontinued Concentrix operations, separated December 1, 2020[12][58] Consolidated Statements of Operations Revenue increased 31.0% to $5.86 billion for the quarter, with diluted EPS from continuing operations rising to $1.78 from $0.97 year-over-year Statement of Operations Summary (in thousands, except per share amounts) | Metric | Q2 2021 (Three Months Ended May 31, 2021) | Q2 2020 (Three Months Ended May 31, 2020) | Change YoY | | :--- | :--- | :--- | :--- | | Revenue | $5,856,825 | $4,470,928 | +31.0% | | Gross Profit | $329,175 | $274,616 | +19.9% | | Operating Income | $147,901 | $88,144 | +67.8% | | Income from Continuing Operations | $93,102 | $50,192 | +85.5% | | Net Income | $93,102 | $56,960 | +63.4% | | Diluted EPS (Continuing Operations) | $1.78 | $0.97 | +83.5% | Consolidated Statements of Cash Flows Net cash from operating activities decreased to $304.3 million from $1.23 billion year-over-year, with $149.9 million transferred to Concentrix Cash Flow Summary (Six Months Ended May 31, in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $304,318 | $1,226,481 | | Net cash used in investing activities | ($7,515) | ($91,960) | | Net cash used in financing activities | ($221,960) | ($237,646) | - A key financing activity was the net transfer of $149.9 million in cash and cash equivalents to Concentrix as part of the separation[26] Notes to the Consolidated Financial Statements Notes detail the Concentrix separation, customer concentration, borrowings, and the pending $1.61 billion Tech Data merger, including its financing - On December 1, 2020, the company completed the separation of its Concentrix business, which is now an independent public company[29] - One customer accounted for 25% of total revenue and 20% of consolidated accounts receivable, indicating significant customer concentration[40][41] - SYNNEX announced an agreement to acquire Tech Data Corporation for approximately $1.61 billion in cash and 44 million shares, expected to close in the second half of 2021[142][145] - A new credit agreement for a $3.5 billion revolving credit facility and a $1.5 billion term loan was secured to finance the Tech Data merger[101][104] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 31.0% driven by remote work and data center demand, while gross margin declined to 5.62%; the cash conversion cycle improved to 26 days Key Performance Indicators (Q2 2021 vs Q2 2020) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Revenue | $5,856.8M | $4,470.9M | | Gross Profit | $329.2M | $274.6M | | Gross Margin | 5.62% | 6.14% | | Operating Income | $147.9M | $88.1M | | Operating Margin | 2.53% | 1.97% | - Revenue growth was driven by continued demand for remote work solutions and a recovery in return-to-office and data center spending[180][181] - The cash conversion cycle improved to 26 days from 43 days year-over-year, driven by faster inventory turnover and improved accounts receivable collections[196][197] Non-GAAP Reconciliation (Three Months Ended May 31, 2021) | Metric (in thousands) | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Operating Income | $147,901 | $22,058 | $169,959 | | Diluted EPS | $1.78 | $0.31 | $2.09 | Quantitative and Qualitative Disclosures about Market Risk The company manages foreign currency risk, primarily CAD, BRL, EUR, and JPY, using forward contracts, with a 10% USD weakening resulting in a $25.7 million derivative loss - The company uses forward contracts to hedge foreign currency risk for receivables, payables, and intercompany transactions, primarily in CAD, BRL, EUR, and JPY[243] Foreign Currency Derivative Sensitivity Analysis (as of May 31, 2021) | U.S. Dollar Change | Hypothetical Gain/(Loss) on Derivatives | | :--- | :--- | | -10% (Weakening) | ($25,748,000) | | +10% (Strengthening) | $12,629,000 | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of May 31, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective[247] - No material changes to internal control over financial reporting occurred during the last fiscal quarter[248] PART II - OTHER INFORMATION Risk Factors New risks primarily relate to the Tech Data acquisition, including integration challenges, increased debt, transaction failure, and LIBOR discontinuation - Merger Integration Risk: Successful integration of Tech Data is crucial for realizing anticipated benefits, involving technology, operations, and personnel retention[253][254][257] - Increased Debt Risk: Total debt is expected to increase to approximately $4 billion to fund the acquisition, potentially impacting financial position and covenants[263] - Transaction Risk: Failure to complete the merger could negatively impact stock price and business, potentially incurring a $131.7 million termination fee[260][264] - LIBOR Discontinuation Risk: The anticipated discontinuation of LIBOR by year-end 2021 creates uncertainty for variable-rate debt, potentially impacting interest expense and cash flows[269] Exhibits This section lists key exhibits filed with the Form 10-Q, including the Tech Data Merger Agreement and related financing documents - Key exhibits include the Tech Data Merger Agreement, Bridge Commitment Letter, new Credit Agreement, and CEO/CFO certifications[271] Signatures The report was signed and authorized on July 7, 2021, by Dennis Polk, President and CEO, and Marshall W. Witt, CFO - The report was signed and authorized on July 7, 2021, by Dennis Polk, President and Chief Executive Officer, and Marshall W. Witt, Chief Financial Officer[274]