UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-Q
_______________________________________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended February 28, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _________ to _________
Commission File Number: 001-31892
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
_______________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(510 ) 656-3333
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated filer | o | |||||||||
| Non-accelerated filer | o | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| Class | Outstanding as of March 29, 2023 | |||||||
| Common Stock, $0.001 par value | ||||||||
TD SYNNEX CORPORATION
FORM 10-Q
INDEX
| Page | ||||||||
| Item 2. | ||||||||
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TD SYNNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except par value)
(unaudited)
| February 28, 2023 | November 30, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Receivables from vendors, net | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Borrowings, current | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term borrowings | |||||||||||
| Other long-term liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock, | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
3
TD SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except per share amounts)
(unaudited)
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Revenue | $ | $ | |||||||||
| Cost of revenue | ( | ( | |||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | ( | ( | |||||||||
| Acquisition, integration and restructuring costs | ( | ( | |||||||||
| Operating income | |||||||||||
| Interest expense and finance charges, net | ( | ( | |||||||||
| Other expense, net | ( | ( | |||||||||
| Income before income taxes | |||||||||||
| Provision for income taxes | ( | ( | |||||||||
| Net income | $ | $ | |||||||||
| Earnings per common share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Weighted-average common shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
4
TD SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(currency in thousands)
(unaudited)
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive income: | |||||||||||
Unrealized gains on cash flow hedges during the period, net of tax (expense) of ($ | |||||||||||
Reclassification of net (gains) losses on cash flow hedges to net income, net of tax expense (benefit) of $ | ( | ||||||||||
| Total change in unrealized gains on cash flow hedges, net of taxes | |||||||||||
Foreign currency translation adjustments and other, net of tax benefit (expense) of $ | |||||||||||
| Other comprehensive income | |||||||||||
| Comprehensive income | $ | $ | |||||||||
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
5
TD SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(currency in thousands, except per share amounts)
(unaudited)
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Total Stockholders' equity, beginning balance | $ | $ | |||||||||
| Common stock and additional paid-in capital: | |||||||||||
| Beginning balance | |||||||||||
| Share-based compensation | |||||||||||
| Common stock issued for employee benefit plans | |||||||||||
| Ending balance | |||||||||||
| Treasury stock: | |||||||||||
| Beginning balance | ( | ( | |||||||||
| Repurchases of common stock for tax withholdings on equity awards | ( | ( | |||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Ending balance | ( | ( | |||||||||
| Retained earnings: | |||||||||||
| Beginning balance | |||||||||||
| Net income | |||||||||||
| Cash dividends declared | ( | ( | |||||||||
| Ending balance | |||||||||||
| Accumulated other comprehensive loss: | |||||||||||
| Beginning balance | ( | ( | |||||||||
| Other comprehensive income | |||||||||||
| Ending balance | ( | ( | |||||||||
| Total stockholders' equity, ending balance | $ | $ | |||||||||
| Cash dividends declared per share | $ | $ | |||||||||
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
6
TD SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Provision for doubtful accounts | |||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable, net | ( | ||||||||||
| Receivables from vendors, net | ( | ||||||||||
| Inventories | ( | ||||||||||
| Accounts payable | ( | ||||||||||
| Other operating assets and liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Other | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Dividends paid | ( | ( | |||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Net borrowings on revolving credit loans | |||||||||||
| Principal payments on long term debt | ( | ( | |||||||||
| Proceeds from issuance of common stock | |||||||||||
| Repurchases of common stock for tax withholdings on equity awards | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | |||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
7
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION:
TD SYNNEX Corporation (together with its subsidiaries, herein referred to as “SYNNEX”, "TD SYNNEX" or the “Company”) is a leading global distributor and solutions aggregator for the information technology ("IT") ecosystem, headquartered in Fremont, California and Clearwater, Florida and has operations in North and South America, Europe and Asia-Pacific and Japan. The Company operates in three reportable segments based on its geographic regions: the Americas, Europe and Asia-Pacific and Japan ("APJ").
On March 22, 2021, SYNNEX entered into an agreement and plan of merger (the “Merger Agreement”) which provided that legacy SYNNEX Corporation would acquire legacy Tech Data Corporation, a Florida corporation ("Tech Data") through a series of mergers, which would result in Tech Data becoming an indirect subsidiary of TD SYNNEX Corporation (collectively, the "Merger"). On September 1, 2021, pursuant to the terms of the Merger Agreement, the Company acquired all the outstanding shares of common stock of Tiger Parent (AP) Corporation, the parent corporation of Tech Data, for consideration of $1.6 billion in cash ($1.1 billion in cash after giving effect to a $500.0 million equity contribution by Tiger Parent Holdings, L.P., Tiger Parent (AP) Corporation's sole stockholder and an affiliate of Apollo Global Management, Inc., to Tiger Parent (AP) Corporation prior to the effective time of the Merger) and 44 million shares of common stock of SYNNEX valued at approximately $5.6 billion. The combined company is referred to as TD SYNNEX.
The Consolidated Financial Statements include the accounts of the Company, its wholly-owned subsidiaries, majority-owned subsidiaries in which no substantive participating rights are held by minority stockholders and variable interest entities if the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated. The Company operates on a fiscal year that ends on November 30.
The accompanying interim unaudited Consolidated Financial Statements as of February 28, 2023 and for the three months ended February 28, 2023 and 2022 have been prepared by the Company, without audit, in accordance with the rules and regulations of the United States ("U.S.") Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company and its results of operations and cash flows as of and for the periods presented. These financial statements should be read in conjunction with the annual audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2022.
Interim results of operations are not necessarily indicative of financial results for a full year, and the Company makes no representations related thereto. Certain columns and rows may not add or compute due to the use of rounded numbers.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
For a discussion of the Company’s significant accounting policies, refer to the discussion in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2022. No significant new accounting pronouncements were adopted during the three months ended February 28, 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. The Company evaluates these estimates on a regular basis and bases them on historical experience and on various assumptions that the Company believes are reasonable. Actual results could differ from the estimates.
8
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist principally of cash and cash equivalents, accounts receivable, receivables from vendors and derivative instruments.
The Company’s cash and cash equivalents and derivative instruments are transacted and maintained with financial institutions with high credit standing, and their compositions and maturities are regularly monitored by management. Through February 28, 2023, the Company has not experienced any material credit losses on such deposits and derivative instruments.
Accounts receivable include amounts due from customers, including related party customers. Receivables from vendors, net, includes amounts due from original equipment manufacturer ("OEM") vendors primarily in the technology industry. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. The Company also maintains allowances for expected credit losses. In estimating the required allowances, the Company takes into consideration the overall quality and aging of its receivable portfolio, the existence of credit insurance and specifically identified customer and vendor risks.
The following table provides revenue generated from products purchased from vendors that exceeded 10% of our consolidated revenue for the periods indicated (as a percent of consolidated revenue):
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Apple, Inc. | % | % | |||||||||
| HP Inc. | N/A( | % | |||||||||
_________________________
(1) Revenue generated from products purchased from this vendor was less than 10% of consolidated revenue during the period presented.
One customer accounted for 11 % of the Company's total revenue during the three months ended February 28, 2023. No single customer accounted for more than 10% of the Company's total revenue during the three months ended February 28, 2022. As of February 28, 2023 and November 30, 2022, no single customer comprised more than 10% of the consolidated accounts receivable balance.
Accounts Receivable
The Company maintains an allowance for doubtful accounts as an estimate to cover the future expected credit losses resulting from uncertainty regarding collections from customers or OEM vendors to make payments for outstanding balances. In estimating the required allowance, the Company takes into consideration historical credit losses, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made for differences in current conditions as well as changes in forecasted macroeconomic conditions, such as changes in unemployment rates or gross domestic product growth. Expected credit losses are estimated on a pool basis when similar risk characteristics exist using an age-based reserve model. Receivables that do not share risk characteristics are evaluated on an individual basis.
The Company has uncommitted supply-chain financing programs with global financial institutions under which trade accounts receivable of certain customers and their affiliates may be acquired, without recourse, by the financial institutions. Available capacity under these programs is dependent on the level of the Company’s trade accounts receivable with these customers and the financial institutions’ willingness to purchase such receivables. In addition, certain of these programs also require that the Company continue to service, administer and collect the sold accounts receivable. As of February 28, 2023 and November 30, 2022, accounts receivable sold to and held by the financial institutions under these programs were $1.1 billion and $1.4 billion, respectively. Discount fees related to the sale of trade accounts receivable under these facilities are included in “Interest expense and finance charges, net” in the Consolidated Statements of Operations. Discount fees for these programs totaled $11.7 million and $3.0 million in the three months ended February 28, 2023 and 2022, respectively.
9
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Seasonality
The Company's operating results are affected by the seasonality of the IT products industry. The Company has historically experienced slightly higher sales in the first and fourth fiscal quarters due to patterns in capital budgeting, federal government spending and purchasing cycles of its customers and end-users. These historical patterns may not be repeated in subsequent periods.
Revenue Recognition
The Company generates revenue primarily from the sale of various IT products.
The Company recognizes revenues from the sale of IT hardware and software as control is transferred to customers, which is at the point in time when the product is shipped or delivered. The Company accounts for a contract with a customer when it has written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Binding purchase orders from customers together with agreement to the Company's terms and conditions of sale by way of an executed agreement or other signed documents are considered to be the contract with a customer. Products sold by the Company are delivered via shipment from the Company’s facilities, drop-shipment directly from the vendor, or by electronic delivery of software products. In situations where arrangements include customer acceptance provisions, revenue is recognized when the Company can objectively verify the products comply with specifications underlying acceptance and the customer has control of the products. Revenue is presented net of taxes collected from customers and remitted to government authorities. The Company generally invoices a customer upon shipment, or in accordance with specific contractual provisions. Payments are due as per contract terms and do not contain a significant financing component. Service revenues represents less than 10
Provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue. A liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return. These provisions are reviewed and adjusted periodically by the Company. Revenue is reduced for early payment discounts and volume incentive rebates offered to customers, which are considered variable consideration, at the time of sale based on an evaluation of the contract terms and historical experience.
The Company recognizes revenue on a net basis on certain contracts, where the Company’s performance obligation is to arrange for the products or services to be provided by another party or the rendering of logistics services for the delivery of inventory for which the Company does not assume the risks and rewards of ownership, by recognizing the margins earned in revenue with no associated cost of revenue. Such arrangements include supplier service contracts, post-contract software support services, cloud computing and software as a service arrangements, certain fulfillment contracts and extended warranty contracts.
The Company considers shipping and handling activities as costs to fulfill the sale of products. Shipping revenue is included in revenue when control of the product is transferred to the customer, and the related shipping and handling costs are included in cost of revenue.
10
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Reclassifications
Certain reclassifications have been made to prior period amounts in the Consolidated Financial Statements to conform to the current period presentation. These reclassifications did not have a material impact on previously reported amounts.
Recently Issued Accounting Pronouncements
In September 2022, the FASB issued an accounting standards update which will require new enhanced disclosures by the buyer in supplier finance programs. Disclosures will include key terms of the program, including payment terms, along with the amount of related obligations, the financial statement caption that includes such obligations, and a rollforward of activity related to the obligations during the period. The new accounting standard must be adopted retrospectively to the earliest comparative period presented, except for the rollforward requirement, which should be adopted prospectively. The accounting standard is effective for the Company beginning with the quarter ending February 29, 2024, except for the rollforward requirement which is effective for the quarter ending February 28, 2025. Early adoption is permitted. While the new accounting standard is not expected to have an impact on the Company's financial condition, results of operations or cash flows, the Company is currently evaluating the impact the new accounting standard will have on disclosures related to its supplier finance program obligations in the notes to the consolidated financial statements.
NOTE 3—ACQUISITION, INTEGRATION AND RESTRUCTURING COSTS:
Acquisition, integration and restructuring costs are primarily comprised of costs related to the Merger and costs related to the Global Business Optimization 2 Program initiated by Tech Data prior to the Merger (the “GBO 2 Program”).
The Merger
The Company incurred acquisition, integration and restructuring costs related to the completion of the Merger, including professional services costs, personnel and other costs, long-lived assets charges and termination fees, and stock-based compensation expense. Professional services costs are primarily comprised of IT and other consulting services, as well as legal expenses. Personnel and other costs are primarily comprised of costs related to retention and other bonuses, severance and duplicative labor costs. Long-lived assets charges and termination fees are comprised of accelerated depreciation and amortization expense of $6.2 million and $52.9 million recorded during the three months ended February 28, 2023 and 2022, respectively, due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, as well as $10.2 million recorded during the three months ended February 28, 2023 for termination fees related to certain IT systems. Stock-based compensation expense primarily relates to costs associated with the conversion of certain Tech Data performance-based equity awards issued prior to the Merger into restricted shares of TD SYNNEX (refer to Note 4 - Share-Based Compensation for further information) and expenses for certain restricted stock awards issued in conjunction with the Merger.
11
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
During the three months ended February 28, 2023 and 2022, acquisition and integration expenses related to the Merger were composed of the following:
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Professional services costs | $ | $ | |||||||||
| Personnel and other costs | |||||||||||
| Long-lived assets charges and termination fees | |||||||||||
| Stock-based compensation | |||||||||||
| Total | $ | $ | |||||||||
GBO 2 Program
Prior to the Merger, Tech Data implemented its GBO 2 Program that includes investments to optimize and standardize processes and apply data and analytics to be more agile in a rapidly evolving environment, increasing productivity, profitability and optimizing net-working capital. TD SYNNEX continued this program in conjunction with the Company’s integration activities. Acquisition, integration and restructuring expenses related to the GBO 2 Program are primarily comprised of restructuring costs and other costs. Restructuring costs are comprised of severance costs and other associated exit costs, including certain consulting costs. Other costs are primarily comprised of personnel costs, facilities costs and certain professional services fees not related to restructuring activities.
The Company incurred acquisition, integration and restructuring costs under the GBO 2 Program of $3.5 million and $7.8 million during the three months ended February 28, 2023 and 2022, respectively. The Company does not expect to incur material costs under the GBO 2 Program in future periods. Cash payments related to restructuring costs and accrued restructuring balances related to the GBO 2 Program are not material as of February 28, 2023.
NOTE 4—SHARE-BASED COMPENSATION:
Overview of TD SYNNEX Stock Incentive Plans
The Company recognizes share-based compensation expense for all share-based awards made to employees and directors, including employee stock options, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance-based RSUs and employee stock purchase rights, based on estimated fair values.
The following tables summarize the Company's share-based awards activity for TD SYNNEX stock incentive plans during the three months ended February 28, 2023.
A summary of the changes in the Company's stock options is set forth below:
| Stock options | |||||
Balances, November 30, 2022 | |||||
| Exercised | ( | ||||
Balances, February 28, 2023 | |||||
12
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
A summary of the changes in the Company's non-vested RSAs and RSUs is presented below:
| RSAs and RSUs | |||||
Nonvested at November 30, 2022 | |||||
| Granted | |||||
| Vested | ( | ||||
| Canceled | ( | ||||
Nonvested at February 28, 2023 | |||||
A summary of share-based compensation expense in the Consolidated Statements of Operations for TD SYNNEX stock incentive plans is presented below:
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Selling, general and administrative expenses | $ | $ | |||||||||
| Acquisition, integration and restructuring costs (on awards issued in connection with the Merger ) | |||||||||||
| Total share-based compensation expense | $ | $ | |||||||||
Tech Data Equity Awards
Prior to the Merger, certain of Tech Data’s employees were granted performance-based equity awards in Tiger Parent Holdings L.P., a partnership entity that was the parent company of Tiger Parent (AP) Corporation and Tech Data, that were unvested at the time of the closing of the Merger. Upon closing of the Merger, the unvested performance-based equity awards were converted into restricted shares of TD SYNNEX that vest over two years .
The following table summarizes the activity related to these restricted shares during the three months ended February 28, 2023:
| Restricted shares | |||||
Nonvested at November 30, 2022 | |||||
| Vested | ( | ||||
| Canceled | ( | ||||
Nonvested at February 28, 2023 | |||||
13
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 5—BALANCE SHEET COMPONENTS:
Cash, cash equivalents and restricted cash:
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statements of Cash Flows:
| As of | |||||||||||
| February 28, 2023 | November 30, 2022 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | |||||||||
Accounts receivable, net:
| As of | |||||||||||
| February 28, 2023 | November 30, 2022 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Less: Allowance for doubtful accounts | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
Receivables from vendors, net:
| As of | |||||||||||
| February 28, 2023 | November 30, 2022 | ||||||||||
| Receivables from vendors | $ | $ | |||||||||
| Less: Allowance for doubtful accounts | ( | ( | |||||||||
| Receivables from vendors, net | $ | $ | |||||||||
Allowance for doubtful trade receivables:
Balance at November 30, 2022 | $ | ||||
| Additions | |||||
| Write-offs, recoveries, reclassifications and foreign exchange translation | |||||
Balance at February 28, 2023 | $ | ||||
14
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Allowance for doubtful receivables from vendors:
Balance at November 30, 2022 | $ | ||||
| Additions | |||||
| Write-offs, reclassifications and foreign exchange translation | ( | ||||
Balance at February 28, 2023 | $ | ||||
Accumulated other comprehensive loss:
The components of accumulated other comprehensive loss (“AOCI”), net of taxes, were as follows:
| Unrealized gains on cash flow hedges, net of taxes | Foreign currency translation adjustment and other, net of taxes | Total | |||||||||||||||
Balance as of November 30, 2022 | $ | $ | ( | $ | ( | ||||||||||||
| Other comprehensive income before reclassification | |||||||||||||||||
| Reclassification of losses from accumulated other comprehensive loss | ( | ( | |||||||||||||||
Balance as of February 28, 2023 | $ | $ | ( | $ | ( | ||||||||||||
Refer to Note 6 - Derivative Instruments for the location of gains and losses reclassified from AOCI to the Consolidated Statements of Operations.
15
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 6—DERIVATIVE INSTRUMENTS:
In the ordinary course of business, the Company is exposed to foreign currency risk, interest rate risk, equity risk, commodity price changes and credit risk. The Company enters into transactions, and owns monetary assets and liabilities, that are denominated in currencies other than the legal entity’s functional currency. The Company may enter into forward contracts, option contracts, swaps, or other derivative instruments to offset a portion of the risk on expected future cash flows, earnings, net investments in certain international subsidiaries and certain existing assets and liabilities. However, the Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange or interest rates. The Company does not use derivative instruments to cover equity risk and credit risk. The Company’s hedging program is not used for trading or speculative purposes.
All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded in the Consolidated Statements of Operations, or as a component of AOCI in the Consolidated Balance Sheets, as discussed below.
Cash Flow Hedges
The Company uses interest rate swap derivative contracts to economically convert a portion of its variable-rate debt to fixed-rate debt. The swaps have maturities at various dates through October 2023 . Gains and losses on cash flow hedges are recorded in AOCI until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of interest payments are recognized in “Interest expense and finance charges, net” in the same period as the related expense is recognized. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified into earnings in the period of de-designation. Any subsequent changes in fair value of such derivative instruments are recorded in earnings unless they are re-designated as hedges of other transactions. The Company classifies cash flows related to the settlement of its cash flow hedges as operating activities in the Consolidated Statements of Cash Flows.
Net Investment Hedges
The Company has entered into foreign currency forward contracts to hedge a portion of its net investment in euro denominated foreign operations which are designated as net investment hedges. The Company entered into the net investment hedges to offset the risk of change in the U.S. dollar value of the Company's investment in a euro functional subsidiary due to fluctuating foreign exchange rates. Gains and losses on the net investment hedges have been recorded in AOCI and will remain in AOCI until the sale or substantial liquidation of the underlying assets of the Company's investment. The initial fair value of hedge components excluded from the assessment of effectiveness is being recognized in the Consolidated Statements of Operations under a systematic and rational method over the life of the hedging instrument. The Company classifies cash flows related to the settlement of its net investment hedges as investing activities in the Consolidated Statements of Cash Flows.
Non-Designated Derivatives
The Company uses short-term forward contracts to offset the foreign exchange risk of assets and liabilities denominated in currencies other than the functional currency of the respective entities. These contracts, which are not designated as hedging instruments, mature or settle within twelve months . Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.
16
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Fair Values of Derivative Instruments in the Consolidated Balance Sheets
The fair values of the Company’s derivative instruments are disclosed in Note 7 - Fair Value Measurements and summarized in the table below:
| Value as of | ||||||||||||||
| Balance Sheet Line Item | February 28, 2023 | November 30, 2022 | ||||||||||||
| Derivative instruments not designated as hedging instruments: | ||||||||||||||
| Foreign exchange forward contracts (notional value) | $ | $ | ||||||||||||
| Other current assets | ||||||||||||||
| Other accrued liabilities | ||||||||||||||
| Derivative instruments designated as cash flow hedges: | ||||||||||||||
| Interest rate swaps (notional value) | $ | $ | ||||||||||||
| Other current assets | ||||||||||||||
| Derivative instruments designated as net investment hedges: | ||||||||||||||
| Foreign currency forward contracts (notional value) | $ | $ | ||||||||||||
| Other accrued liabilities | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
The Company terminated interest rate swaps with a notional value of $400.0 million in December 2021. Cumulative losses on the terminated interest rate swaps of $16.0 million are being reclassified from AOCI to “Interest expense and finance charges, net” over the period through September 2023.
Volume of Activity
The notional amounts of foreign exchange forward contracts represent the gross amounts of foreign currency, including, principally, the Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese yuan, Czech koruna, Danish krone, Euro, Indian rupee, Indonesian rupiah, Japanese yen, Mexican peso, Norwegian krone, Philippine peso, Polish zloty, Singapore dollar, Swedish krona, Swiss franc and Turkish lira that will be bought or sold at maturity. The notional amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of the Company’s exposure to credit or market loss. The Company’s exposure to credit loss and market risk will vary over time as currency and interest rates change.
17
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
The Effect of Derivative Instruments on AOCI and the Consolidated Statements of Operations
The following table shows the gains and losses, before taxes, of the Company’s derivative instruments designated as cash flow hedges and net investment hedges in Other Comprehensive Income (“OCI”) and not designated as hedging instruments in the Consolidated Statements of Operations for the periods presented:
| Three Months Ended | |||||||||||||||||
| Location of Gains (Losses) in Income | February 28, 2023 | February 28, 2022 | |||||||||||||||
| Derivative instruments not designated as hedging instruments: | |||||||||||||||||
Losses recognized from foreign exchange forward contracts, net(1) | Cost of revenue | $ | ( | $ | ( | ||||||||||||
Losses recognized from foreign exchange forward contracts, net(1) | Other expense, net | ( | ( | ||||||||||||||
| Total | $ | ( | $ | ( | |||||||||||||
| Derivative instruments designated as cash flow hedges: | |||||||||||||||||
| Gains recognized in OCI on interest rate swaps | $ | $ | |||||||||||||||
| Gains (losses) on interest rate swaps reclassified from AOCI into income | Interest expense and finance charges, net | $ | $ | ( | |||||||||||||
| Derivative instruments designated as net investment hedges: | |||||||||||||||||
Losses recognized in OCI on foreign exchange forward contracts(2) | $ | ( | $ | ||||||||||||||
Gains recognized in income (amount excluded from effectiveness testing)(2) | $ | $ | |||||||||||||||
____________________________
(1) The gains and losses largely offset the currency gains and losses that resulted from changes in the assets and liabilities denominated in nonfunctional currencies.
(2) The Company had no net investment hedges outstanding during the three months ended February 28, 2022.
Except for the net investment hedge amount for fiscal 2023 shown above, there were no material gain or loss amounts excluded from the assessment of effectiveness. Existing net gains in AOCI that are expected to be reclassified into earnings in the normal course of business within the next twelve months are $9.8 million.
Credit exposure for derivative financial instruments is limited to the amounts, if any, by which the counterparties’ obligations under the contracts exceed the Company’s obligations to the counterparties. The Company manages the potential risk of credit losses through careful evaluation of counterparty credit standing and selection of counterparties from a limited group of financial institutions.
NOTE 7—FAIR VALUE MEASUREMENTS:
The Company’s fair value measurements are classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
18
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
As of February 28, 2023 | As of November 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Fair value measurement category | Fair value measurement category | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Forward foreign currency exchange contracts not designated as hedges | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Forward foreign currency exchange contracts not designated as hedges | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Forward foreign currency exchange contracts designated as net investment hedges | |||||||||||||||||||||||||||||||||||||||||||||||
The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Fair values of interest rate swaps are measured using standard valuation models using inputs that are readily available in public markets, or can be derived from observable market transactions, including LIBOR spot and forward rates. The effect of nonperformance risk on the fair value of derivative instruments was not material as of February 28, 2023 and November 30, 2022.
The carrying values of accounts receivable, accounts payable and short-term debt approximate fair value due to their short maturities and interest rates which are variable in nature. The carrying value of the Company’s term loans approximate their fair value since they bear interest rates that are similar to existing market rates. The estimated fair value of the Senior Notes was approximately $2.1
During the three months ended February 28, 2023, there were no transfers between the fair value measurement category levels.
19
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 8—BORROWINGS:
Borrowings consist of the following:
| As of | |||||||||||
| February 28, 2023 | November 30, 2022 | ||||||||||
TD SYNNEX U.S. Accounts Receivable Securitization Agreement | $ | $ | |||||||||
| Committed and uncommitted revolving credit facilities and borrowings | |||||||||||
| Current portion of TD SYNNEX term loan | |||||||||||
| Borrowings, current | $ | $ | |||||||||
| TD SYNNEX term loan | $ | $ | |||||||||
| TD SYNNEX Senior Notes | |||||||||||
| Other credit agreements and long-term debt | |||||||||||
| Long-term borrowings, before unamortized debt discount and issuance costs | $ | $ | |||||||||
| Less: unamortized debt discount and issuance costs | ( | ( | |||||||||
| Long-term borrowings | $ | $ | |||||||||
TD SYNNEX United States Accounts Receivable Securitization Arrangement
In the United States, the Company has an accounts receivable securitization program to provide additional capital for its operations (the “U.S. AR Arrangement”). Under the terms of the U.S. AR Arrangement, the Company and its subsidiaries that are party to the U.S. AR Arrangement can borrow up to a maximum of $1.5 billion based upon eligible trade accounts receivable. The U.S. AR Arrangement has a maturity date of December 2024. The effective borrowing cost under the U.S. AR Arrangement is a blended rate based upon the composition of the lenders, that includes prevailing dealer commercial paper rates and a rate based upon the Secured Overnight Financing Rate ("SOFR"). In addition, a program fee payable on the used portion of the lenders’ commitment accrues at 0.75 % per annum. A facility fee is payable on the adjusted commitment of the lenders, to accrue at different tiers ranging between 0.30 % per annum and 0.40 % per annum depending on the amount of outstanding advances from time to time.
Under the terms of the U.S. AR Arrangement, the Company and certain of its U.S. subsidiaries sell, on a revolving basis, their receivables to a wholly-owned, bankruptcy-remote subsidiary. Such receivables, which are recorded in the Consolidated Balance Sheet, totaled approximately $2.6 billion and $2.9 billion as of February 28, 2023 and November 30, 2022, respectively. The borrowings are funded by pledging all of the rights, title and interest in the receivables acquired by the Company's bankruptcy-remote subsidiary as security. Any amounts received under the U.S. AR Arrangement are recorded as debt on the Company's Consolidated Balance Sheets.
There was $110.0 million outstanding under the U.S. AR Arrangement at February 28, 2023 at an interest rate of 5.51 %. There were no amounts outstanding under the U.S. AR Arrangement at November 30, 2022.
20
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
TD SYNNEX Credit Agreement
The Company is party to a credit agreement, dated as of April 16, 2021 (the “TD SYNNEX Credit Agreement”) with the lenders party thereto and Citibank, N.A., as agent, pursuant to which the Company received commitments for the extension of a senior unsecured revolving credit facility not to exceed an aggregate principal amount of $3.5 billion, which revolving credit facility (the “TD SYNNEX revolving credit facility”) may, at the request of the Company but subject to the lenders’ discretion, potentially be increased by up to an aggregate amount of $500.0 million. There were no amounts outstanding under the TD SYNNEX revolving credit facility at February 28, 2023 or November 30, 2022. The TD SYNNEX Credit Agreement also includes a senior unsecured term loan (the “TD SYNNEX term loan” and, together with the TD SYNNEX revolving credit facility, the “TD SYNNEX credit facilities”) in an original aggregate principal amount of $1.5 billion, that was fully funded in connection with the closing of the Merger. The borrower under the TD SYNNEX Credit Agreement is the Company. There are no guarantors of the TD SYNNEX Credit Agreement. The maturity of the TD SYNNEX Credit Agreement is on the fifth anniversary of the September 2021 closing date, to occur in September 2026, subject in the case of the revolving credit facility, to two one-year extensions upon the Company’s prior notice to the lenders and the agreement of the lenders to extend such maturity date.
The TD SYNNEX Credit Agreement contains various loan covenants that are customary for similar facilities for similarly rated borrowers that restricts the ability of the Company and its subsidiaries to take certain actions. The TD SYNNEX Credit Agreement also contains financial covenants which require compliance with a maximum debt to EBITDA ratio and a minimum interest coverage ratio, in each case tested on the last day of each fiscal quarter. The TD SYNNEX Credit Agreement also contains various customary events of default, including with respect to a change of control of the Company.
TD SYNNEX Senior Notes
On August 9, 2021, the Company completed its offering of $2.5 billion aggregate principal amount of senior unsecured notes, consisting of $700.0 million of 1.25 % senior notes due August 9, 2024 , $700.0 million of 1.75 % senior notes due August 9, 2026 , $600.0 million of 2.375 % senior notes due August 9, 2028 , and $500.0 million of 2.65 % senior notes due August 9, 2031 (collectively, the “Senior Notes,” and such offering, the “Senior Notes Offering”). The Company incurred $19.6 million towards issuance costs on the Senior Notes. The Company pays interest semi-annually on the notes on each of February 9 and August 9. The net proceeds from this offering were used to fund a portion of the aggregate cash consideration payable in connection with the Merger, refinance certain of the Company's existing indebtedness and pay related fees and expenses and for general corporate purposes.
21
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
The interest rate payable on each series of the Senior Notes will be subject to adjustment from time to time if the credit rating assigned to such series of Senior Notes is downgraded (or downgraded and subsequently upgraded). The Company may redeem the Senior Notes, at any time in whole or from time to time in part, prior to (i) August 9, 2022 (the “2024 Par Call Date”) in the case of the 2024 Senior Notes, (ii) July 9, 2026 (the “2026 Par Call Date”) in the case of the 2026 Senior Notes, (iii) June 9, 2028 (the “2028 Par Call Date”) in the case of the 2028 Senior Notes, and (iv) May 9, 2031 in the case of the 2031 Senior Notes (the “2031 Par Call Date” and, together with the 2024 Par Call Date, the 2026 Par Call Date and the 2028 Par Call Date, each, a “Par Call Date” and together, the “Par Call Dates”), at a redemption price equal to the greater of (x) 100 % of the aggregate principal amount of the applicable Senior Notes to be redeemed and (y) the sum of the present values of the remaining scheduled payments of the principal and interest on the Senior Notes, discounted to the date of redemption on a semi-annual basis at a rate equal to the sum of the applicable treasury rate plus 15 basis points for the 2024 Senior Notes, 20 basis points for the 2026 Senior Notes and 25 100 % of the principal amount of the Senior Notes to be redeemed.
Other Borrowings and Term Debt
The Company has various other committed and uncommitted lines of credit with financial institutions, finance leases, short-term loans, term loans, credit facilities and book overdraft facilities, totaling approximately $600.1 million in borrowing capacity as of February 28, 2023. Most of these facilities are provided on an unsecured, short-term basis and are reviewed periodically for renewal. Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. There was $387.8 million outstanding on these facilities at February 28, 2023, at a weighted average interest rate of 4.88 %, and there was $193.1 million outstanding at November 30, 2022, at a weighted average interest rate of 4.69 %. Borrowings under certain of these lines of credit facilities are guaranteed by the Company.
At February 28, 2023, the Company was also contingently liable for reimbursement obligations with respect to issued standby letters of credit in the aggregate outstanding amount of $84.1 million. These letters of credit typically act as a guarantee of payment to certain third parties in accordance with specified terms and conditions.
The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at February 28, 2023 exchange rates.
Covenant Compliance
22
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 9—EARNINGS PER COMMON SHARE:
The following table sets forth the computation of basic and diluted earnings per common share for the periods indicated:
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Basic earnings per common share: | |||||||||||
Net income attributable to common stockholders(1) | $ | $ | |||||||||
| Weighted-average number of common shares - basic | |||||||||||
| Basic earnings per common share | $ | $ | |||||||||
| Diluted earnings per common share: | |||||||||||
Net income attributable to common stockholders(1) | $ | $ | |||||||||
| Weighted-average number of common shares - basic | |||||||||||
| Effect of dilutive securities: | |||||||||||
| Stock options and RSUs | |||||||||||
| Weighted-average number of common shares - diluted | |||||||||||
| Diluted earnings per common share | $ | $ | |||||||||
| Anti-dilutive shares excluded from diluted earnings per share calculation | |||||||||||
_________________________
(1) RSAs granted by the Company are considered participating securities. Income available to participating securities was immaterial in all periods presented.
NOTE 10—SEGMENT INFORMATION:
| Americas | Europe | APJ | Consolidated | ||||||||||||||||||||
| Three Months Ended February 28, 2023 | |||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Three Months Ended February 28, 2022 | |||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Operating income | |||||||||||||||||||||||
23
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 11—RELATED PARTY TRANSACTIONS:
The Company has a business relationship with MiTAC Holdings Corporation (“MiTAC Holdings”), a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became one of the Company's primary investors through its affiliates. As of February 28, 2023 and November 30, 2022, MiTAC Holdings and its affiliates beneficially owned approximately 9.8 9.7 % of the Company’s outstanding common stock, respectively. Mr. Matthew Miau, Chairman Emeritus of the Company’s Board of Directors and a director, is the Chairman of MiTAC Holdings and a director or officer of MiTAC Holdings’ affiliates.
Beneficial Ownership of the Company’s Common Stock by MiTAC Holdings
As noted above, MiTAC Holdings and its affiliates in the aggregate beneficially owned approximately 9.8 % of the Company’s outstanding common stock as of February 28, 2023. These shares are owned by the following entities:
As of February 28, 2023 | |||||
MiTAC Holdings(1) | |||||
Synnex Technology International Corp.(2) | |||||
| Total | |||||
_________________________
(1) Shares are held as follows: 302 shares by Silver Star Developments Ltd. and 2,595 shares by MiTAC International Corp., both are which are wholly-owned subsidiaries of MiTAC Holdings, along with 2,403 shares held directly by MiTAC Holdings. Excludes 194 shares held directly by Mr. Miau, 217 shares indirectly held by Mr. Miau through a charitable remainder trust, and 190 shares held by his spouse.
(2) Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from the Company and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of 14.1 % in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 15.7 % in Synnex Technology International. Neither MiTAC Holdings nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated.
The following table presents the Company's transactions with MiTAC Holdings and its affiliates for the periods indicated:
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Purchases of inventories and services | $ | $ | |||||||||
| Sale of products to MiTAC Holdings and affiliates | |||||||||||
| Payments made for rent and overhead costs for use of facilities of MiTAC Holdings and affiliates, net | |||||||||||
The following table presents the Company’s receivable from and payable to MiTAC Holdings and its affiliates for the periods presented:
| February 28, 2023 | November 30, 2022 | ||||||||||
| Receivable from related parties (included in Accounts receivable, net) | $ | $ | |||||||||
| Payable to related parties (included in Accounts payable) | |||||||||||
24
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 12—EQUITY:
Share Repurchase Program
In June 2020, the Board of Directors authorized a three-year $400.0 million share repurchase program, effective July 1, 2020. In January 2023, the Board of Directors authorized a new three-year $1.0 billion share repurchase program, replacing the existing $400.0 million share repurchase program, pursuant to which the Company may repurchase its outstanding common stock from time to time in the open market or through privately negotiated transactions.
On January 30, 2023, the Company announced the closing of a secondary public offering (the "Offering") of an aggregate of 5.2 million shares of its common stock that were sold by certain entities managed by affiliates of Apollo Global Management, Inc (the "Selling Stockholders"). All the shares in the Offering were sold by the Selling Stockholders. The Company did not receive any of the proceeds from the sale of shares by the Selling Stockholders in the Offering. Also pursuant to the related underwriting agreement, the Company repurchased 0.9 million shares of its common stock from the underwriters as part of the Offering, at the public offering price of $97.00 per share, resulting in a purchase price of $87.3 million (the "Concurrent Share Repurchase"). The Concurrent Share Repurchase was made under the Company's existing $1.0 billion share repurchase program, and is included within the caption "Shares of treasury stock purchased under share repurchase program" in the table below.
As of February 28, 2023, the Company had $901.7 million available for future repurchases of its common stock under the authorized share repurchase program.
The Company's common share repurchase activity for the three months ended February 28, 2023 is summarized as follows:
| Shares | Weighted-average price per share | ||||||||||
Treasury stock balance at November 30, 2022 | $ | ||||||||||
| Shares of treasury stock repurchased under share repurchase program | |||||||||||
| Shares of treasury stock repurchased for tax withholdings on equity awards | |||||||||||
Treasury stock balance at February 28, 2023 | $ | ||||||||||
Dividends
On March 28, 2023 , the Company announced that its Board of Directors declared a quarterly cash dividend of $0.35 per common share payable on April 28, 2023 to stockholders of record as of the close of business on April 14, 2023 . Dividends are subject to continued capital availability and declaration by the Board of Directors that the dividend is in the best interest of the Company’s stockholders.
25
TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 13—COMMITMENTS AND CONTINGENCIES:
As is customary in the technology industry, to encourage certain customers to purchase products from us, the Company also has other financing agreements with financial institutions to provide inventory financing facilities to the Company’s customers and allow certain customers of the Company to finance their purchases directly with the financial institutions. The Company is contingently liable to repurchase inventory sold under these agreements in the event of any default by its customers under the agreement and such inventory being repossessed by the financial institutions. As the Company does not have access to information regarding the amount of inventory purchased from the Company still on hand with the customer at any point in time, the Company’s repurchase obligations relating to inventory cannot be reasonably estimated. Losses, if any, would be the difference between the repossession cost and the resale value of the inventory. Repurchases under these arrangements have been insignificant to date and the Company is not aware of any pending customer defaults or repossession obligations. The Company believes that, based on historical experience, the likelihood of a material loss pursuant to these inventory repurchase obligations is remote.
The French Autorité de la Concurrence (“Competition Authority”) began in 2013 an investigation into the French market for certain products of Apple, Inc. ("Apple") for which the Company is a distributor. In March 2020, the Competition Authority imposed fines on Tech Data, on another distributor, and on Apple, finding that Tech Data entered into an anticompetitive agreement with Apple regarding volume allocations of Apple products. The initial fine imposed on Tech Data was €76.1 million. The Company appealed its determination to the French courts, seeking to set aside or reduce the fine. On October 6, 2022, the appeals court issued a ruling that reduced the fine imposed on the Company from €76.1 million to €24.9 million. As a result of the appeals court ruling, the Company determined that the best estimate of probable loss related to this matter is €24.9 million (approximately $26.4 million as of February 28, 2023), which has been paid in full. The Company continues to contest the arguments of the Competition Authority and has further appealed this matter. A civil lawsuit related to this matter, alleging anticompetitive actions in association with the established distribution networks for Apple, Tech Data and another distributor was filed by eBizcuss. The Company is currently evaluating this matter and cannot currently estimate the probability or amount of any potential loss.
From time to time, the Company receives notices from third parties, including customers and suppliers, seeking indemnification, payment of money or other actions in connection with claims made against them. Also, from time to time, the Company has been involved in various bankruptcy preference actions where the Company was a supplier to the companies now in bankruptcy. In addition, the Company is subject to various other claims, both asserted and unasserted, that arise in the ordinary course of business. The Company evaluates these claims and records the related liabilities. It is possible that the ultimate liabilities could differ from the amounts recorded.
On December 1, 2020, the Company completed the previously announced separation of its customer experience services business (the “Separation”), in a tax-free transaction for federal income tax purposes, which was accomplished by the distribution of one hundred percent of the outstanding common stock of Concentrix Corporation (“Concentrix”). In connection with the Separation, the Company and Concentrix entered into a separation and distribution agreement as well as various other agreements that provide a framework for the relationships between the parties going forward, including among others an employee matters agreement, a tax matters agreement, and a commercial agreement, pursuant to which Concentrix will continue to provide certain limited services to the Company following the Separation.
Under the Separation and Distribution agreement with Concentrix that was entered into in connection with the Separation, SYNNEX agreed to indemnify Concentrix, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to SYNNEX as part of the Separation. Similarly, Concentrix agreed to indemnify SYNNEX, each of its subsidiaries and each of their respective directors, officers and employees from and against all liabilities relating to, arising out of or resulting from, among other matters, the liabilities allocated to Concentrix as part of the Separation. The Company expects Concentrix to fully perform under the terms of the Separation and Distribution agreement.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended February 28, 2023 and 2022
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Under the Separation and Distribution agreement, SYNNEX and Concentrix agreed to cooperate with each other in managing litigation related to both companies' businesses. The Separation and Distribution agreement also included provisions that assign to each company responsibility for managing pending and future litigation related to the general corporate matters of SYNNEX arising prior to the Separation.
The Company does not believe that the above commitments and contingencies will have a material adverse effect on the Company's results of operations, financial position or cash flows.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included elsewhere in this Report. Amounts in certain tables may not add or compute due to rounding.
When used in this Quarterly Report on Form 10-Q, or this “Report”, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “allows,” “can,” “may,” “could,” “designed,” “will,” and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about our business model and our services, our business and market strategy, future growth, our infrastructure, our investment in our information technology, or IT, systems, our employee hiring and retention, the ownership interest of MiTAC Holdings Corporation or MiTAC Holdings, in us and its impact, the ownership interest of Apollo Global Management, Inc., or Apollo, in us and its impact, the impact of the Merger, our integration plans, our plans with respect to the GBO 2 Program, our revenue, sources of revenue, our gross margins, our operating costs and results, timing of payment, the value of our inventory, our competition, including with Synnex Technology International Corp., our future needs and sources for additional financing, contract terms, relationships with our suppliers, adequacy of our facilities, ability to meet demand, managing inventory and our shipping costs, our legal proceedings, our operations, foreign currency exchange rates and hedging activities, our strategic acquisitions including anticipated cost savings and other benefits, our goodwill, seasonality of sales, adequacy of our cash resources, our debt and financing arrangements, including the impact of any change to our credit rating, interest rate risk and impact thereof, cash held by our international subsidiaries and repatriation, changes in fair value of derivative instruments, our tax liabilities, adequacy of our disclosure controls and procedures, cybersecurity, the replacement of LIBOR, impact of our pricing policies, impact of economic and industry trends, changes to the markets in which we compete, impact of accounting policies, our estimates and assumptions, impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, impact of any impairment of our goodwill and intangible assets, our share repurchase and dividend program, and our purchase accounting adjustments. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed herein and risks related to the risk that the legacy SYNNEX and legacy Tech Data businesses will not be integrated successfully or realize the anticipated benefits of the combined company, the buying patterns of our customers, concentration of sales to large customers, the loss or consolidation of one or more of our significant original equipment manufacturer, or OEM, suppliers or customers, market acceptance of the products we assemble and distribute, competitive conditions in our industry and their impact on our margins, pricing and other terms with our OEM suppliers, our ability to gain market share, variations in supplier-sponsored programs, changes in our costs and operating expenses, increased inflation, dependence upon and trends in capital spending budgets in the IT industry, fluctuations in general economic conditions, changes in tax laws, risks associated with our international operations, uncertainties and variability in demand by our reseller and integration customers, supply shortages or delays, any termination or reduction in our floor plan financing arrangements, changes in value of foreign currencies and interest rates and other risk factors contained in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended November 30, 2022 and below under Part II, Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, unless otherwise required by law.
In the Management’s Discussion and Analysis of Financial Condition and Results of Operations, all references to “TD SYNNEX,” “we,” “us,” “our” or the “Company” mean TD SYNNEX Corporation and its subsidiaries, except where it is made clear that the term means only the parent company or one of its segments.
TD SYNNEX, the TD SYNNEX Logo and all other TD SYNNEX company, product and services names and slogans are trademarks or registered trademarks of TD SYNNEX Corporation. Other names and marks are the property of their respective owners.
Overview
We are a leading global distributor and solutions aggregator for the information technology ("IT") ecosystem. We serve a critical role, bringing products from the world's leading and emerging technology vendors to market, and helping our customers create solutions best suited to maximize business outcomes for their end-user customers.
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On March 22, 2021, SYNNEX entered into an agreement and plan of merger (the “Merger Agreement”) which provided that legacy SYNNEX Corporation would acquire legacy Tech Data Corporation, a Florida corporation (“Tech Data”) through a series of mergers, which would result in Tech Data becoming an indirect subsidiary of TD SYNNEX Corporation (collectively, the "Merger"). On September 1, 2021, pursuant to the terms of the Merger Agreement, SYNNEX acquired all the outstanding shares of common stock of Tiger Parent (AP) Corporation, the parent corporation of Tech Data, for consideration of $1.6 billion in cash ($1.1 billion in cash after giving effect to a $500.0 million equity contribution by Tiger Parent Holdings, L.P., Tiger Parent (AP) Corporation's sole stockholder and an affiliate of Apollo Global Management, Inc., to Tiger Parent (AP) Corporation prior to the effective time of the Merger) and 44 million shares of common stock of SYNNEX, valued at approximately $5.6 billion.
Digital transformation and the migration to cloud computing is reshaping our industry, enabling businesses and consumers to evaluate, procure, acquire, and consume technology products and services in a variety of ways. Hybrid models of IT consumption, supporting both physical and virtual delivery methods are emerging, as hardware and software-based solutions become increasingly combined. As a result, customers are seeking greater integration of products, services and solutions that tie technologies together. Therefore, we believe it is important to provide a broad, end-to-end portfolio, with deep capabilities across the computing continuum to help customers manage the increasingly complex IT ecosystem and deliver the solutions and business outcomes the market desires. Our vision for the future is to be the vital solutions aggregator and orchestrator that connects the IT ecosystem.
Our global strategy is to deliver higher value by focusing on the following strategic priorities:
•Invest in high-growth technologies such as hybrid cloud, security, analytics/Internet of Things ("IoT"), hyperscale infrastructure, and services.
•Strengthen our end-to-end portfolio of products, services and solutions, including technology-as-a-service and recurring revenue models.
•Transform our company digitally through greater automation and advanced analytics, which we believe will enhance the customer experience, broaden our customer base, increase sales and augment our presence in high growth technologies.
•Expand our global footprint and enhance the operational excellence of our businesses around the world.
We offer a comprehensive catalog of technology products from original equipment manufacturers (“OEM”), suppliers of high-growth technologies such as converged and hyper-converged infrastructure, cloud, security, data/analytics/IoT and services. We purchase IT hardware, software, and systems including personal computing devices and peripherals, mobile phones and accessories, printers, server and datacenter infrastructure, networking, communications and storage solutions, and systems components from our suppliers and sell them to our reseller and retail customers. Our reseller customers include value-added resellers, corporate resellers, government resellers, system integrators, direct marketers, retailers and managed service providers. We combine our core strengths in distribution with demand generation, supply chain management and design and integration solutions to help our customers achieve greater efficiencies in time to market, cost minimization, real-time linkages in the supply chain and aftermarket product support. We also provide comprehensive IT solutions in key vertical markets such as government and healthcare and we provide specialized service offerings that increase efficiencies in the areas of global computing components, logistics services and supply chain management. Additionally, we provide systems design and integration solutions for data center servers and networking solutions built specific to our customers’ workloads and data center environments.
Our business is characterized by low gross profit as a percentage of revenue, or gross margin, and low operating income as a percentage of revenue, or operating margin. The market for IT products has generally been characterized by declining unit prices and short product life cycles, although unit prices for certain products have increased during certain periods due to factors such as supply chain constraints and inflation. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and services we provide.
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We are highly dependent on the end-market demand for IT products, and on our partners’ strategic initiatives and business models. This end-market demand is influenced by many factors including the introduction of new IT products and software by OEM suppliers, replacement cycles for existing IT products, trends toward cloud computing, overall economic growth and general business activity. A difficult and challenging economic environment, including due to the continued impacts of increased inflation, rising interest rates, increased risk in banking and financial institutions and Russia's invasion of Ukraine, may also lead to consolidation or decline in the IT industries and increased price-based competition. Our systems design and integration solutions business is highly dependent on the demand for cloud infrastructure, and the number of key customers and suppliers in the market. Our business includes operations in the Americas, Europe and Asia-Pacific and Japan ("APJ") so we are affected by demand for our products in those regions, and the weakening of local currencies relative to the U.S. Dollar which occurred during fiscal year 2022 may continue to adversely affect the operating results of our Europe and APJ segments.
Acquisitions
We continually seek to augment organic growth in our business with strategic acquisitions of businesses and assets that complement and expand our existing capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. We seek to acquire new OEM relationships, enhance our supply chain and integration capabilities, the services we provide to our customers and OEM suppliers, and expand our geographic footprint.
Results of Operations
The following table sets forth, for the indicated periods, data as percentages of total revenue:
| Three Months Ended | |||||||||||
| Statements of Operations Data: | February 28, 2023 | February 28, 2022 | |||||||||
| Revenue | 100.00 | % | 100.00 | % | |||||||
| Cost of revenue | (93.37) | % | (93.74) | % | |||||||
| Gross profit | 6.63 | % | 6.26 | % | |||||||
| Selling, general and administrative expenses | (4.32) | % | (4.22) | % | |||||||
| Acquisition, integration and restructuring costs | (0.34) | % | (0.60) | % | |||||||
| Operating income | 1.97 | % | 1.44 | % | |||||||
| Interest expense and finance charges, net | (0.53) | % | (0.27) | % | |||||||
| Other expense, net | — | % | (0.03) | % | |||||||
| Income before income taxes | 1.44 | % | 1.14 | % | |||||||
| Provision for income taxes | (0.34) | % | (0.28) | % | |||||||
| Net income | 1.10 | % | 0.86 | % | |||||||
Certain Non-GAAP Financial Information
In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose certain non-GAAP financial information, including:
•Revenue in constant currency, which is revenue adjusted for the translation effect of foreign currencies so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of our business performance. Revenue in constant currency is calculated by translating the revenue for the three months ended February 28, 2023 in the billing currency using the comparable prior period currency conversion rate. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates will be higher or lower than growth reported at actual exchange rates.
•Non-GAAP gross profit, which is gross profit, adjusted to exclude the portion of purchase accounting adjustments that affected cost of revenue.
•Non-GAAP gross margin, which is non-GAAP gross profit, as defined above, divided by revenue.
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•Non-GAAP operating income, which is operating income, adjusted to exclude acquisition, integration and restructuring costs, amortization of intangible assets, share-based compensation expense and purchase accounting adjustments.
•Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue.
•Non-GAAP net income, which is net income, adjusted to exclude acquisition, integration and restructuring costs, amortization of intangible assets, share-based compensation expense, purchase accounting adjustments, income taxes related to the aforementioned items, as well as a capital loss carryback benefit.
•Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share impact of acquisition, integration and restructuring costs, amortization of intangible assets, share-based compensation expense, purchase accounting adjustments, income taxes related to the aforementioned items, as well as a capital loss carryback benefit.
Acquisition, integration and restructuring costs typically consist of acquisition, integration, restructuring and divestiture related costs and are expensed as incurred. These expenses primarily represent professional services costs for legal, banking, consulting and advisory services, severance and other personnel related costs, share-based compensation expense and debt extinguishment fees. From time to time, this category may also include transaction-related gains/losses on divestitures/spin-off of businesses, costs related to long-lived assets including impairment charges and accelerated depreciation and amortization expense due to changes in asset useful lives, as well as various other costs associated with the acquisition or divestiture.
Our acquisition activities have resulted in the recognition of finite-lived intangible assets which consist primarily of customer relationships and vendor lists. Finite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in our statements of operations. Although intangible assets contribute to our revenue generation, the amortization of intangible assets does not directly relate to the sale of our products. Additionally, intangible asset amortization expense typically fluctuates based on the size and timing of our acquisition activity. Accordingly, we believe excluding the amortization of intangible assets, along with the other non-GAAP adjustments which neither relate to the ordinary course of our business nor reflect our underlying business performance, enhances our and our investors’ ability to compare our past financial performance with our current performance and to analyze underlying business performance and trends. Intangible asset amortization excluded from the related non-GAAP financial measure represents the entire amount recorded within our GAAP financial statements, and the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure. Intangible asset amortization is excluded from the related non-GAAP financial measure because the amortization, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised.
Share-based compensation expense is a non-cash expense arising from the grant of equity awards to employees based on the estimated fair value of those awards. Although share-based compensation is an important aspect of the compensation of our employees, the fair value of the share-based awards may bear little resemblance to the actual value realized upon the vesting or future exercise of the related share-based awards and the expense can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Given the variety and timing of awards and the subjective assumptions that are necessary when calculating share-based compensation expense, we believe this additional information allows investors to make additional comparisons between our operating results from period to period.
Purchase accounting adjustments are primarily related to the impact of recognizing the acquired vendor and customer liabilities from the Merger at fair value. The Company expects the duration of these adjustments to benefit our non-GAAP operating income through a portion of fiscal 2023 based on historical settlement patterns with our vendors and in accordance with the timing defined in our policy for releasing vendor and customer liabilities we deem remote to be paid.
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We believe that providing this additional information is useful to the reader to better assess and understand our base operating performance, especially when comparing results with previous periods and for planning and forecasting in future periods, primarily because management typically monitors the business adjusted for these items in addition to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes. As these non-GAAP financial measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be used as a complement to, and in conjunction with data presented in accordance with GAAP.
Three Months Ended February 28, 2023 and 2022:
Revenue
The following table summarizes our revenue and change in revenue by segment for the three months ended February 28, 2023 and 2022:
| Three Months Ended | |||||||||||||||||
| February 28, 2023 | February 28, 2022 | Percent Change | |||||||||||||||
| Revenue in constant currency | (in thousands) | ||||||||||||||||
| Consolidated | |||||||||||||||||
| Revenue | $ | 15,125,371 | $ | 15,469,977 | (2.2) | % | |||||||||||
| Impact of changes in foreign currencies | 459,657 | — | |||||||||||||||
| Revenue in constant currency | $ | 15,585,028 | $ | 15,469,977 | 0.7 | % | |||||||||||
| Americas | |||||||||||||||||
| Revenue | $ | 8,638,704 | $ | 9,074,273 | (4.8) | % | |||||||||||
| Impact of changes in foreign currencies | 55,155 | — | |||||||||||||||
| Revenue in constant currency | $ | 8,693,859 | $ | 9,074,273 | (4.2) | % | |||||||||||
| Europe | |||||||||||||||||
| Revenue | $ | 5,520,437 | $ | 5,579,788 | (1.1) | % | |||||||||||
| Impact of changes in foreign currencies | 343,929 | — | |||||||||||||||
| Revenue in constant currency | $ | 5,864,366 | $ | 5,579,788 | 5.1 | % | |||||||||||
| APJ | |||||||||||||||||
| Revenue | $ | 966,230 | $ | 815,916 | 18.4 | % | |||||||||||
| Impact of changes in foreign currencies | 60,573 | — | |||||||||||||||
| Revenue in constant currency | $ | 1,026,803 | $ | 815,916 | 25.8 | % | |||||||||||
Consolidated Commentary
During the three months ended February 28, 2023, consolidated revenue decreased by $344.6 million, as compared to the prior year period, driven primarily by the impact of changes in foreign currencies. During the three months ended February 28, 2023, consolidated revenue in constant currency increased by $115.1 million, as compared to the prior year period, primarily driven by growth in our Advanced Solutions portfolio and high-growth technologies, partially offset by a decline in our Endpoint Solutions portfolio due to a weaker demand environment for client devices. The shift in product mix resulted in the presentation of additional revenues on a net basis which negatively impacted our revenue growth by approximately 3%. The impact of changes in foreign currencies is primarily due to the weakening of the euro against the U.S. dollar.
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Americas Commentary
During the three months ended February 28, 2023, Americas revenue decreased by $435.6 million and Americas revenue in constant currency decreased by $380.4 million, as compared to the prior year period. The decrease is primarily due to a decline in our Endpoint Solutions portfolio in the region, partially offset by growth in our Advanced Solutions portfolio and high-growth technologies. The shift in product mix resulted in the presentation of additional revenues on a net basis which negatively impacted our revenue growth by approximately 4%.
Europe Commentary
During the three months ended February 28, 2023, Europe revenue decreased by $59.4 million, as compared to the prior year period, driven primarily by the impact of changes in foreign currencies. During the three months ended February 28, 2023, Europe revenue in constant currency increased by $284.6 million, as compared to the prior year period, primarily due to growth in our Advanced Solutions portfolio, partially offset by a decline in our Endpoint Solutions portfolio. The shift in product mix resulted in the presentation of additional revenues on a net basis which negatively impacted our revenue growth by approximately 2%. The impact of changes in foreign currencies is primarily due to the weakening of the euro against the U.S. dollar.
APJ Commentary
During the three months ended February 28, 2023, APJ revenue increased by $150.3 million and APJ revenue in constant currency increased by $210.9 million, as compared to the prior year period. The increase is primarily driven by high-growth technologies and our Advanced Solutions portfolio.
Gross Profit
| Three Months Ended | |||||||||||||||||
| February 28, 2023 | February 28, 2022 | Percent Change | |||||||||||||||
| Gross Profit and Gross Margin - Consolidated | (in thousands) | ||||||||||||||||
| Revenue | $ | 15,125,371 | $ | 15,469,977 | (2.2) | % | |||||||||||
| Gross profit | $ | 1,003,567 | $ | 968,661 | 3.6 | % | |||||||||||
| Purchase accounting adjustments | 7,450 | 25,079 | |||||||||||||||
| Non-GAAP gross profit | $ | 1,011,017 | $ | 993,740 | 1.7 | % | |||||||||||
| Gross margin | 6.63 | % | 6.26 | % | |||||||||||||
| Non-GAAP gross margin | 6.68 | % | 6.42 | % | |||||||||||||
Our gross margin is affected by a variety of factors, including competition, selling prices, mix of products, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, inventory losses and fluctuations in revenue.
Our gross profit increased during the three months ended February 28, 2023, as compared to the prior year period, primarily due to our improved gross margin and the impact of lower purchase accounting adjustments related to the Merger. The increase in gross margin during the three months ended February 28, 2023, as compared to the three months ended February 28, 2022, is primarily due to product and customer mix, including an increase in revenue in our Advanced Solutions portfolio and high-growth technologies, as well as the impact of lower purchase accounting adjustments related to the Merger. The shift in product mix resulted in the presentation of additional revenues on a net basis which positively impacted our gross margin by approximately 19 basis points.
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Selling, General and Administrative Expenses
| Three Months Ended | Percent Change | ||||||||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Selling, general and administrative expenses | $ | 654,223 | $ | 652,851 | 0.2 | % | |||||||||||
| Percentage of revenue | 4.32 | % | 4.22 | % | |||||||||||||
Our selling, general and administrative expenses consist primarily of personnel costs such as salaries, commissions, bonuses, share-based compensation and temporary personnel costs. Selling, general and administrative expenses also include cost of warehouses, delivery centers and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of our intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers.
During the three months ended February 28, 2023, selling, general and administrative expenses slightly increased, compared to the prior year period, primarily due to higher personnel costs and higher stock-based compensation expense. Selling, general and administrative expenses increased as a percentage of revenue, compared to the prior year period, primarily due to the decrease in revenue.
Acquisition, Integration and Restructuring Costs
Acquisition, integration and restructuring costs are primarily comprised of costs related to the Merger and costs related to the Global Business Optimization 2 Program initiated by Tech Data prior to the Merger (the “GBO 2 Program”).
The Merger
We incurred acquisition, integration and restructuring costs related to the completion of the Merger, including professional services costs, personnel and other costs, long-lived assets charges and termination fees, and stock-based compensation expense. Professional services costs are primarily comprised of IT and other consulting services, as well as legal expenses. Personnel and other costs are primarily comprised of costs related to retention and other bonuses, severance and duplicative labor costs. Long-lived assets charges and termination fees are comprised of accelerated depreciation and amortization expense of $6.2 million and $52.9 million recorded during the three months ended February 28, 2023 and 2022, respectively, due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, as well as $10.2 million recorded during the three months ended February 28, 2023 for termination fees related to certain IT systems. Stock-based compensation expense primarily relates to costs associated with the conversion of certain Tech Data performance-based equity awards issued prior to the Merger into restricted shares of TD SYNNEX (refer to Note 4 – Share-Based Compensation to the Consolidated Financial Statements in Part I, Item 1 of this Report for further information) and expenses for certain restricted stock awards issued in conjunction with the Merger.
During the three months ended February 28, 2023 and 2022, acquisition and integration expenses related to the Merger were composed of the following:
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Professional services costs | $ | 6,810 | $ | 8,148 | |||||||
| Personnel and other costs | 13,007 | 10,944 | |||||||||
| Long-lived assets charges and termination fees | 16,376 | 52,871 | |||||||||
| Stock-based compensation | 11,521 | 13,576 | |||||||||
| Total | $ | 47,714 | $ | 85,539 | |||||||
During the three months ended February 28, 2023, acquisition and integration expenses related to the Merger decreased, compared to the prior year period, primarily due to the decrease in long-lived assets charges.
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GBO 2 Program
Prior to the Merger, Tech Data implemented its GBO 2 Program that includes investments to optimize and standardize processes and apply data and analytics to be more agile in a rapidly evolving environment, increasing productivity, profitability and optimizing net-working capital. TD SYNNEX continued this program in conjunction with the Company’s integration activities. Acquisition, integration and restructuring expenses related to the GBO 2 Program are primarily comprised of restructuring costs and other costs. Restructuring costs are comprised of severance costs and other associated exit costs, including certain consulting costs. Other costs are primarily comprised of personnel costs, facilities costs and certain professional services fees not related to restructuring activities.
We incurred acquisition, integration and restructuring costs under the GBO 2 Program of $3.5 million and $7.8 million during the three months ended February 28, 2023 and 2022, respectively. During the three months ended February 28, 2023, acquisition, integration and restructuring costs under the GBO 2 Program decreased, compared to the prior year period, due to the wind-down of activities as the program is not expected to incur material amounts in future periods.
Operating Income
The following tables provide an analysis of operating income and non-GAAP operating income on a consolidated and regional basis as well as a reconciliation of operating income to non-GAAP operating income on a consolidated and regional basis for the three months ended February 28, 2023 and 2022:
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Operating Income and Operating Margin - Consolidated | (in thousands) | ||||||||||
| Revenue | $ | 15,125,371 | $ | 15,469,977 | |||||||
| Operating income | $ | 298,162 | $ | 222,440 | |||||||
| Acquisition, integration and restructuring costs | 51,182 | 93,370 | |||||||||
| Amortization of intangibles | 73,023 | 76,136 | |||||||||
| Share-based compensation | 13,074 | 6,750 | |||||||||
| Purchase accounting adjustments | 7,450 | 33,161 | |||||||||
| Non-GAAP operating income | $ | 442,891 | $ | 431,857 | |||||||
| Operating margin | 1.97 | % | 1.44 | % | |||||||
| Non-GAAP operating margin | 2.93 | % | 2.79 | % | |||||||
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Consolidated operating income and operating margin increased during the three months ended February 28, 2023, compared to the prior year period, due to a decrease in acquisition, integration, and restructuring costs, and an increase in gross margin due to product and customer mix, as well as the impact of lower purchase accounting adjustments related to the Merger.
Consolidated non-GAAP operating income and non-GAAP operating margin increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to an increase in gross margin due to product and customer mix.
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Operating Income and Operating Margin - Americas | (in thousands) | ||||||||||
| Revenue | $ | 8,638,704 | $ | 9,074,273 | |||||||
| Operating income | $ | 179,505 | $ | 138,519 | |||||||
| Acquisition, integration and restructuring costs | 35,133 | 51,530 | |||||||||
| Amortization of intangibles | 42,414 | 43,528 | |||||||||
| Share-based compensation | 9,362 | 6,750 | |||||||||
| Purchase accounting adjustments | — | 17,738 | |||||||||
| Non-GAAP operating income | $ | 266,414 | $ | 258,065 | |||||||
| Operating margin | 2.08 | % | 1.53 | % | |||||||
| Non-GAAP operating margin | 3.08 | % | 2.84 | % | |||||||
Americas operating income and operating margin increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to increased gross margin in the region due to product and customer mix, as well as the impact of lower purchase accounting adjustments related to the Merger, and a decrease in acquisition, integration, and restructuring costs, partially offset by an increase in personnel costs.
Americas non-GAAP operating income and non-GAAP operating margin increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to increased gross margin in the region due to product and customer mix, partially offset by an increase in personnel costs.
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Operating Income and Operating Margin - Europe | (in thousands) | ||||||||||
| Revenue | $ | 5,520,437 | $ | 5,579,788 | |||||||
| Operating income | $ | 88,205 | $ | 65,332 | |||||||
| Acquisition, integration and restructuring costs | 14,583 | 39,729 | |||||||||
| Amortization of intangibles | 29,985 | 31,970 | |||||||||
| Share-based compensation | 3,176 | — | |||||||||
| Purchase accounting adjustments | 7,450 | 15,423 | |||||||||
| Non-GAAP operating income | $ | 143,399 | $ | 152,454 | |||||||
| Operating margin | 1.60 | % | 1.17 | % | |||||||
| Non-GAAP operating margin | 2.60 | % | 2.73 | % | |||||||
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Europe operating income and operating margin increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to a decrease in acquisition, integration, and restructuring costs and the impact of lower purchase accounting adjustments related to the Merger, partially offset by an increase in personnel costs. Europe operating income also decreased due to the impacts from changes in foreign currencies including the euro.
Europe non-GAAP operating income decreased during the three months ended February 28, 2023, compared to the prior year period, primarily due to impacts from changes in foreign currencies including the euro, as well as an increase in personnel costs. Europe non-GAAP operating margin decreased primarily due to an increase in personnel costs.
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Operating Income and Operating Margin - APJ | (in thousands) | ||||||||||
| Revenue | $ | 966,230 | $ | 815,916 | |||||||
| Operating income | $ | 30,452 | $ | 18,589 | |||||||
| Acquisition, integration and restructuring costs | 1,466 | 2,111 | |||||||||
| Amortization of intangibles | 624 | 638 | |||||||||
| Share-based compensation | 536 | — | |||||||||
| Non-GAAP operating income | $ | 33,078 | $ | 21,338 | |||||||
| Operating margin | 3.15 | % | 2.28 | % | |||||||
| Non-GAAP operating margin | 3.42 | % | 2.62 | % | |||||||
APJ operating income, on both a GAAP and non-GAAP basis, increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to increased sales in the region due to high-growth technologies and our Advanced Solutions portfolio, and an increase in gross margin due to the shift in product and customer mix. APJ operating margin, on both a GAAP and non-GAAP basis, increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to regional selling, general and administrative expenses remaining consistent despite the increase in sales, as well as an increase in gross margin due to customer and product mix.
Interest Expense and Finance Charges, Net
| Three Months Ended | Percent Change | ||||||||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Interest expense and finance charges, net | $ | 80,200 | $ | 42,343 | 89.4 | % | |||||||||||
| Percentage of revenue | 0.53 | % | 0.27 | % | |||||||||||||
Amounts recorded in interest expense and finance charges, net, consist primarily of interest expense paid on our Senior Notes, our lines of credit, our accounts receivable securitization facilities and our term loans, and fees associated with the sale of accounts receivable, partially offset by income earned on our cash investments.
The increase in our interest expense and finance charges, net during the three months ended February 28, 2023, compared to the prior year period, was primarily due to higher average interest rates, along with increased costs associated with the sale of accounts receivable due to higher discount fees, which totaled $11.7 million in the three months ended February 28, 2023, compared to $3.0 million in the three months ended February 28, 2022.
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Other Expense, Net
| Three Months Ended | Percent Change | ||||||||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Other expense, net | $ | 156 | $ | 4,268 | (96.3) | % | |||||||||||
| Percentage of revenue | — | % | 0.03 | % | |||||||||||||
Amounts recorded as other expense, net include foreign currency transaction gains and losses on certain financing transactions and the related derivative instruments used to hedge such financing transactions, the cost of hedging, investment gains and losses, and other non-operating gains and losses, such as settlements received from class action lawsuits.
The decrease in other expense, net during the three months ended February 28, 2023, as compared to the prior year period, was primarily due to higher foreign currency transaction gains.
Provision for Income Taxes
| Three Months Ended | Percent Change | ||||||||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
| Provision for income taxes | $ | 50,786 | $ | 43,505 | 16.7 | % | |||||||||||
| Percentage of income before income taxes | 23.32 | % | 24.74 | % | |||||||||||||
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions. Income taxes for the interim periods presented have been included in the accompanying Consolidated Financial Statements on the basis of an estimated annual effective tax rate.
During the three months ended February 28, 2023, our income tax expense increased compared to the prior year period, primarily due to higher income during the period. The effective tax rate was lower during the three months ended February 28, 2023 as compared to the three months ended February 28, 2022, primarily due to the relative mix of earnings and losses within the taxing jurisdictions in which we operate.
Net Income and Diluted EPS
The following tables present net income and diluted EPS as well as a reconciliation of our most comparable GAAP measures to the related non-GAAP measures presented:
| Three Months Ended | |||||||||||
| February 28, 2023 | February 28, 2022 | ||||||||||
| Net Income - Consolidated | (in thousands) | ||||||||||
| Net income | $ | 167,020 | $ | 132,324 | |||||||
| Acquisition, integration and restructuring costs | 53,424 | 95,202 | |||||||||
| Amortization of intangibles | 73,023 | 76,136 | |||||||||
| Share-based compensation | 13,074 | 6,750 | |||||||||
| Purchase accounting adjustments | 7,450 | 33,161 | |||||||||
| Income taxes related to the above | (34,756) | (47,883) | |||||||||
| Income tax capital loss carryback benefit | — | (3,246) | |||||||||
| Non-GAAP net income | $ | 279,235 | $ | 292,444 | |||||||
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| Three Months Ended | |||||||||||
| Diluted Earnings per Common Share | February 28, 2023 | February 28, 2022 | |||||||||
| Diluted EPS | $ | 1.75 | $ | 1.37 | |||||||
| Acquisition, integration and restructuring costs | 0.56 | 0.99 | |||||||||
| Amortization of intangibles | 0.76 | 0.79 | |||||||||
| Share-based compensation | 0.14 | 0.07 | |||||||||
| Purchase accounting adjustments | 0.08 | 0.34 | |||||||||
| Income taxes related to the above | (0.36) | (0.50) | |||||||||
| Income tax capital loss carryback benefit | — | (0.03) | |||||||||
| Non-GAAP diluted EPS | $ | 2.93 | $ | 3.03 | |||||||
Liquidity and Capital Resources
Cash Conversion Cycle
| Three Months Ended | |||||||||||||||||||||||
| February 28, 2023 | November 30, 2022 | February 28, 2022 | |||||||||||||||||||||
| (Amounts in thousands) | |||||||||||||||||||||||
| Days sales outstanding ("DSO") | |||||||||||||||||||||||
| Revenue | (a) | $ | 15,125,371 | $ | 16,247,957 | $ | 15,469,977 | ||||||||||||||||
| Accounts receivable, net | (b) | 9,357,059 | 9,420,999 | 8,732,024 | |||||||||||||||||||
| Days sales outstanding | (c) = ((b)/(a))*the number of days during the period | 56 | 53 | 51 | |||||||||||||||||||
| Days inventory outstanding ("DIO") | |||||||||||||||||||||||
| Cost of revenue | (d) | $ | 14,121,804 | $ | 15,188,238 | $ | 14,501,316 | ||||||||||||||||
| Inventories | (e) | 8,372,834 | 9,066,620 | 7,883,265 | |||||||||||||||||||
| Days inventory outstanding | (f) = ((e)/(d))*the number of days during the period | 53 | 54 | 49 | |||||||||||||||||||
| Days payable outstanding ("DPO") | |||||||||||||||||||||||
| Cost of revenue | (g) | $ | 14,121,804 | $ | 15,188,238 | $ | 14,501,316 | ||||||||||||||||
| Accounts payable | (h) | 12,997,681 | 13,988,980 | 12,193,263 | |||||||||||||||||||
| Days payable outstanding | (i) = ((h)/(g))*the number of days during the period | 83 | 84 | 76 | |||||||||||||||||||
| Cash conversion cycle ("CCC") | (j) = (c)+(f)-(i) | 26 | 23 | 24 | |||||||||||||||||||
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Cash Flows
Our business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on term loans, sales of accounts receivable, our securitization programs, our revolver programs and net trade credit from vendors for our working capital needs. We have financed our growth and cash needs to date primarily through cash generated from operations and financing activities. As a general rule, when sales volumes are increasing, our net investment in working capital dollars typically increases, which generally results in decreased cash flow generated from operating activities. Conversely, when sales volumes decrease, our net investment in working capital dollars typically decreases, which generally results in increases in cash flows generated from operating activities. We calculate CCC as days of the last fiscal quarter’s revenue outstanding in accounts receivable plus days of supply on hand in inventory, less days of the last fiscal quarter’s cost of revenue outstanding in accounts payable. Our CCC was 26 days and 23 days as of February 28, 2023 and November 30, 2022, respectively. The increase was primarily due to our DSO, which was impacted by a shift in our product and customer mix to our Advanced Solutions portfolio and high-growth technologies which generally have a slightly longer cash conversion cycle. Our CCC was 26 days and 24 days as of February 28, 2023 and February 28, 2022, respectively. The increase was primarily due to our DSO, which was impacted by changes in product and customer mix and the timing of customer payments, partially offset by an increase in our DPO due to the timing of payments.
To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions. We expect that any such expansions would require an initial investment in working capital, personnel, facilities and operations. These investments or acquisitions would likely be funded primarily by our existing cash and cash equivalents, additional borrowings, or the issuance of securities.
Operating Activities
Net cash used in operating activities was $102.8 million during the three months ended February 28, 2023, primarily due to a decrease in accounts payable due to seasonality along with the timing of payments, partially offset by net income and decreases in inventories and accounts receivable.
Net cash used in operating activities was $1.3 billion during the three months ended February 28, 2022, primarily due to an increase in net working capital to support revenue growth and strategic inventory purchases.
Investing Activities
Net cash used in investing activities during the three months ended February 28, 2023 and 2022 was $34.2 million and $25.2 million, respectively. The increase in cash used in investing activities is primarily due to an increase in integration related capital expenditures due to the Merger.
Financing Activities
Net cash provided by financing activities during the three months ended February 28, 2023 was $129.5 million, representing primarily short-term borrowings to fund working capital requirements. In addition, we paid $114.8 million to repurchase common stock under our share repurchase program and we paid stockholder dividends of $33.2 million.
Net cash provided by financing activities during the three months ended February 28, 2022 was $854.5 million, representing primarily short-term borrowings to fund working capital requirements. In addition, we paid stockholders dividends of $28.8 million and we paid $23.8 million to repurchase common stock under our share repurchase program.
Capital Resources
Our cash and cash equivalents totaled $539.3 million and $522.6 million as of February 28, 2023 and November 30, 2022, respectively. Our cash and cash equivalents held by international subsidiaries are no longer subject to U.S. federal tax on repatriation into the United States. Repatriation of some foreign balances is restricted by local laws. Historically, we have fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future our intentions change, and we repatriate the cash back to the United States, we will report in our Consolidated Financial Statements the impact of state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements.
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We believe that our available cash and cash equivalents balances, cash flows from operations and our existing sources of liquidity, including available capacity under our borrowing facilities, will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months in all geographies. We also believe that our longer-term working capital, planned capital expenditures, anticipated stock repurchases, dividend payments and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.
Credit Facilities and Borrowings
In the United States, we have an accounts receivable securitization program to provide additional capital for our operations (the "U.S. AR Arrangement"). Under the terms of the U.S. AR Arrangement, we and our subsidiaries that are party to the U.S. AR Arrangement can borrow up to a maximum of $1.5 billion based upon eligible trade accounts receivable. The U.S. AR Arrangement has a maturity date of December 2024. We also have a credit agreement, dated as of April 16, 2021 (the "TD SYNNEX Credit Agreement"), pursuant to which we received commitments for the extension of a senior unsecured revolving credit facility not to exceed an aggregate principal amount of $3.5 billion, which revolving credit facility (the "TD SYNNEX revolving credit facility") may, at our request but subject to the lenders' discretion, potentially be increased by up to an aggregate amount of $500.0 million. The TD SYNNEX Credit Agreement also includes a $1.5 billion term loan facility that was fully funded in connection with the Merger. The TD SYNNEX Credit Agreement has a maturity date of September 2026, in the case of the TD SYNNEX revolving credit facility, subject to two one-year extensions upon our prior notice to the lenders and the agreement of the lenders to extend such maturity date. The outstanding amount of our borrowings under the U.S. AR Arrangement and the TD SYNNEX revolving credit facility may fluctuate in response to changes in our working capital and other liquidity requirements. There was $110.0 million outstanding under the U.S. AR Arrangement at February 28, 2023 at an interest rate of 5.51%. There were no amounts outstanding under the U.S. AR Arrangement at November 30, 2022. There were no amounts outstanding under the TD SYNNEX revolving credit facility at February 28, 2023 or November 30, 2022.
We have various other committed and uncommitted lines of credit with financial institutions, finance leases, short-term loans, term loans, credit facilities and book overdraft facilities, totaling approximately $600.1 million in borrowing capacity as of February 28, 2023. Our borrowings on these facilities vary within the period primarily based on changes in our working capital. There was $387.8 million outstanding on these facilities at February 28, 2023, at a weighted average interest rate of 4.88%, and there was $193.1 million outstanding at November 30, 2022, at a weighted average interest rate of 4.69%.
Historically, we have renewed our accounts receivable securitization program and our parent company credit facilities on, or prior to, their respective expiration dates. We have no reason to believe that these and other arrangements will not be renewed or replaced as we continue to be in good credit standing with the participating financial institutions. We have had similar borrowing arrangements with various financial institutions throughout our years as a public company.
We had total outstanding borrowings of approximately $4.4 billion as of February 28, 2023 and $4.1 billion as of November 30, 2022. Our outstanding borrowings include Senior Notes of $2.5 billion at February 28, 2023 and November 30, 2022, and term loans under the term loan facility of the TD SYNNEX Credit Agreement of approximately $1.4 billion at February 28, 2023 and November 30, 2022. For additional information on our borrowings, see Note 8 - Borrowings to the Consolidated Financial Statements included in Part I, Item 1 of this Report.
Accounts Receivable Purchase Agreements
We have uncommitted supply-chain financing programs under which trade accounts receivable owed by certain customers may be acquired, without recourse, by certain financial institutions. Available capacity under these programs is dependent upon the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase such receivables. In addition, certain of these programs also require that we continue to service, administer and collect the sold accounts receivable. At February 28, 2023 and November 30, 2022, we had a total of $1.1 billion and $1.4 billion, respectively, of trade accounts receivable sold to and held by financial institutions under these programs. Discount fees for these programs in the three months ended February 28, 2023 and February 28, 2022 totaled $11.7 million and $3.0 million, respectively.
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Covenant Compliance
Our credit facilities have a number of covenants and restrictions that require us to maintain specified financial ratios. They also limit our ability to incur additional debt, create liens, enter into agreements with affiliates, modify the nature of our business, and merge or consolidate. As of February 28, 2023, we were in compliance with the financial covenant requirements for the above arrangements.
Critical Accounting Policies and Estimates
During the three months ended February 28, 2023, there were no material changes to our critical accounting policies and estimates previously disclosed in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022.
Related Party Transactions
For a summary of related party transactions, see Note 11 - Related Party Transactions to the Consolidated Financial Statements, which can be found under Part I, Item 1 of this Report.
Recently Issued Accounting Pronouncements
For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements, see Note 2 - Summary of Significant Accounting Policies to the Consolidated Financial Statements, which can be found under Part I, Item 1 of this Report.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
For a description of the Company’s market risks, see “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022.
No material changes have occurred in our market risks since November 30, 2022.
ITEM 4. Controls and Procedures
(a)Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
(b)Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1A. Risk Factors
You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended November 30, 2022. There have been no material changes to the risk factors disclosed in our 2022 Annual Report on Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
In June 2020, our Board of Directors authorized a three-year $400.0 million share repurchase program, effective July 1, 2020. In January 2023, our Board of Directors authorized a new three-year $1.0 billion share repurchase program (the "new share repurchase program"), replacing the existing $400.0 million share repurchase program, pursuant to which we may repurchase our outstanding common stock from time to time in the open market or through privately negotiated transactions. The prior $400.0 million share repurchase program was terminated on January 4, 2023, when it was replaced by the new share repurchase program, which will expire on January 3, 2026.
On January 30, 2023, we announced the closing of a secondary public offering (the "Offering") of an aggregate of 5.2 million shares of our common stock that were sold by certain entities managed by affiliates of Apollo Global Management, Inc (the "Selling Stockholders"). All of the shares in the Offering were sold by the Selling Stockholders. We did not receive any of the proceeds from the sale of shares by the Selling Stockholders in the Offering. Also pursuant to the related underwriting agreement, we repurchased 0.9 million shares of our common stock from the underwriters as part of the Offering, at the public offering price of $97.00 per share, resulting in a purchase price of $87.3 million (the "Concurrent Share Repurchase"). The Concurrent Share Repurchase was made under our existing $1.0 billion share repurchase program, and is included within the activity for the month of January shown in the table below.
The following table presents information with respect to purchases of common stock by the Company under the share repurchase program during the quarter ended February 28, 2023:
| Issuer Purchases of Equity Securities (amounts in thousands except for per share amounts) | |||||||||||||||||||||||
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or program | Maximum dollar value of shares that may yet be purchased under the plans or programs | |||||||||||||||||||
| December 1 - December 31, 2022 | 161 | $ | 96.70 | 161 | $ | 259,457 | |||||||||||||||||
| January 1 - January 31, 2023 | 1,015 | 97.78 | 1,015 | 901,696 | |||||||||||||||||||
| February 1 - February 28, 2023 | — | — | — | 901,696 | |||||||||||||||||||
| Total | 1,176 | $ | 97.64 | 1,176 | |||||||||||||||||||
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ITEM 6. Exhibits
| Exhibit Number | Description of Document | |||||||
| 1.1 | ||||||||
| 3(i).1 | ||||||||
| 3(ii).1 | ||||||||
| 10.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1* | ||||||||
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
* In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
+Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. TD SYNNEX hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the U.S. Securities and Exchange Commission upon request; provided, however, that TD SYNNEX may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules so furnished.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 5, 2023
TD SYNNEX CORPORATION
| By: | /s/ Richard T. Hume | |||||||
| Richard T. Hume | ||||||||
| President and Chief Executive Officer | ||||||||
| (Duly authorized officer and principal executive officer) | ||||||||
| By: | /s/ Marshall W. Witt | |||||||
| Marshall W. Witt | ||||||||
| Chief Financial Officer | ||||||||
| (Duly authorized officer and principal financial officer) | ||||||||
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