TD SYNNEX CORPORATION For an understanding ofTD SYNNEX and the significant factors that influenced our performance during the past three fiscal years, the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the description of the business appearing in Item 1 of this Report and Item 8 Financial Statements and Supplementary Data included elsewhere in this Report. Amounts in certain tables appearing in this Report may not add or compute due to rounding. This section of the Form 10-K generally discusses fiscal 2022 and 2021 items and year-to-year comparisons between fiscal 2022 and 2021. Discussions of fiscal 2020 items and year-to-year comparisons between fiscal 2021 and 31
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2020 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedNovember 30, 2021 filed with theSEC onJanuary 28, 2022 . In addition to historical information, the MD&A contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, but are not limited to, those matters discussed under the heading "Note Regarding Forward-looking Statements." Our actual results could differ materially from those anticipated by these forwardlooking statements due to various factors, including, but not limited to, those set forth under Item 1A. Risk Factors of this Form 10-K and elsewhere in this document.
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.
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, we 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 . See Note 3 -
Acquisitions to the Consolidated Financial Statements for further information.
We previously had two reportable segments as ofNovember 30, 2020 : Technology Solutions and Concentrix. After giving effect to the previously announced separation of our customer experience services business (the "Separation") onDecember 1, 2020 , we operated in a single reportable segment. After completion of the Merger, we reviewed our reportable segments as there was a change in our chief executive officer, who is also our chief operating decision maker. Our chief operating decision maker has a leadership structure aligned with the geographic regions of theAmericas ,Europe andAsia-Pacific andJapan ("APJ") and reviews and allocates resources based on these geographic regions. As a result, as ofSeptember 1, 2021 we began operating in three reportable segments based on our geographic regions: theAmericas ,Europe and APJ. Our three reportable segments each generate revenues from products and services across our Endpoint Solutions and Advanced Solutions portfolios. Segment results for all prior periods have been restated for comparability to our current reportable segments. For financial information by segment, refer to Note 13 - Segment Information, to the Consolidated Financial Statements in Item 8. We have presented limited information by reportable segment within the Management's Discussion and Analysis of Financial Condition and Results of Operations due to the lack of comparability between periods resulting from the Merger onSeptember 1, 2021 . Revenue and Cost of Revenue We distribute IT hardware, software, and systems including personal computing devices and peripherals, mobile phones and accessories, server and datacenter infrastructure, hybrid cloud, security, networking, communications and storage solutions, and system components. We also provide systems design and integration solutions. In fiscal years 2022 and 2021 approximately 45% and 37% of our revenue, respectively, was generated from our international operations. As a result, our revenue growth is impacted by fluctuations in foreign currency exchange rates. In fiscal year 2022, several foreign currencies in which we transact business depreciated against theU.S. dollar, including the Euro and the Japanese yen, which adversely affected the revenue growth of ourEurope and APJ segments. 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. Our overall business is also highly competitive on the basis of price. We set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and solutions we provide. We also participate in the incentive and rebate programs of our OEM suppliers. These programs are important determinants of the final sales price we charge to our reseller customers. To mitigate the risk of declining prices and obsolescence of our distribution inventory, our OEM suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them. We carefully manage our inventory to maximize the benefit to us of these supplier-provided protections. 32
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A significant portion of our cost of revenue is the purchase price we pay our OEM suppliers for the products we sell, net of any incentives, rebates, price protection and purchase discounts received from our OEM suppliers. Cost of revenue also consists of provisions for inventory losses and write-downs, freight expenses associated with the receipt in and shipment out of our inventory, and royalties due to OEM vendors. In addition, cost of revenue includes the cost of material, labor and overhead for our systems design and integration solutions. Margins The IT distribution industry in which we operate 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. Our gross margin has fluctuated annually due to changes in the mix of products we offer, customers we sell to, incentives and rebates received from our OEM suppliers, competition, seasonality, replacement of lower margin business, inventory obsolescence, and lower costs associated with increased efficiencies. Generally, when our revenue becomes more concentrated on limited products or customers, our gross margin tends to decrease due to increased pricing pressure from OEM suppliers or reseller customers. Our operating margin has also fluctuated in the past, based primarily on our ability to achieve economies of scale, the management of our operating expenses, changes in the relative mix of our revenue, and the timing of our acquisitions and investments.
Economic and Industry Trends
Our revenue is 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 OEMs, replacement cycles for existing IT products, trends toward cloud computing, seasonality, overall economic growth and general business activity. A difficult and challenging economic environment due to the continued impacts of increased inflation, rising interest rates andRussia's invasion ofUkraine , may also lead to consolidation or decline in the IT distribution industry 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 theAmericas ,Europe and APJ, so we are affected by demand for our products in those regions, and the weakening of local currencies relative to theU.S. Dollar which occurred during fiscal year 2022 may continue to adversely affect the operating results of ourEurope 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. In our business 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, Consolidated Statement of Operations data as a percentage of revenue:
Fiscal Years Ended November 30,
Statements of Operations Data: 2022 2021
Revenue 100.00 % 100.00 %
Cost of revenue (93.74) % (94.02) %
Gross profit 6.26 % 5.98 %
Selling, general and administrative expenses (4.21) % (3.65) %
Acquisition, integration and restructuring costs (0.36) % (0.35) %
Operating income 1.69 % 1.97 %
Interest expense and finance charges, net (0.36) % (0.50) %
Other (expense) income, net 0.00 % 0.00 %
Income before income taxes 1.33 % 1.48 %
Provision for income taxes (0.29) % (0.23) %
Net income 1.04 % 1.25 %
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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:
•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.
•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.
•Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") which is net income before interest, taxes, depreciation and amortization, adjusted to exclude other (expense) income, net, acquisition, integration and restructuring costs, share-based compensation expense, and purchase accounting adjustments.
•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, legal settlements and other litigation, net, 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, legal settlements and other litigation, net,
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 an 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 Consolidated 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 and non-employee members of the Company's Board of
Directors based on the estimated fair value of those awards.
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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. Legal settlements and other litigation, net includes a benefit recorded in other (expense) income, net during the fourth quarter of fiscal 2022 resulting from a decrease in our accrual for a legal matter inFrance . For further discussion of this legal matter, please refer to Note 18 - Commitments and Contingencies to the Consolidated Financial Statements included in Part II, Item 8 of this report. 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. 35
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Non-GAAP Financial Information:
Fiscal Years Ended
2022 2021
Gross Profit and Gross Margin - Consolidated (in thousands) Revenue$ 62,343,810 $ 31,614,169 Gross profit$ 3,900,199 $ 1,889,534 Purchase accounting adjustments 96,128 23,476 Non-GAAP gross profit$ 3,996,327 $ 1,913,010 GAAP gross margin 6.26 % 5.98 % Non-GAAP gross margin 6.41 % 6.05 %
Fiscal Years Ended
2022 2021
Operating Income and Operating Margin - Consolidated (in thousands)
Revenue $ 62,343,810 $ 31,614,169
Operating income $ 1,050,873 $ 623,218
Acquisition, integration and restructuring costs 222,319 112,150
Amortization of intangibles 299,162 105,332
Share-based compensation 38,994 33,078
Purchase accounting adjustments 112,691 28,353
Non-GAAP operating income $ 1,724,039 $ 902,131
GAAP operating margin 1.69 % 1.97 %
Non-GAAP operating margin 2.77 % 2.85 %
Fiscal Years Ended November 30,
2022 2021
Operating Income and Operating Margin - Americas (in thousands)
Revenue $ 38,791,102 $ 23,317,274
Operating income $ 734,103 $ 497,964
Acquisition, integration and restructuring costs 137,055 80,181
Amortization of intangibles 175,371 72,434
Share-based compensation 29,717 33,078
Purchase accounting adjustments 65,117 16,095
Non-GAAP operating income $ 1,141,363 $ 699,752
GAAP operating margin 1.89 % 2.14 %
Non-GAAP operating margin 2.94 % 3.00 %
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Fiscal Years Ended
2022 2021
Operating Income and Operating Margin - Europe (in thousands)
Revenue $ 20,289,211 $ 6,201,302
Operating income $ 227,249 $ 79,153
Acquisition, integration and restructuring costs 76,634 27,515
Amortization of intangibles 121,220 32,260
Share-based compensation 7,906 -
Purchase accounting adjustments 47,574 12,258
Non-GAAP operating income $ 480,583 $ 151,186
GAAP operating margin 1.12 % 1.28 %
Non-GAAP operating margin 2.37 % 2.44 %
Fiscal Years Ended November 30,
2022 2021
Operating Income and Operating Margin - APJ (in thousands)
Revenue $ 3,263,497 $ 2,095,593
Operating income $ 89,521 $ 46,100
Acquisition, integration and restructuring costs 8,630 4,454
Amortization of intangibles 2,571 638
Share-based compensation 1,371 -
Non-GAAP operating income $ 102,093 $ 51,192
GAAP operating margin 2.74 % 2.20 %
Non-GAAP operating margin 3.13 % 2.44 %
Fiscal Years Ended November 30,
2022 2021
Adjusted EBITDA - Consolidated (in thousands)
Net income $ 651,307 $ 395,069
Interest expense and finance charges, net 222,578 157,835
Provision for income taxes 175,823 71,416
Depreciation(1) 164,203 44,232
Amortization of intangibles 299,162 105,332
EBITDA $ 1,513,073 $ 773,884
Other expense (income), net 1,165 (1,102)
Acquisition, integration and restructuring costs 157,965 112,150
Share-based compensation 38,994 33,078
Purchase accounting adjustments 112,691 28,353
Adjusted EBITDA $ 1,823,888 $ 946,363
__________________
(1) Includes depreciation recorded in acquisition, integration, and restructuring costs.
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Fiscal Years Ended November 30,
2022 2021
Net Income- Consolidated (in thousands)
Net Income $ 651,307 $ 395,069
Acquisition, integration and restructuring costs 231,008 159,194
Amortization of intangibles 299,162 105,332
Share-based compensation 38,994 33,078
Purchase accounting adjustments 112,691 28,353
Legal settlements and other litigation, net (10,792) -
Income taxes related to above (166,129) (80,375)
Income tax capital loss carryback benefit (8,299) (44,968)
Non-GAAP net income $ 1,147,942 $ 595,683
Fiscal Years Ended November 30,
2022 2021
Diluted Earnings Per Common Share (in thousands)
Diluted EPS $ 6.77 $ 6.24
Acquisition, integration and restructuring costs 2.40 2.51
Amortization of intangibles 3.11 1.66
Share-based compensation 0.41 0.52
Purchase accounting adjustments 1.17 0.45
Legal settlements and other litigation, net (0.11) -
Income taxes related to above (1.73) (1.27)
Income tax capital loss carryback benefit (0.09) (0.71)
Non-GAAP diluted EPS $ 11.94 $ 9.40 Fiscal Years Ended
Revenue
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
(in thousands)
Revenue $ 62,343,810 $ 31,614,169 97.2 %
We distribute a comprehensive range of products for the technology industry and
design and integrate data center equipment. The prices of our products are
highly dependent on the volumes purchased within a product category. The
products we sell from one period to the next are often not comparable due to
changes in product models, features and customer demand requirements.
Revenue increased in fiscal year 2022 compared to fiscal year 2021 primarily due
to an increase in sales resulting from the Merger of approximately $28 billion ,
as well as broad-based demand for technology equipment.
Gross Profit
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
(in thousands)
Gross profit $ 3,900,199 $ 1,889,534 106.4 %
Gross margin 6.26 % 5.98 %
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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 in fiscal year 2022, as compared to the prior fiscal year, primarily driven by an increase in sales as a result of the Merger, as well as product and customer mix.
The increase in gross margin during fiscal year 2022, as compared to fiscal year 2021, is primarily due to product and customer mix.
Selling, General and Administrative Expenses
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
(in thousands)
Selling, general and administrative expenses $ 2,627,007 $ 1,154,166 127.6 %
Percentage of revenue 4.21 % 3.65 %
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.
Selling, general and administrative expenses increased in fiscal year 2022,
compared to fiscal year 2021, primarily due to an increase in personnel costs
resulting from the Merger and an increase in amortization of intangible assets
acquired in connection with the Merger. Selling, general and administrative
expenses increased as a percentage of revenue, compared to the prior year
period, primarily due to the impact of the Merger including an increase in
personnel costs and amortization of intangible assets.
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 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, as well as costs related to the settlement of certain outstanding long-term cash incentive awards for Tech Data upon closing of the Merger. Long-lived asset charges for fiscal year 2022 are primarily comprised of accelerated depreciation and amortization expense of$64.4 million due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, as well as impairment charges. Long-lived asset charges for fiscal year 2021 represent an impairment charge of$22.2 million recorded for the write-off of capitalized costs associated with Tech Data's tdONE program in conjunction with the decision to consolidate 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 6 - Share-Based Compensation to the Consolidated Financial Statements for further information) and expenses for certain restricted stock awards issued in conjunction with the Merger. 39
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To date, acquisition and integration expenses related to the Merger were
composed of the following:
Fiscal Years Ended November 30,
2022 2021
(in thousands)
Professional services costs $ 29,352 $ 22,288
Personnel and other costs 40,220 33,716
Long-lived assets charges 69,053 22,166
Stock-based compensation 52,171 20,113
Total $ 190,796 $ 98,283
During fiscal 2022, acquisition and integration expenses related to the Merger
increased, compared to the prior year period, due to the timing of the Merger as
it was completed on September 1, 2021 .
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.
Acquisition, integration and restructuring costs under the GBO 2 Program for fiscal years 2022 and 2021 included the following:
Fiscal Years Ended November 30,
2022 2021
(in thousands)
Restructuring costs $ 21,872 $ 8,709
Other costs 9,652 5,158
Total $ 31,524 $ 13,867 Restructuring costs under the GBO 2 Program for fiscal 2022 and 2021 were composed of the following:
Fiscal Years Ended November 30,
2022 2021
(in thousands)
Severance $ 7,445 $ 2,893
Other exit costs 14,427 5,816
Total $ 21,872 $ 8,709 Restructuring costs related to the GBO 2 Program by segment are as follows:
Fiscal Years Ended November 30,
2022 2021
(in thousands)
Americas $ 5,666 $ 2,658
Europe 15,737 5,746
APJ 469 305
Total $ 21,872 $ 8,709
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During fiscal 2022, restructuring costs under the GBO 2 Program increased,
compared to the prior year period, due to the timing of the Merger as it was
completed on
Operating Income
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
(in thousands)
Operating income $ 1,050,873 $ 623,218 68.6 %
Operating margin 1.69 % 1.97 %
Operating income increased during fiscal year 2022, compared to fiscal year
2021, primarily due to increased sales as a result of the Merger and an increase
in gross margin primarily due to product and customer mix, partially offset by
an increase in personnel costs resulting from the Merger, an increase in
amortization of intangible assets acquired in connection with the Merger and an
increase in acquisition, integration and restructuring costs. Operating margin
decreased due to an increase in personnel costs resulting from the Merger, an
increase in amortization of intangible assets acquired in connection with the
Merger and an increase in acquisition, integration and restructuring costs,
partially offset by an increase in gross margin primarily due to product and
customer mix.
Interest Expense and Finance Charges, Net
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
(in thousands)
Interest expense and finance charges, net $ 222,578 $ 157,835 41.0 %
Percentage of revenue 0.36 % 0.50 %
Amounts recorded in interest expense and finance charges, net, consist primarily
of interest expense paid on our Senior Notes, our lines of credit, our term
loans and our accounts receivable securitization facilities, and fees associated
with the sale of accounts receivable, partially offset by income earned on our
cash investments. Additionally, interest expense during fiscal year 2021
included approximately $47 million of acquisition and integration related
financing costs primarily related to a commitment for a bridge loan facility
obtained in March 2021 which was terminated as the permanent financing sources
for the Merger were obtained or entered into.
The increase in our interest expense and finance charges net, during fiscal year
2022, compared to fiscal year 2021, was primarily due to an increase in interest
expense from higher average outstanding borrowings as well as higher average
interest rates, and increased costs associated with the sale of accounts
receivable due to higher discount fees and higher volume of accounts receivable
sold, partially offset by the $47 million of acquisition and integration related
financing costs in fiscal year 2021.
Other (Expense) Income, Net
Fiscal Years Ended November 30, Percent Change
2022 2021 2022 to 2021
(in thousands)
Other (expense) income, net $ (1,165) $ 1,102 (205.7) %
Percentage of revenue 0.00 % 0.00 %
Amounts recorded as other (expense) income, net include certain 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.
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Other (expense) income, net increased during fiscal year 2022, compared to fiscal year 2021, primarily due to increased costs for foreign exchange hedges coupled with an expanded program and a gain on sale of an investment in the prior year, partially offset by a decrease in our accrual during fiscal year 2022 for a legal matter inFrance of$10.8 million . For further discussion of this legal matter, please refer to Note 18 - Commitments and Contingencies to the Consolidated Financial Statements included in Part II, Item 8 of this Report. Provision for Income Taxes Fiscal Years Ended November 30, Percent Change 2022 2021 2022 to 2021 (in thousands) Provision for income taxes$ 175,823 $ 71,416 146.2 % Percentage of income before income taxes 21.26 %
15.31 %
Income taxes consist of our current and deferred tax expense resulting from our income earned in domestic and foreign jurisdictions.
Our income tax expense increased during the fiscal year endedNovember 30, 2022 , as compared to the prior year, due to the increase in income before income taxes, as well as a lower capital loss carryback benefit. The effective tax rate for fiscal year 2022 was higher when compared to the prior year primarily due to the lower capital loss carryback benefit, partially offset by the impact of the relative mix of earnings and losses within the taxing jurisdictions in which we operate. In connection with the Merger, the Company restructured its foreign financing structure, as well as select legal entities in anticipation of legally integrating legacy Tech Data and SYNNEX foreign operations. In addition to the treasury efficiencies, these restructurings resulted in a one-time domestic capital loss which would offset certain domestic capital gains when carried back underUnited States tax law to tax year 2020, resulting in a tax benefit of$45.0 million during fiscal year 2021. In fiscal year 2022, we recorded additional tax benefits of$8.3 million related to the capital loss carryback. 42
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Liquidity and Capital Resources
Cash Conversion Cycle
Three Months Ended
November 30, November 30,
2022 2021
(Amounts in thousands)
Days sales outstanding ("DSO")
Revenue (a) $ 16,247,957 $ 15,611,266
Accounts receivable, net (b) 9,420,999 8,310,032
(c) = ((b)/(a))*the
number of days
Days sales outstanding during the period 53 48
Days inventory outstanding ("DIO")
Cost of revenue (d) $ 15,188,238 $ 14,668,096
Inventories (e) 9,066,620 6,642,915
(f) = ((e)/(d))*the
number of days
Days inventory outstanding during the period 54 41
Days payable outstanding ("DPO")
Cost of revenue (g) $ 15,188,238 $ 14,668,096
Accounts payable (h) 13,988,980 12,034,946
(i) = ((h)/(g))*the
number of days
Days payable outstanding during the period 84 75
Cash conversion cycle ("CCC") (j) = (c)+(f)-(i) 23 14
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 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 23 days and 14 days
at the end of fiscal years 2022 and 2021, respectively. The increase in fiscal
year 2022, compared to fiscal year 2021, was primarily due to our DIO, which was
impacted by an increase in inventory to support growth in our business and
supply chain constraints, partially offset by a corresponding increase in our
DPO.
To increase our market share and better serve our customers, we may further
expand our operations through investments or acquisitions. We expect that such
expansion 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.
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Operating Activities
Net cash used in operating activities was$49.6 million during fiscal year 2022, primarily due to an increase in inventories and accounts receivable driven by growth in our business, partially offset by an increase in accounts payable due to timing of payments and increased net income. Net cash provided by operating activities was$809.8 million during fiscal year 2021, primarily due to net income and an increase in accounts payable due to the timing of payments, including the impact of the Merger. These cash inflows were partially offset by an increase in inventory and accounts receivable driven by growth in our business, including the impact of the Merger.
The significant components of our investing and financing cash flow activities are listed below.
Investing Activities
2022
•$117.0 million related to infrastructure investments.
2021
•$907.1 million in net cash paid related to the Merger. •$54.9 million related to infrastructure investments.
Financing Activities
2022
•Dividends of
2021
•Proceeds of$2.5 billion for issuance of Senior Notes to finance the Merger. •Repayment of approximately$2.6 billion of debt of Tech Data paid off substantially concurrent with the closing of the Merger. •$149.9 million net transfer of cash and cash equivalents to Concentrix Corporation in connection with the Separation. •Dividends of$50.3 million paid. •Debt issuance costs of$42.3 million paid.
We believe our current cash balances, cash flows from operations and credit availability are sufficient to support our operating activities for at least the next twelve months.
Capital Resources Our cash and cash equivalents totaled$522.6 million and$994.0 million as ofNovember 30, 2022 and 2021, respectively. Our cash and cash equivalents held by international subsidiaries are no longer subject toU.S. federal tax on repatriation intothe 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 tothe 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 withinthe United States to fund current and expected future working capital, investment and other general corporate funding requirements. We believe that our available cash and cash equivalents balances, the cash flows expected to be generated from operations and our existing sources of liquidity, 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. 44
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Credit Facilities and Borrowings
Inthe 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 theU.S. AR Arrangement, we and our subsidiaries that are party to theU.S. AR Arrangement can borrow up to a maximum of$1.5 billion based upon eligible trade accounts receivable. TheU.S. AR Arrangement has a maturity date ofDecember 2024 . We are also party to a credit agreement, dated as ofApril 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 ofSeptember 2026 , in the case of theTD 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 theU.S. AR Arrangement and theTD SYNNEX revolving credit facility may fluctuate in response to changes in our working capital and other liquidity requirements. There were no amounts outstanding under theU.S. AR Arrangement and theTD SYNNEX revolving credit facility atNovember 30, 2022 and 2021. We have various other committed and uncommitted lines of credit with financial institutions, accounts receivable securitization arrangements, finance leases, short-term loans, term loans, credit facilities and book overdraft facilities, totaling approximately$574.9 million in borrowing capacity as ofNovember 30, 2022 . Our borrowings on these facilities vary within the period primarily based on changes in our working capital. There was$193.1 million outstanding on these facilities atNovember 30, 2022 , at a weighted average interest rate of 4.69%, and there was$106.3 million outstanding atNovember 30, 2021 , at a weighted average interest rate of 4.59%. 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. Our credit facilities have a number of covenants and restrictions that require us to maintain specified financial ratios. They also limit our (or our subsidiaries', as applicable) ability to incur additional debt or liens, enter into agreements with affiliates, modify the nature of our business, and merge or consolidate. As ofNovember 30, 2022 , we were in compliance with the financial covenant requirements for the above arrangements. We had total outstanding borrowings of approximately$4.1 billion as ofNovember 30, 2022 and 2021. Our outstanding borrowings include Senior Notes of$2.5 billion atNovember 30, 2022 and 2021, and term loans under the term loan facility of the TD SYNNEX Credit Agreement of$1.4 billion and$1.5 billion atNovember 30, 2022 and 2021, respectively. For additional information on our borrowings, see Note 11 - Borrowings to the Consolidated Financial Statements included in Part II, Item 8 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. AtNovember 30, 2022 and 2021, we had a total of$1.4 billion and$759.9 million , respectively, of trade accounts receivable sold to and held by financial institutions under these programs. Discount fees for these programs in the years endedNovember 30, 2022 and 2021 totaled$26.2 million and$4.7 million , respectively.
Contractual Obligations
We are contingently liable under agreements, without expiration dates, to repurchase repossessed inventory acquired by flooring companies as a result of default on floor plan financing arrangements by our customers. There have been no material repurchases throughNovember 30, 2022 under these agreements and we are not aware of any pending customer defaults or repossession obligations. As we do not have access to information regarding the amount of inventory purchased from us still on hand with the customer at any point in time, our repurchase obligations relating to inventory cannot be reasonably estimated. 45
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Critical Accounting Policies and Estimates
The discussions and analysis of our consolidated financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review and evaluate our estimates and assumptions. Our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies involve the more significant judgments, estimates and/or assumptions used in the preparation of our Consolidated Financial Statements.
Revenue Recognition.
We generate revenue primarily from the sale of various IT products.
We recognize 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. We account 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 our 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 us are delivered via shipment from our 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 we 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. We generally invoice 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% of the total revenue for the periods presented. 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. 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. We recognize revenue on a net basis on certain contracts, where our 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 we do 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. We consider 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.
Business Combinations.
We allocate the fair value of purchase consideration to the assets acquired,
liabilities assumed, and noncontrolling interests in the acquiree generally
based on their fair values at the acquisition date. The excess of the fair value
of purchase consideration over the fair value of these assets acquired,
liabilities assumed and noncontrolling interests in the acquiree is recorded as
goodwill and may involve engaging independent third-parties to perform an
appraisal. When determining the fair values of assets acquired, liabilities
assumed, and noncontrolling interests in the acquiree, we make significant
estimates and assumptions, especially with respect to intangible assets.
Critical estimates in valuing intangible assets include, but are not limited to,
expected future cash flows, which includes consideration of future growth rates
and margins, attrition rates, and discount rates. Fair value estimates are based
on the assumptions we believe a market participant would use in pricing the
asset or liability. Amounts recorded in a business combination may change during
the
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measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
The values assigned to intangible assets include estimates and judgment regarding expectations for the length of customer relationships acquired in a business combination. Included within intangible assets is an indefinite lived trade name intangible asset. Our indefinite lived trade name intangible asset is considered a single unit of accounting and is tested for impairment at the consolidated level annually as ofSeptember 1 , and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. No impairment of our indefinite lived trade name intangible asset has been identified for any of the periods presented. Other purchased intangible assets are amortized over the useful lives based on estimates of the use of the economic benefit of the asset or on the straight-line amortization method. We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination and test for impairment annually as ofSeptember 1 , or more frequently if events or changes in circumstances indicate that it may be impaired.Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. The factors that are considered in the qualitative analysis include macroeconomic conditions, industry and market considerations, cost factors such as increases in product cost, labor, or other costs that would have a negative effect on earnings and cash flows; and other relevant entity-specific events and information. We also have the option to bypass the qualitative assessment for any reporting unit in any period. If the reporting unit does not pass or we choose to bypass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. The assumptions used in the market approach are based on the value of a business through an analysis of sales and other multiples of guideline companies and recent sales or offerings of a comparable entity. The assumptions used in the discounted cash flow approach are based on historical and forecasted revenue, operating costs, working capital requirements, future economic conditions, discount rates, and other relevant factors. The assumptions used in the market and discounted cash flow approaches include inherent uncertainty and actual results could differ from these estimates.Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value and the excess is recognized as an impairment loss. We performed our annual goodwill impairment test as ofSeptember 1, 2022 and chose to bypass the qualitative assessment for all reporting units and proceed directly to the quantitative assessment, which indicated that the estimated fair values of ourEurope and APJ reporting units exceeded their carrying values by approximately 6% and 9%, respectively. The goodwill allocated to ourEurope and APJ reporting units as ofNovember 30, 2022 was approximately$1.3 billion and$74.8 million , respectively. If actual results in ourEurope or APJ reporting units are substantially lower than the projections used in our valuation methodology, if market discount rates substantially increase or our market capitalization substantially decreases, our future valuations could be adversely affected, potentially resulting in a future impairment. We review the recoverability of our long-lived assets, such as finite-lived intangible assets, property and equipment and certain other assets, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows, undiscounted and without interest charges, of the related operations. If these cash flows are less than the carrying value of such assets, an impairment loss is recognized for the difference between estimated fair value and carrying value.
Income taxes
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Tax on global low-taxed intangible income is accounted for as a current expense in the period in which the income is included in a tax return using the "period cost" method. Valuation allowances are provided against deferred tax assets that are not likely to be realized.
We recognize tax benefits from uncertain tax positions only if that tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
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recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. We recognize interest and penalties related to unrecognized tax benefits in the provision for income taxes.
Related Party Transactions
For a summary of related party transactions, see Note 1 4 - Related Party Transactions to the Consolidated Financial Statements included in Part II, Item 8 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 included in Part II, Item 8 of this Report.
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