01—Abstract
Summary
Summary of the 10-K filed January 27, 2009. Cited figures are marked; the original filing is the authoritative source.
SYNNEX Corporation, now TD SYNNEX Corporation, reported fiscal 2008 (year ended November 30, 2008) revenue of $7.77 billiona, up from $7.00 billion in fiscal 2007, with net income of $83.8 million compared with $63.1 million a year earlier.
Diluted EPS rose to $2.52b from $1.93. The company operates two segments: distribution services, which distributes IT products from more than 100 OEM suppliers to more than 15,000 resellers, and global business services (GBS), which provides contact center, web hosting, and domain registration services. Gross margin improved to 5.56% of revenue from 5.07%, and HP accounted for approximately 32% of total revenue.
Growth was supported by the April 2008 New Age Electronics acquisition and full-year effects of 2007 acquisitions. The balance sheet carries meaningful leverage: borrowings under securitization, term loans and lines of credit were $340.5 millionc, and the company issued $143.8 million of 4.0% convertible senior notes due 2018 in May 2008. Operating cash flow was $52.6 million, versus cash used in operations of $152.5 million in fiscal 2007, largely reflecting the change in the U.S. securitization arrangement.
Stockholders' equity increased to $679.8 milliond. MiTAC International and its affiliates beneficially owned approximately 40% of common stock, giving them significant influence over the company.
Key risks highlighted in the filing include low gross margins, dependence on a small number of OEM suppliers (particularly HP, whose agreement expires May 31, 2009), reliance on floor plan and securitization financing, exposure to China and other international operations, and related-party dependence on MiTAC International for contract assembly services to Sun Microsystems. Subsequent to year end, the company amended its U.S. receivables securitization program and senior secured revolver, reducing the revolver's maximum commitment to $80.0 million.
02—Key points
Key Highlights
- Revenue rose to $7.77 billion in fiscal 2008 from $7.00 billion in fiscal 2007, with distribution revenue at $7.67 billion and GBS revenue at $114.0 million.
- Net income increased to $83.8 million ($2.52 diluted EPS) from $63.1 million ($1.93 diluted EPS) in fiscal 2007.
- Gross profit was $431.9 million, or 5.56% of revenue, compared with 5.07% in fiscal 2007; income from operations before non-operating items was $151.8 million.
- HP accounted for approximately 32% of total revenue in fiscal 2008, and the U.S. Business Development Partner Agreement with HP expires May 31, 2009.
- The company issued $143.8 million of 4.0% convertible senior notes due 2018 in May 2008; total borrowings under term loans, convertible debt and lines of credit were $551.9 million.
- Operating cash flow was $52.6 million in fiscal 2008, compared with cash used in operating activities of $152.5 million in fiscal 2007.
- MiTAC International and its affiliates owned approximately 40% of common stock as of November 30, 2008, giving them significant influence over corporate matters.
03—Questions
Frequently Asked Questions
How did SYNNEX perform financially in fiscal 2008?
Revenue grew 10.9% to $7.77 billion, gross profit rose 21.5% to $431.9 million, and net income increased to $83.8 million from $63.1 million. The filing attributes growth primarily to the New Age acquisition and the full-year impact of 2007 acquisitions, with GBS operating margin improving to 11.42% of segment revenue.
What are the main sources of revenue and where does the company operate?
Distribution services generated $7.67 billion of revenue, distributing IT systems, peripherals, components, software and networking equipment, plus contract assembly for OEMs. GBS generated $114.0 million from contact center, web hosting and domain registration services. Approximately 98% of revenue came from North America, with the United States representing about 79% and Canada about 18%.
How concentrated is the company's supplier and customer base?
HP is the largest OEM supplier, representing approximately 32% of fiscal 2008 revenue, and the company distributes products from more than 100 OEM suppliers. No reseller customer accounted for more than 10% of revenue in fiscal 2008 or 2007. Some OEMs, including IBM, have consolidated their distribution, and the filing notes that IBM terminated its approval to market IBM System X products.
What debt and financing obligations should investors be aware of?
Borrowings under securitization, term loans and lines of credit totaled $340.5 million current and $8.5 million long-term, plus $143.8 million of 4.0% convertible senior notes due 2018 with an initial conversion price of approximately $29.42 per share. The U.S. securitization program allows up to $350.0 million in receivables sales. After year end, the company amended its U.S. securitization program, which now matures in January 2010, and reduced the maximum commitment on its senior secured revolver to $80.0 million.
What are the key risks described in the filing?
The filing highlights low gross margins, dependence on a small number of OEM suppliers and the expiration of the HP agreement on May 31, 2009, reliance on floor plan and securitization financing, exposure to operations in China and the Philippines, and dependence on MiTAC International for contract assembly services to Sun Microsystems. It also notes that MiTAC International's significant ownership creates potential conflicts of interest.
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