01—Abstract
Summary
Summary of the 10-K filed January 28, 2019. Cited figures are marked; the original filing is the authoritative source.
SYNNEX Corporation, now TD SYNNEX Corporation, reported fiscal 2018 (year ended November 30, 2018) revenue of $20.05 billiona, up from $17.05 billion in fiscal 2017, with net income attributable to SYNNEX of $300.6 million, or $7.19 diluted EPS, compared with $301.2 million, or $7.51 diluted EPS, in fiscal 2017.
Growth was driven by the Westcon-Comstor Americas acquisition in the Technology Solutions segment and the October 5, 2018 acquisition of Convergys in the Concentrix segment, which contributed approximately $439.4 millionb of revenue. Gross margin rose to 9.61% from 9.10%, while operating income increased to $551.0 million from $509.0 million, and selling, general and administrative expenses grew to 6.86% of revenue from 6.11%, largely from acquisition and amortization costs. Balance sheet and liquidity changed substantially.
Total assets rose to $11.48 billionc from $7.70 billion, and total borrowings reached $3.5 billion at November 30, 2018, excluding trade payables, with approximately $2.0 billion economically converted to fixed-rate debt through interest rate swaps. Cash from operations was $100.7 million, down from $176.8 million, mainly because of working capital investment in receivables and inventory. Interest expense and finance charges, net increased to $84.7 million from $45.4 million.
The cash conversion cycle lengthened to 52 days from 40 days. Management stated that current cash and credit availability are sufficient for at least the next twelve months. For investors, the key trade-offs are scale and diversification against higher leverage and integration risk.
The Convergys acquisition added a higher-margin services business, and management expects gross and operating margins to increase in fiscal 2019 as services revenue grows as a share of the total. The filing also discloses concentration risk: HP accounted for approximately 12%d of consolidated revenue, one customer accounted for 17%, and MiTAC Holdings and its affiliates owned approximately 18% of common stock. The company also disclosed lawsuits related to the Convergys merger, which it believes are without merit.
02—Key points
Key Highlights
- Revenue rose to $20.05 billion in fiscal 2018 from $17.05 billion in fiscal 2017, with Technology Solutions revenue of $17.61 billion and Concentrix revenue of $2.46 billion.
- Net income attributable to SYNNEX was $300.6 million, or $7.19 diluted EPS, compared with $301.2 million, or $7.51 diluted EPS, in fiscal 2017.
- Gross margin improved to 9.61% from 9.10%, and operating income increased to $551.0 million from $509.0 million.
- The Convergys acquisition closed on October 5, 2018 for a purchase price of $2.27 billion and contributed approximately $439.4 million of revenue in fiscal 2018.
- Total borrowings were $3.5 billion at November 30, 2018, and cash from operating activities fell to $100.7 million from $176.8 million, with the cash conversion cycle lengthening to 52 days from 40 days.
- HP accounted for approximately 12% of consolidated revenue, and one customer accounted for 17%.
- Quarterly cash dividends were $0.35 per share in fiscal 2018, up from $0.25 in the first three quarters of fiscal 2017, and a $0.375 dividend was announced on January 10, 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, TD Synnex kept $0.01.
- Revenue$20.05B100.0%
- Cost of revenue−$18.13B90.4%
- Gross profit$1.93B9.6%
- Operating costs−$1.38B6.9%
- Operating income$550.2M2.7%
- Interest, other & tax−$253.0M1.3%
- Net income$297.3M1.5%
Where FY2018 revenue went
$20.05B- Cost of revenue: $16.33B, 81% of revenue
- Net income: $297.3M, 1.5% of revenue
- SG&A: $1.38B, 6.9% of revenue
- Other operating costs: $1.80B, 9.0% of revenue
- Interest, other & tax: $253.0M, 1.3% of revenue
Kept 1.5% as net incomeNet income $297.3M · 1.5%Interest, other & tax $253.0M · 1.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed January 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $20.05B$16.77B | +19.6% |
| Cost of Revenue | $16.33B$1.23B | +1224.5% |
| Gross Profit | $1.93B$1.55B | +24.4% |
| SG&A Expenses | $1.38B$1.04B | +32.1% |
| Operating Income | $550.24M$507.34M | +8.5% |
| Interest Expense | $92.90M$47.37M | +96.1% |
| Net Income | $297.25M$297.46M | −0.1% |
| EPS (Basic) | $7.21$7.52 | −4.1% |
| EPS (Diluted) | $7.17$7.48 | −4.1% |
| Shares Outstanding (Basic) | 41.22M39.56M | +4.2% |
| Shares Outstanding (Diluted) | 41.45M39.76M | +4.3% |
05—Questions
Frequently Asked Questions
How much did the Convergys acquisition cost and what did it add to results?
The company acquired 100% of Convergys Corporation on October 5, 2018 for a purchase price of $2,269,527 thousand, or about $2.27 billion. The filing states that Convergys contributed approximately $439.4 million of revenue in fiscal 2018, and that the acquisition is related to the Concentrix segment. Consideration consisted of $1.21 billion in cash, $1.02 billion in stock, and $43.8 million in assumed stock awards.
Why did net income per share decline even though revenue grew?
Diluted EPS fell to $7.19 from $7.51, while net income attributable to SYNNEX was roughly flat at $300.6 million versus $301.2 million. The filing attributes higher interest expense to borrowings used to fund the Convergys acquisition, higher amortization of intangible assets, and acquisition-related and integration expenses of $45.1 million. A $33.1 million net tax expense from the Tax Cuts and Jobs Act also affected the results. Share count also increased, with weighted-average diluted shares rising to 41.45 million from 39.76 million.
How is the company's debt structured after the acquisition?
Total borrowings were $3.5 billion at November 30, 2018, excluding trade payables. The U.S. Term Loan Credit Agreement, maturing in October 2023, was used to fund the acquisition and the settlement of Convergys debt. The U.S. Credit Agreement, which includes a $600.0 million revolving facility, matures in September 2022. Approximately $2.0 billion of the outstanding borrowings was economically converted to fixed-rate debt through interest rate swaps. The company states that it was in compliance with all material covenants as of November 30, 2018.
What are the main concentration risks for investors?
HP accounted for approximately 12% of consolidated revenue in fiscal 2018, and one customer accounted for 17%. In the Technology Solutions segment, the company depends on a limited number of OEM suppliers under short-term agreements that may be terminated without cause. MiTAC Holdings and its affiliates beneficially owned approximately 18% of common stock as of November 30, 2018, which gives them significant influence over matters requiring stockholder approval. Approximately 28% of revenue was generated outside the United States.
What does management expect for future margins and cash flow?
The filing states that with the Convergys acquisition, products revenue and cost of revenue are expected to decrease as a percentage of total revenue in fiscal 2019, with corresponding increases in services revenue and cost of revenue. Gross margin and operating margin are expected to increase because of higher margins in the Concentrix segment. Management also states that current cash balances, credit availability and expected cash flows are sufficient to satisfy working capital and investment needs for the next twelve months.
06—Continue