01—Abstract
Summary
Summary of the 10-K filed January 29, 2020. Cited figures are marked; the original filing is the authoritative source.
SYNNEX Corporation reported fiscal 2019 (year ended November 30, 2019) revenue of $23.76 billiona, up 20.2% from $19.77 billion in fiscal 2018, with net income of $500.7 million, or $9.74 diluted EPS, versus $299.98 million, or $7.17, a year earlier.
Growth was driven by the full-year contribution of the Convergys acquisition, which was completed in October 2018 and forms the core of the Concentrix segment, which grew revenue 91.1% to $4.71 billionb. The Technology Solutions segment, which distributes IT and consumer electronics products, grew revenue 10.1% to $19.07 billion but operates at a low 2.72% operating margin, compared with Concentrix's 6.25%. Consolidated gross margin rose to 12.20% from 9.75%, and operating income rose 47.9% to $813.8 million.
The most significant development for investors is the January 9, 2020 announcement of a plan to separate the Concentrix segment into an independent publicly traded company, expected to be completed in the second half of 2020 and intended to qualify as tax-free. The filing states that products revenue is expected to decline by approximately $1.2 billionc in the second half of 2020 due to a customer moving to a consignment model, and that Concentrix's higher margins will leave the consolidated margin profile after the separation. Cash flow from operations improved to $549.9 million from $100.7 million, while total borrowings were about $3.0 billion at year-end, of which $2.0 billion was swapped to fixed rates.
The company also noted that about 34%d of fiscal 2019 consolidated revenue came from international operations and that HP accounted for about 12% of revenue and one customer accounted for 19%. Risk factors center on low distribution margins, dependence on a few OEM suppliers, concentration of Concentrix delivery in the Philippines and India, currency exposure, and the execution and tax risks of the separation. MiTAC Holdings and its affiliates own approximately 18% of common stock, which the filing says gives them significant influence over matters requiring stockholder approval.
02—Key points
Key Highlights
- Revenue rose 20.2% to $23.76 billion in fiscal 2019, while operating income rose 47.9% to $813.8 million.
- Concentrix segment revenue grew 91.1% to $4.71 billion, reflecting the full-year impact of the Convergys acquisition, and its operating margin was 6.25%.
- Technology Solutions revenue grew 10.1% to $19.07 billion, with an operating margin of 2.72%, and the filing describes this business as having low gross and operating margins.
- Diluted EPS was $9.74 versus $7.17 in fiscal 2018; net income was $500.7 million versus $300.0 million.
- Operating cash flow was $549.9 million, compared with $100.7 million in fiscal 2018, and the cash conversion cycle improved to 44 days from 48 days.
- On January 9, 2020, the company announced a plan to separate Concentrix into an independent publicly traded company, expected in the second half of 2020 and intended to be tax-free.
- Approximately $3.0 billion of borrowings were outstanding at November 30, 2019, and the company was in compliance with all material covenants.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, TD Synnex kept $0.03.
- Revenue$19.07B100.0%
- Cost of revenue−$17.91B93.9%
- Gross profit$1.16B6.1%
- Operating costs−$637.8M3.3%
- Operating income$519.4M2.7%
- Interest, other & tax−$18.7M0.1%
- Net income$500.7M2.6%
Where FY2019 revenue went
$19.07B- Cost of revenue: $17.91B, 94% of revenue
- Net income: $500.7M, 2.6% of revenue
- SG&A: $636.8M, 3.3% of revenue
Kept 2.6% as net incomeNet income $500.7M · 2.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed January 29, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $19.07B$20.05B | −4.9% |
| Cost of Revenue | $17.91B$16.33B | +9.7% |
| Gross Profit | $1.16B$1.93B | −39.9% |
| SG&A Expenses | $636.85M$1.38B | −53.7% |
| Operating Income | $519.43M$550.24M | −5.6% |
| Interest Expense | $172.78M$92.90M | +86.0% |
| Net Income | $500.71M$297.25M | +68.4% |
| EPS (Basic) | $9.79$7.21 | +35.8% |
| EPS (Diluted) | $9.74$7.17 | +35.8% |
| Shares Outstanding (Basic) | 50.67M41.22M | +22.9% |
| Shares Outstanding (Diluted) | 50.94M41.45M | +22.9% |
05—Questions
Frequently Asked Questions
Why did revenue and operating income grow so much in fiscal 2019?
The filing attributes most of the growth to the full-year impact of the Convergys acquisition, completed on October 5, 2018, which is part of the Concentrix segment. Concentrix revenue rose 91.1% to $4.71 billion. Technology Solutions revenue also grew 10.1%, driven mainly by system components, IT systems, networking equipment and peripherals in the United States.
What is the planned separation of Concentrix, and what does it mean for shareholders?
On January 9, 2020, the company announced a plan to spin off its Concentrix segment as an independent public company, expected to close in the second half of 2020. The filing says stockholders would own shares of both companies in the same percentage as their existing holdings, and the transaction is intended to be tax-free. Completion requires final board approval, a favorable tax opinion and an effective Form 10 registration statement, but no stockholder vote.
What changes in the business profile are expected after the separation?
The filing says Concentrix services revenue and related costs are expected to be discontinued after the separation, reducing gross profit, operating income and net income. Gross margin and operating margin are expected to decline because Concentrix earns higher margins. The filing also expects products revenue to fall by about $1.2 billion in the second half of 2020 due to a customer moving to a consignment model.
How concentrated is the company's revenue and supplier base?
One customer accounted for 19% of fiscal 2019 consolidated revenue, and HP, the largest OEM supplier, accounted for about 12%. The filing says OEM supplier agreements are typically short-term and terminable on short notice. It also states that the company does not believe the loss of any single customer would have a material adverse effect on the company as a whole.
What is the company's debt and liquidity position?
Borrowings totaled $3.0 billion at November 30, 2019, including the U.S. receivables securitization, U.S. credit agreement and U.S. term loan. Of that amount, $2.0 billion was economically converted to fixed rate through interest rate swaps. Cash and cash equivalents were $225.5 million, and management believes available cash and credit are sufficient for at least the next twelve months.
06—Continue