TD SYNNEX Corporation

10/03/2024 | Press release | Distributed by Public on 10/03/2024 14:03

Quarterly Report for Quarter Ending August 31, 2024 (Form 10-Q)

snx-20240831
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-Q
_______________________________________________________________________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2024
OR
o 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
_______________________________________________________________________
TD SYNNEX CORPORATION
(Exact name of registrant as specified in its charter)
_______________________________________________________________________
Delaware 94-2703333
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
44201 Nobel Drive, Fremont, California
94538
(Address of principal executive offices) (Zip Code)
(510) 668-3400
(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
Common Stock, par value $0.001 per share SNX The New York Stock Exchange
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. YesxNo 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). YesxNo 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.
Large accelerated filer x Accelerated filer o
Non-accelerated filer o Smaller reporting company o
Emerging growth company o
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 oNo 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 September 26, 2024
Common Stock, $0.001 par value 85,088,025
Table of Contents
TD SYNNEX CORPORATION
FORM 10-Q
INDEX
Page
PART I
FINANCIAL INFORMATION
3
Item 1.
Financial Statements
3
Consolidated Balance Sheets
3
Consolidated Statements of Operations
4
Consolidated Statements of Comprehensive Income
5
Consolidated Statements of Stockholders' Equity
6
Consolidated Statements of Cash Flows
7
Notes to the Consolidated Financial Statements
8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
27
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
44
Item 4.
Controls and Procedures
44
PART II
OTHER INFORMATION
45
Item 1A.
Risk Factors
45
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
45
Item 5.
Other Information
45
Item 6.
Exhibits
46
Signatures
47
2
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TD SYNNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(currency and share amounts in thousands, except par value)
(unaudited)
August 31, 2024 November 30, 2023
ASSETS
Current assets:
Cash and cash equivalents $ 853,923 $ 1,033,776
Accounts receivable, net 10,032,404 10,297,814
Receivables from vendors, net 863,382 964,334
Inventories 7,674,438 7,146,274
Other current assets 633,636 642,238
Total current assets 20,057,783 20,084,436
Property and equipment, net 477,419 450,024
Goodwill 3,951,771 3,904,170
Intangible assets, net 4,066,707 4,244,314
Other assets, net 653,867 729,870
Total assets $ 29,207,547 $ 29,412,814
LIABILITIES AND EQUITY
Current liabilities:
Borrowings, current $ 314,198 $ 983,585
Accounts payable 13,873,238 13,347,281
Other accrued liabilities 1,802,958 2,407,896
Total current liabilities 15,990,394 16,738,762
Long-term borrowings 3,736,004 3,099,193
Other long-term liabilities 450,364 498,656
Deferred tax liabilities 866,702 893,021
Total liabilities 21,043,464 21,229,632
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000 shares authorized, no shares issued or outstanding
- -
Common stock, $0.001 par value, 200,000 shares authorized, 99,012 shares issued as of both August 31, 2024 and November 30, 2023
99 99
Additional paid-in capital 7,458,088 7,435,274
Treasury stock, 14,742 and 10,343 shares as of August 31, 2024 and November 30, 2023, respectively
(1,436,868) (949,714)
Accumulated other comprehensive loss (452,241) (507,248)
Retained earnings 2,595,005 2,204,771
Total stockholders' equity 8,164,083 8,183,182
Total liabilities and equity $ 29,207,547 $ 29,412,814
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
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TD SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(currency and share amounts in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Revenue $ 14,684,712 $ 13,960,615 $ 42,607,873 $ 43,148,110
Cost of revenue (13,723,664) (12,989,342) (39,667,512) (40,209,860)
Gross profit 961,048 971,273 2,940,361 2,938,250
Selling, general and administrative expenses (657,513) (659,454) (2,000,772) (1,987,375)
Acquisition, integration and restructuring costs (656) (71,586) (70,190) (159,597)
Operating income 302,879 240,233 869,399 791,278
Interest expense and finance charges, net (80,447) (67,703) (233,039) (222,188)
Other expense, net (1,518) (2,371) (7,493) (6,691)
Income before income taxes 220,914 170,159 628,867 562,399
Provision for income taxes (42,358) (30,897) (134,578) (123,030)
Net income $ 178,556 $ 139,262 $ 494,289 $ 439,369
Earnings per common share:
Basic $ 2.09 $ 1.49 $ 5.70 $ 4.67
Diluted $ 2.08 $ 1.49 $ 5.67 $ 4.66
Weighted-average common shares outstanding:
Basic 84,510 92,590 85,937 93,400
Diluted 84,937 92,881 86,323 93,676
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
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TD SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(currency in thousands)
(unaudited)
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Net income $ 178,556 $ 139,262 $ 494,289 $ 439,369
Other comprehensive income:
Unrealized gains on cash flow hedges during the period, net of tax expense of $0 for both the three months ended August 31, 2024 and 2023, respectively, and $0 and $(235) for the nine months ended August 31, 2024 and 2023, respectively
- - - 702
Reclassification of net (gains) on cash flow hedges to net income, net of tax expense of $0 and $880 for the three months ended August 31, 2024 and 2023, respectively, and $0 and $1,766 for the nine months ended August 31, 2024 and 2023, respectively
- (2,756) - (5,453)
Total change in unrealized losses on cash flow hedges, net of taxes
- (2,756) - (4,751)
Foreign currency translation adjustments and other, net of tax benefit of $3,487 and $2,807 for the three months ended August 31, 2024 and 2023, respectively, and $2,829 and $6,355 for the nine months ended August 31, 2024 and 2023, respectively
100,043 77,802 55,007 224,501
Reclassification of net foreign currency translation adjustment realized upon sale of foreign subsidiary, net of tax expense of $0 for both the three and nine months ended August 31, 2024 and 2023, respectively
- (578) - (578)
Other comprehensive income 100,043 74,468 55,007 219,172
Comprehensive income $ 278,599 $ 213,730 $ 549,296 $ 658,541
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
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TD SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(currency in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Total Stockholders' equity, beginning balance $ 7,956,460 $ 8,268,770 $ 8,183,182 $ 8,025,506
Common stock and additional paid-in capital:
Beginning balance 7,446,928 7,422,815 7,435,373 7,374,199
Share-based compensation 16,176 20,442 47,096 63,724
Common stock issued and treasury stock reissued for employee benefit plans
(4,917) (1,509) (24,282) 3,825
Ending balance 7,458,187 7,441,748 7,458,187 7,441,748
Treasury stock:
Beginning balance (1,388,845) (521,157) (949,714) (337,217)
Repurchases of common stock for tax withholdings on equity awards (1,441) (828) (7,728) (8,593)
Reissuance of treasury stock for employee benefit plans 10,450 3,803 35,322 3,803
Repurchases of common stock (57,032) (103,978) (514,748) (280,153)
Ending balance (1,436,868) (622,160) (1,436,868) (622,160)
Retained earnings:
Beginning balance 2,450,661 1,942,118 2,204,771 1,708,234
Net income 178,556 139,262 494,289 439,369
Cash dividends declared (34,212) (32,682) (104,055) (98,905)
Ending balance 2,595,005 2,048,698 2,595,005 2,048,698
Accumulated other comprehensive loss:
Beginning balance (552,284) (575,006) (507,248) (719,710)
Other comprehensive income 100,043 74,468 55,007 219,172
Ending balance (452,241) (500,538) (452,241) (500,538)
Total stockholders' equity, ending balance $ 8,164,083 $ 8,367,748 $ 8,164,083 $ 8,367,748
Cash dividends declared per share $ 0.40 $ 0.35 $ 1.20 $ 1.05
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
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TD SYNNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(currency in thousands)
(unaudited)
Nine Months Ended
August 31, 2024 August 31, 2023
Cash flows from operating activities:
Net income $ 494,289 $ 439,369
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 305,094 314,917
Share-based compensation
47,096 63,724
Provision for doubtful accounts
2,040 30,338
Other 8,927 (5,505)
Changes in operating assets and liabilities, net of acquisition of businesses:
Accounts receivable, net 307,690 724,701
Receivables from vendors, net 104,152 11,933
Inventories (488,505) 1,704,394
Accounts payable 464,199 (1,777,131)
Other operating assets and liabilities (589,199) (310,035)
Net cash provided by operating activities 655,783 1,196,705
Cash flows from investing activities:
Purchases of property and equipment
(126,052) (107,417)
Acquisition of businesses, net of cash acquired
(32,422) -
Settlement of net investment hedges
(14,840) (556)
Other (8,259) (5,184)
Net cash used in investing activities (181,573) (113,157)
Cash flows from financing activities:
Dividends paid
(104,055) (98,905)
Proceeds from issuance of common stock and reissuances of treasury stock
11,040 7,628
Repurchases of common stock
(509,881) (277,760)
Repurchases of common stock for tax withholdings on equity awards
(7,728) (8,593)
Net borrowings (repayments) on revolving credit loans
105,289 (27,457)
Principal payments on long-term debt (1,485,608) (52,746)
Borrowings on long term debt
1,349,376 51,837
Cash paid for debt issuance costs
(13,869) -
Other - 375
Net cash used in financing activities (655,436) (405,621)
Effect of exchange rate changes on cash and cash equivalents
1,373 50,089
Net (decrease) increase in cash and cash equivalents (179,853) 728,016
Cash and cash equivalents at beginning of period
1,033,776 522,856
Cash and cash equivalents at end of period
$ 853,923 $ 1,250,872
(Amounts may not add or compute due to rounding)
The accompanying Notes are an integral part of these Consolidated Financial Statements (unaudited).
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(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 "TD SYNNEX", "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").
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 August 31, 2024 and for the three and nine months ended August 31, 2024 and August 31, 2023 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 U.S. 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, 2023.
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, 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.
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 August 31, 2024, the Company has not experienced any material credit losses on such deposits and derivative instruments.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
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 Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Apple, Inc. 11 % 10 % 12 % 10 %
Cisco Systems, Inc.
N/A (1)
10 %
N/A (1)
N/A (1)
HP Inc.
N/A (1)
10 %
N/A (1)
N/A (1)
_________________________
(1) Revenue generated from products purchased from this vendor was less than 10% of consolidated revenue during the period presented.
One customer accounted for 13% and 12% of the Company's total revenue during the three and nine months ended August 31, 2024, respectively. One customer accounted for 11% of the Company's total revenue during both the three and nine months ended August 31, 2023. As of August 31, 2024 and November 30, 2023, 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 accounts receivable purchase agreements 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 August 31, 2024 and November 30, 2023, accounts receivable sold to and held by the financial institutions under these programs were $1.0 billion and $864.6 million, 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 $16.4 million and $49.0 million in the three and nine months ended August 31, 2024, respectively, and $12.5 million and $36.2 million for the three and nine months ended August 31, 2023, respectively.
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.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
The Company recognizes revenue 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. In relation to product support, supply chain management and other services performed by the Company, revenue is recognized over time as the services are performed. Service revenue 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 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, extended warranty contracts and certain of the Company's systems design and integration solutions arrangements which operate under a customer-owned procurement model.
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.
The Company disaggregates its operating segment revenue by geography, which the Company believes provides a meaningful depiction of the nature of its revenue. Disaggregated revenue disclosure is presented in Note 12- Segment Information.
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.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Recently Adopted Accounting Pronouncements
In September 2022, the FASB issued an accounting standards update, ASU 2022-04, which requires new enhanced disclosures by the buyer in supplier finance programs. Disclosures 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 Company adopted this standard during the fiscal quarter ended February 29, 2024, except for the rollforward requirement which will be effective for the Company beginning with the quarter ending February 28, 2025. The adoption of the new standard did not have an impact on the Company's results of operations, financial condition, or cash flows. For the required disclosures of key terms and amounts outstanding under the Company's supplier finance programs, see Note 11- Supplier Finance Programs.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued an accounting standards update, ASU 2023-07, which requires the following enhanced segment disclosures on an annual and interim basis: (1) significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, (2) other segment items by reportable segment and a description of its composition, and (3) the title of the chief operating decision maker, an explanation of how they use the reported measures of segment profit/loss in assessing segment performance and decide how to allocate resources, as well as clarifications if they use more than one measure of a segment's profit or loss in assessing segment performance. The amendments in ASU 2023-07 are effective for annual periods beginning after December 15, 2023, which for the Company would be for the fiscal year ending November 30, 2025, and for subsequent interim periods. Early adoption is permitted. The Company is currently evaluating the impact the new accounting standard will have on its segment reporting disclosures in the notes to the consolidated financial statements.
In December 2023, the FASB issued an accounting standards update, ASU 2023-09, which requires enhanced income tax disclosures. The enhanced disclosures required include disclosure of specific categories and disaggregation of information in the rate reconciliation table. ASU 2023-09 also requires disclosure of disaggregated information related to income taxes paid, income or loss from continuing operations before income tax expense or benefit, and income tax expense or benefit from continuing operations. The amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024, which for the Company would be the fiscal year ending November 30, 2026. Early adoption is permitted and the amendments should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the impact the new accounting standard will have on its income tax disclosures in the notes to the consolidated financial statements.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 3-ACQUISITION, INTEGRATION AND RESTRUCTURING COSTS:
Acquisition, integration and restructuring costs are primarily comprised of costs related to the Merger (as defined below) and costs related to the Global Business Optimization 2 Program initiated by Tech Data Corporation prior to the Merger (the "GBO 2 Program") of $3.9 million during the nine months ended August 31, 2024 and $3.0 million and $9.0 million during the three and nine months ended August 31, 2023, respectively. Acquisition, integration and restructuring costs related to other acquisitions were $0.7 millionand $1.9 million during the three and nine months ended August 31, 2024, respectively. The Company does not expect to incur additional costs under the GBO 2 Program in future periods.
The Merger
On March 22, 2021, the Company 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 Company has substantially completed the acquisition, integration and restructuring activities related to the Merger. Therefore, there were no material related expenses recorded within acquisition, integration and restructuring costs for the three months ended August 31, 2024 and there are no material expenses expected in future periods. The Company previously 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 include accelerated depreciation and amortization expense of $5.5 million recorded during the nine months ended August 31, 2024 and $4.7 million and $16.2 million recorded during the three and nine months ended August 31, 2023, respectively, due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, along with $17.0 million recorded during the nine months ended August 31, 2024 and $0.4 million and $12.9 million recorded during the three and nine months ended August 31, 2023, respectively, 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.
In July 2023, the Company offered a voluntary severance program ("VSP") to certain co-workers in the U.S. as part of the Company's cost optimization efforts related to the Merger. The Company incurred $10.1 million of costs in connection with the VSP during the nine months ended August 31, 2024, including $8.0 million of severance costs and $2.1 million of duplicative labor costs, and $37.2 million during the three and nine months ended August 31, 2023, including $30.0 million of severance costs and $7.2 million of duplicative labor costs.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
During the three and nine months ended August 31, 2024 and August 31, 2023, acquisition and integration expenses related to the Merger were composed of the following:
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
(currency in thousands)
Professional services costs $ - $ 5,036 $ 16,456 $ 16,157
Personnel and other costs - 9,430 15,279 33,712
Long-lived assets charges and termination fees - 5,078 22,533 29,067
Stock-based compensation - 11,912 - 34,472
Voluntary severance program costs
- 37,178 10,113 37,178
Total $ - $ 68,634 $ 64,381 $ 150,586
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 outside directors, including employee stock options, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance-based RSUs ("PRSUs") 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 nine months ended August 31, 2024.
A summary of the changes in the Company's stock options is set forth below:
(shares in thousands)
Stock options
Balances as of November 30, 2023
594
Exercised (96)
Balances as of August 31, 2024
498
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(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:
(shares in thousands)
RSAs and RSUs
Non-vested as of November 30, 2023
1,307
Granted 199
Vested (218)
Attainment adjustments(1)
(16)
Cancelled
(52)
Non-vested as of August 31, 2024
1,220
__________________
(1) During the nine months ended August 31, 2024, the attainment on PRSUs vested was adjusted to reflect actual performance.
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 Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
(currency in thousands)
Selling, general and administrative expenses $ 16,176 $ 8,530 $ 47,096 $ 29,252
Acquisition, integration and restructuring costs - 2,312 - 5,290
Total share-based compensation expense $ 16,176 $ 10,842 $ 47,096 $ 34,542
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 vested over two years.
The restricted shares had a fair value of $127.60 per share upon closing of the Merger which was recorded as share-based compensation expense on a straight-line basis over the vesting period in "Acquisition, integration, and restructuring costs" in the Consolidated Statement of Operations. Vesting of the restricted shares was completed as of September 1, 2023, therefore there was no related share-based compensation expense recorded by the Company during the three or nine months ended August 31, 2024. The Company recorded $9.6 million and $29.2 million of share-based compensation expense related to these restricted shares in "Acquisition, integration, and restructuring costs" during the three and nine months ended August 31, 2023, respectively.
NOTE 5-STOCKHOLDERS' EQUITY:
Share Repurchase Program
In January 2023, the Board of Directors authorized a three-year $1.0 billion share repurchase program. In March 2024, the Board of Directors authorized a new $2.0 billion share repurchase program (the "March 2024 share repurchase program"), supplementing the $196.7 million remaining authorization under the prior 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, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The March 2024 share repurchase program does not have an expiration date.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
On January 31, 2024, March 27, 2024, and April 4, 2024, the Company announced the closing of secondary public offerings (the "Offerings"), of an aggregate of 26.2 million shares in total (which includes approximately 2.7 million of additional shares that underwriters had the option to purchase) 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 Offerings 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 Offerings. Also pursuant to the related underwriting agreements, the Company repurchased a total of 3.6 million shares of its common stock from the respective underwriters as part of the Offerings, for a total purchase price in the aggregate of approximately $392.3 million (the "Concurrent Share Repurchases"). The Offerings reduced the Selling Stockholders' ownership interest in the Company to zero.
The Concurrent Share Repurchases were all made under the Company's share repurchase programs described above, and are included within the caption "Shares of treasury stock purchased under share repurchase program" in the table below.
As of August 31, 2024, the Company had $1.9 billion available for future repurchases of its common stock under the March 2024 share repurchase program.
The Company's common share repurchase activity for the nine months ended August 31, 2024 is summarized as follows:
(shares in thousands, except per share amounts)
Shares Weighted-average price per share
Treasury stock balance as of November 30, 2023
10,343 $ 91.82
Shares of treasury stock repurchased under share repurchase program(1)
4,701 108.47
Shares of treasury stock repurchased for tax withholdings on equity awards 72 106.63
Shares of treasury stock reissued for employee benefit plans (374) 94.38
Treasury stock balance as of August 31, 2024
14,742 $ 97.47
_________________________
(1)Weighted-average price per share excludes broker's commissions and excise taxes. "Repurchases of common stock" in the Consolidated Statements of Cash Flows for the nine months ended August 31, 2024 excludes amounts related to accrued excise tax that is included in "Other current liabilities" and "Treasury stock" on the Consolidated Balance Sheets at August 31, 2024. Excise taxes when paid are classified as operating activities in the Consolidated Statements of Cash Flows.
Dividends
On September 26, 2024, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.40 per common share payable on October 25, 2024 to stockholders of record as of the close of business on October 11, 2024. Dividends are subject to continued capital availability and the declaration by the Board of Directors in the best interest of the Company's stockholders.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
NOTE 6-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 Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
(currency and share amounts in thousands, except per share amounts)
Basic earnings per common share:
Net income attributable to common stockholders(1)
$ 176,927 $ 138,260 $ 489,818 $ 436,069
Weighted-average number of common shares - basic 84,510 92,590 85,937 93,400
Basic earnings per common share $ 2.09 $ 1.49 $ 5.70 $ 4.67
Diluted earnings per common share:
Net income attributable to common stockholders(1)
$ 176,934 $ 138,263 $ 489,833 $ 436,076
Weighted-average number of common shares - basic 84,510 92,590 85,937 93,400
Effect of dilutive securities:
Stock options and RSUs 427 291 386 276
Weighted-average number of common shares - diluted 84,937 92,881 86,323 93,676
Diluted earnings per common share $ 2.08 $ 1.49 $ 5.67 $ 4.66
Anti-dilutive shares excluded from diluted earnings per share calculation 66 303 141 282
_________________________
(1) RSAs granted by the Company are considered participating securities. Income available to participating securities was immaterial in all periods presented.
NOTE 7-BALANCE SHEET COMPONENTS:
Accounts receivable, net:
The following table summarizes accounts receivable, net:
As of
August 31, 2024 November 30, 2023
(currency in thousands)
Accounts receivable $ 10,150,086 $ 10,448,567
Less: Allowance for doubtful accounts (117,682) (150,753)
Accounts receivable, net $ 10,032,404 $ 10,297,814
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
Receivables from vendors, net:
The following table summarizes receivables from vendors, net:
As of
August 31, 2024 November 30, 2023
(currency in thousands)
Receivables from vendors $ 872,033 $ 976,453
Less: Allowance for doubtful accounts (8,651) (12,119)
Receivables from vendors, net $ 863,382 $ 964,334
Allowance for doubtful trade receivables:
The following table summarizes the changes to the allowance for doubtful trade receivables (currency in thousands):
Balance as of November 30, 2023
$ 150,753
Additions 2,040
Write-offs, recoveries, reclassifications and foreign exchange translation (35,111)
Balance as of August 31, 2024
$ 117,682
Allowance for receivables from vendors:
The following table summarizes the changes to the allowance for receivables from vendors (currency in thousands):
Balance as of November 30, 2023
$ 12,119
Charged to income
(3,402)
Write-offs, recoveries, reclassifications and foreign exchange translation (66)
Balance as of August 31, 2024
$ 8,651
NOTE 8-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 accumulated other comprehensive income (loss) ("AOCI") in the Consolidated Balance Sheets, as discussed below.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
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. 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. The Company terminated its remaining interest rate swaps in May 2023 and had no interest rate swaps designated as cash flow hedges outstanding as of August 31, 2024.
Net Investment Hedges
The Company has entered into foreign currency forward contracts, as well as foreign currency forward contracts combined with zero cost foreign exchange collar 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, which 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, are included within the "Foreign currency translation adjustments and other" caption on the Consolidated Statements of Comprehensive Income. 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.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(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 9- Fair Value Measurements and summarized in the table below:
Value as of
Balance Sheet Line Item (currency in thousands)
August 31, 2024 November 30, 2023
Derivative instruments not designated as hedging instruments:
Foreign exchange forward contracts (notional value) $ 1,597,525 $ 1,456,110
Other current assets 9,025 4,326
Other accrued liabilities 12,458 9,756
Derivative instruments designated as net investment hedges:
Foreign currency forward contracts (notional value) $ 687,475 $ 516,250
Other accrued liabilities 547 18,335
Other long-term liabilities 21,116 18,041
Foreign exchange collar contracts (notional value) $ 300,000 $ -
Other long-term assets 40 -
Other long-term liabilities 708 -
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 of foreign exchange collar contracts represent the amounts of put and call options to sell or purchase Euros at a predetermined strike price. 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.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(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 Nine Months Ended
Location of Gains (Losses) in Income August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
(currency in thousands)
Derivative instruments not designated as hedging instruments:
(Losses) gains recognized from foreign exchange contracts, net⁽¹⁾ Cost of revenue $ (5,699) $ (18,603) $ 749 $ (43,115)
(Losses) gains recognized from foreign exchange contracts, net⁽¹⁾ Other expense, net (2,210) 2,044 (444) (3,181)
Total $ (7,909) $ (16,559) $ 305 $ (46,296)
Derivative instruments designated as cash flow hedges:
Gains recognized in OCI on interest rate swaps $ - $ - $ - $ 937
Gains on interest rate swaps reclassified from AOCI into income Interest expense and finance charges, net $ - $ 3,636 $ - $ 7,219
Derivative instruments designated as net investment hedges:
Losses recognized in OCI on foreign exchange forward contracts $ (12,660) $ (12,580) $ (8,088) $ (27,237)
Gains recognized in income (amount excluded from effectiveness testing) Interest expense and finance charges, net $ 3,122 $ 2,303 $ 7,766 $ 6,889
Losses recognized in OCI on foreign exchange collar contracts(2)
$ (668) $ - $ (668) $ -
____________________________
(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 foreign exchange collar contracts outstanding during the three and nine months ended August 31, 2023.
Except for the net investment hedge amounts shown above, there were no gain or loss amounts excluded from the assessment of effectiveness. There are no existing gains or losses in AOCI expected to be reclassified into earnings in the normal course of business within the next 12 months.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
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 9-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
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).
The following table summarizes the valuation of the Company's financial instruments that are measured at fair value on a recurring basis:
As of August 31, 2024
As of November 30, 2023
Fair value measurement category Fair value measurement category
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
(currency in thousands)
Assets:
Forward foreign currency exchange contracts not designated as hedges $ 9,025 $ - $ 9,025 $ - $ 4,326 $ - $ 4,326 $ -
Foreign exchange collar contracts designated as net investment hedges(1)
40 - 40 - - - - -
Liabilities:
Forward foreign currency exchange contracts not designated as hedges $ 12,458 $ - $ 12,458 $ - $ 9,756 $ - $ 9,756 $ -
Forward foreign currency exchange contracts designated as net investment hedges 21,663 - 21,663 - 36,376 - 36,376 -
Foreign exchange collar contracts designated as net investment hedges(1)
708 - 708 - - - - -
(1) The company had no foreign exchange collar contracts outstanding as of November 30, 2023.
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. The fair values of foreign exchange collar contracts are measured using the cash flows of the contracts, discount rates to account for the passage of time, implied volatility and current foreign exchange market data, which are all based on inputs readily available in public markets. The effect of nonperformance risk on the fair value of derivative instruments was not material as of August 31, 2024 and November 30, 2023.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
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 $2.3 billion and $2.2 billion as of August 31, 2024 and November 30, 2023, respectively.
During the nine months ended August 31, 2024, there were no transfers between the fair value measurement category levels.
NOTE 10-BORROWINGS:
Borrowings consist of the following:
As of
August 31, 2024 November 30, 2023
(currency in thousands)
TD SYNNEX U.S. Accounts Receivable Securitization Agreement
$ 31,000 $ -
Current portion of TD SYNNEX Senior Notes
- 700,000
Current portion of term loans
- 75,000
Other short-term borrowings
283,198 208,694
Short-term borrowings before debt discount and issuance costs
$ 314,198 $ 983,694
Less: current portion of unamortized debt discount and issuance costs
- (109)
Borrowings, current $ 314,198 $ 983,585
Term loans
$ 1,331,250 $ 1,275,000
TD SYNNEX Senior Notes 2,400,000 1,800,000
Other credit agreements and long-term debt 25,744 41,985
Long-term borrowings, before unamortized debt discount and issuance costs $ 3,756,994 $ 3,116,985
Less: unamortized debt discount and issuance costs (20,990) (17,792)
Long-term borrowings $ 3,736,004 $ 3,099,193
TD SYNNEX U.S. Accounts Receivable Securitization Arrangement
In the U.S., 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, as amended December 11, 2023, March 29, 2024 and August 1, 2024, 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 2025. 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 SOFR. In addition, a program fee payable on the used portion of the lenders' commitment accrues at 0.85% per annum. A facility fee is payable on the adjusted commitment of the lenders, to accrue at different tiers ranging between0.30% per annum and 0.40% per annum depending on the amount of outstanding advances from time to time.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
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 $3.5 billion and $3.4 billion as of August 31, 2024 and November 30, 2023, 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 borrowed under the U.S. AR Arrangement are recorded as debt on the Company's Consolidated Balance Sheets. There was $31.0 million outstanding under the U.S. AR Arrangement at August 31, 2024 at an interest rate of 6.21%. There were no amounts outstanding under the U.S. AR Arrangement at November 30, 2023.
TD SYNNEX Credit Agreement
The Company is party to an amended and restated credit agreement, dated as of April 16, 2024 (as amended, 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 August 31, 2024 or November 30, 2023. The TD SYNNEX Credit Agreement also includes a senior unsecured term loan (the "TD SYNNEX Term Loan") in an original aggregate principal amount of $1.5 billion, that was fully funded in connection with the closing of the Merger. The borrowers under the TD SYNNEX Credit Agreement are TD SYNNEX Corporation and certain subsidiaries of the Company. The maturity of the TD SYNNEX Term Loan is on the fifth anniversary of the September 2021 closing date, to occur in September 2026. As amended, the TD SYNNEX Revolving Credit Facility will mature on April 16, 2029, subject, in the lender's discretion, to twoone-year extensions upon the Company's prior notice to the lenders. There was $581.3 million and $1.4 billion outstanding on the TD SYNNEX Term Loan as of August 31, 2024 and November 30, 2023, respectively.
Loans borrowed under the TD SYNNEX Credit Agreement bear interest at a per annum rate equal to the applicable SOFR rate, plus 0.100% credit spread adjustment, plus the applicable margin, which may range from 1.000% to 1.750%, for borrowings under the TD SYNNEX Revolving Credit Facility and 1.125% to 1.750% for the TD SYNNEX Term Loan, in each case based on the Company's Public Debt Rating (as defined in the TD SYNNEX Credit Agreement). The applicable margin on base rate loans is 1.00% less than the corresponding margin on SOFR rate based loans. In addition to these borrowing rates, there is a commitment fee that ranges from 0.100% to 0.300% on any unused commitment under the TD SYNNEX Revolving Credit Facility based on the Company's Public Debt Rating. The effective interest rate for the TD SYNNEX Term Loan was 6.72% and 6.82% as of August 31, 2024 and November 30, 2023, respectively.
TD SYNNEX Term Loan Credit Agreement
On April 19, 2024, the Company entered into a Term Loan Credit Agreement (the "2024 Term Loan Credit Agreement") with the initial lenders party thereto, Bank of America N.A., as administrative agent for the lenders, and BOFA Securities, Inc. as lead arranger and lead bookrunner. The 2024 Term Loan Credit Agreement provides for a senior unsecured term loan in an aggregate principal amount of $750.0 million (the "2024 Term Loan"). The proceeds from the 2024 Term Loan were used to repay a portion of the TD SYNNEX Term Loan. The borrower under the 2024 Term Loan is the Company. The 2024 Term Loan will mature on September 1, 2027.
Loans borrowed under the 2024 Term Loan Credit Agreement bear interest at a per annum rate equal to the applicable SOFR rate, plus 0.10% credit spread adjustment, plus the applicable margin, which may range from 1.000% to 1.625%, based on the Company's Public Debt Rating (as defined in the 2024 Term Loan Credit Agreement). The effective interest rate for the 2024 Term Loan was 6.60% as of August 31, 2024.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
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 1.250% senior notes due August 9, 2024 which were repaid at maturity, $700.0 million of 1.750% senior notes due August 9, 2026, $600.0 million of 2.375% senior notes due August 9, 2028, and $500.0 million of 2.650% senior notes due August 9, 2031 (collectively, the "Senior Notes," and such offering, the "Senior Notes Offering"). The Company pays interest semi-annually on the notes on each of February 9 and August 9. 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).
In July 2022, the Company completed an offer to exchange (the "Exchange Offer") its outstanding unregistered Senior Notes for new registered notes (the "Exchange Notes"). The aggregate principal amount of Exchange Notes that were issued was equal to the aggregate principal amount of Senior Notes that were surrendered pursuant to the Exchange Offer. The terms of the Exchange Notes are substantially identical to the terms of the respective series of the Senior Notes, except that the Exchange Notes are registered under the Securities Act, and certain transfer restrictions, registration rights, and additional interest provisions relating to the Senior Notes do not apply to the Exchange Notes.
On April 12, 2024, the Company issued and sold $600.0 million of 6.100% senior notes due April 12, 2034 (the "2034 Senior Notes" and such offering, the "2034 Senior Notes Offering"). The Company will pay interest semi-annually on the 2034 Senior Notes on each of April 12 and October 12, commencing on October 12, 2024. The Company incurred $6.1 million towards issuance costs on the 2034 Senior Notes. The Company used the net proceeds from the 2034 Senior Notes Offering, together with other available funds, to repay the $700.0 million aggregate principal amount of the 1.250% Senior Notes that were due August 9, 2024 and for general corporate purposes. References to the collective Senior Notes hereafter also include the 2034 Senior Notes.
The Company may redeem the outstanding Senior Notes, in whole or in part, at any time and from time to time, prior to (i) July 9, 2026 (the "2026 Par Call Date") in the case of the 2026 Senior Notes, (ii) June 9, 2028 (the "2028 Par Call Date") in the case of the 2028 Senior Notes, (iii) May 9, 2031 in the case of the 2031 Senior Notes (the "2031 Par Call Date") and (iv) January 12, 2034 in the case of the 2034 Senior Notes (the "2034 Par Call Date" and, together with the 2026 Par Call Date, the 2028 Par Call Date, and the 2031 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, in each case discounted to the date of redemption (assuming the applicable Senior Notes matured on the applicable Par Call Date) on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a rate equal to the sum of the applicable treasury rate (as defined in the supplemental indenture establishing the terms of the applicable Senior Notes) plus 20 basis points for the 2026 Senior Notes, 25 basis points for the 2028 Senior Notes and 2031 Senior Notes and 30 basis points for the 2034 Senior Notes, plus in each case, accrued and unpaid interest thereon to, but excluding, the redemption date. The Company may also redeem the Senior Notes of any series at its option, in whole or in part, at any time and from time to time on or after the applicable Par Call Date, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed.
Other Short-Term Borrowings
The Company has various other committed and uncommitted lines of credit with financial institutions, short-term loans, term loans, credit facilities and book overdraft facilities, totaling approximately $580.9 million in borrowing capacity as of August 31, 2024. Most of these facilities are provided on a 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 $283.2 million outstanding on these facilities at August 31, 2024, at a weighted average interest rate of 6.83%, and there was $208.7 million outstanding at November 30, 2023, at a weighted average interest rate of 7.52%. Borrowings under these lines of credit facilities are guaranteed by the Company or secured by eligible accounts receivable.
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(Except per share amounts or as otherwise indicated, currency and share amounts in thousands)
(unaudited)
At August 31, 2024, the Company was also contingently liable for reimbursement obligations with respect to issued standby letters of credit in the aggregate outstanding amount of $45.1 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 U.S. dollars at August 31, 2024 exchange rates.
Covenant Compliance
The Company's credit facilities have a number of covenants and restrictions that require the Company to maintain specified financial ratios, including 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 covenants also limit the Company's ability to incur additional debt, create liens, enter into agreements with affiliates, modify the nature of the Company's business, and merge or consolidate. As of August 31, 2024, the Company was in compliance with the financial covenant requirements for the above arrangements.
NOTE 11 - SUPPLIER FINANCE PROGRAMS:
The Company has certain agreements with third-party financial institutions ("supplier finance programs"), which facilitate the participating vendors' ability to sell their receivables from the Company to the third-party financial institutions, at the sole discretion of these vendors. The Company is not party to the agreements between the vendor and the third-party financial institution. As part of these arrangements, the Company generally receives more favorable payment terms from its vendors. The Company's rights and obligations to its vendors, including amounts due, are generally not impacted by supplier finance programs. However, the Company agrees to make all payments to the third-party financial institutions, and the Company's right to offset balances due from vendors against payment obligations is restricted by the agreements for those payment obligations that have been sold by the respective vendors. The Company generally does not incur any fees under supplier finance programs; however, the Company did recognize an immaterial amount of fees during the three and nine months ended August 31, 2024 within "Cost of revenue" in the Company's Consolidated Statements of Operations related to an arrangement with a certain vendor. As of August 31, 2024 and November 30, 2023, the Company had $2.6 billion and $2.7 billion, respectively, in obligations outstanding under these programs included in "Accounts payable" in the Company's Consolidated Balance Sheets and all activity related to the obligations is presented within operating activities in the Consolidated Statements of Cash Flows.
NOTE 12-SEGMENT INFORMATION:
Summarized financial information related to the Company's reportable business segments for the periods presented is shown below:
Americas Europe APJ Consolidated
(currency in thousands)
Three Months Ended August 31, 2024
Revenue $ 9,090,011 $ 4,591,161 $ 1,003,540 $ 14,684,712
Operating income 220,900 57,415 24,564 302,879
Three Months Ended August 31, 2023
Revenue $ 8,879,585 $ 4,227,590 $ 853,440 $ 13,960,615
Operating income 192,606 29,531 18,096 240,233
Nine Months Ended August 31, 2024
Revenue $ 25,550,680 $ 14,135,188 $ 2,922,005 $ 42,607,873
Operating income 589,866 200,100 79,433 869,399
Nine Months Ended August 31, 2023
Revenue $ 26,217,631 $ 14,209,488 $ 2,720,991 $ 43,148,110
Operating income 559,370 157,793 74,115 791,278
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TD SYNNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended August 31, 2024 and 2023
(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 the Company, on another distributor, and on Apple, finding that the Company entered into an anticompetitive agreement with Apple regarding volume allocations of Apple products. The initial fine imposed on the Company 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 paid €24.9 million in fiscal year 2022. 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, the Company 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 related liabilities in cases where a contingent obligation is deemed probable and reasonably estimable. It is possible that the ultimate liabilities could differ from the amounts recorded.
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, demand, our infrastructure, our investment in our information technology ("IT") systems, our employee hiring and retention, our acquisition-related integration plans, our revenue, sources of revenue, our gross margins, our operating costs and results, timing of payment, our competition, our future needs and sources for additional financing, contract terms, relationships with our suppliers, adequacy of our facilities, our operations, foreign currency exchange rates and hedging activities, our strategic acquisitions including anticipated cost savings and other benefits, 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, impact of our pricing policies, impact of economic and industry trends, changes to the markets in which we compete, impact of new reporting rules and accounting policies, our estimates and assumptions, impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, and our share repurchase and dividend program. 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 others, including risks related to 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 ("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, 2023. 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," "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 Fortune 100 corporation and 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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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 strategic technologies such as hybrid cloud, security, data analytics, artificial intelligence ("AI"), hyperscale infrastructure and services.
•Strengthen our end-to-end portfolio of products, services and solutions, including technology-as-a-service and recurring revenue models.
•Transformour 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 strategic technologies.
•Expandour 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"), such as personal computing devices, mobile phones and accessories, and strategic technologies such as cloud, security, data/analytics, AI and hyperscale infrastructure. This enables us to offer comprehensive solutions 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.
We group the majority of our offerings into two primary solutions portfolios, Endpoint Solutions and Advanced Solutions. Our Endpoint Solutions portfolio primarily includes personal computing devices and peripherals, mobile phones and accessories, printers, peripherals, and supplies. Our Advanced Solutions portfolio primarily includes data center technologies such as hybrid cloud, security, storage, networking, servers, software, converged and hyper-converged infrastructure and hyperscale infrastructure, via our Hyve business.
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.
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 and AI, overall economic growth and general business activity. A difficult and challenging economic environment, including the continued persistence of inflation and elevated interest rates, 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, as well as the impact of fluctuations in foreign currency exchange rates compared to the United States ("U.S.") dollar.
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Acquisitions
On March 22, 2021, the Company 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.
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 Nine Months Ended
Consolidated Statements of Operations Data:
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Revenue 100.00 % 100.00 % 100.00 % 100.00 %
Cost of revenue (93.46) % (93.04) % (93.10) % (93.19) %
Gross profit 6.54 % 6.96 % 6.90 % 6.81 %
Selling, general and administrative expenses (4.48) % (4.73) % (4.70) % (4.61) %
Acquisition, integration and restructuring costs - % (0.51) % (0.16) % (0.37) %
Operating income 2.06 % 1.72 % 2.04 % 1.83 %
Interest expense and finance charges, net (0.55) % (0.48) % (0.54) % (0.51) %
Other expense, net (0.01) % (0.02) % (0.02) % (0.02) %
Income before income taxes 1.50 % 1.22 % 1.48 % 1.30 %
Provision for income taxes (0.28) % (0.22) % (0.32) % (0.28) %
Net income 1.22 % 1.00 % 1.16 % 1.02 %
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 and nine months ended August 31, 2024 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.
•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.
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•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 and income taxes related to the aforementioned items.
•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 and income taxes related to the aforementioned items.
Acquisition, integration and restructuring costs, which are expensed as incurred, 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 that are incurred in connection with acquisition, integration, restructuring and divestiture activities. 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. Effective as of the third quarter of fiscal 2024, the Company ceased recording expenses associated with activities related to the Merger within acquisition, integration and restructuring costs.
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 our Board of Directors 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. These adjustments benefited our non-GAAP operating income through the third fiscal quarter 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.
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.
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Three and Nine Months Ended August 31, 2024 and 2023:
Revenue
The following table summarizes our revenue and change in revenue by segment for the three and nine months ended August 31, 2024 and 2023:
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 Percent Change August 31, 2024 August 31, 2023 Percent Change
Revenue in constant currency
(in thousands) (in thousands)
Consolidated
Revenue $ 14,684,712 $ 13,960,615 5.2 % $ 42,607,873 $ 43,148,110 (1.3) %
Impact of changes in foreign currencies 58,720 - (5,952) -
Revenue in constant currency $ 14,743,432 $ 13,960,615 5.6 % $ 42,601,921 $ 43,148,110 (1.3) %
Americas
Revenue $ 9,090,011 $ 8,879,585 2.4 % $ 25,550,680 $ 26,217,631 (2.5) %
Impact of changes in foreign currencies 27,754 - 16,966 -
Revenue in constant currency $ 9,117,765 $ 8,879,585 2.7 % $ 25,567,646 $ 26,217,631 (2.5) %
Europe
Revenue $ 4,591,161 $ 4,227,590 8.6 % $ 14,135,188 $ 14,209,488 (0.5) %
Impact of changes in foreign currencies 12,810 - (105,486) -
Revenue in constant currency $ 4,603,971 $ 4,227,590 8.9 % $ 14,029,702 $ 14,209,488 (1.3) %
APJ
Revenue $ 1,003,540 $ 853,440 17.6 % $ 2,922,005 $ 2,720,991 7.4 %
Impact of changes in foreign currencies 18,156 - 82,568 -
Revenue in constant currency $ 1,021,696 $ 853,440 19.7 % $ 3,004,573 $ 2,720,991 10.4 %
Consolidated Commentary
During the three months ended August 31, 2024, consolidated revenue and revenue in constant currency increased by $724.1 million and $782.8 million, respectively, as compared to the prior year period. The increases are primarily driven by growth in both our Advanced Solutions and Endpoint Solutions portfolios, partially offset by a greater percentage of our revenue being presented on a net basis, which negatively impacted our revenue compared to the prior three months ended August 31, 2023 by approximately $550 million, or 4%.
During the nine months ended August 31, 2024, consolidated revenue and revenue in constant currency decreased by $540.2 million and $546.2 million, respectively, as compared to the prior year period. The decreases are primarily driven by the presentation of additional revenue on a net basis, which negatively impacted our revenue compared to the prior nine months ended August 31, 2023 by approximately $1.6 billion, or 4%, partially offset by growth in our Advanced Solutions portfolio.
Americas Commentary
During the three months ended August 31, 2024, Americas revenue and revenue in constant currency increased by $210.4 million and $238.2 million, respectively, as compared to the prior year period. The increases are primarily driven by growth in our Advanced Solutions portfolio in the region, partially offset by a greater percentage of our revenue being presented on a net basis, which negatively impacted our revenue compared to the three months ended August 31, 2023 by approximately $470 million, or 5%.
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During the nine months ended August 31, 2024, Americas revenue and revenue in constant currency decreased by $667.0 million and $650.0 million, respectively, as compared to the prior year period. The decreases are primarily driven by the presentation of additional revenue on a net basis, which negatively impacted our revenue compared to the nine months ended August 31, 2023 by approximately $1.3 billion, or 5%, partially offset by growth in our Advanced Solutions portfolio.
Europe Commentary
During the three months ended August 31, 2024, Europe revenue and revenue in constant currency increased by $363.6 million and $376.4 million, respectively, as compared to the prior year period. The increases are primarily driven by growth in both our Endpoint Solutions and Advanced Solutions portfolios in the region, partially offset by a greater percentage of our revenue being presented on a net basis, which negatively impacted our revenue compared to the three months ended August 31, 2023 by approximately $40 million, or 1%.
During the nine months ended August 31, 2024, Europe revenue and revenue in constant currency decreased by $74.3 million and $179.8 million, respectively, as compared to the prior year period. The decreases are primarily driven by the presentation of additional revenue on a net basis, which negatively impacted our revenue by approximately $240 million, or 2%, compared to the nine months ended August 31, 2023, partially offset by growth in our Endpoint Solutions portfolio. The impact of changes in foreign currencies is primarily due to the strengthening of the euro against the U.S. dollar.
APJ Commentary
During the three months ended August 31, 2024, APJ revenue and revenue in constant currency increased by $150.1 million and $168.3 million, respectively, as compared to the prior year period. The increases are primarily driven by growth in both our Advanced Solutions and Endpoint Solutions portfolios in the region, partially offset by a greater percentage of our revenue being presented on a net basis, which negatively impacted our revenue by approximately $50 million, or 6%. The impact of changes in foreign currencies is primarily due to the weakening of the Japanese yen against the U.S. dollar.
During the nine months ended August 31, 2024, APJ revenue and revenue in constant currency increased by $201.0 million and $283.6 million, respectively, as compared to the prior year period. The increases are primarily driven by growth in our Advanced Solutions portfolio in the region, partially offset by a decline in our Endpoint Solutions portfolio and by a greater percentage of our revenue being presented on a net basis, which negatively impacted our revenue by approximately $60 million, or 2%. The impact of changes in foreign currencies is primarily due to the weakening of the Japanese yen against the U.S. dollar.
Gross Profit
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023
Percent Change
August 31, 2024 August 31, 2023 Percent Change
Non-GAAP gross profit & non-GAAP gross margin - Consolidated (in thousands) (in thousands)
Revenue $ 14,684,712 $ 13,960,615 5.2 % $ 42,607,873 $ 43,148,110 (1.3) %
Gross profit $ 961,048 $ 971,273 (1.1) % $ 2,940,361 $ 2,938,250 0.1 %
Purchase accounting adjustments - 2,427 - 15,047
Non-GAAP gross profit $ 961,048 $ 973,700 (1.3) % $ 2,940,361 $ 2,953,297 (0.4) %
Gross margin 6.54 % 6.96 % 6.90 % 6.81 %
Non-GAAP gross margin 6.54 % 6.97 % 6.90 % 6.84 %
Our gross margin is affected by a variety of factors, including competition, selling prices, mix of products, the percentage of revenue that is presented on a net basis, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, inventory losses and fluctuations in revenue.
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Our gross profit, on both a GAAP and non-GAAP basis, decreased during the three months ended August 31, 2024, compared to the prior year period, primarily due a decrease in gross margin, partially offset by an increase in revenue due to growth in both our Advanced Solutions and Endpoint Solutions portfolios.
Our gross margin, on both a GAAP and non-GAAP basis, decreased during the three months ended August 31, 2024, compared to the prior year period, primarily due to higher strategic technologies margins in the prior year period and a less profitable mix of products sold in the current period. The presentation of additional revenues on a net basis positively impacted our gross margin by approximately 23 basis points.
Our gross profit increased slightly during the nine months ended August 31, 2024, compared to the prior year period, primarily due to a decrease in purchase accounting adjustments related to the Merger. Our non-GAAP gross profit decreased during the nine months ended August 31, 2024, compared to the prior year period, primarily due to the decrease in revenues.
Our gross margin, on both a GAAP and non-GAAP basis, increased during the nine months ended August 31, 2024, compared to the prior year period, primarily due to the presentation of additional revenues on a net basis, which positively impacted our gross margin by approximately 24 basis points.
Selling, General and Administrative Expenses
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023
Percent Change
August 31, 2024 August 31, 2023
Percent Change
(in thousands) (in thousands)
Selling, general and administrative expenses $ 657,513 $ 659,454 (0.3) % $ 2,000,772 $ 1,987,375 0.7 %
Percentage of revenue 4.48 % 4.73 % 4.70 % 4.61 %
Our selling, general and administrative expenses consist primarily of personnel costs such as salaries, commissions, bonuses and temporary personnel costs. Selling, general and administrative expenses also include cost of warehouses, delivery centers and other non-integration facilities, share-based compensation expense, 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 August 31, 2024, selling, general and administrative expenses slightly decreased, compared to the prior year period, primarily due to lower credit costs, partially offset by higher share-based compensation expense. During the nine months ended August 31, 2024, selling, general and administrative expenses increased, compared to the prior year period, primarily due to higher share-based compensation expense, partially offset by lower credit costs.
During the three months ended August 31, 2024, selling, general and administrative expenses decreased as a percentage of revenue, compared to the prior year period, primarily due to increased revenue and lower credit costs, partially offset by higher share-based compensation expense. During the nine months ended August 31, 2024, selling, general and administrative expenses increased as a percentage of revenue, compared to the prior year period, primarily due to a decrease in revenue along with higher share-based compensation expense, partially offset by lower credit costs. A greater percentage of our revenue was presented on a net basis which increased the ratio of selling, general and administrative expenses as a percentage of revenue for the three and nine months ended August 31, 2024 by approximately 16 and 17 basis points, respectively.
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") of $3.9 million during the nine months ended August 31, 2024, and $3.0 million and $9.0 million during the three and nine months ended August 31, 2023, respectively. Acquisition, integration and restructuring costs related to other acquisitions were $0.7 million and $1.9 million during the three and nine months ended August 31, 2024, respectively. We do not expect to incur additional costs under the GBO 2 Program in future periods.
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The Merger
We have substantially completed the acquisition, integration and restructuring activities related to the Merger. Therefore, there were no material related expenses recorded within acquisition, integration and restructuring costs for the three months ended August 31, 2024 and there are no material expenses expected in future periods. We previously 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 include accelerated depreciation and amortization expense of $5.5 million recorded during the nine months ended August 31, 2024 and $4.7 million and $16.2 million recorded during the three and nine months ended August 31, 2023, respectively, due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, along with $17.0 million recorded during the nine months ended August 31, 2024 and $0.4 million and $12.9 million recorded during the three and nine months ended August 31, 2023, respectively, 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.
In July 2023, we offered a voluntary severance program ("VSP") to certain co-workers in the U.S. as part of our cost optimization efforts related to the Merger. We incurred $10.1 million of costs in connection with the VSP during the nine months ended August 31, 2024, including $8.0 million of severance costs and $2.1 million of duplicative labor costs. We incurred $37.2 million of costs in connection with the VSP during the three and nine months ended August 31, 2023, including $30.0 million of severance costs and $7.2 million of duplicative labor costs.
During the three and nine months ended August 31, 2024 and 2023, acquisition and integration expenses related to the Merger were composed of the following:
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
(in thousands)
Professional services costs $ - $ 5,036 $ 16,456 $ 16,157
Personnel and other costs - 9,430 15,279 33,712
Long-lived assets charges and termination fees - 5,078 22,533 29,067
Stock-based compensation - 11,912 - 34,472
Voluntary severance program costs
- 37,178 10,113 37,178
Total $ - $ 68,634 $ 64,381 $ 150,586
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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 and nine months ended August 31, 2024 and 2023:
Three Months Ended
Nine Months Ended
August 31, 2024 August 31, 2023 Percent Change August 31, 2024 August 31, 2023 Percent Change
Non-GAAP operating income & non-GAAP operating margin - Consolidated
(in thousands) (in thousands)
Revenue $ 14,684,712 $ 13,960,615 $ 42,607,873 $ 43,148,110
Operating income $ 302,879 $ 240,233 26.1 % $ 869,399 $ 791,278 9.9 %
Acquisition, integration and restructuring costs 656 71,586 70,190 159,597
Amortization of intangibles 73,173 74,029 218,809 220,571
Share-based compensation 16,176 8,530 47,096 29,252
Purchase accounting adjustments - 2,427 - 15,047
Non-GAAP operating income $ 392,884 $ 396,805 (1.0) % $ 1,205,494 $ 1,215,745 (0.8) %
GAAP operating margin
2.06 % 1.72 % 2.04 % 1.83 %
Non-GAAP operating margin 2.68 % 2.84 % 2.83 % 2.82 %
Consolidated operating income and margin increased during the three and nine months ended August 31, 2024, compared to the prior year period, primarily due to lower acquisition, integration and restructuring costs.
Consolidated non-GAAP operating income slightly decreased during the three and nine months ended August 31, 2024, compared to the prior year period, primarily due to the decrease in non-GAAP gross profit, partially offset by lower credit costs.
Consolidated non-GAAP operating margin decreased during the three months ended August 31, 2024, compared to the prior year period, primarily due to the decrease in gross margin due to higher strategic technologies margins in the prior year period and a less profitable mix of products sold in the current period. Consolidated non-GAAP operating margin was flat during the nine months ended August 31, 2024, compared to the prior year period.
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Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 Percent Change August 31, 2024 August 31, 2023 Percent Change
Non-GAAP operating income & non-GAAP operating margin - Americas
(in thousands) (in thousands)
Revenue $ 9,090,011 $ 8,879,585 $ 25,550,680 $ 26,217,631
Operating income $ 220,900 $ 192,606 14.7 % $ 589,866 $ 559,370 5.5 %
Acquisition, integration and restructuring costs 259 60,393 53,026 122,682
Amortization of intangibles 41,459 42,437 124,430 127,233
Share-based compensation 9,703 6,325 30,426 21,076
Non-GAAP operating income $ 272,321 $ 301,761 (9.8) % $ 797,748 $ 830,361 (3.9) %
GAAP operating margin
2.43 % 2.17 % 2.31 % 2.13 %
Non-GAAP operating margin 3.00 % 3.40 % 3.12 % 3.17 %
Americas operating income increased during the three and nine months ended August 31, 2024, as compared to the prior year period, primarily due to lower acquisition, integration and restructuring costs and lower credit costs, partially offset by a decrease in gross margin due to higher strategic technologies margins in the prior year period and a less profitable mix of products sold in the current period.
Americas non-GAAP operating income decreased during the three and nine months ended August 31, 2024, as compared to the prior year period, primarily due to the decrease in gross margin due to higher strategic technologies margins in the prior year period and a less profitable mix of products sold in the current period, partially offset by lower credit costs.
Americas operating margin increased during the three and nine months ended August 31, 2024, compared to the prior year period, primarily due to lower acquisition, integration and restructuring costs, lower credit costs, and the impact of the presentation of additional revenue on a net basis, partially offset by the decrease in gross margin due to higher strategic technologies margins in the prior year period and a less profitable mix of products sold in the current period.
Americas non-GAAP operating margin decreased during the three and nine months ended August 31, 2024, compared to the prior year period, primarily due to the decrease in gross margin due to higher strategic technologies margins in the prior year period and a less profitable mix of products sold in the current period, partially offset by lower credit costs and the impact of the presentation of additional revenue on a net basis.
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Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 Percent Change August 31, 2024 August 31, 2023 Percent Change
Non-GAAP operating income & non-GAAP operating margin - Europe
(in thousands) (in thousands)
Revenue $ 4,591,161 $ 4,227,590 $ 14,135,188 $ 14,209,488
Operating income $ 57,415 $ 29,531 94.4 % $ 200,100 $ 157,793 26.8 %
Acquisition, integration and restructuring costs 224 10,304 16,225 33,750
Amortization of intangibles 30,896 30,970 92,319 91,469
Share-based compensation 5,459 1,809 14,033 6,851
Purchase accounting adjustments - 2,427 - 15,047
Non-GAAP operating income $ 93,994 $ 75,041 25.3 % $ 322,677 $ 304,910 5.8 %
GAAP operating margin
1.25 % 0.70 % 1.42 % 1.11 %
Non-GAAP operating margin 2.05 % 1.78 % 2.28 % 2.15 %
Europe operating income increased during the three months ended August 31, 2024, compared to the prior year period, primarily due to the increase in revenue along with lower acquisition, integration and restructuring costs. Europe operating margin increased during the three months ended August 31, 2024, compared to the prior year period, primarily due to lower acquisition, integration and restructuring costs, along with selling, general and administrative expenses remaining consistent despite the increase in revenue.
Europe operating income and margin increased during the nine months ended August 31, 2024, compared to the prior year period, primarily due to lower acquisition, integration and restructuring costs and the prior year impact of purchase accounting adjustments related to the Merger.
Europe non-GAAP operating income increased during the three months ended August 31, 2024, compared to the prior year period, primarily due to the increase in revenue. Europe non-GAAP operating margin increased during the three months ended August 31, 2024, compared to the prior year period, primarily due to selling, general and administrative expenses remaining consistent despite the increase in revenue.
Europe non-GAAP operating income and margin increased during the nine months ended August 31, 2024, compared to the prior year period, primarily due to an increase in gross margins in strategic technologies.
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Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023 Percent Change August 31, 2024 August 31, 2023 Percent Change
Non-GAAP operating income & non-GAAP operating margin - APJ
(in thousands) (in thousands)
Revenue $ 1,003,540 $ 853,440 $ 2,922,005 $ 2,720,991
Operating income $ 24,564 $ 18,096 35.7 % $ 79,433 $ 74,115 7.2 %
Acquisition, integration and restructuring costs 173 889 939 3,165
Amortization of intangibles 818 622 2,060 1,869
Share-based compensation 1,014 396 2,637 1,325
Non-GAAP operating income $ 26,569 $ 20,003 32.8 % $ 85,069 $ 80,474 5.7 %
GAAP operating margin
2.45 % 2.12 % 2.72 % 2.72 %
Non-GAAP operating margin 2.65 % 2.34 % 2.91 % 2.96 %
APJ operating income, on both a GAAP and non-GAAP basis, increased during the three and nine months ended August 31, 2024, compared to the prior year period, primarily due to the increase in revenue.
APJ operating margin, on both a GAAP and non-GAAP basis, increased during the three months ended August 31, 2024, compared to the prior year period, primarily due to selling, general and administrative expenses remaining relatively consistent despite the increase in revenue.
APJ operating margin, on both a GAAP and non-GAAP basis, was relatively flat during the nine months ended August 31, 2024, compared to the prior year period.
Interest Expense and Finance Charges, Net
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023
Percent Change
August 31, 2024 August 31, 2023
Percent Change
(in thousands) (in thousands)
Interest expense and finance charges, net $ 80,447 $ 67,703 18.8 % $ 233,039 $ 222,188 4.9 %
Percentage of revenue 0.55 % 0.48 % 0.54 % 0.51 %
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 facility and our term loans, and fees associated with the sale of accounts receivable, partially offset by income earned on our cash investments.
During the three months ended August 31, 2024, our interest expense and finance charges, net increased, compared to the prior year period, primarily driven by higher average volumes of short-term borrowings along with increased costs associated with the sale of accounts receivable due to higher discount fees. During the nine months ended August 31, 2024, our interest expense and finance charges, net increased, compared to the prior year period, primarily due to increased costs associated with the sale of accounts receivable due to higher discount fees. Accounts receivable discount fees totaled $16.4 million and $49.0 million in the three and nine months ended August 31, 2024, respectively, compared to $12.5 million and $36.2 million in the three and nine months ended August 31, 2023, respectively.
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Other Expense, Net
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023
Change in Dollars
August 31, 2024 August 31, 2023 Change in Dollars
(in thousands) (in thousands)
Other expense, net $ 1,518 $ 2,371 $ (853) $ 7,493 $ 6,691 $ 802
Percentage of revenue 0.01 % 0.02 % 0.02 % 0.02 %
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.
During the three and nine months ended August 31, 2024, our other expense, net was relatively flat, compared to the prior year period.
Provision for Income Taxes
Three Months Ended Nine Months Ended
August 31, 2024 August 31, 2023
Percent Change
August 31, 2024 August 31, 2023
Percent Change
(in thousands) (in thousands)
Provision for income taxes $ 42,358 $ 30,897 37.1 % $ 134,578 $ 123,030 9.4 %
Percentage of income before income taxes 19.17 % 18.16 % 21.40 % 21.88 %
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 August 31, 2024, our income tax expense increased, compared to the prior year period, primarily due to higher income during the period and a slightly higher effective tax rate. The effective tax rate was higher during the three months ended August 31, 2024 as compared to the three months ended August 31, 2023, primarily due to the prior year utilization of tax credits earned in certain jurisdictions and the relative mix of earnings and losses within the taxing jurisdictions in which we operate.
During the nine months ended August 31, 2024, our income tax expense increased, compared to the prior year period, primarily due to higher income during the period, partially offset by a slightly lower effective tax rate. The effective tax rate was lower during the nine months ended August 31, 2024 as compared to the nine months ended August 31, 2023, primarily due to the relative mix of earnings and losses within the taxing jurisdictions in which we operate, partially offset by the prior year utilization of tax credits earned in certain jurisdictions.
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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 Nine Months Ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Non-GAAP net income - Consolidated
(in thousands)
Net Income
$ 178,556 $ 139,262 $ 494,289 $ 439,369
Acquisition, integration and restructuring costs 656 73,897 70,190 166,446
Amortization of intangibles 73,173 74,029 218,809 220,571
Share-based compensation 16,176 8,530 47,096 29,252
Purchase accounting adjustments - 2,427 - 15,047
Income taxes related to the above (23,122) (38,375) (81,861) (102,700)
Non-GAAP net income $ 245,439 $ 259,770 $ 748,523 $ 767,985
Three Months Ended Nine Months Ended
Non-GAAP diluted EPS
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Diluted EPS(1)
$ 2.08 $ 1.49 $ 5.67 $ 4.66
Acquisition, integration and restructuring costs 0.01 0.79 0.81 1.76
Amortization of intangibles 0.85 0.79 2.51 2.34
Share-based compensation 0.19 0.09 0.54 0.31
Purchase accounting adjustments - 0.03 - 0.16
Income taxes related to the above (0.27) (0.41) (0.94) (1.09)
Non-GAAP diluted EPS $ 2.86 $ 2.78 $ 8.59 $ 8.14
_________________________
(1) Diluted EPS is calculated using the two-class method. Unvested restricted stock awards granted to employees are considered participating securities. For purposes of calculating Diluted EPS, net income allocated to participating securities was approximately 0.9% of net income for both the three and nine months ended August 31, 2024, and wasapproximately 0.7% of net income for both the three and nine months ended August 31, 2023.
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Liquidity and Capital Resources
Cash Conversion Cycle
Three Months Ended
August 31, 2024 November 30, 2023 August 31, 2023
(Amounts in thousands)
Days sales outstanding ("DSO")
Revenue (a) $ 14,684,712 $ 14,407,306 $ 13,960,615
Accounts receivable, net (b) 10,032,404 10,297,814 8,892,130
Days sales outstanding (c) = ((b)/(a))*the number of days during the period 63 65 59
Days inventory outstanding ("DIO")
Cost of revenue (d) $ 13,723,664 $ 13,388,727 $ 12,989,342
Inventories (e) 7,674,438 7,146,274 7,462,162
Days inventory outstanding (f) = ((e)/(d))*the number of days during the period 51 49 53
Days payable outstanding ("DPO")
Cost of revenue (g) $ 13,723,664 $ 13,388,727 $ 12,989,342
Accounts payable (h) 13,873,238 13,347,281 12,485,180
Days payable outstanding (i) = ((h)/(g))*the number of days during the period 93 91 89
Cash conversion cycle ("CCC") (j) = (c)+(f)-(i) 21 23 23
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 program, 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 21 days as of August 31, 2024, and 23 days as of November 30, 2023 and August 31, 2023, respectively. Our CCC decreased as compared to November 30, 2023 primarily due to a decrease in DSO as our accounts receivable declined due to timing of cash receipts, with offsetting increases in DIO and DPO, due to an increase in our inventory balances to support growth in our business and a corresponding increase in our accounts payable. Our CCC decreased compared to August 31, 2023, primarily due to an increase in DPO due to timing of payments and a decrease in DIO due to growth in our business while inventory balances increased slightly, partially offset by an increase in DSO due to the timing of cash receipts.
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.
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Operating Activities
Net cash provided by operating activities was $655.8 million during the nine months ended August 31, 2024, compared to net cash provided by operating activities of $1.2 billion during the nine months ended August 31, 2023. The decrease in net cash provided by operating activities was primarily due to a decrease in inventory during the nine months ended August 31, 2023 related to ongoing sell-through of strategic inventory purchases that occurred during fiscal year 2022, along with a larger decrease in accounts receivable during the nine months ended August 31, 2023 correlated with the decrease in sales volumes. These changes were partially offset by an increase in accounts payable during the nine months ended August 31, 2024 related to the timing of cash payments, as compared to a decrease in accounts payable during the nine months ended August 31, 2023 correlated with the decrease in inventory in the prior year.
Investing Activities
Net cash used in investing activities during the nine months ended August 31, 2024 and August 31, 2023 was $181.6 million and $113.2 million, respectively. The increase in cash used in investing activities is primarily due to cash paid for the acquisition of businesses in the current year of $32.4 million, along with settlement of net investment hedges of $14.8 million.
Financing Activities
Net cash used in financing activities during the nine months ended August 31, 2024 was $655.4 million as compared to net cash used in financing activities during the nine months ended August 31, 2023 of $405.6 million. The increase in cash used in financing activities is primarily due to an increase in repurchases of common stock under our share repurchase program, which totaled $509.9 million during the nine months ended August 31, 2024, compared to $277.8 million during the nine months ended August 31, 2023.
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 $853.9 million and $1.0 billion as of August 31, 2024 and November 30, 2023, respectively. Our cash and cash equivalents held by international subsidiaries are no longer subject to U.S. federal tax on repatriation into the U.S. Repatriation of some foreign balances is restricted by local laws. If in the future we repatriate foreign cash back to the U.S., 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 U.S. 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, 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 U.S., 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, as amended December 11, 2023, March 29, 2024 and August 1, 2024, has a maturity date of December 2025. We also have an amended and restated credit agreement, dated as of April 16, 2024 (as amended, 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. There was $31.0 million outstanding under the U.S. AR Arrangement at August 31, 2024 at an interest rate of 6.21%. There were no amounts outstanding under the U.S. AR Arrangement at November 30, 2023. There were no amounts outstanding on the TD SYNNEX Revolving Credit Facility at August 31, 2024 or November 30, 2023.
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The TD SYNNEX Credit Agreement also includes a $1.5 billion term loan facility (the "TD SYNNEX Term Loan") that was fully funded in connection with the Merger. The TD SYNNEX Term Loan has a maturity date of September 2026. As amended, the TD SYNNEX Revolving Credit Facility will mature on April 16, 2029, subject, in the lender's discretion, to two one-year extensions upon our prior notice to the lenders.
On April 19, 2024, we entered into a Term Loan Credit Agreement (the "2024 Term Loan Credit Agreement") which provides for a senior unsecured term loan in the amount of $750.0 million (the "2024 Term Loan"). The proceeds from the 2024 Term Loan were used to repay a portion of the TD SYNNEX Term Loan. The 2024 Term Loan will mature on September 1, 2027.
We have various other committed and uncommitted lines of credit with financial institutions, short-term loans, term loans, credit facilities and book overdraft facilities, totaling approximately $580.9 million in borrowing capacity as of August 31, 2024. Our borrowings on these facilities vary within the period primarily based on changes in our working capital. There was $283.2 million outstanding on these facilities at August 31, 2024, at a weighted average interest rate of 6.83%, and there was $208.7 million outstanding on these facilities at November 30, 2023, at a weighted average interest rate of 7.52%.
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 $4.1 billion as of both August 31, 2024 and November 30, 2023. Our outstanding borrowings include Senior Notes of $2.4 billion and $2.5 billion as of August 31, 2024 and November 30, 2023, respectively, and term loans described above as the TD SYNNEX Term Loan and 2024 Term Loan of approximately $1.3 billion and $1.4 billion at August 31, 2024 and November 30, 2023, respectively. For additional information on our borrowings, see Note 10- Borrowings to the Consolidated Financial Statements included in Part I, Item 1 of this Report. We repaid the $700.0 million of 1.250% Senior Notes that were due August 9, 2024 primarily using funds received from the issuance of our $600.0 million of 6.10% Senior Notes due April 12, 2034.
Accounts Receivable Purchase Agreements
We have uncommitted accounts receivable purchase agreements 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 August 31, 2024 and November 30, 2023, we had a total of $1.0 billion and $864.6 million, respectively, of trade accounts receivable sold to and held by financial institutions under these programs. Discount fees for these programs totaled $16.4 million and $49.0 million in the three and nine months ended August 31, 2024, respectively, and $12.5 million and $36.2 million in the three and nine months ended August 31, 2023, respectively.
Share Repurchase Program
In January 2023, the Board of Directors authorized a three-year $1.0 billion share repurchase program. In March 2024, the Board of Directors authorized a new $2.0 billion share repurchase program, supplementing the amount remaining under the existing program, pursuant to which we may repurchase our outstanding common stock from time to time in the open market or through privately negotiated transactions, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The March 2024 share repurchase authorization does not have an expiration date. We repurchased 0.5 million shares of common stock for $56.5 million and 4.7 million shares for $509.9 million in the three and nine months ended August 31, 2024, respectively and 1.1 million shares for $103.0 million and 2.9 million shares for $277.8 million during the three and nine months ended August 31, 2023, respectively. As of August 31, 2024, we had $1.9 billion available for future repurchases of our common stock. For additional information on our share repurchase program, see Note 5- Stockholders' Equity to the Consolidated Financial Statements included in Part I, Item 1 of this Report.
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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 (or our subsidiaries', as applicable) ability to incur additional debt orliens, enter into agreements with affiliates, modify the nature of our business, and merge or consolidate. As of August 31, 2024, we were in compliance with the financial covenant requirements for the above arrangements.
Critical Accounting Policies and Estimates
During the nine months ended August 31, 2024, 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, 2023.
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, 2023. No material changes have occurred in our market risks since November 30, 2023.
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 the U.S. 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, 2023. There have been no material changes to the risk factors disclosed in our 2023 Annual Report on Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
In January 2023, our Board of Directors authorized a three-year $1.0 billion share repurchase program. In March 2024, the Board of Directors authorized a new $2.0 billion share repurchase program, supplementing the $196.7 million remaining authorization under the prior program (collectively, the "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, including pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934 (the "Exchange Act"). The March 2024 share repurchase authorization does not have an expiration date.
The following table presents information with respect to purchases of common stock by the Company under the share repurchase program described above, during the quarter ended August 31, 2024:
Issuer Purchases of Equity Securities (amounts in thousands except for per share amounts)
Period Total number of shares purchased
Average price paid per share(1)
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
June 1 - June 30, 2024 - $ - - $ 1,942,508
July 1 - July 31, 2024 388 115.85 388 1,897,509
August 1 - August 31, 2024 102 113.28 102 1,886,009
Total 490 $ 115.32 490
_________________________
(1) Excludes excise taxes, whether accrued or paid, and excludes broker's commissions.
ITEM 5. Other Information
Trading Arrangements
On June 28, 2024, Richard T. Hume, the Company's former chief executive officer and current member of its Board of Directors, adopted a trading arrangement for the sale of securities of the Company's common stock that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act. Mr. Hume's Rule 10b5-1 trading arrangement provides for the sale of up to 120,000 shares of common stock until March 28, 2025 pursuant to the terms of the plan.
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ITEM 6. Exhibits
Exhibit Number Description of Document
3(i).1
3(ii).1
10.1#+
10.2#
10.3+
Third Omnibus Amendment to the Fifth Amended and Restated Receivables Funding and Administration Agreement and the Third Amended and Restated Receivables Sale and Servicing Agreement, dated as of August 1, 2024 by and among TD SYNNEX Corporation, SIT Funding Corporation, the originators party thereto, the lenders party thereto, and the Toronto-Dominion Bank, as agent.
31.1
Rule 13a-14(a) Certification of Chief Executive Officer.
31.2
Rule 13a-14(a) Certification of Chief Financial Officer.
32.1*
Statement of the Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
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)
# Indicates management contract or compensatory plan or arrangement.
* 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 (or similar attachments) and certain information have been omitted pursuant to Items 601(a)(5), 601(a)(6) and/or 601(b)(10)(iv) 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 or exhibits 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: October 3, 2024
TD SYNNEX CORPORATION
By:
/s/ Patrick Zammit
Patrick Zammit
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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