TD SYNNEX CORP 10-Q

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, our infrastructure, our investment in our information technology, or IT, systems, our employee hiring and retention, the ownership interest of MiTAC Holdings Corporation or MiTAC Holdings, in us and its impact, the ownership interest of Apollo Global Management, Inc., or Apollo, in us and its impact, the impact of the Merger, our integration plans, our plans with respect to the GBO 2 Program, our revenue, sources of revenue, our gross margins, our operating costs and results, timing of payment, the value of our inventory, our competition, including with Synnex Technology International Corp., our future needs and sources for additional financing, contract terms, relationships with our suppliers, adequacy of our facilities, ability to meet demand, managing inventory and our shipping costs, our legal proceedings, our operations, foreign currency exchange rates and hedging activities, our strategic acquisitions including anticipated cost savings and other benefits, our goodwill, 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, the replacement of LIBOR, impact of our pricing policies, impact of economic and industry trends, changes to the markets in which we compete, impact of accounting policies, our estimates and assumptions, impact of inventory repurchase obligations and commitments and contingencies, our effective tax rates, impact of any impairment of our goodwill and intangible assets, our share repurchase and dividend program, and our purchase accounting adjustments. 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 risks related to the risk that the legacy SYNNEX and legacy Tech Data businesses will not be integrated successfully or realize the anticipated benefits of the combined company, 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, or 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, 2022 and below under Part II, Item 1A, “Risk Factors.” 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,” “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 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. 28 Table of contents On March 22, 2021, SYNNEX entered into an agreement and plan of merger (the “Merger Agreement”) which provided that legacy SYNNEX Corporation would acquire legacy Tech Data Corporation, a Florida corporation (“Tech Data”) through a series of mergers, which would result in Tech Data becoming an indirect subsidiary of TD SYNNEX Corporation (collectively, the "Merger"). On September 1, 2021, pursuant to the terms of the Merger Agreement, SYNNEX 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. 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 high-growth technologies such as hybrid cloud, security, analytics/Internet of Things ("IoT"), hyperscale infrastructure, and services. • Strengthen our end-to-end portfolio of products, services and solutions, including technology-as-a-service and recurring revenue models. • Transform our 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 high growth technologies. • Expand our 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”), suppliers of high-growth technologies such as converged and hyper-converged infrastructure, cloud, security, data/analytics/IoT and services. We purchase IT hardware, software, and systems including personal computing devices and peripherals, mobile phones and accessories, printers, server and datacenter infrastructure, networking, communications and storage solutions, and systems components from our suppliers and sell them 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. 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. 29 Table of contents 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, overall economic growth and general business activity. A difficult and challenging economic environment, including due to the continued impacts of increased inflation, rising interest rates, increased risk in banking and financial institutions and Russia's invasion of Ukraine, 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, and the weakening of local currencies relative to the U.S. Dollar which occurred during fiscal year 2022 may continue to adversely affect the operating results of our Europe and APJ segments. Acquisitions We continually seek to augment organic growth in our business with strategic acquisitions of businesses and assets that complement and expand our existing capabilities. We also divest businesses that we deem no longer strategic to our ongoing operations. 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 Statements of Operations Data: February 28, 2023 February 28, 2022 Revenue 100.00 % 100.00 % Cost of revenue (93.37) % (93.74) % Gross profit 6.63 % 6.26 % Selling, general and administrative expenses (4.32) % (4.22) % Acquisition, integration and restructuring costs (0.34) % (0.60) % Operating income 1.97 % 1.44 % Interest expense and finance charges, net (0.53) % (0.27) % Other expense, net — % (0.03) % Income before income taxes 1.44 % 1.14 % Provision for income taxes (0.34) % (0.28) % Net income 1.10 % 0.86 % 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 months ended February 28, 2023 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. 30 Table of contents • Non-GAAP operating income, which is operating income, adjusted to exclude acquisition, integration and restructuring costs, amortization of intangible assets, share-based compensation expense and purchase accounting adjustments. • Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue. • 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, income taxes related to the aforementioned items, as well as a capital loss carryback benefit. • Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share impact of acquisition, integration and restructuring costs, amortization of intangible assets, share-based compensation expense, purchase accounting adjustments, income taxes related to the aforementioned items, as well as a capital loss carryback benefit. Acquisition, integration and restructuring costs typically consist of acquisition, integration, restructuring and divestiture related costs and are expensed as incurred. These expenses primarily represent professional services costs for legal, banking, consulting and advisory services, severance and other personnel related costs, share-based compensation expense and debt extinguishment fees. From time to time, this category may also include transaction-related gains/losses on divestitures/spin-off of businesses, costs related to long-lived assets including impairment charges and accelerated depreciation and amortization expense due to changes in asset useful lives, as well as various other costs associated with the acquisition or divestiture. Our acquisition activities have resulted in the recognition of finite-lived intangible assets which consist primarily of customer relationships and vendor lists. Finite-lived intangible assets are amortized over their estimated useful lives and are tested for impairment when events indicate that the carrying value may not be recoverable. The amortization of intangible assets is reflected in our 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 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. The Company expects the duration of these adjustments to benefit our non-GAAP operating income through a portion of fiscal 2023 based on historical settlement patterns with our vendors and in accordance with the timing defined in our policy for releasing vendor and customer liabilities we deem remote to be paid. 31 Table of contents 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. Three Months Ended February 28, 2023 and 2022: Revenue The following table summarizes our revenue and change in revenue by segment for the three months ended February 28, 2023 and 2022: Three Months Ended February 28, 2023 February 28, 2022 Percent Change Revenue in constant currency (in thousands) Consolidated Revenue $ 15,125,371 $ 15,469,977 (2.2) % Impact of changes in foreign currencies 459,657 — Revenue in constant currency $ 15,585,028 $ 15,469,977 0.7 % Americas Revenue $ 8,638,704 $ 9,074,273 (4.8) % Impact of changes in foreign currencies 55,155 — Revenue in constant currency $ 8,693,859 $ 9,074,273 (4.2) % Europe Revenue $ 5,520,437 $ 5,579,788 (1.1) % Impact of changes in foreign currencies 343,929 — Revenue in constant currency $ 5,864,366 $ 5,579,788 5.1 % APJ Revenue $ 966,230 $ 815,916 18.4 % Impact of changes in foreign currencies 60,573 — Revenue in constant currency $ 1,026,803 $ 815,916 25.8 % Consolidated Commentary During the three months ended February 28, 2023, consolidated revenue decreased by $344.6 million, as compared to the prior year period, driven primarily by the impact of changes in foreign currencies. During the three months ended February 28, 2023, consolidated revenue in constant currency increased by $115.1 million, as compared to the prior year period, primarily driven by growth in our Advanced Solutions portfolio and high-growth technologies, partially offset by a decline in our Endpoint Solutions portfolio due to a weaker demand environment for client devices. The shift in product mix resulted in the presentation of additional revenues on a net basis which negatively impacted our revenue growth by approximately 3%. The impact of changes in foreign currencies is primarily due to the weakening of the euro against the U.S. dollar. 32 Table of contents Americas Commentary During the three months ended February 28, 2023, Americas revenue decreased by $435.6 million and Americas revenue in constant currency decreased by $380.4 million, as compared to the prior year period. The decrease is primarily due to a decline in our Endpoint Solutions portfolio in the region, partially offset by growth in our Advanced Solutions portfolio and high-growth technologies. The shift in product mix resulted in the presentation of additional revenues on a net basis which negatively impacted our revenue growth by approximately 4%. Europe Commentary During the three months ended February 28, 2023, Europe revenue decreased by $59.4 million, as compared to the prior year period, driven primarily by the impact of changes in foreign currencies. During the three months ended February 28, 2023, Europe revenue in constant currency increased by $284.6 million, as compared to the prior year period, primarily due to growth in our Advanced Solutions portfolio, partially offset by a decline in our Endpoint Solutions portfolio. The shift in product mix resulted in the presentation of additional revenues on a net basis which negatively impacted our revenue growth by approximately 2%. The impact of changes in foreign currencies is primarily due to the weakening of the euro against the U.S. dollar. APJ Commentary During the three months ended February 28, 2023, APJ revenue increased by $150.3 million and APJ revenue in constant currency increased by $210.9 million, as compared to the prior year period. The increase is primarily driven by high-growth technologies and our Advanced Solutions portfolio. Gross Profit Three Months Ended February 28, 2023 February 28, 2022 Percent Change Gross Profit and Gross Margin - Consolidated (in thousands) Revenue $ 15,125,371 $ 15,469,977 (2.2) % Gross profit $ 1,003,567 $ 968,661 3.6 % Purchase accounting adjustments 7,450 25,079 Non-GAAP gross profit $ 1,011,017 $ 993,740 1.7 % Gross margin 6.63 % 6.26 % Non-GAAP gross margin 6.68 % 6.42 % Our gross margin is affected by a variety of factors, including competition, selling prices, mix of products, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, inventory losses and fluctuations in revenue. Our gross profit increased during the three months ended February 28, 2023, as compared to the prior year period, primarily due to our improved gross margin and the impact of lower purchase accounting adjustments related to the Merger. The increase in gross margin during the three months ended February 28, 2023, as compared to the three months ended February 28, 2022, is primarily due to product and customer mix, including an increase in revenue in our Advanced Solutions portfolio and high-growth technologies, as well as the impact of lower purchase accounting adjustments related to the Merger. The shift in product mix resulted in the presentation of additional revenues on a net basis which positively impacted our gross margin by approximately 19 basis points. 33 Table of contents Selling, General and Administrative Expenses Three Months Ended Percent Change February 28, 2023 February 28, 2022 (in thousands) Selling, general and administrative expenses $ 654,223 $ 652,851 0.2 % Percentage of revenue 4.32 % 4.22 % Our selling, general and administrative expenses consist primarily of personnel costs such as salaries, commissions, bonuses, share-based compensation and temporary personnel costs. Selling, general and administrative expenses also include cost of warehouses, delivery centers and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of our intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers. During the three months ended February 28, 2023, selling, general and administrative expenses slightly increased, compared to the prior year period, primarily due to higher personnel costs and higher stock-based compensation expense. Selling, general and administrative expenses increased as a percentage of revenue, compared to the prior year period, primarily due to the decrease in revenue. Acquisition, Integration and Restructuring Costs Acquisition, integration and restructuring costs are primarily comprised of costs related to the Merger and costs related to the Global Business Optimization 2 Program initiated by Tech Data prior to the Merger (the “GBO 2 Program”). The Merger We incurred acquisition, integration and restructuring costs related to the completion of the Merger, including professional services costs, personnel and other costs, long-lived assets charges and 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 are comprised of accelerated depreciation and amortization expense of $6.2 million and $52.9 million recorded during the three months ended February 28, 2023 and 2022, respectively, due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, as well as $10.2 million recorded during the three months ended February 28, 2023 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. During the three months ended February 28, 2023 and 2022, acquisition and integration expenses related to the Merger were composed of the following: Three Months Ended February 28, 2023 February 28, 2022 (in thousands) Professional services costs $ 6,810 $ 8,148 Personnel and other costs 13,007 10,944 Long-lived assets charges and termination fees 16,376 52,871 Stock-based compensation 11,521 13,576 Total $ 47,714 $ 85,539 During the three months ended February 28, 2023, acquisition and integration expenses related to the Merger decreased, compared to the prior year period, primarily due to the decrease in long-lived assets charges. 34 Table of contents GBO 2 Program Prior to the Merger, Tech Data implemented its GBO 2 Program that includes investments to optimize and standardize processes and apply data and analytics to be more agile in a rapidly evolving environment, increasing productivity, profitability and optimizing net-working capital. TD SYNNEX continued this program in conjunction with the Company’s integration activities. Acquisition, integration and restructuring expenses related to the GBO 2 Program are primarily comprised of restructuring costs and other costs. Restructuring costs are comprised of severance costs and other associated exit costs, including certain consulting costs. Other costs are primarily comprised of personnel costs, facilities costs and certain professional services fees not related to restructuring activities. We incurred acquisition, integration and restructuring costs under the GBO 2 Program of $3.5 million and $7.8 million during the three months ended February 28, 2023 and 2022, respectively. During the three months ended February 28, 2023, acquisition, integration and restructuring costs under the GBO 2 Program decreased, compared to the prior year period, due to the wind-down of activities as the program is not expected to incur material amounts in future periods. 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 months ended February 28, 2023 and 2022: Three Months Ended February 28, 2023 February 28, 2022 Operating Income and Operating Margin - Consolidated (in thousands) Revenue $ 15,125,371 $ 15,469,977 Operating income $ 298,162 $ 222,440 Acquisition, integration and restructuring costs 51,182 93,370 Amortization of intangibles 73,023 76,136 Share-based compensation 13,074 6,750 Purchase accounting adjustments 7,450 33,161 Non-GAAP operating income $ 442,891 $ 431,857 Operating margin 1.97 % 1.44 % Non-GAAP operating margin 2.93 % 2.79 % 35 Table of contents Consolidated operating income and operating margin increased during the three months ended February 28, 2023, compared to the prior year period, due to a decrease in acquisition, integration, and restructuring costs, and an increase in gross margin due to product and customer mix, as well as the impact of lower purchase accounting adjustments related to the Merger. Consolidated non-GAAP operating income and non-GAAP operating margin increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to an increase in gross margin due to product and customer mix. Three Months Ended February 28, 2023 February 28, 2022 Operating Income and Operating Margin - Americas (in thousands) Revenue $ 8,638,704 $ 9,074,273 Operating income $ 179,505 $ 138,519 Acquisition, integration and restructuring costs 35,133 51,530 Amortization of intangibles 42,414 43,528 Share-based compensation 9,362 6,750 Purchase accounting adjustments — 17,738 Non-GAAP operating income $ 266,414 $ 258,065 Operating margin 2.08 % 1.53 % Non-GAAP operating margin 3.08 % 2.84 % Americas operating income and operating margin increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to increased gross margin in the region due to product and customer mix, as well as the impact of lower purchase accounting adjustments related to the Merger, and a decrease in acquisition, integration, and restructuring costs, partially offset by an increase in personnel costs. Americas non-GAAP operating income and non-GAAP operating margin increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to increased gross margin in the region due to product and customer mix, partially offset by an increase in personnel costs. Three Months Ended February 28, 2023 February 28, 2022 Operating Income and Operating Margin - Europe (in thousands) Revenue $ 5,520,437 $ 5,579,788 Operating income $ 88,205 $ 65,332 Acquisition, integration and restructuring costs 14,583 39,729 Amortization of intangibles 29,985 31,970 Share-based compensation 3,176 — Purchase accounting adjustments 7,450 15,423 Non-GAAP operating income $ 143,399 $ 152,454 Operating margin 1.60 % 1.17 % Non-GAAP operating margin 2.60 % 2.73 % 36 Table of contents Europe operating income and operating margin increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to a decrease in acquisition, integration, and restructuring costs and the impact of lower purchase accounting adjustments related to the Merger, partially offset by an increase in personnel costs. Europe operating income also decreased due to the impacts from changes in foreign currencies including the euro. Europe non-GAAP operating income decreased during the three months ended February 28, 2023, compared to the prior year period, primarily due to impacts from changes in foreign currencies including the euro, as well as an increase in personnel costs. Europe non-GAAP operating margin decreased primarily due to an increase in personnel costs. Three Months Ended February 28, 2023 February 28, 2022 Operating Income and Operating Margin - APJ (in thousands) Revenue $ 966,230 $ 815,916 Operating income $ 30,452 $ 18,589 Acquisition, integration and restructuring costs 1,466 2,111 Amortization of intangibles 624 638 Share-based compensation 536 — Non-GAAP operating income $ 33,078 $ 21,338 Operating margin 3.15 % 2.28 % Non-GAAP operating margin 3.42 % 2.62 % APJ operating income, on both a GAAP and non-GAAP basis, increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to increased sales in the region due to high-growth technologies and our Advanced Solutions portfolio, and an increase in gross margin due to the shift in product and customer mix. APJ operating margin, on both a GAAP and non-GAAP basis, increased during the three months ended February 28, 2023, compared to the prior year period, primarily due to regional selling, general and administrative expenses remaining consistent despite the increase in sales, as well as an increase in gross margin due to customer and product mix. Interest Expense and Finance Charges, Net Three Months Ended Percent Change February 28, 2023 February 28, 2022 (in thousands) Interest expense and finance charges, net $ 80,200 $ 42,343 89.4 % Percentage of revenue 0.53 % 0.27 % 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 facilities and our term loans, and fees associated with the sale of accounts receivable, partially offset by income earned on our cash investments. The increase in our interest expense and finance charges, net during the three months ended February 28, 2023, compared to the prior year period, was primarily due to higher average interest rates, along with increased costs associated with the sale of accounts receivable due to higher discount fees, which totaled $11.7 million in the three months ended February 28, 2023, compared to $3.0 million in the three months ended February 28, 2022. 37 Table of contents Other Expense, Net Three Months Ended Percent Change February 28, 2023 February 28, 2022 (in thousands) Other expense, net $ 156 $ 4,268 (96.3) % Percentage of revenue — % 0.03 % 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. The decrease in other expense, net during the three months ended February 28, 2023, as compared to the prior year period, was primarily due to higher foreign currency transaction gains. Provision for Income Taxes Three Months Ended Percent Change February 28, 2023 February 28, 2022 (in thousands) Provision for income taxes $ 50,786 $ 43,505 16.7 % Percentage of income before income taxes 23.32 % 24.74 % 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 February 28, 2023, our income tax expense increased compared to the prior year period, primarily due to higher income during the period. The effective tax rate was lower during the three months ended February 28, 2023 as compared to the three months ended February 28, 2022, primarily due to the relative mix of earnings and losses within the taxing jurisdictions in which we operate. 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 February 28, 2023 February 28, 2022 Net Income - Consolidated (in thousands) Net income $ 167,020 $ 132,324 Acquisition, integration and restructuring costs 53,424 95,202 Amortization of intangibles 73,023 76,136 Share-based compensation 13,074 6,750 Purchase accounting adjustments 7,450 33,161 Income taxes related to the above (34,756) (47,883) Income tax capital loss carryback benefit — (3,246) Non-GAAP net income $ 279,235 $ 292,444 38 Table of contents Three Months Ended Diluted Earnings per Common Share February 28, 2023 February 28, 2022 Diluted EPS $ 1.75 $ 1.37 Acquisition, integration and restructuring costs 0.56 0.99 Amortization of intangibles 0.76 0.79 Share-based compensation 0.14 0.07 Purchase accounting adjustments 0.08 0.34 Income taxes related to the above (0.36) (0.50) Income tax capital loss carryback benefit — (0.03) Non-GAAP diluted EPS $ 2.93 $ 3.03 Liquidity and Capital Resources Cash Conversion Cycle Three Months Ended February 28, 2023 November 30, 2022 February 28, 2022 (Amounts in thousands) Days sales outstanding ("DSO") Revenue (a) $ 15,125,371 $ 16,247,957 $ 15,469,977 Accounts receivable, net (b) 9,357,059 9,420,999 8,732,024 Days sales outstanding (c) = ((b)/(a))*the number of days during the period 56 53 51 Days inventory outstanding ("DIO") Cost of revenue (d) $ 14,121,804 $ 15,188,238 $ 14,501,316 Inventories (e) 8,372,834 9,066,620 7,883,265 Days inventory outstanding (f) = ((e)/(d))*the number of days during the period 53 54 49 Days payable outstanding ("DPO") Cost of revenue (g) $ 14,121,804 $ 15,188,238 $ 14,501,316 Accounts payable (h) 12,997,681 13,988,980 12,193,263 Days payable outstanding (i) = ((h)/(g))*the number of days during the period 83 84 76 Cash conversion cycle ("CCC") (j) = (c)+(f)-(i) 26 23 24 39 Table of contents Cash Flows Our business is working capital intensive. Our working capital needs are primarily to finance accounts receivable and inventory. We rely heavily on term loans, sales of accounts receivable, our securitization programs, our revolver programs and 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 26 days and 23 days as of February 28, 2023 and November 30, 2022, respectively. The increase was primarily due to our DSO, which was impacted by a shift in our product and customer mix to our Advanced Solutions portfolio and high-growth technologies which generally have a slightly longer cash conversion cycle. Our CCC was 26 days and 24 days as of February 28, 2023 and February 28, 2022, respectively. The increase was primarily due to our DSO, which was impacted by changes in product and customer mix and the timing of customer payments, partially offset by an increase in our DPO due to the timing of payments. 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. Operating Activities Net cash used in operating activities was $102.8 million during the three months ended February 28, 2023, primarily due to a decrease in accounts payable due to seasonality along with the timing of payments, partially offset by net income and decreases in inventories and accounts receivable. Net cash used in operating activities was $1.3 billion during the three months ended February 28, 2022, primarily due to an increase in net working capital to support revenue growth and strategic inventory purchases. Investing Activities Net cash used in investing activities during the three months ended February 28, 2023 and 2022 was $34.2 million and $25.2 million, respectively. The increase in cash used in investing activities is primarily due to an increase in integration related capital expenditures due to the Merger. Financing Activities Net cash provided by financing activities during the three months ended February 28, 2023 was $129.5 million, representing primarily short-term borrowings to fund working capital requirements. In addition, we paid $114.8 million to repurchase common stock under our share repurchase program and we paid stockholder dividends of $33.2 million. Net cash provided by financing activities during the three months ended February 28, 2022 was $854.5 million, representing primarily short-term borrowings to fund working capital requirements. In addition, we paid stockholders dividends of $28.8 million and we paid $23.8 million to repurchase common stock under our share repurchase program. Capital Resources Our cash and cash equivalents totaled $539.3 million and $522.6 million as of February 28, 2023 and November 30, 2022, respectively. Our cash and cash equivalents held by international subsidiaries are no longer subject to U.S. federal tax on repatriation into the United States. Repatriation of some foreign balances is restricted by local laws. Historically, we have fully utilized and reinvested all foreign cash to fund our foreign operations and expansion. If in the future our intentions change, and we repatriate the cash back to the United States, we will report in our Consolidated Financial Statements the impact of state and withholding taxes depending upon the planned timing and manner of such repatriation. Presently, we believe we have sufficient resources, cash flow and liquidity within the United States to fund current and expected future working capital, investment and other general corporate funding requirements. 40 Table of contents 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 United States, we have an accounts receivable securitization program to provide additional capital for our operations (the "U.S. AR Arrangement"). Under the terms of 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 has a maturity date of December 2024. We also have a credit agreement, dated as of April 16, 2021 (the "TD SYNNEX Credit Agreement"), pursuant to which we received commitments for the extension of a senior unsecured revolving credit facility not to exceed an aggregate principal amount of $3.5 billion, which revolving credit facility (the "TD SYNNEX revolving credit facility") may, at our request but subject to the lenders' discretion, potentially be increased by up to an aggregate amount of $500.0 million. The TD SYNNEX Credit Agreement also includes a $1.5 billion term loan facility that was fully funded in connection with the Merger. The TD SYNNEX Credit Agreement has a maturity date of September 2026, in the case of the TD SYNNEX revolving credit facility, subject to two one-year extensions upon our prior notice to the lenders and the agreement of the lenders to extend such maturity date. The outstanding amount of our borrowings under the U.S. AR Arrangement and the TD SYNNEX revolving credit facility may fluctuate in response to changes in our working capital and other liquidity requirements. There was $110.0 million outstanding under the U.S. AR Arrangement at February 28, 2023 at an interest rate of 5.51%. There were no amounts outstanding under the U.S. AR Arrangement at November 30, 2022. There were no amounts outstanding under the TD SYNNEX revolving credit facility at February 28, 2023 or November 30, 2022. We have various other committed and uncommitted lines of credit with financial institutions, finance leases, short-term loans, term loans, credit facilities and book overdraft facilities, totaling approximately $600.1 million in borrowing capacity as of February 28, 2023. Our borrowings on these facilities vary within the period primarily based on changes in our working capital. There was $387.8 million outstanding on these facilities at February 28, 2023, at a weighted average interest rate of 4.88%, and there was $193.1 million outstanding at November 30, 2022, at a weighted average interest rate of 4.69%. 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 $4.4 billion as of February 28, 2023 and $4.1 billion as of November 30, 2022. Our outstanding borrowings include Senior Notes of $2.5 billion at February 28, 2023 and November 30, 2022, and term loans under the term loan facility of the TD SYNNEX Credit Agreement of approximately $1.4 billion at February 28, 2023 and November 30, 2022. For additional information on our borrowings, see Note 8 - Borrowings to the Consolidated Financial Statements included in Part I, Item 1 of this Report. Accounts Receivable Purchase Agreements We have uncommitted supply-chain financing programs under which trade accounts receivable owed by certain customers may be acquired, without recourse, by certain financial institutions. Available capacity under these programs is dependent upon the level of our trade accounts receivable eligible to be sold into these programs and the financial institutions’ willingness to purchase such receivables. In addition, certain of these programs also require that we continue to service, administer and collect the sold accounts receivable. At February 28, 2023 and November 30, 2022, we had a total of $1.1 billion and $1.4 billion, respectively, of trade accounts receivable sold to and held by financial institutions under these programs. Discount fees for these programs in the three months ended February 28, 2023 and February 28, 2022 totaled $11.7 million and $3.0 million, respectively. 41 Table of contents Covenant Compliance Our credit facilities have a number of covenants and restrictions that require us to maintain specified financial ratios. They also limit our ability to incur additional debt, create liens, enter into agreements with affiliates, modify the nature of our business, and merge or consolid ate. As of February 28, 2023, we were in compliance with the financial covenant requirements for the above arrangements. Critical Accounting Policies and Estimates During the three months ended February 28, 2023, 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, 2022. Related Party Transactions For a summary of related party transactions, see Note 1 1 - Related Party Transactions to the Consolidated Financial Statements, which can be found under Part I, Item 1 of this Report. Recently Issued Accounting Pronouncements For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements, see Note 2 - Summary of Significant Accounting Policies to the Consolidated Financial Statements, 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, 2022. No material changes have occurred in our market risks since November 30, 2022.