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 ("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,” "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. 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 Six Months Ended Statements of Operations Data: May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Revenue 100.00 % 100.00 % 100.00 % 100.00 % Cost of revenue (93.15) % (93.74) % (93.26) % (93.74) % Gross profit 6.85 % 6.26 % 6.74 % 6.26 % Selling, general and administrative expenses (4.79) % (4.39) % (4.55) % (4.31) % Acquisition, integration and restructuring costs (0.26) % (0.21) % (0.30) % (0.41) % Operating income 1.80 % 1.66 % 1.89 % 1.55 % Interest expense and finance charges, net (0.53) % (0.31) % (0.54) % (0.30) % Other expense, net (0.03) % (0.05) % (0.01) % (0.03) % Income before income taxes 1.24 % 1.30 % 1.34 % 1.22 % Provision for income taxes (0.29) % (0.32) % (0.31) % (0.31) % Net income 0.95 % 0.98 % 1.03 % 0.91 % 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 six months ended May 31, 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 and Six Months Ended May 31, 2023 and 2022: Revenue The following table summarizes our revenue and change in revenue by segment for the three and six months ended May 31, 2023 and 2022: Three Months Ended Six Months Ended May 31, 2023 May 31, 2022 Percent Change May 31, 2023 May 31, 2022 Percent Change Revenue in constant currency (in thousands) (in thousands) Consolidated Revenue $ 14,062,124 $ 15,269,791 (7.9) % $ 29,187,495 $ 30,739,768 (5.0) % Impact of changes in foreign currencies 131,639 — 591,298 — Revenue in constant currency $ 14,193,763 $ 15,269,791 (7.0) % $ 29,778,793 $ 30,739,768 (3.1) % Americas Revenue $ 8,699,342 $ 9,776,933 (11.0) % $ 17,338,046 $ 18,851,206 (8.0) % Impact of changes in foreign currencies 67,188 — 122,344 — Revenue in constant currency $ 8,766,530 $ 9,776,933 (10.3) % $ 17,460,390 $ 18,851,206 (7.4) % Europe Revenue $ 4,461,461 $ 4,652,611 (4.1) % $ 9,981,898 $ 10,232,399 (2.4) % Impact of changes in foreign currencies 26,953 — 370,883 — Revenue in constant currency $ 4,488,414 $ 4,652,611 (3.5) % $ 10,352,781 $ 10,232,399 1.2 % APJ Revenue $ 901,321 $ 840,247 7.3 % $ 1,867,551 $ 1,656,163 12.8 % Impact of changes in foreign currencies 37,498 — 98,071 — Revenue in constant currency $ 938,819 $ 840,247 11.7 % $ 1,965,622 $ 1,656,163 18.7 % Consolidated Commentary During the three months ended May 31, 2023, consolidated revenue and revenue in constant currency decreased by $1.2 billion and $1.1 billion, respectively, as compared to the prior year period. During the six months ended May 31, 2023, consolidated revenue and revenue in constant currency decreased by $1.6 billion and $961.0 million, respectively, as compared to the prior year period. The decreases are primarily driven by a decline in our Endpoint Solutions portfolio as the industry experienced a post-pandemic decline in demand for personal computer ecosystem products. This decline was partially offset by increases in our Advanced Solutions portfolio and high-growth technologies. The shift in product mix resulted in a greater percentage of our revenues being presented on a net basis, which negatively impacted our revenue compared to the prior three and six months ended May 31, 2022 by approximately 3%. 32 Table of contents Americas Commentary During the three months ended May 31, 2023, Americas revenue and revenue in constant currency decreased by $1.1 billion and $1.0 billion, respectively, as compared to the prior year period. During the six months ended May 31, 2023, Americas revenue and revenue in constant currency decreased by $1.5 billion and $1.4 billion, respectively, as compared to the prior year period. The decreases are primarily due to a decline in our Endpoint Solutions portfolio in the region as the industry experienced a post-pandemic decline in demand for personal computer ecosystem products, partially offset by growth in our Advanced Solutions portfolio and high-growth technologies. The shift in product mix resulted in a greater percentage of our revenues being presented on a net basis, which negatively impacted our revenue by approximately 3% and 4% compared to the three and six months ended May 31, 2022, respectively. Europe Commentary During the three months ended May 31, 2023, Europe revenue and revenue in constant currency decreased by $191.2 million and $164.2 million, respectively, as compared to the prior year period. The decreases are primarily due to a shift in product mix that resulted in a greater percentage of our revenues being presented on a net basis, which negatively impacted our revenue by approximately 4% compared to the three months ended May 31, 2022. The shift in product mix was primarily due to a decline in our Endpoint Solutions portfolio, which was offset by growth in our Advanced Solutions portfolio. During the six months ended May 31, 2023, Europe revenue decreased by $250.5 million, as compared to the prior year period, primarily due to the impact of changes in foreign currencies. The impact of changes in foreign currencies is primarily due to the weakening of the euro against the U.S. dollar. During the six months ended May 31, 2023, Europe revenue in constant currency increased by $120.4 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 a greater percentage of our revenues being presented on a net basis, which negatively impacted our revenue by approximately 3% compared to the six months ended May 31, 2022. APJ Commentary During the three months ended May 31, 2023, APJ revenue and revenue in constant currency increased by $61.1 million and $98.6 million, respectively, as compared to the prior year period. During the six months ended May 31, 2023, APJ revenue and revenue in constant currency increased by $211.4 million and $309.5 million, respectively, as compared to the prior year period. The increases are primarily driven by growth in high-growth technologies. Gross Profit Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Gross Profit and Gross Margin - Consolidated (in thousands) (in thousands) Revenue $ 14,062,124 $ 15,269,791 (7.9) % $ 29,187,495 $ 30,739,768 (5.0) % Gross profit $ 963,410 $ 955,789 0.8 % $ 1,966,977 $ 1,924,450 2.2 % Purchase accounting adjustments 5,170 27,406 12,620 52,485 Non-GAAP gross profit $ 968,580 $ 983,195 (1.5) % $ 1,979,597 $ 1,976,935 0.1 % Gross margin 6.85 % 6.26 % 6.74 % 6.26 % Non-GAAP gross margin 6.89 % 6.44 % 6.78 % 6.43 % 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 due to factors such as shift in product mix that may result in additional revenues being presented on a net basis. 33 Table of contents Our gross profit increased during the three and six months ended May 31, 2023, as compared to the prior year periods, primarily due to the impact of lower purchase accounting adjustments related to the Merger and our improved gross margin, partially offset by the impact of a decline in revenues in our Endpoint Solutions portfolio. The increase in gross margin during the three and six months ended May 31, 2023, as compared to the prior year periods, 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 during the three and six months ended May 31, 2023 by approximately 21 and 20 basis points, respectively. During the three months ended May 31, 2023, non-GAAP gross profit decreased, as compared to the prior year period, primarily due to the decrease in revenues in our Endpoint Solutions portfolio, partially offset by an improvement in gross margin. During the six months ended May 31, 2023, non-GAAP gross profit slightly increased, as compared to the prior year period, primarily due to an improvement in gross margin, partially offset by the decrease in revenues in our Endpoint Solutions portfolio. During the three and six months ended May 31, 2023, non-GAAP gross margin increased, as compared to the prior year period, 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 presentation of additional revenues on a net basis. Selling, General and Administrative Expenses Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 (in thousands) (in thousands) Selling, general and administrative expenses $ 673,698 $ 670,574 0.5 % $ 1,327,921 $ 1,323,425 0.3 % Percentage of revenue 4.79 % 4.39 % 4.55 % 4.31 % 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 and six months ended May 31, 2023, selling, general and administrative expenses slightly increased, compared to the prior year period, primarily due to higher personnel costs. 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 $5.3 million and $11.5 million recorded during the three and six months ended May 31, 2023, respectively, and $52.9 million recorded during the six months ended May 31, 2022, due to changes in asset useful lives in conjunction with the consolidation of certain IT systems, as well as $2.3 million and $12.5 million recorded during the three and six months ended May 31, 2023 for termination fees related to certain IT systems. There were no long-lived assets charges and termination fees recorded during the three months ended May 31, 2022. 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. 34 Table of contents During the three and six months ended May 31, 2023 and 2022, acquisition and integration expenses related to the Merger were composed of the following: Three Months Ended Six Months Ended May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 (in thousands) Professional services costs $ 4,311 $ 5,793 $ 11,121 $ 13,941 Personnel and other costs 11,275 4,404 24,282 15,348 Long-lived assets charges and termination fees 7,613 — 23,989 52,871 Stock-based compensation 11,039 12,889 22,560 26,465 Total $ 34,238 $ 23,086 $ 81,952 $ 108,625 During the three months ended May 31, 2023, acquisition and integration expenses related to the Merger increased, compared to the prior year period, due to long-lived assets charges and termination fees, as well as an increase in personnel and other costs primarily due to higher severance costs. During the six months ended May 31, 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 and termination fees. 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 $2.6 million and $9.4 million during the three months ended May 31, 2023 and 2022, respectively. We incurred acquisition, integration, and restructuring costs under the GBO 2 Program of $6.1 million and $17.2 million during the six months ended May 31, 2023 and 2022, respectively. During the three and six months ended May 31, 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. 35 Table of contents 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 six months ended May 31, 2023 and 2022: Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Operating Income and Operating Margin - Consolidated (in thousands) (in thousands) Revenue $ 14,062,124 $ 15,269,791 $ 29,187,495 $ 30,739,768 Operating income $ 252,883 $ 252,737 0.1 % $ 551,045 $ 475,177 16.0 % Acquisition, integration and restructuring costs 36,829 32,478 88,011 125,848 Amortization of intangibles 73,519 74,676 146,542 150,812 Share-based compensation 7,648 7,038 20,722 13,788 Purchase accounting adjustments 5,170 31,392 12,620 64,553 Non-GAAP operating income $ 376,049 $ 398,321 (5.6) % $ 818,940 $ 830,178 (1.4) % Operating margin 1.80 % 1.66 % 1.89 % 1.55 % Non-GAAP operating margin 2.67 % 2.61 % 2.81 % 2.70 % Consolidated operating income was flat during the three months ended May 31, 2023, compared to the prior year period, primarily due to an improvement in gross margin due to product and customer mix and a decrease in purchase accounting adjustments related to the Merger, offset by the decline in revenues in our Endpoint Solutions portfolio. Consolidated operating income increased during the six months ended May 31, 2023, compared to the prior year period, primarily due to an improvement in gross margin due to product and customer mix and a decrease in purchase accounting adjustments related to the Merger, partially offset by the decline in revenues in our Endpoint Solutions portfolio. Consolidated operating margin increased during the three and six months ended May 31, 2023, compared to the prior year period, due to an increase in gross margin due to product and customer mix and a decrease in purchase accounting adjustments related to the Merger, partially offset by higher selling, general and administrative expenses as a percentage of revenue due to the decrease in revenues. 36 Table of contents Consolidated non-GAAP operating income decreased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to the decrease in revenue, partially offset by an increase in gross margin due to product and customer mix. Consolidated non-GAAP operating margin increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to an increase in gross margin due to product and customer mix, partially offset by higher selling, general and administrative expenses as a percentage of revenue due to the decrease in revenues. Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Operating Income and Operating Margin - Americas (in thousands) (in thousands) Revenue $ 8,699,342 $ 9,776,933 $ 17,338,046 $ 18,851,206 Operating income $ 187,259 $ 192,823 (2.9) % $ 366,764 $ 331,342 10.7 % Acquisition, integration and restructuring costs 27,156 17,889 62,289 69,419 Amortization of intangibles 42,382 43,568 84,796 87,096 Share-based compensation 5,389 4,340 14,751 11,090 Purchase accounting adjustments — 18,830 — 36,568 Non-GAAP operating income $ 262,186 $ 277,450 (5.5) % $ 528,600 $ 535,515 (1.3) % Operating margin 2.15 % 1.97 % 2.12 % 1.76 % Non-GAAP operating margin 3.01 % 2.84 % 3.05 % 2.84 % Americas operating income decreased during the three months ended May 31, 2023, as compared to the prior year period, primarily due to the decrease in revenue in our Endpoint Solutions portfolio along with an increase in acquisition, integration, and restructuring costs, partially offset by 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. Americas operating income increased during the six months ended May 31, 2023, as compared to the prior year period, primarily due to increased gross margin in the region due to product and customer mix and the impact of lower purchase accounting adjustments related to the Merger, partially offset by the decline in revenues in our Endpoint Solutions portfolio. Americas operating margin increased during the three and six months ended May 31, 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, partially offset by higher selling, general and administrative expenses as a percentage of revenue due to the decrease in revenues. Americas non-GAAP operating income decreased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to the decrease in revenue in our Endpoint Solutions portfolio, partially offset by increased gross margin in the region due to product and customer mix. Americas non-GAAP operating margin increased during the three and six months ended May 31, 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 higher selling, general and administrative expenses as a percentage of revenue due to the decrease in revenues. 37 Table of contents Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Operating Income and Operating Margin - Europe (in thousands) (in thousands) Revenue $ 4,461,461 $ 4,652,611 $ 9,981,898 $ 10,232,399 Operating income $ 40,057 $ 40,525 (1.2) % $ 128,262 $ 105,857 21.2 % Acquisition, integration and restructuring costs 8,863 11,070 23,446 50,799 Amortization of intangibles 30,514 30,470 60,499 62,440 Share-based compensation 1,866 2,080 5,042 2,080 Purchase accounting adjustments 5,170 12,562 12,620 27,985 Non-GAAP operating income $ 86,470 $ 96,707 (10.6) % $ 229,869 $ 249,161 (7.7) % Operating margin 0.90 % 0.87 % 1.28 % 1.03 % Non-GAAP operating margin 1.94 % 2.08 % 2.30 % 2.44 % Europe operating income slightly decreased during the three months ended May 31, 2023, compared to the prior year period, primarily due to the decline in revenues in our Endpoint Solutions portfolio and an increase in personnel costs, partially offset by an increase in gross margin in the region due to product and customer mix and the impact of lower purchase accounting adjustments related to the Merger. Europe operating income increased during the six months ended May 31, 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 the decline in revenues in our Endpoint Solutions portfolio and higher personnel costs. Europe operating margin increased during the three months ended May 31, 2023, compared to the prior year period, primarily due to an increase in gross margin in the region due to product and customer mix and the impact of lower purchase accounting adjustments related to the Merger, partially offset by an increase in personnel costs. Europe operating margin increased during the six months ended May 31, 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 non-GAAP operating income decreased during the three months ended May 31, 2023, compared to the prior year period, primarily due to the decline in revenues in our Endpoint Solutions portfolio and an increase in personnel costs, partially offset by an increase in gross margin in the region due to product and customer mix. Europe non-GAAP operating income decreased during the six months ended May 31, 2023, compared to the prior year period, primarily due to the decline in revenues in our Endpoint Solutions portfolio and an increase in personnel costs. Europe non-GAAP operating margin decreased during the three months ended May 31, 2023, compared to the prior year period, primarily due to an increase in personnel costs partially offset by an increase in gross margin due to product and customer mix. Europe non-GAAP operating margin decreased during the six months ended May 31, 2023, compared to the prior year period, primarily due to an increase in personnel costs. 38 Table of contents Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Operating Income and Operating Margin - APJ (in thousands) (in thousands) Revenue $ 901,321 $ 840,247 $ 1,867,551 $ 1,656,163 Operating income $ 25,567 $ 19,389 31.9 % $ 56,019 $ 37,978 47.5 % Acquisition, integration and restructuring costs 810 3,519 2,276 5,630 Amortization of intangibles 623 638 1,247 1,276 Share-based compensation 393 618 929 618 Non-GAAP operating income $ 27,393 $ 24,164 13.4 % $ 60,471 $ 45,502 32.9 % Operating margin 2.84 % 2.31 % 3.00 % 2.29 % Non-GAAP operating margin 3.04 % 2.88 % 3.24 % 2.75 % APJ operating income increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to increased sales in the region due to high-growth technologies, and a decrease in acquisition, integration, and restructuring costs. APJ operating margin increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to regional selling, general and administrative expenses remaining consistent despite the increase in sales and a decrease in acquisition, integration and restructuring costs. APJ non-GAAP operating income increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to increased sales in the region due to high-growth technologies. APJ non-GAAP operating margin increased during the three and six months ended May 31, 2023, compared to the prior year period, primarily due to regional selling, general and administrative expenses remaining consistent despite the increase in sales. Interest Expense and Finance Charges, Net Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 (in thousands) (in thousands) Interest expense and finance charges, net $ 74,285 $ 47,968 54.9 % $ 154,485 $ 90,311 71.1 % Percentage of revenue 0.53 % 0.31 % 0.54 % 0.30 % 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 and six months ended May 31, 2023, our interest expense and finance charges, net increased, compared to the prior year period, 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 $12.0 million and $23.7 million in the three and six months ended May 31, 2023, respectively, compared to $3.9 million and $6.9 million in the three and six months ended May 31, 2022, respectively. Other Expense, Net Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 (in thousands) (in thousands) Other expense, net $ 4,164 $ 6,255 (33.4) % $ 4,320 $ 10,523 (58.9) % Percentage of revenue 0.03 % 0.05 % 0.01 % 0.03 % 39 Table of contents 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 six months ended May 31, 2023, our other expense, net decreased, compared to the prior year period, primarily due to lower foreign currency transaction losses. Provision for Income Taxes Three Months Ended Percent Change Six Months Ended Percent Change May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 (in thousands) (in thousands) Provision for income taxes $ 41,347 $ 49,597 (16.6) % $ 92,133 $ 93,102 (1.0) % Percentage of income before income taxes 23.70 % 24.98 % 23.49 % 24.87 % 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 May 31, 2023, our income tax expense decreased compared to the prior year period, primarily due to lower income during the period. During the six months ended May 31, 2023, our income tax expense slightly decreased compared to the prior year period, primarily due to a lower effective tax rate. The effective tax rate was lower during the three and six months ended May 31, 2023 as compared to the three and six months ended May 31, 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 Six Months Ended May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Net Income - Consolidated (in thousands) Net income $ 133,087 $ 148,917 $ 300,107 $ 281,241 Acquisition, integration and restructuring costs 39,125 34,759 92,549 129,961 Amortization of intangibles 73,519 74,676 146,542 150,812 Share-based compensation 7,648 7,038 20,722 13,788 Purchase accounting adjustments 5,170 31,392 12,620 64,553 Income taxes related to the above (29,569) (34,525) (64,325) (82,408) Income tax capital loss carryback benefit — — — (3,246) Non-GAAP net income $ 228,980 $ 262,257 $ 508,215 $ 554,701 40 Table of contents Three Months Ended Six Months Ended Diluted Earnings per Common Share May 31, 2023 May 31, 2022 May 31, 2023 May 31, 2022 Diluted EPS (1) $ 1.41 $ 1.55 $ 3.17 $ 2.92 Acquisition, integration and restructuring costs 0.41 0.36 0.98 1.35 Amortization of intangibles 0.79 0.77 1.54 1.56 Share-based compensation 0.08 0.07 0.22 0.14 Purchase accounting adjustments 0.05 0.33 0.13 0.67 Income taxes related to the above (0.31) (0.36) (0.68) (0.86) Income tax capital loss carryback benefit — — — (0.03) Non-GAAP diluted EPS $ 2.43 $ 2.72 $ 5.36 $ 5.75 _________________________ (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 0.8% of net income for the three and six months ended May 31, 2023, and was approximately 0.7% and 0.6% of net income for the three and six months ended May 31, 2022, respectively. Liquidity and Capital Resources Cash Conversion Cycle Three Months Ended May 31, 2023 November 30, 2022 May 31, 2022 (Amounts in thousands) Days sales outstanding ("DSO") Revenue (a) $ 14,062,124 $ 16,247,957 $ 15,269,791 Accounts receivable, net (b) 8,376,421 9,420,999 7,851,536 Days sales outstanding (c) = ((b)/(a))*the number of days during the period 55 53 47 Days inventory outstanding ("DIO") Cost of revenue (d) $ 13,098,714 $ 15,188,238 $ 14,314,002 Inventories (e) 7,797,497 9,066,620 8,433,997 Days inventory outstanding (f) = ((e)/(d))*the number of days during the period 54 54 54 Days payable outstanding ("DPO") Cost of revenue (g) $ 13,098,714 $ 15,188,238 $ 14,314,002 Accounts payable (h) 12,134,916 13,988,980 12,521,137 Days payable outstanding (i) = ((h)/(g))*the number of days during the period 85 84 80 Cash conversion cycle ("CCC") (j) = (c)+(f)-(i) 24 23 21 41 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 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 24 days and 23 days as of May 31, 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 24 days and 21 days as of May 31, 2023 and May 31, 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 provided by operating activities was $604.8 million during the six months ended May 31, 2023, compared to net cash used in operating activities of $284.5 million during the six months ended May 31, 2022. The increase in net cash provided by operating activities was primarily due to a decline in sales volumes which resulted in decreases in accounts receivable and inventories, partially offset by a decrease in accounts payable. Investing Activities Net cash used in investing activities during the six months ended May 31, 2023 and 2022 was $64.5 million and $46.7 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 used in financing activities during the six months ended May 31, 2023 and 2022 was $247.1 million and $130.0 million, respectively. 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 $174.8 million during the six months ended May 31, 2023 compared to $52.8 million during the six months ended May 31, 2022. In addition, we paid stockholder dividends of $66.2 million and $57.6 million during the six months ended May 31, 2023 and 2022, respectively. Capital Resources Our cash and cash equivalents totaled $852.1 million and $522.6 million as of May 31, 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. 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. 42 Table of contents 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 and amended May 22, 2023 (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. 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 were no amounts outstanding under the U.S. AR Arrangement or the TD SYNNEX revolving credit facility at May 31, 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 $588.5 million in borrowing capacity as of May 31, 2023. Our borrowings on these facilities vary within the period primarily based on changes in our working capital. There was $224.7 million outstanding on these facilities at May 31, 2023, at a weighted average interest rate of 6.54%, 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 $4.1 billion as of May 31, 2023 and November 30, 2022. Our outstanding borrowings include Senior Notes of $2.5 billion at May 31, 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 May 31, 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 May 31, 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 totaled $12.0 million and $23.7 million in the three and six months ended May 31, 2023, respectively, and $3.9 million and $6.9 million in the three and six months ended May 31, 2022, respectively. 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 May 31, 2023, we were in compliance with the financial covenant requirements for the above arrangements. 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. 43 Table of contents Critical Accounting Policies and Estimates During the six months ended May 31, 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. 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.