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 market trends, our business model and our services, our business and market strategy, our separation of SYNNEX and Concentrix, future growth, including expansion of our product and service lines, 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, 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 for additional financing, the likely sources for such funding and the impact of such funding, concentration of customers and suppliers, customer and supplier contract terms, customer forecasts and its impact on us, relationships with our suppliers, adequacy of our facilities, ability to obtain comparable leases, ability to manage and communicate with international resources, ability to meet demand, managing inventory and our shipping costs, our legal proceedings, our operations and trends related thereto, our international operations, foreign currency exchange rates and hedging activities, expansion of our operations and related effects, our strategic acquisitions and divestitures of businesses and assets, including our proposed acquisition of Tech Data and the timing and impact thereof, revenue, cost of revenue and gross margin, our goodwill, seasonality of sales, changes in share price, adequacy of our cash resources to meet our capital needs, our debt and financing arrangements, including the impact of any change to our credit rating, 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, dependency on personnel, pricing pressures, cybersecurity and compliance with related rules and regulations, impact of rules and regulations affecting public companies, impact of our pricing policies, impact of economic and industry trends, changes to the markets in which we compete, impact of our accounting policies and recently issued accounting pronouncements, 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, our securitization programs, term loans, revolving credit lines and the Commitment letter, our investments in working capital and personnel and our succession planning. 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 separation, the COVID-19 global pandemic, as well as the seasonality of the buying patterns of our customers, concentration of sales to large customers, dependence upon and trends in capital spending budgets in the IT, and consumer electronics or CE, industries, fluctuations in general economic conditions, change in the market for our customers' products, employee turnover, changes in value of foreign currencies and interest rates and other risk factors contained below under Part I, Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We do not intend 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 sections of this Report entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all references to “SYNNEX,” “we,” “us,” “our” or the “Company” mean SYNNEX Corporation and its subsidiaries, except where it is made clear that the term means only the parent company or one of its segments. SYNNEX, the SYNNEX Logo, and all other SYNNEX company, product and services names and slogans are trademarks or registered trademarks of SYNNEX Corporation. SYNNEX, and the SYNNEX Logo Reg. U.S. Pat. & Tm. Off. Other names and marks are the property of their respective owners . Overview We are a Fortune 200 corporation and a leading provider of a comprehensive range of distribution, systems design and integration solutions for the technology industry. On December 1, 2020, we completed the previously announced separation of our customer experience services business (the “Separation”), which was accomplished by the distribution of one hundred percent of the outstanding common stock of Concentrix Corporation (“Concentrix”) to our stockholders as of the close of business on November 17, 2020, the record date for the distribution. Our stockholders received one share of Concentrix common stock for every share of our common stock held at the close of business on the record date. Concentrix is now an independent public company trading under the symbol “CNXC” on the Nasdaq Stock Market. After the Separation, we do not beneficially own any shares of Concentrix’ common stock and beginning December 1, 2020, we no longer consolidate Concentrix within our financial results or reflect the financial results of Concentrix within our continuing results of operations. We distributed a total of approximately 51.6 million shares of Concentrix common stock to our stockholders. In connection with the Separation, we have entered into a separation and distribution agreement, as well as various other agreements with Concentrix that provide a framework for the relationships between the parties going forward, including among others an employee matters agreement, a tax matters agreement, and a commercial agreement, pursuant to which Concentrix will continue to provide services to us following the Separation. The historical results of operations and financial positions of Concentrix are reported as discontinued operations in our Consolidated Financial Statements. For further information on discontinued operations, see Note 3 - Discontinued Operations, to the Consolidated Condensed Financial Statements in Item 1 of Part I. Pursuant to the Separation of the Concentrix segment, we operate in a single reportable segment, which represents an aggregation of our four geographic operating segments of United States, Canada, Japan and Latin America. 27 Table of Contents We distribute peripherals, information technology (“IT”) systems including data center server and storage solutions, system components, software, networking, communications and security equipment, consumer electronics (“CE”) and complementary products. We also provide systems design and integration solutions. We distribute more than 40,000 technology products (as measured by active SKUs) from more than 500 IT, CE and original equipment manufacturers (“OEM”), suppliers to more than 25,000 resellers, system integrators, and retailers throughout the United States, Canada, Japan, Mexico and Central and South America. We purchase peripherals, IT systems, system components, software, networking, communications and security equipment, CE and complementary products from our suppliers and sell them to our reseller and retail customers. We perform a similar function for our distribution of licensed software products. Our reseller customers include value-added resellers, corporate resellers, government resellers, system integrators, direct marketers, and national and regional retailers. 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 print management, renewals, logistics services and supply chain management. Additionally, we provide our customers with 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 income from operations as a percentage of revenue, or operating margin. The market for IT and CE products is generally characterized by declining unit prices and short product life cycles. 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. In our business, we are highly dependent on the end-market demand for IT and CE 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 and CE products and software by OEMs, replacement cycles for existing IT and CE products, trends toward cloud computing, overall economic growth and general business activity. A difficult and challenging economic environment may also lead to consolidation or decline in the IT and CE industries and increased price-based competition. We have been in business since 1980 and are headquartered in Fremont, California. We have significant operations in North and South America, Asia-Pacific, Europe and Africa. We were originally incorporated in the State of California as COMPAC Microelectronics, Inc. in November 1980, and we changed our name to SYNNEX Information Technologies, Inc. in February 1994. We later reincorporated in the State of Delaware under the name of SYNNEX Corporation in October 2003. As of February 28, 2021, we had over 8,700 full-time and temporary employees worldwide. In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”). In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation, including our own, and created significant volatility and disruption of financial markets. The impact of the COVID-19 pandemic on our business is discussed at the appropriate places in the discussion of the results of our operations for the three months ended February 28, 2021. The disruptions due to COVID-19 have impacted our business including logistics operations. We are unable to predict how long these conditions will persist, what additional measures may be introduced by governments, vendors or customers and the effect of any such additional measures on our business. As a result, many of the estimates and assumptions involved in the preparation of the financial statements included in this report on Form 10-Q, required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve with respect to the pandemic, our estimates may materially change in future periods. Critical Accounting Policies and Estimates During the three months ended February 28, 2021, 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, 2020, except as such policies relate to the Concentrix business. During the three months ended February 28, 2021, we adopted certain other new accounting pronouncements. The impact of adoption of these pronouncements was not material to our consolidated financial statements. See Note 2 - Summary of Significant Accounting Policies to our Consolidated Financial Statements for further information. 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. We are also strategically focused on further increasing our scale to support our customers. Pending Merger On March 22, 2021, we announced that we had entered into a merger agreement to acquire 100% of the parent company of Tech Data Corporation, a Delaware Corporation ("Tech Data") in a cash and stock transaction (the "Merger"). The consideration payable to the stockholder that owns Tech Data consists of $1.61 billion of cash and 44 million shares of our common stock, plus cash in lieu of any fractional 28 Table of Contents shares of our stock, without interest (the “Merger Consideration”) . Following the proposed transaction, the sole stockholder of Tech Data will own approximately 45% of our stock on a fully diluted basis as of February 28, 2021 . If the Merger is not consummated, then under certain circumstances we would be obligated to pay Tech Data a termination fee ranging from $40 .9 million to $131 .7 million . Either party can terminate the Merger agreement if certain matters are not approved by our stockholders , in which case, we may be obligated to pay Tech Data a fee equal to the reasonable fees, costs and other expenses directly related to the Merger , or in certain circumstances, the termination fee . The Merger is expected to create a global IT distribution leader with significant breadth and depth of product offerings, services and logistic capabilities. For the twelve months ended January 31, 2020, Tech Data generated approximately $37 billion in revenue and approximately $375 million of net income. In connection with the Merger, we also entered into a commitment letter that includes a commitment for a 364-day $4.0 billion senior unsecured term bridge loan and a 364-day $3.5 billion senior unsecured revolving credit facility, subject to customary conditions, in order to finance a portion of the proposed acquisition, if necessary. Completion of the Merger is subject to the approval by our stockholders of the stock to be issued as consideration and related amendments to our certificate of incorporation, approval by the New York Stock Exchange of the listing of our stock to be issued as consideration, and other customary closing conditions, including expiration of the federal Hart-Scott-Rodino Antitrust Improvements Act of 1976 waiting period and certain foreign regulatory approvals. The transaction is expected to close in the second half of the calendar year 2021. 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, 2021 February 29, 2020 Revenue 100.00 % 100.00 % Cost of Revenue (93.83 )% (93.75 )% Gross profit 6.17 % 6.25 % Selling, general and administrative expenses (3.30 )% (3.79 )% Operating income from continuing operations 2.87 % 2.46 % Interest expense and finance charges, net (0.46 )% (0.46 )% Other income (expense), net (0.03 )% (0.02 )% Income from continuing operations before income taxes 2.38 % 1.98 % Provision for income taxes (0.60 )% (0.30 )% Income from continuing operations 1.78 % 1.68 % Income from discontinued operations, net of taxes 0.00 % 1.32 % Net income 1.78 % 3.00 % The financial results of the former Concentrix business are presented as income from discontinued operations, net of taxes in the Statements of Operations data. In addition, in the second half of 2021, we expect a decrease in our revenue by up to approximately $600 million a quarter due to a customer moving to a consignment model where we will provide integration services on an agency basis. Due to the ongoing impact of the COVID-19 pandemic, current results and financial condition discussed herein may not be indicative of future operating results and trends. 29 Table of Contents Ce rtain 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, 2021 in the billing currency using their comparable prior period currency conversion rate. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates. • Non-GAAP operating income, which is operating income adjusted to exclude transaction-related and integration expenses, amortization of intangible assets and share-based compensation expense. • Non-GAAP operating margin, which is non-GAAP operating income, as defined above, divided by revenue. • Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) which is net income before interest, taxes, depreciation and amortization, adjusted to exclude other income (expense), net, transaction-related and integration expenses and share-based compensation expense. • Non-GAAP diluted earnings per common share (“EPS”), which is diluted EPS excluding the per share, tax effected impact of (i) transaction-related and integration expenses, (ii) amortization of intangible assets, (iii) share-based compensation. Transaction-related expenses typically consist of acquisition, integration, and divestiture related costs and are expensed as incurred. These expenses primarily represent costs for legal, banking, consulting and advisory services, and debt extinguishment fees. From time to time, this category may also include transaction-related gains/losses on divestitures/spin-off of businesses. 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. These non-GAAP financial measures also exclude amortization of intangible assets. Our acquisition activities have resulted in the recognition of intangible assets which consist primarily of customer relationships, vendor lists and technology. Definite-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 within each segment. Although intangible assets contribute to our revenue generation, the amortization of intangible assets does not directly relate to the sale of our products and the services performed for our clients. 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 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. 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. In prior periods, SYNNEX has excluded other items relevant to those periods for purposes of its non-GAAP financial measures. 30 Table of Contents Non-GAAP Financial Information: The following table provides the reconciliations of our most comparable GAAP measures to our non-GAAP measures presented: Three Months Ended February 28, 2021 February 29, 2020 (in thousands, except per share amounts) Revenue $ 4,939,014 $ 4,081,024 Foreign currency translation $ (15,256 ) Revenue in constant currency $ 4,923,758 $ 4,081,024 Operating income $ 141,748 $ 100,445 Transaction-related and integration expenses — 291 Amortization of intangibles 9,369 10,188 Share-based compensation 4,887 4,599 Non-GAAP operating income $ 156,004 $ 115,523 Operating margin 2.87 % 2.46 % Non-GAAP operating margin 3.16 % 2.83 % Net income $ 87,822 $ 122,584 Interest expense and finance charges, net 22,838 18,792 Provision for income taxes 29,754 12,284 Depreciation 5,499 5,876 Amortization of intangibles 9,369 10,188 EBITDA $ 155,282 $ 169,724 Other (income) expense, net 1,333 855 Transaction-related and integration expenses — 291 Share-based compensation 4,887 4,599 Income from discontinued operations — (54,070 ) Adjusted EBITDA $ 161,502 $ 121,399 Diluted EPS from continuing operations $ 1.69 $ 1.32 Transaction-related and integration expenses — 0.01 Amortization of intangibles 0.18 0.20 Share-based compensation 0.09 0.09 Income taxes related to the above (1) (0.07 ) (0.19 ) Non-GAAP diluted EPS from continuing operations $ 1.89 $ 1.42 (1) The tax effect of taxable and deductible non-GAAP adjustments was calculated using the effective year-to-date tax rate during the respective periods. Three Months Ended February 28, 2021 and February 29, 2020 Revenue Three Months Ended February 28, 2021 February 29, 2020 Percent Change (in thousands) Revenue $ 4,939,014 $ 4,081,024 21.0 % Our revenue includes sales of products. We distribute a comprehensive range of products for the technology industry and design and integrate data center equipment. The prices of our products are highly dependent on the volumes purchased within a product category. The products we sell from one period to the next are often not comparable due to changes in product models, features and customer demand requirements. Revenue increased during the three months ended February 28, 2021, as compared to the prior year period, due to broad-based demand for our products and solutions as the impact of COVID-19 related shelter-in-place restrictions continued to buoy remote work, learn and consumer needs. 31 Table of Contents Gross Profit Three Months Ended February 28, 2021 February 29, 2020 Percent Change (in thousands) Gross profit $ 304,567 $ 255,105 19.4 % Gross margin 6.17 % 6.25 % Our gross margin is affected by a variety of factors, including competition, selling prices, mix of products and services, product costs along with rebate and discount programs from our suppliers, reserves or settlement adjustments, freight costs, inventory losses, acquisition of business units and fluctuations in revenue. Our gross profit increased, during the three months ended February 28, 2021, as compared to the prior year period, due to higher revenue. The decrease in gross margin, as compared to the prior year period, is primarily due to product mix. Selling, General and Administrative Expenses Three Months Ended February 28, 2021 February 29, 2020 Percent Change (in thousands) Selling, general and administrative expenses $ 162,820 $ 154,660 5.3 % Percentage of revenue 3.30 % 3.79 % 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 and other non-integration facilities, utility expenses, legal and professional fees, depreciation on certain of our capital equipment, bad debt expense, amortization of intangible assets, and marketing expenses, offset in part by reimbursements from our OEM suppliers. During the three months ended February 28, 2021, selling, general and administrative expenses increased, compared to the prior year period, primarily due to higher employee related expenses due to COVID-19, partially offset by a decrease in amortization of intangible assets and a decrease in allowance for doubtful accounts. Selling, general and administrative expenses decreased as a percentage of revenue, compared to the prior year period , primarily due to scale. Operating Income Three Months Ended February 28, 2021 February 29, 2020 Percent Change (in thousands) Operating income $ 141,748 $ 100,445 41.1 % Operating margin 2.87 % 2.46 % Operating income and margin increased during the three months ended February 28, 2021, compared to the prior year period, primarily due to broad-based growth across our product portfolio and related scale efficiencies. Interest Expense and Finance Charges, Net Three Months Ended February 28, 2021 February 29, 2020 Percent Change (in thousands) Interest expense and finance charges, net $ 22,838 $ 18,792 21.5 % Percentage of revenue 0.46 % 0.46 % 32 Table of Contents Amounts recorded in interest expense and finance charges, net, consist primarily of interest expense paid on our lines of credit and term loans, fees associated with third party accounts receivable flooring arrangements and the sale or pledge of accounts receivable through our securitization facilities, offset by income earned on our cash investments. During the three months ended February 28, 2021, our interest expense and finance charges, net, increased compared to the prior year period, primarily due to an increase in the average outstanding borrowings primarily due to the distribution to our stockholders by way of funding Concentrix in connection with the Separation. Other Expense, Net Three Months Ended February 28, 2021 February 29, 2020 Percent Change (in thousands) Other expense, net $ (1,333 ) $ (855 ) 55.9 % Percentage of revenue (0.03 )% (0.02 )% Amounts recorded as other income (expense), net include foreign currency transaction gains and losses, investment gains and losses, and other non-operating gains and losses, such as settlements received from class actions lawsuits. The increase in other expense, net during the three months ended February 28, 2021, as compared to the prior year period, was primarily due to higher foreign currency exchange losses. Provision for Income Taxes Three Months Ended February 28, 2021 February 29, 2020 Percent Change (in thousands) Provision for income taxes $ 29,754 $ 12,284 142.2 % Percentage of income from continuing operations before income taxes 25.31 % 15.20 % 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, 2021, our income tax expense increased compared to the prior year period, due to higher income during the three months ended February 28, 2021 and lower taxes in the prior year period due to tax benefits received from the exercising of stock options by employees and the reversal of uncertain tax positions. Discontinued Operations Three Months Ended February 28, 2021 February 29, 2020 Percent Change (in thousands) Income from discontinued operations, net of taxes $ — $ 54,070 (100.0 )% Percentage of revenue 0.00 % 1.32 % Income from discontinued operation includes net income from Concentrix during the three months ended February 29, 2020. Concentrix was separated on December 1, 2020, consequently, there was no revenue earned or cost incurred during the three months ended February 28, 2021 related to the discontinued operations. 33 Table of Contents Liquidity and Capital Resources Cash Conversion Cycle Three Months Ended February 28, 2021 November 30, 2020 February 29, 2020 (Amounts in thousands) Days sales outstanding ("DSO") Revenue (a) $ 4,939,014 $ 6,118,571 $ 4,081,024 Accounts receivable (b) 2,381,064 2,808,125 2,325,468 Days sales outstanding (c) = (b)/((a)/the number of days during the period) 43 42 52 Days inventory outstanding ("DIO") Cost of revenue (d) $ 4,634,447 $ 5,752,179 $ 3,825,920 Inventories (e) 2,556,716 2,684,076 2,710,251 Days inventory outstanding (f) = (e)/((d)/the number of days during the period) 50 42 64 Days payable outstanding ("DPO") Cost of revenue (g) $ 4,634,447 $ 5,752,179 $ 3,825,920 Accounts payable (h) 3,116,095 3,753,634 2,483,636 Days payable outstanding (i) = (h)/((g)/the number of days during the period) 61 59 59 Cash conversion cycle ("CCC") (j) = (c)+(f)-(i) 32 25 57 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, accounts receivable arrangements, our securitization programs, and our revolver programs 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 volume decreases, our net investment in working capital dollars typically decreases, which generally results in increases in cash flows generated from operating activities. Our cash conversion cycle was 32 days and 57 days as of February 28, 2021 and February 29, 2020, respectively. The decrease was primarily due to faster turnover of our inventories and the timing of collections of accounts receivables related to our projects and integration-based server solutions business . To increase our market share and better serve our customers, we may further expand our operations through investments or acquisitions, such as the pending acquisition of Tech Data. 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. Net cash provided by operating activities was $25.0 million during the three months ended February 28, 2021, primarily due to decreases in accounts receivable of $427.1 million, receivables from vendors of $17.1 million and inventories of $126.9 million. In addition, our net income of $87.8 million together with adjustments to net income for non-cash items of $25.3 million resulted in an increase in our cash balances. These cash inflows were largely offset by a decrease in accounts payable of $636.0 million and a net change of $23.3 million in other operating assets and liabilities. The decreases in accounts receivable, vendor receivables and inventories are primarily due to lower revenue during the three months ended February 28, 2021 compared to a seasonally high fourth quarter of fiscal year 2020. The decrease in accounts payable and cash outflow from changes in other operating assets and liabilities is primarily due to timing of payments . The adjustments for non-cash items consist primarily of amortization and depreciation and share-based compensation expense. 34 Table of Contents Net cash provided by operating activities was $58.1 million during the three months ended February 29, 2020, primarily due to decreases in accounts receivable of $619.3 million and receivables from vendors of $67.6 million . Our net income of $122.6 million and adjustments to net income for non-cash items of $91.0 million also led to an increase in our cash balances. These cash inflows were substantially offset by an increase in inventories of $162.8 million, a decrease in accounts payable of $613.8 million, and a net change in other operating assets and liabilities of $65.7 million. The decrease in accounts receivable and payable was primarily due to lower revenue in our business during the three months ended February 29, 2020 following a seasonally high fourth quarter of fiscal year 2019. The decrease in accounts payable was also impacted by timing of payments. The increase in inventories was primarily due to timing of shipments in our systems design and integration solutions business. The adjustments for non-cash items consist primarily of amortization and depreciation, share-based compensation expense, provision for doubtful accounts, and deferred tax benefit related to both our continuing operations as well as discontinued operations . Net cash used in investing activities during the three months ended February 28, 2021 was $4.0 million, primarily due to capital expenditures related to infrastructure investments to support growth in our business. Net cash used in investing activities during the three months ended February 29, 2020 was $54.3 million, primarily due to capital expenditures of $51.9 million related to infrastructure investments to support growth of our business including discontinued operations. Net cash used in financing activities during the three months ended February 28, 2021 was $147.2 million, representing primarily net transfer of cash and cash equivalents of $149.9 million to Concentrix in connection with the Separation and a return of cash to stockholders in the form of dividends of $10.3 million. This was partially offset by net proceeds of $13.0 million from our borrowing arrangements in certain international locations to fund working capital requirements. Net cash provided by financing activities during the three months ended February 29, 2020 was $67.6 million, consisting primarily of net proceeds from our borrowing arrangements of $88.1 million to finance working capital, partially offset by $20.7 million of dividend payments. Capital Resources Our cash and cash equivalents totaled $1,443.7 million and $1,412.0 million as of February 28, 2021 and November 30, 2020, respectively. Of our total cash and cash equivalents, the cash held by our international subsidiaries was $469.7 million and $434.8 million as of February 28, 2021 and November 30, 2020, 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 will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months in all geographies, including for the proposed acquisition of Tech Data. 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. Historically, we have renewed our accounts receivable securitization program and our U.S. credit facility agreement described below 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. On-Balance Sheet Arrangements In the United States, we have an accounts receivable securitization program to provide additional capital for our operations (the “U.S. AR Arrangement”). Prior to the amendment in May 2020 described in this paragraph, u nder the terms of the U.S. AR Arrangement, which had a maturity date of May 2020, our subsidiary, which is the borrower under this facility, could borrow up to a maximum of $850.0 million based upon eligible trade accounts receivable. The effective borrowing cost under the U.S. AR Arrangement is a blended rate based upon the composition of the lenders that included prevailing dealer commercial paper rates and a rate based upon LIBOR, provided that LIBOR would not be less than zero. In addition, a program fee of 0.75% per annum based on the used portion of the commitment, and a facility fee of 0.35% per annum was payable on the adjusted commitment of the lenders. In May 2020 , the U.S. AR Arrangement was amended to revise the maximum borrowing amount to $650.0 million and to extend the maturity date of the U.S. AR Arrangement to May 2022. The program fee payable on the used portion of the lenders’ commitment, was modified to accrue at 1.25% per annum in the case of lender groups who fund their advances based on prevailing commercial paper rates, and 1.30% per annum in the case of lender groups who fund their advances based on LIBOR (subject to a 0.50% per annum floor). The amendment also modified the facility fee payable on the adjusted commitment of the lenders, to accrue at different tiers ranging between 0.35% per annum and 0.45% per annum depending on the amount of outstanding advances from time to time. In addition, the U.S. AR Arrangement includes an accordion feature to allow requests for an increase in the lenders' commitment by an additional $150.0 million. Under the terms of the U.S. AR Arrangement, we and two of our U.S. subsidiaries sell, on a revolving basis, our receivables to a wholly-owned, bankruptcy-remote subsidiary. The borrowings are funded by pledging all of the rights, title and interest in the receivables 35 Table of Contents acquired by our bankruptcy-remote subsidiary as security. Any amounts received under the U.S. AR Arrangement are recorded as debt on our Consolidated Balance Sheets. As of both February 28, 2021 and November 30, 2020 , there were no borrowings outstanding under this facility. In Canada, we have an accounts receivable securitization program with a bank to provide additional capital for operations. Under the terms of this program, as renewed in March 2020, SYNNEX Canada Limited (“SYNNEX Canada”) can borrow up to CAD100.0 million, or $78.5 million, in exchange for the transfer of eligible trade accounts receivable, on an ongoing revolving basis through May 2023. The program includes an accordion feature that allows us to request an increase in the bank's commitment by an additional CAD50.0 million, or $39.2 million. Any amounts received under this arrangement are recorded as debt on our Consolidated Balance Sheets and are secured by pledging all of the rights, title and interest in the receivables to the bank. We guarantee the performance obligations of SYNNEX Canada under this arrangement. The effective borrowing cost is based on the weighted-average of the Canadian Dollar Offered Rate plus a margin of 1.00% per annum and the prevailing lender commercial paper rates. In addition, prior to an event of termination, SYNNEX Canada is obligated to pay a program fee of 0.75% per annum based on the used portion of the commitment. After an event of termination, the program fee shall be the sum of the base rate and 2.50% per annum, based on the used portion of the commitment. SYNNEX Canada pays a fee of 0.40% per annum for any unused portion of the commitment up to CAD60.0 million, or $47.1 million, and when the unused portion exceeds CAD60.0 million, or $47.1 million, a fee of 0.55% per annum on the remaining unused commitment. As of both February 28, 2021 and November 30, 2020, there was no outstanding balance under this arrangement. SYNNEX Japan has a credit agreement with a group of banks for a maximum commitment of JPY15.0 billion or $140.8 million. The credit agreement is comprised of a JPY7.0 billion, or $65.7 million, term loan and a JPY8.0 billion, or $75.1 million, revolving credit facility and expires in November 2021. The interest rate for the term loan and revolving credit facility is based on the Tokyo Interbank Offered Rate, plus a margin, which is based on our consolidated leverage ratio, and currently equals 0.70% per annum. The unused line fee on the revolving credit facility is currently 0.10% per annum based on our consolidated current leverage ratio. The term loan can be repaid at any time prior to the expiration date without penalty. We have guaranteed the obligations of SYNNEX Japan under this facility. As of February 28, 2021 and November 30, 2020, the balances outstanding under the term loan component of these facilities were $65.7 million and $67.1 million respectively. As of February 28, 2021 and November 30, 2020, $45.0 million and $31.6 million, respectively, was outstanding under the revolving credit facility. In the United States, we have a senior secured credit agreement (as amended, the "U.S. Credit Agreement") with a group of financial institutions. The U.S. Credit Agreement includes a $600.0 million commitment for a revolving credit facility and a term loan in the original principal amount of $1.2 billion. We can request incremental commitments to increase the principal amount of the revolving line of credit or term loan by $500.0 million, plus an additional amount which is dependent upon our pro forma first lien leverage ratio, as calculated under the U.S. Credit Agreement. The U.S. Credit Agreement matures in September 2022. At November 30, 2020, in connection with the Separation, we partially repaid $535.0 million of the term loan, using funds drawn by Concentrix from its borrowing arrangements. The remaining outstanding principal of the term loan is payable on maturity. Interest on borrowings under the U.S. Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 2.00% and the margin for base rate loans ranges from 0.25% to 1.00%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) the Federal Funds Rate, plus a margin of 0.50%, (b) the rate of interest announced, from time to time, by the agent, Bank of America, N.A., as its “prime rate,” and (c) the Eurodollar Rate, plus 1.00%. The unused revolving credit facility commitment fee ranges from 0.175% to 0.30% per annum. The margins above the applicable interest rates and the revolving commitment fee for revolving loans are based on our consolidated leverage ratio, as calculated under the U.S. Credit Agreement. Our obligations under the U.S. Credit Agreement are secured by substantially all of the parent company’s and its United States domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the U.S. Term Loan Credit Agreement (defined below) pursuant to an intercreditor agreement and are guaranteed by certain of our United States domestic subsidiaries. As of both February 28, 2021 and November 30, 2020, the balance outstanding under the term loan component of the U.S. Credit Agreement was $500.0 million. There were no borrowings outstanding under the revolving line of credit under the U.S. Credit Agreement as of both February 28, 2021 and November 30, 2020. We have a senior secured term loan credit agreement (the “U.S. Term Loan Credit Agreement”) with a group of financial institutions, in the original principal amount of $1.8 billion. The U.S. Term Loan Credit Agreement matures in October 2023. At November 30, 2020, in connection with the Separation, we partially repaid $665.0 million of the term loan, using funds drawn by Concentrix from its borrowing arrangements. The remaining outstanding principal amount of the term loan is payable on maturity. Interest on borrowings under the U.S. Term Loan Credit Agreement can be based on LIBOR or a base rate at our option, plus a margin. The margin for LIBOR loans ranges from 1.25% to 1.75% and the margin for base rate loan ranges from 0.25% to 0.75%, provided that LIBOR shall not be less than zero. The base rate is a variable rate which is the highest of (a) 0.5% plus the greater of (x) the Federal Funds Rate in effect on such day and (y) the overnight bank funding rate in effect on such day, (b) the Eurodollar Rate plus 1.0% per annum, and (c) the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. During the period in which the term loans were available to be drawn, we paid term loan commitment fees. The margins above our applicable interest rates are, and the term loan commitment fee were, based on our consolidated leverage ratio as calculated under the U.S. Term Loan Credit Agreement. Our obligations under the U.S. Term Loan Credit Agreement are secured by substantially all of the parent company and certain of its domestic subsidiaries’ assets on a pari passu basis with the interests of the lenders under the existing U.S. Credit Agreement pursuant to an intercreditor agreement, and are guaranteed by certain of our domestic subsidiaries. As of both February 28, 2021 and November 30, 2020, the balance outstanding under the U.S. Term Loan Credit Agreement was $1.0 billion. SYNNEX Canada has an uncommitted revolving line of credit with a bank under which it can borrow up to CAD50.0 million, or $39.2 million. Borrowings under the facility are secured by eligible inventory and bear interest at a base rate plus a margin ranging from 0.50% to 2.25% depending on the base rate used. The base rate could be a Banker's Acceptance Rate, a Canadian Prime Rate, LIBOR or U.S. Base Rate. As of both February 28, 2021 and November 30, 2020, there were no borrowings outstanding under this credit facility. 36 Table of Contents Other borrowings and term debt include lines of credit with financial institutions at certain locations outside the United States, factoring of accounts receivable with recourse provisions, capital leases, a building mortgage and book overdrafts. As of February 28, 2021 , commitments for these revolving credit facilities aggregated $46.9 million . Interest rates and other terms of borrowing under these lines of credit vary by country, depending on local market conditions. Borrowings under these facilities are generally guaranteed by us or secured by eligible accounts receivable. As of February 28, 2021 and November 30, 2020 , the balances outstanding under these revolving credit facilities were $24.0 million and $ 25 .8 million , respectively. The maximum commitment amounts for local currency credit facilities have been translated into United States Dollars at February 28, 2021 exchange rates. In connection with the Merger, we entered into a debt commitment letter (the “Commitment Letter”), dated as of March 22, 2021, with Citigroup Global Markets Inc. (“Citi”), pursuant to which Citi has committed to provide (i) a $4.0 billion 364-day senior unsecured term bridge facility and (ii) a $3.5 billion 364-day senior unsecured revolving credit facility, each subject to the satisfaction of certain customary closing conditions including the consummation of the proposed Mergers (the “Bridge Facility”). The Bridge Facility is available to (i) pay for a portion of the Merger Consideration, (ii) directly or indirectly pay, repay, repurchase, or settle, as applicable, certain existing indebtedness of the Company and its subsidiaries and Tech Data and its subsidiaries, and (iii) to pay the costs and expenses related to the Merger, the Bridge Facility and the transactions being entered into or otherwise contemplated in connection therewith. If the Company utilizes the Bridge Facility, amounts drawn thereunder will bear interest at an annual rate equal to LIBOR plus a margin which may initially range from 1.125% to 1.750%, depending on SYNNEX’ debt rating, which margin will be increased by 0.25% for each 90 days that elapse after the closing of the Bridge Facility. The Company will pay commitment fees on the undrawn amount of this commitment ranging from 0.125% to 0.300% based upon SYNNEX’ debt rating. Off-Balance Sheet Arrangements We have financing programs in the United States and Japan under which trade accounts receivable of certain customers may be sold to 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. At February 28, 2021 and November 30, 2020, we had a total of $80.9 million and $22.5 million, respectively, of trade accounts receivable sold to and held by the financial institutions under these programs. Covenant Compliance Our credit facilities have a number of covenants and restrictions that, among other things, require us to maintain specified financial ratios and satisfy certain financial condition tests. They also limit our ability to incur additional debt, make intercompany loans, pay dividends and make other types of distributions, make certain acquisitions, repurchase our stock, create liens, cancel debt owed to us, enter into agreements with affiliates, modify the nature of our business, enter into sale-leaseback transactions, make certain investments, enter into new real estate leases, transfer and sell assets, cancel or terminate any material contracts and merge or consolidate. As of February 28, 2021, we were in compliance with all material covenants for the above arrangements, and we do not believe we are at material risk of not meeting such covenants. Contractual Obligations Our contractual obligations consist of future payments due under our loans, payments for our operating lease commitments and repatriation tax under the Tax Cuts and Jobs Act (“the TCJA”) which are already recorded on our Consolidated Balance Sheet. In addition, our contractual obligations include interest on our debt. The following table summarizes our contractual obligations as at February 28, 2021: Payments Due by Period Total Less than 1 Year 1 - 3 Years 3 - 5 Years > 5 Years (in thousands) Contractual Obligations: Principal debt payments $ 1,635,883 $ 135,883 $ 1,500,000 $ — $ — Interest on debt 148,088 49,742 98,346 — — Repatriation tax under the TCJA 40,462 — 19,357 21,105 — Non-cancellable operating leases 77,608 16,932 33,835 15,630 11,211 Total $ 1,902,041 $ 202,557 $ 1,651,538 $ 36,735 $ 11,211 On December 1, 2020, upon completion of Separation, Concentrix’ borrowing arrangements with outstanding balances aggregating $1.2 billion were no longer part of our contractual obligations. Principal debt payments at February 28, 2021 disclosed above, assume the repayment of our revolving lines of credit within a year. Interest on debt, in the table above, includes estimated interest on our term loans and revolving credit facilities at rates of interest applicable at the end of our fiscal period. We are contingently liable under agreements, without expiration dates, to repurchase repossessed inventory acquired by flooring companies as a result of default on floor plan financing arrangements by our customers. There have been no repurchases through November 30, 2020 under these agreements and we are not aware of any pending customer defaults or repossession obligations. As we do not have access to 37 Table of Contents information regarding the amount of inventory purchased from us still on hand with the customer at any point in time, our repurchase obligations relating to inventory cannot be reasonably estimated. As of February 28, 2021, and November 30, 2020, accounts receivable subject to flooring arrangements were $4 2.4 million and $ 49 . 5 million, respectively. For more information on our third-party revolving short-term financing arrangements, see Note 8 - Accounts Receivable Arrangements to the Consolidated Financial Statements included in Item 1 of Part I of this Report. As of November 30, 2020, we have established a reserve of $12.4 million for unrecognized tax benefits. As we are unable to reasonably predict the timing of settlement of these guarantees and the reserve for unrecognized tax benefits, the table above excludes such liabilities. In addition, refer to Note 17 - Subsequent Events for contractual obligations under the Merger Agreement entered into subsequent to February 28, 2021. 38 Table of Contents Related Party Transactions We have a business relationship with MiTAC Holdings, a publicly-traded company in Taiwan, which began in 1992 when MiTAC Holdings became our primary investor through its affiliates. As of both February 28, 2021 and November 30, 2020, MiTAC Holdings and its affiliates beneficially owned approximately 18% of our outstanding common stock. Mr. Matthew Miau, the Chairman Emeritus of our Board of Directors and a director, is the Chairman of MiTAC Holdings' and a director or officer of MiTAC Holdings' affiliates. The shares owned by MiTAC Holdings are held by the following entities: As of February 28, 2021 (in thousands) MiTAC Holdings ( 1) 5,300 Synnex Technology International Corp. ( 2) 3,860 Total 9,160 (1) Shares are held via Silver Star Developments Ltd., a wholly-owned subsidiary of MiTAC Holdings. Excludes 190 thousand shares held directly by Mr. Miau, 217 thousand shares indirectly held by Mr. Miau through a charitable remainder trust, and 190 thousand shares held by his spouse. (2) Synnex Technology International Corp. (“Synnex Technology International”) is a separate entity from us and is a publicly-traded corporation in Taiwan. Shares are held via Peer Development Ltd., a wholly-owned subsidiary of Synnex Technology International. MiTAC Holdings owns a noncontrolling interest of 8.7% in MiTAC Incorporated, a privately-held Taiwanese company, which in turn holds a noncontrolling interest of 14.9% in Synnex Technology International . Neither MiTAC Holdings nor Mr. Miau is affiliated with any person(s), entity, or entities that hold a majority interest in MiTAC Incorporated. MiTAC Holdings generally has influence over us regarding matters submitted to stockholders for consideration, including any merger or acquisition of ours. Among other things, this could have the effect of delaying, deterring or preventing a change of control over the Company. We purchased inventories and services from MiTAC Holdings and its affiliates totaling $41.2 million and $43.2 million during the three months ended February 28, 2021 and February 29, 2020, respectively. Our sales to MiTAC Holdings and its affiliates totaled $0.2 million and $0.3 million during the three months ended February 28, 2021, and February 29, 2020, respectively. In addition, we paid for reimbursement of rent and overhead costs for the use of facilities of MiTAC Holdings and its affiliates amounting to $32 thousand and $30 thousand during the three months ended February 28, 2021 and February 29, 2020, respectively. As of February 28, 2021 and November 30, 2020, our payables to MiTAC Holdings and its affiliates were $16.7 million and $49.6 million, respectively. As of February 28, 2021 and November 30, 2020, our receivables from MiTAC Holdings and its affiliates were $7.8 million and $26.2 million, respectively. Our business relationship with MiTAC Holdings and its affiliates has been informal and is generally not governed by long-term commitments or arrangements with respect to pricing terms, revenue or capacity commitments. We negotiate pricing and other material terms on a case-by-case basis with MiTAC Holdings. We have adopted a policy requiring that material transactions with MiTAC Holdings or its related parties be approved by our Audit Committee, which is composed solely of independent directors. In addition, Mr. Miau’s compensation is approved by the Nominating and Corporate Governance Committee, which is also composed solely of independent directors. Synnex Technology International is a publicly-traded corporation in Taiwan that currently provides distribution and fulfillment services to various markets in Asia and Australia, and is also our potential competitor. MiTAC Holdings and its affiliates are not restricted from competing with us. 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.