TD SYNNEX Corporation

Good afternoon. My name is Rob and I will be your conference operator today. I would like to welcome everyone to the Cinex fourth quarter fiscal 2020 earnings call. Today's call is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. At this time for opening remarks, I would like to pass the call over to Liz Morali, Senior Manager, Investor Relations. Lynn, you may begin.

Thank you, Rob, and good afternoon, everyone. Welcome to the Cinex fourth quarter fiscal 2020 earnings call. Joining me today to review our financial results are Dennis Polk, President and CEO, and Marshall Witt, CFO. Before we continue, let me remind everyone that today's discussion contains forward-looking statements within the meaning of the federal securities laws, including predictions, estimates, projections, or other statements about future events, strategy, demand, growth, expenses, costs, and service models. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties discussed in today's earnings release in the Form 8K we filed today and in the Risk Factors section of our Form 10K and our other reports and filings with the SEC. We do not intend to update any forward-looking statements. Also, during this call, we will reference certain non-GAAP financial information. Reconciliations of GAAP to non-GAAP results are included in our earnings press release and the related Form 8K available on our investor relations website, ir.sinex.com. This conference call is the property of Sinex Corporation and may not be recorded or rebroadcasted without our permission. I will now turn the call over to Marshall. Marshall?

Thanks, Liz, and thank you to everyone joining us for today's call. The consolidated Q4 and fiscal 2020 results I will present today include concentric, as the spinoff was completed on December 1st, which was the first day of our fiscal 2021. All go-forward financial discussion applies to CINEX on a standalone basis. Concentrix will hold a separate earnings call to review its results in greater detail tomorrow morning, January 12th. So we will refrain from answering Concentrix-related questions on today's call in order to allow the Concentrix management team to directly discuss their business and results during tomorrow's call. Before moving to the fourth quarter results, I want to acknowledge that 2020 was a year unlike any in recent memory. The COVID-19 pandemic altered the way that we all worked, lived, and learned this year. Despite this, we successfully stopped concentrics, created increased value for our shareholders, and are well-positioned heading into 2021. The remote work, learn, and consume trends continued in the fourth quarter, which led to increases in demand for products and services provided by Cinex and concentrics, And this dynamic led to record financial results for our fourth quarter. On a consolidated basis, total revenue was $7.4 billion, up 13% year over year. Consolidated gross profit totaled $823 million, up 4% or $29 million compared to the prior year. And gross margin was 11.1% compared to 12.1% the prior year. Total adjusted SG&A expense was $503 million, or 6.8% of revenue, down $23 million compared to the year-ago quarter, primarily due to continued concentric synergies related to the convergence acquisition and lower concentric variable operating expenses. Consolidated non-GAAP operating income was $388 million, up $50 million, or 15% versus the prior year. Non-GAAP operating margin was 5.2%, up 10 basis points compared to the prior year period. Total non-GAAP net income was $271 million, up $51 million, or 23% over the prior year. And non-GAAP diluted EPS was $5.21, up 22% year-over-year. Now, shifting gears to Technology Solutions Q4 operating performance. Technology Solutions' revenue was $6.1 billion, up 14%, or $745 million over the prior year quarter. Technology Solutions' gross margin of 6% was 30 basis points lower than the prior year quarter, primarily due to product mix. Operating income of $200 million was up $34 million from the year-ago period. And non-GAAP operating income was $216 million, up 22% or $38 million year-over-year. Non-GAAP operating margin was 3.5%, 22 basis points higher than a year ago. Technology Solutions COVID-19 related incremental expense decreased in Q4, as expected, driven by a reduction in the amount related to doubtful accounts. The cost associated with staffing and remote work increased quarter over quarter. We expect incremental quarterly costs at a minimum of $5 million in 2021. with the goal of creating other efficiencies to offset the majority of these impacts. Interest expense and effective tax rate for Q4 reflects Cinex and Concentrix consolidated results and were consistent with expectations. Technology Solutions Q1 interest expense and finance charges are expected to be approximately $22 to $23 million, and the effective tax rate is expected to be 26% for the quarter and also for fiscal 2021. Given our spin for comparison to prior year, we believe it's best to compare technology solutions at the non-GAAP operating income, operating margin level provided in prior releases and filings. This is due to the fact that below the operating line, technology solutions and concentrics were under a consolidated capital and tax structure. This, along with stranded corporate costs of approximately $5 million, which we expect to lower over time, make the comparisons difficult. For those who would like to produce a pro forma comparison analysis to the prior fiscal year, we suggest that along with the stranded costs to use an assumed debt of $1.5 billion at approximate 4.5%, plus other financing costs of approximately $7 million per quarter and a tax rate of approximately 25%. Please note that the Q1 2020 pro forma tax rate is approximately 15% due to stock-based comp tax benefits and FIN 48 reversals. Please note that these are only suggested amounts for pro forma analysis and in no way should be construed as GAAP or equivalent numbers. Now turning to the balance sheet. In today's press release, we have provided both a consolidated balance sheet and a pro forma CINEX balance sheet. Post-spin, Technology Solutions debt is approximately $1.6 billion and net debt is just above $200 million. Accounts receivable totaled $2.8 billion and inventories totaled $2.7 billion as of the end of Q4. Technology Solutions cash conversion cycle for the fourth quarter was 25 days, 16 days lower than the prior year and eight days lower than the prior quarter. The decrease was driven by DSO improvements across Technology Solutions and better inventory turns. cash generated from operations was approximately $297 million in the quarter, with approximately $205 million attributable to technology solutions, excluding intercompany settlements. For the full year, we generated $1.84 billion in operating cash flow, with $1.36 billion attributable to technology solutions. At the end of the fourth quarter, including our cash and credit facilities, technology solutions had approximately $2.8 billion of available liquidity, As a result of our improved financial performance and liquidity, our board of directors has approved the reinstatement of a quarterly cash dividend of $0.20 per common share. The dividend is expected to be paid on January 29, 2021, to stockholders of record as of the close of business on January 22, 2021. Going forward, we intend to utilize 30% to 35% of our free cash flow for capital return programs, either via dividends and or share buybacks. We believe this level allows us to adequately invest in our business while maintaining our commitment to driving long-term shareholder returns. Now moving to outlook for fiscal Q1. We expect revenue to be in the range of $4.5 billion to $4.8 billion. Non-GAAP net income is expected to be in the range of $81 million to $91.5 million. And non-GAAP diluted EPS is expected to be in the range of $1.55 to $1.75 per diluted share on weighted average shares outstanding of approximately $51.8 million. As previously announced, beginning in fiscal Q1, we've made the decision to exclude share-based compensation from our non-GAAP results. Excluding share-based compensation is consistent with the practices of many of our partners, competitors, and customers, and we believe this more accurately reflects our operating performance. Our Q1 non-GAAP net income and non-GAAP diluted EPS guidance exclude after-tax costs of $7.3 million or $0.14 per share related to the amortization of intangibles and $3.4 million or $0.07 per share related to the shareholder-based compensation. Please note that these statements of our first quarter fiscal 2021 expectations are forward-looking and that our actual results may differ materially. Lastly, we previously shared that one of our customers would be moving to a consignment service model in 2021. We now have more clarity regarding the timing of this change and expect the transition to occur in our fiscal Q3 2021. As previously indicated, we expect this change to reduce revenue by approximately $600 million per quarter, although it may take some time to fully ramp up to that level. Moving into 2022, we expect further consignment with this customer will take place, increasing the quarterly run rate to something greater than $600 million per quarter. On a go-forward basis, margins related to this customer will be based on product and service mix. I will now turn the call over to Dennis.