TD SYNNEX Corporation

Good afternoon. My name is Jeff, and I will be your conference operator today. I would like to welcome everyone to the C-NEXT Second Quarter Fiscal 2021 Earnings Call. Today's call is being recorded and all line seven plays 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, Head of Investor Relations. Liz, you may begin.

Thank you, Jeff, and good afternoon to everyone. Thank you for joining us for today's call. With me today 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. including the benefits of the proposed merger to our various stakeholders, timing of the merger, capital structure, and growth. 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. Before getting into the details of the quarter's performance, I would like to remind everyone that the year-ago quarter was the first full quarter impacted by the COVID-19 pandemic. Given the significant negative impact that this had on our fiscal Q2 2020 results, the year-over-year comparisons that we discussed today are greater than normal in magnitude. Our fiscal Q2 results came in well ahead of our expectations, fueled by continued strong demand environment. Total revenue for Q2 was up 31% year-over-year to $5.9 billion. Gross profit increased 20%, or $55 million, compared to the prior year to $329 million. Gross margin was 5.6%, down from 6.1% in the prior year, primarily due to product mix. Total adjusted SG&A expense was $159 million, or 2.7% of revenue, down $14 million compared to the year ago quarter, primarily due to COVID-related expenses in the prior year. Non-GAAP operating income was $170 million, improved by $68 million, or 67% versus the prior year. And non-GAAP operating margin was 2.9%, up 62 basis points year over year. Q2 interest expense and finance charges were approximately $23 million, and the effective tax rate was 25%, both in line with our expectations. Total non-GAAP income from continuing operations was $109 million, up $44 million, and improved by 68% over the prior year. And non-GAAP diluted EPS from continuing operations was $2.09, up from $1.26 in the prior year. Now, turning to the balance sheet. We ended the quarter with cash and cash equivalents of $1.7 billion and debt of $1.6 billion. Accounts receivable totaled $2.5 billion, down 12% year-over-year, and inventories totaled $2.7 billion, flat from the prior year. Our cash conversion cycle for the second quarter was 26 days, 17 days improved from last year. The decrease was driven by DSO improvements and better inventory terms. Cash generated from operations was approximately $280 million in the quarter, and including our cash and credit facilities, we had approximately $3.1 billion of available liquidity. We are pleased to report that our Board of Directors has approved a quarterly cash dividend of $0.20 per common share for the current quarter. The dividend is expected to be paid on July 30, 2021, to stockholders of record as of the close of business on July 16, 2021. Before moving to our Q3 outlook, let me provide a brief update regarding our proposed merger with TechData. Since our announcement in March, we have established the capital structure for the planned merger through a new $5 billion credit facility and are on track with the debt financing for the merger. Now, moving to our outlook for fiscal Q3. Revenue is expected to be in the range of $4.95 billion to $5.45 billion. This estimate does not contemplate any impact related to the customer consignment change that we have previously spoken about. At this time, we no longer expect the change to occur within our fiscal 2021. Non-GAAP net income is expected to be in the range of $99.9 million to $110.4 million. And non-GAAP diluted EPS is expected to be in the range of $1.90 to $2.10 per diluted share. based on weighted average shares outstanding of approximately $51.9 million. Our Q3 non-GAAP net income and non-GAAP diluted EPS guidance exclude the after-tax costs of $7 million or $0.13 per share related to the amortization of the tangibles and $5.3 million or $0.10 per share related to share-based compensation. Please note that these statements of our third quarter and fiscal 2021 expectations are forward-looking and that our actual results may differ materially.