‘Our broad solutions portfolio, liquidity profile, and variable cost structure have allowed us to deliver results through dynamic changes in the economy. We continue to believe that the overall IT market will grow. We also believe that solutions like hybrid cloud, security, hyperscale infrastructure, IoT, and analytics will have growth rate above the overall IT market ,’ says TD Synnex CEO Rich Hume.
In the year since Tech Data and Synnex merged into TD Synnex to form the IT industry’s largest distributor, the company has done better than expected financially, and sees its growth to continue despite macroeconomic conditions.
That rosy look at TD Synnex’s first full year as a company came from Rich Hume, CEO of the Fremont, Calif. and Clearwater, Fla.-based distributor in comments he made to investors Tuesday during the company’s third fiscal quarter 2022 financial analyst conference call.
Hume, during his prepared remarks, said that the 12 months since Tech Data and Synnex formed TD Synnex has seen the distributor validate the value proposition that led to the merger.
“Over the past 12 months, we generated $62 billion in revenue, over $1.7 billion in adjusted EBITDA, and $11.35 in non-GAAP earnings per share, representing 35 percent in accretion and well above our initial 12-month target,” he said.ADVERTISEMENT
TD Synnex has also already realized merger-related cost synergy benefits of $140 million, ahead of its initial expectation of $100 million in the first year, Hume said.
“Making those results possible, our teams have been hard at work harmonizing every area of TD Synnex from partner-facing elements, benefits, and policies to organizational design, finance and IT systems, corporate branding, and culture,” he said.
The growth of the new TD Synnex has helped its vendor partners broaden their capabilities and relationships, Hume said.
“[And] for our 150,000-plus customers, the majority of which are small and medium-sized IT resellers, it is increasingly important to have a trusted partner to help them navigate the IT landscape, especially in high growth technology areas such as hybrid cloud, security, analytics, IoT, as well as others,” he said.
Supply chain disruptions are still high in certain areas including data center, infrastructure, and networking, although they have moderated in other areas like endpoint, including PCs, Hume said.
“Given the variety of factors that have led to these supply chain issues over the past two or three years, it will take time to get back to a normalized supply chain environment,” he said. “Our backlog remains elevated compared to our historical levels, and we anticipate that we will continue to see industry supply imbalances well into 2023 in some product categories.”
Despite less-than-certain macroeconomic environments, TD Synnex expects to continue solid, growing demand, Hume said.
“Our broad solutions portfolio, liquidity profile, and variable cost structure have allowed us to deliver results through dynamic changes in the economy,” he said. “We continue to believe that the overall IT market will grow. We also believe that solutions like hybrid cloud, security, hyperscale infrastructure, IoT, and analytics will have growth rate above the overall IT market. And as we have discussed in the past, we are investing in these high growth areas.”
During the question-and-answer period of the conference call, when asked about detail regarding TD Synnex’s backlog of orders, Hume said the backlog has come down, but said there are two parts.
“First in the endpoint segment, backlog has come down, and we‘re finding that those sort of PC ecosystem things are more serviceable,” he said. “Interestingly enough, there is one vendor in particular that there was a really big backlog reduction, because they really made quite great progress relative to servicing that backlog, but the good news in that is that, that particular vendor has a lot of strength going forward.”
TD Synnex, however, is seeing a growing backlog in many parts of the Advanced Solutions segment of its business, Hume said.
“Within the Advanced Solutions segment, we have not yet seen the peak, if you will, and we would anticipate that it will take until sometime well into ‘23 until we have stability from Advanced Solutions perspective,” he said. “That’s barring obviously any new flare-ups from COVID or anything else that might happen in the world. But it does remain elevated, and I would say that we will be in that elevated state for the foreseeable future.”
When another analyst asked about the scalability of TD Synnex’s Hyve hyperscaler business, Hume said, as he has said in the past, that Hyve is a “lumpy” business, but has recently been more upward lumpy than downward. Instead, he said, the hyperscale segment has seen double-digit growth over the long term, and there is nothing that would make him feel otherwise going forward.
When asked when TD Synnex expects previously-discussed aggregation and integration of multi-vendor solutions to become a real opportunity for the combined company, company Chief Financial Officer Marshall Witt said the distributor has talked about this happening between 2022 and 2024.
“We’re well underway relative to aggregating multi-vendor solutions in our cloud marketplaces,” Witt said. “This happens quite frequently, and we also have been building a whole inventory of what we call click-to-run solutions. These are pre-configured solutions that we make available on our cloud platform. So, that certainly that helps to accelerate our overall cloud platform growth.”
Witt, in response to a question about whether the recession provides TD Synnex increased opportunities for merger and acquisition activities, said that would happen regardless of the economic environment.
“I think we’ve been pretty steady in our ability and appetite to look at deals that are appropriate and value-added, whether it’s a footprint expansion or capability expansion,” he said.
Hume followed up by saying that TD Synnex executives are frequently around the table with its strategic teams looking at the pipeline, and believe the company has the right assets to pursue such opportunities, although price is a concern.
“I think that our company will continue to be acquisitive as the two companies previously have always been, and it‘s a matter of just finding the right assets and being patient to make sure that you find things which are complementary to your business,” he said.
For its third fiscal quarter 2022, which ended August 31, TD Synnex reported revenue of $15.36 billion. The company also reported net income of $148.8 million or $1.55 cents per share on a GAAP basis, or $263.4 million or $2.74 per share on a non-GAAP basis.
TD Synnex did not provide corresponding data for its third fiscal quarter 2021, which was released before the merger of Tech Data and Synnex were complete.
Looking forward, TD Synnex expect total fourth fiscal quarter 2022 revenue to be in the range of $15.2 billion to $16.2 billion, which is up year-over-year by about 8 percent at the midpoint when adjusted for currency impacts. Growth in the quarter is slated to be lower than in the third fiscal quarter because of unusually strong growth in its Hyve business during the third fiscal quarter.