Tech Data Reports First Quarter Fiscal Year 2021 Results

Tech Data (NASDAQ: TECD) (the “Company”) today announced its financial results for the first quarter ended April 30, 2020.

First quarter ended April 30,

($ in millions,except per share amounts)

2020

2019

Y/Y Change

Net Sales

$8,175.2

$8,406.4

-3%

 

 

 

Gross profit

$531.7

$509.4

4%

Gross margin

6.50%

6.06%

44 bps

 

 

 

SG&A expenses (GAAP)

$427.9

$405.5

6%

% of net sales

5.23%

4.82%

41 bps

 

 

 

SG&A expenses (Non-GAAP)

$402.8

$384.6

5%

% of net sales

4.93%

4.58%

35 bps

 

 

 

Operating income (GAAP)

$86.1

$97.6

-12%

Operating margin (GAAP)

1.05%

1.16%

-11 bps

 

 

 

Operating income (Non-GAAP)

$128.9

$124.8

3%

Operating margin (Non-GAAP)

1.58%

1.48%

10 bps

 

 

 

Net income (GAAP)

$48.1

$55.4

-13%

Net income (Non-GAAP)

$80.1

$75.9

5%

 

 

 

EPS - diluted (GAAP)

$1.34

$1.49

-10%

EPS - diluted (Non-GAAP)

$2.22

$2.04

9%

A reconciliation of GAAP to non-GAAP financial measures is presented in the financial tables of this press release.

This information is also available on the Investor Relations section of Tech Data’s website at https://investor.techdata.com/.

Regional Financial Highlights for the First Quarter Ended April 30, 2020:

First quarter ended April 30,

($ in millions)

2020

2019

Y/Y Change

AMERICAS

 

 

 

Net Sales

$3,944.8

$3,789.2

4%

% of WW net sales

48%

45%

 

 

 

 

Operating income (GAAP)

$49.8

$68.6

-27%

% of net sales

1.26%

1.81%

-55 bps

 

 

 

Operating income (Non-GAAP)

$83.7

$84.7

-1%

% of net sales

2.12%

2.24%

-12 bps

EUROPE

 

 

 

Net Sales

$3,971.1

$4,309.5

-8%

% of WW net sales

49%

51%

 

 

 

 

Operating income (GAAP)

$45.9

$36.4

26%

% of net sales

1.16%

0.85%

31 bps

 

 

 

Operating income (Non-GAAP)

$52.0

$45.6

14%

% of net sales

1.31%

1.06%

25 bps

ASIA PACIFIC

 

 

 

Net Sales

$259.3

$307.7

-16%

% of WW net sales

3%

4%

 

 

 

 

Operating (loss) income (GAAP)

($3.2)

$0.9

NM

% of net sales

-1.25%

0.28%

-153 bps

 

 

 

Operating (loss) income (Non-GAAP)

($0.5)

$2.8

NM

% of net sales

-0.19%

0.91%

-110 bps

 

Note: NM = not meaningful, WW = worldwide

Stock-based compensation expense was $6.3 million, a decrease of $2.0 million, compared to the prior-year quarter. These expenses are excluded from the regional operating results and presented as a separate line item in the company’s segment reporting (see the GAAP to non-GAAP reconciliation in the financial tables of this press release).

• Net sales were $8.2 billion, a decrease of 3 percent compared to the prior-year quarter. Portfolio optimization actions reduced net sales by approximately 3 percent. On a constant currency basis, net sales decreased 1 percent.
  • Americas: Net sales were $3.9 billion, an increase of 4 percent compared to the prior-year quarter. Portfolio optimization actions reduced net sales by approximately 2 percent. On a constant currency basis, net sales increased 5 percent.
  • Europe: Net sales were $4.0 billion, a decrease of 8 percent compared to the prior-year quarter. Portfolio optimization actions reduced net sales by approximately 3 percent. On a constant currency basis, net sales decreased 5 percent.
  • Asia Pacific: Net sales were $0.3 billion, a decrease of 16 percent compared to the prior-year quarter. Portfolio optimization actions reduced net sales by approximately 12 percent. On a constant currency basis, net sales decreased 12 percent.
• Gross profit was $531.7 million, an increase of 4 percent compared to the prior-year quarter. As a percentage of net sales, gross profit was 6.50 percent, an improvement of 44 basis points compared to the prior-year quarter. On a constant currency basis, gross profit increased 7 percent.
• Net cash used by operations during the quarter was $8 million.
• Return on invested capital for the trailing twelve months was 12 percent, compared to 13 percent in the prior year. Adjusted return on invested capital for the trailing twelve months was 15 percent, compared to 14 percent in the prior year.

“With the onset of the global COVID-19 crisis, the first quarter brought challenges to businesses across geographies and sectors, including the IT ecosystem. With this backdrop, Tech Data once again is proving its role as the vital link in the IT supply chain, delivering the critical technologies and solutions needed to address rapidly evolving business needs, including enabling remote work. Throughout Q1, we experienced strong demand for Endpoint Solutions driven by remote work and business continuity needs. I’d like to acknowledge the dedication and commitment of our worldwide colleagues who continue to support our channel partners and each other with excellence in these unprecedented times,” said Rich Hume, chief executive officer, Tech Data. “The quarter also brought with it another milestone toward completing our acquisition by Apollo when we received shareholder approval of the transaction, which we look forward to closing upon completion of customary closing conditions.”

Acquisition Update

On November 12, 2019, the Company entered into an Agreement and Plan of Merger, as subsequently amended on November 27, 2019 (the ''Merger Agreement''), with the affiliates of certain funds (the “Apollo Funds”), managed by affiliates of Apollo Global Management, LLC (“Apollo”), a leading global alternative investment manager. Pursuant to the Merger Agreement, the affiliates of the Apollo Funds will acquire all the outstanding shares of the Company’s common stock for $145 per share in cash (the “Merger”). On February 12, 2020, the Company’s shareholders held a special meeting and approved the Merger Agreement.

The Company has received all regulatory approvals necessary to complete the Merger, except for the approval of the Australian Foreign Investment Review Board (“AFIRB”), which has the matter under consideration. The Company and Apollo are still targeting a closing in the first half of calendar year 2020, although this timing may shift based on the timeline for receipt of Australian regulatory approval. We expect to proceed with closing the transaction promptly after the final approval from the AFIRB is received, taking into account the timing requirements of the Merger Agreement, including the Marketing Period (as defined in the Merger Agreement).

In light of the pending acquisition by Apollo, the Company does not plan to host an earnings conference call nor provide forward-looking guidance. A copy of this press release, along with a supplemental slide deck can be accessed at https://investor.techdata.com/overview/default.aspx.

COVID-19 Response

The Company’s focus remains on protecting the health and well-being of our colleagues, while continuing to provide the best possible service levels to our channel partners and supporting our communities. Additional information about Tech Data’s COVID-19 response can be found at https://www.techdata.com/communications/default.aspx.

Non-GAAP Financial Information

The non-GAAP financial information contained in this release is included with the intention of providing investors a more complete understanding of the Company’s operational results and trends, but should only be used in conjunction with results reported in accordance with Generally Accepted Accounting Principles (“GAAP”). Certain non-GAAP measures presented in this release or other releases, presentations and similar documents issued by the Company include sales, income or expense items as adjusted for the impact of changes in foreign currencies (referred to as “constant currency”), non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP earnings per diluted share and Adjusted Return on Invested Capital. Certain non-GAAP measures also exclude acquisition-related intangible assets amortization expense, benefits associated with legal settlements, acquisition, integration and restructuring expenses, goodwill impairment, gain on disposal of subsidiary, tax indemnifications, changes in deferred tax valuation allowances and the impact of U.S. tax reform. A detailed reconciliation of the adjustments between results calculated using GAAP and non-GAAP in this release is contained in the attached financial schedules.

Forward-Looking Statements

This communication includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Such forward-looking statements are inherently uncertain, and shareholders and other potential investors must recognize that actual results may differ materially from Tech Data’s expectations as a result of a variety of factors. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which Tech Data is unable to predict or control, that may cause Tech Data’s actual results, performance, or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. Risks and uncertainties related to the proposed merger include, but are not limited to, the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the failure of the parties to satisfy conditions to completion of the proposed merger, including the failure of the parties to obtain required regulatory approvals; the risk that regulatory or other approvals are delayed or are subject to terms and conditions that are not anticipated; and the risks, uncertainties, and other factors detailed from time to time in Tech Data’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed or furnished with the Securities and Exchange Commission (the “SEC”).

Many of these factors are beyond Tech Data’s control. Tech Data cautions investors that any forward-looking statements made by Tech Data are not guarantees of future performance. Tech Data disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

About Tech Data

Tech Data connects the world with the power of technology. Our end-to-end portfolio of products, services and solutions, highly specialized skills, and expertise in next-generation technologies enable channel partners to bring to market the products and solutions the world needs to connect, grow and advance. Tech Data is ranked No. 90 on the Fortune 500® and has been named one of Fortune’s World’s Most Admired Companies for 11 straight years. To find out more, visit www.techdata.com or follow us on Twitter, LinkedIn, Facebook and Instagram.

TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share amounts) (Unaudited)

 




Three months ended April 30,

2020

2019

Net sales

$

8,175,174

$

8,406,424

 

Cost of products sold

 

7,643,515

 

7,897,045

 

Gross profit

 

531,659

 

509,379

 

Operating expenses:







Selling, general and administrative expenses

 

427,863

 

405,534

 

Acquisition, integration and restructuring expenses

 

17,681

 

6,221

 

 

445,544

 

411,755

 

Operating income

 

86,115

 

97,624

 

Interest expense

 

17,034

 

26,257

 

Other expense (income), net

 

8,948

 

(693

)

Income before income taxes

 

60,133

 

72,060

 

Provision for income taxes

 

12,068

 

16,660

 

Net income

$

48,065

$

55,400

 

 


Earnings per share:







Basic

$

1.35

$

1.50

 

Diluted

$

1.34

$

1.49

 

Weighted average common shares outstanding:







Basic

 

35,688

 

37,011

 

Diluted

 

36,002

 

37,247

 

TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands, except par value and share amounts)

April 30,

January 31,

2020

2020

ASSETS

(unaudited)

 

 


Current assets:






Cash and cash equivalents

$

828,941

 

$

841,366

 

Accounts receivable, net

 

5,367,227

 

 

6,192,203

 

Inventories

 

3,066,273

 

 

3,042,541

 

Prepaid expenses and other assets

 

388,790

 

 

362,182

 

Total current assets

 

9,651,231

 

 

10,438,292

 

Property and equipment, net

 

280,736

 

 

287,150

 

Goodwill

 

975,923

 

 

973,257

 

Intangible assets, net

 

1,052,033

 

 

1,094,676

 

Other assets, net

 

416,685

 

 

475,234

 

Total assets

$

12,376,608

 

$

13,268,609

 

 






 


LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities:






Accounts payable

$

6,393,221

 

$

7,259,246

 

Accrued expenses and other liabilities

 

1,122,656

 

 

1,112,457

 

Revolving credit loans and current maturities of long-term debt, net

 

108,157

 

 

112,882

 

Total current liabilities

 

7,624,034

 

 

8,484,585

 

Long-term debt, less current maturities

 

1,337,541

 

 

1,338,136

 

Other long-term liabilities

 

308,542

 

 

326,433

 

Total liabilities

$

9,270,117

 

$

10,149,154

 

 


Shareholders’ equity:






Common stock, par value $0.0015; 200,000,000 shares authorized; 59,245,585 shares issued at April 30, 2020 and January 31, 2020

$

89

 

$

89

 

Additional paid-in capital

 

838,882

 

 

855,020

 

Treasury stock, at cost (23,587,200 and 23,819,230 shares at April 30, 2020 and January 31, 2020)

 

(1,186,461

)

 

(1,198,132

)

Retained earnings

 

3,509,079

 

 

3,461,014

 

Accumulated other comprehensive (loss) income

 

(55,098

)

 

1,464

 

Total shareholders' equity

 

3,106,491

 

 

3,119,455

 

Total liabilities and shareholders' equity

$

12,376,608

 

$

13,268,609

 

TECH DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited)

Three months ended April 30,

2020

2019

Cash flows from operating activities:






Cash received from customers

$

11,386,818

 

$

11,913,347

 

Cash paid to vendors and employees

 

(11,356,142

)

 

(11,800,318

)

Interest paid, net

 

(30,207

)

 

(35,101

)

Income taxes paid

 

(8,198

)

 

(14,739

)

Net cash (used in) provided by operating activities

 

(7,729

)

 

63,189

 

Cash flows from investing activities:






Expenditures for property and equipment

 

(5,596

)

 

(7,745

)

Software and software development costs

 

(13,944

)

 

(7,534

)

Proceeds from settlement of net investment hedges

 

44,377

 

—

Other

 

(764

)

 

(548

)

Net cash provided by (used in) investing activities

 

24,073

 

 

(15,827

)

Cash flows from financing activities:






Principal borrowings (payments) on long-term debt

 

4,515

 

 

(5,224

)

Cash paid for debt issuance costs

—

 

(1,028

)

Net (repayments) borrowings on revolving credit loans

 

(472

)

 

14,227

 

Payments for employee tax withholdings on equity awards

 

(10,774

)

 

(8,602

)

Proceeds from the reissuance of treasury stock

—

 

495

 

Repurchases of common stock

—

 

(35,681

)

Other

 

(563

)

—

Net cash used in financing activities

 

(7,294

)

 

(35,813

)

Effect of exchange rate changes on cash and cash equivalents

 

(21,475

)

 

(13,172

)

Net decrease in cash and cash equivalents

 

(12,425

)

 

(1,623

)

Cash and cash equivalents at beginning of year

 

841,366

 

 

799,123

 

Cash and cash equivalents at end of period

$

828,941

 

$

797,500

 

 


Reconciliation of net income to net cash (used in) provided by operating activities:






Net income

$

48,065

 

$

55,400

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:






Depreciation and amortization

 

41,991

 

 

37,257

 

Provision for losses on accounts receivable

 

10,832

 

 

1,765

 

Stock-based compensation expense

 

6,307

 

 

8,305

 

Accretion of debt discount and debt issuance costs

 

847

 

 

860

 

Changes in operating assets and liabilities:






Accounts receivable

 

690,145

 

 

751,836

 

Inventories

 

(60,180

)

 

2,450

 

Prepaid expenses and other assets

 

(37,739

)

 

1,763

 

Accounts payable

 

(752,022

)

 

(706,381

)

Accrued expenses and other liabilities

 

44,025

 

 

(90,066

)

Total adjustments

 

(55,794

)

 

7,789

 

Net cash (used in) provided by operating activities

$

(7,729

)

$

63,189

 

TECH DATA CORPORATION AND SUBSIDIARIES GAAP TO NON-GAAP RECONCILIATION (In thousands)

Three months ended April 30, 2020

Americas (1)

Europe (1)

Asia Pacific(1)

StockCompensationExpense

Consolidated

Net Sales

$

3,944,760

 

$

3,971,130

 

$

259,284

 

$

8,175,174

 

Operating income (loss) (GAAP) (1)

$

49,783

 

$

45,884

 

$

(3,245

)

$

(6,307

)

$

86,115

 

Acquisition, integration and restructuring expenses

 

16,956

 

 

(178

)

 

903

 

 

-

 

 

17,681

 

Acquisition-related intangible assets amortization expense

 

16,925

 

 

6,311

 

 

1,253

 

 

24,489

 

Tax indemnifications

 

-

 

 

7

 

 

609

 

 

616

 

Total non-GAAP operating income adjustments

$

33,881

 

$

6,140

 

$

2,765

 

$

-

 

$

42,786

 

Operating income (loss) (non-GAAP)

$

83,664

 

$

52,024

 

$

(480

)

$

(6,307

)

$

128,901

 

Operating margin (GAAP)

 

1.26

%

 

1.16

%

 

-1.25

%

 

1.05

%

Operating margin (non-GAAP)

 

2.12

%

 

1.31

%

 

-0.19

%

 

1.58

%

 


(1) GAAP operating income does not include stock compensation expense at the regional level.
















 












 

Three months ended April 30, 2019

Americas (1)

Europe (1)

Asia Pacific(1)

StockCompensationExpense

Consolidated

Net Sales

$

3,789,198

 

$

4,309,500

 

$

307,726

 

$

8,406,424

 

Operating income (GAAP) (1)

$

68,633

 

$

36,420

 

$

876

 

$

(8,305

)

$

97,624

 

Acquisition, integration and restructuring expenses

 

2,911

 

 

3,024

 

 

286

 

 

-

 

 

6,221

 

Legal settlements and other, net

 

(282

)

 

-

 

 

-

 

 

(282

)

Acquisition-related intangible assets amortization expense

 

13,440

 

 

6,115

 

 

1,324

 

 

20,879

 

Tax indemnifications

 

-

 

 

-

 

 

320

 

 

320

 

Total non-GAAP operating income adjustments

$

16,069

 

$

9,139

 

$

1,930

 

$

-

 

$

27,138

 

Operating income (non-GAAP)

$

84,702

 

$

45,559

 

$

2,806

 

$

(8,305

)

$

124,762

 

Operating margin (GAAP)

 

1.81

%

 

0.85

%

 

0.28

%

 

1.16

%

Operating margin (non-GAAP)

 

2.24

%

 

1.06

%

 

0.91

%

 

1.48

%

 


(1) GAAP operating income does not include stock compensation expense at the regional level.










 

TECH DATA CORPORATION AND SUBSIDIARIES GAAP TO NON-GAAP RECONCILIATION (In thousands)

Selling, general and administrative expenses ("SG&A")

Three months ended April 30,

2020

2019

Net Sales

$

8,175,174

 

$

8,406,424

 

SG&A Expenses (GAAP)

$

427,863

 

$

405,534

 

Tax indemnifications

 

(616

)

 

(320

)

Legal settlements

 

-

 

 

282

 

Acquisition-related intangible assets amortization expense

 

(24,489

)

 

(20,879

)

SG&A Expenses (non-GAAP)

$

402,758

 

$

384,617

 

SG&A Expenses (GAAP) %

 

5.23

%

 

4.82

%

SG&A Expenses (non-GAAP) %

 

4.93

%

 

4.58

%

Three months ended April 30,

2020

2019

Net Income

Diluted EPS

Net Income

Diluted EPS

GAAP Results

$

48,065

 

$

1.34

 

$

55,400

 

$

1.49

 

Acquisition, integration and restructuring expenses

 

17,681

 

 

0.49

 

 

6,221

 

 

0.17

 

Legal settlements and other, net

 

-

 

 

-

 

 

(282

)

 

(0.01

)

Acquisition-related intangible assets amortization expense

 

24,489

 

 

0.68

 

 

20,879

 

 

0.56

 

Tax indemnifications

 

616

 

 

0.02

 

 

320

 

 

0.01

 

Income tax effect of tax indemnifications

 

(616

)

 

(0.02

)

 

(320

)

 

(0.01

)

Income tax effect of other adjustments above

 

(10,184

)

 

(0.29

)

 

(6,321

)

 

(0.17

)

Non-GAAP Results

$

80,051

 

$

2.22

 

$

75,897

 

$

2.04

 

Return on Invested Capital (ROIC)

Twelve months ended April 30,

TTM Net Operating Profit After Tax (NOPAT)*:

2020

2019

Operating income

$

570,820

 

$

520,930

 

Income taxes on operating income (1)

 

(127,358

)

 

(52,272

)

NOPAT

$

443,462

 

$

468,658

 

Average Invested Capital:

Short-term debt (5-qtr end average)

$

119,171

 

$

115,018

 

Long-term debt (5-qtr end average)

 

1,313,004

 

 

1,361,506

 

Shareholders' Equity (5-qtr end average)

 

2,999,952

 

 

2,881,968

 

Total average capital

 

4,432,127

 

 

4,358,492

 

Less: Cash (5-qtr end average)

 

(834,044

)

 

(676,308

)

Average invested capital less average cash

$

3,598,083

 

$

3,682,184

 

ROIC

 

12

%

 

13

%

 


* Trailing Twelve Months is abbreviated as TTM.






(1) Income taxes on operating income was calculated using the trailing twelve months effective tax rate.

Adjusted Return on Invested Capital (ROIC)

Twelve months ended April 30,

TTM Net Operating Profit After Tax (NOPAT), as adjusted*:

2020

2019

Non-GAAP operating income (1)

$

698,584

 

$

708,588

 

Income taxes on non-GAAP operating income (2)

 

(159,929

)

 

(179,283

)

NOPAT, as adjusted

$

538,655

 

$

529,305

 

Average Invested Capital, as adjusted:

Short-term debt (5-qtr end average)

$

119,171

 

$

115,018

 

Long-term debt (5-qtr end average)

 

1,313,004

 

 

1,361,506

 

Shareholders' Equity (5-qtr end average)

 

2,999,952

 

 

2,881,968

 

Tax effected impact of non-GAAP adjustments (3)

 

45,368

 

 

44,860

 

Total average capital, as adjusted

 

4,477,495

 

 

4,403,352

 

Less: Cash (5-qtr end average)

 

(834,044

)

 

(676,308

)

Average invested capital less average cash

$

3,643,451

 

$

3,727,044

 

Adjusted ROIC

 

15

%

 

14

%

 


* Trailing Twelve Months is abbreviated as TTM.





(1) Represents operating income as adjusted to exclude acquisition, integration and restructuring expenses, legal settlements and other, net, gain on disposal of subsidiary, acquisition-related intangible assets amortization expense, goodwill impairment and tax indemnifications.


(2) Income taxes on non-GAAP operating income was calculated using the trailing twelve months effective tax rate adjusted for the impact of non-GAAP adjustments during the respective periods.


(3) Represents the 5 quarter average of the year-to-date impact of non-GAAP adjustments.

 

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Investor Contact Arleen Quinones Corporate Vice President, Investor Relations & Corporate Communications +1 727.532.8866 [e-mail]

Media Contact Bobby Eagle Director, External Communications +1 727.538.5864 [e-mail]