New Synnex CEO Dennis Polk Takes Center Stage To Report Business Growth


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Steady sales growth overcame some margin headwinds to give Synnex's new CEO the opportunity to report a strong fiscal first quarter of 2018.

Synnex's quarterly financial analyst conference call on Thursday was the first for the Fremont, Calif.-based distributor since Dennis Polk took over from Kevin Murai as Synnex president and CEO.

Synnex's reported revenue beat analysts' expectations, according to Seeking Alpha, while earnings beat expectations by 3 cents per share. However, the company's earnings outlook was not quite as aggressive as Wall Street had hoped. Synnex shares, which grew nearly 3.5 percent during the trading day, to $118.40 per share, slipped 8 percent in after-hours trading.

[Related: CRN Exclusive: Synnex CEO Kevin Murai And His Successor, Dennis Polk, Discuss The Future Of Distribution]

Synnex had an auspicious start to its fiscal 2018, Polk said. "The momentum that we created in 2017 continued into our first quarter," he said.

Revenue for Synnex's $830-million Westcon-Comstor Americas acquisition grew over last year, with both operating profits and margins above expectations, Polk said.

"We are very pleased with the results of this business after the first two quarters, post-acquisition, and appreciate the efforts of all the Westcon-Comstor team members during the transition into Synnex," he said. "Additionally, as we further integrate Westcon-Comstor North America into a single operating platform, we expect that revenue and cost synergies will grow."

For the first fiscal quarter 2018, which ended February 28, Synnex reported total revenue of $4.55 billion, up 29.3 percent over the $3.52 billion the company reported for the first quarter of 2017.

Net income on a GAAP basis for the quarter was $24.4 million, or 61 cents per share, down significantly over the $61.8 million, or $1.54 per share. On a non-GAAP basis, net income was reported $86.3 million, or $2.14 per share, up nearly 20 percent over the $73.1 million, or $1.82 per share, Synnex reported last year.

The difference in GAAP and non-GAAP income was primarily due to a charge of about $42 million, or $1.03 per share, related to the U.S. government's handling of repatriated revenue, the company said.

Marshall Witt, Synnex chief financial officer, said revenue for Synnex's technology solutions business during the first fiscal quarter of 2018 was $4.0 billion, which was up year-over-year by 33 percent. However, Witt said, adjusting for the Westcon-Comstor acquisition, the technology solutions business grew 12 percent. Operating income for the business was $82 million, or 2.0 percent of segment revenue, compared to $80 million, or 2.6 percent of segment revenue, in the prior year, on a GAAP basis.

"This increase [in sales] was primarily driven by broad-based growth across the majority of our portfolio," Witt said.

Revenue for Synnex's Concentrix global business services business rose 6 percent over last year to reach $508 million, Witt said. Operating income on a GAAP basis was $30 million, or 5.8 percent of segment revenue, compared to last year's $21 million, or 4.5 percent of segment revenue.

"The increase was primarily due to increased volume and the expansion of services to existing customers, and the impact of [Contentrix's] Tigerspike acquisition," he said.

During the question and answer period of the conference call, Polk said has seen no major changes in vendor programs over the past couple quarters or the past year.

"Obviously, programs change from vendor to vendor, change from quarter to quarter," he said. "But we've seen no material changes in the past few quarters and over the past year."

Polk did say the distribution market continues to be very competitive. "I would say that, in the recent few quarters, on higher-volume larger customer bids, it's been a bit more competitive," he said. "But outside of that, the market has been pretty stable."

When asked specifically about Synnex's system design integration business, Polk said that the overall market for it has not really gotten more competitive, but has remained steady over the past few quarters.

"As far as our business specifically … we're fairly concentrated with a [small] set of customers, and within that concentration, we are actually somewhat concentrated in a few number of SKUs, high-volume run rate SKUs," he said. "So when that occurs with customers, you can expect that pricing negotiations become pretty tough and pretty specific given the high volume and lower level of SKUs that we're servicing for the customers."

That has been Synnex's experience over the past few quarters, Polk said.

"That's the main reason why our margins have come down," he said. "As far as improving them, the key thing is what we talked about before: diversifying within the existing customers that we have, the number of SKUs that we offer to them, and then also expanding our customer base [and] growing the volume with them [to offset] some of this concentration that we have."

Polk said this year's tax reform would help Synnex going forward more indirectly than directly, but the company has seen no material change so far.

"We do expect, when companies have more cash available to them due to lower tax rates, that they will invest [it] back into their business," he said. "And those investments will include technology spend. So it's our expectation that will start to occur."

Looking forward, Witt said Synnex's second quarter 2018 revenue is expected to be in the range of $4.58 billion to $4.78 billion. Net income on a GAAP basis is expected to be in the range of $71.9 million to $75.7 million, and on a non-GAAP basis is expected to be in the range of $91.1 million to $94.9 million. That is expected to result in a second fiscal quarter 2018 earnings per share in the range of $1.77 to $1.87 on a GAAP basis and $2.25 to $2.35 on a non-GAAP basis, he said.

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