Synnex 3Q'19: Strength In Technology Solutions, Concentrix Businesses Helps Set Stage For Strong 4Q

Record revenue and strong earnings growth enabled Synnex to soundly beat analyst expectations and pave the way for a healthy fourth fiscal quarter.

The distribution world is doing very, very well if Synnex's fiscal 2019 third quarter is any indication.

Strong execution across both the Fremont, Calif.-based distributor's technologies solutions and Concentrix outsourced business process services groups led to revenue and profit growth and helped set the stage for a good fiscal 2019.

It was another record quarter for revenue and profits, said Dennis Polk, Synnex president and CEO.

[Related: 5 Keys To Synnex's Acquisition of Convergys]

Polk, in prepared statements Tuesday to financial analysts during Synnex's quarterly earnings call, said his company enjoyed 28.6-percent growth in revenue compared the third fiscal quarter of 2018 thanks to both strong organic growth and to Synnex's $2.8-billion acquisition of call center operations leader Convergys in June 2018.

"Our financial performance in Q3 further validates our differentiated business model, and is a testament to our core values and operating philosophies. … We have taken very deliberate steps to drive our growth, investing in our associates, systems, and relationships with partners and customers," he said. "As we sit today, we have a deeper and richer engagement model in each of our business segments, a direct result from best-in-cloud execution by our teams as well our organic investments and the strategic acquisitions we have made."

For its third fiscal quarter of 2019 (ended Aug. 31) Synnex reported revenue of $6.20 billion, up 28.6 percent over the $4.82 billion the distributor reported for its third fiscal quarter of 2018.

The company reported GAAP net income of $123.1 million, or $2.40 per share, up from last year's $66.9 million, or $1.68 per share. On a non-GAAP basis, Synnex reported net income of $169.2 million, or $3.30 per share, up from last year's $99.9 million, or $2.51 per share.

The results beat analyst expectations of $6.2 billion by around $510 million, as well as GAAP earnings per share by 42 cents and non-GAAP earnings per share by 44 cents, according to Seeking Alpha.

Synnex's technology solutions revenue reached $5.0 billion during the quarter, up 16.5 percent from the prior fiscal year third quarter. For that business, operating income was $139 million, compared to last year's $102 million. Non-GAAP operating income was $150 million, up from last year's $117 million.

The technology solutions business achieved an all-time record, with growth across the board in terms of technologies and geographies, Polk said.

The company also saw a number of large projects that had been expected to ship during the third and fourth quarters actually ship during the third quarter, helping with the quarter's growth, he said. "While a benefit to our quarter, by no means was it the only reason for our exceptional performance, as our core distribution business grew faster than the market as well," Polk said. "Major product areas contributing to our growth were PCs, networking, and cloud and software-related solutions. From a customer standpoint, we saw strength in SMB, and we had a solid SLED (state and local government and education) seasonal period."

Synnex's Concentrix outsourced BPO business saw revenue of $1.16 billion for the third fiscal quarter of 2019, up 136 percent over last year in large part due to the acquisition of Convergys.

Chris Caldwell, president of the Concentrix business, told analysts during his prepared statement that his organization delivered solid results for the third quarter as a result of continued progress in integrating the business within Synnex and related synergies.

Concentrix had a strong quarter in terms of new business signings, Caldwell said.

"[We] are encouraged by the strength of our pipeline and the breadth of verticals, geographies, and capabilities included by our new business wins," he said. "We have also executed very well on our strategy to re-balance our portfolio with telecom revenues now slightly below 25 percent."

During the question and answer period of the call, Polk responded to an analyst's question about his concerns about a new potential shortage of Intel processors by saying that Synnex is always concerned about shortages in the market.

"But as we've shown, we can execute well through any type of challenges when it comes to shortages of products that we sell," he said. "A processor shortage challenge has really existed for most of the year, and it really continued in Q3, and we're basing our projections and assumptions on Q4 as if it will continue."

Caldwell, responding to an analyst question about the benefits Synnex has achieved with the acquisition of Convergys, said the company is already getting the benefits of cross-selling between Convergys and other parts of Concentrix.

"We're also seeing some good traction from some of our high-value services like analytics and Voice of the Customer and some of our IT practices that came across from the Convergys acquisition across our overall client base," he said.

Looking forward, Synnex expects fourth fiscal quarter 2019 revenue to be in the range of $5.85 billion to $6.15 billion. That compares to the $5.62 billion the distributor reported for its fourth fiscal quarter of 2018.

Net income for the fourth fiscal quarter of 2019 is expected to be in the range of $136.4 million to $146.9 million, or $2.64 to $2.85 per share, on a GAAP basis. That compares to last year's net income of $113.2 million, or $2.41 per share. On a non-GAAP basis, Synnex expects net income in the range of $180.5 million to $191.0 million, or $3.50 to $3.70 per share, compared to last year's $171.5 million, or $3.65 per share.