Brightpoint Reports Third Quarter 2011 Financial Results

Compared to prior year:

• Revenue increases 51% to $1.34 billion
• 27.3 million wireless devices handled, an increase of 9%
• Gross profit increases 23% to $94.3 million
• Diluted EPS from continuing operations of $0.19 (GAAP) and $0.29 (non-GAAP), increases of 19% and 26%

INDIANAPOLIS , Oct. 27, 2011 (GLOBE NEWSWIRE) -- Brightpoint, Inc. (Nasdaq:CELL), a global leader in providing supply chain solutions to the wireless industry, today announced its financial results for the third quarter ended September 30, 2011.

Revenue was $1.34 billion for the third quarter of 2011, an increase of 51% compared to the third quarter of 2010 and an increase of 8% compared to the second quarter of 2011. The increase from the prior year period was primarily driven by growth in our distribution business due to increased demand for higher average selling priced smartphones, increased product supply compared to what was experienced in the prior year period, and increased wireless devices sold in our North America operations due to a distribution agreement with a group of exclusive dealers of a major network operator.

Wireless devices handled, including tablets, were 27.3 million for the third quarter of 2011. This represents an increase of 9% compared to the third quarter of 2010 and an increase of 1% compared to the second quarter of 2011. We handled 150 thousand tablets in the third quarter of 2011 compared to 1.1 million during the second quarter of 2011 due to new product launches in the second quarter that did not recur in the third quarter.

Income from continuing operations was $13.1 million, or $0.19 per diluted share, for the third quarter of 2011 compared to $11.4 million, or $0.16 per diluted share, for the third quarter of 2010 and $11.8 million, or $0.18 per diluted share, for the second quarter of 2011. 

Adjusted income from continuing operations (non-GAAP) was $20.8 million, or $0.29 per diluted share, for the third quarter of 2011 compared to $16.4 million, or $0.23 per diluted share, for the third quarter of 2010 and $16.3 million, or $0.23 per diluted share, for the second quarter of 2011. This represents a 26% increase in adjusted income from continuing operations (non-GAAP) per diluted share compared to the third quarter of the prior year. 

Adjusted income from continuing operations (non-GAAP) of $0.29 per diluted share for the third quarter of 2011 excludes the following items:

• $6.1 million (pre-tax) of non-cash amortization expense related to acquired intangible assets.
• $3.1 million (pre-tax) restructuring charge consisting primarily of lease termination charges and severance charges in connection with the shut-down and relocation of certain Touchstone Wireless operations and continued global entity consolidation and rationalization in our Europe, Middle East, and Africa (EMEA) division. 
• $3.2 million (pre-tax) of non-cash stock based compensation expense.
• $0.1 million (pre-tax) of adjustments to the carrying value of the Company's investment in Intcomex, Inc. (Intcomex).
• $4.0 million tax benefit related to the excluded items described above.
• $0.9 million of tax benefit related to the reversal of valuation allowances on certain tax assets and foreign tax credits that are expected to be utilized. 
• The as-adjusted (non-GAAP) effective tax rate for the third quarter of 2011 was 25.1%.

Gross profit was $94.3 million for the third quarter of 2011 compared to $76.5 million for the third quarter of 2010 and $93.1 million for the second quarter of 2011. The increase in gross profit compared to the prior year period was due to an incremental $9.6 million of gross profit generated by the expansion of our repair/refurbish/recycle business and an increase in gross profit generated in the Asia-Pacific division as a result of an increase in wireless devices sold as well as a shift in the mix of wireless devices sold from feature phones to smartphones in our Southeast Asia operation.

Gross margin was 7.0% for the third quarter of 2011 compared to 8.6% for the third quarter of 2010 and 7.5% for the second quarter of 2011. The reduction in gross margin from the third quarter of 2010 was primarily due to a decrease in gross margin in the Americas division, as further described below, a shift in the mix of logistic services to lower margin non-handset based services provided in the EMEA division, a shift in the mix of wireless devices sold in our Southeast Asia operation to higher gross profit but lower gross margin devices and a higher percentage of business from the Southeast Asia operation. The decrease in gross margin in the Americas division was due to the expansion of our repair/refurbish/recycle business which has lower gross margins compared to our other logistic services, the current competitive environment in our distribution business, and an increase in operating costs associated with expanding operational capacities. The decrease in gross margin from the second quarter of 2011 was primarily due to a higher mix of low margin distribution business.

SG&A expense was $65.1 million for the third quarter of 2011 compared to $57.4 million for the third quarter of 2010 and $69.5 million for the second quarter of 2011. The increase in SG&A expense compared to the prior year period was primarily due to an incremental $2.1 million of SG&A expense associated with the expansion of our repair/refurbish/recycle business and the impact of foreign currency fluctuations of $3.5 million. The decrease in SG&A expense compared to the second quarter of 2011 was primarily due to $3.1 million of expense recorded in the second quarter for the separation agreement between the Company and its former CFO and $0.5 million of acquisition expense related to the investment in Intcomex in the second quarter. Foreign currency fluctuations resulted in decreased SG&A expense from the second quarter of 2011 of $0.6 million.  

Total debt was $171.5 million at September 30, 2011, compared to $145.2 million at June 30, 2011 and $112.3 million at September 30, 2010. Total liquidity (unrestricted cash and unused borrowing availability) was $400.0 million at September 30, 2011 compared to $371.7 million at June 30, 2011 and $355.5 million at September 30, 2010. Average daily debt outstanding for the third quarter of 2011 was $314.9 million compared to average daily debt outstanding of $365.9 million for the second quarter of 2011 and $220.0 million for the third quarter of 2010. Total debt and liquidity at September 30, 2011 and average daily debt for the third quarter of 2011 includes the impact of the purchase of Touchstone Wireless in December 2010 for $75.7 million, the purchase of a facility in Plainfield, Indiana for $18.4 million in December 2010, the purchase of a facility in Reno, Nevada for $11.7 million in February 2011 and cash invested in Intcomex of $13.0 million in April 2011.

Cash used in operating activities was $2.4 million for the three months ended September 30, 2011 compared to cash provided by operating activities of $42.1 million for the three months ended September 30, 2010 and cash provided by operating activities of $78.3 million for the three months ended June 30, 2011. The decrease in cash provided by operating activities compared to the prior year period was primarily caused by inventory constraints that were experienced in the prior year that did not recur this year. Cash used in operating activities was $21.5 million for the nine months ended September 30, 2011 compared to cash provided by operating activities of $23.4 million for the nine months ended September 30, 2010. 

The cash conversion cycle was 7 days for the third quarter of 2011 compared to 9 days for the third quarter of 2010 and 5 days for the second quarter of 2011. The decrease in the cash conversion cycle compared to the prior year period was a result of a higher percentage of overall revenue from our Southeast Asia operations which experienced a shorter cash conversion cycle than our other operations. The increase in the cash conversion cycle from the prior quarter was primarily due to receiving extended payment terms for a significant inventory purchase during the second quarter from a vendor in Southeast Asia. 

EBITDA was $32.1 million for the third quarter of 2011 compared to $21.3 million for the third quarter of 2010 and $27.2 million for the second quarter of 2011. 

"We are reporting strong operating results for the third quarter of 2011, which reflect our continued focus on execution and discipline in managing our business," said Robert J. Laikin, Chairman of the Board and Chief Executive Officer of Brightpoint, Inc. "Our global footprint and comprehensive portfolio of solutions offerings enabled us to handle 27 million wireless devices in the third quarter of 2011. I believe Brightpoint is well positioned to benefit from growing wireless industry trends, including the repair, refurbish and recycling of devices. I expect the wireless device industry to grow approximately 5 percent in 2012."

"I am pleased we were able to deliver strong financial results for the third quarter of 2011," said Vince Donargo, Brightpoint's Chief Financial Officer and Treasurer. "Our strong financial position allowed us to extend and amend our credit facility, increasing our borrowing capacity to $500 million from our previous capacity of $450 million. Our ROIC was 14 percent for the trailing twelve months, which is within our long-term targeted range of 12 to 15 percent and reflects our disciplined and successful approach to managing our balance sheet and our overall business. Our $32 million of EBITDA was a record for a third quarter and our year to date EBITDA of $85 million is also a record for the first nine months of a fiscal year."

FOURTH QUARTER AND FISCAL YEAR 2011 EXPECTATIONS

We currently anticipate handling between 30 million to 33 million wireless devices, including tablets, in the fourth quarter of 2011 and 111 million to 114 million wireless devices, including tablets, in fiscal year 2011, which is consistent with our previously disclosed range. The fiscal year 2011 range represents an increase of 12% to 15% compared to wireless devices handled in 2010. Our expectations for wireless devices handled do not include devices handled by our repair/refurbish/recycle business, which primarily handles used devices for repair, remanufacture or responsible disposition. Our current estimate of the expected growth in global sell-in for the wireless device industry in 2011 is approximately 10% when compared to 2010.

We currently expect income from continuing operations (GAAP) per diluted share of $0.21 to $0.26 for the fourth quarter of 2011 and $0.69 to $0.74 for fiscal year 2011 and adjusted income from continuing operations (non-GAAP) per diluted share of $0.30 to $0.35 for the fourth quarter of 2011 and $1.03 to $1.08 for fiscal year 2011 which is an increase to our previously disclosed range. Adjusted diluted earnings per share (non-GAAP) excludes $0.09 for the fourth quarter of 2011 and $0.34 for fiscal year 2011 of stock based compensation, amortization of acquired intangible assets, restructuring charge, separation expense, gain on investment in Intcomex, Inc. (all net of any estimated income tax effect) and discrete tax items. Adjusted earnings per share (non-GAAP) assumes 70.5 million of diluted weighted average shares outstanding which includes 1.7 million shares of common stock related to stock based compensation that are presumed to be repurchased under the U.S. GAAP treasury stock method. Please see the supplemental information attached for the reconciliation of the range of estimated GAAP diluted earnings per share to estimated as-adjusted (non-GAAP) diluted earnings per share.

We anticipate capital expenditures between $9 million and $13 million for the fourth quarter of 2011 and $64 million to $68 million for fiscal year 2011, which is an increase to our previously disclosed range of $59 million to $63 million due to additional expenditures for the build-out of facilities in the Americas. The updated range represents an increase of 52% to 62% from the prior year. The increase includes the purchase of the Reno, Nevada facility and the build-out of our new Centers of Excellence facilities in the Americas and EMEA divisions, which account for over half of the estimate, as well as the expansion of our repair/refurbish/recycle business and other strategic initiatives.  

FISCAL YEAR 2012 EXPECTATIONS

We currently expect income from continuing operations (GAAP) per diluted share of $0.67 to $0.79 for fiscal year 2012 and adjusted income from continuing operations (non-GAAP) per diluted share of $1.08 to $1.20 for fiscal year 2012. Adjusted income from continuing operations (non-GAAP) per diluted share excludes $0.41 of stock based compensation, amortization of acquired intangible assets and restructuring charge (all net of any estimated income tax effect). Adjusted earnings per share (non-GAAP) assumes 71.4 million of diluted weighted average shares outstanding which includes 1.9 million shares of common stock related to stock based compensation that are presumed to be repurchased under the U.S. GAAP treasury stock method. Please see the supplemental information attached for the reconciliation of the range of estimated GAAP diluted earnings per share to estimated as-adjusted (non-GAAP) diluted earnings per share.

Please see the attached Schedules and the Investors section at the Brightpoint website at www.brightpoint.com for an explanation and reconciled presentation of the results for the quarter ended September 30, 2011 prepared in accordance with U.S. GAAP and on an as adjusted non-GAAP basis. The explanation includes the reasons why management believes such non-GAAP measures are useful both to management and investors. Any financial measure other than those prepared in accordance with U.S. GAAP should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. In addition, please see the attached Supplemental Information for a reconciliation of EBITDA.

Please see the Investors section at the Brightpoint website at www.brightpoint.com for quarterly statements of operations for all periods that have been reclassified.

Conference Call Information

On Friday, October 28, 2011, at approximately 8:00 a.m. ET, Brightpoint will conduct a conference call to review the Company's operations and financial performance and will answer participants' questions. For those who prefer to join the conference call, use the following information and dial in several minutes prior to the start of the call:

U.S. toll-free dial-in number: 888-708-5705

International dial-in number: 913-312-1487

The presentation of slides can be accessed through the Investors section of the Company's website at www.brightpoint.com. Following the live presentation, an archive of the webcast will be available through the Investors section of the Company's website at www.brightpoint.com for approximately one year.

About Brightpoint, Inc.

Brightpoint, Inc. (Nasdaq:CELL) is a global leader in providing end-to-end supply chain solutions to leading stakeholders in the wireless industry. In 2010, Brightpoint handled approximately 99 million wireless devices globally. Brightpoint's innovative services include distribution channel management, procurement, inventory management, reverse logistics and repair services, software loading, kitting and customized packaging, fulfillment, product customization, eBusiness solutions, and other outsourced services that integrate seamlessly with its customers. Brightpoint's effective and efficient platform allows its customers to benefit from quickly deployed, flexible, and cost effective solutions. Brightpoint has approximately 4,000 employees, as well as a significant number of temporary staff, and a global footprint covering more than 35 countries, including 13 Latin American countries through its investment in Intcomex, Inc. In 2010, Brightpoint generated revenue of $3.6 billion. Brightpoint provides distribution and customized services to over 25,000 B2B customers worldwide.  Additional information about Brightpoint can be found on its website at www.brightpoint.com, or by calling its toll-free Information and Investor Relations line at 877-IIR-CELL (877-447-2355).

Forward Looking and Cautionary Statements

Certain information in this press release may contain forward-looking statements regarding future events or the future performance of the Company, including estimates for wireless devices handled, income from continuing operations (non-GAAP) per diluted share and capital expenditures for 2011 that are subject to change.  These statements are only predictions and actual events or results may differ materially. Please refer to the documents the Company files, from time to time, with the Securities and Exchange Commission; specifically, the Company's most recent Form 10-K and Form 10-Q and the cautionary statements and risk factors contained therein.  Those documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in or implied by these forward-looking statements. Those risk factors include, without limitation, uncertainties relating to customer plans and commitments, including, without limitation (i) fluctuations in regional demand patterns and economic factors could harm our operations; (ii) we buy a significant amount of our products from a limited number of suppliers, and they may not provide us with competitive products at reasonable prices when we need them in the future; (iii) our dependence on our computer and communications systems; (iv) uncertainty regarding future volatility in our Common Stock price; (v) our ability to expand and implement our future growth strategy, including acquisitions; (vi) our ability to protect our proprietary information; (vii) rapid technological changes in the wireless industry could render our services or the products we handle obsolete or less marketable; (viii) intense industry competition; (ix) the loss or reduction in orders from principal customers or a reduction in the prices we are able to charge these customers could cause our revenues to decline and impair our cash flows; (x) our ability to retain existing logistic services customers at acceptable returns upon expiration or termination of existing agreements; (xi) our business could be harmed by consolidation of mobile operators; (xii) we make significant investments in the technology used in our business and rely on that technology to function effectively without interruptions; (xiii) our future operating results will depend on our ability to maintain volumes and margins; (xiv) the effect of natural disasters, epidemics, hostilities or terrorist attacks on our operations; (xv) uncertainty regarding whether wireless equipment manufacturers and wireless network operators will continue to outsource aspects of their business to us; (xvi) the current economic downturn could cause a severe disruption in our operations; (xvii) our implementation of European Centers of Excellence may not be successful; (xviii) our ability to continue to enter into relationships and financing that may provide us with minimal returns or losses on our investments; (xix) collections of our accounts receivable; (xx) our ability to manage and sustain future growth at our historical or current rates; (xxi) our ability to attract and retain qualified management and other personnel and the cost of complying with labor agreements and high rate of personnel turnover; (xxii) our reliance upon third parties to manufacture products that we distribute and reliance upon their quality control procedures; (xxiii) our debt facilities could prevent us from borrowing additional funds, if needed; (xxiv) our reliance on suppliers to provide trade credit facilities to adequately fund our on-going operations and product purchases; (xxv) a significant percentage of our revenues are generated outside of the United States in countries that may have volatile currencies or other risks; (xxvi) the impact that seasonality may have on our business and results; (xxvii) potential dilution to existing shareholders from the issuance of securities under our long-term incentive plans; and (xxviii) the existence of anti-takeover measures. Because of the aforementioned uncertainties affecting our future operating results, past performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate future results or trends. The words "believe," "expect," "anticipate," "estimate" "intend," "likely", "will", "should" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which speak only as of the date that such statement was made. We undertake no obligation to update any forward-looking statement.

BRIGHTPOINT, INC.

NON-GAAP RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)

We have provided income from continuing operations and income from continuing operations per share on both a U.S. GAAP basis and on an as-adjusted non-GAAP basis because the Company's management believes it provides meaningful information to investors. Among other things, it may assist investors in evaluating the Company's on-going operations. Adjustments to earnings per share from continuing operations generally include certain non-cash charges such as stock based compensation and amortization of acquired finite-lived intangible assets as well as other items such as restructuring charges. The Company considers these items unrelated to its core operating performance, and believes that use of this non-GAAP measure allows comparison of operating results that are consistent over time. The specific items excluded with respect to our third quarter of 2011 non-GAAP income from continuing operations per share are stock based compensation expense, amortization expense, restructuring charge, expense related to a purchase price adjustment for Intcomex, (all net of any estimated income tax effect), and certain discrete tax items. Non-GAAP income from continuing operations per share is calculated by dividing non-GAAP income from continuing operations by non-GAAP weighted average common shares outstanding (diluted). For purposes of calculating non-GAAP income from continuing operations per share, we add back certain shares presumed to be repurchased under the U.S. GAAP treasury stock method related to stock based compensation expense. We believe these non-GAAP disclosures provide important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations. Management uses these non-GAAP measures internally to evaluate the performance of the business and to evaluate results relative to incentive compensation targets for certain employees. Investors should consider non-GAAP measures in addition to, not as a substitute for, or as superior to measures of financial performance prepared in accordance with U.S. GAAP.

Cash Conversion Cycle Days

Management utilizes the cash conversion cycle days metric and its components to evaluate the Company's ability to manage its working capital and its cash flow performance. Cash conversion cycle days and its components for the quarters ending September 30, 2011 and 2010, and June 30, 2011 were as follows:

Please see the Investors section of the Brightpoint website at www.brightpoint.com for a detailed calculation of cash conversion cycle days for the three months ended September 30, 2011. 
 

Supplemental Information (continued)
(Amounts in thousands)

Return on Invested Capital ("ROIC")

Management uses ROIC to measure the effectiveness of its use of invested capital to generate profits. ROIC for the quarters and trailing four quarters ended September 30, 2011 and 2010, and June 30, 2011, was as follows:

(1) Estimated income taxes were calculated by multiplying the sum of operating income from continuing operations and the restructuring charge by an effective tax rate of 30%, which represents an estimated, blended statutory tax rate for the markets in which we operate. The effective tax rate was revised from 35% beginning with the first quarter of 2011 to better represent changes in the geographic mix of income.    

(2) Average invested capital for quarterly periods represents the simple average of the beginning and ending invested capital amounts for the respective quarter. Average invested capital for the trailing four quarters represents the simple average of the invested capital amounts for the current and four prior quarter period ends.

(3) ROIC is calculated by dividing non-GAAP operating income after taxes by average invested capital. ROIC for quarterly periods is stated on an annualized basis and is calculated by dividing non-GAAP operating income after taxes by average invested capital and multiplying the results by four.

*We exclude items such as restructuring charges from our calculation of "Operating income after taxes (non-GAAP)" because we do not believe such items are representative of expected future returns. Therefore, we believe decisions to allocate resources should not be influenced by such items. 

Supplemental Information (continued)
(Amounts in thousands)

Return on Tangible Capital ("ROTC")

Management uses Return on Tangible Capital, or ROTC, to provide a measurement which can be consistently and fairly applied internally to all operating entities to determine the effectiveness of each entity's use of tangible capital. ROTC eliminates the influence of intangible assets balances (and related amortization expense), cash transfer capabilities and income tax rates which vary amongst Brightpoint operating entities and are not controllable by operating entity management. We exclude items such as restructuring charges from our calculation of "Operating income before amortization and restructuring charges (non-GAAP)" because we do not believe such items are controllable by operating entity management or representative of expected future returns. Therefore, we believe decisions to allocate resources should not be influenced by such items. ROTC indicates the return which can be expected on the tangible capital consumed and replaced through the normal business cycle. To calculate ROTC, operating income from continuing operations is adjusted for restructuring charges, goodwill impairment charge and amortization of intangible assets, and this adjusted non-GAAP operating income is applied to average tangible capital. Average tangible capital is calculated as total assets less cash, investments, goodwill, and intangible assets, net of current liabilities excluding short term borrowings. The details of this measurement are outlined below.

(1) Average tangible capital for quarterly periods represents the simple average of the beginning and ending tangible capital amounts for the respective quarter.

(2)     ROTC is calculated by dividing non-GAAP operating income before amortization and restructuring charges by average tangible capital. ROTC for quarterly periods is stated on an annualized basis and is calculated by dividing non-GAAP operating income before amortization and restructuring charges by average tangible capital and multiplying the results by four. ROTC is a non-GAAP pre-tax measure, thereby eliminating the influence of income tax rates which vary amongst Brightpoint operating entities and are not controllable by operating entity management.

Supplemental Information (continued)

2011 Expectations

The reconciliation of the range of estimated GAAP diluted earnings per share to estimated as-adjusted (non-GAAP) diluted earnings per share is provided below:

2012 Expectations

The reconciliation of the range of estimated GAAP diluted earnings per share to estimated as-adjusted (non-GAAP) diluted earnings per share is provided below: