Brightpoint Reports Second Quarter 2011 Financial Results

INDIANAPOLIS, July 28, 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 second quarter ended June 30, 2011. Unless otherwise noted, amounts pertain to the second quarter of 2011.

FOR THE SECOND QUARTER OF 2011:

Revenue was $1.23 billion for the second quarter of 2011, an increase of 57% compared to the second quarter of 2010 and an increase of 11% compared to the first quarter of 2011. The increase was primarily driven by growth in our distribution business due to the increased demand for smartphones, which have higher average selling prices, a general increase in product supply compared to the prior year, and the launch of tablet distribution programs during the second quarter.

Wireless devices handled, including tablets, were 26.9 million for the second quarter of 2011. This represents an increase of 21% compared to the second quarter of 2010 and a decrease of 1% compared to the first quarter of 2011. During the second quarter of 2011, Brightpoint contributed certain of its Latin America operations to Intcomex, Inc. as part of a strategic investment in that company. The decline in wireless devices handled compared to the first quarter of 2011 is due in part to wireless devices previously handled by our Latin America operations now being included in Intcomex, Inc.'s operating results. Excluding the 0.7 million wireless devices handled by the Latin America operations in the first quarter of 2011, wireless devices handled increased 0.4 million or approximately 2% from the first quarter of 2011 primarily due to an increase in wireless devices sold in Southeast Asia as well as tablet product launches.

Income from continuing operations was $11.8 million or $0.18 per diluted share for the second quarter of 2011 compared to $7.3 million or $0.10 per diluted share for the second quarter of 2010 and $8.0 million or $0.11 per diluted share for the first quarter of 2011.

Adjusted income from continuing operations (non-GAAP) was $16.3 million or $0.23 per diluted share for the second quarter of 2011 compared to $12.0 million or $0.16 per diluted share for the second quarter of 2010 and $14.2 million or $0.20 per diluted share for the first quarter of 2011. This represents a 44% increase in adjusted income from continuing operations (non-GAAP) per diluted share compared to the second quarter of the prior year.

Adjusted income from continuing operations (non-GAAP) of $0.23 per diluted share for the second quarter of 2011 excludes the following items:

• $6.0 million (pre-tax) of non-cash amortization expense related to acquired intangible assets.
• $3.8 million (pre-tax) restructuring charge consisting 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.
• $3.1 million (pre-tax) of expense pursuant to a separation agreement between the Company and its former Chief Financial Officer (CFO).
• $2.7 million (pre-tax) of non-cash stock based compensation expense.
• $0.2 million (pre-tax) of acquisition expense, net related to the investment in Intcomex, Inc. (Intcomex).
• $3.0 million non-taxable, non-cash gain related to the investment in Intcomex.
• $5.4 million tax benefit related to the excluded items described above.
• $2.8 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 second quarter of 2011 was 34.7%.

Gross profit was $93.1 million for the second quarter of 2011 compared to $71.0 million for the second quarter of 2010 and $86.5 million for the first quarter of 2011. The increase in gross profit compared to the prior year period was due to an incremental $8.7 million of gross profit generated by the Touchstone Wireless operation, which was acquired in December 2010, increased gross profit from non-handset fulfillment programs in EMEA, and an increase in gross profit generated in the Asia-Pacific division as a result of a change in the business model in our Southeast Asia operation. The wireless devices sold by our Southeast Asia operation during the second quarter of 2011 have a higher gross profit per device than the wireless devices sold in the prior year period. The increase in gross profit compared to the first quarter of 2011 was primarily due to increased distribution gross profit in the Asia-Pacific and EMEA divisions.

Gross margin was 7.5% for the second quarter of 2011 compared to 9.0% for the second quarter of 2010 and 7.8% for the first quarter of 2011. The reduction in gross margin from the second quarter of 2010 was primarily due to a decrease in logistic services gross margin in the Americas division, a change in the business model in our Southeast Asia operation and a higher mix of business from the Southeast Asia operation. The decrease in the logistic services gross margin in the Americas division was attributed to a shift in the mix of services provided, an increase in operating costs due to increased volumes, and the incremental Touchstone Wireless business that has lower margins compared to our other logistic services. The decrease in gross margin from the first quarter of 2011 was primarily due to a decrease in logistic services margin due to a shift in the mix of services provided as well as a higher percentage of distribution business which yields lower gross margins than the logistic services line of business.

SG&A expense was $69.5 million for the second quarter of 2011 compared to $53.7 million for the second quarter of 2010 and $65.6 million for the first quarter of 2011. SG&A expense for the second quarter of 2011 included $3.1 million of expense as a result of a separation agreement between the Company and its former CFO. SG&A expense also increased compared to the prior year due to an incremental $2.6 million of SG&A expense associated with the acquired Touchstone Wireless operation. Additionally, foreign currency fluctuations increased SG&A expense by approximately $5.0 million compared to the second quarter of 2010 and $1.6 million compared to the first quarter of 2011.

Total debt was $145.2 million at June 30, 2011, compared to $196.4 million at March 31, 2011 and $121.5 million at June 30, 2010. Total liquidity (unrestricted cash and unused borrowing availability) was $371.7 million at June 30, 2011 compared to $325.1 million at March 31, 2011 and $332.3 million at June 30, 2010. Average daily debt outstanding for the second quarter of 2011 was $365.9 million compared to average daily debt outstanding of $325.1 million for the first quarter of 2011 and $291.6 million for the second quarter of 2010. Total debt and liquidity at June 30, 2011 and average daily debt for the second quarter of 2011 includes the impact of the purchase of Touchstone Wireless 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 an investment in Intcomex, Inc. of $13.0 million in April 2011.

Cash provided by operating activities was $78.3 million for the three months ended June 30, 2011 compared to cash provided by operating activities of $4.5 million for the three months ended June 30, 2010 and cash used in operating activities of $97.4 million for the three months ended March 31, 2011. The first quarter of 2011 included approximately $53 million of delayed payments from the fourth quarter caused by invoicing issues experienced by one of our key global vendors. Cash used in operating activities was $19.0 million for the six months ended June 30, 2011 compared to cash used in operating activities of $18.7 million for the six months ended June 30, 2010.

The cash conversion cycle was 5 days for the second quarter of 2011 compared to 12 days for the second quarter of 2010 and 9 days for the first quarter of 2011.

EBITDA was $27.2 million for the second quarter of 2011 compared to $16.8 million for the second quarter of 2010 and $26.2 million for the first quarter of 2011.

"I am pleased with our second quarter 2011 operating results, 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 comprehensive supply chain solutions offerings enabled us to handle approximately 27 million wireless devices in the second quarter of 2011. I believe Brightpoint remains well positioned to capitalize on growing smartphone and tablet trends in the global wireless industry."

"I am pleased we were able to deliver strong financial results for the second quarter of 2011," said Vince Donargo, Brightpoint's Chief Financial Officer and Treasurer. "Our ROIC was 13 percent for the trailing twelve months, which is within our long-term targeted range of 12 to 15 percent. ROTC on a trailing twelve month basis was 45 percent, which exceeds our targeted long-term range of 35 to 40 percent. Both of these improved ratios reflect our disciplined and successful approach to managing our balance sheet and our overall business."

FISCAL YEAR 2011 EXPECTATIONS

We currently anticipate handling between 111 million and 114 million wireless devices, including tablets, in 2011, which is consistent with our previously disclosed range. This 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 Touchstone Wireless, 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) of $0.64 to $0.74 per diluted share and adjusted income from continuing operations (non-GAAP) of $0.95 to $1.05 per diluted share which is an increase in the lower end of our previously disclosed range for adjusted earnings per share (non-GAAP). Adjusted earnings per share (non-GAAP) excludes $0.31 per diluted share of stock based compensation, amortization of acquired intangible assets, restructuring charge, separation expense, gain on investment in Intcomex, Inc. and discrete tax items (net of tax). Adjusted earnings per share (non-GAAP) assumes 70.6 million of diluted weighted average shares outstanding which includes 1.5 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 to be consistent with our previously disclosed range of $59 million to $63 million. The range represents an increase of 40% to 50% from 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 the EMEA divisions, which account for over half of the estimate, as well as the expansion of our reverse logistics and repair services business and other strategic initiatives.

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 June 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.

(Amounts in thousands, except per share data)

*Wireless devices handled includes tablets beginning in the second quarter of 2011. 

Conference Call Information

On Friday, July 29, 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: 888-259-8724

International dial-in number: 913-312-1473

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 second quarter non-GAAP income from continuing operations per share are stock-based compensation expense, amortization expense, restructuring charge, separation expense, acquisition expense, gain on investment, 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.

Supplemental Information
(Amounts in thousands)

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")

(1)     Includes discontinued operations

EBITDA is a non-GAAP financial measure. Management believes EBITDA provides it with an indicator of how much cash the Company generates, excluding non-cash charges and any changes in working capital. Management also reviews and utilizes the entire statement of cash flows to evaluate cash flow performance.

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 June 30, 2011 and 2010, and March 31, 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 June 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 June 30, 2011 and 2010, and March 31, 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: