Brightpoint Reports Second Quarter 2010 Financial Results

INDIANAPOLIS, Aug. 4, 2010 (GLOBE NEWSWIRE) -- Brightpoint, Inc. (Nasdaq:CELL) reported its financial results for the second quarter ended June 30, 2010. Unless otherwise noted, amounts pertain to the second quarter of 2010.

FOR THE SECOND QUARTER OF 2010:

Revenue was $788.6 million for the second quarter of 2010, an increase of 11% compared to the second quarter of 2009 and a decrease of 1% compared to the first quarter of 2010.

Units handled were 22.3 million for the second quarter of 2010, an increase of 18% compared to the second quarter of 2009 and a decrease of 1% compared to the first quarter of 2010. Industry analysts estimate that units handled for the industry were approximately 308 million, which is an increase of 5% compared to the first quarter of 2010. Smartphones comprised approximately 27% of total units handled by Brightpoint for the second quarter of 2010 compared to 22% for the first quarter of 2010. Industry estimates were that smartphones comprised approximately 19% of total handsets handled for the wireless device industry for the second quarter of 2010.

Income from continuing operations was $7.3 million or $0.10 per diluted share for the second quarter of 2010 compared to $3.1 million or $0.04 per diluted share for the second quarter of 2009 and $4.7 million or $0.07 per diluted share for the first quarter of 2010.

Adjusted income from continuing operations (non-GAAP) was $12.0 million or $0.16 per diluted share for the second quarter of 2010 compared to $9.3 million or $0.11 per diluted share for the second quarter of 2009 and $11.3 million or $0.15 per diluted share for the first quarter of 2010.

Please see the disclosure below regarding adjusted income from continuing operations (non-GAAP). Adjusted income from continuing operations (non-GAAP) of $0.16 per diluted share for the second quarter of 2010 excludes the following items:

o    $3.5 million (pre-tax) of non-cash amortization expense related to acquired intangible assets.
o    $2.4 million (pre-tax) of non-cash stock based compensation expense.
o    $0.7 million (pre-tax) restructuring charge.
o    $1.9 million tax benefit related to the excluded expenses described above.

Total debt was $121.5 million at June 30, 2010, compared to $124.5 million at March 31, 2010 and $96.3 million at June 30, 2009. Total liquidity (unrestricted cash and unused borrowing availability) was $332.3 million at June 30, 2010 compared to $338.9 million at March 31, 2010 and $420.6 million at June 30, 2009. 

Gross margin was 9.0% for the second quarter of 2010 compared to 8.5% for the second quarter of 2009 and 9.1% for the first quarter of 2010.

SG&A expenses were $53.7 million for the second quarter of 2010 compared to $48.7 million for the second quarter of 2009 and $56.7 million for the first quarter of 2010. SG&A expenses were higher by approximately $0.6 million for the second quarter of 2010 as compared to the second quarter of 2009 and were lower by approximately $1.5 million as compared to the first quarter of 2010 due to fluctuations in foreign currency.

Interest expense, net, was $1.9 million for the second quarter of 2010 compared to $2.4 million for the second quarter of 2009 and $1.8 million for the first quarter of 2010.

Revenue declined from the first quarter of 2010 as a result of lower sales of devices from the primary wireless device supplier to our Singapore operations and as a result of fluctuations in foreign currency. These decreases in revenue were partially offset by an increase in wireless devices handled in our EMEA region.

Revenue from sales of devices and number of wireless devices handled in Singapore for this supplier were approximately $105.4 million and 886,000 for the first quarter of 2010 compared to $70.0 million and 747,000 for the second quarter of 2010. Revenue from sales of devices in Singapore for this supplier was approximately $24 million for July 2010. We can give no assurances revenue and wireless devices handled for this wireless device supplier in Singapore will return to historical levels in future periods. The reduction in sales was due to many factors including: foreign currency fluctuations that allowed traders from other regions to sell wireless devices into markets served by our Singapore business at lower prices than those available to us directly from this supplier; and the supplier has experienced management and organizational changes, resulting in de-emphasizing distribution from our Singapore operations and lowering, or eventually eliminating, its allocation of saleable products to us. Accordingly, we have reduced our estimate for wireless devices handled for 2010 based on the decline in wireless devices handled from this supplier in our Singapore operations. In 2009, we began expanding relationships with other manufacturers, and we continue to diversify our business within the Asia-Pacific region in an attempt to mitigate the risk in future periods of excess concentration of business with a limited number of suppliers. There is no certainty we will be successful in replacing the declining sales of devices from our primary supplier in our Singapore operation. Other Brightpoint operations have not experienced similar declines in revenue and wireless devices handled for this supplier.

Cash provided by operating activities was $4.5 million for the three months ended June 30, 2010 compared to cash provided by operating activities of $66.1 million for the three months ended June 30, 2009 and cash used in operating activities of $23.2 million for the three months ended March 31, 2010. Cash used in operating activities was $18.7 million for the six months ended June 30, 2010 compared to cash provided by operating activities of $101.9 million for the six months ended June 30, 2009.

EBITDA was $16.8 million for the second quarter of 2010 compared to $12.4 million for the second quarter of 2009 and $17.0 million for the first quarter of 2010.

"I am pleased with our financial performance in the second quarter of 2010," said Robert J. Laikin, Chairman of the Board and Chief Executive Officer of Brightpoint, Inc. "Our results reflect our continued focus on execution and discipline in managing our business during difficult economic times. I believe Brightpoint remains well positioned to take advantage of growing smartphone trends in the global wireless industry, and we continue to anticipate our unit growth rate to exceed the top end of analyst expectations for the wireless industry for 2010."

"I am pleased we were able to deliver strong financial results for the second quarter of 2010 despite lower sales of devices from our primary supplier in Singapore," said Tony Boor, Brightpoint's Chief Financial Officer and Treasurer. "Our as-adjusted operating margin for the second quarter was 2.5%, which is within our long-term targeted range of 2.5% to 3%. I am also pleased with our return on invested capital and return on tangible capital metrics. Return on invested capital was 11% for the quarter and the trailing twelve months, and return on tangible capital for the trailing twelve months was 41%, which exceeds our long-term targeted range of 35% to 40%. Both of these improved ratios reflect our disciplined approach towards effectively managing our balance sheet."

CURRENT FISCAL YEAR 2010 EXPECTATIONS

• Wireless devices handled by the Company are anticipated to be between 98 million and 100 million, which is a decrease from the previously disclosed range of 101 million to 103 million. This adjusted unit range reflects an anticipated decline in units handled from the sale of wireless devices from our primary supplier in Singapore throughout the remainder of 2010. However, this range represents an increase of 18% to 20% compared to wireless devices handled by the Company in 2009. Global sell-in for the wireless device industry in 2010 is currently expected to grow by approximately 10% to 12% compared to 2009.
   
• We currently anticipate our mix of wireless devices handled through logistic services to end the year near the top end of our previously disclosed range of 77% to 80% of total wireless devices handled.
   
• Annual combined gross margin of between 8.6% to 8.8%, which is consistent with our previously disclosed range. Combined gross margin is expected to vary from quarter to quarter as we anticipate seasonality to have a more pronounced impact on our mix of wireless devices handled than in 2009.
   
• SG&A expense excluding stock based compensation, restructuring and amortization (non-GAAP) of between $210 million and $217 million, which is a decrease from the previously disclosed range of $218 million to $225 million due primarily to decreases in foreign currency exchange rates. The revised range assumes foreign currency exchange rates will not vary significantly from their current levels.
   
• Interest expense of between $8 million to $10 million, which is a decrease from the previously disclosed range of $9 million to $11 million due to lower average interest rates.
   
• An as-adjusted (non-GAAP) effective tax rate of between 31% and 33%, which is consistent with our previously disclosed range.

Please see the attached Schedules and the Brightpoint website at www.brightpoint.com for an explanation and reconciled presentation of the results for the quarter ended June 30, 2010 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.

In the fourth quarter of 2009 we began reporting the revenue from certain prepaid airtime logistic services agreements on a net basis. The revenue under these agreements was previously reported on a gross basis within logistic services revenue. Had the revenue from these agreements been reported on a net basis for the second quarter 2009, logistic services revenue and cost of revenue would have been approximately $19.6 million lower and gross margin for the second quarter of 2009 would have been approximately 0.2% higher.

The consolidated statements of operations for all periods presented reflect the reclassification of the results of operations of our Italy and France businesses to discontinued operations in accordance with U.S. GAAP based on our decision to exit the Italy business in the first quarter of 2010 and the France business in the third quarter of 2009. Please see Brightpoint Inc.'s website at www.brightpoint.com for quarterly statements of operations for all periods that have been reclassified.

Conference Call Information

On Thursday, August 5, 2010, at approximately 8:00 a.m. EDT, 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 telephonically, use the following information and dial in several minutes prior to the start of the call:

U.S. toll-free dial-in number: 888-724-9505

International dial-in number: 913-312-1272

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 supply chain solutions to leading stakeholders in the wireless industry. In 2009, Brightpoint handled approximately 84 million wireless devices globally. Brightpoint's innovative services include distribution channel management, procurement, inventory management, 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. The company has approximately 2,700 employees in more than 25 countries. In 2009, Brightpoint generated revenue of $3.2 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).

Certain information in this presentation may contain forward-looking statements regarding future events or the future performance of the Company. 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. These 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. These risk factors include, without limitation, uncertainties relating to customer plans and commitments, including, without limitation, (i) 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; (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 business could be harmed by consolidation of mobile operators; (iv) the current economic downturn could cause a severe disruption in our operations; (v) fluctuations in regional demand patterns and economic factors could harm our operations; (vi) our debt facilities could prevent us from borrowing additional funds, if needed; (vii) collections of our accounts receivable; (viii) our reliance on suppliers to provide trade credit facilities to adequately fund our on-going operations and product purchases; (ix) a significant percentage of our revenues are generated outside of the United States in countries that may have volatile currencies or other risks; (x) the impact that seasonality may have on our business and results; (xi) we make significant investments in the technology used in our business and rely on that technology to function effectively without interruptions; (xii) our future operating results will depend on our ability to maintain volumes and margins; (xiii) our ability to expand and implement our future growth strategy, including acquisitions; (xiv) uncertainty regarding whether wireless equipment manufacturers and wireless network operators will continue to outsource aspects of their business to us; (xv) our reliance upon third parties to manufacture products which we distribute and reliance upon their quality control procedures; (xvi) our ability to retain existing logistic services customers at acceptable returns upon expiration or termination of existing agreements; (xvii) rapid technological changes in the wireless industry could render our services or the products we handle obsolete or less marketable; (xviii) the effect of natural disasters, epidemics, hostilities or terrorist attacks on our operations; (xix) intense industry competition; (xx) our ability to manage and sustain future growth at our historical or current rates; (xxi) our ability to continue to enter into relationships and financing that may provide us with minimal returns or losses on our investments; (xxii) our implementation of European Centers of Excellence may not be successful; (xxiii) 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; (xxiv) protecting our proprietary information; (xxv) our dependence on our computer and communications systems; (xxvi) uncertainty regarding future volatility in our Common Stock price; (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 that are considered to be unusual or infrequent in nature such as goodwill impairment charges and restructuring charges. 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, and restructuring charge. 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. 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.

(1)  Adjusted income from continuing operations (non-GAAP) for the second quarter of 2010 excludes the following items:

• $3.5 million (pre-tax) of non-cash amortization expense related to acquired intangible assets.
• $2.4 million (pre-tax) of non-cash stock based compensation expense.
• $0.7 million (pre-tax) of restructuring charges which primarily consists of severance charges in connection with continued global workforce reductions as part of our previously announced 2009 Spending and Debt Reduction Plan.
• $1.9 million tax benefit of the excluded expenses described above.

(2)  Adjusted income from continuing operations (non-GAAP) for the second quarter of 2009 excludes the following items:

• $3.8 million (pre-tax) of non-cash amortization expense related to acquired intangible assets.
• $1.6 million (pre-tax) of non-cash stock based compensation expense.
• $3.7 million restructuring charges (pre-tax) in connection with our previously announced 2009 Spending and Debt Reduction Plan.
• $3.0 million tax benefit of the excluded expenses described above.

(3)  Adjusted income from continuing operations (non-GAAP) for the six months ended June 30, 2010 excludes the following items:

• $7.4 million (pre-tax) of non-cash amortization expense related to acquired intangible assets.
• $5.6 million (pre-tax) of non-cash stock based compensation expense.
• $1.8 million restructuring charges (pre-tax) in connection with our previously announced 2009 Spending and Debt Reduction Plan.
• $4.2 million tax benefit of the excluded expenses described above.
• $0.8 million of tax expense related to valuation allowances on deferred tax assets resulting from previous net operating losses in Colombia and Denmark that are no longer expected to be utilized.

(4)  Adjusted income from continuing operations (non-GAAP) for the six months ended June 30, 2009 excludes the following items:

• $7.4 million (pre-tax) of non-cash amortization expense related to acquired intangible assets.
• $3.3 million (pre-tax) of non-cash stock based compensation expense.
• $8.8 million restructuring charges (pre-tax) in connection with our previously announced 2009 Spending and Debt Reduction Plan.
• $6.1 million tax benefit of the excluded expenses described above.

(5)  Weighted average common shares outstanding – diluted for the three months ended June 30, 2010 and 2009 includes the effect of 2.6 million (2010) and 2.0 million (2009) common shares outstanding that are presumed to be repurchased under the U.S. GAAP treasury stock method related to stock based compensation expense. Weighted average common shares outstanding – diluted for the six months ended June 30, 2010 and 2009 includes the effect of 2.5 million (2010) and 2.4 million (2009) common shares outstanding that are presumed to be repurchased under the U.S. GAAP treasury stock method related to stock based compensation expense.

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, 2010 and 2009, and March 31, 2010 were as follows:

Please see the Brightpoint website at www.brightpoint.com for a detailed calculation of cash conversion cycle days for the three months ended June 30, 2010.

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, 2010 and 2009, and March 31, 2010, was as follows:

(1)  Estimated income taxes were calculated by multiplying the sum of operating income from continuing operations, the restructuring charge and the goodwill impairment charge by an effective tax rate of 35%, which represents an estimated, blended statutory tax rate for the markets in which we operate.

(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 operating income after taxes by average invested capital and multiplying the results by four.

We exclude unusual 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 unusual items such as restructuring charge 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.