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Executives

Anurag Gupta – Senior VP Global Strategy, Investor Relations

Robert Laikin – Chairman of the Board, CEO Robert Laikin

Anthony Boor – Executive VP, CFO, Treasurer

Michael Koehn – President Europe, Middle East & Africa

Analysts

Ittai Kidron – Oppenheimer

Mike Walkley – Piper Jaffray

Brian Modoff – Deutsche Bank

Bill Choi – Jefferies & Co.

Jim Suva – Citigroup

Matthew Hoffman – Cohen and Company

Matt Thornton – Avian Securities

[Greg Burns – Sidoti & Co.]

Brightpoint, Inc. (CELL) Q4 2008 Earnings Call February 10, 2009 8:00 AM ET

Operator

Welcome to Brightpoint's fourth quarter and year ending December 31, 2008 earnings conference call. (Operator Instructions) At this time, I'll turn the call over to Anurag Gupta, Senior Vice President of Global Strategy and Investor Relations of Brightpoint.

Anurag Gupta

Welcome to Brightpoint's fourth quarter and year ending December 31, 2008 earnings conference call. With me today are Robert Laikin, Brightpoint's Chairman of the Board and Chief Executive Officer and Tony Boor, the company's Executive Vice President, CFO and Treasurer.

Please be aware that certain statements made during this call that are not historical may be forward-looking statement as defined in the Private Securities Litigation Act of 1995. A variety of risks and uncertainties could cause the company's actual results to differ from the results implied or expressed in such forward-looking statements.

Please refer to the portion of these statements and risk factors in the company's earnings release and company's filings with the Securities and Exchange commission. These cautionary statements and risk factors are incorporated into this conference call by reference. This presentation is being made on February 10, 2009. The content of this presentation contains time sensitive information that may be accurate only as of the date hereof.

If any portion of presentation is rebroadcast or redistributed at a later date, Brightpoint will not be updating the material that is contained herein. Before we begin, I want to remind everyone that details outlining our GAAP to non-GAAP P&L reconciliation can be found on our investor relations web site. A replay of today's call will be archived for 15 days on the company's web site beginning approximately two hours after the call is ended.

I will now turn the call over to Robert Laikin, the company's Chairman of the Board and CEO.

Robert Laikin

Even though most companies were faced with a most unprecedented global recession, Brightpoint performed well in many areas in the fourth quarter of 2008. Brightpoint handled 22 million wireless devices in the fourth quarter which was a sequential increase from the third quarter. For the year 2008 we handled 84 million wireless devices globally.

That said, on our last several conference calls, we expect to grow faster in terms of wireless devices handled than the global wire device industry in 2009. As a low cost provider, we are seeing an increased number of requests from major network operators and manufacturers who are looking to turn their current fixed cost models to ones that are variable in nature.

In addition, many of these wireless leaders realize that by working with Brightpoint, they're able to significantly reduce the total days of inventory in their end to end supply chain, thereby freeing up substantial working capital on their balance sheets.

Revenue in the fourth quarter was $1 billion, representing a decrease of 36% over the same quarter in 2007. This revenue decrease was caused primarily by two factors. First, the average selling price in Europe declined. Second, due to major currency fluctuations between the Euro and the U.S. dollar in the fourth quarter, sales in our Singapore operation were negatively impacted in the range of $100 million for the quarter. As the currency stabilized, I expect that we will return to our normal sales revenue in Singapore.

For the full 2008, we generated $4.6 billion in revenue which represents an increase of 10% year over year. On an as adjusted basis, our income from continuing operations was $7.7 million or $0.09 per diluted share for the fourth quarter. Our income from continuing operations for 2008 on an as adjusted basis was $37 million or $0.45 per share. Tony will provide more details on our financial results in his prepared remarks.

We previously announced that we implemented several key initiatives to streamline our business and to improve the cost structure in our European organization. We've had great progress in executing our plan and we will continue to evaluate our model in an effort to find additional savings.

Our growth strategy revolves around the following; one, geographic expansion, two, product and service portfolio expansion and finally, the optimization of our existing business model in the utilization of scale to gain efficiencies.

Even in these difficult economic times, we will continue to move forward with our growth strategy in a very disciplined and focused manner. 2009 will be the year of blocking and tackling at Brightpoint with a focus on the following four areas; first, a continued reduction in the debt on our balance sheet, two, a significant reduction in company wide total spending, three, a focus on generating positive cash flow and finally the ramping up of recently awarded and winning new business globally.

I believe that the successful implementation of these focus areas will further enhance our balance sheet and build long term shareholder value. Yesterday, we announced the 2009 spending and debt reduction plan. The highlight of this plan is that the result is a company wide reduction in planned spending in the range of $40 million to $45 million for the year. Tony will discuss this in detail in his comments.

These actions will allow Brightpoint to re-emerge even stronger as the global recession stops its current downward spiral. I am proud of the entire Brightpoint team's focus on the execution of our growth strategy. We are well positioned as a company for the future.

I'd now like to thank all Brightpoint employees worldwide for their focus, dedication and hard work in 2008. Now, I'll turn it over to Tony Boor.

Anthony Boor

For further details on items discussed on this call, please refer to our webcast presentation available on Brightpoint.com and yesterday's press releases.

Today I have several rather significant topics to discuss relating to our fourth quarter financial performance as well as relating to our outlook and plans for 2009.

We ended the fourth quarter with a loss in continuing operations of $344 million which was largely driven by a $326 million non cash good will impairment charge as well as by $18 million worth of income tax valuation allowances. On an as adjusted pro forma basis, we are $0.09 per fully diluted share.

At September 30, 2008 we had $389 million of good will recorded in conjunction with past business combinations. Good will is subject to an annual review for impairment based upon a two step test in accordance with statement of financial accounting standards number 142. We perform our annual good will impairment tests in the fourth quarter of each year.

During the fourth quarter of 2008 there were several disruptions in the credit market and reduction in global economic activity which had significant adverse impacts on the world's stock markets as well as on the outlook for the wireless industry.

We performed our testing, and as a result the entire amount of good will allocated to the [nean] reporting unit was deemed to be impaired. The good will allocated to the [nean] reporting unit is primarily related to the acquisition of Dangaard Telecom which was completed in July of 2007. This impairment will not result in any current or future cash expenditures.

We still have approximately $100 million of finite live intangible assets associated with customers acquired in connection with the 2007 Dangaard transaction. We may incur additional impairment charges in the future related to these finite live intangible assets should we terminate programs that do not provide us with an adequate return.

Our fourth quarter performance was also negatively impacted by several income tax adjustments. The majority of the tax adjustments were related to valuation allowances and reserves recorded during the quarter on tax assets that are no longer expected to be fully utilized. If however, profitability related to these assets improves from current levels, I expect we would be able to utilize these tax assets in the future.

Looking past these charges, I'm pleased with the overall fundamental financial results for the quarter. Despite a volatile market and challenging global economic conditions, we were able to deliver adjusted earnings per share in the quarter of $0.09 per diluted share while also making good progress on many of our key initiatives.

We were also able to deliver an increased gross margin in the quarter of 7.9% while holding our SG&A to $60.2 million. We had net interest expense of only $4.3 million, our lowest level since Q2 of last year.

Our higher gross margin was primarily driven by a shift in mix resulting from lower distribution revenue and relatively stable ILS revenue. Looking forward, I would expect our gross margin to be in the range of 7% to 7.5%, assuming our revenue mix returns to what we have experienced in prior quarters of distribution volume, and ASP's recover.

We ended the year with debt of $176 million which was roughly $24 million better than our year end debt target of $200 million, and a reduction of $285 million from December 31, 2007. We had primarily only senior secured term debt outstanding at the end of 2008 and we made additional payments of approximately $33 million in January of this year, which means as of today's date, we have no required debt payments due in Europe or in the U.S. until April 2011.

We have targeted an additional reduction in average daily debt of $100 million to $150 million for 2009. We will fund this additional debt reduction through continued improvements in our working capital management and renegotiation and termination of programs that do not generate what we consider to be reasonable returns for our stakeholders. Reasonable long term returns in our view in the 12% to 15% are ROIC level.

We finished the year with inventories of $290 million which was a significant reduction from the $475 million of inventory on January 1, 2008. We also had positive improvements in the amount of aged receivables at the end of 2008 versus amounts at the end of 2007. As a result, we head into 2009 with a balance sheet and debt position that we believe will allow us the opportunity to execute our growth objectives, even though we are faced with some very challenging market conditions.

During the fourth quarter we completed our previously announced realignment of our European operations. As a result of these initiatives, our SG&A expenses decreased by approximately $11 million from the second quarter run rate. We estimate that our efforts will result in annualized savings in excess of the originally targeted $25 million to $30 million.

As I discussed on our last earnings call, our two most applicable debt covenants are leverage and interest coverage. Our leverage ratio is based upon bank to fund EBITDA on a trailing 12 month basis and is currently capped at a maximum of three times debt to EBITDA. At December 31, our calculated leverage ratio was approximately 1.6. Our trailing 12 month bank to fund EBITDA was approximately $115 million as of December 31 which would imply a maximum quarter end debt balance of $345 million.

It should be noted that this covenant is only measured at the end of each quarter. Therefore, we are allowed to borrow incrementally higher amounts throughout the quarter so long as we repay those amounts so that we end the following quarter at or below the cap amount.

Our interest coverage ratio is the net cash interest coverage ratio and is set at fur to one as measured by trailing 12 month net cash interest expense and the previously defined bank EBITDA. Our trailing 12 month net cash interest expense as of December 31 was approximately $22 million which required we have a minimum of approximately $88 million in trailing 12 month bank to funding EBITDA.

We believe we will continue to be in compliance with our debt covenants throughout 2009. We are monitoring our compliance for these covenants closely and we believe that our plans are extremely prudent in regards to maintaining compliance with these covenants.

Yesterday evening we issued a separate press release announcing a 2009 spending and debt reduction plan. We believe that this 2009 spending and debt reduction plan will improve cash flow, provide financial flexibility and enhance operational excellence as well as long term shareholder value.

This plan targets $40 million to $45 million of reduction in planned spending and $100 million to $150 million worth of reduction in average daily debt. The highlights of this plan include a general hiring freeze, a base pay freeze, and elimination of senior executive cash bonuses and elimination of staff bonuses for the first half of 2009, and global work force reduction of at least 220 positions, other discretionary spending reductions and reductions in net interest expense as a result of debt reduction initiatives.

The majority of the foregoing reductions in spending will be reflected in the company's results of operations as a reduction of selling, general and administrative expenses.

Our goal is to be the world's most efficient, lowest cost provider of distributional logistics services to the wireless industry. We also intend to proactively and aggressively manage our working capital and spending in a manner that will ensure that Brightpoint is not only still standing when the economy turns around, but that we are a much stronger, leaner and competitive company.

I'd like to thank all our employees' world wide for their continuing contributions to our successful performance during these very difficult and challenging times. I'd also like to thank each of you for joining us today. We will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Anurag Gupta

Before we begin with the Q&A I'd like to let everyone know that joining the call in addition to Bob and Tony are Mark Howell who is President of Brightpoint America and Michael Coon who is President of Brightpoint Europe, Middle East and Africa. And now we can take your questions.

Operator

Your first question comes from Ittai Kidron – Oppenheimer.

Ittai Kidron – Oppenheimer

Bob, first question to you. Can you talk about the environment right now? We haven't seen the usual holiday ramp up in the fourth quarter and it feels like we'll see a little bit weaker than typical seasonality in the first quarter, but can you comment about the global inventory levels? Are you seeing some stabilization in demand? And also, there's been a lot of discussion on distributors having problems financing. Clearly you're not in that camp, but how does that either create opportunity for you or disruption as well near term?

Robert Laikin

I'll address the last question first. We're seeing most if not all of our global competitors having financing issues and credit insurance issues which is a positive for us with our strong balance sheet and our long term leadership position in the global market.

Many manufacturers and network operators are coming to us asking us if we have an interest level in taking over a lot of distribution opportunities, and it's not just in one region, it's more globally. And the reason that we're being told is that the existing distribution partner that they have, there are concerns about their viability. So that's a good problem for us to have.

As far as global demand, I would answer that more from a visibility standpoint. In October and November there was virtually no visibility, so it's difficult for many of our logistics customers as well as for our distribution business unit to plan our business.

December visibility started coming back and I would say of this three months in the fourth quarter, the visibility was clearly the best in December. In January the visibility was still there, so we're seeing normalized demand in visibility right now, which I think makes it easier for everybody in the supply chain to plan their businesses.

As far as global inventory, we don't see any global overstock that's too high for first quarter, so I think it's normal, and I think that as demand picks up through the year, it should be good for most companies in the wireless space.

Ittai Kidron – Oppenheimer

Second question for Tony in regards to your cost cutting, very detailed. Thanks for the information, but I guess the question is what scenario are you taking into consideration when you're laying out this plan? Or what is the red line that if the environment becomes worse then you'll have to reconsider your cost cutting plan and perhaps enhance it?

Anthony Boor

This spending reduction and debt reduction is being driven by us internally running more of a worst case scenario for 2009. As we put our operating plan together and went to the Board we spent quite a bit of time saying, what if margins fell off? What if volumes fell off? What is ASP's fell off? All of those different things were in a lot of different what if's scenarios, and as a result of that, what we're trying to do is size the company to the worst case scenario, at least what we believe is worst case today which obviously changes pretty quickly plus or minus.

We've built this plan based upon what we believe will be the worst case for 2009 to ensure that we are successful regardless of how bad the economy gets. So will we make additional cuts? I would suggest that we would be proactive as we have been in the last several years and if we see that the economy is going to be even worse than what we have projected here, we will certainly reevaluate our business model.

Ittai Kidron – Oppenheimer

Last question to Michael now that he's on the call, I would assume that many or most of the 200 head count reduction would come out of the Dangaard side of the business. Can you give us an update as to where you stand right now on head count? At Dangaard when it was newly acquired versus after this process is done and where do you see more things that you can do within Dangaard to bring that business back to where you want it to be?

Michael Koehn

Actually we are not giving these details. We are evaluating our global business model and I feel fine with the footprint that we have at the moment and I feel that we are ready actually to take the challenges that we have going forward.

Operator

Your next question comes from Mike Walkley – Piper Jaffray.

Mike Walkley – Piper Jaffray

Bob, I just wanted to follow up, question for you, you laid out some blocking and tackling plans. I was wondering if you could elaborate on some specific plans behind your plan for 2009.

Robert Laikin

When I said blocking and tackling I'm focused on really four specific areas. The first on is a real focus on reducing the debt on our balance sheet, and I think Tony's outlined the specifics related to that.

The second is a real focus on the spending on a global basis. So right sizing the spending with the demand on a worst case scenario and coming in to work every day and all 28 countries; all of our country managers realizing spend money only if you can get the right returns for our shareholders.

The third area is a real focus on generating positive cash flow, and the fourth is the execution on ramping up the deals that we were awarded last year. Last year we were awarded some of the largest deals for upside for our shareholders with Rim and with Verizon, and in 2008 there wasn't a lot of contribution surrounding that.

So instead of 2009 chasing every deal that pops us, we will chase new business based on the magnitude of the opportunity but we're really going to focus on execution of the awarded deals that we had in '08.

Mike Walkley – Piper Jaffray

Tony, just to help us a little bit on the modeling front, and first of all the $40 million to $45 million is an additional cost savings above the $25 million to $30 million that you achieved in 2008. Can you help us think about how that hits the P&L? Do you have a target OpEx run rate exiting 2009? And also on the tax rate, can you go over again why it was higher in the quarter and how we should think about the tax rate for 2009?

Anthony Boor

The spending reduction plan is definitely in addition to the 2008 European restructuring plan, and we do believe that by the end of the year we had actually gotten to the point where we exceeded the $25 million of the $30 million, so I'd say we were at the $30 million plus range on the efforts from 2008.

Coming into 2009, the 2009 plan I think two components there; obviously there's a piece of the spending reduction that is more of a cost avoidance. When you look a deferral, elimination of bonuses, freezing of pay, hiring freezes, some of those are really more so holding the line on what would have been planned spending increases for the year.

And then the other component obviously would be true run rate reductions. We're still working through the details. This plan is not quite as definitive as what we'd like. We don't know what the restructuring or severance charges, all of those things we said we'll have those announced by the end of the month.

But right now if I had to give you a number I would expect the true run rate ongoing savings would be somewhere in the $30 million range of the $45 million, and then the remaining piece would really be more cost avoidance of discretionary spending. And again, the merit freezes and so forth for the current year.

The largest majority of those spending reductions will impact SG&A. There will be some above the line but the biggest piece should be SG&A.

As far as tax rate goes, we had a lot of adjustments in the tax lines in the fourth quarter, many of those driven by the current economic conditions which really resulted in an abnormal tax rate for Q4. We would expect tax rate for 2009 to be in the 32% to 35% range.

Mike Walkley – Piper Jaffray

I wanted to clarify your comments about visibility a little better than in was in October and November. I know you're not giving guidance but for modeling purposes should we just assume for Q1 your business would follow normal seasonal patterns plus the inventory clearing ongoing, so maybe I'm estimating the wireless industry is down about 20% to 25% on selling for Q1. Is that how you view the world?

Robert Laikin

As we said at the end of last year, we're not going to talk about industry guidance at all this year or in the foreseeable future. As far as our business, we still think we're going to grow faster than the market grows as far as units handled because we think we're going to take market share for a whole variety of reasons.

As far as our revenue tracking, the industry, it's a mix issue. It's a business model issue in different regions. I can't give you any more color than you already have on that.

Operator

Your next question comes from Brian Modoff – Deutsche Bank.

Brian Modoff – Deutsche Bank

Could you give us a unit breakdown by region on shifts and also can you give us an idea at least in terms of the head count reduction how you see those occurring on a regional basis?

Anthony Boor

I'll let Bob take the units but I'll run through the head count. Right now head count wise, because of spending reductions, it's going to be on a global basis. We would expect to see a less significant impact to our spending in Q1 because we're just now implementing those spending and head count reductions.

I would expect to see a much more significant impact on spending on Q2, Q3 and Q4 and we should have a much better idea as far as what charges we expect to incur as a result of those spending reductions by the end of this month.

Brian Modoff – Deutsche Bank

On a regional basis, where do you see the spending reductions?

Anthony Boor

Right now we're not ready to provide that granularity. I would probably ear mark that more so just based upon an overall 7% reduction in head count versus specific regional numbers.

Robert Laikin

As far as our unit breakdown, for the fourth quarter, 67% was in the America's, 11% in Asia Pacific, and in Europe was about 21%. What's interesting about the fourth quarter is, in Asia Pacific we were down about 800,000 units from Q3 levels in Q4 and in the Europe and in the America's, both units had an increase in total units handled from the third quarter into the fourth quarter.

The Asia decrease in the fourth quarter was primarily related to what Nokia talked about on their conference call which was the Euro/dollar ratio. The result of that in the fourth quarter was a lot of units were being shipped by the aggressive traders which Brightpoint isn't an aggressive trader in Europe, shipping units into Asia.

So it negatively impacted our Asia business. That situation slowed way down in the last week of December so we expect our Asia business to get back to the normal good levels that we have there.

Brian Modoff – Deutsche Bank

Can you talk about on a vendor level as your breakdown?

Robert Laikin

As far as the breakdown, Nokia, Motorola and Sam Sung were all between 20% and 25% of our total sales. We're not going to break it down any more than that. And then everybody else was below 10%.

Brian Modoff – Deutsche Bank

Can you give us a snapshot of what you see your balance sheet looking like at the end of this year?

Anthony Boor

Obviously, it will have quite a bit less debt on it if we are successful in our efforts, so we're shooting to get our average daily debt run below $100 million before the end of the year is what we're shooting for. As far as inventory levels and A/R and payables, I wish I could tell you. I think that's going to really be dependent upon how this market shakes out throughout the year.

The one thing that we will have to evaluate and address is going to be as we go through this debt reduction effort, one of the things I've talked about for several quarters now is that we're looking at programs that don't meet our internal hurdle rates for rate of return. When I spoke in my script about we will renegotiate terms of vendors and customers, that really relates to those programs that we're not getting an adequate return on today, and so we'll have to go to the vendors and the customers and figure out renegotiate those terms and ultimately if we can't renegotiate terms to get a proper rate of returns on those programs, then we'll have to exit or terminate.

I think as a result, a lot of those programs are more working capital intensive today, and that's why we're not getting the right ROIC or ROTC and so I can see that potentially positively impacting our balance sheet, but potentially negatively impacting on P&L.

Brian Modoff – Deutsche Bank

What do you consider a worst case scenario for '09? In your view, what do you think that is?

Robert Laikin

Right now, we're relying on you guys which is there's a huge range of what people believe volumes are going to be. We believe we're going to grow faster than the market. We believe we've got some great opportunities internally, but as we've looked at it, we've said if we believe all of the analysts and all of the so called industry experts, they're saying the market is going to be off roughly 10% at this point.

There's some outliers that are more naysayers and some that are a little more optimistic, but right now we're assuming somewhere in that negative 10% on a global basis. Obviously we've looked at that by geographical regions for which we operate and so some regions would obviously show much bigger declines, Western Europe for instance and the America's in the 10% potentially.

Operator

Your next question comes from Bill Choi – Jefferies & Co.

Bill Choi – Jefferies & Co.

As you are focusing on your own balance sheet, can you talk about if there's been any changes in credit terms to retailers and other people you do business with and vice versa, are you getting any changes in credit terms given to you by vendors?

Anthony Boor

Not yet, we haven't seen it. Obviously we're very focused on our credit exposure around the globe and making sure that we mitigated our risk as best as possible. We talked about I believe on the last call or the call before, we have a significant portion of our receivables are full insured.

We have seen a slight decline in coverage on some of the highest risk customers from a credit insurance standpoint but nothing that's really negatively impacted our business, and thus far frankly have not heard from any of my team around the world that we've had any customers really pushing back for extended terms.

Obviously there's a lot of people that are dealing with the credit crunch in different ways, but we've not seen a direct negative impact on our business at this point.

Bill Choi – Jefferies & Co.

In terms of the gross margins and the logistics which was particularly strong, can you just explain the strength there? I would expect the stronger product distribution gross margins due to the weakness in the Singapore ops which is lower gross margins?

Anthony Boor

On the ILS business that was really the result of Mark Howe and his team. They've continued to make some very good improvements in our efficiencies in our North American operations which is where the vast majority of our ILS units run through. So it's really just an improvement in the leverage in that business model.

Bill Choi – Jefferies & Co.

So given the outlook for obviously the distribution being a little bit weaker with the overall market and logistics just having record gross margins, why would you expect overall gross margins to be back down at 7% to 7.5% instead of trending up a little more as logistics continue to hold up over distribution?

Anthony Boor

I wouldn't if the mix stayed the same as it is in Q4, so it's all a mix issue. I just don't expect that distribution ASP's and volumes will continue to be off at this level for the foreseeable future. They could be and our margin I expect will hold if mix stays the same but we're assuming that we'll have some rebound in ASP's and also some rebound in distribution volumes, and as a result I would expect then our margin to shift a bit back towards the 7% to 7.5% range.

Bill Choi – Jefferies & Co.

So when would you expect the Singapore ops to start growing again.

Anthony Boor

We would expect the Singapore; we don't expect the same negative impact in Q1 that we saw in Q4 so I would expect Singapore to hopefully rebound.

Bill Choi – Jefferies & Co.

You've obviously continued to win new business; two notable ones are obviously Rim and Verizon. Can you give us an update on how those are ramping and what the anticipation is of the ramp into '09?

Robert Laikin

I would say that the upside potential for us for both Rim and Verizon is significant. But that being said, there is still other major manufacturers and major network operators who we do business with today who I think as they look to save money, they're going to outsource more to companies like Brightpoint, as well as companies that don't do business with us today are looking at us for ways to save money.

The positive impact in a bad economy is more RFP demand and our RFP pipeline is very strong, and what's different this time than I would say in previous times when the economy has had some problems, is we're getting opportunities in regions that we never had opportunities before based primarily on the competition having very difficult times financially, and some even going out of business.

So manufacturers and network operators are coming to us more looking for stability in their outsourcing as well as just looking to outsource. So I think the trend of outsourcing will accelerate in '09 and in '10 just because of that.

Bill Choi – Jefferies & Co.

What percentage of the near unit business would you estimate as logistics versus distribution at the $4.6 million total?

Robert Laikin

The majority of it is distribution. As we ramp up our logistics capabilities and take those from the U.S. to Europe, we would expect that the market and the customers in Europe will embrace the logistics service capabilities that we've developed over more than ten years in the U.S. because it gives them the flexibility of customization at the last possible time as well as driving a lot of cost out of the end supply chain for them.

Some of the customers that we do business with in the U.S. are owned or have an ownership in operations in Europe so it's kind of a natural fit for us. The attraction for us to do the Dangaard merger a few years ago was to take the relationships that Dangaard had in Europe and take the capabilities that we developed in the U.S. in the logistics area and offer those to those customers.

Bill Choi – Jefferies & Co.

Could you give us what your targeted DSO and days in payables would be?

Anthony Boor

We're still shooting for 15 cash conversion cycle. The mix obviously changes by month and by quarter with the ins and outs, but I would model something in the 15 day range. We came in at I think at 17 for the fourth quarter despite revenues being down so I felt pretty good about that actually.

Operator

Your next question comes from Jim Suva – Citigroup.

Jim Suva – Citigroup

Can you help me understand a little bit about your visibility, how you talked about how it looks more normal now in the December and January compared to October and November which were weaker. What gives you the confidence in that? It appears like 2009 will be the first negative year since 2001. Can you help us better understand your comments around visibility being more normal?

Robert Laikin

In October the forecasting that we received from our logistics customers which is an annual forecast, quarterly and then monthly true up, the forecast kept going down and to give you some magnitude, the first time for October was in early September and it went by down 25% which was unusual going into a fourth quarter.

And then as we got into October, it got cut another 25% and then through October it kept getting cut because our customers were having no visibility. November increased slightly from October and then in December the forecasts that were given to us for the year for the quarter and then November held true.

I'm not saying the demand was better, it was just the forecasting of the demand was better, and that held up through January. So December/January on a relative basis, the visibility for the logistics customers was significantly better.

As far as the distribution, the manufacturers had the same pattern, so we saw a lot of one time deals being offered to us which we didn't take advantage of in October because cancellations were coming to the manufacturers at a more rapid rate than they could figure out how to find homes for the product. That lessened in November and then there was none of it really in December and in January.

So that told us that the manufacturers stopped manufacturing to let the demand catch up with the supply of end user built inventory which then brings you more to equilibrium. So the manufacturers that could build just in time got to a point where they were comfortable in their forecasting.

Jim Suva – Citigroup

You laid out a little bit of commentary about your desire to grow your footprint. Can you talk about that footprint? Is the desire to grow it via acquisition or more organically and are there particular regional areas that you're focused on?

Robert Laikin

I would say that the days of us making any big bang acquisitions are over. I think that we're in a great position from a balance sheet standpoint, that as competitors are falling away daily, that we will be able to get their business either from the manufacturers handing us distribution contracts or network operators coming to us and saying will you please build us a logistics capability to take care of something that's being outsourced to a company that's running out of business.

In the U.S., to give you an idea of how long it takes to build a logistics facility and system, we've built them as quick as 120 days. So in a short period of time we can have a building from scratch up and running with an IT system and all the infrastructure in 120 days. That's a short period of time, and it's kind of our secret sauce and our competitive advantage.

As far as growing footprints more from an organic standpoint. There are a few counties that we've identified that can provide us with superior ROIC returns and they will be driven by opportunities with network operators and/or manufacturers who say come to X country and we will give you a contract.

Typically those are new outsource deals versus something in the first example I gave you where they're taking the business away from someone else. I think there's a few countries we will expand into.

I don't expect that in the short term being 2009 or 2010 for us to go try to organically grow into some of the larger markets in the world that we're not in today. It will be more the smaller markets.

This year we're going to focus on blocking and tackling and maximizing the opportunities that we have from good awards that we were given last year and some of the great opportunities that are very low risk but high return in existing markets that we're in already.

Jim Suva – Citigroup

Can you explain what percent of your business is performing below your expectations or below your ROIC goals and do you expect most of that to be renegotiations or do you think the competition has been a little bit aggressive there and you'd just be looking to walk away and focus on your higher ROIC businesses?

Anthony Boor

I don't have an exact number but if I had to ball park I'd say 25% or less of our business is operating below our expectation for returns. As to why that is, there's so many different models and so many different programs. It can be as simple as we're just not receiving the right amount of margin on a Legacy business to justify the amount of capital that's currently deployed.

With the acquisition of Dangaard which is I would say the bigger majority is within Europe from the Dangaard acquisition. They were a private company and had different internal expectations for rates of returns and as a result of being part of a public company, we've got different thresholds that we now need to try and fit these business models into.

I would expect over, we've been working on this for actually a year and a half now and I expect the next six to nine months we will finalize most of the material programs renegotiations. My gut is that we'll be successful on 50% on renegotiating terms with the vendors and/or the customers or both, and something less than 50% of those, we may actually have to exit the programs to free up the capital if we can't get the proper return.

Operator

Your next question comes from Matthew Hoffman – Cohen and Company.

Matthew Hoffman – Cohen and Company

I'd like to explore your comments on ASP's in Europe specifically. Is it individual phone prices that were moving down sharply in the fourth quarter or did you see a meaningful mix lower in terms of mid tier phones at the expense of smart phone during the course of 4Q?

Anthony Boor

ASP's in Europe specifically really are two major factors. FX is probably half of it and so we were very negatively impacted in the quarter with FX. And then the remaining piece was really probably twofold; it's availability of and demand for the higher ASP products, and then also a bit of a mix issue as well where I think the economy, just my opinion, the economy is having an impact where people are buying some lower priced handsets.

Matthew Hoffman – Cohen and Company

So you weren't seeing an affect of manufacturers cutting price during the course of the fourth quarter impacting ASP's?

Anthony Boor

You see a little bit of that but that was not one of the significant drivers.

Matthew Hoffman – Cohen and Company

Day tables under other liabilities seemed to have come down pretty dramatically in fact in cash flow in the course of the quarter. Are there any special items in that days payable number that caused you to pull them down so dramatically? I understand the DSO's and inventory came down also, nice work there, but the payables, anything going on there other than just a desire to clean things up before the end of the year?

Anthony Boor

You've got really two impacts on cash. I'll talk about in the payables and come back to that. On cash, we had a $12 million outlay to terminate the headquarters lease in Europe that happened in the fourth quarter, and then we had a $2.5 million payout of cash to settle up and transfer some outstanding warranty obligations for Germany that we are now completely out of, which is good news from a P&L standpoint and just ongoing liability standpoint.

We also bought out the remaining minority interest in Norway and did an early payout on an existing earn out there that utilized about $6 million of cash. So about $20 million of the $40 million cash outflow in the quarter was really just to take care of some clean up items and exit some leases and minority interest buyouts.

The other $20 million of cash usage in the quarter really was just more of a timing issue. As I look at the numbers and when did we buy the inventory, and when was that inventory payable and due, and I would guess it was more so back to Bob's comment, the lack of visibility coming into the quarter was worse than it was near the end.

What I kind of picture when I look through the numbers is that we bought a bit more inventory at the beginning of the quarter and then got better visibility and were able to adjust our purchases later in the quarter. However, we had to pay for that inventory, the bigger chunk of inventory, so payables are just slightly lower.

So I look at it as really just a timing issue. No abnormalities in what we paid, it's just timing of inflow versus outflow.

Matthew Hoffman – Cohen and Company

You defined something called bank defined EBITDA when you spoke about your covenants. Is there anything in bank defined EBITDA 12 month trailing bank defined EBITDA that's any different than how I would normally calculate EBITDA? Is it a special consideration that I should think about when you look at that metric?

Anthony Boor

There are some nuances in it. Probably, there's a lot broken out in the actual debt agreements. Restructuring charges will be added back. When we initially went into the bank agreement there were also some assumed synergies that were built in that had not yet been delivered upon, and so those ramped down over whatever period of time you said you were going to obtain those synergies.

There's a couple of other odd things in there, but as we get further past acquisition date, it will become more of a true EBITDA calculation except for probably the one time restructuring type charges.

Operator

Your next question comes from Matt Thornton – Avian Securities.

Matt Thornton – Avian Securities

If I understood you correctly it sounds like RFP activity remains fairly healthy here in Q1. Can you give us a sense of where you're seeing that both regionally and both across distribution versus logistics?

Robert Laikin

I would say in the America's and in Europe the RFP activity is the highest percentage of RFP's that are out there. In Europe I would include the Middle East and Africa in that statement, and it's probably because our footprint in both of those markets are the strongest relative to market size.

In Asia Pacific, we're only in four markets. We're not in China which is the biggest market in the world. I think it's more driven by where we are. That being said, the total RFP's are at a very high level from a historic basis.

Matt Thornton – Avian Securities

In terms of your comments, obviously a lot of your competitors are struggling currently. When you're coming to the table, are you seeing less competitors at deals or can you give us a sense of what the pricing looks like right now?

Robert Laikin

I would say for the first time ever on manufacture RFP's, we're the only one at the table. We're being offered what I would consider a very distributor positive terms and conditions to step into the shoes of a failing distributor. So that's something I haven't seen in over 20 years in this industry.

Matt Thornton – Avian Securities

You touched on this a little bit, you touched on inventories. I just wanted to revisit this a little bit. What's your sense of inventories out there when you look at carriers, retailers, other points of sale? What's your sense of the inventory picture? Are we in a bottoming process here in Q1 where destocking is probably sufficient? What's your sense of the situation there?

Robert Laikin

I think that because visibility was so poor in October, that people started cancelling orders at a more rapid rate than we have seen in years and years. What happens then is that the manufacturers start cancelling component orders and then they stop making the end units.

As demand picked up in late November and in December, manufacturing did not pick back up so the channel is burning through the inventory that was made and was out there. I would say, we're to the point now that if you see any uptick this year in end user demand, I think it will be difficult for the manufacturers to ramp up. A good result of that should be AFP's should be stabilized because there won't be an incentive to lower the price of the units.

Matt Thornton – Avian Securities

What was the units handled in distribution versus logistics? Do you have that available?

Anthony Boor

ILS was roughly $16 million and distribution was roughly $6 million.

Matt Thornton – Avian Securities

On the other expense line it was running a little high; I expect it came in at about $4.2 million versus $4.8 million last quarter. Anything interesting falling through there? Is that currency? Could you give us a sense of how we should look at that line?

Anthony Boor

You hit it right on the head there. It's mainly FX and we've got a bit of an offset to that up in cost of sales with just our natural hedging. On the overall quarter, I would say we were slightly negatively impacted in our P&L for currency changes.

Matt Thornton – Avian Securities

Do you have a CapEx target for 2009?

Anthony Boor

A good question. With our new initiatives it's going down from what people had originally asked for in their operating plans. But I would say probably in the $15 million to $20 million range would be my guess at this point.

We're still evaluating it because obviously use of cash and we'll have some impact on our debt reduction as well. It may get brought down something closer to $10 million to $15 million range by the time we're done, but we're still working on that.

Operator

Your next question comes from [Greg Burns – Sidoti & Co.]

[Greg Burns – Sidoti & Co.]

The sequential increases in devices, what was driving that? Was it the ramp of the Rim and Verizon deals or is that new business?

Robert Laikin

The unit volume increase was almost entirely driven by our ILS business, a big portion of that obviously coming in the North American operations and then distribution was actually down volume wise.

[Greg Burns – Sidoti & Co.]

The debt reduction for 2009, what is the timing of that? Is it going to be spread throughout the year?

Anthony Boor

It will definitely be spread throughout the year. I would expect more of it in the latter part of the first and early part of the second half. It's going to take, we'll see some improvements more quickly in those things we have better control over, being reducing inventory levels and aged inventory levels and collection of aged receivables, those kind of things.

Obviously profitability will impact that debt reduction, depending on when we generate profits which will be more towards the middle and latter half of the year as volumes ramp back up. But the harder thing is going to be the renegotiation with the vendors and customers on these programs that don't provide adequate returns. Those will take a little bit longer, so again, I think more Q2, Q3 kind of time frame and going into Q4 on those.

Operator

That concludes today's question and answer session. Brightpoint would like to thank you for your participation in the fourth quarter 2008 earnings conference call.

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Source: Brightpoint, Inc. Q4 2008 Earnings Call Transcript
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