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Executives

Damon S. Wright - Senior Director of Investor Relations

Alain Monié - Chief Executive Officer, President, Director and Member of Executive Committee

William D. Humes - Chief Operating & Financial Officer and Principal Accounting Officer

Analysts

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Richard Kugele - Needham & Company, LLC, Research Division

Benjamin A. Reitzes - Barclays Capital, Research Division

Robert P. Anastasi - Raymond James & Associates, Inc., Research Division

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Ananda Baruah - Brean Capital LLC, Research Division

Jim Suva - Citigroup Inc, Research Division

Scott D. Craig - BofA Merrill Lynch, Research Division

Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division

Osten Bernardez - Cross Research LLC

Ingram Micro (IM) Q1 2013 Earnings Call April 25, 2013 5:00 PM ET

Operator

Good day, and welcome to the Ingram Micro First Quarter Fiscal Year 2013 Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. Damon Wright, Head of Investor Relations. Please go ahead, sir.

Damon S. Wright

Thank you, Stephanie, and good afternoon, everyone. Joining me today are Alain Monié, our President and Chief Executive Officer; and Bill Humes, our Chief Operating and Financial Officer, both of whom will make initial remarks. After which, the call will be open for a question and answer session.

We've also prepared presentation slides to highlight key aspects of our financial performance, which may be found with today's news release at the Investor Relations section of Ingram Micro's website at ingrammicro.com.

During today's discussion, we will make statements that are forward looking. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties. Please refer to today's news release and documents filed with the Securities and Exchange Commission, specifically the Risk Factors listed in Item 1A of our Form 10-K for the fiscal year ended December 29, 2012 for more information on the risks that could cause actual results to differ materially.

Additionally, throughout this call, we will be discussing certain non-GAAP financial measures. Today's earnings release and the related current report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present the reconciliation between the 2 for the periods reported in the release.

Please also see the Investor section of our website for our slide deck, that includes additional information disclosed in accordance with SEC Regulation G.

I also want to remind you this conference call is a property of Ingram Micro and may not be recorded or rebroadcast without specific written permission from the company. The presentation slides and a replay of the call will be available for 1 week on the company's website or by calling (888) 203-1112 and using password 8684873.

I'd now like to turn the call over to Bill. Bill?

Alain Monié

Thanks, Damon, and good afternoon, everyone. Q1 worldwide revenue grew 19% over last year. All regions contributed, helping drive organic growth of 6%. Our recent acquisitions of BrightPoint and Aptec added 13 percentage points of growth.

We also made good progress on 2 important initiatives: Australia and the BrightPoint integration. Earnings, however, were impacted by a gross margin decline in the Technology Distribution business.

When compared to last year, gross margin was down, driven by 3 primary factors: first, a continued greater mix of lower margin products, such as tablets and other personal devices; second, a competitive pricing environment, particularly in Europe and North America; and third, margins last year benefited by approximately 10 basis points from favorable pricing on hard disk drives.

I will cover the impacts to our Q1 results, and Alain will speak to the actions and strategies we are driving to address these areas.

Turning to our first quarter performance. Worldwide sales were $10.3 billion. North America delivered strong revenue performance with sales up 7% to $3.9 billion, led by year-over-year growth in all U.S. divisions, including double-digit growth in our advanced computing and specialty divisions. However, Canada sales were down 2% in local currency versus last year, as weak government spending was partially offset by growth in retail.

European sales of $2.7 billion were flat in local currency. And our key SMB market continued to demonstrate relative strength in most countries, although the challenging economic climate and competitive marketplace continue, especially in pockets of the retail business.

Asia Pacific achieved record first quarter revenues of $2.2 billion, an increase over last year of 14% in local currency. Aptec contributed 4 percentage points of the growth. India stood out with double-digit growth, led by continued strength in large-format retail and mobility. China contributed solid year-over-year growth, although moderated from the high rates of last year. Australia's revenue increased 11% over Q1 2012, and we reduced the operating loss by more than $5 million sequentially from the 2012 fourth quarter.

Latin America maintained its momentum from last year, delivering record Q1 revenues of $462 million, up 8% in local currency. Mining and export in Brazil were the primary drivers, offset somewhat by the year-over-year declines in Mexico, due in part -- large part to limited government spending.

Our new Mobility business added $1.1 billion to worldwide revenue for the quarter. HP and Apple products were the largest contributors to total worldwide revenues, accounting for 16% and 10%, respectively. Worldwide gross margin was 5.7%, compared with 5.41% in the prior year quarter, which you may recall benefited by approximately 10 basis points from favorable pricing on hard disk drives.

2013 first quarter gross margin benefited by 63 basis points from the addition of revenue from our new mobility business, driven by its value-added device life cycle services. GAAP consolidated operating expenses was $495 million or 4.82%, and $470 million or 4.5% on a non-GAAP basis.

On a GAAP basis, our new mobility business added $110 million to consolidated operating expense, due primarily to the higher labor content required by the high-touch nature of its value-added services.

On a non-GAAP basis, our new Mobility business added $96 million, which impacted consolidated operating expense by 51 basis points of sales. Operating expense was also impacted by continued investments in strategic areas across all regions to further diversify our revenues into higher-margin businesses.

Worldwide GAAP operating income was $91 million or 88 basis points. On a non-GAAP basis, operating income was $115 million or 113 basis points, which excludes restructuring, integration and other related expenses of $13 million and amortization expense of $12 million, $9 million of which is related to the acquisition of BrightPoint.

On a regional basis, North America GAAP operating income was $56 million or 144 basis points. On a non-GAAP basis, operating income was $60 million or 155 basis points. Recall that last year, North America was the primary beneficiary of elevated hard disk pricing in Q1.

The region was impacted by continued investment to build out our faster growing and higher-margin businesses, as well as by a more competitive selling environment, as certain companies fought to regain lost share, which placed unusual pressures on margins.

Europe's GAAP operating income was $14 million or 52 basis points, and on a non-GAAP basis, $17 million or 64 basis points. The region continues to be affected by challenging macroeconomic environment.

Asia Pacific GAAP operating income was $14 million or 63 basis points, and on a non-GAAP basis, $17 million or 79 basis points. Improvements in Australia were partially offset by a reduction in profitability in China, due primarily to softness in the non-mobility business.

Latin America GAAP operating income was $6 million or 120 basis points. Non-GAAP operating income was 125 basis points. Operating margin was down from last year, due in large part to sales declines in Mexico. Brazil continues to make progress, as expected. GAAP operating income for our new mobility business was $9 million or 87 basis points, and on a non-GAAP basis, $23 million or 217 basis points.

You can find the GAAP to non-GAAP reconciliation schedules in our presentation slides and earnings release.

Interest and other expense for the quarter was $15 million, which includes the benefit of a foreign exchange gain of $4.6 million related to the translation effect of euro-based inventory purchases in our Pan-European entity. Last year, Q1 had a loss of $4.8 million related to the same translation effect.

Our effective tax rate for the quarter was 34.6%. We continue to expect a full year effective tax rate of around 32%. However, our quarterly tax rates can vary significantly depending upon the actual operating results in the various tax jurisdictions.

GAAP net income was $50 million or $0.32 per share. Non-GAAP net income was $63 million or $0.41 per share, which excludes after tax restructuring expense of $9 million or $0.06 and after-tax amortization expense of $8 million or $0.05.

Non-GAAP net income also backs out the Pan-Euro foreign exchange translation gain I just mentioned. The higher tax rate had a $0.02 impact on GAAP and non-GAAP EPS for the quarter.

For Q1, our new Mobility business was accretive to non-GAAP EPS by $0.07, which excludes after-tax integration costs of $3 million and after-tax amortization expense of $6 million.

As Alain will cover shortly, our annual accretion targets for BrightPoint have been adjusted to reflect the exclusion of $0.16 in annual amortization of intangibles expense.

Turning to some key balance sheet metrics. At quarter end, our cash balance was $563 million and our total debt balance was $1.2 billion. This compares to cash of $600 million and a total debt balance of $1.1 billion at the end of 2012.

We ended the quarter with a debt to capitalization ratio of 25%. Moving to working capital, days of sales outstanding were 40 days, down 1 day from the 2012 first quarter. Days of inventory were 36 days, up by 1 day from Q1 2012. And days of payables were 48 days, down 3 days from Q1 in 2012. This brings working capital days to 28, up 3 days from the prior year first quarter, due in part to extended payment terms last year associated with new product launches. The teams are focused on bringing working capital days back within our targeted range for Q2.

CapEx for the quarter was $15 million and depreciation expense was $18 million. I'll now turn the call over to Alain.

Alain Monié

Thank you, Bill. As we analyze our first quarter performance and compare it with last year, there are several elements that I would like to further develop. Some are of a discreet non-repeatable nature, while others are related to more sustained changes in the business, which we identified many quarters ago and responded by launching diverse strategies to address these shifts.

More concretely, as Bill already mentioned, 3 main factors came into play in Q1 affecting our gross margins. The first is a onetime upside benefit last year as a result of the hard disk drive shortage and associated better pricing. Previously mentioned, this represents about 1/3 of the year-over-year gross margin differential in the IT Distribution business.

The other 2/3 is due to the technology shift to mobile devices and increased competitive pricing in our traditional IT Distribution business. The technology shift toward mobile devices does drive lower gross margins. However, these markets generally also come with a low-cost serve and lower working capital requirements, which allows us to obtain adequate returns. This high-growth product opportunity also brings the addition of a new set of vendors and customers to the Ingram Micro ecosystem, which enables us to tap into the associated Supply Chain Services to large OEMs and service providers. These carry better margin and lower working capital needs.

We recognized this opportunity early last year, which led us to the acquisition of BrightPoint, our new Mobility business, which has already been nicely accretive to gross margin and EPS.

The integration of our new Mobility business is proceeding well, and we believe we are on track to deliver at least $55 million in cost synergies for 2014. The addition of BrightPoint's business, along with the cost synergies, is expected to drive accretion to non-GAAP EPS of at least $0.34 in 2013 and $0.51 in 2014. But beyond executing on the cost synergies, we're starting to see early new business wins as we leverage Ingram Micro's global reach.

For instance, during Q1, we won 2 significant supply chain services contracts with wireless service providers in Australia and New Zealand. We're also setting up our mobility business in France, Canada and Latin America, geographies where Ingram Micro has a strong presence and BrightPoint was not established. We believe these additional growth opportunities associated with Supply Chain Services will bring much better gross and operating margins, which is the main reason we made this acquisition.

On the competitive pricing front. Q1 saw an increased level due to the sluggish economic environment in Europe and some competitors trying to regain lost share in North America. However, even though we expect some relief in the midterm, we recognized many quarters ago that strategically, we absolutely need to develop and grow markets where inherently better margins are available. As we have updated you over the past year, we have made and continue to make investments in several of these areas, and we're seeing early results.

For example, our enterprise computing and data center business is growing at more than double the rate of our core business with additions to our portfolio, such as HP's new convert store solutions, IBM's power systems and enterprise class storage, Cisco's unified computing C-Series and Microsoft new unified communications offerings, all of which are higher-margin offerings and also provide excellent value-added services opportunities.

Our Ingram Micro Logistics business, which provides much better operating margin and is service fee-based, as opposed to having to own and carry inventory, is also performing well. We added 3 new customers in Q1, and we are now able to leverage the reverse logistics and repair capabilities we acquired with our new Mobility business. We now have repair facilities in the U.S., in India, and are operating a brand-new facility in Costa Rica this month. Our recent acquisition of Aptec and Promark are also adding growth prospects in geographies and market segments where we should be able to produce better-than-average operating results.

As an example, the combination of BrightPoint's presence in South Africa with our Aptec Enterprise Solution and Services portfolio opens up a new market for us. As to Promark, which only operates here in the U.S., we have already submitted a major vendor for addition to our GSA schedule, with a second large vendor on track to be submitted this quarter. This is the vehicle for us to increase our sales to government organizations and further leverage our existing portfolio.

So while I'm not satisfied with our first quarter bottom line performance, all of the acquisitions and organic investments I just went through are consistent with our strategy to increase the ratio of our higher margin and better returns businesses. I'm confident they are the right investments that will provide our margin profile and profitability -- improve our margin profile and profitability.

On a different front, and as Bill indicated, our progress in Australia in the first quarter was quite encouraging. Customers are clearly coming back to us and our better-than-market, year-over-year growth of 11% solidifies our expectation of reaching a profitable run rate by year-end.

As we look at the second quarter, we currently expect a 1% to 4% sequential increase in revenue with consolidated gross margin flat to slightly up. Our expectations are based on operating leverage, stronger contribution from higher-margin areas, growth in emerging markets and continued recovery in Australia.

I'd like now to open the call to your questions.

Question-and-Answer Session

Operator

We'll go to our first question from Brian Alexander with Raymond James.

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Details, and congrats on the progress in Australia. Can you go over the gross margin commentary again? I missed some of that. How much was gross margin, excluding BrightPoint? And then talk again about the year-over-year decline you saw in the base business. I think you said 2/3 was due to pricing and mix. But I missed what the other third was. And if there's any way to isolate pricing and mix, that would be helpful. And then I have a couple of follow-ups.

Alain Monié

Sure. So Brian, if you look at -- if you exclude the BrightPoint portion of the business, the comparison would be a 5 41% last year and this year -- last year, 5 07%. So that differential has 3 parts, and they're all basically the same, 1/3, 1/3, 1/3. So 1/3 is the comparison for last year versus the hard disk drive pricing. So you take away 10 basis points basically out of that differential. And for the rest, it is really split in 2 equal parts, I would call them. One due to the mix of higher tablets and handheld devices that come with lower margins. And the other is, frankly, some competitive pricing pressures, both in Europe, and to a certain extent, also in North America. That's how we would decompose the margin delta. Of course, all of the investments I talked about are here to compensate for those differentials.

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

So the HDD is obviously permanent, the part due to mix seems like it would also be permanent. Do you think the pricing portion, the 1/3 there, would come back? What's kind of embedded in your expectations? And how are you responding to the competitive actions, particularly in North America?

Alain Monié

Well, the way we are definitely balancing preserving the relationships and positions that we have, where we think it's very important to preserve that. It's more of a defensive. It's not -- we're not using pricing on our own. But we are defending where we think it's important to defend. As to how long this is going to last, it's kind of difficult to assess. Our assumptions are this is not going to be long-term and will alleviate itself as we go through the year.

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Okay. And then just on the revenue outlook. It seems like it's roughly seasonal sequentially. I just wanted to confirm that's the case. And if it is, would that be true across all the regions, or is there variability versus seasonality by region?

Alain Monié

I think it would be more than the normal seasonality, frankly. I think it's a stronger growth than we'd expect now. Seasonality now is a lot less marked, except for the fourth quarter. The other trends of technology shifts new -- to new product launches, et cetera, has almost a bigger impact, usually, than the seasonality that you would apply to Q1, 2 and 3. Of course, not Q4. And as far as the different regions, we don't see any differentiation by region as far as the growth goes.

Brian G. Alexander - Raymond James & Associates, Inc., Research Division

Okay. So maybe it's a little bit better than seasonal. Does that imply that you're feeling a little bit better about the demand environment as we move forward?

Alain Monié

Well, we think that the combination of our investments starting to kick in a little more with the positions we have today, all combined, are giving us. We also have higher growth in the new markets that, like the Middle East and those areas that really bring, I would say, the health of the growth we're looking at.

Operator

And we'll now go to Richard Kugele with Needham & Company.

Richard Kugele - Needham & Company, LLC, Research Division

Question from us. Do you guys have a relationship established yet with Lenovo on the server side?

Alain Monié

I'm sorry, what was the question again?

Richard Kugele - Needham & Company, LLC, Research Division

Do you guys have a relationship established with Lenovo yet on the server side?

Alain Monié

Well, we have -- we work with Lenovo as a big OEM and has been a large relationship that has been growing. It includes their products, both on the PCs and notebooks and all products that they go through distribution with.

Operator

And we'll now go to Ben Reitzes with Barclays.

Benjamin A. Reitzes - Barclays Capital, Research Division

I have a few questions. You were talking about pricing and how long it would last. Do you mind being a little more specific about -- maybe we can figure it out better if you could talk about what products they are so we can make our own views on how long it lasts?

Alain Monié

It's very difficult to give you. It's not on a product basis that pricing might come into play. It's more market dynamic on customers to customers and deals and moments at which they happen. So I wouldn't be able to relate that on products. All I can tell you is that, in the areas that we're investing in, which are higher margin, we see a healthier behavior there than in the more commoditized products.

Benjamin A. Reitzes - Barclays Capital, Research Division

That's helpful. Okay. Then your guidance, a little above seasonal. Is that due to BrightPoint and their smartphone cycle they may be having with Samsung?

William D. Humes

Yes, Ben , it's Bill. I'd say not necessarily. I would say it's more driven by, as Alain alluded, one, seasonality, and then our continued progress in our investments that we're making in areas and growth and the higher-end markets of advanced computing.

Benjamin A. Reitzes - Barclays Capital, Research Division

Okay. So it's just -- what should we -- BrightPoint's new, what should we be modeling that sequentially?

William D. Humes

I'd say they probably follow about a similar seasonal pattern to the rest, the overall third [ph] average.

Benjamin A. Reitzes - Barclays Capital, Research Division

Okay. I had it a little more than that. And then I was just hoping that you could recap what your comments were about the savings and the synergies and what you're on track for again? I think you just went through that pretty fast and just want to check all the numbers are still intact. And then what tax rate should we be using for our model going forward?

William D. Humes

Sure, Ben. So first and foremost on the accretion areas on the -- for BrightPoint, we continue to believe in $0.34 of accretion in 2013 and $0.51 accretive on a non-GAAP basis for 2014. And I remind you that, that -- that's been increased because of the amortization. We took amortization expense out of those numbers. So previously, those numbers would have been $0.18 and $0.35 on 2013, 2014, including the amortization expense. So just wanted to zero you in on that. And then we're making good progress on synergies. Our synergies' full run rate, we're comfortable that we'll hit the cost synergies of $55 million by the full year of 2014, and we're making good progress there. So Q1, we achieved, relative to the targets, $0.07 of accretion. And a reminder, Q1 generally is a little bit softer for the new mobility business relative to the other quarter. So some of the synergies will come or not --- some of the accretion will come more back-end loaded.

Robert P. Anastasi - Raymond James & Associates, Inc., Research Division

Okay. And the tax rate question?

William D. Humes

On the tax rate, we hit 34.6%. We still continue to be believe overall, for the full year, 32%. So we should even out that 34% over the next 3 quarters. Can I tell you, next quarter will be 31% or 32%? Can't really. But for the whole year, it should be around 32% or slightly less.

Operator

We'll now go to Matt Sheerin with Stifel, Nicolaus.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

A couple of questions. Just a follow-up on the questions and commentary regarding the price competition you're seeing, particularly in North America. Some of your competitors have come out and talked about defending their position and being aggressive on pricing to keep share. What's your position on that? Are you being more selective on pricing? Or do you need to keep volumes at a certain level just basically to run the business?

Alain Monié

As I explained before, I think we're really looking at pricing. Whenever there is a discussion on what level to keep the business at, it's only on the strategic approach. It's certainly not a tool that we're using now in order to increase market share. In fact, I think we are naturally, not only maintaining, but probably gaining some shares simply because of our delivery and execution at least in comparison with what's available in the market. And so I wouldn't look at this as being a strategy that we are utilizing except for as a defensive mode for very key and strategic relationships.

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And I know you're backing out the amortization of intangibles on a non-GAAP basis, but last quarter, I believe, in your numbers, you didn't back it out. So on a sequential basis, SG&A was down just a little bit on obviously a big seasonal drop in revenue. So number one, why did you change that position in terms of how you report? And when are we going to start to see more expenses come out of the business because of the integration? And then as a third part to that, you're looking at moving up in terms of higher-margin enterprise data center, et cetera. Are there expenses that you're expecting to invest there in order to grow that business?

William D. Humes

Sure, Matt. I'll tell you, I want to address your second question first. On -- one thing to be mindful of is, remember, the BrightPoint business was only in our quarter 4, in Q4, for about 10-ish weeks. So you get the full year -- so if you look at we had about $80 million, I think, of expenses in the -- or $89 million expenses, including amortization, in the fourth quarter, but that was only on a partial quarter. So you have to basically quarter-ize the whole last quarter. And that really drives the kind of the flatness in Q4 offerings. Whether you include it or not, then you can actually say, well, then it would actually be higher. Well, that's where you see some of the synergies you're realizing. So I wanted to answer that one first. On amortization: We've been looking at it ever since we did the BrightPoint acquisition. And given the significance of it, we have been studying other companies in the marketplace, and ultimately, we decided that it was a good method to show both GAAP and non-GAAP and non-GAAP, excluding amortization, to really see the cash earnings power of our various different acquisitions, especially BrightPoint for now, and who knows in the future. So that was the logic there. And then lastly, on your third question on -- yes, we've actually talked about it quite a bit, Alain did in his remarks earlier, and I did as well, that we have been investing in capabilities and then growing organic expenses to drive a good surge in our higher-margin businesses. So we have been incurring expenses, and it's stepping up, I would say. And it did step up in -- definitely in Q1 this year relative to last year. And we'll continue to do that going forward.

Operator

We'll now go to Bill Shope with Goldman Sachs.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

I wanted to get some clarification on the pricing environment as well. You mentioned, in an answer to a previous question, that you're focused mostly on strategic opportunities, with the implication that you're not necessarily getting involved with any irrational pricing. But your growth expectations do seem, I would say, fairly optimistic for next quarter particularly given some of the IT spending pressures we've all seen over the past few weeks. Can you help us reconcile these dynamics, 2 dynamics, and just help us understand what factors are giving you this incremental growth opportunity relative to an environment that you may not be able to participate in all this -- in terms of getting share?

Alain Monié

Well, I think, the -- one element that I would mention is that, if you look at the pricing comments that we've made, which mainly, really mainly apply to the U.S. and some in Europe, that's the theater where those apply. Our growth is the world, and so you have to include growth in areas like Asia, like Latin America, like the Middle East. And so when you look at the total, the pricing doesn't apply to the total of the company. So that's also maybe where you see some kind of apparent or initial discrepancy. Because in the other regions, we don't have those dynamics and the growth is there. So that's one element. The other element is, again, repeating that, on the pricing side, we certainly do not have a strategy of utilizing pricing to increase our position. So our estimation for the second quarter is not based on any aggressive positioning on pricing on our part.

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Okay, great. And then one more, if I could. Looking at your enterprise ambitions and the investments you were talking about earlier, should we assume going forward that this will be still primarily an organic strategy on the enterprise side? Or would additional acquisitions also be important in the strategy of -- down the road?

Alain Monié

It's difficult to tell. Right now, we have been doing this through organic investments across the world, not only in North America but across all regions. It's clear that, as we do in many other parts of our business, we constantly look at potential acceleration of results through also potential acquisitions. So we are monitoring that as well. And if the appropriate opportunity comes by, we certainly will consider that as well.

Operator

We'll now go to Ananda Baruah with Brean Capital.

Ananda Baruah - Brean Capital LLC, Research Division

Bill, could you go through, I guess, regionally which segment -- which regional segments had more margin pressure than you were expecting? I'm assuming North America and Europe did, and it looks like that by your results. But I guess I just wanted to get commentary on Asia and Latin America relative to your expectations.

William D. Humes

Yes, I would say you're pretty much right. Europe, we kind of did expect some and continued pressures because of the macroenvironment lingers, unfortunately. In North America, I would say it did get incrementally more competitive over the last quarter, probably the last 2 quarters. But -- and that hasn't -- that's not probably a secret to anyone out there in the marketplace, either. So in the sense of Latin America and Asia Pacific, it's been pretty good, I would say. Asia was probably more mix driven over the whole, so the competitive marketplace, I think, is normal. I mean, it's always competitive, but I think it was normal there. And then in Latin America, I would say the -- it's the same. It's -- it hasn't been any significantly more competitive. Now we did see softness in demand in Mexico for Latin America, largely driven by slower government-related demand, which drove the operating margin down. So for Latin America, it's more of a -- more macroenvironment associated with Mexico, along the rest of the region did pretty good, so...

Ananda Baruah - Brean Capital LLC, Research Division

And the comment was that Australia gets back to profitability by the fourth quarter?

William D. Humes

Yes, and that's the goal. I mean, right now, we -- so we -- Q1, we lost about $5 million, operating loss. So a over-$5 million improvement in -- sequentially and close to that on a year-over-year basis. We expect a incremental improvement in Q2, also Q2 being generally the seasonally strongest quarter for Australia, and then exiting the year by -- in our run rate on progress. So this year, we're actually starting off feeling much better about the progress we're making on Australia and are committed to continue to drive success there.

Ananda Baruah - Brean Capital LLC, Research Division

Got it. And I'm assuming it's not 1/3 of the Asian revenue anymore. I guess it's probably more in the 25% area given the softness that...

Alain Monié

It's definitely smaller, yes. It's -- China and India are much bigger now.

Ananda Baruah - Brean Capital LLC, Research Division

And so is it reasonable to think that you can get Asia margins back to a 1% operating margins exiting the year or that type of run rate? I'm just trying to get a sense of the kind of magnitude proven [ph] Asia could see if you hit your Australian goals.

William D. Humes

Yes. I mean, if you think about Australia is still making a $5 million operating loss in one quarter, that's still quite a huge headwind. You back that out and start making income, then Asia's back to being near the herd average or higher, probably. They were one of the higher-performing regions before we had struggles in Australia. So yes, our goal is to have them that level and higher in future years.

Ananda Baruah - Brean Capital LLC, Research Division

Got it. And just the last one for me. I know there's a handful of other parts with sort of all the new businesses and the pricing pressure. Can you just give us a sense from a high level, how should we expect, I guess, the leverage to play out through the year? Like you have essentially seasonal revenue growth in the core business, and then you have the acquired businesses, which you're doing really well. I guess leverage is negative for the March quarter even though you had a solid revenue quarter. So how should we expect, from a high level, the leverage to play out through the year on the seasonal revenue growth?

William D. Humes

Yes, I mean, it's hard. But I mean, obviously the comments, and Alain was talking about it. But it -- first and foremost, I think, on a year-over-year basis, for legacy, for the legacy, excluding BrightPoint acquisition business, we did have leverage year-over-year in operating margin basis points on OpEx. So that's with making reasonably sized investments both in our capabilities within the various different revenue diversification plays and higher-margin business but also continued investments in IS, information systems, to drive productivity and everything else. So even despite those investments, we had leverage on a basis point factor on -- year-over-year on the legacy. Then you have to factor in the BrightPoint higher OpEx content because, basically, a higher -- labor touch and content from their types of higher-services business. So that added, on a non-GAAP basis, I think, about 51 basis points on a year-over-year basis. So that's really the driver. Going forward, when you normalize or annualize that, we'll continue to drive leverage in the business both on a new mobility business and overall on the IT legacy business as well. But we're going to continue to make the investments that Alain has been talking about. So I hope that clears it up a little bit.

Ananda Baruah - Brean Capital LLC, Research Division

That's useful, yes.

Operator

And we'll now go to Jim Suva with Citi.

Jim Suva - Citigroup Inc, Research Division

Congratulations on making some good progress there in Australia. You mentioned that you are regaining some share there. Can you let me know on that, 2 parts? One is, just blocking-and-tackling, how did you actually regain shares? Is it just having the right product at the right place at the right time? Or is it getting your price more aligned with the competition, or more aggressive pricing? How'd you regain share? And second, how far along are you with regaining to the point where you want to be whether you'd be back to that point that you'd like to be, and when would you get there?

Alain Monié

Sure. Well, on regaining share, the main reason customers left us when we had our problems was service levels where our systems didn't allow us to really serve the customers' needs as they were expecting us. And so as a result, they had to find alternatives to continue running their business, which is very understandable. Now that didn't mean that they didn't appreciate their prior relationship with Ingram. And as we fix our problems, there is a natural comeback from customers who've been with us loyally for a very long time. And that doesn't imply that you're -- we're buying share through pricing. In fact, we don't want to do that because that would not be a sustainable way to reestablish our business there. So it's mostly by reestablishing the service levels that they were used to and which now we are able to provide. Now how long -- when are we going to reach the point where we're satisfied? Obviously, as I mentioned a couple of times in prior calls, we expect to regain a good portion of the share loss, but we also are realistic in the fact that we may not regain all of the share loss. As a result of that, we have made -- we have taken pretty clear decisions on reducing our cost basis, which have been implemented. And so I would say that the new normal level for us will probably be at the lower level than where we used to be but at somewhere in between where we are today and where the past history was. The end of the year should be -- we should be in the black, run rate. And then as quickly as we can, we will get back to where we really want to be as far as profitability. Will that be a few months? Yes, certainly, within next year.

Operator

We'll now go to Scott Craig with Bank of America Merrill Lynch.

Scott D. Craig - BofA Merrill Lynch, Research Division

Bill, Alain, on BrightPoint, it seems like the revenue is surprising to the upside a little bit there, so -- at least according to our modeling. And so I'm just curious, is there something that's surprising you guys there as far as cross-selling or integration or anything like that, investments that you could point to? And then I have a follow-up.

Damon S. Wright

Yes, we're -- sorry, Bill, do you want to go ahead?

Alain Monié

No, I can. I can -- we are -- it's in line with what our expectations were and have been. We have integrated what we knew since we acquired the company in October. We're seeing North America business really performing very well. And as you know, that business is predominantly in the services area, which is really the business we want to not only keep but develop in other regions. There have been some moving parts that -- as also was mentioned, when we did -- when we made the acquisition, there was a loss of some business due to a launch in Asia that was non-repeat. That happened in the first half of last year. It was a big, big launch with a new product, and of course, that doesn't repeat itself. So we had integrated those different moving parts. And as far as we're concerned, the revenue expectation is right on what we had integrated in our plans.

William D. Humes

And then Scott, just a reminder too, similar with the cost side of things on the revenue, remember, we only had a little bit more than 10 weeks of revenue in the fourth quarter. So you get basically a full quarters in Q1. So therefore, if you do a full quarter in Q4, you'll see that, actually, it went down from Q4 to Q1, which we would normally expect. So to Alain's point, we were right along our expectations of the revenue stream, given that math.

Scott D. Craig - BofA Merrill Lynch, Research Division

Okay. And then can you provide a little bit more color around what you're seeing happen in China from maybe it being a little bit slower than what it was in certain product categories? And are we seeing any sort of pricing pressure there, like we're seeing elsewhere in the world? Because you didn't mention that, so I would assume that there's not.

Alain Monié

Yes, the pricing environment in China has not changed. The dynamics there are more around the -- what I would call, the traditional IT business versus the high-growth tablets and handheld devices, where -- and I think we have mentioned this a couple of times in the past quarters where we saw the trend clearly define itself, is that the IT business, non-tablets, non-handhelds, has been fairly soft. And that has continued in Q1. And inasmuch as the tablets and handheld devices come with a low margin, by comparison, this other business is a higher-margin business, so when you combine that softness and compound it, that's where -- that's what's happening in China right now.

Operator

We'll now go to Lou Miscioscia with CLSA.

Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division

I think, in your opening comments, you mentioned that you grew organically at 6%. I got something slightly below it. Maybe you can just clarify that. And can you maybe break that down a little bit? Was there any particular pockets? And I'm referring to x-ing out the BrightPoint and the other acquisitions.

William D. Humes

Yes, I would say, yes, we did -- we do believe that acquisition growth was about 13%, so overall, our growth was just shy of 19%. So it was about 6 -- a little bit less than 6%, but it rounds up to 6%, on organic growth. The organic growth largely came out of North America and Asia Pacific. Europe was about flat, but that's pretty positive for Europe overall as a market. And then Latin America had growth. So all of that combined, Latin America had essentially 8% local currency growth, Asia had 10% organic growth and North America had 7%. So there's kind of the lay of the land for you.

Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division

And how about from a product standpoint, or at least some color on that?

Alain Monié

On the categories, I would say, I would mention 2 categories. The networking, which continues to be very solid and strong, probably growing somewhere around the 20% mark. And then we had services, which although it's in a smaller -- much smaller base is -- was growing at 28%. Our systems business, which is much more where the broad categories of products we have, we are looking at somewhere around 5% growth. And then the -- on the peripherals side, smaller, around 3%.

Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division

Okay, great. And then when you shift it today to include the amortization, did you have to shift the way, I guess, you normally publish non-GAAP info?

William D. Humes

Well, I'm not sure about shift, but we did it consistently quarter-over-quarter. So -- and we followed your normal kind of consistency and Regulation G, which defines rules around pro forma. So I'm not sure exactly what your question is, Lou, but...

Louis R. Miscioscia - Credit Agricole Securities (USA) Inc., Research Division

Well, if you're just there [ph] sometimes, when you make these changes, it stays permanent. So it was not at the -- where you had it before, and now this is a permanent change going forward.

William D. Humes

Yes, it's a permanent -- well, for the foreseeable future, yes, and for all acquisitions, including past acquisitions and if we do or when we do other ones in the future.

Operator

And we'll now go to Osten Bernardez with Cross Research.

Osten Bernardez - Cross Research LLC

Real quick. And going back to the pricing and mix issue, if you will, but more so towards the mix. How much of the change in mix for your traditional or stand-alone Ingram Micro business is, I guess, more intentional rather than market driven for some of the lower-margin devices? By that, I mean, are you pushing greater deal -- more deals, volume deals, for some of these devices, or pushing more of your shared services?

Alain Monié

I'll make a couple of comments, and Bill, you can jump in there. But the -- it's -- most of it is -- I mean, it's market-driven. Those are the dynamics of the market. We are accompanying what's happening out there in technology, and that's what's happening. So I would say the mix is really us following where the growth and where the evolution of mobile devices is going. So basically, that's -- I don't know, Bill, if you want...

William D. Humes

Yes, no, on all those comments, yes, it is market driven. And we have to play in this market to ultimately expand the relationship with the vendors and customers, but -- one, for this business alone, but also the potential for adding device life cycle management services and supply chain management services. So it's all part of the necessary path.

Osten Bernardez - Cross Research LLC

Okay. And can you revisit for me sort of what were the drivers behind the increase in working capital base and sort of provide some color in terms of how you expect that to come down a bit? Was it primarily just adjusting for some of the acquisitions?

William D. Humes

Yes, no, Osten. I'd say the largest increase -- I mean, in the end, year-over-year looking at Q1 last year, this year, we went up from working capital days, 25 in Q1 of 2012 to 28 in Q1 of 2013. So that 3-day increase is really a -- for the most part because of other things that are kind of pretty much consistent within a day of each other on DPO and -- or not DPO: DSO and DIO. The large difference is really in timing of payment of vendors. And a big driver that came from last year's extended payment terms we had on some product launches, that allowed our yield at that point in time relative normal Q1, so it allowed our DPO to stretch out a little bit. Going forward into Q2 -- Q1 is always tough, anyway. We tend to come out astute of -- after Q4, with higher working capital base. So it's not completely abnormal. Q2, our goals would be to drive it down, through both the asset side as well as the payable side, into our normal targeted range. And we're comfortable that we'll drive there.

Osten Bernardez - Cross Research LLC

Okay. And then lastly for me. Would you be able to just revisit real quickly sort of what your future plans behind future IP rollouts, maybe? Have you considered when you're going to restart those efforts?

Alain Monié

Yes, we are -- not finalizing, implementing the fixes that we had to implement, and that's starting to show as we have results that are much better in Australia, for instance, to give an example. We believe that we will have a better picture on the future deployment for other countries in the second half of this year, both the -- as we solidify all these improvements that we established in the different countries that run SAP today but also as our new CIO comes on board and assesses the situation and gives us confirmation on where the best compromise of deployment and risk management will be.

Operator

We'll go to Ben Reitzes with Barclays.

Benjamin A. Reitzes - Barclays Capital, Research Division

I just wanted to clarify something about the amortization of intangibles. Maybe I'm a little dense, but I -- the number that foots to the Street, and so the consensus was $0.43. You put up $0.41. The Street really was at $0.48, if you had -- if we had accounted for the amortization of intangibles. Is that correct? Or another way put: Your -- you put -- your number is $0.36, if you had done it the old way, comping to the $0.43.

William D. Humes

Yes, I mean, it -- going to your former, yes, it -- the consensus would have been -- in an apples-to-apples comparison, would have been $0.48. If you would have adjusted to our anomaly on tax rates, either you would have come down back to $0.46 or we'd be at $0.41, plus $0.02 for the impact on the taxes. So that's kind of your comparison, but yes, you're honing in to the right amounts.

Benjamin A. Reitzes - Barclays Capital, Research Division

Yes, excluding the taxes, a $0.06 difference with the consensus is basically what the apples-to-apples, right?

William D. Humes

Yes, 5-ish...

Benjamin A. Reitzes - Barclays Capital, Research Division

Okay, 5-ish. And then -- so then that begs the question just, is this the amortization of intangibles level we should use for the year in terms of our modeling? Or did any other acquisition kind of do anything to that number? Or we should just kind of model this?

William D. Humes

Yes, that should be the model going forward until a -- we have a new acquisition or whatever else.

Operator

And with no further questions, I'd like to turn the call back to Mr. Damon Wright.

Damon S. Wright

Great. We want to thank you all for participating on today's call. And we look forward to the opportunity to sit down with many of you at upcoming conferences next month.

Operator

And this does conclude today's conference. Thank you for your participation.

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