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Executives

Anurag Gupta – SVP, Global Strategy, IR and Corporate Communications

Robert Laikin – Chairman and CEO

Tony Boor – EVP, CFO and Treasurer

Mark Howell – President, Americas

Analysts

Ittai Kidron – Oppenheimer

Brian Modoff – Deutsche Bank

Mike Walkley – Piper Jaffray

Jim Suva – Citi

Matthew Hoffman – Cowen & Co.

Matt Thornton – Avian Securities

Deepak Sitaraman – Credit Suisse

Bill Choi – Jefferies & Co.

Brightpoint, Inc. (CELL) Q2 2009 Earnings Call Transcript August 7, 2009 8:00 AM ET

Operator

Good morning and welcome to Brightpoint's quarterly earnings release conference call to discuss the results of the second quarter ended June 30, 2009. This call is being recorded. (Operator instructions)

Brightpoint would like to remind its shareholders there is a toll free 24 hour Investor Relations line, 1-877-IIR-CELL. That's 1-877-447-2355. At this time, I'll turn the call over to Anurag Gupta, Senior Vice President of Global Strategy, and Investor Relations at Brightpoint. Please go ahead, sir.

Anurag Gupta

Good morning, and welcome to Brightpoint's quarterly earnings release conference call to discuss the results of the second quarter ended June 30, 2009.

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 and interim President of Europe, Middle East and Africa region. In addition, J. Mark Howell, President of Brightpoint Americas is available for the question-and-answer session.

Please be aware that certain statements made during this call that are not historical may be forward-looking statements as defined in the Private Securities Litigation Reform 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 cautionary 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 the 7th of August, 2009. The content of this presentation contains time-sensitive information that may only be accurate as of the date hereof. If any portion of this presentation is rebroadcast, retransmitted, 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 reconciliations can be found on our Investor Relations Website. 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 has ended.

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

Robert Laikin

Thank you, Anurag. I'm pleased with our second quarter results in what has been an extremely challenging economic environment. I'm proud of our team for making good progress in the following areas; debt and spending reduction, cash conversion cycle days and operating cash flow.

We are controlling what we can in the current economic environment. We will continue to focus on implementing our European strategy which revolves around two significant initiatives; building 'centers of excellence' and creating a 'shared services center.'

We are making good progress on these initiatives and believe that the successful implementation of this strategy will not only streamline our operations and make it cost effective, but will also position us as the leading provider of logistic services in Europe with capabilities similar to what we have developed in North America and Asia Pacific.

Migration to a predictable higher margin and lower risk logistics business will help create a balance between distribution and customized logistics business models in Europe. We handled 19.2 million wireless devices in the second quarter, which was an increase of 3% sequentially and in line with industry estimates of flat to slightly up on a selling sequential basis.

As the most effective and efficient logistic service provider in the wireless handset industry, we are seeing a significant number of requests from major network operators and manufacturers. We are looking to turn their current fixed cost models, the variable cost models that drive cost out of their total supply chain.

Revenue in the second quarter was $723 million, an increase of 2% sequentially. On an as adjusted basis, our income from continuing operations was $9.1 million or $0.11 per diluted share for the second quarter. As difficult as it was in the second quarter for many companies in many industries, our overall financial performance was good. Tony Boor will provide more details on our financial results in his prepared remarks. I am very proud of the entire Brightpoint teams focus on the execution of our strategic plan.

Our company is well positioned for the future. I would like to thank all Brightpoint employees worldwide for their dedication and hard work in the second quarter of 2009 and I look forward to their continued execution of the plan to achieve our goals.

Now, I will turn it over to Tony Boor.

Tony Boor

Thank you, Bob. For further details on the items discussed in this call, please refer to our webcast presentation available on brightpoint.com and yesterday's press release.

I'm pleased with our financial performance during the quarter. We were able to deliver an adjusted earnings per share of $0.11 per diluted share despite the challenging global economic conditions. I’m also pleased with our EBITDA increase nearly $6 million sequentially to $12.4 million for the second quarter.

We were able to deliver gross margins of 8.5% for the second quarter. However, I would have expected gross margins to have been higher considering the additional shift in mix towards logistics compared to last quarter. Our distribution margin this quarter was negatively impacted by isolated issues in our operations in Europe and Latin America. The good news is that we don’t expect these issues to repeat in future quarters.

In the second quarter, we continued to experience lower ASPs as compared to last year and as compared to our internal expectations. We believe this decrease in ASP is largely driven by change in consumer demand within Europe. We had continued success in the quarter relating to our cash generation and debt reduction initiatives. We generated operating cash flows of approximately $66 million during the quarter. Continued improvements in inventory and AR agings drove the positive cash flow for the quarter.

For the second quarter, our DIO was only 24 days, which I believe is a bit low as our internal target is 25 to 30 days. We ended the second quarter with $96 million in total debt, which was a reduction of approximately $42 million from the end of last quarter. Our average daily debt was $166 million for the second quarter. This represents a reduction in average daily debt of approximately $15 million from the first quarter.

Average daily debt was $153 million in July. We would have seen a larger reduction in average daily debt during July, except for the fact that our 36 million euro factoring arrangement in Germany expired in early July. Our average daily debt would have been approximately $25 million lower in July if this factoring arrangement had not expired. We are currently looking into options to replace this factory and facility.

I currently believe that our goal of having less than $100 million of average daily debt outstanding during the fourth quarter of 2009 is achievable subject to the amount borrowed for the recently announced share buyback program. Based on our progress through the first half of 2009, I believe we are on track to realize the previously stated spending and cost avoidance targets.

Our SG&A expenses were approximately $51 million in the second quarter, which represents a slight sequential decline. SG&A was negatively impacted by roughly $2 million because of foreign currency fluctuations compared to the first quarter. We had solid performance for both our Americas and Asia Pacific regions. As I discussed on our last earnings call, we continue to focus our resources in energy on optimizing our European operating and financial structure, which will result in additional opportunities to improve our financial performance in the European region.

While we continue to execute on previously announced plans during the second quarter, I believe we will continue to make significant progress on many of the key initiatives in the second half of this year. Over the past several weeks in my role as Interim President of EMEA, I have spent a great deal of time working with the team, key customers and vendors to identify opportunities to improve financial performance for the region as well as to renegotiate terms and conditions on those programs that do not currently meet our expectations.

Currently, I would anticipate additional cost reductions exiting of certain programs and channels in a reinvigorated focus on sales and business development during the second half of 2009. These actions should result in achieving our as adjusted operating margin goal of 2.5%, ROIC goal of at least 15% and ROTC goal of 35% to 40% beginning in 2010.

I would like to thank all our employees worldwide for their continuing contributions to our successful performance during these very difficult and challenging economic times. And I would like to say thank you for joining us today.

We will now open up the line for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We will go first to Ittai Kidron.

Ittai Kidron – Oppenheimer

Hi, thanks guys. Tony, a question for you on the devices shift, can you give us the mix between logistics and distribution, and also do you have perhaps the –what is the percent of those devices that is smartphones.

Tony Boor

Yes, Ittai. The mix from logistics versus distribution, we actually saw a slight shift in mix more towards logistics this quarter. I think we ended up at 79% by our last units roughly. Is that correct? Little more [ph] 79% to 80% and we were probably two points lower than that I believe at the end of last quarter, about 77% logistics. The interesting thing is that, as I said in my prepared comments, I would have expected our gross margin to improve a bit as a result of that shift in mix. But margins were pulled down because of decline in the distribution margin largely resulting from the isolated charges we took in the quarter largely related to Europe.

Ittai Kidron – Oppenheimer

If I follow-up on that point, if you look at your distribution gross margin and if you would have achieved a similar level to last quarter, your operating margin would be just over 2%. So going forward as you aim at your 2.5% target, where do you expect to get the improvement upon? Is it just OpEx declining as a percent of sales or is it actual continued improvement from the gross margin and if so where?

Tony Boor

I think two pieces, one, the first one you hit obviously we like the whole [ph] of our SG&A relatively flat. Right now, we took about a $2 million hit this quarter to SG&A because of the weakening dollar. But we were still able to get within parameters of what we have disclosed last quarter and I would expect it will still be in that $52 million to $53 million range that we disclosed last quarter for Q3 and Q4, despite that $2 million of negative impact because we will have some additional spending reductions rolling in this year.

The remaining improvement in operating margins are going to have to come from gaining leverage and obviously, growth in overall business while we are holding our SG&A, and I would hopefully get a little bit of rebound in the distribution margins as well because there is still – even if you adjust out for these unusual items, we have this quarter that negatively impacting. They are still a bit short; I think we were probably in the 4.2% range if you adjusted out the charges.

Ittai Kidron – Oppenheimer

Yes.

Tony Boor

And we would typically expect to be closer to 4%, 5%.

Ittai Kidron – Oppenheimer

Okay. And how should we think about how aggressive you are going to be on your buyback given your statement that you still aim at getting at below $100 million by year end of debt?

Robert Laikin

Hi, Ittai. Good morning. I would say that we will not disclose our strategy for the buyback. We will buyback in the open market and through potential private transactions. If you look at the history of Brightpoint, whether it was share buyback or bond buybacks over the last ten plus years, we’ve always announced buybacks and completed buybacks. And we’ve been aggressive, but at the same time, we’ve been shrewd at how we’ve done it historically.

Ittai Kidron – Oppenheimer

Very good.

Robert Laikin

– on the debt piece, the average daily debt, we said that was subject to the buyback. I can’t unfortunately predict when and what we will buy and so there is a possibility that that would have an impact on our debt goal. But that said, we’ve done a pretty good job this year to date of exceeding the expectations from that perspective. So we are still pushing very hard on getting that debt down further.

I think Ittai, if the seller came along today and had $15 million worth of shares at the right price, I am sure we would be a buyer. So it could be that aggressive and also it could be the stock could run away from the current levels and spike up potentially and we might be more conservative. But we certainly have the capital available to buyback the shares, but historically we are looking at for the best interest of our shareholders.

Ittai Kidron – Oppenheimer

Very good. And lastly for you Bob, you mentioned the activity that you are seeing the carrier side and outsourcing, can you give us a little bit more color on how do you expect that to shape out or maybe by region? Where do you expect most of that activity to happen? And what pace and what levels of outsourcing are you thinking about?

Robert Laikin

As we talked about on our last several conference calls, the positive for Brightpoint in a global economic downturn are that, our industry position is a low cost provider in wireless logistics and the experience that we have and the amount of customers that we have in handling almost 20 million of handsets per quarter put us in a position to drive cost out for operators and manufacturers. In these difficult times, we are seeing more demand from these folks who want to turn fixed cost models into variable ones and at the same time want to have a total cost reduction. Some of the other benefits such as working with Brightpoint, there is a lower total days of inventory in the supply chains of the MVNOs and the operators I think is a big positive because it freeze up the working capital that they have on their balance sheet. The pipeline is very full. We are having enquires from all regions. Many major manufacturers, many new entrant manufacturers, operators, MVNOs, new MVNOs from all of the different companies that are converging into wireless everything from media to – everybody that you read about every day that’s getting into the wireless space seems to be reaching that to Brightpoint with RFP or RFQ [ph].

Ittai Kidron – Oppenheimer

Very good. Good luck.

Robert Laikin

Thank you.

Operator

We will go next to Brian Modoff, Deutsche Bank.

Brian Modoff – Deutsche Bank

Hi, guys, a few questions. Bob, can you give us a little granularity around what these one time chargers were with your Disty [ph] business in Europe and whether the likelihood is seeing a repeat of that in the following quarters.

Tony Boor

Brian, this is Tony. Maybe I can take that one for Bob. I don’t know that we are prepared to go into the exact specifics of it, but there were certainly isolated to discrete set of issues within just a couple of countries and/or programs. Some of those related to issues with conversion in IT systems and so forth. But at this point, the majority of them, because of how isolated they are, we would not expect to see a recurrence in future quarters. Now obviously in this economy, we still always have the risk of obsolesces and bad debt etc. So we certainly are not saying that – the purpose of providing this disclosure is to make it more clear to you guys and to the shareholders that the margin impact that we saw this quarter was not a result of a change in fundamental market conditions and not because of increased pricing pressures or the model itself. So the key of providing this is to make sure people are clear this was not a fundamental change in the business.

Brian Modoff – Deutsche Bank

So then, we should expect to see the gross margin in logistics return more towards the 4% level sequentially.

Tony Boor

For distribution–

Brian Modoff – Deutsche Bank

(inaudible).

Tony Boor

Yes, I would actually hope that we would get over the next couple of quarters start working our way back at 4.5% plus. So we’ve been a little low the last two quarters from where we typically had been. So I hope we will see some improvement there.

Brian Modoff – Deutsche Bank

Then your distribution margin, the 43.5% was up sequentially. What drove that and what do you think of the sustainability of that?

Tony Boor

I am sorry, Brian. Run that for me one more time please.

Brian Modoff – Deutsche Bank

Your logistics margin on the other hand were above – were off sequentially. What drove that and are we still targeting kind of around 40% for logistics or we seeing better levels here?

Tony Boor

The logistics I think especially largely with what Mark Howell and team have done in the Americas in the couple of quarters, we have seen that jump up mainly because of the additional leverage we’ve gained, because of the spending initiatives and great job they have done there from an efficiency standpoint. And then I think this quarter, the increase was more so because of a more favorable mix in the business within Americas and Asia Pacific as well. And I would expect that if the mix continues to stay in a range somewhere to what we see in the last two quarters that we certainly could hold that above 40%. The other thing is that we probably today, I don’t have an exact number; we are probably at 55% to 65% capacity in our facilities. And so if we could gain some additional use of that capacity, we would hope we would gain some additional incremental leverage there both on IOS and distribution.

Brian Modoff – Deutsche Bank

The 55% to 65% capacity in facilities, you are talking on a global basis?

Tony Boor

Yes, on a global basis. And really because of some of the changes we’ve had in the facilities I think in every single region we have excess capacity. So I don’t think we are at a straight limit in any individual region at this point.

Brian Modoff – Deutsche Bank

Obviously, are there any recovery in unit volumes driven by improving consumer environment would be good news for your margin profile.

Tony Boor

Absolutely and certainly within EMEA, we have – that’s probably where we have the most capacity available.

Brian Modoff – Deutsche Bank

Okay. Couple of questions and I will move over to next. Bob, I will ask both of them and I can be done. Bob, to tell us who contract you just announced or logistics in Europe, can you talk about that as a model for spreading what your logistics business around Europe and what are the cause of activity do you have similar to that piece of business? And then Tony, your debt are down at $96 million. What are your plans from here? Do you want to essentially raise on the balance sheet? What’s your thinking by matter – just a matter of what are your cost of capital issue or whatever, can you talk about that as well? Thank you.

Tony Boor

Yes, and actually Brian I will talk about the Tele2 model as well because of my interim role now with EMEA. The Tele2 model is what we would expect to see for wins in the near term for our EMEA region. We don’t currently have the facilities and systems and capabilities and personnel. We don’t believe within EMEA to win Pan European type contracts. And so I expect we will see more wins in the individual country type contracts across a multiple of countries, but certainly not Pan European or full regional type T-Mobile contracts or Vodafone etc. That’s what the intend of these center of excellence project in the shared service center is that we will build the capabilities and systems and infrastructure and/or charts to allow us to start winning bigger Pan European, Pan Regional type contracts. And so looking at the model, we expect over the next six to 12 months that our wins would be more of – along the lines of this Tele2. And then longer term, we would certainly hope to win more significant programs like what we here in the US with Sprint Nextel or Virgin or T-Mobile or Metro etc.

On the debt, the $96 million, obviously our cash balance has increased. We could have paid down more debt. Its kind of a timing issue right now and trying to make sure what the best uses of our cash and also it’s a bit tricky just because our borrowing rate is so low. I think we are about 3.3% as a rate, which is obviously much more favorable than current market conditions and so because we are into term debt now, we just have to balance that a bit with what we think our uses will be. One of the things that we contemplated in Q2 was that, we are obviously heading into the holiday season while I think we will still pay down debt further, I just want to be a bit cautious until we know for certain that we are going to be able to do that if we had an unforeseen or unexpected significant spike in volumes on the discretion business for instance. We want to make sure that we don’t pay off debt prematurely and take the penalties that go with that loss of liquidity until we know for certain we don’t need it.

Brian Modoff – Deutsche Bank

Okay. Thank you, guys.

Operator

We will go next to Mike Walkley, Piper Jaffray.

Mike Walkley – Piper Jaffray

Great. Thanks. Bob, just want to get your thoughts on kind of the regions where you see the biggest year-over-year growth opportunities, it seems like Europe again with the weak macro there, maybe that improving plus other cost structure that could be a nice source of year-over-year earnings growth and is that region profitable in the first half of the year? And then finally, just on Europe also, should we anticipate a better distribution mix in Q4? Do you think Europe is going to have a holiday season this year?

Robert Laikin

I would say as it relates to the regions and year-over-year are longer term growth opportunities, Europe certainly from the base where starting presents a lot of upside, but I would say most of the upside for Europe will be probably middle 2010 onward. In the US, I would say we still have a tremendous amount of growth opportunities. There is a lot of RFPs and lot of RFQs in the US right now from a variety of companies. And I think our cost structure in the US and our reputation in the client base, we’ve had for a long time in the US is really unmatched. So when you are the winner it seems like getting new business and growing is easier than when you are starting from virtually nothing. So the US I think in the short to mid term will grow faster than Europe.

Our Asia business is a good stable business, but I think that’s probably the least growth opportunity for us as we have an unwillingness at this time to invest a lot of capital into Northern Asia which is where the real growth opportunities are. As it relates to Europe in the Christmas season, if you look back over the last ten years in Europe, Q4 is always the strongest quarter of the year in Europe and I see no reason why it wouldn’t be again this year. I think the first two quarters have been so poor in Europe. I think Europe has lagged all regions in the wireless industry this year, that the base is so low, there has been some great new product rollouts that have been announced that will come out in late Q3 and early Q4, and I think Europe will certainly be a beneficiary of that for Q4.

Tony Boor

Okay. Mike, this is Tony. One of the things as you look at the numbers is keep in mind that ASP impact in Europe were not off nearly as much in unit volume as we are ASPs. And I think that goes to Bob’s comment about launch of products. We’ve not had a great availability of new – hot new products in the first half and that ASP decline is that – launches I think coupled with the economy and people buy in more mid-tier and low-tier phones. Especially in Europe, we are seeing that and so if we do have a rebound in the economy and people buying more for the holiday season as well, I would hope we would see a rebound in our ASPs there, which certainly would drive the mix of distribution revenue up.

Mike Walkley – Piper Jaffray

Okay. Thanks, Tony. We do see a rebound in the Western European region and how should we think about taxes in the back half of the year, so we expect a lower tax rate in Q4 due to more of an international mix?

Tony Boor

So in the first half, we have certainly seen – you saw in the quarter a lower tax rate because of the mix. Part of that is corporate expenses being a little higher and the impact they have on the US business, seeing a poor business rebound in a bit, which have a very favorable rate in the lease business which have some favorable rates. So the mix today, if we stay to the similar mix as we have today, I would expect – I think we have given a range of 32% to 35%, I would expect we would be at the bottom of that range if not even below it. If Europe has a rebound, that would certainly lead us to that same kind of number that we would be somewhere south of the 32%, again depending on the specific geographies of where the growth comes from, certainly towards the low end of the range.

Mike Walkley – Piper Jaffray

Okay. Thank you very much for taking my questions.

Operator

We will go next to Jim Suva, Citi.

Jim Suva – Citi

Thanks, gentlemen. Can you give us a little bit of information on the amount of your company’s business that you’ve identified? In the press release, you have mentioned that underperforming your corporate goals meaning ROIC below 15%, how much of that business have you identified? And I guess most importantly, would you expect the majority or all of that or half of it to be renegotiated to more favorable win-win economic terms or do you expect some of that business for some people just to look at alternative solutions?

Tony Boor

Jim, this is Tony. And I think we’ve talked about this a bit last quarter as well. As far as identifying the programs and products and customers that currently don’t return an adequate amount for our investments, that work is done. We continue to refine that based upon the changes we’ve made in the model from a spending standpoint. So obviously, renegotiating terms and conditions is one piece of that, that’s getting our cost structure down and gaining leverages the other side. And so if we can manage our balance sheet better, reduce the capital employed and also reduce our spending per unit, that obviously has a big impact on the profitability and return on investment on all of our programs. And so we kind of have to balance those two simultaneously.

As far as win-loss rate, I wish I could tell you, we’ve had some fairly decent success in renegotiating terms with vendors and customers. We have certainly reduced terms with lot of customers that had excess terms in the past. We’ve really have not exited any significant programs to date. We certainly did not in Q2. We have cancelled some smaller programs with smaller customers, but nothing material at this point. I really can’t tell you; my hope is that we will be successful in renegotiation on every single program. That being said that, I wouldn’t put an extremely high likelihood on that, I am sure we will have some losses. But I think the silver lining in that is that these programs currently don’t provide an adequate return. Many of them are significantly sub par returns and so we might have a top line decrease and a unit volume decrease, but actually a positive impact on profitability and return on invested capital.

Jim Suva – Citi

All right. Okay, well, there may be switching topic. Can you briefly talk about the level of channel inventory today is extremely lean. Does there really need to be restocking or have we structurally got into a more lean inventory replenishment especially as we head into the seasonality of more favorable trends into Q4 and you kind of lay the product Q3 and with all these new models coming out, should we expect to see more inventory in the channel as we approach our holidays or we just operating fundamentally the much more lower level?

Robert Laikin

This is more – there is actually two pieces of that. One is, the supply chain is gotten much more efficient and I think Brightpoint is in a big part of it and so the ability to maintain that efficiency will be good for the industry. I think the channel field piece is more directed to the fact that it’s a replacement cycle to that extended. But I think if there is a bubble of demand, it will need to be filled at some point, but it won’t be a channel fill, it will be a response to demand.

Jim Suva – Citi

Okay, great. Thank you, gentlemen.

Operator

We will go next to Matthew Hoffman, Cowen & Co.

Matthew Hoffman – Cowen & Co.

Hi, good morning. Tony, the company generated substantial OCS in 2Q, put down inventory extended payables, but I think looking forward I heard you say that inventory was a bit low. (inaudible) earlier question, is it fair to assume there will be some use of cash by the company to restock here in 3Q. And what would the impact of the buyback be. And do you have any OCS target here for the back half of the year? Thanks.

Tony Boor

Hi, Matt. Inventory levels are a bit low, but not significant. So compared to our own internal target, I think we were probably one day or so below our range, the bottom end of our range. So increase wise, I wouldn’t expect us to increase days of inventory significantly, but certainly a couple of days, two or three days' worth. And that hopefully will tie in closely with increases in volume as well. So I would expect it in the Q3, you could have a slight increase in inventory actually even probably a fairly significant increase in inventory just going into Q4 because we are running at such abnormally low levels for Europe today and we don't expect Q3 to be a significant increase in volumes, but we do expect a good holiday season in Europe. So we would have some ramp up. Now I would also expect that wouldn’t be timed – those receipts would be timed properly so that you would have a payable to offset that inventory. So the cash flow impact in Q3 should be minimal if any.

As far as the overall payable situation, that would just have to be a matter of timing on receipts and payments because we certainly did not stretch payables out. Actually, I think from what I recall talking with my different CFOs around the world, we actually probably were a little more current in most of our payables and actually took a few more early pay discounts late in the quarter than what we have done in the last couple of quarters. So I would actually expect payables to be a little better than normal from a timing standpoint.

And then lastly, I think from debt, we certainly expect to continue to pay down debt. Bob and I set a target out there last quarter that we would get to less than $100 million in the average daily debt for Q4. We made great progress this quarter, but we still have what roughly after looking at July’s numbers I think we have another $40 million to $50 million to go based upon July’s numbers to get to that target. Obviously, the stock buyback and timing of that, as Bob said, we had somebody come with the right price and a block for $50 million, that could obviously have an impact on us hitting that number. But from an interest standpoint, again our borrowing rate is so low. It won’t have a significant impact on the profitability of the business.

Matthew Hoffman – Cowen & Co.

Great. I appreciate the visibility there. Bob, shifting over to you, you discussed some hot models, are there a few you would like to call out may be N97 or other models you have in mind and also like to get you to a few more specific on those second half outlook, it sounds like if maybe you are building a little bit of inventory, it’s a pretty bullish indicator for what you think – or let’s just put it in a different way, a more bullish indicator than where we’ve been. Thanks.

Robert Laikin

Thanks, Matt. I would say, as you pointed out, the N97 was a well received product in the channel and N97 that we received in all regions, we sold out immediately. And got to a stock out basis already. So that product has been well received and I think there's been a few other Nokia products in June and July that got launched that immediately were sold out which plays into what Mark is saying, we think there's in bubble of replacement purchasers that are just waiting for new cool product and either the phone breaks or they feel a little better about the consumer confidence and they decide its time to go replace their device.

That being said, we are seeing products that are going to be launched in the third and fourth quarter from Motorola, from Apple, from RIM, from HTC, from Samsung, everything is changing daily and weekly. And the only thing we know is they are all coming smart. The smartphone trend is a real trend and the manufacturers are building on their different platforms whether it’s the RIM OS or the Apple OS or the Nokia Symbian or Microsoft OS or and DROID, and certainly the consumers are going to be the big winners over the next couple of years with the smartphones that are being developed and then there is the services rollout for smartphones, I think that will even drive that conversion from non-smart to smart and will accelerate it.

Matthew Hoffman – Cowen & Co.

Thank you, gentlemen.

Operator

We will go next to Matt Thornton, Avian Securities.

Matt Thornton – Avian Securities

Hi, good morning, guys. First question Tony, coming back to Europe here. I was wondering if you could just give us a little sense of kind of where we are in the restructuring here. Have margins standard to pick up in European region and may be you kind of give us a timeline as to when you would expect Europe to hit kind of run rate margins, and then perhaps put that into context as to how that compares to margins in the Americas, for example I'm just trying to get a little sense of timeline and context there.

Tony Boor

I think if we used a baseball analogy, we're probably somewhere in the fourth inning. There is a lot of work yet to done, the difficulty we are having right now is trying to time when is this global recession going to end and when we are going to see the rebound. We certainly have done a great job from a debt reduction standpoint and a cost reduction standpoint. The big projects we have going now with the shared service center and the centers of excellence will gain us a significant amount of capacity and leverage. But that being said, as we migrate to fewer facilities, we will have additional restructuring charges.

As we migrate to a shared service center, we will have additional charges that result from that. And then we still have some business models that don’t make sense and we will have some chargers I am sure that will come out there. And I would expect that we still probably have some room for improvement in just overall efficiencies within the pieces of the business within SG&A. And so I’ve only been in this interim role for a few weeks now, but if I had to get say we are probably only in the second or third inning from a restructuring standpoint, probably in a fourth inning of making progress and decisions, but I would expect this will be something that we will continue to have some charges and changes in the model through mid-to-late next year.

The centers of excellence, we should have a couple of reference sites up early next year. We’ve loaded the entity into the shared service center. The second and then you will go live this month. We will have eight of the entities in the shared service center by year end with all of the European entities into the shared service center by the end of Q1. The centers of excellence and that migration will take probably another 12 months when we begin the project, the official aggregation and those.

The good news I think at the end of the day with all of this, we’ve got going on, we got a good strategy, we got a good plan, it's going to take good execution and then it's going to take the reversal of this recession. But in the meantime, we’ve obviously done a great job from a balance sheet perspective, a good liquidity, strong balance sheet will allow us to obviously last through this difficult time.

Matt Thornton – Avian Securities

That’s very helpful. And just bring that again into context, from a margin standpoint, is there any reason margins in the EMEA region cannot get to that of the Americas, I guess can we put that in context somehow.

Tony Boor

Yes, I think the Americas operating margins are, you know, have migrated to that point over probably an eight year period or nine year period. Mark and I worked together ten years ago when the Americas business was not profitable and we had horrible balance sheet metrics and a lot of debt. And it took quite a bit of time to get there and you get there through efficiencies and volume and a shift in mix. And so before the European business would mimic, the Americas business, we would have to have a significant set of wins from a logistic services standpoint. Because you said, if you look at the Americas business, I would have to go back and look at the specific numbers today, but the mix of logistics versus distribution is definitely in excess of 80% logistics. And so we are just the opposite of that really in Europe. And so it will take a lot of big wins. I think that will happen over time, but its not going to be quickly.

Robert Laikin

I will add to what Tony said, our strategy is to migrate towards higher margin logistics business. That’s where all our – most of our investments are going towards. Our focus, our new hires, when we come into work everyday, we try to figure out how to go up the value pyramid away from distribution towards more of the high value logistic services that offer better returns for the company. That being said, we – our strong balance sheet, as Tony said, makes us the preferred vendor for manufacturers on the distribution side. So even though we are not focused on the distribution as much as the logistics, with our long term strategy, we have been wining distribution deals because the current distributor either has huge financial problems has gone out of business, owes the manufacturers too much money, has a bad balance sheet and I would say that is in all regions, it is not just in the US or in Europe or in Asia.

So the manufacturers in the last 90 days are coming to us more than they have come to us in the last let's say five years with different opportunities on the distribution side and the once that makes sense, we will take advantage of. But they have to fit within our risk model, so that we don’t end up with bad debt or bad obsolete inventory, and they have to have a ROIC return for us that’s within the range we are looking for. And I would say of the deals we're being brought, we probably either have taken advantage of or are deep in negotiation and probably half of the opportunities that have been brought to us by the manufacturer. And at the end of the day, it's all about manufacturers saying, if I give territory and product and credit to the distributor who's going to be around and who's going to be pay me. And clearly, Brightpoint being the highest profile company, one of the few public companies as a distributor puts us in a really good position based on the results of our balance sheet.

Matt Thornton – Avian Securities

That’s helpful. And just staying on that theme in distribution Bob, in 2Q volumes were down in terms of units handled across most of the regions whereas macro numbers some of the top down numbers put you – its actually being up in the Americas and Asia Pac suggesting perhaps some share loss there. Is that a metric that we should even care about? Is that one that we should expect to you guys start to handle a higher share of units in these regions or again is that just not a number that’s relevant here.

Tony Boor

I think, Matt, what numbers are you looking at? In overall units, we were up slightly quarter-over-quarter.

Matt Thornton – Avian Securities

In distribution actually, if you look across the three regions, particularly in the Americas and Asia Pac, you guys are down in distribution in terms of units handled whereas I think those markets are probably (inaudible) they were up sequentially that indicates, perhaps a lower share of units handed. But as we look forward, I guess is that a metric we should be watching or should be expect that to inflect or again is this not relevant?

Robert Laikin

I think that there's a lot in place especially in the Americas and Asia Pacific. Asia Pacific, we’ve dealt with some issues, India with our care business there and then obviously the Singapore business had some real challenges in the first quarter that continued into Q2, and we had some rebound right at the end of Q2. And then I think the Americas, we’ve had some difficulties in Latin America in Q2 and then overall, really the US business, the biggest impact there from the distribution side has been aggregation, of the tier 2 and tier 3 guys getting bought out by the big players. And so we’ve lost a good chuck of distribution business there, but I think we are hopeful that we will be able to figure out how to make this Verizon model work. I think Mark mentioned good headway there with Verizon and so hopefully that will see some rebound there. And I think we still have some other opportunities obviously in Latin America to grow. And then Asia Pacific, I would hope would see some rebound as things stabilize in Singapore and elsewhere.

Matt Thornton – Avian Securities

Okay. And then just one last question, then I will pass it on here. Tony, on the gross margin, I know you talked about a couple one offs impacting the number in the quarter. On the currency front, I know there was some impact to OpEx; can you talk about the currency applications for gross margin? I know the other expense line was pretty robust. I am assuming that’s probably currency hedges that drove that. So I guess was there any currency impact to gross margin line?

Tony Boor

Yes. So we’ve got interesting dynamics with currency. A lot of this is largely tied to our current Columbia business. So we have got a bit of a timing issue as far as coming across months and quarter, and a geography issue within the P&L. So if you look at the Q1 numbers, we had almost an identical offset in Q1 through the gain that we had in Q2. So on the half of the year, the FX flushes pretty much to a negligible amount. But what we have is certainly of the US GAAP rules and the way our model works in Columbia, we have a timing issue where FX was tied up in inventory across the quarter.

And then once we sold that inventory in Q2 with that flush through and along with that you have geography where you have the impact in gross margins, but also the impact that what you see reflected down below the line. And so it gets a bit difficult to follow, but being said at the end of the day, for the first half of the year, that was really a negligible impact for FX, although you do have some geography issues in quarter-over-quarter knew answers that we have to deal with. But from a margin perspective, not a significant impact on margins either direction for the first half.

Matt Thornton – Avian Securities

So as we look after 3Q assuming a normalized logistics brick distribution mix and some normalization in currency movement here, we should expect an up tick in gross margin in 3Q?

Tony Boor

I think based upon mix and going to be contingent on what the dollar does and what hinder [ph] in Columbia with that model etc., yes.

Matt Thornton – Avian Securities

Okay. Thanks a lot guys.

Operator

We will go next to Bill Choi with Jefferies.

Tony Boor

Joe, you there?

Operator

Mr. Joe, your line is open. Hearing no response. We will go next to Deepak Sitaraman with Credit Suisse.

Deepak Sitaraman – Credit Suisse

Hi, thank you very much. Bob, just following up on the comment that you made about focusing on higher margin logistics opportunities, can you remind us may be through an example of what you classify as high versus I guess lower mid margin opportunities in logistics? And may be also just give us an idea of what the current mix is in that segment today?

Mark Howell

Yes, this is Mark, Deepak. I'll start off on this. When we talk about higher margins, its kind of goal of the company in what we’ve been successful at is providing services that increase in value and therefore demand higher margin. So historically, basic logistic services of package shift has evolved now things like mass customization, reverse logistics, transportation management, context in our services, (inaudible) programs. So the goal is to kind of increase the sophistication of the services that we provide. And with that, the dollars associated with those increase.

Deepak Sitaraman – Credit Suisse

So thanks for that. Just to follow-up on that, as and to the extent new logistic revenue opportunities start to ramp for you guys, should we sort of expect that margins growth for the new opportunities will ramp as well or do they sort of start off at segment averages right off the bat.

Tony Boor

This is Tony. We would typically price deals in line with existing arrangements. Its very slippery slope to do otherwise and we typically don’t price things incrementally either for the difficulty that can create for you down the road. So I would expect with our experience obviously over a lot of years of doing these logistics deals and looking at a lot of opportunities that currently that as we role in new programs, its more so driven by the volume of the program. So I think programs the size of a T-Mobile for instance in the US with those significant volumes, would typically result in a slightly lower margin than a program with less volume. So we are obviously priced based upon volume and the leverage that we gain as I think most pricing elasticity work. So if we win T-Mobile size deals or Vodafone deal or something along those lines, I would expect you could see a bit lower margin than typical. And I think as you win more of the lower mid-tier type volume logistic deals, they should be in line or above with the average.

Robert Laikin

And Deepak, what I was referring to earlier was, distribution business versus logistics business. So I would say our focus is more on high margin logistics including low margin logistics and high margin logistics meaning that a low margin logistics range is typically two to ten times higher than a high margin percentage.

Deepak Sitaraman – Credit Suisse

Great. That’s actually very helpful Bob. Thanks for lot. Just one last one for Tony, you mentioned that you haven’t exited any significant programs that don’t meet your return requirements in the second quarter; I guess how should we be thinking about that going forward in terms of timing and revenue impact at least over the next few quarters here.

Mark Howell

I think the reason may be to go back to why we haven't exited, I think we’ve been fairly successful in those two fronts – one which is or three fronts, improving our balance sheet management techniques within EMEA, reducing our cost structure which obviously made significant improvements in our cost structure over the last two years within EMEA, and both of those factors have obviously helped all of the programs work better. And then, thirdly, we have had good success renegotiating terms with manufacturers and with customers. I think the interesting play here is that, it’s the perfect time to be trying to fix the models, the business models because as Bob alluded to in this one of this prior answers is, a lot of our competitors don’t have the balance sheet that interest people or they don’t have the liquidity to take on new business.

So when we talk to somebody and say, this business model does not work, we are not asking for ridiculous numbers, we are trying to get to 2.5% operating margin and 15% return on invested capital. If we can’t get there, it’s hard for people to say, we are asking for too much. And as a result, if they look around as to who can I give this business to, if it’s not Brightpoint, they are having a hard time to find anybody that’s got the balance sheet and financial wherewithal to take it on because a lot of these programs, it don’t meet the return today have significant, receivable or tied up working capital on one form or another that not a lot of people can afford to take on in today’s environment. So I think that environment, although it's negative and hurts us from one standpoint, I think it does help us in renegotiation from the other standpoint.

And what’s interesting about that is a follow-up to what Tony said, we believe we don’t know this for sure, but we’ve been told by some of the customers and manufacturers that business propositions have been offered at better terms from let’s call, smaller competitors and we still have retained the business at better rates than what others were offered because the parties offering to do it better or cheaper to the customer and manufacturer couldn’t back it, and they just – as they went through the diligence process and looked at the payment history or the viability of some of these companies, the risk factor is just way too high.

Deepak Sitaraman – Credit Suisse

Got it. And just lastly, Bob, any update on the opportunity at RIM and sort of how you see that progressing over the next few quarters here. Thanks very much.

Robert Laikin

Thank you. I would say with RIM, we are committing more resources to the RIM program on a global basis. We are very committed to developing the relationship with RIM for the long term. There is no question in our mind that smartphones will be 75% in more of all phones sold in the next three to five years. And there is no question in our mind that RIM will be a significant leader in the smartphone space, and the upside for Brightpoint with RIM is tremendous. So we are committed to RIM for the long term and hopefully it will result in revenue and profitability for Brightpoint.

Deepak Sitaraman – Credit Suisse

Thanks again.

Robert Laikin

Thank you.

Operator

We will go next to Bill Choi with Jefferies.

Bill Choi – Jefferies & Co.

Can you guys hear me?

Tony Boor

We can hear you now.

Bill Choi – Jefferies & Co.

Okay, great. Tony, can you help me through the operating income from the EMEA division starting off with loss of $4.5 million. There was $1.7 million in restructuring charges we add back. You did talk about the isolated distributing items hitting that gross margin there; I guess that’s Spain and Netherlands. Can you size that and then maybe backing up options, expenses from that region? How close are we to breakeven?

Tony Boor

I can’t provide the granular detail that you are asking for Bill of course, but I can tell you that the charges were in excess of $3 million in the quarter. What’s that?

Bill Choi – Jefferies & Co.

Is that total charge including the $1.7 million?

Tony Boor

No, no, that excludes the $1.7 million.

Bill Choi – Jefferies & Co.

Okay.

Tony Boor

And then, obviously, you will need to look at amortization of identify night live intangibles, good idea of what we got there to impact and then obviously non-cash comp, but we don’t give that granularity by region. So but you can work back through it, I would say that on an as adjusted basis, what I would tell you is, we were probably right at about breakeven or slightly above if you adjust for those items.

Bill Choi – Jefferies & Co.

Great. Okay. And also when you talk about $52 million to $53 million OpEx target for Q4, was that excluding any your options, expenses as well as restructuring charges, correct?

Tony Boor

No, that’s just our normal. So our normal SG&A as you see it on the financial. So the issue with that is that we had $2 million – roughly $2 million negative impact this quarter that we discussed because of currency. Had we not had that fluctuation in the dollar, I would have expected SG&A would have come in actually $2 million less than we actually did in Q2. We are currently, when I say $52 million to $53 million, I would have normally said that number would have been $54 million to $55 million, correct because I previously in Q1 said $52 million to $53 million. We are saying that we believe will have enough incremental spending reductions in Q3 and Q4 to offset the negative $2 million FX hit that we saw in Q2 assuming that would continue in Q3 and Q4.

Bill Choi – Jefferies & Co.

Okay. And finally, you guys talked about favorable mix helping the logistic segment, you know, prepaid is pretty strong trend particularly over the past 12, 18 months, you guys also saw some prepaid, I'm curious how much that benefited your results and how relevant is the overall prepaid card business for you? Thanks.

Robert Laikin

Well, speaking generally if you look at some of our bigger customers, (inaudible) Metro, Cricket, Virgin Mobile, they all utilize either the prepaid or the fix contract mix so that's a significantly benefit, logistics business in the US. It is a relation to the prepaid program that we have in Sweden.

Tony Boor

It's relatively stable, flat. I mean it's not going anywhere and again, the dollars involved in that prepaid business, profit dollars are not significant. It’s a very thin margin that you make on that business. We of course record some of those in a gross basis and some in a net bill as we’ve talked about before for US accounting purposes. But I wouldn’t look at the prepaid card or airtime business since there's really no cards involved anymore is really not a factor in the overall business, it is a good business model for us. But it doesn’t make up a big piece of our logistics. And I think, from Mark's standpoint on the Americas to the prepaid or may be all you can eat type programs, that's obviously where we’ve had very, very good success this year thus far. The track phone [ph] and Virgin Mobile and Boost Mobile and MetroPCS and Cricket, we certainly have seen very favorable results from all of those offerings in the US and that’s helped proper up our logistics units and revenue as a result.

Bill Choi – Jefferies & Co.

Great. Thank you very much guys.

Tony Boor

Thanks, Bill.

Operator

And with no further questions in the queue, Brightpoint would like to thank you for your participation in the second quarter 2009 earnings conference call. 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 has ended.

Brightpoint would like to remind its shareholders that there is a toll-free 24-hour Investor Relations line 1-877-IIR-CELL. That is 1-877-447-2355. That concludes today's conference. You may now disconnect.

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