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Ingram Micro Inc. (NYSE:IM)

Q4 2013 Results Earnings Conference Call

February 13, 2014 05:00 PM ET

Executives

Damon Wright - Head of IR

Alain Monié - Chief Executive Officer

Paul Read - President and COO

Bill Humes - Chief Financial Officer

Analysts

Brian Alexander - Raymond James

Benjamin Reitzes - Barclays Capital

Ananda Baruah - Brean Capital

Jim Suva - Citi

Matt Sheerin - Stifel

Lou Miscioscia - CLSA

Osten Bernardez - Cross Research

Keith Housum - Northcoast Research

Rich Kugele - Needham & Company

Operator

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

Damon Wright

Thank you and good afternoon everyone. Joining me today are Alain Monié, our CEO; Paul Read, our President and COO; and Bill Humes, our CFO. Bill and Alain will make initial remarks. After which, the call will be opened for a question-and-answer session. We have also prepared presentation slides to highlight key aspects of our financial performance, which can be found with today's news release at the Investor Relations section of Ingram Micro's website.

During today's discussions, 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 referring to non-GAAP financial measures, such as non-GAAP operating expense, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share, which exclude amortization of intangible assets and charges associated with reorganization integration and transition costs and other expense reduction programs. Non-GAAP net income and non-GAAP earnings per diluted share also exclude the impact of foreign exchange gains or losses related to the translation effect on euro-based inventory purchases in our Pan-European entity.

For the 2013 fourth quarter, non-GAAP financial measures exclude $25 million in reorganization integration and transition costs as well as $13 million in amortization of intangible assets. For the 2013 year these non-GAAP financial measures also exclude a benefit related to the receipt of $29.5 million from an LCD flat panel class action settlement and the impact of a $5 million reserve recorded for estimated potential charges related to indirect tax declarations in Europe.

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 two for the periods reported in the release. Please also see the Investors section of our website for a 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.

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

Bill Humes

Thank you, Damon, and good afternoon, everyone. The fourth quarter marks strong close to another year where we executed well on our key financial and strategic objectives. We successfully balanced revenue growth with margin and EPS improvement benefiting from strong performance in our acquired mobility business as well as contributions from earlier organic investments and solid operating leverage.

For the 2013 year revenue increased 12% to a record $42.6 million, gross margin grew by 47 basis points to 5.85%, non-GAAP operating margin improved to 1.41%, a 6 basis point increase and earnings hit a record as non-GAAP EPS of $2.37 increased 15% over 2012.

Additionally non-GAAP return on invested capital exceeded our weighted average cost of capital and we generated $466 million in cash flows from operations. For the fourth quarter, we delivered record revenues and earnings while making further progress in transforming our model for two strategic acquisitions in the supply chain services market. With CloudBlue we added a full fleet of asset disposition, on site data destruction and e-waste recycling services and with the addition of Shipwire we enhanced our ability to accelerate growth in the rapidly expanding e-commerce fulfillment market while also significantly reducing on-boarding time cost and complexity for large retailers in our Ingram Micro logistics business.

Although small today, each of these companies brings the opportunity for future growth at significantly higher margins as we leverage Ingram Micro ecosystem.

Turning to some specifics of our fourth quarter results. Q4 worldwide revenue increased 4% to a record $11.8 billion driven by solid growth in Europe and strong contributions from Latin America in our mobility business. Fourth quarter consolidated gross margin was 6% up year-over-year by 19 basis points.

We are benefiting from faster growth and higher margin businesses and our disciplined approach to sales. Our mobility business which was acquired on October 15, 2012 also helped gross margins. Non-GAAP operating expense was 4.22%, a 7 basis point increase over the 2012 fourth quarter.

Operating expense was up modestly due impart to revenue growth as well the addition of acquired businesses and continued strategic investments. We grow strong operating leverage with non-GAAP operating income increasing 11% year-over-year nearly three times our revenue growth for the quarter.

Non-GAAP operating margin was 1.78%, an increase of 12 basis points year-over-year. Non-GAAP earnings per share for Q4 hit a record of $0.88, a 17% increased when compared to non-GAAP EPS of $0.75 a year ago. We had a lowered than anticipated effective tax rate, due largely to the recognition of net discreet tax benefit same quarter which favorably impacted Q4 earnings by approximately $0.04 per share.

Looking at some regional highlights for our IT distribution business. North America’s revenue of $4.5 billion was flat year-over-year but operating margin improve strongly increasing 15 basis points to 1.98%, as we remained disciplined in the managing growth and pricing in various segments.

The IT distribution selling environment continued to be competitive and esteemed to be focused on quality of profitable revenue and returns. Advanced solutions revenue continued to grow with strong improvement in gross margin. Other higher margin specialty division again outperformed the region as a whole with year-over-year growth driven by solid double-digit increases in consumer electronics, accessories and in data capture point of sales.

Canada posted modest growth for the quarter despite being negatively impacted by currency fluctuations. Europe revenue was $3.3 billion, was up 7% year-over-year in U.S. dollars and up 3% in local currency. Non-GAAP operating margin of 1.79% increased year-over-year for the first time in five quarters. We experienced incremental stabilization in several countries and benefited broadly from new vendor and product additions.

France and Netherlands were standout with solid growth across most market segments. The UK continued to perform well with ongoing strength in SMB. In Asia Pacific fourth quarter revenue of $2.2 billion was up 2% year-over-year in U.S. dollars and up 6% in local currency. Non-GAAP operating margin for Asia Pacific improved 31 basis points to 1.02% versus the prior year quarter. In Australia, Ingram Micro has regained the confidence of customers and vendors and we’re adding new partners in product lines, all of which led to low double-digit revenue growth in the phase of flat to down IT spending.

Australia is executing well and is profitable for the quarter as non-GAAP operating income improved by approximately $12 million over Q4 of 2012. Weakness in China continued to impact the region’s profitability and China’s revenue declined year-over-year by low single-digit as continued weakness in PCs were somewhat offset by sales of tablets and smartphones.

Our India business had a local currency growth in excess of 10% led by strength in handsets. Our Middle East and Africa business performed well highlighted by strong revenues in the UAE with gross margins well above Asia Pacific’s average. Latin America revenue hit an all time quarterly record of $681 million, up 13% in U.S. dollars and 16% in local currency. Latin America non-GAAP operating income grew 10% with operating margin of 2.73% leading all regions.

Mexico, Brazil, Miami Export and Chile all contributed double-digit year-over-year revenue improvement. Our Mexico business benefited from strong sales of gaming products, new line card additions and robust demand in SMB market. Miami Export had strong sales of tablets, smartphones and other consumer electronics and networking products.

In Brazil, we continue to take share and add new product lines, while driving a better mix of advanced solutions resulting in further expanding growth in operating margins for the country.

The mobility business contributed revenue of $1.1 billion for Q4 with strong profitability despite further headwinds in mobility’s recent sales in Asia, resulting from market share losses by a large OEM in Indonesia.

Non-GAAP operating margin for the mobility business was a healthy 2.65% leading to accretion to non-GAAP earnings per share of $0.11 for the quarter. North America mobility delivered another strong quarter in logistics services and distribution revenues benefiting from new carrier and customer OEMs earlier in the year. The accessories business is strong due in large part to the extent of the region’s partnership with Samsung. During the quarter, North American mobility added new logistics services customers and secured new vendor wins with leading big box retailer and e-tailers.

Europe also delivered solid mobility results for the quarter led by particular strength in Germany, Sweden and the UK. Europe mobility was highly successful in securing new business winning multiple distribution contracts with leading OEM, while also growing share with a prominent existing OEM during the quarter, region also onboarded several new logistics customers, leveraging its low cost services capabilities in Eastern Europe.

In Asia Pacific, as expected, mobility distribution revenues and profitability were significantly impacted by a rapid loss of market share of a major OEM in high volume Indonesian market.

When we acquired BrightPrint last year, we understood this region will be undergoing a transformation in the lower margin distribution business, so we have been proactive in quickly scaling that cost and establishing new OEM relationships across the region and partnering with current OEMs for value added activities.

We are also expanding into new geographies such as Thailand and Malaysia as we leverage Ingram’s existing infrastructure of building out our higher margin logistics services business. Additionally, we commenced providing logistics services for a prominent operator we recently won.

Turning to other financial highlights in the quarter, HP represented 15% of total sales with no other vendor greater than 10%. At quarter-end our cash balance was $674 million and our total debt balance was $846 million.

Working capital days were 22, a decrease of 5 days sequentially due to strong sell through and inventory and tight management of DSO and DPO.

CapEx for the quarter was $29 million, depreciation was $21 million and amortization expense was $13 million.

Non-GAAP return on invested capital for the year was 10.4%. We had a good year and we are pleased with the financial improvements we delivered.

And now I’d like to turn the call over to Alain.

Alain Monié

Thank you, Bill. I echo Bill’s enthusiasm regarding our fourth quarter and full year results. Our performance is the direct outcome of significant efforts by our associates as they executed on the key objectives we established at the beginning of last year and as a result successfully increased shareholder value.

This past year we made excellent headway integrating our mobility business. For the year we delivered EPS accretion of $0.35, which is above the $0.34 target established when we announced the acquisition in July 2012. We also made important enrolls in positioning the combined company to capture revenue synergies. For instance, we leverage Ingram’s existing infrastructure to enter or accelerate the business in several geographies. In France we were successful in more than doubling our mobility business and we are also on the process of establishing a firm foothold throughout Canada and Latin America.

As a combined company we have strengthened and deepened across all geographies existing relationships with permanent OEMs, carriers and customers and also added new relationships with industry leaders such as BuyCell Wireless Group, Telecom New Zealand and SquareTrade. Our integration process is running smoothly and we still have some additional cost synergies that we expect to realize in the second half of 2014.

While these savings maybe harder to breakout as we continue to integrate our businesses, we are confident that the acquired mobility business will be accretive to 2014 non-GAAP EPS by an additional $0.16.

Our other 2012 acquisitions, Aptec and Promark performed well in 2013 and were also accretive to non-GAAP earnings. Aptec focus on value add solutions covering data center, storage, software, security and networking has driven faster growth rate and higher gross margin contribution. With pro mark, we have successfully leveraged our broad infrastructure and partner relationships to rapidly expand their GSA schedule, more than doubling the number of skews offered with the addition of vendor such as Cisco and Panasonic.

Throughout the year, we also made significant progress in returning Australia to profitability. There has been a long process, but our efforts were rewarded this past year with consistent revenue growth, gross margin expansion and operating income improvement. In total, we improved operating income by $30 million over 2012 and we achieved the goal set forth at the beginning of the year for non-GAAP profitability in Q4. While Q1 is generally challenging quarter for Australia, we remain confident the country will be profitable for the 2014 full year.

With our position well established in mobility, we turned our strategic focus to building our capabilities in other key areas: supply chain, services and cloud. In addition to organizing investment to strengthen our established businesses, we invested approximately $140 million to acquire three companies: SoftCom, CloudBlue and Shipwire. Each of which immediately improved our position in fast growing high margin markets.

We further enhanced our cloud services offerings and aggregation platform with the acquisition of SoftCom, also know as myhosting.com. We now deliver 200 cloud based solutions from over 70 cloud vendors including Microsoft to Amazon, salesforce.com, IBM and VMWare. SoftCom takes us another step forward in building leadership pro in the cloud opportunity.

As Bill covered earlier, our Q4 acquisitions of CloudBlue and Shipwire, bring additional supply chain services capabilities. Each of these three acquired businesses is currently still relatively small and will require incremental investments in 2014 in order to fully support and leverage Ingram Micro’s global ecosystem.

What truly excites us is the opportunity for each of these businesses on its own to be a significant contributor to our overall profitability within the next three years. This year we’ll continue to identify and add similar opportunities that are complementary to our business. In addition to these strategic ventures, we continue to expand our industry leading line card with products and solutions from the world’s leading technology companies and emerging vendors that will become the brands of the future. We also maintained our focus on driving further efficiencies and productivity across the IT distribution business with initiatives including better utilization of our shared service centers, adopting globally best practice and taking steps to better align the cost structure of underperforming businesses with prudent revenue assumptions.

I’ve seen in our result for Q4 and for the year, our efforts are being rewarded with margin expansion and stronger earnings. We continue our organic investment to building expertise, programs and capability to move up the value stack. We generated further momentum wining new authorizations for higher margin product lines with key OEMs such as IBM and Cisco. Positive impact of these higher value solutions is benefiting gross margin and operating margin in our IT distribution business.

We’re making additional investments in Q1 and plan to continue to invest throughout the year to not only increase our portfolio of value-added solutions domestically but broadly expanded across international markets.

Our company is proactively accompanying great changes in the technology industry and evolving its business composition and structure accordingly. As we explore and execute on our various initiatives for growth and stronger profitability, we need to continue to ensure that we have the best organization, capabilities and resources to meet the changes ahead and more importantly to capture the tremendous opportunities we have already started to investment in.

As part of the next phase of execution towards delivering on our financial and strategic objectives, it is important that we further enhance our ability to innovate and respond to market needs with greater speed and efficiency. Over the past few months, we have been working at developing a broad organizational effectiveness program that involves three critical aspects: One, aligning and leveraging the company’s infrastructure globally with its evolving businesses, opportunities and resources; Two delayering and simplifying the organization to enable the company to be more nimble, responsive and collaborative; and three, maintaining strategic investments in expertise and capabilities to continue to transform the company’s business mix in faster growing higher margin businesses.

As a result of our alignment and delayering programs, we expect to deliver annual savings between $80 million and $100 million. Onetime restructuring, integration and our reorganization costs associated with this program are expected to be in the same range which includes $8 million in cost associated with implementation of certain initiatives we took in the fourth quarter of 2013.

Majority of the costs are expected to be incurred in the first half of 2014. We expect the majority of the cost savings beginning to occur in the second half of 2014 and the full run rate of savings to be realized in 2015. This is a significant undertaking but one that will enable us to run the business faster, smarter and better.

Prior to providing our outlook, I wanted to mention that we will be holding an investor day in New York, the week of June 23. In addition to a broad company overview and presentations on recently acquired businesses, we’ll also update our 2015 financial targets and provide longer range financial goals. For the 2014 year, we currently expect worldwide revenue to grow in the low to mid single digits, in line with overall global IT spending.

We also expect to drive solid non-GAAP operating leverage as additional investments into the business are more than offset by continued execution, operational improvement and benefits from earlier investments as well as the favorable impact in the second half of 2014 from our organizational effectiveness programs.

For the 2014 first quarter, we currently expect a low double digit sequential decline in worldwide revenue and a high teen basis point sequential decline in gross margin, both in line with recent historical seasonality. For continuing our organic investments which also now included investments into recently acquired businesses to leverage Ingram Micro’s global reach.

Like every year 2013 was busy, but our efforts were rewarded with strong improvements in gross margin, operating margins, earnings and shareholder value as well as solid returns on invested capital. These are the metrics we continue to measure ourselves on and we plan further improvements in 2014.

I will now open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). We’ll take our first question from Brian Alexander with Raymond James.

Brian Alexander - Raymond James

Okay thanks nice execution. How should investors think about the earnings growth in 2014 of price points? You are assuming about 45% EPS growth in a market that's gotten softer lately but where you are building a lot of new relationships and you are introducing new services. So if you could just help us think through that earnings growth. How confident are you in $0.51 at this point? How much is coming from revenue growth, gross margin expansion cost savings, et cetera? I have a follow-up.

Bill Humes

Hi Brian it’s Bill. Yeah, overall we’re pretty confident with the performance of the mobility businesses in total AKA break point, overall as you know we look at incremental $0.16 of EPS accretion on top, but that's a combination of continued synergies that we got on the cost side with some operational combinations that are planned, but yet has not been achieved or not been executed yet, but are definitely in the works and confident. And then combination of the actual solid business base that we’re seeing with new wins coming along the overall base business doing well.

And the front end of the year, I would say that with the transition with a major OEM in Asia Pacific where you will see some revenue declines, but then we do expect that to as that gets anniversaried over adversary over the back half for the year to expect some acceleration there and we see a lot of good wins. So overall, I might say it’s going to come from probably have some half incremental cost synergies and savings and half from the overall business which is a combination of the existing business as well as deals we’re winning.

Alain Monié

And Brian this is, Alain, I would add one thing is that we are definitely focusing our efforts in mobility area towards services business and establishing those services business is a longer cycle. Of course distribution is important, but we really need to develop our services business in Europe and in Asia-Pacific and that’s going to take some time, although we have been recently successful particularly in Asia in bringing on board a couple of carriers with services that will take us in a very good place in the second half.

Brian Alexander - Raymond James

Great, really helpful. Just a follow-up on the restructuring program of $80 million to $100 million. (Inaudible) parsed that by region and then I assume all this is OpEx and all this will flow to the bottom-line, it won’t be reinvested and maybe if you could just clarify? And then just the last part of that question would just be how much do you expect to realize this year versus next year? Thanks.

Alain Monié

Hey, Brian I’ll pass it on to Bill on the details of realization, but I want to stress on one thing. The reason we’re doing this organizational effectiveness plan is really to align our business with our new strategic areas as well as helping the organization be more nimble having speedier decision making process and be much more effective. So that is really what’s driving the reason for this change, now for us that comes and the companies with savings and more effective organization. And Bill give not many detail because we’re not separating those, but I think some indications.

Bill Humes

Yes. We can’t give, it is a global program but we can’t give details anymore than that. But overall, I would say it’s all OpEx and the amount of the savings what you have to do isn’t what you looking at the overall model going forward is, yes, we’re going to have normal OpEx for growth of the business variable costs whatever else, we are also going to do needing invest like we talked about, but then they should flow to the bottom for the overall savings in the program to full run rate in 2015.

So that will be a element I guess in the modeling overall as good savings. Now quarterization in 2014 is we don’t expect to see much savings until Q2, but only little bit of savings and it’s going to get more backend loaded with the savings as we initiate and initiate all the initiatives within the overall program and I would say, so Q3 a little bit more savings and then starting to get a more full run rate right when we enter or exit Q4 of 2014.

Brian Alexander - Raymond James

So your comment about getting solid operating leverage in 2014 does not really reflect much of these actions is basically coming out of the core business?

Bill Humes

It reflects a little bit on the backend. So some of that will aid our backend results.

Brian Alexander - Raymond James

Got it thank you.

Bill Humes

You are welcome.

Operator

And we will take our next question from Benjamin Reitzes with Barclays Capital. Mr. Reitzes please check the mute button on your phone we cannot hear you.

Benjamin Reitzes - Barclays Capital

Yes I got it. With regard to the cost savings it’s $0.40 or so at the midpoint. So if you do the 90 million in savings. So how you want us to have a flow through the model, what’s the reinvestment rate. I don’t think you going to want us to really estimate by $0.40 in aggregate over the course of six quarters. So what is the reinvestment rate as you are thinking right now? And then I have a follow up.

Bill Humes

I mean, Ben it’s Bill. Overall we do expect that for most part trickled to the bottom line. So like I said to Brian just a few minutes ago, we will be continuing to have variable expenses for growth and model of how you want to in the sense of what as free installer of revenue now OpEx and we are going to continue to invest in the business Alain was talking about and in cloud, logistics and value business, but we have been doing that, but now we have a few more acquisitions, we will continue to look for acquisitions and other investments internally and organically, but as this is a separate elements. So this includes and should be factored in as a net result and net savings of our program.

Benjamin Reitzes - Barclays Capital

Particular guys I am so worried we had about at least $0.10 of savings at the back half of 14 and there is still an incremental $0.30 you can realize for 2015 something like that. That is a pretty material change, now you can add a $3 run rate. So that’s a 10% increase in earnings power for 2015. So if we take you literally that’s what this kind of restructuring if you execute according should be able to deliver. Can we hold you to that or my question is still like here, whether it sounds like we should reinvest some of that, but the vast majority goes to the bottom line. I just want to make that perfectly clear?

Bill Humes

Yes, I mean that’s what we said and overall we are continuing to drive those numbers and we are very confident with our 2015 targets.

Benjamin Reitzes - Barclays Capital

And then just a housekeeping question, what tax rates should we use because it was lower than expected in the quarter, should we go back to 30% or this 27% the new tax rate going forward?

Alain Monié

Yes, I would say somewhere between the range of 30% to 32% for the full year. Obviously quarter-over-quarter it is going to vary. So, if it varies up or down that's kind of currently what we expect our full rate to be. In terms of our revenue mix and stuff like that, but I would view somewhere within that range.

Benjamin Reitzes - Barclays Capital

Okay. Thanks a lot guys. I appreciate it.

Operator

And we’ll take our next question from Ananda Baruah with Brean Capital.

Ananda Baruah - Brean Capital

Thanks guys. Congrats on a solid quarter.

Alain Monié

Thank you.

Ananda Baruah - Brean Capital

Hey just a clarification to start, so Bill for Brightpoint the original guidance for ‘14 was $0.51, I appreciate. And so are you saying additional $0.16 on top of that to $0.67 for ‘14?

Bill Humes

No, but thanks for clarifying that, really we've had $0.35 in accretion in 2013, the additional $0.16 we talked about gets us to the $0.51 that we started when we announced the deal to be accretive on. So, we again feel comfortable that that was original targets and we’re hitting those.

Ananda Baruah - Brean Capital

Okay guys. Thanks appreciate that. With tension be to the upside since you clearly are executing ahead of plan on Brightpoint...

Bill Humes

Generally they have upside, but right now we’re just targeting our existing $0.51 for 2014.

Ananda Baruah - Brean Capital

And then on the, I guess on the acquisition, you talked about sort of doing investing in the beginning of the first half of this year, can you give us some context around how heavy the investment will be say first half of this year relative to what your normalized investment rate will be or are you just kind of planning out, because that will, it’s not really generating revenue yet and sort of it’s like come to others net investment until it generate revenue? And then I guess second part of the question is, how should we think about mix and contribution from those businesses, I don’t know call it three years out. What sort of the vision that you guys have for revenue mix when we think about where you guys are going towards? Thanks.

Alain Monié

Let me give it a try and then I’ll pass it on to the others that have to comment. On the acquisitions, as I mentioned before, we need to invest in them in order to fully realize the capabilities potential that they bring to Ingram’s global presence. So, that’s the nature of the investments that we need to make and which will be in addition to the other investments in the core business where we continue investing and acquiring value added services and stacks to bring us up the value chain. So, those are additional investments that we need to make in order to fully realize the potential of these new acquisitions.

Now as far as the results three years down the line, we’re not in the position to provide numbers at this stage. Our expectations are that given the very different profitability profile, as well as the growth available to us if we execute properly, those will start being meaningful and material in three years from now.

Ananda Baruah - Brean Capital

Got it Alain. That’s helpful. Will you at the Analyst Day give some sort of range and expectation around the new businesses do you think?

Alain Monié

I am not sure we will split them, but I think in the overall picture, they will be pretty visible if you compare to what our targets were before we have these operations.

Ananda Baruah - Brean Capital

Okay, great. Thanks a lot.

Operator

And we’ll take our next question from Jim Suva with Citi.

Jim Suva - Citi

Thank you and congratulations to new team Ingram Micro. Commentary around Europe is kind of encouraging, I think if I heard correctly you mentioned France and the Netherlands. Can you confirm if that’s the case? And more important I guess, are you seeing basically a broader improvement in the demand environment of Europe or can you give us a little bit more insights on what you are seeing there in Europe that looks like a pretty material improvement there?

Paul Read

Hey Jim, it’s Paul Read. Yes, France and the Netherlands had double-digit growth in the quarter, so pretty strong, the UK was up as well. Germany had some softness really year-over-year. But we had a new vendor with handsets that we launched in four or five countries in the quarter and that was fairly successful for us. But overall, I must characterize it as more stabilization of the region, better consumer retail spending and the investments that we have made in the SMB space has been pretty solid for us. So, certainly from a year-over-year perspective, we’re seeing some improvements.

Jim Suva - Citi

And a quick follow-up that new handset vendor have you excluded or are you still seeing a lot of strength from the other things or was that really a lot driven by that handset new vendor?

Paul Read

Yes, we still see some strength and I think we’ll continue to see it in this quarter as well. It’s the stabilization really that has been more pleasing and the specific country investments we’ve made and the SMB strength. So, but yes, there is growth outside of that.

Jim Suva - Citi

Okay. And then switching gears, when you look now clearly and you see that Windows XP expiration is coming up, can you talk a little bit about -- do you think that there is any purchasing ahead of that that boosted overall demand or pre-buying or do you think that it’s pretty much has been normal replacement cycle, how should we think your view of what you are seeing for Windows XP expiration?

Alain Monié

Given the past experience we’ve had when some of these changes have happened with different versions of operating systems in the past, it’s very difficult for us to see anything until things really start kicking in when they change. And frankly in our side we have not seen any trend that would indicate preparation for that. So, we will just have to company what’s happening and see when it happens. But at this stage, we haven’t seen any either slowdown or acceleration of procuring around that change.

Jim Suva - Citi

And then last question, Alain. ERP systems, any update on that or what the plan is going forward, I know you are doing restructuring, but I didn’t hear the word ERP till now?

Alain Monié

Yes. On the ERP as you know we have mentioned in the past, we had stopped the deployments and taking the time to add the functionalities that were missing and the productivity levels that we needed for this deployment to be positive one around the world. So, we have been doing that they are getting those fixes in place and we are making very good progress there.

The other element that has kind of slowed us down a bit there that adds a positive is the effort that we have to put into the integration of Brightpoint all over the last year. That was not an insignificant effort for our (inaudible) and IT teams and that was the priority there.

So, we are making very good progress there. I think we will be in the position to give you much more details during our Analyst Day. But you have to take into account the integration of Brightpoint which does represent significant efforts across the globe.

Jim Suva - Citi

Thank you and congratulations to your team at Ingram Micro.

Alain Monié

Thank you, Jimmy.

Operator

We will take our next question from Matt Sheerin for Stifel.

Matt Sheerin - Stifel

Yes, thanks. Your North America operating margins were very strong year-over-year relative to really no growth, how much of that is a function of mix being selective about business? And then also I know you’ve got fairly sizable logistics business that does give you a boost in the fourth quarter?

Paul Read

Hey Matt, it’s Paul. So, I think it’s almost entirely through mix because year-over-year growth was flat. So when we see that the investments that we've made over a number of years have started to pay off in the specialty business or the advance solutions business. They obviously come with a lot more margin than the traditional volume consumer business. So, we've been very selective and very strategic over that growth. Certainly a lot of business to be had out there on the volume side, but at the end of the day we've got a good return on capital and sometimes it makes sense and sometimes it doesn’t. But what we've been very successful out of the investments that we've made over the number of years and that's something now that we’re going to replicate around the world because it’s a significant opportunity for us to take those go to market strengths that we have and knowledge and vendor base, and actually take two other parts and leverage what we've done in North America, which they’ve done a great job.

Matt Sheerin - Stifel

And could you give -- maybe quantify the mix shift over the last few quarters, value, so called value-add products, enterprise level products and services versus more commodity products?

Bill Humes

Well, I don’t have specific numbers here, Matt but there has been, it’s a big business, so it represents a significant percentage of the overall company with the revenue. So it doesn’t move overnight very quickly but -- on the revenue side, but on the profit, it does actually move fairly quickly as you’ve seen with gross margins going up. And so there is definite trend towards more value based services on business and the lowering of the volume business. But we still expect this business to grow this year, in line with IDC for 2014, we should see low double-digit -- low single-digit growth this year across the board. So we don’t expect this business to be flat forever.

Matt Sheerin - Stifel

Got it that's helpful. And then just a question regarding IBM and Lenovo, the IBM sale of it X86 business; any impact there? And then also I know you’ve been authorized along with Tech Data to sale the high end servers from IBM, that’s been a few quarters now. How is that progressing and are you seeing impact from that and what investments have you made there?

Alain Monié

Yes. On the IBM, Lenovo, we’ve been working with both of them for many, many years and we’ve been part of the acquisition that Lenovo did on the ThinkPad a few years ago on the PC and that was a pretty successful acquisition for them which we as distributors accompanied as well and we’re successful with Lenovo. So, we feel that this acquisition of servers will present the same opportunity for us. We have excellent relationship with both sides. They know how to execute on these type of transfers. And I think Lenovo’s presence and strategy around the globe is solid and we only see opportunities here for us to help that transition happen with success. As far as the higher end IBM products, that has been indeed pretty successful. It takes time as Paul was mentioning for the numbers to really impact when you have such a large core business. But I have to say that we’re very satisfied with the progress we’ve made there. We’ve made significant investments in the U.S. As Paul mentioned, we’re going to replicate investments outside of the U.S. to make sure that this success is also a globally expanded.

Matt Sheerin - Stifel

Okay, thanks and best of luck this year.

Alain Monié

Thank you.

Bill Humes

Thank you.

Operator

We’ll take our next question from Lou Miscioscia with CLSA.

Lou Miscioscia - CLSA

Okay, thanks. I know that North America was weaker than the other regions, I guess what can you share with us I guess from a color/comment standpoint as to what was that was the case?

Bill Humes

Lou, it’s really the focus that we have and have had for a number of quarters now, just being very strategic and disciplined about this growth. Growth is certainly there to be had from a volume perspective but we have balance that with the margin and the EPS improvement we need from the growth of the business. So what you have seen us do over the last few years is just invest resources in the more value business, more value centric business. And we’ve seen the results with even though on a top line it seems flat year-over-year. Our specialty businesses with the DC/POS and DBL and the IML, the logistics business had good growth in the year and on the advance solutions is also good growth.

So revenues sometimes don’t move the top line too quick but the bottom line moves as you have seen the margin increasing.

Lou Miscioscia - CLSA

Okay. When I model out from your first quarter guidance and I use normal seasonality, I am not really getting to the let’s say 3.5% full year growth or one could expect I guess higher than normal seasonality for because of the acquisition of Brightpoint maybe some seasonality numbers over the last 10 years no longer hold, if you could comment there.

Alain Monié

Yeah you are talking about the overall year growth or the Q1?

Lou Miscioscia - CLSA

Yes, the overall year once you start, since you gave guidance obviously for first quarter.

Bill Humes

Yes, right. I mean overall I think we start with a little bit softer growth in Q1 that’s least anticipated, largely driven by our mobility business in Asia Pacific which is still going through a transition from one of the major, historically major OEM in the handset area really having share losses and some business out of Indonesia where they do a lot of that handset business. So last year in 2013, it was still a very strong quarter in Asia Pacific for the mobility business but it’s kind of going in run rate wise through Q4 is going -- continuing to be very, very low in business because that business is basically drifted away now and therefore it’s a much lower set. Now we do expect enhancement and new targeted OEMs in the region and overall in the mobility business.

So towards the backend of the year, we do expect to new -- regain some of that lower growth we expect in the front half.

Lou Miscioscia - CLSA

Okay, two outlook follow up, just share count thoughts for the year and also SG&A you expected to sort of be similar form a percent of total revenue or maybe some guidance from quarter-to-quarter basis possibly? Thank you.

Bill Humes

Yeah, I mean for share count first one, I think we gave guidance for Q1 on 158.8 I think million shares, let’s say 159 largely driven the increased stock price which has an impact on the overall common stock equivalent as well as share exercises on that occurred. But overall I expect that will probably grow a little bit over the rest of the year, so you may want to add some quarter-by-quarter on share count. I’m not going to give you the specifics on how much, but mild amount of growth.

And then the OpEx, I think we’ve had a lot of conversation on OpEx and how to it model with their organizational effect in this program that we’re will doing as long as -- as well as overall OpEx for normal volume and the fact that we continue to invest in all the areas, that we’ve talked about on this call and the supply chain services area as the cloud, the value business will factor those in, just like we have been doing, we do have a few new acquisitions and we are continuing to step up acquisitions, sorry step up on investments of the Board. And then like I talked about the organizational effectiveness, the savings from that won’t really start beginning in the meaningful ways over second half of the year, so you don’t have to kind of model that how you think appropriate.

Lou Miscioscia - CLSA

Okay thanks. Good luck on the New Year guys.

Paul Read

Thank you.

Alain Monié

Thank you.

Operator

(Operator Instructions). We’ll go next to Osten Bernardez with Cross Research.

Osten Bernardez - Cross Research

Hi yes, thanks for taking my question. Just real briefly would you be able to comment on the competitive environment in North America and to what extent its competition for your rolling and performance for the year?

Paul Read

This is Paul, Osten. So, it remains competitive, I don’t think we have seen any shifts in that for a good three to four quarters now and we expect that to continue. And like I said earlier, there is plenty of room for growth, but we have been fairly selective with that growth and really concentrated more on the value business side than the consumer side.

So, having a flat year-over-year I think two quarters in a row now, but we do expect this year we should grow low single-digit to North America with a greater growth rate on the value side than the volume side than as it was. And I still think that the industry leaders really can’t go to market with strength in these areas and we’re finding that traction now after the investments which we’ll also start to make around the world in a similar manner.

Osten Bernardez - Cross Research

Thank you for that. And then secondly for me, I just wanted to touch based upon the -- Paul, the recent acquisitions that you mentioned with respect to the e-commerce capabilities and the [iPad] capabilities that you now have. How should we be thinking about your interest in similar assets going forward or do you feel that, from an acquisition standpoint or do you feel that right now all you need to do to is to sort of build the team around that and perhaps to invest in some infrastructure to support that growth to where you believe it could be?

Alain Monié

This is Alain. This journey to improve the quality of earnings, the profitability from our businesses, we continue scanning and looking at businesses and opportunities that really complement well the very strong core business we have. So, on one hand, we will invest in these new acquired capabilities to leverage them with our core business, but I don’t see us having to stop at this stage looking at new opportunities that are in businesses that complement this as long as they make sense strategically that they bring services opportunities and they bring a leverage ability for us to really derive a lot more value than what the cost of acquisition would be. So, we will be continuing looking at opportunities to grow in different areas.

Osten Bernardez - Cross Research

Thank you very much.

Alain Monié

Thank you.

Operator

We’ll take our next question from Keith Housum with Northcoast Research.

Keith Housum - Northcoast Research

Thanks guys. I appreciate you taking the call. Question for you on the acquisition I guess as we look at the revenue in the fourth quarter, how much of that revenue came actually from the acquisitions?

Bill Humes

Yes, very, very, very minor amount of revenue. Yes, Brightpoint obviously in this previous year, but all the four -- the 2013 acquisitions two of them are fee-based. So, that’s very small revenue and they’re just starting up in the sense of us acquiring them and we’re taking those assets and then leverage them to bigger, so be a much larger of us going to take two or three years. And then so I would say across the board, it was a nominal amount of revenue.

Keith Housum - Northcoast Research

Got it, okay. And then the next question for you is really on the capital allocation. Any change to your allocation strategy looking forward, I mean you guys share repurchase authorization out there and I know you guys suspended that a while ago. Any thoughts in terms of taking that backup?

Bill Humes

I mean I would say overall we still continue to have an authorization out there but I would say our current goals are to reinvest in the business and to reinvest in the capabilities that we have available to us and that we’ve targeted and once we have already invested in as well to continue to drive that. As you can see the stock price is down fairly well, so it’s recognizing that we have and are putting capital to use the best and most value generating result and is also showing out in our overall performance. And we are investing in long term for the business as well as the current time. So I think we are putting capital right now to the right use and we’ll always reevaluate our capital allocation strategy, so to never say we won’t do it again. But right now we think we’ve got the right formula.

Keith Housum - Northcoast Research

Got it, appreciate it. Thank you, guys.

Operator

And ladies and gentlemen, we have time for one final question today; it does come from Rich Kugele with Needham & Company.

Rich Kugele - Needham & Company

Thank you very much. Just briefly, I wanted to revisit Asia. Can you just talk about ex the OEM, that one OEM in Indonesia issue, can you just talk about demand environment for Ingram Mobility in the region? And then I have follow up on Australia.

Alain Monié

Yes, this Alain. On Asia, if you exclude the large impact of this OEM in Indonesia, we see very good strength. We are not in all territories yet and we are leveraging the Ingram infrastructure, examples such as Malaysia and Thailand. We are now growing the mobility business pretty significantly based on our existing infrastructure but it’s the beginning of it. India has a very solid mobility business which in fact we had already started capturing before the acquisition that has become even stronger now that we have the acquisition.

And then also if you look at in the southern part of what we call Asia Pacific region, which include Australia, New Zealand, we are pretty satisfied with the progress we have made, particularly in developing services there which is really the objective for us. So I would say if we exclude those big swings, given by one incident -- not incident but one revolution here, the rest of the business in Asia is fairly strong.

Rich Kugele - Needham & Company

That is encouraging. And then just on Australia briefly, obviously the economy there has changed somewhat, congratulations on getting your business back to profitability. I know it’s been a long struggle. But what are you seeing locally in the ground and how is that playing into your ability to maintain that businesses as possible this coming year?

Paul Read

This is Paul. It’s certainly rebounded very nicely but it’s been a long journey for us. And as we did rebound, we weren’t chasing volume for volume’s sake, we were trying to address the value business. It’s certainly a competitive environment, it’s a low growth environment but we have a significant share position there. So we are leveraging that and we are seeing vendors coming back to us, and we have been pretty successful in the marketplace.

So we have of course continued expectations of growth throughout the year, but it is in competitive environment but we want to make sure that we continue to grow the profitability rather than chase the top line.

Rich Kugele - Needham & Company

Okay, great. Thank you very much.

Paul Read

Thank you.

Operator

At this time, I would like to turn the conference over to Mr. Wright for any closing comments.

Damon Wright

Hey, thank you Tom and thank you all for joining us on today’s call. And we look forward to the opportunity to sit down with many of you at upcoming conferences. Good night.

Operator

Ladies and gentlemen, this does conclude today’s conference. We appreciate your participation. You may disconnect at this time.

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