Brightpoint Inc. Q4 2007 Earnings Call Transcript

Feb. 7.08 | About: Brightpoint, Inc. (CELL)

Brightpoint Inc. (NASDAQ:CELL)

Q4 2007 Earnings Call

February 7 2008, 5:00 pm ET

Executives

Robert Laikin - Chairman and CEO

Tony Boor - EVP and CFO

Mark Howell - President of Brightpoint Americas and Co-COO

Michael Koehn - President of Brightpoint International and Co-COO

Analysts

Ittai Kidron - Oppenheimer

Jay Goldberg - Deutsche Bank

Matt Hoffman - Cowen

Jim Suva - Citigroup

Andrew Sox - Morgan Stanley

Ben Bollin - Cleveland Research

Marc Machecknie - Amtech

Alexi Lugasa - Merrill Lynch

Avi Silver- Bear Stearns

Operator

Good afternoon, and welcome to the Brightpoint fourth quarter and yearend 2007 Earnings Call. Today’s call is being recorded. At the end of the presentation there will be question-and-answer session. (Operator Instructions). 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's 1-877-447-2355.

At this time, for opening remarks and introductions I would like to turn the call over to Brightpoint's Chief Executive Officer and Chairman, Mr. Robert Laikin. Please go ahead, sir.

Robert Laikin

I would like to welcome you to Brightpoint's fourth quarter and year ending December 31st, 2007 earnings conference call. With me today are Tony Boor, the company's Executive Vice President and Chief Financial Officer; Mark Howell, President of Brightpoint Americas and Co-Chief Operating officer; and Michael Koehn, President of Brightpoint International and Co-Chief Operating officer.

Certain statements made during this conference call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. A variety of factors 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 in the company’s earnings release and Exhibit 99.1 and the risk factors discussed in the company’s most recent Form 10-K and Form 10-Q. These cautionary statements and risk factors are cooperated into this conference call by reference.

Brightpoint performed well in 2007 and I remain confident in our leadership position within the global wireless device industry. We handled 27 million wireless devices in the fourth quarter, which represents an increase of 78% over the units we handled in the fourth quarter of 2006.

We handled about 83 million wireless devices in 2007 representing a 55% increase, while the global wireless device industry grew an estimated 18%. In 2008 we expect to handle over 100 million wireless devices on a global basis. Our goal is to continue to grow faster than the global wireless device industry in terms of unit growth rate and I am confident that we will achieve this goal again in 2008.

Our fourth quarter revenue was $1.6 billion representing an increase of 141% over the same quarter in 2006. Our income from continuing operations was $14.2 million or $0.17 per diluted share. On an adjusted basis our income from continuing operations was $25.7 million or $0.31 per diluted share. In 2007 we generated total revenue of $4.3 billion which represents an increase of 77% year-over-year.

Our income from continuing operations in 2007 was $46.7 million or $0.73 per share. In the fourth quarter the global demand for wireless devices continued to be healthy with the sell-in estimate of over 330 million units. For the full year 2007, I believe the unit sell-in number on a global basis was approximately 1.15 billion devices. In the first quarter of 2008, I expect that seasonal decline of approximately 5% to 10% from Q4 '07 unit volumes, which will make Q1 '08 a seasonably strong quarter.

In 2008, the overall strength of the global wireless device industry will continue and I reiterate my previous estimate in the sell-in range of 1.25 billion to 1.35 billion units. This demand will continue for the next several years with the 2011 global sell-in estimate of 1.65 billion units.

3G and converged devices will continue to accelerate the replacement cycle in 2008 and beyond. I believe 15% to 20% of all devices sold in 2008 will be converged devices. And this percentage will increase to about 75% in mature markets in the next five years.

The availability of compelling content in conjunction with attractive form factors, competitive pricing and rate plans as well as new manufacture entrants with Microsoft operating systems will drive end user demand. I expect significant subscriber net add growth to come from high growth markets such as India, China and certain markets in Latin America and Africa.

Over the course of the year 2007, our business changed dramatically. We expanded our global footprint by merging with Dangaard Telecom in Europe and also by acquiring certain assets from CellStar in the US. Our company today operates in 25 countries and we have over 3,300 team members worldwide. As a result, we are the only thru global wireless supply chain solutions company, in this exciting wireless space.

We will continue in 2008 to focus on our growth strategy. Our growth strategy revolves around the following specific areas; geographic expansion, adding new products and services to our portfolio, leveraging our core competencies and skill sets among the Brightpoint divisions globally to expand our existing services and product offering in current markets. And finally, we will continue to build the Brightpoint brand equity globally in a consistent fashion.

Our focus areas for 2008 and beyond include the following; we will continue to align with leading manufactures in the converge Smartphone space. We will grow our presence in both India and Latin America. We are committed to growing the mobile enhancement business internally at Brightpoint. We are focused on increasing our market share in Africa. We will continue to expand our market position in the US and Europe. And finally, we are focused on driving down debt on our balance sheet.

Brightpoint remains focused on our commitment to enhance long-term shareholder value and profitability. And our results in the recent quarter and year reflect that commitment. I am very proud of the entire Brightpoint team’s focus on the execution of our growth strategy. This translated into our performance successes in 2007 and I believe it will provide us with future opportunities. I would like to thank all Brightpoint employees worldwide for their dedication, focus and performance in 2007.

Now I will turn it over Mark.

Mark Howell

Thanks Bob. We are proud of our operating results in Q4 and for the year 2007 in the Americas. We are also pleased that we have continued to make progress on our primary objectives of enhancing our relationships with customers and suppliers, increasing our marketing share and attaining important milestones related to the execution of our strategic and operating plans. We are very fortunate to work with the dedicated Brightpoint employees who are focused on exceeding our customers and suppliers expectations.

I will speak for a few moments about our business in the Americas. Then I will turn it over to Michael to discuss the activities in our international operations and some of our global initiatives. 2007 was an important and successful year for Brightpoint's business in the Americas, as we were successful in accomplishing many important objectives.

We completed the acquisition and integration of CellStar. All of CellStar's business activities are now fully integrated into Brightpoint's business model. CellStar's DFW facility is closed and all customers and suppliers have successfully been transitioned to Brightpoint.

We launched our largest logistic services engagement, T-mobile and attained both our operating and financial objectives for this engagement in 2007. For 2007 in the Americas, we attained record levels of revenue, unit volume and profitability. And we significantly advanced our initiatives focused on improving our quality, capability and efficiency. And lastly, we created a foundation and infrastructure leadership and customer supplier relationships from which we hope to build a substantial business in Latin America.

In 2007, we believe that our success was due to our expertise, our market position and our customer supplier relationships within each of our three core lines of business in the Americas; Sales and distribution, Logistic services and Activation services. The focus in sales and distribution is to expand our product offering for our customers and to develop new channels and point-of-sale for our suppliers.

One of the primary objectives of the CellStar transaction in the US was to expand our product offering by making Brightpoint a Motorola handset distributor in the US. As a result of this acquisition Motorola has become an important partner and was a significant contributor to our success in the US in 2007.

Our recent HTC announcement is another excellent example of how we plan to continue to grow our sales and distribution business by expanding our supplier relationships. And at this instance, Brightpoint will support the entire range of HTC branded devices and facilitate the global expansion and penetration of HTC products.

Most recently, we announced that we had extended our distribution agreement with Nokia in the US through the end of 2008. The extension of this agreement confirms our mutually beneficial long standing relationship. We will continue to broaden our offering to include new products such as GPS devices more sophisticated mobile enhancements, mobile memory storage and software and applications.

Brightpoint logistics business delivers customized services and solutions that enable our customers to maintaining a world class supply chain and at purely variable cost model. We are providing outsource supply chain solutions for some of the most successful companies in the wireless industry.

The 2007 launch of the T-Mobile logistics services engagement was a great success. We are meeting and/or exceeding T-Mobile’s expectations, and we believe that T-Mobile is attaining the benefit that they anticipated from outsourcing their supply chain services to Brightpoint. In addition to T-Mobile, we also launched new logistic services engagement during 2007 with Open Mobile, Puerto Rico and Motorola Bluetooth accessories in the US.

We believe that there will continue to be logistic services opportunities in wireless. As both network operators and OEMs continue to seek ways to reduce the cost and increase the effectiveness of their supply chain.

Reactivation services line of business, we are adopting new subscribers for our network operator partners, facilitating the processing of subscriptions for nontraditional channels and providing an incremental revenue stream to our retailers. Brightpoint services both consumer and enterprise channels reactivation services. In 2007, we launched a program whereby Brightpoint will provide call centre, customer support, commission management services and activation services and support of the Dell Mobile broadband and voice service program.

This is an example of how by utilizing Brightpoint services, and carrier contracts, and relationships, our customers can expand their service offering and participate in additional revenue streams. We are actively engaged in expanding our activation services business through both the indirect and online channels.

The critical component of our growth strategy is to expand our geographic reach. We advanced this objective in 2007 through the acquisition of CellStar’s, Miami based Latin American operations. Latin America provides a growth opportunity for Brightpoint where we currently have very little penetration in an important and growing market.

In addition to this acquisition, we are also in the process of expanding our management team to drive our growth objectives for Brightpoint Latin America. Most recently we announced the appointment of Eric Hamburger, as President of Brightpoint Latin America. Eric brings tremendous contacts and industry experience from the wireless market in Latin America. Eric will lead Brightpoint’s efforts to expand our supplier base and establish end region and end market, sales, distribution and logistics capabilities.

We are very proud of our financial results and strategic accomplishments in 2007 and we are excited by our growth opportunities for 2008. Now Michaél Koehn will provide a brief overview of the activities in our international operations and highlight some of our global initiatives.

Michael Koehn

Thank you Mark. Since the closing of Dangaard transaction on July 31st, there have been tremendous efforts to move quickly on the integration process. The successful execution of initiatives involving stakeholder communication, organization structuring, facilities and process optimization, strengthening customer and supplier relationships and expanding infrastructure and service capabilities and information technology assessments have resulted in a smooth transition to date.

This response that we have had and received from our partners in the markets has been very positive. As a result of the smooth transition the focus of our customers and suppliers has now shifted from integration to find ways to grow our businesses together. We are demonstrating the value of our combined capabilities to our customers and suppliers. We are now positioned to provide them on a global basis the most complete, efficient and innovative supply chain solution in the wireless industry.

2007 was an important and successful year for Brightpoint’s international business, due to our significant success in strategic development and in achieving many important objectives. We successfully completed the acquisition of Dangaard Telecom and made significant progress in our integration efforts. We completed the master distribution agreement with HTC to securing our positions as their largest global distributor and supply chain service provider.

We've been successful in winning logistic service contracts from the growing MVNO business in Europe. We entered new markets, launched new products and services, broadened our supplier base, made huge strategic acquisitions and extended and expanded agreements with several key incumbent customers and suppliers.

For 2007, internationally we attained increased levels of revenue, unit volume and profitability. The successful culmination of Brightpoint and Dangaard creates the wireless industry's most extensive distribution and logistic service network in the world with operations in 25 countries servicing more than 25,000 business-to-business customers.

Now that we have combined these operations, we are focusing on optimizing our business models. We are seeking out ways to drive synergies by maximizing the opportunity created by expanding out global footprint, by identifying and realizing as many cost efficiencies as possible, by capitalizing on new revenue generating opportunities and by optimizing our supplier relationships across our expanded global footprint.

We believe we are very well positioned in the global wireless industry to benefit from new entrants in the hardware and applications space, who will fuel and ignite the market space. We will focus on transferring to logistic service knowledge and know how from the US to Europe. We are well positioned to benefit all of our partners in the markets in which we operate, as the largest handler off devices with over 100 million devices expected to be handled by Brightpoint in 2008.

Internationally, we strive to organize our business around five primary service offerings. Product, sales and distribution, logistic services, activation services, converge devices and mobile enhancement. We recently announced the appointment of Bashar Nejdawi as President of Mobile Enhancement. Bashar will leverage his experience in wireless industry and distribution to expand our supplier base and establish in-region and in-market sales and distribution of opportunities.

We’ll continue to seek ways to expand into new markets to leverage our expertise and service capability throughout our organization and be creative in identifying new products and developing new services. And we believe that by rolling out a more uniform long range IT solution and process, focusing on improving our cash flow and leveraging our expertise and relationships. We can continue to improve our market position and in doing so, increase long-term shareholder value.

Our mission is to grow our business, market share and profitability by continuing to grow the number of wireless devices that we handle at a faster rate than the wireless handset industry.

Now Tony Boor will provide a summary of our financial results.

Tony Boor

Thank you, Michael. For further details on the items discussed in this call, please refer to our Web cast presentation available on brightpoint.com and today’s earning release. Let me reiterate that Dangaard integration is progressing very well. The combined team has delivered on their integration commitments very quickly and effectively in many areas.

The finance team remains very focused on ensuring, we have a robust control environment in place throughout our global operations. We are developing a combined global culture, where everyone is sharply focused on providing our customers and vendors with the best possible products and solutions in a most efficient manner.

We continue to make good progress with regard to our synergy efforts. Synergy plans have been developed and in many cases, we have begun implementing those plans. We have also implemented our policies across the globe and will continue to invest in training efforts across all of our operations.

I am very pleased with our financial performance in the fourth quarter. We handled a record 27 million wireless devices, delivered revenues of $1.6 billion, gross margins of 7.3% and as adjusted earnings per diluted share of $0.31. We negotiated good allocations of higher margin products in several countries, benefited from the addition of the Dangaard operations. We also benefited from improved logistic service volumes and margins.

All of these items combined resulted in $41.9 million in EBITDA for the fourth quarter as compared to $15.6 million in the fourth quarter of 2006. It’s worthy to note that our GAAP EPS for the quarter included the following items; $8.5 million pretax restructuring charges consisting of a $7.1 million charge in connection with our termination of Dangaard Telecoms implementation of SAP and $1.4 million charge in connection with consolidating the Brightpoint and Dangaard operations in Germany. We decided to terminate SAP project in favor of an ERP platform that we currently use, that we believe will be a more cost effective, long term solution for our business.

The quarter also included $5.7 million of pretax non-cash amortization expense related to finite live intangible assets acquired in connection with CellStar and Dangaard. Please note that we expect to record non-cash amortization of $17 million to $20 million in 2008. We recorded $1.6 million of pretax non-cash stock based compensation expense during the quarter, compared to $1.9 million in the fourth quarter of 2006. And we incurred $700,000 of incremental cost related to the integration of Dangaard Telecom.

Adjusted income from continuing operations was $25.7 million or $0.31 per diluted share. Please refer to our earnings release in Form 8-K for more information regarding adjusted income from continuing operations.

Our cash conversion cycle decreased by five days to 27 days from 32 days that we showed at September 30th, 2007. Despite the fact that a large customer experienced certain IT difficulties right at quarter end that resulted in $62 million of anticipated payments being delayed into our first quarter. This $62 million payments here books on January 2nd.

It is important to note that we are still taking a significant amount of early-pay discounts with our vendors in Europe. This was a past practice of the Dangaard entities. These early payment terms result in higher cash conversion cycles, lower overall ROIC and presumably higher EPS.

We are currently evaluating the economic benefits of the early-pay discounts currently being offered by our vendors and based upon our conclusions we'll take the most appropriate course of action to ensure the best possible impact on shareholder value. Our overall ROIC may continue to decrease as we move towards the inclusion of the full year impact of the Dangaard transaction. We currently estimate that our ROIC could go as low as 7% to 9%.

We anticipate our ROIC to trend upwards from this low point as we complete to integration of Dangaard Telecom, obtain anticipated synergies, obtain combined balance sheet improvements and reduce our overall debt balances. Our long-term goal is to return to an overall ROIC of 15% to 20%.

Looking towards the future, we currently anticipate recording an additional restructuring charge during the first half of 2008 in the range of $3.2 million to $3.8 million pretax related to the final exit of our redundant warehouse and office facility in Germany. We expect that our 2008 tax rate will be within the range of 32% to 35%.

We are focused as a global team on reducing our average outstanding debt by $100 million to $150 million during 2008 with majority of the reduction and leverage coming in the second half of the year. I would consider it a personal disappointment if this goal is not achieved in 2008.

I would like to thank all our employees worldwide for their continuing contributions to our successful performance. Thank you for joining us today, we will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) We will go first to Ittai Kidron with Oppenheimer.

Ittai Kidron - Oppenheimer

Hi, guys and congratulations on great results. Bob, wanted to talk to you about the 100 million unit target for the year, 27 million units in this quarter. I guess you aren't holding back here, but how should we think about seasonality in the first quarter, you talked about the market being 5% to 10% by giving you a geographic exposure which is a little bit more weighted towards developed markets, Europe, US. Do you think that your seasonality will be more greater than that or do you think you can fall within that range as well?

Robert Laikin

We don’t give guidance Ittai, so I can’t really comment as to our specific handsets by quarter in the seasonality. We are very confident that we will handle 100 million plus in '08 and we are very confident that Q1 globally will be down only 5% to 10%, which is will make it good first quarter.

Ittai Kidron - Oppenheimer

And the $100 million is that based on your current business or does that assume more new contracts and additions.

Tony Boor

No, no. That’s a base case for us based on our current modeling and around business.

Ittai Kidron - Oppenheimer

Very good. Tony with regards to the purchase synergies, slightly confused whether the guidance that you gave on expenses actually include, assume the synergies coming or they are just your base line right now before the synergies are achieved?

Tony Boor

For the run rate the range that we gave on SG&A as I was talking about the [five].

Ittai Kidron - Oppenheimer

Yes.

Tony Boor

I think the key on synergies is that a lot of what we expect to get long term on specific cost synergies are probably more to 2009-2010 range. A big portion of our synergies that we had communicated earlier would be up in cost of sales and of course we have seen very few synergies thus far. So SG&A range would include some but not a great deal of those, because we would expect those in terms of later part of years.

Ittai Kidron - Oppenheimer

Very good and how confident, it is nice to see that you are putting a reputation here on the line, but how confident are you in dropping that dead by 100 million to 150 million per year?

Tony Boor

May I wouldn’t put it out there but I am not going to get there.

Ittai Kidron - Oppenheimer

And lastly with regards to the gross margins it seems like in every year there is significant amount of volatility in those numbers and some kind of specific cause. I am just trying to nail down how much of it is seasonality related, where in certain periods of the year you typically have greater ability to generate better gross margins versus smaller one, that’s not just volume dependent. So I went back into model and looks like typically in first half of year you have lower margins and in the second half of the year you have much higher margin, will that also be a good assumption to make going into 2008?

Tony Boor

Yes. And you covered us long enough to know that we seem to gain some leverage and efficiencies with volumes. Obviously on the margin line the mix or the shift in the mix obviously has a big impact on margin percentages. This time around in Q4, we had continued good allocation of product, which helped and then the full quarter impact of Dangaard helped as well. I wouldn't want to say that we would expect margins in excess of 7% on a long-term basis. But it's really depends on where a mix comes out and allocation of products. And then obviously, cost the first half for the year will typically get higher as we ramping up for all the new opportunities and growth in various areas as well and then the volumes going to be off a bit. So, you have that dual effect.

Ittai Kidron - Oppenheimer

Very good. Thank you, and thanks for putting in pro forma very helpful congratulations.

Tony Boor

You're welcome.

Operator

We will go next to Brian Modoff with Deutsche Bank

Jay Goldberg - Deutsche Bank

Hi. It's Jay Goldberg for Brian. Just a quick question on a balance sheet. You saw some increase in working capital metrics, in payables, receivables, inventories. Is that largely Dangaard or M&A related?

Tony Boor

Yeah, that would be almost solely related to Dangaard transaction, because if you look at the cash conversion cycles, we are actually down five days.

Jay Goldberg - Deutsche Bank

Yeah.

Tony Boor

And we are also, as I said in my script we had a $62 million payment that was actually delayed inadvertently that we received on January 2, which would have reduced those even further by about three days. I think that's what the impact of that would have been.

Jay Goldberg - Deutsche Bank

Okay and then I wondering if you could just talk a little bit about how the status of your business is in India. How is that doing? How do you think it's going to track in 2008? And then also just talk a little bit about Africa, what your views on in that market and your prospects there?

Tony Boor

Well we are clearly excited about Africa, we are building up capabilities in both the handset sides and in the Mobile Enhancement sides. We’ve been asked by several manufactures a lot of this manufactures are publicly stated that Africa growth market for them and they’ve invited us to several markets there two grow. As far as India, I'll let me touch base on that one.

Michael Koehn

I think, what we can say about India is that we continue to strive for more business on the GSM sides as we see the business swift to that, and we see a lot of good opportunities in the market growth in general.

Jay Goldberg - Deutsche Bank

Any update on the DSM businesses there?

Tony Boor

You know, we are at very late, mid to late stages with several suppliers, new suppliers for GSM in India. So, we’re very excited about the deal.

Jay Goldberg - Deutsche Bank

Great, thanks a lot.

Operator

We'll go next to Matt Hoffman with Cowen.

Matt Hoffman - Cowen

Thanks, and again congratulations, [sorry guys]. Let’s talk about linearity in the fourth quarter on the top line. Did you see a noticeable drop off in December, and also can you comment a little bit on maybe are we are in the first five weeks in to the first quarter, in terms of developments in the channel.

Robert Laikin

Sure. I would say the last 10 days of the December which kind of typical of our fourth quarter. It was slower than the first 10 weeks, 10 weeks plus of the fourth quarter. People - typically operators and mass retailers don’t take delivers from about to 20th of December through the end of the year. And its based on trying to sell their inventory down as much as they can. So, that’s very typical and we saw that trend this year. Starting in January, business did pick back up and people shall be taking deliveries again, specifically to regions and channels.

I would say that currently Nokia is the position because of good sell through in January that some of the hot models are already in sold out basis for the first quarter, which is a positive and gives you an idea of the demand that more orders than what the supply is in. I think that’s even in the face of them ramping up production. We don’t see a lot of inventory in the channel today. We have seen, for the industry in January act as a good sell through.

Matt Hoffman - Cowen

Right. So [assumes] morning from [Natsemi] or RFMD was taking the market down. Would you say that those - there's the possibility of those situations are really brand specific and that on overall basis may be Nokia is getting share and some other brand may be Motorola, loosing share or even an Apple isn’t going to do what they were projected to do earlier when they get their suppliers, their guidance for the quarter.

Robert Laikin

What I would look at is, I would look Texas Instrument. I would look at the big suppliers to Nokia, clearly Surf came out with an announcement yesterday or the day before based on their big customer pulling back orders and Apple talked yesterday, today about the same problem. We think that Nokia will continue to take slight market share and at worse keep the share that they have and some of other market share we got people like Sony Ericsson ,Samsung and LG. I think as Motorola goes into the next product cycle, they will take market share right back though.

Matt Hoffman - Cowen

Okay, so that probably takes to other question. The price you see from Motorola is there something in particular you are hearing about that makes you optimistic for the back half.

Robert Laikin

Any thing that I have seen is subject of confidential agreements, so I can’t specifically into --.

Matt Hoffman - Cowen

I figured out that Bob. Last question the gross margin obviously were the seller part of the report here. Nice job on those. As you look at the individual line items and I think you got a general question on gross margins. As we build our models moving forward, the distribution margins, 38% is what I've got here in, I got this backwards. But the logistics at 38%, is that something we should anticipate on that particular line. I know this is all subject to mix in terms of total gross margin, but are those normal gross margins for that business?

Robert Laikin

Typically, we talk about gross margins and logistics in the 20% plus range, typically we do. And then in the distribution that 4% to 6% range. What we talked about in press release. I mean you want -.

Tony Boor

As far as margins go. I think from the we've got to keep in mind on the margin today, that would be the impact of Dangard. Excuse me, I got a big of cold. The Dangard business we wouldn’t typically talk about having a big logistics in [backlog] or ILS business, but if you recall we used to talk a bit about some of our other business where we had a gross versus net accounting treatment for US GAAP purposes. Well, under Dangard as we got through integration, we found several contracts that we had to covert revenue recognition from gross to net. As a result those arrangements are recorded within ILS and those arrangements do have higher margins than what we typically saw on a lot of our legacy life point ILS business. And so, I would expect it will have higher ILS margins going forward than what we had historically.

Matt Hoffman - Cowen

So, on a going forward basis, the product distribution margins should be able to maintained then around the fourth quarter levels?

Tony Boor

I think as I spoke to we cant get guidance obviously other than the information we provided in the earnings release. But as I said, I think our margins we had a good allocation of product in the quarter. We had a good mix of product in the quarter. We gained a lot of productivity and efficiency in 2007, especially like in the Americas division. So I think; I wouldn’t want to bet on margin exceeding 7% as we did in Q4. Will be about all that I think I could tell you.

Matt Hoffman - Cowen

Perfect. Thanks again.

Operator

We will go next to Jim Suva with Citigroup.

Jim Suva - Citigroup

Great. Thank you very much. I understand your commentary about 55% growth versus the industry of 18%, but can you give us organic units growth quarter-over-quarter and year-over-year, which excludes your acquisitions.

Tony Boor

Yes. So Jim the only thing I have got right now is quarterly information, I don’t have annual. But I can give you that. So compared to the third quarter of ’07, excluding Dangaard and excluding CellStar, revenue grew by 13-15% and units by 15-17%. And then compared to the fourth quarter of ’06 excluding again Dangaard and CellStar revenue grew 28-30% and units handled grew 40-42%.

And I think the key there to keep in mind as well is, the organic growth is there and I think it's still very strong comparatively to the market. But we also do have a new platform, we did buy CellStar and Dangaard, they are now part of the combined Brightpoint and as such we are now really the first global distributor. We are number 1 in the US, we are number 1 in Europe, we are in 25 countries now, the feedback from all of our customers and vendors and suppliers and operators has been very positive. So we think we are actually poised to do very well going forward from a growth standpoint.

Jim Suva - Citigroup

So do you say, quarter-over-quarter was up 15-17% organic.

Tony Boor

Correct.

Jim Suva - Citigroup

So I guess, when you talk about outgrowing the industry a lot of the industries numbers out there are right now that the industry is growing 17% quarter-over-quarter and in Q4, so can you talk, help us reconcile your out performance are outgrowing in the market organically versus the industry?

Tony Boor

Are you looking at, units, revenues or which one, so am looking at?

Jim Suva - Citigroup

Units.

Tony Boor

The units handle we grew 15% to 17% organically.

Jim Suva - Citigroup

Okay. So inline our best with…

Tony Boor

Sequentially I am sorry, sequentially.

Jim Suva - Citigroup

Okay. So about inline with the industry rather than outgrowing industry.

Tony Boor

Yeah. So compared to '06 -- [work] for '06 we grew units by 40% to 42%.

Jim Suva - Citigroup

Organically?

Tony Boor

Organically.

Jim Suva - Citigroup

Okay. That's good to know. Okay. And then follow-up question on inventory, a year ago you guys had some inventory situations where inventory really grew in the fourth quarter, and this quarter they grew about 13% sequentially or $55 million going into a slower quarter of March, Dangaard was included in the balance sheet in September. Can you help me reconcile that growth?

Tony Boor

That’s the point of growing I think in the prior year, it actually ramped up beginning in Q2 and that was mainly the product that we bought in Asia Pacific.

Jim Suva - Citigroup

Okay.

Tony Boor

Which we still had a significant portion of that at the end of last year 2006. We have now sold all of that product, as of January, first part of January. So we have none of that in inventory left. We ended the year with 27 days of inventory on hand. As we don't give specific guidance but we've given a range on what we think will be unit wise for 2008, based on the fact we did $1.6 billion in revenue in the fourth quarter and that we're saying the market is going to be down 5% to 10%, presumably we've historically grown faster than the market. So you could infer or do the math on that, divide that by three which would say, on a monthly basis we need somewhere in the $400 million plus range worth of inventory. So I would say that going into even the slower quarter we have no more than a months worth of inventory at hand.

Jim Suva - Citigroup

Great. Thank you for your clarifications. I appreciate that.

Operator

And we will go next to [Andrew Sox] with Morgan Stanley.

Andrew Sox - Morgan Stanley

Great. Thanks for taking my questions. Just a sort of follow-up on that inventory question. I know in a lot of years you have increased inventory in dollars in Q4. But I still don't fully understand why you have to do that. In the past it’s been -- taking advantage of specific opportunities where you were buying discount and product at the end of the quarter. Was it that type of situation again or why you need to grow inventory heading into a seasonally slow period, because you still be down even if you outgrow the industry?

Robert Laikin

And typically, and what we do, is we do buy more inventory in December because factories globally, typically quit production for the last two weeks of December. So if they quit producing and quit shipping the last two weeks, which is typical then we always need to make sure we have enough inventory in our warehouse for the first couple weeks of January till the factories start ramping back up.

Andrew Sox - Morgan Stanley

Okay. But if we're looking your inventory in dollars. Do you generally think you're going to expect to reduced that dollar number over the course of Q1?

Robert Laikin

Typically we would, yes. But the issue were not now is that, we are still expecting the growth already significantly in 2008. You know we got some new global relationships our new HTC global mass for distribution arrangement etcetera, those are fairly high ASP products, and we expect to do good things there as well as with others partners. And so I think when you couple with what we have for planned growth for '08. I am not so sure that inventory levels will decrease.

Andrew Sox - Morgan Stanley

Okay.

Robert Laikin

And we have some growth opportunities and we put some announcements at about some key hires in the last couple weeks, whether it's Latin America or in the Mobile enhancement area or some of the ramping up that we have done in Africa. If we have happen to increase inventory which we don’t expect, that would be a good thing, because that's means out total top line would be going up significantly because we are gaining market share, in these new markets that were not in today, that we are just going into

Tony Boor

We typically focus on very much on the cash conversion cycles versus the dollar amount of inventory and very much on the return on invested capital. That we get from those products.

Andrew Sox - Morgan Stanley

Okay, great. Giving you a robust expectations for the handset markets in Q1. It doesn’t seem like you really seeing signs of economic slow down in fact in the consumer. But when you are talking to carriers, are you sensing any sort of a change in the willingness of carriers the whole inventory in an uncertain economy or the willingness of carriers to subsidize handset as aggressively as they traditionally have?

Robert Laikin

I think what we’re seeing in most people on the US, I’ve seen in the TVs ads and the newspaper ads lately. The carriers are getting very aggressive in marketing dollars in subsidies, you can buy converse phone from most of the major carriers for $99. If you sign a contract, they are very aggressive, there has been no change in their willingness to buy products and to ramp their products up that we handle for them based on the demanded that they see in the market share to gain.

Andrew Sox - Morgan Stanley

Okay. What about carriers willingness the whole the inventory. Do they still seem as comfortable as much inventory as they normally do?

Robert Laikin

We’ve haven’t seen any change.

Andrew Sox - Morgan Stanley

Okay. Great thanks for taking my questions.

Operator

We'll go next to Bill Choi with Jefferies

Unidentified Analyst

Yes. Hi guys this is Rob on behalf of Bill. Just had a few quick questions if I might. First can you apply some kind of color around the Nokia and Motorola, maybe what they were percentage wise in terms of units in the quarter?

Tony Boor

So, for Q4 Nokia was 29 %, Motorola was 23.5% on units handled.

Unidentified Analyst

Okay, great. And Nokia as well as Samsung I believe have sort of stated their intention to increase the way they are attacking the U.S market, try to get more traction going. I know Nokia has been working out of the California R&D facility. Can you talk about what you expect in ’08 in terms of Nokia presence here?

Tony Boor

I think Nokia clearly is putting the people assets, the marketing budgets, the R&D development to try to gain market share in the U.S. We think that they should have a good opportunity to gain some market share in the U.S., target Samsung they seem to be similar to how they were last year which is fairly aggressive.

Unidentified Analyst

Okay, great. And then the 3.2 to 3.8 restructuring charge you are looking after the first half. Can you assume that would even the split across each of the quarters.

Tony Boor

No we just don’t know for the specific timing yet on that , that’s when we access the facility. So it’s our duplicate or redundant facility in Germany. I don’t know if you recall, but that overlap in Germany with Dangaard transaction and so we are vacating our old [Emrand] facility. And it's just a matter of when we axe it as to when we take the charge for accounting.

Unidentified Analyst

Okay, great. All right, thanks so much.

Operator

We will go next to Ben Bollin with Cleveland Research.

Ben Bollin - Cleveland Research

Good afternoon I had a question you've referred several times on the call, regarding a negotiation of a better allocation of handsets, multiple geographies during the quarter. I was hoping you could discuss a little bit of the mix, the geographies and what exactly was better about those products?

Tony Boor

The biggest portion or the biggest impact was driven by our Asia Pacific region. As far as allocation of better product, I mean we obviously had that impacted in all regions, but the impact on Q4 is specifically and I think we mentioned that in Q3 as well. Since we have a such a big footprint, it is really driven by a availability of products. The availability and the demand for those products will driven price points and help margins, and then if we can get a higher allocation of those from the manufacturer, it will in turn help our profit. And so, mainly in Asia Pacific, we seem to be doing a much better job working hand in hand with the suppliers on planning and forecasting and coordinating the supply chain with our end customers as well. And so, we just been very successful in getting better allocation of high demand products that are driving a bit higher margins for us.

Ben Bollin - Cleveland Research

Okay. The other item I had a question on, you refer to some synergies with respect to the Dangaard optional synergies coming in 2009, 2010 and then perhaps some additional gross margin leverage in the back half of '08. Could you discuss some of the trends, I understand the benefit associated with the prepayment, is that one of those items and then what are some of the other potential gross margin leverage that you could pull with that integration?

Tony Boor

The prepayments is kind of a different issue because there you have a risk of foregoing cash discounts and so you're going to get, you're going to have a bit of an EPS which should have a positive ROIC impact with a corresponding decrease in interest expense by paying down your debt. So, that wouldn’t typically be one of the biggest components of what we expect for synergy. Synergies would come from, for instance, in Germany, Sweden, Norway where we had overlap duplicate facilities, where we combine those, we're able to have some headcount reductions.

Obviously we had a CFO for Brightpoint and a CIO for Brightpoint in Europe. Before the Dangaard transaction, Dangaard had the same. We don’t need two CFOs for the region. So you have some redundant headquarters type headcount reductions. We are going to have, one of the big things that why we have a delay is getting on a consistent platform. So the decision on pulling the plug on SAP we feel was the best decision for us long-term, we've chosen the use a platform that we already utilize in many of our entities around the world.

We think it is a more cost effective, more efficient, more time effective solution and so if we can get all of our [virginities] on to a fairly consistent platform from an IT standpoint, that will allow additional synergies as well from a cost standpoint and for new business. Those are the things that will take more in the 2009, 2010 looking at consolidating additional facilities and so forth as well.

Now the other side of the synergies are what comes from being the number one player in the world? And that is better pricing, better allocation, more territories, improved payment terms, all of those kinds of things. Being a better player, and then also taking our best practices from Europe and bringing them to the US and taking our best practices from logistic services capabilities et cetera and taking those to Europe as well as our other, some odd countries around the world.

Ben Bollin - Cleveland Research

Okay, and one question. Bob, you commented a little bit, you felt the channel inventory was pretty clear out there. Have you seen any developments from the domestic Chinese, OEMs. Do you think China is finally cleaning up its act, or what do you think of the domestic players in China?

Robert Laikin

We don’t participate in China today. The intelligence that we get, changes it seems like weekly. We see very little impact today from Chinese manufacturers outside of China.

Ben Bollin - Cleveland Research

Thank you very much.

Operator

We'll go next to [Marc Machecknie with Amtech].

Marc Machecknie - Amtech

Well, great. Thanks for taking the call. On the macro I guess we had a couple of questions already. But, it sounds like January started out pretty good despite macro issues and what we heard from Cisco in the US and Europe. Doesn't surprise me when we're hearing that from all the handset players, but maybe your perspective as to why the cellphones aren't really been impacted yet or if there maybe some geographic exposure? And then also on that line up, how good your visibility here into the March quarter effects?

Robert Laikin

Well, we only know the wireless industry. I'm not sure why people don't buy Cisco servers or routers or whatever Cisco sells. I can tell you cell phones are becoming kind of a recession proof product. It seems by the demand that we're seeing that the operators continue to market, they continue to subsidize prices, functionality, more offerings keep getting developed for consumers as well as new players getting into the space whether it's Apple with the iPhone or Google and Android what that means to the industry and there is a lot of hype in the generation of converged devices we are about in the third inning of a nine inning game.

So it's still very early and I think new applications on high speed networks will keep that buzz continuing in the cellphone industry, which will create an incredible replacement cycle for the industry. If you have a converged phone as I talked about earlier, it's $99 that when phones like that get released, a year ago they were $500 to consumers in Europe. I think that gives you an idea of the affordability for the consumers.

In the converged area, this year 15% to 20% of the phones sold will be converged devices, but as we look at 2011 we think it's about 75% of all devices sold in mature markets will be converged devices.

Marc Machecknie - Amtech

What number was that in '07, the 15% to 20% can you kind of go through how that's trended?

Robert Laikin

Yes. We believe that it was somewhere in the range of 10% to 15%?

Mark Howell

That's it. Yes.

Robert Laikin

So we're seeing an acceleration of that number.

Marc Machecknie - Amtech

I appreciate that answer. Another question for you. On the US I guess there was a question earlier about your relationship with Nokia and how you renewed that through the end of the year and Nokia hasn't been much a player. You were certainly seeing some signs that they are going get bigger, but could you expect a material impact to your numbers from that and would that be more second half and first half or you are already seeing signs right now?

Robert Laikin

I think typical when Nokia plays in a category of phones whether it’s the hardware, software, territorial risk, they have the biggest bank roll and the biggest check book right now. They can invest in R&D when other companies are struggling or in marketing. If Nokia has the products for the US market CDMA and GSM Nokia will do very well in the US.

Marc Machecknie - Amtech

Great. And then one last question more about Brightpoint in general? When you're handling a pretty significant portion of phones now with your acquisitions. I'm kind of curious as to what your ultimate goal is where you think you can grow to 20% of the industry units or how you achieve that moving forward?

Robert Laikin

Our own goal is just to grow faster that the industry grows. We're not going to grow handsets unless we can grow the profitability as well. So don't expect us to go from 10% of world handset to 20% and make the same amount of EPS. We could do that, that’s not what we are going to do. So, and as we find the profitable opportunities whether is in the US, or Europe or India or in the other exciting markets, we'll go there and hopefully our market share will continue to do what it has done for the last five plus years.

Marc Machecknie - Amtech

Great. Thanks Bob and good luck.

Operator

We'll go next to [Alexi Lugasa] with Merrill Lynch.

Alexi Lugasa - Merrill Lynch

Hi, good afternoon and thanks for taking my questions. My first questions is about that the leverage. You want to repay about $100 million to $150 and million in 2008 and I was wondering how you can to generate that much cash. This quarter was cash negative for you in terms of cash from operations.

Robert Laikin

Sure. Keep in mind this quarter would have been positive had we not had the delay in the payment from the large customer that we spoke about, that we received on January 2nd of $62million. Repayment wise the $100 million to 150 million. There are several things we will be looking at the three biggest would be obviously cash from earnings, managing our balance sheet better especially in Europe. We just put two big companies together Legacy Brightpoint we had done a very good job those of managing our working capital and so we intend to take some those best practices and tools that we have used here and deploy them throughout Europe. And another would be some of the things, we are looking at from our receivables management standpoint as well as looking at these early paid discounts that we currently take and whether or not those are the right thing to be doing from an economic standpoint. And so, we’ll be evaluating and looking at those three different options to reduce the debt.

Now the $100 million to $150 million, we're assuming that we would reduce is on our average debt. The majority of that coming in the later half of the year, so we have a bit of a bigger target than that overall because we also say we're growing as a company. So what I expect our balance sheet would grow to support the increase in sales than we would project for 2008 as well.

Alexi Lugasa - Merrill Lynch

Okay, thanks. And my second question is regarding your margins, where we see about 2.5% EBITDA margin for the fourth quarter and about 1% net income margin sounds pretty same. What's your confidence about maintaining margins, a year from now, two years from now, five years from now, because my concern is that with the CellStar you acquired the company when it was net income negative and we see a big distributor now in Europe, whose margin went down to zero. And what makes you different, what gives you confidence that you can remain in this business and this business model is sustainable?

Robert Laikin

Yeah, I think that we've had a good track record over the last five years of maintaining a fair gross margin. Today we are the largest wireless company in distribution and logistics in the world. We will handle a 100 plus million units this year. Our closest competitor, if we have an apples-for-apples competitor, which we don't think we do will handle somewhere between 25 and 30 million handsets globally.

So we believe our size gives us the economies of scale to be the low cost provider or manufacturers and network operators globally. We're confident of that, we think we'll grow faster than the grows and based on that we think we will be able to get a fair reasonable gross margin. We will not give a targeted gross margin if that's what you're looking for but we're very comfortable with our leading position in this industry.

Alexi Lugasa - Merrill Lynch

And my last question is about the replacement cycle, you quote that it is a very high now, and I wonder in what jurisdictions as the replacement cycle is high today. I represent the London office of Merrill Lynch and which is United Kingdom. From the report of retailer, that if he has a replacement cycle lengthens substantially because now the subsidized phones imply 18 months, 24 months contract through less than 12 months. So, what jurisdictions are doing better now?

Mark Howell

We see replacement cycles are varying significantly market-to-market globally. So depends what country you are in, not what region you are in anymore. It depends on what the programs are, in Apple iPhone was at least 50% of sales were replacement phones of 50%, people switching carriers. As Google ramps up in the industry with Android and all their partners, we think there will be a lot of buzz.

And as I touched on earlier the converge devices being a higher percentage over the next four years of the total pie, that will typically be mostly replacement cycles along with 3G and the WCDMA rolls out. The applications that phones can -- converged devices can do today. The applications have all been developed. The consumers and business users have seen about 10% of all of the applications that can work on these devices on high speed network. So, we're very bullish on where the replacement cycle will trend. And we think that it's accelerating not decelerating right now, in most markets.

Alexi Lugasa - Merrill Lynch

Okay. Thank you very much and good luck.

Robert Laikin

Thank you.

Operator

We'll go next to Avi Silver with Bear Stearns

Avi Silver- Bear Stearns

Hi, guys. First of all on ASPs for distribution at least as I calculated roughly, in the $170 range. Was a very substantial increase sequentially now, you increased, one month of Dangaard so that certainly helps, but just I want to understand is that a good base to work off obviously the ASPs decline in the industry whatever percent every year. Is $170 sort of a good base case or is there something in Q4, between the allocation and whatever else that may be it should come down a little bit more than that?

Robert Laikin

On a go forward basis obviously, that's what you are talking about?

Avi Silver- Bear Stearns

Yeah for the industry or whatever else, I just.

Robert Laikin

I think for the industry it's purely a function of mix for the overall industry. I think that the ASP this year will be flat to slightly up, as converge devices become a higher percentage of total phones sold.

Avi Silver- Bear Stearns

Okay. And for Brightpoint is that $170 range sort of a reasonable base going forward?

Robert Laikin

It is a function of mix, as an example, if our India business explodes as we expand into GSM, our ASP would go down but our EPS would go up.

Tony Boor

And Avi, it reflects a full quarter impact of Dangaard as well, which has had a fairly high mix of Smartphone converge type product.

Avi Silver- Bear Stearns

Okay. And Tony there was no reason that mix should go down sequentially or anything. I mean though we'll continue to see that strength in Smartphones going forward right?

Tony Boor

That's what we are predicting, I think the issue as Bob said it depends if we have big growth in Latin America or big growth in Asia Pacific possibly India as well. It really depends on where our business goes, because as such lower ASP products in those countries at significant volumes.

Avi Silver- Bear Stearns

Okay. And on your net debt Tony, it looks like roughly $360 million based on my calculations. So if you would have collected. I'm sorry, is that accurate? If you would have collected from that customer, you would have had that net debt looking more like $300 million?

Tony Boor

Correct.

Avi Silver- Bear Stearns

Okay. And your interest expense came in a little bit higher than I thought and just wanted to get your sense as to what sort of rate you are paying on the current debt?

Tony Boor

Right, at 6% at year end is what we were paying.

Avi Silver- Bear Stearns

Okay. So…

Tony Boor

And that's obviously on a grid on our revolver so, and depending on where we are leveraging, what rates to input, 6% at year end.

Avi Silver- Bear Stearns

Okay. So the run rate in this -- the number for interest expenses on the quarter should be at a reduced run rate next year, is that fair?

Tony Boor

Yeah, I think the key is that the delevering that we expect to see will be in the later half of the year.

Avi Silver- Bear Stearns

Okay.

Tony Boor

And so keep that in mind as you model them.

Avi Silver- Bear Stearns

Okay. And was there any shift at all between, I don't know in the way you can't maybe with Dangaard from cost of sales into OpEx, as the OpEx was a little bit higher and the cost of sales was much lower actually but any change there?

Tony Boor

Well, we had a lot of confirming to do of the Dangaard numbers, because that was a private Danish company under international standards, and there was a lot of geographical conformity to do to get them ready to be part of the US GAAP reporting company. And then we also had to confirm things from our own policy standpoint. So we're fairly big sticklers on policies as far as how we [accrue up] license, and bad debt and warranty reserves and all of those other things. And so, all of those pieces would also have an impact compared to the pro forma numbers. I feel fairly comfortable if you look at Q4 that that's a good representative mix of our business now with the incorporation of Dangaard in the fourth quarter.

Avi Silver- Bear Stearns

Okay. And one more just for Bob maybe on inventories, sorry to deliver this point but. It seems to be basically a normal course of business, inventories increase sequentially and business was strong in January and whatever access inventory was basically worked off, is that a fair characterization?

Robert Laikin

Well, as it relates to the industry that's correct. As it relates to us, as Tony touched on earlier the access inventory that we had in Asia which we ended the year with inventory was completely sold out by mid January. And Nokia in January did very well globally, and there wasn't what I would consider any excess of Nokia inventory in the global channels and in some cases there were shortages as the demand is still so strong for Nokia.

Avi Silver- Bear Stearns

Okay, got it. And one last one, if I may. Just if you look at -- I am just trying to figure out the organic growth in your handsets for next year. So you're seeing more than $100 million. If you would have added Dangaard for the full year and software assets in Q1, what would have that performing number look like for 2007 in terms of total units?

Robert Laikin

Say that question again.

Avi Silver- Bear Stearns

Bob, I'm just trying to get to organic growth, what's the organic growth of $100 million plus units. So if Dangaard were in your operations for the full year '07, and if CellStar were in there for all four quarters of '07, what kind of unit volumes would that?

Robert Laikin

I would estimate 10% to 15%.

Avi Silver- Bear Stearns

Okay. Great, all right. Thanks very much.

Robert Laikin

Thanks.

Operator

And we'll go next with Brian Modoff with Deutsche Bank. Please go ahead your line is open.

Jay Goldberg - Deutsche Bank

Hello, can you hear me now?

Robert Laikin

We can hear you now.

Jay Goldberg - Deutsche Bank

Sorry about that, but it's Jay Goldberg again. Just had a follow-up question on, what you expect the impact of Motorola announced restructuring. Their handsets business is going to have on yourselves and on the industry?

Robert Laikin

I'm kind of countered to the conventional wisdom, that's being going around the last week or so about Motorola. I think with Craig Brown taking over with the hands on leadership at the handset division, will be able to make Motorola a better company in the handset area. I think he flattened this organization and the moves that it seems like they are making they have been publicly talking about are the right moves for them to grow again in the handset areas.

They're bringing in new people. They are talking to all their customers, operators, who are our customers, retailers, distributors, they have a lot of focus on reviewing their distribution strategy globally and making Motorola important to their partners. So they are doing all the right things and I think it will be a function of their success, can they bring the right design team in, and can they bring the market the right products at the right price, at the right time.

As it relates to Brightpoint personally? In the logistic side our customers pick the phones, we don't. So, it's neutral to us, if Motorola gains market share or loses market share in the logistic areas. In the distribution area, again I think that any shift in market shares since we work with the all manufactures it would be a net-net probably neutral to us.

Jay Goldberg - Deutsche Bank

Okay. And its safe to say you really haven't seen any impact since the announcement came place…?

Robert Laikin

I would say the only impact is what we've read and what we've heard as far as, their focus on turning around the handset area. We've been in this industry for 20 years and we have seen a lot of companies come and go whether it's Philips or other companies who used to be leaders in this space, Mitsubishi and Panasonic, and we've seen people try to turn their businesses around. I remember when Ericsson and Nokia were fighting out for number one in digital and Ericsson went right and Nokia went left, and we saw the moves that Ericsson was making at the time. And we could kind of predict that Nokia was going to dominate and Ericsson would fall out of the industry, which they did. I think the moves that Motorola are making right now they are making all the right moves. That being said, if they don't get cool products at the right price, they will not be successful.

Jay Goldberg - Deutsche Bank

Thanks.

Robert Laikin

Thank you.

Operator

Thank you. That concludes the question-and-answer session. Brightpoint would like to thank you for your participation in the fourth quarter and year-end 2007 earnings conference call. A replay of today's call will be archived for 15 days on the company's website 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 1877-IR CELL, that's 1877-447-2355.

That concludes today's conference. You may now disconnect.

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