Brightpoint, Inc. Q2 2008 Earnings Call Transcript

Aug.11.08 | About: Brightpoint, Inc. (CELL)

Brightpoint, Inc. (NASDAQ:CELL)

Q2 2008 Earnings Call Transcript

August 5, 2008 5:00 pm ET

Executives

Robert Laikin – Chairman and CEO

Mark Howell – President, Americas

Michael Koehn – President, Europe, Middle East and Africa

Tony Boor – EVP, CFO and Treasurer

Analysts

George Ivanovic [ph] – Oppenheimer

Brian Modoff – Deutsche Bank

Jim Suva – Citi

Alexe Legasov [ph] – Merrill Lynch

Robin – Jefferies

Operator

Good afternoon and welcome to the Brightpoint second quarter 2008 earnings conference call. This call is being recorded. At the end of the presentation, there will be a 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 introduction, 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

Thank you for taking the time to participate in Brightpoint’s quarterly earnings release conference call to discuss the results of the second quarter ended June 30, 2008. With me today are Tony Boor, the company's Executive Vice President and Chief Operating Officer; Mark Howell, President at Brightpoint Americas and Michael Koehn, President of Europe, Middle East and Africa.

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 incorporated into this conference call by reference.

Our second quarter revenue was $1.2 billion, representing an increase of 43% over the same quarter in 2007. Our loss from continued operations was $2.3 million. On an adjusted basis, our income from continuing operations was $4.7 million or $0.06 per diluted share.

Brightpoint handled approximately 20 million wireless devices in the second quarter. That represents an increase of 2% over the units that we handled in the second quarter of 2007. Due to general weakness in the first half of 2008 in the European and US wireless markets, our two biggest markets, we are revising our units handled estimate for the full year 2008 down to 90 million to 95 million units from the previously stated 100 million units. In the second quarter, the global demand for wireless devices continued to be healthy on an overall basis as reflected in the second quarter with an estimated selling number of 305 million units. This represented an increase of approximately 13% year over year.

As we stated in our June 30th press release, I expect the global units selling range for the year to be 1.25 billion to 1.3 billion units. I'm very pleased with our debt reduction of $135 million during the quarter. We are focused on improving our balance sheet management for the remainder of the year and have revised our debt target for the remainder of 2008. Tony Boor will discuss the specific details in his comments.

I remain confident in our company’s fundamentals and growth opportunities on a global basis. Our business development pipeline is heavy right now from both operators and manufactures. I’m very excited about two recently announced deals with two industry leaders Verizon and Nokia as well as our previously announced global deal with RIM, and our global relationship with HTC. We just announced a new three-year distribution agreement with Nokia in Singapore that extends our long standing relationship with Nokia in that region.

Our focus areas for 2008 and beyond include the following

We'll continue to drive down debt down by focusing on managing our balance sheet. We'll continue to execute on our European restructuring plan, which we announced on June 30th, and we expect to realize annual cost savings of approximately $25 million to $30 million. We'll continue to focus on reducing our overall spending and implementing new cost savings initiatives companywide. We will continue to focus on to aligning with leading manufacturers in the converged Smartphone space, both hardware and software, as well as with new entrants in this exciting market.

We are also focused on growing our presence in both India and Latin America. Our goal is to achieve returns on invested capital of approximately 15% per year and operating margins in the range of 2.5% to 3%. I firmly believe that the execution of our growth strategy will enhance long-term shareholder value. Brightpoint remains focused on our commitment to long-term shareholder value and profitability. I am confident in the entire Brightpoint team’s ability to execute our growth strategy. Now, I'll turn it over to Mark Howell.

Mark Howell

Thanks Bob. I will speak for a few moments about our business in the Americas and then I will turn it over to Michael to discuss the activities in our international operations and some of our global initiatives. In the Americas, we were pleased with our overall performance in the second quarter; despite difficult economic conditions we were able to attain our profitability objectives.

The Americas region handled approximately 13.1 million wireless devices in Q2 2008. The Americas unit volume was down approximately 15% from 15.4 million units in Q2 2007 and down approximately 16% from 15.6 million units in Q1 2008. The Q2 year-over-year decline in units is the result of the impact of industry consolidation resulting in the loss of key customers including Dobson, RCC, and Suncom, as well as the unit volume impact of the expiration of our logistics services agreement with Columb Cell [ph] in Columbia. The sequential decline in units from Q1 to Q2 is due to overall volume amongst our logistic services customers related to current economic conditions resulted in lower-than-expected retail demand for wireless products and services.

In addition to the lower volume amongst our US logistics customers, we also experienced a significant sequential decrease in volume resulting from the expiration of our logistic services agreement with Columb Cell in Columbia. Despite the 15% reduction in wireless devices handled from Q2 2007 to Q2 2008, profitability measured in operating income grew by approximately 8.5% year over year as a result of significant gross margin expansion and the impact of spending reductions. We are committed to continuous improvement in the efficiency of our business model. Margin expansion resulting from improvement in our cost structure is a key performance metric on which we evaluate our effectiveness.

Initiatives related to process improvement, increased automation and the deployment of next-generation Information Technology solutions is directly resulted in lower costs in was a significant contributor to our dramatic margin expansion in the US in Q2 2008. We have three core lines of business in the Americas, product service and distribution, logistic services, and activation services. We believe we have a strong market position in each of these lines of business and we also business that there significant expansion in growth opportunities in each of these. In product service and distribution, our responsibility is to expand our product offering for our customers and to develop new channels and points itself our suppliers.

We are actively engaged in working with our manufacturer, network operator, and retail partners on portfolio expansion opportunities as well as launching new and direct channel management programs. Accelerating migration and technology and product development and new OEM entrants into wireless in the US are creating new product opportunities. Related to portfolio expansion, we have recently announced distribution agreements for the Americas with RIM, Garmin, and ZTE. Success in the development in new channels is best demonstrated by our appointment as a distributor by Verizon Wireless to support its authorized agents and national retailers with Verizon Wireless approved handsets and data devices.

Verizon Wireless authorized agents and national retailers are now able to obtain products through Brightpoint, which provides us with thousands of incremental customers in the US. Brightpoint's logistic services business delivers customized services and solutions that enable our customers to maintain a world class supply chain solution in a truly variable cost model. We continue to increase our market share in the wireless logistic service in the US with the addition of new engagements such as those recently announced with Kyocera and Affinity Mobile. In Q2, we expanded our service agreement with Kyocera Wireless to provide flashing, re-work and kitting services and a range of integrated logistic services designed to enable Kyocera to provide its customers with a more efficient supply chain solution and reduce their customers’ working capital needs.

For Affinity Mobile, Brightpoint will provide a full range of integrated logistic services such as inventory management, order processing and distribution, kitting, national retail preparation and reverse logistics for their mobile products. 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 and its new entrance such as cable companies begin to implement very efficient go-to-market strategies in wireless.

Through activation services, we are developing new subscribers for our network operator partners facilitating the processing of subscriptions for non-traditional channel and provide an incremental revenue stream for retailers. New business opportunities in activation services are being realized through the addition of new network operator partners and the development of new channels. Examples of these new channels include contact center and online driven activations in support of enterprise, e-tailers and for data centric embedded devices. A specific area of focus within activation service is supporting online wireless business model. We've recently being appointed by both Dell and nokia.com to support their wireless e-business initiatives.

Brightpoint is providing call center customer support to mission management services and activation services for both Dell and Nokia. To support these initiatives and many other similar opportunities, Brightpoint has entered into a relationship with Synchronoss. Synchronoss is a leading providing of on-demand transaction management solutions in the communication service provider market. In this relationship, Brightpoint will utilize Synchronoss' carrier integrations and technology solutions that provide the best possible online activation experience for our customers. This relationship with Synchronoss will fully automate the online activation process, and as a result of the relationship with Synchronoss, we will now be able to provide an integrated online activation service that will (inaudible) operations for order capture, order management, fulfillment and the distribution of devices and content.

Critical component of our growth strategy is to expand our geographic reach. We continue to advance this objective in the second quarter as we deployed personnel and begin in-country commercial activities in both Guatemala and Argentina. Guatemala will serve as Brightpoint Latin America's hub for Central America and we view Argentina as a critical market in which we must have a physical presence to accomplish our share objectives in Latin America. We have successfully transitioned the logistics services business in Columbia and are now focused on building our distribution channels and capabilities in the Columbian market. Brightpoint Latin America is very much in a development stage but we are doing all of those things necessary to build the team, channel, supplier relationships and infrastructure required to achieve the level of success in this important market that we have experienced in Brightpoint's more mature incumbent markets.

Now Michael will provide a brief overview of activities in our international operations as well as some of Brightpoint's global initiatives.

Michael Koehn

Thank you, Mark. While the overall results of our European operations were disappointing, we remain committed and focused on achieving our overall objectives of enhancing our relationships with customers and supplier as expanding geographically and entrenching [ph] our overall market share. The international business handled approximately 6.8 million devices in Q2 2008, compared to Q1 2008 in which we handled 6.1 million wireless devices. While our unit volume was up 11%, our profitability in terms of operating income suffered due to soft economic conditions and slow moving inventory in Slovakia and Poland.

We have implemented several initiatives in order to adjust our business to the current market conditions and improve the efficiency of our overall business model. These initiatives are focused on organization realignments, a cost reduction plan, facility atomization, technology deployments and the streamlines go to market organization. As announced earlier this month, we are realigning our European operations in an effort to streamline business processes and optimize our business model. We believe that these efforts, and the resultant cost reductions and operational efficiencies, will help produce additional synergies for Brightpoint. This realignment will result in the elimination of approximately 50 to 75 positions at our current European regional office in Denmark by the end of this year.

These eliminated positions will consist primarily of staff and administrator positions within the Information Technology, Human Resource, legal, finance and commercial and marketing areas. The European business will be supported by Brightpoint's existing management and corporate staff. In addition to the foregoing changes, we are in the process of eliminating approximately 225 positions from our European division's operating entities as well as not filling approximately 60 open and future positions. The foregoing headcount reductions will be coupled with other significant cost reduction initiatives in Brightpoint's European operating entities. These cost reduction initiatives will be fully implemented by the end of 2008, which we expect to result in approximately $12 million to $14 million in cost savings for the second half of 2008, and $25 million to $30 million in annualized cost savings for 2009.

Some of these spending reductions will be realized within SG&A and some will be realized within gross profit. We expect to incur restructuring costs of $10 million to $15 million in the third quarter of 2008 related to these initiatives. All but $1.3 million to $1.6 million of the estimated charges are directly related to the Dangaard Telecom acquisition and thus will be impacted in purchase accounting. In addition to the spending reductions in Europe, we are currently implementing cost saving strategies throughout the company to lower spending on facilities, advertising and promotions, professional fees, travel and entertainment, and other spending areas.

We are currently implementing a consistent IT platform throughout Europe. Five operating entities recently went live bringing the total of this platform to eight. The remaining European operating entities are anticipated to be on this platform the middle of 2009. We expect this new system to contribute toward enabling us to operate more efficiently resulting in margin expansion and overall improved business results. As Bob mentioned earlier, our business development pipeline is very active right now with opportunities from both mobile operators, manufacturers and other partners. We continue to make good progress across the region that leverages both our logistics and distribution capabilities.

Additionally we have developed a new go-to-market team that will focused on bringing these new opportunities to market and the point of monitorization as efficiently as possible. This team will deploy the necessary process to deliver new products and service from key relationships such as Nokia, HTC, RIM, Google and Microsoft and others that enable the local entities to adopt them as optimally as possible. We will continue to seek ways to expand into new markets to leverage our expertise and service capabilities throughout our organization and to create and identifying new products and developing new services.

We remain committed to our growth strategy of geographic expansion, filling and promoting our brand equity, expanding product and service offerings in current markets and adding new products and services. We believe that by staying focused on our growth strategy we can continue to improve our market position and in doing so, increase long-term shareholder value.

Now Tony will provide his comments.

Tony Boor

Thank you, Michael. For further details on the items discussed in this call, please refer to our webcast presentation available on brightpoint.com in today’s earnings release. I would like to start by saying that I'm very disappointed with our lack of profitability for the second quarter of 2008.

The $7.5 million charge we incurred to liquidate slow moving laptop computers significantly reduced our profitability during the quarter. Excluding this charge our gross margin would have been roughly 7.3% for the quarter, which was in line with our expectations. However, even excluding the impact of this charge our performance in Europe continue to be well below our expectations. Despite the challenges we faced this quarter, I feel we made good progress toward initiatives I outlined in my Q1 earnings call. And I'm confident that we will be able to achieve our profitability goals with continued focus on those initiatives and execution of our recently announced European restructuring plan.

As I stated last quarter, our highest priority initiative was to decrease our outstanding debt through several key initiatives including the reduction of total inventory levels while simultaneously improving the ageing of that inventory. I'm pleased with our progress on this initiative, which resulted in the 7-day reduction in DIO from the first quarter. We are continuing to implement best practices throughout our operating entities to ensure we did not lose any ground on this initiatives. This improvement in inventory levels combined with other improvement in working capital help this generate over $160 million in positive cash flow from operations in the second quarter.

The positive cash flow allowed us to reduce our debt balances by more than $135 million at the end of the quarter. As a result, I'm revising our debt reduction target for the end of 2008. I currently anticipate debt at December 31st, 2008 will be approximately $200 million which is a reduction of approximately $260 million from last fiscal year end. Another significant initiative I outlined during our first quarter earnings call was the identification, evaluation, renegotiation, and/or termination of our lowest ROIC generating programs.

We continue to evaluate our existing customer and operator agreements as we focus on generating positive cash flow from operations to lower outstanding debt. We will look to exit or amend any programs that do not meet our internal ROIC goals of approximately 15% and operating margins in the range of 2.5% to 3%. As we exit programs that do not meet these goals, we may incur additional restructuring obsolesce and program exit strategies.

Furthermore, we expect the realignment of our European operations to result in annualized spending reductions of approximately $25 million to $30 million. We've already started to implement many of these cost reduction initiatives and we will continue to implement these initiatives through the remainder of 2008. We expect our third quarter 2008 earnings to be negatively impacted by a restructuring charge of approximately $1.3 million to $1.6 million resulting from costs associated with these spending reduction initiatives.

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

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We'll go first to George Ivanovic [ph] with Oppenheimer.

Oppenheimer – George Ivanovic

Thank you for taking my questions. Bob, when you look at all the cost reduction activities that you are focusing on, can you tell us where you stand right now and what type of pace do you expect for the rest of this year for additional cost savings?

Tony Boor

George this is Tony, I'll answer that one. We are in the process of making the related headcount reductions throughout Europe. We expect that by the end of Q4, we will have I think achieved all of our objectives from a run rate perspective. Right now I think what we've put there is that we expect to get $9 million to $12 million in spending reductions between Q3 and Q4, that will be weighted a bit more towards Q4 obviously as we ramp up on those reduction efforts. And then with – expect to have a full annualized savings of $25 million to $30 million in 2009.

Oppenheimer – George Ivanovic

And most of those savings are coming from Dangaard or there is some coming from the US as well?

Tony Boor

The majority of those are Europe.

Oppenheimer – George Ivanovic

All right. Thank you very much on that. And with the focus you have on the Smartphone market, can you give an idea of how important any specific model is to earnings and for example, it may be something like the Diamond?

Tony Boor

I would say that the Diamond is a product that we had success with. In Q2, the diamond was only available for the last weeks of June. So, it didn't contribute significantly in the second quarter. The Diamond is a (inaudible) on most of the Smartphones that we carry seem to be getting a lot of mine [ph] share right now. All Smartphones are tracking well, and I think that promotional activity that Apple has done with the Icon is bringing people into stores on to the net restructuring all of the different Smartphones whether or not it's a Nokia Eseries or and Nseries or a BlackBerry Bold or a Blazer or an HTC Diamond or what have you, I think consumers are looking to trade the non-Smartphones into Smartphones. So, I think that the prediction that we had for the next 5 years for 75% of all devices to be Smartphones. If the momentum continues it won't take 5 years, it will be a lot less than that.

Oppenheimer – George Ivanovic

Okay. And following up on that, you highlighted a few business development pipeline products. From the prospect of Verizon two of the more recent ones, can you give us an idea of the traction you've seen or some of the antidotes like give us an idea of what traction we should anticipate over the next couple of quarters?

Tony Boor

This relates to Verizon, we are up and running. We purchased and received Verizon products from our OEM suppliers. We are actively engaged in signing up dealers has been pretty aggressive marketing campaign behind that, and we are shipping Verizon products already. As it relates RIM, we are ramping up for that. RIM would be more of a Q4 event.

Oppenheimer – George Ivanovic

Okay. And one last question. Tony, when you look at the second half of this year, can you give us an idea of what you anticipate for inventories and the pace of the debt reduction?

Tony Boor

Yes, it's obviously with our success I updated our debt target again that we would get $200 million, which is roughly $260 million reduction from what we were at the end of last year. Inventory, we made a lot of lot progress this quarter as far as total inventory goes. I wouldn't expect total inventory in a dollar amount to reduce significantly especially going into the holiday season that's in the Q3. But I do expect that we still have some room for improvement from the ageing of inventory. We made a lot of good progress and generated a lot of cash from selling through some of the older inventory, but we still got to better that left to work through. So, I would expect we'll have another good opportunity to reduce that even further. And then as far as year end, I would hedge that little bit just because of the seasonality, but we are aggressively pursuing not only inventory but receivables in these lower ROIC performing programs etcetera. So, I'm hopeful we'll make even better progress by year end.

Oppenheimer – George Ivanovic

Thank you very much.

Operator

We'll go next to Brian Modoff with Deutsche Bank.

Brian Modoff – Deutsche Bank

Hi, guys. Can you hear me?

Tony Boor

Yes.

Brian Modoff – Deutsche Bank

Okay. Good. Couple of questions. On the accounts receivable, how do you see that ending in the year, and how would be your operating cash flow and the targets in the back half of the year? And then Bob, your own guidance in your reduction in the unit volumes is countered of what you are hearing that of the larger vendors about overall demand. Is this is a share issue for you or is the end market more challenging perhaps some are talking about, can you address that issue?

Robert Laikin

Sure. I'll take that question first. So, our target for the industry for the year is 1.25 billion to 1.3 billion units, and that's slightly down on the high end and the same on the low end. For our units of 90 million to 95 million at Brightpoint. Considering we are out Columbia and the results that we had in Q1 and Q2, that is more in line with where we think we will land. We don't have a lot of exposure in some of these emerging markets as well like China or India or Africa. Our India business is going through a change right now and we are focused more on Smartphones there in the CDMA side. So, as far as the AR and the operating cash flow, Tony will take on it.

Tony Boor

Yes. And Brian, I think from your question on the receivables I'll look at that probably more so from a cash conversion cycle. We did a great job in Q2 and got down to 17 days. Cash emerging cycle, which was a huge improvement and we'll just try and hold our ground on that one through year end. I think the difficulty on AR, it depends on the mix of business and who we are selling to because we have as you know such a wide variety of business from customers in Asia that pay us upfront, so those customers obviously in certain courtiers that get thoroughly extended terms. So, again that can depend on the mix, but I'm going to try and hold that cash conversion cycle and I think from a cash flow to paydown debt perspective, there's still some room for improvement with aged inventory. Really not a lot of room left in receivables as they are very current [ph] from a mixed perspective, don't have a lot of past dues that are already reserved for a bad debt related. So, I think those are a few minor opportunities with renegotiation in terms for payables. And probably the last you think they are obviously profits and then aggressively looking at the lower ROIC, lower operating margin programs and either renegotiating those are pulling the plug on them all together which could free up some cash.

Brian Modoff – Deutsche Bank

On the India issue, can you talk a little bit about – you had some at least ideas of withstanding your relationships in India get perhaps outside of CDMA? And can you talk about India and some of the opportunities you are working on there to growth (inaudible) has given you a significant investment in resources there?

Michael Koehn

Yes, it's Michael Koehn speaking. So, the answer to that question is that we remain committed to participate in Indian GSM markets. We are in discussion with all the major players in the wireless market there, and we have diversified already in our portfolio in India, which now includes Nokia CDMA, Motorola CDMA, HTC both on CDMA and GSM, and we as you know noticed also Garmin (inaudible) devices and RIM products from the time going forward.

Brian Modoff – Deutsche Bank

And then Bob, you generally provide some view of how you see the end market from the standpoint of how the various vendors are doing out in the market. Can you talk a little bit about that? And that will be my last question, thank you.

Robert Laikin

Yes. Clearly Nokia is doing well with 40% plus market share. Apple, we think in the high end is doing well and they certainly are drawing people into the stores to look at all vendors devices. HTC, their products have been completely embraced by the consumers, the reviews [ph] and the Diamond and some of their products coming into market, the views are very positive. RIM the new products that RIM is coming out with are going to drive in more people into the stores, the Samsung products at Sprint, their Smartphones there, people love them. And I think that other vendors will roll out new products in the third and fourth quarter and next year. I think most of the new ramp, the new rolled out products as we look at that '09 and '10 will be Smart, Smart, Smart and Smart phones. So, I think you'll see a huge replacement cycle coming into the industry. What's interesting this time from all previous times is people are replacing their phones without aggressive marketing and subsidy programs happening typically to generate the kind of interest that we've seen from our customers getting consumers into the stores, it's the operators or the manufacturers really marketing aggressively and they are not having to do that this time. And I think Apple is taking the whole industry by storm and drawing people into the stores, and then different carriers in different markets and different retailers are having their programs at store level.

Operator

We'll go next to Jim Suva with Citi.

Jim Suva – Citi

Great. Thank you very much. I just want a quick clarification point to make sure I'm doing my math right. If I add up Q1 and Q2 for the industry [ph] you handled, it looks like you handled about 41.7 and based upon your guidance that would imply about 22% second half ramp versus first half. Is that correct because I wonder a little bit given the commentary about slowdown in North America and Europe about – is that math accurate or am I missing something there?

Tony Boor

Yes, I think that should be accurate.

Jim Suva – Citi

Okay. And then can you talk a little bit about, Tony, in your slide in presentation and during your commentary you talked about looking to amend programs and exit programs not meeting your ROIC and operating margin goals. How much the company's business is not meeting those goals?

Tony Boor

It's a good question because we are in that analysis phase as we speak. But the problem is that we roll out the countries, we don't have that why that level of granularity readily available. And so, part of what we are doing is evaluating on a country-by-country basis the various programs and major customers and been to programs. If I had to guess right now with some of those that we have already year-marked through our due diligence on the Vanguard transaction and post-closing there's probably in the ballpark of 7 to 8 major programs that we are looking at right now to evaluate that are – I don't want to say necessarily under-performing but not necessarily mean or expectations that's probably the vast majority of those are in Europe mainly related to Legacy, Dangaard and right now very little profit in fact on the bottom line from those programs.

Jim Suva – Citi

But those 7 to 8, does it represent 5% of Dangaard or 10% – I'm sorry 5% of Brightpoint or 10%, 15% how should we quantify versus the overall big company?

Tony Boor

I would say it's up probably in the 5% to 10% range if I had to guess but that's a ballpark. I just – I don't have that readily available.

Jim Suva – Citi

Okay. And would it fair to say some of those would be amending the terms and some of them will be walking away?

Robert Laikin

I think, Jim, that's more of a program-by-program, country-by-country, region-by-region basis. I think certain programs with certain operators, the people that we are providing the services will realize that we are best and the only option, and they will be willing to pay more money for this service. Some programs, the manufacturer or operator might say has someone else is willing to do it. But as Tony said in his commentary as well as in the press release we are committed that we are not a non-profit organization and if we can’t make a reasonable return, we will exit programs whether it's operators, logistics, distribution specific countries etcetera.

Jim Suva – Citi

Great. And last question, I think you mentioned Slovakia, you are going to clear the inventory there in Q3, is that correct and still how much is left still to clear there?

Robert Laikin

We've on the – specifically told that barebone last stop business we've shipped through July roughly 75% of the units that were remaining in the quarter, and we have firm purchase orders for pretty much all of the remaining units. We don't anticipate any further material charges on that inventory. So, I'm hopeful by the time we have this call early Q4 that we will have good news there that that's all been taken care.

Jim Suva – Citi

Great. Thank you everyone.

Robert Laikin

Thank you.

Operator

We'll go next to Alexe Legasov [ph] with Merrill Lynch.

Alexe Legasov – Merrill Lynch

Hi, thanks for taking my questions. My first question is about your success in your working capital management. You've fully increased a number of days payable, and can you please elaborate on that what allowed you to do so? Did you renegotiate some major construct or yes – so a little back?

Tony Boor

Not a problem. Really two large drivers on the payable side, one is and we talked about this for several quarters now is that Dangaard had historically been in the practice of taking larger and more early paid discounts than the Legacy Brightpoint entities had. Obviously, as we've done our analysis of return on invested capital, we've come to the conclusion I think the math is fairly straight forward that ROIC you get a higher return by not taking the early take discounts. So, as a result, we've discontinued taking many of the early paid discounts. And then I think the second other major contributor to keep in mind is the payables in relation to our other being inventory particularly again apply to a significantly based upon the quality of the ageing of the inventory and so as we've sold through our aged inventory and also improved the total mix of our inventory and payables in relation to inventory have increased. And so, we've got in other words more inventory in hand that we've not yet paid for, not because we are stretching our vendors but because we've improved the mix of our aged inventory.

Alexe Legasov – Merrill Lynch

Okay. And in terms of derivatives [ph] have this global credit flexibility grow to $300 million, is it a borrowing [ph] facility?

Tony Boor

We actually have a total facility closer to $600 million.

Alexe Legasov – Merrill Lynch

Yes.

Tony Boor

We've termed that in place in the US, termed that in Europe and then $300 million plus a few other smaller revolving facilities, the $300 million is a revolver.

Alexe Legasov – Merrill Lynch

Yes.

Tony Boor

In that we had I think we have on the upside on that 7000 or $7 million I think it was some very small number in the quarter. And then we also have availability to factor additional receivables if we so chose to.

Alexe Legasov – Merrill Lynch

Okay. And in terms of actual availability given that you might be tight on financial column if you have any – how much can you utilize from this global revolving facility?

Tony Boor

Right now our EBITDA leverage ratios are significantly below where we need to be for any covenant.

Alexe Legasov – Merrill Lynch

Okay

Tony Boor

And so I think we are in great shape in the liquidity standpoint.

Alexe Legasov – Merrill Lynch

Okay. So, basically the whole facility remains available?

Tony Boor

Yes. And that's obviously – it's going to dependant on us generating profitability going forward but right now we are in great shape.

Alexe Legasov – Merrill Lynch

Okay. Thank you very much.

Tony Boor

Thank you.

Operator

We'll go next to Bill Choi with Jefferies. Mr. Choi, your line is open, please check your mute function

Robin – Jefferies

Hi, guys. This is Robin for Bill. Just had a few quick questions for you. I guess may be to start, could you give us a sense of what you are seeing now in the channel, any kind of inventory build may be in the US as well as Europe?

Robert Laikin

Sure. We think inventory right now is as expected going into Q3, I think that the economic consumer spending that took place in July was pretty good. I think the pendulum from incredibly negative from the consumer sentiment caused by high food and high oil prices for the first six months of the year, I think July was the first sign that we saw that people didn't think the world was coming to an end. And I think that that created a decent July. It wasn't quite as pessimistic in July. Coming into the third quarter typically inventory levels aren't significantly high and new products are usually rolled out in late August and early September for the fourth quarter, which creates a lot of buzz and typically with the fourth quarter being the strongest quarter of every year. Inventory levels if anything I think are a little low right now, compared to where they were relative to the first half of the year because demand I would expect will be stronger in the fourth quarter.

Robin – Jefferies

Okay. And may be specifically to India and there is an (inaudible) that mentioned some of the – on your declining is related to the product availability in that region. May be can you talk to the – I've heard some about the CDMA on in the country, has that impacted you and what are you seeing there for Q3 and Q4?

Robert Laikin

Our exposure in India in CDMA this year is primarily Nokia and Motorola CDMA product, and CDMA is only about 25% of the market. Because we were not achieving any kind of reasonable returns on the distribution business in India, our inventories have gone down over the last year in India. As we ramp up into GSM products in India, I would expect our inventory levels will rise but if they rise it's a good thing because that means our sales levels are rising as well. And most of our business in India today is repair and refurbish business, which are both GSM and CDMA. But that product is not our product, so that wouldn't be reflected on our balance sheet in inventory.

Robin – Jefferies

Okay. And then may be just thinking about the ASPs for the business little bit, it seems like handset distribution ASPs is held up relatively well, actually increased this quarter, logistics were up quite a bit as well. How come we think they should trend throughout the second half?

Robert Laikin

It's fair to say that if a bigger percentage of handset sold are Smartphones or converts devices then ASPs for the next couple of years should be flat to up on the distribution side. On the logistics side, the margins fluctuate and –

Tony Boor

That's a lot of mix of business also in the logistics side because we do call [ph] for the units that we hand on logistics. We earn quite a few C's that are non-unit based services.

Robert Laikin

And we did give guidance on the operating income percentages as well, but specifically the categories of gross margin we don't get into that.

Robin – Jefferies

Okay. Great. Hi, thanks so much.

Tony Boor

Thank you.

Robert Laikin

Good bye.

Operator

Brightpoint would like to thank you for your participation in the second quarter 2008 earnings conference call. A replay of today’s call will be archived for 15 days on the company’s web site beginning approximately two hours after the call has ended. Brightpoint would like to remind its shareholders, that there is a toll free 24 hour Investor Relations line; 1877-IIR-CELL; that’s 1877-447-2355. That concludes today’s conference. You may now disconnect.

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