Ingram Micro Management Discusses Q3 2013 Results - Earnings Call Transcript

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Ingram Micro (NYSE:IM)

Q3 2013 Earnings Call

October 24, 2013 5:00 pm ET

Executives

Damon S. Wright - Senior Director of Investor Relations

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

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

Paul Read - President and Chief Operating Officer

Analysts

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

Benjamin A. Reitzes - Barclays Capital, Research Division

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

Richard Kugele - Needham & Company, LLC, Research Division

Jim Suva - Citigroup Inc, Research Division

Louis R. Miscioscia - CLSA Limited, Research Division

Osten Bernardez - Cross Research LLC

David Ryzhik - Brean Capital LLC, Research Division

Operator

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

Damon S. Wright

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

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

Additionally, throughout this call, we will be referring specifically to non-GAAP financial measures, such as non-GAAP operating expense, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP earnings per diluted share, which exclude amortization of intangible assets, primarily associated with our acquisition of Brightpoint and charges associated with restructuring, integration and transition costs and other expense reduction programs. For the 2013 third quarter, these non-GAAP financial measures also exclude a benefit related to the receipt of $29.5 million from an LCD flat panel class action settlement and the impact of a $5 million reserve recorded for estimated potential charges related to indirect tax declarations in Europe. Non-GAAP net income and non-GAAP earnings per diluted share also exclude the impact of foreign exchange gains or losses related to the translation effect on euro-based inventory purchases in our Pan-European entity.

Today's earnings release and the related current report on Form 8-K, described the differences between our non-GAAP and GAAP reporting and present the reconciliation between the 2 for the periods reported in the release. Please also see the Investors section of our website for a slide deck that includes additional information disclosed in accordance with the SEC Regulation G.

I also want to remind you that this conference call is a property of Ingram Micro and may not be recorded or rebroadcast without specific written permission from the company. The presentation slides and a replay of the call will be available for 1 week on the company's website or by calling (888) 203-1112 and using passcode 7850367.

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

William D. Humes

Thank you, Damon, and good afternoon, everyone. We continue to execute well in the third quarter and deliver strong improvements in profitability, as gross margin, operating margin and EPS all increased significantly year-over-year. We remained purposefully disciplined in managing our growth and continue to reap the rewards from execution on our strategic objectives to increase our revenue in higher-margin services and solutions.

Strong contribution from our acquired mobility business, coupled with modest growth in North America, drove a double-digit increase in worldwide revenue compared to last year. The IT distribution selling environment in North America and Europe remained at a competitive level, and our team is focused on quality of profitable revenue and returns. Our efforts resulted in solid sequential and year-over-year growth in IT distribution gross margin for the second quarter in a row. The mobility business drove strong profitability with robust logistic services revenue and strength in North America. This partially offset a sequential decrease in mobility distribution sales in Asia, resulting primarily from lower sales from a large mobility OEM.

In addition to good operating execution, we had a busy quarter of M&A as we recently added 2 strategic businesses that increased our capabilities in supply chain services and cloud-based solutions, both fast-growing and higher-margin services businesses.

Turning to our results, worldwide revenue of $10.2 billion increased year-over-year by 12%, mainly due to our 2012 fourth quarter acquisitions of Brightpoint and Aptec. We delivered solid non-GAAP operating margin of 133 basis points, an increase of 1 basis point sequentially, an improvement of 19 basis points year-over-year.

We are very pleased with the fact that our non-GAAP earnings per share increased year-over-year by nearly 30% to $0.53 when compared to non-GAAP EPS of $0.41 a year ago. Diluted shares outstanding for Q3 were 157.1 million. Third quarter gross margin of 5.9% was up significantly from last year, benefiting from the addition of the mobility business, which was accretive by 53 basis points. However, strong growth in our IT distribution gross margin was also a contributor, as we drove a sequential increase of 7 basis points and 25 basis points improvement year-over-year. The increase has resulted from steady pricing discipline, coupled with profit enhancement programs in certain countries. We also benefited from early returns from our strategic investment and a smaller mix of lower margin fulfillment business.

Non-GAAP operating expense increased year-over-year by $112 million to 4.57% of sales versus 3.89% of sales in the 2012 third quarter. $96 million or 53 basis points of our third quarter OpEx was associated with our acquired mobility business. OpEx was also impacted by continued investment in key strategic areas across all regions.

Looking at some regional highlights, North America delivered revenue of $4.1 billion and grew 2% over last year and 1%, sequentially. We were strategic in managing growth and pricing in various segments. Revenue growth was driven by advanced solutions, with particular strength in storage and infrastructure systems, and we added new customers in this important segment during the quarter.

The Specialty Division also had a solid quarter, driven in part by low-double digit growth in consumer electronics. Additionally, Canada continued its momentum with another quarter of low-double digit revenue growth driven by share gains across several product categories and strong sales of advanced solutions. The region's sales discipline was awarded as non-GAAP operating margin was 182 basis points, increasing sequentially and year-over-year by 11 and 4 basis points, respectively.

Europe revenue of $2.4 billion was flat sequentially and year-over-year in U.S. dollars, as market dynamics were nearly identical to last quarter. In local currency, Europe revenue declined by 4% when compared to last year. Non-GAAP operating margin was 58 basis points, up 2 basis points sequentially but down year-over-year by 11 basis points. The team did a good job maintaining pricing discipline and successfully implemented profit improvement program in some countries, but we're not satisfied with this performance and have begun to implement specific cost-saving initiatives in the region.

In Asia-Pacific, in U.S. dollars, third quarter revenue of $2.2 billion was down 1% year-over-year, but up sequentially by 1%. Our acquired Middle East and Africa business contributed $70 million to the quarter. Overall, the region grew by 4% in local currency despite a 19% revenue decline in China. Non-GAAP operating margin was greater than 1% for the first time in nearly 3 years, coming in at 1.07%, a sequential and year-over-year increase of 15 and 46 basis points, respectively.

We continue to make consistent progress in Australia's operations. Revenue grew for the third straight quarter and we reduced Australia's operating loss to less than $2 million, a sequential and year-over-year improvement from operating losses of approximately $3 million and $9 million, respectively.

India continued to post solid double-digit revenue increases with operating margin well above the region's average supported by growth across multiple product lines, particularly in networking solutions.

Latin America revenue was $450 million, decrease sequentially and year-over-year in U.S. dollars by 2% and 4%, respectively. Excluding currency headwinds, revenue was down 1% from the prior year as sales in our export business were negatively impacted by slower demand in gaming products and tablets, due in part to a lack of new product introductions versus last year. Non-GAAP operating margin of 1.97% was down year-over-year by 6 basis points.

Non-GAAP operating margin was also down by 15 basis points sequentially from our 2013 second quarter, which benefited by 23 basis points from the sale of a building in Argentina. Brazil again performed very well with revenues increasing high-double digits as we continue to gain share with large vendors and drive growth. Mexico started to recover from recent quarterly revenue declines, supported by a return in consumer demand.

The mobility business contributed revenue of $1.1 billion with solid non-GAAP operating margin of 2.19%, leading to accretion to non-GAAP earnings per share of $0.07. In addition to lower distribution sales primarily in Asia, operating income margin and EPS accretions were negatively impacted by a charge related to inventory losses in one of our mobility warehouses. Without this charge, Q3 non-GAAP mobility operating margin would have been in line with the first 6 months results.

North America continues to perform very well with strong logistics services and distribution revenues, each benefiting from new customer wins. Europe delivered strong mobility revenues and overall profitability led by Germany and Sweden. We're also beginning to leverage Ingram Micro's relationships to drive additional revenue synergies as evidenced by the region being awarded distribution rights from a leading mobility OEM for several countries. In Asia, the mobility business was impacted by lower sales from a large OEM in the high-volume Indonesia market and a lack of supply of in-demand handsets in some countries. On the positive side, Asia recently added a new handset OEMs in several countries, and has also began selling in new markets such as Thailand. Additionally, the Asian logistics services business, particularly around SIM kitting, is progressing well in India and in the Middle East and Africa.

Turning to other financial highlights in the quarter. HP represented 14% of total sales, with no other vendor greater than 10%. Our effective tax rate for the third quarter was 30.5%. We have generated $113 million in cash flows from operations for the first 9 months of 2013, which compares to cash usage of $35 million for the same period last year. At quarter end, our cash balance is $500 million, and our total debt balance was $890 million.

Working capital days were 27, increasing 3 days sequentially due in part to building of inventories in all regions in preparation of our strongest quarter, as well as a decrease in payable days. CapEx for the quarter was $27 million, depreciation was $20 million and amortization expense was $12 million. Non-GAAP return on invested capital for the trailing 12 months was 10.2%, exceeding our weighted average cost of capital of approximately 8%.

Lastly, I wanted to note that while we have not changed our current capital allocation strategy, to maintain our current flexibility, our Board of Directors have extended our existing stock repurchase authorization through October 2015.

I will now turn the call over to Alain.

Alain Monié

Thank you, Bill. Q3 was another successful quarter, where we maintained the momentum established in the second quarter and further improved our profitability. On our Q2 call, we committed to managing our growth appropriately, while driving acceptable returns. And that's what we did. We delivered significant operational improvements across the business, while also making the strategic investments that we committed to, in order to further position Ingram Micro to deliver greater future returns. Let me mention a few highlights.

We're executing well on integrating the new mobility business and continue to be rewarded with strong profitability and EPS accretion. As we enter our seasonally strongest and most profitable quarter, our new mobility business has already contributed $0.24 in accretion, making us confident that we will achieve our $0.34 objective for the year.

The business is performing well, and we're winning new logistics services and distribution contracts with leading companies such as Telecom New Zealand and BuyCell Wireless Group. The teams are working well together, and on top of significant cost savings, we're beginning to realize revenue synergies. As anticipated when we acquired the mobility business last year, we're having success leveraging Ingram Micro's established IT distribution infrastructure to win new business in countries such as France, Canada and Thailand, areas not previously served by Brightpoint. We are still early in the process, but the progress is promising.

At the end Of the quarter, we expanded our full suite of distribution and device lifecycle services offerings into Latin America, opening access to multiple new countries. We're already gaining initial traction in the region and have won distribution rights from leading handset brands.

On the IT distribution front, Australia maintained its trajectory of improvement, we continue to gain share with large vendors and are confirming our goal to achieve profitability in this fourth quarter. In Q3, we also launched and started transacting our data capture/point of sale business in South Africa. We have grown this higher-value business well throughout the world, and expect to do the same in this new region for us.

We have also maintained the appropriate level of investments into all of our regions. And as reflected in margin improvement, we're beginning to experience the initial benefits derived from higher value business lines. I expect the positive results of these initiatives to continue to expand around the globe.

In addition to these sustainable operational improvements, we're executing on key strategic objectives to increase future profitability and are continuing to strengthen our management team. On September 19, we announced the appointment of Paul Read as President and Chief Operating Officer. Paul's primary emphasis will be driving growth and greater returns across all IT distribution business lines, and the IT distribution regional presidents now report directly to him. This enables me to devote more time to current and future strategic opportunities. Among Paul's early responsibilities will be working closely with the European team to better align the region's cost structure to improve profitability.

This Q2, we have invested $50 million to our acquired 2 companies, each of which immediately improves our position in important strategic areas. Leveraging our expertise in supply chain services continues to be a key strategic growth imperative. We're investing meaningfully in Ingram Micro Logistics, and we have been working hard to more rapidly scale the business, efforts that were rewarded in the quarter with 4 new customers.

We have also been evaluating opportunities to speed our growth through the addition of essential supply chain services and solutions that current and new customers want. The acquisition of CloudBlue meets this objective and brings to us a full suite of services associated with securely managing IT assets and consumer electronics at the end of their life cycle through asset disposition, on-site data destruction and e-waste recycling services. This is a rapidly growing services business market that enables us to accelerate the expansion of our supply chain solutions globally, including into the large Enterprise customer base.

We also further enhanced our cloud services offerings and aggregation platform with the acquisition of SoftCom, also known as myhosting.com. Today, Ingram Micro delivers more than 150 solutions from over 50 leading cloud vendors. And SoftCom enables us to further improve the way our global partners and customers sell, service and procure cloud delivered solutions. Myhosting.com has a robust customer base already serving more than 2.5 million users. This acquisition is a significant step forward as we continue to take a leadership role in the cloud opportunity as the global IT distribution leader.

Through operational and strategic execution, we're continuing to deliver in all of the regions and markets we serve. Our ability to improve our core business and at same time strongly position our company on our strategic markets of mobility, logistics and cloud, will position us very solidly for the future.

For the 2013 fourth quarter, we currently expect gross margin to be up sequentially by high-single-digit basis points and worldwide revenue to increase over Q3 in line with historical seasonality. This was clearly another important and successful quarter, and I'm happy with our performance. But this is only the early foundation for what we believe will be a much stronger and consistent value creation company. I'll now open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll hear first from Brian Alexander with Raymond James.

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

Just to start off on the demand and pricing environment. It looks like your revenue was a little bit below seasonal across the regions, yet you're guiding to seasonal revenue for the fourth quarter. So first, could you remind us what is normal seasonality for Q4 now with Brightpoint in the mix? I don't know if it mutes what used to be kind of mid-teens sequential growth to something more like low-double digits. And then part two would be, given your margin performance was better than expected in Q3, do you expect to continue to trade away more revenue for profitability in the fourth quarter? And if you do, why would revenue go from below seasonal to seasonal?

Alain Monié

Yes. Brian, this is Alain. You're right. I mean, on the seasonality, the mix now, including mobility, changes a bit the numbers that we were used to have on Q4 versus Q3. But I think your estimate is correct, around low- to mid-teens as far as what the impact on revenue seasonality would be. And as to the question on our behavior on the market, I mean, we still need to continue being disciplined on the business that we take, and that's our objective in taking -- in continuing in Q4. But we do see our seasonality coming back in our revenue being fully aligned in spite of what, in Q3, was lower-than-expected mobility revenue business. And this was mainly due to one major OEM having lower sales, which impacted us mainly in Asia.

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

Okay. Could you remind us -- I think you're probably talking about BlackBerry. So on that point, how much of Brightpoint's revenue and profitability comes from BlackBerry? And you mentioned, Bill, an inventory charge. Could you quantify that? It seems like maybe it was a couple of million dollars. What exposure do you have from an inventory perspective to BlackBerry given that their situation is uncertain?

William D. Humes

Sure. Brian, it's Bill. On the overall amount, starting with your first question. Generally, most of our -- so the lion's share of the market share of units we move is for Samsung. And so that's the lion's share. That being said, Asia tends to be our largest distribution region, and that has a little bit overweight towards the other OEMs, specifically BlackBerry as you mentioned, and that was an impact. But I would say, overall, it continues to be performing well. They are actually able to scale their cost structure fairly quickly, so we are pleased with it overall. In the sense of the inventory charge, that was actually was not in Asia, that was in North America. And it had -- it didn't relate to an e-mail[ph], so it ended up into more of leakage in other areas. So that quantity of charge, I would say, if you think about, overall, our accretion in Q2 was $0.10 and it's $0.07 now in Q3. It's roughly, probably, about half related to volume and the other half related to the inventory charge.

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

Is there a material inventory exposure to BlackBerry at this point, especially if their demand continues to weaken?

William D. Humes

No. Overall, we've adjusted the purchasing to more align with the level of demand. There is still quite a bit of demand of -- still in the emerging market, specifically in Asia and Latin America on BlackBerry, which is why we still have a decent amount of revenue in that -- in those product segments. I wouldn't necessarily have concern right now on BlackBerry inventory as the sales are still decent.

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

And just a final question on this subject. Could you just update us on the remaining cost synergies that you expect for the Brightpoint integration. And with the slide in profitability you saw this quarter, the $0.07, have you gone from, perhaps, ahead of plan to on plan? Or would you say you're still ahead of plan?

William D. Humes

I'd actually say, overall, our synergy achievement on cost is ahead of plan. We're doing -- progressing very well. I would turn it over to more looking at the accretion. Given $0.24 throughout the quarter, the 3 quarters through September and fourth quarter generally being the strongest quarter for the mobility business, we're still pretty confident that we will achieve the accretion target of $0.34. So I don't see that as a problem. Obviously, the $0.07 was impacted, say, by -- from the $0.10 that we incurred in Q2 by the inventory charge that shouldn't be recurring. Yes, so I think -- that you have to normalize and therefore, was a fairly normal Q3 in that regard. So we're very comfortable in the achievement levels on accretion, and we're on a good path on all of our synergies. We achieved a lot of the run rates that we've talked about and continued to implement more cost structure and synergy actions now and into the next half of next year. So we have a lot of opportunity there.

Operator

Up next, we have Ben Reitzes with Barclays.

Benjamin A. Reitzes - Barclays Capital, Research Division

Wanted to expand on Brian's question on BlackBerry. Maybe it's -- I think you guys are around 300-plus in revenue short of the street in Brightpoint. And I just wanted to say, just -- can you -- is it at all BlackBerry or was there some other vendor as well and some other things that weren't going as planned? If you could just clarify that, I know you had some comments in your remark. I just wanted to clarify that and then I got a follow-up.

William D. Humes

Yes. I mean, overall, I'm not sure where you're getting the numbers specifically, Ben. But we, in the sense that we're not also going to speak to street revenue numbers, but overall, sequentially, the mobility business went down about $160 million from Q2 to Q3. A significant portion of that was in Asia-Pacific. But it wasn't $300 million as you're talking about. So we are -- there is also, Q3 was -- I mean, Q2 was pretty good quarter in a sense of some product releases that had good impact in the international emerging markets, and that didn't have the necessary kind of tail that we would have expected into Q3 from Q2. But overall, I think we're having great success around the rest of the globe. The strong achievements in North America on sales, as well as the services, very, very solid. And European mobility had a very solid quarter as well.

Alain Monié

Yes. This is Alain. And I would add that we -- there are always time differences between the times of certain OEMs having success with some products and others, and then new products coming into the market. And we are -- we have loved distribution agreements for 4 new countries on another large OEM, for instance, in -- for Europe, which will start giving us benefits in Q4 and more in 2014. So there are those variations that happened with the product cycles.

Benjamin A. Reitzes - Barclays Capital, Research Division

So that was my next question. Just how long you have this view that Brightpoint is up in the fourth quarter, obviously, nicely. So if we were to theoretically say it's BlackBerry, primarily, that was the big hit in the quarter, you said -- so how long does it -- do you transfer and fill the void? And you're saying it's pretty immediate in the fourth quarter or does it take a few quarters to kind of work itself in on our revenue trajectory and getting back to normal?

Alain Monié

Well, we believe that it will be fairly quickly compensated. Now fourth quarter will be only be a part of it. I would say that starting next year, we will have alternative products as well.

Benjamin A. Reitzes - Barclays Capital, Research Division

Great. And just finally, on the e-waste opportunity or the -- one of those latest acquisitions. Can you just talk about that emerging opportunity there and what you think that could be over the long term? Are there many acquisitions to come there? And that just seems like an interesting service that's secularly right that you guys can get into. What are we starting here?

Alain Monié

Right. What we're trying to do here is through the acquisition of this company, which is still small as far as in revenue terms, but it gives us the capability that we didn't have. And in terms of capturing value at the back end of the life cycle of the devices, if you will, we're very strong in the upfront where we do the distribution, but also flashing software and doing forward logistics deployment. But we need to also strengthen the back hand of the life cycle, which -- this really gives, us strength in. In addition to that, the majority of what CloudBlue does today is in IT products. And of course, our intention is to expand that to the mobility handheld products, which is not part of their suite today. And the other aspect is that we are going to now be able to leverage a very large SMB base, reseller's base, to have them have access to these services as well. And the last point is that CloudBlue is fairly strong in expanding their capabilities into the large enterprise space, which is a new customer segment for us, if you will. So all of those things combined really give us a fairly good starting point to expect high growth in that area.

Operator

Moving on we'll hear from Matt Sheerin with Stifel.

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

So just another question on the gross margin, where you've had nice improvements in the core business. I'm trying to figure out how much of that is related to mix working in your favor, both in terms of enterprise class hardware? And then also the fact that, pretty widely reported that tablet sales have been weak through the channel, and I know that's a low-margin product. And then on top of that, you've got some changes in vendor rebates or whether or not they've been reset or not over the last couple of quarters to give you better thresholds, to meet those requirements and get the better rebates.

Alain Monié

Yes. Let me start and then Bill, you can chip in. But you have identified 2 of the 3 major elements there. One is, obviously, the investments that we have made in the past that we continue making in the higher-margin segments are starting to pay off. So that's one element of the improvement. The second, as you noticed, is a better mix with, in fact, lower quantities of high-velocity retail, lower margin type of products such as tablets. And then the third point, though, is our disciplined behavior on the pricing front, which could have impacted a little bit the revenue line but at the same time, our focus is really in increasing our profitability. And I think it had shown very good results. So those are 3 main elements.

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

Okay. And as you remain disciplined, are you running up against potential issues with not meeting revenue thresholds from the suppliers and thereby had run into rebate problems, which we saw a year ago or so across the channel?

Alain Monié

Well, as we're trying to optimize, obviously, the rebates are part of the profitability. And so inasmuch as we remain disciplined, it also means that we need to attain the targets that we have agreed to with the vendors in order for us to have a net-net improvement. So that's not part of our strategy to forfeit any opportunity of rebates as long as the business is -- remains healthy.

William D. Humes

Right. That's where you -- when we end up talking about being selective and strategic, it involves many different levers and dynamics. So we evaluate in taking new business and knowing what the back end is. Obviously, we've had some very strong growth in the advanced computing side where the back end tends to be the highest. So we're balancing all of that very well, as well as being very disciplined when it comes to pricing and the overall market. So I mean, I don't think that's a significant worry and we'll continue to manage through that as best as we can.

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

Okay. That's very helpful. And this is lastly, on the guidance, the revenue guidance for seasonality across the businesses. I understand the core distribution business, but could you remind us of the seasonality of Brightpoint, which appears to be jumping around here due to the issues that you talked about? Are we talking about sort of on up mid-teens kind of sequential growth is seasonal for that business?

William D. Humes

Yes. I mean, with -- you're right. I mean, with mobility, the Brightpoint business, given its size and given the fact that there are new release products here and there, it kind of obscures the normal seasonal patterns. But generally, a lot of the distribution business is sold through retail channels which, therefore, generally have spikes in the fourth quarter. So it should have an upward spike similar to what we have in Ingram Micro. It may be slightly off and then you have to take the one-offs of product releases and announcements that flow in a quarter and you kind of build up a quarter more or so than a normal run rate. So I'd say yes, you're right, similar to Ingram Micro legacy business.

Operator

And we'll now hear from Rich Kugele with Needham & Company.

Richard Kugele - Needham & Company, LLC, Research Division

A couple of questions. First, can you just elaborate a little bit more on what you're seeing in Latin America in terms of the local economy, the demand profile and how the rest of the year may shake up there? And then in terms of Canada, you talked a little bit about gaining a little bit of market share. What segments could you point to? I apologize if you said that, but I'm just interested in where you may have gained share and the sustainability of that share throughout the balance of the year.

Alain Monié

Sure. I'll start with Latin America. What we're seeing, as you know, our presence is pretty strong in Mexico and Brazil, mainly. Although our operations in Chile are pretty good as well. But if you look at the 2 large engines there, in Brazil, we continue to see very strong growth on our operation. Of course, that is supported by the market that is still pretty healthy, but also our own execution that is -- I would call it excellent at this point, and we continue growing that business at large double-digit numbers. So very happy with that operation. And on the economic side of the country, we still see supporting growth. In Mexico, we have reported in the past couple of quarters quite some softness due mainly to the government spending having slowed down. What we have observed in the last quarter is that, although the government spending is still fairly slow in picking up, the consumer market has been -- has started to pick up. So we're seeing Mexico now turning a bit around on the consumer side, but still not very strong on the government spending.

Richard Kugele - Needham & Company, LLC, Research Division

And on Canada?

William D. Humes

Yes. Canada, good results from Canada. I mean, overall, I think, across multiple product segment areas they did very well, but with specific emphasis on the advanced computing, more value to add to that business. So we're pleased with Canada's results that they continue to demonstrate this year.

Richard Kugele - Needham & Company, LLC, Research Division

Okay. And then just lastly, Bill, on the -- just remind us, how much is left on the buyback? Not necessarily that you've been tapping into it, but how much is left?

William D. Humes

Yes. I believe it's $124 million remaining from our original $400 million authorization.

Operator

Next, we'll hear from Jim Suva with Citi.

Jim Suva - Citigroup Inc, Research Division

I have 2 questions. The first is, if I remember right, a little bit ago, you guys announced that you became an authorized company for IBM. If you could just update us in those -- in term of expectations? And authorization such as that takes 6 months or a year to get traction or immediate traction. I'm just kind of wondering how that relationship goes because it seems pretty optimistic for you guys and kind of what scale and scope that could be as far as regions, and could it be pretty material to you and all? And then my second question is, with the Windows XP expiration April 2014, do your businesses and your managers and your relations, are you seeing any type of pull forward of demand? Anything that we should be mindful of as we kind of start to see that April 2014, when it goes away, really isn't that far away?

Alain Monié

Sure. On the IBM front, it was indeed a very important milestone for us as part of building up our value businesses and higher-margin businesses. As you noted, it does take some time to build up the ecosystem around resellers getting up the ramp. It's a complex process for the resellers, which we are helping get the capabilities up and the solutions expertise on. So it's taking some time. And we started a few months ago, so it's still going to be a buildup and a ramp-up all into the first half of next year. As far as Windows XP, frankly, difficult to see at this stage what the market reaction or compensation of that will be in April. And frankly, we have little or no visibility into what could happen at that time. I think in Q1, we may have a better idea, but not at this stage.

Operator

And moving on we'll hear from Lou Miscioscia with CLSA.

Louis R. Miscioscia - CLSA Limited, Research Division

It's good to hear about Australia improving. I'm just wondering if you can comment about what you think about Australia going into 2014 given, obviously, fourth quarter would probably be a seasonally strong quarter. Would expect to be profitable, I guess, in the first half? And then I have a follow-up.

Alain Monié

Sure. Well, yes, we're on track, totally on track, to deliver a fourth quarter breakeven or slightly positive as we have been indicating all along this year. So we're happy with being totally on track on that improvement there. As far as looking at 2014, as you know, there are seasonalities quarter-to-quarter in Australia as everywhere else. Our objective is still to have, overall, for the whole year, Australia breakeven or profitable for next year. Now given the seasonality patterns, it could be that the first half is not there yet, but the second half should allow us to compensate and end up the whole year with breakeven or slightly profitable level.

Louis R. Miscioscia - CLSA Limited, Research Division

For 2014?

Alain Monié

Yes, for 2014.

Louis R. Miscioscia - CLSA Limited, Research Division

So only, really, modestly improving as you to get into next year even though it's a year out?

Alain Monié

Yes. And you have to know that the market in Australia is really not supporting high growth. If anything, some of the segments are in negative growth. And so it is all a matter of not leverage that we would be able to have, but more continuing the improvements in our systems. And as a result, our performance and cost basis.

William D. Humes

Lou, and just as an add-on for me, this is Bill. I mean, even breakeven for next year, which we don't -- we are targeting for profitability, obviously, but if you think about collectively through the 9 months of last -- around 10-ish million, a little bit less on operating profit and breakeven to profitable in the fourth quarter. So that's going to be at least a $10 million, plus whatever profit margin you think we can achieve in Australia for 2014 overall. So a good year-over-year additional result, I think. So we're pleased that where we're targeting in our trajectory for Australia now.

Louis R. Miscioscia - CLSA Limited, Research Division

Okay. That's helpful. And then maybe just, obviously, the IT situation hits you. I know that in the past you've talked about the different IT rollouts. Maybe -- can you just give us an update as to where you're going next and I guess, hopefully, obviously, I would expect a high-comfort level that perhaps [indiscernible] won't reoccur?

Alain Monié

Yes. As you know, we have -- all along this year, we have decided to concentrate 2013 in continuing our improvements to our systems in order to, not only add the functionalities that we needed, but also improve the profitability that is associated by much better efficiencies now. As you see in Australia, for instance, the improvements -- a good part of those improvements come from the improvement that our systems have been able to implement. Now we don't have the intention to rollout any other country this year for the fourth quarter. We prefer to concentrate on capturing the growth that comes with this quarter. And then we will reassess our deployment strategy for other countries next year.

Operator

[Operator Instructions] We'll hear next from Osten Bernardez with Cross Research.

Osten Bernardez - Cross Research LLC

Just to start, I wanted to clarify -- would you be able to comment on whether there was a change in the pricing environment from of a competitor standpoint in the third quarter versus the second quarter?

William D. Humes

Yes. Osten, it's Bill. I would say it continues to be pretty similarly competitive in the primary markets, Europe and North America. That market and those 2 markets are heightened competition. But I would say they didn't get worse, so it's stable but in a very heightened position. We just executed very well and we're very selective in the business that we took on.

Osten Bernardez - Cross Research LLC

Okay. And back to Brightpoint. Given how it -- where sales ended up for the quarter and the outlook you provided for the fourth quarter, is it fair to assume that you -- are you thinking that, that business definitely grows in 2014? And to what extent is growth, revenue growth, important to driving the accretion targets you have for that business for 2014?

Alain Monié

As it relates to the accretion targets, they are mostly related to achieving our cost synergies. And so they are not dependent on assuming any type of high growth in 2014 for that business. So that's why, again, Bill confirmed that we feel confident in achieving the targets that we have set to ourselves.

Osten Bernardez - Cross Research LLC

And how do we think about revenue growth for that business?

Alain Monié

Well, as you know, it's a combination of both distribution, as well as services. And so they both have a very different impact on the top line. But it's a business where you usually serve your customers best by having a mix of both distribution, as well as services. And so we are looking at growing the business based on those 2, 2 mixes, knowing that the services mix will not impact that much the top line, but it will continue to impact very positively our bottom line. So I'm not going to give any numbers as far as the growth for that piece for next year, but I would orient you towards looking at a mix of distribution, which does have an impact on the top line and services.

Osten Bernardez - Cross Research LLC

Helpful. And then lastly for me. With respect to Europe and considering taking actions there, obviously, you've been through several renditions of restructuring there. What can we expect to happen in the upcoming round of restructuring for parts of Europe? And what's your take on the timing to get that -- to get those margins up to where they used to be?

Paul Read

This is Paul. The European business environment is still very challenged, as you know. But we are working on adjusting the cost structure to fit this environment so we can get greater returns, where the profitability today is certainly not acceptable. But we also have to invest, and we are investing more in tools, resources, in the go-to market to enable us to have more higher value businesses and achieve more profitability. So that's definitely a plan for us. These activities that are ongoing right now that we have, both at a regional and a site level, that we've addressed the management structure, et cetera. And we have some underperforming assets that are there that we're focusing on. And so all of this will be ongoing through 2014. There's still also work to be done on the Brightpoint integration to achieve the returns that we've set out for themselves. So we should hopefully complete that as well in 2014. So if we pull all that together, I think that we'll be adjusting all about through this 2014 and improving the profitability as we go along. But I can't be any more specific than that at this stage.

Operator

Moving on we'll hear from David Ryzhik with Brean Capital.

David Ryzhik - Brean Capital LLC, Research Division

Actually, most of my questions were answered. Just a curious question regarding your recent agreement with MakerBot. If you can just talk about what the mechanics impacting the P&L and any other details regarding that agreement will be really helpful.

Alain Monié

So that's -- that type of business is very small as far as we compare that to the rest of our business. And so we are, at this stage, we are not sharing any of the impact. It's really -- but all I would say is it's a very small opportunity, for now. But one that we think in the future can really become very interesting given the technology associated with that.

Operator

Our last question today will come from -- a follow-up from Brian Alexander.

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

Yes. Did you guys confirm that you're also comfortable with the accretion target for Brightpoint for 2014? I know you talked about the $0.34 for this year, but I wasn't sure if you specifically said you're also very confident in the $0.51 for next year.

William D. Humes

Yes. Brian, it's Bill. Yes, if we didn't talk about that before, definitely, we continue to believe that the accretion is there, the accretion will deliver. We have lots of opportunities, both in the sense of the cost synergies that we make great progress on. As Paul just mentioned, there's still some activities in various different countries to integrate where we drive a lot of synergies going forward. And the business, actually, in itself is performing well, especially when it comes to winning services engagements and other distribution agreements. So all around, we actually feel pretty good about the next year's $0.51 accretion and obviously achieving this year's $0.34.

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

And Bill, could you -- you talked earlier in the prepared remarks about taking additional cost actions in Europe. Is that worth quantifying? And more important than that, I guess, when you look at the OpEx for this year, your SG&A has grown faster than your revenue dollars in every quarter and gross profit dollars for the first half, and I think you got a little bit of leverage in the third quarter on GP dollars. So question is, when would you start to see your overall OpEx grow more slowly than your revenue in GP dollars on a sustainable basis?

William D. Humes

Yes. I mean, obviously, Brian, I'll talk a little bit about it. But on the OpEx leverage piece of it, growth has some x factor on the overall leverage as you continue to invest in different areas of the business, as you continue to have kind of CPI increases with your labor force and so on. So the growth that we experienced with the pluses and minuses around the globe, that has one element on the overall OpEx ratio. That being said, as we continue to go through the year, we've demonstrated solid gross margin management, which has helped us get some leverage. Now, going forward, as we approach some of the alignment of cost structure and optimization of productivity both in Europe and elsewhere, we do have opportunities. And if -- when we have a little bit higher growth environment, that will be kind of coupled together giving even better growth -- margin leverage. But, Paul, if you wanted to add some perspective to Europe aspect of it.

Paul Read

Sure. I just think that we've got to make some adjustments -- we are making adjustments in the cost structure and efficiency and platforms that we have. But at the same time, we're making the investments like I talked about earlier for these value-added services. You've seen in North America over the last couple of years, we made investments to address these services businesses, and it's paying off. The margins are pretty good, and they're doing very well in a low-growth environment. So Europe has to move towards that model and some work to be done there. But I think that we'll be well on our way next year.

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

And then final one probably for Alain, and I don't know if you want to talk about this, Alain. But with SoftBank agreeing to buy a majority interest in your major competitor in the mobility business, Brightstar, could you talk about how you think that might affect the competitive landscape? What potential risk does that create from a customer standpoint? And also what potential opportunities?

Alain Monié

So I think the way you put the question is the right one, which is it's both risk and opportunities. We have an excellent relationship with Sprint and have had for many years. We continue to expect good business with them. But at the same time, given the association between SoftBank, Brightstar and Sprint, obviously, there is some risk there. But at the same time, what I would say is that other carriers out there who used to work with Brightstar may not feel as comfortable now. And so I think that, all in all, this is really a very good opportunity for us to continue growing our business there. So I think a combination, I see it more as an opportunity than a threat.

Operator

And Mr. Wright, at this time I'll turn the conference back to you for any additional or closing remarks.

Damon S. Wright

Thank you, Farah. And once again, thank you all for participating on today's call, and we look forward to the opportunity to sit down with many of you at upcoming conferences. Have a good evening.

Operator

Again, ladies and gentlemen, that does conclude today's conference. We do thank you, all for joining.

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