Synnex Corporation (SNX)

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Synex Corporation (SNX)

Q4 2008 Earnings Call

January 8, 2009 5:00 pm ET


Kevin Murai – President & CEO

Thomas Alsborg - CFO

Dennis Polk - COO

Laura Crowley - Director IR


Brian Alexander - Raymond James

Richard Gardner - Citigroup

Matt Sheerin - Thomas Weisel



I would like to welcome everyone to the Synnex fourth quarter and year-end earnings conference call. (Operator Instructions) Ms. Laura Crowley, you may begin your conference.

Laura Crowley

Good afternoon and welcome to the Synnex Corporation’s fiscal 2008 fourth quarter earnings conference call. Joining us on today’s call are Kevin Murai, President, and Chief Executive Officer, Dennis Polk, Chief Operating Officer, and Thomas Alsborg, Chief Financial Officer.

Before we begin I would like to note that the statements on today’s call, which are not historical facts, may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

These forward-looking statements include, but are not limited to, statements regarding our strategy, including growth, profitability, investments, and business expansion, expectations of our operating expense, sales, revenues, net income, and earnings per share for the first quarter of fiscal 2009, our debt to capital ratio, flexibility, efficiency, and benefits of our business model, market conditions, our expectations for our operating margins, and profitability and our ROIC.

These are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in these forward-looking statements.

Please refer to today’s press release and documents filed with the Securities and Exchange Commission, specifically our most recent Form 10-Q for more information on some of the risk factors that could cause actual results to differ materially from those discussed in these forward-looking statements.

Additionally, this conference call is the property of Synnex Corporation and may not be recorded or rebroadcast without specific written permission from the company.

Now I’d would like to turn the call over to Thomas Alsborg for an update on our financial performance.

Thomas Alsborg

Thank you Laura, good afternoon everyone and thank you for joining our call today. I’ll begin by summarizing our results of operations for the quarter with our key financial metrics and then I will provide some further details on our results.

Total revenues for the fourth quarter of 2008 were $2.1 billion, a 6.4% increase over the fourth quarter of 2007, and a 2.5% increase sequentially. Relative to the third quarter of 2008 in constant currency revenue for the fourth quarter of 2008 would have improved by $42 million.

As for the bottom line fourth quarter net income was $26.4 million or $0.80 per share surpassing Wall Street consensus of the $0.71 per share. ROIC rose to 10.6% achieving our stated goal of double-digit ROIC levels in the fourth quarter.

I’d like to take a moment to call out that at the beginning of the year we stated that achieving acquisition adjusted year-over-year EPS growth in excess of 20% and double-digit ROIC by the fourth quarter of 2008 were our two main financial objectives and I am very pleased to report to our investors and perspective investors that Synex achieved both of these goals in the midst of what we now know is a recession.

This accomplishment is significant as it reinforces that Synex business model is very flexible and efficient and that our company of hard working and talented employees remain able to deliver our corporate objectives.

Now I will go into the more specific line item details of our results. In the fourth quarter of fiscal 2008 our gross margin once again expanded significantly to reach 5.84%. This represents an increase of 49 basis points compared to the prior fourth quarter and an increase of 32 basis points sequentially.

Once again our core distribution business and our other business process services both contributed to our increased gross margin for the fourth quarter illustrating the continuing success of delivering an increased value added services to our partners.

This is core to our strategy of transitioning our business model to an integrated business process services company. Also solid efficient execution of the business plan is part of the reason why we achieved a company wide gross profit to expense ratio of 1.64 in the fourth quarter, up 10 basis points from our third quarter.

Fourth quarter 2008 selling, general and administrative expense was $74.5 million or 3.55% of revenues compared to 3.48% in the fourth quarter of fiscal 2007 and 3.59% sequentially. SG&A benefited by a reduction in deferred compensation liability as we account for unrealized losses totaling $3.7 million in our other income expense line of the P&L.

As a reminder unrealized gains and losses on deferred comp instruments are offset against the deferred comp liability and hence have no bottom line impact to the P&L. Going forward we intend to continue to manage our SG&A expense relative to our gross profit and the demand environment while being careful not to disrupt the business development and investment activities that can provide additional profitable growth opportunities for Synex.

Income from operations was a record $47.9 million for 2.28% of revenue for the fiscal fourth quarter compared to $36.9 million or 1.87% of revenues in the prior year and $39.5 million or 1.93% of revenues in the fiscal third quarter of 2008.

This represents a virtual string of nine consecutive quarterly operating margin expansions that have resulted in an impressive operating margin growth trend for the company. With respect to net interest expense finance charges and other expenses, the total for the fourth quarter of 2008 was $8.4 million, a $4.2 million increase from the prior year quarter of $4.2 million.

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