Synnex Corporation (SNX)

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SYNNEX Corporation (SNX)

F3Q09 Earnings Call

September 21, 2009 5:00 pm ET

Executives

Laura Crowley - Director, Investor Relations

Thomas C. Alsborg - Chief Financial Officer

Kevin M. Murai - President, Chief Executive Officer, Director

Analysts

Bryan Alexander - Raymond James

Matt Huron - Thomas Weisel Partners

Asha Wu - Kaufmann Brothers

Presentation

Operator

Good day, ladies and gentlemen, and welcome everyone to the SYNNEX fiscal 2009 third quarter earnings conference call. (Operator Instructions) And now, ladies and gentlemen, without further delay, it is with great pleasure that I introduce the host of today’s conference, Ms. Laura Crowley.

Laura Crowley

Thank you, Donnie. Good afternoon and welcome to the SYNNEX Corporation’s fiscal 2009 third quarter earnings conference call. Joining us on today’s call are Mr. Kevin Murai, President and Chief Executive Officer; Mr. Dennis Polk, Chief Operating Officer; Mr. Thomas Alsborg, Chief Financial Officer; and Mr. Chris Caldwell, Senior Vice President and General Manager, Global Business Services.

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 investments in strategic areas, growth, market share, profitability and returns, expectations for our fourth quarter of fiscal 2009, including operating expenses, sales, revenues, net income and earnings per share, our performance, benefits of our business alliances, benefits of our business model, market conditions, our expectations for our operating margins, profitability, and our ROIC, and our Canadian securitization program. 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 information on 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 like to turn the call over to Thomas Alsborg for an update on our financial performance.

Thomas C. Alsborg

Thank you, Laura. Good afternoon, everyone. Thank you for joining our call today. Once again, the SYNNEX team did an outstanding job on delivering solid results for the third quarter. We have surpassed Wall Street consensus on revenue, net income, and EPS for the quarter and we took another significant step forward in expanding year over year ROIC.

I will provide additional information on our results of operations for the quarter highlighting our key financial metrics and then I will provide guidance for our fiscal fourth quarter.

Our total consolidated revenues were $2.01 billion compared to an average Wall Street estimate of $1.87 billion. This is a 10.8% increase sequentially and better than expected, especially in light of the economy. Compared to the year ago quarter, our revenue was down just 1.9%, much less than industry-wide projections of double-digit year-over-year declines.

Our strong revenue was driven by most all of our business units but especially in certain lines of our core business, including some higher velocity business with certain longstanding customers.

Our third quarter net income was $23.1 million, or $0.67 per diluted share, handily surpassing average Wall Street estimates of $0.61 due to the better revenue generation and our continued focus on cost controls.

ROIC was 8.9% for the first fiscal third quarter of 2009, up from 8.3% in the third quarter of 2008, continuing our virtual string of year-over-year ROIC growth improvements for the past eight quarters.

Our consolidated gross margin was 5.54%, up from 5.52% compared to the year-ago quarter and 33 basis points less than fiscal Q2 2009. Our gross profit reflects the healthy demand we’ve experienced and the margin is slightly skewed by the mix of our business this quarter, reflecting the better-than-expected demand that I mentioned earlier.

Our fiscal third quarter of 2009 selling, general and administrative expense was $71.9 million, or 3.58% of revenues compared to $73.4 million, or 3.59% in the third quarter of 2008, and $74.7 million, or 4.12% sequentially.

Fiscal Q3 2009 SG&A dollars were lower relative to Q2 2009 primarily due to fewer reserves for bad debt and also lower liabilities accrued for deferred compensation expense compared to Q2 2009. However, our Q3 results did include an additional true-up restructuring expense accrual of about $630,000 taken for our previously restructured Mississauga facility in Canada.

Income from operations was $39.3 million, or 1.96% of revenues for the fiscal third quarter compared to $39.5 million, or 1.93% of revenues in the prior year same quarter, and $31.7 million, or 1.75% of revenues in the fiscal second quarter of 2009.

This more than 20 basis point increase in sequential operating margins represents a $7.6 million increase in operating income from the second quarter and was the net result of our continued market share wins and strong demand, coupled with lower SG&A expense.

As always, we remain committed to our path of long-term operating margin improvements through margin expansion and good cost management.

With respect to net interest expense, finance charges, and other expenses, the net total interest expense and finance charges for the fiscal third quarter of 2009 were $3.1 million, about flat compared to a year ago quarter, same quarter. The effective tax rate for the fiscal third quarter of 2009 was 36.8% compared to 35.9% in the fiscal third quarter of 2008. Our third quarter tax rate reflects an accrual related to the expiration of the tax holiday in one of our foreign locations which is expected to be renewed, as well as some increased tax valuation allowances.

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