Ingram Micro Inc. (IM)

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Ingram Micro (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 MoniƩ - 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

Presentation

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 MoniƩ, 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.

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