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SYNNEX Corporation (SNX)
F2Q08 Earnings Call
June 26, 2008 5:00 pm ET
Robert Huang - President and Chief Executive Officer
Kevin Murai, Co-Chief Executive Officer
Thomas Alsborg - Chief Financial Officer
Dennis Polk - Chief Operating Officer
Laura Crowley - Director of Investor Relations
Richard Kugele - Needham & Company
Bob Guindyke - Raymond James
Ananda Baruah - Banc of America
Richard Gardner - Citigroup
Aaron Burnham - Thomas Wiesel
Previous Statements by SNX
» SYNNEX F3Q09 (Qtr End 8/31/09) Earnings Call Transcript
» Synex Corporation Q4 2008 (Qtr End 11/30/08) Earnings Call Transcript
» Synnex Corporation F3Q08 (Qtr End 08/31/08) Earnings Call Transcript
Welcome to the SYNNEX Corporation’s fiscal 2008 second quarter earnings conference call. Joining us on today’s call are Bob Huang, President and Co-Chief Executive Officer, Kevin Murai, Co-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, are 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 acquisition and integration of New Age Electronics, the seasonality of our business, growth of our consumer electronics division, expectations of our revenues, gross margins, SG&A, net income, earnings per share, work in capital, return on invested capital and our cap cycle, the impact of the general economy on our business, the softness of the market, our IT systems, our growth and profitability, planned liquidity, the benefits of our recent convertible bond offering, future benefits derived from our recent acquisitions and management changes.
These statements 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 the documents filed with the Securities & Exchange Commission, specifically our most recent Form 10-K 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. Also, any use of the word per forma refers to figures that are non-GAAP.
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 would like to turn the call over to Thomas Alsborg for a recap and comments on our financial performance.
I am going to begin by summarizing our results of operations for the quarter, but before I do, I would like to highlight that during the quarter, we acquired substantially all the assets of New Age Electronics, a U.S. consumer electronics distribution company. New Age had over $900 million in 2007 and though not all of this is expected to be retained, New Age is one of the largest acquisitions SYNNEX has undertaken. The transaction closed on April 1, contributing approximately nine weeks of operating results to our quarter.
With regard to the new business, our primary focus for the quarter was to ensure that we quickly and successful New Age into SYNNEX with minimal impact to our customer and our vendors. I’m pleased to tell you that we have now substantially completed this. Although the incurred incremental cost to expedite the integration the acquisition was modestly accretive to the quarter as expected. Finally, I also ask our listeners to keep in mind that on May 31 our balance sheet included substantially all of the assets and liabilities of New Age, while our P&L had only the nine weeks of New Age operations contribution. This of course will skew our calculated results for the balance sheet metrics such as our cash-to-cash cycle and return on invested capital. I’ll explain this more during the presentation of our results.
Now I’d like to summarize our result of operations for the quarter. Revenues for the second quarter of 2008 were $1.88 billion an 11% increase over the second quarter of 2007 and a 7% increase sequentially. These revenue results are in line with our Q2 guidance which was increased in April on the first to reflect the expected contribution from the New Age acquisition.
Our second quarter net income was $18.5 million or $0.56 per diluted share. This is above analysis consensus and surpassed the high end of our New Age adjusted increase guidance. These results equate to a net income margin of 99 basis points, compared to 88 basis points in the same quarter last year and represents a 14% increase in net margin quarter-over-quarter.
Gross margin was 5.37%, representing an increase of approximately 37 basis points compared to the same quarter in the prior year. Our healthy gross margin is driven by good pricing discipline as well as the impact of our emerging business process services model. These factors have more than offset the market pressures with the soft economy.
Our gross margin was down slightly compared to our Q1 margin of 5.48%, primarily due to two forms of revenue mix. The first is a mix between our distribution and our non-distribution business. With the acquisition of New Age, our mix of distribution business to BPO business increased, thereby slightly bringing down the weighted average gross margin.
The second form of mix was primarily driven by seasonality of our Canadian business in which our consumer electronics and retail business, which has a higher gross margin in Canada, declined as a percentage of our overall revenue mix. And finally, to a lesser extent, customer competitive pricing also modestly impacted our second quarter gross margin compared to the previous quarter.