Synnex Corporation (SNX)

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Synnex Corporation (SNX)

F3Q08 Earnings Call

September 25, 2008 5:00 pm ET


Kevin Murai - Co-Chief Executive Officer

Thomas Alsborg - Chief Financial Officer

Dennis Polk - Chief Operating Officer

Laura Crowley - Director of Investor Relations


Matt Sheerin - Thomas Weisel

Brian Alexander - Raymond James

Ananda Baruah - Banc of America

Analyst for Richard Gardner - Citigroup

Richard Kugele - Needham & Company



Welcome everyone to the Synnex third quarter 2008 earnings conference call. (Operator Instructions). Ms. Crowley, you may begin your conference.

Laura Crowley

Welcome to the Synnex Corporation’s fiscal 2008 third quarter earnings conference call. Joining us on today’s call are 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 general economic condition and any weakness in IT spending, the loss or consolidation of one or more of our significant OEM suppliers or customers, market acceptance and product life of the products we assemble and distribute, competitive conditions in our industry and their impact on our gross margin, price, margin, and other terms with our OEM suppliers, our ability to gain market share, variations in supplier sponsored program, changes in our cost, and operating expenses, changes in foreign currency exchange rate, risks associated with our international operations, uncertainties and variability in demand by our reseller and contract assembly customers, supply shortages or delays, any termination or reduction in our floor plan financing arrangements, credit exposure to our reseller customers, and negative trends to their businesses, and risks associated with our contract assembly business.

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 our documents filed with the Securities and Exchange Commission, specifically our most recent Form 10Q filed in July of this year. 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. In addition, any use of the word pro 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’d would like to turn the call over to Thomas Alsborg for a recap and comments on our financial performance.

Thomas Alsborg

I’m going to begin by summarizing our results of operations for the quarter

Revenues for the third quarter 2008 were $2.05 billion dollars, a 16% increase over the third quarter of 2007 and a 9% increase sequentially. These revenue results exceeded both our Q3 guidance and Wall Street projections.

Growth from acquisitions contributed approximately 14% points on a year-over-year basis. We believe our growth in revenue on an organic basis is attributed to market share wins resulting from our strong execution in the marketplace and our ability to drive down costs for our customers.

Our third quarter net income was $22.15 million dollars or $0.66 per diluted share. This again surpassed the high end of our guidance and came in well above analysts projections for the period. These results equate to a net income margin of 108 basis points, a record high for Synnex, compared to 82 basis points in the same quarter last year. This also represents a 32% increase in net margin year-over-year.

Our gross margin also set a record high of 5.52%, representing an increase of approximately 34 basis points compared to the same quarter prior year.

With the higher achievement of revenue, we realize increased leverage over our costs along with a greater margin and profitability. Additionally, resulting from our revenue performance, we were also able to maximize our variable incentives, which contributed to our margin improvement.

We remain diligent on improving all aspects of our gross margin, including freight and we have good success in our execution so far. During the quarter, we benefited from the timing of accumulation of regular periodic operation activities, as well as an additional benefit from the growth in our business outsourcing services. In addition, work we began several quarters ago to maximize efficiencies and control cost associated with freight and shipping is now paying off. Thus, as you can see, with our increased market share, our ability to leverage and control our cost structure across the organization, along with earned incentives and realized efficiencies, we more than offset any market pressures associated with the soft economy.

Third quarter 2008 selling, general and administrative expense was $73.4 million dollars or 3.59% of revenues compared to $66.7 million or 3.79% in the third quarter of fiscal 2007 and $69.1 million or 3.68% in Q2 fiscal 2008.

Synnex has done a good job of managing our SG&A costs while continuing to scale our business.

Income from operations was $39.5 million or 1.03% of revenue, a healthy increase and another record for Synnex compared to $24.5 million or 1.39% of revenues over the prior year results and $31.7 million or 1.69% of revenues on a sequential basis.

Our operating expense primarily is the primary focus for Synnex and we have established a very good track record of operating margin expansion over the last two years. This is driven by our strong execution and efficient leverage of our revenue growth and gains in market share. Growth in our BPO business, contributions from NAE, and a healthy back-to-school demand from our consumer electronic offerings.

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