Yesterday after market close, Brightpoint Inc. (CELL) declared robust financial results for the second quarter of 2011. Quarterly total revenue was $1,234.9 million, an improvement of 57% year over year, significantly surpassing the Zacks Consensus Estimate of $1,086 million. In the second quarter of 2011, the company managed 26.93 million wireless devises, up 21% year over year. This fabulous performance was primarily attributable to a massive growth of the Distribution business supported by increasing demand for smartphones and tablets, which have higher average selling price and an improvement in supply-chain management system.
Quarterly GAAP net income from continuing operations was $11.8 million or 18 cents per share compared with a net income of $7.3 million or 10 cents per share in the prior-year quarter. However, adjusted (excluding special items) EPS in the reported quarter was 21 cents, miles ahead of the Zacks Consensus Estimate of 15 cents.
Segment wise, Distribution revenue was $1,092 million in the second quarter of 2011 compared with $713.1 million in the year-ago quarter. Logistics Services revenue was $142.9 million compared with $75.6 million in the prior-year quarter.
In the reported quarter, on a GAAP basis, gross margin was 7.5% compared with 9% in the prior-year quarter. SG&A expenses were $69.5 million compared with $53.7 million in the year-ago quarter. The increase in expense was primarily attributable to the settlement of a separation agreement between Brightpoint and its former CFO and also the acquisition of Touchstone Wireless.QuarterlyEBITDA came in at $27.2 million compared with $16.8 million in the year-ago quarter.
During the first half of 2011, Brightpoint used $19.1 million of cash for operations compared with $18.7 million in the year-ago period. Free cash flow (cash flow from operation less capital expenditure) in the first half of 2011 was a negative $56.8 million compared with a negative $28.4 million in the prior-year period.
At the end of the second quarter of 2011, Brightpoint had $23.8 million of cash & marketable securities on its balance sheet compared with $41.7 million at the end of 2010. Total debt was $145.2 million at the end of the reported quarter compared with $90.4 million at the end of 2010. Debt-to-capitalization ratio, at the end of the second quarter of 2011, was 0.33 compared with 0.29 at the end of 2010.
Future Financial Outlook
For fiscal 2011, management expects to manage wireless devices within the range of 111 million – 114 million, up 12% – 15% year over year. GAAP EPS will be within the range of 64 cents to 74 cents. Non-GAAP EPS will be within the range of 95 cents to $1.05. Stock-based compensation will be 31 cents per share. Capital expenditure will be within the range of $59 million – $63 million, up 40%-50% year over year.
Our Take
The business fundamentals of Brightpoint remain intriguing. Galloping demand for high-end smartphones and tablets throughout the world will drive the company’s valuation level higher in the near future. We believe the negative consequences of the proposed merger between AT&T (T) and T-Mobile USA are already reflected in the current valuation. We maintain our long-term Outperform recommendation on Brightpoint. Currently, it holds a short-term Zacks Rank #1 (Strong Buy) on the stock.
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