Bell Micro: Fiscal 4Q09 Financial Results

Bell Microproducts, Inc. announced its financial results for the three and twelve months ended December 31, 2009.

Net sales in the fourth fiscal quarter of 2009 were $837.0 million, an increase of 9% compared to both the third quarter of 2009 and the fourth quarter of 2008. Net income for the fourth fiscal quarter of 2009 was $12.9 million, or $0.40 per diluted share, compared to net income of $1.7 million, or $0.05 per diluted share in the prior quarter, and a net loss of $(33.5) million, or $(1.04) per share in the fourth quarter of 2008. On a non-GAAP basis, the Company generated net income of $9.1 million, or $0.28 per diluted share in the fourth fiscal quarter of 2009, as compared to non-GAAP net income of $4.2 million, or $0.13 per diluted share in the prior quarter and a non-GAAP net loss of $(16.4) million, or $(0.51) per share, in the fourth quarter of 2008.

"We are pleased to report significantly improved profits and fundamentals in the fourth quarter as we concluded a year full of accomplishments," said W. Donald Bell, President and CEO. "Sales increased in each major geography as market conditions improved and we executed against our goals. We were particularly encouraged by Europe, where sales increased 14% compared to same quarter last year and 17% sequentially. With our sales growth, solid margins and lower expenses, we generated significant sequential increases in our GAAP and non-GAAP profits. Our 2010 focus is on further improving our execution and shareholder returns."

Key Financial Highlights for the Fourth Quarter of 2009:

• Net sales were $837.0 million, up 9% compared to the third fiscal quarter of 2009.
• Selling, general and administrative expenses (excluding professional fees) were down 25% and professional fees were down 76% from the fourth quarter of 2008.
• The Company reported operating income of 2.1% of sales and net income of $12.9 million ($0.40 per diluted share).
• Non-GAAP net income was $9.1 million ($0.28 per diluted share), up from $4.2 million ($0.13 per diluted share) in the third quarter of 2009.
• Working capital, defined as current assets less current liabilities, increased 14% to $152 million, and the cash conversion cycle declined from 41 days to 40 days, compared to September 30, 2009.
• In September 2009, the Company became current with its SEC filing requirements, and in early 2010: the Company’s shares became relisted on The NASDAQ Global Market under the symbol BELM, and the Company announced that the SEC investigation concerning its accounting and financial reporting matters had been completed and that no enforcement action was recommended.

Non-GAAP results reflect the exclusion of various non-cash and other charges and credits from the Company’s reported GAAP results as detailed in the attached supplemental reconciliation table, including the following recorded in the fourth quarter of 2009:

• a $3.2 million credit recorded upon a contract settlement, and
• net tax credits of $8.6 million to reverse a portion of the valuation allowance previously recorded on certain deferred tax assets.

Net Sales and Product Mix by Region
The following is a comparison of the Company’s net sales and product mix for the fourth quarter of 2009 in each of its three major geographic regions:

• North American net sales were $354.0 million (42% of total revenues), a sequential increase of 4%. The sales growth was primarily fueled by an improved market for storage components, improved execution of semiconductor sales and continued growth in value-added products and services. Compared to the fourth quarter of 2008, North American net sales increased 1%.
• European region net sales were $351.7 million (42% of total revenues), a sequential increase of 17% (16% in constant currency), primarily attributable to an improved market for storage components, a seasonal increase in enterprise product sales and a strengthening of foreign currencies in relation to the US dollar. Compared to the fourth quarter of 2008, European net sales increased 14% (5% in constant currency).
• Latin American net sales were $130.8 million (16% of total revenues), a sequential increase of 6% (5% in constant currency). Compared to the fourth quarter of 2008, Latin American net sales increased 19% (13% in constant currency) due to an improved market for semiconductor products and storage components.

The following is a net sales breakdown for Bell Micro’s major categories of products and services for the fourth fiscal quarter:

• The Components and Peripherals category, which represented 46% of net sales, increased 16% sequentially and increased 27% compared to the comparable quarter of 2008. Disk drive sales increased 16% from both comparable prior periods, primarily in Europe and North America, and primarily due to stabilized unit pricing and a favorable product mix. Disk drive sales represented 26% of total net sales. Also contributing to the growth in Components and Peripherals was increased sales of certain semiconductor products, primarily in Latin America.
• The Solutions category increased 5% sequentially to represent 54% of total net sales in the fourth quarter of 2009. The sequential increase was primarily due to higher sales of software licenses in Europe and higher sales of computer platform products, primarily in North America. Solutions sales declined by nearly 3% compared to the fourth quarter of 2008.

Fiscal 2009 Overview
Annual net sales for 2009 were $3.0 billion, a 16% decrease from net sales for 2008. Net income for 2009 was $7.5 million, or $0.23 per diluted share, as compared to a net loss of $(82.5) million, or $(2.55) per share, in 2008. Non-GAAP net income generated in 2009 was $16.4 million, or $0.50 per diluted share, as compared to a non-GAAP net loss of $(23.0) million, or $(0.71) per diluted share, in 2008.

Balance Sheet
The Company’s key balance sheet metrics as of December 31, 2009, as compared to December 31, 2008, are as follows:

• Total debt declined 8% to $350 million, and the Company is in compliance with all financial covenants of its banking agreements;
• Working capital, defined as current assets less current liabilities, increased 30% to $152 million and the cash conversion cycle declined from 46 days to 40 days;
• Accounts receivable increased 1% to $435 million and days sales outstanding declined from 50 days to 47 days;
• Inventory increased 28% to $296 million and accounts payable and cash overdraft increased 31% to $361 million due to opportunistic purchases of storage components late in the quarter.

First Quarter 2010 Outlook
Management anticipates first quarter 2010 sales of $780 million to $815 million, an increase of 9% to 14% from the first quarter of 2009. Further, based upon foreign currency exchange rate changes to date, we anticipate first quarter currency losses of approximately $3 to $4 million.