Bell Micro: Fiscal 3Q09 Financial Results

Bell Microproducts, Inc. announced its financial results for the three and nine months ended September 30, 2009.

Net sales in the third fiscal quarter of 2009 were $765.2 million, an increase of 9% as compared to the second fiscal quarter of 2009 and a decrease of 13% as compared to the third quarter of 2008. Net income for the third fiscal quarter was $1.7 million, or $0.05 per diluted share, as compared to a net loss of $(3.0) million, or $(0.10) per share in the second fiscal quarter of 2009, and a net loss of $(28.3) million, or $(0.87) per share, as compared to the third quarter of 2008. On a non-GAAP basis, the Company generated net income of $3.0 million, or $0.09 per diluted share in the third fiscal quarter of 2009, as compared to non-GAAP net income of $1.1 million, or $0.03 per diluted share in the second fiscal quarter of 2009 and a non-GAAP net loss of $(7.7) million, or $(0.24) per share, as compared to the third fiscal quarter of 2008.

"We are pleased with the improvement in our revenue and profitability for the quarter," said W. Donald Bell, President and CEO. "The sequential sales growth of 9% was the strongest quarterly growth we have experienced recently and was primarily the result of increased demand for our products combined with excellent execution by our team. Sales increased in both our distribution and single-tier businesses in North America and we are experiencing what we believe is a firming of the market in both Europe and Latin America. We are approaching 2010 with increased market optimism, a revitalized management team and a more streamlined company focused on growing our business profitably."

Key Financial Highlights as of the Third Quarter of 2009

• Net sales were $765.2 million, up 9% as compared to the second fiscal quarter of 2009.
• Selling, general and administrative expenses (excluding professional fees) were down 23% and professional fees were down 83% from the third quarter of 2008.
• The Company reported net income of $1.7 million ($0.05 per diluted share).  
• Non-GAAP net income was $3.0 million ($0.09 per diluted share), up from $1.1 million ($0.03 per diluted share) in the second quarter of 2009.
• Working capital, defined as current assets less current liabilities, increased 15% to $134.1 million, and the cash conversion cycle declined from 46 days to 41 days, as compared to December 31, 2008.
• The Company became current with its Securities and Exchange Commission filings in September 2009.

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.

Net Sales and Product Mix by Region
The following is a comparison of the Company’s net sales and product mix for the three months ended September 30, 2009 in each of its three major geographic regions:

• North American net sales were $342.0 million (45% of total revenues), a sequential increase of 19%. The sales growth was primarily fueled by stronger single-tier sales in enterprise storage, and computing products and stronger distribution sales of storage components and systems. Compared to the third quarter of 2008, North American net sales decreased 7% primarily due to the impact of the region’s weakened economy.  
• European net sales were $299.6 million (39% of total revenues), a sequential increase of 2%. Compared to the third quarter of 2008, European net sales decreased 13%.  European net sales decreased approximately 8% in constant currency as compared to the third quarter of 2008.  
• Latin American net sales were $123.6 million (16% of total revenues), a sequential increase of 1%. Compared to the third quarter of 2008, Latin American net sales decreased 27%.Latin American net sales declined 24% in constant currency as compared to the third quarter of 2008.

The following is a net sales breakdown for Bell Micro’s major categories of products and services for the three months ended September 30, 2009:

• The Components and Peripherals category increased 7% sequentially and represented 43% of net sales. Compared to the third quarter of 2008, sales declined by 18%. Disk drive sales increased 13% from the prior quarter due to an improved demand, primarily in North America, and more stabilized unit pricing. Disk drive sales, which represented 25% of total net sales, decreased 19% as compared to the third quarter of 2008.  
• The Solutions category increased 10% sequentially to represent 57% of total net sales in the third quarter of 2009. The sequential increase was primarily due to an improved demand, primarily in North America. Solutions sales declined by 9% as compared to the third quarter of 2008. 

Year-to-Date Financial Overview
Year-to-date net sales through September 30, 2009 were $2.2 billion, a 22% decrease from the comparable period of the prior year. The year-to-date net loss was $(5.4) million, or $(0.17) per share, as compared to a net loss of $(49.0) million, or $(1.51) per share, in the comparable period of 2008. Year-to-date non-GAAP net income through September 30, 2009 was $8.2 million, or $0.25 per diluted share, as compared to a year-to-date non-GAAP net loss of $(1.2) million, or $(0.04) per diluted share, in the comparable period in 2008.

Balance Sheet
The Company’s key balance sheet metrics as of September 30, 2009, as compared to December 31, 2008, are as follows:

• Total debt declined 8% to $353.9 million, while cash increased 7% to $24.4 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 15% to $134.1 million and the cash conversion cycle declined from 46 days to 41 days;
•  Accounts receivable declined 6% to $411.6 million and days sales outstanding declined from 52 days to 48 days; and
• Inventory increased 2% to $235.8 million and days of inventory on hand remained constant at 31 days.

Fourth Quarter of 2009 Outlook
Management anticipates the following for the fourth quarter of 2009 when compared to the third quarter of 2009:

• a sales increase of 4% to 7%;
• a slight decline in gross margins;
• a decline in operating expenses of 2% to 4%; and
• a slight increase in interest expense due to increased average borrowings to fund growth.