07.08.2007 20:21:00

Insight Enterprises, Inc. Reports Second Quarter Results

Insight Enterprises, Inc. (Nasdaq: NSIT) (the "Company”) today reported results of operations for the three months ended June 30, 2007. Second Quarter Highlights Net sales increased 64% to $1.28 billion. Gross profit grew 81% to $184.8 million. Net earnings from continuing operations increased 77% to $26.8 million. Diluted EPS from continuing operations grew 74% to $0.54, the highest in the Company’s history. Outstanding debt reduced by $60.0 million during the quarter. Completed financial restatement and filings with the Securities and Exchange Commission ("SEC”). Q2 2007 results include expenses of $4.3 million, $2.6 million net of tax, for professional fees associated with our stock option review. Q2 2007 results include severance expenses of $2.8 million, $1.7 million net of tax. North America net sales increased 39% and gross profit increased 58%, while earnings from operations increased 54%. EMEA net sales increased 188% and gross profit increased 159%, while earnings from operations increased 297%. "I am very pleased to announce that Insight posted a record quarter with breakthrough financial results across all operating segments,” said Rich Fennessy, President and Chief Executive Officer. "Seasonally, this is our strongest quarter of the year for sales of software, but we also benefited from very strong results from our hardware and services categories.” FINANCIAL SUMMARY TABLE (IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)       Three Months Ended June 30 Six Months Ended June 30 Insight Enterprises, Inc. 2007 2006 % change 2007 2006 % change Net sales $ 1,283,449 $ 780,346 64 % $ 2,407,424 $ 1,513,170 59 % Gross profit $ 184,813 $ 102,146 81 % $ 337,988 $ 199,252 70 % Earnings from operations $ 43,649 $ 22,612 93 % $ 67,066 $ 43,613 54 % Operating margin 3.4 % 2.9 % 0.5 % 2.8 % 2.9 % (0.1 %) Net earnings from continuing operations $ 26,809 $ 15,169 77 % $ 39,105 $ 28,611 37 % Diluted EPS from continuing operations $ 0.54 $ 0.31 74 % $ 0.79 $ 0.59 34 % Net earnings $ 26,809 $ 25,887 4 % $ 44,077 $ 40,711 8 % Diluted EPS $ 0.54 $ 0.53 2 % $ 0.89 $ 0.84 6 %   North America Net sales $ 923,899 $ 665,023 39 % $ 1,701,100 $ 1,277,902 33 % Gross profit $ 134,189 $ 84,723 58 % $ 246,105 $ 164,231 50 % Earnings from operations $ 30,256 $ 19,696 54 % $ 47,402 $ 37,149 28 %   EMEA Net sales $ 331,903 $ 115,323 188 % $ 659,279 $ 235,268 180 % Gross profit $ 45,040 $ 17,423 159 % $ 83,511 $ 35,021 138 % Earnings from operations $ 11,570 $ 2,916 297 % $ 18,030 $ 6,464 179 %   APAC Net sales $ 27,647 - - $ 47,045 - - Gross profit $ 5,584 - - $ 8,372 - - Earnings from operations $ 1,823 - - $ 1,634 - - Effective Tax Rate Our effective tax rate from continuing operations for the three months ended June 30, 2007 was 38.5% compared to 34.8% for the three months ended June 30, 2006. The increase in the effective tax rate from continuing operations was due primarily to a tax benefit recorded in the three months ended June 30, 2006 for internal initiatives that reduced certain state income taxes. Additionally, the effective tax rate is higher in the three months ended June 30, 2007 due to an increase in non-deductible expenses related to executive compensation. OPERATING SEGMENTS We operate in three reportable geographic operating segments: North America; EMEA (Europe, the Middle East and Africa); and APAC (Asia-Pacific). Currently, our offerings in North America and the United Kingdom include brand-name IT hardware, software and services. Our offerings in the remainder of our EMEA segment and in APAC currently only include software and select software-related services. North America North America’s net sales for the three months ended June 30, 2007 increased 39% to $923.9 million, compared to net sales of $665.0 million for the three months ended June 30, 2006, due primarily to the acquisition of Software Spectrum on September 7, 2006. "Our North America segment achieved very strong results in what is typically our strongest quarter of the year for sales of software,” said Fennessy. "However, the quarter was not all about software, as we were pleased with the results contributed by hardware and services as well.” For the three months ended June 30, 2007, our North American gross profit increased 58% to $134.2 million from $84.7 million for the three months ended June 30, 2006. North America’s gross profit as a percentage of net sales was 14.5% for the three months ended June 30, 2007, compared to 12.7% for the three months ended June 30, 2006. "The increase in gross profit as a percentage of net sales from the second quarter of 2006 was due primarily to increases in agency fees for Microsoft enterprise software agreement renewals, decreases in inventory write-downs due to improvements in the aging of inventories and increases in the sales of services. These increases were offset partially by decreases in product margins, which includes vendor funding,” said Stanley Laybourne, Chief Financial Officer. North America’s selling and administrative expenses were 10.9% of net sales for the three months ended June 30, 2007, compared to selling and administrative expenses as a percentage of sales of 9.8% for the three months ended June 30, 2006. "Compared to Q2 2006, we have seen increases in salaries and wages, primarily resulting from the acquired business, professional fees associated with our stock option review, sales incentive plans and bonus expenses due to increased overall financial performance and amortization of intangible assets,” Laybourne said. North America’s selling and administrative expenses for the three months ended June 30, 2007 include expenses of approximately $4.1 million for professional fees associated with our stock option review. Additionally, North America recorded $2.8 million of severance expenses during the three months ended June 30, 2007. North America’s earnings from operations for the three months ended June 30, 2007 increased 54% to $30.3 million from $19.7 million for the three months ended June 30, 2006. North America’s earnings from operations as a percentage of net sales increased to 3.3% for the three months ended June 30, 2007 from 3.0% for the three months ended June 30, 2006. EMEA EMEA’s net sales for the three months ended June 30, 2007 increased by 188% to $331.9 million, compared to net sales of $115.3 million for the three months ended June 30, 2006. "Our EMEA segment capitalized on the strongest quarter for software sales and achieved very solid results across all regions,” said Fennessy. "Additionally, our United Kingdom operations continue to benefit from a combined solution offering and posted strong results across the hardware, software and services categories.” In Q2 2007, our EMEA gross profit was $45.0 million, a 159% increase over the prior year. EMEA’s gross profit as a percentage of net sales was 13.6% for the three months ended June 30, 2007, compared to 15.1% for the three months ended June 30, 2006. "The decrease in gross margin from the second quarter of 2006 was due primarily to decreases in product margin, which includes vendor funding, and decreases in supplier discounts. These decreases in gross margin were offset partially by increases in agency fees for Microsoft enterprise software agreement renewals and decreases in inventory write-downs due to improvements in the aging of inventories,” said Laybourne. For the three months ended June 30, 2007, EMEA’s selling and administrative expenses were 10.1% of net sales compared with 12.6% in the same quarter of 2006. "The decrease from Q2 2006 was due primarily to the increase in net sales, offset partially by increases in salaries and wages, primarily resulting from the acquired business, increases in sales incentive plans and bonus expenses due to increased overall financial performance and increases in amortization of intangible assets,” Laybourne said. EMEA’s selling and administrative expenses for the three months ended June 30, 2007 include expenses of approximately $228,000 for professional fees associated with our stock option review. EMEA’s earnings from operations increased 297% in the three months ended June 30, 2007 to $11.6 million from $2.9 million in the three months ended June 30, 2006. EMEA’s earnings from operations as a percentage of net sales increased to 3.5% for the three months ended June 30, 2007 from 2.5% for the three months ended June 30, 2006. EMEA’s operating results translated into U.S. dollars continue to benefit from the weakening of the U.S. Dollar against our functional currencies in EMEA, particularly the British Pound Sterling and the Euro. APAC Our APAC segment, which was added as a result of the acquisition of Software Spectrum in September 2006, recognized net sales of $27.6 million, gross profit of $5.6 million and earnings from operations of $1.8 million for the three months ended June 30, 2007. "We are pleased with the continued strong performance of our APAC segment,” said Fennessy. CONFERENCE CALL AND WEBCAST We will host a conference call and live Web cast today at 5:00 p.m. ET to discuss the quarterly results of operations. A live Web cast of the conference call (in listen-only mode) will be available on our corporate Web site at www.insight.com and a replay of the Web cast will be available on our corporate Web site for a limited time. FORWARD-LOOKING INFORMATION Certain statements in this release are "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statement. Some of the important factors that could cause our actual results to differ materially from those projected in any forward-looking statements, include, but are not limited to, the following, which are discussed in "Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006: changes in the information technology industry and/or the economic environment; our reliance on partners for product availability, marketing funds, purchasing incentives and competitive products to sell; disruptions in our information technology and voice and data networks, including the upgrade to mySAP and the migration of Software Spectrum to our information technology and voice and data networks; the integration and operation of Software Spectrum, including our ability to achieve the expected benefits of the acquisition; actions of our competitors, including manufacturers/publishers of products we sell; the informal inquiry from the SEC and the fact that we could be subject to stockholder litigation related to the investigation by the Options Subcommittee of our Board of Directors into our historical stock option granting practices and the related restatement of our consolidated financial statements; the recently enacted changes in securities laws and regulations, including potential risk resulting from our evaluation of internal controls under the Sarbanes-Oxley Act of 2002; the risks associated with international operations; sales of software licenses are subject to seasonal changes in demand; increased debt and interest expense and lower availability on our financing facilities; increased exposure to currency exchange risks; our dependence on key personnel; risk that purchased goodwill or amortizable intangible assets become impaired; our failure to comply with the terms and conditions of our public sector contracts; risks associated with our very limited experience in outsourcing business functions to India; rapid changes in product standards; and intellectual property infringement claims. Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the SEC. In addition, these forward-looking statements include statements regarding the informal inquiry commenced by the SEC and a stockholder’s demand to inspect our books and records pursuant to Section 220 of the Delaware General Corporation Law. There can be no assurances that forward-looking statements will be achieved, and actual results could differ materially from those suggested by the forward-looking statements. Important factors that could cause actual results to differ materially include: adjustments to the consolidated financial statements that may be required related to the SEC informal inquiry; and risks of litigation and governmental or other regulatory inquiry or proceedings arising out of or related to the Company’s historical stock option granting practices. Therefore, any forward-looking statements in this release should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others. We assume no obligation to update, and do not intend to update, any forward-looking statements. We do not endorse any projections regarding future performance that may be made by third parties. INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)   Three Months EndedJune 30, Six Months EndedJune 30,   2007     2006     2007     2006   Net sales $ 1,283,449 $ 780,346 $ 2,407,424 $ 1,513,170 Costs of goods sold   1,098,636     678,200     2,069,436     1,313,918   Gross profit 184,813 102,146 337,988 199,252 Operating expenses: Selling and administrative expenses 138,323 79,534 268,081 155,639 Severance and restructuring expenses   2,841     -     2,841     -   Earnings from operations 43,649 22,612 67,066 43,613 Non-operating (income) expense: Interest income (2,182 ) (1,086 ) (4,294 ) (2,008 ) Interest expense 4,767 272 10,526 1,069 Net foreign currency exchange gain (3,002 ) (7 ) (3,656 ) 24 Other expense, net   496     158     713     320   Earnings from continuing operations before income taxes 43,570 23,275 63,777 44,208 Income tax expense   16,761     8,106     24,672     15,597   Net earnings from continuing operations 26,809 15,169 39,105 28,611 Net earnings from discontinued operations   -     10,718     4,972     12,100   Net earnings $ 26,809   $ 25,887   $ 44,077   $ 40,711     Net earnings per share - Basic: Net earnings from continuing operations $ 0.55 $ 0.32 $ 0.80 $ 0.60 Net earnings from discontinued operation   -     0.22     0.10     0.25   Net earnings per share $ 0.55   $ 0.54   $ 0.90   $ 0.85     Net earnings per share - Diluted: Net earnings from continuing operations $ 0.54 $ 0.31 $ 0.79 $ 0.59 Net earnings from discontinued operation   -     0.22     0.10     0.25   Net earnings per share $ 0.54   $ 0.53   $ 0.89   $ 0.84     Shares used in per share calculations: Basic   49,099     48,277     49,054     48,140   Diluted   49,402     48,352     49,346     48,234   INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)   June 30, 2007   December 31,2006   ASSETS Current assets: Cash and cash equivalents $ 46,144 $ 54,697 Accounts receivable, net 1,029,215 994,892 Inventories 98,419 97,751 Inventories not available for sale 20,040 31,112 Deferred income taxes 13,812 15,583 Other current assets   20,923   32,359 Total current assets 1,228,553 1,226,394   Property and equipment, net 137,546 129,256 Buildings held for lease 16,139 16,522 Goodwill 300,133 296,781 Intangible assets 82,834 86,929 Deferred income taxes 2,908 - Other long-term assets   18,618   18,269 $ 1,786,731 $ 1,774,151   LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 708,542 $ 611,367 Accrued expenses and other current liabilities 125,664 136,401 Current portion of long term debt 15,000 15,000 Deferred revenue 27,618 40,728 Line of credit   42,000   15,000 Total current liabilities 918,824 818,496   Long-term debt 84,500 224,250 Long-term deferred income taxes 17,787 19,403 Other long-term liabilities 16,707 21,652   Stockholders’ equity: Preferred stock - - Common stock 491 489 Additional paid-in capital 371,424 363,308 Retained earnings 341,741 297,664 Accumulated other comprehensive income – foreign currency translation adjustment     35,257   28,889 Total stockholders’ equity   748,913   690,350 $ 1,786,731 $ 1,774,151 INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)   Six Months Ended June 30,   2007     2006   Cash flows from operating activities: Net earnings from continuing operations $ 39,105 $ 28,611 Plus: net earnings from discontinued operations   4,972     12,100   Net earnings 44,077 40,711 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 17,641 9,086 Provision for losses on accounts receivable 1,459 1,483 Write-downs of inventories 2,841 4,748 Non-cash stock-based compensation 5,663 6,254 Gain on sale of discontinued operation (7,937 ) (15,122 ) Excess tax benefit from employee gains on stock-based compensation (45 ) (895 ) Deferred income taxes (2,753 ) (6,724 ) Changes in assets and liabilities: (Increase) decrease in accounts receivable (42,488 ) 20,048 Decrease in inventories 484 39,379 Decrease (increase) in other current assets 11,759 (2,120 ) Increase in other assets (2,221 ) (14,625 ) Increase in accounts payable 105,175 55,459 Decrease in inventories financing facility - (4,281 ) Decrease in deferred revenue (12,937 ) (6,521 ) Decrease in accrued expenses and other current liabilities liabilities   (17,172 )   (95 ) Net cash provided by operating activities   103,546     126,785   Cash flows from investing activities: Proceeds from sale of discontinued operation 28,631 46,500 Purchases of property and equipment   (18,867 )   (17,187 ) Net cash provided by investing activities   9,764     29,313   Cash flows from financing activities: Repayments on short-term financing facility - (45,000 ) Borrowings on long-term financing facility 262,000 - Repayments on long-term financing facility (398,000 ) - Repayments on term loan (3,750 ) - (Repayments) borrowings on line of credit 27,000 (21,309 ) Proceeds from sales of common stock under employee stock plans 2,475 7,391 Excess tax benefit from employee gains on stock-based compensation 45 895 Decrease in book overdrafts   (15,606 )   -   Net cash used in financing activities   (125,836 )   (58,023 ) Net cash provided by discontinued operations   -     129   Foreign currency exchange effect on cash flow   3,973     4,903   (Decrease) increase in cash and cash equivalents (8,553 ) 103,107 Cash and cash equivalents at beginning of period   54,697     35,145   Cash and cash equivalents at end of period $ 46,144   $ 138,252   INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES QUARTERLY SELECT OPERATING SEGMENT STATISTICS (UNAUDITED)     Three Months EndedJune 30, North America 2007 2006 Change Number of shipping days 63 64 (1 day) Number of account executives 1,336 1,034 29 % Net sales per account executive $ 707,968 $ 637,300 11 % Gross profit per account executive $ 102,827 $ 81,191 27 % Sales mix (as a % of net sales): Notebooks and PDA’s 11 % 13 % 22 % (a) Desktops and servers 12 % 15 % 9 % (a) Networking and connectivity 10 % 18 % (27 %)(a) Storage devices 6 % 7 % 3 % (a) Printers 4 % 7 % (12 %)(a) Memory and processors 4 % 5 % 3 % (a) Supplies and accessories 4 % 7 % (9 %)(a) Monitors and video 4 % 6 % 5 % (a) Miscellaneous   6 %   8 % 6 % (a) Hardware 61 % 86 % (-1 %)(a) Software 37 % 12 % 315 % (a) Services   2 %   2 % 26 % (a)   100 %   100 %   EMEA Number of shipping days(b) 61 61 - Number of account executives 495 276 79 % Net sales per account executive $ 682,227 $ 437,660 56 % Gross profit per account executive $ 92,578 $ 66,122 40 % Sales mix (as a % of net sales): Notebooks and PDA’s 8 % 17 % 34 % (a) Desktops and servers 6 % 14 % 24 % (a) Networking and connectivity 4 % 9 % 14 % (a) Storage devices 3 % 8 % 22 % (a) Printers 3 % 8 % 9 % (a) Memory and processors 2 % 4 % 12 % (a) Supplies and accessories 3 % 8 % 17 % (a) Monitors and video 2 % 8 % (2 %)(a) Miscellaneous   2 %   6 % 15 % (a) Hardware 33 % 82 % 18 % (a) Software 66 % 17 % 1,045 % (a) Services =1%     =1%     220 % (a)   100 %   100 %   (a) Represents growth/decline in category net sales. (b) Represents shipping days for the United Kingdom as it makes up the largest percentage of net sales in our EMEA segment. INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES OPERATING SEGMENT STATEMENT OF EARNINGS INFORMATION (IN THOUSANDS) (UNAUDITED)   Three Months Ended June 30, 2007 NorthAmerica EMEA APAC Consolidated Net sales $ 923,899 $ 331,903 $ 27,647 $ 1,283,449 Costs of goods sold   789,710   286,863   22,063   1,098,636   Gross profit 134,189 45,040 5,584 184,813 Operating expenses: Selling and administrative expenses 101,092 33,470 3,761 138,323 Severance and restructuring expenses   2,841   -   -   2,841   Earnings from operations $ 30,256 $ 11,570 $ 1,823 43,649 Non-operating expense, net   79   Earnings from continuing operations before income taxes 43,570 Income tax expense   16,761   Net earnings from continuing operations 26,809 Net earnings from discontinued operations   -   Net earnings $ 26,809     Total assets $ 2,168,691 $ 485,673 $ 42,112 $ 1,786,731 (c) (c) Consolidated total assets include corporate assets and intercompany eliminations for a net reduction of $909,745. Six Months Ended June 30, 2007 NorthAmerica EMEA APAC Consolidated Net sales $ 1,701,100 $ 659,279 $ 47,045 $ 2,407,424 Costs of goods sold   1,454,995   575,768   38,673   2,069,436   Gross profit 246,105 83,511 8,372 337,988 Operating expenses: Selling and administrative expenses 195,862 65,481 6,738 268,081 Severance and restructuring expenses   2,841   -   -   2,841   Earnings from operations $ 47,402 $ 18,030 $ 1,634 67,066 Non-operating expense, net   3,289   Earnings from continuing operations before income taxes 63,777 Income tax expense   24,672   Net earnings from continuing operations 39,105 Net earnings from discontinued operations   4,972   Net earnings $ 44,077     Total assets $ 2,168,691 $ 485,673 $ 42,112 $ 1,786,731 (c) (c) Consolidated total assets include corporate assets and intercompany eliminations for a net reduction of $909,745. INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES OPERATING SEGMENT STATEMENT OF EARNINGS INFORMATION (CONTINUED) (IN THOUSANDS) (UNAUDITED)   Three Months Ended June 30, 2006 North America EMEA APAC Consolidated Net sales $ 665,023 $ 115,323 $ - $ 780,346 Costs of goods sold   580,300   97,900   -   678,200   Gross profit 84,723 17,423 - 102,146 Operating expenses: Selling and administrative expenses   65,027   14,507   -   79,534   Earnings from operations $ 19,696 $ 2,916 $ - 22,612 Non-operating income, net   (663 ) Earnings from continuing operations before income taxes 23,275 Income tax expense   8,106   Net earnings from continuing operations 15,169 Net earnings from discontinued operations   10,718   Net earnings $ 25,887     Total assets $ 1,184,765 $ 123,913 $ - $ 930,077 (d) (d) Consolidated total assets include corporate assets and intercompany eliminations for a net reduction of $378,601. Six Months Ended June 30, 2006 North America EMEA APAC Consolidated Net sales $ 1,277,902 $ 235,268 $ - $ 1,513,170 Costs of goods sold   1,113,671   200,247   -   1,313,918   Gross profit 164,231 35,021 - 199,252 Operating expenses: Selling and administrative expenses   127,082   28,557   -   155,639   Earnings from operations $ 37,149 $ 6,464   $ 43,613 Non-operating income, net   (595 ) Earnings from continuing operations before income taxes 44,208 Income tax expense   15,597   Net earnings from continuing operations 28,611 Net earnings from discontinued operation   12,100   Net earnings $ 40,711     Total assets $ 1,184,765 $ 123,913 $ - $ 930,077 (d) (d) Consolidated total assets include corporate assets and intercompany eliminations for a net reduction of $378,601.
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