Insight Enterprises, Inc. Reports First Quarter 2008 Results

Insight Enterprises, Inc. (Nasdaq: NSIT) (the "Company”) today reported results of operations for the quarter ended March 31, 2008. First Quarter Highlights Net sales for the first quarter of 2008 decreased 1% to $1.11 billion. Gross profit for the first quarter remained flat at $153.2 million. Net earnings from continuing operations for the first quarter decreased 14% to $10.5 million. Diluted EPS from continuing operations for the first quarter decreased 12% to $0.22. First quarter 2008 results from continuing operations include $1.9 million, $1.1 million net of tax, for severance and restructuring expenses. First quarter 2007 results include expenses of $5.7 million, $3.5 million net of tax, for professional fees and costs associated with our stock option review. "The first quarter of 2008 was a very challenging quarter for our business. While overall our EMEA and APAC segments performed as expected, our North America segment did not meet our internal expectations for profitability during the quarter,” stated Rich Fennessy, President and Chief Executive Officer. "As a result, we implemented a number of critical actions across our business focused on increasing net sales and gross profit and reducing our expense base to improve our overall earnings performance for the balance of the year in this challenging market environment,” added Fennessy. Segment Overview Net sales in North America decreased 1% to $766.4 million primarily due to a softer U.S. IT market and a double digit year-over-year decrease in our net sales to SMB clients, as the Company continued to address certain integration issues with the IT system upgrade that commenced in the second half of 2007. Gross margin in North America decreased by approximately 80 basis points from the first quarter of 2007 primarily due to lower net sales to SMB clients, which are generally conducted at higher gross margins, and decreases in product margins, including vendor funding, primarily driven by market pricing pressures. Earnings from operations in North America were $5.4 million lower than the first quarter of 2007. These 2008 results include $1.0 million in severance and restructuring expenses, while the first quarter 2007 results include $5.2 million in professional fees and costs associated with our stock option review. Thus, excluding the effects of the stock option review, our North American results were substantially lower in the first quarter of 2008 compared to the first quarter of 2007. Net sales in EMEA decreased 3%, or $9.2 million, to $318.2 million reflecting a decline in sales in the United Kingdom and a continued shift toward fee-based enterprise agreements where only the referral fee is recognized as net sales with no costs of goods sold. This decline was partially offset by the foreign currency benefit of the weak U.S. Dollar compared to the various European currencies of the countries in which the Company does business. The United Kingdom-based hardware business accounted for $4.6 million of the overall decline; however it should be noted that in the United Kingdom, there were two less shipping days in the quarter compared to the first quarter of last year. Within the United Kingdom, while the market conditions are challenging and show signs of continued weakness going into the second quarter, we believe that the majority of the net sales decline in the first quarter was related to internal sales execution issues early in the quarter. The Company addressed these issues immediately, and, as a result, saw stronger results in March compared to the first two months of the quarter. Gross margin in EMEA increased to 14.3% from 11.8% in the first quarter of last year resulting from strong software category performance and the continued migration to fee-based enterprise agreements. Earnings from operations in the EMEA segment increased 8% compared to the first quarter of 2007 to $7.0 million reflecting higher gross profit partially offset by increases in selling and administrative expenses from increased headcount and severance expenses of $869,000. Net sales in APAC increased 19% to $23.1 million with gross margin on these sales of 16.3%. The loss from operations in this segment during the three months ended March 31, 2008 of $440,000 reflected the typical seasonality of this business and the hiring of experienced software sales and support teammates during the quarter. UPDATED GUIDANCE Given the challenges that the Company faced during the first quarter and the uncertain macro-economic outlook for 2008, the Company now expects full-year diluted earnings per share to be between $1.50 and $1.60 with approximately 50% coming in the first half of the year. This estimate includes no severance, restructuring or other one-time charges. This guidance reflects management's expectations for the balance of 2008, but the factors that could affect performance, as noted below, are numerous, and short-term results in this difficult economy could be more volatile and unpredictable than usual. CONFERENCE CALL AND WEBCAST We will host a conference call and live Web cast today at 5:00 p.m. ET to discuss first quarter 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. To listen to the live Web cast by telephone, call 1-866-270-6057 and enter the access code 62449561. FINANCIAL SUMMARY TABLE (IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)     Three Months Ended March 31, Insight Enterprises, Inc.   2008       2007     % change   Net sales $ 1,107,789 $ 1,123,975 (1 %) Gross profit $ 153,155 $ 153,175 - Earnings from operations $ 18,301 $ 23,417 (22 %) Operating margin 1.7 % 2.1 % Net earnings from continuing operations $ 10,520 $ 12,296 (14 %) Diluted EPS from continuing operations $ 0.22 $ 0.25 (12 %) Net earnings $ 10,520 $ 17,268 (39 %) Diluted EPS $ 0.22 $ 0.35 (37 %)   North America Net sales $ 766,424 $ 777,201 (1 %) Gross profit $ 104,015 $ 111,916 (7 %) Earnings from operations $ 11,787 $ 17,146 (31 %)   EMEA Net sales $ 318,222 $ 327,376 (3 %) Gross profit $ 45,375 $ 38,471 18 % Earnings from operations $ 6,954 $ 6,460 8 %   APAC Net sales $ 23,143 $ 19,398 19 % Gross profit $ 3,765 $ 2,788 35 % Loss from operations $ (440 ) $ (189 ) (133 %) FORWARD-LOOKING INFORMATION Certain statements in this release and the related conference call and Web cast are "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including our estimated diluted earnings per share for 2008, 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, 2007: 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 systems and voice and data networks, including the system upgrade and the migration of acquired businesses to our information technology systems and voice and data networks; the integration and operation of acquired businesses, including our ability to achieve expected benefits of the acquisitions; actions of our competitors, including manufacturers and publishers of products we sell; the informal inquiry from the Securities and Exchange Commission ("SEC”) and stockholder litigation related to our historical stock option granting practices and the related restatement of our consolidated financial statements; the risks associated with international operations; seasonal changes in demand for sales of software licenses; increased debt and interest expense and lower availability on our financing facilities and changes in the overall capital markets that could increase our borrowing costs or reduce future availability of financing; exposure to currency exchange risks and volatility in the U.S. dollar exchange rate; our dependence on key personnel; risk that purchased goodwill or amortizable intangible assets become impaired; failure to comply with the terms and conditions of our public sector contracts; rapid changes in product standards; and intellectual property infringement claims and challenges to our registered trademarks and trade names. Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the SEC. 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 made by third parties. INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)   Three Months Ended March 31,   2008       2007   Net sales $ 1,107,789 $ 1,123,975 Costs of goods sold   954,634     970,800   Gross profit 153,155 153,175 Operating expenses: Selling and administrative expenses 132,954 129,758 Severance and restructuring expenses   1,900     -   Earnings from operations 18,301 23,417 Non-operating (income) expense: Interest income (601 ) (658 ) Interest expense 2,716 4,305 Net foreign currency exchange gain (937 ) (654 ) Other expense, net   319     217   Earnings from continuing operations before income taxes   16,804 20,207 Income tax expense   6,284     7,911   Net earnings from continuing operations 10,520 12,296 Net earnings from a discontinued operation   -     4,972   Net earnings $ 10,520   $ 17,268       Net earnings per share - Basic: Net earnings from continuing operations $ 0.22 $ 0.25 Net earnings from a discontinued operation   -     0.10   Net earnings per share $ 0.22   $ 0.35     Net earnings per share - Diluted: Net earnings from continuing operations $ 0.22 $ 0.25 Net earnings from a discontinued operation   -     0.10   Net earnings per share $ 0.22   $ 0.35       Shares used in per share calculations: Basic   48,540     49,010   Diluted   48,905     49,291   INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)   March 31, 2008 December 31, 2007 ASSETS Current assets: Cash and cash equivalents $ 105,696 $ 56,718 Accounts receivable, net 812,371 1,072,612 Inventories 88,869 98,863 Inventories not available for sale 27,251 21,450 Deferred income taxes 21,792 22,020 Other current assets     36,975   38,916 Total current assets 1,092,954 1,310,579   Property and equipment, net 158,541 158,467 Goodwill 311,995 306,742 Intangible assets, net 79,329 80,922 Deferred income taxes 181 392 Other assets   13,189   10,076 $ 1,656,189 $ 1,867,178   LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 465,736 $ 685,578 Accrued expenses and other current liabilities 113,057 113,891 Current portion of long-term debt - 15,000 Deferred revenue   40,004   42,885 Total current liabilities 618,797 857,354   Long-term debt 203,500 187,250 Deferred income taxes 31,272 27,305 Other liabilities   20,339   20,075   873,908   1,091,984 Stockholders’ equity: Preferred stock - - Common stock 482 485 Additional paid-in capital 384,386 386,139 Retained earnings 343,086 340,641 Accumulated other comprehensive income – foreign currency translation adjustments   54,327   47,929 Total stockholders’ equity   782,281   775,194 $ 1,656,189 $ 1,867,178 INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)   Three Months Ended March 31,   2008       2007   Cash flows from operating activities: Net earnings from continuing operations $ 10,520 $ 12,296 Plus: net earnings from a discontinued operation   -     4,972   Net earnings 10,520 17,268 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 8,464 8,913 Provision for losses on accounts receivable 668 884 Write-downs of inventories 1,697 1,654 Non-cash stock-based compensation 2,439 2,265 Gain on sale of discontinued operation - (7,937 ) Excess tax benefit from employee gains on stock-based compensation (108 ) (41 ) Deferred income taxes 4,441 (2,676 ) Changes in assets and liabilities: Decrease in accounts receivable 275,543 182,155 Decrease (increase) in inventories 2,554 (3,989 ) Decrease in other current assets 2,691 2,360 Increase in other assets (195 ) (5,993 ) Decrease in accounts payable (238,788 ) (135,422 ) Decrease in deferred revenue (3,927 ) (12,768 ) Increase (decrease) in accrued expenses and other liabilities   1,160     (7,294 ) Net cash provided by operating activities   67,159     39,379   Cash flows from investing activities: Proceeds from sale of a discontinued operation, net of direct expenses (900 ) 28,694 Purchases of property and equipment   (6,441 )   (8,376 ) Net cash (used in) provided by investing activities   (7,341 )   20,318   Cash flows from financing activities: Borrowings on long-term financing facility 122,000 121,000 Repayments on long-term financing facility (117,000 ) (163,000 ) Repayments on term loan (3,750 ) (3,750 ) Net repayments on line of credit - (7,000 ) Proceeds from sales of common stock under employee stock plans 2,976 2,363 Excess tax benefit from employee gains on stock-based compensation 108 41 Payment of payroll taxes on stock-based compensation through shares withheld (1,943 ) - Repurchases of common stock (14,999 ) - Increase (decrease) in book overdrafts   458     (31,456 ) Net cash used in financing activities   (12,150 )   (81,802 ) Foreign currency exchange effect on cash flows   1,310     (432 ) Increase (decrease) in cash and cash equivalents 48,978 (22,537 ) Cash and cash equivalents at beginning of period   56,718     54,697   Cash and cash equivalents at end of period $ 105,696   $ 32,160   INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES QUARTERLY SELECT OPERATING SEGMENT STATISTICS (UNAUDITED)       Three Months Ended March 31, North America 2008   2007 Change Number of shipping days 64 64 - Number of account executives 1,292 1,274 1 % Net sales per account executive(a) $ 580,405 $ 613,661 (5 %) Gross profit per account executive(b) $ 78,770 $ 88,366 (11 %) Sales mix (as a % of net sales):(c) Networking and connectivity 12 % 11 % 11 % (d) Notebooks and PDAs 11 % 11 % (1 %) (d) Servers and storage 10 % 12 % (16 %) (d) Desktops 8 % 7 % 20 % (d) Printers 4 % 5 % (16 %) (d) Memory and processors 3 % 4 % (27 %) (d) Supplies and accessories 4 % 5 % (24 %) (d) Monitors and video 5 % 5 % (4 %) (d) Miscellaneous   9 %   8 % 2 % (d) Hardware 66 % 68 % (4 %) (d) Software 31 % 29 % 4 % (d) Services   3 %   3 % 11 % (d)   100 %   100 % EMEA Number of shipping days(e) 62 64 (2 days) Number of account executives 605 513 (f) 18 % Net sales per account executive(a) $ 541,193 $ 662,034 (18 %) Gross profit per account executive(b) $ 77,169 $ 77,798 - Sales mix (as a % of net sales):(c) Networking and connectivity 4 % 4 % 12 % (d) Notebooks and PDAs 9 % 8 % 2 % (d) Servers and storage 8 % 8 % (3 %) (d) Desktops 4 % 4 % (12 %) (d) Printers 3 % 4 % (10 %) (d) Memory and processors 1 % 2 % (36 %) (d) Supplies and accessories 4 % 4 % (3 %) (d) Monitors and video 4 % 4 % 1 % (d) Miscellaneous   3 %   3 % (14 %) (d) Hardware 40 % 41 % (4 %) (d) Software 59 % 58 % (2 %) (d) Services   1 %   1 % (4 %) (d)   100 %   100 % (a)   Calculated as net sales for the quarter divided by the average number of account executives. The average number of account executives is calculated as the number of account executives at the end of the quarter plus the number of account executives at the beginning of the quarter divided by two. (b) Calculated as gross profit for the quarter divided by the average number of account executives. The average number of account executives is calculated as the number of account executives at the end of the quarter plus the number of account executives at the beginning of the quarter divided by two. (c) Beginning in the three months ended March 31, 2008, we have combined servers with storage in reporting our sales mix and are reporting desktops separately to conform with how we internally analyze our results. All prior period information has been reclassified for comparative purposes. (d) Represents growth/decline in category net sales. (e) Represents shipping days for the United Kingdom as it makes up the largest percentage of net sales in our EMEA segment. (f) Number of account executives for the three months ended March 31, 2007 has been changed to conform to the current period presentation. This presentation also conforms to the definition of an account executive in our North America operating segment.