Insight Enterprises, Inc. Q1 2010 Earnings Call Transcript

Insight Enterprises, Inc. Q1 2010 Earnings Call Transcript
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Insight Enterprises, Inc. (NSIT)

Q1 2010 Earnings Call

May 5, 2010 5:00 pm ET


Glynis A. Bryan – Chief Financial Officer

Kenneth T. Lamneck – President, Chief Executive Officer & Director


Brian Alexander – Raymond James & Associates

John Lawrence – Morgan Keegan & Co.

Matt Sheerin – Thomas Weisel Partners



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Welcome to the Q1 2010 Insight Enterprises earnings call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host today Ms. Glynis Bryan, CFO.

Glynis A. Bryan

Thank you for joining the Insight Enterprises conference call. Today we will be discussing the company’s operating results for the quarter ended March 31, 2010. I’m Glynis Bryan, Chief Financial Officer of Insight Enterprises and joining me is Ken Lamneck, President and Chief Executive Officer. If you do not have a copy of the earnings release that was posted this afternoon and filed with the Securities & Exchange Commission on Form 8K, you will find it on our website at

under the investor relations section.

Today’s call including the question and answer period is being webcast live and can be accessed by the investor relations page of our website at

. An archive copy of the conference call will be available approximately two hours after completion of the call and will remain on our website for a limited time. This conference call and the associated webcast contain time sensitive information that is accurate only as of today, May 5, 2010.

This call is the property of Insight Enterprises. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Insight Enterprises is strictly prohibited. Finally, let me remind you about forward-looking statements that will be made on today’s call. All forward-looking statements that are made on this conference call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in today’s press release and in greater detail in our annual report on Form 10K for the year ended December 31, 2009.

With that, I will now turn the call over to Ken to walk you through an overview of our first quarter 2010 operating results and our priorities for the business for the balance of 2010.

Kenneth T. Lamneck

Thank you for joining us today to discuss our first quarter operating results. We’re pleased to report that market demand continued to improve in the first quarter across all of our operating segments. As we reported earlier today, consolidated net sales for the first quarter were $1.05 billion reflecting an increase of 10% from last year’s first quarter net sales and the first quarter since Q3 of 2008 that we saw year-to-year sales growth in all of our operating segments.

Gross profit was $145 million, up 10% from last year and gross margin was 13.8% down 10 basis points from 13.9% in the first quarter of 2009. Earnings from operations increased to $17.3 million from a loss of $7.9 million reported last year. Please recall that we recorded certain items in the first quarter of last year that did not reoccur this year including expense related to the termination of an equity incentive plan of $5.5 million and severance and restructuring expenses of $6.3 million compared to only $71,000 of severance expense this year.

Additionally, we recorded professional fees associated with the trade credits remediation of $4.1 million in the first quarter of 2009 but only $497,000 of similar expense this year. Net earnings and diluted earnings per share were $9.2 million and $0.20 in the first quarter of 2010 compared to the non-GAAP net earnings and diluted earnings per share from continuing operations reported in the first quarter of 2009 of $3.8 million and $0.08.

We are pleased with our first quarter financial results which resulted from better than expected sales and gross margin performance in North America, across our learner cost structure and in line performance in our EMEA and Asia Pacific segments. In North America, we experienced stronger than expected demand in our hardware category which resulted in 23% growth year-to-year in this category. We were also able to achieve increased gross margin on those sales when compared to the fourth quarter of 2009.

In addition, demand for hardware improved across virtually all product categories and all product groups which is encouraging and an indication that it’s not just large enterprise clients which are starting the new year with a new cap ex budgets and refreshed needs. In EMEA we saw sales grow in constant currency across all product categories. In particular, our UK business performed very well showing overall strengthening of demand for hardware and our continued focus on winning public sector business in the region. We believe the market in the UK is stabilized.

However, we continue to see weakness across the rest of EMEA where our business is primarily in the software category and within the large enterprise client group. In Asia Pacific sales increased over 100% in US dollars and 71% in constant currency primarily due to large transactions in the public sector client group. A significant percentage of our business in this region is generated in Australia, a more mature market where we have a focus on the public sector space. Typically, public sector clients are not fee based and therefore have resulted in more top line sales but decreased gross margins over the past several quarters. As a consequence, we expect gross margins to be in the range of 12% to 14% over the balance of the year.

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