Insight Enterprises Inc. Reports First Quarter Results.TEMPE, Ariz. -- Net Sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight -- $806 Million; GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. -- $0.29; Non-GAAP Diluted EPS -- $0.35 Insight Enterprises Inc. (Nasdaq: NSIT NSIT Networking Services and Information Technologies (University of Chicago) NSIT Nova Scotia Institute of Technology NSIT Not Safe In Taxis NSIT Netaji Subash Institute of Technology NSIT Network Systems and Information Technology ) (the "company") today reported results of operations for the three months ended March 31, 2006. First Quarter Highlights: --Quarterly net sales growth of 3.4% from $779.4 million in Q1 2005 to $806.0 million in Q1 2006. --17% year-over-year growth in non-GAAP(a) diluted EPS from $0.30 in Q1 2005 to $0.35 in Q1 2006. (Decline in GAAP diluted EPS from $0.31 in Q1 2005 to $0.29 in Q1 2006.) --Quarterly non-GAAP(a) operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: of 3.3%. (GAAP operating margin of 2.8%.) --Insight North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. quarterly net sales and non-GAAP(a) earnings from operations growth of 4.1% and 12%, respectively, over prior year. --Insight UK quarterly net sales and non-GAAP(a) earnings from operations growth of 1.1% and 25%, respectively, over prior year. In British pounds sterling, quarterly net sales and non-GAAP(a) earnings from operations growth of 9.1% and 35%, respectively, over prior year. --Stock compensation expense of $3.5 million and $121,000 recorded in the three months ended March 31, 2006, and 2005, respectively.
FINANCIAL SUMMARY TABLE
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
(UNAUDITED)
Three Months Ended
March 31,
----------------------------------------------------------------------
Insight Enterprises Inc. 2006 2005 Change
------------------------------------------ --------- --------- -------
Net sales $806,038 $779,367 3.4%
Net earnings - GAAP $14,214 $15,512 (8%)
Net earnings - Non-GAAP(a) $16,947 $15,279 11%
Diluted earnings per share - GAAP $0.29 $0.31 (6%)
Diluted earnings per share - Non-GAAP(a) $0.35 $0.30 17%
Operating Margin - GAAP 2.8% 3.2% (0.40%)
Operating Margin - Non-GAAP(a) 3.3% 3.1% 0.20%
Insight North America
------------------------------------------
Net sales $668,958 $642,676 4.1%
Earnings from operations - GAAP $17,201 $18,662 (8%)
Earnings from operations - Non-GAAP(a) $21,021 $18,783 12%
Insight UK
------------------------------------------
Net sales $119,945 $118,615 1.1%
Earnings from operations - GAAP $3,548 $3,728 (5%)
Earnings from operations - Non-GAAP(a) $3,833 $3,064 25%
Direct Alliance Corp.
------------------------------------------
Net sales $17,135 $18,076 (5.2%)
Earnings from operations - GAAP $1,499 $2,542 (41%)
Earnings from operations - Non-GAAP(a) $1,869 $2,542 (26%)
(a) A tabular reconciliation of financial measures prepared in
accordance with United States generally accepted accounting
principles ("GAAP") to non-GAAP financial measures is included at the
end of this press release.
"I am pleased to announce that Insight Enterprises Inc. had another solid quarter," said Rich Fennessy, chief executive officer. "We again achieved year-over-year growth in net sales, non-GAAP net earnings and non-GAAP diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of , and we continued to achieve year-over-year improvements in our non-GAAP operating margins." Use of Non-GAAP Financial Measures: The non-GAAP financial measures in the 2006 and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. 2005 periods exclude stock compensation expense, settlement expense, income resulting from reductions in liabilities assumed in a previous acquisition and the tax effects of these items. We exclude these items when internally evaluating gross profit, selling and administrative expenses, earnings from operations, tax expense, net earnings and diluted earnings per share for the company and when evaluating gross profit, selling and administrative expenses and earnings from operations for the individual operating segments. These non-GAAP measures are used to evaluate financial performance against budgeted amounts, to calculate incentive compensation, to assist in forecasting future performance and to compare our results to competitors' financial results. We believe that these non-GAAP financial measures are useful to investors because they allow for greater transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. , facilitate comparisons to prior periods and competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. and assist in forecasting performance for future periods because they exclude items we believe to be outside of normal operating results. These non-GAAP financial measures are not prepared in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Our effective tax rate for the three months ended March 31, 2006, was 35.9% compared to 38.6% for the three months ended March 31, 2005. The non-GAAP effective tax rate for the three months ended March 31, 2006, was 36.4% compared to 38.2% for the three months ended March 31, 2005. The decrease in the GAAP and non-GAAP effective tax rate was due primarily to a decrease in tax contingency contingency n. an event that might not occur. reserves. Cash flows from operations for the three months ended March 31, 2006 and 2005, were $114.2 million and $51.6 million, respectively. Cash flows from operations for the three months ended March 31, 2006, resulted primarily from decreases in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying and inventory and net earnings before depreciation. Accounts receivable decreased due to the seasonal decrease in net sales. Inventory decreased due primarily to improvements in our supply chain activities and fewer opportunistic opportunistic /op·por·tu·nis·tic/ (op?er-tldbomacn-is´tik) 1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances. 2. purchases during the quarter. Cash flows from operations for the three months ended March 31, 2005, resulted primarily from decreases in accounts receivable, increases in client payments received in advance of shipment and net earnings before depreciation. These increases were offset partially by decreases in accounts payable and the inventories financing facility. We had no outstanding balances under our line of credit and accounts receivable securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. facility at March 31, 2006. At March 31, 2006, we had $82.8 million in cash, although a large portion of our cash balance remains in the United Kingdom. Settlement Expense As noted in our press release dated March 27, 2006, one of our subsidiaries, Insight Public Sector (part of Insight North America), reached a release and settlement agreement with the U.S. Department of Justice regarding an investigation of the size representation made by Comark Government & Education Services Inc. ("CGES CGES Centre for Global Energy Studies ") in March 1996, a company we acquired in the April 2002 acquisition of Comark Inc. Although we remain convinced con·vince tr.v. con·vinced, con·vinc·ing, con·vinc·es 1. To bring by the use of argument or evidence to firm belief or a course of action. See Synonyms at persuade. 2. that we did not have a liability to the federal government as a result of the small size representation of CGES in March 1996, we agreed to settle the matter for $1.0 million to avoid the risk, expense and internal diversion A turning aside or altering of the natural course or route of a thing. The term is chiefly applied to the unauthorized change or alteration of a water course to the prejudice of a lower riparian, or to the unauthorized use of funds. of litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. . This amount was recorded by Insight North America as selling and administrative expenses during the three months ended March 31, 2006. Stock Compensation Expense On January January: see month. 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System No. 123R"), which requires stock based compensation to be measured based on the grant-date fair value of the award and recognized over the period during which an employee is required to provide service in exchange for the award. We adopted SFAS No. 123R using the modified mod·i·fy v. mod·i·fied, mod·i·fy·ing, mod·i·fies v.tr. 1. To change in form or character; alter. 2. prospective transition method. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after the adoption date and compensation expense must be recognized for any unvested stock option awards outstanding as of the date of adoption. Prior periods have not been restated. However, we recorded stock based compensation expense in prior periods related to the amortization of the fair value of restricted stock shares and units over their vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period. Stock based compensation expense is classified in the same line item of the financial statements as other payroll-related expenses for the specific employee. Stock compensation expense for the three months ended March 31, 2006 and 2005, was recorded in the financial statements as follows (in thousands):
Three Months Ended
March 31,
------------------
2006 2005
--------- --------
Insight North America
Selling and administrative expenses $2,820 $121
========= ========
Insight UK
Selling and administrative expenses $285 $-
========= ========
Direct Alliance
Costs of goods sold $89 $-
========= ========
Selling and administrative expenses $281 $-
========= ========
Consolidated
Costs of goods sold $89 $-
========= ========
Selling and administrative expenses $3,386 $121
========= ========
Stock compensation expense disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). only in the footnotes to the financial statements for the three months ended March 31, 2005, was $3.3 million. OPERATING SEGMENTS We are a leading provider of information technology ("IT") products and services to businesses in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of and the United Kingdom. Our offerings include brand name computing computing - computer products, IT services and outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. of business processes. During the three months ended March 31, 2006, we were organized in the following operating segments: --Provider of IT products and services -- North America ("Insight North America"); --Provider of IT products and services -- United Kingdom ("Insight UK"); and --Business process outsourcing provider ("Direct Alliance"). Insight North America Insight North America's net sales for the three months ended March 31, 2006, increased 4.1% to $669.0 million, compared to net sales of $642.7 million for the three months ended March 31, 2005. "We are pleased to report that we grew our North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. SMB (1) (Small to Medium-sized Business) Also called "SME" (small to medium-sized enterprise), it refers to companies that are larger than the small office/home office (SOHO), but not huge. business faster than the industry," said Fennessy. "However, our sales to large enterprise clients did not grow in the first quarter, and that lowered our overall growth rate in North America to 4.1%." Insight North America's gross profit as a percentage of net sales was 12.2% for the three months ended March 31, 2006, compared to 11.8% for the three months ended March 31, 2005. "The increase from the first quarter of 2005 was due primarily to a reduction in the reserve for vendor receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed , increases in referral fees for Microsoft (Microsoft Corporation, Redmond, WA, www.microsoft.com) The most successful and influential software company. Microsoft's software and Intel's hardware pioneered the PC and revolutionized the computer industry. enterprise software agreements renewals, increases in supplier reimbursements and increases in sales of services, which include warranties warranties, n.pl the details of a contract; considered less important than the conditions. Whereas the penalty for breach of conditions is the termination of the contract, the penalty for breach of warranties is payment of damages to the innocent party. . These increases were offset partially by decreases in product and freight The price or compensation paid for the transportation of goods by a carrier. Freight is also applied to the goods transported by such carriers. The liability of a carrier for freight damaged, lost, or destroyed during shipment is determined by contract, statute, or margins," said Stanley Stanley, town (1991 pop. 1,557), capital of the Falkland Islands, S Atlantic Ocean, on East Falkland island. It is the main port and trading center of the islands. The name is sometimes written as Port Stanley. Laybourne, chief financial officer. Insight North America's selling and administrative expenses were 9.0% (non-GAAP) of net sales for the three months ended March 31, 2006, compared to 8.9% (non-GAAP) for the three months ended March 31, 2005. The non-GAAP selling and administrative expenses excludes stock compensation expense of $2.8 million and settlement expense of $1.0 million for the three months ended March 31, 2006, and stock compensation expense of $121,000 for the three months ended March 31, 2005. Selling and administrative expenses in the first quarter of 2006 includes, however, approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $720,000 of accelerated depreciation Accelerated Depreciation Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. Notes: The straight-line depreciation method spreads the cost evenly over the life of an asset. . After the upgrade to mySAP SAP's brand name for a variety of its products. mySAP Business Suite includes modules for enterprise resource planning (ERP), customer relationship management (CRM), product life cycle management (PLM), supplier relationship management (SRM) and supply chain management (SCM). See mySAP.com and SAP. , portions of our current operating system operating system (OS) Software that controls the operation of a computer, directs the input and output of data, keeps track of files, and controls the processing of computer programs. will not be utilized. The capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. amounts attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to these portions at March 31, 2006, totaled $3.6 million. Accordingly, we will accelerate depreciation on these capitalized amounts from the first quarter of 2006 through the first quarter of 2007, the current estimated useful life of these portions, at the rate of approximately $720,000 per quarter. "Compared to the first quarter of 2005, we have benefited from increases in net sales and increases in efficiencies due to operational improvements and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). activities. These savings have been offset by increases in sales incentive Noun 1. sales incentive - remuneration offered to a salesperson for exceeding some predetermined sales goal bonus, incentive - an additional payment (or other remuneration) to employees as a means of increasing output plans, accelerated depreciation and other IT expenses related to the mySAP upgrade," Laybourne said. Insight North America's earnings from operations as a percentage of net sales for the three months ended March 31, 2006, were 3.1% (non-GAAP) compared to 2.9% (non-GAAP) for the three months ended March 31, 2005. The non-GAAP earnings from operations excludes stock compensation expense of $2.8 million and settlement expenses of $1.0 million for the three months ended March 31, 2006, and stock compensation expense of $121,000 for the three months ended March 31, 2005. Insight UK Insight UK's net sales for the three months ended March 31, 2006, increased by 1.1% to $119.9 million, compared to net sales of $118.6 million for the three months ended March 31, 2005. In British pounds sterling, net sales increased 9.1% and non-GAAP earnings from operations grew 35% from the three months ended March 31, 2005. Additionally, Insight UK benefited from having 64 shipping days in first quarter of 2006 compared to 61 days in the first quarter of 2005. "We continue to be very pleased with the results of our UK operation given the overall challenging UK market," said Fennessy. Insight UK's gross profit as a percentage of net sales was 14.7% for the three months ended March 31, 2006, compared to 13.2% for the three months ended March 31, 2005. "The increase in gross margin from the first quarter of 2005 was due primarily to increases in product margin, increases in referral fees from Microsoft enterprise software agreement renewals, increases in sales of services and decreases in write-downs of inventories," said Laybourne. For the three months ended March 31, 2006, Insight UK's selling and administrative expenses were 11.5% (non-GAAP) of net sales compared with 10.6% (GAAP and non-GAAP) in the same quarter of 2005. "The increase in selling and administrative expenses as a percentage of net sales was due primarily to increases in sales compensation plans, marketing and facility costs related to our new London New London, city (1990 pop. 24,540), New London co., SE Conn., on the Thames River near its mouth on Long Island Sound; laid out 1646 by John Winthrop, inc. 1784. office," said Laybourne. The non-GAAP selling and administrative expenses exclude stock compensation expense of $285,000 for the three months ended March 31, 2006. Insight UK's earnings from operations as a percentage of net sales in the three months ended March 31, 2006, were 3.2% (non-GAAP), compared to 2.6% (non-GAAP) in the three months ended March 31, 2005. The non-GAAP earnings from operations exclude stock compensation expense of $285,000 for the three months ended March 31, 2006, and income from reductions in liabilities assumed in a previous acquisition of $664,000 for the three months ended March 31, 2005. Direct Alliance Direct Alliance posted overall net sales of $17.1 million for the three months ended March 31, 2006, down 5.2% from $18.1 million for the three months ended March 31, 2005. For the three months ended March 31, 2006, Direct Alliance's largest client accounted for approximately 38% of Direct Alliance's net sales, and the top three clients represented 79% of net sales. For the three months ended March 31, 2005, Direct Alliance's largest client accounted for approximately 54% of Direct Alliance's net sales, and the top three clients represented 82% of net sales. The decline in concentration with Direct Alliance's largest client and top three clients reflects the fact that the historical contract with Direct Alliance's largest client in 2005, IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) , was replaced with separate contracts with IBM and Lenovo (Lenovo, Purchase, NY, www.lenovo.com) Asia's largest PC manufacturer, founded in China in 1984 by Liu Chuanzhi from the Chinese Academy of Sciences. In the late 1980s, the company, first known as Legend, introduced a circuit board that generated Chinese characters on Western-made PCs and starting in May 2005. Direct Alliance's gross profit decreased 13% to $3.3 million (non-GAAP) for the three months ended March 31, 2006, compared to $3.8 million (GAAP and non-GAAP) for the three months ended March 31, 2005. The non-GAAP gross profit excludes stock compensation expense of $89,000 for the three months ended March 31, 2006. Selling and administrative expenses at Direct Alliance increased 12% to $1.5 million (non-GAAP) for the three months ended March 31, 2006, compared to $1.3 million (GAAP and non-GAAP) for the three months ended March 31, 2005. Selling and administrative expenses as a percentage of net sales were 8.5% (non-GAAP) in the three months ended March 31, 2006, compared to 7.2% (GAAP and non-GAAP) for the three months ended March 31, 2005. The increase over prior year is due to a recovery of bad debt during the first quarter of 2005, which reduced selling and administrative expenses. The non-GAAP selling and administrative expenses exclude stock compensation expense of $281,000 for the three months ended March 31, 2006. Direct Alliance posted earnings from operations of $1.9 million (non-GAAP) for the three months ended March 31, 2006, a 26% decrease, compared to $2.5 million (GAAP and non-GAAP) for the three months ended March 31, 2005. The non-GAAP earnings from operations exclude stock compensation expense of $370,000 for the three months ended March 31, 2006. "The expected decreases in gross profit and earnings from operations were due primarily to renegotiated fee structures as part of multi-year contract renewals with some of Direct Alliance's largest clients. These decreases were offset partially by increases contributed by other clients," said Laybourne. CONFERENCE CALL AND WEBCAST We will host a conference call and live webcast today at 5 p.m. ET to discuss the quarterly results of operations. A live webcast 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 webcast will be available on our corporate Web site for a limited time. FORWARD-LOOKING for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. INFORMATION Certain statements in this release are "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements may include: projections of matters that affect net sales, gross profit, operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. , earnings from operations, non-operating income and expenses or net earnings; projections of capital expenditures and growth; hiring plans; plans for future operations; the availability of financing and our needs or plans relating thereto there·to adv. 1. To that, this, or it. 2. Archaic In addition to that; furthermore. thereto Adverb Formal 1. to that or it 2. ; plans relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc our products and services; the effect of new accounting principles; benefits and expenses relating to restructuring activities and employee terminations; the effect of guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. and indemnification Indemnification Used in insurance policy agreements as to compensation for damage or loss. In the context of corporate governance, Director Indemnification uses the bylaws and/or charter to indemnify officers and directors from certain legal expenses and judgements resulting from obligations; the actual or expected outcome of legal proceedings All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. against the company; statements of belief; and statements of assumptions underlying any of the foregoing. 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: --changes in the information technology industry and/or the economic environment; --our reliance on suppliers for product availability, marketing funds, purchasing incentives and competitive products to sell; --actions of our competitors, including manufacturers of products we sell; --disruptions in our information technology and voice and data networks; --our reliance on a limited number of outsourcing clients; --our failure to comply with the terms and conditions of our public sector contracts; --the risks associated with international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. ; --our dependence on key personnel; --the decreased effectiveness of equity compensation resulting from changes in accounting for equity compensation; --our integration and operation of future acquired businesses; --rapid changes in product standards; --our ability to renew or replace short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. financing facilities; --intellectual property infringement The encroachment, breach, or violation of a right, law, regulation, or contract. The term is most frequently used in reference to the invasion of rights secured by Copyright, patent, or trademark. claims; and --risks that are otherwise described from time to time in our Securities and Exchange Commission reports, including but not limited to the items discussed in "Factors that Could Affect Future Results" set forth in "Risk Factors" in Item 1A of our Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended Dec. 31, 2005, as filed with the Securities and Exchange Commission. We assume no obligation to update, and do not intend to update, any forward-looking statements.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
---------------------
2006 2005
---------- ----------
Net sales $806,038 $779,367
Costs of goods sold 703,745 684,119
---------- ----------
Gross profit 102,293 95,248
Operating expenses:
Selling and administrative expenses 80,045 70,980
Reductions in liabilities assumed in a previous
acquisition - (664)
---------- ----------
Earnings from operations 22,248 24,932
Non-operating (income) expense:
Interest income (922) (801)
Interest expense 797 293
Other expense, net 194 159
---------- ----------
Earnings from operations before income
taxes 22,179 25,281
Income tax expense 7,965 9,769
---------- ----------
Net earnings $14,214 $15,512
========== ==========
Earnings per share:
Basic $0.30 $0.31
========== ==========
Diluted $0.29 $0.31
========== ==========
Shares used in per share calculation:
Basic 48,002 49,572
========== ==========
Diluted 48,685 50,132
========== ==========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, Dec. 31,
2006 2005
--------- ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $82,837 $35,145
Accounts receivable, net 419,431 480,458
Inventories 93,836 121,223
Inventories not available for sale 25,207 35,528
Deferred income taxes and other current assets 30,495 29,624
--------- ---------
Total current assets 651,806 701,978
Property and equipment, net 138,427 133,017
Goodwill 87,095 87,124
Other assets 17 221
--------- ---------
$877,345 $922,340
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $171,211 $183,014
Accrued expenses and other current liabilities 66,982 55,413
Client payments in advance of shipment 23,741 24,747
Inventories financing facility - 4,281
Short-term financing facility - 45,000
Line of credit - 21,309
--------- ---------
Total current liabilities 261,934 333,764
Deferred income taxes and other long-term
liabilities 20,571 22,552
Stockholders' equity:
Preferred stock - -
Common stock 483 477
Additional paid-in capital 311,107 299,043
Retained earnings 266,533 252,318
Accumulated other comprehensive income --
foreign currency translation adjustment 16,717 14,186
--------- ---------
Total stockholders' equity 594,840 566,024
--------- ---------
$877,345 $922,340
========= =========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months
Ended
March 31,
-----------------
2006 2005
-------- --------
Cash flows from operating activities:
Net earnings 14,214 15,512
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,480 4,539
Provision for losses on accounts receivable 863 1,407
Write-downs of inventories 2,041 2,375
Non-cash stock based compensation 3,475 121
Tax benefit from employee gains on stock based
compensation - 665
Excess tax benefit from employee gains on stock
based compensation (1,755) -
Deferred income taxes (38) 2,799
Changes in assets and liabilities:
Decrease in accounts receivable 61,990 44,808
Decrease in inventories 35,769 1,813
Increase in other current assets (950) (6,636)
Decrease (increase) in other assets 258 (69)
Decrease in accounts payable (7,625) (15,902)
Decrease in inventories financing facility (4,281) (11,254)
(Decrease) increase in client payments in
advance of shipment (1,018) 19,754
Increase (decrease) in accrued expenses and
other current liabilities 5,766 (8,350)
-------- --------
Net cash provided by operating activities 114,189 51,582
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (10,725) (6,389)
Cash receipt of underwriter receivable - 27,776
-------- --------
Net cash (used in) provided by investing
activities (10,725) 21,387
-------- --------
Cash flows from financing activities:
Repayments on short-term financing facility (45,000) (25,000)
Net repayments on line of credit (21,309) -
Proceeds from sales of common stock under
employee stock plans 6,840 1,793
Excess tax benefit from employee gains on
stock based compensation 1,755 -
Repurchase of common stock - (5,032)
Repayment of long-term liabilities - (42)
-------- --------
Net cash used in financing activities (57,714) (28,281)
-------- --------
Foreign currency exchange effect on cash flow 1,942 (659)
-------- --------
Increase in cash and cash equivalents 47,692 44,029
Cash and cash equivalents at beginning of period 35,145 38,443
-------- --------
Cash and cash equivalents at end of period $82,837 $82,472
======== ========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
QUARTERLY OPERATING STATISTICS TABLE
(UNAUDITED)
Three Months Ended
March 31,
---------------------------------- -------------------------------
Insight Enterprises, Inc. 2006 2005 Change
---------------------------------- --------- --------- ---------
Working capital (in thousands) $389,872 $382,614 2%
Days sales outstanding in ending
accounts receivable ("DSOs") 47 46 1 day
Annualized inventory turns(a) 26 29 (3 times)
Days costs of goods sold outstanding
in ending accounts payable ("DPOs") 23 25 (2 days)
Effective tax rate (GAAP) 35.9% 38.6% (2.7%)
Effective tax rate (Non-GAAP) 36.4% 38.2% (1.8%)
Insight North America
------------------------------------
Number of shipping days 64 64 -
Number of account executives 1,079 1,109 (3%)
Average account executive tenure
(years) 4.0 3.6 0.4 years
Percentage of account executives
with tenure of:
less than 1 year 25% 26% (1%)
1-2 years 15% 14% 1%
2-3 years 8% 10% (2%)
greater than 3 years 52% 50% 2%
Net sales per average account
executive $621,419 $580,294 7%
Gross profit per average account
executive $75,665 $68,392 11%
Direct shipments % 58% 63% (2%)(b)
Electronic net sales % 21% n/a (c) n/a (c)
Electronic transactions % 30% n/a (c) n/a (c)
Product mix (as a % of product net
sales):
Notebooks and PDAs 16% 16% 1% (d)
Desktops and servers 16% 17% 2% (d)
Software 11% 12% (7%)(d)
Storage devices 8% 8% 7% (d)
Networking and connectivity 13% 11% 24% (d)
Printers 8% 8% - (d)
Monitors and video 7% 7% 3% (d)
Memory and processors 5% 6% (10%)(d)
Supplies and accessories 7% 7% 3% (d)
Miscellaneous 9% 8% 17% (d)
(a) Excluding inventory not available for sale and stock
compensation expense included in costs of goods sold.
(b) Represents percentage growth/decline in number of direct
shipments.
(c) No prior year information is available as we changed our
methodology in the first quarter of 2006 for capturing electronic
net sales and transactions.
(d) Represents percentage of net sales growth/decline in product
category.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
QUARTERLY OPERATING STATISTICS TABLE (CONTINUED)
(UNAUDITED)
Three Months Ended
March 31,
----------------------------
Insight UK 2006 2005 Change
------------------------------------- --------- --------- ------
Number of shipping days 64 61 3 days
Number of account executives 251 296 (15%)
Average account executive tenure
(years) 2.4 2.0 0.4 years
Percentage of account executives with
tenure of:
less than 1 year 37% 52% (15%)
1-2 years 24% 19% 5%
2-3 years 14% 9% 5%
greater than 3 years 25% 20% 5%
Net sales per average account
executive $464,003 $399,377 16%
Gross profit per average account
executive $68,078 $52,710 29%
Direct shipments % 50% 47% 13% (a)
Electronic net sales % 22% n/a (b) n/a (b)
Electronic transactions % 36% n/a (b) n/a (b)
Product mix (as a % of product net
sales):
Notebooks and PDAs 18% 19% (9%)(c)
Desktops and servers 15% 13% 11% (c)
Software 14% 15% (4%)(c)
Storage devices 8% 7% 13% (c)
Networking and connectivity 9% 8% 10% (c)
Printers 9% 10% (8%)(c)
Monitors and video 9% 10% (8%)(c)
Memory and processors 4% 4% 8% (c)
Supplies and accessories 8% 8% 9% (c)
Miscellaneous 6% 6% 7% (c)
Direct Alliance
---------------------------------------
Net sales mix:
Service fees 90% 90% (5%)(d)
Pass through product sales 10% 10% (6%)(d)
Client concentration:
Top client 38% 54% (16%)
Top three clients 79% 82% (3%)
(a) Represents percentage growth/decline in number of direct
shipments.
(b) No prior year information is available as we changed our
methodology in the first quarter of 2006 for capturing electronic
net sales and transactions.
(c) Represents percentage net sales growth/decline in product
category.
(d) Based on net sales dollars.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
OPERATING SEGMENT STATEMENT OF EARNINGS INFORMATION
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended March 31, 2006
--------------------------------------------
Insight
North Insight Direct
America UK Alliance Consolidated
----------- --------- --------- ------------
Net sales $668,958 $119,945 $17,135 $806,038
Costs of goods sold 587,504 102,347 13,894 703,745
----------- --------- --------- ------------
Gross profit 81,454 17,598 3,241 102,293
Operating expenses:
Selling and administrative
expenses 64,253 14,050 1,742 80,045
----------- --------- --------- ------------
Earnings from operations $17,201 $3,548 $1,499 22,248
=========== ========= =========
Non-operating expense, net 69
------------
Earnings from operations
before income taxes 22,179
Income tax expense 7,965
------------
Net earnings $14,214
============
Total assets $1,085,253 $163,299 $71,788 $877,345(a)
=========== ========= ========= ============
(a) Consolidated total assets include net intercompany eliminations
and corporate assets of $442,995.
Three Months Ended March 31, 2005
--------------------------------------------
Insight
North Insight Direct
America UK Alliance Consolidated
----------- --------- --------- ------------
Net sales $642,676 $118,615 $18,076 $779,367
Costs of goods sold 566,932 102,960 14,227 684,119
----------- --------- --------- ------------
Gross profit 75,744 15,655 3,849 95,248
Operating expenses:
Selling and administrative
expenses 57,082 12,591 1,307 70,980
Reductions in liabilities
assumed in a previous
acquisition - (664) - (664)
----------- --------- --------- ------------
Earnings from operations $18,662 $3,728 $2,542 24,932
=========== ========= =========
Non-operating income, net (349)
------------
Earnings from operations
before income taxes 25,281
Income tax expense 9,769
------------
Net earnings $15,512
============
Total assets $872,059 $156,479 $68,592 $858,993(a)
=========== ========= ========= ============
(a) Consolidated total assets include net intercompany eliminations
and corporate assets of $238,137.
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
RECONCILIATION OF CONSOLIDATED GAAP TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES)
(UNAUDITED)
Three Months Ended
March 31,
------------------
2006 2005
--------- --------
Gross Profit:
GAAP $102,293 $95,248
Stock compensation expense 89 -
--------- --------
Non-GAAP $102,382 $95,248
========= ========
Non-GAAP gross profit as a percentage of net sales
("Gross Margin") 12.7% 12.2%
Selling and Administrative Expenses:
GAAP $80,045 $70,980
Stock compensation expense (3,386) (121)
Settlement expense (1,000) -
--------- --------
Non-GAAP $75,659 $70,859
========= ========
Non-GAAP selling and administrative expenses as a
percentage of net sales 9.4% 9.1%
Earnings from Operations:
GAAP $22,248 $24,932
Stock compensation expense 3,475 121
Settlement expense 1,000 -
Reductions in liabilities assumed in a previous
acquisition - (664)
--------- --------
Non-GAAP $26,723 $24,389
========= ========
Non-GAAP earnings from operations as a percentage
of net sales ("Operating Margin") 3.3% 3.1%
Effective Tax Rate:
GAAP 35.9% 38.6%
Tax effect of adjustments 0.5% (0.4%)
--------- --------
Non-GAAP 36.4% 38.2%
========= ========
Net Earnings:
GAAP $14,214 $15,512
Stock compensation expense, net of tax 2,128 73
Settlement expense, net of tax 605 -
Reductions in liabilities assumed in a previous
acquisition, net of tax - (306)
--------- --------
Non-GAAP $16,947 $15,279
========= ========
Diluted Earnings Per Share ("EPS"):
GAAP $0.29 $0.31
Stock compensation expense, net of tax 0.05 0.00
Settlement expense, net of tax 0.01 -
Reductions in liabilities assumed in a previous
acquisition, net of tax - (0.01)
--------- --------
Non-GAAP $0.35 $0.30
========= ========
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
RECONCILIATION OF OPERATING SEGMENT GAAP
TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PERCENTAGES)
(UNAUDITED)
Three Months Ended
March 31,
------------------
2006 2005
--------- --------
Insight North America:
----------------------------------------------------
Selling and Administrative Expenses:
GAAP $64,253 $57,082
Stock compensation expense (2,820) (121)
Settlement expense (1,000) -
--------- --------
Non-GAAP $60,433 $56,961
========= ========
Non-GAAP selling and administrative expenses as a
percentage of net sales 9.0% 8.9%
Earnings from Operations:
GAAP $17,201 $18,662
Stock compensation expense 2,820 121
Settlement expense 1,000 -
--------- --------
Non-GAAP $21,021 $18,783
========= ========
Non-GAAP earnings from operations as a percentage
of net sales ("Operating Margin") 3.1% 2.9%
Insight UK:
----------------------------------------------------
Selling and Administrative Expenses:
GAAP $14,050 $12,591
Stock compensation expense (285) -
--------- --------
Non-GAAP $13,765 $12,591
========= ========
Non-GAAP selling and administrative expenses as a
percentage of net sales 11.5% 10.6%
Earnings from Operations:
GAAP $3,548 $3,728
Stock compensation expense 285 -
Reductions in liabilities assumed in a previous
acquisition - (664)
--------- --------
Non-GAAP $3,833 $3,064
========= ========
Non-GAAP earnings from operations as a percentage
of net sales ("Operating Margin") 3.2% 2.6%
INSIGHT ENTERPRISES INC. AND SUBSIDIARIES
RECONCILIATION OF OPERATING SEGMENT GAAP
TO NON-GAAP FINANCIAL MEASURES (CONTINUED)
(IN THOUSANDS, EXCEPT PERCENTAGES)
(UNAUDITED)
Three Months Ended
March 31,
------------------
2006 2005
--------- --------
Direct Alliance:
----------------------------------------------------
Gross Profit:
GAAP $3,241 $3,849
Stock compensation expense 89 -
--------- --------
Non-GAAP $3,330 $3,849
========= ========
Non-GAAP gross profit as a percentage of net sales
("Gross Margin") 19.4% 21.3%
Selling and Administrative Expenses:
GAAP $1,742 $1,307
Stock compensation expense (281) -
--------- --------
Non-GAAP $1,461 $1,307
========= ========
Non-GAAP selling and administrative expenses as a
percentage of net sales 8.5% 7.2%
Earnings from Operations:
GAAP $1,499 $2,542
Stock compensation expense 370 -
--------- --------
Non-GAAP $1,869 $2,542
========= ========
Non-GAAP earnings from operations as a percentage
of net sales ("Operating Margin") 10.9% 14.1%
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