Insight Enterprises, Inc. Reports Third Quarter 2009 Results

• Press Release
• Source: Insight Enterprises, Inc.
• On 4:02 pm EST, Wednesday November 4, 2009

TEMPE, Ariz.--(BUSINESS WIRE)--Insight Enterprises, Inc. (Nasdaq: NSIT - News) (“Insight” or the “Company”) today reported results of operations for the quarter ended September 30, 2009.

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Third Quarter Highlights

• Net sales for the third quarter of 2009 decreased 17% compared to the third quarter of 2008 to $969.9 million.
• Gross profit for the third quarter decreased 13% compared to the third quarter of 2008 to $133.5 million.
• Net earnings from continuing operations before one-time items for the third quarter increased 53% to $10.1 million compared to the third quarter of 2008.* (Net earnings from continuing operations for the third quarter increased 10% to $7.3 million including one-time items.)
• Diluted net earnings per share from continuing operations before one-time items for the third quarter of $0.22.* (Diluted net earnings per share from continuing operations for the quarter of $0.16 including one-time items.)
• One-time items in the third quarter of 2009 results include $4.0 million, $2.5 million net of tax, for severance and restructuring expenses, and $560,000, $346,000 net of tax, for professional fees and costs associated with the trade credit restatement remediation and related litigation. There were no one-time items in the third quarter of 2008.
• Prior year third quarter results include $3.3 million of foreign currency losses, primarily resulting from the strengthening of the U.S. dollar against the Euro and the British Pound Sterling and the volatility of those exchange rates during the quarter. Current year third quarter results include only $93,000 of net foreign currency losses.
• Results for the third quarter of 2009 include $1.5 million of tax benefit primarily from the true-up of foreign tax credits after filing of the Company’s 2008 U.S. federal tax return and the recognition of certain tax benefits from the settlement of audits. Prior year third quarter results include $1.1 million of tax benefit related to federal and state research and development credits recorded during the quarter.

* 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.

“The Board of Directors and I believe that Insight has a sound business strategy and is well positioned for success in the future,” stated Tony Ibarguen, Interim President and Chief Executive Officer. “As we head toward the end of 2009 and into 2010, we will continue to focus on our strategic priorities and on improving our operational execution.”

SEGMENT OVERVIEW

In North America, net sales were $686.0 million, down 19% from the third quarter of 2008. Gross profit decreased 12% year over year to $93.3 million while gross margin increased 110 basis points to 13.6% from 12.5% in the prior year. Net sales of services increased 13% year over year, contributing 90 basis points of the increase in gross margin. Net sales in the Company’s hardware and software categories were down 24% and 15%, respectively, year over year. However, for the second consecutive quarter, North America saw sequential quarter growth of approximately 3% in sales of hardware while holding gross margin steady in this category. Selling and administrative expenses for North America in the third quarter include $560,000 of professional fees and costs associated with the trade credit restatement remediation and ongoing related litigation. Excluding the effect of this item, selling and administrative expenses were down $18.5 million compared to the third quarter of last year, or 19%. The Company also recorded severance and restructuring expenses of $4.5 million in North America primarily for the departure of the Company’s CEO in early September. As a result, earnings from operations on a GAAP basis in North America were $9.5 million in the third quarter and, excluding these one-time items, earnings from operations increased 66% year over year to $14.5 million.

The Company’s EMEA operating segment reported net sales of $248.4 million, down 12% in U.S. dollars. Excluding the effects of foreign currency movements, net sales were down 2% versus last year. In local currency, the Company’s United Kingdom based business reported an increase of 16% and 5% in software and services sales, respectively, and a 5% decline in sales in the hardware category. Across the rest of EMEA, net sales decreased 6% in local currency. Gross profit in EMEA was down 18% in U.S. dollars, and down 9% excluding the effects of foreign currency movements, while gross margin decreased to 14.3% from 15.3% in the prior year. Selling and administrative expenses in EMEA in the third quarter were down $3.1 million year over year in U.S. dollars, and excluding the effects of foreign currency movements, were flat year to year. This segment also recorded $339,000 in severance expenses and reduced severance and restructuring expenses in the third quarter by $802,000 for changes in estimates associated with prior restructuring actions, primarily related to a terminated lease. Excluding the net benefit of severance expenses and the reduction of the restructuring reserve, EMEA reported earnings from operations of $1.0 million, a decrease of 82% year over year.

The Company’s APAC operating segment reported net sales of $35.5 million, up 8% from the prior year in U.S. dollars and up 12% excluding the effects of foreign currency movements. Gross profit was $4.8 million, and gross margin was 13.4%, down from $5.0 million and 15.2% in the prior year quarter. The APAC segment reported earnings from operations of $912,000 in the third quarter, an increase of 34% from the prior year quarter.

UPDATED GUIDANCE

Because of stronger than expected third quarter performance, but moderated by the Company’s anticipation of continued softness in EMEA compared to its original fourth quarter forecast, the Company is revising its outlook for diluted earnings per share from continuing operations to be between $0.83 and $0.88 for the full year of 2009, including $0.18 to $0.23 of diluted earnings per share expected in the fourth quarter of 2009. This outlook does not include the impact of any severance and restructuring expenses, expenses associated with the restatement investigation and administration or related litigation, or other one-time charges.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live web cast today at 5:00 p.m. ET to discuss third quarter results of operations. A live web cast of the conference call (in listen-only mode) will be available on the Company’s web site at www.insight.com and a replay of the web cast will be available on the Company’s web site for a limited time following the call. To listen to the live web cast by telephone, call 1-866-203-3436 if located in the U.S., 617-213-8849 for International callers, and enter the access code 65366090.

USE OF NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures in 2009 and 2008 exclude one-time items and the tax effect of these items. The Company excludes these charges when internally evaluating earnings from operations, tax expense, net earnings from continuing operations and diluted earnings per share from continuing operations for the Company and earnings from operations for each of the Company’s 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 the Company’s results to competitors’ financial results. The Company believes that these non-GAAP financial measures are useful to investors because they allow for greater transparency, facilitate comparisons to prior periods and competitors’ results and assist in forecasting performance for future periods because they exclude items the Company believes to be outside of normal operating results. These non-GAAP financial measures are not prepared in accordance 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.

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 from continuing operations for the fourth quarter of 2009 and our expectations for the demand environment and sales and margin trends 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 statements. 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, 2008:

• general economic conditions, including concerns regarding a global recession and credit constraints;
• 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;
• stockholder litigation related to the restatement of our consolidated financial statements;
• our ability to collect our accounts receivable;
• 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;
• disruptions in our information technology systems and voice and data networks, including our system upgrade and the migration of acquired businesses to our information technology systems and voice and data networks;
• actions of our competitors, including manufacturers and publishers of products we sell;
• the integration and operation of acquired businesses, including our ability to achieve expected benefits of the acquisitions;
• seasonal changes in demand for sales of software licenses;
• the risks associated with international operations;
• exposure to changes in, or interpretations of, tax rules and regulations;
• exposure to foreign currency exchange risks;
• our dependence on key personnel;
• 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 Securities and Exchange Commission. 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.
Glynis Bryan
Chief Financial Officer
480-333-3390
glynis.bryan@insight.com
or
Helen Johnson
Senior VP, Treasurer
480-333-3234
helen.johnson@insight.com