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Insight Enterprises' (NSIT) Q3 Earnings Top Estimates, Up Y/Y

Zacks Equity Research
·6 min read

Insight Enterprises, Inc. NSIT reported third-quarter 2020 non-GAAP earnings of 1.38 cents per share, up 25.5% on a year-over-year basis. Also, the bottom line beat the Zacks Consensus Estimate by 22.1%.

Net sales came in at $1.937 million, up 1.3% year over year, driven by synergies from PCM buyout. This offset weakness in demand across Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC). The top line missed the Zacks Consensus Estimate by 3.7%.

The company concluded the integration of the PCM acquisition with back office division. The company now expects to achieve $60-$65 million in annualized cost savings from the PCM integration in 2020. Previously, management had projected $70 million in savings over two years post the buyout. Notably, Insight Enterprises had acquired PCM in August 2019.

Insight Enterprises, Inc. Price, Consensus and EPS Surprise

 

Insight Enterprises, Inc. Price, Consensus and EPS Surprise
Insight Enterprises, Inc. Price, Consensus and EPS Surprise

Insight Enterprises, Inc. price-consensus-eps-surprise-chart | Insight Enterprises, Inc. Quote

 

Insight Enterprises also incorporated contact tracing feature to its Connected Platform Detect and Prevention Solution to help organizations check coronavirus transmission by utilizing the screening procedure. The solution has already been selected by few customers in pharmaceutical and energy verticals in North America.

Top Line in Detail

Net sales from Products came in at $1.662 billion, down 0.4% year over year.

Net sales from Services of $274.9 million improved 13% from the year-ago quarter’s figure. 

Revenues by Region

North America (80.5% of total revenues) net sales were $1.558 billion, up 3% from the year-ago quarter’s figure (up 3% after adjusting for forex). The acquisition of PCM cushioned the top line growth.

Net sales from Products came in at $1.335 billion, up 1% year over year. Net sales from Services increased 12% year over year to $223.2 million.

By sales mix, Hardware sales comprised 66% of North America net sales. Software and Services contributed 20% and 14% to net sales, respectively.

EMEA (17.6%) reported net sales of $341.3 million that deteriorated 4% year over year (down 8% after adjusting for forex).

Net sales from Products were at $304 million, down 6% year over year. Net sales from Services rose 19% to $37.3 million.

By sales mix, Hardware sales contributed 41% to EMEA net sales. Software and Services comprised 48% and 11% of net sales, respectively.

APAC (1.9%) net sales came in at $37 million, down 11% year over year (down 13% after adjusting for forex).

Net sales from Products totaled $22.6 million, down 22% year over year. Net sales from Services increased 12% to $14.4 million.

Per sales mix, Hardware sales contributed 17% to APAC net sales. Software and Services contributed 44% and 39% to net sales, respectively.

Operating Details

Gross margin expanded 150 basis points (bps) on a year-over-year basis to 15.9%. Favorable product mix due to increased demand for cloud and services’ offerings drove gross-margin expansion.

Selling and administrative expenses increased 10% year over year to $245.2 million mainly due to the PCM acquisition. Selling and administrative expenses as a percentage of revenues increased 100 bps year over year to 12.7%.

Earnings from operations increased 38% year over year to $61.5 million. Adjusted non-GAAP consolidated earnings from operations improved 21.9% to $71.8 million. As a percentage of revenues, adjusted earnings from operations improved 60 bps to 3.7%

Balance Sheet & Cash Flow

As of Sep 30, cash, cash equivalents were $75.2 million compared with the prior-quarter’s figure of $153.9 million.

Long-term debt (including current portion) was $296.1 billion, down from the prior-quarter figure of $437.5 million.

Cash provided by operating activities came in at $462.1 million compared with the prior-quarter figure of $497.5 million.

Adjusted non-GAAP free cash flow at end of third quarter was $555.7 million compared with $490.5 million reported at the end of in the second quarter of 2020.

Guidance

Insight Enterprises expects IT spending to remain sluggish due to COVID-19 related disruptions in 2020. Management has been cutting down on discretionary expenditure to carry out its operating plans without hindrance in the near term.

Despite the uncertainty, management noted that bookings trends are improving as enterprises remain optimistic of an economic rebound in 2021.

The company is also witnessing strength in bookings for its cloud and services offerings. Moreover, hardware bookings’ backlog for the North America segment is high in the fourth quarter as several bookings made in the third quarter could not be converted into sales in the quarter.   

For the fourth quarter, net sales are projected between $2.1 billion and $2.2 billion. The Zacks Consensus Estimate for revenues is currently pegged at $2.09 billion.

Further, adjusted non-GAAP earnings are now expected between $1.45 and $1.55 per share. The consensus mark for earnings is pegged at $1.35.
For 2020, net sales are forecast between $8.1 billion and $8.2 billion, while adjusted non-GAAP earnings are projected in the range of $5.88-$5.98 per share.

The consensus estimates for the top and the bottom line are currently pegged at $8.22 billion and $5.54 per share, respectively. 

Zacks Rank & Stocks to Consider

Currently, Insight carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader sector are Hanesbrands HBI, Compugen CGEN and Flowserve FLS. Hanesbrands sports a Zacks Rank #1 (Strong Buy), while Compugen and Flowserve carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

All the three companies are set to report earnings on Nov 5.

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Flowserve Corporation (FLS) : Free Stock Analysis Report
 
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