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8-K - FORM 8-K - INSIGHT ENTERPRISES INCd716038d8k.htm

Exhibit 99.1

 

LOGO

 

FOR IMMEDIATE RELEASE    Nasdaq: NSIT

INSIGHT ENTERPRISES, INC. REPORTS FIRST QUARTER 2014 RESULTS

TEMPE, AZ – May 1, 2014 – Insight Enterprises, Inc. (NASDAQ: NSIT) (the “Company”) today reported results of operations for the quarter ended March 31, 2014.

For the first quarter of 2014

 

    Net sales increased 3% compared to the first quarter of 2013 to $1.2 billion.

 

    Gross profit increased 4% compared to the first quarter of 2013 to $163.7 million, with gross margin increasing approximately 10 basis points to 13.5% of net sales.

 

    Earnings from operations increased 46% compared to the first quarter of 2013 to $21.0 million, or 1.7% of net sales.

 

    Net earnings and diluted earnings per share were $11.6 million and $0.28, respectively, at an effective tax rate of 39.3%.

 

    The Company generated $66.0 million of cash from operations, compared to $16.3 million in the first quarter of 2013.

 

    The Company repurchased approximately 1.2 million shares of its common stock for $26.7 million.

“In the first quarter, solid sales execution and strict cost discipline combined with improving demand trends globally resulted in strong double digit earnings growth year over year,” stated Ken Lamneck, President and Chief Executive Officer. “We are pleased with our first quarter results and the sales and operational discipline we are seeing in our business and expect that will serve us well as we head through the balance of the year,” added Lamneck.

SEGMENT OVERVIEW

In North America, net sales were $780.7 million for the first quarter of 2014, an increase of 5% compared to net sales of $747.0 million for the first quarter of 2013. Net sales of hardware and software increased 4% and 11%, respectively, year over year, while net sales of services declined 14% year to year. Gross profit of $107.4 million was also up 5% year over year, with gross margin increasing to 13.8% for the first quarter of 2014 from 13.7% in the first quarter of 2013. Selling and administrative expenses in North America remained flat at $89.2 million in the first quarter of both 2014 and 2013. During the first quarter of 2014, severance and restructuring expenses recorded in North America were immaterial, compared to $1.1 million, $680,000 net of tax, during the first quarter of 2013. As a result, earnings from operations in North America increased 48% year over year to $18.2 million, or 2.3% of net sales, in the first quarter of 2014, compared to $12.3 million, or 1.6% of net sales, in the first quarter of 2013. Excluding severance and restructuring expenses in both periods, earnings from operations in North America on a non-GAAP basis increased 37% year over year to $18.2 million, or 2.3% of net sales, in the first quarter of 2014 compared to $13.3 million, or 1.8% of net sales, in the first quarter of 2013.*

- MORE -

Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958


Insight Q1 2014 Results, Page 2    May 1, 2014

 

The Company’s EMEA operating segment reported net sales of $387.9 million for the first quarter of 2014, which was flat compared to the first quarter of 2013. Excluding the effects of foreign currency movements, net sales decreased 5% year to year. Net sales of hardware increased 7% year over year, while net sales of software and services declined 3% and 13%, respectively, year to year, all in U.S. dollars. Excluding the effects of foreign currency movements, hardware net sales increased 1% year over year, and software and services net sales declined 8% and 17%, respectively, compared to the first quarter of 2013. Gross profit of $49.3 million was up 1%, with gross margin increasing to 12.7% for the first quarter of 2014 from 12.6% in the first quarter of 2013. Excluding the effects of foreign currency movements, gross profit declined 4% year to year. Selling and administrative expenses in EMEA in the first quarter of 2014 were up 3%, or $1.3 million, compared to the first quarter of 2013. Excluding the effects of foreign currency movements, selling and administrative expenses declined 2% year to year. During the first quarter of 2014, severance and restructuring expenses recorded in EMEA were immaterial, compared to $1.7 million, $1.2 million net of tax, of severance and restructuring expenses reported for the first quarter of 2013. As a result, earnings from operations in EMEA increased 66% year over year to $2.0 million, or 0.5% of net sales, in the first quarter of 2014 compared to $1.2 million, or 0.3% of net sales, in the first quarter of 2013. Excluding severance and restructuring expenses in both periods, earnings from operations in EMEA on a non-GAAP basis decreased 22% year to year to $2.2 million, or 0.6% of net sales, in the first quarter of 2014 compared to $2.9 million, or 0.7% of net sales, in the first quarter of 2013.*

The Company’s APAC operating segment reported net sales of $45.9 million for the first quarter of 2014, a decrease of 4% compared to the first quarter of 2013 in U.S. dollars. Excluding the effects of foreign currency movements, net sales increased 6% year over year. Gross profit remained flat at $7.0 million, with gross margin increasing to 15.3% for the first quarter of 2014 from 14.7% in the first quarter of 2013. Excluding the effects of foreign currency movements, gross profit increased 11% year over year. Selling and administrative expenses in APAC increased $107,000, or 2%, year over year in U.S. dollars, an increase of 14% year over year excluding the effects of foreign currency movements. As a result, earnings from operations in APAC decreased 10% year to year to $868,000, or 1.9% of net sales, in the first quarter of 2014 compared to $964,000, or 2.0% of net sales, in the first quarter of 2013.

Throughout this “Segment Overview” section, the Company refers to changes in net sales, gross profit and selling and administrative expenses in EMEA and APAC excluding the effects of foreign currency movements. In computing these changes and percentages, the Company compares the current year amount as translated into U.S. dollars under the applicable accounting standards to the prior year amount in local currency translated into U.S. dollars utilizing the average translation rate for the current period.

Net of tax amounts referenced above were computed using the statutory tax rate for the taxing jurisdictions in the operating segment in which the related expenses were recorded.

 

* 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.

 

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Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958


Insight Q1 2014 Results, Page 3    May 1, 2014

 

UPDATED GUIDANCE

For the full year of 2014, the Company continues to expect the global IT market to grow in the low- to mid-single digit range. The Company expects its business to grow slightly faster than the market. As a result, the Company expects earnings per share for the full year 2014 to be between $1.97 and $2.07.

This outlook reflects:

 

    The adverse effect on gross profit of previously announced partner program changes in the software category of between $15 and $20 million; and

 

    an effective tax rate of approximately 38% to 39%.

This outlook does not reflect severance and restructuring expenses or a non-cash impairment loss related to our Illinois real estate assets that we expect to record in the second quarter.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live web cast today at 5:00 p.m. ET to discuss first quarter 2014 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 http://nsit.client.shareholder.com/events.cfm, 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 1-877-402-8904 if located in the U.S., 678-809-1029 for international callers, and enter the access code 32389551.

USE OF NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures exclude severance and restructuring expenses in 2014 and 2013 and the tax effect of these charges. The Company excludes these charges when internally evaluating earnings from operations, tax expense, net earnings and diluted earnings per share 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 those of the Company’s competitors. 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 the Company’s competitors’ results and assist in forecasting performance for future periods. 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.

 

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Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958


Insight Q1 2014 Results, Page 4    May 1, 2014

 

FINANCIAL SUMMARY TABLE

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended March 31,  

Insight Enterprises, Inc.

   2014      2013      % change  

Net sales

   $ 1,214,530       $ 1,181,622         3

Gross profit

   $ 163,745       $ 158,137         4

Earnings from operations

   $ 20,979       $ 14,417         46

Net earnings

   $ 11,550       $ 9,076         27

Diluted earnings per share

   $ 0.28       $ 0.20         40

North America

        

Net sales

   $ 780,682       $ 747,004         5

Gross profit

   $ 107,413       $ 102,527         5

Earnings from operations

   $ 18,155       $ 12,274         48

EMEA

        

Net sales

   $ 387,943       $ 386,911         —     

Gross profit

   $ 49,321       $ 48,610         1

Earnings from operations

   $ 1,956       $ 1,179         66

APAC

        

Net sales

   $ 45,905       $ 47,707         (4 %) 

Gross profit

   $ 7,011       $ 7,000         —     

Earnings from operations

   $ 868       $ 964         (10 %) 

 

     North America     EMEA     APAC  
     Three Months Ended
March 31,
    Three Months Ended
March 31,
    Three Months Ended
March 31,
 

Sales Mix

   2014     2013     % change*     2014     2013     % change*     2014     2013     % change*  

Hardware

     63     63     4     39     37     7     4     2     91

Software

     31     30     11     59     61     (3 %)      93     95     (5 %) 

Services

     6     7     (14 %)      2     2     (13 %)      3     3     (11 %) 
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   
     100     100     5     100     100     —          100     100     (4 %) 
  

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

* Represents growth/decline in category net sales on a U.S. dollar basis.

 

- MORE -

Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958


Insight Q1 2014 Results, Page 5    May 1, 2014

 

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 the Company’s expectations relative to the growth of the global IT market and its expected 2014 financial results and diluted earnings per share, and the assumptions relating thereto, including the effective tax rate, the effect on gross profit of partner program changes and the expected amount and timing of a non-cash impairment loss related to the Company’s Illinois real estate assets, 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. There can be no assurances that the results discussed by the forward-looking statements will be achieved, and actual results may differ materially from those set forth in the forward-looking statements. Some of the important factors that could cause the Company’s 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2013:

 

    the Company’s reliance on partners for product availability and competitive products to sell as well as the Company’s competition with its partners;

 

    the Company’s reliance on partners for marketing funds and purchasing incentives;

 

    changes in the IT industry and/or rapid changes in technology;

 

    disruptions in the Company’s IT systems and voice and data networks, including risks and costs associated with the integration and upgrade of the Company’s IT systems;

 

    actions of the Company’s competitors, including manufacturers and publishers of products the Company sells;

 

    failure to comply with the terms and conditions of the Company’s commercial and public sector contracts;

 

    the security of the Company’s electronic and other confidential information;

 

    general economic conditions;

 

    the Company’s dependence on certain personnel;

 

    the variability of the Company’s net sales and gross profit;

 

    the integration and operation of acquired businesses, including the Company’s ability to achieve expected benefits of the acquisitions;

 

    the risks associated with the Company’s international operations;

 

    exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations; and

 

    intellectual property infringement claims and challenges to the Company’s registered trademarks and trade names.

Additionally, there may be other risks that are otherwise described from time to time in the reports that the Company files 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. The Company assumes no obligation to update, and, except as may be required by law, does not intend to update, any forward-looking statements. The Company does not endorse any projections regarding future performance that may be made by third parties.

 

CONTACTS:    GLYNIS BRYAN    HELEN JOHNSON
   CHIEF FINANCIAL OFFICER    SENIOR VP, TREASURER
   TEL. 480.333.3390    TEL. 480.333.3234
   EMAIL glynis.bryan@insight.com    EMAIL helen.johnson@insight.com

 

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Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958


Insight Q1 2014 Results, Page 6    May 1, 2014

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended
March 31,
 
     2014     2013  

Net sales

   $ 1,214,530      $ 1,181,622   

Costs of goods sold

     1,050,785        1,023,485   
  

 

 

   

 

 

 

Gross profit

     163,745        158,137   

Operating expenses:

    

Selling and administrative expenses

     142,429        140,988   

Severance and restructuring expenses

     337        2,732   
  

 

 

   

 

 

 

Earnings from operations

     20,979        14,417   

Non-operating (income) expense:

    

Interest income

     (249     (312

Interest expense

     1,458        1,618   

Net foreign currency exchange loss

     496        161   

Other expense, net

     249        374   
  

 

 

   

 

 

 

Earnings before income taxes

     19,025        12,576   

Income tax expense

     7,475        3,500   
  

 

 

   

 

 

 

Net earnings

   $ 11,550      $ 9,076   
  

 

 

   

 

 

 

Net earnings per share:

    

Basic

   $ 0.28      $ 0.20   
  

 

 

   

 

 

 

Diluted

   $ 0.28      $ 0.20   
  

 

 

   

 

 

 

Shares used in per share calculations:

    

Basic

     41,632        44,670   
  

 

 

   

 

 

 

Diluted

     41,918        45,063   
  

 

 

   

 

 

 

 

- MORE -

Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958


Insight Q1 2014 Results, Page 7    May 1, 2014

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

(UNAUDITED)

 

     March 31,      December 31,  
     2014      2013  

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 180,864       $ 126,817   

Accounts receivable, net

     1,074,465         1,257,910   

Inventories

     113,539         97,268   

Inventories not available for sale

     51,287         38,705   

Deferred income taxes

     16,423         16,436   

Other current assets

     63,933         57,528   
  

 

 

    

 

 

 

Total current assets

     1,500,511         1,594,664   

Property and equipment, net

     127,891         132,820   

Goodwill

     26,257         26,257   

Intangible assets, net

     33,003         35,765   

Deferred income taxes

     57,927         58,651   

Other assets

     13,132         19,561   
  

 

 

    

 

 

 
   $ 1,758,721       $ 1,867,718   
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities:

     

Accounts payable

   $ 757,687       $ 850,951   

Accrued expenses and other current liabilities

     139,020         156,491   

Current portion of long-term debt

     369         217   

Deferred revenue

     45,576         44,146   
  

 

 

    

 

 

 

Total current liabilities

     942,652         1,051,805   

Long-term debt

     91,246         66,949   

Deferred income taxes

     45         443   

Other liabilities

     22,650         31,603   
  

 

 

    

 

 

 
     1,056,593         1,150,800   
  

 

 

    

 

 

 

Stockholders’ equity:

     

Preferred stock

     —           —     

Common stock

     410         420   

Additional paid-in capital

     339,570         348,703   

Retained earnings

     348,278         353,854   

Accumulated other comprehensive income – foreign currency translation adjustments

     13,870         13,941   
  

 

 

    

 

 

 

Total stockholders’ equity

     702,128         716,918   
  

 

 

    

 

 

 
   $ 1,758,721       $ 1,867,718   
  

 

 

    

 

 

 

 

- MORE -

Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958


Insight Q1 2014 Results, Page 8    May 1, 2014

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

 

     Three Months Ended
March 31,
 
     2014     2013  

Cash flows from operating activities:

    

Net earnings

   $ 11,550      $ 9,076   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Depreciation and amortization

     10,026        10,454   

Provision for losses on accounts receivable

     1,533        1,292   

Write-downs of inventories

     273        1,039   

Write-off of property and equipment

     7        51   

Non-cash stock-based compensation

     1,758        2,090   

Excess tax benefit from employee gains on stock-based compensation

     (252     (717

Deferred income taxes

     359        1,304   

Changes in assets and liabilities:

    

Decrease in accounts receivable

     182,672        272,163   

(Increase) decrease in inventories

     (29,003     2,941   

Increase in other current assets

     (6,295     (17,137

Decrease (increase) in other assets

     6,206        (5,742

Decrease in accounts payable

     (87,709     (247,725

Increase (decrease) in deferred revenue

     855        (4,575

Decrease in accrued expenses and other liabilities

     (25,947     (8,231
  

 

 

   

 

 

 

Net cash provided by operating activities

     66,033        16,283   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (2,018     (5,670
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,018     (5,670
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Borrowings on senior revolving credit facility

     143,492        326,535   

Repayments on senior revolving credit facility

     (138,992     (330,535

Borrowings on accounts receivable securitization financing facility

     225,000        213,000   

Repayments on accounts receivable securitization financing facility

     (207,000     (228,000

Borrowings under other financing agreements

     2,002        —     

Payments on capital lease obligation

     (53     (257

Net (repayments) borrowings under inventory financing facility

     (7,181     21,277   

Excess tax benefit from employee gains on stock-based compensation

     252        717   

Payment of payroll taxes on stock-based compensation through shares withheld

     (1,559     (2,814

Repurchases of common stock

     (26,710     (6,856
  

 

 

   

 

 

 

Net cash used in financing activities

     (10,749     (6,933
  

 

 

   

 

 

 

Foreign currency exchange effect on cash balances

     781        (3,473
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     54,047        207   

Cash and cash equivalents at beginning of period

     126,817        152,119   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 180,864      $ 152,326   
  

 

 

   

 

 

 

 

- MORE -

Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958


Insight Q1 2014 Results, Page 9    May 1, 2014

 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

     Three Months Ended
March 31,
 
     2014      2013  

Consolidated Earnings from Operations:

     

GAAP

   $ 20,979       $ 14,417   

Severance and restructuring expenses

     337         2,732   
  

 

 

    

 

 

 

Non-GAAP

   $ 21,316       $ 17,149   
  

 

 

    

 

 

 

Consolidated Net Earnings:

     

GAAP

   $ 11,550       $ 9,076   

Severance and restructuring expenses, net of tax

     224         1,868   
  

 

 

    

 

 

 

Non-GAAP

   $ 11,774       $ 10,944   
  

 

 

    

 

 

 

Consolidated Diluted EPS:

     

GAAP

   $ 0.28       $ 0.20   

Severance and restructuring expenses, net of tax

     —           0.04   
  

 

 

    

 

 

 

Non-GAAP

   $ 0.28       $ 0.24   
  

 

 

    

 

 

 

North America Earnings from Operations:

     

GAAP

   $ 18,155       $ 12,274   

Severance and restructuring expenses

     77         1,057   
  

 

 

    

 

 

 

Non-GAAP

   $ 18,232       $ 13,331   
  

 

 

    

 

 

 

EMEA Earnings from Operations:

     

GAAP

   $ 1,956       $ 1,179   

Severance and restructuring expenses

     260         1,675   
  

 

 

    

 

 

 

Non-GAAP

   $ 2,216       $ 2,854   
  

 

 

    

 

 

 

 

 

- ### -

Insight Enterprises, Inc.     6820 South Harl Avenue     Tempe, Arizona 85283     800.467.4448     FAX 480.760.8958