Press Release

Insight Enterprises, Inc. Reports Fourth Quarter and Full Year 2013 Results

February 12, 2014 9:00 AM EST

TEMPE, ARIZ.-- Insight Enterprises, Inc. (Nasdaq:NSIT) (the "Company") today reported results of operations for the quarter and year ended December 31, 2013.

For the fourth quarter of 2013 compared to the fourth quarter of 2012:

  • Net sales increased 4% to $1.4 billion.
  • Gross profit remained relatively flat at $181.2 million, with gross margin decreasing approximately 40 basis points to 13.0% of net sales.
  • Earnings from operations decreased 2% to $35.9 million, or 2.6% of net sales.
  • Net earnings decreased 2% to $20.4 million, while diluted earnings per share increased 4% to $0.48.
  • Excluding severance and restructuring expenses, net earnings on a non-GAAP basis increased 9% to $24.1 million, and diluted earnings per share on a non-GAAP basis increased 16% to $0.57.*
  • The Company repurchased approximately 353,000 shares of its common stock for $7.8 million during the fourth quarter of 2013.

For the full year 2013 compared to the full year 2012:

  • Net sales decreased 3% to $5.1 billion.
  • Gross profit also decreased 3% to $698.9 million, with gross margin remaining flat at 13.6% of net sales.
  • Earnings from operations decreased 18% to $121.2 million, or 2.4% of net sales.
  • The Company's effective tax rate was 38.0% compared to 35.9% in 2012.
  • Net earnings decreased 23% to $71.0 million, and diluted earnings per share decreased 21% to $1.64.
  • Excluding severance and restructuring expenses and the gain on bargain purchase of Inmac in 2012, net earnings on a non-GAAP basis decreased 15% to $80.8 million, and diluted earnings per share on a non-GAAP basis decreased 12% to $1.87.*
  • The Company generated $76.1 million of cash from operations in 2013, compared to $67.4 million in 2012.
  • The Company repurchased approximately 3.0 million shares of its common stock for $57.8 million during 2013.

"We are pleased with our financial results in the fourth quarter. We returned to year over year growth on the top line in North America and EMEA, we executed better than expected against recently announced partner program changes, and we continued to control our operating costs, which all led to solid results in the quarter," stated Ken Lamneck, President and Chief Executive Officer. "As we head into 2014, the foundation of our business is stronger. The integration of our IT systems in North America and EMEA is complete, and we have a strong management team in place. Market demand is improving, particularly in North America, our largest segment, and we have a healthy balance sheet to support growth. We believe we are well positioned heading into to the new year," added Lamneck.

SEGMENT OVERVIEW

In North America, net sales were $942.8 million for the fourth quarter of 2013, an increase of 4% compared to sales of $908.3 million for the fourth quarter of 2012. Net sales of hardware and services increased 7% and 9%, respectively, year over year, while net sales of software decreased 3% year to year. Gross profit of $122.1 million was up 4% year over year, with gross margin remaining flat at 12.9%. Selling and administrative expenses in North America in the fourth quarter of 2013 remained flat, increasing by $276,000, or less than 1%, compared to the fourth quarter of 2012. During the fourth quarter of 2013, North America had $771,000, $496,000 net of tax, of severance and restructuring expenses, compared to $535,000, $336,000 net of tax, during the fourth quarter of 2012. As a result, earnings from operations in North America increased 14% year over year to $31.5 million, or 3.3% of net sales, in the fourth quarter of 2013, compared to $27.5 million, or 3.0% of net sales, in the fourth quarter of 2012. Excluding severance and restructuring expenses in both periods, earnings from operations in North America on a non-GAAP basis increased 15% year to year to $32.2 million, or 3.4% of net sales, in the fourth quarter of 2013 compared to $28.0 million, or 3.1% of net sales, in the fourth quarter of 2012.*

The Company's EMEA operating segment reported net sales of $397.6 million for the fourth quarter of 2013, an increase of 5% in U.S. dollars compared to the fourth quarter of 2012. Excluding the effects of foreign currency movements, net sales increased 2% year over year. Net sales of hardware and software were up 2% and 7%, respectively, year over year, while net sales of services declined 5% year to year, all in U.S. dollars. Excluding the effects of foreign currency movements, hardware net sales were flat year to year while software sales increased 3% year over year and services net sales declined 7% compared to the fourth quarter of 2012. Gross profit of $49.1 million was down 3% in U.S. dollars, 6% excluding the effects of foreign currency movements, with gross margin decreasing to 12.4% for the fourth quarter of 2013 from 13.4% in the fourth quarter of 2012. Selling and administrative expenses in EMEA in the fourth quarter of 2013 were down 2%, or $851,000, compared to the fourth quarter of 2012 in U.S. dollars and, excluding the effects of foreign currency movements, were down 5% year to year. During the fourth quarter of 2013, EMEA recorded severance and restructuring expenses of $3.6 million, $3.2 million net of tax, compared to $1.3 million, $991,000 net of tax, reported for the fourth quarter of 2012. As a result, earnings from operations in EMEA decreased 81% year to year to $776,000, or 0.2% of net sales, in the fourth quarter of 2013 compared to $4.0 million, or 1.1% of net sales, in the fourth quarter of 2012. Excluding severance and restructuring expenses in both periods, earnings from operations in EMEA on a non-GAAP basis decreased 17% year to year to $4.4 million, or 1.1% of net sales, in the fourth quarter of 2013 compared to $5.3 million, or 1.4% of net sales, in the fourth quarter of 2012.*

The Company's APAC operating segment reported net sales of $54.8 million for the fourth quarter of 2013, a decrease of 9% compared to the fourth quarter of 2012 in U.S. dollars, or a decrease of less than 1% excluding the effects of foreign currency movements. Gross profit was $10.0 million, a decrease of 17% year to year in U.S. dollars, 8% excluding the effects of foreign currency movements, with gross margin decreasing to 18.2% for the fourth quarter of 2013 from 20.0% in the fourth quarter of 2012. Selling and administrative expenses in APAC decreased $578,000, or 8%, year to year in U.S. dollars, but were flat excluding the effects of foreign currency movements year to year. As a result, earnings from operations in APAC decreased 28% year to year to $3.7 million, or 6.7% of net sales, in the fourth quarter of 2013 compared to $5.1 million, or 8.5% of net sales, in the fourth quarter of 2012.

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.

GUIDANCE

For the full year of 2014, the Company expects 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. The Company expects diluted 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;
  • an effective tax rate of 38% to 39%;
  • the completion of the Company's current share repurchase program of up to $42 million in the first half of the year; and
  • capital expenditures of $15 to $20 million.

This outlook does not reflect severance and restructuring expenses.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live web cast today at 5:00 p.m. ET to discuss fourth quarter and full year 2013 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 1-877-402-8904 if located in the U.S., 678-809-1029 for international callers, and enter the access code 55746054. NSIT-F

USE OF NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures exclude severance and restructuring expenses in 2013 and 2012, a gain on bargain purchase in 2012 and the tax effect of these items. 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.

FINANCIAL SUMMARY TABLE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
                         
    Three Months Ended December 31,   Years Ended December 31,
Insight Enterprises, Inc.   2013   2012   % change   2013   2012   % change
Net sales   $1,395,158   $1,346,675   4%   $5,144,347   $5,301,441   (3%)
Gross profit   $181,155   $180,393   --   $698,887   $719,676   (3%)
Earnings from operations   $35,943   $36,580   (2%)   $121,237   $148,153   (18%)
Net earnings   $20,407   $20,767   (2%)   $71,021   $92,763   (23%)
Diluted EPS   $0.48   $0.46   4%   $1.64   $2.07   (21%)
                         
North America                        
Net sales   $942,758   $908,295   4%   $3,470,760   $3,626,357   (4%)
Gross profit   $122,052   $117,554   4%   $472,187   $478,522   (1%)
Earnings from operations   $31,474   $27,490   14%   $106,482   $116,054   (8%)
                         
EMEA                        
Net sales   $397,596   $378,438   5%   $1,469,174   $1,463,607   --
Gross profit   $49,133   $50,874   (3%)   $191,324   $203,845   (6%)
Earnings from operations   $776   $3,981   (81%)   $3,897   $20,383   (81%)
                         
APAC                        
Net sales   $54,804   $59,942   (9%)   $204,413   $211,477   (3%)
Gross profit   $9,970   $11,965   (17%)   $35,376   $37,309   (5%)
Earnings from operations   $3,693   $5,109   (28%)   $10,858   $11,716   (7%)
                         
                         
    North America   EMEA   APAC
    Three Months Ended   Three Months Ended   Three Months Ended
    December 31,   December 31,   December 31,
            %           %           %
Sales Mix   2013   2012   change*   2013   2012   change*   2013   2012   change*
Hardware   62%   60%   7%   33%   34%   2%   4%   2%   67%
Software   33%   35%   (3%)   65%   64%   7%   93%   94%   (10%)
Services   5%   5%   9%   2%   2%   (5%)   3%   4%   (16%)
    100%   100%   4%   100%   100%   5%   100%   100%   (9%)
                                     
    North America   EMEA   APAC
    Years Ended   Years Ended   Years Ended
    December 31,   December 31,   December 31,
            %           %           %
Sales Mix   2013   2012   change*   2013   2012   change*   2013   2012   change*
Hardware   61%   62%   (5%)   34%   37%   (7%)   3%   2%   29%
Software   33%   32%   (4%)   64%   61%   4%   94%   94%   (4%)
Services   6%   6%   1%   2%   2%   23%   3%   4%   (8%)
    100%   100%   (4%)   100%   100%   --   100%   100%   (3%)
                                     
* Represents growth/decline in category net sales on a U.S. dollar basis.

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, capital expenditures, earnings performance 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 Company's plans concerning the completion of its share repurchase program, 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, 2012:

  • 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;
  • general economic conditions;
  • 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;
  • the integration and operation of acquired businesses, including the Company's ability to achieve expected benefits of the acquisitions;
  • the Company's dependence on certain personnel;
  • the variability of the Company's net sales and gross profit;
  • 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 does not intend to update, any forward-looking statements unless required by law. The Company does not endorse any projections regarding future performance made by third parties.

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
                 
    Three Months Ended   Years Ended
    December 31,   December 31,
    2013   2012   2013   2012
Net sales   $1,395,158   $1,346,675   $5,144,347   $5,301,441
Costs of goods sold   1,214,003   1,166,282   4,445,460   4,581,765
Gross profit   181,155   180,393   698,887   719,676
Operating expenses:                
Selling and administrative expenses   140,799   141,952   564,910   565,206
Severance and restructuring expenses   4,413   1,861   12,740   6,317
Earnings from operations   35,943   36,580   121,237   148,153
Non-operating (income) expense:                
Interest income   (259)   (340)   (1,230)   (1,468)
Interest expense   1,560   1,351   6,337   6,101
Gain on bargain purchase   --   --   --   (2,022)
Net foreign currency exchange loss (gain)   445   409   194   (463)
Other expense, net   332   385   1,412   1,337
Earnings before income taxes   33,865   34,775   114,524   144,668
Income tax expense   13,458   14,008   43,503   51,905
Net earnings   $20,407   $20,767   $71,021   $92,763
                 
                 
Net earnings per share:                
Basic   $0.48   $0.47   $1.65   $2.09
Diluted   $0.48   $0.46   $1.64   $2.07
                 
                 
Shares used in per share calculations:                
Basic   42,181   44,571   43,012   44,413
Diluted   42,491   45,003   43,289   44,834
                 
         
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
         
    December 31,
    2013   2012
ASSETS        
Current assets:        
Cash and cash equivalents   $126,817   $152,119
Accounts receivable, net   1,257,910   1,371,356
Inventories   97,268   100,896
Inventories not available for sale   38,705   31,249
Deferred income taxes   16,436   16,387
Other current assets   57,528   29,543
Total current assets   1,594,664   1,701,550
         
Property and equipment, net   132,820   143,513
Goodwill   26,257   26,257
Intangible assets, net   35,765   47,405
Deferred income taxes   58,651   64,013
Other assets   19,561   18,765
    $1,867,718   $2,001,503
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable   $850,951   $982,611
Accrued expenses and other current liabilities   156,491   158,621
Current portion of long-term debt   217   602
Deferred revenue   44,146   40,287
Total current liabilities   1,051,805   1,182,121
         
Long-term debt   66,949   80,000
Deferred income taxes   443   2,312
Other liabilities   31,603   31,779
    1,150,800   1,296,212
Stockholders' equity:        
Preferred stock   --   --
Common stock   420   446
Additional paid-in capital   348,703   369,300
Retained earnings   353,854   315,888
Accumulated other comprehensive income - foreign currency translation adjustments   13,941   19,657
Total stockholders' equity   716,918   705,291
    $1,867,718   $2,001,503
         
         
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
         
    Years Ended December 31,
    2013   2012
Cash flows from operating activities:        
Net earnings   $71,021   $92,763
Adjustments to reconcile net earnings to net cash provided by operating activities:        
Depreciation and amortization   41,544   41,177
Provision for losses on accounts receivable   4,696   4,195
Write-downs of inventories   3,719   3,089
Write-off of property and equipment   606   596
Non-cash stock-based compensation   6,430   8,548
Gain on bargain purchase   --   (2,022)
Excess tax benefit from employee gains on stock-based compensation   (909)   (1,966)
Deferred income taxes   3,445   8,978
Changes in assets and liabilities:        
Decrease (increase) in accounts receivable   111,545   (141,182)
(Increase) decrease in inventories   (7,391)   27,477
Increase in other current assets   (30,650)   (5,816)
Decrease in other assets   735   9,207
(Decrease) increase in accounts payable   (130,657)   56,442
Increase (decrease) in deferred revenue   1,197   (11,196)
Increase (decrease) in accrued expenses and other liabilities   735   (22,848)
Net cash provided by operating activities   76,066   67,442
Cash flows from investing activities:        
Acquisition, net of cash acquired   --   (3,831)
Purchases of property and equipment   (19,024)   (30,152)
Net cash used in investing activities   (19,024)   (33,983)
Cash flows from financing activities:        
Borrowings on senior revolving credit facility   835,328   803,953
Repayments on senior revolving credit facility   (851,828)   (885,953)
Borrowings on accounts receivable securitization financing facility   875,000   581,000
Repayments on accounts receivable securitization financing facility   (872,000)   (534,000)
Payments on capital lease obligation   (671)   (1,017)
Net (repayments) borrowings under inventory financing facility   (1,581)   22,900
Payment of deferred financing fees   --   (2,777)
Proceeds from sales of common stock under employee stock plans   --   2,641
Excess tax benefit from employee gains on stock-based compensation   909   1,966
Payment of payroll taxes on stock-based compensation through shares withheld   (3,094)   (3,288)
Repurchases of common stock   (57,774)   --
Net cash used in financing activities   (75,711)   (14,575)
Foreign currency exchange effect on cash balances   (6,633)   4,899
(Decrease) increase in cash and cash equivalents   (25,302)   23,783
Cash and cash equivalents at beginning of year   152,119   128,336
Cash and cash equivalents at end of year   $126,817   $152,119
         
                 
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
                 
    Three Months Ended   Years Ended
    December 31,   December 31,
    2013   2012   2013   2012
Consolidated Earnings from Operations:                
GAAP   $35,943   $36,580   $121,237   $148,153
Severance and restructuring expenses   4,413   1,861   12,740   6,317
Non-GAAP   $40,356   $38,441   $133,977   $154,470
                 
Consolidated Net Earnings:                
GAAP   $20,407   $20,767   $71,021   $92,763
Severance and restructuring expenses, net of tax   3,651   1,327   9,786   4,264
Gain on bargain purchase, net of tax   --   --   --   (1,699)
Non-GAAP   $24,058   $22,094   $80,807   $95,328
                 
Consolidated Diluted EPS:                
GAAP   $0.48   $0.46   $1.64   $2.07
Severance and restructuring expenses, net of tax   0.09   0.03   0.23   0.10
Gain on bargain purchase, net of tax   --   --   --   (0.04)
Non-GAAP   $0.57   $0.49   $1.87   $2.13
                 
North America Earnings from Operations:                
GAAP   $31,474   $27,490   $106,482   $116,054
Severance and restructuring expenses   771   535   3,325   2,834
Non-GAAP   $32,245   $28,025   $109,807   $118,888
                 
EMEA Earnings from Operations:                
GAAP   $776   $3,981   $3,897   $20,383
Severance and restructuring expenses   3,642   1,326   9,415   3,483
Non-GAAP   $4,418   $5,307   $13,312   $23,866

 

Contacts

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