Press Release

Insight Enterprises, Inc. Reports Record Second Quarter 2017 Results

August 2, 2017 12:51 PM EDT

Insight Enterprises, Inc. (Nasdaq:NSIT) (the "Company") today reported results of operations for the quarter ended June 30, 2017.

  • Net sales up 16% to $1.68 billion.
  • Gross profit up 20% to $251.4 million.
  • Earnings from operations up 19% to $69.3 million.
  • Diluted earnings per share of $1.11, up 16% year over year.

In the second quarter of 2017, consolidated net sales were up 16% year over year, reflecting both solid organic growth and the addition of Datalink to our business.

Gross margin expansion and effective cost control in our core business, combined with a positive contribution from the Datalink business acquired in January 2017, led to a 19% year over year increase in consolidated earnings from operations in the second quarter of 2017.

Diluted earnings per share increased to $1.11 compared to $0.96 for the second quarter of 2016. Adjusted diluted earnings per share was $1.14 in the second quarter of 2017 compared to $0.97 reported in the second quarter of last year.*

"I am pleased to report that strong sales execution and operational discipline in a stable and growing IT market allowed us to deliver record results in the first half of 2017," stated Ken Lamneck, President and Chief Executive Officer. "As we head into the second half of 2017, we believe our growing cloud, data center and supply chain offerings, combined with our strong operational focus, will position us well to continue to gain market share and deliver value to our stakeholders," stated Lamneck.

KEY HIGHLIGHTS

  • Consolidated net sales of $1.68 billion for the second quarter of 2017 increased 16% compared to the second quarter of 2016.
    • Net sales in North America of $1.3 billion were up 24% year over year;
    • Net sales in EMEA of $346.1 million decreased 4% year to year; and
    • Net sales in APAC of $56.7 million decreased 3% year to year.
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated net sales increased 17% year over year, with net sales growth in North America and EMEA of 24% and 1%, respectively, and a decline in APAC of 3% year to year.
  • Consolidated gross profit of $251.4 million increased 20% compared to the second quarter of 2016, with consolidated gross margin increasing to 14.9% of net sales.
    • Gross profit in North America of $182.8 million (14.3% gross margin) increased 27% year over year;
    • Gross profit in EMEA of $55.7 million (16.1% gross margin) increased 1% year over year; and
    • Gross profit in APAC of $12.9 million (22.7% gross margin) increased 19% year over year.
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated gross profit increased 22% year over year, and gross profit in North America, EMEA and APAC increased 28%, 8% and 19%, respectively, year over year.
  • Consolidated earnings from operations increased 19% compared to the second quarter of 2016 to $69.3 million, or 4.1% of net sales.
    • Earnings from operations in North America increased 21% year over year to $50.4 million, or 3.9% of net sales;
    • Earnings from operations in EMEA increased 16% year over year to $13.5 million, or 3.9% of net sales; and
    • Earnings from operations in APAC increased 10% year over year to $5.4 million, or 9.6% of net sales.
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated earnings from operations increased 20% year over year, and earnings from operations in North America, EMEA and APAC increased 22%, 20% and 9%, respectively, year over year.
  • Adjusted consolidated earnings from operations increased 20% year over year to $70.6 million, or 4.2% of net sales, for the second quarter of 2017.*
  • Consolidated net earnings and diluted earnings per share for the second quarter of 2017 were $40.3 million and $1.11, respectively, at an effective tax rate of 37.7%.
  • Adjusted consolidated net earnings and Adjusted diluted earnings per share for the second quarter of 2017 were $41.2 million and $1.14, respectively.*

* In discussing financial results for the three and six months ended June 30, 2017 and 2016 in this press release, the Company refers to certain financial measures that are not prepared in accordance with United States generally accepted accounting principles ("GAAP"). When referring to non-GAAP measures, the Company refers to such measures as "Adjusted." Adjusted measures exclude (i) severance and restructuring expenses, (ii) certain acquisition-related expenses, (iii) a gain on sale of real estate in the 2016 periods and (iv) the tax effects of these items. See "Use of Non-GAAP Financial Measures" for additional information. A tabular reconciliation of financial measures prepared in accordance with GAAP to the non-GAAP financial measures is included at the end of this press release.

The Company refers to changes in net sales, gross profit and earnings from operations on a consolidated basis and in North America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates. 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 weighted average translation rate for the current period.

The tax effect of Adjusted amounts referenced herein were computed using the statutory tax rate for the taxing jurisdictions in the operating segment in which the related expenses were recorded, adjusted for the effects of valuation allowances on net operating losses in certain jurisdictions.

GUIDANCE

For the full year 2017, the Company now expects its business to deliver sales growth of 17% to 19% compared to 2016. The Company is also increasing its Adjusted diluted earnings per share outlook for the full year of 2017 to $3.15 to $3.25.

This outlook assumes an effective tax rate of approximately 38% for the balance of 2017.

This outlook also excludes severance and restructuring and acquisition-related expenses incurred during the first half of 2017 and those that may be incurred during the balance of 2017, as well as an approximate $3 million non-cash charge as a result of the sale of the Company's Russia business in mid July 2017. Due to the inherent difficulty of forecasting severance and restructuring and acquisition-related expenses, which impact net earnings and diluted earnings per share, the Company is unable to reasonably estimate the future impact of such expenses, if any, to net earnings and diluted earnings per share. Accordingly, the Company is unable to provide a reconciliation of GAAP to non-GAAP diluted earnings per share for the full year 2017 forecast.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live web cast today at 5:00 p.m. ET to discuss second quarter 2017 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 58891539. NSIT-F

USE OF NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures (referred to as Adjusted consolidated earnings from operations, Adjusted consolidated net earnings and Adjusted diluted earnings per share) exclude (i) severance and restructuring expenses, (ii) certain acquisition-related expenses, (iii) a gain on sale of real estate in the 2016 periods and (iv) the tax effects of these items. The Company excludes these items 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 June 30,   Six Months Ended June 30,
      2017       2016     change       2017       2016     change  
Insight Enterprises, Inc.                                            
Net sales   $ 1,684,032     $ 1,456,234     16 %   $ 3,161,575     $ 2,625,216     20 %
Gross profit   $ 251,379     $ 209,217     20 %   $ 459,606     $ 370,325     24 %
Gross margin     14.9 %     14.4 %   50 bps     14.5 %     14.1 %   40 bps
Selling and administrative expenses   $ 180,752     $ 150,186     20 %   $ 358,384     $ 296,305     21 %
Severance and restructuring expenses   $ 1,022     $ 909     12 %   $ 5,717     $ 2,265     152 %
Acquisition-related expenses   $ 276     $ -     *     $ 3,223       -     *  
Earnings from operations   $ 69,329     $ 58,122     19 %   $ 92,282     $ 71,755     29 %
Net earnings   $ 40,255     $ 35,067     15 %   $ 54,103     $ 41,955     29 %
Diluted earnings per share   $ 1.11     $ 0.96     16 %   $ 1.5     $ 1.13     33 %
                                             
North America                                            
Net sales   $ 1,281,312     $ 1,036,254     24 %   $ 2,392,264     $ 1,863,142     28 %
Gross profit   $ 182,786     $ 143,368     27 %   $ 341,087     $ 255,111     34 %
Gross margin     14.3 %     13.8 %   50 bps     14.3 %     13.7 %   60 bps
Selling and administrative expenses   $ 131,560     $ 101,261     30 %   $ 262,570     $ 201,302     30 %
Severance and restructuring expenses   $ 543     $ 591     (8 %)   $ 1,647     $ 1,808     (9 %)
Acquisition-related expenses   $ 276     $ -     *     $ 3,223       -     *  
Earnings from operations   $ 50,407     $ 41,516     21 %   $ 73,647     $ 52,001     42 %
                                             
Sales Mix                   **                     **  
Hardware     63 %     61 %   27 %     63 %     62 %   32 %
Software     29 %     32 %   13 %     28 %     31 %   17 %
Services     8 %     7 %   43 %     9 %     7 %   51 %
      100 %     100 %   24 %     100 %     100 %   28 %
                                             
                                             
EMEA                                            
Net sales   $ 346,060     $ 361,708     (4 %)   $ 676,415     $ 665,068     2 %
Gross profit   $ 55,733     $ 55,076     1 %   $ 98,279     $ 98,502     -  
Gross margin     16.1 %     15.2 %   90 bps     14.5 %     14.8 %   (30 bps)
Selling and administrative expenses   $ 41,772     $ 43,091     (3 %)   $ 81,915     $ 83,770     (2 %)
Severance and restructuring expenses   $ 479     $ 318     51 %   $

4,009

    $ 342     *  
Earnings from operations   $ 13,482     $ 11,667     16 %   $ 12,355     $ 14,390     (14 %)
                                             
Sales Mix                   **                     **  
Hardware     36 %     31 %   11 %     39 %     35 %   14 %
Software     60 %     66 %   (12 %)     58 %     62 %   (5 %)
Services     4 %     3 %   4 %     3 %     3 %   11 %
      100 %     100 %   (4 %)     100 %     100 %   2 %

* Percentage change not considered meaningful.
** Change in sales mix represents growth/decline in category net sales on a U.S. dollar basis and does not exclude the effects of fluctuating foreign currency exchange rates.

 
 
FINANCIAL SUMMARY TABLE (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
                                             
    Three Months Ended June 30,   Six Months Ended June 30,
      2017       2016     change       2017       2016     change  
APAC                                            
Net sales   $ 56,660     $ 58,272     (3 %)   $ 92,896     $ 97,006     (4 %)
Gross profit   $ 12,860     $ 10,773     19 %   $ 20,240     $ 16,712     21 %
Gross margin     22.7 %     18.5 %   420 bps     21.8 %     17.2 %   460 bps
Selling and administrative expenses   $ 7,420     $ 5,834     27 %   $ 13,899     $ 11,233     24 %
Severance and restructuring expenses   $ -     $ -     -     $ 61     $ 115     (47 %)
Earnings from operations   $ 5,440     $ 4,939     10 %   $ 6,280     $ 5,364     17 %
                                             
Sales Mix                   **                     **  
Hardware     12 %     9 %   28 %     12 %     9 %   21 %
Software     78 %     87 %   (13 %)     77 %     87 %   (15 %)
Services     10 %     4 %   158 %     11 %     4 %   190 %
      100 %     100 %   (3 %)     100 %     100 %   (4 %)

** Change in sales mix represents growth/decline in category net sales on a U.S. dollar basis and does not exclude the effects of fluctuating foreign currency exchange rates.

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 expected 2017 financial results, including sales growth rates and Adjusted diluted earnings per share, and the assumptions relating thereto, including the Company's effective tax rate for 2017, its expected non-cash loss on the sale of its Russia business, and the Company's expectations of gaining market share and closing out 2017 strong 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, 2016 and in other of the Company's filings with the Securities and Exchange Commission:

  • actions of the Company's competitors, including manufacturers and publishers of products the Company sells;
  • the Company's reliance on partners for product availability, competitive products to sell and related marketing funds and purchasing incentives;
  • changes in the information technology ("IT") industry and/or rapid changes in technology;
  • risks associated with the integration and operation of acquired businesses;
  • possible significant fluctuations in the Company's future operating results;
  • the risks associated with the Company's international operations;
  • general economic conditions;
  • increased debt and interest expense and decreased availability of funds under the Company's financing facilities;
  • the security of the Company's electronic and other confidential information;
  • disruptions in the Company's IT systems and voice and data networks;
  • failure to comply with the terms and conditions of the Company's commercial and public sector contracts;
  • accounts receivable risks, including increased credit loss experience or extended payment terms with the Company's clients;
  • the Company's reliance on independent shipping companies;
  • the Company's dependence on certain personnel;
  • natural disasters or other adverse occurrences;
  • exposure to changes in, interpretations of, or enforcement trends related to tax rules and regulations;
  • intellectual property infringement claims and challenges to the Company's registered trademarks and trade names; and
  • legal proceedings and audits and failure to comply with laws and regulations.

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.

 
 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
                           
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2017     2016       2017     2016  
Net sales   $ 1,684,032   $ 1,456,234     $ 3,161,575   $ 2,625,216  
Costs of goods sold     1,432,653     1,247,017       2,701,969     2,254,891  
Gross profit     251,379     209,217       459,606     370,325  
Operating expenses:                          
Selling and administrative expenses     180,752     150,186       358,384     296,305  
Severance and restructuring expenses     1,022     909       5,717     2,265  
Acquisition-related expenses     276     -       3,223     -  
Earnings from operations     69,329     58,122       92,282     71,755  
Non-operating (income) expense:                        
Interest income     (205 )   (216 )     (636 )   (466 )
Interest expense     4,326     1,992       8,259     3,840  
Net foreign currency exchange loss (gain)     251     (153 )     631     463  
Other expense, net     326     359       641     627  
Earnings before income taxes     64,631     56,140       83,387     67,291  
Income tax expense     24,376     21,073       29,284     25,336  
Net earnings   $ 40,255   $ 35,067     $ 54,103   $ 41,955  
                           
                           
Net earnings per share:                          
Basic   $ 1.13   $ 0.96     $ 1.52   $ 1.14  
Diluted   $ 1.11   $ 0.96     $ 1.50   $ 1.13  
                           
                           
Shares used in per share calculations:                        
Basic     35,765     36,380       35,684     36,728  
Diluted     36,169     36,612       36,177     36,999  
               
               
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
                   
    June 30,   December 31,  
    2017   2016  
ASSETS                  
Current assets:                  
Cash and cash equivalents   $ 194,783     $ 202,882    
                   
Accounts receivable, net     1,821,694       1,436,742    
Inventories     210,496       148,203    
Inventories not available for sale     61,856       68,619    
Other current assets     212,228       127,159    
                   
Total current assets     2,501,057       1,983,605    
                   
Property and equipment, net     77,486       70,910    
Goodwill     127,226       62,645    
Intangible assets, net     107,006       20,707    
Deferred income taxes     40,434       52,347    
Other assets     65,258       29,086    
                   
    $ 2,918,467     $ 2,219,300    
                   
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current liabilities:                  
Accounts payable - trade   $ 1,288,764     $ 1,070,259    
Accounts payable - inventory financing facility     203,901       154,930    
Accrued expenses and other current liabilities     174,381       151,895    
Current portion of long-term debt     14,644       480    
Deferred revenue     115,764       61,098    
                   
Total current liabilities     1,797,454       1,438,662    
                   
Long-term debt     286,219       40,251    
Deferred income taxes     702       900    
Other liabilities     48,090       26,044    
      2,132,465       1,505,857    
Stockholders' equity:                  
Preferred stock     -       -    
Common stock     358       355    
Additional paid-in capital     311,848       309,650    
Retained earnings     513,640       459,537    
                   

Accumulated other comprehensive loss - foreign currency translation adjustments

    (39,844

)

    (56,099

)

 
                   
Total stockholders' equity     786,002       713,443    
                   
    $ 2,918,467     $ 2,219,300    
 
 
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
                 
    Six Months Ended June 30,
    2017   2016
Cash flows from operating activities:              
Net earnings   $ 54,103     $ 41,955  
Adjustments to reconcile net earnings to net cash used in operating activities:          
Depreciation and amortization of property and equipment of     12,729       13,963  
Amortization of intangible assets     8,433       6,499  
Provision for losses on accounts receivable     2,225       1,255  
Write-downs of inventories     1,077       1,164  
Non-cash stock-based compensation     6,749       5,283  
Deferred income taxes     (25 )     1,662  
Gain on sale of real estate     -       (338 )
Changes in assets and liabilities, net of acquisitions:            
Increase in accounts receivable     (230,762 )     (178,019 )
Increase in inventories     (54,276 )     (28,604 )
Increase in other assets     (64,875 )     (12,563 )
Increase in accounts payable     163,451       131,886  
Increase in deferred revenue     4,944       1,208  
(Decrease) increase in accrued expenses and other liabilities     (3,039 )     10,027  
Net cash used in operating activities     (99,266 )     (4,622 )
Cash flows from investing activities:              
Purchases of property and equipment     (10,274 )     (4,974 )
Proceeds from sale of real estate, net     -       1,378  
Acquisition of Ignia and BlueMetal, net of cash acquired     (35 )     507  
Acquisition of Datalink, net of cash and cash equivalents acquired     (180,859 )     -  
Net cash used in investing activities     (191,168 )     (3,089 )
Cash flows from financing activities:              
Borrowings on senior revolving credit facility     386,609       261,920  
Repayments on senior revolving credit facility     (386,609 )     (261,920 )
Borrowings on accounts receivable securitization financing facility     1,802,889       962,000  
Repayments on accounts receivable securitization financing facility     (1,718,389 )     (966,000 )
Borrowings under Term Loan A     175,000       -  
Repayments under Term Loan A     (4,375 )     -  
Repayments under other financing agreements     (3,957 )     (632 )
Payments on capital lease obligations     (255 )     (100 )
Net borrowings under inventory financing facility     25,470       49,356  
Payment of debt issuance costs     (1,123 )     (2,819 )
Payment of payroll taxes on stock-based compensation through shares withheld     (4,548 )     (2,126 )
Repurchases of common stock     -       (48,467 )
Net cash provided by (used in) financing activities     270,712       (8,788 )
Foreign currency exchange effect on cash and cash equivalent balances.     11,623       3,666  
Decrease in cash and cash equivalents     (8,099 )     (12,833 )
Cash and cash equivalents at beginning of period     202,882       187,978  
Cash and cash equivalents at end of period   $ 194,783     $ 175,145  
                                 
INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2017   2016   2017   2016
Adjusted Consolidated Earnings from Operations:                            
GAAP consolidated EFO   $ 69,329     $ 58,122     $ 92,282     $ 71,755  
Severance and restructuring expenses     1,022       909       5,717       2,265  
Gain on sale of real estate for which a non-cash impairment charge was previously reported     -       (338 )     -       (338 )
Acquisition-related expenses     276       -       3,223       -  
Adjusted non-GAAP EFO   $ 70,627     $ 58,693     $ 101,222     $ 73,682  
                                 
                                 
Adjusted Consolidated Net Earnings:                              
GAAP consolidated net earnings   $ 40,255     $ 35,067     $ 54,103     $ 41,955  
Severance and restructuring expenses     1,022       909       5,717       2,265  
Gain on sale of real estate for which a non-cash impairment charge was previously reported     -       (338 )     -       (338 )
Acquisition-related expenses     276       -       3,223       -  
Income taxes on non-GAAP adjustments     (310 )     (135 )     (1,597 )     (637 )
Adjusted non-GAAP net earnings   $ 41,243     $ 35,503     $ 61,446     $ 43,245  
                                 
                                 
Adjusted Consolidated Diluted EPS:                              
GAAP consolidated diluted EPS   $ 1.11     $ 0.96     $ 1.5     $ 1.13  
Severance and restructuring expenses     0.03       0.02       0.16       0.06  
Gain on sale of real estate for which a non-cash impairment charge was previously reported     -       (0.01 )     -       (0.01 )
Acquisition-related expenses     0.01       -       0.09       -  
Income taxes on non-GAAP adjustments     (0.01 )     -       (0.05 )     (0.01 )
Adjusted non-GAAP consolidated diluted EPS   $ 1.14     $ 0.97     $ 1.7     $ 1.17  
                                 
                                 
Adjusted North America Earnings from Operations:                            
GAAP EFO from North America segment   $ 50,407     $ 41,516     $ 73,647     $ 52,001  
Severance and restructuring expenses     543       591       1,647       1,808  
Gain on sale of real estate for which a non-cash impairment charge was previously reported     -       (338 )     -       (338 )
Acquisition-related expenses     276       -       3,223       -  

Adjusted non-GAAP EFO from North America segment

  $ 51,226     $ 41,769     $ 78,517     $ 53,471  
                                 
                                 
Adjusted EMEA Earnings from Operations:                              
GAAP EFO from EMEA segment   $ 13,482     $ 11,667     $ 12,355     $ 14,390  
Severance and restructuring expenses     479       318       4,009       342  
Adjusted non-GAAP EFO from EMEA segment   $ 13,961     $ 11,985     $ 16,364     $ 14,732  
                                 
                                 
Adjusted APAC Earnings from Operations:                              
GAAP EFO from APAC segment   $ 5,440     $ 4,939     $ 6,280     $ 5,364  
Severance and restructuring expenses     -       -       61       115  
Adjusted non-GAAP EFO from APAC segment   $ 5,440     $ 4,939     $ 6,341     $ 5,479  

 

Contacts

GLYNIS BRYAN
CHIEF FINANCIAL OFFICER
TEL. 480.333.3390
EMAIL glynis.bryan@insight.com

HELEN JOHNSON
SENIOR VP, FINANCE
TEL. 480.333.3234
EMAIL helen.johnson@insight.com