Press Release

Insight Enterprises, Inc. Reports Strong First Quarter 2019 Results

May 1, 2019 7:01 AM EDT

Insight Enterprises, Inc. (NASDAQ: NSIT) (the “Company”) today reported financial results for the quarter ended March 31, 2019 compared to the quarter ended March 31, 2018.

  • Gross profit increased 3% to $248.5 million
  • Gross margin increased 90 basis points to 14.7%
  • Earnings from operations increased 13% to $57.0 million
  • Diluted earnings per share of $1.09 increased 20% year over year

In the first quarter of 2019, net sales decreased by 3%, year to year, while gross profit increased 3%, year over year and gross margin increased 90 basis points compared to the first quarter of 2018. The increase in gross profit and gross margin reflects a higher mix of cloud solutions reported net and higher margin Insight delivered services. Earnings from operations grew 13%, year over year, with each of our geographic segments generating growth.

“I am pleased to report we have started the new year with strong earnings performance in the first quarter,” stated Ken Lamneck, President and Chief Executive Officer. “Our top line results decreased in the first quarter against a tough comparison last year, but we focused on profitable business, growing our services sales and helping our clients migrate to the cloud, which led to strong gross margin expansion in the quarter. At the same time we controlled our expenses, which allowed us to deliver another quarter of double digit earnings growth year over year, with each of our operating segments contributing to these results,” stated Lamneck.

KEY HIGHLIGHTS

  • Consolidated net sales for the first quarter of 2019 of $1.69 billion decreased 3% year to year when compared to the first quarter of 2018.
    • Net sales in North America decreased 3% year to year to $1.24 billion;
    • Net sales in EMEA decreased 4% year to year to $390.2 million; and
    • Net sales in APAC decreased 7% year to year to $52.9 million.
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated net sales decreased 1% year to year, with a decline in net sales in North America of 3%, year to year, partially offset by growth in net sales in EMEA and APAC of 2% and 1%, respectively, year over year.
  • Consolidated gross profit increased 3% compared to the first quarter of 2018 to $248.5 million, with consolidated gross margin expanding 90 basis points to 14.7% of net sales.
    • Gross profit in North America increased 4% year over year to $182.6 million (14.7% gross margin);
    • Gross profit in EMEA increased 2% year over year to $57.0 million (14.6% gross margin); and
    • Gross profit in APAC was relatively flat year over year, increasing less than 1% to $8.9 million (16.8% gross margin).
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated gross profit increased 6% year over year, with gross profit growth in North America, EMEA and APAC of 4%, 9% and 9%, respectively, year over year.
  • Consolidated earnings from operations increased 13% compared to the first quarter of 2018 to $57.0 million, or 3.4% of net sales.
    • Earnings from operations in North America increased 7% year over year to $45.3 million, or 3.6% of net sales;
    • Earnings from operations in EMEA increased 48% year over year to $9.9 million, or 2.5% of net sales; and
    • Earnings from operations in APAC increased 23% year over year to $1.8 million, or 3.4% of net sales.
  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated earnings from operations increased 14% year over year, with earnings from operations growth in North America, EMEA and APAC of 8%, 53% and 31%, respectively, year over year.
  • Consolidated net earnings and diluted earnings per share for the first quarter of 2019 were $39.3 million and $1.09, respectively, at an effective tax rate of 23.5%.
  • Adjusted consolidated net earnings and Adjusted diluted earnings per share for the first quarter of 2019 were $39.6 million and $1.10, respectively.

In discussing financial results for the three months ended March 31, 2019 and 2018 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.” 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.

In some instances 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 2019, the Company expects to deliver sales growth in the low single digit range compared to 2018. The Company also expects Adjusted diluted earnings per share for the full year of 2019 to be between $4.75 and $4.85.

This outlook assumes:

  • an effective tax rate of 25% to 26% for the balance of 2019;
  • capital expenditures of $20 to $25 million for the full year; and
  • an average share count for the full year of approximately 36.2 million shares.

This outlook does not reflect the repurchase of any shares under the Company’s currently authorized share repurchase program, assumes no current year acquisition-related expenses and excludes severance and restructuring expenses incurred during the first quarter of 2019 and those that may be incurred during the balance of 2019. Due to the inherent difficulty of forecasting these types of expenses, which impact net earnings and diluted earnings per share, the Company is unable to reasonably estimate the related 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 2019 forecast.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live web cast today at 8:00 a.m. ET to discuss first quarter 2019 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://investor.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 1-877-524-8416 if located in the U.S., 412-902-1028 for international callers, and enter the access code 13689759.

USE OF NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures are referred to as “Adjusted.” Adjusted consolidated earnings from operations, Adjusted consolidated net earnings and Adjusted diluted earnings per share exclude (i) severance and restructuring expenses and (ii) the tax effects of severance and restructuring expenses. 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. Adjusted free cash flow is the Company’s net cash provided or used by operating activities adjusted for (i) purchases of property and equipment and (ii) the net borrowings or repayments under the inventory financing facility. Adjusted return on invested capital (“ROIC”) excludes (i) severance and restructuring expenses, (ii) acquisition related expenses, (iii) loss on sale of the Company’s Russia business, and (iv) the tax effects of each of these items, as applicable.

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 March 31,
        2019         2018         change
Insight Enterprises, Inc.                                  
Net sales:                                  
Products       $ 1,466,672         $ 1,557,792         (6%)
Services       $ 218,794         $ 184,702         18%
Total net sales       $ 1,685,466         $ 1,742,494         (3%)
Gross profit       $ 248,472         $ 240,263         3%
Gross margin         14.7 %         13.8 %       90 bps
Selling and administrative expenses       $ 191,063         $ 188,180         2%
Severance and restructuring expenses       $ 370         $ 1,644         (77%)
Earnings from operations       $ 57,039         $ 50,439         13%
Net earnings       $ 39,327         $ 33,003         19%
Diluted earnings per share       $ 1.09         $ 0.91         20%
                                   
North America                                  
Net sales:                                  
Products       $ 1,070,416         $ 1,134,401         (6%)
Services       $ 172,025         $ 143,979         19%
Total net sales       $ 1,242,441         $ 1,278,380         (3%)
Gross profit       $ 182,607         $ 175,371         4%
Gross margin         14.7 %         13.7 %       100 bps
Selling and administrative expenses       $ 136,950         $ 132,640         3%
Severance and restructuring expenses       $ 331         $ 443         (25%)
Earnings from operations       $ 45,326         $ 42,288         7%
                                   
Sales Mix                               **
Hardware         60 %         68 %       (14%)
Software         26 %         21 %       23%
Services         14 %         11 %       19%
          100 %         100 %       (3%)
                                   
EMEA                                  
Net sales:                                  
Products       $ 354,673         $ 377,212         (6%)
Services       $ 35,502         $ 29,922         19%
Total net sales       $ 390,175         $ 407,134         (4%)
Gross profit       $ 56,983         $ 56,050         2%
Gross margin         14.6 %         13.8 %       80 bps
Selling and administrative expenses       $ 47,145         $ 48,283         (2%)
Severance and restructuring expenses       $ (85 )       $ 1,074         > 100%
Earnings from operations       $ 9,923         $ 6,693         48%
                                   
Sales Mix                               **
Hardware         44 %         46 %       (8%)
Software         47 %         47 %       (4%)
Services         9 %         7 %       19%
          100 %         100 %       (4%)
                                   
APAC                                  
Net sales:                                  
Products       $ 41,583         $ 46,179         (10%)
Services       $ 11,267         $ 10,801         4%
Total net sales       $ 52,850         $ 56,980         (7%)
Gross profit       $ 8,882         $ 8,842          
Gross margin         16.8 %         15.5 %       130 bps

Selling and administrative expenses

      $ 6,968         $ 7,257         (4%)

Severance and restructuring expenses

      $ 124         $ 127         (2%)
Earnings from operations       $ 1,790         $ 1,458         23%
                                   
Sales Mix                               **
Hardware         12 %         13 %       (9%)
Software         67 %         68 %       (10%)
Services         21 %         19 %       4%
          100 %         100 %       (7%)
                                 
**     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 2019 financial results, sales growth and Adjusted diluted earnings per share for the full year 2019, and the assumptions relating thereto, as well as the Company’s anticipated effective tax rate, capital expenditures and plans concerning repurchases under the Company’s currently authorized share repurchase program, and the Company’s expectations regarding cash flow, 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, 2018 and in the Company’s subsequent 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 marketing funds and purchasing incentives, which can change significantly in the amounts made available and the requirements year over year;
  • 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;
  • legal proceedings and the results of client and public sector audits and failure to comply with laws and regulations;
  • 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 key personnel;
  • natural disasters or other adverse occurrences;
  • 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.

                     

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

                     
                  Three Months Ended

March 31,

 
                  2019           2018  
Net sales:                                    
Products                 $ 1,466,672           $ 1,557,792  
Services                   218,794             184,702  
Total net sales                   1,685,466             1,742,494  
Costs of goods sold:                                    
Products                   1,337,308             1,414,986  
Services                   99,686             87,245  
Total costs of goods sold                   1,436,994             1,502,231  
Gross profit                   248,472             240,263  
Operating expenses:                                    
Selling and administrative expenses                   191,063             188,180  
Severance and restructuring expenses                   370             1,644  
Earnings from operations                   57,039             50,439  
Non-operating (income) expense:                                    
Interest income                   (271 )           (153 )
Interest expense                   4,823             6,015  
Net foreign currency exchange loss (gain)                   711             (245 )
Other expense, net                   339             302  
Earnings before income taxes                   51,437             44,520  
Income tax expense                   12,110             11,517  
Net earnings                 $ 39,327           $ 33,003  
                                     
Net earnings per share:                                    
Basic                 $ 1.10           $ 0.92  
Diluted                 $ 1.09           $ 0.91  
                                     
Shares used in per share calculations:                                    
Basic                   35,609             35,913  
Diluted                   36,103             36,263  
                                     
                                     
                                 

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

(UNAUDITED)

                                 
                  March 31,

2019

          December 31,

2018

 
ASSETS                                    
Current assets:                                    
Cash and cash equivalents                 $ 124,831           $ 142,655  
Accounts receivable, net                   1,723,817             1,931,736  
Inventories                   187,146             148,503  
Other current assets                   117,199             115,683  
Total current assets                   2,152,993             2,338,577  
                                     
Property and equipment, net                   74,038             72,954  
Goodwill                   166,073             166,841  
Intangible assets, net                   108,856             112,179  
Deferred income taxes                   7,345             7,967  
Other assets                   247,162             77,429  
                  $ 2,756,467           $ 2,775,947  
                                     
LIABILITIES AND STOCKHOLDERS’ EQUITY                                    
Current liabilities:                                    
Accounts payable – trade                 $ 897,609           $ 978,104  
Accounts payable – inventory financing facility                   260,160             304,130  
Accrued expenses and other current liabilities                   183,678             190,733  
Current portion of long-term debt                   1,161             1,395  
Deferred revenue                   66,646             62,300  
Total current liabilities                   1,409,254             1,536,662  
                                     
Long-term debt                   113,227             195,525  
Deferred income taxes                   604             683  
Other liabilities                   207,164             56,088  
                    1,730,249             1,788,958  
Stockholders’ equity:                                    
Preferred stock                                
Common stock                   358             355  
Additional paid-in capital                   321,606             323,622  
Retained earnings                   743,992             704,665  

Accumulated other comprehensive loss – foreign currency translation adjustments

                  (39,738 )           (41,653 )
Total stockholders’ equity                   1,026,218             986,989  
                  $ 2,756,467           $ 2,775,947  
                                     
                                     
                     

INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

                     
                  Three Months Ended

March 31,

 
                  2019           2018  
Cash flows from operating activities:                                    
Net earnings                 $ 39,327           $ 33,003  

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

                                   
Depreciation and amortization of property and equipment                   5,044             5,433  
Amortization of intangible assets                   3,823             3,611  
Provision for losses on accounts receivable                   1,413             346  
Write-downs of inventories                   1,408             629  
Write-off of property and equipment                               303  
Non-cash stock-based compensation                   4,115             3,184  
Deferred income taxes                   547             979  
Changes in assets and liabilities:                                    
Decrease in accounts receivable                   210,691             184,877  
(Increase) decrease in inventories                   (39,658 )           4,444  
Increase in other assets                   (107,314 )           (25,514 )
Decrease in accounts payable                   (82,246 )           (97,104 )
Increase in deferred revenue                   7,117             16,177  
Increase in accrued expenses and other liabilities                   77,646             20,377  
Net cash provided by operating activities                   121,913             150,745  
Cash flows from investing activities:                                    
Purchases of property and equipment                   (5,352 )           (5,044 )
Acquisitions, net of cash and cash equivalents acquired                   (762 )            
Net cash used in investing activities                   (6,114 )           (5,044 )
Cash flows from financing activities:                                    
Borrowings on senior revolving credit facility                   49,936             276,684  
Repayments on senior revolving credit facility                   (49,936 )           (392,184 )
Borrowings on accounts receivable securitization financing facility                   1,010,500             1,024,000  
Repayments on accounts receivable securitization financing facility                   (1,092,500 )           (955,000 )
Repayments under Term Loan A                               (3,281 )
Repayments under other financing agreements                               (1,234 )
Payments on finance lease obligations                   (542 )           (288 )
Net repayments under inventory financing facility                   (43,970 )           (91,366 )

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

                  (6,128 )           (2,884 )
Repurchases of common stock                               (7,679 )
Net cash used in financing activities                   (132,640 )           (153,232 )

Foreign currency exchange effect on cash, cash equivalents and restricted cash balances

                  (986 )           1,937  
Decrease in cash, cash equivalents and restricted cash                   (17,827 )           (5,594 )
Cash, cash equivalents and restricted cash at beginning of period                   144,293             107,445  
Cash, cash equivalents and restricted cash at end of period                 $ 126,466           $ 101,851  
                                     
                                     
                     

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,

 
                  2019           2018  

Adjusted Consolidated Earnings from Operations:

                                   
GAAP consolidated EFO                 $ 57,039           $ 50,439  
Severance and restructuring expenses                   370             1,644  
Adjusted non-GAAP consolidated EFO                 $ 57,409           $ 52,083  
                                     
Adjusted Consolidated Net Earnings:                                    
GAAP consolidated net earnings                 $ 39,327           $ 33,003  
Severance and restructuring expenses                   370             1,644  
Income taxes on non-GAAP adjustments                   (100 )           (291 )
Adjusted non-GAAP consolidated net earnings                 $ 39,597           $ 34,356  
                                     
Adjusted Diluted Earnings Per Share:                                    
GAAP diluted EPS                 $ 1.09           $ 0.91  
Severance and restructuring expenses                   0.01             0.05  
Income taxes on non-GAAP adjustments                               (0.01 )
Adjusted non-GAAP diluted EPS                 $ 1.10           $ 0.95  
                                     

Adjusted North America Earnings from Operations:

                                   
GAAP EFO from North America segment                 $ 45,326           $ 42,288  
Severance and restructuring expenses                   331             443  

Adjusted non-GAAP EFO from North America segment

                $ 45,657           $ 42,731  
                                     
Adjusted EMEA Earnings from Operations:                                    
GAAP EFO from EMEA segment                 $ 9,923           $ 6,693  
Severance and restructuring expenses                   (85 )           1,074  
Adjusted non-GAAP EFO from EMEA segment                 $ 9,838           $ 7,767  
                                     
Adjusted APAC Earnings from Operations:                                    
GAAP EFO from APAC segment                 $ 1,790           $ 1,458  
Severance and restructuring expenses                   124             127  
Adjusted non-GAAP EFO from APAC segment                 $ 1,914           $ 1,585  
                                     
                                     
                  Three Months Ended

March 31,

 
                  2019           2018  
Adjusted free cash flow:                                    
Net cash provided by operating activities                 $ 121,913           $ 150,745  
Purchases of property and equipment                   (5,352 )           (5,044 )
Net repayments under inventory financing facility                   (43,970 )           (91,366 )
Adjusted non-GAAP free cash flow                 $ 72,591           $ 54,335  
                                     
                                     
                  Twelve Months Ended

March 31,

 
                  2019           2018  
Adjusted return on invested capital:                                    
GAAP consolidated EFO                 $ 240,082          

$

206,751

 
Severance and restructuring expenses                   2,151          

 

5,951

 
Loss on sale of foreign entity                            

 

3,646

 
Acquisition-related expenses                   282          

 

382

 
Adjusted non-GAAP consolidated EFO                   242,515          

 

216,730

 
Income tax expense*                   66,692          

 

59,601

 
Adjusted non-GAAP consolidated EFO, net of tax                 $ 175,823          

$

157,129

 
Average stockholders’ equity**                 $ 948,764          

$

814,107

 
Average debt**                   200,748          

 

360,289

 
Average cash**                   (145,380 )        

 

(164,194

)
Invested Capital                 $ 1,004,132          

$

1,010,202

 
                                     
Adjusted non-GAAP ROIC (from GAAP consolidated EFO) ***                   17.33 %        

 

14.84

%
Adjusted non-GAAP ROIC (from non-GAAP consolidated EFO) ****                   17.51 %        

 

15.55

%
                                     
*     Assumed tax rate of 27.5% for 2019 and 2018.
**     Average of previous five quarters.
***     Computed as GAAP consolidated EFO, net of tax of $66,023 and $56,857 for the twelve months ended March 31, 2019 and 2018, respectively, divided by invested capital.
****     Computed as Adjusted non-GAAP consolidated EFO, net of tax, divided by invested capital.
       

Contacts

Glynis Bryan
Chief Financial Officer
480-333-3390
glynis.bryan@insight.com

Helen Johnson
Senior VP, Finance
480-333-3234
helen.johnson@insight.com