October 27, 2016

Insight Enterprises, Inc. Reports Third Quarter 2016 Results

TEMPE, Ariz., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Insight Enterprises, Inc. (NASDAQ:NSIT) (the "Company") today reported results of operations for the quarter ended September 30, 2016.

In the third quarter of 2016, consolidated net sales were $1.39 billion, up 4% year over year.  This improvement was driven by an increase in net sales reported in all three of the Company's operating segments, including the generation of more than $1 billion of net sales by the Company's North America operating segment during the third quarter. 

Consolidated earnings from operations in the third quarter of 2016 increased 12% year over year to $36.4 million and diluted earnings per share increased to $0.60 compared to $0.56 for the third quarter of 2015.  Adjusted diluted earnings per share was $0.62 in the third quarter of 2016 compared to $0.59 reported in the third quarter of last year.*

"I am pleased to report another strong quarterly performance in our business.  Each of our operating segments delivered solid top-line growth, and we continued to manage expenses, which drove strong earnings growth year over year," stated Ken Lamneck, President and Chief Executive Officer.  "The market is stable, and our business is healthy.  We believe we are well positioned heading into the fourth quarter to meet our financial and operational objectives for the full year," added Lamneck.

KEY HIGHLIGHTS

  • Consolidated net sales of $1.39 billion for the third quarter of 2016 increased 4% compared to the third quarter of 2015.
    • Net sales in North America of $1.05 billion were up 3% year over year;
    • Net sales in EMEA of $311.7 million increased 6% year over year; and
    • Net sales in APAC of $29.7 million increased 13% year over year.

  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated net sales increased 6% year over year, with net sales growth in North America, EMEA and APAC of 3%, 16% and 11%, respectively, year over year.

  • Consolidated gross profit of $181.8 million remained relatively flat compared to the third quarter of 2015, with consolidated gross margin decreasing approximately 50 basis points to 13.1% of net sales.
    • Gross profit in North America of $136.8 million (13.0% gross margin) increased 1% year over year;
    • Gross profit in EMEA of $38.3 million (12.3% gross margin) decreased 6% year to year; and
    • Gross profit in APAC of $6.7 million (22.5% gross margin) increased 26% year over year.

  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated gross profit increased 2% year over year, and gross profit in North America, EMEA and APAC increased 1%, 3% and 22%, respectively, year over year.

  • Consolidated earnings from operations increased 12% compared to the third quarter of 2015 to $36.4 million, or 2.6% of net sales.  
    • Earnings from operations in North America increased 13% year over year to $35.8 million, or 3.4% of net sales;
    • Earnings from operations in EMEA decreased 74% year to year to $270,000, or 0.1% of net sales; and
    • Earnings from operations in APAC increased $360,000 year over year to $382,000, or 1.3% of net sales.

  • Excluding the effects of fluctuating foreign currency exchange rates, consolidated earnings from operations increased 13% year over year, and earnings from operations in North America and APAC increased 13% and 1,585%, respectively, year over year, while earnings from operations in EMEA declined 48% year to year.

  • Adjusted consolidated earnings from operations increased 8.6% year over year to $37.2 million, or 2.7% of net sales for the third quarter of 2016.*

  • Consolidated net earnings and diluted earnings per share for the third quarter of 2016 were $21.6 million and $0.60, respectively, at an effective tax rate of 35.0%.

  • Adjusted consolidated net earnings and Adjusted diluted earnings per share were $22.2 million and $0.62, respectively, for the third quarter of 2016.*

* In this press release, the Company refers to financial measures that are not prepared in accordance with United States generally accepted accounting principles ("GAAP") in discussing financial results for the three and nine months ended September 30, 2016 and 2015.  When referring to non-GAAP measures, the Company refers to such measures as "Adjusted."  Adjusted measures exclude severance and restructuring expenses recorded in all periods and the gain recorded in the second quarter of 2016 on an asset held for sale, as well as the tax effect of these items.  A tabular reconciliation of financial measures prepared in accordance with GAAP to 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

Given the Company's year to date 2016 financial performance, the Company is maintaining its outlook that it expects net sales in 2016 to grow in the low single digit range year over year, and the Company is increasing its GAAP diluted earnings per share outlook for the full year 2016 to a range of $2.40 to $2.45.  Excluding the gain recorded on an asset held for sale and severance and restructuring expenses recorded during the nine months ended September 30, 2016, Adjusted diluted earnings per share for the full year 2016 is expected to be between $2.45 to $2.50.* 

This outlook reflects an effective tax rate in the fourth quarter of approximately 37% - 38%.  This outlook excludes severance and restructuring expenses and the gain on building sale recorded during the year.

The per share effects of the items excluded from Adjusted diluted earnings per share are included in the tabular reconciliation of financial measures prepared in accordance with GAAP to non-GAAP financial measures at the end of this press release.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live webcast today at 5:30 p.m. ET to discuss third quarter 2016 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 4412980. 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 severance and restructuring expenses and a gain on the sale of real estate for which a non-cash impairment charge was previously reported, as well as the tax effect 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 September 30, Nine Months Ended September 30,
Insight Enterprises, Inc.    2016       2015       change       2016       2015       change   
Net sales $1,392,716  $1,342,195   4% $4,017,932  $3,985,905   1%
Gross profit $181,808  $182,251    -  $552,133  $535,479   3%
Gross margin  13.1%  13.6%   (50 bps)  13.7%  13.4%  30 bps
Selling and administrative expenses $144,613  $148,796   (3%) $440,918  $437,596   1%
Severance and restructuring expenses $788  $817   (4%) $3,053  $1,912   60%
Earnings from operations $36,407  $32,638   12% $108,162  $95,971   13%
Net earnings $21,635  $20,825   4% $63,590  $57,275   11%
Diluted earnings per share $0.60  $0.56    7% $1.74  $1.49   17%
        
North America       
Net sales $1,051,333  $1,022,432   3% $2,914,475  $2,823,791   3%
Gross profit $136,818  $ 135,998   1% $391,929  $375,730   4%
Gross margin  13.0%   13.3%  (30 bps)  13.4%  13.3%  10 bps
Selling and administrative expenses $100,420  $103,793   (3%) $301,722  $295,228   2%
Severance and restructuring expenses $643  $618   4% $2,451  $873   181%
Earnings from operations $35,755   $31,587   13% $87,756  $79,629   10%
        
EMEA       
Net sales $311,732  $ 293,635   6% $976,800  $1,029,103   (5%)
Gross profit $38,308  $40,949   (6%) $136,810  $138,575   (1%)
Gross margin  12.3%  13.9%  (160 bps)  14.0%  13.5%  50 bps
Selling and administrative expenses $37,893  $ 39,721   (5%) $121,663  $125,232   (3%)
Severance and restructuring expenses $145  $ 199   (27%) $487  $1,039   (53%)
Earnings from operations $270  $1,029   (74%) $14,660  $12,304   19%
        
APAC       
Net sales $29,651  $26,128    13% $126,657  $133,011   (5%)
Gross profit $6,682  $ 5,304   26% $23,394  $21,174   10%
Gross margin  22.5%   20.3%  220 bps  18.5%  15.9%  260 bps
Selling and administrative expenses $6,300  $5,282    19% $17,533  $17,136   2%
Severance and restructuring expenses $-  $-   -  $115  $-   ** 
Earnings from operations $382  $22   1,636% $5,746  $4,038   42%
                         


  North America
 EMEA
 APAC
  Three Months Ended
 Three Months Ended
 Three Months Ended
  September 30,
 September 30,
 September 30,
Sales Mix 2016 2015 %
change*

 2016 2015 %
change*

 2016 2015 %
change*

Hardware 62% 63% 2% 41% 46% (5%) 16% 13% 32%
Software 31% 30% 3% 56% 51% 16% 75% 82% 4%
Services 7% 7% 12% 3% 3% 6% 9% 5% 116%
  100% 100% 3% 100% 100% 6% 100% 100%  13%
          
* 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.
** Percentage change not considered meaningful.
 

FORWARD-LOOKING INFORMATION

Certain statements in this release and the related conference call and webcast are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements, including the Company's expected full year 2016 financial results, including top-line growth rates and diluted earnings per share, and the assumptions relating thereto, including the Company's effective tax rate in the fourth quarter, and the state of the IT market as well as the Company's ability to deliver on its financial and operational objectives and trends and opportunities relating thereto, 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 results described in forward-looking statements will be achieved, and actual results could differ materially from those suggested by 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, 2015:

  • 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 IT industry and/or rapid changes in technology;
  • possible significant fluctuations in the Company's future operating results;
  • general economic conditions;
  • the risks associated with the Company's international operations;
  • 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;
  • the Company's reliance on commercial delivery services;
  • the Company's dependence on certain personnel;
  • 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 
September 30,
  Nine Months Ended 
September 30,

 
  2016 2015  2016 2015 
Net sales $1,392,716 $1,342,195  $4,017,932 $3,985,905 
Costs of goods sold  1,210,908  1,159,944   3,465,799  3,450,426 
Gross profit  181,808  182,251   552,133  535,479 
Operating expenses:     
Selling and administrative expenses  144,613  148,796   440,918  437,596 
Severance and restructuring expenses  788  817   3,053   1,912 
Earnings from operations  36,407  32,638   108,162  95,971 
Non-operating (income) expense:      
Interest income  (318) (265)  (784) (611)
Interest expense  2,517  2,062   6,357  5,518 
Net foreign currency exchange (gain) loss  579  (1,561)  1,042  (928)
Other expense, net  352  357   979  969 
Earnings before income taxes  33,277  32,045   100,568  91,023 
Income tax expense  11,642  11,220   36,978  33,748 
Net earnings $21,635 $20,825  $63,590 $57,275 
               
                
Net earnings per share:     
Basic $0.61 $0.56  $1.75 $1.50 
Diluted $0.60 $0.56  $1.74 $1.49 
               
      
Shares used in per share calculations:     
Basic  35,474  37,095   36,310  38,279 
Diluted  35,790  37,351   36,596  38,557 
                


INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
         
     September 30
  2016
  December 31,
2015 
 
ASSETS        
Current assets:        
Cash and cash equivalents $175,695  $187,978 
Accounts receivable, net  1,162,424   1,315,094 
Inventories  175,195   119,820 
Inventories not available for sale  52,301    51,756 
Other current assets  101,235   77,011 
Total current assets  1,666,850   1,751,659 
    
Property and equipment, net  76,614   88,281 
Goodwill  62,936   56,195 
Intangible assets, net   22,529   26,983 
Deferred income taxes  59,034   62,986 
Other assets  28,840   27,913 
  $1,916,803  $2,014,017 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:         
Accounts payable - trade $617,763  $905,464 
Accounts payable - inventory financing facility  135,783   106,327 
Accrued expenses and other current liabilities  140,695   144,633 
Current portion of long-term debt  533   1,535 
Deferred revenue  42,774   50,166 
Total current liabilities  937,548   1,208,125 
    
Long-term debt  243,372   89,000 
Deferred income taxes  1,042   239 
Other liabilities  30,821   30,911 
   1,212,783   1,328,275 
Stockholders' equity:        
Preferred stock  -   - 
Common stock  355   371 
Additional paid-in capital   306,933   316,686 
Retained earnings  438,437   408,721 
Accumulated other comprehensive loss - foreign currency translation adjustments  (41,705)  (40,036)
Total stockholders' equity  704,020   685,742 
  $1,916,803  $2,014,017 
         


INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
   
    Nine Months Ended September 30,
  2016
 2015
Cash flows from operating activities:        
Net earnings $63,590  $57,275 
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:        
Depreciation and amortization  30,097    28,426 
Non-cash real estate impairment  -   800 
Provision for losses on accounts receivable  1,401   4,139 
Write-downs of inventories  2,297   2,834 
Write-off of property and equipment   -   72 
Non-cash stock-based compensation   8,308   6,685 
Excess tax benefit from employee gains on stock-based compensation  (293)  (544)
Deferred income taxes  3,424   2,463 
Gain on sale of real estate  (338)  - 
Changes in assets and liabilities:        
Decrease in accounts receivable   133,289   168,781 
Increase in inventories  (59,707)  (13,508)
Increase in other assets  (22,713)  (3,077)
Decrease in accounts payable  (278,097)  (212,289)
Decrease in deferred revenue  (6,645)  (4,181)
Increase (decrease) in accrued expenses and other liabilities  244   (13,234)
Net cash (used in) provided by operating activities  (125,143)  24,642 
Cash flows from investing activities:        
Purchases of property and equipment  (9,714)  (10,804)
Proceeds from sale of real estate, net  1,378   - 
Acquisition of Ignia, net of cash acquired  (10,804 )  - 
Acquisition of BlueMetal, net of cash acquired  507   - 
Net cash used in investing activities  (18,633)  (10,804)
Cash flows from financing activities:        
Borrowings on senior revolving credit facility  534,920   511,410 
Repayments on senior revolving credit facility  (506,420)  (511,410)
Borrowings on accounts receivable securitization financing facility  1,947,000   1,388,100 
Repayments on accounts receivable securitization financing facility  (1,822,000)  (1,364,100)
Repayments under other financing agreements  (1,309)  (543)
Payments on capital lease obligations  (270)  (167)
Net borrowings under inventory financing facility  29,456   53,708 
Payment of deferred financing fees  (3,360)   - 
Excess tax benefit from employee gains on stock-based compensation  293   544 
Payment of payroll taxes on stock-based compensation through shares withheld  (2,159)  (2,137)
Repurchases of common stock  (50,000)  (91,843)
Net cash provided by (used in) financing activities  126,151   (16,438)
Foreign currency exchange effect on cash and cash equivalent balances  5,342   (13,790)
Decrease in cash and cash equivalents   (12,283)  (16,390)
Cash and cash equivalents at beginning of period  187,978   164,524 
Cash and cash equivalents at end of period $175,695  $148,134 
         


INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
 
  Three Months Ended 
September 30,

  Nine Months Ended 
September 30,

 
  2016  2015  2016  2015 
Adjusted Consolidated Earnings from Operations:                
GAAP $36,407  $32,638  $108,162  $95,971 
Severance and restructuring expenses  788   817   3,053   1,912 
Non-cash real estate impairment   -   800   -   800 
Gain on sale of real estate for which a non-cash impairment charge was previously reported  -   -   (338)  - 
Non-GAAP $37,195  $34,255  $110,877  $98,683 
                 
Adjusted Consolidated Net Earnings:                 
GAAP $21,635  $20,825  $63,590   $57,275 
Severance and restructuring expenses  788   817   3,053   1,912 
Non-cash real estate impairment  -   800   -   800 
Gain on sale of real estate for which a non-cash impairment charge was previously reported  -   -   (338)  - 
Income taxes on non-GAAP adjustments  (234)  (559)  (871)  (690)
Non-GAAP $22,189  $ 21,883  $65,434  $59,297 
                 
Adjusted Consolidated Diluted EPS:                 
GAAP $0.60  $0.56  $1.74  $1.49 
Severance and restructuring expenses  0.02   0.02   0.08   0.05 
Non-cash real estate impairment  -   0.02   -   0.02 
Gain on sale of real estate for which a non-cash impairment charge was previously reported  -   -   (0.01)  - 
Income taxes on non-GAAP adjustments  -    (0.01)  (0.02)  (0.02)
Non-GAAP $0.62  $0.59  $1.79  $1.54 
                 
Adjusted North America Earnings from Operations:      
GAAP $35,755  $31,587   $87,756  $79,629 
Severance and restructuring expenses  643   618   2,451   873 
Non-cash real estate impairment  -   800   -   800 
Gain on sale of real estate for which a non-cash impairment charge was previously reported  -   -   (338)  - 
Non-GAAP $36,398  $33,005  $89,869  $81,302 
                  
Adjusted EMEA Earnings from Operations:                
GAAP $270  $ 1,029  $14,660  $12,304 
Severance and restructuring expenses  145   199   487   1,039 
Non-GAAP $415  $1,228  $15,147  $13,343 
                  
Adjusted APAC Earnings from Operations:                
GAAP $382  $22  $5,746  $4,038 
Severance and restructuring expenses  -   -   115   - 
Non-GAAP $382  $22  $5,861  $4,038 
                  
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 

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