TEMPE, Ariz., April 28, 2016 (GLOBE NEWSWIRE) -- Insight Enterprises, Inc. (Nasdaq:NSIT) (the “Company”) today reported results of operations for the quarter ended March 31, 2016.
In the first quarter of 2016, consolidated net sales were $1.17 billion, down 4% year over year, as an increase in net sales in the Company’s North America segment was offset by lower sales reported in EMEA and APAC. Gross profit of $161.1 million in the first quarter of 2016 was flat year to year in U.S. dollars despite the top-line decline due to improved gross margin performance in EMEA and APAC. Consolidated selling and administrative expenses increased 4% to $146.1 million in the first quarter of 2016, reflecting investments across the business, most notably in the Company’s North America operating segment. As a result, earnings from operations decreased year to year to $15.0 million and diluted earnings per share decreased to $0.21 compared to $0.29 reported in the first quarter of 2015, excluding severance and restructuring expenses. The Company recorded $1.4 million in severance and restructuring expenses in the first quarter of 2016, primarily in its North America business, compared to $723,000 last year. On a GAAP basis, earnings from operations decreased to $13.6 million and diluted earnings per share was $0.18 in the first quarter of 2016 compared to $0.27 reported last year.
“Overall for the quarter, our EMEA and Asia Pacific businesses delivered strong earnings growth year over year,” stated Ken Lamneck, President and Chief Executive Officer. “Our North America business has not met our profitability expectations in recent quarters. This has been related to a combination of a higher percentage of large and public sector clients as well as a shift in product mix resulting in lower data center sales. This could be somewhat cyclical, but market data suggests softer demand for data center solutions, and we are cautious about recovery in our product mix over the balance of this year,” added Lamneck.
“We continue to be excited about our potential in North America but believed that we needed to take action to support our long-term profitable growth,” stated Lamneck. “To that end, we recently concluded several cost reduction initiatives across our U.S. business that will allow us to better align our cost structure with current gross profit performance. Annualized savings from these actions are expected to be approximately $20 million beginning in May of 2016,” Lamneck concluded.
- Consolidated net sales of $1.17 billion for the first quarter of 2016 decreased 4% compared to the first quarter of 2015, down 3% year to year excluding the effects of foreign currency movements.
- Net sales in North America of $826.9 million were up 1% year over year;
- Net sales in EMEA of $303.4 million decreased 15% year to year, down 11% excluding the effects of foreign currency movements; and
- Net sales in APAC of $38.7 million decreased 8% year to year, down 3% excluding the effects of foreign currency movements.
- Consolidated gross profit of $161.1 million was relatively flat compared to the first quarter of 2015, but increased 1% year over year excluding the effects of foreign currency movements. Consolidated gross margin increased approximately 50 basis points to 13.8% of net sales.
- Gross profit in North America of $111.7 million (13.5% gross margin) was flat year over year, and increased 1% excluding the effects of foreign currency movements;
- Gross profit in EMEA of $43.4 million (14.3% gross margin) decreased 3% year to year, but was up 1% year over year excluding the effects of foreign currency movements; and
- Gross profit in APAC of $5.9 million (15.3% gross margin) increased 8% year over year, up 14% year over year excluding the effects of foreign currency movements.
- Consolidated earnings from operations decreased 33% compared to the first quarter of 2015 to $13.6 million, or 1.2% of net sales. Excluding the effects of foreign currency movements, the decrease in consolidated earnings from operations was 32% year to year.
- Earnings from operations in North America decreased 44% year to year to $10.5 million, or 1.3% of net sales;
- Earnings from operations in EMEA increased 57% year over year to $2.7 million, or 0.9% of net sales, up 54% excluding the effects of foreign currency movements; and
- Earnings from operations in APAC increased to $425,000, or 1.1% of net sales.
- Non-GAAP consolidated earnings from operations, which excludes severance and restructuring expenses in both periods, decreased 29% year to year to $15.0 million, or 1.3% of net sales for the first quarter of 2016.*
- Consolidated net earnings and diluted earnings per share for the first quarter of 2016 were $6.9 million and $0.18, respectively, at an effective tax rate of 38.2%.
- Non-GAAP consolidated net earnings and diluted earnings per share, which exclude severance and restructuring expenses and the tax effect of these charges in both periods, were $7.7 million and $0.21, respectively, for the first quarter of 2016.*
- The Company repurchased approximately 505,000 shares of its common stock at a total cost of approximately $13.5 million during the first quarter of 2016.
* 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.
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 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 weighted average translation rate for the current period.
Net of tax 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 2016, the Company continues to expect its business to deliver top-line growth in the low-to-mid single digit range in U.S. dollar terms. The Company also continues to expect diluted earnings per share for the full year 2016 to be between $2.25 and $2.35.
This outlook reflects:
- The adverse effect on gross profit of previously announced partner program changes in the software category, which the Company expects to be between $5 and $10 million;
- The positive effect on selling and administrative expenses of recent cost reduction initiatives in North America, which the Company expects to be approximately $13 to $15 million over the balance of 2016;
- an effective tax rate of approximately 37% - 38%;
- the completion of the balance of the Company’s share repurchase program of $37 million, leading to an average share count of approximately 37 million shares for the year; and
- capital expenditures of $10 to $15 million.
This outlook excludes severance and restructuring expenses incurred during the year.
CONFERENCE CALL AND WEBCAST
The Company will host a conference call and live webcast today at 5:00 p.m. ET to discuss first 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 87781634.
USE OF NON-GAAP FINANCIAL MEASURES
The non-GAAP financial measures exclude severance and restructuring expenses and the tax effect of these charges. The Company excludes these charges when internally evaluating earnings from operations, tax expense, net earnings and diluted earnings per share for the Company and earnings from operations for each of the Company’s operating segments. These non-GAAP measures are used to evaluate financial performance against budgeted amounts, to calculate incentive compensation, to assist in forecasting future performance and to compare the Company’s results to those of the Company’s competitors. The Company believes that these non-GAAP financial measures are useful to investors because they allow for greater transparency, facilitate comparisons to prior periods and the Company’s competitors’ results and assist in forecasting performance for future periods. These non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
| FINANCIAL SUMMARY TABLE | |||||||||||
| (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) | |||||||||||
| (UNAUDITED) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| Insight Enterprises, Inc. | 2016 | 2015 | change | ||||||||
| Net sales | $ | 1,168,982 | $ | 1,219,679 | (4 | %) | |||||
| Gross profit | $ | 161,108 | $ | 161,813 | - | ||||||
| Gross margin | 13.8 | % | 13.3 | % | 50 bps | ||||||
| Selling and administrative expenses | $ | 146,119 | $ | 140,796 | 4 | % | |||||
| Severance and restructuring expenses | $ | 1,356 | $ | 723 | 88 | % | |||||
| Earnings from operations | $ | 13,633 | $ | 20,294 | (33 | %) | |||||
| Net earnings | $ | 6,888 | $ | 10,951 | (37 | %) | |||||
| Diluted earnings per share | $ | 0.18 | $ | 0.27 | (33 | %) | |||||
| North America | |||||||||||
| Net sales | $ | 826,888 | $ | 822,709 | 1 | % | |||||
| Gross profit | $ | 111,743 | $ | 111,516 | - | ||||||
| Gross margin | 13.5 | % | 13.6 | % | (10 bps) | ||||||
| Selling and administrative expenses | $ | 100,041 | $ | 92,402 | 8 | % | |||||
| Severance and restructuring expenses | $ | 1,217 | $ | 405 | 200 | % | |||||
| Earnings from operations | $ | 10,485 | $ | 18,709 | (44 | %) | |||||
| EMEA | |||||||||||
| Net sales | $ | 303,360 | $ | 354,842 | (15 | %) | |||||
| Gross profit | $ | 43,426 | $ | 44,811 | (3 | %) | |||||
| Gross margin | 14.3 | % | 12.6 | % | 170 bps | ||||||
| Selling and administrative expenses | $ | 40,679 | $ | 42,757 | (5 | %) | |||||
| Severance and restructuring expenses | $ | 24 | $ | 318 | (92 | %) | |||||
| Earnings from operations | $ | 2,723 | $ | 1,736 | 57 | % | |||||
| APAC | |||||||||||
| Net sales | $ | 38,734 | $ | 42,128 | (8 | %) | |||||
| Gross profit | $ | 5,939 | $ | 5,486 | 8 | % | |||||
| Gross margin | 15.3 | % | 13.0 | % | 230 bps | ||||||
| Selling and administrative expenses | $ | 5,399 | $ | 5,637 | (4 | %) | |||||
| Severance and restructuring expenses | $ | 115 | $ | - | ** | ||||||
| Earnings (loss) from operations | $ | 425 | $ | (151 | ) | 381 | % | ||||
| North America | EMEA | APAC | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||
| Sales Mix | 2016 | 2015 | % change* | 2016 | 2015 | % change* | 2016 | 2015 | % change* | |||||||||||||||||||||||||
| Hardware | 63 | % | 61 | % | 3 | % | 40 | % | 41 | % | (18 | %) | 9 | % | 5 | % | 90 | % | ||||||||||||||||
| Software | 29 | % | 32 | % | (6 | %) | 57 | % | 56 | % | (12 | %) | 87 | % | 92 | % | (14 | %) | ||||||||||||||||
| Services | 8 | % | 7 | % | 11 | % | 3 | % | 3 | % | (11 | %) | 4 | % | 3 | % | 12 | %) | ||||||||||||||||
| 100 | % | 100 | % | 1 | % | 100 | % | 100 | % | (15 | %) | 100 | % | 100 | % | (8 | %) | |||||||||||||||||
| * Represents growth/decline in category net sales on a U.S. dollar basis and does not exclude the effects of foreign currency movements. | ||||||||||||||||||||||||||||||||||
| ** 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 2016 financial results, including top-line growth rates and diluted earnings per share, and the assumptions relating thereto, including foreign currency exchange rates, the effect on gross margin of partner program changes, the effect on selling and administrative expenses of recent cost reduction initiatives in North America, the Company’s effective tax rate, capital expenditures, plans concerning the completion of the Company’s recently authorized share repurchase program and its effect on the expected average outstanding share count for 2016 and the health of the IT industry 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 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, 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. NSIT-F
| INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES | ||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
| (IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||
| (UNAUDITED) | ||||||
| Three Months Ended March 31, | ||||||
| 2016 | 2015 | |||||
| Net sales | $ | 1,168,982 | $ | 1,219,679 | ||
| Costs of goods sold | 1,007,874 | 1,057,866 | ||||
| Gross profit | 161,108 | 161,813 | ||||
| Operating expenses: | ||||||
| Selling and administrative expenses | 146,119 | 140,796 | ||||
| Severance and restructuring expenses | 1,356 | 723 | ||||
| Earnings from operations | 13,633 | 20,294 | ||||
| Non-operating (income) expense: | ||||||
| Interest income | (250 | ) | (154 | ) | ||
| Interest expense | 1,848 | 1,738 | ||||
| Net foreign currency exchange loss | 616 | 613 | ||||
| Other expense, net | 268 | 331 | ||||
| Earnings before income taxes | 11,151 | 17,766 | ||||
| Income tax expense | 4,263 | 6,815 | ||||
| Net earnings | $ | 6,888 | $ | 10,951 | ||
| Net earnings per share: | ||||||
| Basic | $ | 0.19 | $ | 0.28 | ||
| Diluted | $ | 0.18 | $ | 0.27 | ||
| Shares used in per share calculations: | ||||||
| Basic | 37,075 | 39,673 | ||||
| Diluted | 37,386 | 39,994 | ||||
| INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (IN THOUSANDS) | ||||||||
| (UNAUDITED) | ||||||||
| March 31, | December 31, | |||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 173,910 | $ | 187,978 | ||||
| Accounts receivable, net | 1,050,866 | 1,315,094 | ||||||
| Inventories | 129,452 | 119,820 | ||||||
| Inventories not available for sale | 52,453 | 51,756 | ||||||
| Other current assets | 85,147 | 77,011 | ||||||
| Total current assets | 1,491,828 | 1,751,659 | ||||||
| Property and equipment, net | 85,975 | 88,281 | ||||||
| Goodwill | 56,195 | 56,195 | ||||||
| Intangible assets, net | 23,790 | 26,983 | ||||||
| Deferred income taxes | 62,927 | 62,986 | ||||||
| Other assets | 28,452 | 27,913 | ||||||
| $ | 1,749,167 | $ | 2,014,017 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable – trade | $ | 609,882 | $ | 905,464 | ||||
| Accounts payable – inventory financing facility | 102,064 | 106,327 | ||||||
| Accrued expenses and other current liabilities | 122,315 | 144,633 | ||||||
| Current portion of long-term debt | 1,206 | 1,535 | ||||||
| Deferred revenue | 53,627 | 50,166 | ||||||
| Total current liabilities | 889,094 | 1,208,125 | ||||||
| Long-term debt | 141,171 | 89,000 | ||||||
| Deferred income taxes | 197 | 239 | ||||||
| Other liabilities | 31,222 | 30,911 | ||||||
| 1,061,684 | 1,328,275 | |||||||
| Stockholders’ equity: | ||||||||
| Preferred stock | - | - | ||||||
| Common stock | 368 | 371 | ||||||
| Additional paid-in capital | 313,273 | 316,686 | ||||||
| Retained earnings | 406,459 | 408,721 | ||||||
| Accumulated other comprehensive loss – foreign currency translation adjustments | (32,617 | ) | (40,036 | ) | ||||
| Total stockholders’ equity | 687,483 | 685,742 | ||||||
| $ | 1,749,167 | $ | 2,014,017 | |||||
| INSIGHT ENTERPRISES, INC. AND SUBSIDIARIES | ||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
| (IN THOUSANDS) | ||||||
| (UNAUDITED) | ||||||
| Three Months Ended March 31, | ||||||
| 2016 | 2015 | |||||
| Cash flows from operating activities: | ||||||
| Net earnings | $ | 6,888 | $ | 10,951 | ||
| Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | ||||||
| Depreciation and amortization | 10,180 | 9,542 | ||||
| Provision for losses on accounts receivable | 608 | 1,083 | ||||
| Write-downs of inventories | 967 | 826 | ||||
| Non-cash stock-based compensation | 2,799 | 2,323 | ||||
| Excess tax benefit from employee gains on stock-based compensation | (258 | ) | (345 | ) | ||
| Deferred income taxes | (1 | ) | 31 | |||
| Changes in assets and liabilities: | ||||||
| Decrease in accounts receivable | 265,222 | 239,253 | ||||
| Increase in inventories | (11,334 | ) | (18,079 | ) | ||
| Increase in other assets | (8,259 | ) | (11,456 | ) | ||
| Decrease in accounts payable | (297,714 | ) | (198,530 | ) | ||
| Increase in deferred revenue | 3,370 | 7,384 | ||||
| Decrease in accrued expenses and other liabilities | (19,655 | ) | (22,165 | ) | ||
| Net cash (used in) provided by operating activities | (47,187 | ) | 20,818 | |||
| Cash flows from investing activities: | ||||||
| Purchases of property and equipment | (2,896 | ) | (3,194 | ) | ||
| Net cash used in investing activities | (2,896 | ) | (3,194 | ) | ||
| Cash flows from financing activities: | ||||||
| Borrowings on senior revolving credit facility | 214,920 | 158,410 | ||||
| Repayments on senior revolving credit facility | (214,920 | ) | (138,910 | ) | ||
| Borrowings on accounts receivable securitization financing facility | 516,000 | 409,100 | ||||
| Repayments on accounts receivable securitization financing facility | (465,000 | ) | (395,100 | ) | ||
| Repayments under other financing agreements | (632 | ) | - | |||
| Payments on capital lease obligations | (56 | ) | (55 | ) | ||
| Net (repayments) borrowings under inventory financing facility | (4,263 | ) | 22,505 | |||
| Excess tax benefit from employee gains on stock-based compensation | 258 | 345 | ||||
| Payment of payroll taxes on stock-based compensation through shares withheld | (2,098 | ) | (1,826 | ) | ||
| Repurchases of common stock | (13,461 | ) | (38,559 | ) | ||
| Net cash provided by financing activities | 30,748 | 15,910 | ||||
| Foreign currency exchange effect on cash and cash equivalent balances | 5,267 | (11,932 | ) | |||
| (Decrease) increase in cash and cash equivalents | (14,068 | ) | 21,602 | |||
| Cash and cash equivalents at beginning of period | 187,978 | 164,524 | ||||
| Cash and cash equivalents at end of period | $ | 173,910 | $ | 186,126 | ||
| 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, | ||||||||||||||
| 2016 | 2015 | |||||||||||||
| Consolidated Earnings from Operations: | ||||||||||||||
| GAAP | $ | 13,633 | $ | 20,294 | ||||||||||
| Severance and restructuring expenses | 1,356 | 723 | ||||||||||||
| Non-GAAP | $ | 14,989 | $ | 21,017 | ||||||||||
| Consolidated Net Earnings: | ||||||||||||||
| GAAP | $ | 6,888 | $ | 10,951 | ||||||||||
| Severance and restructuring expenses, net of tax | 854 | 556 | ||||||||||||
| Non-GAAP | $ | 7,742 | $ | 11,507 | ||||||||||
| Consolidated Diluted EPS: | ||||||||||||||
| GAAP | $ | 0.18 | $ | 0.27 | ||||||||||
| Severance and restructuring expenses, net of tax | 0.03 | 0.02 | ||||||||||||
| Non-GAAP | $ | 0.21 | $ | 0.29 | ||||||||||
| | ||||||||||||||
| North America Earnings from Operations: | ||||||||||||||
| GAAP | $ | 10,485 | $ | 18,709 | ||||||||||
| Severance and restructuring expenses | 1,217 | 405 | ||||||||||||
| Non-GAAP | $ | 11,702 | $ | 19,114 | ||||||||||
| EMEA Earnings from Operations: | ||||||||||||||
| GAAP | $ | 2,723 | $ | 1,736 | ||||||||||
| Severance and restructuring expenses | 24 | 318 | ||||||||||||
| Non-GAAP | $ | 2,747 | $ | 2,054 | ||||||||||
| APAC Earnings (Loss) from Operations: | ||||||||||||||
| GAAP | $ | 425 | $ | (151 | ) | |||||||||
| Severance and restructuring expenses | 115 | - | ||||||||||||
| Non-GAAP | $ | 540 | $ | (151 | ) | |||||||||