Insight Enterprises, Inc. (NSIT)

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Insight Enterprises Inc. (NSIT)

Q2 2009 Earnings Call

August 05, 2009; 05:00 pm ET


Rich Fennessy - President & Chief Executive Officer

Glynis Bryan - Chief Financial Officer


Brian Alexander - Raymond James

Matthew Sheerin - Thomas Weisel Partners

John Lawrence - Morgan Keegan & Co.

Brian Alexander - Raymond James



Good day, ladies and gentlemen, and welcome to the Second Quarter 2009 Insight Enterprises Incorporated Earnings Presentation. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call, Ms. Glynis Bryan, Chief Financial Officer of Insight Enterprises. Please proceed.

Glynis Bryan

Welcome everyone, and thank you for joining the Insight Enterprises conference call. Today, we will be discussing the company’s operating results for the quarter ended June 30, 2009. I am Glynis Bryan, Chief Financial Officer of Insight Enterprises, and joining me is Rich Fennessy, President and Chief Executive Officer.

If you do not have a copy of the earnings release, which was posted this afternoon and filed with the Securities and Exchange Commission on Form 8-K, you will find it on our website at www.insight.com under our Investor Relations section.

Today’s call, including all questions and answers, is being webcast live and can be accessed via the Investor Relation page of our website at www.insight.com. An archived copy of the conference call will be available approximately two hours after completion of the call, and will remain on our website for a limited time.

This conference call and the associated webcast contain time-sensitive information that is accurate only as of today August 5, 2009. This call is the property of Insight Enterprises. Any redistribution, re-transmission or rebroadcast of this call in any form without the expressed written consent of Insight Enterprises is strictly prohibited.

In today’s conference call certain non-GAAP financial measures will be referenced as we discuss second quarter 2009 earnings and diluted earning per share results. You will find a reconciliation of these non-GAAP measures to our actual GAAP results posted on our website on the Investor Relations page.

These non-GAAP measures are used by us to evaluate financial performance against budgeted amount, to calculate incentive compensation, to assist in forecasting future performance, and to compare our results to competitors’ financial results.

We believe that these non-GAAP financial measures are useful to investors because they allow for greater transparency, facilitate comparisons to prior periods and competitors’ results, and assist them in forecasting our future performance because we typically exclude items we believe to be outside of normal operating results.

Finally, let me remind you about forward-looking statements that will be made on today’s call. All forward-looking statements that are made on this conference call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in today’s press release and in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2008.

With that, I will now turn the call over to Rich to walk you through our second quarter 2009 operating results.

Rich Fennessy

Thank you, Glynis. Hello everyone thank you for joining us. We are pleased to be here today to report on our second quarter financial and operational results. Despite the challenging demand environment for IT products globally, it resulted in year-to-year decline in sales and profitability in our business.

We are pleased to report that we executed well in the quarter. For the first time in seven quarters, we saw sequential quarter organic growth in our North American hardware category in both sales and gross profit. We also took further action to reduce the cost base in our EMEA and Asia-Pacific businesses to better align those businesses with the current demand environments.

In addition, we continue to focus on improving our cost efficiency metrics and strengthening our overall capital structure. Highlights of our results include, consolidated net sales for the second quarter were $1.04 billion, down 26% from last year, but up 9% sequentially. Gross profit declined 26% to $147.8 million while gross margin was 14.3%, down 10 basis points from last year.

Net earnings from continuing operations were $16 million, and diluted earnings per share from continuing operations with $0.34 before the effect of the following one-time items. Severance and restructuring expenses of $2.1 million, $1.5 million net of taxes and professional fees associated with a trade credits investigation that was concluded in mid-May of $2.6 million, $1.6 million net of taxes.

On a very positive note we generated over $95 million of cash flow from operations during the quarter. Pay down debt by $51.5 million and end of the quarter with a $119.5 million of debt outstanding, which is down over $100 million since the beginning of the year.

Moving onto our operating segment. In North America, net sales were $714 million, down 25% from the second quarter of 2008, but up 8% sequentially. Gross margin on these sales held steady at 14%. While nets sales were down year-over-year, we are encouraged by 13% sequential quarter growth in sales in the hardware category in the second quarter.

We believe the demand environment for hardware offering is stabilizing, and are hopeful that this trend will continue through the second half of 2009. Additionally, we saw increase demand for our value-added networking and services offering in the second quarter. A key part of our strategy is to continue to increase the mix of services as a percent of our total net sales and profit.

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