Insight Enterprises Inc (NSIT) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Insight Enterprises first quarter 2004 earnings results conference call.

[OPERATOR INSTRUCTIONS].

Now I'd like to turn it over to your corporate host, Stan Laybourne.

Thank you, and welcome everyone, for joining the Insight Enterprises conference call.

Today we will be discussing the company's operating results for the quarter ended March 31, 2004.

Joining me, Stan Laybourne, Chief Financial Officer, is Tim Crown, CEO of Insight Enterprises.

If you do not have a copy of the earnings release that was posted this afternoon and filed with the SEC on Form 8-K, you will find it on our web site at www.insight.com under our investor relation's section.

Since detailed financial and operating data are contained in the earnings release, we will only be concentrating on highlights of the quarter during the scripted portion of the conference call.

As usual, at the conclusion of the scripted portion, we will answer questions that our conference call participants may have.

Today's call, including all questions and answers, is being web cast live and can be accessed via the investor relation's section of our web site.

An archived indexed copy of the conference call will be available approximately two hours after completion of the call and will remain on our web site for a limited time.

This conference call and the associated web cast contain time-sensitive information that is accurate only as of today, April 22, 2004.

This call is the property of Insight Enterprises, Inc.

Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Insight Enterprises is strictly prohibited.

Finally, let me remind you about forward-looking statements that will be made on today's call and non-GAAP measures discussed on the call.

All forward-looking statements that are made in this conference call are subject to risk and uncertainties that could cause the actual results to differ materially.

These results are discussed in today's earnings release and also in greater detail in our annual report on Form 10-K for the year ended December 31, 2003.

As required by SEC rules, we have provided a reconciliation of non-GAAP measures to GAAP in our earnings release and 8-K filing, and you can find those on our investor relations section of our Web site.

I will now turn the call over to Tim Crown for opening remarks.

Tim?

Thank you, Stan.

Hello, everyone, and thank you for joining us.

I am pleased to report today that Insight Enterprises posted its fourth consecutive quarter of sequential growth and net earnings and earnings per share.

Earnings per share of 28 cents, excluding the six cents of earnings per share resulting from a reduction in liabilities assumed in a previous acquisition represents a 12% increase over last quarter and 100% increase over Q1 2003 E.P.S. of 14 cents, excluding the effects of income resulting from a reduction in liabilities assuming a previous acquisition and restructuring expenses.

Net sales were down sequentially 2%, but increased 3% over the prior year.

I will be providing a brief overview of the first quarter 2004 performance trends and news for each of our operating segments.

Stan will provide an overview of financial results for the quarter.

Let's start with Insight North America.

During the month of January, we completed the refresh training and conversion of its SMB account executives in Tempi, Montreal that are serving US customers through our new system Maximus.

We believe our decision to postpone the migration of the majority of the SMB account executives initially scheduled for December of 2003 to January of 2004 allowed our SMB account executives to focus on sales for the last month of 2003 and to focus on the conversion to Maximus during January, a typically slower first month of the quarter.

As a result of this decision, net sales overall for Insight North America for the quarter were down as compared to the prior year and last quarter due to the decline in productivity in our SMB division, so we not only generate conversion, but also for several weeks following as the SMB account executives learned to navigate the new system and more efficiently operate it, and as bugs in the system were identified and corrected.

Next, sales in Q1 from the corporate division, it should be noted, posted single digit growth over year over year.

We are pleased with the system conversion overall, and every week we see improvements in the productivity across the organization.

As with any system conversion, we have a long list of bugs to work through and enhancements still to be made.

But there is nothing that prevents us from servicing our customers and focussing on growth.

Although overall sales in January and February started slowly, we saw an increase in March and that momentum has continued into April.

We continue to see increased productivity both from our SMB and larger corporate customer base across all products and our product mix has remained relatively constant from Q4 2003.

As we stated last quarter, our internal slogan is Insight out, focusing the majority of our top objectives in 2004 outward towards the customer.

Over the next few months, we expect to increase our marketing reach, increase account executive head count, and enhance our web site as we focus on the customer and promote the value of our single source business model.

We are making investments now to support our future growth plans.

As we touched on last quarter, these investments include increasing on quarterly marketing spent by approximately 2 million a quarter, an average of 50 to 100 net executives per quarter, including the U.K.

Normally these account executives have a ramp time to get to profitability, particularly in the SMB account executives, of about six months.

During the first quarter, current executive head count compared to Q4 2003 remained relatively flat in North America due to the system conversion, but increased by a net 40 up in the UK.

Additionally, our incremental marketing spent in Q1 was a little less than one million as we focused on hiring an experienced marketing veteran to clean our marketing effort and on completing the system conversion.

As we have previously stated, our goal is to obtain vendor participation for virtually all of our marketing initiatives.

However, until we show top-line growth, most of our incremental marketing spent will not be funded with incremental dollars from vendors.

These marketing initiatives are imperative, however, not only to generate demand and increased brand awareness, but also to protect our existing supplier funds as vendors are shifting their funds from metrics based on sales to cooperative marketing requirements.

Last quarter, we also talked about enhancing the senior management team at Insight North America.

Since then, we have added experienced managers in the areas of marketing, as mentioned earlier, product management, and services to further strengthen the strong senior management team at Insight North America.

Insight UK, which completed its fifth consecutive quarter of profitability, posted a sequential increase in net sales and earnings from operation.

The first quarter is seasonally the strongest for Insight UK due to large corporate and public set of customers with a March fiscal year end.

This quarter was certainly no exception, as Insight UK posted a sequential increase in sales over Q4 2003 and over the first quarter last year, even after eliminating the effects of the strong British pound.

This growth came from all customer segments; particularly public sector and product mix remained relatively stable.

The UK market is a large market.

We are executing our focus SMB target model, and I believe we have positioned ourselves well for growth.

I believe itis necessary for Insight UK to grow rapidly, due to organically or acquisitions, in order to take advantage of this market leading position in sales of a small to mid-sized business customer.

This brings me to Direct Alliance, which saw relatively flat net sales in the first quarter compared to last quarter, yet continued to provide strong operating profits.

We are continuing to invest in the business with hopes of expanding business opportunities in the future.

Plus net continues to have strong performance and now has more than 58,000 broadband customers, an increase of 178% from last year.

While Plus net continues to service a large number of dial-up customers as well, the long-term value will be driven by the growth of its broad band customers.

While not a core business, plus net remains -- or plus net continues to increase its value, which enhances its potential for divestiture.

I will now turn the call back over to Stan, who will give you more specific financial results.

Stan?

Thanks, Tim.

Since substantial detail and year over year comparisons are included in the earnings release, I will focus my discussion on fluctuations from last quarter.

Let's begin with Insight North America.

Net sales decreased6% over last quarter as we completed the migration of SMB account executives to maximus.

The number of account executives remained basically flat from last quarter, although as Tim stated, you can expect to see net additions for Insight North America starting in Q2.

Average tenure of our North American account executives is down slightly from 3.3 years last quarter to 3.2 years with 28% of the account executives having less than one year experience, 13% with one to two years, 10% with two to three years, and 49% with more than three years experience.

The slight decline in average tenure is due to the loss of some experienced account executives, many of whom departed because their performance declined as they struggled with the system conversion and shift to the single source business model.

Gross margin increased substantially this quarter to 11.8% from 10.8% due to increases in product margins resulting from an internal focus on margin enhancement, a reduction in the provision for inventories due to improved inventory management procedures and a recovery of manufacture bids not previously claimed.

Additionally, it should be noted that system pricing issues in Q4, 2003reported last quarter that reduced gross margin slightly was not an issue in this quarter.

Selling and administrative expenses as a percentage of net sales increased sequentially to 9.5% from 8.7%.

Last quarter, we stated that we expected over $2 million in savings to be realized in Q1 compared to Q4 due to the elimination of accelerated depreciation related to the old IT system of $1.7 million per quarter, $180,000 of stay bonuses, and an additional $500,000in personnel expenses.

These savings were realized in Q1, but were offset partially by investments in marketing, sales incentive programs, and senior management personnel as we position the company for growth, and by payroll taxes associated with stock option exercises.

We expect eventually to realize additional efficiencies as our employees become more pro efficient on the maximus system and additional enhancements are made.

Long term, it is still our goal to reduce our consolidated selling and administrative expenses to between 7.5% and 8.5%.

I still believe this goal will be achievable for Insight North America by the end of 2004, but will be a longer-term goal for this consolidated group.

To achieve this target percentage, we need to increase net sales, realize additional operating efficiencies, implement additional cost cutting initiatives, or achieve a combination of the three.

Net sales this quarter for Insight UK increased sequentially to $120 million from $99 million in q-4 2003, with increases in the British pound Sterling exchange rates from last quarter accounting for $8.6 million of the increase.

Excluding the effect of fluctuations in the exchange rates, net sales increased approximately 13% sequentially as the first quarter is seasonably the strongest quarter for the U.K. business.

We added a net of 40 account executives during the quarter to support growth.

As Tim stated earlier, our plan in 2004 is to add net account executives each quarter, approximately 50 to 100 per quarter combined for Insight North America and the United Kingdom.

Average tenure of our United Kingdom account executives decreased from 2.2 years last quarter to 2.0 years, with 54% of the account executives having less than one year experience, 13%with one to two years, 8% with two to three years, and 25% with more than three years experience.

The decrease in average tenure is due primarily to the net 40 additions during the quarter.

Gross margin increased sequentially this quarter to 13.9% from 13.5%, due primarily to an increase in product margin and a decrease in provision for inventories, offset partially by a decrease in supply or reimbursement.

Selling and administrative expenses as a percentage of net sales decreased sequentially to 11% from 11.5%, due primarily to the increase in net sales and a reduction in the provision of accounts receivable offset by personnel and training expenses related to the increase in the number of account executives.

Insight UK continues to contribute positive earnings from operations and posted a 234%sequential increase to $6.6 million.

This included income resulting from the settlement of a lease liability that we assumed with a previous acquisition for approximately $3.2 million, less the original liability estimate.

Excluding this amount, Insight UK still contributed earnings from operations of $3.4 million, a 73% sequential increase.

DirectAlliance posted net sales of $18.7 million, basically flat from the $19.1 million last quarter.

The slight decrease was due to approximately $461,000 recorded in sales and gross profit inQ4, 2003, due to a client program yearly program guarantee performance guarantee just discussed and decreased performance fees which were negotiated with a recent contract extension.

Selling and administrative expenses that DirectAlliance remained flat at $1.5 million for the first quarter of 2004 and the fourth quarter of 2003.

DirectAlliance posted earnings from operations of $3.3 million for the first quarter of2004, a 31% decrease compared to earnings from operations of $4.8 million last quarter, due entirely to the decrease in profits.

PlusNet continues to experience a heavy increase in net sales, as UK Internet customers continue to shift from dial-up to broadband Internet access.

Active broadband customers increased 25% from last quarter to 58,185.

PlusNet sales grew 26% sequentially to 11.2 million, although earnings from operations decreased 11% to $824,000.

The decrease in earnings from operations is due primarily to increases in head count, an increase in the provision for accounts receivable, and additional compensation expense to senior management for the strong performance at PlusNet.

Increases in the British pound Sterling exchange rates from last quarter accounted for $800,000 of the increase in net sales.

Included in non-operating income for the quarter ended March 31, 2004, were two separate gains on investments.

Insight U.K. sold a building we were not utilizing for a gain of$328,000, $317,000 net of tax, and Direct Alliance realized a gain of $516,000 from selling stock upon the exercise of stock options received from a client several years ago as compensation for a note payable extension.

This gain was not taxable due to the utilization of capital loss carry forwards.

Cash flows from operations were strong during the quarter.

The outstanding balance under our line of credit and accounts receivable securitization facility decreased to $8 million at March 31, 2004, from $65 million in December31, 2003.

This decrease was primarily due to operating cash flow of $45million and cash received from the exercise of stock options of $16 million.

We also had approximately $44 million in cash and cash equipments at March 31.I'll now turn the call back to Tim for final comments.

Tim?

Thanks, Stan.

As we indicated in our press release, we have formerly initiated a search for a new CEO of company.

Once a new CEO is retained, I will be relinquishing my position as CEO and President of the Company and will be take over the position currently held by my brother, Eric Brown, as chairman of the board.

Eric will remain as a member of the board of directors until such time as a replacement is found, I will remain as CEO.

I believe our company is stronger than it has ever been, more global and poised to play an important role in a competitive IT products and services market.

I am proud of what the company has accomplished since my brother and I founded it in the late 1980's.That concludes my comments.

Stan and I are now available to answer any questions that you may have.

[OPERATOR INSTRUCTIONS]

From Thomas Weisel Partners, our first questioner is Matt Sheerin.

Go ahead, Matt.

Yes, thanks very much.

You talked about some strengthening in demand during the end of the quarter.

What was your business -- it was up a little bit year over year.

Did you see year over year comparisons get better during the quarter?

I know you don't get guidance, but directionally, where do you think sales are headed?

So -- this is Tim -- January and February were obviously affected by the integration.

March, we definitely saw an up tick.

In April, again, I have to caution you, it's only 22 days into the month, but we're up approximately 4% year over year in the Insight business worldwide.

But I think what's most important right now is that it's the strongest demand we've seen across the board in a couple of years, whether it's S.M.B. customers or specifically corporate clients, we're seeing for the first time, again, a couple of years, the pipeline is filling very strongly, so from an overall demand point of view and the fact we're now focused externally, you know, I'm very buoyed by the demand that we're seeing right now.

So, again, the first 22 days of the month, we're up 4% year over year.

But again, it's early in the quarter, but I'm feeling pretty gone good about where we're at right now.

And Tim, you've spoken in the past about seeing some incremental positive things on the large corporate side where you saw some pipeline for some larger projects.

Are you continuing to see that?

Can you give us some anecdotal evidence of how things are doing?

Actually, I'm knocking on wood and crossing my fingers because the corporate business is very strong.

I think it's one of those things, you have to be a little bit careful of, because you may get a contract that's very large, but it happens over, lets say, four, five, six quarters where you roll it out, or you deliver it on the contract, so in any individual quarter, it's difficult to predict exact revenue.

But again, given where we're at right now, given the pipeline, we feel very confident on our sales going up sequentially and year over year in Q-2.

But again, I think back to the large corporate -- again, large corporate for us is1000 seats and up - we're seeing excellent demand right now.

OK.

Great.

On the gross margin, which was up nicely, should we expect it at that level, or will it come down a little bit because of you mentioned some, I guess some rebates from vendors.

Will that come down, and what should we think about gross margin through the year?

This is Stan.

First of all, gross margin, as you know, really depends on the mix of the business between S.M.B. and corporate to a certain extent.

However, taking that into account as we indicated earlier, we certainly have focused more internally on improving gross margin.

As you know, we're emphasizing more of the service type of business, which increases gross margin.

And so consequently, when you take those all into account, my reaction is that I think that where we are is probably a pretty good place to place, you know, a future type of modeling.

Internally, when we go through a budget process, as I've said many times before, we always take a pessimistic view and say it's going to be about 10%down, so that's how we always look at it internally.

But as you noticed, in the last several quarters, we've really been positive in that area.

I think long term, what we have said in the past is that this gross margin should be, you know, between 11.5% and 12.5% depending how services play into it.

Right now, we're at that upper end.

So I feel pretty comfortable for that, particularly for the next foreseeable quarters.

OK, thanks.

Lastly, Tim, if could just give us maybe a little bit more detail about your decision to step down as CEO and exactly sort of what candidate are you looking for to fill that spot.

Thank you.

Again, I've been with the business since its inception in the mid late1980's, and I think that from my personal point of view, I felt as if my position as chairman would be the best one possible for the company.

So what we're really looking for right now, if up to the call it the best athlete that we can go out and find, whether that candidate is internal or external, we've just begun a search with a nationwide search firm, so there's no time table on that.

We want to find the best possible person we can.

When that person is found, then we'll make the changes appropriately.

Again, from my first perspective, I'd like to be an active chairman, stay as involved in the business as the next CEO will let me.

But from that perspective, I think it's just a great time.

The business is well poised.

All the divisions have a little bit of up lift externally.

And internally, we really got through, if you want to call it the heavy lifting.

So I think it's just a great time in the business from that perspective.

I think it will be optimal for the business over the long haul.

OK, great.

Thank you.

Thank you.

Our next question comes from Brian Alexander from Raymond James.

Thanks.

Stan, just to go back to the gross margin for a minute.

It sounded like you said that you were comfortable with where the gross margins are now.

I thought that once the system conversion was done, there were going to be some benefits in terms of vendors recognizing Insight as one consolidated entity.

Just help us understand where you are in that process, how much additional margin pickup should we see now that you are beyond the conversion.

Yeah, Brian, first of all, there might be those pickups, and I think as I've also said, since we did the large acquisition, we have seen some pickups, so there has been some built in there.

Now, having said that, I think that there could potentially be more pickups from that down the line.

I certainly think as services grow, that that will be a pickup.

But on the other side, historically this industry is one where you see declining GP and those two forces are going to be competing against each other.

So that's why I made the statement earlier, you know, where they are right now, given the pluses and minuses, you know, I don't think that's too bad from what we see and what we're doing and hearing internally.

OK, thanks, Stan.

And then Tim, you talked about April being up 4% year over year.

When you look back at last year, how did the quarter build?

In other words, should we think of the comparisons as getting harder or easier?

And if demand just continues on this upward trend, do you think that 4% for the quarter is an achievable growth rate?

Well, when the quarter builds through the quarter, but that said, we don't want to forecast what we're going to do in the quarter.

We're just trying to give you a sense of where the business is at right now.

OK.

And then finally, you said that the large corporate business was up single digits year over year in the first quarter.

Just want to check to see if my math is right.

Would that get it down mid single digits sequentially?

I have to go back and look at that.

I apologize.

I have to go back and look at that number.

OK, thanks.

Thank you.

And the next question will come from John Lawrence from Morgan Keegan.

Yes, good afternoon.

How are you doing?

Tim, would you comment a little bit, just remind us on the systems conversion a little bit, obviously you lost a few sales people that didn't make that transition.

What's really required more to be able to do that, and do you think you're past all of those reductions at this point?

Well, I sure hope so.

There's a big initiative internally obviously to get the reps over the hump to help them out in this process.

But it is a big change.

It's the equivalent of going from a V.W. bug to a Ferrari.

When I say that, there's a ton more things to look at, there's a ton more control over the ordering, processing, who can authorize customers on the customer level, via the Web site.

Again, this was also an external change from a web perspective.

We moved over thousands, tens of thousands of accounts from our old web site to our new Web site.

So all this was going on at the same time.

So really, customers internally and externally had to learn a new way.

It wasn't just more powerful and different; it was really a different way to look at it and how you do certain business processes.

So this is just a natural progression.

I think as we go along, what ends up happening, both customers and the internal folks, not just sales people, but other people can go out there and do it much, much better over time.

So as we move forward, I feel very good about where we're at from a systems perspective.

And just one more step on that is the idea of attaching that service mix to that with the initial order, how is that process going, and obviously the services business is better.

I think it's one of those things over the next couple of quarters, you're going to see it gross margin.

So I think that traditional believe or just overall, the revenue from services is not nearly as great as products, but the gross margins are dramatically higher.

So over time, I think you're going to see things flow through.

The reason that we don't like to break that number out too closely is a lot of times it's tied directly to product.

You may have saw a product cost and make the money in the service, or you may service cost make it at the product.

They're kind of joined at the hip.

You can't sell one without the other.

But overall, you see the gross margin line as that really picks up.

OK, last question.

The million bucks on the marketing side, where did you spend that, and what kind of return are you expecting, and can you give us some guidance on what kind of plans you have on the marketing side?

Marketing side, you know, that's probably an hour conversation by itself.

But the majority of the money is really around the band generation.

There is going to be some branding in there, you know, some sort of traditional mediums.

As an example, we kind of blanketed, really started blankets Arizona, starting last quarter and really this quarter, really tried to become the dominant source for IT products and services in Arizona.

That could be traditional marketing of bill boards, radio, TV -- excuse me, not TV, magazines, etc.

But I think the reality is, as you look forward, we're going to go out and test vehicles that work, and whatever has the right R.O.I., we're going to continue to invest in those.

Arizona's kind of our trial location, and then roll out nation wide as we continue to expand.

We still are doing nationwide demand, but kind of our testing right now is really more locally in Arizona.

Great.

Thanks.

Thank you.

And the next question will come from David Small from Goldman Sachs.

Hi, guys.

Just back on this gross margin issue for a second.

On the gross margin side, you did benefit in the quarter from this decrease in the provisions for obsolescence.

Given that's more of a one-time issue, could you just sort of quantify it for what the margin would have been had it not -- had that not been there.

Yeah, first of all, we give those in kind of order, and we don't give magnitude to each one, David.

You know, I guess I disagree on a one-time type of thing, because you can look at anything that we do in the business as a one-time type of item.

That is good management that we have a policy of reviewing our provision for obsolete inventory based on historical performance, and our people are doing an excellent job, and therefore, we have brought it down in a logical way.

But it isn't a large number, and we really don't give those individual numbers out.

OK.

And then I just want to make sure -- make sure I am doing the math right.

You saw the $2.4 million savings, and that, was offset by a $1 million of increased marketing.

Does that mean another $5 million was for the senior salespeople and some of these more incentives, is that the right math?

The marketing absolutely that you were doing, there's certainly the sales incentives that we put in there as we outlined within the call.

The other thing that I would mention to you is remember, this is a variable model to a certain extent in that if sales are up $10 million, there might be a different look on the percentage of op ex expenses and percentage of sales.

And so consequently, as Tim mentioned, we believe things are starting to look up.

We didn't take any drastic measures, if you would, during the quarter because of what we see in building for the future.

Then for the second quarter, if you're hiring 50 people, it's fair to say that it will be up?

Yes, that's true.

The other thing I am trying to think about on your comment, it was only up a million, if I remember correctly, on G&A.

I was thinking sequentially.

It was up about $3.6 million sequentially.

OK, yes, yes.

OK, then I am with you, I understand where you got the number.

OK, and that's what we should be thinking about.

Yes, yep.

OK.

Thank you.

Thank you.

[OPERATOR INSTRUCTIONS]

And from Robert W. Baird, our next question comes from David Manthey.

Hi, guys.

I am hoping we can further clarify this SG&A question, because the number is significantly higher than what I thought it was going to be here.

If you are supposed to see a $3 million savings and the number is actually up $3.5million, that's $6 or $7 million, say you off set it by the one for marketing, it's still a significant amount of money.

If you're just talking about incentives and so forth, seems strange with sales down sequentially that that number would be up significantly.

Can you just help us understand that a little bit more?

Well, first of all, part of that is in the UK.

OK?

And they did increase their account reps 40.

Within the US, it's really within North America, if I remember correctly, I think we're only up about a million, and that's why I was questioning that it's a little under a million.

So if you remember when we were talking about those savings, they were primarily in the North America unit that we were talking about, Dave.

So consequently, if you looked at the North American operations were up less than one million, and we had said that we had these cost savings.

That he wants the differential which is probably about $3million, and then $2 million of the increase that Dave was talking about earlier is over in the UK because of the increase in the account reps over there.

Does that help?

To some extent, most the majority SG&A increases were really in the sales and marketing areas.

So we are going to continue to invest those areas and obviously our hope is that we get return from our sales number, so as a percentage we don't end up with SG&A increasing as a percentage of that, in fact it's going to hopefully decrease over time.

But I can see the compensation going up in the U.K.

But when you have North American sales down 6% sequentially, why isn't there a corresponding decrease SG&A for those reps?

Part of it is, one of the things that specifically is just philosophically, because of the conversion, we didn't want a lot of people to be hurt by what happens, so we were very generous along those lines in a lot of the areas of the business.

So it's one of those things, put yourself in a sales person chair.

Is it fair to have a conversation go down dramatically because of a systems conversion when it wasn't necessarily all your fault or all your issue as an example?

I think when we look at that, we want to be very fair from that perspective.

OK.

A couple more quick questions then.

On DAC, given that you have one customer that makes up about 10% of EBIT is that not, would you not classify that as material?

Maybe you could talk a little bit more about the customers there and the timing just so we don't wake up one day and find 10% of EBIT gone?

Well, first of all, Dave, as you know, that was a more material part of the total, because, in sight's total was down.

And as in sights continues to grow, that will become less of a percentage, which I believe if you look back a couple of years ago, that, probably held true.

Second of all, your comment about the client being that big, that's something that we have managed well, I think, for a long period of time.

We continue to get more programs from them or more work from them, and I think DAC. is very key to keeping that customer happy.

I should also point that out that on a personal basis, I'm very close to that particular client also, and I keep personal track of what's going on with that overall business relationship.

As much as you can get comfortable with concentration in a single customer on a Direct Alliance side, he will comfortable.

Just finally on the U.K. again, if my memory is correct, the first quarter is the end of the government fiscal year in the U.K., but I also believe that the emphasis has gone away from government and large customers, more towards the SMB.

So as we look at that number sequentially, are we right to think that there should be some level of decline there, but maybe not as significant as in the past?

This is Tim again.

I hope -- and again, you want to correct that March 31 is big, large corporate and government year-end for those folks.

But I think that with the initiatives that we're putting in place and have put in place with the U.K., with additional reps, etc., I hope we don't see sequential sales decrease in the U.K.

Dave, I would add also, again, you know, cautioned with Tim's comment about, you know, only being 15 days or 14 days, I guess, from the U.K. of ship date to date in April, when you look at that, you know, they're doing very well over there, and whether you look year over year or look sequentially.

So, you know, I would echo what Tim said.

I think things are going in the correct direction there, and we would not to see a decline there sequentially.

Specifically on the U.K., Stewart has done a great job over there.

I think if you look at the metrics on operating performance and sales growth, sequentially, take out the conscious a, do it in pound Sterling, the last three or four quarters have been spectacular, and I think that we've got a heck of a lot of momentum over there with that business.

So again, we're forecasting great things in the U.K.

And so, again, you know, we are certainly not forecasting a decline in U.K. revenue, Q2 versus Q1.

OK, great, thank you.

Thank you.

And we have a follow-up question from David Small from Goldman Sachs.

Could you just, on this revenue for the quarter, could you just give us a little more detail on the progression per month?

Was January down 10%, 5%, kind of was February more flattish?

Can you maybe just give us a little more specifics there?

Again, January and February, February was definitely impacted specifically by the account executives, because it was really the end of January when they all got on the system.

So February was definitely a down month.

March was an up month.

But, again, when I look at it, January and February, we're really the ones impacted by the system conversion.

I think March was up just because people were getting better in the system.

And externally, we saw demand start to pickup.

So as I sit and look at the business right now, it's one of those things where you've got all kinds of issue with software netting, you know, was it, hold, all those issues on individual months, where it may not give you an accurate representation, but just overall between January and February, that's really where we saw the impact from the integration.

But March, things are starting to get on track.

Normally we do see an increase in the third month of the quarter.

Although again, it's held pretty strong in April, so we feel pretty good about where we're.

And then just on the services business, you know, I know it's difficult to tell us exactly where this is, but when we look on this product mix, where should we see the services business?

Where do you classify the services business?

Of where.

Hang on one second here.

How are we -- OK.

Just to clarify, that is only products on that mix.

So we're only giving revenue numbers on product, not services.

OK.

Well, that's it.

Thanks, guys.

OK, thank you.

And that was our last question.

I'll turn it back over to management for closing remarks.

Thank you, everyone.

In a few weeks, we'll be hosting an analyst day in New York that will include presentations by Dino Farfante, head of Insightworldwide, Stewart, management of U.K., Tony Smith, president of Direct Alliance, and Stan and myself will also be attending.

The conference will be web cast live and it will be available from the investor relation's sections of www.insight.com.

I encourage you all to listen to the web cast as these executives discuss the operating growth strategies. 2004 will be an exciting year for all of us as we focus Insight out and provide benefits to our valued shareholders, customers, partners, and employees.

On behalf of Insight Enterprises, thank you all for your continued support.

Bye.