Insight Enterprises Inc (NSIT) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the 1st Quarter 2005 Insight Enterprises Earnings Conference.

My name is Kaytlin.

I’ll be your coordinator.

At this time, all participants are in a listen-only mode.

We will facilitate a question-and-answer session at the end of today’s conference.

If at any time during the call you require assistance, please press * followed by 0, and a coordinator will be happy to assist you.

As a reminder, this conference is being recorded for replay purposes.

I would like to now turn the presentation to your host, the CFO, Mr. Stanley Laybourne.

Please go ahead, sir.

Thank you.

Welcome, everybody -- and thank you for joining the Insight Enterprises Conference Call.

Today, we will be discussing the Company’s operating results for the quarter ended March 31st 2005.

Joining me, Stanley Laybourne -- CFO -- is Rich Fennessy -- President and 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 8K, you will find it on our website at Insight.com under our Investor Relations 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 from our conference call participants.

Today’s call, including all questions and answers, is being web cast live, and can be accessed via the Investor Relations section of our website.

An archived index copy of the conference call will be available approximately 2 hours after the completion of the call, and will remain on our website for a limited time.

This conference call and the associated web cast contain time-sensitive information that is accurate only as of today, April 21st 2005.

This call is the property of Insight Enterprises.

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 risks and uncertainties that could cause the actual results to differ materially.

These risks are discussed in today’s earnings release, and also in greater detail in our annual report on Form 10K for the year ended December 31, 2004.

Insight Enterprises assumes no obligation to update and does not intend to update any forward-looking statements.

As required by SEC rules, we have provided a reconciliation of non-GAAP measures to GAAP in our earnings release and 8K filing.

You can find those documents on the Investor Relations section of our website.

With that, I’ll now turn the call over to Rich for opening remarks.

Rich?

Thank you, Stan.

Hello, everyone -- and thank you for joining us, today.

Insight had a solid 1st quarter performance.

We focused on growing net sales, while increasing gross margin and profitability to drive continual improvements in our daily execution.

I am pleased to report that this focus -- by hard-working employees -- resulted in year-to-year growth in net sales of 8 percent, and year-to-year growth in non-GAAP earnings of 11 percent.

Additionally, non-GAAP diluted EPS was $0.30 compared to $0.28 for the 1st quarter of last year.

Specifically, in Insight North America, we grew net sales 10.4 percent over the prior year -- faster than we believe the market is growing.

In a few minutes, Stan will review with you the [details] of our 1st quarter results across each of our operating segments.

On our call in January, I discussed my support of Insight’s chief strategy -- to migrate from an IT product provider to an IT solution provider.

At that time, I also reviewed Insight’s 2005 goals and objectives.

Today, I will review our progress against these goals -- which are specifically designed to fuel the transformation of our business and successful execution of our business strategy.

Our 2005 goals are -- 1 -- developing a lasting, competitive advantage by enhancing our relationships with our employees, clients and partners.

Regarding this goal, we accomplished a lot during the past 3 months.

First let me explain how Insight is enhancing employee relationships that we believe will ultimately help us beat our competition.

In the 1st quarter, we analyzed employee feedback and developed detailed employee satisfaction in proven plans across each of our operating segments.

We hope to see increases in our bi-annual employee-satisfaction survey results by November 2005 -- resulting in lower employee turnover.

Obviously, increasing employee tenure within our sales team should directly contribute to higher sales productivity.

To support our renewed focus on what I like to refer to as, “The Employee Experience,” we launched new application programs, effective this past April 1st across much of our organization.

The idea is simple.

To align compensation for all employees with Insight’s overall 2005 objectives, while recognizing individual contribution and accountability.

To support our efforts an improving the employee experience, we hired Gary Glandon in February as Chief People Officer.

Gary’s primary role will be to oversee the worldwide people-and-development organization.

Some of his priorities will be to design and implement initiatives, to increase employee satisfaction and retention, and to cultivate a talented workforce.

Gary comes to Insight Enterprises with a wealth of HR experience, and I’m pleased to have him onboard.

In regard to enhancing client relationships, our newly established, monthly client-satisfaction survey process is already driving improvements in our clients’ Insight experience.

By identifying process breakdowns faster, we will achieve higher levels of clients satisfaction.

As we all know, happy clients normally buy more.

Our strategy here is to earn a higher share of wallet within our existing clients, and increase our ability to attract new clients.

So, we have been busy looking at ways to improve employee and client relationships.

Finally, as it relates to partner relationships, the highlight of the first quarter was the launch of our new partner program.

Let me explain.

The new program aligns our marketing efforts more tightly with our partners across all 5 Insight Co Solution areas.

Remember -- these are Managed IT, Store IT, Secure IT, Print IT and Mobilized IT.

Again, the idea is simple.

We will increase alignment of our marketing efforts with our top partners -- such as HP, Microsoft, IBM and Cisco -- allowing more-focused execution and improved results.

We anticipate increased partner investments and support of Insight’s marketing and sales initiatives and higher value-added solutions for our clients.

Now, let’s go on to the project of our second 2005 goal.

Improving the Insight experience through enablement of key business processes.

In the 1st quarter, we completed an intensive re-evaluation of our systems and business processes, post the Maximus system migration.

Integrating the back office of two different businesses via Maximus was successfully accomplished in 2004.

As we look to the next several quarters, we will continue to enhance our systems to support the enablement of key business transactions and an improved Insight experience.

For example -- we have just launched new tools on the website to facilitate the up sell and cross-sell of many of our product lines -- making the buying process easier for our clients.

The next phase of our Maximus system solution is very exciting, to me.

Because it contains initiatives to further-enhance our clients’ experience with Insight -- particularly through the web.

I would also focus on significantly increasing a sales rep’s productivity.

To support our Number 2 goal, we promoted David Rice to be the CIO of Insight Enterprises.

As one of the newest members of the senior executive team, Dave’s primary role will be to oversee Insight Enterprise’s worldwide infrastructure and business processes -- to ensure we are a best-run business.

Our third goal for 2005 is to accelerate sales and service skills to support targeted Insight solutions.

In the 1st quarter, we looked at ways to improve the selling skills and training of our sales team, so they could be better equipped for success in solution selling versus products-only selling.

As a result, we have partnered with a third-party trading company to design a completely new approach for building new skills and competencies within our sales team.

The rollout of the new program has begun, and the initial feedback has been just outstanding from our sales organization.

We believe this will translate into sales productivity and reduced employee turnover as we provide our sales team the resources to build a richer set of critical selling skills.

The fourth goal is to increase client acquisition and penetration.

In February, we launched Insight’s first-ever national advertising campaign across the United States, with print advertising showcasing our 5 solutions in various national publication, such as Fortune and Business Week.

While it’s too early to evaluate the results of these new brand-building efforts, we are clearly showing the marketplace and our clients a whole new Insight.

Finally, our 5th and last goal is driving sales and profitability growth.

Ultimately, each of the previous 4 goals are designed to increase revenue and see profitability growth.

And they have, in the 1st quarter.

As an example, I am encouraged by the improvements we experienced in our GP percent and in overall sales productivity in our North American operating segment.

We saw the GP percent grow by approximately 70 basis points -- 70 basis points -- quarter-to-quarter, and the revenue-per-sales-rep grow 19 percent year-to-year.

As I indicated on the last call, we have been experiencing challenges in attaining our historical revenue growth rate within our North American SMB business.

While we have more work to do, we have implemented a set of actions to improve our SMB business, and I am encouraged by the progress we are making against these actions.

Again, each of Insight’s five 2005 goals I reviewed are specifically aligned with our corporate transformation -- to be more of a complete solutions provider -- and to the successful execution of our business.

While it has only been 3 months since my initial call with you, I am confident that we have been working along the right paths during this time.

I am encouraged by the foundation being laid, implementation successes and overall progress.

Now, I’ll turn the call back to Stan to provide more details on our 1st quarter performance across each of our operating segments.

Thanks, Rich.

The 1st quarter saw year-over-year increases in quarterly net sales and EPS.

Consolidated net sales grew 8 percent year-over-year.

And non-GAAP diluted EPS grew 7 percent, to $0.30 compared to $0.28 in the first quarter of last year.

The non-GAAP numbers for Q1 2005 and 2004 referred to in the earnings release in this conference call exclude income resulting from reductions in liability assumed in a previous acquisition, and the tax-effects of these items.

Now, let’s turn to the North American operations.

Insight North America had sales growth of 10.4 percent year-over-year -- a growth rate, as Rich stated, that we believe was faster than the overall market.

Excluding public sector, we saw growth in sales to our business customers representing small-to-medium business and enterprise combined, of 11 percent.

The number of account executives in our North American operations was 1,109 at March 31, 2005.

That was basically flat from the 1,106 at the end of last quarter.

Net sales per average account executive were $580,000 in the 1st quarter of 2005 -- a 19 percent increase in productivity compared to $487,000 in the 1st quarter of last year.

As Rich discussed earlier, we have many initiatives that we believe will continue to improve account executive productivity and assets.

Currently, we do not intend to add net account executives in Insight North America in Q2 2005.

Of course, if market conditions dictate the hiring of additional account executives, we will respond accordingly.

The average tenure of our North American account executive is up from 3.5 years last quarter to 3.6 years, with 26 percent of our account executives having less than one year’s experience, 14 with 1-2 years, 10 percent with 2-3 years, and 50 percent with more-than-3-years’ experience.

The increase in average tenure is due primarily to the decrease in hiring of account executives during the quarter, and a decrease in turnover.

Sales by product category remained fairly stable, with no individual product really driving unusual demand.

We were pleased to see our initiatives to increased gross margin are paying off.

In Q1, our gross margin increased to 11.8 percent from 11.1 percent last quarter.

The increase from Q4 was due to increases in freight margin, product margin and an increase in supplier reimbursement as a percentage of net sales.

Product margin increases were due to the seasonal decline in sales to large enterprise clients, which are typically at a lower gross margin, and an overall increase in product margins due to initiatives to increased product margin -- including the rollout of a new price-to-market tool to our small-to-medium-sized account executives in late Q1.

The increases in gross margin were partially offset by an increase in the write-downs of inventory, and a seasonal decrease in referral fees from Microsoft for Enterprise Software Agreement renewals.

Selling and Administrative Expenses as a percentage of sales were 8.9 percent, compared to 8.4 percent last quarter, and 9.5 percent in Q1 2004.

In absolute dollars, S&A expenses were relatively flat for Q4, as we reduced expenses in some areas to fund investments in other areas to support execution of 2005 objectives.

Overall, Insight North America reached an operating margin of 2.9 percent -- the highest non-GAAP operating margin in the past 11 quarters -- and the 8th quarter of sequential improvement in non-GAAP operating margin.

Insight UK continues to contribute strong operating profitability.

Although we posted the decline in net sales and non-GAAP earnings-from-operations of 2 and 10 percent respectively, compared to the 1st quarter last year.

In British Pounds Sterling, we posted the decline in net sales and non-GAAP earnings from operations of 4 percent and 13 percent, respectively -- compared to the 1st quarter, last year.

Seasonally, Q1 is a strong quarter for Insight UK, and net sales and non-GAAP earnings from operation grew sequentially -- approximately 8 percent and 21 percent, respectively.

In British Pounds Sterling, the sales and non-GAAP earnings from operations grew sequentially approximately 6 percent and 20 percent, respectively.

The non-GAAP earnings from operations exclude the income from reductions in liabilities assumed in a previous acquisition in both the 1st quarters of 2004 and 2005.

The [inaudible] was a little softer than we expected in Q1.

Because of this, we saw more aggressive pricing by some of our competitors.

Particularly late in the quarter.

Based on discussions with our key partners, and comments from some of our UK competitors, we believe our performance was still in line with the market in Q1.

Our barrier to growing faster than the market -- which is certainly our goal -- was primarily due to the attrition of account executives.

We suffered some loss of experienced account executives due to targeted and aggressive recruiting by some of our competitors during the quarter.

However, we have implemented sales incentive plans to provide additional compensation at key areas of performance and tenure, to reduce the unwanted attrition.

The number of account executives in our UK operation was 296 at March 31, and it was basically flat from 298 at the end of last quarter.

We continue to expect to hire, on average, between 10 and 20 account executives per quarter, during 2005.

The average tenure of our UK account executives decreased this quarter to 2 years, compared to 2.2 years in Q4, with 52 percent of the account executives having less than 1 year’s experience, 19 with 1 to 2 years, 9 with 2 to 3 years, and 20 percent with more than 3 years’.

This decrease was primarily due to losing some tenured account executives to competition, as I mentioned earlier.

Sales by product category were fairly consistent from Q4, with the exception of a decrease in software, due to a large software sale to an enterprise client in Q4.

Gross margin was consistent, at 13.2 percent in Q1, compared to last quarter.

Compared to last quarter, we saw increases in referral fees, for renewals of Microsoft Enterprise Agreements, and a decrease in write-downs of inventories.

These increases were offset primarily by a decrease in services.

Selling and Administrative Expenses as a percentage of net sales were at 10.6 percent in Q1 2005, compared to 10.9 percent last quarter.

The decrease over last quarter was due primarily to the increase in net sales, as overall selling and administrative expenses remained relatively flat -- excluding the effect of exchange rate fluctuations.

Overall, Insight UK posted a non-GAAP operating margin of 2.6 percent.

This brings me to Direct Alliance, which saw a 4 percent decrease in net sales, and a 20 percent decrease in earnings from operations this quarter compared to last quarter.

These decreases are due primarily to renegotiated fee structures, as part of the multi-year contract renewals, with some of Direct Alliance’s largest clients.

These decreases were offset partially by increases in sales and earnings from operations contributed by other clients, and collection of fees from a smaller client now previously recognized due to initial collectivity concerns.

As you all know, Direct Alliance’s largest client is IBM -- which announced a few months ago that they were selling their notebook, desktop and personal accessory lines to Lenovo.

We are pleased to say that we now have separate contracts with both Lenovo and IBM that will be effective one the transaction is completed -- which is expected to be in May.

While we are confident in our ability to execute the same business model with our newest client, Lenovo, there are always risks associated with bringing on a new client.

Additionally, as we discussed last quarter, Direct Alliance added new clients in 2004 that will take several months to provide meaningful contribution to net sales or operating margin.

Overall, we expect Direct Alliance’s earnings from operations to decline in Q2 to approximately $2 million -- due primarily to the renegotiated fee structures discussed earlier, and the collection of fees received from a smaller client in Q1 that will not recur in Q2.

Turning to the balance sheet, accounts receivable decreased from 12 - 31 - 2004 due to the seasonal decrease in net sales.

DSOs have been reduced from 50 days in Q4 back down to 46 days -- which is consistent with Q1 last year.

The inventories have remained relatively and fairly consistent.

We have also paid off all outstanding debt, and as we announced in early March, our board of directors has authorized the repurchase of up to $25 million of common stock.

As of yesterday, we have repurchased $22.3 million of common stock -- representing approximately 1.253 million shares, at an average price of $17.79.

As of March 31, we had purchased only 280,700 shares.

Because the shares were all purchased in March, the weighted average effect on EPS was less than 20,000 shares.

I’ll now turn the call back to Rich for final comments.

Rich?

Thanks very much, Stan.

Again, I am pleased with our 1st quarter results, and with our momentum as we forge further into 2005.

I will continue to work with the executive team to develop and implement strategies and specific plans for continued transformation of our business, and to successfully execute our IT solutions-provider strategy.

On Thursday, May 12th 2005, we will host an Analyst Day here in Tempe, Arizona.

At that time, we will provide additional details relative to our short-term strategies for our business, and the evolution of our business model.

I’m hoping that you’ll be able to join us in sunny Arizona.

That concludes my comments.

At this time, Stan and I are happy to answer your questions.

Ladies and gentlemen, if you’d like to ask a question at this time, please key *, followed by the number 1 on your telephone keypad.

If your question’s been answered or you wish to withdraw it, please key * followed by the number 2.

Again, ladies and gentlemen, key *1 to begin your question-and-answer session.

Matt Sheerin, Thomas Weisel Partners.

Yes.

Thanks very much and good afternoon.

Just a couple of questions.

Regarding the revenue trends in North America, we’ve seen several suppliers as well as some of your competitors talk about weakness in the month of March.

Some saying they didn’t see any kind of expected pickup.

Could you comment on the linearity.

And then also talk about the trends you’re seeing in the Enterprise side, which I know are seasonal -- versus the SMB business?

Sure, Matt.

This is Rich.

Thanks for asking the question.

The overall, from our perspective and what we saw is the demand is pretty stable in North America.

We saw strong growth in January.

We did see a deceleration in February, but we were fortunate to see it pick back up again in the month of March.

Overall, as we look to the 2nd quarter, we are anticipating at this point a stable market demand.

I think that addresses your first question.

Regarding enterprise, we continue to be very pleased with our enterprise business performance.

Overall, as Stan highlighted, our business sales grew 11 percent, year-to-year in the 1st quarter.

And we see continued demand -- and quite honestly, recognition from that set of customers -- of the value proposition we provide.

Then on the gross margin, which saw a nice bump-up in the March quarter.

I know some of that again was seasonality from the enterprise business being weaker.

But are you confident that you can keep that above a 12 percent level, given some of the initiatives you’ve implemented, or is that going to bounce around, based on customer mix and all the different moving parts of that component?

We are encouraged by the success of many of our initiatives that increase gross margin.

We believe that trend will continue.

The 1st quarter, we did see increases relative to freight margin, our services business, supplier reimbursement.

So while we look to the 2nd quarter -- and the enterprise business will probably be a greater percentage of the total -- we are optimistic the other initiatives will perhaps offset the impact of that enterprise business growing, as a percentage of the total.

So we are encouraged on the activities we have in place and the results we’re starting to see, from a gross margin perspective.

Thanks very much.

Brian Alexander, Raymond James.

Just wanted to revisit that last question on gross margins -- particularly in North America.

You did a great job this quarter, and I think last year in the 1st quarter, you were up a lot sequentially, as well.

But I hear you saying or inferring that you think you can hold gross margin at these levels.

I just wanted to clarify if that’s the case in North America, and maybe revisit some of the factors that caused gross margins to decline throughout 2004.

And help us understand why that might not happen in 2005.

Sure.

Hi, Brian.

This is Rich.

We have -- as we talked about, actually back in the January results -- we have implemented a set of tactical actions.

Everything from new pricing strategies to looking at our stocking strategies to trying now to increase supplier reimbursements.

We’ve obviously increased our level of marketing and sales initiatives, and we’re looking at our systems.

We’ll make sure that we get more productivity out of our systems.

Also, a big aspect is also looking at how we maximize our freight returns.

So again, as I said, we believe those actions are starting to drive results.

And that’s what we saw in the 1st quarter.

We are optimistic that will continue, as we move into the 2nd quarter.

Great.

Then just to revisit the question on demand in North America.

I know you talked about it being stable, Rich.

And that it continue to remain stable.

Your comparison, I think, in the 1st quarter was relatively easy -- given a lot of the distractions you had a year ago with the finality of the system conversion.

I know you don’t give guidance, but should we think about stable as being able to continue to grow around 10 percent if the environment cooperates and demand remains relatively firm from here?

While it’s true we experienced some integration issues last year, it is also true that we always want to grow faster.

We are pleased with the 10.4 percent growth in North America.

We think that was a strong result.

We believe it gained market share.

As I stated before, our goal is to go drive profitable market share growth.

And that’s what we’re going to continue to focus on in the second quarter.

You mentioned client-satisfaction surveys.

I think you said you were performing those monthly.

Could you just share with us any really informative insights that you got from the early surveys that you’ve done?

Were there any major surprises that you learned from some of those?

Actually, that was one of the topics where we’ll go into more detail at the Analysts Day.

I’ll be honest with you -- we just started the process here in the 1st quarter -- so actually, we’re about 1 month into having monthly results.

But of those results, nothing startling -- like, “Oh, my gosh -- we can’t believe we’re not doing this correctly…” Just continual areas that we need to go drive improvement.

Specifically, for example, on our website.

While we have a lot of rich function on our website in terms of functionality of how they navigate things and that nature -- our customers are giving us feedback, because they like to have the experience be a little bit more logical, in terms of how they flow through the website.

That comes through kind of late on the customer-satisfaction survey results -- from an area of improvement.

The thing that comes through very clearly on the positive side from these results is the Number 1 thing that makes our customers satisfied with their Insight experience is the relationship they have with their account executive.

So hence, that is why it is so important, and working with Gary Glandon, that we continue to enhance that employee experience -- continue to go drive -- strengthen those skills of those teams -- so that ones that are here to go and build a longer relationship working for Insight -- but too, is so they strengthen the relationship that they have with their clients.

John Lawrence, Morgan Keegan.

Rich, would you comment just quickly on the training process again, and just talk about -- I mean how the compensation -- the new compensation plan -- plays into that.

And when do your highest-tenured sales people -- what impact does this have on them, and how long does it take for them to more or less be made whole, based on productivity?

Yes.

A couple questions, John, inside of that.

One was the structure of what we’re trying to put in place from a training perspective, to take our skills to the next level.

The second question’s really about compensation -- what we’re going to try to go -- what does the new compensation program mean?

To address the first question first, again -- that’s off on another topic I want to go take in more detail with us at the Analyst Day.

Because it’s actually, I think, a very exciting topic.

It’s really looking at, “How do we go strengthen the skills that our reps have?” It starts with the very first phone call.

It basically takes them from -- clients today are trying to get easily characterized strong product training -- in terms of they know how to talk about a notebook.

They know how to talk about a networking card.

It’s more migrating the training to talking about business problems that our customers may be experiencing, and how to uncover those business problems.

But then apply IT products as a solution to those problems, and try to go put our training and our skills in that vein.

So that’s what the new training program’s all about.

And it’s also a longer program.

Where today, we offer up our new hires as an example, a 6-week new-hire training program -- it’s looking at over a longer period of time -- a year to a year and a half of having someone have a continual opportunity to grow and develop their skill.

Which will translate, in my opinion, to one of the benefits, which is historically an issue with maintaining new hires.

One of the reasons why is, I don’t think we’re doing the job we needed to do, to go help them be successful over a period of time.

By looking at it just not as a 6-week event, but as a period of time -- say a year or a year and a half of, “How am I going to strengthen your skill?” I think that will translate into lower employee turnover -- but also higher skills -- and hopefully better client relationships, as a result.

Relative to the new compensation program, the new compensation program is quite simple, from a sales perspective.

It is as our reps drive higher levels of revenue and profitability growth, they get to share in that revenue and profitably growth.

We pay, as you know, our people as a percentage of GP.

But if they also grow revenue with that level of GP associated with that, they will now earn more money, as a result.

One obvious question is, “How are you going to fund it?” How we’re going to go fund that is through the incremental profitable growth that they drive.

The compensation program we rolled out again -- I guess it’s been 2 weeks, now -- has been very well received from the sales perspective, to incensing them to not only drive profitability, but to also go drive revenue growth -- which those are obviously two very important metrics we need to go drive.

Last question.

Do you think the situation in Europe with some of your senior people… Can you solve that with some of these incentives?

Yes.

We also rolled out the new compensation programs for our sales teams in the UK, as well.

Overall, from a UK perspective, clearly I believe the demand in the marketplace is softer than we were expecting, going into the quarter.

As Stan highlighted, I believe -- I think we held our own from a market share perspective in the first quarter -- even with the level of revenue results that we had.

Clearly from our perspective, the focus needs to go.

We’re not happy with that, though.

We want to go drive faster than the market.

And that is obviously the plan we’re putting in place.

I am very confident in the leadership team that we have there -- that they are putting the plans in place to go make sure we accomplish that goal.

Ladies and gentlemen, if you have any further questions, please key *1 now.

David Manthey of Robert W Baird.

In terms of this comp structure -- just to clarify -- historically, you’d pay a percentage of GP dollars, and now there’s a component that’s related to sales growth, as well as profitability on that growth?

that’s correct.

Then second, Rich -- you mentioned earlier some steps you’d taken to re-energize the SMB sales organization.

I was wondering… If that was something you’d already addressed, stop me.

But if not, if you could just address that.

David, we have a set of action plans in place.

Everything from focus on training to retention-level, retention activities of our account execs, to increased marketing to the price of market tools, to trying to go drive higher electronic enablements for our sales team in the SMB space.

To try to get some more-targeted solutions -- such as our e-mail security offering -- to give them a richer set of offerings to go bring to their clients.

So we have a set of actions that are in place.

We just brought a new management to go lead that business for us, which I think will also have a positive effect for us.

So a lot of those actions have been implemented in the first quarter, and we’re now starting so see some of the results of that in the month of March.

And I am very confident that will continue, as we move into the 2nd quarter, as well.

And then finally, on this Lenovo contract -- what is the length of the contract?

The contract -- and we don’t disclose specific details of any of Jack’s relationships per the nature of the contract.

But what I can say is that the contract that we had in place previously with IBM as we now split that into two pieces -- one with Lenovo and one with IBM -- is that we maintain the existing term of the contract.

Matt Sheerin, Thomas Weisel Partners.

Just a couple of follow-ups.

One, I’d just like to focus on the operating margin.

We’re finally starting to see it creep up over a 3, here.

I know that Stan has talked about you’re potentially getting to 4 percent or so by sometime in ’06.

I just wanted to see how we should think about that.

I mean obviously keeping gross margins at a relatively stable level is one way to do it.

Then keeping costs down.

And I know you’re investing in marketing and some advertising and other things.

I’m trying to figure out where we should expect to see the leverage, if we can keep revenue growing at least in the single-digit area.

Yes, clearly.

Just so we’re clear on the expectation.

What Stan indicated is we’re driving to 4 percent by the 4th quarter of 2006.

Clearly, it’s going to be activities -- all the above -- that’s going to allow us to get there.

Clearly it’s my perspective the biggest levers we have are driving gross margin improvement, and obviously as you saw, we saw some of that benefit in the 1st quarter of this year.

Obviously we continue to go drive revenue growth, and thirdly, obviously, expense efficiency.

To me, I’m looking at all 3 factors to figure out how we can go drive improvements across all 3.

Quite honestly, I’m willing to trade off one for the other, as long as I get to the end result, which is the operating margin of 4 percent by the 4th quarter.

Then if you could just comment on the status of the stock buy-back program that you announced in March?

Yes.

As Stan indicated, we obviously have executed stock buyback, in $22.3 million of stock that’s been purchased back underneath the $25 million announcement that we made.

So that has been executed in the 1st quarter.

Actually the 1st quarter through today.

Sir, that was your final question.

I’ll hand the call back to you for your closing comments.

Well, on behalf of Insight Enterprises, I’d like to say “Thank you,” to our valued employees, clients, partners and shareholders -- and for the analysts and the folks on the phone -- I’m hoping to see you on May 12th here in sunny Arizona.

Thank you very much.

Ladies and gentlemen, that concludes your conference call.

You may now disconnect.