Insight Enterprises Inc (NSIT) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2006 Insight Enterprises, Incorporated earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to your host for today's call, Mr. Stan Laybourne, chief financial officer.

Please proceed, sir.

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, 2006 and our pending acquisition of Software Spectrum.

Joining me, Stanley Laybourne, chief financial officer, is Rich Fennessy, president and chief executive officer of Insight Enterprises.

If you do not have a copy of the earnings and press release, they were posted this afternoon and filed with the Securities and Exchange Commission on Form 8-K, you will find them 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 webcast live and can be accessed via the investor relations section of our website.

Additionally, the webcast will include a slide presentation during our discussion about the pending acquisition of Software Spectrum.

The webcast can be accessed via our website at insight.com under the investor relations section.

An archived index 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, July 20th, 2006.

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 and press releases and also in greater detail in our quarterly report on Form 10-Q for the three months ended March 31, 2006.

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

As required by the Securities and Exchange Commission rules, we have provided a reconciliation of non-GAAP to GAAP measures in our earnings release and 8-K filing and you can find those documents on our investor relations section of our website.

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

Rich?

Thank you, Stan.

Good afternoon, everyone, and thank you for joining us today.

I am pleased to announce that Insight had a very successful second quarter.

We achieved -- one second please.

Sorry about that.

We had a little bit of noise on our line so I'll start over.

Again, good afternoon.

I am pleased to announce that Insight had a very successful second quarter.

We achieved record financial results, divested ourselves of a non-core segment of our business, and completed a very comprehensive due diligence process in preparation for today's announcement that we've signed a definitive agreement to acquire Software Spectrum.

This acquisition will solidify our value proposition as a trusted advisor to our clients globally.

Specifically, our consolidated quarterly net sales grew by 6.4% over the second quarter of last year and non-GAAP net earnings grew 26% year-over-year.

Additionally, non-GAAP diluted earnings per share grew 26% year-over-year, just $0.39 from $0.31 in the second quarter of last year.

Non-GAAP net earnings from operations as a percentage of net sales reached 3.2%, up from 2.8% in the second quarter of last year and 3.1% last quarter.

The non-GAAP numbers for Q2 2006 referred to in the earnings release and this conference call exclude the gain net of transaction costs of $15.1 million, or $9.1 million net of taxes, related to the sale of Direct Alliance and stock compensation expense of $3.1 million, or $2 million net of taxes.

The net sales and non-GAAP earnings from operations in all periods also exclude the results of operations for Direct Alliance, which are now reflected in the consolidated financial statement as a discontinued operation.

In a few minutes Stan will review with you the details of the second quarter financial results for each of our operating segments and then I'll return to take you through a PowerPoint presentation that highlights some of the exciting details associated with our pending acquisition of Software Spectrum.

First, I will provide some highlights of our quarterly performance.

One, we gained profitable market share in North America as net sales grew faster than the industry across all client segments.

Specifically, our overall North American quarterly net sales grew 7.9% over the prior year and non-GAAP earnings from operations grew 25%.

Two, in British pounds sterling, net sales held basically flat for the quarter over the prior year and will continue to be a very challenging UK market, while non-GAAP earnings from operations grew 6%.

As an aside, sales per day in British pounds sterling actually increased by 2.7%, as Insight UK had only 61 shipping days in the second quarter of 2006 compared to 63 in the second quarter of 2005.

Point three, we continue to improve and enhance our clients' Insight experience.

In fact, we are very proud to tell you that we have recently won the HR Chally world-class sales award for the best-in -class sales force in our industry.

For this year's world-class sales research project, Chally, an independent research company, contacted 575 corporate executives who buy computer hardware and software.

Insight was the second most frequently mentioned technology supplier.

More importantly, these clients gave us higher ratings than all other suppliers and nominated us more often as having a world-class sales team.

Our ongoing client satisfaction surveys support these findings and continue to indicate high satisfaction with Insight, particularly due to the quality of advice they receive and their strong relationship with their Insight account executive.

There is no better attribute to our efforts than increased client satisfaction, as evidenced in these surveys.

We believe this helps fuel our higher sales growth.

Point four; we made improvements in our operational execution.

Inventories were down again this quarter from $94 million last quarter to $91 million.

DSOs were down from 47 days last quarter to 46 days and 30% and 39% of our second quarter sales transactions were transacted electronically in North America and the U.K. respectively.

And point five; we continue to increase our non-GAAP operating margin, achieving 3.2% for the quarter, excluding contributions from our discontinued operation, Direct Alliance.

Now, as I committed to you on our last call, let's follow up on our stated fourth quarter operating margin target.

As you know, we have been targeting a 4% operating margin for some time.

Removing the planned contribution of Direct Alliance to our fourth quarter operating margin, that fourth quarter target became 3.7%.

I'm pleased to say that we have been successful in improving our operating margin each quarter and posted 3.2% in Q2.

This is up 10 basis points quarter to quarter and leaves 50 basis points to achieve to our stated fourth quarter target.

As we evaluated our current position and the status of our key initiatives, like our mySAP upgrade, we have concluded that we will likely be about 20 basis points shy of this target.

This excludes the effect of the acquisition of Software Spectrum.

This is due primarily to lower than targeted sales growth, lower than targeted [attach] rate in warranties and services, and some delayed expense savings associated with the extended timeframe to complete the upgrade of mySAP.

Across each of these areas we are making good progress, just not to the level we have projected in our original budgets.

As it relates to the mySAP upgrade, we are still planning for certain user groups and functions to roll out in the second half of 2006 and we expect to complete rollout across the U.S. organization to be completed during the first half of 2007.

As an aside, our due diligence team and IT professionals have determined that the acquisition of Software Spectrum will not affect this timeline, as we intend to run their systems independently until we complete the mySAP upgrade.

In summary, we are making very good progress.

We are very pleased with our second quarter performance and remain committed to our goal of gaining profitable market share.

Now I will ask Stan to provide more details on our second quarter financial performance across each of our operating segments.

Stan?

Thanks, Rich.

Sales growth was stronger in Q2, with Insight North America growing 7.9% over the second quarter of 2005.

We saw growth in North America in sales to all of our client segments and SMB continues to show improvements.

As we stated at the end of our last two quarters, several of our large enterprise clients have deferred some of their IT projects and we benefited from the deployment of some large projects during this quarter.

The concentration of some larger projects in this quarter may make it difficult to continue this growth rate in Q3.

Sales by product category compared to Q2 2005 remained fairly stable, although we did see a substantial increase in percentage of net product sales in networking and connectivity.

This increase is due primarily to a large Cisco project that was deployed during the quarter.

The number of account executives in our North American operations was 1,069 at June 30th, 2006, down slightly from 1,079 at the end of last quarter, while account executive productivity, based on sales and gross profit, continue to improve.

Specifically, net sales per average account executive in the second quarter increased 9% over prior year, while gross profit per average account executive increased 12%.

Our Q2 2006 -- in Q2 2006 our gross margin increased to 12% from 11.7% in Q2 2005 and is down from 12.2% last quarter.

The increase from Q2 2005 was due primarily due to decreases in the reserve for vendor receivables, increases in sales of services, increases in product margin, increases in supplier reimbursements and increases in referral fees for Microsoft enterprise software agreement renewals.

These increases were offset partially by decreases in freight margins and increases in the write-downs of inventories.

The decrease in gross margin compared to last quarter was due primarily to decreases in supplier reimbursements and decreased freight margin.

Additionally, gross margin related to reductions in the reserve for vender receivables was higher last quarter than this quarter.

These decreases were offset partially by increases in product margin and increases in referral fees for Microsoft enterprise software agreement renewals.

Non-GAAP selling and administration expenses as a percentage of net sales were 8.8%, down from 9.1% last quarter and 8.9% in Q2 2005.

The non-GAAP selling and administrative expenses excludes stock compensation expense in all periods, as detailed in the earnings release.

Selling and administrative expenses in Q2, 2006 includes, however, approximately $720,000 of accelerated depreciation.

As noted last quarter, there are certain portions of our current operating system that will not be utilized under the mySAP upgrade.

Accordingly, we will record additional depreciation expense through Q2 of 2007 at the rate of approximately 720,000 per quarter.

Compared to Q2 2005, we have benefited from increases in net sales, decreases in marketing expenses and increases in efficiencies due to operational improvements and restructuring activities that were implemented at the end of the second quarter in 2005.

The savings have been offset partially by increases in sales incentive plans, increased bonus expenses due to increased financial performance, accelerated depreciation and other IT expenses related to mySAP upgrade.

Compared to Q1 2006, the decrease in selling and administrative expenses as a percentage of net sales is due primarily to the increase in net sales, offset partially by increases in bonus expense.

Overall, Insight North America posted non-GAAP earnings from operations as a percentage of net sales of 3.2% in Q2 2006, up from non-GAAP earnings from operations of 2.8% in Q2 2005 and 3.1% last year -- or last quarter.

In British pounds sterling, Insight UK posted net sales that were basically flat compared to the second quarter last year but posted a 6% increase in non-GAAP earnings from operations.

As a result of stronger U.S. dollar, Insight UK's quarterly net sales were down 2% in U.S. dollars, while non-GAAP earnings from operations grew 5% compared to the second quarter last year.

We continue to be pleased with the results of our U.K. operations given the overall challenging UK market.

Insight UK has been very successful in their focus on increasing software sales.

However, because of the continuing shift to enterprise software agreements, which result in -- only in referral fees, this has a larger positive effect on gross margin growth than sales growth.

Additionally, Insight UK has fewer account executives compared to the prior year, although they successfully increased the number of account executives sequentially from 251 to 276.

In Q2 2006, our gross margin increased to 15.1% from 13.7% in Q2 2005 and from 14.7% last quarter.

The increase in gross margin from Q2 2005 and last quarter was due primarily to increases in product margin, increases in referral fees for Microsoft enterprise software agreement renewals and increases in supplier discounts, offset partially by decreases in supplier reimbursements as a percentage of net sales.

Non-GAAP selling and administrative expenses as a percentage of net sales were 12.3% in Q2 2006, an increase from 11.5% last quarter and 11.1% in Q2 2005.

The non-GAAP selling and administrative expenses in Q2 2006 exclude stock compensation expense of $283,000.

The increase from Q2 2005 was due primarily to increases in sales compensation plans and facility costs related to our new London office, offset partially by property tax rebates received during the current quarter.

The increase from last quarter was due primarily to increases in sales headcount and sales compensation plans, offset partially by the property tax rebate.

Insight UK posted non-GAAP earnings from operations as a percentage of net sales of 2.8%, an improvement over 2.6% in Q2 2005, but down from 3.2% last quarter.

This brings me to Direct Alliance.

On June 30, 2006 we completed the sale of Direct Alliance to TeleTech for a purchase price of 46.5 million, subject to a working capital adjustment.

The purchase price did not include real estate and inter-company receivables, which had an estimated fair value of 49.4 million and were distributed to Insight immediately prior to closing.

In addition to payment of the purchase price, TeleTech will be obligated under the agreement to make an earn-out payment to the company if Direct Alliance achieves certain gross profit levels for the year ending December 31st, 2006.

Additionally, TeleTech will be entitled to a callback of the purchase price of up to $5 million if certain Direct Alliance client contracts are not renewed on terms prescribed in the agreement.

Also, the company paid $2.7 million to the holders of 1,997,500 exercised Direct Alliance stock options.

This amount will be further adjusted for the above described working capital adjustment, earn-out and callback.

We have recorded a gain on the sale net of transaction fees of approximately 15.1%, or $9.1 million, net of tax.

This gain, as well as the operations of Direct Alliance, has been reflected as a discontinued operation in the company's consolidated financial statements.

The non-GAAP effective tax rate for the three months ended June 30th, 2006 was 35% compared to 38.7% for the three months ended June 30th, 2005.

The decrease in the effective tax rate was due primarily to initiatives implemented during the quarter that reduced certain state income taxes, both historically and in the current period.

The majority of the benefit relates to the prior years.

However, a portion of the benefit will reduce taxes prospectively.

I'll now turn the call back to Rich to discuss our pending acquisition of Software Spectrum.

Rich?

Thank you, Stan.

I am very excited to share with you some of the details of our pending acquisition of Software Spectrum.

As I stated earlier, we have provided you with a presentation to support this portion of our webcasted call.

The first seven slides give you a quick reference on the financial progress we have made over the last six quarters.

So, in the interest of time, let's start with slide 8 and review Insight's stated strategy and how we differentiate ourselves in the marketplace.

During 2005 we redefined Insight's vision to more accurately reflect our strategic direction and to clearly state who we want to be as an organization.

Historically, our vision was to be the best source of computer products and services for business.

This vision was the catalyst for developing our historic product base, transactional business model.

The new vision has been to be the trusted advisor to our clients, helping them enhance their business performance through innovative technology solutions.

This is supported by our strategy to transform our business model from that of an IT product provider to an IT solutions provider.

As a trusted adviser, we continuously challenge ourselves to enhance our skills and capabilities so we can provide more value to our clients, teammates and partners.

As referenced on previous calls, we have been very focused on improving our skills and capabilities so we can properly evaluate business needs and design IT solutions to help our clients' businesses run more effectively.

Over the last 18 months we have focused on moving beyond price, availability and product selection as our core value proposition to being a trusted advisor to our clients.

This strategy has proven not only to be beneficial to our clients, but is also very much in line with our partner strategies as they look for their partners to continue to provide more value.

At its core, our strategy is about changing the conversation with our clients, to be much more needs-based so our clients just don't call us when they want to buy IT products, but they call us to help them truly leverage IT to enhance their business performance.

From a financial perspective, this translates into our clients' increasing their IT spend with Insight, as we demonstrate that we have the capabilities to support their business across more IT categories.

Today's announcement will significantly strengthen our solutions capabilities in the categories of software and wireless and help fuel growth in our services business.

As you all know, Insight has a strong market presence in the United States, Canada and the United Kingdom and our strategy is being consistently executed in each of these markets.

Now, how does Software Spectrum fit into our business and our strategy?

Founded in 1983, Software Spectrum is one of the world's leading single source providers of business-to-business IT solutions and services, employing approximately 1,300 teammates worldwide.

Software Spectrum has particular expertise in the selection, procurement and management of software.

As a subsidiary of Level 3 Communications, Software Spectrum posted net sales of approximately $1.9 billion in 2005.

Using Insight's net revenue recognition policy for software maintenance contracts, we estimate net sales in 2005 would be closer to $1.4 billion.

Software Spectrum is headquartered in Plano, Texas, but has extensive global presence and capabilities.

Today the company sells primarily to large enterprise clients and has strong relationships with over 290 of the Fortune 500.

Just recently the company invested in enhancing its presence within the SMB client segment.

Clients are being -- are provided software from over 3,700 individual software publishers.

Software Spectrum is currently Microsoft's largest reseller of enterprise software in North America.

Software Spectrum has a global presence with operations in 24 countries and the ability to support sales in over 170 countries, partially through some of the partnerships they have developed.

Today the organization supports 17 languages and transactions in 13 different currencies.

Software Spectrum's vision is to be the global leader in helping organizations optimize business performance by improving how they acquire, access, and manage information technology.

There are many aspects of Software Spectrum's business that have enabled the company to be one of the industry's leading resellers of software.

Software Spectrum's expertise and tools to support the clients' acquisition and management of software are world class.

In addition, Software Spectrum has substantial eCommerce capability and today transacts nearly 50% of their business in North America electronically.

Recently, new capabilities were built to support their clients' deployment and management of mobile devices, such as Blackberries, which Insight believes represent a significant market opportunity worldwide.

Most importantly, Software Spectrum has very talented professionals that are passionate about serving their clients.

We believe they will make wonderful Insight teammates as we move forward.

So, why are we so excited about this strategic acquisition of Software Spectrum?

First of all, it's all about growth.

Market data shows that throughout Insight's current geographies, the United States, Canada, and UK, projected growth over the next few years for sales of software and services far exceed projected growth for Insight's core hardware business.

Secondly, when we consider geographies in which Software Spectrum has a footprint and Insight does not, specifically Europe and Asia Pacific, we know that there are increased growth opportunities for software and services as well as hardware.

Initially, our objective will be to develop client synergies within North America and the UK and over time to take advantage of our new expanded global footprint.

Finally, we believe that the combination of these two companies in concert will provide true differentiation in the marketplace.

No other reseller will have greater breadth and depth of capabilities and geographic coverage than Insight will have after this acquisition.

As you can now understand, the visions of these two companies are very much aligned and each company shares a common commitment to excel in serving our clients' needs.

As you can see from slide 24, this acquisition changes the composition of our net sales.

We will transition from generating over 86% of our net sales from hardware to 60% hardware, 39% software, and around 1% in services.

As a result, we will have new authorizations and certifications with several software publishers, which will translate into more opportunities to expand the offerings we provide our clients.

In addition, we believe that by leveraging Software Spectrum's IT tools and processes around software asset management we will be able to significantly grow our services business as well.

Both companies have complementary skills and with when combined together will be in a much stronger position to provide complete IT solutions to our clients.

As an aside, software licensing is an area that many clients struggle with because of the overall complexity of the software publisher programs.

The licensing options are very complicated.

This creates opportunity for Insight to help our clients manage the process and increase returns on their software investments.

Software Spectrum has developed expertise and technology that differentiates them in this segment of the marketplace.

We believe that we can leverage this expertise and technology across our client base.

Additionally, we believe that software can often be the catalyst for additional hardware requirements, which positions us perfectly to leverage our existing capabilities across their client base.

So, this acquisition provides expanded capabilities and geographic reach, but also provides an expanded client base.

Software Spectrum focuses primarily on large enterprise clients and is partnered with over 50% of the Fortune 500 companies.

Currently, about 10% of the Fortune 500 have a significant IT spend with Insight, with 7% of the Fortune 500 buying more than $100,000 of software from Insight annually.

This creates a fantastic opportunity for Insight to expand the hardware and services solutions sold to these clients.

Next, Software Spectrum believes strongly that the SMB segment represents a great opportunity and has recently begun to invest in efforts to penetrate this client segment.

We see a tremendous opportunity to accelerate penetration within this client segment by combining Insight's established relationships with literally thousands of SMB clients with Software Spectrum's capabilities.

Finally, this acquisition will establish Insight as one of the largest global IT solution providers and will allow us the unique opportunity to diversify our product portfolio, capitalize on growing markets worldwide and offer truly global IT solutions to our clients.

I am so pleased to be able to talk with you today about our acquisition of Software Spectrum and how naturally it supports and expands our company's vision.

In summary, we believe this acquisition will equal success for our clients, partners, teammates and stockholders.

We believe it will drive faster sales and profitability growth, acceleration of our trusted advisor strategy, new software and services offerings, enhanced skills, tools, and expertise, and an expanded reach and global presence.

Now, to walk you through some of the financial transactional details, I will turn the call back over to Stan.

Stan?

Thanks, Rich.

We signed a definitive agreement to purchase Software Spectrum today.

Under the terms of the agreement, Insight will acquire Software Spectrum for a cash purchase price of $287 million.

The purchase price is subject to working capital and certain other adjustments.

The acquisition has been approved by the Board of Directors of both companies, but is subject to customary closing conditions, including antitrust approvals.

We expect the acquisition to close during the third quarter.

We will fund the acquisition with cash on hand, which includes the $46.5 million in proceeds from the sale of Direct Alliance and new debt facilities.

Net sales for Software Spectrum were $1.9 billion in 2005.

However, there are differences in the way we record sales for software maintenance contracts.

If sales were recorded under Insight's sales recognition policies, we believe 2005 net sales would have been approximately 1.4 billion.

Earnings from operations for 2005, excluding non-cash equity compensation, were $25.1 million.

Of course, these are past results, are not necessarily indicative of future performance.

We expect this acquisition to be accretive in 2006 non-GAAP diluted earnings per share and to offset the lost earnings per share due to the sale of Direct Alliance.

As we implement our integration plan and capitalize on our sales and profit synergies, we expect greater accretion to earnings per share starting in 2007.

We also expect to see improvements in our return on investments and invested capital, as well as increased operating cash flows.

Our sales and profit growth will be driven by having enhanced capabilities and expertise that will provide us with the opportunities to expand our share [abroad] with our combined client base.

We also believe there are opportunities to increase our sales of higher margin categories, such as services, as clients look to us to develop complete IT solutions.

We do expect there to be cost synergies as we bring these two companies together, which will work to finalize -- which we will work to finalize through our integration planning.

As we stated before, we expect the transaction to close during the third quarter of 2006.

Until then, it is business as usual for both companies as we wait for regulatory approval.

In the meantime, teams from Insight and Software Spectrum will work on integration plans.

We do know that our current mySAP upgrade will continue along the planned timeline and we expect to convert the Software Spectrum business to the Insight systems within 24 months after the transaction closes.

After we close the acquisition of Software Spectrum, we will file a Form 8-K that includes Software Spectrum's historical audited financial statements as well as historical combined pro forma financial statements as required by the SEC.

At our analyst day on September 14th, we look forward to sharing with you our plans to turn today's exciting announcement into value for our stockholders.

That concludes my comments.

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

[OPERATOR INSTRUCTIONS] You have a question from the line of Brian Alexander of Raymond James.

Please proceed.

Just starting with the quarter that you just reported, some questions on the acquisition.

You talked about the expectations, Stan, of revenue growth perhaps moderating in the third quarter because you had some extra activity in the second quarter.

Any way you could help us quantify that?

And then if you could touch on just the overall demand environment and help us better understand kind of the growth rates you experienced in [inaudible] versus SMB and then I'll move on to the acquisition?

Yes, Brian, I'll take that.

This is Rich.

From a demand perspective, quite honestly, it appears pretty stable in North America from a revenue perspective. [inaudible] relative to [IDC's] unit projections.

So, from a revenue projections we're still looking at about a 4 to 6% growth situation in North America.

Again, from a UK perspective demand continues to be weak from our perspective, flat to negative in terms of overall -- our view of market demand in the UK marketplace.

As we look to our second quarter results, as I said, we had again very strong sales results across all client segments.

Again, we believe growing faster than the industry in all client segments.

So that means that our public sector business did well, our SMB business well, as well as our enterprise business.

As we look to the quarters, obviously we don't provide guidance from a sales perspective, but we definitely continue to feel very good about our SMB business.

We feel very good about the progress our public sector business has been making.

Now, as it relates to enterprise, we clearly saw the benefit in the second quarter of, quite honestly, some of the problems we had in the first quarter in terms of some of the large projects rolling into the second quarter, which gave us some inflated growth in the second quarter, which we benefited from.

We do not anticipate the same level of growth in our enterprise business from 3Q to 4Q, but with that said we still see a relatively healthy pipeline in that segment of our business that we look to go capitalize on as we go into 3Q and 4Q.

Okay, then, just some questions about Software Spectrum.

First, if you can provide a little bit more detail on the mix of business, starting with their software publishers.

What percentage of their business is Microsoft?

Can you just kind of give us a sense of who their top vendors are and how much overlap there is with Insight?

The second part of that would be on the customer side.

You talked about them having a big focus on large corporations with a new focus on SMB, so it sounds like this is going to raise your exposure to large corporate even more than it is today.

What percentage of your customers today are also customers of Software Spectrum and is there any major customer concentration?

And then I'll move on to some others.

I'll see if I can remember the ones you just asked.

As I forget one, please let me know.

As it relates to just sort of a geographic mix, so from a geographic mix perspective, they're about 60% or so North America, about 35% EMEA and about 5% Asia-Pacific.

As it relates to key partners, like all of the players in the software business and like our business today, Microsoft is the majority.

By that I mean about two-thirds of the business is with Microsoft.

And then when you look beyond Microsoft, then it's all the other. 35% is made up of the Symantec's of the world, the Computer Associates' of the world, the IBM's of the world, so pretty nice spread on the remaining 35%.

But quite honestly, it's just the nature of the software industry that Microsoft has such penetration across today's Insight software business as well as Software Spectrum's software business.

As it relates to the customer mix aspect of this thing, as I said, they have deep penetration from a large enterprise perspective.

Quite honestly, as a result of this transaction, we will be the clear leader within the enterprise segment.

And as a result of the expanded product portfolio and the associated services opportunity we see as a result of the software business and the hardware business coming together, we think this is going to be positive from an earnings perspective going forward.

So we believe that again, this acquisition positions us even as a stronger player, which we believe is positive because we believe there's a good services opportunity, as well as a good software asset management opportunity within our large accounts that we can go leverage from a profitability perspective.

But as it relates to SMB, clearly the math doesn't change.

SMB continues to be a more profitable segment.

What we are very excited about is we have, as you know, very broad penetration within the SMB segment.

We today are doing -- about 15%, as you saw on the chart of our SMB business, today is software.

And where we are looking to go leverage is now with these new capabilities that Software Spectrum will bring to the table in terms of everything from their licensing consultants to their eCommerce tools, how do we to take that software business within SMB to be a much bigger number.

And we believe we can go do that based on our again great customer relationships that we have, but also the strength of their IT tools.

Let me just ask some financial questions and I'll get back in line.

I know there's a lot of other questions waiting.

Can you just give us a sense for how their gross and operating margins break out today and how those have been trending over the last 12 months, let's say, basically any major changes in either of those metrics?

And then what revenue retention are you assuming?

And then finally, if you could just give us a sense for EPS accretion that you're assuming as well, even if you want to just give us a range.

And I guess tied into that, Stan, you mentioned 25.1 million of earnings from operations, but the press release had a different number, 21.3.

So I'm not sure I understand the difference there.

Let me take the last one first.

The difference between that is the 25 is excluding equity compensation.

So that's the difference between that, so to get it on the same basis as you look at ours.

I'll try to remember all the questions.

Before you move on, Stan, is that 25.1 net of tax or pretax?

That's pretax.

So as it relates to -- I mean clearly today we're announcing signing the definitive agreement with projected closing in September timeframe.

We will clearly get into a lot more details about integration plans as well as projected revenue and profit synergies after the close of the transaction.

With that said, relative to the accretion discussion, we definitely see in 2006 this transaction being accretive.

And again, we believe it'll offset the EPS loss due to the sale of Direct Alliance, so the four months or so, three to four months that we will own Software Spectrum will offset the loss of six months of owning Direct Alliance.

In 2007, quite honestly, we believe the transaction will have a much greater effect on EPS.

Additionally, and I think Stan highlighted, which we think is important, is our current projections show that this transaction will also improve our return on equity, return on assets, as well as our overall operating cash flow.

So we think the financial aspects of this business are quite attractive.

We did obviously through our whole due diligence process evaluated the purchase price, evaluated their business.

Obviously from a purchase price perspective we based that based on how it looks in the historic performance, but also placed some emphasis on the 2006 performance to date as well as the projected performance and the synergies that we believe will be created by combining these two organizations and other obviously qualitative factors.

But we do believe at the end of the day that we are paying a fair price for Software Spectrum.

We also believe that again it will be accretive in 2006 and it will be significantly accretive as we go into 2007.

Am I dong the math right, Rich?

I'm getting a PE of 20 times in terms of the purchase price paid.

You are.

It's 19 times, I think.

And clearly as we looked at that today, as I said, the purchase price we determined, we looked at various factors, from historical performance, but quite honestly also the performance to date through the first six months of 2006, which has shown improvement, as well as [inaudible] the synergies that we think.

Again, our perspective in this acquisition is very much a strategic acquisition.

From our point of view, when you look at what we gain as a result of this transaction, global footprint, a much broader set of IT capabilities to offer up our trusted advisors -- to support our trusted advisor role with our client, we think this thing really again repositions Insight in the marketplace as obviously today we're already a significant player.

I think this puts us again in a leadership position and gives us, quite honestly, the opportunity to take advantage of the growth that are in other IT categories.

If you look at -- again, our business today is 86% hardware and our top three geographies, that's an opportunity statement that's shrinking.

We now will have -- well, we have a software business today about $350 million in size.

We'll now have a much bigger software business that could take advantage of that 6.9% growth number that you saw in North America, as an example, and not to mention, over time the ability to go take advantage of the growth in all these geographies outside of the U.S., Canada, the UK.

So clearly, as we determine purchase price, as we determine the economics associated with this transaction, there's a lot of factors that go into it.

But again, at the end of the day we believe we paid a fair price and we believe it's going to translate into goodness from a shareholder perspective.

Okay, I'll get back in line.

Thank you.

You have a question from the line of Matt Sheerin of Thomas Weisel Partners.

Please proceed.

Yes, thanks.

Good afternoon.

So, let's go back to some questions on the core business for a second.

You talked about the revenue growth being strong and some of it is some of the enterprise business pushed over.

Just if you could talk again about the environment for enterprise because we've got companies like IBM talking about some project push-outs, yet you seem to be seeing some projects getting done.

Is that sort of onetime events or are you starting to hear from some of your bigger customers a little bit more concerned about some of the macroeconomic issues out there?

Again, from a large enterprise business perspective, I mean there's always a certain portion of the business there that is tied to big projects and the timing of those projects and obviously they -- in any given quarter they can have a material affect on the sales.

As we stated earlier, in the last two quarters we've had -- we had deferral projects that we thought were going to happen in 1Q that happened in 2Q and we saw the benefit of that.

But quite honestly, when you blend the two quarters together and you look at 1Q plus 2Q, in our enterprise business we still saw 6% growth in North America and 5% growth overall worldwide.

So our view in the overall demand environment, we do believe that market is growing in that 4 to 5% perspective.

We definitely -- our view is the SMB is still growing faster than enterprise, but we see some spiky demand, I guess is the best term, in enterprise and so it turned out in 2Q that those spikes worked in our favor because we had some great projects that got executed.

Now, as I look at the pipeline for 3Q, there's some nice -- the pipeline looks good right now but obviously we have a lot of work to do between now and the end of the third quarter.

Okay.

And then SMB sounds like it continues to see acceleration from quarter to quarter and growth.

Are you taking share from some competitors, for instance CDW, going through a big sales realignment?

Do think you're getting some share from competitors?

Well, clearly, growing our North American business 7.9% and some of our competitors growing in the low 6% would say that we took share in the quarter.

Okay.

Fair enough.

And then the operating margin guidance, which came down a bit for the year and you talked about several issues, my question is when should we expect a return to that margin?

When do you think you can get there or what's the timeframe in terms of '07?

And of those different factors that you talked about, what's the most challenging and the one that you think will really get you over the top?

Clearly from -- let's just spend some time on that because I committed to give you all an update and I tried to give you that update, but I want to make sure that update was clear.

We as a team have been targeting 4%.

Obviously the [Dack] transaction itself took that target down to 3.7% because in our budgets for 2006, while they only draw 20 basis points of our operating margin in 2Q, based on our assumptions and our budgets for 3Q to 4Q with new accounts that they were bringing on, that would be a 30 basis point contributor in 4Q.

So hence the target became down to 3.7.

Right now, with what I called out today in the call is based on our best view, it's really going to be more like 3.5%, or 20 basis points off of that, which, quite honestly, still represents substantial improvements on a year-to-year basis.

We still obviously, off of where we are today, have some work to go do to go close that gap, about 30 basis points we've got to go close from our 2Q performance.

I'd say probably the biggest driver that caused us at the end of the day to go provide the guidance to you that we said we would in terms of coming off about 20 basis points of our view was really that in our budgets that we developed in November of last year, we had the assumption of driving high single digit growth in each quarter of 2006, which we are clearly not operating at to this point, though we just had a good quarter here in 2Q, and a lot of that is driven by the overall market environment.

So as we take into consideration modification of our view of revenue to be a little bit more conservative going into 3Q and 4Q, while we still think we are going to drive some improvements in our expense structure, but given our view on revenue in the second half of the year, it was difficult for us.

And obviously what we didn't want to do, and quite honestly many people on this phone advised us against doing it, is take any rash cost-cutting decisions just to meet a 3.7% target.

So we made the decision that said, hey, we believe we can get to 3.5, which we believe again still represents significant improvement on a year-to-year basis in the fourth quarter.

Okay, great.

And then just a quick question on the mySAP upgrade.

Could you remind me again, you said when that's going to be rolled out and when will it impact your SMB sales force and is that going to be sort of a slow roll out or is it going to affect sales at one point?

The rollout is starting right now in the third quarter, so we're going to start and we'll rollout the several support functions throughout the second half of 2006.

The sales organization predominantly will be rolled out in the first half of 2007 and will be done by the first half of 2007.

So our SMB enterprise and public sector teams by the end of 1H 2007 will be completed and rolled out in the United States.

Okay, so your intent then is to make sure that there's no impact in the seasonally strong part of the selling season, right?

Correct, as well as we just want to get that project done before we worry about any IT integration projects that are associated with today's acquisition.

Okay.

And then just my last question on the acquisition, Stan, looks like you're going to have to take on a good deal of debt here.

Could you give us an idea of the type of financing that you're looking at?

Sure, Matt.

First of all, we have at June 30th 100 million of cash which we'll use against this, okay, which brings down the overall impact a little bit.

We have committed financing in place, I believe at attractive rates.

That part of it is on a longer-term basis, five years, so it doesn't put any pressure, roughly about 75 million is on a longer term.

We have a revolving line of about 75 million also that we can certainly use.

And then as you know, we have an asset-backed securitization program at a very favorable rate, which will allow us to get up to 200 million from that.

So I will probably place on all three of those and obviously which we'll talk about more at our analyst conference, but with cash flow generated from this, start paying the higher debt down as soon as possible.

I feel very comfortable.

As you know from historical that we aren't a highly leveraged company so I feel very comfortable with the debt that we're putting on the balance sheet and my hope is that we can reduce that in a reasonable amount of time.

Okay.

And could you give us a ballpark idea of the blended rate that we're looking at here?

Roughly 7, 7.5, somewhere in that range.

Okay.

Again, Matt, the reason I'm a little hesitant on it, the transaction has not closed.

As you are very much aware of, the financial markets right now aren't exactly the most calm, given all the problems in the world.

And So I can't give you an exact number there.

I will tell you, though, that within my agreement I do have caps so that I'm not exposed for any really spikes in interest rates.

Okay, terrific.

Thanks a lot.

Your next question comes from the line of John Lawrence of Morgan Keegan.

Please proceed.

Good afternoon, guys.

Hey, John.

Just one question, Rich.

As far as the acquisition is concerned, can you talk a little bit about just timing?

I mean obviously I know that, as you pointed out, growth is a major factor, but could you also just talk about the timing a little bit as far as why proceed this until you've got maybe the mySAP done and discuss that a little bit?

And then would you go just to the next level on the geographic mix that you talked about as far as how recently have they entered some of these countries and which one are doing the best, please?

Sure, you bet.

First of all, I remember joining this organization back in November of 2004 and quite honestly, meeting with many of you the first question was are you going to do an acquisition?

And I will tell you -- and I told everybody then that at that point in time my view was we weren't ready for an acquisition.

And I will tell you right now, 18 months, 19 months later, I think we have the leadership team and I think this organization is very much ready and it very much supports the strategy we've communicated.

Overall, as I look at it, we are doing this acquisition for obviously a lot of reasons that we've already talked about.

Let me just kind of summarize them again, though.

As you just said, it will help us go drive faster sales and profitability growth.

It will very much support our existing strategies, but it'll accelerate that strategy, really make us -- with more clients in the IT marketplace, viewed as that trusted advisor.

It gives us a much broader set of software offerings as well as services offerings to offer our clients, which translates to increased revenue as well as profit opportunities.

Obviously from a skills perspective, because at the end of the day, in today's marketplace when clients make a decision to who they're going to business with, it's typically based on who can provide the most value.

Value is typically driven by who's got the skills, who's got the capabilities, who's got the tools to help them, and we really, with today's acquisition, enhanced our skills, tools, and expertise.

And the last reason to do this from our perspective is really we do see a lot of incremental client reach that we're going to get as a result of this and that whole global presence, which I'll get you back [to a mix] in a second.

In terms of we did not want to pass up on this opportunity to acquire Software Spectrum just because we're upgrading to mySAP, quite honestly, when opportunities arise you need to react.

And we believe we have the skills and the expertise to successfully integrate this acquisition as well as execute the upgrade to mySAP.

To help us assure the success of both initiatives, we are going to run Software Spectrum systems independently until we complete the upgrade and we will utilize two separate IT teams.

We are going to bring their IT team over intact, including their CIO, and he will run their existing infrastructure and our existing team will run our existing infrastructure as well as the mySAP upgrade project.

So the reality is we believe we have greatly minimized any risk in our mySAP project and we will be able to run their systems independently until at which time, within that 24 months, we feel comfortable it's time to go integrate that into one platform.

So that's kind of the reason why now.

Again, one big point is when opportunities again represent themselves, and we believe this is a great opportunity, we wanted to go after it.

And again, I think the team, the leadership team specifically, is ready to go make this a success for all parties concerned.

As it relates to the geographic presence, as I said earlier they're about 60% North America, 35% EMEA and 5% Asia Pacific.

You obviously saw in the presentation the countries that they're in.

Today their EMEA organization is headquartered in Munich, Germany, that's where the majority of their teammates are.

In terms of top markets over there is clearly Germany and France, those are their top markets, though they have a nice business spread across all the other markets as well.

As relates to Asia Pacific, their headquarters are in Sydney, Australia and the majority of their Asia Pacific business today is in Australia, though they've recently entered into China, as an example.

And as you know, there's a huge market opportunity from an IT point of view in China that we would look to go leverage over a period of time.

And last question.

You probably want to save some of this, but can you give us just any kind of feel on the number of support people to get sales orders compared to Insight today and what does that look like?

The ratios, I really don't have that information right in front of me, so I don't want to give you any numbers that would be incorrect.

So we'll have to go follow up [inaudible].

But quite honestly, they are a pretty strong sales organization.

Their sales organization, off the top of my head, is about 500 to 600, so it's about -- so we're bringing out a very strong sales team in this acquisition.

Great, thanks.

Good luck.

Thanks.

Your next question comes from Andy Hargreaves of Pacific Crest.

Please proceed.

Hi.

First, can we assume that the margin target doesn't include the acquisition?

That's correct.

Okay.

And then kind of getting back to the core again, the hiring was a little bit slower in North America than I was expecting.

Is that related to the acquisition and your expectation to pick up sales people there or should we expect you to hire more in the core business?

No.

I mean it was not -- would not relate.

I mean our goal has always been inside North America, as well as the UK, is to go focus on productivity.

And we did add modest numbers, but the important thing is I think our productivity from a revenue perspective was up, like 9% in the quarter.

So as we -- as you know, we had some issues in terms of sales resources in UK, we did add some in the quarter.

We will add some more in the fourth quarter.

As it relates to North America in terms of adding more here in the second half of the year, we're going to make that determination as we do the integration project because obviously they also have a very large and successful sales team here, so we'll probably be looking at that.

We will clearly be replacing any attrition that we have from a sales perspective in North America and we obviously at all times have a recruiting effort underway and training classes coming in almost every month.

That process will continue, but in terms of how many sales resources we'll add in North America, we're going to defer the determination of that until we get deeper into the integration work.

Okay.

And then my only other question, I guess for now, is on the linearity of the margin target.

And I don't know if you want to comment on should we expect it to be somewhat linear or should we expect a jump in the fourth quarter?

Oh, in terms of -- our strategy has always been to go drive kind of continual improvement approach, which is what we've been executing to.

So outside of Software Spectrum, in terms of just our bridge from where we are today to try to get to that 3.5% level that we think we can go get to, we think it'll be nice linearity to do that.

I have a hard time saying that word.

Andy, the one thing you need to keep in mind, Andy, is once we do complete this acquisition we'll have to factor in the Spectrum and what Rich is talking about is absolutely right from the Insight point of view, the historical company.

Okay, great.

Thanks.

You have a question from the line of Jason Gursky of J.P. Morgan.

Please proceed.

Good afternoon, everyone.

Perhaps I missed it on the call, but in the past you talked a little bit more specifically about your growth rates in the SMB and growth rates in the enterprise space, kind of characterizing it as low single digits versus higher single digits.

So I was wondering if you might do that this quarter?

Well, we really don't.

First of all, there's a blend there, Jason.

It's hard to construct bright lines in each of those.

What we did say is that each one of those increased and they were all up.

Obviously the biggest change from sequentially was in the enterprise area.

They obviously had the biggest change.

But every one of those were up positive and, as we said, SMB continues to grow and you kind of had an idea of what that was in Q1.

So that's about as much as we really want to go into it.

I think it's a positive story, though.

Bottom line is we're very happy with how each one of the segments are really starting to perform.

Okay.

And it was asked earlier, but I'm not sure that it was specifically answered.

Just what are your expectations for revenue attrition from the acquisition?

Well, we -- certainly When we go through a modeling we put that into account in analyzing whether we want to go ahead with the acquisition.

I'm not going to give you specific numbers that we did, but we did take that into account.

Quite frankly, it is not a large number because I think of the two companies, and as we expressed, the customer base of the two companies are such that really we think this is just the perfect type of acquisition for the two companies.

But we did take some into account in the modeling that we did.

Again, we're going to share more of that at our analyst conference once this gets concluded.

The positive thing, I mean there's a lot of positive things from our perspective about this acquisition, but the positive thing is we did not go out and acquire a company that looks just like Insight and say this is all about scale because that's where you have a lot of customer overlap and you lose a lot of revenue.

The reality is we acquired here a company that's in a different space, has a much broader penetration and customer set and enterprise than we do.

So we believe that there is a lot of synergies here from a revenue perspective.

Okay.

And then just the revenue recognition, is that gross versus net, the 1.9 versus the 1.4 billion?

Yes, it is.

And they just take a different approach in recording their software maintenance contracts, Jason.

Not saying that they're wrong because you know the FASB and GAAP and everything has a whole bunch of different criteria that you have to analyze in that area.

We take a pretty conservative approach on it and from the best information that we have at this time, that 1.9% will probably be 1.4 but as we get into this more we'll be able to determine that more specifically.

I think the important thing is we wanted to at least make you aware of that particular difference that we noted.

Okay.

And then, Rich, you care to take a stab at when the 3.7% with the core business might be reached?

It's going to be 3.5 in the fourth quarter, but where do we go from there?

I think it's best to just defer that until we work through the integration because quite honestly we're going to have to go look at the combined business and talk to you about that combined business, which I think is -- our plan right now is to fully integrate these two companies together, so we're not going to set this up as a separate division, a separate reporting.

We're going to go quickly, try to go get as much client synergies as possible and then integrate these two companies together.

So, I think it's a little premature for us to give you any projection from a future operating margin perspective because at this point we obviously don't own the company.

Okay, great.

Thanks, guys.

You have a question from the line of [Mike Hughes] of Delaware Investments.

Please proceed.

Return on invested capital at Software Spectrum I think historically, at least when they had public financials, it was 16 to 17%.

Is that consistent with where it is now?

I couldn't hear you very well, Mike.

The return on invested capital at Software Spectrum I think historically when they had public financials was 16 to 17%.

Is that consistent with where it is now?

It certainly is higher from what we have.

I don't recall right now the exact number.

But one thing that we did say earlier is that this acquisition will improve our number.

So I feel good from that point of view.

They don't carry much inventory, if any, and that certainly helps.

Okay.

Second question, before you decided to go forward with this $300 million acquisition, did the board analyze other options?

For example, it seems to me like you could have gone out and done a $200 million Dutch auction, maybe reduce the share count by 20%, it would have been roughly $0.20 accretive on next year's number.

Granted it wouldn't have been strategic in nature, but it also would have lacked integration risks.

So just your thoughts on that?

Well, first of all, yes, absolutely.

The board -- this has not been something that -- this whole process -- let me back up, Mike.

This is not something that just came up in this quarter.

I mean we have -- this whole topic has been discussed for quite some time, as a matter of fact right shortly after Rich joined us.

And specifically with this, this is not an opportunity that we just quickly went on in one quarter.

We've been looking at this for a while and having conversations.

So to answer specifically with the board, yes, we did look at all opportunities.

We're looking at it from a shareholder value point of view and obviously the conclusion was that this represents the best opportunity for increasing shareholder value as opposed to what you suggested.

Is it safe to assume they'll be less than $0.20 accretion to the '07 numbers as a result of this transaction?

Well, I'm not going to get into that right now because a., we don't own them.

We're going to talk more about that once this closes.

And hopefully that will be able to talk more at our analyst conference at that point.

I think, though, based on what I just told you from the board's point of view, that we believe there is opportunity, significant opportunity for improvement from an accretion point of view in this and hopefully that gives you enough information to address that question.

Okay, thank you.

Your last question comes from the line of [Greg Isen] of [ICM Asset Management].

Please proceed.

Good afternoon.

I thought I might as well bring this up since everyone else is going to post the call.

Level 3 posted an 8-K on the transaction and they show a kind of pro forma breakout of, taking out Software Spectrum from the Level 3's income from operations for the first quarter of '06, and they're showing again roughly around -- I think the number is 454 million in revenue, which is in line with what you quoted, but only about $1 million of operating profit.

I was wondering if you would want to comment on what may have occurred in the first quarter at Software Spectrum to produce profitability well below what it was the year before?

Sure.

I mean from our perspective, and clearly I'm reluctant to talk about their financials in detail just given the fact that we don't own them yet, but our perspective is we looked at their first quarter, we looked at their second quarter, and I would tell you -- and we looked at obviously the projections for the third quarter, fourth quarter as well as the synergies that we saw, and we see the opportunity, as Stan just said earlier, a great opportunity from an accretion perspective yet this year in just owning them for four months, as well as going into 2007.

Now, as it relates to the nature of the software segment, I would tell you, and if you look back at the financials the second quarter is the big quarter for all of these software resellers, and what you see -- and the reason for that is that's when Microsoft has the renewals in several of their agreements.

And I think what you'll see is considerable improvement in their results in the second quarter.

Yes, that's Microsoft's fourth quarter there.

And, Greg, this is Stan, first of all, good to hear from you.

Second of all, I think you're going to find in the software that it is seasonality there.

Q2 and Q4 certainly are stronger than Q1 and Q3, so therefore I'm not sure that Q1 is a good barometer for the year in total.

This is not a linear type of business and that's something that after we acquire them and we go through stuff and we file our 8-K and everything I think we'll be able to get you more comfort on that.

Okay, great.

Thanks for clearing that up.

You bet.

Last question?

Yes, you have a question from the line of [inaudible] of [Snyder].

Please proceed.

Hi.

I have a couple of questions on the Software Spectrum acquisition.

You mentioned that this is a much more faster growing business.

Can you comment on how that growth has been, let's say, over the six months this year?

Well, first of all, software in general, as Rich mentioned earlier, really is a faster growing product category than others.

We cannot comment on their first two quarters at this point because a., we don't own them and that would be disclosing information that maybe they have not made.

So I can't really talk.

Obviously we know that information from doing due diligence, but we really can't comment on it.

The other thing I would put in mind, as I'm sure you're well aware of, is with Microsoft's move to more [EA] agreements, even though you may be growing, because of the netting possibility of those your sales growth doesn't necessarily grow as strong as your business really is growing.

So you've got to really delve down into it and understand the underlying.

I can tell you that we feel from our due diligence that from an operational point of view, sales point of view, whether it is the gross or the net, they are doing very well.

Okay.

You mentioned the new [inaudible - highly accented language] with Microsoft, what sort of impact do you expect from those agreements on profitability on a standalone basis without assuming any cost synergies?

Well, first of all, yes, there is a new Microsoft agreement.

We have taken that into account certainly.

And quite frankly, Insight's business philosophy of providing more services to our clients fits right into where Microsoft is going under their new agreement.

And so consequently, from a bottom-line point of view, we really don't anticipate any material degradation by any means to the bottom line.

And certainly with the proper top line growth, that's going to relate into positive returns.

So bottom line, we don't think there's anything negative and that's primarily because of our operational approach at Insight.

Okay.

Last question on cost synergies, I know -- and I don't want to quantify this before the deal closes, but can you speak qualitatively on what sort of synergies do you expect here, especially as you are trying to run this [inaudible - highly accented language] independent entity until you are [inaudible - highly accented language]?

From a synergy perspective, just to clarify, so we do plan to run the IT systems independently, but from a structural perspective, for example in North America we're going to try to get to the two teams working closely together day one because again, of all the great client synergies and skill and capability synergies that we see.

So today, the synergies we see are how we go get the sales organizations working closer together to go drive faster growth, but from a revenue profitability perspective.

Stan's point earlier in terms of the change in the Microsoft agreement, what Microsoft really is asking its partners to do is provide more value.

And if you provide more value, I'm prepared to go pay you to go do that value.

The value is typically translated into having a services capability to go support the deployment and utilization of software at a client level, which quite honestly is something that Insight does very well at.

So that's where another example of the complementary nature of our business coming together with Software Spectrum's business.

In terms of all the areas that we see cost synergies and revenue synergies, beyond what we've shared already on the call, we will go into more details of that again once we own this company, as well as we will highlight some of that information on our September 14th analyst call.

Okay.

Thanks.

Well, thank you very much.

So, team, thank you very much for joining in and thanks to our valued teammates, clients, partners.

I mean 2Q 2006 was a very successful quarter.

As a result of our efforts over the last six quarters, quite honestly we are now in the position to accelerate the transformation of our business to a global IT solutions provider.

We believe that the acquisition of Software Spectrum will create exciting opportunities for our teammates, clients, partners, as well as our stockholders of Insight.

So thank you very much for joining today's call.

For the Software Spectrum teammates that may be listening, we look forward to seeing you tomorrow and joining you and welcoming you as Insight teammates.

Thank you very much.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.