Insight Enterprises Inc (NSIT) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Insight Enterprises Incorporated conference call.

My name is Melanie, and I'll be your coordinator today.

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

We will take questions at the end of today's conference.

(OPERATOR INSTRUCTIONS) I would new like to turn the call over to 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 March 31, 2007.

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 release that was posted this afternoon and filed with the Securities and Exchange Commission 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 webcast live and can be accessed via the Investor Relations section of our website at insight.com.

An archived indexed copy of the conference call will be available approximately two hours after completion of the call and I will -- 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, May 2, 2007.

This call is the property of Insight Enterprises.

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

Finally, let me remind you about forward-looking statements that will be made on today's call.

All forward-looking statements that are made in this 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 quarterly report on Form 10Q for the three months ended June 30, 2006.

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

Finally, all results reported today do not include the effects of any adjustments that will be required as a result of the stock option review or any related inquiries or proceedings and should be considered preliminary until the company files its quarterly report on 10Q for the three months ended September 30, 2006, its annual report on Form 10K for the year ended December 31, 2006, and its quarterly report on Form 10Q for the three months ended March 31, 2007.

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

Rich?

Thank you, Stan.

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

I am very pleased to announce that Insight had another very good quarter, continuing the momentum within our business that resulted in very strong net sales and net earnings growth in 2006.

In the quarter we achieved record first quarter net sales, record first quarter gross profit, and -- and strong net sales.

Specifically our consolidated quarter net sales were $1.12 billion, a 53% increase over 2006.

While gross profit dollars grew an even stronger 58%.

Additionally, net earnings were 1 -- excuse, me, $17.3 million and diluted earnings per share were $0.35 compared to $0.29 in the first quarter of last year.

Our first quarter results include the gain on the sale of PC wholesale of $7.9 million, $4.8 million net of tax and expenses of approximately $5.7 million -- $3.5 million net of tax for legal and other professional fees associated with a stock option review.

In a few minutes, Stan will review with you the details of the first quarter financial results for each of our operating segments.

First, I have a special announcement.

Now that we've completed the integration of Software Spectrum and after 17 years of service, Stan Laybourne has announced his intention to retire from Insight.

The effective date of his retirement is planned to be in the next 120 days, as Stan is planning to assist the company in a search for a new CFO and to help insure a successful transition.

As you know, Stan has made significant contributions to Insight and through his financial leadership, Insight is now a leading IT solutions provider throughout the world.

So while Stan will clearly be working throughout the transition, I did want to thank him in front of this audience for all that he has done as an Insight teammate.

Here are now five key highlights of our quarterly performance.

Point one, we had a strong financial performance, and we believe we gained market share across all our operating segments and what is typically a seasonally weak quarter.

Our EMEA segment achieved very strong results, growing net sales by 173%, gross profit by 119%, and earnings from operation by 82%.

Within EMEA, our software category performed well across all regions and within the UK, our hardware and services category performed exceptionally well, growing faster than the market.

In fact, hardware grew 33% and services, albeit on a small base, grew an impressive 223%.

Our North America segment also achieved very strong results, growing net sales by 27% and gross profit by 41%, while earnings from operations grew 4% over the prior year.

However, note that approximately $5.2 million of the stock option review expenses were recorded in the North American segment during Q1 2007.

Within North America, the highlight of the quarter was the very strong gross profit performance driven by contributions from hardware, software and services results.

As an example, we are pleased to see our services business continue to post strong growth, increasing net sales by 72% in the quarter as compared to last year.

This gross was driven primarily by strong sales of field services and third party warranties.

Lastly, our APAC segment continues to perform very well, as we believe they grew faster than the market and contributed net sales of $19.4 million and gross profit of $2.8 million for the first quarter.

Point two, through the hard work of our teammates, specifically our dedicated integration managers, we celebrated on April 1st integration complete throughout the company related to the acquisition of Software Spectrum.

Without going into all the details of the integration activities, I would like to highlight some general areas that define integration complete.

Most importantly, the integration -- the organization now operates as one company.

We have one management team, one management system, and a unified vision for our client to look to Insight as their trusted advisor, helping them to enhance their business performance through innovative technology solutions.

Secondly, to support this vision, we successfully integrate our software sales teams within our SMB, public sector and enterprise client segments.

In fact, as part of our integration efforts, we completed the realignment of our North American sales force into a regional based model to insure closer alignment with our partners field organization and to drive increased field-base solution selling supported by telephone-based sales to insure transactional efficiency with our clients.

Third, we integrated our go-to-market sales and marketing strategy to support the Insight brand in the marketplace.

We have successfully migrated from having two brands to now just having the Insight brand in the eyes of our partners, clients and teammates.

From our manufacturing and publishing partners, they are now able to engage with us as one company and support our business through one set of partner programs aligned with Insight's marketing activities.

For our client, we have migrated to the Insight brand across all client touch points, including the consolidation of one web experience through Insight.com.

Finally, for our teammates, we deployed consistent benefits, performance planning, compensation plan, and other teammate policies to facilitate teammates from both companies, coming together as one team, focused on winning in the marketplace.

Fourth, we have integrated many of our internal systems to insure efficient teammate communications, like our e-mail system and the intranet.

While we do not consider the consolidation of our IT systems as part of the integration complete project, we continue to be focused on deploying our mySAP platform globally as part of our normal IT priority to drive additional cost synergies, particularly in North America.

So with the integration complete, all in an efficient six-month time period, the focus is now on the continuous goal of gaining profitable market share.

To support this goal, we continue to focus on driving cross selling.

We are pleased by the new client wins we are enjoying as a result of the new Insight capabilities to support our clients hardware, software and services requirements.

Point three, another highlight of our quarterly performance relates to our mySAP upgrade.

We successfully deployed the system upgrade through a pilot group of over 100 SMB sales reps in the first quarter.

Overall, we are very pleased with the results from the pilot and still expect the upgrade to mySAP in the U.S.

hardware and services business to be completed in mid 2007.

Our next steps will then to be to consolidate the U.S.

software business onto the system and begin the implementation across Canada, EMEA and Asia-Pacific throughout 2008.

Point four, in the quarter we were focused on working to complete the investigation into Insight's historical stock option practices.

As communicated through an 8K on April 4th, the audit committee has determined that it is likely that the company's previously filed financials will require restatement.

Since the company's review is still ongoing, it is inappropriate to comment further at this time, but rest assured that the company is committed to completing the process as soon as possible and to becoming current again in its filings.

And point five, a final highlight of the quarter, is that we divested a noncore asset through our sale of PC Wholesale to Synnex.

Strategically this sale is very good for the company as it assisted in reducing our outstanding debt balance during the quarter and allows management to focus on our core business of being a trusted advisor to our clients.

Overall, one of the busiest and most impressive quarters I've experienced at Insight.

Now, I'll ask Stan to provide more details on our first quarter 2007 performance across each of our operating segments.

Stan?

Thanks, Rich.

Our North American sales increased 27% from $612 million for the first quarter 2006 to $777 million for this quarter, due primarily to an increase in software sales attributable to the acquisition of Software Spectrum.

As Rich mentioned, we were pleased with overall performance of our North American segment, particularly our gross profit growth of 41%.

Again, given that certain products and services, such as software maintenance contracts and third party warranties are recorded as net revenue under GAAP, and there is a continued shift to Microsoft enterprise software agreements for which we only receive an agency fee, we believe gross profit dollars is a more meaningful measure of growth and account executive productivity.

The number of account executives in North America in operations was 1,274 at March 31, 2007, up from 1,259 last quarter, and 1,053 last year.

We continued to see productivity improvements, as gross profit per account executive in the first quarter was approximately $88,000, an increase of 18% over the first quarter last year.

Given the first quarter is seasonally a weak quarter, we saw a decline in productivity compared to last quarter as expected.

Gross margin increased to 14.4% from 13% in Q1 2006 and from 13.1% last quarter.

The increase in gross profit as a percentage of net sales from the first quarter of 2006 was due primarily to increases in agency fees for Microsoft enterprise software agreement renewals, increases in the sales of services, and decreases in inventory write-downs, due to improvements in the aging of inventories.

These increases were offset partially by decreases in product margin, which includes vendor funding and decreases in freight margins.

The increase in gross margin compared to last quarter was due primarily to increases in product margin, which includes product -- vendor funding and increases in agency fees for Microsoft enterprise software agreement renewals.

Selling and administrative expenses as a percentage of net sales were 12.2%, up from 10.3% both last quarter and in Q1 2006.

Compared to 2000 -- Q1 2006, we have seen increases in expenses related to the acquired business, increases in sales incentive plans, increased bonus expenses due to increased overall financial performance, amortization of intangible assets, and integration-related expenses.

As mentioned previously, included this quarter are approximately $5.2 million of expenses, allocated to North America for legal and other professional fees associated with the stock option review.

Additionally, Q1 2006 included $1 million in settlement expenses.

Compared to Q4 2006, the increase in selling and administrative expenses as a percentage of net sales is due primarily to increases in legal and other professional fees associated with the stock option review.

Overall, North America earnings from operations increased 4% to $17.1 million for Q1 2007.

Our EMEA operations, which included only the United Kingdom in the first quarter of 2006, recognized net sales that were up 173% from $119.9 million in the first quarter of 2006, to $327.4 million for this quarter, due primarily to an increase in software sales attributable to the acquisition of Software Spectrum, but also a very strong performance from our hardware and services categories as Rich discussed.

Our gross margin in the EMEA segment decreased to 11.8% from 14.7% in Q1 2006 and 12.2% last quarter.

The decrease in gross margin from the first quarter of 2006 was due primarily to decreases in product margin, which includes vendor funding and decreases in supplier discounts.

These decreases in gross margin were offset partially by higher agency fees for Microsoft enterprise software agreement renewals and decreases in inventory write-downs due to improvements in the aiming of inventories.

The decrease in gross margin from last quarter was due primarily to decreases in supplier discounts.

This decrease in gross margin was offset partially by increases in product margin, which includes vendor funding.

Selling and administrative expenses as a percentage of net sales were 9.8% in Q1 2007, a decrease from 11.7% in Q1 2006, and 10% last quarter.

The decrease from Q1 2006 was due primarily to increases in net sales, offset partially by increased bonuses expenses due to increased overall financial performance and increased amortization expense related to intangible assets.

Also included this quarter is approximately $455,000 of expenses allocated to EMEA for legal and other professional fees associated with the stock option review.

The decrease from last quarter is primarily due to decreases in bonus expenses, offset partially by increase in legal and other professional fees associated with the stock option review.

Overall, our EMEA segment achieved earnings from operations of $6.5 million in 2001 -- in Q1 2007, up from 80 -- up 82% from $3.5 million in Q1 2006.

Our APAC segment, which was added as a result of the acquisition of Software Spectrum recognized net sales of $19.4 million and gross profit of $2.8 million in Q1 2007.

We were pleased with the results of our APAC segment, as it achieved strong growth and results in line with its internal budgets.

Although this segment represents a small percentage of our consolidated results, we are excited about the growth opportunities this region brings.

The effective tax rate on continuing operations for the three months ended March 31, 2007, was 39.1% compared to 35.6% for the three months ended March 31, 2006.

The increase in the effective tax rate from continuing operations was due primarily to a decrease in tax reserves in the first quarter of 2006, due to the settlement of an audit, as well as an increase in nondeductible expenses related to executive compensation and an increase in tax reserves in the first quarter of 2007.

Turning to the first quarter cash flow, given the first quarter is seasonally a slow quarter compared to the fourth quarter, we generate -- generated very strong operating cash flow, as we reduced our outstanding receivables that build up at the end of last quarter.

That along with the net proceeds of $29 million includes -- including net assets sold from the sale of PC wholesale, was the driving force behind the $53 million reduction in our outstanding debt balance during the quarter.

Given that the second quarter, like the fourth quarter, is seasonally a very strong quarter, particularly for our software business, we expect that operating cash flow will be used in Q2 to fund an increase in accounts receivable at the end of the quarter.

Of course, this means that Q3 should be another strong quarter for operating cash flow, as seasonal Q2 receivables are collected.

The filing of our Q3 2006 Form 10Q and our 2006 Form 10K have been delayed past their filing dates, and we expect that the filing of our Q1 2007 Form 10Q will also be delayed due to the ongoing review of historical stock option practices.

As disclosed -- disclosed previously, in light of the conclusions reached to date, the audit committee determined that it is likely that the company's previously filed financial statements will require restatement, and therefore the company's previously filed financial statements should no longer be relied on additionally, due to the likely restatement of the company's retained earnings balances, only the statement of earnings and selective cash flow and debt information are included in today's press release.

As noted earlier, legal and other professional fees associated with the option review are approximately $5.7 million during the quarter.

We expect to incur additional legal and professional fees of approximately $5 million to $7 million in Q2 2007.

Although we are not providing guidance for 2007, we would like to remind everyone again that we do expect notable seasonality in our business, as a result of our increased concentration in software sales, which are typically much stronger in the second and fourth quarters of the year.

As a result, we expect between 25% and 30% of our 2007 net sales and gross profit, as well as between 30% and 35% of our 2007 earnings from operations to occur in each of the second and fourth quarters.

That concludes my comments.

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

(OPERATOR INSTRUCTIONS) Stand by for your first question.

And our first question comes from the line of Matt Sheerin with Thomas Weisel Partners.

Please go ahead.

Yes.

Thank you, and congratulations, Stan.

So my first question has to do with the hardware sales.

It looks like in North America, hardware sales were down below the market performance and I'm wondering if that has anything to do with the mySAP upgrade or weakness in enterprise.

If you could just share with us some color on what's happening on the hardware sales side.

Sure, no, and there is no connection to the mySAP pilot and hardware results in the first quarter.

From an overall first quarter perspective, as -- as we highlighted, obviously very strong performance in the software category as well as the services category across EMEA, as well as North America.

As it relates to the hardware segment in North America, as you note, it grew 1%.

Most of that is being quite honestly driven by difficult compares to Q1 last year and Q -- you'll the same thing in Q2 of last year where we had a very large transaction, a very large Cisco transaction project that got rolled out in the enterprise segment.

Inside of the results of Q1 from a client perspective, we are pleased with our performance in the SMB segment, and as it relates to the enterprise segment, actually we saw very nice improvement from Q4 to Q1 in the enterprise segment, and really are starting to feel like the value proposition of bringing the hardware, software and services capability together is starting to resonate quite nicely in the enterprise segment.

We also made changes in terms of bringing some new leadership in place to leave that part of our business, but with that said, I mean it's still very challenging environment in that large account space, but in the Q1, we're pleased with how we perform.

Okay, great.

And then on the software side, could you -- and maybe how it relates to hardware and IT spending at the customer base, could you just provide some color on Vista and how you see that playing out?

Yes, no, overall the software category had a strong quarter for us in the first quarter.

As it relates to Vista, I wouldn't really at this point tie any of that strength that we saw in the first quarter tied to Vista.

We are seeing a lot of interest across our client set, which as you know is mostly a large account client set.

Obviously we have a nice strong SMB business as well.

I don't think that is showing up into any real business results at this particular point.

Right now, based on our client set and given how long it takes them to deploy new technologies, I think we're going to start to see that in the second half of 2007 and more of a 2008 statement.

So the strength we saw was just your classic performance and it wasn't just a Microsoft statement.

It was across all our software vendors that we had strong results in the quarter.

Okay, and just lastly, what are your plans for your account executive head count?

Do you plan to add that throughout the year?

Yes.

As you saw, we had slight growth in the quarter.

Our primary focus is just on the integration, and as we call it out, we just completed kind of a realignment of our sales organization and a regional-based model, and through that work and through the integration, our focus has been really driving the productivity off of the existing sales force and driving cross selling across the existing sales force.

Now we have modest growth in our sales force in 2007, but that is not our primary focus.

That is not our primary focus is to continue to drive the productivity off our team and drive the cross-selling activities.

We are pleased, for example, in North America that our productivity from a gross profit per head perspective is up 18% on a year to year basis and what we're looking to go do in Q2, in Q3, in Q4 is continue to drive the same, and as it relates to any more significant growth in sales head count, there will be something we look at relative to our normal budgeting process going into calendar year 2008.

Okay.

Thanks, Rich.

Our next question comes from the line of Jason Gursky with JPMorgan.

Go ahead.

Good afternoon, guys.

Just a -- one clarification from Stan before we do a couple qualitative ones.

Stan, on the legal expenses related to the stock compensation investigation for next quarter, I think -- did you say $5 million to $7 million?

Yes, I did, Jason.

Okay, great.

And then Rich, I was wondering if you couldn't perhaps drive down a little bit further into revenue trends, both here in North America as well as in Europe, and just talk a little bit about the things that you're seeing in the SMB space and the traction that you're making there, and then secondly, talk a little bit more about how the cross-selling opportunities between the two organizations is playing out.

Is it meeting, beating your expectations?

How much payment do we have left on that at this point?

Yes, no, just from an overall revenue performance perspective, as you dig into the earnings release, we started to provide some additional detailed, provide some additional transparency into our results and specifically what I think is most helpful for everyone is we've started to call out year to year growth as it relates to the hardware segment, the software segment and the services segment across each of the operating segments.

And as you see in that data, North America hardware grew 1%.

Software grew 211 -- 211%.

Services grew 72%.

Clearly, as I already called out, what was underneath the 1% growth for hardware is I guess tough comparisons given the large rollout that we had last year that rolled out in Q1 and Q2 to one specific end user.

In EMEA, you saw very strong growth in hardware, software and services across all those segments.

I really attribute that to the execution across our sales teams and the cross selling that we're starting to see.

So at this point in time we don't have any specific numbers, like we've had 12 accounts or 100 accounts that we're actually seeing the cross selling.

We're still putting the mechanisms in place to track that, but I would tell you are having several wins as a result of our new capability to be able to go off our clients, both hardware, software and services.

And as it relates specifically to the SMB segment, as you will recall, looking back into last year, we've started to see gradual improvement inside of our SMB business.

I'll tell you, we felt that again in first quarter, and most importantly, it was on the gross profit, which we believe is the most important aspect of it, performance of our SMB business.

And I called out, for example, 72% growth in our services business in North America.

I would tell you a big portion of that was driving improvements in our warranty.

As we've talked about on many of these calls, one of our key line items in terms of driving higher gross profit performance out of our business was trying to drive the attach, not to sell the product, but sell the attach, whether that's a warranty, whether that's a services engagement, whether it's software, and we're definitely starting to see some examples where that's exactly what is happening.

So the momentum in our business that we saw as we closed out fourth quarter 2006 is clearly continuing into Q1 2007, and, again, we're very pleased with the top line, as well as the bottom line performance that we experienced.

Okay, and the warranty as it makes up of what percentage of your services revenues?

Is it the vast majority of it?

No, it's not the vast majority at all.

But I would say we don't break out the individual elements of the services business, so the services business in North America is now about 3% of sales.

So still relatively small part of our business, but our focus is really not been driving the percentage of sales as much as trying to go drive the gross profit performance off of that category.

Okay, great.

Thanks, guys.

Yes.

Our next question comes from the line of Brian Alexander with Raymond James.

Please go ahead.

Thanks a lot.

Just a first question follow-up on an earlier question with respect to enterprise, Rich.

I know you have called it a challenging enterprise environment for the last couple of quarters.

I guess there was a smaller competitor last night that indicated in that April and heading into May, it looks like the enterprise segment might have picked up for them significantly.

I'm just wondering if you could comment on whether that has changed for you guys in April and as you look forward into the second quarter.

You're seeing an uplift in enterprise outside of the tough comp that you referenced.

Yes, I would tell you that I won't disclose where we are so far in the month of April just because that's not our pattern of doing that, but I will tell you the enterprise segment, comparing Q4 to Q1, we definitely saw an uptick in our performance in the enterprise segment, which obviously we're going to be looking to maintain that.

And all indications given the cross-selling activity, given some of the changes that a new leader have brought to that business, I think is well positioned to start to see some momentum come out of that segment.

Great.

And then just a follow up, I agree with you that the gross profit dollars growth is probably a better way to look at the company now with Software Spectrum in the mix.

Are you guys able to break out the growth in gross profit dollars for hardware versus software in your two major regions, North America and the UK?

Yes, I mean Brian, that's definitely something we can go take a look at for future releases and see if we can split that out to date, we have not done that.

This is actually the first quarter we have actually called out the hardware, software services on the revenue side, so we'll take that as one of the action we can go look at for future quarter releases.

Okay.

Then just on the UK gross margins, I think they were down fairly significantly year on year.

And I think 11.75% roughly was where you came in in March.

The traditional Insight UK business I think has operated closer to the 14% range and I wouldn't have expected the Software Spectrum inclusion to have drag down gross margin percentage so much.

That said, the growth in Europe was significantly more than I would have expected.

So, I'm just trying to understand, are you guys thinking about growth versus profitability differently from a strategic perspective?

In Europe, for example, are you getting more aggressive, going more on offense in terms of growth and maybe giving up a little bit of margin?

Just talk a little bit about the dynamics there.

Sure.

Knowing in Europe, specifically the UK business, we have gotten aggressive in a very tough market.

Specifically in the public sector product category -- I mean public sector client segment, we've had some significant wins.

I think we've highlighted in the past a win with this, somewhat of the equivalent of the GSA contract here in the United States, something called a catalyst contract.

We became a major player in that contract and the characteristics from a margin perspective off that contract are much less than historically we've run our business at there, and we're starting to see some of the impact of that show -- show up positively on the revenue side of the equation and -- but negatively on the gross profit equation.

But I would tell you the growth that we saw in the hardware business, which I think was 33% in UK, and all of our hardware business is in the UK, isn't coming just from the public sector.

We saw growth across all parts of our UK business and quite honestly, our UK business was the shining star in our first quarter and really did a great job and that -- then next shining star was the gross profit performance we saw coming out of our North American business.

Just a final one for me, and I want to wish Stan happy retirement.

It's been great working with you, Stan, and just along those lines, Rich, could you just talk a little bit about, you know, are you looking internally as well as externally for the next CFO in industry or outside of the industry?

Just generally what are you looking for in Stan's successor?

Thanks.

Sure, well, the very good news from my perspective is we got Stan helping us out for the next 120 days or so from a transition perspective.

But we have made the decision to go for an external search to bring a new CFO into the company.

Clearly, Insight is a more global company now than we have been in the past.

As we look to bring someone into the company, we're going to be looking for a CFO who brings with that person a strong international background that we can go leverage to continue to go obviously deal with the opportunities that we see out there from a global perspective.

We've contracted with Spencer Stuart to go do an external search and that is starting as we speak and we'll be looking for candidates and bring the best candidate into our company over the next -- we anticipate over the next 120 days or so.

Great.

Thanks a lot, guys.

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

Go ahead.

Good morning, guys.

Hi, John.

Just real quick, Rich, could you talk a little bit about mySAP just a little bit more?

You talked about the 100 SMB accounts, the reps that have it.

Can you talk about the changes you really saw on the productivity line and deeper dive into what's really the difference now?

I assume that's a major part of this productivity increase.

Yes, no, I tell you, we rolled out in March basically to 100 SMB sales rep and along with that rollouts went about two weeks of training prior to the rollout, so they got comfortable with the new system and the new -- and I'll talk a little bit about a couple of those in a second.

From a productivity perspective, we did see for the first couple days, which the good news is couple days, a little bit of a downturn from the productivity, but as we move through the first two weeks and got towards the quarter closed, productivity bounced back up to the levels we were seeing before.

So that is one of the reasons why we felt so good about the pilot, is we didn't see any material impacts from productivity perspective off the system.

And when I say material impacts, obviously, we wouldn't have expected any when we roll out a system, but you always expect a little bit as you just introduce the system, just until people get a chance to get to know the system.

So that is going quite well, and we're in the midst over the next week or so to go week to two weeks roll out another 300 users on the system.

So the pilot is now moving into full scale rollout, which we'll be executing, obviously, to get us to the point of being done by mid 2007.

In terms of what the reps are really seeing different, there are quite honestly quite a few things.

Let me just highlight a couple.

One of our goals was to get our sales reps and our sales team to be able to spend more time on selling activities, engaging with clients, understanding their needs, being that trusted advisor that you've heard us talk about strategically so many times.

One of the things we've concluded in our own system is they are spending a lot of their time in the order process, I mean tracking their orders, did it ship, working on that kind of stuff.

So we've streamlined a lot of the order management functions to basically let the system do what in the past reps had to do.

So for example, we've rolled out a tool which we call WIMO, which stands for where is my order, which basically is a red/green light kind of dashboard that allows a rep to go at any point and pull up all his current orders and see anything that's rated a green, don't worry about it, everything is flowing through the system perfectly, anything that's got a red, click on it, because it'll tell you what the problem is and it will tell you, hey, it's a problem, but it's not in our area, so don't worry about it.

Or hey, Mr.

Sales Rep, you have the wrong part number, so go back and fix it.

So it allows them to be more focused on selling activities versus I wonder if all my orders are going through okay.

So let me go spend an hour today digging into each individual order.

This little tool, which is just one small example of what we're going to get out of mySAP called WIMO allows our reps to be much more proactive in managing their client relationships and much less in the involvement of the day to day sales orders and sales process.

Or order process, I should say.

And there's several other examples of that.

The real concept of mySAP, just to remind everyone, was try to go automate more of our business processes so we don't have to have as many manual interventions, so that our whole organization, whether the sales person to be more productive spending more time with clients or in the back office that we have people who don't necessarily have to touch every order to go move it from stage 1 to stage 2 to get it from order receipt to actual shipment.

To actually automate a lot of those processees and that is where we think we're going to get long-term productivity from this, as well as it enables this whole global footprint because now we'll have a platform and we can go introduce to EMEA or go introduce to Asia-Pacific, which I think is a powerful concept for our business on a long-term basis.

Okay.

Thanks for that, and, secondly, can you just talk a little bit about -- obviously talked about the head winds on the product margin, Stan, a little bit.

I mean you talked about mix was positive.

Obviously development fees and the fees and somewhat seemed like they are down.

Can you talk about the sourcing issues at this point?

Well, from a sourcing point of view, you mean -- what do you mean, John?

I'm sorry.

I'm a little lost.

Just as far as you talked about some of the -- some of the fees that you're getting were down a little bit, some of the head winds that are going against that gross profit margin.

Well, first of all, there's always a continual pressure on just general hardware product margin that's going to be that way.

The positive news is that there's a continuous shift in Microsoft for the netting aspect that is going to put a positive, upward trend on it.

So while there's -- there's this continual GP pressure that we've always had since the inception of a company, the good news is is we have some other things going the opposite way.

Now, the bad news is that doesn't count in revenue as much, and that's why we want you to focus so heavily on the gross profit dollars, because we think that's very important.

Now, having said that, a couple things that I think is worthwhile that Rich mentioned earlier, I think there's some potential for some wind in our back and that's when Vista comes in and these other software makers come through with some of their new products out there.

So I think there's certainly some wind in our back that can -- can occur, and then, plus, I believe there has been a lot of significant positive changes within the organizational structure that will hopefully start to boost sales within the enterprise area and continue to boost sales within the small to medium business area.

So while there's some downward pressures, there's a lot more upper opportunities that I think we have that -- that if we execute right, hopefully will bode well for the company.

Thanks, Stan, and appreciate all your help.

And that's more guidance than you've given in the last 10 years.

Thanks.

Thanks, John.

Well, I think -- I think that's the last question that we had in the queue.

Again, I would just say, to summarize, coming out of the first quarter, coming out of the integration being complete with Software Spectrum, I would tell you inside of Insight, we feel quite bullish.

We -- the momentum that we saw in 2006 clearly continued into 2007.

We believe obviously top line growth of 53% from a revenue perspective and 21% from a net earnings perspective and coming in at $0.30 -- $0.36, or excuse me, $0.35 from an EPS perspective versus $0.29 last year is a very strong result.

I think sets us up well going into calendar year 2007, and as we go into 2007 Q2, I would just say, I would like to say thanks to our valued teammates, clients and partners on the first quarter has clearly been an exciting, as well as a successful quarter, and we are all very excited about the second quarter as we embark on what is typically a seasonally strong quarter for the new Insight.

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

Ladies and gentlemen, thank you for your participation in today's conference.

That does conclude the presentation.

You may now disconnect your lines.