Insight Enterprises Inc (NSIT) 0 Q0 法說會逐字稿

Good day, ladies and gentlemen.

Thank you very much for your patience, and welcome to the Second Quarter 2007 Insight Enterprises, Incorporated earnings conference call.

My name is Bill, and I will be your conference coordinator for today.

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

We will be conducting a question-and-answer session towards the end of today's conference.

(OPERATOR INSTRUCTIONS) .

As a reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today's call, Mr.

Stan Laybourne, Chief Financial Officer.

Please proceed,

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, 2007.

Joining me, Stan 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 8-K, 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 will remain on our website for a limited time.

This conference call and the associated webcast contains time-sensitive information that is accurate only as of today, August 7, 2007.

This call is the property of Insight Enterprises, Inc.

Any redistribution, retransmission, or rebroadcast of this call in any form without the 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.

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

These risks are discussed in today's earnings release and also in greater detail in our annual report on Form 10-K for the year ended December 31, 2006.

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

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

Rich?

Thank you, Stan.

Good afternoon, everyone.

Wow, did we have a great quarter.

I am very pleased to announce that Insight posted a record quarter, with great financial results across all operating segments.

Seasonally, this is our strongest quarter of the year for software sales, but we also benefited from very strong results for our hardware and services categories.

Specifically our consolidated quarterly net sales were $1.28 billion, a 64% increase over the second quarter of 2006.

While gross profit dollars grew an even stronger 81%.

Additionally, net earnings from continuing operations were $26.8 million, and diluted earnings per share for continuing operations were $0.54, an increase of 74% compared to $0.31 in the second quarter of last year, and the highest in the Company's history.

These second quarter 2007 results include expenses of approximately $4.3 million, $2.6 million net of a tax for professional fees associated with our stock option review, and $2.8 million, $1.7 million net of tax, for severance expenses.

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

First, I would like to highlight our quarterly performance.

We had very strong financial performance across all our operating segments.

Within North America, our software category grew 315%, largely due to the acquisition of Software Spectrum.

Hardware declined 1%, and our services grew 26%.

We were pleased with the sales results in all categories, including hardware, which had a difficult year-over-year performance comparison.

Specifically, included in hardware sales for Q2 2006 was the large one-time Cisco rollout to one of our largest clients, which has contributed approximately $50 million to net sales.

Excluding this large sale from Q2 last year, North American hardware sales growth exceeded 8%, which we believe is faster than the overall IT hardware market.

Additionally, we saw growth over prior year and sales to large enterprise, S&B and public sector clients.

Finally, we continue to be encouraged by our success in identifying and winning cross-selling opportunities with our client.

Our EMEA segment also capitalized on our strongest quarter for software sales, and achieved very strong results across all regions.

In total for EMEA, our software category grew 1000%, largely due to the acquisition of Software Spectrum.

Hardware grew 18%, and our services grew 220%.

Lastly, our APAC segment continues to perform very well, leveraging its software expertise within the geography and now extending its reach into services by winning some key software asset management services engagements.

Due to our outstanding technical expertise, service capabilities and strategic IT solution categories, and strong relationships with our partners, we have been honored over the past few months with several awards from our key partners.

The awards include the Microsoft Operational Excellence Award, received at Microsoft 2007 Channel Partners Summit for the fourth consecutive year.

The Operational excellence award recognizes Microsoft partners that meet or exceed all published measurements for partner performance.

As one of Microsoft's largest resellers, we are continuing to expand our scope of technical resources to help clients optimize their software environment.

We are very pleased to be recognized for achieving this Excellence Award.

Cisco Commercial Partner of the Year, this designation awarded at the 2007 Cisco Partner Summit is testimony to insight's certified and expertly trained account executives.

Outstanding technical capabilities and year-over-year growth, with Cisco Commercial clients.

Additionally, we were recently certified by Cisco as an advanced technology partner for network-hosted storage.

Our U.S.

operations also achieved HP Storage Elite Partner status, and HP Awarded its Pro Curve Elite Certification to our S&B Sales division, making Insight one of the only National Pro Curve elite partners with client focus on S& B, Enterprise and public sector.

Our recognition as an HP Storage Elite Partner underscores our exceptional competencies in delivering and supporting enterprise-wide storage and networking solutions.

Additionally, we were recognized by CA as the North American Elite Partner of the Year for our commitment to value-added software solutions.

Not only are we honored to receive these prestigious designations from our valued partners, but they are also a testament to our abilities to deliver as a trusted advisor to our clients.

Helping them enhance business performance through innovative technology solutions.

We continue to believe that our breadth of hardware and software offerings, teamed with our depth of technical certifications, expertise, and service capabilities, uniquely differentiates us as a global value-added reseller in the marketplace.

Another highlight of our quarterly performance relates to our mySAP upgrade in the United States hardware and services business.

We have now successfully deployed mySAP across a large portion of our hardware business and we'll be completing the final steps of the rollout by the end of the third quarter.

Looking forward, the next steps in our IT road map are to deploy mySAP to our software operations in the United States by mid-2008 and to our geographic operation outside the U.S.

over the next two years.

We have engaged WinPro, a Global IT services provider to assist us with the future conversion of our software business, and the Global phase of our mySAP rollout plan.

A final highlight in the quarter, we were focused on closing the investigation into Insight's past stock option practices and completing the filing of delinquent SEC filings.

We are pleased to announce that on July 26, 2007, we did complete the filings, which included restated historical financial statements.

Notably, the Company's operational results for fiscal years 2004, 2005 and 2006 were not materially effected.

The cumulative additional non-cash stock-based compensation expense for all historical periods effected was 47.4 million, or 30.9 million, net of the tax effect of the restatement adjustments.

We are still considering ways to address certain additional tax consequences to employees relating to Section 409-A of the Internal Revenue Code.

However, we currently estimate that the Company will spend less than $200,000 to address these issues.

As noted earlier, professional fees associated with the option review were approximately 4.3 million during the quarter.

We expect to spend approximately 3 million in the third quarter related to costs incurred to finalize our option review, and the restated financial statements, as well as continuing our cooperation with the SEC in its ongoing informal review of our historical stock option practices.

Overall, it was a very exciting quarter, as all aspects of our business gained positive momentum.

Our teammates are operating in unison, as the new Insight, and our clients and partners are benefiting from this enhanced value proposition.

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

Stan?

Thanks, Rich.

Our North American sales increased 39% from 665 million for the second quarter of 2006 to 923.9 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 across hardware, software and services, and particularly pleased with our gross profit growth of 58% and earnings from operations growth of 54%.

Again, given that certain products and services, such as software maintenance contracts and third-party warranties are recorded as net revenue under GAAP, and that 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 our North American operations was 1336 at June 30, 2007, up from 1274 last quarter, and 1034 last year.

We continue to see productivity improvements, as gross profit per account executive in the second quarter was approximately $103,000, an increase of 27% over the second quarter last year.

Given the second quarter is seasonally our strongest quarter, we saw a sizable increase in productivity compared to last quarter as expected.

Gross margin increased to 14.5% from 12.7% in Q2 2006, and from 14.4% last quarter.

The increase in gross margin from the second quarter of 2006 was due primarily to increases in agency fees for Microsoft Enterprise Software agreement renewals, decreases in inventory write-downs due to improvements in the aging of inventories, and increases in the sales of services.

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

The slight increase in gross margin from last quarter was due primarily to increases' in agency fees for Microsoft Enterprise Software agreement renewals, offset partially by decreases in product margin, which includes vendor funding.

Selling and administrative expenses, as a percentage of net sales, were 10.9%, down from 12.2% last quarter and up from 9.8% in Q2 2006.

Compared to Q2 2006, we have seen increases in salary and wages, primarily resulting from the acquired business, sales incentive plans, and bonus expenses due to increased overall financial performance, $4.1 million of stock option renewal -- review expenses for professional fees associated with our stock option review, and amortization of intangible assets.

Compared to Q1 of 2007, the decrease in selling and administrative expenses as a percentage of net sales is due primarily to the increase in net sales.

Additionally included in North America this quarter are approximately $2.8 million of severance expenses.

Overall, North American earnings from operations increased 54% to 30.3 million for Q2 2007 compared to the same period last year.

Our EMEA operations, which included only the United Kingdom in the second quarter of 2006, recognized net sales that were up 188% from $115.3 million in the second quarter of 2006 to $331.9 million in 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, which also help drive gross profit growth of 159%, and earnings from operations growth of 297%.

Our gross margin in EMEA segment decreased to 13.6% from 15.1% in Q2 2006, and increased from 11.8% last quarter.

The decrease in gross margin from the second 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 increases in agency fees for Microsoft Enterprise Software agreement renewals and decreases in inventory write-downs due to improvements in the aging of inventories.

The increase in gross margin from last quarter was due primarily to increases in agency fees for Microsoft Enterprise Software agreement renewals and increases in product margins, which include vendor funding.

Selling and administrative expenses as a percentage of net sales were 10.1% in Q2 2007, a decrease from 12.6% in Q2 2006 and an increase from 9.8% last quarter.

The decrease from Q2 2006 was due primarily to the increase in sales, offset partially by increases in salary and wages, primarily resulting from the acquired businesses, sales incentive plans, and bonus expenses due to increased overall financial performance, and amortization of intangible assets.

Also included this quarter is approximately $228,000 of expenses for professional fees associated with the stock option review.

The increase from last quarter was due primarily to increases in sales incentive plans and bonus expenses, due to the increased overall financial performance and increases in recruiting expenses.

Overall, our EMEA segment achieved earnings from operations of $11.6 million in Q2 2007, up 297% from $2.9 million in Q2 2006.

Our EMEA operation, operating results translated into U.S.

dollars continued to benefit from the continued weakening of the U.S.

dollar against our functional currencies in EMEA, particularly the British pound sterling and the Euro.

Our APAC segment, which was added as a result of the acquisition of Software Spectrum, recognized net sales of $27.6 million, gross profit of $5.6 million, and contributed $1.8 million to earnings from operations in Q2 2007.

Our gross margin and operating margins in APAC were 20% and 6.6% respectively for the second quarter.

The effective tax rate on continuing operations for Q2 2007 was 38.5% compared to 34.8% for the second quarter last year.

The increase in the effective tax rate was due primarily to a tax benefit recorded in Q2 2006 for internal initiatives that reduced certain state income taxes.

Additionally, the effective tax rate is higher in Q2 2007, due to an increase in non-deductible expenses related to executive compensation.

Our net foreign currency exchange gain was $3 million in Q2 2007 compared to $7000 in Q2 2006 and $655,000 last quarter.

These net gains consist primarily of foreign currency transaction gains or losses, including those for enter-company balances that are not considered long-term in nature.

The increase in the net foreign currency exchange gain is due primarily to increases in business transacted outside of the U.

S.

as a result of the acquisition of Software Spectrum, and the continued decline in the value of the U.S.

dollar against currencies we transact business in.

Specifically, the Canadian dollar, the Euro and the British pound sterling.

Turning to the second quarter cash flow, given the second quarter's seasonally our strongest quarter, we benefited from a strong cash flow, which enabled us to reduce our outstanding debt by $60 million during the quarter.

Additionally, we are seeing improvements in our cash conversion cycle, particularly days payable outstanding, as we continue to focus on ways to improve our return on invested capital.

Although we are continuing our stance of not providing guidance, we would like to remind everyone again that we do not expect notable seasonality -- 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, particularly the second quarter.

Additionally, we observed a significant effort this quarter by vendors and clients, to complete software transactions in Q2.

Although this contributed to our great results in Q2, with significantly exceeded our internal targets.

We expect that our strong performance in Q2 will increase the seasonal decline we would typically expect in Q3.

As a result, we currently expect Q3 to likely be our weakest quarter of 2007.

That said, overall, we still expect roughly 25% to 30% of our 2007 net sales and gross profit, and 30% to 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.

Thank you very much, sir.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Brian Alexander of Raymond James.

Please proceed.

Yes, Stan, just to pick up on that last point about Q3 being the weakest quarter of the year, could you put that into context?

First of all, you're referring to EPS and if you are, are you including or excluding the charges you called out a $3 million charge that you're expecting for the third quarter.

So I'm just wondering, is that including or excluding from your calculation?

And when you compare that to Q1, you did $0.32 ex-charges, but I think you did 28 including, so I'm just trying to get the right baseline and comparison for that comment you just made.

Right, good question, Brian.

First of all, that excludes those charges and it does relate to EPS.

So put that in the right perspective, so I'm glad you brought that up.

So we're looking at EPS in the third quarter that's probably going to come in less than Q1, which was $0.32.

Just trying to get order of magnitude.

Are we looking at a dramatic shortfall from that Q1 performance, or is it going to be in the ball park of where you were in Q1?

You always want more, Brian.

No, we're-- I think you've got to look at it in context that we did say that still, there's 25 to 30% of net sales and gross profit and 30 to 35% of your earnings from operations will come in that second and fourth, with the balance coming in the first and the third.

I think the two of those are not going to be skewed dramatically apart from each other, so my reaction is it's not a dramatic down from there, but it certainly is the weakest quarter.

And we just wanted to make sure that you understood that, given the seasonality of the business.

This is Rich.

Just to add comment to that, I mean one thing we've been trying to go communicate through each of these calls is just the implications of now having a significant portion of our business in the software category.

I mean seasonally, obviously, the third quarter is a low demand quarter from a software perspective.

With that said, I mean the software category has performed very well for the first half and we do anticipate that it will contribute to us over achieving our internal targets for the full year, so overall, the software category is strong.

You see that in our first half results.

It's just a function of now the seasonality of the business is what we'll see kick in in the third quarter.

So maybe just to add insult to injury for Stan, since this might be his last conference call, if we were to do the math on those ranges that you provided in terms of the percentage of profits for each quarter of the year, given that you've already reported the first half of the year, if you kind of do the math for the second half and the full year, it implies you're on track to do as low as $1.60 in EPS and as high as $2 in EPS.

I don't know if you have done that calculation, but I was hoping maybe you could check my math.

Well, we've certainly looked at all those things, Brian.

We haven't given any guidance from the full year, just what we told you earlier, so I think we'll stick with that.

All right.

My last one, Rich, just updated commentary on your views of sort of where we are in the licensing cycle.

I know it's been a big driver of your business.

Are you anticipating any deceleration or major slowdown in terms of growth on the software side of the business, given that you've had such strong results, or do you expect this to continue for the rest of the year?

No, I'll tell you, we are bullish in the software business overall.

The strength we saw in the second quarter, clearly I think you also saw it and you made comment on Microsoft, had strong results.

I think the important thing on the Microsoft results, it was being driven by really the strength of the entire portfolio.

It was just Vista driving our licensing associated with Vista.

It's really the strength of the whole portfolio that kicked in.

So we're still quite bullish on the software category bot just across Microsoft but across all the major publishers that we represent in the marketplace.

The other thing that gets us bullish about is really the cross-selling opportunity we see and we start to see the results that have show up and it clearly showed up in the second quarter.

One data point, just to give you perspective, when we got together, I guess it was September of last year at the-- our analyst meeting in Chicago, we talked about the fact that we had a great cross-selling opportunity.

Just to give one data point to you, to kind of follow up on that conversation, one of the data points we shared was that there was 8800 S&B customers that Insight had sold to historically that had not bought any software from Insight in the last two years, and clearly we view this as a great opportunity to go now leverage the World Wide capabilities that Software Spectrum has to start cross-selling towards those clients.

As the result of the efforts we've been putting in place through the U.S.

as well as around the world, but in the U.S.

specifically and this data point, 17% of those clients, or about 1500 clients, are now buying software from us.

So it really has demonstrated to us that the concept of really trying to take these capabilities that we have acquired from a software perspective and bring them into our historic client base and start to cross-sell, it really is working and I think it's one of the big drivers in the results that we saw in the second quarter.

Then just lastly, you touched on cash conversion and a little bit about return on capital, which is something you haven't done in the past.

I was just wondering, Rich, when do you think you might be prepared to share with us specific ROIC targets and than also, beneath that some of the specific action plans that you have to improve ROIC?

And that's it for me.

Sure.

Brian , as you as know because we have talked about it.

We have inside the organization started to put some focus on the return invest to capital.

Focus a lot of the working capital aspect and the cash conversion cycle and we clearly saw some great improvements from an accounts payable perspective in the quarter, which drove some strong cash generation which we feel really good about the debt that we were able to pay down the quarter.

So I think we ended the quarter about $145 million in debt.

From where we were with the acquisition to where we are, we feel very good about, again, the cash coming off the business.

In terms of metrics and targets from ROIC, we're still kind of young in the process in terms of really understanding the variables and how to go best manage that.

I think from an expectation perspective, our next analyst meeting, which will be early 2008, first quarter, it's probably the best time for us at that time layout kind of how we plan to measure that inside of our company, as well as share with you some metrics that you can measure us

Okay.

Thank you.

Nice job.

Thanks.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Jason Gursky of JPMorgan.

Please proceed.

Good afternoon, guys.

I just was looking perhaps for a little bit more detail here on the severance charges or the restructuring charge that you took this quarter.

Was this a part of some larger restructuring that's to come at this point or where were the severance packages going this quarter?

Just a bit more detail on where, where that came from and where we're going from here.

Jason, specifically that was associated with Stan's separation and his retirement from Insight, so predominantly those costs were associated with that 100%, in fact.

Okay.

So it is not a reflection of any additional severance or restructuring going on in the business.

Okay, great.

Second was you talked a little bit about 8% year-on-year growth in the hardware business here in North America, ex the large transaction that you had at this time last year.

And you touched on the fact that both the S&B public and larger are growing here in North America.

Can you just give us a little bit better sense of where the strength is coming from across those three buckets, so to speak?

I know you've had some challenges in the more recent quarters and then with some of the larger corporate.

Has that turned itself around at this point?

Yes, I mean from an overall demand perspective, we did see strength across all three client segments and improvements from what we've seen in previous quarters across all three client segments, S&B, Enterprise and public sector.

In terms of individual, which was stronger, I mean public sector, just because of the seasonality of that business, obviously was a very strong segment for us in the quarter.

We don't break it out specifically.

I would tell you the enterprise segment, which for the last several quarters, we've been talking about weaknesses we've had in enterprise.

We really started, as you know, I think we called it out in the first quarter call, we've made leadership changes, as well as just the benefit of now having a stronger value proposition to those enterprise clients.

By that I mean being able to go offer software, hardware and services, really started to show up in the results.

So we saw a very strong result across our enterprise segment in the second quarter.

Okay, great.

And then I'm not sure if I got this down correct.

For next quarter's 3 million and expenses related to the stock option investigation, but I also, I thought I heard you say something about 200,000.

Was that to come out of Europe?

You're right.

You heard both numbers.

The first number, the $3 million is associated with what we anticipate the legal and professional fees to be in the third quarter, as we try to go close out all of the items that are associated with the stock option review.

The $200,000 was the anticipated amount for covering the tax implications for the employees that were impacted by having wrong days issued with the options that they received.

So the tax aspect of that, which we believe we have a responsibility to cover the employee for, we anticipate to be around $200,000.

Okay.

That makes sense.

And then just two last bookkeeping ones from you really, the tax rate, your expectations on the tax rate going forward?

And then just an update on the CFO search as well.

I'll do the first one, Jason.

And then Rich can do the second.

On the tax rate, 37 to 39%, which is what we've said in the past.

So that's a range that I would continue to do going forward.

And relative to CFO search, I would tell you it's moving ahead nicely.

I have been very pleased about the level of interest we've had and the level of candidates that have been coming in the door for the interview process.

We've now gone through kind of the second interview stage with our top candidates and right now I'm bullish that we'll be able to go complete the search sometime in the third quarter.

So the overall CFO search is going along nicely, thanks.

Okay.

Thanks, guys.

Thank you very much, sir.

Again, ladies and gentlemen, if you do have a question, please key star followed by one.

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

Please proceed.

Good afternoon, guys.

Hey, John.

Rich, would you talk just a little bit about, dive in a little further on the mySAP?

Obviously, strong quarter.

What you're seeing productivity wise there as you look forward into expanding it, what gives you, makes you real bullish about what's happening there?

Sure, thanks.

Overall on the mySAP project, obviously it's been a big project that we've been working on for quite a bit of time.

As we exited, and as we exited the second quarter pretty much we have it deployed across about 80% of our clients in the U.S., the hardware and services business, and about 80 -- excuse me.

About 50% of the order volume is now going through mySAP and about 40% of the revenue is now going through mySAP.

So as we move through the second quarter, we got a material part of our business running on the new system and then the next step is really completing the migration of the remaining 20% of our clients, which we believe we'll have all done by the end of the third quarter and actually the final stage, which we believe will also be done by the end of the third quarter, is migrating, the back office, warehousing, distribution function onto mySAP.

So our current view is we exit 3Q, we'll be running on one system for our U.S., hardware and services business.

And then the next steps will be migrating the software business off of the Software Spectrum legacy systems onto mySAP, which we believe will be the second quarter of 2008 timeframe and then obviously we have the whole World Wide deployment strategy that we have been working on to actually bring mySAP across the world into EMEA and Asia-Pacific.

In terms of the productivity and the cost synergy savings opportunities, clearly as we look at deploying the system, we deployed mySAP and made the investments for two reasons.

One was the productivity of trying to go automate more of our business processes, as well as get our sales team more engaged in trusted advisor, sales activities versus order management activities.

Early signs are that our development of the application are going to do just that.

As you would imagine, as you introduce a new set of tools, new processes, we're still in the learning phase of the mySAP project.

So in terms of material changes this year, in terms of much higher levels of productivity, we don't anticipate in our 2007 budget, so as we go into 2008 and we have the system kind of deployed by the end of 3Q and actually everybody's used to it in 4Q, I think it will drive some higher levels of productivity from a sales perspective in our 2008 business plans for the U.S.

business.

As it relates to cost synergies, clearly there's some cost synergies opportunities associated with closing down the legacy Software Spectrum systems and moving them onto the mySAP platform, which again, is something we believe will be an event that will be inside our 2008 plans as we complete that project plan.

Great, thanks.

And just one last question.

As you talk about the cross-selling opportunities and obviously this is seasonally strong for software, can you talk a little bit how it's working back the other way as far as the Insight customers not buying software, what about the reverse side of the hardware side of the business and then lastly, what was the most pleasant surprise you saw throughout the quarter?

Yes, the -- on the first question, yes, we are seeing examples, especially in the enterprise space, where we're going into Legacy software clients and getting them to now start to do hardware and services engagements with Insight, and we've had numerous examples and wins in that category.

In terms of actually a hard metric, in terms of, say, 18% of the clients have migrated, used to be software clients, now buying hardware, software and services, some of that data, quite honestly, is a little difficult to pull together, just given the mySAP deployment because basically we have end users getting transacted through three different systems, for parts of the quarter.

MySAP, the old SAP, as well as the old software system, so some of the data is a little difficult to pull together, which is why I didn't share with you the reverse metric of how we're doing selling into the software clients, hardware, though I would tell you just from the rooms we're running and the reports we publish internally, because every time it happens we obviously publicize it and try to get a lot of hype inside the organization, we've definitely seen an increase in the wins in terms of us going in and selling hardware and services to software clients.

So, again, it's another good data point.

As we get into our 2008 planning and we have one system running our business, I think we will also be able to publish better metrics for you and give you a better feel for that aspect of our business, though I would tell thank you is happening and it was one of the big things that helped us have a very strong second quarter.

Relative to what was the best surprise about 2Q, I would tell you it was a quarter where everything hit and everything came through the way we hoped it would.

All three geographies over achieved their budgets, so EMEA, Asia Pacific, North America, all three client segments, Enterprise, S&B, Public Sector, did very well.

All product categories, hardware, software, and services did well.

So it was kind of a perfect storm on the positive side in terms of all parts of our business really clicking, which quite honestly is a testament to I think the leadership team inside the Company, who is just working very, very hard each and every day to make sure that we leverage what we have and go out there and try to go grow the business and I think second quarter was a great example of when everything comes together, we can really post some very, very strong results.

Thanks.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from the line of Andy Hargreaves of Pacific Crest Securities.

Please proceed.

Hi, guys.

Just wondering on the vendor receivables, you mentioned that a couple times as being down.

I know you have been working on reducing your vendors actually in an effort to increase receivables.

So can you just talk about the dynamics there?

Yes, so specifically, Andy, this is Rich, again.

I mean I think the comment that was made in the speech was talking about vendor funding and we've received associated with all the incentive programs that our partners put in place to go drive our sales activities and our marketing activities.

Now, we obviously do not give specific information on the SAR programs and I would tell you that the level of the relationship that we have with each of our key partners has never been stronger, so I feel very good about the programs and the activities we have with each of our partners, but typically partners are always looking for ways to go improve their P&L, so they are always looking for ways to either reduce their investments, redirect their investments in other categories that they want to go drive activity in, and that just kind of the nature of our business model and it's been like that forever.

And we continue, we continue to go operate in that environment.

And with that said, we always are trying to focus on maximizing the client experience and decline what they want, but at the same time understand what our key products and technologies, they want to bring to the marketplace to make sure that we're leveraging those programs that they put in place to go have us drive those technologies.

One update I would give you relative to a partner program, our largest software partner has made some changes associated with their program that have gone into effect as of August 1, which basically changes how we earn referral fees on enterprise agreements.

And it clearly has the potential to reduce the overall amount of referral fees we earn on any individual enterprise agreement.

However, as clearly one of the largest software resellers with a strong solution set of capabilities around procuring and deploying and managing software licenses, we believe we're very well positioned to manage around these programming changes.

Basically, again, what that partner is trying to go do, I pay you a certain amount of money today for transacting an enterprise agreement, I'm willing to have the same amount of money available to you, but you need to do a different set of activities.

Specifically, those set of activities are around helping clients deploy software, helping manage their software licensing inventory, and the term we use is software asset management, and clearly they are looking for partners with services capabilities to go do those activities with their client.

I think Insight is uniquely positioned in the marketplace, because of our strong services business, because of our strong software licensing business that we acquired from Software Spectrum actually depart may very well in the new designs of the program that has been put in place effective August 1, but it does represent some change that we got to go implement in our business and we'll have to go learn through that over the last five months of this year in terma of how to go maximize that program for the benefit of our P&L.

Okay, and then just on the account exec's, looked like you hired more than I was expecting.

Was that planned, and what's the out looking for forward?

Yes, no, as we talked about in the past, 2007 is really not about significantly increasing the size of our sales force.

Our focus has really been on driving the productivity and integrating the two sales teams and realigning our coverage models and implementing a T-base selling model.

What you saw in 2Q, which was a spike of additional sales, resources, is really just a timing statement.

I mean we clearly had a very large training class come on, right towards the end of the quarter and I think you're seeing that show up in the sales resources, which is good.

Our ability to recruit strong teams, we, we just brought a new training class out, we typically bring one on almost every month.

We're pretty encouraged by the level of talent we're bringing into the organization, because I think they see some of the things we've been talking about in terms of the upside opportunities and I think what you're seeing in terms of sales head count growth is really just being driven by the incremental training class come in.

Okay.

Thanks.

Thank you very much, sir.

Ladies and gentlemen, I would like to hand the call back over to our speakers for any closing remarks.

Well, again, thank you very much for joining us on today's call.

It is obviously a great opportunity to talk about the most successful quarter in the Company's history.

I would like to say thank you to our valued teammates, clients and partners for making the second quarter just a great quarter.

And again, thank you all for joining today's call.

Thank you very much, sir, and thank you, ladies and gentlemen, for your participation in today's conference call.

This concludes your presentation, and you may now disconnect.

Have a good day.