Insight Enterprises Inc (NSIT) 2008 Q2 法說會逐字稿

Good day and welcome to the second quarter 2008 Insight Enterprises Incorporated earnings conference call.

My name is Candace and I will be your coordinator for today.

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

We will conduct a question and answer session after management's remarks.

(OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's conference, Ms.

Glynis Bryan, Chief Financial Officer.

You may 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, 2008.

I am Glynis Bryan, Chief Financial Officer of Insight Enterprises; and joining me is Rich Fennessy, President and Chief Executive Officer; and Mark McGrath, President North America and Asia Pacific.

If you do not have a copy of the earnings release that was posted this afternoon and filed with the Securities & Exchange Commission on Form 8-K you will find it on our website at Insight.com under our Investor Relations section.

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 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 material that is accurate only as of today, August 11, 2008.

This call is the property of Insight Enterprises.

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

Also, please note that during today's conference call management will refer to certain non-GAAP financial measures when discussing the second quarter financial results.

Specifically, these non-GAAP financial measures will exclude the goodwill impairment charge taken during the quarter and the tax effect of this item.

A reconciliation of non-GAAP measures was included in the earnings release we issued today and will also be posted on the Investor Relations section of our website.

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 in greater detail in our annual report on Form 10-K for the year ended December 31, 2007.

Insight Enterprises assumes no obligation to update any forward-looking statements.

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

Rich.

Thank you, Glynis.

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

We're pleased with the performance of our overall business in the second quarter.

On a consolidated basis we reported net sales of $1.4 billion, up 9% year-over-year and gross profit also grew 9%.

Earnings from operations excluding the goodwill impairment charge taken during the quarter were $46 million, up 6% over the $44 million recorded in the prior year quarter.

The Q2 2008 results include approximately $3.5 million in severance and restructuring expenses while the second quarter of 2007 results include $2.8 million of severance expenses and $4.3 million of expenses associated with our stock option review.

Diluted earnings per share was $0.58 excluding the goodwill impairment charge, but including the severance expenses I just mentioned, up from $0.54 last year.

Our EMEA segment recorded very strong results in the second quarter.

Net sales increased 15% to $382.3 million, and gross profit grew an impressive 25%.

Net sales in our hardware category in the U.K.

returned to positive growth during the quarter reflecting actions taken late in Q1 and our software and services categories in EMEA performed very well, posting sales growth of 21% and 33% respectively.

We're especially pleased with our performance in certain new markets like Russia.

For example, where we won our first significant new client as a result of our decision to establish a local presence in the country.

Overall, the market in EMEA continues to be challenging though we believe we're well positioned to continue to grow profitably.

To give us more flexibility, during the second quarter we eliminated 28 positions in the region.

As a result, we recorded severance expense of approximately $2.2 million during the quarter and are targeting $1.5 million to $2.0 million in annualized cost savings from these actions.

Also we are excited about the acquisition of MINX in the U.K.

which we announced just a few weeks ago.

While MINX is relatively small today, generating approximately $25 million per year in net sales, this strategic acquisition gives our U.K.

organization a stronger market position within the fast-growing networking category and provides us with a gold level certification from Cisco in the United Kingdom.

Over time we expect to leverage this acquisition along with the Calence transaction that we closed here in the U.S.

in April to build out our global capabilities around networking similar to what we enjoy today in the software category.

Our Asia Pacific operating segment also had a very strong second quarter, more than doubling its net sales and its earnings from operations compared to the second quarter of 2007.

The decision we made in the first quarter to invest in 13 new sales professionals in the region clearly paid big dividends during the quarter.

We also are pleased by our performance in new markets like China where we grew 77% year-over-year.

Now onto North America.

Net sales in our North America segment increased 4% to $957 million in the second quarter.

These results include the results of Calence, the acquisition we closed on April 1, which more than offset declines in our legacy hardware business.

We are very pleased with the performance of the Calence acquisition so far and look forward to continuing to grow our networking business faster than the market.

Calence is neutral to EPS as expected but contributed to the growth in both sales and gross profit during the quarter.

Going into the second quarter we were concerned about the uncertain outlook of our software business and put in place detailed plans including the creation of a cross functional team to drive daily sales efforts around Microsoft and incentive programs for our sales teams to ensure we optimize the quarterly results.

Those plans worked very well and coupled with Microsoft's strong efforts enabled us to achieve solid results during the quarter.

Net sales were relatively flat compared to our record setting second quarter of last year but added even higher gross margin.

Excluding Calence, net sales in our hardware category were down in the second quarter across all of our client sets reflecting the difficult market we are faced with in 2008 as clients rationalize their CapEx spending and the fact that we have yet to fully regain lost ground associated with our IT systems migration that began at the end of the second quarter of last year.

As it relates to the market, we continue to see very aggressive pricing during the second quarter.

As a result gross margins in North America were 14.2%, down a little over 30 basis points compared to the second quarter of last year but reflecting notable improvement over the 80 basis points decline we saw year-over-year in the first quarter of this year thanks in part to the contribution of the higher margin networking managed services business from Calence.

Just a few updates on internal initiatives before I hand over the call to Glynis.

First our IT system upgrade project continued to progress during the second quarter.

Net sales to SMB clients increased 7% compared to the first quarter of this year reflecting the progress we are making to improve the web experience on our new IT platform and win back clients.

We are also still on track to complete the migration of our legacy U.S.

based hardware and services business by the end of this year.

Second, on our last call we indicated that we were going to look deeply into our organizational structure to identify ways to reduce our expense profile by also increasing our effectiveness.

In just a few minutes Mark McGrath will take you through the organizational restructuring effort we implemented in our U.S.

business during June and July.

As part of that effort we separated 44 people from the business, and recorded severance expense of $1.3 million in the second quarter.

We are targeting $2.5 million to $3.5 million in annualized cost savings from these actions.

We are generally pleased with our North America results in the second quarter and feel we have regained some of the ground we lost in the first quarter, particularly in our SMB business.

Having said this, we still have our work cut out for us in the second half of the year as we continue to compete in a challenging demand environment.

So we are reiterating our previously issued guidance that we expect full year 2008 diluted earnings per share to be between $1.50 and $1.60 before the goodwill impairment charge, severance, restructuring and other nonrecurring charges.

This outlook reflects our current slightly more positive view on our software business given its performance in the second quarter offset by continued concern over the overall hardware market and the expected benefits of the expense reduction actions we implemented in the first half of this year.

Now I will ask Glynis to provide more details on our second quarter 2008 financial performance across each of our operating segments.

Glynis.

Thanks, Rich.

Starting with our North America segment, net sales grew by $33 million or 4% to $956.9 million.

This included the benefit of the Calence acquisition which we closed at the start of the quarter.

Calence contributed to our hardware as well as our services performance in the quarter.

Hardware grew 2% in the quarter as sales from Calence offset the decline in our legacy hardware business.

Our services sales were up over 100% in the quarter, reflecting double-digit growth in our legacy services business and the addition of Calence to our portfolio.

Please recall that the professional consulting and managed services businesses at Calence were key drivers of the acquisition.

Software sales were relatively flat this quarter when compared to the record level net sales reported by the software team in the second quarter of last year.

Gross profits grew by $1.8 million or 1% to $135.9 million.

The growth in services and software gross profit generated by the legacy business and the acquisition of Calence more than offset the decline in hardware gross profit.

Gross margin was 14.2% versus 14.5% reported last year.

This decrease is primarily due to decreases in product margin which includes vendor funding and was primarily driven by market pricing pressures.

These decreases were offset partially by the improvement in gross margins resulting from increased sales of services which are typically at higher margins.

Selling and administrative expenses increased $5.2 million or 5% to $106.3 million compared to $101.1 million reported in the prior year quarter.

The 2007 second quarter results include $4.1 million in expenses associated with the Company's stock option review.

The total increase year-over-year is entirely due to the acquisition of Calence.

In fact, selling and administrative expenses in the legacy Insight business were down year-over-year due to the tightened expense management initiatives we've been focused on over the past two quarters.

Excluding the goodwill impairment charge taken in the North America segment which I will talk about in just a moment, our North America business reported earnings from operations of $28.3 million which was down 6% compared to the second quarter of last year.

A few more details on the Calence transaction.

Calence performance during the quarter met our expectations.

We had anticipated -- as we had anticipated, Calence was neutral to EPS in the quarter but had a positive impact on net sales, gross profit, and earnings from operations.

Also we have completed our preliminary purchase price allocation and we recorded $29.2 million of intangible assets other than goodwill with varying average lives.

Annual amortization associated with these intangibles will be approximately $4.8 million in 2008 and approximately $3 million in 2009 through 2012 and then declining thereafter.

Moving on to our results for EMEA and APAC.

As Rich pointed out, net sales in EMEA increased 15% and excluding the benefit from foreign currency net sales increased 7%.

These great sales results are a testament to the strong sales model and execution in this region given the challenging EMEA IT market.

Gross profit in EMEA grew $11.3 million or 25% while gross margin increased 116 basis points to 14.7% due primarily to increases in product margin which includes vendor funding as well as increases in agency fees for Microsoft enterprise agreements.

Selling and administrative expenses in EMEA increased by $6.6 million year-over-year.

The increase is primarily due to increased salaries and wages, employee related expenses and contract labor of approximately $5 million due to increases in sales incentive programs and employee head count.

Also the effect of currency exchange rates between the weak U.S.

dollar as compared to the various European currencies in which we do business accounted for approximately $2 million of the net year-over-year increase.

Earnings from operations in EMEA increased 22% to $14.1 million.

These results include $2.2 million in severance expense reported during the second quarter of 2008.

There is not much more to add to Rich's comments about our APAC segment.

Net sales grew 112%, gross profits grew by $3.9 million to $9.5 million.

We are getting leverage in our operating expenses as operating expenses as a percentage of net sales declined this quarter to 9.5%, from 13.6% last year.

We're definitely getting the payback from the investments we made in the first quarter to expand sales expertise in this region.

On cash flow, our operations generated $52 million in cash flow during the second quarter.

We used $35 million to repurchase shares of our common stock, and an additional $9 million was invested in capital expenditures during the quarter.

We also acquired Calence in the quarter and funded the transaction with $125 million of debt under a new debt facility.

We ended the quarter with $110 million of cash of which $62 million was resident in our foreign subsidiary.

We announced in our first quarter call that a sustained significant decline in our stock price would likely cause us to perform an interim goodwill impairment test and could result in a noncash goodwill impairment charge.

Based on the price of our stock at June 30, 2008, and during the second quarter, the market value of Insight was less than our book value and therefore implied that one or more of our operating segments could also have a fair value less than book value.

Simply put, the sustained significant decline in our stock price in the second quarter required that we perform the interim goodwill test.

Based on the results of the impairment testing, the goodwill in our North America segment is impaired and requires that we write off all of the goodwill in North America.

This is a pre-tax [$340] million charge and about $201 million after tax in our consolidated financial results for the second quarter.

This is a noncash charge and does not impact our borrowing capacity or violate or change any of our debt covenants.

There was no goodwill charge in either EMEA or Asia Pacific.

That concludes my comments, and I will now turn the call over to Mark.

Thanks, Glynis.

As Rich referenced earlier the North America team was very focused throughout the quarter to gain back the momentum we lost in the first quarter, and I believe we're making progress.

Our initiatives around software helped us deliver solid financial results for that portion of our business in the second quarter.

The integration plans we put in place relative to the Calence acquisition helped us successfully integrate that business into Insight as a strategic networking team, and we continue to make the progress on our IT systems upgrade project.

In addition, the expense actions we took in the first half of the year helped reduce our cost base and will provide us flexibility to continue to execute against our strategic objectives.

To continue to strengthen our business for growth, we also concluded in the quarter that we needed to restructure many aspects of the U.S.

business not only to become more efficient from an expense perspective, but also to continue to evolve our approach to gain profitable market share as part of our global VAR strategy.

Here are the main highlights of the organizational changes.

First, we merged our SMB enterprise sales organizations into a single client facing team.

As you know, we had historically operated separate sales organizations for enterprise and SMB.

The SMB team had been predominantly telesales led with some field coverage and our enterprise team had been field led with inside sales support.

While both of these organizations have strong skills and deep client relationships, having two organizations created redundancy, client coverage inefficiencies, and in some cases hurt our overall ability to drive accountability across the team to penetrate net new clients.

We believe by combining these teams we can better leverage one of our strongest assets which is our outstanding field selling skills with our excellent telesales skills to create better market coverage, improve sales rep productivity, and create greater accountability across the team.

We also announced the positioning of three specialty teams that are distinctly focused on software, networking, and services within our coverage model.

As a specialty these teams will have deep expertise and will work with our client facing teams to help identify and close incremental business around our solution areas.

The final organizational changes relate to our client support organizations.

We are consolidating our marketing and product management teams to drive greater synergies and alignment with our partners.

And we are consolidating all of our presales support resources into one organization that will support all sales teams.

We believe that by having one leader with one set of processes, tools, and metrics, we can greatly enhance the level of support to our sales teams and clients that accelerate sales productivity improvements.

All of these changes are exciting, and part of the natural evolution of our organization in support of our trusted adviser value proposition for our clients designed to fuel our continued success.

I will now turn the call over to the operator to open the line for your questions.

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

Please proceed.

Thanks.

Good afternoon, guys.

Just on the implication of your guidance, Rich, the $1.50 to $1.60 range which you provided last quarter and implied you would do about $0.51 to $0.56 this quarter excluding charges, and I think if you back out the charges this quarter you did about $0.63, so you had some pretty meaningful upside this quarter.

You also commented that your software business performed better than expected, and I know that was a key concern coming into the quarter, and the expense savings which you've outlined today should give you some additional benefit going forward as well, so just given all that I am wondering why the range for the year didn't go up, what are the main factors in your mind that are keeping you from raising that $1.50 to $1.60 in light of the upside and all the factors I mentioned?

Sure, Brian, good to talk to you.

First and foremost the expense actions that we took in 2Q as well as 1Q, and the benefits of those expense actions, actually we took it in consideration when we created the $1.50 to $1.60 range on the last call so we knew we were going to take, as we called it out on last earnings call some actions in the second quarter which we took and we think they're the right actions that will get our expense structure to where it needs to be, but as it relates to looking at our 2Q results was clearly better than we were anticipating, and also we're very pleased by that.

Really we see two things.

One is we are a little bit more optimistic on our software business which we called out and we see that playing out through the second half year, but at the same time we're actually quite concerned about the hardware market and all the uncertainty we're seeing in the marketplace today relative to CapEx and people looking at their desktop notebook server spend and whether they can defer those projects into the following year, so we're actually looking to slower hardware growth in the second half of the year than we originally were expecting, that offsetting some of the upside that we saw from the software business in the second quarter.

It is a combination of those factors, as well as if you just look at the general uncertainty of the market and as I think we go in the second half of the year, obviously we're looking to go try to go drive the type of performance we did in the second quarter, but as we look at it, we think it's overall going to be a very slow demand environment.

Is it fair if I just look at the rest of the year similar to how last year played out where just from an EPS perspective, I know last year you were surprised by the negative seasonality in the third quarter and you ended up coming in at $0.21.

It sounds like for the rest of this year, you're assuming kind of flattish EPS growth or do I have that incorrectly and maybe some of the quarters you're going to see growth and some of the quarters you're going to see a decline year-over-year?

If we did exactly what we did from an EPS perspective in 3Q and 4Q, we would come in right around $1.55 for the full year which is right in the middle of our range.

As we look at it, that's probably a fair assumption trying to go figure out how you would drive at least year to year flat and obviously our goal is to drive year-over-year improvement.

If I could just switch gears to the hardware business in North America, if I back out what my assumption is for Calence, it sounds like that business did about $75 million in the quarter and I think I recall maybe three-quarters of that being hardware from previous calls.

So if I back that out, it looks like your hardware business in North America might have been down somewhere around 8%, maybe 10% year-on-year which is a little bit greater of a decline than you saw in the first quarter and I am just wondering how much of that accelerated decline do you think was market weakness versus more exacerbation from your system issues versus maybe a decision to walk away from unprofitable business given the pricing actions you talked about from competitors?

A combination of a lot of factors, as -- given the way we've integrated those two businesses together obviously we don't call out Calence versus non-Calence business today but as we did call out we did see in the hardware business a year to year decrease across all customer sets in our hardware segment.

As you recall, we have 60% enterprise mix for the most part North America, 32% or so SMB and 8% or so public sector, and in the enterprise space we are clearly seeing our clients scrutinize their CapEx spending very much, so we're seeing that show up in terms of a year to year growth.

As it relates to our SAB migration, we do actually feel good on the SMB side of the equation that we made progress in the quarter and we feel good about the 7% quarter to quarter growth from the first quarter to the second quarter that we're actually winning back some of the lost ground.

So on the SAB side, we see that trending and we see 3Q hopefully improving beyond that and 4Q the same as we finish our migration by the end of this year.

In the enterprise space as well as the public sector as it relates to state and local, we are seeing some concerns on hardware which again we try to take into consideration as it relates to restating our guidance of $1.50 to $1.60.

Maybe just a couple more.

It sounds like on Calence you're not going to be able to provide any more breakouts there and I was just going to ask if there is any way to help us think about the gross profit and EBIT contribution excluding any noncash amortization charges that you're taking or maybe at least if you can't do that, let us know qualitatively if there is any reason to believe that that business isn't operating at the levels it was operating at when you closed on the deal?

Actually, overall you do see in our earnings release obviously the networking category which is now we've asked Mike Fong, who was the CEO of Calence now actually run that combined business, and he is doing that today, so we've integrated the two businesses together, and you can see overall some -- and you will be seeing every quarter just how that networking category is doing.

As it relates to the second quarter, obviously we closed on April 1.

Overall I would tell you they had a very strong performance in our first quarter of ownership.

It was one of their historical highs in terms of growth, and we are very pleased three months into it in terms of just how that business is playing out inside of Insight.

And should we still think of that as kind of a mid-single digit EBITDA margin business or is there any reason why that's changed?

There is no reason why that's changed.

Finally, just on Asia which was obviously a big upside surprise at least for me and probably for you, anything unique there you want to drill into in terms of maybe some large deals that won't recur, was there any pull in ahead of the Olympics or anything because I heard you say China was up something like 70%.

I'm just wondering if there was anything unusual in that quarter or you do you think we're at a pace right now where that business is going to continue to grow substantially year-over-year?

Thanks.

Yes, I think since the Software Spectrum acquisition, not having every number in front of me, we've had -- we've been pleased every quarter with the kind of performance we've seen out of Asia Pacific, and they definitely had a very strong second quarter as I said nearly doubling, from what they did second quarter last year both on an EFO as well as net sales, and the nice thing about the results, there was not one, two, key transaction.

It was just general health across all the countries we're in, so that business, we moved a new leader back to run that business and she continues.

She has been now back for several months now.

She did a very good job in the quarter and as we look at our Asia Pacific business going into 3Q and the second half of this year, we are expecting to continue to seeing good things from that business.

I will tell you the strategy we've had, because we all know the U.S.

economy is a tough one.

The strategy of diversifying both in Europe as well as Asia Pacific is playing out just the way we'd hope it would with the kind of growth that Stuart enjoyed in Europe as well as the kind of growth our Asia Pacific enjoyed really offsetting some of the exposure we see in the overall U.S.

market and obviously as we look at the investments we're making we're looking to continue to fuel that.

If you look, for example, on head count growth in EMEA you see roughly substantial head count growth in our sales organization in EMEA and it is really part of our strategy is how do we continue to fuel that as we weather some of the storms of the uncertain demand environment we have in the U.S.

marketplace.

Okay.

Thanks a lot, Rich.

Our next question will come from the line of Matt Sheerin of Thomas Weisel Partners.

Please proceed.

Just a follow-up on a couple of Brian's questions.

Just regarding your commentary on hardware demand, it definitely -- you definitely sound a bit more cautious on the second half than you did in the first quarter, but certainly you're not alone.

A lot of your competitors and distribution suppliers have said the same thing.

I guess if you could just drill down a little bit more, did you see pushouts late in the quarter or are there anything kind of broadly speaking that customers are telling you that they're putting things on hold now?

No, I wouldn't say it was end of quarter type phenomena.

I would say throughout the second quarter we saw -- the only thing that was a little bit more surprising to what we saw in the first quarter is the level of slowdown in the enterprise segment from what we were expecting because first quarter we definitely saw a March where all of a sudden that really slowed down, and that was like, anyway it was different than what we experienced in January and February as it relates to enterprise.

I would tell you enterprise throughout the second quarter was just a slow quarter and we see that as one of the things we are concerned about going into the second half of the year is CapEx spending instead of just being deferred from first half to second half perhaps being pushed off all the way to 2009.

That's helpful, and then you talked about pricing pressure in North America in the hardware business.

Have you found that due to the fact that you did lose some customers because of the migration of your IT systems and MySAP that you've had to go and be a little bit more aggressive on pricing to bring customers back?

We're definitely aggressive in the marketplace, but I would say we're not unique and I think we're seeing that across the board in terms of -- we're down 80 basis points as we called out in 1Q year to year and now we're down 30 basis points, so we're actually pleased a little bit that we saw a little less price deterioration quarter to quarter.

Part of that is driven by the fact we just have Calence in our mix now, they have the higher margin offsetting some of that decrease on a year to year basis.

I don't think the pricing aggressiveness in the marketplace is anything unique to us winning back customers.

I think it is just more a factor of slow demand and everybody trying to go win the business that does exist out there.

Okay.

And then switching geographies to the U.K.

where it sounds like hardware sales is bouncing back a bit, sounds like the demand picture is better, how much of that do you think is attributed to the market there versus just improvements in the overall business and your infrastructure?

I think it is improvements in our business versus the market strengthening.

I think the U.K.

market is very close to the U.S.

market in terms of an overall demand picture, and as we called out in the first quarter call, in the first January and February we had some slowness in that business and we made some leadership changes and some just overall design changes for how we're going to market and we started in March and we saw some improvements late March going into April which we called out on the call for our first quarter results.

I will tell you those improvements played out through the whole second quarter and we believe that the leadership team under Stuart Fenton and his team have really fixed the issues we did have and we're really pleased, we definitely believe we gained market share as it relates to the U.K.

marketplace from a hardware perspective.

Okay.

Thanks.

Just lastly, just a quick question for Glynis on the interest expense.

Is that going to be similar this quarter than it was last quarter?

(inaudible) quarter versus second quarter, yes, but we've acquired the Calence acquisition.

That was a big driver of the increase in our overall debt, that related to interest expense and short of market rates changing, etc., you should anticipate it is going to be similar.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question will come from the line of John Lawrence of Morgan Keegan.

Please proceed.

Good afternoon.

Hey, John.

Rich, could you go and maybe Mark wants to discuss it a little bit as far as talk a little bit about just to get in the system just a little bit as you look at these clients that you have on both sides of -- they're trying to do the software business and the hardware business, is there a pushback because of the system that causes some of that as they cross over or is that not where the issue is?

No, no, we don't have any debt because we are running our software business through the legacy Software Spectrum IT system and we're running the Insight business through the legacy Insight system, and from a customer perspective quite honestly that's working quite nicely.

They don't mind the fact we had it merged to one system.

The only thing that we believe we're not seizing all of the opportunities we would like to seize is internally the concept of cross-selling and trying to leverage with that client, the software client, we never bought hardware trying to go sell hardware to them, we believe we have now levered that to the extent that we can which is one of the factors behind our restructuring.

The whole concept of restructuring our sales approach which is a dig deal in terms of bringing our SMB and enterprise businesses together was really designed to do two things.

One is to go drive more cross selling by leveraging these specialty teams that we have positioned around our front end call it the general sales organization.

And, two, was ready to go after those net new opportunities.

So in this slow demand environment clearly when you have a set of customers who have been doing a certain amount of spend with you and they start to slow, you can either just weather that storm or you can try to redirect that sales talent to go win back net new business and we believe by going through this restructuring we just went through which we announced about four weeks ago is that we can go get back and start being much more aggressive from a net new win perspective.

So the end result is there is less people that know more about what's happening at that account across segments?

Is that the way to look at it?

No, John, I would tell you I would look at it that you've got enterprise field team now teamed with an SMB tele team so you have got in terms of client facing exercise in many cases more resource and then with these specialties around networking and services and software you've got absolute clarity of which specialty organization to bring in to go drive that cross-selling.

So we think that combining this is more productive, less redundancy, more clarity with the client, and in fact we think we're going to get more client facing resource in front of that client set.

Great.

One of the things that's a typical concern any time you hear somebody going through a sales restructuring is is there going to be a disruption to the business, and one of the things we're very focused on through this effort in addition to getting more efficient is trying to make sure we don't disrupt any existing client buying relationships.

So there is no client that has a relationship today with an Insight salesperson who doesn't today as a result after the action still have that same relationship with the same sales rep.

So that was very important to us unlike other actions you've seen some of our other competitors take where you break the relationships and you see a dip in your sales productivity.

One of the design points in our restructuring of our sales team was to maintain the client relationship with their existing sales rep which we've been able to do which we believe will allow us not to see the downturn but at the same time go get that sales team now focused on net new clients as well.

Great.

Thanks.

(OPERATOR INSTRUCTIONS) This concludes the question and answer portion of today's conference.

I will turn the call back to management for any closing remarks.

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

We are pleased in today's challenging market environment with the results we were able to demonstrate and post here in the second quarter.

We're also pleased with some of the action we've taken like the closing of the Calence acquisition on April 1, the closing of the MINX acquisition in the U.K.

and now this restructuring of our sales approach.

We think the combined effect is really a better go to market approach from a sales perspective as well as stronger capabilities around our solution areas in line with our strategy to be a global VAR that we've been able to pull off here in the second quarter.

As we go into the third quarter to the fourth quarter obviously our design is to continue to go drive improvements from an execution perspective, and we look forward to sharing those results with you on upcoming calls, so thank you very much.

Thank you for your participation.

You may now disconnect.

Have a great day.