Insight Enterprises Inc (NSIT) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Insight Enterprises conference call.At this time, all participants are in listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions).

I would now like to turn the conference over to your host for today, Glynis Bryan, Chief Financial Officer.

Please proceed.

Thank you.

Welcome, everyone, and thank you for joining us the Insight Enterprises conference call.

Today we will be discussing the Company's operating results for the quarter and full year ended December 31, 2010.

I am Glynis Bryan, Chief Financial Officer of Insight, and joining me is Ken Lamneck, President and Chief Executive Officer.

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 Investor Relations section.

Today's call, including the question-and-answer period, is being webcast live and can be accessed via the Investor Relations page 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 information that is accurate only as of today, February 14, 2011.

This call is the property of Insight Enterprises.

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

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

All forward-looking statements made on this conference all are subject to the risks and uncertainty that's could cause our actual results to differ materially.

These risks are discussed in today's press release and in greater detail in our annual report on Form 10-K for the year ended December 31, 2009.

With that I will now turn the call over to Ken to give you an overview of our fourth quarter 2010 operating results.

Ken?

Hello, everyone.

Thank you for joining us today to discuss our fourth quarter and full-year operating results.

I'm very pleased to report that we continue to see strong demand for IT products globally in the fourth quarter, which resulted in double-digit growth in constant currency across all of our segments.

Consolidated net sales increased 14% in the fourth quarter to $1.3 billion, up from $1.2 billion in the fourth quarter of last year.

On a constant currency basis, consolidated net sales grew 15%.

Gross profit was $172.6 million, up 11% year-over-year, and gross margin was 12.9%, down from 13.2% in the fourth quarter of 2009.

Earnings from operations increased 38% to $37.3 million, or 2.8% of net sales, compared to $27.1 million or 2.3% of net sales, reported in the fourth quarter of 2009.

Net earnings and diluted earnings per share were $25 million and $0.53 in the fourth quarter of 2010, compared to net earnings and diluted earnings per share from continuing operations reported in the fourth quarter of 2009 of $17.4 million and $0.37.

Within these results, our North America operating segment reported 21% growth in its hardware category, and 16% growth in the software business.

Sales of hardware grew sequentially each quarter throughout 2010, as clients refreshed their aging IT environments, particularly with new notebooks, desktops and accessories.

Our software category experienced typical seasonality throughout the year and for the full year grew 9%, with demand for virtualization, business optimization and creative software solutions leading the way.

We are pleased with the operating leverage on our cost structure in the fourth quarter and throughout the full year in North America, which led to annual earnings growth at more than 3 times the rate of sales growth in this segment, excluding severance and unique items in both years.

In EMEA we saw growth of 11% in constant currency in the fourth quarter, driven primarily by the seasonal strength of our software business and expansion of our services sales in this region.

For the full year, our EMEA team grew sales growth of 18% in constant currency despite continuing economic turbulence, and grew earnings from operations approximately 49% on a constant currency basis, excluding severance and unique items, in both years.

In Asia-Pacific sales increased 16% in constant currency in the fourth quarter, and gross margins expanded to 16.4% due to higher mix of fees from enterprise agreements.

This segment also grew earnings from operations in 2010 more than 70% on constant currency basis, excluding severance expense in the 2009 period.

The technology refresh cycle provided a nice tailwind for our business in 2010, and I believe our team executed very well to make sure we participated in the market recovery, and even grew share in certain categories.

At the same time we focused on several key initiatives, including the roll-out of our new sales engagement model in North America.

and our IT systems project in EMEA.

As I look back at my first year as CEO of Insight, I am proud of the team have built and the progress we have made to position our Company for the future.

As we head into 2011 we have clearly defined long-term strategy that will keep us focused on our immediate priorities.

Our first priority will be to grow market share profitably and organically.

In North America we'll continue to invest in our sales force and are planning to add 30 salespeople per quarter, and we'll also invest in customized training programs for our sales force to ensure they have strong multi-category knowledge to sell across our broad offerings.

We'll also be highly focused on penetrating our total of adjustable market, or TAM, and cross-selling into our existing client base, and we'll seek to capitalize on more profitable business through partner specific incentive programs, including deal registration.

To drive this part of our strategy ,we recently imported new leadership to run our US sales organization and our US product marketing team.

In EMEA and Asia-Pacific, we'll continue our strategy to gain market share in the middle market and public sector client groups, and because we currently don't sell software in the countries in our footprint outside of the UK, we would look to grow our hardware capabilities in key markets throughout Europe beginning the second half of 2011.

Second, we'll continue to expand our higher-margin surface capabilities to be more relevant to our clients.

We'll focus on data center, virtualization, networking, software and life cycle management services.

And we'll also be proactive in building our presence in certain new technology areas, such as the cloud.

Third, we will invest in our IT systems to ensure we have a common platform from which to grow in future years.

In EMEA we plan to commence the roll-out of our new IT system in select markets in the second half of 2011.

In North America we have recently launched an IT integration project that we expect will take a couple of years to complete.

The goal of this initiative to is to bring disparate operating systems acquired through various acquisitions into one common SAP platform.

Lastly, we will be disciplined in managing our controllable cost structure and improving productivity throughout the business.

In 2011 we are undertaking a Company-wide initiative to define and track productivity metrics in every function within the Company.

This visibility will help us to manage and rationalize investments as we execute our long-term plans.

As we work on all these initiatives we will measure our progress on several fronts.

Market share growth, client penetration, productivity, and goal attainment, and obviously improvements in our financial results over time.

I will now hand the call over to Glynis, who will discuss the fourth quarter and full operating results of our business segments.

Thank you, Ken.

Starting with North America, net sales were $915 million in the fourth quarter, up 17% from the fourth quarter of 2009, and up 5% sequentially.

Sales in our hardware category increased 21% year-to-year and 1% sequentially, due to generally higher volume particularly in the large enterprise and corporate client groups.

Sales in our software category increased [16%] (corrected by company after the call) compared to last year, due primarily to higher volume with multiple publishers, and were up 16% sequentially due to typical seasonality.

Sales of services declined 10% year-over-year, due primarily to a large client engagement in 2009 that did not recur in this year.

Gross profit in North America for the fourth quarter increased 9% year-over-year, to $113 million, while gross margin decreased to 12.3% from 13.3% in the prior year.

This change in margin reflects 109-basis-point-decline in contribution from lower volume and margin-on-services sales, partially offset by an increase in the benefits from trade credits released during the quarter of 20 basis points or $2.2 million.

Selling and administrative expenses for North America in the fourth quarter were up $2.7 million to $89 million from the $86 million reported in the fourth quarter of 2009.

But, as a percentage of sales, decreased 9.7% compared to 11% in the prior year's fourth quarter.

Within these results, employee expenses increased $6.5 million in this year's fourth quarter, due to investments in headcount and related benefits, and higher variable compensation on higher sales.

The prior year's results includes $2.9 million bad debt reserve adjustment for delinquent client balance that was subsequently collected in the second quarter of 2010, as well as a $1.1 million in restatement-related legal and administrative expenses.

We also recorded $861,000 of severance and restructuring expenses in this segment in the fourth quarter this year, and there is no severance recorded in the fourth quarter of 2009.

As a result, earnings from operations in North America were $23.5 million, or 2.6% of net sales in the fourth quarter of 2010, up 32% from the $17.8 million reported in the fourth quarter of 2009.

Moving on to EMEA.

Our EMEA operating segment reported net sales of $366 million, up 4% in US dollars.

In constant currency, net sales increased 11%.

Also in constant currency sales of hardware grew 2%, software sales increased 15% and sales of services increased 64%, compared to the fourth quarter of last year, due primarily to higher volume across all client groups.

Gross profit in EMEA was up 9% in US dollars, and up 16% in constant currency terms, while gross margin expanded to 13.7% from 13.1%.

Within these results, increases in margin on higher products and services sales offset a decline in margin from a lower mix of agency fees from software enterprise agreements.

Selling and administrative expenses in EMEA in the fourth quarter were up 5%, or $2 million in US dollars, and in constant currency, were up 12%.

This increase year-over-year was primarily driven by higher variable compensation and sales incentives on increased sales.

EMEA also reported $408,000 in severance expense in the fourth quarter of 2010, compared to $1.1 million in the fourth quarter of 2009.

As a result, earnings from operations in EMEA were $10.5 million in the fourth quarter of 2010, up 37% from the $7.6 million recorded last year.

In APAC, our Asia-Pacific operating segment reported net sales of $58 million, up 25% from the prior-year in US dollars, and up 16% in constant currency terms.

Gross profit was $9.5 million, an increase of 62% year-to-year, and 50% in constant currency, while gross margin was 16.4%, up from 12.7% in the prior-year quarter, due to increased margin on higher product and services sales and a higher mix of fees from enterprise agreements.

Selling and administrative expenses in APAC increased 49% year-over-year, or approximately $2 million, and 38% in constant currency terms as a result of increased headcount and higher variable compensation on increased gross profit.

As a result, our Asia-Pacific segment reported earnings from operations of $3.3 million, which was up 95% from the $1.7 million reported last year.

Moving on to the tax rate.

Our effective tax rate for the fourth quarter was 30.1% compared to the 23% in the prior-end quarter.

In this year's fourth quarter, we recorded $1.6 million in tax benefits from the recapitalization of our one of our foreign subsidiaries.

compared to $3.3 million recorded in the prior year for similar event.

Moving on to our working capital and cash flow performance.

In the fourth quarter, cash flow from operations was $61 million, compared to $3 million in the same period in 2009.

We invested $5.3 million in capital expenditures this quarter, compared to $3 million in the last year's fourth quarter.

And we leveraged our newly expanded inventory financing facility that contributed $50.8 million in additional cash flow in the quarter.

As a result we ended the quarter with $124 million of cash, of which $110 million was recognized in our foreign subsidiaries and also had $90 million of debt outstanding on our revolving credit facility at the end of the quarter.

This compares to $68 million of cash and $147 million of debt outstanding on our revolving credit facility at the end of 2009.

Our cash flow cycle was 18 days in the fourth quarter of 2010, down five days from the fourth quarter of 2009, due primarily to additional usage of our working capital inventory financing facility in North America and the tightening cash management practices in EMEA, partially offset by an increased investment in inventory to support specific customer engagements.

On a consolidated basis for the full year of 2010, our net sales increased to pre-recessionary levels of $4.8 billion, reflecting 16% growth year-over-year.

Gross profit increased 14% to $646.1 million, while gross margins declined 30 basis points to 13.4%.

This margin decline results from a change in the mix of our business to higher hardware and software product sales and lower contribution from services.

In a year of notable growth, we continue to control investments in SG&A and as a result SG&A declined as a percentage of sales by over 130 basis points to 10.8%, and we incurred less severance and other unique charges this year.

all of which resulted in an earnings from operations improvement of 135% to $124.1 million.

Interest expense declined year-over-year on lower debt balances, and the fact that interest accrued on our property liabilities in 2009 did not recur this year.

Our effective tax rate for the full year of 2010 was 34.5%, up from 26.3% in 2009.

The effective tax rate in both periods was less than our expected normalized tax range of 36% to 39%.

In 2010, we recorded $1.6 million in tax benefits from the recapitalization of a foreign subsidiary, and in 2009 we recorded $4.8 million in tax benefits resulting from a similar capitalization -- recapitalization event and the true-up of certain foreign tax credits.

And finally, diluted earnings per share from continuing operations was $1.61, which is up from $0.67 per diluted share from continuing operations in 2009.

I will now turn the call back to Ken for his closing comments.

Ken?

As we have previously disclosed, the Company's largest software partner has informed resellers that it intends to change certain elements of its channel incentive programs effective in late 2011.

Additional details of the new programs have recently been announced, and as a result we've updated our analysis and now expect the full year 2012 impact to be between $5 million and $10 million.

The program changes will be finalized over the coming months, and in the meantime the Company is implementing action plans intended to help mitigate this expected impact.

For the full year of 2011, we expect our global IT market to grow in the mid-single-digit range.

We expect our business to perform better than this overall, and expect higher year- to- year growth rates in sales in the first half of the year, and lower rates in the back half, given the growth we experienced throughout 2010.

This dynamic is largely driven by our hardware category, as we expect typical seasonality in 2011 in our software category.

We currently expect gross margin for the full year to approximate the gross margin we experienced in 2010.

And as I said earlier, we intend to continue to invest in our sales force and our IT systems integration projects in North America and EMEA throughout the year.

As a result, we expect diluted earnings per share for the full year of 2011 to be between $1.70 and $1.80.

This outlook does not include any severance or restructuring expenses.

Thank you again for joining us today.

That concludes my comments, and we will now open the line for your questions.

(Operator Instructions).

Your first question comes from the line of Matt Sheerin from Stifel Nicolaus.

Please proceed.

Yes, thanks.

Good afternoon, everyone.

So first question has to do with the gross margin.

If you back out that elimination of the trade credit liabilities in the quarter, it looks like gross margin would have been closer to 12.

6% or 12.

7%, and then I know you got some benefits from some other quarters in the year, which would bring it down to -- from 13.

4% to 13.

1% or 13.

2%.

I'm just trying to figure out, number one, how we should think about those -- the elimination of those trade credit liabilities, how that plays out?

And when you gave gross margin guidance for 2011, which essentially is flat year-over-year, is that backing out those benefits?

So should we think about it on an apples-to-apples basis actually being lower?

So, Matt, good to talk to you again.

Our guidance for 2011 assumes a run-off of the trade credits that is at a lower run rate than what we experienced in 2010.

So the trade credits is front-end loaded.

To some extent we started taking the credits in the second -- third quarter of 2009.

On a go-forward basis, it's a more insignificant number going forward so that is baked into the guidance we have given you, the delta between the two years.

Okay, but just so I can be clear, the printed 13.4% gross margin which included some of those -- the elimination of the trade credits.

So if that starts to go away should we assume, then, that the actual reported gross margin for 2011 will be lower, or will you manage it so that gross margin will be at the 13.4% level.

Well, what we said was that our gross margin was going to be essentially the same as it was in 2010, so with the elimination of the trade credits there are clearly other parts of our business that we're growing that would make up for the delta that you're seeing in trade credits, and that's primarily a North America comment on the trade credits.

It's much more insignificant -- it's actually very insignificant in EMEA and APAC.

And so some of the benefits of gross margin then to offset that would be what?

The mix, or increased services?

It would be a change in the mix, and we have an anticipation in 2011 that we'll have a great percentage of our business coming from services.We had a decline in our services volume or sales in 2010, which we I think had stated at the beginning of the year when we gave guidance.

And we anticipate going into 2011 that services will return to its normal growth run rate.

Okay.

And then do you have a pretty good pipeline then into how the services business is looking?

We have a better pipeline going into 2011 than we had going into 2010.

Okay.

Great.

And then you talked about some restructuring and severance charges in I believe EMEA and North America.

Could you tell us what that was related to?

That's just some normal attrition and clean-up as we are going -- sorry, that's a horrible word to use.

I apologize.

That's just some normal changes with regard to our management team and consolidation of some functions as a result of the direction that we're taking and how we've reorganized the Company.

Okay, because that was about -- I think it was -- what was it, $800 --

IT was about $1.2 million globally.

That's a pretty significant number.

So could you just -- what kind of management changes, did you have layoffs?

We didn't have any layoffs.

It's -- in EMEA it was about I think three people in EMEA, and it was just some changes here in North America with regard to senior management that we changed.

Was that on the sales side?

No, it was not.

Could you tell us where it was?

It was -- it's in generic senior executive management within North America.

Okay.

And then so looking at SG&A in 2011, I know you talked about some initiatives, some IT upgrades, looking at adding a 30-people -- 30 salespeople a quarter or so.

So what should we think about the SG&A percentage?

Is there still leverage left or will it be in the same ballpark that we saw in 2010?

I think that our SG&A as a percentage of revenue is probably going to be slightly lower in 2011 because we have a productivity initiative that we're driving now.

We anticipate that our revenue is going to be growing above market, slightly above market, as Ken stated in the guidance, and we don't anticipate that our SG&A is going to grow at market, except for the initiatives that we specifically outlined, with regard to the sales and the IT integration and roll-out.

Okay, and just my last question regarding the tax rate.

What did you say the normal range was?

Was it 36% to 39%?

Yes, 36% to 39% is our normal range.

Is that what we should be thinking about for this year, that's in the EPS guidance of $1.70 to $1.80?

Yes, that is the EPS guidance of the $1.70 to $1.80.

Okay, great.

Thanks a lot.

Thanks, Matt.

(Operator Instructions).

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

Please proceed.

This is actually Nabil Hanano in for Brian Alexander.

I just wanted to follow up on the SG&A guidance.

So it assumes you're growing modestly below your revenue growth for 2011.

How long should these investments go on before we get to see some more leverage after you finish the hiring and the ERP implementations, just to kind of put a timeframe on that, please?

I think our ERP -- there's two.

There's one in EMEA and there's one in North America.

The EMEA one is going into a roll-out phase in the second half of the year.

The one in North America is just the starting, process requirements, planning gathering, so we wouldn't really see implementation or integration happening until 2012 as it relates to the North America piece.

So I would say that the benefits from the system integration will come through for EMEA in the -- in 2012, and for North America in 2013, although the costs go down from year to year.

One.

Two, we're investing in the 30 salespeople per quarter in North America, which started in July of 2010 in the third quarter of 2010, and we anticipate that while we'll start to see some benefit from the people that were hired earlier, the real benefit that you're going to see from the hiring will occur kind of late 2012 going into 2013.

It gets larger (inaudible -- multiple speakers).

No, that's helpful.

And then switching to the Microsoft program changes, you cut the midpoint by $5 million.

I was just wondering what changed from your previous forecast?

And then discuss some of the steps that you said you're taking to minimize the impact.

Yes, Nabil, this is Ken, so I'll address that.

So as you recall, we did issue a formal statement a couple months ago clarifying that we felt the impact would be $10 million to $15 million based on the data that we had.

We've obviously just updated that to $5 million to $10 million, and again that would be a 2012 number going forward.

So what changed it really was more specificity around the programs, that Microsoft -- as we had indicated, the programs weren't fully baked.

They still aren't yet but they're much, much closer.

So basically just running those analyses against the current customer set we have, we've been able to take that number down as far as what that exposure might be to us, so that's obviously positive news.

But it just -- it entails, as far as what we're going to do to mitigate it, of course, it's to really drive more and more towards the mid-market client set, and we've been positioning ourselves to do that here the past six months and we'll continue to drive that to hopefully mitigate that exposure going forward.

Okay.

And then turning to -- you had another strong quarter for North American hardware revenue.

You noted the enterprise segment was strong, but you only called out PCs, if I heard right.

So I just wanted to see if you were seeing any weakness from your large networking vendor, and then what are your thoughts on where we are for the PC refresh cycle for commercial PCs?

Yes, Nabil, yes we definitely saw certainly continued growth in areas of servers and storage, as well as in the networking segment, as well.

So that continues to be certainly a big market for us.

The reason we called out PCs is that continues to grow very, very -- it was very, very strong last year, as you know, with the refresh cycle.

We think that that's going to continue.

We think there still continues to be migration towards Win 7 as well as an upgrade cycle on desktops and notebook technology.

I don't think it will accelerate as much as it did last year, as there was so much that was pent up from the prior year-and-a-half where very little was done, but we still see in the commercial space there will be continued growth and upgrades occurring.

So do you -- would it be fair to say you still see it outpacing your overall revenue growth?

Yes, that could be a fair assessment that we think, from what we have visibility to right now, I think that would be a fair assessment.

Alright.

And then just my last question.

Ken, you've been there for a year now.

I was wondering if we could hear your thoughts on some of the things that have positively surprised you since you started, and also some of the areas that you think the Company has more work to do.

And then lastly, is the Analyst Day still on track for the middle of this year?

Yes, the last question, yes it is, we're trying to finalize the dates.

So we definitely will have an Analyst Day, as we indicated in the May/June timeframe.

We're just working the logistics of that to coordinate that but we look forward to that occurring.

As I indicated, some of the things that were positive surprises certainly was the obvious level of commitment from the Insight teammates, their expertise has been very, very positive.

Our ability to really deliver solutions to our clients, the services capability, the technical prowess that our team has has been very, very positive.

The things that we indicated we think there's still more work to be done and why we're adding more salespeople is we think we need to certainly expand our coverage model.

We've done a lot of work in and around.

As you know, we launched a pretty significant shift in July to really become one team, to eliminate any of the silos that's we had internally to operate really as one Company.

So that's been in place now for eight months.

So we're continuing to gain traction there and that's given us better line of sight to our clients and the solution they need, and a lot of rigor around what clients that we're servicing, and then, very importantly, what categories of products do we believe that we need to be selling, the appropriate training and obviously metrics in and around that to ensure that we're complying with that.

So that we think is a significant upside for us going forward and you'll continue to see us work on that.

The other one, of course, that we mentioned was the fact that we're inefficient operating with multiple ERP, systems so we're addressing that.

We've got good solutions that we put in place in July, so that we have the right reporting, the right information that our sales reps can use with their clients to make sure as they're tracking these multiple pieces of business, they've got the right business to manage it by.

But again, longer term, we want to take advantage of the SAP platform that we're on and to bring these onto that.

So that's the work that's laid out over here for the next two years to really bring that in in a very measured way, to deliver the efficiencies that we need.

Thank you very much.

That's all the questions I have.

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

Please proceed.

Thank you.

Good afternoon.

Ken, would you comment just a little bit on -- taking a little bit further, a deeper dive into the software category and talk about the gross margins.

What can you say about that $5 million to $10 million?

Is it a method of payment?

Is it being made up in other things as far as training, or how could you quantify that or qualify it at all?

Yes, sure, John.

As far as the $5 million to $10 million that we've talked about again for the 2012 number, it really has to do with fee structures that we'd received from our publisher in regards to that.

So as far as how we mitigate that, basically the publishers, in sending us to move into the client sets that they want us to, and they'll actually pay us, of course, accordingly to that.

So we're right now, of course, managing to understanding what those programs are.

There's -- as you know, this program doesn't go into effect until the calendar fourth quarter of this year, so there's been ample time for us to make sure we're addressing that.

But primarily for us, it's really driving more and more enterprise-type agreements into that mid-market get space for our clients.

So that's why we've done so much focus in and around what we call TAM to really identify those clients that we need to do a much better job at and to position ourselves to gain that.

So we've got a very detailed rigor around that, we've given assigned quotas to all of our sales management teams to make sure that they can deliver to those to make sure that when this does go into effect that we're best-positioned to mitigate any risk at that point.

So obviously what this speaks to is the fact that, as you see this program going forward and those pressures or headwinds, the Company's history has always been to be able to I guess be flexible enough to be able to offset some of those.

Yes, John.

As you recall, this isn't the first time this has occurred in the industry, and I would say that the benefit this time around is we have much better line of sight and we have way more runway to make the adjustments that we need to, to the models so that we don't have the impact that we experienced multiple times in the past years before this.

So we think this publisher's done a good job in giving us the notice and telling us very specifically how they want us to perform so we're on top of that and working very diligently to make sure we can recover that.

Great, thanks for that, and second question, you just were talking a lot about the implementation of a lot of the systems and a lot of the things that went into place with the sales realignment in July.

Can you give us some metrics or something, the way you're looking at the business of how that has progressed over the last six months and maybe some examples of how some things operated in December versus July that points to the success of that plan?

Yes.

We've got a very detailed list of metrics, things that you could assume such as market share, how we're doing against our competitors, which we track very, very diligently, as you know, using NPD data.

So we've been performing well, the last few quarters we've been able to gain share in those in specific categories that are tracked.

We also track attrition levels by our sales organization as well.

So we've got a whole key list of about seven or eight of these metrics.

We track these TAM clients, the penetration, we track the new TAM clients that we're actually bringing into the fold, as well.

So there's a list of about seven key metrics that we review every single month that really sets us on a course of how we're doing that, and of course client satisfaction being certainly one of those key metrics as well.

So all in all, I'd say we have -- I'm pleased with how the team has really executed in regards to that.

As you can recall, I know there was some anticipation of, wow that's a big thing to be biting off here, as you recall from three conference calls ago, but I think the team has done a really good job in really bringing that together so that we're much more efficient in how we address our clients.

We utilize the resources we have far more efficiently than we did in the past, we've eliminated a lot of the duplication of effort that was occurring.

So I think we're well positioned at this stage to approach 2011 and beyond here with a much more integrated sales, marketing, services organization to really address the clients' needs that we're confronted with.

And, Ken, I assume part of that is looking at the depth and how well you penetrate a certain account?Can you talk about that a little bit?

Where are we on that process?

Yes, so we do that by what we call categories, so we've outlined 12 categories that are key to us in regards to our client spend.

So we look and we measure actually our clients in regards to what are we cross-selling into those multiple categories.

And as you know in the past when we operated in silos, where as an example a year ago you would have looked at us with our Calence organization very high-forming organization that was primarily selling Cisco.

Now those very talented account executives had the ability to sell multiple product lines, so they're not just selling Cisco, they're able to also sell the other needs that those clients have, as well, so we get certainly a lot better efficiencies than we did in the past.

We also had, as you know, with Software Spectrum, a lot of our account execs primarily focused on just selling software lines, now we're migrating to moving them into and taking advantage of the relationships that they have to be able to sell services as well as hardware products.

So those are just some of the benefits that we're starting to see.

Last question from me, if you would, just on the guidance, I mean, pretty much throughout the course of the year your top line has been somewhat conservative on the -- especially related to the hardware category.

As you look out, and even putting in the ideas of what's going on with the software piece, would you say that guidance process continues to be sort of that same methodology as far as looking at starting off with just that double-digit -- I mean that mid-single across the board?

I think we said that the market was growing at mid-single-digits and we anticipated that we would be higher than that, because we want to gain share.

So I think you can anticipate we're going to be growing in the high-single-digits.

I think that, in the last year, it was difficult to predict on a quarterly basis whether hardware was going to remain as strong as it was.

I certainly didn't think going into the third quarter that hardware would grow in North America anyway at 34%, which it did.

So I don't think our guidance is overly conservative, like you were suggesting.

I think our guidance is reasonable and in light of the growth rates that we see today and the performance of the underlying business with regard to needing to rebuild our services revenue and margins to where they were in 2009, I guess.

I understand.

Just trying to get you to go through it one time with me, Glynis, thank you.

Thanks for your help.

Good luck.

Thanks, John.

There are no questions at this time.

I will now turn the call over to Ken Lamneck for closing remarks.

Again, we would like to thank everybody for joining us for Q4 announcement here, and we will talk to you next quarter.

Thank you.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.