Insight Enterprises Inc (NSIT) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth-quarter and fiscal-year 2011 Insight Enterprises' earnings conference call.

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

Towards the end of the conference we will facilitate a question and answer session.

(Operator Instructions)

As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to Ms.

Glynis Bryan, Chief Financial Officer.

You may proceed.

Thank you.

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 and full year ended December 31, 2011.

I'm Glynis Bryan, Chief Financial Officer of Insight.

Joining me is Ken Lamneck, President and Chief Executive Officer.

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

Today's call, including the question-and-answer period, is being webcast live and can be accessed by the Investor Relations page of our website at www.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 contains time-sensitive information that is accurate only as of today, February 13, 2012.

This call is the property of Insight Enterprises.

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

In today's conference call we will be referencing the Company's return on invested capital or ROIC for the fiscal years ended December 31, 2011 and 2010, a computation of which can be found on our website at www.Insight.com, on the Investor Relations section.

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 which could cause 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 years ended December 31st, 2010.

With that I will now turn the call over to Ken to give you an overview of our fourth-quarter 2011 operating results.

Ken?

Hello everyone.

Thank you for joining us today to discuss our fourth-quarter and full-year 2011 operating results.

During the fourth quarter we continued to execute on our strategic initiative, while at the same time keeping a disciplined eye on our expenses.

Solid sales performance combined with continued SG&A leverage resulted in double-digit growth and earnings from operations in the quarter.

Consolidated net sales increased 2% to $1.4 billion, up from $1.3 billion in the fourth quarter of last year, and on a constant-currency basis, consolidated net sales also grew 2%.

Gross profit was $179 million, up 4% year-over-year and gross margin was 13.2%, up approximately 30 basis points from the fourth quarter of 2010.

Earnings from operations increased 13% to $42.2 million or 3.1% of net sales, compared to $37.3 million or 2.8% of net sales reported in the fourth quarter 2010.

Excluding severance expenses in both periods, EFO margin in the fourth quarter 2011 was 3.2%, up from 2.9% a year ago.

Net earnings and diluted earnings per share were $34.7 million and $0.78 in the fourth quarter 2011, compared to $25 million and $0.53 in the fourth quarter of 2010.

The Q4 '11 net earnings and EPS results include approximately $7.6 million from certain tax benefits which Glynis will cover later in the call.

And we received return on invested capital of 11.4% in the fourth quarter, up from 10% at the end of 2010.

Within our consolidated results for the fourth quarter our North America segment reported sales growth of 1% year-over-year as higher software sales and services offset a decrease in sales in our hardware category.

Despite modest top-line growth, gross margins improved 72 basis points year-over-year, and because we continue to control our expenses we saw virtually all of this gross margin expansion flow through to the earnings and operations line.

For the full year of 2011 our North America segment reported sales growth of 10%, and earnings from operations growth of 18% excluding severance expenses, clearly demonstrating the leverage that exists in our operating model.

In EMEA we saw sales growth of 2% in constant currency in the fourth quarter.

The anticipated effect of partner program changes drove gross profit down 2% year-to-year in constant currency, which resulted in a decline in earnings from operations in EMEA in the quarter.

For the full year, EMEA team drove sales growth of 2% in constant currency despite continuing economic turbulence in the region and grew earnings from operations approximately 17% on a constant-currency basis, excluding severance expenses in both years.

Additionally the team successfully implemented a new IT system in the Netherlands and Germany in the back half of 2011, giving us early success in an important initiative for our organization.

In Asia Pacific sales increased 16% in constant currency in the fourth quarter but due to lower margin driven primarily by client mix, earnings from operation was relatively flat year-to-year.

For the full year our Asia Pac business grew the top line 24% and bottom line by 17% in constant currency.

On a consolidated basis and for the full year 2011 we reported net sales of $5.3 billion and earnings from operations of $147.4 million, the highest levels reported in the Company's history.

We also delivered diluted earnings per share in excess of $2 per share, another record.

And just as important, the returns delivered on invested capital of 11.4% were notably higher than the cost of capital for the year.

As we head into 2012 we are well positioned to continue to drive progress towards our long-term strategic and financial objectives.

Our global priorities in 2012 will continue to be focused on driving profitable growth to investments in people, training, and tools within our sales organization, and expanding our service capabilities while controlling our costs, all in pursuit of continued progress towards our stated long-term objective of 3.5% earnings from operation margin.

In North America, we plan to continue to invest in our sales force by adding sales reps to both the field and Insight sales teams.

In 2011 we added approximately 100 net new sales reps to our Insight sales teams in Tempe and Montreal.

In 2012 we will continue to invest here as well as adding field reps and engineers in key cities throughout the US.

We will also continue to invest in training for our sales reps to ensure they have knowledge across our portfolio of product and service offerings.

In 2011 our sales reps went through training on our focused product categories.

In 2012, we plan to deepen this training to include specific product and service solution areas such as mobility, the Cloud, unified communications and collaboration, data center, network and security, and office productivity.

This training, along with a more focused strategy around key services offerings that tended to drive more services sales as a percent of our total sales over time, and we are making progress on this initiative.

To expand our services capabilities around office productivity, we recently acquired Ensynch, a professional services firm with multiple Microsoft Gold competencies across the complete Microsoft solutions set, including Cloud migration and management.

And we have just launched our new Cloud solution here in North America.

Our vision related to the Cloud is to provide a wide range of solutions, support services, and a shopping experience so that our clients can learn, shop, and provision their Cloud needs through one central aggregation point.

In North America, the Insight Cloud Solution Center, our as-a-service aggregation portal which is linked to www.Insight.com, enables the procurement, delivery, billing, administrative and support of on-demand services provided through the Cloud.

Similar Cloud solutions are being offered in EMEA as well.

All of these activities are driven by our primary focus of penetrating our total adjustable market, or TAM, and cross-selling into our existing client base.

While we concentrate on these initiatives, we'll also seek to optimize our performance under partner-specific incentive programs, including deal registration and improve our sourcing and pricing methodologies throughout the Business.

Now moving to EMEA and Asia Pacific, we plan to continue our strategy to expand in the middle market and offset continued softness in the public sector.

This strategy served us well in 2011, particularly in EMEA.

We plan to continue to expand our hardware capabilities in certain countries in our European footprint in conjunction with the rollout of our new IT system in the region and in line with our strategy to expand our offerings available to our broad client base.

In the fourth quarter 2011, we began selling hardware on the new system in the Netherlands and Germany, and to accelerate our plans in these markets, we recently closed the acquisition of Inmac, an IT solutions provider located in Frankfurt and Amsterdam.

With this acquisition we've added 170 teammates to our organization, roughly half of these in sales and marketing, as well as our local warehouse and distribution capabilities in Germany.

Inmac 2011 revenues were approximately $120 million in sales.

We're excited about this acquisition as a platform for growth that it provides in these important markets.

Globally we will plan to continue to invest in our IT systems in 2012.

In EMEA, we will continue the rollout of our new IT system with implementations across our footprint throughout 2012 and 2013.

In North America, we will complete the integration of various systems we've acquired through acquisitions onto the common SAP platform we use.

The development work is now complete and testing is underway.

The integration is expected to occur in stages in Q2 through Q4 of this 2012 year.

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

In 2011 we had some early successes here as we invested in our salesforce and our IT initiatives, while taking specific actions to reduce costs in other parts of the Business.

As a result, SG&A as a percent of sales decreased 30 basis points year-over-year.

We continue to focus on management of costs as we head through 2012 and expect to demonstrate further leverage as our Business grows.

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

Glynis?

Thank you, Ken.

Starting with North America, net sales were $923 million in the fourth quarter, up 1% from the fourth quarter of 2010.

Sales in our hardware category increased 2% year-to-year and 7% sequentially due to seasonality in public-sector spending and the completion of certain large deployments.

Sales in our software category increased 4% compared to last year due primarily to higher volume with multiple publishers and were up 22% sequentially due to typical seasonality.

Sales of services increased 8% year-over-year, aided by the acquisition of Ensynch on October 1.

Gross profit in North America for the fourth quarter increased 7% year-over-year to $121 million, and gross margin increased 72 basis points to 13.1% compared to the prior year.

This change in margin was ex a 30-basis point improvement in product margin, which includes [vendor funding], a higher mix of services gross profit, and 16 basis points from the reversal of certain inventory reserves reported in earlier periods.

Selling and administrative expenses for North America in the fourth quarter increased 1% to $90 million, compared to $89 million in the prior-year quarter, and as a percentage of sales were flat year-to-year at 9.7%.

Investments in our North American salesforce and IT systems integration initiatives in 2011 were mostly offset by cost savings in other areas.

We also recorded $464,000 in severance and restructuring expenses in the segment in the fourth quarter compared to $861,000 in the fourth quarter of 2010.

As a result, earnings from operations in North America were $30.4 million or 3.3% of net sales in the fourth quarter of 2011, up 29% from the $23.5 million reported in the fourth quarter of 2010.

Moving on to EMEA.

EMEA operating segment reported net sales of $369 million, up 1% in US dollars.

In constant currency, net sales also increased 2%.

Also in constant currency, sales of hardware grew 1%, software sales increased 2%, and sales of services increased 8% compared to the fourth quarter of last year, due to higher volume across the mid market and public sectors supply groups.

Gross profit in EMEA was down 3% in US dollars and down 2% in constant currency terms with gross margin declining to 13.2% from 13.7%, primarily driven by previously anticipated partner program changes that became effective in the fourth quarter of 2011.

Selling and administrative expenses in EMEA in the fourth quarter were up 3% in US dollars and in constant currency were up 4%.

This increase year-over-year was primarily driven by investments in headcount.

EMEA also reported $163,000 in severance expense in the fourth quarter of 2011, compared to $408,000 in the prior year's fourth quarter.

Earnings from operations in EMEA were $8.5 million in the fourth quarter of 2011, down from $10.5 million reported last year.

In our Asia Pacific operating segment they reported net sales of $68 million, up 18% from the prior year in US dollars, and up 16% in constant currency terms.

Gross profit was $9.6 million, an increase of 1% year-to-year, while gross margin was 14%, down from 16.4% in the prior-year quarter due to a higher mix of public sector business with [typical transaction] at a lower margin, and a lower mix of feed from Enterprise agreements.

Selling and administrative expenses in APAC were relatively flat year-to-year.

As a result, our APAC segment reported earnings from operations of $3.4 million, which was flat year-to-year.

Moving on to the tax rate, our effective tax rate for the fourth quarter was 15.8% compared to 30.1% in the prior-year quarter.

In this year's fourth quarter, we reported $7.6 million in tax benefits from the reorganization of certain of our foreign operations as well as other tax matters.

This compares to $1.6 million of similar benefits recorded in the prior year quarter from the recapitalization of one of our foreign subsidiaries.

Moving on to open capital metrics and cash flow performance, in the fourth quarter cash flow from operations was $106 million compared to $61 million for the same period in 2010.

We invested $10.2 million in capital expenditures this quarter compared to $5.3 million in the fourth quarter of last year and we spent $14 million on an acquisition this year.

And we made scheduled payments of $8 million under our inventory financing facility.

As a result, we ended the quarter with $128 million of cash, of which $114 million was resident in our foreign subsidiaries and with $115 million of debt outstanding on our revolving credit facility.

This compares to $124 million of cash and $90 million of debt outstanding under our revolving credit facility at the end of 2010.

Our cash conversion cycle was 22 days in the fourth quarter of 2011, in line with our stated goal for this metric, but up 4 days from the quarter ended -- from the fourth quarter 2010 due to increases in DSO clearly superior, primarily in our foreign operations, and due to the higher mix of transactions a bit later in the quarter.

On a consolidated basis and for the full year 2011, our net sales and gross profit increased 10%.

We continue to control our costs which drove SG&A as a percent of sales down by 30 basis points to 10.5%.

Severance expense increased $2.1 million in 2011 due to certain restructuring efforts in EMEA and North America.

All of this resulted in earnings from operations improvement of 19% to $147.4 million or 2.8% of net sales, up 20 basis points year-to-year.

Excluding severance expenses in both periods, EFO margin increased 20 basis points year-over-year to 2.9% of net sales.

Below the EFO line, we added another $3.2 million to earnings before taxes year-to-year primarily through lower interest expense and foreign currency gains.

Our effective tax rate for the full year of 2011 was 29.3%, compared to 34.5% in 2010.

The effective tax rate in both periods was less than our expected normalized range of 36% to 38%.

In 2011, this was due primarily to the reorganization of a foreign operation during the fourth quarter, while in 2010 the tax rate was affected by the recapitalization of a foreign subsidiary.

We currently expect our 2012 effective tax rate to be between 36% to 38%.

Diluted earnings per share were $2.18 in 2011, which is up from $1.61 per diluted share in 2010, an increase of substantial tax benefit recorded in the fourth quarter.

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

Thanks Glynis.

For the full year of 2012, we expect the global IT market to grow in the mid-single digit range.

We expect our business to grow faster than the market as we invest in our salesforce and expand our capabilities into key markets.

We expect diluted earnings per share for the full year of 2012 to be between $2.20 and $2.30.

This outlook reflects the following assumptions; an effective tax rate of 36% to 38% for 2012, up from 29.3% in 2011, and diluted shares outstanding of approximately 45 million.

This outlook does not include any severance or restructuring expenses.

Thank you again for joining us today.

I want to thank our teammates, clients, and partners for their dedication to Insight in 2011, and look forward to another prosperous year together in 2012.

That concludes my comments.

We'll now open the line up for your questions.

(Operator Instructions)

Brian Alexander, Raymond James.

Nice job, guys.

I just wanted to ask a question about the North American revenue trend, I think hardware was below seasonal on a sequential basis, if I look at it year-over-year as basically flat.

I think you had an easier comparison.

So Glynis, I think you called that public sector as being weak but I think that's been the case for awhile so I'm just looking at what incrementally slowed from a hardware perspective, and if you could just talk about certain product categories and what you saw in your major customer segments SMB and Enterprise, that would be helpful.

I have a couple of follow-ups.

Brian, the number actually -- when you looked at it from an annual year-over-year basis, as you might recall last year we actually had 21% growth on the hardware line last Q4.

So that was a pretty tough compare, for this year.

From a sequential point of view, you are correct, certainly we saw the normal moderation that you would see in the public sector business, that contributed to that as well.

And then we had a few significantly large rollout deals in some large enterprise financial services and retail clients where those rollouts finished in Q3 -- 4, so we didn't see that continuation in Q4.

So from a product-line point of view it really wasn't anything that specific in that regard.

It was much more towards the -- some large rollouts in some enterprise-type clients.

So when on a year-over-year basis would you expect the hardware business to reaccelerate?

We would -- basically what we've talked about before this coming year, we would expect a normal approach to the hardware growth that we're seeing and that's what we've projected in our outlook.

Okay.

I'll come back to the guidance but just on gross margin, sequentially, what drove the increase in North America, Glynis?

Was that mostly just the software mix being a little bit better?

I think you talked about some inventory reserve reversal, so looking at it sequentially.

And was there any benefit from hard disk drives that maybe some of the distributors have called out as helping margins?

I think the overall revenue from our hard disk drive perspective for us is less than $10 million in total.

So no, I don't think it was any drive from the hard disk problem, hard disk issues that are out there.

I would say it's related to the sequential impact of software that we typically see in the fourth quarter, would be one of the primary drivers.

As well as we had some improvements in SR, in our supplier vendor funding.

That came through in the fourth quarter when we hit certain rebates and attainments.

So how does that work where your vendor funding would actually improve while your growth rate is decelerating?

Just maybe walk us through that.

I think it's depending on different vendors, so we have programs with many vendors, and in the fourth quarter we had some very specific programs with a couple of key vendors that had targets that we attained in the fourth quarter, albeit that the revenue didn't grow.

Some of them are software vendors as well, so it's not only hardware vendors that trigger those rebate dollars.

So it's a combination of just specific programs that we had implemented that were effective and we attained in the fourth quarter that drove the improvement in North America gross margin.

What you have, Brian, in that situation, is certain vendor partners have programs that certainly volume is a key component of it.

But within that, there's certain product categories that are more important to them, and they will actually pay higher rebates upon achievement there so that's where we certainly focus our time and attention on those programs.

I guess that's where I was going.

It sounds like it's more execution based, and that you're becoming maybe more strategically aligned with your vendors and finding the right programs to go after and being successful there.

Exactly.

Okay.

Just finally, and I will get back in the queue, I think the guidance implies operating margins will rise to about 3% in 2012 from 2011, so up modestly.

So just talk a little bit directionally about where you expect to see the margin improvement by region given all the investments you're making in North America and in Europe.

Thanks.

I think that we expect that the margins across the board, and all the regions are going to improve modestly.

In EMEA we have the impact of the Inmac acquisition as well as expanding into hardware that's going to be a help there.

In North America we have the systems rollout that we're doing here that we anticipate will maybe, in the latter half of the year, give us some benefit also from a margin perspective.

We also have certain profitability initiatives that we're working on in North America that we envision will be beneficial to the gross margin line that would flow through ultimately to the EFO margin line.

So I think that when you look across the different regions we're anticipating that we'll get a little bit of up tick across all of the regions.

Okay.

Great.

One thing on that, too, Brian, is we are seeing better execution.

The one major vendor partner that announced program changes that we've talked about over the last few quarters, fortunately gave us good ample notice, and we've been executing well to help to ensure that we mitigate any of that effect.

So that's actually going well according to plan, and we will continue those efforts.

Great.

Thanks, Ken.

(Operator Instructions)

Matt Sheerin, Stifel Nicolaus.

Just a follow-up on Brian's question regarding growth assumptions for this year.

You're looking at mid-single digits or better.

If you look at the -- if you bake in seasonal declines in each of your operating divisions for the March quarter, ex acquisitions, it looks like you're looking at flat to up a little bit year-over-year, Ken.

So are you expecting either better seasonality, or are your expectations as you get this hardware growth initiative in Europe going incremental revenue from the acquisition as well as some of the initiatives you're doing in North America?

Are you expecting a little bit better than seasonal later in the year as you take share?

Yes.

So Matt, when you look to the European business, of course, the acquisition that we just completed will certainly help us accelerated our hardware plans for specifically Germany and Netherlands.

As you know, we have a strong business in the UK.

And we think now, of course, having a platform that allows us in other countries outside of the UK to sell hardware, that will help us grow that business to our current client set.

So that certainly will get us certainly greater in EMEA than normal seasonal growth or market growth that you would see in that marketplace.

On the Asia Pac business, of course that continues to be pretty robust growth.

We had significant growth in 2011.

We think that will continue in 2012.

And that's starting to become a reasonable portion of the business.

And then, of course, mostly in North America where most of the business is, of course, the continued investments that we've had in place, we're continuing those.

We'll certainly start to see those continued benefits there, so we would expect that we would grow above the market growth here in the US, which is projected to be in that low- to mid single-digit growth rates.

Got you.

Could you remind us of the business profile of that acquisition Inmac, I know it's involved in both hardware and software but could you give us the mix?

And would you say that the profitability of that business is in line with the rest of your EMEA business or better?

Yes, it's very much -- first off, it is a hardware-only business at this stage, which is why we're most interested.

It's $120 million in hardware business in Germany and in the Netherlands.

And it has a very small services component to it, but it's mostly a hardware business and the margins are consistent with what we see in the -- the product margins are consistent with what we see in our UK business, and we think there's opportunity as they traditionally have performed less on the supply reimbursement side than we've experienced in the UK.

We see there's opportunity for us to enhance that portion of the business that we're acquiring.

Okay.

Would you say that the gross margin profile of that business is in line with the rest of EMEA?

Because what I'm trying to get at is, as you see margin leverage this year, Ken, is that going to come primarily from SG&A leverage, or would you see as either software or services grow or perhaps hardware in the enterprise space grows, will that drive gross margin higher this year?

Yes, the margin profile actually for that business and hardware overall for us is consistent with our overall margin in their European business.

So it doesn't come in at a lower rate, if that's what you're --

Okay.

So you wouldn't -- so as you look at your leverage this year, is that primarily going to come on the SG&A side and not so much on the gross margin side?

We anticipate it's going to be a combination of both margin and SG&A improvement.

Okay.

And just a quick question, Glynis.

You talked about some gross margin benefit in North America, I believe from the reversal of inventory reserves.

Could you tell us that number again?

It was about 16 basis points.

16?

16 basis points.

It was a 72 basis point improvement in North America, and 16 of it came from these inventory reserves.

Okay.

I know you've seen that crop up over the last two or three years or so.

Do you get any sense of how we should be looking at that, in terms of looking at gross margin and the benefits from that?

Or how much is left, in other words?

I think that the benefit that we got in this specific quarter was probably more related to a specific customer and some recoveries that we got from a customer as opposed to our standard reserve policy, so I don't think you should anticipate that on a go-forward basis.

You'll see 16 basis points improvement in our inventory reserves going forward.

Okay.

And just lastly, if I can, just regarding the IT initiatives can, in both North America and Europe, you mentioned some time lines.

It sounds like both are pretty much in line with what you were thinking, and what you talked about at your analyst day.

Any concern that the integration in Europe is going to come later in the year as you get into a seasonally stronger period, or are you confident enough that the foundation is going to be set so that you shouldn't have any issues?

No, the foundation is definitely set.

Things are moving along according to the plan that we laid out.

We did move in, obviously with the Inmac acquisition, we moved that in a little bit sooner and so that some of the smaller countries would actually get pushed out just a little bit because we wanted to make sure we integrated that.

But again, the plan that we set forth is being executed against in EMEA and certainly well on track with North America as well, as we will start to see in our second quarter, the first phase of that actually coming into play here.

So we're in the testing phase right now and things are going according to the plan.

Okay, thanks, and congrats on your results and guidance.

Brian Alexander, Raymond James.

Ken, just on the hardware strategy in Europe, can you just talk a little bit more in terms of what countries you're looking to sell hardware?

I know you talked about Germany and the Netherlands, but how many other countries are ahead of you?

Do you expect to enter all of these through acquisition, or will some of it be green field?

How are you thinking about the balance between hardware or software and services in Europe over the next couple years?

Sure, Brian.

As you know, of course, we sell a full compliment in the UK, so we have a good hardware platform of business in both what you call the velocity products as well as the higher-end products.

So we've got a good business there.

And what we certainly are moving forward in the Netherlands and Germany is coming in to be a full-fledged hardware player, and Inmac gives us a good platform and footprint to develop that business on and extend that to our current client set.

The plan that, Brian, we had talked about on our analyst day was to the next big country to obviously take on would be France.

And then from that point we would determine where it made sense in the rest of our European footprint to determine if it made sense and was feasible for us to extend the same product portfolio into the other countries.

Of course, we will convert all of those systems so the capability will be there for us to, of course, sell hardware, software, and services, but whether we want to put forth a full effort to sell hardware in some of the smaller countries, that's a decision that will -- that we'll embark on towards the second half of this year and would consider that for our planning for next year.

And would France likely be an acquisition opportunity as well?

Correct.

Yes so France, we definitely want to sell hardware, so we'll look at how we do that organically and potentially how we could accelerate that, like we just have done here in the Netherlands and Germany.

And the product mix for those countries that you are now entering, is it going to be similar to the UK where you're doing velocity and higher-end?

Are you looking to have more of a data center focus?

It will be similar to what we do in the UK, so again having the breath of the broad portfolio of products and then look also strategically at the higher-end products, which helps us with more of a services solutions footprint as well.

Then just back to software, with the reduction in fees from your largest software publisher that began in the fourth quarter, and it sounds like you're navigating through that pretty well, but how should we think about the relative margin differential between hardware and software going forward?

I know you don't really guide that way, but historically, I think software has been a premium margin for the business, and I'm just wondering going forward if you still expect that or if it is going to look more similar to hardware.

I guess I will take that one, Brian.

I think that our anticipation is that the margin improvement or the margin differential that we've seen in software has come from the enterprise agreements, which are 100% margin.

So when we look at our software category and we add up software product margin and the EAs, we end up with a margin that's a very good margin.

We've actually done a pretty good job of mitigating the impact of the reduction in fees given the notice that we got from Microsoft for the change that occurred in October of this year, or last year, rather.

So I would anticipate that software with EAs as they stand will still be -- will still be a contributor, but it will be a smaller contributor to the overall total margin.

So let me explain it better for you.

Software as a percentage of our business and as a percentage of the contribution to our margin will decline by virtue of EAs being essentially static or down slightly, while the rest of our business continues to grow.

So the contribution that we get from software will decline as a percentage of our total margin going forward.

And then just a couple of follow-ups, Glynis, on the share count.

It doesn't look like you're factoring any share buybacks into your 45 million share count for 2012, so I was just wondering what are your thoughts on potentially re-uping for a buyback.

We currently do not have authority from our Board to do a share buyback.

We talk to them about it periodically as we go to our Board meetings throughout the year, but since we have no authority we have given you the base upon which we've built our budget which is the [$]45 million number.

Okay.

And then just the tax rate, 36% to 38%, it's been consistently below that, even adjusting for some of these one-time benefits.

So what's the reason why it will stay that high?

Or that you expect it to be that high in 2012?

I think the rationale there is that we don't know what we don't know, and if you just apply the raw math to the numbers that we have, you get a tax rate that's somewhere in the 36%ish to 38% range.

Unless we have an initiative or unless we have a release of tax reserves or return to provision from one of our foreign subsidiaries, so unless we have an event like that which we don't know about or we don't typically plan for at the start of the year, all other things being equal, we would effectively have that tax rate.

We charge our tax department with finding tax benefits for us throughout the year, but we don't budget them typically and we don't include it on our guidance on a go-forward basis.

Okay.

And then the organic growth that you're assuming for 2012, if we take Inmac out, it's closer to 2.5%.

Just making sure I understand that your revenue guidance for the full year does include acquisitions.

The revenue guidance for the full year does include acquisitions.

Okay.

Thank you.

At this time I'm showing no further audio questions in queue.

I would like to turn it back over to the Insight Management for any closing remarks.

We would like to thank everybody for participating on the call.

Ladies and gentlemen, that concludes today's conference.

We thank you for your participation.

You may now disconnect.

Have a great day.