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Operator
Good day, ladies and gentlemen. Welcome to the Insight Enterprises first quarter 2015 operating results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded.
I would like (inaudible) conference call, Ms. Glynis Bryan, Chief Financial Officer. You may begin, ma'am.
Glynis Bryan - CFO
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 ended March 31, 2015. I'm 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 our 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 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, May 6, 2015. 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 refer to non-GAAP financial measures as we discuss our first quarter 2015 financial results. You will find a reconciliation of these non-GAAP measures to our actual GAAP results included in the press release issued earlier today and posted on our website on the Investor Relations page.
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 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, 2014.
With that, I will now turn the call over the Ken to give you an overview of our first quarter 2015 operating results. Ken?
Ken Lamneck - President and CEO
Thanks, Glynis. Hello, everyone. Thank you for joining us today to discuss our first quarter 2015 operating results. In the first quarter of 2015, our team continued to drive solid top-line growth across the business. As expected, demand for client devices decreased year over year globally, but we more than offset this with an increased focus on selling data center solutions, software and our differentiated services offerings.
We also invested in our salesforce, adding over 60 teammates in the quarter, and at the same time, returned cash to our shareholders through our share repurchase program, all of which are important to our long-term strategy and, in the short run, led to earnings per share results in line with our expectations for the quarter.
Consolidated net sales were generally flat year over year in US dollars, at $1.22 billion. The strength of the US dollar compared to other major currencies in recent months has notably affected this quarter's US dollar reported results when compared to the same period last year. Excluding the effects of currency changes in the quarter, net sales grew 6% driven by good sales execution at each of our geographic operating segments.
Gross profit was $162 million in the first quarter, down 1% in US dollars and up 4% in constant currency. Gross margin declined 20 basis points year to year, to 13.3%. This decrease is driven primarily by lower product margin due to business and client mix transacted in the quarter, primarily in North America and EMEA.
Consolidated selling and administrative expenses decreased 1% in US dollars, and in constant currency, increased 4% year over year, reflecting investments in sales, technical and services headcount in the North America and EMEA businesses.
Earnings from operations, excluding severance and restructuring expenses, decreased 1% to $21 million. On a GAAP basis, earnings from operations decreased 3% to $20.3 million, and diluted earnings per share, excluding severance and restructuring expenses, increased $0.01 year over year to $0.29. On a GAAP basis, diluted earnings per share were down $0.01 to $0.27.
Within these results, our team in North America continued to drive strong sales execution in key markets, which drove 5% top-line growth overall, with solid growth across each of our hardware, software and services categories.
In the hardware category, double-digit growth and data center sales, primarily networking and server categories, more than offset softening demand for client devices. In the software category, we continued to see strength in sales of business productivity and security solutions, which led to 5% year-over-year growth in this category. And the momentum in our services category continued with 28% year-over-year sales growth in the quarter, driven by increased consulting and technical service engagements.
In EMEA, net sales increased 6% year over year in constant currency in the first quarter. Hardware sales growth of 7% in constant currency was driven by a strong demand for server and storage solutions and modest growth in client devices. In the software category, sales growth in constant currency was driven by hard spending by public sector and service provider clients in the quarter, primarily for business productivity solutions.
And in the service category, our strategy to expand this business across EMEA is having a positive effect. We now offer cloud and software-related services in all countries in the EMEA footprint, and in the first quarter, we saw a high double-digit increase in services sales in this segment.
In Asia-Pacific, first quarter net sales increased 3% year over year in constant currency. We're pleased with the new business growth we're seeing in New Zealand, a market that we have been focused on penetrating the last two years, but are continuing to see softness in the Australia market.
As we enter the second quarter of 2015, we continue to believe that the IT industry is healthy. With the expiration of Windows Server 2003 maintenance support in July of this year, combined with the substantial completion of the recent desktop refresh cycle, we believe CEOs will now focus on data center and other infrastructure projects in 2015. We saw this in our business in Q1, and given our strong technical engineering skills and deep services capabilities, we believe we are well positioned to participate in this shift in demand for the balance of the year.
I will now hand the call over to Glynis, who will discuss the first quarter financial results in more detail. Glynis?
Glynis Bryan - CFO
Thank you, Ken. Starting with North America, net sales in North America were $823 million in the first quarter, up 5% year to year. Sales in our hardware category increased 3%, software sales increased 5%, and services sales increased 28% year over year. By client group, we saw higher spending by enterprise and public sector clients, particularly federal and state and local agencies, and lower spending in the mid-market or SMB client segment group.
Gross profit in North America increased 4% year over year to $112 million, and gross margin decreased 20 basis points to 13.6%. This growth margin decrease was driven in part by lower product margins on hardware sales due to business mix transacted in the quarter and the decrease in fees earned on enterprise agreements compared to last year.
Selling and administrative expenses for North America in the first quarter were up 4%, or $3.2 million, year over year to $92.4 million. The effective headcount investments year over year were partially offset by significantly lower healthcare expenses, which were down $2 million in this year's first quarter. We also recorded $400,000 in severance and restructuring expense in this segment in the first quarter, compared to approximately $80,000 in the same period last year.
Earnings from operations in North America were $19.1 million in the first quarter of 2015, up 5% from $18.2 million in the same quarter last year, excluding severance expenses in both periods.
Moving on to EMEA, our EMEA operating segment reported net sales of $355 million, down 9% year over year in US dollars, but up 6% in constant currency. Also, in constant currency, hardware sales increased 7%, software sales increased 3%, and services grew 58%.
By client group, we saw higher spending in the public sector, which is seasonally stronger for us in EMEA this first quarter, and we delivered strong growth in the service provider hosting market, but we have deep expertise in the software licensing category.
Gross profit in EMEA was $45 million, a decrease of 9% year over year in US dollars, but an increase of 5% in constant currency terms, with gross margin decreasing 10 basis points to 12.6%. This decrease in gross margin was driven by lower product margin in the software category partially offset by a higher mix of gross margin from services sales in the quarter.
Selling and administrative expenses in EMEA in the first quarter were down 9% in US dollars to $43 million, but up 5% in constant currency. This increase year over year was primarily driven by planned investments in sales resources in the last two quarters of 2014.
In the first quarter, we recorded net severance expense of $318,000 in this segment, up from $260,000 recorded in the same period last year. Excluding severance expenses, earnings from operations in EMEA were $2.1 million in the first quarter of 2015, compared to $2.2 million recorded last year.
In our Asia-Pacific operating segment, they reported net sales of $42 million, down 8% year to year in US dollars and up 3% in constant currency. Gross profit was $5.5 million, which was down $22 million year over year in US dollars and down 13% in constant currency. This is related in part to the economic slowdown in Australia and the timing of transactions between our quarters.
Selling and administrative expenses in APAC increased 3% year over year in constant currency due to investments in headcount, which led to a decline in earnings from operations year over year.
On our tax rate, our effective tax rate in the first quarter was 38.4%, compared to 39.3% for the first quarter of 2014 due to lower taxes on earnings in our foreign jurisdiction.
Moving on to our cash flow performance, our operations generated $21 million of cash in the first quarter of 2015, compared to $66 million in the same period last year due to increased working capital utilization on improved sales trends this year.
We invested $3 million in capital expenditures in the first quarter of 2015, up from $2 million last year. And we also spent $39 million to repurchase approximately 1.5 million shares of our common stock. As of March 31, we have $53 million remaining under this authorization.
All of this led to a cash balance of $186 million at the end of the first quarter, of which $161 million was resident in our foreign subsidiaries, and we had $95 million of debt outstanding under our debt facility. This compares to $181 million of cash and $89 million of debt outstanding at the end of last year's first quarter.
And from a cash flow efficiency perspective, our cash conversion cycle was 25 days in the first quarter of 2015, an increase of 1 day year over year due to higher inventory balances to support specific client engagement.
I'll now turn the call back over to Ken.
Ken Lamneck - President and CEO
Thank you, Glynis. Moving on to our outlook for 2015, for the full year of 2015, we continue to expect our business to deliver top-line growth in the low-single digits in US dollar terms and that diluted earnings per share for the full year of 2015 will be between $2.10 and $2.20.
This outlook reflects an average US-dollar-to-Euro currency exchange rate of $1.05 and an average US-dollar-to-British-pound currency exchange rate of $1.45, the adverse effect on gross profit of previously announced partner program changes in the software category, which the Company expects to be between $5 million and $10 million, an effective tax rate of 37% to 39%, the completion of our remaining share repurchase program of up to $53 million, leading to an average outstanding share count of approximately 38.6 million shares for year end, capital expenditures of $10 million to $15 million. This outlook excludes severance and restructuring expenses incurred during the year.
Thank you again for joining us today. I wanted to thank our teammates, clients and partners for their dedication to Insight. That concludes my comments. We will now open the line up for your questions.
Operator
(Operator Instructions). Nikhil Kumar, Stifel.
Nikhil Kumar - Analyst
Yes, if you can talk about like what you've seen in terms of demand, puts and takes, and your guidance is based on a Euro dollar exchange rate of $1.05, and given Euro is EUR1.13, so if the Euro remains where it is, I mean, I think you could see some upside there, right?
Glynis Bryan - CFO
Well, I'll take -- I didn't hear the very first part of your question.
Ken Lamneck - President and CEO
I'll take the first one.
Glynis Bryan - CFO
Ken will take the first one, and I'll take the foreign exchange piece, Nik. Thank you. Yes, I guess it is possible that we would see some improvement potentially in our results related to the Euro. The Euro today is at EUR1.12-ish. To be honest, I checked that on Friday. I'm not sure what it is today.
For the quarter, we ended the quarter at EUR1.08, and the average for the quarter was around EUR1.12, EUR1.13 for the quarter, so I would say that we've built our forecast based on EUR1.05. Depending on what happens in the US economy, depending on what happens with the UK elections, depending on what happens to Greece, it's possible that ultimately the Euro could be high -- remain higher consistently than the EUR1.05, but we don't know, so we would be happy to have the upside that that equates if it ends up for the year being above EUR1.05.
Nikhil Kumar - Analyst
Yes, that's helpful. And if you can like give color on what you see from -- in demand in different verticals and different geographies.
Ken Lamneck - President and CEO
Yes, Nik, this is Ken. On the demand side, I think as you mentioned, I think we all, of course, experienced that the PC refresh cycle, which was such a big driver last year, is certainly more normalized. Q1 was certainly down overall for desktops and notebooks. We see that starting to recover to more normal levels overall, so I think that piece is fine.
We see data center actually growing nicely as far as server storage networking, those elements, and I think, as indicated, the software category grew nicely. So I think demand is about what we expected and I think remains healthy.
Nikhil Kumar - Analyst
That's helpful. And one final question on -- I think you mentioned in the quarter you added 60 people to your team, and how should we think about it going forward? Do you think you're going to maintain that rate of hiring, or it's going to slow down probably in the second half?
Ken Lamneck - President and CEO
Yes, the 60 people was a global number, and we do expect to not continue to hire at that exact rate, but somewhat similar to that for the rest of the year. So less than that run rate for the whole year, but we'll certainly be continuing to add more.
Nikhil Kumar - Analyst
That's helpful. Thank you.
Operator
Robert Hahn, Raymond James.
Robert Hahn - Analyst
A couple quick questions for you. First of all, regarding Asia-Pacific, could you just elaborate a little more on the margins? I know you mentioned that there was an SG&A investment in headcount during the quarter, but could you give any additional color? Thanks.
Glynis Bryan - CFO
Okay. So in APAC, we've seen some softness in APAC over the last couple of quarters, I guess. We have said that they were not performing to our expectations over the last couple of quarters. Part of that is related to just the general economic environment in Australia, primarily. When you look at our APAC business, about 75% of our business is actually in Australia, and they're actually significantly impacted from an economic perspective with regards to the lower growth rate in China and specifically the impact in the mining sector and the banking sector associated with that lower growth rate in China.
So part of what you're seeing in the margin is the impact of the (inaudible) changes that we previously talked about, as well as just the general economic slowdown that we are -- they are experiencing primarily in Australia. The other countries are doing okay. They're meeting our expectations. They're showing some growth, no deterioration in margin. However, they're small.
Robert Hahn - Analyst
Okay. And then if you could talk a little bit about European demand, were you seeing any pull forward related to the strong dollar?
Ken Lamneck - President and CEO
Not -- Robert, this is Ken. Not that we can associate that directly with. We've seen demand to actually be pretty consistent for the past few quarters for us in the European business. We did, of course, see accelerated growth in services, and I think that was driven by a lot of the programs we've had in place that are starting to gain some traction. But overall, I wouldn't -- we certainly wouldn't characterize it as the shift in the value of the dollar that's driving that growth.
Robert Hahn - Analyst
Could you elaborate a little more on cost-cutting actions, particularly since you came in below on SG&A during the quarter, and particularly any details you can give on North America?
Glynis Bryan - CFO
I guess I would say two things. We were -- if you look at it in total, we were below on SG&A, but primarily because of the impact of the exchange rate on Europe and on our APAC operations. If you look at North America, North America SG&A grew on a year-over-year basis $3.2 million, and that had the benefit of a $2 million lower healthcare cost associated with that.
So we're seeing SG&A growth in North America primarily as a result of the very specific investments that we're making in terms of sales, technical and engineering and pre-sales resources in North America.
In Europe, on a constant currency basis, they actually saw 6% growth in their SG&A as well, and that's related to investments that we made in the second half of last year in Europe associated with driving a differentiated strategy around services to kind of diversify away from the reliance that we had on licensing specifically, and we're seeing some benefit from that come through with the 50%-plus growth that we saw in Europe in our services category.
And in Australia, they are also making some investments in their technical and services infrastructure as one of the avenues that we're exploring in terms of driving cloud and other service-like approaches or operations or business, sorry, in APAC to, once again, get away from just the reliance on pure licensing business.
Robert Hahn - Analyst
Great. Thank you.
Operator
(Operator Instructions). Robert Hahn, Raymond James.
Robert Hahn - Analyst
Regarding server demand, how much impact are you expecting, and could you just talk a little bit about when you might expect to see that and any spillover potentially in other categories?
Ken Lamneck - President and CEO
Yes, Robert, of course, we did see good server growth this past quarter. It's interesting trying to track the Windows Server 2003 end of service, which goes into effect at the end of June, to really track that. Our sense is that actually there are a lot of clients that really aren't addressing that issue yet, so I think it's going to be -- I think it's going to have life certainly beyond June. I think it's going to go certainly into the second half of the year, and I think it's -- all it's going to take is one sort of security glitch to occur and I think it would get a lot of attention.
So it's -- but it's, of course, hard for us to get exact numbers on this, but we know what certainly our run rate is and we know where clients are, so I think it's not occurring maybe as fast as we all thought it would, and I think we will see it certainly in the second half. Does that drag other things? Yes, of course. It's certainly changed -- the operating system changes dramatically from that environment, so we would expect to see changes certainly at the server level, and of course that would certainly -- probably lead to changes certainly in the storage environment as well, so we do think it does impact the data center completely.
Robert Hahn - Analyst
Great. Thank you.
Operator
And I'm not showing any further questions at this time, and this does conclude today's presentation. You may all disconnect, and have a wonderful day.
Glynis Bryan - CFO
Thank you.