PC, Server Refreshes Drive Q4 Sales Growth For Insight

Insight Enterprises rode strong PC and server sales to revenue growth in the fourth quarter, though profitability suffered, a dip the company blamed on partner program changes from an unnamed software vendor.

The Tempe, Ariz.-based company, No. 14 on the CRN SP500, reported a four percent jump in sales for the quarter ended Dec. 31 from $1.4 billion a year ago to $1.45 billion. This fell short of analysts' projections for revenue of $1.47 billion.

Non-GAAP net earnings sunk six percent on a year-over-year basis from $24.1 million to $22.6 million, or 55 cents per share, short of analysts' estimates of 58 cents per share.

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"While I think [Insight] might have been stagnant for a few years, I think we're really coming back to significant innovation and growth in the technology space," Ken Lamneck, Insight president and CEO, told CRN in an interview after the earnings call.

North America forged the way with 6 percent sales growth to $1 billion, led by double-digit software and services growth.

Growth in the software sector was driven by large enterprises' demand for business technology and virtualization, while increased consulting and technical engagements prompted services-sector growth, Lamneck said during a conference call with financial analysts.

A more modest fourth-quarter increase in North America hardware sales stemmed from a double-digit increase in notebook and desktop sales due to tailwinds from the Windows XP support expiration, Lamneck said, as well as rising server sales as Windows Server 2003 nears its end-of-life in July.

Lamneck expects desktop and notebook sales to return to more traditional levels in 2015 as XP refresh activities conclude.

Earnings lagged, though, due to partner program changes from a major vendor as well as a hiring spree in North America, the company said.

The changes -- which impact the fees partners such as Insight can collect from a "key" software vendor -- negatively impacted profits between $11 million and $14 million in 2014 and are expected to be an earnings drain of between $5 million and $10 million in 2015, according to Glynis Bryan, Insight's CFO.

The reference is a likely allusion to Microsoft and changes it is making with the introduction of its Cloud Solution Provider program, which levels the playing field by enabling partners to sell cloud software to customers and handle aspects of deals that used to be the domain of Licensing Solution Providers such as Insight.

Insight has also hired 160 new salespeople to focus on software, services, key verticals and key geographies, Lamneck said, causing the company's selling and administrative expenses in North America to climb 6 percent over the past year from $89.8 million to $94.8 million.

The hiring activity is expected to continue in the region in 2015, he said.

Nonetheless, Insight expects to return to profitability in North America by the second half of 2015, Lamneck said.

Insight's Europe, the Middle East and Africa (EMEA) business enjoyed a 6 percent increase in net sales to $391.5 million after factoring out changes in foreign currency exchange rates.

Lamneck credited EMEA's sales growth to an increased focus on deal execution and profitability in software transactions, as well as particularly strong performances in Italy, the Netherlands and the United Kingdom.

Sales in Asia-Pacific climbed 4 percent on a constant currency basis to $53.2 million, with success in Hong Kong and New Zealand offsetting struggles in Australia, Lamneck said.

Insight's stock price remained unchanged at $24.40 per share in after-hours trading Wednesday. The company's financial results were released after the market closed.

For all of 2015, Insight expects to have low single-digit revenue growth of earnings between $2.10 and $2.20 per share. Analysts were predicting 2015 earnings of $2.25 per share.

The solution provider's data center, software and services capabilities -- as well as its global scale -- should serve the company well in 2015, Lamneck said. He added that the company plans to continue investing in field sales, software and cloud capabilities in the coming year.