Insight Enterprises Rides Cloud, Client Strength to Steady Q3 Sales Growth

Insight Enterprises posted a 3.9 percent improvement in net earnings as a bigger portion of the company's PC, server and storage business gets a boost from growth in cloud computing.

Cloud now represents 14 percent of the Tempe, Arizona-based company's gross profits, up from 9 percent last year, according to Chief Financial Officer Glynis Bryan. Insight is seeing higher cloud adoption rates in Europe than in North America, Bryan said.

Insight reported that sales for the quarter ended Sept. 30 increased 3.8 percent to $1.39 billion, up from $1.34 million last year. This beat analysts' projections of $1.36 billion, according to Seeking Alpha.

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Net earnings jumped 3.9 percent from $20.8 million last year, or 56 cents per share, to $21.6 million this year, or 60 cents per share. On a non-GAAP basis, net earnings improved from 1.4 percent from $21.9 million last year to $22.8 million this year, or 62 cents per share, handily beating analysts' estimates of 53 cents per share.

Insight's stock price jumped by 5.6 percent to $35.13 in after-hours trading Thursday. The company's financial results were released after the market closed.

However, Bryan said a labor agreement with Hewlett Packard Enterprise has ramped up more slowly than anticipated, meaning Insight won't capture a $75 million benefit from the contract in the second half of 2016 as previously projected.

CRN reported in April that Insight would hire more than 200 inside sales workers from HPE's Conway, Arkansas, facility to help the solution provider grow its inside sales operations in the small to mid-sized business and public sector segments of the U.S. market. Insight has brought over all the teammates, Bryan said, and expects to capture more than $75 million from the agreement in 2017.

"We're still very positive on it," said Ken Lamneck, Insight's president and CEO. "The teammates we brought over are very well-skilled; it's just taking a little while to develop that SMB business."

Sales in North America increased by 3 percent to $1.05 billion thanks to pretty good growth around Microsoft cloud, notebook computers and servers, Lamneck said. Hardware sales in North America were up 2 percent, software sales were up 3 percent and services sales were up 12 percent thanks in part to the October 2015 acquisition of interactive design company BlueMetal, Lamneck said.

Insight's federal business outperformed its state and local government businesses as the U.S. government's 2016 fiscal year came to a close in September, Bryan said. Desktop computer, storage and networking sales in North America all declined slightly, and gross margins fell due to a higher mix of business with large enterprises, Lamneck said.

Europe, the Middle East and Africa (EMEA) saw sales grow 6 percent to $311.7 million. After factoring out changes in foreign currency exchange rates, Lamneck said hardware sales were up 9 percent, services sales were up 15 percent and software sales were up 22 percent.

Software sales in EMEA climbed due to a couple of lower-margin deals with large clients, Bryan said, while Insight's U.K.-centric hardware business experienced more muted demand due to concern around anticipated Brexit-related changes.

More than 55 percent of Insight's EMEA are centered around software as the company's hardware sales in the region are primarily limited to the U.K., Germany and the Netherlands, Lamneck said. In contrast, Insight has more stability around its hardware business in North America since hardware accounts for more than 60 percent of the company's sales in the region.

Insight's Asia-Pacific sales climbed by 13 percent to $29.7 million, with gross profits increasing at twice the rate of sales, Lamneck said. The company will be able to bring more app design, cloud and mobility capabilities to its Australian customers thanks to its August acquisition of Perth, Australia-based Microsoft consultancy Ignia, Lamneck said.

For all of 2016, Insight expects sales to grow in the low single-digit range on an improved earnings per share forecast of $2.40 to $2.45.