Good day, ladies and gentlemen and welcome to the first quarter 2008 Insight Enterprises earnings release conference call. My name is Kaunda and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Glynis Bryan, Chief Financial Officer. Please 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 ended March 31, 2008. I'm Glynis Bryan, Chief Financial Officer of Insight Enterprises. And joining me is Rich Fennessy, President and Chief Executive Officer; and Mark McGrath, President North America and APAC. 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 www.insight.com under Investor Relations section. In addition, we expect to file a quarterly report on Form 10-Q by the end of the business day today and this report will also be available on our website. As usual, at the conclusion of the scripted portion, we will answer questions from our conference call participants. Today's call, including all questions-and-answers, is being webcast live and can be accessed via the Investor Relations section of our Website at www.insight.com. An archived indexed copy of the conference call will be available approximately two hours after the completion of the call and will remain on our website for a limited time. This conference call and associated webcast contain time sensitive information and is accurate only as of today, May 8, 2008. This call is the property of Insight Enterprises. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed 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 that are made in this conference call are subject to risks and uncertainties that could cause the actual results to differ materially. These risks are discussed in today's earnings release and in greater detail in our annual report on Form 10-K for the year ended December 31, 2007. Insight Enterprises assumes no obligation to update and does not intend to update any forward-looking statements. With that, I will now turn the call over to Rich.

Thank you, Glynis. Hello, everyone. Thank you for joining us today. The first quarter of 2008 was a very challenging quarter for our business. In order to give you visibility into the drivers of the first quarter performance and our operational priorities for the balance of 2008, we will be handling today's call a little differently than we have in the past. I'll first take you through the overall results for the quarter, some of the factors influencing our performance and the resulting implications to our 2008 guidance. Glynis will then take a few minutes to provide more details on our segment level financial performance. Followed by Mark McGrath, President of North America and Asia-Pacific, who will take you through the tactical actions, we are taking to improve the North America segment's short-term financial performance. We'll then open up the lines for questions. And we will have an extended time for this call to ensure that we have time to answer all of your questions. Our consolidated first quarter results included diluted earnings per share of $0.22, which includes $1.9 million, $1.1 million after tax, of severance and restructuring expenses recorded during the quarter. Net sales of $1.11 billion, reflecting a 1% decline compared to the first quarter of 2007. Gross profit dollars were relatively flat to the prior quarter, as higher gross profits earned in EMEA and the Asia-Pacific offset the declines we experienced in North America. Earnings from operations decreased $5 million to $18 million, compared to $23 million reported last year. The current quarter EFO results include the severance and restructuring expenses I just mentioned, while the first quarter 2007 results included $5.7 million in fees and expenses associated with our stock option review. In EMEA, the software and service categories performed generally well and the overall…

Thanks, Rich. As Rich discussed, our North America operating segment had a challenging quarter. First quarter net sales were at $766.4 million, down 1% from the first quarter of 2007. From a product perspective, hardware sales declined by 4%, while software sales increased by 4% and sales of services increased by 11%. Overall, gross profit dollars declined 7% or $7.9 million year-over-year. As a percentage of net sales, gross profit decreased to 13.6% from 14.4% in the prior year quarter due primarily to decreases in product margin of 62 basis points, this includes vendor funding, driven largely by market pricing pressures and lower net sales to SMB clients, which are generally conducted at higher gross margins. Additionally, we saw decreases in freight margin of 15 basis points. Selling and administrative expenses declined $3.5 million and as a percentage of net sales, were 11.9%, down from 12.2% in the first quarter of 2007. The first quarter 2007 results include approximately $5.2 million in fees and expenses associated with a Company's stock option review. Excluding these expenses, selling and administrative expenses were up about $1.8 million during the first quarter of 2008, largely driven by increased salaries and wages and IT related expenses. Additionally, North America recorded $1 million in severance and restructuring expenses during the first quarter of 2008. In addition to the actions taken in this first quarter, which we believe will produce annualized savings of over $3 million in North America, we're taking further steps to reduce the run rate expense base in this segment. Mark will take you through those initiatives in just a few moments. Overall, North America earnings from operations for the three months ended March 31, 2008, decreased $5.4 million or 31% to $11.8 million or 1.5% of net sales, compared to $17.1 million or…

Thanks, Glynis. As Rich stated earlier, the disappointing results in our North American business clearly indicate that we have a lot of work to do this bring this business back to a strong state. We've already implemented a number of critical actions in April across our business, focused on increasing net sales and gross profit and reducing our expense base to improve our overall earnings performance. While all of these actions are important and required, I want to focus on three areas that we believe will be most critical to improving our performance in the second quarter and throughout the balance of 2008. Specifically, I would like to outline number one, our plans to improve our SMB business; number two, provide strong performance in software in the second quarter and the rest of 2008; and number three, reduce our expense structure. Let me start with our SMB business. As Rich stated, this business has been the most significantly impacted by the new IT system rollout, which has caused a decrease in our overall transaction run rate and most notably, caused declines in SMB sales generated through the Web by 50% in the first quarter of this year compared to the prior year period. In the first quarter, we made a number of technical changes to the functionality of the system. For our telesales team transacting through the system, we've made changes to make the system more user friendly and increase its speed and efficiency to fuel higher sales productivity. We now believe that the telesales component of our new IT system is functioning at the same level as the legacy system. We've also made improvements for our clients interacting with our website. Though we believe it will take us much of 2008 to fully fix the technical issues and get…

(Operator Instructions) Your first question comes from the line of Brian Alexander with Raymond James. Please proceed.

Thanks. Just a couple of questions. Rich, you mentioned the assumption that you expect organic sales growth to be roughly flat and I think that was in reference to North America for the balance of the year. I just want to clarify that that's what you said. And if so, what gives you the confidence that you can maintain flat growth in light of what you saw in SMB this quarter, demand being challenging, pricing obviously sounds like it was more competitive and you've got the SAP issues, which sound like they're moving in the right direction but won't be totally fixed for a few quarters? And I have a few follow-ups.

Sure. Specific to North America growth, as you look at obviously first quarter at negative one overall, as you model that out through the rest of the year, and we do anticipate the SAP issues that we felt over the first quarter to each and every quarter getting better. As we look at the second half of the year and quite honestly, we have an easier compare in the second of the year, given the fact that some of these issues with SAP started in the second half of last year. When you look at all of those combined, we do feel comfortable that relatively flat and that's plus or minus on either side is what we'll see from a revenue perspective for 2008.

Okay. And then maybe just to pickup on the pricing comments. It sounds like it was much more aggressive this quarter than it has been in prior quarters. Could you just talk a little bit about what was the source of the pressure? Was it specific competitors? Was it broad-based? Was it across product lines? Any more specific commentary on where the pressure was coming from?

I would say it was broad-based. I mean if you look at -- it was across segments. It wasn't just an SMB statement. It was SMB enterprise, as well as public sector. So overall, in North America, the 80 basis point decrease we saw in gross margins really came from, I think, what is pretty typical in these situations where you have tough growth and a slowing market. You've got everybody out there, whether it's Dell or whether it is our other competitors out there trying to go compete for business and price is obviously one of the tools that they use to try to go win business. You also have the factor of vendor rebates in terms of the vendor funds that we received. And a lot of vendor fund programs have ties to hitting sales targets. And obviously, when you miss those sales targets, you also have less vendor funding flowing in. And it's that combination of end user pricing competitiveness, as well as less vendor funding that really drove the gross margin deterioration in the quarter.

So, what are you assuming for the balance of the year in terms of gross margin degradation? You talked about 80 basis points this year on year in North America. Are you assuming consistent year-over-year decline for the balance of the year or are you assuming that it's much less severe?

No, as you look at it sequentially -- in North America, again, I'm being specific. We're down about 20 basis points sequentially from fourth quarter to first quarter. For the most part, our planning assumption is what we saw in gross margin in the first quarter plus or minus will play out in Q2, 3Q and 4Q. So, you're going to pretty much have a gross margin at a level that does not improve. Obviously, in 2Q and 4Q because of the software mix, you'll have a little spike that is associated with that aspect. But for the most part, we don't see the same 80 basis points each quarter dropping off, clearly. But as you look at our fourth quarter actual, that relative level of gross margin is what we're expecting to see play out between 2Q, 3Q and 4Q.

And then finally, and I'll step back in the queue. Just on SAP, a couple of quarters ago, I think it was on the Q3 call, you talked about the fact that you had converted the majority of your sales, I think it was 80% of your customers and that represented 70% of your sales to mySAP. And now you're saying two quarters later, after holding off in the fourth quarter on migrating the remainder, a 15% reduction in sales to SMB, which is mostly, I think being driven by the SAP issues. I'm just having a hard time reconciling. It seems like you were real far along in the process a couple of quarters ago. And then I'm just trying to better understand what changed since that time period. And maybe walk us through a little bit more detail on the timeline for getting everything totally fixed.

Sure. So, let me just give you the first quarter actuals in terms of where we are, in terms what portion of our business is transacting on the new IT platform versus our legacy platform in the U.S. hardware and services business. As you look at it, about 75% of our clients are now transacting on the new system. As you look at it from an SMB perspective, 88% of the revenue in the first quarter was off the new system. 22% of our enterprise business is actually already on the new system and 65% of our public sector business is on the new system. So, a majority of our clients have moved over. That's still a true statement. We've had some move back and forth, some more back, for various issues. So, that's why you see a little bit of fluctuation, as well as we've just lost some customers. So, the denominator has changed as we've had issues with our website. The 50% deterioration in our Web business, along with that comes a lot of lost customers that drive that 50% deterioration. So, that's why you see some different percentages being used than perhaps you've seen historically us discuss. But bottomline is you've got 75% of your clients there and relatively -- a majority of your SMB business, a majority of your public sector business and we're already starting to get in 20% plus of our enterprise business going through it. As we see in the work that Steve Speidel is working, we believe that, again, the plans are still late summer months. But bottomline, in 2008, the plan is to get our Insight legacy hardware and services business over to the new platform. And we feel confident we can go do that and it's obviously very important for various reasons. One of which is, as it relates to our expense model, getting some of the back office expense and some of the duplicity we have inside of our structure today, out of our expense model. It doesn't happen and it won't happen quite honestly in 2008 because we believe we're going to get the system deployed and then we've got to go optimize the system. But as we go into 2009, we think we've some good opportunities from an expense perspective. But again, the goal for 2008 is continuing to work that Steve and his team are working on and get us all over to the one system. Get the remaining 25% of the clients and the remaining part of the revenue over to the new system, which we believe that's what we're going to do in 2008.

Okay. Thanks, Rich.

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

Good afternoon, guys. Rich, would you go through a little bit -- I'm not sure if you or Mark, either one want to take this. But if you go through the, staying on the SMB side for just a minute, can you give us just a little bit more -- I know we've been through this on the last couple calls but walk through exactly what happens on this Web where it's disenchanted customer basis and what's happened. Is it wait time? Is it content? Just sort of walk us through what's happened there?

Yeah, John, I would say I think it's a combination of issues. It's everything from the functionality of the system relative to the data that's there and the use, to the performance of the system to even the log on issues. So the time we've been spending to get that functionality back and get that speed back. And I'll tell you, I think we've made progress. We are reintroducing the website to some of our less complex clients. We do have a dependency for some of our more complex clients to get this last launch of the technology. So, in summary when you look at mySAP, I think we've done a great job in how to get the telesales component back to the same level it was from a legacy standpoint. That does allow us with our client base now to get out of this reactive mode and be more aggressive. And then we've made progress with Web and again, we can reintroduce it to the more simple types of accounts. And then as we make these other technology changes, we'll reintroduce it to the more complex subset.

Okay. And you can see some of those people begin to come back as you've made the changes, I think you alluded to that.

Yeah. I mean, what we're doing, if you can imagine is really going out with a very robust and, we think, well thought out campaign, where we're frankly using financial incentives to get them to log on to the site to use the site, to see that we've made these enhancements in terms of the functionality. And so, we're offering everything from discounts in terms of price and other type options to get that activity because we think, again, with our more simple clients in SMB, we're positioned to go do that.

Next question. Just to follow the numbers a little bit. You gave a little clarity to the gross margin on Brian's question. But on the expense management, is basically some of those costs going to offset that decline? Is that how we should look at that? Other than just that $3 million of annual savings in North America?

As we think about going into the remainder of this year, clearly, we took some expense actions in the first quarter and as Mark alluded to, we're taking, quite honestly, a fresh sheet of paper kind of perspective on our expense model in the second quarter and see what additional actions we can go take. While we wait for the systems to go get deployed and get to one common infrastructure, which we know has some inherent costs associated with just maintaining those two structures. So, as we look at basically gross margin and the pressure we saw in the first quarter continuing throughout the rest of the year, and recognizing that they'll be relatively flat organic sales, is what we called out, and one of the levers we really need to look at aggressively is our expense model. See what areas and do everything from discretionary items like reducing travel and non-client related activities, to just fundamentally looking at our organizational structure to see what opportunities we have to go get costs out here in the second quarter, which would give us some additional room as we go into the second half of next year. So, we're working through various ideas. And we've various plans already in place but on the next earnings call, we'll be taking you through kind of the conclusions that came out of that exercise.

Great. Thanks.

(Operator Instructions) Your next question comes from the line of Aaron Berman with Thomas Weisel. Please proceed.

Hi. Good afternoon, guys.

Hello.

Well, my first question was just on the EPS guidance. We just finished the March quarter here and given the limited visibility of the industry in SMB enterprise, just across the broad spectrum of the industry, what gives you guys the confidence you can hit that -- well to one, give EPS guidance and that you can hit it?

Yeah. We did internally have a discussion, do we not give any additional guidance based on the various factors that we're looking at. And obviously, we had guidance our going into the year and obviously the current guidance is materially lower than that. We felt it was important at this point in time to go give our best view. But at the same time, trying to go highlight what I think is pretty obvious, that there are various factors in play from the market, to the timeline in terms of us driving improvement for our internal issues around SAP and our expense model, to the uncertainty associated with the software business and whether customers were going to renew their EA contracts, which has a huge dependency on how Microsoft, in this case, leads those discussions. Because, again, we're just the agency partner there. But we took all of those issues into consideration. We looked at it and said, this is our best view today. And we thought that was important to at least put the view on the table versus just going black on this whole topic -- or dark on this whole topic. As we go through -- and quite honestly, the hardware business and services business, we believe we have enough insight and intelligence to go model that out and the issues we're seeing and have a higher level of confidence in forecasting that business for the remainder of the year. Where the forecasting exposures are in terms of us just having a little bit less certainty is in the software business. And as I tried to highlight in the script, there's various factors impacting that. One is, we knew going into the year that the software business was going to have less rebate and fee as a…

Okay. Thanks. And just a quick housekeeping question. In Europe, you guys said you were -- I think it was down -- or up 3% year-over-year -- down 3%. Sorry. What about in constant currency, what was that number?

Excluding the FX impact, we're down 8.8%.

Okay. And just to clarify, you let go of 60 people and you're hiring another 50 new sales people this year?

Correct. 50 new salespeople. We let go of 60 some non-salespeople. Yes.

Okay. And just around that, so you're -- still given the current environment, you still feel the confidence that hit your -- you still see no reason to lay off of hiring 50 new people given the weaker environment?

No. As we look at it today, and this is Rich, I mean clearly, in this environment, there's no doubt it's challenging. We have to do two things. One, is we've got to figure out how to get our expense model inline to give us more flexibility to deal with the ups and downs. But two, is we're going to -- one, is the market will strengthen. The question is when and our view is hopefully as you go into 2009, it will be much stronger. And we fully intend to have ourselves positioned to go be able to seize that growth opportunity. And we fundamentally believe our sales team needs to grow from what it is today, in order to go position us to go seize the market opportunity. Obviously, as you look at our strategy today, we've made incredible progress the last few years in terms of strengthening our value proposition. Strengthening our technical capabilities, like the Calence acquisition we just did around networking and the Software Spectrum acquisition we did around software. But the front-end of our sales process is that salesperson, that general relationship salesperson trying to go build the opportunities and then bringing in those specialists. And we believe we need to go build up that sales organization both in SMB. And by the way, we're also going to look to grow our enterprise team, as well as our public sector team as we go through the second half of the year as well. So our intention here is not just to go cut and wait. It's cut and grow at the same time. And obviously, that becomes a tricky battle and that's -- as we go through the second quarter, that's exactly the type of plans we're trying to go put in place.

Okay. And just one other quick question. Let's say things were to worsen further, do you have any sort of plan B to cut more people?

To the comments I already made, we are looking at our overall expense structure. And really, we're looking at the org structure itself. We're looking at discretionary expense items. We call that non-people related and trying to go figure out how you go cut as many of those out in the second half of the year and the remainder of the part of the second quarter. And again, the overall expense work that we're doing in this environment, is we took some actions in the first quarter, clearly, the resource action that we took. And then, on the next earnings call, which will be in August, we'll take you through kind of the conclusions from our second quarter work and what that will mean for us in the second half of the year. Obviously, we've taken some of that -- we've taken that into consideration in the guidance we've given you. So, we try to give you our best view in the $1.50 to $1.60 range, what we think will happen both from an expense perspective and the actions we're going take and the benefit of those, as well as what we think is going to happen from a revenue and gross margin perspective.

Okay. Thank you.

Your next question so a follow-up from the line of Brian Alexander with Raymond James. Please proceed.

Brian?

Brian, your line is open.

Can you hear me?

Hello.

We can hear you now, Brian.

Rich, I appreciate the comments earlier about the software business being the most uncertain and I totally understand that. You did factor into your outlook you're expecting a decline in that business. Was that -- were you referring just to the North American part of your software business and could you give us a sense of how much a decline you're actually factoring in?

Yes, I was referring specifically to the North America segment, which is where we have the majority of our large enterprise agreements, where the renewal discussion has the most material impact. And we do anticipate that to be relatively flat in revenue terms but down in gross profit dollars on a year-to-year basis. Exact percentage down, we don't give subcategory outlooks but we obviously have to take that into consideration in the guidance range we put out. As it relates to Europe, we do see challenges in Europe, as well as relative to the software business. We have some other dynamics in there that we hope will offset some of that. As you'll remember in the non-U.K., the Software Spectrum business in the rest of Europe was pretty much an enterprise only business and Stewart and his team have really been making some very good progress in building up an SMB software business, which gives us some offsetting factors to some of the pressure we're seeing in enterprise software agreements out there. So, that's kind of how we see it playing out.

Okay. Going back to the Microsoft call recently, they didn't sound as subdued about their outlook. They don't comment specifically on every geography and licensing versus other portions of their business but I'm just trying to tie together why they seem so optimistic and their resellers don't.

Yes, I thought when they adjusted their guidance down for the second quarter, I thought they -- one of the bullets they highlighted is they saw some weakness in this segment of their business. But when we look at the business, we look at it both -- from multiple perspectives. We look at it from the perspective of the rate that we make just when someone does renew an agreement. And so as the overall agreement either they don't renew, obviously you get zero. Or if they renew at a lower rate because of aggressive you need to take, the problem is with a lower revenue contract, we get a rate at a lower dollar amount, which generates lower GP dollars for us. So, I tell you, the partner has various factors that kind of come into play as it relates to this topic. But overall, I think the issues I highlighted in terms of concerns renewals is not obviously unique to a reseller, that's really being driven from the publishers themselves.

And then just back to the hardware business, only down 1%, with the 15% decline in SMB, would suggest that your large corporate sales were very strong. Because I thought historically, those businesses were maybe not equal size but closer to equal than not. And I guess a two-part question on that. What drove the strength in the large corporate business? Because I don't think the overall market is very strong. And then secondly, you sounded a little bit disappointed with the consistency in that business in your earlier comments. And I'm just wondering, why are you disappointed in light of those strong results?

The overall hardware segment from the release would say we're down 4% on a year-to-year basis, so not 1%, 4% for the hardware segment. But it is true that our enterprise business and our public sector business grew in the quarter. The enterprise business grew, it didn't grow nearly to the extent we had budgeted and hoped for because we saw some of our larger accounts, especially in the month of March, slowdown their spending and defer projects. Our public sector business did very, very well and we feel good about our public sector business. And as we go into the second quarter and third quarter, we're looking to go continue that, obviously fourth quarter as well. But the enterprise business and public sector both did grow again. The only disappointment was we were hoping for more because we think we've a lot to offer our enterprise clients and it just slowed down a little bit from -- and it missed our budget and our internal expectations, as we saw some of our clients defer key projects that we thought were going to go happen in the quarter.

Okay. And then finally, on buyback, you mentioned completing in the second quarter. Just what are your thoughts at this point, given where the stock is, on suggesting to the Board for additional authorization?

Clearly, we look at our stock price today as a great investment given today's stock price. And we have that conversation with the Board often. We obviously have to take into consideration other needs for cash that we have, as we look at our business going forward. But rest assured it is a topic of discussion amongst the Board. First, of course, in the business finishing the repurchase that we have out there today, which we -- as I said, we will finish in the second quarter. Once that's done, we'll key up the discussion and decide what the next step would be, which we have not done yet.

With respect to the additional priorities, how high on that list are additional acquisitions? What's your appetite in light of all of the ongoing work you have to do in the core business and the integration of Calence, et cetera. Is that something you would hold off on until you feel more confident in the core business or not necessarily?

Clearly, as it relates to the North American marketplace, I think we need to see the marketplace settle down before we would ever jump in and do another acquisition in that marketplace right now. So, as you look at that, you should never say never because obviously if there's incredible deal comes your way, you need to at least evaluate it in the interest of understanding what it could mean from a long-term shareholder value perspective. But our priorities as we look to the second quarter and third quarter and fourth quarter for North America are not doing additional acquisitions. It's completing the integration of Calence. Leveraging that the way we believe we can go leverage it. As well as fixing some of the core issues we have inside our North America business, as it relates to getting the IT platform deployed, getting the expense model a little bit more -- give us a little more flexibility out of our expense model and then get some growth in our sales team, so that we can go position ourselves for a strong 2009.

Okay. Thank you very much.

Yes.

And at this time, there are no additional questions in queue. I would now turn the call back over to Mr. Rich Fennessy for the closing remarks.

Well, thank you very much for joining today's call. Clearly, as we've discussed, we have our work cut out for us. And again, disappointed by our first quarter results, we think we have the right plans and actions in place to go drive improvements from where we were in the first quarter. And we will look forward to sharing with you our status on our next earnings call. Thank you very much.

Ladies and gentlemen, thank you for joining today's conference. This concludes the presentation. You may now disconnect, and have a wonderful day.