Insight Enterprises, Inc. (NSIT) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Fourth Quarter and Fiscal Year 2011 Insight Enterprises Earnings Conference Call. [Operator Instructions] 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 am Glynis Bryan, Chief Financial Officer of Insight, and joining me is Kenneth 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 & Exchange Commission on Form 8-K, you will find it on our website at insight.com under the Investor Relations section. Today's call, including the question-and-answer period, is being webcast live and can be accessed via 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, February 13, 2012. This call is a 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. In today’s conference call, we will be referencing the company’s return on invested capital, or ROIC, for the fiscal year ended December 31, 2011 and 2010, a computation of which can be found in our website at insight.com under the Investor Relations sections. 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 year-ended December 31, 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 of 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 of 2010. And 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 of 2011, compared to $25 million and $0.53 in the fourth 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 achieved 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 margin 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 from 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 a leverage that exists in our operating model. In EMEA, we saw sales growth of 2% in constant currency in the fourth quarter. We anticipated effect of partner program changes drove gross profit down 2% year-to-year in constant currency, which resulted in declining 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 70% on a constant currency basis, excluding severance expense in both years. Additionally, the team successfully implemented new IT system in the Netherlands and Germany in the back half of 2011, given us earlier success and an important initiative for organization. In Asia-Pacific sales increased 16% in constant currency in the fourth quarter, but due to lower margin, driven by primarily by client mix, earnings from operation was relatively flat year-to-year. For the full year, Asia-Pac business grew to 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, returns delivered on invested capital at 11.4% were notably higher than a cost of capital for the year. As we head into 2012, we are well positioned to continue to drive progress towards the long-term, strategic and financial objectives. Our global priorities in 2012 will continue to be focused on driving profitable growth to investment in people, training tools within our sales organization and expanding our service capabilities while controlling our costs, all in pursuit of continued progress for the 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 inside sales team. In 2011, we added approximately 100 net new sales reps to our inside sales team 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 U.S. We will also continue to invest in training for our sales reps to ensure they have knowledge across our portfolio product and service offerings. In 2011, our sales reps who went through training in our focus product categories, in 2012, we’re trying to deepen this training to include specific products and service solution areas such as mobility to cloud, unified communication to collaboration, data center, network and security and office productivity. This training, along with a more focused strategy around key services offerings, is intended to add more services as a percent of our total sales over time and we are making progress in 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 solution set, including cloud migration and management. And we’ve 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 to be through one special aggregation point. In North America, the Insight Cloud Solution Center or as a service aggregation portal, which is linked to insight.com enables the procurement, delivery, billing, administrative support of on demand services provided through the cloud. Similar cloud solutions have been 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 will also seek to optimize the performance under partner specific incentive programs, including dealer 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 also continued softness in the public sector. This strategy is serve to flow in 2011, particularly in EMEA, and we plan to continue to expand our hardware capabilities in certain countries in our European footprint in conjunction with a 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 of 2011, we began selling hardware in the new systems in Netherlands and Germany. And to accelerate our plans in these markets, we’ve recently closed the acquisition of Inmac, an IT solutions provider located in the Frankfurt and Amsterdam. With this acquisition, we have added 170 mix to our organization, roughly half of these in sales and marketing, as well as our local warehousing distribution capabilities in Germany. In net 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. And globally we’ll plan to continue to invest in our IT systems in 2012. In May, we will continue the rollout of our new IP system with implementations across our footprint throughout 2012 and 2013. In North America, we will complete the integration of various systems we acquired through acquisitions on to the common SAP platform we use. The development work is now complete and testing is underway. The integration is expected to current 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 sales force and our IT initiatives, while taking specific actions through this cost in other parts of the business. As a result SG&A as a percent of sales decreased 30 basis points year-over-year. We continued to focus on managing the costs as we head through 2012 and expect to demonstrate further leverage as our business grows. I’ll now hand the call over to Glynis who will discuss the fourth quarter and full year operating results of our business segment. 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 decreased 2% year-to-year and 7% sequentially due to seasonality in public sector spending and the completion of large deployment. Sales in our software category increased 4% compared to last year, due primarily to higher volume with multiple publishers and we are 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 shrink in margin reflects a 30 basis points improvement in credit margin, which includes further funding, a higher mix of services gross profit and 16 basis points from the reversal of inventory reserve reported in earlier period. Selling and administrative expenses for North America in the fourth quarter increased 1% to $90 million compared with $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 sales force 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 this segment in the fourth quarter compared to $861,000 in the fourth quarter of 2010. As a result, earnings from operations in North America was $30.4 million or 2.3% of net sales in the fourth quarter of 2011, up 29% and to $23.5 million reported in the fourth quarter of 2010. Moving on to EMEA. Our EMEA operating segment reported net sales of $369 million, up 1% in U.S. 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 highest volume across the mid market and public sector market. Gross profit in the EMEA was down 3% in U.S. dollars and down 2% in constant currency terms with gross margin declining to 15.2% from 15.7%, 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 U.S. dollars and in constant currency were up 4%. This increase year-over-year was primarily driven by investments in head count. EMEA also reported $163,000 in severance expense in the fourth quarter of 2011 compared to $408,000 in the prior year fourth quarter. Earnings from operations in EMEA were $8.5 million of fourth quarter of 2011, down from $10.5 million reported last year. In our Asia-Pacific operating segment, we reported net sales at $68 million, up 18% from the prior year U.S. dollars and up 16% in constant currency term. 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 higher mix of product business with typically transact in lower margin and lower mix of fees from enterprise agreement. Selling and administrative expenses in APAC were relatively flat year-to-year and the result our APAC segments reported earnings from operation with $3.4 million, which is flat year-to-year. Moving on to the tax rate. Our effective tax rate for the fourth quarter with 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 its foreign operations as well as other tax matters. This compares to $1.6 million of similar benefits reported in the prior quarter from the recapitalization of one of our foreign subsidiaries. Moving on to working capital metrics and cash flow performance. In the fourth quarter, cash flows from operations to the $106 million compared to $61 million for the same period in 2010. We invested $10.2 million in capital expenditures this quarter compared to $5.2 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 on 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 the $150 million of debt outstanding under 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 is 22 days in the fourth quarter of 2011, in line with the stated goal of this metric, but up four days from the quarter ended from fourth quarter 2010 due to increases in DSO period to period primarily in our foreign operations and due to the higher mix sales transactions with later in the quarter. On a consolidated basis and for the full year 2011, our next sales in gross profit increased 10%. We continue to control our costs, which fueled SG&A as a percentage 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 expense within 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 of earnings before taxes year-to-year primarily to lower interest expense and foreign currency paying. Our effective tax rate for the full year 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 is due primarily to the reorganization of foreign operation during the fourth quarter, while in 2010 the tax rate was affected by the recapitalization of foreign subsidiary. We currently expect 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 and increased the substantial tax benefit recorded in the fourth quarter. I will 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 sales force and expand our capabilities in these 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 will now open the line up to your questions.

[Operator Instructions] Our first question is coming from the line of Brian Alexander from Raymond James.

I just wanted to ask a question about the North American revenue trends. I think hardware was below season on a sequential basis, if I look at it year-over-year, it’s basically flat. I think you had an easier comparison. So Glynis, I think you called out public sector as being weak, but I think that’s been the case for a while. 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 kind of your major customer segments SMB and enterprise that would be helpful, and I have a couple of follow-ups.

Yeah, so 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’d see in a public sector business that contributed to that as well. And then we had a few significantly large roll out deals in some large enterprise financial, services, and retail clients where those roll outs finished in Q3 for us, we didn’t see that continuation in Q4. So from a product line point of view it was -- it really wasn’t anything that specific in that regard, it was much more towards the some large roll outs in some enterprise type clients.

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

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

Okay, all right, 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 may be some of the distributors have called out is helping margins?

I think the overall revenue from a 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 of these issues that are out there. I would say actually this is a 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 during the fourth quarter when we hit certain rebates entertainment.

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, many vendors and in the fourth quarter we have 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 to have programs that certainly volume is a key component of it. But within that there are certain product categories that are more important to them and they will actually pay higher rebates upon achievement there. So, that’s why we certainly focused 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 kind of finding the right programs to go after and being successful there.

Exactly.

Okay. Just finally, I’ll 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 Europe?

I think that we expect that the margins across the board in all the regions are going to improve modestly. In EMEA, we have the impact of Inmac acquisition, as well as expanding into hardware, that’s going to be 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 uptick across all of the regions.

And 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’ll continue those efforts.

[Operator Instructions] Your next question is coming from the line of Matthew Sheerin with Stifel Nicolaus.

Just a follow-up with on Brian’s questions regarding growth assumptions for this year. You’re looking at mid-single digits or better. If you look at the kind of, if you bake in seasonal declines in each of your operating divisions for the March quarter ex-acquisition, it looks like you’re looking at kind of flat to up a little bit year-over-year. Ken, so are you expecting either better seasonality or 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, you’re expecting a little bit better than the seasonal leader 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 accelerate 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 than EMEA the normal seasonal growth or market growth that you’d see in that marketplace. On the Asia-Pac business, of course that continues to be pretty robust growth. We had significant growth in 2011 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 and we’re continuing those we will 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 sort of low to mid single-digit growth rates.

Got you. And could you remind us of the business profile of the 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 are 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 product margins are consistent with what we see in our UK business. And we think there is opportunity as they traditionally performed less on the supply reimbursement side than we’ve experienced in the UK and we see there is opportunity for us to enhance that portion of the business that we’re acquiring.

Okay. And would you say that the gross margin profile of that business is kind of 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 base grows, will that drive gross margin higher this year?

Yeah, the margin profile actually for that business and hardware overall for us is consistent with our overall margin in their European business. So does it come in at a lower rate, that’s what your--

Okay. So, as you look at your leverage this year is that primarily going to come on the SG&A side, 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.

Okay.

So with a 72 basis point improvement in North America and 16 of it came from these inventory reserves.

Okay. And I know you have 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 then 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 will see kind of 16 basis points improvements in our inventory reserves going forward.

Okay. And just lastly if I can, just regarding the IT initiatives, Ken, in both North America and Europe, you mentioned some timeline. It sounds like both are pretty much in line with what you were thinking? I mean what you have talked about at your Analyst Day, any concern that the integration in Europe is going come later in the year, as you kind of 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 on 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 integrate 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’ll start to see in our second quarter, the first phase of that actually come into play here. So we are in the testing phase right now and things are going according to the plan.

You have a follow-up question coming from the line of Brian Alexander from 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 Greenfields, and just how are you thinking about kind of the balance between hardware and software and services in Europe over the next couple of years?

Yes. So Brian, as you know of course, we sell a full complement in the U.K. So we have a good hardware platform business in both what you call the sort of velocity products as well as the higher end products. So we’ve got a good business there and what we’re certainly moving forward in Netherlands and Germany is coming to be a full-fledged hardware plan and that 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 talked in 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 from the rest of our European footprint to determine if it’s made sense and it’s 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 of course to 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 we'll embark on towards the second half of this year and would consider that for 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 look at how we do that organically and potentially how we could accelerate that and like we have just have done here in Netherlands and Germany.

In the product mix for those countries that you are now entering, is it going to be similar to the U.K., where you are doing velocity in higher end, or you are looking at more of a data center focus?

It will be similar to what we’re doing in the U.K. So again having the breadth of the broad portfolio products and then look also strategically at the higher end products, which helps us with more of a services solutions footprint as well.

And 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 kind of a premium margin for the business, and I’m just wondering, going forward, if you still expect that or if it’s going to look more similar to hardware.

I guess I will take that one, Brian. I think that our anticipation is that the margins, the margin improvement or the margins differential that we have seen in software, has come from the enterprise agreements, which are 100% margin. So we look at our software category, and we add up product, software product margin and the EAs, we end up with the margins that’s a very good margin. As the -- we've actually done a pretty good job of mitigating the impact of the reduction in fees, given the notice that we have got from Microsoft for this change that occurred in October of this year, or last year rather. So I would anticipate that software with EA is kind of 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 about a few, software as a percentage of our business and as a percentage of 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 are factoring any share buybacks into your 45 million share count for 2012. So I was just wondering your thoughts on potentially re-upping for a buyback?

We currently do not have any 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 had given you the base upon, which we have built our budget, which is the $45 million number.

Okay. And then just a 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 look at the -- - if you just apply the raw math to the numbers that we have, you get a tax rate that’s somewhere in the 36% 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 it at the start of the year, if 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 in our guidance on a go forward basis.

Okay and then the organic growth that you are assuming for 2012, which we’ve taken back out of I guess closer to 2.5%. So 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.

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.

I'd like to thank everybody for participating in the call.

Thank you.

Ladies and gentlemen, this concludes today’s conference. We thank you for your participation. You may now disconnect. Have a great day.