Good day, ladies and gentlemen, and welcome to the Insight Enterprises' First Quarter 2018 Operating 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, this conference call is being recorded. I would now like to turn the conference over to Ms. Glynis Bryan, Chief Financial Officer. Ma’am, you may begin.

Thank you. Welcome everyone and thank you for joining the Insight Enterprises' earnings conference call. Today, we will be discussing the Company's operating results for the quarter ended March 31, 2018. 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 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, May 2, 2018. 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 the first quarter 2018 financial results. When referring to non-GAAP measures, we will refer to such measures as adjusted. Adjusted measures discussed today will exclude severance and restructuring expenses recorded in all periods and acquisition related recorded in the first quarter of 2017, as well as the tax effect of these items as applicable. You will find a reconciliation of these adjusted measures to our actual GAAP results included in the press release and the accompanying slide presentation issued earlier today. The slide presentation also includes a reconciliation of adjusted free cash flow. Also, please note that unless highlighted as constant currency, all amounts and growth rates are discussed in US dollar terms. Lastly, we adopted ACS 606 effective January 1, 2018 on a modified retrospective basis. This means that we have not represented the 2017 results shown in our earnings release or presentation materials issued earlier today. Finally, let me remind you about forward-looking statements that will be made on today's call. All forward-looking statements that are made during 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, 2017, and other reports we file with the SEC. With that, I will now turn the call over to Ken. And if you’re following along with the slide presentation, we will begin on slide four. Ken?

Hello everyone. Thank you for joining us today to discuss our first quarter 2018 operating results. I’m pleased to report that we've started the year with strong top and bottom line financial results, as our global team executed very well against the current market opportunity and maintained operational discipline across the business. In the first quarter, we delivered double digit sales growth and gross profit growth, while tightly controlling expenses, which drove adjusted earnings from operations up 69% year over year, and adjusted EFO margin up 80 basis points compared to the same period last year. Specifically in the first quarter of 2018, consolidated net sales were $1.76 billion, up 19% year over year, reflecting double digit growth across our hardware, software and services categories. Net sales were up 16% in constant currency. As a reminder, we acquired Datalink January 6, 2017 so all this growth is organic. Gross profit was $240 million in the first quarter, up 15% year over year and up 12% in constant currency. Gross margins were 13.6%, down 50 basis points year over year due to lower mix of fees from enterprise agreements and fewer professional service engagements, partly offset by the positive effect of the acceleration of certain partner incentives that were fully earned in Q1 that would normally be earned over the full year. And consolidated selling and administrative expenses were $188 million in the first quarter, up 6% year over year and up 4% in constant currency due to modest investments in headcount across the business. All of this led to adjusted earnings from operations of $52 million, an increase of 69% year over year, with each of our operating segments contributing positively to our results. On a GAAP basis, earnings from operations were $50 million, up more than 100% compared to…

Thank you, Ken. Beginning on slide eight. Ken covered the key highlights of our very excellent first quarter results. So I’ll use my time to update you on other matters. Our effective tax rate in the first quarter was 26%, similar to the rate reported in the first quarter of last year. In the first quarter of last year, we reported $2 million of tax benefit on settlement of employee share based awards in accordance with the new accounting standard. For the quarter - for the current quarter, our rate reflects US federal tax reform enacted in late 2017, and the related impact on State income taxes and limitations on deductibility of certain operating expenses and interest expense. For the balance of 2018, we expect our expected tax rate will be between 26% to 27%. Also, our results in the first quarter included the effect of acceleration of certain partner incentives into Q1 that would normally be earned over the full year. We earned them fully in Q1 due to changes to the program, and estimate that the accelerated Q1 benefit was approximately $5 million. This acceleration was a significant driver of EMEA’s performance in Q1. As we noted earlier, we adopted ACS 606 effective January 1, 2018 on a modified retrospective basis. This means that we have not restated the 2017 results presented in our materials today. In our 10-Q to be released earlier this week - later this week, we will provide a reconciliation from the results under the new 606 rules to the previously used accounting methodology. Moving on to Slide nine. As expected, the adoption of ACS 606 did not have a material effect on our top or bottom line results reported in the quarter. However, the impact on certain balance sheet items was more notable.…

Thank you, Glynis. Moving on to slide 10. With respect to our 2018 outlook, for the full year of 2018, we now expect to deliver sales growth in the mid to high single digit range compared to 2017. We’re also increasing our adjusted diluted earnings per share outlook for the full year of 2018 to between $4.35 and $4.45. This outlook assumes an effective tax rate of 26% to 27% for the balance of 2018, capital expenditures of $15 million to $20 million for the full year, and an average share count for the full year of approximately 36 million shares. This outlook does not reflect the repurchase of any additional shares that may be made under our currently authorized share repurchase program, assumes no current year acquisition related expenses, and excludes severance and restructuring expenses incurred during the first quarter of 2018 and those that may be incurred during the balance of 2018. Thank you again for joining us today. I want to thank our teammates, clients and partners for their dedication to Insight and for their hard work that resulted in our record first quarter. We very excited about the momentum of the business and look forward to a strong year. That concludes our comments and we’ll now open up your line for your questions.

Thank you. [Operator Instructions]. And our first question comes from the line of Adam Tindle from Raymond James. Sir, your line is now open.

Okay, thanks and good evening. Just wanted to start with a quick clarification on the acceleration of partner incentives maybe for Glynis. I'm assuming that these were recorded to a lower OpEx and not COGs. So it didn't really impact gross margin. And then if you could help us maybe think about the right OpEx level moving forward. I know you quantified the $5 million of benefit here. If I add that back, OpEx as a percent of revenue was down 100 basis points year over year. Is that kind of the right cadence to think about?

So Adam, first it turns out that the $5 million actually is reflected in COGs so it didn’t impact gross margin. Ultimately it’s not in our OpEx.

Okay. I guess that negates the second question then. Maybe I can …

But ultimately just, if you think about it, we did take an action at the end of 2017 I think ultimately. I don't think we talked about what the impact of that was, but we anticipate getting some benefit of that coming through in Q3 and Q4 primarily because our expenses ramped throughout 2017 going into 2018. The delta is not as great in Q1 and Q2 as it would be in Q3 and Q4 from an operating expense perspective.

Got it. And for Ken, I think guidance for the full year suggests that the company's actually going to begin to approach the mid-3% EFO margin if I have the math right. I know this has been a goal in years past. If you could maybe just talk about the moving parts that are getting you there and the sustainability of that level.

Yes. Thanks for the question, Adam. Yes, you can definitely see that we're certainly moving in that direction, which has been a stated objective of ours. So I think you can certainly see what's occurring there for us. Certainly the accelerated growth is having a certain - a big impact for us as well as controlling our OpEx pretty nicely across all the regions. So that's - those are the main drivers. We're still working diligently on the service portfolio, which we believe has a lot of leverage in it for the solutions we provide of course, as well as being up in expanded gross margin. And that's an area that we're very focused on to really help us there. So it's not just at the backs of having to hit topline growth. We believe we also need to work on improving the margin. So those things aren’t completely in sync right now, but so actually we’re making good progress towards that objective. Okay. Maybe just one last one. If there's a little bit to pick apart in this quarter, if there's one area that we could talk about, the strong cost controls are certainly there, but on the gross margin, we also heard this from one of your competitors earlier today, and they were talking about vendor program funding growing at half the rate of revenue on a year over year basis. I just wondered from your perspective, I know you haven't really seen that much in terms of the vendor partner issue, but could you talk about the puts and takes to gross margin, particularly in North America and are there any metrics that you can share in that vein like they did today?

Yes. The - certainly we're well aware of what they commented on there. We haven't really seen that. Of course there are, as we’ve said, puts and takes dependent upon the partner itself where that occurs and we've been managing and balancing that over the last few quarters where that's become an issue in the channel. So that has not contributed to any real decline for us. We’re certainly cognizant of it. for us, mainly the gross margin decline had to do more the fact of not hitting the services objectives that we've stated, as well as some large enterprise hardware deals that are still very accretive on the ROIC basis, which is why we do those deals, but still lower gross margin in a pretty significant size, and that's what's degrading the gross margin a bit. But at this stage, we wouldn’t say it's coming from partner incentive changes.

Even excluding the $5 million that we talked about.

Yes, even excluding the $5 million acceleration. That's correct.

Right. Okay. Well, thank you and congratulations on a fantastic quarter.

Thank you.

Thank you. We’re so pleased that you’re saying congratulations. It’s the first time in a long time. Thank you.

And our next question comes from the line of Kara Anderson from B. Riley. Your line is now open.

Hi. Good afternoon. So clearly you guys have to be gaining market share here. Can you talk a little bit about where you think that share is coming from and what specifically in your strategy do you think is working so well for you to continue to come out ahead?

Yes, Kara. So you know, we have third quarter data that helps sort of solidify a lot of the information on the hardware front. Software is much more difficult. But in the hardware front, we basically certainly picked up share. Notebooks were by the way, were really strong across the whole channel. And we picked up further share by the data that we get on a weekly basis. There was also pretty substantial growth in the categories of servers and storage in the channel as well, and we picked up considerable growth in both of those areas. So those are the primary areas. And of course, those are all really big segments of the business in regards to hardware. Those are the main drivers. It’s basically devices is number one, networking products are two and then server storage being three. So those are the categories. On the software front, we can state that Microsoft of course being the largest provider of software in the channel play, we get pretty good information from them on a quarterly basis showing that we're continuing to maintain our number one status globally with Microsoft.

Got it. And then relative to the Street at least, it seems like you're raising guidance more than the 1Q outperformance. And if that’s also true relative to your internal expectations, is there anything in particular you can share behind that move?

So I think, Kara, by our calculation, the - we didn't have any share repurchases in the original guidance that we gave you when we gave you the range of three - I think $3.90 to $4 originally. So part of that is reflecting the benefit in the Q2 through Q4 of this year regarding the share repurchase. That’s about $0.05 to $0.07 ultimately. There's a little bit of reduction, a small reduction in the overall tax rate that adds a couple of cents ultimately there. And I think we - there's a little bit stronger sentiment in these - we believe in the second half of the year with regard to the benefit we’ll get from some of the cost reductions flowing through. And that's offset by the $5 million acceleration coming forward, which is about $0.10 for us. Ultimately that was - contributed to Q1 that's not going to be there in the second through fourth quarter. So I guess there’s a level of confidence in our execution for the remainder of this year.

Got it. That’s helpful. Thank you.

[Operator instructions]. And I'm seeing no further questions, and that concludes our Q&A session. Ladies and gentlemen, thank you participating in today’s conference. This concludes today’s program and you may disconnect. Everyone, have a great day.