Good day, ladies and gentlemen, and welcome to the Insight Enterprises' Fourth Quarter and Full Year 2017 Operating Results 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 be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host for today, Ms. Glynis Bryan, Chief Financial Officer. You may begin.

Thank you. Welcome everyone, and thank you for joining the Insight Enterprises conference call. Just for your reference the slides that we have posted on the website associated with the call today, so you may want to look in those and follow along as we go through the script. Today, we will be discussing the company’s operating results for the quarter and full year ended December 31, 2017. 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 the 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 14, 2018. 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 refer to non-GAAP financial measures as we discuss the fourth quarter and full year 2017 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 and acquisition related expenses recorded in all periods, adjusted measures will also exclude the loss recorded in the third quarter of 2017 on the…

Hello everyone. Thank you for joining us today to discuss our fourth quarter and full year 2017 operating results. For the fourth quarter of 2017, consolidated net sales were $1.8 billion, up 22% year-over-year, reflecting organic growth of 12% and the addition of Datalink, which we acquired on January 6. Net sales in constant currency were up 19% year-over-year. Gross profit was $233 million in the fourth quarter, up 22% year-over-year and up 19% in constant currency with gross margins increasing 10 basis points year-over-year to 13.1%. Consolidated selling and administrative expenses were $185 million in the fourth quarter, up 27% year-over-year reflecting the addition of Datalink and 9% growth in our core business. Adjusted earnings from operations increased 5% to $48.3 million. On a GAAP basis, earnings from operations increased 12% to $45.5 million and adjusted diluted earnings per share was $0.81. On a GAAP basis, diluted earnings per share were $0.39, which includes a onetime charge relating to the recent United States Federal income tax changes. Glynis will cover that in more detail in just a few moments. Our fourth quarter results reflect strong close to a very good year. I am also very pleased with the results for the full year of fiscal year 2017. Consolidated net sales were $6.7 billion, up 22% year over year in U.S. dollars and in constant currency, reflecting organic growth of 13% as well as the addition of Datalink. Gross profit was $919 million in 2017, growing faster than sales at 24% which drove gross margins up 20 basis points to 13.7% for the full year. Consolidated selling administrative expenses were $723 million in 2017 up 24% in 2017 reflecting the addition of [Datalink and 5%] growth in our core business. Strong organic sales growth in our core business in 2017…

Thank you, Ken. Starting on slide 10, Ken covered most of the financial result s for the deal, so I will cover new income statement, presentation of products and services, cash flows, taxes for 2017 and the impact of the recent U.S. Federal tax reform and the changes in revenue recognition effective in 2018. On slide 11 let me start with the income tax statement presentation. On the SEC rules, the company must report services sales separately from product sales on the face of this income statement when sales and services exceed 10% of consolidated sales. We changed the presentation on our income statement for the year ended December 31, 2017 as our services sales were approximately 10% and we expect services to continue to grow overtime. In the new presentation we will report cost, sales and cost of goods sold separately for products which include hardware and software and fire services, earnings releases and public filings and our 10-Qs and 10-Ks. For comparability purposes and our earning release today, net sales and cost of goods sold for the 2016 period have been conformed to the new presentation. Please note that this change in presentation has no effect on previously reported total net sales, total cost of goods sold or total gross profit amounts. In conjunction with this change, certain fees earned from activities recorded on a net basis are considered services under U.S. GAAP. We reclassified certain revenue streams for which we accept remunerations in the transaction to services in that field. Previously we included these revenue streams within the software and to a lesser extent hardware sales mix category based on the type of products being sold. For example, net sales and gross profit earned through the sale of software maintenance and cloud software product were included in…

Moving on to our outlook for 2018, for the full year 2018 we expect our business to deliver sales growth in low single digit range compared to 2017. We also expect adjusted diluted earnings per share for the full year 2018 to be between $3.90 and $4. This outlook assumes the effective adoption of the new revenue recognition standards effective January 1, 2018, the effective tax rate between 27% and 28%, and capital expenditures of $15 million to $20 million. This outlook does not include the completion of our recently authorized share repurchase program or any severance restructuring or acquisition-related expenses. Thank you again for joining us today. We want to thank our teammate clients and partners for their dedication to Insight and their contributions to a record year for our business. We're excited to see what 2018 brings to well-positioned to compete and win in the marketplace. That concludes my comments. We’ll now open up the line for your questions.

Thank you. [Operator Instructions] Our first question comes from Matt Sheerin of Stifel. Your line is now open.

Yes. Thank you and good afternoon. Just a few questions here from me. Just first --so, Ken on the revenue guide for the year, low single digit. So as you say a few add back at the 240, then you’re looking sort of mid single-digits because in your commentary you sounded like, you felt like this was still be obviously off a very tough comp, last year with that big upgrade cycle, but it sounds like you still think there’s some refresh left and then it sounds like on the enterprise value in terms of solutions, cloud etcetera, there is some pretty strong demand there?

Yes. You’re exactly correct on that in all those comments, Matt. So we would expect future account for the recent change there on this software, security software happen to be netted would be in the mid single-digit range for growth for 2018.

Okay. And then on gross margin and it looks like that accounting move will be add, I don’t know, 20 to 30 basis points of gross margin, but I would think excluding that you would think given that there’s going to be a slowdown at least some points, at least in terms of comps under the client device side that you’d be seeing more solutions selling and services which would also boost gross margin. Is that a correct assumption or not?

Yes. Matt, that is correct assumption. We anticipate that we’ll have some gross margin expansion beyond the security, the impact of the security netting affect.

Okay. And just sort of extending that one step if I may, on the operating margin side there are few back into your guidance with the tax rate, it looks like your guiding maybe 10 to 20 basis point improvement in operating margin. I would think that the last big step with the Datalink integration and that the focus on solutions, selling, that you’d see a little bit more operating expense – margin expansion. So what am I missing there?

We are getting the benefits in 2018 of the [incremental $6-ish million] associated with Datalink. We also probably have a little bit of currency impacting there potential. As I think about it we’re on the higher end of your 10% to 28% range in terms of the [FFO] expansion as we think through that. And as we think about the solutions areas there are couple of key investments that we’re making in 2017 related to positioning ourselves around the cloud and the e-commerce platform that can talked about in his opening comments.

Okay. I’ll get back in the queue.

That are in P&L base not necessarily caps but also P&L base.

Okay. Just one other thing I -- and with the higher solutions you also going to have pay higher commission, right, so the SG&A would also commence really rise with that, right?

Yes.

Okay. All right. Thank you.

Thank you. Our next question comes from Adam Tindle of Raymond James. Your line is now open.

Okay. Thanks. Good afternoon, Ken, just as you reflect on 2017 and what unable the double-digit revenue growth for the full year on an organic basis. Can you just parse out how of his is cross selling with Datalink? How must is the strong market? And then maybe just help us with the $524 million for Datalink versus your initial expectations not sure if there was maybe some gross versus net that played our there?

Yes. So, no questions, 17% was certainly above market. We track the third-party pretty closely, so certainly indication are that we do grew share, and we grew share specifically and product sets such as devices which was strong overall but we grew faster than the market driven devices. And also in that datacenter, so we grew very strongly with servers and storage devices. On the connotation of Datalink and how much of that participate. We really didn’t start that activity, because the first nine months we’ll focused on, make sure we integrate it, don’t break anything kind of a concept, and then in Q4 we really started to say, how do integrate Datalink more into the traditional insight clients. And as you know those are pretty long design cycle, so, we’re pleased with what we’re seeing. We definitely expect to see some pickup there in 2018 from that activity. So, your last question was around Datalink around $524 million. So yes, that was as you remember when we first took on Datalink that was a netting from our accounting practices that we originally took into consideration when we bought it in a year ago in to the business. So that had certainly an impact. And there was I would say that the scenario that we probably could done a better job on we could have probably grown the top line sales pretty well. We’re very pleased with the gross profit generation and we’re pleased with the services business there, but there is some probably some product sales maybe initial that we left on the table there, initially with Datalink, but overall as I’ve said in my comments very please with how Datalink’s come into play and really now be in full integrated and we’re able to now with the Datalink account start to sell a lot of the traditional sort of supply china business as far as devices, software that they didn’t sell and then vise versa using those great artitects that they have into the traditional insight clients where we maybe as penetration in the data center solution areas, so that’s coming into play pretty nicely in 2018.

Okay. That’s helpful. I also wanted to touch on gross margin particularly in North America, I think ex-Datalink its probably still somewhere in the 11% rate, 11% and 12% range? I know you’ve bee establishing the relationships with the large customers. Can you just maybe talk about some of the moving parts impacting gross margin in North America and on the comment about an uptick in 2018 and gross margin, is that, I mean I know the conversion of 606 is going to add like 50 basis points based on what is was in 2017. We would have strip that out is [gross margin X3] accounting change still going to be up as well?

Yes, Adam, so we do anticipate that gross margin X3 accounting changes going to up 10 to 20 basis points over for North American particular and that kind of translates as well at [the IEI] level ultimately, so that’s the expectation that we have for 2017 – 2018 sorry. 2017 was impacted by couple of very large clients that we talked about on prior calls with regard to business that we were doing, our land and expand strategy around. 2017 was a land year. We knew what we were doing when we went into those accounts. We had a significant revenue growth per piece associated with that, that revenue growth is continuing into 2017, 2018, but we’re expanding the capabilities that we do with both client such that we’ll generate greater margin coming out of those clients and that was a part of the strategy that we were executing against in 2017 and we’ll see some of the benefit of that going into 2018. Datalink performed well from an overall gross margin perspective. We’re anticipating that that performance will continue and that they will have growth this year. Whereas they didn’t meet our growth expectations quite so much for last year for some very good reasons, but didn’t quite meet our growth expectation, so with that we will have higher growth and devices were a very significant driver of revenue last year and the sales to the lowest product, lowest margin product within our portfolio. And this year we do expect device growth to continue but not at that same pace. So we expect to see just naturally some rationalization of the gross margin associated with that. And one of the things we talked about was the underperformance of our core services operations in 2017. And we think we’re seeing some indications from bookings etcetera that’s going to stronger going into 2018, and then that higher gross margin that will also help us ultimately in the mix of the portfolio changes in 2018.

Okay. That’s helpful. Maybe just one last one for Ken on the decision to authorize the buyback at this point, it was seem like Datalink has overall done well and given the market is so fragmented there would be more of those opportunities out there. And maybe this doesn’t preclude from pursuing that, but may just talk about the trade off that you and the board considered when deciding o do the buyback authorization now? Thanks.

No. I think good question, Adam, and certainly agree with you. We don’t think it preclude us at all, so we’re always looking for opportunities that make sense to expand our portfolio growth from the scales point as well as scale where it make sense so we don’t believe it at all that the $50 million buyback will preclude us form engaging and considering another opportunities in the market. So we definitely took that in concentration.

I’ll just add on to that, Adam. We have the 50 million authority and we’re just going to evaluate market conditions etcetera with regard to when we execute that. We have up to 50 million and we can be selective as when execute that for 2918, that’s why it’s not included specifically in the guidance at this time.

Make sense.

Thank you. [Operator Instructions] Our next question comes from Cara Anderson of B. Riley & Company. Your line is now open.

Hi, good afternoon.

Hi, Cara.

Most of my questions have been asked but are you seeing any evidence of expanding IT budget from access capital to deploy under tax reform?

I don’t think that today we’ve seen that. We have an expectation or maybe an anticipation that that would happen because they get some accelerated deductibility under the new laws going forward. They get deducted from a tax perspective with the cash timing benefits that they get. But today we haven’t seen any acceleration of that coming through from our very large clients today, maybe a little earlier if they kind of working through budget consideration as well, but we have seen that yet. And they have it over the next five to 10 years, [Indiscernible] continues till 10 years, but they do still have a benefit any time over the next at five years that they can accelerate that.

Got it. Thank you.

Thank you. And we do have a follow-up from Matt Sheerin of Stifel. Your line is now open.

Yes. Thanks. Just a couple of more from me, one, on the – if you look at some of the competitors, Ken, did talk about some supply chain bottlenecks on a net working and storage side that kept them from closing deals in the quarter. Did you see any of that? And then in terms of memory component environment, it looks like you were starting to see signs at least of some ASP stability if not erosion in capacity coming on line. What kind of impact does that having on your business?

Yes, Matt, the networking in the storage side, we actually, certainly we are aware of it and we seem to work through it pretty well for our client set. So there was a few deals certainly that they would happen in the quarter that have shifted in the Q1, but nothing of material nature for us. Our teams really work well together regard to support our clients, so we feel we’re in pretty good shape. But it wasn’t anything that a significant that would have called out for our business. On the memory component side, yes, you’re on top of that certainly with the portfolio of products that you track pretty well. And certainly that’s had a pretty significant impact on the ASP increment for devices over last year on 2017 and into 2018 which is why our comments were that we – all the data we had, so it look like that that’s going to pretty much hold through the first half of the year. We don’t know what the half will met or bring, maybe more people start to compete and lower memory prices and that actually translate into lower ASPs for devices that we sell, we’re not really sure yet, but today the supply should manage well through those increases and of course we past those increases on. We think for our business it’s probably the ASP, impact of capacitors and memory type device, increase is its probably about 7% in total for the device itself, so its had meaningful impact on I think the revenue increases that we’ve all seen for devices over 2017 and we think into the first half of 2018.

And I appreciate you don’t give guidance for the first quarter and just for the year, but last year you came out of block obviously very strong much better than seasonal with that big client device upgrade. Are you seeing more seasonal trends as we into Q1 here, I mean that’s what basically most of your competitors are saying?

Yes. I would say so. I think you’re correct in that regard. I think those on the device side of things there is -- which I think it will actually should stabilized to some degree that Win 10 has not been fully adopted by any mean and I think clients will continue to adopt Win 10 in their environment and that’s going to lead of course to the device upgrades, the security aspect so relevant to everybody that there’s a lot of good reasoning to upgrade to Win 10 in the marketplace and we see client doing that in a measured way, they’re not rushing to do it, but we see in the measured way which I think should – we see as an important element for ourselves for devices for 2018.

Okay. All right. Thanks a lot, Ken.

Thank you. And ladies and gentlemen, this does complete our question and answer session. Thank you for participating in today conference. This concludes today program. You may all disconnect. Everyone have a great day.