Insight Enterprises' (NSIT) CEO Ken Lamneck on Q2 2014 Results - Earnings Call Transcript

Jul.31.14 | About: Insight Enterprises, (NSIT)

Insight Enterprises, Inc. (NASDAQ:NSIT)

Q2 2014 Earnings Conference Call

July 31, 2014 17:00 ET

Executives

Glynis Bryan - Chief Financial Officer

Ken Lamneck - President and Chief Executive Officer

Analysts

Brian Alexander - Raymond James

Matt Sheerin - Stifel

Operator

Good day, ladies and gentlemen, and welcome to the Insight Enterprises’ Second Quarter 2014 Operating Results 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 is being recorded.

I would now like to turn the call over to your host Ms. Glynis Bryan, Chief Financial Officer. You may begin.

Glynis Bryan

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 June 30, 2014. I am 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, July 31, 2014. 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 second quarter 2014 financial results. You will find a reconciliation of these non-GAAP measures to our actual GAAP results, included in the press release 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 in 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, 2013.

With that, I will now turn the call over to Ken to give you an overview of our second quarter operating results. Ken?

Ken Lamneck

Thank you, Glynis. Hello, everyone. Thank you for joining us today to discuss our second quarter 2014 operating results. In the second quarter, consolidated net sales were $1.4 billion flat year-over-year, gross profit of $190 million was up 2% year-over-year, and gross margin expanded 20 basis points to 13.7%. SG&A expenses increased 3% included non-cash charge of $5.2 million related to our Illinois real estate asset. Earnings from operations, excluding severance and restructuring expenses and the non-cash charge I just mentioned, increased 9% to $52 million. On a GAAP basis, earnings from operations increased 4% to $46.5 million. And diluted earnings per share excluding severance and restructuring expenses and the non-cash charge increased 9% year-over-year to $0.74. On a GAAP basis, diluted earning per share was $0.66.

Within these results, the North America business reported lower sales in the second quarter compared to the same period last year due to lower hardware sales to large clients and higher mix of software maintenance sales, which are recorded net in our financial statements. By client group, we saw nice growth in mid-markets, but softness in spending by large enterprise and public sector clients. By product category, notebooks and desktop sales were strong while data center investments continued to be light.

Gross profit was flat year-over-year in North America, while gross margin increased approximately 60 basis points to 14.1%. Increased product gross margins driven by our profitability initiatives and strong execution under partner programs drove the margin improvement year-over-year. And the team continued to tightly manage discretionary expenses, which drove earnings from operations up 4% year-over-year excluding severance expenses and non-cash charge recorded on our Illinois real estate asset that was listed for sale in the second quarter.

In EMEA our team delivered another quarter of improved trends and financial results. Net sales increased 6% year-over-year in U.S. dollars and 1% in constant currency due to double digit growth in hardware sales partly offset by lower software sales. This modest top line growth combined with the benefits of the cost reductions we made last year drove earnings from operations up 27% year-over-year in the second quarter excluding severance expenses in both periods.

We are pleased with the progress our EMEA team has been making to improve our sales execution in the challenging demand environment. The team has executed very well to mitigate the effects of partner program changes in the software category and have driven improved sales rep productivity and strong hardware sales growth year-over-year particularly in the UK business. These trends are expected to continue in the back half of 2014.

In Asia-Pacific the team delivered excellent results in the second quarter. Net sales increased 16% year-over-year in constant currency, gross profit increased 15% in constant currency terms and earnings from operations up $6.3 million were up 14% year-over-year excluding severance expenses. These results were driven by strong execution in the public sector and higher services sales in the year’s second quarter. Also during the second quarter we completed the integration of APAC business into the same IT system in place in North America. This transition has gone very well and we have now completed the multi-year initiatives to integrate our businesses on to more efficient and scalable IT platforms.

I will now hand the call over to Glynis who will discuss our second quarter financial results in more detail. Glynis?

Glynis Bryan

Thank you, Ken. Net sales in North America were $889 million in the second quarter down 4% year-to-year. Sales in the hardware category decreased 1% due to lower sales of data center products to large and public sector clients. Software sales decreased 8% due to higher mix of netted software sales and services sales declined 7% year-to-year due to fewer technical services engagements in this year’s second quarter. Gross profit in North America was flat year-over-year at $125 million and gross margin increased 60 basis points to 14.1%. This increase in gross margin was primarily driven by increased product margin including vendor funding and freight.

Selling and administrative expenses for North America in the second quarter were up $4.3 million year-over-year to $94.6 million. This increase was due to $5.2 million non-cash impairment charge associated with our Chicago real estate asset and the related accelerated depreciation on that asset that was recorded in the second quarter as we have decided to sell that building and relocate our sales office in that market.

Earnings from operations in North America was $85.7 million in the second quarter 2014, up 4% from $34.4 million in the same quarter last year excluding severance expenses and the impairment charge I just mentioned. Earnings from operations margin improved 50 basis points to 4%.

Moving on to EMEA, our EMEA operating segment reported net sales of $447 million, an increase of 6% year-over-year in U.S. dollar. In constant currency net sales increased 1%, also in constant currency hardware sales increased 18% year-over-year due to continued improvement in our UK business. Sales of software decreased 6% reflecting lower volume with large and public sector clients and services sales were flat year-to-year also in constant currency.

Gross profit in EMEA was $56 million, an increase of 3% year-over-year in U.S. dollars, but a decrease of 3% in constant currency with gross margins decreasing 30 basis points to 12.6%. This decrease in gross margin is primarily due to partner program changes resulting in lower vendor funding in the software category.

Selling and administrative expenses in EMEA in the second quarter were down 1% in U.S. dollars and down 7% in constant currency terms. This decrease year-over-year was driven by lower employee costs resulting from the restructuring actions taken in 2013. In the second quarter we recorded net severance expense of $250 million in this segment, down from $2.2 million recorded in the same period last year. Excluding severance expenses earnings from operations in EMEA were $10 million in the second quarter of 2014, an increase of 27% over the $7.9 million reported in the second quarter of last year.

Moving on to our Asia Pacific operating segment, APAC reported net sales of $82 million, up 13% year-over-year in U.S. dollars and up 16% in constant currency. Gross profit was $13.5 million increasing 12% in U.S. dollars and 15% in constant currency. And selling and administrative expenses in APAC increased in this year’s second quarter due to higher compensation expense on higher sales. We also recorded severance expense of $109,000 in this segment in the second quarter. Excluding the severance expense, earnings from operations in APAC, were $6.3 million, up 14% year-to-year in the second quarter. With respect to our tax rate, our effective tax rate in the second quarter was 38.6% in line with our expectations for the quarter.

Moving on to our cash flow performance, in the first six months of 2014, our operations generated $104 million of cash, up from $88 million in the first half of last year. This increase is due generally to lower working capital requirements in the business. We invested $5 million in capital expenditures in the first half of 2014, down from $11 million last year, reflecting lower IT investment. And we spent $30 million to repurchase approximately 1.3 million shares of our common stock.

We ended the second quarter with a cash balance of $150 million, of which $125 million was resident in our foreign subsidiaries and $25 million of debt outstanding under our debt facilities. This compares to $142 million of cash and $53 million of debt outstanding at the end of the second quarter of 2013. From a cash flow efficiency perspective, our cash conversion cycle was 21 days in the second quarter, an increase of 3 days from last year because of a decrease in DPO due to the timing of supplier payments in the quarter and investments in inventory to support time-specific engagements.

I will now turn the call to Ken.

Ken Lamneck

Thank you, Glynis. Moving on to our outlook for 2014, for the first half of 2014, we are pleased with the bottom line performance of our business overall. And looking at the regions, the North America business has not experienced a top line growth that we originally expected for the first half of the year. This has been offset by the effects of stronger gross margin performance resulting from our increased focus on profitability and continued tight control over our discretionary costs in the region. Addition of the sales and earning trends in our EMEA business have exceeded expectations so far this year, particularly our UK business. And finally, we are executing variable globally against our plans to mitigate partner program changes in the software category. As a result, we are increasing our full year earnings guidance.

We would now expect net sales to increase in the low single-digit range and we expect diluted earnings per share to be between $2.02 and $2.10. This outlook reflects the adverse effect on gross profit of previously announced partner program changes in the software category, which we now expect between $10 million and $15 million with the majority being realized in the back half of 2014 and an effective tax rate of approximately 38% to 39%.

This outlook does not reflect severance and restructuring expenses incurred during the quarter or the non-cash charge related to our Illinois real estate recorded in the second quarter. Thank you again for joining us today. I want to thank our teammates, clients and partners for their dedication to Insight. That concludes my comments. We will now open the line up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Brian Alexander of Raymond James. Your line is open. Please go ahead.

Brian Alexander - Raymond James

Okay, thanks and good evening, Ken and Glynis. Just to touch on the revenue growth, so it was flat this quarter, down 4% in North America and hardware in North America was down 1%. So, I just wanted to get more color on the drivers of that in the context of what appears to be a healthier market with a lot of PC refresh activity, you have probably seen the results from some of your competitors growing high single-digits, low double-digits in North America distributors as well. So, it seems like the market is doing a lot better than the minus 1% that you reported in hardware. Even within large enterprise customers, one of your competitors reported tonight and they had a double-digit growth in that customer segment. So, could you just talk more specifically about what you think drove the weakness in North American sales this quarter? Maybe there were some large deals that slipped or maybe you are walking away from more deals to preserve margin? I just wanted to get more color? Thanks.

Ken Lamneck

Yes, thanks Brian. Overall, when you look at the decrease, one thing, touch on the software side first, as you saw that we showed software actually declined 8% for the quarter. This was completely actually due to the netting aspects when you look at year-over-year and as you know of course we do net software, so it all depends upon the mix of this quarter. We had a lot more maintenance versus licensing. So that sort of gives you a sense of what occurred in the software side which was down year-over-year by 8% as we disclosed. On the hardware front certainly, our other points are very relevant. The private, one of the biggest areas that we haven’t fully participated is in this K-12 cycle. We do have vertical around that. We are ramping that, but not nearly to the extent a participation in that is out there in the marketplace and certainly many of our competitors are participating in. So we own that – we understand that in a scenario that we are continuing to invest in.

On a more general refresh cycle that’s occurring with migration activities away from XP. We certainly participated in that when we analyze the data, we didn’t participate as fully as we think the market when we look at NPD as data out there we didn’t participate as fully as everybody else did. So, we have certainly work to do in and around that. And in general when we look at our client set as you know we do have a higher mix than a lot of our competitors do in the large enterprise space. We still continue to see that being inconsistent buying that’s occurring that’s certainly impacting us as well. But overall we certainly we own it, we understand that this past quarter we certainly did seed some market share in the hardware space. And we understand where it’s coming from. Mostly driven actually when you look at the data mostly driven early by desktops, notebooks, when you look at the data center space that actually when you talk about networking, storage and servers that actually was down for the quarter across the board when you look at the NPD data in detail. So it’s really huge uptick that’s occurring with desktops, notebooks and tablets. That space really grew significantly. A lot of that driven by K-12 and lot of it driven by the PC refresh cycle.

Brian Alexander - Raymond James

And so for your annual revenue outlook now calling for low-single digit growth, I think that’s below what you said a quarter ago where you thought it would grow at least mid-single digits. To get to the target now it still seems like you need to see accelerating growth throughout the second half of the year and the comparisons do get a little bit tougher, in particular in Q4. So I just want to know what gives you confidence that you will actually see the acceleration and what are you doing to change the trajectory of revenue particularly in North America, it sounds like there were some disappointments in certain parts of the business, but is that something that you could turn around within the next two quarters?

Ken Lamneck

Yes. That’s certainly – certainly we are on that, we understand where the deficiencies are and we are addressing that and have been as well, it’s not something that totally caught us by surprise at the end of the quarter. So, we track the trends. We see the weekly data of NPD. We see the booking trends. So, obviously, as we analyze and look at that and understand our business more fully certainly that’s what gives us the confidence to give you the guidance that we provided for the second half of the year.

Brian Alexander - Raymond James

Okay. And then just one final one I will get back in the queue. So the EPS guidance that you did raise by I think about $0.04 at the midpoint. Is that entirely driven by the lower than expected impact from the Microsoft program changes, I calculate that’s helping you by about $0.07 relative to your previous expectation, so I just want to get kind have an updated view on what’s causing you to raise the earnings outlook. And on that Microsoft change its coming in below plan, the headwind is coming in below plan. And I am wondering is that just based on the fact that you were trying to estimate what that was originally and maybe you are being a bit conservative or are you just doing better job on executing on growth initiatives to offset what was the larger headwind before?

Ken Lamneck

Yes. No, it’s completely on the execution side of it because we obviously model every agreement we have to come up with those numbers, when we talk about that so we detail that very, very carefully. So we understood exactly what that was and we obviously factor in what we believe our remediation efforts will be which were significant. And we actually surpass those, so that’s why you saw better results. But overall certainly that’s one of the key elements of why we are increasing the guidance but that’s not in total we are very focused on our profitability initiatives and staying disciplined in making sure we are not just chasing revenue for revenue take which would be pretty easy to do right now. So we are being careful to make sure we are preserving our profitability initiatives that we have in place at this point.

Brian Alexander - Raymond James

Okay. But I think the Microsoft change is about $0.07, is that right?

Glynis Bryan

It is around $0.07 roughly, so it’s more volume that we have had in terms of remediation. The remediation activities that we have put in place, a lot of that occurred in EMEA where they have a much higher – significantly higher percentage of software business. So they are very focused on that aspect of it. So you are correct it’s primarily around the – that Microsoft remediation that we are doing and also the SG&A control from the North American perspective and a little bit better execution around margins in North America.

Ken Lamneck

Do remediation because it’s little harder Brian in the second half just because there is less volume of business that occurs as you know Microsoft’s year end drives a tremendous amount of volume. So you have a lot of opportunities for net new in that second quarter, whereas going forward you don’t have that same degree. So that’s where as we discussed the remediation becomes harder in the second half of the year because there is just not as many opportunities to remediate it.

Brian Alexander - Raymond James

Okay, alright. Well, thank you very much.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Matt Sheerin of Stifel. Your line is open. Please go ahead. Please check to ensure your line is not on mute.

Matt Sheerin - Stifel

Hello.

Glynis Bryan

Yes. Hi, Matt.

Matt Sheerin - Stifel

Yes. Thanks. Sorry about that. So I did have a couple of follow-ups on Brian’s questions, on the – just on the better gross margin, you talked about, Ken profitability initiatives maybe you talk a little bit more about that? And also you mentioned that you are seeing more software on a net basis, so wouldn’t that also help gross margin?

Ken Lamneck

Yes, that’s correct, Matt, in regards to that. So, it certainly impacts the top line, but on the GP line, it does not impact us at all. So, certainly that helps the percentages favorably in doing that. But on the profitability side, yes, there is a lot of things we have in place. As we have discussed, we have weekly profitability means that we drive – we do activity-based costing on all of our clients to make sure that we are doing the correct business within our client efforts and really trying to make sure that we are maximizing gross margin, where we can in all these instances. So, that’s a very detailed disciplined structure we have had in place now for quite a bit of time. And it’s starting to certainly gain traction, where it takes time to make sure that we are improving at the client level. And you can imagine number of clients that we are dealing with through this kind of analysis. But that’s well underway and again we – as we have discussed we are pretty disciplined in ensuring that we don’t just try to drive profit or I am sorry revenue for revenue sake and making sure that whenever driving growth, it’s profitable growth.

Matt Sheerin - Stifel

Okay. And you also mentioned that the margin was aided somewhat by the vendor rebates and making sure that you are well compensated. It would seem that intuitively that that would be tough to do in an environment, where you are basically missed revenue forecast. And if you did see benefits there, is that sort of a quarterly rebate issue where you are going to have to go back every quarter or are you sustainably seeing better margins from some of your suppliers?

Ken Lamneck

Yes. I think on the rebate front again Matt that’s again disciplined structure of looking at it doesn’t come across the board, so we will look at the product sets that our partners want to rebate. They don’t rebate the same across the board and we focus pretty diligently on ensuring that we are selling those products where we can that garner higher rebates or more lucrative rebates for us where it’s not our products that we sell we receive rebates from every specific partner. They do vary by partner and it varies within the partner as well on what you sell.

Matt Sheerin - Stifel

Okay. And you mentioned Glynis some severance charges in APAC and in Europe, so with some of that headcount reduction would you expect to see some SG&A benefits in the next quarter or two?

Glynis Bryan

No, specifically as it relates to APAC, we were kind of changing out some teammates and upgrading talents ultimately in terms of the business that we want to be selling in the future going forward. So, I wouldn’t expect to see on that 109K of some benefit going forward. On the EMEA side, it’s a similar story with regard to just kind of repositioning within EMEA to drive more of a services mentality ultimately in certain select markets as we want to drive some more services business in those markets so I wouldn’t anticipate you would see some benefit either of that $215 million in EMEA today.

Matt Sheerin - Stifel

Okay.

Glynis Bryan

15,000, thousand not million…

Matt Sheerin - Stifel

Okay. That’s right thought okay. And then on the – with the IT integration dynamic congrats on that by the way, are you expecting to have any – I know there is a lot of capitalized costs but would you expect also to see some OpEx to come down as you go to one system?

Glynis Bryan

So, we have one system now in EMEA and that was wrapped up in 2013 and we are seeing some of the benefits with the SG&A costs that we took out of EMEA in 2013. So I think we had on a constant currency basis SG&A expense in EMEA was down 7%. Part of that is a benefit of the restructuring activities as well as the system that we finished and finalized last year. From an EMEA perspective – from an APAC perspective they are now on the same platform as North America. We are going to be looking to see if there any back office functions that we could maybe do on a more centralized global basis, but I don’t have a number as it relates to that at this point in time we are just evaluating that. Now the system only went live at the end of May. So it’s very new days yet, probably in 2015 when we come back to with our 2015 guidance we will be able to talk to that – at that time after we have had six months of operations.

Matt Sheerin - Stifel

Okay. So, it’s not immediate, it’s going to take all time.

Glynis Bryan

It’s not immediate. We just need to have the system stabilize first.

Ken Lamneck

I think it was significant that was multiple currencies that we had to convert and so forth and really went very smoothly. So the people are adjusting to that system and typically of course we don’t touch anything for a couple of quarters, so we really make sure that the teammates really understand the system can operate fully, as initially a little bit more inefficient than you were than before you started on the new system.

Matt Sheerin - Stifel

Okay. And just lastly for me you talked about that some of the vertical initiatives that you are doing, you talked about K-12 I know there are several others cloud, healthcare etcetera, but could you update us on that and how that’s going and whether or not you are going to see some incremental investments in those businesses?

Ken Lamneck

Yes. We continued to invest in sales resources and technical resources to deploy at the verticals. So we have of course on healthcare where we did see on some nice growth I’m not sure it’s that market when I look at some of the data that’s out there. So I think we can do better in and we are continuing to invest in that initiative as well. Our service provider initiative is going very nicely from a top line and bottom line point of view. And we will continue to do that. The cloud is receiving lots of attention. We just received some accolades at Microsoft’s recent partner conference to be their global cloud partner of the year for their LSP category. So, we continue to do well with Office 365 and Azure migrations. So, you will hear more and more about that as we are continuing to invest in that and see these opportunities. But at this point it’s a little bit premature to breakout any of that revenue from the cloud business yet.

Matt Sheerin - Stifel

Okay. That’s it for me. Thanks a lot.

Operator

Thank you. Our next question is the follow-up from the line of Brian Alexander of Raymond James. Your line is open. Please go ahead.

Brian Alexander - Raymond James

Okay. Thanks. Maybe just talk more about Europe you had a very strong growth on the hardware side this quarter and obviously you have got new leadership in the region and you talked about sales execution and productivity, but I was wondering if you could just be a little bit more specific on what’s different over there in particular in the hardware segment under new leadership versus old. Are you changing the sales structure, compensation plans, any color that you could provider there will be helpful?

Ken Lamneck

Yes. I think Brain what we are really seeing there is a lot of that of course comes out of our UK business. And we got a very strong leader who a year ago wasn’t fully in the business she was actually out on a maternity leave. So, she is back fully into the business than has been now and it’s because really you are starting to deliver some very good results for us. So, I think stabilizing that leadership she had been there before for quite some time and did a great job for us. So, we are getting that back on track. And of course tweaking the programs and tweaking our focus on specific areas around compensation so forth to make sure we have got the right incentives in place were all part of it, but nothing major in that regard. It really came down to I think having the correct leadership in place. And of course Wolfgang Ebermann is now running the whole region for us and he is really bringing a tremendous amount of support there as well. So, that’s all good news for us.

Brian Alexander - Raymond James

You talked in the prepared remarks about how the growth is likely sustainable in the second half? And I just want to know how literally to read that, because you just put up 18% growth excluding currency and hardware in Europe this quarter, of course, that’s going against the easy compare from a year ago, but those comparisons get much more difficult. So, when you say that the strength is sustainable, what are we talking about in terms of growth rate?

Glynis Bryan

Well, I wouldn’t want you to model in the 18% growth rate on a go-forward basis, but when you go back and dissect our results, last year in Q3 and Q4, our UK business performed poorly. I think Q2 was the worst quarter in history. So, I think that they do have some low compares going forward. So, I would anticipate that the initiatives that (Yamaha) has put in place and that is driving (indiscernible) will continue. So, when we say that there is going to be continued growth in EMEA, albeit not at the 18% range, we think that EMEA’s growth is going to be in the high single-digits as opposed to the lower single-digits that we are seeing for North America. And I think that what you will see is the benefits continuing in Q3 for sure around the SG&A reductions that we took last year. Some of that gets mitigated a little bit ultimately in Q4, but I would anticipate that you will see continuing strength on a year-over-year basis from EMEA at the top line as well as at the bottom line in Q3 and Q4 in the second half.

Brian Alexander - Raymond James

So, Glynis, what’s the right way to think about kind of the target margins for Europe as you mentioned last year, you are under 1% operating margin, the year before that it was 1.7%, if you go back further in time being north of 2% wasn’t too uncommon. And in North America, it looks like your margins are actually on track to be pretty reasonable this year, maybe 3.5%, which I know isn’t where you want to be long-term, but I would call it a respectable result. So, where should Europe be when you think you are fully executing?

Glynis Bryan

Well, that’s not going to be at the end of this year, just to be clear. I think that they still have more to go going forward. So, I would expect at the end of this year, they are going to be a little bit north of 1% roughly. I think that we would anticipate that Europe is in the 2.5%ish range when they are fully functional and executing.

Brian Alexander - Raymond James

2.5%?

Glynis Bryan

Yes, we never had an expectation that they would get to the 3.5% that we have as a corporate goal. That was always predicated around North America being higher and kind of covering Europe and APAC for us has always been in the 5% to 6% range historically.

Brian Alexander - Raymond James

So, is 2.5% something that’s achievable within the next couple of years or is that more of a long-term target?

Glynis Bryan

It’s more of a long-term target, I’d say, the 3% plus range as opposed to 1% to 2%.

Brian Alexander - Raymond James

Okay, alright. That’s really helpful. And then finally on cash flow, you guys did a really good job on generating operating cash flow through the first half of the year over $100 million. And I think for the full year, you are typically targeting around $100 million, so maybe just update us on what you would aspire to on an operating cash flow basis and what your outlook is for the second half?

Glynis Bryan

I think that we are still seeing that in general we anticipate being in that $100ish million range. Our normal range is $80 million to $120 million roughly, not normal, but we have had that range over the years. There is some cyclicality and seasonality of the business strictly based on how deals get closed at the end of the quarter, etcetera. So, I think that despite being at $104 million at the end of Q2, we still anticipate being in that $100 million, $110 million range for the end of the year. I don’t think there is certainly much room higher than that.

Brian Alexander - Raymond James

Okay. So you don’t expect to generate cash in the second half? This is the way to read that.

Glynis Bryan

Well, I think that we will have puts and takes between Q3 and Q4 ultimately and that will be kind of in that same range. I wouldn’t want you to think that the second half is going to generate another $104 million and we will be at $208 million.

Brian Alexander - Raymond James

No, I am not thinking that, but I am wondering if it’s zero.

Glynis Bryan

I don’t think it’s totally zero, but I think that I don’t have a good way to predict that, because it’s based on the timing specifically around software of when the deals actually close. And we have to make the payments ultimately to our large vendor around software.

Brian Alexander - Raymond James

Okay.

Glynis Bryan

And that’s a little bit spicy for us. So, we don’t – the payments to the vendors.

Brian Alexander - Raymond James

Right, okay. That makes sense. Alright, thank you very much.

Operator

Thank you. And I am showing no further questions in queue, I would like to turn the conference back over to management for any closing remarks.

Ken Lamneck

Thank you everybody for participating in the call and we will talk to you next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of your day.

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