Insight Enterprises, Inc.

and welcome to the Insight Enterprises First Quarter 2020 Operating Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ms. Glynis Bryan, Chief Financial Officer. Thank you. Please go ahead.

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, 2020. I'm Glynis Bryan, Chief Financial Officer at Insight, and joining me is Ken Lambnick, President and Chief Executive Officer. If you do not have a copy of the earnings release that was posted this morning and followed with the Securities and Exchange Commission on Form 8K, 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, March 7, 2020. This call is a property of Insight Enterprises. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Inc. Enterprises is strictly prohibited. In today's conference call, we will refer to non-GAAP financial measures as we discuss the first quarter 2020 financial results. When referring to non-GAAP measures in today's call, we will refer to adjusted earnings from operations, adjusted diluted earnings per share, and return on invested capital. You will find a reconciliation of these non-GAAP measures to our actual GAAP results included in the press release and the accompanying slide presentation issued earlier today. Also, please note that unless highlighted as constant currency, all amounts and growth rates discussed are U.S. dollar terms. Additionally, any reference to our core business or the organic change year-to-year in our performance will exclude PCM results subsequent to the acquisition on August 30, 2019. 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 most recently filed annual report on Form 10-K and periodic reports subsequently filed 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, and thank you for joining us today to discuss our first quarter 2020 operating results. As the COVID-19 health crisis began to accelerate in the first quarter, we were impressed by the swift response by government officials across the globe and inspired by the unrelenting commitment to help others by health care workers and first responders. Inside what presented with this crisis, our first step was to focus on the health and safety of our teammates and their families. Very quickly, we successfully deployed our more than 10,000 teammates across the globe to work from home positions while we also implemented protective measures at our core operating facilities. At the same time, we focused on supporting our clients' immediate IT needs as they navigated the rapidly changing business environment. Lastly, we focused on our strategic plans to optimize our performance in these uncertain times and position our business to compete as well as the market recovers in the future. The demand for IT solutions evolved throughout the quarter. We experienced increased demand for work from home and collaboration solutions as companies deployed their workforce to respond to shelter-in-place mandates. This increased demand drove hardware sales up mid-single digits year-over-year in our core business, although certain sales were delayed to future quarters by continued supply constraints by chip manufacturers. By industry, what we experienced in our business was generally consistent with commonly perceived trends. Healthcare institutions and schools need new technologies to support hospital intake procedures and to enable remote learning for students. Airlines, hospitality, and cruise lines pulled back on planned projects as they evaluated future demands in their businesses. And in mid-market, clients moved quickly to enable their workforce to be productive to defend their revenue streams as their macro trends began to shift in mid-March. We believe the IT industry is good both for robust and challenging times. In the first quarter, Many clients were faced with business challenges that called on our expertise across our solution areas. One example included Insight's Connected Platform Detect and Prevent solution, a new solution developed by our digital innovation solution area, which helps clients deploy and operate critical sensors, devices, and infrastructure that can help detect symptoms and help prevent the spread of the coronavirus through its screening process. Insight is using the Connected Platform both internally for its own facilities to help provide a safe work environment as well as offering the solution to our clients. The connected platform solution leverages advanced cloud paths architecture for workflow, data insights management and accessibility down to the edge with Linux container-based processing and orchestration, thermal camera management for temperature detection, machine vision models for automated learning for social distancing and face-to-face usage, and Smart Handwashing Sanitizing Stations allowing predictive self-availability to support employee handwashing standards. These tools are powerful in and of themselves and with our connected platform Detect and Prevent Solution, they're no longer standalone tools and help with data elements but become a full IoT platform and able to help our clients make their environments safer. During March and into April, our Connected Workforce Solution Area also supported clients with Critical IT Solutions in Response to the COVID-19. This included pre-conferred work-from-home kits consisting of devices and hotspots for schools and businesses. Laptops and handheld devices were delivered and supported to stand up over 150 COVID-19 stations across the U.S. Mobile workstations were set up for government agencies. Handheld devices were provided for hospitals and urgent care facilities. And over 25,000 webcams were deployed to support virtual doctor visits. We are proud of how our global team engaged to support our clients in this extraordinary time. I want to thank them again for all they do for Insight and for our clients every day. Moving on to slide five. As we look to the remainder of 2020, we believe that client demand will be driven by three key areas and we're all positioned to compete in those areas given our expertise with our focus on the solution area of supply chain optimization, connected workforce, clouded data center transformation, and digital innovation. The first area of client focus is efficient supply chain. Clients are trying to reduce costs as their business has been impacted by COVID-19. We can help our clients through our supply chain optimization solution area where we provide cost-efficient processes for them to procure quality IT products. Clients can access these products through our e-commerce platforms or by leveraging our software asset management lifecycle and managed services. Additionally, we are helping clients save money related to Thank you for joining us. to enable efficient deployment and management of endpoints across client environments, including globally, that can scale rapidly for our clients. Leveraging the cloud through modern collaboration solutions wrapped with our Insight delivered managed services, clients can leverage Insight to improve their user experience and workforce productivity across small, mid-sized, or even large global employee footprints. The third area of focus for our clients is security. As clients have increasingly moved to more remote working environments, they have exposed their systems and their businesses to increased risk from a security perspective. Criminal cyber activity is an all-time high and will continue to escalate as cyber criminals see easy targets in this environment. We can help our clients mitigate this risk as security solutions, including managed services, are core to our offerings in our connected workforce and cloud and data center transformation solution areas. From a technology standpoint, We think there will be several key leaders in 2020 as clients respond to COVID-19 and its impact on the marketplace. These include cloud offerings, software as a service and infrastructure as a service solutions. Cloud as a category continues to grow in the marketplace. For the 12 months ending March 31st, gross profit generated through cloud offerings was 18% of our consolidated gross profit. Security will also be an area of strength, both hardware and software solutions and services, remote professional and managed services offerings. And finally, collaboration solutions, for example, Microsoft Teams and Cisco WebEx with secure endpoint devices and wireless access points. We believe our strong partner relationships combined with our expertise in services and solutions positions us well to serve clients in these areas as we head throughout the balance of the year. Moving on to slide six, I'm pleased to report that our first quarter results reflect solid performance and the unprecedented time in our economy. Specifically for the first quarter, which includes PCM for the full period, consolidated NIP sales were $2.1 billion, up 27% year-over-year. Consolidated gross profit of $325 billion in the first quarter was up 31% year-over-year. Gross margin expanded 50 basis points year-over-year to 15.2%, a new record for the company, including margin expansion in our core business of 10 basis points, and the addition of PCM to our business. Consolidated selling administrative expenses were $269 million, up 41% year-over-year, driven by the addition of PCM and the modest investments in the core business. Adjusted earnings from operations were up 9% year-over-year to $67 million, and on a GAAP basis, earnings from operations were $53 million, down year-to-year, including higher amortization expense, severance and restructuring and acquisition-related expenses related to the acquisition of PCM. and adjusted diluted earnings per share was $1.30, up 11% year-over-year on a GAAP basis. Diluted earnings per share was 95 cents. Turning to slide seven. Our earnings results in the first quarter were in line with our internal expectations coming into the year, and we're pleased to see each of our segments rise to the operating and demand challenge presented by COVID-19. In the first quarter, we continued to execute our integration plans to bring the PCM and inside businesses together. We have migrated more than 90% of PCM clients onto our IT systems and currently expect to complete the remaining client migrations by the end of the third quarter. We're also working to accelerate our remaining migration plans and expect to exit the year with approximately $50 to $55 million in annualized run rate savings, ahead of our first year expectation on the totally previously disclosed commitment of $70 million over two years. While clients will need our help over the coming quarters to support the areas of concern, we do currently expect that demand for IT products and services will decline significantly in Q2 as clients evaluate the impact of COVID-19 on their businesses, their profitability, as well as their liquidity. We begin to see some of this contraction in late Q1, but now with full shelter in place, April booking trends are down compared to March. We do not have visibility to how the global economy and overall IT demand may respond to the extent we begin to emerge from shelter-in-place over the next several quarters. In the short run, we're taking steps to accelerate our irrigation plans with PCM and to reduce our discretionary operating costs while we work to optimize our participation in the current market environment. As a result of this rapidly evolving COVID-19 and the high degree of uncertainty, We're suspending our previously issued annual sales and adjusted earnings per share guidance and will monitor market conditions as we move forward. I'm proud to be part of an organization that has demonstrated resiliency in execution and innovation in difficult times. We weathered the recession in 2009 very well. We're a stronger, healthier company today with great capabilities to bring to our clients and I believe we're well positioned to weather the current situation as well. I will now hand the call over to Clintus to provide more details on our financial performance.