Insight Enterprises, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Insight Enterprises second quarter 2020 operating results call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you can press star 1 on your telephone keypad. I would now like to hand the conference over to your speaker today, Ms. Glynis Bryan, Chief Financial Officer. Please go ahead, ma'am.

Thank you. Welcome, everyone, and thank you for joining the Insight Enterprises earnings conference call today. Today we will be discussing the company's operating results for the quarter ended June 30th, 2020. I'm Glynis Bryan, Chief Financial Officer of Insight, and joining me is Ken Ramnick, President and Chief Executive Officer. Thank you for joining us today. This conference call and the associated webcast contain time-sensitive information that is accurate only as of today, August 6, 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 Insight Enterprises is strictly prohibited. In today's conference call, we will refer to certain non-GAAP financial measures as we discuss the second 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 actual GAAP results included in the press release and the accompanying slide presentation issued earlier today. Also, please note that unless highlighted as content currency, all amounts and growth rates are discussed in U.S. dollar terms. 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 on the slide presentation, we will begin on slide four.

Hello, everyone, and thank you for joining us today to discuss our second quarter 2020 operating results. I'm pleased to report that through our dedicated team, resilient business model, and the PCM acquisition, we delivered double-digit adjusted earnings growth year-over-year in the second quarter. Given the challenging demand environment in the second quarter, our operating priorities for the quarter were clear. First, we tightened the health and safety standards in our warehouse and mobilized most of our teammates to work from home, which allowed us to continue to support our clients' most pressing IT needs. Second, we focused on reducing our costs to align with the current demand environment, reducing operating expenses by $26 million sequentially. Third, we focused on cash flow generation, delivering very strong cash flow from operations in the quarter. And finally, we focused on optimizing our earnings results in this tough climate. Now turning to our second quarter results on slide five. Consolidated net sales in the second quarter were $1.97 billion, up 7% year-over-year due to the acquisition of PCM. We focused on growing our services and solution business mix, which helped drive gross margins up 150 basis points year-over-year to 16.5% in the second quarter, a new record for our company. And adjusted diluted earnings per share was $1.75, up 11% year-over-year. On a GAAP basis, diluted earnings per share was $1.32. Within these results, gross profit generated from cloud solutions increased to 19% of our consolidated gross profit over the past 12 months. are now a meaningful component of our profitability. And given our strong execution, bringing cloud and digital solutions to clients, we are proud to announce that Microsoft named Insight their 2020 U.S. Partner of the Year, as well as their worldwide Customer Experience Partner of the Year. Moving to slide six. During the second quarter, we maintained our focus on integrating the PCM business, and I'm pleased to report that we've effectively completed the onboarding of all PCM clients to our Insight systems. Over the past year, we have migrated clients off nine ERP systems at PCM, sunset 16 at PCM's different websites, and have consolidated nine of their go-to-market brands into our one Insight. Earlier this year, we aligned the PCM team to our North American and May go-to-market structure. Now, with accounts on common platforms and to our new organization structure in place, we believe we are well-positioned to compete as a single brand in the marketplace. In addition, we continue to expect to exit the year with approximately $50 to $55 million in annualized run rate cost savings ahead of our first year expectations on the previous year's total commitment of $70 million over two years. On to slide seven. Over the past five years, we have invested in our digital marketing platforms and capabilities, our ability to lead our clients to the right technology choices through digital engagement, internal research, and published content It's important to our strategy to attract and win new clients. In the past year, it has also earned us notable recognition from partners, including Global Customer Experience Partner of the Year awards for both Microsoft and Cisco. As we have grown our digital marketing capabilities into a powerful resource, including the reimagining of Insight.com last year, we more effectively meet organizations where they are at on their buying journeys. With timely thought leadership through resources like our 2020 Insight Intelligent Technology Pulse Report, measuring the impact of COVID-19 on enterprise business readiness, and our quarterly tech journal, we're giving clients fresh perspectives on things like supplier consolidation and managing hybrid workforces at times when they have more questions than ever about how to move forward. Insight.com is serving as a crucial starting point for clients' research. Overall traffic to our site grew 128% and live chats with virtual agents grew 550% year-over-year last quarter. The modernization of our online experience ultimately earned Insight Gold status in the Web Presence category of the 2020 Association of National Advertisers B2B Awards, as well as an Oracle Markey Award for Best Demonstrated ROI in Service. And in the new normal now, post-COVID, Insight's thought leadership, coupled with our investments in digital marketing over the past five years, positioned us well to continue to creatively reach and grow strong relationships with our clients. On slide eight, heading into the third quarter, some markets in Europe and Asia are open for business, while most major cities in North America are partially open and many businesses are still in a work-from-home mode for most of their teammates. As a result, we expect demand trends to continue to be down in Q3. In July, hardware bookings are down year-over-year more than 10% in North America business as clients extend the use of light for their assets in this uncertain environment. Software sales, mostly software as a service delivered in the cloud and reported in our service category, have proven more resilient and are expected to perform better than hardware sales in the third quarter. We do not have visibility to how the global economy and overall IT demand will respond over the coming quarters. With this high degree of uncertainty, we're not going to provide specific EPS guidance for the third quarter or for the second half of the year. To assist with your modeling, however, we currently expect net sales to be in the third quarter compared to last year due to the addition of PCM of an additional month in the quarter. On a consolidated basis, we currently expect gross margin of business to be between 14.7 and 14.9, up year-over-year due to the addition of PCN and a higher mix of cloud and services sales. Finally, we will continue to focus on controlling our costs to align with the demand environment and currently expect SG&A as a percent of sales will approximate levels reported in the second quarter. There remains significant uncertainty around the ongoing impact of COVID-19 on the economy, and potential resurgence of cases in the back half of the year. Based on what we know right now, we would expect the fourth quarter results to follow historical trend, historical top line trends of low single digit growth compared to the third quarter. We were pleased to see each of our segments rise to the operating and demand challenges presented by COVID-19 in the first half of 2020. I want to thank our teammates across the globe for their commitment to insight in our clients. As we head into the back half of 2020, We have a resilient team, a strong balance sheet, and access to sufficient levels of capital to meet our foreseeable operating requirements during these challenging times. And we're confident that our solution area expertise will allow us to support our clients' needs, both in this environment and when the economy eventually rebounds. I will now hand the call back over to Glynis to provide more detail on our financial performance.