Insight Enterprises, Inc.

Hello, and a warm welcome to the Insight Enterprises Corporated First Quarter 2023 Earnings Conference Call. My name is Candice, and I'll be coordinating your call for today. All lines have been placed on mute during the presentation portion of the call, with an opportunity for question and answer at the end. If you'd like to ask a question, please press Start, followed by 1 on your telephone keypad. I would now like to hand the conference over to our host, James Morgado. 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 31st, 2023. I'm James Murgado, Senior Vice President of Finance and CFO of Insight North America. Joining me is Joyce Mullen, President and Chief Executive Officer, and Glenys Bryan, Chief Financial Officer. If you do not have a copy of the earnings release or the accompanying slide presentation that was posted this morning, and filed 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 also 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, 2023. 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'll be referring to non-GAAP financial measures as we discuss the first quarter 2023 financial results. When discussing non-GAAP measures, we will refer to them as adjusted. You'll find a reconciliation of these adjusted measures to our actual GAAP results included in both 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 in U.S. dollar terms. As a reminder, 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 periodic reports and subsequent filings with the SEC. All forward-looking statements are made as of the date of this call, and except as required by law, we undertake no obligation to update any forward-looking statement made on this call, whether as a result of new information, future events, or otherwise. With that, I will now turn the call over to Joyce, and if you're following along with the slide presentation, we will begin on slide four. Joyce?

Thank you very much, James. Good morning, everyone, and thank you for joining us today. I am pleased to report that we delivered adjusted diluted EPS in line with our internal expectations in a market that was even more volatile than we had anticipated. We also delivered strong gross margin, adjusted EBITDA margin, and cash flow from operations. As a result, we are confirming our full year 2023 adjusted Duluth DPS guidance range of $9.90 to $10.10. Our performance in Q1 reflects a combination of very strong cloud growth as well as growth within our solutions portfolio, primarily digital transformation, data, AI, and cyber, consistent with the higher growth areas of the market. Gross profit grew 3% over last year, and we expanded gross margin to a Q1 record of 16.8%. We accomplished this despite a decline in net sales, primarily related to devices, partially offset by an increase in infrastructure solutions and 38% growth in cloud. As a reminder, gross profit is the best way to measure our performance due to the increase in the percentage of our revenue that is reported on a net basis. We also demonstrated additional leverage in our operating expenses, and combined with our gross margin expansion, this led to adjusted EBITDA margin expanding to 4.3%. There is no doubt that the macroeconomic environment will continue to be challenging in 2023. In these uncertain times and in a world of accelerated change, our clients need a partner with deep expertise they can trust to deliver innovative results fast. Although the IT market is normalizing after a few years of elevated growth, clients remain committed to digital transformation, leveraging technology including large language models to improve efficiency, reduce risk, and deliver a better customer experience. As companies look to reduce costs as a result of the macroeconomic environment, the importance of tech enablement, automation, and connectivity are greater than ever. These solutions require hardware, software, and services. This is at the heart of our strategy to become the leading solutions integrator. As a reminder, there are four key pillars underpinning the strategy that we outlined last fall at our investor day. First, captivate clients. This is a people and outcome-focused business. We pride ourselves on earning the right to do more by delivering high-quality and outcome-based solutions. And our investments in e-commerce and automation will allow our clients to transact with us more efficiently via self-service. This creates a seamless experience for our clients and frees up our sales teammates to focus on our second pillar, which is selling solutions. We are transforming our sales capabilities and aligning our incentives to focus on our solutions portfolio. We continue to streamline our account coverage to match skills with our clients' needs and propensity to buy services. The theme here is really about focus, that is, doing a finite number of things and doing them really well. Our third pillar is deliver differentiation. This is all about providing innovative, scalable solutions through reusable IP, exceptional technical talent, and our very compelling solutions portfolio. Again, we are focusing on our strengths that align with the fastest growing areas of the market and the areas where our clients need the most help. cloud, data, AI, cyber, and edge. And the fourth pillar is to champion our culture. This has been a strategic advantage for us, and we will continue to leverage our values of hunger, heart, and harmony to evolve our high-performance culture. This is critical to attracting and retaining incredible talent. I'd like to share an example of applying our expertise and services to solve a significant business problem for one of our clients. Our client, a global logistics, e-commerce, and business services company, partnered with us to modernize their time-consuming talent acquisition process. They had high rates of applicant drop-off, which led to increased costs due to attrition of the candidate pool. We re-engineered their HR recruiting process. We integrated multiple technology applications to create a seamless interface and implemented AI, to evaluate the progress of the candidates at various milestones to increase the effectiveness of recruiting over time. This led to a reduction of recruiting time by 20%, increased HR productivity by 30%, improved the candidate experience and retention, and importantly, increased the quality of the client's talent acquisition. Our client was able to increase productivity through technology in a more seamless process, allowing them to improve the return on investment and improve candidate experience. This project has led to additional engagements, including improving supply chain projects and modern workplace services, as well as consulting on additional process improvement projects using AI and machine learning. Our drive to deliver meaningful, outcome-based solutions is not only recognized by our clients but also the industry. We are honored to receive the 2023 America's Retail Partner of the Year Award from NVIDIA. As an elite partner, Insight collaborates to bring the best of deep learning solutions to clients. Insight consultants and engineers use NVIDIA expertise and resources to help clients gain a competitive advantage by leveraging AI and data analytics to solve business problems. Also, cybersecurity continues to be a top focus for companies. navigating their digital transformation journey. Insight was recognized by Fortinet as the 2022 Growth Partner of the Year. And we are proud that Insight was named as one of the 2023 Achievers 50 Most Engaged Workplaces for our demonstrated leadership in leveraging innovative teammate engagement and recognition programs. I am proud of the accomplishments of our team and the recognition we continue to receive. Equally important is that we perform and act in a responsible and ethical manner. We recently published our annual corporate citizenship report. This report details insights, positive influence on the world around us and our continued focus on sustainability and diversity and inclusion. This report also highlights our teammates contributions to our communities. The report focuses on four areas of impact. Building a more sustainable world. that describes Insight's work to reduce our own carbon footprint, our collaboration with partners on sustainability, and the work we do with clients in this area. Using technology for good, a look at the work we've done for clients that improves the lives of people around the world. Fostering a culture of diversity and inclusion, while also providing opportunities and driving creativity and innovation in the workplace that encourages full participation by all teammates. And finally, leading with heart, which spotlights our support for teammates from an increased emphasis on mental well-being to flexible work programs and our focus on improving the communities in which we operate. An example of the work that Insight does to promote a more sustainable world is a solution we developed for a large utility company in Australia. Our client had a proprietary wastewater network monitoring system that was expensive to maintain and required proprietary network infrastructure and hardware. Its aging infrastructure posed security concerns and prevented our client from implementing AI and advanced analytics. We built a wastewater monitoring platform on Azure IoT and created a solution to connect 30,000 devices for wastewater level monitoring. By leveraging our expertise to scale applications using low-code development techniques, we moved from an initial concept to operation very quickly. In addition to saving our client millions of dollars annually, we reduced our client's cybersecurity risk by replacing their aging platform, reduced vendor lock-in, and gained access to real-time data and improved data analytics. We also helped our client reduce energy consumption, reduce risk to public health, and prevent wastewater overflow, which has a detrimental environmental and social impact. Success with these projects led to a long-term services contract to manage their platform. We remain focused on our ambition to become the leading solutions integrator, and I look forward to discussing our progress as we continue our journey. With that, I'll turn the call over to Glenys to share the key details of our financial and operating performance in Q1 and our full-year outlook. Glenys?