Insight Enterprises, Inc.

Hello, and welcome to Insight Enterprise's second quarter 2024 operating results. My name is Kiki, and I will be your call operator today. During the presentation, you will have the opportunity to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand you over to your host, James Mogado, Senior Vice President, Finance and CFO of Insights North America, to begin. James, 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 June 30th, 2024. I'm James Morgado, 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'll 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, August 1, 2024. 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 be referring to the non-GAAP financial measures as we discuss the second quarter 2024 financial results. When discussing non-GAAP measures, we will refer to them as adjusted. You will 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. Please note that all growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. Also, Unless highlighted as constant currency, all amounts and growth rates discussed are in US 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 statements 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'll begin on slide four. Joyce?

Thank you very much, James. Good morning, everyone, and thank you for joining us today. In Q2, we delivered double-digit cloud and core services gross profit growth and expanded gross margin and adjusted EBITDA margin, despite a choppy demand environment. Our strategy to focus on solutions for our clients, including cloud, services, and the fastest growing areas of the market, has delivered improved economics to our shareholders. In addition, the profitability initiatives and the operating expense actions we have taken over the past several quarters have strengthened our foundation and improved resilience of our business. All of these elements are critical to our strategy to become the leading solutions integrator. We have also continued to invest in sales and technical resources as well as new growth areas, such as Gen AI solutions, which will be critical as demand improves. Here are a few highlights from Q2. Gross profit grew 5% to $453 million. Gross margin expanded by 260 basis points to 21%. Cloud gross profit increased 21% to $139 million. Insight Core Services gross profit increased 12% to $81 million. Additionally, adjusted EBITDA margin expanded by 60 basis points to 6.5%, a Q2 record. And adjusted EBITDA increased 3% to $141 million. We achieved these results despite an uncertain macro environment and lower than expected demand, especially in our product business. We also had higher interest expense related to acquisitions, resulting in a decline in adjusted saluted EPS of 4% in the quarter. Overall, the variability and seasonality of our business is changing as we focus on selling more services and cloud-centric solutions and as the industry shifts towards consumption-based models. Our first half results are more indicative of our execution and the progress we are making towards our solutions integrator ambition. Year to date through Q2 compared to the prior year period, gross profit grew 8% to $894 million. Gross margin expanded by 210 basis points to 19.7%. Cloud gross profit increased 26% to $256 million. Insight core services gross profit increased 18% to $156 million. Adjusted EBITDA margin expanded by 90 basis points to 6%. Adjusted EBITDA increased 15% to $274 million, and adjusted diluted EPS was up 11%. As a reminder, our ambition is to become the leading solutions integrator by integrating hardware, software, and services to drive business outcomes for our clients. They need a partner they can trust to navigate these new technologies and the infrastructure and workplace requirements to help them digitally transform. We are executing against our strategy and making good progress on our initiative. As a timely example of this, during the global IT outage two weeks ago, unrelated to Insight, our team swiftly engaged with impacted clients and implemented recovery plans to minimize downtime and restore operations efficiently. Our team's expertise and quick response were instrumental in guiding our clients through the outage with minimal disruption to their business operations. Our ability to deliver impactful solutions to our clients relies on our proficiency across diverse technology domains. We have enhanced our services capabilities by acquiring terrific companies with proven expertise in the fastest growing areas of the market, while simultaneously creating new cross-selling opportunities between our organic insight business and our acquired companies. Here are some examples of how InfoCenter and Amdaris bolster our capabilities to deliver solutions to our clients. A major payment processing company recently separated from its parent needed to build an entirely new IT infrastructure in months not years. As a newly independent company, our client needed to transition to their own instance of ServiceNow, a critical platform for IT service management. Insight's InfoCenter team first engaged with the client by using a proprietary set of specialized workshops. This led to a phased rollout across all areas of the ServiceNow platform and we are now planning to provide support through a managed service engagement. In the three months after acquiring InfoCenter, We're already deploying our ServiceNow expertise to traditional Insight customers to deliver comprehensive AI-powered solutions for complex transformations in the high-margin enterprise automation market. Here's an example of how Amdaras enhances our solutions capabilities in the EMEA region. Through our Amdaras acquisition, Insight has become an elite global implementation partner with Stripe. Stripe provides a fully integrated suite of financial and payments products for businesses of all sizes and processed over a trillion dollars in payments in 2023. Our Stripe certified implementation experts help businesses get the most out of Stripe's full product suite, including billing marketplaces and complex subscription models. This is an example of how we're positioned to handle complex integrations with custom backend systems. These examples demonstrate the effectiveness of our M&A strategy as we push to become the leading solutions integrator. In our continued commitment to building a diverse and inclusive team, we're proud to announce that Insight has been recognized for a fourth year in a row by Forbes as one of the America's best employers for diversity. On the partner front, Insight was proud to be recognized by Microsoft for our security solutions. Insight has demonstrated our robust security services, including a security operation center with 24-7 by 365 proactive hunting, monitoring, and response capabilities, all built on tight integrations with the Microsoft security platform. While we are executing against our strategy and making good progress on our initiatives, our perspective of the market and the operating environment for the second half of the year remains mixed. We achieved strong Q1 results, and we are on track through the first half. Demand for devices has improved, but not to the levels we anticipated entering the year. The drivers for refresh remain the same, though some clients have paused as they manage through the current economic environment and assess new technologies, particularly AI PCs, as part of their future purchases. We expect demand for devices to improve in the second half. Infrastructure demand was down in the first half as our clients deployed products acquired in 2023. In July, we saw some improvement in demand and expect that the second half will be stronger than the first half of the year. We have enhanced our global services capabilities through our recent acquisitions and we're seeing increased cross-sell opportunities. And we will continue to prudently manage operating expenses and gross margin with our pricing and profitability initiatives. I'll now turn the call over to Glynis to share key details of our financial and operating performance in Q2, as well as our outlook for 2024. Glynis?