Insight Enterprises Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 8 speakers on the call.

Operator

Morning, everyone, and welcome to the Insight Enterprises Inc. 2nd Quarter 2023 Earnings Conference Call. My name is Chatch, and I'll be the coordinator for your call today. During the presentation, you can register to ask a question by pressing star followed by 1 on your telephone keypad. And if you change your mind, you can press star call, followed by 2 to remove that question.

Operator

I'd now like to hand over to your host, James Regato, Senior Vice President of Finance and CFO of Insight North America to begin. James, please go ahead.

Speaker 1

Welcome, everyone, and thank you for joining the Insight Enterprises Earnings Conference Call. Call. Today, we will be discussing the company's operating results for the quarter ended June 30, 2023. 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 Bryant, Chief Financial Officer.

Speaker 1

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 8 ks, your 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. Call. An archived copy of the conference call will be available approximately 2 hours after completion of the call and will remain on our website for a limited time. Call.

Speaker 1

This conference call and the associated webcast contain time sensitive information that is accurate only as of today, August 3, 2023. This call is the property of Insight Enterprises. Any redistribution, retransmission or rebroadcast of this call in any form without the press written consent of Insight Enterprises is strictly prohibited. In today's conference call, we will be referring to non GAAP financial measures

Speaker 2

call. As we discuss the Q2 2023 financial results.

Speaker 1

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. Call. Also, please note that unless highlighted as constant currency, all amounts and growth rates discussed are in U. S.

Speaker 1

Dollar terms. Call. 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. Call. 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.

Speaker 1

Call. 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, 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 on the slide presentation, we will begin on Slide

Speaker 3

And our performance was below our expectations. Although we did not achieve the results we anticipated, we are pleased with many of our key performance indicators that confirm we're making progress on the strategic and financial goals we previously outlined. Here are a few highlights. Call. We achieved record gross margin of 18.4% as we continue to make progress on our sales mix and pricing and profitability initiatives.

Speaker 3

Insight Core Services gross profit grew 7% and cloud gross profit grew 12%, and both are key drivers of our solutions integrator strategy. Call. Adjusted EBITDA margin was 5.9%, up 50 basis points, and we generated $188,000,000 of operating cash flow in the first half of the year. These are proof points that demonstrate we are on the right path. Although we are at the beginning of this journey, we continue to gain traction in the fastest growing areas of the market, call.

Speaker 3

Designed to improve the efficiency and effectiveness of our operations and preserve capital for key areas of investment, including M and A that support our strategy. Glynis will provide more details. Considering our Q2 results And our current expectations for the second half of the year, we are lowering our full year adjusted diluted EPS guidance range to $9.40 to 9 point The long term dynamics of the IT market are very strong, and our clients remain committed to digital transformation and leveraging technology, including generative AI To improve efficiency, reduce risk and deliver a better customer experience, we are confident that we will see a resurgence in buyer confidence and demand in the mid term. As a reminder, there are 4 key pillars underpinning the strategy that we outlined last fall at our Investor Day. 1st, captivate clients.

Speaker 3

This is all about delivering exceptional value to our clients. We pride ourselves on delivering high quality outcome based solutions and earning the right to do more. This leads to our 2nd pillar, sales solutions. We are transforming our sales capabilities and aligning our incentives to focus on our solutions portfolio. Scene here is really about focus, doing a finite number of things and doing them really well.

Speaker 3

Our 3rd 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 market and where our clients need the most help, cloud, data, AI, cyber and edge. And the 4th pillar is champion our culture. This has been a strategic advantage for us and is critical to attracting and retaining incredible talent.

Speaker 3

Our ambition to be the leading solutions integrator requires a deep understanding and a passion for technology and our solutions We recently launched our proprietary Insight Lens for GenAI. This configurable ready to deploy modern data platform solution helps organizations quickly design, build and deploy infrastructure to support generative AI platform. A key element of our solutions integrator strategy is our deep partner network And we collaborate with industry technology leaders in their respective domains. For example, as NVIDIA's 2023 America's Retail Partner of the Year, At the very heart of GenAI is data. This is one of our core capabilities and it's critical to effectively implementing AI projects.

Speaker 3

We have been helping clients manage and improve their data estates for many years. I'll describe a couple of client use cases that are in progress leveraging GenAI. For example, we're working with a recruiting firm to reduce the time and effort associated with matching candidates to roles. We are building a solution that retrieves job postings and other hiring metadata and aligns those with candidate profiles to identify strong potential matches. We are leveraging Insight Lens for Gen AI to streamline the development time.

Speaker 3

In another example, we've partnered with a global technology distributor to take a proof of concept open AI conversational agent to full production. The goal of this project is to drive accuracy in the responses and streamline retrieval of information while carefully controlling the users' access to information. We are also partnering with this client to develop their GenAI roadmap and develop detailed technical plans. Although it's still early for GenAI, our solutions team has been implementing AI and machine learning solutions for many years. For example, we built a solution for one of our clients that utilize machine learning to create targeted treatments for patients with high blood pressure.

Speaker 3

The recommendations were based on nearly 800 data points per patient, including the patient symptoms, medications and risk factors. This solution has led to a more personalized care, improved patient quality of life, health care cost savings and improved treatments. With machine learning at the core of the solution, our client is significantly improving hypertension care. We are proud of the solutions we deliver to our clients, which are validated by the numerous industry recognitions we receive. We're pleased with the 9 2023 Microsoft Partner of the Year awards we've recently won, including worldwide solutions assessment partner of the year, U.

Speaker 3

S. Azure Cloud Native Apps Development Partner of the Year U. S. Retail and Consumer Goods Partner of the Year Australia Partner of the Year and Hong Kong Partner of the Year. Incyte has also been recognized as well as the best places to work in the UK, Italy and Spain.

Speaker 3

In separate evaluations by Great Place TO Work and most recently as a Best Place TO Work for Disability Inclusion. Recent awards are in addition to dozens of other recognitions Incyte has received this year and highlight the strength of our partner ecosystem, The diverse solutions portfolio we offer and our teammates that deliver terrific outcomes for our clients. In summary, we are making progress towards becoming the leading solutions integrator as is evidenced by the performance indicators mentioned earlier. And we are focused on the fastest growing areas of the market and where our clients need the most help. I look forward to discussing our progress as we continue our journey.

Speaker 3

Call. With that, I'll turn the call over to Glynis to share the key details of our financial and operating performance in Q2 and updated outlook for 2023. Glynis?

Speaker 4

Call. Thank you, Joyce. As Joyce mentioned, our results for the quarter were below our expectations. At a high level, The hardware net sales decline of 24% year to year impacted results in the quarter. Additionally, the normal software acceleration we typically see in late June Did not occur.

Speaker 4

Despite the decline in net revenue, we continue to see year over year gross profit growth in software and cloud as well as Insight Core Services. We continue to grow in the high growth areas of cloud, data and AI. We also achieved record gross margin of 18.4%. In Q2, net revenue was $2,300,000,000 a decrease of 14% in U. S.

Speaker 4

Dollar terms and constant currency compared to the prior year. This decrease was driven by significant decline in devices, Partially offset by an increase in networking, storage, cloud and software. Over the past few quarters, We have communicated our expectation that devices would be down in the first half of twenty twenty three. However, The decline in Q2 was larger than we had anticipated. We believe the device market is near the bottom.

Speaker 4

In the second half of the year, We expect the rate of decline will be lower than in the first half of twenty twenty three and we still expect devices to be down year to year in total for 2023. Overall, on a 14% decline in net sales, gross profit declined 1%, Reflecting the hardware performance, partially offset by a higher cloud and Insight core services growth as well as the benefit of the profitability and pricing initiatives we began implementing last year. Gross margin was 18.4%, an increase of 240 basis points And reflects the higher mix of cloud, InSight core services and infrastructure products, which transact at higher gross margins relative to devices. In addition, our profitability and pricing initiatives also contributed to higher hardware and services gross margin. Insight core services gross profit was $72,000,000 an increase of 7% year over year.

Speaker 4

This performance reflects lower growth in integration and other services related to the decline in devices, but was offset by growth in applications, Data, Digital Enablement and Networking. Cloud gross profit was a record $115,000,000 An increase of 12% and reflects higher growth in SaaS and Infrastructure as a Service. Our adjusted EBITDA margin expanded 50 basis points to a record 5.9%. For the Q2, adjusted diluted earnings per share was 2.56 dollars down 8% in U. S.

Speaker 4

Dollar terms and in constant currency year to year. We have been focused on prudent operating expense management, leveraging technology to drive productivity and efficiency in our business, Improving cash flow and preserving capital for critical initiatives. To expand on Joyce's comments, we have accelerated our cost reduction actions in the current quarter, While protecting our client experience and critical internal investments to support future growth. These actions primarily include headcount reductions, rationalizing backfill positions, accelerating our best show efforts and optimizing our external vendor spend. Call.

Speaker 4

As we previously discussed, with slower growth in hardware in the quarter, we generated $28,000,000 in cash flow from operations in the 2nd quarter Compared to a use of $158,000,000 in Q2 of 2022. Through the first half of twenty twenty three, We have generated $188,000,000 in cash flow from operations compared to a use of cash of $442,000,000 in the first half of twenty twenty two. And to update you on our share repurchase program, in Q2, We repurchased approximately 720,000 shares of our stock for a total cost of $100,000,000 Through the first half of twenty twenty three, We have repurchased over 1,600,000 shares of our stock for $217,000,000 We did not repurchase any shares in the first half of twenty twenty two. We currently have approximately $200,000,000 remaining under our current $300,000,000 share repurchase authorization. We intend to repurchase shares to offset the dilutive impact from the warrants associated with the convertible notes as appropriate.

Speaker 4

We continue to evaluate our options relative to the convertible notes as well as the impact of the convertible notes on dilution and our share repurchase strategy. Our 2023 share forecast includes the net impact of share repurchases and anticipated dilution Throughout 2023, you will find an illustration of the convertible note dynamics in our investor presentation. We exited Q2 2022. This reduction in our debt balance is after spending $217,000,000 on share repurchases in the first half of 2023 and is indicative of the strong cash flow in our business. As of the end of Q2, We have approximately $1,500,000,000 available under our $1,800,000,000 ABL facility.

Speaker 4

We have ample capacity to fund our business operations and capital deployment priorities, including M and A. Our adjusted return on invested capital or ROIC for the trailing 12 months ended June 30, 2023, was 15.6%. Our presentation shows our trailing 12 month performance through Q2 2023 relative to the metrics that we laid out at our Investor Day in October. We continue to believe that we're on the right track to hit these metrics in 2027. Adjusted EBITDA margin expansion, cloud gross profit growth, Incyte core services gross profit growth and improvement in free cash flow as a percentage of adjusted net income.

Speaker 4

As a reminder, 2022 is our baseline for the 2027 CAGR based metrics. Since our last earnings call, we've seen a further slowdown in our clients' decision making and an extension of the current economic environment. We now believe that these dynamics will continue throughout 2023. We expect a high single digit decline in net sales for the year, But we anticipate lowtomidsingledigit gross profit growth driven by continued growth in software, cloud and insight core services as well as our pricing and profitability initiatives as we execute our strategy to become the leading solutions integrator. In addition, we believe our operating expense management will position us well in the second half of twenty twenty three and provide a tailwind going into 2024.

Speaker 4

As we think about our guidance for the full year of 2023, we expect to deliver gross profit growth in the low to mid single digit range. We expect adjusted diluted earnings per share for the full year of 2023 to be between $9.40 And $9.60 a 4% increase at the midpoint compared to 2022. This outlook assumes Interest expense between $46,000,000 $48,000,000 and effective tax rate of 26% for the full year, capital expenditures of $45,000,000 to $50,000,000 and an average share count for the full year of 34,800,000 shares. This outlook excludes acquisition related intangible amortization expense of approximately $32,000,000 It seems no acquisition related or severance and restructuring and transformation expenses and assumes no meaningful change in our debt instruments for the macroeconomic outlook. I will now turn the call back to Joyce.

Speaker 3

Thanks, Glynis. As Glynis noted, We continue to make progress towards our solutions integrator strategy, and we have confidence that we are on the right path for several reasons. 1st, our performance indicators continue to move in the right direction. Cloud gross profit grew by 12%, Incyte core services gross profit grew 7%. Gross margin expanded by 240 basis points to 18.4%.

Speaker 3

Adjusted EBITDA margin expanded by 50 basis points to 5.9%. In trailing 12 months, free cash flow as a Percentage of adjusted net income was 224%. 2nd, digital transformation is here to stay. GenAI will only accelerate transformation as clients seek to improve workflows and enhance productivity, making the work we do even more important. 3rd,

Speaker 4

we have

Speaker 3

a strong balance sheet, and our business delivers strong cash generation. We have the capacity to fund our capital allocation priorities, In particular, M and A and stock repurchases. Our portfolio of solutions gives us the resiliency to navigate through this economic cycle, And we are prepared to capture growth opportunities when spending patterns improve. In closing, I want to thank our clients for trusting Incyte to help them with their transformational journeys, Our partners for their continued collaboration and support in delivering innovative solutions to our clients and our teammates for their commitment to our clients, partners and each other. This concludes my comments, and we will now open the line for your questions.

Operator

Thank you, Joyce.

Speaker 3

Your

Operator

you. Our first question today comes from Matt Sheerin from Stifel. Please go ahead.

Speaker 5

Call. Yes. Thank you and good morning, everyone. Joyce, my first question just regarding your commentary on The demand environment which still looks to be challenging. A couple of your peers reported yesterday and both Have seen a modest uptick in orders and tone from customers coming out of the June quarter.

Speaker 5

It sounds like you're actually seeing The opposite where things continue to be challenging. So could you be a little bit more specific about what you're seeing and why you may be different?

Speaker 3

Yes. I mean, so first of all, I mean, Q2 was more challenging than we expected, but we are pretty that we're making some really good progress against our strategy to become the leading solutions integrator, and we see some pretty good gross margin expansion, EBITDA margin expansion despite the revenue decline. Hardware declined 24%. And as you know, cyclicality of hardware is quite significant. And so that is actually the reason for our strategy, right?

Speaker 3

We're trying to change the mix of our business and Grow our services as a percentage of our mix and we're also trying to make sure we're growing in the fastest growing areas of the market like cloud, data and AI. So we do see some more strength going into Q3, both in terms of bookings and also In terms of results so far in Q3, so we also expect the second half to be better than the first half. And as Glyn has noted, our guidance assumes that we will grow our EPS by 4%, so at the midpoint. So I would say that we feel the second half will be better than the first half. It's just not going to be quite as robust as we initially anticipated.

Speaker 5

Okay. That's helpful. And it got it. Yeah. You got it.

Speaker 5

Yeah. And then on the hardware side, Is that for both, client devices and infrastructure products as well?

Speaker 3

Well, we're seeing some improvement in infrastructure for share in Q3. We think we're close to the bottom, as Glynis said, on devices. And so we expect devices to basically be down year on year and for the entire year, but we do expect To see that improve in Q4 or so.

Speaker 5

Okay. Thank you. In

Speaker 4

Q1 to date, we've seen the hardware decline is less at the start of Q3 than it is at the that it was in the 1st 2 quarters.

Speaker 5

Okay, great. Thank you, Glynis. And then and just my final question regarding your some cost reduction actions. Is there a number around that? And where will we see that in terms of the P and L?

Speaker 5

Do you expect OpEx to come down?

Speaker 4

So Matt, I think what I could tell you is you will see it in OpEx. And I guess what you could look at is in the second half of the year OpEx as a percentage of GP P will grow at a slower pace than GP. Growth in OpEx in the second half will be slower than the growth in GP in the second half.

Speaker 5

Okay, great. Very helpful. Thanks.

Speaker 4

That's how we get the expansion in EPS.

Speaker 5

Good. Got it. Okay. All right. Thanks a lot.

Operator

Call. The next question on the line is from Joseph Cardoso from JPMorgan. Please go ahead.

Speaker 6

Hey, good morning and thanks for the question. My first question here, I just wanted to see if you can give us a peek under the hood at what you're seeing in the services business. Particularly wanted to touch on the more moderate year over year growth in agent services as well as the trend you're seeing for services with the sequential recovery in the second quarter, your Which also came with record gross margins, I believe. Can you just touch on the drivers of those 2? And then how are you thinking about those tracking into the second half of this year?

Speaker 3

Yes. So we grew our core services business 7%. Now so keep in mind, we have sort of 2 components of our core services. The first is in those fast growing areas of the market that we keep talking about, cloud, data, AI, etcetera. Your Those parts of the services business grew, and consistent with our expectations.

Speaker 3

The piece that we also though We have a piece of our core services business that is very much tied to devices. So think about labs and configuration capabilities, etcetera, And those declined. So it's a little bit of a tail of 2 cities there.

Speaker 6

And then just on the year over year growth in agent services being a bit lower than what you've seen over the past 4 quarters?

Speaker 4

I think that's related just to the how it plays out with regard to different accelerators that we may get have a may be able to take advantage of in one year that are not necessarily available in other years. It's not anything that we think is structural.

Speaker 6

Got it. And then just in terms of my second question, just wanted to touch on the AI opportunity that you highlighted, particularly as it relates to your The generative AI use cases. I guess how should investors think about this revenue materializing for the company? Specifically, can we can this be a your And then maybe just on the flip side of that, we get this question a lot from investors around cannibalization of spend from customers as they deprioritize maybe other areas to focus on AI. I guess, are you seeing any of that behavior?

Speaker 6

Thanks for the question.

Speaker 3

So first of all, we see enormous interest. Every single client wants to talk about generative AI. Many start with trying to understand things like what kind of policy should I have in place, what kind of governance and security should I have in place, And importantly, how do I get my data estate ready for that? So, for the use of generative AI. Then that morphs into let's talk about use cases, let's talk about specific opportunities to drive specific outcomes at the client, Etcetera.

Speaker 3

So we see significant opportunity. I would say it's mostly in the discussion phase at the moment. We are. We do have active engagements around your generative AI. And just keep in mind, we've been doing AI and data for a really long time, so this is not a big leap.

Speaker 3

In terms of drivers of the business, though, I don't think it'll be Significant in the back half of the year. I do think we'll see it set up as and it will provide some another tailwind for us in 2024 because there's so much interest and there's so much opportunity to improve overall business structure and business outcomes. And then in terms of cannibalization, we aren't seeing any of that yet. But I don't think It can be really separated from digital transformation broadly speaking. It's a really it's just another way to get to the same kind of outcome that we're talking about potentially faster and potentially more efficiently.

Operator

The next question on the line is from Adam Tindle from Raymond James. Please go ahead, Adam.

Speaker 7

Okay. Thanks. Good morning, Joyce. So I just wanted to start by asking if you could maybe provide a little bit of color on linearity in the quarter. As mentioned before, one of your competitors cited a surge in June, and I think we're trying to figure out what happened with you guys relative to that.

Speaker 7

I noticed that in the comments, you talked about not seeing the software surge in the month of June, so maybe that's describing some of the delta. But If you could maybe just at a high level take us through the cadence of the quarter and if you want to tie in any trends in July that you're seeing to support your back half view that would be helpful.

Speaker 4

Sorry, Matt. I'll take that one. So we did see strength in May June. I would say there were normal cycles going in, in the second quarter. June historically is always the largest month of the quarter.

Speaker 4

The 3rd month of any quarter is always the largest month for us. And we saw probably a little bit more deterioration in hardware in June As well as not the strength in software that we typically see just at the end of the quarter. I would say that going into Q3 and the second half, we have Software, very strong start in Q3. Infrastructure still remains strong. We have backlog that's still continuing to flow through.

Speaker 4

Devices has improved. The decline in devices is not as severe as it was in the 1st two quarters. So that is improving in the second half and we anticipate that it will get even stronger in Q4. But I think that would be the answers in terms of why we Feel comfortable with regard to what we're seeing and based on conversations we've had with our clients as well as with our OEM and publisher partners In terms of their expectations also for the second half, and most people are talking about the 4th quarter being particularly strong relative to the 3rd quarter. And just as a reminder for you, for everybody, the Q3 is not typically our strongest quarter.

Speaker 4

That's been a little bit different as it relates to the pandemic last couple of years. But in general, the 1st and third quarters are not as strongest quarters. So historically, you would expect that Q3 would be down and Q4 would be up as it relates to the second half.

Speaker 7

Got it. Okay. And then on the cost reductions, Joyce, I just wanted to maybe touch on the logic to doing this now. It sounds like The decline in the or the deviation relative to your forecast was largely in the device ecosystem being, maybe not as robust as expected, But you're also talking about kind of calling the bottom in that market. So, if we had a delta in that device ecosystem, but it's gonna Accelerate from here.

Speaker 7

What went into the decision to implement cost reductions now? And Glynis, I'm sorry if I missed it. Did you quantify the amount and timing of those reductions? Thanks.

Speaker 4

We didn't quantify the amount. The timing is in the second half. So a principle that we have is that SG and A should grow at a slower pace GP growth. That's a principle that we have. That did not occur in the Q2.

Speaker 4

We had been doing prudent, what we would call prudent expense management Throughout this year and the second half of last year with regard to looking at backfills before we fill that maybe delaying some backfills. And based on what we're seeing for this year, we made decisions around reductions that we needed in order to continue to fund sales and technical talent that we need for the business on a go forward basis. So hardware is not performing as well. We have some efficiencies that we put in as it relates to how we execute on hardware. And we believe that The reductions that we're making now will ensure that in the second half of the year SG and A growth at a slower pace than GP And sets us up with a tailwind going into 2024.

Speaker 4

And the only thing I'd add is, I

Speaker 3

mean, we're declining 14% on the top line. That hurts. And it's an opportunity for us to look at the cost structure and set ourselves up so we're a more efficient business As Glynna said, as we head into 2024.

Speaker 7

Okay. Just to clean this up on the device I think the exciting part is the calling the bottom here and thinking about back half trends maybe getting better. But at the same time, near term here, just in this quarter, you had expected better growth than experience in devices. So I guess maybe a way to try to ask this would be what would be different about the back half of the year in this kind of calling the bottom forecast relative to what you just experienced in Q2, which missed your forecast. What's underpinning the confidence to call the bottom at this point?

Speaker 7

Thanks.

Speaker 3

Yes. Avi, so first of all, we're we still want to be clear. We think devices will be down for the year. We don't see we think we'll see device growth until the very end of the year, your Q4, if at all, and that's against easier compares for us. So We didn't anticipate that the decline in devices that we saw in this quarter.

Speaker 3

We thought we'd be a little bit better. And so and that was really driven also by our mix of business. So just as a reminder, We have a pretty robust large enterprise and corporate sector, and our commercial business both declined significantly. Public sector was up, But it's just not a very big sector for us. So we feel like we have a pretty good handle on the beat, and we've actually seen From Q1 to Q2, some reduced less severe declines in devices, and we expect that to continue in Q3.

Speaker 3

And we expect to see potentially some very slight flat, big flat to slightly up recovery in Q4 on devices.

Speaker 7

Okay. Thank you very much.

Operator

Ask any

Speaker 4

further questions.

Operator

Call. We have a question on the line from Vincent Colikshire from Barrington Research. Please go ahead.

Speaker 2

Yes. Joyce, I'm curious with valuations getting a little bit better, may we see you become proactive with some tuck ins here in this market?

Speaker 3

Absolutely. We are very excited that we've started to see some normalization of the valuations and We are really excited about the opportunities that we've talked about as part of our strategy to build capability in those fast growing areas of the market, Cloud data, AI, apps, etcetera. So, yes, and we're very comfortable with our current balance sheet and our We have to think we believe we have ample capacity to support those acquisitions. So we're pretty pumped up about that.

Speaker 2

Any differentiation in what you're seeing on the demand side for enterprises versus small and midsized businesses?

Speaker 3

I mean, they were pretty there were some slight differences in terms of overall performance. In terms of smaller commercial business, we call it in large enterprise and corporate business. But it's sort of they're both in sort of 15% to 20% range decline. Decline. So and then obviously, public sector was up.

Speaker 3

As I said, we just need we Our public sector is only 14% of our business. So it would be great if it would be bigger in this particular market.

Speaker 2

And maybe a qualitative question. Your positioning as a solutions your new integrator positioning. Are you seeing that resonate maybe in the past few months? Any sense that that's having an impact?

Speaker 3

Yes. I mean, I think we're hearing, the term repeated by our clients and our partners. We're seeing Some similar type discussion from traditional competitors as well. So, we think the notion of delivering outcomes, Delivering them fast, earning the right to do more makes a lot of sense. And building those delivering those outcomes with a combination of hardware, software and services It's making a lot of sense to our clients.

Speaker 3

And with new technologies like GenAI, I mean that's a really great Example of how we can layer in even more knowledge and value and from a services point of view to help deliver those outcomes. So We're pretty pleased with kind of the response we've heard so far to our strategy.

Operator

Call. We have no further questions on the question queue, so we will now conclude today's conference. Thank you everyone for joining. You may now disconnect your lines and enjoy the rest of your day.

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Key Takeaways

  • Net revenue in Q2 was $2.3 billion, down 14% year-over-year, driven by a 24% decline in devices, while cloud gross profit grew 12% and Insight Core Services gross profit increased 7%.
  • We achieved record gross margin of 18.4%, up 240 basis points, and adjusted EBITDA margin of 5.9%, up 50 basis points.
  • Operating cash flow in the first half of 2023 was $188 million versus a $442 million cash use in H1 2022, and we repurchased 1.6 million shares for $217 million, leaving $200 million under our authorization.
  • We are lowering our full-year adjusted EPS guidance to $9.40–$9.60 (midpoint up 4%), forecasting a high-single-digit decline in net sales and low-to-mid single-digit gross profit growth for 2023.
  • We continue to advance our solutions integrator strategy—underpinned by four pillars and partnerships with leaders like NVIDIA—focusing on cloud, data, AI (including our Insight Lens for GenAI), and executing cost-reduction actions to ensure SG&A growth remains below gross profit growth.
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Earnings Conference Call
Insight Enterprises Q2 2023
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