Good morning, everyone. We're gonna get started. I'm Matt Sheerin, senior analyst at Stifel. We've got Insight Enterprises, one of the largest global IT solution providers or solutions integrators, if you will. Representing the company is the CEO, Joyce Mullen, and CFO, Glynis Bryan. Joyce is gonna run through a quick couple of slides, and then we're gonna do Q&A. Okay, Joyce?
Perfect. Hi, everybody. Thank you very much for coming. I'm excited to talk to you about Insight. It's been a very, very fun three years that I've been there since joining, as I said, three years ago. Glynis and I are excited to tell you about our progress, and we're also excited to tell you about why we think Insight's a great bet. So I'll start with this notion of creating a brand-new category in our industry. It's. We're calling it a solutions integrator. We believe that our clients need a partner who can put together hardware, software, and services and deliver the outcomes that they're looking for fast and effectively, and then we expect to deliver exceptional value that helps us earn the right to do more. We have global capabilities.
More and more of our clients are global, and we support that. I'll talk about that again in a second. We also have expanded our capabilities in the fastest-growing areas of the market, and we've done that largely through acquisition, but also organically, and that should help us deliver above-market profitable growth. We've been very, very hard at work on expanding our gross margins over the past several years, and you've seen that in our numbers if you've looked. And then we also believe there's even more to go because of automation and the investments that we're making in our tech stack.
Then all that has led to very strong cash generation, and we also have just recently put in place a $500 million high-yield bond, which adds to our liquidity and our opportunity to support our organic growth and investments. So this is what we mean by a solutions integrator. I'll spend just a couple of seconds on this. We are not a systems integrator because of our deep product knowledge that helps us differentiate from the big SIs. We're not a reseller, although we do resell, but we distinguish from our traditional reseller competitors with our deep services expertise, and we're not a distributor ever, so just to make that clear. We have four pillars in our strategy.
First one is always to put our clients first, captivate their hearts and minds, and make sure that we become the partner they can't live without, again, through delivering exceptional value. We deliver differentiation. We have a lot of work in our technical environment to build strong technical expertise, including building our own IP, but this all results in exceptional services performance. Our culture's very important to us. We're purpose-driven, values-led. That has been a strong foundation of our growth and our results, and then all of that leads to profitable growth. So you can read this here. We basically combine reseller capabilities with systems integrator capabilities. We have 30,000 customers, for example, in North America.
Our job is to figure out how to select a group of those customers and expand share of wallet with our services capabilities, and we have a lot of examples that support that. So we have a customer who's been buying hardware and software from us for a very long time, and recently we had an opportunity to refresh their infrastructure 'cause the project was not going well, and we figured out how to deliver a comprehensive multicloud solution so that their infrastructure met their cost and their flexibility needs. On the other hand, we have some services clients who have said, "Hey, we understand you can sell products, too.
How about that?" And that's kind of the magic of the notion of becoming a Solutions Integrator or being a Solutions Integrator, is to take advantage of our incredible breadth of customer base and then figure out how to basically sell them a whole lot more of the capabilities and the support that they need. The financial performance, I think, is quite strong. So these are trailing 12-month numbers, and you can see gross profit and the gross margin percent, gross margin expansion has been pretty solid. It's very gradual. We like that, and there's still more room to grow. We benchmark against our strongest reseller competitors and our strongest services competitors to figure out where we should be, and then once we get there, we'll figure out how to do better than that.
Really central to our mission here is expanding our cloud and services business, and you can see the cloud gross profit and year-on-year growth, as well as the resulting EBITDA margin and free cash flow metrics. So we do have a global reach. This is a tricky business, especially for hardware, but we do have the capability to deliver hardware, software solutions all over the world. We have a great example of a pretty significant industrial client who had to deploy 89,000 devices in 47 countries. We presented a Device as a Service offer and helped reduce their procurement time by 60%, and also helped save them some money. So this is an example of where global really is quite important.
We now operate in 26 countries and can support, obviously, many more than that through partners. This track record of innovation is something that's been going on far, far before I joined Insight. Glynis and team had been hard at work, you can see, building out that services capability that I mentioned over the past 12 or 15 years, and that's what set us up for today, which is this notion of delivering value as a solutions integrator in 2022 and beyond... and we focus on these areas. These are our areas of expertise, and this is a lot of, a lot of different categories here, but I thought I would just spend a few minutes talking about a couple of examples.
So if I go all the way to the bottom right, we helped a consumer products business this year that had a very public, very major outage due to the bad guys getting involved in their environment. And within a couple of days, we had technicians, experts on site. We had over 100 experts on site within a couple of days, and we would help them get their users back up and running in two weeks, and then their critical infrastructure back up and running in 12 weeks. And this is again where the values come in. So not only did we do that very good technical work, we also were really helpful because this is a very stressful environment, as you can imagine, if somebody's taken over your system and you can't sell anything.
But really, I think those values of hunger, heart, and harmony really came through with our teammates in this environment, and since then, we've expanded our share of wallet in this customer. It's a great example. Another really good example is a healthcare provider working very diligently on hypertension treatments. So we helped set up an AI decision support application and system with them so that. Hypertension, by the way, is a $50 billion-$200 billion business every single year. One in three people will suffer from that, and the opportunities to treat hypertension require. There's 70 different drugs, dosages, and opportunities to put these combinations together, and it's almost infinite. It's a perfect use case for AI.
So this decision support has helped us remove the barrier to figure out what the right treatment is in the first visit, instead of taking years of trial and error using different combinations of drugs. So I think a really great example of the power of AI and also the power of technology in supporting personalized medicine. So anyway, there's plenty more examples. We deliver these through three different types of services. Lifecycle services are really around the product, so think deployment and labs and things like that. Consulting services are around the projects, so I just mentioned a project. And then managed services are those ongoing management services, and that's how we love our consulting projects to end up in a managed services with recurring revenue. Can't talk about tech without talking about GenAI.
Just to give you an idea of where we see the opportunity, we will not build large language models. There are other people doing that, and they're really good at it. So, but we expect to see opportunities to help our customers train those models, turning large language models into small language models, building RAGs and agents, for example, policy training, change management, security. There's a lot of assessments going on, a lot of POCs going on right now, and there's a bunch of data prep that's happening, so people are working to get their data estates in order. We also believe helping our clients choose the right use cases to go after, and then delivering results fast, and then figuring out how to optimize those results is a really good opportunity for us.
And then building out the infrastructure that will come over the next several years. These AI factories or data centers on-prem will happen, and right now, all that build-out is primarily with the big cloud providers, but we will see that expand into enterprises over time. And then integrating with those with cloud, and then edge devices, AI PCs will be an opportunity as well, and eventually, like everything, we would like this to end up as a service for us, a managed service. And then here's our 2024 Q1 results. We had a pretty good quarter. That's what I got.
Great! Well, let's start with the results. You did have a better-than-expected quarter. I know you had a couple of big software deals, which helped.
One.
One. Okay. And, well, one, that helped. And, but you've also talked about, advanced solutions, infrastructure spending being weak. You had a really strong, you know, so a lot of backlog that was worked down, so that's slower. The PC cycle, everyone thought a year ago that by now we'd be well into a cycle, right? And it's just getting started. But you did, you did, I think, have some PC growth year-over-year, and you're talking about that. So maybe talk about the demand environment, and the different product sectors and, and, and how you see that coming back.
Yeah. So, I mean, we had a pretty good quarter. Cloud growth was really strong. We have been saying over and over again that we expect cloud and services GP to grow twice as fast as products. And, and so we definitely saw really nice cloud performance and services performance in the quarter. We got some help from, on both of those with the SADA acquisition, so it was the first quarter that we had SADA in there for the full quarter, which is a Google Cloud provider that we bought on December first. We also had a little help, which is smaller, but from, an acquisition we did in Europe called Amdaris, in the back half, in August of 2023. So, so those numbers were helped by those things, but really strong organic performance as well.
We did have a great software quarter on the top line. Those big deals don't help us a lot on the GP line, just to be clear, but they did-
Right
... help us on the top line. And then we did start to see some improvement in devices off of a really crummy compare, to be blunt, but, we did start to see some improvement. So we believe we're through the bottom of the device demand, trough, and that we're probably right at the infrastructure demand trough, and we expect to see both of those improve as we go through the year.
... Okay, and, so PCs and AI PCs.
Yeah.
Everyone is talking about AI PCs, but looks like the reality is that's gonna be maybe 10% of PCs, and that's, and you've got to have use cases. So, and when you're talking to your customers, is it really just the refresh cycle gonna be just the next greatest regular PC? And then there's got to be use cases to justify spending X, Y more on the AI PCs, and-
Yeah, I, you know, I think you're right. I think in the short term, the about 10% of demand, maybe even a little less in the next six to 12 months, will be AI PCs, but I think our customers are gonna start testing them, and I think they'll because the, the price point is a little higher, but it's not, like, ridiculous, $1,500 or so. So I feel like we will see some adoption of AI PCs. I do think it will grow. Whether it's gonna be 30% of the mix, 60% of the mix, I don't know. That's over the next couple of years, we'll see something like that. But, but in the short term, I think it's gonna be less than that, for sure.
There are really good use cases for AI PCs. There are really good opportunities to figure out how to not leverage the public cloud, for example, for all this processing. It's expensive, it's, you know, consumes a lot of energy, et cetera. So if you can figure out how to run something on a AI PC, that's that's gonna be a good decision in some environments, like factories and things like that.
I know 'cause we were, we visited your headquarters in March, and we talked about with James, your North American CFO talked about, really you working on use cases where, for your clients, internally-
Yeah
... saying, "This is what we can do-
Yeah.
- and this is what we can do to help you." So, how is that going, and is that where you're driving demand, basically telling customers, "These are what things you can do because we, we've done it?
Yeah, so we are being client zero for a lot of our use, these use cases, and we're testing things out. I still don't think there's a lot of it. There's not a lot of money being spent yet. It's still POC-type environments, mostly on these use cases. But yeah, we're using it. We're, by the way, starving. Starving. We are restricting budget increases so that we're forcing our teams to start thinking about how to use the technology to reduce their overall OpEx spend, and as a bit of a forcing function, and that is yielding some good results. So we've got some automation in some of our, you know, our chat or our chat environments, like ask HR-type activities. We've done some work around software development and QA.
We've done some work around summarization of contract language and things like that, and, automated SOW preparations, for example. So some of those use cases are very helpful when we go see our clients and get them to think about what the art of the possible is.
Yeah. And just on the regular PC refresh cycle, I mean, you've got, you know, many large customers that potentially can buy hundreds of thousands of PCs. Are you starting to see those orders or companies saying: "Okay, we know we've got to get ahead of the Win 11 transition, so we're starting to plan now"? And are you getting some visibility? Will you actually have backlog? 'Cause at some point, you're gonna have to start building inventory, right?
Yeah.
And your working capital requirements. So, how's that visibility?
Yeah, we're definitely having lots of discussions about refresh. And I don't think we're gonna see the same spike in demand that we saw two years ago. It's not gonna be 20-30% increase. I think we'll see it, you know, it's gonna be single-digit increases. And I think that they will be thoughtful about where and how to deploy which type of devices, persona-based, most likely.
Yeah. And I think the benefit for you also is that you're not just selling PC hardware, but there's also wraparound services.
Yeah
-to us.
Yeah.
Yeah.
Especially with an offer like Device as a Service. Yeah.
Yeah, that's interesting. You talked about you'd rather do it as a service. What percentage of PCs that you actually sell are as a service now?
Very small.
It's very small.
Very small.
Yeah.
Yeah.
Yeah, okay.
Lots of interest again.
Yep.
Yep.
Yeah. Okay, and then just back to AI, and two concerns. One is, everyone's, you know, planning, but doesn't seem to be any use cases that are a big way they're actually monetizing their AI yet. And then also, we're hearing, and we heard this from April quarter, hardware OEMs, several, and software companies talking about AI budgets being shifted, a priority toward AI, and then critical mission type of work, where other things are getting pushed out, and we heard that from a number of companies. Are you seeing that as well?
I think it's, I think the topic is on everybody's mind. I think we are here, we're talking about it way more than we're talking about anything else. But we haven't really seen major GenAI spend yet, not in our space. So I think we will continue to drive POCs, we'll continue to help our customers see where they can go with AI. But I wouldn't say... I would say it's more of, it's contributing to the caution and that was already in place around spend, and it's just another thing. But I also think everyone's preparing because they know they're gonna need to spend. They just don't know on what and how exactly, I would say is-
Mm-hmm
... probably the way I'd characterize it. So I'm optimistic. I think this is gonna be a very good thing for our industry. It's gonna be a very good thing for us. If this really becomes a $20 trillion industry instead of a $4 trillion industry, there's a lot of opportunity.
Yep, yep. Any questions from anybody? No. In your presentation, you showed the timeline of the company and the many acquisitions over the years, right? And that's given you all the skill sets that you have, and that's another part of your strategy. I know, Glynis, for many years you've been there, and M&A has been a big part. What are we thinking now in terms of... 'Cause it doesn't look like you have to do like a big acquisition for synergies 'cause you've done that already. It's really skill set. So what should we think about in terms of your M&A strategy?
Do you want to talk about it?
... Sure. I think that we've been pretty consistent the last couple of years with regard to looking at all things cloud, data, AI, edge related, all the fastest growing, fastest-growing areas of the market. We targeted AWS and Google as being capabilities that we wanted to acquire. We looked at a couple of different companies, ended up acquiring the largest dedicated GCP player in the U.S. with SADA, so that was a good addition to the overall portfolio. And when you think about, sorry.
Sorry. Whoops!
When you think about Google and Azure, 'cause we're a heavy Microsoft shop-
Yeah.
Google's a leading cloud, you know, so you have Azure as your base. Google comes in and does a really great job around data and AI, right? Data and analytics, sorry.
Yeah.
So it's a good cloud to add into an existing portfolio, and most of our clients are gonna have multiple clouds if they don't already have multiple clouds, and multiple clouds would include on-prem, plus multiple clouds. We're gonna continue to look at that. We'll look at, to see if we can find an AWS player out there. We have a small practice today, but we can grow it at a faster pace if we could, you know, have a little nucleus that we could add to that. And we're gonna continue looking at security. We haven't made a bet on security yet in terms of an acquisition. We've spent some time figuring out where do we exactly wanna play in security, 'cause it's broad. Where can we actually leverage our capabilities the best in terms of the type of company that we would buy?
And then, you know, we look at companies in Europe. We need some capability there. The Amdaris acquisition was really, really great 'cause it gave them the services capability around the Microsoft stack that they never had before, and we needed that in Europe. And we're looking at, you know, smaller deals in Australia just by definition, our market's smaller there-
Mm-hmm.
In APAC. So we'll just continue to do-
Yeah
... some of that. Probably not a big scale play, realistically.
That would have to be very opportunistic.
Very opportunistic-
Yeah, yeah
... and heavy services it would have to have.
Yeah.
You know?
Yeah.
Not a product play.
Yeah, your European business seems to be different, margin structure a little bit different, end customer. And I know you've done, in the past, you did some hardware acquisitions there. What's the long-term strategy of Europe in terms of, you know... Because it seems like your structure in North America is in good shape.
Yeah.
Not to mention, not to say that Europe's not, but, what, what's the plans there in terms of things that you can do in Europe?
Truly the same playbook, right?
Yeah.
As figuring out how to get on... We need more scale there, especially outside the U.K.. We have pretty good scale in U.K., but outside of the U.K., we do not have-
We do, yeah.
And the question is, can you get the same return if you invest in Germany that you can get in either the U.K. or-
Yeah
... or the U.S.? And generally, the answer has been no.
Yep.
That's right. Yeah.
So-
We'd have to figure out how... But scale would be good. We've just got to figure out the right way to do it.
Yeah, and there are a number of Pan-European resellers or integrators-
Yeah
... right? There's a few.
Yeah.
But the question would be, go that route or just add on to what you're doing and-
Exactly.
Right.
Yeah.
Definitely.
Yeah. Great. So you talked about cloud and SaaS and services. I think it's now, what, 50% of gross profit dollars?
55%
55%, okay, a big number. And how much of that is, can you, identify as recurring revenue? Because that's the one attractive... Your business has changed so much, but a lot, we, you've got some recurring revenue, right? With Azure and things like that, but, in terms of that number, what, how can you help us there?
Yeah, we don't separate them, but-
I would say that within that 55% is cloud, and we would categorize cloud as recurring. Not necessarily because they have, you know, long-term contractual commitments, but pretty much we don't lose those customers. They actually-
Yeah
... expand their relationship.
Consumption might change.
Yeah, the consumption might change. Actually, it expands.
Grow.
It increases.
It grows, yeah.
It doesn't actually contract. So I'd say, so cloud is 25% of our total revenue, so it's greater than, and that's about 50% of that, 55%.
Mm-hmm.
Cloud is 25% of our total GP.
Yeah.
Of our total GP, and that's recurring. And then within the services piece, there's a piece that's managed, and that managed piece would also be recurring. We haven't broken out what that is yet, but. So I think we've said that our recurring revenue is in the 35%-40% range.
Mm-hmm.
Recurring GP, sorry.
Yeah.
Recurring GP is in the 35%-40% range.
Okay, and then the chunk of that balance is hard?
It's hardware and, and software. It's product.
Sure. Got it.
It's really product, product-based, and it's not,
Project
... Or it's project, it's consulting projects, it could be integration, configuration, services for, configuration labs, et cetera. So it's, it's project-based, it's not recurring. We call it repeat, because it's usually business with the same clients that we're doing, but it's not a contractual commitment to do X amount each year or over a period-
Okay
... of years.
Yeah.
So it's repeat revenue, not recurring revenue.
Got it. Yeah, one question I, I get from investors is, particularly on cloud, like, they understand that you, you put a lot of work into maybe, you know, moving workloads on-prem to Azure or to, to Google. And then you're helping manage that, and you're getting a fee, depending on how they pay for that service, right? One question is, what's the value beyond that? I mean, why are you still getting paid?
Yeah.
What is it that you do-
Yeah
... that warrants that commission or that fee that you get?
So first of all, there's usually more projects, and there's a management component. So the management component is: where is the cloud usage going? Who's using it? Is it optimized? If it's not optimized, there's a project. How do you optimize it? And we see that pretty traditionally, so or consistently. We see cloud consumption growing like crazy. They get the bill and they say, "Oh, I don't wanna spend that much. Can you come in and help us flatten it out?" We flatten it out, and then they start adding more things to the cloud again. So that's usually. That happens over and over and over again.
For the past two years, I would say, or year and a half, we've been doing a lot of FinOps projects, which is all around cloud optimization, and then, again, you result in a managed state. So it's basically continuous optimization, 'cause things change, and,
Mm
... pricing changes, and the demands on the workloads change, so there's a lot of work there.
Yeah, for sure. You know, one other thing I wanted to talk about was at your analyst day in 2022, so 18 months or so ago, or more,
Yeah
... you talked about changing your sales force.
Mm-hmm.
There's a transformation going on. Could you talk about that? I know... So we're well into that now. How has that worked out? Any changes to that strategy?
Yeah, you reminded me that I should've shown the slide. So these are the metrics we set on that investor day that we should look at, and you can see our progress versus 2022 against the targets that we set out for 2027.
Mm-hmm.
We feel pretty good about these. I mean, I think we're, we're feeling, like there's a pretty... We've, we've demonstrated some good improvements, and we're, we're tracking well generally. The services, I mean, on the sales transformation element-
Mm
... we've spent a lot of time on our selling skills, not only to increase our solutions capabilities, but also to help our sales teammates think not just about gross profit dollars, which they always thought about, because that's how they were paid, but also about gross margins. So part of what you see in the services gross margin expansion and the EBITDA margin expansion is that realization coming home. So we have trained our sales teammates to think about, "If it's a managed service, I need to price it X." And by the way, their compensation plan reinforces that. "If it's a project, a consulting project, I need to price it Y," in terms of gross margin percent, and that's helped a lot as well. So I think we're building the skills.
We're adding in, recruiting and adding in sellers with those skills already, to help set the bar, and that combination, I think, is going pretty well.
How is the environment in terms of hiring sales folks that have track records, et cetera? And because you're competing with, you know, the dozens of really large tech companies, right? Whether it be competitors or OEMs or cloud providers, how is that going?
The hiring environment is way better now than it was a year ago, or a year and a half ago.
Right.
Way better. And we have, I think, some pretty good, exciting things going on. It's, we haven't been having a problem hiring. So, GenAI skills are pretty hard to find. So-
Yeah
... security skills, pretty hard to find. But I would say from a selling point of view, not an issue.
Okay. Glynis, I wanted to... I mean, you've announced at your earnings call that you're gonna be retiring at the end of the year. You've been at Insight for 17 years-
Mm-hmm
... or so. And certainly, the company has changed dramatically in that time. Your earnings multiple has also risen dramatically as well. Any thoughts in terms of, you know, that journey, and any sort of comments on that journey and that transformation, and, you know, how you see the company now, situated as-
Mm
... as you retire?
Mm-hmm. You know what? I would say that I've just been fortunate to have worked at Insight while we were going through that journey, right? So I came out of transportation, not dynamic.
Mm-hmm.
The tech industry, incredibly dynamic, constantly changing, and, you know what? We've had two CEOs who've had the vision to think through: what's the next big thing that's coming down the pipe, and how do we prepare for it? I think that part of the success of Insight is that we look forward, we do acquisitions, we figure out what we need to do to put the pieces in place in terms of being able to meet the demand that's coming down the pipe, and I think being able to see that and be a part of that makes my job really interesting. I've had a really great run. I've really enjoyed my work at Insight. I really enjoy the people I work with. Matt, you've been with me since the start-
That's right, from the beginning.
... so I appreciate it.
Yes.
You're the only one left-
That's right
... that's been with me since the start.
That's right.
So I do appreciate it. But it is an incredibly exciting time in technology right now. Clients need more help, not less. Technology's changing so fast. They have so many choices that they have to contemplate what's as they're making a decision about what they need to do to move forward, that they need some help, and we are really well-positioned to help them with that. And as I tell everybody, I still will own stock and I will come to the annual general.
Okay.
I'll be the only person there.
Yeah.
But I'll come.
Okay, and on that note, we'll wrap it up. Thank you very much, everyone.
Thank you.
Thank you.
Thank you, everyone. Thanks, Matt.
Thanks, Matt.