Insight Enterprises, Inc. Reports Second Quarter Results

Insight Enterprises, Inc. (NASDAQ: NSIT) (the “Company”) today reported financial results for the quarter ended June 30, 2023. Highlights include:

• Gross profit decreased 1% year to year to $433.2 million with gross margin expanding 240 basis points to a record 18.4%
  • Insight Core Services gross profit grew 7% and Cloud gross profit grew 12%
• Earnings from operations decreased 8% year to year to $118.6 million
• Adjusted earnings from operations decreased 8% year to year to $129.7 million
• Diluted earnings per share of $2.17 decreased 10% year to year
• Adjusted diluted earnings per share of $2.56 decreased 8% year to year
• Cash flows provided by operating activities were $27.8 million and $188.0 million for the three and six months ended June 30, 2023, respectively

In the second quarter of 2023, gross profit decreased 1% and net sales were down 14%, year to year, while gross margin expanded 240 basis points compared to the second quarter of 2022 to a record 18.4%. Earnings from operations of $118.6 million decreased 8% compared to $129.6 million in the second quarter of 2022. Consolidated net earnings were $80.5 million or 3.4% of net sales. Adjusted consolidated net earnings were $88.5 million or 3.8% of net sales. Diluted earnings per share for the quarter was $2.17, down 10%, year to year and Adjusted diluted earnings per share was $2.56, down 8%, year to year.

“The second quarter was more challenging than expected,” stated Joyce Mullen, President and Chief Executive Officer. “Although we did not achieve the overall results we anticipated, we are pleased with many of our key performance indicators that confirm we are making progress on our strategic and financial goals, including record gross margin, continued growth in Insight Core services and Cloud gross profit, and record Adjusted EBITDA margin of 5.9%,” Mullen stated.

KEY HIGHLIGHTS

Results for the Quarter:

• Consolidated net sales for the second quarter of 2023 of $2.3 billion decreased 14%, year to year, when compared to the second quarter of 2022. Product net sales decreased 17%, year to year, and services net sales increased 2%, year over year.
  • Net sales in North America decreased 16%, year to year, to $1.9 billion;
    • Product net sales decreased 18%, year to year, to $1.6 billion;
    • Services net sales increased 1%, year over year, to $314.7 million;
  • Net sales in EMEA decreased 8%, year to year, to $391.7 million; and
  • Net sales in APAC decreased 13%, year to year, to $60.7 million.
• Excluding the effects of fluctuating foreign currency exchange rates, consolidated net sales decreased 14%, year to year, with declines in net sales in North America, EMEA and APAC of 15%, 8% and 8%, year to year, respectively.
• Consolidated gross profit decreased 1% compared to the second quarter of 2022 to $433.2 million, with consolidated gross margin expanding 240 basis points to a record 18.4% of net sales. Product gross profit decreased 8%, year to year, and services gross profit increased 6%, year over year. Cloud gross profit grew 12%, year over year and Insight core services gross profit increased 7%, year over year. By segment, gross profit:
  • decreased 2% in North America, year to year, to $343.1 million (18.1% gross margin);
  • increased 4% in EMEA, year over year, to $72.0 million (18.4% gross margin); and
  • was flat in APAC, year to year, at $18.0 million (29.7% gross margin).
• Excluding the effects of fluctuating foreign currency exchange rates, consolidated gross profit was down 1%, year to year, with gross profit decline in North America of 2%, year to year, partially offset by gross profit growth in EMEA and APAC of 3% and 5%, respectively, year over year.
• Consolidated earnings from operations decreased 8% compared to the second quarter of 2022 to $118.6 million, or a record 5.0% of net sales. By segment, earnings from operations:
  • decreased 8% in North America, year to year, to $95.4 million, or 5.0% of net sales;
  • decreased 9% in EMEA, year to year, to $16.3 million, or 4.2% of net sales; and
  • decreased 6% in APAC, year to year, to $6.9 million, or 11.4% of net sales.
• Excluding the effects of fluctuating foreign currency exchange rates, consolidated earnings from operations were down 8%, year to year, with decreased earnings from operations in North America, EMEA and APAC of 8%, 11% and 2%, year to year, respectively.
• Adjusted earnings from operations decreased 8% compared to the second quarter of 2022 to $129.7 million, or a record 5.5% of net sales. By segment, adjusted earnings from operations:
  • decreased 9% in North America, year to year, to $105.0 million, or 5.5% of net sales;
  • decreased 5% in EMEA, year to year, to $17.7 million, or 4.5% of net sales; and
  • decreased 5% in APAC, year to year, to $7.1 million, or 11.6% of net sales.
• Excluding the effects of fluctuating foreign currency exchange rates, Adjusted consolidated earnings from operations were down 8%, year to year, with decreased Adjusted earnings from operations in North America, EMEA and APAC of 9%, 7% and 1%, respectively, year to year.
• Consolidated net earnings and diluted earnings per share for the second quarter of 2023 were $80.5 million and $2.17, respectively, at an effective tax rate of 26.3%.
• Adjusted consolidated net earnings and Adjusted diluted earnings per share for the second quarter of 2023 were $88.5 million and $2.56, respectively. Excluding the effects of fluctuating foreign currency exchange rates, Adjusted diluted earnings per share decreased 8% year to year.

In discussing financial results for the three and six months ended June 30, 2023 and 2022 in this press release, the Company refers to certain financial measures that are adjusted from the financial results prepared in accordance with United States generally accepted accounting principles (“GAAP”). When referring to non-GAAP measures, the Company refers to them as “Adjusted.” See “Use of Non-GAAP Financial Measures” for additional information. A tabular reconciliation of financial measures prepared in accordance with GAAP to the non-GAAP financial measures is included at the end of this press release.

In some instances, the Company refers to changes in net sales, gross profit, earnings from operations and Adjusted earnings from operations on a consolidated basis and in North America, EMEA and APAC excluding the effects of fluctuating foreign currency exchange rates. In addition, the Company refers to changes in Adjusted diluted earnings per share on a consolidated basis excluding the effects of fluctuating foreign currency exchange rates. In computing these changes and percentages, the Company compares the current year amount as translated into U.S. dollars under the applicable accounting standards to the prior year amount in local currency translated into U.S. dollars utilizing the weighted average translation rate for the current period.

The tax effect of Adjusted amounts referenced herein were computed using the statutory tax rate for the taxing jurisdictions in the operating segment in which the related expenses were recorded, adjusted for the effects of valuation allowances on net operating losses in certain jurisdictions.

GUIDANCE

For the full year 2023, the Company now expects Adjusted diluted earnings per share to be between $9.40 and $9.60. We expect to deliver gross profit growth in the low to mid single digit range.

This outlook assumes:

• interest expense of $46 to $48 million;
• an effective tax rate of 26% for the full year;
• capital expenditures of $45 to $50 million; and
• an average share count for the full year of 34.8 million shares including estimated potential dilution from the warrants relating to the Call Spread Transactions (as defined below), net of share repurchases completed in the first six months of 2023.

This outlook excludes acquisition-related intangibles amortization expense of approximately $32 million, assumes no acquisition or integration related expenses, transformation or severance and restructuring expenses, net and no significant change in our debt instruments. Due to the inherent difficulty of forecasting some of these types of expenses, which impact net earnings, diluted earnings per share and selling and administrative expenses, the Company is unable to reasonably estimate the impact of such expenses, if any, to net earnings, diluted earnings per share and selling and administrative expenses. Accordingly, the Company is unable to provide a reconciliation of GAAP to non-GAAP diluted earnings per share for the full year 2023 forecast.

CONFERENCE CALL AND WEBCAST

The Company will host a conference call and live webcast today at 9:00 a.m. ET to discuss second quarter 2023 results of operations. A live webcast of the conference call (in listen-only mode) will be available on the Company’s web site at http://investor.insight.com/, and a replay of the webcast will be available on the Company’s web site for a limited time following the call. To access the live conference call, please register in advance using the event link on the Company's web site. Upon registering, participants will receive dial-in information via email, as well as a unique registrant ID, event passcode, and detailed instructions regarding how to join the call.

USE OF NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures are referred to as “Adjusted”. Adjusted earnings from operations, Adjusted net earnings and Adjusted diluted earnings per share exclude (i) severance and restructuring expenses, net, (ii) certain executive recruitment and hiring related expenses, (iii) amortization of intangible assets, (iv) transformation costs, (v) certain acquisition and integration related expenses, and (vi) the tax effects of each of these items, as applicable. Transformation costs represent costs we are incurring to transform our business, to help us achieve our strategic objectives, including becoming a leading solutions integrator. The Company excludes these items when internally evaluating earnings from operations, tax expense, net earnings and diluted earnings per share for the Company and earnings from operations for each of the Company’s operating segments. Adjusted diluted earnings per share also includes the impact of the benefit from the note hedge where the Company’s average stock price for the second quarter of 2023 was in excess of $68.32, which is the initial conversion price of the convertible senior notes. Adjusted EBITDA excludes (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization of property and equipment, (iv) amortization of intangible assets, (v) severance and restructuring expenses, net, (vi) certain executive recruitment and hiring related expenses, (vii) transformation costs and (viii) certain acquisition and integration related expenses. Adjusted return on invested capital (“ROIC”) excludes (i) severance and restructuring expenses, net, (ii) certain executive recruitment and hiring related expenses, (iii) amortization of intangible assets, (iv) transformation costs, (v) certain acquisition and integration related expenses and (vi) the tax effects of each of these items, as applicable.

These non-GAAP measures are used by the Company and its management to evaluate financial performance against budgeted amounts, to calculate incentive compensation, to assist in forecasting future performance and to compare the Company’s results to those of the Company’s competitors. The Company believes that these non-GAAP financial measures are useful to investors because they allow for greater transparency, facilitate comparisons to prior periods and the Company’s competitors’ results and assist in forecasting performance for future periods. These non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.