Insight Enterprises(NSIT) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Adjusted diluted earnings per share grew by 18% in Q4 2023, driven by acquisitions made in the second half of the year [14] - Total gross profit increased by 4% despite a decline in hardware gross profit, with cloud and services driving growth [15] - Gross margin expanded by 250 basis points to 18.2% for the full year 2023 [18] - Cloud gross profit grew 26% to $429 million in 2023 [18] - Insight Core Services gross profit grew 8% to$ 273 million in 2023 [19] - Adjusted EBITDA margin expanded by 100 basis points to 5.7% in 2023 [19] - Operating cash flow was $620 million in 2023, a significant increase from$ 98 million in 2022 [19] - Net revenue for 2023 was $9.2 billion, a decrease of 12% year-over-year [42] - Adjusted diluted earnings per share for 2023 were$ 9.69, up 6% [43] - Q4 2023 net revenue was $2.2 billion, a decrease of 11% year-over-year, primarily due to a 22% decline in hardware [46] - Cloud gross profit in Q4 2023 was$ 130 million, an increase of 43% [47] - Adjusted diluted earnings per share for Q4 2023 was $2.98, up 18% [47] Business Line Performance - Device revenue showed sequential improvement but demand remained muted in Q4 2023 [14] - Infrastructure orders softened in December 2023 as clients deployed shipments from earlier in the year [15] - Cloud and Insight Core Services were standout performers in Q4 2023, driven by acquisitions [38] - Hardware revenue declined by 22% in Q4 2023, primarily due to devices and infrastructure [46] - Cloud and Insight Core Services gross profit growth offset the decline in hardware revenue [46] Market Performance - The company made strategic acquisitions in the UK (Amdaris) and North America (SADA) to expand cloud and services capabilities [21][22] - SADA contributed 110 basis points to the total gross margin expansion in Q4 2023 [52] - The company expects cloud gross profit to grow in excess of 35% and Insight Core Services gross profit to grow in excess of 20% in 2024 [58] Company Strategy and Industry Competition - The company aims to become the leading solutions integrator, focusing on four key pillars: putting clients first, delivering differentiation, championing culture, and driving profitable growth [26] - Cybersecurity is a critical offering, with the company providing comprehensive solutions to clients, including a global consumer products company that experienced a cyberattack [27][28][29] - The company launched initial Gen AI offerings, which have been well-received by clients [17] - The company signed a multi-year strategic partner framework with Microsoft, focusing on Azure and Microsoft 365 offerings, including Gen AI [33] Management Commentary on Operating Environment and Future Outlook - The company expects device demand to improve in the first half of 2024, with a more meaningful contribution later in the year as upgrade cycles begin [34] - Infrastructure backlog has normalized, and demand is expected to remain soft for a few quarters as clients digest equipment acquired in 2023 [90] - The company anticipates cloud and Insight Core Services to continue driving growth in 2024, with cloud gross profit expected to grow over 35% and Insight Core Services gross profit expected to grow over 20% [58] - The company expects adjusted diluted earnings per share for 2024 to be between$ 10.50 and $10.80, representing a 10% growth at the midpoint [61] Other Important Information - The company repurchased over$ 200 million of shares in 2023 [20] - The company has approximately $1.1 billion available under a$ 1.8 billion ABL facility as of the end of Q4 2023 [44] - The company expects operating cash flow in 2024 to be in the range of $300 million to$ 400 million [49] Q&A Session Summary Question: How are customer IT budgets shaping up for 2024, and what are the key investment priorities? - The company expects the first half of 2024 to be lighter, with more strength in the second half [73] - Budget priorities remain focused on security, with some softening in infrastructure and increased interest in device refresh due to Windows 11 and AI-enabled PCs [74][75] - AI investments are expected to be more back-end loaded, with device refresh likely to strengthen in the second half of 2024 [77] Question: Why is operating expense growth expected to outpace gross profit growth in 2024? - The higher operating expense growth is primarily due to the SADA acquisition, which has higher SG&A growth relative to gross profit growth [80][84] - The company is focused on revenue synergies rather than cost synergies for SADA in 2024 [80] Question: What is the outlook for hardware recovery, particularly in infrastructure and devices? - Infrastructure demand is expected to remain soft for a few quarters as clients digest equipment acquired in 2023 [90] - Device demand is expected to improve sequentially, with mid-single-digit growth expected for hardware overall in 2024 [94] Question: How does the company view the impact of AI-enabled PCs on device spending? - AI-enabled PCs are generating interest, but the company does not believe they are a primary driver of device spending caution [118] - Device refresh is expected to be driven by aging notebooks, Windows 11, and hybrid work requirements [111] Question: What is the company's outlook for operating expense growth beyond 2024? - The company expects operating expenses to grow at a lower rate than gross profit growth in the future, consistent with its long-term KPIs [121] Question: How did the pricing and profitability initiatives perform in Q4 2023? - The pricing and profitability initiatives performed as expected, with the company pleased with the results and expecting continued improvement [126] Question: What are the growth prospects for North America versus EMEA in 2024? - North America is expected to be stronger, with growth across all segments, while EMEA is also expected to improve [127]