Insight Enterprises, Inc. (NSIT) Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to the Insight Enterprises Second Quarter 2026 Operating Results. [Operator Instructions] I will now hand the conference over to Ryan Miyasato with Investor Relations. Ryan, 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 30, 2026. I'm Ryan Miyasato, Investor Relations Director of Insight, and joining me is Jack Azagury, President and Chief Executive Officer; and James Morgado, 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 8-K, you will 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 2 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 6, 2026. 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 non-GAAP financial measures as we discuss the second quarter 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 U.S. 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 Jack. Jack?

Thank you, Ryan. Good morning, everyone, and thank you for joining us. I'm pleased to report another strong quarter for Insight. Building on the momentum we established in the first quarter, we delivered broad-based growth across our business and generated strong operating leverage. As a result, total gross profit grew 18%, while adjusted earnings from operations increased 31% and adjusted diluted earnings per share rose 44%. I'm especially proud of the performance in our key priority areas. Infrastructure hardware revenue rose more than 20%, reflecting strong demand across servers, storage and networking as clients modernize their environments and invest in AI-ready infrastructure. From a gross profit perspective, cloud grew 39% and core services increased 21%. These offerings are closely aligned with our clients' priorities and represent areas where we see significant opportunity to drive sustained growth. These results reinforce 2 important points. First, our strategy to be a solution integrator for the age of AI is resonating with our clients. And second, we are making early progress against the priorities I outlined last quarter, in particular, the need for focus and execution discipline in everything we do. As James will detail in his remarks, we are raising our outlook for both gross profit growth and adjusted diluted earnings per share for the year as a result of this strong momentum. Over the past several months, I've continued spending time with our clients, our teammates and our partners around the world while conducting a comprehensive review of our business and building our 3-year business plan. Those conversations, combined with a deeper understanding of our operations and market position have only strengthened my conviction in the opportunity ahead of us. Our pivot to become the leading solution integrator for the age of AI is working. While there are opportunities to optimize how we operate and continue to build our capabilities, we have a strong foundation to build upon, and we are in a strong position to unlock the value from the investments we have made over the last 10 years. Let me start with what's working well. Our client relationships remain one of our greatest strengths. Many of these relationships have been built over years and in some cases, decades, creating a foundation of trust that enables us to engage at a more strategic level with our clients. This is especially true with our mid-market clients who are turning to Insight to help them deploy and adopt AI in a practical way with a focus on rapid results. A measure of the trust we've earned with our clients is our Net Promoter Score, which has consistently exceeded 60 over the past 3 years. Second, our cloud business continues to perform well. Organizations remain focused on modernizing their environments, optimizing cloud investment and consumption and driving value from AI. Our strong cloud performance, especially with Microsoft and Google, reflects both the relevance of these priorities and the value our teams bring in helping clients accelerate their digital transformation journeys. Third, we are seeing encouraging strong growth in infrastructure and AI-related hardware. This growth is being driven by stronger sales execution, close alignment with client priorities and our ability to help clients navigate supply chain constraints while accelerating investment in modernization and AI-ready infrastructure. Fourth, our partner ecosystem remains a significant competitive advantage. The strength of our relationships with the world's leading technology providers continues to create opportunities for growth and innovation. As an example, we are a global launch partner for Microsoft 365 E7, Microsoft's Frontier Suite. As an early enterprise adopter, we're gaining firsthand experience that helps clients accelerate their own journey to a human-led agent-operated enterprise. We bring the full Microsoft AI stack from Copilot to Agent 365 with security and governance built in, which is especially valuable for mid-market clients seeking enterprise-grade AI capabilities. The strength of our partner ecosystem is reflected in recognitions we continue to receive across the industry. Recently, we earned Partner of the Year awards from HPE, Everpure, Adobe, CrowdStrike, Proofpoint and Rubrik, an endorsement of our technical expertise and leadership in cybersecurity and other strategic growth areas. And we were named a major contender in the Everest Google Cloud Services PEAK Matrix Assessment, recognizing our expertise in the Google Cloud Platform. Finally, our people and culture continue to be a major differentiator, bringing deep technical expertise across our solutions. I have been consistently impressed not only by the depth of our expertise, commitment and passion across our organization, but also by the strength of our culture grounded in collaboration, accountability and shared commitment to our clients. We refer to it as hunger, heart and harmony. As an example that illustrates many of these strengths is our partnership with a health care consulting provider that conducts hundreds of hospital surveys each year. These consultants were spending significant time manually documenting findings and producing accreditation reports. We built an AI-powered solution using OpenAI that transforms survey notes into structured findings and recommendations that fit seamlessly into existing workflows. As a result, the client is realizing more than $400,000 in annual productivity savings, reducing report preparation time from several hours to less than an hour. They're also saving more than 20 hours per week in formatting and quality assurance work and improving consistency across hundreds of reports each year. This example demonstrates how we're helping clients move from AI ambition to realized business value. The differentiator is not access to AI technology itself, but the ability to apply it to real-world business challenges, transform processes and deliver measurable returns. As clients increasingly prioritize outcome-based AI investments, our expertise, delivery capabilities and talent position us well to capture this growing opportunity. While we have a strong foundation, we have also identified several areas where we need to improve. First, part of our business remains too decentralized. Some acquisitions and support functions have not yet been fully integrated into a common operating model, creating complexity, sometimes limiting collaboration and slowing down decision-making. We need a more connected and consistent way of working in order to serve our clients at speed as One Insight all the time, every time. Second, we have not consistently invested in our organic business in several of our most important growth vectors. We believe there is significant opportunity to accelerate investment in AI infrastructure as well as AI services, including engineering, data, cloud and security. These are areas where client demand is growing and where we believe Insight is well positioned to win. Furthermore, we need to continue to invest in our frontline sales and equip our account executives with training and AI tools to represent the full capabilities of Insight. Third, we have opportunities to create greater efficiency through AI-enabled processes and automation. As a technology leader, we are leading by example, in the adoption of AI to improve productivity, decision quality and speed. Our early adoption of Microsoft's Frontier Suite is a great example of this. To address these areas for improvement, we are launching a 3-year business plan, which we call the One Insight plan. The plan is designed to accelerate organic growth, move to One Insight operating model and improve our operating leverage in order to further fuel our business for growth. Combined with favorable market trends in cloud, data, AI and cybersecurity, we believe this strategy will position us to create sustainable long-term value. The plan focuses on 3 pillars, which I'll expand on shortly. First, accelerating investment behind our highest priority growth vectors, AI infrastructure and AI services, including security with a sharpened focus on the mid-market. Second, driving operational excellence; and third, strengthening our talent strategy. These represents the building blocks of the 3-year plan we are currently developing and will be executed over a phased approach. Importantly, this is not simply a future state vision. Work is already underway globally. At the center of everything we do is a simple principle, focus and execution. Let me give you examples of our plan in each of the 3 key pillars. As we drive operational efficiencies across the business, we will reinvest a portion of those savings into 2 strategic growth initiatives that are closely aligned with evolving client demand. AI infrastructure. Organizations are transforming their infrastructure to support AI workloads, data-intensive computing and modern hybrid environments and AI services. This includes engineering services, data and cloud capabilities, security solutions and advisory services designed to help clients move from experimentation to enterprise scale deployments at speed. As we strengthen our investment in these 2 priority areas, we continue to drive operational excellence and execution in other areas, including devices, hardware attached services and overall resale capabilities. A good example of our priority investments is the recent launch of Insight Managed Exposure Defense, IMED in short, a managed security offering designed to help organizations address the growing wave of AI-driven cyber risks. The solution, which we use ourselves as client zero, enables clients to rapidly move from identifying vulnerabilities to strengthening their security posture. In a threat landscape that continues to evolve at unprecedented pace, organizations need a partner that can deliver integrated protection and rapid time to value. We are making these capabilities available in a consumable way as a managed service, making them more accessible to our mid-market clients, including a simple 24-hour quoting process to get started at speed. In just a few weeks since launch, we have seen strong client interest. Within our solutions portfolio, similar to what we've done with IMED, we are improving scalability and repeatability by productizing our top 10 service offerings over the next few months. In addition, in order to drive greater solution selling and cross-selling globally, we are also expanding our AI sales coach capabilities, equipping our account executives with client-specific insights, recommended discussion topics and actionable guidance that improves productivity, selling consistency and client engagement at scale. We are also selectively adding account executive capacity in key segments. Our second pillar is driving operating leverage and implementing a One Insight operating model, bringing acquisitions onto common platforms and processes, standardizing how we operate across regions and breaking down organizational silos. By operating as one global team, we can deliver the full breadth of Insight's capabilities to clients, deploying AI at scale internally, improve execution, accelerate decision-making and create greater operating leverage across the business to further fuel our growth. This effort includes globalizing corporate functions, streamlining support operations, reviewing our direct and indirect spend and embedding AI more deeply into our day-to-day operations. We are also reducing organizational layers and empowering teams to make decisions closer to the customer, improving speed, agility and accountability. During the quarter, we paused back and mid-office hiring to prioritize client-facing hiring to drive growth and improve organizational efficiency. We are also strengthening collaboration across our global delivery centers with deeper integration and shared accountability across India, the Philippines and Eastern Europe. Our goal is to build a mature global delivery organization with a clear emphasis on AI-led transformation, process simplification and consistent execution. Further, we continue to accelerate our own AI transformation in areas like sales and sales support, finance, HR, marketing and more. Our objective is simple: use AI to make Insight more productive, more scalable and more effective, demonstrating our client zero approach while helping our clients do the same. Our third pillar is our talent plan. We are aligning incentives and rewards to compete for AI talent while continuing to expand our deep expertise in data, cloud and cybersecurity through ongoing investments in advanced training and certifications across Azure, Google Cloud, leading frontier models and other strategic technology partners. We have launched focused incentives in the second half to drive -- to further drive and sustain our growth priorities, and we are reviewing our performance management process to continually raise the bar on our own performance. Ultimately, this all comes back to focus and execution. Our goal is to create a way of working that better supports our business, our partners and our clients. As we implement One Insight, we will measure success through a combination of growth and execution metrics, specifically, our ability to accelerate organic growth in our key priority areas, deliver strong operational performance and increase our OpEx leverage over time while continuing to focus on our client and teammate NPS scores. As we look at the remainder of the year, we currently believe our highest return opportunity today is investing in Insight itself. As a result, our priority is to complete the remaining $149 million of our current share repurchase authorization this year and continue to pause M&A activity. The first half of 2026 demonstrates the strength and resilience of our business model. Demand remains healthy across our key markets, execution continues to improve. Our focus on driving organic growth is gaining traction and our backlog continues to grow. While demand remains strong, we remain mindful of the mix and evolving macroeconomic environment and are managing the business accordingly. Against this backdrop and supported by a strong financial first half performance and confidence in our ability to execute, we are raising our outlook for both gross profit growth and adjusted diluted earnings per share for 2026. James will provide additional details on our updated guidance in a moment. With that, I'll turn the call over to James. James?

Thank you, Jack, and good morning, everyone. Our Q2 results displayed broad-based strength across our business and exceeded our expectations for the quarter. Net revenue was $2.4 billion, an increase of 15% in U.S. dollar terms and 14% in constant currency. The increase was driven by hardware and services, partially offset by a decrease in on-prem software as clients shift to cloud-delivered software. As a reminder, cloud-delivered software is presented net in agent services revenue. Hardware revenue increased 21% with double-digit growth in both devices and infrastructure. Core services revenue was up 14%, reflecting contributions from both acquisitions and the organic business with stronger growth from the acquired businesses. Organic growth accelerated slightly from Q1, though we recognize there is still work to do to reach our full potential. Gross profit increased 18%. Cloud gross profit was $171 million, an increase of 39%, driven by both growth in SaaS and Infrastructure as a Service as well as security software from our Sekuro acquisition. Insight Core Services gross profit was $95 million, an increase of 21%, driven by contribution from acquisitions as well as modest organic growth boosted by gross margin expansion. Hardware gross profit was up 10%, while gross margin declined 110 basis points due to pricing and client mix. From a geographic perspective, all regions delivered double-digit gross profit growth. North America grew 16%, driven by cloud and core services. EMEA increased 13%, driven by ongoing transactions in UAE and Saudi Arabia, where we act as the agent. And APAC grew 67%, fueled by acquisition contributions attributable to our cybersecurity-related offerings. As a result, total gross margin was 21.7%, an increase of 60 basis points. Adjusted SG&A increased 12%, primarily due to an increase in variable compensation and acquisitions. During the quarter, we implemented disciplined cost controls, including a pause in back and mid-office hiring, excluding sales and technical talent as prioritized investments in our key growth areas. This resulted in adjusted EBITDA of $190 million, up 29%, while margin expanded 90 basis points to 7.9%. And our adjusted diluted earnings per share were $3.86, up 44% in U.S. dollar terms and 43% in constant currency. For the quarter, we used $12 million of cash flow from operations, and year-to-date, we generated $20 million, which was in line with our expectations and our typical seasonality. We continue to anticipate cash flow from operations in the range of $300 million to $400 million. In Q2, we repurchased $75 million in shares and have $149 million in remaining authorization, which we intend to exhaust before the end of the year. The projected $299 million of share repurchases for the year would represent over 90% of our projected free cash flow. We exited Q2 with total debt of approximately $1.5 billion compared to $1.3 billion a year ago with a net leverage ratio of 1.7. The year-over-year increase in debt was primarily related to acquisitions and share repurchases. We have ample liquidity to meet our needs. And as of the end of Q2, we had access to the $2 billion capacity under our ABL facility, of which approximately $1 billion was available. Our adjusted return on invested capital for the trailing 12 months at the end of Q2 was 17.3% compared to 15.5% a year ago. Now turning to guidance. As we consider our first half performance and the evolving operating environment, our guidance incorporates the following assumptions and considerations. For the year, we expect our corporate and large enterprise client spending to improve from last year. Hardware gross profit will be up low single digits as component costs are impacting demand, particularly for devices. We expect core services gross profit will grow in the low double digits with contribution from our recent acquisitions as well as improvement in our organic business. We anticipate cloud gross profit to grow in the high teens to low 20% range as we move past the majority of the partner program changes we have previously discussed. We will continue to prudently manage SG&A and expect growth slightly slower than gross profit. We intend to continue to pause M&A and exhaust the remaining $149 million share repurchase authorization in 2026. And finally, as we look ahead to the fourth quarter, we will lap the acquisitions completed last year and work through the remaining impact of the Google Partner program changes. We're also remaining prudent on our Q4 outlook given uncertainty associated with memory price increases, supply chain disruption, and macroeconomic factors. While these factors moderate the year-over-year growth profile, we continue to expect solid execution across the portfolio with the fourth quarter representing our lowest adjusted diluted earnings per share growth of the year. Considering these factors for the year of 2026, our guidance is as follows: we are raising our gross profit growth expectations to 8% to 10%, and our gross margin will be approximately 21.5% to 22%. Excluding stock-based compensation, our adjusted diluted earnings per share will now be between $12.20 to $12.70. This represents approximately 16% growth at $12.45 midpoint compared to the 2025 adjusted diluted earnings per share of $10.75. Finally, we expect cash flow from operations in the $300 million to $400 million range. Our guidance includes interest and other expenses to be approximately $95 million, an effective tax rate of 25.5% to 26.5% for the full year, capital expenditures of $20 million to $30 million and an average share count for the full year of approximately 30 million shares. This outlook excludes stock-based compensation, excludes acquisition-related intangible amortization expense of approximately $83 million, assumes no acquisition-related costs, severance and restructuring or transformation expenses and assumes no change in our debt instruments and no meaningful change in the macroeconomic outlook. I will now turn the call back to Jack. Jack?

Thank you, James. Before we conclude, I want to take a moment to thank our teammates, our clients and our partners. Our strong performance this quarter reflects the dedication, expertise and commitment of our people, the trust our clients place in us every day and the strength of the partnerships that help us deliver exceptional outcomes. At its core, the One Insight plan is around aligning the company around our greatest opportunities. We are investing in high-growth priority growth markets, building a more scalable and efficient operating model and strengthening our talent and technical capabilities. Taken together, these actions will improve agility, enhance execution and position us to deliver stronger long-term growth and profitability. I'm proud of what we've accomplished so far, but I believe the greatest opportunity still lies ahead. While we have a lot of work to do, we are building from a position of strength with differentiated market position, a clear strategy, outstanding talent and a culture committed to winning for our clients. These strengths give me confidence in our ability to execute and deliver our next phase of growth. Now it's all about focus and execution. Thank you for your continued support of Insight. We look forward to updating you on our progress next quarter. This concludes my prepared remarks, and I will now open the line for your questions.

[Operator Instructions] Your first question is from Joseph Cardoso with JPMorgan.

Congrats on the solid results this morning. Maybe for my first one, Jack, you obviously kind of laid out a number of strategic initiatives that you kind of hinted at last quarter, you also laid out last quarter, encompassing investments, restructuring and reorganization across the business, while also emphasizing kind of a North Star commitment to operating leverage. Maybe just how are you thinking about balancing those 2, especially near term, just given maybe potential risk related to elevated investments or transitory disruptions potentially pressuring the leverage in the interim? And do you even see that as a fair concern? And then I have a follow-up.

No. I mean, obviously, it is a balance, as you point out. And we have opportunities to improve operating leverage. We've identified many of them already. And our intent is to balance out -- balancing the areas where we find efficiencies and reinvesting part of those efficiencies to fuel growth. And that balance, which we monitor every week, every month, every quarter is what we've already started to do. We're going to invest within our guidance, and we will invest with a focus of always improving operating leverage. But we've identified a number of areas for operational efficiency that give us opportunity to invest and fuel for growth. So that's the balancing out the leadership team is focused on every day.

Got it. And then maybe as my second one, and maybe this is a Jack James combo question here. But just relative to the full year guidance, when I take a look at it, it implies a deceleration in both revenue and gross profit growth into the second half and maybe what even appears to be a decline in operating profit and earnings, if I'm kind of doing my math right, into the second half. Maybe can you just flesh out the drivers behind that dynamic into the back half and how we should think about maybe the upside and downside risk around it?

Let me start, and then I'll hand over to James. As we've said for some time, we always expected a stronger first half than second half and Q2 was always going to be a high watermark for us. We've also talked last quarter about the fact that we still have some compare on the Google side in Q4. Some of the remaining M&A will come off in Q4 as well and a tougher compare in Q4. So that is really the reasons why we always expect a stronger first half than second half. But also, I will say we are being prudent in our guidance just as we were last quarter. And there's still a lot of uncertainty of memory prices, macroeconomics. So we believe some prudence here is warranted. James?

Yes. I think the only thing I would add to that is, Joe, as we look at this, as we exited the first half, I think the underlying demand dynamics are strong as we head into the second half. But given the factors that Jack just outlined, I think it's really important for us to maintain that prudent stance, particularly in Q4 as we think about Q4. We do expect both quarters will post growth. But the compares for us, as we think about this as we progress through the year, they do get more challenging from a year-over-year perspective. So just as we look at the overall second half, I think the underlying demand dynamics remain strong, but there are some things that we have to navigate in the second half. And so I think prudence in our guidance is still important.

Your next question is from Adam Tindle with Raymond James.

And I want to start with the congrats, especially in light of peer reports. These results are really, really impressive. Jack, I want to ask on sort of your 3 different things to improve. So a multipart question, bear with me. But the first one you talked about was that you're too decentralized, you want to be more connected. The question there would be what that would entail, especially from a system standpoint? Are we talking about ERP systems, stuff like that and the timing to that? The second, and I'll kind of combine these 2, but you talked about investing in organic and then creating greater efficiency through AI. So the question on those 2 would be sort of the timing and size of that investment and the net implication on margin. I imagine that there's some investment but some offset. Are we entering into a period where margins might take a pause or just kind of set expectations on profitability going forward?

Yes. So on the One Insight operating model, there are multiple levers. We already just in the first 3, 4 months I've been here, are operating as a much more globally integrated leadership team across the globe, bringing the strength of our EMEA, APAC and North America teams together, leveraging best practices, looking at things that have been done multiple times and doing them one way with best practices that there have been many opportunities, including, for example, our AI sales coach. We had multiple efforts underway. We have now one, leveraging the best AI engineering and capabilities and developing one. And just like that example, there are many that our team is already focused on. We are looking at global processes and transforming a number of our systems over the next few years to harmonize our data and harmonize our processes in a number of areas. So we've improved the use of our CRM system globally already just in the first 3 months. So it's a combination of the culture of the team coming together, the operating model, which we've got more work to do and our systems and processes. So we're looking at all levers to make sure we operate as an integrated team. But first, it starts with culture. And frankly, I've been very, very pleased with how our team has come together in the first 3 or 4 months globally to really collaborate and work to the best -- to drive the best results for our clients, our shareholders and our partners. The second part -- Adam, could you -- so the second part, Adam, was on margins. Is that right?

Yes, basically combining.

Go ahead.