Insight Enterprises: Cloud, AI Grows As Hardware Sales Dip

‘Our performance in Q1 reflects a combination of very strong cloud growth as well as growth within our solutions portfolio, primarily digital transformation, data, AI and cyber, consistent with the higher growth areas of the market,’ said Joyce Mullen, president and CEO of Insight.

Insight Enterprises CEO Joyce Mullen

IT solution provider Insight Enterprises reported growth in many of its IT services and solutions, such as cloud, cybersecurity and AI, but a dip in hardware sales in the first quarter.

“Our performance in Q1 reflects a combination of very strong cloud growth as well as growth within our solutions portfolio, primarily digital transformation, data and AI, consistent with the higher growth areas of the market,” said Joyce Mullen, president and CEO of Chandler, Arizona-based Insight, during the company’s FY 2023 Q1 earnings call Tuesday. “We believe our broad portfolio of solutions provides us with the resiliency to navigate through the headwinds in this current macroeconomic environment.”

But investors on the call questioned the company’s decline in hardware sales and wondered if the company foresees an increase later this year.

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Product net sales decreased by 14 percent, year to year, to $1.6 billion as consolidated net sales for the quarter also decreased by 12 percent from the same period a year ago to $2.3 billion. Services net sales though increased by 4 percent, year over year, to $283.5 million.

“We definitely had a soft quarter with devices in Q1 and still delivered on our internal targets,” Mullen said. “So while we have always been signaling that the first half was going to be pretty rough from a hardware point of view, especially a device point of view and that we would see some recovery in the back half of the year.”

Despite the device softness, Mullen said the company, No. 17 on CRN’s 2022 Solution Provider 500 list, is “really focused on selling very powerful IT solutions.”

A recovery of hardware sales is expected in the later half of 2023, she added.

Insight CFO Glynis Bryan said in 2022 the company had “very strong devices growth” due to a lot of integration lab work that Insight does for its clients before it ships out devices to them to meet their needs.

“We’re seeing a slowdown and a decline in that lab’s integration-related work this year,” she said. “We’re seeing expansion in data, AI, cyber, infrastructure, cloud, assessments, et cetera. We would anticipate that we would continue to see that assessment and we think that some of the integration work will come back likely in Q4.”

Insight anticipates stronger infrastructure in the first half of 2023 but a bit softer in the second half, Bryan said. “But we still anticipate growth in infrastructure from a hardware perspective going forward, and services we would anticipate as we continue to deliver on the data, AI and more advanced solutions for our clients that we will continue to see gross profit and growth margin expansion there.”

The company focuses on a combination of hardware, software and services, Mullen said. Cloud growth is a major driver in the market and one of the fastest growing areas of the market, a place where clients need the most help, “and so we have really strong capabilities around that.”

Cloud gross profit was $88 million, up 38 percent from $64 million in the first quarter of fiscal year 2023.

For the first quarter, Insight reported a gross profit increase of three percent and gross margin expansion of 250 basis points to 16.8 percent, compared to the first quarter of 2022, despite net sales being down 12 percent year to year.

Earnings from operations were reported at $77.5 million, a decrease of three percent compared to $79.8 million in the first quarter of 2022. Adjusted earnings from operations were $94.0 million, an increase of five percent compared to $89.6 million in the first quarter of 2022. Diluted earnings per share for the quarter was $1.34, down 12 percent, year to year and adjusted diluted earnings per share was $1.78, down two percent year to year.

Insight’s fiscal year runs January 1 to December 31. The company’s stock price stood at $119.38 per share as the market closed Tuesday, down nearly 2 percent.